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AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON SEPTEMBER 3, 1999
REGISTRATION NO. 333-
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
--------------------------
FORM S-4
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
--------------------------
ST. JOHN KNITS INTERNATIONAL, INCORPORATED
(Exact name of Registrant Issuer as specified in its charter--See Inside Facing
Page for Table of Additional Registrant Guarantors)
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DELAWARE 2253 52-2061057
(State or other jurisdiction of (Primary Standard Industrial (I.R.S. Employer
incorporation or organization) Classification Code Number) Identification No.)
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17422 DERIAN AVENUE
IRVINE, CALIFORNIA 92614
(949) 863-1171
(Address and telephone number of Registrant's
principal executive offices)
--------------------------
ROGER G. RUPPERT
SENIOR VICE PRESIDENT--FINANCE AND
CHIEF FINANCIAL OFFICER
ST. JOHN KNITS INTERNATIONAL,
INCORPORATED
17422 DERIAN AVENUE
IRVINE, CALIFORNIA 92614
(949) 863-1171
(Name, address, including zip code, and telephone
number of agent for service)
--------------------------
WITH A COPY TO:
GARY I. HOROWITZ
SIMPSON THACHER & BARTLETT
425 LEXINGTON AVENUE
NEW YORK, NEW YORK 10017
(212) 455-2000
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO PUBLIC: As soon as
practicable 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, check the following box and
list the Securities Act Registration number of the earlier effective
Registration Statement for the same offering. / /
If this form is a post-effective amendment filed pursuant to Rule 462(d)
under the Securities Act, check the following box and list the Securities
Registration Statement number of the earlier effective Registration Statement
for the same offering. / /
CALCULATION OF REGISTRATION FEE
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PROPOSED MAXIMUM PROPOSED MAXIMUM AMOUNT OF
TITLE OF EACH CLASS OF AMOUNT TO OFFERING AGGREGATE REGISTRATION
SECURITIES TO BE REGISTERED BE REGISTERED(1) PRICE PER UNIT OFFERING PRICE(1) FEE(2)
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12 1/2% Senior Subordinated Notes due 2009 $100,000,000 100% $100,000,000 $27,800
Guarantees of 12 1/2 Senior Subordinated
Notes due 2009(2) $100,000,000 None(3) None(3) None(4)
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(1) Estimated solely for the purpose of calculation of the registration fee.
(2) See inside facing page for table of additional registrant guarantors.
(3) No separate consideration will be received for the guarantees of the 12 1/2%
Senior Subordinated Notes due 2009 by the subsidiary guarantors of St. John
Knits International, Incorporated.
(4) Pursuant to Rule 457(n), no separate filing fee is required for the
guarantees.
THE REGISTRANTS HEREBY AMEND THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANTS
SHALL FILE A FURTHER AMENDMENT WHICH SHALL SPECIFICALLY STATE THAT THIS
REGISTRATION STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH
SECTION 8(A) OF THE SECURITIES ACT, AS AMENDED OR UNTIL THE REGISTRATION
STATEMENT SHALL BECOME EFFECTIVE ON SUCH DATE AS THE SECURITIES AND EXCHANGE
COMMISSION, ACTING PURSUANT TO SAID SECTION 8(A), MAY DETERMINE.
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TABLE OF ADDITIONAL REGISTRANT GUARANTORS
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STATE OR OTHER ADDRESS, INCLUDING ZIP CODE,
JURISDICTION OF AND TELEPHONE NUMBER,
EXACT NAME OF INCORPORATION I.R.S. EMPLOYER INCLUDING AREA CODE, OF
REGISTRANT GUARANTOR AS OR IDENTIFICATION REGISTRANT GUARANTOR'S
SPECIFIED IN ITS CHARTER ORGANIZATION NUMBER PRINCIPAL EXECUTIVE OFFICES
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St. John Knits, Inc. California 95-2245070 17422 Derian Avenue
Irvine, California 92614
(949) 863-1171
St. John Italy, Inc. California 33-0690789 17422 Derian Avenue
Irvine, California 92614
(949) 863-1171
St. John Trademarks, Inc. California 33-0760317 17422 Derian Avenue
Irvine, California 92614
(949) 863-1171
St. John Home, LLC Delaware 33-0567039 17422 Derian Avenue
Irvine, California 92614
(949) 863-1171
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PRELIMINARY PROSPECTUS
THE INFORMATION IN THIS PROSPECTUS IS NOT COMPLETE AND MAY BE CHANGED. WE MAY
NOT SELL THESE SECURITIES UNTIL THE REGISTRATION STATEMENT FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION IS EFFECTIVE. THIS PROSPECTUS IS NOT AN OFFER
TO SELL THESE SECURITIES AND IS NOT SOLICITING AN OFFER TO BUY THESE SECURITIES
IN ANY STATE WHERE THE OFFER OR SALE IS NOT PERMITTED.
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SUBJECT TO COMPLETION, DATED SEPTEMBER 3, 1999
$100,000,000
[LOGO]
ST. JOHN KNITS INTERNATIONAL, INCORPORATED
OFFER TO EXCHANGE ALL OUTSTANDING 12 1/2% SENIOR SUBORDINATED NOTES DUE 2009 FOR
12 1/2% SENIOR SUBORDINATED NOTES DUE 2009, WHICH HAVE BEEN REGISTERED UNDER THE
SECURITIES ACT
UNCONDITIONALLY GUARANTEED ON A SENIOR SUBORDINATED BASIS BY ST. JOHN KNITS,
INC., ST. JOHN ITALY, INC., ST. JOHN TRADEMARKS, INC. AND ST. JOHN HOME, LLC
THE EXCHANGE OFFER
- - St. John Knits International, Incorporated will exchange all outstanding notes
that are validly tendered and not validly withdrawn for an equal principal
amount of exchange notes that are freely tradeable.
- - You may withdraw tenders of outstanding notes at any time prior to the
expiration of the exchange offer.
- - The exchange offer expires at 5:00 p.m., New York City time, on ,
1999, unless extended. We do not currently intend to extend the expiration
date.
- - We will not receive any proceeds from the exchange offer.
THE EXCHANGE NOTES
- - The terms of the exchange notes to be issued in the exchange offer are
substantially identical to the outstanding notes, except that the exchange
notes will be freely tradeable.
- - The exchange notes will be issued under and entitled to the benefits of the
same indenture that authorized the issuance of the outstanding notes.
- - The guarantees of the outstanding notes are, and the guarantees of the
exchange notes will be, full, unconditional and several.
- - The outstanding notes and the guarantees of the outstanding notes are, and the
exchange notes and the guarantees of the exchange notes will be, senior
subordinated indebtedness. As of May 2, 1999, we had approximately $190.0
million of senior indebtedness outstanding.
--------------------------
If you are a broker-dealer and you receive exchange notes for your own account
pursuant to the exchange offer, you must acknowledge that you will deliver a
prospectus in connection with any resale of such exchange notes. The letter of
transmittal states that by so acknowledging and by delivering a prospectus, you
will not be deemed to admit that you are an "underwriter" within the meaning of
the Securities Act. Broker-dealers may use this prospectus in connection with
resales of exchange notes received 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. We have agreed that, for a
period of 180 days after the date on which the exchange offer is consummated, we
will make this prospectus available to any broker-dealer for use in connection
with any such resale. See "Plan of Distribution."
--------------------------
YOU SHOULD CONSIDER CAREFULLY THE RISK FACTORS BEGINNING ON PAGE OF THIS
PROSPECTUS BEFORE PARTICIPATING IN THE 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 , 1999.
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TABLE OF CONTENTS
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PAGE
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Forward-looking Statements..................... 3
Prospectus Summary............................. 4
Risk Factors................................... 18
The Transactions............................... 28
Use of Proceeds................................ 28
Capitalization................................. 29
Unaudited Pro Forma Condensed Consolidated
Financial Information........................ 30
Selected Historical Condensed Consolidated
Financial Information........................ 39
Management's Discussion and Analysis
ofFinancial Condition and Results of
Operations................................... 41
Business....................................... 48
Management..................................... 58
Securities Ownership of CertainBeneficial
Owners and Management........................ 63
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Certain Relationships and Related
Transactions................................. 64
Description of Senior Credit Facilities........ 66
The Exchange Offer............................. 69
Description of the Notes....................... 80
Description of Preferred Stock................. 121
Certain United States Federal Income Tax
Considerations of the Exchange Offer......... 124
Book-Entry; Delivery and Form.................. 125
Exchange and Registration Rights............... 129
Plan of Distribution........................... 132
Legal Matters.................................. 132
Experts........................................ 132
Where You Can Find More Information............ 133
Index to Consolidated Financial Statements..... F-1
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FORWARD-LOOKING STATEMENTS
This prospectus includes forward-looking statements. All statements other
than statements of historical facts included in this prospectus, including
statements we make under "Prospectus Summary," "Management's Discussion and
Analysis of Financial Condition and Results of Operations" and "Business," may
constitute forward-looking statements. We have based these forward-looking
statements on our current expectations and projections about future events.
Although we believe that our assumptions made in connection with the
forward-looking statements are reasonable, we cannot assure you that our
assumptions and expectations will prove to have been correct. Important factors
that could cause our actual results to differ from our expectations are
disclosed above under "Risk Factors."
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PROSPECTUS SUMMARY
THE FOLLOWING SUMMARY CONTAINS BASIC INFORMATION ABOUT ST. JOHN KNITS
INTERNATIONAL, INCORPORATED AND ITS SUBSIDIARIES AND THIS EXCHANGE OFFER.
BECAUSE IT IS JUST A SUMMARY, IT MAY NOT CONTAIN ALL THE INFORMATION THAT MAY BE
IMPORTANT TO YOU. YOU SHOULD READ THIS PROSPECTUS, INCLUDING THE FINANCIAL DATA
AND RELATED NOTES, IN ITS ENTIRETY. IN THIS PROSPECTUS, REFERENCES TO "SJKI,"
"WE," "OUR" AND "US" REFER TO ST. JOHN KNITS INTERNATIONAL, INCORPORATED AND ITS
SUBSIDIARIES, REFERENCES TO "ST. JOHN KNITS INTERNATIONAL" REFER ONLY TO ST.
JOHN KNITS INTERNATIONAL, INCORPORATED, AND REFERENCES TO "ST. JOHN" REFER ONLY
TO ST. JOHN KNITS, INC., ONE OF OUR SUBSIDIARIES. IN THIS PROSPECTUS, REFERENCES
TO "FISCAL 1998" REFER TO THE YEAR ENDED NOVEMBER 1, 1998 AND PRIOR FISCAL YEARS
ARE REFERRED TO IN A SIMILAR MANNER UNLESS OTHERWISE INDICATED. UNLESS OTHERWISE
SPECIFICALLY INDICATED, ALL REFERENCES TO OUR PERFORMANCE ARE FOR FISCAL 1998.
THE COMPANY
OVERVIEW
We are a leading designer, manufacturer and marketer of fine women's
clothing and accessories. The St. John name has been associated with high
quality women's knitwear for over 35 years. Our core knitwear product line,
which represents approximately 81% of our sales, consists of a collection of
lifestyle clothing for women's business, evening and casual needs. We
manufacture our products primarily to order and distribute them on a highly
selective basis through a group of upscale retailers with whom we have long-term
relationships, as well as through our company-owned stores.
Our core knitwear products are considered unique and highly desirable by
customers due to their classic styling, durability, comfort, fit and quality.
These attributes, combined with selective distribution and targeted advertising,
have created a loyal base of customers consisting of professional and higher-
income women.
The strength of our brand name and customer loyalty has also enabled us to
expand our business into product lines that complement our core offerings. These
products account for approximately 19% of our sales and include:
- women's wovens;
- activewear;
- shoes;
- coats;
- accessories;
- fragrances; and
- home furnishings.
The success of our knitwear business, together with growth from our other
product lines, have allowed us to increase net sales from approximately $128.0
million in fiscal 1994 to approximately $282.0 million in fiscal 1998,
representing a compound annual growth rate of approximately 21.8%. For the
twelve months ended May 2, 1999, our net sales and Adjusted EBITDA (as defined)
were approximately $295.0 million and $62.1 million, respectively.
We have developed a vertically integrated manufacturing process which allows
us to produce approximately 93% of our own products. We believe that this
vertical integration differentiates us from other apparel manufacturers and has
been critical to our success because it enables us to manufacture products to
order, maximize manufacturing flexibility and maintain superior quality control.
We operate seven production facilities in California and one in Mexico. During
the past five years we have invested
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approximately $53.0 million in production facilities and state-of-the-art
equipment, which we believe has further enhanced our position as the leading
manufacturer of high-end women's knitwear.
We have had relationships with our top three retail customers, Saks Fifth
Avenue, Neiman Marcus and Nordstrom, for approximately 25, 20 and 15 years,
respectively. We also distribute our products through 18 company-owned boutiques
and nine outlet stores. The boutiques showcase our entire line of products and
have expanded the distribution and enhanced the brand awareness of our products.
COMPETITIVE STRENGTHS
Our competitive strengths, summarized below, include our:
- stable core product offering;
- premier brand name;
- manufacturing expertise;
- long-standing customer relationships; and
- proven management team with substantial equity ownership.
STABLE CORE PRODUCT OFFERING. We believe our knitwear is one of the most
successful product lines in women's apparel. For over 35 years, our classic,
timeless styling and consistency in designs, fabrics and colors across seasons
have made our products a core part of our customers' wardrobes and have created
a high degree of customer loyalty. We believe that consistent styling encourages
our customers to augment wardrobes and match garments purchased during prior
seasons with our current products. In addition, we believe our position as the
leading supplier of high-end women's knitwear enhances our stability. Over the
past 10 years, the success of our core knitwear products has driven an increase
in net sales, from approximately $41.5 million in fiscal 1988 to approximately
$282.0 million in fiscal 1998.
PREMIER BRAND NAME. We believe the St. John name is synonymous with high
quality women's apparel. We believe we have developed an exclusive image by
selectively distributing our products through upscale retailers and through a
long-term investment in a targeted advertising campaign. Our knitwear has
developed a distinct reputation for its exceptional fit and low maintenance,
qualities attributable to our proprietary high-twist yarn and knit fabric. Our
target customers, professional and higher-income women, have proven willing to
pay a premium price for our garments and many have become repeat purchasers of
our products. We have been able to capitalize on this brand loyalty by
developing products, such as accessories, shoes and coats, that complement our
core knitwear garments.
MANUFACTURING EXPERTISE. We believe that our vertical integration
differentiates us from other apparel manufacturers and has been critical to our
success because it enables us to manufacture products to order, maximize
manufacturing flexibility and maintain superior quality control. We believe the
ability to produce to order limits our exposure to both the inventory and market
risks associated with many apparel companies that source products
internationally. Our in-house manufacturing capabilities also enable us to
quickly increase production of popular styles. Our ability to control every
aspect of the manufacturing process allows us to consistently produce garments
to our high quality standards. Finally, we believe that our vertical integration
has enabled us to consistently achieve margins that are among the highest in the
apparel industry.
LONG-STANDING CUSTOMER RELATIONSHIPS. We have had relationships with our
top three retail customers, Saks Fifth Avenue, Neiman Marcus and Nordstrom, for
approximately 25, 20 and 15 years, respectively. We believe that St. John is
among the highest selling and most profitable product lines for each of these
accounts. As a result, our products receive substantial senior management
attention, high quality selling space and prominent positioning in store
advertising. In addition, these key retail
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customers have demonstrated a commitment to us by providing additional square
footage in their stores for our new products.
PROVEN MANAGEMENT TEAM WITH SUBSTANTIAL EQUITY OWNERSHIP. We operate under
a strong management team with significant experience in the apparel industry.
Bob Gray and his wife, Marie Gray, co-founded the company in 1962. Bob Gray has
been chief executive officer and Marie Gray has been chief designer since our
inception. In addition, Kelly Gray has served in various executive positions
since 1988 and has been our president since 1996. Mr. Gray leads a management
team with significant experience in the design, marketing and sale of women's
apparel. Our senior management team has a large stake in our performance. The
Gray family beneficially owns approximately 15% of St. John Knits
International's stock, and has the opportunity, based upon performance, to
acquire up to an additional 5% of stock. Other members of the senior management
team also will be given the chance to own up to approximately 5% of St. John
Knits International through the sale of stock and the grant of incentive-based
options.
BUSINESS STRATEGY
We believe our knitwear is one of the most successful product lines in
women's apparel in terms of both growth and profitability. In addition, we
believe the line has significant remaining growth potential within its existing
distribution base. Accordingly, we intend to pursue a strategy of controlled
growth by focusing on the continued development of our core knitwear product
line. We will also continue to selectively pursue expanded distribution, both
domestically and internationally. Finally, we will augment our core product
sales growth by continuing to extend the St. John brand into complementary
apparel and non-apparel product lines and markets.
EXPAND DISTRIBUTION. While we intend to remain selective in the
distribution of our products, we believe that there are opportunities to
increase sales through expanded distribution. Based on our historical
performance and profitability as well as our strong relationships with our key
accounts, we believe our sales will grow as these retail customers offer our
products in newly-opened stores. In addition, we intend to selectively expand
our company-owned boutiques by opening approximately one to two stores per year
in markets which we believe are either complementary or underserved.
CAPITALIZE ON INTERNATIONAL OPPORTUNITIES. We believe that international
sales, which currently account for approximately 7.5% of our annual sales, offer
an opportunity to grow our business. We have established relationships with a
number of high quality retail customers in Asia and Europe and we are seeking to
increase our penetration in these accounts. We are also planning to selectively
expand our successful in-hotel boutiques business in Japan and have recently
opened a boutique in Hong Kong.
BROADEN COMPLEMENTARY PRODUCT LINES. We believe we can continue to extend
the powerful St. John brand beyond our core knitwear product lines to
complementary segments of the women's apparel market, including sportswear and
wovens. We believe that St. John Sport and Griffith & Gray, our current entries
in these important categories, represent substantial growth opportunities. Our
non-apparel product lines, including Accessories, Shoes and Fragrance, accounted
for approximately 7% of wholesale sales in fiscal 1998. We believe that these
lines can complement the knitwear business through the introduction of new
products and expanded distribution. We view these select product extensions as
an attractive and efficient means of growth as they generally target our core
knitwear customer. We will continue to add devoted design resources to these
areas and to develop additional sourcing and licensing relationships with
suppliers capable of providing products of appropriate quality.
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THE TRANSACTIONS
On February 2, 1999, we entered into a merger agreement to be acquired by a
group consisting of Vestar Capital Partners III, L.P. and Bob Gray, Marie Gray
and Kelly Gray for approximately $533.9 million, which represents an offering
price of $30.00 per share. Pursuant to the agreement, in July 1999 we entered
into two mergers. As a result of the mergers, St. John became a wholly owned
subsidiary of St. John Knits International. After the closing of the mergers,
former public shareholders of St. John (other than the Grays) owned
approximately 7%, the Grays beneficially owned approximately 15%, and Vestar
beneficially owned approximately 78% of St. John Knits International's common
stock.
The total financing used to consummate the mergers was approximately $533.9
million, funded by:
- approximately $23.9 million in excess cash of St. John;
- a $75.0 million term loan and a $115.0 million term loan provided by a
group of banks led by The Chase Manhattan Bank;
- approximately $98.6 million from the offering of the outstanding notes,
net of discount;
- approximately $153.6 million of cash equity contributed by Vestar;
- $25.0 million of preferred stock of St. John Knits International, acquired
by an affiliate of Vestar;
- approximately $29.1 million from the rollover of a portion of the Grays'
investment in St. John; and
- approximately $13.7 million from the rollover of a portion of St. John's
then-outstanding public shares.
In this prospectus, we refer to the mergers, the elements of the financing
discussed above, and a $25.0 million revolving credit facility to be used for
working capital as the transactions. We refer to the two term loans and the
revolving credit facility as the senior credit facilities.
VESTAR CAPITAL PARTNERS
Vestar Capital Partners, headquartered in New York with an office in Denver,
Colorado, is a leading private equity firm which manages over $1 billion in
private equity capital. Founded in 1988, Vestar Capital focuses on management
buyouts, recapitalizations and growth equity investments and to date has
completed 28 investments with an aggregate value of approximately $5 billion.
Previous Vestar Capital investments have included Aearo Corporation, Celestial
Seasonings, Inc., Clark-Schwebel, Inc., Consolidated Cigar Holdings, Inc.,
Insight Communications Company, L.P., La Petite Holdings, Inc., Prestone
Products Corporation, Pyramid Communications, Inc., Siegel & Gale Holdings, Inc.
and Westinghouse Air Brake Company. In addition, Vestar Capital has considerable
experience in the apparel sector. Prior equity investments in the apparel sector
include Sun Apparel, Inc., a leading manufacturer and distributor of jeanswear
under the "Polo Jeans Company" name (sold to Jones Apparel, Inc. in 1998) and
Cluett American Corp., a leading designer, manufacturer and marketer of men's
socks and dress shirts under the "Gold Toe" and "Arrow" brand names.
RECENT DEVELOPMENTS
We recently terminated our home furnishings joint venture, Amen Wardy Home
Stores. The joint venture was formed in the fourth quarter of fiscal 1997 and
grew to comprise six stores. In connection with the termination of the joint
venture, three of the six stores were closed, one was transferred to the former
joint venture partner, and two continue to be operated as a wholly owned
subsidiary under the name St. John Home. See "Management's Discussion and
Analysis of Financial Condition and Results of Operations."
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SUMMARY OF TERMS OF THE EXCHANGE OFFER
On July 7, 1999, we completed the private offering of the outstanding notes.
References to "notes" in this prospectus are references to both the outstanding
notes and the exchange notes.
St. John Knits International and its subsidiaries which guarantee the
outstanding notes entered into an exchange and registration rights agreement
with the initial purchasers in the private offering in which St. John Knits
International and those subsidiaries agreed to deliver to you this prospectus
and to complete the exchange offer within 180 days after the date of original
issuance of the outstanding notes.
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The Exchange Offer........................... We are offering to exchange up to $100.0
million aggregate principal amount of
exchange notes for up to $100.0 million
aggregate principal amount of outstanding
notes. Outstanding notes may be exchanged
only in integral multiples of $1,000. The
exchange notes will be substantially
identical to the outstanding notes, except
that because we have registered the exchange
notes they:
- will be freely tradeable;
- will not bear legends restricting their
transfer;
- will not be subject to any additional
obligations regarding registration under
the Securities Act; and
- will not be subject to the special
interest payments described in "Exchange and
Registration Rights."
The exchange notes will be issued under 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 the indenture.
Resales...................................... Based on interpretations of the staff of the
Securities and Exchange Commission set forth
in no-action letters issued to unrelated
third parties, we believe that the exchange
notes may be offered for resale, resold and
otherwise transferred by you without
compliance with the registration and
prospectus delivery provisions of the
Securities Act, if:
- you are acquiring the exchange notes in
the ordinary course of your business;
- you have not engaged in, do not intend to
engage in, and have no arrangement or
understanding with any person to
participate in, a distribution of the
exchange notes; and
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- you are not an affiliate of St. John Knits
International within the meaning of Rule
405 under the Securities Act.
If you do not meet these requirements, you
will need to comply with the registration and
prospectus delivery requirements of the
Securities Act in connection with the resale
of exchange notes, unless an exemption to
these requirements is applicable. Each
participating broker-dealer that receives
exchange notes for its own account in
exchange for outstanding notes acquired as a
result of market-making or trading activity
must acknowledge that it will deliver a
prospectus in connection with any resale of
the exchange notes. See "Plan of
Distribution."
Expiration Date; Withdrawal of Tender........ The exchange offer expires at 5:00 p.m., New
York City time, on , 1999 unless we
extend the expiration date. We do not
currently intend to extend the expiration
date. You may withdraw tenders of outstanding
notes at any time prior to the expiration of
the exchange offer.
Conditions to the Exchange Offer............. The exchange offer is subject to conditions,
which we may waive if, in our reasonable
determination, one or more conditions have
not been satisfied. We currently expect that
each of the conditions will be satisfied and
that no waivers will be necessary. Please
read the section captioned "The Exchange
Offer--Conditions to the Exchange Offer" of
this prospectus for more information
regarding the conditions to the exchange
offer.
Procedures for Tendering Outstanding Notes... If you wish to accept the exchange offer, you
must complete, sign and date the accompanying
letter of transmittal, or a facsimile of the
letter of transmittal, according to the
instructions contained in this prospectus and
the letter of transmittal. You must also mail
or otherwise deliver the letter of
transmittal, or a facsimile of the letter of
transmittal, together with the outstanding
notes and any other required documents to the
exchange agent at the address set forth on
the cover page of the letter of transmittal.
If you hold outstanding notes through The
Depository Trust Company and wish to
participate in the exchange offer, you must
comply with the Automated Tender Offer
Program procedures of The Depository Trust
Company, by which you will agree to be bound
by the letter of transmittal.
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Terms and Conditions of the By signing, or agreeing to be bound by, the
Letter of Transmittal...................... letter of transmittal, you will represent to
us that:
- any exchange notes that you receive will
be acquired in the ordinary course of your
business;
- you have no arrangement or understanding
with any person or entity to participate
in, and do not intend to engage in, a
distribution of the exchange notes;
- if you are a broker-dealer that will
receive exchange notes for your own account
in exchange for outstanding notes that you
have acquired as a result of market-making
or trading activities, that you will
deliver a prospectus, as required by law,
in connection with any resale of those
exchange notes;
- you are not an affiliate, as defined in
Rule 405 of the Securities Act, of St. John
Knits International or, if you are an
affiliate, that you will comply with
applicable registration and prospectus
delivery requirements of the Securities
Act; and
- if you are a person in the United Kingdom,
that your ordinary activities involve you
in acquiring, holding, managing or
disposing of investments, as principal or
agent, for the purposes of your business.
Special Procedures for Beneficial Owners..... If you are a beneficial owner of outstanding
notes which are registered in the name of a
broker, dealer, commercial bank, trust
company or other nominee, and you wish to
tender those outstanding notes in the
exchange offer, you should promptly contact
the person in whose name your outstanding
notes are registered and instruct them to
tender on your behalf. If you wish to tender
on your own behalf, you must, prior to
completing and executing the letter of
transmittal and delivering your outstanding
notes, either make appropriate arrangements
to register ownership of the outstanding
notes in your name or obtain a properly
completed bond power from the person in whose
name your outstanding notes are registered.
The transfer of registered ownership may take
considerable time and may not be able to be
completed prior to the expiration date.
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<TABLE>
<S> <C>
Guaranteed Delivery Procedures............... If you wish to tender your outstanding notes
and, prior to the expiration date, you
cannot:
- deliver your outstanding notes, the letter
of transmittal or any other documents
required by the letter of transmittal; or
- comply with the applicable procedures
under the Depository Trust Company's
Automated Tender Offer Program, then you
must tender your outstanding notes
according to the guaranteed delivery
procedures which we explain in this
prospectus under the caption "The Exchange
Offer--Guaranteed Delivery Procedures."
Effect on Holders of Outstanding Notes....... As a result of this exchange offer, we will
have fulfilled a covenant contained in the
exchange and registration rights agreement
among St. John Knits International and its
subsidiaries which guarantee the outstanding
notes and the initial purchasers in the
private offering through which we issued the
outstanding notes. Accordingly, there will be
no increase in the interest rate on the
outstanding notes. If you do not tender your
outstanding notes in the exchange offer, you
will continue to be entitled to all the
rights and limitations that apply to the
outstanding notes under the indenture, except
as noted above.
Consequence of Failure to Exchange........... If you do not exchange your outstanding notes
for exchange notes in the exchange offer,
your outstanding notes will continue to be
subject to restrictions on transfer. In
general, 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. We do not currently
anticipate that we will register the
outstanding notes under the Securities Act.
In addition, the tender of outstanding notes
in the exchange offer will reduce the
principal amount of the outstanding notes
outstanding, which may have an adverse effect
upon, and increase the volatility of, the
market price of the outstanding notes due to
a reduction in liquidity. See "Risk
Factors--Failure to Exchange Outstanding
Notes."
</TABLE>
11
<PAGE>
<TABLE>
<S> <C>
U.S. Federal Income Tax Considerations....... The exchange of outstanding notes for
exchange notes in the exchange offer will not
be a taxable event for U.S. federal income
tax purposes. See "Certain United States
Federal Income Tax Considerations of the
Exchange Offer."
Use of Proceeds.............................. We will not receive any cash proceeds from
the issuance of exchange notes.
Exchange Agent............................... The Bank of New York is the exchange agent
for the exchange offer. The address and
telephone number of the exchange agent are
set forth in the section captioned "The
Exchange Offer-- Exchange Agent" of this
prospectus.
</TABLE>
12
<PAGE>
SUMMARY OF TERMS OF THE EXCHANGE NOTES
<TABLE>
<S> <C>
Issuer............................ St. John Knits International, Incorporated.
Notes Offered..................... $100,000,000 aggregate principal amount of 12 1/2%
Senior Subordinated Notes due 2009.
Maturity.......................... July 1, 2009.
Interest.......................... Annual Rate: 12.5%.
Payment Frequency: Every six months on January 1 and
July 1, commencing January 1, 2000.
Interest on the exchange notes will accrue from the last
interest payment date on which interest was paid on the
outstanding notes or, if no interest was paid on the
outstanding notes, from the date the outstanding notes
were originally issued.
Optional Redemption............... Except as described below, we may not redeem the
exchange notes prior to July 1, 2004. At any time on or
after July 1, 2004, we may redeem the exchange notes at
the redemption prices, plus accrued and unpaid interest,
listed in "Description of the Notes--Optional
Redemption."
In addition, on or before July 1, 2002 we may redeem up
to 35% of the outstanding exchange notes with the net
cash proceeds of certain equity offerings. See
"Description of the Notes--Optional Redemption."
Change of Control................. Upon the occurrence of a "change of control," we will be
required to make an offer to repurchase each holder's
exchange notes at a price equal to 101% of the principal
amount thereof, plus accrued and unpaid interest, if
any, to the date of repurchase. See "Description of the
Notes--Offer to Purchase Upon Change of Control."
Guarantees........................ Our existing and future domestic subsidiaries will
guarantee the exchange notes with guarantees of payment
that will effectively rank below their senior debt.
Ranking........................... The exchange notes will not be secured by any collateral
and:
- will rank below all of our senior debt; and
- will rank equal to any other senior subordinated debt
we may incur.
Therefore, if we default, your right to payment under
the exchange notes will be junior to the rights of
holders of our senior debt to collect money we owe them
at the time. The exchange notes will effectively rank
below all liabilities (including trade payables) of our
subsidiaries which are not guarantors.
</TABLE>
13
<PAGE>
<TABLE>
<S> <C>
As of May 2, 1999, after giving pro forma effect to the
transactions, we would have owed approximately $190.0
million in senior debt, all of which would have been
secured. See "Description of the Notes--Subordination of
the Notes," "Description of Senior Credit Facilities"
and "Capitalization."
Basic Covenants of Indenture...... We issued the outstanding notes and will issue the
exchange notes under an indenture with The Bank of New
York. The indenture will limit our ability and the
ability of our restricted subsidiaries to:
- incur more debt;
- pay dividends, redeem stock or make other
distributions;
- issue capital stock;
- make restricted investments;
- sell assets;
- use assets as security in other transactions;
- enter into transactions with affiliates; and
- merge or consolidate.
These covenants are subject to a number of important
qualifications and limitations. See "Description of the
Notes-- Certain Covenants."
Absence of a Public Market for the
Notes........................... The exchange notes will generally be freely transferable
but will be new securities for which there will not
initially be a market. Accordingly, there can be no
assurance as to the development or liquidity of any
market for the exchange notes. The initial purchasers in
the private placement of the outstanding notes have
advised us that they currently intend to make a market
in the exchange notes. However, they are not obligated
to do so, and any market making with respect to the
exchange notes may be discontinued at any time without
notice.
</TABLE>
RISK FACTORS
Prospective participants in the exchange offer should carefully consider the
risk factors set forth under the caption "Risk Factors" and the other
information included in this prospectus prior to tendering their outstanding
Notes. See "Risk Factors."
------------------------
Our principal executive offices are located at 17422 Derian Avenue, Irvine,
California 92614. Our telephone number is (949) 863-1171.
------------------------
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<PAGE>
SUMMARY HISTORICAL AND UNAUDITED PRO FORMA CONDENSED CONSOLIDATED
FINANCIAL AND OTHER INFORMATION
The following table sets forth summary historical condensed consolidated
financial and other information for the three fiscal years ended November 3,
1996, November 2, 1997 and November 1, 1998 and as of and for the 26 weeks ended
May 3, 1998, May 2, 1999 and the twelve months ended May 2, 1999. The summary
historical condensed consolidated financial and other information for the three
fiscal years ended November 3, 1996, November 2, 1997 and November 1, 1998 is
derived from, and should be read in conjunction with, the audited historical
consolidated financial statements of St. John and the notes thereto included
elsewhere in this prospectus. The summary historical condensed consolidated
financial and other information as of and for the 26 weeks ended May 3, 1998,
May 2, 1999 and the twelve months ended May 2, 1999 have been derived from St.
John's unaudited consolidated financial statements and, in the opinion of our
management, have been prepared on a basis consistent with the audited historical
condensed consolidated financial statements and include all adjustments (which
consist of normal recurring accruals) that are considered by management to be
necessary for a fair presentation of such financial information.
Also set forth below is summary unaudited pro forma condensed consolidated
financial information as of and for the twelve months ended May 2, 1999 which
was derived from, and should be read in conjunction with, the unaudited pro
forma condensed consolidated financial information included in this prospectus.
The unaudited pro forma condensed consolidated balance sheet data gives effect
to the transactions as if they had been consummated on May 2, 1999. The
unaudited pro forma condensed consolidated statement of income for the twelve
months ended May 2, 1999 gives effect to the transactions as if they had been
consummated on November 3, 1997. The pro forma adjustments are described in the
notes which accompany the information under the heading "Unaudited Pro Forma
Condensed Consolidated Financial Information" in this prospectus. The unaudited
pro forma financial statements should not be considered indicative of actual
results that would have been achieved had the transactions been consummated on
the date or for the periods indicated and do not purport to indicate balance
sheet data or results of operations as of any future date or any future period.
15
<PAGE>
SUMMARY HISTORICAL AND UNAUDITED PRO FORMA CONDENSED CONSOLIDATED FINANCIAL
AND OTHER INFORMATION
<TABLE>
<CAPTION>
TWELVE
FISCAL YEAR ENDED 26 WEEKS ENDED MONTHS
------------------------------------- ---------------------- ENDED
NOVEMBER 3, NOVEMBER 2, NOVEMBER 1, MAY 3, MAY 2, MAY 2,
1996 1997 1998 1998 1999 1999
----------- ----------- ----------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C>
(UNAUDITED)
<CAPTION>
(DOLLARS IN THOUSANDS, EXCEPT RATIOS)
<S> <C> <C> <C> <C> <C> <C>
STATEMENTS OF INCOME:
Net sales.................................... $ 202,951 $ 242,101 $ 281,961 $ 138,567 $ 151,626 $ 295,020
Cost of sales................................ 88,871 99,545 120,883 57,912 66,786 129,757
----------- ----------- ----------- ---------- ---------- ----------
Gross profit................................. 114,080 142,556 161,078 80,655 84,840 165,263
Selling, general and administrative
expenses................................... 68,385 84,545 107,026 49,392 61,766 119,400
----------- ----------- ----------- ---------- ---------- ----------
Operating income............................. 45,695 58,011 54,052 31,263 23,074 45,863
Other income(1).............................. 1,355 713 1,369 632 831 1,568
----------- ----------- ----------- ---------- ---------- ----------
Income before taxes.......................... 47,050 58,724 55,421 31,895 23,905 47,431
Income taxes................................. 19,929 24,300 22,001 12,928 9,813 18,886
----------- ----------- ----------- ---------- ---------- ----------
Net income................................... $ 27,121 $ 34,424 $ 33,420 $ 18,967 $ 14,092 $ 28,545
----------- ----------- ----------- ---------- ---------- ----------
----------- ----------- ----------- ---------- ---------- ----------
OTHER DATA (UNAUDITED):
EBITDA(2).................................... $ 52,999 $ 67,126 $ 66,294 $ 36,985 $ 30,912 $ 60,221
Depreciation and Amortization................ 7,042 8,859 11,371 5,335 6,687 12,723
Capital expenditures......................... 21,400 22,751 23,648 12,124 7,870 19,394
PRO FORMA DATA:
EBITDA(2).................................... $ 59,721
Adjusted EBITDA(3)........................... 62,056
Cash interest expense........................ 29,474
Ratio of total debt to Adjusted EBITDA....... 4.66x
Ratio of Adjusted EBITDA to cash interest
expense.................................... 2.11x
Pro forma ratio of earnings to fixed
charges(4)................................. 1.20x
</TABLE>
<TABLE>
<CAPTION>
AS OF MAY 2, 1999
----------------------
<S> <C> <C> <C> <C> <C> <C>
HISTORICAL PROFORMA
---------- ----------
<CAPTION>
(UNAUDITED)
<S> <C> <C> <C> <C> <C> <C>
BALANCE SHEET DATA (AT PERIOD END):
Cash, cash equivalents and short-term investments............................................... $ 30,033 $ 6,165
Working capital................................................................................. 101,420 80,052
Total assets.................................................................................... 195,473 189,605
Total debt...................................................................................... 285 288,901
Mandatorily Redeemable Preferred Stock.......................................................... -- 25,000
Stockholders' equity (deficit).................................................................. 174,716 (144,768)
</TABLE>
- ------------------------
(1) "Other income" primarily includes interest income and royalty income.
(2) "EBITDA" represents earnings before interest expense, other income (except
royalty income), income taxes, depreciation and amortization expense,
non-cash write-off of assets and non-recurring expenses associated with the
transactions. It is not intended to represent cash flow
16
<PAGE>
from operations as defined by generally accepted accounting principles and
should not be used as an alternative to net income as an indicator of SJKI's
operating performance or to cash flow as a measure of liquidity. EBITDA is
included in this prospectus as it is a basis upon which SJKI assesses its
financial performance. SJKI believes that EBITDA, as presented, presents a
useful measure of assessing SJKI's ongoing operating activities without the
impact of financing activity and non-recurring charges. While EBITDA is
frequently used as a measure of operations and the ability to meet debt
service requirements, it is not necessarily comparable to other similarly
titled captions of other companies due to potential inconsistencies in the
method of calculation. For purposes of the EBITDA calculation, non-cash
write-off of assets was $16,000, $200,000 and $611,000 for fiscal years
1996, 1997 and 1998, respectively, $315,000 and $794,000 for the 26 weeks
ended May 3, 1998 and May 2, 1999, respectively, and $1,090,000 for the
twelve months ended May 2, 1999. For the fiscal year ended November 1, 1998
and the twelve months ended May 2, 1999, non-cash write-off of assets was
primarily related to the closure of three home furnishings stores. Pro forma
EBITDA reflects inclusion of an annual advisory fee payable to Vestar under
a management agreement.
(3) "Adjusted EBITDA" represents pro forma EBITDA plus (i) expenses associated
with the termination of SJKI's home furnishings joint venture and settlement
of associated litigation, which were $1,511,000 for the twelve months ended
May 2, 1999, and (ii) operating results relating to the four home
furnishings retail stores which SJKI no longer operates (three of which were
closed and one of which was transferred to the former joint venture
partner), which represented a net loss of $824,000 for the twelve months
ended May 2, 1999. SJKI's home furnishings joint venture was terminated in
May 1999. See "Management's Discussion and Analysis of Financial Condition
and Results of Operations."
(4) For purposes of determining the ratio of earnings to fixed charges, earnings
are defined as earnings before income taxes and extraordinary items, plus
fixed charges. Fixed charges consist of interest expense, including
amortization of debt issuance costs and a portion of operating lease rental
expense deemed to be representative of the interest factor. The pro forma
ratio of earnings to fixed charges was 1.37x for the fiscal year ended
November 1, 1998 and 1.56x and 1.22x for the 26 weeks ended May 3, 1998 and
May 2, 1999, respectively.
17
<PAGE>
RISK FACTORS
Before you participate in the exchange offer, you should be aware that there
are various risks, including those described below. You should carefully
consider these risk factors, together with the other information in this
prospectus, before deciding to participate in the exchange offer.
FAILURE TO EXCHANGE OUTSTANDING NOTES--IF YOU DO NOT EXCHANGE YOUR OUTSTANDING
NOTES, THEY WILL CONTINUE TO BE SUBJECT TO RESTRICTIONS ON TRANSFER AND MAY
SUFFER FROM REDUCED LIQUIDITY.
If you do not exchange your outstanding notes they may be more difficult to
sell because they will continue to be subject to transfer restrictions and may
suffer from reduced liquidity.
If you do not exchange your outstanding notes for exchange notes, your
outstanding notes will continue to be subject to restrictions on transfer. In
general, 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. We do
not currently anticipate that we will register the outstanding notes under the
Securities Act. In addition, the tender of outstanding notes in the exchange
offer will reduce the principal amount of the outstanding notes outstanding,
which may have an adverse effect upon, and increase the volatility of, the
market price of the outstanding notes due to a reduction in liquidity.
ABSENCE OF AN ACTIVE TRADING MARKET--IF AN ACTIVE TRADING MARKET DOES NOT
DEVELOP FOR THE NOTES, IT WOULD HAVE A MATERIAL ADVERSE EFFECT ON THE MARKET
PRICE AND LIQUIDITY OF THE NOTES.
A liquid market for the exchange notes or outstanding notes may not develop.
The outstanding notes and exchange notes constitute a new class of securities
for which there is no established trading market. We do not intend to list the
outstanding notes or exchange notes on any national securities exchange or to
seek their quotation on any automated dealer quotation system. Although the
initial purchasers of the outstanding notes have informed us that they intend to
make a market in the outstanding notes and exchange notes, they are not
obligated to do so, and they may cease market-making activities at any time
without notice. The liquidity of a market for the outstanding notes and exchange
notes will depend upon a number of factors, including the number of those
holding the outstanding notes and exchange notes and the interest of securities
dealers in making a market in the outstanding notes and exchange notes.
If the outstanding notes and exchange notes are traded, they may trade at a
discount from the initial offering price of the outstanding notes, depending
upon prevailing interest rates, the market for similar securities, our
performance and other factors. However, declines in the liquidity and market
price of the outstanding notes or exchange notes may also occur independent of
our financial performance or prospects.
SUBSTANTIAL LEVERAGE AND DEBT SERVICE--OUR SUBSTANTIAL LEVEL OF DEBT COULD HAVE
A MATERIAL ADVERSE EFFECT ON OUR FINANCIAL HEALTH AND PREVENT US FROM FULFILLING
OUR OBLIGATIONS UNDER THE NOTES.
As a result of the transactions, we have a substantial amount of debt. After
giving pro forma effect to the transactions, as of May 2, 1999, we would have
had total debt of approximately $288.9 million, of which approximately $190.0
million would have been senior debt, and a stockholders' deficit of
approximately $144.8 million, which resulted from the recapitalization of SJKI
in connection with the transactions. In addition, we may borrow money under the
revolving credit facility which is intended to be used primarily for working
capital, and subject to restrictions in the senior credit facilities and in the
indenture governing the notes, we may borrow more money for working capital,
capital expenditures, acquisitions or for other purposes.
18
<PAGE>
Our high level of debt could have important consequences for you, including
the following:
- our debt level makes us more vulnerable to economic downturns and adverse
developments in our business, may cause us to have difficulty borrowing
money in the future for working capital, capital expenditures,
acquisitions or other purposes and limits our ability to pursue other
business opportunities and implement our business strategies;
- we will need to use a large portion of the money we earn to pay principal
and interest on the senior credit facilities, the notes and on other debt,
which will reduce the amount of money available to us to finance our
operations and other business activities;
- some of our debt has a variable rate of interest, which exposes us to the
risk of increased interest rates;
- debt under the senior credit facilities will be secured and will mature
prior to the notes; and
- we may have a much higher level of debt than our competitors, which may
put us at a competitive disadvantage and may reduce our flexibility in
responding to changing business and economic conditions, including
increased competition.
After giving pro forma effect to the transactions, our cash interest expense
for the 12 months ended May 2, 1999 would have been approximately $29.5 million.
As of May 2, 1999, after giving pro forma effect to the transactions, our ratio
of earnings to fixed charges would have been 1.20 to 1.
We expect to obtain the money to pay our expenses and to pay the principal
and interest on the notes, the senior credit facilities and other debt from our
operations and from additional loans under the revolving credit facility. Our
ability to meet our expenses thus depends on our future performance, which will
be affected by financial, business, economic and other factors. We will not be
able to control many of these factors, such as economic conditions in the
markets where we operate and pressure from competitors. We cannot be certain
that the money we earn will be sufficient to allow us to pay principal and
interest on our debt (including the notes) and meet our other obligations. If we
do not have enough money, we may be required to refinance all or part of our
existing debt, including the notes, sell assets or borrow more money. We cannot
guarantee that we will be able to refinance our debt, sell assets or borrow more
money on terms acceptable to us. In addition, the terms of existing or future
debt agreements, including the senior credit facilities and the indenture, may
restrict us from adopting any of these alternatives.
RESTRICTIONS IMPOSED BY OUR DEBT AGREEMENTS--COVENANT RESTRICTIONS MAY LIMIT OUR
ABILITY TO MAKE PAYMENTS ON THE NOTES OR OPERATE OUR BUSINESS.
The indenture contains covenants that, among other things:
- limit our ability to incur indebtedness and pay dividends on and redeem
capital stock; and
- create restrictions on:
-- investments in unrestricted subsidiaries,
-- limiting distributions from some of St. John Knits International's
subsidiaries,
-- the use of proceeds from the sale of assets and subsidiary stock,
-- entering into transactions with affiliates and
-- creating liens.
The indenture also restricts, subject to certain exceptions, our ability to
consolidate and merge with, or to transfer all or substantially all our assets
to, another person.
19
<PAGE>
Under the senior credit facilities, we must also comply with certain
specified financial ratios and tests that may restrict our ability to make
distributions or other payments to our investors and creditors. If we do not
comply with these or other covenants and restrictions contained in the senior
credit facilities, we could default under the senior credit facilities. Such
debt, together with accrued interest, could then be declared immediately due and
payable. Our ability to comply with such provisions may be affected by events
beyond our control.
Although we believe that we will be able to maintain compliance with our
current financial tests there can be no assurance that we will be able to do so.
The restrictions imposed by such covenants may adversely affect our ability to
take advantage of favorable business opportunities. Failure to comply with the
terms of such covenants could result in acceleration of the indebtedness
represented by the notes. See "Management's Discussion and Analysis of Financial
Condition and Results of Operations-- Liquidity and Capital Resources,"
"Description of Senior Credit Facilities" and "Description of the Notes."
SUBORDINATION--YOUR RIGHT TO RECEIVE PAYMENTS ON THE NOTES IS JUNIOR TO OUR BANK
AND OTHER UNSUBORDINATED INDEBTEDNESS AND POSSIBLY TO ALL OF OUR FUTURE
BORROWINGS. THE GUARANTEES ARE JUNIOR TO ALL THE GUARANTORS' EXISTING
INDEBTEDNESS AND POSSIBLY TO ALL OF THEIR FUTURE BORROWINGS. IN ADDITION, THE
TERMS OF THE SENIOR CREDIT FACILITIES MAY PREVENT US FROM REPURCHASING THE NOTES
WHEN THE INDENTURE REQUIRES US TO DO SO.
The notes will be contractually subordinated in right of payment to all
senior indebtedness of St. John Knits International and the guarantees will be
contractually subordinated in right of payment to all senior indebtedness of the
guarantors. After giving pro forma effect to the transactions, as of May 2,
1999, St. John Knits International would have had approximately $190.0 million
of senior indebtedness, all of which would have been secured. The indenture will
permit St. John Knits International and the guarantors to borrow certain
additional debt, which may be senior indebtedness.
If St. John Knits International or the guarantors are declared bankrupt or
insolvent, or if there is a default under and acceleration of any senior
indebtedness, we are required to pay the lenders under the senior credit
facilities and any other creditors who are holders of senior indebtedness in
full before we pay you. Accordingly, we may not have enough assets remaining
after payments to holders of such senior indebtedness to pay you. In addition,
the indenture will provide that payments with respect to the notes will be
blocked in the event of a payment default on certain senior indebtedness
(including debt under the senior credit facilities) and may be blocked for up to
179 days each year in the event of certain non-payment defaults on such senior
indebtedness. See "Description of the Notes-- Subordination of the Notes."
Further, in certain cases the senior credit facilities prohibit us from
repurchasing any notes prior to maturity, even though the indenture requires us
to offer to repurchase notes in certain circumstances. If we or some of our
subsidiaries make certain asset sales or if a change of control occurs when we
are prohibited from repurchasing notes, we could ask our lenders under the
senior credit facilities if we may repurchase the notes or we could attempt to
refinance the borrowings that contain such prohibitions. If we do not obtain
such a consent or repay such borrowings, we would be unable to repurchase the
notes. Our failure to repurchase tendered notes at a time when such repurchase
is required by the indenture would constitute an event of default under the
indenture which, in turn, would constitute a default under the senior credit
facilities. In such circumstances, the subordination provisions in the indenture
would restrict payments to you. See "Description of Senior Credit Facilities"
and "Description of the Notes--Subordination of the Notes."
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<PAGE>
ASSET ENCUMBRANCES TO SECURE SENIOR CREDIT FACILITIES--OUR ASSETS WILL BE
PLEDGED AS SECURITY UNDER THE SENIOR CREDIT FACILITIES BUT OUR OBLIGATIONS UNDER
THE NOTES WILL BE UNSECURED.
In addition to being contractually subordinated to all existing and future
senior indebtedness, our obligations under the notes will be unsecured while our
obligations under the senior credit facilities will be secured by the pledge of
all the equity securities of St. John and substantially all of St. John Knits
International's assets and each of its subsidiaries, except that:
- the pledge of the capital stock of St. John Knits International's foreign
subsidiaries will be limited to 65% of such subsidiary's capital stock if
the pledge of any greater percentage could result in adverse tax
consequences to St. John Knits International or such subsidiary; and
- no security interests in the assets of any of St. John Knits
International's foreign subsidiaries will be granted if such security
interests could result in adverse tax consequences to St. John Knits
International or such subsidiary.
If we default under the senior credit facilities, the lenders could declare
all of the funds borrowed thereunder, together with accrued interest,
immediately due and payable. If we were unable to repay such indebtedness, the
lenders could foreclose on the pledged assets to your exclusion, even if an
event of default exists under the indenture at such time. If the lenders did
foreclose on the pledged assets, they could end up controlling St. John. See
"Description of Senior Credit Facilities."
HOLDING COMPANY STRUCTURE AND STRUCTURAL SUBORDINATION--OUR ABILITY TO MAKE
PAYMENTS ON THE NOTES DEPENDS ON OUR ABILITY TO RECEIVE DIVIDENDS FROM OUR
SUBSIDIARIES. IN ADDITION, BECAUSE NOT ALL OF OUR SUBSIDIARIES WILL GUARANTEE
PAYMENT ON THE NOTES, THE ASSETS OF NON-GUARANTOR SUBSIDIARIES MAY NOT BE
AVAILABLE TO MAKE PAYMENTS ON THE NOTES.
St. John Knits International is a holding company which held no significant
assets as of May 2, 1999. After the closing of the transactions, St. John Knits
International had no significant assets other than the stock of its
subsidiaries. As a holding company, St. John Knits International is dependent
upon dividends or other intercompany transfers of funds from its subsidiaries to
meet its debt service and other obligations. Generally, creditors of a
subsidiary will have a superior claim to the assets and earnings of such
subsidiary than the claims of creditors of its parent company, except to the
extent the claims of the parent's creditors are guaranteed by the subsidiary.
St. John Knits International's existing and future domestic subsidiaries will
guarantee payments on the notes on a senior subordinated basis. The notes
therefore will be effectively subordinated to creditors of St. John Knits
International's non-guarantor subsidiaries and the guarantees will be
contractually subordinated to senior creditors of St. John Knits International's
guarantor subsidiaries. As of May 2, 1999, after giving pro forma effect to the
transactions, St. John Knits International's non-guarantor subsidiaries would
have had total liabilities of approximately $2.0 million, and St. John Knits
International's guarantor subsidiaries would have had total liabilities of
approximately $208.1 million (excluding liabilities under the notes and the
guarantees), approximately $190.0 million of which would have been senior
indebtedness.
Although the indenture will limit the ability of some of St. John Knits
International's subsidiaries to incur indebtedness and issue preferred stock,
there are certain significant qualifications and exceptions. The indenture will
not limit such subsidiaries from incurring liabilities that are excluded from
the definitions of indebtedness or preferred stock under the indenture. See
"Description of the Notes--Certain Covenants--Limitation on Indebtedness."
In addition, the ability of St. John Knits International's subsidiaries to
pay dividends and make other payments to St. John Knits International may be
restricted by, among other things, applicable corporate and other laws and
regulations and agreements of the subsidiaries. Although the indenture will
limit the ability of such subsidiaries to enter into consensual restrictions on
their ability to pay dividends and make other payments, such limitations are
subject to a number of significant
21
<PAGE>
qualifications and exceptions. See "Description of the Notes--Certain
Covenants--Limitation on Dividend and Other Payment Restrictions Affecting
Restricted Subsidiaries."
APPAREL INDUSTRY RISKS--COMPETITION AND/OR AN ECONOMIC DOWNTURN COULD HAVE A
MATERIAL ADVERSE EFFECT ON OUR BUSINESS.
The apparel industry is highly competitive. We compete primarily on the
basis of price and quality. We believe that our success depends in large part on
our ability to anticipate, gauge and respond to changing consumer demands in a
timely manner. We cannot assure that we will always be successful in this
regard. If we misjudge these demands, our sales may suffer, which could
adversely affect our business, financial condition and results of operations.
For example, in fiscal 1997 we introduced a lower-priced line of apparel under
the SJK label and attempted to broaden the appeal of our core knitwear line by
including a number of more "fashion forward" styles. The SJK line did not
perform as well as we anticipated and has been discontinued. The Fall 1998 core
knitwear line did not include sufficient product options for the traditional St.
John customer and experienced below-average retail performance.
We compete with numerous domestic and foreign designers, brands and
manufacturers of apparel and accessories, some of which may be significantly
larger and more diversified and have greater financial and other resources than
we do. Increased competition from these and future competitors could reduce our
sales and prices, adversely affecting our results. Because of our debt level, we
may be less able to respond effectively to such competition than others.
The industry in which we operate is cyclical. Purchases of apparel generally
tend to decline during recessions and also may decline at other times. A
recession in the general economy or uncertainties regarding future economic
prospects could affect consumer spending habits and have a material adverse
effect on our business, financial condition and results of operations.
OWNERSHIP CHANGES IN THE RETAIL INDUSTRY AND RELIANCE ON KEY CUSTOMERS--THE LOSS
OF ONE OR MORE OF OUR PRIMARY CUSTOMERS COULD HAVE A MATERIAL ADVERSE EFFECT ON
OUR BUSINESS.
We, like many of our competitors, sell to retailers. In recent years, the
retail industry has experienced consolidation and other ownership changes. In
the future, retailers in the United States and in foreign markets may have
financial problems or 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. We cannot assure you as to the future effect of any such
changes.
During fiscal 1998 and 1997, net sales to our three largest retail
customers, Saks Fifth Avenue, Neiman Marcus and Nordstrom, totaled approximately
45% and 47% of net sales, respectively, and net sales to Saks Fifth Avenue, our
largest retail customer, accounted for approximately 17% and 17% of net sales,
respectively. Although we have long-established relationships with many of our
customers, we do not have any long-term sales agreements. The loss of or
significant decrease in business from any of our major customers could have a
material adverse effect on our business, financial condition and results of
operations. See "Business--Distribution."
DEPENDENCE ON KEY PERSONNEL--THE LOSS OF ONE OR MORE MEMBERS OF OUR SENIOR
MANAGEMENT TEAM COULD HAVE A MATERIAL ADVERSE EFFECT ON OUR BUSINESS.
Our success has been largely dependent on the personal efforts and abilities
of Bob Gray, Chairman and Chief Executive Officer, Marie Gray, Chief Designer,
and Kelly Gray, President, each of whom has an employment agreement with SJKI.
The loss of the services of any of these executives could have a material
adverse effect on our business, financial condition and results of operations.
See "Management."
22
<PAGE>
CONTROL BY CERTAIN STOCKHOLDERS--WE ARE CONTROLLED BY VESTAR.
Vestar and the Grays, through Vestar/Gray Investors LLC, beneficially own
approximately 78% and 15%, respectively, of the outstanding common stock of St.
John Knits International. As a result, Vestar will be able to effectively
control the outcome of certain matters requiring a stockholder vote, including
the election of three of the five directors of St. John Knits International (the
Grays will be contractually entitled to appoint the remaining two directors).
Such ownership of common stock may have the effect of delaying, deferring or
preventing a change of control.
LITIGATION--WE MAY INCUR COSTS IN CONNECTION WITH CERTAIN LEGAL PROCEEDINGS.
On October 13, 1998, Binary Traders, Inc. filed a complaint on behalf of
purchasers of publicly traded securities of St. John during the period of
February 25, 1998 to August 20, 1998 against SJKI, Bob Gray and Kelly Gray in
the United States District Court, Central District of California, Southern
Division (Binary Traders, Inc. v. St. John Knits, Inc., et al.). In this action,
Binary Traders claims that the defendants violated federal securities laws by
allegedly making fraudulent statements to cover up management's mistakes and
certain material adverse conditions affecting our business. In addition, the
complaint alleges that Mr. Gray traded shares of St. John's common stock while
in possession of allegedly material non-public information. Binary Traders seeks
class action certification and an unspecified amount of compensatory damages.
The defendants have filed a motion to dismiss the complaint, which motion is
currently pending.
We are also a party to six lawsuits that allege claims against some of St.
John's current and former directors for breach of fiduciary duty alleged to have
arisen in connection with the mergers. All of these lawsuits were filed in the
Superior Court of the State of California for the County of Orange. The
principal relief sought in the six actions is certification of the putative
class and a rescission of the mergers and damages and attorneys' fees in an
unspecified amount. These six lawsuits were consolidated into one action on
February 24, 1999.
On April 15, 1999, the plaintiffs in this lawsuit filed a motion for a
preliminary injunction seeking to prevent the mergers from proceeding. The
preliminary injunction motion was heard by the California state court on April
28, 1999. On April 30, 1999, the court denied the plaintiffs' motion. In denying
the plaintiffs' request, the court ruled that the plaintiffs had not shown a
"reasonable probability" that they could succeed in proving at trial that the
$30.00 per share offer in the mergers is unfair. Similarly, the court ruled that
the plaintiffs were unlikely to show that the special committee of St. John's
board of directors that evaluated and approved the terms of the mergers on
behalf of St. John lacked independence or failed to "shop" St. John adequately
to other buyers. The plaintiffs' claims will be heard by the court at a later
date.
We intend to contest these lawsuits vigorously if the plaintiffs elect to
proceed with their actions. We expect to incur legal and other defense costs as
a result of such proceedings. These proceedings could involve a substantial
diversion of the time of some of the members of management, and an adverse
determination in, or settlement of, such litigation could involve payment of
significant amounts.
PRICE AND AVAILABILITY OF RAW MATERIALS--AN INCREASE IN THE PRICE OR A DECREASE
IN THE AVAILABILITY OF WOOL OR RAYON, OUR PRIMARY RAW MATERIALS, COULD HAVE A
MATERIAL ADVERSE EFFECT ON OUR BUSINESS.
Our principal raw materials are wool and rayon. In fiscal 1998, we purchased
approximately $10.8 million of wool and approximately $3.7 million of rayon. The
price of wool and rayon may fluctuate significantly depending on world demand.
We cannot assure that such fluctuation in the price of wool or rayon will not
affect our business, financial condition and results of operations.
We purchase wool imported primarily from Australia. We also import other raw
materials, including rayon, from Europe and Japan. In addition, our shoes, small
leather goods and certain woven
23
<PAGE>
products are manufactured in Europe. Our imported materials and products are
subject to United States customs duties which comprise a material portion of the
cost of the merchandise. A substantial increase in customs duties could have a
material adverse effect on our business, financial condition and results of
operations. The United States and the countries in which materials and products
are produced or sold may, from time to time, impose new quotas, duties, tariffs
or other restrictions, or adversely adjust prevailing quota, duty or tariff
levels, any of which could have a material adverse effect on SJKI.
INTERNATIONAL OPERATIONS--OUR INTERNATIONAL OPERATIONS EXPOSE US TO ADDITIONAL
POLITICAL, ECONOMIC AND REGULATORY RISKS NOT FACED BY BUSINESSES THAT OPERATE
ONLY IN THE UNITED STATES.
We conduct international operations in Mexico, Europe and Asia. In fiscal
1998, approximately 7.5% of our sales occurred outside the United States, and
approximately 5.7% of our products were manufactured abroad by third-party
contractors. Any international operations will be subject to risks similar to
those affecting our U.S. operations in addition to a number of other risks,
including:
- lack of complete operating control;
- currency fluctuations;
- trade barriers;
- exchange controls;
- governmental expropriation;
- foreign taxation;
- difficulty in enforcing intellectual property rights;
- language and other cultural barriers; and
- political and economic instability.
In addition, various jurisdictions outside the United States have laws
limiting the right and ability of non-United States subsidiaries and affiliates
to pay dividends and remit earnings to affiliated companies unless specified
conditions exist. Our ability to expand the manufacture and sale of our products
internationally is also limited by the necessity of obtaining regulatory
approval in new countries.
Our financial performance on a U.S. dollar denominated basis can be
significantly affected by fluctuations in currency exchange rates. From time to
time we enter into agreements to seek to reduce our foreign currency exposure,
but we cannot assure that we will be successful in so doing.
GOVERNMENTAL REGULATION--CHANGES IN, OR THE COSTS OF COMPLYING WITH, VARIOUS
GOVERNMENTAL REGULATIONS COULD HAVE A MATERIAL ADVERSE EFFECT ON OUR BUSINESS.
We are subject to a variety of federal, state and local laws and regulations
including those relating to zoning, land use, environmental protection and
workplace safety. We are also subject to laws governing our relationship with
our employees, including minimum wage requirements, overtime, working conditions
and work permit requirements. Although we believe that we are and have been in
material compliance with all of the various regulations applicable to our
business, we cannot assure that requirements will not change in the future or
that we will not incur significant costs to comply with such requirements.
24
<PAGE>
TRADEMARKS--THE LOSS OR INFRINGEMENT OF OUR TRADEMARKS AND OTHER PROPRIETARY
RIGHTS COULD HAVE A MATERIAL ADVERSE EFFECT ON OUR BUSINESS.
We believe that our trademarks and other proprietary rights are important to
our success and competitive position. Accordingly, we devote substantial
resources to the establishment and protection of our trademarks on a worldwide
basis. We cannot assure that our actions taken to establish and protect our
trademarks and other proprietary rights will be adequate to prevent imitation of
our products by others or to prevent others from seeking to block sales of our
products as violative of their trademarks and proprietary rights. Moreover, we
cannot assure that others will not assert rights in, or ownership of, trademarks
and other proprietary rights of ours or that we will be able to successfully
resolve such conflicts. In addition, the laws of certain foreign countries may
not protect proprietary rights to the same extent as do the laws of the United
States. The loss of such trademarks and other proprietary rights, or the loss of
the exclusive use of our trademarks and other proprietary rights, could have a
material adverse effect on our business, financial condition and results of
operations. See "Business--Trademarks."
YEAR 2000--TECHNOLOGY ISSUES RELATED TO THE YEAR 2000 COULD HAVE A MATERIAL
ADVERSE EFFECT ON OUR BUSINESS.
We use various types of technology in the operation of our business. Some of
this technology incorporates date identification functions; however, many of
these date identification functions were developed to use only two digits to
identify a year. These date identification functions, if not corrected, could
cause their relating technology to fail or create erroneous results by or at the
year 2000.
We are continuing to monitor the impact of Year 2000 issues on our
information and non-information technology systems. As part of this process, we
retained the services of an independent contractor with experience in analyzing
and addressing Year 2000 issues. In addition, we developed a five-phased plan
with respect to the Year 2000 readiness of our internal technology systems. This
plan involved:
- creating internal awareness of Year 2000 issues;
- analyzing our Year 2000 state of readiness;
- correcting systems or acquiring new ones as needed;
- testing the corrected or new systems; and
- incorporating the corrected or new systems into our business. We have
substantially completed all five phases of the plan. As of May 2, 1999, we
had incurred approximately $432,000 in costs related to the Year 2000
issue.
We have also developed a plan to address the impact that Year 2000 issues
may have on our vendors and customers. We are currently finalizing our
evaluation of the materiality of our vendor and customer relationships and have
initiated communications with certain significant vendors and customers to
identify and minimize disruptions to our operations and to assist in resolving
Year 2000 issues. We have substantially completed this evaluation; however,
there can be no assurance that our Year 2000 compliance efforts will be
successful or that the systems and products of other companies on which we rely
will not have an adverse effect on our business, financial condition and results
of operations. In the event that our Year 2000 compliance efforts are not
successful or if we are not satisfied with our vendors' or customers' Year 2000
compliance, we will take appropriate measures.
We believe that additional costs related to the Year 2000 issue will not be
material to our business, financial condition and results of operations.
However, estimates of Year 2000 related costs are based on numerous assumptions
and there is no certainty that estimates will be achieved and actual costs
25
<PAGE>
could be materially greater than anticipated. We anticipate that we will fund
our additional Year 2000 costs with cash from operations.
FRAUDULENT TRANSFER CONSIDERATIONS--BANKRUPTCY AND RELATED LAWS COULD PREVENT OR
HINDER US FROM MAKING PAYMENTS ON THE NOTES.
The incurrence of indebtedness by us or any of the guarantors, respectively,
such as the notes and the guarantees, may be subject to review under U.S.
federal bankruptcy law or relevant state fraudulent conveyance laws if a
bankruptcy case or lawsuit is commenced by or on behalf of unpaid creditors of
such entity. Under these laws, if in such a case or lawsuit a court were to find
that, at the time such entity incurred indebtedness (including indebtedness
under the notes or the guarantees),
(1) it incurred such indebtedness with the intent of hindering, delaying or
defrauding current or future creditors; or
<TABLE>
<S> <C> <C>
(2) (a) it received less than reasonably equivalent value or fair consideration for
incurring such indebtedness; and
</TABLE>
(b) such entity
(i) was insolvent or was rendered insolvent by reason of any of the
transactions;
(ii) was engaged, or about to engage, in a business or transaction
for which the assets remaining with such entity constituted
unreasonably small capital to carry on its business; or
(iii) intended to incur, or believed that it would incur, debts
beyond its ability to pay as such debts matured (as all of the
foregoing terms are defined in or interpreted under the relevant
fraudulent transfer or conveyance statutes),
then such court could avoid or subordinate the amounts owing under the notes or
the guarantees to presently existing and future indebtedness of such entity and
take other actions detrimental to you.
The measure of insolvency for purposes of the foregoing considerations will
vary depending upon the law of the jurisdiction that is being applied in any
such proceeding. Generally, however, an entity would be considered insolvent if,
at the time it incurred the indebtedness, either
- the sum of its debts (including contingent liabilities) is greater than
its assets, at fair valuation, or
- the present fair saleable value of its assets is less than the amount
required to pay the probable liability on its total existing debts and
liabilities (including contingent liabilities) as they become absolute and
matured.
There can be no assurance as to what standards a court would use to determine
whether an entity was solvent at the relevant time, or whether, whatever
standard was used, the notes or the guarantees would not be avoided or further
subordinated on another of the grounds set forth above. In rendering its opinion
in connection with the offering of exchange notes, our counsel will not express
any opinion as to the applicability of federal or state fraudulent transfer and
conveyance laws.
We believe that at the time we and the guarantors initially incurred
indebtedness represented by the notes and the guarantees, each was:
(1) neither insolvent nor rendered insolvent thereby,
(2) in possession of sufficient capital to run its businesses effectively
and
(3) incurring debts within its ability to pay as the same mature or
become due.
26
<PAGE>
In reaching the foregoing conclusions, we have relied upon our analyses of
our internal cash flow projections and estimated values of our assets and
liabilities. There can be no assurance, however, that a court passing on such
questions would reach the same conclusions.
LIMITATION ON CHANGE OF CONTROL--WE MAY NOT BE ABLE TO AFFORD, OR BE PERMITTED,
TO PURCHASE THE NOTES UPON A CHANGE OF CONTROL AS REQUIRED BY THE INDENTURE.
Upon a change of control under the indenture, we will be required to offer
to purchase all of the notes then outstanding at 101% of their principal amount,
plus accrued interest to the date of repurchase. If a change of control were to
occur, we can provide no assurance that we would have sufficient funds to pay
the purchase price (as defined in the indenture) for the notes, and we expect
that we would require third party financing; however, we can provide no
assurance that we would be able to obtain such financing on favorable terms, if
at all. In addition, the senior credit facilities restrict our ability to
repurchase the notes, including pursuant to an offer in connection with a change
of control. A change of control under the indenture will result in an event of
default under the senior credit facilities and may cause the acceleration of
other senior indebtedness, if any, in which case the subordination provisions of
the notes would require payment in full of the senior credit facilities and any
other senior indebtedness before repurchase of the notes. See "Description of
the Notes--Offer to Purchase upon Change of Control" and "Description of Senior
Credit Facilities." The inability to repay senior indebtedness, if accelerated,
and to purchase all of the tendered notes, would constitute an event of default
under the indenture.
27
<PAGE>
THE TRANSACTIONS
THE MERGERS
On February 2, 1999, St. John Knits International, St. John, SJKAcquisition,
Inc. and Pearl Acquisition Corp. entered into a merger agreement. Under the
merger agreement, St. John agreed to enter into two mergers, which were
completed in July 1999. In the first merger--the reorganization merger--St. John
merged with SJKAcquisition and became a wholly owned subsidiary of St. John
Knits International. As a result of the reorganization merger, shareholders of
St. John became stockholders of St. John Knits International. The reorganization
merger did not result in any change in the business, management, fiscal year,
location of the principal facilities, assets or liabilities of St. John.
In the second merger--the acquisition merger--St. John Knits International
merged with Pearl, a Delaware corporation which is wholly owned by Vestar/Gray
Investors LLC, with St. John Knits International surviving the merger. Upon the
completion of the acquisition merger, Vestar/Gray Investors was approximately
84% owned by Vestar and approximately 16% beneficially owned by Bob Gray, Marie
Gray and Kelly Gray. As a result of the acquisition merger, former public
shareholders of St. John (other than the Grays) owned approximately 7% of St.
John Knits International's common stock and Vestar and the Grays beneficially
owned (through Vestar/Gray Investors) approximately 78% and 15% of St. John
Knits International's common stock, respectively. Our corporate structure is now
as follows:
[LOGO]
In connection with the mergers, former St. John shareholders (other than the
Grays) were entitled to receive either $30.00 in cash or one share of St. John
Knits International common stock for each share of St. John common stock owned
before the mergers. The amount of St. John Knits International stock to be
received by each former St. John shareholder was subject to proration so that as
a result of the mergers, St. John shareholders, other than the Grays, received a
total of 456,047 shares, or approximately 7%, of the common stock of St. John
Knits International. The acquisition merger will be accounted for as a
recapitalization under generally accepted accounting principles. Accordingly,
the historical basis of St. John's assets and liabilities will not be impacted
by the acquisition merger.
USE OF PROCEEDS
We will not receive any cash proceeds from the issuance of the exchange
notes. The net proceeds from the issuance and sale of the outstanding notes,
which were approximately $98.6 million after deduction of underwriting
discounts, were used to consummate the transactions.
28
<PAGE>
CAPITALIZATION
The following table sets forth the actual unaudited capitalization of SJKI
as of May 2, 1999 and the pro forma capitalization of SJKI on the same date
after giving effect to the transactions. The information below should be read in
conjunction with "Unaudited Pro Forma Condensed Consolidated Financial
Information," "Management's Discussion and Analysis of Financial Condition and
Results of Operations" and the consolidated financial statements of St. John and
the notes thereto included elsewhere in this prospectus.
<TABLE>
<CAPTION>
AS OF MAY 2, 1999
----------------------
<S> <C> <C>
ACTUAL PRO FORMA
--------- -----------
<CAPTION>
(DOLLARS IN MILLIONS)
<S> <C> <C>
Cash, cash equivalents and short-term investments....................... $ 30.0 $ 6.2
--------- -----------
--------- -----------
Debt:
Senior Credit Facilities(1)
Term Loan A......................................................... $ -- $ 75.0
Term Loan B......................................................... -- 115.0
Outstanding notes..................................................... -- 98.6
Other................................................................. 0.3 0.3
--------- -----------
Total debt.......................................................... 0.3 288.9
Mandatorily Redeemable Preferred Stock.................................. -- 25.0
Total stockholders' equity (deficit)(2)................................. 174.7 (144.8)
--------- -----------
Total capitalization................................................ $ 175.0 $ 169.1
--------- -----------
--------- -----------
</TABLE>
- ------------------------
(1) The senior credit facilities also include a new $25.0 million revolving
credit facility which was undrawn and fully available at the closing of the
transactions.
(2) The pro forma stockholders' deficit gives effect to the transactions in
accordance with recapitalization accounting treatment.
29
<PAGE>
UNAUDITED PRO FORMA CONDENSED CONSOLIDATED FINANCIAL INFORMATION
The following unaudited pro forma condensed consolidated financial
information of St. John Knits International (the "Unaudited Pro Forma Financial
Statements") has been derived by the application of pro forma adjustments to St.
John's historical consolidated financial statements included elsewhere in this
prospectus. The unaudited pro forma condensed consolidated balance sheet data
gives effect to the transactions as if they had occurred on May 2, 1999. The
unaudited pro forma condensed consolidated statements of income for the periods
presented give effect to the transactions as if they had been consummated on
November 3, 1997 for the fiscal year ended November 1, 1998, the 26 weeks ended
May 3, 1998 and the 26 weeks ended May 2, 1999. The adjustments are described in
the accompanying notes. The Unaudited Pro Forma Financial Statements should not
be considered indicative of actual results that would have been achieved had the
transactions been consummated on the date or for the periods indicated and do
not purport to indicate balance sheet data or results of operations as of any
future date or any future period. The Unaudited Pro Forma Financial Statements
should be read in conjunction with St. John's historical consolidated financial
statements and the notes thereto included elsewhere in this prospectus.
The pro forma adjustments were applied to the respective historical
consolidated financial statements to reflect the transactions. The
reorganization merger is reflected as a recapitalization. Accordingly, the
historical accounting basis of St. John's assets and liabilities has not been
impacted by the transactions.
30
<PAGE>
ST. JOHN KNITS INTERNATIONAL, INCORPORATED
UNAUDITED PRO FORMA CONDENSED CONSOLIDATED BALANCE SHEET
AS OF MAY 2, 1999
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
PRO FORMA
HISTORICAL ADJUSTMENTS PRO FORMA
---------- ----------- -----------
<S> <C> <C> <C>
ASSETS
Current assets:
Cash, cash equivalents and short-term investments....................... $ 30,033 $ (23,868)(a) $ 6,165
Accounts receivable, net................................................ 34,696 -- 34,696
Inventories............................................................. 46,159 -- 46,159
Deferred income tax benefit............................................. 7,744 -- 7,744
Prepaid income taxes.................................................... -- 5,500(b) 5,500
Other................................................................... 2,606 -- 2,606
---------- ----------- -----------
Total current assets.................................................. 121,238 (18,368) 102,870
Property and equipment, net............................................. 70,747 -- 70,747
Deferred debt issuance costs............................................ -- 12,500(c) 12,500
Other................................................................... 3,488 -- 3,488
---------- ----------- -----------
Total Assets.......................................................... $ 195,473 $ (5,868) $ 189,605
---------- ----------- -----------
---------- ----------- -----------
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable........................................................ $ 4,251 $ -- $ 4,251
Accrued expenses........................................................ 11,827 -- 11,827
Revolving credit facility............................................... -- -- --
Current portion of term loan facilities................................. -- 3,000 3,000
Income taxes payable.................................................... 3,740 -- 3,740
---------- ----------- -----------
Total current liabilities............................................... 19,818 3,000(a) 22,818
Long-term debt.......................................................... 285 -- 285
Term loan facilities, net of current portion............................ -- 187,000(a) 187,000
Outstanding notes, net of discount...................................... -- 98,616(a) 98,616
---------- ----------- -----------
Total liabilities....................................................... 20,103 288,616 308,719
Mandatorily Redeemable Preferred Stock.................................. -- 25,000(a) 25,000
Minority interest....................................................... 654 -- 654
Total stockholders' equity (deficit).................................... 174,716 (319,484) (e) (144,768)
---------- ----------- -----------
Total liabilities and stockholders' equity............................ $ 195,473 $ (5,868) $ 189,605
---------- ----------- -----------
---------- ----------- -----------
</TABLE>
See Notes to Unaudited Pro Forma Condensed Consolidated Balance Sheet
31
<PAGE>
ST. JOHN KNITS INTERNATIONAL, INCORPORATED
NOTES TO UNAUDITED PRO FORMA CONDENSED CONSOLIDATED BALANCE SHEET
(DOLLARS IN THOUSANDS, EXCEPT SHARE DATA)
(a) Represents the net effect of the mergers on the cash balance as follows:
<TABLE>
<S> <C>
SOURCES OF CASH:
Term Loan A and Term Loan B proceeds.............................. $ 190,000
Outstanding notes, net of discount................................ 98,616
Mandatorily Redeemable Preferred Stock............................ 25,000
Equity contribution by Vestar/Gray Investors(1)................... 146,527
---------
Total sources............................................... 460,143
---------
USES OF CASH:
Payment of cash merger consideration.............................. $ 447,684
Estimated transaction fees and costs.............................. 22,427
Settlement of stock options outstanding........................... 13,900
---------
Total uses.................................................. 484,011
---------
Net use..................................................... $ (23,868)
---------
---------
- ------------------------
</TABLE>
(1) Equity contributed by Vestar/Gray Investors includes the Vestar
contribution of approximately $153.6 million, net of approximately
$7.1 million paid to the Gray family for shares of St. John purchased
by Vestar/Gray Investors at $30.00 per share.
(b) Represents the estimated tax benefit received by St. John on the settlement
of stock options in connection with the transactions.
(c) Represents the portion of the estimated transaction fees and costs
attributable to Term Loans A and B, the notes and the revolving credit
facility which will be amortized over the life of the related debt. Such
estimated deferred debt issuance costs include estimated fees and costs
payable to banks, underwriters, outside professionals and related advisors.
(d) Represents the net change in equity resulting from the mergers as follows:
<TABLE>
<S> <C>
Convert to cash 14,922,785 shares of common stock(1)............. $(447,684)
Issuance of 4,884,222 shares of common stock to Vestar/Gray
Investors(1)................................................... 146,527
Settlement of stock options outstanding--net of tax benefit...... (8,400)
Estimated transaction fees and costs--net of capitalized
amount......................................................... (9,927)
---------
Net change in stockholders' equity............................... $(319,484)
---------
---------
- ------------------------
</TABLE>
(1) At $30.00 per share
32
<PAGE>
ST. JOHN KNITS INTERNATIONAL, INCORPORATED
NOTES TO UNAUDITED PRO FORMA CONDENSED CONSOLIDATED BALANCE SHEET
(DOLLARS IN THOUSANDS, EXCEPT SHARE DATA)
(e) Reflects the change in shares outstanding:
<TABLE>
<S> <C>
Beginning shares outstanding.................................... 16,584,815
Publicly held shares redeemed in merger......................... (14,922,785)
Gray shares contributed to Vestar/Gray Investors................ (1,205,983)
----------
Shares retained by existing shareholders........................ 456,047
Shares issued to Vestar/Gray Investors in the acquisition
merger........................................................ 6,090,205
----------
Ending shares outstanding....................................... 6,546,252
----------
----------
</TABLE>
33
<PAGE>
ST. JOHN KNITS INTERNATIONAL, INCORPORATED
UNAUDITED PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF INCOME
FOR THE YEAR ENDED NOVEMBER 1, 1998
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
PRO FORMA PRO
HISTORICAL ADJUSTMENTS FORMA
---------- ----------- ----------
<S> <C> <C> <C>
Net sales............................................................. $ 281,961 $ -- $ 281,961
Cost of sales......................................................... 120,883 -- 120,883
---------- ----------- ----------
Gross profit........................................................ 161,078 -- 161,078
Selling, general and administrative expenses.......................... 107,026 500(a) 107,526(f)
---------- ----------- ----------
Operating income.................................................... 54,052 (500) 53,552
Interest expense...................................................... -- 31,843(b) 31,843
Other income.......................................................... 1,369 (1,117)(c) 252
---------- ----------- ----------
Income before income taxes.......................................... 55,421 (33,460) 21,961
Income taxes.......................................................... 22,001 (13,284)(d) 8,717
---------- ----------- ----------
Net income.......................................................... 33,420 (20,176) 13,244
Preferred dividends................................................... -- 3,813(e) 3,813
---------- ----------- ----------
Earnings available to common shareholders........................... $ 33,420 $ (23,989) $ 9,431
---------- ----------- ----------
---------- ----------- ----------
EBITDA................................................................ $ 66,294 $ 65,794
</TABLE>
See Notes to Unaudited Pro Forma Condensed Consolidated Statements of Income
34
<PAGE>
ST. JOHN KNITS INTERNATIONAL, INCORPORATED
UNAUDITED PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF INCOME
FOR THE 26 WEEKS ENDED MAY 3, 1998
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
PRO FORMA PRO
HISTORICAL ADJUSTMENTS FORMA
---------- ----------- ----------
<S> <C> <C> <C>
Net sales................................................................ $ 138,567 $ -- $ 138,567
Cost of sales............................................................ 57,912 -- 57,912
---------- ----------- ----------
Gross profit........................................................... 80,655 -- 80,655
Selling, general and administrative expenses............................. 49,392 250(a) 49,642(f)
---------- ----------- ----------
Operating income....................................................... 31,263 (250) 31,013
Interest expense......................................................... -- 15,996(b) 15,996
Other income (expense)................................................... 632 (643)(c) (11)
---------- ----------- ----------
Income before income taxes............................................... 31,895 (16,889) 15,006
Income taxes............................................................. 12,928 (6,705)(d) 6,223
---------- ----------- ----------
Net income............................................................. 18,967 (10,184) 8,783
Preferred dividends...................................................... -- 1,906(e) 1,906
---------- ----------- ----------
Earnings available to common shareholders.............................. $ 18,967 $ (12,090) $ 6,877
---------- ----------- ----------
---------- ----------- ----------
EBITDA................................................................... $ 36,985 $ 36,735
</TABLE>
See Notes to Unaudited Pro Forma Condensed Consolidated Statements of Income
35
<PAGE>
ST. JOHN KNITS INTERNATIONAL, INCORPORATED
UNAUDITED PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF INCOME
FOR THE 26 WEEKS ENDED MAY 2, 1999
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
PRO FORMA PRO
HISTORICAL ADJUSTMENTS FORMA
---------- ----------- ----------
<S> <C> <C> <C>
Net sales.................................................................. $ 151,626 $ -- $ 151,626
Cost of sales.............................................................. 66,786 -- 66,786
---------- ----------- ----------
Gross profit............................................................. 84,840 -- 84,840
Selling, general and administrative expenses............................... 61,766 250(a) 62,016(f)
---------- ----------- ----------
Operating income......................................................... 23,074 (250) 22,824
Interest expense........................................................... -- 15,328(b) 15,328
Other income............................................................... 831 (589)(c) 242
---------- ----------- ----------
Income before income taxes............................................... 23,905 (16,167) 7,738
Income taxes............................................................. 9,813 (6,418)(d) 3,395
---------- ----------- ----------
Net Income............................................................... 14,092 (9,749) 4,343
Preferred dividends........................................................ -- 1,906(e) 1,906
---------- ----------- ----------
Earnings available to common shareholders................................ $ 14,092 $ (11,655) $ 2,437
---------- ----------- ----------
---------- ----------- ----------
EBITDA..................................................................... $ 30,912 $ 30,662
</TABLE>
See Notes to Unaudited Pro Forma Condensed Consolidated Statements of Income
36
<PAGE>
ST. JOHN KNITS INTERNATIONAL, INCORPORATED
NOTES TO UNAUDITED PRO FORMA CONDENSED CONSOLIDATED
STATEMENTS OF INCOME
The unaudited pro forma financial information has been derived by the
application of pro forma adjustments to St. John's historical financial
statements of income for the periods noted. The mergers have been accounted for
as a recapitalization, which will have no impact on the historical basis of St.
John's assets and liabilities.
(a) Represents an annual advisory fee under the management agreement paid to
Vestar Capital.
(b) The pro forma adjustment to interest expense for the periods presented
reflects the following items (dollars in thousands):
<TABLE>
<CAPTION>
TWELVE
YEAR ENDED 26 WEEKS 26 WEEKS MONTHS
NOVEMBER 1, ENDED MAY 3, ENDED MAY 2, ENDED MAY 2,
1998 1998 1999 1999
----------- ------------- ------------- -------------
<S> <C> <C> <C> <C>
Interest expense on the notes..................... $ 12,500 $ 6,250 $ 6,250 $ 12,500
Interest expense on term loans.................... 16,785 8,537 7,894 16,142
Interest expense on the revolving credit
facility........................................ 777 315 290 752
Amortization of discount.......................... 138 69 69 138
Amortization of deferred debt issuance
costs........................................... 1,563 781 781 1,563
Commitment fee of the unused portion of revolving
credit facility................................. 80 44 44 80
----------- ------------- ------------- -------------
Total....................................... $ 31,843 $ 15,996 $ 15,328 $ 31,175
----------- ------------- ------------- -------------
----------- ------------- ------------- -------------
</TABLE>
The cash interest expense above results in a weighted average interest rate
of 10.09%, 10.16%, 9.71% and 9.86% for the year ended November 1, 1998, the
26 weeks ended May 3, 1998, the 26 weeks ended May 2, 1999 and the twelve
months ended May 2, 1999, respectively.
The deferred debt issuance costs reflect direct estimated costs associated
with obtaining the debt financing. These amounts are being amortized
straight line over the estimated weighted average life of eight years.
An increase or decrease in the interest rate of 0.125% would change the
annual pro forma interest expense by $360,000 and the pro forma net income
by $216,000.
(c) Eliminates interest income on cash and short-term investments which is not
expected to be received after the mergers have been completed.
(d) Represents the tax effect of the pro forma adjustments using an effective
tax rate of 39.7%.
(e) Represents dividends on the Mandatorily Redeemable Preferred Stock. The
dividend rate is 15.25%. Dividends on the Mandatorily Redeemable Preferred
Stock may only be paid in cash to the extent permitted by the senior credit
facilities, the indenture and other contractual arrangements of SJKI.
(f) Upon completion of the transactions, all stock options outstanding were
canceled and converted to the right to receive a cash payment equal to the
excess of $30.00 over the exercise price per share. This one-time payment of
approximately $13.9 million will be reflected as a non-recurring expense to
St. John in the period the mergers were effected and has not been included
in the pro forma adjustment.
37
<PAGE>
SELECTED HISTORICAL CONDENSED CONSOLIDATED FINANCIAL INFORMATION
The following table sets forth our selected historical condensed
consolidated financial information. The selected historical condensed
consolidated financial information for the three fiscal years ended November 3,
1996, November 2, 1997 and November 1, 1998 are derived from the historical
consolidated financial statements of St. John and related notes thereto (the
"Financial Statements"), which have been audited by Arthur Andersen LLP,
independent public accountants, as indicated in their report included elsewhere
in this prospectus. The selected historical condensed consolidated financial
information for the two fiscal years ended October 30, 1994 and October 29, 1995
are derived from the audited historical consolidated financial statements of St.
John, which are not included in this prospectus. The selected historical
condensed consolidated financial and other data as of and for the 26 weeks ended
May 3, 1998, May 2, 1999 and the twelve months ended May 2, 1999 have been
derived from St. John's unaudited consolidated financial statements and, in the
opinion of our management, have been prepared on a basis consistent with the
Financial Statements and include all adjustments (which consist of normal
recurring accruals) that are considered by management to be necessary for a fair
presentation of such financial information.
<TABLE>
<CAPTION>
TWELVE
FISCAL YEAR ENDED 26 WEEKS ENDED MONTHS
--------------------------------------------------------------- -------------------- ENDED
OCTOBER 30, OCTOBER 29, NOVEMBER 3, NOVEMBER 2, NOVEMBER 1, MAY 3, MAY 2, MAY 2,
1994 1995 1996 1997 1998 1998 1999 1999
----------- ----------- ----------- ----------- ----------- --------- --------- ---------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
(DOLLARS IN THOUSANDS, EXCEPT RATIOS)
STATEMENTS OF INCOME:
Net sales................ $ 127,953 $ 161,795 $ 202,951 $ 242,101 $ 281,961 $ 138,567 $ 151,626 $ 295,020
Cost of sales.......... 59,179 74,252 88,871 99,545 120,883 57,912 66,786 129,757
----------- ----------- ----------- ----------- ----------- --------- --------- ---------
Gross profit............. 68,774 87,543 114,080 142,556 161,078 80,655 84,840 165,263
Selling, general and
administrative
expenses............. 43,288 54,550 68,385 84,545 107,026 49,392 61,766 119,400
----------- ----------- ----------- ----------- ----------- --------- --------- ---------
Operating income......... 25,486 32,993 45,695 58,011 54,052 31,263 23,074 45,863
Other income(1)........ 340 803 1,355 713 1,369 632 831 1,568
----------- ----------- ----------- ----------- ----------- --------- --------- ---------
Income before income
taxes.................. 25,826 33,796 47,050 58,724 55,421 31,895 23,905 47,431
Income taxes........... 10,880 14,243 19,929 24,300 22,001 12,928 9,813 18,886
----------- ----------- ----------- ----------- ----------- --------- --------- ---------
Net income............... $ 14,946 $ 19,553 $ 27,121 $ 34,424 $ 33,420 $ 18,967 $ 14,092 $ 28,545
----------- ----------- ----------- ----------- ----------- --------- --------- ---------
----------- ----------- ----------- ----------- ----------- --------- --------- ---------
OTHER DATA:
EBITDA(2)................ $ 29,251 $ 38,539 $ 52,999 $ 67,126 $ 66,294 $ 36,985 $ 30,912 $ 60,221
Depreciation and
amortization........... 3,673 5,313 7,042 8,859 11,371 5,335 6,687 12,723
Capital expenditures..... 7,796 17,571 21,400 22,751 23,648 12,124 7,870 19,394
Net cash provided by
operating activities... 12,637 18,014 16,841 30,459 24,982 15,289 23,291 32,984
Net cash used in
investing activities... 14,292 17,714 20,114 21,542 22,377 12,202 7,716 17,891
Net cash provided by
(used in) financing
activities............. (998) (444) 748 (817) (2,724) 468 (897) (4,089)
Ratio of earnings to fixed
charges(3)............... 17.5x 18.7x 21.8x 22.6x 16.6x 20.5x 13.0x 13.2x
BALANCE SHEET DATA (AT
PERIOD END):
Working capital.......... $ 31,442 $ 38,130 $ 49,628 $ 69,693 $ 89,190 $ 83,272 $ 101,420 $ 101,420
Total assets............. 62,634 85,973 116,494 153,904 182,390 166,687 195,473 195,473
Total debt............... -- -- -- -- 408 -- 285 285
Stockholders' equity..... 50,530 69,227 97,093 130,680 161,574 150,412 174,716 174,716
</TABLE>
- ------------------------------
(1) "Other income" primarily includes interest income and royalty income.
38
<PAGE>
(2) "EBITDA" represents earnings before interest expense, other income (except
royalty income), income taxes, depreciation and amortization expense,
non-cash write-off of assets and non-recurring expenses associated with the
transactions. It is not intended to represent cash flow from operations as
defined by generally accepted accounting principles and should not be used
as an alternative to net income as an indicator of SJKI's operating
performance or to cash flow as a measure of liquidity. EBITDA is included in
this prospectus as it is a basis upon which SJKI assesses its financial
performance. SJKI believes that EBITDA, as presented, presents a useful
measure of assessing SJKI's ongoing operating activities without the impact
of financing activity and non-recurring charges. While EBITDA is frequently
used as a measure of operations and the ability to meet debt service
requirements, it is not necessarily comparable to other similarly titled
captions of other companies due to potential inconsistencies in the method
of calculation. For purposes of the EBITDA calculation, non-cash write-off
of assets was $77,000, $85,000, $16,000, $200,000 and $611,000 for fiscal
years 1994, 1995, 1996, 1997 and 1998, respectively, $315,000 and $794,000
for the 26 weeks ended May 3, 1998 and May 2, 1999, respectively, and
$1,090,000 for the twelve months ended May 2, 1999. For the fiscal year
ended November 1, 1998 and the twelve months ended May 2, 1999, non-cash
write-off of assets was primarily related to the closure of three home
furnishings stores.
(3) For purposes of determining the ratio of earnings to fixed charges, earnings
are defined as earnings before income taxes and extraordinary items, plus
fixed charges. Fixed charges consist of interest expense, including
amortization of debt issuance costs and a portion of operating lease rental
expense deemed to be representative of the interest factor.
39
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Management's discussion and analysis should be read in conjunction with
"Selected Historical Condensed Consolidated Financial Information" and the notes
thereto and St. John's consolidated financial statements and the notes thereto
and the other more detailed financial information appearing elsewhere in this
prospectus.
OVERVIEW
SJKI is a leading designer, manufacturer and marketer of high quality
women's clothing and accessories, principally under the St. John brand name.
SJKI's core knitwear line is sold as a collection of lifestyle clothing for
business, evening and casual needs, and represented approximately 81% of fiscal
1998 net sales. This core knitwear line is complemented by SJKI's other product
categories, including women's wovens, activewear, shoes, coats, accessories,
fragrances and home furnishings.
SJKI operates seven production facilities in California and one
recently-built facility in Mexico, manufacturing approximately 93% of its
products in-house during fiscal 1998. SJKI believes that its vertical
integration differentiates it from other apparel manufacturers and has been
critical to its success because it enables SJKI to manufacture products to
order, maximize manufacturing flexibility and maintain superior quality control.
SJKI distributes its products on a highly selective basis through a group of
upscale retail customers with whom it has long-standing relationships, as well
as through company-owned boutiques and outlet stores.
SJKI's revenues increased from approximately $128.0 million in fiscal 1994
to approximately $282.0 million in fiscal 1998, representing a compound annual
growth rate of 21.8%. This growth was primarily attributable to (i) increased
penetration within SJKI's long-standing retail accounts; (ii) increased
same-store sales at both retail accounts and company-owned stores; (iii) the
expansion of four existing company-owned boutiques as well as the opening of
five new company-owned boutiques and five new outlet stores; and (iv) the
introduction of several additional product lines. In addition to SJKI's strong
growth in sales, EBITDA increased from approximately $29.3 million in fiscal
1994 to approximately $66.3 million in fiscal 1998, representing a compound
annual growth rate of 22.7%. EBITDA margins improved over the same period from
22.9% in fiscal 1994 to 23.5% in fiscal 1998.
Despite this strong growth in sales and cash flow, SJKI's financial
performance in fiscal 1998 and during the first quarter of fiscal 1999 was
impacted by a number of issues which led to unfavorable comparisons with prior
periods. These issues relate primarily to SJKI's efforts to maintain its high
historical growth rates. Recognizing that the core knitwear line could no longer
support rates of growth in excess of 20%, SJKI undertook a number of growth
initiatives which have not been successful. These initiatives included the
introduction of a lower-priced line under the SJK label and the creation of a
home furnishings joint venture under the Amen Wardy Home Stores name. In
addition, SJKI attempted to broaden the appeal of its core knitwear line by
including a number of more "fashion forward" styles in its Fall 1998 collection.
As a result, the core knitwear line did not include sufficient product options
for the traditional St. John customer and experienced below-average retail
performance.
SJKI's continued sales growth also led to capacity constraints and related
production difficulties, despite its significant historical and on-going capital
investments. These issues were exacerbated in fiscal 1998 by the increased
complexity of garments in the Fall 1998 line, which required more time to
produce. As a result, SJKI incurred substantial costs related to overtime and
rework and experienced certain delays in shipping. This increase in costs was
due in part to the reevaluation of SJKI's quality control program and the
related procedures which were implemented during the second half of fiscal 1998.
40
<PAGE>
Importantly, SJKI's results in fiscal 1998 and during the first quarter of
fiscal 1999 also reflect significant on-going investments which depressed
immediate financial results, but which SJKI believes will improve future
performance. For example, SJKI commenced operations in a new jewelry and garment
hardware manufacturing facility in Mexico and experienced inefficiencies
commonly associated with start-up operations of this nature. In addition, SJKI
opened one and expanded two boutiques, incurring increased fixed overhead
without an immediate commensurate increase in revenue. SJKI also invested
heavily in its workforce throughout the year, with the majority of this increase
relating to the hiring of additional production personnel. The immediate impact
of this initiative was to lower gross margins, as these new employees required
additional training and were initially less efficient than longer-term
personnel.
SJKI believes it has taken actions to respond to all of the issues which
impacted performance described above and has made a significant investment in
its production capabilities. The SJK line has been discontinued. The Amen Wardy
Home Stores joint venture was terminated in May 1999; three of the original six
Amen Wardy stores were closed, one was transferred to the former joint venture
partner, and two continue to be operated as a wholly owned subsidiary of SJKI
under the St. John Home name. In addition, the knitwear line for the current
Cruise/Spring season includes a more traditional mix of styles and, as a result,
is experiencing performance more in line with SJKI's historical results. SJKI's
investments during fiscal 1998 in its production capabilities included the
addition of personnel and approximately $5.7 million invested in 56 new
state-of-the-art electronic knitting machines. As a result of these investments,
SJKI believes it is well-positioned to meet anticipated manufacturing
requirements.
While SJKI believes it has taken actions to respond to all of the issues
which impacted fiscal 1998 and the first quarter of fiscal 1999, profit margins
were affected during these periods. Specifically, gross margins declined
primarily due to (i) capacity constraints which led to production
inefficiencies; (ii) production difficulties and overtime associated with the
manufacture of certain highly ornate styles in the knitwear line; (iii) training
of new employees; and (iv) lower gross margins at company-owned stores. In
addition, selling, general and administrative expense as a percentage of net
sales increased as a result of (i) increases in sales, marketing, design and
administrative personnel expenses; (ii) expenses associated with the start-up of
SJKI's home furnishings retail stores; (iii) higher markdowns on the Fall 1998
line than on prior lines due to merchandising and design issues associated with
targeting a more "fashion forward" customer base; (iv) expenses associated with
the discontinuation of the SJK line; and (v) an immediate increase in fixed
overhead at several upgraded boutiques without a corresponding increase in
revenues.
As a result of SJKI's efforts to address the issues which affected its
results of operations in fiscal 1998 and the first quarter of fiscal 1999,
SJKI's financial results improved during the second quarter of fiscal 1999 as
compared to the first quarter. Specifically, SJKI's gross profit margin
increased from 53.9% in the first quarter to 57.9% in the second quarter, even
though second quarter gross profit margins were negatively impacted by one-time
markdowns reported at three Amen Wardy Home stores which were closed during the
period. In addition, after excluding the effect of certain non-recurring charges
related to the termination of the Amen Wardy Home Store joint venture, operating
profit margin increased from 12.8% in the first quarter to 19.6% in the second
quarter.
SJKI intends to pursue a strategy of controlled growth driven primarily by
the significant remaining growth potential of its core knitwear line, while
selectively pursuing other growth opportunities. Management believes this will
lessen the risk associated with undertaking new initiatives, relieve the
pressure on SJKI's production capacity, enable it to continue its highly
selective distribution strategy and enhance margins. See "Prospectus
Summary--The Company--Business Strategy."
41
<PAGE>
RESULTS OF OPERATIONS
The following table is derived from St. John's Consolidated Statements of
Income and sets forth, for the periods indicated, the results of operations as a
percentage of net sales:
<TABLE>
<CAPTION>
FISCAL YEAR ENDED 26 WEEKS ENDED
------------------------------------------- ------------------------
<S> <C> <C> <C> <C> <C>
NOVEMBER 3, NOVEMBER 2, NOVEMBER 1, MAY 3, MAY 2,
1996 1997 1998 1998 1999
------------- ------------- ------------- ----------- -----------
Net sales................................................... 100.0% 100.0% 100.0% 100.0% 100.0%
Cost of sales............................................... 43.8 41.1 42.9 41.8 44.0
----- ----- ------ ----- -----
Gross Profit................................................ 56.2 58.9 57.1 58.2 56.0
Selling, general and administrative expenses................ 33.7 34.9 38.0 35.6 40.7
----- ----- ------ ----- -----
Operating income............................................ 22.5% 24.0% 19.1% 22.6% 15.3%
----- ----- ------ ----- -----
----- ----- ------ ----- -----
</TABLE>
FIRST 26 WEEKS FISCAL 1999 COMPARED TO FIRST 26 WEEKS FISCAL 1998
Net sales for the first 26 weeks of fiscal 1999 increased by approximately
$13.1 million, or 9.4% over the first 26 weeks of fiscal 1998. This increase was
principally attributable to (i) an increase in sales by company-owned retail
stores of approximately $7.9 million, due in part to the expansion of the Las
Vegas boutique, which was completed in May 1998, and the addition of one retail
boutique in Scottsdale, Arizona, and one outlet store since the beginning of
fiscal 1998, (ii) an increase in sales of approximately $3.6 million recorded by
Amen Wardy Home Stores, LLC, which commenced operations during the fourth
quarter of fiscal 1997 ("Amen") and (iii) an increase in international sales of
approximately $1.8 million, which includes the sales of St. John Company, Ltd.,
a majority owned subsidiary which commenced operations in Japan during the
fourth quarter of fiscal 1997 ("St. John Japan"). These increases were offset by
a net decrease of $202,000 in sales to existing domestic retail customers,
primarily due to the discontinuation of the SJK line. Net sales increased
primarily as a result of increased unit sales of various product lines.
Gross profit for the first 26 weeks of fiscal 1999 increased by
approximately $4.2 million, or 5.2% as compared with the first 26 weeks of
fiscal 1998, and decreased as a percentage of net sales to 56.0% from 58.2%.
This decrease in the gross profit margin was primarily due to a decrease in the
gross margin for the knitwear line, due to increased production costs which were
not offset by a corresponding increase in the selling price. This increase in
the production costs was due in part to the reevaluation of SJKI's quality
control program and the related procedures which were implemented during the
second half of fiscal 1998. In addition, the gross profit margin was reduced by
lower gross profit margins recorded by Amen, due to markdowns reported at the
stores that were being closed.
Selling, general and administrative expenses for the first 26 weeks of
fiscal 1999 increased by approximately $12.4 million, or 25.1% over the first 26
weeks of fiscal 1998, and increased as a percentage of net sales to 40.7% from
35.6%. This increase was primarily due to (i) an increase in selling expenses
due to increased costs of promoting its products to its major customers, (ii)
non-recurring expenses incurred in connection with resolving the Amen litigation
and the closure of three Amen stores and (iii) an increase in sales, marketing,
design and administrative personnel expenses.
Operating income for the first 26 weeks of fiscal 1999 decreased by
approximately $8.2 million, or 26.2% over the first 26 weeks of fiscal 1998.
Operating income as a percentage of net sales decreased to 15.3% from 22.6%
during the same period. This decrease in the operating income as a percentage of
net sales was due to the decrease in the gross profit margin and an increase in
selling, general and administrative expenses as a percentage of net sales.
42
<PAGE>
FISCAL 1998 COMPARED TO FISCAL 1997
Net sales for fiscal 1998 increased by approximately $39.9 million, or 16.5%
over fiscal 1997. This increase was principally attributable to (i) an increase
in sales to existing domestic retail customers of approximately $20.9 million;
(ii) an increase in sales by company-owned stores of approximately $10.2
million, due in part to the increased sales of the New York boutique, the
expansion of the Las Vegas boutique and the addition of three outlet stores
since the beginning of fiscal 1997; (iii) an increase in sales of approximately
$6.0 million recorded by Amen; and (iv) an increase in international sales of
approximately $2.8 million, which includes the sales of St. John Japan. Net
sales increased primarily as a result of increased unit sales of various product
lines.
Gross profit for fiscal 1998 increased by approximately $18.5 million, or
13.0% as compared with fiscal 1997, and decreased as a percentage of net sales
to 57.1% from 58.9%. This decrease in the gross profit margin was primarily due
to (i) capacity constraints which led to production inefficiencies; (ii) cost
increases related to production difficulties and overtime associated with the
manufacture of certain highly ornate styles in the knitwear line; (iii) expenses
relating to training of new employees; and (iv) lower gross margins at
company-owned outlet stores. All of such additional costs were partially offset
by an increase in the number of garments being produced and sold without a
corresponding increase in certain production costs, due in part to the fixed
nature of these costs.
Selling, general and administrative expenses for fiscal 1998 increased by
approximately $22.5 million, or 26.6% over fiscal 1997, and increased as a
percentage of net sales to 38.0% from 34.9%. This increase was primarily due to
(i) an increase of approximately $5.2 million in sales, marketing, design and
administrative personnel expenses; (ii) expenses of approximately $4.9 million
associated with the start-up of SJKI's home furnishings retail stores; (iii)
increased costs of approximately $2.1 million in connection with higher
markdowns on the Fall 1998 line and with the discontinuation of the SJK line;
(iv) an immediate increase in fixed overhead at one upgraded boutique without a
corresponding increase in revenues; and (v) costs related to the start-up of a
new jewelry and garment hardware manufacturing facility in Mexico.
Operating income for fiscal 1998 decreased by approximately $4.0 million, or
6.8% over fiscal 1997. Operating income as a percentage of net sales decreased
to 19.1% from 24.0% during the same period as a result of the reasons mentioned
above.
FISCAL 1997 COMPARED TO FISCAL 1996
Net sales for fiscal 1997 increased by approximately $39.2 million, or 19.3%
over fiscal 1996. This increase was principally attributable to (i) an increase
in sales to existing domestic retail customers of approximately $23.0 million;
(ii) an increase in sales by company-owned stores of approximately $12.8
million, due in part to the expansion of the New York boutique, which was
completed in October 1996, and the addition of one retail boutique and two
outlet stores since the beginning of fiscal 1996; and (iii) an increase in sales
to international retail customers of approximately $3.3 million. Net sales
increased primarily as a result of increased unit sales of various product
lines.
Gross profit for fiscal 1997 increased by approximately $28.5 million, or
25.0% as compared with fiscal 1996, and increased as a percentage of net sales
to 58.9% from 56.2%. This increase in the gross profit margin was primarily due
to an increase in the number of garments being produced and sold without a
corresponding increase in the production costs, due in part to the fixed nature
of certain costs.
Selling, general and administrative expenses for fiscal 1997 increased by
approximately $16.2 million, or 23.6% over fiscal 1996, and increased as a
percentage of net sales to 34.9% from 33.7%. This increase was primarily due to
(i) an increase of approximately $3.0 million in promotion and advertising
expenses related to an expansion of SJKI's advertising program; (ii) an increase
of
43
<PAGE>
approximately $2.0 million in salaries due to SJKI's continued effort to build
its sales and marketing team; and (iii) an increase in expenses related to an
expansion of SJKI's sales to foreign customers which include, among other
things, import duties, sales commissions and additional freight charges.
Operating income for fiscal 1997 increased by approximately $12.3 million,
or 27.0% over fiscal 1996. Operating income as a percentage of net sales
increased to 24.0% from 22.5% during the same period as a result of the reasons
mentioned above.
LIQUIDITY AND CAPITAL RESOURCES
SJKI's primary cash requirements will consist of debt service, funding
SJKI's working capital needs, primarily inventory and accounts receivable, and
purchasing property and equipment. SJKI believes it will be able to finance its
debt service, working capital and capital expenditure requirements for the
foreseeable future with internally generated funds and with funds from the
revolving credit facility.
During fiscal 1998, cash provided by operating activities was approximately
$25.0 million. Cash provided by operating activities was primarily generated by
net income and an increase in accrued expenses and a decrease in accounts
receivable, while cash used in operating activities was primarily used to fund
an increase in inventories and deferred income tax benefit and a decrease in
income taxes and accounts payable. Cash used in investing activities was
approximately $22.4 million during fiscal 1998. The principal use of cash in
investing activities was for (i) the purchase of 56 computerized knitting
machines; (ii) the purchase of property and construction of improvements for the
jewelry and garment hardware manufacturing facility in Mexico; (iii) the
construction of leasehold improvements for a new boutique location in Las Vegas;
(iv) the construction of leasehold improvements for a home furnishings boutique
at South Coast Plaza in Costa Mesa, California; and (v) the construction of
improvements for a new manufacturing location in San Ysidro, California.
During the first 26 weeks of fiscal 1999, cash provided by operating
activities was approximately $23.3 million. Cash provided by operating
activities was primarily generated by net income, an increase in income taxes
payable and a decrease in inventories, while cash used in operating activities
was primarily used to fund the decrease in accounts payable. Cash used in
investing activities was approximately $7.7 million during the first 26 weeks of
fiscal 1999. The principal use of cash in investing activities was for the (i)
construction of leasehold improvements for a new boutique location at South
Coast Plaza in Costa Mesa, California, (ii) costs incurred in connection with
the upgrade of SJKI's computer systems and (iii) the completion of leasehold
improvements for a new home furnishing boutique at South Coast Plaza. As of May
2, 1999, SJKI had approximately $101.4 million in working capital and
approximately $30.0 million in cash and marketable securities.
SJKI anticipates purchasing property and equipment of approximately $11.0
million during the remainder of fiscal 1999. The estimated $11.0 million will be
used principally for (i) continued upgrades to SJKI's computer systems, (ii) the
purchase of computerized knitting machines and (iii) the construction of
leasehold improvements to expand the Boston boutique, move the Hawaii boutique
to a new location and open one additional new boutique.
The senior credit facilities consist of the following: (i) a $75.0 million
Term Loan A; (ii) a $115.0 million Term Loan B; and (iii) a $25.0 million
revolving credit facility. See "Description of Senior Credit Facilities." SJKI
used the net proceeds of Term Loan A and Term Loan B to consummate the
acquisition merger and expects to use the revolving credit facility primarily to
fund its future working capital needs.
The indenture governing the notes, among other things, (i) will restrict St.
John Knits International's and certain of its subsidiaries' (including the
guarantors') ability to incur additional indebtedness, issue shares of preferred
stock, incur liens, pay dividends or make certain other restricted payments and
enter into certain transactions with affiliates, (ii) will prohibit certain
restrictions on the
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<PAGE>
ability of certain subsidiaries of St. John Knits International (including the
guarantors) to pay dividends or make certain payments to St. John Knits
International and (iii) will place restrictions on the ability of St. John Knits
International and certain of its subsidiaries (including the guarantors) to
merge or consolidate with any other person or sell, assign, transfer, lease,
convey or otherwise dispose of all or substantially all of the assets of SJKI.
The senior credit facilities also will contain other and more restrictive
covenants, will prohibit St. John Knits International from prepaying other
indebtedness (including the notes) and will require St. John Knits International
to maintain specified financial ratios, such as a minimum ratio of EBITDA to
interest expense, a minimum fixed charge coverage ratio and a maximum ratio of
total debt to EBITDA, and satisfy financial condition tests. The senior credit
facilities and the indenture will contain customary events of default. The
senior credit facilities will prohibit St. John Knits International from
declaring or paying any dividends or making any payments with respect to the
notes if it fails to perform its obligations under, or fails to meet the
conditions of, the senior credit facilities or if payment creates a default
under the senior credit facilities. See "Description of Senior Credit
Facilities," "Description of the Notes" and "Risk Factors--Restrictions Imposed
by Our Debt Agreements."
SJKI's ability to fund its capital investment requirements, interest and
principal payment obligations and working capital requirements and to comply
with all of the financial covenants under its debt agreements depends on its
future operating performance and cash flow, which in turn are subject to
prevailing economic conditions and to financial, business and other factors,
some of which are beyond SJKI's control. See "Risk Factors--Substantial Leverage
and Debt Service."
NEW ACCOUNTING PRONOUNCEMENTS
In June 1997, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 131, "Disclosures about Segments of an
Enterprise and Related Information." SJKI will be required to adopt this
standard for fiscal 1999. The adoption of this standard will only affect
disclosure and will not impact SJKI's financial position or results of
operations.
In 1998, the American Institute of Certified Public Accountants issued
Statement of Position 98-1, "Accounting for the Costs of Computer Software
Developed or Obtained for Internal Use" and Statement of Position 98-5,
"Reporting on the Costs of Start-up Activities." SJKI will be required to adopt
these standards in fiscal 2000. The adoption of these standards will not have a
material impact on SJKI's financial position or results of operations.
YEAR 2000
SJKI uses various types of technology in the operation of its business. Some
of this technology incorporates date identification functions; however, many of
these date identification functions were developed to use only two digits to
identify a year. These date identification functions, if not corrected, could
cause their relating technology to fail or create erroneous results by or at the
year 2000.
SJKI is continuing to monitor the impact of Year 2000 issues on its
information and non-information technology systems. As part of this process,
SJKI retained the services of an independent contractor with experience in
analyzing and addressing Year 2000 issues. In addition, SJKI developed a
five-phased plan with respect to the Year 2000 readiness of its internal
technology systems. This plan involved (i) creating internal awareness of Year
2000 issues, (ii) analyzing SJKI's Year 2000 state of readiness, (iii)
correcting systems or acquiring new ones as needed, (iv) testing the corrected
or new systems and (v) incorporating the corrected or new systems into SJKI's
business. SJKI has substantially completed all five phases of the plan. As of
May 2, 1999, SJKI had incurred approximately $432,000 in costs related to the
Year 2000 issue.
SJKI has also developed a plan to address the impact that Year 2000 issues
may have on its vendors and customers. SJKI is currently finalizing its
evaluation of the materiality of its vendor and
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customer relationships and has initiated communications with certain significant
vendors and customers to identify and minimize disruptions to its operations and
to assist in resolving Year 2000 issues. SJKI has substantially completed this
evaluation; however, there can be no assurance that its Year 2000 compliance
efforts will be successful or that the systems and products of other companies
on which it relies will not have an adverse effect on its business, financial
condition and results of operations. In the event that SJKI's Year 2000
compliance efforts are not successful or if it is not satisfied with its
vendors' or customers' Year 2000 compliance, SJKI will take appropriate
measures.
SJKI believes that additional costs related to the Year 2000 issue will not
be material to its business, financial condition and results of operations.
However, estimates of Year 2000 related costs are based on numerous assumptions
and there is no certainty that estimates will be achieved and actual costs could
be materially greater than anticipated. SJKI anticipates that it will fund its
additional Year 2000 costs with cash from operations.
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BUSINESS
OVERVIEW
SJKI is a leading designer, manufacturer and marketer of fine women's
clothing and accessories. The St. John name has been associated with high
quality women's knitwear for over 35 years. SJKI's core knitwear product line,
which represents approximately 81% of its sales, consists of a collection of
lifestyle clothing for women's business, evening and casual needs. SJKI
manufactures its products primarily to order and distributes them on a highly
selective basis through a group of upscale retailers with whom it has long-term
relationships, as well as through company-owned stores.
SJKI's core knitwear products are considered unique and highly desirable by
customers due to their classic styling, durability, comfort, fit and quality.
These attributes, combined with selective distribution and targeted advertising,
have created a loyal base of customers consisting of professional and
higher-income women.
The strength of SJKI's brand name and customer loyalty has also enabled it
to expand its business into product lines that complement its core offerings.
These products account for approximately 19% of its sales and include women's
wovens, activewear, shoes, coats, accessories, fragrances and home furnishings.
The success of SJKI's knitwear business, together with growth from its other
product lines, have allowed it to increase net sales from approximately $128.0
million in fiscal 1994 to approximately $282.0 million in fiscal 1998,
representing a compound annual growth rate of approximately 21.8%. For the
twelve months ended May 2, 1999, SJKI's net sales and Adjusted EBITDA (as
defined) were approximately $295.0 million and $62.1 million, respectively.
SJKI has developed a vertically integrated manufacturing process which
allows it to produce approximately 93% of its own products. SJKI believes that
this vertical integration differentiates it from other apparel manufacturers and
has been critical to its success because it enables it to manufacture products
to order, maximize manufacturing flexibility and maintain superior quality
control. SJKI operates seven production facilities in California and one in
Mexico. During the past five years SJKI has invested approximately $53.0 million
in production facilities and state-of-the-art equipment, which it believes has
further enhanced its position as the leading manufacturer of high-end women's
knitwear.
SJKI has had relationships with its top three retail customers, Saks Fifth
Avenue, Neiman Marcus and Nordstrom, for approximately 25, 20 and 15 years,
respectively. SJKI also distributes its products through 18 Company-owned
boutiques and nine outlet stores. The boutiques showcase SJKI's entire line of
products and have expanded the distribution and enhanced the brand awareness of
its products.
PRODUCTS
ST. JOHN
SJKI's products are organized primarily into six separate product lines:
Knitwear, Sport, Griffith & Gray, Shoes, Accessories and Fragrance. In fiscal
1998, sales to SJKI's retail customers accounted for approximately $197.0
million, and sales through company-owned stores accounted for approximately
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$74.3 million. The following table details the approximate range of suggested
retail prices by product line. The suggested retail prices are indicative of
individual item prices.
<TABLE>
<CAPTION>
RANGE OF SUGGESTED
PRODUCT LINE SELECTED PRODUCTS RETAIL PRICES
- ---------------------------------------------- ---------------------------------------------- ------------------
<S> <C> <C>
Knitwear
COLLECTION.................................. Dresses, Two-Piece Suits, Three-Piece Suits, $350-$1,400
Jackets, Pants, Skirts, Coats, Sweaters,
Separates
DRESSY...................................... Dresses, Theater Suits, Dressy Separates $650-$2,000
BASICS...................................... Skirts, Jackets, Pants $160-$690
COUTURE..................................... Dresses, Gowns, Two-Piece Suits $900-$3,800
Sport......................................... Jackets, Skirts, Pants, Tops, Jeans $ 95-$1,100
Griffith & Gray............................... Suits, Coats, Dresses, Separates, Eveningwear $200-$1,800
Shoes......................................... Pumps, Sling Backs, Loafers, Boots $210-$375
Accessories................................... Jewelry, Scarves, Belts, Handbags $ 60-$525
Fragrance..................................... Perfume, Bath Products $ 25-$250
</TABLE>
KNITWEAR. SJKI organizes its St. John Knitwear into four groups:
Collection, Dressy, Basics and Couture. Due to the breadth of each product
group, SJKI competes in most segments of women's designer clothing. SJKI's
knitwear products are sold as a collection of lifestyle clothing for women's
business, evening and casual needs. Due to its all-purpose weight, St. John
Knitwear is a year-round product, not confined to a single season or climate.
SJKI manufactures all of its knitwear products and designs knitwear collections
to encourage consumers to coordinate outfits, resulting in multiple product
purchases within a collection. In fiscal 1998, knitwear sales were approximately
$228.6 million, or 81.1% of total sales.
COLLECTION. SJKI is best known for its Collection line consisting of elegant
ready-to-wear styles. This line of daytime knit fashions includes
sophisticated dresses and suits that focus on a tailored look. The
Collection line also includes jackets, pants, skirts, coats and sweaters.
All items in the line are sold as separates, including two-piece suit
styles.
DRESSY. The Dressy line consists of dresses, theater suits and dressy
separates. The look of the Dressy line is one of understated elegance
enhanced by innovative touches, such as layers of transparent paillettes and
sequins, embroidered sleeves or glittery collars and cuffs.
BASICS. The Basics line is comprised of products which are sold throughout
the year and which generally do not vary by season. These products consist
of classic jackets, skirts and pants that are an integral part of women's
wardrobes, all in solid black, white or navy. Simplicity of design and color
allows these products to be combined with any number of styles from any of
SJKI's product lines and worn for daytime or dressed up for evening.
Retailers' inventories of Basics products tend to be maintained throughout
the year and reordered as necessary.
COUTURE. The Couture line is SJKI's most exclusive group of day and evening
apparel and is produced in limited quantities. The day group includes
dresses and two-piece suits which are designed with elegant embroidery. The
evening group consists of two-piece suits and long gowns. Both groups are
designed using colored paillettes and sequins.
SPORT. St. John Sport is a line of activewear which includes jackets,
skirts, pants, tops and jeans and is targeted to our core knitwear customers.
The line is primarily manufactured in SJKI's production facilities using woven
fabrics purchased in Italy. In fiscal 1998, Sport sales were approximately $10.3
million, or 3.7% of total sales.
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GRIFFITH & GRAY. Griffith & Gray includes suits, coats, dresses, separates
and eveningwear. The line targets a slightly younger customer than the core
Knitwear line. Approximately half of the line is manufactured in SJKI's
facilities, including various knit styles. The balance of the line is
manufactured by outside contractors located in Italy using high quality European
woven fabrics. In fiscal 1998, Griffith & Gray sales were approximately $6.3
million, or 2.2% of total sales.
SHOES. The St. John Shoe line consists of pumps, sling backs, loafers and
boots, manufactured in Italy using high quality Italian leather. Shoes are
designed to match the styles and colors of the Knitwear line. During fiscal
1997, SJKI began distribution of the Shoe line to most of its major customers in
the United States. In fiscal 1998, Shoe sales were approximately $9.2 million,
or 3.3% of total sales.
ACCESSORIES. The Accessories line is comprised of fine jewelry, scarves,
belts and handbags. All Accessories are color coordinated with the various
fashion collections. Four collections of upscale jewelry are produced each year.
In fiscal 1998, Accessories sales were approximately $8.3 million, or 2.9% of
total sales.
FRAGRANCE. The Fragrance line includes perfume, eau de parfum, perfumed
body mist, body cream, lotion, body powder and bath products. The signature
fragrance, St. John, is marketed as an accessory to the St. John apparel line
through most of SJKI's major customers and SJKI's own retail stores. During
fiscal 1997, SJKI signed a distribution agreement to allow another company the
right to distribute fragrance in the United States. During fiscal 1998, SJKI
launched a second scent, White Camellia, which is currently marketed along with
SJKI's signature scent. In fiscal 1998, Fragrance sales were approximately $2.6
million, or 0.9% of total sales.
LICENSED
SJKI has license agreements to manufacture and sell eyewear, watches and
coats under the St. John name. The eyewear line was launched during fiscal 1998
and the watch line was launched during the first quarter of fiscal 1999.
In February 1999, SJKI also signed a licensing agreement to create a new
line of women's coats. The new St. John Coat Collection will offer the usual
classic styles, elegance and superior quality which St. John customers have come
to expect. The new line will be available beginning in August 1999. Prior to the
license agreement, SJKI's Coat Collection, consisting primarily of faux fur
coats in various styles and colors, was manufactured in SJKI's factories using
fabric imported from Europe and sold for between $750 and $1,100 per item. In
fiscal 1998, Coat Collection sales were approximately $1.4 million, or 0.5% of
total sales.
ST. JOHN HOME
SJKI operates two home furnishings stores, located in Scottsdale, Arizona
and Costa Mesa, California, under the name St. John Home. St. John Home stores
sell upscale home furnishings and gift items. SJKI previously operated six home
furnishings stores through a joint venture which was terminated in May 1999.
Three of those stores were closed, and one was transferred to the joint venture
partner. For the 26 weeks ended May 2, 1999, the Scottsdale and Costa Mesa
stores generated net sales of approximately $2.3 million. In addition, SJKI
operates one St. John Home outlet store in Nevada.
MANUFACTURING
SJKI has developed a vertically integrated manufacturing process which it
believes is unique and critical to its success. During fiscal 1998,
approximately 93% of SJKI's products were manufactured at SJKI's own facilities,
while the remaining 7% was manufactured by outside contractors, primarily in
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Europe. SJKI twists, dyes and knits its yarn, as well as constructs, presses and
finishes its knitwear products, in its seven facilities located in Southern
California and one in Mexico. SJKI manufactures its knitwear using its highly
automated electronic knitting machines coupled with a skilled labor force. SJKI
also manufactures its own jewelry and hardware for its products. Products not
manufactured by SJKI principally consist of the Griffith & Gray and Shoe product
lines as well as home furnishings, handbags, scarves, belts and fragrances.
SJKI believes that its vertical integration differentiates it from other
apparel manufacturers and has been critical to its success because it enables
SJKI to manufacture products to order, maximize manufacturing flexibility and
maintain superior quality control. SJKI believes that the ability to produce to
order limits its exposure to both the inventory and market risks associated with
many apparel companies that source products internationally. SJKI's in-house
manufacturing capabilities also enable it to quickly increase production of
popular styles. SJKI's ability to control every aspect of the manufacturing
process allows it to consistently produce garments to its high quality
standards. Finally, SJKI believes that its vertical integration has enabled it
to consistently achieve margins that are among the highest in the apparel
industry.
The manufacturing process begins with the twisting together of wool and
rayon on SJKI's precision twisting machines in a proprietary process that
produces SJKI's "Santana" yarn. The twisted yarn is transferred to SJKI's dye
house for dyeing based on garment orders received. The dyed yarn is knit on
SJKI's computerized electronic knitting machines and then cut, assembled and
finished in SJKI's linking, seaming and hand finishing facilities. SJKI's
jewelry and hardware manufacturing plants produce the buttons and buckles for
garments, as well as bracelets, earrings, necklaces, chokers, pins and other
accessories. SJKI also manufactures many of its woven products, as well as
blouses, jeans and certain scarves.
SJKI has made recent investments in its production capabilities, including
the addition of personnel hired during fiscal 1998 and approximately $5.7
million invested in 56 new state-of-the-art electronic knitting machines. Also,
during fiscal 1998, SJKI completed a new jewelry and garment hardware
manufacturing facility in Mexico. The new facility gives SJKI additional
manufacturing capacity as well as the ability to lower the cost of certain
labor-intensive jewelry and hardware components through reduced labor costs. In
addition, workers at the Mexico facility apply paillettes and sequins to some of
SJKI's apparel products.
DESIGN
St. John designs its garments to be consistent with SJKI's classic, timeless
style. To accomplish this goal, design teams reference the prior season's
designs and patterns to establish a basis for the current season's lines. The
design teams also work closely with the sales force to incorporate current
consumer preferences into the season's line. Dye lots are kept consistent with
prior years to enable consumers to augment their wardrobes over several seasons.
Once design parameters for a particular item are established, the design teams
work with the manufacturing group to plan construction details and hardware
attachments, such as buttons, to ensure efficient manufacturing. The design
staff has an average of nine years of experience with SJKI. See "Management's
Discussion and Analysis of Financial Condition and Results of Operations."
DISTRIBUTION
SJKI's products are distributed primarily through a select group of retail
customers and SJKI's 18 boutiques. In addition, SJKI has nine outlet stores.
RETAIL CUSTOMERS. SJKI selectively distributes its products through some of
the nation's leading upscale retailers, including Saks Fifth Avenue, Neiman
Marcus and Nordstrom, each of which accounted for more than 10.0% of SJKI's net
sales in fiscal 1998 (approximately 45% collectively) and
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have been customers of SJKI for approximately 25, 20 and 15 years, respectively.
Since the mid-1980s, SJKI has worked with these and certain other retail
customers to create in-store boutiques, which are designated areas devoted
exclusively to SJKI's products. Other significant customers of SJKI include
Jacobson's, Macy's West, Lord & Taylor and select Marshall Field's and Dayton
Hudson stores.
COMPANY-OWNED STORES. In order to diversify its product distribution and
enhance name recognition, SJKI began opening its own retail boutiques in 1989
and currently operates 18 such boutiques. The boutiques showcase SJKI's entire
line of products and have expanded the distribution and enhanced the brand
awareness of its products. SJKI also operates nine outlet stores. Unlike many of
its competitors, SJKI does not expressly manufacture product for its outlets,
instead utilizing the outlets to sell seconds, design samples and slow-moving
inventory from SJKI's full-price boutiques.
INTERNATIONAL. SJKI sells its products to retail customers in Asia, Europe,
Canada and Mexico. In Asia, SJKI has established relationships with a number of
highly qualified retailers, including Lane Crawford in Hong Kong and China and
ShinSegae in South Korea, and is now seeking to increase its penetration in
these accounts. In addition, SJKI is planning to expand its successful in-hotel
boutiques business in Japan and opened a boutique in Hong Kong in May 1999.
SJKI's European efforts involve expanding and upgrading its relationships with
high quality independent retail customers, principally in the United Kingdom,
Germany, Belgium, Switzerland and the Netherlands. During fiscal 1998,
international sales to retail customers and through St. John Japan accounted for
approximately 7.5% of SJKI's net sales.
MARKETING
SJKI markets its Collection, Dressy and Couture lines along with its Sport
and Griffith & Gray lines twice a year, during the Fall and Cruise/Spring
seasons. These lines are shown in January for delivery between May and October
and in August for delivery between November and April. The majority of orders
for each of these six-month delivery periods normally are received within five
weeks of showings, and the goods are then made to order. The Shoe line is
marketed four times per year. SJKI markets its Basics, Accessories and Fragrance
lines throughout the year.
SJKI shows its product lines to retail customer buyers in its New York,
Irvine and Dallas showrooms. Members of SJKI's senior management team work
closely with major retail customers to develop sales plans and to determine the
appropriate mix of merchandise. These detailed sales plans are based on past
purchases, expected sales growth and profitability. SJKI also shows its products
in its Dusseldorf and Japan showrooms as well as in other foreign countries at
various times during the year using its outside sales representatives.
SJKI's strategy is to sell its products to its retail accounts and to
facilitate the sale of its products through to the ultimate consumer. SJKI
employs a sales team, showroom personnel and customer service representatives.
The sales team is currently comprised of 24 U.S. and seven international field
representatives. The sales team establishes and maintains in-store boutique
presentations, develops close working relationships with store management and
trains key sales people to be St. John specialists. The St. John specialists at
certain key retail accounts are eligible for SJKI's incentive rewards. In
addition, SJKI's customer service representatives monitor computerized
information on each store's sales and styles sold in an effort to track and
increase sales.
In order to promote its exclusive upscale image, SJKI consistently
advertises in both national and international fashion magazines, including
Vanity Fair, Vogue, Elle and Harper's. In fiscal 1998, SJKI spent approximately
$11.0 million on advertising. Management believes that this advertising approach
enhances SJKI's image. SJKI's advertising features Kelly Gray as its Signature
Model. SJKI also designs and produces seasonal exclusive St. John catalogs,
which are distributed at the discretion of individual retailers. Distribution is
usually limited to target repeat purchasers or those who meet SJKI's consumer
profile.
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RAW MATERIALS AND SUPPLIERS
SJKI's primary raw materials in the production of its knitwear are wool and
rayon. In fiscal 1998, SJKI purchased approximately $10.8 million of wool and
approximately $3.7 million of rayon. SJKI uses the highest quality wool,
primarily from Australia. Generally, a wool commitment is taken with SJKI's
primary U.S. spinner for a set quantity of wool based on SJKI's forecasted wool
requirements for approximately one year. Multiple spinners are available, both
domestically and internationally, with comparable pricing for spun Australian
wool yarn. SJKI also maintains yarn suppliers in Europe and Asia. SJKI generally
holds an inventory of twisted yarn sufficient for approximately six weeks of
production to protect it from potential supply interruptions. Rayon is available
in raw or dyed form from various European and Japanese suppliers.
In addition to wool and rayon, SJKI purchases fabric from various suppliers
and has little difficulty in satisfying its fabric requirements from Europe and
Asia. Crystals, glass beadings, pearls and raw materials used in the manufacture
of paillettes are purchased from certain suppliers in Europe. SJKI believes that
there are alternative sources for certain of these specialized items.
COMPETITION
Due to its long history of strong sales and market leadership in designer
knitwear, SJKI believes that it faces limited direct competition for its core
product offerings. In addition, SJKI believes that the risk of strong new
competitors is further limited given its substantial investment in knitwear
production technology and its strong relationships with its retail accounts. In
a broader context, SJKI does compete with such successful designers as Armani,
Calvin Klein, Chanel, Donna Karan and Escada for higher-income female customers.
EMPLOYEES
At May 2, 1999, SJKI had approximately 4,410 full-time employees, including
seven in executive positions, approximately 265 in design and sample production,
2,935 in production, 225 in quality control, 300 in retail, 110 in sales and
advertising and the balance in clerical and office positions. In addition, SJKI
had approximately 225 full-time employees working at SJKI's facility in Mexico,
55 working at St. John Home and 40 at St. John Japan. SJKI is not party to any
labor agreements, and none of its employees is represented by a union. SJKI
believes a significant number of its employees are highly skilled and that
turnover among these employees has been minimal. SJKI considers its relationship
with its employees to be good and has not experienced any interruption of its
operations due to labor disputes.
BACKLOG
Net sales for the first 26 weeks of fiscal 1999 increased by approximately
$13.1 million, or 9.4% over the first 26 weeks of fiscal 1998. As of May 2,
1999, SJKI had unfilled customer orders of approximately $102.8 million for the
1999 Fall season compared with approximately $111.0 million as of May 3, 1998.
Backlog decreased primarily as a result of timing issues, with earlier shipments
of fall products in 1999 compared with the corresponding 1998 period, as well as
the discontinuation of the SJK line.
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PROPERTIES
HEADQUARTERS, ADMINISTRATIVE AND MANUFACTURING FACILITIES. The general
location, use and approximate size of SJKI's headquarters, administrative and
manufacturing facilities, as well as whether they are leased or owned, are set
forth below:
<TABLE>
<CAPTION>
APPROXIMATE AREA IN LEASED OR
LOCATION USE SQUARE FEET OWNED
- ---------------------------------------- ---------------------------------------- ------------------- -----------
<S> <C> <C> <C>
Irvine, California...................... Design Facility, Showroom, Sewing, 110,500 Owned
Warehousing, Shipping
Tijuana, Mexico......................... Jewelry and Hardware Manufacturing 63,100 Owned
Van Nuys, California.................... Assembling, Sewing 27,900 Owned
San Ysidro, California.................. Assembling 27,300 Owned
Irvine, California...................... Warehousing, Administrative Offices 24,300 Owned
Irvine, California...................... Knitting 20,500 Owned
Irvine, California(1)................... Knitting, Sewing, Finishing, Shipping, 175,000 Leased
Administrative Offices
Irvine, California...................... Warehousing 120,300 Leased
Irvine, California(2)................... Corporate Headquarters, Showroom, 85,000 Leased
Twisting, Dyeing
Alhambra, California(3)................. Assembling, Sewing 41,000 Leased
Santa Ana, California................... Jewelry and Hardware Manufacturing 23,000 Leased
Irvine, California...................... Administrative Offices 20,200 Leased
</TABLE>
- ------------------------------
(1) SJKI leases this property from a general partnership in which SJKI holds a
50% interest.
(2) SJKI leases this property from a partnership in which the Gray Family Trust,
a revocable living trust of which Bob and Marie Gray serve as co-trustees
and are the sole beneficiaries, has a 50% general partnership interest.
(3) SJKI leases this property from a limited partnership in which the Gray
Family Trust has a 65% general partnership interest.
SJKI believes that there are facilities available for lease in the event
that either the productive capacities of SJKI's manufacturing facilities need to
be expanded or a current lease of a manufacturing facility expires.
SJKI leases certain of its facilities from affiliates of SJKI. See "Certain
Relationships and Related Transactions." SJKI believes that its existing
facilities are well maintained and in good operating condition.
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RETAIL PROPERTIES. The general location, use and approximate size of SJKI's
retail properties, all of which are leased, are set forth below:
<TABLE>
<CAPTION>
APPROXIMATE AREA IN
LOCATION USE SQUARE FEET
- --------------------------------------------- --------------------------------------------- -------------------
<S> <C> <C>
Costa Mesa, California(1).................... Boutique, Home Furnishings 15,400
New York, New York(2)........................ Boutique 13,700
Beverly Hills, California.................... Boutique 7,000
Chicago, Illinois............................ Boutique 6,000
Las Vegas, Nevada............................ Boutique 5,600
Palm Beach, Florida.......................... Boutique 5,200
Munich, Germany.............................. Boutique 4,400
Dallas, Texas................................ Boutique 4,300
Atlanta, Georgia............................. Boutique 3,500
Scottsdale, Arizona.......................... Boutique 3,200
Honolulu, Hawaii............................. Boutique 2,900
Charlotte, North Carolina.................... Boutique 2,800
Boston, Massachusetts........................ Boutique 2,800
Palm Desert, California...................... Boutique 2,400
Manhasset, New York.......................... Boutique 2,400
Denver, Colorado............................. Boutique 2,300
Bal Harbour, Florida......................... Boutique 2,200
Hong Kong.................................... Boutique 600
Primm, Nevada(3)............................. Outlet 3,200
Queenstown, Maryland......................... Outlet 2,700
Central Valley, New York..................... Outlet 2,600
Milpitas, California......................... Outlet 2,200
Sunrise, Florida............................. Outlet 2,200
San Antonio, Texas........................... Outlet 2,100
Camarillo, California........................ Outlet 2,000
Cabazon, California.......................... Outlet 2,000
Philadelphia, Pennsylvania................... Outlet 1,400
Scottsdale, Arizona.......................... Home Furnishings 5,400
New York, New York........................... Showroom 12,300
Dusseldorf, Germany.......................... Showroom 2,900
Dallas, Texas................................ Showroom 2,600
</TABLE>
- ------------------------------
(1) The lease includes both the St. John boutique and St. John Home store which
were opened subsequent to the end of fiscal 1998.
(2) The boutique located on 5(th) Avenue in New York City is covered by two
leases.
(3) SJKI also has a St. John Home outlet store of approximately 4,000 square
feet in Primm.
As of November 1, 1998, annual base rents for SJKI's leased properties
listed in the table above ranged from approximately $102,000 to $1.2 million. In
general, the terms of these leases provide for rent escalations dependent upon
either increases in the lessor's operating expenses or fluctuations in the
consumer price index in the relevant geographical area.
TRADEMARKS
SJKI owns and utilizes several trademarks, principal among which are St.
John-Registered Trademark-, St. John by Marie Gray-Registered Trademark-, St.
John Boutiques-Registered Trademark- and Griffith & Gray-Registered Trademark-.
The St. John-Registered Trademark- trademark is registered with the United
States Patent and Trademark Office and in several other major jurisdictions in
the world.
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<PAGE>
Sales of SJKI's products in Japan are also made under the trademark Marie
Gray-Registered Trademark-, which is also owned by SJKI. SJKI regards its
trademarks and other proprietary rights as valuable assets and believes that
they have significant value in the marketing of its products. SJKI vigorously
protects its trademarks against infringement.
REGULATION
SJKI is subject to a variety of federal, state and local laws and
regulations including those relating to zoning, land use, environmental
protection and workplace safety. SJKI is also subject to laws governing its
relationship with its employees, including minimum wage requirements, overtime,
working conditions and work permit requirements. Although SJKI believes that it
is and has been in material compliance with all of the various regulations
applicable to its business, SJKI cannot assure that requirements will not change
in the future or that it will not incur significant costs to comply with such
requirements.
LEGAL PROCEEDINGS
Securities Fraud Class Action
On October 13, 1998, Binary Traders, Inc. filed a complaint on behalf of
purchasers of publicly traded securities of St. John during the period of
February 25, 1998 to August 20, 1998 against SJKI, Bob Gray and Kelly Gray in
the United States District Court, Central District of California, Southern
Division (Binary Traders, Inc. v. St. John Knits, Inc., et al.). In this action,
Binary Traders claims that the defendants violated federal securities laws by
allegedly making fraudulent statements to cover up management's mistakes and
certain material adverse conditions affecting SJKI's business. In addition, the
complaint alleges that Mr. Gray traded shares of St. John's common stock while
in possession of allegedly material non-public information. Binary Traders seeks
class action certification and an unspecified amount of compensatory damages.
The defendants have filed a motion to dismiss the complaint, which motion is
currently pending.
Litigation Regarding the Transactions
SJKI is also a party to six lawsuits that allege claims against some of St.
John's current and former directors for breach of fiduciary duty alleged to have
arisen in connection with the mergers that were part of the transactions. All of
these lawsuits were filed in the Superior Court of the State of California for
the County of Orange. The principal relief sought in the six actions is
certification of the putative class and a rescission of the mergers and damages
and attorneys' fees in an unspecified amount. These six lawsuits were
consolidated into one action on February 24, 1999.
On April 15, 1999, the plaintiffs in this lawsuit filed a motion for a
preliminary injunction seeking to prevent the mergers from proceeding. The
preliminary injunction motion was heard by the California state court on April
28, 1999. On April 30, 1999, the court denied the plaintiffs' motion. In denying
the plaintiffs' request, the court ruled that the plaintiffs had not shown a
"reasonable probability" that they could succeed in proving at trial that the
$30.00 per share offer in the mergers is unfair. Similarly, the court ruled that
the plaintiffs were unlikely to show that the special committee of St. John's
board of directors that evaluated and approved the terms of the mergers on
behalf of St. John lacked independence or failed to "shop" St. John adequately
to other buyers.
While declining to grant the preliminary injunction, the court imposed a
constructive trust which prevents the Grays from receiving in the mergers any
amount for their St. John shares in excess of $30.00 per share until a full
trial on the merits is held. Prior to the determination of the final terms of
the stock options to be granted to the Grays after the mergers, the plaintiffs
had argued that these options represent additional consideration for the Grays'
St. John shares. It is SJKI's belief that these
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<PAGE>
employee stock options represent incentive compensation for the Grays' services
as officers of St. John Knits International after the mergers and are not
additional consideration for their St. John shares.
The court also imposed a constructive trust preventing two of St. John's
former directors from exercising options that were repriced by the board of
directors in September 1998 until a full trial on the merits is held. It is
SJKI's belief that the September 1998 option repricing was not improper. The
repricing was consistent with the repricing of options held by key employees of
St. John, excluding the Grays.
In imposing the constructive trusts, the court indicated that the plaintiffs
had shown "reasonable probability" that they could succeed at trial in proving
that the former St. John directors breached their fiduciary duties with respect
to the repricing of the director options and the alleged preferential treatment
of the Grays to the extent that the Grays receive a higher price for their
shares than the public shareholders in the mergers. The plaintiffs' claims will
be heard by the court at a later date.
SJKI intends to contest these lawsuits vigorously if the plaintiffs elect to
proceed with their actions. SJKI expects to incur legal and other defense costs
as a result of such proceedings. These proceedings could involve a substantial
diversion of the time of some of the members of management, and an adverse
determination in, or settlement of, such litigation could involve payment of
significant amounts. SJKI believes it has sufficient insurance to cover any
amounts for which it may be held liable pursuant to either the litigation
regarding the transactions or the securities fraud class action. Therefore, SJKI
believes that these proceedings will not have a material adverse effect on
SJKI's business, financial condition and results of operations.
Amen Wardy Home Stores Litigation
In May 1999, SJKI settled litigation relating to the Amen Wardy Home Stores
joint venture. In connection with this settlement, SJKI transferred ownership of
the Las Vegas home furnishings store and the Amen Wardy name to its former
partner in the joint venture. SJKI also transferred certain property and agreed
to pay certain expenses in connection with the settlement.
SJKI is not a party to any other litigation which is individually or in the
aggregate material to its business.
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MANAGEMENT
DIRECTORS AND EXECUTIVE OFFICERS OF ST. JOHN KNITS INTERNATIONAL
The following sets forth certain information concerning the directors and
executive officers of St. John Knits International:
<TABLE>
<CAPTION>
NAME POSITION WITH ST. JOHN KNITS INTERNATIONAL AGE
- ------------------------------ ------------------------------------------------------------------ ---
<S> <C> <C>
Bob Gray...................... Chairman of the Board and Chief Executive Officer 73
Kelly Gray.................... Director and President 32
Marie Gray.................... Chief Designer and Secretary 62
Bruce Fetter.................. Senior Vice President and Chief Operating Officer 44
Roger Ruppert................. Senior Vice President--Finance and Chief Financial Officer 55
Karla Guyer................... Senior Vice President--Marketing 47
Linda Koontz.................. Vice President--Sales 42
Daniel O'Connell.............. Director 45
James Kelley.................. Director 44
Sander Levy................... Director 37
</TABLE>
BIOGRAPHICAL INFORMATION
Bob Gray, a co-founder of St. John, has served as Chairman of the Board and
Chief Executive Officer of the company since its inception in 1962. Prior to
forming St. John, Mr. Gray held various sales and production positions with
Cannady Creations, a small sportswear company, from 1952 to 1962, his last
position being General Manager. He graduated from the University of Southern
California with a B.A. degree in political science and psychology. Mr. Gray is
the husband of Marie Gray and the father of Kelly Gray.
Kelly Gray became President of the company in April 1996. She served as
Creative Director of the company from June 1991 and Executive Vice
President--Creative Director from December 1995 until April 1996. Ms. Gray also
heads the company's retail boutique division and has design responsibilities for
the St. John product line and the Griffith & Gray line. In addition, she has
been the company's Signature Model since 1982. Prior to becoming Creative
Director, Ms. Gray headed the company's advertising department from 1988 to June
1991. Prior to heading the advertising department of the company, Ms. Gray held
various other administrative positions with the company, Ms. Gray is the
daughter of Bob Gray and Marie Gray.
Marie Gray, a co-founder of the company, has served as Chief Designer of the
company since its inception in 1962 and as Secretary of the company since March
1993. Prior to forming the company, Ms. Gray was a fashion model, served as
hostess of the Queen For a Day television show and was a fit model for some of
the leading designers in the Los Angeles area. Ms. Gray is the wife of Bob Gray
and the mother of Kelly Gray.
Bruce Fetter was appointed Senior Vice President and Chief Operating Officer
of the company during November 1997. He joined the company in January 1997 as
Vice President--Distribution and in April was appointed Senior Vice
President--Operations. From August 1994 to December 1996 he held the position of
Vice President--Logistics for Bob's Stores, a division of the Melville
Corporation. Mr. Fetter graduated with a B.S. degree from the University of
Southern California in 1976, majoring in business.
Roger Ruppert has served as Senior Vice President--Finance and Chief
Financial Officer of the company since October 1986. Prior to joining the
company, Mr. Ruppert was Vice President--Finance and Chief Financial Officer of
Cardis Corporation, a publicly traded auto parts distributor, from October 1985
to October 1986. He graduated with a B.S. degree in engineering from the U.S.
Naval
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Academy and also received an M.B.A. from the University of California, Los
Angeles. Mr. Ruppert is a certified public accountant.
Karla Guyer has been Senior Vice President--Marketing of the company since
1993. Between August 1990 and 1993, she was Vice President/National Sales
Manager. Ms. Guyer attended Fullerton College in California.
Linda Koontz was appointed Vice President--Sales of the company in January
1996. Previously, she served as National Sales Manager for ready-to-wear from
1993 to 1996 and National Sales Manager for the accessory division from 1991 to
1993. Ms. Koontz graduated with a B.A. degree in political science from
California State University--San Bernardino and also received a J.D. from
Western State University.
Daniel O'Connell is the Chief Executive Officer and founder of Vestar
Capital. Mr. O'Connell is a director of Advanced Organics, Inc., Aearo
Corporation, Cluett American Corp., Insight Communications Company, L.P.,
Remington Products Company L.L.C., Russell-Stanley Holdings, Inc., Siegel & Gale
Holdings, Inc. and Sheridan Healthcare, Inc. Mr. O'Connell received an A.B.
degree from Brown University and an M.B.A. degree from Yale University.
James Kelley is a Managing Director of Vestar Capital and was a founding
partner of Vestar Capital at its inception in 1988. Mr. Kelley is a director of
Reid Plastics, Inc., Celestial Seasonings, Inc. and Westinghouse Air Brake
Company. Mr. Kelley received a B.S. degree from the University of Northern
Colorado, a J.D. degree from the University of Notre Dame and an M.B.A. degree
from Yale University.
Sander Levy is a Managing Director of Vestar Capital and was a founding
partner of Vestar Capital at its inception in 1988. Mr. Levy is a director of
Cluett American Corp. Mr. Levy received a B.S. degree from The Wharton School of
the University of Pennsylvania and an M.B.A. degree from Columbia University.
COMPENSATION OF DIRECTORS AND EXECUTIVE OFFICERS
Directors of St. John Knits International do not receive compensation,
except as officers or employees of the company.
Summary Compensation Table
The following table sets forth the compensation in fiscal 1998 for services
in all capacities to St. John Knits International and its subsidiaries of the
following persons: (i) the chief executive officer of St. John during fiscal
year 1998 and (ii) the other four most highly compensated executive officers of
St. John:
<TABLE>
<CAPTION>
ANNUAL COMPENSATION(5)
------------------------------------------
<S> <C> <C> <C>
ALL OTHER
SALARY(1) BONUS(1) COMPENSATION
------------ ------------- -------------
Bob Gray..................................................... $ 1,617,132(2) $ -- $ 1,383
Chairman and Chief Executive Officer
Marie Gray................................................... 525,985 -- 1,383
Chief Designer
Kelly Gray................................................... 663,432(3) -- 1,383
President
David Frankel(4)............................................. 258,912 -- 1,383
Executive Vice President
Bruce Fetter................................................. 258,130 -- 1,383
Chief Operating Officer
</TABLE>
- ------------------------------
(1) The amounts shown in this column include amounts and awards accrued during
fiscal 1998 that were earned but not paid in such fiscal year.
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<PAGE>
(2) This amount includes $500,000 of annual salary that was earned but deferred
in fiscal 1998 pursuant to the Employment Agreement, as amended, dated June
1, 1995 by and between St. John and Mr. Gray.
(3) This amount includes modeling fees of $250,000 which were paid to Ms. Gray
during fiscal 1998.
(4) David Frankel resigned from his employment by SJKI on February 10, 1999.
(5) SJKI has concluded that the aggregate amount of perquisites and other
personal benefits, securities or property paid to each of the listed
officers for fiscal 1998 did not exceed the lesser of 10% of such officer's
total annual salary and bonus for such year or $50,000. Therefore, any such
amounts are not included in the table.
EMPLOYMENT AGREEMENTS
During fiscal 1995, SJKI entered into an Employment Agreement with Bob Gray
commencing, June 1, 1995 for three years. During fiscal 1998, this agreement was
amended to extend the term to May 31, 2000. SJKI also entered into new
Employment Agreements with Marie Gray, Kelly Gray and Bruce Fetter, effective
July 14, 1998. The new employment agreements extended through December 31, 1998
and renew automatically at the end of each year unless terminated on thirty days
notice by either party. The agreements require each employee to devote
substantially his or her full business time and attention and best efforts to
the affairs of SJKI during the term of the agreements. The agreements currently
provide for the payment of a base salary at the rate of $975,000 for Bob Gray,
$500,000 for Marie Gray, $420,000 for Kelly Gray and $350,000 for Bruce Fetter.
Under Kelly Gray's employment agreement, SJKI also compensates Ms. Gray $250,000
each year for her position as the Signature Model of SJKI.
Bob Gray's employment agreement provides for additional annual compensation
of $500,000 to be deferred each year into a grantor trust. However, in
connection with the closing of the transactions, Bob Gray received a lump sum
payment of approximately $2.1 million, which represents all deferred
compensation owed to him under his employment agreement (the "Deferred
Payment"). Under the terms of his employment agreement, the deferred
compensation would not otherwise be distributed to Mr. Gray until the earlier of
(i) the termination of his employment with SJKI and (ii) June 1, 2000, on an
installment basis, subject to the $1.0 million compensation limit under Section
162(m) of the Internal Revenue Code of 1986, as amended. To the extent that Mr.
Gray elects to receive a lump sum payment which, when aggregated with other
compensation paid to him in the same taxable year, is more than $1.0 million,
the amount in excess of $1.0 million may not be deductible by SJKI. In
connection with the payment of the Deferred Payment, Mr. Gray's employment
agreement was amended to provide that as of July 7, 1999, no portion of his
annual compensation from SJKI will be deferred and all provisions of his
employment agreement regarding compensation deferrals were terminated. Under the
amended employment agreement, Mr. Gray's base compensation under his employment
agreement was increased by $500,000 per year to approximately $1.5 million.
The employment agreements for each of Bob, Marie and Kelly Gray and Bruce
Fetter also provide for the payment of severance benefits upon the termination
of the employee's employment. Each employment agreement provides that SJKI pay
severance benefits in the form of compensation continuation for a period equal
to 18 months if the employee's employment is terminated by reason of a
disability. In cases where the employee's employment is terminated by reason of
the employee's death, SJKI generally will provide certain health insurance
benefits to the employee's immediate family for a period of six months.
Under the agreements, in cases where the employee's employment is terminated
by SJKI without cause or by the employee with good reason, such severance
benefits would include payment to the employee (excluding Mr. Gray) of the
employee's base salary for the longer of the remaining term of the agreement or
six months. Under Mr. Gray's employment agreement, such severance benefits would
include payment to him of all base salary and all deferred compensation payments
through May 31, 2000. For purposes of the employment agreements, (i) termination
by SJKI "with cause" includes termination for dishonesty, willful misconduct, a
breach of a fiduciary duty which involves personal profit or benefit to the
employee, a willful violation of any law and conviction thereunder and a
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<PAGE>
material breach of the employment agreement and (ii) termination by the employee
"for good reason" includes termination as a result of the assignment to the
employee of duties inconsistent with the employee's position and status, a
substantial alteration in the nature, status or prestige of the employee's
responsibilities, the relocation of SJKI's executive offices to a point more
than 50 miles from the location of such offices as of the date of the applicable
employment agreement and a reduction in the employee's base salary.
Under the employment agreements, termination of employment for good reason
also means voluntary termination by the employee as a result of (i) the failure
by SJKI to obtain from any successor, before the succession takes place, an
agreement to assume and perform the employment agreements or (ii) an occurrence
of a "change of control event." A "change of control event" takes place when a
person or group of persons acquire ownership of 25% or more of the outstanding
common stock of St. John without first obtaining the approval of St. John's then
outstanding directors. These employment agreements provide for additional
severance benefits to the employees upon these events of voluntary termination,
including a lump sum payment equal to two times the employee's then base salary.
Kelly Gray has been SJKI's Signature Model since 1982. Ms. Gray's
responsibilities as Signature Model include still photography modeling for
SJKI's Cruise/Spring and Fall clothing lines, fragrance and accessories. SJKI
uses photographs of Ms. Gray in SJKI's print advertising for these products.
SJKI believes the modeling arrangement with Ms. Gray contains terms no less
favorable to SJKI than those obtainable from unaffiliated third parties.
RETIREMENT PLAN
SJKI maintains the Employees' Profit Sharing Plan, as amended (the
"Retirement Plan"), a qualified profit-sharing plan for the benefit of all
eligible employees. The Retirement Plan contemplates the sharing of profits and
is funded annually by cash contributions at the discretion of the board of
directors. The Retirement Plan was funded in each of fiscal years 1998, 1997 and
1996 with contributions of $500,000.
STOCK OPTION PLAN
In connection with the transactions, in order to provide financial
incentives for certain of its employees, St. John Knits International expects to
adopt a stock option plan which will provide for the grant of options to
purchase shares of St. John Knits International common stock.
St. John Knits International will grant Bob Gray, Marie Gray and Kelly Gray,
as incentive compensation, employee stock options to acquire St. John Knits
International common stock representing 5% of the total shares of St. John Knits
International common stock outstanding on a fully diluted basis. The exercise
price of the options will be $30.00 per share. The options will vest and become
exercisable in specified circumstances, including upon the continued employment
of the Grays for a specified period of time and the achievement of specified
performance criteria, and will have up to a 10-year term. Any unvested options
will expire following specified terminations of the applicable individual's
employment with SJKI. In addition, if the applicable performance criteria are
not met, the options will not become exercisable and will terminate without
payment therefor.
In addition, some members of senior management other than the Grays will be
offered the opportunity to purchase shares of St. John Knits International.
These members of senior management will also receive, as incentive compensation,
employee stock options to acquire shares of St. John Knits International common
stock. The exercise price of any options granted on the closing date will be
$30.00 per share. The exercise price of any options granted subsequent to the
closing date will reflect the fair market value of the underlying shares, as
determined by the board of directors of St. John Knits International in its best
judgment. The options will vest and become exercisable upon the continued
employment of the applicable individual with SJKI for a specified period of time
and will
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<PAGE>
have up to a 10-year term. Any unvested options will expire following specified
terminations of the applicable individual's employment with SJKI. In addition,
upon the occurrence of a change in control transaction, these options may become
fully exercisable. The members of senior management who will be offered the
opportunity to purchase these shares and who will receive these options will be
determined by the board of directors of St. John Knits International.
The shares of St. John Knits International common stock that these members
of senior management will be offered the opportunity to purchase and the shares
of St. John Knits International common stock underlying the options that these
members of senior management will receive as incentive compensation will, in the
aggregate, represent approximately 5% of the outstanding common stock of St.
John Knits International on a fully diluted basis.
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<PAGE>
SECURITIES OWNERSHIP OF CERTAIN
BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth information as of , 1999
regarding the beneficial ownership of St. John Knits International's common
stock by: (i) each person who is known by SJKI to be the beneficial owner of
more than 5% of the common stock; (ii) each of the directors of St. John Knits
International; (iii) each executive officer listed in the Summary Compensation
Table above; and (iv) all current directors and executive officers of St. John
Knits International as a group.
<TABLE>
<CAPTION>
APPROXIMATE
NUMBER OF SHARES
BENEFICIALLY
NAME OWNED PERCENTAGE OWNED
- ---------------------------------------------------------------------------- ----------------- -------------------
<S> <C> <C>
Vestar/Gray Investors LLC(1)................................................ 6,090,205 93.03%
1225 17th Street, Suite 1660
Denver, Colorado 80202
Bob Gray(2)................................................................. 611,412 9.34%
Marie Gray(2)............................................................... 611,412 9.34%
Kelly Gray.................................................................. 357,571 5.46%
Bruce Fetter................................................................ -- --
Daniel O'Connell(3)......................................................... 5,121,222 78.23%
James Kelley(3)............................................................. 5,121,222 78.23%
Sander Levy(3).............................................................. 5,121,222 78.23%
All current directors and executive officers as a group (seven persons)..... 6,090,205 93.03%
</TABLE>
- ------------------------------
(1) Vestar Capital Partners III, L.P., 245 Park Avenue, New York, New York
10167, beneficially owns 5,121,222 shares, or approximately 78.23%, of St.
John Knits International's common stock through its controlling interest in
Vestar/SJK Investors LLC, which owns approximately 84% of Vestar/Gray
Investors.
(2) Includes 556,772 shares which are beneficially owned (through Vestar/Gray
Investors) by the Gray Family Trust, of which Robert and Marie Gray serve as
co-trustees and are the sole beneficiaries. In addition, includes 54,640
shares which are beneficially owned (through Vestar/Gray Investors) by the
Kelly Ann Gray Trust, of which Robert and Marie Gray serve as co-trustees
and of which Kelly Gray is the sole beneficiary.
(3) Includes shares beneficially owned by Vestar. Each of Mr. O'Connell, Mr.
Kelley and Mr. Levy disclaims the existence of a group and disclaims
beneficial ownership of the common stock not held by him.
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<PAGE>
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
SJKI leases its corporate office and manufacturing facility in Irvine,
California from GM Properties, a partnership in which the Gray Family Trust, of
which Bob and Marie Gray serve as co-trustees and are the sole beneficiaries,
has a 50% general partnership interest. The lease is for a five-year term
expiring on May 30, 2001, with SJKI having the option to extend the lease for
another five-year term at a lease amount to be agreed upon. The current base
monthly lease payment under this lease is approximately $60,000, with annual
increases of 4%. During fiscal years 1998, 1997 and 1996, SJKI paid GM
Properties approximately $701,000, $621,000 and $645,000, respectively, under
this lease.
SJKI leases its Alhambra, California manufacturing facility from Alhambra
Partners, a limited partnership in which the Gray Family Trust has a 65% general
partnership interest. The lease is for a five-year term expiring on August 31,
2001, with SJKI having the option to extend the lease for a five-year term at a
lease amount to be agreed upon. The current base monthly lease payment under
this lease is approximately $24,000, with annual increases of 4%. During fiscal
years 1998, 1997 and 1996, SJKI paid Alhambra Partners approximately $274,000,
$263,000 and $321,000, respectively, under this lease.
SJKI periodically rents certain personal property from Ocean Air Charters,
Inc. ("Ocean"), in which Bob Gray and Marie Gray are the sole shareholders.
During fiscal years 1998, 1997 and 1996, SJKI paid approximately $21,000,
$30,000 and $37,000, respectively, with respect to such property. In addition,
St. John and Ocean each hold a 50% ownership interest in a partnership
("Partnership") which owns an airplane. As of November 1, 1998, each partner had
a net capital investment in the Partnership of approximately $854,000. During
fiscal years 1998, 1997 and 1996, the Partnership leased the airplane to SJKI
and received lease payments totaling approximately $868,000, $840,000 and
$572,000, respectively. As of April 1, 1999, St. John and the Partnership
entered into a lease agreement for the airplane expiring March 31, 2001, at a
lease rate of $93,000 per month.
Each of the arrangements between SJKI and entities controlled by the Gray
family is, in the opinion of management, on terms no less favorable to SJKI than
those that were available from persons not affiliated with SJKI.
CERTAIN AGREEMENTS RELATING TO THE TRANSACTIONS
Vestar Capital, St. John Knits International and St. John have entered into
a management agreement. Pursuant to the management agreement, St. John Knits
International and St. John paid to Vestar Capital a transaction fee of $4.0
million at closing and reimbursed Vestar Capital for all out-of-pocket expenses
incurred in connection with the mergers. In addition, under the agreement Vestar
Capital will provide management services, including advisory and consulting
services, in relation to the selection, supervision and retention of independent
auditors, outside legal counsel, investment bankers or other financial advisors
or consultants. For these services, the management agreement provides that St.
John Knits International and St. John will pay Vestar Capital an annual fee of
$500,000 and will reimburse Vestar Capital for all out-of-pocket expenses. The
management agreement will terminate if Vestar Capital and its partners and their
respective affiliates, through Vestar/Gray Investors or otherwise, hold, in the
aggregate, less than 50% of the St. John Knits International stock beneficially
owned by Vestar immediately following the closing of the transactions and cease
to control a majority of St. John Knits International's board of directors.
St. John Knits International is approximately 93% owned by Vestar/Gray
Investors. Vestar beneficially owns approximately 84%, and the Grays
beneficially own approximately 16%, of Vestar/ Gray Investors. The Vestar/Gray
Investors limited liability company agreement provides, among other things, that
Vestar may appoint three of St. John Knits International's five directors and
the Grays may appoint the remaining two directors. The right of Vestar and the
Grays to appoint directors will be
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<PAGE>
subject to reduction to the extent the amount of St. John Knits International
stock allocated to either is reduced.
St. John Knits International has entered into a stockholders' agreement with
stockholders of St. John Knits International, including Vestar/Gray Investors,
Vestar and the Grays, which states, among other things, that (i) prior to a
public offering of St. John Knits International common stock, if Bob Gray ceases
to serve as Chairman or Chief Executive Officer of St. John or St. John Knits
International or if the employment with SJKI of Marie Gray or Kelly Gray ceases
for any reason, then he or she will have the right to require St. John Knits
International, or, under some circumstances, St. John, to purchase the shares of
St. John Knits International common stock beneficially owned by such employee,
up to a maximum of $5.0 million worth of such common stock for all Gray
employees during any 12-month period; and (ii) prior to a public offering of St.
John Knits International common stock, if any of the Grays is terminated without
"cause" or resigns for "good reason," as these terms are defined in their
current respective employment agreements with St. John, then he or she will have
the right to require St. John Knits International, or, under some circumstances,
St. John, to purchase shares of St. John Knits International common stock
beneficially owned by such employee, up to a maximum of 25% of the common stock
beneficially owned by all such terminated or resigning Gray employees during any
12-month period.
The stockholders' agreement also provides that each of the Grays, so long as
he or she is employed by SJKI and for a period of five years after he or she
ceases to be so employed, will not, directly or indirectly, engage in the
design, manufacturing, production, marketing, sale or distribution of women's
clothing or accessories anywhere in the world in which SJKI is doing business,
other than through his or her employment with SJKI. The agreement also provides
that if Kelly Gray is terminated without "cause" or resigns for "good reason,"
as defined under her current employment agreement, the term of the non-compete
period will be reduced to three years, and, subject to restrictions, she will be
permitted to engage in certain otherwise competitive activities.
The Preferred Stock is currently held by Vestar/SJK Investors LLC, Kelly A.
Gray and The Gray Family Trust. The holders of the Preferred Stock will be
entitled to up to five demand registration rights at the expense of SJKI.
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<PAGE>
DESCRIPTION OF SENIOR CREDIT FACILITIES
In connection with the transactions, St. John Knits International entered
into a credit agreement (the "Credit Agreement") with The Chase Manhattan Bank,
as administrative agent (the "Agent"), and the Lenders named therein (the
"Lenders") that provided term loans of $190.0 million and a revolving credit
facility of up to $25.0 million. Chase Securities Inc. acted as advisor and
arranger (the "Arranger") in connection with the senior credit facilities. The
following is a summary description of the principal terms of the senior credit
facilities and is subject to and qualified in its entirety by reference to the
Credit Agreement.
STRUCTURE
Loans under the Credit Agreement consist of (i) the $75.0 million Term Loan
A; (ii) the $115.0 million Term Loan B; and (iii) the $25.0 million revolving
credit facility (a portion of which will be available for letters of credit and
in the form of swingline loans). St. John Knits International used the proceeds
from the Term Loans to provide a portion of the funding necessary to consummate
the acquisition merger. St. John Knits International will use the revolving
credit facility for working capital requirements.
SECURITY; GUARANTY
The obligations of St. John Knits International under the senior credit
facilities are unconditionally and irrevocably guaranteed, jointly and
severally, by each existing and subsequently acquired or organized domestic, and
to the extent no adverse tax consequences to St. John Knits International or
such subsidiary would result from such guarantees, each foreign subsidiary of
St. John Knits International. In addition, the senior credit facilities and the
guarantees thereunder are secured by substantially all of the assets of St. John
Knits International and its subsidiaries (collectively, the "Collateral"),
including but not limited to (i) a first priority pledge of all the capital
stock of each existing and subsequently acquired or organized subsidiary of St.
John Knits International (which pledge, in the case of any foreign subsidiary,
will be limited to 65% of the capital stock of such foreign subsidiary to the
extent the pledge of any greater percentage could result in adverse tax
consequences to St. John Knits International or such subsidiary); and (ii) a
perfected first priority security interest in, and mortgage on, substantially
all tangible and intangible assets of St. John Knits International and each
existing and subsequently acquired domestic, and to the extent no adverse tax
consequence to St. John Knits International or such subsidiary could result
therefrom, each foreign, subsidiary of St. John Knits International (including
but not limited to accounts receivable, documents, inventory, equipment,
intellectual property, investment property, general intangibles, real property,
cash and cash accounts and proceeds of the foregoing), in each case subject to
certain limited exceptions. The Credit Agreement provides for the release of
guarantees under certain limited circumstances.
AVAILABILITY
Amounts repaid or prepaid under the Term Loans may not be reborrowed.
Amounts under the revolving credit facility will be available on a revolving
basis.
AMORTIZATION; INTEREST
Term Loan A will be repayable in quarterly principal payments over six
years. The scheduled annual payments, in equal quarterly installments, are $3.0
million during the first year, $5.0 million during the second year, $7.0 million
during the third year, $11.0 million during the fourth year, $22.0 million
during the fifth year and $27.0 million during the sixth year. Term Loan A will
bear interest at a rate per annum equal (at St. John Knits International's
option) to: (i) an adjusted London interbank offered rate ("Adjusted LIBOR")
plus 3.00% or (ii) a rate equal to the highest of the Agent's
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prime rate, a certificate of deposit rate plus 1% and the Federal Funds
effective rate plus 1/2 of 1% (the "Alternate Base Rate") plus 2.00%, in each
case subject to certain reductions based on SJKI's financial performance. Term
Loan B will be repayable in quarterly principal payments over eight years, with
no payment scheduled during the first year, payments totaling $1.0 million per
year for the second through fifth years and payments totaling $11.0 million
during the sixth year, $40.0 million during the seventh year and $60.0 million
during the eighth year, and will bear interest at a rate per annum equal (at
St. John Knits International's option) to: (i) Adjusted LIBOR plus 3.50% or (ii)
the Alternate Base Rate plus 2.50%, in each case subject to certain reductions
based on SJKI's financial performance. The revolving credit facility will be a
six year facility and outstanding balances thereunder will bear interest at a
rate per annum equal (at St. John Knits International's option) to: (i) Adjusted
LIBOR plus 3.00% or (ii) the Alternate Base Rate plus 2.00%, in each case
subject to certain reductions based on SJKI's financial performance. Amounts
under the senior credit facilities not paid when due bear interest at a default
rate equal to 2.00% above the otherwise applicable rate.
PREPAYMENTS
The senior credit facilities permit St. John Knits International to prepay
loans and to permanently reduce revolving credit commitments, in whole or in
part, at any time. In addition, St. John Knits International is required to make
mandatory prepayments of Term Loans, subject to certain exceptions, in amounts
equal to (i) 75% of Excess Cash Flow (as defined in the Credit Agreement); and
(ii) 100% of the net cash proceeds of certain dispositions of assets or
issuances of debt or equity of St. John Knits International or any of its
subsidiaries (in each case, subject to certain exceptions and subject to a
reduction to zero based upon SJKI's financial performance). Mandatory and
optional prepayments of the Term Loans will be allocated pro rata between Term
Loan A and Term Loan B and applied ratably based on the number of remaining
installments under each, except that, so long as Term Loan A is outstanding, the
Lenders participating in Term Loan B will have the right to refuse mandatory
prepayments, in which case such prepayments will be applied to Term Loan A. Any
prepayment of Adjusted LIBOR loans other than at the end of an interest period
will be subject to reimbursement of breakage costs.
FEES
St. John Knits International is required to pay the Lenders, on a quarterly
basis, a commitment fee equal to 1/2 of 1% per annum on the undrawn portion of
the unused commitments, subject to reductions based upon SJKI's financial
performance. St. John Knits International is also required to pay (i) a
commission on the face amount of all outstanding letters of credit equal to (A)
with respect to trade letters of credit, 1.25% per annum and (B) with respect to
all other letters of credit, the applicable margin then in effect for Adjusted
LIBOR loans under the revolving credit facility, less amounts paid under clause
(ii) below, (ii) a fronting fee in the amount of 0.25% per annum on each letter
of credit, to the issuing bank on a quarterly basis, (iii) annual administration
fees and (iv) agent, arrangement and other similar fees.
COVENANTS
The senior credit facilities contain covenants that, among other things,
restrict the ability of St. John Knits International and its subsidiaries to
dispose of assets, incur additional indebtedness, incur guarantee obligations,
prepay other indebtedness or amend other debt instruments, pay dividends, create
liens on assets, enter into sale and leaseback transactions, make investments,
loans or advances, make acquisitions, engage in mergers or consolidations,
change the business conducted by SJKI, make capital expenditures, or engage in
certain transactions with affiliates and otherwise restrict certain corporate
activities. In addition, under the senior credit facilities, St. John Knits
International is
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required to comply with specified financial ratios, including minimum interest
coverage ratios, maximum leverage ratios and minimum fixed charge coverage
ratios.
The senior credit facilities also contain provisions that prohibit any
modification of the indenture in any manner adverse to the Lenders and that
limit St. John Knits International's ability to refinance or otherwise prepay
the notes without the consent of such Lenders.
EVENTS OF DEFAULT
The senior credit facilities contain customary events of default, including
payment defaults, breach of representations and warranties, covenant defaults,
cross-defaults to certain other indebtedness, certain events of bankruptcy and
insolvency, ERISA events, judgment defaults, actual or asserted invalidity of
any security interest and change of control.
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THE EXCHANGE OFFER
GENERAL
We are offering, upon the terms and subject to the conditions set forth in
this prospectus and in the accompanying letter of transmittal, which together
constitute the exchange offer, to exchange up to $100.0 million aggregate
principal amount of exchange notes for a like aggregate principal amount of
outstanding notes properly tendered on or prior to the expiration date and not
withdrawn as permitted by the procedures described below. We are making the
exchange offer with respect to all of the outstanding notes.
The exchange notes will be substantially identical to the outstanding notes,
except that because we have registered the exchange notes they:
- will be freely tradeable;
- will not bear legends restricting their transfer;
- will not be subject to any additional obligations regarding registration
under the Securities Act; and
- will not be subject to the special interest payments described in
"Exchange and Registration Rights."
PURPOSE AND EFFECT OF THE EXCHANGE OFFER
The outstanding notes were issued on July 7, 1999 in a transaction exempt
from the registration requirements of the Securities Act. Accordingly, the
outstanding notes may not be reoffered, resold, or otherwise transferred unless
registered under the Securities Act or an applicable exemption from the
registration and prospectus delivery requirements of the Securities Act is
available.
In connection with the issuance and sale of the outstanding notes, we
entered into an exchange and registration rights agreement with the initial
purchasers of the outstanding notes, in which we and our subsidiaries
guaranteeing the outstanding notes agreed:
- to use our reasonable best efforts to file with the Securities and
Exchange Commission, within 90 days of July 7, 1999, a registration
statement under the Securities Act relating to this exchange offer;
- to use our reasonable best efforts to cause the registration statement to
become effective as soon as practicable, but no later than 150 days after
July 7, 1999; and
- to commence the exchange offer promptly after the exchange offer
registration statement has become effective, hold the offer open for at
least 30 days and exchange the exchange notes for all outstanding notes
validly tendered and not withdrawn before the expiration of the offer.
We are making this exchange offer in order to satisfy our obligations with
respect to the exchange and registration rights agreement. A copy of the
exchange and registration rights agreement has been filed as an exhibit to the
registration statement of which this prospectus is a part.
Other than pursuant to the exchange and registration rights agreement, we
are not required to file any registration statement to register any outstanding
notes which remain outstanding. If you hold outstanding notes and do not tender
your outstanding notes or your outstanding notes are tendered but not accepted,
you will have to rely on exemptions to registration requirements under the
securities laws, including the Securities Act, if you wish to sell your
outstanding notes.
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If we fail to comply with the obligations described above under the exchange
and registration rights agreement, we will be required to pay you additional
interest. Please read the section captioned "Exchange and Registration Rights"
for more details regarding the exchange and registration rights agreement.
If you wish to exchange your outstanding notes for transferable exchange
notes in the exchange offer, you will be required to represent to us that, among
other things:
- any exchange notes that you receive will be acquired in the ordinary
course of your business;
- you have no arrangement or understanding with any person or entity to
participate in, and do not intend to engage in, a distribution of the
exchange notes;
- if you are a broker-dealer that will receive exchange notes for your own
account in exchange for outstanding notes that you have acquired as a
result of market-making or trading activities, that you will deliver a
prospectus, as required by law, in connection with any resale of those
exchange notes;
- you are not an affiliate, as defined in Rule 405 of the Securities Act, of
St. John Knits International or, if you are an affiliate, that you will
comply with applicable registration and prospectus delivery requirements
of the Securities Act; and
- if you are a person in the United Kingdom, that your ordinary activities
involve you in acquiring, holding, managing or disposing of investments,
as principal or agent, for the purposes of your business.
RESALE OF EXCHANGE NOTES
Based on interpretations of the staff of the Securities and Exchange
Commission set forth in no-action letters issued to unrelated third parties, we
believe that the exchange notes may be offered for resale, resold and otherwise
transferred by you without compliance with the registration and prospectus
delivery provisions of the Securities Act, if:
- you are acquiring the exchange notes in the ordinary course of your
business;
- you have not engaged in, do not intend to engage in, and have no
arrangement or understanding with any person to participate in, a
distribution of the exchange notes; and
- you are not an affiliate of St. John Knits International within the
meaning of Rule 405 under the Securities Act.
See "K-III Communications Corporation," SEC No-Action Letter, available May
14, 1993; "Mary Kay Cosmetics, Inc.," SEC No-Action Letter, available June 5,
1991; "Morgan Stanley & Co., Incorporated," SEC No-Action Letter, available June
5, 1991; and "Exxon Capital Holdings Corporation," SEC No-Action Letter,
available May 13, 1988.
If you do not meet these requirements:
- you cannot rely on the position of the staff of the Securities and
Exchange Commission enunciated in "Exxon Capital Holdings Corporation" or
similar interpretive letters; and
- you must comply with the registration and prospectus delivery requirements
of the Securities Act in connection with a secondary resale transaction,
unless an exemption to these requirements is applicable.
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 outstanding
notes as a result of market-making or trading activity may participate in the
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exchange offer. Each broker-dealer that receives exchange notes for its own
account in exchange for outstanding notes acquired as a result of market-making
or trading activity 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 for exchange any outstanding
notes properly tendered and not withdrawn prior to the expiration date. We will
issue $1,000 principal amount of exchange notes in exchange for each $1,000
principal amount of outstanding notes surrendered under the exchange offer.
Outstanding notes may be tendered only in integral multiples of $1,000.
The exchange notes will be issued under 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 the indenture.
The exchange offer is not conditioned upon any minimum aggregate principal
amount of outstanding notes being tendered for exchange.
As of the date of this prospectus, $100.0 million aggregate principal amount
of the outstanding notes is outstanding. This prospectus and the letter of
transmittal are being sent to all registered holders of outstanding notes. There
will be no fixed record date for determining those who are registered holders of
outstanding notes entitled to participate in the exchange offer.
We intend to conduct the exchange offer in accordance with the provisions of
the exchange and registration rights agreement, the applicable requirements of
the Securities Act and the Exchange Act and the rules and regulations of the
Securities and Exchange Commission. Outstanding notes that are not tendered for
exchange will remain outstanding and continue to accrue interest and will be
entitled to the rights and benefits relating to the outstanding notes under the
indenture and the exchange and registration rights agreement.
We will be deemed to have accepted for exchange properly tendered
outstanding notes when we have given oral or written notice of the acceptance to
the exchange agent. The exchange agent will act as your agent for the purposes
of receiving the exchange notes from us and delivering exchange notes to you.
Subject to the terms of the exchange and registration rights agreement, we
expressly reserve the right to amend or terminate the exchange offer, and not to
accept for exchange any outstanding notes not previously accepted for exchange,
upon the occurrence of any of the conditions specified below under the caption
"--Conditions to the Exchange Offer."
If you tender outstanding notes in the exchange offer, you 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. We will pay all charges and expenses, other than specific
applicable taxes described below, in connection with the exchange offer. It is
important that you read the section labeled "--Fees and Expenses" below for more
details regarding fees and expenses incurred in the exchange offer.
EXPIRATION DATE; EXTENSIONS; AMENDMENTS
The exchange offer will expire at 5:00 p.m., New York City time on ,
1999, unless in our sole discretion, we extend it.
In order to extend the exchange offer, we will notify the exchange agent
orally or in writing of any extension. We will notify registered holders of
outstanding notes 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:
- to delay accepting for exchange any outstanding notes;
- to extend the exchange offer or to terminate the exchange offer and to
refuse to accept outstanding notes not previously accepted if any of the
conditions set forth below under "--Conditions to the Exchange Offer" have
not been satisfied, by giving oral or written notice of the delay,
extension or termination to the exchange agent; or
- subject to the terms of the exchange and registration rights agreement, to
amend the terms of the exchange offer in any manner.
Any delay in acceptance, extension, termination or amendment will be
followed as promptly as practicable by oral or written notice of the delay to
registered holders of the outstanding notes. If we amend the exchange offer in a
manner that we determine to constitute a material change, we will promptly
disclose the amendment in a manner reasonably calculated to inform you of the
amendment.
Without limiting the manner in which we may choose to make public
announcements of any delay in acceptance, extension, termination or amendment of
the exchange offer, we have no obligation to publish, advertise, or otherwise
communicate those public announcements, other than by making a timely release to
a financial news service.
CONDITIONS TO THE EXCHANGE OFFER
Despite any other term of the exchange offer, we will not be required to
accept for exchange, or exchange any exchange notes for, any outstanding notes,
and we may terminate the exchange offer as provided in this prospectus before
accepting any outstanding notes for exchange if in our reasonable judgment:
- any action or proceeding is instituted or threatened in any court or by or
before any governmental agency or regulatory authority, or any injunction,
order or decree is issued with respect to the exchange offer which, in our
sole judgment, might materially impair our ability to proceed with the
exchange offer or have a material adverse effect on the contemplated
benefits of the exchange offer to us; or
- any change or any development involving a prospective change shall have
occurred or been threatened in our business, properties, assets,
liabilities, financial condition, operations, results of operations or
prospects that is or may be adverse to us, or we shall have become aware
of facts that have or may have adverse significance with respect to the
value of the outstanding notes or the exchange notes or that may
materially impair the contemplated benefits of the exchange offer to us;
or
- any law, rule or regulation or applicable interpretations of the staff of
the Securities and Exchange Commission is issued or promulgated which, in
our good faith determination, do not permit us to effect the exchange
offer; or
- any governmental approval has not been obtained, which approval we, in our
sole discretion, deem necessary for the consummation of the exchange
offer; or
- there shall have been proposed, adopted or enacted any law, statute, rule
or regulation or an amendment to any existing law, statute, rule or
regulation which, in our sole judgment, might materially impair our
ability to proceed with the exchange offer or have a material adverse
effect on the contemplated benefits of the exchange offer to us; or
- there shall occur a change in the current interpretation by the staff of
the Securities and Exchange Commission which permits the outstanding notes
to be offered for resale, resold and otherwise transferred by holders who
are not affiliates of ours within the meaning of Rule 405
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under the Securities Act without compliance with the registration and
prospectus delivery provisions of the Securities Act provided that the
notes are acquired in the ordinary course of the holders' business and the
holder have no arrangement with any person to participate in the
distribution of the outstanding notes.
In addition, we will not be obligated to accept for exchange your
outstanding notes if you have not made to us:
- the representations described under "--Purpose and Effect of the Exchange
Offer," "--Procedures for Tendering" and "Plan of Distribution;" and
- those other representations as may be reasonably necessary under
applicable Securities and Exchange Commission rules, regulations or
interpretations to make available to us 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 the exchange offer is open. Consequently, we may
delay acceptance of any outstanding notes by giving oral or written notice of an
extension. During an extension, all outstanding notes previously tendered will
remain subject to the 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 as promptly as practicable after the expiration or
termination of the exchange offer.
We expressly reserve the right to amend or terminate the exchange offer, and
to reject for exchange any outstanding notes not previously accepted for
exchange, upon the occurrence of any of the conditions of the exchange offer
specified above. We will give oral or written notice of any amendment or
termination as promptly as practicable.
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 reasonably
determine that one or more conditions have not been satisfied. If we fail at any
time to exercise any of the rights above, this failure will not constitute a
waiver of those rights. Each of those rights 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 outstanding notes, if any
stop order is threatened or in effect with respect to the registration statement
of which this prospectus constitutes a part or the qualification of the
indenture under the Trust Indenture Act of 1939.
PROCEDURES FOR TENDERING
Only a registered holder of outstanding notes may tender outstanding notes
in the exchange offer. If you are a registered holder of outstanding notes, to
tender in the exchange offer, you must:
- 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 mail or deliver
the letter of transmittal or facsimile to the exchange agent prior to the
expiration date; or
- comply with The Depository Trust Company's Automated Tender Offer Program
procedures described below.
In addition, with respect to delivery of the outstanding notes, either:
- the exchange agent must receive the outstanding notes along with the
letter of transmittal; or
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- the exchange agent must receive confirmation of book-entry transfer of the
outstanding notes into the exchange agent's account at The Depository
Trust Company according to the procedure for book-entry transfer described
below or a properly transmitted agent's message; or
- you must comply with the guaranteed delivery procedures described below.
If you physically deliver the letter of transmittal and other required
documents, the exchange agent must receive them at the address set forth below
under "--Exchange Agent" prior to the expiration date.
If you tender your outstanding notes and do not withdraw your tender prior
to the expiration date, your tender will constitute an agreement between you and
us in accordance with the terms and subject to the conditions set forth in this
prospectus and in the letter of transmittal.
The method of delivery of outstanding notes, the letter of transmittal and
all other required documents to the exchange agent is at your election and risk.
Rather than mail these items, we recommend that you use an overnight or hand
delivery service. In all cases, you should allow sufficient time to assure
delivery to the exchange agent before the expiration date. You should not send
the letter of transmittal or outstanding notes to us. You may request your
broker, dealer, commercial bank, trust company or other nominee to effect the
above transactions for you.
If your outstanding notes are registered in the name of a broker, dealer,
commercial bank, trust company or other nominee and you wish to tender, you
should contact that party promptly and instruct it to tender on your behalf. If
your outstanding notes are registered in the name of a nominee and you wish to
tender on your own behalf, you must, prior to completing and executing the
letter of transmittal and delivering outstanding notes, either:
- make appropriate arrangements to register ownership of the outstanding
notes in your name; or
- obtain a properly completed bond power from the nominee. The bond power
must be signed by the nominee as its name appears on the outstanding
notes, and an eligible institution must guarantee the signature on the
bond power.
The transfer of registered ownership may take considerable time and may not
be completed prior to the expiration date.
Your signature on a letter of transmittal or a notice of withdrawal
described below must be guaranteed by a member firm of a registered national
securities exchange or of the National Association of Securities Dealers, Inc.,
a commercial bank or trust company having an office or correspondent in the
United States or another eligible institution within the meaning of Rule 17Ad-15
under the Exchange Act, unless you:
- are the registered owner of the outstanding notes, and you have not
completed the box entitled "Special Issuance Instructions" or "Special
Delivery Instructions" on the letter of transmittal; or
- are an eligible institution.
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, those persons should so indicate when signing. They must also submit
evidence satisfactory to us of their authority to deliver the letter of
transmittal.
The exchange agent and The Depository Trust Company have confirmed that any
financial institution that is a participant in The Depository Trust Company's
system may use The Depository Trust Company's Automated Tender Offer Program to
tender. If you are a participant in the program, you may, instead of physically
completing and signing the letter of transmittal and delivering it to the
exchange agent, transmit your acceptance of the exchange offer electronically.
You may do so by
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causing The Depository Trust Company to transfer the outstanding notes to the
exchange agent in accordance with its procedures for transfer. The Depository
Trust Company will then send an agent's message to the exchange agent. An
agent's message is a message transmitted by The Depository Trust Company,
received by the exchange agent and forming part of the book-entry confirmation,
to the effect that:
- The Depository Trust Company has received an express acknowledgment from a
participant in its Automated Tender Offer Program that is tendering
outstanding notes that are the subject of the book-entry confirmation;
- the participant has received and agrees to be bound by the terms of the
letter of transmittal; alternatively, in the case of an agent's message
relating to guaranteed delivery, that the participant has received and
agrees to be bound by the applicable notice of guaranteed delivery; and
- the agreement may be enforced against the participant.
We will determine in our sole discretion all questions as to the validity,
form, eligibility, time of receipt, acceptance of tendered outstanding notes 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 our 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 the 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 shall determine. Although we intend to notify you 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
that notification. Tenders of outstanding notes will not be deemed made until
the 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 by
the exchange agent without cost to the person that tendered, 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 the exchange offer only after the exchange
agent timely receives:
- outstanding notes or a timely book-entry confirmation of the outstanding
notes into the exchange agent's account at The Depository Trust Company;
and
- a properly completed and duly executed letter of transmittal and all other
required documents or a properly transmitted agent's message.
TERMS AND CONDITIONS OF THE LETTER OF TRANSMITTAL
The letter of transmittal contains, among other things, the following terms
and conditions, which are part of the exchange offer.
The party tendering outstanding notes for exchange exchanges, assigns and
transfers the outstanding notes to us and irrevocably constitutes and appoints
the exchange agent as the transferor's agent and attorney-in-fact to cause the
outstanding notes to be assigned, transferred and exchanged. The transferor
represents and warrants that it has full power and authority to tender,
exchange, assign and transfer the outstanding notes and to acquire exchange
notes issuable upon the exchange of the tendered outstanding notes, and that,
when the outstanding notes are accepted for exchange, we will acquire good and
unencumbered title to the tendered outstanding notes, free and clear of all
liens,
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restrictions, charges and encumbrances and not subject to any adverse claim. The
transferor also warrants that it will, upon request, execute and deliver any
additional documents deemed by the exchange agent or us to be necessary or
desirable to complete the exchange, assignment and transfer of tendered
outstanding notes or transfer ownership of the outstanding notes on the account
books maintained by a book-entry transfer facility. The transferor further
agrees that acceptance of any tendered outstanding notes by us and the issuance
of exchange notes in exchange for outstanding notes will constitute performance
in full by us and our subsidiaries guaranteeing the outstanding notes of our
obligations under the exchange and registration rights agreement described above
under "--Purpose and Effect of the Exchange Offer". All authority conferred by
the transferor will survive the death or incapacity of the transferor and every
obligation of the transferor shall be binding upon the heirs, legal
representatives, successors, assigns, executors and administrators of the
transferor.
By agreeing to be bound by the letter of transmittal, you will represent to
us that:
- any exchange notes that you receive will be acquired in the ordinary
course of your business;
- you have no arrangement or understanding with any person or entity to
participate in, and do not intend to engage in, a distribution of the
exchange notes;
- if you are a broker-dealer that will receive exchange notes for your own
account in exchange for outstanding notes that you have acquired as a
result of market-making or trading activities, that you will deliver a
prospectus, as required by law, in connection with any resale of those
exchange notes;
- you are not an affiliate, as defined in Rule 405 of the Securities Act, of
St. John Knits International or, if you are an affiliate, that you will
comply with applicable registration and prospectus delivery requirements
of the Securities Act; and
- if you are a person in the United Kingdom, that your ordinary activities
involve you in acquiring, holding, managing or disposing of investments,
as principal or agent, for the purposes of your business.
BOOK-ENTRY TRANSFER
The exchange agent will make a request to establish an account with respect
to the outstanding notes at The Depository Trust Company for purposes of the
exchange offer promptly after the date of this prospectus. If you are a
financial institution participating in The Depository Trust Company's system,
you may make book-entry delivery of outstanding notes by causing The Depository
Trust Company to transfer the outstanding notes into the exchange agent's
account at The Depository Trust Company in accordance with The Depository Trust
Company's procedures for transfer. If you are unable to deliver confirmation of
the book-entry tender of your outstanding notes into the exchange agent's
account at The Depository Trust Company or other documents required by the
letter of transmittal to the exchange agent on or prior to the expiration date,
you must tender your outstanding notes according to the guaranteed delivery
procedures described below.
GUARANTEED DELIVERY PROCEDURES
If you wish to tender outstanding notes but your outstanding notes are not
immediately available or you cannot deliver your outstanding notes, the letter
of transmittal or any other required documents to the exchange agent or comply
with the applicable procedures under The Depository Trust Company's Automated
Tender Offer Program prior to the expiration date you may still tender your
outstanding notes in the exchange offer if:
- you make the tender through an eligible institution;
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- prior to 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
setting forth your name and address, the registered number(s) of the
outstanding notes, if applicable, and the principal amount of outstanding
notes tendered, stating that the tender of the outstanding notes is being
made and guaranteeing that, within three New York Stock Exchange trading
days after the expiration date, the letter of transmittal or facsimile of
the letter of transmittal together with the outstanding notes or a
book-entry confirmation, and any other documents required by the letter of
transmittal will be deposited by the eligible institution with the
exchange agent; and
- the exchange agent receives a properly completed and executed letter of
transmittal or facsimile of the letter of transmittal, as well as all
tendered outstanding notes in proper form for transfer or a book-entry
confirmation, and all other documents required by the letter of
transmittal, within three New York Stock Exchange trading days after the
expiration date.
Upon request to the exchange agent, a notice of guaranteed delivery will be
sent to you.
WITHDRAWAL OF TENDERS
Except as otherwise provided in this prospectus, you may withdraw your
tender at any time prior to the expiration date.
For a withdrawal to be effective:
- the exchange agent must receive a written notice, including telegram,
telex, facsimile transmission or letter of withdrawal at one of the
addresses set forth below under "--Exchange Agent", or
- you must comply with the appropriate procedures of The Depository Trust
Company's Automated Tender Offer Program system.
A notice of withdrawal must:
- specify the name of the person who tendered the outstanding notes to be
withdrawn;
- identify the outstanding notes to be withdrawn, including the principal
amount of the outstanding notes; and
- where certificates for outstanding notes have been transmitted, specify
the name in which the outstanding notes were registered.
If certificates for outstanding notes have been delivered or otherwise
identified to the exchange agent, then, prior to the release of those
certificates, you must also submit:
- the serial numbers of the particular certificates to be withdrawn; and
- a signed notice of withdrawal with signatures guaranteed by an eligible
institution unless you are an eligible institution.
If you have tendered outstanding notes pursuant to the procedure for
book-entry transfer described above, any notice of withdrawal must specify the
name and number of the account at The Depository Trust Company 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 the notices of withdrawal, and our
determination shall be final and binding on all parties. We will deem any
outstanding notes properly withdrawn not to have been validity tendered for
exchange for purposes of the exchange offer. We will return any outstanding
notes that you have tendered for exchange but that are not exchanged for any
reason to you without cost as
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soon as practicable after withdrawal, rejection of tender or termination of the
exchange offer. In the case of outstanding notes being tendered by book-entry
transfer into the exchange agent's account at The Depository Trust Company
according to the procedures described above, these outstanding notes will be
credited to an account maintained with The Depository Trust Company for
outstanding notes as soon as practicable after withdrawal, rejection of tender
or termination of the exchange offer. Properly withdrawn outstanding notes may
be re-tendered at any time on or prior to the expiration date.
EXCHANGE AGENT
The Bank of New York has been appointed as exchange agent for the exchange
offer. You should direct questions and requests for assistance, requests for
additional copies of this prospectus or of the letter of transmittal and
requests for the notice of guaranteed delivery to the exchange agent addressed
as follows:
<TABLE>
<S> <C>
FOR DELIVERY BY REGISTERED OR CERTIFIED MAIL: FOR OVERNIGHT DELIVERY ONLY OR BY HAND:
The Bank of New York The Bank of New York
101 Barclay Street 101 Barclay Street
New York, New York 10286 New York, New York 10286
Attn: Reorganization Unit Attn: Reorganization Unit
</TABLE>
BY FACSIMILE TRANSMISSION (FOR ELIGIBLE INSTITUTIONS ONLY):
The Bank of New York
(212) 815-6339
Attn: Reorganization Unit
FEES AND EXPENSES
We will bear the expenses of soliciting tenders. The principal solicitation
is being made by mail; however, we may make additional solicitation by
telegraph, telephone or in person by our officers and regular employees and
those of our affiliates.
We have not retained any dealer-manager in connection with the exchange
offer and will not make any payments to broker-dealers or others soliciting
acceptances of the exchange offer. We will, however, pay the exchange agent
reasonable and customary fees for its services and reimburse it for its related
reasonable out-of-pocket expenses.
We will pay the cash expenses to be incurred in connection with the exchange
offer. The expenses are estimated in the aggregate to be approximately
$ . They include:
- registration fees of the Securities and Exchange Commission;
- fees and expenses of the exchange agent and trustee;
- accounting and legal fees and printing costs; and
- related fees and expenses.
We will pay all transfer taxes, if any, applicable to the exchange of
outstanding notes under the exchange offer. If you tender outstanding notes,
however, you will be required to pay any transfer taxes whether imposed on the
registered holder of the outstanding notes, or any other person if:
- 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;
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- tendered outstanding notes are registered in the name of any person other
than the person signing the letter of transmittal; or
- a transfer tax is imposed for any reason other than the exchange of
outstanding notes under the exchange offer. If satisfactory evidence of
payment of the taxes is not submitted with the letter of transmittal, the
amount of the transfer taxes will be billed to the person tendering.
CONSEQUENCES OF FAILURE TO EXCHANGE
If you do not exchange outstanding notes, they may be more difficult to sell
because they will continue to be subject to transfer restrictions and may suffer
from reduced liquidity.
If you do not exchange your outstanding notes for exchange notes, your
outstanding notes will continue to be subject to restrictions on transfer. In
general, 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. We do
not currently anticipate that we will register the outstanding notes under the
Securities Act. In addition, the tender of outstanding notes in the exchange
offer will reduce the principal amount of the outstanding notes outstanding,
which may have an adverse effect upon, and increase the volatility of, the
market price of the outstanding notes due to a reduction in liquidity.
ACCOUNTING TREATMENT
We will record the exchange notes in our accounting records at the same
carrying value as the outstanding notes as reflected in our accounting records
on the date of exchange. Accordingly, we will not recognize any gain or loss for
accounting purposes in connection with the exchange offer. We will capitalize
the expenses of the exchange offer and amortize them over the life of the
related debt.
OTHER
Participation in the exchange offer is voluntary, and you should carefully
consider whether to accept. You are urged to consult your financial and tax
advisors in making your own decision on what action to take.
We may in the future seek to acquire untendered outstanding notes in open
market or privately negotiated transactions, through subsequent exchange offers
or otherwise. We have no present plans to acquire any outstanding notes that are
not tendered in the exchange offer or to file a registration statement to permit
resales of any untendered outstanding notes.
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DESCRIPTION OF THE NOTES
The outstanding notes were issued and the exchange notes will be issued
under an indenture dated as of July 7, 1999 among St. John Knits International,
the guarantors and The Bank of New York, as trustee (the "Trustee") a copy of
which has been filed as an exhibit to the registration statement of which this
prospectus is a part. Upon the issuance of the exchange notes, the indenture
will be subject to and governed by the Trust Indenture Act of 1939. The
following summary of certain provisions of the indenture and the notes does not
purport to be complete and is subject to, and is qualified in its entirety by
reference to, the Trust Indenture Act, and to all of the provisions of the
indenture, including the definitions of certain terms therein and those terms
made a part of the indenture by reference to the Trust Indenture Act, as in
effect on the date of the indenture. The definitions of certain capitalized
terms used in the following summary are set forth below under "--Certain
Definitions." References in this "Description of the Notes" section to "St. John
Knits International" mean only St. John Knits International and not any of its
Subsidiaries, and references to the notes refer to both the exchange notes and
the outstanding notes.
GENERAL
The outstanding notes were and the exchange notes will be issued only in
registered form, without coupons, in denominations of $1,000 and integral
multiples of $1,000. St. John Knits International will appoint the Trustee to
serve as registrar and paying agent under the indenture. No service charge will
be made for any registration of transfer or exchange of the notes, except for
any tax or other governmental charge that may be imposed in connection
therewith.
RANKING
The outstanding notes are and the exchange notes will be unsecured and will
rank junior to, and be subordinated in right of payment to, all existing and
future Senior Indebtedness of St. John Knits International, PARI PASSU in right
of payment with all Senior Subordinated Indebtedness of St. John Knits
International and senior in right of payment to all Subordinated Indebtedness of
St. John Knits International. At May 2, 1999, after giving pro forma effect to
the transactions, St. John Knits International would have had approximately
$190.0 million of Senior Indebtedness outstanding (exclusive of undrawn
commitments of $25.0 million). All debt incurred under the Credit Facility will
be Senior Indebtedness of St. John Knits International, is guaranteed by each of
the Guarantors on a senior basis and will be secured by substantially all of the
assets of St. John Knits International and such Guarantors.
MATURITY, INTEREST AND PRINCIPAL OF THE NOTES
The notes will be limited to $100.0 million aggregate principal amount and
will mature on July 1, 2009. Cash interest on the notes will accrue at a rate of
12 1/2% per annum and will be payable semi-annually in arrears on each January 1
and July 1 commencing January 1, 2000, to the holders of record of notes at the
close of business on December 15 and June 15, respectively, immediately
preceding such interest payment date. Cash interest will accrue from the most
recent interest payment date to which interest has been paid or, if no interest
has been paid, from July 7, 1999. Interest will be computed on the basis of a
360-day year of twelve 30-day months.
OPTIONAL REDEMPTION
The notes will be redeemable at the option of St. John Knits International,
in whole or in part, at any time on or after July 1, 2004, at the redemption
prices (expressed as a percentage of principal amount) set forth below, plus
accrued and unpaid interest thereon, if any, to the redemption date (subject to
the right of Holders of record on the relevant record date to receive interest
due on the
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relevant interest payment date), if redeemed during the 12-month period
beginning on July 1 of the years indicated below:
<TABLE>
<CAPTION>
REDEMPTION
YEAR PRICE
- ------------------------------------------------------------------------------------------- -----------
<S> <C>
2004....................................................................................... 106.250%
2005....................................................................................... 104.688%
2006....................................................................................... 103.125%
2007....................................................................................... 101.563%
2008 and thereafter........................................................................ 100.000%
</TABLE>
In addition, at any time and from time to time on or prior to July 1, 2002,
St. John Knits International may redeem in the aggregate up to 35% of the
originally issued aggregate principal amount of the notes with the net cash
proceeds of one or more Public Equity Offerings by St. John Knits International
at a redemption price in cash equal to 112.5% of the principal amount thereof,
plus accrued and unpaid interest thereon, if any, to the date of redemption
(subject to the right of Holders of record on the relevant record date to
receive interest due on the relevant interest payment date); PROVIDED, HOWEVER,
that at least 65% of the originally issued aggregate principal amount of the
notes must remain outstanding immediately after giving effect to each such
redemption (excluding any notes held by St. John Knits International or any of
its Affiliates). Notice of any such redemption must be given within 60 days
after the date of the closing of the relevant Public Equity Offering of St. John
Knits International.
SELECTION AND NOTICE OF REDEMPTION
In the event that less than all of the notes are to be redeemed at any time
pursuant to an optional redemption, selection of such notes for redemption will
be made by the Trustee in compliance with the requirements of the principal
national securities exchange, if any, on which the notes are listed or, if the
notes are not then listed on a national securities exchange, on a PRO RATA
basis, by lot or by such method as the Trustee shall deem fair and appropriate
(and in such manner as complies with applicable legal requirements); PROVIDED,
HOWEVER, that no notes of a principal amount of $1,000 or less shall be redeemed
in part; PROVIDED, FURTHER, HOWEVER, that if a partial redemption is made with
the net cash proceeds of a Public Equity Offering by St. John Knits
International, selection of the notes or portions thereof for redemption shall
be made by the Trustee only on a PRO RATA basis or on as nearly a PRO RATA basis
as is practicable (subject to the procedures of The Depository Trust Company),
unless such method is otherwise prohibited. Notice of redemption shall 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
such note shall state the portion of the principal amount thereof to be
redeemed. A new note in a principal amount equal to the unredeemed portion
thereof will be issued in the name of the Holder thereof upon cancellation of
the original note. On and after the redemption date, interest will cease to
accrue on notes or portions thereof called for redemption as long as St. John
Knits International has deposited with the paying agent for the notes funds in
satisfaction of the applicable redemption price pursuant to the indenture.
SUBORDINATION OF THE NOTES
The payment of the principal of, premium, if any, and interest on the notes
is subordinated in right of payment, to the extent and in the manner provided in
the indenture, to the prior payment in full in cash of all Senior Indebtedness.
Upon any payment or distribution of assets or securities of St. John Knits
International of any kind or character, whether in cash, property or securities
(excluding any payment or distribution of
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Permitted Junior Securities and excluding any payment from the trust described
under "--Satisfaction and Discharge of Indenture; Defeasance" (a "Defeasance
Trust Payment")), upon any dissolution or winding-up or liquidation or
reorganization of St. John Knits International or assignment for the benefit of
creditors of St. John Knits International or similar proceeding, whether
voluntary or involuntary or in bankruptcy, insolvency, receivership or other
proceedings, all Senior Indebtedness shall first be paid in full in cash before
the Holders of the notes or the Trustee on behalf of such Holders shall be
entitled to receive any payment by or on behalf of St. John Knits International
of the principal of, premium, if any, or interest on the notes, or any payment
by or on behalf of St. John Knits International to acquire any of the notes for
cash, property or securities, or any distribution by St. John Knits
International with respect to the notes of any cash, property or securities
(excluding any payment or distribution of Permitted Junior Securities and
excluding any Defeasance Trust Payment). Before any such payment or distribution
may be made by, or on behalf of, St. John Knits International in respect of the
principal of, premium, if any, or interest on the notes upon any such
dissolution or winding-up or liquidation or reorganization of St. John Knits
International or assignment for the benefit of creditors of St. John Knits
International or similar proceeding, whether voluntary or involuntary or in
bankruptcy, insolvency, receivership or other proceedings, any payment or
distribution of assets or securities of St. John Knits International of any kind
or character, whether in cash, property or securities (excluding any payment or
distribution of Permitted Junior Securities and excluding any Defeasance Trust
Payment), to which the Holders of the notes or the Trustee on their behalf would
be entitled, but for the subordination provisions of the indenture, shall be
made by St. John Knits International or by any receiver, trustee in bankruptcy,
liquidation trustee, agent or other Person making such payment or distribution,
directly to the holders of the Senior Indebtedness (PRO RATA to such holders on
the basis of the respective amounts of Senior Indebtedness held by such holders)
or their representatives or to the trustee or trustees or agent or agents under
any agreement or indenture pursuant to which any of such Senior Indebtedness may
have been issued, as their respective interests may appear, to the extent
necessary to pay all such Senior Indebtedness in full in cash after giving
effect to any prior or concurrent payment, distribution or provision therefor to
or for the holders of such Senior Indebtedness.
No direct or indirect payment of any kind or character (excluding any
payment or distribution of Permitted Junior Securities and excluding any
Defeasance Trust Payment) by or on behalf of St. John Knits International in
respect of principal of, premium, if any, or interest on the notes or to acquire
any of the notes, whether pursuant to the terms of the notes, upon acceleration,
pursuant to an Offer to Purchase or otherwise, will be made if, at the time of
such payment, there exists a default in the payment of all or any portion of the
obligations in respect of any Designated Senior Indebtedness, whether at
maturity, on account of mandatory redemption or prepayment, acceleration or
otherwise, and such default shall not have been cured or waived or the benefits
of this sentence waived by or on behalf of the requisite number of holders of
such Designated Senior Indebtedness. In addition, if any non-payment event of
default occurs with respect to any Designated Senior Indebtedness pursuant to
which the maturity thereof may be immediately accelerated, then upon and after
receipt by the Trustee of written notice (a "Payment Blockage Notice") from the
holder or holders of such Designated Senior Indebtedness or the trustee or agent
acting on behalf of the holders of such Designated Senior Indebtedness, unless
and until all such events of default have been cured or waived or have ceased to
exist or such Designated Senior Indebtedness has been discharged or repaid in
full in cash or the benefits of these provisions have been waived by the
requisite number of holders of such Designated Senior Indebtedness, no direct or
indirect payment of any kind or character (excluding any payment or distribution
of Permitted Junior Securities and excluding any Defeasance Trust Payment) will
be made by or on behalf of St. John Knits International in respect of principal
of, premium, if any, or interest on the notes or to acquire any of the notes,
upon acceleration, pursuant to an Offer to Purchase or otherwise to such
Holders, during a period (a "Payment Blockage Period") commencing on the date of
receipt of such Payment Blockage Notice by the Trustee and ending 179 days
thereafter.
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Notwithstanding anything in the subordination provisions of the indenture or the
notes to the contrary, (x) in no event will a Payment Blockage Period extend
beyond 179 days from the date the Payment Blockage Notice in respect thereof was
given, (y) there shall be a period of at least 181 consecutive days in each
360-day period when no Payment Blockage Period is in effect and (z) not more
than one Payment Blockage Period may be commenced with respect to the notes
during any period of 360 consecutive days. No event of default that existed or
was continuing on the date of commencement of any Payment Blockage Period with
respect to the Designated Senior Indebtedness initiating such Payment Blockage
Period (to the extent the holder of Designated Senior Indebtedness, or trustee
or agent, giving notice commencing such Payment Blockage Period had knowledge of
such existing or continuing event of default) may be, or be made, the basis for
the commencement of any other Payment Blockage Period by the holder or holders
of such Designated Senior Indebtedness or the trustee or agent acting on behalf
of such Designated Senior Indebtedness, whether or not within a period of 360
consecutive days, unless such event of default has been cured or waived for a
period of not less than 90 consecutive days (it being understood that a
subsequent act or event that constitutes a breach of a covenant or other
provision, including breach of a financial covenant with respect to a subsequent
period, shall be considered a separate event of default from a previous act or
event that constitutes a breach of the same covenant or other provision for this
purpose).
If any payment or distribution is made to the Trustee or any of the Holders
that should not have been made in accordance with the foregoing subordination
provisions, such payment or distribution shall be held in trust for, and paid or
delivered to, the holders of Senior Indebtedness or their representatives or to
the trustee or trustees or agent or agents therefor, as their respective
interests may appear.
The failure to make any payment or distribution for or on account of the
notes by reason of the provisions of the indenture described under this
"--Subordination of the Notes" heading will not be construed as preventing the
occurrence of any Event of Default in respect of the notes. See "--Events of
Default" below.
By reason of the subordination provisions described above, in the event of
insolvency of St. John Knits International, funds which would otherwise be
payable to Holders of the notes will be paid to the holders of Senior
Indebtedness to the extent necessary to pay the Senior Indebtedness in full in
cash, and St. John Knits International may be unable to meet fully its
obligations with respect to the notes.
At the time of the issuance of the exchange notes, the Credit Facility is
expected to be the only outstanding Senior Indebtedness. Subject to the
restrictions set forth in the indenture, in the future St. John Knits
International may issue additional Senior Indebtedness.
GUARANTEES OF THE NOTES
The indenture provides that each of the Guarantors will unconditionally
guarantee on a joint and several basis (the "Guarantees") all of St. John Knits
International's obligations under the notes, including its obligations to pay
principal, premium, if any, and interest with respect to the notes. The
Guarantees will be general unsecured obligations of the Guarantors. The
obligations of each Guarantor under its Guarantee will be subordinated and
junior in right of payment to the prior payment in full of all existing and
future Guarantor Senior Indebtedness of such Guarantor to substantially the same
extent as the notes are subordinated to all existing and future Senior
Indebtedness of St. John Knits International. Payments and distributions under
or in respect of the Guarantees will not be permitted when payment and
distributions by St. John Knits International under the notes are not permitted
by reason of the subordination provisions described above. The Guarantors will
also be guaranteeing all obligations of St. John Knits International under the
Credit Facility, and each Guarantor will be granting a security interest in all
or substantially all of its assets to secure the obligations under the Credit
Facility. The obligations of each Guarantor are limited to the maximum amount
which, after
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giving effect to all other contingent and fixed liabilities of such Guarantor
(including any Guarantor Senior Indebtedness Incurred after the Issue Date) and
after giving effect to any collections from or payments made by or on behalf of
any other Guarantor in respect of the obligations of such other Guarantor under
its Guarantee or pursuant to its contribution obligations under the indenture,
will result in the obligations of such Guarantor under its Guarantee not
constituting a fraudulent conveyance or fraudulent transfer under Federal or
state law. Each Guarantor that makes a payment or distribution under a Guarantee
shall be entitled to a contribution from each other Guarantor in a PRO RATA
amount, based on the net assets of each Guarantor determined in accordance with
GAAP.
At May 2, 1999, after giving pro forma effect to the transactions,
outstanding Guarantor Senior Indebtedness would have been approximately $190.0
million, all of which would have been outstanding under the Credit Facility; and
the Guarantors would have had no Guarantor Senior Subordinated Indebtedness
other than the Guarantees.
St. John Knits International shall cause each Domestic Restricted Subsidiary
issuing a Guarantee after the Issue Date to execute and deliver to the Trustee a
supplemental indenture in form reasonably satisfactory to the Trustee pursuant
to which such Domestic Restricted Subsidiary shall become a party to the
indenture and thereby unconditionally guarantee all of St. John Knits
International's Obligations under the notes and the indenture on the terms set
forth therein. Thereafter, such Domestic Restricted Subsidiary shall (unless
released in accordance with the terms of this indenture) be a Guarantor for all
purposes of the indenture.
The indenture provides that if the notes thereunder are defeased in
accordance with the terms of the indenture, or if all or substantially all of
the assets of any Guarantor or all of the Equity Interests of any Guarantor are
sold (including by consolidation, merger, issuance or otherwise) by St. John
Knits International (or pursuant to an exercise of remedies, or transfer in lieu
thereof, on behalf of any holder or holders of a Lien securing Senior
Indebtedness), and if (x) the Net Cash Proceeds from such Asset Sale are used in
accordance with the covenant described under "--Certain Covenants-- Disposition
of Proceeds of Asset Sales" or (y) St. John Knits International delivers to the
Trustee an officers' certificate to the effect that the Net Cash Proceeds from
such Asset Sale shall be used in accordance with the covenant described under
"--Certain Covenants--Disposition of Proceeds of Asset Sales" and within the
time limits specified by such covenant, then such Guarantor (in the event of a
sale or other disposition of all of the Equity Interests of such Guarantor) or
the corporation acquiring such assets (in the event of a sale or other
disposition of all or substantially all of the assets of such Guarantor) shall
be released and discharged of its Guarantee obligations in respect of the
indenture and the notes PROVIDED, HOWEVER, that a sale of a Guarantor (other
than by way of a sale or disposition pursuant to an exercise of remedies, or
transfer in lieu thereof, on behalf of any holder or holders of a Lien securing
Senior Indebtedness) will still be subject to St. John Knits International's
obligations under the first paragraph under "--Certain Covenants--Merger, Sale
of Assets, etc.".
Any Guarantor that is designated an Unrestricted Subsidiary pursuant to and
in accordance with "--Certain Covenants--Designation of Unrestricted
Subsidiaries" below shall upon such Designation be released and discharged of
its Guarantee obligations in respect of the indenture and the notes and any
Unrestricted Subsidiary whose Designation is revoked pursuant to "--Certain
Covenants-- Designation of Unrestricted Subsidiaries" below will be required to
become a Guarantor in accordance with the procedure described in the third
preceding paragraph.
OFFER TO PURCHASE UPON CHANGE OF CONTROL
Following the occurrence of a Change of Control (the date of such occurrence
being the "Change of Control Date"), St. John Knits International shall notify
the Holders of the notes of such occurrence in the manner prescribed by the
indenture and shall, within 45 days after the Change of Control Date, make an
Offer to Purchase all notes then outstanding at a purchase price in cash equal
to 101% of the
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aggregate principal amount thereof, plus accrued and unpaid interest thereon, if
any, to the Purchase Date (subject to the right of Holders of record on the
relevant record date to receive interest due on the relevant interest payment
date).
St. John Knits International will not be required to make an Offer to
Purchase upon a Change of Control if a third party makes the Offer to Purchase
in the manner, at the times and otherwise in compliance with the requirements
set forth in the indenture applicable to an Offer to Purchase made by St. John
Knits International and purchases all notes validly tendered and not withdrawn
under such Offer to Purchase.
St. John Knits International's ability to repurchase notes pursuant to an
Offer to Purchase may be limited by a number of factors. The occurrence of
certain of the events that constitute a Change of Control could constitute a
default under the Credit Facility. In addition, certain events that may
constitute a change of control under the Credit Facility and cause a default may
not constitute a Change of Control under the indenture. Future Indebtedness of
St. John Knits International and its Subsidiaries may also contain prohibitions
of certain events that would constitute a Change of Control or require such
Indebtedness to be repurchased upon a Change of Control. Moreover, the exercise
by the Holders of their right to require St. John Knits International 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 St. John Knits International. Finally, St. John Knits
International's ability to pay cash to the Holders upon a repurchase may be
limited by St. John Knits International's then existing financial resources.
There can be no assurance that sufficient funds will be available when necessary
to make any required repurchases.
Even if sufficient funds were otherwise available, the terms of the Credit
Facility will (and other Indebtedness may) prohibit St. John Knits
International's repurchase of notes. Consequently, if St. John Knits
International is not able to prepay the Credit Facility and any such other
Indebtedness containing similar restrictions or obtain requisite consents, St.
John Knits International will be unable to fulfill its repurchase obligations if
Holders of notes exercise their repurchase rights following a Change of Control,
thereby resulting in a default under the indenture. A default under the
indenture may result in a cross-default under the Credit Facility. In the event
of a default under the Credit Facility, the subordination provisions of the
indenture would likely restrict payments to the Holders of the notes.
If a Change of Control occurs which also constitutes an event of default
under the Credit Facility, the lenders under the Credit Facility would be
entitled to exercise the remedies available to a secured lender under applicable
law and pursuant to the terms of the Credit Facility. Accordingly, any claims of
such lenders with respect to the assets of St. John Knits International will be
prior to any claim of the Holders of the notes to the extent of the value of
such assets.
The Change of Control provisions described above may deter certain mergers,
tender offers and other takeover attempts involving St. John Knits International
by increasing the capital required to effectuate such transactions. The
definition of "Change of Control" includes a disposition of all or substantially
all of the property and assets of St. John Knits International and its
Subsidiaries taken as a whole to any Person other than St. John Knits
International or any Wholly Owned Restricted Subsidiary. 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 property or assets of a Person. As a result, it may be
unclear as to whether a Change of Control has occurred and whether a Holder of
notes may require St. John Knits International to make an offer to repurchase
the notes as described above.
If St. John Knits International makes an Offer to Purchase, St. John Knits
International shall comply with all applicable securities laws and regulations,
and any violation of the provisions of the indenture relating to such Offer to
Purchase occurring as a result of such compliance shall not be
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deemed an Event of Default or an event that, with the passing of time or giving
of notice, or both, would constitute an Event of Default.
Except as described above with respect to a Change of Control, the indenture
does not contain provisions that permit the Holders of the notes to require that
St. John Knits International repurchase or redeem the notes in the event of a
takeover, recapitalization or similar transaction.
CERTAIN COVENANTS
LIMITATION ON INDEBTEDNESS. St. John Knits International shall not, and
shall not cause or permit any Restricted Subsidiary to, directly or indirectly,
Incur any Indebtedness (including Acquired Indebtedness), except for Permitted
Indebtedness; PROVIDED, HOWEVER, that St. John Knits International and any
Restricted Subsidiary may Incur Indebtedness if, at the time of and immediately
after giving pro forma effect to such Incurrence of Indebtedness and the
application of the proceeds therefrom, the Consolidated Coverage Ratio would be
at least 2.0 to 1.0 prior to the second anniversary of the Issue Date; 2.25 to
1.0 on or after the second anniversary of the Issue Date but prior to the fourth
anniversary of the Issue Date; and 2.5 to 1.0 on or after the fourth anniversary
of the Issue Date.
The foregoing limitations will not apply to the Incurrence by St. John Knits
International or any Restricted Subsidiary of any of the following
(collectively, "Permitted Indebtedness"), each of which shall be given
independent effect:
(a) Indebtedness under the notes and other Indebtedness outstanding on
the Issue Date;
(b) Indebtedness of St. John Knits International and any Guarantor
Incurred pursuant to the Credit Facility if at the time of and immediately
after giving effect thereto, the aggregate consolidated Indebtedness
Incurred under the Credit Facility would not exceed $215.0 million at any
one time outstanding; PROVIDED, HOWEVER, that such $215.0 million shall be
reduced by the sum of (i) the amount of any repayments or prepayments of
Indebtedness (that are accompanied by a corresponding permanent commitment
reduction) under the Credit Facility and (ii) the outstanding principal
amount of Indebtedness and preferred stock of a Receivables Entity
(excluding the net proceeds of such Indebtedness and preferred stock that
are applied to the repayment or prepayment of Indebtedness described in
clause (i));
(c) Indebtedness of any Guarantor owed to and held by St. John Knits
International or any Guarantor and other Indebtedness of St. John Knits
International owed to and held by any Guarantor which is unsecured and
subordinated in right of payment to the payment and performance of St. John
Knits International's obligations under any Senior Indebtedness, the
indenture and the notes and Indebtedness of a Foreign Restricted Subsidiary
that is not a Guarantor owed to and held by any other Foreign Restricted
Subsidiary that is not a Guarantor; PROVIDED, HOWEVER, that an Incurrence of
Indebtedness that is not permitted by this clause (c) shall be deemed to
have occurred upon (i) any sale or other disposition of any Indebtedness of
St. John Knits International or any Restricted Subsidiary referred to in
this clause (c) to a Person (other than St. John Knits International or a
Guarantor), (ii) any sale or other disposition of Equity Interests of any
Guarantor which holds Indebtedness of St. John Knits International or
another Restricted Subsidiary such that such Guarantor ceases to be a
Guarantor and (iii) the designation of a Restricted Subsidiary that is a
Guarantor and which holds Indebtedness of St. John Knits International or
any other Restricted Subsidiary as an Unrestricted Subsidiary;
(d) the Guarantees and guarantees by any Guarantor of Indebtedness of
St. John Knits International; PROVIDED, HOWEVER, that if such guarantee is
of Subordinated Indebtedness, then the Guarantee of such Guarantor shall be
senior to such Guarantor's guarantee of Subordinated Indebtedness;
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(e) Hedging Obligations of St. John Knits International or any
Restricted Subsidiary entered into in the ordinary course of business and
not for speculative purposes;
(f) Purchase Money Indebtedness (and refinancings thereof) and
Capitalized Lease Obligations (and refinancings thereof) which do not exceed
$7.0 million in the aggregate at any one time outstanding;
(g) Indebtedness to the extent representing a replacement, renewal,
refinancing or extension (collectively, a "refinancing") of outstanding
Indebtedness Incurred in compliance with the Consolidated Coverage Ratio of
the first paragraph of this covenant or clause (a) of this paragraph of this
covenant; PROVIDED, HOWEVER, that (i) any such refinancing shall not exceed
the sum of the principal amount (or accreted amount (determined in
accordance with GAAP), if less) of the Indebtedness being refinanced, plus
the amount of accrued interest thereon, plus the amount of any reasonably
determined prepayment premium necessary to accomplish such refinancing and
such reasonable fees and expenses incurred in connection therewith, (ii)
Indebtedness representing a refinancing of Indebtedness other than Senior
Indebtedness shall have a Weighted Average Life to Maturity equal to or
greater than the Weighted Average Life to Maturity of the Indebtedness being
refinanced, (iii) Indebtedness that is PARI PASSU with the notes may only be
refinanced with Indebtedness that is made PARI PASSU with or subordinate in
right of payment to the notes and Subordinated Indebtedness may only be
refinanced with Subordinated Indebtedness, (iv) no Restricted Subsidiary
that is not a Guarantor may Incur Indebtedness to refinance Indebtedness of
St. John Knits International or any Guarantor and (v) Indebtedness of St.
John Knits International may only be refinanced by Indebtedness of St. John
Knits International and Indebtedness of a Restricted Subsidiary may only be
refinanced by Indebtedness of such Restricted Subsidiary or by St. John
Knits International;
(h) Indebtedness incurred in respect of workers' compensation claims,
self-insurance obligations, performance, surety and similar bonds and
completion guarantees provided by St. John Knits International or a
Restricted Subsidiary in the ordinary course of business;
(i) Indebtedness arising from agreements of St. John Knits International
or a Restricted Subsidiary providing for indemnification, adjustment of
purchase price or similar obligations, in each case, incurred or assumed in
connection with the disposition of any business, assets or Equity Interests
of a Restricted Subsidiary, PROVIDED that the maximum aggregate liability in
respect of all such Indebtedness shall at no time exceed the gross proceeds
actually received by St. John Knits International and its Restricted
Subsidiaries in connection with such disposition;
(j) Indebtedness arising from the honoring by a bank or other financial
institution of a check, draft or similar instrument (except in the case of
daylight overdrafts) drawn against insufficient funds in the ordinary course
of business, PROVIDED, HOWEVER, that such Indebtedness is extinguished
within five business days of Incurrence;
(k) Indebtedness representing deferred compensation to employees of St.
John Knits International and its Subsidiaries in an aggregate amount not to
exceed $1.0 million at any one time outstanding;
(l) Indebtedness of Foreign Restricted Subsidiaries which are not
Guarantors in an aggregate amount not to exceed $7.5 million at any one time
outstanding;
(m) Indebtedness of Foreign Restricted Subsidiaries which are not
Guarantors owed to and held by St. John Knits International or any Guarantor
in an aggregate amount not to exceed $12.5 million at any one time
outstanding;
(n) Indebtedness of a Receivables Entity that is non-recourse to St.
John Knits International or any other Restricted Subsidiary of St. John
Knits International Incurred in connection with a
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Qualified Receivables Transaction, PROVIDED that the proceeds of such
Indebtedness are used to reduce Indebtedness under the Credit Facility; and
(o) in addition to the items referred to in clauses (a) through (n)
above, Indebtedness of St. John Knits International (including any
Indebtedness under the Credit Facility that utilizes this subparagraph (o))
having an aggregate principal amount not to exceed $10.0 million at any one
time outstanding.
For purposes of determining compliance with, and the outstanding principal
amount of any particular Indebtedness incurred pursuant to and in compliance
with, this covenant:
(1) in the event that Indebtedness meets the criteria of more than one
of the types of Indebtedness described in the first and second paragraphs of
this covenant, St. John Knits International, in its sole discretion, will
classify such item of Indebtedness on the date of Incurrence and only be
required to include the amount and type of such Indebtedness in one of such
clauses; and
(2) the amount of Indebtedness issued at a price that is less than the
principal amount thereof will be equal to the amount of the liability in
respect thereof determined in accordance with GAAP.
Accrual of interest, accrual of dividends, the accretion of accreted value,
the payment of interest in the form of additional Indebtedness and the payment
of dividends in the form of additional shares of preferred stock will not be
deemed to be an Incurrence of Indebtedness for purposes of this covenant
PROVIDED, in each such case, that the amount thereof is included in the
Consolidated Fixed Charges of such Person.
LIMITATION ON SENIOR SUBORDINATED INDEBTEDNESS. St. John Knits
International shall not, directly or indirectly, Incur any Indebtedness that by
its terms would expressly rank senior in right of payment to the notes and
subordinate in right of payment to any other Indebtedness of St. John Knits
International.
St. John Knits International shall not permit any Guarantor to, and no
Guarantor shall, directly or indirectly, Incur any Indebtedness that by its
terms would expressly rank senior in right of payment to the Guarantee of such
Guarantor and subordinate in right of payment to any other Indebtedness of such
Guarantor.
LIMITATION ON RESTRICTED PAYMENTS. St. John Knits International shall not,
and shall not cause or permit any Restricted Subsidiary to, directly or
indirectly,
(i) declare or pay any dividend or any other distribution on any Equity
Interests of St. John Knits International or any Restricted Subsidiary or
make any payment or distribution to the direct or indirect holders (in their
capacities as such) of Equity Interests of St. John Knits International or
any Restricted Subsidiary (other than any dividends, distributions and
payments made to St. John Knits International or any Restricted Subsidiary
and dividends or distributions payable to any Person solely in Qualified
Equity Interests of St. John Knits International or any Restricted
Subsidiary or in options, warrants or other rights to purchase Qualified
Equity Interests of St. John Knits International or any Restricted
Subsidiary);
(ii) purchase, redeem or otherwise acquire or retire for value any
Equity Interests of St. John Knits International or any Restricted
Subsidiary (other than any such Equity Interests owned by St. John Knits
International or any Restricted Subsidiary);
(iii) purchase, redeem, defease or retire for value, or make any
principal payment on, prior to any scheduled maturity, scheduled repayment
or scheduled sinking fund payment, any
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Subordinated Indebtedness (other than any Subordinated Indebtedness held by
St. John Knits International); or
(iv) make any Investment in any Person (other than Permitted
Investments)
(any such payment or any other action (other than any exception thereto)
described in (i), (ii), (iii) or (iv) each, a "Restricted Payment"), unless
(a) no Default or Event of Default shall have occurred and be continuing
at the time or immediately after giving effect to such Restricted Payment;
(b) immediately after giving effect to such Restricted Payment, St. John
Knits International would be able to Incur $1.00 of additional Indebtedness
(other than Permitted Indebtedness) under the Consolidated Coverage Ratio of
the first paragraph of "--Limitation on Indebtedness" above; and
(c) immediately after giving effect to such Restricted Payment, the
aggregate amount of all Restricted Payments declared or made on or after the
Issue Date does not exceed an amount equal to the sum of (1) 50% of
cumulative Consolidated Net Income determined for the period (taken as one
period) from the Issue Date and ending on the last day of the most recent
fiscal quarter immediately preceding the date of such Restricted Payment for
which consolidated financial information of St. John Knits International is
available (or if such cumulative Consolidated Net Income shall be a loss,
minus 100% of such loss), PLUS (2) the aggregate net cash proceeds received
by St. John Knits International either (x) as capital contributions to St.
John Knits International after the Issue Date or (y) from the issue and sale
(other than to a Restricted Subsidiary) of its Qualified Equity Interests
after the Issue Date (excluding the net proceeds from any issuance and sale
of Qualified Equity Interests financed, directly or indirectly, using funds
borrowed from St. John Knits International or any Restricted Subsidiary
until and to the extent such borrowing is repaid), PLUS (3) the principal
amount (or accreted amount (determined in accordance with GAAP), if less) of
any Indebtedness of St. John Knits International or any Restricted
Subsidiary Incurred after the Issue Date which has been converted into or
exchanged for Qualified Equity Interests of St. John Knits International,
PLUS(4) without duplication of any amounts included in clause (1) above, in
the case of the disposition or repayment of, or the receipt by St. John
Knits International or any Restricted Subsidiary of any dividends or
distributions from, any Investment constituting a Restricted Payment made
after the Issue Date (including by way of a Revocation), an amount equal, in
the aggregate, to the lesser of the amount of such Investment, other than
pursuant to a Revocation, in which case such amount will be the lesser of
the Fair Market Value of such Investment at the date of Revocation, and the
amount received by St. John Knits International or any Restricted Subsidiary
upon such disposition, repayment, dividend or distribution or Revocation.
The foregoing provisions will not prevent:
(i) the payment of any dividend or distribution on, or redemption of,
Equity Interests within 60 days after the date of declaration of such
dividend or distribution or the giving of formal notice of such redemption,
if at the date of such declaration or giving of such formal notice such
payment or redemption would comply with the provisions of the indenture
PROVIDED, HOWEVER, that the payment of the $0.025 per share dividend on St.
John common stock declared on June 8, 1999 and payable on July 22, 1999
shall not constitute a Restricted Payment;
(ii) the purchase, redemption, retirement or other acquisition of any
Equity Interests of St. John Knits International in exchange for, or out of
the net cash proceeds of the substantially concurrent issue and sale (other
than to a Restricted Subsidiary) of, Qualified Equity Interests of St. John
Knits International; PROVIDED, HOWEVER, that any such net cash proceeds and
the value of any Qualified Equity Interests issued in exchange for such
retired Equity Interests are excluded
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from clause (c)(2) of the preceding paragraph (and were not included therein
at any time) and are not used to redeem the notes pursuant to "--Optional
Redemption" above;
(iii) the purchase, redemption, retirement, defeasance or other
acquisition of Subordinated Indebtedness, or any other payment thereon, made
in exchange for, or out of the net cash proceeds of a substantially
concurrent issue and sale (other than to a Restricted Subsidiary) of, (x)
Qualified Equity Interests of St. John Knits International; PROVIDED,
HOWEVER, that any such net cash proceeds and the value of any Qualified
Equity Interests issued in exchange for Subordinated Indebtedness are
excluded from clauses (c)(2) and (c)(3) of the preceding paragraph (and were
not included therein at any time) and are not used to redeem the notes
pursuant to "--Optional Redemption" above or (y) Subordinated Indebtedness
permitted to be Incurred pursuant to clause (g) of the second paragraph
under "--Limitation on Indebtedness";
(iv) the making of loans or advances to officers, employees and
directors of St. John Knits International or any Restricted Subsidiary
entered into in the ordinary course of business or to fund purchases by such
employees from St. John Knits International of Equity Interests of St. John
Knits International, in an amount not to exceed $5.0 million at any one time
outstanding;
(v) the repurchase, redemption, defeasance, retirement, refinancing or
acquisition for value or payment of principal of Subordinated Indebtedness
at a purchase price not greater than 101% of the principal amount of such
Subordinated Indebtedness in the event of a Change of Control pursuant to a
provision similar to the "--Offer to Purchase upon Change of Control"
provisions above; PROVIDED, HOWEVER, that prior to any such repurchase, St.
John Knits International has made an Offer to Purchase as provided in
"--Offer to Purchase upon Change of Control" above with respect to the notes
and has repurchased all notes validly tendered for payment in connection
with such Offer to Purchase;
(vi) the purchase, redemption or other acquisition, cancellation or
retirement for value of Equity Interests of St. John Knits International or
any Restricted Subsidiary of St. John Knits International or any parent of
St. John Knits International held by any existing or former employees or
management of St. John Knits International or any Restricted Subsidiary of
St. John Knits International (other than Robert Gray, Marie Gray and Kelly
Gray) or their assigns, estates or heirs, in each case in connection with
the repurchase provisions under employee stock option or stock purchase
agreements or other agreements to compensate management employees; PROVIDED
that such redemptions or repurchases pursuant to this clause will not exceed
$500,000 in the aggregate during any calendar year; provided, further, that
any amounts not used for redemptions or repurchases pursuant to this clause
(vi) may be used in any subsequent calendar year;
(vii) repurchases of Equity Interests deemed to occur upon the exercise
of stock options if such Equity Interests represent a portion of the
exercise price thereof;
(viii) the defeasance, redemption or repurchase of any Disqualified
Equity Interest of St. John Knits International or any Restricted Subsidiary
in exchange for, or out of the net cash proceeds of, a substantially
concurrent issue and sale (other than to St. John Knits International or a
Subsidiary of St. John Knits International) of Disqualified Equity Interests
of St. John Knits International or such Restricted Subsidiary, respectively;
PROVIDED that: (A) the aggregate liquidation preference of such Disqualified
Equity Interest does not exceed the aggregate liquidation preference of the
Disqualified Equity Interest so extended, refinanced, renewed, replaced,
defeased or refunded (plus the amount of reasonable expenses incurred in
connection therewith); (B) such Disqualified Equity Interest has a final
maturity date later than the final maturity date of, and has a Weighted
Average Life to Maturity equal to or greater than the Weighted Average Life
to Maturity of the notes; and (C) such Disqualified Equity Interest is
incurred either by St. John Knits International or by the Restricted
Subsidiary who is the obligor
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on the Disqualified Equity Interest being extended, refinanced, renewed,
replaced, defeased or refunded;
(ix) the defeasance, redemption or repurchase of any Preferred Equity
Interest or Disqualified Equity Interest issued in connection with the
acquisition of assets or a Permitted Business, PROVIDED, that the aggregate
amount of such defeasance, redemption or repurchase payments shall not
exceed at any time $5.0 million;
(x) the payment of any dividend by a Restricted Subsidiary to the
holders of its common Equity Interests on a pro rata basis;
(xi) the purchase by St. John Knits International of Gray Common Stock
pursuant to the terms of the Stockholders' Agreement in an amount not to
exceed $5.0 million, PROVIDED HOWEVER, that such amounts do not exceed $2.5
million for the first twelve month period following the Issue Date;
(xii) cash payments to Robert Gray, Marie Gray or Kelly A. Gray on
Preferred Equity Interests of St. John Knits International that are
Qualified Equity Interests in an amount not to exceed $250,000 for each
fiscal year;
(xiii) Restricted Payments in an amount not to exceed $10.0 million;
(xiv) Restricted Payments made on the Issue Date in connection with the
transactions; and
(xv) the redemption of up to $5.0 million of Preferred Stock (which $5.0
million amount may include the amount of any accrued but unpaid dividends)
after the first anniversary of the Issue Date;
PROVIDED the Consolidated Coverage Ratio, pro forma for such transaction, for
the two most recently completed fiscal quarters of St. John Knits International,
is at least 2.25 to 1.0; and PROVIDED, FURTHER, that St. John Knits
International and its Restricted Subsidiaries may only redeem Preferred Stock
pursuant to this clause (xv) once; PROVIDED, HOWEVER, that in the case of each
of clauses (v), (vi), (ix), (x) and (xv) no Default or Event of Default shall
have occurred and be continuing or would arise therefrom.
In determining the amount of Restricted Payments permissible under this
covenant, amounts expended pursuant to clauses (iv), (vi), (ix), (xi), (xii),
(xiii) and (xv) of the immediately preceding paragraph shall be included as
Restricted Payments. Amounts paid pursuant to clause (i) of the immediately
preceeding paragraph shall be included, when paid, as Restricted Payments only
to the extent not already included as Restricted Payments upon declaration.
Amounts expended pursuant to all other clauses of the immediately preceding
paragraph shall not be included as Restricted Payments. The amount of any
non-cash Restricted Payment shall be deemed to be equal to the Fair Market Value
thereof at the date of the making of such Restricted Payment.
LIMITATION ON DIVIDEND AND OTHER PAYMENT RESTRICTIONS AFFECTING RESTRICTED
SUBSIDIARIES. St. John Knits International shall not, and shall not cause or
permit any Restricted Subsidiary to, directly or indirectly, create or otherwise
cause or suffer to exist or become effective any encumbrance or restriction on
the ability of any Restricted Subsidiary to (a) pay dividends or make any other
distributions to St. John Knits International or any other Restricted Subsidiary
on its Equity Interests or with respect to any other interest or participation
in, or measured by, its profits, or pay any Indebtedness owed to St. John Knits
International or any other Restricted Subsidiary, (b) make loans or advances to,
or guarantee any Indebtedness or other obligations of, or make any Investment
in, St. John Knits International or any other Restricted Subsidiary or (c)
transfer any of its properties or
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assets to St. John Knits International or any other Restricted Subsidiary,
except for such encumbrances or restrictions existing under or by reason of:
(i) the Credit Facility, or any other agreement of St. John Knits
International or the Restricted Subsidiaries outstanding on the Issue Date,
in each case as in effect on the Issue Date, and any amendments,
restatements, renewals, replacements or refinancings thereof; PROVIDED,
HOWEVER, that any such amendment, restatement, renewal, replacement or
refinancing is no more restrictive in the aggregate with respect to such
encumbrances or restrictions than those contained in the agreement being
amended, restated, reviewed, replaced or refinanced;
(ii) applicable law;
(iii) any instrument governing Indebtedness or Equity Interests of an
Acquired Person acquired by St. John Knits International or any Restricted
Subsidiary as in effect at the time of such acquisition (except to the
extent such Indebtedness was Incurred by such Acquired Person in connection
with, as a result of or in contemplation of such acquisition); PROVIDED,
HOWEVER, that such encumbrances and restrictions are not applicable to St.
John Knits International or any Restricted Subsidiary, or the properties or
assets of St. John Knits International or any Restricted Subsidiary, other
than the Acquired Person;
(iv) customary non-assignment provisions in leases entered into in the
ordinary course of business and consistent with past practices;
(v) Purchase Money Indebtedness for property acquired in the ordinary
course of business that only imposes encumbrances and restrictions on the
property so acquired;
(vi) any agreement for the sale or disposition of the Equity Interests
or assets of any Restricted Subsidiary; PROVIDED, HOWEVER, that such
encumbrances and restrictions described in this clause (vi) are only
applicable to such Restricted Subsidiary or assets, as applicable, and any
such sale or disposition is made in compliance with "--Disposition of
Proceeds of Asset Sales" below to the extent applicable thereto;
(vii) refinancing Indebtedness permitted under clause (g) of the second
paragraph of "--Limitation on Indebtedness" above; PROVIDED, HOWEVER, that
such encumbrances and restrictions contained in the agreements governing
such Indebtedness are no more restrictive in the aggregate than those
contained in the agreements governing the Indebtedness being refinanced
immediately prior to such refinancing;
(viii) the indenture;
(ix) mortgages, pledges or other security agreements permitted under the
indenture securing Indebtedness of St. John Knits International or a
Restricted Subsidiary to the extent such encumbrances or restrictions
restrict the transfer of the property subject to such mortgages, pledges or
other security agreements;
(x) Liens securing Indebtedness otherwise permitted to be Incurred
pursuant to the provisions of the covenant described below under the caption
"--Limitation on Liens" that limit the right of St. John Knits International
or any Restricted Subsidiary to dispose of the assets subject to such Liens;
(xi) provisions with respect to the disposition or distribution of
assets or property in joint venture agreements and other similar agreements
entered into in the ordinary course of business;
(xii) any other security agreement, instrument or document relating to
Senior Indebtedness hereafter in effect, PROVIDED that such encumbrances or
restrictions are customary in connection with such documents and that the
terms and conditions of such encumbrances or restrictions are
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no more restrictive than those encumbrances or restrictions imposed in
connection with the Credit Facility as in effect on the Issue Date;
(xiii) any agreement relating to a sale and leaseback transaction or
capital lease, but only on the property subject to such transaction or lease
and only to the extent that such restrictions or encumbrances are customary
with respect to a sale and leaseback transaction or capital lease;
(xiv) Indebtedness Incurred by Foreign Restricted Subsidiaries; or
(xv) customary restrictions imposed on the payment of dividends by a
Receivables Entity in connection with a Qualified Receivables Transaction.
DESIGNATION OF UNRESTRICTED SUBSIDIARIES. St. John Knits International may
designate after the Issue Date any Subsidiary of St. John Knits International as
an "Unrestricted Subsidiary" under the indenture (a "Designation") only if:
(i) no Default or Event of Default shall have occurred and be continuing
at the time of or after giving effect to such Designation;
(ii) at the time of and after giving effect to such Designation, St.
John Knits International could Incur $1.00 of additional Indebtedness (other
than Permitted Indebtedness) under the Consolidated Coverage Ratio of the
first paragraph of "--Limitation on Indebtedness" above; and
(iii) St. John Knits International would be permitted to make an
Investment (other than a Permitted Investment) at the time of Designation
(assuming the effectiveness of such Designation) pursuant to the first
paragraph of "--Limitation on Restricted Payments" above in an amount (the
"Designation Amount") equal to the Fair Market Value of the net assets of
such Subsidiary on such date.
In the event of any such Designation, St. John Knits International shall be
deemed to have made an Investment constituting a Restricted Payment pursuant to
"--Limitation on Restricted Payments" for all purposes of the indenture in the
Designation Amount.
Neither St. John Knits International nor any Restricted Subsidiary shall at
any time (x) provide credit support for, subject any of its property or assets
(other than the Equity Interests of any Unrestricted Subsidiary) to the
satisfaction of, or guarantee, any Indebtedness of any Unrestricted Subsidiary
(including any undertaking, agreement or instrument evidencing such
Indebtedness), (y) be directly or indirectly liable for any Indebtedness of any
Unrestricted Subsidiary or (z) be directly or indirectly liable for any
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 Indebtedness of any Unrestricted Subsidiary,
except for any non-recourse guarantee given solely to support the pledge by St.
John Knits International or any Restricted Subsidiary of the capital stock of
any Unrestricted Subsidiary. For purposes of the foregoing, the Designation of a
Subsidiary of St. John Knits International as an Unrestricted Subsidiary shall
be deemed to include the Designation of all of the Subsidiaries of such
Subsidiary.
St. John Knits International may revoke any Designation of a Subsidiary as
an Unrestricted Subsidiary (a "Revocation") only if:
(i) no Default or Event of Default shall have occurred and be continuing
at the time of and after giving effect to such Revocation; and
(ii) all Liens and Indebtedness of such Unrestricted Subsidiary
outstanding immediately following such Revocation would, if Incurred at such
time, have been permitted to be Incurred for all purposes of the indenture.
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All Designations and Revocations must be evidenced by resolutions of the
board of directors of St. John Knits International, delivered to the Trustee
certifying compliance with the foregoing provisions.
LIMITATION ON LIENS. St. John Knits International shall not, and shall not
cause or permit any Restricted Subsidiary to, directly or indirectly, Incur any
Liens of any kind against or upon any of their respective properties or assets
now owned or hereafter acquired, or any proceeds therefrom or any income or
profits therefrom, to secure any Indebtedness unless contemporaneously therewith
effective provision is made, (x) in the case of St. John Knits International, to
secure the notes and all other amounts due under the indenture and any other
class of Senior Subordinated Indebtedness, and (y) in the case of a Restricted
Subsidiary which is a Guarantor, to secure such Restricted Subsidiary's
Guarantee of the notes and all other amounts due under the indenture, in each
case, equally and ratably with such Indebtedness (or, in the event that such
Indebtedness is subordinated in right of payment to the notes or such Restricted
Subsidiary's Guarantee, prior to such Indebtedness) with a Lien on the same
properties and assets securing such Indebtedness for so long as such
Indebtedness is secured by such Lien, except for (i) Liens securing Senior
Indebtedness (including, without limitation, Indebtedness incurred under the
Credit Facility) and (ii) Permitted Liens.
DISPOSITION OF PROCEEDS OF ASSET SALES. St. John Knits International shall
not, and shall not cause or permit any Restricted Subsidiary to, directly or
indirectly, make any Asset Sale, unless (i) St. John Knits International or such
Restricted Subsidiary, as the case may be, receives consideration at the time of
such Asset Sale at least equal to the Fair Market Value of the assets sold or
otherwise disposed of and (ii) at least 75% of such consideration consists of
(A) cash or Cash Equivalents, or (B) properties and capital assets that will be
used in the business of St. John Knits International and its Restricted
Subsidiaries as existing at such time or in businesses reasonably related
thereto (as determined in good faith by St. John Knits International's board of
directors) ("Replacement Assets") or the Equity Interests of any Person engaged
in a Permitted Business if, in connection with the receipt by St. John Knits
International or any Restricted Subsidiary of such Equity Interests, (1) such
Person becomes a Restricted Subsidiary and a Guarantor or (2) such Person is
merged, consolidated or amalgamated with or into, or transfers or conveys
substantially all of its assets to, or is liquidated into, St. John Knits
International or any Restricted Subsidiary that is a Guarantor. The amount of
any Indebtedness (other than any Subordinated Indebtedness) of St. John Knits
International or any Restricted Subsidiary that is actually assumed by the
transferee in such Asset Sale and from which St. John Knits International and
the Restricted Subsidiaries are fully and unconditionally released shall be
deemed to be cash for purposes of determining the percentage of cash
consideration received by St. John Knits International or the Restricted
Subsidiaries within such period.
St. John Knits International or such Restricted Subsidiary, as the case may
be, may (i) apply the Net Cash Proceeds of any Asset Sale within 360 days of
receipt thereof to repay Senior Indebtedness and permanently reduce any related
commitment, or (ii) make an Investment in Replacement Assets within such period.
To the extent all or part of the Net Cash Proceeds of any Asset Sale are not
applied within 360 days of such Asset Sale as described in clause (i) or (ii) of
the immediately preceding paragraph (such Net Cash Proceeds, the "Unutilized Net
Cash Proceeds"), St. John Knits International shall, within 45 days after such
360th day, make an Offer to Purchase all outstanding notes and other Senior
Subordinated Indebtedness, PRO RATA, up to a maximum principal amount (expressed
as a multiple of $1,000) of notes and other Senior Subordinated Indebtedness
equal to such Unutilized Net Cash Proceeds, at a purchase price in cash equal to
100% of the principal amount thereof (or the accreted value of such other Senior
Subordinated Indebtedness, if such other Senior Subordinated Indebtedness is
issued at a discount), plus accrued and unpaid interest thereon, if any, to the
Purchase Date; PROVIDED, HOWEVER, that the Offer to Purchase may be deferred
until there are aggregate Unutilized Net Cash Proceeds equal to or in excess of
$10.0 million, at which time the entire amount of such
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Unutilized Net Cash Proceeds, and not just the amount in excess of $10.0
million, shall be applied as required pursuant to this paragraph.
With respect to any Offer to Purchase effected pursuant to this covenant,
among the notes, to the extent the aggregate principal amount of notes and other
Senior Subordinated Indebtedness tendered pursuant to such Offer to Purchase
exceeds the Unutilized Net Cash Proceeds to be applied to the repurchase
thereof, such notes and other Senior Subordinated Indebtedness shall be
purchased PRO RATA based on the aggregate principal amount of such notes and
other Senior Subordinated Indebtedness tendered (or the accreted value of such
other Senior Subordinated Indebtedness, if such other Senior Subordinated
Indebtedness is issued at a discount) by each holder of notes and such other
Senior Subordinated Indebtedness. To the extent the Unutilized Net Cash Proceeds
exceed the aggregate amount of notes and other Senior Subordinated Indebtedness
tendered pursuant to such Offer to Purchase, St. John Knits International may
retain and utilize any portion of the Unutilized Net Cash Proceeds not applied
to repurchase the notes and other Senior Subordinated Indebtedness for any
purpose consistent with the other terms of the indenture. Upon completion of the
Offer to Purchase, Unutilized Net Cash Proceeds will be reset at zero.
In the event that St. John Knits International makes an Offer to Purchase
the notes and other Senior Subordinated Indebtedness, St. John Knits
International shall comply with any applicable securities laws and regulations,
and any violation of the provisions of the indenture relating to such Offer to
Purchase occurring as a result of such compliance shall not be deemed an Event
of Default or an event that, with the passing of time or giving of notice, or
both, would constitute an Event of Default.
Each Holder shall be entitled to tender all or any portion of the notes
owned by such Holder pursuant to the Offer to Purchase, subject to the
requirement that any portion of a note tendered must be tendered in an integral
multiple of $1,000 principal amount and subject to any proration among tendering
Holders and holders of other Senior Subordinated Indebtedness as described
above.
MERGER, SALE OF ASSETS, ETC. St. John Knits International shall not
consolidate with or merge with or into (whether or not St. John Knits
International is the Surviving Person) any other entity and St. John Knits
International shall not, and shall not cause or permit any Restricted Subsidiary
to, sell, convey, assign, transfer, lease or otherwise dispose of all or
substantially all of St. John Knits International's and the Restricted
Subsidiaries' properties and assets (determined on a consolidated basis for St.
John Knits International and the Restricted Subsidiaries) to any entity in a
single transaction or series of related transactions (including by way of
consolidation or merger), unless: (i) either (x) St. John Knits International
shall be the Surviving Person or (y) the Surviving Person (if other than St.
John Knits International) shall be a corporation organized and validly existing
under the laws of the United States of America or any State thereof or the
District of Columbia or, if any such transaction involves a Disposition by a
Foreign Restricted Subsidiary, under the laws of the United States of America or
any state thereof or the District of Columbia or the jurisdiction under which
such Foreign Restricted Subsidiary was organized, and shall, in any such case,
expressly assume by a supplemental indenture, the due and punctual payment of
the principal of, premium, if any, and interest on all the notes and the
performance and observance of every covenant of the indenture and the
Registration Rights Agreement to be performed or observed on the part of St.
John Knits International; (ii) immediately thereafter, no Default or Event of
Default shall have occurred and be continuing; and (iii) immediately after
giving effect to any such transaction involving the Incurrence by St. John Knits
International or any Restricted Subsidiary, directly or indirectly, of
additional Indebtedness (and treating any Indebtedness not previously an
obligation of St. John Knits International or any Restricted Subsidiary in
connection with or as a result of such transaction as having been Incurred at
the time of such transaction), the Surviving Person could Incur, on a pro forma
basis after giving effect to such transaction as if it had occurred at the
beginning of the four quarter period immediately preceding such transaction for
which consolidated financial statements of St. John Knits International are
available, at
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least $1.00 of additional Indebtedness (other than Permitted Indebtedness) under
the Consolidated Coverage Ratio of the first paragraph of "--Limitation on
Indebtedness" above.
Notwithstanding the foregoing clause (iii) of the immediately preceding
paragraph, (x) any Restricted Subsidiary may consolidate with, merge into or
transfer all or part of its properties and assets to St. John Knits
International or any Restricted Subsidiary that is a Guarantor and (y) St. John
Knits International may merge with an Affiliate incorporated solely for the
purpose of reincorporating St. John Knits International in another domestic
United States jurisdiction to realize tax or other benefits.
For purposes of the foregoing, the transfer (by lease, assignment, sale or
otherwise, in a single transaction or series of transactions) of all or
substantially all the properties and assets of one or more Restricted
Subsidiaries the Equity Interest of which constitutes all or substantially all
the properties and assets of St. John Knits International shall be deemed to be
the transfer of all or substantially all the properties and assets of St. John
Knits International.
No Guarantor (other than a Guarantor whose Guarantee is to be released in
accordance with the terms of its Guarantee and the indenture as provided in the
fourth paragraph under "Guarantees of the Notes" above) shall consolidate with
or merge with or into another Person, whether or not such Person is affiliated
with such Guarantor and whether or not such Guarantor is the Surviving Person,
unless (i) the Surviving Person (if other than such Guarantor) is a corporation
organized and validly existing under the laws of the United States, any State
thereof or the District of Columbia; (ii) the Surviving Person (if other than
such Guarantor) expressly assumes by a supplemental indenture all the
obligations of such Guarantor under its Guarantee of the notes and the
performance and observance of every covenant of the indenture and the
Registration Rights Agreement to be performed or observed by such Guarantor,
(iii) at the time of and immediately after such Disposition, no Default or Event
of Default shall have occurred and be continuing; and (iv) immediately after
giving effect to any such transaction involving the Incurrence by such
Guarantor, directly or indirectly, of additional Indebtedness (and treating any
Indebtedness not previously an obligation of such Guarantor in connection with
or as a result of such transaction as having been Incurred at the time of such
transaction), St. John Knits International could Incur, on a pro forma basis
after giving effect to such transaction as if it had occurred at the beginning
of the latest fiscal quarter for which consolidated financial statements of St.
John Knits International are available, at least $1.00 of additional
Indebtedness (other than Permitted Indebtedness) under the Consolidated Coverage
Ratio of the first paragraph of "Limitation on Indebtedness" above; PROVIDED,
HOWEVER, that this paragraph shall not be a condition to a merger or
consolidation of a Guarantor if such merger or consolidation only involves St.
John Knits International and/or one or more other Guarantors. Notwithstanding
the foregoing, nothing in this covenant shall prohibit the consolidation or
merger with or into or the sale of all or substantially all of the assets or
properties of a Guarantor to any other Restricted Subsidiary that is a
Guarantor.
In the event of any transaction (other than a lease) described in and
complying with the conditions listed in the immediately preceding paragraphs in
which St. John Knits International or a Guarantor, as the case may be, is not
the Surviving Person and the Surviving Person is to assume all the Obligations
of St. John Knits International under the notes, the indenture and the
Registration Rights Agreement or of such Guarantor under its Guarantee, the
indenture and the Registration Rights Agreement, as the case may be, pursuant to
a supplemental indenture, such Surviving Person shall succeed to, and be
substituted for, and may exercise every right and power of, St. John Knits
International or such Guarantor, as the case may be, and St. John Knits
International, as the case may be, shall be discharged from its Obligations
under the indenture and the notes or such Guarantor shall be discharged from its
Obligations under the indenture and its Guarantee.
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TRANSACTIONS WITH AFFILIATES. St. John Knits International shall not, and
shall not cause or permit any Restricted Subsidiary to, directly or indirectly,
conduct any business or enter into any transaction (or series of related
transactions) with or for the benefit of any of their respective Affiliates or
any officer, director or employee of St. John Knits International or any
Restricted Subsidiary (each an "Affiliate Transaction"), unless (i) such
Affiliate Transaction is on terms which are no less favorable to St. John Knits
International or such Restricted Subsidiary, as the case may be, than would be
available in a comparable transaction with an unaffiliated third party and (ii)
(A) if such Affiliate Transaction (or series of related Affiliate Transactions)
involves aggregate payments or the transfer of other consideration between St.
John Knits International and an Affiliate of St. John Knits International having
a Fair Market Value in excess of $5.0 million, such Affiliate Transaction is in
writing and St. John Knits International delivers an officer's certificate to
the Trustee certifying that such Affiliate Transaction (or series of Affiliate
Transactions) complies with the foregoing provisions or (B) if such Affiliate
Transaction (or series of related Affiliate Transactions) involves aggregate
payments or the transfer of other consideration between St. John Knits
International and an Affiliate of St. John Knits International having a Fair
Market Value in excess of $10.0 million, such Affiliate Transaction is in
writing and St. John Knits International delivers a written opinion from an
Independent Financial Advisor (filed with the Trustee) stating that the terms of
such Affiliate Transaction are fair, from a financial point of view, to St. John
Knits International or the Restricted Subsidiary involved in such Affiliate
Transaction, as the case may be.
Notwithstanding the foregoing, the restrictions set forth in this covenant
shall not apply to:
(i) transactions with or among St. John Knits International and any
Restricted Subsidiary or between or among Restricted Subsidiaries;
(ii) 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 and other reasonable
fees and compensation paid to and indemnity provided on behalf of, officers,
directors, employees, consultants or agents of St. John Knits International
or any Restricted Subsidiary of St. John Knits International as determined
in good faith by St. John Knits International's Board of Directors;
(iii) the payment of fees and expenses to Vestar or any of its
Affiliates (A) pursuant to the Management Agreement, as in effect on the
Issue Date, or (B) pursuant to any amended, supplemented or replacement
management agreement in an aggregate amount not to exceed 1.25% of
Consolidated EBITDA for the last four full fiscal quarters completed prior
to the date of such payment;
(iv) any Restricted Payments made in compliance with "--Limitation on
Restricted Payments" above;
(v) loans and advances to officers, directors and employees of St. John
Knits International or any Restricted Subsidiary made in the ordinary course
of business;
(vi) the entering into by St. John Knits International and any of its
Restricted Subsidiaries of a tax sharing or similar arrangement;
(vii) any employment agreement entered into by St. John Knits
International or any Restricted Subsidiary in the ordinary course of
business;
(viii) payment of reasonable Directors' fees to Persons who are not
otherwise Affiliates of St. John Knits International;
(ix) any sale or other issuance of Equity Interests (other than
Disqualified Equity Interests) of
St. John Knits International;
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(x) payments by St. John Knits International or any Restricted
Subsidiary to Vestar and its Affiliates made for any financial advisory,
financing, underwriting or placement services in connection with
acquisitions or other corporate transactions, in amounts which are (a) usual
and customary for transactions of such type, in an amount not to exceed 1%
of the value of any such transaction or (b) approved by a majority of the
disinterested members of the board of directors of St. John Knits
International as comparable to that which would be charged by an
unaffiliated third party for such services;
(xi) transactions permitted by the Vestar/Gray LLC Agreement;
(xii) sales or other transfers or dispositions of accounts receivable
and other related assets customarily transferred in an asset securitization
transaction involving accounts receivable to a Receivables Entity in a
Qualified Receivables Transaction, and acquisitions of Permitted Investments
in connection with a Qualified Receivables Transaction;
(xiii) leases in effect on the Issue Date and any renewals thereof which
include substantially similar terms;
(xiv) the transactions and the payment of all fees and expenses related
thereto;
(xv) any agreement as in effect on the Issue Date (including, without
limitation, each of the agreements entered into in connection with the
transactions) or any transaction contemplated thereby; and
(xvi) the sale of Preferred Stock to Vestar or any of its affiliates and
any transaction contemplated by the terms of the Preferred Stock.
LIMITATION ON THE SALE OR ISSUANCE OF EQUITY INTERESTS OF RESTRICTED
SUBSIDIARIES. St. John Knits International shall not sell any Equity Interest
of a Restricted Subsidiary, and shall not cause or permit any Restricted
Subsidiary, directly or indirectly, to issue or sell any Equity Interests,
except: (i) to
St. John Knits International or a Wholly Owned Restricted Subsidiary; or (ii)
if, immediately after giving effect to such issuance or sale, such Restricted
Subsidiary would no longer constitute a Restricted Subsidiary. Notwithstanding
the foregoing, St. John Knits International is permitted to sell all the Equity
Interest of a Restricted Subsidiary as long as St. John Knits International is
in compliance with the terms of the covenant described under "--Disposition of
Proceeds of Asset Sales" and, if applicable, "--Merger, Sale of Assets, etc."
above.
LIMITATION ON GUARANTEES BY RESTRICTED SUBSIDIARIES. The indenture will
provide that in the event St. John Knits International (i) organizes or acquires
any Domestic Restricted Subsidiary (other than a Receivables Entity) after the
Issue Date that is not a Guarantor or (ii) causes or permits any Foreign
Restricted Subsidiary that is not a Guarantor to, directly or indirectly,
guarantee the payment of any Indebtedness of St. John Knits International or any
Domestic Restricted Subsidiary ("Other Indebtedness"), then in each case St.
John Knits International shall cause such Restricted Subsidiary to
simultaneously execute and deliver a supplemental indenture to the indenture
pursuant to which it will become a Guarantor under the indenture; PROVIDED,
HOWEVER, that in the event a Domestic Restricted Subsidiary is acquired in a
transaction in which a merger agreement is entered into, such Domestic
Restricted Subsidiary shall not be required to execute and deliver such
supplemental indenture until the consummation of the merger contemplated by any
such merger agreement; PROVIDED, FURTHER, that if such Other Indebtedness is (i)
Indebtedness that is ranked PARI PASSU in right of payment with the notes or the
Guarantee of such Domestic Restricted Subsidiary, as the case may be, the
Guarantee of such Foreign Restricted Subsidiary shall be PARI PASSU in right of
payment with the guarantee of the Other Indebtedness; or (ii) Subordinated
Indebtedness, the Guarantee of such Foreign Restricted Subsidiary shall be
senior in right of payment to the guarantee of the Other Indebtedness (which
guarantee of such Subordinated Indebtedness shall provide that such guarantee is
subordinated to the Guarantees of such Subsidiary to the same extent and in
substantially the same manner as the Other Indebtedness is
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subordinated to the notes or the Guarantee of such Domestic Restricted
Subsidiary, as the case may be).
BUSINESS ACTIVITIES. St. John Knits International will not, and will not
permit any Restricted Subsidiary to, engage in any business other than the
Permitted Business.
PROVISION OF FINANCIAL INFORMATION. Whether or not St. John Knits
International is subject to Section 13(a) or 15(d) of the Exchange Act, or any
successor provision thereto, St. John Knits International shall file with the
SEC (if permitted by SEC practice and applicable law and regulations) the annual
reports, quarterly reports and other documents which St. John Knits
International would have been required to file with the SEC pursuant to such
Section 13(a) or 15(d) or any successor provision thereto if St. John Knits
International were so subject, such documents to be filed with the SEC on or
prior to the respective dates (the "Required Filing Dates") by which St. John
Knits International would have been required so to file such documents if St.
John Knits International were so subject. St. John Knits International shall
also in any event (a) within 15 days of each Required Filing Date (whether or
not permitted or required to be filed with the SEC) (i) transmit (or cause to be
transmitted) by mail to all Holders, as their names and addresses appear in the
note register, without cost to such Holders upon their request, and (ii) file
with the Trustee, copies of the annual reports, quarterly reports and proxy
statements which St. John Knits International is required to file with the SEC
pursuant to the preceding sentence, or, if such filing is not so permitted,
information and data of a similar nature, and (b) if, notwithstanding the
preceding sentence, filing such documents by St. John Knits International with
the SEC is not permitted by SEC practice or applicable law or regulations,
promptly upon written request supply copies of such documents to any Holder. In
addition, for so long as any notes remain outstanding and prior to the later of
the consummation of the Exchange Offer and the filing of the Initial Shelf
Registration Statement, if required, St. John Knits International will furnish
to the Holders upon their request, the information required to be delivered
pursuant to Rule 144A(d)(4) under the Securities Act.
EVENTS OF DEFAULT
The occurrence of any of the following will be defined as an "Event of
Default" under the indenture:
(a) failure to pay principal of (or premium, if any, on) any note when
due (whether or not prohibited by the provisions of the indenture described
under "--Subordination of the Notes" above);
(b) failure to pay any interest on any note when due, continued for 30
days or more (whether or not prohibited by the provisions of the indenture
described under "--Subordination of the Notes" above);
(c) default in the payment of principal of or interest on any note
required to be purchased pursuant to any Offer to Purchase required by the
indenture when due and payable or failure to pay on the Purchase Date the
Purchase Price for any note validly tendered pursuant to any Offer to
Purchase required by the indenture (whether or not prohibited by the
provisions of the indenture described under "--Subordination of the Notes"
above);
(d) failure to perform or comply with any of the provisions described
under "--Certain Covenants--Merger, Sale of Assets, etc." above;
(e) failure to perform any other covenant, warranty or agreement of St.
John Knits International under the indenture or in the notes or of the
Guarantors under the indenture or in the Guarantees continued for 30 days or
more after written notice to St. John Knits International by the Trustee or
Holders of at least 25% in aggregate principal amount of the outstanding
notes;
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(f) default or defaults under the terms of one or more instruments
evidencing or securing Indebtedness of St. John Knits International or any
of its Restricted Subsidiaries having an outstanding principal amount of
$10.0 million or more individually or in the aggregate that has resulted in
the acceleration of the payment of such Indebtedness or failure by St. John
Knits International or any of its Restricted Subsidiaries to pay principal
of at least $10.0 million when due at the stated maturity of any such
Indebtedness and such default or defaults shall have continued after any
applicable grace period and shall not have been cured or waived within 10
days after the occurrence thereof;
(g) the rendering of a final judgment or judgments (not subject to
appeal) against St. John Knits International or any of its Restricted
Subsidiaries in an amount of $10.0 million or more (net of any amounts
covered by reputable and creditworthy insurance companies) which remains
undischarged or unstayed for a period of 60 days after the date on which the
right to appeal has expired;
(h) certain events of bankruptcy, insolvency or reorganization affecting
St. John Knits International or any of its Significant Restricted
Subsidiaries; or
(i) other than as provided in or pursuant to any Guarantee or the
indenture, the Guarantee of any Guarantor ceases to be in full force and
effect or is declared null and void and unenforceable or found to be invalid
or any Guarantor denies its liability under its Guarantee (other than by
reason of a release of such Guarantor from its Guarantee in accordance with
the terms of the indenture and such Guarantee).
Subject to the provisions of the indenture relating to the duties of the
Trustee, in case an Event of Default shall occur and be continuing, the Trustee
will be under no obligation to exercise any of its rights or powers under the
indenture at the request or direction of any of the Holders of notes, unless
such Holders shall have offered to the Trustee reasonable indemnity. Subject to
such provisions for the indemnification of the Trustee, the Holders of a
majority in aggregate principal amount of the outstanding notes will have the
right to direct the time, method and place of conducting any proceeding for any
remedy available to the Trustee, or exercising any trust or power conferred on
such Trustee subject to applicable law.
If an Event of Default with respect to the notes (other than an Event of
Default with respect to St. John Knits International described in clause (h) of
the second preceding paragraph) occurs and is continuing, the Trustee or the
Holders of at least 25% in aggregate principal amount of the outstanding notes,
by notice in writing to St. John Knits International, may declare the unpaid
principal of (and premium, if any) and accrued interest to the date of
acceleration on all the outstanding notes to be due and payable immediately and,
upon any such declaration, such principal amount (and premium, if any) and
accrued interest, notwithstanding anything contained in the indenture or the
notes to the contrary, will become immediately due and payable; PROVIDED,
HOWEVER, that so long as the Credit Facility shall be in full force and effect,
if an Event of Default shall have occurred and be continuing (other than an
Event of Default with respect to St. John Knits International described in
clause (h) of the second preceding paragraph), the notes shall not become due
and payable until the earlier to occur of (x) five business days following
delivery of written notice of such acceleration of the notes to the agent under
the Credit Facility and (y) the acceleration (ipso facto or otherwise) of any
Indebtedness under the Credit Facility. If an Event of Default specified in
clause (h) of the preceding paragraph with respect to St. John Knits
International occurs under the indenture, the notes will ipso facto become
immediately due and payable without any declaration or other act on the part of
the Trustee or any Holder of the notes.
Any such declaration with respect to the notes may be annulled by the
Holders of a majority in aggregate principal amount of the outstanding notes
upon the conditions provided in the indenture. For information as to waiver of
defaults, see "--Modification and Waiver" below.
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The indenture provides that the Trustee shall, within 90 days after the
occurrence of any Default or Event of Default with respect to the notes
outstanding, give the Holders of the notes thereof notice of all uncured
Defaults or Events of Default thereunder known to it; PROVIDED, HOWEVER, that,
except in the case of a Default or an Event of Default in payment with respect
to the notes or a Default or Event of Default in complying with "--Certain
Covenants--Merger, Sale of Assets, etc." above, the Trustee shall be protected
in withholding such notice if and so long as a committee of its trust officers
in good faith determines that the withholding of such notice is in the interest
of the Holders of the notes.
No Holder of any note will have any right to institute any proceeding with
respect to the indenture or for any remedy thereunder, unless such Holder shall
have previously given to the Trustee written notice of a continuing Event of
Default thereunder and unless the Holders of at least 25% of the aggregate
principal amount of the outstanding notes shall have made written request, and
offered reasonable indemnity, to the Trustee to institute such proceeding as the
Trustee, and the Trustee shall have not have received from the Holders of a
majority in aggregate principal amount of such outstanding notes a direction
inconsistent with such request and shall have failed to institute such
proceeding within 60 days. However, such limitations do not apply to a suit
instituted by a Holder of such a note for enforcement of payment of the
principal of and premium, if any, or interest on such note on or after the
respective due dates expressed in such note.
St. John Knits International will be required to furnish to the Trustee
annually a statement as to the performance by it of certain of its obligations
under the indenture and as to any default in such performance.
NO PERSONAL LIABILITY OF DIRECTORS, OFFICERS, EMPLOYEES, INCORPORATOR,
STOCKHOLDERS, PARTNERS AND MEMBERS
No director, officer, employee, incorporator, stockholder, partner (general
or limited) or member of St. John Knits International or any of its Affiliates,
as such, shall have any liability for any obligations of St. John Knits
International or any of its Affiliates under the notes, the indenture or the
Guarantees or for any claim based on, in respect of, or by reason of, such
obligations or their creation. Each Holder of 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.
SATISFACTION AND DISCHARGE OF INDENTURE; DEFEASANCE
St. John Knits International may terminate its and the Guarantors'
substantive obligations in respect of the notes by delivering all outstanding
notes to the Trustee for cancellation and paying all sums payable by it on
account of principal of, premium, if any, and interest on all notes or
otherwise. In addition to the foregoing, St. John Knits International may,
provided that no Default or Event of Default has occurred and is continuing or
would arise therefrom (or, with respect to a Default or Event of Default
specified in clause (h) of "--Events of Default" above, occurs at any time on or
prior to the 91st calendar day after the date of such deposit (it being
understood that this condition shall not be deemed satisfied until after such
91st day)) under the indenture and provided that no default under any Senior
Indebtedness would result therefrom, terminate its and the Guarantors'
substantive obligations in respect of the notes (except for its obligations to
pay the principal of (and premium, if any, on) and the interest on the notes and
the Guarantors' Guarantee thereof) by (i) depositing with the Trustee, under the
terms of an irrevocable trust agreement, money or United States Government
Obligations sufficient (without reinvestment) to pay all remaining Indebtedness
on such notes; (ii) delivering to the Trustee either an Opinion of Counsel or a
ruling directed to the Trustee from the Internal Revenue Service to the effect
that the Holders of the notes will not recognize income, gain or loss for
Federal income tax purposes as a result of such deposit and termination of
obligations; (iii) delivering to the Trustee an Opinion of Counsel to the effect
that St. John Knits International's exercise of its option
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under this paragraph will not result in any of St. John Knits International, the
Trustee or the trust created by St. John Knits International's deposit of funds
pursuant to this provision becoming or being deemed to be an "investment
company" subject to regulation under the Investment Company Act of 1940, as
amended (the "Investment Act"); and (iv) complying with certain other
requirements set forth in the indenture. In addition, St. John Knits
International may, provided that no Default or Event of Default has occurred and
is continuing or would arise therefrom (or, with respect to a Default or Event
of Default specified in clause (h) of "--Events of Default" above, occurs at any
time on or prior to the 91st calendar day after the date of such deposit (it
being understood that this condition shall not be deemed satisfied until after
such 91st day)) under the indenture and provided that no default under any
Senior Indebtedness would result therefrom, terminate all of its and the
Guarantors' substantive obligations in respect of the notes (including its
obligations to pay the principal of (and premium, if any, on) and interest on
the notes and the Guarantors' Guarantee thereof) by (i) depositing with the
Trustee, under the terms of an irrevocable trust agreement, money or United
States Government Obligations sufficient (without reinvestment) to pay all
remaining Indebtedness on the notes; (ii) delivering to the Trustee either a
ruling directed to the Trustee from the Internal Revenue Service to the effect
that the Holders of the notes will not recognize income, gain or loss for
federal income tax purposes as a result of such deposit and termination of
obligations or an Opinion of Counsel addressed to the Trustee based upon such a
ruling or based on a change in the applicable federal tax law since the date of
the indenture, to such effect; (iii) delivering to the Trustee an Opinion of
Counsel to the effect that St. John Knits International's exercise of its option
under this paragraph will not result in any of St. John Knits International, the
Trustee or the trust created by St. John Knits International's deposit of funds
pursuant to this provision becoming or being deemed to be an "investment
company" subject to regulation under the Investment Act; and (iv) complying with
certain other requirements set forth in the indenture.
St. John Knits International may make an irrevocable deposit pursuant to
this provision only if at such time it is not prohibited from doing so under the
subordination provisions of the indenture or certain covenants in the Senior
Indebtedness and St. John Knits International has delivered to the Trustee and
any Paying Agent an officers' certificate and Opinion of Counsel to that effect.
GOVERNING LAW
The indenture, the notes and the Guarantees will be 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.
MODIFICATION AND WAIVER
Modifications and amendments of the indenture may be made by St. John Knits
International, the Guarantors, and the Trustee with the consent of the Holders
of a majority in aggregate principal amount of the outstanding notes (including
consents obtained in connection with a tender offer or exchange offer for the
notes); PROVIDED, HOWEVER, that no such modification or amendment to the
indenture may, without the consent of the Holder of each note affected thereby,
(a) change the maturity of the principal of or any installment of
interest on any such note or alter the optional redemption provisions of any
such note or the indenture in a manner adverse to the Holders of the notes;
(b) reduce the principal amount of (or the premium) of any such note;
(c) reduce the rate of or extend the time for payment of interest on any
such note;
(d) change the place or currency of payment of principal of (or premium)
or interest on any such note;
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(e) modify any provisions of the indenture relating to the waiver of
past defaults (other than to add sections of the indenture or the notes
subject thereto) or the right of the Holders of notes to institute suit for
the enforcement of any payment on or with respect to any such note or any
Guarantee in respect thereof or the modification and amendment provisions of
the indenture and the notes (other than to add sections of the indenture or
the notes which may not be amended, supplemented or waived without the
consent of each Holder therein affected);
(f) reduce the percentage of the principal amount of outstanding notes
necessary for amendment to or waiver of compliance with any provision of the
indenture or the notes or for waiver of any Default in respect thereof;
(g) waive a default in the payment of principal of, interest on, or
redemption payment with respect to, the notes (except a rescission of
acceleration of the notes by the Holders thereof as provided in the
indenture and a waiver of the payment default that resulted from such
acceleration);
(h) modify the ranking or priority of any note or the Guarantee in
respect thereof of any Guarantor or modify the definition of Senior
Indebtedness or Guarantor Senior Indebtedness or amend or modify the
subordination provisions of the indenture in any manner adverse to the
Holders of the notes;
(i) amend, change or modify in any material respect the obligation of
St. John Knits International to make and consummate an Offer to Purchase in
the event of a Change of Control or make and consummate an Offer to Purchase
with respect to any Asset Sale that has been consummated or modify in any
material respect any of the provisions or definitions with respect thereto;
or
(j) release any Significant Restricted Subsidiary that is a Guarantor
from any of its obligations under its Guarantee or the indenture otherwise
than in accordance with the indenture.
The Holders of a majority in aggregate principal amount of the outstanding
notes, on behalf of all Holders of notes, may waive compliance by St. John Knits
International and the Guarantors with certain restrictive provisions of the
indenture. Subject to certain rights of the Trustee, as provided in the
indenture, the Holders of a majority in aggregate principal amount of the notes,
on behalf of all Holders, may waive any past default under the indenture
(including any such waiver obtained in connection with a tender offer or
exchange offer for the notes), except a default in the payment of principal,
premium or interest or a default arising from failure to purchase any notes
tendered pursuant to an Offer to Purchase, or a default in respect of a
provision that under the indenture cannot be modified or amended without the
consent of the Holder of each note that is affected.
Without the consent of any Holder, St. John Knits International and the
Trustee may amend the indenture to:
(i) cure any ambiguity, omission, defect or inconsistency;
(ii) provide for the assumption by a successor corporation, partnership,
trust or limited liability company of the obligations of St. John Knits
International under the indenture;
(iii) 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 Internal Revenue Code,
or in a manner such that the uncertificated notes are described in Section
163(f)(2)(B) of the Internal Revenue Code);
(iv) add Guarantees with respect to the notes;
(v) secure the notes;
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(vi) add to the covenants of St. John Knits International for the
benefit of the Holders or surrender any right or power conferred upon St.
John Knits International;
(vii) make any change that does not adversely affect the rights of any
Holder; or
(viii) comply with any requirement of the SEC in connection with the
qualification of the indenture under the Trust Indenture Act.
However, no amendment may be made to the subordination provisions of the
indenture that adversely affects the rights of any holder of Senior Indebtedness
or Guarantor Senior Indebtedness, as the case may be, then outstanding unless
the holders of such Senior Indebtedness or Guarantor Senior Indebtedness, as the
case may be (or any group or representative thereof authorized to give a
consent), consent to such change.
THE TRUSTEE
Except during the continuance of a Default, the Trustee will perform only
such duties as are specifically set forth in the indenture. During the existence
of a Default, the Trustee will exercise such rights and powers vested in it
under the indenture and use the same degree of care and skill in its exercise as
a prudent person would exercise under the circumstances in the conduct of such
person's own affairs.
The indenture and provisions of the Trust Indenture Act incorporated by
reference therein contain limitations on the rights of the Trustee, should it
become a creditor of St. John Knits International, any Guarantor or any other
obligor upon the notes, to obtain payment of claims in certain cases or to
realize on certain property received by it in respect of any such claim as
security or otherwise. The Trustee is permitted to engage in other transactions
with St. John Knits International or an Affiliate of St. John Knits
International; PROVIDED, HOWEVER, that if it acquires any conflicting interest
(as defined in the indenture or in the Trust Indenture Act), it must eliminate
such conflict or resign.
CERTAIN DEFINITIONS
Set forth below are certain defined terms used in the indenture. Reference
is made to the indenture for a full definition of all such terms, as well as any
other capitalized terms used herein for which no definition is provided.
"ACQUIRED INDEBTEDNESS" means Indebtedness of a Person (a) assumed in
connection with an Acquisition from such Person or (b) existing at the time such
Person becomes a Restricted Subsidiary or is merged or consolidated with or into
St. John Knits International or any Restricted Subsidiary.
"ACQUIRED PERSON" means, with respect to any specified Person, any other
Person which merges with or into or becomes a Subsidiary of such specified
Person.
"ACQUISITION" means (i) any capital contribution (by means of transfers of
cash or other property to others or payments for property or services for the
account or use of others, or otherwise) by St. John Knits International or any
Restricted Subsidiary to any other Person, or any acquisition or purchase of
Equity Interests of any other Person by St. John Knits International or any
Restricted Subsidiary, in either case pursuant to which such Person shall become
a Restricted Subsidiary or shall be consolidated with or merged into St. John
Knits International or any Restricted Subsidiary or (ii) any acquisition by St.
John Knits International or any Restricted Subsidiary of the assets of any
Person which constitute substantially all of an operating unit or line of
business of such Person or which is otherwise outside of the ordinary course of
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 and shall also mean any beneficial owner of
shares representing 5% or more of the total voting power of the Voting
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Equity Interests (on a fully diluted basis) of St. John Knits International or
of rights or warrants to purchase such Voting Equity Interests (whether or not
currently exercisable) and any Person who would be an Affiliate of any such
beneficial owner pursuant to this definition; PROVIDED, HOWEVER, that for
purposes of the "--Transactions with Affiliates" covenant, the term "Affiliate"
shall not include the Initial Purchasers or their affiliates. For purposes of
this definition, "control" (including, with correlative meanings, the terms
"controlling," "controlled by" and "under common control with"), as used with
respect to any Person, shall mean the possession, directly or indirectly, of the
power to direct or cause the direction of the management or policies of such
Person, whether through the ownership of voting securities, by agreement or
otherwise.
"ASSET SALE" means any direct or indirect sale, conveyance, transfer, lease
(that has the effect of a disposition) or other disposition (including, without
limitation, any merger, consolidation or sale-leaseback transaction) to any
Person other than St. John Knits International or a Restricted Subsidiary, in
one transaction or a series of related transactions, of (i) any Equity Interest
of any Restricted Subsidiary (other than directors' qualifying shares, to the
extent mandated by applicable law); (ii) any assets of St. John Knits
International or any Restricted Subsidiary which constitute substantially all of
an operating unit or line of business of St. John Knits International or any
Restricted Subsidiary; or (iii) any other property or asset of St. John Knits
International or any Restricted Subsidiary outside of the ordinary course of
business (including the receipt of proceeds paid on account of the loss of or
damage to any property or asset and awards of compensation for any asset taken
by condemnation, eminent domain or similar proceedings). For the purposes of
this definition, the term "Asset Sale" shall not include (a) the creation of any
Lien not prohibited by "--Certain Covenants--Limitation on Liens" above; (b)
sales of property or equipment that has become worn out, obsolete or damaged or
otherwise unsuitable for use in connection with the business of St. John Knits
International or any Restricted Subsidiary, as the case may be; (c) any
transaction consummated in compliance with "--Certain Covenants--Limitation on
Restricted Payments" above; (d) any transfers of properties and assets between
Restricted Subsidiaries or St. John Knits International and a Restricted
Subsidiary; (e) the sale of Cash Equivalents in the ordinary course of business;
(f) a disposition of inventory in the ordinary course of business; (g)
transactions permitted under "--Certain Covenants-- Merger, Sale of Assets,
etc."; (h) the sale or other disposition of assets owned by Amen Wardy Home
Stores, LLC; and (i) the sale of accounts receivable, or participation therein,
in connection with any Qualified Receivables Transactions. In addition, solely
for purposes of "--Certain Covenants-- Disposition of Proceeds of Asset Sales"
above, any sale, conveyance, transfer, lease or other disposition of any
property or asset, whether in one transaction or a series of related
transactions, involving assets with a Fair Market Value not in excess of $2.5
million in any fiscal year shall be deemed not to be an Asset Sale.
"ATTRIBUTABLE INDEBTEDNESS" 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 semi-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).
"BOARD RESOLUTION" means, with respect to any Person, a duly adopted
resolution of the Board of Directors of such Person.
"CAPITAL LEASE OBLIGATION" means, at the time any determination thereof is
to be made, the amount of the liability in respect of a capital lease that would
at such time be properly capitalized on the balance sheet in accordance with
GAAP.
"CASH EQUIVALENTS" means: (a) U.S. dollars; (b) securities issued or
directly and fully guaranteed or insured by the U.S. government or any agency or
instrumentality thereof having maturities of not more than one year from the
date of acquisition; (c) certificates of deposit and eurodollar time deposits
with
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maturities of six months or less from the date of acquisition, bankers'
acceptances with maturities not exceeding six months and overnight bank
deposits, in each case with any domestic commercial bank having capital and
surplus in excess of $500 million; (d) repurchase obligations with a term of not
more than seven days for underlying securities of the types described in clauses
(b) and (c) above entered into with any financial institution meeting the
qualifications specified in clause (c) above; (e) commercial paper rated P-1,
A-1 or the equivalent thereof by Moody's Investors Service, Inc. or Standard &
Poor's Corporation, respectively, and in each case maturing within six months
after the date of acquisition; and (f) money market funds at least 95% of the
assets of which constitute Cash Equivalents of the kinds described in clauses
(a) through (e) of this definition.
"CHANGE OF CONTROL" means the occurrence of any of the following events
(whether or not approved by the Board of Directors of St. John Knits
International): (i) any Person (as such term is used in Sections 13(d) and 14(d)
of the Exchange Act, including any group acting for the purpose of acquiring,
holding or disposing of securities within the meaning of Rule 13d-5(b)(1) under
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 a 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, upon the happening of
an event or otherwise), directly or indirectly, of greater than 35% of the total
voting power of the then outstanding Voting Equity Interests of St. John Knits
International and such Person beneficially owns a greater percentage of the
total voting power of the then outstanding Voting Equity Interests of St. John
Knits International than the Permitted Holders; (ii) St. John Knits
International or any of its Subsidiaries sells, assigns, conveys, transfers,
leases or otherwise disposes (other than by way of merger or consolidation) of
all or substantially all of the assets of St. John Knits International and its
Subsidiaries (determined on a consolidated basis) to any Person (other than St.
John Knits International or any Wholly Owned Restricted Subsidiary); (iii)
during any period of two consecutive years, individuals who at the beginning of
such period constituted the Board of Directors of St. John Knits International
(together with any new directors whose election by such Board of Directors or
whose nomination for election by the shareholders of St. John Knits
International was approved by a vote of a majority of the directors of St. John
Knits International then still in office who were either directors at the
beginning of such period or whose election or nomination for election was
previously so approved) cease for any reason to constitute a majority of the
Board of Directors of St. John Knits International then in office; or (iv) St.
John Knits International is liquidated or dissolved or adopts a plan of
liquidation or dissolution.
"CHANGE OF CONTROL DATE" has the meaning set forth under "--Offer to
Purchase upon Change of Control" above.
"CONSOLIDATED COVERAGE RATIO" as of any date of determination means the
ratio of (i) the aggregate amount of Consolidated EBITDA for the four quarter
period of the most recent four consecutive fiscal quarters for which financial
statements are available ending prior to the date of such determination (the
"Four Quarter Period") to (ii) Consolidated Fixed Charges for such Four Quarter
Period; PROVIDED, HOWEVER, that (1) if St. John Knits International or any
Restricted Subsidiary has incurred any Indebtedness since the beginning of such
Four Quarter Period that remains outstanding on such date of determination or if
the transaction giving rise to the need to calculate the Consolidated Coverage
Ratio is an Incurrence of Indebtedness, Consolidated EBITDA and Consolidated
Fixed Charges for such Four Quarter 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 Four Quarter Period and the discharge of
any other Indebtedness repaid, repurchased or otherwise discharged with the
proceeds of such new Indebtedness as if such discharge had occurred on the first
day of such Four Quarter Period, (2) if since the beginning of such Four Quarter
Period St. John Knits International or any Restricted Subsidiary shall have made
any Asset Sale, the Consolidated EBITDA for such Four Quarter Period
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shall be reduced by an amount equal to the Consolidated EBITDA (if positive)
directly attributable to the assets that are the subject of such Asset Sale for
such Four Quarter Period or increased by an amount equal to the Consolidated
EBITDA (if negative) directly attributable thereto for such Four Quarter Period
and Consolidated Fixed Charges for such Four Quarter Period shall be reduced by
an amount equal to the Consolidated Fixed Charges directly attributable to any
Indebtedness of St. John Knits International or any Restricted Subsidiary
repaid, repurchased or otherwise discharged with respect to St. John Knits
International and its continuing Restricted Subsidiaries in connection with such
Asset Sale for such Four Quarter Period (or, if the Equity Interests of any
Restricted Subsidiary are sold, the Consolidated Fixed Charges for such Four
Quarter Period directly attributable to the Indebtedness of such Restricted
Subsidiary to the extent St. John Knits International and its continuing
Restricted Subsidiaries are no longer liable for such Indebtedness after such
sale), (3) if since the beginning of such Four Quarter Period St. John Knits
International or any Restricted Subsidiary (by merger or otherwise) shall have
made an Investment in any Restricted Subsidiary (or any Person that becomes a
Restricted Subsidiary) or an acquisition of assets, including any acquisition of
assets occurring in connection with a transaction causing a calculation to be
made hereunder, which constitutes all or substantially all of an operating unit
or a line of a business or which constitutes Replacement Assets, Consolidated
EBITDA and Consolidated Fixed Charges for such Four Quarter Period shall be
calculated after giving pro forma effect to (x) such Investment or acquisition
of assets (including the Incurrence of any Indebtedness) as if such Investment
or acquisition occurred on the first day of such Four Quarter Period and (y) net
expense and cost reductions attributable to the assets acquired calculated on a
basis consistent with the standards set forth in Regulation S-X under the
Securities Act as in effect on the Issue Date and (4) if since the beginning of
such Four Quarter Period any Person (that subsequently became a Restricted
Subsidiary or was merged with or into St. John Knits International or any
Restricted Subsidiary since the beginning of such Four Quarter Period) shall
have made any Asset Sale or any Investment or acquisition of assets that would
have required an adjustment pursuant to clause (2) or (3) above if made by St.
John Knits International or a Restricted Subsidiary during such Four Quarter
Period, Consolidated EBITDA and Consolidated Fixed Charges for such Four Quarter
Period shall be calculated after giving pro forma effect thereto as if such
Asset Sale, Investment or acquisition of assets occurred on, with respect to any
Investment or acquisition, the first day of such Four Quarter Period and, with
respect to any Asset Sale, the day prior to the first day of such Four Quarter
Period. For purposes of this definition, whenever pro forma effect is to be
given to an acquisition of assets, the amount of income or earnings relating
thereto and the amount of Consolidated Fixed Charges associated with any
Indebtedness Incurred in connection therewith, the pro forma calculations shall
be determined in accordance with GAAP. If any Indebtedness bears a floating rate
of interest and is being given pro forma effect, the interest expense 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 agreement under which Hedging Obligations are outstanding applicable
to such Indebtedness if such agreement under which such Hedging Obligations are
outstanding has a remaining term as at the date of determination in excess of 12
months); PROVIDED, HOWEVER, that the Consolidated Fixed Charges of St. John
Knits International attributable to interest on any Indebtedness Incurred under
a revolving credit facility computed on a pro forma basis shall be computed
based upon the average daily balance of such Indebtedness during the Four
Quarter Period.
"CONSOLIDATED EBITDA" means, for any period, the Consolidated Net Income for
such period, plus, without duplication, the following to the extent deducted in
calculating such Consolidated Net Income: (i) Consolidated Income Tax Expense
for such period; (ii) Consolidated Interest Expense for such period; (iii)
Consolidated Non-cash Charges for such period; (iv) step-ups in inventory
valuation as a result of purchase accounting in connection with the acquisition
of assets or Equity Interests; (v) costs not reimbursable by St. John Knits
International's or any Subsidiary's insurance incurred in connection with any
litigation and other legal proceedings to which St. John Knits International or
such Subsidiary is currently a party (other than in connection with the
settlement of the litigation concerning Amen
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Wardy Home Stores, LLC), PROVIDED that such costs included in this clause (v)
shall not exceed $1.0 million for all periods; (vi) cash charges not to exceed
$1.0 million in connection with the settlement of the litigation concerning Amen
Wardy Home Stores, LLC, the acquisition of the remaining 49% interest in Amen
Wardy Home Stores, LLC and the closure of certain Amen Wardy stores and related
costs; and (vii) expenses related to the transactions; LESS (A) all non-cash
items increasing Consolidated Net Income for such period and (B) all cash
payments during such period relating to non-cash charges that were added back in
determining Consolidated EBITDA in any prior period.
"CONSOLIDATED FIXED CHARGES" means, with respect to any Person for any
period, the sum, without duplication, of (i) Consolidated Interest Expense and
(ii) the product of (x) the amount of all dividend payments on any series of
Preferred Equity Interest of St. John Knits International and its Restricted
Subsidiaries (other than dividends paid solely in Qualified Equity Interests and
other than unpaid dividends on the Preferred Stock) paid, accrued or scheduled
to be paid or accrued during such period times (y) a fraction, the numerator of
which is one and the denominator of which is one minus the then current
effective consolidated federal, state and local tax rate of such Person,
expressed as a decimal.
"CONSOLIDATED INCOME TAX EXPENSE" means, with respect to St. John Knits
International for any period, the provision for Federal, state, local and
foreign income taxes payable by St. John Knits International and the Restricted
Subsidiaries for such period as determined on a consolidated basis in accordance
with GAAP.
"CONSOLIDATED INTEREST EXPENSE" means, with respect to St. John Knits
International for any period, without duplication, the sum of (i) the interest
expense of St. John Knits International and the Restricted Subsidiaries for such
period as determined on a consolidated basis in accordance with GAAP, including,
without limitation, (a) any amortization of debt discount, (b) the net cost
under Hedging Obligations, (c) the interest portion of any deferred payment
obligation, (d) all commissions, discounts and other fees and charges owed with
respect to letters of credit and bankers' acceptance financing, (e) all
capitalized interest and all accrued interest and (f) 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 St. John Knits International) in connection with Indebtedness
Incurred by such plan or trust; PROVIDED, HOWEVER, that there will be excluded
therefrom any such interest expense of any Unrestricted Subsidiary to the extent
the related Indebtedness is not guaranteed or paid by St. John Knits
International or any Restricted Subsidiary and (ii) interest expense
attributable to Capitalized Lease Obligations and the interest portion of rent
expense associated with Attributable Indebtedness in respect of the relevant
lease giving rise thereto, determined as if such lease were a capitalized lease
in accordance with GAAP, as determined for St. John Knits International and the
Restricted Subsidiaries on a consolidated basis in accordance with GAAP.
"CONSOLIDATED NET INCOME" means, for any period, the consolidated net income
(loss) of St. John Knits International and the Restricted Subsidiaries
determined in accordance with GAAP and before any reduction in respect of
dividends paid solely in Qualified Equity Interests and before any reduction in
respect of unpaid dividends on the Preferred Stock; PROVIDED, HOWEVER, that
there shall not be included in such Consolidated Net Income: (i) any net income
(loss) of any Person if such Person is not a Restricted Subsidiary, except (A)
to the extent of cash actually distributed by such Person during such period to
St. John Knits International or a Restricted Subsidiary as a dividend or other
distribution, (B) with respect to foreign joint ventures, to the extent that
cash is available for distribution (without restriction and not committed for
other purposes) during such period to St. John Knits International or a
Restricted Subsidiary as a dividend or other distribution, but is not
distributed due to adverse tax or other business reasons, such cash shall be
included and (C) St. John Knits International's equity in a net loss of any such
Person (other than an Unrestricted Subsidiary) for such
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period shall be included in determining such Consolidated Net Income; (ii) any
net income (loss) of any person acquired by St. John Knits International or a
Restricted Subsidiary in a pooling of interests transaction for any period prior
to the date of such acquisition; (iii) any net income (but not loss) 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 St. John
Knits International to the extent of such restrictions; (iv) any gain or loss,
together with any related provision for taxes on such gain or loss, realized
upon the sale or other disposition of any asset of St. John Knits International
or the Restricted Subsidiaries (including pursuant to any sale/leaseback
transaction) outside of the ordinary course of business; (v) any extraordinary
gain or loss, together with any related provision for taxes on such
extraordinary gain or loss; (vi) the cumulative effect of a change in accounting
principles; (vii) any restoration to income of any contingency reserve of an
extraordinary, non-recurring or unusual nature, except to the extent that
provision for such reserve was made out of Consolidated Net Income accrued at
any time following the Issue Date; (viii) gains and losses resulting from
foreign currency transaction adjustments; (ix) gains and losses on assets that
are marked to market; (x) any costs and expenses related to the transactions
incurred on or immediately after the Issue Date, including the settlement of all
outstanding options; and (xi) non-cash expenses resulting from the grant of
Equity Interests and other compensation to management personnel of St. John
Knits International and its Subsidiaries pursuant to a written plan or agreement
or the treatment of options under variable plan accounting.
"CONSOLIDATED NET WORTH" of any Person means the consolidated stockholders'
equity of such Person, determined on a consolidated basis in accordance with
GAAP, less (without duplication) amounts attributable to Disqualified Equity
Interests of such Person.
"CONSOLIDATED NON-CASH CHARGES" means, with respect to any Person, for any
period the sum of (i) depreciation, (ii) amortization and (iii) all non-cash
extraordinary charges and other non-cash expenses of such Person and its
Restricted Subsidiaries reducing Consolidated Net Income of such Person and its
Restricted Subsidiaries for such period, determined on a consolidated basis in
accordance with GAAP (excluding, for purposes of clause (iii) only, such charges
which require an accrual of or a reserve for cash charges for any future period)
including, without limitation, non-cash charges in connection with the
settlement of the litigation concerning Amen Wardy Home Stores, LLC, the
acquisition of the remaining 49% interest in Amen Wardy Home Stores, LLC and the
closure of certain Amen Wardy stores and related costs.
"CREDIT FACILITY" means the Credit Agreement, dated as of the Issue Date,
among St. John Knits International, the lenders named therein, and The Chase
Manhattan Bank, as Administrative Agent, and any and all guarantee agreements,
security agreements and other agreements and instruments relating thereto, in
each case as the same may be amended, modified, supplemented or replaced from
time to time, and including any deferrals, renewals, extensions, replacements,
refinancings or refundings thereof, or amendments, modifications or supplements
thereto and any agreement providing therefor (including any restatements thereof
and any increases in the amount of the commitments or Indebtedness thereunder),
whether by or with the same or any other lender, creditor, group of lenders or
group of creditors, and including related notes, guarantee and note agreements
and other instruments and agreements executed in connection therewith.
"DEFAULT" means any event that is or with the passage of time or the giving
of notice or both would be an Event of Default.
"DESIGNATED SENIOR INDEBTEDNESS" means (a) any Indebtedness outstanding
under the Credit Facility and (b) after the Credit Facility has been terminated
and all Indebtedness thereunder has been repaid in full, any other Senior
Indebtedness which, at the time of determination, has an aggregate principal
amount outstanding, together with any commitments to lend additional amounts, of
at least $10.0 million, if the instrument governing such Senior Indebtedness
expressly states that such
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Indebtedness is "Designated Senior Indebtedness" for purposes of the indenture
and a Board Resolution setting forth such designation by St. John Knits
International has been filed with the Trustee.
"DESIGNATION" has the meaning set forth under "--Certain
Covenants--Designation of Unrestricted Subsidiaries" above.
"DESIGNATION AMOUNT" has the meaning set forth under "--Certain
Covenants--Designation of Unrestricted Subsidiaries" above.
"DISPOSITION" means, with respect to any Person, any merger, consolidation
or other business combination involving such Person (whether or not such Person
is the Surviving Person) or the sale, assignment, transfer, lease, conveyance or
other disposition of all or substantially all of such Person's assets.
"DISQUALIFIED EQUITY INTEREST" means any Equity Interest 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 thereof), or upon the happening of any
event, matures or is mandatorily redeemable, pursuant to a sinking fund
obligation or otherwise, or redeemable, at the option of the holder thereof
(except, in each case, upon the occurrence of a Change of Control or Asset
Sale), in whole or in part, or exchangeable into Indebtedness on or prior to the
earlier of the maturity date of the notes or the date on which no notes remain
outstanding.
"DOMESTIC RESTRICTED SUBSIDIARY" means a Restricted Subsidiary of St. John
Knits International organized under the laws of the United States or any
political subdivision thereof or the operations of which are located
substantially inside the United States.
"EQUITY INTEREST" in any Person means any and all shares, interests, rights
to purchase, warrants, options, participations or other equivalents of or
interests in (however designated) corporate stock or other equity
participations, including partnership interests, whether general or limited, in
such Person, including any Preferred Equity Interests.
"EXCHANGE ACT" means the Exchange Act, as amended, and the rules and
regulations promulgated by the SEC thereunder.
"EXPIRATION DATE" has the meaning set forth in the definition of "Offer to
Purchase" below.
"FAIR MARKET VALUE" means, with respect to any asset, the price (after
taking into account any liabilities relating to such assets) which could be
negotiated in an arm's-length free market transaction, for cash, between a
willing seller and a willing and able buyer, neither of which is under any
compulsion to complete the transaction; PROVIDED, HOWEVER, that the Fair Market
Value of any such asset or assets shall be determined conclusively by the Board
of Directors of St. John Knits International acting in good faith, and shall be
evidenced by resolutions of the Board of Directors of St. John Knits
International delivered to the Trustee.
"FOREIGN RESTRICTED SUBSIDIARY" means a Restricted Subsidiary of St. John
Knits International not organized under the laws of the United States or any
political subdivision thereof and the operations of which are located and
conducted substantially outside of the United States.
"FOUR QUARTER PERIOD" has the meaning set forth in the definition of
"Consolidated Coverage Ratio" above.
"GAAP" means generally accepted accounting principles in effect in the
United States on the date hereof and which are consistently applied for all
applicable periods.
"GRAY COMMON STOCK" means common stock of St. John Knits International owned
by Robert E. Gray, Marie Gray or Kelly A. Gray.
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"GUARANTEE" means, as applied to any obligation, (i) a guarantee (other than
by endorsement of negotiable instruments for collection in the ordinary course
of business), direct or indirect, in any manner, of any part or all of such
obligation and (ii) an agreement, direct or indirect, contingent or otherwise,
the practical effect of which is to assure in any way the payment or performance
(or payment of damages in the event of non-performance) of all or any part of
such obligation, including, without limiting the foregoing, the payment of
amounts drawn down by letters of credit.
"GUARANTEE" means the guarantee of the notes by each Guarantor under the
indenture.
"GUARANTOR" means (i) each Domestic Restricted Subsidiary (other than a
Receivables Entity) in existence on the Issue Date and (ii) each other
Restricted Subsidiary formed, created or acquired before or after the Issue Date
required to become a Guarantor after the Issue Date pursuant to "--Limitation on
Guarantees by Restricted Subsidiaries" above.
"GUARANTOR SENIOR INDEBTEDNESS" means, with respect to any Guarantor, at any
date, (a) all Obligations of such Guarantor under or in respect of the Credit
Facility; (b) all Hedging Obligations of such Guarantor; (c) all Obligations of
such Guarantor under stand-by letters of credit; and (d) all other Indebtedness
of such Guarantor for borrowed money, including principal, premium, if any, and
interest (including Post-Petition Interest) on such Indebtedness unless the
instrument under which such Indebtedness of such Guarantor for money borrowed is
Incurred expressly provides that such Indebtedness for money borrowed is not
senior or superior in right of payment to such Guarantor's Guarantee of the
notes, and all renewals, extensions, modifications, amendments or refinancings
thereof. Notwithstanding the foregoing, Guarantor Senior Indebtedness shall not
include (a) to the extent that it may constitute Indebtedness, any Obligation
for federal, state, local or other taxes; (b) any Indebtedness among or between
such Guarantor and any Subsidiary of such Guarantor or any Affiliate of such
Guarantor or any of such Affiliate's Subsidiaries; unless, and for so long as
such Indebtedness has been pledged to secure obligations under or in respect of
Guarantor Senior Indebtedness; (c) to the extent that it may constitute
Indebtedness, any Obligation in respect of any trade payable Incurred for the
purchase of goods or materials, or for services obtained, in the ordinary course
of business; (d) that portion of any Indebtedness that is Incurred in violation
of the indenture; (e) Indebtedness evidenced by such Guarantor's Guarantee of
the notes; (f) Indebtedness of such Guarantor that is expressly subordinate or
junior in right of payment to any other Indebtedness of such Guarantor; (g) to
the extent that it may constitute Indebtedness, any obligation owing under
leases (other than Capitalized Lease Obligations) or management agreements; (h)
any obligation that by operation of law is subordinate to any general unsecured
obligations of such Guarantor; and (i) Indebtedness of a Guarantor to the extent
such Indebtedness is owed to and held by any Federal, state, local or other
governmental authority.
"GUARANTOR SENIOR SUBORDINATED INDEBTEDNESS" means the Guarantees and any
other Indebtedness of a Guarantor that specifically provides that such
Indebtedness is to rank PARI PASSU in right of payment with the Guarantees and
is not subordinated by its terms in right of payment to any Indebtedness or
other obligation of the Guarantor other than Guarantor Senior Indebtedness.
"HEDGING AGREEMENT" means, with respect to any Person, all interest rate
swap or similar agreements or foreign currency or commodity hedge, exchange or
similar agreements of such Person.
"HEDGING OBLIGATIONS" means, with respect to any Person, the Obligations of
such Person under Hedging Agreements.
"HOLDERS" means the registered holders of the notes.
"INCUR" means, with respect to any Indebtedness or other obligation of any
Person, to create, issue, incur (including by conversion, exchange or
otherwise), assume, guarantee or otherwise become liable in respect of such
Indebtedness or other obligation or the recording, as required pursuant to GAAP
or otherwise, of any such Indebtedness or other obligation on the balance sheet
of such Person (and
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"Incurrence," "Incurred" and "Incurring" shall have meanings correlative to the
foregoing). Indebtedness of any Acquired Person or any of its Subsidiaries
existing at the time such Acquired Person becomes a Restricted Subsidiary (or is
merged into or consolidated with St. John Knits International or any Restricted
Subsidiary), whether or not such Indebtedness was Incurred in connection with,
as a result of, or in contemplation of, such Acquired Person becoming a
Restricted Subsidiary (or being merged into or consolidated with St. John Knits
International or any Restricted Subsidiary), shall be deemed Incurred at the
time any such Acquired Person becomes a Restricted Subsidiary or merges into or
consolidates with St. John Knits International or any Restricted Subsidiary.
"INDEBTEDNESS" means (without duplication), with respect to any Person,
whether recourse is to all or a portion of the assets of such Person and whether
or not contingent, (a) every obligation of such Person for money borrowed; (b)
every obligation of such Person evidenced by bonds, debentures, notes or other
similar instruments, including obligations incurred in connection with the
acquisition of property, assets or businesses; (c) every reimbursement
obligation of such Person with respect to letters of credit, bankers'
acceptances or similar facilities issued for the account of such Person; (d)
every obligation of such Person issued or assumed as the deferred purchase price
of property or services (but excluding trade accounts payable incurred in the
ordinary course of business and payable in accordance with industry practices,
or other accrued liabilities arising in the ordinary course of business which
are not overdue or which are being contested in good faith); (e) every Capital
Lease Obligation of such Person; (f) every net obligation under Hedging
Agreements of such Person; (g) every obligation of the type referred to in
clauses (a) through (f) of another Person and all dividends of another Person
the payment of which, in either case, such Person has guaranteed or is
responsible or liable for, directly or indirectly, as obligor, guarantor or
otherwise; and (h) any and all deferrals, renewals, extensions and refundings
of, or amendments, modifications or supplements to, any liability of the kind
described in any of the preceding clauses (a) through (g) above. Indebtedness
(a) shall never be calculated taking into account any cash and cash equivalents
held by such Person; (b) shall not include obligations of any Person (x) arising
from the honoring by a bank or other financial institution of a check, draft or
similar instrument inadvertently drawn against insufficient funds in the
ordinary course of business, provided that such obligations are extinguished
within two business days of their incurrence, (y) resulting from the endorsement
of negotiable instruments for collection in the ordinary course of business and
consistent with past business practices and (z) under stand-by letters of credit
to the extent collateralized by cash or Cash Equivalents; (c) which provides
that an amount less than the principal amount thereof shall be due upon any
declaration of acceleration thereof shall be deemed to be incurred or
outstanding in an amount equal to the accreted value thereof at the date of
determination; and (d) shall include the liquidation preference and any
mandatory redemption payment obligations in respect of any Disqualified Equity
Interests of St. John Knits International or any Restricted Subsidiary.
"INDEPENDENT FINANCIAL ADVISOR" means a nationally recognized, accounting,
appraisal, investment banking firm or consultant which, in the judgment of the
Board of Directors of St. John Knits International, is independent and qualified
to perform the task for which it is to be engaged.
"INSOLVENCY OR LIQUIDATION PROCEEDING" means, with respect to any Person,
any liquidation, dissolution or winding up of such Person, or any bankruptcy,
reorganization, insolvency, receivership or similar proceeding with respect to
such Person, whether voluntary or involuntary.
"INTEREST" means, with respect to the notes, the sum of any cash interest
and any Liquidated Damages (as defined under "Exchange and Registration Rights"
below) on the notes.
"INVESTMENT" means, with respect to any Person, any direct or indirect loan,
advance, guarantee or other extension of credit or capital contribution to (by
means of transfers of cash or other property or assets to others or payments for
property or services for the account or use of others, or otherwise), or
purchase or acquisition of capital stock, bonds, notes, debentures or other
securities or evidences of Indebtedness issued by, any other Person; PROVIDED
that (i) endorsements of negotiable instruments and
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documents in the ordinary course of business and (ii) an acquisition of assets,
Equity Interests or other securities by St. John Knits International for
consideration consisting exclusively of Equity Interests (other than
Disqualified Equity Interests) of St. John Knits International shall in each
case not be deemed to be an Investment. For purposes of the "Limitation on
Restricted Payments" covenant above, (i) "Investment" shall include the
applicable Designation Amount at the time of the Designation of any Restricted
Subsidiary as an Unrestricted Subsidiary and (ii) the amount of any Investment
shall be the original cost of such Investment, plus the cost of all additions
thereto, but without any other adjustments for increases or decreases in value,
or write-ups, write-downs or write-offs with respect to such Investment; reduced
by the payment of dividends or distributions in connection with such Investment
or any other amounts received in respect of such Investment; PROVIDED, HOWEVER,
that no such payment of dividends or distributions or receipt of any such other
amounts shall reduce the amount of any Investment if such payment of dividends
or distributions or receipt of any such amounts would be included in
Consolidated Net Income. If St. John Knits International or any Restricted
Subsidiary sells or otherwise disposes of any Voting Equity Interests of any
direct or indirect Restricted Subsidiary such that, after giving effect to any
such sale or disposition, St. John Knits International no longer owns, directly
or indirectly, greater than 50% of the outstanding Voting Equity Interests of
such Restricted Subsidiary, St. John Knits International shall be deemed to have
made an Investment on the date of any such sale or disposition.
"ISSUE DATE" means July 7, 1999, the original issue date of the outstanding
notes.
"LIEN" means any lien, mortgage, charge, security interest, hypothecation,
assignment for security or encumbrance of any kind (including any conditional
sale or capital lease or other title retention agreement, any lease in the
nature thereof, and any agreement to give any security interest).
"MANAGEMENT AGREEMENT" means the management agreement dated as of the Issue
Date between St. John Knits International and Vestar.
"MATURITY DATE" means the date, which is set forth on the face of the notes,
on which the notes will mature.
"NET CASH PROCEEDS" means the aggregate proceeds in the form of cash or Cash
Equivalents received by St. John Knits International or any Restricted
Subsidiary in respect of any Asset Sale, including all cash or Cash Equivalents
received upon any sale, liquidation or other exchange of proceeds of Asset Sales
received in a form other than cash or Cash Equivalents, net of (a) the direct
costs relating to such Asset Sale (including, without limitation, legal,
accounting and investment banking fees, and sales commissions) and any
relocation expenses incurred as a result thereof; (b) taxes paid or payable as a
result thereof (after taking into account any available tax credits or
deductions and any tax sharing arrangements); (c) amounts required to be applied
to the repayment of Indebtedness secured by a Lien on the asset or assets that
were the subject of such Asset Sale; (d) amounts deemed, in good faith,
appropriate by the Board of Directors of St. John Knits International to be
provided as a reserve, in accordance with GAAP, against any liabilities
associated with such assets which are the subject of such Asset Sale; including,
without limitation, pension and other post-employment benefit liabilities,
liabilities related to environmental matters and liabilities under any
indemnification obligations associated with such Asset Sale, all as reflected in
an officers' certificate delivered to the Trustee (provided that the amount of
any such reserves shall be deemed to constitute Net Cash Proceeds at the time
such reserves shall have been reversed or are not otherwise required to be
retained as a reserve); and (e) with respect to Asset Sales by Restricted
Subsidiaries, the portion of such cash payments attributable to Persons holding
a minority interest in such Restricted Subsidiary.
"OBLIGATIONS" means any principal, interest (including, without limitation,
Post-Petition Interest), penalties, fees, indemnification obligations,
reimbursement obligations, obligations to provide cash collateral, damages and
other liabilities payable under the documentation governing any Indebtedness.
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"OFFER" has the meaning set forth in the definition of "Offer to Purchase"
below.
"OFFER TO PURCHASE" means a written offer (the "Offer") sent by or on behalf
of St. John Knits International by first-class mail, postage prepaid, to each
Holder at his address appearing in the register for the notes on the date of the
Offer offering to purchase up to the principal amount of notes specified in such
Offer at the purchase price specified in such Offer (as determined pursuant to
the indenture if so required). Unless otherwise required by applicable law, the
Offer shall specify an expiration date (the "Expiration Date") of the Offer to
Purchase, which shall be not less than 20 business days nor more than 60 days
after the date of such Offer, and a settlement date (the "Purchase Date") for
purchase of notes to occur no later than five business days after the Expiration
Date. St. John Knits International shall notify the Trustee at least 15 business
days (or such shorter period as is acceptable to the Trustee) prior to the
mailing of the Offer of St. John Knits International's obligation to make an
Offer to Purchase, and the Offer shall be mailed by St. John Knits International
or, at St. John Knits International's request, by the Trustee in the name and at
the expense of St. John Knits International. The Offer shall contain all the
information required by applicable law to be included therein. The Offer shall
contain all instructions and materials necessary to enable such Holders to
tender notes pursuant to the Offer to Purchase. The Offer shall also state: (1)
the section of the indenture pursuant to which the Offer to Purchase is being
made; (2) the Expiration Date and the Purchase Date; (3) the aggregate principal
amount of the outstanding notes offered to be purchased by St. John Knits
International pursuant to the Offer to Purchase (including, if less than 100%,
the manner by which such amount has been determined pursuant to the section of
the indenture requiring the Offer to Purchase) (the "Purchase Amount"); (4) the
purchase price to be paid by St. John Knits International for each $1,000
aggregate principal amount of notes accepted for payment (as specified pursuant
to the indenture) (the "Purchase Price"); (5) that the Holder may tender all or
any portion of the notes registered in the name of such Holder and that any
portion of a note tendered must be tendered in an integral multiple of $1,000
principal amount; (6) the place or places where notes are to be surrendered for
tender pursuant to the Offer to Purchase; (7) that interest on any note not
tendered or tendered but not purchased by St. John Knits International pursuant
to the Offer to Purchase will continue to accrue; (8) that on the Purchase Date
the Purchase Price will become due and payable upon each note being accepted for
payment pursuant to the Offer to Purchase and that interest thereon shall cease
to accrue on and after the Purchase Date; (9) that each Holder electing to
tender all or any portion of a note pursuant to the Offer to Purchase will be
required to surrender such note at the place or places specified in the Offer
prior to the close of business on the Expiration Date (such note being, if St.
John Knits International or the Trustee so requires, duly endorsed by, or
accompanied by a written instrument of transfer in form satisfactory to St. John
Knits International and the Trustee duly executed by, the Holder thereof or his
attorney duly authorized in writing); (10) that (a) if notes in an aggregate
principal amount less than or equal to the Purchase Amount are duly tendered and
not withdrawn pursuant to the Offer to Purchase, St. John Knits International
shall purchase all such notes and (b) if notes in an aggregate principal amount
in excess of the Purchase Amount are tendered and not withdrawn pursuant to the
Offer to Purchase, St. John Knits International shall purchase notes having an
aggregate principal amount equal to the Purchase Amount on a PRO RATA basis
(with such adjustments as may be deemed appropriate so that only notes in
denominations of $1,000 principal amount or integral multiples thereof shall be
purchased); and (11) that in the case of any Holder whose note is purchased only
in part, St. John Knits International shall execute and the Trustee shall
authenticate and deliver to the Holder of such note without service charge, a
new note or notes, of any authorized denomination as requested by such Holder,
in an aggregate principal amount equal to and in exchange for the unpurchased
portion of the note so tendered.
An Offer to Purchase shall be governed by and effected in accordance with
the provisions above pertaining to any Offer.
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"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 St. John Knits International, Vestar or the Trustee.
"PERMITTED BUSINESS" means the business of St. John Knits International and
its Restricted Subsidiaries conducted on the Issue Date and businesses ancillary
or reasonably related thereto, including businesses whose principal strategy is
to capitalize on the image of St. John Knits International and its products.
"PERMITTED HOLDER" means Vestar and its Affiliates.
"PERMITTED INDEBTEDNESS" has the meaning set forth in the second paragraph
of "--Certain Covenants--Limitation on Indebtedness" above.
"PERMITTED INVESTMENTS" means (a) Cash and Cash Equivalents; (b) Investments
in prepaid expenses, negotiable instruments held for collection and lease,
utility and workers' compensation, performance and other similar deposits; (c)
Hedging Obligations; (d) bonds, notes, debentures, stock or other securities
received as a result of Asset Sales permitted under "--Certain
Covenants--Disposition of Proceeds of Asset Sales" above; (e) Investments in St.
John Knits International and Investments in a Guarantor or a Person that, as a
result of or in connection with such Investment, becomes a Guarantor or is
merged with or into or consolidated with St. John Knits International or another
Guarantor or that transfers or conveys all or substantially all its assets to
St. John Knits International or a Guarantor; (f) Investments existing as of the
Issue Date; (g) any Investment consisting of a guarantee by a Restricted
Subsidiary of Senior Indebtedness or any guarantee of Indebtedness otherwise
permitted by the indenture; (h) receivables owing to St. John Knits
International or any Restricted Subsidiary 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 St. John Knits International or any such Restricted
Subsidiary deems reasonable under the circumstances; (i) 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; (j) Investments in joint ventures in an
aggregate amount not to exceed $5.0 million; (k) stock, obligations or
securities received in settlement of debts created in the ordinary course of
business and owing to St. John Knits International 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; (l)
Investments by St. John Knits International or a Restricted Subsidiary in a
Receivables Entity or any Investment by a Receivables Entity in any other
Person, in each case, in connection with a Qualified Receivables Transaction;
(m) Indebtedness permitted pursuant to clause (m) of "--Certain
Covenants--Limitation on Indebtedness"; (n) Investments by St. John Knits
International or a Restricted Subsidiary in St. John Japan for the purpose of
purchasing minority interests therein in an aggregate amount not to exceed $1.5
million and (o) Investments in Foreign Restricted Subsidiaries which are not
Guarantors in an aggregate amount not to exceed $10.0 million.
"PERMITTED JUNIOR SECURITIES" means any securities of St. John Knits
International or any other Person that are (i) equity securities without special
covenants or (ii) debt securities expressly subordinated in right of payment to
all Senior Indebtedness that may at the time be outstanding, to substantially
the same extent as, or to a greater extent than, the notes are subordinated as
provided in the indenture, in any event pursuant to a court order so providing
and as to which (a) the rate of interest on such securities shall not exceed the
effective rate of interest on the notes on the date of the indenture, (b) such
securities shall not be entitled to the benefits of covenants or defaults
materially more beneficial to the holders of such securities than those in
effect with respect to the notes on the date of the indenture and (c) such
securities shall not provide for amortization (including sinking fund and
mandatory prepayment provisions) commencing prior to the date six months
following the final
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scheduled maturity date of the Senior Indebtedness (as modified by the plan of
reorganization pursuant to which such securities are issued).
"PERMITTED LIENS" means (a) Liens on property of a Person existing at the
time such Person is merged into or consolidated with St. John Knits
International or any Restricted Subsidiary; PROVIDED, HOWEVER,that such Liens
were in existence prior to the contemplation of such merger or consolidation and
do not secure any property or assets of St. John Knits International or any
Restricted Subsidiary other than the property or assets subject to the Liens
prior to such merger or consolidation; (b) Liens imposed by law such as
carriers', warehousemen's and mechanics' Liens and other similar Liens arising
in the ordinary course of business which secure payment of obligations not more
than 60 days past due or which are being contested in good faith and by
appropriate proceedings; (c) Liens existing on the Issue Date; (d) Liens
securing only the notes or the Guarantees; (e) Liens in favor of St. John Knits
International or any Restricted Subsidiary (including any such Liens securing
Indebtedness, to the extent and for so long as such Indebtedness is pledged to
secure Senior Indebtedness); (f) Liens for taxes, assessments or governmental
charges or claims that are not yet delinquent or that are being contested in
good faith by appropriate proceedings promptly instituted and diligently
conducted; PROVIDED, HOWEVER, that any reserve or other appropriate provision as
shall be required in conformity with GAAP shall have been made therefor; (g)
easements, reservation of rights of way, restrictions and other similar
easements, licenses, restrictions on the use of properties, or minor
imperfections of title that in the aggregate do not in any case materially
detract from the properties subject thereto or interfere with the ordinary
conduct of the business of St. John Knits International and the Restricted
Subsidiaries; (h) Liens resulting from the deposit of cash or notes in
connection with contracts, tenders or expropriation proceedings, or to secure
workers' compensation, surety or appeal bonds, costs of litigation when required
by law and public and statutory obligations or obligations under franchise
arrangements entered into in the ordinary course of business; (i) Liens securing
Indebtedness consisting of Capital Lease Obligations, Purchase Money
Indebtedness, mortgage financings, industrial revenue bonds or other monetary
obligations, in each case incurred solely for the purpose of financing all or
any part of the purchase price or cost of construction or installation of assets
used in the business of St. John Knits International or the Restricted
Subsidiaries, or repairs, additions or improvements to such assets, PROVIDED,
HOWEVER, that (I) such Liens secure Indebtedness in an amount not in excess of
the original purchase price or the original cost of any such assets or repair,
addition or improvement thereto (plus an amount equal to the reasonable fees and
expenses in connection with the incurrence of such Indebtedness), (II) such
Liens do not extend to any other assets of St. John Knits International or the
Restricted Subsidiaries (and, in the case of repair, addition or improvements to
any such assets, such Lien extends only to the assets (and improvements thereto
or thereon) repaired, added to or improved), (III) the Incurrence of such
Indebtedness is permitted by "--Certain Covenants--Limitation on Indebtedness"
above and (IV) such Liens attach within 90 days of such purchase, construction,
installation, repair, addition or improvement; (j) Liens in favor of issuers of
surety or performance bonds or letters of credit or bankers' acceptances issued
pursuant to the request of and for the account of such Person in the ordinary
course of its business; PROVIDED, HOWEVER, that such letters of credit do not
constitute Indebtedness; (k) Liens securing Hedging Obligations so long as the
related Indebtedness is, and is permitted to be under the indenture, secured by
a Lien on the same property securing such Hedging Obligation; (l) leases and
subleases of real property which do not materially interfere with the ordinary
conduct of the business of St. John Knits International or any of its Restricted
Subsidiaries; (m) judgment Liens not giving rise to an Event of Default so long
as such Lien is adequately bonded and any appropriate legal proceedings which
may have been duly initiated for the review of such judgment have not been
finally terminated or the period within which such proceedings may be initiated
has not expired, (n) Liens arising solely by virtue of any statutory or common
law provisions relating to banker's Liens, rights of set-off or similar rights
and remedies as to deposit accounts or other funds maintained with a depositary
institution; PROVIDED that (1) such deposit account is not a dedicated cash
collateral account and is not subject to restrictions against access by St. John
Knits International in excess of those set forth by regulations promulgated by
the Federal Reserve
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Board, and (2) such deposit account is not intended by St. John Knits
International or any Restricted Subsidiary to provide collateral to the
depositary institution; (o) Liens arising from Uniform Commercial Code financing
statement filings regarding operating leases entered into by St. John Knits
International and its Restricted Subsidiaries in the ordinary course of
business; (p) Liens on property at the time St. John Knits International or a
Restricted Subsidiary acquired the property, including any acquisition by means
of a merger or consolidation with or into St. John Knits International or any
Restricted Subsidiary; PROVIDED, HOWEVER, that such Liens are not created,
incurred or assumed in connection with or in contemplation of, such acquisition;
PROVIDED, FURTHER, HOWEVER, that such Liens may not extend to any other property
owned by St. John Knits International or any Restricted Subsidiary; (q) Liens
securing Indebtedness or other obligations of a Restricted Subsidiary owing to
St. John Knits International or a Restricted Subsidiary; (r) Liens on assets
transferred to a Receivables Entity or on assets of a Receivables Entity, in
either case incurred in connection with a Qualified Receivables Transaction; (s)
Liens arising out of consignment or similar arrangements for the sale of goods
entered into by St. John Knits International or any Restricted Subsidiary in the
ordinary course of business; (t) Liens incurred in the ordinary course of
business of St. John Knits International or any Restricted Subsidiary with
respect to obligations that do not exceed $5.0 million at any one time
outstanding and that (1) are not incurred in connection with the borrowing of
money or the obtaining of advances or credit (other than trade credit in the
ordinary course of business) and (2) do not in the aggregate materially detract
from the value of the property or materially impair the use thereof in the
operation of business by St. John Knits International or such Restricted
Subsidiary; and (u) Liens to secure any refinancings, renewals, extensions,
modifications or replacements (collectively, "refinancing") (or successive
refinancings), in whole or in part, of any Indebtedness secured by Liens
referred to in the clauses above so long as such Lien does not extend to any
other property (other than improvements thereto).
"PERSON" means any individual, corporation, partnership, joint venture,
association, joint-stock company, limited liability company, limited liability
limited partnership, trust, unincorporated organization or government or any
agency or political subdivision thereof.
"POST-PETITION INTEREST" means, with respect to any Indebtedness of any
Person, all interest accrued or accruing on such Indebtedness after the
commencement of any Insolvency or Liquidation Proceeding with respect to such
Person in accordance with and at the contract rate (including, without
limitation, any rate applicable upon default) specified in the agreement or
instrument creating, evidencing or governing such Indebtedness, whether or not,
pursuant to applicable law or otherwise, the claim for such interest is allowed
or allowable as a claim in such Insolvency or Liquidation Proceeding.
"PREFERRED EQUITY INTEREST", in any Person, means an Equity Interest 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 Equity
Interests of any other class in such Person.
"PREFERRED STOCK" means the 15 1/4% Preferred Stock of St. John Knits
International issued on the Issue Date and any Qualified Equity Interest of St.
John Knits International issued in exchange for or the net proceeds of which are
used to redeem the Preferred Stock.
"PRINCIPAL" of a debt security means the principal of the security plus,
when appropriate, the premium, if any, on the security.
"PUBLIC EQUITY OFFERING" means, with respect to St. John Knits
International, an underwritten public offering of Qualified Equity Interests of
St. John Knits International pursuant to an effective registration statement
filed under the Securities Act (excluding registration statements filed on Form
S-8).
"PURCHASE AMOUNT" has the meaning set forth in the definition of "Offer to
Purchase" above.
"PURCHASE DATE" has the meaning set forth in the definition of "Offer to
Purchase" above.
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"PURCHASE MONEY INDEBTEDNESS" means Indebtedness of St. John Knits
International or any Restricted Subsidiary Incurred for the purpose of financing
all or any part of the purchase price, or the cost of construction or
improvement of any property; PROVIDED, HOWEVER, that the aggregate principal
amount of such Indebtedness does not exceed the lesser of the Fair Market Value
of such property or such purchase price or cost, including any refinancing of
such Indebtedness that does not increase the aggregate principal amount (or
accreted amount, if less) thereof as of the date of refinancing.
"PURCHASE MONEY NOTE" means a promissory note of a Receivables Entity
evidencing a line of credit, which may be irrevocable, from St. John Knits
International or any Restricted Subsidiary of St. John Knits International in
connection with a Qualified Receivables Transaction to a Receivables Entity,
which note is repayable from cash available to the Receivables Entity, other
than amounts required to be established as reserves pursuant to agreements,
amounts paid to investors in respect of interest, principal and other amounts
owing to such investors and amounts owing to such investors and amounts paid in
connection with the purchase of newly generated accounts receivable.
"PURCHASE PRICE" has the meaning set forth in the definition of "Offer to
Purchase" above.
"QUALIFIED EQUITY INTEREST" in any Person means any Equity Interest in such
Person other than any Disqualified Equity Interest.
"QUALIFIED RECEIVABLES TRANSACTION" means any transaction or series of
transactions that may be entered into by St. John Knits International or any of
its Restricted Subsidiaries pursuant to which St. John Knits International or
any of its Restricted Subsidiaries may sell, convey or otherwise transfer to (1)
a Receivables Entity (in the case of a transfer by St. John Knits International
or any of its Restricted Subsidiaries) and (2) any other Person (in the case of
a transfer by a Receivables Entity), or may grant a security interest in, any
accounts receivable (whether now existing or arising in the future) of St. John
Knits International or any of its Restricted Subsidiaries, and any assets
related thereto including, without limitation, all collateral securing such
accounts receivable, all contracts and all guarantees or other obligations in
respect of such accounts receivable, the proceeds of such receivables and other
assets which are customarily transferred, or in respect of which security
interests are customarily granted in connection with asset securitization
involving accounts receivable.
"RECEIVABLES ENTITY" means a Wholly Owned Restricted Subsidiary of St. John
Knits International (other than a Guarantor) which engages in no activities
other than in connection with the financing of accounts receivable and which is
designated by the board of directors of St. John Knits International (as
provided below) as a Receivables Entity:
(1) no portion of the Indebtedness or any other obligations (contingent
or otherwise) of which:
(a) is guaranteed by St. John Knits International or any Restricted
Subsidiary of St. John Knits International (excluding guarantees of
Obligations (other than the principal of, and interest on, Indebtedness)
pursuant to Standard Securitization Undertakings);
(b) is recourse to or obligates St. John Knits International or any
Restricted Subsidiary of St. John Knits International in any way other
than pursuant to Standard Securitization Undertakings; or
(c) subjects any property or asset of St. John Knits International or
any Restricted Subsidiary of St. John Knits International, directly or
indirectly, contingently or otherwise, to the satisfaction thereof, other
than pursuant to Standard Securitization Undertakings;
(2) with which neither St. John Knits International nor any Restricted
Subsidiary of St. John Knits International has any material contract,
agreement, arrangement or understanding (except in connection with a
Purchase Money Note or Qualified Receivables Transaction) other than on
terms no less favorable to St. John Knits International or such Restricted
Subsidiary than those that might be obtained at the time from Persons that
are not Affiliates of St. John Knits
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International, other than fees payable in the ordinary course of business in
connection with servicing accounts receivable; and
(3) to which neither St. John Knits International nor any Restricted
Subsidiary of St. John Knits International has any obligation to maintain or
preserve such entity's financial condition or cause such entity to achieve
certain levels of operating results.
Any such designation by the board of directors of St. John Knits
International shall be evidenced to the Trustee by filing with the Trustee a
certified copy of the resolution of the board of directors of St. John Knits
International giving effect to such designation and an officers' certificate
certifying that such designation complied with the foregoing conditions.
"REDEMPTION DATE" has the meaning set forth in the third paragraph of
"--Optional Redemption" above.
"REPLACEMENT ASSETS" has the meaning set forth in the first paragraph under
"--Certain Covenants--Disposition of Proceeds of Asset Sales" above.
"RESTRICTED SUBSIDIARY" means any Subsidiary of St. John Knits International
that has not been designated by the Board of Directors of St. John Knits
International, by a resolution of the Board of Directors of St. John Knits
International delivered to the Trustee, as an Unrestricted Subsidiary pursuant
to "--Certain Covenants--Designation of Unrestricted Subsidiaries" above. Any
such designation may be revoked by a resolution of the Board of Directors of St.
John Knits International delivered to the Trustee, subject to the provisions of
such covenant.
"SEC" means the Securities and Exchange Commission.
"SENIOR INDEBTEDNESS" means, at any date, (a) all Obligations of St. John
Knits International under or in respect of the Credit Facility; (b) all Hedging
Obligations of St. John Knits International; (c) all Obligations of St. John
Knits International under stand-by letters of credit; and (d) all other
Indebtedness of St. John Knits International for borrowed money, including
principal, premium, if any, and interest (including Post-Petition Interest) on
such Indebtedness, unless the instrument under which such Indebtedness of St.
John Knits International for money borrowed is Incurred expressly provides that
such Indebtedness for money borrowed is not senior or superior in right of
payment to the notes, and all renewals, extensions, modifications, amendments or
refinancings thereof. Notwithstanding the foregoing, Senior Indebtedness shall
not include (a) to the extent that it may constitute Indebtedness, any
Obligation for Federal, state, local or other taxes; (b) any Indebtedness among
or between St. John Knits International and any Subsidiary of St. John Knits
International or any Affiliate of St. John Knits International or any of such
Affiliate's Subsidiaries, unless and for so long as such Indebtedness has been
pledged to secure obligations under or in respect of Senior Indebtedness; (c) to
the extent that it may constitute Indebtedness, any Obligation in respect of any
trade payable Incurred for the purchase of goods or materials, or for services
obtained, in the ordinary course of business; (d) that portion of any
Indebtedness that is Incurred in violation of the indenture; (e) Indebtedness
evidenced by the notes; (f) Indebtedness of St. John Knits International that is
expressly subordinate or junior in right of payment to any other Indebtedness of
St. John Knits International; (g) to the extent that it may constitute
Indebtedness, any obligation owing under leases (other than Capitalized Lease
Obligations) or management agreements; (h) any obligation that by operation of
law is subordinate to any general unsecured obligations of St. John Knits
International; and (i) Indebtedness of St. John Knits International to the
extent such Indebtedness is owed to and held by any Federal, state, local or
other governmental authority.
"SENIOR SUBORDINATED INDEBTEDNESS" means the notes and any other
Indebtedness of St. John Knits International that specifically provides that
such Indebtedness is to rank PARI PASSU in right of payment with the notes and
is not subordinated by its terms in right of payment to any Indebtedness or
other obligation of St. John Knits International which is not Senior
Indebtedness.
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"SIGNIFICANT RESTRICTED SUBSIDIARY" means any Restricted Subsidiary that
would be a "significant subsidiary" as defined in Article 1, Rule 1-02 of
Regulation S-X promulgated pursuant to the Securities Act, as such regulation is
in effect on the date hereof.
"STANDARD SECURITIZATION UNDERTAKINGS" means representations, warranties,
covenants and indemnities entered into by St. John Knits International or any
Restricted Subsidiary of St. John Knits International which are reasonably
customary in securitization of accounts receivable transactions.
"STATED MATURITY" means, when used with respect to any note or any
installment of interest thereon, the date specified in such note as the fixed
date on which the principal of such note or such installment of interest is due
and payable.
"STOCKHOLDERS' AGREEMENT" means the Stockholders' Agreement among St. John
Knits, Inc., St. John Knits International, Vestar/Gray Investors LLC, Vestar/SJK
Investors LLC and the members of Vestor/ Gray Investors LLC party thereto dated
as of, and as in effect on, the Issue Date.
"SUBORDINATED INDEBTEDNESS" means, with respect to St. John Knits
International or any Guarantor, any Indebtedness of St. John Knits International
or such Guarantor, as the case may be, which is expressly subordinated in right
of payment to the notes or such Guarantor's Guarantee, as the case may be.
"SUBSIDIARY" means, with respect to any Person, (a) any corporation of which
the outstanding Voting Equity Interests having at least a majority of the votes
entitled to be cast in the election of directors shall at the time be owned,
directly or indirectly, through one or more Persons by such Person, or (b) any
other Person of which at least a majority of Voting Equity Interests are at the
time, directly or indirectly, owned by such first named Person.
"SURVIVING PERSON" means, with respect to any Person involved in or that
makes any Disposition, the Person formed by or surviving such Disposition or the
Person to which such Disposition is made.
"UNITED STATES GOVERNMENT OBLIGATIONS" means direct non-callable obligations
of the United States of America for the payment of which the full faith and
credit of the United States is pledged.
"UNRESTRICTED SUBSIDIARY" means any Subsidiary of St. John Knits
International designated as such pursuant to "--Certain Covenants--Designation
of Unrestricted Subsidiaries" above. Any such designation may be revoked by a
resolution of the Board of Directors of St. John Knits International delivered
to the Trustee, subject to the provisions of such covenant.
"UNUTILIZED NET CASH PROCEEDS" has the meaning set forth in the third
paragraph under "--Certain Covenants--Disposition of Proceeds of Asset Sales"
above.
"VESTAR" means Vestar Capital Partners III, L.P.
"VESTAR/GRAY LLC AGREEMENT" means the Amended and Restated Limited Liability
Company Agreement of Vestar/Gray Investors LLC, by and among Vestar/SJK
Investors LLC, Robert Gray, Marie Gray, Kelly A. Gray, the Kelly Ann Gray Trust
and the Gray Family Trust dated as of, and as in effect on, the Issue Date.
"VOTING EQUITY INTERESTS" means Equity Interests in a corporation or other
Person with voting power under ordinary circumstances entitling the holders
thereof to elect the Board of Directors or other governing body of such
corporation or Person.
"WEIGHTED AVERAGE LIFE TO MATURITY" means, when applied to any Indebtedness
at any date, the number of years obtained by dividing (a) the sum of the
products obtained by multiplying (i) the amount of each then remaining
installment, sinking fund, serial maturity or other required scheduled payment
of principal, including payment of final maturity, in respect thereof, by (ii)
the number of years (calculated to the nearest one-twelfth) that will elapse
between such date and the making of such payment, by (b) the then outstanding
aggregate principal amount of such Indebtedness.
"WHOLLY OWNED RESTRICTED SUBSIDIARY" means any Restricted Subsidiary all of
the outstanding Voting Equity Interests (other than directors' qualifying
shares) of which are owned, directly or indirectly, by St. John Knits
International and/or one or more Wholly Owned Restricted Subsidiaries.
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DESCRIPTION OF PREFERRED STOCK
The summary contained herein of certain provisions of the Preferred Stock
issued by St. John Knits International (the "Issuer") in connection with the
transactions does not purport to be complete and is qualified in its entirety by
reference to the provisions of the Certificate of Designations relating thereto,
a copy of which has been filed as an exhibit to the registration statement of
which this prospectus is a part.
GENERAL
Pursuant to the Certificate of Designations, 250,000 shares of Preferred
Stock with a liquidation preference of $100 per share were authorized for
issuance in connection with the transactions. The Preferred Stock will rank
junior in right of payment to all liabilities and obligations (whether or not
for borrowed money) of the Issuer (other than common stock of the Issuer and any
preferred stock of the Issuer which by its terms is on parity with or junior to
the Preferred Stock).
RANK
The Preferred Stock will, with respect to the dividend rights and rights on
liquidation, winding-up and dissolution, rank (i) senior to all classes of
common stock and each other class of capital stock or series of preferred stock
issued by the Issuer established after the Issue Date by the board of directors
of the Issuer which does not expressly provide that it ranks senior to or on a
parity with the Preferred Stock as to dividend rights and rights on liquidation,
winding-up and dissolution (collectively referred to with the common stock of
the Issuer as "Junior Securities"); (ii) on a parity with each other class of
capital stock or series of preferred stock issued by the Issuer established
after the Issue Date by the board of directors of the Issuer, which expressly
provides that such series will rank on a parity with the Preferred Stock as to
dividend rights and rights on liquidation, winding-up and dissolution
(collectively referred to as "Parity Securities"); and (iii) junior to each
other class of capital stock or series of preferred stock issued by the Issuer
established after the Issue Date by the board of directors of the Issuer the
terms of which specifically provide that such series will rank senior to the
Preferred Stock as to dividend rights and rights on liquidation, winding-up and
dissolution (collectively referred to as "Senior Securities"). The Preferred
Stock will be subject to the issuance of series of Junior Securities, Parity
Securities and Senior Securities.
DIVIDENDS
Holders of Preferred Stock will be entitled to receive, when, as and if
declared by the board of directors of the Issuer, out of funds legally available
therefor, dividends on the Preferred Stock, at an annual rate equal to 15 1/4%,
PROVIDED that if dividends are not paid on a dividend payment date, dividends
shall continue to accrue on unpaid dividends. Dividends on the Preferred Stock
may only be paid in cash if permitted under the terms of the senior credit
facilities, the indenture and other contractual arrangements of St. John Knits
International. Dividends will accrue from the date of issuance and will be
payable semi-annually in arrears on January 1 and July 1 of each year,
commencing on January 1, 2000. The indenture would permit the payment of cash
dividends on the Preferred Stock only if the Issuer has availability under
clause (c) of the test set forth under "Description of the Notes-Certain
Covenants-Limitation on Restricted Payments." The senior credit facilities
prohibit the payment of cash dividends on the Preferred Stock for five years
after the Issue Date.
OPTIONAL REDEMPTION
The Preferred Stock may be redeemed at any time on or after July 1, 2004, in
whole or in part, at the option of the Issuer, at the redemption prices
(expressed in percentages of liquidation value) set
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forth below together with all accumulated dividends to the date of redemption,
if redeemed during the 12-month period beginning on July 1 of the years
indicated.
<TABLE>
<CAPTION>
YEAR PERCENTAGE
- -------------------------------------------------------------------------------------- -----------
<S> <C>
2004.................................................................................. 107.625%
2005.................................................................................. 105.719%
2006.................................................................................. 103.813%
2007.................................................................................. 101.906%
2008 and thereafter................................................................... 100.000%
</TABLE>
The Preferred Stock will also be redeemable in whole or in part, at the
option of SJKI at any time before July 1, 2004, at a redemption price equal to
the greater of (i) 100% of the liquidation value of the Preferred Stock and (ii)
the present values of the liquidation value at the mandatory redemption date,
discounted on a semi-annual basis at the Treasury Yield plus 15 basis points.
The "Treasury Yield" means, with respect to any redemption date, the rate per
annum equal to the semi-annual equivalent yield to maturity for a comparable
treasury issue.
In addition, at any time and from time to time on or prior to July 1, 2002,
the Issuer may redeem in the aggregate up to 35% of the originally issued
liquidation value of the Preferred Stock with the net cash proceeds of one or
more Public Equity Offerings (as defined in the indenture) by St. John Knits
International at a redemption price in cash equal to 115.25% of the liquidation
value thereof, plus accumulated dividends thereon, if any, to the date of
redemption; PROVIDED, HOWEVER, that at least 65% of the originally issued
aggregate liquidation value of the Preferred Stock must remain outstanding
immediately after giving effect to each such redemption (excluding any Preferred
Stock held by the Issuer or any of its affiliates). Notice of any such
redemption must be given within 60 days after the date of the closing of the
relevant Public Equity Offering of St. John Knits International.
The Preferred Stock may only be redeemed if permitted under the terms of the
senior credit facilities, the indenture and other contractual arrangements of
St. John Knits International.
MANDATORY REDEMPTION
On July 1, 2010, the Issuer will be required to redeem (subject to
contractual and other restrictions with respect thereto and to the legal
availability of funds therefor) all outstanding shares of Preferred Stock at a
price equal to the liquidation value thereof plus all accumulated dividends to
the date of redemption.
RIGHT OF APPOINTMENT
Upon the failure of the Issuer to redeem all outstanding shares of Preferred
Stock as described above under the caption "Mandatory Redemption", or upon the
failure by the Issuer or any of its Restricted Subsidiaries (as defined in the
Certificate of Designations) to comply with any of the covenants or agreements
set forth in the Certificate of Designations, and the continuance of any such
failure for 60 consecutive days or more, the number of members of the board of
directors of the Issuer will be increased by one and the holders of a majority
of the outstanding aggregate liquidation preference of the Preferred Stock,
acting as a separate class, will be entitled to appoint one member to the board
of directors of the Issuer.
EXCHANGE
The Issuer may, at its option, exchange all but not less than all of the
shares of then outstanding Preferred Stock for debentures of the Issuer in a
principal amount equal to the liquidation value of the Preferred Stock plus
accumulated dividends. The exchange debentures will bear interest at 15 1/4% per
annum, have a final stated maturity of July 1, 2010, have optional redemption
provisions comparable to
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the Preferred Stock and will have customary covenants and events of default. The
Issuer may not cause the exchange of Preferred Stock for debentures unless
permitted under the terms of the senior credit facilities, the indenture and
other contractual arrangements of SJKI.
CHANGE OF CONTROL
Upon a change of control of St. John Knits International, the holders of
Preferred Stock will have the right to require St. John Knits International to
repurchase the Preferred Stock at 101% of liquidation value, plus accumulated
dividends to the date of repurchase, to the extent permitted under the terms of
the senior credit facilities, the indenture and other contractual arrangements
of St. John Knits International.
VOTING RIGHTS
Holders of the Preferred Stock will have no voting rights, except as
provided under Delaware law.
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CERTAIN UNITED STATES FEDERAL INCOME TAX CONSIDERATIONS
OF THE EXCHANGE OFFER
EXCHANGE OF NOTES
The following summary describes the material United States federal income
tax considerations of the exchange offer. The exchange of outstanding notes for
exchange notes in the exchange offer will not constitute a taxable event to you.
Consequently, no gain or loss will be recognized by you upon receipt of an
exchange note, the holding period of the exchange notes will include the holding
period of the outstanding note and the basis of the exchange notes will be the
same as the basis of the outstanding note immediately before the exchange.
IN ANY EVENT, PERSONS CONSIDERING THE EXCHANGE OF OUTSTANDING NOTES FOR
EXCHANGE NOTES SHOULD CONSULT THEIR OWN TAX ADVISORS CONCERNING THE UNITED
STATES FEDERAL INCOME TAX CONSEQUENCES IN LIGHT OF THEIR PARTICULAR SITUATIONS
AS WELL AS ANY CONSEQUENCES ARISING UNDER THE LAWS OF ANY OTHER TAXING
JURISDICTION.
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BOOK-ENTRY; DELIVERY AND FORM
The exchange notes will initially be represented by one or more permanent
global notes in definitive, fully registered book-entry form, without interest
coupons, that will be deposited with, or on behalf of, The Depository Trust
Company and registered in the name of The Depository Trust Company or its
nominee, on behalf of the acquirors of exchange notes represented thereby for
credit to the respective accounts of the acquirors, or to such other accounts as
they may direct, at The Depository Trust Company, or Morgan Guaranty Trust
Company of New York, Brussels Office, as operator of the Euroclear System, or
Cedel Bank, societe anonyme. See "The Exchange Offer--Book Entry Transfer."
Except as set forth below, the global notes may be transferred, in whole and
not in part, solely to another nominee of The Depository Trust Company or to a
successor of The Depository Trust Company or its nominee. Beneficial interests
in the global notes may not be exchanged for notes in physical, certificated
form except in the limited circumstances described below.
All interests in the global notes, including those held through Euroclear or
Cedel, may be subject to the procedures and requirements of The Depository Trust
Company. Those interests held through Euroclear or Cedel may also be subject to
the procedures and requirements of such systems.
CERTAIN BOOK-ENTRY PROCEDURES FOR THE GLOBAL NOTES
The descriptions of the operations and procedures of The Depository Trust
Company, Euroclear and Cedel set forth below 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 change by them from time to
time. We take no responsibility for these operations or procedures, and
investors are urged to contact the relevant system or its participants directly
to discuss these matters.
The Depository Trust Company has advised SJKI that it is (i) a limited
purpose trust company organized under the laws of the State of New York, (ii) a
"banking organization" within the meaning of the New York Banking Law, (iii) a
member of the Federal Reserve System, (iv) a "clearing corporation" within the
meaning of the Uniform Commercial Code, as amended, and (v) a "clearing agency"
registered pursuant to Section 17A of the Exchange Act, as amended (the
"Exchange Act"). The Depository Trust Company was created to hold securities for
its participants (collectively, the "Participants") and facilitates the
clearance and settlement of securities transactions between Participants through
electronic book-entry changes to the accounts of its Participants, thereby
eliminating the need for physical transfer and delivery of certificates. The
Depository Trust Company's Participants include securities brokers and dealers
(including the Initial Purchasers), banks and trust companies, clearing
corporations and certain other organizations. Indirect access to The Depository
Trust Company's system is also available to other entities such as banks,
brokers, dealers and trust companies (collectively, the "Indirect Participants")
that clear through or maintain a custodial relationship with a Participant,
either directly or indirectly. Investors who are not Participants may
beneficially own securities held by or on behalf of The Depository Trust Company
only through Participants or Indirect Participants.
SJKI expects that pursuant to procedures established by The Depository Trust
Company (i) upon deposit of each global note, The Depository Trust Company will
credit the accounts of Participants designated by the Initial Purchasers with an
interest in the global note and (ii) ownership of the notes will be shown on,
and the transfer of ownership thereof will be effected only through, records
maintained by The Depository Trust Company (with respect to the interests of
Participants) and the records of Participants and the Indirect Participants
(with respect to the interests of persons other than Participants).
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The laws of some jurisdictions may require that certain purchasers of
securities take physical delivery of such securities in definitive form.
Accordingly, the ability to transfer interests in the notes represented by a
global note to such persons may be limited. In addition, because The Depository
Trust Company can act only on behalf of its Participants, who in turn act on
behalf of persons who hold interests through such Participants, the ability of a
person having an interest in notes represented by a global note to pledge or
transfer such interest to persons or entities that do not participate in The
Depository Trust Company's system, or to otherwise take actions in respect of
such interest, may be affected by the lack of a physical definitive security in
respect of such interest.
So long as The Depository Trust Company or its nominee is the registered
owner of a global note, The Depository Trust Company or such nominee, as the
case may be, will be considered the sole owner or holder of the notes
represented by the global note for all purposes under the indenture. Except as
provided below, owners of beneficial interests in a global note will not be
entitled to have notes represented by such global note registered in their
names, will not receive or be entitled to receive physical delivery of
Certificated Notes, and will not be considered the owners or holders thereof
under the indenture for any purpose, including with respect to the giving of any
direction, instruction or approval to the Trustee thereunder. Accordingly, each
holder owning a beneficial interest in a global note must rely on the procedures
of The Depository Trust Company and, if such holder is not a Participant or an
Indirect Participant, on the procedures of the Participant through which such
holder owns its interest, to exercise any rights of a holder of notes under the
indenture or such global note. SJKI understands that under existing industry
practice, in the event that SJKI requests any action of holders of notes, or a
holder that is an owner of a beneficial interest in a global note desires to
take any action that The Depository Trust Company, as the holder of such global
note, is entitled to take, The Depository Trust Company would authorize the
Participants to take such action and the Participants would authorize holders
owning through such Participants to take such action or would otherwise act upon
the instruction of such holders. Neither SJKI nor the Trustee will have any
responsibility or liability for any aspect of the records relating to or
payments made on account of notes by The Depository Trust Company, or for
maintaining, supervising or reviewing any records of The Depository Trust
Company relating to such notes.
Payments with respect to the principal of, and premium, if any, liquidated
damages, if any, and interest on, any notes represented by a global note
registered in the name of The Depository Trust Company or its nominee on the
applicable record date will be payable by the Trustee to or at the direction of
The Depository Trust Company or its nominee in its capacity as the registered
holder of the global note representing such notes under the indenture. Under the
terms of the indenture, SJKI and the Trustee may treat the persons in whose
names the notes, including the global notes, are registered as the owners
thereof for the purpose of receiving payment thereon and for any and all other
purposes whatsoever. Accordingly, neither SJKI nor the Trustee has or will have
any responsibility or liability for the payment of such amounts to owners of
beneficial interests in a global note (including principal, premium, if any,
liquidated damages, if any, and interest). Payments by the Participants and the
Indirect Participants to the owners of beneficial interests in a global note
will be governed by standing instructions and customary industry practice and
will be the responsibility of the Participants or the Indirect Participants and
The Depository Trust Company.
Transfers between Participants in The Depository Trust Company will be
effected in accordance with The Depository Trust Company's procedures, and will
be settled in same-day funds. Transfers between participants in Euroclear or
Cedel will be effected in the ordinary way in accordance with their respective
rules and operating procedures.
Subject to compliance with the transfer restrictions applicable to the
notes, cross-market transfers between the Participants in The Depository Trust
Company, on the one hand, and Euroclear or Cedel participants, on the other
hand, will be effected through The Depository Trust Company in accordance with
The Depository Trust Company's rules on behalf of Euroclear or Cedel, as the
case may be, by its
125
<PAGE>
respective depositary; however, such cross-market transactions will require
delivery of instructions to Euroclear or Cedel, 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
Cedel, 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 by delivering or receiving interests in
the relevant global notes in The Depository Trust Company, and making or
receiving payment in accordance with normal procedures for same-day funds
settlement applicable to The Depository Trust Company. Euroclear participants
and Cedel participants may not deliver instructions directly to the depositories
for Euroclear or Cedel.
Because of time zone differences, the securities account of a Euroclear or
Cedel participant purchasing an interest in a global note from a Participant in
The Depository Trust Company will be credited, and any such crediting will be
reported to the relevant Euroclear or Cedel participant, during the securities
settlement processing day (which must be a business day for Euroclear and Cedel)
immediately following the settlement date of The Depository Trust Company. Cash
received in Euroclear or Cedel as a result of sales of interest in a global note
by or through a Euroclear or Cedel participant to a Participant in The
Depository Trust Company will be received with value on the settlement date of
The Depository Trust Company but will be available in the relevant Euroclear or
Cedel cash account only as of the business day for Euroclear or Cedel following
The Depository Trust Company's settlement date.
Although The Depository Trust Company, Euroclear and Cedel have agreed to
the foregoing procedures to facilitate transfers of interests in the global
notes among participants in The Depository Trust Company, Euroclear and Cedel,
they are under no obligation to perform or to continue to perform such
procedures, and such procedures may be discontinued at any time. Neither SJKI
nor the Trustee will have any responsibility for the performance by The
Depository Trust Company, Euroclear or Cedel or their respective participants or
indirect participants of their respective obligations under the rules and
procedures governing their operations.
CERTIFICATED NOTES
If (i) SJKI notifies the Trustee in writing that The Depository Trust
Company is no longer willing or able to act as a depositary or The Depository
Trust Company ceases to be registered as a clearing agency under the Exchange
Act and a successor depositary is not appointed within 90 days of such notice or
cessation, (ii) St. John Knits International, at its option, notifies the
Trustee in writing that it elects to cause the issuance of notes in definitive
form under the indenture or (iii) upon the occurrence of certain other events as
provided in the indenture, then, upon surrender by The Depository Trust Company
of the global notes, Certificated Notes will be issued to each person that The
Depository Trust Company identifies as the beneficial owner of the notes
represented by the global notes. Upon any such issuance, the Trustee is required
to register such Certificated Notes in the name of such person or persons (or
the nominee of any thereof) and cause the same to be delivered thereto.
Neither SJKI nor the Trustee shall be liable for any delay by The Depository
Trust Company or any Participant or Indirect Participant in identifying the
beneficial owners of the related notes and each such person may conclusively
rely on, and shall be protected in relying on, instructions from The Depository
Trust Company for all purposes (including with respect to the registration and
delivery, and the respective principal amounts, of the notes to be issued).
YEAR 2000
The Depository Trust Company's management is aware that some computer
applications, systems, and the like for processing data ("Systems") that are
dependent upon calendar dates, including dates before, on, and after January 1,
2000, may encounter "Year 2000 problems." The Depository Trust
126
<PAGE>
Company has informed its Participants and other members of the financial
community (the "Industry") that it has developed and is implementing a program
so that its Systems, as the same relate to the timely payment of distributions
(including principal and income payments) to securityholders, book-entry
deliveries and settlement of trades within The Depository Trust Company ("DTC
Services"), continue to function appropriately. This program includes a
technical assessment and a remediation plan, each of which is complete.
Additionally, The Depository Trust Company's plan includes a testing phase,
which is expected to be completed within appropriate time frames.
However, The Depository Trust Company's ability to perform properly its
services is also dependent upon other parties, including but not limited to
issuers and their agents, as well as third party vendors from whom The
Depository Trust Company licenses software and hardware, and third party vendors
on whom The Depository Trust Company relies for information or the provision of
services, including telecommunication and electrical utility service providers,
among others. The Depository Trust Company has informed the Industry that it is
contacting (and will continue to contact) third party vendors from whom The
Depository Trust Company acquires services to: (i) impress upon them the
importance of such services being Year 2000 compliant; and (ii) determine the
extent of their efforts for Year 2000 remediation (and, as appropriate, testing)
of their services. In addition, The Depository Trust Company is in the process
of developing such contingency plans as it deems appropriate.
According to The Depository Trust Company, the foregoing information with
respect to The Depository Trust Company has been provided to the industry for
informational purposes only and is not intended to serve as a representation,
warranty, or contract modification of any kind.
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<PAGE>
EXCHANGE AND REGISTRATION RIGHTS
St. John Knits International, the guarantors and the initial purchasers of
the outstanding notes entered into the exchange and registration rights
agreement prior to or concurrently with the issuance of the outstanding notes.
Pursuant to the exchange and registration rights agreement, St. John Knits
International and the guarantors agreed to:
(i) file with the Commission on or prior to 90 days after the date of
issuance of the outstanding notes a registration statement on Form S-1 or
Form S-4, if the use of such form is then available (the "exchange offer
registration statement") relating to a registered exchange offer for the
outstanding notes and the guarantees under the Securities Act and
(ii) use their reasonable best efforts to cause the exchange offer
registration statement to be declared effective under the Securities Act
within 150 days after the Issue Date. As soon as practicable after the
effectiveness of the exchange offer registration statement, St. John Knits
International and the guarantors will offer to the holders of Transfer
Restricted Securities (as defined below) who are not prohibited by any law
or policy of the Commission from participating in the exchange offer the
opportunity to exchange their Transfer Restricted Securities for an issue of
exchange notes, guaranteed by the guarantors, that are identical in all
material respects to the outstanding notes (except that the exchange notes
will not contain terms with respect to transfer restrictions) and that would
be registered under the Securities Act. St. John Knits International and the
guarantors will keep the exchange offer open for not less than 30 days (or
longer, if required by applicable law) after the date on which notice of the
exchange offer is mailed to the holders of the outstanding notes.
If:
(i) because of any change in law or applicable interpretations thereof
by the staff of the Commission, St. John Knits International and the
guarantors are not permitted to effect the exchange offer as contemplated
hereby,
(ii) any outstanding notes validly tendered pursuant to the exchange
offer are not exchanged for exchange notes within 180 days after the date of
issuance of the outstanding notes,
(iii) the initial purchasers of the outstanding notes so request with
respect to outstanding notes not eligible to be exchanged for exchange notes
in the exchange offer,
(iv) any applicable law or interpretations do not permit any holder of
outstanding notes to participate in the exchange offer,
(v) any holder of outstanding notes that participates in the exchange
offer does not receive freely transferable exchange notes in exchange for
tendered outstanding notes or
(vi) St. John Knits International and the guarantors so elect,
then St. John Knits International and the guarantors will file with the
Commission a shelf registration statement to cover resales of Transfer
Restricted Securities by such holders who satisfy certain conditions relating to
the provision of information in connection with the shelf registration
statement. For purposes of the foregoing, "Transfer Restricted Securities" means
each outstanding note until:
(i) the date on which such outstanding note has been exchanged for a
freely transferable exchange note in the exchange offer;
(ii) the date on which such outstanding note has been effectively
registered under the Securities Act and disposed of in accordance with the
shelf registration statement or
(iii) the date on which such outstanding note is distributed to the
public pursuant to Rule 144 under the Securities Act or is salable pursuant
to Rule 144(k) under the Securities Act.
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<PAGE>
St. John Knits International and the guarantors will use their reasonable
best efforts to have the exchange offer registration statement or, if
applicable, the shelf registration statement (each, a "Registration Statement")
declared effective by the Commission as promptly as practicable after the filing
thereof. Unless the exchange offer would not be permitted by a policy of the
Commission, St. John Knits International and the guarantors will commence the
exchange offer and will use their reasonable best efforts to consummate the
exchange offer as promptly as practicable, but in any event prior to 180 days
after the date of issuance of the outstanding notes. If applicable, St. John
Knits International and the guarantors will use their reasonable best efforts to
keep the shelf registration statement effective for a period of two years after
the Issue Date or such shorter period when all outstanding notes covered by the
shelf registration statement have been sold in the manner set forth above and as
contemplated in the shelf registration statement or when the outstanding notes
become eligible for resale pursuant to Rule 144 under the Securities Act without
volume restrictions, if any.
If:
(i) the applicable Registration Statement is not filed with the
Commission on or prior to 90 days after the date of issuance of the
outstanding notes (or, in the case of a shelf registration statement
required to be filed in response to a change in law or applicable
interpretations of the Staff of the Commission, if later, within 45 days
after publication of such change in law or interpretation, but in no event
before 90 days after the date of issuance of the outstanding notes);
(ii) the exchange offer registration statement or the shelf registration
statement, as the case may be, is not declared effective within 150 days
after the date of issuance of the outstanding notes (or, in the case of a
shelf registration statement required to be filed in response to a change in
law or applicable interpretations of the Staff of the Commission, if later,
within 60 days after publication of such change in law or interpretation,
but in no event before 150 days after the date of issuance of the
outstanding notes);
(iii) the exchange offer is not consummated on or prior to 180 days
after the date of issuance of the outstanding notes (other than in the event
St. John Knits International files a shelf registration statement); or
(iv) the shelf registration statement is filed and declared effective
within the time periods specified in clause (ii) above but shall thereafter
cease to be effective (at any time that St. John Knits International and the
guarantors are obligated to maintain the effectiveness thereof) without
being succeeded within 45 days by an additional Registration Statement filed
and declared effective (each such event referred to in clauses (i) through
(iv), a "Registration Default"),
St. John Knits International and the guarantors will be obligated to pay
liquidated damages ("Liquidated Damages") to each holder of Transfer Restricted
Securities, during the period of one or more such Registration Defaults, in an
amount equal to $0.192 per week per $1,000 principal amount of the outstanding
notes constituting Transfer Restricted Securities held by such holder until the
applicable Registration Statement is filed, the exchange offer registration
statement is declared effective and the exchange offer is consummated or the
shelf registration statement is declared effective or again becomes effective,
as the case may be. All accrued Liquidated Damages shall be paid to holders in
the same manner as interest payments on the outstanding notes on semi-annual
payment dates which correspond to interest payment dates for the outstanding
notes. Following the cure of all Registration Defaults, the accrual of
Liquidated Damages will cease.
The exchange and registration rights agreement also provides that St. John
Knits International and the guarantors (i) shall make available for a period of
180 days after the consummation of the exchange offer a prospectus meeting the
requirements of the Securities Act to any broker-dealer for use in connection
with any resale of any such exchange notes and (ii) shall pay all expenses
incident to the exchange offer (including the expense of one counsel to the
holders of the outstanding notes) and
129
<PAGE>
will indemnify certain holders of the outstanding notes (including any broker-
dealer) against certain liabilities, including liabilities under the Securities
Act. A broker-dealer which delivers such a prospectus to purchasers in
connection with such resales will be subject to certain of the civil liability
provisions under the Securities Act and will be bound by the provisions of the
exchange and registration rights agreement (including certain indemnification
rights and obligations).
Each holder of outstanding notes who wishes to exchange such outstanding
notes for exchange notes in the exchange offer will be required to make certain
representations, including representations that:
(i) any exchange notes to be received by it will be acquired in the
ordinary course of its business;
(ii) it has no arrangement or understanding with any person to
participate in the distribution of the exchange notes; and
(iii) it is not an "affiliate" (as defined in Rule 405 under the
Securities Act) of St. John Knits International, 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.
If the holder is not a broker-dealer, it will be required to represent that
it is not engaged in, and does not intend to engage in, the distribution of the
exchange notes. 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 (an
"Exchanging Dealer"), it will be required to acknowledge that it will deliver a
prospectus in connection with any resale of such exchange notes.
Holders of the outstanding notes will be required to make certain
representations to St. John Knits International and the guarantors (as described
above) in order to participate in the exchange offer and will be required to
deliver information to be used in connection with the shelf registration
statement in order to have their outstanding notes included in the shelf
registration statement and benefit from the provisions regarding liquidated
damages set forth in the preceding paragraphs. A holder who sells outstanding
notes pursuant to the shelf registration statement generally will be required to
be named as a selling securityholder 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 exchange and registration rights agreement which
are applicable to such a holder (including certain indemnification obligations).
For so long as the notes are outstanding, St. John Knits International, upon
request, will continue to provide to holders of the notes and to prospective
purchasers of the notes the information required by Rule 144A(d)(4) under the
Securities Act.
The foregoing description of the exchange and registration rights agreement
is a summary only, does not purport to be complete and is qualified in its
entirety by reference to all provisions of the exchange and registration rights
agreement. A copy of the exchange and registration rights agreement has been
filed as an exhibit to the registration statement of which this prospectus forms
a part.
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<PAGE>
PLAN OF DISTRIBUTION
Each broker-dealer that receives exchange notes for its own account pursuant
to the exchange offer 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 that the broker-dealer had acquired as a result of market-making
activities or other trading activities. We have agreed that for a period of 180
days from the date on which the exchange offer is consummated, we will make this
prospectus, as amended or supplemented, available to any broker-dealer for use
in connection with resale, and will promptly send additional copies of this
prospectus and any amendment or supplement to this prospectus to any
broker-dealer that requests the documents in the letter of transmittal. In
addition, until , 1999, 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 account
pursuant to 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 these methods
of resale, at prevailing market prices at the time of resale, at prices related
to these prevailing market prices or at 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 exchange notes. Any broker-dealer that
resells exchange notes that were received by it for its own account pursuant to
the exchange offer and any broker or dealer that participates in a distribution
of 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
commissions or concessions received by any these 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 from the date on which the exchange offer is
consummated, 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 the exchange offer (including the expenses of one counsel for the
holders of the outstanding notes) other than commissions or concessions of any
broker-dealers and will indemnify the holders of the outstanding notes
(including any broker-dealers) against certain liabilities, including
liabilities under the Securities Act.
LEGAL MATTERS
The validity of the exchange notes will be passed upon for SJKI by Simpson
Thacher & Bartlett, New York, New York.
EXPERTS
The consolidated financial statements of St. John included in this
prospectus for the fiscal years ended November 3, 1996, November 2, 1997 and
November 1, 1998 have been audited by Arthur Andersen LLP, independent public
accountants, as indicated in their report with respect thereto, and are included
in reliance upon the authority of said firm as experts in accounting and
auditing in giving said reports.
131
<PAGE>
WHERE YOU CAN FIND MORE INFORMATION
We have filed with the Securities and Exchange Commission a registration
statement on Form S-4 under the Securities Act with respect to the exchange
notes being offered by this prospectus. This prospectus, which forms a part of
the registration statement, does not contain all of the information set forth
in, or filed as an exhibit to, the registration statement. For further
information with respect to St. John Knits International and the exchange notes,
we refer you to the registration statement. While we believe that we have
provided all material information regarding the contracts and other documents
described in this prospectus, the information we have provided is not
necessarily complete. Where these contracts and other documents are filed as
exhibits to the registration statement, our descriptions are qualified by the
exhibits.
We are not currently subject to the reporting requirements of the Exchange
Act. Upon completion of the exchange offer, we will be subject to the
informational requirements of the Exchange Act and, as a result, will file
periodic reports and other information with the Securities and Exchange
Commission. The registration statement and periodic reports and other
information can be inspected and copied at the Public Reference Section of the
Securities and Exchange Commission located at Room 1024, Judiciary Plaza, 450
Fifth Street, N.W., Washington D.C., 20549 and at regional public reference
facilities maintained by the Securities and Exchange Commission located at
Citicorp Center, 500 West Madison Street, Suite 1400, Chicago, Illinois 60661
and Seven World Trade Center, Suite 1300, New York, New York 10048. You can
obtain copies of this material, including copies of all or any portion of the
registration statement, from the Public Reference Section of the Securities and
Exchange Commission at prescribed rates. You may also access this material
electronically by means of the Securities and Exchange Commission's home page on
the Internet (http://www.sec.gov).
In addition, whether or not required by the Securities and Exchange
Commission, so long as any outstanding notes are outstanding, beginning with the
quarter ended August 1, 1999 we will furnish to those holding any outstanding
notes, within the time periods specified in the Securities and Exchange
Commission's rules and regulations:
- all quarterly and annual financial information that would be required to
be contained in a filing with the Securities and Exchange Commission on
Forms 10-Q and 10-K if we were required to file these Forms, including a
"Management's Discussion and Analysis of Financial Condition and Results
of Operations" and, with respect to the annual information only, a report
on the annual financial statements by our independent auditors; and
- all current reports that we would be required to file with the Securities
and Exchange Commission on Form 8-K if we were required to file these
reports.
In addition, whether or not required by the Securities and Exchange
Commission, we will file a copy of all of the information and reports referred
to above with the Securities and Exchange Commission for public availability
within the time periods specified in the Securities and Exchange Commission's
rules and regulations, unless the Securities and Exchange Commission will not
accept the filing, and we will make the information available to securities
analysts and prospective investors upon request.
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<PAGE>
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
---------
<S> <C>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS................................................................... F-2
CONSOLIDATED FINANCIAL STATEMENTS
Consolidated Balance Sheets at November 2, 1997, November 1, 1998 and May 2, 1999 (unaudited)............ F-3
Consolidated Statements of Income and Comprehensive Income for each of the three years in the period
ended November 1, 1998, and the 26 week periods ended May 3, 1998 and May 2, 1999 (unaudited).......... F-4
Consolidated Statements of Shareholders' Equity for each of the three years in the period ended November
1, 1998................................................................................................ F-5
Consolidated Statements of Cash Flows for each of the three years in the period ended November 1, 1998,
and the 26 week periods ended May 3, 1998 and May 2, 1999 (unaudited).................................. F-6
Notes to Consolidated Financial Statements............................................................... F-7
CONSOLIDATED FINANCIAL STATEMENT SCHEDULE
Schedule II--Valuation and Qualifying Account............................................................ F-19
</TABLE>
F-1
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
TO ST. JOHN KNITS, INC.:
We have audited the accompanying consolidated balance sheets of ST. JOHN
KNITS, INC. (a California corporation) and subsidiaries as of November 2, 1997
and November 1, 1998, and the related consolidated statements of income,
shareholders' equity and cash flows for each of the three years in the period
ended November 1, 1998. These financial statements are the responsibility of the
Company's management. Our responsibility is to express an opinion on these
financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the consolidated financial position of
St. John Knits, Inc. and subsidiaries as of November 2, 1997 and November 1,
1998, and the results of their operations and their cash flows for each of the
three years in the period ended November 1, 1998 in conformity with generally
accepted accounting principles.
Our audits were made for the purpose of forming an opinion on the basic
financial statements taken as a whole. The schedule listed in the index to
consolidated financial statements is presented for purposes of complying with
the Securities and Exchange Commission's rules and is not part of the basic
financial statements. This schedule has been subjected to the auditing
procedures applied in the audit of the basic financial statements and, in our
opinion, fairly states in all material respects the financial data required to
be set forth therein in relation to the basic financial statements taken as a
whole.
Arthur Andersen LLP
Orange County, California
December 18, 1998 (except for the matters
discussed in Note 12 and 13 as to which the date is
September 3, 1999)
F-2
<PAGE>
ST. JOHN KNITS, INC.
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
NOVEMBER 2, NOVEMBER 1, MAY 2,
1997 1998 1999
----------- ----------- -----------
<S> <C> <C> <C>
(UNAUDITED)
ASSETS
Current assets:
Cash and cash equivalents............................................. $14,266,564 $14,336,872 $28,839,156
Investments........................................................... 2,351,765 1,175,427 1,194,149
Accounts receivable, net.............................................. 36,572,423 35,562,189 34,695,688
Inventories........................................................... 30,736,980 47,748,286 46,159,151
Deferred income tax benefit........................................... 5,793,961 7,743,961 7,743,961
Other................................................................. 2,591,742 2,377,352 2,605,733
----------- ----------- -----------
Total current assets................................................ 92,313,435 108,944,087 121,237,838
----------- ----------- -----------
Property and equipment:
Machinery and equipment............................................... 35,903,659 47,023,808 48,410,836
Leasehold improvements................................................ 25,351,868 30,691,098 33,620,602
Buildings............................................................. 11,572,917 17,883,700 17,918,427
Furniture and fixtures................................................ 5,434,754 6,462,833 6,702,519
Land.................................................................. 3,536,606 5,786,857 5,786,857
Construction in progress.............................................. 4,225,573 666,481 2,168,124
----------- ----------- -----------
86,025,377 108,514,777 114,607,365
Less--Accumulated depreciation and amortization....................... 28,222,633 38,627,543 43,860,566
----------- ----------- -----------
57,802,744 69,887,234 70,746,799
----------- ----------- -----------
Other assets............................................................ 3,787,396 3,558,347 3,488,435
----------- ----------- -----------
$153,903,575 $182,389,668 $195,473,072
----------- ----------- -----------
----------- ----------- -----------
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable...................................................... $10,034,396 $ 8,303,874 $ 4,251,458
Accrued expenses...................................................... 10,504,934 11,329,773 11,827,047
Income taxes payable.................................................. 2,081,242 120,657 3,739,693
----------- ----------- -----------
Total current liabilities........................................... 22,620,572 19,754,304 19,818,198
----------- ----------- -----------
Long-term debt.......................................................... -- 407,599 284,638
----------- ----------- -----------
Minority interest....................................................... 602,910 653,435 653,935
----------- ----------- -----------
Commitments and contingencies (Notes 7, 10, 11 and 12)
Shareholders' equity:
Preferred Stock, no par value: Authorized--2,000,000 shares, issued
and outstanding--none............................................... -- -- --
Common Stock, no par value: Authorized--40,000,000 shares, issued and
outstanding--16,634,548, 16,579,484 and 16,584,815 shares,
respectively........................................................ 502,799 502,799 502,799
Unrealized loss on securities........................................... -- (27,504) (27,624)
Cumulative translation adjustment....................................... (19,351) 197,249 21,358
Additional paid-in capital.............................................. 18,929,541 17,882,672 17,937,533
Retained earnings....................................................... 111,267,104 143,019,114 156,282,235
----------- ----------- -----------
130,680,093 161,574,330 174,716,301
----------- ----------- -----------
$153,903,575 $182,389,668 $195,473,072
----------- ----------- -----------
----------- ----------- -----------
</TABLE>
See accompanying notes.
F-3
<PAGE>
ST. JOHN KNITS, INC.
CONSOLIDATED STATEMENTS OF INCOME AND COMPREHENSIVE INCOME
<TABLE>
<CAPTION>
FISCAL YEAR ENDED 26 WEEKS ENDED
------------------------------------------ ------------------------
<S> <C> <C> <C> <C> <C>
NOVEMBER 3, NOVEMBER 2, NOVEMBER 1, MAY 3, MAY 2,
1996 1997 1998 1998 1999
----------- ---------------- ----------- ----------- -----------
<CAPTION>
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Net sales............................... $202,951,000 $242,100,843 $281,960,763 $138,566,509 $151,625,553
Cost of sales........................... 88,870,838 99,545,173 120,882,597 57,912,169 66,785,899
----------- ---------------- ----------- ----------- -----------
Gross profit............................ 114,080,162 142,555,670 161,078,166 80,654,340 84,839,654
Selling, general and administrative
expenses.............................. 68,385,089 84,544,884 107,025,666 49,391,546 61,766,038
----------- ---------------- ----------- ----------- -----------
Operating income........................ 45,695,073 58,010,786 54,052,500 31,262,794 23,073,616
Other income............................ 1,355,234 712,694 1,369,022 632,231 830,974
----------- ---------------- ----------- ----------- -----------
Income before income taxes.............. 47,050,307 58,723,480 55,421,522 31,895,025 23,904,590
Income taxes............................ 19,928,645 24,299,829 22,000,904 12,928,410 9,812,395
----------- ---------------- ----------- ----------- -----------
Net income.............................. 27,121,662 34,423,651 33,420,618 18,966,615 14,092,195
Comprehensive income, net of tax:
Foreign currency translation
adjustment.......................... -- -- -- (70,225) (103,776)
Unrealized loss on securities......... -- -- -- -- (71)
----------- ---------------- ----------- ----------- -----------
Comprehensive income.................... $27,121,662 $ 34,423,651 $33,420,618 $18,896,390 $13,988,348
----------- ---------------- ----------- ----------- -----------
----------- ---------------- ----------- ----------- -----------
Net income per common share:
Basic................................. $ 1.64 $ 2.07 $ 2.00 $ 1.14 $ 0.85
----------- ---------------- ----------- ----------- -----------
----------- ---------------- ----------- ----------- -----------
Diluted............................... $ 1.59 $ 2.01 $ 1.94 $ 1.11 $ 0.83
----------- ---------------- ----------- ----------- -----------
----------- ---------------- ----------- ----------- -----------
Dividends per share..................... $ 0.10 $ 0.10 $ 0.10 $ 0.05 $ 0.05
----------- ---------------- ----------- ----------- -----------
----------- ---------------- ----------- ----------- -----------
Shares used in the calculation of net
income per share:
Basic................................. 16,518,077 16,614,975 16,693,955 16,687,010 16,581,043
----------- ---------------- ----------- ----------- -----------
----------- ---------------- ----------- ----------- -----------
Diluted............................... 17,015,991 17,133,631 17,234,630 17,115,348 16,982,678
----------- ---------------- ----------- ----------- -----------
----------- ---------------- ----------- ----------- -----------
</TABLE>
See accompanying notes.
F-4
<PAGE>
ST. JOHN KNITS, INC.
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
<TABLE>
<CAPTION>
COMMON STOCK
-------------------- ADDITIONAL CUMULATIVE UNREALIZED
NUMBER PAID-IN TRANSLATION LOSS ON RETAINED
OF SHARES AMOUNT CAPITAL ADJUSTMENT SECURITIES EARNINGS TOTAL
--------- --------- ---------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C> <C>
Balance, October 29,
1995.................... 16,468,734 $ 502,799 $15,687,393 $ -- $ -- $53,037,048 $69,227,240
Dividends declared ($.10
per share)............ -- -- -- -- -- (1,653,348) (1,653,348)
Shares issued upon
exercise of options
including tax
benefit............... 130,330 -- 2,397,758 -- -- -- 2,397,758
Net income................ -- -- -- -- -- 27,121,662 27,121,662
--------- --------- ---------- ----------- ----------- ----------- -----------
Balance, November 3,
1996.................... 16,599,064 502,799 18,085,151 -- -- 78,505,362 97,093,312
Dividends declared ($.10
per share)............ -- -- -- -- -- (1,661,909) (1,661,909)
Shares issued upon
exercise of options
including tax
benefit............... 35,484 -- 844,390 -- -- -- 844,390
Foreign currency
translation
adjustment............ -- -- -- (19,351) -- -- (19,351)
Net income.............. -- -- -- -- -- 34,423,651 34,423,651
--------- --------- ---------- ----------- ----------- ----------- -----------
Balance November 2, 1997.. 16,634,548 502,799 18,929,541 (19,351) -- 111,267,104 130,680,093
Dividends declared ($.10
per share)............ -- -- -- -- -- (1,668,608) (1,668,608)
Shares issued upon
exercise of options
including tax
benefit............... 109,336 -- 1,832,969 -- -- -- 1,832,969
Shares repurchased...... (164,400) -- (2,879,838) -- -- -- (2,879,838)
Unrealized loss on
securities............ -- -- -- -- (27,504) -- (27,504)
Foreign currency
translation
adjustment............ -- -- -- 216,600 -- -- 216,600
Net income.............. -- -- -- -- -- 33,420,618 33,420,618
--------- --------- ---------- ----------- ----------- ----------- -----------
Balance November 1, 1998.. 16,579,484 $ 502,799 $17,882,672 $ 197,249 $ (27,504) $143,019,114 $161,574,330
--------- --------- ---------- ----------- ----------- ----------- -----------
--------- --------- ---------- ----------- ----------- ----------- -----------
</TABLE>
See accompanying notes.
F-5
<PAGE>
ST. JOHN KNITS, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
FISCAL YEAR ENDED 26 WEEKS ENDED
------------------------------------- ------------------------
<S> <C> <C> <C> <C> <C>
NOVEMBER 3, NOVEMBER 2, NOVEMBER 1, MAY 3, MAY 2,
1996 1997 1998 1998 1999
----------- ----------- ----------- ----------- -----------
<CAPTION>
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Cash flows from operating activities:
Net income......................................... 2$7,121,662 3$4,423,651 3$3,420,618 1$8,966,615 1$4,092,195
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization.................... 7,042,376 8,858,703 11,370,680 5,335,153 6,687,151
Net increase in deferred income tax benefit...... (1,925,194) (300,000) (1,950,000) -- --
Loss on disposal of property and equipment....... 42,792 215,810 483,920 325,708 355,664
Partnership losses............................... 224,368 351,165 331,405 169,593 136,836
Minority interest in income of consolidated
subsidiaries................................... -- 602,910 50,525 43,896 500
(Increase) decrease in accounts receivable....... (6,969,300) (8,478,817) 1,010,234 5,285,096 866,501
(Increase) decrease in inventories............... (8,710,012) (7,117,926) (17,011,306) (8,456,690) 1,589,135
(Increase) decrease in other current assets...... (1,022,146) (1,322,360) 214,390 146,478 (228,381)
(Increase) decrease in other assets.............. (1,501,100) 6,700 (488,410) 49,485 (272,472)
Increase (decrease) in accounts payable.......... 923,607 4,629,995 (1,730,522) (3,868,439) (4,052,416)
Increase (decrease) in accrued expenses.......... 2,343,116 (1,004,422) 1,240,704 (1,107,990) 497,274
Increase (decrease) in income taxes payable...... (729,125) (262,758) (1,960,585) (1,600,165) 3,619,036
Decrease in deferred income tax liability........ -- (143,941) -- -- --
----------- ----------- ----------- ----------- -----------
Net cash provided by operating activities...... 16,841,044 30,458,710 24,981,653 15,288,740 23,291,023
----------- ----------- ----------- ----------- -----------
Cash flows from investing activities:
Proceeds from sale of property and equipment....... 60,294 84,641 10,499 250 120,000
Purchase of property and equipment................. (21,400,369) (22,751,076) (23,648,032) (12,123,612) (7,869,832)
Purchase of trademarks............................. -- (747,928) -- -- --
Purchase of short-term investments................. (347,006) (204,959) -- (124,770) (18,722)
Sale of short-term investments..................... 2,524,182 2,075,710 1,176,338 -- --
Capital contributions to partnership............... (995,869) (67,108) -- -- --
Capital distributions from partnership............. 44,500 68,500 84,496 46,000 53,000
----------- ----------- ----------- ----------- -----------
Net cash used in investing activities.......... (20,114,268) (21,542,220) (22,376,699) (12,202,132) (7,715,554)
----------- ----------- ----------- ----------- -----------
Cash flows from financing activities:
Dividends paid..................................... (1,650,090) (1,661,022) (2,084,472) (1,250,137) (829,074)
----------- ----------- ----------- ----------- -----------
Issuance of common stock........................... 2,397,758 844,390 1,832,969 1,718,034 54,861
Proceeds from issuance of long-term debt........... -- -- 407,599 -- --
Payment for the repurchase of common stock......... -- -- (2,879,838) -- --
Principal payments on long-term debt............... -- -- -- -- (122,961)
Net cash provided by (used in) financing
activities................................... 747,668 (816,632) (2,723,742) 467,897 (897,174)
----------- ----------- ----------- ----------- -----------
Effect of exchange rate changes...................... -- (19,351) 216,600 (118,025) (175,891)
----------- ----------- ----------- ----------- -----------
Unrealized loss on securities........................ -- -- (27,504) -- (120)
----------- ----------- ----------- ----------- -----------
Net increase (decrease) in cash and cash
equivalents........................................ (2,525,556) 8,080,507 70,308 3,436,480 14,502,284
----------- ----------- ----------- ----------- -----------
Beginning balance, cash and cash equivalents......... 8,711,613 6,186,057 14,266,564 14,266,564 14,336,872
----------- ----------- ----------- ----------- -----------
Ending balance, cash and cash equivalents............ $6,186,057 1$4,266,564 1$4,336,872 1$7,703,044 2$8,839,156
----------- ----------- ----------- ----------- -----------
----------- ----------- ----------- ----------- -----------
Supplemental disclosures of cash flow information:
Cash received during the period for interest
income........................................... $ 717,099 $ 988,272 $1,154,834 $ 729,357 $ 595,020
----------- ----------- ----------- ----------- -----------
----------- ----------- ----------- ----------- -----------
Cash paid during the period for:
Interest expense................................. $ -- $ 46,954 $ -- $ 331 $ 5,754
----------- ----------- ----------- ----------- -----------
----------- ----------- ----------- ----------- -----------
Income taxes..................................... 2$0,565,267 2$4,526,911 2$5,286,040 1$3,759,408 $7,575,555
----------- ----------- ----------- ----------- -----------
----------- ----------- ----------- ----------- -----------
</TABLE>
See accompanying notes.
F-6
<PAGE>
ST. JOHN KNITS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(INFORMATION AS OF MAY 2, 1999 AND FOR THE 26 WEEK PERIODS ENDED MAY 3, 1998
AND MAY 2, 1999 IS UNAUDITED)
1. COMPANY BACKGROUND AND BASIS OF PRESENTATION
The consolidated financial statements include the accounts of St. John
Knits, Inc. ("St. John"), a California corporation, and its subsidiaries. St.
John and its subsidiaries are collectively referred to herein as "the Company."
All interdivisional and intercompany transactions and accounts have been
eliminated in consolidation. The Company is a leading designer, manufacturer and
marketer of women's clothing and accessories. The Company's products are
distributed primarily through specialty retailers and the Company's own retail
boutiques and outlets.
During fiscal 1997, the Company formed St. John Company, Ltd. in Japan to
operate as a 51 percent owned subsidiary to distribute the Company's products in
Japan. During fiscal 1998 the Company increased its ownership percentage to 68
percent. During fiscal 1997 the Company also formed Amen Wardy Home Stores, LLC,
a 51 percent owned subsidiary which operates five home furnishing boutiques
under the name Amen Wardy Home. The operations of both entities are included in
the accompanying consolidated financial statements.
2. SUMMARY OF ACCOUNTING POLICIES
a. DEFINITION OF FISCAL YEAR. The Company utilizes a 52-53 week fiscal
year whereby the fiscal year ends on the Sunday nearest to October 31.
Accordingly, fiscal years 1996, 1997 and 1998 ended on November 3, November 2
and November 1, respectively. Fiscal year 1996 was comprised of 53 weeks, and
fiscal years 1998 and 1997 were comprised of 52 weeks.
b. USE OF ESTIMATES. The preparation of the financial statements in
conformity with generally accepted accounting principles requires management to
make certain estimates and assumptions that affect the reported amounts of
assets and liabilities at the date of the financial statements and the reported
amounts of revenues and expenses during the reporting period. Actual results may
differ from those estimates.
c. REVENUE RECOGNITION. Revenue on sales to specialty retailers is
recognized when the goods are shipped. The Company establishes liabilities for
estimated returns and allowances at the time of shipment. The Company also
provides for estimated discounts when recording sales. Retail sales are
recognized at the point of sale. The Company establishes liabilities for
estimated returns at the retail stores. Accounts receivable are shown net of
allowances for discounts and uncollectible amounts of $2,543,000 and $905,000 in
fiscal year 1997, and $2,488,000 and $951,000 in fiscal year 1998, respectively.
d. INVENTORIES. Inventories are valued at the lower of cost or market.
During fiscal 1997 the Company elected to change its method of accounting for
its inventory from the last-in, first-out (LIFO) method to the first-in,
first-out (FIFO) method. This change did not have a material effect on the
financial statements for any year presented. Therefore, the cumulative effect
($363,000) was reflected in the fiscal year 1997 financial statements as a
reduction of cost of goods sold.
F-7
<PAGE>
ST. JOHN KNITS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(INFORMATION AS OF MAY 2, 1999 AND FOR THE 26 WEEK PERIODS ENDED MAY 3, 1998
AND MAY 2, 1999 IS UNAUDITED)
2. SUMMARY OF ACCOUNTING POLICIES (CONTINUED)
Inventories are comprised of the following:
<TABLE>
<CAPTION>
1997 1998
------------- -------------
<S> <C> <C>
Raw materials............................................................ $ 10,362,158 $ 14,529,822
Work in process.......................................................... 6,451,053 8,896,248
Finished products........................................................ 13,923,769 24,322,216
------------- -------------
$ 30,736,980 $ 47,748,286
------------- -------------
------------- -------------
</TABLE>
e. PROPERTY AND EQUIPMENT. Property and equipment are stated at cost. The
Company provides for depreciation using the straight-line method to provide for
the retirement of property and equipment at the end of their estimated useful
lives, which range from three to thirty-nine years.
f. CASH AND CASH EQUIVALENTS. For purposes of the statements of cash
flows, cash and cash equivalents include all liquid debt instruments purchased
with a maturity of three months or less.
g. FOREIGN EXCHANGE TRANSACTIONS AND CONTRACTS. The Company enters into
foreign exchange contracts as a hedge against exchange rate risk on the
collection of certain accounts receivable denominated in a foreign currency.
Market value gains and losses are recognized as the contracts mature, and
exchange adjustments resulting from foreign currency transactions are offset by
exchange gains or losses recognized from such contracts.
h. INCOME TAXES. The Company utilizes the liability method of accounting
for income taxes required by Statement of Financial Accounting Standards
("SFAS") No. 109 "Accounting for Income Taxes."
i. EARNINGS PER SHARE. The Company adopted SFAS No. 128 "Earnings Per
Share" during fiscal 1998. Under the new requirement, primary earnings per share
was replaced with basic earnings per share. Basic earnings per share excludes
the dilutive effect of common stock equivalents, including stock options.
Diluted earnings per share, which replaced fully diluted earnings per share,
includes all dilutive items. Dilution is calculated based upon the treasury
stock method, which assumes that all dilutive securities were exercised and that
the proceeds received were applied to repurchase outstanding shares at the
average market price during the period.
As a result of the adoption of SFAS No. 128, primary earnings per share for
fiscal 1996 and 1997 were restated from $1.59 to $1.64 and from $2.01 to $2.07,
respectively, to reflect the change to basic earnings per share. The difference
between basic and diluted earnings per share, as shown on the Company's
Consolidated Statements of Income, is due to the dilutive effect of stock
options outstanding.
j. TWO-FOR-ONE STOCK SPLIT. On March 12, 1996, the Board of Directors
declared a two-for-one common stock split which was distributed on May 6, 1996
to shareholders of record at the close of business on April 8, 1996. All share
and per share data included in the consolidated financial statements and
accompanying notes have been adjusted to reflect the stock split.
F-8
<PAGE>
ST. JOHN KNITS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(INFORMATION AS OF MAY 2, 1999 AND FOR THE 26 WEEK PERIODS ENDED MAY 3, 1998
AND MAY 2, 1999 IS UNAUDITED)
2. SUMMARY OF ACCOUNTING POLICIES (CONTINUED)
k. FOREIGN CURRENCY TRANSLATION. The Company translates the financial
statements of its foreign subsidiaries from the local (functional) currencies to
U.S. dollars in accordance with SFAS No. 52 "Foreign Currency Translation".
Substantially all assets and liabilities of the Company's foreign subsidiaries
are translated at year-end exchange rates, while revenue and expenses are
translated at average exchange rates prevailing during the year. Adjustments for
foreign currency translation fluctuations are excluded from net income and are
included as a separate component of consolidated shareholders' equity.
l. ADVERTISING AND PROMOTION. All costs associated with advertising and
promotion of the Company's products are expensed as incurred.
m. INVESTMENTS. The Company's investments are categorized as
available-for-sale securities, as defined by SFAS No. 115 "Accounting for
Certain Investments in Debt and Equity Securities." Unrealized holding gains and
losses are reflected as a net amount in a separate component of stockholders'
equity until realized. For the purpose of computing realized gains and losses,
cost is identified on a specific identification basis.
n. NEW ACCOUNTING PRONOUNCEMENTS. In June 1997, the Financial Accounting
Standards Board issued SFAS Nos. 130 and 131 "Reporting Comprehensive Income"
and "Disclosures about Segments of an Enterprise and Related Information." The
Company will be required to adopt these standards in fiscal 1999. The adoption
of these standards is not expected to have a material impact on the Company's
financial position or results of operations.
In April 1998, the American Institute of Certified Public Accountants issued
Statement of Position 98-5 "Reporting on the Costs of Start-up Activities". The
Company will be required to adopt this standard in fiscal 2000. The adoption of
this standard is not expected to have a material impact on the Company's
financial position or results of operations.
o. UNAUDITED INTERIM FINANCIAL INFORMATION. The accompanying consolidated
balance sheet as of May 2, 1999 and the consolidated statements of income and
comprehensive income for the 26 weeks ended May 3, 1998 and May 2, 1999 are
unaudited but include all adjustments (consisting of normal recurring accruals)
which, in the opinion of management, are necessary for a fair statement of the
financial position and the operating results and cash flows for the interim date
and periods presented. Results for the interim periods are not necessarily
indicative of results to be achieved for an entire year or future periods.
p. COMPREHENSIVE INCOME. The Company has adopted SFAS No. 130 "Reporting
Comprehensive Income" during the first quarter of fiscal 1999. This statement
requires that all items that meet the definition of components of comprehensive
income be reported in a financial statement for the period in which they are
recognized. Components of comprehensive income include revenue, expenses, gains
and losses that under generally accepted accounting principles are included in
comprehensive income but excluded from net income.
F-9
<PAGE>
ST. JOHN KNITS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(INFORMATION AS OF MAY 2, 1999 AND FOR THE 26 WEEK PERIODS ENDED MAY 3, 1998
AND MAY 2, 1999 IS UNAUDITED)
3. FAIR VALUE OF FINANCIAL INSTRUMENTS
The carrying amounts of cash and cash equivalents approximate fair value.
Investments consist primarily of municipal bonds with maturity dates of less
than six months and common stock, which are classified as available-for-sale.
Investments available-for-sale at November 2, 1997 and November 1, 1998 are
as follows:
NOVEMBER 2, 1997
<TABLE>
<CAPTION>
MARKET UNREALIZED
COST VALUE LOSS
------------ ------------ -----------
<S> <C> <C> <C>
Municipal Securities.................................................. $ 1,500,000 $ 1,500,000 $ --
Money Market Fund..................................................... 833,511 833,511 --
Common Stock.......................................................... 18,254 18,254 --
------------ ------------ -----------
$ 2,351,765 $ 2,351,765 $ --
------------ ------------ -----------
------------ ------------ -----------
</TABLE>
- ------------------------
NOVEMBER 1, 1998
<TABLE>
<S> <C> <C> <C>
Municipal Securities.................................... $1,000,000 $1,000,000 $ --
Common Stock............................................ 202,931 175,427 27,504
--------- --------- ---------
$1,202,931 $1,175,427 $ 27,504
--------- --------- ---------
--------- --------- ---------
</TABLE>
The Company holds various foreign exchange contracts. At November 2, 1997,
the Company had contracts maturing through November 10, 1998 to sell 10.9
million deutsche marks and 670,000 British pounds at rates ranging from 1.55 to
1.71 deutsche marks to the U.S. dollar and 1.62 to 1.66 U.S. dollars to the
British pound. At November 1, 1998, the Company had contracts maturing through
May 28, 1999 to sell 5.4 million deutsche marks and 365,000 British pounds at
rates ranging from 1.71 to 1.77 deutsche marks to the U.S. dollar and 1.63 to
1.64 U.S. dollars to the British pound. At November 2, 1997 and November 1, 1998
the fair value of these foreign exchange contracts were less than the face value
by $96,000 and $197,000, respectively.
During the fourth quarter of fiscal 1998, the Company adopted SFAS No. 133
"Accounting for Derivative Instruments and Hedging Activities." The adoption of
SFAS No. 133 did not have a material effect on the Company's financial position
or results of operations. It is the Company's policy to reduce the effects of
fluctuations in foreign currency exchange rates associated with its sale of
goods denominated in foreign currency by entering into forward contracts. The
Company enters into contracts to sell foreign currencies in the future only to
protect the U.S. dollar value of certain investments and future foreign currency
transactions. The Company does not engage in speculation. The gains and losses
on these contracts are included in income upon maturity and offset the foreign
exchange gains and losses reported on the underlying transactions. The total net
gain recorded during fiscal 1998 was
F-10
<PAGE>
ST. JOHN KNITS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(INFORMATION AS OF MAY 2, 1999 AND FOR THE 26 WEEK PERIODS ENDED MAY 3, 1998
AND MAY 2, 1999 IS UNAUDITED)
3. FAIR VALUE OF FINANCIAL INSTRUMENTS (CONTINUED)
approximately $321,000 and is included as an offset to selling, general and
administrative expenses on the accompanying Consolidated Statements of Income.
4. ACCRUED EXPENSES
Accrued expenses for fiscal years 1997 and 1998 are comprised of the
following:
<TABLE>
<CAPTION>
1997 1998
------------- -------------
<S> <C> <C>
Wages and benefits............................................................ $ 4,013,350 $ 5,135,454
Workers' compensation......................................................... 796,382 646,100
Profit-sharing plan contribution.............................................. 500,000 500,000
Promotional and advertising allowance......................................... 1,741,896 1,896,955
Other......................................................................... 3,453,306 3,151,264
------------- -------------
$ 10,504,934 $ 11,329,773
------------- -------------
------------- -------------
</TABLE>
5. INCOME TAXES
The provision for income taxes for fiscal years 1996, 1997 and 1998,
consists of the following:
<TABLE>
<CAPTION>
1996 1997 1998
------------- ------------- -------------
<S> <C> <C> <C>
Current:
Federal....................................................... $ 16,434,369 $ 18,878,088 $ 17,568,636
State......................................................... 4,277,275 5,335,096 4,220,969
------------- ------------- -------------
20,711,644 24,213,184 21,789,605
Deferred provision (benefit)........................................ (782,999) 86,645 211,299
------------- ------------- -------------
$ 19,928,645 $ 24,299,829 $ 22,000,904
------------- ------------- -------------
------------- ------------- -------------
</TABLE>
The components of the deferred income tax provision (benefit) for fiscal
years 1996, 1997 and 1998 are as follows:
<TABLE>
<CAPTION>
1996 1997 1998
------------- ----------- ----------
<S> <C> <C> <C>
Allowance for uncollectible accounts................................. $ -- $ 57,083 $ 16,718
Inventory adjustments to market...................................... (1,286,168) 609,067 (431,311)
Accrued expenses..................................................... 374,841 (429,750) 663,042
Depreciation......................................................... 128,328 (149,755) (37,150)
------------- ----------- ----------
$ (782,999) $ 86,645 $ 211,299
------------- ----------- ----------
------------- ----------- ----------
</TABLE>
F-11
<PAGE>
ST. JOHN KNITS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(INFORMATION AS OF MAY 2, 1999 AND FOR THE 26 WEEK PERIODS ENDED MAY 3, 1998
AND MAY 2, 1999 IS UNAUDITED)
5. INCOME TAXES (CONTINUED)
The components of the Company's deferred income tax benefit as of November
2, 1997 and November 1, 1998 are as follows:
<TABLE>
<CAPTION>
1997 1998
------------ ------------
<S> <C> <C>
Deferred income tax benefit:
Tax basis adjustments to inventory............................................. $ 1,952,210 $ 2,126,806
Allowance for uncollectible accounts........................................... 364,583 879,725
Inventory adjustments to market................................................ 2,952,273 2,283,321
Accrued expenses............................................................... 524,895 2,454,109
------------ ------------
$ 5,793,961 $ 7,743,961
------------ ------------
------------ ------------
</TABLE>
The reported provision for income taxes differs from the amount computed by
applying the statutory federal income tax rate to the income before provision
for income taxes for fiscal years 1996, 1997 and 1998 as follows:
<TABLE>
<CAPTION>
1996 1997 1998
------------- ------------- -------------
<S> <C> <C> <C>
Income tax provision computed at statutory rate................ $ 16,467,607 $ 20,553,218 $ 19,397,537
State taxes, net of federal benefit............................ 2,844,192 3,549,834 3,350,232
Tax credits and other.......................................... 616,846 196,777 (746,865)
------------- ------------- -------------
Tax provision.................................................. $ 19,928,645 $ 24,299,829 $ 22,000,904
------------- ------------- -------------
------------- ------------- -------------
</TABLE>
6. BENEFIT AND STOCK OPTION PLANS
The Company is self-insured for a portion of its medical benefits programs.
Amounts charged to expense for health benefits were $3,137,000, $3,110,000 and
$3,594,000 for fiscal years 1996, 1997 and 1998, respectively, and were based on
actual claims and an estimate of claims incurred but not reported. The current
liability for health benefits is included in accrued expenses on the
accompanying consolidated balance sheets. The Company maintains excess insurance
coverage on an individual and an aggregate basis.
The Company maintains a qualified profit-sharing plan for the benefit of all
eligible employees. This plan contemplates the sharing of profits annually at
the discretion of the Board of Directors and is funded by cash contributions.
The contribution to this plan was $500,000, in each of the fiscal years 1996,
1997 and 1998.
The Company has one stock option plan, the 1993 St. John Knits, Inc. Stock
Option Plan (the "Plan"). Options granted under the Plan may be either incentive
or nonstatutory stock options. The Company accounts for the Plan under
Accounting Principles Board Opinion No. 25 "Accounting for Stock Issued to
Employees", under which no compensation cost has been recognized for fiscal
years 1996, 1997 and 1998.
SFAS No. 123 "Accounting for Stock-Based Compensation" was issued in 1995
and, if fully adopted, changes the methods for recognition of cost on plans
similar to that of the Company.
F-12
<PAGE>
ST. JOHN KNITS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(INFORMATION AS OF MAY 2, 1999 AND FOR THE 26 WEEK PERIODS ENDED MAY 3, 1998
AND MAY 2, 1999 IS UNAUDITED)
6. BENEFIT AND STOCK OPTION PLANS (CONTINUED)
Adoption of SFAS No. 123 is optional for employee stock option grants, however
pro forma disclosure as if the Company had adopted the cost recognition method
is required. Had compensation cost for stock options awarded under the Plan been
determined consistent with SFAS No. 123, the Company's net income and earnings
per share would have reflected the following pro forma amounts:
<TABLE>
<CAPTION>
1997 1998
------------- -------------
<S> <C> <C> <C>
Net income: As reported....... $ 34,423,651 $ 33,420,618
Pro forma......... $ 33,605,519 $ 31,818,853
Net income per share--diluted: As reported....... $ 2.01 $ 1.94
Pro forma......... $ 1.96 $ 1.85
</TABLE>
The Company may grant up to 2,350,000 options under the Plan. The Company
has granted 1,625,334 options through November 1, 1998. The options are
primarily issued at fair market value with exercise prices equal to the
Company's stock price at the date of grant. Options generally vest over three
years; are exercisable in whole or in installments; and expire ten years from
date of grant.
The following is a summary of the activity in the Plan for fiscal years
1996, 1997 and 1998:
<TABLE>
<CAPTION>
1996 1997 1998
----------------------- ---------------------- -----------------------
WEIGHTED WEIGHTED WEIGHTED
AVERAGE AVERAGE AVERAGE
EXERCISE EXERCISE EXERCISE
SHARES PRICE SHARES PRICE SHARES PRICE
---------- ----------- --------- ----------- ---------- -----------
<S> <C> <C> <C> <C> <C> <C>
Outstanding, beginning of year...................... 784,470 $ 8.81 681,472 $ 9.45 842,988 $ 17.16
Granted............................................. 28,000 23.04 197,000 42.27 527,334 27.12
Exercised........................................... (130,330) 8.50 (35,484) 8.50 (109,336) 9.79
Forfeited........................................... (668) 8.50 -- -- (339,334) 39.44
---------- ----------- --------- ----------- ---------- -----------
Outstanding, end of year............................ 681,472 $ 9.45 842,988 $ 17.16 921,652 $ 15.42
---------- ----------- --------- ----------- ---------- -----------
---------- ----------- --------- ----------- ---------- -----------
Exercisable, end of year............................ 625,458 $ 8.68 668,644 $ 11.28 677,960 $ 14.37
Weighted average fair value of options granted...... $ 8.80 $ 17.93 $ 11.34
</TABLE>
During fiscal 1998, a total of 324,334 options were repriced.
The following is a detail of the stock options outstanding at November 1,
1998, including weighted average contractual life and exercise price
information:
<TABLE>
<CAPTION>
WEIGHTED AVERAGE
--------------------------------
<S> <C> <C> <C> <C>
RANGE OF OPTIONS OPTIONS REMAINING EXERCISE
EXERCISE PRICES OUTSTANDING EXERCISABLE CONTRACTUAL LIFE PRICE
- ------------------ ----------- ----------- ------------------- -----------
$8.50 492,818 492,818 4.36 $ 8.50
$15.06 to $23.00 328,834 85,142 9.48 18.58
$39.06 to $39.13 100,000 100,000 9.10 39.09
----------- ----------- --- -----------
$8.50 to $39.13 921,652 677,960 6.70 $ 15.42
----------- ----------- --- -----------
----------- ----------- --- -----------
</TABLE>
F-13
<PAGE>
ST. JOHN KNITS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(INFORMATION AS OF MAY 2, 1999 AND FOR THE 26 WEEK PERIODS ENDED MAY 3, 1998
AND MAY 2, 1999 IS UNAUDITED)
6. BENEFIT AND STOCK OPTION PLANS (CONTINUED)
For purposes of the pro forma presentation above, the fair value of each
option grant is estimated on the date of grant using the Black-Scholes pricing
model with the following assumptions used for the grants in fiscal years 1997
and 1998: weighted average risk-free interest rate of 6.32 and 5.55 percent;
weighted average volatility of 31.0 and 27.5 percent; expected life of 6 years;
and weighted average dividend yield of 0.237 and 0.263 percent.
7. COMMITMENTS
The Company has entered into various leases for manufacturing, showroom,
warehouse, retail and office locations, including leases with related parties
(Note 9). The leases expire at various dates through the year 2014 and certain
leases contain renewal options. Rental expense under these leases was
approximately $8,094,000, $9,474,000 and $12,052,000 in fiscal years 1996, 1997
and 1998, respectively.
The following is a schedule of future minimum rental payments required under
noncancellable operating leases as of November 1, 1998:
<TABLE>
<S> <C>
1999.......................................................... $12,802,000
2000.......................................................... 12,247,000
2001.......................................................... 11,305,000
2002.......................................................... 10,831,000
2003.......................................................... 10,222,000
Thereafter.................................................... 69,584,000
-----------
$126,991,000
-----------
-----------
</TABLE>
The Company has various employment contracts with certain key employees,
which expire at various times through June 1, 2000. These agreements provide for
total annual compensation aggregating $3,634,000 and the payment of severance
benefits upon the termination of employment.
As of November 2, 1997 and November 1, 1998, the Company's commitments to
purchase wool yarn were approximately $11,847,000 and $12,779,000 respectively.
The Company's commitment to purchase computerized knitting machines totaled
approximately $2,326,000 and $569,000 at November 2, 1997 and November 1, 1998,
respectively.
On November 4, 1998, the Board of Directors of the Company adopted a
shareholder rights plan whereby shareholders will receive one right for each
share of common stock. The rights were issued as a dividend to shareholders of
record on November 18, 1998. Generally, the plan provides that if a person or
group acquires more than 15 percent of the Company's stock, holders of the
rights will be entitled to purchase the Company's stock at half of market value.
The plan also provides that if the Company is acquired in a merger or other
business combination after a person or group acquires more than 15 percent of
the Company's stock, holders of the rights will be entitled to purchase the
acquiring company's stock at half of market value. Subject to certain
restrictions, the Company will be entitled to redeem the rights for $0.01 per
right at any time until the first date of public announcement that a 15 percent
position in the Company has been acquired.
F-14
<PAGE>
ST. JOHN KNITS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(INFORMATION AS OF MAY 2, 1999 AND FOR THE 26 WEEK PERIODS ENDED MAY 3, 1998
AND MAY 2, 1999 IS UNAUDITED)
8. LINE OF CREDIT AND LONG-TERM DEBT
The Company has a line of credit agreement with a bank. The agreement
provides for a $25,000,000 line of credit that matures March 1, 2000. Borrowings
under the line bear interest at the bank's reference rate (8.0 percent at
November 1, 1998) or an offshore rate plus 1.5 percent. The agreement contains
covenants, which, among other matters, restrict capital expenditures, dividends,
investments, loans and advances and require the maintenance of certain financial
ratios. No amounts were due under this line of credit at either November 2, 1997
or November 1, 1998. Letters of credit outstanding under the line of credit
totaled approximately $331,000 and $111,000 at November 2, 1997 and November 1,
1998, respectively.
The long-term debt included on the consolidated balance sheet at November 1,
1998 represents the long-term portion of a term loan incurred by the Company's
Japanese subsidiary, St. John Company, Ltd. The loan requires 36 equal monthly
installments including principal and interest through August 2001. The effective
interest rate for the loan was 2.1 percent at November 1, 1998. The current
portion of this loan is included in accrued liabilities on the accompanying
consolidated balance sheets.
9. RELATED-PARTY TRANSACTIONS
The Company leases its corporate headquarters/manufacturing facility and one
other manufacturing facility from partnerships in which a shareholder of the
Company is a significant partner. The annual payments on these leases were
approximately $966,000, $884,000 and $975,000 in fiscal years 1996, 1997 and
1998, respectively. The leases expire at various dates during fiscal year 2001
and are included in the future minimum rental payments disclosure (Note 7).
The Company periodically rents personal property provided by a company that
is owned by a shareholder. Rental payments for the use of such equipment were
approximately $37,000, $30,000 and $21,000 in fiscal years 1996, 1997 and 1998,
respectively.
At November 2, 1997 and November 1, 1998, the Company held a 50 percent
ownership interest in a partnership which leases transportation equipment to the
Company. The holder of the other 50 percent ownership interest is a corporation
which is wholly-owned by one of the Company's shareholders. During fiscal 1996,
the Company made net capital contributions to the partnership of approximately
$951,000. At November 2, 1997 and November 1, 1998, the Company's investment in
this partnership, net of partnership losses, was approximately $1,270,000 and
$854,000, respectively, and is included in other assets on the accompanying
consolidated balance sheets. During fiscal years 1996, 1997 and 1998, the
Company made lease payments to the partnership of $572,000, $840,000 and
$868,000, respectively. During the same years, the Company reported net losses
from the activities of the partnership of $224,000, $351,000 and $331,000,
respectively.
10. CURRENT VULNERABILITY DUE TO CERTAIN CONCENTRATIONS
A substantial portion of the Company's sales are made to three major
customers. These three customers accounted for 18, 15 and 15 percent of net
sales during fiscal 1996, 17, 15 and 15 percent of net sales during fiscal 1997
and 17, 14 and 14 percent during fiscal 1998. The loss of any one of these
customers could have a materially adverse affect on the Company's business.
F-15
<PAGE>
ST. JOHN KNITS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(INFORMATION AS OF MAY 2, 1999 AND FOR THE 26 WEEK PERIODS ENDED MAY 3, 1998
AND MAY 2, 1999 IS UNAUDITED)
10. CURRENT VULNERABILITY DUE TO CERTAIN CONCENTRATIONS (CONTINUED)
The Company sells primarily to specialty apparel retailers; thus, the risk
of collection losses is concentrated in this industry. Management believes that
the Company's credit and collection policies are adequate to prevent significant
collection losses and that the allowance for uncollectible accounts is adequate
at November 2, 1997 and November 1, 1998.
11. LITIGATION
AMEN WARDY HOME STORES
On October 5, 1998, Amen Wardy, Jr. ("Wardy Jr.") filed a complaint (the
"Wardy Jr. Complaint") against the Company, Amen Wardy Home Stores, LLC, a 51
percent owned subsidiary of the Company ("Amen"), Robert E. Gray, Marie St. John
Gray, Kelly A. Gray, Black and Co., Inc. and Jennifer Black in the Superior
Court of the State of California, County of Orange (WARDY, JR. V. ST. JOHN
KNITS, INC., ET AL.). The complaint, which was amended on December 4, 1998,
involves claims of wrongful termination, breach of contract, breach of the
implied covenant of good faith and fair dealing, breach of fiduciary duty,
slander, libel, intentional and negligent infliction of emotional distress, an
accounting fraud, negligent misrepresentation, conspiring to commit fraud and
aiding and abetting fraud. The complaint alleges that Amen wrongfully terminated
Wardy Jr. because he refused to participate in improper accounting practices.
The complaint also alleges that the Company used Amen for its benefit and to the
detriment of Amen. Wardy Jr. seeks an unspecified amount of compensatory and
punitive damages as well as costs of suit, including attorneys' fees.
On November 16, 1998, the Company and Amen filed a cross-complaint against
Wardy Jr., and a third party complaint against Amen Wardy, Sr., Bob Hightower
and Amen Wardy Home, Inc. ("AWHI") in the Superior Court of the State of
California, County of Orange. Together, these complaints involve claims of
breach of contract, breach of fiduciary duty and fraud. These complaints allege
that AWHI used Amen for its benefit and to the detriment of Amen and the
Company. The Company and Amen seek an unspecified amount of compensatory and
punitive damages, as well as costs of suit, including attorneys' fees.
On November 17, 1998, AWH Direct, Inc. ("AWH Direct") filed a derivative
complaint against Amen, the Company, Robert E. Gray, Marie St. John Gray, Kelly
A. Gray, David A. Krinsky and David C. Frankel in the Superior Court of the
State of California, County of Orange (AWH DIRECT, LLC V. AMEN WARDY HOME
STORES, LLC, ET AL.). In this action AWH Direct is represented by the same
counsel as Wardy Jr. in WARDY JR. V. ST. JOHN KNITS, INC., ET AL., described
above. AWH Direct claims that the defendants are liable for breach of fiduciary
duty, breach of contract, breach of the implied covenant of good faith and fair
dealing, wrongful refusal to allow inspection of books and records and an
accounting. The complaint makes allegations similar to the ones made in the
Wardy Jr. Complaint. AWH Direct seeks an unspecified amount of compensatory and
punitive damages, a mandatory injunction requiring defendants to allow plaintiff
immediate access to the books and records of Amen and costs of suit, including
attorneys' fees.
SECURITIES FRAUD CLASS ACTION
On October 13, 1998, Binary Traders, Inc. filed a complaint on behalf of
purchasers of publicly traded securities of the Company during the period of
February 25, 1998 to August 25, 1998 against the
F-16
<PAGE>
ST. JOHN KNITS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(INFORMATION AS OF MAY 2, 1999 AND FOR THE 26 WEEK PERIODS ENDED MAY 3, 1998
AND MAY 2, 1999 IS UNAUDITED)
11. LITIGATION (CONTINUED)
Company, Robert E. Gray and Kelly A. Gray in the United States District Court,
Central District of California, Southern Division (BINARY TRADERS, INC. V. ST.
JOHN KNITS, INC., ET AL.). In this action, Binary Traders claims that the
defendants violated federal securities laws by allegedly making fraudulent
statements to cover up management's mistakes and certain material adverse
conditions affecting the Company's business. In addition, the complaint alleges
that Mr. Gray traded shares of the Company's common stock while in possession of
allegedly material non-public information. Binary Traders seeks class action
certification and an unspecified amount of compensatory damages.
PROPOSED BUY-OUT LITIGATION
Effective December 8, 1998, the Company received a proposal from Robert E.
Gray, Chairman and Chief Executive Officer, and Vestar Capital Partners III,
L.P. to purchase substantially all of the outstanding common stock of the
Company through a buy-out transaction. The Company has appointed an independent
committee of directors to evaluate the proposed transaction.
The Company is party to lawsuits that allege claims against certain of the
Company's directors for breach of fiduciary duty alleged to have arisen from the
proposed buy-out transaction. The lawsuits were filed in the Superior Court of
the State of California for the County of Orange.
The dates the lawsuits were instituted, as well as the principal parties to
the lawsuits, are as follows: (i) TEHRANI V. ST. JOHN KNITS, INC., ET AL., filed
on December 9, 1998, by Mishel S. Tehrani, as representative for a putative
class of unidentified members, against the Company, Robert E. Gray, Marie St.
John Gray, Kelly A. Gray, Roger G. Ruppert, Richard A. Gadbois III, David A.
Krinsky and Rick Rozar and (ii) HILL V. ST. JOHN KNITS, INC., ET AL., filed on
December 9, 1998, by Kenneth O. Hill, as representative for a putative class of
unidentified members, against the Company, Robert E. Gray, Marie St. John Gray,
Kelly A. Gray, Roger G. Ruppert, Richard A. Gadbois III and David A. Krinsky.
The principal relief sought in the these actions is certification of the
putative class, an injunction of the proposed buy-out transaction from
proceeding or, to the extent the transaction is concluded, a rescission of the
buy-out transaction and damages and attorneys' fees in an unspecified amount.
The Company is unable to estimate the outcome of these matters or any
potential liabilities it may incur. The Company expects to incur legal and other
defense costs as a result of such proceedings in an amount which it can not
currently estimate. These proceedings could involve a substantial diversion of
the time of some of the members of management, and an adverse determination in,
or settlement of, such litigation could involve payment of significant amounts,
which could have an adverse impact on the Company's business, financial
condition, results of operations and cash flows.
12. SUBSEQUENT EVENTS
PROPOSED BUY-OUT LITIGATION
Additional lawsuits were instituted in regards to the proposed buy-out
transaction. The lawsuits were filed in the Superior Court of the State of
California for the County of Orange. The dates the lawsuits were instituted, as
well as the principal parties to the lawsuits, are as follows: (i) SILVERMAN V.
ST. JOHN KNITS, INC., ET AL., filed on December 23, 1998, by Shirley Silverman,
as representative for a putative class of unidentified members, against the
Company, Robert E. Gray, Marie St. John Gray, Kelly A. Gray, Roger G. Ruppert,
Richard A. Gadbois III and David A. Krinsky and (ii) VINIKOW V. ST.
F-17
<PAGE>
ST. JOHN KNITS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(INFORMATION AS OF MAY 2, 1999 AND FOR THE 26 WEEK PERIODS ENDED MAY 3, 1998
AND MAY 2, 1999 IS UNAUDITED)
12. SUBSEQUENT EVENTS (CONTINUED)
JOHN KNITS, INC., ET AL., filed on January 8, 1999, by Larry Vinikow as
representative for a putative class of unidentified members, against the
Company, Robert E. Gray, Marie St. John Gray, Kelly A. Gray, Roger G. Ruppert,
Richard A. Gadbois III and David A. Krinsky. All of these lawsuits, including
those described in Note 11, were consolidated into one lawsuit on February 24,
1999.
The principal relief sought in the these actions is certification of the
putative class, an injunction of the proposed buy-out transaction from
proceeding or, to the extent the transaction is concluded, a rescission of the
buy-out transaction, and damages and attorneys' fees in an unspecified amount.
On March 9, 1999, plaintiffs filed a Consolidated Amended Complaint, adding
Robert Davis, Daniel Reiner and Mark Goldston, members of the Company's Board of
Directors, as defendants and also adding an additional cause of action for
unjust enrichment.
On April 15, 1999, the plaintiffs in the lawsuit filed a motion for
preliminary injunction seeking to prevent the mergers from proceeding. The
preliminary injunction motion was heard by the California state court on April
28, 1999. On April 30, 1999, the court denied the plaintiffs' preliminary
injunction motion. In denying the plaintiffs' request, the court ruled that the
plaintiffs had not shown a "reasonable probability" that they could succeed in
proving at trial that the $30 per share offer in the mergers is unfair.
Similarly, the court ruled that the plaintiffs were unlikely to show that the
special committee of the Company's Board of Directors lacked true independence
or failed to "shop" the Company adequately to other buyers.
While declining to grant the preliminary injunction, the court imposed a
constructive trust which prevents Robert E. Gray, Marie Gray and Kelly A. Gray
from receiving in the mergers any amount for their Company shares in excess of
$30 per share until a full trial on the merits is held. Prior to the
determination of the final, definitive terms of the stock options to be granted
to the Grays after the mergers, the plaintiffs had argued that these options
represent additional consideration for the Grays' Company shares. It is the
Company's belief that these employee stock options represent compensation for
the Grays' services as officers of the reorganized company after the mergers and
are not additional consideration for their Company shares.
The court also imposed a constructive trust preventing Messrs. Gadbois and
Krinsky, directors of the Company, from exercising options that were repriced by
the board in September 1998 until a full trial on the merits is held. It is the
Company's belief that the September 1998 option repricing was not improper. The
repricing was consistent with the repricing of options held by key employees of
the Company, excluding the Grays, and occurred on September 15, 1998, which was
nearly two months in advance of Vestar's first meeting with the Grays.
In imposing the constructive trusts, the court indicated that the plaintiffs
had shown a "reasonable probability" that they could succeed at trial in proving
that the Company directors breached their fiduciary duties with respect to the
repricing of the director options and the alleged preferential treatment of the
Grays to the extent that the Grays receive a higher price for their shares than
the public shareholders in the mergers. The Company intends to continue to
contest vigorously the plaintiffs' allegations in this lawsuit, including any
request by the plaintiffs for the imposition of a constructive trust after a
full trial on the merits is held.
F-18
<PAGE>
ST. JOHN KNITS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(INFORMATION AS OF MAY 2, 1999 AND FOR THE 26 WEEK PERIODS ENDED MAY 3, 1998
AND MAY 2, 1999 IS UNAUDITED)
12. SUBSEQUENT EVENTS (CONTINUED)
On June 30, 1999, plaintiffs filed a Second Consolidated Amended Complaint
adding a new cause of action for negligence and new allegations asserting
self-dealing and irremediable conflicts of interest in the Board approval of the
proposed buy-out transaction.
On June 28, 1999, the proposed buy-out transaction was submitted to and
approved by the shareholders of the Company.
The Company is unable to estimate the outcome of these matters or any
potential liabilities it may incur. The Company expects to incur legal and other
defense costs as a result of such proceedings in an amount which it can not
currently estimate. These proceedings could involve a substantial diversion of
the time of some of the members of management, and an adverse determination in,
or settlement of, such litigation could involve payment of significant amounts,
which could have an adverse impact on the Company's business, financial
condition, results of operations and cash flows.
AMEN WARDY HOME STORES LITIGATION
The Wardy Jr. Action and the AWH Direct Action were settled pursuant to a
Memorandum of Understanding between the parties dated April 1, 1999 and a
subsequent Settlement Agreement and Mutual General Release dated April 30, 1999.
As part of the settlement, the Company paid certain legal fees of the plaintiffs
and transferred the AWHS boutique in Las Vegas to an affiliate of Amen Wardy,
Jr. In addition, as part of the settlement, AWHS became a wholly owned
subsidiary of the Company and the name of the entity was changed to "St. John
Home, LLC". Pursuant to the settlement, the Wardy Jr. Action was dismissed with
prejudice on May 11, 1999 and the AWH Direct Action was dismissed with prejudice
on May 5, 1999.
RECAPITALIZATION TRANSACTION
On July 7, 1999, the Company completed a recapitalization transaction
whereby St. John Knits International, Inc. (SJKI) became the parent company. In
connection with this recapitalization transaction, SJKI issued $100,000,000 of
Senior Subordinated Notes.
13. SUBSIDIARY GUARANTORS
SJKI's payment obligations under the Senior Subordinated Notes are
guaranteed by certain of SJKI's wholly owned subsidiaries (the Guarantor
Subsidiaries). Such guarantees are full, unconditional and joint and several.
Separate financial statements of the Guarantor Subsidiaries are not presented
because management has determined that they would not be material to investors.
Supplemental financial information on the Guarantor Subsidiaries and SJKI's
other subsidiaries (the Non-Guarantor Subsidiaries) has not been presented as
the Non-Guarantor Subsidiaries are inconsequental and, accordingly, the
historical consolidated financial statements represent, in substance, the
combined financial information for the Guarantor Subsidiaries.
F-19
<PAGE>
ST. JOHN KNITS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(INFORMATION AS OF MAY 2, 1999 AND FOR THE 26 WEEK PERIODS ENDED MAY 3, 1998
AND MAY 2, 1999 IS UNAUDITED)
14. RESULTS BY QUARTER (UNAUDITED)
The unaudited results by quarter for fiscal years 1997 and 1998 are shown
below:
<TABLE>
<CAPTION>
FIRST SECOND THIRD FOURTH
QUARTER QUARTER QUARTER QUARTER
--------- --------- --------- ---------
<S> <C> <C> <C> <C>
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
November 2, 1997
Net sales........................................................... $ 56,175 $ 59,563 $ 54,811 $ 71,552
Gross profit........................................................ 31,756 35,871 32,163 42,767
Net income.......................................................... 7,383 8,874 7,201 10,965
Net income per common share--diluted................................ 0.43 0.52 0.42 0.64
November 1, 1998
Net sales........................................................... $ 68,761 $ 69,806 $ 67,727 $ 75,667
Gross profit........................................................ 39,778 40,876 39,428 40,996
Net income.......................................................... 9,220 9,746 7,325 7,129
Net income per common share--diluted................................ 0.54 0.57 0.43 0.42
</TABLE>
F-20
<PAGE>
SCHEDULE II
ST. JOHN KNITS, INC.
VALUATION AND QUALIFYING ACCOUNT
FOR THE FISCAL YEARS ENDED NOVEMBER 3, 1996,
NOVEMBER 2, 1997 AND NOVEMBER 1, 1998
<TABLE>
<CAPTION>
BALANCE AT CHARGED TO BALANCE AT
BEGINNING OF COSTS AND END OF
FISCAL YEAR EXPENSES DEDUCTIONS FISCAL YEAR
------------ ----------- ----------- -----------
<S> <C> <C> <C> <C>
Allowance for Uncollectible Accounts:
Fiscal year ended November 3, 1996.......................... $ 750,000 $ 88,547 $ 88,547 $ 750,000
Fiscal year ended November 2, 1997.......................... $ 750,000 $ 369,987 $ 214,987 $ 905,000
Fiscal year ended November 1, 1998.......................... $ 905,000 $ 283,826 $ 238,099 $ 950,727
</TABLE>
F-21
<PAGE>
<TABLE>
<S> <C>
$100,000,000 [LOGO]
</TABLE>
ST. JOHN KNITS INTERNATIONAL, INCORPORATED
OFFER TO EXCHANGE ALL OUTSTANDING 12 1/2% SENIOR SUBORDINATED NOTES
DUE 2009
FOR 12 1/2% SENIOR SUBORDINATED
NOTES DUE 2009, WHICH HAVE BEEN REGISTERED
UNDER THE SECURITIES ACT
UNCONDITIONALLY GUARANTEED ON A SENIOR
SUBORDINATED BASIS BY ST. JOHN KNITS, INC.,
ST. JOHN ITALY, INC., ST. JOHN TRADEMARKS, INC.
AND ST. JOHN HOME, LLC
<PAGE>
PART II
INFORMATION NOT REQUIRED IN THE PROSPECTUS
ITEM 20. INDEMNIFICATION OF DIRECTORS AND OFFICERS
Section 145 of the Delaware General Corporation Law (the "DGCL") provides
that a corporation may indemnify directors and officers as well as other
employees and individuals against expenses (including attorneys' fees),
judgments, fines, and amounts paid in settlement in connection with specified
actions, suits or proceedings, whether civil, criminal, administrative, or
investigative (other than action by or in the right of the corporation a
"derivative action"), if they acted in good faith and in a manner they
reasonably believed to be in or not opposed to the best interests of the
corporation and, with respect to any criminal action or proceedings, had no
reasonable cause to believe their conduct was unlawful. A similar standard is
applicable in the case of derivative actions, except that indemnification only
extends to expenses (including attorneys' fees) incurred in connection with the
defense or settlement of derivative actions, and the statute requires court
approval before there can be any indemnification where the person seeking
indemnification has been found liable to the corporation. The statute provides
that it is not exclusive of other indemnification that may be granted by a
corporation's charter, by-laws, disinterested director vote, stockholder vote,
agreement or otherwise. The Registrant's by-laws provide that the Registrant
will indemnify any person to the fullest extent permitted by Delaware law who is
or was made, or threatened to be made, a party to any threatened, pending or
completed action, suit or proceeding, whether civil, criminal, administrative or
investigative, including, without limitation, an action by or in the right of
the Registrant to procure a judgment in its favor, by reason of the fact that
the person, or a person of whom the person is the legal representative, is or
was a director or officer of the Registrant, or is or was serving in any
capacity at the request of the Registrant for any other corporation,
partnership, joint venture, trust, employee benefit plan or other enterprise,
against judgments, fines, penalties, excise taxes, amounts paid in settlement
and costs, charges and expenses (including attorneys' fees and disbursements).
Persons who are not directors or officers of the Registrant may be similarly
indemnified in respect of service to the Registrant or to any of the above other
entities at the request of the Registrant to the extent the board of directors
at any time specifies that those persons are entitled to the benefits of the
indemnification. Pursuant to the by-laws, the Registrant also has the power to
purchase officers' and directors' liability insurance which insures against
liabilities that officers and directors of the Registrant, in those capacities,
may incur.
Section 102(b)(7) of the DGCL permits a corporation to provide in its
certificate of incorporation that a director of the corporation shall not be
personally liable to the corporation or its stockholders for monetary damages
for breach of fiduciary duties as a director, except for liability (i) for any
transaction from which the director derives an improper personal benefit, (ii)
for acts or omissions not in good faith or that involve intentional misconduct
or a knowing violation of law, (iii) for improper payment of dividends or
redemptions of shares, or (iv) for any breach of a director's duty of loyalty to
the company or its stockholders. Article Sixth of the Registrant's certificate
of incorporation includes this provision.
ITEM 21. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
The following exhibits were filed pursuant to Item 601 of Regulation S-K.
<TABLE>
<CAPTION>
EXHIBIT NO. DESCRIPTION OF EXHIBIT
- ----------- -----------------------------------------------------------------------------------------------------
<C> <S>
2.1 Agreement and Plan of Merger, dated as of February 2, 1999, among St. John Knits, Inc., SJK
Acquisition, Inc., St. John Knits International, Incorporated and Acquisition Corp. (incorporated by
reference to Exhibit 2.1 to St. John Knits International's Registration Statement on Form S-4 dated
March 1, 1999).
3.1 Restated Certificate of Incorporation of St. John Knits International, Incorporated.
</TABLE>
II-1
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT NO. DESCRIPTION OF EXHIBIT
- ----------- -----------------------------------------------------------------------------------------------------
<C> <S>
3.2 By-Laws of St. John Knits International, Incorporated (incorporated by reference to Exhibit 3.2 to
Amendment No. 2 to St. John Knits International's Registration Statement on Form S-4 dated May 17,
1999).
3.3 Amended and Restated Articles of Incorporation of St. John Knits, Inc.
3.4 By-Laws of St. John Knits, Inc. (incorporated by reference to Exhibit 2.1 to St. John Knits, Inc.'s
Registration Statement on Form S-1, as amended (file no. 33-57128))
3.5 Certificate of Determination of Preferences of Series A Junior Participating Preferred Stock of St.
John Knits, Inc. (incorporated by reference to Exhibit 3.1 to St. John Knits, Inc.'s Current Report
on Form 8-K dated November 12, 1998)
3.6 Articles of Incorporation of St. John Italy, Inc.
3.7 By-Laws of St. John Italy, Inc.
3.8 Articles of Incorporation of St. John Trademarks, Inc.
3.9 Amended and Restated By-Laws of St. John Trademarks, Inc.
3.10 Certificate of Formation of St. John Home, LLC
3.11 Amended and Restated Limited Liability Company Agreement of St. John Home, LLC
3.12 Certificate of Designations for 15 1/4% Exchangeable Preferred Stock due 2010 of St. John Knits
International (incorporated by reference to Exhibit (a)(3) to St. John Knits International's
Amendment No. 4 to Rule 13e-3 Transaction Statement on Schedule 13E-3 dated July 12, 1999).
4.1 Indenture, dated as of July 7, 1999, by and among St. John Knits International, Incorporated, the
guarantors named therein and The Bank of New York, as the Trustee (incorporated by reference to
Exhibit (a)(2) to St. John Knits International's Amendment No. 4 to Rule 13e-3 Transaction Statement
on Schedule 13E-3 dated July 12, 1999).
4.2 Form of 12 1/2% Senior Subordinated Notes due 2009 (included as part of the Indenture filed as
Exhibit 4.1 hereto)
4.3 Exchange and Registration Rights Agreement, dated as of July 7, 1999, by and among St. John Knits
International, St. John Knits, Inc., St. John Italy, Inc., St. John Trademarks, Inc., St. John Home,
LLC, Chase Securities Inc., Bear, Stearns & Co. Inc. and PaineWebber Incorporated.
4.4 Certificate of Designations for 15 1/4% Exchangeable Preferred Stock due 2010 of St. John Knits
International (incorporated by reference to Exhibit (a)(3) to St. John Knits International's
Amendment No. 4 to Rule 13e-3 Transaction Statement on Schedule 13E-3 dated July 12, 1999).
4.5 Subscription Agreement, dated as of July 7, 1999, between St. John Knits International and Vestar/SJK
Investors LLC, relating to the 15 1/4% Exchangeable Preferred Stock due 2010 of St. John Knits
International.
*5 Opinion of Simpson Thacher & Bartlett
10.1 Credit Agreement, dated July 7, 1999, by and among the Company, the Lenders from time to time party
thereto and The Chase Manhattan Bank, as administrative agent (incorporated by reference to Exhibit
(a)(1) to St. John Knits International's Amendment No. 4 to Rule 13e-3 Transaction Statement on
Schedule 13E-3 dated July 12, 1999).
</TABLE>
II-2
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT NO. DESCRIPTION OF EXHIBIT
- ----------- -----------------------------------------------------------------------------------------------------
<C> <S>
10.2 Voting agreement, dated as of February 2, 1999, among Vestar Capital Partners III, L.P., Vestar/Gray
LLC and the parties listed on Schedule A thereto (incorporated by reference to Exhibit 10.1 to St.
John Knits International's Registration Statement on Form S-4 dated March 1, 1999).
10.3 Stockholders' Agreement, dated July 7, 1999, by and among the Company, SJK, Vestar/ Gray Investors
LLC, Vestar/SJK Investors LLC and the members of Vestar/Gray Investors LLC Signatory Thereto
(incorporated by reference to Exhibit 99.3 of St. John Knits International's Form 8-K dated July 7,
1999).
10.4 Limited Liability Company Agreement (incorporated by reference to Exhibit 10.2 to Amendment No. 3 to
St. John Knits International's Registration Statement on Form S-4 dated May 26, 1999)
10.5 Management Agreement among St. John Knits, Inc., St. John Knits International and Vestar Capital
Partners (incorporated by reference to Exhibit 10.4 to Amendment No. 1 to St. John Knits
International's Registration Statement on Form S-4 dated April 28, 1999)
10.6 Letter Agreement dated April 27, 1999, between Vestar Capital Partners and Robert E. Gray, attaching
(i) a summary of terms for the Grays' stock options, (ii) a form of St. John Knits International,
Incorporated 1999 Stock Option Plan and (iii) a form of Stock option agreement (incorporated by
reference to Exhibit 10.5 to Amendment No. 1 to St. John Knits International's Registration Statement
on Form S-4 dated April 28, 1999)
10.7 Superior Court of the State of California County of Orange, Central Justice Center Minute Order,
dated April 30, 1999 (incorporated by reference to Exhibit 10.8 to Amendment No. 2 to St. John Knits
International's Registration Statement on Form S-4 dated May 17, 1999)
10.8 Lease Amendment Agreement dated April 1, 1997 between St. John Knits, Inc. and G.M. Properties
(increasing the space of the corporate headquarters, warehousing and Manufacturing facility)
(incorporated by reference to Exhibit 10.1 to St. John Knits, Inc.'s Report on Form 10-K for the
Fiscal Year ended November 2, 1997)
10.9 Agreement of Lease dated as of December 31, 1995 by and between St. John Knits, Inc. and Rolex Realty
Company, Inc. (New York Boutique) (incorporated by reference to Exhibit 10.3 to St. John Knits,
Inc.'s Report on Form 10-K for the Fiscal Year ended October 29, 1995)
10.10 Lease dated June 1, 1986 between G.M. Properties and St. John Knits, Inc. (Corporate Headquarters)
(incorporated by reference to Exhibit 10.4 to St. John Knits, Inc.'s Registration Statement on Form
S-1, as amended (file no. 33-57128))
10.11 Industrial Real Estate Lease dated November 13, 1985 between Alhambra Partners, a California Limited
Partnership, and St. John Knits, Inc., together with Amendment No. 1 to Industrial Real Estate Lease
dated November 13, 1985 and Option to Extend Term dated November 13, 1985 (Assembling, Sewing)
(incorporated by reference to Exhibit 10.5 to St. John Knits, Inc.'s Registration Statement on Form
S-1, as amended (file no. 33-57128))
10.12 Agreement of Lease dated January 11, 1991 by and between Rolex Realty Company, Inc. and St. John
Knits, Inc. together with Lease Modification Agreement dated January 11, 1991 and Second Lease
Modification Agreement dated April 12, 1991 (New York Boutique) (incorporated by reference to Exhibit
10.9 to St. John Knits, Inc.'s Registration Statement on Form S-1, as amended (file no. 33-57128))
</TABLE>
II-3
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT NO. DESCRIPTION OF EXHIBIT
- ----------- -----------------------------------------------------------------------------------------------------
<C> <S>
*10.13 Amended and Restated Agreement of Limited Partnership of SJA 1&2, Ltd. dated October 31, 1993 by and
between St. John Knits, Inc. and Ocean Air Charters, Inc.
*10.14 Amended and Restated Employment Agreement between St. John Knits, Inc. and Robert E. Gray.
10.15 Employment Agreement dated as of July 14, 1998 between St. John Knits, Inc. and Marie St. John Gray
(incorporated by reference to Exhibit 10.4 to St. John Knits, Inc.'s Quarterly Report on Form 10-Q
for the quarter ended August 2, 1998)
10.16 Employment Agreement dated as of July 14, 1998 between St. John Knits, Inc. and Kelly A. Gray
(incorporated by reference to Exhibit 10.5 to St. John Knits, Inc.'s Quarterly Report on Form 10-Q
for the quarter ended August 2, 1998)
10.17 Employment Agreement dated as of July 14, 1998 between St. John Knits, Inc. and Roger G. Ruppert
(incorporated by reference to Exhibit 10.6 to St. John Knits, Inc.'s Quarterly Report on Form 10-Q
for the quarter ended August 2, 1998)
10.18 Employment Agreement dated as of July 14, 1998 between St. John Knits, Inc. and Karla R. Guyer
(incorporated by reference to Exhibit 10.8 to St. John Knits, Inc.'s Quarterly Report on Form 10-Q
for the quarter ended August 2, 1998)
10.19 St. John Knits, Inc. Employees' Profit Sharing Plan dated as of August 21, 1995 (incorporated by
reference to Exhibit 10.18 to St. John Knits, Inc.'s Report on Form 10-K for the Fiscal Year ended
October 29, 1995)
10.20 Aircraft Lease dated April 1, 1998 by and between St. John Knits, Inc. and Ocean Air Charters, Inc.
as Trustee of the SJA 1&2, Ltd. Trust (Lease for Company airplane) (incorporated by reference to
Exhibit 10.1 to St. John Knits, Inc.'s Quarterly Report on Form 10-Q for the quarter ended May 3,
1998)
*10.21 Form of Indemnity Agreement by and between St. John Knits, Inc., St. John Knits International and
each of their directors and officers
10.22 Distribution Agreement dated June 11, 1997 by and between St. John Knits, Inc. and Gary Farn, Ltd.
(incorporated by reference to Exhibit 10.26 to St. John Knits, Inc.'s Report on Form 10-K for the
Fiscal Year ended November 2, 1997)
10.23 General Partnership Agreement of St. John-Varian Development Company dated April 3, 1995 by and
between St. John Knits, Inc. and Varian Associates, a California General Partnership (incorporated by
reference to Exhibit 10.28 to St. John Knits, Inc.'s Report on Form 10-K for the Fiscal Year ended
October 29, 1995)
10.24 Lease Agreement dated April 3, 1995 by and between St. John Knits, Inc. and St. John-Varian
Development Company (Knitting, Sewing, Finishing, Shipping, Administrative Offices) (incorporated by
reference to Exhibit 10.29 to St. John Knits, Inc.'s Report on Form 10-K for the Fiscal Year ended
October 29, 1995)
10.25 Joint Venture Agreement dated July 17, 1997 between St. John Knits, Inc. and Commercial Development
Co., Ltd. (incorporated by reference to Exhibit 10.30 to St. John Knits, Inc.'s Report on Form 10-K
for the Fiscal Year ended November 2, 1997)
10.26 Lease Extension Agreement dated February 6, 1996 between St. John Knits, Inc. and G.M. Properties
(extending the lease for St. John Knits, Inc.'s current Corporate Headquarters) (incorporated by
reference to Exhibit 10.32 to St. John Knits, Inc.'s Report on Form 10-K for the Fiscal Year ended
November 3, 1996)
</TABLE>
II-4
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT NO. DESCRIPTION OF EXHIBIT
- ----------- -----------------------------------------------------------------------------------------------------
<C> <S>
10.27 Lease Extension Agreement dated as of September 1, 1996 between St. John Knits, Inc. and Alhambra
Partners (extending the lease for one of the Company's Assembling and Sewing facilities)
(incorporated by reference to Exhibit 10.34 to St. John Knits, Inc.'s Report on Form 10-K for the
Fiscal Year ended November 3, 1996)
10.28 License and Distribution Agreement dated as of August 1, 1997 between St. John Knits, Inc. and St.
John Co., Ltd. (incorporated by reference to Exhibit 10.35 to St. John Knits, Inc.'s Report on Form
10-K for the Fiscal Year ended November 2, 1997)
10.29 Asset Purchase Agreement dated as of August 29, 1996 among St. John Knits, Inc., Jakob Schlaepfer &
Co. AG and Jakob Schlaepfer, Inc. (incorporated by reference to Exhibit 10.39 to St. John Knits,
Inc.'s Report on Form 10-K for the Fiscal Year ended November 3, 1996)
10.30 Manufacturing and Supply Agreement dated as of November 9, 1996 by and between St. John Knits, Inc.
and Calzaturificio M.A.B. S.p.A. (incorporated by reference to Exhibit 10.41 to St. John Knits,
Inc.'s Report on Form 10-K for the Fiscal Year ended November 3, 1996)
10.31 Sales Representative Agreement dated November 13, 1996 by and between St. John Knits, Inc. and Hilda
Chang (incorporated by reference to Exhibit 10.43 to St. John Knits, Inc.'s Report on Form 10-K for
the Fiscal Year ended November 3, 1996)
10.32 Unit Price Construction Agreement between St. John de Mexico, S.A. de C.V. and Administration Tijuana
Industrial, S.A. de C.V. (incorporated by reference to Exhibit 10.50 to St. John Knits, Inc.'s Report
on Form 10-K for the Fiscal Year ended November 2, 1997)
21 Subsidiaries of St. John Knits International, Incorporated.
23.1 Consent of Arthur Andersen LLP, Independent Auditors
*23.2 Consent of Simpson Thacher & Bartlett
24 Power of Attorney (included on signature pages)
25 Form T-1 Statement of Eligibility under the Trust Indenture Act of 1939 of The Bank of New York, as
trustee
*27 Financial Data Schedule for the year ended November 1, 1998
*99.1 Form of Letter of Transmittal
*99.2 Form of Notice of Guaranteed Delivery
</TABLE>
- ------------------------
* To be filed by amendment
ITEM 22. UNDERTAKINGS
(a) Insofar as indemnification for liabilities arising under 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
this indemnification is against public policy as expressed in the Act and is,
therefore, unenforceable. In the event that a claim for indemnification against
these 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 a director,
officer or controlling person in connection with the securities being
registered, the registrant will, unless
II-5
<PAGE>
in the opinion of its counsel the matter has been settled by controlling
precedent, submit to a court of appropriate jurisdiction the question whether
the indemnification by it is against public policy as expressed in the Act and
will be governed by the final adjudication of the issue.
(b) The undersigned registrant hereby undertakes:
(1) To file, during any period in which offers or sales are being made,
a post-effective amendment to this registration statement:
(i) to include any prospectus required by Section 10(a)(3) of the
Securities Act of 1933;
(ii) to reflect in the prospectus any facts or events arising after
the effective date of the registration statement (or the most
recent post-effective amendment thereof) which, individually or
in the aggregate, represent a fundamental change in the
information set forth in the registration statement.
Notwithstanding the foregoing, any increase or decrease in volume
of securities offered (if the total dollar value of securities
offered would not exceed that which was registered) and any
deviation from the low or high end of the estimated maximum
offering range may be reflected in the form of prospectus filed
with the Commission pursuant to Rule 424(b) if, in the aggregate,
the changes in volume and price represent no more that a 20
percent change in the maximum aggregate offering price set forth
in the "Calculation of Registration Fee" table in the effective
registration statement; and
(iii) to include any material information with respect to the plan of
distribution not previously disclosed in the registration
statement or any material change to this information in the
registration statement;
(2) That, for the purpose of determining any liability under the
Securities Act of 1933, each such post-effective amendment 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; and
(3) To remove from registration by means of a post-effective amendment
any of the securities being registered which remain unsold at the
termination of the offering.
II-6
<PAGE>
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 Irvine, in the State of
California, on September 3, 1999.
<TABLE>
<S> <C> <C>
ST. JOHN KNITS INTERNATIONAL,
INCORPORATED
By: /s/ BOB GRAY
-----------------------------------------
Bob Gray
CHAIRMAN AND CHIEF EXECUTIVE OFFICER
</TABLE>
POWER OF ATTORNEY
Each person whose individual signature appears below hereby authorizes and
appoints Robert E. Gray and Roger G. Ruppert, and each of them, with full power
of substitution and resubstitution and full power to act without the other, as
his true and lawful attorney-in-fact and agent to act in his name, place and
stead and to execute in the name and on behalf of each person, individually and
in each capacity stated below, and to file, any and all amendments to this
Registration Statement, including any and all post-effective amendments and
amendments thereto and any registration statement relating to the same offering
as this Registration Statement that is to be effective upon filing pursuant to
Rule 462(b) under the Securities Act of 1933, as amended, and to file the same,
with all exhibits thereto, and other documents in connection therewith, with the
Securities and Exchange Commission, granting unto said attorneys-in-fact and
agents, and each of them, full power and authority to do and perform each and
every act and thing, ratifying and confirming all that said attorneys-in-fact
and agents or any of them or their and his substitute or substitutes, may
lawfully do or cause to be done by virtue thereof.
Pursuant to the requirements of the Securities Act of 1933, as amended, this
Registration Statement has been signed by the following persons in the
capacities indicated below on the 3rd day of September, 1999.
<TABLE>
<CAPTION>
SIGNATURE TITLE
- ------------------------------ --------------------------
<C> <S>
Chairman of the Board and
/s/ BOB GRAY Chief Executive Officer
- ------------------------------ (Principal Executive
Bob Gray Officer)
/s/ KELLY A. GRAY
- ------------------------------ Director and President
Kelly A. Gray
Chief Financial Officer
and Senior Vice
/s/ ROGER RUPPERT President, Finance
- ------------------------------ (Principal Financial
Roger G. Ruppert Officer and Principal
Accounting Officer)
/s/ DANIEL O'CONNELL
- ------------------------------ Director
Daniel O'Connell
/s/ JAMES KELLEY
- ------------------------------ Director
James Kelley
/s/ SANDER LEVY
- ------------------------------ Director
Sander Levy
</TABLE>
II-7
<PAGE>
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 Irvine, in the State of
California, on September 3, 1999.
ST. JOHN KNITS, INC.
By: /s/ BOB GRAY
-----------------------------------------
Bob Gray
CHAIRMAN AND CHIEF EXECUTIVE OFFICER
POWER OF ATTORNEY
Each person whose individual signature appears below hereby authorizes and
appoints Robert E. Gray and Roger G. Ruppert, and each of them, with full power
of substitution and resubstitution and full power to act without the other, as
his true and lawful attorney-in-fact and agent to act in his name, place and
stead and to execute in the name and on behalf of each person, individually and
in each capacity stated below, and to file, any and all amendments to this
Registration Statement, including any and all post-effective amendments and
amendments thereto and any registration statement relating to the same offering
as this Registration Statement that is to be effective upon filing pursuant to
Rule 462(b) under the Securities Act of 1933, as amended, and to file the same,
with all exhibits thereto, and other documents in connection therewith, with the
Securities and Exchange Commission, granting unto said attorneys-in-fact and
agents, and each of them, full power and authority to do and perform each and
every act and thing, ratifying and confirming all that said attorneys-in-fact
and agents or any of them or their and his substitute or substitutes, may
lawfully do or cause to be done by virtue thereof.
Pursuant to the requirements of the Securities Act of 1933, as amended, this
Registration Statement has been signed by the following persons in the
capacities indicated below on the 3rd day of September, 1999.
<TABLE>
<CAPTION>
SIGNATURE TITLE
- ------------------------------ --------------------------
<C> <S>
Chairman of the Board and
/s/ BOB GRAY Chief Executive Officer
- ------------------------------ (Principal Executive
Bob Gray Officer)
/s/ KELLY A. GRAY
- ------------------------------ Director and President
Kelly A. Gray
Chief Financial Officer
and Senior Vice
/s/ ROGER G. RUPPERT President, Finance
- ------------------------------ (Principal Financial
Roger G. Ruppert Officer and Principal
Accounting Officer)
/s/ DANIEL O'CONNELL
- ------------------------------ Director
Daniel O'Connell
/s/ JAMES KELLEY
- ------------------------------ Director
James Kelley
/s/ SANDER LEVY
- ------------------------------ Director
Sander Levy
</TABLE>
II-8
<PAGE>
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 Irvine, in the State of
California, on September 3, 1999.
ST. JOHN ITALY, INC.
By: /s/ ROGER G. RUPPERT
-----------------------------------------
Roger G. Ruppert
VICE PRESIDENT, CHIEF FINANCIAL OFFICER
AND SECRETARY
POWER OF ATTORNEY
Each person whose individual signature appears below hereby authorizes and
appoints Robert E. Gray and Roger G. Ruppert, and each of them, with full power
of substitution and resubstitution and full power to act without the other, as
his true and lawful attorney-in-fact and agent to act in his name, place and
stead and to execute in the name and on behalf of each person, individually and
in each capacity stated below, and to file, any and all amendments to this
Registration Statement, including any and all post-effective amendments and
amendments thereto and any registration statement relating to the same offering
as this Registration Statement that is to be effective upon filing pursuant to
Rule 462(b) under the Securities Act of 1933, as amended, and to file the same,
with all exhibits thereto, and other documents in connection therewith, with the
Securities and Exchange Commission, granting unto said attorneys-in-fact and
agents, and each of them, full power and authority to do and perform each and
every act and thing, ratifying and confirming all that said attorneys-in-fact
and agents or any of them or their and his substitute or substitutes, may
lawfully do or cause to be done by virtue thereof.
Pursuant to the requirements of the Securities Act of 1933, as amended, this
Registration Statement has been signed by the following persons in the
capacities indicated below on the 3rd day of September, 1999.
<TABLE>
<CAPTION>
SIGNATURE TITLE
- -------------------------------------------------------- --------------------------------------------------------
<C> <S>
/s/ KELLY A. GRAY President, Chief Executive Officer and Director
-------------------------------------------- (Principal Executive Officer)
Kelly A. Gray
/s/ ROGER G. RUPPERT Vice President, Chief Financial Officer, Secretary and
-------------------------------------------- Director (Principal Financial Officer and Principal
Roger G. Ruppert Accounting Officer)
/s/ BOB GRAY Director
--------------------------------------------
Bob Gray
</TABLE>
II-9
<PAGE>
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 Irvine, in the State of
California, on September 3, 1999.
ST. JOHN TRADEMARKS, INC.
By: /s/ BOB GRAY
-----------------------------------------
Bob Gray
PRESIDENT AND CHIEF EXECUTIVE OFFICER
POWER OF ATTORNEY
Each person whose individual signature appears below hereby authorizes and
appoints Robert E. Gray and Roger G. Ruppert, and each of them, with full power
of substitution and resubstitution and full power to act without the other, as
his true and lawful attorney-in-fact and agent to act in his name, place and
stead and to execute in the name and on behalf of each person, individually and
in each capacity stated below, and to file, any and all amendments to this
Registration Statement, including any and all post-effective amendments and
amendments thereto and any registration statement relating to the same offering
as this Registration Statement that is to be effective upon filing pursuant to
Rule 462(b) under the Securities Act of 1933, as amended, and to file the same,
with all exhibits thereto, and other documents in connection therewith, with the
Securities and Exchange Commission, granting unto said attorneys-in-fact and
agents, and each of them, full power and authority to do and perform each and
every act and thing, ratifying and confirming all that said attorneys-in-fact
and agents or any of them or their and his substitute or substitutes, may
lawfully do or cause to be done by virtue thereof.
Pursuant to the requirements of the Securities Act of 1933, as amended, this
Registration Statement has been signed by the following persons in the
capacities indicated below on the 3rd day of September, 1999.
<TABLE>
<CAPTION>
SIGNATURE TITLE
- ------------------------------ --------------------------
<C> <S>
President, Chief Executive
/s/ BOB GRAY Officer and Director
- ------------------------------ (Principal Executive
Bob Gray Officer)
Chief Financial Officer,
Vice President and
/s/ ROGER G. RUPPERT Secretary (Principal
- ------------------------------ Financial Officer and
Roger G. Ruppert Principal Accounting
Officer)
/s/ MARIE GRAY
- ------------------------------ Director
Marie Gray
</TABLE>
II-10
<PAGE>
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 Irvine, in the State of
California, on September 3, 1999.
<TABLE>
<S> <C> <C>
ST. JOHN HOME, LLC
By: ST JOHN KNITS, INC.
ITS SOLE MEMBER
By: /s/ BOB GRAY
-----------------------------------------
Bob Gray
CHAIRMAN AND CHIEF EXECUTIVE OFFICER
</TABLE>
POWER OF ATTORNEY
Each person whose individual signature appears below hereby authorizes and
appoints Robert E. Gray and Roger G. Ruppert, and each of them, with full power
of substitution and resubstitution and full power to act without the other, as
his true and lawful attorney-in-fact and agent to act in his name, place and
stead and to execute in the name and on behalf of each person, individually and
in each capacity stated below, and to file, any and all amendments to this
Registration Statement, including any and all post-effective amendments and
amendments thereto and any registration statement relating to the same offering
as this Registration Statement that is to be effective upon filing pursuant to
Rule 462(b) under the Securities Act of 1933, as amended, and to file the same,
with all exhibits thereto, and other documents in connection therewith, with the
Securities and Exchange Commission, granting unto said attorneys-in-fact and
agents, and each of them, full power and authority to do and perform each and
every act and thing, ratifying and confirming all that said attorneys-in-fact
and agents or any of them or their and his substitute or substitutes, may
lawfully do or cause to be done by virtue thereof.
Pursuant to the requirements of the Securities Act of 1933, as amended, this
Registration Statement has been signed by the following persons in the
capacities indicated below on the 3rd day of September, 1999.
<TABLE>
<CAPTION>
SIGNATURE TITLE
- ------------------------------ --------------------------
<C> <S>
Chairman of the Board and
/s/ BOB GRAY Chief Executive Officer
- ------------------------------ (Principal Executive
Bob Gray Officer)
/s/ KELLY A. GRAY
- ------------------------------ Director and President
Kelly A. Gray
Chief Financial Officer
and Senior Vice
/s/ ROGER G. RUPPERT President, Finance
- ------------------------------ (Principal Financial
Roger G. Ruppert Officer and Principal
Accounting Officer)
/s/ DANIEL O'CONNELL
- ------------------------------ Director
Daniel O'Connell
/s/ JAMES KELLEY
- ------------------------------ Director
James Kelley
/s/ SANDER LEVY
- ------------------------------ Director
Sander Levy
</TABLE>
II-11
<PAGE>
EXHIBIT 3.1
RESTATED CERTIFICATE OF INCORPORATION
of
ST. JOHN KNITS INTERNATIONAL, INCORPORATED
ST. JOHN KNITS INTERNATIONAL, INCORPORATED, a Delaware corporation
formed on February 1, 1999 (the "Corporation"), does hereby certify that,
pursuant to Sections 242 and 245 of the Delaware General Corporation Law, and
having been duly adopted in accordance therewith the Corporation's
Certificate of Incorporation is hereby restated to read in its entirety as
follows:
1. The name of the Corporation is St. John Knits International,
Incorporated.
2. The registered office and registered agent of the Corporation in
the State of Delaware is RL&F Service Corp., One Rodney Square, Tenth Floor,
Tenth and King Streets, Wilmington, New Castle County, Delaware 19801.
3. The purpose of the Corporation is to engage in any lawful act or
activity for which corporations may be organized under the Delaware General
Corporation Law.
4. The Corporation is authorized to issue two classes of stock to be
designated, respectively, "Common Stock" and "Preferred Stock." The total number
of shares which the Corporation is authorized to issue is 33,000,000 shares, par
value $.01 each, of which 30,000,000 shall be Common Stock and 3,000,000 shall
be Preferred Stock. The Board of Directors of the Corporation is authorized (i)
to fix the number of shares of any series of Preferred Stock; (ii) to determine
the designation of any series of Preferred Stock; (iii) to determine or alter
the rights, preferences, privileges and restrictions granted to or imposed upon
any wholly unissued class of shares or any wholly unissued series of any class
of shares; and (iv) as to any series, to increase or decrease (but not below the
number of shares of such series then outstanding) the number of shares of each
such series subsequent to the issue of shares of that series.
5. The Board of Directors of the Corporation, acting by majority vote,
may alter, amend or repeal the By-Laws of the Corporation.
6. Except to the extent prohibited under the Delaware General
Corporation Law as the same exists or may hereafter be amended, no director
of the Corporation shall be personally liable to the Corporation or its
stockholders for money damages for breach of fiduciary duty as a director.
Any amendment, repeal or modification of this Article SIXTH by the
stockholders of the Corporation shall not adversely affect any right or
protection of a director of the Corporation existing at the time of such
repeal or modification.
7. Unless and except to the extent that the By-Laws of the Corporation
shall so require, the election of the Directors of the Corporation need not be
by written ballot.
<PAGE>
IN WITNESS WHEREOF, this Corporation has caused this Restated
Certificate of Incorporation to be duly executed in its corporate name by Bob
Gray, its Chairman and Chief Executive Officer, and attested by Marie Gray,
its Secretary, this 6th day of July, 1999.
ST. JOHN KNITS INTERNATIONAL, INCORPORATED
/s/ Bob Gray
------------------------------------------
Name: Bob Gray
Title: Chairman and Chief Executive Officer
ATTEST:
/s/ Marie Gray
- -----------------------------------
Name: Marie Gray
Title: Secretary
<PAGE>
EXHIBIT 3.3
RESTATED ARTICLES OF INCORPORATION
OF
ST. JOHN KNITS, INC.
Robert E. Gray and Robert C. Davis certify that:
1. They are the Chairman of the Board and Secretary, respectively, of
St. John Knits, Inc., a California corporation.
2. The Articles of Incorporation of this Corporation are amended and
restated to read as follows:
ARTICLE I: NAME
The name of this Corporation is St. John Knits, Inc.
ARTICLE II: PURPOSE
The purpose of this Corporation is to engage in any lawful act or
activity for which a corporation may be organized under the General Corporation
Law of California other than the banking business, the trust company business or
the practice of a profession permitted to be incorporated by the California
Corporations Code.
ARTICLE III: AUTHORIZED CAPITAL STOCK
This Corporation is authorized to issue two classes of stock to be
designated, respectively, "Common Stock" and "Preferred Stock." The total number
of shares which the Corporation is authorized to issue is Twenty-Two Million
(22,000,000) shares, without par value. The number of shares of Common Stock
authorized to be issued is Twenty Million (20,000,000), and the number of shares
of Preferred Stock authorized to be issued is Two Million (2,000,000). The
Preferred Stock may be divided into such number of series as the Board of
Directors of this Corporation may determine. The Board of Directors of this
Corporation is authorized (i) to fix the number of shares of any series of
shares of Preferred Stock; (ii) to determine the designation of any series of
Preferred Stock; (iii) to determine or alter the rights, preferences,
privileges, and restrictions granted to or imposed upon any wholly unissued
class of shares or any wholly unissued series of any class of shares; and (iv)
as to any series, to increase or decrease (but not below the number of shares of
such series then outstanding) the number of shares of each such series
subsequent to the issue of shares of that series.
<PAGE>
Upon amendment of this Article III to read as herein set forth, each
outstanding common share is converted into or reconstituted as three shares of
Common Stock.
ARTICLE IV: BYLAWS AND VOTING
(a) AMENDMENT OF BYLAWS. The Board of Directors shall have the power to
adopt, amend or repeal the Bylaws of the Corporation, except the provisions
thereof which set forth the range of the authorized number of directors of the
Corporation. The shareholders may adopt, amend or repeal the Bylaws only with
the affirmative vote of the holders of not less than 66-2/3% of the outstanding
shares entitled to vote on the matter.
(b) NO CUMULATIVE VOTING. There shall be no cumulative voting in the
election of directors. This provision shall be effective only while the
Corporation is a listed corporation within the meaning of Section 301.5 of the
California Corporations Code.
(c) SHAREHOLDER MEETING REQUIREMENT. Whenever, and so long as, the
Corporation is a listed corporation within the meaning of Section 301.5 of the
California Corporations Code, any action required or permitted to be taken at
any annual or special meeting of shareholders may be taken only upon the vote of
shareholders at an annual or special meeting duly noticed and called in
accordance with the California General Corporation Law, and may not be taken by
written consent of shareholders without a meeting.
ARTICLE V: LIMITATION OF DIRECTOR LIABILITY AND INDEMNIFICATION
(a) LIMITATION OF DIRECTOR LIABILITY. The liability of the directors of
the Corporation for monetary damages shall be eliminated to the fullest extent
permissible under California law.
(b) INDEMNIFICATION.
(i) OFFICERS AND DIRECTORS. The Corporation shall indemnify,
in the manner and to the fullest extent permitted by law, any person (or the
estate, heirs, executors, or administrators of any person) who was or is a party
to, or is threatened to be made a party to any threatened, pending or completed
action, suit or proceeding, whether or not by or in the right of the
Corporation, and whether civil, criminal, administrative, investigative or
otherwise, by reason of the fact that such person is or was a director or
officer of the Corporation or by reason of the fact that any officer or director
of the Corporation is or was serving at the request of the Corporation as a
director, officer, employee, or other agent of
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another corporation, partnership, joint venture, trust, or other enterprise. To
the fullest extent permitted by law, the indemnification provided herein shall
include expenses (including attorneys' fees), judgments, fines and amounts paid
in settlement, and, in the manner provided by law, any such expenses shall be
paid by the Corporation in advance of the final disposition of such action, suit
or proceeding. The right to indemnification conferred in this Article V shall be
deemed a contract right.
(ii) Other Agents. The Corporation may indemnify and advance
expenses to other employees and agents of the Corporation and other persons who
were or are serving at the request of the Corporation as a director, officer,
employee, or other agent of another corporation, partnership, joint venture,
trust, or other enterprise in the manner and to the extent provided for in
subparagraph (i) of this paragraph (b) as in the case of officers and directors
of the Corporation. The Board of Directors may in its discretion refuse to
provide for such indemnification or advancement of expenses except to the extent
indemnification is mandated under applicable law.
(c) Insurance. The Corporation may purchase and maintain insurance
on behalf of any person who 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 against any liability asserted against such
person and incurred by such person in any such capacity, or arising out of such
person's status as such, whether or not the Corporation would have the power to
indemnify such person against such liability.
(d) Nonexclusivity. The indemnification and advancement of expenses
provided herein shall not be deemed exclusive of any other rights to which any
person seeking indemnification or advancement of expenses from the Corporation
may be entitled under any agreement, vote of shareholders or disinterested
directors, applicable law, or otherwise, both as to action in such person's
official capacity and as to action in another capacity while holding such
office.
(e) Additional Indemnification. The Corporation may by bylaw,
agreement or otherwise indemnify directors, officers and other agents of the
Corporation in excess of that expressly permitted by Section 317 of the
California Corporations Code for breach of duty to the Corporation and its
shareholders; provided, no director, officer or other agent may be indemnified
for any acts or omissions or transactions from which a director of the
Corporation may not be relieved of liability as set forth in Section 204(a) (10)
of the California Corporations Code or as
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<PAGE>
to circumstances in which indemnity is expressly prohibited by Section 317 of
the California Corporations Code.
(f) No Amendment. No amendment, modification or repeal of this
Article V, nor the adoption of any provision of these Restated Articles of
Incorporation or the Bylaws of the Corporation, nor, to the fullest extent
permitted by the California General Corporation Law, any amendment,
modification, or repeal of law shall eliminate or reduce the effect of this
Article V or adversely affect any right or protection then existing hereunder in
respect of any acts or omissions occurring prior to such amendment,
modification, repeal or adoption.
ARTICLE VI: Prohibition of Certain Stock Repurchases
(a) Stock Repurchase at Price in Excess of Fair Market Value. Any
direct or indirect purchase by the Corporation, or any subsidiary of the
Corporation, of any Voting Stock from an Interested Shareholder who has owned
such Voting Stock for less than two years prior to the date of such purchase or
any agreement in respect thereof, at a price in excess of the Fair Market Value,
shall require the affirmative vote of holders of no less than a majority of all
then outstanding shares of stock of the Corporation entitled to vote generally
on matters relating to the Corporation voting together as a single class,
excluding for this purpose the shares owned by the Interested Shareholder,
unless a greater vote shall be required by law.
(b) Other Stock Repurchases. Such affirmative vote shall not be
required for a purchase or other acquisition of securities of the same class
made on substantially the same terms to all holders of such securities and
complying with the applicable requirements of the Securities Exchange Act of
1924, and the rules and regulations thereunder (or any subsequent provisions
replacing such Act, rules or regulations). Furthermore, such affirmative vote
shall not be required for any purchase effected on the open market and not the
result of a privately-negotiated transaction.
(c) Definitions. For the purposes of this Article VI:
(i) A "person" shall mean any individual, firm, partnership,
corporation, unincorporated association or other entity.
(ii) "Voting Stock" shall mean any class or series of the
stock of the Corporation having the right to vote generally on matters relating
to the Corporation and any security which is convertible into such stock.
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<PAGE>
(iii) "Interested Shareholder" shall mean any person (other
than the Corporation or any corporation of which a majority of any class of
equity security is owned, directly or indirectly, by the Corporation or any
profit sharing, employee stock ownership or other employee benefit plan of the
Corporation or any subsidiary thereof, or any trustee or other fiduciary with
respect to any such plan when acting in such capacity) who or which:
(1) is the owner, directly or indirectly, of 5% or more
of the outstanding Voting Stock; or
(2) is an Affiliate or Associate of the Corporation and
at any time within the two-year period immediately prior to the date in
question was the owner, directly or indirectly, of 5% or more of the
outstanding Voting Stock; or
(3) is an assignee or has otherwise succeeded to any
shares of Voting Stock which were at any time within the two-year period
immediately prior to the date in question owned by an Interested
Shareholder, if such assignment or succession shall have occurred in the
course of a transaction or transactions not involving a public offering
within the meaning of the Securities Act of 1933.
(iv) "Owner," including the terms "own" and "owned," when used
with respect to any Voting Stock, means a person that individually or with or
through any of its Affiliates or Associates:
(1) beneficially owns such stock, directly or
indirectly; or
(2) has (A) the right to acquire such stock (whether
such right is exercisable immediately or only after the passage of time)
pursuant to any agreement, arrangement or understanding or upon the
exercise of conversion rights, exchange rights, warrants or options, or
otherwise, or (B) any right to vote pursuant to any agreement, arrangement
or understanding; or
(3) has any agreement, arrangement or understanding for
the purpose of acquiring, holding, voting or disposing of any such stock
of the Corporation with any other person that beneficially owns, or whose
Affiliates or Associates beneficially own, directly or indirectly, such
stock.
(v) For the purposes of determining whether a person is an
Interested Shareholder pursuant to paragraph (iii), Voting Stock outstanding
shall be deemed to comprise all Voting
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<PAGE>
stock deemed owned through application of paragraph (iv), but shall not include
other Voting Stock which may be issuable pursuant to any agreement, arrangement
or understanding, or upon exercise of conversion rights, warrants or options, or
otherwise.
(vi) "Affiliate" or "Associate" shall have the meaning
ascribed to such terms in Rule 12b-2 of the General Rules and Regulations under
the Securities Exchange Act of l934.
(vii) "Fair Market Value" shall mean as to each class of stock
or other security which constitutes Voting Stock: (A) if such stock is
exchange-traded or traded on the NASDAQ national market system ("NMS") the
highest closing sale price during the thirty-day period immediately preceding
the date in question of a share of such stock; (B) if such stock is regularly
traded in any over-the-counter market other than NMS, the highest closing bid
quotation during the thirty-day period immediately preceding the date in
question of a share of such stock; and (C) if such stock is not traded as
described in items (A) and (B) of this subparagraph (vii), the fair market value
on the date in question of a share of such stock as determined in good faith by
the Board of Directors.
(viii) The Board of Directors shall have the power and duty to
determine, for purposes of this Article VI, on the basis of information known to
the Board of Directors:
(1) the amount of Voting Stock owned by any person;
(2) when such person acquired a beneficial interest in
such Voting Stock;
(3) whether such person owns 5% or more of the Voting
Stock;
(4) the aggregate number of shares of stock and the
aggregate amount of any other security outstanding at any time;
(5) whether a person is an Affiliate or Associate of
another; and
(6) whether paragraphs (a) or (b) are or have become
applicable in respect of a proposed purchase of Voting Stock by the
Corporation;
and any such determination made in good faith shall be conclusive and binding
for all purposes of this Article VI.
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<PAGE>
ARTICLE VII: Amendments
The Corporation reserves the right to amend these Articles of
Incorporation in any manner permitted by the California General Corporation Law
and all rights and powers conferred upon shareholders, directors and officers
herein are granted subject to this reservation. Notwithstanding the foregoing,
the provisions set forth in Articles IV, V, VI and this Article VII may not be
repealed or amended in any respect, and no other provision may be adopted,
amended or repealed which would have the effect of modifying or permitting the
circumvention of the provisions set forth in Articles IV, V, VI and this Article
VII, unless such action is approved by the affirmative vote of the holders of
not less than 66-2/3% of the outstanding shares of the Corporation entitled to
vote on the matter.
3. The foregoing amendment and restatement of the Articles of
Incorporation has been duly approved by the Board of Directors of this
Corporation.
4. The foregoing amendment and restatement of the Articles of
Incorporation has been duly approved by the required vote of the shareholders of
this Corporation in accordance with Section 902 of the California Corporations
Code. The Corporation has one class of stock outstanding which is entitled to
vote with respect to the amendment. The total number of outstanding shares of
Common Stock of the Corporation entitled to vote with respect to the amendment
is 2,732,034. The number of shares voting in favor of the amendment equaled or
exceeded the vote required. The percentage vote required was more than 50% of
the outstanding shares of Common Stock.
We further declare under penalty of perjury under the laws of the
State of California that the matters set forth in this certificate are true and
correct of our own knowledge.
Executed on February 2, 1993 at Irvine, California.
/s/ Robert E. Gray
------------------------------------
Robert E. Gray, Chairman of the
Board
/s/ Robert C. Davis
------------------------------------
Robert C. Davis, Secretary
<PAGE>
FILED
in the office of the Secretary of State
of the State of California
APR 8 1996
/s/ Bill Jones
BILL JONES, Secretary of State
CERTIFICATE OF AMENDMENT
OF
RESTATED ARTICLES OF INCORPORATION
OF
ST. JOHN KNITS, INC.
Robert E. Gray and Robert C. Davis certify that:
1. They are the Chairman of the Board and the Assistant Secretary,
respectively, of St. John Knits, Inc., a California corporation (the
"Corporation").
2. Article III of the Restated Articles of Incorporation of the
Corporation is amended to read in its entirety as follows:
ARTICLE III: Authorized Capital Stock
The Corporation is authorized to issue two classes of stock to be
designated, respectively, "Common Stock" and "Preferred Stock." The total
number of shares which the Corporation is authorized to issue is forty-two
million (42,000,000) shares, without par value. The number of shares of
Common Stock authorized to be issued is forty million (40,000,000), and
the number of shares of Preferred Stock authorized to be issued is two
million (2,000,000). The Preferred Stock may be divided into such number
of series as the Board of Directors of the Corporation may determine. The
Board of Directors of the Corporation is authorized (i) to fix the number
of shares of any series of shares of Preferred Stock; (ii) to determine
the designation of any series of Preferred Stock; (iii) to determine or
alter the rights, preferences, privileges, and restrictions granted to or
imposed upon any wholly unissued class of shares or any wholly unissued
series of any class of shares; and (iv) as to any series, to increase or
decrease (but not below the number of shares of such series then
outstanding) the number of shares of each such series subsequent to the
issue of shares of that series.
Upon amendment of this Article III to read as herein set forth, each
outstanding share of Common Stock is split and changed into two shares of
Common Stock.
<PAGE>
3. The foregoing amendment of the Articles of Incorporation has been
duly approved by the Board of Directors of the Corporation.
4. The Corporation has only Common Stock outstanding. Pursuant to
section 902(c) of the California General Corporation Law, the foregoing
amendment effecting a stock split (including an increase in the authorized
number of shares in proportion thereto) may be adopted with approval by the
Board of Directors alone.
We further declare under penalty of perjury under the laws of the
State of California that the matters set forth in this certificate are true and
correct of our own knowledge.
IN WITNESS WHEREOF, the undersigned have executed this Certificate
of Amendment on March 29th, 1996.
By: /s/ Robert E. Gray
------------------------------
Robert E. Gray
Chairman of the Board
By: /s/ Robert C. Davis
------------------------------
Robert C. Davis
Assistant Secretary
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<PAGE>
EXHIBIT 3.6
FILED
in the office of the Secretary of State
of the State of California
JAN 12 1996
/s/ Bill Jones
BILL JONES, Secretary of State
ARTICLES OF INCORPORATION
OF
ST. JOHN-ITALY, INC.
The undersigned Incorporator hereby executes and acknowledges the
following ARTICLES OF INCORPORATION for the purpose of forming a corporation
under the General Corporation Law of the State of California.
One: The name of the corporation shall be:
ST. JOHN-ITALY, INC.
Two: The purpose of the Corporation is to engage in any lawful act or
activity for which a corporation may be organized under the General Corporation
Law of California other than the banking business, the trust company business or
the practice of a profession permitted to be incorporated by the California
Corporations Code.
Three: The liability of the directors of the corporation for monetary
damages shall be eliminated to the fullest extent permissible under California
law.
Four: The corporation is authorized to provide indemnification of agents
(as determined in Section 317 of the Corporations Code) for breach of duty to
the corporation and its shareholders through bylaw provisions or through
amendments with the agents, or both, in excess of the indemnification otherwise
permitted by Section 317 of the Corporations Code, subject to the limits on such
excess indemnification set forth in Section 204 of the Corporations Code.
Five: The name and address in this State of the Corporation's initial
agent for service of process in accordance with subdivision (b) of Section 1502
of the General Corporation Law is:
Robert C. Davis
17422 Derian Avenue
Irvine, CA 92714
<PAGE>
Six: The corporation is authorized to issue only one class of shares, and
the total number of shares which the corporation is authorized to issue is
10,000.
Seven: The holders of the outstanding common stock of this corporation
shall have full preemptive rights, as defined by law, to subscribe for or
purchase that holder's proportional part of any further or additional shares of
common stock issued at any time by this corporation.
IN WITNESS WHEREOF, the undersigned Incorporator has executed the
foregoing Articles of Incorporation on January 10, 1996.
/s/ Burleigh Brewer
----------------------
BURLEIGH BREWER
The undersigned declares that he is the person who executed the foregoing
Articles of Incorporation and that such instrument is the act and deed of the
undersigned.
/s/ Burleigh Brewer
----------------------
BURLEIGH BREWER
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<PAGE>
EXHIBIT 3.7
BYLAWS
OF
ST. JOHN-ITALY, INC.
ARTICLE 1: OFFICES
1. PRINCIPAL OFFICE. The location of the corporation's principal executive
office shall be as designated at the end of this paragraph. The board of
directors may change the location of the principal executive office to any place
within or outside of California. If the principal executive office is located
outside of California and the corporation has one or more business offices in
California, the board of directors shall fix and designate a principal business
office in California.
The principal executive office is located at:
17422 Derian Avenue, Irvine, CA 92714
2. OTHER OFFICES. Branch or subordinate offices may be established at any
time and at any place by the board of directors.
ARTICLE 2: SHAREHOLDERS
1. PLACE OF MEETINGS. Meetings of shareholders shall be held at any place
within or outside of California designated by the board of directors and stated
in the notice of the meeting. If no place is so specified, shareholders'
meetings shall be held at the corporation's principal executive office.
2. ANNUAL MEETING. Annual meetings of the shareholders shall be held on
the date and time specified below. However, if this date falls on a legal
holiday, then the meeting shall be held at the same time and place on the next
succeeding full business day. At this meeting, directors shall be elected and
any other proper business within the power of the shareholders may be
transacted.
Date: Second Tuesday in April
Time: 2:00 p.m.
3. SPECIAL MEETINGS; HOW CALLED. A special meeting of the shareholders may
be called at any time by any of the following: The board of directors, the
chairman of the board, the president, any vice president, or one or more
shareholders holding shares that in the aggregate are entitled to cast no less
than 10 percent of
<PAGE>
the votes at that meeting. For special meetings called by anyone other than the
board of directors, the person or persons calling the meeting shall make a
request in writing to the chairman of the board, the president, vice president,
or secretary, specifying a time and date for the proposed meeting (which is not
less than 35 nor more than 60 days after receipt of the request) and the general
nature of the business to be transacted. Within 20 days after receipt, the
officer receiving the request shall cause notice to be given to the shareholders
entitled to vote at the meeting. The notice shall state that a meeting will be
held at the time requested by the person(s) calling the meeting, and shall state
the general nature of the business proposed to be transacted. If notice is not
given within 20 days after receipt of the request, the person or persons
requesting the meeting may give the notice. Nothing in this paragraph shall
limit, fix, or affect the time or notice requirements for shareholder meetings
called by the board of directors.
4. NOTICE OF MEETINGS; TIME AND CONTENTS. Notice of meetings of
shareholders shall be sent or otherwise given not less than 10 nor more than 60
days before the meeting date. The notice shall specify the place, date, and hour
of the meeting. It shall also state (a) for special meetings, the general nature
of the proposed business, or (b) for annual meetings, those matters which the
board of directors at the time of giving the notice intends to present for
action by the shareholders. If directors are to be elected, the notice shall
include the names of all nominees and persons whom the board intends to present
for election, as of the date of the notice. The notice shall also state the
general nature of any proposed action at the meeting to approve:
(a) A transaction in which a director has a financial interest, within the
meaning of Section 310 of the California Corporations Code;
(b) An amendment of the Articles of Incorporation under Section 902 of
that Code;
(c) A reorganization under Section 1201 of that Code;
(d) A voluntary dissolution of the corporation under Section 1900 of that
Code; or
(e) A distribution in dissolution that requires approval of the
outstanding shares under Section 2007 of that Code.
The manner of giving notice and the determination of shareholders entitled
to receive notice shall be in accordance with these bylaws.
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<PAGE>
5. MANNER OF GIVING NOTICE; AFFIDAVIT OF NOTICE. Notice of any
shareholders' meeting shall be given either (a) personally, or (b) by
first-class mail or by telegraphic or other written communication, charges
prepaid, addressed to the shareholder at the address appearing on the
corporation's books or supplied by the shareholder for purposes or notice. If
the corporation has no such address for a shareholder, notice shall be either
(a) sent by first-class mail addressed to the shareholder at the corporation's
principal executive office, or (b) published at least once in a newspaper of
general circulation in the county where the corporation's principal executive
office is located. Notice is deemed to have been given at the time it was
delivered personally, deposited in the mails or sent by other means of written
communication.
If any notice or report mailed to a shareholder at the shareholder's
address (as specified in the preceding paragraph) is returned marked "unable to
deliver" at that address, subsequent notices or reports shall be deemed to have
been duly given without further mailing if the corporation holds the document
available for the shareholder on written demand at its principal executive
office for one year from the data on which the notice or report was sent to the
other shareholders.
An affidavit, certificate, or declaration of mailing (or other authorized
means of delivery) of any notice of shareholders' meeting, report, or other
document sent to shareholders shall be executed by the corporate secretary,
assistant secretary, or transfer agent, and filed in the corporation's minute
book.
6. ADJOURNED MEETINGS; NOTICE. Shareholders' meetings (either annual or
special) may be adjourned from time to time by a vote of the majority of the
shareholders represented at that meeting in person or by proxy, whether or not a
quorum is present; however, in the absence of a quorum, no other business may be
transacted, except as specifically authorized in these bylaws.
If a meeting is adjourned to another time or place, new notice is not
required if the new time and place were announced at the original meeting,
unless (a) the board sets a new record date for this purpose, or (b) the
adjournment is for more than 45 days from the original meeting date, in which
case the board must set a new record date. If a new record date is set, new
notice shall be given to the shareholders of record as of that data, in the same
manner as other notices of meetings. At an adjourned meeting, the corporation
may transact any business that would be proper at the original meeting.
7. WAIVER OF NOTICE OR CONSENT BY ABSENTEES. The transactions of any
shareholders' meeting, either annual or special, however called and noticed and
wherever held, shall be as
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<PAGE>
valid as though they were had at a meeting duly held after regular call and
notice, if a quorum is present either in person or by proxy, and if each person
entitled to vote but not present at the meeting signs a written waiver of
notice, a consent to holding the meeting, or an approval, of the minutes.
shareholders' signatures may be obtained either before or after the meeting. The
waiver of notice or consent need not specify either the intended business or the
purpose of the meeting, except that if action is taken or proposed to be taken
regarding any of the matters specified in Section 601(f) of the California
Corporations Code (and listed above in the paragraph on contents of notices of
shareholder meetings), the general nature of the action or proposed action must
be stated in the waiver of notice or consent. All written waivers, consents, and
approvals shall be filed with the corporate records or made a part of the
minutes of the meeting.
Notice is also waived by a shareholder's attendance at the meeting, unless
the shareholder at the beginning or the meeting objects to the transaction of
any business on the ground that the meeting was not lawfully called or convened.
Attendance and failure to object to the validity of the meeting, however, does
not constitute a waiver of any right to object expressly, at a meeting, to
consideration of matters required by law to be included in the notice of the
meeting which were not so included.
8. ACTION BY WRITTEN CONSENT WITHOUT A MEETING. Any action that could be
taken at an annual or special meeting of shareholders, except for the election
of directors (see following paragraph), may be taken without a meeting and
without prior notice, if a consent in writing, setting forth the action so
taken, is signed by the holders of outstanding shares having at least the
minimum number of votes necessary to authorize or take that action at a meeting
at which all shares entitled to vote on that action were present and voting.
Directors may be elected without a meeting only by the unanimous written
consent of all shares entitled to vote for the election of directors, except
that vacancies the board is entitled to fill (vacancies other than those caused
by removal of a director) may be filled by the written consent of a majority of
the outstanding shares entitled to vote.
All written consents shall be filed with the secretary of the corporation
and maintained in the corporate records. Anyone who has given a written consent
may revoke it by a writing received by the secretary of the corporation before
written consents of the number of shares required to authorize the proposed
action have been filed with the secretary.
Unless the consents of all shareholders entitled to vote have been
solicited in writing, the secretary shall give prompt notice of any corporate
action approved by the shareholders without a
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<PAGE>
meeting by less than unanimous consent, to those shareholders entitled to vote
who have not consented in writing. As to approvals required by California
Corporations Code Section 310 (transactions in which a director has a financial
interest), Section 317 (indemnification of corporate agents), Section 1201
(corporate reorganization), or section 2007 (certain distributions on
dissolution), notice of the approval shall be given at least ten days before the
consultation of any action authorized by the approval. Notice shall be given in
the manner specified in these bylaws for notice of shareholders' meetings.
9.RECORD DATE FOR SHAREHOLDER NOTICE AND VOTING.
(a) For purposes of determining the shareholders entitled to receive
notice of and vote at a shareholders' meeting or give written consent to
corporate action without a meeting, the board may fix in advance a record date
that is not more than 60 days nor less than 10 days before the date of any such
meeting, or not more than 60 days before any such action without a meeting.
(b) If no record date has been fixed:
(i) The record date for determining shareholders entitled to receive
notice of and vote at a shareholders' meeting shall be the business day next
preceding the day on which notice is given, or if notice is waived as provided
in these bylaws, the business day next preceding the day on which the meeting is
held;
(ii) The record date for determining shareholders entitled to give
written consent to corporate action without a meeting shall be the day on which
the action to be approved was taken by the board, or, if the board has not yet
acted, the day on which the first written consent is given; and
(iii) The record date for any other purpose shall be as set forth in
the section of these bylaws regarding record date for purposes other than notice
and voting.
(c) A determination of shareholders of record entitled to receive notice
of and vote at a shareholders' meeting shall apply to any adjournment of the
meeting unless the board fixes a new record date for the adjourned meeting.
However, the board shall fix a new record date if the adjournment is to a date
more than 45 days after the date set for the original meeting.
(d) Except as otherwise required by law, only shareholders of record on
the corporation's books at the close of business on the record date shall be
entitled to any of the notice and voting rights listed in subsection (a) of this
section, notwithstanding any transfer of shares on the corporation's books after
the record date.
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<PAGE>
10. QUORUM. The presence in person or by proxy of the holders of a
majority of the shares entitled to vote at any meeting of shareholders shall
constitute a quorum for the transaction of business. The shareholders present at
a duly called or held meeting at which a quorum was initially present may
continue to do business until adjournment, notwithstanding the withdrawal of
enough shareholders to leave less than a quorum; however, any action taken
(other than adjournment) must be approved by at least a majority of the shares
required to constitute a quorum.
11. VOTING. The corporation shall determine the shareholders entitled to
vote at any shareholders' meeting in accordance with bylaw provisions for record
date, subject to Sections 702 through 704 of the California Corporations Code
(concerning the voting of shares held by a fiduciary, a corporation, or joint
owners). Except as otherwise provided by law or as otherwise provided in the
Articles of Incorporation, each outstanding share shall be entitled to one vote
on each matter submitted to a vote of the shareholders.
The shareholders may vote by voice vote or by ballot, except that if any
shareholder so demands before the voting begins, any election for directors must
be by ballot. On any matter other than the election of directors, a shareholder
may vote part of his or her shares in favor of the proposal and refrain from
voting the remaining shares or vote them against the proposal. If a shareholder
does not specify the number of shares being voted, it will be conclusively
presumed that the shareholder's vote covers all shares which that shareholder is
entitled to vote.
If a quorum is present (or it a quorum had been present earlier at the
meeting but some shareholders have withdrawn), the affirmative vote of a
majority of the shares represented and voting, provided such affirmative vote
also constitutes a majority of the number of shares required for a quorum, shall
be the act of the shareholders unless the vote of a greater number or voting by
classes is required by statute or by the Articles of Incorporation.
12. CUMULATIVE VOTING. Cumulative voting for the election of directors is
permitted if one or more shareholders present at the meeting give notice, before
the voting begins, of their intention to cumulate votes (i.e., cast for any
candidate a number of votes greater than the number of votes which that
shareholder would normally be entitled to cast). If any shareholder has given
such notice, and if the candidates' names have been placed in nomination, then
all shareholders entitled to vote may cumulate their votes, giving any nominated
candidate a number of votes equal to the number of directors to be elected
multiplied by the number of votes to which that shareholder's shares are
normally entitled, or distributing the cumulative number of votes among any or
all of the candidates. The elected directors shall be those candidates
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(up to the number of directorships open for election) receiving the most votes.
13. PROXIES. Every person entitled to vote for directors or on any other
matter shall have the right to do so either in person or by one or more agents
authorized by a written proxy signed by the person and filed with the secretary
of the corporation. A proxy shall be deemed signed if the shareholder's name is
placed on the proxy (whether by manual signature, typewriting, telegraphic
transmission, or otherwise) by the shareholder or the shareholder's attorney in
fact.
A validly executed proxy that does not state that it is irrevocable shall
continue in full force and effect unless (a) it is revoked by the person who
executed the proxy, either by a writing delivered to the corporation before the
proxy has been voted, or by attendance at the meeting; or (b) the corporation
receives written notice of the shareholder's death or incapacity before the vote
pursuant to that proxy has been counted; provided, however, that no proxy shall
be valid after the expiration of 11 months from the date of the proxy unless the
proxy itself provides otherwise.
Proxies stating on their face that they are irrevocable shall be governed
by Sections 705(e) and 705(f) of the California Corporations Code.
14. VOTING TRUSTS. It any shareholders file a voting trust agreement with
the corporation, the corporation shall take notice of its terms and trustee
limitations.
15. ELECTION INSPECTORS. Before any shareholders' meeting, the board of
directors may appoint any persons other than nominees for office to act as
election inspectors. If no election inspectors have been so appointed, the
chairman of the meeting may, and on the request of any shareholder or
shareholder's proxy shall, appoint election inspectors at the meeting. The
number of inspectors shall be either 1 or 3. If inspectors are appointed at the
meeting on the request of one or more shareholders or their proxies, the holders
of a majority of shares or their proxies present at the meeting shall determine
whether 1 or 3 inspectors are to be appointed. If any inspector fails to appear
or fails or refuses to act, the chairman of the meeting may, and on the request
of any shareholder or shareholder's proxy shall, appoint a person to fill that
vacancy. These inspectors shall (a) determine the number of shares outstanding
and the voting power of each, the shares represented at the meeting, the
existence of a quorum, and the authenticity, validity, and effect of proxies;
(b) receive votes, ballots, or consents; (c) hear and determine all challenges
and questions in any way arising in connection with the right to vote; (d) count
and tabulate all votes or consents; (e) determine when the polls shall close;
(f) determine the result; and (g) do
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any other acts that may be proper to conduct the election or vote with fairness
to all shareholders.
ARTICLE 3: DIRECTORS
1. POWERS. Subject to the provisions of the California General Corporation
Law and any limitations in the Articles of Incorporation and these bylaws
relating to actions requiring approval by the shareholders or by the outstanding
shares, the business and affairs of the corporation shall be managed and all
corporate powers shall be exercised by or under the direction of the board of
directors.
Without prejudice to these general powers, and subject to the same
limitations, the board of directors shall have the power to:
(a) Select and remove all officers, agents, end employees of the
corporation; prescribe any powers and duties for them that are consistent with
law, with the Articles of Incorporation, and with these bylaws; fix their
compensation; and require from them security for faithful service;
(b) Change the principal executive office or the principal business office
in the State of California from one location to another; qualify the corporation
to do business in any other state, territory, dependency, or country; conduct
business within or outside the State of California; and designate any place
within or outside the State of California for the holding of any shareholders'
meeting;
(c) Adopt, make and use a corporate seal; prescribe the forms of
certificates of stock; and alter the form of the seal and certificates;
(d) Authorize the issuance of shares of corporate stock on any lawful
terms, in consideration of money paid, labor done, services actually rendered,
debts or securities cancelled, or tangible or intangible property actually
received; and
(e) Borrow money and incur indebtedness on behalf of the corporation, and
cause to be executed and delivered for the corporation's purposes, in the
corporate name, promissory notes, bonds, debentures, deeds of trust, mortgages,
pledges, hypothecations, and other evidences of debt and securities.
2. NUMBER OF DIRECTORS. The authorized number of directors shall be as set
forth below. This number can be changed by an amendment to the Articles of
Incorporation or an amendment to this bylaw adopted by the vote or written
consent of a majority of the outstanding shares entitled to vote. However, if
the number of directors is five or more, an amendment that would reduce the
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number of directors to a number less than five cannot be adopted if the votes
cast against its adoption at a meeting or the shares not consenting to an action
by written consent are equal to more than one sixth (16 2/3 percent) of the
outstanding shares entitled to vote.
Number of Directors: Three (3)
3. ELECTION AND TERM OF DIRECTORS. Directors shall be elected at each
annual shareholders' meeting, to hold office until the next annual meeting.
Election of directors by written consent without a meeting requires the
unanimous written consent of the outstanding shares entitled to vote. Each
director, including a director elected to fill a vacancy, shall hold office
until the expiration of the term for which elected and until a successor has
been elected and qualified.
No reduction of the authorized number of directors shall have the effect
of removing any director before his or her term of office expires.
4. VACANCIES. A vacancy in the board of directors shall be deemed to exist
(a) if a director dies, resigns, or is removed by the shareholders or an
appropriate court, as provided in Section 303 or Section 304 of the California
Corporations Code; (b) if the board of directors declares vacant the office of a
director who has been convicted of a felony or declared of unsound mind by an
order of court; (c) if the authorized number of directors is increased; or (d)
if at a shareholders' meeting the shareholders fail to elect the full authorized
number of directors. Vacancies (except for those caused by a director's removal)
may be filled by approval of the board, or, if the number of directors then in
office is less than a quorum, by (1) the unanimous written consent of the
directors then in office, (2) the affirmative vote of a majority of the
directors then in office at a meeting held pursuant to notice or waivers of
notice complying with section 307 of the Corporations Code, or (3) a sole
remaining director.
Vacancies on the board caused by the removal of a director (except for
vacancies created when the board declares the office of a director vacant as
provided in clause (b) of the first paragraph of this section) may be filled
only by the shareholders, either by majority vote of the shares represented and
voting at a meeting at which a quorum is present, or by the unanimous written
consent of all shares entitled to vote.
Any director may resign effective on giving written notice to the chairman
of the board, the president, the secretary, or the board of directors, unless
the notice specifies a later effective date. If the resignation is effective at
a
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future time, the board of directors may elect a successor to take office when
the resignation becomes effective.
The shareholders may elect a director at any time to fill a vacancy not
filled by the board of directors.
The term of office of a director elected to fill a vacancy shall run until
the next annual shareholders' meeting, end the director shall hold office until
a successor is elected and qualified.
5. PLACE OF MEETINGS. Regular meetings of the board of directors may be
held at any place within or outside the State of California as designated from
time to time by the board. In the absence of a designation, regular meetings
shall be held at the principal executive office of the corporation. Special
meetings of the board may be held at any place within or outside the State of
California designated in the notice of the meeting, or if the notice does not
state a place, at the principal executive office of the corporation. Any
meeting, regular or special, may be held by conference telephone or similar
communication equipment, provided that all directors participating can hear one
another.
6. ANNUAL DIRECTORS' MEETING. Immediately after each annual shareholders'
meeting, the board of directors shall hold a regular meeting at the same place
or at any other place designated by the board, to elect officers and transact
other necessary business as desired. Notice of this meeting shall not be
required unless some place other than the place of the annual shareholders'
meeting has been designated.
7. OTHER REGULAR MEETINGS. Other regular meetings of the board of
directors shall be held without call at times to be fixed by the board of
directors from time to time. Such regular meetings may be held without notice.
8.SPECIAL MEETINGS. Special meetings of the board of directors may be
called for any purpose or purposes at any time by the chairman of the board, the
president, any vice president, the secretary, or any two directors.
Special meetings shall be held on 4 days' notice by mail or 48 hours'
notice delivered personally or by telephone or telegraph. Oral notice given
personally or by telephone may be transmitted either to the director or to a
person at the director's office who can reasonably be expected to communicate it
promptly to the director. Written notice, if used, shall be addressed to each
director at his or her address shown on the corporate records. The notice need
not specify the purpose of the meeting, nor need it specify the place if the
meeting is to be held at the principal executive office of the corporation.
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9. WAIVER OF NOTICE. Notice of a meeting, if otherwise required, need not
be given to any director who (a) either before or after the meeting signs a
waiver of notice or a consent to holding the meeting without being given notice,
(b) signs an approval of the minutes of the meeting, or (a) attends the meeting
without the lack of notice before or at the beginning of protesting the meeting.
Waivers of notice or consents need not specify the purpose of the meeting. All
such waivers, consents, and approvals of the minutes, if written, shall be filed
with the corporate records or made a part of the minutes of the meeting.
10. QUORUM. A majority of the authorized number of directors shall
constitute a quorum for the transaction of business, except for adjournment.
Except as otherwise required by California Corporations Code Section 310
(approval of contracts or transactions in which a director has a material
financial interest), Section 311 (appointment of committees), and Section 311(e)
(indemnification of directors), every act done or decision made by a majority of
the directors present at a meeting duly held at which a quorum is present shall
be deemed the act of the board of directors, unless a different requirement is
imposed by the Articles of Incorporation.
A meeting at which a quorum was initially present may continue to transact
business despite the withdrawal of directors, if the action taken is approved by
at least a majority of the quorum required for that meeting.
11. ADJOURNMENT TO ANOTHER TIME OR PLACE. Whether or not a quorum is
present, a majority of the directors present may adjourn any meeting to another
time and place.
12. NOTICE OF ADJOURNED MEETING. Notice of the time and place of resuming
an adjourned meeting need not be given if the adjournment is for 24 hours or
less. If the adjournment is for more than 24 hours, notice of the new time and
place shall be given, before the time set for resuming the meeting, to any
directors who were not present at the time of adjournment, that need not be
given to directors who were present at the time of adjournment.
13. ACTION WITHOUT A MEETING BY WRITTEN CONSENT. Any action required or
permitted to be taken by the board of directors may be taken without a meeting,
if all members of the board individually or collectively consent in writing to
that action. Any action by written consent shall have the same effect as a
unanimous vote of the board of directors. All such written consents shall be
filed with the minutes of the proceedings of the board of directors.
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14. COMPENSATION OF DIRECTORS. Directors and members of committees of the
board may be compensated for their services, and shall be reimbursed for
expenses, as fixed or determined by resolution of the board of directors. This
section shall not preclude any director from serving the corporation as an
officer, agent, employee, or in any other capacity, and receiving compensation
for those services.
15. EXECUTIVE OF NONDEDUCTIBLE COMPENSATION. If all or part of the
compensation, including expenses, paid by the corporation to a director,
officer, employee, or agent is finally determined not to be allowable to the
corporation as a federal or state income tax deduction, the director, officer,
employee, or agent to whom the payment was made shall repay to the corporation
the amount disallowed. The board of directors shall enforce repayment of each
such amount disallowed by the taxing authorities.
ARTICLE 4: COMMITTEES
1. EXECUTIVE AND OTHER COMMITTEES OF THE BOARD. The board of directors, by
resolution adopted by a majority of the authorized number of directors, may
create one or more committees with the authority of the board ("board
committees" or "committees of the board"), including an executive committee.
Each board committee shall consist of two or more directors, and may have one or
more alternate members, also directors. Appointment of members and alternate
members requires the affirmative vote of a majority of the authorized number of
directors. Committees of the board, to the extent provided in the board
resolution establishing the committee, may be granted any or all of the powers
and authority of the board except for the following:
(a) Approving any action for which the California Corporations Code also
requires the approval of the shareholders or of the outstanding shares;
(b) Filling vacancies on the board of directors or any committee of the
board;
(c) Fixing directors' compensation for serving on the board or a committee
of the board;
(d) Adopting, amending, or repealing bylaws;
(e) Amending or repealing any resolution of the board of directors which
by its express tens is not so amendable or repealable;
(f) Making distributions to shareholders, except at a rate or in a
periodic amount or within a price range determined by the board of directors; or
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(g) Appointing other committees of the board or their members.
2. MEETINGS AND ACTIONS OF BOARD COMMITTEES. Meetings and actions of
committees of the board shall be governed by the bylaw provisions applicable to
meetings and actions of the board of directors as to place of meetings, regular
meetings, special meetings, waiver of notice, quorum, adjournment, notice of
adjournment, and action by written consent without a meeting, with such changes
in the context of those bylaws as are necessary to substitute the committee and
its members for the board of directors and its members, except that (a) the time
of regular committee meetings may be determined either by resolution of the
board of directors or by resolution of the committee; (b) special committee
meetings may also be called by resolution of the board of directors; (c) notice
of special committee meetings shall also be given to all alternate members; and
(d) alternate members shall have the right to attend all meetings of the
committee. The board may adopt rules, not inconsistent with the bylaws, for the
governance of committees of the board.
3. NON-BOARD COMMITTEES. One or more committees without the power and
authority of the board ("non-board" committees) may be created by board
resolution, for investigative and other appropriate purposes. Membership on
non-board committees is not limited to directors. To bind the corporation,
actions of non-board committees must be ratified by the board of directors.
ARTICLE 5: OFFICERS
1. OFFICERS; ELECTION. The corporation shall have a chief executive
officer, a secretary, and a chief financial officer. There may also be other
officers as specified in the bylaws or designated by the board. Any number of
offices may be held by the same person. The officers of the corporation (except
for subordinate officers appointed in accordance with the provisions below)
shall be elected annually by the board of directors. All officers shall serve at
the pleasure of the board.
2.CHIEF EXECUTIVE OFFICER. Except to the extent that the bylaw or the
board of directors assign specific powers and duties to the chairman of the
board, the president shall serve as general manager and chief executive officer
of the corporation and shall have general supervision, direction, and control
over the corporation's business and its officers, with all the general powers
and duties of management usually vested in a corporation's chief executive
officer.
The president shall preside at all shareholders' meetings, and shall
exercise and perform such other powers and duties as prescribed by the bylaws or
by the board of directors. The
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president shall also preside at board meetings if there is no chairman of the
board or if the chairman is absent.
3. SECRETARY. The secretary shall have the following duties:
(a) MINUTES. The secretary shall be present at and take the minutes of all
meetings of the shareholders, the board of directors, and committees of the
board. If the secretary is unable to be present, the secretary or the presiding
officer of the meeting shall designate another person to take the minutes of the
meeting. The secretary shall keep, or cause to be kept, at the principal
executive office or such other place as designated by the board of directors, a
book of minutes of all meetings and actions of the shareholders, the board of
directors, and committees of the board. The minutes of each meeting shall state
the following: The time and place of the meeting; whether it was regular or
special; if special, how it was called or authorized; the notice given or
waivers or consents obtained; the names of directors present at board or
committee meetings; the number of shares present or represented at shareholders'
meetings, and an accurate account of the proceedings.
(b) RECORD OF SHAREHOLDERS. The secretary shall keep or cause to be Kept,
at the principal executive office or at the office of the transfer agent or
registrar, a record or duplicate record of shareholders. This record shall show
the names of all shareholders and their addresses, the number and classes of
shares held by each, the number and date of share certificates issued to each
shareholder, and the number and date of cancellation of any certificates
surrendered for cancellation.
(c) NOTICE OF MEETINGS. The secretary shall give notice, or cause notice
to be given, of all shareholders' meetings, board meetings, and committee
meetings for which notice is required by statute or by the bylaws. If the
secretary or other person authorized by the secretary to give notice fails to
act, notice of any meeting may be given by any other officer of the corporation.
The secretary shall maintain records of the mailing or other delivery of notices
and documents to shareholders or directors, as prescribed by the bylaws or by
the board of directors.
(d) OTHER DUTIES. The secretary shall keep the seal of the corporation, if
any, in safe custody. The secretary shall have such other powers and perform
such other duties as prescribed by the bylaws or by the board of directors.
4.CHIEF FINANCIAL OFFICER. The chief financial officer, who may also be
referred to as the treasurer, shall keep or cause to be kept adequate and
correct books and records of accounts of the properties and business
transactions of the corporation, including accounts of its assets, liabilities,
receipts,
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disbursements, gains, losses, capital, retained earnings, and shares. The books
of account shall at all reasonable times be open to inspection by any director.
The chief financial officer shall (1) deposit corporate funds and other
valuables in the corporation's name and to its credit with depositories
designated by the board; (2) disburse corporate funds as authorized by the
board; (3) whenever requested by the board or the chief executive officer,
render a statement of the corporation's financial condition and an account of
all transactions he or she has conducted as chief financial officer; and (4)
exercise such other powers and perform such other duties as prescribed by the
bylaws or by the board of directors.
The chief financial officer shall be deemed the treasurer for any purpose
requiring action by the corporation's treasurer.
5. VICE PRESIDENTS. There may be one or more vice presidents, as
determined by the board. In the absence or disability of the president the
president's duties and responsibilities shall be carried out by the
highest-ranking available vice president, or if there are two or more unranked
vice presidents, by a vice president designated by the board of directors. When
so acting, a vice president shall have all the powers of and be subject to all
the restrictions on the president. Vice presidents shall have such other powers
and pert on such other duties as prescribed by the bylaws or assigned from time
to time by the board of directors or the chief executive officer.
6. SUBORDINATE OFFICERS. The board of directors may appoint, and may
empower the chief executive officer to appoint, subordinate officers as required
by the corporation's business, whose duties shall be as provided in the bylaws
or as determined from time to time by the board of directors or the chief
executive officer.
7. REMOVAL AND RESIGNATION OF OFFICERS. Any officer chosen by the board of
directors may be removed by the board at any time, with or without cause or
notice. Subordinate officers appointed by persons other than the board may be
removed at any time, with or without cause or notice, by the board or by the
person by whom appointed. A removed officer shall have no claim against the
corporation or individual officers or board members arising from such removal
(other than any rights he or she may have to monetary compensation or damages
under an employment contract).
Any officer may resign at any time by giving the corporation written
notice. Unless otherwise specified in the notice, resignations shall take effect
on the date the notice is received, and acceptance of the resignation is not
necessary to make it effective. An officer's resignation or its acceptance by
the
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corporation shall not prejudice any rights the corporation may have to monetary
damages under an employment contract a
8. VACANCIES IN OFFICES. vacancies in offices resulting from an officer's
death, resignation, removal, disqualification, or any other cause shall be
filled by the board or by the person, if any, authorized by the bylaw or the
board to make an appointment to that office.
9. COMPENSATION. Salaries of officers and other shareholders employed by
the corporation shall be fixed from time to time by the board of directors or
established under employment agreements approved by the board of directors. No
officer shall be prevented from receiving this salary because he or she is also
a director of the corporation.
10. REIMBURSEMENT OF NONDEDUCTIBLE COMPENSATION. If all or part of the
compensation, including expenses, paid by the corporation to a director,
officer, employee, or agent is finally determined not to be allowable to the
corporation as a federal or state income tax deduction, the director, officer,
employee, or agent to whom the payment was made shall repay to the corporation
the amount disallowed. The board of directors shall enforce repayment of each
such amount disallowed by the taxing authorities.
ARTICLE 6: INDEMNIFICATION
1. INDEMNIFICATION OF AGENTS. The corporation, to the maximum extent
permitted by the California General Corporation Law, shall have power to
indemnify any of its agents against expenses, judgments, fines, settlements, and
other amounts actually and reasonably incurred in connection with any proceeding
or potential proceeding arising out of the relationship, and to the. maximum
extent permitted by law, the corporation shall have power to advance the agent's
reasonable defense expenses in any such proceeding. For the purposes of this
section, "agent" means any person who is or was a director, officer, employee,
or other agent of this corporation or its predecessor, and any person who is or
was serving as a director, officer, employee, or agent of another corporation,
partnership, joint venture, trust or other enterprise, at the request of this
corporation or its predecessor; "proceeding" means any threatened, pending, or
completed action or proceeding, whether civil, criminal, administrative, or
investigative; and "expenses" include but are not limited to attorneys' fees and
any expenses of establishing a right to indemnification under this section.
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ARTICLE 7: RECORDS AND REPORTS
1. SHAREHOLDER LISTS; INSPECTION BY SHAREHOLDERS. The corporation shall
keep at its principal executive office or at the office of its transfer agent or
registrar, as the board shall determine, a record of the names and addresses of
all shareholders and the number and class of shares held by each.
A shareholder or group of shareholders holding 5 percent or more of the
outstanding voting shares of the corporation may (a) inspect and copy the record
of shareholders' names and addresses and shareholdings during usual business
hours, on 5 days' prior written demand on the corporation; and/or (b) obtain
from the corporation's transfer agent, on written demand and tender of the
transfer agent's usual charges for this service, a list of the names and
addresses of shareholders entitled to vote for the election of directors and
their shareholdings, as of the most recent date for which a record has been
compiled or as of specified date which is later than the date of demand. This
list shall be made available within 5 days after demand or within 5 days after
the specified later date as of which the list is to be compiled.
The record of shareholders shall also be open to inspection daring usual
business hours, on the written demand of any shareholder or holder of a voting
trust certificate, for a purpose reasonably related to the holder's interest in
the corporation. Any inspection or copying under this section may be made in
person or by the holder's agent or attorney.
2. MAINTENANCE OF BYLAWS. The corporation shall keep at its principal
executive office, or if its principal executive office is not in California, at
its principal business office in this state, the original or a copy of the
bylaws as amended to date, which shall be open to inspection by the shareholders
at all reasonable times during office hours. If the principal executive office
of the corporation is outside of California and the corporation has no principal
business office in this state, the secretary shall, upon a shareholder's written
request, furnish to that shareholder a copy of the bylaws as amended to date.
3. MINUTES AND ACCOUNTING RECORDS. The minutes of proceedings of the
shareholders, board of directors, and committees of the board, and the
accounting books and records shall be kept at the principal executive office of
the corporation, or at such other place or places as designated by the board of
directors. The minutes shall be kept in written form, and the accounting books
and records shall be kept either in written form or in a form capable of being
converted into written form. The minutes and accounting books and records shall
be open to inspection during usual business hours on the written demand of any
shareholder or holder of a
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voting trust certificate, for a purpose reasonably related to the holder's
interests in the Corporation. The inspection may be made in person or by an
agent or attorney, and includes the right to copy and make extracts. These
rights of inspection shall extend to the records of each subsidiary of the
corporation.
4. INSPECTION BY DIRECTORS. Every director shall have the absolute right
at any reasonable time to inspect all books, records, and documents of every
kind and the physical properties of the corporation and each of its subsidiary
corporations. This inspection may be made by the director in person or by an
agent or attorney, and the right of inspection includes the right to copy and
make extracts of documents.
5. ANNUAL REPORT TO SHAREHOLDERS. The board of directors shall cause an
annual report to be sent to the shareholders not later than 120 days after the
close of the fiscal year adopted by the corporation. This report shall be sent
at least 15 days (if third-class mail is used, 35 days) before the next annual
meeting of shareholders, in the manner specified in these bylaws for giving
notice to shareholders. The annual report shall contain a balance sheet as of
the end of the fiscal year and an income statement and a statement of changes in
financial position for the fiscal year, prepared in accordance with generally
accepted accounting principles applied on a consistent basis and accompanied by
any report of independent accountants, or, if there is none, by the certificate
of an authorized officer of the corporation that the statements were prepared
without audit from the corporation's books and records.
6. FINANCIAL STATEMENTS. The corporation shall keep a copy of any annual
financial statement, quarterly or other periodic income statement, and
accompanying balance sheets on file in its principal executive office for 12
months; these documents shall be exhibited (or copies provided) to shareholders
at all reasonable times. If no annual report for the last fiscal year has been
went to shareholders, on written request of any shareholder made more than 120
days after the close of the fiscal year, the corporation shall deliver or mail
to the shareholder, within 30 days after receipt of the request, a balance sheet
as of the end of that fiscal year and an income statement and statement of
changes in financial position for that fiscal year.
A shareholder or shareholders holding 5 percent or more of the outstanding
shares of any class of stock of the corporation may request in writing an income
statement for the most recent three-month, six-month, or nine-month period
(ending more than 30 days before the date of the request) of the current fiscal
year, and a balance sheet as of the end of that period. If such documents are
not already prepared, the chief financial officer shall cause them to be
prepared and shall deliver them personally or by mail to the requesting
shareholders within 30 days after the receipt of the
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request. A balance sheet, income statement, and statement of changes in
financial position for the last fiscal year shall also be included, unless the
corporation has sent the shareholders an annual report for the last fiscal year.
Quarterly income statements and balance sheets referred to in this section
shall be accompanied by the report, if any, of independent accountants engaged
by the corporation, or a certificate by the authorized corporate officer stating
that the financial statements were prepared without audit from the corporation's
books and records.
7. ANNUAL INFORMATION STATEMENT. (a) Every year, during the calendar month
in which the original Articles of Incorporation were filed with the California
Secretary of State or during the preceding five calendar months, the corporation
shall file a statement with the Secretary of State on the prescribed form,
setting forth the authorized number of directors; the names and complete
business or residence addresses of the chief executive officer, the secretary,
and the chief financial officer; the street address of the corporation's
principal executive office or principal business office in this state; a
statement of the general type of business constituting the principal business
activity of the corporation, and a designation of the corporation's agent for
service of process, all in compliance with Section 1502 of the Corporations Code
of California.
(b) Notwithstanding the provisions of paragraph (a) of this section, if
there had been no change in the information contained in the corporation's last
annual statement on file in the Secretary of State's office, the corporation
may, in lieu of filing the annual statement, advise the Secretary of State, on
the appropriate form, that no changes in the required information have occurred
during the applicable period.
ARTICLE B: GENERAL CORPORATE MATTERS
1. RECORD DATE FOR DIVIDENDS AND DISTRIBUTIONS. For purposes of
determining the shareholders entitled to receive payment of dividends or other
distributions or allotment of rights, or entitled to exercise any rights in
respect of any other lawful action (other than voting at and receiving notice of
shareholders' meetings and giving written consent of the shareholders without a
meeting), the board of directors may fix in advance a record date not more than
60 nor less than 10 days before the date of the dividend payment, distribution,
allotment, or other action. If a record date is so fixed, only shareholders of
record at the close of business on that date shall be entitled to receive the
dividend, distribution, or allotment of rights, or to exercise the other rights,
as the case may he, notwithstanding any transfer of any
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<PAGE>
shares on the corporate books after the record date, except as otherwise
provided by statute.
If the board of directors does not so fix a record date in advance, the
record date for these purposes shall be at the close of business on the later of
(a) the day on which the board of directors adopts the applicable resolution or
(b) the 60th day before the date of the dividend payment, distribution,
allotment of rights, or other action.
2. AUTHORIZED SIGNATORIES FOR CHECKS. All checks, drafts, or other orders
for payment of money, notes, and other evidences of indebtedness issued in the
name of or payable to the corporation shall be signed or endorsed in the manner
and by the persons authorized by the board of directors.
3. EXECUTING CONTRACTS AND INSTRUMENTS. The board of directors may
authorize any of its officers or agents to enter into any contract or execute
any instrument in the name of and on behalf of the corporation. This authority
may be general or it may be confined to one or more specific matters. No
officer, agent, employee, or other person purporting to act on behalf of the
corporation shall have any power or authority to bind the corporation in any
way, pledge its credit, or render it liable for any purpose in any amount,
unless that person was acting with authority duly granted by the board of
directors as provided in these bylaws, or unless an unauthorized act was later
ratified by the corporation.
4. SHARE CERTIFICATES. One or more certificates for shares of the capital
stock of the corporation shall be issued to each shareholder, when any of the
shareholder's shares are fully paid.
All certificates shall certify the number of shares and the class or
series of shares represented by the certificate. All certificates shall be
signed in the name of the corporation by (a) one of the following: the chairman
or vice chairman of the board of directors, the president, or any vice
president; and (b) one of the following: the chief financial officer, any
assistant treasurer, the secretary, or any assistant secretary. Any of the
signatures on the certificate may be facsimile. If a party who has signed share
certificates ceases to be an officer or other agent before the certificate is
issued, the corporation may issue the certificate with the same effect as if
that person were an officer, transfer agent, or registrar at the date of issue.
The share certificates shall state, by way of appropriate legend, any
restrictions on share ownership or transfer, and any other statements required
by applicable federal or state securities regulations.
20
<PAGE>
5. LOST CERTIFICATES. Except as provided in this section, no new
certificates for shares shall be issued to replace old certificates unless the
old certificates are surrendered to the corporation for cancellation at the same
time. If share certificates or certificates for any other security have been
lost, stolen, or destroyed, the board of directors may authorize the issuance of
replacement certificates on terms and conditions as the board may require, which
may include a requirement that the owner give the corporation a bond or other
adequate security sufficient to protect the corporation against any claim that
may be made against it (including any expenses or liability) on account of the
alleged loss, theft, or destruction of the old certificate or the issuance of
the replacement certificate.
6. SHARES OF OTHER CORPORATIONS: HOW VOTED. Shares of other corporations
standing in the name of this corporation shall be voted by the chief executive
officer or a person designated by the chief executive officer. If neither of
them is able to act, the shares may be voted by a person designated by the board
of directors. The authority to vote share includes the authority to execute a
proxy in the corporation's name for purposes of voting the shares.
7. REIMBURSEMENT OF NONDEDUCTIBLE COMPENSATION. If all or part of the
compensation, including expenses, paid by the corporation to a director,
officer, employee, or agent is finally determined not to be allowable to the
corporation as a federal or state income tax deduction, the director, officer,
employee, or agent to whom the payment was made shall repay to the corporation
the amount disallowed. The board of directors shall enforce repayment of each
such amount disallowed by the taxing authorities.
8. CONSTRUCTION AND DEFINITIONS. Unless the context requires otherwise,
the general provisions, rules of construction, and definitions in Sections 100
through 195 of the California Corporations Code shall govern the construction of
these bylaws. Without limiting the generality of this provision, the singular
number includes the plural, the plural number includes the singular, and the
term "person" includes a corporation and a natural person.
9. TRANSFER RESTRICTIONS; RIGHT OF FIRST REFUSALS. Any shareholder wishing
to sell or transfer shares of the corporation ("transferring shareholder")
shall, under procedures adopted by the board of directors, disclose to the board
the number of shares submitted for sale or transfer, the price per share, the
terms and conditions of sale, and the name of any proposed transferee, and shall
make those shares available to the corporation and other shareholders under the
same terms. If, within a reasonable time or before a reasonable date specified
by the transferring shareholder, neither the corporation nor the other
shareholders offer to purchase that number of shares under the same terms, the
board of
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directors shall grant the transferring shareholder permission to sell or
transfer those shares as specified, but not at terms more favorable to the
transferee than those under which the shares were submitted to the corporation
and shareholders.
ARTICLE 9: AMENDMENTS
1. AMENDMENT OF ARTICLES OF INCORPORATION. Unless otherwise provided under
California Corporations Code Sections 900 through 911, amendments to the
Articles of Incorporation may be adopted if approved by the board and approved
by a majority of the outstanding shares entitled to vote, either before or after
approval by the board. An amendment to the Articles of Incorporation shall be
effective as of the date that the appropriate certificate of amendment is filed
with the Secretary of State.
2. AMENDMENT OF BYLAWS. Except as otherwise required by law or by the
Articles of Incorporation, these bylaw may be amended or repealed, and new
bylaws may be adopted, by the board of directors or by a majority of the
outstanding shares entitled to vote.
22
<PAGE>
EXHIBIT 3.8
FILED
in the office of the
Secretary of State of
the State of California
JUN 11 1993
/s/ March Fong Eu
MARCH FONG EU,
Secretary of State
ARTICLES of INCORPORATION
I
The name of this corporation is SOPHIE PHILIPPART, INC.
II
The purpose of the corporation is to engage in any lawful act or activity for
which a corporation may be organized under the General Corporation Law of
California other than the banking business, the trust company business or the
practice of a profession permitted to be incorporated by the California
Corporations Code.
III
The name and address in the State of California of this corporation's initial
agent for service of process is:
ROBERT E. GRAY
17832 Gillette Street
Irvine CA 92715
IV
This corporation is authorized to issue only one class of shares of stock; and
the total number of shares which this corporation is authorized to issue is
10,000.
Dated June 11, 1993
/s/ Heidi M. Waller
-----------------------------
Heidi M. Waller, Incorporator
<PAGE>
FILED
in the office of the
Secretary of State of
the State of California
NOV 14 1994
/s/ Tony [ILLEGIBLE]
Acting Secretary of State
CERTIFICATE OF AMENDMENT
OF
ARTICLES OF INCORPORATION
OF
SOPHIE PHILIPPART, INC.
Robert E. Gray and Roger G. Ruppert certify that:
1. They are the President and the Secretary, respectively, of Sophie
Philippart, Inc., a California corporation.
2. Article I of the Articles of Incorporation of this corporation is
amended to read in its entirety as follows:
I
The name of this corporation is St. John Trademarks, Inc.
3. The foregoing amendment of the Articles of Incorporation has been
duly approved by the Board of Directors of this corporation.
4. The foregoing amendment of the Articles of Incorporation has been
duly approved by the required vote of shareholders in accordance with Section
902 of the Corporations Code. The Corporation has only one class of stock. The
total number of outstanding shares of this corporation is 1,000. The number of
shares voting in favor of the amendment equaled or exceeded the vote required.
The percentage vote required was more than 50% of the outstanding shares.
We further declare under penalty of perjury under the laws of the State of
California that the matters set forth in this certificate are true and correct
of our knowledge.
IN WITNESS WHEREOF, the undersigned have executed this Certificate
of Amendment on November 8, 1994.
By /s/ Robert E. Gray
-------------------------------------
Robert E. Gray
Chief Executive Officer
President
By /s/ Roger G. Ruppert
-------------------------------------
Roger G. Ruppert
Secretary
[SEAL]
<PAGE>
Exhibit 3.9
BYLAWS
OF
SOPHIE PHILIPPART, INC.,
a California corporation
ARTICLE I
MEETINGS OF SHAREHOLDERS
1.01 Annual Meetings. Annual meetings of the shareholders of the
Corporation for the purpose of electing directors and for the transaction of
such other proper business as may come before such meetings may be held at such
time and date as the Board of Directors shall determine by resolution.
1.02 Place of Meetings. Annual and special meetings of shareholders
shall be held at such places, within or without the State of California, as may
be designated by the Board of Directors, or in the absence of such designation,
by the President of the Corporation.
1.03 Conduct of Meetings. Meetings of shareholders shall be
presided over by the Chairman of the Board, if any, or in his absence by the
President, or in his absence by a Vice President, or in the absence of the
foregoing persons by a chairman designated by the Board of Directors, or in the
absence of such designation by a chairman chosen at the meeting. The Secretary
shall act as secretary of the meeting, but in his absence the chairman of the
meeting may appoint any person to act as secretary of the meeting. Subject to
the requirements of applicable law, all annual and special meetings of
shareholders shall be conducted in accordance with such rules and procedures as
the Board may establish and, as to matters not governed by such rules and
procedures, as the chairman of such meeting shall determine.
1.04 Voting.
(a) Every person entitled to vote shares may authorize another
person or persons to act by proxy with respect to such shares. Every proxy shall
be in writing, shall be dated, shall be executed by the person entitled to vote
the shares, and shall be filed with the Secretary of the Corporation prior to
the meeting at which the proxy will be used.
(b) The vote at any meeting of the shareholders on any question need
not be by ballot, unless so directed by the chairman of the meeting or otherwise
required by applicable law.
<PAGE>
ARTICLE II
BOARD OF DIRECTORS
2.01 Number. The number of directors shall be not less than three
(3) nor more than Five (5) with the exact number of directors to be fixed,
within the limits specified, by approval of the Board of Directors or
shareholders; provided, however, that so long as the corporation has only one
shareholder, the number of directors may be one (1) or two (2), and so long as
the Corporation has only two shareholders, the number of directors may be two
(2). Until shares are issued, the number of directors may be one (1) or two (2).
2.02 Notice of Special Meetings. Notice of the time and place of any
special meeting of the Board of Directors shall be given to each director (i) by
mail addressed to the director at the director's residence or usual place of
business, at least four (4) days before the day on which the meeting is to be
held or (ii) personally or by telephone, telegraph, cable, telecopy, or
overnight courier not less than forty-eight (48) hours before the time at which
the meeting is to be held. Notice by mail shall be deemed to have been given at
the time a written notice is deposited in the United States mail, postage
prepaid. Any other written notice shall be deemed to have been given at the time
it is personally delivered to the recipient or is delivered to a common carrier
for delivery or transmission or actually transmitted by the person giving the
notice by electronic means to the recipient. Oral notice shall be deemed to have
been given at the time it is communicated, in person or by telephone, to the
recipient or to a person at the office or residence of the recipient who the
person giving the notice has reason to believe will promptly communicate it to
the recipient.
2.03 Conduct of Meetings. Subject to the requirements of applicable
law, all regular and special meetings of the Board of Directors shall be
conducted in accordance with such rules and procedures as the Board of Directors
may approve and, as to matters not governed by such rules and procedures, as the
chairman of a meeting shall determine. The chairman of any regular or special
meeting of the Board of Directors shall be designated by the directors and, in
the absence of any such designation, shall be the President of the Corporation,
provided the President is a director of the Corporation.
2.04 Compensation. The directors shall receive such compensation for
their services as directors as may be fixed by resolution of the Board of
Directors from time to time. The Board of Directors may also provide that the
Corporation shall reimburse a director for any expense incurred by the director
on account of the director's attendance at any meetings of the Board
2
<PAGE>
of Directors or committees of the Board of Directors. Neither the payment of
such compensation nor the reimbursement of such expenses shall be construed to
preclude any director from serving the Corporation or its subsidiaries in any
other capacity and receiving compensation therefor.
ARTICLE III
OFFICERS
3.01 Corporate Officers. The officers of the Corporation shall be a
Chairman of the Board of Directors and/or President, a Secretary, and a Chief
Financial Officer and such other officer with such titles and duties as may be
determined by the Board of Directors. In the absence of any contrary
determination by the Board of Directors, the President shall, subject to the
power and authority of the Board of Directors, be the general manager and Chief
Executive Officer of the Corporation.
3.02 Term of Office. The officers of the Corporation shall be chosen
by the Board of Directors, and each shall hold office at the pleasure of the
Board or until such officer shall resign or be removed, subject, in each case,
to the rights, if any, of the Corporation and any such officer under any
contract of employment.
ARTICLE IV
SHARES AND THEIR TRANSFER
The Board may make such rules and regulations as it may deem
necessary or appropriate, not inconsistent with applicable law, concerning the
issuance, transfer, and registration of certificates for shares of the stock of
the Corporation. It may appoint, or authorize any officer or officers to
appoint, one or more transfer clerks or one or more transfer agents and one or
more registrars, and may require all, certificates for stock to bear the
signature or signatures of any of them.
3
<PAGE>
ARTICLE V
INDEMNIFICATION
5.01 Authorization For Indemnification and Advancement of Expenses.
(a) The Corporation shall indemnify, in the manner and to the
fullest extent permitted by law, any person (or the estate, heirs, executors, or
administrators of any person) who was or is a party to, or is threatened to be
made a party to any threatened, pending or completed action, suit or proceeding,
whether or not by or in the right of the Corporation, and whether civil,
criminal, administrative, investigative or otherwise, by reason of the fact that
such person is or was a director or officer of the Corporation or by reason of
the fact that any officer or director of the Corporation is or was serving at
the request of the Corporation as a director, officer, employee, or other agent
of another corporation, partnership, joint venture, trust, or other enterprise.
To the fullest extent permitted by law, the indemnification provided herein
shall include expenses (including attorneys' fees), judgments, fines and amounts
paid in settlement, and, in the manner provided by law, any such expenses shall
be paid by the Corporation in advance of the final disposition of such action,
suit or proceeding.
(b) The Corporation may indemnify and advance expenses to other
employees and agents of the Corporation and other persons who were or are
serving at the request of the Corporation as a director, officer, employee, or
other agent of another corporation, partnership, joint venture, trust, or other
enterprise in the manner and to the extent provided for in Section 5.01(a) as in
the case of officers and directors of the Corporation. The Board of Directors
may in its discretion refuse to provide for such indemnification or advance of
expenses except to the extent indemnification is mandated under applicable law.
5.02 Insurance. The corporation may purchase and maintain insurance
on behalf of any person who 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 against any liability asserted against such
person and incurred by such person in any such capacity, or arising out of such
person's status as such, whether or not the Corporation would have the power to
indemnify such person against such liability.
5.03 Nonexclusivity. The indemnification and advancement of expenses
provided herein shall not be deemed exclusive of any other rights to which any
person seeking
4
<PAGE>
indemnification or advancement of expenses from the Corporation may be entitled
under any agreement, vote of shareholders or disinterested directors, applicable
law, or otherwise, both as to action in such person's official capacity and as
to action in another capacity while holding such office.
5.04 Payment of Claims. If a claim under this Article V is not paid
in full by the Corporation within ninety days after a written claim has been
received by the Corporation, the claimant may at any time thereafter bring suit
against the Corporation to recover the unpaid amount of the claim and if
successful in whole or in part, the claimant shall be entitled to be paid also
the expense of prosecuting such claim. It shall be a defense to any such action
(other than an action brought to enforce a claim for expenses incurred in
defending any proceeding in advance of its final disposition where any required
undertaking has been tendered to the Corporation) that the claimant has not met
the standards of conduct which make it permissible under applicable law for the
Corporation to indemnify or advance expenses to the claimant for the amount
claimed, but the burden of proving such defense shall be on the Corporation.
Neither the failure of the Corporation (including its Board of Directors,
independent legal counsel, or its shareholders) to have made a determination
prior to the commencement of such action that indemnification of or advancement
of expenses to the claimant is proper in the circumstances because the claimant
has met the applicable standard of conduct set forth in applicable law, nor an
actual determination by the Corporation (including its Board of Directors,
independent legal counsel, or its shareholders) that the claimant has not met
such applicable standard of conduct, shall be a defense to the action or create
a presumption that the claimant has not met the applicable standard of conduct.
5.05 Contractual Rights. All rights to indemnification and
advancement of expenses under this Article V shall be deemed to be provided by a
contract between the Corporation and the person entitled to indemnification or
advancement of expenses at any time while these Bylaws and other relevant
provisions of applicable law are in effect. Any repeal or modification thereof
shall not affect any rights or obligations then existing in respect of any act
or omission occurring prior to such repeal or modification.
ARTICLE VI
WAIVER or ANNUAL REPORTS
So long as the Corporation has less than 100 holders of record of
its shares (determined as provided in Section 605 of
5
<PAGE>
the California General Corporation Law), no annual report to shareholders shall
be required, and the requirement to the contrary of Section 1501 of the
California General Corporation Law is hereby expressly waived.
ARTICLE VII
AMENDMENTS
New bylaws may be adopted or these bylaws may be amended or repealed
by the shareholders or, except for Section 2.01, by the Board of Directors.
ARTICLE VIII
MISCELLANEOUS
8.01 Seal. The Board of Directors shall provide a corporate seal,
which shall be in the form of a circle and shall bear the name of the
Corporation, words and figures showing that the Corporation was incorporated in
the State of California and the year of incorporation.
8.02 Fiscal Year. The fiscal year of the Corporation shall be
determined by resolution of the Board.
8.03 Representation of Other Corporations. The President, any Vice
President, Chief Financial Officer, or Secretary of this Corporation is
authorized to vote, represent and exercise on behalf of this Corporation all
rights incident to any and all shares of any other corporation or corporations
standing in the name of this Corporation. The authority herein granted to said
officers to vote or represent on behalf of this Corporation any and all shares
held by this Corporation in any other corporation or corporations may be
exercised either by such officers in person or by any person authorized so to do
by proxy or power of attorney duly executed by said officers.
6
<PAGE>
Exhibit 3.10
STATE OF DELAWARE
SECRETARY OF STATE
DIVISION OF CORPORATIONS
FILED 09:00 AM 06/05/1997
971183931 - 2758854
CERTIFICATE OF FORMATION
OF
AMEN WARDY HOME STORES, LLC
1. The name of the limited liability company is AMEN WARDY HOME STORES,
LLC.
2. The address of its registered office in the State of Delaware is
Paracorp Incorporated, 15 East North Street, Dover, Delaware 19001.
The name of its registered agent at such address is Paracorp
Incorporated.
3. The latest date on which the limited liability company is to
dissolve is January 1, 2043.
IN WITNESS WHEREOF, the undersigned has executed this Certificate of Formation
on this 5th day of June, 1997.
/s/ Katherine A. Sieck
---------------------------
Katherine A. Sieck
Authorized Person
<PAGE>
STATE OF DELAWARE
SECRETARY OF STATE
DIVISION OF CORPORATIONS
FILED 03:00 PM 08/12/1997
971269123 - 2758854
CERTIFICATE OF AMENDMENT
OF
CERTIFICATE OF FORMATION
OF
AMEN WARDY HOME STORES, LLC
1. The name of the limited liability company is Amen Wardy Home Stores, LLC.
2. The Certificate of Formation of the limited liability company is hereby
amended as follows:
The address of its registered office in the State of Delaware is
Corporation Trust Center, 1209 Orange Street, in the City of Wilmington, County
of New Castle. The name of its registered agent at such address is The
Corporation Trust Company.
IN WITNESS WHEREOF, the undersigned has executed this Certificate of Amendment
Amen Wardy Home Stores, LLC this 8th day of August 1997.
/s/ Roger Ruppert
------------------------
Roger Ruppert
Authorized Person
<PAGE>
STATE OF DELAWARE
SECRETARY OF STATE
DIVISION OF CORPORATIONS
FILED 09:00 AM 05/04/1999
991175929 - 2758854
CERTIFICATE OF AMENDMENT
TO THE CERTIFICATE OF FORMATION
OF
AMEN WARDY HOME STORES, LLC
1. The name of the limited liability company is AMEN WARDY HOME STORES, LLC.
2. Paragraph 1 of the Certificate of Formation shall be amended in its
entirety to read: "The name of the limited liability company is St. John
Home, LLC."
IN WITNESS WHEREOF, the undersigned has executed this Certificate of Amendment
to the Certificate of Formation on this 30 day of April, 1999
/s/ Roger G. Ruppert
------------------------
Roger G. Ruppert
Authorized Person
-1-
<PAGE>
Exhibit 3.11
AMENDED AND RESTATED
LIMITED LIABILITY COMPANY AGREEMENT
OF
ST. JOHN HOME, LLC
THIS AMENDED AND RESTATED LIMITED LIABILITY COMPANY AGREEMENT (this
"Agreement") is made and entered into as of this 30th day of April, 1999, by St.
John Knits, Inc., a California corporation ("St. John"), as the sole "Member".
(Collectively, "Members" refers to St. John, as the sole Member, and any
subsequent Member.)
WHEREAS, the Member is the sole member of a limited liability
company formed pursuant to the laws of the State of Delaware on June 6, 1997
(the "Company");
WHEREAS, the name of the Company was "Amen Wardy Home Stores, LLC";
WHEREAS, the Member has caused to be filed a Certificate of
Amendment of the Certificate of Formation of the Company changing the name of
the Company to "St John Home, LLC"; and
WHEREAS, the Member desires to amend and restate the Limited
Liability Company Agreement of the Company, dated August 5, 1997;
NOW THEREFORE, BE IT RESOLVED in consideration of the mutual
covenants contained herein, the Member agrees as follows:
1. Formation. The Company has been formed pursuant to the provisions
of the Delaware Limited Liability Company Act (the "Act") and subject to the
terms, provisions and conditions set forth in this Agreement. The purpose of the
Company is to engage in any lawful activity that is not prohibited under the
Act.
2. Filing. The Company has been formed by filing a Certificate of
Formation that complies with the requirements of the Act with the Delaware
Secretary of State.
3. Name. The name of the Company is "St. John Home, LLC."
4. Percentage Interests. The Members own the Company. (More
generally, the "Percentage Interest" refers to each Member's interest.)
5. Profits and Losses. The Members shall share in the profits and
losses of the Company in accordance with their respective Percentage Interests.
As used herein, "profits" and "losses" shall mean the Company's net book income
and net book loss computed in accordance with Section 1.704-1(b)(2) of the
Regulations promulgated by the Department of the Treasury (the "Regulations")
pursuant to the Internal Revenue Code, as amended (the "Code"), and otherwise as
computed for federal income tax purposes. Subject to application of the
<PAGE>
principles of Sections 704(c) and 754 of the Code and Section 1.704.1(b)(4)(i)
of the Regulations, all items of income, gain, loss and deduction for federal
and state tax purposes shall be allocated in accordance with the corresponding
"book" items hereunder.
6. Capital Contribution. The Members have made the initial capital
contribution as set forth on Exhibit A. No interest shall accrue on any capital
contribution and no Member shall have the right to withdraw or be repaid any
capital contribution except as provided in this Agreement. Additional capital
contributions, if any, shall be made by the Members pro rata in accordance with
their respective Percentage Interests, in the amounts and upon the terms and
conditions as the Members may unanimously agree.
7. Capital Accounts and Recapture.
a. Maintenance of Capital Accounts - The Company shall
establish and maintain capital accounts for each Member and Assignee (the
"Capital Accounts"). Each Member's Capital Account shall be increased by (a) the
amount of any money actually contributed by the Member to the capital of the
Company, (b) the fair market value of any property contributed, as determined by
the Company and the contributing Member at arm's length at the time of
contribution (net of liabilities assumed by the Company or subject to which the
company takes such Property, within the meaning of Section 752 of the Code) and
(c) the Member's share of profits and of any separately allocated items of
income or gain. Each Member's Capital Account shall be decreased by (x) the
amount of any money actually distributed to the Member from the capital of the
Company, (y) the fair market value of any property distributed to the Member, as
determined by the Company and the contributing Member at arm's length at the
time of contribution (net of liabilities of the Company assumed by the Member or
subject to which the Member takes such Property within the meaning of Section
752 of the Code) and (z) the Member's share of losses and of any separately
allocated items of deduction or loss.
b. Distribution of Assets - If the Company at any time
distributes any of its assets in kind to any Member, the Capital Account of each
Member shall be adjusted to account for that Member's allocable share of the net
profits or net losses that would have been realized by the Company had it sold
the assets that were distributed at their respective fair market values
immediately prior to their distribution.
c. Qualified Income Offset - This Section 7 is intended to and
shall constitute a "Qualified Income Offset" as provided by Section
1.704-1(b)(2)(ii)(d) of the Regulations and shall be interpreted consistently
therewith.
d. Minimum Gain Chargeback - If there is a net decrease in
partnership minimum gain or partner minimum gain (as defined in the
Regulations), there shall be specially allocated to the appropriate Members
items of Company income and gain equal to such Member's share of the net
decrease determined in accordance with Sections 1.704-2(g) and 1.704-2(i)(4) of
the Regulations. This provision is intended to comply with the minimum gain
2
<PAGE>
chargeback requirements of Regulations Sections 1.704-2(f) and 1.704-2(i)(4) and
shall be interpreted consistently therewith.
e. Compliance with Section 704(b) of the Code - The provisions
of this Agreement as they relate to the allocation of profits and losses and
items thereof (including depreciation) and the maintenance of Capital Accounts
are intended, and shall be construed, and, if necessary, modified to cause the
allocations of profits, losses, income, gain and credit pursuant to this Section
7 to have substantial economic effect under the Code and the Regulations
promulgated under Section 704(b) of the Code in light of the distributions made
pursuant to this Agreement. This Agreement shall not be construed as creating a
deficit restoration obligation or otherwise personally obligating any Member or
its assignees or successors in interest to make a Capital Contribution in excess
of the Initial Capital Contribution and any Additional Contributions under
Section 6 hereof.
8. Distributions. Each distribution to the Members of cash or other
assets of the Company shall be made in accordance with their respective
Percentage Interests in such amounts and at such times as shall be determined by
the Managing Member (as defined in Section 10 below).
9. Accounting.
a. Books and Records - The records of the Company shall be
maintained based on an accrual basis in accordance with generally accepted
accounting principles, consistently applied.
b. Tax Matters for the Company Handled by the Managing Member
and Tax Matters Partner - The Managing Member (as defined in Section 10 below)
shall from time to time cause the Company to make such tax elections as the
Managing Member deems to be in the best interest of the Company and the Members.
The Tax Matters Partner, as defined in Code Section 6231, shall be St. John and
shall represent the Company (at the Company's expense) in connection with all
examinations of the Company's affairs by tax authorities. The Tax Matters
Partner shall oversee the Company tax affairs in the overall best interests of
the Company. If for any reason the Tax Matters Partner can no longer serve in
that capacity, Members holding a majority interest may designate another Tax
Matters Partner.
10. Management. The Company shall be member-managed. The Act
provides that each Member is an agent of the Company with the power to bind the
Company under the circumstances described in the Act. Nevertheless, the sole
Member and, by joining the Company, the Members agree among themselves that St.
John shall be the managing member of the Company (such Member, and each
successor as managing member appointed in accordance with this Agreement, being
referred to herein as the "Managing Member"), and that all decisions to be made
on behalf of the Company and all actions to be taken on behalf of the Company
shall be made or taken solely by such Managing Member and that no other Member
shall have the power or authority under this Agreement to make any decisions or
take any actions on behalf of the Company. Without limiting the foregoing, the
Managing Member shall have the
3
<PAGE>
sole authority to execute and/or deliver, in furtherance of the Company
business, any deed of trust, promissory note, bill of sale, contract or other
instrument purporting to convey, exchange or encumber any Company asset. The
Managing Member shall not be removed and its duties shall not be limited by any
action taken by or on behalf of any other Member, other than upon the majority
written vote of the Members. Upon any such removal of the Managing Member, upon
the resignation of the Managing Member or upon the Managing Member's ceasing to
act as the Managing Member for any other reason, a successor Managing Member
shall be appointed by the Members, including any successor trustee who has
become a member pursuant to Section 13 below. Any Member may call a meeting of
the Members from time to time by written notice to the other Members. No other
meetings shall be required.
11. Events Giving Rise to Dissolution. The Company shall dissolve
upon the first to occur of the following, and upon no other event or occurrence:
a. the election by Members holding two-thirds of the
Percentage Interests, and the concurrence of the Managing Member, to
dissolve the Company;
b. any event that makes it unlawful for the business of the
Company to be carried on by the Members;
c. the resignation, retirement, withdrawal, dissolution or
voluntary or involuntary bankruptcy of any Member, unless all other
Members vote to continue the Company within 90 days of such event; or
d. January 1, 2043.
12. Liquidation. Upon dissolution of the Company, the assets of the
Company shall be liquidated and the proceeds thereof shell be paid in the
following order:
a. To the Company's creditors in the order of priority
required by law;
b. To a reasonable reserve for reasonably foreseeable
contingent liabilities to be distributed when and as the Members agree;
and
c. Thereafter to the Members in accordance with their
respective Capital Accounts.
13. Assignment of Membership Interests; Admission of New Members. No
Member shall assign any portion or component of his, her or its interest
in the Company and no new or substitute members shall be admitted to the
Company without the unanimous written consent of the Members, which may be
withheld in each Member's sole and absolute discretion. Notwithstanding
the foregoing to the contrary, if any person who is acting as a trustee of
a trust that is a Member shall cease to be a trustee of such trust, the
successor trustee or trustees shall continue to be a Member.
14. Amendment. This Agreement, except with respect to vested rights
of Members, may be amended at any time by a vote of the Members holding a
majority of the
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<PAGE>
Percentage Interests, provided, however, that any amendment to Section 10 above
shall require the consent of St. John. Each Member hereby grants to each other
Member such granting Member's power of attorney to execute any amendment to this
Agreement that is duly adopted in accordance with the foregoing as
attorney-in-fact and agent of such granting Member, which power of attorney
shall be deemed to be coupled with an interest that shall not be revoked until
the termination and winding up of the Company. Each Member agrees to be bound by
each amendment hereto that is duly adopted in accordance with this Agreement,
whether or not such Member actually executes such amendment.
15. Governing Law; Jurisdiction. This Agreement and the rights of
the parties hereunder shall be governed by and interpreted in accordance with
the laws of the State of Delaware.
16. Bank Accounts. Any Member shall be authorized to endorse checks,
drafts or other evidences of indebtedness made payable to the order of the
Company, but only for the purpose of deposit in the Company account; and only
the Managing Member shall be authorized to sign on behalf of the Company all
checks drawn on the Company account.
17. Successors and Assigns. Except as provided in this Agreement to
the contrary, this Agreement shall be binding upon and inure to the benefit of
the parties and their legal representatives, successors and assigns.
IN WITNESS WHEREOF, the undersigned have executed this Agreement as
of the date first above written.
ST. JOHN KNITS, INC.,
a California corporation
By: /s/ Bob Gray
-------------------------------------
Name: Bob Gray
-----------------------------------
Title: Chief Executive Officer
----------------------------------
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EXHIBIT A
CAPITAL CONTRIBUTIONS
Name and Initial Capital Percentage
Address of Contribution and Interest
Initial Members Value --------
- --------------- -----
St. John Knits, Inc. $500,000 100%
A-1
<PAGE>
Exhibit 4.3
ST. JOHN KNITS INTERNATIONAL, INCORPORATED
$100,000,000
12 1/2% Senior Subordinated Notes due 2009
EXCHANGE AND REGISTRATION RIGHTS AGREEMENT
July 7, 1999
CHASE SECURITIES INC.
BEAR, STEARNS & CO. INC.
PAINEWEBBER INCORPORATED
c/o Chase Securities Inc.
270 Park Avenue, 4th floor
New York, New York 10017
Ladies and Gentlemen:
St. John Knits International, Incorporated, a Delaware
corporation (the "COMPANY"), proposes to issue and sell to Chase Securities Inc.
("CSI"), Bear, Stearns & Co. Inc., and PaineWebber Incorporated (together with
CSI, the "INITIAL PURCHASERS"), upon the terms and subject to the conditions set
forth in a purchase agreement dated June __, 1999 (the "PURCHASE AGREEMENT"),
$100,000,000 aggregate principal amount of its 12 1/2% Senior Subordinated Notes
due 2009 (the "NOTES"). The Notes will be unconditionally guaranteed on a senior
subordinated basis (the "GUARANTEES" and, together with the Notes, the
"SECURITIES"), jointly and severally, by all of the domestic subsidiaries of the
Company (the "GUARANTORS") and, together with the Company, the "Issuers").
Capitalized terms used but not defined herein shall have the meanings given to
such terms in the Purchase Agreement.
As an inducement to the Initial Purchasers to enter into the
Purchase Agreement and in satisfaction of a condition to the obligations of the
Initial Purchasers thereunder, the Issuers agree with the Initial Purchasers,
for the benefit of the holders (including the Initial Purchasers) of the
Securities, the Exchange Securities (as defined herein) and the Private Exchange
Securities (as defined herein) (collectively, the "HOLDERS"), as follows:
1. REGISTERED EXCHANGE OFFER. The Issuers shall (i) prepare
and, not later than 90 days following the date of original issuance of the
Securities (the "ISSUE DATE"), file with the Commission a registration statement
(the "EXCHANGE OFFER REGISTRATION STATEMENT") on an appropriate form under the
Securities Act with respect to a proposed offer to the Holders of the Securities
(the "REGISTERED EXCHANGE OFFER") to issue and deliver to such Holders, in
<PAGE>
exchange for the Securities, a like aggregate principal amount of debt
securities of the Company (the "EXCHANGE SECURITIES") that are identical in all
material respects to the Notes and are unconditionally guaranteed by the
Guarantors, except for the transfer restrictions relating to the Securities,
(ii) use their reasonable best efforts to cause the Exchange Offer Registration
Statement to become effective under the Securities Act no later than 150 days
after the Issue Date and the Registered Exchange Offer to be consummated no
later than 180 days after the Issue Date and (iii) keep the Exchange Offer
Registration Statement effective for not less than 30 days (or longer, if
required by applicable law) after the date on which notice of the Registered
Exchange Offer is mailed to the Holders (such period being called the "Exchange
Offer Registration Period"). The Exchange Securities will be issued under the
Indenture or an indenture (the "EXCHANGE SECURITIES INDENTURE") between the
Issuers and the Trustee or such other bank or trust company that is reasonably
satisfactory to the Initial Purchasers, as trustee (the "EXCHANGE SECURITIES
TRUSTEE"), such indenture to be identical in all material respects to the
Indenture, except for the transfer restrictions relating to the Securities (as
described above).
Upon the effectiveness of the Exchange Offer Registration
Statement, the Issuers shall promptly commence the Registered Exchange Offer, it
being the objective of such Registered Exchange Offer to enable each Holder
electing to exchange Securities for Exchange Securities (assuming that such
Holder (a) is not an affiliate of any of the Issuers or an Exchanging Dealer (as
defined herein) not complying with the requirements of the next sentence, (b) is
not an Initial Purchaser holding Securities that have, or that are reasonably
likely to have, the status of an unsold allotment in an initial distribution,
(c) acquires the Exchange Securities in the ordinary course of such Holder's
business and (d) has no arrangements or understandings with any person to
participate in the distribution of the Exchange Securities) to do so and to
trade such Exchange Securities from and after their receipt without any
limitations or restrictions under the Securities Act and without material
restrictions under the securities laws of the several states of the United
States. The Issuers, the Initial Purchasers and each Exchanging Dealer
acknowledge that, pursuant to current interpretations by the Commission's staff
of Section 5 of the Securities Act, each Holder that is a broker-dealer electing
to exchange Securities, acquired for its own account as a result of
market-making activities or other trading activities, for Exchange Securities
(an "EXCHANGING DEALER"), is required to deliver a prospectus containing
substantially the information set forth in Annex A hereto on the cover, in Annex
B hereto in the "Exchange Offer Procedures" section and the "Purpose of the
Exchange Offer" section and in Annex C hereto in the "Plan of Distribution"
section of such prospectus in connection with a sale of any such Exchange
Securities received by such Exchanging Dealer pursuant to the Registered
Exchange Offer.
If, prior to the consummation of the Registered Exchange
Offer, any Holder holds any Securities acquired by it that have, or that are
reasonably likely to be determined to have, the status of an unsold allotment in
an initial distribution, or any Holder is not entitled to participate in the
Registered Exchange Offer, the Issuers shall, upon the request of any such
Holder, simultaneously with the delivery of the Exchange Securities in the
Registered Ex-
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<PAGE>
change Offer, issue and deliver to any such Holder, in exchange for the
Securities held by such Holder (the "PRIVATE EXCHANGE"), a like aggregate
principal amount of debt securities of the Company (the "PRIVATE EXCHANGE
SECURITIES") that are identical in all material respects to the Exchange
Securities and are unconditionally guaranteed by the Guarantors, except for the
transfer restrictions relating to such Private Exchange Securities. The Private
Exchange Securities will be issued under the same indenture as the Exchange
Securities, and the Issuers shall use their reasonable best efforts to cause the
Private Exchange Securities to bear the same CUSIP number as the Exchange
Securities.
In connection with the Registered Exchange Offer, the Issuers
shall:
(a) mail to each Holder a copy of the prospectus forming part
of the Exchange Offer Registration Statement, together with an
appropriate letter of transmittal and related documents;
(b) keep the Registered Exchange Offer open for not less than
30 days (or longer, if required by applicable law) after the date on
which notice of the Registered Exchange Offer is mailed to the Holders;
(c) utilize the services of a depositary for the Registered
Exchange Offer with an address in the Borough of Manhattan, The City of
New York;
(d) permit Holders to withdraw tendered Securities at any time
prior to the close of business, New York City time, on the last
business day on which the Registered Exchange Offer shall remain open;
and
(e) otherwise comply in all respects with all laws that are
applicable to the Registered Exchange Offer.
As soon as practicable after the close of the Registered
Exchange Offer and any Private Exchange, as the case may be, the Issuers shall:
(a) accept for exchange all Securities tendered and not
validly withdrawn pursuant to the Registered Exchange Offer and the
Private Exchange;
(b) deliver to the Trustee for cancellation all Securities so
accepted for exchange; and
(c) cause the Trustee or the Exchange Securities Trustee, as
the case may be, promptly to authenticate and deliver to each Holder,
Exchange Securities or Private Exchange Securities, as the case may be,
equal in principal amount to the Securities of such Holder so accepted
for exchange.
The Issuers shall use their reasonable best efforts to keep
the Exchange Offer Registration Statement effective and to amend and supplement
the prospectus contained
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<PAGE>
therein in order to permit such prospectus to be used by all persons subject to
the prospectus delivery requirements of the Securities Act for such period of
time as such persons must comply with such requirements in order to resell the
Exchange Securities; PROVIDED that (i) in the case where such prospectus and any
amendment or supplement thereto must be delivered by an Exchanging Dealer, such
period shall be the lesser of 180 days and the date on which all Exchanging
Dealers have sold all Exchange Securities held by them and (ii) the Issuers
shall make such prospectus and any amendment or supplement thereto available to
any broker-dealer for use in connection with any resale of any Exchange
Securities for a period of not less than 180 days after the consummation of the
Registered Exchange Offer.
The Indenture or the Exchange Securities Indenture, as the
case may be, shall provide that the Securities, the Exchange Securities and the
Private Exchange Securities shall vote and consent together on all matters as
one class and that none of the Securities, the Exchange Securities or the
Private Exchange Securities will have the right to vote or consent as a separate
class on any matter unless otherwise required by applicable law.
Interest on each Exchange Security and Private Exchange
Security issued pursuant to the Registered Exchange Offer and in the Private
Exchange will accrue from the last interest payment date on which interest was
paid on the Securities surrendered in exchange therefor or, if no interest has
been paid on the Securities, from the Issue Date.
Each Holder participating in the Registered Exchange Offer
shall be required to represent to the Issuers that at the time of the
consummation of the Registered Exchange Offer (i) any Exchange Securities
received by such Holder will be acquired in the ordinary course of business,
(ii) such Holder will have no arrangements or understanding with any person to
participate in the distribution of the Securities or the Exchange Securities
within the meaning of the Securities Act and (iii) such Holder is not an
affiliate of any of the Issuers or, if it is such an affiliate, such Holder will
comply with the registration and prospectus delivery requirements of the
Securities Act to the extent applicable.
Notwithstanding any other provisions hereof, the Issuers shall
ensure that (i) any Exchange Offer Registration Statement and any amendment
thereto and any prospectus forming part thereof and any supplement thereto
complies in all material respects with the Securities Act and the rules and
regulations of the Commission thereunder, (ii) any Exchange Offer Registration
Statement and any amendment thereto does not, when it becomes effective, contain
an untrue statement of a material fact or omit to state a material fact required
to be stated therein or necessary to make the statements therein not misleading
and (iii) any prospectus forming part of any Exchange Offer Registration
Statement, and any supplement to such prospectus, does not, as of the
consummation of the Registered Exchange Offer, include an untrue statement of a
material fact or omit to state a material fact necessary in order to make the
statements therein, in the light of the circumstances under which they were
made, not misleading.
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<PAGE>
2. SHELF REGISTRATION. If (i) because of any change in law or
applicable interpretations thereof by the Commission's staff the Issuers are not
permitted to effect the Registered Exchange Offer as contemplated by Section 1
hereof, or (ii) any Securities validly tendered pursuant to the Registered
Exchange Offer are not exchanged for Exchange Securities within 180 days after
the Issue Date, or (iii) any Initial Purchaser so requests with respect to
Securities or Private Exchange Securities not eligible to be exchanged for
Exchange Securities in the Registered Exchange Offer and held by it following
the consummation of the Registered Exchange Offer, or (iv) any applicable law or
interpretations do not permit any Holder to participate in the Registered
Exchange Offer, or (v) any Holder that participates in the Registered Exchange
Offer does not receive freely transferable Exchange Securities in exchange for
tendered Securities, or (vi) the Issuers so elect, then the following provisions
shall apply:
(a) The Issuers shall use their reasonable best efforts to
file as promptly as practicable (but in no event more than 45 days
after so required or requested pursuant to this Section 2) with the
Commission, and thereafter shall use its reasonable best efforts to
cause to be declared effective, a shelf registration statement on an
appropriate form under the Securities Act relating to the offer and
sale of the Transfer Restricted Securities (as defined below) by the
Holders thereof from time to time in accordance with the methods of
distribution set forth in such registration statement (hereafter, a
"SHELF REGISTRATION STATEMENT" and, together with any Exchange Offer
Registration Statement, a "REGISTRATION STATEMENT").
(b) The Issuers shall use their reasonable best efforts to
keep the Shelf Registration Statement continuously effective in order
to permit the prospectus forming part thereof to be used by Holders of
Transfer Restricted Securities for a period ending on the earlier of
(i) two years from the Issue Date or such shorter period that will
terminate when all the Transfer Restricted Securities covered by the
Shelf Registration Statement have been sold pursuant thereto and (ii)
the date on which the Transfer Restricted Securities become eligible
for resale without volume restrictions pursuant to Rule 144 under the
Securities Act (in any such case, such period being called the "SHELF
REGISTRATION PERIOD"). The Issuers shall be deemed not to have used
their reasonable best efforts to keep the Shelf Registration Statement
effective during the requisite period if any of the Issuers voluntarily
takes any action that would result in Holders of Transfer Restricted
Securities covered thereby not being able to offer and sell such
Transfer Restricted Securities during that period, unless such action
is required by applicable law.
(c) Notwithstanding any other provisions hereof, the Issuers
shall ensure that (i) any Shelf Registration Statement and any
amendment thereto and any prospectus forming part thereof and any
supplement thereto complies in all material respects with the
Securities Act and the rules and regulations of the Commission
thereunder, (ii) any Shelf Registration Statement and any amendment
thereto (in either
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<PAGE>
case, other than with respect to information included therein in
reliance upon or in conformity with written information furnished to
the Issuers by or on behalf of any Holder specifically for use therein
(the "HOLDERS' INFORMATION")) does not contain an untrue statement of a
material fact or omit to state a material fact required to be stated
therein or necessary to make the statements therein not misleading and
(iii) any prospectus forming part of any Shelf Registration Statement,
and any supplement to such prospectus (in either case, other than with
respect to Holders' Information), does not include an untrue statement
of a material fact or omit to state a material fact necessary in order
to make the statements therein, in the light of the circumstances under
which they were made, not misleading.
3. LIQUIDATED DAMAGES. (a) The parties hereto agree that the
Holders of Transfer Restricted Securities will suffer damages if the Issuers
fail to fulfill their obligations under Section 1 or Section 2, as applicable,
and that it would not be feasible to ascertain the extent of such damages.
Accordingly, if (i) the applicable Registration Statement is not filed within 90
days after the Issue Date (or, in the case of a Shelf Registration Statement
required to be filed in response to a change in law or applicable
interpretations of the staff of the Commission, if later, within 45 days after
publication of such change in law or interpretation, but in no event before 90
days after the Issue Date); (ii) the Exchange Offer Registration Statement or
the Shelf Registration Statement, as the case may be, is not declared effective
within 150 days after the Issue Date (or, in the case of a Shelf Registration
Statement required to be filed in response to a change in law or the applicable
interpretations of the Commission's staff, if later, within 60 days after
publication of such change in law or interpretation, but in no event before 150
days after the Issue Date); (iii) the Registered Exchange Offer is not
consummated on or prior to 180 days after the Issue Date (other than in the
event the Company files a Shelf Registration Statement); or (iv) if applicable,
the Shelf Registration Statement is filed and declared effective within the time
periods specified in clause (ii) above but shall thereafter cease to be
effective (at any time that the Issuers are obligated to maintain the
effectiveness thereof) without being succeeded within 45 days by an additional
Registration Statement filed and declared effective (each such event referred to
in clauses (i) through (iv), a "REGISTRATION DEFAULT"), the Issuers will be
obligated to pay liquidated damages ("LIQUIDATED DAMAGES") to each Holder of
Transfer Restricted Securities, during the period of one or more such
Registration Defaults, in an amount equal to $0.192 per week per $1,000
principal amount of Transfer Restricted Securities held by such Holder until (i)
the applicable Registration Statement is filed, (ii) the Exchange Offer
Registration Statement is declared effective and the Registered Exchange Offer
is consummated, (iii) the Shelf Registration Statement is declared effective or
(iv) the Shelf Registration Statement again becomes effective, as the case may
be. Following the cure of all Registration Defaults, the accrual of Liquidated
Damages will cease. As used herein, the term "TRANSFER RESTRICTED Securities"
means (i) each Security until the date on which such Security has been exchanged
for a freely transferable Exchange Security in the Registered Exchange Offer,
(ii) each Security or Private Exchange Security until the date on which it has
been effectively registered under the Securities Act and disposed of in
accordance with the Shelf Registration Statement or (iii) each Security or
Private Ex-
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<PAGE>
change Security until the date on which it is distributed to the public pursuant
to Rule 144 under the Securities Act or is saleable pursuant to Rule 144(k)
under the Securities Act. Notwithstanding anything to the contrary in this
Section 3(a), the Issuers shall not be required to pay liquidated damages to a
Holder of Transfer Restricted Securities if such Holder failed to comply with
its obligations to make the representations set forth in the second to last
paragraph of Section 1 or failed to provide the information required to be
provided by it, if any, pursuant to Section 4(n).
(b) The Issuers shall notify the Trustee and the Paying Agent
under the Indenture immediately upon the happening of each and every
Registration Default. The Issuers shall pay the liquidated damages due on the
Transfer Restricted Securities by depositing with the Paying Agent (which may
not be any of the Issuers for these purposes), in trust, for the benefit of the
Holders thereof, prior to 10:00 a.m., New York City time, on the next interest
payment date specified by the Indenture and the Securities, sums sufficient to
pay the liquidated damages then due. The liquidated damages due shall be payable
on each interest payment date specified by the Indenture and the Securities to
the record holder entitled to receive the interest payment to be made on such
date. Each obligation to pay liquidated damages shall be deemed to accrue from
and including the date of the applicable Registration Default.
(c) The parties hereto agree that the liquidated damages
provided for in this Section 3 constitute a reasonable estimate of and are
intended to constitute the sole damages that will be suffered by Holders of
Transfer Restricted Securities by reason of the failure of (i) the Shelf
Registration Statement or the Exchange Offer Registration Statement to be filed,
(ii) the Shelf Registration Statement to remain effective or (iii) the Exchange
Offer Registration Statement to be declared effective and the Registered
Exchange Offer to be consummated, in each case to the extent required by this
Agreement.
4. REGISTRATION PROCEDURES. In connection with any
Registration Statement, the following provisions shall apply:
(a) The Issuers shall (i) furnish to each Initial Purchaser,
prior to the filing thereof with the Commission, a copy of the
Registration Statement and each amendment thereof and each supplement,
if any, to the prospectus included therein and shall use their
reasonable best efforts to reflect in each such document, when so filed
with the Commission, such comments as any Initial Purchaser may
reasonably propose; (ii) include the information set forth in Annex A
hereto on the cover, in Annex B hereto in the "Exchange Offer
Procedures" section and the "Purpose of the Exchange Offer" section and
in Annex C hereto in the "Plan of Distribution" section of the
prospectus forming a part of the Exchange Offer Registration Statement,
and include the information set forth in Annex D hereto in the Letter
of Transmittal delivered pursuant to the Registered Exchange Offer; and
(iii) if requested by any Initial Purchaser, include the information
required by Items 507 or 508 of Regulation S-K, as applicable, in the
prospectus forming a part of the Exchange Offer Registration Statement.
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<PAGE>
(b) The Issuers shall advise each Initial Purchaser, each
Exchanging Dealer and the Holders (if applicable) and, if requested by
any such person, confirm such advice in writing (which advice pursuant
to clauses (ii)-(v) hereof shall be accompanied by an instruction to
suspend the use of the prospectus until the requisite changes have been
made):
(i) when any Registration Statement and any amendment
thereto has been filed with the Commission and when such
Registration Statement or any post-effective amendment thereto
has become effective;
(ii) of any request by the Commission for amendments
or supplements to any Registration Statement or the prospectus
included therein or for additional information;
(iii) of the issuance by the Commission of any stop
order suspending the effectiveness of any Registration
Statement or the initiation of any proceedings for that
purpose;
(iv) of the receipt by the Issuers of any
notification with respect to the suspension of the
qualification of the Securities, the Exchange Securities or
the Private Exchange Securities for sale in any jurisdiction
or the initiation or threatening of any proceeding for such
purpose; and
(v) of the happening of any event that requires the
making of any changes in any Registration Statement or the
prospectus included therein in order that the statements
therein are not misleading and do not omit to state a material
fact required to be stated therein or necessary to make the
statements therein not misleading.
(c) The Issuers will make every reasonable effort to obtain
the withdrawal at the earliest possible time of any order suspending
the effectiveness of any Registration Statement.
(d) The Issuers will furnish to each Holder of Transfer
Restricted Securities included within the coverage of any Shelf
Registration Statement, without charge, at least one conformed copy of
such Shelf Registration Statement and any post-effective amendment
thereto, including financial statements and schedules and, if any such
Holder so requests in writing, all exhibits thereto (including those,
if any, incorporated by reference).
(e) The Issuers will, during the Shelf Registration Period,
promptly deliver to each Holder of Transfer Restricted Securities
included within the coverage of any Shelf Registration Statement,
without charge, as many copies of the prospectus (including each
preliminary prospectus) included in such Shelf Registration Statement
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<PAGE>
and any amendment or supplement thereto as such Holder may reasonably
request; and the Issuers consent to the use of such prospectus or any
amendment or supplement thereto by each of the selling Holders of
Transfer Restricted Securities in connection with the offer and sale of
the Transfer Restricted Securities covered by such prospectus or any
amendment or supplement thereto.
(f) The Issuers will furnish to each Initial Purchaser and
each Exchanging Dealer, and to any other Holder who so requests,
without charge, at least one conformed copy of the Exchange Offer
Registration Statement and any post-effective amendment thereto,
including financial statements and schedules and, if any Initial
Purchaser or Exchanging Dealer or any such Holder so requests in
writing, all exhibits thereto (including those, if any, incorporated by
reference).
(g) The Issuers will, during the Exchange Offer Registration
Period or the Shelf Registration Period, as applicable, promptly
deliver to each Initial Purchaser, each Exchanging Dealer and such
other persons that are required to deliver a prospectus following the
Registered Exchange Offer, without charge, as many copies of the final
prospectus included in the Exchange Offer Registration Statement or the
Shelf Registration Statement and any amendment or supplement thereto as
such Initial Purchaser, Exchanging Dealer or other persons may
reasonably request; and the Issuers consent to the use of such
prospectus or any amendment or supplement thereto by any such Initial
Purchaser, Exchanging Dealer or other persons, as applicable, as
aforesaid.
(h) Prior to the effective date of any Registration Statement,
the Issuers will use their reasonable best efforts to register or
qualify, or cooperate with the Holders of Securities, Exchange
Securities or Private Exchange Securities included therein and their
respective counsel in connection with the registration or qualification
of, such Securities, Exchange Securities or Private Exchange Securities
for offer and sale under the securities or blue sky laws of such
jurisdictions as any such Holder reasonably requests in writing and do
any and all other acts or things necessary or advisable to enable the
offer and sale in such jurisdictions of the Securities, Exchange
Securities or Private Exchange Securities covered by such Registration
Statement; PROVIDED that none of the Issuers will be required to
qualify generally to do business in any jurisdiction where it is not
then so qualified or to take any action which would subject it to
general service of process or to taxation in any such jurisdiction
where it is not then so subject.
(i) The Issuers will cooperate with the Holders of Securities,
Exchange Securities or Private Exchange Securities to facilitate the
timely preparation and delivery of certificates representing
Securities, Exchange Securities or Private Exchange Securities to be
sold pursuant to any Registration Statement free of any restrictive
legends and in such denominations and registered in such names as the
Holders thereof may
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<PAGE>
request in writing prior to sales of Securities, Exchange Securities or
Private Exchange Securities pursuant to such Registration Statement.
(j) If any event contemplated by Section 4(b)(ii) through (v)
occurs during the period for which the Issuers are required to maintain
an effective Registration Statement, the Issuers will promptly prepare
and file with the Commission a post-effective amendment to the
Registration Statement or a supplement to the related prospectus or
file any other required document so that, as thereafter delivered to
purchasers of the Securities, Exchange Securities or Private Exchange
Securities from a Holder, the prospectus will not include an untrue
statement of a material fact or omit to state a material fact necessary
in order to make the statements therein, in the light of the
circumstances under which they were made, not misleading.
(k) Not later than the effective date of the applicable
Registration Statement, the Issuers will provide a CUSIP number for the
Securities, the Exchange Securities and the Private Exchange
Securities, as the case may be, and provide the applicable trustee with
printed certificates for the Securities, the Exchange Securities or the
Private Exchange Securities, as the case may be, in a form eligible for
deposit with The Depository Trust Company.
(l) The Company will comply with all applicable rules and
regulations of the Commission and will make generally available to its
security holders as soon as practicable after the effective date of the
applicable Registration Statement an earning statement satisfying the
provisions of Section 11(a) of the Securities Act; PROVIDED that in no
event shall such earning statement be delivered later than 45 days
after the end of a 12-month period (or 90 days, if such period is a
fiscal year) beginning with the first month of the Company's first
fiscal quarter commencing after the effective date of the applicable
Registration Statement, which statement shall cover such 12-month
period.
(m) The Issuers will cause the Indenture or the Exchange
Securities Indenture, as the case may be, to be qualified under the
Trust Indenture Act as required by applicable law in a timely manner.
(n) The Issuers may require each Holder of Transfer Restricted
Securities to be registered pursuant to any Shelf Registration
Statement to furnish to the Issuers such information concerning the
Holder and the distribution of such Transfer Restricted Securities as
the Issuers may from time to time reasonably require for inclusion in
such Shelf Registration Statement, and the Issuers may exclude from
such registration the Transfer Restricted Securities of any Holder that
fails to furnish such information within a reasonable time after
receiving such request.
(o) In the case of a Shelf Registration Statement, each Holder
of Transfer Restricted Securities to be registered pursuant thereto
agrees by acquisition of such Transfer Restricted Securities that, upon
receipt of any notice from the Issuers pursu-
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<PAGE>
ant to Section 4(b)(ii) through (v), such Holder will discontinue
disposition of such Transfer Restricted Securities until such Holder's
receipt of copies of the supplemental or amended prospectus
contemplated by Section 4(j) or until advised in writing (the "ADVICE")
by the Issuers that the use of the applicable prospectus may be
resumed. If the Issuers shall give any notice under Section 4(b)(ii)
through (v) during the period that the Issuers are required to maintain
an effective Registration Statement (the "EFFECTIVENESS PERIOD"), such
Effectiveness Period shall be extended by the number of days during
such period from and including the date of the giving of such notice to
and including the date when each seller of Transfer Restricted
Securities covered by such Registration Statement shall have received
(x) the copies of the supplemental or amended prospectus contemplated
by Section 4(j) (if an amended or supplemental prospectus is required)
or (y) the Advice (if no amended or supplemental prospectus is
required).
(p) In the case of a Shelf Registration Statement, the Issuers
shall enter into such customary agreements (including, if requested, an
underwriting agreement in customary form) and take all such other
action, if any, as Holders of a majority in aggregate principal amount
of the Securities, Exchange Securities and Private Exchange Securities
being sold or the managing underwriters (if any) shall reasonably
request in order to facilitate any disposition of Securities, Exchange
Securities or Private Exchange Securities pursuant to such Shelf
Registration Statement.
(q) In the case of a Shelf Registration Statement, each of the
Issuers shall (i) make reasonably available for inspection by a
representative of, and Special Counsel (as defined below) acting for,
Holders of a majority in aggregate principal amount of the Securities,
Exchange Securities and Private Exchange Securities being sold and any
underwriter participating in any disposition of Securities, Exchange
Securities or Private Exchange Securities pursuant to such Shelf
Registration Statement, all relevant financial and other records,
pertinent corporate documents and properties of such Issuer and (ii)
use its reasonable best efforts to have its officers, directors,
employees, accountants and counsel supply all relevant information
reasonably requested by such representative, Special Counsel or any
such underwriter (an "INSPECTOR") in connection with such Shelf
Registration Statement.
(r) In the case of a Shelf Registration Statement, each of the
Issuers shall, if requested by Holders of a majority in aggregate
principal amount of the Securities, Exchange Securities and Private
Exchange Securities being sold, their Special Counsel or the managing
underwriters (if any) in connection with such Shelf Registration
Statement, use its reasonable best efforts to cause (i) its counsel to
deliver an opinion relating to the Shelf Registration Statement and the
Securities, Exchange Securities or Private Exchange Securities, as
applicable, in customary form, (ii) its officers to execute and deliver
all customary documents and certificates requested by Holders of a
majority in aggregate principal amount of the Securities, Exchange
Securities and Pri-
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<PAGE>
vate Exchange Securities being sold, their Special Counsel or the
managing underwriters (if any) and (iii) the Company and its
subsidiaries' independent public accountants to provide a comfort
letter or letters in customary form, subject to receipt of appropriate
documentation as contemplated, and only if permitted, by Statement of
Auditing Standards No. 72.
(s) The Issuers may suspend the use of a prospectus contained
in a Registration Statement for a period not to exceed 30 days in any
three-month period for valid business reasons to be determined by the
Issuers in their sole reasonable judgment; PROVIDED, HOWEVER, that such
business reasons may not include the avoidance of the Issuers'
obligations hereunder.
5. REGISTRATION EXPENSES. The Issuers shall bear all expenses
incurred in connection with the performance of its obligations under Sections 1,
2, 3 and 4 (other than brokers', dealers' and underwriters' discounts and
commissions and brokers' dealers' and underwriters' counsel's fees) and the
Issuers, jointly and severally, shall reimburse the Initial Purchasers and the
Holders for the reasonable fees and disbursements of one firm of attorneys (in
addition to any local counsel) chosen by the Holders of a majority in aggregate
principal amount of the Securities, the Exchange Securities and the Private
Exchange Securities to be sold pursuant to each Registration Statement (the
"SPECIAL COUNSEL") acting for the Initial Purchasers or Holders in connection
therewith.
6. INDEMNIFICATION. (a) In the event of a Shelf Registration
Statement or in connection with any prospectus delivery pursuant to an Exchange
Offer Registration Statement by an Initial Purchaser or Exchanging Dealer, as
applicable, the Issuers, jointly and severally shall indemnify and hold harmless
each Holder (including, without limitation, any such Initial Purchaser or
Exchanging Dealer), its affiliates, their respective officers, directors,
employees, representatives and agents, and each person, if any, who controls
such Holder within the meaning of the Securities Act or the Exchange Act
(collectively referred to for purposes of this Section 6 and Section 7 as a
Holder) from and against any loss, claim, damage or liability, joint or several,
or any action in respect thereof (including, without limitation, any loss,
claim, damage, liability or action relating to purchases and sales of
Securities, Exchange Securities or Private Exchange Securities), to which that
Holder may become subject, whether commenced or threatened, under the Securities
Act, the Exchange Act, any other federal or state statutory law or regulation,
at common law or otherwise, insofar as such loss, claim, damage, liability or
action arises out of, or is based upon, (i) any untrue statement or alleged
untrue statement of a material fact contained in any such Registration Statement
or any prospectus forming part thereof or in any amendment or supplement thereto
or (ii) the omission or alleged omission to state therein a material fact
required to be stated therein or necessary in order to make the statements
therein, in the light of the circumstances under which they were made, not
misleading, and shall reimburse each Holder promptly upon demand for any legal
or other expenses reasonably incurred by that Holder in connection with
investigating or defending or preparing to defend against or appearing as a
third party witness in connection with
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<PAGE>
any such loss, claim, damage, liability or action as such expenses are incurred;
PROVIDED, HOWEVER, that none of the Issuers shall be liable in any such case to
the extent that any such loss, claim, damage, liability or action arises out of,
or is based upon, an untrue statement or alleged untrue statement in or omission
or alleged omission from any of such documents in reliance upon and in
conformity with any Holders' Information; and PROVIDED, FURTHER, that with
respect to any such untrue statement in or omission from any related preliminary
prospectus, the indemnity agreement contained in this Section 6(a) shall not
inure to the benefit of any Holder from whom the person asserting any such loss,
claim, damage, liability or action received Securities, Exchange Securities or
Private Exchange Securities to the extent that such loss, claim, damage,
liability or action of or with respect to such Holder results from the fact that
both (A) a copy of the final prospectus was not sent or given to such person at
or prior to the written confirmation of the sale of such Securities, Exchange
Securities or Private Exchange Securities to such person and (B) the untrue
statement in or omission from the related preliminary prospectus was corrected
in the final prospectus unless, in either case, such failure to deliver the
final prospectus was a result of non-compliance by the Issuers with Section
4(d), 4(e), 4(f) or 4(g).
(b) In the event of a Shelf Registration Statement, each
Holder shall indemnify and hold harmless each of the Issuers, their affiliates,
their respective officers, directors, members, employees, representatives and
agents, and each person, if any, who controls any Issuer within the meaning of
the Securities Act or the Exchange Act (collectively referred to, for purposes
of this Section 6(b) and Section 7, as the "Issuers"), from and against any
loss, claim, damage or liability, joint or several, or any action in respect
thereof, to which any of the Issuers may become subject, whether commenced or
threatened, under the Securities Act, the Exchange Act, any other federal or
state statutory law or regulation, at common law or otherwise, insofar as such
loss, claim, damage, liability or action arises out of, or is based upon, (i)
any untrue statement or alleged untrue statement of a material fact contained in
any such Registration Statement or any prospectus forming part thereof or in any
amendment or supplement thereto or (ii) the omission or alleged omission to
state therein a material fact required to be stated therein or necessary in
order to make the statements therein, in the light of the circumstances under
which they were made, not misleading, but in each case only to the extent that
the untrue statement or alleged untrue statement or omission or alleged omission
was made in reliance upon and in conformity with any Holders' Information
furnished to the Issuers by such Holder, and shall reimburse the Issuers for any
legal or other expenses reasonably incurred by the Issuers in connection with
investigating or defending or preparing to defend against or appearing as a
third party witness in connection with any such loss, claim, damage, liability
or action as such expenses are incurred; PROVIDED, however, that no such Holder
shall be liable for any indemnity claims hereunder in excess of the amount of
net proceeds received by such Holder from the sale of Securities, Exchange
Securities or Private Exchange Securities pursuant to such Shelf Registration
Statement.
(c) Promptly after receipt by an indemnified party under this
Section 6 of notice of any claim or the commencement of any action, the
indemnified party shall, if a claim
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<PAGE>
in respect thereof is to be made against the indemnifying party pursuant to
Section 6(a) or 6(b), notify the indemnifying party in writing of the claim or
the commencement of that action; PROVIDED, HOWEVER, that the failure to notify
the indemnifying party shall not relieve it from any liability which it may have
under this Section 6 except to the extent that it has been materially prejudiced
(through the forfeiture of substantive rights or defenses) by such failure; and
PROVIDED FURTHER, HOWEVER, that the failure to notify the indemnifying party
shall not relieve it from any liability which it may have to an indemnified
party otherwise than under this Section 6. If any such claim or action shall be
brought against an indemnified party, and it shall notify the indemnifying party
thereof, the indemnifying party shall be entitled to participate therein and, to
the extent that it wishes, jointly with any other similarly notified
indemnifying party, to assume the defense thereof with counsel reasonably
satisfactory to the indemnified party. After notice from the indemnifying party
to the indemnified party of its election to assume the defense of such claim or
action, the indemnifying party shall not be liable to the indemnified party
under this Section 6 for any legal or other expenses subsequently incurred by
the indemnified party in connection with the defense thereof other than the
reasonable costs of investigation; PROVIDED, HOWEVER, that an indemnified party
shall have the right to employ its own counsel in any such action, but the fees,
expenses and other charges of such counsel for the indemnified party will be at
the expense of such indemnified party unless (1) the employment of counsel by
the indemnified party has been authorized in writing by the indemnifying party,
(2) the indemnified party has reasonably concluded (based upon advice of counsel
to the indemnified party) that there may be legal defenses available to it or
other indemnified parties that are different from or in addition to those
available to the indemnifying party, (3) a conflict or potential conflict exists
(based upon advice of counsel to the indemnified party) between the indemnified
party and the indemnifying party (in which case the indemnifying party will not
have the right to direct the defense of such action on behalf of the indemnified
party) or (4) the indemnifying party has not in fact employed counsel reasonably
satisfactory to the indemnified party to assume the defense of such action
within a reasonable time after receiving notice of the commencement of the
action, in each of which cases the reasonable fees, disbursements and other
charges of counsel will be at the expense of the indemnifying party or parties.
It is understood that the indemnifying party or parties shall not, in connection
with any proceeding or related proceedings in the same jurisdiction, be liable
for the reasonable fees, disbursements and other charges of more than one
separate firm of attorneys (in addition to any local counsel) at any one time
for all such indemnified party or parties. Each indemnified party, as a
condition of the indemnity agreements contained in Sections 6(a) and 6(b), shall
use all reasonable efforts to cooperate with the indemnifying party in the
defense of any such action or claim. No indemnifying party shall be liable for
any settlement of any such action effected without its written consent (which
consent shall not be unreasonably withheld), but if settled with its written
consent or if there be a final judgment for the plaintiff in any such action,
the indemnifying party agrees to indemnify and hold harmless any indemnified
party from and against any loss or liability by reason of such settlement or
judgment. No indemnifying party shall, without the prior written consent of the
indemnified party (which consent shall not be unreasonably withheld), effect any
settlement of any pending or threatened proceeding in respect of which any
indemnified party is or could have been a
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<PAGE>
party and indemnity could have been sought hereunder by such indemnified party,
unless such settlement includes an unconditional release of such indemnified
party from all liability on claims that are the subject matter of such
proceeding.
7. CONTRIBUTION. If the indemnification provided for in
Section 6 is unavailable or insufficient to hold harmless an indemnified party
under Section 6(a) or 6(b), then each indemnifying party shall, in lieu of
indemnifying such indemnified party, contribute to the amount paid or payable by
such indemnified party as a result of such loss, claim, damage or liability, or
action in respect thereof, (i) in such proportion as shall be appropriate to
reflect the relative benefits received by the Issuers from the offering and sale
of the Securities, on the one hand, and a Holder with respect to the sale by
such Holder of Securities, Exchange Securities or Private Exchange Securities,
on the other, or (ii) if the allocation provided by clause (i) above is not
permitted by applicable law, in such proportion as is appropriate to reflect not
only the relative benefits referred to in clause (i) above but also the relative
fault of the Issuers on the one hand and such Holder on the other with respect
to the statements or omissions that resulted in such loss, claim, damage or
liability, or action in respect thereof, as well as any other relevant equitable
considerations. The relative benefits received by the Issuers on the one hand
and a Holder on the other with respect to such offering and such sale shall be
deemed to be in the same proportion as the total net proceeds from the offering
of the Securities (before deducting expenses) received by or on behalf of the
Issuers, on the one hand, bear to the total proceeds received by such Holder
with respect to its sale of Securities, Exchange Securities or Private Exchange
Securities, on the other. The relative fault shall be determined by reference
to, among other things, whether the untrue or alleged untrue statement of a
material fact or the omission or alleged omission to state a material fact
relates to any of the Issuers or information supplied by any of the Issuers on
the one hand or to any Holders' Information supplied by such Holder on the
other, the intent of the parties and their relative knowledge, access to
information and opportunity to correct or prevent such untrue statement or
omission. The parties hereto agree that it would not be just and equitable if
contributions pursuant to this Section 7 were to be determined by PRO RATA
allocation or by any other method of allocation that does not take into account
the equitable considerations referred to herein. The amount paid or payable by
an indemnified party as a result of the loss, claim, damage or liability, or
action in respect thereof, referred to above in this Section 7 shall be deemed
to include, for purposes of this Section 7, any legal or other expenses
reasonably incurred by such indemnified party in connection with investigating
or defending or preparing to defend any such action or claim. Notwithstanding
the provisions of this Section 7, an indemnifying party that is a Holder of
Securities, Exchange Securities or Private Exchange Securities shall not be
required to contribute any amount in excess of the amount by which the total
price at which the Securities, Exchange Securities or Private Exchange
Securities sold by such indemnifying party to any purchaser exceeds the amount
of any damages which such indemnifying party has otherwise paid or become liable
to pay by reason of any untrue or alleged untrue statement or omission or
alleged omission. No person guilty of fraudulent misrepresentation (within the
meaning of Section 11(f) of the Securities Act) shall be entitled to
contribution from any person who was not guilty of such fraudulent
misrepresentation.
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<PAGE>
8. RULES 144 AND 144A. The Company shall use its reasonable
best efforts to file the reports required to be filed by it under the Securities
Act and the Exchange Act in a timely manner and, if at any time the Company is
not required to file such reports, it will, upon the written request of any
Holder of Transfer Restricted Securities, make publicly available other
information so long as necessary to permit sales of such Holder's securities
pursuant to Rules 144 and 144A. The Company covenants that it will take such
further action as any Holder of Transfer Restricted Securities may reasonably
request, all to the extent required from time to time to enable such Holder to
sell Transfer Restricted Securities without registration under the Securities
Act within the limitation of the exemptions provided by Rules 144 and 144A
(including, without limitation, the requirements of Rule 144A(d)(4)). Upon the
written request of any Holder of Transfer Restricted Securities, the Company
shall deliver to such Holder a written statement as to whether it has complied
with such requirements. Notwithstanding the foregoing, nothing in this Section 8
shall be deemed to require any of the Issuers to register any of its securities
pursuant to the Exchange Act.
9. UNDERWRITTEN REGISTRATIONS. If any of the Transfer
Restricted Securities covered by any Shelf Registration Statement are to be sold
in an underwritten offering, the investment banker or investment bankers and
manager or managers that will administer the offering will be selected by the
Holders of a majority in aggregate principal amount of such Transfer Restricted
Securities included in such offering, subject to the consent of the Issuers
(which shall not be unreasonably withheld or delayed), and such Holders shall be
responsible for all underwriting commissions and discounts in connection
therewith.
No person may participate in any underwritten registration
hereunder unless such person (i) agrees to sell such person's Transfer
Restricted Securities on the basis reasonably provided in any underwriting
arrangements approved by the persons entitled hereunder to approve such
arrangements and (ii) completes and executes all questionnaires, powers of
attorney, indemnities, underwriting agreements and other documents reasonably
required under the terms of such underwriting arrangements.
10. MISCELLANEOUS.
(a) AMENDMENTS AND WAIVERS. The provisions of this Agreement
may not be amended, modified or supplemented, and waivers or consents to
departures from the provisions hereof may not be given, unless the Issuers have
obtained the written consent of Holders of a majority in aggregate principal
amount of the Securities, the Exchange Securities and the Private Exchange
Securities, taken as a single class. Notwithstanding the foregoing, a waiver or
consent to depart from the provisions hereof with respect to a matter that
relates exclusively to the rights of Holders whose Securities, Exchange
Securities or Private Exchange Securities are being sold pursuant to a
Registration Statement and that does not directly or indirectly affect the
rights of other Holders may be given by Holders of a majority in aggregate
principal amount of the Securities, the Exchange Securities and the Private
Exchange Securities being sold by such Holders pursuant to such Registration
Statement.
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<PAGE>
(b) NOTICES. All notices and other communications provided for
or permitted hereunder shall be made in writing by hand-delivery, first-class
mail, telecopier or air courier guaranteeing next-day delivery:
(1) if to a Holder, at the most current address given by
such Holder to the Company in accordance with the provisions of this
Section 10(b), which address initially is, with respect to each Holder,
the address of such Holder maintained by the Registrar under the
Indenture, with a copy in like manner to Chase Securities Inc. Bear,
Stearns & Co. Inc. and PaineWebber Incorporated;
(2) if to an Initial Purchaser, initially at its address set
forth in the Purchase Agreement; and
(3) if to the Issuers, initially at the address of the
Company set forth in the Purchase Agreement.
All such notices and communications shall be deemed to have
been duly given: when delivered by hand, if personally delivered; one business
day after being delivered to a next-day air courier; five business days after
being deposited in the mail; and when receipt is acknowledged by the recipient's
telecopier machine, if sent by telecopier.
(c) SUCCESSORS AND ASSIGNS. This Agreement shall be binding
upon the Issuers and their respective successors and assigns.
(d) COUNTERPARTS. This Agreement may be executed in any number
of counterparts (which may be delivered in original form or by telecopier) and
by the parties hereto in separate counterparts, each of which when so executed
shall be deemed to be an original and all of which taken together shall
constitute one and the same agreement.
(e) DEFINITION OF TERMS. For purposes of this Agreement, (a)
the term "business day" means any day on which the New York Stock Exchange, Inc.
is open for trading, (b) the term "subsidiary" has the meaning set forth in Rule
405 under the Securities Act and (c) except where otherwise expressly provided,
the term "affiliate" has the meaning set forth in Rule 405 under the Securities
Act.
(f) HEADINGS. The headings in this Agreement are for
convenience of reference only and shall not limit or otherwise affect the
meaning hereof.
(g) GOVERNING LAW. THIS AGREEMENT SHALL BE GOVERNED BY AND
CONSTRUED IN ACCORDANCE WITH THE INTERNAL LAWS OF THE STATE OF NEW YORK WITHOUT
GIVING EFFECT TO THE CONFLICTS OF LAW PRINCIPLES THEREOF TO THE EXTENT THAT THE
APPLICATION OF THE LAW OF ANOTHER JURISDICTION WOULD BE REQUIRED THEREBY. EACH
OF THE PARTIES HERETO AGREES TO SUBMIT TO THE JURISDICTION OF THE COURTS OF THE
STATE OF NEW YORK IN ANY ACTION OR PROCEEDING ARISING OUT OF OR RELATING TO THIS
AGREEMENT.
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<PAGE>
(h) REMEDIES. In the event of a breach by any of the Issuers
or by any Holder of any of their obligations under this Agreement, each Holder
or the Issuers, as the case may be, in addition to being entitled to exercise
all rights granted by law, including recovery of damages (other than the
recovery of damages for a breach by any of the Issuers of its obligations under
Sections 1 or 2 hereof for which liquidated damages have been paid pursuant to
Section 3 hereof), will be entitled to specific performance of its rights under
this Agreement. The Issuers and each Holder agree that monetary damages would
not be adequate compensation for any loss incurred by reason of a breach by it
of any of the provisions of this Agreement and hereby further agree that, in the
event of any action for specific performance in respect of such breach, it shall
waive the defense that a remedy at law would be adequate.
(i) NO INCONSISTENT AGREEMENTS. Each of the Issuers
represents, warrants and agrees that (i) it has not entered into, and shall not,
on or after the date of this Agreement, enter into any agreement that is
inconsistent with the rights granted to the Holders in this Agreement or
otherwise conflicts with the provisions hereof, (ii) it has not previously
entered into any agreement which remains in effect granting any registration
rights with respect to any of its debt securities to any person and (iii)
without limiting the generality of the foregoing, without the written consent of
the Holders of a majority in aggregate principal amount of the then outstanding
Transfer Restricted Securities, it shall not grant to any person the right to
request the Company to register any debt securities of the Company under the
Securities Act unless the rights so granted are not in conflict or inconsistent
with the provisions of this Agreement.
(j) NO PIGGYBACK ON REGISTRATIONS. Neither the Issuers nor any
of their respective security holders (other than the Holders of Transfer
Restricted Securities in such capacity) shall have the right to include any
securities of the Company in any Shelf Registration or Registered Exchange Offer
other than Transfer Restricted Securities.
(k) SEVERABILITY. The remedies provided herein are cumulative
and not exclusive of any remedies provided by law. If any term, provision,
covenant or restriction of this Agreement is held by a court of competent
jurisdiction to be invalid, illegal, void or unenforceable, the remainder of the
terms, provisions, covenants and restrictions set forth herein shall remain in
full force and effect and shall in no way be affected, impaired or invalidated,
and the parties hereto shall use their reasonable best efforts to find and
employ an alternative means to achieve the same or substantially the same result
as that contemplated by such term, provision, covenant or restriction. It is
hereby stipulated and declared to be the intention of the parties that they
would have executed the remaining terms, provisions, covenants and restrictions
without including any of such that may be hereafter declared invalid, illegal,
void or unenforceable.
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<PAGE>
Please confirm that the foregoing correctly sets forth the
agreement among the Company and the Initial Purchasers.
Very truly yours,
ST. JOHN KNITS INTERNATIONAL, INCORPORATED
ST. JOHN KNITS, INC.
ST. JOHN TRADEMARKS, INC.
ST. JOHN ITALY, INC.
By:
---------------------------------------
Name:
Title:
ST. JOHN HOME, LLC
By: St. John Knits, Inc., its sole member
By:
---------------------------------------
Name:
Title:
<PAGE>
Accepted:
CHASE SECURITIES INC.
By:
------------------------------
Name:
Title:
BEAR, STEARNS & CO. INC.
By:
------------------------------
Name:
Title:
PAINEWEBBER INCORPORATED
By:
------------------------------
Name:
Title:
<PAGE>
ANNEX A
Each broker-dealer that receives Exchange Securities for its
own account pursuant to the Registered Exchange Offer must acknowledge that it
will deliver a prospectus in connection with any resale of such Exchange
Securities. The Letter of Transmittal states that by so acknowledging and by
delivering a prospectus, a broker-dealer will not be deemed to admit that it is
an "underwriter" within the meaning of the Securities Act. 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 Securities received in
exchange for Securities where such Securities were acquired by such
broker-dealer as a result of market-making activities or other trading
activities. The Issuers have agreed that, for a period of 180 days after the
Expiration Date (as defined herein), they will make this Prospectus available to
any broker-dealer for use in connection with any such resale. See "Plan of
Distribution."
<PAGE>
ANNEX B
Each broker-dealer that receives Exchange Securities for its
own account in exchange for Securities, where such Securities 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 such Exchange Securities. See "Plan of Distribution."
<PAGE>
ANNEX C
PLAN OF DISTRIBUTION
Each broker-dealer that receives Exchange Securities for its
own account pursuant to the Registered Exchange Offer must acknowledge that it
will deliver a prospectus in connection with any resale of such Exchange
Securities. 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
Securities received in exchange for Securities where such Securities were
acquired as a result of market-making activities or other trading activities.
The Issuers have agreed that, for a period of 180 days after the Expiration
Date, they will make this prospectus, as amended or supplemented, available to
any broker-dealer for use in connection with any such resale. In addition, until
_______________, [ ], all dealers effecting transactions in the Exchange
Securities may be required to deliver a prospectus.
The Issuers will not receive any proceeds from any sale of
Exchange Securities by broker-dealers. Exchange Securities received by
broker-dealers for their own account pursuant to the Registered 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 Securities 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 at 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 Securities. Any
broker-dealer that resells Exchange Securities that were received by it for its
own account pursuant to the Registered Exchange Offer and any broker or dealer
that participates in a distribution of such Exchange Securities may be deemed to
be an "underwriter" within the meaning of the Securities Act and any profit on
any such resale of Exchange Securities 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 the Issuers
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. The Issuers have agreed to pay all expenses
incident to the Registered Exchange Offer (including the expenses of one counsel
for the Holders of the Securities) other than commissions or concessions of any
broker-dealers and will indemnify the Holders of the Securities (including any
broker-dealers) against certain liabilities, including liabilities under the
Securities Act.
<PAGE>
ANNEX D
|_| CHECK HERE IF YOU ARE A BROKER-DEALER AND WISH TO RECEIVE 10 ADDITIONAL
COPIES OF THE PROSPECTUS AND 10 COPIES OF ANY AMENDMENTS OR SUPPLEMENTS
THERETO.
Name:
Address:
If the undersigned is not a broker-dealer, the undersigned represents that it is
not engaged in, and does not intend to engage in, a distribution of Exchange
Securities. If the undersigned is a broker-dealer that will receive Exchange
Securities for its own account in exchange for Securities that were acquired as
a result of market-making activities or other trading activities, it
acknowledges that it will deliver a prospectus in connection with any resale of
such Exchange Securities; however, by so acknowledging and by delivering a
prospectus, the undersigned will not be deemed to admit that it is an
"underwriter" within the meaning of the Securities Act.
_________________________________
<PAGE>
Exhibit 4.5
SUBSCRIPTION AGREEMENT
SUBSCRIPTION AGREEMENT, dated as of July 7, 1999 (this
"Agreement"), between St. John Knits International, Incorporated, a Delaware
corporation ("SJKI"), and Vestar/SJK Investors LLC, a Delaware limited liability
company ("Vestar/SJK").
WHEREAS, Vestar/SJK is subscribing for an aggregate of 250,000
shares of 153% Exchangeable Preferred Stock due 2010 of SJKI (the "Shares")
pursuant to this Agreement, such that, upon consummation of such subscription,
all of the issued and outstanding Shares will be held by Vestar/SJK.
NOW, THEREFORE, in consideration of the mutual covenants and
conditions as hereinafter set forth, the parties hereto do hereby agree as
follows:
I. PURCHASE OF SHARES
I.1 PURCHASE AND SALE OF PREFERRED STOCK. On the terms and
subject to the conditions of this Agreement, Vestar/SJK hereby subscribes for
and agrees to purchase from SJKI, and SJKI agrees to issue and sell to
Vestar/SJK, the Shares at a purchase price of $100.00 per share, equal to an
aggregate purchase price of $25,000,000.
I.2 DELIVERY OF FUNDS AND CERTIFICATES. Subject to Section V,
the closing of the purchase and sale of the Shares (the "Closing") shall take
place on or as soon as practicable after the date hereof at the offices of
Simpson Thacher & Bartlett, 425 Lexington Avenue, New York, New York. At the
Closing, SJKI will deliver to Vestar/SJK duly executed certificates, registered
in Vestar/SJK's name and representing the Shares purchased by Vestar/SJK,
against Vestar/SJK's payment of the purchase price therefor.
II. REPRESENTATIONS AND WARRANTIES
II.1 REPRESENTATIONS AND WARRANTIES OF SJKI. SJKI represents
and warrants to Vestar/SJK as follows:
(a) SJKI is a corporation duly incorporated, validly existing
and in good standing under the laws of the State of Delaware and has all
requisite corporate power and authority to execute and deliver this Agreement
and to perform its obligations hereunder. The execution and delivery by SJKI of
this Agreement, the performance by SJKI of its obligations hereunder, and the
consummation by SJKI of the transactions contemplated hereby have been duly
authorized by all requisite corporate action. This Agreement has been duly
executed and delivered by SJKI and, assuming the due authorization, execution
and delivery thereof by Vestar/SJK, constitutes a legal, valid and binding
obligation of SJKI, enforceable against SJKI in accordance with its terms;
<PAGE>
2
(b) the Shares, when issued and delivered in accordance with
the terms hereof, will be duly authorized, validly issued, fully paid and
nonassessable;
(c) the execution, delivery and performance by SJKI of this
Agreement and the consummation by SJKI of the transactions contemplated hereby
do not and will not, with or without the giving of notice or the passage of time
or both, (i) violate the provisions of any law, rule or regulation applicable to
SJKI or its properties or assets; (ii) violate the provisions of the certificate
of incorporation or bylaws of SJKI; or (iii) violate any judgment, decree, order
or award of any court, governmental or quasi-governmental agency or arbitrator
applicable to SJKI or its properties or assets; and
(d) no consent, approval, exemption or authorization is
required to be obtained from, no notice is required to be given to and no filing
is required to be obtained from any third party (including, without limitation,
governmental and quasi-governmental agencies, authorities and instrumentalities
of competent jurisdiction) by SJKI, in order (i) for this Agreement to
constitute a legal, valid and binding obligation of SJKI or (ii) to authorize or
permit the consummation by SJKI of the issuance of the Shares.
II.2 REPRESENTATIONS AND WARRANTIES OF VESTAR/SJK. Vestar/SJK
represents and warrants to SJKI as follows:
(a) the execution and delivery of this Agreement, the
performance by Vestar/SJK of its obligations hereunder and the consummation by
Vestar/SJK of the transactions contemplated hereby have been duly authorized by
all requisite action on the part of Vestar/SJK. This Agreement has been duly
executed and delivered by Vestar/SJK and, assuming the due authorization,
execution and delivery thereof by SJKI, constitutes a legal, valid and binding
obligation of Vestar/SJK, enforceable against Vestar/SJK in accordance with its
terms;
(b) the execution, delivery and performance by Vestar/SJK of
this Agreement and the consummation by Vestar/SJK of the transactions
contemplated hereby do not and will not, with or without the giving of notice or
the passage of time or both, (i) violate the provisions of any law, rule or
regulation applicable to Vestar/SJK or its properties or assets; (ii) violate
the provisions of the constituent organizational documents or other governing
instruments of Vestar/SJK; or (iii) violate any judgment, decree, order or award
of any court, governmental or quasi-governmental agency or arbitrator applicable
to Vestar/SJK or its properties or assets;
(c) no consent, approval, exemption or authorization is
required to be obtained from, no notice is required to be given to, and no
filing is required to be obtained from, any third party (including, without
limitation, governmental and quasi-governmental agencies, authorities and
instrumentalities of competent jurisdiction) by Vestar/SJK, in order (i) for
this Agreement to constitute a legal, valid and binding obligation of Vestar/SJK
or (ii) to authorize or permit the consummation by Vestar/SJK of the purchase of
the Shares.
<PAGE>
3
(d) the certificate (or certificates) representing the Shares
shall bear the following legend (until such time as subsequent transfers thereof
are no longer restricted in accordance with the Securities Act of 1933, as
amended (the "Securities Act")):
"THE SECURITIES EVIDENCED BY THIS CERTIFICATE HAVE NOT BEEN
REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR
THE SECURITIES LAWS OF ANY STATE, AND MAY NOT BE TRANSFERRED
IN VIOLATION OF SUCH ACT OR LAWS OR THE RULES AND REGULATIONS
THEREUNDER";
(e) if any Shares are disposed of in accordance with Rule 144
under the Securities Act, Vestar/SJK shall deliver to SJKI at or prior to the
time of such disposition an executed copy of Form 144 (if required by Rule 144)
and such other documentation as SJKI may reasonably require in connection with
such sale; and
(f) (i) the financial situation of Vestar/SJK is such that it
can afford to bear the economic risk of holding the unregistered Shares for an
indefinite period and (ii) it can afford to suffer the complete loss of its
investment in the Shares.
III. RULE 144
SJKI agrees that after it has filed a registration statement
pursuant to the requirements of Section 12 of the Securities Exchange Act of
1934, as amended (the "Exchange Act"), relating to any class of equity
securities of SJKI, it will use its best efforts to file in a timely manner all
reports required to be filed by it pursuant to the Exchange Act and, upon
request of Vestar/SJK or a transferee of Shares, will furnish Vestar/SJK with
such information as may be necessary to enable Vestar/SJK to effect routine
sales pursuant to Rule 144 under the Securities Act.
IV. REGISTRATION RIGHTS
IV.1 DEMAND REGISTRATION.
(a) REQUEST FOR REGISTRATION. Upon the written request of
Vestar/SJK or its subsequent transferees (each a "Requesting Stockholder"), at
any time after the Closing, that SJKI effect the registration under the
Securities Act of all or part of the Shares owned, SJKI will use its best
efforts to effect the registration under the Securities Act of such Shares;
PROVIDED that (i) the Requesting Stockholders shall be entitled to no more than
five demands in the aggregate, (ii) such Requesting Stockholder shall have
proposed to register, together with all other Shares proposed to be registered
at such time by any other Requesting Stockholder, Shares having an aggregate
fair market value of at least $5 million and (iii) SJKI shall not be obligated
to effect more than one registration pursuant to this Section 4.1(a) in any 180
day period;
<PAGE>
4
(b) REGISTRATION STATEMENT FORM. Registrations under this
Section 4.1 shall be on such appropriate registration form of the Securities and
Exchange Commission (the "SEC") (i) as shall be selected by SJKI and (ii) as
shall permit the disposition of the Shares being registered in accordance with
the intended method or methods of disposition specified in the request for such
registration. SJKI agrees to include in any such registration statement all
information which, in the opinion of counsel to the underwriters, the Requesting
Stockholder and SJKI, is required to be included.
(c) EFFECTIVE REGISTRATION STATEMENT. A registration requested
pursuant to this Section 4.1 shall not be deemed to have been effected (i)
unless a registration statement with respect thereto has become effective, or
(i) if after it has become effective, such registration is interfered with by
any stop order, injunction or other order or requirement of the SEC or other
governmental authority for any reason not attributable to the Requesting
Stockholder or any of its affiliates and has not thereafter become effective.
IV.2 INCIDENTAL REGISTRATION.
(a) RIGHT TO INCLUDE SHARES. If SJKI at any time proposes to
register any Shares under the Securities Act (except registrations on such
form(s) solely for registration of a business combination transaction,
recapitalization or exchange offer), including registrations pursuant to Section
4.1(a), whether or not for sale for its own account, it will each such time as
soon as practicable give written notice of its intention to do so to all holders
of Shares and their subsequent transferees. Upon the written request (which
request shall specify the total number of Shares intended to be disposed of by
such holders of Shares and their subsequent transferees) of any holder of Shares
made within 30 days after the receipt of any such notice (15 days if SJKI gives
telephonic notice with written confirmation to follow promptly thereafter,
stating that (i) such registration will be on Form S-3 and (ii) such shorter
period of time is required because of a planned filing date), SJKI will use all
reasonable efforts to include in such registration all the Shares held by
holders of Shares which SJKI has been so requested to register for sale in the
manner initially proposed by SJKI; PROVIDED that SJKI shall not be obliged to
register any Shares which are not of the same class, series and form as the
Shares proposed to be registered by SJKI. If SJKI thereafter determines for any
reason not to register or to delay registration of Shares (provided, however,
that in the case of any registration pursuant to Section 4.1(a), such
determination shall not violate any of SJKI's obligations under Section 4.1 or
any other provision of this Agreement), SJKI may, at its election, give written
notice of such determination to the holders of Shares and their subsequent
transferees and (i) in the case of a determination not to register, shall be
relieved of the obligation to register such Shares in connection with such
registration, without prejudice, however, to any right the Requesting
Stockholder may have to request that such registration be effected as a
registration under Section 4.1(a) and (ii) in the case of a determination to
delay registering, shall be permitted to delay registering any Shares for the
same period as the delay in registration of such other securities. No
registration effected under
<PAGE>
5
this Section 4.2(a) shall relieve SJKI of any obligation to effect a
registration upon a request for registration under Section 4.1(a).
(b) PRIORITY IN INCIDENTAL REGISTRATION. If a registration
pursuant to this Section 4.2 involves an underwritten offering, SJKI shall not
be required to cause the registration of any Shares of any stockholder (or its
subsequent transferee) unless such stockholder (or subsequent transferee)
accepts the terms of the underwriting agreement, to the extent applicable to
such stockholder (or subsequent transferee), and then only in such quantity as
shall not, in the written opinion of the managing underwriter, exceed the
maximum number of Shares (or other securities) that can be marketed without
materially and adversely affecting the offering, if any, by SJKI or the
stockholder of SJKI, as the case may be. If the managing underwriter advises
SJKI in good faith that in its opinion the number of Shares, exceeds the number
that can be sold in such offering without having an adverse effect on such
offering, including the price at which such shares can be sold, then SJKI shall
include in such registration the maximum number of Shares that such underwriter
advises can be so sold, allocated as follows: (i) first, among the Shares
requested to be included in such registration by such Requesting Stockholder and
(ii) second, to any Shares Vestar/SJK proposes to sell.
(c) CUSTODY AGREEMENT AND POWER OF ATTORNEY. Upon delivering a
request under this Section 4.2, a stockholder or its subsequent transferee will,
if requested by SJKI, execute and deliver a custody agreement and power of
attorney in form and substance reasonably satisfactory to SJKI with respect to
such stockholder's or subsequent transferee's Shares to be registered pursuant
to this Section 4.2 (a "Custody AGREEMENT AND POWER OF ATTORNEY"). The Custody
Agreement and Power of Attorney will provide, among other things, that the
stockholder or its subsequent transferee will deliver to and deposit in custody
with the custodian and attorney-in-fact named therein a certificate or
certificates representing such Shares (duly endorsed in blank by the registered
owner or owners thereof or accompanied by duly executed stock powers in blank)
and irrevocably appoint said custodian and attorney-in-fact as such
stockholder's or subsequent transferee's agent and attorney-in-fact with full
power and authority to act under the Custody Agreement and Power of Attorney on
such stockholder's or subsequent transferee's behalf with respect to the matters
specified therein. Such stockholder or subsequent transferee's also agrees to
execute such other agreements as SJKI may reasonably request to further evidence
the provisions of this Section 4.2.
IV.3 REGISTRATION PROCEDURES. In connection with SJKI's
obligations pursuant to Sections 4.1 and 4.2 hereof, SJKI will use all
reasonable efforts to effect such registration and SJKI will promptly:
(a) prepare and file with the SEC as soon as practicable after
request for registration hereunder the requisite registration statement to
effect such registration and use all reasonable efforts to cause such
registration statement to become effective and to remain continuously effective
until the earlier to occur of (x) 180 days following the date on which such
registration statement is declared effective or (y) the termination of the
offering being made thereunder;
<PAGE>
6
(b) prepare and file with the SEC such amendments and
supplements to such registration statement and the prospectus used in connection
therewith as may be necessary to keep such registration statement effective and
to comply with the provisions of the Securities Act with respect to the
disposition of all Shares, as the case may be, covered by such registration
statement until such Shares have been sold or such lesser period of time as
SJKI, any seller of Shares, or any underwriter is required under the Securities
Act to deliver a prospectus in accordance with the intended methods of
disposition by the sellers of such Shares set forth in such registration
statement or supplement to such prospectus;
(c) furnish to Vestar/SJK and its subsequent transferee which
owns the Shares covered by such registration statement (the "Selling
Stockholders") and the managing underwriter, if any, at least one executed
original of the registration statement and such number of conformed copies of
such registration statement and of each such amendment and supplement thereto
(in each case including all exhibits), such number of copies of the prospectus
contained in such registration statement (including each preliminary prospectus
and any summary prospectus) and any other prospectus filed under Rule 424 under
the Securities Act as may reasonably be requested by such Selling Stockholder;
(d) use all reasonable efforts (i) to register or qualify all
Shares covered by such registration statement under the securities or "blue sky"
laws of such jurisdictions where an exemption is not available as the Selling
Stockholders shall reasonably request, (ii) to keep such registration or
qualification in effect for so long as such registration statement remains in
effect and (iii) to take any other action which may be reasonably necessary or
advisable to enable the Selling Stockholders to consummate the disposition in
such jurisdictions of such Shares; PROVIDED that SJKI will not be required to
qualify generally to do business in any jurisdiction where it is not then so
qualified, subject itself to taxation in any such jurisdiction or take any
action which would subject it to general service of process in any such
jurisdiction;
(e) notify the Selling Stockholders and the managing
underwriter, if any, promptly, and confirm such advice in writing (i) when a
prospectus or any prospectus supplement or post-effective amendment has been
filed, and, with respect to a registration statement or any post-effective
amendment, when the same has become effective, (ii) of any request by the SEC
for amendments or supplements to a registration statement or related prospectus
or for additional information, (iii) of the issuance by the SEC of any stop
order suspending the effectiveness of a registration statement or the initiation
of any proceedings for that purpose, (iv) of the receipt by SJKI of any
notification with respect to the suspension of the qualification of any of the
registered securities for sale in any jurisdiction or the initiation or
threatening of any proceeding for such purpose, (v) of the happening of any
event or information becoming known which requires the making of any changes in
a registration statement or related prospectus so that such documents will not
contain any untrue statement of a material fact or omit to state any material
fact required to be stated therein or necessary to make the statements therein
not misleading and (vi) of SJKI's reasonable determination that a post-effective
amendment to a registration statement would be appropriate;
<PAGE>
7
(f) make every reasonable effort to obtain the withdrawal of
any order suspending the effectiveness of a registration statement, or the
lifting of any suspension of the qualification of any of the registered
securities for sale in any jurisdiction, at the earliest possible moment;
(g) upon the occurrence of any event contemplated by clause
(e)(v) above, prepare a supplement or post-effective amendment to the applicable
registration statement or related prospectus or any document incorporated
therein by reference or file any other required document so that, as thereafter
delivered to the purchasers of the securities being sold thereunder, such
prospectus will not contain any untrue statement of a material fact or omit to
state any material fact necessary to make the statements therein not misleading;
(h) use its best efforts to furnish to the Selling
Stockholders a signed counterpart, addressed to the Selling Stockholders and the
underwriters, if any, of (A) an opinion of counsel for SJKI, and (B) a "comfort"
letter, signed by the independent public accountants who have certified SJKI's
financial statements included or incorporated by reference in such registration
statement, covering substantially the same matters with respect to such
registration statement (and the prospectus included therein) and, in the case of
the accountant's letter, with respect to events subsequent to the date of such
financial statements, as are customarily covered in opinions of issuer's counsel
and in accountants' letters delivered to underwriters in underwritten public
offerings of securities (and dated the dates such opinions and comfort letters
are customarily dated) and, in the case of the accountant's letter, such other
financial matters, and in the case of the legal opinion, such other legal
matters, as the Selling Stockholders or the underwriters may reasonably request;
(i) otherwise use its best efforts to comply with all
applicable rules and regulations of the SEC, and make available to the Selling
Stockholders an earnings statement satisfying the provisions of Section 11(a) of
the Securities Act and Rule 158 promulgated thereunder no later than 90 days
after the end of any 12-month period beginning after the effective date of a
registration statement pursuant to which Shares are sold, which statement shall
cover such 12-month period;
(j) cooperate with the Selling Stockholders and the managing
underwriters, if any, to facilitate the timely preparation and delivery of
certificates representing Shares to be sold; and enable such Shares to be in
such denominations and registered in such names as the Selling Stockholders or
the managing underwriters, if any, may request at least two business days prior
to any sale of Shares to the underwriters;
(k) use its best efforts to cause the Shares covered by the
applicable registration statement to be registered with or approved by such
other governmental agencies or authorities as may be necessary to enable the
Selling Stockholder(s) or the underwriters, if any, to consummate the
disposition of such Shares;
<PAGE>
8
(l) cause all Shares covered by the registration statement to
be listed on each securities exchange, if any, on which securities of such
class, series and form issued by SJKI, if any, are then listed if requested by
the managing underwriters, if any, or the holders of a majority of the Shares
covered by the registration statement and entitled hereunder to be so listed;
(m) cooperate and assist in any filings required to be made
with the New York Stock Exchange, Inc. or the NASD and in the performance of any
due diligence investigation by any underwriter (including any "qualified
independent underwriter" that is required to be retained in accordance with the
rules and regulations of the NASD); and
(n) as soon as practicable prior to the filing of any document
which is to be incorporated by reference into the registration statement or the
prospectus (after initial filing of the registration statement) provide copies
of such document to counsel to the Selling Stockholders and to the managing
underwriters, if any, and make SJKI's representatives available for discussion
of such document and consider in good faith making such changes in such document
prior to the filing thereof as counsel for such Selling Stockholders or
underwriters may reasonably request.
SJKI may require each Selling Stockholder to furnish to SJKI
such information regarding such Selling Stockholder and the distribution of such
securities by such Selling Stockholder as SJKI may from time to time reasonably
request in writing in order to comply with the Securities Act.
The Selling Stockholders severally agree that, upon receipt of
any notice from SJKI of the happening of any event of the kind described in
Section 4.3(e)(ii), (iii), (iv), (v) or (vi) hereof, they will forthwith
discontinue disposition pursuant to such registration statement of any Shares
covered by such registration statement or prospectus until their receipt of the
copies of the supplemented or amended prospectus relating to such registration
statement or prospectus or until they are advised in writing by SJKI that the
use of the applicable prospectus may be resumed (and the period of such
discontinuance shall be excluded from the calculation of the period specified in
clause (x) of Section 4.3(a)) and, if so directed by SJKI, will deliver to SJKI
(at SJKI's expense, except as otherwise provided in Section 4.1(c)) all copies,
other than permanent file copies then in their possession, of the prospectus
covering such securities in effect at the time of receipt of such notice. The
Selling Stockholders agree to furnish SJKI a signed counterpart, addressed to
SJKI and the underwriters, if any, of an opinion of counsel for the Selling
Stockholders covering substantially the same matters with respect to such
registration statement (and the prospectus included therein) as are customarily
covered in opinions of the Selling Stockholders' counsel delivered to the
underwriters in underwritten public offerings of securities (and dated the dates
such opinions are customarily dated) and such other legal matters as SJKI or the
underwriters may reasonably request.
IV.4 UNDERWRITTEN OFFERINGS.
<PAGE>
9
(a) DEMAND UNDERWRITTEN OFFERINGS. In any underwritten
offering pursuant to a registration requested under Section 4.1, SJKI will use
its best efforts to enter into an underwriting agreement for such offering with
the underwriters selected by SJKI, such underwriter or underwriters to be
nationally recognized and reasonably acceptable to the Requesting Stockholders
and such agreement to be reasonably satisfactory in form and substance to SJKI,
the Requesting Stockholder and the underwriters and to contain such
representations and warranties by SJKI and such other terms as are generally
prevailing in agreements of that type. The Selling Stockholders who hold Shares
to be distributed by such underwriters shall be parties to such underwriting
agreement and may, at their option, require that any or all of the
representations and warranties by, and the other agreements on the part of, SJKI
to and for the benefit of such underwriters shall also be made to and for the
benefit of them and that any or all of the conditions precedent to the
obligations of such underwriters under such underwriting agreement be conditions
precedent to their obligations. SJKI may, at its option, require that any or all
of the representations and warranties by, and the other agreements on the part
of, the Selling Stockholders to and for the benefit of such underwriters shall
also be made to and for the benefit of SJKI with due regard to the amount of
securities being sold by such Selling Stockholder and the nature of such
representations, warranties and agreements and the underwriting.
(b) INCIDENTAL UNDERWRITTEN OFFERINGS. If SJKI at any time
proposes to register any Shares under the Securities Act as contemplated by
Section 4.2 and such Shares are to be distributed by or through one or more
underwriters, SJKI and the Selling Stockholders who hold Shares to be
distributed by such underwriters in accordance with Section 4.2 hereof shall be
parties to the underwriting agreement between SJKI and such underwriters and
may, at their option, require that any or all of the representations and
warranties by, and the other agreements on the part of, SJKI to and for the
benefit of such underwriters shall also be made to and for the benefit of them
and that any or all of the conditions precedent to the obligations of such
underwriters under such underwriting agreement be conditions precedent to their
obligations. SJKI may, at its option, require that any or all of the
representations and warranties by, and the other agreements on the part of, the
Selling Stockholders to and for the benefit of such underwriters shall also be
made to and for the benefit of SJKI with due regard to the amount of Securities
being sold by such Selling Stockholder and the nature of such representations,
warranties and agreements and the underwriting.
IV.5 PREPARATION; REASONABLE INVESTIGATION. In connection with
the preparation and filing of each registration statement under the Securities
Act pursuant to this Agreement, SJKI will give the Selling Stockholders, the
underwriters and their respective counsel and accountants a reasonable
opportunity (but such persons shall not have the obligation) to participate in
the preparation of such registration statement, each prospectus included therein
or filed with the SEC, and, to the extent practicable, each amendment thereof or
supplement thereto, and, subject to the execution and delivery of a customary
confidentiality agreement, will give each of them such access to its books and
records and such opportunities to discuss the business of SJKI with its officers
and the independent public accountants who have certified its financial
<PAGE>
10
statements as shall be necessary to conduct a reasonable investigation within
the meaning of the Securities Act.
IV.6 LIMITATIONS, CONDITIONS AND QUALIFICATIONS TO OBLIGATIONS
UNDER REGISTRATION COVENANTS. The obligations of SJKI to use its reasonable
efforts to cause Shares to be registered under the Securities Act are subject to
each of the following limitations, conditions and qualifications:
(a) SJKI shall be entitled to postpone for a reasonable period
of time the filing or effectiveness of, or suspend the rights of Selling
Stockholders to make sales pursuant to, any registration statement otherwise
required to be prepared, filed and made and kept effective by it hereunder (but
the duration of such postponement or suspension may not exceed the earlier to
occur of (w) 30 days after the cessation of the circumstances described in
clauses (i) and (ii) below or (x) 180 days after the date of the determination
of the board of directors referred to below, and the duration of such
postponement or suspension shall be excluded from the calculation of the period
specified in clause (x) of Section 4.3(a)) if the board of directors of SJKI
determines in good faith that (i) there is a material undisclosed development in
the business or affairs of SJKI (including any pending or proposed financing,
recapitalization, acquisition or disposition), the disclosure of which at such
time could be adverse to SJKI's interests or (ii) SJKI has filed a registration
statement with the SEC, such registration statement has not yet been declared
effective, SJKI is using its reasonable best efforts to have such registration
statement declared effective, and the underwriters with respect to such
registration advise that such registration would be adversely affected. If SJKI
shall so delay the filing of a registration statement, it shall, as promptly as
possible, notify the Selling Stockholders of such determination, and the Selling
Stockholders shall have the right (y) in the case of a postponement of the
filing or effectiveness of a registration statement, to withdraw the request for
registration by giving written notice to SJKI within 10 business days after
receipt of SJKI's notice or (z) in the case of a suspension of the right to make
sales, to receive an extension of the registration period equal to the number of
days of the suspension;
(b) SJKI shall not be required hereby to include Shares in a
registration statement if, in the written opinion of outside counsel to SJKI of
recognized standing in securities law matters, the beneficial owners of such
Shares seeking registration would be free to sell all of such Shares within the
current calendar quarter without registration under Rule 144 under the
Securities Act;
(c) SJKI's obligations shall be subject to the obligations of
the Selling Stockholders, which the Selling Stockholders acknowledge, to furnish
all information and materials and to take any and all actions as may be required
under applicable federal and state securities laws and regulations to permit
SJKI to comply with all applicable requirements of the SEC and to obtain any
acceleration of the effective date of such registration statement; and
<PAGE>
11
(d) SJKI shall not be obligated to cause any special audit to
be undertaken in connection with any registration pursuant hereto unless such
audit is requested by the underwriters with respect to such registration.
IV.7 EXPENSES. SJKI will pay all reasonable out-of-pocket
costs and expenses incurred in connection with each registration of any Shares
pursuant to this Agreement, including, without limitation, the reasonable fees
and disbursements of a single firm of outside counsel retained on behalf of all
Selling Stockholders by Selling Stockholders which beneficially own a majority
of the total number of shares or units of Shares being registered by Selling
Stockholders (the "Majority Selling Stockholders"), and any and all filing fees
payable to the SEC, fees with respect to filings required to be made with stock
exchanges, the NASDAQ and the NASD, fees and expenses of compliance with state
securities or blue sky laws (including reasonable fees and disbursements of a
single firm of outside counsel for the underwriters or the Selling Stockholders
in connection with blue sky qualifications of the Shares being registered and
determination of its eligibility for investment under the laws of such
jurisdictions as the Selling Stockholders may designate), printing expenses,
fees and disbursements of counsel and accountants of SJKI, including costs
associated with comfort letters, and fees and expenses of other persons retained
by SJKI, but excluding underwriters' expenses (including discounts, commissions
or fees of underwriters and expenses included therein, selling brokers, dealer
managers or similar securities industry professionals relating to the
distribution of the securities being registered or legal expenses of any person
other than SJKI and the Selling Stockholders) but including the fees and
expenses of any qualified independent underwriter required to participate in
such registration pursuant to applicable law or the requirements of the NASD.
SJKI shall, in any event in all cases, pay its internal expenses (including,
without limitation, all salaries and expenses of its officers and employees
performing legal or accounting duties), and the expense of securities law
liability insurance and rating agency fees, if any.
IV.8 INDEMNIFICATION.
(a) INDEMNIFICATION BY SJKI. In connection with any
registration pursuant hereto in which Shares are to be disposed of, SJKI shall
indemnify and hold harmless, to the full extent permitted by law, each holder of
such Shares to be disposed of and, when applicable, its officers, directors,
agents and employees and each person who controls such holder (within the
meaning of the Securities Act or the Exchange Act) against all losses, claims,
damages, liabilities and expenses caused by any untrue or alleged untrue
statement of a material fact contained in any registration statement, prospectus
or preliminary prospectus or any omission or alleged omission to state therein a
material fact required to be stated therein or necessary to make the statements
therein not misleading, including, without limitation, any loss, claim, damage,
liability or expense resulting from the failure to keep a prospectus current,
except insofar as the same (i) are caused by or contained in any information
relating to such holder furnished in writing to SJKI by such holder expressly
for use therein or (ii) are caused by such holder's failure to deliver a copy of
the current prospectus simultaneously with or prior to such sale after SJKI has
furnished such holder with a sufficient number of copies of such prospectus
correcting such material misstatement or omission or (iii) arise in respect of
any offers to sell or sales made during any
<PAGE>
12
period when a holder is required to discontinue sales under Section 4.3(e) (and
after such holder has received the notice contemplated by Section 4.3(e)). SJKI
shall also indemnify underwriters, selling brokers, dealer managers and similar
securities industry professionals participating in the distribution, their
officers and directors and each person who controls such persons (within the
meaning of the Securities Act) to the same extent as provided above with respect
to the indemnification of the holders of such Shares to be disposed of, and
shall enter into an indemnification agreement with such persons containing such
terms, if requested.
(b) INDEMNIFICATION BY SELLING STOCKHOLDERS. In connection
with each registration statement effected pursuant hereto in which Shares are to
be disposed of, each Selling Stockholder shall, severally but not jointly,
indemnify and hold harmless, to the full extent permitted by law, SJKI, each
other Selling Stockholder and their respective directors, officers, agents and
employees and each person who controls SJKI and each other Selling Stockholder
(within the meaning of the Securities Act or the Exchange Act) against any
losses, claims, damages, liabilities and expenses resulting from any untrue
statement of a material fact or any omission of a material fact required to be
stated in such registration statement or prospectus or preliminary prospectus or
necessary to make the statements therein not misleading, to the extent, but only
to the extent, that such untrue statement or omission relates to such Selling
Stockholder and is contained in any information furnished in writing by such
Selling Stockholder or any of its affiliates to SJKI expressly for inclusion in
such registration statement or prospectus. In no event shall the liability of
any Selling Stockholder hereunder be greater in amount than the dollar amount of
the proceeds actually received by such Selling Stockholder upon the sale of the
securities giving rise to such indemnification obligation.
(c) CONDUCT OF INDEMNIFICATION PROCEEDINGS. Any person
entitled to indemnification hereunder shall give prompt notice to the
indemnifying party of any claim with respect to which it shall seek
indemnification and shall permit such indemnifying party to assume the defense
of such claim with counsel reasonably satisfactory to the indemnified party;
PROVIDED, HOWEVER, that any person entitled to indemnification hereunder shall
have the right to employ separate counsel and to participate in the defense of
such claim, but the fees and expenses of such counsel shall be at the expense of
such person unless (i) the indemnifying party shall have agreed to pay such fees
or expenses, or (ii) the indemnifying party shall have failed to assume the
defense of such claim and employ counsel reasonably satisfactory to such person
or (iii) in the opinion of outside counsel to such person there may be one or
more legal defenses available to such person which are different from or in
addition to those available to the indemnifying party with respect to such
claims (in which case, if the person notifies the indemnifying party in writing
that such person elects to employ separate counsel at the expense of the
indemnifying party, the indemnifying party shall not have the right to assume
the defense of such claim on behalf of such person). If such defense is not
assumed by the indemnifying party, the indemnifying party shall not be subject
to any liability for any settlement made without its consent (but such consent
shall not be unreasonably withheld). No indemnified party shall be required to
consent to entry of any judgment or enter into any settlement that does not
include as an unconditional term thereof the giving by the claimant or plaintiff
to such indemnified party of a written release in form and substance reasonably
satisfactory to such indemnified party from all
<PAGE>
13
liability in respect of such claim or litigation. An indemnifying party who is
not entitled to, or elects not to, assume the defense of a claim shall not be
obligated to pay the fees and expenses of more than one firm of counsel (and, if
necessary, local counsel) for all parties indemnified by such indemnifying party
with respect to such claim, unless in the written opinion of outside counsel to
an indemnified party a conflict of interest as to the subject matter exists
between such indemnified party and another indemnified party with respect to
such claim, in which event the indemnifying party shall be obligated to pay the
fees and expenses of additional counsel for such indemnified party.
(d) CONTRIBUTION. If for any reason the indemnification
provided for herein is unavailable to an indemnified party or is insufficient to
hold it harmless as contemplated hereby, then the indemnifying party shall
contribute to the amount paid or payable by the indemnified party as a result of
such loss, claim, damage or liability in such proportion as is appropriate to
reflect not only the relative benefits received by the indemnified party and the
indemnifying party, but also the relative fault of the indemnified party and the
indemnifying party, as well as any other relevant equitable considerations,
provided that in no event shall the liability of any Selling Stockholder for
such contribution and indemnification exceed, in the aggregate, the dollar
amount of the proceeds received by such Selling Stockholder upon the sale of
securities giving rise to such indemnification and contribution obligation.
IV.9 PARTICIPATION IN UNDERWRITTEN REGISTRATIONS. Vestar/SJK
or its subsequent transferees may not participate in any underwritten
registration hereunder unless Vestar/SJK or any of its subsequent transferees
(a) agrees to sell its Shares on the basis provided in and in compliance with
any underwriting arrangements approved by the persons entitled hereunder to
approve such arrangements and to comply with Regulation M under the Exchange
Act, and (b) completes and executes all questionnaires, appropriate and limited
powers of attorney, escrow agreements, indemnities, underwriting agreements and
other documents reasonably required under the terms of such underwriting
arrangements; PROVIDED that all such documents shall be consistent with the
provisions hereof.
IV.10 RULE 144. SJKI hereby covenants that after it has filed
(and such registration statement has become effective) a registration statement
pursuant to the requirements of Section 12 of the Exchange Act or a registration
statement pursuant to the requirements of the Securities Act in respect of
Shares, SJKI will file in a timely manner all reports required to be filed by it
under the Securities Act and the Exchange Act and the rules and regulations
adopted by the SEC thereunder (or, if SJKI is not required to file such reports,
it will, upon the request of Vestar/SJK or any of its subsequent transferees,
make publicly available other information so long as necessary to permit sales
by Vestar/SJK or such subsequent transferee under Rule 144 under the Securities
Act) and will take such further action as Vestar/SJK or any of its subsequent
transferee may reasonably request to the extent required from time to time to
enable Vestar/SJK or such subsequent transferee to sell Shares under Rule 144
under the Securities Act.
V. CLOSING CONDITION
<PAGE>
14
The parties' obligations under Section I shall be subject to
and conditioned on the consummation of the Acquisition Merger (as defined in the
Agreement and Plan of Merger dated as of February 2, 1999 among St. John Knits,
Inc., SJKI, SJKAcquisition, Inc. and Pearl Acquisition Corp.).
VI. MISCELLANEOUS
VI.1 NOTICES. All notices and other communications required or
permitted to be given under this Agreement shall be in writing and shall be
deemed to have been given if delivered personally or sent by certified mail,
return receipt requested, postage prepaid, to the parties to this Agreement at
the following addresses or to such other address as either party to this
Agreement shall specify by notice to the other:
if to SJKI:
St. John Knits International, Incorporated
17422 Derian Avenue
Irvine, California 92614
Attention: Robert E. Gray
if to Vestar/SJK:
Vestar/SJK Investors LLC
c/o Vestar Capital Partners III, L.P.
1225 17th Street, Suite 1660
Denver, Colorado 80202
Attention: James P. Kelley
All such notices and communications shall be deemed to have been received on the
date of delivery or on the third business day after the mailing thereof.
VI.2 BINDING EFFECT; BENEFITS. This Agreement shall be binding
upon and inure to the benefit of the parties to this Agreement and their
respective successors and assigns. Nothing in this Agreement, express or
implied, is intended or shall be construed to give any person other than the
parties to this Agreement or their respective successors or assigns any legal or
equitable right, remedy or claim under or in respect of any agreement or any
provision contained herein.
VI.3 WAIVER. Each party hereto may, by written notice to the
others, (a) extend the time for the performance of any of the obligations or
other actions of the other under this Agreement; (b) waive compliance with any
of the conditions or covenants of the other contained in this Agreement; and (c)
waive or modify performance of any of the obligations of the others
<PAGE>
15
under this Agreement. Except as provided in the preceding sentence, no action
taken pursuant to this Agreement, including, without limitation, any
investigation by or on behalf of any party, shall be deemed to constitute a
waiver by the party taking such action of compliance with any representations,
warranties, covenants or agreements contained herein. The waiver by any party
hereto of a breach of any provision of this Agreement shall not operate or be
construed as a waiver of any preceding or succeeding breach and no failure by
any party to exercise any right or privilege hereunder shall be deemed a waiver
of such party's rights or privileges hereunder or shall be deemed a waiver of
such party's rights to exercise the same at any subsequent time or times
hereunder.
VI.4 GOVERNING LAW. This Agreement shall be governed by and
construed and enforced in accordance with the laws of the State of New York.
VI.5 NO ASSIGNMENT. Vestar/SJK may assign its rights and
delegate its obligations hereunder to subsequent holders of Shares. Any such
delegation shall relieve Vestar/SJK of liability hereunder. SJKI may not assign
its rights nor delegate its obligations hereunder without the prior consent of
the other party hereto.
VI.6 COUNTERPARTS. This Agreement may be executed in two or
more counterparts, and by the parties on separate counterparts, each of which
shall be deemed an original, but all of which together shall constitute one and
the same instrument.
VI.7 INTEGRATION. This Agreement contains the entire
understanding of the parties with respect to the subject matter hereof. There
are no agreements, representations, warranties, covenants or undertakings with
respect to the subject matter hereof other than those expressly set forth
herein. This Agreement supersedes all prior agreements and understandings
between the parties with respect to this subject matter.
VI.8 EXPENSES. SJKI agrees that, whether or not the
transactions contemplated by this Agreement are consummated, SJKI will pay or
cause to be paid all costs and expenses arising in connection with the
preparation, execution, administration and enforcement of, and the preservation
of rights under, this Agreement, and all taxes (other than taxes based on
income), fees or other charges that may be payable in connection with the
transactions contemplated hereby.
VI.9 INDEMNIFICATION. Except as provided in Section 4.8(b),
whether or not the transactions contemplated hereby are consummated, SJKI agrees
to indemnify and hold harmless Vestar/SJK (or any member, employee, affiliate
and agent) from and against any liabilities, obligations, losses, damages,
penalties, actions, judgments, suits, claims, costs, attorneys' fees, expenses
and disbursements of any kind which may be imposed upon, incurred by or asserted
against Vestar/SJK (or any member, employee, affiliate and agent) in any manner
relating to or arising out of (i) Vestar/SJK's purchase and/or ownership of the
Shares or (ii) any litigation to which Vestar/SJK (or any member, employee,
affiliate and agent) is made a party in its capacity as a stockholder or owner
of securities of SJKI.
<PAGE>
IN WITNESS WHEREOF, the parties have executed this Agreement
as of the day and year first above written.
ST. JOHN KNITS INTERNATIONAL,
INCORPORATED
By:
--------------------------------
Name:
Title:
VESTAR/SJK INVESTORS LLC
By: Vestar Capital Partners III, L.P.,
its Managing Member
By: Vestar Associates III, L.P.,
its General Partner
By: Vestar Associates Corporation III,
its General Partner
By:
--------------------------------
Name:
Title:
<PAGE>
Exhibit 21
Subsidiaries of St. John Knits International, Incorporated
-------------------------------------------------------------
Subsidiary Name: Organized Under
Laws of :
-------------------------------------------------------------
St. John Knits, Inc. California
-------------------------------------------------------------
St. John Trademarks, Inc. California
-------------------------------------------------------------
St. John Italy, Inc. California
-------------------------------------------------------------
St. John Home, LLC Delaware
-------------------------------------------------------------
SJK International, Inc. Barbados
-------------------------------------------------------------
St. John Knits AG Switzerland
-------------------------------------------------------------
St. John de Mexico S.A. de C.V. Mexico
-------------------------------------------------------------
St. John Company, Ltd. Japan
-------------------------------------------------------------
St. John Knits & Cie. S.e.n.c. Luxembourg
-------------------------------------------------------------
St. John Asia Limited Hong Kong
-------------------------------------------------------------
<PAGE>
Exhibit 23.1
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
As independent public accountants, we hereby consent to the use of our
reports and to all references to our Firm included in or made a part of this
registration statement.
/s/ ARTHUR ANDERSEN LLP
-----------------------
ARTHUR ANDERSEN LLP
Orange County, California
September 3, 1999
<PAGE>
Exhibit 25
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
FORM T-1
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
STATEMENT OF ELIGIBILITY
UNDER THE TRUST INDENTURE ACT OF 1939 OF A
CORPORATION DESIGNATED TO ACT AS TRUSTEE
CHECK IF AN APPLICATION TO DETERMINE
ELIGIBILITY OF A TRUSTEE PURSUANT TO
SECTION 305(b)(2) |__|
THE BANK OF NEW YORK
(Exact name of trustee as specified in its charter)
New York 13-5160382
(State of incorporation (I.R.S. employer
if not a U.S. national bank) identification no.)
One Wall Street, New York, N.Y. 10286
(Address of principal executive offices) (Zip code)
----------
ST. JOHN KNITS INTERNATIONAL, INCORPORATED
(Exact name of obligor as specified in its charter)
Delaware 52-2061057
(State or other jurisdiction of (I.R.S. employer
incorporation or organization) identification no.)
17422 Derian Avenue
Irvine, California 92614
(Address of principal executive offices) (Zip code)
-------------
12-1/2% Senior Subordinated Notes due 2009
(Title of the indenture securities)
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE>
1. GENERAL INFORMATION. FURNISH THE FOLLOWING INFORMATION AS
TO THE TRUSTEE:
(a) NAME AND ADDRESS OF EACH EXAMINING OR SUPERVISING AUTHORITY TO WHICH
IT IS SUBJECT.
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
Name Address
- --------------------------------------------------------------------------------
<S> <C>
Superintendent of Banks of the State of 2 Rector Street, New York,
New York N.Y. 10006, and Albany, N.Y. 12203
Federal Reserve Bank of New York 33 Liberty Plaza, New York,
N.Y. 10045
Federal Deposit Insurance Corporation Washington, D.C. 20429
New York Clearing House Association New York, New York 10005
</TABLE>
(B) WHETHER IT IS AUTHORIZED TO EXERCISE CORPORATE TRUST POWERS.
Yes.
2. AFFILIATIONS WITH OBLIGOR.
IF THE OBLIGOR IS AN AFFILIATE OF THE TRUSTEE, DESCRIBE EACH SUCH
AFFILIATION.
None.
16. LIST OF EXHIBITS.
EXHIBITS IDENTIFIED IN PARENTHESES BELOW, ON FILE WITH THE COMMISSION,
ARE INCORPORATED HEREIN BY REFERENCE AS AN EXHIBIT HERETO, PURSUANT TO
RULE 7A-29 UNDER THE TRUST INDENTURE ACT OF 1939 (THE "ACT") AND 17
C.F.R. 229.10(D).
1. A copy of the Organization Certificate of The Bank of New York
(formerly Irving Trust Company) as now in effect, which contains
the authority to commence business and a grant of powers to
exercise corporate trust powers. (Exhibit 1 to Amendment No. 1 to
Form T-1 filed with Registration Statement No. 33-6215, Exhibits
1a and 1b to Form T-1 filed with Registration Statement No.
33-21672 and Exhibit 1 to Form T-1 filed with Registration
Statement No. 33-29637.)
4. A copy of the existing By-laws of the Trustee. (Exhibit 4 to Form
T-1 filed with Registration Statement No. 33-31019.)
6. The consent of the Trustee required by Section 321(b) of the Act.
(Exhibit 6 to Form T-1 filed with Registration Statement
No. 33-44051.)
7. A copy of the latest report of condition of the Trustee published
pursuant to law or to the requirements of its supervising or
examining authority.
-2-
<PAGE>
SIGNATURE
Pursuant to the requirements of the Act, the Trustee, The Bank of New
York, a corporation organized and existing under the laws of the State of New
York, has duly caused this statement of eligibility to be signed on its behalf
by the undersigned, thereunto duly authorized, all in The City of New York, and
State of New York, on the 31st day of August, 1999.
THE BANK OF NEW YORK
By: /s/ WALTER N. GITLIN
--------------------------------
Name: WALTER N. GITLIN
Title: VICE PRESIDENT
<PAGE>
- --------------------------------------------------------------------------------
Consolidated Report of Condition of
THE BANK OF NEW YORK
of One Wall Street, New York, N.Y. 10286
And Foreign and Domestic Subsidiaries,
a member of the Federal Reserve System, at the close of business June 30, 1999,
published in accordance with a call made by the Federal Reserve Bank of this
District pursuant to the provisions of the Federal Reserve Act.
<TABLE>
<CAPTION>
Dollar Amounts
ASSETS In Thousands
<S> <C>
Cash and balances due from depository institutions:
Noninterest-bearing balances and currency and coin.. $5,597,807
Interest-bearing balances........................... 4,075,775
Securities:
Held-to-maturity securities......................... 785,167
Available-for-sale securities....................... 4,159,891
Federal funds sold and Securities purchased under
agreements to resell................................ 2,476,963
Loans and lease financing receivables:
Loans and leases, net of unearned
income...............38,028,772
LESS: Allowance for loan and
lease losses............568,617
LESS: Allocated transfer risk
reserve........................16,352
Loans and leases, net of unearned income,
allowance, and reserve............................ 37,443,803
Trading Assets......................................... 1,563,671
Premises and fixed assets (including capitalized
leases)............................................. 683,587
Other real estate owned................................ 10,995
Investments in unconsolidated subsidiaries and
associated companies................................ 184,661
Customers' liability to this bank on acceptances
outstanding......................................... 812,015
Intangible assets...................................... 1,135,572
Other assets........................................... 5,607,019
-----------
Total assets........................................... $64,536,926
-----------
-----------
<PAGE>
LIABILITIES
Deposits:
In domestic offices................................. $26,488,980
Noninterest-bearing................................. 10,626,811
Interest-bearing.................................... 15,862,169
In foreign offices, Edge and Agreement
subsidiaries, and IBFs............................ 20,655,414
Noninterest-bearing................................. 156,471
Interest-bearing.................................... 20,498,943
Federal funds purchased and Securities sold under
agreements to repurchase............................ 3,729,439
Demand notes issued to the U.S.Treasury................ 257,860
Trading liabilities.................................... 1,987,450
Other borrowed money:
With remaining maturity of one year or less......... 496,235
With remaining maturity of more than one year
through three years............................... 465
With remaining maturity of more than three years.... 31,080
Bank's liability on acceptances executed and
outstanding......................................... 822,455
Subordinated notes and debentures...................... 1,308,000
Other liabilities...................................... 2,846,649
-----------
Total liabilities...................................... 58,624,027
-----------
-----------
EQUITY CAPITAL
Common stock........................................... 1,135,284
Surplus................................................ 815,314
Undivided profits and capital reserves................. 4,001,767
Net unrealized holding gains (losses) on
available-for-sale securities....................... ( 7,956)
Cumulative foreign currency translation adjustments....
( 31,510)
-----------
Total equity capital................................... 5,912,899
-----------
Total liabilities and equity capital................... $64,536,926
-----------
-----------
</TABLE>
<PAGE>
I, Thomas J. Mastro, Senior Vice President and Comptroller of the
above-named bank do hereby declare that this Report of Condition has been
prepared in conformance with the instructions issued by the Board of Governors
of the Federal Reserve System and is true to the best of my knowledge and
belief.
Thomas J. Mastro
We, the undersigned directors, attest to the correctness of this Report
of Condition and declare that it has been examined by us and to the best of our
knowledge and belief has been prepared in conformance with the instructions
issued by the Board of Governors of the Federal Reserve System and is true and
correct.
Thomas A. Reyni
Alan R. Griffith Directors
Gerald L. Hassell
- --------------------------------------------------------------------------------
