As filed with the Securities and Exchange Commission on October 29, 2003
Registration No. 333-108329
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
AMENDMENT NO. 1
TO
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 of Incorporation) (Primary Standard (I.R.S. Employer Identification Number)
Industrial Classification
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 Amount of
Title of Each Class of Amount to be Aggregate Price Per Aggregate Offering Registration Fee
Securities to be Registered Registered Note Price(1) (2)
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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.
(2) Previously paid.
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 OCTOBER 29, 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 RESALES OF EXCHANGE NOTES
o We are offering to exchange all of our outstanding o There is no existing public market for the
8 1/8% Senior Notes due 2013 (outstanding notes) outstanding notes or the exchange notes. We do
that are validly tendered and not withdrawn for an not intend to list the exchange notes on any
equal principal amount of exchange notes which have securities exchange or seek approval for
been registered under the Securities Act (exchange quotation through any automated trading system.
notes). The exchange notes may be sold in the
over-the-counter market, in negotiated
o You may withdraw tenders of outstanding notes at transactions or through a combination of these
any time prior to the expiration or termination of methods.
this exchange offer.
BROKERS-DEALERS
o This exchange offer expires at 5:00 p.m., New York
City time, on ______________, 2003, unless o Each broker-dealer that receives exchange notes
extended. We do not currently intend to extend for its own account pursuant to this exchange
the expiration date. offer must acknowledge that it will deliver a
prospectus in connection with any resale of those
o We will not receive any proceeds from this exchange notes. The letter of transmittal states
exchange offer. that by so acknowledging and by delivering a
prospectus, a broker-dealer will not be deemed to
THE EXCHANGE NOTES admit that it is an "underwriter" within the
meaning of the Securities Act.
o The terms of the exchange notes to be issued in o This prospectus, as it may be amended or
this exchange offer are substantially identical in supplemented from time to time, may be used by a
all material respects to those of the outstanding broker-dealer in connection with resales of
notes, except that the exchange notes will be exchange notes received in exchange for outstanding
freely tradeable. 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 20 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
----
CERTAIN INTRODUCTORY MATTERS.......................ii
FORWARD-LOOKING INFORMATION.......................iii
SUMMARY.............................................1
SUMMARY HISTORICAL FINANCIAL INFORMATION...........16
SUMMARY UNAUDITED PRO FORMA FINANCIAL INFORMATION..18
RISK FACTORS.......................................20
USE OF PROCEEDS....................................31
CAPITALIZATION.....................................31
SELECTED HISTORICAL FINANCIAL
INFORMATION......................................32
UNAUDITED PRO FORMA CONDENSED
CONSOLIDATED FINANCIAL INFORMATION...............34
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS.............40
BUSINESS...........................................50
MANAGEMENT.........................................65
PRINCIPAL STOCKHOLDERS.............................67
CERTAIN RELATIONSHIPS AND RELATED PARTY
TRANSACTIONS....................................70
DESCRIPTION OF CERTAIN OTHER INDEBTEDNESS
AND PREFERRED STOCK..............................72
EXCHANGE OFFER.....................................76
DESCRIPTION OF THE NOTES...........................86
MATERIAL FEDERAL INCOME TAX
CONSEQUENCES....................................125
PLAN OF DISTRIBUTION..............................129
LEGAL MATTERS.....................................130
EXPERTS...........................................130
AVAILABLE INFORMATION.............................130
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. Under the
license agreement with Vestimenta, which will be in full effect on January 1,
2004, we are transferring 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 24 members of our senior management team have an average
of over 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 licensing agreement 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.
Pursuant to the agreement, 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. Under the license agreement with
Vestimenta, which will be in full effect on January 1, 2004, we are
transferring the operations of the 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.
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.
8
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
9
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:
10
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,
11
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.
12
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 73/4% debentures due 2023
and our obligation to make contingent
13
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 August 3, 2003, we had $551.1 million of indebtedness
outstanding on a consolidated basis, which included $250.5
million of secured indebtedness (including $151.0 million of
outstanding letters of credit) and $149.6 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.
These restrictions and prohibitions are subject to a number of
important qualifications and exceptions. See "Description of the
Notes -- Certain Covenants."
14
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 20 and the other information in this prospectus before participating in
this exchange offer.
15
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 for the fiscal year ended February 2, 2003 incorporated by reference in
this prospectus. The following summary historical financial information of
Phillips-Van Heusen for the twenty-six weeks ended August 4, 2002 and August 3,
2003 was derived from our unaudited condensed consolidated financial statements
included in our Quarterly Report on Form 10-Q for the period ended August 3,
2003 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 twenty-six weeks ended August 4, 2002 and August 3, 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 twenty-six weeks ended August 4, 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 twenty-six
weeks ended August 3, 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" and "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 for the fiscal year ended February 2, 2003 and our Quarterly Report on
Form 10-Q for the period ended August 3, 2003, each incorporated by reference in
this prospectus.
HISTORICAL
------------------------------------------------------------------
FISCAL YEAR TWENTY-SIX WEEKS ENDED
------------------------------------ -----------------------------
2000 2001 2002 AUGUST 4, 2002 AUGUST 3, 2003
---------- ----------- --------- -------------- --------------
(IN THOUSANDS)
INCOME STATEMENT DATA:
Total revenues................................. $1,455,548 $1,431,892 $1,404,973 $680,613 $754,114
Cost of goods sold............................. 950,176 925,662(1) 873,743 432,073 443,358
---------- ----------- --------- -------------- --------------
Gross profit................................... 505,372 506,230 531,230 248,540 310,756
Selling, general and administrative expenses... 434,835 449,491 462,195 226,339 285,402
Gain on sale of investment..................... -- -- -- -- 3,496
Restructuring and other charges................ -- 15,600(2) -- -- --
---------- ----------- --------- -------------- --------------
Income before interest and taxes............... 70,537 41,139 69,035 22,201 28,850
Interest expense............................... 24,852 24,752 23,892 11,668 18,722
Interest income................................ 2,530 301 1,163 439 496
Income tax expense............................. 18,115 6,008 15,869 3,950 3,800
---------- ----------- --------- -------------- --------------
Net income..................................... $30,100 $10,680 $30,437 $7,022 6,824
========== =========== ========= ============== ==============
Preferred stock dividends...................... 9,569
--------------
Net loss attributed to common stock............ $(2,745)
==============
CASH FLOW AND OTHER DATA:
Depreciation and amortization.................. $20,051 $25,734 $25,678 $12,506 $13,671
Capital expenditures........................... 31,898 33,406 29,451 8,254 9,254
EBITDA (3)..................................... 90,588 66,873(4) 94,713 34,707 42,521
Cash flows provided by operating activities.... 35,389 63,653 105,228 45,120 575
Cash flows provided by (used in) investing (106,763) (39,006) (29,451) (8,254) (428,319)
Cash flows provided by (used in) financing
activities................................ (3,224) (1,291) (2,235) (164) 391,967
16
HISTORICAL
------------------------------------------------------------------
FISCAL YEAR TWENTY-SIX WEEKS ENDED
------------------------------------ -----------------------------
2000 2001 2002 AUGUST 4, 2002 AUGUST 3, 2003
---------- ----------- --------- -------------- --------------
(IN THOUSANDS)
BALANCE SHEET DATA (AT END OF PERIOD):
Cash.......................................... $20,223 $43,579 $117,121 $80,281 $81,344
Working capital............................... 298,286 290,942 323,688 302,977 334,446
Total assets.................................. 724,364 708,933 771,700 735,600 1,264,249
Senior debt................................... 99,472 99,481 99,491 99,485 249,496
Total debt.................................... 248,851 248,935 249,012 248,973 399,055
Stockholders' equity.......................... $268,561 $265,727 $272,227 $272,54 $297,971
---------------------------------------
(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) EBITDA is a "non-GAAP financial measure" as defined under Item 10(e) of
Regulation S-K promulgated under the Exchange Act. 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 liquidity. EBITDA is used under our revolving credit facility to
determine the applicable interest rate on our outstanding loans. In
addition, EBITDA is used in determining whether we can undertake an
acquisition under our revolving credit facility, and whether we can incur
additional indebtedness under the indenture governing the notes. 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 in accordance with generally accepted accounting principles is
reconciled to EBITDA as follows:
HISTORICAL
------------------------------------------------------------------
FISCAL YEAR TWENTY-SIX WEEKS ENDED
------------------------------------ -----------------------------
2000 2001 2002 AUGUST 4, 2002 AUGUST 3, 2003
---------- ----------- --------- -------------- --------------
(IN THOUSANDS)
Net income................................ $30,100 $10,680 $30,437 $7,022 $6,824
Income tax expense................... 18,115 6,008 15,869 3,950 3,800
Interest expense..................... 24,852 24,752 23,892 11,668 18,722
Interest income...................... 2,530 301 1,163 439 496
Depreciation and amortization........ 20,051 25,734 25,678 12,506 13,671
---------- ----------- --------- ------------- --------------
EBITDA.................................... $90,588 $66,873 $94,713 $34,707 $42,521
========== =========== ========= ============= ==============
(4) EBITDA for fiscal 2001 includes restructuring and other charges of
$21.0 million.
17
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 statements for our fiscal year ended February 2,
2003 and the twenty-six weeks ended August 4, 2002 and August 3, 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 on February 4, 2002.
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" and "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 for
the fiscal year ended February 2, 2003 and our Quarterly Report on Form 10-Q for
the period ended August 3, 2003 and Calvin Klein's financial statements and the
notes thereto included in our Current Report on Form 8-K/A dated February 12,
2003, each incorporated by reference in this prospectus.
PRO FORMA
--------------------------------------------------------
FISCAL YEAR TWENTY-SIX WEEKS ENDED
---------------- -----------------------------------
2002 AUGUST 4, 2002 AUGUST 3, 2003
---------------- -------------- ---------------
(IN THOUSANDS)
INCOME STATEMENT DATA:
Total revenues........................... $1,576,965 $ 766,609 $ 758,011
Cost of goods sold....................... 910,323 450,363 444,188
---------------- -------------- ---------------
Gross profit............................. 666,642 316,246 313,823
Selling, general and administrative expenses 572,779 281,631 288,766
Gain on sale of investment............... 3,496
---------------- -------------- ---------------
Income before interest and taxes......... 93,863 34,615 28,553
Interest expense......................... 36,786 18,115 19,029
Interest income.......................... 821 269 544
Income tax expense....................... 19,926 5,979 3,611
---------------- -------------- ---------------
Net income............................... 37,972 10,790 6,457
Preferred stock dividends(1)............. 20,027 10,072 10,072
---------------- -------------- ---------------
Net income (loss) attributed to common stock $ 17,945 $ 718 $ (3,615)
================ ============== ===============
OTHER DATA (2):
Depreciation and amortization............ $ 30,728 $ 15,031 $13,674
Capital expenditures..................... 32,528 9,793 9,254
---------------------------------------
(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 cash dividends in
each of the first two quarters of 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.
18
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. Under the license agreement with Vestimenta, which
will be in full effect on January 1, 2004, we are transferring 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.
19
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 and
G.A.V. 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:
20
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
21
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.
22
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
23
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
24
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
25
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.
26
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 August 3, 2003,
we had $399.1 million of outstanding debt (excluding $152.1 million of
outstanding letters of credit and guarantees), including $99.5 million of
secured debt (excluding $151.0 million of outstanding letters of credit),
representing 41.7% 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 sufficient future borrowings available
to us to pay our debt, including the notes. If we are unable to meet our debt
27
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 August
3, 2003, we had $174.0 million available for borrowing under our revolving
credit facility. In addition, although the indentures governing our 91/2% senior
subordinated notes due 2008, our 73/4% 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 also secures some of our other
indebtedness. Under that circumstance, we may not have sufficient funds to pay
the notes.
28
Also, under the indenture governing our 73/4% 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 -- 73/4% 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 August 3, 2003, we had $99.5 million of
secured debt (excluding $151.0 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 73/4% 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 August 3, 2003,
our subsidiaries had $172.6 million of total outstanding liabilities, including
subsidiary guarantees totalling $151.0 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 73/4% 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 and exercise their rights and remedies. The same result would
also occur under the indenture governing our 91/2% 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.
29
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."
30
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 provided for interest to accrue from
inception until February 12, 2004 at a rate of 10% per annum and, thereafter,
interest would have been at the rate of 15% per annum.
CAPITALIZATION
The following table sets forth our capitalization and cash and cash
equivalents at August 3, 2003. This table should be read in conjunction with the
other information contained under the captions "Selected Historical Financial
Information" and "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 for the fiscal year ended February 2,
2003 and our Quarterly Report on Form 10-Q for the period ended August 3, 2003,
each incorporated by reference in this prospectus.
AUGUST 3, 2003
--------------
Cash and cash equivalents.............................. $81,344
==============
Long-term debt
7 3/4% debentures due 2023........................ 99,496
8 1/8% outstanding notes due 2013................. 150,000
--------------
Total senior debt............................. 249,496
9 1/2% senior subordinated notes due 2008......... 149,559
--------------
Total long-term debt.......................... 399,055
Series B convertible preferred stock................... 259,569
Total stockholders' equity............................. 297,971
--------------
Total capitalization................................... $956,595
==============
31
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 twenty-six weeks ended August 4, 2002
and August 3, 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" and our financial statements and the accompanying notes thereto
included in our Annual Report on Form 10-K for the fiscal year ended February 2,
2003 and our Quarterly Report on Form 10-Q for the period ended August 3, 2003,
each incorporated by reference in this prospectus, and other financial and
statistical information included elsewhere in this prospectus.
FISCAL YEAR TWENTY-SIX WEEKS ENDED
----------------------------------------------------------- ------------------------
AUGUST 4, AUGUST 3,
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 $ 676,080 $695,871
Royalty and other revenues....... 9,516 3,700 7,614 9,715 10,761 4,533 58,243
---------- ---------- ---------- ---------- ---------- --------- --------
Total revenues................... 1,303,085 1,271,490 1,455,548 1,431,892 1,404,973 680,613 754,114
Cost of goods sold............... 856,160 820,464 950,176 925,662(1) 873,743 432,073 443,358
---------- ---------- ---------- ---------- ---------- --------- --------
Gross profit..................... 446,925 451,026 505,372 506,230 531,230 248,540 310,756
Selling, general and
administrative expenses........ 403,440 402,716 434,835 449,491 462,195 226,339 285,402
Gain on sale of investment....... -- -- -- -- -- -- 3,496
Restructuring and other charges.. -- -- -- 15,600(2) -- -- --
---------- ---------- ---------- ---------- ---------- --------- --------
Income before interest and taxes. 43,485 48,310 70,537 41,139 69,035 22,201 28,850
Interest expense................. 28,206 24,209 24,852 24,752 23,892 11,668 18,722
Interest income.................. 463 1,779 2,530 301 1,163 439 496
---------- ---------- ---------- ---------- ---------- --------- --------
Income before income taxes....... 15,742 25,880 48,215 16,688 46,306 10,972 10,624
Income tax expense............... 3,915 9,007 18,115 6,008 15,869 3,950 3,800
---------- ---------- ---------- ---------- ---------- --------- --------
Net income....................... $ 11,827 $ 16,873 $ 30,100 $ 10,680 $ 30,347 $ 7,022 6,824
========== ========== ========== ========== ========== =========
Preferred stock dividends........ 9,569
--------
Net loss attributed to common
stock.......................... $ (2,745)
========
Net income (loss) per common
share -- basic................. $ 0.43 $ 0.62 $ 1.10 $ 0.39 $ 1.10 $ 0.25 $ (0.09)
========== ========== ========== ========== ========== ========= ========
Net income (loss) per common
share -- diluted............... $ 0.43 $ 0.62 $ 1.10 $ 0.38 $ 1.08 $ 0.25 $ (0.09)
========== ========== ========== ========== ========== ========= ========
INCOME STATEMENT DATA, AS
ADJUSTED (4):
Net income....................... $ 11,827 $ 16,873 $ 30,100 $ 10,680 $ 30,437 $ 7,022 $ 6,824
Goodwill amortization, net of
tax benefit.................... 2,304 1,746 1,877 2,849 -- -- --
---------- ---------- ---------- ---------- ---------- --------- ---------
Net income as adjusted........... $ 14,131 $ 18,619 $ 31,977 $ 13,529 $ 30,437 $ 7,022 $ 6,824
========== ========== ========== ========== ========== ========= =========
Net income (loss) per common
share -- basic................. $ 0.52 $ 0.68 $ 1.17 $ 0.49 $ 1.10 $ 0.25 $ (0.09)
========== ========== ========== ========== ========== ========= =========
Net income (loss) per common
share -- diluted............... $ 0.52 $ 0.68 $ 1.17 $ 0.48 $ 1.08 $ 0.25 $ (0.09)
========== ========== ========== ========== ========== ========= =========
32
FISCAL YEAR TWENTY-SIX WEEKS ENDED
----------------------------------------------------- ----------------------
AUGUST 4, AUGUST 3,
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 $34,707 $42,521
Cash flows provided by operating activities 24,348 73,980 35,389 63,653 105,228 45,120 575
Cash flows provided by (used in) investing (38,213) 33,960 (106,763) (39,006) (29,451) (8,254) (428,319)
Cash flows provided by (used in) financing 13,074 (24,076) (3,224) (1,291) (2,235) (164) 391,967
Capital expenditures....................... 38,213 31,291 31,898 33,406 29,451 8,254 9,254
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 1.4x 1.3x
BALANCE SHEET DATA (AT END OF PERIOD):
Working capital............................ $235,331 $301,390 $298,286 $290,942 $323,688 $302,977 $334,446
Total assets............................... 674,313 673,748 724,364 708,933 771,700 735,600 1,264,249
Total debt................................. 268,723 248,784 248,851 248,935 249,012 248,973 399,055
Stockholders' equity....................... 228,888 241,685 268,561 265,727 272,227 272,584 297,971
---------------------------------------
(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 cash dividends in each of the
first two quarters of 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) EBITDA is a "non-GAAP financial measure" as defined under Item 10(e) of
Regulation S-K promulgated under the Exchange Act. 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 liquidity. EBITDA is used under our revolving credit facility to
determine the applicable interest rate on our outstanding loans. In
addition, EBITDA is used in determining whether we can undertake an
acquisition under our revolving credit facility, and whether we can incur
additional indebtedness under the indenture governing the notes. 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 in accordance with generally accepted accounting principles is
reconciled to EBITDA as follows:
FISCAL YEAR TWENTY-SIX WEEKS ENDED
------------------------------------------------------- -------------------------
AUGUST 4, AUGUST 3,
1998 1999 2000 2001 2002 2002 2003
------- ------- ------- ------- ------- ---------- ----------
(IN THOUSANDS) (UNAUDITED)
Net income....................... $11,827 $16,873 $30,100 $10,680 $30,437 $7,022 $6,824
Income tax expense............... 3,915 9,007 18,115 6,008 15,869 3,950 3,800
Interest expense................. 28,206 24,209 24,852 24,752 23,892 11,668 18,722
Interest income.................. 463 1,779 2,530 301 1,163 439 496
Depreciation and amortization.... 25,442 19,417 20,051 25,734 25,678 12,506 13,671
------- ------- ------- ------- ------- ------- -------
EBITDA........................... $68,927 $67,727 $90,588 $66,873 $94,713 $34,707 $42,521
======= ======= ======= ======= ======= ======= =======
(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 twenty-six weeks ended August 4, 2002 and August 3, 2003 is
not indicative of the results for a full fiscal year.
33
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 for the fiscal
year ended February 2, 2003 and the audited combined financial statements of
Calvin Klein included in our Current Report on Form 8-K/A dated February 12,
2003, each incorporated by reference in this prospectus. The unaudited pro forma
condensed consolidated income statements for the year ended February 2, 2003 and
the twenty-six weeks ended August 4, 2002 and August 3, 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 net proceeds of such sale as if they had
occurred on February 4, 2002.
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 twenty-six weeks ended August 4, 2002
includes historical information for us for the twenty-six weeks ended August 4,
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 twenty-six weeks ended August 3, 2003
includes historical information for us for the twenty-six weeks ended August 3,
2003, as adjusted for the period February 3, 2003 to February 11, 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" and "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 for the fiscal year ended February 2, 2003 and our Quarterly Report on
Form 10-Q for the period ended August 3, 2003 and Calvin Klein's financial
statements and the notes thereto included in our Current Report on Form 8-K/A
dated February 12, 2003, each incorporated by reference in this prospectus.
34
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
35
UNAUDITED PRO FORMA CONDENSED CONSOLIDATED INCOME STATEMENT
TWENTY-SIX WEEKS ENDED AUGUST 4, 2002
(IN THOUSANDS, EXCEPT PER SHARE DATA)
CALVIN PRO FORMA
PVH KLEIN ACQUISITION FOR OFFERING PRO
(ACTUAL) (ACTUAL) ADJUSTMENTS ACQUISITION ADJUSTMENTS FORMA
-------- -------- ------------ ----------- ----------- --------
Net sales............................... $676,080 $ 22,976 -- $ 699,056 -- $699,056
Royalty and related revenue............. 4,533 63,020 -- 67,553 -- 67,553
-------- -------- ------------ ----------- ----------- --------
Total revenues.......................... 680,613 85,996 -- 766,609 -- 766,609
Cost of goods sold...................... 432,073 18,290 -- 450,363 -- 450,363
-------- -------- ------------ ----------- ----------- --------
Gross profit............................ 248,540 67,706 -- 316,246 -- 316,246
Selling, general, administrative and
other expenses..................... 226,339 66,178 $(10,886)(3) 281,631 -- 281,631
-------- -------- ------------ ----------- ----------- --------
Income before interest and taxes........ 22,201 1,528 10,886 34,615 -- 34,615
Interest expense........................ 11,668 78 6,250 (4) 17,996 $ 119(4) 18,115
Interest income......................... 439 -- (300)(5) 139 130(5) 269
-------- -------- ------------ ----------- ----------- --------
Income before taxes..................... 10,972 1,450 4,336 16,758 11 16,769
Income tax expense...................... 3,950 2,024 1(6) 5,975 4(6) 5,979
-------- -------- ------------ ----------- ----------- --------
Net income (loss)....................... 7,022 (574) 4,335 10,783 7 10,790
Preferred stock dividends............... -- -- 10,072(2) 10,072 -- 10,072
-------- -------- ------------ ----------- ----------- --------
Net income (loss) attributed to common
stock.............................. $ 7,022 $ (574) $ (5,737) $ 711 $ 7 $ 718
======== ======== ============ ========= =========== ========
Basic and diluted net income per common
share(2) $ 0.25 $ 0.02 $ 0.02
======== ========= ========
See Notes to Unaudited Pro Forma Condensed Consolidated Income Statements
36
UNAUDITED PRO FORMA CONDENSED CONSOLIDATED INCOME STATEMENT
TWENTY-SIX WEEKS ENDED AUGUST 3, 2003
(IN THOUSANDS, EXCEPT PER SHARE DATA)
PRO FORMA
PVH ACQUISITION FOR OFFERING PRO
(ACTUAL) ADJUSTMENTS ACQUISITION ADJUSTMENTS FORMA
-------- ----------- ----------- ----------- --------
Net sales................................... $695,871 $ 1,016 (7) $ 696,887 -- $696,887
Royalty and related revenue................. 58,243 2,881 (7) 61,124 -- 61,124
-------- ----------- ----------- ----------- --------
Total revenues.............................. 754,114 3,897 (7) 758,011 -- 758,011
Cost of goods sold.......................... 443,358 830 (7) 444,188 -- 444,188
-------- ----------- ----------- ----------- --------
Gross profit................................ 310,756 3,067 (7) 313,823 -- 313,823
Selling, general, administrative and other
expenses............................... 285,402 3,364 (7) 288,766 -- 288,766
Gain on sale of investment ................. 3,496 -- 3,496 -- 3,496
-------- ----------- ----------- ----------- --------
Income (loss) before interest and taxes..... 28,850 (297)(7) 28,553 -- 28,553
Interest expense............................ 18,722 247 (8) 18,969 $ 60(4) 19,029
Interest income............................. 496 (17)(8) 479 65(5) 544
-------- ----------- ----------- ----------- --------
Income (loss) before taxes.................. 10,624 (561) 10,063 5 10,068
Income tax expense (benefit)................ 3,800 (191)(6) 3,609 2(6) 3,611
-------- ----------- ----------- ----------- --------
Net income (loss)........................... 6,824 (370) 6,454 3 6,457
Preferred stock dividends................... 9,569 503 (7) 10,072 -- 10,072
-------- ----------- ----------- ----------- --------
Net income (loss) attributed to common stock $ (2,745) $ (873) $ (3,618) $ 3 $ (3,615)
======== =========== ========== =========== ========
Basic and diluted net loss per common share (1) $ (0.09) $ (0.12) $ (0.12)
======== ========== ========
See Notes to Unaudited Pro Forma Condensed Consolidated Income Statements
37
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. Under the license agreement with Vestimenta, which
will be in full effect on January 1, 2004, we are transferring 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 twenty-six weeks ended August 4, 2002 is
pro forma net income, less preferred dividends of $10.1 million, or 8.0%,
on the Series B convertible preferred stock, divided by our average shares
of common stock outstanding for the twenty-six weeks ended August 4, 2002,
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:
TWENTY-SIX WEEKS
FISCAL YEAR ENDED
----------- ----------------
2002 AUGUST 4, 2002
----------- ----------------
(IN THOUSANDS)
Consulting agreement payment................................................. $(1,000) $ (500)
Elimination of expenses directly related to the two principal selling
shareholders............................................................. 5,720 2,860
Elimination of payment under design services letter agreement................ 17,052 8,526
----------- ----------------
Pro forma acquisition adjustments............................................ $21,772 $ 10,886
=========== ================
38
(4) The unaudited pro forma adjustments to interest expense for the respective
periods reflect the following:
TWENTY-SIX WEEKS
FISCAL YEAR ENDED
----------- ---------------------------------
2002 AUGUST 4, 2002 AUGUST 3, 2003
----------- -------------- --------------
Acquisition Adjustments: (IN THOUSANDS)
Term loan............................................. $12,500 $6,250
=========== ==============
Offering Adjustments:
Outstanding notes..................................... $12,188 $6,094 $3,047
Amortization of estimated fees and offering costs..... 550 275 138
Less: Term loan....................................... (12,500) (6,250) (3,125)
----------- -------------- --------------
Pro forma offering adjustments........................ $ 238 $ 119 $ 60
=========== ============== ==============
(5) The unaudited pro forma adjustments to interest income for the respective
periods reflect the following:
TWENTY-SIX WEEKS
FISCAL YEAR ENDED
----------- -------------------------------
2002 AUGUST 4, 2002 AUGUST 3, 2003
----------- -------------- --------------
(IN THOUSANDS)
Acquisition Adjustments:
Reduction in interest income based on acquisition
Adjustments to cash and cash equivalents ........... $(600) $(300)
=========== ==============
Offering Adjustments:
Interest income on additional cash received in
connection with offering ........................... $ 258 $ 130 $65
=========== ============== ==============
(6) With respect to the fiscal year ended February 2, 2003 and the twenty-six
weeks ended August 4, 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 twenty-six
weeks ended August 3, 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.
39
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 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.
40
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 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
Twenty-six Weeks Ended August 3, 2003 Compared With Twenty-six Weeks Ended
August 4, 2002
--------------------------------------------------------------------------------
Our results in 2003 are being impacted significantly by our acquisition
of Calvin Klein, which was completed on February 12, 2003. The following
discussion of our results of operations separately identifies integration costs
associated with the Calvin Klein acquisition. Calvin Klein integration costs
include: (1) the sales, cost of sales and operating expenses directly
attributable to the Calvin Klein men's and women's high-end ready-to-wear
collection apparel businesses which we are transferring to Vestimenta under a
license agreement which will be in full effect on January 1, 2004, and a payment
to Vestimenta to defray its transition expenses and (2) the costs of certain
duplicative personnel and facilities during the integration of various
logistical and back office functions. These duplicative costs include salaries
and related fringe benefits, lease expenses and software maintenance fees
associated with integrating the Calvin Klein finance, information systems and
human resources functions. They also include salaries and facilities expenses
associated with Calvin Klein's New Jersey warehouse and distribution center and
administrative facility, which we will exit by the end of 2003 in connection
with our transfer of the collection apparel businesses to Vestimenta.
Net Sales
Our net sales in the first half of 2003 were $695.9 million compared
with $676.1 million in the prior year. Net sales in the first half of 2003
included $10.7 million related to the Calvin Klein men's and women's high-end
ready-to-wear collection apparel businesses which we are transferring to
Vestimenta under a license agreement which will be in full effect on January 1,
2004. Of the remaining $9.1 million increase, $1.9 million was due to an
increase in our Apparel and Footwear segment. This increase was due principally
to growth in our wholesale apparel businesses, particularly Izod, Van Heusen and
Arrow, offset, in part, by sales declines in our retail businesses,
particularly, lower first quarter sales of sandals and spring canvas product in
our Bass footwear business due to unseasonably cold weather in much of the
United States. The remaining $7.2 million increase was attributable to our
Calvin Klein Licensing segment. The $7.2 million of net sales relate to Calvin
Klein retail stores that we operate to showcase the Calvin Klein brand.
Royalty and Other Revenues
Our royalty and other revenues in the first half of 2003 were $58.2
million compared with $4.5 million in the prior year. Of this $53.7 million
increase, $51.8 million was attributable to royalty, design and similar fee
revenues of our Calvin Klein Licensing segment. Calvin Klein royalty, design and
similar fee revenues are generated from licenses and other arrangements for the
worldwide marketing of various products under the Calvin
41
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.
Gross Profit on Net Sales
Our gross profit on net sales in the first half of 2003 was $252.5
million, or 36.3% of net sales, compared with $244.0 million, or 36.1% 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 the
current year's first quarter, offset, in part, by increased promotional selling
in our retail businesses in the current year's second quarter. The current
year's gross profit also included the negative impact of the Calvin Klein men's
and women's high-end ready-to-wear collection apparel businesses which we are
transferring to Vestimenta under a license agreement which will be in full
effect on January 1, 2004.
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 half of
2003 were $285.4 million compared with $226.3 million last year. Of this $59.1
million increase, $21.9 million related to Calvin Klein integration costs, which
are described above and reflected in our Calvin Klein Licensing segment. We
expect to incur such integration costs through the entirety of 2003. In
addition, $31.4 million of the increase was related 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. The remaining $5.8 million increase was due principally to higher
payroll, medical and other employee benefit expenses associated with our Apparel
and Footwear segment.
Gain on Sale of Investment
We sold our minority interest in Gant Company AB for $17.2 million, net
of related fees, which resulted in a one-time pre-tax gain of $3.5 million.
Interest Expense, Net
Our net interest expense in the first half of 2003 was $18.2 million
compared with $11.2 million last year. This increase was due principally to the
additional debt 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 was refinanced in October 2002.
Income Taxes
Our income taxes were estimated at a rate of 35.8% for the current
year, which compares to last year's full year rate of 34.3%. The increase in the
current year's rate was due principally to certain non-deductible costs
associated with the sale of our investment in Gant Company AB.
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 $2.0 million. The
following discussion of financial performance separately identifies these costs.
We believe that separately identifying these costs in this manner is a more
meaningful presentation as it more appropriately reflects the results of our
on-going operations and relative performance.
Apparel
The following table summarizes the operating results of our Apparel
segment in fiscal 2000, 2001 and 2002.
42
FISCAL YEAR
---------------------------------------------------------------------------
2000 2001 2002
---------------------- ---------------------- ----------------------
($ 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.
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.
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 $74.9 million in
fiscal 2000. The significant improvement in gross profit and the lack of the
charge for restructuring and other costs in fiscal 2002 offset the decline in
revenues and resulted in the improvement in operating income. Our operating
income margin increased to 7.0% in fiscal 2002 from 4.2% in fiscal 2001,
including the charge for restructuring and other costs, which reduced operating
income margin by 1.8%. Our operating income margin was 7.0% in fiscal 2000.
43
Footwear and Related Products
The following table summarizes the operating results of our Footwear
and Related Products segment in fiscal 2000, 2001 and 2002.
FISCAL YEAR
---------------------------------------------------------------------------
2000 2001 2002
---------------------- ---------------------- ----------------------
($ 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.
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, 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
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.
44
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 provided by operating activities was $0.6 million in the first
half of 2003 compared with $45.1 million in the prior year. This decrease was
due principally to the change in inventories, receivables, prepaid expenses and
deferred income taxes. The $16.6 million change in inventories was due
principally to an increase in basic replenishable dress shirts and the planned
early intake of Fall wholesale sportswear goods, which we will ship early in the
third quarter. The $7.5 million change in receivables was due principally to the
second quarter sales increase in our wholesale apparel businesses. The $9.5
million change in prepaid expenses was due principally to certain prepaid items
at the end of fiscal 2001 that were not prepaid at the end of fiscal 2002. The
$9.7 million change in deferred income taxes was due principally to the deferred
tax benefit from the $29.0 million liability we recorded relating to certain
costs associated with the Calvin Klein acquisition.
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 restructuring the Calvin Klein
business.
Investing Activities
Our investing activities for the first half of 2003 were impacted
significantly by the acquisition of Calvin Klein. The net cash used for the
acquisition was $427.0 million, which included a $19.0 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 for the period ended August
3, 2003 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. Such amount was $9.3 million for the
first half of 2003. 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 half of 2003 was $9.3 million compared with $8.3 million in the prior
year. 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 half 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
45
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" and "Noncash Investing and Financing Transactions" in our
Quarterly Report on Form 10-Q for the period ended August 3, 2003 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 41.7% as
of August 3, 2003, 47.7% as of August 4, 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 36.3%, 38.2%, 32.6%,
43.6% and 46.0% at the end August 3, 2003, August 4, 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 August 3, 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 August 3,
2003.
46
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............................. $399,055 $ -- $ -- $149,559 $249,496
Operating leases(1)........................ 244,377 68,050 110,986 33,817 31,524
-------- --------- -------- -------- --------
Total contractual cash obligations......... $643,432 $ 68,050 $110,986 $183,376 $281,020
======== ========= ======== ======== ========
-------------------
(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)..... $139,112 $139,112 $-- $-- $--
Standby letters of credit(2)............... 11,929 11,929 -- -- --
Raw material purchase guarantees(3)........ 4,500 -- 4,500 -- --
Contingent purchase price payments(4)...... -- -- -- -- --
-------- -------- ------ --- ---
Total commercial commitments............... $155,541 $151,041 $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 August 3, 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 payments are
estimated to be $20.0 million in fiscal 2003.
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 August 3, 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" notes to our consolidated financial statements in our Annual Report on
Form 10-K for the fiscal year ended February 2, 2003 and in our Quarterly Report
on Form 10-Q for the period ended August 3, 2003, each incorporated by reference
in this prospectus, outline 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.
We are exposed to currency exchange rate risks with respect to certain
inventory purchases denominated in Euros. We seek to protect ourselves against
adverse movements in the exchange rate for the Euro which might affect certain
inventory purchases by entering into forward exchange contracts. These forward
exchange contracts are used to hedge against our exposure to changes in the
exchange rate for the Euro and are not held for the purpose of trading or
speculation. The principal terms of the foreign exchange contracts are the same
as the underlying forecasted inventory purchases; therefore, we believe that
changes in the fair value of the forward contracts should be highly effective in
offsetting changes in the expected cash flows from the inventory purchases. At
August 3, 2003, our foreign exchanges contracts had a notional amount of $6.8
million, with maturity dates through December 2003.
47
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 which begins 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.
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 sold this investment in the second quarter of 2003 for
$17.2 million, net of related fees, which resulted in a one-time pre-tax gain of
$3.5 million.
48
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. Under the
license agreement with Vestimenta, which will be in full effect on January 1,
2004, we are transferring 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.
52
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 licensing agreement 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. Pursuant to the agreement, 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. Under the license agreement
with Vestimenta, which will be in full effect on January 1, 2004,
we are transferring the operations of the 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
53
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.
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.
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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 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, and recently signed a license agreement to sell dress
shirts under the BCBG Max Azria and certain related brands. We expect to
introduce BCBG Max Azria dress shirts for Fathers' Day 2004. The license
agreement expires on January 31, 2010, and we may extend it for up to two
additional five-year periods.
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
55
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 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
56
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, 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 and
accessories
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
57
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 Unilever N.V. accounting for approximately 23%
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)
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
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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
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
sportswear over the Internet on a limited basis.
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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.
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.
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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, 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.
61
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, 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
62
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.
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:
63
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
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 three outlet stores were closed
between June and August 2003. The full-priced 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.
EMPLOYEES
As of October 3, 2003, we employed approximately 4,988 persons on a
full-time basis and approximately 3,835 persons on a part-time basis.
Approximately 4.5% 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. 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*...............................65 Director
Joseph B. Fuller...............................46 Director
Joel H. Goldberg...............................60 Director
Marc Grosman o +...............................49 Director
David A. Landau o +............................37 Director
Harry N.S. Lee.................................61 Director
Bruce Maggin*..................................60 Director
Henry Nasella*.................................56 Director
Christian Nather...............................37 Director
Peter J. Solomon o +...........................65 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. 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.
66
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 October 3, 2003 (other than with respect to the Apax
affiliates which is 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 October 3, 2003, we had outstanding
30,366,141 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 October 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)..................................................... 174,504 *
Edward H. Cohen........................................................ 33,922 *
Francis K. Duane....................................................... 68,333 *
Joseph B. Fuller....................................................... 31,051 *
Joel H. Goldberg....................................................... 39,666 *
Marc Grosman........................................................... 20,666 *
Bruce J. Klatsky....................................................... 568,622 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........................................................ 170,214 *
Peter J. Solomon....................................................... 45,917 *
Mark Weber............................................................. 318,632 1.0
All directors and executive officers as a group (17 persons)........... 1,640,365 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 of 1974,
as amended. Participants in the AIPs who make investments in the PVH Stock
Fund may direct the
68
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 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 October 3,
2003 upon the exercise of options granted under our stock option plans: Emanuel
Chirico, 170,304 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; 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, 1,460,903 shares.
69
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 where we previously did not own the mark, and from
time to time, provided advice with regard to certain other
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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 August 3, 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.
73/4% DEBENTURES
In November 1993, we issued $100.0 million aggregate principal amount
of 73/4% 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
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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 November 1, 2013, 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
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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.
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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 August 3, 2003, Phillips-Van Heusen's Senior Indebtedness was $401.6 million,
including $250.5 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 August 3, 2003, the total liabilities of Phillips-Van Heusen's
subsidiaries was $172.6 million, of which approximately $151.2 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
92
consummate, the transaction or series of related transactions
pursuant to which such Subsidiary became a Subsidiary or was
acquired 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:
93
(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 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
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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 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.
95
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),
(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.
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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;
(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
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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).
(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);
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(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;
(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.
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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 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%
100
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 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
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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.
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
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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 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
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(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
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:
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(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;
(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.
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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" 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."
SunTrust Bank makes no representation or warranty, express or implied, as to the
accuracy or completeness of any information contained in this prospectus, except
for such information that specifically pertains to SunTrust Bank itself, or any
information incorporated by reference.
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.
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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
(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
107
(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).
"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
108
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 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).
109
"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;
(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;
110
(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
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
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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:
(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);
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(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.
"Existing Notes" means Phillips-Van Heusen's 91/2 % 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 73/ 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);
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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.
"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
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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":
(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
115
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' 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;
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(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;
(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
117
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 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.
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"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
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)
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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."
"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;
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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),
(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.
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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 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
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(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.
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).
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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.
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.
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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 outstanding options to purchase 50,256
shares, of which 27,922 are presently exercisable; no additional options will
become exercisable within the next 60 days. 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 February 12, 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 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 Quarterly Report on Form 10-Q for the period ended May 4, 2003;
o Our Quarterly Report on Form 10-Q for the period ended August 3,
2003;
o Our Current Report on Form 8-K dated September 24, 2003 and filed on
September 29, 2003; and
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.
130
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
[PHILLIPS-VAN HEUSEN CORPORATION LOGO]
$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
reasonably 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
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,
4.5 Third Amendment to Rights Agreement, dated June 30, 1992, from
registrant to The Chase Manhattan Bank,
4.6 Notice of extension of the Rights Agreement, dated June 5, 1996, from
registrant to The Bank of New York
4.7 Fourth Amendment to Rights Agreement, dated April 25, 2000, from
registrant to The Bank of New York
II-1
4.8 Supplemental Rights Agreement and Fifth Amendment to the Rights
Agreement dated February 12, 2003,
4.9 Indenture, dated as of April 22, 1998, with registrant as issuer and
Union Bank of California, N.A., as
4.10 Indenture, dated as of November 1, 1993, between registrant and The
Bank of New York, as trustee
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,
4.13 Registration Rights Agreement, dated as of February 12, 2003, by and
among registrant, the Calvin Klein
4.14 Indenture, dated as of May 5, 2003, between registrant and SunTrust
Bank, as trustee (incorporated by
4.15 Form of Exchange Security, filed by reference to Exhibit A to the
Indenture filed herewith as Exhibit
+ 4.16 Registration Rights Agreement, dated April 30, 2003, among registrant
and CreditSuisse First Boston
+ 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
++ 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).
II-2
+ 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.
-------------------------
+ Previously filed with the Registration Statement on Form S-4 filed on
August 28, 2003 (Reg. No.: 333-108329).
++ 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 October 27, 2003.
PHILLIPS-VAN HEUSEN CORPORATION
By: /s/ Bruce J. Klatsky
-------------------------------------
Bruce J. Klatsky
Chairman, Chief Executive Officer and
Director
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 October 27, 2003
------------------------- Officer and Director
Bruce J. Klatsky (Principal Executive Officer)
/s/ Mark Weber President, Chief Operating October 27, 2003
------------------------- Officer and Director
Mark Weber
/s/ Emanuel Chirico Executive Vice President and October 27, 2003
------------------------- Chief Financial Officer
Emanuel Chirico (Principal Financial Officer)
/s/ Vincent A. Russo Vice President and Controller October 27, 2003
------------------------- (Principal Accounting Officer)
Vincent A. Russo
/s/ Edward H. Cohen* Director October 27, 2003
-------------------------
Edward H. Cohen
/s/ Joseph B. Fuller* Director October 27, 2003
-------------------------
Joseph B. Fuller
/s/ Joel H. Goldberg* Director October 27, 2003
-------------------------
Joel H. Goldberg
/s/ Marc Grosman* Director October 27, 2003
-------------------------
Marc Grosman
/s/ David A. Landau* Director October 27, 2003
-------------------------
David A. Landau
/s/ Harry N.S. Lee* Director October 27, 2003
-------------------------
Harry N.S. Lee
/s/ Bruce Maggin* Director October 27, 2003
-------------------------
Bruce Maggin
/s/ Henry Nasella* Director October 27, 2003
-------------------------
Henry Nasella
/s/ Christian Nather * Director October 27, 2003
-------------------------
Christian Nather
II-5
SIGNATURE TITLE DATE
--------- ----- ----
/s/ Peter J. Solomon* Director October 27, 2003
-------------------------
Peter J. Solomon
* By: /s/ Bruce J. Klatsky
----------------------------------
Bruce J. Klatsky, Attorney-In-Fact
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
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,
4.5 Third Amendment to Rights Agreement, dated June 30, 1992, from
registrant to The Chase Manhattan Bank,
4.6 Notice of extension of the Rights Agreement, dated June 5,
1996, from registrant to The Bank of New York
4.7 Fourth Amendment to Rights Agreement, dated April 25, 2000,
from registrant to The Bank of New York
4.8 Supplemental Rights Agreement and Fifth Amendment to the
Rights Agreement dated February 12, 2003,
4.9 Indenture, dated as of April 22, 1998, with registrant as
issuer and Union Bank of California, N.A., as
4.10 Indenture, dated as of November 1, 1993, between registrant
and The Bank of New York, as trustee
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,
4.13 Registration Rights Agreement, dated as of February 12, 2003,
by and among registrant, the Calvin Klein
4.14 Indenture, dated as of May 5, 2003, between registrant and
SunTrust Bank, as trustee (incorporated by
4.15 Form of Exchange Security, filed by reference to Exhibit A to
the Indenture filed herewith as Exhibit
+ 4.16 Registration Rights Agreement, dated April 30, 2003, among
registrant and CreditSuisse First Boston
+ 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
++ 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.
-------------------------
+ Previously filed with the Registration Statement on Form S-4 filed on
August 28, 2003 (Reg. No.: 333-108329).
++ Filed herewith.