As filed with the Securities and Exchange Commission on August 28, 2003
Registration No. 333-__________
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM S-4
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
PHILLIPS-VAN HEUSEN CORPORATION
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(Exact Name of Registrant as Specified in its Charter)
Delaware 2320 13-1166910
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(State or Other Jurisdiction (Primary Standard (I.R.S. Employer
of Incorporation) Industrial Classification Identification Number)
Code Number)
200 Madison Avenue
New York, New York 10016
(212) 381-3500
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(Address, Including Zip Code, and Telephone Number,
Including Area Code, of Registrant's Principal Executive Offices)
Mark D. Fischer, Esq.
Vice President, Secretary and General Counsel
Phillips-Van Heusen Corporation
200 Madison Avenue
New York, New York 10016
(212) 381-3500
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(Name, Address, Including Zip Code, and Telephone Number,
Including Area Code, of Agent for Service)
Copies to:
David H. Landau, Esq.
Katten Muchin Zavis Rosenman
575 Madison Avenue
New York, New York 10022
(212) 940-8800
(212) 940-8776 (Facsimile)
Approximate date of commencement of proposed sale of the securities to the
public: As soon as possible after this Registration Statement becomes effective.
If the securities being registered on this form are being offered in
connection with the formation of a holding company and there is compliance with
General Instruction G, check the following box. [ ]
If this form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following box
and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering. [ ] ____________________
If this form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [ ] _______________
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CALCULATION OF REGISTRATION FEE
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Proposed Maximum Proposed Maximum
Title of Each Class of Amount to be Aggregate Price Per Aggregate Offering Amount of
Securities to be Registered Registered Note Price(1) Registration Fee
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8 1/8% Senior Notes due $150,000,000 100% $150,000,000 $12,135
2013
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(1) Estimated solely for the purpose of determining the registration fee
pursuant to Rule 457(f) promulgated under the Securities Act of 1933.
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT
SHALL FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS
REGISTRATION STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE
WITH SECTION 8(A) OF THE SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION
STATEMENT SHALL BECOME EFFECTIVE ON SUCH DATE AS THE COMMISSION ACTING
PURSUANT TO SAID SECTION 8(A), MAY DETERMINE.
THE INFORMATION IN THIS PROSPECTUS IS NOT COMPLETE AND MAY BE CHANGED. THIS
PROSPECTUS IS INCLUDED IN A REGISTRATION STATEMENT THAT WE FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION. WE CANNOT SELL THESE SECURITIES UNTIL THAT
REGISTRATION STATEMENT BECOMES EFFECTIVE. THIS PROSPECTUS IS NOT AN OFFER TO
SELL THESE SECURITIES, AND IT IS NOT SOLICITING AN OFFER TO BUY THESE
SECURITIES, IN ANY STATE WHERE THE OFFER OR SALE IS NOT PERMITTED.
SUBJECT TO COMPLETION DATED AUGUST 28, 2003
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PROSPECTUS
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PHILLIPS-VAN HEUSEN CORPORATION
OFFER TO EXCHANGE UP TO $150,000,000
8 1/8% SENIOR NOTES DUE 2013
FOR ANY AND ALL OUTSTANDING
$150,000,000 8 1/8% SENIOR NOTES DUE 2013
THE EXCHANGE OFFER
o We are offering to exchange all of our outstanding 8 1/8% Senior Notes due
2013 (outstanding notes) that are validly tendered and not withdrawn for an
equal principal amount of exchange notes which have been registered under
the Securities Act (exchange notes).
o You may withdraw tenders of outstanding notes at any time prior to the
expiration or termination of this exchange offer.
o This exchange offer expires at 5:00 p.m., New York City time, on
______________, 2003, unless extended. We do not currently intend to extend
the expiration date.
o We will not receive any proceeds from this exchange offer.
THE EXCHANGE NOTES
o The terms of the exchange notes to be issued in this exchange offer are
substantially identical in all material respects to those of the
outstanding notes, except that the exchange notes will be freely tradeable.
RESALES OF EXCHANGE NOTES
o There is no existing public market for the outstanding notes or the
exchange notes. We do not intend to list the exchange notes on any
securities exchange or seek approval for quotation through any automated
trading system. The exchange notes may be sold in the over-the-counter
market, in negotiated transactions or through a combination of these
methods.
BROKERS-DEALERS
o Each broker-dealer that receives exchange notes for its own account
pursuant to this exchange offer must acknowledge that it will deliver a
prospectus in connection with any resale of those exchange notes. The
letter of transmittal states that by so acknowledging and by delivering a
prospectus, a broker-dealer will not be deemed to admit that it is an
"underwriter" within the meaning of the Securities Act.
o This prospectus, as it may be amended or supplemented from time to time,
may be used by a broker-dealer in connection with resales of exchange notes
received in exchange for outstanding notes where the outstanding notes were
acquired by the broker-dealer as a result of market-making activities or
other trading activities.
o We have agreed that, for a period of 180 days after the expiration date of
this exchange offer, we will make this prospectus available to any
broker-dealer for use in connection with the resale of exchange notes. See
"Plan of Distribution."
YOU SHOULD CONSIDER CAREFULLY THE RISK FACTORS BEGINNING ON PAGE 21 OF THIS
PROSPECTUS BEFORE PARTICIPATING IN THIS EXCHANGE OFFER.
Neither the Securities and Exchange Commission nor any state securities
commission has approved or disapproved of these securities or determined if this
prospectus is truthful or complete. Any representation to the contrary is a
criminal offense.
The date of this prospectus is _______________, 2003.
TABLE OF CONTENTS
PAGE PAGE
---- ----
CERTAIN INTRODUCTORY MATTERS...................... ii MANAGEMENT........................................ 65
FORWARD-LOOKING INFORMATION....................... iii PRINCIPAL STOCKHOLDERS............................ 67
SUMMARY........................................... 1 CERTAIN RELATIONSHIPS AND RELATED PARTY
TRANSACTIONS.................................... 70
SUMMARY HISTORICAL FINANCIAL INFORMATION.......... 17
DESCRIPTION OF CERTAIN OTHER INDEBTEDNESS
SUMMARY UNAUDITED PRO FORMA FINANCIAL INFORMATION. 19 AND PREFERRED STOCK............................. 72
RISK FACTORS...................................... 21 EXCHANGE OFFER.................................... 76
USE OF PROCEEDS................................... 32 DESCRIPTION OF THE NOTES.......................... 86
CAPITALIZATION.................................... 32 MATERIAL FEDERAL INCOME TAX
CONSEQUENCES.................................... 125
SELECTED HISTORICAL FINANCIAL
INFORMATION..................................... 33 PLAN OF DISTRIBUTION.............................. 129
UNAUDITED PRO FORMA CONDENSED LEGAL MATTERS..................................... 130
CONSOLIDATED FINANCIAL INFORMATION.............. 35
EXPERTS........................................... 130
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AVAILABLE INFORMATION............................. 130
AND RESULTS OF OPERATIONS....................... 41
BUSINESS.......................................... 50
i
CERTAIN INTRODUCTORY MATTERS
As used in this prospectus, the terms "we," "our" or "us" refer to
Phillips-Van Heusen Corporation and its subsidiaries taken as a whole, unless
the context otherwise indicates.
References to our acquisition of Calvin Klein refer to our February 2003
acquisition of Calvin Klein, Inc., Calvin Klein (Europe), Inc., Calvin Klein
(Europe II) Corp., Calvin Klein Europe S.r.l. and CK Service Corp., which
companies we refer to collectively as "Calvin Klein."
This prospectus incorporates by reference important business and financial
information about us that is not included in or delivered with this document.
Copies of this information are available without charge to any person to whom
this prospectus is delivered, upon written or oral request. Written requests
should be sent to:
Phillips-Van Heusen Corporation
200 Madison Avenue
New York, New York 10016
Attention: Investor Relations
Oral requests should be made by calling (212) 381-3500.
IN ORDER TO OBTAIN TIMELY DELIVERY, YOU MUST REQUEST THE INFORMATION NO
LATER THAN ___________________, 2003, WHICH IS FIVE BUSINESS DAYS BEFORE THE
EXPIRATION DATE OF THIS EXCHANGE OFFER.
You should rely only on the information contained in this document or to
which we have referred you. We have not authorized anyone to provide you with
information that is different. This document may only be used where it is legal
to sell these securities. The information in this document may only be accurate
on the date of this document.
Van Heusen,(R) Bass,(R) G.H. Bass & Co.,(R) IZOD,(R) IZOD Club,(R) Calvin
Klein,(R) cK(R) and cK Calvin Klein(R) are registered trademarks that we own.
This prospectus also includes trademarks, service marks and trade names owned by
other companies, such as Geoffrey Beene,(R) Arrow,(R) DKNY,(R) Kenneth Cole New
York(R) and Reaction by Kenneth Cole.(R) All trademarks, service marks and trade
names included in this prospectus are the property of their respective owners.
All italicized brand names included in this prospectus refer to brands
identified by registered trademarks.
ii
FORWARD-LOOKING INFORMATION
Some of the matters discussed under the captions "Summary," "Risk Factors,"
"Unaudited Pro Forma Condensed Consolidated Financial Information,"
"Management's Discussion and Analysis of Financial Condition and Results of
Operations," "Business" and elsewhere in this prospectus include forward-looking
statements based on current expectations, estimates, forecasts and projections,
beliefs and assumptions made by our management. You can identify these
forward-looking statements by the use of words like "strategy," "expect,"
"plan," "believe," "will," "estimate," "intend," "project," "goals," "target,"
"anticipating," "hope" and other words of similar meaning. You can also identify
them by the fact that they do not relate strictly to historical or current
facts.
Even though we believe our expectations regarding future events are based
on reasonable assumptions, forward-looking statements are not guarantees of
future performance. In evaluating these statements, you should specifically
consider various risks, uncertainties and other factors that may cause our
actual results, performance or achievements to be materially different from any
future results, performance or achievements expressed or implied by the
forward-looking statements. Certain of such risks and uncertainties include
those listed under the caption "Risk Factors," many of which are beyond our
ability to control or predict. You are cautioned not to unduly rely on these
forward-looking statements when evaluating the information included or
incorporated by reference into this prospectus.
These forward-looking statements speak only as of the date of this
prospectus. We undertake no obligation to review or revise any particular
forward-looking statements included or incorporated by reference in this
prospectus to reflect events, conditions or circumstances occurring after the
date of this prospectus or to reflect the occurrence of unanticipated events.
iii
SUMMARY
This summary highlights the material information about our company and this
exchange offer. This summary does not contain all of the information that may be
important to you in deciding whether to participate in this exchange offer. You
should read the entire prospectus, including the "Risk Factors" section, our
audited consolidated and unaudited condensed consolidated financial statements,
Calvin Klein's audited combined financial statements, and the notes to those
financial statements. Our fiscal years are based on the 52-53 week period ending
on the Sunday closest to February 1, and are designated by the calendar year in
which the fiscal year commences.
PHILLIPS-VAN HEUSEN CORPORATION
We are one of the largest apparel and footwear companies in the world, with
a heritage dating back over 120 years. We design and market nationally
recognized branded dress shirts, sportswear and footwear. We believe we market
one in three of the dress shirts sold in the United States and have a leading
position in men's sportswear tops and men's casual footwear. Our portfolio of
brands includes our own brands, Van Heusen, Bass and IZOD, and our licensed
brands, Geoffrey Beene, Arrow, Kenneth Cole New York, Reaction by Kenneth Cole
and DKNY. We recently acquired Calvin Klein, a leading lifestyle design and
marketing company, whose brands enjoy high global recognition.
We design, source and market substantially all of our products on a
brand-by-brand basis targeting distinct consumer demographics and lifestyles. We
market our brands at multiple price points and across multiple channels of
distribution. This allows us to provide products to a broad range of consumers,
while minimizing competition among our brands and reducing our reliance on any
one demographic group, merchandise preference or distribution channel.
Currently, our products are distributed at wholesale through more than 10,000
doors in national and regional department, mid-tier department, mass market,
specialty and independent stores in the United States. We also leverage our
apparel design and sourcing expertise by offering private label programs to
retailers. Our wholesale business represents our core business and we believe
that it is the basis for our brand equity. As a profitable complement to our
wholesale business, we also market products directly to consumers through our
own Van Heusen, IZOD, Geoffrey Beene and Bass stores, primarily located in
outlet malls throughout the United States.
We believe that the Calvin Klein brands -- Calvin Klein, cK and cK Calvin
Klein -- complement our existing portfolio of brands by providing us with the
opportunity to market products at higher price points, in higher-end
distribution channels and to different consumer groups than our existing product
offerings. Although the Calvin Klein brand is well established and, we believe,
enjoys strong brand awareness among consumers worldwide, there are numerous
product areas in which no products, or only a limited number of products, are
offered under any Calvin Klein label, including men's and women's better
sportswear, footwear and certain accessories. We believe our expertise in brand
management, product design, sourcing and other logistics provides us with the
ability to successfully expand product offerings and distribution under the
Calvin Klein brands while preserving the brands' prestige and global presence.
As a result, we believe we have the opportunity to realize sales growth and
enhanced profitability.
Worldwide retail sales of products sold under the Calvin Klein brands
exceeded $3 billion in calendar 2002. These products are sold primarily under
licenses and other arrangements and include jeans, underwear, fragrances,
eyewear, men's tailored clothing, ties, shoes, hosiery, socks, swimwear,
watches, coats, leather goods, table top and soft home furnishings and
accessories. Calvin Klein also designs, manufactures and markets high-end
ready-to-wear collection apparel and accessories for men and women under the
Calvin Klein brand. We believe these collections are an important factor in
maintaining the Calvin Klein image. The collection apparel and accessories are
sold to a limited number of high-end department stores and independent boutiques
throughout the world and through three company-operated stores located in New
York City, Dallas and Paris. We have recently entered into an agreement to
license the existing collection apparel businesses to Vestimenta, S.p.A., one of
the world's leading manufacturers and distributors of women's and men's high-end
ready-to-wear apparel, commencing with the spring 2004 collection. During the
period prior to our license of the businesses, we will transfer the operations
of the businesses to Vestimenta. Calvin Klein controls all design operations and
product development for most of its licensees and all of its collection apparel,
which it will continue to do under its agreement with Vestimenta. Calvin Klein
oversees a worldwide marketing and advertising budget of over $200 million, the
majority of which is funded by its licensees. We believe that maintaining
control over design and advertising through Calvin Klein's dedicated in-house
teams plays a key role in the continued strength of the Calvin Klein brands.
1
Our business includes the design, sourcing and marketing of a varied
selection of branded and private label dress shirts, sportswear and footwear as
well as the licensing of brands for an assortment of products:
o DRESS SHIRTS: Our dress shirt business, which generated, through the
wholesale channel, 22.7% of our fiscal 2002 revenues, includes the design
and marketing of dress shirts in a broad selection of styles and colors
that are sold at retail price points generally ranging from $20 to $65 a
shirt.
o Van Heusen
o The best selling dress shirt brand in the United States
o Updated classical style at opening to moderate price points
o Distributed through more than 3,500 doors, principally in
department stores, including Belk, Inc., Federated Department
Stores, Inc., J. C. Penney Company, Inc., The May Department
Stores Company and Saks Inc., and through our Van Heusen retail
stores
o Arrow
o Mid-tier department store complement to Van Heusen
o Updated classical style at opening to moderate price points
o Distributed through more than 2,000 doors, including Kohl's
Corporation and Sears, Roebuck & Co.
o IZOD
o Modern traditional style at moderate price points
o Distributed through more than 1,200 doors, principally in
department stores, including Belk, JCPenney and May
o Geoffrey Beene
o The best selling designer dress shirt brand in department stores
in the United States
o Slightly advanced fashion for the more style conscious consumer
at moderate to upper moderate price points
o Distributed through more than 2,500 doors, principally in
department stores, including Federated, Marshall Field's, May and
Saks, and through our Geoffrey Beene retail stores
o Other Designer Brands
o Include cK Calvin Klein, Kenneth Cole New York, Reaction by
Kenneth Cole and DKNY
o Target different consumer lifestyles at better price points
o Distributed through 350 to 900 doors, varying by brand,
principally in department stores, including Dillards, Inc.,
Federated, Marshall Field's, May and Saks
o Private Label
o Leverages our design, sourcing and logistics competencies
o Distributed in department and mass market stores
o Store labels include Stafford for JCPenney, Grant Thomas for Lord
& Taylor, Cezani for Saks and Puritan and George for Wal-Mart
Stores, Inc.
2
o SPORTSWEAR: Our sportswear business, which generated 50.7% of our fiscal
2002 revenues, includes moderately priced men's knit and woven sports
shirts, sweaters, bottoms, swimwear, boxers and outerwear marketed at
wholesale and sportswear, accessories and other apparel for men and women
offered in our Van Heusen, IZOD and Geoffrey Beene retail stores.
o IZOD
o The best selling main floor department store men's sportswear
tops brand in the United States
o Active-inspired lifestyle brand
o Distributed through more than 2,400 doors, principally in
department stores, including Belk, Federated, JCPenney, May and
Saks, and through our IZOD retail stores
o Van Heusen
o The best selling main floor department store men's woven sports
shirt brand in the United States
o Updated classical style
o Distributed through more than 3,500 doors, principally in
department stores, including Belk, Federated, JCPenney, May and
Saks, and through our Van Heusen retail stores
o Arrow
o Mid-tier department store complement to Van Heusen
o Updated classical style
o Distributed through more than 2,000 doors, including Kohl's and
Sears
o Geoffrey Beene
o Positioned as a designer label for men's woven and knit sport
shirts on the main floor of department stores
o Slightly advanced fashion for the more style conscious consumer
o Distributed through more than 800 doors, principally in
department stores, including Federated, Marshall Field's and May,
and through our Geoffrey Beene retail stores
o Private Label
o Leverages our design, sourcing and logistics competencies
o Distributed in department and mass market stores
o Store labels include Cherokee and Merona for Target Corp. and
Puritan for Wal-Mart
o FOOTWEAR AND RELATED PRODUCTS: Our footwear and related products business,
which generated 25.8% of our fiscal 2002 revenues, includes casual and
dress casual shoes for men, women and children marketed at wholesale and in
our Bass retail stores and Bass apparel and accessories for men and women
offered only in our Bass retail stores.
o Bass
o Leading position in men's casual footwear in the United States
o Classic American style footwear at moderate price points
o Distributed through more than 3,600 doors, principally in
department and specialty shoe stores, including Dillards,
Federated and May, as well as in our Bass retail stores
3
o IZOD
o Limited introduction for market-testing purposes in fall 2002
o Men's and women's active-inspired footwear marketed at moderate
to upper moderate price points
o LICENSING: We license our brands globally for a broad range of products.
The licensing of our brands generated 0.8% of our fiscal 2002 revenues. On
a pro forma basis reflecting our acquisition of Calvin Klein, Calvin
Klein's royalty, design and similar fees from business partners would have
generated 8.0% of our fiscal 2002 revenues. We believe royalty, design and
similar fees provide us with a relatively stable flow of revenues with high
margins, and extend and strengthen our brands globally.
o Calvin Klein
o Key product categories include jeans, underwear, fragrances,
eyewear, men's tailored clothing, ties, shoes, hosiery, socks,
swimwear, watches, coats, leather goods, table top and soft home
furnishings and accessories
o Approximately 52% of revenues from business partners was
generated by domestic business partners and approximately 48% by
foreign business partners
o Key business partners include Warnaco, Inc., Unilever N.V. and
Marchon Eyewear Inc.
o Van Heusen
o Licensing domestically for men's pants, sleepwear, neckwear,
belts, hosiery, handkerchiefs, small leather goods, `big and
tall' apparel, men's and women's eyewear and boys' apparel
o Licensing in Canada, Central and South America, Europe, Africa,
Asia and the Pacific Rim for dress shirts, sportswear and other
apparel
o IZOD
o Licensing domestically for women's sportswear, men's tailored
clothing, neckwear, belts, `big and tall' sportswear, leather
outerwear, loungewear and pajamas, men's and women's hosiery,
men's, women's and boys' eyewear and sunwear, boys' sportswear
and bed and bath home products
o Licensing in Canada and Australia for men's and women's
sportswear
o Licensing domestically of the IZOD Club name for men's and
women's golf apparel
4
OUR COMPETITIVE STRENGTHS
WE HAVE A DIVERSIFIED PORTFOLIO OF NATIONALLY RECOGNIZED BRANDS. We have
developed a portfolio of brands targeted to a broad spectrum of consumers. Our
owned brands have long histories -- Bass dates back to 1876, Van Heusen to the
early 1920s and IZOD to the 1930s -- and enjoy high recognition within their
respective consumer segments. The acquisition of Calvin Klein and its
prestigious brands provides us with the opportunity to develop businesses that
target different consumer groups at higher price points and in higher-end
distribution channels than our other brands, as well as with significant global
opportunities due to the worldwide recognition of the Calvin Klein brands.
WE HAVE AN ESTABLISHED MULTI-CHANNEL DISTRIBUTION MODEL. We have a
diversified sales distribution strategy that includes an established
multi-channel wholesale business and a complementary retail store base.
Currently, we distribute our products through more than 10,000 doors in the
United States in national and regional department, mid-tier department, mass
market, specialty and independent stores. In addition, we operate over 700
retail stores, primarily in outlet malls throughout the United States, under the
Van Heusen, IZOD, Bass and Geoffrey Beene names. We believe our profitable
retail division is an important complement to our wholesale operations because
we believe that our stores further enhance consumer awareness of our brands,
including by offering products that are not available in our wholesale lines,
while also providing a means for managing excess inventory.
WE ARE A LEADER IN THE DRESS SHIRT AND SPORTSWEAR TOPS MARKETS. Our dress
shirt brands have the highest market share in the $2 billion U.S. dress shirt
market. We believe we market one in three of the dress shirts sold in the United
States. In 2002, sales of our dress shirt brands were approximately 42% of dress
shirt sales in U.S. department stores, which is the largest sales channel for
dress shirts. We also continue to experience sales growth in the large and
fragmented $10 billion U.S. men's sportswear tops market. We believe that the
high recognition and depth of our brand offerings enables us to maintain, and
offers us the opportunity to increase, main floor space with our customers.
WE HAVE A STABLE AND DIVERSIFIED BUSINESS. Our diversified portfolio of
apparel brands and apparel and footwear products and our use of multiple
channels of distribution has allowed us to develop a business that produces
results that are not dependent on any one demographic group, merchandise
preference or distribution channel. We believe that our diversification reduces
our reliance on any single market or product category and increases the
stability of our business. Our acquisition of Calvin Klein provides us with a
significantly expanded source of licensing revenues which we believe adds to the
stability of our business.
WE HAVE HAD SUCCESS IN ACQUIRING, MANAGING, DEVELOPING AND POSITIONING NEW
BRANDS. Over the past several years, we have been successful in acquiring,
managing, developing and positioning several brands within our existing
business, including IZOD, Arrow, Kenneth Cole and DKNY. For example in 1995, we
acquired the IZOD brand, and since then have grown it into the leading main
floor department store men's sportswear tops brand. We have grown the wholesale
sales of IZOD by over 400% since 1995. We began marketing IZOD dress shirts in
the third quarter of 2001 and recently introduced a line of IZOD footwear for
market-testing purposes. In addition, over the past few years, we have
introduced and marketed DKNY dress shirts, which now represent over 3% of the
total department store dress shirt sales in the United States. For the
three-year period from 2000 through 2002, DKNY was the fourth best-selling
designer dress shirt in U.S. department stores.
WE HAVE SOPHISTICATED AND ESTABLISHED SOURCING, LOGISTICS, WAREHOUSE AND
DISTRIBUTION SYSTEMS. Our centralized capabilities for worldwide procurement and
sourcing support our efforts to deliver to our customers competitive, high
quality and low cost goods on a timely basis. We have an extensive, established
network of worldwide sourcing partners which allows us to meet our customers'
needs in an efficient manner, with neither reliance on any one vendor or
factory, nor reliance on vendors or factories in any one country. We also
operate a system of wholesale and retail distribution centers which we believe
have sufficient capacity to accommodate future growth, including our strategies
for Calvin Klein, without a significant increase in capital expenditures. We
believe that our investments in logistics and supply chain management allow us
to respond rapidly to changes in sales trends and customer demands while
enhancing our inventory management efficiencies.
WE HAVE A HIGHLY EXPERIENCED MANAGEMENT TEAM. Our executive management team
has extensive experience in the apparel industry, and many of our senior
executives have spent the majority of their professional careers with us. Bruce
J. Klatsky, our Chairman and Chief Executive Officer, and Mark Weber, our
President and Chief Operating Officer, have each been with us for over 30 years.
In addition, the other 22 members of our senior management team have an average
of 23 years of industry experience.
5
OUR BUSINESS STRATEGY
We intend to capitalize on the significant opportunities presented by our
recent acquisition of Calvin Klein, as well as focus on strengthening our core
business, through the execution of the following strategies:
MANAGEMENT AND DEVELOPMENT OF THE CALVIN KLEIN BRANDS. The acquisition
of Calvin Klein provides us with the opportunity to use our core competencies to
expand the product offerings under the globally-recognized Calvin Klein brands
and to bring these new product offerings into additional channels of
distribution. Additionally, we believe that we can realize significant corporate
and administrative cost savings within the Calvin Klein business. We intend to
do this while preserving the brands' prestige and global presence. Our primary
development and growth initiatives include:
o MAINTAIN AND ENHANCE THE CORE CALVIN KLEIN LICENSING BUSINESS. We
intend to continue to license the Calvin Klein brands to existing
licensees and to seek additional licensing partners as profitable
opportunities arise. We believe that licensing the brands provides us
with a relatively stable flow of revenues with high margins and enables
us to market globally the Calvin Klein brands across multiple product
categories, further enhancing the image and reach of these lifestyle
brands.
o DEVELOP A CALVIN KLEIN MEN'S BETTER SPORTSWEAR LINE. As Calvin Klein
does not currently offer men's better sportswear, we plan to launch a
men's better sportswear line in fall 2004, reflecting the Calvin Klein
style and capitalizing on the strong Calvin Klein brand identity. These
products will target better fashion department and specialty store
customers and be sold in sportswear collection areas, complementing the
existing main floor sportswear offerings of our other brands. We expect
to capitalize on our experience in developing successful sportswear
lines, sourcing expertise and strong wholesale customer relationships
to take advantage of this market opportunity.
o LICENSE A CALVIN KLEIN WOMEN'S BETTER SPORTSWEAR LINE. We recently
entered into a strategic licensing arrangement with Kellwood Company to
develop a women's better sportswear line to be marketed in North,
Central and South America under the Calvin Klein name. Women's better
sportswear is not currently offered under any of the Calvin Klein
brands. Under the terms of the arrangement, Kellwood will collaborate
with Andrew Grossman and Alexander Vreeland, who have formed a new
business venture with Jay Schottenstein, G.A.V., to help develop and
launch the line. Design, sales and marketing will be the responsibility
of Messrs. Grossman and Vreeland, while Kellwood will be responsible
for production, sourcing and distribution and providing working capital
relating to G.A.V.'s performance under the license agreement. We will
have design and customer approval and will control branding,
advertising and public relations. It is our current expectation that
this new line will launch in the United States as early as the spring
2004 season and not later than the fall 2004 season.
o LICENSE, AND TRANSFER THE OPERATIONS OF, THE EXISTING CALVIN KLEIN
MEN'S AND WOMEN'S HIGH-END READY-TO-WEAR COLLECTION APPAREL BUSINESSES.
We recently entered into an agreement to license our men's and women's
high-end ready-to-wear collection apparel businesses to Vestimenta, one
of the world's leading manufacturers and distributors of women's and
men's high-end ready-to-wear apparel. The license is an exclusive,
worldwide, 10-year license for the Calvin Klein Collection brand.
During a transition period, we will transfer the operations of our
collection apparel businesses to Vestimenta. Vestimenta will be
responsible for the merchandising, manufacturing, quality control,
selling, warehousing and shipping aspects of such businesses. Our
Calvin Klein design and advertising teams will be responsible for
substantially all design, marketing, advertising and public relations
aspects of the collection apparel businesses and will approve the
wholesale customers to which Vestimenta will sell the collections. We
believe this business relationship will optimize our global
opportunities, enhance the brand image of Calvin Klein and result in
cost savings.
o OPERATE CALVIN KLEIN RETAIL OUTLET STORES. We intend to enhance our
retail position by opening Calvin Klein stores in premium outlet malls
that are consistent with the Calvin Klein image and in which other
prestige designers maintain stores. We currently intend to open between
75 and 85 Calvin Klein outlet stores over time in such premium outlet
malls. We believe that the strength of the Calvin Klein brands, our
strong presence and considerable experience operating stores in outlet
malls across the United States and our established relationships with
landlords of the premium outlet malls should enable us to successfully
execute this strategy.
6
o REDUCE OVERHEAD EXPENSES. We believe that Calvin Klein's corporate
overhead and back office expenses are significantly higher than
required by the size and needs of its business. We intend to
significantly reduce these costs and integrate many Calvin Klein
overhead functions with our current operations, thereby increasing the
cash flow and profitability of Calvin Klein. It is not our intention to
reduce the in-house marketing and advertising and design divisions of
Calvin Klein.
CONTINUE TO STRENGTHEN THE COMPETITIVE POSITION AND IMAGE OF OUR CURRENT
BRAND PORTFOLIO. We intend for each of our brands to be a leader in its
respective market segment, with strong consumer awareness and consumer loyalty.
We believe that our brands are successful in their respective segments because
we have strategically positioned each brand to target a distinct consumer
demographic. We will continue to design and market our branded products to
complement each other, satisfy lifestyle needs, emphasize product features
important to our target consumers and produce consumer loyalty.
o ENHANCE OUR RELATIONSHIPS. We will seek to increase our market share
within the dress shirt, sportswear and footwear segments by enhancing
our relationships with existing customers and gaining increased floor
space. We believe the broad appeal and diversity of our products,
together with our customer, advertising and marketing support and our
ability to offer products with innovative qualities, will enable us to
expand and develop relationships with apparel retailers in the United
States and internationally. In addition, we will continue to provide
private label products as profitable opportunities arise.
o INCREASE OUR SPORTSWEAR MARKET PENETRATION. We believe that our brands
offer retailers advantages over many of the current less recognized
labels available on the main floor due to the name recognition of our
brands, the style, price and value equation we offer and the customer,
advertising and marketing support that we provide. Our wholesale men's
sportswear sales have increased 16.9% from 1998 to 2002. We believe
that our share of the men's sportswear tops market in 2002 in U.S.
department stores was 6.8%, compared to 4.8% in 2000. We believe our
brands' advantages, as well as expected growth in this large and
fragmented segment of the men's apparel market, provide us with an
opportunity for further growth.
o EXPAND OUR NETWORK OF LICENSING PARTNERS FOR FUTURE PRODUCT EXTENSION.
We believe our nationally recognized brand names provide us with growth
opportunities in product licensing. We will seek to strengthen our
existing licensing relationships and to align ourselves with new
licensing partners to take advantage of these growth opportunities as
they arise. These opportunities may include the licensing of our brand
names across other product categories and internationally.
OPTIMIZE SUPPLY CHAIN AND LOGISTICS EFFICIENCIES. To address the needs of
our customers, we are continuing to make investments and develop strategies to
enhance our ability to provide timely product availability and delivery. Our
investments in sophisticated systems should allow us to continue to reduce the
cycle time between the design of products to the delivery of those products to
our customers. We believe the enhancement of our supply chain efficiencies and
working capital management through the effective use of our distribution network
and overall infrastructure will allow us to better control costs and provide
improved service to our customers.
CALVIN KLEIN ACQUISITION
On February 12, 2003, we acquired Calvin Klein, one of the leading
lifestyle design and marketing companies in the world. The total net
consideration paid for our acquisition of Calvin Klein was $438.0 million,
subject to post-closing purchase price adjustments, and was comprised of $408.0
million in net cash and $30.0 million of our common stock issued to the sellers.
Additional terms of the Calvin Klein acquisition include:
o Mr. Klein will receive contingent purchase price payments for 15 years
based on a percentage of total worldwide net sales of products bearing
any of the Calvin Klein brands.
o Mr. Klein received a nine-year warrant to purchase 320,000 shares of
our common stock at $28 per share.
o Mr. Klein entered into a three-year consulting agreement with us for
$1.0 million per year.
7
We funded the cash portion of the purchase price through:
o An investment of $250.0 million in our Series B convertible preferred
stock made by affiliates of Apax Managers, Inc. and Apax Partners
Europe Managers Limited. The Series B convertible preferred stock has a
dividend rate of 8% per annum payable in cash. If we elect not to pay a
cash dividend for any quarter, then the Series B convertible preferred
stock will be treated for purposes of the payment of future dividends
and upon conversion, redemption or liquidation as if an in-kind
dividend had been paid.
o The borrowing of $100.0 million of a $125.0 million secured term loan
from the Apax affiliates. The additional $25.0 million of the term loan
was drawn down on March 14, 2003. This loan was repaid in full with a
portion of the net proceeds of the offering of the outstanding notes.
o $58.0 million of cash-on-hand.
OUR EQUITY INVESTOR
Simultaneously with our acquisition of Calvin Klein, the affiliates of Apax
Managers, Inc. and Apax Partners Europe Managers Limited invested $250.0 million
in our company through the purchase of shares of our newly-authorized Series B
convertible preferred stock. For a description of the Series B convertible
preferred stock issued to the Apax affiliates, see "Description of Certain Other
Indebtedness and Preferred Stock -- Preferred Stock -- Series B Convertible
Preferred Stock." In addition, in connection with the Calvin Klein acquisition,
the Apax affiliates provided us with a secured term loan which we repaid with a
portion of the net proceeds of the offering of the outstanding notes.
Apax Partners, one of the world's leading international private equity
investment groups, manages and advises more than $12 billion on behalf of
institutional investors worldwide. Its cross-border teams of more than 170
investment professionals in the United States, Europe, Israel and Japan work
together to identify opportunities in the Retail/Consumer Products, Information
Technology, Telecommunications, Healthcare, Media and Financial Services
industries. Apax Partners has developed an expertise in retail and
consumer-related businesses over the past 30 years. To date, the firm has backed
over 80 such companies, including Office Depot, Sunglass Hut, America Online,
Sephora, Chevy's, Aigle and Morgan International.
SECOND QUARTER 2003 EARNINGS RESULTS
We generated net income in the three-month period ended August 3, 2003 of
$9.0 million, or $0.13 per diluted common share after preferred dividends,
compared with $7.9 million, or $0.28 per diluted common share, in the prior
year. For the six-month period ended August 3, 2003, we generated net income of
$6.8 million, resulting in a net loss of $0.09 per diluted common share after
preferred dividends, compared with $7.0 million, or $0.25 per diluted common
share, in the prior year. The improvement in our net income for the three-month
period was primarly due to the addition of royalty and other revenues generated
from our Calvin Klein business. These earnings were partially offset by an
increase in interest expense associated with financing the Calvin Klein
acquisition. The decrease in our net income for the six-month period was
principally attributable to integration costs in the first quarter associated
with the acquisition and the interest expense associated with financing the
acquisition, partially offset by the addition of royalty and other revenues
generated by our Calvin Klein business. The decrease in net income per diluted
common share for the three- and six-month periods was principally due to
dividends on our newly-issued Series B convertible preferred stock and an
increase in the average common shares outstanding. We issued the Series B
convertible preferred stock and such additional common stock in connection with
the Calvin Klein acquisition.
Total revenues in the three-month period ended August 3, 2003 increased 14%
to $377.1 million from $331.2 million in the prior year. For the six-month
period ended August 3, 2003, total revenues increased 11% to $754.1 million from
$680.6 million in the prior year. The improvement in our second quarter revenues
was principally due to the addition of royalty and other revenues generated by
our Calvin Klein business, as well as sales increases in our wholesale apparel
businesses, particularly IZOD, Van Heusen and Arrow. These increases were
partially offset by sales declines in our retail businesses.
8
CORPORATE INFORMATION
Phillips-Van Heusen Corporation was incorporated in Delaware in 1976 and is
the successor to a business started in 1881 and, with respect to its footwear
division, to G.H. Bass & Co., started in 1876. Our executive offices are located
at 200 Madison Avenue, New York, New York 10016. Our telephone number is (212)
381-3500 and our corporate website address is www.pvh.com. Information contained
on our corporate website is not incorporated by reference into this prospectus,
and you should not consider information contained on our corporate website as
part of this prospectus.
9
SUMMARY OF THE EXCHANGE OFFER
The Initial Offering of
Outstanding Notes..................... We sold the outstanding notes on May 5,
2003 to Credit Suisse First Boston LLC,
J.P. Morgan Securities Inc. and Lehman
Brothers Inc. We collectively refer to
those parties in this prospectus as the
"initial purchasers." The initial
purchasers subsequently resold the
outstanding notes to qualified
institutional buyers in reliance on
Rule 144A under the Securities Act and
to persons outside the United States in
reliance on Regulation S.
The Exchange Offer .................... We are offering to exchange up to
$150.0 million aggregate principal
amount of 8 1/8% Senior Notes due 2013,
which will be registered under the
Securities Act, for up to $150.0
million aggregate principal amount of
outstanding 8 1/8% Senior Notes due
2013. In order to be exchanged, an
outstanding note must be properly
tendered and accepted. We will issue
$1,000 principal amount of exchange
notes for each respective $1,000
principal amount of outstanding notes
validly tendered and not withdrawn
pursuant to this exchange offer. We
will issue exchange notes promptly
after the expiration of this exchange
offer.
Expiration Date ....................... This exchange offer expires at 5:00
p.m., New York City time,
on____________, 2003, unless we decide
to extend the expiration date, in which
case the term "expiration date" means
the latest date and time to which we
extend this exchange offer. For more
information, see "Exchange Offer --
Expiration Date; Extensions;
Amendments."
Withdrawal Rights ..................... You may withdraw the tender of your
outstanding notes at any time prior to
5:00 p.m., New York City time, on the
expiration date. Any outstanding notes
not accepted for exchange for any
reason will be returned without expense
to the tendering holder promptly after
the expiration or termination of this
exchange offer. For more information,
see "Exchange Offer -- Withdrawal of
Tenders."
Conditions to the Exchange Offer ...... This exchange offer is subject to
customary conditions. See "Exchange
Offer -- Conditions."
Procedures for Tendering
Outstanding Notes ................... If you wish to tender your notes for
exchange in this exchange offer, you
must transmit to the exchange agent on
or before 5:00 p.m., New York City
time, on the expiration date either:
o an original or a facsimile of a
properly completed and duly
executed copy of the letter of
transmittal which accompanies this
prospectus, together with your
outstanding notes and any other
documentation required by the
letter of transmittal, at the
address provided on the cover page
of the letter of transmittal; or
o if the notes you own are held of
record by The
10
Depositary Trust Company (DTC) in
book-entry form and you are making
delivery, by book-entry transfer, a
computer-generated message
transmitted by means of DTC's
Automated Tender Offer Program
System (ATOP) in which you
acknowledge and agree to be bound
by the terms of the letter of
transmittal and which, when
received by the exchange agent,
will form a part of a confirmation
of book-entry transfer, DTC will
facilitate the exchange of your
notes and update your account to
reflect the issuance of the
exchange notes to you. ATOP allows
you to electronically transmit your
acceptance of this exchange offer
to DTC instead of physically
completing and delivering a letter
of transmittal to the exchange
agent.
For more information see "Exchange
Offer -- Procedures for Tendering."
Special Procedures for
Beneficial Owners.................... If you are the beneficial owner of
book-entry interests and your name does
not appear on a security position
listing of DTC as the holder of the
book-entry interests or if you are a
beneficial owner of outstanding notes
that are registered in the name of a
broker, dealer, commercial bank, trust
company or other nominee and you wish
to tender the book-entry interest or
outstanding notes in this exchange
offer, you should contact the person in
whose name your book-entry interests or
outstanding notes are registered
promptly and instruct that person to
tender on your behalf. For more
information, see "Exchange Offer --
Procedures for Tendering."
Guaranteed Delivery Procedures ........ If you wish to tender your outstanding
notes and:
o time will not permit your notes or
other required documents to reach
the exchange agent by 5:00 p.m.,
New York City time, on the
expiration date; or
o the procedure for book-entry
transfer cannot be completed on
time;
you may tender your notes by completing
a notice of guaranteed delivery and
complying with the guaranteed delivery
procedures. For more information, see
"Exchange Offer -- Guaranteed Delivery
Procedures."
Resales of the Exchange Notes.......... Based on an interpretation by the staff
of the SEC set forth in no-action
letters issued to third parties, we
believe that the exchange notes you
receive in this exchange offer may be
offered for resale, resold and
otherwise transferred by you without
compliance with the registration and
prospectus delivery requirements of the
Securities Act, provided that:
11
o you are acquiring the exchange
notes in the ordinary course of
your business;
o you are not participating, do not
intend to participate, and have no
arrangement or understanding with
any person to participate, in the
distribution of the exchange notes
issued to you in this exchange
offer; and
o you are not an affiliate of ours
within the meaning of Rule 405 of
the Securities Act.
If any of these conditions are not
satisfied and you transfer any exchange
notes issued to you in this exchange
offer without delivering a resale
prospectus meeting the requirements of
the Securities Act or without an
exemption from registration of your
exchange notes from these requirements,
you may incur liability under the
Securities Act. We will not assume, nor
will we indemnify you against, any such
liability.
Each broker-dealer that is issued
exchange notes in this exchange offer
for its own account in exchange for
outstanding notes must acknowledge that
it will deliver a prospectus meeting
the requirements of the Securities Act
in connection with any resale of the
exchange notes. A broker-dealer may use
this prospectus for an offer to resell,
resale or other retransfer of the
exchange notes issued to it in this
exchange offer in exchange for
outstanding notes that were acquired by
that broker-dealer as a result of
market-making or other trading
activities. For more information, see
"Exchange Offer -- Resale of the
Exchange Notes."
Registration Rights Agreement.......... In connection with the initial sale of
the outstanding notes, we entered into
a registration rights agreement with
the initial purchasers. In that
agreement we agreed, among other
things, to use our reasonable best
efforts to file the registration
statement of which this prospectus
forms a part with the SEC within 120
days after the date we issued the
outstanding notes. We also agreed to
cause the registration statement to
become effective within 210 days after
the date we issued the outstanding
notes and to consummate this exchange
offer within 40 days after the
registration statement becomes
effective. This exchange offer is
intended to satisfy your rights and our
obligations with respect to an exchange
offer under the registration rights
agreement. If we fail to satisfy those
obligations, we agreed to pay
additional interest on the outstanding
notes. After this exchange offer is
complete, you will no longer be
entitled to any exchange and certain
registration rights with respect to
your outstanding notes.
Under certain circumstances set forth
in the registration rights agreement,
holders of notes,
12
including holders who are not permitted
to participate in this exchange offer
or who may not freely sell exchange
notes received in this exchange offer,
may require us to file and cause to
become effective, a shelf registration
statement covering resales of the notes
by these holders. For more information,
see "Description of the Notes --
Registered Exchange Offer; Registration
Rights."
Effect on Holders of
Outstanding Notes.................... As a result of making this exchange
offer, and upon acceptance for exchange
of all validly tendered outstanding
notes pursuant to the terms thereof, we
will have fulfilled one of the
covenants contained in the registration
rights agreement and, accordingly, we
will not be obligated thereunder to pay
additional interest for failure to take
these actions. If you are a holder of
outstanding notes and you do not tender
them in this exchange offer, you will
continue to hold them and you will be
entitled to all the rights and subject
to all the limitations applicable to
the outstanding notes in the indenture,
except for any rights under the
registration rights agreement that by
their terms terminate upon consummation
of this exchange offer.
To the extent that outstanding notes
are tendered and accepted in this
exchange offer, the trading market for
the outstanding notes could be
adversely affected.
Consequences of Failure to Exchange.... All untendered outstanding notes will
continue to be subject to the
restrictions on transfer provided for
therein and in the indenture governing
the notes. In general, the outstanding
notes may not be offered or sold,
unless registered under the Securities
Act, except pursuant to an exemption
from, or in a transaction not subject
to, the Securities Act and applicable
state securities laws. Other than in
connection with this exchange offer, we
do not currently anticipate that we
will register the outstanding notes
under the Securities Act. For more
information, see "Exchange Offer --
Consequences of Failure to Exchange."
Exchange Agent ........................ SunTrust Bank is serving as the
exchange agent in connection with this
exchange offer. The address and
telephone number of the exchange agent
are set forth under "Exchange Offer --
Exchange Agent" at page 83.
Federal Income Tax Considerations ..... Based upon advice from counsel, we
believe that the exchange of
outstanding notes for exchange notes
will not be a taxable event for U.S.
federal income tax purposes. See
"Material Federal Income Tax
Consequences."
Use of Proceeds........................ We will not receive any proceeds from
the issuance of exchange notes pursuant
to this exchange offer. We will pay all
of our expenses incident to this
exchange offer.
13
SUMMARY OF TERMS OF THE EXCHANGE NOTES
The terms of the exchange notes to be issued in this exchange offer are
substantially identical in all material respects to those of the outstanding
notes, except that:
o the exchange notes will be registered under the Securities Act;
o the exchange notes will not be entitled to certain registration rights
under the registration rights agreement; and
o some of the contingent interest rate provisions of the registration
rights agreement will no longer be applicable.
The exchange notes will represent the same debt as the outstanding notes.
Both the outstanding notes and the exchange notes are governed by the same
indenture. We use the term "notes" in this prospectus to collectively refer to
the outstanding notes and the exchange notes.
Issuer................................. Phillips-Van Heusen Corporation
Securities Offered .................... $150.0 million aggregate principal
amount of 8 1/8% Senior Notes due 2013.
Maturity Date ......................... May 1, 2013.
Interest .............................. Interest on the exchange notes accrues
from the last interest payment date on
which interest was paid on the
outstanding notes surrendered for them,
or, if no interest has been paid on
such outstanding notes, from May 5,
2003. We will not pay interest on the
outstanding notes accepted for
exchange. Interest is payable on May 1
and November 1 of each year, commencing
November 1, 2003.
Optional Redemption ................... We may redeem any of the notes
beginning on May 1, 2008. The initial
redemption price is 104.063% of their
principal amount, plus accrued
interest. The redemption price will
decline in each year after 2008 and
will be 100% of their principal amount,
plus accrued interest, beginning on May
1, 2011.
In addition, before May 1, 2006, we may
redeem up to 35% of the aggregate
principal amount of the notes with the
proceeds of certain equity offerings at
108.125% of their principal amount,
plus accrued interest. See "Description
of the Notes -- Optional Redemption."
Ranking................................ The notes are our senior unsecured
obligations and rank equally in right
of payment with all of our other
existing and future senior unsecured
indebtedness and senior in right of
payment to all of our existing and
future subordinated indebtedness.
The notes are effectively subordinated
to all of our existing and future
secured indebtedness and other secured
obligations to the extent of the value
of the security for such indebtedness
and obligations, including all
indebtedness incurred under our senior
secured revolving credit facility, our
7 3/4% debentures due 2023 and our
obligation to make contingent
14
purchase price payments to Mr. Calvin
Klein in connection with our
acquisition of Calvin Klein. In
addition, because our subsidiaries have
not guaranteed the payment of principal
and interest on the notes, the notes
are effectively subordinated to all
existing and future indebtedness and
other liabilities of our subsidiaries.
As of May 4, 2003, after giving pro
forma effect to the sale of the
outstanding notes and the use of the
net proceeds of such sale, we would
have had $549.1 million of indebtedness
outstanding on a consolidated basis,
which would have included $248.4
million of secured indebtedness
(including $148.9 million of
outstanding letters of credit) and
$149.5 million of subordinated
indebtedness. See "Description of the
Notes -- Ranking."
Change of Control...................... Upon the occurrence of certain change
of control events, each holder may
require us to repurchase all or a
portion of the notes at a purchase
price of 101% of their principal amount
plus accrued interest, if any, to the
date of purchase. See "Description of
the Notes -- Change of Control."
Covenants ............................. The indenture contains covenants that
limit our ability to:
o incur or guarantee additional
indebtedness;
o pay dividends or make distributions
on, or redeem or repurchase, our
capital stock or subordinated
indebtedness;
o make other restricted payments,
including investments;
o enter into arrangements that
restrict dividends from our
subsidiaries;
o sell or otherwise dispose of
assets, including capital stock of
our subsidiaries;
o enter into transactions with
affiliates;
o issue stock of subsidiaries;
o create certain liens;
o enter into sale/leaseback
transactions; and
o consolidate or merge or sell all or
substantially all of our assets and
the assets of our subsidiaries.
In addition, we are obligated to offer
to repurchase the notes at a price of
100% of their principal amount plus
accrued interest to the date of
repurchase in the event of certain
asset sales.
15
These restrictions and prohibitions are
subject to a number of important
qualifications and exceptions. See
"Description of the Notes -- Certain
Covenants."
Registration Rights.................... Upon consummation of this exchange
offer, holders of notes will no longer
have any rights under the registration
rights agreement, except to the extent
that we have continuing obligations to
file a shelf registration statement and
that some of the contingent interest
rate provisions may be applicable in
certain circumstances.
Absence of a Public Market for
the Exchange Notes .................. The exchange notes generally will be
freely transferable, but they will also
be new securities for which there will
be no established market. Although the
initial purchasers have informed us of
their intention to make a market in the
exchange notes, they are not obligated
to do so and they may discontinue any
market making at any time without
notice. Accordingly, we cannot assure
you as to the development or liquidity
of any market for the exchange notes.
Use of Proceeds ....................... We will not receive any cash proceeds
from this exchange offer.
RISK FACTORS
Investing in the notes involves substantial risks. You should carefully
consider the risk factors set forth under the caption "Risk Factors" beginning
on page 21 and the other information in this prospectus before participating in
this exchange offer.
16
SUMMARY HISTORICAL FINANCIAL INFORMATION
The following summary historical financial information of Phillips-Van
Heusen for the three-year period ended February 2, 2003 was derived from our
audited consolidated financial statements included in our Annual Report on Form
10-K incorporated by reference in this prospectus. The following summary
historical financial information of Phillips-Van Heusen for the thirteen weeks
ended May 5, 2002 and May 4, 2003 was derived from our unaudited condensed
consolidated financial statements included in our Quarterly Report on Form 10-Q
incorporated by reference in this prospectus, which financial statements, in our
opinion, reflect all known adjustments consisting of only normal recurring
accruals, necessary for a fair presentation of such information. The results for
the thirteen weeks ended May 5, 2002 and May 4, 2003 are not necessarily
indicative of those for a full fiscal year due, in part, to seasonal factors.
The summary historical financial information for the three-year period ended
February 2, 2003 and for the thirteen weeks ended May 5, 2002 do not reflect the
consummation of our acquisition of Calvin Klein or our capital structure
following the Calvin Klein acquisition. Our results for the thirteen weeks ended
May 4, 2003 include the results of Calvin Klein from and after the acquisition
date of February 12, 2003.
Because the information below is a summary, you should read the following
information in conjunction with the other information contained under the
captions "Selected Historical Financial Information," "Management's Discussion
and Analysis of Financial Condition and Results of Operations" and our financial
statements and the notes thereto included in our Annual Report on Form 10-K and
our Quarterly Report on Form 10-Q, each incorporated by reference in this
prospectus.
HISTORICAL
-----------------------------------------------------------------------
FISCAL YEAR THIRTEEN WEEKS ENDED
--------------------------------------- ---------------------------
2000 2001 2002 MAY 5, 2002 MAY 4, 2003
---------- ---------- ---------- ----------- -----------
(IN THOUSANDS)
INCOME STATEMENT DATA:
Total revenues.................................... $1,455,548 $1,431,892 $1,404,973 $349,421 $377,029
Cost of goods sold................................ 950,176 925,662(1) 873,743 230,541 222,062
---------- ---------- ---------- -------- --------
Gross profit...................................... 505,372 506,230 531,230 118,880 154,967
Selling, general and administrative expenses...... 434,835 449,491 462,195 114,454 149,665
Restructuring and other charges................... -- 15,600(2) -- -- --
---------- ---------- ---------- -------- --------
Income before interest and taxes.................. 70,537 41,139 69,035 4,426 5,302
Interest expense.................................. 24,852 24,752 23,892 5,861 8,657
Interest income................................... 2,530 301 1,163 137 93
Income tax expense (benefit)...................... 18,115 6,008 15,869 (467) (1,109)
---------- ---------- ---------- -------- --------
Net income (loss)................................. $30,100 $10,680 $30,437 $ (831) (2,153)
========== ========== ========== ======== ========
Preferred stock dividends......................... 4,493
--------
Net income (loss) attributed to common stock...... $ (6,646)
========
OTHER DATA:
Depreciation and amortization..................... $20,051 $25,734 $25,678 $ 6,208 $ 6,776
Capital expenditures.............................. 31,898 33,406 29,451 4,633 2,894
EBITDA (3)........................................ 90,588 66,873(4) 94,713 10,634 12,078
17
HISTORICAL
-----------------------------------------------------------------------
FISCAL YEAR THIRTEEN WEEKS ENDED
--------------------------------------- ---------------------------
2000 2001 2002 MAY 5, 2002 MAY 4, 2003
---------- ---------- ---------- ----------- -----------
(IN THOUSANDS)
BALANCE SHEET DATA (AT END OF PERIOD):
Cash.............................................. $20,223 $43,579 $117,121 $ 45,618 $ 19,567
Working capital................................... 298,286 290,942 323,688 287,971 284,735
Total assets...................................... 724,364 708,933 771,700 714,755 1,214,103
Senior debt....................................... 99,472 99,481 99,491 99,484 224,493
Total debt........................................ 248,851 248,935 249,012 248,954 374,033
Stockholders' equity.............................. $268,561 $265,727 $272,227 $263,731 $294,084
-------------------
(1) Cost of goods sold includes $5.4 million of restructuring and other charges
recorded in fiscal 2001 for exiting three dress shirt manufacturing
facilities and liquidating related dress shirt inventories.
(2) Restructuring and other charges of $15.6 million recorded in fiscal 2001
relate to streamlining certain corporate and divisional operations and
exiting three dress shirt manufacturing facilities.
(3) We have presented EBITDA to enhance your understanding of our operating
results. EBITDA represents net income before interest expense, interest
income, income taxes, depreciation and amortization. EBITDA is provided
because we believe it is an important measure of financial performance
commonly used to determine the value of companies and to define standards
for borrowing from institutional lenders. You should not construe EBITDA as
an alternative to net income as an indicator of our operating performance,
or as an alternative to cash flows from operating activities as a measure
of our liquidity, as determined in accordance with generally accepted
accounting principles. We may calculate EBITDA differently than other
companies.
Net income (loss) in accordance with generally accepted accounting
principles is reconciled to EBITDA as follows:
HISTORICAL
-----------------------------------------------------------------------
FISCAL YEAR THIRTEEN WEEKS ENDED
--------------------------------------- ---------------------------
2000 2001 2002 MAY 5, 2002 MAY 4, 2003
---------- ---------- ---------- ----------- -----------
(IN THOUSANDS)
Net income (loss)............................. $30,100 $10,680 $30,437 $ (831) $ (2,153)
Income tax expense (benefit)............. 18,115 6,008 15,869 (467) (1,109)
Interest expense......................... 24,852 24,752 23,892 5,861 8,657
Interest income.......................... 2,530 301 1,163 137 93
Depreciation and amortization............ 20,051 25,734 25,678 6,208 6,776
------- ------- ------- ------- -------
EBITDA........................................ $90,588 $66,873 $94,713 $10,634 $12,078
======= ======= ======= ======= =======
(4) EBITDA for fiscal 2001 includes restructuring and other charges of $21.0
million.
18
SUMMARY UNAUDITED PRO FORMA FINANCIAL INFORMATION
The following summary pro forma financial information was derived from our
unaudited pro forma condensed consolidated financial information included in
this prospectus under the caption "Unaudited Pro Forma Condensed Consolidated
Financial Information." The unaudited pro forma condensed consolidated financial
information is based on our audited consolidated financial statements and the
audited combined financial statements of Calvin Klein. The unaudited pro forma
condensed consolidated income statement for our fiscal year ended February 2,
2003 gives effect to our acquisition of Calvin Klein and the related financing
and the sale of the outstanding notes and the use of the proceeds of such sale
as if they had occurred on February 4, 2002. The unaudited pro forma condensed
consolidated income statements for the thirteen weeks ended May 5, 2002 and May
4, 2003 give effect to our acquisition of Calvin Klein and the related financing
and the sale of the outstanding notes and the use of the proceeds of such sale
as if they had occurred at the beginning of each of the applicable periods
presented.
The summary pro forma financial information does not purport to represent
what our results of operations or financial position would have been had the
Calvin Klein acquisition and the related financing and the sale of the
outstanding notes and the use of the proceeds of such sale in fact occurred at
any date, nor does this information purport to project our results of operations
or financial position for any future period or at any future date. The pro forma
adjustments are based upon available information and certain assumptions that we
believe are reasonable.
Because the information below is a summary, you should read the following
information in conjunction with the other information contained under the
captions "Unaudited Pro Forma Condensed Consolidated Financial Information,"
"Selected Historical Financial Information," "Management's Discussion and
Analysis of Financial Condition and Results of Operations," our financial
statements and the notes thereto included in our Annual Report on Form 10-K and
our Quarterly Report on Form 10-Q incorporated by reference in this prospectus
and Calvin Klein's financial statements and the notes thereto included in our
Current Report on Form 8-K/A incorporated by reference in this prospectus.
PRO FORMA
---------------------------------------------------
FISCAL YEAR THIRTEEN WEEKS ENDED
------------ ----------------------------------
2002 MAY 5, 2002 MAY 4, 2003
------------ ------------ ------------
(IN THOUSANDS)
INCOME STATEMENT DATA:
Total revenues .................................... $ 1,576,965 $ 392,419 $ 380,926
Cost of goods sold ................................ 910,323 239,686 222,892
------------ ------------ ------------
Gross profit ...................................... 666,642 152,733 158,034
Selling, general and administrative expenses ...... 572,779 142,100 153,029
------------ ------------ ------------
Income before interest and taxes .................. 93,863 10,633 5,005
Interest expense .................................. 36,786 9,085 8,964
Interest income ................................... 821 52 141
Income tax expense (benefit) ...................... 19,926 547 (1,298)
------------ ------------ ------------
Net income (loss) ................................. 37,972 1,053 (2,520)
Preferred stock dividends(1) ...................... 20,027 4,986 4,986
------------ ------------ ------------
Net income (loss) attributed to common stock ...... $ 17,945 $ (3,933) $ (7,506)
============ ============ ============
OTHER DATA (2):
Depreciation and amortization ..................... $ 30,728 $ 7,471 $ 6,779
Capital expenditures .............................. 32,528 5,402 2,894
EBITDA (3) ........................................ 124,591 18,104 11,784
------------------
(1) Reflects a dividend of 8% on the Series B convertible preferred stock. If
we elect not to pay a cash dividend for any quarter, then the Series B
convertible preferred stock will be treated for purposes of the payment of
future dividends and upon conversion, redemption or liquidation as if an
in-kind dividend had been paid. We elected not to pay a cash dividend for
the quarter ended May 4, 2003.
(2) Other data does not include contingent purchase price payments of $20.1
million that would have been payable to Mr. Klein for fiscal 2002 if the
acquisition of Calvin Klein had occurred on February 4, 2002. As part of
the purchase price in connection with our acquisition of Calvin Klein, Mr.
Klein will receive contingent purchase price payments for 15 years equal to
1.15% of total worldwide net sales of products bearing any of the Calvin
Klein brands. Such contingent purchase price payments will be charged to
goodwill and intangible assets.
19
Subsequent to our acquisition of Calvin Klein, we entered into an agreement
with Vestimenta to license the existing Calvin Klein's men's and women's
high-end ready-to-wear collection apparel businesses, commencing with the
spring 2004 collection. During the period prior to our license of the
businesses, we will transfer the operations of the businesses to
Vestimenta. During the transition period, we expect to continue to incur
operating losses in connection with our operations of these businesses. If
the 2002 operating results of the men's and women's high-end ready-to-wear
collection apparel businesses were to reflect the transactions contemplated
by our agreement with Vestimenta, then pro forma total revenues would have
been reduced by $17.2 million to $1,559.8 million, depreciation and
amortization would not have changed materially, pro forma income before
interest and taxes would have increased by $14.1 million to $108.0 million
and pro forma net income would have increased by $8.8 million to $46.8
million. As part of the agreement with Vestimenta, we will continue to
design the collection apparel and, accordingly, design costs, as well as
certain marketing costs we have agreed to continue, have not been
eliminated in calculating these amounts.
(3) We have presented EBITDA to enhance your understanding of our operating
results. EBITDA represents net income before interest expense, interest
income, income taxes, depreciation and amortization. EBITDA is provided
because we believe it is an important measure of financial performance
commonly used to determine the value of companies and to define standards
for borrowing from institutional lenders. You should not construe EBITDA as
an alternative to net income as an indicator of our operating performance,
or as an alternative to cash flows from operating activities as a measure
of our liquidity, as determined in accordance with generally accepted
accounting principles. We may calculate EBITDA differently than other
companies.
Net income (loss) in accordance with generally accepted accounting
principles is reconciled to EBITDA as follows:
PRO FORMA
-------------------------------------------
FISCAL YEAR THIRTEEN WEEKS ENDED
-------------------------------------------
2002 MAY 5, 2002 MAY 4,2003
----------- ---------- ----------
(IN THOUSANDS)
Net income (loss).............. ....... $ 37,972 $ 1,053 $ (2,520)
Income tax expense (benefit)....... 19,926 547 (1,298)
Interest expense................... 36,786 9,085 8,964
Interest income.................... 821 52 141
Depreciation and amortization ..... 30,728 7,471 6,779
----------- ---------- ----------
EBITDA................................. $ 124,591 $ 18,104 $ 11,784
=========== ========== ==========
20
RISK FACTORS
An investment in our notes involves a high degree of risk. You should
carefully consider the following risks, in addition to the other information
contained in this prospectus and the documents to which we have referred you,
before participating in this exchange offer.
RISKS RELATED TO OUR BUSINESS AND OUR INDUSTRY
WE MAY NOT BE ABLE TO REALIZE REVENUE GROWTH, COST SAVINGS OR SYNERGIES
FROM INTEGRATING, DEVELOPING AND GROWING CALVIN KLEIN.
A significant portion of our business strategy involves integrating,
developing and growing the Calvin Klein business. Our realization of any revenue
growth, cost savings or synergies from Calvin Klein will depend largely upon our
ability to:
o quickly and substantially reduce the administrative and corporate
overhead and back office expenses of Calvin Klein;
o develop, and obtain selling space for, a Calvin Klein men's better
sportswear line and successfully design and market that line over time;
o successfully develop the licensing relationship with Kellwood for a
Calvin Klein women's better sportswear line;
o successfully develop the licensing relationship with Vestimenta for the
men's and women's high-end ready-to-wear collection apparel businesses;
o open and successfully operate a chain of Calvin Klein retail outlet
stores in premium outlet malls;
o maintain and enhance the distinctive brand identity of Calvin Klein
while integrating the Calvin Klein business within our company;
o maintain good working relationships with Calvin Klein's licensees and
enter into new licensing arrangements; and
o execute our strategies for Calvin Klein without adversely impacting our
existing business.
We cannot assure you that we can successfully execute any of these actions
or our growth strategy for the Calvin Klein brands or that the launch of our
Calvin Klein men's better sportswear line or the launch of any other Calvin
Klein branded products by us or our licensees will achieve the degree of
consistent success necessary to generate profits or positive cash flow. Our
ability to successfully carry out our growth strategy may be affected by, among
other things, our ability to enhance our relationships with existing customers
to obtain additional selling space and develop new relationships with apparel
retailers, economic and competitive conditions, changes in consumer spending
patterns and changes in consumer tastes and style trends. If we fail to develop
and grow successfully the Calvin Klein business, our financial condition and
results of operations may be materially and adversely affected.
WE FACE SIGNIFICANT CHALLENGES INTEGRATING CALVIN KLEIN.
To achieve the anticipated benefits of our acquisition of Calvin Klein, we
will need to integrate the businesses of our Calvin Klein subsidiaries into our
operations. We will face significant challenges in consolidating functions and
integrating management procedures, personnel and operations in an efficient and
effective manner, including:
21
o increased demands on management related to the significant increase in
our size and diversity of our businesses after our acquisition of
Calvin Klein;
o the diversion of management's attention from our company's daily
operations to implement our strategies for Calvin Klein;
o the retention and integration of key Calvin Klein employees, including
designers and marketing and advertising professionals, who may be
uncertain about the changes they are observing and experiencing, such
as working for a public company after having worked for a small private
company, having colleagues leave due to consolidation, having new
reporting lines, policies, procedures, benefits and compensation
practices, and having a changed work environment as a result of the
differences between the prestigious fashion-oriented Calvin Klein
brands and our traditional, moderately-priced businesses and as a
result of Mr. Klein not being an employee and having only a limited
consulting role;
o maintaining aspects of Calvin Klein that are to be kept separate from
(and which in some cases are different from) our other businesses, such
as:
o overseeing a large number of domestic and foreign licensees
over broad product areas;
o administering a substantial worldwide marketing and
advertising budget relating to the Calvin Klein marketing
and advertising campaigns, which campaigns have a high
profile and are sometimes controversial; and
o addressing the different distribution needs of our new
Calvin Klein products and closely monitoring fashion trends
and the status of our Calvin Klein labels;
o managing the transition of our high-end ready-to-wear apparel
businesses to Vestimenta; and
o merging administrative systems and other functions, including
information technology, accounting, financial reporting and logistics
systems, distribution facilities and operations and books and records
practices and procedures, as well as in maintaining uniform standards
and controls, including internal accounting and audit controls,
procedures and policies.
A SUBSTANTIAL PORTION OF OUR REVENUES AND GROSS PROFIT IS DERIVED FROM A SMALL
NUMBER OF LARGE CUSTOMERS AND THE LOSS OF ANY OF THESE CUSTOMERS COULD
SUBSTANTIALLY REDUCE OUR REVENUES.
A few of our customers, including Federated, JCPenney, Kohl's, May and
Wal-Mart, account for significant portions of our revenues. Sales to our five
largest customers were 30.7% of our revenues in fiscal 2002, 27.7% of our
revenues in fiscal 2001 and 28.3% of our revenues in fiscal 2000. We do not have
long-term agreements with any of our customers and purchases generally occur on
an order-by-order basis. A decision by any of our major customers, whether
motivated by competitive conditions, financial difficulties or otherwise, to
decrease significantly the amount of merchandise purchased from us or our
licensing or other business partners, or to change their manner of doing
business with us or our licensing or other business partners, could
substantially reduce our revenues and have a material adverse effect on our
financial condition and results of operations. The retail industry has, in the
past, experienced a great deal of consolidation and other ownership changes.
Retailers, in the future, may further consolidate, undergo restructurings or
reorganizations, or realign their affiliations, any of which could decrease the
number of stores that carry our products or increase the ownership concentration
within the retail industry. These changes could increase our reliance on a
smaller number of large customers.
OUR BUSINESS COULD BE ADVERSELY AFFECTED BY FINANCIAL INSTABILITY EXPERIENCED BY
OUR CUSTOMERS.
During the past several years, various retailers have experienced
significant financial difficulties, which have resulted in bankruptcies,
liquidations and store closings. We sell our products primarily to national and
regional department, mid-tier department and mass market stores in the United
States on credit and evaluate each customer's financial condition on a regular
basis in order to determine the credit risk we take in selling goods to them.
The financial difficulties of a customer could cause us to curtail business with
that customer and we may be unable to shift sales to another viable customer. We
may also assume more credit risk relating to receivables of a customer
experiencing financial instability. Should these circumstances arise with
respect to our customers, our inability to shift sales or to collect on our
trade accounts receivable from any one of our customers could
22
substantially reduce our revenues and have a material adverse effect on our
financial condition and results of operations.
WE PRIMARILY USE FOREIGN SUPPLIERS FOR OUR PRODUCTS AND RAW MATERIALS, WHICH
POSES RISKS TO OUR BUSINESS OPERATIONS.
During fiscal 2002, in excess of 95% of our apparel products and 95% of our
raw materials for apparel were produced by and purchased or procured from
independent manufacturers located in countries in the Far East, Indian
subcontinent, Middle East, Caribbean and Central America. We believe that we are
one of the largest procurers of shirting fabric in the world. Additionally, 100%
of our footwear products and of the raw materials therefor were produced by and
purchased or procured from independent manufacturers located in countries in the
Far East, Europe, South America and the Caribbean. Although no single supplier
and no one country is critical to our production needs, any of the following
could materially and adversely affect our ability to produce or deliver our
products and, as a result, have a material adverse effect on our business,
financial condition and results of operations:
o political or labor instability in countries where contractors and
suppliers are located;
o political or military conflict involving the United States, which could
cause a delay in the transportation of our products and raw materials
to us and an increase in transportation costs;
o heightened terrorism security concerns, which could subject imported or
exported goods to additional, more frequent or more thorough
inspections, leading to delays in deliveries or impoundment of goods
for extended periods or could result in decreased scrutiny by customs
officials for counterfeit goods, leading to lost sales, increased costs
for our anti-counterfeiting measures and damage to the reputation of
our brands;
o a significant decrease in availability or increase in cost of raw
materials, particularly petroleum-based synthetic fabrics, which are
currently in high demand;
o disease epidemics and health related concerns, such as the recently
subsided SARS outbreak and the mad cow and hoof and mouth disease
outbreaks in recent years, which could result in closed factories,
reduced workforces, scarcity of raw materials and scrutiny or
embargoing of goods produced in infected areas;
o the migration and development of manufacturers, which can affect where
our products are or are planned to be produced;
o imposition of regulations and quotas relating to imports and our
ability to adjust timely to changes in trade regulations, which, among
other things, could limit our ability to produce products in
cost-effective countries that have the labor and expertise needed;
o imposition of duties, taxes and other charges on imports;
o significant fluctuation of the value of the dollar against foreign
currencies; and
o restrictions on transfers of funds out of countries where our foreign
licensees are located.
IF OUR MANUFACTURERS FAIL TO USE ACCEPTABLE ETHICAL BUSINESS PRACTICES, OUR
BUSINESS COULD SUFFER.
We require our manufacturers to operate in compliance with applicable laws,
rules and regulations regarding working conditions, employment practices and
environmental compliance. Additionally, we impose upon our business partners,
operating guidelines that require additional obligations in those areas in order
to promote ethical business practices, and our staff periodically visits and
monitors the operations of our independent manufacturers to determine
compliance. However, we do not control our independent manufacturers or their
labor and other business practices. If one of our manufacturers violates labor
or other laws or implements labor or other business practices that are generally
regarded as unethical in the United States, the shipment of finished products to
us could be interrupted, orders could be cancelled, relationships could be
terminated and our reputation could be damaged. Any of these events could have a
material adverse effect on our revenues and, consequently, our results of
operations.
23
OUR RELIANCE ON INDEPENDENT MANUFACTURERS COULD CAUSE DELAY AND DAMAGE CUSTOMER
RELATIONSHIPS.
In fiscal 2002, we relied upon independent third parties for the
manufacture of more than 95% of our apparel products and 100% of our footwear
products. We do not have long-term contracts with any of our suppliers. A
manufacturer's failure to ship products to us in a timely manner or to meet
required quality standards could cause us to miss the delivery date requirements
of our customers for those products. As a result, customers may cancel their
orders, refuse to accept deliveries or demand reduced prices. Any of these
actions taken by our customers may have a material adverse effect on our
revenues and, consequently, our results of operations.
AS A RESULT OF OUR ACQUISITION OF CALVIN KLEIN, WE HAVE INCREASED OUR DEPENDENCE
ON REVENUES FROM ROYALTY, DESIGN AND SIMILAR FEES.
In fiscal 2002, $10.8 million, or 0.8%, of our revenues were derived from
licensing royalties. In fiscal 2002, 73.3% of Calvin Klein's revenues were
derived from royalty, design and similar fees from business partners. On a pro
forma basis reflecting our acquisition of Calvin Klein, Calvin Klein's royalty,
design and similar fees would have generated 8.0% of our fiscal 2002 revenues
(and will account for a significant portion of our revenues in the future). A
few of Calvin Klein's business partners, including Warnaco, Unilever and Marchon
Eyewear, account for significant portions of its revenues. Royalty, design and
similar fees from Calvin Klein's three largest business partners accounted for
approximately 46% of its revenues in fiscal 2002. The operating profit
associated with our royalty, design and similar fee revenues is significant
because the operating expenses directly associated with administering and
monitoring an individual licensing or similar agreement are minimal. Therefore,
the loss of a significant business partner, whether due to the termination or
expiration of the relationship, the cessation of the business partner's
operations or otherwise, including as a result of financial difficulties,
without an equivalent replacement, could materially affect our profitability.
For example, Warnaco accounted for approximately 25% of Calvin Klein's revenues
and approximately 36% of Calvin Klein's royalty, design and similar fee
revenues, in fiscal 2002. Although Warnaco has emerged from bankruptcy
proceedings, no assurance can be given as to its future financial stability.
While we generally have significant control over our business partners' products
and advertising, we rely on our business partners for, among other things,
operational and financial controls over their businesses. Our business partners'
failure to successfully market licensed products or our inability to replace our
existing business partners could adversely affect our revenues both directly
from reduced royalty, design and similar fees received and indirectly from
reduced sales of our other products. Risks are also associated with a business
partner's ability to:
o obtain capital;
o manage its labor relations;
o maintain relationships with its suppliers;
o manage its credit risk effectively; and
o maintain relationships with its customers.
In addition, we rely on our business partners to preserve the value of our
brands. Although we make every attempt to protect our brands through, among
other things, approval rights over design, production quality, packaging,
merchandising, distribution, advertising and promotion of our products, we
cannot assure you that we can control the use by our business partners of each
of our licensed brands. The misuse of our brands by a material business partner
could have a material adverse effect on our business, financial condition and
results of operations. For example, Calvin Klein in the past has been involved
in legal proceedings with Warnaco with respect to certain quality and
distribution issues. As a result of our acquisition of Calvin Klein, Warnaco is
entitled to control design and advertising related to the sale of underwear,
intimate apparel and sleepwear products bearing the Calvin Klein brands. We
cannot assure you that Warnaco will maintain the same standards of design and
advertising previously maintained by Calvin Klein, although we believe they are
generally obligated to do so.
OUR RETAIL STORES ARE HEAVILY DEPENDENT ON THE ABILITY AND DESIRE OF CONSUMERS
TO TRAVEL AND SHOP.
Our retail stores are located principally in outlet malls, which are
typically located in or near vacation destinations or away from large population
centers where department stores and other traditional retailers are
concentrated. As a result, fuel shortages, increased fuel prices, travel
restrictions, travel concerns, bad weather and
24
other circumstances, including as a result of war, terrorist attacks or the
perceived threat of war or terrorist attacks, which would lead to decreased
travel, could have a material adverse affect on us, as was the case after the
September 11th terrorist attacks. Other factors which could affect the success
of our stores include:
o the location of the mall or the location of a particular store within
the mall;
o the other tenants occupying space at the mall;
o increased competition in areas where the outlet malls are located;
o a downturn in the economy generally or in a particular area where an
outlet mall is located; and
o the amount of advertising and promotional dollars spent on attracting
consumers to the malls.
WE MAY BE UNABLE TO PROTECT OUR TRADEMARKS AND OTHER INTELLECTUAL PROPERTY
RIGHTS.
Our trademarks and other intellectual property rights are important to our
success and our competitive position. We are susceptible to others imitating our
products and infringing our intellectual property rights. Since our acquisition
of Calvin Klein, we are more susceptible to infringement of our intellectual
property rights, as the Calvin Klein brands enjoy significant worldwide consumer
recognition and the generally higher pricing of Calvin Klein branded products
creates additional incentive for counterfeiters and infringers. Imitation or
counterfeiting of our products or infringement of our intellectual property
rights could diminish the value of our brands or otherwise adversely affect our
revenues. We cannot assure you that the actions we have taken to establish and
protect our trademarks and other intellectual property rights will be adequate
to prevent imitation of our products by others or to prevent others from seeking
to invalidate our trademarks or block sales of our products as a violation of
the trademarks and intellectual property rights of others. In addition, we
cannot assure you that others will not assert rights in, or ownership of,
trademarks and other intellectual property rights of ours or in marks that are
similar to ours or marks that we license and/or market or that we will be able
to successfully resolve these types of conflicts to our satisfaction. In some
cases, there may be trademark owners who have prior rights to our marks because
the laws of certain foreign countries may not protect intellectual property
rights to the same extent as do the laws of the United States. In other cases
there may be holders who have prior rights to similar marks. For example, we
were involved in a proceeding relating to a company's claim of prior rights to
the IZOD mark in Mexico, and Calvin Klein was involved in a proceeding relating
to a company's claim of prior rights to the Calvin Klein mark in Chile. We are
currently involved in opposition and cancellation proceedings with respect to
marks similar to some of our brands, both domestically and internationally.
THE SUCCESS OF CALVIN KLEIN DEPENDS ON THE VALUE OF OUR CALVIN KLEIN BRANDS, AND
IF THE VALUE OF THOSE BRANDS WERE TO DIMINISH, OUR BUSINESS COULD BE ADVERSELY
AFFECTED.
Our success depends on our brands and their value. The Calvin Klein name is
integral to the existing Calvin Klein business, as well as to the implementation
of our strategies for growing and expanding Calvin Klein. Although Mr. Klein
will continue as a consultant for three years, he is no longer a member of
management. Our Calvin Klein business could be adversely affected if there is a
perception by consumers that, as a result of the sale of the business, Mr.
Klein's role has changed in a manner that is disadvantageous to the Calvin Klein
business. The Calvin Klein brands could be adversely affected if Mr. Klein's
public image or reputation were to be tarnished. We may seek in the future
stockholder approval to change the name of our company to "Calvin Klein Inc." or
a similar name. Any such name change could increase our risks related to the
public perception of the Calvin Klein name. In addition, we market some of our
products under the names and brands of other recognized designers: Geoffrey
Beene, Kenneth Cole and Donna Karan (DKNY). Our sales of those products could be
materially and adversely affected if any of those designer's images or
reputations were to be negatively impacted.
OUR REVENUES AND PROFITS ARE CYCLICAL AND SENSITIVE TO GENERAL ECONOMIC
CONDITIONS, CONSUMER CONFIDENCE AND SPENDING PATTERNS.
The apparel and footwear industries in which we operate have historically
been subject to substantial cyclical variations and are particularly affected by
adverse trends in the general economy, with consumer spending tending to decline
during recessionary periods. The success of our operations depends on consumer
spending. Consumer spending is impacted by a number of factors, including actual
and perceived economic conditions affecting disposable consumer income (such as
unemployment, wages and salaries), business conditions, interest
25
rates, availability of credit and tax rates in the general economy and in the
international, regional and local markets where our products are sold. Any
significant deterioration in general economic conditions (such as the current
economic downturn) or increases in interest rates could reduce the level of
consumer spending and inhibit consumers' use of credit. In addition, war,
terrorist activity or the threat of war and terrorist activity may adversely
affect consumer spending, and thereby have a material adverse effect on our
financial condition and results of operations.
WE FACE INTENSE COMPETITION IN THE APPAREL AND FOOTWEAR INDUSTRIES.
Competition is strong in the segments of the apparel and footwear
industries in which we operate. We compete with numerous domestic and foreign
designers, brands and manufacturers of apparel, accessories and footwear, some
of which are significantly larger or more diversified or have greater resources
than we do. In addition, through their use of private label programs, we compete
directly with our wholesale customers. We compete within the apparel and
footwear industries primarily on the basis of:
o anticipating and responding to changing consumer tastes and demands in
a timely manner and developing attractive, quality products;
o maintaining favorable brand recognition;
o appropriately pricing products and creating an acceptable value
proposition for customers;
o providing strong and effective marketing support;
o ensuring product availability and optimizing supply chain efficiencies
with third-party manufacturers and retailers; and
o obtaining sufficient retail floor space and effective presentation of
our products at retail.
We attempt to minimize risks associated with competition, including risks
related to changing style trends and product acceptance, by closely monitoring
retail sales trends. The failure, however, to compete effectively or to keep
pace with rapidly changing markets could have a material adverse effect on our
business, financial condition and results of operations. In addition, if we
misjudge the market for our products, we may be faced with significant excess
inventories for some products and missed opportunities with others.
THE LOSS OF MEMBERS OF OUR EXECUTIVE MANAGEMENT AND OTHER KEY EMPLOYEES COULD
HAVE A MATERIAL ADVERSE EFFECT ON OUR BUSINESS.
We depend on the services and management experience of Bruce J. Klatsky,
Mark Weber and other of our executive officers who have substantial experience
and expertise in our business. We also depend on key employees involved in our
licensing, design and advertising operations. Competition for qualified
personnel in the apparel and footwear industries is intense, and competitors may
use aggressive tactics to recruit our key employees. The unexpected loss of
services of one or more of these individuals could materially adversely affect
us.
SIGNIFICANT INFLUENCE BY CERTAIN STOCKHOLDERS.
In connection with our acquisition of Calvin Klein, the Apax affiliates
purchased our Series B convertible preferred stock, which, as of August 3, 2003,
was convertible by them into 37.9% of our outstanding common stock. If we elect
not to pay a cash dividend for any quarter, then the Series B convertible
preferred stock will be treated for purposes of the payment of future dividends
and upon conversion, redemption or liquidation as if an in-kind dividend had
been paid. As a result, it is possible that if we do not pay a cash dividend in
any quarter through the third quarter of fiscal 2009 (assuming no further
issuances of common stock, including as a result of the exercise of stock
options), a change in control will result under our existing various indentures
and certain other agreements. See "-- We may not be able to repurchase the notes
upon a change of control" below.
While the holders of our Series B convertible preferred stock are
prohibited from initiating a take-over, in certain circumstances, they may be
able to participate in a bidding process initiated by a third party. As long as
affiliates of the Apax affiliates own at least 50% of the shares of our Series B
convertible preferred stock initially sold to the Apax affiliates, they will
have the ability to prevent a change of control, or a sale of all or
substantially all of our assets. Additionally, as long as 50% of our Series B
convertible preferred stock remains outstanding, the
26
holders of our Series B convertible preferred stock will have a right to
purchase their pro rata share of newly-issued securities. The holders of our
Series B convertible preferred stock have certain additional rights, including
the right to approve the issuance of certain new series of our preferred stock,
which could also have the effect of discouraging a third party from pursuing a
non-negotiated takeover, and preventing changes in control, of our company. See
"Description of Certain Other Indebtedness and Preferred Stock -- Preferred
Stock -- Series B Convertible Preferred Stock."
As a result of the rights related to their ownership of our Series B
convertible preferred stock, the Apax affiliates have substantial influence over
our company, including by virtue of their right to elect separately as a class
three directors and to have one of their directors serve on the audit,
compensation, nominating and executive committees of our board subject to
applicable law, rule and regulation. In addition, circumstances may occur in
which the interests of the Apax affiliates, as preferred equity investors, are
in conflict with your interests as holders of the notes.
RISKS RELATED TO THE EXCHANGE OFFER
IF YOU DO NOT EXCHANGE YOUR OUTSTANDING NOTES, THEY WILL CONTINUE TO BE SUBJECT
TO RESTRICTIONS ON TRANSFER.
If you do not exchange your outstanding notes for exchange notes in this
exchange offer, you will continue to be subject to the restrictions on transfer
of your outstanding notes described in the legend on the certificates for your
outstanding notes. The restrictions on transfer of your outstanding notes arise
because we issued the outstanding notes under exemptions from, or in
transactions not subject to, the registration requirements of the Securities Act
and applicable state securities laws. In general, you may only offer or sell the
outstanding notes if they are registered under the Securities Act and applicable
state securities laws, or offered and sold under an exemption from these
requirements. We do not plan to register the outstanding notes under the
Securities Act.
YOUR OUTSTANDING NOTES WILL NOT BE ACCEPTED FOR EXCHANGE IF YOU FAIL TO FOLLOW
THE EXCHANGE OFFER PROCEDURES.
We will not accept your outstanding notes for exchange if you do not follow
the exchange offer procedures. We will issue exchange notes as part of this
exchange offer only after a timely receipt of your outstanding notes, a properly
completed and duly executed letter of transmittal and all other required
documents. Therefore, if you want to tender your outstanding notes, please allow
sufficient time to ensure timely delivery. If we do not receive your outstanding
notes, letter of transmittal and other required documents by the expiration date
of this exchange offer or you do not otherwise comply with the guaranteed
delivery procedures for tendering your notes, we will not accept your
outstanding notes for exchange. Neither we nor the exchange agent is under a
duty to give notification of defects or irregularities with respect to the
tenders of outstanding notes for exchange. If there are defects or
irregularities with respect to your tender of outstanding notes, we will not
accept your outstanding notes for exchange unless we decide in our sole
discretion to waive those defects or irregularities.
SOME HOLDERS WHO EXCHANGE THEIR OUTSTANDING NOTES MAY BE DEEMED TO BE
UNDERWRITERS AND THESE HOLDERS WILL BE REQUIRED TO COMPLY WITH THE REGISTRATION
AND PROSPECTUS DELIVERY REQUIREMENTS IN CONNECTION WITH ANY RESALE TRANSACTION.
If you exchange your outstanding notes in this exchange offer for the
purpose of participating in a distribution of the exchange notes, you may be
deemed to have received restricted securities and, if so, will be required to
comply with the registration and prospectus delivery requirements of the
Securities Act in connection with any resale transaction.
BECAUSE THERE IS NO PUBLIC MARKET FOR THE EXCHANGE NOTES, YOU MAY NOT BE ABLE TO
RESELL THEM.
The exchange notes will be registered under the Securities Act, but will
constitute a new issue of securities with no established trading market, and
there can be no assurance as to:
o the liquidity of any trading market that may develop;
o the ability of holders to sell their exchange notes; or
o the price at which the holders will be able to sell their exchange
notes.
27
We do not intend to apply for listing of the exchange notes on any
securities exchange or for quotation through an automated quotation system. If a
trading market were to develop, the exchange notes might trade at higher or
lower prices than their principal amount or purchase price, depending on many
factors, including prevailing interest rates, the market for similar debentures,
our financial performance and the interest of securities dealers in making a
market in the exchange notes.
We understand that the initial purchasers presently intend to make a market
in the exchange notes. However, they are not obligated to do so, and any
market-making activity with respect to the exchange notes may be discontinued at
any time without notice. In addition, any market-making activity will be subject
to the limits imposed by the Securities Act and the Exchange Act, and may be
limited during this exchange offer or the pendency of an applicable shelf
registration statement. There can be no assurance that an active market will
exist for the exchange notes or that any trading market that does develop will
be liquid.
Historically, the market for non-investment grade debt has been subject to
disruptions that have caused volatility in prices. It is possible that the
market for the exchange notes will be subject to disruptions. Any such
disruptions may have a negative effect on you, as a holder of the exchange
notes, regardless of our prospects and financial performance.
RISKS RELATED TO THE NOTES
OUR SUBSTANTIAL LEVEL OF DEBT COULD IMPAIR OUR FINANCIAL CONDITION.
We currently have a substantial amount of debt. As of May 4, 2003,
after giving pro forma effect to the sale of the outstanding notes and the use
of the net proceeds of such sale, we would have had $399.0 million of
outstanding debt (excluding $150.1 million of outstanding letters of credit and
guarantees), including $99.5 million of secured debt (excluding $148.9 million
of outstanding letters of credit), representing 42.1% of our total
capitalization. Our significant level of debt could have important consequences
to you, including:
o requiring a substantial portion of our cash flows from operations be
used for the payment of interest on our debt, therefore reducing the
funds available to us for our operations or other capital needs;
o limiting our flexibility in planning for, or reacting to, changes in
our business and the industries in which we operate because our
available cash flow after paying principal and interest on our debt may
not be sufficient to make the capital and other expenditures necessary
to address these changes;
o increasing our vulnerability to general adverse economic and industry
conditions because, during periods in which we experience lower
earnings and cash flow, we will be required to devote a proportionally
greater amount of our cash flow to paying principal and interest on our
debt;
o limiting our ability to obtain additional financing in the future to
fund working capital, capital expenditures, acquisitions and general
corporate requirements;
o placing us at a competitive disadvantage to other relatively less
leveraged competitors that have more cash flow available to fund
working capital, capital expenditures and general corporate
requirements; and
o any borrowings we make at variable interest rates, including our
revolving credit facility, leave us vulnerable to increases in interest
rates generally.
SERVICING OUR DEBT, INCLUDING THE NOTES, WILL REQUIRE A SIGNIFICANT AMOUNT OF
CASH AND WE MAY BE UNABLE TO GENERATE SUFFICIENT CASH FLOW DUE TO MANY FACTORS,
SOME OF WHICH ARE BEYOND OUR CONTROL.
Our ability to make payments with respect to our obligations under the
notes and our other outstanding debt depends on our future operating
performance. Our performance will be affected by our ability to operate and
expand profitably our recently acquired Calvin Klein business and by prevailing
economic conditions and financial, competitive, business and other factors, many
of which are beyond our control.
As a result of the financing of our acquisition of Calvin Klein, including
through the sale of the outstanding notes, our interest expense has increased.
Our business may not generate sufficient cash flow from operations, we may not
realize our currently anticipated revenues, cost savings and operating
performance and we may not have
28
sufficient future borrowings available to us to pay our debt, including the
notes. If we are unable to meet our debt service obligations or fund our other
liquidity needs, including our obligation to pay Mr. Klein contingent purchase
price payments, we could be forced to reduce or delay capital expenditures,
forego other business opportunities, sell material assets or operations,
restructure or refinance our debt, obtain additional capital or renegotiate,
replace or terminate arrangements. Some of these transactions could occur at
times and on terms that are less advantageous or disadvantageous to us or may
not be available to us at all, which could cause us to default on our
obligations and impair our liquidity. Because a significant portion of our
assets is pledged as security to the lenders under our revolving credit
facility, we may not be able to restructure or refinance our debt on
satisfactory terms, if at all. In addition, if we fail to pay Mr. Klein a
contingent purchase price payment when due and such failure to pay continues for
60 days or more after a final judgment by a court is rendered relating to our
failure to pay, Mr. Klein will no longer be restricted from competing with us as
he otherwise would be under the non-competition provisions contained in the
purchase agreement relating to our acquisition of Calvin Klein, although he
would still not be able to use any of the Calvin Klein brands or any similar
trademark in any competing business.
DESPITE OUR CURRENT DEBT LEVELS, WE WILL BE ABLE TO INCUR SUBSTANTIALLY MORE
DEBT, WHICH COULD INCREASE THE RISKS DESCRIBED ABOVE.
We have the right to incur substantial debt in the future. As of May 4,
2003, after giving pro forma effect to the use of the net proceeds of the sale
of the outstanding notes, we would have had $176.1 million available for
borrowing under our revolving credit facility. In addition, although the
indentures governing our 9 1/2% senior subordinated notes due 2008, our 7 3/4%
debentures due 2023 and the notes each contain restrictions on the incurrence of
additional debt, these restrictions are subject to a number of qualifications
and exceptions, and additional debt incurred in compliance with these
restrictions could be substantial. If new debt is added to our current debt
levels, the related risks that we now face would intensify.
COVENANT RESTRICTIONS UNDER OUR REVOLVING CREDIT FACILITY AND OUR INDENTURES
IMPOSE SIGNIFICANT OPERATING AND FINANCIAL RESTRICTIONS ON US AND MAY LIMIT OUR
ABILITY TO OPERATE OUR BUSINESS AND TO MAKE PAYMENTS ON THE NOTES.
Our revolving credit facility, the indenture governing the notes and the
agreements and instruments governing our other outstanding debt contain
covenants that restrict our ability to finance future operations or capital
needs, to take advantage of other business opportunities that may be in our
interest or to satisfy our obligations under the notes. These covenants restrict
our ability to, among other things:
o incur or guarantee additional debt or extend credit;
o pay dividends or make distributions on, or redeem or repurchase, our
capital stock or subordinated debt;
o make other restricted payments, including investments;
o dispose of assets;
o engage in transactions with affiliates;
o enter into agreements restricting our subsidiaries' ability to pay
dividends;
o create liens on our assets or engage in sale/leaseback transactions;
and
o effect a consolidation or merger, or sell, transfer, lease or otherwise
dispose of all or substantially all of our assets.
In addition, our revolving credit facility requires us to maintain certain
levels of excess borrowing base availability and in certain cases comply with a
specified financial ratio, which may require that we take action to reduce our
debt or to act in a manner contrary to our business objectives. Events beyond
our control, including changes in general business and economic conditions, may
affect our ability to meet these requirements. A breach of any of these
covenants, or our inability to comply with the financial ratio, would result in
a default under our revolving credit facility. If an event of default under our
revolving credit facility occurs, the lenders could elect to declare all amounts
outstanding under the revolving credit facility, together with accrued interest,
to be immediately due and payable which would result in acceleration of our
other debt, including the notes. If we were unable to repay any such borrowings
when due, the revolving credit facility lenders could proceed against their
collateral, which
29
also secures some of our other indebtedness. Under that circumstance, we may not
have sufficient funds to pay the notes.
Also, under the indenture governing our 7 3/4% debentures due 2023, if we
pay any dividend on or acquire our capital stock which would cause us to be
unable to meet a specified financial test, then the holders of the debentures
would have a right to have their notes redeemed. If this were to occur, we may
not have sufficient funds to satisfy this obligation. See "Description of
Certain Other Indebtedness and Preferred Stock -- 7 3/4% Debentures."
THE NOTES ARE EFFECTIVELY SUBORDINATED TO OUR SECURED OBLIGATIONS AND ALL
OBLIGATIONS OF OUR SUBSIDIARIES.
The notes are our general, unsecured obligations. Therefore, the notes are
effectively subordinated to all of our secured debt, to the extent of the value
of the collateral, and all debt and other obligations, including trade payables,
of our subsidiaries. As of May 4, 2003, after giving pro forma effect to the net
proceeds of the sale of the outstanding notes, we would have had $99.5 million
of secured debt (excluding $148.9 million of outstanding letters of credit). All
obligations under our revolving credit facility are secured by liens on
substantially all of our assets and our domestic subsidiaries' assets, including
the working capital assets of our domestic Calvin Klein subsidiaries, and a
pledge of all of the equity interests in our Calvin Klein subsidiaries. In
addition, our 7 3/4% debentures due 2023 are secured by liens on all collateral
securing our revolving credit facility, ratably with our revolving credit
facility lenders. Our obligation to make contingent purchase price payments to
Mr. Calvin Klein is secured by a subordinated pledge of all of the equity
interests in our Calvin Klein subsidiaries and a subordinated lien on
substantially all of our domestic Calvin Klein subsidiaries' assets.
We conduct a portion of our operations, including the entirety of the
current Calvin Klein business, through our subsidiaries. As of May 4, 2003,
after giving pro forma effect to the use of the net proceeds of the sale of the
outstanding notes, our subsidiaries would have had $179.7 million of total
outstanding liabilities, including subsidiary guarantees totalling $148.9
million for outstanding letters of credit under our revolving credit facility.
In addition, our Calvin Klein subsidiaries have guaranteed our obligation to
make contingent purchase price payments to Mr. Klein.
The effect of this subordination is that, in the event of a bankruptcy,
liquidation, dissolution, reorganization or similar proceeding involving us or a
subsidiary, the assets of the affected entity could not be used to pay you until
after:
o all secured claims against the affected entity have been fully paid;
and
o if the affected entity is a subsidiary, all other claims against that
subsidiary, including trade payables, have been fully paid.
Holders of the notes will participate ratably in our remaining assets with
all holders of our other unsecured debt that is deemed to be of the same class
as the notes or which is not expressly subordinated to the notes, and
potentially with all of our other general creditors, based upon the respective
amounts owed to each holder or creditor. If any of the foregoing events were to
occur, we cannot assure you that there will be sufficient assets to pay amounts
due on the notes. As a result, holders of notes may receive less, ratably, than
holders of secured debt.
WE MAY NOT BE ABLE TO REPURCHASE THE NOTES UPON A CHANGE OF CONTROL.
Upon the occurrence of a change of control, we will be required to make an
offer to you in cash to repurchase all or any part of your notes at 101% of
their principal amount, plus accrued and unpaid interest. If a change of control
occurs, we may not have sufficient funds at that time to pay the purchase price
for all tendered notes. In addition, our ability to effect a redemption of the
notes upon a change in control may be impaired by the effect of various
provisions in agreements governing our existing debt obligations. The occurrence
of a change in control will result in an event of default under our revolving
credit facility and permit the lenders to accelerate the maturity of all of the
obligations under the revolving credit facility and to pursue their rights and
remedies including foreclosure of their liens upon our and our subsidiaries'
assets. A change in control would further result in an event of default under
the agreements governing the collateral for our contingent payment obligations
to Mr. Klein and would permit Mr. Klein to foreclose his lien on the equity
interests in our Calvin Klein subsidiaries and on substantially all of the
assets of our domestic Calvin Klein subsidiaries. Furthermore, under the
indenture governing our 7 3/4% debentures due 2023, a default under the
revolving credit facility as a result of a change in control would constitute an
event of default under that indenture entitling the holders to accelerate the
maturity of the debentures
30
and exercise their rights and remedies. The same result would
also occur under the indenture governing our 9 1/2% senior subordinated notes
due 2008. Also, under that indenture the holders of those notes would have a
right to have their notes redeemed upon a change in control.
In the event that a change of control occurs at a time when we are
prohibited from repurchasing the notes, we could seek the consent of the
revolving credit facility lenders and the other holders of our debt to
repurchase the notes or could attempt to refinance those borrowings. If we do
not obtain their consent or refinance the borrowings, we will remain prohibited
from repurchasing the notes, which would constitute an event of default under
the indenture governing the notes. In addition, we may not have the financial
resources necessary to repurchase the notes upon a change in control,
particularly if that change of control event triggers a similar repurchase
requirement for, or results in the acceleration of, any of our other debt. Any
debt agreements we enter into in the future may contain similar provisions.
Certain transactions that constitute a change of control under our existing and
future debt instruments may not constitute a change of control under the
indenture governing the notes.
YOUR RIGHT TO REQUIRE US TO REDEEM THE NOTES IS LIMITED.
The holders of the notes have limited rights to require us to purchase or
redeem the notes in the event of a takeover, recapitalization or similar
restructuring, including an issuer recapitalization or similar transaction with
management. The change of control provisions of the indenture governing the
notes may not afford protection to the holders of the notes if such transactions
were to occur, including a transaction initiated by us or certain "permitted
holders" described in the indenture, if the transaction does not result in a
change of control or otherwise result in an event of default under the
indenture. See "Description of the Notes -- Change of Control."
31
USE OF PROCEEDS
We will receive no proceeds from the exchange of outstanding notes pursuant
to this exchange offer. In consideration for issuing the exchange notes as
contemplated in this prospectus, we will receive in exchange a like principal
amount of the outstanding notes, the terms of which are substantially identical
in all material respects to the exchange notes. The outstanding notes
surrendered in exchange for the exchange notes will be retired and cancelled and
cannot be reissued. Accordingly, issuance of the exchange notes will not result
in any change in our capitalization.
Our net proceeds from the sale of the outstanding notes (after deducting
discounts payable to the initial purchasers and our offering expenses) were
approximately $144.5. We used a portion of the net proceeds to repay the
outstanding balance of $125.0 million, plus accrued interest, of the two-year
term loan provided by the Apax affiliates and the balance of the net proceeds
will be used for general corporate purposes. The proceeds of the term loan were
used to pay a portion of the purchase price and costs incurred in connection
with the Calvin Klein acquisition. The loan bore interest until February 12,
2004 at a rate of 10% per annum and 15% per annum thereafter.
CAPITALIZATION
The following table sets forth our unaudited pro forma capitalization and
cash and cash equivalents at May 4, 2003, giving effect to the sale of the
outstanding notes and the use of the proceeds of such sale as if they had
occurred on that date. This table should be read in conjunction with the other
information contained under the captions "Unaudited Pro Forma Condensed
Consolidated Financial Information," "Selected Historical Financial
Information," "Management's Discussion and Analysis of Financial Condition and
Results of Operations" and our financial statements and the notes thereto
included in our Annual Report on Form 10-K and our Quarterly Report on Form
10-Q, each incorporated by reference in this prospectus.
MAY 4, 2003
----------------------------
PRO FORMA
ACTUAL FOR OFFERING
------ ------------
Cash and cash equivalents.............................. $ 19,567 $ 37,867
======== ========
Long-term debt
7 3/4% debentures due 2023........................ 99,493 99,493
Term loan......................................... 125,000 --
8 1/8% outstanding notes due 2013................. -- 150,000
-------- --------
Total senior debt............................. 224,493 249,493
9 1/2% senior subordinated notes due 2008......... 149,540 149,540
-------- --------
Total long-term debt.......................... 374,033 399,033
Series B convertible preferred stock................... 254,493 254,493
Total stockholders' equity............................. 294,084 294,084
-------- --------
Total capitalization................................... $922,610 $947,610
======== ========
32
SELECTED HISTORICAL FINANCIAL INFORMATION
The selected historical financial information presented below as of and for
each of our fiscal years ended January 31, 1999, January 30, 2000, February 4,
2001, February 3, 2002 and February 2, 2003 is derived from our audited
consolidated financial statements. The selected historical financial information
presented below as of and for each of the thirteen weeks ended May 5, 2002 and
May 4, 2003 is derived from our unaudited condensed consolidated financial
statements. Our selected historical financial information should be read in
conjunction with the other information contained under the caption "Management's
Discussion and Analysis of Financial Condition and Results of Operations," our
financial statements and the accompanying notes thereto included in our Annual
Report on Form 10-K and our Quarterly Report on Form 10-Q incorporated by
reference in this prospectus, and other financial and statistical information
included elsewhere in this prospectus.
FISCAL YEAR THIRTEEN WEEKS ENDED
-------------------------------------------------------------- -----------------------
MAY 5, MAY 4,
1998 1999 2000 2001 2002 2002 2003
---------- ---------- ---------- ---------- ---------- ---------- ----------
(IN THOUSANDS, EXCEPT PER SHARE DATA) (UNAUDITED)
INCOME STATEMENT DATA:
Net sales ......................... $1,293,569 $1,267,790 $1,447,934 $1,422,177 $1,394,212 $ 347,183 $ 347,581
Royalty and other revenues ........ 9,516 3,700 7,614 9,715 10,761 2,238 29,448
---------- ---------- ---------- ---------- ---------- ---------- ----------
Total revenues .................... 1,303,085 1,271,490 1,455,548 1,431,892 1,404,973 349,421 377,029
Cost of goods sold ................ 856,160 820,464 950,176 925,662(1) 873,743 230,541 222,062
---------- ---------- ---------- ---------- ---------- ---------- ----------
Gross profit ...................... 446,925 451,026 505,372 506,230 531,230 118,880 154,967
Selling, general and
administrative expenses ....... 403,440 402,716 434,835 449,491 462,195 114,454 149,665
Restructuring and other charges ... -- -- -- 15,600(2) -- -- --
---------- ---------- ---------- ---------- ---------- ---------- ----------
Income before interest and taxes .. 43,485 48,310 70,537 41,139 69,035 4,426 5,302
Interest expense .................. 28,206 24,209 24,852 24,752 23,892 5,861 8,657
Interest income ................... 463 1,779 2,530 301 1,163 137 93
---------- ---------- ---------- ---------- ---------- ---------- ----------
Income (loss) before income taxes . 15,742 25,880 48,215 16,688 46,306 (1,298) (3,262)
Income tax expense (benefit) ...... 3,915 9,007 18,115 6,008 15,869 (467) (1,109)
---------- ---------- ---------- ---------- ---------- ---------- ----------
Net income (loss) ................. $ 11,827 $ 16,873 $ 30,100 $ 10,680 $ 30,437 $ (831) (2,153)
========== ========== ========== ========== ========== ==========
Preferred stock dividends ......... 4,493(3)
----------
Net loss attributed to common
stock ......................... $ (6,646)
==========
Net income (loss) per common
share-- basic ................. $ 0.43 $ 0.62 $ 1.10 $ 0.39 $ 1.10 $ (0.03) $ (0.22)
========== ========== ========== ========== ========== ========== ==========
Net income (loss) per common
share-- diluted ............... $ 0.43 $ 0.62 $ 1.10 $ 0.38 $ 1.08 $ (0.03) $ (0.22)
========== ========== ========== ========== ========== ========== ==========
INCOME STATEMENT DATA, AS ADJUSTED (4):
Net income (loss) ................. $ 11,827 $ 16,873 $ 30,100 $ 10,680 $ 30,437 $ (831) $ (2,153)
Goodwill amortization, net of tax
benefit ....................... 2,304 1,746 1,877 2,849 -- -- --
---------- ---------- ---------- ---------- ---------- ---------- ----------
Net income (loss) as adjusted ..... $ 14,131 $ 18,619 $ 31,977 $ 13,529 $ 30,437 $ (831) $ (2,153)
========== ========== ========== ========== ========== ========== ==========
Net income (loss) per common
share-- basic ................. $ 0.52 $ 0.68 $ 1.17 $ 0.49 $ 1.10 $ (0.03) $ (0.22)
========== ========== ========== ========== ========== ========== ==========
Net income (loss) per common
share-- diluted ............... $ 0.52 $ 0.68 $ 1.17 $ 0.48 $ 1.08 $ (0.03) $ (0.22)
========== ========== ========== ========== ========== ========== ==========
33
FISCAL YEAR THIRTEEN WEEKS ENDED
----------------------------------------------------------- --------------------
MAY 5, MAY 4,
1998 1999 2000 2001 2002 2002 2003
-------- -------- -------- -------- -------- -------- --------
(IN THOUSANDS, EXCEPT RATIOS AND PER SHARE DATA) (UNAUDITED)
CASH FLOW AND OTHER DATA:
EBITDA (5) .................................. $68,927 $67,727 $90,588 $66,873(6) $94,713 $10,634 $12,078
Cash flows provided by (used in) operating
activities ............................. 24,348 73,980 35,389 63,653 105,228 7,837 (36,747)
Cash flows provided by (used in) investing
activities ............................. (38,213) 33,960 (106,763) (39,006) (29,451) (4,633) (432,826)
Cash flows provided by (used in) financing
activities ............................. 13,074 (24,076) (3,224) (1,291) (2,235) (1,165) 372,019
Capital expenditures ........................ 38,213 31,291 31,898 33,406 29,451 4,633 2,894
Cash dividends declared per common share .... 0.15 0.15 0.15 0.15 0.15 0.075 0.075
Ratio of earnings to fixed charges (7) ...... 1.3x 1.5x 2.0x 1.3x 1.9x 0.9x 0.8x
BALANCE SHEET DATA (AT END OF PERIOD):
Working capital ............................. $235,331 $301,390 $298,286 $290,942 $323,688 $287,971 $284,735
Total assets ................................ 674,313 673,748 724,364 708,933 771,700 714,755 1,214,103
Total debt .................................. 268,723 248,784 248,851 248,935 249,012 248,954 374,033
Stockholders' equity ........................ 228,888 241,685 268,561 265,727 272,227 263,731 294,084
--------------
(1) Cost of goods sold includes $5.4 million of restructuring and other charges
recorded in fiscal 2001 for exiting three dress shirt manufacturing
facilities and liquidating related dress shirt inventories.
(2) Restructuring and other charges of $15.6 million recorded in fiscal 2001
relate to streamlining certain corporate and divisional operations and
exiting three dress shirt manufacturing facilities.
(3) Reflects a dividend of 8% on the Series B convertible preferred stock. If
we elect not to pay a cash dividend for any quarter, then the Series B
convertible preferred stock will be treated for the payment of future
dividends and upon conversion, redemption or liquidation as if an in-kind
dividend had been paid. We elected not to pay a cash dividend for the
quarter ended May 4, 2003.
(4) As a result of our adoption of FASB Statement #142, "Goodwill and Other
Intangible Assets" in fiscal 2002, we no longer amortize goodwill. The
income statement data above reflects an adjustment to exclude goodwill
amortization expense, net of tax benefit, recorded in the prior fiscal
years.
(5) We have presented EBITDA to enhance your understanding of our operating
results. EBITDA represents net income before interest expense, interest
income, income taxes, depreciation and amortization. EBITDA is provided
because it is an important measure of financial performance commonly used
to determine the value of companies and to define standards for borrowing
from institutional lenders. You should not construe EBITDA as an
alternative to net income, as an indicator of our operating performance, or
as an alternative to cash flows from operating activities as a measure of
our liquidity, as determined in accordance with generally accepted
accounting principles. We may calculate EBITDA differently than other
companies.
Net income (loss) in accordance with generally accepted accounting
principles is reconciled to EBITDA as follows:
FISCAL YEAR THIRTEEN WEEKS ENDED
---------------------------------------------------- --------------------
MAY 5, MAY 4,
1998 1999 2000 2001 2002 2002 2003
-------- -------- -------- -------- -------- -------- --------
(IN THOUSANDS) (UNAUDITED)
Net income (loss) $ 11,827 $ 16,873 $ 30,100 $ 10,680 $ 30,437 $ (831) $ (2,153)
Income tax expense (benefit) 3,915 9,007 18,115 6,008 15,869 (467) (1,109)
Interest expense 28,206 24,209 24,852 24,752 23,892 5,861 8,657
Interest income 463 1,779 2,530 301 1,163 137 93
Depreciation and amortization 25,442 19,417 20,051 25,734 25,678 6,208 6,776
-------- -------- -------- -------- -------- -------- --------
EBITDA $ 68,927 $ 67,727 $ 90,588 $ 66,873 $ 94,713 $ 10,634 $ 12,078
======== ======== ======== ======== ======== ======== ========
(6) EBITDA for fiscal 2001 includes restructuring and other charges of $21.0
million.
(7) The ratio of earnings to fixed charges is computed by dividing fixed
charges into earnings before income taxes plus fixed charges. Fixed charges
consist of interest expense and the estimated interest component of rent
expense. Due to the seasonality of our business, the ratio of earnings to
fixed charges for the thirteen weeks ended May 5, 2002 and May 4, 2003 is
not indicative of the results for a full fiscal year. The amount of
deficiency in the ratio of earnings to fixed charges was $1.3 million and
$3.3 million for the thirteen weeks ended May 5, 2002 and May 4, 2003,
respectively.
34
UNAUDITED PRO FORMA CONDENSED CONSOLIDATED FINANCIAL INFORMATION
The following unaudited pro forma condensed consolidated financial
information of Phillips-Van Heusen is based on our audited consolidated
financial statements included in our Annual Report on Form 10-K and the audited
combined financial statements of Calvin Klein included in our Current Report on
Form 8-K/A, each incorporated by reference in this prospectus. The unaudited pro
forma condensed consolidated income statement for the year ended February 2,
2003 gives effect to our acquisition of Calvin Klein and the related financing
and the sale of the outstanding notes and the use of the net proceeds of such
sale as if they had occurred on February 4, 2002. The unaudited pro forma
condensed consolidated income statements for the thirteen weeks ended May 5,
2002 and May 4, 2003 give effect to our acquisition of Calvin Klein and the
related financing and the sale of the outstanding notes and the use of the
proceeds of such sale as if they had occurred at the beginning of each of the
applicable periods presented.
Our fiscal years end on the Sunday closest to February 1 and Calvin Klein's
fiscal years end on the Saturday closest to December 31. The unaudited pro forma
condensed consolidated income statement for our fiscal year ended February 2,
2003 includes historical information for us for our fiscal year ended February
2, 2003 and historical information for Calvin Klein for its fiscal year ended
December 28, 2002. The unaudited pro forma condensed consolidated income
statement for the thirteen weeks ended May 5, 2002 includes historical
information for us for the thirteen weeks ended May 5, 2002 and information
derived from historical information for Calvin Klein for its fiscal year ended
December 28, 2002. The unaudited pro forma condensed consolidated income
statement for the thirteen weeks ended May 4, 2003 includes historical
information for us for the thirteen weeks ended May 4, 2003, as adjusted for the
period February 3, 2003 to February 11, 2003, as if the acquisition was
completed on February 3, 2003.
The unaudited pro forma condensed consolidated financial information is
presented for informational purposes only and does not purport to represent what
our results of operations or financial position would actually have been had our
acquisition of Calvin Klein and the related financing and the sale of the
outstanding notes and the use of the net proceeds of such sale in fact occurred
on the dates specified, nor do they purport to project our results of operations
or financial position for any future period or at any future date. The pro forma
adjustments are based on available information and certain assumptions that we
believe are reasonable.
The unaudited pro forma condensed consolidated financial information should
be read in conjunction with the other information contained under the captions
"Selected Historical Financial Information," "Management's Discussion and
Analysis of Financial Condition and Results of Operations," our financial
statements and the notes thereto included in our Annual Report on Form 10-K and
our Quarterly Report on Form 10-Q incorporated by reference in this prospectus
and Calvin Klein's financial statements and the notes thereto included in our
Current Report on Form 8-K/A incorporated by reference in this prospectus.
35
UNAUDITED PRO FORMA CONDENSED CONSOLIDATED INCOME STATEMENT
FISCAL YEAR ENDED FEBRUARY 2, 2003
(IN THOUSANDS, EXCEPT PER SHARE DATA)
CALVIN PRO FORMA
PVH KLEIN ACQUISITION FOR OFFERING PRO
(ACTUAL) (ACTUAL) ADJUSTMENTS ACQUISITION ADJUSTMENTS FORMA
-------- -------- ----------- ----------- ----------- -----
Net sales............................... $1,394,212 $ 45,952 $1,440,164 $1,440,164
Royalty and related revenue............. 10,761 126,040 136,801 136,801
---------- ---------- ---------- ---------- -------- ----------
Total revenues (1)...................... 1,404,973 171,992 1,576,965 1,576,965
Cost of goods sold...................... 873,743 36,580 910,323 910,323
---------- ---------- ---------- ---------- -------- ----------
Gross profit............................ 531,230 135,412 666,642 666,642
Selling, general, administrative and
other expenses..................... 462,195 132,356 $(21,772)(3) 572,779 572,779
---------- ---------- ---------- ---------- -------- ----------
Income before interest and taxes (1).... 69,035 3,056 21,772 93,863 93,863
Interest expense........................ 23,892 156 12,500 (4) 36,548 $238(4) 36,786
Interest income......................... 1,163 (600)(5) 563 258(5) 821
---------- ---------- ---------- ---------- -------- ----------
Income before taxes..................... 46,306 2,900 8,672 57,878 20 57,898
Income tax expense...................... 15,869 4,048 2 (6) 19,919 7(6) 19,926
---------- ---------- ---------- ---------- -------- ----------
Net income (loss)(1).................... 30,437 (1,148) 8,670 37,959 13 37,972
Preferred stock dividends............... 20,027 (2) 20,027 20,027
---------- ---------- ---------- ---------- -------- ----------
Net income (loss) attributed to common
stock.............................. $ 30,437 $ (1,148) $(11,357) $ 17,932 $ 13 $ 17,945
========== ========== ========== ========== ======== ==========
Basic net income per common share (2)... $ 1.10 $ 0.59 $ 0.59
========== ========== ==========
Diluted net income per common share (2). $ 1.08 $ 0.58 $ 0.58
========== ========== ==========
See Notes to Unaudited Pro Forma Condensed Consolidated Income Statements
36
UNAUDITED PRO FORMA CONDENSED CONSOLIDATED INCOME STATEMENT
THIRTEEN WEEKS ENDED MAY 5, 2002
(IN THOUSANDS, EXCEPT PER SHARE DATA)
CALVIN PRO FORMA
PVH KLEIN ACQUISITION FOR OFFERING PRO
(ACTUAL) (ACTUAL) ADJUSTMENTS ACQUISITION ADJUSTMENTS FORMA
-------- -------- ----------- ----------- ----------- -----
Net sales............................... $ 347,183 $ 11,488 $ 358,671 $358,671
Royalty and related revenue............. 2,238 31,510 33,748 33,748
--------- --------- -------- --------- ----------- --------
Total revenues.......................... 349,421 42,998 392,419 392,419
Cost of goods sold...................... 230,541 9,145 239,686 239,686
--------- --------- -------- --------- ----------- --------
Gross profit............................ 118,880 33,853 152,733 152,733
Selling, general, administrative and
other expenses..................... 114,454 33,089 $(5,443)(3) 142,100 142,100
--------- --------- -------- --------- ----------- --------
Income before interest and taxes........ 4,426 764 5,443 10,633 10,633
Interest expense........................ 5,861 39 3,125 (4) 9,025 $60(4) 9,085
Interest income......................... 137 (150)(5) (13) 65(5) 52
--------- --------- -------- --------- ----------- --------
Income (loss) before taxes.............. (1,298) 725 2,168 1,595 5 1,600
Income tax expense (benefit)............ (467) 1,012 0 (6) 545 2(6) 547
--------- --------- -------- --------- ----------- --------
Net income (loss)....................... (831) (287) 2,168 1,050 3 1,053
Preferred stock dividends............... 4,986 (2) 4,986 4,986
--------- --------- -------- --------- ----------- --------
Net income (loss) attributed to common
stock.............................. $ (831) $ (287) $(2,818) $ (3,936) $ 3 $(3,933)
========= ========= ======== ========= =========== ========
Basic net loss per common share (2)..... $ (0.03) $ (0.13) $ (0.13)
========= ========= =======
Diluted net loss per common share (2)... $ (0.03) $ (0.13) $ (0.13)
========= ========= =======
See Notes to Unaudited Pro Forma Condensed Consolidated Income Statements
37
UNAUDITED PRO FORMA CONDENSED CONSOLIDATED INCOME STATEMENT
THIRTEEN WEEKS ENDED MAY 4, 2003
(IN THOUSANDS, EXCEPT PER SHARE DATA)
PRO FORMA
PVH ACQUISITION FOR OFFERING PRO
(ACTUAL) ADJUSTMENTS ACQUISITION ADJUSTMENTS FORMA
-------- ----------- ----------- ----------- -----
Net sales............................... $347,581 $ 1,016 (7) $348,597 $ 348,597
Royalty and related revenue............. 29,448 2,881 (7) 32,329 32,329
-------- --------- -------- ----------- ----------
Total revenues.......................... 377,029 3,897 (7) 380,926 380,926
Cost of goods sold...................... 222,062 830 (7) 222,892 222,892
-------- --------- -------- ----------- ----------
Gross profit............................ 154,967 3,067 (7) 158,034 158,034
Selling, general, administrative and
other expenses..................... 149,665 3,364 (7) 153,029 153,029
-------- --------- -------- ----------- ----------
Income before interest and taxes........ 5,302 (297)(7) 5,005 5,005
Interest expense........................ 8,657 247 (8) 8,904 $ 60 (4) 8,964
Interest income......................... 93 (17)(8) 76 65 (5) 141
-------- --------- -------- ----------- ----------
Income (loss) before taxes.............. (3,262) (561) (3,823) 5 (3,818)
Income tax expense (benefit)............ (1,109) (191)(6) (1,300) 2 (6) (1,298)
-------- --------- -------- ----------- ----------
Net income (loss)....................... (2,153) (370) (2,523) 3 (2,520)
Preferred stock dividends............... 4,493 493 (7) 4,986 4,986
-------- --------- -------- ----------- ----------
Net income (loss) attributed to common
stock.............................. $ (6,646) $ (863) $ (7,509) $ 3 $ (7,506)
======== ========= ======== =========== ==========
Basic net loss per common share ........ $ (0.22) $ (0.25) $ (0.25)
======== ======== ==========
Diluted net loss per common share ...... $ (0.22) $ (0.25) $ (0.25)
======== ======== ==========
See Notes to Unaudited Pro Forma Condensed Consolidated Income Statements
38
NOTES TO UNAUDITED PRO FORMA CONDENSED CONSOLIDATED INCOME STATEMENTS
(1) Subsequent to our acquisition of Calvin Klein, we entered into an agreement
with Vestimenta to license the existing Calvin Klein's men's and women's
high-end ready-to-wear collection apparel businesses commencing with the
spring 2004 collection. During the period prior to our license of the
businesses, we will transfer the operations of the businesses to
Vestimenta. During the transition period, we expect to continue to incur
operating losses in connection with our operations of these businesses.
If the 2002 operating results of Calvin Klein's men's and women's high-end
ready-to-wear collection apparel businesses were to reflect the
transactions contemplated by our agreement with Vestimenta, then pro forma
total revenues would have been reduced by $17.2 million to $1,559.8
million, pro forma income before interest and taxes would have increased by
$14.1 million to $108.0 million and pro forma net income would have
increased by $8.8 million to $46.8 million. As part of the agreement with
Vestimenta, we will continue to design the collection apparel and,
accordingly, design costs, as well as certain marketing costs we have
agreed to continue, have not been eliminated in calculating these amounts.
(2) Pro forma net income per common share for fiscal 2002 is pro forma net
income, less preferred dividends of $20.0 million, or 8.0%, on the Series B
convertible preferred stock, divided by our fiscal 2002 average shares of
common stock outstanding, as adjusted for 2,535,926 shares of common stock
issued in connection with the acquisition of Calvin Klein. Pro forma net
income per common share for the thirteen weeks ended May 5, 2002 is pro
forma net income, less preferred dividends of $5.0 million, or 8.0%, on the
Series B convertible preferred stock, divided by our fiscal 2002 first
quarter average shares of common stock outstanding, as adjusted for
2,535,926 shares of common stock issued in connection with the acquisition
of Calvin Klein. If we elect not to pay a cash dividend for any quarter,
then the Series B convertible preferred stock will be treated for purposes
of the payment of future dividends and upon conversion, redemption or
liquidation as if an in-kind dividend had been paid.
(3) Details of the unaudited pro forma adjustments to selling, general and
administrative expenses reflect the following: (i) the payment to Mr. Klein
in connection with the three-year consulting agreement that we entered into
with Mr. Klein whereby he is available to consult on advertising,
marketing, design, promotion and publicity aspects of Calvin Klein; (ii)
the elimination of compensation expenses and fringe benefits and other
costs directly associated with Mr. Klein and Mr. Barry Schwartz, the two
principal selling shareholders of Calvin Klein, whose employment (and their
related employment agreements) terminated upon consummation of our
acquisition of Calvin Klein; and (iii) the elimination of the amount paid
to Mr. Klein by Calvin Klein under a design services letter agreement based
on a percentage of sales of certain Calvin Klein branded products. In
connection with our acquisition, we bought all of Mr. Klein's rights under
that agreement in consideration of a warrant to purchase 320,000 shares of
our common stock and contingent purchase price payments for 15 years equal
to 1.15% of total worldwide net sales of products bearing any of the Calvin
Klein brands.
Acquisition adjustments for the respective periods reflect the following:
THIRTEEN
FISCAL YEAR WEEKS ENDED
----------- -----------
2002 MAY 5, 2002
----------- -----------
(IN THOUSANDS)
Consulting agreement payment................................................. $ (1,000) $ (250)
Elimination of expenses directly related to the two principal selling
shareholders................................................................. 5,720 1,430
Elimination of payment under design services letter agreement................ 17,052 4,263
--------- ---------
Pro forma acquisition adjustments............................................ $ 21,772 $ 5,443
========= ==========
39
(4) The unaudited pro forma adjustments to interest expense for the respective
periods reflect the following:
THIRTEEN
FISCAL YEAR WEEKS ENDED
------------ ----------------------------
2002 MAY 5, 2002 MAY 4, 2003
------------ ----------- -----------
Acquisition Adjustments: (IN THOUSANDS)
Term loan............................................. $ 12,500 $ 3,125
============= ==========
Offering Adjustments:
Outstanding notes..................................... $12,188 $3,047 $3,047
Amortization of estimated fees and offering costs..... 550 138 138
Less: Term loan....................................... (12,500) (3,125) (3,125)
--------- ---------- --------
Pro forma offering adjustments........................ $ 238 $ 60 $ 60
============= ========== ============
(5) The unaudited pro forma adjustments to interest income for the respective
periods reflect the following:
THIRTEEN
FISCAL YEAR WEEKS ENDED
------------ -------------------------------
2002 MAY 5, 2002 MAY 4, 2003
------------ ----------- -----------
Acquisition Adjustments: (IN THOUSANDS)
Reduction in interest income based on acquisition
adjustments to cash and cash equivalents......... $ (600) $ (150)
========== =========
Offering Adjustments:
Interest income on additional cash received in
connection with offering......................... $ 258 $ 65 $ 65
========== ========= ========
(6) With respect to the fiscal year ended February 2, 2003 and the thirteen
weeks ended May 5, 2002, represents the replacement of Calvin Klein's tax
provision with the estimated income tax provision at a tax rate of 35% that
would have been recorded by us, both on Calvin Klein's pre-tax income and
on the net effect of the pro forma adjustments. With respect to the
thirteen weeks ended May 4, 2003, pro forma taxes are estimated at a rate
of 35%.
(7) Pro forma acquisition adjustments represent the results of our Calvin Klein
Licensing segment and preferred stock dividends as adjusted for the period
from February 3, 2003 to February 11, 2003, as the acquisition of Calvin
Klein was completed on February 12, 2003.
(8) Pro forma acquisition adjustments to interest expense and interest income
represent additional interest expense on the term loan incurred to finance
the acquisition, as well as the reduction in interest income on the cash
used to finance the acquisition for the period from February 3, 2003 to
February 11, 2003, as the acquisition of Calvin Klein was completed on
February 12, 2003.
40
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
OVERVIEW
We manage and analyze our operating results in two segments: (1) Apparel
and Footwear and (2) Calvin Klein Licensing. Prior to our acquisition of Calvin
Klein, we managed and analyzed our operating results in two different business
segments: (1) Apparel and (2) Footwear and Related Products. We derive revenues
principally from marketing products to wholesale customers, in our own retail
stores and, since the acquisition of Calvin Klein, licensing, design and other
fees received from Calvin Klein's licensees and other business partners. Our
fiscal years are based on the 52 to 53 week period ending on the Sunday closest
to February 1, and are designated by the calendar year in which the fiscal year
commences. Results for fiscal year 2000 represent the 53 weeks ended February 4,
2001. Results for fiscal year 2001 represent the 52 weeks ended February 3,
2002. Results for fiscal year 2002 represent the 52 weeks ended February 2,
2003.
The following table summarizes our results of operations for the thirteen
weeks ended May 4, 2003 and May 5, 2002:
THIRTEEN WEEKS ENDED
MAY 4, 2003
--------------------------------------------
(IN THOUSANDS)
RESULTS
EXCLUDING THIRTEEN
RESULTS CALVIN KLEIN CALVIN KLEIN WEEKS
UNDER INTEGRATION INTEGRATION ENDED
GAAP COSTS COSTS MAY 5, 2002
------------ ------------ ------------ ------------
Net sales ......................... $ 347,581 $ 6,004 $ 341,577 $ 347,183
Royalty and other revenues ........ 29,448 29,448 2,238
------------ ------------ ------------ ------------
Total revenues .................... $ 377,029 $ 6,004 $ 371,025 $ 349,421
============ ============ ============ ============
Gross profit on net sales ......... $ 125,519 $ 215 $ 125,304 $ 116,642
Gross profit on royalty and
other revenues .................. 29,448 29,448 2,238
Total gross profit ................ 154,967 215 154,752 118,880
Selling, general &
administrative expenses ........ 149,665 15,341 134,324 114,454
------------ ------------ ------------ ------------
Income (loss) before interest
and taxes ....................... 5,302 (15,126) 20,428 4,426
Interest expense, net ............. 8,564 8,564 5,724
------------ ------------ ------------ ------------
Income (loss) before taxes ........ (3,262) (15,126) 11,864 (1,298)
Income tax expense (benefit) ...... (1,109) (5,143) 4,034 (467)
------------ ------------ ------------ ------------
Net income (loss) ................. $ (2,153) $ (9,983) $ 7,830 $ (831)
============ ============ ============ ============
Our results in fiscal 2003 are being impacted significantly by our
acquisition of Calvin Klein. The above table and following discussion of results
of operations for the thirteen weeks ended May 4 , 2003 and May 5, 2002
separately identify integration costs associated with the Calvin Klein
acquisition. Calvin Klein integration costs include (1) the operating results of
the Calvin Klein's men's and women's high-end ready-to-wear collection apparel
businesses that we are transferring over time to Vestimenta under a license
agreement which will be in full effect on January 1, 2004, and associated costs
in connection with such transfer and (2) the costs of certain duplicative
personnel and facilities during the integration of various logistical and back
office functions.
41
We believe presenting our results excluding integration costs provides
useful information to investors because many investors make decisions based on
the ongoing operations of an enterprise. Investors often believe that ongoing
operations provide the best measure of assessing performance and provide a more
meaningful basis to compare against future results. We use our results excluding
integration costs to discuss our business with investment institutions, our
Board of Directors and others. Such results are also the basis for certain
incentive compensation calculations. You should not construe our results
excluding integration costs as an alternative to net income or cash flows from
operating activities, which are determined in accordance with GAAP, as an
indicator of operating performance or as a measure of liquidity. Our results
excluding integration costs may not be comparable to similarly titled measures
used by other companies.
The following table summarizes our results of operations in fiscal
2000, 2001 and 2002.
FISCAL YEAR
---------------------------------------------------------------------------
($ IN THOUSANDS)
2000 2001 2002
-------------------- --------------------- --------------------
Total revenues.................. $1,455,548 100.0% $1,431,892 100.0% $1,404,973 100.0%
========== ===== ========== ===== ========== =====
Gross profit.................... $ 505,372 34.7 $ 506,230 35.4 $ 531,230 37.8
Selling, general & administrative
expenses................... 434,835 29.9 465,091 32.5 462,195 32.9
---------- ----- ---------- ----- ---------- -----
Income before interest and taxes 70,537 4.8 41,139 2.9 69,035 4.9
Interest expense, net........... 22,322 1.5 24,451 1.7 22,729 1.6
---------- ----- ---------- ----- ---------- -----
Income before taxes............. 48,215 3.3 16,688 1.2 46,306 3.3
Income tax expense.............. 18,115 1.2 6,008 0.4 15,869 1.1
---------- ----- ---------- ----- ---------- -----
Net income...................... $30,100 2.1% $10,680 0.8% $30,437 2.2%
========== ===== ========== ===== ========== =====
Fiscal 2002 presented a challenging economic climate. Total revenues for
the first half of the year were below prior year levels, followed by a modest
improvement in the second half, resulting in total revenues of $1.4 billion,
down 2% compared with fiscal 2001. However, our ability to manage inventory
efficiently in the face of this difficult environment allowed us to reduce
markdowns, which resulted in a 240 basis point improvement in gross margin and a
68% increase in income before interest and taxes. Working capital management
also provided significant cash flow benefits that, in addition to reducing net
interest expense, enabled us to end the year with $117.1 million of cash, an
increase of $73.5 million over the prior fiscal year.
Fiscal 2001 should be viewed as two distinct time periods. During the first
half of fiscal 2001, total revenues and net income grew 10% and 84%,
respectively, over the prior year principally driven by the financial
performance of the Kenneth Cole dress shirt and the Arrow dress shirt and
sportswear businesses. The licenses for those businesses were acquired in July
2000. Circumstances changed drastically after the tragic events of September
11th, which had a major negative impact on our business in the second half of
the year causing full year revenues to be down 2% and net income to be down 65%
after giving effect to the $13.4 million after tax charge ($21.0 million before
tax) for restructuring described below. Despite this decline in sales, we ended
fiscal 2001 with inventories 14% below the prior year level and positive cash
flow of $23.4 million.
In the fourth quarter of fiscal 2001, in response to the changing economic
climate and the gradual elimination, over the next few years, of import quotas
on apparel in most countries from which we source our products, we made a
decision to effect certain staff reductions, exit three Central American dress
shirt manufacturing facilities and liquidate certain related dress shirt
inventories. As a result, we recorded a $21.0 million charge, which included
$15.6 million related to closing the manufacturing facilities and staff
reductions in the first quarter of fiscal 2002 and $5.4 million related to the
liquidation of related dress shirt inventories. We believe these actions have
resulted in greater efficiency and flexibility in our sourcing and lower cost of
goods.
ACQUISITION OF CALVIN KLEIN
On February 12, 2003, we acquired Calvin Klein. The total net consideration
paid was $438.0 million, subject to post closing adjustments, and was comprised
of $408.0 million in net cash and $30.0 million of our common stock. In
addition, as part of the purchase price and in consideration for Mr. Klein's
sale to us of all of his
42
rights under a design services letter agreement with Calvin Klein, Mr. Klein
received a warrant to purchase 320,000 shares of our common stock at $28 per
share and will receive contingent purchase price payments equal to 1.15% of
total worldwide net sales of products bearing any of the Calvin Klein brands for
a period of 15 years. Such contingent purchase price payments will be charged to
goodwill and intangible assets. The cash portion of the consideration was
financed by the issuance of $250.0 million of our Series B convertible preferred
stock to the Apax affiliates, the borrowing of $100.0 million of a $125.0
million secured term loan from the Apax affiliates and with a portion of our
available cash. The additional $25.0 million of the term loan was drawn down on
March 14, 2003. The Series B convertible preferred stock is convertible into
common stock at a current conversion price of $14 per share and carries an 8%
dividend, payable in cash. If we elect not to pay a cash dividend for any
quarter, then the Series B convertible preferred stock will be treated for
purposes of the payment of future dividends and upon conversion, redemption or
liquidation as if an in-kind dividend had been paid.
As a result of the acquisition, we will generate a substantially greater
level of royalty, design and similar fees. For periods after the acquisition,
royalty, design and similar fees generated by Calvin Klein are being reported
separately as a component of total revenues. Royalty, design and similar fees,
which generate higher margins, are expected to have a positive impact on our
reported operating margins when compared with historical levels.
RESULTS OF OPERATIONS
Thirteen Weeks Ended May 4, 2003 and May 5, 2002
Net Sales
Our net sales in the first quarter of 2003 were $347.6 million compared
with $347.2 million in the prior year. Net sales in the first quarter of 2003
included $6.0 million related to our Calvin Klein men's and women's high-end
ready-to-wear collection apparel businesses that we are transferring over time
to Vestimenta under a license agreement. The Vestimenta license agreement will
be in full effect on January 1, 2004.
Our net sales in the first quarter of 2003 were down $5.6 million,
excluding sales of our Calvin Klein men's and women's high-end ready-to-wear
collection apparel businesses. Of such decrease, $8.9 million was due to a
decline of net sales in our Apparel and Footwear segment, driven principally by
lower sales of sandals and spring canvas product in our Bass footwear business
due to unseasonably cold weather in much of the United States. Offsetting this
decrease, in part, were net sales in our Calvin Klein Licensing segment of $3.3
million, which excludes the $6.0 million related to our Calvin Klein men's and
women's high-end ready-to-wear collection apparel businesses. The $3.3 million
of net sales relate to our Calvin Klein full-price retail stores that we operate
to showcase the Calvin Klein brand.
Royalty and Other Revenues
Our royalty and other revenues in the first quarter of 2003 were $29.4
million compared with $2.2 million in the prior year. Of this $27.2 million
increase, $26.3 million was due to royalty, design and similar fee revenues
generated by our Calvin Klein Licensing segment. Calvin Klein royalty and other
revenues are generated from licenses and other arrangements with our business
partners for the worldwide marketing of various products under the Calvin Klein
brands, including jeans, underwear, fragrances, eyewear, men's tailored
clothing, ties, shoes, hosiery, socks, swimwear, watches, coats, leather goods,
table top and soft home furnishings and accessories. These revenues are
recognized when licensed products and other products bearing a Calvin Klein
brand are sold by one of our licensees or other business partners. For licensees
whose sales are not expected to exceed contractual minimums, royalty revenue is
recognized based on contractual minimum royalties.
Gross Profit on Net Sales
Our gross profit on net sales in the first quarter of 2003 was $125.5
million, or 36.1% of net sales, compared with $116.6 million, or 33.6% of net
sales in the prior year. This increase was due principally to lower product
costs and more full price selling in our wholesale apparel businesses. In
particular, our dress shirt division benefited from sourcing reconfiguration
initiatives implemented in the fourth quarter of 2001, which were not fully
realized until the second half of 2002.
43
Gross Profit on Royalty and Other Revenues
Our gross profit on royalty and other revenues was equal to royalty and
other revenues, as there is no cost of sales associated with these revenues.
Selling, General and Administrative Expenses
Our selling, general and administrative expenses in the first quarter
of 2003 were $149.7 million compared with $114.5 million last year. Of this
$35.2 million increase, $15.3 million related to Calvin Klein integration costs,
which are reflected in our Calvin Klein Licensing segment. We expect to continue
to incur such integration costs throughout 2003. The balance of the increase in
selling, general and administrative expenses related principally to other
expenses associated with our Calvin Klein Licensing segment. Such expenses
included salaries, office occupancy and marketing as well as operating expenses
of the Calvin Klein retail stores.
Interest Expense
Our net interest expense in the first quarter of 2003 was $8.6 million
compared with $5.7 million last year. This increase was due principally to the
additional debt we incurred to finance the Calvin Klein acquisition, as well as
higher interest costs, principally letters of credit fees, associated with our
revolving credit facility, which we refinanced in October 2002.
Income Taxes
Our income taxes were estimated at a rate of 34.0% for the current year.
The full year rate for fiscal 2002 was 34.3%.
Fiscal Years 2000, 2001 and 2002
As noted above, in fiscal 2001, we incurred a $21.0 million charge for
restructuring and other costs, of which our Apparel segment incurred $19.0
million and our Footwear and Related Products segment incurred $2.0 million. The
following discussion of financial performance separately identifies these costs.
We believe that separately identifying these costs in this manner is a more
meaningful presentation as it more appropriately reflects the results of our
on-going operations and relative performance.
Apparel
The following table summarizes the operating results of our Apparel segment
in fiscal 2000, 2001 and 2002.
FISCAL YEAR
------------------------------------------------------------------------
2000 2001 2002
-------------------- --------------------- --------------------
($ IN THOUSANDS)
Total revenues.................... $ 1,071,029 100.0% $ 1,061,412 100.0% $ 1,042,855 100.0%
=========== ===== =========== ===== =========== =====
Gross profit...................... $ 350,943 32.8 $ 347,377 32.7 $ 376,091 36.1
Selling, general & administrative
expenses..................... 276,008 25.8 302,387 28.5 302,784 29.0
----------- ----- ----------- ----- ----------- -----
Operating income.................. $ 74,935 7.0% $ 44,990 4.2% $ 73,307 7.0%
=========== ===== =========== ===== =========== =====
--------------------
NOTE: This table includes the $19.0 million portion of the restructuring charge
incurred by our Apparel segment in fiscal 2001, of which $5.4 million was
charged to gross profit and $13.6 million was charged to selling, general and
administrative expenses. Without taking into account the restructuring charge,
gross margin in fiscal 2001 was 33.2%, selling, general and administrative
expenses as a percentage of total revenues was 27.2% and operating margin was
6.0%.
Revenues in both fiscal 2002 and 2001 were adversely affected by a very
weak apparel environment, particularly in dress shirts, compared with a strong
selling environment in fiscal 2000. The decrease in fiscal 2002 was also the
result of a reduction in promotional and close-out dress shirt sales used to
liquidate excess inventory during fiscal 2001. Adjusting for the 53rd week in
fiscal 2000, apparel sales increased by 1.0% in fiscal 2001.
44
Gross margin increased 340 basis points in fiscal 2002 to 36.1%, from 32.7%
in fiscal 2001 and 32.8% in fiscal 2000. The gross margin in fiscal 2001 of
32.7% includes a $5.4 million portion of the charge for restructuring and other
costs, which reduced fiscal 2001 gross margin by 0.5%. The improvement in gross
margin in fiscal 2002 resulted from the cost benefits realized from the closure,
at the beginning of the year, of our three Central American dress shirt
manufacturing facilities, as well as the higher level of regular price selling
experienced during the year. Aggressive inventory management during fiscal 2001
enabled us to manage through a weak sales environment at both wholesale and in
our retail stores and resulted in a gross margin of 32.7% compared with 32.8% in
fiscal 2000.
Our selling, general and administrative expenses as a percentage of total
revenues were 29.0% in fiscal 2002, compared with 28.5% in fiscal 2001 and 25.8%
in fiscal 2000. Such expenses in fiscal 2001 include a $13.6 million portion of
the charge for restructuring and other costs, which increased fiscal 2001
selling, general and administrative expenses by 1.3% of total revenues. The
increase in these expenses as a percentage of total revenues in fiscal 2002 over
the prior fiscal year resulted from higher payroll, incentive compensation,
medical and other employee benefit expenses coupled with the lack of offsetting
sales growth over the period. The increase in these expenses as a percentage of
total revenues in fiscal 2001 over fiscal 2000 resulted from the charge for
restructuring and other costs as well as higher payroll, incentive compensation,
medical and other employee benefit expenses coupled with the lack of offsetting
sales growth over the period.
Operating income was $73.3 million in fiscal 2002, up from $45.0 million in
fiscal 2001, including the charge for restructuring and other costs of $19.0
million incurred by this segment. This compares with $74.9 million in fiscal
2000. The significant improvement in gross profit and the lack of the charge for
restructuring and other costs in fiscal 2002 offset the decline in revenues and
resulted in the improvement in operating income. Our operating income margin
increased to 7.0% in fiscal 2002 from 4.2% in fiscal 2001, including the charge
for restructuring and other costs, which reduced operating income margin by
1.8%. Our operating income margin was 7.0% in fiscal 2000.
Footwear and Related Products
The following table summarizes the operating results of our Footwear
and Related Products segment in fiscal 2000, 2001 and 2002.
FISCAL YEAR
-----------------------------------------------------------------------
2000 2001 2002
-------------------- ------------------- ------------------
($ IN THOUSANDS)
Total revenues.................... $384,519 100.0% $370,480 100.0% $362,118 100.0%
======== ===== ======== ===== ======== =====
Gross profit...................... $150,570 39.2 $158,853 42.9 $155,139 42.8
Selling, general & administrative
expenses..................... 132,817 34.6 139,328 37.6 133,932 37.0
-------- ----- -------- ----- -------- -----
Operating income.................. $ 17,753 4.6% $ 19,525 5.3% $ 21,207 5.9%
======== ===== ======== ===== ======== =====
-----------------
NOTE: This table includes the $2.0 million portion of the restructuring charge
incurred by our Footwear and Related Products segment in fiscal 2001. Without
taking into account the restructuring charge, in fiscal 2001 selling, general
and administrative expenses as a percentage of total revenues was 37.1% and
operating margin was 5.8%.
The decline in revenues in fiscal 2002 resulted from a weak back-to-school
season and a sluggish holiday season, particularly in our own retail stores,
which were partially offset by increases in revenues in the first half of the
year. The fiscal 2001 decline in revenues was principally attributable to the
soft retail environment in the second half of the year, exacerbated by the
events of September 11th, which negatively impacted both our wholesale and
retail store sales.
Gross margin remained relatively flat in fiscal 2002 at 42.8% and 42.9% in
fiscal 2001, compared with 39.2% in fiscal 2000. The increase in fiscal 2001 was
a result of improved merchandising strategies, which resulted in reduced levels
of promotional selling from the prior year.
Selling, general and administrative expenses as a percentage of total
revenues were 37.0% in fiscal 2002, compared with 37.6% in fiscal 2001 and 34.6%
in fiscal 2000. The fiscal 2001 expenses include the $2.0 million portion of the
charge for restructuring and other costs incurred by the segment, which
increased fiscal 2001 selling,
45
general and administrative expenses by 0.5% of total revenues. The increase in
these expenses as a percentage of total revenues in fiscal 2001 over fiscal 2000
resulted from the charge for restructuring and other costs as well as higher
payroll, medical and other employee benefit expenses coupled with a lack of
offsetting sales growth over the period.
Operating income was $21.2 million in fiscal 2002, compared with $19.5
million in fiscal 2001, including the $2.0 million portion of the charge for
restructuring and other costs incurred by the segment. This compares with $17.8
million in fiscal 2000. Our operating income margins were 5.9% in fiscal 2002
and 5.3% in fiscal 2001, including the charge for restructuring and other costs,
which reduced operating income margin in fiscal 2001 by 0.5%. Our operating
income margin was 4.6% in fiscal 2000.
Corporate Expenses
Corporate expenses were $25.5 million in fiscal 2002, $23.4 million in
fiscal 2001 and $22.2 million in fiscal 2000. The increase in both years
resulted principally from an increase in certain logistical and information
technology expenses. We continue to make investments in information technology
and back-office logistics in order to improve our supply chain management, which
we believe enables us to better manage our inventories.
Interest Expense
Net interest expense in fiscal 2002 was $22.7 million, compared with $24.5
million in fiscal 2001 and $22.3 million in fiscal 2000. The reduction in fiscal
2002 was the result of higher cash balances due to the significant positive cash
flow generated during the year. The increase in fiscal 2001 resulted from
funding the acquisition of the Arrow and Kenneth Cole licenses in July 2000, as
well as the acquisition at the end of fiscal 2000 of the Van Heusen trademark in
parts of the world where we did not previously own the trademark.
Income Taxes
Our income tax expense rate was 34.3% in fiscal 2002, compared with 36.0%
in fiscal 2001 and 37.6% in fiscal 2000. The reduction in the tax rate over the
prior two years reflects various tax saving strategies which generated certain
federal and state income tax credits.
LIQUIDITY AND CAPITAL RESOURCES
Our cash requirements are principally to fund growth in working capital,
primarily accounts receivable and inventory to support increases in sales, and
capital expenditures, including investments in information technology,
warehousing and distribution and our retail stores. Historically, we have
financed these requirements from internally generated cash flow or seasonal
borrowings under our revolving credit facility.
Operating Activities
Cash used by operating activities was $36.7 million in the first quarter of
2003 compared with cash provided by operations of $7.8 million in the prior
year. Of the $44.6 million increase in cash used by operations, $23.5 related to
inventory. The change in inventories was due principally to the timing of core
product intake in the dress shirt business. We had a build up of core product
inventory in our dress shirt business as a result of a slowdown in replenishment
orders in the first quarter of 2003. Since the build up in inventory was related
to core product, we intend to reduce future intake of this product in order to
alleviate the current excess inventory.
Cash provided by our operating activities was $105.2 million in fiscal
2002, $63.7 million in fiscal 2001 and $35.4 million in fiscal 2000. The
increase in fiscal 2002 was driven by the improvement in our net income, as well
as our continued effective management of working capital, particularly
receivables which benefited from strong year-end collections. The increase in
cash flow from operations in fiscal 2001 compared with fiscal 2000 was the
result of aggressive working capital management, particularly inventory. We
currently anticipate that cash flow from operations will be lower in fiscal 2003
than the prior year resulting in part from funding approximately $50.0 million
of costs associated with integrating and restructing the Calvin Klein business.
46
Investing Activities
Our investing activities for the first quarter of 2003 were impacted
significantly by the acquisition of Calvin Klein. The net cash used for the
acquisition was $425.0 million, which included a $17.0 million liability, net of
tax, related to (1) severance and termination benefits for certain Calvin Klein
employees, (2) lease and other contractual obligations with respect to certain
Calvin Klein facilities which we do not plan to operate, (3) inventory purchase
commitments for product which we do not plan to continue marketing and (4)
various transaction fees and expenses, including advisory, accounting and legal
fees. Please see the note entitled "Noncash Investing and Financing
Transactions" in our Quarterly Report on Form 10-Q incorporated by reference in
this prospectus for a description of other costs associated with the Calvin
Klein acquisition. We are also making contingent purchase price payments to Mr.
Klein, as required under the acquisition agreement, equal to 1.15% of total
worldwide sales of products bearing any of the Calvin Klein brands. The amount
due to Mr. Klein for the first quarter of 2003 was $4.9 million. We estimate
that such payments will be approximately $20.0 million in fiscal 2003. We expect
to fund these payments from internally generated operating cash flow and
existing cash balances. Capital spending in the first quarter of 2003 was $2.9
million compared with $4.6 million in the prior year. The reduction in spending
in the first quarter of 2003 resulted from the timing of expenditures. Capital
spending in fiscal 2002 was $29.5 million compared with $33.4 million in fiscal
2001 and $31.9 million in fiscal 2000. The reduction in spending in fiscal 2002
resulted from the level and timing of expenditures related to investments in
information technology and warehousing and distribution. We currently anticipate
capital spending in fiscal 2003 will approximate $33.0 million to $38.0 million.
Financing Activities
Our financing activities for the first quarter of 2003 were impacted
significantly by the acquisition of Calvin Klein. In order to finance the
acquisition, we issued $250.0 million of convertible redeemable preferred stock
to the Apax affiliates. The cash proceeds of this issuance, after related fees,
were $249.3 million. In addition, we borrowed $125.0 million from the Apax
affiliates. We repaid this loan with a portion of the net proceeds received from
the outstanding notes that we issued on May 5, 2003. Please see the notes
entitled "Redeemable Preferred Stock," "Long-Term Debt," "Noncash Investing and
Financing Transactions" and "Subsequent Event" in our Quarterly Report on Form
10-Q incorporated by reference in this prospectus for a further description.
Our capital structure was impacted significantly by the acquisition of
Calvin Klein. As such, total debt as a percentage of total capital was 40.5% as
of May 4, 2003, 48.6% as of May 5, 2002, 47.8% as of February 2, 2003, 48.4% as
of February 3, 2002 and 48.1% as of February 4, 2001. Total capital includes
interest-bearing debt, convertible redeemable preferred stock and stockholders'
equity. These percentages, net of cash, were 39.3%, 43.5%, 32.6%, 43.6% and
46.0% at the end of May 4, 2003, May 5, 2002, February 2, 2003, February 3, 2002
and February 4, 2001, respectively.
We have a secured revolving credit facility which provides for revolving
credit borrowings as well as the issuance of letters of credit. We may, at our
option, borrow and repay amounts up to a maximum of $325.0 million under both
the revolving credit borrowings, as well as the issuance of letters of credit.
Borrowing spreads and letters of credit fees are based on spreads above
Eurodollar and other available interest rates, with the spreads changing based
upon a pricing grid. For example, revolving credit spreads range from 175 to 275
basis points over Eurodollar loan rates and 100 to 200 basis points on
outstanding letters of credit. As of May 4, 2003, there were no revolving credit
loans. All outstanding borrowings and letters of credit under this credit
facility are due October 17, 2007. We believe that our borrowing capacity under
this secured revolving credit facility provides us with adequate liquidity for
our peak seasonal needs for the foreseeable future.
We have entered into agreements that create contractual obligations and
commercial commitments. These obligations and commitments will have an impact on
future liquidity and the availability of capital resources. The tables set forth
below present a summary of these obligations and commitments as of February 2,
2003.
47
CONTRACTUAL OBLIGATIONS
Payments Due by Period
----------------------------------------------------------------
Total Less Than One to Four to After
Description Obligations One Year Three Years Five Years Five Years
----------- ----------- -------- ----------- ---------- ----------
(in thousands)
Long-term debt............................. $249,012 $ -- $ -- $ -- $249,012
Operating leases(1)........................ 209,289 59,894 97,384 24,534 27,477
-------- ---------- ---------- ---------- --------
Total contractual cash obligations......... $458,301 $ 59,894 $ 97,384 $ 24,534 $276,489
======== ========== ========== ========== ========
-----------------
(1) Includes store operating leases, which generally provide for payment of
direct operating costs in addition to rent. These obligation amounts
include future minimum lease payments and exclude such direct operating
costs.
COMMERCIAL COMMITMENTS(1)
Amount of Commitment Per Period
-----------------------------------------------------------------
Total Less Than One to Four to After
Description Obligations One Year Three Years Five Years Five Years
----------- ----------- -------- ----------- ---------- ----------
(in thousands)
Trade letters of credit outstanding(2)..... $137,813 $137,813 $ -- $ -- $ --
Standby letters of credit(2)............... 5,202 5,202 -- -- --
Raw material purchase guarantees(3)........ 4,500 -- 4,500 -- --
Contingent purchase price payments(4)...... -- -- -- -- --
-------- -------- ------- ------- -------
Total commercial commitments............... $147,515 $143,015 $ 4,500 $ -- $ --
======== ======== ======= ======= =======
--------------
(1) Excludes purchase orders for merchandise and supplies in the normal course
of business, which are fulfilled (or expire if not fulfilled) within 12
months.
(2) Issued under our revolving credit facility. At February 2, 2003, there were
no outstanding borrowings under this facility.
(3) Represents the maximum amount guaranteed for the purchase
of raw materials by Productos Textiles, S.A. de C.V., one
of our suppliers.
(4) Represents contingent purchase price payments to Mr. Klein. As part of the
Calvin Klein acquisition purchase price, Mr. Klein will receive contingent
purchase price payments for 15 years equal to 1.15% of total worldwide net
sales of products bearing any of the Calvin Klein brands. Such payment
would have been $20.1 million for fiscal 2002.
MARKET RISK
Financial instruments held by us include cash equivalents and long-term
debt. Based upon the amount of cash equivalents held by us at February 2, 2003
and the average net amount of cash equivalents which we currently anticipate
holding during fiscal 2003, we believe that a change of 100 basis points in
interest rates would not have a material effect on our financial position. The
long-term debt note to our consolidated financial statements in our Annual
Report on Form 10-K incorporated by reference in this prospectus outlines the
principal amounts, interest rates, fair values and other terms required to
evaluate the expected sensitivity of interest rate changes on the fair value of
our fixed rate long-term debt.
SEASONALITY
Historically our business has been seasonal, with higher sales and income
in the second half of the year which coincides with our two peak retail selling
seasons. Our first peak selling season runs from the start of the back-to-school
and fall selling season beginning in August and continues through September, and
our second peak selling season is the Christmas selling season which begins on
the weekend following Thanksgiving and continues through the week after
Christmas.
Also contributing to the strength of the second half is the high volume of
fall shipments to wholesale customers, which as a result of sales leverage
generate more profit than spring shipments. Historically, the spring selling
season at wholesale, with its lower sales volume, combines with similar retail
seasonality to make the first quarter weaker than the other quarters. In the
future, however, some of this historical seasonality is expected to be
moderated, especially in the first quarter of the year. This is due to the
impact of the substantial level of royalty, design and similar fee revenues from
Calvin Klein, which tend to be earned more evenly throughout the year.
48
ADOPTION OF NEW ACCOUNTING STANDARD
In 2002, we adopted FASB Statement No. 142, "Goodwill and Other Intangible
Assets." This standard requires that goodwill and other indefinitely lived
intangible assets not be amortized, but instead be tested for impairment. The
notes to our consolidated financial statements provide information regarding the
impact that such amortization had on our net income and earnings per share in
2001 and 2000. During 2002, we completed the required transitional impairment
tests. No impairment resulted from these tests.
ACCOUNTING POLICIES INVOLVING SIGNIFICANT ESTIMATES
Our financial statements are based on the selection and application of
significant accounting policies, which require management to make significant
estimates and assumptions. We believe that the following are the more critical
judgmental areas in the application of our accounting policies that currently
affect our financial condition and results of operations:
Sales allowance accrual -- We have arrangements with many of our department
and specialty store customers to support their sales of our products. We
establish accruals which, based on a review of the individual customer
arrangements and the expected performance of our products in their stores, we
believe will be required to satisfy our obligations to them. It is possible that
our estimates could vary from actual results, which would require adjustment to
the allowance accruals.
Inventories -- We state our inventories at the lower of cost or market.
When market conditions indicate that inventories may need to be sold below cost,
we write down our inventories to the estimated net realizable value. We believe
that all inventory writedowns required at February 2, 2003 have been recorded.
If market conditions were to change, it is possible that the required level of
inventory reserves would need to be adjusted.
Income taxes -- As of February 2, 2003, we have deferred tax assets
totaling $51.4 million, of which $33.0 million relates to tax loss and credit
carryforwards which begin to expire principally in 2010. Realization of these
carryforwards is primarily dependent upon our achievement of future taxable
income. Based on the extended expiration dates and projections of future taxable
income, we have determined that realization of these assets is more likely than
not. If future changes to market conditions require us to change our judgment as
to realization, it is possible that material adjustments to deferred tax assets
may be required.
Goodwill and other intangible assets -- As discussed above and in the notes
to our audited consolidated financial statements, in fiscal 2002 we adopted FASB
Statement No. 142. This statement requires, among other things, that goodwill
and other indefinitely lived intangible assets no longer be amortized, and
instead be tested for impairment based on fair value. An impairment loss could
have a material adverse impact on our financial condition and results of
operations. Performance of the goodwill impairment tests requires significant
judgments regarding the allocation of net assets to the reporting unit level,
which is the level at which the impairment tests are required. The determination
of whether an impairment exists also depends on, among other factors, the
estimated fair value of the reporting units, which itself depends in part on
market conditions.
Investment in Gant AB -- As of February 2, 2003, other noncurrent assets
included $13.4 million for an equity investment in Gant AB, which owns the Gant
trademark. We evaluate annually whether the carrying amount of this investment
is impaired based on the estimated fair market value of Gant AB.
Medical claims accrual -- We self-insure a significant portion of our
employee medical costs. Based on trends and the number of covered employees, we
record estimates of medical claims which have been incurred but not paid. If
actual medical claims varied significantly from these estimates, an adjustment
to the medical claims accrual would be required.
Pension benefits -- Included in the calculations of expense and liability
for our pension plans are various assumptions, including return on assets,
discount rate and future compensation increases. Based on these assumptions, and
due in large part to the poor performance of U.S. equity markets in the past few
years, we have certain unrecognized costs for our pension plans at February 2,
2003. Depending on future asset performance and discount rates, we could be
required to amortize these costs in the future which could have a material
effect on future pension expense. We are currently estimating that our fiscal
2003 pension expense will increase by approximately $5.0 million compared with
fiscal 2002. We could be required to fund a significant portion of pension
costs, beginning as early as fiscal 2004.
49
BUSINESS
OVERVIEW
We are one of the largest apparel and footwear companies in the world, with
a heritage dating back over 120 years. We design and market nationally
recognized branded dress shirts, sportswear and footwear. We believe we market
one in three of the dress shirts sold in the United States and have a leading
position in men's sportswear tops and men's casual footwear. Our portfolio of
brands includes our own brands, Van Heusen, Bass and IZOD, and our licensed
brands, Arrow, Geoffrey Beene, Kenneth Cole New York, Reaction by Kenneth Cole
and DKNY. We recently acquired Calvin Klein, a leading lifestyle design and
marketing company, whose brands enjoy high global recognition.
We design, source and market substantially all of our products on a
brand-by-brand basis targeting distinct consumer demographics and lifestyles. We
market our brands at multiple price points and across multiple channels of
distribution. This allows us to provide products to a broad range of consumers,
while minimizing competition among our brands and reducing our reliance on any
one demographic group, merchandise preference or distribution channel.
Currently, our products are distributed at wholesale through more than 10,000
doors in national and regional department, mid-tier department, mass market,
specialty and independent stores in the United States. We also leverage our
apparel design and sourcing expertise by offering private label programs to
retailers. Our wholesale business represents our core business and we believe
that it is the basis for our brand equity. As a profitable complement to our
wholesale business, we also market our products directly to consumers through
our Van Heusen, IZOD, Geoffrey Beene and Bass retail stores, primarily located
in outlet malls throughout the United States.
THE CALVIN KLEIN ACQUISITION
On February 12, 2003, we acquired Calvin Klein. Over the past 30 years, we
believe Calvin Klein has become one of the best known designer names in the
world. We believe that the Calvin Klein brands -- Calvin Klein, cK and cK Calvin
Klein -- complement our existing portfolio of brands by providing us with the
opportunity to market products at higher price points, in higher-end
distribution channels and to different consumer groups than our existing product
offerings. Although the Calvin Klein brand is well established and, we believe,
enjoys strong brand awareness among consumers worldwide, there are numerous
product areas in which no products, or only a limited number of products, are
offered under any Calvin Klein label, including men's and women's better
sportswear, footwear and certain accessories. We believe our expertise in brand
management, product design, sourcing and other logistics provides us with the
ability to successfully expand product offerings and distribution under the
Calvin Klein brands while preserving the brands' prestige and global presence.
As a result, we believe we have the opportunity to realize sales growth and
enhanced profitability.
Worldwide retail sales of products sold under the Calvin Klein brands
exceeded $3 billion in calendar 2002. These products are sold primarily under
licenses and other arrangements and include jeans, underwear, fragrances,
eyewear, men's tailored clothing, ties, shoes, hosiery, socks, swimwear,
watches, coats, leather goods, table top and soft home furnishings and
accessories. Calvin Klein also designs, manufactures and markets high-end
ready-to-wear collection apparel and accessories for men and women under the
Calvin Klein brand. We believe these collections are an important factor in
maintaining the Calvin Klein image. The collection apparel and accessories are
sold to a limited number of high-end department stores and independent boutiques
throughout the world and through three company-operated stores located in New
York City, Dallas and Paris. We have recently entered into an agreement to
license the existing collection apparel businesses to Vestimenta, one of the
world's leading manufacturers and distributors of women's and men's high-end
ready-to-wear apparel, commencing with the spring 2004 collection. During the
period prior to our license of the businesses, we will transfer the operations
of the businesses to Vestimenta. Calvin Klein controls all design operations and
product development for most of its licensees and all of its collection apparel,
which it will continue to do under its agreement with Vestimenta. Calvin Klein
oversees a worldwide marketing and advertising budget of over $200 million, the
majority of which is funded by its licensees. We believe that maintaining
control over design and advertising through Calvin Klein's dedicated in-house
teams plays a key role in the continued strength of the Calvin Klein brands.
The total net consideration paid for our acquisition of Calvin Klein was
$438.0 million, subject to post-closing purchase price adjustments, and was
comprised of $408.0 million in net cash and $30.0 million of our common stock
issued to the sellers. In addition, as part of the purchase price and in
consideration of Mr. Klein's sale
50
to us of all of his rights under a design services letter agreement with Calvin
Klein, Mr. Klein received a warrant to purchase 320,000 shares of our common
stock at $28 per share and will receive contingent purchase price payments based
on worldwide net sales of products bearing any of the Calvin Klein brands for a
period of 15 years. Upon our acquisition of Calvin Klein, the design services
letter agreement was terminated. In addition, Mr. Klein entered into a
three-year consulting agreement with us for $1.0 million per year.
OUR COMPETITIVE STRENGTHS
WE HAVE A DIVERSIFIED PORTFOLIO OF NATIONALLY RECOGNIZED BRANDS. We have
developed a portfolio of brands targeted to a broad spectrum of consumers. Our
owned brands have long histories -- Bass dates back to 1876, Van Heusen to the
early 1920s and IZOD to the 1930s -- and enjoy high recognition within their
respective consumer segments. Our design and marketing teams use each brand's
particular qualities, identities and price points to strategically position each
brand to target a distinct consumer base. We develop our owned and licensed
brands to complement each other and to generate strong consumer loyalty. The
acquisition of Calvin Klein and its prestigious brands provides us with the
opportunity to develop businesses that target different consumer groups at
higher price points and in higher-end distribution channels than our other
brands, as well as with significant global opportunities due to the worldwide
recognition of the Calvin Klein brands.
WE HAVE AN ESTABLISHED MULTI-CHANNEL DISTRIBUTION MODEL. We have a
diversified sales distribution strategy that includes an established
multi-channel wholesale business and a complementary retail store base. We
believe that the wholesale channel provides us with the best means of promoting
a fully conceptualized image for each of our brands. Currently, we distribute
our products through more than 10,000 doors in the United States in national and
regional department, mid-tier department, mass market, specialty and independent
stores. We believe that we are a top vendor for many of our key wholesale
customers. In addition, we operate over 700 retail stores, primarily in outlet
malls throughout the United States, under the Van Heusen, IZOD, Bass and
Geoffrey Beene names. We believe our profitable retail division is an important
complement to our wholesale operations because we believe that our stores
further enhance consumer awareness of our brands, including by offering products
that are not available in our wholesale lines, while also providing a means for
managing excess inventory.
WE ARE A LEADER IN THE DRESS SHIRT AND SPORTSWEAR TOPS MARKETS. Our dress
shirt brands have the highest market share in the $2 billion U.S. dress shirt
market. We believe we market one in three of the dress shirts sold in the United
States. In 2002, sales of our dress shirt brands were approximately 42% of dress
shirt sales in U.S. department stores, which is the largest sales channel for
dress shirts. We also continue to experience sales growth in the large and
fragmented $10 billion U.S. men's sportswear tops market. We believe that the
high recognition and depth of our brand offerings enables us to maintain, and
offers us the opportunity to increase, main floor space with our customers. We
enjoy well-developed, long-standing relationships with most national and
regional department store retailers. We regularly introduce into our product
lines products with innovative qualities, such as stain resistance, flexible fit
and wrinkle free technology, and we also provide visual display fixtures and
in-store marketing. We believe these measures help build brand identification
and loyalty with consumers, strengthen our value to our consumers and enhance
our customer relationships.
WE HAVE A STABLE AND DIVERSIFIED BUSINESS. Our diversified portfolio of
apparel brands and apparel and footwear products and our use of multiple
channels of distribution has allowed us to develop a business that produces
results that are not dependent on any one demographic group, merchandise
preference or distribution channel. We believe that our diversification reduces
our reliance on any single market or product category and increases the
stability of our business. Our acquisition of Calvin Klein provides us with a
significantly expanded source of licensing revenues which we believe adds to the
stability of our business. In addition, we will be able to broaden our consumer
reach and diversify our business with the Calvin Klein brands, as Calvin Klein
targets a different demographic group than our current product offerings and is
intended to be sold at different price points than our other products.
WE HAVE HAD SUCCESS IN ACQUIRING, MANAGING, DEVELOPING AND POSITIONING NEW
BRANDS. Over the past several years, we have been successful in acquiring,
managing, developing and positioning several brands within our existing
business. In 1995, we acquired the IZOD brand, and since then have grown it into
the leading main floor department store men's sportswear tops brand. We have
grown the wholesale sales of IZOD by over 400% since 1995, and we believe IZOD
currently represents approximately 20% of total main floor selling space in the
major U.S. department stores. We began marketing IZOD dress shirts in the third
quarter of 2001 and recently introduced a line of IZOD footwear for
market-testing purposes. We licensed the Arrow brand in July 2000 and began to
51
reposition it in the dress shirt and sportswear market as the mid-tier
department store complement to the Van Heusen brand. In addition, over the past
few years, we have introduced and marketed DKNY dress shirts, which now
represent over 3% of the total department store dress shirt sales in the United
States. For the three-year period from 2000 through 2002, DKNY was the fourth
best-selling designer dress shirt in U.S. department stores. In July 2000, we
assumed the license for Kenneth Cole New York dress shirts. Since fiscal 2001,
which was our first full year of operations under the Kenneth Cole license, our
Kenneth Cole New York sales have grown 27.9%. We later expanded the brand
offerings under that license by introducing Reaction by Kenneth Cole dress
shirts, a more youthful counterpart to the Kenneth Cole New York products. We
believe our core competencies in brand management, product design, sourcing and
logistics enable us to effectively manage, develop and position new brands and
profitably expand our business. We believe that this expertise will enable us to
execute our strategy for developing and growing Calvin Klein.
WE HAVE SOPHISTICATED AND ESTABLISHED SOURCING, LOGISTICS, WAREHOUSE AND
DISTRIBUTION SYSTEMS. Our centralized capabilities for worldwide procurement and
sourcing support our efforts to deliver to our customers competitive, high
quality and low cost goods on a timely basis. We have an extensive, established
network of worldwide sourcing partners which allows us to meet our customers'
needs in an efficient manner, with neither reliance on any one vendor or
factory, nor reliance on vendors or factories in any one country. We have a long
history of working with many of our sourcing partners and have become an
integral part of their businesses. In addition, we are committed to the
enforcement of human rights standards, which is a priority for us and, we
believe, for our customers. We also operate a system of wholesale and retail
distribution centers which we believe have sufficient capacity to accommodate
future growth, including our strategies for Calvin Klein, without a significant
increase in capital expenditures. We believe that our investments in logistics
and supply chain management allow us to respond rapidly to changes in sales
trends and customer demands while enhancing our inventory management
efficiencies. We believe our customers can better manage their inventories as a
result of our continuous analysis of sales trends, our broad array of product
availability and our quick response capabilities.
WE HAVE A HIGHLY EXPERIENCED MANAGEMENT TEAM. Our executive management team
has extensive experience in the apparel industry, and many of our senior
executives have spent the majority of their professional careers with us. Bruce
J. Klatsky, our Chairman and Chief Executive Officer, and Mark Weber, our
President and Chief Operating Officer, have each been with us for over 30 years.
In addition, the other 22 members of our senior management team have an average
of 23 years of industry experience.
OUR BUSINESS STRATEGY
We intend to continue to expand and develop our position as a leading
multi-branded marketer of apparel and footwear and further the development of
our brands domestically and internationally. We intend to capitalize on the
significant opportunities presented by our recent acquisition of Calvin Klein,
as well as focus on strengthening our core business, through the execution of
the following strategies:
MANAGEMENT AND DEVELOPMENT OF THE CALVIN KLEIN BRANDS. The acquisition of
Calvin Klein provides us with the opportunity to use our core competencies to
expand the product offerings under the globally-recognized Calvin Klein brands
and to bring these new product offerings into additional channels of
distribution. Additionally, we believe we that can realize significant corporate
and administrative cost savings within the Calvin Klein business. We intend to
do this while preserving the brands' prestige and global presence. We believe we
will be able to broaden our consumer reach and diversify our business with the
Calvin Klein brands, as Calvin Klein targets a different demographic group than
our current product offerings and is intended to be sold at different price
points than our other products. In addition to extending the Calvin Klein
brands, product offerings and consumer reach, we expect to realize significant
cost savings by utilizing our infrastructure in managing the expenses of Calvin
Klein. Our primary development and growth initiatives include:
o MAINTAIN AND ENHANCE THE CORE CALVIN KLEIN LICENSING BUSINESS. We
intend to continue to license the Calvin Klein brands to existing
licensees and to seek additional licensing partners as profitable
opportunities arise. We believe that licensing the brands provides us
with a relatively stable flow of revenues with high margins and enables
us to market globally the Calvin Klein brands across multiple product
categories, further enhancing the image and reach of these lifestyle
brands.
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o DEVELOP A CALVIN KLEIN MEN'S BETTER SPORTSWEAR LINE. As Calvin Klein
does not currently offer men's better sportswear, we plan to launch a
men's better sportswear line in fall 2004, reflecting the Calvin Klein
style and capitalizing on the strong Calvin Klein brand identity. These
products will target better fashion department and specialty store
customers and be sold in sportswear collection areas, complementing the
existing main floor sportswear offerings of our other brands. We expect
to capitalize on our experience in developing successful sportswear
lines, sourcing expertise and strong wholesale customer relationships
to take advantage of this market opportunity. We believe that the
uniqueness and strength of the Calvin Klein image will enable it to
become a prominent brand in the men's better sportswear sector.
o LICENSE A CALVIN KLEIN WOMEN'S BETTER SPORTSWEAR LINE. We recently
entered into a strategic licensing arrangement with Kellwood to develop
a women's better sportswear line to be marketed in North, Central and
South America under the Calvin Klein name. Women's better sportswear is
not currently offered under any of the Calvin Klein brands. Under the
terms of the arrangement, Kellwood will collaborate with Andrew
Grossman and Alexander Vreeland, who have formed a new business venture
with Jay Schottenstein, G.A.V., to help develop and launch the line.
Design, sales and marketing will be the responsibility of Messrs.
Grossman and Vreeland, while Kellwood will be responsible for
production, sourcing and distribution and providing working capital
relating to G.A.V.'s performance under the license agreement. We will
have design and customer approval and will control branding,
advertising and public relations. It is our current expectation that
this new line will launch in the United States as early as the spring
2004 season and not later than the fall 2004 season. We believe that
this line will become a prominent brand in the women's better
sportswear sector because of the uniqueness and strength of the Calvin
Klein image.
o LICENSE, AND TRANSFER THE OPERATIONS OF, THE EXISTING CALVIN KLEIN
MEN'S AND WOMEN'S HIGH-END READY-TO-WEAR COLLECTION APPAREL BUSINESSES.
We recently entered into an agreement to license our men's and women's
high-end ready-to-wear collection apparel businesses to Vestimenta, one
of the world's leading manufacturers and distributors of women's and
men's high-end ready-to-wear apparel. The license is an exclusive,
worldwide, 10-year license for the Calvin Klein Collection brand.
During a transition period, we will transfer the operations of our
collection apparel businesses to Vestimenta. Vestimenta will be
responsible for the merchandising, manufacturing, quality control,
selling, warehousing and shipping aspects of such businesses. Our
Calvin Klein design and advertising teams will be responsible for
substantially all design, marketing, advertising and public relations
aspects of the collection apparel businesses and will approve the
wholesale customers to which Vestimenta will sell the collections. We
believe this business relationship will optimize our global
opportunities, enhance the brand image of Calvin Klein and result in
cost savings.
o OPERATE CALVIN KLEIN RETAIL OUTLET STORES. We intend to enhance our
retail position by opening Calvin Klein stores in premium outlet malls
that are consistent with the Calvin Klein image and in which other
prestige designers maintain stores. We currently intend to open between
75 and 85 Calvin Klein outlet stores over time in such premium outlet
malls. We believe that the strength of the Calvin Klein brands, our
strong presence and considerable experience operating stores in outlet
malls across the United States and our established relationships with
landlords of the premium outlet malls should enable us to successfully
execute this strategy.
o REDUCE OVERHEAD EXPENSES. We believe that Calvin Klein's corporate
overhead and back office expenses are significantly higher than
required by the size and needs of its business. We intend to
significantly reduce these costs and integrate many Calvin Klein
overhead functions with our current operations, thereby increasing the
cash flow and profitability of Calvin Klein. It is not our intention to
reduce the in-house marketing and advertising and design divisions of
Calvin Klein.
CONTINUE TO STRENGTHEN THE COMPETITIVE POSITION AND IMAGE OF OUR CURRENT
BRAND PORTFOLIO. We intend for each of our brands to be a leader in its
respective market segment, with strong consumer awareness and consumer loyalty.
We believe that our brands are successful in their respective segments because
we have strategically positioned each brand to target a distinct consumer
demographic. We will continue to design and market our branded products to
complement each other, satisfy lifestyle needs, emphasize product features
important to our target consumers and produce consumer loyalty.
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o ENHANCE OUR RELATIONSHIPS. We will seek to increase our market share
within the dress shirt, sportswear and footwear segments by enhancing
our relationships with existing customers and gaining increased floor
space. We believe the broad appeal and diversity of our products,
together with our customer, advertising and marketing support and our
ability to offer products with innovative qualities, will enable us to
expand and develop relationships with apparel retailers in the United
States and internationally. In addition, we will continue to provide
private label products as profitable opportunities arise.
o INCREASE OUR SPORTSWEAR MARKET PENETRATION. We believe that our brands
offer retailers advantages over many of the current less recognized
labels available on the main floor due to the name recognition of our
brands, the style, price and value equation we offer and the customer,
advertising and marketing support that we provide. Our wholesale men's
sportswear sales have increased 16.9% from 1998 to 2002. We believe
that our share of the men's sportswear tops market in 2002 in U.S.
department stores was 6.8%, compared to 4.8% in 2000. We believe our
brands' advantages, as well as expected growth in this large and
fragmented segment of the men's apparel market, provide us with an
opportunity for further growth.
o EXPAND OUR NETWORK OF LICENSING PARTNERS FOR FUTURE PRODUCT EXTENSION.
We believe our nationally recognized brand names provide us with growth
opportunities in product licensing. We will seek to strengthen our
existing licensing relationships and to align ourselves with new
licensing partners to take advantage of these growth opportunities as
they arise. These opportunities may include the licensing of our brand
names across other product categories and internationally.
OPTIMIZE SUPPLY CHAIN AND LOGISTICS EFFICIENCIES. To address the needs of
our customers, we are continuing to make investments and develop strategies to
enhance our ability to provide timely product availability and delivery. Our
investments in sophisticated systems should allow us to continue to reduce the
cycle time between the design of products to the delivery of those products to
our customers. We believe the enhancement of our supply chain efficiencies and
working capital management through the effective use of our distribution network
and overall infrastructure will allow us to better control costs and provide
improved service to our customers.
OUR BUSINESS
Our business includes the design, sourcing and marketing of a varied
selection of branded and private label dress shirts, sportswear and footwear as
well as the licensing of our brands for an assortment of products. Prior to our
acquisition of Calvin Klein, our business was reported in two segments: (1)
Apparel and (2) Footwear and Related Products. Our Apparel segment was operated
in two groups: dress shirts and sportswear. The acquisition of Calvin Klein
impacted the way we manage and analyze our operating results. As a result, we
have changed the way we report our segment data, and we now report the following
two business segments: (1) Apparel and Footwear and (2) Calvin Klein Licensing.
Sales of our products are made principally in the United States.
APPAREL AND FOOTWEAR
DRESS SHIRTS
We market our dress shirts principally under the Van Heusen, Arrow, IZOD,
Geoffrey Beene, cK Calvin Klein, Kenneth Cole New York, Reaction by Kenneth Cole
and DKNY brands.
Our dress shirt business, which generated, through the wholesale channel,
22.7% of our fiscal 2002 revenues, includes the design and marketing of dress
shirts in a broad selection of styles and colors that are sold at retail price
points generally ranging from $20 to $65 a shirt.
The Van Heusen dress shirt has provided a strong foundation for us for most
of our history and is the best selling dress shirt brand in the United States.
The Van Heusen dress shirt targets the updated classical consumer, is marketed
at opening to moderate price points and is distributed through more than 3,500
doors, principally in department stores, including Belk, Federated, JCPenney,
May and Saks, and through our Van Heusen retail stores.
The Arrow dress shirt targets the updated classical consumer, is marketed
at opening to moderate price points and is distributed through more than 2,000
doors, principally in mid-tier department stores, including Kohl's and Sears.
The Arrow dress shirt is positioned as a mid-tier department store complement to
Van Heusen. We
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market Arrow dress shirts under a license agreement with Cluett American Corp.
that expires on June 30, 2007 and which we may extend through June 30, 2017.
IZOD dress shirts were launched in the third quarter of fiscal 2001. The
IZOD dress shirt targets the modern traditional consumer, is marketed at
moderate price points and is distributed through more than 1,200 doors,
principally in department stores, including Belk, JCPenney and May.
The Geoffrey Beene dress shirt is the best selling designer dress shirt
brand in U.S. department stores in the United States. The Geoffrey Beene dress
shirt targets the more style conscious consumer, is marketed at moderate to
upper moderate price points and is distributed through more than 2,500 doors,
principally in department stores, including Federated, Marshall Field's, May and
Saks, and through our Geoffrey Beene retail stores. We market Geoffrey Beene
dress shirts under a license agreement with Geoffrey Beene Inc. that expires on
December 31, 2008 and which we may extend through December 31, 2013.
cK Calvin Klein dress shirts were launched for the holiday 2002 season. The
cK Calvin Klein dress shirt targets the classical contemporary consumer, is
marketed at better price points and currently is distributed through more than
550 doors, principally in department and specialty stores, including Federated,
Marshall Field's and May. We market cK Calvin Klein dress shirts under a license
agreement with Calvin Klein, which we entered into prior to our acquisition of
Calvin Klein.
The Kenneth Cole New York dress shirt targets the modern consumer, is
marketed at better price points and is distributed through more than 650 doors,
principally in department stores including Dillards, Federated, Marshall Field's
and May. The Reaction by Kenneth Cole dress shirt targets the more youthful,
modern consumer, is marketed at opening better to better price points and is
distributed through more than 350 doors, principally in department stores,
including Federated and May. We market the two Kenneth Cole brands of dress
shirts under a license agreement with K.C.P.L., Inc. that expires on December
31, 2005.
The DKNY dress shirt targets the contemporary consumer, is marketed at
better price points and is distributed principally in department and specialty
stores, including Federated, Marshall Field's and Saks. We market DKNY dress
shirts under a license agreement with Donna Karan Studio that expires on June
30, 2004.
In addition, we sell dress shirts under the Etienne Aigner and FUBU labels
pursuant to license agreements that expire May 31, 2004 and December 31,2003,
respectively.
We also offer private label programs to retailers. Private label offerings
allow a retailer to sell its own line of exclusive merchandise and give the
retailer control over distribution of the product. These programs present an
opportunity for us to leverage our design, sourcing and logistics expertise. Our
private label customers work with our designers to develop shirts in the styles,
sizes and cuts that the customers desire to sell in their stores under their
private labels. Private label programs offer the consumer quality product and
offer the retailer the opportunity to enjoy product exclusivity at generally
higher margins. Private label products, however, generally do not have the same
level of consumer recognition as branded products and private label
manufacturers do not generally provide retailers with the same breadth of
services and in-store sales and promotional support as branded manufacturers. We
market private label dress shirts to national department and mass market stores.
Our private label programs include Stafford for JCPenney, Grant Thomas for Lord
& Taylor, Cezani for Saks and Puritan and George for Wal-Mart.
SPORTSWEAR
We market our sportswear principally under the IZOD, Van Heusen, Arrow and
Geoffrey Beene brands. Our sportswear business, which generated 50.7% of our
fiscal 2002 revenues, includes men's knit and woven sports shirts, sweaters,
bottoms, swimwear, boxers and outerwear marketed at wholesale and sportswear,
accessories and other apparel for men and women offered in our Van Heusen, IZOD
and Geoffrey Beene retail stores.
IZOD is the best selling main floor department store men's sportswear tops
brand. IZOD apparel consists of active-inspired men's sportswear, including
sweaters, knit and woven sports shirts, slacks, fleecewear and microfiber
jackets. IZOD sportswear targets the active consumer, is marketed at moderate to
upper moderate price points and is distributed through more than 2,400 doors,
principally in department stores, including Belk, Federated, JCPenney, May and
Saks, and through our IZOD retail stores. Our IZOD stores offer men's and
women's active-inspired sportswear, with a focus on golf, travel and resort
apparel.
Van Heusen is the best selling main floor department store men's woven
sport shirt brand in the United States. Van Heusen sportswear also includes knit
sport shirts and sweaters. Like Van Heusen dress shirts, Van
55
Heusen sport shirts and sweaters target the updated classical consumer, are
marketed at opening to moderate price points and are distributed through more
than 3,500 doors, principally in department stores, including Belk, Federated,
JCPenney, May and Saks, and through our Van Heusen retail stores. Our Van Heusen
stores offer a range of men's products from dress furnishings to sportswear, as
well as women's sportswear.
Arrow sportswear targets the updated classical consumer, is marketed at
moderate price points and is distributed through more than 2,000 doors,
principally in mid-tier department stores, including Kohl's and Sears. Arrow
sportswear consists of men's knit and woven tops, sweaters and bottoms. We
market Arrow sportswear at wholesale under the same license agreement as Arrow
dress shirts.
Geoffrey Beene sportswear targets a more style conscious consumer than
IZOD, Van Heusen and Arrow and is positioned as a designer label for men's woven
and knit sports shirts on the main floor of department stores. Geoffrey Beene
sportswear is marketed at upper moderate price points and is distributed through
more than 800 doors, principally in department stores, including Federated,
Marshall Field's and May, and through our Geoffrey Beene retail stores. Our
Geoffrey Beene stores offer men's furnishings, casual and dress casual
sportswear and women's casual and dress casual sportswear, under a license
agreement which expires on December 31, 2005, which we may extend for up to two
additional three-year periods, the last of which would end on December 31, 2011.
We market Geoffrey Beene men's sportswear at wholesale under the same license
agreement as the Geoffrey Beene dress shirts.
Our extensive resources in both product development and sourcing have
permitted us to market private label sport shirts to department and mass market
stores. Our private label programs include Cherokee and Merona for Target and
Puritan for Wal-Mart. We also market private label sport shirts to companies in
service industries, including airlines and restaurant chains.
FOOTWEAR
Sales of our footwear and related products generated 25.8% of our fiscal
2002 revenues. The products include casual and dress casual shoes for men, women
and children marketed at wholesale and in our Bass retail stores and Bass
apparel and accessories for men and women offered only in our Bass retail
stores.
The Bass brand has a leading position in men's casual footwear in the
United States. Bass footwear is generally known for its classic American style,
is marketed at moderate price points and is distributed through more than 3,600
doors, principally in department and specialty shoe stores, including Dillards,
Federated and May, as well as in our Bass retail stores. Our Bass stores
typically carry a modified assortment of Bass footwear from our wholesale line,
as well as styles not available at wholesale. Most of our stores also carry Bass
apparel for men and women, as well as accessories such as handbags, belts and
travel gear. Bass brand products are sold in over 30 countries including through
38 Bass stores offering exclusively Bass footwear and footwear-related products
operated by distributors.
In the fall of 2002, we introduced a line of IZOD footwear consisting of
men's and women's active footwear for market-testing purposes. IZOD footwear is
marketed at moderate to upper moderate price points and is distributed in Belk,
Federated, May and Saks.
LICENSING
We license our brands globally for a broad range of products. The licensing
of our brands generated 0.8% of our fiscal 2002 revenues. We believe licensing
revenue from our licensing partners provides us with a relatively stable flow of
revenues with high margins, and extends and strengthens our brands globally.
We grant licensing partners the right to manufacture and sell at wholesale
specified products under one or more of our brands. In addition, certain foreign
licensees are granted the right to open retail stores under the licensed brand
name and sell only goods under that name in such stores. A substantial portion
of the sales by our domestic licensing partners are made to our largest
wholesale customers. As compensation for our contributions under these
agreements, each licensing partner pays us royalties based upon its sales of our
branded products, subject generally, to payment of a minimum royalty. These
payments generally range from 3.0% to 7.0% of the licensing partners' sales of
the licensed products. In addition, licensing partners are generally required to
spend an amount equal to between 2.0% and 5.0% of their sales to advertise our
products. We provide support to our business partners and seek to preserve the
integrity of our brand names by taking an active role in the design, quality
control, advertising,
56
marketing and distribution of each licensed product, most of which are subject
to our prior approval and continuing oversight.
We license our Van Heusen, IZOD, IZOD Club and G.H. Bass & Co. brand names
for various products worldwide. We also sublicense to others the Arrow and
Geoffrey Beene brand names for various products. Our largest licensing partners
in fiscal 2002 by licensing revenues paid to us were:
o Fishman & Tobin, Inc. accounting for approximately 18%
o Oxford Industries, Inc. accounting for approximately 15%
o Block Sportswear, Inc. accounting for approximately 14%
We license under approximately 60 license agreements. The products offered
by our key domestic licensing partners include:
LICENSING PARTNER PRODUCT CATEGORY
----------------- ----------------
Block Sportswear, Inc.......................................... Van Heusen and IZOD "big and tall" sportswear
Custom Leather Canada Limited.................................. Van Heusen belts
Fishman & Tobin, Inc........................................... Van Heusen and IZOD boys' sportswear
Host Apparel, Inc.............................................. Van Heusen pajamas and robes
Aptaker Co., Inc. d/b/a Nouveau Eyewear........................ Van Heusen and G.H. Bass eyewear
Randa Neckwear Corp............................................ Van Heusen neckwear
Tropical Sportswear International, Inc......................... Van Heusen men's pants
Westport Corporation........................................... Van Heusen small leather goods
Clearvision Optical Company, Inc............................... IZOD eyewear
Gold Toe Brand, Inc............................................ IZOD and IZOD Club hosiery
Humphrey's Accessories LLC..................................... IZOD belts
International Home Textiles, Inc............................... IZOD soft home furnishing products
Kellwood Company............................................... IZOD women's sportswear and, commencing 2004, swimwear
Knothe Corporation............................................. IZOD sleepwear and loungewear
Mallory & Church Corporation................................... IZOD neckwear
Peerless Delaware, Inc......................................... IZOD tailored clothing
Oxford Industries, Inc......................................... IZOD Club men's and women's golf apparel
Additional products sold bearing our marks include Van Heusen underwear,
handkerchiefs, scarves and hosiery and IZOD leather outerwear. A large number of
our Van Heusen licenses are with foreign licensees that offer dress shirts and
sportswear under that brand name.
CALVIN KLEIN LICENSING
An important source of revenues for Calvin Klein is its business
arrangements with licensees and other third parties worldwide that manufacture
and distribute globally a broad array of products under the Calvin Klein brands.
On a pro forma basis reflecting our acquisition of Calvin Klein, Calvin Klein's
royalty, design and similar fees would have generated 8.0% of our fiscal 2002
revenues. We believe royalty, design and similar fees from business partners
provide us with a relatively stable flow of revenues with high margins, and
extend and strengthen our brands globally. For fiscal 2002, approximately 52% of
revenues from Calvin Klein's business partners was generated by its domestic
business partners and approximately 48% was generated by its foreign business
partners. Worldwide retail sales of products sold under the Calvin Klein brands
exceeded $3 billion in calendar 2002. Calvin Klein combines its design,
marketing and imaging skills with the specific manufacturing, distribution and
geographic capabilities of its business partners to enter into new product
categories and extend existing lines of business. Calvin Klein's largest
business partners in terms of royalty, design and similar fees paid to Calvin
Klein in fiscal 2002 were:
o Warnaco, Inc. accounting for approximately 36%
o Calvin Klein Cosmetics Corporation (Unilever N.V.) accounting for
approximately 23%
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o Marchon Eyewear, Inc. accounting for approximately 9%
Calvin Klein has a approximately 30 licensing and other strategic
arrangements. The products offered by Calvin Klein's key business partners
include:
BUSINESS PARTNER PRODUCT CATEGORY
---------------- ----------------
Warnaco, Inc............................................ Men's, women's and children's jeanswear; men's
underwear and sleepwear; women's intimate
apparel and sleepwear; women's swimwear
(commencing in 2004)
Calvin Klein Cosmetics Corporation
(Unilever N.V.)......................................... Men's, women's and children's fragrance and
bath products
Marchon Eyewear Inc..................................... Men's and women's optical frames and
sunglasses
O.B.T. Co., Ltd (Japan)................................. Men's and women's cK Calvin Klein bridge
apparel and certain casual attire and women's
coats and accessories
CK Jeanswear Europe, S.p.A.............................. Men's, women's and children's jeanswear and
women's belts
CK Jeanswear Asia Ltd................................... Men's, women's and children's jeanswear
Design Works Inc........................................ Soft home furnishing products
CK Watch Co., Ltd (Swatch SA)........................... Men's and women's watches and clocks
McGregor Industries, Inc................................ Men's and women's socks and women's tights
Peerless Delaware, Inc.................................. Men's tailored clothing
Additional products sold bearing Calvin Klein brands include certain men's
furnishings and small leather goods, table top furnishings, women's better
footwear and swimwear and men's dress footwear. Kellwood, together with G.A.V.,
will be introducing a line of women's better sportswear under the Calvin Klein
brand commencing in 2004 and Vestimenta will produce the men's and women's
high-end ready-to-wear apparel under the Calvin Klein Collection label,
commencing with the spring 2004 collections.
With respect to revenues generated from the sale of Calvin Klein men's
underwear and sleepwear and women's intimate apparel and sleepwear, Warnaco pays
us an administration fee based on Warnaco's worldwide sales of underwear,
intimate apparel and sleepwear bearing any of the Calvin Klein marks under an
administration agreement between Calvin Klein and Warnaco. As a result of our
acquisition of Calvin Klein, Warnaco is entitled to control design and
advertising related to the sale of underwear, intimate apparel and sleepwear
products bearing the Calvin Klein name. See "--Trademarks."
WHOLESALE CUSTOMERS
Our wholesale business represents our core business and we believe that it
is the basis for our brand equity. Currently, our products are distributed at
wholesale through more than 10,000 doors in national and regional department,
mid-tier department, mass market, specialty and independent stores in the United
States. A few of our customers, including Federated, JCPenney, Kohl's, May and
Wal-Mart account for significant portions of our revenues. Sales to our five
largest customers were 30.7% of our revenues in fiscal 2002, 27.7% of our
revenues in fiscal 2001 and 28.3% of our revenues in fiscal 2000. No single
customer accounted for greater than 10% of our revenues in fiscal 2002.
We believe we provide our customers with a significantly high level of
service. We have six separate sales forces covering the following products and
product categories:
o national brand dress shirts-- Van Heusen, Arrow and IZOD
o designer brand dress shirts-- cK Calvin Klein, Geoffrey Beene, Kenneth
Cole New York, Reaction by Kenneth Cole and DKNY
o Van Heusen and Geoffrey Beene sportswear
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o IZOD sportswear
o Arrow sportswear
o Bass and IZOD footwear
Each sales force includes a team of sales professionals that work closely with
our customers providing them with a dedicated level of service including
designing a focused selling strategy for each brand while ensuring that each
brand's particular qualities and identities are strategically positioned to
target a distinct consumer base. Our customers offer our dress shirts and men's
sportswear on the main floor of their stores and we offer our customers
merchandising support with visual display fixtures and in-store marketing. When
a line of our products is displayed in a stand-alone area on the main floor, we
are able to further enhance brand recognition, to permit more complete
merchandising of our lines and to differentiate the presentation of products. We
believe the broad appeal of our products, with multiple well known brands
offering differing styles at different price points, together with our customer,
advertising and marketing support and our ability to offer products with
innovative qualities, allow us to expand and develop relationships with apparel
retailers in the United States.
We believe that our investments in logistics and supply chain management
allow us to respond rapidly to changes in sales trends and consumer demands
while enhancing our inventory management efficiencies. We believe our customers
can better manage their inventories as a result of our continuous analysis of
sales trends, our broad array of product availability and our quick response
capabilities. Certain of our products can be ordered at any time through our EDI
replenishment systems. For customers who reorder these products, we generally
ship these products within one to two days of order receipt.
The Calvin Klein men's and women's high-end ready-to-wear collection
apparel and accessories are sold to a limited number of high-end department
stores and independent boutiques throughout the world, including Bergdorf
Goodman, Neiman Marcus, Nordstrom and Saks. We also operate three stores that
offer the collections. Ranging in size from 5,400 to 20,000 square feet, these
stores are located in New York City, Dallas and Paris.
RETAIL STORES
We operate over 700 retail stores under the Van Heusen, IZOD, Bass and
Geoffrey Beene names. Ranging in size from 1,000 to 11,000 square feet, with an
average of approximately 4,000 square feet, our stores are primarily located in
outlet malls throughout the United States. We believe our profitable retail
division is an important complement to our wholesale operations because we
believe that the stores further enhance consumer awareness of our brands,
including by offering products that are not available in our wholesale lines,
while also providing a means for managing excess inventory.
Our Van Heusen outlet stores offer men's dress shirts and neckwear, men's
and women's sportswear, including woven and knit shirts, sweaters, bottoms and
outerwear, and men's and women's accessories. The stores are targeted to the
value-conscious, middle American consumer.
Our IZOD outlet stores offer men's and women's active-inspired sportswear,
including knit and woven shirts, sweaters, bottoms and activewear. These stores
focus on golf, travel and resort clothing.
Our Bass outlet stores offer a modified assortment of Bass footwear from
our wholesale line, as well as styles not available at wholesale. Most of our
stores also carry apparel for men and women, including tops, bottoms and
outerwear and accessories such as handbags, wallets, belts and travel gear.
Our Geoffrey Beene outlet stores offer men's dress shirts and neckwear,
men's and women's sportswear including woven and knit shirts, sweaters, bottoms
and outerwear and men's and women's accessories. These stores are targeted
towards a more fashion-conscious, designer-oriented consumer.
We also market selected Bass/G.H. Bass & Co. and IZOD footwear and IZOD
sportswear over the Internet on a limited basis.
DESIGN
Our business depends on our ability to stimulate consumer tastes and
demands, as well as on our ability to remain competitive in the areas of quality
and price.
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A significant factor that plays a key role in the continued strength of our
brands is our in-house design teams. We form separate teams of designers and
merchandisers for each of our brands, and with respect to Calvin Klein, for each
product category, creating a structure that focuses on the special qualities and
identity of each brand and product. These designers and merchandisers consider
consumer taste and lifestyle and trends when creating a brand or product plan
for a particular season. The process from initial design to finished product
varies greatly, but generally spans six to ten months prior to each selling
season. Apparel and footwear product lines are developed primarily for two major
selling seasons, spring and fall. However, certain of our product lines offer
more frequent introductions of new merchandise.
Calvin Klein has developed a cohesive team of senior design directors who
share a vision for the Calvin Klein brands and who each lead a separate design
team. We intend to maintain the in-house design teams of Calvin Klein. These
teams will continue to control all design operations and product development for
most licensees and other strategic alliances. In addition, new teams sharing the
same vision will be assembled to play a key role in developing our men's better
sportswear line, and oversee all design operation and product development in
connection with the licensing of a women's better sportswear line.
SOURCING AND PRODUCTION
To address the needs of our customers, we are continuing to make
investments and develop strategies to enhance our ability to provide our
customers with timely product availability and delivery. Our investments in
sophisticated systems should allow us to reduce the cycle time between the
design of products to the delivery of those products to our customers. We
believe the enhancement of our supply chain efficiencies and working capital
management through the effective use of our distribution network and overall
infrastructure will allow us to better control costs and provide improved
service to our customers.
Approximately 225 different manufacturers produce our products in over 300
factories worldwide. During fiscal 2002, in excess of 95% of our products were
produced by manufacturers located in foreign countries. We source finished
products and raw materials. Raw materials include fabric, buttons, thread,
labels, leather and similar materials. Raw materials and production commitments
are generally made two to six months prior to production and quantities are
finalized at that time. We believe we are one of the largest procurers of
shirting fabric in the world. Finished products consist of manufactured and
fully assembled products ready for shipment to our customers and our stores.
Most of our dress shirts and all of our sportswear are sourced and manufactured
to our specifications by independent manufacturers in the Far East, Indian
subcontinent, Middle East, Caribbean and Central America who meet our quality,
cost and human rights requirements. Our footwear is sourced and manufactured to
our specifications by independent manufacturers who meet our quality, cost and
human rights requirements, principally located in the Far East, Europe, South
America and the Caribbean. No single supplier is critical to our production
needs, and we believe that an ample number of alternative suppliers exist should
we need to secure additional or replacement production capacity and raw
materials. Given our extensive network of sourcing partners, we believe we are
able to obtain goods at low cost and on a timely basis.
Our foreign offices and buying agents enable us to monitor the quality of
the goods manufactured by, and the delivery performance of, our suppliers, which
includes the enforcement of human rights standards through our on-going approval
and monitoring system. In addition, sales are monitored regularly at both the
retail and wholesale levels and modifications in production can be made either
to increase or reduce inventories. We continually seek additional suppliers
throughout the world for our sourcing needs and place our orders in a manner
designed to limit the risk that a disruption of production at any one facility
could cause a serious inventory problem. We have not experienced significant
production delays or difficulties in importing goods. Our purchases from our
suppliers are effected through individual purchase orders specifying the price
and quantity of the items to be produced.
Approximately 7% of our dress shirts are manufactured in our domestic
apparel manufacturing facility located in Ozark, Alabama. This facility, which
we own, is approximately 108,000 square feet, and is utilized by us primarily as
a quick response facility, including by fulfilling product replenishment orders.
WAREHOUSING AND DISTRIBUTION
To facilitate distribution, our products are shipped from manufacturers to
our wholesale and retail warehousing and distribution centers for inspection,
sorting, packing and shipment to our customers. Ranging in size from 67,000 to
575,000 square feet, our centers are located in North Carolina, Tennessee,
Pennsylvania, Georgia,
60
Arkansas, Maine and New Jersey. Each of our centers is generally dedicated to
serving either our wholesale customers or our retail stores. Our warehousing and
distribution centers are designed to provide responsive service to our customers
and our retail stores, as the case may be, on a cost-effective basis. This
includes the use of various forms of electronic communications to meet customer
needs, including advance shipping notices for all major customers. We believe
our current warehousing and distribution centers have sufficient capacity to
accommodate future growth, including our strategies for Calvin Klein, without a
significant increase in capital expenditures. We further believe that our
distribution centers and capabilities compare favorably on a cost and service
basis with those of our competitors and that these constitute part of our core
competencies.
ADVERTISING AND PROMOTION
We market substantially all of our products on a brand-by-brand basis
targeting distinct consumer demographics and lifestyles. Our marketing programs
are an integral feature of our product offerings. Advertisements generally
portray a lifestyle rather than a specific item. We intend for each of our
brands to be a leader in its respective market segment, with strong consumer
awareness and consumer loyalty. We believe that our brands are successful in
their respective segments because we have strategically positioned each brand to
target a distinct consumer demographic. We will continue to design and market
our products to complement each other, satisfy lifestyle needs, emphasize
product features important to our target consumers and produce consumer loyalty.
We advertise our brands primarily in national print media, including
fashion, entertainment/ human interest, business, men's, women's, niche and
sports magazines and The New York Times. We also participate in cooperative
advertising programs with our customers, as we believe that brand awareness and
in-store positioning are further strengthened by our contributions to such
programs.
With respect to our retail operations, we rely upon local outlet mall
developers to promote traffic for their centers. Outlet center developers employ
multiple formats, including signage (highway billboards, off-highway directional
signs, on-site signage and on-site information centers), print advertising
(brochures, newspapers and travel magazines), direct marketing (to tour bus
companies and travel agents), radio and television, and special promotions.
In acquiring Calvin Klein, we believe we acquired one of the best known
designer names in the world. One of the efforts that has helped to establish the
Calvin Klein image has been its high-profile, cutting-edge advertising campaigns
that have stimulated admiration, publicity, curiosity and debate. Calvin Klein
has a dedicated in-house advertising agency with experienced in-house creative
and media teams that develop and execute a substantial portion of the
advertising for products under the Calvin Klein brands. The teams work closely
with other functional areas within Calvin Klein and its licensing and other
business partners to deliver a consistent and unified brand message to the
consumer. Calvin Klein oversees a worldwide marketing and advertising budget of
over $200 million, a majority of which is funded by its licensees.
Calvin Klein products are advertised primarily in national print media,
through outdoor signage and, with respect to fragrances, in television
advertising spots. We believe promotional activities throughout the year further
strengthen brand awareness of the Calvin Klein brands. The spring and fall
Calvin Klein high-end ready-to-wear apparel collections are presented at major
fashion shows in New York City and Milan, which typically generate extensive
media coverage. Other Calvin Klein promotional efforts include in-store
appearances by fashion models, providing wardrobes to celebrities for award
ceremonies, product launches, gift-with-purchase programs, charity events and
special corporate-sponsored events.
It is our intention to continue the Calvin Klein advertising and
promotional practices and strategies. In order to accomplish this, we intend to
leave the Calvin Klein marketing and advertising teams in place and to continue
to maintain the Calvin Klein advertising and promotions budget at or above
recent historical levels.
TRADEMARKS
We own the Van Heusen, Bass, G.H. Bass & Co., IZOD and IZOD Club brands, as
well as related trademarks and lesser-known names. As a result of our
acquisition of Calvin Klein, we beneficially own the Calvin Klein, cK and cK
Calvin Klein marks. Calvin Klein and Warnaco are co-owners of the Calvin Klein
Trademark Trust, which is the sole and exclusive title owner of substantially
all registered Calvin Klein, cK and cK Calvin Klein trademarks. The sole purpose
of the trust is to hold these marks. Calvin Klein maintains and protects the
marks on behalf of the trust pursuant to a servicing agreement. The trust
exclusively licenses to Warnaco on a perpetual,
61
royalty-free basis the use of the marks on men's underwear and sleepwear and
women's intimate apparel and sleepwear, and to Calvin Klein on a perpetual,
royalty-free basis the use of the marks on all other products. Warnaco pays us a
fee based on Warnaco's worldwide sales of underwear, intimate apparel and
sleepwear products bearing any of the Calvin Klein marks under an administration
agreement between Calvin Klein and Warnaco.
In acquiring the Calvin Klein, cK and cK Calvin Klein marks, we agreed to
allow Mr. Calvin Klein to retain the right to use his name, on a non-competitive
basis, with respect to his right of publicity, unless those rights were already
being used in the Calvin Klein business. We also granted Mr. Klein a
royalty-free, worldwide right to use the Calvin Klein mark with respect to
certain personal businesses and activities, such as motion picture, television
and video businesses; a book business; writing, speaking and/or teaching
engagements; non-commercial photography; charitable activities; and
architectural and industrial design projects, subject to certain limitations
designed to protect the image and prestige of the Calvin Klein brands and to
avoid competitive conflicts.
Our trademarks are the subject of registrations and pending applications
throughout the world for use on a variety of apparel, footwear and related
products, and we continue to expand our worldwide usage and registration of new
and related trademarks. In general, trademarks remain valid and enforceable as
long as the marks continue to be used in connection with the products and
services with which they are identified and, as to registered trade names, the
required registration renewals are filed. In markets outside of the United
States, particularly those where products bearing any of our brands are not sold
by us or any of our licensees or other authorized users, our rights to the use
of trademarks may not be clearly established.
We regard the license to use our trademarks and our other intellectual
property rights in and to the trademarks as valuable assets in marketing our
products and, on a worldwide basis, vigorously seek to protect them against
infringement. We are susceptible to others imitating our products and infringing
our intellectual property rights. This is especially the case since our
acquisition of Calvin Klein, as the Calvin Klein brands enjoy significant
worldwide consumer recognition and its generally higher pricing provides
significant opportunity and incentive for counterfeiters and infringers. Calvin
Klein has a broad, proactive enforcement program, which we believe has been
generally effective in controlling the sale of counterfeit products in the
United States and in major markets abroad. We have taken enforcement action with
respect to our other marks on an as-needed basis.
OUR RELATIONSHIP WITH MR. KLEIN
In order to assist in a seamless transition of our acquisition of Calvin
Klein, we have entered into a three-year consulting agreement with Mr. Klein for
$1.0 million per year. Mr. Klein is available to consult on advertising,
marketing, design, promotion and publicity aspects of Calvin Klein.
Prior to our acquisition of Calvin Klein, Calvin Klein was obligated to pay
Mr. Klein and his heirs in perpetuity a percentage of sales of certain products
bearing any of the Calvin Klein brands under a design services letter agreement.
In connection with our acquisition of Calvin Klein, we bought all of Mr. Klein's
rights under that agreement in consideration of a warrant to purchase our common
stock and for granting him the right to receive from us contingent purchase
price payments for a period of 15 years based on a percentage of total worldwide
net sales of products bearing any of the Calvin Klein brands. In addition, Mr.
Klein was released from all of his obligations under that agreement, including
his obligation to render design services to Calvin Klein, and the design
services letter agreement was terminated. On a pro forma basis reflecting our
acquisition of Calvin Klein, such payment to Mr. Klein would have been $20.1
million for fiscal 2002. Our obligation to make contingent purchase price
payments to Mr. Klein in connection with our acquisition of Calvin Klein is
guaranteed by our Calvin Klein subsidiaries and is secured by a subordinated
pledge of all of the equity interests in our Calvin Klein subsidiaries and a
subordinated lien on substantially all of our domestic Calvin Klein
subsidiaries' assets. Events of default under the agreements governing the
collateral for our contingent payment obligations to Mr. Klein, include, but are
not limited to (1) our failure to make payments to Mr. Klein when due, (2)
covenant defaults, (3) cross-defaults to other indebtedness in excess of an
agreed amount, (4) events of bankruptcy, (5) monetary judgment defaults and (6)
a change of control, including the sale of any portion of the equity interests
in our Calvin Klein subsidiaries. An event of default under those agreements
would permit Mr. Klein to foreclose on his security interest in the collateral.
In addition, if we fail to pay Mr. Klein a contingent purchase price payment
when due and such failure to pay continues for 60 days or more after a final
judgment by a court is rendered relating to our failure to pay, Mr. Klein will
no longer be restricted from competing with us as he otherwise would be under
the non-competition provisions contained in the purchase agreement relating to
our acquisition of Calvin Klein, although he would still not be able to use any
of the Calvin Klein brands or any similar trademark in any competing business.
62
COMPETITION
The apparel industry is competitive as a result of its fashion orientation,
its mix of large and small producers, the flow of domestic and imported
merchandise and the wide diversity of retailing methods. Some of our larger
branded apparel competitors include Polo/Ralph Lauren, Tommy Hilfiger, Nautica,
Perry Ellis and Chaps. As a result of our acquisition of Calvin Klein, we
believe Donna Karan, Ralph Lauren's Purple Label, Giorgio Armani, Gucci and
Prada also will be our competitors. In addition, we face significant competition
from retailers, including our own wholesale customers, through their private
label programs.
The footwear industry is characterized by fragmented competition.
Consequently, retailers and consumers have a wide variety of choices regarding
brands, style and price. However, over the years, the Bass brand has maintained
an important position in casual footwear, while we have extended the brand's
offerings to modern, contemporary casual and dress casual styles. We believe
that few of our competitors have the overall men's and women's brand recognition
of Bass. Our primary footwear competitors include Dockers, Timberland, Rockport,
Sperry and Naturalizer.
We compete primarily on the basis of style, quality and service. Our
business depends on our ability to stimulate consumer tastes and demands, as
well as on our ability to remain competitive in the areas of quality, service
and price. We believe we are particularly well positioned to compete in the
apparel and footwear industries. Our diversified portfolio of apparel brands and
apparel and footwear products and our use of multiple channels of distribution
has allowed us to develop a business that produces results which are not
dependent on any one demographic group, merchandise preference or distribution
channel. We have developed a portfolio of brands that appeal to a broad spectrum
of consumers. Our owned brands have long histories and enjoy high recognition
within their respective consumer segments. We develop our owned and licensed
brands to complement each other and to generate strong consumer loyalty. The
acquisition of Calvin Klein and its prestigious brands provides us with the
opportunity to develop businesses that target different consumer groups at
higher price points and in higher-end distribution channels than our other
brands, as well as with significant global opportunities due to the worldwide
recognition of the Calvin Klein brands.
TARIFFS AND IMPORT RESTRICTIONS
A substantial portion of our products is manufactured by contractors
located outside the United States. These products are imported and are subject
to U.S. customs laws, which impose tariffs as well as import quota restrictions
for textiles and apparel established by the U.S. government. In addition, a
portion of our imported products is eligible for certain duty-advantaged
programs commonly known as NAFTA, AGOA, CBTPA and CBI. While importation of
goods from some countries from which we obtain goods may be subject to embargo
by U.S. Customs authorities if shipments exceed quota limits, we closely monitor
import quotas and can, in most cases, shift production to contractors located in
countries with available quotas. The existence of import quotas has, therefore,
not had a material adverse effect on our business. Moreover, with the gradual
elimination of textile and apparel quotas over the next few years by the World
Trade Organization, these quota restrictions will no longer affect our business
in most countries.
PROPERTIES
The general location, use, ownership status and approximate size of the
principal properties which we currently occupy are set forth below:
APPROXIMATE
OWNERSHIP AREA IN
LOCATION USE STATUS SQUARE FEET
-------- --- ------ -----------
New York, New York.................. Corporate, apparel and footwear Leased 138,000
administrative offices and showrooms
Bridgewater, New Jersey............. Corporate and apparel administrative offices Leased 163,000
S. Portland, Maine.................. Footwear administrative offices Leased 99,000
Ozark, Alabama...................... Apparel manufacturing facilities Owned 108,000
Reading, Pennsylvania............... Apparel warehouse and distribution center Owned 410,000
Chattanooga, Tennessee.............. Apparel warehouse and distribution center Owned 451,000
Chattanooga, Tennessee.............. Apparel storage Leased 60,000
63
Schuylkill Haven, Pennsylvania...... Apparel warehouse and distribution center Owned 251,000
Austell, Georgia.................... Apparel warehouse and distribution center Leased 421,000
Brinkley, Arkansas.................. Apparel warehouse and distribution center Owned 112,000
Wilton, Maine....................... Footwear warehouse and distribution center Owned 352,000
North Jay, Maine.................... Footwear warehouse and distribution center Owned 67,000
Jonesville, North Carolina.......... Apparel and footwear warehouse and Owned 575,000
distribution center
Hong Kong........................... Corporate, apparel and footwear Leased 18,000
administrative offices
In addition, we lease certain other administrative/support offices in
various domestic and international locations. We also currently operate and
lease over 700 apparel and footwear retail stores in the United States.
In connection with our acquisition of Calvin Klein, we acquired leases for
administrative offices and showrooms in New York, New York, where we occupy
approximately 159,000 square feet, a warehouse and distribution center in North
Bergen, New Jersey, where we occupy approximately 180,000 square feet, and
certain other administrative/support offices and retail stores in various
domestic and international locations, including three outlet stores and four
full-priced company-operated stores, three of which sell collection apparel and
accessories and one of which sold jeanswear. The company-operated store that
sold jeanswear was located in London and was closed in June 2003. We intend to
close the distribution center in New Jersey in connection with our licensing
arrangement with Vestimenta and the three outlet stores.
EMPLOYEES
As of August 3, 2003, we employed approximately 5,047 persons on a
full-time basis and approximately 3,907 persons on a part-time basis.
Approximately 4.2% of our employees are represented for the purpose of
collective bargaining by five different unions. Additional persons, some
represented by these five unions, are employed from time to time based upon our
manufacturing schedules and retailing seasonal needs. Our collective bargaining
agreements generally are for three-year terms. One of these agreements, which
covers 62 employees, expired in May 2003. We are in the process of negotiating a
new collective bargaining agreement for these employees. We believe that our
relations with our employees are satisfactory.
ENVIRONMENTAL MATTERS
Our facilities and operations are subject to various environmental, health
and safety laws and regulations, including the proper maintenance of
asbestos-containing materials. In addition, we may incur liability under
environmental statutes and regulations with respect to the contamination of
sites that we own or operate or previously owned or operated (including
contamination caused by prior owners and operators of such sites, abutters or
other persons) and the off-site disposal of hazardous materials. We believe our
operations are in compliance with terms of all applicable laws and regulations.
LEGAL PROCEEDINGS
We are a party to certain litigation which, in our management's judgment
based in part on the opinions of legal counsel, will not materially negatively
impact our financial position.
64
MANAGEMENT
The following table sets forth the name, age and position of each of our
directors and executive officers:
NAME AGE POSITION
---- --- --------
Bruce J. Klatsky...............................55 Chairman of the Board and Chief Executive Officer; Director
Mark Weber.....................................54 President and Chief Operating Officer; Director
Emanuel Chirico................................46 Executive Vice President and Chief Financial Officer
Francis K. Duane...............................46 Vice Chairman, Sportswear
Allen E. Sirkin................................61 Vice Chairman, Dress Shirts
Diane M. Sullivan..............................48 Vice Chairman, Footwear
Michael Zaccaro................................57 Vice Chairman, Retail Apparel
Edward H. Cohen*...............................64 Director
Joseph B. Fuller...............................46 Director
Joel H. Goldberg...............................60 Director
Marc Grosman(o)+...............................48 Director
Dennis F. Hightower*(o)+.......................61 Director
David A. Landau(o)+............................37 Director
Harry N.S. Lee.................................60 Director
Bruce Maggin*..................................60 Director
Henry Nasella*.................................56 Director
Christian Nather...............................37 Director
Peter J. Solomon(o)+...........................64 Director
--------------
* Member of the Audit Committee
(o) Member of the Nominating Committee
+ Member of the Compensation Committee
Mr. Bruce J. Klatsky has been employed by us in various capacities over the
last 30 years, and was our President from 1987 to March 1998. Mr. Klatsky was
named Chief Executive Officer in June of 1993 and Chairman of the Board in June
of 1994.
Mr. Mark Weber has been employed by us in various capacities over the last
30 years, had been a Vice President since 1988, was Vice Chairman since 1995 and
was named President and Chief Operating Officer in 1998.
Mr. Emanuel Chirico joined us as Vice President and Controller in 1993. Mr.
Chirico was named Executive Vice President and Chief Financial Officer in 1999.
Mr. Francis K. Duane became our Vice Chairman, Sportswear in February 2001,
after serving as President of our IZOD division since May 1998. From 1996 until
1998, he was President, Worldwide Sales, of Guess, Inc., an apparel company.
Mr. Allen E. Sirkin has been employed by us since 1985. He served as
Chairman of our Apparel Group from 1990 until 1995 and was named Vice Chairman,
Dress Shirts in 1995.
Ms. Diane M. Sullivan joined us as Vice Chairman, Footwear in September
2001. From 1999 until 2001, she was President, Chief Operating Officer and a
Director of The Stride Rite Corporation, a footwear company. From 1997 until
1999, Ms. Sullivan was a Group President with The Stride Rite Corporation.
Mr. Michael Zaccaro became our Vice Chairman, Retail Apparel in April 2002.
Prior to that he was Group President, Van Heusen and IZOD Retail from August
2001 until April 2002, President, IZOD Retail from January 1999 until July 2001
and President, Van Heusen Retail from August 1996 until December 1998.
Mr. Edward H. Cohen has served as one of our directors since 1987 and is
also a director of Franklin Electronic Publishers, Inc., Levcor International,
Inc., Merrimac Industries, Inc. and Gilman & Ciocia, Inc. He was a partner in
the law firm of Rosenman & Colin LLP from 1972 until its February 1, 2002 merger
with Katten Muchin Zavis, at which time he became, and currently is, counsel to
the merged firm of Katten Muchin Zavis Rosenman.
65
Mr. Joseph B. Fuller has served as one of our directors since 1991 and is
also a director of Merrimac Industries, Inc. He is currently, and has been for
more than the past five years, the Chief Executive Officer and a director of
Monitor Company, a management consulting firm.
Dr. Joel H. Goldberg has served as one of our directors since 1997 and is
also a director of Hampshire Group, Limited as well as Merrimac Industries, Inc.
He is currently, and has been for more than the past five years, the President
of Career Consultants, Inc., a management consulting firm.
Mr. Marc Grosman has served as one of our directors since 1997 and is also
a director of Aigle SA. He is the Founder, and has been for more than the past
five years, the Chief Executive Officer of Marc Laurent SA, the owner of a chain
of European apparel stores which trades under the name CELIO.
Mr. Dennis F. Hightower has served as one of our directors since 1997 and
is also a director of The Gillette Company, Northwest Airlines Corporation,
PanAmSat Corporation and The TJX Companies, Inc. Although he is currently a
retired business executive, he was a Professor of Management at Harvard
University School of Business Administration from July 1996 until May 2000, and
Chief Executive Officer of Europe Online Networks S.A. from June 2000 until
February 2001.
Mr. David A. Landau became one of our directors in February 2003. Mr.
Landau has been a partner of Apax Partners, Inc., an international private
equity investment group, and the head of Apax's U.S. Consumer/Retail Group since
1998.
Mr. Harry N.S. Lee has served as one of our directors since 1995. He is
currently, and for more than the past five years has been, the Managing Director
of TAL Apparel Limited, an apparel manufacturer and exporter based in Hong Kong.
Mr. Bruce Maggin has served as one of our directors since 1987 and is also
a director of Central European Media Enterprises Ltd. and Avalon Digital
Marketing Systems. He is currently the Principal of The H.A.M. Media Group, LLC,
a media investment company. From 1999 until 2002, Mr. Maggin was the Chief
Executive Officer of TDN, Inc. (d/b/a at TVMedia, Inc.), a marketer of
interactive television advertising.
Mr. Henry Nasella became one of our directors in February 2003. He has been
a venture partner of Apax Partners, an international private equity investment
group, since he joined Apax in 2001. From 1999 until 2001, Mr. Nasella was
Chairman of Online Retail Partners Inc., a private venture capital and
information technology services company. From 1994 to 1999, he was Chairman and
Chief Executive Officer of Star Markets Co., Inc., a privately held food
retailer.
Mr. Christian Nather became one of our directors in February 2003. From
1993 to 2001, he was a partner of McKinsey & Company, a management consulting
firm, with a focus in the consumer goods and retail sector. Mr. Nather has been
a partner of Apax Partners, an international private equity investment group,
since he joined Apax in 2001.
Mr. Peter J. Solomon has served as one of our directors since 1987 and is
also a director of BKF Capital Group, Inc., Monro Muffler Brake, Inc. and Office
Depot, Inc. He is currently, and has been for more than the past five years, the
Chairman of Peter J. Solomon L.P., an investment banking firm.
Each of our executive officers holds the office indicated until his or her
successor is chosen and qualified at the regular meeting of the board of
directors held immediately following our annual meeting of stockholders.
In addition, Mr. Tom Murry is continuing as President and Chief Operating
Officer of Calvin Klein. Prior to joining Calvin Klein in 1996, Mr. Murry spent
six years as Corporate President of Tahari, Ltd., a women's apparel
manufacturer.
The Apax affiliates purchased our Series B convertible preferred stock for
$250.0 million in February 2003, the proceeds of which we used to pay a portion
of the purchase price for Calvin Klein. Pursuant to the certificate of
designations, preferences and rights for the Series B convertible preferred
stock, the holders of such stock have the right to elect separately as a class
up to three directors to our board of directors and one of those directors to
our audit committee, compensation committee, executive committee and nominating
committee. David A. Landau, Henry Nasella and Christian Nather were elected by
the Apax affiliates as their designees on our board of directors. Mr. Landau was
designated to serve on the compensation, executive and nominating committees and
Mr. Nasella was designated to serve on the audit committee.
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PRINCIPAL STOCKHOLDERS
The following table sets forth information with respect to the persons
who are known by us to be the beneficial owners of more than five percent of our
common stock as of August 3, 2003. Beneficial ownership is determined in
accordance with the rules of the SEC and generally includes voting or investment
power with respect to securities as well as the right to acquire securities
under options and convertible securities. In computing the number of shares
beneficially owned by a person and the percent of ownership of that person,
shares subject to options and convertible securities held by that person that
are presently exercisable or convertible or will become exercisable or
convertible within 60 days are deemed outstanding. These shares are not deemed
outstanding for computing the percentage of any other person. Unless otherwise
indicated in the footnotes to the following tables, the persons named in the
tables have sole voting and investment power with respect to all of our stock
shown as beneficially owned by them. As of August 3, 2003, we had outstanding
30,334,763 shares of common stock.
AMOUNT
NAME AND ADDRESS OF BENEFICIALLY PERCENT OF
BENEFICIAL OWNER OWNED CLASS
---------------- ----- -----
Apax affiliates(1).................................................. 18,540,642 37.9%
Vaneton International, Inc.(2)...................................... 4,481,101 14.8%
P.O. Box 3340
Road Town
Tortola, British Virgin Islands
Dimensional Fund Advisors Inc.(3)................................... 1,934,100 6.4%
1299 Ocean Avenue, 11th Floor
Santa Monica, California 90401
Putnam, LLC(4)...................................................... 1,637,715 5.4%
One Post Office Square
Boston, Massachusetts 02109
--------------
(1) Apax Managers, Inc., 445 Park Avenue, New York, New York 10022, Apax
Partners Europe Managers Limited, 15 Portland Place, London, England W1B
1PT and Apax Europe V GP Co. Limited, 13-15 Victoria Road, St. Peter Port,
Guernsey, Channel Islands, may be deemed to beneficially own an aggregate
of 18,540,642 shares of our common stock representing 37.9% of our
outstanding common stock. The Apax shares consist solely of the shares of
our common stock issuable upon the conversion of shares of our Series B
convertible preferred stock. Of the Apax shares, Apax Partners Europe
Managers Limited and its affiliate Apax Europe V GP Co. Limited, may be
deemed to beneficially own an aggregate of 14,338,097 shares of our common
stock, issuable upon conversion of 7,733.3 shares of Series B convertible
preferred stock acquired by certain private equity funds. Apax Partners
Europe Managers Limited is the discretionary investment manager and Apax
Europe V GP Co. Limited is the general partner of the general partner of
those funds. Apax Partners Europe Managers Limited and Apax Europe V GP Co.
Limited have shared voting and dispositive power over such shares. Of the
Apax shares, Apax Managers, Inc. may be deemed to beneficially own an
aggregate of 4,202,545 shares of our common stock, issuable upon conversion
of 2,266.7 shares of Series B convertible preferred stock acquired by
certain private equity funds. Apax Managers, Inc. is the general partner of
the general partner of those funds. Information as to the beneficial
ownership of Apax Partners Europe Managers Limited, Apax Europe V GP Co.
Limited and Apax Managers, Inc. (other than the amount of shares of common
stock beneficially owned and percentage ownership) is based upon a Schedule
13D dated February 21, 2003 and filed with the SEC.
(2) Dr. Richard Lee, 6/F TAL Building, 49 Austin Road, Kowloon, Hong Kong, may
be deemed to beneficially own the 4,481,101 shares of our common stock
owned of record by Vaneton International, Inc. Dr. Lee and Vaneton
International have shared voting and dispositive power over such shares.
Information as to the beneficial ownership of Vaneton International and Dr.
Lee (other than percentage ownership) is based upon a Schedule 13G dated
February 28, 2003 and filed with the SEC.
(3) Dimensional Fund Advisors Inc., a registered investment adviser, furnishes
investment advice to four registered investment companies and serves as
investment manager to certain other commingled group trusts and separate
accounts. In its role as investment advisor or manager, Dimensional
possesses voting and/or investment power
67
over the common stock owned by such investment companies, commingled group
trusts and separate accounts. Dimensional disclaims beneficial ownership of
those securities. Information as to the beneficial ownership of Dimensional
(other than percentage ownership) is based upon a Schedule 13G dated
February 11, 2003 and filed with the SEC.
(4) Putnam, LLC, d/b/a Putnam Investments, and its affiliates Marsh & McLennan
Companies, Inc. ("MMC"), Putnam Investments' parent holding company, and
Putnam Investment Management, LLC ("PIM") and The Putnam Advisory Company,
LLC ("PAC"), subsidiaries of Putnam Investments and registered investment
advisers, may be deemed to beneficially own an aggregate of 1,637,715
shares of our common stock. Securities beneficially owned by MMC and Putnam
Investments consist of securities beneficially owned by PIM and PAC. PIM is
the investment adviser to the Putnam family of mutual funds. PAC is the
investment adviser to Putnam Investments' institutional clients. PIM and
PAC may be deemed to own beneficially the shares of our common stock owned
by their clients. Each of PIM and PAC has dispository power over the shares
of our common stock which it may be deemed to own beneficially as
investment manager and PAC has shared voting power over the shares of our
common stock held by its institutional clients. MMC and Putnam Investments
do not have the power to vote or dispose of, or direct the voting or
disposition of, any of the shares of our common stock. Information as to
the beneficial ownership of Putnam Investments and its affiliates (other
than percentage ownership) is based upon a Schedule 13G dated February 14,
2003 and filed with the SEC.
The following table sets forth information with respect to the number
of shares of our common stock beneficially owned, as of August 3, 2003, by:
o each of our current directors,
o the Chief Executive Officer,
o the four most highly compensated executive officers other than the
Chief Executive Officer with respect to fiscal 2002, and
o all of our current directors and executive officers as a group.
AMOUNT
BENEFICIALLY PERCENT OF
NAME OWNED(1) CLASS
---- -------- -----
Emanuel Chirico(2)..................................................... 178,604 *
Edward H. Cohen........................................................ 33,922 *
Francis K. Duane....................................................... 68,333 *
Joseph B. Fuller....................................................... 31,051 *
Joel H. Goldberg....................................................... 39,666 *
Marc Grosman........................................................... 20,666 *
Dennis F. Hightower.................................................... 8,667 *
Bruce J. Klatsky....................................................... 567,846 1.8%
David A. Landau(3)..................................................... -- --
Harry N.S. Lee(4)...................................................... 27,864 *
Bruce Maggin........................................................... 56,808 *
Henry Nasella(3)....................................................... -- --
Christian Nather(3).................................................... -- --
Allen E. Sirkin........................................................ 168,202 *
Peter J. Solomon....................................................... 45,917 *
Mark Weber............................................................. 318,271 1.0
All directors and executive officers as a group (18 persons)........... 1,649,983 5.2%
---------------
* Less than 1% of class.
(1) The figures in the table are based upon information furnished to us by the
directors and executive officers. The figures do not include the shares
held for the executive officers in the Master Trust for the PVH Stock Fund.
The PVH Stock Fund is one of the investment options under our Associates
Investment Plans (referred to as AIPs), which are employee benefit plans
under Section 3(3) of the Employee Retirement Income Security Act
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of 1974, as amended. Participants in the AIPs who make investments in the
PVH Stock Fund may direct the vote of shares of our common stock held in
the Master Trust for the PVH Stock Fund only with respect to tender or
exchange offers subject to Section 13(e) or Section 14(d) of the Exchange
Act, and matters which, if approved or disapproved, would result in a
change in control of our company (as defined in the AIPs). The committee
that administers the AIP, which is referred to as the AIP Committee, has
the right to vote such shares for all other matters. These participants
also have the right, subject to certain limitations, to receive a
distribution of shares of our common stock held for their benefit in the
Master Trust, but the AIP Committee makes all other decisions regarding the
disposition of common stock held in the Master Trust.
(2) Mr. Chirico's figure does not include the 1,155,544 shares (3.7%) of our
common stock held in the Master Trust for the PVH Stock Fund as of December
31, 2002 for all participants in the AIPs who invest in the PVH Stock Fund.
Mr. Chirico is a member of the AIP Committee, which has the power, under
most circumstances, to vote and dispose of the shares held in the Master
Trust.
(3) David A. Landau is a partner, Henry Nasella is a venture partner and
Christian Nather is a partner of Apax Partners. Apax Managers, Inc., Apax
Partners Europe Managers Limited and Apax Europe V GP Co. Limited,
affiliates of Apax Partners, together beneficially own shares of our Series
B convertible preferred stock that are currently convertible into
18,540,642 shares of our common stock. See Note 1 of the prior table.
(4) Harry N.S. Lee is an indirect minority shareholder of
Vaneton International, Inc., which beneficially owns
4,481,101 shares of common stock. See Note 2 to the prior
table.
The figures in the foregoing table include 1,000 shares owned by a family
foundation of which Mr. Hightower is trustee, 190 shares held by Mr. Klatsky's
child, as to which Mr. Klatsky has disclaimed beneficial ownership, 12,000
shares held by Mr. Maggin as custodian for his children, as to which Mr. Maggin
has disclaimed beneficial ownership, and 100 shares held by Mr. Sirkin's wife as
custodian for one of Mr. Sirkin's children, as to which Mr. Sirkin has
disclaimed beneficial ownership.
The foregoing table also includes shares which the following directors and
executive officers have the right to acquire within 60 days of August 3, 2003
upon the exercise of options granted under our stock option plans: Emanuel
Chirico, 175,104 shares; Edward H. Cohen, 27,922 shares; Francis K. Duane,
68,333 shares; Joseph B. Fuller, 27,922 shares; Joel Goldberg, 19,666 shares;
Marc Grosman, 19,666 shares; Dennis Hightower, 7,667 shares; Bruce J. Klatsky,
511,321 shares; Harry N.S. Lee, 26,864 shares; Bruce Maggin, 27,922 shares;
Allen E. Sirkin, 168,102 shares; Peter J. Solomon, 27,922 shares; Mark Weber,
285,793 shares; and all directors and executive officers as a group, including
the foregoing, 1,473,370 shares.
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CERTAIN RELATIONSHIPS AND RELATED PARTY TRANSACTIONS
OUR RELATIONSHIP WITH APAX
In connection with our acquisition of Calvin Klein, affiliates of Apax
Managers, Inc. and Apax Partners Europe Managers Limited invested $250.0 million
in our company through the purchase of 10,000 shares of a new series of Series B
convertible preferred stock. As of August 3, 2003, these shares were convertible
into 37.9% of our common stock. For a description of the Series B convertible
preferred stock, see "Description of Certain Other Indebtedness and Preferred
Stock--Preferred Stock--Series B Convertible Preferred Stock." Also, in
connection with the sale of the Series B convertible preferred stock, we granted
the Apax affiliates certain registration and other investor rights. Under
certain circumstances the Apax affiliates are entitled to elect up to three
directors to our board of directors and to have appointed to each of the audit
committee, compensation committee, executive committee and nominating committee
of our board one of their directors. David A. Landau, Henry Nasella and
Christian Nather have been elected by the Apax affiliates to our board of
directors. Mr. Landau was appointed to serve on the compensation, nominating and
executive committees of our board and Mr. Nasella to the audit committee.
Also in connection with our acquisition of Calvin Klein, the Apax
affiliates provided us with a term loan. The term loan provided for a $100.0
million initial advance and for up to $25.0 million in a subsequent advance
prior to June 30, 2003. The additional $25.0 million of the term loan was drawn
down on March 14, 2003. We used a portion of the net proceeds of the offering of
the outstanding notes to repay the outstanding balance of $125.0 million of the
term loan, plus accrued interest.
OUR RELATIONSHIP WITH KATTEN MUCHIN ZAVIS ROSENMAN
For more than the past three fiscal years, our general outside counsel has
been the law firm of Katten Muchin Zavis Rosenman (including its predecessor
firm, Rosenman & Colin LLP), of which Mr. Cohen, one of our directors, is of
counsel. Mr. Cohen does not share in any fees we pay that firm and his
compensation is not based on our fees. We continue to engage Katten Muchin Zavis
Rosenman in 2003.
OUR RELATIONSHIP WITH CAREER CONSULTANTS INC.
We paid a total of $1.0 million to Mr. Goldberg, one of our directors,
Career Consultants Inc. and S&K Associates, Inc. for management consulting and
recruiting services they provided to us in fiscal 2002. We paid a total of
$755,172 in fiscal 2001 and a total of $903,661 in fiscal 2000 to Mr. Goldberg,
Career Consultants and S&K Associates for similar services. Mr. Goldberg is
President and a majority shareholder of Career Consultants Inc. and of S&K
Associates, Inc. We continue to engage the services of Mr. Goldberg, Career
Consultants Inc. and S&K Associates, Inc. in 2003.
OUR RELATIONSHIP WITH TAL APPAREL LIMITED
We purchased $14.4 million during fiscal 2002, $2.7 million in fiscal 2001
and $2.8 million in fiscal 2000 of products and services from TAL Apparel
Limited and certain related companies. Mr. Lee, one of our directors, is a
director of TAL Apparel Limited. We continue to purchase goods from these
companies during 2003.
OUR RELATIONSHIP WITH MONITOR COMPANY
In connection with its investment in our Series B convertible preferred
stock, the Apax affiliates engaged Monitor Company to conduct a consumer study
with respect to the Calvin Klein and cK brands. The fee and costs for this
engagement was approximately $536,700. Under our agreement with the Apax
affiliates, we reimbursed them for the fee and costs of the study. Mr. Fuller,
one of our directors, is the President and Chief Executive Officer of Monitor
Company. We have not engaged Monitor Company to perform services for us for more
than the past three fiscal years.
OUR RELATIONSHIP WITH PETER J. SOLOMON L.P.
Peter J. Solomon Company Limited, a predecessor firm of Peter J. Solomon
L.P., provided services to us during fiscal 2001 in connection with certain
strategic issues. During fiscal 2000, Peter J. Solomon Company Limited provided
services to us in connection with our purchase of the Van Heusen trademarks in
the countries
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where we previously did not own the mark, and from time to time, provided advice
with regard to certain other strategic issues. We did not engage the services of
Peter J. Solomon L.P. in fiscal 2002. Mr. Solomon, one of our directors, is
Chairman of Peter J. Solomon L.P.
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DESCRIPTION OF CERTAIN OTHER INDEBTEDNESS AND PREFERRED STOCK
SENIOR SECURED REVOLVING CREDIT FACILITY
In October 2002 we, together with certain of our subsidiaries, as
co-borrowers, entered into a new senior secured revolving credit facility with a
syndicate of lending institutions led by JPMorgan Chase Bank. The revolving
credit facility consists of a $325.0 million five-year revolving credit
facility, including up to $20.0 million available for standby letters of credit
and with no sub-limit on trade letters of credit. Advances under the revolving
credit facility are also limited to a borrowing base consisting of specified
percentages of eligible categories of assets.
There were no outstanding borrowings as of May 4, 2003. If borrowed, we
have the option to pay interest on the revolving credit facility at the prime
interest rate in effect from time to time, plus an applicable margin ranging
from 0% to 0.50% or LIBOR plus an applicable margin ranging from 1.75% to 2.50%,
in either case depending upon our interest coverage ratio and the type of loan.
The advances under the revolving credit facility may be prepaid, in whole
or in part at any time without penalty or premium (other than a termination fee
and LIBOR breakage costs). Subject to certain exceptions, the revolving credit
facility requires mandatory prepayments with the proceeds of asset sales or
other dispositions and the issuance of new equity and debt securities. All
obligations under the revolving credit facility are secured by liens on
substantially all of our assets and our domestic subsidiaries' assets, including
the working capital assets of our domestic Calvin Klein subsidiaries, and a
pledge of all of the equity interests in our Calvin Klein subsidiaries. In
addition, our revolving credit facility is guaranteed by all of our domestic
subsidiaries that are not co-borrowers.
The revolving credit facility contains a number of covenants, including
maintenance of a specified financial ratio, under certain circumstances, on a
consolidated basis and certain covenants that limit, among other things, our
ability to (1) incur debt, (2) incur liens, (3) pay dividends or distributions
to our stockholders, (4) prepay, retire, repurchase or redeem indebtedness, (5)
repurchase or redeem capital stock, (6) sell assets and (7) merge or consolidate
with other companies.
Events of default under the revolving credit facility include, but are not
limited to (1) our failure to pay principal or interest when due, (2) our
material breach of any representation or warranty, (3) covenant defaults, (4)
cross-defaults to other indebtedness in excess of an agreed amount, (5) events
of bankruptcy, (6) monetary judgment defaults, (7) customary defaults under the
Employee Retirement Income Security Act, (8) a change of control, (9) impairment
of loan documentation, security or seniority over subordinated debt and (10)
certain tax liens. In addition, if we cease to own 100% of the fully-diluted
equity in our co-borrowers, such event could also result in an event of default.
7 3/4% DEBENTURES
In November 1993, we issued $100.0 million aggregate principal amount of
7 3/4% debentures due 2023, all of which remain outstanding as of the date of
this prospectus. Interest on the debentures is payable semi-annually in arrears
on May 15 and November 15 of each year. The debentures are senior to all
existing and future subordinated indebtedness and will be pari passu with the
notes being offered by this prospectus.
The indenture governing the debentures contains certain covenants which
limit our ability to (1) incur liens, (2) enter into sale and lease back
transactions, (3) incur subsidiary debt and (4) merge or consolidate with other
companies or sell substantially all of our assets.
The debentures are not redeemable at our option prior to maturity. If we
pay any dividend on our capital stock or repurchase, redeem or otherwise acquire
our capital stock when, in either case, it would cause our consolidated net
worth to be less than $175.0 million plus 50% of our cumulative consolidated net
income since the issuance of the debentures, then the holders of the debentures,
may, at their option, require us to redeem their debentures, in whole or in
part, at a redemption price in cash equal to 100% of the principal amount
thereof, plus accrued and unpaid interest, if any, to the date of redemption.
So long as our revolving credit facility is secured by a lien on our and
our subsidiaries' assets, the debentures are required to be secured equally and
ratably with the revolving credit facility and the credit documents governing
the revolving credit facility provide for this equal and ratable security
interest for the debentures. The
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debentures are currently secured by liens on all collateral securing our
revolving credit facility, ratably with our revolving credit facility lenders.
Events of default under the indenture governing the debentures include, but
are not limited to (1) our failure to pay principal or interest when due, (2)
covenant defaults, (3) cross-defaults to other indebtedness in excess of an
agreed amount and (4) events of bankruptcy.
9 1/2% SENIOR SUBORDINATED NOTES
In April 1998, we issued $150.0 million aggregate principal amount of
unsecured 9 1/2% senior subordinated notes due 2008, all of which remain
outstanding as of the date of this prospectus. Interest on these notes is
payable semi-annually in arrears on May 1 and November 1 in each year. The notes
are subordinate to all senior debt, which includes our revolving credit facility
and future indebtedness for borrowed money, including the notes issued in
connection with the offering of the outstanding notes.
The indenture governing the notes contains certain restrictive covenants,
including limitations on our ability to (1) incur liens, (2) incur indebtedness,
(3) pay dividends or make distributions to our stockholders, (4) repurchase or
redeem capital stock, (5) sell assets and (6) merge or consolidate with other
companies. The indenture prohibits the incurrence of subordinated debt senior to
the notes and subsidiary guarantees of subordinated debt.
The notes may be redeemed at our option, in whole or in part, at any time,
on or after May 1, 2003, at a redemption price equal to 104.75% of the principal
amount of the notes in the first year. The redemption price declines ratably to
par on May 1, 2006, plus in each case accrued and unpaid interest to the date of
redemption.
If we undergo a change in control, we will be required to offer to
repurchase the notes at a price equal to 101% of the principal amount thereof,
plus accrued and unpaid interest, if any, to the date of repurchase. If we sell
certain of our assets, we may be required to use the net cash proceeds remaining
after any required repayment of senior debt, to offer to repurchase the notes at
100% of the principal amount plus accrued and unpaid interest to the date of
purchase.
Events of default under the indenture governing the notes include, but are
not limited to (1) our failure to pay principal or interest when due, (2)
covenant defaults, (3) cross-defaults to other indebtedness in excess of an
agreed amount, (4) monetary judgment defaults and (5) events of bankruptcy.
PREFERRED STOCK
Under our certificate of incorporation, as amended, our board of directors
is authorized, subject to any limitations prescribed by law, without further
action by our stockholders, to issue up to 150,000 shares of preferred stock,
par value $100 per share, in one or more series or classes and to establish the
designations, preferences, qualifications, privileges, limitations,
restrictions, option, conversion rights and other special or relative rights of
any series of preferred stock issued. To the extent that we redeem or repurchase
any shares of our Series B convertible preferred stock, we will not have the
ability to issue additional shares of our Series B convertible preferred stock,
but we will be able to redesignate and reissue those shares in any series other
than as Series B convertible preferred stock.
The issuance of shares of preferred stock could adversely affect the voting
power and other rights of holders of our common stock. Because our board of
directors, without stockholder action, may fix the terms of the preferred stock,
the preferred stock could be issued quickly with terms designed to defeat a
proposed takeover of us or to make the removal of our management more difficult.
The authority to issue preferred stock or rights to purchase preferred stock
could be used to discourage a change in control of us. Our management is not
aware of any such threatened transaction to obtain control of us, and our board
of directors has no current plans to designate and issue any additional shares
of preferred stock.
We have designated shares of Series A convertible preferred stock and
Series B convertible preferred stock, the terms of which are described below.
SERIES A CONVERTIBLE PREFERRED STOCK
In connection with our rights agreement, dated as of June 10, 1986, as
amended, with the Bank of New York, as rights agent, we authorized 125,000
shares of Series A convertible preferred stock and declared a
73
distribution of one right to purchase Series A convertible preferred stock for
each outstanding share of our common stock. As a result of subsequent stock
splits, each outstanding share of common stock now carries with it one-fifth of
one right. Under certain circumstances, each right entitles the registered
holder to acquire from us one one-hundredth of a share of our Series A
convertible preferred stock at an exercise price of $100.
SERIES B CONVERTIBLE PREFERRED STOCK
On February 12, 2003, in connection with the investment by affiliates of
Apax Managers, Inc. and Apax Partners Europe Managers Limited in us, we issued
the Apax affiliates 10,000 shares of our Series B convertible preferred stock
for an aggregate purchase price of $250.0 million. Lehman Brothers acted as
broker-dealer of the transaction and purchased from us and sold to the Apax
affiliates the Series B convertible preferred stock.
The holders of the Series B convertible preferred stock are entitled to
receive annual dividends of 8% per annum payable in cash. If we elect not to pay
a cash dividend for any quarter then, the Series B convertible preferred stock
will be treated for purposes of the payment of future dividends and upon
conversion, redemption or liquidation as if an in-kind dividend had been paid.
As of August 3, 2003, the liquidation preference of our Series B convertible
preferred stock was $259.6 million, as we elected not to pay a cash dividend for
the quarters ended May 4, 2003 and August 3, 2003. The holders of at least a
majority of the outstanding Series B convertible preferred stock may elect to
deem a sale of our company to be a liquidation.
Our Series B convertible preferred stock is convertible into common stock,
at the option of the holder, at an initial conversion rate, equal to the
quotient of the liquidation preference of our Series B convertible preferred
stock divided by the purchase price of $14 per share, which is subject to
adjustments for stock splits, dividends and combinations, reorganizations,
mergers, consolidations, reclassifications and the issuance and sale of
additional common stock. As of August 3, 2003, the outstanding shares of the
Series B convertible preferred stock were convertible into 18,540,642 shares of
our common stock. If at any time after February 12, 2007, the market price of
our common stock for any 60 consecutive trading days equals or exceeds 225% of
the then conversion price of the Series B convertible preferred stock, we may
convert all of the Series B convertible preferred stock into that number of
fully paid and nonassessable shares of our common stock determined according to
a specified formula. Following conversion of shares of the Series B convertible
preferred stock, the holders of the shares of our common stock issued upon
conversion will be entitled to receive dividends at the same rate as all other
holders of our common stock.
On or after the later of (A) the six month anniversary of the maturity date
of the notes, or (B) November 1, 2008, the holders holding a majority of the
Series B convertible preferred stock may require us to redeem the Series B
convertible preferred stock at a price equal to 100% of the liquidation
preference on the redemption date.
The holders of the Series B convertible preferred stock, voting as a
separate series, are entitled to elect directors to our board of directors, as
follows:
o as long as at least 65% of our Series B convertible preferred stock is
outstanding, the holders are entitled to elect three directors;
o as long as more than 35% of our Series B convertible preferred stock is
outstanding, the holders are entitled to elect two directors; and
o as long as more than 10% of our Series B convertible preferred stock is
outstanding, the holders are entitled to elect one director.
For all matters put to a stockholder vote, each holder of the Series B
convertible preferred stock, voting together with the holders of our common
stock, is entitled to the number of votes equal to the number of shares of our
common stock into which the shares of our Series B convertible preferred stock
could be converted at the record date, or if not established, at the time of
such vote.
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While shares of the Series B convertible preferred stock are outstanding,
we will not, without first obtaining the written consent or affirmative vote of
the holders of at least a majority of the outstanding shares of our Series B
convertible preferred stock, voting separately as a class:
o change the terms of our Series B convertible preferred stock;
o issue preferred stock or convertible securities which would be senior
to or on parity with our Series B convertible preferred stock with
respect to dividends or a liquidation;
o increase the number of shares of our Series B convertible preferred
stock;
o amend our certificate of incorporation or by-laws in a way that would
have an adverse effect on the Series B convertible preferred stock;
o increase the number of our directors above 14;
o increase our debt above previously-agreed levels;
o declare or pay dividends except as previously agreed; or
o agree to take any of the previously described actions.
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EXCHANGE OFFER
REASONS FOR THE EXCHANGE OFFER
We entered into a registration rights agreement with the initial purchasers
in connection with the issuance of the notes. The registration rights agreement
provides that we will take the following actions, at our expense, for the
benefit of the holders of the outstanding notes:
o we will file the registration statement, of which this prospectus forms
a part, within 120 days of the date we issue the outstanding notes. The
exchange notes will have terms substantially identical in all material
respects to the outstanding notes, except that the exchange notes will
not contain terms with respect to transfer restrictions, certain
registration rights and additional interest for failure to observe
specified obligations in the registration rights agreement;
o we will cause the registration statement to be declared effective under
the Securities Act within 210 days after the date we issue the
outstanding notes; and
o we will keep this exchange offer open for at least 30 days, or longer
if required by applicable law, after the date on which notice of this
exchange offer is mailed to the holders.
The holder of each outstanding note surrendered in this exchange offer will
receive an exchange note having a principal amount equal to that of the
surrendered note. Interest on each exchange note will accrue from the later of
(1) the last interest payment date on which interest was paid on the outstanding
note surrendered or (2) if no interest has been paid on the outstanding note,
from May 5, 2003.
If:
(1) because of any change in law or in applicable interpretations by the
staff of the SEC, we are not permitted to effect an exchange offer;
(2) this exchange offer is not consummated within 250 days after the date
we issued the outstanding notes;
(3) any initial purchaser notifies us after this exchange offer has been
completed that its outstanding notes are not eligible to be exchanged
for exchange notes; or
(4) certain holders are prohibited by law or SEC policy from participating
in this exchange offer or may not resell the exchange notes acquired by
them in this exchange offer without delivering a prospectus, other than
this prospectus,
then we will file with the SEC, and cause to become effective, a shelf
registration statement to cover resales of transfer restricted securities by
those holders who satisfy various conditions relating to the provision of
information in connection with the shelf registration statement.
If we fail to comply with specified obligations under the registration
rights agreement, we will be required to pay additional interest to holders of
the notes. Please see "Description of Notes -- Registered Exchange Offer;
Registration Rights" for details regarding the registration rights agreement and
the circumstances under which we will be required to pay additional interest.
Each broker-dealer that receives exchange notes for its own account in
exchange for outstanding notes, where such outstanding notes were acquired by
such broker-dealer as a result of market-making activities or other trading
activities, must acknowledge that it will deliver a prospectus in connection
with any resale of the exchange notes. Please read the section captioned "Plan
of Distribution" for more details regarding the transfer of exchange notes.
TERMS OF THE EXCHANGE OFFER
Upon the terms and subject to the conditions set forth in this prospectus
and in the letter of transmittal, we will accept any and all outstanding notes
validly tendered and not withdrawn prior to 5:00 p.m., New York City time, on
the expiration date of this exchange offer. We will issue $1,000 principal
amount of exchange notes in exchange for each $1,000 principal amount of
outstanding notes accepted in this exchange offer. Any holder may
76
tender some or all of its outstanding notes pursuant to this exchange offer.
However, outstanding notes may be tendered only in integral multiples of $1,000.
The form and terms of the exchange notes will be substantially identical in
all material respects to the form and terms of the outstanding notes, except
that:
(1) the exchange notes will have been registered under the Securities Act
and will not bear legends restricting their transfer; and
(2) the holders of the exchange notes will not be entitled to certain
rights under the registration rights agreement, including the
provisions providing for an increase in the interest rate on the
outstanding notes in certain circumstances relating to the timing of
this exchange offer, all of which rights will terminate when this
exchange offer is terminated.
The exchange notes will evidence the same debt as the outstanding notes.
The exchange notes will be issued and entitled to the benefits of the same
indenture that authorized the issuance of the outstanding notes. Consequently,
both series will be treated as a single class of debt securities under that
indenture. For a description of the indenture, see "Description of the Notes."
This exchange offer is not conditioned on any minimum aggregate principal
amount of outstanding notes being tendered for exchange.
As of the date of this prospectus, $150.0 million aggregate principal
amount of the outstanding notes were outstanding. Solely for reasons of
administration, we have fixed the close of business on ____________, 2003 as the
record date for this exchange offer for purposes of determining the persons to
whom this prospectus and the letter of transmittal will be mailed initially.
There will be no fixed record date for determining holders of the outstanding
notes entitled to participate in this exchange offer.
Holders of the outstanding notes do not have appraisal or dissenters'
rights under the General Corporation Law of the State of Delaware or the
indenture in connection with this exchange offer. We intend to conduct this
exchange offer in accordance with the provisions of the registration rights
agreement, the applicable requirements of the Securities Act and the Exchange
Act and the rules and regulations of the SEC. Outstanding notes that are not
tendered for exchange in this exchange offer will remain outstanding and
continue to accrue interest and will be entitled to the rights and benefits such
holders have under the indenture relating to the outstanding notes and the
registration rights agreement.
We will be deemed to have accepted for exchange validly tendered
outstanding notes when we have given oral or written notice of our acceptance to
the exchange agent. The exchange agent will act as agent for the tendering
holders for the purpose of receiving, and delivering to the tendering holders,
the exchange notes.
If any tendered outstanding notes are not accepted for exchange because of
an invalid tender, the occurrence of specified other events set forth in this
prospectus or otherwise, the certificates for such unaccepted outstanding notes
will be returned, without expense, to the tendering holder as promptly as
practicable after the expiration date of this exchange offer.
Holders who tender outstanding notes in this exchange offer will not be
required to pay brokerage commissions or fees or, subject to the instructions in
the letter of transmittal, transfer taxes with respect to the exchange of
outstanding notes pursuant to this exchange offer. We will pay all charges and
expenses, other than transfer taxes in certain circumstances, in connection with
this exchange offer. See "-- Fees and Expenses" and "-- Transfer Taxes."
EXPIRATION DATE; EXTENSIONS; AMENDMENTS
This exchange offer expires at 5:00 p.m., New York City time, on ________,
2003, unless we, in our sole discretion, extend this exchange offer, in which
case the term "expiration date" will mean the latest date and time to which this
exchange offer is extended.
In order to extend this exchange offer, we will notify the exchange agent
orally or in writing of any extension. We will notify the registered holders of
outstanding notes by public announcement of the extension no later than 9:00
a.m., New York City time, on the business day after the previously scheduled
expiration date.
77
We reserve the right, in our sole discretion:
o to delay accepting for exchange any outstanding notes;
o to extend this exchange offer or to terminate this exchange offer and
to refuse to accept outstanding notes not previously accepted if any of
the conditions set forth below under "-- Conditions" have not been
satisfied, by giving oral or written notice of such delay, extension or
termination to the exchange agent; or
o subject to the terms of the registration rights agreement, to amend the
terms of this exchange offer in any manner.
Any such delay in acceptance, extension, termination or amendment will be
followed as promptly as practicable by oral or written notice thereof to the
registered holders of outstanding notes. If we amend this exchange offer in a
manner that we determine to constitute a material change, we will promptly
disclose such amendment in a manner reasonably calculated to inform the holders
of outstanding notes of such amendment.
Without limiting the manner in which we may choose to make public
announcements of any delay in acceptance, extension, termination or amendment of
this exchange offer, we will have no obligation to publish, advertise, or
otherwise communicate any public announcement, other than by making a timely
release to a financial news service.
CONDITIONS
Notwithstanding any other term of this exchange offer, we will not be
required to accept for exchange, or exchange notes for, any outstanding notes,
and may terminate or amend this exchange offer as provided in this prospectus
before the acceptance of the outstanding notes, if in our reasonable judgment:
o the exchange notes to be received will not be tradeable by the holder
without restriction under the Securities Act, the Exchange Act, and
without material restriction under the blue sky or securities laws of
substantially all of the states of the United States; or
o any action or proceeding is instituted or threatened in any court or by
or before any governmental agency with respect to this exchange offer
which, in our sole judgment, might materially impair our ability to
proceed with this exchange offer or any material adverse development
has occurred in any such existing action or proceeding with respect to
us or any of our subsidiaries; or
o any law, statute, rule, regulation or interpretation by the staff of
the SEC is proposed, adopted or enacted, which, in our sole judgment,
might materially impair our ability to proceed with this exchange offer
or materially impair the contemplated benefits of this exchange offer
to us; or
o any governmental approval has not been obtained, which approval we, in
our sole discretion, deem necessary for the consummation of this
exchange offer as contemplated by this prospectus.
In addition, we will not be obligated to accept for exchange the
outstanding notes of any holder that has not made to us:
o the representations described under "--Procedures for Tendering" and
"Plan of Distribution"; and
o such other representations as may be reasonably necessary under
applicable SEC rules, regulations or interpretations to make available
to an appropriate form for registration of the exchange notes under the
Securities Act.
We expressly reserve the right, at any time or at various times, to extend
the period of time during which this exchange offer is open. Consequently, we
may delay acceptance of any outstanding notes by giving oral or written notice
of such extension to the holders. During any such extensions, all outstanding
notes previously tendered will remain subject to this exchange offer, and we may
accept them for exchange. We will return any outstanding notes that we do not
accept for exchange for any reason without expense to the tendering holder as
promptly as practicable after the expiration or termination of this exchange
offer.
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We expressly reserve the right to amend or terminate this exchange offer,
and to reject for exchange any outstanding notes not previously accepted for
exchange, upon the occurrence of any of the conditions of this exchange offer
specified above. We will give oral or written notice of any extension,
amendment, non-acceptance or termination to the holders of the outstanding notes
as promptly as practicable. In the case of any extension, such notice will be
issued no later than 9:00 a.m., New York City time, on the business day after
the previously scheduled expiration date.
These conditions are for our sole benefit and we may assert them regardless
of the circumstances that may give rise to them or waive them in whole or in
part at any or at various times in our sole discretion. If we fail at any time
to exercise any of the foregoing rights, this failure will not constitute a
waiver of such right. Each such right will be deemed an ongoing right that we
may assert at any time or at various times.
In addition, we will not accept for exchange any outstanding notes
tendered, and will not issue exchange notes in exchange for any such outstanding
notes, if at such time any stop order will be threatened or in effect with
respect to the registration statement of which this prospectus forms a part or
the qualification of the indenture under the Trust Indenture Act of 1939.
If we determine in our sole discretion that any of the conditions are not
satisfied, we may (l) refuse to accept any outstanding notes and return all
tendered outstanding notes to the tendering holders, (2) extend this exchange
offer and retain all outstanding notes tendered prior to the expiration date,
subject, however, to the rights of holders to withdraw the outstanding notes
(see "-- Withdrawal of Tenders") or (3) waive the unsatisfied conditions with
respect to this exchange offer and accept all properly tendered outstanding
notes which have not been withdrawn.
PROCEDURES FOR TENDERING
Only a holder of record may tender outstanding notes in this exchange
offer. To tender in this exchange offer, a holder must:
o complete, sign and date the letter of transmittal, or a facsimile of
the letter of transmittal; have the signature on the letter of
transmittal guaranteed if the letter of transmittal so requires; and
deliver the letter of transmittal or facsimile to the exchange agent
before 5:00 p.m., New York City time, on the expiration date; or
o in lieu of delivering a letter of transmittal, instruct DTC to transmit
on behalf of the holder a computer-generated message to the exchange
agent in which the holder of the outstanding notes acknowledges and
agrees to be bound by the terms of the letter of transmittal, which
computer-generated message must be received by the exchange agent
before 5:00 p.m., New York City time, on the expiration date.
In addition, either:
o the exchange agent must receive the outstanding notes along with the
letter of transmittal; or
o the exchange agent must receive, before 5:00 p.m., New York City time,
on the expiration date, timely confirmation of book-entry transfer of
the outstanding notes into the exchange agent's account at DTC,
according to the procedure for book-entry transfer described below; or
o the holder must comply with the guaranteed delivery procedures
described below.
To be tendered effectively, the exchange agent must receive any physical
delivery of the letter of transmittal and other required documents at the
address set forth below under the caption " -- Exchange Agent" on or before the
expiration date. To receive confirmation of valid tender of outstanding notes, a
holder should contact the exchange agent at the telephone number listed under
the caption "-- Exchange Agent."
The tender by a holder that is not withdrawn before the expiration date
will constitute an agreement between that holder and us in accordance with the
terms and subject to the conditions set forth in this prospectus and in the
letter of transmittal. If a holder completing a letter of transmittal tenders
less than all of its outstanding notes, the tendering holder should fill in the
applicable box of the letter of transmittal. The amount of outstanding notes
delivered to the exchange agent will be deemed to have been tendered unless
otherwise indicated.
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The method of delivery of outstanding notes, the letter of transmittal and
all other required documents to the exchange agent is at the holder's election
and risk. Rather than mail these items, we recommend that holders use an
overnight or hand delivery service. In all cases, holders should allow
sufficient time to assure delivery to the exchange agent before expiration of
this exchange offer. Holders should not send the letter of transmittal or
outstanding notes to us. Holders may request their respective brokers, dealers,
commercial banks, trust companies or other nominees to effect the above
transactions for them.
Any beneficial owner whose outstanding notes are registered in the name of
a broker, dealer, commercial bank, trust company or other nominee and who wishes
to tender should contact the registered holder promptly and instruct it to
tender on the owner's behalf. If the beneficial owner wishes to tender on its
own behalf, it must, prior to completing and executing the letter of transmittal
and delivering its outstanding notes, either:
o make appropriate arrangements to register ownership of the outstanding
notes in the owner's name; or
o obtain a properly completed bond power from the registered holder of
outstanding notes.
The transfer of registered ownership may take considerable time and may not
be completed prior to the expiration date.
If the applicable letter of transmittal is signed by the record holder(s)
of the outstanding notes tendered, the signature must correspond with the
name(s) written on the face of the outstanding notes without alteration,
enlargement or any change whatsoever. If the applicable letter of transmittal is
signed by a participant in DTC, the signature must correspond with the name as
it appears on the security position listing as the holder of the outstanding
notes.
A signature on a letter of transmittal or a notice of withdrawal must be
guaranteed by an "eligible institution." Eligible institutions include banks,
brokers, dealers, municipal securities dealers, municipal securities brokers,
government securities dealers, government securities brokers, credit unions,
national securities exchanges, registered securities associations, clearing
agencies and savings associations. The signature need not be guaranteed by an
eligible institution if the outstanding notes are tendered:
o by a registered holder who has not completed the box entitled "Special
Issuance Instructions" or "Special Delivery Instructions" on the letter
of transmittal; or
o for the account of an eligible institution.
If the letter of transmittal is signed by a person other than the
registered holder of any outstanding notes, the outstanding notes must be
endorsed or accompanied by a properly completed bond power. The bond power must
be signed by the registered holder as the registered holder's name appears on
the outstanding notes and an eligible institution must guarantee the signature
on the bond power.
If the letter of transmittal or any outstanding notes or bond powers are
signed by trustees, executors, administrators, guardians, attorneys-in-fact,
officers of corporations or others acting in a fiduciary or representative
capacity, these persons should so indicate when signing. Unless we waive this
requirement, they should also submit evidence satisfactory to us of their
authority to deliver the letter of transmittal.
We will determine in our sole discretion all questions as to the validity,
form, eligibility, including time of receipt, acceptance and withdrawal of
tendered outstanding notes. Our determination will be final and binding. We
reserve the absolute right to reject any outstanding notes not properly tendered
or any outstanding notes the acceptance of which would, in the opinion of our
counsel, be unlawful. We also reserve the right to waive any defects,
irregularities or conditions of tender as to particular outstanding notes. Our
interpretation of the terms and conditions of this exchange offer, including the
instructions in the letter of transmittal, will be final and binding on all
parties.
Unless waived, any defects or irregularities in connection with tenders of
outstanding notes must be cured within the time that we determine. Although we
intend to notify holders of defects or irregularities with respect to tenders of
outstanding notes, neither we, the exchange agent nor any other person will
incur any liability for failure to give notification. Tenders of outstanding
notes will not be deemed made until those defects or irregularities have been
cured or waived. Any outstanding notes received by the exchange agent that are
not properly tendered and as to which the defects or irregularities have not
been cured or waived will be returned to the exchange agent without cost
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to the tendering holder, unless otherwise provided in the letter of transmittal,
as soon as practicable following the expiration date.
In all cases, we will issue exchange notes for outstanding notes that we
have accepted for exchange under this exchange offer only after the exchange
agent timely receives:
o outstanding notes or a timely book-entry confirmation that outstanding
notes have been transferred in the exchange agent's account at DTC; and
o a properly completed and duly executed letter of transmittal and all
other required documents or a properly transmitted agent's message.
Holders should receive copies of the applicable letter of transmittal with
the prospectus. A holder may obtain additional copies of the applicable letter
of transmittal for the outstanding notes from the exchange agent at its offices
listed under the caption "-- Exchange Agent." By signing the letter of
transmittal, or causing DTC to transmit an agent's message to the exchange
agent, each tendering holder of outstanding notes will represent to us that,
among other things:
o any exchange notes that the holder receives will be acquired in the
ordinary course of its business;
o the holder has no arrangement or understanding with any person or
entity to participate in the distribution of the exchange notes;
o if the holder is not a broker-dealer, that it is not engaged in and
does not intend to engage in the distribution of the exchange notes;
o if the holder is a broker-dealer that will receive exchange notes for
its own account in exchange for outstanding notes that were acquired as
a result of market-making activities or other trading activities, that
it will deliver a prospectus, as required by law, in connection with
any resale of those exchange notes (see the caption "Plan of
Distribution"); and
o the holder is not an "affiliate," as defined in Rule 405 of the
Securities Act, of us or, if the holder is an affiliate, it will comply
with any applicable registration and prospectus delivery requirements
of the Securities Act.
BOOK-ENTRY TRANSFER
The exchange agent will establish an account with respect to the
outstanding notes at DTC for purposes of this exchange offer promptly after the
date of this prospectus.
With respect to the outstanding notes, any participant in DTC may make
book-entry delivery of outstanding notes by causing DTC to transfer the
outstanding notes into the exchange agent's account in accordance with DTC's
ATOP procedures for transfer.
However, the exchange for the outstanding notes so tendered will only be
made after a book-entry confirmation of such book-entry transfer of the
outstanding notes into the exchange agent's account, and timely receipt by the
exchange agent of an agent's message and any other documents required by the
letter of transmittal. For this purpose, "agent's message" means a message,
transmitted by DTC and received by the exchange agent and forming part of a
book-entry confirmation, which states that DTC has received an express
acknowledgment from a participant tendering outstanding notes that are the
subject of the book-entry confirmation that the participant has received and
agrees to be bound by the terms of the letter of transmittal, and that we may
enforce that agreement against the participant.
GUARANTEED DELIVERY PROCEDURES
Holders wishing to tender their outstanding notes but whose outstanding
notes are not immediately available or who cannot deliver their outstanding
notes, the letter of transmittal or any other required documents to the exchange
agent or cannot comply with the applicable procedures described above before
5:00 p.m., New York City time, on the expiration date may tender if:
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o the tender is made through an eligible institution;
o before 5:00 p.m., New York City time, on the expiration date, the
exchange agent receives from the eligible institution either a properly
completed and duly executed notice of guaranteed delivery by facsimile
transmission, mail or hand delivery, or a properly transmitted agent's
message and notice of guaranteed delivery:
o setting forth the name and address of the holder and the
registered number(s) and the principal amount of outstanding
notes tendered;
o stating that the tender is being made by guaranteed delivery;
o guaranteeing that, within three New York Stock Exchange trading
days after the expiration date, the letter of transmittal, or
facsimile thereof, together with the outstanding notes or a
book-entry transfer confirmation, and any other documents
required by the letter of transmittal will be deposited by the
eligible institution with the exchange agent; and
o the exchange agent receives the properly completed and executed
letter of transmittal, or facsimile thereof, as well as all
tendered outstanding notes in proper form for transfer or a
book-entry transfer confirmation, and all other documents
required by the letter of transmittal, within three New York
Stock Exchange trading days after the expiration date.
Upon written request to the exchange agent, a notice of guaranteed delivery
will be sent to holders who wish to tender their outstanding notes according to
the guaranteed delivery procedures set forth above.
WITHDRAWAL OF TENDERS
Except as otherwise provided in this prospectus, holders of outstanding
notes may withdraw their tenders at any time before 5:00 p.m., New York City
time, on the expiration date.
For a withdrawal to be effective, the exchange agent must receive a
computer-generated notice of withdrawal transmitted by DTC on behalf of the
holder in accordance with the standard operating procedures of DTC or a written
notice of withdrawal, which may be by telegram, telex, facsimile transmission or
letter, at one of the addresses set forth below under the caption "-- Exchange
Agent."
Any notice of withdrawal must:
o specify the name of the person who tendered the outstanding notes to be
withdrawn;
o identify the outstanding notes to be withdrawn, including the principal
amount of the outstanding notes to be withdrawn; and
o where certificates for outstanding notes have been transmitted, specify
the name in which the outstanding notes were registered, if different
from that of the withdrawing holder.
If certificates for outstanding notes have been delivered or otherwise
identified to the exchange agent, then, prior to the release of those
certificates, the withdrawing holder must also submit:
o the serial numbers of the particular certificates to be withdrawn; and
o a signed notice of withdrawal with signatures guaranteed by an eligible
institution, unless the withdrawing holder is an eligible institution.
If outstanding notes have been tendered pursuant to the procedure for
book-entry transfer described above, any notice of withdrawal must specify the
name and number of the account at DTC, to be credited with the withdrawn
outstanding notes and otherwise comply with the procedures of the facility.
We will determine all questions as to the validity, form and eligibility,
including time of receipt, of notices of withdrawal, and our determination shall
be final and binding on all parties. We will deem any outstanding notes so
withdrawn not to have been validly tendered for exchange for purposes of this
exchange offer. We will return any outstanding notes that have been tendered for
exchange but that are not exchanged for any reason to their holder without cost
to the holder. In the case of outstanding notes tendered by book-entry transfer
into the exchange agent's account at DTC, according to the procedures described
above, those outstanding notes will be credited to an account
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maintained with DTC, for outstanding notes, as soon as practicable after
withdrawal, rejection of tender or termination of this exchange offer. You may
retender properly withdrawn outstanding notes by following one of the procedures
described under the caption "-- Procedures for Tendering" above at any time on
or before the expiration date.
A holder may obtain a form of the notice of withdrawal from the exchange
agent at its offices listed under the caption "-- Exchange Agent."
EXCHANGE AGENT
SunTrust Bank, has been appointed as exchange agent for this exchange
offer. Questions and requests for assistance, requests for additional copies of
this prospectus or of the letter of transmittal and requests for Notice of
Guaranteed Delivery should be directed in writing to the exchange agent
addressed as follows:
By Registered or Certified Mail: By Hand or Overnight Delivery:
SunTrust Bank SunTrust Bank
25 Park Place, 24th Floor c/o ComputerShare Trust Company of New York
Atlanta, Georgia 30303 88 Pine Street, 19th Floor
Attention: Jack Ellerin New York, New York 10005
By Facsimile:
(404) 588-7335
DELIVERY OF THE LETTER OF TRANSMITTAL TO AN ADDRESS OTHER THAN AS SHOWN
ABOVE OR TRANSMISSION VIA FACSIMILE OTHER THAN AS SET FORTH ABOVE WILL NOT
CONSTITUTE A VALID DELIVERY OF THE LETTER OF TRANSMITTAL.
TRANSFER TAXES
We will pay all transfer taxes, if any, applicable to the exchange of
outstanding notes under this exchange offer. The tendering holder, however, will
be required to pay any transfer taxes, whether imposed on the registered holder
or any other person, if:
o certificates representing outstanding notes for principal amounts not
tendered or accepted for exchange are to be delivered to, or are to be
issued in the name of, any person other than the registered holder of
outstanding notes tendered;
o exchange notes are to be delivered to, or issued in the name of, any
person other than the registered holder of the outstanding notes;
o tendered outstanding notes are registered in the name of any person
other than the person signing the letter of transmittal; or
o a transfer tax is imposed for any reason other than the exchange of
outstanding notes under this exchange offer.
If satisfactory evidence of payment of transfer taxes is not submitted with
the letter of transmittal, the amount of any transfer taxes will be billed to
the tendering holder.
FEES AND EXPENSES
We will bear the expense of soliciting tenders. The principal solicitation
is being made by mail; however, additional solicitation may be made by
telegraph, telecopy, telephone or in person by our and our affiliates' officers
and employees.
We have not retained any dealer-manager in connection with this exchange
offer and will not make any payments to brokers, dealers or others soliciting
acceptances of this exchange offer. We will, however, pay the
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exchange agent reasonable and customary fees for its services and will reimburse
it for its reasonable out-of-pocket expenses incurred in connection with these
services, including the reasonable fees and expenses of its counsel.
We will pay the cash expenses to be incurred in connection with this
exchange offer. Such expenses include fees and expenses of the exchange agent
and trustee, accounting and legal fees and printing costs, among others.
ACCOUNTING TREATMENT
The exchange notes will be recorded at the same carrying value as the
outstanding notes, which is face value, as reflected in our accounting records
on the date of the exchange. Accordingly, we will not recognize any gain or loss
for accounting purposes as a result of this exchange offer. Expenses incurred in
connection with this exchange offer will be deferred and charged to expense over
the term of the exchange notes.
CONSEQUENCES OF FAILURE TO EXCHANGE
Participation in this exchange offer is voluntary. Holders of the
outstanding notes are urged to consult their financial and tax advisors in
making their own decisions on what action to take.
Holders of outstanding notes who do not exchange their outstanding notes
for exchange notes under this exchange offer will remain subject to the
restrictions on transfer of such outstanding notes:
o as set forth in the legend printed on the notes as a consequence of the
issuance of the outstanding notes pursuant to the exemptions from, or
in transactions not subject to, the registration requirements of the
Securities Act and applicable state securities laws; and
o otherwise set forth in the offering circular distributed in connection
with the private offering of the outstanding notes.
In general, you may not offer or sell the outstanding notes unless they are
registered under the Securities Act, or if the offer or sale is exempt from
registration under the Securities Act and applicable state securities laws.
Except as required by the registration rights agreement, we do not intend to
register resales of the outstanding notes under the Securities Act. Based on
interpretations of the SEC staff, exchange notes issued pursuant to this
exchange offer may be offered for resale, resold or otherwise transferred by
their holders, other than any such holder that is our "affiliate" within the
meaning of Rule 405 under the Securities Act, without compliance with the
registration and prospectus delivery provisions of the Securities Act, provided
that the holders acquired the exchange notes in the ordinary course of the
holders' business and the holders have no arrangement or understanding with
respect to the distribution of the exchange notes to be acquired in this
exchange offer. Any holder who tenders in this exchange offer for the purpose of
participating in a distribution of the exchange notes:
o could not rely on the applicable interpretations of the SEC; and
o must comply with the registration and prospectus delivery requirements
of the Securities Act in connection with a secondary resale
transaction.
Upon completion of this exchange offer, holders of the notes will not
be entitled to any further registration rights agreements, except under limited
circumstances.
RESALE OF THE EXCHANGE NOTES
Based on interpretations of the SEC staff set forth in no action
letters issued to unrelated third parties, we believe that the exchange notes
issued under this exchange offer in exchange for outstanding notes may be
offered for resale, resold and otherwise transferred by any exchange note holder
without compliance with the registration and prospectus delivery provisions of
the Securities Act, if:
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o such holder is not an "affiliate" of ours within the meaning of Rule
405 under the Securities Act;
o such exchange notes are acquired in the ordinary course of the holder's
business; and
o the holder does not intend to participate in the distribution of such
exchange notes.
Any holder who tenders in this exchange offer with the intention of
participating in any manner in a distribution of the exchange notes:
o cannot rely on the position of the staff of the SEC enunciated in
"Exxon Capital Holdings Corporation" (available May 13, 1989), "Morgan
Stanley & Co. Incorporated" (available June 5, 1991), "Shearman &
Sterling" (available July 2, 1993) or similar interpretive letters; and
o must comply with the registration and prospectus delivery requirements
of the Securities Act in connection with a secondary resale
transaction.
This prospectus may be used for an offer to resell, resale or other
retransfer of exchange notes only as specifically set forth in this prospectus.
With regard to broker-dealers, only broker-dealers that acquired the outstanding
notes as a result of market-making activities or other trading activities may
participate in this exchange offer. Each broker-dealer that receives exchange
notes for its own account in exchange for outstanding notes pursuant to this
exchange offer, where such outstanding notes were acquired by such broker-dealer
as a result of market-making activities or other trading activities, must
acknowledge that it will deliver a prospectus in connection with any resale of
the exchange notes. Please read the section captioned "Plan of Distribution" for
more details regarding the transfer of exchange notes.
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DESCRIPTION OF THE NOTES
Phillips Van-Heusen issued the outstanding notes, and the exchange notes
will be issued by Phillips-Van Heusen, under an indenture dated May 5, 2003
between itself and SunTrust Bank, as trustee. The outstanding notes and the
exchange notes are collectively treated as a single class for all purposes under
the indenture, including the calculation of percentages and the determination of
rights respecting waivers, amendments, voting, redemptions, offers to purchase
and ranking as to payment. The terms of the notes include those stated in the
indenture and those made part of the indenture by reference to the Trust
Indenture Act.
Certain terms used in this "Description of the Notes" are defined under the
subheading "-- Certain Definitions." In this description, "Phillips-Van Heusen"
refers only to Phillips-Van Heusen Corporation and not to any of its
subsidiaries.
The following description is only a summary of the material provisions of
the indenture and the Registration Rights Agreement. We urge you to read the
indenture and the Registration Rights Agreement because they, not this
description, define your rights as holders of the notes. A copy of each of the
indenture and the Registration Rights Agreement has been filed as an exhibit to
the registration statement of which this prospectus is a part.
BRIEF DESCRIPTION OF THE NOTES
The notes are:
o unsecured senior obligations of Phillips-Van Heusen; and
o senior in right of payment to any future Subordinated Obligations of
Phillips-Van Heusen.
The exchange notes are substantially identical in all material respects to
the outstanding notes, except that the exchange notes will not contain terms
with respect to transfer restrictions, certain registration rights and
additional interest for failure to observe specified obligations in the
Registration Rights Agreement.
PRINCIPAL, MATURITY AND INTEREST
Phillips-Van Heusen issued the outstanding notes initially in an aggregate
principal amount of $150.0 million. The notes mature on May 1, 2013. Subject to
Phillips-Van Heusen's compliance with the covenant described under "-- Certain
Covenants -- Limitation on Indebtedness," Phillips-Van Heusen is permitted to
issue additional notes under the indenture in an unlimited aggregate principal
amount. The notes and any additional notes issued under the indenture will be
treated as a single class for all purposes of the indenture, including waivers,
amendments, redemptions and offers to purchase. Unless the context otherwise
requires, for all purposes of the indenture and this "Description of the Notes,"
references to the notes include any additional notes actually issued.
Interest on exchange notes will accrue from the last interest payment date
on which interest was paid on the outstanding notes surrendered for them, or, if
no interest has been paid on such outstanding notes, from May 5, 2003.
Phillips-Van Heusen will not pay interest on the outstanding notes accepted for
exchange. Interest on the notes accrues at the rate of 8 1/8% per annum and is
payable semiannually in arrears on May 1 and November 1, commencing on November
1, 2003. Phillips-Van Heusen makes each interest payment to the registered
holders of the notes on the immediately preceding April 15 and October 15.
Interest on the notes accrues from the date of original issuance. Interest
is computed on the basis of a 360-day year comprised of twelve 30-day months.
OPTIONAL REDEMPTION
Except as set forth below, Phillips-Van Heusen is not entitled to redeem
the notes at its option prior to May 1, 2008.
On and after May 1, 2008, Phillips-Van Heusen will be entitled at its
option to redeem all or a portion of the notes upon not less than 30 nor more
than 60 days' notice, at the redemption prices (expressed in percentages of
principal amount on the redemption date), plus accrued interest to the
redemption date (subject to the right of registered holders of the notes on the
related record date to receive interest due on the relevant interest payment
date), if redeemed during the 12-month period commencing on May 1 of the years
set forth below:
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PERIOD PRICE
2008........................................................104.063%
2009........................................................102.708%
2010........................................................101.354%
2011 and thereafter.........................................100.000%
Prior to May 1, 2006, Phillips-Van Heusen may at its option on one or more
occasions redeem notes in an aggregate principal amount not to exceed 35% of the
aggregate principal amount of the notes originally issued at a redemption price
(expressed as a percentage of principal amount) of 108.125%, plus accrued and
unpaid interest to the redemption date, with the net cash proceeds of one or
more Equity Offerings; provided that
(1) at least 65% of such aggregate principal amount of notes remains
outstanding immediately after the occurrence of each such redemption
(other than notes held, directly or indirectly, by Phillips-Van Heusen
or its Affiliates); and
(2) each such redemption occurs within 90 days after the date of the
related Equity Offering.
SELECTION AND NOTICE OF REDEMPTION
If Phillips-Van Heusen is redeeming less than all of the notes at any time,
the trustee will select notes on a pro rata basis, by lot or by such other
method as the trustee in its sole discretion shall deem to be fair and
appropriate.
Phillips-Van Heusen will redeem notes of $1,000 in whole and not in part.
Phillips-Van Heusen will cause notices of redemption to be mailed by first-class
mail at least 30 but not more than 60 days before the redemption date to each
holder of notes to be redeemed at its registered address.
If any note is to be redeemed in part only, the notice of redemption that
relates to that note will state the portion of the principal amount thereof to
be redeemed. Phillips-Van Heusen will issue a new note in a principal amount
equal to the unredeemed portion of the original note in the name of the holder
thereof upon cancellation of the original note. Notes called for redemption
become due on the date fixed for redemption. On and after the redemption date,
interest ceases to accrue on notes or portions of them called for redemption.
MANDATORY REDEMPTION; OFFERS TO PURCHASE; OPEN MARKET PURCHASES
Phillips-Van Heusen is not required to make any mandatory redemption or
sinking fund payments with respect to the notes. However, under certain
circumstances, Phillips-Van Heusen may be required to offer to purchase notes as
described under the captions "-- Change of Control" and "-- Certain Covenants --
Limitation on Sales of Assets and Subsidiary Stock." Phillips-Van Heusen may at
any time and from time to time purchase notes in the open market or otherwise.
RANKING
SENIOR INDEBTEDNESS VERSUS NOTES
The indebtedness evidenced by the notes is unsecured and ranks pari passu
in right of payment to the Senior Indebtedness of Phillips-Van Heusen. As of May
4, 2003, after giving pro forma effect to the use of the net proceeds of the
sale of the outstanding notes, Phillips-Van Heusen's Senior Indebtedness would
have been approximately $399.6 million, including $248.4 million of secured
indebtedness.
SECURED INDEBTEDNESS AND SUBSIDIARY LIABILITIES VERSUS NOTES
The notes are unsecured obligations of Phillips-Van Heusen. Secured debt
and other secured obligations of Phillips-Van Heusen (including obligations with
respect to the Credit Agreement, $100.0 million aggregate principal amount of
7 3/4% Debentures due 2023 and Phillips-Van Heusen's obligation to make
contingent purchase price payments to Mr. Calvin Klein) are effectively senior
to the notes to the extent of the value of the assets securing
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such debt or other obligations. See "Business -- Our Relationship with Mr.
Klein" and "Description of Certain Other Indebtedness and Preferred Stock" for a
description of these obligations.
A portion of Phillips-Van Heusen's operations is conducted through its
subsidiaries. Claims of creditors of the subsidiaries, including trade
creditors, secured creditors and creditors holding indebtedness and guarantees
issued by the subsidiaries, have priority with respect to the assets and
earnings of such subsidiaries over the claims of creditors of Phillips-Van
Heusen, including holders of the notes. The notes are effectively subordinated
to creditors (including trade creditors) of Phillips-Van Heusen's subsidiaries.
As of May 4, 2003, after giving pro forma effect to the use of the net proceeds
of the sale of the outstanding notes, the total liabilities of Phillips-Van
Heusen's subsidiaries would have been approximately $179.7 million, of which
approximately $149.0 million consists of indebtedness or guarantees under the
Credit Agreement. In addition, the Calvin Klein subsidiaries have guaranteed
Phillips-Van Heusen's obligation to make contingent purchase price payments to
Mr. Calvin Klein, which obligation is secured by a subordinated pledge of all of
the equity interests in the Calvin Klein subsidiaries and a subordinated lien on
substantially all of Phillips-Van Heusen's domestic Calvin Klein subsidiaries'
assets.
REGISTERED EXCHANGE OFFER; REGISTRATION RIGHTS
Phillips-Van Heusen agreed pursuant to the Registration Rights Agreement
that it will, subject to certain exceptions,
(1) within 120 days after the Issue Date, file a registration statement
(the "Exchange Offer Registration Statement") with the SEC with respect
to a registered offer (the "Registered Exchange Offer") to exchange the
outstanding notes for new notes of Phillips-Van Heusen, which we refer
to as the exchange notes, having terms substantially identical in all
material respects to the outstanding notes (except that the exchange
notes will not contain terms with respect to transfer restrictions);
(2) use its reasonable best efforts to cause the Exchange Offer
Registration Statement to be declared effective under the Securities
Act within 210 days after the Issue Date;
(3) as soon as practicable after the effectiveness of the Exchange Offer
Registration Statement (the "Effectiveness Date"), offer the exchange
notes in exchange for the surrender of the outstanding notes; and
(4) keep the Registered Exchange Offer open for not less than 30 days (or
longer if required by applicable law) after the date notice of the
Registered Exchange Offer is mailed to the holders of the outstanding
notes.
This prospectus is part of the Exchange Offer Registration Statement filed in
compliance with these provisions.
For each note tendered to Phillips-Van Heusen pursuant to the Registered
Exchange Offer, Phillips-Van Heusen will issue to the holder of such note an
exchange note having a principal amount equal to that of the surrendered note.
Under existing SEC interpretations, the exchange notes will be freely
transferable by registered holders other than Phillips-Van Heusen's Affiliates
after the Registered Exchange Offer without further registration under the
Securities Act if such holders of the exchange notes represent to Phillips-Van
Heusen in the Registered Exchange Offer that they are acquiring the exchange
notes in the ordinary course of its business, that they have no arrangement or
understanding with any person to participate in the distribution of the exchange
notes and that they are not affiliates of Phillips-Van Heusen, as such terms are
interpreted by the SEC; provided, however, that broker-dealers ("Participating
Broker-Dealers") receiving exchange notes in the Registered Exchange Offer will
have a prospectus delivery requirement with respect to resales of such exchange
notes. The SEC has taken the position that Participating Broker-Dealers may
fulfill their prospectus delivery requirements with respect to exchange notes
(other than a resale of an unsold allotment from the original sale of the
outstanding notes) with the prospectus contained in the Exchange Offer
Registration Statement.
Under the Registration Rights Agreement, Phillips-Van Heusen is required to
allow Participating Broker-Dealers and other persons, if any, with similar
prospectus delivery requirements to use the prospectus contained in the Exchange
Offer Registration Statement in connection with the resale of such exchange
notes for 180 days following the effective date of the Exchange Offer
Registration Statement (or such shorter period during which Participating
Broker-Dealers are required by law to deliver such prospectus).
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A registered holder of outstanding notes (other than certain specified
holders) who wishes to exchange those notes for exchange notes in the Registered
Exchange Offer will be required to represent that any exchange notes to be
received by it will be acquired in the ordinary course of its business and that
at the time of the commencement of the Registered Exchange Offer it has no
arrangement or understanding with any person to participate in the distribution
(within the meaning of the Securities Act) of the exchange notes and that it is
not an affiliate of Phillips-Van Heusen, as defined in Rule 405 of the
Securities Act, or if it is an affiliate, that it will comply with the
registration and prospectus delivery requirements of the Securities Act to the
extent applicable.
In the event that:
(1) any change in law or applicable interpretations of the staff of the SEC
do not permit us to effect such a Registered Exchange Offer; or
(2) for any other reason Phillips-Van Heusen does not consummate the
Registered Exchange Offer within 250 days of the Issue Date; or
(3) an initial purchaser of the outstanding notes shall notify us following
consummation of the Registered Exchange Offer that outstanding notes
held by it are not eligible to be exchanged for exchange notes in the
Registered Exchange Offer; or
(4) certain holders are prohibited by law or SEC policy from participating
in the Registered Exchange Offer or may not resell the exchange notes
acquired by them in the Registered Exchange Offer to the public without
delivering a prospectus (other than this prospectus ),
then, Phillips-Van Heusen will, subject to certain exceptions,
(1) promptly file a shelf registration statement (the "Shelf Registration
Statement") with the SEC covering resales of the outstanding notes or
the exchange notes, as the case may be;
(2) (A) in the case of clause (1) (in (1)- (4) above) above, use its
reasonable best efforts to cause the Shelf Registration Statement to be
declared effective under the Securities Act on or prior to the 210th
day after the Issue Date and (B) in the case of clause (2), (3) or (4)
above, use its reasonable best efforts to cause the Shelf Registration
Statement to be declared effective under the Securities Act on or prior
to the 90th day after the date on which the obligation to file a Shelf
Registration Statement arises; and
(3) keep the Shelf Registration Statement effective until the earliest of
(A) the time when the notes covered by the Shelf Registration Statement
can be sold pursuant to Rule 144 without any limitations under clauses
(c), (e), (f) and (h) of Rule 144, (B) two years from the Issue Date
and (C) the date on which all notes registered thereunder are disposed
of in accordance therewith.
Phillips-Van Heusen will, in the event a Shelf Registration Statement is
filed, among other things, provide to each holder for whom such Shelf
Registration Statement was filed copies of the prospectus which is a part of the
Shelf Registration Statement, notify each such holder when the Shelf
Registration Statement has become effective and take certain other actions as
are required to permit unrestricted resales of the outstanding notes or the
exchange notes, as the case may be. A holder selling such outstanding notes or
exchange notes pursuant to the Shelf Registration Statement generally would be
required to be named as a selling security holder in the related prospectus and
to deliver a prospectus to purchasers, will be subject to certain of the civil
liability provisions under the Securities Act in connection with such sales and
will be bound by the provisions of the Registration Rights Agreement that are
applicable to such holder (including certain indemnification obligations).
Phillips-Van Heusen will pay additional cash interest on the applicable
outstanding notes and exchange notes, subject to certain exceptions,
(1) if Phillips-Van Heusen fails to file an Exchange Offer Registration
Statement with the SEC on or prior to the 120th day after the Issue
Date,
(2) if the Exchange Offer Registration Statement is not declared effective
by the SEC on or prior to the 210th day after the Issue Date or, if
obligated to file a Shelf Registration Statement pursuant to clause
2(A) above, a Shelf Registration Statement is not declared effective by
the SEC on or prior to the 210th day after the Issue Date,
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(3) if the Registered Exchange Offer is not consummated on or before the
40th day after the Exchange Offer Registration Statement is declared
effective,
(4) if obligated to file the Shelf Registration Statement, Phillips-Van
Heusen fails to file the Shelf Registration Statement with the SEC on
or prior to the 30th day after the date (the "Shelf Filing Date") on
which the obligation to file a Shelf Registration Statement arises,
(5) if obligated to file a Shelf Registration Statement pursuant to clause
2(B) above, the Shelf Registration Statement is not declared effective
on or prior to the 90th day after the Shelf Filing Date, or
(6) after the Exchange Offer Registration Statement or the Shelf
Registration Statement, as the case may be, is declared effective, such
Registration Statement thereafter ceases to be effective or usable
(subject to certain exceptions) (each such event referred to in the
preceding clauses (1) through (6) a "Registration Default");
from and including the date on which any such Registration Default shall occur
to but excluding the date on which all Registration Defaults have been cured.
The rate of the additional interest will be 0.25% per annum for the first
90-day period immediately following the occurrence of a Registration Default,
and such rate will increase by an additional 0.25% per annum with respect to
each subsequent 90-day period until all Registration Defaults have been cured,
up to a maximum additional interest rate of 1.0% per annum. Phillips-Van Heusen
will pay such additional interest on regular interest payment dates. Such
additional interest will be in addition to any other interest payable from time
to time with respect to the outstanding notes and the exchange notes.
All references in the indenture, in any context, to any interest or other
amount payable on or with respect to the outstanding notes and exchange notes
shall be deemed to include any additional interest pursuant to the Registration
Rights Agreement.
If Phillips-Van Heusen effects the Registered Exchange Offer, it will be
entitled to close the Registered Exchange Offer 30 days after the commencement
thereof provided that Phillips-Van Heusen has accepted all outstanding notes
theretofore validly tendered in accordance with the terms of the Registered
Exchange Offer.
CHANGE OF CONTROL
Upon the occurrence of any of the following events (each a "Change of
Control"), each holder of the notes shall have the right to require that
Phillips-Van Heusen repurchase such holder's notes at a purchase price in cash
equal to 101% of the principal amount thereof on the date of purchase plus
accrued and unpaid interest, if any, to the date of purchase (subject to the
right of registered holders on the relevant record date to receive interest due
on the relevant interest payment date):
(1) any "person" (as such term is used in Sections 13(d) and 14(d) of the
Exchange Act), other than one or more Permitted Holders, is or becomes
the "beneficial owner" (as defined in Rules 13d-3 and 13d-5 under the
Exchange Act, except that for purposes of this clause (1) such person
shall be deemed to have "beneficial ownership" of all shares that any
such person has the right to acquire, whether such right is exercisable
immediately or only after the passage of time), directly or indirectly,
of more than 50% of the total voting power of the Voting Stock of
Phillips-Van Heusen; (for the purposes of this clause (1), such person
shall be deemed to beneficially own any Voting Stock of a Person (the
"specified person") held by any other Person (the "parent entity"), if
such person is the beneficial owner (as defined above in this clause
(1)), directly or indirectly, of more than 50% of the voting power of
the Voting Stock of the parent entity and the Permitted Holders
beneficially own (as defined in this proviso), directly or indirectly,
in the aggregate a lesser percentage of the voting power of the Voting
Stock of such parent entity and do not have the right or ability by
voting power, contract or otherwise to elect or designate for election
a majority of the board of directors of the parent entity);
(2) individuals who on the Issue Date constituted the board of directors of
Phillips-Van Heusen (together with any new directors whose election by
such board of directors or whose nomination for election by the
stockholders of Phillips-Van Heusen was approved by a vote of a
majority of the directors of Phillips-Van Heusen then still in office
who were either directors on the Issue Date or whose election
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or nomination for election was previously so approved) cease for any
reason to constitute a majority of Phillips-Van Heusen's board of
directors then in office;
(3) the adoption of a plan relating to the liquidation or dissolution of
Phillips-Van Heusen; or
(4) any merger, consolidation, reorganization, sale or other similar
transaction in connection with which any holder of the Series B
convertible preferred stock exercises the right to deem such
transaction a liquidation event pursuant to the terms of the Series B
convertible preferred stock.
Within 30 days following any Change of Control, Phillips-Van Heusen
will mail a notice to each holder of the notes with a copy to the trustee (the
"Change of Control Offer") stating:
(1) that a Change of Control has occurred and that such holder has the
right to require us to purchase such holder's notes at a purchase price
in cash equal to 101% of the principal amount thereof on the date of
purchase, plus accrued and unpaid interest, if any, to the date of
purchase (subject to the right of registered holders on the relevant
record date to receive interest on the relevant interest payment date);
(2) the circumstances and relevant facts regarding such Change of Control;
(3) the purchase date (which shall be no earlier than 30 days nor later
than 60 days from the date such notice is mailed); and
(4) the instructions, as determined by us, consistent with the covenant
described hereunder, that a holder must follow in order to have its
notes purchased.
Phillips-Van Heusen will not be required to make a Change of Control Offer
following a Change of Control if a third party makes the Change of Control Offer
in the manner, at the times and otherwise in compliance with the requirements
set forth in the indenture applicable to a Change of Control Offer made by
Phillips-Van Heusen and purchases all notes validly tendered and not withdrawn
under such Change of Control Offer.
Phillips-Van Heusen will comply, to the extent applicable, with the
requirements of Section 14(e) of the Exchange Act and any other securities laws
or regulations in connection with the repurchase of notes as a result of a
Change of Control. To the extent that the provisions of any securities laws or
regulations conflict with the provisions of the covenant described hereunder,
Phillips-Van Heusen will comply with the applicable securities laws and
regulations and shall not be deemed to have breached its obligations under the
covenant described hereunder by virtue of its compliance with such securities
laws or regulations.
The Change of Control purchase feature of the notes may in certain
circumstances make more difficult or discourage a sale or takeover of
Phillips-Van Heusen and, thus, the removal of incumbent management. The Change
of Control purchase feature is a result of negotiations between Phillips-Van
Heusen and the initial purchasers of the notes. Phillips-Van Heusen has no
present intention to engage in a transaction involving a Change of Control,
although it is possible that it could decide to do so in the future. Subject to
the limitations discussed below, Phillips-Van Heusen could, in the future, enter
into certain transactions, including acquisitions, refinancings or other
recapitalizations, that would not constitute a Change of Control under the
indenture, but that could increase the amount of indebtedness outstanding at
such time or otherwise affect Phillips-Van Heusen's capital structure or credit
ratings. Restrictions on Phillips-Van Heusen's ability to Incur additional
Indebtedness are contained in the covenants described under "-- Certain
Covenants -- Limitation on Indebtedness," "-- Limitation on Liens" and "--
Limitation on Sale/Leaseback Transactions." Such restrictions can only be waived
with the consent of the holders of a majority in principal amount of the notes
then outstanding. Except for the limitations contained in such covenants,
however, the indenture will not contain any covenants or provisions that may
afford holders of the notes protection in the event of such transactions.
In the event a Change of Control occurs at a time when Phillips-Van Heusen
is prohibited from purchasing notes, it may seek the consent of its lenders to
the purchase of notes or may attempt to refinance the borrowings that contain
such prohibition. If Phillips-Van Heusen does not obtain such a consent or repay
such borrowings, it will remain prohibited from purchasing notes. In such case,
Phillips-Van Heusen's failure to offer to purchase notes would constitute a
Default under the indenture, which would, in turn, constitute a default under
the Credit Agreement.
Future indebtedness that Phillips-Van Heusen may incur may contain
prohibitions on the occurrence of certain events that would constitute a Change
of Control or require the repurchase of such indebtedness upon a
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Change of Control. Moreover, the exercise by the holders of their right to
require Phillips-Van Heusen to repurchase the notes could cause a default under
such indebtedness, even if the Change of Control itself does not, due to the
financial effect of such repurchase on Phillips-Van Heusen. Finally,
Phillips-Van Heusen's ability to pay cash to the holders of notes following the
occurrence of a Change of Control may be limited by its then existing financial
resources. There can be no assurance that sufficient funds will be available
when necessary to make any required repurchases.
The definition of "Change of Control" includes a disposition of all or
substantially all of the assets of Phillips-Van Heusen to any Person. Although
there is a limited body of case law interpreting the phrase "substantially all,"
there is no precise established definition of the phrase under applicable law.
Accordingly, in certain circumstances there may be a degree of uncertainty as to
whether a particular transaction would involve a disposition of "all or
substantially all" of the assets of Phillips-Van Heusen. As a result, it may be
unclear as to whether a Change of Control has occurred and whether a holder of
notes may require Phillips-Van Heusen to make an offer to repurchase the notes
as described above.
The provisions under the indenture relative to Phillips-Van Heusen's
obligation to make an offer to repurchase the notes as a result of a Change of
Control may be waived or modified with the written consent of the holders of a
majority in principal amount of the notes.
CERTAIN COVENANTS
The indenture contains covenants including, among others, the following:
LIMITATION ON INDEBTEDNESS
(a) Phillips-Van Heusen will not, and will not permit any Restricted
Subsidiary to, Incur, directly or indirectly, any Indebtedness; provided,
however, that Phillips-Van Heusen and any future Subsidiary Guarantor will be
entitled to Incur Indebtedness if, on the date of such Incurrence and after
giving effect thereto on a pro forma basis, no Default has occurred and is
continuing and the Consolidated Coverage Ratio would be greater than 2.0 to 1.
(b) Notwithstanding the foregoing paragraph (a), Phillips-Van Heusen and
the Restricted Subsidiaries will be entitled to Incur any or all of the
following Indebtedness:
(1) Indebtedness Incurred by Phillips-Van Heusen and the Restricted
Subsidiaries (including Restricted Subsidiaries that become
Subsidiaries after the Issue Date) pursuant to the Credit Agreement;
provided, however, that, after giving effect to any such Incurrence,
the aggregate principal amount of all Indebtedness Incurred under
this clause (1) and then outstanding does not exceed the greater of
(A) $325.0 million and (B) the Borrowing Base, less in the case of
clause (A) the sum of all mandatory principal payments with respect
to such Indebtedness pursuant to paragraph (a)(3)(A) of the covenant
described under "-- Limitation on Sale of Assets and Subsidiary
Stock" (which principal payments in the case of revolving loans are
accompanied by a corresponding permanent commitment reduction);
(2) Indebtedness owed to and held by Phillips-Van Heusen or a Restricted
Subsidiary (other than a Securitization Subsidiary); provided,
however, that any subsequent issuance or transfer of any Capital
Stock which results in any such Restricted Subsidiary ceasing to be
a Restricted Subsidiary or any subsequent transfer of such
Indebtedness (other than to Phillips-Van Heusen or a Restricted
Subsidiary (other than a Securitization Subsidiary)) shall be
deemed, in each case, to constitute the Incurrence of such
Indebtedness by the obligor thereon;
(3) the outstanding notes and the exchange notes (other than any
additional notes);
(4) the Existing Notes and any other Indebtedness outstanding on the
Issue Date after giving effect to the use of the net proceeds of the
sale of the outstanding notes (other than Indebtedness described in
clause (1), (2), (3) or (10) of this covenant);
(5) Indebtedness of a Restricted Subsidiary Incurred and outstanding on
or prior to the date on which such Subsidiary was acquired by
Phillips-Van Heusen (other than Indebtedness Incurred in connection
with, or to provide all or any portion of the funds or credit
support utilized to consummate, the transaction or series of related
transactions pursuant to which such Subsidiary became a Subsidiary
or was acquired
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by Phillips-Van Heusen); provided, however, that at the time of such
acquisition and after giving pro forma effect thereto, the aggregate
principal amount of all Indebtedness Incurred pursuant to this
clause (5) and then outstanding does not exceed $5.0 million
(including any Refinancing Indebtedness with respect thereto);
(6) Refinancing Indebtedness in respect of Indebtedness Incurred
pursuant to paragraph (a) or pursuant to clause (3), (4) or (5) or
this clause (6) of paragraph (b); provided, however, that to the
extent such Refinancing Indebtedness directly or indirectly
Refinances Indebtedness of a Subsidiary Incurred pursuant to clause
(5), such Refinancing Indebtedness shall be Incurred only by such
Subsidiary;
(7) Hedging Obligations consisting of Interest Rate Agreements, Currency
Agreements or Commodity Agreements not entered into for speculative
purposes;
(8) obligations in respect of performance, bid and surety bonds and
completion guarantees provided by Phillips-Van Heusen or any
Restricted Subsidiary in the ordinary course of business;
(9) Indebtedness arising from the honoring by a bank or other financial
institution of a check, draft or similar instrument drawn against
insufficient funds in the ordinary course of business; provided,
however, that such Indebtedness is extinguished within two business
days of its Incurrence;
(10) Indebtedness of Phillips-Van Heusen consisting of (A) guarantees of
payments of accounts payable of third-party manufacturing facilities
up to the amount of the commitment therefor on the Issue Date but in
any event not to exceed $4.5 million and (B) obligations of Calvin
Klein for the payment of letters of credit issued on its behalf up
to the amount of the commitment therefor on the Issue Date but in
any event not to exceed $1.5 million;
(11) Purchase Money Indebtedness and Capital Lease Obligations Incurred
by Phillips-Van Heusen or a Restricted Subsidiary to acquire
property in the ordinary course of business and which do not in the
aggregate exceed $10.0 million at any time outstanding;
(12) the Subsidiary Guaranty of a Subsidiary Guarantor;
(13) any Permitted Guarantee by a Restricted Subsidiary described in
clause (iii) of the definition of "Permitted Guarantees" or any
Indebtedness Incurred by a Restricted Subsidiary as a co-borrower of
Indebtedness of Phillips-Van Heusen described in clause (iii) of the
definition of "Permitted Guarantees";
(14) Indebtedness of a Foreign Restricted Subsidiary which at any time
outstanding does not exceed the greater of (A) the Foreign Borrowing
Base of such Foreign Restricted Subsidiary and (B) an amount which,
when taken together with all Indebtedness Incurred by all other
Foreign Restricted Subsidiaries and then outstanding, does not
exceed $5.0 million in the aggregate;
(15) Indebtedness Incurred by a Securitization Subsidiary in a Qualified
Securitization Transaction; and
(16) Indebtedness of Phillips-Van Heusen and any future Subsidiary
Guarantors in an aggregate principal amount which, when taken
together with all other Indebtedness of Phillips-Van Heusen and its
Restricted Subsidiaries outstanding on the date of such Incurrence
(other than Indebtedness permitted by clauses (1) through (15) above
or paragraph (a)) does not exceed $30.0 million.
(c) Notwithstanding the foregoing, neither Phillips-Van Heusen nor any
Subsidiary Guarantor will Incur any Indebtedness pursuant to the foregoing
paragraph (b) if the proceeds thereof are used, directly or indirectly, to
Refinance any Subordinated Obligations of Phillips-Van Heusen or any Subsidiary
Guarantor unless such Indebtedness shall be subordinated to the notes or the
applicable Subsidiary Guaranty to at least the same extent as such Subordinated
Obligations.
(d) For purposes of determining compliance with this covenant:
(1) any Indebtedness remaining outstanding under the Credit Agreement
after the application of the net proceeds of the sale of the notes
will be treated as Incurred on the Issue Date under clause (1) of
paragraph (b) above;
(2) in the event that an item of Indebtedness meets the criteria of more
than one of the types of Indebtedness described above, Phillips-Van
Heusen, in its sole discretion, will classify such item of
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Indebtedness at the time of Incurrence and will only be required to
include the amount and type of such Indebtedness in one of the above
clauses; and
(3) Phillips-Van Heusen will be entitled to divide and classify an item
of Indebtedness in more than one of the types of Indebtedness
described above.
The accrual of interest, the accretion or amortization of original issue
discount and the payment of interest on any Indebtedness in the form of
additional Indebtedness with the same terms will not be deemed to be an
incurrence of Indebtedness for purposes of this covenant; provided, however,
that the amount thereof is included in Consolidated Interest Expense of
Phillips-Van Heusen and its consolidated Restricted Subsidiaries as accrued.
LIMITATION ON RESTRICTED PAYMENTS
(a) Phillips-Van Heusen will not, and will not permit any Restricted
Subsidiary, directly or indirectly, to make a Restricted Payment if at the time
Phillips-Van Heusen or such Restricted Subsidiary makes such Restricted Payment:
(1) a Default shall have occurred and be continuing (or would result
therefrom);
(2) Phillips-Van Heusen is not entitled to Incur an additional $1.00 of
Indebtedness pursuant to paragraph (a) of the covenant described
under "-- Limitation on Indebtedness"; or
(3) the aggregate amount of such Restricted Payment and all other
Restricted Payments since the Issue Date would exceed the sum of
(without duplication):
(A) 50% of the Consolidated Net Income accrued during the period
(treated as one accounting period) from the beginning of the
fiscal quarter immediately following the fiscal quarter during
which the Issue Date occurs to the end of the most recent
fiscal quarter for which financial statements are available on
or prior to the date of such Restricted Payment (or, in case
such Consolidated Net Income shall be a deficit, minus 100% of
such deficit); plus
(B) 100% of the aggregate Net Cash Proceeds received by
Phillips-Van Heusen from the issuance or sale of its Capital
Stock, including Capital Stock issued pursuant to a stock
option or similar plan established by Phillips-Van Heusen
(other than Disqualified Stock) subsequent to the Issue Date
(other than an issuance or sale to a Subsidiary of
Phillips-Van Heusen and other than an issuance or sale to an
employee stock ownership plan or to a trust established by
Phillips-Van Heusen or any of its Subsidiaries for the benefit
of their employees) and 100% of any cash capital contribution
received by Phillips-Van Heusen from its stockholders
subsequent to the Issue Date; plus
(C) the amount by which Indebtedness of Phillips-Van Heusen is
reduced on Phillips-Van Heusen's balance sheet upon the
conversion or exchange subsequent to the Issue Date of any
Indebtedness of Phillips-Van Heusen convertible or
exchangeable for Capital Stock (other than Disqualified Stock)
of Phillips-Van Heusen (less the amount of any cash, or the
fair value of any other property, distributed by Phillips-Van
Heusen upon such conversion or exchange); provided, however,
that the foregoing amount shall not exceed the Net Cash
Proceeds received by Phillips-Van Heusen or any Restricted
Subsidiary from the sale of such Indebtedness (excluding Net
Cash Proceeds of sales to a Subsidiary of Phillips-Van Heusen
or to an employee stock ownership plan or a trust established
by Phillips-Van Heusen or any of its Subsidiaries for the
benefit of their employees); plus
(D) an amount equal to the sum of (x) the reduction, net of costs,
in the Investments (other than Permitted Investments) made by
Phillips-Van Heusen or any Restricted Subsidiary in any Person
resulting from repurchases, repayments or redemptions of such
Investments by such Person, proceeds realized on the sale of
such Investment and proceeds representing the return of
capital (excluding dividends and distributions), in each case
received by Phillips-Van Heusen or any Restricted Subsidiary,
and (y) to the extent such Person is an Unrestricted
Subsidiary, the portion (proportionate to Phillips-Van
Heusen's equity interest in such Subsidiary) of the fair
market value of the net assets of such Unrestricted Subsidiary
at the time such Unrestricted Subsidiary is designated a
Restricted Subsidiary; provided, however, that the foregoing
sum shall not exceed, in
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the case of any such Person or Unrestricted Subsidiary, the
amount of Investments (excluding Permitted Investments)
previously made (and treated as a Restricted Payment) by
Phillips-Van Heusen or any Restricted Subsidiary in such
Person or Unrestricted Subsidiary; plus
(E) $7.5 million.
(b) The preceding provisions will not prohibit:
(1) any Restricted Payment made out of the Net Cash Proceeds of the
substantially concurrent sale of, or made by exchange for, Capital
Stock of Phillips-Van Heusen (other than Disqualified Stock and
other than Capital Stock issued or sold to a Subsidiary of
Phillips-Van Heusen or an employee stock ownership plan or to a
trust established by Phillips-Van Heusen or any of its Subsidiaries
for the benefit of their employees) or a substantially concurrent
cash capital contribution received by Phillips-Van Heusen from its
stockholders; provided, however, that (A) such Restricted Payment
shall be excluded in the calculation of the amount of Restricted
Payments and (B) the Net Cash Proceeds of such sale or such cash
capital contribution (to the extent so used for such Restricted
Payment) shall be excluded from the calculation of amounts under
clause (3)(B) of paragraph (a) above;
(2) any purchase, repurchase, redemption, defeasance or other
acquisition or retirement for value of Subordinated Obligations of
Phillips-Van Heusen or any Subsidiary Guarantor made by exchange
for, or out of the proceeds of the substantially concurrent sale of,
Indebtedness which is permitted to be Incurred pursuant to the
covenant described under "--Limitation on Indebtedness"; provided,
however, that such purchase, repurchase, redemption, defeasance or
other acquisition or retirement for value shall be excluded in the
calculation of the amount of Restricted Payments;
(3) dividends paid within 60 days after the date of declaration thereof
if at such date of declaration such dividend would have complied
with this covenant; provided, however, that at the time of payment
of such dividend, no other Default shall have occurred and be
continuing (or result therefrom); provided further, however, that
such dividend shall be included in the calculation of the amount of
Restricted Payments;
(4) the payment of dividends by Phillips-Van Heusen on its common stock
in an annual amount of up to $0.15 per outstanding share of common
stock; provided, however, that such payment will be included in the
calculation of the amount of Restricted Payments;
(5) repurchases by Phillips-Van Heusen of Capital Stock deemed to occur
upon the exercise of options or warrants if such Capital Stock
represents all or a portion of the exercise price thereof; provided,
however, that such repurchases will be excluded from the calculation
of the amount of Restricted Payments; and
(6) other Restricted Payments not exceeding $15.0 million in the
aggregate at any one time outstanding; provided, however, that (A)
at the time of such Restricted Payments, no Default or Event of
Default shall have occurred and be continuing (or result therefrom)
and (B) such Restricted Payments will be excluded in the calculation
of the amount of Restricted Payments.
For purposes of determining compliance with this "Limitation on Restricted
Payments" covenant, in the event that a Restricted Payment meets the criteria of
more than one of the types of Restricted Payments described above, Phillips-Van
Heusen may order and classify, and from time to time may reclassify, such
Restricted Payment if that classification would have been permitted at the time
such Restricted Payment was made and at the time of the reclassification.
LIMITATION ON RESTRICTIONS ON DISTRIBUTIONS FROM RESTRICTED SUBSIDIARIES
Phillips-Van Heusen will not, and will not permit any Restricted Subsidiary
to, create or otherwise cause or permit to exist or become effective any
consensual encumbrance or restriction on the ability of any Restricted
Subsidiary to (a) pay dividends or make any other distributions on its Capital
Stock to Phillips-Van Heusen or a Restricted Subsidiary or pay any Indebtedness
owed to Phillips-Van Heusen, (b) make any loans or advances to Phillips-Van
Heusen or (c) transfer any of its property or assets to Phillips-Van Heusen,
except:
(1) with respect to clauses (a), (b) and (c),
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(i) any encumbrance or restriction pursuant to an agreement in
effect at or entered into on the Issue Date (after giving
effect to the use of the net proceeds of the sale of the
outstanding notes);
(ii) any encumbrance or restriction with respect to a Restricted
Subsidiary pursuant to an agreement relating to any
Indebtedness Incurred by such Restricted Subsidiary on or
prior to the date on which such Restricted Subsidiary was
acquired by Phillips-Van Heusen (other than Indebtedness
Incurred as consideration in, or to provide all or any portion
of the funds or credit support utilized to consummate, the
transaction or series of related transactions pursuant to
which such Restricted Subsidiary became a Restricted
Subsidiary or was acquired by Phillips-Van Heusen) and
outstanding on such date;
(iii) any encumbrance or restriction pursuant to an agreement
effecting a Refinancing of Indebtedness Incurred pursuant to
an agreement referred to in clause (i) or (ii) of clause (1)
of this covenant or this clause (iii) or contained in any
amendment to an agreement referred to in clause (i) or (ii) of
clause (1) of this covenant or this clause (iii); provided,
however, that the encumbrances and restrictions with respect
to such Restricted Subsidiary contained in any such
refinancing agreement or amendment are no less favorable in
any material respect to the holders of the notes than
encumbrances and restrictions with respect to such Restricted
Subsidiary contained in such predecessor agreements;
(iv) any encumbrance or restriction with respect to a Restricted
Subsidiary imposed pursuant to an agreement entered into for
the sale or disposition of all or substantially all of the
Capital Stock or assets of such Restricted Subsidiary pending
the closing of such sale or disposition and so long as the
consummation of such transaction would not result in a Default
or Event of Default;
(v) any encumbrance or restriction under applicable corporate law
or regulation relating to the payment of dividends or
distributions;
(vi) any encumbrance or restriction contained in the terms of any
Indebtedness permitted to be Incurred under the indenture;
provided that such encumbrances or restrictions are ordinary
and customary with respect to the type of Indebtedness being
Incurred if Phillips-Van Heusen's board of directors
determines that any such encumbrance or restriction will not
adversely affect Phillips-Van Heusen's ability to make
principal or interest payments on the notes; and
(vii) any encumbrance or restriction with respect to Indebtedness or
other contractual requirements of a Securitization Subsidiary
in connection with and, in the good faith determination of
Phillips-Van Heusen's board of directors, necessary to
effectuate, a Qualified Securitization Transaction; provided,
however, that such encumbrance or restriction applies only to
such Securitization Subsidiary; and
(2) with respect to clause (c) only,
(i) any encumbrance or restriction consisting of customary
nonassignment provisions in leases governing leasehold
interests to the extent such provisions restrict the transfer
of the lease or the property leased thereunder; and
(ii) any encumbrance or restriction contained in security
agreements or mortgages securing Indebtedness of a Restricted
Subsidiary to the extent such encumbrance or restriction
restricts the transfer of the property subject to such
security agreements or mortgages.
LIMITATION ON SALES OF ASSETS AND SUBSIDIARY STOCK
(a) Phillips-Van Heusen will not, and will not permit any Restricted
Subsidiary to, directly or indirectly, consummate any Asset Disposition unless:
(1) Phillips-Van Heusen or such Restricted Subsidiary receives
consideration at the time of such Asset Disposition at least equal
to the fair market value (including as to the value of all non-cash
consideration), as determined in good faith by Phillips-Van Heusen's
board of directors, of the shares and assets subject to such Asset
Disposition;
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(2) in the case of an Asset Disposition other than an Asset Swap, at
least 75% of the consideration thereof received by Phillips-Van
Heusen or such Restricted Subsidiary is in the form of cash or cash
equivalents; and
(3) an amount equal to 100% of the Net Available Cash from such Asset
Disposition is applied by Phillips-Van Heusen (or such Restricted
Subsidiary, as the case may be)
(A) to the extent Phillips-Van Heusen elects (or is required by
the terms of any Indebtedness), to prepay, repay, redeem or
purchase Senior Indebtedness of Phillips-Van Heusen or
Indebtedness (other than any Disqualified Stock) of a
Restricted Subsidiary (in each case other than Indebtedness
owed to Phillips-Van Heusen or an Affiliate of Phillips-Van
Heusen) within one year from the later of the date of such
Asset Disposition or the receipt of such Net Available Cash;
(B) to the extent Phillips-Van Heusen elects to acquire Additional
Assets within one year from the later of the date of such
Asset Disposition or the receipt of such Net Available Cash;
and
(C) to the extent of the balance of such Net Available Cash after
application in accordance with clauses (A) and (B), to make an
offer to the holders of the notes (and to holders of other
Senior Indebtedness of Phillips-Van Heusen designated by
Phillips-Van Heusen) to purchase notes (and such other Senior
Indebtedness of Phillips-Van Heusen) pursuant to and subject
to the conditions contained in the indenture;
provided, however, that in connection with any prepayment, repayment or purchase
of Indebtedness pursuant to clause (A) or (C) above, Phillips-Van Heusen or such
Restricted Subsidiary shall permanently retire such Indebtedness and shall cause
the related loan commitment (if any) to be permanently reduced in an amount
equal to the principal amount so prepaid, repaid or purchased.
Notwithstanding the foregoing provisions of this covenant, Phillips-Van
Heusen and the Restricted Subsidiaries will not be required to apply any Net
Available Cash in accordance with this covenant except to the extent that the
aggregate Net Available Cash from all Asset Dispositions which is not applied in
accordance with this covenant exceeds $20.0 million. Pending application of Net
Available Cash pursuant to this covenant, such Net Available Cash shall be
invested in Temporary Cash Investments or applied to temporarily reduce
revolving credit indebtedness.
For the purposes of this covenant, the following are deemed to be cash or
cash equivalents:
(1) the assumption of Indebtedness of Phillips-Van Heusen or any
Restricted Subsidiary and the release of Phillips-Van Heusen or such
Restricted Subsidiary from all liability on such Indebtedness in
connection with such Asset Disposition; and
(2) securities, notes or other obligations received by Phillips-Van
Heusen or any Restricted Subsidiary from the transferee to the
extent converted within 90 days by Phillips-Van Heusen or such
Restricted Subsidiary into cash or Temporary Cash Investments.
(b) In the event of an Asset Disposition that requires the purchase of
notes (and other Senior Indebtedness of Phillips-Van Heusen) pursuant to clause
(a)(3)(C) above, Phillips-Van Heusen will purchase notes tendered pursuant to an
offer by Phillips-Van Heusen for the notes (and such other Senior Indebtedness)
at a purchase price of 100% of their principal amount (or, in the event such
other Senior Indebtedness of Phillips-Van Heusen was issued with significant
original issue discount, 100% of the accreted value thereof) without premium,
plus accrued but unpaid interest (or, in respect of such other Senior
Indebtedness of Phillips-Van Heusen, such lesser price, if any, as may be
provided for by the terms of such Senior Indebtedness) in accordance with the
procedures (including prorating in the event of oversubscription) set forth in
the indenture. If the aggregate purchase price of the securities tendered
exceeds the Net Available Cash allotted to their purchase, Phillips-Van Heusen
will select the securities to be purchased on a pro rata basis but in round
denominations, which in the case of the notes will be denominations of $1,000
principal amount or multiples thereof. Phillips-Van Heusen shall not be required
to make such an offer to purchase notes (and other Senior Indebtedness of
Phillips-Van Heusen) pursuant to this covenant if the Net Available Cash
available therefor is less than $10.0 million (which lesser amount shall be
carried forward for purposes of determining whether such an offer is required
with respect to the Net Available Cash from any subsequent Asset Disposition).
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(c) Phillips-Van Heusen will comply, to the extent applicable, with the
requirements of Section 14(e) of the Exchange Act and any other securities laws
or regulations in connection with the repurchase of notes pursuant to this
covenant. To the extent that the provisions of any securities laws or
regulations conflict with provisions of this covenant, Phillips-Van Heusen will
comply with the applicable securities laws and regulations and will not be
deemed to have breached its obligations under this covenant by virtue of its
compliance with such securities laws or regulations.
LIMITATION ON AFFILIATE TRANSACTIONS
(a) Phillips-Van Heusen will not, and will not permit any Restricted
Subsidiary to, enter into or permit to exist any transaction (including the
purchase, sale, lease or exchange of any property, employee compensation
arrangements or the rendering of any service) with, or for the benefit of, any
Affiliate of Phillips-Van Heusen (an "Affiliate Transaction") unless:
(1) the terms of the Affiliate Transaction are no less favorable to
Phillips-Van Heusen or such Restricted Subsidiary than those that
could be obtained at the time of the Affiliate Transaction in
arm's-length dealings with a Person who is not an Affiliate;
(2) if such Affiliate Transaction involves an amount in excess of $5.0
million, the terms of the Affiliate Transaction are set forth in
writing and a majority of the non-employee directors of Phillips-Van
Heusen disinterested with respect to such Affiliate Transaction have
determined in good faith that the criteria set forth in clause (1)
are satisfied and have approved the relevant Affiliate Transaction
as evidenced by a resolution of Phillips-Van Heusen's board of
directors; and
(3) if such Affiliate Transaction involves an amount in excess of $17.5
million, Phillips-Van Heusen's board of directors shall also have
received a written opinion from an Independent Qualified Party to
the effect that such Affiliate Transaction is fair, from a financial
standpoint, to Phillips-Van Heusen and its Restricted Subsidiaries
or is not less favorable to Phillips-Van Heusen and its Restricted
Subsidiaries than could reasonably be expected to be obtained at the
time in an arm's-length transaction with a Person who was not an
Affiliate.
(b) The provisions of the preceding paragraph (a) will not prohibit:
(1) any Investment (other than a Permitted Investment) or other
Restricted Payment, in each case permitted to be made pursuant to
the covenant described under "-- Limitation on Restricted Payments";
(2) any issuance of securities, or other payments, awards or grants in
cash, securities or otherwise pursuant to, or the funding of,
employment arrangements, stock options and stock ownership plans in
the ordinary course of business;
(3) loans or advances to employees in the ordinary course of business in
accordance with past practices of Phillips-Van Heusen or its
Restricted Subsidiaries, but in any event not to exceed $2.0 million
in the aggregate outstanding at any one time;
(4) the payment of fees and compensation to, and the provision of
employee benefit arrangements and indemnity for the benefit of,
directors, officers and employees of Phillips-Van Heusen or any of
its Restricted Subsidiaries entered into in the ordinary course of
business;
(5) any transaction between Phillips-Van Heusen and a Restricted
Subsidiary or between Restricted Subsidiaries (other than
Securitization Subsidiaries);
(6) any transaction with a Restricted Subsidiary or joint venture or
similar entity which would constitute an Affiliate Transaction
solely because Phillips-Van Heusen or a Restricted Subsidiary owns
an equity interest in or otherwise controls such Restricted
Subsidiary, joint venture or similar entity;
(7) the issuance or sale of any Capital Stock (other than Disqualified
Stock) of Phillips-Van Heusen;
(8) any agreement or arrangement in effect on the Issue Date (after
giving effect to the use of the net proceeds of the sale of the
outstanding notes) or any amendment or replacement thereof;
provided, however, that any such amendment or replacement is not
less favorable in any material respect to Phillips-Van Heusen or any
of its Restricted Subsidiaries than that in effect on the Issue
Date;
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(9) sales or other dispositions of accounts receivable or licensing
royalties and related assets to a Securitization Subsidiary in a
Qualified Securitization Transaction which are customarily
transferred in such a transaction; and
(10) purchases by Phillips-Van Heusen or any Restricted Subsidiary from
TAL Apparel Limited and related companies in the ordinary course of
business on terms no less favorable to Phillips-Van Heusen or such
Restricted Subsidiary than those that could be obtained at the time
in arm's length dealings with an unrelated Person.
LIMITATION ON THE SALE OR ISSUANCE OF CAPITAL STOCK OF RESTRICTED
SUBSIDIARIES
Phillips-Van Heusen
(1) will not, and will not permit any Restricted Subsidiary to, sell,
lease, transfer or otherwise dispose of any Capital Stock of any
Restricted Subsidiary to any Person (other than Phillips-Van Heusen
or a Restricted Subsidiary other than a Securitization Subsidiary),
and
(2) will not permit any Restricted Subsidiary to issue any of its
Capital Stock (other than, if necessary, shares of its Capital Stock
constituting directors' or other legally required qualifying shares)
to any Person (other than Phillips-Van Heusen or a Restricted
Subsidiary other than a Securitization Subsidiary),
unless
(A) immediately after giving effect to such issuance, sale or
other disposition, neither Phillips-Van Heusen nor any of its
Subsidiaries own any Capital Stock of such Restricted
Subsidiary;
(B) immediately after giving effect to such issuance, sale or
other disposition, such Restricted Subsidiary would no longer
constitute a Restricted Subsidiary and any Investment in such
Person remaining after giving effect thereto is treated as a
new Investment by Phillips-Van Heusen and such Investment
would be permitted to be made under the covenant described
under "-- Limitation on Restricted Payments" if made on the
date of such issuance, sale or other disposition; or
(C) immediately after giving effect to such issuance, sale or
other disposition of Capital Stock, other than Disqualified
Stock, such Restricted Subsidiary would continue to be a
Restricted Subsidiary,
and in the case of each of (A), (B) and (C), such issuance, sale or other
disposition complies with, and the proceeds thereof are applied in accordance
with, the covenant described under "-- Limitation on Sales of Assets and
Subsidiary Stock."
LIMITATION ON LIENS
Phillips-Van Heusen will not, and will not permit any Restricted
Subsidiary to, issue, assume or guarantee any Indebtedness for borrowed money
secured by any Lien on any property or asset now owned or hereafter acquired by
Phillips-Van Heusen or such Restricted Subsidiary without making effective
provision whereby any and all notes then or thereafter outstanding will be
secured by a Lien equally and ratably with (or, if the obligation to be secured
by such Lien is subordinated in right of payment to the notes, prior to) any and
all other obligations thereby secured for so long as any such obligations shall
be so secured.
The foregoing restriction does not, however, apply to:
(a) Liens existing on the Issue Date after giving effect to the use of
the net proceeds of the sale of the outstanding notes;
(b) Liens securing Hedging Obligations so long as such Hedging
Obligations relate to Indebtedness that is, and is permitted to be under
the indenture, secured by a Lien on the same property securing such Hedging
Obligations;
(c) Liens to secure Purchase Money Indebtedness that is otherwise
permitted under the indenture; provided that (i) any such Lien is created
solely for the purpose of securing Indebtedness representing, or incurred
to finance, the cost of the acquisition or construction that is the subject
of the Purchase Money
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Indebtedness and (ii) such Lien is limited in the manner described in the
definition of Purchase Money Indebtedness;
(d) Liens securing Capital Lease Obligations; provided, however, that
such Lien does not extend to any property other than that subject to the
underlying lease;
(e) Liens in favor of landlords contained in leases and subleases of
real property granted by Phillips-Van Heusen or any Restricted Subsidiary
or inventory or fixtures located on the leased real property; provided,
however, that such Liens are in the ordinary course of business, are on
terms customary for leases of such type and do not materially impair the
use of the liened property in the operation of the business of Phillips-Van
Heusen or the Restricted Subsidiary;
(f) Liens in favor of customs and revenue authorities arising as a
matter of law to secure payment of customs duties in connection with the
importation of goods;
(g) Liens imposed by law, including, carriers', warehousemen's and
mechanics' Liens, in each case for sums not yet due or being contested in
good faith by appropriate proceedings; provided that any reserve or other
appropriate provision as is required in conformity with GAAP has been made
therefor;
(h) Liens for taxes, assessments and governmental charges not yet
subject to penalties for non-payment or which are being contested in good
faith and by appropriate proceedings; provided that any reserve or other
appropriate provision as is required in conformity with GAAP has been made
therefor;
(i) Liens securing Indebtedness Incurred under clause (b)(1) of the
covenant described under "--Limitation on Indebtedness" above;
(j) Liens securing Indebtedness owed by a Restricted Subsidiary to
Phillips-Van Heusen or to any other Restricted Subsidiary (other than a
Securitization Subsidiary);
(k) Liens on the property of any Restricted Subsidiary existing at the
time such Person becomes a Subsidiary and not incurred as result of (or in
connection with or in anticipation of) such Person becoming a Subsidiary;
provided, however, that such Liens do not extend to or cover any property
or assets of Phillips-Van Heusen or any of the Restricted Subsidiaries
other than the property encumbered at the time such Person becomes a
Subsidiary and do not secure Indebtedness with a principal amount in excess
of the principal amount outstanding at such time;
(l) Liens securing the outstanding notes and the exchange notes;
(m) Liens to secure taxes not yet due or which are being contested in
good faith by Phillips-Van Heusen or a Restricted Subsidiary;
(n) Liens securing Refinancing Indebtedness incurred to refinance
Indebtedness that was previously so secured; provided that such Lien
extends to or covers only the same property that secures the Indebtedness
being refinanced;
(o) Liens (excluding in all cases Liens securing Limited Originator
Recourse obligations) on (i) accounts receivable and related assets
transferred to, or on accounts receivable and related assets of, a
Securitization Subsidiary in connection with a Qualified Securitization
Transaction and (ii) licensing royalties and related assets transferred to,
or on licensing royalties and related assets of, a Securitization
Subsidiary in connection with a Qualified Securitization Transaction in an
aggregate amount of up to 15% of the total revenues from royalties or
similar licensing payments of Phillips-Van Heusen and its Restricted
Subsidiaries;
(p) Liens securing Indebtedness Incurred under clause (b)(14) of the
covenant described under "--Limitation on Indebtedness" above; or
(q) Liens (exclusive of any Lien of any type otherwise permitted under
clauses (a) through (p) above) securing Indebtedness for borrowed money of
Phillips-Van Heusen or any Restricted Subsidiary in an aggregate principal
amount which, together with the aggregate amount of Attributable
Indebtedness deemed to be outstanding in respect of all Sale/Leaseback
Transactions entered into pursuant to clause (a) of the covenant described
under "Limitation of Sale/Leaseback Transactions" below (exclusive of any
such Sale/Leaseback Transactions otherwise permitted under clauses (a)
through (p) above), does not at the time
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such Indebtedness is incurred exceed the greater of $40.0 million and 15%
of Consolidated Net Tangible Assets, as determined based on the
consolidated balance sheet of Phillips-Van Heusen as of the end of the most
recent fiscal quarter for which financial statements are available.
Any Lien created for the benefit of the holders of the notes pursuant to
the preceding sentence shall provide by its terms that such Lien shall be
automatically and unconditionally released and discharged upon the release and
discharge of the initial Lien.
LIMITATION ON SALE/LEASEBACK TRANSACTIONS
Phillips-Van Heusen will not, and will not permit any Restricted Subsidiary
to, enter into any Sale/Leaseback Transaction with respect to any property
unless (i) Phillips-Van Heusen or such Subsidiary would be entitled to (A) incur
Indebtedness in an amount equal to the Attributable Debt with respect to such
Sale/Leaseback Transaction pursuant to the covenant described under "--
Limitation on Indebtedness" and (B) create a Lien on such property securing such
Attributable Debt without equally and ratably securing the notes pursuant to the
covenant described under "-- Limitation on Liens," (ii) the net proceeds
received by Phillips-Van Heusen or any Restricted Subsidiary in connection with
such Sale/Leaseback Transaction are at least equal to the fair value (as
determined by Phillips-Van Heusen's board of directors) of such property and
(iii) Phillips-Van Heusen applies the proceeds of such transaction in compliance
with the covenant described under "-- Limitation on Sales of Assets and
Subsidiary Stock."
MERGER AND CONSOLIDATION
Phillips-Van Heusen will not consolidate with or merge with or into, or
convey, transfer or lease, in one transaction or a series of transactions,
directly or indirectly, all or substantially all its assets to, any Person,
unless:
(1) the resulting, surviving or transferee Person (the "Successor
Company") shall be a Person organized and existing under the laws of
the United States, any State thereof or the District of Columbia and
the Successor Company (if not Phillips-Van Heusen) shall expressly
assume, by an indenture supplemental thereto, executed and delivered
to the trustee, in form satisfactory to the trustee, all of the
obligations of Phillips-Van Heusen under the notes and the
indenture;
(2) immediately after giving pro forma effect to such transaction (and
treating any Indebtedness which becomes an obligation of the
Successor Company or any Subsidiary as a result of such transaction
as having been Incurred by such Successor Company or such Subsidiary
at the time of such transaction), no Default or Event of Default
shall have occurred and be continuing;
(3) immediately after giving pro forma effect to such transaction, the
Successor Company would be able to Incur an additional $1.00 of
Indebtedness pursuant to paragraph (a) of the covenant described
under "-- Limitation on Indebtedness"; and
(4) Phillips-Van Heusen shall have delivered to the trustee an Officers'
Certificate and an Opinion of Counsel, each stating that such
consolidation, merger or transfer and such supplemental indenture
(if any) comply with the indenture;
provided, however, that clauses (3) and (4) will not be applicable to (A) a
Restricted Subsidiary consolidating with, merging into or transferring all or
part of its properties and assets to Phillips-Van Heusen or (B) Phillips-Van
Heusen merging with an Affiliate of Phillips-Van Heusen solely for the purpose
and with the sole effect of reincorporating Phillips-Van Heusen in another
jurisdiction.
For purposes of this covenant, the sale, lease, conveyance, assignment,
transfer or other disposition of all or substantially all of the properties and
assets of one or more Subsidiaries of Phillips-Van Heusen, which properties and
assets, if held by Phillips-Van Heusen instead of such Subsidiaries, would
constitute all or substantially all of the properties and assets of Phillips-Van
Heusen on a consolidated basis, shall be deemed to be the transfer of all or
substantially all of the properties and assets of Phillips-Van Heusen.
The Successor Company will be the successor to Phillips-Van Heusen and
shall succeed to and be substituted for Phillips-Van Heusen, and may exercise
every right and power of Phillips-Van Heusen under the indenture, and
Phillips-Van Heusen, except in the case of a lease, shall be released from the
obligation to pay the principal of and interest on the notes.
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Phillips-Van Heusen will not permit any Subsidiary Guarantor to consolidate
with or merge with or into, or convey, transfer or lease, in one transaction or
a series of transactions, all or substantially all of its assets to any Person
unless:
(1) except in the case of a Subsidiary Guarantor that has been disposed
of in its entirety to another Person (other than to Phillips-Van
Heusen or an Affiliate of Phillips-Van Heusen), whether through a
merger, consolidation or sale of Capital Stock or assets, if in
connection therewith Phillips-Van Heusen provides an Officers'
Certificate to the trustee to the effect that Phillips-Van Heusen
will comply with its obligations under the covenant described under
"-- Limitation on Sales of Assets and Subsidiary Stock" in respect
of such disposition, the resulting, surviving or transferee Person
(if not such Subsidiary) shall be a Person organized and existing
under the laws of the jurisdiction under which such Subsidiary was
organized or under the laws of the United States, or any State
thereof or the District of Columbia, and such Person shall expressly
assume, by a Guaranty Agreement, in a form satisfactory to the
trustee, all the obligations of such Subsidiary, if any, under its
Subsidiary Guaranty;
(2) immediately after giving effect to such transaction or transactions
on a pro forma basis (and treating any Indebtedness which becomes an
obligation of the resulting, surviving or transferee Person as a
result of such transaction as having been issued by such Person at
the time of such transaction), no Default or Event of Default shall
have occurred and be continuing; and
(3) Phillips-Van Heusen delivers to the trustee an Officers' Certificate
and an Opinion of Counsel, each stating that such consolidation,
merger or transfer and such Guaranty Agreement, if any, complies
with the indenture.
FUTURE SUBSIDIARY GUARANTORS
Phillips-Van Heusen will not permit any Restricted Subsidiary, directly or
indirectly, to Guarantee any Indebtedness of Phillips-Van Heusen (other than
Permitted Guarantees) or to Incur any Indebtedness under paragraph (a) or
paragraph (b)(16) of the covenant described under "-- Limitation on
Indebtedness" unless such Restricted Subsidiary simultaneously executes and
delivers a Guaranty Agreement providing for the unconditional and irrevocable
Guarantee of the notes by such Restricted Subsidiary, jointly and severally with
all other Subsidiary Guarantors. If the Indebtedness to be Guaranteed is
subordinated to the notes, the Guarantee of such Indebtedness will be
subordinated to the Guarantee of the notes to the same extent as the
Indebtedness to be Guaranteed is subordinated to the notes. Notwithstanding the
foregoing, any such Guarantee by a Restricted Subsidiary of the notes will
provide by its terms that it will be automatically and unconditionally released
and discharged upon either:
(1) the release or discharge of such Guarantee of payment of such other
Indebtedness, except a discharge by or as a result of payment under
such Guarantee; or
(2) any sale or transfer, other than to Phillips-Van Heusen or a
Subsidiary of Phillips-Van Heusen, of all of Phillips-Van Heusen's
Capital Stock in, or all or substantially all the assets of, such
Restricted Subsidiary, which sale or transfer is made in compliance
with the applicable provisions of the indenture.
COVENANT REMOVAL
During any period of time that both (1) the notes are rated Investment
Grade by each of Moody's Investor Service, Inc. and Standard & Poor's Ratings
Group and (2) no Default or Event of Default shall have occurred and be
continuing, Phillips-Van Heusen and its Restricted Subsidiaries will not be
subject to the covenants described under "-- Limitation on Indebtedness," "--
Limitation on Restricted Payments," "-- Limitation on Restrictions on
Distributions from Restricted Subsidiaries," "-- Limitation on Sales of Assets
and Subsidiary Stock," -- Limitation on Affiliate Transactions," "-- Limitation
on the Sale or Issuance of Capital Stock of Restricted Subsidiaries" and clause
(3) of the first paragraph under "-- Merger and Consolidation."
SEC REPORTS
Notwithstanding that Phillips-Van Heusen may not be subject to the
reporting requirements of Section 13 or 15(d) of the Exchange Act, Phillips-Van
Heusen will file with the SEC and provide the trustee (and, only if Phillips-Van
Heusen is no longer subject to such reporting requirements, holders of the
notes) with such annual
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reports and such information, documents and other reports as are specified in
Sections 13 and 15(d) of the Exchange Act and applicable to a U.S. corporation
subject to such Sections, such information, documents and other reports to be so
filed and provided at the times specified for the filings of such information,
documents and reports under such Sections.
In addition, Phillips-Van Heusen will furnish to the holders of the notes
and to prospective investors, upon the requests of such holders, any information
required to be delivered pursuant to Rule 144A(d)(4) under the Securities Act so
long as the notes are not freely transferable under the Securities Act.
DEFAULTS
Each of the following is an Event of Default:
(1) a default in the payment of interest on the notes when due,
continued for 30 days;
(2) a default in the payment of principal of any note when due at its
Stated Maturity, upon optional redemption, upon required purchase,
upon declaration of acceleration or otherwise;
(3) the failure by Phillips-Van Heusen to comply with its obligations
under "--Certain Covenants--Merger and Consolidation" above;
(4) the failure by Phillips-Van Heusen to comply for 30 days after
notice with any of its obligations in the covenants described above
under "Change of Control" (other than a failure to purchase notes)
or under "-- Certain Covenants" under "-- Limitation on
Indebtedness," "-- Limitation on Restricted Payments," "--
Limitation on Restrictions on Distributions from Restricted
Subsidiaries," "-- Limitation on Sales of Assets and Subsidiary
Stock" (other than a failure to purchase notes), "-- Limitation on
Affiliate Transactions," "-- Limitation on the Sale or Issuance of
Capital Stock of Restricted Subsidiaries," or "-- Limitation on
Liens," "-- Limitation on Sale/Leaseback Transactions," "-- Future
Subsidiary Guarantors," or "-- SEC Reports";
(5) the failure by Phillips-Van Heusen or any Restricted Subsidiary to
comply for 60 days after notice with its other covenants,
obligations, warranties or agreements contained in the indenture;
(6) Indebtedness of Phillips-Van Heusen, any Subsidiary Guarantor or any
Significant Subsidiary is not paid within any applicable grace
period after final maturity or is accelerated by the holders thereof
because of a default and the total amount of such Indebtedness
unpaid or accelerated exceeds $15.0 million (the "cross acceleration
provision");
(7) certain events of bankruptcy, insolvency or reorganization of
Phillips-Van Heusen, a Subsidiary Guarantor or any Significant
Subsidiary (the "bankruptcy provisions");
(8) a judgment or order is rendered against Phillips-Van Heusen, a
Subsidiary Guarantor or any Significant Subsidiary, which requires
the payment in money by Phillips-Van Heusen, a Subsidiary Guarantor
or any Significant Subsidiary either individually or in the
aggregate, of an amount (to the extent not covered by insurance) in
excess of $15.0 million and such judgment or order remains
unsatisfied, undischarged, unvacated, unbonded and unstayed for 60
days (the "judgment default provision"); or
(9) a Subsidiary Guaranty ceases to be in full force and effect (other
than in accordance with the terms of such Subsidiary Guaranty) or a
Subsidiary Guarantor denies or disaffirms its obligations under its
Subsidiary Guaranty.
However, a default under clauses (4) and (5) will not constitute an Event of
Default until the trustee or the holders of 25% in principal amount of the
outstanding notes notify Phillips-Van Heusen of the default and Phillips-Van
Heusen does not cure such default within the time specified after receipt of
such notice.
If an Event of Default occurs and is continuing, the trustee or the holders
of at least 25% in principal amount of the outstanding notes may declare the
principal of and accrued but unpaid interest on all the notes to be due and
payable. Upon such a declaration, such principal and interest shall be due and
payable immediately. If an Event of Default relating to certain events of
bankruptcy, insolvency or reorganization of Phillips-Van Heusen occurs and is
continuing, the principal of and interest on all the notes will ipso facto
become and be immediately due and payable without any declaration or other act
on the part of the trustee or any holders of the notes. Under certain
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circumstances, the holders of a majority in principal amount of the outstanding
notes may rescind any such acceleration with respect to the notes and its
consequences.
Subject to the provisions of the indenture relating to the duties of the
trustee, in case an Event of Default occurs and is continuing, the trustee will
be under no obligation to exercise any of the rights or powers under the
indenture at the request or direction of any of the holders of the notes unless
such holders have offered to the trustee reasonable indemnity or security
against any loss, liability or expense. Except to enforce the right to receive
payment of principal, premium (if any) or interest when due, no holder of a note
may pursue any remedy with respect to the indenture or the notes unless:
(1) such holder has previously given the trustee notice that an Event of
Default is continuing;
(2) holders of at least 25% in principal amount of the outstanding notes
have requested the trustee to pursue the remedy;
(3) such holders have offered the trustee reasonable security or indemnity
against any loss, liability or expense;
(4) the trustee has not complied with such request within 60 days after the
receipt thereof and the offer of security or indemnity; and
(5) holders of a majority in principal amount of the outstanding notes have
not given the trustee a direction inconsistent with such request within
such 60-day period.
Subject to certain restrictions, the holders of a majority in principal amount
of the outstanding notes are given the right to direct the time, method and
place of conducting any proceeding for any remedy available to the trustee or of
exercising any trust or power conferred on the trustee. The trustee, however,
may refuse to follow any direction that conflicts with law or the indenture or
that the trustee determines is unduly prejudicial to the rights of any other
holder of a note or that would involve the trustee in personal liability.
If a Default occurs, is continuing and is known to the trustee, the trustee
must mail to each holder of the notes notice of the Default within 90 days after
it occurs. Except in the case of a Default in the payment of principal of or
interest on any note, the trustee may withhold notice if and so long as a
committee of its Trust Officers determines that withholding notice is in the
best interests of the holders of the notes. In addition, Phillips-Van Heusen is
required to deliver to the trustee, within 120 days after the end of each fiscal
year, a certificate indicating whether the signers thereof know of any Default
that occurred during the previous year. Phillips-Van Heusen is required to
deliver to the trustee, within 30 days after the occurrence thereof, written
notice of any event which would constitute certain Defaults, their status and
what action it is taking or proposes to take in respect thereof.
AMENDMENTS AND WAIVERS
Subject to certain exceptions, the indenture may be amended with the
consent of the holders of a majority in principal amount of the notes then
outstanding (including consents obtained in connection with a tender offer or
exchange for the notes) and any past default or compliance with any provisions
may also be waived with the consent of the holders of a majority in principal
amount of the notes then outstanding. However, without the consent of each
holder of a note then outstanding and affected thereby, an amendment or waiver
may not, among other things:
(1) reduce the amount of notes whose holders must consent to an
amendment;
(2) reduce the rate of or extend the time for payment of interest on any
note;
(3) reduce the principal of or extend the Stated Maturity of any note;
(4) reduce the amount payable upon the redemption of any note or change
the time at which any note may be redeemed as described under "--
Optional Redemption" above;
(5) make any note payable in money other than that stated in the note;
(6) impair the right of any holder of the notes to receive payment of
principal of and interest on such holder's notes on or after the due
dates therefor or to institute suit for the enforcement of any
payment on or with respect to such holder's notes;
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(7) make any change in the amendment provisions which require each
holder's consent or in the waiver provisions;
(8) make any change in the ranking or priority of any note that would
adversely affect the holders of the notes; or
(9) make any change in any Subsidiary Guaranty that would adversely
affect the holders of the notes.
Notwithstanding the preceding, without the consent of any holder of the
notes, Phillips-Van Heusen, and the trustee, may amend the indenture:
(1) to cure any ambiguity, omission, defect or inconsistency;
(2) to provide for the assumption by a successor corporation of the
obligations of Phillips-Van Heusen and the Subsidiary Guarantors
under the indenture;
(3) to provide for uncertificated notes in addition to or in place of
certificated notes (provided that the uncertificated notes are
issued in registered form for purposes of Section 163(f) of the
Code, or in a manner such that the uncertificated notes are
described in Section 163(f)(2)(B) of the Code);
(4) to add guarantees with respect to the notes, including any
Subsidiary Guaranties, or to secure the notes;
(5) to add to the covenants of Phillips-Van Heusen or a Restricted
Subsidiary for the benefit of the holders of the notes or to
surrender any right or power conferred upon Phillips-Van Heusen or a
Restricted Subsidiary;
(6) to make any change that does not adversely affect the rights of any
holder of the notes; or
(7) to comply with any requirement of the SEC in connection with the
qualification of the indenture under the Trust Indenture Act.
The consent of the holders of the notes is not necessary under the
indenture to approve the particular form of any proposed amendment. It is
sufficient if such consent approves the substance of the proposed amendment.
After an amendment under the indenture becomes effective, Phillips-Van
Heusen is required to mail to holders of the notes a notice briefly describing
such amendment. However, the failure to give such notice to all holders of the
notes, or any defect therein, will not impair or affect the validity of the
amendment.
TRANSFER
The notes were issued in registered form and are transferable only upon the
surrender of the notes being transferred for registration of transfer.
Phillips-Van Heusen may require payment of a sum sufficient to cover any tax,
assessment or other governmental charge payable in connection with certain
transfers and exchanges.
DEFEASANCE
At any time, Phillips-Van Heusen may terminate all of its obligations under
the notes and the indenture ("legal defeasance"), except for certain
obligations, including those respecting the defeasance trust and obligations to
register the transfer or exchange of the notes, to replace mutilated, destroyed,
lost or stolen notes and to maintain a registrar and paying agent in respect of
the notes.
In addition, at any time Phillips Van Heusen may terminate its obligations
under "-- Change of Control" and under the covenants described under "-- Certain
Covenants" (other than the covenant described under "-- Merger and
Consolidation"), the operation of the cross acceleration provision, the
bankruptcy provisions with respect to Significant Subsidiaries and Subsidiary
Guarantors and the judgment default provision described under "-- Defaults"
above and the limitations contained in clause (3) of the first paragraph under
"-- Certain Covenants -- Merger and Consolidation" above ("covenant
defeasance").
Phillips-Van Heusen may exercise its legal defeasance option
notwithstanding its prior exercise of its covenant defeasance option. If
Phillips-Van Heusen exercises its legal defeasance option, payment of the notes
may not be accelerated because of an Event of Default with respect thereto. If
Phillips-Van Heusen exercises its covenant defeasance option, payment of the
notes may not be accelerated because of an Event of Default specified in clause
(4), (6), (7) (with respect only to Significant Subsidiaries and Subsidiary
Guarantors) or (8) under "-- Defaults"
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above or because of the failure of Phillips-Van Heusen to comply with clause (3)
of the first paragraph under "-- Certain Covenants -- Merger and Consolidation"
above. If Phillips-Van Heusen exercises its legal defeasance option or its
covenant defeasance option, each Subsidiary Guarantor will be released from all
of its obligations with respect to its Subsidiary Guaranty.
In order to exercise either of its defeasance options, Phillips-Van Heusen
must irrevocably deposit in trust (the "defeasance trust") with the trustee
money or U.S. Government Obligations for the payment of principal and interest
on the notes to redemption or maturity, as the case may be, and must comply with
certain other conditions, including delivery to the trustee of an Opinion of
Counsel to the effect that holders of the notes will not recognize income, gain
or loss for Federal income tax purposes as a result of such deposit and
defeasance and will be subject to Federal income tax on the same amounts and in
the same manner and at the same times as would have been the case if such
deposit and defeasance had not occurred (and, in the case of legal defeasance
only, such Opinion of Counsel must be based on a ruling of the Internal Revenue
Service or other change in applicable Federal income tax law). In addition, in
order to exercise Phillips-Van Heusen's defeasance option, the defeasance must
not result in or constitute a Default or Event of Default under the indenture.
CONCERNING THE TRUSTEE
SunTrust Bank is the trustee under the indenture. We have appointed the
trustee as Registrar and Paying Agent with regard to the notes. In addition,
SunTrust Bank is the exchange agent. See "Exchange Offer -- Exchange Agent."
The indenture contains certain limitations on the rights of the trustee,
should it become a creditor of Phillips-Van Heusen, to obtain payment of claims
in certain cases, or to realize on certain property received in respect of any
such claim as security or otherwise. The trustee will be permitted to engage in
other transactions; provided, however, if it acquires any conflicting interest
it must either eliminate such conflict within 90 days, apply to the SEC for
permission to continue or resign.
The holders of a majority in principal amount of the notes will have the
right to direct the time, method and place of conducting any proceeding for
exercising any remedy available to the trustee, subject to certain exceptions.
If an Event of Default occurs (and is not cured), the trustee will be required,
in the exercise of its power, to use the degree of care of a prudent Person in
the conduct of his own affairs. Subject to such provisions, the trustee will be
under no obligation to exercise any of its rights or powers under the indenture
at the request of any holder of notes, unless such holder shall have offered to
the trustee security and indemnity satisfactory to it against any loss,
liability or expense and then only to the extent required by the terms of the
indenture.
NO PERSONAL LIABILITY OF DIRECTORS, OFFICERS, EMPLOYEES AND STOCKHOLDERS
No director, officer, employee, incorporator or stockholder of Phillips-Van
Heusen or any Subsidiary will have any liability for any obligations of
Phillips-Van Heusen or any Subsidiary under the notes, any Subsidiary Guaranty
or the indenture or for any claim based on, in respect of, or by reason of such
obligations or their creation. Each holder of the notes by accepting a note
waives and releases all such liability. The waiver and release are part of the
consideration for issuance of the notes. Such waiver and release may not be
effective to waive liabilities under the U.S. Federal securities laws, and it is
the view of the SEC that such a waiver is against public policy.
GOVERNING LAW
The indenture and the notes are governed by, and construed in accordance
with, the laws of the State of New York without giving effect to applicable
principles of conflicts of law to the extent that the application of the law of
another jurisdiction would be required thereby.
CERTAIN DEFINITIONS
"Additional Assets" means:
(1) any property, plant or equipment used in a Related Business;
(2) the Capital Stock of a Person that becomes a Restricted Subsidiary
as a result of the acquisition of such Capital Stock by Phillips-Van
Heusen or another Restricted Subsidiary; or
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(3) Capital Stock constituting a minority interest in any Person that at
such time is a Restricted Subsidiary;
provided, however, that any such Restricted Subsidiary described in clause (2)
or (3) above is primarily engaged in a Related Business.
"Affiliate" of any specified Person means any other Person, directly or
indirectly, controlling or controlled by or under direct or indirect common
control with such specified Person. For the purposes of this definition,
"control" when used with respect to any Person means the power to direct the
management and policies of such Person, directly or indirectly, whether through
the ownership of voting securities, by contract or otherwise; and the terms
"controlling" and "controlled" have meanings correlative to the foregoing. For
purposes of the covenants described under "-- Certain Covenants -- Limitation on
Restricted Payments," "-- Certain Covenants -- Limitation on Affiliate
Transactions" and "-- Certain Covenants -- Limitation on Sales of Assets and
Subsidiary Stock" only, "Affiliate" shall also mean any beneficial owner of
Capital Stock representing 10% or more of the total voting power of the Voting
Stock (on a fully diluted basis) of Phillips-Van Heusen or of rights or warrants
to purchase such Capital Stock (whether or not currently exercisable).
"Asset Disposition" means (i) an Asset Swap or (ii) any sale, lease,
transfer or other disposition (or series of related sales, leases, transfers or
dispositions) by of Phillips-Van Heusen or any Restricted Subsidiary, including
any disposition by means of a merger, consolidation or similar transaction (each
referred to for the purposes of this definition as a "disposition"), of:
(1) any shares of Capital Stock of a Restricted Subsidiary (other than
directors' qualifying shares or shares required by applicable law to
be held by a Person other than of Phillips-Van Heusen or a
Restricted Subsidiary);
(2) all or substantially all the assets of any division or line of
business of Phillips-Van Heusen or any Restricted Subsidiary; or
(3) any other assets of Phillips-Van Heusen or any Restricted Subsidiary
outside of the ordinary course of business of Phillips-Van Heusen or
such Restricted Subsidiary
(other than, in the case of clauses (1), (2) and (3) above),
(A) a disposition by a Restricted Subsidiary to Phillips-Van
Heusen or by Phillips-Van Heusen or a Restricted Subsidiary to
a Restricted Subsidiary (other than a Securitization
Subsidiary);
(B) for purposes of the covenant described under "--Certain
Covenants--Limitation on Sales of Assets and Subsidiary Stock"
only, (x) a disposition that constitutes a Restricted Payment
permitted by the covenant described under "--Certain
Covenants--Limitation on Restricted Payments" or a Permitted
Investment and (y) a disposition of all or substantially all
of the assets of Phillips-Van Heusen in accordance with the
covenant described under "Merger and Consolidation";
(C) a disposition of assets with a fair market value of less than
$2.0 million;
(D) disposals of obsolete, damaged or worn out equipment or
property or property that is no longer useful in the conduct
of Phillips-Van Heusen's business and that, in either case, is
disposed of in the ordinary course of business; and
(E) any disposition of accounts receivable, licensing royalties
and related assets to or of a Securitization Subsidiary
pursuant to a Qualified Securitization Transaction.
"Asset Swap" means any exchange of property or assets of Phillips-Van
Heusen or any Restricted Subsidiary (including shares of Capital Stock of a
Restricted Subsidiary) for property or assets of another Person (including
shares of Capital Stock of a Person whose primary business is a Related
Business) that are intended to be used by Phillips-Van Heusen or any Restricted
Subsidiary in a Related Business, including, to the extent necessary to equalize
the value of the assets being exchanged, cash of any party to such asset swap.
"Attributable Debt" in respect of a Sale/Leaseback Transaction means, as at
the time of determination, the present value (discounted at the interest rate
borne by the notes, compounded annually) of the total obligations of the lessee
for rental payments during the remaining term of the lease included in such
Sale/Leaseback Transaction (including any period for which such lease has been
extended).
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"Average Life" means, as of the date of determination, with respect to any
Indebtedness, the quotient obtained by dividing:
(1) the sum of the products of the numbers of years from the date of
determination to the dates of each successive scheduled principal
payment of or redemption or similar payment with respect to such
Indebtedness multiplied by the amount of such payment by
(2) the sum of all such payments.
"Borrowing Base" means, as of any date of determination, an amount equal to
(x) the sum without duplication of (1) 80% of the book value of the accounts
receivable of Phillips-Van Heusen and its Restricted Subsidiaries on a
consolidated basis and (2) 65% of the book value of the inventory of
Phillips-Van Heusen and its Restricted Subsidiaries on a consolidated basis, in
each case as of the most recently ended fiscal quarter of Phillips-Van Heusen
preceding the date on which the Indebtedness is Incurred, less (y) the Foreign
Borrowing Base of any Foreign Restricted Subsidiary to the extent that
Indebtedness of such Foreign Restricted Subsidiary Incurred under paragraph
(b)(14)(A) of the covenant described under "Limitation on Indebtedness" is then
outstanding.
"Capital Lease Obligation" means an obligation that is required to be
classified and accounted for as a capital lease for financial reporting purposes
in accordance with GAAP, and the amount of Indebtedness represented by such
obligation shall be the capitalized amount of such obligation determined in
accordance with GAAP; and the Stated Maturity thereof shall be the date of the
last payment of rent or any other amount due under such lease prior to the first
date upon which such lease may be terminated by the lessee without payment of a
penalty. For purposes of the covenant described under "-- Certain Covenants --
Limitations on Liens," a Capital Lease Obligation will be deemed to be secured
by a Lien on the property being leased.
"Capital Stock" of any Person means any and all shares, interests, rights
to purchase, warrants, options, participations or other equivalents of or
interests in (however designated) equity of such Person, including any Preferred
Stock, but excluding any debt securities convertible into such equity.
"CK Amount" for any period means the Design Services Purchase Payments (as
defined in the CK Purchase Agreement) paid or payable by Phillips-Van Heusen or
any of its Subsidiaries to Mr. Calvin Klein or the Klein Heirs (as defined in
the CK Purchase Agreement) for such period pursuant to the CK Purchase
Agreement.
"CK Purchase Agreement" means the Stock Purchase Agreement, dated as of
December 17, 2002, among Phillips-Van Heusen, Calvin Klein, Inc., Calvin Klein
(Europe), Inc., Calvin Klein (Europe II) Corp., Calvin Klein Europe S.r.l., CK
Service Corp., Calvin Klein, Barry Schwartz, Trust for the Benefit of the Issue
of Calvin Klein, Trust for the Benefit of the Issue of Barry Schwartz, Stephanie
Schwartz-Ferdman and Jonathan Schwartz, as the same may be amended from time to
time.
"Code" means the Internal Revenue Code of 1986, as amended.
"Commodity Agreement" means any commodity or raw materials futures
contract, commodity or raw materials option, or any other agreement designed to
protect against or manage exposure to fluctuations in commodity or raw materials
pricing.
"Consolidated Coverage Ratio" as of any date of determination means the
ratio of (x) the aggregate amount of EBITDA for the period of the most recent
four consecutive fiscal quarters for which financial statements are available on
or prior to the date of such determination to (y) Consolidated Interest Expense
for such four fiscal quarters; provided, however, that:
(1) if Phillips-Van Heusen or any Restricted Subsidiary has Incurred any
Indebtedness since the beginning of such period that remains
outstanding or if the transaction giving rise to the need to
calculate the Consolidated Coverage Ratio is an Incurrence of
Indebtedness, or both, EBITDA and Consolidated Interest Expense for
such period shall be calculated after giving effect on a pro forma
basis to such Indebtedness as if such Indebtedness had been Incurred
on the first day of such period;
(2) if Phillips-Van Heusen or any Restricted Subsidiary has repaid,
repurchased, defeased or otherwise discharged any Indebtedness since
the beginning of such period or if any Indebtedness is to be repaid,
repurchased, defeased or otherwise discharged (in each case other
than Indebtedness Incurred under any revolving credit facility
unless such Indebtedness has been permanently repaid and has not
been replaced) on the date of the transaction giving rise to the
need to calculate the Consolidated Coverage
108
Ratio, EBITDA and Consolidated Interest Expense for such period
shall be calculated on a pro forma basis as if such discharge had
occurred on the first day of such period and as if Phillips-Van
Heusen or such Restricted Subsidiary has not earned the interest
income actually earned during such period in respect of cash or
Temporary Cash Investments used to repay, repurchase, defease or
otherwise discharge such Indebtedness;
(3) if since the beginning of such period Phillips-Van Heusen or any
Restricted Subsidiary shall have made any Asset Disposition, EBITDA
for such period shall be reduced by an amount equal to EBITDA (if
positive) directly attributable to the assets which are the subject
of such Asset Disposition for such period, or increased by an amount
equal to EBITDA (if negative), directly attributable thereto for
such period and Consolidated Interest Expense for such period shall
be reduced by an amount equal to the Consolidated Interest Expense
directly attributable to any Indebtedness of Phillips-Van Heusen or
any Restricted Subsidiary repaid, repurchased, defeased or otherwise
discharged with respect to Phillips-Van Heusen and its continuing
Restricted Subsidiaries in connection with such Asset Disposition
for such period (or, if the Capital Stock of any Restricted
Subsidiary is sold, the Consolidated Interest Expense for such
period directly attributable to the Indebtedness of such Restricted
Subsidiary to the extent Phillips-Van Heusen and its continuing
Restricted Subsidiaries are no longer liable for such Indebtedness
after such sale);
(4) if since the beginning of such period Phillips-Van Heusen or any
Restricted Subsidiary (by merger or otherwise) shall have made an
Investment in any Restricted Subsidiary (or any Person which becomes
a Restricted Subsidiary) or an acquisition of assets, including any
acquisition of assets occurring in connection with a transaction
requiring a calculation to be made hereunder, which constitutes all
or substantially all of an operating unit of a business, EBITDA and
Consolidated Interest Expense for such period shall be calculated
after giving pro forma effect thereto (including the Incurrence of
any Indebtedness) as if such Investment or acquisition occurred on
the first day of such period; and
(5) if since the beginning of such period any Person (that subsequently
became a Restricted Subsidiary or was merged with or into
Phillips-Van Heusen or any Restricted Subsidiary since the beginning
of such period) shall have made any Asset Disposition, any
Investment or acquisition of assets that would have required an
adjustment pursuant to clause (3) or (4) above if made by
Phillips-Van Heusen or a Restricted Subsidiary during such period,
EBITDA and Consolidated Interest Expense for such period shall be
calculated after giving pro forma effect thereto as if such Asset
Disposition, Investment or acquisition occurred on the first day of
such period.
For purposes of this definition, whenever pro forma effect is to be given to an
acquisition of assets (including Capital Stock), the amount of income or
earnings relating thereto and the amount of Consolidated Interest Expense
associated with any Indebtedness Incurred in connection therewith, the pro forma
calculations shall be determined in good faith by a responsible financial or
accounting Officer of Phillips-Van Heusen in accordance with GAAP. If any
Indebtedness bears a floating rate of interest and is being given pro forma
effect, the interest on such Indebtedness shall be calculated as if the rate in
effect on the date of determination had been the applicable rate for the entire
period (taking into account any Interest Rate Agreement applicable to such
Indebtedness if such Interest Rate Agreement has a remaining term in excess of
12 months).
"Consolidated Current Liabilities" as of the date of determination means
the aggregate amount of liabilities of Phillips-Van Heusen and its consolidated
Restricted Subsidiaries which may properly be classified as current liabilities
(including taxes accrued as estimated), on a consolidated basis, after
eliminating:
(1) all intercompany items between Phillips-Van Heusen and any
Restricted Subsidiary; and
(2) all current maturities of long-term Indebtedness, all as determined
in accordance with GAAP consistently applied.
"Consolidated Interest Expense" means, for any period, the total interest
expense of Phillips-Van Heusen and its consolidated Restricted Subsidiaries,
plus, to the extent not included in such total interest expense, and to the
extent incurred by Phillips-Van Heusen or its Restricted Subsidiaries, without
duplication:
(1) interest expense attributable to capital leases and the interest
expense attributable to leases constituting part of a Sale/Leaseback
Transaction;
109
(2) amortization of debt discount and debt issuance cost;
(3) capitalized interest;
(4) non-cash interest expense;
(5) commissions, discounts and other fees and charges owed with respect
to letters of credit and bankers' acceptance financing;
(6) net payments pursuant to Hedging Obligations;
(7) dividends declared and paid or payable in cash or Disqualified Stock
in respect of (A) all Disqualified Stock of Phillips-Van Heusen and
(B) all Preferred Stock of Restricted Subsidiaries, in each case
held by Persons other than Phillips-Van Heusen or a Wholly Owned
Subsidiary; provided, however, that such dividends will be
multiplied by a fraction the numerator of which is one and the
denominator of which is one minus the effective combined tax rate of
the issuer of such stock (expressed as a decimal) for such period
(as estimated by the Chief Financial Officer of Phillips-Van Heusen
in good faith);
(8) interest incurred in connection with Investments in discontinued
operations;
(9) interest accruing on any Indebtedness of any other Person to the
extent such Indebtedness is Guaranteed by (or secured by the assets
of) Phillips-Van Heusen or any Restricted Subsidiary; and
(10) the cash contributions to any employee stock ownership plan or
similar trust to the extent such contributions are used by such plan
or trust to pay interest or fees to any Person (other than
Phillips-Van Heusen) in connection with Indebtedness Incurred by
such plan or trust.
"Consolidated Net Income" means, for any period, the net income of
Phillips-Van Heusen and its consolidated Subsidiaries; provided, however, that
there shall not be included in such Consolidated Net Income:
(1) any net income of any Person (other than Phillips-Van Heusen) if
such Person is not a Restricted Subsidiary, except that:
(A) subject to the exclusion contained in clause (4) below,
Phillips-Van Heusen's equity in the net income of any such
Person for such period shall be included in such Consolidated
Net Income up to the aggregate amount of cash actually
distributed by such Person during such period to Phillips-Van
Heusen or a Restricted Subsidiary as a dividend or other
distribution (subject, in the case of a dividend or other
distribution paid to a Restricted Subsidiary, to the
limitations contained in clause (3) below); and
(B) Phillips-Van Heusen's equity in a net loss of any such Person
for such period shall be included in determining such
Consolidated Net Income to the extent of any cash actually
contributed by Phillips-Van Heusen or a Restricted Subsidiary
to such Person during such period;
(2) any net income (or loss) of any Person acquired by Phillips-Van
Heusen or a Subsidiary in a pooling of interests transaction for any
period prior to the date of such acquisition;
(3) any net income of any Restricted Subsidiary if such Restricted
Subsidiary is subject to restrictions, directly or indirectly, on
the payment of dividends or the making of distributions by such
Restricted Subsidiary, directly or indirectly, to Phillips-Van
Heusen, except that:
(A) subject to the exclusion contained in clause (4) below,
Phillips-Van Heusen's equity in the net income of any such
Restricted Subsidiary for such period shall be included in
such Consolidated Net Income up to the aggregate amount of
cash that could have been distributed by such Restricted
Subsidiary during such period to Phillips-Van Heusen or
another Restricted Subsidiary as a dividend or other
distribution (subject, in the case of a dividend or other
distribution paid to another Restricted Subsidiary, to the
limitation contained in this clause); and
(B) Phillips-Van Heusen's equity in a net loss of any such
Restricted Subsidiary for such period shall be included in
determining such Consolidated Net Income;
(4) any gain (or loss) realized upon the sale or other disposition of
any assets of Phillips-Van Heusen, its consolidated Subsidiaries or
any other Person (including pursuant to any Sale/Leaseback
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Transaction) which is not sold or otherwise disposed of in the
ordinary course of business and any gain (or loss) realized upon the
sale or other disposition of any Capital Stock of any Person;
(5) extraordinary gains or losses; and
(6) the cumulative effect of a change in accounting principles.
Notwithstanding the foregoing, for the purposes of the covenant described
under "-- Certain Covenants -- Limitation on Restricted Payments" only, there
shall be excluded from Consolidated Net Income any repurchases, repayments or
redemptions of Investments, proceeds realized on the sale of Investments or
return of capital to Phillips-Van Heusen or a Restricted Subsidiary to the
extent such repurchases, repayments, redemptions, proceeds or returns increase
the amount of Restricted Payments permitted under such covenant pursuant to
clause (a)(3)(D) thereof.
"Consolidated Net Tangible Assets" as of any date of determination, means
the total amount of assets (less accumulated depreciation and amortization,
allowances for doubtful receivables, other applicable reserves and other
properly deductible items) which would appear on a consolidated balance sheet of
Phillips-Van Heusen and its consolidated Restricted Subsidiaries, determined on
a consolidated basis in accordance with GAAP, and after giving effect to
purchase accounting and after deducting therefrom Consolidated Current
Liabilities and, to the extent otherwise included, the amounts of:
(1) minority interests in consolidated Subsidiaries held by Persons
other than Phillips-Van Heusen or a Restricted Subsidiary;
(2) excess of cost over fair value of assets of businesses acquired, as
determined in good faith by Phillips-Van Heusen's board of
directors;
(3) any revaluation or other write-up in book value of assets subsequent
to the Issue Date as a result of a change in the method of valuation
in accordance with GAAP consistently applied;
(4) unamortized debt discount and expenses and other unamortized
deferred charges, goodwill, patents, trademarks, service marks,
trade names, copyrights, licenses, organization or developmental
expenses and other intangible items;
(5) cash set apart and held in a sinking or other analogous fund
established for the purpose of redemption or other retirement of
Capital Stock to the extent such obligation is not reflected in
Consolidated Current Liabilities; and
(6) Investments in and assets of Unrestricted Subsidiaries.
"Credit Agreement" means the Revolving Credit Agreement dated as of October
17, 2002, by and among Phillips-Van Heusen, the Subsidiaries of Phillips-Van
Heusen referred to therein, the lenders referred to therein, JPMorgan Chase
Bank, as Administrative Agent and Collateral Agent, Lead Arranger and Sole
Bookrunner, Fleet Retail Finance Inc., as Co-Arranger and Co-Syndication Agent,
Sun Trust Bank, as Co-Syndication Agent, and the CIT Group/Commercial Services,
Inc. and Bank of America, N.A., as Co-Documentation Agents, together with the
related documents thereto (including any guarantees and security documents,
whether in effect on the Issue Date or entered into thereafter), as amended,
extended, renewed, restated, replaced, restructured, supplemented or otherwise
modified (in whole or in part, and without limitation as to amount of
Indebtedness which may be Incurred thereunder, terms, conditions, covenants and
other provisions) from time to time, and any agreement (and related document)
governing Indebtedness incurred to Refinance, in whole or in part, the
borrowings and commitments then outstanding or permitted to be outstanding under
such Credit Agreement or a successor Credit Agreement, whether by the same or
any other lender or group of lenders.
"Currency Agreement" means in respect of a Person any foreign exchange
contract, currency swap agreement or other similar agreement designed to protect
such Person against fluctuations in currency values.
"Default" means any event which is, or after notice or passage of time or
both would be, an Event of Default.
"Disqualified Stock" means, with respect to any Person, any Capital Stock
which by its terms (or by the terms of any security into which it is convertible
or for which it is exchangeable at the option of the holder) or upon the
happening of any event:
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(1) matures or is mandatorily redeemable (other than redeemable only for
Capital Stock of such Person which is not itself Disqualified Stock)
pursuant to a sinking fund obligation or otherwise;
(2) is convertible or exchangeable at the option of the holder for
Indebtedness or Disqualified Stock; or
(3) is mandatorily redeemable or must be purchased upon the occurrence
of certain events or otherwise, in whole or in part;
in each case on or prior to the date that is 91 days after the Stated Maturity
of the notes; provided, however, that any Capital Stock that would not
constitute Disqualified Stock but for provisions thereof giving holders thereof
the right to require such Person to purchase or redeem such Capital Stock upon
the occurrence of an "asset sale" or "change of control" occurring prior to the
first anniversary of the Stated Maturity of the notes shall not constitute
Disqualified Stock if:
(1) the "asset sale" or "change of control" provisions applicable to
such Capital Stock are not more favorable to the holders of such
Capital Stock than the terms applicable to the notes and described
under "--Certain Covenants-- Limitation on Sales of Assets and
Subsidiary Stock" and "--Certain Covenants-- Change of Control"; and
(2) any such requirement only becomes operative after compliance with
such terms applicable to the notes, including the purchase of any
notes tendered pursuant thereto.
The amount of any Disqualified Stock that does not have a fixed redemption,
repayment or repurchase price will be calculated in accordance with the terms of
such Disqualified Stock as if such Disqualified Stock were redeemed, repaid or
repurchased on any date on which the amount of such Disqualified Stock is to be
determined pursuant to the indenture; provided, however, that if such
Disqualified Stock could not be required to be redeemed, repaid or repurchased
at the time of such determination, the redemption, repayment or repurchase price
will be the book value of such Disqualified Stock as reflected in the most
recent financial statements of such Person. For avoidance of doubt, the Series B
convertible preferred stock on the terms thereof in effect on the Issue Date is
deemed not to constitute Disqualified Stock.
"EBITDA" for any period means Consolidated Net Income less the CK Amount,
plus the following to the extent deducted in calculating such Consolidated Net
Income:
(1) all income tax expense of Phillips-Van Heusen and its consolidated
Restricted Subsidiaries;
(2) Consolidated Interest Expense;
(3) depreciation and amortization expense of Phillips-Van Heusen and its
consolidated Restricted Subsidiaries (excluding amortization expense
attributable to a prepaid operating expense that was paid in cash in
a prior period);
(4) all other non-cash charges of Phillips-Van Heusen and its
consolidated Restricted Subsidiaries (excluding any such non-cash
charge to the extent that it represents an accrual of or reserve for
cash expenditures in any future period);
(5) transition costs of up to $24.0 million in connection with the
acquisition of Calvin Klein incurred no later than the fourth
quarter of Phillips-Van Heusen's 2003 fiscal year; and
(6) the amount of any deduction in Consolidated Net Income for such
period from a write-off of goodwill attributable to the payment of
the CK Amount; provided, that such amount shall in no event be
greater than the CK Amount deducted in calculating EBITDA;
in each case for such period. Notwithstanding the foregoing, the provision for
taxes based on the income or profits of, and the depreciation and amortization
and noncash charges of, a Restricted Subsidiary shall be added to Consolidated
Net Income to compute EBITDA only to the extent (and in the same proportion,
including by reason of minority interest) that the net income of such Restricted
Subsidiary was included in calculating Consolidated Net Income and only if a
corresponding amount could have been distributed by such Restricted Subsidiary
during such period to Phillips-Van Heusen or another Restricted Subsidiary as a
dividend or other distribution (which other Restricted Subsidiary could also
have made such dividend or other distribution).
"Equity Offering" means a primary public or private offering of common
stock of Phillips-Van Heusen.
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"Existing Notes" means Phillips-Van Heusen's 9 1/2% Senior Subordinated
Notes due 2008 issued under an indenture dated as of April 22, 1998 between
Phillips-Van Heusen and Union Bank of California, N.A., as trustee, and
Phillips-Van Heusen's 7 3/4% Debentures due 2023 issued under an indenture dated
as of November 1, 1993 between Phillips-Van Heusen and the Bank of New York, as
trustee, as amended.
"Foreign Borrowing Base" means, as of any date of determination and with
respect to any Foreign Restricted Subsidiary, an amount equal to (x) the sum
without duplication of (1) 80% of the book value of the accounts receivable of
such Foreign Restricted Subsidiary and (2) 65% of the book value of the
inventory of such Foreign Restricted Subsidiary, in each case as of the most
recently ended fiscal quarter of Phillips-Van Heusen preceding the date on which
the Indebtedness is Incurred, less (y) any portion of such amount included in
the Borrowing Base, but only to the extent such portion is used to determine the
amount of Indebtedness which could be Incurred and is then outstanding under
clause (b)(1)(B) of the covenant described under "--Limitation on Indebtedness."
"Foreign Restricted Subsidiary" means any Restricted Subsidiary not
incorporated or organized under the laws of the United States, any State thereof
or the District of Columbia.
"GAAP" means generally accepted accounting principles in the United States
as in effect as of the Issue Date, including those set forth in:
(1) opinions and pronouncements of the Accounting Principles Board of
the American Institute of Certified Public Accountants;
(2) statements and pronouncements of the Financial Accounting Standards
Board;
(3) such other statements by such other entity as approved by a
significant segment of the accounting profession; and
(4) the rules and regulations of the SEC governing the inclusion of
financial statements (including pro forma financial statements) in
periodic reports required to be filed pursuant to Section 13 of the
Exchange Act, including opinions and pronouncements in staff
accounting bulletins and similar written statements from the
accounting staff of the SEC.
"Guarantee" means any obligation, contingent or otherwise, of any Person
directly or indirectly guaranteeing any Indebtedness of any Person and any
obligation, direct or indirect, contingent or otherwise, of such Person:
(1) to purchase or pay (or advance or supply funds for the purchase or
payment of) such Indebtedness of such Person (whether arising by
virtue of partnership arrangements, or by agreements to keep-well,
to purchase assets, goods, securities or services, to take-or-pay or
to maintain financial statement conditions or otherwise); or
(2) entered into for the purpose of assuring in any other manner the
obligee of such Indebtedness of the payment thereof or to protect
such obligee against loss in respect thereof (in whole or in part);
provided, however, that the term "Guarantee" shall not include endorsements for
collection or deposit in the ordinary course of business. The term "Guarantee"
used as a verb has a corresponding meaning.
"Guaranty Agreement" means a supplemental indenture, in a form satisfactory
to the trustee, pursuant to which a Subsidiary Guarantor guarantees Phillips-Van
Heusen's obligations with respect to the notes on the terms provided for in the
indenture.
"Hedging Obligations" of any Person means the obligations of such Person
pursuant to any Interest Rate Agreement, Currency Agreement or Commodity
Agreement entered into in the ordinary course of business.
"Incur" means issue, assume, Guarantee, incur or otherwise become liable
for; provided, however, that any Indebtedness or Capital Stock of a Person
existing at the time such Person becomes a Restricted Subsidiary (whether by
merger, consolidation, acquisition or otherwise) shall be deemed to be Incurred
by such Person at the time it becomes a Restricted Subsidiary. The term
"Incurrence" when used as a noun shall have a correlative meaning.
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"Indebtedness" means, with respect to any Person on any date of
determination (without duplication):
(1) the principal in respect of (A) indebtedness of such Person for
money borrowed and (B) indebtedness evidenced by notes, debentures,
bonds or other similar instruments for the payment of which such
Person is responsible or liable, including, in each case, any
premium on such indebtedness to the extent such premium has become
due and payable;
(2) all Capital Lease Obligations of such Person and all Attributable
Debt in respect of Sale/Leaseback Transactions entered into by such
Person;
(3) all obligations of such Person issued or assumed as the deferred
purchase price of property, all conditional sale obligations of such
Person and all obligations of such Person under any title retention
agreement (but excluding trade accounts payable or accrued
liabilities arising in the ordinary course of business which are not
overdue or which are being contested in good faith);
(4) all obligations of such Person for the reimbursement of any obligor
on any letter of credit, banker's acceptance or similar credit
transaction;
(5) the amount of all obligations of such Person with respect to the
redemption, repayment or other repurchase of any Disqualified Stock
of such Person or, with respect to any Preferred Stock of any
Subsidiary of such Person, the principal amount of such Preferred
Stock to be determined in accordance with the indenture;
(6) all obligations of the type referred to in clauses (1) through (5)
of other Persons and all dividends of other Persons for the payment
of which, in either case, such Person is responsible or liable,
directly or indirectly, as obligor, guarantor or otherwise,
including by means of any Guarantee;
(7) all obligations of the type referred to in clauses (1) through (6)
of other Persons secured by any Lien on any property or asset of
such Person (whether or not such obligation is assumed by such
Person), the amount of such obligation being deemed to be the lesser
of the value of such property or assets and the amount of the
obligation so secured; and
(8) to the extent not otherwise included in this definition, Hedging
Obligations of such Person.
The amount of Indebtedness of any Person at any date shall be the
outstanding balance at such date of all unconditional obligations as described
above and the maximum liability, upon the occurrence of the contingency giving
rise to the obligation, of any contingent obligations at such date; provided,
however, that in the case of Indebtedness sold at a discount, the amount of such
Indebtedness at any time will be the accreted value thereof at such time.
"Independent Qualified Party" means an investment banking firm, accounting
firm or appraisal firm of national standing; provided, however, that such firm
is not an Affiliate of Phillips-Van Heusen.
"Interest Rate Agreement" means in respect of a Person any interest rate
swap agreement, interest rate cap agreement, interest rate collar agreement or
other similar financial agreement or arrangement including, without limitation,
any such arrangement whereby, directly or indirectly, such Person is entitled to
receive from time to time periodic payments calculated by applying either a
fixed or floating rate of interest on a stated notional amount in exchange for
periodic payments made by such Person calculated by applying a fixed or floating
rate of interest on the same notional amount.
"Investment" in any Person means any direct or indirect advance, loan
(other than advances to customers in the ordinary course of business that are
recorded as accounts receivable on the balance sheet of the lender) or other
extensions of credit (including by way of Guarantee or similar arrangement) or
capital contribution to (by means of any transfer of cash or other property to
others or any payment for property or services for the account or use of
others), or any purchase or acquisition of Capital Stock, Indebtedness or other
similar instruments issued by such Person. Except as otherwise provided for
herein, the amount of an Investment shall be its fair value at the time the
Investment is made and without giving effect to subsequent changes in value.
For purposes of the definition of "Unrestricted Subsidiary," the definition
of "Restricted Payment" and the covenant described under "-- Certain Covenants
-- Limitation on Restricted Payments":
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(1) "Investment" shall include the portion (proportionate to
Phillips-Van Heusen's equity interest in such Subsidiary) of the
fair market value of the net assets of any Subsidiary of
Phillips-Van Heusen at the time that such Subsidiary is designated
an Unrestricted Subsidiary; provided, however, that upon a
redesignation of such Subsidiary as a Restricted Subsidiary,
Phillips-Van Heusen shall be deemed to continue to have a permanent
"Investment" in an Unrestricted Subsidiary equal to an amount (if
positive) equal to (A) Phillips-Van Heusen's "Investment" in such
Subsidiary at the time of such redesignation less (B) the portion
(proportionate to Phillips-Van Heusen's equity interest in such
Subsidiary) of the fair market value of the net assets of such
Subsidiary at the time of such redesignation; and
(2) any property transferred to or from an Unrestricted Subsidiary shall
be valued at its fair market value at the time of such transfer, in
each case as determined in good faith by the board of directors of
Phillips-Van Heusen.
"Issue Date" means the date on which the outstanding notes (other than any
additional notes) are originally issued.
"Investment Grade" means (1) with respect to Standard & Poor's Ratings
Group, any of the ratings categories from and including AAA to and including
BBB- and (2) with respect to Moody's Investors Service, Inc., any of the ratings
categories from and including Aaa to and including Baa3.
"Lien" means any mortgage, pledge, security interest, encumbrance, lien or
charge of any kind (including any conditional sale or other title retention
agreement or lease in the nature thereof).
"Limited Originator Recourse" means a reimbursement obligation of
Phillips-Van Heusen in connection with a drawing on a letter of credit,
revolving loan commitment, cash collateral account or other such credit
enhancement issued to support Indebtedness of a Securitization Subsidiary that
Phillips-Van Heusen's board of directors determines is necessary to effectuate a
Qualified Securitization Transaction; provided, that the available amount of any
such form of credit enhancement at any time shall not exceed 10% of the
principal amount of such Indebtedness at such time and provided, further, that
such reimbursement obligation is permitted to be Incurred by Phillips-Van Heusen
pursuant to the covenant described under "--Limitation on Indebtedness" and that
any Lien securing such reimbursement obligation is permitted pursuant to the
covenant described under "--Limitation on Liens."
"Net Available Cash" from an Asset Disposition means cash payments received
therefrom (including any cash payments received by way of deferred payment of
principal pursuant to a note or installment receivable or otherwise and proceeds
of the sale or other disposition of any securities received as consideration,
but only as and when received, but excluding any other consideration received in
the form of assumption by the acquiring Person of Indebtedness or other
obligations relating to such properties or assets or received in any other
noncash form), in each case net of:
(1) all legal, accounting, financial advisory, title and recording tax
expenses, commissions and other fees and expenses incurred, and all
Federal, state, provincial, foreign and local taxes required to be
accrued as a liability under GAAP, as a consequence of such Asset
Disposition;
(2) all payments made on any Indebtedness which is secured by any assets
subject to such Asset Disposition, in accordance with the terms of
any Lien upon or other security agreement of any kind with respect
to such assets, or which must by its terms, or in order to obtain a
necessary consent to such Asset Disposition, or by applicable law,
be repaid out of the proceeds of such Asset Disposition;
(3) all distributions and other payments required to be made to minority
interest holders in Restricted Subsidiaries as a result of such
Asset Disposition; and
(4) the deduction of appropriate amounts provided by the seller as a
reserve, in accordance with GAAP, against any liabilities associated
with the property or other assets disposed in such Asset Disposition
and retained by Phillips-Van Heusen or any Restricted Subsidiary
after such Asset Disposition; provided, however, that any reduction
in such reserve after consummation of the Asset Disposition will be
deemed a new Asset Disposition with Net Available Cash equal to the
amount of such reduction.
"Net Cash Proceeds," with respect to any issuance or sale of Capital Stock
or Indebtedness, means (A) the cash proceeds of such issuance or sale net of
attorneys' fees, accountants' fees, underwriters' or placement agents'
115
fees, discounts or commissions and brokerage, consultant and other fees actually
incurred in connection with such issuance or sale and net of taxes paid or
payable as a result thereof and (B) solely for purposes of paragraph (a)(3)(B)
of the covenant described under "-- Limitation on Restricted Payments," the fair
market value (as of the date of the transaction and as determined in good faith
by the board of directors of Phillips-Van Heusen) of the Capital Stock (other
than Disqualified Stock) of a Person (whose primary business is a Related
Business) that thereupon becomes a Restricted Subsidiary (other than a
Securitization Subsidiary), which Capital Stock constitutes the proceeds
received by Phillips-Van Heusen from an issuance or sale of its Capital Stock,
net of the fees and taxes described in clause (A) above.
"Obligations" means with respect to any Indebtedness all obligations for
principal, premium, interest, penalties, fees, indemnifications, reimbursements
and other amounts payable pursuant to the documentation governing such
Indebtedness.
"Officer" means the Chairman of the Board, the President, any Vice
President, the Treasurer or the Secretary of Phillips-Van Heusen.
"Officers' Certificate" means a certificate signed by two Officers.
"Opinion of Counsel" means a written opinion from legal counsel who is
reasonably acceptable to the trustee. The counsel may be an employee of or
counsel to Phillips-Van Heusen or the trustee.
"Permitted Guarantees" means any guarantee by a Restricted Subsidiary (i)
outstanding on the Issue Date after giving effect to the use of the net proceeds
of the outstanding notes, (ii) of Indebtedness of Phillips-Van Heusen Incurred
under clause (b)(1) of the covenant described under "Limitation on Indebtedness"
and (iii) of Indebtedness of Phillips-Van Heusen Incurred under a bank credit
facility that is Incurred in compliance with the covenant described under
"Limitation on Indebtedness" and secured in compliance with the covenant
described under "Limitation on Liens ."
"Permitted Holders" means Apax Managers, Inc. and Apax Partners Europe
Managers Limited and their Affiliates.
"Permitted Investment" means an Investment by Phillips-Van Heusen or any
Restricted Subsidiary in:
(1) Phillips-Van Heusen, a Restricted Subsidiary (other than a
Securitization Subsidiary) or a Person that will, upon the making of
such Investment, become a Restricted Subsidiary (other than a
Securitization Subsidiary); provided, however, that the primary
business of such Restricted Subsidiary is a Related Business;
(2) another Person if as a result of such Investment such other Person
is merged or consolidated with or into, or transfers or conveys all
or substantially all its assets to, Phillips-Van Heusen or a
Restricted Subsidiary; provided, however, that such Person's primary
business is a Related Business;
(3) cash and Temporary Cash Investments;
(4) receivables owing to Phillips-Van Heusen or any Restricted
Subsidiary if created or acquired in the ordinary course of business
and payable or dischargeable in accordance with customary trade
terms; provided, however, that such trade terms may include such
concessionary trade terms as Phillips-Van Heusen or any such
Restricted Subsidiary deems reasonable under the circumstances;
(5) payroll, travel and similar advances to cover matters that are
expected at the time of such advances ultimately to be treated as
expenses for accounting purposes and that are made in the ordinary
course of business;
(6) loans or advances to employees made in the ordinary course of
business consistent with past practices of Phillips-Van Heusen or
such Restricted Subsidiary but in any event not to exceed $2.0
million in the aggregate outstanding at any one time;
(7) stock, obligations or securities received in settlement of debts
created in the ordinary course of business and owing to Phillips-Van
Heusen or any Restricted Subsidiary or in satisfaction of judgments
or pursuant to any plan of reorganization or similar arrangement
upon the bankruptcy or insolvency of a debtor;
116
(8) any Person to the extent such Investment represents the non-cash
portion of the consideration received for an Asset Disposition as
permitted pursuant to the covenant described under "-- Certain
Covenants -- Limitation on Sales of Assets and Subsidiary Stock";
(9) Hedging Obligations in compliance with the covenant descried under
"--Limitation on Indebtedness" above;
(10) any Person to the extent such Investment is in existence on the
Issue Date (after giving effect to the use of the net proceeds of
the sale of the outstanding notes);
(11) a Securitization Subsidiary in connection with a Qualified
Securitization Transaction which Investments are customary for such
transaction; and
(12) any Person engaged principally in a Related Business prior to such
Investment if (i) at the time of such Investment and after giving
pro forma effect thereto, Phillips-Van Heusen is entitled to Incur
an additional $1.00 of Indebtedness pursuant to paragraph (a) of the
covenant described under "Limitation on Indebtedness" above and (ii)
the aggregate amount of all Investments made pursuant to this clause
(12) does not exceed $15.0 million at any one time outstanding;
provided that Investments of up to $5.0 million in the aggregate at
any one time outstanding shall be permitted under this clause (12)
without regard to the requirements of clause (i) of this clause
(12).
"Person" means any individual, corporation, partnership, limited liability
company, joint venture, association, joint-stock company, trust, unincorporated
organization, government or any agency or political subdivision thereof or any
other entity.
"Preferred Stock," as applied to the Capital Stock of any Person, means
Capital Stock of any class or classes (however designated) which is preferred as
to the payment of dividends or distributions, or as to the distribution of
assets upon any voluntary or involuntary liquidation or dissolution of such
Person, over shares of Capital Stock of any other class of such Person.
"Purchase Money Indebtedness" means any Indebtedness of a Person to any
seller or other Person incurred to finance the acquisition or construction of
any property or assets and which is incurred substantially concurrently
therewith, is secured only by the assets so financed and the principal amount of
which does not exceed the cost of the assets acquired or constructed.
"Qualified Securitization Transaction" means any accounts receivable or
licensing royalty financing facility or arrangement pursuant to which a
Securitization Subsidiary purchases or otherwise acquires accounts receivable or
licensing royalties and related assets from Phillips-Van Heusen or any
Restricted Subsidiary and enters into a third party financing thereof on
customary market terms that the board of directors of Phillips-Van Heusen has
concluded are fair to Phillips-Van Heusen and its Restricted Subsidiaries.
"Refinance" means, in respect of any Indebtedness, to refinance, extend,
renew, refund, repay, prepay, redeem, defease or retire, or to issue other
Indebtedness in exchange or replacement for, such Indebtedness.
"Refinanced" and "Refinancing" shall have correlative meanings.
"Refinancing Indebtedness" means Indebtedness that Refinances any
Indebtedness of Phillips-Van Heusen or any Restricted Subsidiary existing on the
Issue Date (after giving effect to the use of the net proceeds of the sale of
the outstanding notes) or Incurred in compliance with the indenture, including
Indebtedness that Refinances Refinancing Indebtedness; provided, however, that:
(1) such Refinancing Indebtedness has a Stated Maturity no earlier than
the Stated Maturity of the Indebtedness being Refinanced;
(2) such Refinancing Indebtedness has an Average Life at the time such
Refinancing Indebtedness is Incurred that is equal to or greater
than the Average Life of the Indebtedness being Refinanced; and
(3) unless otherwise permitted to be Incurred pursuant to the covenant
described under "-- Limitation on Indebtedness," such Refinancing
Indebtedness has an aggregate principal amount (or if Incurred with
original issue discount, an aggregate issue price) that is equal to
or less than the aggregate principal amount (or if Incurred with
original issue discount, the aggregate accreted value) then
outstanding or
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committed (plus fees and expenses, including any premium and
defeasance costs) under the Indebtedness being Refinanced;
provided further, however, that Refinancing Indebtedness shall not include (A)
Indebtedness of a Subsidiary that Refinances Indebtedness of Phillips-Van Heusen
or (B) Indebtedness of Phillips-Van Heusen or a Restricted Subsidiary that
Refinances Indebtedness of an Unrestricted Subsidiary.
"Registration Rights Agreement" means the Registration Rights Agreement
dated April 30, 2003, among Phillips-Van Heusen and Credit Suisse First Boston
LLC, Lehman Brothers Inc. and J.P. Morgan Securities Inc.
"Related Business" means any business in which Phillips-Van Heusen or any
Restricted Subsidiary was engaged on the Issue Date and any business related,
ancillary or complementary to any business of Phillips-Van Heusen or any
Restricted Subsidiary in which Phillips-Van Heusen or any Restricted Subsidiary
was engaged on the Issue Date.
"Restricted Payment" with respect to any Person means:
(1) the declaration or payment of any dividends or any other
distributions of any sort in respect of its Capital Stock (including
any payment in connection with any merger or consolidation involving
such Person) or similar payment to the direct or indirect holders of
its Capital Stock (other than dividends or distributions payable
solely in its Capital Stock (other than Disqualified Stock) and
dividends or distributions payable solely to Phillips-Van Heusen or
a Restricted Subsidiary, and other than pro rata dividends or other
distributions made by a Subsidiary that is not a Wholly Owned
Subsidiary to minority stockholders (or owners of an equivalent
interest in the case of a Subsidiary that is an entity other than a
corporation));
(2) the purchase, redemption or other acquisition or retirement for
value of any Capital Stock of Phillips-Van Heusen held by any Person
or of any Capital Stock of a Restricted Subsidiary held by any
Affiliate of Phillips-Van Heusen (other than a Restricted
Subsidiary), including in connection with any merger or
consolidation and including the exercise of any option to exchange
any Capital Stock (other than into Capital Stock of Phillips-Van
Heusen that is not Disqualified Stock);
(3) the purchase, repurchase, redemption, defeasance or other
acquisition or retirement for value, prior to scheduled maturity,
scheduled repayment or scheduled sinking fund payment of any
Subordinated Obligations of such Person (other than the purchase,
repurchase or other acquisition of Subordinated Obligations
purchased in anticipation of satisfying a sinking fund obligation,
principal installment or final maturity, in each case due within one
year of the date of such purchase, repurchase or other acquisition);
or
(4) the making of any Investment (other than a Permitted Investment) in
any Person.
"Restricted Subsidiary" means any Subsidiary of Phillips-Van Heusen that is
not an Unrestricted Subsidiary.
"Sale/Leaseback Transaction" means any arrangement with any Person
providing for the leasing by Phillips-Van Heusen or any Restricted Subsidiary of
Phillips-Van Heusen, for a period of more than three years, of any real or
tangible personal property, which property has been or is to be sold or
transferred by Phillips-Van Heusen or such Restricted Subsidiary to such Person
in contemplation of such leasing.
"Securitization Subsidiary" means a Wholly Owned Subsidiary of Phillips-Van
Heusen
(1) that is designated a "Securitization Subsidiary" by the board of
directors of Phillips-Van Heusen;
(2) that does not engage in any activities other than Qualified
Securitization Transactions and any activity necessary or incidental
thereto;
(3) no portion of the Indebtedness or any other obligation, contingent
or otherwise, of which
o is Guaranteed by Phillips-Van Heusen or any Restricted
Subsidiary other than pursuant to Standard Securitization
Undertakings or Limited Originator Recourse,
o is recourse to or obligates Phillips-Van Heusen or any other
Restricted Subsidiary in any way other than pursuant to
Standard Securitization Undertakings or Limited Originator
Recourse, or
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o subjects any property or asset of Phillips-Van Heusen or any
other Restricted Subsidiary, directly or indirectly,
contingently or otherwise, to the satisfaction thereof other
than pursuant to Standard Securitization Undertakings or
Limited Originator Recourse; and
(4) with respect to which neither Phillips-Van Heusen nor any Restricted
Subsidiary has any obligation to maintain or preserve its financial
condition or cause it to achieve certain levels of operating
results.
"Senior Indebtedness" means with respect to any Person:
(1) Indebtedness of such Person, whether outstanding on the Issue Date
(after giving effect to the use of the net proceeds of the sale of
the outstanding notes) or thereafter Incurred; and
(2) all other Obligations of such Person (including interest accruing on
or after the filing of any petition in bankruptcy or for
reorganization relating to such Person whether or not post-filing
interest is allowed in such proceeding) in respect of Indebtedness
described in clause (1) above;
unless, in the case of clauses (1) and (2), in the instrument creating or
evidencing the same or pursuant to which the same is outstanding, it is provided
that such Indebtedness or other Obligations are subordinate in right of payment
to the notes or the Subsidiary Guaranty of such Person, as the case may be;
provided, however, that Senior Indebtedness shall not include:
(1) any obligation of such Person to any Subsidiary;
(2) any liability for Federal, state, local or other taxes owed or owing
by such Person;
(3) any accounts payable or other liability to trade creditors arising
in the ordinary course of business (including guarantees thereof or
instruments evidencing such liabilities);
(4) any Indebtedness or other Obligation of such Person which is
subordinate or junior in any respect to any other Indebtedness or
other Obligation of such Person;
(5) that portion of any Indebtedness which at the time of Incurrence is
Incurred in violation of the indenture; or
(6) any Capital Stock.
"Significant Subsidiary" means any Restricted Subsidiary that would be a
"Significant Subsidiary" of Phillips-Van Heusen within the meaning of Rule 1-02
under Regulation S-X promulgated by the SEC.
"Standard Securitization Undertakings" means representations, warranties,
covenants and indemnities entered into by Phillips-Van Heusen or any Restricted
Subsidiary that are reasonably customary in accounts receivable or licensing
royalty securitization transactions, as the case may be.
"Stated Maturity" means, with respect to any security, the date specified
in such security as the fixed date on which the final payment of principal of
such security is due and payable, including pursuant to any mandatory redemption
provision (but excluding any provision providing for the repurchase of such
security at the option of the holder thereof upon the happening of any
contingency unless such contingency has occurred).
"Subordinated Obligation" means, with respect to a Person, any Indebtedness
of such Person (whether outstanding on the Issue Date (after giving effect to
the use of the net proceeds of the sale of the outstanding notes) or thereafter
Incurred) which is subordinate or junior in right of payment to the notes or a
Subsidiary Guaranty of such Person, as the case may be, pursuant to a written
agreement to that effect.
"Subsidiary" means, with respect to any Person, any corporation,
association, partnership or other business entity of which more than 50% of the
total voting power of shares of Voting Stock is at the time owned or controlled,
directly or indirectly, by:
(1) such Person;
(2) such Person and one or more Subsidiaries of such Person; or
(3) one or more Subsidiaries of such Person.
"Subsidiary Guarantor" means each Restricted Subsidiary of Phillips-Van
Heusen that delivers a Guaranty Agreement pursuant to the covenant described
under "Future Subsidiary Guarantors."
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"Subsidiary Guaranty" means a Guarantee by a Subsidiary Guarantor of
Phillips-Van Heusen's obligations with respect to the notes.
"Temporary Cash Investments" means any of the following:
(1) any investment in direct obligations of the United States or any
agency thereof or obligations guaranteed by the United States or any
agency thereof;
(2) investments in time deposit accounts, certificates of deposit and
money market deposits maturing within 365 days of the date of
acquisition thereof issued by a bank or trust company which is
organized under the laws of the United States, any State thereof or
any foreign country recognized by the United States, and which bank
or trust company has capital, surplus and undivided profits
aggregating in excess of $50.0 million (or the foreign currency
equivalent thereof) and has outstanding debt which is rated "A" (or
such similar equivalent rating) or higher by at least one nationally
recognized statistical rating organization (as defined in Rule 436
under the Securities Act) or any money-market fund sponsored by a
registered broker dealer or mutual fund distributor;
(3) repurchase obligations with a term of not more than 30 days for
underlying securities of the types described in clause (1) above
entered into with a bank meeting the qualifications described in
clause (2) above;
(4) investments in commercial paper, maturing not more than 270 days
after the date of acquisition, issued by a corporation (other than
an Affiliate of Phillips-Van Heusen) organized and in existence
under the laws of the United States or any foreign country
recognized by the United States with a rating at the time as of
which any investment therein is made of "P-1" (or higher) according
to Moody's Investors Service, Inc. or "A-1" (or higher) according to
Standard and Poor's Ratings Group; and
(5) investments in securities with maturities of 270 days or less from
the date of acquisition issued or fully guaranteed by any state,
commonwealth or territory of the United States, or by any political
subdivision or taxing authority thereof, and rated at least "A" by
Standard & Poor's Ratings Group or "A" by Moody's Investors Service,
Inc.
"Trust Indenture Act" means the Trust Indenture Act of 1939 (15 U.S.C.
Sections 77aaa-77bbbb) as in effect on the Issue Date.
"Trust Officer" means the Chairman of the Board, the President or any other
officer or assistant officer of the trustee assigned by the trustee to
administer its corporate trust matters.
"U.S. Government Obligations" means direct obligations (or certificates
representing an ownership interest in such obligations) of the United States
(including any agency or instrumentality thereof) for the payment of which the
full faith and credit of the United States is pledged and which are not callable
at the issuer's option.
"Unrestricted Subsidiary" means:
(1) any Subsidiary of an Unrestricted Subsidiary; and
(2) any Subsidiary of Phillips-Van Heusen which is designated after the
Issue Date as an Unrestricted Subsidiary by a resolution of
Phillips-Van Heusen's board of directors;
provided that a Subsidiary may be so designated as an Unrestricted Subsidiary
only if
(A) such designation is in compliance with "--Certain Covenants--
Limitation on Restricted Payments" above;
(B) such Subsidiary does not own any Capital Stock or Indebtedness
of, or hold any Lien on any property of, Phillips-Van Heusen
or any Restricted Subsidiary;
(C) no Default or Event of Default has occurred and is continuing
or results therefrom; and
(D) neither Phillips-Van Heusen nor any Restricted Subsidiary will
at any time
(i) provide a guarantee of, or similar credit support to,
any Indebtedness of such Subsidiary (including any
undertaking, agreement or instrument evidencing such
Indebtedness),
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(ii) be directly or indirectly liable for any Indebtedness
of such Subsidiary, or be directly or indirectly liable
for any other Indebtedness which provides that the
holder thereof may (upon notice, lapse of time or both)
declare a default thereon (or cause the payment thereof
to be accelerated or payable prior to its final
scheduled maturity) upon the occurrence of a default
with respect to any other Indebtedness that is
Indebtedness of such Subsidiary (including any
corresponding right to take enforcement action against
such Subsidiary),
except in the case of clause (i) or (ii) above to the extent
(i) that Phillips-Van Heusen or such Restricted Subsidiary
could otherwise provide such a guarantee or incur such
Indebtedness pursuant to paragraph (a) under "--
Certain Covenants -- Limitation on Indebtedness" above,
and
(ii) the provision of such guarantee and the incurrence of
such Indebtedness otherwise would be permitted under
"-- Certain Covenants -- Limitation on Restricted
Payments" above.
Phillips-Van Heusen's board of directors may designate any Unrestricted
Subsidiary to be a Restricted Subsidiary; provided, however, that immediately
after giving effect to such designation (A) Phillips-Van Heusen could Incur
$1.00 of additional Indebtedness under paragraph (a) of the covenant described
under "--Certain Covenants--Limitation on Indebtedness" and (B) no Default or
Event of Default shall have occurred and be continuing.
Any such designation by Phillips-Van Heusen's board of directors shall be
evidenced to the trustee by promptly filing with the trustee a copy of the
resolution of Phillips-Van Heusen's board of directors giving effect to such
designation and an Officers' Certificate certifying that such designation
complied with the foregoing provisions.
"Voting Stock" of a Person means all classes of Capital Stock or other
interests (including partnership interests) of such Person then outstanding and
normally entitled (without regard to the occurrence of any contingency) to vote
in the election of directors, managers or trustees thereof.
"Wholly Owned Subsidiary" means a Restricted Subsidiary all the Capital
Stock of which (other than directors' qualifying shares) is owned by
Phillips-Van Heusen or one or more Wholly Owned Subsidiaries.
BOOK-ENTRY, DELIVERY AND FORM
The exchange notes initially will be represented by one or more notes in
registered, global form without interest coupons (the "Global Notes"). The
Global Notes will be deposited upon issuance with the trustee as custodian for
The Depository Trust Company ("DTC"), in New York, New York, and registered in
the name of DTC or its nominee, in each case for credit to an account of a
direct or indirect participant in DTC as described below.
Except as set forth below, the Global Notes may be transferred in whole and
not in part, only to another nominee of DTC or to a successor of DTC or its
nominee. Beneficial interests in the Global Notes may not be exchanged for notes
in certificated form except in the limited circumstances described below. See
"--Exchange of Global Notes for Certificated Notes." Except in the limited
circumstances described below, owners of beneficial interests in the Global
Notes will not be entitled to receive physical delivery of notes in certificated
form.
In addition, transfers of beneficial interests in the Global Notes will be
subject to the applicable rules and procedures of DTC and its direct or indirect
participants (including, if applicable, those of the Euroclear System
("Euroclear") and Clearstream Banking S.A. ("Clearstream")), which may change
from time to time.
DEPOSITORY PROCEDURES
The following description of the operations and procedures of DTC,
Euroclear and Clearstream are provided solely as a matter of convenience. These
operations and procedures are solely within the control of the respective
settlement systems and are subject to changes by them. We take no responsibility
for these operations and procedures and urge investors to contact the system or
their participants directly to discuss these matters.
DTC has advised us that DTC is a limited-purpose trust company created to
hold securities for its participating organizations (collectively, the
"Participants") and to facilitate the clearance and settlement of transactions
in those securities between Participants through electronic book-entry changes
in accounts of its
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Participants. The Participants include securities brokers and dealers (including
the initial purchasers of the outstanding notes), banks, trust companies,
clearing corporations and certain other organizations. Access to DTC's system is
also available to other entities such as banks, brokers, dealers and trust
companies that clear through or maintain a custodial relationship with a
Participant, either directly or indirectly (collectively, the "Indirect
Participants"). Persons who are not Participants may beneficially own securities
held by or on behalf of DTC only through the Participants or the Indirect
Participants. The ownership interests in, and transfers of ownership interests
in, each security held by or on behalf of DTC are recorded on the records of the
Participants and Indirect Participants.
DTC has also advised us that, pursuant to procedures established by it:
(1) upon deposit of the Global Notes, DTC will credit the aggregate
amount of exchange notes represented by such Global Notes to the
accounts of Participants exchanging outstanding notes; and
(2) ownership of these interests in the Global Notes will be shown on,
and the transfer of ownership of these interests will be effected
only through, records maintained by DTC (with respect to the
Participants) or by the Participants and the Indirect Participants
(with respect to other owners of beneficial interests in the Global
Notes).
Investors in the Global Notes who are Participants in DTC's system may hold
their interests therein directly through DTC. Investors in the Global Notes who
are not Participants may hold their interests therein indirectly through
organizations (including Euroclear and Clearstream) which are Participants in
such system. All interests in a Global Note, including those held through
Euroclear or Clearstream, may be subject to the procedures and requirements of
DTC. Those interests held through Euroclear or Clearstream may also be subject
to the procedures and requirements of such systems. The laws of some states
require that certain Persons take physical delivery in definitive form of
securities that they own. Consequently, the ability to transfer beneficial
interests in a Global Note to such Persons will be limited to that extent.
Because DTC can act only on behalf of Participants, which in turn act on behalf
of Indirect Participants, the ability of a Person having beneficial interests in
a Global Note to pledge such interests to Persons that do not participate in the
DTC system, or otherwise take actions in respect of such interests, may be
affected by the lack of a physical certificate evidencing such interests.
Except as described below, owners of interests in the Global Notes will not
have notes registered in their names, will not receive physical delivery of
notes in certificated form and will not be considered the registered owners or
"holders" thereof under the indenture for any purpose.
Payments in respect of the principal of, and interest and premium and
additional interest, if any, on a Global Note registered in the name of DTC or
its nominee will be payable to DTC in its capacity as the registered holder
under the indenture. Under the terms of the indenture, Phillips-Van Heusen and
the trustee will treat the Persons in whose names the notes, including the
Global Notes, are registered as the owners of the notes for the purpose of
receiving payments and for all other purposes. Consequently, neither
Phillips-Van Heusen, the trustee nor any agent of Phillips-Van Heusen or the
trustee has or will have any responsibility or liability for:
(1) any aspect of DTC's records or any Participant's or Indirect
Participant's records relating to or payments made on account of
beneficial ownership interest in the Global Notes or for
maintaining, supervising or reviewing any of DTC's records or any
Participant's or Indirect Participant's records relating to the
beneficial ownership interests in the Global Notes; or
(2) any other matter relating to the actions and practices of DTC or any
of its Participants or Indirect Participants.
DTC has advised us that its current practice, upon receipt of any payment
in respect of securities such as the notes (including principal and interest),
is to credit the accounts of the relevant Participants with the payment on the
payment date unless DTC has reason to believe it will not receive payment on
such payment date. Each relevant Participant is credited with an amount
proportionate to its beneficial ownership of an interest in the principal amount
of the relevant security as shown on the records of DTC. Payments by the
Participants and the Indirect Participants to the beneficial owners of notes
will be governed by standing instructions and customary practices and will be
the responsibility of the Participants or the Indirect Participants and will not
be the responsibility of DTC, the trustee or Phillips-Van Heusen. Neither
Phillips-Van Heusen nor the trustee will be liable for any delay by DTC or any
of its Participants in identifying the beneficial owners of the notes, and
Phillips-Van Heusen and the trustee may conclusively rely on and will be
protected in relying on instructions from DTC or its nominee for all purposes.
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Transfers between Participants in DTC will be effected in accordance with
DTC's procedures, and will be settled in same-day funds, and transfers between
participants in Euroclear and Clearstream will be effected in accordance with
their respective rules and operating procedures.
Cross-market transfers between the Participants in DTC, on the one hand,
and Euroclear or Clearstream participants, on the other hand, will be effected
through DTC in accordance with DTC's rules on behalf of Euroclear or
Clearstream, as the case may be, by its respective depositary; however, such
cross-market transactions will require delivery of instructions to Euroclear or
Clearstream, as the case may be, by the counterparty in such system in
accordance with the rules and procedures and within the established deadlines
(Brussels time) of such system. Euroclear or Clearstream, as the case may be,
will, if the transaction meets its settlement requirements, deliver instructions
to its respective depositary to take action to effect final settlement on its
behalf of delivering or receiving interests in the relevant Global Note in DTC,
and making or receiving payment in accordance with normal procedures for
same-day funds settlement applicable to DTC. Euroclear participants and
Clearstream participants may not deliver instructions directly to the
depositories for Euroclear or Clearstream.
DTC has advised us that it will take any action permitted to be taken by a
holder of notes only at the direction of one or more Participants to whose
account DTC has credited the interests in the Global Notes and only in respect
of such portion of the aggregate principal amount of the notes as to which such
Participant or Participants has or have given such direction. However, if there
is an Event of Default under the notes, DTC reserves the right to exchange the
Global Notes for notes in certificated form, and to distribute such notes to its
Participants.
Although DTC, Euroclear and Clearstream have agreed to the foregoing
procedures to facilitate transfers of interests in the Global Notes among
participants in DTC, Euroclear and Clearstream, they are under no obligation to
perform or to continue to perform such procedures, and may discontinue such
procedures at any time. Neither Phillips-Van Heusen nor the trustee nor any of
their respective agents will have any responsibility for the performance by DTC,
Euroclear or Clearstream or their respective participants or indirect
participants of their respective obligations under the rules and procedures
governing their operations.
EXCHANGE OF GLOBAL NOTES FOR CERTIFICATED NOTES
A Global Note is exchangeable for definitive notes in registered
certificated form ("Certificated Notes") if:
(1) DTC (a) notifies Phillips-Van Heusen that it is unwilling or unable
to continue as depositary for the Global Notes and DTC fails to
appoint a successor depositary or (b) has ceased to be a clearing
agency registered under the Exchange Act;
(2) Phillips-Van Heusen, at its option, notifies the trustee in writing
that it elects to cause the issuance of the Certificated Notes; or
(3) there has occurred and is continuing a Default or Event of Default
with respect to the notes.
In addition, beneficial interests in a Global Note may be exchanged for
Certificated Notes upon prior written notice given to the trustee by or on
behalf of DTC in accordance with the indenture. In all cases, Certificated Notes
delivered in exchange for any Global Note or beneficial interests in Global
Notes will be registered in the names, and issued in any approved denominations,
requested by or on behalf of the depositary (in accordance with its customary
procedures).
SAME DAY SETTLEMENT AND PAYMENT
Phillips-Van Heusen will make payments in respect of the notes represented
by the Global Notes (including principal, premium, if any, interest and
additional interest, if any) by wire transfer of immediately available funds to
the accounts specified by the Global Note holder. Phillips-Van Heusen will make
all payments of principal, interest and premium and additional interest, if any,
with respect to Certificated Notes by wire transfer of immediately available
funds to the accounts specified by the holders of the Certificated Notes or, if
no such account is specified, by mailing a check to each such holder's
registered address. The notes represented by the Global Notes are expected to be
eligible to trade in the PORTAL market and to trade in DTC's Same-Day Funds
Settlement System, and any permitted secondary market trading activity in such
notes will, therefore, be required by DTC to be settled in immediately available
funds. Phillips-Van Heusen expects that secondary trading in any Certificated
Notes will also be settled in immediately available funds.
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Because of time zone differences, the securities account of a Euroclear
or Clearstream participant purchasing an interest in a Global Note from a
Participant in DTC will be credited, and any such crediting will be reported to
the relevant Euroclear or Clearstream participant, during the securities
settlement processing day (which must be a business day for Euroclear and
Clearstream) immediately following the settlement date of DTC. DTC has advised
Phillips-Van Heusen that cash received in Euroclear or Clearstream as a result
of sales of interests in a Global Note by or through a Euroclear or Clearstream
participant to a Participant in DTC will be received with value on the
settlement date of DTC but will be available in the relevant Euroclear or
Clearstream cash account only as of the business day for Euroclear or
Clearstream following DTC's settlement date.
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MATERIAL FEDERAL INCOME TAX CONSEQUENCES
The following is a general discussion of the material U.S. federal income
tax consequences of the exchange pursuant to this exchange offer, and the
ownership and disposition, of exchange notes. This discussion is based upon the
Internal Revenue Code of 1986, as amended (the "Code"), the Treasury Department
regulations promulgated thereunder (the "Regulations") and administrative and
judicial interpretations thereof, all as of the date hereof and all of which are
subject to change, possibly on a retroactive basis.
The discussion generally applies only to beneficial owners that purchased
notes for cash in the initial offering at their issue price and hold the notes
as "capital assets" (i.e., for investment). The discussion does not address all
aspects of U.S. federal income taxation that may be important to particular
investors in light of their individual circumstances or the U.S. federal income
tax consequences applicable to special classes of taxpayers such as banks and
certain other financial institutions, insurance companies, tax-exempt
organizations, holders of notes that are held through pass-through entities,
dealers in securities or foreign currency, and persons holding notes as a hedge
against currency risk or as part of a straddle, constructive sale or conversion
transaction. The discussion does not address any non-income tax considerations,
or any foreign, state or local tax consequences.
As used herein, a U.S. Holder means a beneficial owner of the notes that is
for U.S. federal income tax purposes (a) a citizen or individual resident of the
United States, (b) a corporation (or other entity properly classified as a
corporation for U.S. federal income tax purposes) created or organized in or
under the laws of the United States, any state within the United States, or the
District of Columbia, (c) an estate whose income is includible in gross income
for U.S. federal income tax purposes regardless of source, or (d) a trust if (1)
a court within the United States is able to exercise primary supervision over
the administration of the trust and one or more U.S. persons have the authority
to control all substantial decisions of the trust, or (2) the trust was in
existence on August 20, 1996 and has properly elected to continue to be treated
as a U.S. person. A Non-U.S. Holder is any holder of the notes that is not a
U.S. Holder.
HOLDERS OF NOTES SHOULD CONSULT THEIR OWN TAX ADVISORS REGARDING THE
APPLICATION OF THE U.S. FEDERAL INCOME TAX LAWS TO THEIR PARTICULAR SITUATIONS
AND THE CONSEQUENCES UNDER FEDERAL ESTATE OR GIFT TAX LAWS, AS WELL AS FOREIGN,
STATE, OR LOCAL LAWS AND TAX TREATIES, AND THE POSSIBLE EFFECTS OF CHANGES IN
TAX LAWS.
EXCHANGE OF NOTES
In the opinion of our counsel, Katten Muchin Zavis Rosenman, the exchange
of outstanding notes for exchange notes pursuant to this exchange offer will not
constitute a taxable exchange for U.S. federal income tax purposes as to both
U.S. Holders and Non-U.S. Holders of outstanding notes. Therefore, you will not
recognize taxable gain or loss as a result of exchanging outstanding notes for
exchange notes pursuant to this exchange offer, and the tax basis and holding
period of the exchange notes received by you pursuant to this exchange offer
will be the same as your adjusted tax basis and holding period for the
outstanding notes exchanged therefor.
U.S. FEDERAL INCOME TAXATION OF U.S. HOLDERS
PAYMENTS OF INTEREST
If you are a U.S. Holder, interest on your exchange notes generally will be
taxable as ordinary interest income at the time payments are accrued or are
received, in accordance with your regular method of accounting for U.S. federal
income tax purposes. The outstanding notes were not issued with "original issue
discount" for U.S. federal income tax purposes.
ADDITIONAL INTEREST
As more fully described under "Description of the Notes-- Registered
Exchange Offer; Registration Rights," we may be required to pay additional
interest on the exchange notes in certain circumstances. Although the matter is
not entirely free from doubt, we intend to take the position that a U.S. Holder
should not be required to report any additional interest as ordinary income for
U.S. federal income tax purposes before such time (if ever) as
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the additional interest accrues or is received in accordance with such holder's
regular method of accounting for U.S. federal income tax purposes.
SALE, EXCHANGE OR REDEMPTION OF THE NOTES
Upon the sale, exchange, redemption or other taxable disposition of the
exchange notes, you will recognize gain or loss equal to the difference, if any,
between the amount realized upon the sale, exchange, redemption or other taxable
disposition, other than amounts attributable to accrued and unpaid interest
(which will be taxed as ordinary interest income to the extent such interest has
not been previously included in income), and your adjusted tax basis in the
exchange notes. The amount realized by you is the sum of cash plus the fair
market value of all other property received on such sale, exchange, redemption
or other taxable disposition. Your adjusted tax basis in the exchange notes will
be as described under this heading under "Exchange of Notes," the same as your
adjusted tax basis in the outstanding notes exchanged therefor, less any
principal payments you receive. (If you purchase exchange notes, your adjusted
tax basis in the exchange notes generally will be your cost for the exchange
notes (other than any portion thereof attributable to accrued interest), less
any principal payments you receive.)
The gain or loss you recognize on the sale, exchange, redemption or other
taxable disposition of the exchange notes generally will be capital gain or
loss. The gain or loss will be long-term capital gain or loss if you have held
the exchange notes for a period of more than 12 months, including your holding
period in the outstanding notes exchanged therefor. Long-term capital gain is
subject to a maximum federal tax rate of 15% for U.S. Holders other than
corporations. Capital losses generally cannot be offset against ordinary income.
BACKUP WITHHOLDING AND INFORMATION REPORTING
Information returns will be filed with the Internal Revenue Service in
connection with payments on the exchange notes and the proceeds from a sale or
other disposition of the exchange notes. You will be subject to U.S. federal
backup withholding tax on these payments if you fail to provide your taxpayer
identification number to the paying agent and comply with certain certification
procedures or otherwise establish an exemption from backup withholding. The
amount of any backup withholding from a payment to you will be allowed as a
credit against your U.S. federal income tax liability and may entitle you to a
refund, provided that the required information is furnished to the Internal
Revenue Service.
U.S. FEDERAL INCOME TAXATION OF NON-U.S. HOLDERS
PAYMENTS OF INTEREST
If you are a Non-U.S. Holder, you generally will not be subject to U.S.
federal income or withholding tax on interest paid on the exchange notes so long
as that interest is not effectively connected with your conduct of a trade or
business within the U.S. and you:
o do not actually or constructively own 10% or more of the total combined
voting power of all of our stock;
o are not a "controlled foreign corporation" with respect to which we are
a "related person" within the meaning of the Code; and
o are not a bank receiving the interest pursuant to a loan agreement
entered into in the ordinary course of your trade or business.
In addition, for the exemption from withholding taxes to apply, you must
provide us with a properly completed and executed Form W-8 BEN, or other
applicable form, as provided for in the Regulations, certifying that you are a
foreign person. If you hold the exchange notes through a financial institution
or other agent acting on your behalf, you will be required to provide
appropriate documentation to the agent. Your agent may then be required to
provide certification to us or our paying agent, either directly or through
other intermediaries.
126
You may also be entitled to the benefits of an income tax treaty under
which interest on the exchange notes is subject to a reduced rate of withholding
tax or is exempt from U.S. withholding tax, provided a properly executed Form
W-8 BEN claiming the exemption is furnished to us and any other applicable
procedures are complied with.
Special rules regarding exemption from, or reduced rates of, U.S.
withholding tax may apply in the case of exchange notes held by partnerships or
certain types of trusts. Non-U.S. Holders that are partnerships or trusts should
consult their tax advisors regarding special rules that may be applicable in
their particular circumstances.
ADDITIONAL INTEREST
As more fully described under "Description of the Notes -- Registered
Exchange Offer; Registration Rights," we may be required to pay additional
interest on the exchange notes in certain circumstances. Although not currently
anticipated, we may be required (in the event Regulations requiring this are
issued in the future) to withhold U.S. federal income tax from any payment of
additional interest to you at a rate of 30% unless a tax treaty between the
United States and your country of residence reduces or eliminates the
withholding tax and you comply with the applicable procedures for claiming
treaty benefits. You should consult your own tax advisors as to the tax
considerations that relate to the potential payment of additional interest.
SALE, EXCHANGE OR REDEMPTION OF THE NOTES
Generally, any capital gain you recognize on the sale, exchange, redemption
or other taxable disposition of an exchange note will be exempt from U.S.
federal income and withholding tax, provided that:
o the gain is not effectively connected with your conduct of a trade or
business within the U.S.; and
o if you are an individual, you also are neither present in the U.S. for
183 days or more during the taxable year nor a former citizen or
long-term resident of the U.S. subject to special rules that apply to
expatriates.
EFFECTIVELY CONNECTED INCOME
If interest, gain or other income you recognize on an exchange note is
effectively connected with your conduct of a trade or business within the U.S.,
you will be exempt from the withholding tax previously discussed if you provide
us with a properly completed and executed Form W-8 ECI, but generally you will
be subject to U.S. federal income tax on the interest, gain or other income at
regular federal income tax rates. In addition to regular U.S. federal income
tax, if you are a corporation, you may be subject to a branch profits tax equal
to 30% of your effectively connected earnings and profits, as adjusted for
certain items, unless you qualify for a lower rate under an applicable tax
treaty.
FEDERAL ESTATE TAXES
An exchange note held by an individual who at the time of death is not a
citizen or resident of the U.S. will not be subject to U.S. federal estate tax,
provided that the individual does not actually or constructively own 10% or more
of the combined voting power of all our stock and the interest accrued on the
exchange notes was not effectively connected with such holder's conduct of a
trade or business within the U.S.
BACKUP WITHHOLDING AND INFORMATION REPORTING
You may be subject to annual information reporting and U.S. federal backup
withholding tax at the applicable rate (currently 28%) on payments of interest
and proceeds from a sale or other disposition of the exchange notes unless you
provide the certification described under "-- U.S. Federal Income Taxation of
Non-U.S. Holders -- Payments of Interest" above. The amount of any backup
withholding tax from a payment to you will be allowed as a credit against your
U.S. federal income tax liability (if any) and may entitle you to a refund,
provided the required information is furnished to the Internal Revenue Service.
In any event, we will be required to file information returns with the Internal
Revenue Service reporting our payments on the exchange notes.
127
You should consult your tax advisor regarding the application of
information reporting and backup withholding in your particular situation, the
availability of an exemption therefrom, and the procedure for obtaining such an
exemption, if available.
128
PLAN OF DISTRIBUTION
Each broker-dealer that receives exchange notes for its own account in
exchange for outstanding notes pursuant to this exchange offer, where such
outstanding notes were acquired by such broker-dealer as a result of
market-making activities or other trading activities, must acknowledge that it
will deliver a prospectus in connection with any resale of the exchange notes.
This prospectus, as it may be amended or supplemented from time to time, may be
used by a broker-dealer in connection with resales of exchange notes received in
exchange for outstanding notes where the outstanding notes were acquired as a
result of market-making activities or other trading activities. We have agreed
that, for a period of 180 days after the expiration date, we will make this
prospectus, as amended or supplemented, available to any broker-dealer for use
in connection with any such resale. In addition, until , 2003, all dealers
effecting transactions in the exchange notes may be required to deliver a
prospectus.
We will not receive any proceeds from any sale of exchange notes by
broker-dealers. Exchange notes received by broker-dealers for their own accounts
pursuant to this exchange offer may be sold from time to time in one or more
transactions in the over-the-counter market, in negotiated transactions, through
the writing of options on the exchange notes or a combination of such methods of
resale, at market prices prevailing at the time of resale, at prices related to
such prevailing market prices or negotiated prices. Any such resale may be made
directly to purchasers or to or through brokers or dealers who may receive
compensation in the form of commissions or concessions from any such
broker-dealer or the purchasers of any such exchange notes. Any broker-dealer
that resells exchange notes that were received by it for its own account
pursuant to this exchange offer and any broker or dealer that participates in a
distribution of such exchange notes may be deemed to be an "underwriter" within
the meaning of the Securities Act and any profit on any such resale of exchange
notes and any commission or concessions received by any such persons may be
deemed to be underwriting compensation under the Securities Act. The letter of
transmittal states that, by acknowledging that it will deliver and by delivering
a prospectus, a broker-dealer will not be deemed to admit that it is an
"underwriter" within the meaning of the Securities Act.
For a period of 180 days after the expiration date we will promptly send
additional copies of this prospectus and any amendment or supplement to this
prospectus to any broker-dealer that requests such documents in the letter of
transmittal. We have agreed to pay all expenses incident to this exchange offer
(including the expenses of one counsel for the holders) other than commissions
or concessions of any brokers or dealers and will indemnify the holders
(including any broker-dealers) against certain liabilities, including
liabilities under the Securities Act.
129
LEGAL MATTERS
Katten Muchin Zavis Rosenman, New York, New York, will pass upon the
validity of the issuance of the exchange notes.
One of our directors, Edward H. Cohen, is of counsel at the law firm of
Katten Muchin Zavis Rosenman and, as of the date of this prospectus, owns 6,000
shares of our common stock and holds options to purchase 27,922 shares that are
presently exercisable. Mr. Cohen does not share in any fees we pay that firm and
his compensation is not based on our fees.
EXPERTS
Our consolidated financial statements as of February 2, 2003 and February
3, 2002, and for each of the three years in the period ended February 2, 2003,
incorporated by reference in this prospectus have been audited by Ernst & Young
LLP, our independent auditors, as stated in their reports appearing therein, and
have been so incorporated in reliance upon the reports of such firm given upon
their authority as experts in accounting and auditing.
The combined financial statements of Calvin Klein, Inc. as of December 28,
2002 and December 29, 2001 and for each of the three fiscal years in the period
ended December 28, 2002 incorporated in this prospectus which appear in our
Current Report on Form 8-K/A dated April 22, 2003 have been audited by
PricewaterhouseCoopers LLP, independent accountants, as stated in such firm's
reports, and have been so incorporated in reliance on the reports of
PricewaterhouseCoopers LLP given on the authority of said firm as experts in
auditing and accounting.
AVAILABLE INFORMATION
We file reports, proxy statements and other information with the SEC, in
accordance with the Exchange Act. You may read and copy our reports, proxy
statements and other information filed by us at:
o the Public Reference Room of the SEC, 450 Fifth Street, N.W.,
Washington, D.C. 20549; and
o the public reference facility and at the SEC's regional offices at 233
Broadway, New York, New York 10279 and 175 W. Jackson Boulevard, Suite
900, Chicago, Illinois 60604.
Please call the SEC at 1-800-SEC-0330 for further information about the
public reference rooms. Our reports, proxy statements and other information
filed with the SEC are also available to the public over the Internet at the
SEC's website at http://www.sec.gov.
The SEC allows us to "incorporate by reference" the information we file
with them, which means that we can disclose important information to you by
referring you to those documents. The information incorporated by reference is
considered to be a part of this prospectus, and information that we file later
with the SEC will automatically update and supersede this information. We
incorporate by reference the following documents we have filed, or may file,
with the SEC:
o Our Annual Report on Form 10-K for the fiscal year ended February 2,
2003;
o Our Current Report on Form 8-K dated February 12, 2003 and filed on
February 26, 2003;
o Our Current Report on Form 8-K/A dated February 12, 2003 and filed on
April 22, 2003;
o Our Current Report on Form 8-K dated April 8, 2003 and filed on April
16, 2003;
o Our Current Report on Form 8-K dated April 30, 2003 and filed on May 1,
2003;
o Our Current Report on Form 8-K dated May 5, 2003 and filed on May 5,
2003;
o Our Current Report on Form 8-K dated May 21, 2003 and filed on May 22,
2003;
o Our Quarterly Report on Form 10-Q for the period ended May 4, 2003;
o Our Current Report on Form 8-K dated August 20, 2003 and filed on
August 20, 2003; and
130
o All documents filed by us with the SEC under Sections 13(a), 13(c), 14
or 15(d) of the Exchange Act after the date of this prospectus and
before the termination of this exchange offer.
Any statement contained in a document that is incorporated by reference
shall be deemed to be modified or superseded for all purposes to the extent that
a statement contained in this prospectus (or in any document that is
subsequently filed with the SEC and incorporated by reference) modifies or
replaces that statement. Any statement so modified or superseded shall not be
deemed a part of this prospectus circular except as so modified or superseded.
While any outstanding notes remain outstanding, we will make available,
upon request, to any holder and any prospective purchaser of notes the
information required pursuant to Rule 144(d)(4) under the Securities Act, during
any period in which we are not subject to Section 13 or 15(d) of the Exchange
Act.
You may request a copy of these filings, at no cost, by writing or calling
us at the following address: Investor Relations, Phillips-Van Heusen
Corporation, 200 Madison Avenue, New York, New York 10016, telephone (212)
381-3500. You may access our filings on our corporate website at www.pvh.com.
131
[PVH LOGO OMITTED]
PHILLIPS-VAN HEUSEN CORPORATION
$150,000,000
---------------------------------------
PROSPECTUS
---------------------------------------
OFFER TO EXCHANGE UP TO $150,000,000 8 1/8% SENIOR NOTES DUE 2013
FOR ANY AND ALL OUTSTANDING $150,000,000 8 1/8% SENIOR NOTES DUE 2013
____________________, 2003
We have not authorized any dealer, salesperson or other person to give any
information or represent anything not contained in this prospectus. You must not
rely on any unauthorized information. This prospectus does not offer to sell or
buy any securities in any jurisdiction where it is unlawful. The information in
this prospectus is current as of the date of this prospectus.
Until __________, 2003, all dealers that effect transactions in these
securities, whether or not participating in this offering, may be required to
deliver a prospectus. This is in addition to the dealers' obligation to deliver
a prospectus when acting as underwriters and with respect to their unsold
allotments or subscriptions.
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 20. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
Our by-laws provide that we may indemnify any person to the full extent
permitted by the Delaware General Corporation Law, the law of the state in which
we are incorporated. Section 145 of the Delaware General Corporation Law
empowers a corporation, within certain limitations, to indemnify any person
against expenses, including attorneys' fees, judgments, fines and amounts paid
in settlement actually and reasonably incurred by him in connection with any
suit or proceeding to which he is a party by reason of the fact that he is or
was a director, officer, employee, or agent of the corporation or is or was
serving at the request of the corporation as a director, officer, employee or
agent of another corporation, partnership, joint venture, trust or other
enterprise, as long as he acted in good faith and in a manner which he
reasonable believed to be in, or not opposed to, the best interests of the
corporation. With respect to any criminal proceeding, he must have had no
reasonable cause to believe his conduct was unlawful. In addition, our
Certificate of Incorporation provides for a director or officer to be
indemnified unless his acts (1) constituted a breach of his fiduciary duties to
us or our stockholders, (2) were committed in bad faith or were the result of
active or deliberate dishonesty, (3) violated Section 174 of the Delaware
General Corporation Law or (4) resulted in a personal gain or financial profit
or other advantage to which he is not legally entitled. We also have in effect
directors' and officers' liability insurance.
ITEM 21. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES.
(a) The following exhibits are included in this registration statement:
4.1 Specimen of Common Stock certificate (incorporated by reference to
Exhibit 4 to registrant's Annual Report on Form 10-K for the fiscal
year ended January 31, 1981).
4.2 Preferred Stock Purchase Rights Agreement (the "Rights Agreement"),
dated June 10, 1986 between registrant and The Chase Manhattan Bank,
N.A. (incorporated by reference to Exhibit 3 to registrant's
Quarterly Report on Form 10-Q for the period ended May 4, 1986).
4.3 Amendment to the Rights Agreement, dated March 31, 1987 between
registrant and The Chase Manhattan Bank, N.A. (incorporated by
reference to Exhibit 4(c) to registrant's Annual Report on Form 10-K
for the year ended February 2, 1987).
4.4 Supplemental Rights Agreement and Second Amendment to the Rights
Agreement, dated as of July 30, 1987, between registrant and The
Chase Manhattan Bank, N.A. (incorporated by reference to Exhibit
(c)(4) to registrant's Schedule 13E-4, Issuer Tender Offer
Statement, dated July 31, 1987).
4.5 Third Amendment to Rights Agreement, dated June 30, 1992, from
registrant to The Chase Manhattan Bank, N.A. and The Bank of New
York (incorporated by reference to Exhibit 4.5 to registrant's
Quarterly Report on Form 10-Q for the period ended April 30, 2000).
4.6 Notice of extension of the Rights Agreement, dated June 5, 1996,
from registrant to The Bank of New York (incorporated by reference
to Exhibit 4.13 to registrant's Quarterly Report on Form 10-Q for
the period ended April 28, 1996).
4.7 Fourth Amendment to Rights Agreement, dated April 25, 2000, from
registrant to The Bank of New York (incorporated by reference to
Exhibit 4.7 to registrant's Quarterly Report on Form 10-Q for the
period ended April 30, 2000).
II-1
4.8 Supplemental Rights Agreement and Fifth Amendment to the Rights
Agreement dated February 12, 2003, between registrant and The Bank
of New York (successor to The Chase Manhattan Bank, N.A.), as rights
agent (incorporated by reference to Exhibit 4.1 to registrant's
Current Report on Form 8-K, filed on February 26, 2003).
4.9 Indenture, dated as of April 22, 1998, with registrant as issuer and
Union Bank of California, N.A., as trustee (incorporated by
reference to Exhibit 4.7 to registrant's Quarterly Report on Form
10-Q for the period ended May 3, 1998).
4.10 Indenture, dated as of November 1, 1993, between registrant and The
Bank of New York, as trustee (incorporated by reference to Exhibit
4.01 to registrant's Registration Statement on Form S-3 (Reg. No.
33-50751) filed on October 26, 1993).
4.11 First Supplemental Indenture, dated as of October 17, 2002 to
Indenture dated as of November 1, 1993 between registrant and The
Bank of New York, as trustee (incorporated by reference to Exhibit
4.15 to registrant's Quarterly Report on Form 10-Q for the period
ended November 3, 2002).
4.12 Second Supplemental Indenture, dated as of February 12, 2002 to
Indenture, dated as of November 1, 1993, between registrant and the
Bank Of New York, as trustee (incorporated by reference to Exhibit
4.2 to registrant's Current Report on Form 8-K, filed on February
26, 2003).
4.13 Registration Rights Agreement, dated as of February 12, 2003, by and
among registrant, the Calvin Klein 2001 Revocable Trust, Barry
Schwartz, Trust for the Benefit of the Issue of Calvin Klein, Trust
for the Benefit of the Issue of Barry Schwartz, Stephanie
Schwartz-Ferdman and Jonathan Schwartz, and the Investors listed
therein (incorporated by reference to Exhibit 10.7 to registrant's
Current Report on Form 8-K, filed on February 26, 2003).
4.14 Indenture, dated as of May 5, 2003, between registrant and SunTrust
Bank, as trustee (incorporated by reference to Exhibit 4.13 to
registrant's Quarterly Report on Form 10-Q for the period ended May
4, 2003).
4.15 Form of Exchange Security, filed by reference to Exhibit A to the
Indenture filed herewith as Exhibit 4.14 (incorporated by reference
to Exhibit 4.13 to registrant's Quarterly Report on Form 10-Q for
the period ended May 4, 2003).
+ 4.16 Registration Rights Agreement, dated April 30, 2003, among
registrant and CreditSuisse First Boston LLC, J.P. Morgan Securities
Inc. and Lehman Brothers Inc.
+ 5 Opinion of Katten Muchin Zavis Rosenman regarding legality.
+ 8 Opinion of Katten Muchin Zavis Rosenman regarding tax matters.
+ 12 Computation of Ratio of Earnings to Fixed Charges.
15 Acknowledgement of Independent Accountants (incorporated by
reference to Exhibit 15 to registrant's Quarterly Report on Form
10-Q for the period ended May 4, 2003).
+ 23.1 Consent of Ernst & Young LLP.
+ 23.2 Consent of PricewaterhouseCoopers LLP.
+ 23.3 Consent of Katten Muchin Zavis Rosenman (included in Exhibit 5).
+ 23.4 Consent of Katten Muchin Zavis Rosenman (included in Exhibit 8).
II-2
+ 24 Power of Attorney (included on page II - 6).
+ 25 Form T-1 Statement of Eligibility under the Trust Indenture Act of
1939 of SunTrust Bank as Trustee.
+ 99.1 Form of Letter of Transmittal.
+ 99.2 Form of Notice of Guaranteed Delivery.
+ 99.3 Form of Institutions Letter.
+ 99.4 Form of Client Letter.
-------------------------
+ Filed herewith.
(b) Financial Statement Schedules: See page F-1 to our Annual Report on Form
10-K for the fiscal year ended February 2, 2003 for a listing of the
financial statement schedules incorporated by reference in this
registration statement.
II-3
ITEM 22. UNDERTAKINGS.
(a) The undersigned registrant hereby undertakes that, for purposes of
determining any liability under the Securities Act of 1933, each filing of the
registrant's annual report pursuant to Section 13(a) or 15(d) of the Securities
Exchange Act of 1934 (and, where applicable, each filing of an employee benefit
plan's annual report pursuant to Section 15(d) of the Securities Exchange Act of
1934) that is incorporated by reference in the registration statement shall be
deemed to be a new registration statement relating to the securities offered
therein, and the offering of such securities at that time shall be deemed to be
the initial bona fide offering thereof.
(b) Insofar as indemnification for liabilities arising under the Securities
Act of 1933 may be permitted to directors, officers and controlling persons of
the registrant pursuant to the foregoing provisions, or otherwise, the
registrant has been advised that in the opinion of the Securities and Exchange
Commission such indemnification is against public policy as expressed in the Act
and is, therefore, unenforceable. In the event that a claim for indemnification
against such liabilities (other than the payment by the registrant of expenses
incurred or paid by a director, officer or controlling person of the registrant
in the successful defense of any action, suit or proceeding) is asserted by such
director, officer or controlling person in connection with the securities being
registered, the registrant will, unless in the opinion of its counsel the matter
has been settled by controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it is against public
policy as expressed in the Act and will be governed by the final adjudication of
such issue.
(c) The undersigned registrant hereby undertakes to respond to requests for
information that is incorporated by reference into the prospectus pursuant to
Items 4, 10(b), 11, or 13 of this form, within one business day of receipt of
such request, and to send the incorporated documents by first class mail or
other equally prompt means. This includes information contained in documents
filed subsequent to the effective date of the registration statement through the
date of responding to the request.
(d) The undersigned registrant hereby undertakes to supply by means of
post-effective amendment all information concerning a transaction, and the
company being acquired involved therein, that was not the subject of and
included in the registration statement when it became effective.
II-4
SIGNATURES
Pursuant to the requirements of the Securities Act, the registrant has duly
caused this registration statement to be signed on its behalf by the
undersigned, thereunto duly authorized, in the city of New York, State of New
York on August 27, 2003.
PHILLIPS-VAN HEUSEN CORPORATION
By: /s/ Bruce J. Klatsky
-----------------------------------
Bruce J. Klatsky
Chairman, Chief Executive Officer
and Director
II-5
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that each person whose signature appears
below constitutes and appoints Bruce J. Klatsky, Mark Weber and Emanuel Chirico
and each or any of them, his true and lawful attorney-in-fact and agent, each
acting alone, with full power of substitution and resubstitution, for him and in
his name, place, and stead, in any and all capacities, to sign any or all
amendments (including post-effective amendments) to this Registration Statement,
and to file the same, with all the exhibits thereto, and other documents in
connection therewith, with the Commission, granting unto said attorneys-in-fact
and agents, each acting alone, full power and authority to do and perform each
and every act and thing requisite or necessary to be done in and about the
premises as fully, to all intents and purposes, as he might or could do in
person, hereby ratifying and confirming all that said attorneys-in-fact and
agents, each acting alone, or his substitute or substitutes, may lawfully do or
cause to be done by virtue hereof.
Pursuant to the requirements of the Securities Act of 1933, this
registration statement has been signed by the following persons in the
capacities and on the dates indicated.
SIGNATURE TITLE DATE
--------- ----- ----
/s/ Bruce J. Klatsky Chairman, Chief Executive August 27, 2003
---------------------------- Officer and Director
Bruce J. Klatsky (Principal Executive Officer)
/s/ Mark Weber President, Chief Operating August 27, 2003
---------------------------- Officer and Director
Mark Weber
/s/ Emanual Chirico Executive Vice President and August 27, 2003
---------------------------- Chief Financial Officer
Emanuel Chirico (Principal Financial Officer)
/s/ Vincent A. Russo Vice President and Controller August 27, 2003
---------------------------- (Principal Accounting Officer)
Vincent A. Russo
/s/ Edward H. Cohen Director August 27, 2003
----------------------------
Edward H. Cohen
/s/ Joseph B. Fuller Director August 27, 2003
----------------------------
Joseph B. Fuller
/s/ Joel H. Goldberg Director August 27, 2003
----------------------------
Joel H. Goldberg
/s/ Marc Grosman Director August 27, 2003
----------------------------
Marc Grosman
/s/ Dennis F. Hightower Director August 27, 2003
----------------------------
Dennis F. Hightower
/s/ David A. Landau Director August 27, 2003
----------------------------
David A. Landau
/s/ Harry N.S. Lee Director August 27, 2003
----------------------------
Harry N.S. Lee
/s/ Bruce Maggin Director August 27, 2003
----------------------------
Bruce Maggin
/s/ Henry Nasella Director August 27, 2003
----------------------------
Henry Nasella
/s/ Christian Nather Director August 27, 2003
----------------------------
Christian Nather
/s/ Peter J. Solomon Director August 27, 2003
----------------------------
Peter J. Solomon
II-6
EXHIBIT INDEX
4.1 Specimen of Common Stock certificate (incorporated by reference to
Exhibit 4 to registrant's Annual Report on Form 10-K for the fiscal
year ended January 31, 1981).
4.2 Preferred Stock Purchase Rights Agreement (the "Rights Agreement"),
dated June 10, 1986 between registrant and The Chase Manhattan Bank,
N.A. (incorporated by reference to Exhibit 3 to registrant's
Quarterly Report on Form 10-Q for the period ended May 4, 1986).
4.3 Amendment to the Rights Agreement, dated March 31, 1987 between
registrant and The Chase Manhattan Bank, N.A. (incorporated by
reference to Exhibit 4(c) to registrant's Annual Report on Form 10-K
for the year ended February 2, 1987).
4.4 Supplemental Rights Agreement and Second Amendment to the Rights
Agreement, dated as of July 30, 1987, between registrant and The
Chase Manhattan Bank, N.A. (incorporated by reference to Exhibit
(c)(4) to registrant's Schedule 13E-4, Issuer Tender Offer
Statement, dated July 31, 1987).
4.5 Third Amendment to Rights Agreement, dated June 30, 1992, from
registrant to The Chase Manhattan Bank, N.A. and The Bank of New
York (incorporated by reference to Exhibit 4.5 to registrant's
Quarterly Report on Form 10-Q for the period ended April 30, 2000).
4.6 Notice of extension of the Rights Agreement, dated June 5, 1996,
from registrant to The Bank of New York (incorporated by reference
to Exhibit 4.13 to registrant's Quarterly Report on Form 10-Q for
the period ended April 28, 1996).
4.7 Fourth Amendment to Rights Agreement, dated April 25, 2000, from
registrant to The Bank of New York (incorporated by reference to
Exhibit 4.7 to registrant's Quarterly Report on Form 10-Q for the
period ended April 30, 2000).
4.8 Supplemental Rights Agreement and Fifth Amendment to the Rights
Agreement dated February 12, 2003, between registrant and The Bank
of New York (successor to The Chase Manhattan Bank, N.A.), as rights
agent (incorporated by reference to Exhibit 4.1 to registrant's
Current Report on Form 8-K, filed on February 26, 2003).
4.9 Indenture, dated as of April 22, 1998, with registrant as issuer and
Union Bank of California, N.A., as trustee (incorporated by
reference to Exhibit 4.7 to registrant's Quarterly Report on Form
10-Q for the period ended May 3, 1998).
4.10 Indenture, dated as of November 1, 1993, between registrant and The
Bank of New York, as trustee (incorporated by reference to Exhibit
4.01 to registrant's Registration Statement on Form S-3 (Reg. No.
33-50751) filed on October 26, 1993).
4.11 First Supplemental Indenture, dated as of October 17, 2002 to
Indenture dated as of November 1, 1993 between registrant and The
Bank of New York, as trustee (incorporated by reference to Exhibit
4.15 to registrant's Quarterly Report on Form 10-Q for the period
ended November 3, 2002).
4.12 Second Supplemental Indenture, dated as of February 12, 2002 to
Indenture, dated as of November 1, 1993, between registrant and the
Bank Of New York, as trustee (incorporated by reference to Exhibit
4.2 to registrant's Current Report on Form 8-K, filed on February
26, 2003).
4.13 Registration Rights Agreement, dated as of February 12, 2003, by and
among registrant, the Calvin Klein 2001 Revocable Trust, Barry
Schwartz, Trust for the Benefit of the Issue of Calvin Klein, Trust
for the Benefit of the Issue of Barry Schwartz, Stephanie
Schwartz-Ferdman and Jonathan Schwartz, and the Investors listed
therein (incorporated by reference to Exhibit 10.7 to registrant's
Current Report on Form 8-K, filed on February 26, 2003).
4.14 Indenture, dated as of May 5, 2003, between registrant and SunTrust
Bank, as trustee (incorporated by reference to Exhibit 4.13 to
registrant's Quarterly Report on Form 10-Q for the period ended May
4, 2003).
4.15 Form of Exchange Security, filed by reference to Exhibit A to the
Indenture filed herewith as Exhibit 4.14 (incorporated by reference
to Exhibit 4.13 to registrant's Quarterly Report on Form 10-Q for
the period ended May 4, 2003).
+ 4.16 Registration Rights Agreement, dated April 30, 2003, among
registrant and CreditSuisse First Boston LLC, J.P. Morgan Securities
Inc. and Lehman Brothers Inc.
+ 5 Opinion of Katten Muchin Zavis Rosenman regarding legality.
+ 8 Opinion of Katten Muchin Zavis Rosenman regarding tax matters.
+ 12 Computation of Ratio of Earnings to Fixed Charges.
15 Acknowledgement of Independent Accountants (incorporated by
reference to Exhibit 15 to registrant's Quarterly Report on Form
10-Q for the period ended May 4, 2003).
+ 23.1 Consent of Ernst & Young LLP.
+ 23.2 Consent of PricewaterhouseCoopers LLP.
+ 23.3 Consent of Katten Muchin Zavis Rosenman (included in Exhibit 5).
+ 23.4 Consent of Katten Muchin Zavis Rosenman (included in Exhibit 8).
+ 24 Power of Attorney (included on page II - 6).
+ 25 Form T-1 Statement of Eligibility under the Trust Indenture Act of
1939 of SunTrust Bank as Trustee.
+ 99.1 Form of Letter of Transmittal.
+ 99.2 Form of Notice of Guaranteed Delivery.
+ 99.3 Form of Institutions Letter.
+ 99.4 Form of Client Letter.
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+ Filed herewith.