<PAGE>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON MARCH 16, 1994
REGISTRATION NO. 33-51915
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
----------------
POST-EFFECTIVE
AMENDMENT NO. 1
TO
FORM S-3
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
----------------
HARTMARX CORPORATION
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
----------------
DELAWARE 36-3217140
(STATE OR OTHER JURISDICTION OF (I.R.S. EMPLOYER IDENTIFICATION NO.)
INCORPORATION OR ORGANIZATION)
101 NORTH WACKER DRIVE
CHICAGO, ILLINOIS 60606
(312) 372-6300
(ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER,
INCLUDING AREA CODE, OF REGISTRANT'S PRINCIPAL EXECUTIVE OFFICES)
----------------
CAREY M. STEIN, ESQ.
EXECUTIVE VICE PRESIDENT, CHIEF ADMINISTRATIVE
OFFICER, SECRETARY AND GENERAL COUNSEL
HARTMARX CORPORATION
101 NORTH WACKER DRIVE
CHICAGO, ILLINOIS 60606
(312) 357-5300
(NAME, ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE,
OF AGENT FOR SERVICE)
Copies to:
CHARLES W. MULANEY, JR., ESQ. FRANCIS J. GERLITS, P.C.
SKADDEN, ARPS, SLATE, MEAGHER & FLOM KIRKLAND & ELLIS
333 WEST WACKER DRIVE 200 EAST RANDOLPH DRIVE
CHICAGO, ILLINOIS 60606 CHICAGO, ILLINOIS 60601
(312) 407-0700 (312) 861-2000
----------------
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: As soon as
practicable after the effective date of this Registration Statement.
If the only securities being registered on this form are being offered
pursuant to dividend or interest reinvestment plans, please check the following
box. [_]
If any of the securities being registered on this Form are to be offered on a
delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, check the following box. [_]
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- --------------------------------------------------------------------------------
<PAGE>
SUBJECT TO COMPLETION, DATED MARCH 16, 1994
- --------------------------------------------------------------------------------
PROSPECTUS
- --------------------------------------------------------------------------------
$100,000,000
HARTMARX LOGO
% Senior Subordinated Notes Due 2002
Interest Payable July 15 and January 15 Due , 2002
----------------
The % Senior Subordinated Notes Due 2002 (the "Notes") are not redeemable
prior to , 1999, except that, until , 1997, Hartmarx
Corporation (the "Company") may redeem, at its option, up to $25 million of
the original principal amount of the Notes at the redemption prices set
forth herein plus accrued interest to the date of redemption with the
proceeds of one or more Public Equity Offerings (as defined) or Traco
Warrant Exercises (as defined). On or after , 1999, the
Notes are redeemable at the option of the Company, in whole or in
part, at the redemption prices set forth herein plus accrued
interest to the date of redemption. Upon a Change of Control (as
defined), but subject to the subordination provisions of the
Notes, each holder of Notes may require the Company to
repurchase such holder's Notes at 101% of the principal
amount thereof plus accrued interest to the date of
repurchase.
The Notes are unsecured, subordinated to all Senior Debt (as defined) of the
Company and effectively subordinated to all indebtedness and accounts
payable of the Company's subsidiaries. At November 30, 1993, after
giving effect to this offering (the "Offering") and the related
transactions described herein, the aggregate amount of Senior Debt
and indebtedness and accounts payable of the Company's
subsidiaries that effectively ranked senior to the Notes would
have been approximately $173 million. Such amount is likely
to be greater during the Company's peak borrowing
periods. See "Risk Factors--Indebtedness and
Liquidity." The Notes do not rank senior to any
outstanding indebtedness of the Company.
----------------
SEE "RISK FACTORS" FOR A DISCUSSION OF CERTAIN FACTORS THAT SHOULD BE
CONSIDERED IN CONNECTION WITH AN INVESTMENT IN THE NOTES.
----------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECU-
RITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION
PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY
REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Price to Underwriting Proceeds to
Public(1) Discount Company(1)(2)
- ---------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Per Note
- ---------------------------------------------------------------------------------------------
Total
</TABLE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
(1) Plus accrued interest, if any, from , 1994.
(2) Before deduction of expenses payable by the Company estimated at $600,000.
----------------
The Notes are offered by the several Underwriters when, as and if issued by
the Company and accepted by the Underwriters and subject to their right to
reject orders in whole or in part. It is expected that the Notes will be ready
for delivery on or about March , 1994.
CS First Boston Merrill Lynch & Co.
- --------------------------------------------------------------------------------
The date of this Prospectus is March , 1994.
<PAGE>
IN CONNECTION WITH THIS OFFERING, THE UNDERWRITERS MAY OVER-ALLOT OR EFFECT
TRANSACTIONS WHICH STABILIZE OR MAINTAIN THE MARKET PRICE OF THE NOTES AT
LEVELS ABOVE THOSE WHICH MIGHT OTHERWISE PREVAIL IN THE OPEN MARKET. SUCH
STABILIZING, IF COMMENCED, MAY BE DISCONTINUED AT ANY TIME.
2
<PAGE>
PROSPECTUS SUMMARY
The following summary is qualified in its entirety by the detailed
information and financial statements appearing elsewhere in this Prospectus and
in the 1993 10-K referred to herein under "Incorporation of Certain Documents
by Reference." Unless the context otherwise requires, the terms "Company" and
"Hartmarx" refer to Hartmarx Corporation and its consolidated subsidiaries. The
Company prepares its financial statements on the basis of a fiscal year ending
November 30.
THE COMPANY
Established in 1872, Hartmarx is the largest manufacturer and marketer of
men's suits, sportcoats and slacks ("men's tailored clothing") in the United
States. From this established position, the Company has diversified into the
men's sportswear and women's careerwear and sportswear markets. In fiscal 1993,
the Company's business units that primarily produce men's tailored clothing
represented approximately 66% of the Company's sales.
Substantially all of the Company's products are sold under established brand
names or the private labels of major retailers. The Company owns two of the
most recognized brands in men's tailored clothing: Hart Schaffner & Marx(R),
which was introduced in 1887, and Hickey-Freeman(R), which dates from 1899. The
Company also offers its products under other brands which it owns such as
Sansabelt(R), Kuppenheimer(R), Racquet Club(R) and Barrie Pace(R) and under
license agreements for specified product lines for Tommy Hilfiger(R), Jack
Nicklaus(R), Bobby Jones(R), Austin Reed(R), Gieves & Hawkes(R), KM by
Krizia(TM), MM by Krizia(TM), Henry Grethel(R), Karl Lagerfeld(R), Nino
Cerruti(R), Pierre Cardin(R) and Fumagalli's(R). To broaden the international
distribution of the apparel sold under its owned and licensed trademarks, the
Company has entered into over 35 license or sublicense agreements for specified
product lines with third parties to produce, market and distribute products in
14 countries outside the United States.
The Company believes that the strong brand recognition enjoyed by its
products at both the wholesale and retail level, the breadth of its product
offerings in both price point and fashion direction and the established
relationships it possesses across retail distribution channels are critical
factors which differentiate the Company from its competitors. The Company's
operating groups offer products covering the fashion spectrum (business
professional, American contemporary and British, French and Italian inspired),
which are marketed at different price points to appeal to a broad wholesale and
retail customer base. Recent product developments include the introduction of
men's tailored clothing and prehemmed slacks under a license agreement with
Tommy Hilfiger for Fall 1994, the introduction of casual prehemmed slacks under
the Company's own brand and the continued development and expansion of golf-
inspired sportswear for the premium market under the Bobby Jones(R) brand and
at moderate price points under the Jack Nicklaus(R) label.
The Company's primary wholesale customer base consists of fine specialty and
leading department stores such as Dillard Department Stores, Inc.; Federated
Department Stores, Inc.; R.H. Macy & Co., Inc.; The May Department Stores
Company; The Neiman Marcus Group, Inc.; Nordstrom, Inc.; and J.C. Penney
Company, Inc. This distribution channel accounted for approximately 60% of
sales in fiscal 1993. In order to take advantage of changing consumer trends,
the Company has supplemented its traditional channel of distribution with
value-oriented retailers, direct mail companies, mass merchandisers, golf pro
shops and its own factory-direct-to-consumer retail network and 28 factory
outlet stores. The growing value-oriented channel, which includes outlet and
off-price retailers, mass merchandisers and the Company's own factory-direct-
to-consumer network, represents an increasingly important distribution channel
for the Company.
3
<PAGE>
As a vertically integrated manufacturer and marketer, the Company is
responsible for the design, manufacturing and sourcing of its apparel.
Substantially all of its men's tailored clothing is manufactured in its own
factories, all of which are located in the United States. The Company utilizes
domestic and foreign contract manufacturers to produce its remaining products,
principally men's and women's sportswear, in accordance with Company
specifications and production schedules. The Company believes that this
combination of owned manufacturing and contract sourcing enables it to
efficiently control the pricing, quality and delivery of its products and to
effectively utilize the capital resources allocated to the manufacturing
process. Increased manufacturing efficiencies and ongoing cost savings, coupled
with new sourcing strategies, have enabled the Company to offer apparel with
higher perceived value at similar or lower wholesale prices while maintaining
its margins and high quality standards.
The Company's business is organized around three primary operating groups:
Men's Apparel Group. The Company's largest operating group, the Men's
Apparel Group ("MAG") designs and manufactures substantially all of the
Company's men's tailored clothing (through its Hart Schaffner & Marx
("HSM"), Hickey-Freeman and Intercontinental Branded Apparel business
units) and slacks and sportswear (through its Trans-Apparel Group, Biltwell
and Bobby Jones business units) and markets these products on a wholesale
basis.
Kuppenheimer. Kuppenheimer is the Company's vertically integrated,
factory-direct-to-consumer manufacturing and retail business. Kuppenheimer
manufactures substantially all of its men's tailored clothing in Company-
owned facilities and sells these products exclusively through Kuppenheimer
operated stores.
Women's Apparel Group. The Women's Apparel Group is comprised of Barrie
Pace Ltd. ("Barrie Pace") and International Women's Apparel, Inc. ("IWA").
Barrie Pace is a direct mail company that offers a wide range of apparel
and accessories to the business and professional woman. IWA designs and
sources women's career apparel and sportswear for sale to department and
specialty stores under owned and licensed brand names.
In 1992, the Company implemented a comprehensive operational and financial
restructuring (the "Restructuring") to refocus its business operations around
its profitable core wholesale men's apparel franchise and to restructure its
balance sheet. The operational aspects of the Restructuring included the sale
of Hartmarx Specialty Stores, Inc. ("HSSI"), the Company's principal retail
unit; the discontinuance of its Country Miss retail and manufacturing
operations; the closing of certain Kuppenheimer retail stores not achieving
minimum profitability requirements; the reduction of production capacity which
was no longer required to support reduced retail operations; and the sale or
closing of non-strategic manufacturing businesses which manufactured outerwear
and military and commercial uniforms. The total sales for fiscal 1992 for all
of the businesses and operations sold or discontinued in conjunction with the
Restructuring was approximately $365 million. For additional information
concerning the Company's current relationship with HSSI, see "Risk Factors--
Uncertainties Regarding HSSI and MLR" and "Business--Legal Proceedings."
As part of the Restructuring, the Company's borrowing facilities were
consolidated and extended in maturity, a $35 million seasonal borrowing
facility was added and shares of its common stock and a warrant to purchase its
common stock were sold for $30 million. The Company's financial statements for
fiscal 1992 include restructuring charges of $191 million. See Notes to
Consolidated Financial Statements of the Company included herein and "Risk
Factors--Operational and Financial Restructuring." Concurrently with the
issuance of the Notes, the Company will enter into a New Credit Facility (as
defined herein) and use the proceeds therefrom and the proceeds of the Offering
to repay all outstanding borrowings under its existing credit facilities and
terminate its obligations thereunder. The New Credit Facility will mature in
three years and borrowings under the New Credit Facility will generally bear
interest at the lender's base rate plus 1.50% or LIBOR plus 2.50%. See
"Description of Certain Indebtedness--New Credit Facility."
4
<PAGE>
As a result of the Restructuring, the Company is now focused on those
businesses that have made it an industry leader for most of this century. The
key elements of the Company's strategy are:
. To build on its success as an apparel manufacturer and marketer by
providing branded products to retailers and consumers principally on a
wholesale basis while developing other brands to fill market voids and
repositioning and growing established brands.
. To provide a dynamic mix of apparel products through a broad
merchandising strategy that will include men's tailored clothing, men's
sportswear, women's career apparel and women's sportswear.
. To serve a broad range of retail channels, including fine specialty and
leading department stores, factory-direct-to-consumer stores, value-
oriented retailers, mass merchants and direct mail catalogs.
. To be a leader in technological marketing by providing unparalleled
service to its customers through such programs as Quick Response and
Electronic Data Interchange.
. To expand its presence in the international marketplace by continuing its
international licensing efforts while merchandising, marketing and
producing branded apparel in markets beyond its borders and marketing its
branded products, concepts and expertise through joint ventures,
acquisitions and selling agencies.
RISK FACTORS
Prospective purchasers of the Notes should carefully consider the information
set forth under the caption "Risk Factors," as well as the other information
and data in this Prospectus.
THE OFFERING
NOTES OFFERED......... $100,000,000 aggregate principal amount of % Senior
Subordinated Notes Due 2002.
INTEREST PAYMENT July 15 and January 15, commencing July 15, 1994.
DATES................
OPTIONAL REDEMPTION...
The Notes are not redeemable prior to ,
1999, except that, until , 1997, the Company
may redeem, at its option, up to $25 million of
aggregate principal amount of the Notes at the
redemption prices set forth herein plus accrued
interest to the date of redemption with the proceeds of
one or more Public Equity Offerings (as defined) or
Traco Warrant Exercises (as defined). On or after
, 1999, the Notes are redeemable at the
option of the Company, in whole or in part, at the
redemption prices set forth herein plus accrued
interest to the date of redemption. See "Description of
the Notes--Redemption."
CHANGE OF CONTROL..... Upon a Change of Control and subject to the
subordination provisions of the Notes, each Holder of
Notes may require the Company to repurchase such Notes
at 101% of the principal amount thereof plus accrued
and unpaid interest, if any, to the date of repurchase.
See "Description of the Notes--Change of Control."
RANKING............... The Notes will be unsecured, subordinated to all
existing and future Senior Debt of the Company and
effectively subordinated to all obligations of the
Company's subsidiaries, including substantially all of
the Company's consolidated trade credit. The Notes will
rank pari passu with any future
5
<PAGE>
Senior Subordinated Debt (as defined) of the Company
and will rank senior to any other subordinated debt of
the Company. At November 30, 1993, after giving effect
to the use of proceeds of the Offering contemplated
hereby and borrowings under the New Credit Facility
described herein to repay existing Senior Debt, the
aggregate amount of Senior Debt outstanding would have
been approximately $143 million and the aggregate
amount of indebtedness and accounts payable of the
Company's subsidiaries that would have effectively
ranked senior to the Notes would have been
approximately $30 million (excluding intercompany debt
and guarantees of Senior Debt by the Company's
subsidiaries). See "Description of the Notes--Ranking."
RESTRICTIVE The indenture under which the Notes will be issued (the
COVENANTS............ "Indenture") will limit (i) the issuance of additional
debt by the Company, (ii) the issuance of debt and
preferred stock by the Company's subsidiaries, (iii)
the payment of dividends on, and redemption of, capital
stock of the Company and its subsidiaries and the
redemption of certain subordinated obligations of the
Company, (iv) restrictions on distributions from
subsidiaries, (v) sales of assets and subsidiary stock,
(vi) transactions with affiliates and (vii)
consolidations, mergers and the transfer of all or
substantially all of the Company's assets. However, all
of these limitations and prohibitions are subject to a
number of important qualifications. See "Description of
the Notes--Certain Covenants."
USE OF PROCEEDS....... The net proceeds from the sale of the Notes and
borrowings under the New Credit Facility will be used
to repay all outstanding borrowings under the Company's
existing credit facilities and such credit facilities
will be terminated. See "Use of Proceeds" and
"Capitalization."
6
<PAGE>
SUMMARY HISTORICAL AND PRO FORMA CONSOLIDATED FINANCIAL INFORMATION
The following table sets forth summary historical consolidated financial
information for the Company for the five fiscal years ended November 30, 1993.
The table also presents certain pro forma consolidated financial data for the
year ended November 30, 1993 which give effect to (i) the Offering, (ii) the
New Credit Facility and (iii) the repayment of amounts outstanding under the
Company's existing credit facilities assuming such transactions were
consummated at the beginning of fiscal 1993 for the income statement and other
data and as of November 30, 1993 for the balance sheet data. The summary
historical and pro forma consolidated financial information should be read in
conjunction with "Management's Discussion and Analysis of Financial Condition
and Results of Operations" and the Company's Consolidated Financial Statements,
which are included herein.
Reference is also made to the Supplemental Financial Information contained on
page 9 of this Prospectus which presents certain financial data of the Company
for fiscal 1992 and 1993 on an adjusted basis to reflect certain effects of the
Restructuring and other adjustments as described therein.
<TABLE>
<CAPTION>
PRO FORMA(H)
FISCAL YEAR ENDED NOVEMBER 30, YEAR ENDED
----------------------------------------------------------------- NOVEMBER 30,
1989 1990 1991 1992(A) 1993(A) 1993(A)
---------- ---------- ---------- ---------- -------- ------------
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<S> <C> <C> <C> <C> <C> <C>
INCOME STATEMENT DATA:
Net sales............... $1,296,993 $1,295,840 $1,215,310 $1,053,949 $731,980 $731,980
Gross profit............ 514,412 489,603 434,007 350,304 226,801 226,801
Earnings (loss) before
restructuring charges,
interest and taxes..... 56,193 11,742 (22,702) (14,915) 29,279 29,279
Restructuring and retail
consolidation charges.. -- 77,600 13,500 190,800 -- --
Interest expense........ 28,418 28,952 23,793 21,135 22,869 21,142
Earnings (loss) before
taxes.................. 27,775 (94,810) (59,995) (226,850) 6,410 8,137
Tax provision (benefit). 10,365 (33,265) (21,630) (6,605) 190 241
Net earnings (loss)..... 17,410 (61,545)(b) (38,365)(c) (220,245)(d) 6,220 7,896
Net earnings (loss) per
common share and
equivalent............. .89 (3.11)(b) (1.74)(c) (8.59)(d) .20 .25
Cash dividends per
share.................. 1.175 .90 .60 -- -- --
Average number of common
shares and equivalents. 19,567 19,786 22,056 25,629 31,375 31,375
BALANCE SHEET DATA:
Total assets............ $ 907,965 $ 762,167 $ 739,848 $ 511,959 $405,111 $412,787
Long-term debt.......... 270,969 226,623 105,498 248,713 207,416 217,416
Total debt.............. 376,216 288,130 285,649 314,602 233,113 243,113
Total liabilities....... 547,831 469,629 452,840 441,534 296,114 306,114
Shareholders' equity.... 360,134 292,538 287,008 70,425 108,997 106,673
OTHER DATA:
EBITDA(e)............... $ 87,231 $ (30,639) $ (2,393) $ (178,768) $ 43,386 $ 43,386
Depreciation and
amortization........... 31,038 35,219 33,809 26,947 14,107 14,107
Capital expenditures.... 52,880 21,621 15,488 9,546 5,953 5,953
Ratio of earnings to
fixed charges(f)....... 1.54x (g) (g) (g) 1.20x 1.27x
</TABLE>
- --------
(a) The historical data includes results of operations sold or discontinued
pursuant to the Restructuring, as described elsewhere herein and in
Management's Discussion and Analysis of Financial Condition and Results of
Operations and in the Notes to the 1993 Consolidated Financial Statements,
which are included herein. See "Risk Factors--Operational and Financial
Restructuring" and "Supplemental Financial Information."
(b) Includes a $51 million, or $2.59 per share, after-tax restructuring charge.
(c) Includes a $8.9 million, or $0.40 per share, after-tax charge to reflect
the consolidation of the Company's retail operations.
(d) Includes a $191 million, or $7.44 per share, after-tax restructuring
charge. See "Risk Factors--Operational and Financial Restructuring."
(e) EBITDA is defined as net income before extraordinary items, interest,
taxes, depreciation and amortization and is presented because it is
generally accepted as providing useful information regarding a company's
ability to service and/or incur debt. EBITDA should not be considered in
isolation or as a substitute for net income, cash flows from operating
activities and other consolidated income or cash flow statement data
prepared in accordance with generally accepted accounting principles or as
a measure of the Company's profitability or liquidity. For fiscal 1990,
1991 and 1992, EBITDA includes non-cash restructuring charges.
7
<PAGE>
(f) For purposes of calculating the ratio of earnings to fixed charges,
earnings represent earnings before income taxes plus fixed charges. Fixed
charges consist of interest expense, net, including amortization of
discount and financing costs and one-third of the operating rental expense
which management believes is representative of the interest component of
rent expense.
(g) Earnings did not cover fixed charges as follows: (in thousands)
Fiscal year ended November 30,
1990: $ 89,907
Fiscal year ended November 30,
1991: $ 59,995
Fiscal year ended November 30,
1992: $226,850
(h) The pro forma 1993 data assume that the Offering and the New Credit
Facility were consummated at the beginning of fiscal 1993 for the income
statement and other data and as of November 30, 1993 for the balance sheet
data, and that the net proceeds therefrom were used to repay amounts
outstanding under the Company's existing debt agreements. The pro forma
1993 data are based on the 1993 historical financial information and have
been adjusted for the effects of: (i) assumed interest rates of 9.75% for
the Notes and 6% for borrowings under the New Credit Facility (LIBOR plus
2.50%), (ii) the incurrence of additional debt under the New Credit
Facility for payment of approximately $7.6 million of fees and expenses
relating to the Notes and the New Credit Facility and approximately $2.4
million of payments associated with the terminated credit facilities, (iii)
the amortization of the $7.6 million of fees and expenses relating to the
Notes and the New Credit Facility over the respective life of each
agreement, (iv) the write-off of approximately $4.0 million of unamortized
fees and payments associated with the terminated credit facilities on
shareholders' equity and (v) the reduction in interest expense as a result
of the new financing arrangements, net of related tax effects. Giving
effect only to the Offering and not the New Credit Facility, the pro forma
1993 ratio of earnings to fixed charges would have been 1.13x.
8
<PAGE>
SUPPLEMENTAL FINANCIAL INFORMATION
The following Supplemental Financial Information for fiscal 1992 and 1993 has
been prepared solely for illustrative purposes from the Company's 1992 and 1993
Consolidated Financial Statements and the internal books and records of the
Company and should be read in conjunction with the "Selected Historical and Pro
Forma Consolidated Financial Information" and the 1992 and 1993 Consolidated
Financial Statements and "Management's Discussion and Analysis of Financial
Condition and Results of Operations" included in this Prospectus. The
Supplemental Financial Information is intended to reflect certain results of
operations for the Company's continuing businesses and operations after giving
effect to the Restructuring and the other events described below, assuming that
they had occurred at the beginning of fiscal 1992. The Supplemental Financial
Information should not be considered in isolation or as a substitute for
consolidated financial statements prepared in accordance with generally
accepted accounting principles. The Supplemental Financial Information presents
certain financial data for fiscal 1992 and 1993 after eliminating from the 1992
and 1993 Consolidated Financial Statements: (i) the sales and operating results
of certain businesses and operations sold or discontinued as part of the
Restructuring; (ii) the sales and estimated operating results associated with
the Company's transactions with HSSI during fiscal 1992 and 1993; (iii) the
other adjustments described below and (iv) the $191 million charge associated
with the Restructuring. The Supplemental Financial Information does not purport
to represent what the consolidated statement of earnings of the Company would
have been had these businesses and operations been sold or discontinued for the
full 1992 and 1993 fiscal years and does not purport to project the
consolidated statement of earnings of the Company for any subsequent period.
The Supplemental Financial Information is derived from the Company's 1992 and
1993 Consolidated Financial Statements after reflecting the following
adjustments:
(i) The sales and operating results of HSSI have been eliminated from the
1992 Consolidated Financial Statements for all of fiscal 1992 to reflect
the sale of HSSI as part of the Restructuring.
(ii) To reflect the sale or discontinuance of other businesses and
operations principally pursuant to the Restructuring, the sales and
operating results of certain businesses, including Country Miss and certain
non-strategic manufacturing businesses which produced outerwear and
military and commercial uniforms, have been excluded from the 1992 and 1993
Consolidated Financial Statements and the sales by such businesses to HSSI
have been excluded from the HSSI Sales (as defined below).
(iii) Since the sale of HSSI and its subsidiaries in 1992, HSSI has
continued as a significant customer of the Company, although the volume of
purchases by HSSI has been declining. On December 21, 1993, HSSI and 25
affiliates commenced voluntary cases under Chapter 11 of the United States
Bankruptcy Code and are currently operating as debtors-in-possession. As a
result of these circumstances, there can be no assurance that the Company
will have future sales to HSSI. Sales of the Company's continuing
businesses to HSSI (the "HSSI Sales") were approximately $67 million in
fiscal 1992, including approximately $50 million prior to the date HSSI was
sold (September 18, 1992) and $17 million subsequent to such date. In
fiscal 1993, the HSSI Sales were approximately $37 million. To reflect the
uncertainty regarding future sales to HSSI, the Supplemental Financial
Information eliminates from the 1992 and 1993 Consolidated Financial
Statements the HSSI Sales, the estimated gross margin associated with the
HSSI Sales and the estimated variable operating costs directly attributable
to the HSSI Sales. While a reduction of fixed operating costs may be
achievable if sales levels are permanently reduced, the Supplemental
Financial Information assumes that the sudden and complete loss of the HSSI
Sales would not allow for a corresponding reduction of fixed costs in the
short term. Consequently, the Supplemental Financial Information does not
eliminate fixed costs relating to the HSSI Sales. To the extent fixed costs
would have been allocated to the HSSI Sales, the estimated earnings would
be greater than those presented below. See "Risk Factors--Uncertainties
Regarding HSSI and MLR" and "Business--Legal Proceedings."
9
<PAGE>
(iv) The charge related to the Restructuring which has been eliminated
included write-offs and other costs associated with the closing of certain
Kuppenheimer stores and a related production facility. The Supplemental
Financial Information does not include such charges or any other
adjustments relating to Kuppenheimer.
(v) The license agreement between HSM and Christian Dior-New York
providing for the manufacture and marketing of men's tailored clothing
under the Christian Dior(R) brand name was terminated during 1992. As a
result, the sales, estimated gross margin and estimated variable operating
costs attributable to the men's tailored clothing manufactured and sold by
the Company pursuant to such license agreement have been eliminated from
the 1992 Consolidated Financial Statements. See "Business--Legal
Proceedings."
The Supplemental Financial Information does not reflect an adjustment to
historical interest expense for the investment in the sold or discontinued
businesses and operations described above. To the extent interest expense would
have been allocated to the investment in those sold or discontinued businesses
and operations, the estimated earnings would have been greater than those
presented below.
SUPPLEMENTAL FINANCIAL INFORMATION
<TABLE>
<CAPTION>
UNAUDITED SUPPLEMENTAL
FINANCIAL INFORMATION
FISCAL YEAR ENDED
NOVEMBER 30,
------------------------
1992 1993
----------- -----------
(DOLLARS IN MILLIONS)
<S> <C> <C>
Net sales...................................... $672.3 $ 690.1
Earnings before interest,
taxes, depreciation
and amortization (EBITDA)(a).................. $ 32.8 $ 35.2
Earnings before interest
and taxes (EBIT)(a)........................... $ 16.6 $ 21.1
Earnings (loss) before taxes................... $ (4.5) $ (1.8)
</TABLE>
- --------
(a) EBITDA and EBIT are presented because they are generally accepted as
providing useful information regarding a company's ability to service
and/or incur debt. EBITDA and EBIT should not be considered in isolation or
as substitutes for net income, cash flows from operating activities and
other consolidated income or cash flow statement data prepared in
accordance with generally accepted accounting principles or as measures of
the Company's profitability or liquidity. For fiscal 1992 and 1993, actual
EBITDA was $(178.8) million and $43.4 million, respectively.
10
<PAGE>
RISK FACTORS
INDEBTEDNESS AND LIQUIDITY
The Company has significant debt service obligations. As of November 30,
1993, after giving effect to the use of proceeds of the Offering contemplated
hereby and borrowings under the New Credit Facility (as defined herein) to
repay Senior Debt, the Company's total indebtedness would have been
approximately $243 million and total shareholders' equity would have been
approximately $105 million, resulting in a total pro forma debt to total
capitalization of 70%. In addition, assuming the closing of the Offering and
the New Credit Facility (collectively, the "Financing Transactions") occurred
on November 30, 1993 and after giving effect to the use of borrowings under the
New Credit Facility to repay Senior Debt, approximately $54 million of
additional borrowing capacity would have been available (subject to the
borrowing base formula) under the Company's New Credit Facility as of November
30, 1993. The Company's borrowing needs are seasonal in nature. The maximum
amount of Senior Debt outstanding during fiscal 1993, assuming the closing of
the Financing Transactions at such time, would have been approximately $196
million as compared to approximately $143 million of Senior Debt that would
have been outstanding as of November 30, 1993, assuming the closing of the
Financing Transactions as of such date. Management believes that amounts
available under the New Credit Facility will be sufficient to meet its peak
borrowing requirements. As of November 30, 1993, assuming the closing of the
Financing Transactions on such date, approximately $123 million of the $143
million of Senior Debt that would have been outstanding would mature within
three years. Such Senior Debt must be refinanced on or before such maturity.
The Company's ability to refinance the New Credit Facility at maturity will
depend on a number of circumstances, including prevailing economic and industry
conditions and the financial condition and operations of the Company and the
businesses it operates, some of which are beyond the Company's control. There
can be no assurance that the Company will be able to refinance the New Credit
Facility at such time. See "Description of Certain Indebtedness."
The level of the Company's indebtedness could have important consequences to
holders of the Notes, including: (i) the Company's ability to obtain additional
financing in the future for working capital, capital expenditures,
acquisitions, debt service requirements, general corporate purposes or other
purposes may be impaired, (ii) a substantial portion of the Company's cash flow
from operations must be dedicated to the payment of the Company's interest
expense and principal repayment obligations, (iii) the Company may be more
highly leveraged than certain of its competitors, which may place the Company
at a competitive disadvantage and (iv) the Company may be more vulnerable in
the event of a downturn in its businesses.
The New Credit Facility will contain material restrictions on the operation
of the Company's business, including covenants pertaining to capital
expenditures, asset sales, operating leases, minimum net worth and incurrence
of additional indebtedness, and ratios relating to minimum accounts payable to
inventory, maximum funded debt to EBITDA and minimum fixed charge coverage, as
well as other customary covenants, representations and warranties, funding
conditions and events of default. See "Description of Certain Indebtedness--New
Credit Facility." A breach of one or more of certain covenants under such
agreement could result in an acceleration of the Company's obligations
thereunder, the inability of the Company to borrow additional amounts under the
New Credit Facility to meet seasonal borrowing needs or the suspension of
interest payments on the Notes. In addition, the New Credit Facility will
contain cross-default provisions whereby a default under one of the other
agreements governing the Senior Debt will constitute an event of default under
the New Credit Facility. Any or all of such restrictions, limitations or
contingencies, as well as the Company's significant leverage, could adversely
affect the Company's ability to incur additional indebtedness, make capital
expenditures, take advantage of business opportunities that may arise and
withstand competitive pressures or adverse economic conditions. Assuming the
New Credit Facility is consummated as of March 31, 1994 and the Company's
existing credit facilities are repayed and terminated, the Company would expect
to record an extraordinary pre-tax charge in the second quarter of 1994 of
approximately $4 million, representing the loss from early extinguishment of
debt.
The Company's ability to make interest payments on the Notes and to repay the
Notes at maturity will be dependent on the Company's future operating
performance, which is itself dependent on a number of factors which are beyond
the Company's control, and the ability of the Company to incur additional
indebtedness. Although there can be no assurance that the Company will be able
to raise sufficient funds,
11
<PAGE>
internally or externally, to make such required payments, the Company believes
that, based upon current operations, anticipated growth in working capital
requirements and the amount anticipated to be available for borrowing under the
Company's New Credit Facility, it will be able to meet its obligations as they
come due.
RECENT OPERATING LOSSES
The Company did not report income from continuing operations from fiscal 1990
through fiscal 1992. For the fiscal year ended November 30, 1993, the Company's
pre-tax earnings were $6.4 million compared to a pre-tax loss of $226.9 million
for the same period in fiscal 1992. The pre-tax loss reported in fiscal 1992
included a $190.8 million restructuring charge. See "Management's Discussion
and Analysis of Financial Condition and Results of Operations," "Selected
Historical and Pro Forma Consolidated Financial Information" and "--Operational
and Financial Restructuring." Although the Company reported consolidated pre-
tax earnings for fiscal 1993, conditions in the women's wholesale and men's
direct-to-consumer businesses resulted in operating losses in fiscal 1993 for
the IWA and Kuppenheimer operations. The Company's IWA business unit, which
commenced operations in 1992, has reported operating losses since its
inception. The Company is reviewing the profitability prospects and strategic
direction of, and its options with respect to, IWA, and may in the future
decide to discontinue IWA's product lines or change its distribution channels.
Any such actions, if taken, may have an adverse effect on the Company's results
of operations. IWA represented approximately 4% of the Company's fiscal 1993
net sales.
OPERATIONAL AND FINANCIAL RESTRUCTURING
In 1992, the Company implemented the Restructuring to refocus its business
operations around its profitable core wholesale men's apparel franchise and to
restructure its balance sheet. The operational aspects of the Restructuring
included the sale of HSSI, the Company's principal retail unit; the
discontinuance of its Country Miss retail and manufacturing operations; the
closing of certain Kuppenheimer stores not achieving minimum profitability
requirements; the reduction of production capacity which was no longer required
to support reduced retail operations; and the sale or closing of non-strategic
manufacturing businesses which manufactured outerwear and military and
commercial uniforms. The total sales for fiscal 1992 for all of the businesses
and operations sold or discontinued in conjunction with the Restructuring was
approximately $365 million. The Company's financial statements for fiscal 1992
include restructuring charges of $191 million. See Notes to the Consolidated
Financial Statements of the Company included herein. For additional information
regarding the Company's current relationship with HSSI, see "--Uncertainties
Regarding HSSI and MLR" and "Business--Legal Proceedings."
As part of the Restructuring, in December 1992, the Company consolidated and
extended its borrowing facilities pursuant to which, among other things, (i)
the maturity of $307 million of the Company's outstanding indebtedness was
consolidated and extended until December 30, 1995 pursuant to the terms of a
new secured and guaranteed borrowing facility (the "Override Agreement"), (ii)
an additional seasonal borrowing availability of $35 million was obtained (the
"Bridge Facility") and (iii) certain restrictive covenants with respect to the
Company's indebtedness were added and existing covenants were adjusted to
reflect the condition of the Company following the commencement of such
Restructuring. In addition, the Company raised $30 million through the sale of
shares of its common stock and a warrant to purchase its common stock (the
"Equity Investment") in a private placement to Traco International, N.V.
("Traco"). Concurrently with the issuance of the Notes, the Company anticipates
entering into the New Credit Facility and repaying and terminating its
obligations under the Override Agreement and the Bridge Facility. The New
Credit Facility is conditioned upon the consummation of the sale of the Notes
contemplated hereby. As of November 30, 1993, assuming the closing of the
Financing Transactions and the application of the proceeds thereof,
approximately $54 million of additional borrowing capacity would have been
available under the New Credit Facility (subject to the borrowing base
formula). See "Management's Discussion and Analysis of Financial Condition and
Results of Operations" and "Description of Certain Indebtedness."
12
<PAGE>
UNCERTAINTIES REGARDING HSSI AND MLR
HSSI and its subsidiaries were sold to HSSA Group, Ltd. ("HSSA") in 1992 in
connection with the Restructuring for a promissory note of HSSA (the "HSSA
Note") which was secured by a pledge of the common stock of HSSI (the "HSSI
Stock") pursuant to a Stock Pledge Agreement (the "Pledge Agreement"). The
Company believes that HSSA is 100% owned by the three sons of the sole
shareholder of Maurice L. Rothschild & Co. ("MLR") and at least one of the
shareholders of HSSA is also a director of MLR. Following the sale, HSSI has
continued as a significant customer of the Company, although the volume of HSSI
Sales has been declining. HSSI Sales in fiscal 1993 were approximately $37
million (representing 5% of the Company's fiscal 1993 total sales), a decrease
from fiscal 1992 HSSI Sales of approximately $67 million. In connection with
the 1992 sale to HSSA, HSSI agreed to purchase from the Company, in each of the
two twelve-month periods following the closing of the sale, products having an
aggregate wholesale purchase price of at least $35 million.
On December 21, 1993, HSSI and 25 affiliates filed voluntary petitions for
relief under Chapter 11 of the United States Bankruptcy Code (the "Bankruptcy
Code") and are currently operating as debtors-in-possession. Any supply
agreement entered into between the Company and HSSI prior to December 21, 1993
may be deemed an executory contract subject to assumption or rejection by HSSI
under the Bankruptcy Code, and there can be no assurance that HSSI will assume
any such supply agreement if such agreement is deemed an executory contract.
When HSSI's Chapter 11 petitions were filed, HSSI's total outstanding
indebtedness to the Company (excluding its guaranty of the $35 million HSSA
Note) was approximately $4.5 million. MLR has extended credit support to HSSI
and others in connection with purchases from the Company and, as a result, has
total outstanding indebtedness to the Company of approximately $10.6 million
(including interest charges) with respect to such purchases. The foregoing
amounts of indebtedness of HSSI and MLR do not reflect amounts received by the
Company aggregating approximately $4.8 million in November 1993. On February 4,
1994, MLR filed a voluntary petition for relief under Chapter 11 of the
Bankruptcy Code. On the same day, MLR commenced an adversary proceeding against
the Company to recover the $4.8 million payment as a voidable preference under
the Bankruptcy Code, and such proceeding has been dismissed without prejudice.
According to documents filed in HSSI's Chapter 11 cases, MLR asserts a secured
claim against HSSI and its subsidiaries in the approximate amount of $17.5
million, which claim is disputed by HSSI and its subsidiaries.
On November 23, 1993, after the Company determined that certain obligations
under the HSSA Note and related documents had been breached, the Company
exercised certain of its rights under the Pledge Agreement to, among other
things, cause the HSSI Stock to be voted to elect a new Board of Directors. On
November 29, 1993, HSSA filed a complaint for declaratory and preliminary and
permanent injunctive relief against the Company in the Circuit Court of Cook
County, Illinois (the "Circuit Court"), alleging that the Company improperly
and wrongfully seized ownership of HSSI and seeking an order declaring, among
other things, that HSSA is and remains the owner of HSSI. On January 24, 1994,
HSSA was granted leave, subject to pending objections, to file an amended
complaint. The amended complaint seeks actual damages in an unspecified amount
and punitive damages of at least $10 million for, among other things, breach of
contract, tortious interference with contract, and conversion. Also on January
24, 1994, MLR filed a complaint (which was amended on February 4, 1994) against
the Company and six subsidiaries, among others, in the Circuit Court seeking
actual damages of $19 million and punitive damages of over $100 million for
tortious interference with contract and interference with prospective economic
advantage. After consultation with counsel, management of the Company believes
that the Company has meritorious defenses to the actions against the Company
referred to above and that such actions will not have a material adverse effect
on the Company's business or financial condition. For additional information
concerning these and other legal proceedings involving HSSI and the Company,
see "Business--Legal Proceedings."
Under current circumstances, there can be no assurance that the Company will
have any future sales to HSSI, that the Company will be able to collect amounts
owed by HSSI or MLR, that MLR will provide any future credit support to HSSI or
that either HSSI or MLR will continue as a going concern (including as a result
of liquidation). A substantial reduction or loss of sales to HSSI, the
inability of the Company to collect
13
<PAGE>
amounts owed it by HSSI or MLR, the recovery by MLR of the $4.8 million payment
to the Company described above, an adverse determination in the proceedings
against the Company described above or the costs associated with any prolonged
litigation with respect to the above matters may adversely affect the Company's
total revenues or earnings. See "Supplemental Financial Information."
RANKING OF THE NOTES
The operations of the Company are conducted through its operating
subsidiaries and, therefore, the Company is dependent on the earnings and cash
flow of the operating subsidiaries to meet its debt obligations, including its
obligations with respect to the Notes. There are presently no restrictions on
the ability of the Company's subsidiaries to pay dividends on their capital
stock. Because the consolidated operating assets of the Company will be held by
various operating subsidiaries, the Notes will effectively be subordinated to
the claims of creditors of the operating subsidiaries.
The Notes are also subordinated to all existing and future Senior Debt of the
Company, including up to $175 million that can be outstanding under the New
Credit Facility and approximately $22 million outstanding as of November 30,
1993 under other Senior Debt. See "--Indebtedness and Liquidity," "Description
of the Notes--Ranking" and "Description of Certain Indebtedness." In the event
of a bankruptcy proceeding involving the Company, the Company's assets would be
available to pay obligations on the Notes only after all indebtedness of the
Company's subsidiaries and all Senior Debt has been paid in full, and, in such
event, there may not be sufficient assets to pay in full or in part amounts due
on the Notes. Substantially all of the Company's and its subsidiaries' current
assets and intangible assets will secure, and such subsidiaries will guaranty,
the indebtedness under the New Credit Facility. As of November 30, 1993,
assuming the closing of the Financing Transactions on such date and after
giving effect to the use of the proceeds thereof to pay existing credit
facilities, the amount of indebtedness outstanding under the New Credit
Facility would have been approximately $121 million, with approximately $54
million of additional borrowing capacity available (subject to the borrowing
base formula) for future borrowing. See "Use of Proceeds" and "Description of
Certain Indebtedness."
The subordination provisions of the Indenture provide that no payment may be
made by the Company with respect to the Notes upon the occurrence of a default
in the payment or required prepayment of principal of (or premium, if any), or
interest on, certain Senior Debt, until such default shall have been cured or
waived. In addition, upon the occurrence of any other event entitling the
maturity of Senior Debt to be accelerated and receipt by the trustee under the
Indenture of written notice of such occurrence, lenders under the Senior Debt
will be able to block payment on the Notes for specified periods of time. See
"Description of the Notes--Ranking."
COMPETITION
All of the markets in which the Company competes--men's tailored clothing,
men's slacks and sportswear, women's sportswear and women's career apparel--are
highly competitive. The Company's primary competition varies by product, style
and price point. Some of the competitors of the Company's individual business
units are significantly larger and more diversified and have substantially
greater resources than the Company's business units.
The Company's largest product category, men's tailored clothing, is highly
fragmented and characterized by vigorous price and brand competition. According
to the U.S. Department of Commerce, since 1989, the men's and boys' tailored
clothing industry has experienced a decline in both dollar sales and unit
volume. These declines were attributable primarily to the onset of a recession,
which caused retail consumers to curtail or defer their purchases of tailored
clothing. In addition, the impact of the recession on the industry was
exacerbated by a number of other factors, including the significant level of
layoffs among white collar workers, the principal customers for men's tailored
clothing. Moreover, the retailing industry has suffered severe financial
disruptions that have resulted in continuing high levels of price promotion and
discounting. This development placed added pressure on the profit margins
realized by manufacturers of men's tailored clothing. The industry has also
been affected by the relaxation of dress codes by many employers and the long-
term trend toward a more casual lifestyle.
14
<PAGE>
A principal channel of distribution for men's tailored clothing, particularly
outside of large cities, has been small traditional specialty stores. In recent
years, there has been a decline in the number of these stores, caused in large
part by the expansion of department stores and larger specialty store chains
into shopping malls, the growth of factory outlet centers and, especially in
metropolitan markets, the rapid growth of value-priced specialty stores.
Although imports have been a significant factor in the men's tailored
clothing industry in recent years, they have generally been at either the
lowest or the highest retail price points. Imports of men's tailored clothing
are subject to quotas and import duties. The duty on imports of men's and boys'
tailored clothing currently varies depending upon the fabric used and may range
as high as 22%. The recently concluded North American Free Trade Agreement
("NAFTA") provides for the gradual elimination of tariffs and quotas on men's
tailored clothing meeting NAFTA's strict rules of origin. Currently, men's
tailored clothing that is manufactured in Canada but does not meet these strict
rules of origin may be imported into the United States at relatively low tariff
levels subject to specified quotas; any products imported above these quota
levels would be subject to existing tariff rates. The recently consummated
General Agreement on Trade and Tariffs ("GATT") treaty reduces both duties and
quotas for apparel as well as fabric. The net effect on the Company of reduced
tariffs on its foreign competition and on its foreign-sourced finished apparel
and fabric is uncertain at this time.
DEPENDENCE ON BURLINGTON INDUSTRIES
The Company's principal raw material is fabric. In fiscal 1993, the Company
purchased approximately 48% of the total dollar amount of its fabric
requirements from Burlington Industries, Inc. ("Burlington"). Burlington and
certain predecessors have supplied fabric to the Company for over 50 years, and
the Company believes that it is one of Burlington's major customers. While the
Company believes that a variety of alternative sources of supply exist to
satisfy its fabric requirements, the unanticipated, sudden loss of Burlington
as the Company's principal supplier of fabric or a prolonged interruption in
shipments from Burlington could have a material adverse effect on the Company
because of the cost and delay associated with obtaining one or more alternative
sources of supply or with waiting for the end of any such interruption. As is
customary in its industry, the Company has no long-term supply contracts with
Burlington or any of its other suppliers.
DEPENDENCE ON CERTAIN CUSTOMERS
The Company's customers include major United States department and specialty
stores (certain of which are under common ownership and control), mass
merchandisers, value-oriented retailers and direct mail companies. The
Company's top ten customers accounted for approximately 37% of net sales in
fiscal 1993, and the Company's largest customer, Dillard Department Stores,
represented approximately 12% of net sales. No other customer accounted for
more than 7% of net sales in fiscal 1993. A decision by any one of these
customers to substantially decrease the amount of merchandise purchased from
the Company or to cease carrying the Company's products could adversely affect
the Company. See "--Uncertainties Regarding HSSI and MLR."
ABSENCE OF PUBLIC MARKET FOR THE NOTES
There is no existing market for the Notes and there can be no assurance
regarding the future development of a market for the Notes, the ability of
holders of the Notes to sell their Notes or the price at which such holders may
be able to sell their Notes. If such a market were to develop, the Notes could
trade at prices that may be higher or lower than the initial offering price
depending on many factors, including prevailing interest rates, the Company's
operating results and the market for similar securities. Each of the
Underwriters has advised the Company that it intends to act as market maker for
the Notes. However, any such market making may be discontinued by each such
Underwriter at any time in its sole discretion. No assurance can be given as to
the liquidity of the trading market for the Notes. Historically, the market for
non-investment grade debt has been subject to disruptions that have caused
substantial volatility in the prices of securities similar to the Notes. There
can be no assurance that the market for the Notes will not be subject to
similar disruptions in the future. Any such disruptions may have an adverse
effect on holders of the Notes.
15
<PAGE>
USE OF PROCEEDS
The net proceeds to the Company from the sale of the Notes offered hereby are
estimated to be approximately $96 million after deduction of estimated
underwriting discounts and expenses. The Company intends to use the net
proceeds from the sale of the Notes contemplated hereby and borrowings under
the New Credit Facility to repay all outstanding borrowings under the Override
Agreement. Concurrently with such repayment, the Company intends to terminate
the Bridge Facility and the Override Agreement. At November 30, 1993, the
Company's Senior Debt consisted of $226.4 million under the Override Agreement
and $6.7 million of other Senior Debt. Borrowings under the Override Agreement
bear interest at prime plus 2% for bank lenders, 10.3% for the insurance
lenders and 9.19% for the ESOP loan guaranteed by the Company. As of November
30, 1993, the weighted average of interest rates was 8.2% per annum under the
Override Agreement. See "Risk Factors--Indebtedness and Liquidity" and
"Description of Certain Indebtedness."
CAPITALIZATION
The following table sets forth the historical consolidated capitalization of
the Company at November 30, 1993 and the pro forma capitalization of the
Company as of such date as adjusted to give effect to the Offering and
borrowings under the New Credit Facility and the application of the estimated
net proceeds therefrom to repay the indebtedness outstanding under the Override
Agreement. This table should be read in conjunction with "Selected Historical
and Pro Forma Consolidated Financial Information," "Supplemental Financial
Information" and the Consolidated Financial Statements of the Company and Notes
thereto which are included herein.
<TABLE>
<CAPTION>
NOVEMBER 30, 1993
---------------------
ACTUAL AS ADJUSTED
------ -----------
(DOLLARS IN
MILLIONS)
<S> <C> <C>
Short-term debt...................................... $ 25.7(a) $ 25.7(b)
====== ======
Long-term debt:(c)
Override Agreement................................. $185.9 $ --
Bridge Facility.................................... -- --
New Credit Facility................................ -- 95.9
Industrial development bonds....................... 20.6(d) 20.6
Notes offered hereby............................... -- 100.0
Other debt, extending to 2007...................... .9 .9
------ ------
Total long-term debt............................. 207.4 217.4
------ ------
Shareholders' equity:
Preferred shares ($1 par value; authorized--
2,500,000; issued--none).......................... -- --
Common stock ($2.50 par value; authorized--
75,000,000; issued--31,951,464)................... 79.9 79.9
Additional paid-in capital......................... 74.3 74.3
Retained earnings.................................. (33.4) (37.4)(e)
Unearned employee benefits......................... (11.8) (11.8)
------ ------
Total shareholders' equity....................... 109.0 105.0
------ ------
Total long-term debt and shareholders' equity.... $316.4 $322.4
====== ======
</TABLE>
- --------
(a) Includes $25 million of borrowings under the Override Agreement.
(b) Includes $25 million of borrowings under the New Credit Facility.
(c) See "Description of Certain Indebtedness."
(d) Includes $15.5 million of industrial development bonds supported by
letters of credit which are a part of the Override Agreement.
(e) Retained earnings declined due to the write-off of unamortized fees
and payments associated with terminated credit facilities.
16
<PAGE>
SELECTED HISTORICAL AND PRO FORMA CONSOLIDATED FINANCIAL INFORMATION
The following table sets forth selected historical consolidated financial
information of the Company for each of the five years ended November 30, 1993.
The table also presents certain pro forma consolidated financial data for the
year ended November 30, 1993 which give effect to (i) the Offering, (ii) the
New Credit Facility and (iii) the repayment of amounts outstanding under the
Company's existing credit facilities assuming such transactions were
consummated at the beginning of fiscal 1993 for the income statement and other
data and as of November 30, 1993 for the balance sheet data.
The pro forma consolidated financial information does not purport to
represent what the Company's results of operations would have been had such
transactions in fact occurred on such date. The pro forma consolidated
financial data are based upon currently available information and upon certain
assumptions that the Company believes to be reasonable, and should be read in
conjunction with the Company's Consolidated Financial Statements, which are
included herein.
<TABLE>
<CAPTION>
PRO FORMA(H)
FISCAL YEAR ENDED NOVEMBER 30, YEAR ENDED
---------------------------------------------------------------- NOVEMBER 30,
1989 1990 1991 1992(A) 1993(A) 1993(A)
---------- ---------- ---------- --------- -------- ------------
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<S> <C> <C> <C> <C> <C> <C>
INCOME STATEMENT DATA:
Net sales............... $1,296,993 $1,295,840 $1,215,310 1,053,949 $731,980 $731,980
Finance charges,
interest and other
income................. 14,979 14,286 10,761 9,566 5,980 5,980
Cost of goods sold...... 782,581 806,237 781,303 703,645 505,179 505,179
Selling, administrative
and occupancy expenses. 473,198 492,147 467,470 374,785 203,502 203,502
Restructuring and retail
consolidation charges.. -- 77,600 13,500 190,800 -- --
Interest expense........ 28,418 28,952 23,793 21,135 22,869 21,142
Earnings (loss) before
taxes.................. 27,775 (94,810) (59,995) (226,850) 6,410 8,137
Tax provision (benefit). 10,365 (33,265) (21,630) (6,605) 190 241
Net earnings (loss)..... 17,410 (61,545)(b) (38,365)(c) (220,245)(d) 6,220 7,896
Net earnings (loss) per
common share and
equivalent............. .89 (3.11)(b) (1.74)(c) (8.59)(d) .20 .25
Dividends per share..... 1.175 .90 .60 -- -- --
BALANCE SHEET DATA:
Total assets............ $ 907,965 $ 762,167 $ 739,848 $ 511,959 $405,111 $412,787
Current assets.......... 697,661 577,894 578,632 429,773 337,715 339,391
Accounts receivable..... 210,555 132,719 134,748 159,772 120,442 120,442
Inventories............. 473,999 409,599 404,995 216,751 193,818 193,818
Current liabilities..... 276,862 243,006 347,342 192,821 88,698 88,698
Long-term debt.......... 270,969 226,623 105,498 248,713 207,416 217,416
Total debt.............. 376,216 288,130 285,649 314,602 233,113 243,113
Shareholders' equity.... 360,134 292,538 287,008 70,425 108,997 106,673
OTHER DATA:
EBITDA(e)............... $ 87,231 $ (30,639) $ (2,393) $(178,768) $ 43,386 $ 43,386
Depreciation and
amortization........... 31,038 35,219 33,809 26,947 14,107 14,107
Capital expenditures.... 52,880 21,621 15,488 9,546 5,953 5,953
Ratio of earnings to
fixed charges(f)....... 1.54x (g) (g) (g) 1.20x 1.27x
</TABLE>
- --------
(a) The historical data includes results of operations sold or discontinued
pursuant to the Restructuring, as described elsewhere herein and in
Management's Discussion and Analysis of Financial Condition and Results of
Operations and in the Notes to the 1993 Consolidated Financial Statements,
which are included herein. See "Risk Factors--Operational and Financial
Restructuring" and "Supplemental Financial Information."
(b) Includes a $51 million, or $2.59 per share, after-tax restructuring charge.
(c) Includes an $8.9 million, or $0.40 per share, after-tax charge to reflect
the consolidation of the Company's retail operations.
(d) Includes a $191 million, or $7.44 per share, after-tax restructuring
charge. See "Risk Factors--Operational and Financial Restructuring."
(e) EBITDA is defined as net income before extraordinary items, interest,
taxes, depreciation and amortization and is presented because it is
generally accepted as providing useful information regarding a company's
ability to service and/or incur debt. EBITDA should not be considered in
isolation or as a substitute for net income, cash flows from operating
activities and other consolidated income or cash flow statement data
prepared in accordance with generally accepted accounting principles or as
a measure of the Company's profitability or liquidity. For fiscal 1990,
1991 and 1992, EBITDA includes non-cash restructuring charges.
(f) For purposes of calculating the ratio of earnings to fixed charges,
earnings represent earnings before income taxes plus fixed charges. Fixed
charges consist of interest expense, net, including amortization of
discount and financing costs and one-third of the operating rental expense
which management believes is representative of the interest component of
rent expense.
(g) Earnings did not cover fixed charges as follows: (in thousands)
Fiscal year ended November 30,
1990:$ 89,907
Fiscal year ended November 30,
1991:$ 59,995
Fiscal year ended November 30,
1992:$226,850
17
<PAGE>
(h) The pro forma 1993 data assume that the Offering and the New Credit
Facility were consummated at the beginning of fiscal 1993 for the income
statement and other data and as of November 30, 1993 for the balance sheet
data, and that the net proceeds therefrom were used to repay amounts
outstanding under the Company's existing debt agreements. The pro forma
1993 data are based on the 1993 historical financial information and have
been adjusted for the effects of: (i) assumed interest rates of 9.75% for
the Notes and 6% for borrowings under the New Credit Facility (LIBOR plus
2.50%), (ii) the incurrence of additional debt under the New Credit
Facility for payment of approximately $7.6 million of fees and expenses
relating to the Notes and the New Credit Facility and approximately $2.4
million of payments associated with the terminated credit facilities,
(iii) the amortization of the $7.6 million of fees and expenses relating
to the Notes and the New Credit Facility over the respective life of each
agreement, (iv) the write-off of approximately $4.0 million of unamortized
fees and payments associated with the terminated credit facilities on
shareholders' equity and (v) the reduction in interest expense as a result
of the new financing arrangements, net of related tax effects. Giving
effect only to the Offering and not the New Credit Facility, the pro forma
1993 ratio of earnings to fixed charges would have been 1.13x.
18
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
Fiscal 1993 results reflect the strengthening of the Company's financial
condition as a result of the Restructuring commenced in 1992 which refocused
the Company's business operations around its profitable core wholesale men's
apparel franchise and restructured its balance sheet. See "Business--
Operational and Financial Restructuring." The Company's continuing businesses
currently comprise: (i) MAG, which designs, manufactures and markets men's
tailored clothing on a wholesale basis, principally through its HSM,
Intercontinental Branded Apparel and Hickey-Freeman business units, and slacks
and sportswear, principally through its Trans-Apparel Group, Biltwell and Bobby
Jones business units; (ii) Kuppenheimer, the vertically integrated factory-
direct-to-consumer manufacturer of popular priced men's tailored clothing whose
products are sold, along with related apparel procured from unaffiliated third
parties, exclusively through Kuppenheimer operated retail stores; and (iii)
Women's Apparel Group, comprised of Barrie Pace, a direct mail business
offering a wide range of apparel and accessories to the business and
professional woman through its catalogs, and IWA, which markets women's career
apparel and sportswear to department and specialty stores under owned and
licensed brand names. For financial reporting purposes, the Company's business
units are identified as the wholesale segment, which principally consists of
MAG and IWA, and the direct-to-consumer ("consumer") segment, which is
principally comprised of Kuppenheimer and Barrie Pace.
RESULTS OF OPERATIONS
Consolidated 1993 sales were $732.0 million compared to $1.054 billion in
1992 and $1.215 billion in 1991. The 1993 sales decline of 30.5% compared to
1992 and the 13.3% decrease in 1992 compared to 1991 were substantially
attributable to the disposition or discontinuance of various businesses as a
result of the Restructuring. Over this period, sales of the Company's
continuing businesses experienced small increases, principally related to the
start-up of IWA and growth at Barrie Pace and in men's tailored clothing
(excluding the HSSI Sales).
Consolidated 1993 pre-tax income was $6.4 million compared to pre-tax losses
of $226.9 million in 1992 and $60.0 million in 1991. Results for 1992
reflected, in addition to $190.8 million of restructuring charges, the
aggregate operating losses associated with businesses sold or discontinued in
connection with the Restructuring. Results for 1991 included a $13.5 million
pre-tax charge taken to consolidate the Company's retail operations. Over this
period, pre-tax earnings for the Company's continuing businesses showed a small
improvement, principally related to reductions in corporate expenses. Net
income for 1993 was $6.2 million or $.20 per share and reflected an effective
tax rate of 3.0%. As discussed below, the Company's deferred tax assets include
significant operating loss carryforwards available to offset future taxable
income, which are substantially offset by valuation allowances due to
uncertainties associated with the realization of such tax benefits. The net
loss for 1992 was $220.2 million or $8.59 per share, which reflected a tax
benefit of 2.9%. The net loss of $38.4 million or $1.74 per share in 1991
reflected a full tax benefit of 36.1%.
Wholesale and Consumer Segments. Wholesale segment sales, which represent
products manufactured by the Company and sold to unaffiliated retailers for
resale to consumers, were $567 million in 1993, $592 million in 1992 and $578
million in 1991. The 4.2% decrease in 1993 as compared to 1992 was
substantially attributable to the sale or closing of non-strategic
manufacturing businesses which manufactured outerwear and commercial and
military uniforms. This decrease in sales was partially offset by a slight
increase in sales of the Company's continuing businesses and by $37 million of
sales to HSSI being reflected in consolidated sales in 1993 compared to $18
million in 1992 which represented only those sales to HSSI subsequent to the
Company's disposition of HSSI in September 1992. Prior to this disposition,
sales to HSSI were considered intercompany and not reflected in consolidated
sales. In 1992, such intercompany sales to HSSI were over $50 million. The 2.5%
increase in wholesale segment sales in 1992 over 1991 was principally
attributable to the introduction of new women's apparel brands and a slight
increase in men's apparel sales, which were attributable to $18 million of
sales to HSSI subsequent to its disposition by the Company. As a result of the
Restructuring, the percentage of wholesale segment sales to consolidated sales
increased to 77.5% in 1993 as compared to 56.2% in 1992 and 47.6% in 1991.
19
<PAGE>
Also as a result of the Restructuring, sales in the consumer segment
(identified for reporting purposes in prior years as the retail segment)
declined to $165 million in 1993 from $462 million in 1992 and $637 million in
1991, and, as a result, represented 22.5% of consolidated sales in 1993
compared to 43.8% in 1992 and 52.4% in 1991. The consumer segment was
principally comprised of the Kuppenheimer and Barrie Pace businesses during
1993. The consumer segment in 1992 and 1991 also included HSSI and the
operations of the Old Mill stores. The 64.3% decrease in 1993 compared to 1992
and the 27.6% reduction in 1992 compared to 1991 were substantially
attributable to the disposition of HSSI and discontinuance of the Old Mill
stores as part of the Restructuring. Barrie Pace continued to experience sales
increases during this period. Kuppenheimer's full year comparable store sales
declined 6% in 1993, 5% in 1992 and 4% in 1991. Consumer segment sales for 1992
reflected declines in comparable store sales at HSSI and Country Miss, prior to
the sale or discontinuance of the stores, of approximately 13% and 9%,
respectively. Consumer segment sales as a percentage of total sales are
expected to decline further in the future, reflecting fewer Kuppenheimer stores
as a result of the Restructuring and the Company's emphasis on its wholesale
businesses.
Wholesale segment earnings before interest and taxes, which include the
manufacturing gross margin on products sold to unaffiliated retailers, were $37
million in 1993, $25 million in 1992 and $27 million in 1991. Men's tailored
clothing represented a substantial portion of segment earnings in each year.
Wholesale segment earnings for 1992 included an $8 million restructuring charge
associated with discontinued businesses. The remaining 1993 increase compared
to 1992 was principally attributable to improvements within the slacks and
sportswear businesses. Also, the operating losses associated with women's
wholesale apparel were reduced in each year.
Consumer segment earnings before interest and taxes include the gross margin
between retail selling price and cost associated with products manufactured by
the Company and products purchased from unaffiliated sources. Consumer segment
earnings were $2.5 million in 1993 compared to losses of $199 million in 1992
and $41 million in 1991. Segment results for 1993 include earnings in the
Barrie Pace catalog business, partially offset by an operating loss at
Kuppenheimer, which was principally attributable to its lower comparable store
sales. Consumer segment results include $168 million in restructuring charges
in 1992 and a $13.5 million provision associated with the consolidation of
retail operations in 1991, actions which followed previous programs to improve
retail operations through selective store closings and expense reductions. In
addition to the non-recurring charges described above, additional factors
contributing to the consumer segment losses in 1992 and 1991 were lower
comparable store sales, high markdowns relative to sales and certain occupancy
and administrative costs which did not decrease proportionately with the lower
sales.
Gross Margins. The consolidated gross margin percentage of sales was 31.0% in
1993, 33.2% in 1992 and 35.7% in 1991, a decline which primarily resulted from
the Company's change in business mix as a result of the Restructuring.
Wholesale sales generally produce a lower gross margin ratio to sales (and
lower selling, administrative and occupancy expenses) compared to the consumer
segment and represented 77.5% of consolidated sales in 1993 compared to 56.2%
in 1992 and 47.6% in 1991. The percentage of wholesale sales to total sales is
expected to increase in 1994 due to fewer stores operated by Kuppenheimer.
While the consolidated ratio of gross margin to sales declined in 1993 compared
to 1992, gross margin in both the wholesale and consumer segments improved
compared to 1992. Current year results included $3.6 million of income
resulting from lower LIFO inventories compared to $3.3 million of LIFO income
in 1992; LIFO income in 1993 produced a .5% favorable impact on gross margin in
1993 compared to a .3% favorable impact in 1992. The consolidated gross margin
percentage decline in 1992 compared to 1991 also reflected lower consumer
segment margins, as wholesale margins were approximately even.
Selling, Administrative and Occupancy Expenses. Selling, administrative and
occupancy expenses represented 27.8% of sales in 1993 compared to 35.6% in 1992
and 38.5% in 1991. Consolidated expenses of $204 million in 1993 declined by
approximately $171 million compared to 1992. The lower dollar level and
percentage of sales ratio of these expenses reflected the disposition of HSSI,
the effect of expense reduction programs in ongoing businesses and the greater
proportion of wholesale business with its lower operating
20
<PAGE>
expense ratio to sales compared to the consumer segment. Both the dollar level
and corresponding ratio to sales are expected to decline further in 1994 from
the reduced level of retail operations compared to 1993. Wholesale segment
operating expenses in 1993 declined in comparison to 1992 principally from
discontinued businesses, although the percentage of sales was approximately the
same. Consumer segment operating expenses declined substantially, both in
dollars and as a percentage of sales in 1993 as compared to 1992, and in 1992
as compared to 1991, reflecting the disposition of HSSI, the wind down of the
Old Mill retail store operations, expense reduction programs in ongoing
businesses and the greater proportion of consolidated sales represented by the
wholesale businesses. Aggregate 1992 expenses of $375 million declined by
approximately $93 million from 1991, attributable to the disposition of HSSI
and closing most of the Old Mill retail stores in 1992.
Advertising expenditures, which are included in Selling, Administrative and
Occupancy Expenses, declined to $20 million in 1993 from $33 million in 1992
and $48 million in 1991, representing 2.7%, 3.1% and 4.0% of consolidated
sales, respectively. The dollar and percentage declines in each year were
principally attributable to the disposition of HSSI and the wind down of the
Old Mill retail stores, although wholesale segment advertising expenditures
also declined both in dollars and as a percentage of sales in each year.
Advertising expenditures applicable to wholesale operations are expected to
increase during 1994 relating to both new and existing brands.
Statement of Financial Accounting Standards No. 106, Employers' Accounting
for Postretirement Benefits Other Than Pensions ("FAS 106"), requires the
recognition of an obligation related to employee service pursuant to a
postretirement benefit plan and is mandatory for the Company's fiscal year
ending November 30, 1994. As retiree contributions offset the full cost of the
Company-sponsored medical programs, no transition obligation is expected upon
adoption of FAS 106 and there would be no effect on either net earnings or
shareholders' equity.
Statement of Financial Accounting Standards No. 112, Employers' Accounting
for Postemployment Benefits, requires the recognition of obligations related to
benefits provided by an employer to former or inactive employees after
employment but before retirement, and is mandatory for the Company's fiscal
year ending November 30, 1995. The Company believes that adoption is not
expected to have a material impact on its financial condition.
Other Income. Finance charges, interest and other income aggregated $6.0
million in 1993, $9.6 million in 1992 and $10.8 million in 1991. Other income
was comprised principally of licensing income in 1993, and also included
service charges on the retail receivables of HSSI in 1992 and 1991. The
decrease in each year was principally attributable to the impact of the
receivables sale program, described in the accompanying Notes to Consolidated
Financial Statements, which commenced in June 1990 and terminated in October
1992.
Interest Expense. Interest expense was $23 million in 1993, $21 million in
1992 and $24 million in 1991. The increase of approximately $2 million in 1993
compared to 1992 was attributable to increased interest rates associated with
the Company's refinancing along with higher financing fee amortization. On a
weighted average basis, total borrowing rates increased by approximately 1%;
this rate increase was mitigated by lower average borrowings from reduced
working capital requirements and the $30 million Equity Investment. The
decrease of approximately $3 million in 1992 compared to 1991 reflected a 1.5%
decline in average bank borrowing rates; total borrowings averaged $10 million
higher during 1992 compared to 1991, in part attributable to the termination of
the receivable sale program during 1992.
Income Taxes. The effective tax provision (benefit) rate was 3.0% in 1993,
(2.9)% in 1992 and (36.1)% in 1991. The effective tax rates for 1993 and 1992
reflect the adoption of Statement of Financial Accounting Standards No. 109,
Accounting for Income Taxes ("FAS 109"), in the 1992 fiscal year.
A substantial portion of the Company's tax assets are reserved by a tax
valuation allowance aggregating $69 million at November 30, 1993. This
valuation allowance reflects the uncertainties associated with the realization
of the available tax benefit of net operating loss carryforwards, after giving
consideration to the
21
<PAGE>
Company's recent operating losses. Although the Company achieved income during
1993 for financial reporting purposes, a tax operating loss resulted from the
reversal of temporary differences associated with the Restructuring. The
realization of the tax benefit arising from $137 million of net operating loss
carryforwards at November 30, 1993 requires the generation of future taxable
income. The net operating loss carryforwards expire in 2008. Approximately $2
million of the valuation allowance offsetting the deferred tax asset,
associated with 1993 pre-tax income for financial reporting, was reversed
during 1993. The 1993 effective tax provision rate was applicable to state
income taxes. Upon the determination that the realization of some or all of the
remaining reserved tax asset is more likely than not, earnings for the
applicable year and shareholders' equity would be increased accordingly.
The 1991 benefit rate reflected the recoverable federal and state income
taxes from the carryback of operating losses to prior years.
CASH FLOW AND FINANCIAL CONDITION
In connection with the Restructuring, the Company consolidated and extended
its borrowing facilities and raised $30 million through the Equity Investment.
See "Business--Operational and Financial Restructuring." Borrowings under the
Override Agreement and Bridge Facility (collectively, "the Agreements")
substantially replaced or amended the provisions of the principal financing
agreements existing as of November 30, 1992, and are secured by substantially
all assets of the Company and its subsidiaries, subject to a priority of up to
$15 million for trade creditors.
At November 30, 1992, total debt was $314.6 million and reflected full
utilization of then available lines. The $307 million Override Agreement
matures December 30, 1995. The Bridge Facility, originally $35 million and
maturing November 30, 1993, was extended by the Company for one year at the $15
million commitment level, which satisfied the $20 million commitment reduction
required as of November 30, 1993 under the Agreements. Additional required
commitment reductions are $10 million on May 31, 1994 and $15 million on each
of November 30, 1994 and May 31, 1995, with the balance expiring December 30,
1995. Additional commitment reductions may be required to the extent of certain
asset sales, equity proceeds and available working capital based on
calculations specified in the Agreements. The Agreements include various
restrictive covenants pertaining to capital expenditures, asset sales,
operating leases, minimum working capital and current ratio, debt leverage,
consolidated tangible net worth, earnings before interest, taxes, depreciation
and amortization and interest coverage. Cash dividends may not be declared or
paid during the term of the Agreements and the Company is prohibited from
purchasing or redeeming its stock, warrants, rights or options, or from making
certain acquisitions or investments without specific lender consent. Any
borrowings under the Bridge Facility would be repaid for a minimum thirty day
period during 1993 and for two thirty day periods in 1994. During 1993, the
Company did not borrow under the Bridge Facility and no other commitment
reductions were required. At November 30, 1993, the Company had $89 million of
borrowing availability under the Agreements.
In January 1994, the Company refinanced certain outstanding industrial
development bonds and executed a commitment letter with respect to the New
Credit Facility. See "Description of Certain Indebtedness."
As indicated in the accompanying Consolidated Statement of Cash Flows, the
net cash provided by operating activities was $30 million in 1993 compared to
net cash used in operating activities of $7 million in 1992 and $11 million in
1991. The cash and cash equivalent balance at November 30, 1993 was $1.5
million, compared to $22.4 million at November 30, 1992 which reflected
approximately $13 million of short-term investments and the full utilization of
then available credit lines. Net accounts receivable of $120.4 million at
November 30, 1993 declined $39.3 million or 24.6% compared to November 30,
1992, principally attributable to the Restructuring, and 1992 receivables
included certain consumer receivables which have subsequently been collected or
written off. The allowance for doubtful accounts decreased to $9.9 million from
$16.0 million in 1992, representing 7.6% of gross receivables in 1993 compared
to 9.1% in 1992; the 1992 reserve
22
<PAGE>
reflected increased requirements for the then remaining consumer receivables.
Inventories of $193.8 million at November 30, 1993 declined $22.9 million or
10.6% from November 30, 1992, attributable to both improvements in ongoing
operations and the completion of inventory liquidations in the Old Mill retail
stores and uniform businesses during fiscal 1993. Inventory turn in continuing
businesses improved.
Recoverable income taxes of $.7 million at November 30, 1993 and $8.2 million
at November 30, 1992 arise from the carryback of operating losses to prior
years. Deferred income taxes were $5.9 million at November 30, 1993 compared to
$5.6 million in 1992. The November 30, 1993 balance reflects a $69 million
valuation allowance ($71 million in 1992) related to a substantial portion of
the tax asset resulting from prior years' operating losses. The Company has and
will continue to assess the necessity for the valuation allowance taking into
consideration such factors as earnings trends and prospects, anticipated
reversal of temporary differences between financial and taxable income, the
expiration or limitations of net operating loss carryforwards and available tax
planning strategies (including the ability to adopt the FIFO inventory
valuation method for those inventories currently valued under the LIFO
valuation method). A future reversal of the valuation allowance in whole or in
part represents a contingent asset which would increase earnings and
shareholders' equity. Also, see discussion under "Income Taxes" above.
At November 30, 1993, net properties were $56.5 million compared to $66.8
million in 1992. The decline principally reflected depreciation expense
exceeding capital additions by approximately $8 million. Capital additions in
1993 were $6.0 million compared to $9.5 million in 1992 which included
additions relating to businesses discontinued pursuant to the Restructuring;
capital additions for 1992 in continuing businesses were $8.1 million. The
Company's current borrowing agreements provide for annual limitations of
capital expenditures, including $9.9 million applicable to 1994. These
limitations are not expected to result in delaying capital expenditures
otherwise planned by the Company. Upon consummation of the New Credit Facility,
the permitted capital expenditures are anticipated to increase from the current
levels. Capital expenditures in the next several years are expected to be
funded from cash generated from operations and principally utilized for
productivity improvements in various manufacturing locations.
The operational aspects of the Restructuring have been substantially
completed. Following the sale of HSSI in September 1992, all of the Old Mill
stores were closed. The store closings associated with Kuppenheimer were
substantially completed by January 1994. Production facilities supporting the
above noted reduced retail operations have been closed or sold along with
facilities related to the rainwear and military and commercial uniform
businesses. At November 30, 1993, approximately $8 million of accrued
restructuring charges were reflected in the accompanying balance sheet,
representing rent, severance and other employee benefits.
At November 30, 1993, total debt of $233.1 million declined by $81.5 million
as compared to November 30, 1992, as a result of the application of proceeds of
the $30 million Equity Investment and approximately $21 million of cash and
equivalents to the reduction of outstanding indebtedness, lower working capital
requirements related to both ongoing and discontinued businesses and lower
capital expenditures. The $25 million of notes payable classified as current at
November 30, 1993 reflects the anticipated seasonal repayments within fiscal
1994. Long-term debt was $207.4 million at November 30, 1993, representing 66%
of the total $316.4 million capitalization, compared to 78% at November 30,
1992; the lower percentage reflected 1993 net earnings, the debt reduction and
equity sales during the year. Total debt, including short- term borrowings and
current maturities, represented 68% of total capitalization at November 30,
1993, compared to 82% at November 30, 1992.
Shareholders' equity of $109.0 million at November 30, 1993 increased $38.6
million during 1993 and represented $3.41 book value per share at year end
compared to $2.72 book value per share at November 30, 1992 ($100.4 million or
$3.18 per share on a pro forma basis reflecting the $30 million from the Equity
Investment and issuance of 5.7 million additional shares). The increase
reflected the net income for the year, the Equity Investment, ongoing equity
sales to employee benefit plans and recognition of previously unearned employee
benefits associated with the Company's Employee Stock Ownership Plan. Dividends
were not paid
23
<PAGE>
in fiscal 1993 or 1992 and dividend payments are prohibited under the current
lending facility. The proposed terms of the Offering and New Credit Facility
restrict the payment of dividends. Consolidated tangible net worth at November
30, 1993, as defined in the current Agreements, was $130 million compared to
$107 million required under the Agreements.
HSSI has continued as a customer of the Company subsequent to its
disposition, although its purchases of the Company's products are declining.
For further information regarding the Company's relationship with HSSI, see
"Risk Factors--Uncertainties Regarding HSSI and MLR" and "Business--Legal
Proceedings." For the two months ended January 31, 1994, HSSI Sales aggregated
$4.8 million and were on a cash-in-advance basis. While there can be no
assurance that a decrease in business with HSSI can be fully replaced in the
next several years, new retail customers have been added and volume with
existing customers has increased in various markets where HSSI operates or has
vacated.
Debt reduction and extension of debt maturities continue to be a priority for
the Company, as demonstrated by the Offering and the New Credit Facility.
Following the Restructuring, the Company has continued to focus its operating
and capital resources principally on its wholesale apparel businesses. The
Company intends to maintain its position as the market leader in men's tailored
clothing, while continuing to expand in men's slacks and sportswear, which
includes the golf-inspired collections under the Jack Nicklaus(R) and Bobby
Jones(R) brands. As anticipated, unit volume with HSSI declined significantly
in 1993 compared to 1992, and further reductions are likely in 1994. The
Company intends to mitigate the impact of reduced volume with HSSI by adding
new customers and increasing volume with existing accounts, as well as by
introducing new brands. Ongoing quick response and electronic data interchange
relationships with major customers, enabling the rapid replenishment of
inventory for selected product styles and enhanced service capabilities, are
expected to continue as an important element of product distribution. The
Company intends to continue its international licensing programs, while
gradually developing merchandising and marketing expertise to sell branded
apparel directly in international markets, which could include joint ventures,
acquisitions and selling agencies.
Conditions in the women's wholesale and men's direct-to-consumer businesses
resulted in operating losses in 1993 for the IWA and Kuppenheimer operations.
As a result, specific marketing and expense reduction actions have been
implemented with the objective of improving results in these businesses. The
Company is reviewing the profitability prospects and strategic direction of the
IWA business, and may discontinue one or more of IWA's product lines or modify
its distribution channels. Kuppenheimer's total sales are expected to decline
due to fewer stores. Its merchandising strategy has been refocused to emphasize
three distinct fashion silhouettes, each having a defined brand identification.
The Company intends to expand the profitable Barrie Pace catalog business
through increasing catalog circulation and by broadening its merchandise mix to
include women's sportswear and more informal career apparel, while continuing
to target the upscale and professional woman.
24
<PAGE>
SUPPLEMENTAL FINANCIAL INFORMATION
The following Supplemental Financial Information for fiscal 1992 and 1993 has
been prepared solely for illustrative purposes from the Company's 1992 and 1993
Consolidated Financial Statements and the internal books and records of the
Company and should be read in conjunction with the "Selected Historical and Pro
Forma Consolidated Financial Information" and the 1992 and 1993 Consolidated
Financial Statements and "Management's Discussion and Analysis of Financial
Condition and Results of Operations" included in this Prospectus. The
Supplemental Financial Information is intended to reflect certain results of
operations for the Company's continuing businesses and operations after giving
effect to the Restructuring and the other events described below, assuming that
they had occurred at the beginning of fiscal 1992. The Supplemental Financial
Information should not be considered in isolation or as a substitute for
consolidated financial statements prepared in accordance with generally
accepted accounting principles. The Supplemental Financial Information presents
certain financial data for fiscal 1992 and 1993 after eliminating from the 1992
and 1993 Consolidated Financial Statements: (i) the sales and operating results
of certain businesses and operations sold or discontinued as part of the
Restructuring; (ii) the sales and estimated operating results associated with
the Company's transactions with HSSI during fiscal 1992 and 1993; (iii) the
other adjustments described below and (iv) the $191 million charge associated
with the Restructuring. The Supplemental Financial Information does not purport
to represent what the consolidated statement of earnings of the Company would
have been had these businesses and operations been sold or discontinued for the
full 1992 and 1993 fiscal years and does not purport to project the
consolidated statement of earnings of the Company for any subsequent period.
The Supplemental Financial Information is derived from the Company's 1992 and
1993 Consolidated Financial Statements after reflecting the following
adjustments:
(i) The sales and operating results of HSSI have been eliminated from the
1992 Consolidated Financial Statements for all of fiscal 1992 to reflect
the sale of HSSI as part of the Restructuring.
(ii) To reflect the sale or discontinuance of other businesses and
operations principally pursuant to the Restructuring, the sales and
operating results of certain businesses, including Country Miss and certain
non-strategic manufacturing businesses which produced outerwear and
military and commercial uniforms, have been excluded from the 1992 and 1993
Consolidated Financial Statements and the sales by such businesses to HSSI
have been excluded from the HSSI Sales.
(iii) Since the sale of HSSI and its subsidiaries in 1992, HSSI has
continued as a significant customer of the Company, although the volume of
purchases by HSSI has been declining. On December 21, 1993, HSSI and 25
affiliates commenced voluntary cases under Chapter 11 of the United States
Bankruptcy Code and are currently operating as debtors-in-possession. As a
result of these circumstances, there can be no assurance that the Company
will have future sales to HSSI. HSSI Sales were approximately $67 million
in fiscal 1992, including approximately $50 million prior to the date HSSI
was sold (September 18, 1992) and $17 million subsequent to such date. In
fiscal 1993, the HSSI Sales were approximately $37 million. To reflect the
uncertainty regarding future sales to HSSI, the Supplemental Financial
Information eliminates from the 1992 and 1993 Consolidated Financial
Statements the HSSI Sales, the estimated gross margin associated with the
HSSI Sales and the estimated variable operating costs directly attributable
to the HSSI Sales. While a reduction of fixed operating costs may be
achievable if sales levels are permanently reduced, the Supplemental
Financial Information assumes that the sudden and complete loss of the HSSI
Sales would not allow for a corresponding reduction of fixed costs in the
short term. Consequently, the Supplemental Financial Information does not
eliminate fixed costs relating to the HSSI Sales. To the extent fixed costs
would have been allocated to the HSSI Sales, the estimated earnings would
be greater than those presented below. See "Risk Factors--Uncertainties
Regarding HSSI and MLR" and "Business--Legal Proceedings."
25
<PAGE>
(iv) The charge related to the Restructuring which has been eliminated
included write-offs and other costs associated with the closing of certain
Kuppenheimer stores and a related production facility. The Supplemental
Financial Information does not include such charges or any other
adjustments relating to Kuppenheimer.
(v) The license agreement between HSM and Christian Dior-New York
providing for the manufacture and marketing of men's tailored clothing
under the Christian Dior(R) brand name was terminated during 1992. As a
result, the sales, estimated gross margin and estimated variable operating
costs attributable to the men's tailored clothing manufactured and sold by
the Company pursuant to such license agreement have been eliminated from
the 1992 Consolidated Financial Statements. See "Business--Legal
Proceedings."
The Supplemental Financial Information does not reflect an adjustment to
historical interest expense for the investment in the sold or discontinued
businesses and operations described above. To the extent interest expense
would have been allocated to the investment in those sold or discontinued
businesses and operations, the estimated earnings would have been greater than
those presented below.
SUPPLEMENTAL FINANCIAL INFORMATION
<TABLE>
<CAPTION>
UNAUDITED SUPPLEMENTAL
FINANCIAL INFORMATION
FISCAL YEAR ENDED
NOVEMBER 30,
------------------------
1992 1993
----------- -----------
(DOLLARS IN MILLIONS)
<S> <C> <C>
Net sales...................................... $672.3 $ 690.1
Earnings before interest,
taxes, depreciation
and amortization (EBITDA)(a).................. $ 32.8 $ 35.2
Earnings before interest
and taxes (EBIT)(a)........................... $ 16.6 $ 21.1
Earnings (loss) before taxes................... $ (4.5) $ (1.8)
</TABLE>
- --------
(a) EBITDA and EBIT are presented because they are generally accepted as
providing useful information regarding a company's ability to service
and/or incur debt. EBITDA and EBIT should not be considered in isolation
or as substitutes for net income, cash flows from operating activities and
other consolidated income or cash flow statement data prepared in
accordance with generally accepted accounting principles or as measures of
the Company's profitability or liquidity. For fiscal 1992 and 1993, actual
EBITDA was $(178.8) million and $43.4 million, respectively.
26
<PAGE>
BUSINESS
GENERAL
Established in 1872, Hartmarx is the largest manufacturer and marketer of
men's tailored clothing in the United States. From this established position,
the Company has diversified into the men's sportswear and women's career
apparel and sportswear markets. In fiscal 1993, the Company's business units
that primarily produce men's tailored clothing represented approximately 66% of
the Company's sales.
Substantially all of the Company's products are sold under established brand
names or the private labels of major retailers. The Company owns two of the
most recognized brands in men's tailored clothing: Hart Schaffner & Marx(R),
which was introduced in 1887, and Hickey-Freeman(R), which dates from 1899. The
Company also offers its products under other brands which it owns such as
Sansabelt(R), Kuppenheimer(R), Racquet Club(R) and Barrie Pace(R) and under
license agreements for specified product lines for Tommy Hilfiger(R), Jack
Nicklaus(R), Bobby Jones(R), Austin Reed(R), Gieves & Hawkes(R), KM by
Krizia(TM), MM by Krizia(TM), Henry Grethel(R), Karl Lagerfeld(R), Nino
Cerruti(R), Pierre Cardin(R) and Fumagalli's(R). To broaden the international
distribution of the apparel sold under its owned and licensed trademarks, the
Company has entered into over 35 license or sublicense agreements for specified
product lines with third parties to produce, market and distribute products in
14 countries outside the United States.
The Company believes that the strong brand recognition enjoyed by its
products at both the wholesale and retail level, the breadth of its product
offerings in both price point and fashion direction and the established
relationships it possesses across retail distribution channels are critical
factors which differentiate the Company from its competitors. The Company's
operating groups offer products covering the fashion spectrum (business
professional, American contemporary and British, French and Italian inspired),
marketed at different price points to appeal to a broad wholesale and retail
customer base. Products range from a top-of-the-line Hickey-Freeman(R) suit
expected to retail at $950 to an upper moderately priced ($525) Hart Schaffner
& Marx(R) suit to a moderately priced ($265) Kuppenheimer(R) suit. This
strategy is also employed in the three men's slacks and sportswear businesses.
Recent product developments include the introduction of tailored clothing and
prehemmed slacks under a license agreement with Tommy Hilfiger for Fall 1994,
the introduction of casual, prehemmed slacks under the Company's own brand and
the continued development and expansion of golf-inspired sportswear for the
premium market under the Bobby Jones(R) brand and at moderate price points
under the Jack Nicklaus(R) label.
The Company's primary wholesale customer base consists of leading department
and fine specialty stores such as Dillard Department Stores, Federated
Department Stores, Macy's, May Department Stores, Neiman Marcus, Nordstrom and
J.C. Penney. This distribution channel accounted for approximately 60% of sales
in fiscal 1993. In order to take advantage of changing consumer trends, the
Company has supplemented its traditional channel of distribution with value-
oriented retailers, direct mail companies, mass merchandisers, golf pro shops
and its own factory-direct-to-consumer retail network and 28 factory outlet
stores. The growing value-oriented channel, which includes outlet and off-price
retailers, mass merchandisers and the Company's own factory-direct-to-consumer
network, represents an increasingly important distribution channel for the
Company. The Company's top ten customers accounted for approximately 37% of net
sales in fiscal 1993, and the Company's largest customer, Dillard Department
Stores, represented approximately 12% of net sales. No other customer accounted
for more than 7% of net sales in fiscal 1993. See "Risk Factors--Dependence on
Certain Customers."
As a vertically integrated manufacturer and marketer, the Company is
responsible for the design, manufacturing and sourcing of its apparel.
Substantially all of its men's tailored clothing is manufactured in its own
factories, all of which are located in the United States. The Company utilizes
domestic and foreign contract manufacturers to produce its remaining products,
principally men's and women's sportswear, in accordance with Company
specifications and production schedules. The Company believes that this
combination of owned manufacturing and contract sourcing enables it to
efficiently control the pricing,
27
<PAGE>
quality and delivery of its products and to effectively utilize the capital
resources allocated to the manufacturing process. Increased manufacturing
efficiencies and ongoing cost savings, coupled with new sourcing strategies,
have enabled the Company to offer apparel with higher perceived value at
similar or lower wholesale prices while maintaining its margins and high
quality standards.
The Company's business is organized around three primary operating groups:
Men's Apparel Group. The Company's largest operating group, MAG designs
and manufactures substantially all of the Company's men's tailored clothing
(through its HSM, Hickey-Freeman and Intercontinental Branded Apparel
business units) and slacks and sportswear (through its Trans-Apparel Group,
Biltwell and Bobby Jones business units) and markets these products on a
wholesale basis.
Kuppenheimer. Kuppenheimer is the Company's vertically integrated,
factory-direct-to-consumer manufacturing and retail business. Kuppenheimer
manufactures substantially all of its men's tailored clothing in Company-
owned facilities and sells these products exclusively through Kuppenheimer
operated stores.
Women's Apparel Group. The Women's Apparel Group is comprised of Barrie
Pace and IWA. Barrie Pace is a direct mail company that offers a wide range
of apparel and accessories to the business and professional woman. IWA
designs and sources women's career apparel and sportswear for sale to
department and specialty stores under owned and licensed brand names.
The Company is a Delaware corporation with its principal executive offices
located at 101 North Wacker Drive, Chicago, Illinois 60606, and its telephone
number is (312) 372-6300.
OPERATIONAL AND FINANCIAL RESTRUCTURING
In 1992, the Company implemented the Restructuring to refocus its business
operations around its profitable core wholesale men's apparel franchise and to
restructure its balance sheet. The operational aspects of the Restructuring
included the sale of the Company's principal retail unit, the downsizing of
other retail and manufacturing operations and the sale or closing of non-
strategic manufacturing businesses. As part of the Restructuring, the Company
also consummated a financial restructuring under which commitments under its
borrowing facilities were increased to cover seasonal borrowing requirements,
its borrowing facilities were consolidated and extended in maturity and shares
of its common stock and a warrant to purchase its common stock were sold
through the Equity Investment.
A major component of the Restructuring was the sale of the Company's
principal retail unit, HSSI, on September 18, 1992. At the time of the sale,
HSSI operated approximately 180 specialty retail stores. Approximately one-half
of the HSSI stores were closed soon after the sale. The Company's fiscal 1993
HSSI Sales were $37 million compared to fiscal 1992 HSSI Sales of $67 million.
See "Risk Factors--Uncertainties Regarding HSSI and MLR."
The Company entered the specialty retail business in 1926 with the
acquisition of Wallachs and subsequently acquired a number of independent
retail businesses. By the late 1980s, the Company operated approximately 500
retail stores primarily selling men's tailored clothing and sportswear. At the
time, the Company believed that the operation of its own retail stores would
broaden the retail distribution channels available to it for its manufactured
goods in addition to ensuring the existence of appropriate retail outlets for
its products in key markets which did not possess other adequate distribution
for men's tailored clothing. Throughout the 1980s, the Company increased its
commitment to apparel retailing. In 1981, the Company acquired Country Miss,
which manufactured and marketed women's sportswear both through major specialty
and department stores and through its owned Old Mill Stores. This acquisition
was followed by the 1982 purchase of Kuppenheimer and the 1985 launch of Barrie
Pace. In 1990, approximately 55% of the Company's consolidated sales were
contributed by its retail operations.
In spite of the significant capital investment made to support additional
retail stores and related modernization programs, the Company experienced a
substantial decline in the earnings of its retail operations, principally HSSI
and Country Miss, between 1986 and 1992. In 1990, the Company implemented
28
<PAGE>
a restructuring principally targeted at HSSI, which included the closing of
under-performing retail stores, the liquidation of excess retail inventories
and the realignment of sales and merchandising functions. The Company's
financial statements for fiscal 1990 include restructuring charges of $77.6
million. This was followed, in 1991, by the decision to combine the
administrative functions of HSSI and Kuppenheimer. While significant cost
reductions were achieved through these 1990 and 1991 actions, comparable store
sales continued to decline at HSSI, Country Miss and, to a lesser extent,
Kuppenheimer. These sales declines resulted in increased operating losses and
negative cash flow, raising overall consolidated borrowings and interest
expense.
Primarily as a result of the operating and financial performance of its
retail businesses, the Company implemented the Restructuring in 1992. The
Company's financial statements for fiscal 1992 include restructuring charges of
$191 million. See Notes to Consolidated Financial Statements of the Company
included herein. In addition to the sale of HSSI, the Restructuring included
the liquidation of Country Miss' 80 retail stores and the three production
facilities supporting those operations, the closing of certain Kuppenheimer
stores not achieving minimum profitability requirements and the reduction of
production capacity which was no longer required to support the reduced retail
operations. The Company also sold or closed non-strategic manufacturing
businesses which produced men's outerwear and military uniforms and, in 1993,
completed the sale of Fashionaire Apparel, a wholly-owned subsidiary that
manufactured uniforms for commercial use. The total fiscal 1992 sales of all
businesses and operations sold or discontinued in conjunction with the
Restructuring were approximately $365 million.
As part of the Restructuring, in December 1992, the Company consolidated and
extended its borrowing facilities pursuant to which, among other things, (i)
the maturity of $307 million of the Company's outstanding indebtedness was
consolidated and extended until December 30, 1995 pursuant to the terms of the
Override Agreement, (ii) an additional seasonal borrowing availability of $35
million was obtained pursuant to the Bridge Facility and (iii) certain
restrictive covenants with respect to the Company's indebtedness were added and
existing covenants were adjusted to reflect the pro forma condition of the
Company following the commencement of such Restructuring. In addition, the
Company raised $30 million through the Equity Investment. The Company
anticipates that the proceeds of the Offering contemplated hereby and
borrowings under the New Credit Facility will be used to repay its borrowings
under the Override Agreement. Concurrently with such repayment, the Company
intends to cancel the Bridge Facility and the Override Agreement. See
"Description of Certain Indebtedness."
COMPANY STRATEGY
As a result of the Restructuring, the Company is now focused on those
businesses that have made it an industry leader for most of this century. The
key elements of the Company's strategy are:
. To build on its success as an apparel manufacturer and marketer by
providing branded products to retailers and consumers principally on a
wholesale basis while developing other brands to fill market voids and
repositioning and growing established brands.
. To provide a dynamic mix of apparel products through a broad
merchandising strategy that will include men's tailored clothing, men's
sportswear, women's career apparel and women's sportswear.
. To serve a broad range of retail channels, including fine specialty and
leading department stores, factory-direct-to-consumer stores, value-
oriented retailers, mass merchants and direct mail catalogs.
. To be a leader in technological marketing by providing unparalleled
service to its customers through such programs as Quick Response and
Electronic Data Interchange. See "--Management Information Systems" for a
more detailed description of these programs.
. To expand its presence in the international marketplace by continuing its
international licensing efforts while merchandising, marketing and
producing branded apparel in markets beyond its borders and marketing its
branded products, concepts and expertise through joint ventures,
acquisitions and selling agencies.
29
<PAGE>
PRODUCTS
The Company's merchandising strategy is to market a wide selection of men's
tailored clothing and slacks and sportswear and women's career apparel and
sportswear across a variety of fashion directions, price points and
distribution channels. In 1993, the Company's business units that primarily
manufacture men's tailored clothing represented approximately 66% of the
Company's sales, while those business units that primarily manufacture men's
sportswear and slacks represented approximately 27%. Men's tailored clothing
and slacks and sportswear are manufactured and marketed by the Company's MAG
and Kuppenheimer operating groups. Women's apparel is principally marketed by
the Company's Women's Apparel Group.
The Company's product line organization and list of major owned and licensed
brand names is set forth below:
OPERATING
GROUPS MEN'S APPAREL GROUP KUPPENHEIMER WOMEN'S APPAREL
GROUP
PRODUCT
GROUPS MEN'S SLACKS /
MEN'S TAILORED SPORTSWEAR MEN'S WOMEN'S CAREER /
CLOTHING TAILORED SPORTSWEAR
CLOTHING
BUSINESS
UNITS
PRINCIPAL TRANS-APPAREL GROUP BARRIE PACE
HART SCHAFFNER & MARX BILTWELL KUPPENHEIMER INTERNATIONAL
BRANDS WOMEN'S APPAREL
HICKEY-FREEMAN BOBBY JONES
INTERCONTINENTAL BRANDED APPAREL
OWNED OWNED OWNED
OWNED SANSABELT(R) KUPPENHEIMER(R) BARRIE PACE(R)
HART SCHAFFNER & MARX(R)
JOHN ALEXANDER(R) STERLING & HUNT(R)
SUBURBANS(R)
HICKEY-FREEMAN(R)
SOUTH SHORE(TM) BRIAR TRADITIONAL
RACQUET CLUB(R) RACQUET CLUB(R) APPAREL(R) LICENSED
CONFEZIONI RISERVA(R) CONFEZIONI RISERVA(R) AUSTIN REED(R)
BIELLA INTERNATIONAL
SOCIETY BRAND, LTD.(R)
COLLECTION(TM) MM BY
GRAHAM & GUNN(R) LICENSED KRIZIA(TM)
JACK NICKLAUS(R) LICENSED
LICENSED TOMMY HILFIGER(R) THE HEISMAN TROPHY
JACK NICKLAUS(R) BOBBY JONES(R) COLLECTION(TM)
TOMMY HILFIGER(R) J.G. HOOK(R)
AUSTIN REED(R) HENRY GRETHEL(R)
GIEVES & HAWKES(R) KM BY KRIZIA(TM)
NINO CERRUTI(R) ROUGH RIDER(TM)
PIERRE CARDIN(R)
FUMAGALLI'S(R)
KM BY KRIZIA(TM)
KARL LAGERFELD(R)
JOHNNY CARSON(R)
ALLYN ST. GEORGE(R)
WIMBLEDON(R)
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<PAGE>
The following table sets forth the percentage of sales of the Company's
business units that primarily manufacture the product groups listed below for
fiscal 1992, as adjusted, and fiscal 1993:
<TABLE>
<CAPTION>
FISCAL YEAR ENDED
NOVEMBER 30,
-------------------
1992(A) 1993
---------- --------
<S> <C> <C>
Men's Tailored Clothing............................... 69% 66%
Men's Slacks/Sportswear............................... 27% 27%
Women's Career Apparel/Sportswear..................... 4% 7%
-------- --------
Total............................................. 100% 100%
======== ========
</TABLE>
--------
(a) Percentages presented are adjusted as described under
"Supplemental Financial Information."
MEN'S TAILORED CLOTHING
The Company is recognized as the market leader in the men's tailored clothing
industry with a market share believed by management to be approximately 25% of
the estimated $1.5 billion over-$300 retail men's suit market. The Company's
established, well-known brands such as Hart Schaffner & Marx(R) and Hickey-
Freeman(R) are complemented by strong international labels such as Pierre
Cardin(R), Nino Cerruti(R), KM by Krizia(TM), Austin Reed(R) and Karl
Lagerfeld(R).
The Company's strategy is to be a broad-based resource for men's tailored
clothing by offering a wide variety of fashion silhouettes across a range of
price points. The Company's tailored clothing businesses offer products
covering the fashion spectrum (business professional, American contemporary and
British, French and Italian inspired), marketed at different price points to
appeal to a broad wholesale and retail customer base.
Increased manufacturing efficiencies and ongoing cost savings, coupled with
new sourcing strategies, have enabled the Company to offer apparel with greater
perceived value at similar or lower wholesale prices while maintaining its
margins and high quality standards. For example, in 1992 the Company introduced
major collections of all-worsted suits by Hart Schaffner & Marx(R) and Austin
Reed(R) which were anticipated to retail at new, lower price points of $495 and
$395, respectively. Effective for the Fall 1994 selling season, the Tommy
Hilfiger(R) label has been added to this price range. At a slightly lower price
point, the Company's Nino Cerruti(R), Pierre Cardin(R) and Confezioni
Riserva(R) brands continue to be prominent in the over-$300 expected retail
price category. In the popular-priced market, the Company offers tailored
clothing through its Kuppenheimer stores at suit prices that range from $150 to
$285. At the upper end of the men's tailored clothing market, the Hickey-
Freeman(R), Gieves & Hawkes(R), Karl Lagerfeld(R) and Cerruti 1881(R) brands
give the Company a strong market position in the $800 and higher category,
demonstrating these prestigious brands' ability to compete with European
imports.
The following table sets forth by general range of expected retail price
point, the fashion segment and brands for the Company's suits:
<TABLE>
<CAPTION>
EXPECTED RETAIL PRICES
------------------------------------------------------------------------------------------------
UPPER UPPER MODERATE MODERATE POPULAR
FASHION SEGMENT OVER $675 $450-$675 $325-$450 UNDER $325
- --------------------- ------------------ ------------------------ ---------------- -----------------------------------
<S> <C> <C> <C> <C>
BUSINESS PROFESSIONAL Hickey-Freeman(R) Hart Schaffner & Marx(R) Allyn St. George(R)
Graham & Gunn(R) Sterling & Hunt(R)
Kuppenheimer(R)
John Alexander(R)
AMERICAN CONTEMPORARY Hickey-Freeman(R) Tommy Hilfiger(R) Henry Grethel(R) J.G. Hook(R)
Society Brand, Ltd.(R) Johnny Carson(R)
Briar Traditional Apparel(R)
ITALIAN FASHION Cerruti 1881(R) KM by Krizia(TM) Nino Cerruti(R) Confezioni Riserva(R)
Fumagalli's(R) Biella International Collection(TM)
BRITISH FASHION Gieves & Hawkes(R) Austin Reed(R) Racquet Club(R)
FRENCH FASHION Karl Lagerfeld(R) Pierre Cardin(R)
</TABLE>
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<PAGE>
Hart Schaffner & Marx. The Company's largest business unit, HSM, designs,
manufactures and markets tailored clothing under the Hart Schaffner & Marx(R),
Austin Reed(R), KM by Krizia(TM) and Fumagalli's(R) brands. The Hart Schaffner
& Marx(R) brand, which is owned by the Company and was introduced in 1887, is
one of the best-known men's tailored clothing brands in the United States.
HSM's primary customer base consists of fine specialty and leading department
stores. HSM recently entered into a license agreement to manufacture and market
a line of men's tailored clothing under the Tommy Hilfiger(R) brand name and
expects to deliver its first products for Fall 1994. Tommy Hilfiger is a well-
known American designer of men's clothing. Substantially all of the products
marketed by this operating unit are manufactured in Company-owned facilities.
HSM sponsors Hart Schaffner & Marx University, which is offered to employees
of all retail customers on a year-round basis. Established in 1990, the
University is the apparel industry's first permanent educational facility
designed to enhance the professionalism of today's retail community. A full-
time staff with broad retail apparel industry experience conducts a number of
courses in product presentation methods, tailoring and management skills. To
date, the University has served over 2,500 employees from more than 250
department and specialty stores.
Hickey-Freeman. Hickey-Freeman manufactures and sells premium-quality men's
tailored clothing in both classic American and various European styles under
the Hickey-Freeman(R), Gieves & Hawkes(R), Karl Lagerfeld(R) and Cerruti
1881(R) brands. The Hickey-Freeman(R) brand, which is owned by the Company and
was introduced in 1899, is one of the most established and best-known labels in
this segment of men's tailored clothing. Custom-made suits constitute an
important component of Hickey-Freeman's business and represented approximately
16% of the business unit's sales for fiscal 1993. Hickey-Freeman's primary
customer base consists of fine specialty stores such as Nordstrom, Neiman
Marcus and Saks Fifth Avenue. Its products are expected to retail at higher
prices than the Company's other apparel lines. All Hickey-Freeman garments are
manufactured in Company-owned facilities.
Intercontinental Branded Apparel. Intercontinental Branded Apparel ("IBA")
manufactures men's tailored clothing at moderate price points for department
store and value-oriented retail distribution. It sells both branded and
private-label products in both the updated traditional and fashion contemporary
markets. Branded products represent the majority of IBA's sales under the
following principal names: Pierre Cardin(R), Nino Cerruti(R), Allyn St.
George(R), Confezioni Riserva(R), Racquet Club(R) and Johnny Carson(R).
Substantially all of IBA's products are manufactured by the Company.
Kuppenheimer. Kuppenheimer is a factory-direct-to-consumer manufacturer of
popularly priced men's tailored clothing sold exclusively through its own
retail stores. In these stores, Kuppenheimer also offers a selection of men's
furnishings and sportswear purchased from other manufacturers. The retail price
of Kuppenheimer suits ranges between $150 and $285. Currently, all of the men's
tailored clothing sold by Kuppenheimer is manufactured by the Company.
In 1993, the Company began implementing a strategic and business
restructuring of Kuppenheimer. This included the closing of certain stores not
achieving minimum profitability criteria, the repositioning of its
merchandising strategy to emphasize value-oriented branded products and the
refocusing of its merchandising around three distinct fashion silhouettes and
brands. Kuppenheimer's strategy is to increase its market share of the highly
fragmented, moderately priced tailored clothing market by offering high
quality, popularly priced garments in a specialty store environment.
Kuppenheimer intends to achieve this strategy through further improvements in
manufacturing efficiencies, enhanced national advertising and the continued
development of its three brands introduced in Fall 1993: Sterling & Hunt(R)
(classic styling), Briar Traditional Apparel(R) (contemporary, traditional
styling) and Biella International Collection(TM) (European styling).
By the end of 1994, it is anticipated that Kuppenheimer's store base will be
fewer than 100, a reduction of over 60 since the beginning of 1992. As a result
of the reduction in retail outlets, Kuppenheimer has also reduced its
production capacity, closing one of its manufacturing facilities in 1992 with a
second factory being transferred to another Company business unit that required
additional capacity.
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<PAGE>
MEN'S SLACKS AND SPORTSWEAR
From its established leadership position in men's tailored clothing, the
Company has developed a strong presence in men's slacks, while also
diversifying into the men's sportswear market. In 1993, the Company's business
units that primarily produce men's slacks and men's sportswear represented
approximately 27% of the Company's sales. Three of the Company's business units
are devoted to the slacks and men's sportswear business: Trans-Apparel Group,
which manufactures slacks and sources and distributes sportswear such as Jack
Nicklaus(R); Biltwell Clothing Company, the Company's opening price point
slacks business; and Bobby Jones, which sources and distributes premier golf-
inspired sportswear.
Trans-Apparel Group. Through Trans-Apparel Group ("TAG"), the Company has
developed a presence in men's sportswear. This business unit manufactures,
sources and distributes slacks, shirts and sweaters across a variety of price
points and distribution channels. Approximately 50% of TAG's sales are branded
slacks sold under the Sansabelt(R) label or traditional waistband slacks sold
under the Racquet Club(R) and KM by Krizia(TM) brands. These branded slacks are
expected to sell at retail prices between $50 and $140 and are sold to better
specialty and department stores. In 1992, the Company introduced its first line
of casual, prehemmed slacks to compete in this growing market. These slacks are
expected to retail for $30-$40 and are positioned in the sportswear departments
of department stores. In July 1994, TAG will begin to deliver tailored slacks
under the Tommy Hilfiger(R) brand. These slacks will sell in better specialty
and department stores at retail prices expected to be between $50 and $75.
Substantially all of TAG's slacks are manufactured in Company-owned facilities.
The balance of TAG's product offerings consists primarily of knit or woven
shirts and sweaters sold under brand names such as KM by Krizia(TM), Henry
Grethel(R) and Jack Nicklaus(R). KM by Krizia(TM), introduced by the Company in
1992, represents an entry into the moderately priced, contemporary sportswear
marketplace and offers an opportunity for marketing Italian designed slacks.
Jack Nicklaus(R) continues to grow rapidly through pro shop distribution. TAG's
sportswear products are generally expected to be in the $40-to-$75 retail price
range and are sourced from contract manufacturers.
TAG's products are sold to specialty, department and chain stores and value-
oriented retailers. Jack Nicklaus(R) apparel is distributed through golf pro
shops. The Company has expanded the distribution of the Jack Nicklaus(R) brand
to 11 countries around the world. Approximately 14% of TAG's fiscal 1993 sales
are through its 17 Sansabelt and 12 factory outlet stores.
Biltwell Clothing Company. Biltwell's principal product line consists of the
Company's opening price point men's slacks which are sold under brand names
such as John Alexander(R), J.G. Hook(R) and Henry Grethel(R), as well as
private labels developed by the Company's customers. Branded products represent
approximately 50% of Biltwell's total sales. The Company's strategy for
Biltwell is to expand further its branded business in the opening price point
slacks market. Biltwell also manufactures men's suits, sportcoats and
womenswear to complement its slacks offerings. Products are sold through a wide
range of distribution channels, including department, value and specialty
stores, as well as direct mail catalogs.
Bobby Jones. The Company competes in the growing golf-inspired sportswear
market with its Bobby Jones(R) apparel. This business unit delivered its first
product line in 1990. The Bobby Jones(R) product line consists primarily of
knit shirts and sweaters, along with coordinating slacks produced by Hickey-
Freeman, as well as contract manufacturers. The primary customer base for Bobby
Jones includes fine specialty and leading department stores, the golf shops of
prestigious golf clubs and resort shops. Bobby Jones(R) products are sourced
from third parties, with a large percentage produced in Italy.
WOMEN'S CAREER APPAREL AND SPORTSWEAR
The Company's current women's apparel business consists of Barrie Pace, a
direct mail company that offers a wide range of apparel and accessories to the
business and professional woman, and IWA, which designs, sources and markets
women's career apparel and sportswear under the Austin Reed(R), Suburbans(R)
and MM by Krizia(TM) labels.
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<PAGE>
Barrie Pace Ltd. Barrie Pace, which was launched by the Company in 1985, is
the mainstay of its women's apparel business. Targeting the upscale business
and professional woman, Barrie Pace features classic career apparel and
accessories marketed under the Austin Reed(R) label as well as a variety of
other well-known brands. Barrie Pace provides the Company with the opportunity
to utlilize its tailored clothing expertise to expand into career apparel for
women and to benefit from the growth of the direct mail distribution channel.
Barrie Pace distributes over six million catalogs annually and possesses a list
of approximately 150,000 active customers. It received a Silver Award in 1993
from the American Catalog Awards in the category of Apparel over $100. The
Company intends to expand Barrie Pace through increased catalog circulation and
by broadening its merchandise mix to include women's sportswear and more
informal career apparel.
International Women's Apparel. IWA designs, sources, markets and distributes
womenswear to department and specialty stores under the Austin Reed(R),
Suburbans(R) and MM by Krizia(TM) labels. Each of these product lines offers
jackets, pants, skirts, blouses and sweaters, at a broad range of retail
prices. Substantially all of IWA's products are sourced from contract
manufacturers in the United States and throughout the world. The primary
exception is the Austin Reed(R) line of tailored jackets, which is manufactured
in a Company-owned facility. The Company is reviewing the profitability
prospects and strategic direction of, and options with respect to, IWA, and may
in the future decide to discontinue IWA's product lines or change its
distribution channels. Any such actions, if taken, may have an adverse effect
on the Company's results of operations. For additional information regarding
IWA, see "Risk Factors--Recent Operating Losses."
DESIGN, MANUFACTURING AND SOURCING
As a vertically integrated manufacturer and marketer, the Company is
responsible for all aspects of the design, manufacturing and sourcing of its
apparel. Over 80% of the Company's fiscal 1993 sales, including substantially
all of its men's tailored clothing, are derived from products manufactured in
its own production facilities, all of which are located in the United States.
The Company utilizes domestic and foreign contract manufacturers to produce its
remaining products, principally men's and women's sportswear, in accordance
with Company specifications and production schedules. The Company believes that
this combination of owned manufacturing and contract sourcing enables it to
efficiently control the pricing, quality and delivery of its products and to
effectively utilize the capital resources allocated to the manufacturing
process.
The Company is implementing programs to streamline its manufacturing
facilities and make them more cost effective. These programs include a
reduction in the number of Company-operated manufacturing facilities, the shift
of production to lower-cost facilities, an increase in the utilization of
foreign contract manufacturers and the adoption of a variety of productivity
enhancement measures. Increased manufacturing efficiencies and ongoing cost
savings, coupled with new sourcing strategies, have enabled the Company to
maintain or reduce the wholesale prices of its garments while maintaining its
margins and high quality standards.
The design and manufacturing of each of the Company's product lines is
managed by a dedicated design team working closely with their sales and
production counterparts to determine the apparel styles and manufacturing plans
for a given season. These plans are based upon a variety of criteria including
an evaluation of prior years' experiences, current design trends, economic
conditions and management estimates of a product's future performance. The
average cycle time for men's apparel, from fabric selection to the production
and shipment of finished goods, ranges from 18 to 24 months.
The design process for a particular season typically begins with the
development of a color palette and the selection of fabrics for the Company's
various product lines. This is followed by silhouette and product model
development and the production of sample prototypes. Throughout the process,
the design teams are guided by their interpretation of the latest fashion
trends and changes in consumer demand. Once completed, the Company's product
designs are reviewed internally (and, in certain cases, by licensors) to
evaluate their market appeal.
34
<PAGE>
After product models are approved for production, cutting patterns, which are
used to cut the fabric, are made. Once completed, these patterns are
electronically transferred to automatic cutting machines via computer tapes or
discs. Computer-aided design ("CAD") systems are utilized extensively
throughout the new product design and manufacturing process. When coupled with
the Company's computerized automatic cutting machines, this CAD technology
helps systematize production and maximize fabric utilization in the
manufacturing process.
Most of the Company's tailored products are manufactured in three stages.
First, the fabric is generally treated through a "sponging" process prior to
cutting, which reduces the likelihood of fabric shrinkage subsequent to
manufacturing. Second, the fabric is cut into pieces. These pieces are then
sewn together and finished. As is customary for the industry, this production
process is frequently performed in separate facilities to maximize labor
productivity, with the result being that a particular garment produced by the
Company may be assembled at two or, in some cases, three locations.
Men's sportswear and women's career apparel and sportswear are manufactured
under a variety of arrangements with unaffiliated contractors located in the
United States, Asia, Mexico, Central America or Europe. The Company either
supplies fabric to contractors or directs the contractor to purchase raw
materials according to Company specifications. These contractors are monitored
by Company personnel or agents to help ensure that the Company's product
quality standards are satisfied.
RAW MATERIALS
Raw materials, which include fabric, linings, thread, buttons and labels, are
obtained from domestic and foreign sources based on quality, pricing, fashion
trends and availability. The Company's principal raw material is fabric,
including woolens, polyester, cotton and blends of wool and polyester and
cotton and polyester. The Company procures and purchases its raw materials
directly for its owned manufacturing facilities and may also procure and retain
ownership of fabric relating to garments cut and assembled by contract
manufacturers. In other circumstances, fabric is procured by the contract
manufacturer directly but in accordance with the Company's specifications. For
certain of its product offerings, the Company and selected fabric suppliers
jointly develop fabric for the Company's exclusive use. Approximately 25% of
the raw materials purchased by the Company is imported from foreign mills. A
substantial portion of these purchases is denominated in United States dollars.
Purchases from Burlington, the Company's largest fabric supplier, accounted for
48% of the Company's total fabric requirements in fiscal 1993. See "Risk
Factors--Dependence on Burlington Industries" for a discussion of the Company's
purchases of fabric from Burlington. No other supplier accounts for over 6% of
the Company's total raw material requirements. As is customary in its industry,
the Company has no long-term contracts with its suppliers. The Company believes
that a variety of alternative sources of supply is available to satisfy its raw
material requirements.
SEASONALITY AND BACKLOG
The men's tailored clothing business has two principal selling seasons,
spring and fall. Additional lines for the summer and holiday seasons are
marketed in men's and women's sportswear. Men's tailored clothing, especially
at higher price points, generally tends to be less sensitive to frequent shifts
in fashion trends, economic conditions and weather, as compared to men's
sportswear or women's career apparel and sportswear. While there is typically
little seasonality to the Company's sales on a quarterly basis, seasonality can
be affected by a variety of factors, including the mix of advance and fill-in
orders, the distribution of sales across retail trade channels and overall
product mix between traditional and fashion merchandise.
The Company generally receives orders from its wholesale customers
approximately five to seven months prior to shipment. Some of the Company's
operating groups also routinely maintain in-stock positions of
35
<PAGE>
selected inventory in order to fulfill customer orders on a quick response
basis. A summary of the order and delivery cycle for the Company's two primary
selling seasons is illustrated below:
<TABLE>
<CAPTION>
MERCHANDISE SEASON ADVANCE ORDER PERIOD DELIVERY PERIOD
------------------ -------------------- --------------------------------------------------
<S> <C> <C>
Fall December to March June to October (primarily July and August)
Spring June to September December to March (primarily January and February)
</TABLE>
The Company's borrowing needs are typically lowest in July and January.
Financing requirements begin to rise as inventory levels increase in
anticipation of the spring and fall advance order shipping periods. Borrowings
reach their highest levels in April and October, just prior to the collection
of receivables from men's tailored clothing advance order shipments. Sales and
receivables are recorded when inventory is shipped, with payment terms
generally 30 to 60 days from the date of shipment. With respect to the tailored
clothing advance order shipments, customary industry trade terms are 60 days
from the seasonal billing dates of February 15 and August 15.
COMPETITION
All of the markets in which the Company competes--men's tailored clothing,
men's slacks and sportswear, women's sportswear and women's career apparel--are
highly competitive. The Company believes that the strong brand recognition
enjoyed by its products at both the wholesale and retail level, the breadth of
its product offerings in both price point and fashion direction and the
established relationships it possesses across retail distribution channels are
critical factors which differentiate the Company from its competitors. In
addition, the Company believes that its vertically integrated manufacturing
structure allows it to offer high quality products at competitive prices.
The Company believes that it is the largest domestic manufacturer and
marketer of men's tailored clothing as well as men's slacks with expected
retail prices over $50. It competes in these and the other segments of its
business primarily on the basis of its brand names, fashion offerings, quality,
service and price. The Company believes that its competitive position depends
upon its ability to respond effectively to changing consumer demands while
continuing to provide apparel recognized for its consistent styling, quality
and competitive prices.
Although imports have been a significant factor in the men's tailored
clothing industry in recent years, they have generally been offered at either
the lowest or the highest retail price points. The Company believes that a
variety of factors, including the long lead times required for international
shipping and lack of appropriate quality control among foreign manufacturers
(other than certain European manufacturers) have made it impractical for many
foreign manufacturers to import men's tailored clothing products that are
competitive with the Company's products on a price, quality and service basis.
Imports of men's tailored clothing are also subject to quotas and import
duties. The duty on imports of men's and boys' tailored clothing currently
varies depending upon the fabric used and may range as high as 22%. The
recently concluded NAFTA provides for the gradual elimination of tariffs and
quotas on men's tailored clothing meeting NAFTA's strict rules of origin.
Currently, men's tailored clothing that is manufactured in Canada but does not
meet these strict rules of origin may be imported into the United States at
relatively low tariff levels subject to specified quotas; any products imported
above these quota levels would be subject to existing tariff rates. In
addition, the recently completed GATT reduces both duties and quotas for
apparel as well as fabric. The net effect on the Company of reduced tariffs on
its foreign competition and on its foreign-sourced finished apparel and fabric
is uncertain at this time.
CUSTOMER BASE
As a broad-based manufacturer and marketer of apparel, the Company has
focused on the continued diversification of its wholesale customer base to
coincide with changing consumer trends. To effect this strategy, the Company
has supplemented its traditional channel of distribution--department and
specialty
36
<PAGE>
stores--with value-oriented retailers, direct mail companies, mass
merchandisers and its own factory-direct-to-consumer retail channel. The
Company believes that its relationships with major retailers, including the
active involvement of the Company's senior management in the selling process,
are of critical importance to the maintenance of its leading market position.
The Company's primary wholesale customer base consists of fine specialty and
leading department stores such as Dillard Department Stores, Federated
Department Stores, Macy's, May Department Stores, Neiman Marcus, Nordstrom and
J.C. Penney. This distribution channel accounted for approximately 60% of sales
in fiscal 1993. The growing value-oriented channel, which includes outlet and
off-price retailers, mass merchandisers and the Company's own factory-direct-
to-consumer network, represents an increasingly important distribution channel
for the Company. Other distribution channels include direct mail companies,
golf pro shops and the Company's 28 factory outlet stores. The Company's top
ten customers accounted for approximately 37% of net sales in fiscal 1993, and
the Company's largest customer, Dillard Department Stores, represented
approximately 12% of net sales. No other customer accounted for more than 7% of
net sales in fiscal 1993.
MANAGEMENT INFORMATION SYSTEMS
The Company believes that advanced information processing is essential in
order to maintain its competitive position and, as a result, has invested in
computer hardware systems, applications and networks to enhance and speed the
apparel design process and to support the manufacturing, sale and distribution
of its products to its customers. CAD systems are utilized throughout the new
product design and manufacturing process. When coupled with the Company's
computerized automatic cutting machines, this CAD technology helps systematize
production and maximize fabric utilization in the manufacturing process. The
Company provides a variety of information processing services, including quick
response and electronic data interchange ("EDI"), to substantially all of its
major customers, enabling the replenishment of inventory for selected product
styles within 24 to 48 hours after an order is placed electronically. EDI
applications include invoicing, purchase order creation and transmission,
inventory advice, shipping notices, point-of-sale feedback data on retail
transactions and electronic mail.
EMPLOYEES
As of November 30, 1993, the Company had approximately 11,200 employees. A
substantial percentage of nonsupervisory employees engaged in manufacturing and
distribution participate in collective bargaining agreements with the
Amalgamated Clothing and Textile Workers Union in effect through August 1994
and April 1995. The Company considers its employee relations to be
satisfactory.
TRADEMARKS AND LICENSING AGREEMENTS
The Company regards the trademarks it utilizes as valuable strategic assets
which serve to differentiate its products in both the wholesale and retail
marketplace. Approximately 60% of the Company's sales are of garments sold
under trademarks which it owns, while approximately 40% of its sales are of
products designed, manufactured and marketed by the Company under licensing
agreements it has with others and on a private label basis.
The Company utilizes 15 principal owned trademarks, including several which
it believes are among the oldest and most recognized brand names in tailored
clothing. Its Hart Schaffner and Marx(R) and Hickey-Freeman(R) trademarks were
introduced in 1887 and 1899, respectively. Other principal trademarks owned by
the Company include: Sansabelt(R), Kuppenheimer(R), Racquet Club(R) and Barrie
Pace(R). From time to time, the Company develops new trademarks to support the
introduction of new product lines. All of the Company's owned trademarks have
been registered for use in the United States and various countries throughout
the world. The Company vigorously protects its principal trademarks against
infringement.
37
<PAGE>
In addition to the use of its owned trademarks, the Company operates under
license agreements to manufacture and/or distribute certain men's and women's
apparel. The Company believes that access to these trademarks provides it with
an important strategic advantage, enabling the Company to broaden its product
offering through the use of developed, well-recognized brand franchises. These
licenses generally extend for a term of three to five years, with renewal
options based upon achievement of specific sales levels. The agreements further
provide for royalty payments based on a percentage of sales, minimum royalties
and advertising minimums. Several agreements are also subject to termination
upon a change of control and/or a change in certain of the Company's executive
officers. The Company influences all aspects of design, merchandising,
distribution, advertising and promotion of these licensed products with varying
degrees of participation by the licensor. The Company also serves as a
licensing agent for several of its principle licensors, including Jack
Nicklaus, Nino Cerruti and Pierre Cardin. Most of the Company's material
licensing agreements have been in place for over five years, and the Company
believes its relationship with its principal licensors to be excellent. The
Company does not believe that the termination of any single licensing agreement
would have a material adverse effect on the business of the Company taken as a
whole.
To broaden the international distribution of the apparel sold under its owned
and licensed trademarks, the Company has entered into over 35 license or
sublicense agreements for specified product lines with third party licensees to
produce, market and distribute products in 14 countries outside the United
States. These agreements allow the Company to utilize the local market
expertise of its licensees and to enter new geographic territories with minimal
capital requirements.
Set forth below is a summary overview of the Company's licensing agreements
under which the Company is the licensee:
<TABLE>
<CAPTION>
GEOGRAPHIC DATE
PRINCIPAL AREA AVAILABLE LICENSE
LICENSOR/BRAND NAME PRODUCTS UNDER LICENSE BEGAN
------------------------------------ ----------------- -------------------- ------------
<S> <C> <C> <C>
The All England Lawn Tennis Club Men's clothing U.S.A., Mexico 3/7/88
Limited
Wimbledon(R)
Allyn St. George International, Inc. Men's suits and U.S.A. 12/1/82
Allyn St. George(R) sportcoats 12/2/78
(predecessor
agreement)
Asian and Western Classics Men's clothing U.S.A., Canada, 12/20/90
Karl Lagerfeld(R) Mexico
Austin Reed Limited Men's furnishings U.S.A., Puerto Rico, 1/1/87
Austin Reed(R) Panama, Guam
Men's sportswear U.S.A., Puerto Rico, 12/31/86
Panama, Guam 3/16/84
(predecessor
agreement)
Men's clothing U.S.A., Puerto 8/1/72
Rico, Panama, 8/16/67
Guam and, through (predecessor
sublicense, Canada agreement)
Women's clothing U.S.A., Puerto Rico, 1/1/81
Panama, Guam
Cerruti 1881 Paris S.A. Men's clothing U.S.A. 10/15/84
CRR Nino Cerruti Paris(R) Cerruti 1/1/75
1881 Couture(R) (predecessor
agreement)
CRR Nino Cerruti(R) Men's clothing Mexico 10/1/91
10/1/88
(predecessor
agreement)
</TABLE>
38
<PAGE>
<TABLE>
<CAPTION>
GEOGRAPHIC DATE
PRINCIPAL AREA AVAILABLE LICENSE
LICENSOR/BRAND NAME PRODUCTS UNDER LICENSE BEGAN
--------------------------------- ----------------------- --------------------------- ------------
<S> <C> <C> <C>
The Downtown Athletic Club Men's clothing U.S.A., Canada, 9/1/93
of New York City, Inc. Mexico
The Heisman Trophy Collection(TM)
Gieves & Hawkes International Men's tailored clothing U.S.A. except, 6/1/88
Limited Alaska, Hawaii, Puerto Rico
Gieves & Hawkes(R)
Golden Bear Inc. Men's clothing U.S.A., Mexico, 3/29/83
Jack Nicklaus(R) Puerto Rico 6/1/71
(predecessor
agreement)
Men's and women's U.S.A., Canada, 7/1/90
golf apparel Mexico
Henry E. Grethel Men's clothing No limitation 5/20/87
Henry Grethel(R)
J.G. Hook, Inc. Men's clothing U.S.A., Puerto Rico, 5/1/89
J.G. Hook(R) U.S. Virgin Islands,
Guam
John W. Carson Men's apparel and No limitation 9/4/86
Johnny Carson(R) accessories
Jonesheirs, Inc. Men's and women's U.S.A. and numerous 6/1/88
Bobby Jones(R) clothing specified countries
Krizia S.p.A.
MM by Krizia(TM) Women's clothing U.S.A., Canada, 9/5/91
Mexico
KM by Krizia(TM) Men's clothing U.S.A., Canada, 11/15/90
Mexico
Luciano Franzoni Men's tailored clothing No limitation 10/16/89
Luciano Franzoni(TM)
Omni Sport b.v. Men's clothing U.S.A., Canada, 7/1/92
Fumagalli's(R) Mexico
Rough Rider Co. Men's clothing U.S.A., military 3/1/78
Rough Rider(TM) exchanges worldwide
S.A.R.L. de Gestion Pierre Cardin Men's clothing U.S.A., Colombia 9/1/72
Pierre Cardin(R)
Tommy Hilfiger Licensing, Inc. Men's tailored clothing U.S.A. 6/4/93
Tommy Hilfiger(R)
</TABLE>
PROPERTIES
The Company's principal executive and administrative offices are located in
approximately 45,000 square feet of leased space at 101 North Wacker Drive,
Chicago, Illinois 60606. As of November 30, 1993, the Company operated 25
manufacturing and distribution facilities aggregating approximately 3.3 million
square feet. The Company and its various operations occupy sales offices in New
York City, Chicago, Dallas, Los Angeles and Atlanta totalling approximately
100,000 square feet, all of which is leased. Summary information for each of
the Company's manufacturing and administrative locations is set forth below.
The Company also operates 181 retail or outlet stores with an aggregate area of
approximately 700,000 square feet. Four of such stores (comprising 23,000
square feet) are owned by the Company, and the remaining stores are leased.
39
<PAGE>
The Company believes that its properties are well maintained and its
manufacturing equipment is in good operating condition and sufficient for
current production.
<TABLE>
<CAPTION>
APPROXIMATE
SQUARE
COMPANY LOCATION USE FOOTAGE LEASED/OWNED
- ---------------- ------------------ -------------------------- ----------- ------------
<S> <C> <C> <C> <C>
Hartmarx Chicago, IL Administrative offices 45,000 Leased
Corporation
Hart Schaffner Chicago, IL Coat sewing, matching 313,000 Owned
& Marx Chicago, IL Administrative offices 67,000 Leased
Des Plaines, IL Fabric storage, sponging, 361,000 Owned
cutting, matching,
warehousing, shipping
Cape Girardeau, MO Cutting, coat sewing 171,000 Owned
Winchester, KY Coat sewing 92,000 Owned
Chaffee, MO Pant sewing, warehousing 78,000 Leased
shipping
Rock Island, IL Coat sewing 43,000 Owned
Rochester, IN Pant sewing 37,000 Owned
Intercontinental Buffalo, NY Administrative offices, 280,000 Leased
Branded fabric storage, sponging,
Apparel cutting, matching,
warehousing, shipping
Buffalo, NY Coat sewing 115,000 Owned
Whiteville, NC Coat sewing 105,000 Owned
Hialeah, FL Coat sewing 44,000 Leased
Dunkirk, NY Pant sewing 35,000 Owned
Trans-Apparel Michigan City, IN Administrative offices, 420,000 Owned
Group fabric storage, cutting,
warehousing, shipping
Anniston, AL Pant sewing 76,000 Leased
Elizabethtown, KY Pant sewing 54,000 Owned
East Chicago, IN Pant sewing 44,000 Leased
Biltwell Farmington, MO Fabric storage, cutting, 75,000 Leased
pant sewing
Farmington, MO Warehousing, shipping 65,000 Owned
St. Louis, MO Administrative offices, 88,000 Leased
coat sewing
Rector, AR Pant sewing 52,000 Owned
Hickey-Freeman Rochester, NY Administrative offices, 223,000 Owned
fabric storage, sponging,
cutting, sewing,
warehousing and shipping
Kuppenheimer Loganville, GA Fabric storage, cutting, 179,000 Owned
coat sewing, matching,
warehousing and shipping
Norcross, GA Administrative offices 59,000 Leased
Wellston, OH Pant sewing 34,000 Leased
International Easton, PA Administrative offices, 220,000 Owned
Women's warehousing and shipping
Apparel
Bobby Jones Rochester, NY Warehousing, shipping 51,000 Leased
</TABLE>
40
<PAGE>
LEGAL PROCEEDINGS
Dior Proceedings. In 1989, HSM and Christian Dior-New York, Inc. ("Dior")
were adverse parties in various lawsuits filed in the Circuit Court of Cook
County, Illinois, arising out of a Trademark License Agreement under which HSM
manufactured and sold apparel products bearing Dior's trademark(s). These
lawsuits were eventually settled and dismissed; however, the settlement
agreement among the parties has been the subject of an unfavorable award
against HSM in a subsequent arbitration proceeding and lawsuit which is
currently being appealed. In addition, HSM has initiated a separate arbitration
proceeding against Dior. It is the opinion of management that neither matter
will have a material effect on the Company's business or financial condition.
Spillyards Litigation. In September 1992, David Spillyards, represented to be
the holder of approximately 1,800 shares of common stock of the Company, filed
a class action complaint in the Circuit Court of Cook County, Illinois, against
the Company, its directors and former director Harvey A. Weinberg. The
complaint claimed that the Company's directors breached certain duties owed to
the Company's shareholders and sought certification as a class action, the
appointment of Mr. Spillyards' counsel as class counsel and related damages.
The complaint, which also included a derivative action, alleged that the
purpose of the sale of the Company's principal retail unit, HSSI, to HSSA, was
to benefit Mr. Weinberg (who was also alleged to have been a director of the
Company at the time of the announcement of the sale). The complaint was
subsequently amended to include additional allegations pertaining to the
ultimate sale of 5,714,286 shares of common stock of the Company and a three-
year warrant for 1,649,600 shares of common stock of the Company to Traco (the
"Traco Agreement"). The complaint, as amended, was dismissed on November 30,
1992 and Mr. Spillyards was given permission by the Court to file another
amended complaint, which was filed on December 28, 1992 (the "Second Amended
Complaint"). The Second Amended Complaint, denominated as a class action and
derivative complaint, again challenged certain aspects of the Traco Agreement
and alleged that the Company made certain misleading representations in its
July 17, 1991 prospectus. After the Company's motion to dismiss the Second
Amended Complaint was granted on June 24, 1993, Mr. Spillyards filed a Third
Amended Complaint (purportedly asserting new issues regarding the Traco
Agreement), which was again dismissed on September 29, 1993. Mr. Spillyards
filed notice of appeals with the Illinois Appellate Court on October 29, 1993,
and December 23, 1993. The appeals were consolidated by court order on February
8, 1994.
HSSI Matters. On September 18, 1992, the Company sold the HSSI Stock to HSSA
for the HSSA Note, in the principal amount of $43 million due September 18,
1994, which was subject to adjustment based on inventories to be taken after
the closing and was subsequently adjusted to $35 million. Pursuant to the
Pledge Agreement, the HSSA Note was secured by a pledge of the HSSI Stock and
HSSI also guaranteed the obligations of HSSA under the HSSA Note.
On November 23, 1993, after the Company determined that certain obligations
under the HSSA Note and related documents had been breached, the Company
exercised certain of its rights under the Pledge Agreement to, among other
things, cause the HSSI Stock to be voted to elect a new Board of Directors.
On November 23, 1993 and December 2, 1993, HSSI filed complaints against MLR
in the Circuit Court, seeking (i) to enjoin MLR from foreclosing under an
inventory credit agreement between HSSI and MLR, pursuant to which MLR provided
credit support to HSSI, (ii) over $4 million in compensatory damages and (iii)
$30 million in punitive damages for, among other things, breach of contract and
conversion. On January 28, 1994, both of these actions were removed by MLR to
federal court to be administered in the HSSI Chapter 11 case.
On November 29, 1993, HSSA filed a complaint for declaratory and preliminary
and permanent injunctive relief against the Company in the Circuit Court,
seeking an order declaring, among other things, that HSSA is and remains the
owner of HSSI. The complaint alleges that the Company improperly and wrongfully
seized ownership of HSSI. HSSA's request for a temporary restraining order in
this regard was
41
<PAGE>
denied and the case remains before the Circuit Court. On January 24, 1994, HSSA
was granted leave, subject to pending objections, to file an amended complaint.
The amended complaint seeks actual damages in an unspecified amount and
punitive damages of at least $10 million for, among other things, breach of
contract, tortious interference with contract, and conversion. The Circuit
Court has reserved ruling on the propriety of the filing of the amended
complaint. Primarily, these theories of liability are based on claims that the
Company unilaterally and wrongfully took the HSSI Stock in the absence of an
event of default and in the absence of any notice to HSSA and failed to dispose
of the HSSI Stock in a commercially reasonable manner, all in breach of the
Company's obligations under the HSSA Note, the Stock Purchase Agreement, the
Pledge Agreement and Part 5 of Article 9 of the Illinois Commercial Code.
On December 3, 1993, HSM and certain other subsidiaries of the Company filed
a complaint against MLR in the Circuit Court seeking damages for goods sold
pursuant to orders of MLR for shipment to HSSI and other retailers to which MLR
provides credit support.
On December 21, 1993, HSSI and 25 affiliates filed voluntary petitions for
relief under Chapter 11 of the Bankruptcy Code in the United States Bankruptcy
Court for the Northern District of Illinois, Eastern Division (the "Bankruptcy
Court").
On January 19, 1994, the Company filed a complaint against the directors of
HSSA in the Circuit Court seeking damages for wrongfully causing HSSI to make
distributions, returns of capital and compensation and other payments to
principals of HSSA in violation of the HSSA Note. The complaint was dismissed
without prejudice on March 2, 1994.
On January 24, 1994, HSSI filed a complaint in the Bankruptcy Court against
MLR which included many of the claims asserted in the Circuit Court case
described above and which additionally seeks (i) to equitably subordinate the
claim asserted by MLR in HSSI's bankruptcy case and (ii) monetary damages from
the former directors of HSSI and related parties for breach of fiduciary duty.
Also on January 24, 1994, MLR filed a complaint (which was amended on February
4, 1994) against the Company and six subsidiaries, among others, in the Circuit
Court seeking actual damages of $19 million and punitive damages of over $100
million for tortious interference with contract and interference with
prospective economic advantage. These theories of liability are based, in part,
on claims that no default existed under the HSSA Note and that the subsequent
sale of the HSSI Stock was improper because the Company did not give notice of
the time or location of the sale of the HSSI Stock. MLR further alleges that
counsel for the Company conceded in the hearing on HSSA's unsuccessful attempt
to obtain a temporary restraining order that HSSA was entitled to such notice.
On February 4, 1994, MLR filed a voluntary petition for relief under Chapter
11 of the Bankruptcy Code in the Bankruptcy Court and filed an adversary
proceeding against the Company to recover a payment of approximately $4.8
million to the Company as a voidable preference under the Bankruptcy Code. The
preference action was dismissed without prejudice on February 10, 1994.
The Company, HSSI, HSSA and MLR have agreed, under certain conditions, to
forebear from prosecuting their claims in the Chapter 11 cases, the Circuit
Court proceedings and related federal court proceedings described above until
May 15, 1994 in order to facilitate discussions regarding a possible consensual
resolution of the above matters. The agreement may be terminated by any party
upon ten days' written notice and there can be no assurance that any such
resolution will result from such discussions.
After consultation with counsel, management of the Company believes that the
Company has meritorious defenses to the actions against the Company referred to
above and that such actions will not have a material adverse effect on the
Company's business or financial condition. See "Risk Factors--Uncertainties
Regarding HSSI and MLR" for a discussion of certain possible effects of the
above proceedings on the Company.
42
<PAGE>
MANAGEMENT
The executive officers and significant employees of the Company and their
ages as of February 15, 1994 are as follows:
<TABLE>
<CAPTION>
CORPORATE EXECUTIVE
OFFICERS AGE POSITION
--------------------- --- ---------------------------
<S> <C> <C>
Elbert O. Hand 54 Chairman, Chief Executive
Officer and Director
Homi B. Patel 44 President, Chief Operating
Officer and Director
Wallace L. Rueckel 49 Executive Vice President
and Chief Financial Officer
Carey M. Stein 46 Executive Vice President,
Chief Administrative Offi-
cer, Secretary and General
Counsel
Glenn R. Morgan 46 Senior Vice President
and Controller
Frank A. Brenner 65 Vice President, Marketing
Services
James E. Condon 43 Vice President and Trea-
surer
Linda J. Valentine 43 Vice President, Compensa-
tion and Benefits
<CAPTION>
OPERATIONS EXECUTIVES
---------------------
<S> <C> <C>
Thomas G. Bowles 44 President and Chief Operat-
ing Officer, Intercontinen-
tal Branded Apparel
Thomas L. Hall 44 President and Chief Execu-
tive Officer, International
Women's Apparel
Kenneth A. Hoffman 50 President, Men's Apparel
Group; President and Chief
Executive Officer, Hart
Schaffner & Marx
Larry Levy 61 President and Chief Execu-
tive Officer, Kuppenheimer
R. Roydon Ricks 50 President and Chief Operat-
ing Officer, Trans-Apparel
Group
Steven J. Weiner 53 President and Chief Operat-
ing Officer, Hickey-Freeman
Thomas M. Wheeler 41 President and Chief Operat-
ing Officer, Biltwell Com-
pany
Solange Cohen 33 Vice President, Barrie Pace
</TABLE>
CORPORATE EXECUTIVE OFFICERS
ELBERT O. HAND became Chairman and Chief Executive Officer of Hartmarx
Corporation in 1992. In his 29 years with the Company, he has held many
positions including President and Chief Operating Officer from 1987 to 1992 and
President of the Men's Apparel Group from 1982 to 1987. He has been a director
since 1984. He is the former Chairman and currently a director of the American
Apparel Manufacturers Association.
43
<PAGE>
HOMI B. PATEL became President in 1992 and Chief Operating Officer in 1993.
He also serves as Chairman of the Men's Apparel Group. He became a director of
the Company in January 1994. He has been employed by Hartmarx for 14 years,
during which time he has held a variety of management positions. He is
President of the Clothing Manufacturers Association and serves as its chief
labor negotiator.
WALLACE L. RUECKEL became Executive Vice President and Chief Financial
Officer in 1993. Prior to joining the Company, he served as a key financial
officer at Guardian Industries and its affiliates for nine years. He also
worked for Sundstrand Corporation from 1975 to 1984 and for Cummins Engine Co.
from 1967 to 1975.
CAREY M. STEIN became Chief Administrative Officer in 1993. He was named
Executive Vice President in 1992 and General Counsel and Secretary in 1984. He
has worked for the Company for 16 years. He is a member of the American Apparel
Manufacturers Association Legal Committee. He is presently on a medical leave
of absence from the Company.
GLENN R. MORGAN was named Senior Vice President in 1993 and serves as the
Company's Controller and Chief Accounting Officer. He has worked for the
Company for 14 years. He serves on the board of the Financial Management
Committee of the American Apparel Manufacturers Association.
FRANK A. BRENNER became Vice President of Marketing Services in 1983. He has
been employed by Hartmarx for 25 years in a variety of advertising, marketing
and public relations positions.
JAMES E. CONDON became Vice President and Treasurer in 1986. He joined the
Company in 1977 and has been responsible for treasury operations, investor and
financial relationships and pension fund management.
LINDA J. VALENTINE became Vice President of Compensation and Benefits in
1993. She has been employed by Hartmarx for 13 years, during which time she has
held various management positions in compensation and human resources.
OPERATIONS EXECUTIVES
THOMAS G. BOWLES became President of Intercontinental Branded Apparel in 1988
and Chief Operating Officer in 1991. He joined IBA in 1987 as Executive Vice
President of Marketing and Merchandising.
THOMAS L. HALL joined the Company as President and Chief Executive Officer of
International Women's Apparel in 1989. He was formerly President and Chief
Operating Officer of Pyke Manufacturing, a women's apparel manufacturer.
KENNETH A. HOFFMAN became President and Chief Executive Officer of Hart
Schaffner & Marx in 1984 and President of the Company's Men's Apparel Group in
1991. His career at Hartmarx spans 26 years during which he held several
executive positions including President of the predecessor to Intercontinental
Branded Apparel.
LARRY LEVY became President and Chief Executive Officer of Kuppenheimer in
1993. He joined Hartmarx in 1972 and served in various capacities at HSSI,
including Chief Executive Officer of Wallachs in New York and Baskins in
Chicago. Most recently, he was President of Field Bros.
R. ROYDON RICKS was named President and Chief Operating Officer of Trans-
Apparel Group in 1991. Since joining Hartmarx in 1980, Ricks has held several
executive positions for Hart Schaffner & Marx, and was President of the
Company's former Gleneagles outerwear subsidiary.
STEVEN J. WEINER became President and Chief Operating Officer of Hickey-
Freeman in 1992. He joined Hartmarx in 1977 and has worked in several of the
Company's businesses, including Intercontinental Branded Apparel and Hartmarx
International.
THOMAS M. WHEELER was named President and Chief Operating Officer of Biltwell
in 1992. His career with Hartmarx began in 1977 in its former Fashionaire
business, later serving as President and Chief Operating Officer of Hartmarx
Special Markets Group.
SOLANGE COHEN became Vice President of Barrie Pace in 1993. Since joining
Hartmarx in 1984, she has held various positions at Barrie Pace, including
Buyer, Director of Marketing and Merchandise Manager.
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DESCRIPTION OF CERTAIN INDEBTEDNESS
The following summary of the principal terms of certain indebtedness of the
Company does not purport to be complete and is subject to the detailed
provisions of, and qualified in its entirety by reference to, the documents
relating to such indebtedness, copies of which have been filed or incorporated
by reference as exhibits to the Registration Statement of which this Prospectus
forms a part and other documents filed by the Company with the Commission.
OVERRIDE AGREEMENT AND BRIDGE FACILITY
In December 1992, the Company entered into the Override Agreement and the
Bridge Facility with the Company's then principal lenders. The Override
Agreement substantially replaced or amended the provisions of prior agreements
covering the Company's $196 million unsecured borrowing facility with 13 banks,
$45 million of insurance term loans, approximately $38 million of bank term
loans, the ESOP loan guarantee and guarantees related to certain industrial
development bonds having aggregate borrowings of approximately $15 million. In
addition, the Bridge Facility provides for new seasonal borrowings of $35
million. Borrowings under the Override Agreement and the Bridge Facility are
secured by substantially all of the assets of the Company and its subsidiaries,
subject to a priority for certain trade creditors. Borrowings under the
Override Agreement, Bridge Facility and certain other debt extending to 2007
collectively constitute the current "Senior Debt."
The $307 million Override Agreement is in effect through December 30, 1995.
As of November 30, 1993, $226.4 million was outstanding under the Override
Agreement with $73.9 million available thereunder after taking into account
$6.7 million of outstanding letters of credit. The Bridge Facility, originally
$35 million and maturing on November 30, 1993, has been extended by the Company
for one year and provides for a $15 million commitment through November 30,
1994. The sale of the Notes contemplated hereby requires the consent of the
lenders under the Override Agreement and the Bridge Facility. Concurrently with
the sale of the Notes, the Company will enter into the New Credit Facility
described below (the "New Credit Facility"), cancel the Bridge Facility and
repay obligations outstanding under and cancel the Override Agreement. At the
present time, no borrowings are outstanding under the Bridge Facility.
NEW CREDIT FACILITY
The Company has executed a commitment letter (the "Financing Commitment")
with General Electric Capital Corporation as managing agent (the "Managing
Agent") with respect to the New Credit Facility. The Financing Commitment is
subject to, among other things, (i) there being no material adverse change in
the business, assets, revenue, operations, prospects or financial condition of
the Company and its subsidiaries taken as a whole and (ii) definitive
documentation for the New Credit Facility acceptable to the Managing Agent. The
Financing Commitment terminates if the closing of the New Credit Facility is
not consummated on or before April 30, 1994. The description set forth below of
the New Credit Facility is based upon the Form of Credit Agreement (the "Credit
Agreement"), a copy of which is filed as an exhibit to the Registration
Statement of which this Prospectus forms a part. The following summary of the
New Credit Facility does not purport to be complete and is subject to, and is
qualified in its entirety by, reference to the Credit Agreement.
The New Credit Facility is a three-year secured revolving credit facility in
an aggregate maximum amount of $175 million, subject to a borrowing base
formula based upon 85% of eligible accounts receivable and 55% of eligible
inventory, subject to certain reserves, including a letter of credit
subfacility of up to $25 million and a swing loan subfacility of up to $15
million. The New Credit Facility will be used to refinance the existing
Override Agreement and Bridge Facility, to finance ongoing working capital and
letter of credit requirements and for general corporate purposes.
The New Credit Facility will be secured by a first priority security interest
in substantially all of the current and certain of the intangible assets of the
Company and its subsidiaries. The New Credit Facility will
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<PAGE>
include a negative pledge on all assets of the Company and its subsidiaries and
be guaranteed by the subsidiaries of the Company.
Borrowing under the New Credit Facility will be maintained as either base
rate or LIBOR loans, as the Company may elect from time to time, at rates that
are: (i) 1.5% over the greater of (a) a rate based on the weighted average of
rates of the 90-day commercial paper rate or (b) the base rate of a bank to be
selected by the Managing Agent or (ii) 2.5% over LIBOR. The New Credit Facility
will contain certain provisions for the ability of these rates to decline based
upon ratios relating to total debt to EBITDA and debt service coverage.
Outstanding principal amounts under the New Credit Facility will bear interest
at the applicable interest rate plus 2% after the occurrence and during the
continuance of an Event of Default under the Credit Agreement. The New Credit
Facility will require the Company to pay certain customary fees, including (i)
an unused commitment fee (.5% per annum) payable quarterly throughout the term
of the New Credit Facility, (ii) an annual administrative fee ($75,000), (iii)
an annual collateral agent fee ($100,000) and (iv) letter of credit fees.
The Company will be able to prepay base rate loans borrowed under the New
Credit Facility, in whole or in part, subject to certain minimum prepayment
amounts. Base rate loans will be prepayable without penalty. The New Credit
Facility will require the Company to make prepayments in an amount equal to the
net proceeds received from permitted dispositions of assets out of the ordinary
course of business by the Company or its subsidiaries, which prepayments will
not reduce availability to the Company under the Credit Agreement.
The New Credit Facility will contain material restrictions on the operation
of the Company's business, including without limitation covenants pertaining to
(i) capital expenditures, (ii) investments and investments in joint ventures,
(iii) certain junior payments, (iv) fundamental changes and asset sales, (v)
liens and encumbrances, (vi) operating and capital leases, (vii) sale and
lease-back transactions, (viii) sale or discount of receivables, (ix)
transactions with shareholders and affiliates, (x) minimum net worth, (xi)
incurrence of additional indebtedness and (xii) ratios relating to (a) minimum
accounts payable to inventory, (b) maximum total debt to EBITDA and (c) minimum
debt service coverage, as well as other customary covenants, representations
and warranties and funding conditions. The Company does not believe that the
restrictions contained in these financial and operating covenants will cause
significant limitations on the Company's financial flexibility. In addition,
the terms of the New Credit Facility will require the obligations under the New
Credit Facility to be reduced to no more than $135 million for a minimum of 30
consecutive days during the period between April 1 and June 30 during each
calendar year.
The New Credit Facility will contain customary events of default including,
without limitation, (i) the failure to make payments when due, (ii) defaults
under other agreements or instruments of indebtedness in excess of specified
amounts, (iii) noncompliance with covenants, (iv) breaches of representations
and warranties, (v) bankruptcy, (vi) judgments in excess of specified amounts,
(vii) impairment of security interests in collateral, (viii) a material adverse
change in the business or financial condition of the Company and its
subsidiaries taken as a whole, (ix) certain changes of control and (x)
impairment of license agreements.
INDUSTRIAL DEVELOPMENT BONDS
In December 1993, the Company entered into loan agreements with the Indiana
Development Finance Authority ("IDFA") and with the City of Des Plaines,
Illinois ("Des Plaines") relating to economic development refunding revenue
bonds (the "IDBs") issued by IDFA in the amount of $7.5 million (Michigan City
issue) and by Des Plaines in the amount of $8.0 million (Des Plaines issue).
The IDBs refunded economic development revenue bonds issued in connection with
the construction of the Company's Michigan City distribution center and offices
and its Des Plaines Plaza facility. The IDBs bear a fixed coupon of 7.25% and
were issued at a discount to yield 7.50%. The IDBs mature July 1, 2014
(Michigan City issue) and July 1, 2015 (Des Plaines issue). The Company, at its
option, may redeem the IDBs beginning July 1, 2000 at the redemption prices set
forth therein. The IDBs are unsecured obligations of Hartmarx Corporation and
include certain customary covenants, representations and warranties, and events
of default. The IDBs do not contain financial covenants or cross-default
provisions.
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DESCRIPTION OF THE NOTES
The Notes will be issued under the Indenture, dated as of , 1994,
between the Company and Bank One Wisconsin Trust Company, N.A., as trustee (the
"Trustee"), a copy of the form of which is filed as an exhibit to the
Registration Statement of which this Prospectus is a part. The following
summary, which describes 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 Indenture and the Notes, including the
definitions therein of terms not defined in this Prospectus. As used in
"Description of the Notes," (i) capitalized or defined terms shall have the
meaning ascribed to them herein and (ii) the "Company" shall mean Hartmarx
Corporation and shall not include its subsidiaries.
GENERAL
The Notes will mature on , 2002, and will bear interest at the rate
per annum stated on the cover page hereof from , payable
semiannually in arrears on July 15 and January 15 of each year, commencing July
15, 1994, to the persons who are registered holders thereof at the close of
business on the July 1 or January 1 immediately preceding such interest payment
date. The Trustee will authenticate and deliver Notes for original issue in an
aggregate principal amount of $100 million.
Interest on the Notes will be computed on the basis of a 360-day year of
twelve 30-day months. Principal and interest will be payable at the office of
the Trustee, but, at the option of the Company, interest may be paid by check
mailed to the registered holders at their registered addresses. The Notes will
be transferable and exchangeable at the office of the Trustee and will be
issued in fully registered form, without coupons, in denominations of $1,000
and any integral multiple thereof.
REDEMPTION
On or after , 1999, the Notes may be redeemed at the option of the
Company, at any time as a whole, or from time to time in part, on not less than
30 days' nor more than 60 days' notice, at the redemption prices (expressed as
percentages of principal amount) set forth below, plus accrued and unpaid
interest (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):
If redeemed during the 12-month period commencing ,:
<TABLE>
<CAPTION>
REDEMPTION
YEAR PRICE
---- ----------
<S> <C>
1999.......................... %
2000.......................... %
2001 and thereafter........... 100.00%
</TABLE>
Notwithstanding the foregoing, at any time prior to , 1997, the
Company may redeem, in part and from time to time, with the net proceeds of one
or more Public Equity Offerings or Traco Warrant Exercises, up to $25 million
aggregate principal amount of the Notes, at the redemption prices (expressed as
percentages of principal amount) set forth below, plus accrued and unpaid
interest (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):
If redeemed during the 12-month period commencing ,:
<TABLE>
<CAPTION>
REDEMPTION
YEAR PRICE
---- ----------
<S> <C>
1994.......................... %
1995.......................... %
1996.......................... %
</TABLE>
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<PAGE>
SINKING FUND
There will be no mandatory sinking fund payments for the Notes.
RANKING
The payment of the principal of, premium (if any) and interest on the Notes
is subordinated in right of payment, as set forth in the Indenture, to the
payment when due of all Senior Debt of the Company in full in cash or cash
equivalents. However, payment from the money or the proceeds of U.S. Government
Obligations held in any defeasance trust described under "--Defeasance" below
is not subordinate to any Senior Debt or subject to the restrictions described
herein. At November 30, 1993, after giving effect to the use of proceeds from
the sale of the Notes offered hereby and the New Credit Facility to repay
existing Senior Debt, the outstanding Senior Debt of the Company would have
been $143 million. Although the Indenture contains limitations on the amount of
additional Debt which the Company may incur, under certain circumstances the
amount of such Debt could be substantial and, in any case, such Debt may be
Senior Debt. See "--Certain Covenants--Limitation on Debt" below.
The Company is a holding company which derives substantially all of its
income from its Subsidiaries. The Company must rely on dividends or other
intercompany transfers from its Subsidiaries to generate the funds necessary to
meet its debt service and other obligations, including payment of principal and
interest on the Notes. The ability of such Subsidiaries to pay such dividends
or other intercompany transfers is subject to applicable state laws. Claims of
creditors of such Subsidiaries, including trade creditors, secured creditors
and creditors holding guarantees issued by such Subsidiaries, and claims of
holders of Preferred Stock (if any) of such Subsidiaries generally will have
priority with respect to the assets and earnings of such Subsidiaries over the
claims of creditors of the Company, including holders of the Notes, even though
such obligations do not constitute Senior Debt. The Notes, therefore, will be
effectively subordinated to creditors (including trade creditors) and holders
of Preferred Stock (if any) of Subsidiaries of the Company. It is anticipated
that certain of the Subsidiaries will guarantee the Company's obligations under
the New Credit Facility. At November 30, 1993, after giving effect to the use
of proceeds from the Notes and the New Credit Facility to repay Senior Debt,
the amount of indebtedness and accounts payable of the Company's Subsidiaries
(excluding intercompany debt and debt guaranteed by the Company's Subsidiaries
which is included in the calculation of Senior Debt) would have been
approximately $30 million, and the Company's Subsidiaries would have had no
Preferred Stock outstanding. Although the Indenture limits the incurrence of
Debt and issuance of Preferred Stock by the Company's Subsidiaries, such
limitation is subject to a number of significant qualifications; moreover, the
Indenture does not impose any limitation on the incurrence by such Subsidiaries
of liabilities that are not considered Debt or Preferred Stock under the
Indenture. See "--Certain Covenants--Limitation on Subsidiary Debt and
Preferred Stock."
"Senior Debt" is defined as (i) Bank Debt; (ii) all obligations consisting of
the principal of and premium (if any) and accrued and unpaid interest
(including interest accruing on or after the filing of any petition in
bankruptcy or for reorganization relating to the Company whether or not post-
filing interest is allowed in such proceeding), whether existing on the date of
the Indenture or thereafter incurred, in respect of (A) indebtedness of the
Company for money borrowed and (B) indebtedness evidenced by notes, debentures,
bonds or other similar instruments for the payment of which the Company is
responsible or liable; (iii) all Capital Lease Obligations of the Company; (iv)
all obligations of the Company (A) for the reimbursement of any obligor on any
letter of credit, bankers' acceptance or similar credit transaction, (B) under
interest rate swaps, caps, collars, options and similar arrangements and
foreign currency hedges entered into in respect of any obligations described in
clauses (i), (ii) and (iii) or generally to hedge foreign exchange risks, (C)
under receivables financing facilities or (D) issued or assumed as the deferred
purchase price of property or services and all conditional sale obligations of
the Company and all obligations of the Company under any title retention
agreement; (v) all obligations of other persons of the type referred to in
clauses (ii), (iii) and (iv) and all dividends of other persons for the payment
of which, in either case, the Company is responsible or liable, directly or
indirectly, as obligor, guarantor or otherwise, including by means of any
agreement which
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<PAGE>
has the economic effect of a guarantee; and (vi) all obligations of the Company
consisting of modifications, renewals, extensions, replacements, refinancings
and refundings of any obligations described in clause (i), (ii), (iii), (iv) or
(v); unless in the instrument creating or evidencing the same or pursuant to
which the same is outstanding, it is provided that such obligations are not
superior in right of payment to the Notes. However, Senior Debt will not be
deemed to include (1) any obligation of the Company to any Subsidiary, (2) any
liability for federal, state, local or other taxes owed or owing by the
Company, (3) any accounts payable or other liability to trade creditors arising
in the ordinary course of business (including guarantees thereof or instruments
evidencing such liabilities), (4) any indebtedness, guarantee or obligation of
the Company (other than the Bank Debt) which is contractually subordinate or
junior in right of payment to any other indebtedness, guarantee or obligation
of the Company or (5) the portion of any Debt issued in violation of the
provisions described under "--Certain Covenants--Limitation on Debt" below.
Only indebtedness of the Company that is Senior Debt will rank senior to the
Notes in accordance with the provisions of the Indenture. The Notes will in all
respects rank pari passu with all other Senior Subordinated Debt of the
Company. The Company has agreed in the Indenture that it will not issue (as
defined in "--Certain Definitions" below), directly or indirectly, any Debt
which is subordinate or junior in ranking in any respect to Senior Debt unless
such Debt is Senior Subordinated Debt or is expressly subordinated in right of
payment to Senior Subordinated Debt. Unsecured Debt is not deemed to be
subordinate or junior to Secured Debt merely because it is unsecured.
The Company may not pay the principal of, premium (if any) or interest on,
the Notes or make any deposit pursuant to the provisions described under "--
Defeasance" below and may not repurchase, redeem or otherwise retire any Notes
(collectively, "pay the Notes") if (i) any Senior Debt is not paid in full in
cash or cash equivalents when due or (ii) any other default on Senior Debt
occurs and the maturity of such Senior Debt is accelerated in accordance with
its terms unless, in either case, the default has been cured or waived and any
such acceleration has been rescinded or such Senior Debt has been paid in full
in cash or cash equivalents. However, the Company may pay the Notes without
regard to the foregoing if the Company and the Trustee receive written notice
approving such payment from the Representatives of the Designated Senior Debt.
During the continuance of any default (other than a default described in clause
(i) or (ii) of the second preceding sentence) with respect to any Designated
Senior Debt pursuant to which the maturity thereof may be accelerated
immediately without further notice (except such notice as may be required to
effect such acceleration) or the expiration of any applicable grace periods,
the Company may not pay the Notes for a period (a "Payment Blockage Period")
commencing upon the receipt by the Company and the Trustee of written notice of
such default from the Representative of such Designated Senior Debt specifying
an election to effect such prohibition (a "Payment Notice") and ending 179 days
thereafter (or earlier if terminated (i) by written notice to the Trustee and
the Company from the Representative which gave such Payment Notice, (ii)
because such default is no longer continuing or (iii) because such Designated
Senior Debt has been repaid in full in cash or cash equivalents).
Notwithstanding the provisions described in the immediately preceding sentence,
unless the holders of such Designated Senior Debt or the Representative of such
holders has accelerated the maturity of such Designated Senior Debt, the
Company may resume payments on the Notes after the end of such Payment Blockage
Period. Not more than one Payment Notice may be given in any consecutive 360-
day period, irrespective of the number of defaults with respect to Designated
Senior Debt during such period. However, if any Payment Notice within such 360-
day period is given by the Representative of any Designated Senior Debt (other
than the Bank Debt), the Representative of the Bank Debt may give another
Payment Notice within such period. In no event, however, may the total number
of days during which any Payment Blockage Period or Periods is in effect exceed
179 days in the aggregate during any consecutive 360-day period.
Upon any payment or distribution of the assets of the Company upon a total or
partial liquidation or dissolution or reorganization of or similar proceeding
relating to the Company or its property, the holders of Senior Debt will be
entitled to receive payment in full in cash or cash equivalents before the
holders of the Notes are entitled to receive any payment.
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If payment of the Notes is accelerated because of an Event of Default, the
Company or the Trustee shall promptly notify the holders of the Designated
Senior Debt or their Representatives of the acceleration. If any Designated
Senior Debt is outstanding, the Company may not pay the Notes until five days
after such notice is received and, thereafter, may pay the Notes only if the
Indenture otherwise permits the payment at that time.
By reason of such subordination provisions contained in the Indenture, in the
event of insolvency, creditors of the Company who are holders of Senior Debt
may recover more, ratably, than the holders of the Notes.
CHANGE OF CONTROL
Upon the occurrence of any of the following events each holder of Notes will
have the right to require the Company to repurchase all or any part of such
holder's Notes at a repurchase price equal to 101% of the principal amount
thereof plus accrued and unpaid interest, if any, to the date of repurchase
(subject to the right of holders of record on the relevant record date to
receive interest due on the relevant interest payment date): (i) any "person"
or "group" (within the meaning of Section 13(d) of the Exchange Act), together
with any Affiliates or Associates thereof, 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 a beneficial ownership of all shares that any
such person has the right to acquire, whether such right is exercisable
immediately or only after the passage of time), directly or indirectly, of more
than 50% of the total voting power of equity securities entitled to vote in the
election of directors of the Company; (ii) liquidation or dissolution of the
Company; or (iii) during any period of two consecutive years, individuals who
at the beginning of such period constituted the Board of Directors of the
Company (together with any new directors whose election by such Board of
Directors or whose nomination for election by the shareholders of the Company
was approved by a vote of 66 2/3% of the directors of the Company 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 the Company then
in office. A Change of Control will be deemed to have occurred if an event
described in any of the foregoing clauses (i), (ii) or (iii) has occurred,
regardless of whether one of the events in any of the other clauses has also
occurred. Subject to the limitations discussed below, the Company could, in the
future, enter into certain transactions, including acquisitions, refinancings
or other recapitalizations, that would not constitute a Change of Control under
the Indenture, but that could increase the amount of indebtedness outstanding
at such time or otherwise affect the Company's capital structure or credit
ratings.
The occurrence of certain of the events which would constitute a Change of
Control may constitute a default under the New Credit Facility and could
constitute a default under the Company's other existing or future indebtedness.
Under the New Credit Facility, the Company is prohibited from repurchasing any
Notes upon a Change of Control. In addition, the exercise by the holders of
their right to require the Company 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 the Company. The Company's
ability to repurchase the Notes may be limited by applicable subordination
provisions. See "--Ranking." Finally, the Company's ability to pay cash to the
holders of Notes upon a repurchase may be limited by the Company's then
existing financial resources.
Within 30 days following any Change of Control, the Company will mail a
notice to each holder stating (i) that a Change of Control has occurred and
that such holder has the right to require the Company to repurchase all or any
part of such holder's Notes at a repurchase price in cash equal to 101% of the
principal amount thereof plus accrued and unpaid interest, if any, to the date
of repurchase (subject to the right of holders of record on the relevant record
date to receive interest due on the relevant interest payment date); (ii) the
circumstances and relevant facts regarding such Change of Control (including
information with respect to pro forma historical income, cash flow and
capitalization after giving effect to such Change of Control); (iii) the
repurchase date (which will be no earlier than 30 days nor later than 60 days
from the date
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<PAGE>
such notice is mailed); and (iv) the instructions, determined by the Company
consistent with the Indenture, that a holder must follow in order to have its
Notes repurchased.
The Change of Control purchase feature of the Notes may in certain
circumstances make more difficult or discourage a takeover of the Company and,
thus, the removal of incumbent management. The Change of Control purchase
feature is a result of negotiations between the Company and the Underwriters.
The Company will comply with any tender offer rules under the Exchange Act
which may then be applicable, including Rule 14e-1, in connection with any
offer required to be made by the Company to repurchase the Notes as a result of
a Change of Control.
The provisions relative to the Company's obligation to make an offer to
repurchase the Notes as a result of a Change of Control may be waived or
modified with the written consent of the holders of a majority in principal
amount of the Notes.
CERTAIN COVENANTS
Set forth below are certain covenants contained in the Indenture:
Limitation on Debt. The Company shall not issue, directly or indirectly, any
Debt unless the Consolidated EBITDA Coverage Ratio for the period of the most
recently completed four fiscal quarters of the Company ending at least 45 days
prior to (or, if earlier, the date on which the Company files a quarterly or
annual periodic report under the Exchange Act with the Commission which
includes consolidated financial statements including such quarter) the date
such Debt is issued exceeds 2.0 to 1.0.
Notwithstanding the foregoing, the Company may issue the following Debt: (1)
Debt issued pursuant to the New Credit Facility or any agreement or agreements
which refinance or replace the New Credit Facility, but only to the extent that
the aggregate of all Debt issued or issuable by the Company under the New
Credit Facility and all such refinancing agreements does not exceed the greater
of (A) $175 million and (B) the sum of (x) 55% of the book value of the
inventory of the Company and its Wholly Owned Subsidiaries (other than
Nonrecourse Subsidiaries) and (y) 85% of the book value of the accounts
receivable of the Company and its Wholly Owned Subsidiaries (other than
Nonrecourse Subsidiaries), in each case as determined in accordance with
generally accepted accounting principles (such sum of (x) and (y) is referred
to herein as the "Borrowing Base"); (2) Debt under Capital Lease Obligations
which does not exceed $10 million in the aggregate (less the amount of any Debt
under Capital Lease Obligations of any Subsidiary then outstanding and incurred
pursuant to clause (2) of "--Limitation on Subsidiary Debt and Preferred Stock"
below); (3) Debt owed to and held by a Wholly Owned Subsidiary; provided,
however, that any subsequent issuance or transfer of any Capital Stock which
results in any such Wholly Owned Subsidiary ceasing to be a Wholly Owned
Subsidiary or any transfer of such Debt by such Wholly Owned Subsidiary (other
than to a Wholly Owned Subsidiary) shall be deemed, in each case, to constitute
the issuance of such Debt by the Company; (4) the Notes and Debt issued in
exchange for, or the proceeds of which are used to refund or refinance, any
Debt permitted by this clause (4); provided, however, that (i) the principal
amount of the Debt so issued shall not exceed the principal amount of the Debt
so exchanged, refunded or refinanced plus an amount no greater than any
prepayment premium due under the terms of the Debt so exchanged, refunded or
refinanced and fees, costs and expenses of issuance of the Debt so issued and
(ii) either (x) the Debt so issued shall not mature prior to the earlier of (A)
the Stated Maturity of the Debt being exchanged, refunded or refinanced and (B)
the first anniversary of the Stated Maturity of the Notes or (y) the portion,
if any, of the Debt so issued that is scheduled to mature on or prior to the
Stated Maturity of the Notes has a weighted average life to maturity at the
time such Debt is incurred that is equal to or greater than the weighted
average life to maturity of the
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<PAGE>
portion of the Debt being exchanged, refunded or refinanced that is scheduled
to mature on or prior to the Stated Maturity of the Notes; (5) Debt (other than
Debt described in clause (1), (2), (3) or (4) of this paragraph) outstanding on
the date on which the Notes were originally issued and Debt issued in exchange
for, or the proceeds of which are used to refund or refinance, any Debt
permitted by this clause (5); provided, however, that (i) the principal amount
of the Debt so issued shall not exceed the principal amount of the Debt so
exchanged, refunded or refinanced plus an amount no greater than any prepayment
premium due under the terms of the Debt so exchanged, refunded or refinanced
and fees, costs and expenses of issuance of the Debt so issued and (ii) either
(x) the Debt so issued shall not mature prior to the earlier of (A) the Stated
Maturity of the Debt being exchanged, refunded or refinanced and (B) the first
anniversary of the Stated Maturity of the Notes or (y) the portion, if any, of
the Debt so issued that is scheduled to mature on or prior to the Stated
Maturity of the Notes has a weighted average life to maturity at the time such
Debt is incurred that is equal to or greater than the weighted average life to
maturity of the portion of the Debt being exchanged, refunded or refinanced
that is scheduled to mature on or prior to the Stated Maturity of the Notes;
and (6) Debt in an aggregate principal amount which, together with all other
Debt of the Company then outstanding (other than Debt permitted by clauses (1)
through (5) of this paragraph or the immediately preceding paragraph) does not
exceed $10 million (less the amount of any Subsidiary Debt or Preferred Stock
then outstanding and incurred pursuant to clause (7) of "--Limitation on
Subsidiary Debt and Preferred Stock" below).
Notwithstanding the two immediately preceding paragraphs, the Company shall
not issue any Debt (i) if the proceeds thereof are used, directly or
indirectly, to repay, prepay, redeem, defease, retire, refund or refinance any
Subordinated Obligations unless such Debt shall be subordinated to the Notes to
at least the same extent as such Subordinated Obligations or (ii) if such Debt
is subordinate or junior in ranking in any respect to any Senior Debt unless
such Debt is Senior Subordinated Debt or is expressly subordinated in right of
payment to Senior Subordinated Debt. In addition, the Company shall not issue
any Secured Debt which is not Senior Debt unless contemporaneously therewith
effective provision is made to secure the Notes equally and ratably with such
Secured Debt for so long as such Secured Debt is secured by a Lien. For
purposes of the preceding sentence, the granting of liquidation or other
preferences by the holders of Senior Debt to providers of trade credit to the
Company or any Subsidiary shall not render such trade credit Secured Debt.
Limitation on Subsidiary Debt and Preferred Stock. The Company shall not
permit any Subsidiary to issue, directly or indirectly, any Debt or Preferred
Stock except: (1) (i) any Bank Guarantee, (ii) any guarantee by a Subsidiary of
any Senior Debt permitted to be issued pursuant to "--Limitation on Debt" above
and (iii) Debt or Preferred Stock issued to and held by the Company or a Wholly
Owned Subsidiary; provided, however, that any subsequent issuance or transfer
of any Capital Stock which results in any such Wholly Owned Subsidiary ceasing
to be a Wholly Owned Subsidiary or any subsequent transfer of such Debt or
Preferred Stock (other than to the Company or a Wholly Owned Subsidiary) shall
be deemed, in each case, to constitute the issuance of such Debt or Preferred
Stock by the issuer thereof; (2) Debt under Capital Lease Obligations which
does not exceed $10 million in the aggregate (less the amount of any Debt under
Capital Lease Obligations then outstanding and incurred pursuant to clause (2)
of the second paragraph of "--Limitation on Debt" above); (3) Debt or Preferred
Stock of a Subsidiary issued and outstanding on or prior to the date on which
such Subsidiary was acquired by the Company (other than Debt or Preferred Stock
issued as consideration in, or to provide all or any portion of the funds or
credit support utilized to consummate, the transaction or series of related
transactions pursuant to which such Subsidiary became a Subsidiary or was
acquired by the Company); (4) Debt or Preferred Stock issued and outstanding on
or prior to the date on which the Notes were originally issued (other than Debt
or Preferred Stock described in clause (1), (2) or (3) of this paragraph); (5)
Debt or Preferred Stock issued in exchange for, or the proceeds of which are
used to refund or refinance, Debt or Preferred Stock referred to in clause (2),
(3) or (4) of this paragraph; provided, however, that (i) the principal amount
or liquidation value of such Debt or Preferred Stock so issued shall not exceed
the principal amount or liquidation value of the Debt or Preferred Stock so
refunded or refinanced plus an amount no greater than any prepayment premium
due under the terms of the Debt or Preferred Stock so refunded or refinanced
and reasonable expenses of issuance of the Debt or Preferred Stock so issued
and (ii) either (x) the Debt or Preferred Stock so issued shall not mature
prior to the earlier of (A)
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the Stated Maturity of the Debt or Preferred Stock being exchanged, refunded or
refinanced and (B) the first anniversary of the Stated Maturity of the Notes or
(y) the portion, if any, of the Debt or Preferred Stock so issued that is
scheduled to mature on or prior to the Stated Maturity of the Notes has a
weighted average life to maturity at the time such Debt or Preferred Stock is
issued that is equal to or greater than the weighted average life to maturity
of the portion of the Debt or Preferred Stock being exchanged, refunded or
refinanced that is scheduled to mature on or prior to the Stated Maturity of
the Notes; (6) Nonrecourse Debt of a Nonrecourse Subsidiary issued after the
date of the Indenture to finance the acquisition of new assets acquired by the
Company or its Subsidiaries after such date; provided, however, that if any
such debt thereafter ceases to be Nonrecourse Debt of a Nonrecourse Subsidiary,
then such event will be deemed to constitute the issuance of such Debt by the
issuer thereof; and (7) Debt and Preferred Stock in an aggregate principal
amount which, together with all other Debt and Preferred Stock of Subsidiaries
then outstanding (other than Debt or Preferred Stock permitted by clauses (1)
through (6) of this paragraph) does not exceed $10 million (less the amount of
any Debt then outstanding and incurred pursuant to clause (6) of the second
paragraph of "--Limitation on Debt" above).
Limitation on Restricted Payments. The Company shall not, and shall not
permit any Subsidiary, directly or indirectly, to (i) declare or pay any
dividend or make any distribution on or in respect of its Capital Stock
(including any distribution in connection with any merger or consolidation
involving the Company) or to the direct or indirect holders of its Capital
Stock (except dividends or distributions payable solely in its Nonconvertible
Capital Stock or in options, warrants or other rights to purchase its
Nonconvertible Capital Stock and except dividends or distributions payable to
the Company or a Subsidiary which is not a Nonrecourse Subsidiary), (ii)
purchase, redeem or otherwise acquire or retire for value any Capital Stock of
the Company, a Subsidiary or any direct or indirect parent of the Company,
(iii) purchase, repurchase, redeem, defease or otherwise acquire or retire for
value, prior to scheduled maturity, scheduled repayment or scheduled sinking
fund payment, any Subordinated Obligations (other than the purchase, repurchase
or other acquisition of Subordinated Obligations purchased in anticipation of
satisfying a sinking fund obligation, principal installment or final maturity,
in each case due within one year of the date of acquisition) or (iv) make any
Investment (other than a Permitted Investment) in any Affiliate of the Company
or person, other than a Wholly Owned Subsidiary which is not a Nonrecourse
Subsidiary or a person which will become a Wholly Owned Subsidiary which is not
a Nonrecourse Subsidiary as a result of any such Investment (any such dividend,
distribution, purchase, redemption, repurchase, defeasance, other acquisition,
retirement or Investment being hereinafter referred to as a "Restricted
Payment") if at the time the Company or such Subsidiary makes such Restricted
Payment: (1) a Default shall have occurred and be continuing (or would result
therefrom); (2) the Company is not able to issue $1.00 of additional Debt in
accordance with the provisions of the first paragraph under "--Limitation on
Debt" above; or (3) the aggregate amount of such Restricted Payment and all
other Restricted Payments since the date on which the Notes were originally
issued would exceed the sum of (a) 50% of the Consolidated Net Income accrued
during the period (treated as one accounting period) from , 199
to the end of the most recent fiscal quarter ending at least 45 days prior to
(or, if earlier, the date on which the Company files a quarterly or annual
periodic report under the Exchange Act with the Commission which includes
consolidated financial statements including such quarter) the date of such
Restricted Payment (or, in case such Consolidated Net Income shall be a
deficit, minus 100% of such deficit); (b) the aggregate Net Proceeds received
by the Company from the issue or sale of, or as a capital contribution in
respect of, its Capital Stock (other than Redeemable Stock or Exchangeable
Stock) subsequent to the date on which the Notes were originally issued (other
than an issuance or sale to a Subsidiary or an employee stock ownership plan or
similar trust); (c) the aggregate Net Proceeds received by the Company from the
issue or sale of its Capital Stock (other than Redeemable Stock or Exchangeable
Stock) to an employee stock ownership plan subsequent to , but
(if such employee stock ownership plan incurs any Debt) only to the extent that
any such proceeds are equal to any increase in the Consolidated Net Worth of
the Company resulting from principal repayments made by such employee stock
ownership plan with respect to Debt incurred by it to finance the purchase of
such Capital Stock; and (d) the amount by which Debt of the Company is reduced
on the Company's balance sheet upon the conversion or exchange (other than by a
Subsidiary) subsequent to the date on which the Notes were originally issued of
any Debt of the Company convertible or exchangeable for Capital Stock (other
than
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Redeemable Stock or Exchangeable Stock) of the Company (less the amount of any
cash, or other property, distributed by the Company upon such conversion or
exchange).
The preceding paragraph shall not prohibit (i) any purchase or redemption of
Capital Stock or Subordinated Obligations of the Company made by exchange for,
or out of the proceeds of the substantially concurrent sale of, Capital Stock
of the Company (other than Redeemable Stock or Exchangeable Stock and other
than Capital Stock issued or sold to a Subsidiary or an employee stock
ownership plan); provided, however, that (A) such purchase or redemption shall
be excluded in the calculation of the amount of Restricted Payments and (B) the
Net Proceeds from such sale shall be excluded from clauses (3)(b) and (3)(c) of
the previous paragraph; (ii) any purchase or redemption of Subordinated
Obligations of the Company made by exchange for, or out of the proceeds of the
substantially concurrent sale of, Debt of the Company; provided, however, that
such Debt (A) shall be subordinated to the Notes and shall be subordinated to
Senior Debt and Senior Subordinated Debt to at least the same extent as the
Subordinated Obligations so exchanged, purchased or redeemed and (B) either (x)
shall not mature prior to the earlier of (1) the Stated Maturity of the
Subordinated Obligations so exchanged, purchased or redeemed and (2) the first
anniversary of the Stated Maturity of the Notes or (y) the portion, if any, of
such Debt that is scheduled to mature on or prior to the Stated Maturity of the
Notes has a weighted average life to maturity at the time such Debt is incurred
that is equal to or greater than the weighted average life to maturity of the
portion of the Subordinated Obligations being exchanged, purchased or redeemed
that is scheduled to mature on or prior to the Stated Maturity of the Notes;
provided further, however, that such purchase or redemption shall be excluded
in the calculation of the amount of Restricted Payments; (iii) any purchase or
redemption of Subordinated Obligations from Net Available Cash to the extent
permitted under "--Limitation on Sales of Assets and Subsidiary Stock" below;
provided, however, that such purchase or redemption shall be excluded in the
calculation of the amount of Restricted Payments; (iv) dividends paid within 60
days after the date of declaration thereof if at such date of declaration such
dividend would have complied with this covenant; provided further, however,
that such dividend shall be included in the calculation of the amount of
Restricted Payments; (v) the redemption by the Company of any rights to
purchase Capital Stock of the Company which rights were issued pursuant to the
Rights Agreement, dated as of January 17, 1986, as amended, for an amount not
to exceed on a per right basis the redemption price of such right at the date
of the Indenture, as adjusted for stock dividends and similar transactions;
provided, however, that such redemption shall be included in the calculation of
the amount of Restricted Payments; (vi) the purchase, redemption, acquisition,
cancellation or other retirement for value of shares of Capital Stock of the
Company, options on any such shares or related stock appreciation rights or
similar securities held by officers or employees or former officers or
employees (or their estates or beneficiaries under their estates) or by any
employee benefit plan, upon death, disability, retirement or termination of
employment or pursuant to the terms of any employee benefit plan approved by
the Board of Directors or a committee thereof or under any other agreement
approved by the Board of Directors or a committee thereof under which such
shares of stock or related rights were issued; provided, however, that the
aggregate cash consideration paid for such purchase, redemption, acquisition,
cancellation or other retirement of such shares of Capital Stock or related
rights after the date of the Indenture does not exceed $2.5 million in any
fiscal year or $1 million payable to any individual in any fiscal year;
provided further, however, that all such payments shall be included in the
calculation of the amount of Restricted Payments; and (vii) loans or advances
to officers, directors and employees of the Company and its Subsidiaries made
after the date of the Indenture in the ordinary course of business consistent
with past practices for the advancement of travel and other normal business
expenses or relocation expenses; provided, however, that such loans and
advances shall be excluded from the calculation of the amount of Restricted
Payments.
Limitation on Restrictions on Distributions from Subsidiaries. The Company
shall not, and shall not permit any Subsidiary to, create or otherwise cause or
permit to exist or become effective any consensual encumbrance or restriction
on the ability of any Subsidiary to (i) pay dividends or make any other
distributions on its Capital Stock or pay any Debt or other obligation owed to
the Company, (ii) make any loans or advances to the Company or (iii) transfer
any of its property or assets to the Company, except: (1) any encumbrance or
restriction pursuant to an agreement in effect at or entered into on the date
on which
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the Notes were originally issued; (2) any encumbrance or restriction with
respect to a Subsidiary pursuant to an agreement relating to any Debt issued by
such Subsidiary on or prior to the date on which such Subsidiary became a
Subsidiary or was acquired by the Company (other than Debt issued as
consideration in, or to provide all or any portion of the funds utilized to
consummate, the transaction or series of related transactions pursuant to which
such Subsidiary became a Subsidiary or was acquired by the Company) and
outstanding on such date; (3) any encumbrance or restriction pursuant to an
agreement effecting a refinancing of Debt issued pursuant to an agreement
referred to in clause (1) or (2) of this paragraph or contained in any
amendment to an agreement referred to in clause (1) or (2) of this paragraph;
provided, however, that the encumbrances and restrictions contained in any such
refinancing agreement or amendment are no less favorable to the holders of the
Notes than encumbrances and restrictions contained in such prior agreements;
(4) any such encumbrance or restriction consisting of customary nonassignment
provisions in leases, licenses or other contractual obligations governing
leasehold interests, licenses or contractual rights and entered into in the
ordinary course of business consistent with past practices to the extent such
provisions restrict the transfer of the lease, license or contractual rights or
of customary restrictions on transfer and interim conduct of business of assets
or business entered into in contracts providing for the disposition of such
assets or business; (5) in the case of clause (iii) above, restrictions
contained in agreements relating to purchase money financing arrangements of
Subsidiaries or contained in security agreements securing Debt of the Company
or a Subsidiary to the extent such restrictions restrict the transfer of the
property subject to such purchase money financing arrangements or security
agreements; and (6) encumbrances or restrictions on Nonrecourse Debt of a
Nonrecourse Subsidiary.
Limitation on Sales of Assets and Subsidiary Stock. The Company shall not,
and shall not permit any Subsidiary to, make any Asset Disposition unless (i)
the Company or such Subsidiary receives consideration at the time of such Asset
Disposition at least equal to the fair market value, as determined in good
faith by the Board of Directors (including as to the value of all non-cash
consideration) of the shares and assets subject to such Asset Disposition and,
to the extent that the proceeds of such Asset Dispositions exceed $5 million in
any 12-month period, at least 75% of the consideration thereof received by the
Company or such Subsidiary is in the form of cash or cash equivalents or the
assumption of Debt of the Company or other obligations relating to such assets
and release from all liability on the Debt or other obligations assumed and
(ii) an amount equal to 100% of the Net Available Cash from such Asset
Disposition is applied by the Company (or such Subsidiary, as the case may be)
(A) first, to the extent the Company elects (or is required by the terms of any
Senior Debt) to prepay, repay or purchase Senior Debt or Debt (other than any
Redeemable Stock) of a Wholly Owned Subsidiary (in each case other than Debt
owed to the Company or an Affiliate of the Company) within 60 days from the
later of the date of such Asset Disposition or the receipt of such Net
Available Cash; (B) second, to the extent of the balance of such Net Available
Cash after application in accordance with clause (A), at the Company's
election, to the investment by the Company or any Wholly Owned Subsidiary in
assets to replace the assets that were the subject of such Asset Disposition or
an asset that (as determined by the Board of Directors) will be used in the
business of the Company and the Wholly Owned Subsidiaries existing on the date
of the original issuance of the Notes or in business reasonably related
thereto, in each case within the later of one year from the date of such Asset
Disposition or the receipt of such Net Available Cash; (C) third, to the extent
of the balance of such Net Available Cash after application in accordance with
clauses (A) and (B), to make an Offer to purchase Notes pursuant to and subject
to the condition of the following paragraph, and (D) fourth, to the extent of
the balance of such Net Available Cash after application in accordance with
clauses (A), (B) and (C), to (x) any investment in the business or operations
of the Company or any Wholly Owned Subsidiary or (y) the prepayment, repayment
or purchase of Debt (other than any Redeemable Stock) of the Company or Debt of
any Subsidiary (other than Debt owed to the Company or an Affiliate of the
Company), in each case within one year from the later of the receipt of such
Net Available Cash and the date the Offer described in the following paragraph
is consummated; provided, however, that in connection with any prepayment,
repayment or purchase of Debt pursuant to clause (A) or (D) above, the Company
shall cause the related loan commitment (if any) to be permanently reduced in
an amount equal to the principal amount so prepaid, repaid or purchased;
provided, further, that the Company shall not be required to reduce the loan
commitment pursuant to clause (A) below
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the greater of (x) $175 million and (y) the Borrowing Base after giving effect
to the transaction giving rise to the obligations under this paragraph.
Notwithstanding the foregoing provisions of this paragraph, (i) the Company and
the Subsidiaries shall not be required to apply any Net Available Cash in
accordance with this paragraph except to the extent that the aggregate Net
Available Cash from all Asset Dispositions which is not applied in accordance
with this paragraph exceeds $10 million, and (ii) the Company and the
Subsidiaries shall not be required to receive any minimum amount of cash
consideration in the event of a sale of all or substantially all of the assets
or stock of any Subsidiary of the Company which is or has been a Subsidiary of
the Company prior to the date hereof, the revenues of which are derived
primarily from the direct retail sale of apparel. Pending application of Net
Available Cash pursuant to this paragraph, such Net Available Cash shall be
invested in Permitted Investments of the type specified in clauses (i) or (ii)
of the definition of Permitted Investments.
In the event of an Asset Disposition that requires the purchase of Notes
pursuant to clause (ii)(C) of the previous paragraph, the Company will be
required to purchase Notes tendered pursuant to an offer by the Company for the
Notes (the "Offer") at a purchase price of 100% of their principal amount plus
accrued interest to the purchase date in accordance with the procedures
(including prorationing in the event of oversubscription) set forth in the
Indenture. If the aggregate purchase price of Notes tendered pursuant to the
Offer is less than the Net Available Cash allotted to the purchase of the
Notes, the Company shall apply the remaining Net Available Cash in accordance
with clause (ii)(D) of the previous paragraph. The Company shall not be
required to make an Offer for Notes pursuant to this paragraph if the Net
Available Cash available therefor (after application of the proceeds as
provided in clauses (ii)(A) and (ii)(B) of the previous paragraph) is less than
$5 million for any particular Asset Disposition (which lesser amounts shall not
be carried forward for purposes of determining whether an Offer is required
with respect to the Net Available Cash from any subsequent Asset Disposition).
Under the New Credit Facility, the Company is prohibited from purchasing any
Notes in connection with an Asset Disposition.
The Company shall comply, to the extent applicable, with the requirements of
Section 14(e) of the Exchange Act and any other securities laws or regulations
in connection with the repurchase of Notes pursuant to the Offer. To the extent
that the provisions of any securities laws or regulations conflict with
provisions of the Indenture, the Company shall comply with the applicable
securities laws and regulations and shall not be deemed to have breached its
obligations under the Indenture by virtue thereof.
Limitation on Transactions with Affiliates. The Company shall not, and shall
not permit any Subsidiary to, conduct any business or enter into any
transaction or series of similar transactions (including the purchase, sale,
lease or exchange of any property or the rendering of any service) with any
Affiliate of the Company or any legal or beneficial owner of 5% or more of any
class of Capital Stock of the Company or with an Affiliate of any such owner
(other than a Wholly Owned Subsidiary or an employee stock ownership plan for
the benefit of the Company's or a Subsidiary's employees) unless (i) the terms
of such business, transaction or series of transactions are (a) set forth in
writing and (b) as favorable to the Company or such Subsidiary as terms that
would be obtainable at the time for a comparable transaction or series of
similar transactions in arm's-length dealings with an unrelated third person
and (ii) the Board of Directors has, by resolution, determined in good faith
that such business or transaction or series of transactions meets the criteria
set forth in (i)(b) above. This paragraph, however, will not prohibit (i) any
dividend, distribution or other transaction permitted under the covenant
described under "--Limitation on Restricted Payments" above or (ii) customary
compensation and employee benefit arrangements entered into with any officer or
director of the Company or of any Subsidiary in their capacity as officer or
director in the ordinary course of business and consistent with past practices.
Securities and Exchange Commission Reports. The Company shall file with the
Trustee and provide the holders of the Notes, within 15 days after it files
them with the Commission, copies of its annual report and of the information,
documents and other reports (or copies of such portions of any of the foregoing
as the Commission may by rules and regulations prescribe) which the Company is
required to file with the Commission pursuant to Section 13 or 15(d) of the
Exchange Act. Notwithstanding that the Company may not be required to remain
subject to the reporting requirements of Section 13 or 15(d) of the Exchange
Act,
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the Company shall continue to file with the Commission and provide the Trustee
and holders of the Notes with such annual reports and such information,
documents and other reports (or copies of such portions of any of the foregoing
as the Commission may by rules and regulations prescribe) which are specified
in Sections 13 and 15(d) of the Exchange Act.
SUCCESSOR COMPANY
The Company may not consolidate with or merge with or into, or convey,
transfer or lease all or substantially all its assets to, any person unless:
(i) the resulting, surviving or transferee person (if not the Company) is
organized and existing under the laws of the United States of America or any
state thereof or the District of Columbia and such person expressly assumes by
a supplemental indenture, executed and delivered to the Trustee, in form
satisfactory to the Trustee, all the obligations of the Company under the
Indenture and the Notes; (ii) immediately prior to and after giving effect to
such transaction (and treating any Debt which becomes an obligation of the
resulting, surviving or transferee person or any Subsidiary as a result of such
transaction as having been issued by such person or such Subsidiary at the time
of such transaction), no Default has occurred and is continuing; (iii)
immediately after giving effect to such transaction, the resulting, surviving
or transferee person would be able to issue at least $1.00 of Debt pursuant to
the provisions of the first paragraph under "--Limitation on Debt" above; (iv)
immediately after giving effect to such transaction, the resulting, surviving
or transferee person has Consolidated Net Worth in an amount which is not less
than the Consolidated Net Worth of the Company prior to such transaction; and
(v) the Company delivers to the Trustee an Officers' Certificate and an Opinion
of Counsel, each stating that such consolidation, merger or transfer and such
supplemental indenture (if any) comply with the Indenture. The resulting,
surviving or transferee person will be the successor company. Notwithstanding
the foregoing, the covenant shall not restrict the merger of a Wholly Owned
Subsidiary (other than a Nonrecourse Subsidiary) into the Company.
DEFAULTS
An Event of Default is defined in the Indenture as (i) a default in the
payment of interest on the Notes when due, continued for 30 days, whether or
not such payment is prohibited by the provisions described under "--Ranking"
above, (ii) a default in the payment of principal of any Note when due at its
Stated Maturity, upon optional redemption, upon required repurchase, upon
declaration or otherwise, whether or not such payment is prohibited by the
provisions described under "--Ranking" above, (iii) the failure by the Company
to comply for 30 days after notice with any of its obligations under the
covenants described above under "--Successor Company," "--Limitation on Sales
of Assets and Subsidiary Stock" (other than a failure to repurchase Notes) or
"--Change of Control" (other than a failure to repurchase Notes), (iv) the
failure by the Company to comply for 60 days after notice with its other
agreements contained in the Indenture, (v) Debt of the Company or any
Significant Subsidiary (other than Nonrecourse Debt of a Nonrecourse
Subsidiary) is not paid within any applicable grace period after final maturity
or is accelerated by the holders thereof because of a default and the total
amount of such Debt unpaid or accelerated exceeds $10 million (or its foreign
currency equivalent) and such failure continues for 10 days after notice (the
"cross acceleration provision"), (vi) certain events of bankruptcy, insolvency
or reorganization of the Company or a Significant Subsidiary (the "bankruptcy
provisions") or (vii) any judgment or decree for the payment of money in excess
of $10 million is rendered against the Company or a Significant Subsidiary and
is not discharged and either (A) an enforcement proceeding has been commenced
by any creditor upon such judgment or decree or (B) there is a period of 60
days following such judgment or decree during which such judgment or decree is
not discharged, waived or the execution thereof stayed and, in the case of (B),
such default continues for 10 days after notice (the "judgment default
provision"). However, a default under clauses (iii), (iv), (v) or (vii)(B)
above will not constitute an Event of Default until the Trustee or the holders
of at least 25% in principal amount of the outstanding Notes notify the Company
of the default and the Company does not cure such default within the time
specified after receipt of such notice.
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If an Event of Default occurs and is continuing, the Trustee or the holders
of at least 25% in principal amount of the outstanding Notes may declare the
principal of and accrued but unpaid interest on all the Notes to be due and
payable. Upon such a declaration, such principal and interest shall be due and
payable immediately. If an Event of Default relating to certain events of
bankruptcy, insolvency or reorganization of the Company occurs and is
continuing, the principal of and interest on all the Notes will ipso facto
become and be immediately due and payable without any declaration or other act
on the part of the Trustee or any holders of the Notes. Under certain
circumstances, the holders of a majority in principal amount of the outstanding
Notes may rescind any such acceleration with respect to the Notes and its
consequences.
Subject to the provisions of the Indenture relating to the duties of the
Trustee, in case an Event of Default occurs and is continuing, the Trustee will
be under no obligation to exercise any of the rights or powers under the
Indenture at the request or direction of any of the holders of the Notes unless
such holders have offered to the Trustee reasonable indemnity or security
against any loss, liability or expense. Except to enforce the right to receive
payment of principal, premium (if any) or interest when due, no holder of a
Note may pursue any remedy with respect to the Indenture or the Notes unless
(i) such holder has previously given the Trustee notice that an Event of
Default is continuing, (ii) holders of at least 25% in principal amount of the
outstanding Notes have requested the Trustee to pursue the remedy, (iii) such
holders have offered the Trustee reasonable security or indemnity against any
loss, liability or expense, (iv) the Trustee has not complied with such request
within 60 days after the receipt thereof and the offer of security or indemnity
and (v) the holders of a majority in principal amount of the outstanding Notes
have not given the Trustee a direction inconsistent with such request within
such 60-day period. Subject to certain restrictions, the holders of a majority
in principal amount of the outstanding Notes are given the right to direct the
time, method and place of conducting any proceeding for any remedy available to
the Trustee or of exercising any trust or power conferred on the Trustee. The
Trustee, however, may refuse to follow any direction that conflicts with law or
the Indenture or that the Trustee determines is unduly prejudicial to the
rights of any other holder of a Note or that would involve the Trustee in
personal liability.
The Indenture provides that if a Default occurs and is continuing and is
known to the Trustee, the Trustee must mail to each holder of the Notes notice
of the Default within 90 days after it occurs. Except in the case of a Default
in the payment of principal of, premium (if any) or interest on any Note, the
Trustee may withhold notice if and so long as a committee of its trust officers
determines that withholding notice is in the interest of the holders of the
Notes. In addition, the Company is required to deliver to the Trustee, within
120 days after the end of each fiscal year, a certificate indicating whether
the signers thereof know of any Default that occurred during the previous year.
The Company also is required to deliver to the Trustee, within 30 days after
the occurrence thereof, written notice of any event which would constitute
certain Defaults, their status and what action the Company is taking or
proposes to take in respect thereof.
AMENDMENT, SUPPLEMENT, WAIVER
Subject to certain exceptions, the Indenture may be amended or supplemented
with the consent of the holders of a majority in principal amount of the Notes
then outstanding and any past default or compliance with any provisions may be
waived with the consent of the holders of a majority in principal amount of the
Notes then outstanding. However, without the consent of each holder of an
outstanding Note, no amendment may, among other things, (i) reduce the amount
of Notes whose holders must consent to an amendment, (ii) reduce the rate of or
extend the time for payment of interest on any Note, (iii) reduce the principal
of or extend the fixed maturity of any Note, (iv) reduce the premium payable
upon the redemption of any Note or change the time at which any Note may be
redeemed, (v) make any Note payable in money other than that stated in the
Note, (vi) impair the right of any holder of the Notes to receive payment of
principal of and interest on such holder's Notes on or after the due dates
therefor or to institute suit for the enforcement of any payment on or with
respect to such holder's Notes, (vii) make any change to the subordination
provisions of the Indenture that adversely affects the rights of any holder or
(viii) make any change in the amendment provisions which require each holder's
consent or in the waiver provisions.
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Without the consent of any holder of the Notes, the Company and the Trustee
may amend or supplement the Indenture to cure any ambiguity, omission, defect
or inconsistency, to provide for the assumption by a successor corporation of
the obligations of the Company under the Indenture, to provide for
uncertificated Notes in addition to or in place of certificated Notes (provided
that the uncertificated Notes are issued in registered form for purposes of
Section 163(f) of the Internal Revenue Code of 1986, as amended (the "Code"),
or in a manner such that the uncertificated Notes are described in Section
163(f)(2)(B) of the Code), to make any change to the subordination provisions
of the Indenture that does not adversely affect the rights of any holder of the
Notes, to add guarantees of the Notes, to add to the covenants of the Company
for the benefit of the holders of the Notes or to surrender any right or power
conferred upon the Company, to make any change that does not adversely affect
the rights of any holder of the Notes or to comply with any requirement of the
Commission in connection with the qualification of the Indenture under the
Trust Indenture Act of 1939. However, no amendment may be made to the
subordination provisions of the Indenture that adversely affects the rights of
any holder of Senior Debt then outstanding or in effect unless the holders of
such Senior Debt (required pursuant to the terms of such Senior Debt) consent
to such change.
The consent of the holders of the Notes is not necessary under the Indenture
to approve the particular form of any proposed amendment. It is sufficient if
such consent approves the substance of the proposed amendment.
After an amendment under the Indenture becomes effective, the Company is
required to mail to holders of the Notes a notice briefly describing such
amendment. However, the failure to give such notice to all holders of the
Notes, or any defect therein, will not impair or affect the validity of the
amendment.
NO PERSONAL LIABILITY OF DIRECTORS, OFFICERS, EMPLOYEES AND STOCKHOLDERS
No past, present or future director, officer, employee, incorporator or
stockholder of the Company, as such, shall have any liability for any
obligations of the Company under the Indenture or the Notes or for any claim
based on, in respect of, or by reason of, such obligations or their creation.
Each holder of the Notes by accepting a Note waives and releases all such
liability. The waiver and release are part of the consideration for issuance of
the Notes. Such waiver may not be effective to waive liabilities under the
federal security laws, and it is the view of the Commission that such a waiver
is against public policy.
TRANSFER
The Notes will be issued in registered form and will be transferable only
upon the surrender of the Notes being transferred for registration of transfer.
The Company may require payment of a sum sufficient to cover any tax,
assessment or other governmental charge payable in connection with certain
transfers and exchanges.
DEFEASANCE
The Company at any time may terminate all its obligations under the Notes and
the Indenture ("legal defeasance") except for certain obligations, including
those respecting the defeasance trust and obligation to register the transfer
or exchange of the Notes, to replace mutilated, destroyed, lost or stolen Notes
and to maintain a registrar and paying agent in respect of the Notes. The
Company at any time may terminate its obligations under the covenants described
under "--Certain Covenants" and "--Change of Control," the operation of the
cross acceleration provision, certain of the bankruptcy provisions and the
judgment default provision described under "--Defaults" above and the
limitations contained in clauses (iii) and (iv) described under "--Successor
Company" above ("covenant defeasance").
The Company may exercise its legal defeasance option notwithstanding its
prior exercise of its covenant defeasance option. If the Company exercises its
legal defeasance option, payment of the Notes may not be accelerated because of
an Event of Default with respect thereto. If the Company exercises its covenant
defeasance option, payment of the Notes may not be accelerated because of an
Event of Default specified in
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clause (iii), (v), (vi) (with respect to any Significant Subsidiary) or (vii)
under "--Defaults" above or because of the failure of the Company to comply
with clause (iii) or (iv) under "--Successor Company" above.
In order to exercise either defeasance option, the Company must irrevocably
deposit in trust (the "defeasance trust") with the Trustee money or U.S.
Government Obligations for the payment of principal, premium (if any) and
interest on the Notes to redemption or maturity, as the case may be, and must
comply with certain other conditions, including delivering to the Trustee an
Opinion of Counsel to the effect that holders of the Notes will not recognize
income, gain or loss for federal income tax purposes as a result of such
deposit and defeasance and will be subject to federal income tax on the same
amount and in the same manner and at the same times as would have been the case
if such deposit and defeasance had not occurred (and, in the case of legal
defeasance only, such Opinion of Counsel must be based on a ruling of the
Internal Revenue Service or a change in applicable federal income tax law).
CONCERNING THE TRUSTEE
Bank One Wisconsin Trust Company, N.A. is to be the Trustee under the
Indenture and has been appointed by the Company as Registrar and Paying Agent
with regard to the Notes.
GOVERNING LAW
The Indenture provides that it and the Notes 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.
CERTAIN DEFINITIONS
"Affiliate" of any specified person means (i) any other person which,
directly or indirectly, is in control of, is controlled by or is under common
control with such specified person or (ii) any other person who is a director
or officer (A) of such specified person, (B) of any subsidiary of such
specified person or (C) of any person described in clause (i) above. For
purposes of this definition, control of a person means the power, direct or
indirect, to direct or cause the direction of the management and policies of
such person whether by contract or otherwise; and the terms "controlling" and
"controlled" have meanings correlative to the foregoing.
"Asset Disposition" means any sale, lease, transfer or other disposition (or
series of related sales, leases, transfers or dispositions) of shares of
Capital Stock of a Subsidiary (other than directors' qualifying shares),
property or other assets (each referred to for the purposes of this definition
as a "disposition") by the Company or any of its Subsidiaries, including any
disposition by means of a merger, consolidation or similar transaction, other
than (i) a disposition by a Subsidiary to the Company or by the Company or a
Subsidiary to a Wholly Owned Subsidiary, (ii) a disposition of property or
assets in the ordinary course of business, (iii) a disposition of obsolete or
worn out assets in the ordinary course of business, (iv) a disposition subject
to the covenant described under "--Certain Covenants--Limitation on Restricted
Payments" above and (v) a disposition of receivables pursuant to an accounts
receivable financing facility.
"Average Life" means, as of the date of determination, with respect to any
Debt or Preferred Stock, the quotient obtained by dividing (i) the sum of the
products of the numbers of years from the date of determination to the date of
each successive scheduled principal payment of such Debt or redemption payment
on such Preferred Stock multiplied by the amount of such payment by (ii) the
sum of all such payments.
"Bank Debt" means any and all amounts payable under or in respect of the New
Credit Facility, including any and all amounts payable in respect of letters of
credit and Interest Rate Protection Agreements included in the obligations
under the New Credit Facility, and all documents, instruments and agreements
executed in connection with the New Credit Facility (and any other agreement or
agreements which refinances or replaces the New Credit Facility in whole or in
part), as amended from time to time, including
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principal, premium (if any), interest, fees, charges, expenses, reimbursement
obligations, guarantees and all other amounts payable thereunder or in respect
thereof (including, without limitation, any and all of the foregoing amounts
arising before or after any petition in bankruptcy or for reorganization
relating to the Company whether or not a claim for such amounts is allowed,
avoided or subordinated in such proceedings).
"Bank Guarantee" means, for any Subsidiary, the guarantee by such Subsidiary
of the Bank Debt and any other Debt of any Subsidiary which Debt, directly or
indirectly, guarantees or secures any Bank Debt.
"Board of Directors" means the Board of Directors of the Company or any
committee thereof duly authorized to act on behalf of such Board.
"Business Day" means each day which is not a Legal Holiday.
"Capital Lease Obligations" of a person means any obligation which is
required to be classified and accounted for as a capital lease on the face of a
balance sheet of such person prepared in accordance with generally accepted
accounting principles; the amount of such obligation shall be the capitalized
amount thereof, determined in accordance with generally accepted accounting
principles; and the Stated Maturity thereof shall be the date of the last
payment of rent or any other amount due under such lease prior to the first
date upon which such lease may be terminated by the lessee without payment of a
penalty.
"Capital Stock" means any and all shares, interests, rights to purchase,
warrants, options, participations or other equivalents of or interests in
(however designated) corporate stock, including any Preferred Stock.
"Consolidated EBITDA Coverage Ratio" as of any date of determination means
the ratio of (i) the aggregate amount of EBITDA for the period of the most
recent four consecutive fiscal quarters ending at least 45 days prior to (or,
if earlier, the date on which the Company files a quarterly or annual periodic
report under the Exchange Act with the Commission which includes consolidated
financial statements including such quarter) the date of such determination to
(ii) Consolidated Interest Expense for such four fiscal quarters; provided,
however, that (1) if the Company or any Subsidiary has issued any Debt since
the beginning of such period that remains outstanding or if the transaction
giving rise to the need to calculate the Consolidated EBITDA Coverage Ratio is
an issuance of Debt, or both, EBITDA and Consolidated Interest Expense for such
period shall be calculated after giving effect on a pro forma basis to such
Debt as if such Debt had been issued on the first day of such period and the
discharge of any other Debt repaid, repurchased, defeased or otherwise
discharged with the proceeds of such new Debt as if any such discharge had
occurred on the first day of such period, (2) if since the beginning of such
period the Company or any Subsidiary shall have made any Asset Disposition, the
EBITDA for such period shall be reduced by an amount equal to the EBITDA (if
positive) directly attributable to the assets which are the subject of such
Asset Disposition for such period, or increased by an amount equal to the
EBITDA (if negative) directly attributable thereto for such period and
Consolidated Interest Expense for such period shall be reduced by an amount
equal to the Consolidated Interest Expense directly attributable to any Debt of
the Company or any Subsidiary repaid, repurchased, defeased or otherwise
discharged with respect to the Company and its continuing Subsidiaries in
connection with such Asset Dispositions for such period (or, if the Capital
Stock of any Subsidiary is sold, the Consolidated Interest Expense for such
period directly attributable to the Debt of such Subsidiary to the extent the
Company and its continuing Subsidiaries are no longer liable for such Debt
after such sale), (3) if since the beginning of such period the Company or any
Subsidiary (by merger or otherwise) shall have made an Investment in any
Subsidiary (or any person which becomes a 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 of a business, EBITDA and
Consolidated Interest Expense for such period shall be calculated after giving
pro forma effect thereto (including the issuance of any Debt), as if such
Investment or acquisition occurred on the first day of such period, and (4) if
since the beginning of such period any person (that subsequently became a
Subsidiary or was merged with or into the Company or any Subsidiary since the
beginning of such period) shall have made any Asset Disposition or any
Investment that would have required an adjustment pursuant to clause (2) or (3)
above if made by the Company or a Subsidiary during such period, EBITDA and
Consolidated Interest Expense for such period shall be calculated after giving
pro forma effect thereto as if such Asset Disposition or Investment occurred on
the first day of such period. For purposes of this definition, whenever pro
forma
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effect is to be given to an acquisition of assets, the amount of income or
earnings relating thereto, and the amount of Consolidated Interest Expense
associated with any Debt issued in connection therewith, the pro forma
calculations shall be determined in good faith by a responsible financial or
accounting Officer of the Company. If any Debt bears a floating rate of
interest and is being given pro forma effect, the interest on such Debt shall
be calculated as if the rate in effect on the date of determination had been
the applicable rate for the entire period (taking into account any Interest
Rate Protection Agreement applicable to such Debt to the extent that the
remaining term of such Interest Rate Protection Agreement exceeds 12 months).
"Consolidated Interest Expense" means, for any period and without
duplication, the total interest expense of the Company and its consolidated
Subsidiaries, including (i) interest expense attributable to capital leases,
(ii) amortization of debt discount and debt issuance cost (except to the extent
incurred in connection with the issuance of the Notes), (iii) capitalized
interest, (iv) non-cash interest payments, (v) commissions, discounts and other
fees and charges owed with respect to letters of credit and bankers' acceptance
financing, (vi) net costs under Interest Rate Protection Agreements (including
amortization of fees), (vii) Preferred Stock dividends in respect of all
Preferred Stock held by persons other than the Company or a Wholly Owned
Subsidiary, (viii) interest incurred in connection with investments in
discontinued operations and (ix) interest actually paid by the Company or any
of its consolidated subsidiaries under any guarantee of Debt or any other
obligation of any other person.
"Consolidated Net Income" means, for any period, the net income of the
Company and its consolidated subsidiaries; provided, however, that there shall
not be included in such Consolidated Net Income:
(i) any net income or loss of any person if such person is not a
Subsidiary, except that the Company's equity in the net income of any such
person for such period shall be included in such Consolidated Net Income up
to the aggregate amount of cash actually distributed by such person during
such period to the Company or a Subsidiary as a dividend or other
distribution (subject, in the case of a dividend or other distribution to a
Subsidiary, to the limitations contained in clause (iii) below);
(ii) any net income of any person acquired by the Company or a Subsidiary
in a pooling of interests transaction for any period prior to the date of
such acquisition;
(iii) any net income of any Subsidiary if such Subsidiary is subject to
restrictions, directly or indirectly, on the payment of dividends or the
making of distributions by such Subsidiary, directly or indirectly, to the
Company, except that (A) the Company's equity in the net income of any such
Subsidiary for such period shall be included in such Consolidated Net
Income up to the aggregate amount of cash actually distributed by such
Subsidiary during such period to the Company or another Subsidiary as a
dividend or other distribution (subject, in the case of a dividend or other
distribution to another Subsidiary, to the limitation contained in this
clause) and (B) the Company's equity in a net loss of any such Subsidiary
for such period shall be included in determining such Consolidated Net
Income;
(iv) any gain or loss realized upon the sale or other disposition of any
property, plant or equipment of the Company or its consolidated
subsidiaries (including pursuant to any sale-and-leaseback arrangement)
which is not sold or otherwise disposed of in the ordinary course of
business and any gain or loss realized upon the sale or other disposition
of any Capital Stock of any person; or
(v) the cumulative effect of a change in accounting principles.
"Consolidated Net Worth" of any person means the total amounts shown on the
balance sheet of such person and its consolidated subsidiaries, determined on a
consolidated basis in accordance with generally accepted accounting principles,
as of the end of the most recent fiscal quarter of such person ending at least
45 days prior to (or, if earlier, the date on which the Company files a
quarterly or annual periodic report under the Exchange Act with the Commission
which includes consolidated financial statements including such quarter) the
taking of any action for the purpose of which the determination is being made,
as (i) the par or stated value of all outstanding Capital Stock of such person
plus (ii) paid-in capital or capital surplus relating to such Capital Stock
plus (iii) any retained earnings or earned surplus less (A) any accumulated
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deficit, (B) any amounts attributable to Redeemable Stock and (C) any amounts
attributable to Exchangeable Stock.
"Debt" of any person means, without duplication,
(i) the principal of and premium (if any) in respect of (A) indebtedness
of such person for money borrowed and (B) indebtedness evidenced by notes,
debentures, bonds or other similar instruments for the payment of which
such person is responsible or liable;
(ii) all Capital Lease Obligations of such person;
(iii) all obligations of such person issued or assumed as the deferred
purchase price of property, all conditional sale obligations of such person
and all obligations of such person under any title retention agreement (but
excluding trade accounts payable arising in the ordinary course of
business);
(iv) all obligations of such person for the reimbursement of any obligor
on any letter of credit, banker's acceptance or similar credit transaction
(other than obligations with respect to letters of credit securing
obligations (other than obligations described in (i) through (iii) above)
entered into in the ordinary course of business of such person to the
extent such letters of credit are not drawn upon or, if and to the extent
drawn upon, such drawing is reimbursed no later than the third Business Day
following receipt by such person of a demand for reimbursement following
payment on the letter of credit);
(v) the amount of all obligations of such person with respect to the
redemption, repayment or other repurchase of any Redeemable Stock or
Exchangeable Stock (but excluding any accrued dividends);
(vi) all obligations of the type referred to in clauses (i) through (v)
of other persons and all dividends of other persons for the payment of
which, in either case, such person is responsible or liable, directly or
indirectly, as obligor, guarantor or otherwise, including by means of any
Guarantee; and
(vii) all obligations of the type referred to in clauses (i) through (vi)
of other persons secured by any Lien on any property or asset of such
person (whether or not such obligation is assumed by such person), the
amount of such obligation being deemed to be the lesser of the value of
such property or assets or the amount of the obligation so secured.
"Default" means any event which is, or after notice or passage of time or
both would be, an Event of Default.
"Designated Senior Debt" means (i) the Bank Debt and (ii) other Senior Debt
that (A) is issued at one time or under a common agreement in an aggregate
outstanding principal amount of at least $25 million and (B) has been
designated Designated Senior Debt in an Officer's Certificate received by the
Trustee.
"EBITDA" for any period means the Consolidated Net Income for such period
(but without giving effect to adjustments, accruals, deductions or entries
resulting from purchase accounting, extraordinary losses or gains and any gains
or losses from any Asset Dispositions), plus the following to the extent
deducted in calculating such Consolidated Net Income: (i) income tax expense,
(ii) Consolidated Interest Expense, (iii) depreciation expense, (iv)
amortization expense and (v) all other non-cash charges (excluding any such
non-cash charge constituting an extraordinary item of loss or any non-cash
charge which requires an accrual of or a reserve for cash charges for any
future period).
"Exchange Act" means the Securities Exchange Act of 1934, as amended.
"Exchangeable Stock" means any Capital Stock which is exchangeable or
convertible into another security (other than Capital Stock of the Company
which is neither Exchangeable Stock nor Redeemable Stock).
"Guarantee" means any obligation, contingent or otherwise, of any person
directly or indirectly guaranteeing any Debt or other obligation of any person
and any obligation, direct or indirect, contingent or otherwise, of such person
(i) to purchase or pay (or advance or supply funds for the purchase or payment
of)
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such Debt or other obligation of such person (whether arising by virtue of
partnership arrangements, or by agreement to keep-well, to purchase assets,
goods, securities or services, to take-or-pay or to maintain financial
statement conditions or otherwise) or (ii) entered into for purposes of
assuring in any other manner the obligee of such Debt or other obligation of
the payment thereof or to protect such obligee against loss in respect thereof
(in whole or in part); provided, however, that the term "Guarantee" shall not
include endorsements for collection or deposit in the ordinary course of
business. The term "Guarantee" used as a verb has a corresponding meaning.
"Interest Rate Protection Agreement" means any interest rate swap agreement,
interest rate cap agreement or other financial agreement or arrangement
designed to protect the Company or any Subsidiary against fluctuations in
interest rates.
"Investment" in any person means any loan or advance to, any acquisition of
Capital Stock, equity interest, obligation or other security of, or capital
contribution or other investment in, such person. Any subsequent issuance or
transfer of any Capital Stock that results in a Wholly Owned Subsidiary ceasing
to be a Wholly Owned Subsidiary shall not be deemed to constitute the making of
a new Investment by the Company to the extent of the Company's then outstanding
Investments therein, except with respect to that portion of such Investment
that was made in connection with or otherwise in anticipation of such issuance
or transfer.
"issue" means issue, assume, guarantee, incur or otherwise become liable for;
provided, however, that any Debt or Capital Stock of a person existing at the
time such person becomes a Subsidiary (whether by merger, consolidation,
acquisition or otherwise) shall be deemed to be issued by such Subsidiary at
the time it becomes a Subsidiary.
"Lien" means any mortgage, pledge, security interest, lien, conditional sale
or other title retention agreement.
"Net Available Cash" from an Asset Disposition means cash payments received
(including any cash payments received by way of deferred payment of principal
pursuant to a note or installment receivable or otherwise, but only as and when
received, but excluding any other consideration received in the form of
assumption by the acquiring person of Debt or other obligations relating to
such properties or assets or received in any other noncash form) therefrom, in
each case net of all legal, title and recording tax expenses, commissions and
other fees and expenses incurred, all federal, state, provincial, foreign and
local taxes paid or required to be accrued as a liability under generally
accepted accounting principles as a consequence of such Asset Disposition, and
in each case net of all payments made on any Debt which is secured by any
assets subject to such Asset Disposition, in accordance with the terms of any
lien upon or other security agreement of any kind with respect to such assets,
or which must by its terms, or in order to obtain a necessary consent to such
Asset Disposition, or by applicable law be repaid out of the proceeds from such
Asset Disposition, and net of all distributions and other payments required to
be made to minority interest holders in Subsidiaries or joint ventures as a
result of such Asset Disposition.
"Net Proceeds", with respect to any issuance or sale of Capital Stock, means
the aggregate proceeds of such issuance or sale including the fair market value
of property other than cash (as determined in good faith by the Board of
Directors, whose determination shall be conclusive and evidenced by a Board
resolution) net of attorneys' fees, accountants' fees, underwriters' or
placement agents' fees, discounts or commissions and brokerage, consultant and
other fees actually incurred in connection with such issuance or sale and net
of taxes paid or payable as a result thereof.
"New Credit Facility" means the Credit Agreement, dated as of March , 1994,
among the Company and certain financial institutions named therein as Lenders
and General Electric Capital Corporation as Managing Agent.
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"Nonconvertible Capital Stock" means, with respect to any corporation, any
nonconvertible Capital Stock of such corporation and any Capital Stock of such
corporation convertible solely into nonconvertible common stock of such
corporation; provided, however, that Nonconvertible Capital Stock shall not
include any Redeemable Stock or Exchangeable Stock.
"Nonrecourse Debt" means Debt or that portion of Debt (i) as to which neither
the Company nor its Subsidiaries (other than a Nonrecourse Subsidiary) (A)
provide credit support (including any undertaking, agreement or instrument
which would constitute Debt), (B) is directly or indirectly liable, or (C)
constitute the lender and (ii) no default with respect to which (including any
rights which the holders thereof may have to take enforcement action against a
Nonrecourse Subsidiary) would permit (upon notice, lapse of time or both) any
holder of any other Debt of the Company or its Subsidiaries to declare a
default on such other Debt or cause the payment thereof to be accelerated or
payable prior to its Stated Maturity.
"Nonrecourse Subsidiary" means a Subsidiary which (i) has not acquired any
assets (other than cash) directly or indirectly from the Company or any
Subsidiary, (ii) only owns properties acquired after the date of the Indenture
and (iii) has no Debt other than Nonrecourse Debt.
"Officer" means the Chairman of the Board, the President, any Vice President,
the Treasurer or the Secretary of the Company.
"Officers' Certificate" means a certificate signed by two Officers.
"Opinion of Counsel" means a written opinion from legal counsel who is
acceptable to the Trustee. The counsel may be an employee of or counsel to the
Company or the Trustee.
"Permitted Investments" shall mean (i) short-term obligations of, or fully
guaranteed by, the United States of America; (ii) commercial paper rated A-1 or
better by Standard and Poor's Corporation or P-1 or better by Moody's Investors
Service, Inc.; (iii) deposit accounts maintained in the ordinary course of
business at a bank or trust company which is organized under the laws of the
United States of America or any state thereof having capital, surplus and
undivided profits aggregating in excess of $500,000,000; (iv) certificates of
deposit issued by and time deposits with commercial banks (whether domestic or
foreign) having capital, surplus and undivided profits aggregating in excess of
$500,000,000; (v) deposits maintained as cash collateral with banks and
financial institutions providing cash management services to the Company or its
Wholly Owned Subsidiaries having an aggregate value which is at all times less
than $4 million; (vi) the receipt of notes or other Investments by the Company
or any Subsidiary in settlement of delinquent or defaulted accounts or notes
receivable; and (vii) deposit accounts maintained by the Company or
Subsidiaries under the terms of the Bank Debt. Notwithstanding the foregoing,
the Investments described in clauses (i), (ii) and (iv) above shall constitute
Permitted Investments only to the extent such Investments mature within 90 days
of the date of acquisition thereof.
"person" means any individual, corporation, partnership, joint venture,
association, joint-stock company, trust, unincorporated organization,
government or any agency or political subdivision thereof or any other entity.
"Preferred Stock," as applied to the Capital Stock of any corporation, means
Capital Stock of any class or classes (however designated) which is preferred
as to the payment of dividends, or as to the distribution of assets upon any
voluntary or involuntary liquidation or dissolution of such corporation, over
shares of Capital Stock of any other class of such corporation.
"principal" of a Note means the principal of the Note plus the premium, if
any, payable on the Note which is due or overdue or is to become due at the
relevant time.
"Public Equity Offering" means an underwritten public offering of common
stock of the Company for cash pursuant to an effective registration statement
under the Securities Act.
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"Redeemable Stock" means any Capital Stock that by its terms or otherwise is
required to be redeemed on or prior to the first anniversary of the Stated
Maturity of the Notes or is redeemable at the option of the holder thereof at
any time on or prior to the first anniversary of the Stated Maturity of the
Notes.
"Representative" means the trustee, agent or representative (if any) for an
issue of Senior Debt.
"Secured Debt" means any Debt of the Company secured by a Lien.
"Senior Subordinated Debt" means the Notes and any other indebtedness,
guarantee or obligation of the Company that specifically provides that such
indebtedness, guarantee or obligation is to rank pari passu with other Senior
Subordinated Debt of the Company and is not subordinated by its terms to any
indebtedness, guarantee or obligation of the Company which is not Senior Debt.
"Significant Subsidiary" means (i) any domestic Subsidiary of the Company
which at the time of determination either (A) had assets which, as of the date
of the Company's most recent quarterly consolidated balance sheet, constituted
at least 3% of the Company's total assets on a consolidated basis as of such
date or (B) had revenues for the 12-month period ending on the date of the
Company's most recent quarterly consolidated statement of income which
constituted at least 3% of the Company's total revenues on a consolidated basis
for such period (each such determination being made in accordance with
generally accepted accounting principles), (ii) any foreign Subsidiary of the
Company which at the time of determination either (A) had assets which, as of
the date of the Company's most recent quarterly consolidated balance sheet,
constituted at least 5% of the Company's total assets on a consolidated basis
as of such date or (B) had revenues for the 12-month period ending on the date
of the Company's most recent quarterly consolidated statement of income which
constituted at least 5% of the Company's total revenues on a consolidated basis
for such period (each such determination being made in accordance with
generally accepted accounting principles) or (iii) any Subsidiary of the
Company which, if merged with all Defaulting Subsidiaries of the Company, would
at the time of determination either (A) have had assets which, as of the date
of the Company's most recent quarterly consolidated balance sheet, would have
constituted at least 10% of the Company's total assets on a consolidated basis
as of such date or (B) have had revenues for the 12-month period ending on the
date of the Company's most recent quarterly consolidated statement of income
which would have constituted at least 10% of the Company's most recent
quarterly consolidated statement of income which would have constituted at
least 10% of the Company's total revenues on a consolidated basis for such
period (each such determination being made in accordance with generally
accepted accounting principles). "Defaulting Subsidiary" means any Subsidiary
of the Company (other than a Nonrecourse Subsidiary) with respect to which an
event described under clause (v), (vi) or (vii) of the first paragraph under
"--Defaults" has occurred and is continuing.
"Stated Maturity" means, with respect to any security, the date specified in
such security as the fixed date on which the principal of such security is due
and payable, including pursuant to any mandatory redemption provision (but
excluding any provision providing for the repurchase of such security at the
option of the holder thereof upon the happening of any contingency unless such
contingency has occurred).
"Subordinated Obligation" means any Debt of the Company (whether outstanding
on the date hereof or hereafter incurred) which is subordinate or junior in
right of payment to the Notes.
"Subsidiary" means any corporation, association, partnership or other
business entity of which more than 50% of the total voting power of shares of
Capital Stock or other interests (including partnership interests) entitled
(without regard to the occurrence of any contingency) to vote in the election
of directors, managers or trustees thereof is at the time owned or controlled,
directly or indirectly, by (i) the Company, (ii) the Company and one or more
Subsidiaries or (iii) one or more Subsidiaries.
"Tangible Property" means all land, buildings, machinery and equipment and
leasehold interests and improvements which would be reflected on a balance
sheet of the Company prepared in accordance with
66
<PAGE>
generally accepted accounting principles, excluding (i) all such tangible
property located outside the United States of America, (ii) all rights,
contracts and other intangible assets of any nature whatsoever and (iii) all
inventories and other current assets.
"Traco Warrant Exercise" means the sale of common stock of the Company for
cash pursuant to any exercise of the three-year Warrant to Purchase 1,649,600
shares of Common Stock issued pursuant to the Purchase Agreement, dated
September 20, 1992, between the Company and Traco.
"U.S. Government Obligations" means direct obligations (or certificates
representing an ownership interest in such obligations) of the United States of
America (including any agency or instrumentality thereof) for the payment of
which the full faith and credit of the United States of America is pledged and
which are not callable at the issuer's option.
"Voting Stock" of a corporation means all classes of Capital Stock of such
corporation then outstanding and normally entitled to vote in the election of
directors.
"Wholly Owned Subsidiary" means a Subsidiary all the Capital Stock of which
(other than directors' qualifying shares) is owned by the Company or another
Wholly Owned Subsidiary.
UNDERWRITING
CS First Boston Corporation and Merrill Lynch, Pierce, Fenner & Smith
Incorporated (the "Underwriters") have severally agreed to purchase from the
Company the principal amount of Notes set forth below opposite their respective
names:
<TABLE>
<CAPTION>
PRINCIPAL AMOUNT
UNDERWRITERS OF NOTES
------------ ----------------
<S> <C>
CS First Boston Corporation............................. $
Merrill Lynch, Pierce, Fenner & Smith
Incorporated...................................
------------
Total.............................................. $100,000,000
============
</TABLE>
The Underwriting Agreement between the Company and the Underwriters provides
that the obligations of the Underwriters are subject to certain conditions
precedent and that the Underwriters will be obligated to purchase all of the
Notes if any are purchased.
The Company has been advised by the Underwriters that they propose to offer
the Notes to the public initially at the public offering price set forth on the
cover page of this Prospectus and to certain dealers at such price less a
concession of not more than % of the principal amount of the Notes; that the
Underwriters and such dealers may allow a discount of not more than % of the
principal amount of the Notes; and that the public offering price and
concession and discount to dealers may be changed.
The Notes will not be listed on any securities exchange. The Notes will be
tradeable in the over-the-counter market, but any such trading may be limited
and sporadic. Each of the Underwriters has advised the Company that it intends
to act as market maker for the Notes. However, any such market making may be
discontinued by each such Underwriter at any time in its sole discretion. No
assurance can be given as to the liquidity of the trading market for the Notes.
The Company has agreed to indemnify the Underwriters against certain civil
liabilities, including liabilities under the Securities Act, or to contribute
to payments that the Underwriters may be required to make in respect thereof.
67
<PAGE>
CS First Boston Corporation has provided financial advisory services to the
Company from time to time, including acting as (i) financial advisor in
connection with the sale of HSSI and the Equity Investment and (ii) underwriter
in connection with the public offering of 4,300,100 shares of the common stock
of the Company consummated in July 1991. CS First Boston Corporation has
received customary fees and underwriting commissions in connection with
providing such services.
LEGAL MATTERS
Certain legal matters with respect to the Notes offered hereby will be passed
upon for the Company by Skadden, Arps, Slate, Meagher & Flom, Chicago,
Illinois, and for the Underwriters by Kirkland & Ellis, Chicago, Illinois.
EXPERTS
The consolidated financial statements and schedules incorporated in this
Prospectus by reference to the 1993 10-K have been so incorporated in reliance
upon the report of Price Waterhouse, independent accountants, given upon the
authority of said firm as experts in auditing and accounting.
AVAILABLE INFORMATION
The Company is subject to the informational requirements of the Securities
Exchange Act of 1934, as amended (the "Exchange Act"), and in accordance
therewith files reports, proxy statements and other information with the
Securities and Exchange Commission (the "Commission"). Such reports, proxy
statements and other information can be inspected and copied at the public
reference facilities maintained by the Commission at Room 1024, Judiciary
Plaza, 450 Fifth Street, N.W., Washington, D.C. 20549; Seven World Trade
Center, 13th Floor, New York, New York 10048; and the Northwestern Atrium
Center, 500 West Madison Street, Suite 1400, Chicago, Illinois 60661. Copies of
such material can be obtained at prescribed rates from the Public Reference
Section of the Commission at 450 Fifth Street, N.W., Washington, D.C. 20549.
Such reports, proxy statements and other information concerning the Company
also can be inspected at the offices of The New York Stock Exchange, Inc., 20
Broad Street, New York, New York 10005, or The Chicago Stock Exchange, Inc.,
440 South LaSalle Street, Chicago, Illinois 60605. The common stock of the
Company, par value $2.50 per share, is listed on each such exchange.
The Company has filed with the Commission a registration statement on Form S-
3 (including all amendments thereto, the "Registration Statement") under the
Securities Act of 1933, as amended (the "Securities Act"), with respect to the
Notes offered hereby. This Prospectus, which constitutes a part of the
Registration Statement, does not contain all of the information set forth in
the Registration Statement, certain items of which are contained in schedules
and exhibits to the Registration Statement as permitted by the rules and
regulations of the Commission. Statements made in this Prospectus as to the
contents of any contract, agreement or other document referred to are not
necessarily complete; with respect to each such contract, agreement or other
document filed as an exhibit or schedule to the Registration Statement,
reference is made to the exhibit or schedule, as applicable, for a more
complete description of the matter involved, and each such statement shall be
deemed qualified in its entirety by such reference. For further information
pertaining to the Company and the Notes offered hereby, reference is made to
the Registration Statement and the exhibits thereto, which may be examined or
copied at the locations described above.
68
<PAGE>
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
The Company's Annual Report on Form 10-K for the fiscal year ended
November 30, 1993, including the portions of the Company's definitive proxy
statement filed with the Commission on February 28, 1994 incorporated by
reference therein pursuant to Regulation 14A of the Exchange Act (the "1993
10-K") filed by the Company with the Commission (SEC File No. 1-8501) under
the Exchange Act is incorporated herein by reference.
All documents filed by the Company pursuant to Section 13(a), 13(c), 14 or
15(d) of the Exchange Act subsequent to the date of this Prospectus and prior
to the termination of the offering of the Notes offered hereby shall be deemed
to be incorporated in this Prospectus by reference and to be a part hereof from
the date of filing of such documents.
Any statement contained in a document incorporated or deemed to be
incorporated herein by reference, or contained in this Prospectus, shall be
deemed to be modified or superseded for purposes of this Prospectus to the
extent that a statement contained herein or in any subsequently filed document
which also is or is deemed to be incorporated herein by reference modifies or
supersedes such statement. Any such statement so modified or superseded shall
not be deemed, except as so modified or superseded, to constitute a part of
this Prospectus.
The Company will provide without charge to each person to whom this
Prospectus is delivered, on the written or oral request of such person, a copy
of any or all of the documents incorporated herein by reference (other than
exhibits thereto, unless such exhibits are specifically incorporated by
reference into the information that this Prospectus incorporates). Written or
telephone requests for such copies should be directed to Hartmarx Corporation,
101 North Wacker Drive, Chicago, Illinois 60606, Attention: Corporate
Secretary, telephone number (312) 372-6300.
69
<PAGE>
(THIS PAGE INTENTIONALLY LEFT BLANK)
<PAGE>
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Report of Independent Accountants......................................... F-2
Consolidated Statement of Earnings for the three years ended November 30,
1993..................................................................... F-3
Consolidated Balance Sheet at November 30, 1992 and 1993.................. F-4
Consolidated Statement of Cash Flows for the three years ended November
30, 1993................................................................. F-5
Consolidated Statement of Shareholders' Equity for the three years ended
November 30, 1993........................................................ F-6
Notes to Consolidated Financial Statements................................ F-7
</TABLE>
F-1
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
To the Shareholders and Board
of Directors of Hartmarx Corporation
In our opinion, the consolidated financial statements listed in the
accompanying index present fairly, in all material respects, the financial
position of Hartmarx Corporation and its subsidiaries at November 30, 1993 and
1992, and the results of their operations and their cash flows for each of the
three years in the period ended November 30, 1993, in conformity with generally
accepted accounting principles. These financial statements are the
responsibility of Hartmarx Corporation's management; our responsibility is to
express an opinion on these financial statements based on our audits. We
conducted our audits of these statements in accordance with generally accepted
auditing standards which 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, assessing
the accounting principles used and significant estimates made by management,
and evaluating the overall financial statement presentation. We believe that
our audits provide a reasonable basis for the opinion expressed above.
PRICE WATERHOUSE
Chicago, Illinois
January 12, 1994,
except as to the
Legal Proceedings
Note on page F-18
which is as of
February 4, 1994
F-2
<PAGE>
HARTMARX CORPORATION
CONSOLIDATED STATEMENT OF EARNINGS
(000'S OMITTED)
<TABLE>
<CAPTION>
FISCAL YEAR ENDED NOVEMBER 30,
--------------------------------
1991 1992 1993
---------- ---------- --------
<S> <C> <C> <C>
Net sales..................................... $1,215,310 $1,053,949 $731,980
Finance charges, interest and other income.... 10,761 9,566 5,980
---------- ---------- --------
1,226,071 1,063,515 737,960
---------- ---------- --------
Cost of goods sold............................ 781,303 703,645 505,179
Selling, administrative and occupancy
expenses..................................... 467,470 374,785 203,502
Restructuring and retail consolidation
charges...................................... 13,500 190,800 --
Interest expense.............................. 23,793 21,135 22,869
---------- ---------- --------
1,286,066 1,290,365 731,550
---------- ---------- --------
Earnings (loss) before taxes.................. (59,995) (226,850) 6,410
Tax provision (benefit)....................... (21,630) (6,605) 190
---------- ---------- --------
Net earnings (loss) for the year.............. $ (38,365) $ (220,245) $ 6,220
========== ========== ========
Earnings (loss) per common share and common
share equivalent............................. $ (1.74) $ (8.59) $ .20
========== ========== ========
</TABLE>
(See accompanying notes to consolidated financial statements)
F-3
<PAGE>
HARTMARX CORPORATION
CONSOLIDATED BALANCE SHEET
(000'S OMITTED)
<TABLE>
<CAPTION>
NOVEMBER 30,
--------------------
1992 1993
ASSETS --------- ---------
<S> <C> <C>
CURRENT ASSETS
Cash and cash equivalents.............................. $ 22,356 $ 1,507
Accounts receivable, less allowance for doubtful
accounts of $16,022 in 1992 and $9,914 in 1993........ 159,772 120,442
Inventories............................................ 216,751 193,818
Prepaid expenses....................................... 17,179 15,346
Recoverable income taxes............................... 8,158 659
Deferred income taxes.................................. 5,557 5,943
--------- ---------
Total current assets................................. 429,773 337,715
--------- ---------
INVESTMENTS AND OTHER ASSETS............................. 15,340 10,919
--------- ---------
PROPERTIES
Land................................................... 4,006 3,882
Buildings and building improvements.................... 57,790 58,345
Furniture, fixtures and equipment...................... 122,482 114,574
Leasehold improvements................................. 39,099 32,155
--------- ---------
223,377 208,956
Accumulated depreciation and amortization.............. (156,531) (152,479)
--------- ---------
Net properties....................................... 66,846 56,477
--------- ---------
TOTAL ASSETS............................................. $ 511,959 $ 405,111
========= =========
<CAPTION>
LIABILITIES AND SHAREHOLDERS' EQUITY
<S> <C> <C>
CURRENT LIABILITIES
Notes payable to banks................................. $ 65,000 $ 25,000
Current maturities of long term debt................... 889 697
Accounts payable....................................... 56,016 30,246
Accrued payrolls....................................... 18,517 18,351
Other accrued expenses................................. 52,399 14,404
--------- ---------
Total current liabilities............................ 192,821 88,698
--------- ---------
LONG TERM DEBT, less current maturities.................. 248,713 207,416
--------- ---------
SHAREHOLDERS' EQUITY
Preferred shares, $1 par value; 2,500,000 authorized
and unissued.......................................... -- --
Common shares, $2.50 par value; authorized 75,000,000;
issued 28,106,439 in 1992 and 31,951,464 in 1993...... 70,266 79,878
Capital surplus........................................ 63,810 74,256
Retained earnings (deficit)............................ (17,758) (33,379)
Unearned employee benefits............................. (12,496) (11,758)
--------- ---------
103,822 108,997
Common shares in treasury, at cost, 2,198,864 in 1992
and none in 1993...................................... (33,397) --
--------- ---------
Shareholders' equity................................... 70,425 108,997
--------- ---------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY............... $ 511,959 $ 405,111
========= =========
</TABLE>
(See accompanying notes to consolidated financial statements)
F-4
<PAGE>
HARTMARX CORPORATION
CONSOLIDATED STATEMENT OF CASH FLOWS
(000'S OMITTED)
<TABLE>
<CAPTION>
FISCAL YEAR ENDED NOVEMBER
30,
-----------------------------
1991 1992 1993
-------- --------- --------
<S> <C> <C> <C>
Increase (Decrease) in Cash and Cash Equivalents
Cash Flows from operating activities:
Net earnings (loss)........................... $(38,365) $(220,245) $ 6,220
Reconciling items to adjust net earnings
(loss) to net cash provided by operating
activities:
Depreciation and amortization............... 33,809 26,947 14,107
Loss on sale of subsidiary.................. -- 136,000 --
Changes in:
Accounts receivable:
Sale of receivables..................... (2,000) (58,000) --
Other changes........................... (29) 23,076 42,330
Inventories............................... 4,604 68,944 12,901
Prepaid expenses.......................... 431 (10,215) 1,786
Other assets.............................. 243 (4,280) 4,364
Accounts payable and accrued expenses..... (6,907) 8,541 (61,030)
Taxes on earnings......................... (7,305) 10,439 7,113
Adjustment of properties to net realizable
value...................................... 4,493 11,510 1,901
-------- --------- --------
Net cash provided by (used in) operating
activities................................... (11,026) (7,283) 29,692
-------- --------- --------
Cash Flows from investing activities:
Capital expenditures.......................... (15,488) (9,546) (5,953)
Cash received re disposition, net of
subsidiary cash.............................. -- -- 4,500
-------- --------- --------
Net cash used in investing activities......... (15,488) (9,546) (1,453)
-------- --------- --------
Cash Flows from financing activities:
Increase (decrease) in notes payable to banks. (3,850) 30,796 (80,600)
Increase (decrease) in other long term debt... 2,014 (1,133) (840)
Proceeds from equity sale..................... 38,550 -- 29,880
Proceeds from other equity transactions....... 7,283 2,951 2,472
Payment of dividends.......................... (13,643) -- --
-------- --------- --------
Net cash provided by (used in) financing
activities................................... 30,354 32,614 (49,088)
-------- --------- --------
Net increase (decrease) in cash and cash
equivalents.................................. 3,840 15,785 (20,849)
Cash and cash equivalents at beginning of
year......................................... 2,731 6,571 22,356
-------- --------- --------
Cash and cash equivalents at end of year...... $ 6,571 $ 22,356 $ 1,507
======== ========= ========
Supplemental cash flow information:
Net cash paid (received) during the year for:
Interest expense............................ $ 24,300 $ 22,200 $ 23,800
Income taxes................................ (14,300) (17,000) (6,900)
</TABLE>
(See accompanying notes to consolidated financial statements)
F-5
<PAGE>
HARTMARX CORPORATION
CONSOLIDATED STATEMENT OF SHAREHOLDERS' EQUITY
(000'S OMITTED)
<TABLE>
<CAPTION>
PAR VALUE RETAINED UNEARNED
OF COMMON CAPITAL EARNINGS EMPLOYEE TREASURY
STOCK SURPLUS (DEFICIT) BENEFITS SHARES
--------- ------- --------- -------- --------
<S> <C> <C> <C> <C> <C>
Balance at November 30, 1990. $58,889 $42,939 $ 266,841 $(13,850) $(62,281)
Net loss for the year...... (38,365)
Cash dividends:
Common shares, $.60 per
share................... (13,643)
Disposition of 1,020,015
treasury shares........... (7,484) (7,615) 22,382
Issuance of 4,300,100
shares of common stock.... 10,751 27,799
Allocation of unearned
employee benefits......... 645
------- ------- --------- -------- --------
Balance at November 30, 1991. 69,640 63,254 207,218 (13,205) (39,899)
Net loss for the year...... (220,245)
Issuance of 242,822 shares
to employee benefit plans. 607 546
Stock options exercised
(7,815 shares issued upon
exercise of 7,815 $1.00
Director Stock Options)... 19 10
Disposition of 296,493
treasury shares........... (4,731) 6,502
Allocation of unearned em-
ployee benefits........... 709
------- ------- --------- -------- --------
Balance at November 30, 1992. 70,266 63,810 (17,758) (12,496) (33,397)
Net earnings for the year.. 6,220
Issuance of 329,482 shares,
principally to employee
benefit plans............. 823 898 10 3
Private placement of common
stock and warrant......... 8,789 9,548 (21,851) 33,394
Allocation of unearned
employee benefits......... 738
------- ------- --------- -------- --------
Balance at November 30, 1993
............................ $79,878 $74,256 $ (33,379) $(11,758) $ --
======= ======= ========= ======== ========
</TABLE>
(See accompanying notes to consolidated financial statements)
F-6
<PAGE>
HARTMARX CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SUMMARY OF ACCOUNTING POLICIES
Principles of Consolidation--The Company and its subsidiaries ("the Company")
are engaged in the manufacturing and marketing of quality men's and women's
apparel to independent retailers and through owned retail stores and catalogs.
The consolidated financial statements include the accounts of the Company and
all subsidiaries. All significant intercompany accounts and transactions have
been eliminated in consolidation. Certain prior year amounts have been
reclassified to conform to the current year's presentation.
Cash and Cash Equivalents--The Company considers as cash equivalents all
highly liquid investments with an original maturity of three months or less.
Inventories--Inventories are stated at the lower of cost or market.
Approximately 18% and 23% of the Company's inventories at November 30, 1992 and
1993, respectively, primarily work in process and finished goods, are valued
using the last-in, first-out (LIFO) method. The first-in, first-out (FIFO)
method is used for substantially all raw materials and the remaining
manufacturing and retail inventories.
Property, Plant and Equipment--Properties are stated at cost. Additions,
major renewals and betterments are capitalized; maintenance and repairs which
do not extend asset lives are charged against earnings. Profit or loss on
disposition of properties is reflected in earnings and the related asset costs
and accumulated depreciation are removed from the respective accounts.
Depreciation is generally computed on the straight line method based on useful
lives of 20 to 45 years for buildings, 5 to 20 years for building improvements
and 3 to 15 years for furniture, fixtures and equipment. Leasehold improvements
are amortized over the terms of the respective leases.
Revenue Recognition--Wholesale sales are recognized at the time the order is
shipped. Retail sales, which include sales of merchandise and leased department
income, are net of returns and exclude sales taxes.
Store Opening/Closing Costs--Non-capital expenditures incurred for new or
remodeled retail stores are expensed upon construction completion. When a store
is closed, the remaining investment in fixtures and leasehold improvements, net
of expected salvage, is charged against earnings; the present value of any
remaining lease liability, net of expected sublease recovery, is also expensed.
Intangibles--Intangible assets are included in "Investments and Other Assets"
at cost, less amortization, which is provided on a straight-line basis over
their economic lives, usually 10 years or less.
Income Taxes--Effective December 1, 1991, the Company adopted Statement of
Financial Accounting Standards No. 109--Accounting for Income Taxes, which
requires recognition of deferred tax assets and liabilities for the expected
future tax consequences of events that have been included in the financial
statements or tax returns. Under this method, deferred tax assets and
liabilities are determined based on the differences between the financial
statement and tax bases of assets and liabilities using enacted tax rates in
effect for the year in which the differences are expected to reverse.
Prior to fiscal 1992, the provision (benefit) for income taxes was based on
income and expenses included in the accompanying consolidated statement of
earnings whereby timing differences were classified as deferred tax assets or
liabilities based on the respective tax rates then in effect.
Retirement Plans--The Company and its subsidiaries maintain benefit plans
covering substantially all employees other than those covered by multi-employer
plans. In accordance with Statement of Financial Accounting Standards No. 87--
Employers' Accounting for Pensions, pension expense or income for the Company's
principal defined benefit plan is determined using the projected unit credit
method. Pension
F-7
<PAGE>
expense under each multi-employer plan is based upon a percentage of the
employer's union payroll established by industry-wide collective bargaining
agreements; such pension expenses are funded as accrued.
Retiree Medical Program--Certain health and insurance programs are made
available to non-union retired employees and eligible dependents. Approximately
175 retired employees are currently participating; substantially all non-union
employees employed prior to September 1, 1993 could ultimately remain eligible
upon attaining retirement age while employed by the Company. These retiree
programs, after considering retiree contributions which offset the full cost,
did not have a significant effect on earnings. Statement of Financial
Accounting Standards No. 106--Employers' Accounting for Postretirement Benefits
Other Than Pensions is mandatory for the Company's fiscal year ending November
30, 1994. Adoption of the statement will have no impact on cash flows. Since
the retiree contributions offset the full cost of the available medical
programs, no transition obligation is expected upon adoption and, accordingly,
there would be no effect on either net income or shareholders' equity.
Other Postemployment Benefits--Statement of Financial Accounting Standards
No. 112--Employers' Accounting for Postemployment Benefits requires the
recognition of obligations related to benefits provided by an employer to
former or inactive employees after employment but before retirement, and is
mandatory for the Company's fiscal year ending November 30, 1995. The Company
believes that adoption is not expected to have a material impact on its
financial condition.
Stock Options--When stock options are exercised, common stock is credited for
the par value of shares issued and capital surplus is credited with the
consideration in excess of par. For stock appreciation rights, compensation
expense is recognized on the aggregate difference between the market price of
the Company's stock and the option price only when circumstances indicate that
the right, and not the option, will be exercised. Compensation expense related
to restricted stock awards is recognized over the vesting period. For director
stock options and director deferred stock awards, compensation expense is
recognized at the date the option is granted or the award is made to the
outside director.
Per Share Information--The computation of earnings or loss per share in each
year is based on the weighted average number of common shares outstanding. When
dilutive, stock options and warrants are included as share equivalents using
the treasury stock method. The number of shares used in computing the earnings
(loss) per share was 22,056,000 in 1991, 25,629,000 in 1992 and 31,375,000 in
1993. Primary and fully diluted earnings per share are the same for each of
these years. In July 1991, the Company sold 4.3 million shares of common stock,
pursuant to a public offering. Net proceeds of $38.5 million were used to repay
bank borrowings. Effective December 30, 1992, the Company completed the sale to
an unrelated third party of 5,714,286 shares of its common stock along with a
three year warrant to purchase an additional 1,649,600 shares at an exercise
price of $6.50 per share, for an aggregate price of $30 million. If this
transaction had occurred as of December 1, 1992, the net earnings per share for
the year would have been the same as the reported net earnings of $.20 per
share.
FINANCING
In December 1992, the Company and its subsidiaries entered into new financing
agreements with its principal lenders ("Override Agreement" and "Bridge
Facility", collectively "the Agreements") aggregating $307 million, which
substantially replaced or amended the provisions of prior agreements covering
the Company's $196 million Multiple Option Revolving Credit Facility with 13
banks, $45 million of insurance term loans, $38 million of bank term loans, the
ESOP loan guarantee and guarantees related to certain industrial development
bonds having aggregate borrowings of $15.5 million. The Agreements also
provided for additional seasonal borrowings of up to $35 million during 1993.
At November 30, 1993, $226.4 million of the total $233.1 million debt
outstanding related to borrowings under the provisions of the Agreements.
Borrowings under the Agreements are secured by substantially all assets of the
Company and its subsidiaries, subject to a priority of up to $15 million for
trade creditors.
F-8
<PAGE>
The Override Agreement is in effect through December 30, 1995. The Bridge
Facility, originally $35 million and maturing on November 30, 1993, has been
extended by the Company for one year and currently provides for a $15 million
commitment through November 30, 1994. In addition to the aggregate commitment
reduction of $20 million on November 30, 1993, the Agreements provide for
additional commitment reductions of $10 million on May 31, 1994, $15 million on
November 30, 1994 and May 31, 1995, with the balance expiring on December 30,
1995; additional commitment and principal reductions may be required to the
extent of certain asset sales, equity proceeds and excess working capital based
on calculations specified in the Agreements. Generally, principal payments
apply first to the Bridge Facility and then to the Override Agreement. The
Bridge Facility also requires that borrowings, if any, be repaid for a minimum
30 day period during 1993 and for two 30 day periods in 1994; the Company may
reborrow after these periods. The Company had no borrowings under the Bridge
Facility during 1993. Borrowings under the Override Agreement bear interest at
prime plus 2% for bank lenders, 10.3% for the insurance lenders, and 9.19%
related to the ESOP loan guaranteed by the Company. Borrowings under the Bridge
Facility bear interest at prime plus 1.5%. Fees pertaining to the Agreements
aggregating $3.8 million were paid as of the closing date and certain other
fees principally based on utilization are also payable. An additional $2.4
million is payable at the expiration of the Override Agreement.
The Agreements, as amended, include various restrictive covenants pertaining
to capital expenditures, asset sales, operating leases, minimum working capital
and current ratio, debt leverage, consolidated tangible net worth, interest
coverage and earnings before interest, taxes, depreciation and amortization.
Cash dividends may not be declared or paid during the term of the Agreements
and the Company is prohibited from purchasing or redeeming its stock, warrants,
rights or options, or from making certain acquisitions without lender consent.
The Company is in compliance with the various covenants contained in the
Agreements. At November 30, 1993, working capital and the current ratio, as
defined, were $274.7 million and 5.4, respectively, compared to the minimum
required levels of $261.5 million and 4.9, respectively. Consolidated tangible
net worth, as defined, was approximately $130 million compared to the minimum
required level of $107 million. The ratio of consolidated funded indebtedness
to consolidated tangible net worth, as defined, was 1.8 compared to the maximum
permitted ratio of 2.7.
At November 30, 1992 and 1993, long term debt, less current maturities,
comprised the following (000's omitted):
<TABLE>
<CAPTION>
1992 1993
-------- --------
<S> <C> <C>
Notes payable to banks................................. $234,296 $153,696
Notes payable to insurance companies................... 45,000 45,000
Industrial development bonds........................... 21,355 20,943
ESOP loan guarantee.................................... 12,219 12,219
Other debt, extending to 2003.......................... 1,732 1,255
-------- --------
314,602 233,113
Less--current maturities............................... 65,889 25,697
-------- --------
Long term debt......................................... $248,713 $207,416
======== ========
</TABLE>
The industrial development bonds (IDBs), which mature on varying dates
through 2015, were issued by development authorities for the purchase or
construction of various manufacturing facilities having a carrying value of $13
million at November 30, 1993. Interest rates on the various borrowing
agreements range from 7/8 of 1% to 8.5% (average of 4.1% at November 30, 1992
and 4.4% at November 30, 1993). In January 1994, two IDBs aggregating $15.5
million, associated with the Override Agreement, were refinanced independent of
the Override Agreement. The $7.5 million IDB matures on July 1, 2014, while the
$8.0 million IDB is due on July 1, 2015. The IDBs are callable by the Company
beginning July 1, 2000 at a 3% premium, declining to par on July 1, 2003; the
effective interest rate on these obligations is 7.5%.
Other long term debt includes installment notes and mortgages with interest
rates ranging from 8% to 11.5% per annum. (Average interest rate of 10.3% at
November 30, 1992 and 10.2% at November 30, 1993.)
F-9
<PAGE>
The approximate principal requirements during the next five fiscal years,
including reductions under the Override Agreement, are as follows: $.7 million
in 1994; $.7 million in 1995; $211.5 million in 1996; $.1 million in 1997; $.1
million in 1998.
In January 1994, the Company filed a Registration Statement with respect to a
proposed public offering of $100 million aggregate principal amount of its
senior subordinated notes ("Notes"), due 2002. The ultimate issuance of these
Notes is contingent upon several factors, including a public market environment
acceptable to the Company with respect to interest rates. In addition, the
issuance of the Notes would require the Company to obtain either the consent of
the existing lenders under the Agreements or a new credit facility which, in
conjunction with the subordinated debt issue, would provide sufficient
availability to repay and terminate the Agreements. On January 11, 1994, the
Company executed a commitment letter ("Financing Commitment") with General
Electric Capital Corporation as managing agent ("Managing Agent") with respect
to a proposed new credit facility ("New Credit Facility"). The Financing
Commitment is subject to, among other things, (i) there being no material
adverse change in the business or financial condition of the Company and its
subsidiaries taken as a whole and (ii) definitive documentation for the New
Credit Facility acceptable to the Managing Agent. The Financing Commitment
terminates if, among other things, the Notes are not issued by April 30, 1994.
The New Credit Facility would be a three year secured revolving credit
facility in an aggregate maximum amount of $175 million (including a $25
million letter of credit facility), subject to a borrowing base formula based
upon 85% of eligible accounts receivable and 55% of eligible inventory. The New
Credit Facility would be used to repay borrowings under the Override Agreement
and Bridge Facility, to finance ongoing working capital and letter of credit
requirements and for general corporate purposes. The New Credit Facility would
be secured by a first priority security interest in substantially all of the
current and intangible assets of the Company and its subsidiaries. The New
Credit Facility is expected to include a negative pledge on all assets of the
Company and its subsidiaries, be guaranteed by the subsidiaries of the Company
and contain various restrictive covenants pertaining to net worth, additional
debt incurrence, fixed charge coverage, as well as other customary covenants.
Borrowing under the New Credit Facility would be established as either base
rate or LIBOR loans, as the Company may elect. Base rate loans would be priced
at the greater of (a) a rate based on the weighted average of various 90-day
commercial paper rates or (b) the base rate of a bank to be selected by the
Managing Agent plus 1.50%. LIBOR loans would be priced at LIBOR plus 2.50%.
On December 1, 1988 The Hartmarx Employee Stock Ownership Plan ("ESOP")
borrowed $15 million from a financial institution and purchased from the
Company 620,155 shares of treasury stock at the market value of $24.19 per
share. The loan is guaranteed by the Company and, accordingly, the amount
outstanding has been included in the Company's consolidated balance sheet as a
liability, net of a $.6 million payment made by the Company to the financial
institution holding the ESOP note, and shareholders' equity has been reduced
for the amount representing unearned employee benefits. Company contributions
to the ESOP plus the dividends accumulated on unallocated Company common stock
held by the ESOP are used to repay loan principal and interest. The common
stock is allocated to ESOP participants as the loan principal and interest is
repaid or accrued and amounts reflected as the loan guarantee and unearned
employee benefits are correspondingly reduced. Information related to dividends
received and loan repayments by the ESOP are as follows (000's omitted):
<TABLE>
<CAPTION>
1991 1992 1993
------ ------ ------
<S> <C> <C> <C>
Dividends received from Hartmarx Corporation........ $ 316 $ -- $ --
====== ====== ======
Principal payments.................................. $ 645 $ 342 $ --
Interest payments................................... 1,072 1,100 1,041
------ ------ ------
Total loan payments made by ESOP.................... $1,717 $1,442 $1,041
====== ====== ======
</TABLE>
As of November 30, 1993, 188,394 shares of common stock have been allocated
to the accounts of the ESOP participants.
F-10
<PAGE>
NOTES PAYABLE TO BANKS
The following summarizes information concerning notes payable to banks (000's
omitted):
<TABLE>
<CAPTION>
1991 1992 1993
-------- -------- --------
<S> <C> <C> <C>
Outstanding at November 30....................... $203,500 $234,296 $153,696
Maximum month end balance during the year........ 229,200 234,296 206,196
Average amount outstanding during the year....... 207,200 213,000 174,300
Weighted daily average interest rate during the
year............................................ 8.5% 7.0% 7.9%
Weighted average interest rate on borrowings at
November 30..................................... 7.7% 7.0% 8.0%
</TABLE>
As more fully discussed in the Financing Note, in December, 1992 the Company
entered into a new three year financing agreement through December 30, 1995. At
November 30, 1993, $25 million of the aggregate $153.7 million of bank
borrowings outstanding was classified as current, representing expected
seasonal repayments within the fiscal 1994 year.
The Company enters into interest rate protection agreements from time to
time, based on management's assessment of market conditions, with several
currently in effect covering $100 million of borrowings. Payments to the
Company would occur to the extent the prime interest rate exceeds 6.0%. The
payments made for the rate protection agreements in effect during each of the
three years ended November 30, 1993 were nominal.
RESTRUCTURING AND RETAIL CONSOLIDATION CHARGES
Consistent with the Company's strategies to concentrate operations around its
profitable manufacturing and wholesale businesses and to refinance its capital
structure, fiscal 1992 third quarter and full year results included pre-tax
restructuring charges aggregating $190.8 million ("the Restructuring"). The
Restructuring comprised the direct costs associated with businesses and
facilities sold or disposed of and included the loss on the sale of stock of
Hartmarx Specialty Stores, Inc. ("HSSI"), the parent company of the Company's
principal retail unit. Restructuring components applicable to other operations
sold or liquidated included impairment of leasehold improvements, fixtures and
other properties, anticipated lease settlement obligations, severance, advisory
fees and costs to liquidate inventories. As further discussed in the Taxes on
Earnings footnote, a tax benefit relating to the restructuring charges was not
recorded. At November 30, 1993, accrued restructuring charges of $8 million
were included in the accrued expense caption in the accompanying balance sheet
($34 million at November 30, 1992) principally relating to lease, severance and
employee benefit obligations.
The operational aspects of the Restructuring have been substantially
implemented. Following the sale of the HSSI business in September, 1992 for a
note due on September 18, 1994, all of the Old Mill stores operated by the
Company's Country Miss subsidiary were closed. The store closings associated
with Kuppenheimer were substantially completed by January, 1994. Production
facilities supporting the above noted operations have been closed or sold along
with facilities related to the rainwear and military and commercial uniform
businesses.
The note received in connection with the sale of HSSI, originally $43
million, was subsequently adjusted to $35 million, including interest, based on
the value of physical inventories. This note has been accounted for on a cash
collection basis. Accordingly, no value was assigned to the note in calculating
the loss on the sale. During 1993, HSSA Group, Ltd., the original direct
obligor of the note, breached certain of its obligations under the note and
ancillary agreements and, on November 23, 1993, the Company exercised certain
of its rights to cause, among other things, the common stock of HSSI to be
voted to elect a new Board of Directors.
F-11
<PAGE>
Fiscal 1991 fourth quarter and full year results included a pre-tax provision
of $13.5 million for expenses associated with the consolidation of certain
retail administrative functions of HSSI and Kuppenheimer, including severance,
lease settlements, and other one time costs.
SALE OF RECEIVABLES
In June 1990, the Company entered into an agreement with an unrelated third
party to sell up to $60 million of undivided interests in a designated pool of
accounts receivable, principally related to revolving charge accounts. The
Company acted as an agent for the purchaser by performing recordkeeping and
collection functions on the interests sold, and was obligated to pay the
purchaser's carrying cost plus fees typical in such transactions, which are
included in the finance charges, interest and other income caption in the
accompanying Consolidated Statement of Earnings for fiscal 1992 and 1991. The
agreement terminated effective October 10, 1992. At November 30, 1992 and 1993,
no sold receivables were outstanding under the program.
INVENTORIES
Inventories at fiscal year end were as follows (000's omitted):
<TABLE>
<CAPTION>
NOVEMBER 30,
--------------------------
1991 1992 1993
-------- -------- --------
<S> <C> <C> <C>
Raw materials.................................. $ 54,389 $ 52,018 $ 44,370
Work in process................................ 38,408 29,657 26,468
Finished goods................................. 312,198 135,076 122,980
-------- -------- --------
$404,995 $216,751 $193,818
======== ======== ========
</TABLE>
The excess of current cost over LIFO costs for certain inventories was $42.0
million at November 30, 1991, $38.7 million at November 30, 1992 and $35.0
million at November 30, 1993.
TAXES ON EARNINGS
The accompanying financial statements reflect the adoption of Statement of
Financial Accounting Standards No. 109, Accounting for Income Taxes ("FAS
109"), as of December 1, 1991, the commencement of the Company's 1992 fiscal
year. Previously, accounting for income taxes was based on the provisions of
Accounting Principles Board Opinion No. 11. Among other things, FAS 109
requires an asset and liability approach in the measurement of deferred taxes,
which are adjusted to reflect changes in statutory tax rates, and permits the
recognition of net deferred tax assets subject to an ongoing assessment of
realization.
The net tax provision (benefit) is summarized as follows (000's omitted):
<TABLE>
<CAPTION>
1991 1992 1993
-------- ------- -------
<S> <C> <C> <C>
Federal....................................... $ (6,644) $(8,262) $ 2,435
State and local............................... (147) (286) 256
-------- ------- -------
Total current............................... (6,791) (8,548) 2,691
-------- ------- -------
Federal....................................... (14,520) 1,943 (320)
State and local............................... (319) -- (66)
-------- ------- -------
Total deferred.............................. (14,839) 1,943 (386)
-------- ------- -------
Change in valuation allowance................. -- -- (2,115)
-------- ------- -------
Total tax provision (benefit)............. $(21,630) $(6,605) $ 190
======== ======= =======
</TABLE>
A substantial portion of the Company's tax assets are reserved in accordance
with FAS 109. The valuation allowance was recorded upon consideration of the
operating losses incurred during the 1990-1992
F-12
<PAGE>
fiscal years and related uncertainty associated with realization of the tax
benefit of net operating loss carryforwards, which require the generation of
future income from operations. The net tax assets recorded consider amounts
recoverable from carrying back operating losses to prior years and available
tax planning strategies (such as the ability to adopt the FIFO inventory
valuation method for those inventories currently valued under the LIFO
valuation method). During 1993, $2.1 million of the valuation allowance
offsetting the deferred tax asset, associated with 1993 pre-tax income for
financial reporting, was reversed. The valuation allowance offsetting the
deferred tax asset will continue to be evaluated in future periods on an
ongoing basis.
The difference between the tax benefit reflected in the accompanying
statement of earnings and the amount computed by applying the federal statutory
tax rate to the pre-tax income (loss), taking into account the applicability of
enacted tax rate changes, is summarized as follows:
<TABLE>
<CAPTION>
PERCENT OF PRE-
TAX INCOME (LOSS)
---------------------
1991 1992 1993
----- ----- -----
<S> <C> <C> <C>
Tax benefit computed at statutory rate.................. (34.0)% (34.0)% 34.0%
State and local taxes on earnings, net of federal tax
benefit................................................ (.5) (.1) 1.9
Change in valuation allowance........................... -- 30.8 (34.0)
Other--net.............................................. (1.6) .4 1.1
----- ----- -----
Effective tax rate...................................... (36.1)% (2.9)% 3.0%
===== ===== =====
</TABLE>
At November 30, 1992, the Company had a net deferred tax asset of $5.6
million comprised of deferred tax assets of $103.1 million less deferred tax
liabilities aggregating $26.6 million and a $70.9 million valuation allowance.
The principal deferred tax assets included $9.2 million attributable to Tax
Reform Act of 1986 ("TRA") items (allowance for bad debts, accrued vacation and
capitalization of certain inventory costs for tax purposes), net operating loss
carryforwards of $59.2 million, alternative minimum tax credit carryforwards
("AMT") of $4.0 million, and $23.5 million attributable to expenses deducted in
the financial statements not currently deductible for tax purposes, principally
related to the Restructuring. Deferred tax liabilities included excess tax over
book depreciation of $6.7 million and $8.8 million related to employee
benefits, principally pensions.
At November 30, 1993, the Company had a net deferred tax asset of $5.9
million comprised of deferred tax assets of $93.7 million less deferred tax
liabilities aggregating $18.9 million and a $68.9 million valuation allowance.
The principal deferred tax assets included $9.4 million attributable to TRA
items, net operating loss carryforwards of $48.1 million, AMT credit
carryforwards of $4.0 million, and $31.4 million attributable to expenses
deducted in the financial statements not currently deductible for tax purposes,
including expenses related to the Restructuring. Deferred tax liabilities
included excess tax over book depreciation of $4.2 million and $6.9 million
related to employee benefits, principally pensions.
As of November 30, 1993, the Company had approximately $137 million of tax
net operating loss carryforwards available to offset future income tax
liabilities. In general, such carryforwards must be utilized within fifteen
years of incurring the net operating loss; the loss carryforward expires in
2008. Foreign tax credit carryforwards of $.8 million are also available, the
substantial portion of which expire in 1996. The $4.0 million of AMT tax credit
carryforwards can be carried forward indefinitely.
LEASES
The Company and its subsidiaries lease office, manufacturing,
warehouse/distribution, showroom and retail space, automobiles, computers and
other equipment under various noncancellable operating leases. A number of the
leases contain renewal options ranging up to 10 years. Some retail leases
provide for contingent rental payments, generally based on the sales volume of
the retail unit.
F-13
<PAGE>
At November 30, 1993, total minimum rentals are as follows (000's omitted):
<TABLE>
<CAPTION>
YEARS AMOUNT
----- -------
<S> <C>
1994............................. $20,569
1995............................. 17,394
1996............................. 12,049
1997............................. 7,736
1998............................. 5,529
Thereafter....................... 5,531
-------
Total minimum rentals due........ $68,808
=======
</TABLE>
Rental expense, including rentals under short term leases, comprised the
following (000's omitted):
<TABLE>
<CAPTION>
1991 1992 1993
------- ------- -------
<S> <C> <C> <C>
Minimum rentals................................ $64,630 $58,742 $28,440
Contingent rentals............................. 4,916 2,418 112
Sublease income................................ (1,070) (896) (570)
------- ------- -------
Total rental expense......................... $68,476 $60,264 $27,982
======= ======= =======
</TABLE>
Most leases provide for additional payments of real estate taxes, insurance,
and other operating expenses applicable to the property, generally over a base
period level. Total rental expense includes such base period expenses and the
additional expense payments, as part of the minimum rentals.
EMPLOYEE BENEFITS
Pension Plans
The Company participates with other companies in the apparel industry in
making collectively-bargained contributions to pension funds covering most of
its union employees. The contribution rate of applicable payroll is based on
the actuarially recommended amount necessary to fund the costs of the benefits.
Pension costs relating to multi-employer plans were approximately $12 million
in 1991, $10 million in 1992 and $8 million in 1993.
The Multi-Employer Pension Plan Amendment Act of 1980 amended ERISA to
establish funding requirements and obligations for employers participating in
multi-employer plans, principally related to employer withdrawal from or
termination of such plans, whereupon separate actuarial calculations would be
made to determine the Company's position with respect to multi-employer plans.
The principal Company sponsored pension plan is a non-contributory defined
benefit pension plan covering substantially all eligible non-union employees.
Certain of the Company's subsidiaries have other defined benefit and
contribution plans, in which the aggregate expense was $.6 million in 1991, $.3
million in 1992 and nominal in 1993. Under the principal pension plan,
retirement benefits are a function of years of service and average compensation
levels during the highest five consecutive salary years occurring during the
last ten years before retirement. To the extent that the calculated retirement
benefit under the formula specified in the plan exceeds the maximum allowable
under the provisions of the tax regulations, the excess is provided on an
unfunded basis. Under the provisions of the Omnibus Budget Reconciliation Act
of 1993, the annual compensation limit that can be taken into account for
computing benefits and contributions under qualified plans was reduced from
$235,840 to $150,000, effective as of January 1, 1994.
It is the Company's policy to fund the plans on a current basis to the extent
deductible under existing tax laws and regulations. Such contributions are
intended to provide for benefits attributed to service to date and also for
those expected to be earned in the future.
F-14
<PAGE>
Pension data covering the principal plan for the three years ended November
30, 1993 included the following components in accordance with Statement of
Financial Accounting Standards No. 87--Employers' Accounting for Pensions
(000's omitted):
<TABLE>
<CAPTION>
1991 1992 1993
------- ------- -------
<S> <C> <C> <C>
Service cost--benefits earned during the
period...................................... $(5,921) $(4,869) $(4,150)
Interest cost on projected benefit
obligation.................................. (7,222) (7,554) (7,607)
Return on plan assets........................ 19,025 15,674 17,452
Net amortization and deferral................ (6,362) (1,438) (3,235)
------- ------- -------
Net periodic pension income (expense)........ $ (480) $ 1,813 $ 2,460
======= ======= =======
</TABLE>
The above amounts do not include periodic pension expense related to the
benefits provided on an unfunded basis of $.2 million in 1991, $.3 million in
1992, and $.6 million in 1993.
The Company sold its Hartmarx Specialty Stores subsidiary ("HSSI") in 1992
and the accrual of further pension benefits related to HSSI employees ceased as
of the sale date. This event qualified as a curtailment under the provisions of
Statement of Financial Accounting Standards No. 88. The projected benefit
obligation exceeded the accumulated benefit obligation for employees of HSSI
and, accordingly, the accompanying financial statements for 1992 reflect an
additional pre-tax pension gain of $5.0 million, which was considered in the
determination of the 1992 restructuring charge.
Plan assets consist primarily of publicly traded common stocks and corporate
debt instruments, and units of certain trust funds administered by the Trustee
of the plan. At November 30, 1993, the plan assets included 519,612 shares of
the Company's stock with a market value of $3.6 million.
The following sets forth the funded status of the principal pension plan at
November 30 (000's omitted):
<TABLE>
<CAPTION>
NOVEMBER 30,
------------------
1992 1993
-------- --------
<S> <C> <C>
Actuarial present value of benefit obligations:
Vested benefits.......................................... $(70,571) $(95,341)
Non-vested benefits...................................... (1,105) (949)
-------- --------
Accumulated benefit obligation........................... (71,676) (96,290)
Effect of projected future compensation levels........... (15,497) (16,992)
-------- --------
Projected benefit obligation............................... (87,173) (113,282)
Plan assets, at fair value................................. 125,379 135,013
-------- --------
Plan assets in excess of projected benefit obligation...... 38,206 21,731
Unrecognized net (gain) loss............................... (10,905) 4,653
Unrecognized prior service cost............................ 592 516
Unrecognized net transition asset.......................... (10,723) (7,270)
-------- --------
Prepaid pension cost....................................... $ 17,170 $ 19,630
======== ========
</TABLE>
The weighted average discount rate used in determining the projected benefit
obligation was 8 3/4% in 1992 and 7% in 1993. The assumed rate of increase in
future compensation levels was 6% in 1992 and 5.5% in 1993, and the expected
long term rate of return on the Company sponsored plan assets was 8 3/4% in
1992 and 1993.
Savings Investment and Employee Stock Ownership Plans
The Company offers an employee savings-investment plan, The Hartmarx Savings-
Investment Plan ("SIP"), which is a qualified salary reduction plan under
Section 401(k) of the Internal Revenue Code.
F-15
<PAGE>
Eligible participants in SIP can invest from 1% to 16% of earnings among
several investment alternatives, including a company stock fund. Employees
participating in this plan automatically participate in The Hartmarx Employee
Stock Ownership Plan ("ESOP"). Participation in SIP is required to earn
retirement benefits under the Company's principal pension plan. An employer
contribution is made through the ESOP, based on the employee's level of
participation, and invested in common stock of the Company. While employee
contributions up to 16% of earnings are permitted, contributions in excess of
6% are not subject to an employer contribution. In 1992 and 1993, the employer
contribution was one-fourth of the first 1% contributed by the employee plus
one-twentieth thereafter. During 1991, the employer contribution was one-fourth
of employee's contribution up to the 6% limit. The Company's expense related to
the ESOP is based upon the principal and interest payments on the ESOP loan,
the dividends on unallocated ESOP shares, and the cost and market value of
shares allocated to employees' accounts. The Company's annual expense, which
approximates the Company's annual contributions, was $2.8 million in 1991, $2.1
million in 1992 and $2.2 million in 1993. At November 30, 1993, the assets of
SIP and ESOP funds had a market value of approximately $39.1 million, of which
approximately $17.4 million was invested in 2,491,059 shares of the Company's
common stock.
Health Care and Postretirement Benefits
Certain of the Company's subsidiaries make contributions to multi-employer
union health and welfare funds pursuant to collective bargaining agreements.
These payments are based upon wages paid to the Company's active union
employees.
Health and insurance programs are also made available to non-union active and
retired employees and their eligible dependents. Retirees, who elect to receive
the coverage, make contributions which offset the full cost of the retiree
program. Statement of Financial Accounting Standards No. 106--Employers'
Accounting for Postretirement Benefits Other than Pensions requires the
recognition of an obligation related to employee service pursuant to a
postretirement benefit plan and is mandatory for the Company's fiscal year
ending November 30, 1994. Adoption of the statement will have no impact on cash
flows. Since the retiree contributions offset the full cost of the available
medical programs, no transition obligation is expected upon adoption and,
accordingly, there would be no effect on either net income or shareholders'
equity.
EQUITY SALE
On September 21, 1992, the Company entered into an agreement with Traco
International, N.V., a Netherlands Antilles Corporation ("Traco"), pursuant to
which Traco agreed to purchase 5,714,286 shares of common stock of the Company
and receive a three-year warrant to purchase an additional 1,649,600 shares of
common stock of the Company at an exercise price of $6.50 per share, for an
aggregate purchase price of $30 million. The agreement was completed effective
as of December 30, 1992. Traco is also party to an agreement with the Company
providing representation on the Company's Board of Directors and restricting
Traco's rights to acquire, sell and vote the Company's shares.
STOCK PURCHASE RIGHTS
A dividend of one Right per common share was distributed to stockholders of
record January 31, 1986, and effective July 12, 1989, the Agreement governing
the Rights was amended. Each common share, adjusted for the May 1986 3-for-2
stock split, now represents .6667 Right. Each Right, expiring January 31, 1996,
continues to represent a right to buy from the Company 1/100th of a share of
Series B Junior Participating Preferred Stock, $1.00 par value, at a price of
$120. This dividend distribution of the Rights was not taxable to the Company
or its stockholders.
Separate certificates for Rights will not be distributed, nor will the Rights
be exercisable, unless a person or group acquires 15 percent or more, or
announces an offer to acquire 15 percent or more, of the Company's
F-16
<PAGE>
common shares. Following an acquisition of 15 percent or more of the Company's
common shares (a "Stock Acquisition"), each Right holder, except the 15 percent
or more stockholder, has the right to receive, upon exercise, common shares
valued at TWICE the then applicable exercise price of the Right (or, under
certain circumstances, cash, property or other Company securities), unless the
15 percent or more stockholder has offered to acquire all of the outstanding
shares of the Company under terms that a majority of the independent directors
of the Company have determined to be fair and in the best interest of the
Company and its stockholders. Similarly, unless certain conditions are met, if
the Company engages in a merger or other business combination following a Stock
Acquisition where it does not survive or survives with a change or exchange of
its common shares or if 50 percent or more of its assets, earning power or cash
flow is sold or transferred, the Rights will become exercisable for shares of
the acquiror's stock having a value of TWICE the exercise price (or, under
certain circumstances, cash or property). The Rights are not exercisable,
however, until the Company's right of redemption described below has expired.
Generally, Rights may be redeemed for $.033 cents each (in cash, common
shares or other consideration the Company deems appropriate) until the earlier
of (i) the tenth day following public announcement that a 15 percent or greater
position has been acquired in the Company's stock or (ii) the final expiration
of the Rights. In connection with the previously discussed sale of 5.7 million
shares of common stock and three year warrant to purchase an additional 1.6
million shares ("stock sale"), the Agreement governing the Rights was amended
to exclude the stock sale from qualifying as an event which would give rise to
the distribution or exercisability of the Rights. Until exercise, a Right
holder, as such, has no rights as a stockholder of the Company.
At the annual meeting in April 1993, a majority of the stockholders voted in
favor of a non-binding stockholder proposal calling for either the submission
of the Rights Plan to a binding shareholder vote or a redemption of the Rights.
However, the Company's current financing agreements prohibit the purchase or
redemption of the Rights.
STOCK OPTION PLANS
The Company has stock option plans under which officers and key employees may
be granted options to purchase the Company's common stock at prices equal to
the fair market value at date of grant. Generally, options under the 1982 and
1985 Stock Option Plans are exercisable to the extent of 25% each year
(cumulative) from the second through the fifth year, and expire ten years after
date of grant; however, all or any portion of the shares granted are
exercisable during the period beginning one year after date of grant for
participants employed by the Company for at least five years. A portion of the
options granted under the 1988 Stock Option Plan have exercise provisions
similar to the other plans; the remaining grants become exercisable over a
three to five year period based upon the achievement of company-wide
performance goals. Under certain circumstances, the vesting may be accelerated.
All options expire ten years after date of grant under the Plans.
The 1982, 1985 and 1988 Plans also provide for the discretionary grant of
stock appreciation rights in conjunction with the option, which allows the
holder a combination of stock and cash equal to the gain in market price from
the grant until its exercise; the cash payment is limited to one-half of the
gain. Under certain circumstances, the entire gain attributable to rights
granted under the 1988 Plan may be paid in cash. When options and stock
appreciation rights are granted in tandem, the exercise of one cancels the
other. The 1985 and 1988 Plans provide for the discretionary grant of
restricted stock awards which allows the holder to obtain full ownership rights
subject to terms and conditions specified at the time each award is granted.
The 1988 Plan provides for an annual grant of Director Stock Options (DSO) to
outside members of the Board of Directors at market value on the date of grant.
In addition, each outside director may make an irrevocable election to receive
a DSO in lieu of all or part of his or her retainer. The number of whole shares
to be granted is based on the annual retainer divided by the market value minus
one dollar and the exercise
F-17
<PAGE>
price is $1. Each outside director is also eligible for an annual grant of a
Director Deferred Stock Award (DDSA) equal to 150 DDSA units, with a unit equal
to one share of the Company's common stock; DDSA units are payable in shares of
common stock upon death, disability or termination of service. Dividend
equivalents may be earned on qualifying DSO and DDSA units and allocated to
directors' respective accounts in accordance with the terms of the Plan. During
fiscal 1993, 23,336 DSO were granted, no DSO were exercised and 64,132 DSO were
outstanding at November 30, 1993.
Stock options outstanding at November 30, 1993 included 265,989 shares
granted in tandem with stock appreciation rights. Activity for 1992 included
the October 14th grant of 326,500 stock options at $5.25 per share, which
exceeded the market price of $3.83 per share, to employees who agreed to the
cancellation of 1,035,606 options granted to them from 1983 through 1992. In
general, one-third of these options are exercisable on each of the first three
anniversaries of the grant date. Options for 503,140 shares were exercisable at
November 30, 1993 at prices ranging from $5.25 to $30.81. At November 30, 1993,
2,012,161 shares were reserved for options and restricted stock awards granted
or to be granted including 496,181 shares for future stock options and/or
restricted stock awards (958,770 at November 30, 1992).
Information regarding stock option activity for the three years ended
November 30, 1993 is as follows:
<TABLE>
<CAPTION>
NUMBER OF
SHARES PRICE PER SHARE
---------- ----------------
<S> <C> <C>
Balance at November 30, 1990................ 1,532,750 $ 6.00 to $31.62
Granted................................... 326,000 $ 7.31 to $12.50
Expired or terminated..................... (86,166) $10.81 to $31.62
----------
Balance at November 30, 1991................ 1,772,584 $ 6.00 to $31.62
Granted................................... 458,655 $ 5.25 to $ 7.25
Expired or terminated..................... (1,342,798) $ 6.00 to $31.62
----------
Balance at November 30, 1992................ 888,441 $ 5.25 to $30.81
Granted................................... 368,000 $ 6.88 to $ 7.06
Expired or terminated..................... (230,650) $ 5.25 to $30.81
----------
Balance at November 30, 1993................ 1,025,791 $ 5.25 to $30.81
==========
</TABLE>
LEGAL PROCEEDINGS
The Company is involved in certain litigation described under the caption
"Business--Legal Proceedings." The Company believes that it has meritorious
defenses to the actions against the Company referred to under such caption and
that such actions will not have a material adverse effect on the Company's
financial condition.
F-18
<PAGE>
OPERATING SEGMENT INFORMATION
The Company is engaged in the business of manufacturing and marketing apparel
to unaffiliated retailers (identified below as the wholesale segment) and
directly to consumers through its owned retail stores and catalogs (identified
below as the direct-to-consumer segment and previously called the retail
segment). Information on the Company's wholesale and direct-to-consumer
operations for the three years ended November 30, 1993 is summarized as follows
(in millions):
<TABLE>
<CAPTION>
1991
----------------------------------
DIRECT-
TO-
WHOLESALE CONSUMER ADJ. CONSOL.
--------- -------- ----- --------
<S> <C> <C> <C> <C>
Sales to unaffiliated customers.......... $578.0 $637.3 -- $1,215.3
Earnings (loss) before taxes............. 27.2 (41.2) (46.0) (60.0)
Gross assets at year end................. 328.0 372.7 39.1 739.8
Depreciation and amortization............ 9.6 23.6 0.6 33.8
Property additions....................... 7.2 8.2 0.1 15.5
<CAPTION>
1992
----------------------------------
DIRECT-
TO-
WHOLESALE CONSUMER ADJ. CONSOL.
--------- -------- ----- --------
<S> <C> <C> <C> <C>
Sales to unaffiliated customers.......... $592.3 $461.6 -- $1,053.9
Earnings (loss) before taxes............. 24.8 (198.5) (53.2) (226.9)
Gross assets at year end................. 367.4 98.4 46.2 512.0
Depreciation and amortization............ 10.8 15.8 0.3 26.9
Property additions....................... 4.2 5.3 -- 9.5
<CAPTION>
1993
----------------------------------
DIRECT-
TO-
WHOLESALE CONSUMER ADJ. CONSOL.
--------- -------- ----- --------
<S> <C> <C> <C> <C>
Sales to unaffiliated customers.......... $567.3 $164.7 -- $ 732.0
Earnings (loss) before taxes............. 36.8 2.5 (32.9) 6.4
Gross assets at year end................. 313.4 73.3 18.4 405.1
Depreciation and amortization............ 9.1 4.9 0.1 14.1
Property additions....................... 5.3 0.6 -- 5.9
</TABLE>
The largest customer represents approximately 12% of consolidated sales in
1993. The wholesale segment reflects products sold to unaffiliated retailers
for resale to consumers, principally from the Men's Apparel Group. The direct-
to-consumer segment reflects sales to end consumers through owned retail stores
and catalogs, comprised of products manufactured by the Company's subsidiaries
as well as products purchased from unaffiliated sources. In 1993, approximately
76% of Kuppenheimer's sales and 6% of Barrie Pace catalog sales represented
products manufactured by the Company. Prior to the disposition of HSSI to an
unaffiliated third party in September, 1992, sales of those products
manufactured by certain of the Company's subsidiaries and sold by HSSI were
reported in the direct-to-consumer segment upon their ultimate sale to
consumers. Direct-to-consumer segment sales for 1992 included approximately
$250 million related to sales made by HSSI prior to its disposition and $34
million related to the Old Mill stores.
Wholesale segment earnings before taxes reflect the manufacturing gross
margin associated with products sold to unaffiliated retailers. The earnings
(loss) before taxes of the direct-to-consumer segment reflect the gross margin
between retail selling price and cost associated with products manufactured by
the Company and those purchased from unaffiliated sources. Segment results for
1992 include pre-tax restructuring charges of $190.8 million, principally
attributable to the disposition and liquidation of retail operations. Direct-
to-consumer segment assets reflect the disposition of HSSI during 1992. The
direct-to-consumer segment results for 1991 include the $13.5 million of
expenses provided for the retail consolidation.
F-19
<PAGE>
Operating expenses incurred by the Company in generating sales are charged
against the respective segment's sales; indirect operating expenses are
allocated to the segments benefited. Segment results exclude any allocation of
general corporate expense, interest expense or income taxes.
Adjustments of earnings before taxes consist of interest expense and general
corporate expenses. Adjustments of gross assets are for cash, recoverable
income taxes and corporate properties, investments and other assets.
Adjustments of depreciation and amortization and net property additions are for
corporate properties.
F-20
<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
NO DEALER, SALESMAN OR OTHER PERSON HAS BEEN AUTHORIZED TO GIVE ANY INFORMA-
TION OR TO MAKE ANY REPRESENTATION NOT CONTAINED IN THIS PROSPECTUS AND, IF
GIVEN OR MADE, SUCH INFORMATION OR REPRESENTATION MUST NOT BE RELIED UPON AS
HAVING BEEN AUTHORIZED BY THE COMPANY OR ANY UNDERWRITER. THIS PROSPECTUS DOES
NOT CONSTITUTE AN OFFER TO SELL OR A SOLICITATION OF AN OFFER TO BUY ANY OF THE
SECURITIES OFFERED HEREBY IN ANY JURISDICTION TO ANY PERSON TO WHOM IT IS UN-
LAWFUL TO MAKE ANY SUCH OFFER IN SUCH JURISDICTION. NEITHER THE DELIVERY OF
THIS PROSPECTUS NOR ANY SALE MADE HEREUNDER SHALL, UNDER ANY CIRCUMSTANCES,
CREATE ANY IMPLICATION THAT THE INFORMATION CONTAINED HEREIN IS CORRECT AS OF
ANY TIME SUBSEQUENT TO THE DATE HEREOF OR THAT THERE HAS BEEN NO CHANGE IN THE
AFFAIRS OF THE COMPANY SINCE SUCH DATE.
---------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Prospectus Summary........................................................ 3
Risk Factors.............................................................. 11
Use of Proceeds........................................................... 16
Capitalization............................................................ 16
Selected Historical and Pro Forma Consolidated Financial Information...... 17
Management's Discussion and Analysis of Financial Condition and Results of
Operations............................................................... 19
Supplemental Financial Information........................................ 25
Business.................................................................. 27
Management................................................................ 43
Description of Certain Indebtedness....................................... 45
Description of the Notes.................................................. 47
Underwriting.............................................................. 67
Legal Matters............................................................. 68
Experts................................................................... 68
Available Information..................................................... 68
Incorporation of Certain Documents by Reference........................... 69
Index to Consolidated Financial Statements................................ F-1
</TABLE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
LOGO
$100,000,000
% Senior Subordinated Notes
Due 2002
----------------------
PROSPECTUS
----------------------
CS First Boston
Merrill Lynch & Co.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE>
GRAPHICS APPENDIX
1. Page 2 and the two fold-out pages between page 2 and page 3 of the
Prospectus contain various photographs of certain of the Company's product
lines.
2. The inside back cover of the Prospectus contains various photographs of
certain historical product lines of the Company.
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 14. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION
The following table sets forth an itemized statement of all expenses in
connection with the issuance and distribution of the Notes being registered,
other than underwriting discounts and commissions. All amounts except the
Commission registration fee and the NASD filing fee are estimated.
<TABLE>
<S> <C>
SEC Registration Fee............................................ $ 34,483
NASD Filing Fee................................................. 10,500
Printing and Engraving Expenses................................. 200,000
Accounting Fees and Expenses.................................... 100,000
Legal Fees and Expenses......................................... 150,000
Blue Sky Fees and Expenses...................................... 10,000
Trustee's Fees and Expenses..................................... 20,000
Rating Agency Fees.............................................. 25,000
Miscellaneous................................................... 50,017
--------
Total....................................................... $600,000
========
</TABLE>
ITEM 15. INDEMNIFICATION OF DIRECTORS AND OFFICERS
The General Corporation Law of the State of Delaware (the "GCLD") and Article
EIGHTH of the Company's Restated Certificate of Incorporation provide for the
indemnification of any person who was, is or is threatened to be made a party
to any action because such person is or was a director, officer, employee or
agent of the Company, or served another enterprise at the request of the
Company, against reasonable expenses (including attorneys' fees) and, except as
to an action by or in the right of the Company whereby such person is found
liable to the Company, judgments, fines and reasonable settlement payments in
connection with such actions.
The Bylaws of the Company provide for indemnification of its officers and
directors to the fullest extent permitted by the GCLD. The Company has entered
into indemnification agreements (ratified by its shareholders) with each member
of its Board of Directors to provide them with specific contractual assurance
of indemnification, rights to advance reimbursement of related expenses and
certain other protections not specifically provided under Delaware law.
Directors' rights under the Indemnification Agreements are not exclusive of
other rights they have under the Company's Bylaws or Restated Certificate of
Incorporation or under Delaware law.
The GCLD authorizes the purchase of indemnification insurance by the Company.
The Company currently maintains a policy insuring, subject to certain
exceptions, its directors and officers and the directors and officers of its
subsidiaries against liabilities that may be incurred by such persons acting in
such capacities.
ITEM 16. EXHIBITS
<TABLE>
<C> <S>
Exhibit 1 Form of Underwriting Agreement.
Exhibit 4-C Form of % Senior Subordinated Notes due 2002 of Hartmarx
Corporation (included as part of Exhibit 4-D).
Exhibit 4-D Form of Indenture, dated as of March , 1994, between the Company
and Bank One Wisconsin Trust Company, N.A., Trustee, relating to
the % Senior Subordinated Notes due 2002 of Hartmarx
Corporation.
Exhibit 4-E Form of Credit Agreement, dated as of March , 1994, among the
Company, the Lenders listed therein and General Electric Capital
Corporation, as Managing Agent and Collateral Agent.
Exhibit 5 Opinion of Skadden, Arps, Slate, Meagher & Flom as to the legality
of the Notes.
Exhibit 12 Computation of Ratio of Earnings to Fixed Charges of Hartmarx
Corporation.
</TABLE>
II-1
<PAGE>
<TABLE>
<C> <S>
Exhibit 23-A Consent of Price Waterhouse.
Exhibit 23-B Consent of Skadden, Arps, Slate, Meagher & Flom (included as part
of Exhibit 5).
Exhibit 24 Power of Attorney of directors and certain officers of Hartmarx
Corporation, included on signature page.
Exhibit 25 Form T-1 Statement of Eligibility under the Trust Indenture Act
of 1939, as amended, of Bank One Wisconsin Trust Company, N.A.,
as Trustee under the Senior Subordinated Notes Indenture.
</TABLE>
ITEM 17. UNDERTAKINGS
(a) The undersigned registrant hereby undertakes that, for purposes of
determining any liability under the Securities Act of 1933, each filing of the
registrant's annual report pursuant to Section 13(a) or Section 15(d) of the
Securities Exchange Act of 1934 (and, where applicable, each filing of an
employee benefit plan's annual report pursuant to Section 15(d) of the
Securities Exchange Act of 1934), that is incorporated by reference in the
registration statement shall be deemed to be a new registration statement
relating to the securities offered therein, and the offering of such securities
at that time shall be deemed to be the initial bona fide offering thereof.
(b) Insofar as indemnification for liabilities arising under the Securities
Act of 1933 may be permitted to directors, officers and controlling persons of
the registrant pursuant to the foregoing provisions, or otherwise, the
registrant has been advised that in the opinion of the Securities and Exchange
Commission such indemnification is against public policy as expressed in the
Act and is, therefore, unenforceable. In the event that a claim for
indemnification against such liabilities (other than the payment by the
registrant of expenses incurred or paid by a director, officer or controlling
person of the registrant in the successful defense of any action, suit or
proceeding) is asserted by such director, officer or controlling person in
connection with the securities being registered, the registrant will, unless in
the opinion of its counsel the matter has been settled by controlling
precedent, submit to a court of appropriate jurisdiction the question whether
such indemnification by it is against public policy as expressed in the Act and
will be governed by the final adjudication of such issue.
(c) The undersigned registrant hereby undertakes that:
(1) For purposes of determining any liability under the Securities Act of
1933, the information omitted from the form of prospectus filed as part of
this registration statement in reliance upon Rule 430A and contained in a
form of prospectus filed by the registrant pursuant to Rule 424(b)(1) or
(4) or 497(h) under the Securities Act shall be deemed to be part of this
registration statement as of the time it was declared effective.
(2) For the purpose of determining any liability under the Securities Act
of 1933, each post-effective amendment that contains a form of prospectus
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.
II-2
<PAGE>
SIGNATURES
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, AS AMENDED, THE
REGISTRANT CERTIFIES THAT IT HAS REASONABLE GROUNDS TO BELIEVE THAT IT MEETS
ALL OF THE REQUIREMENTS FOR FILING ON FORM S-3 AND HAS DULY CAUSED THIS
AMENDMENT TO THE REGISTRATION STATEMENT TO BE SIGNED ON ITS BEHALF BY THE
UNDERSIGNED, THEREUNTO DULY AUTHORIZED, IN THE CITY OF CHICAGO, STATE OF
ILLINOIS, ON MARCH 16, 1994.
Hartmarx Corporation
/s/ Wallace L. Rueckel
By: _________________________________
Wallace L. Rueckel
Executive Vice President and Chief
Financial Officer
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<S> <C> <C>
*Elbert O. Hand
- ------------------------------------
Elbert O. Hand Director, Chairman of the
Board and Chief Executive
Officer (Principal
Executive Officer) March 16, 1994
/s/ Wallace L. Rueckel
- ------------------------------------
Wallace L. Rueckel Executive Vice President and
Chief Financial Officer
(Principal Financial
Officer) March 16, 1994
*Glenn R. Morgan
- ------------------------------------
Glenn R. Morgan Senior Vice President and
Controller (Principal
Accounting Officer) March 16, 1994
*A. Robert Abboud
- ------------------------------------
A. Robert Abboud Director March 16, 1994
*Letitia Baldrige
- ------------------------------------
Letitia Baldrige Director March 16, 1994
*Jeffrey A. Cole
- ------------------------------------
Jeffrey A. Cole Director March 16, 1994
*Raymond F. Farley
- ------------------------------------
Raymond F. Farley Director March 16, 1994
</TABLE>
II-3
<PAGE>
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<S> <C> <C>
*Donald P. Jacobs
- ------------------------------------
Donald P. Jacobs Director March 16, 1994
*Miles L. Marsh
- ------------------------------------
Miles L. Marsh Director March 16, 1994
*Charles Marshall
- ------------------------------------
Charles Marshall Director March 16, 1994
*Charles K. Olson
- ------------------------------------
Charles K. Olson Director March 16, 1994
*Talat M. Othman
- ------------------------------------
Talat M. Othman Director March 16, 1994
*Homi B. Patel
- ------------------------------------
Homi B. Patel Director March 16, 1994
*Stuart L. Scott
- ------------------------------------
Stuart L. Scott Director March 16, 1994
*Sam F. Segnar
- ------------------------------------
Sam F. Segnar Director March 16, 1994
</TABLE>
/s/ Wallace L. Rueckel
*By:___________________________
Wallace L. Rueckel,
Attorney-in-fact
II-4
<PAGE>
EXHIBIT INDEX
<TABLE>
<CAPTION>
SEQUENTIAL
EXHIBIT PAGE
NUMBER EXHIBIT DESCRIPTION NUMBER
------- ------------------- ----------
<C> <S> <C>
Exhibit 1 Form of Underwriting Agreement.
Exhibit 4-C Form of % Senior Subordinated Notes due 2002 of
Hartmarx Corporation (included as part of Exhibit
4-D).
Exhibit 4-D Form of Indenture, dated as of March , 1994,
between the Company and Bank One Wisconsin Trust
Company, N.A., Trustee, relating to the %
Senior Subordinated Notes due 2002 of Hartmarx
Corporation.
Exhibit 4-E Form of Credit Agreement, dated as of March , 1994,
among the Company, the Lenders listed therein and
General Electric Capital Corporation, as Managing
Agent and Collateral Agent.
Exhibit 5 Opinion of Skadden, Arps, Slate, Meagher & Flom as
to the legality of the Notes.
Exhibit 12 Computation of Ratio of Earnings to Fixed Charges of
Hartmarx Corporation.
Exhibit 23-A Consent of Price Waterhouse.
Exhibit 23-B Consent of Skadden, Arps, Slate, Meagher & Flom
(included as part of Exhibit 5).
Exhibit 24 Power of Attorney of directors and certain officers
of Hartmarx Corporation, included on signature
page.
Exhibit 25 Form T-1 Statement of Eligibility under the Trust
Indenture Act of 1939, as amended, of Bank One
Wisconsin Trust Company, N.A., as Trustee under the
Senior Subordinated Notes Indenture.
</TABLE>
II-5
