<PAGE> 1
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON APRIL 26, 1999
REGISTRATION NO. 333-75691
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
AMENDMENT NO. 1
TO
FORM S-4
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933
THE MEN'S WEARHOUSE, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
<TABLE>
<S> <C> <C>
TEXAS 5600 74-1790172
(STATE OR OTHER JURISDICTION OF (PRIMARY STANDARD INDUSTRIAL (I.R.S. EMPLOYER IDENTIFICATION
INCORPORATION OR ORGANIZATION) CLASSIFICATION CODE NUMBER) NUMBER)
</TABLE>
5803 GLENMONT DRIVE
HOUSTON, TEXAS 77081
(713) 592-7200
(ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER,
INCLUDING AREA CODE, OF REGISTRANT'S PRINCIPAL EXECUTIVE OFFICES)
GARY CKODRE
5803 GLENMONT DRIVE
HOUSTON, TEXAS 77081
(713) 592-7200
(NAME, ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE
NUMBER, INCLUDING AREA CODE, OF AGENT FOR SERVICE)
Copies to:
<TABLE>
<S> <C>
MICHAEL W. CONLON DAVID M. CARTER
FULBRIGHT & JAWORSKI L.L.P. HUNTON & WILLIAMS
1301 MCKINNEY NATIONSBANK PLAZA
HOUSTON, TEXAS 77010 SUITE 4100
(713) 651-5427 600 PEACHTREE STREET, N.E.
ATLANTA, GEORGIA 30308
(404) 888-4246
</TABLE>
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: As soon as
practicable after this Registration Statement becomes effective and all other
conditions to the merger of K&G Men's Center, Inc. ("K&G") with a subsidiary of
Registrant pursuant to the Agreement and Plan of Merger dated as of March 3,
1999, described in the proxy statement/prospectus contained herein have been
satisfied. If the securities being registered on this Form are being offered in
connection with the formation of a holding company and there is compliance with
General Instruction G, check the following box. If this form is filed to
register additional securities for an offering pursuant to Rule 462(b) under the
Securities Act, check the following box and list the Securities Act registration
statement number of the earlier effective registration statement for the same
offering. If this form is a post-effective amendment filed pursuant to Rule
462(d) under the Securities Act, check the following box and list the Securities
Act registration statement number of the earlier registration statement for the
same offering. [ ]
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL
FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(a) OF
THE SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(a),
MAY DETERMINE.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE> 2
K&G MEN'S CENTER, INC.
1225 CHATTAHOOCHEE AVENUE, NW
ATLANTA, GEORGIA 30318
PHONE: (404) 351-7987
April 26, 1999
Dear Shareholder:
You are cordially invited to attend the 1999 Annual Meeting of Shareholders
of K&G Men's Center, Inc. ("K&G"), which will be held at 11:00 a.m. on Tuesday,
June 1, 1999 at K&G's headquarters at 1225 Chattahoochee Avenue, NW, Atlanta,
Georgia.
The principal business of the meeting will be to consider and vote upon a
proposal to approve an Agreement and Plan of Merger, dated March 3, 1999, by and
among The Men's Wearhouse, Inc. ("TMW"), TMW Combination Company, a newly formed
wholly owned subsidiary of TMW ("Merger Sub"), and K&G, under which TMW will
combine with K&G through a merger of Merger Sub with and into K&G. The merger
agreement provides that, upon completion of the merger, K&G shareholders will
receive between 0.4 and 0.43 of a share (the "Exchange Ratio") of TMW common
stock, par value $.01 per share, for each outstanding share of K&G common stock,
par value $.01 per share. We will determine the final Exchange Ratio by
computing the average closing price per share of TMW common stock, as reported
on the Nasdaq National Market System, for the 15 trading days ending on the
third trading day before the closing date of the merger. If the average closing
price is $32.50 or more, the Exchange Ratio will be 0.4. If the average closing
price is $27.50 or less, the Exchange Ratio will be 0.43. If the average closing
price is between $27.50 and $32.50, the Exchange Ratio will be appropriately
prorated to be between 0.4 and 0.43. If the Exchange Ratio was determined using
the closing price for TMW common stock on April 22, 1999 (the last practicable
trading day for which information was available prior to the date of this proxy
statement/prospectus), K&G shareholders would receive .4218 of a share of TMW
common stock for each share of K&G common stock. As a result, TMW would issue an
aggregate of approximately 4.3 million shares of TMW common stock in exchange
for the outstanding shares of K&G common stock (representing approximately 12%
of the outstanding shares of TMW common stock) and TMW would reserve
approximately 0.2 million additional shares of TMW common stock for issuance for
outstanding stock options issued to employees of K&G. After the merger, K&G will
be a wholly owned subsidiary of TMW and TMW shareholders will continue to hold
their shares of TMW common stock. Other business of the meeting will be (i) to
elect K&G's Class I directors to serve a three-year term expiring in 2002 in
accordance with K&G's Articles of Incorporation, (ii) to ratify the appointment
of Arthur Andersen LLP by the board of directors of K&G as the independent
public accountants of K&G and (iii) to transact such other business as may come
before the meeting.
A summary of the basic terms and conditions of the merger, certain financial
and other information relating to TMW and K&G and a copy of the merger agreement
are set forth in the enclosed proxy statement/prospectus. Also enclosed are
copies of K&G's 1999 Annual Report to Shareholders, which includes K&G's annual
report on Form 10-K for the year ended January 31, 1999, and TMW's annual report
on Form 10-K for the year ended January 30, 1999. Please review and consider the
enclosed materials carefully.
The board of directors of K&G has unanimously approved the merger agreement
and the related transactions. THE BOARD OF DIRECTORS OF K&G BELIEVES THAT THE
PROPOSED MERGER IS IN THE BEST INTERESTS OF K&G AND THE SHAREHOLDERS OF K&G AND
UNANIMOUSLY RECOMMENDS THAT YOU VOTE "FOR" ITS APPROVAL, AND "FOR" EACH OF THE
OTHER PROPOSALS INCLUDED HEREIN.
WHETHER OR NOT YOU PLAN TO ATTEND THE MEETING, IT IS IMPORTANT THAT YOUR
SHARES BE REPRESENTED AND VOTED. ACCORDINGLY, WE ASK THAT YOU MARK, DATE, SIGN
AND RETURN YOUR PROXY AT YOUR EARLIEST CONVENIENCE IN THE ENVELOPE PROVIDED,
WHICH REQUIRES NO POSTAGE IF MAILED IN THE UNITED STATES. IF YOU HAVE MULTIPLE
SHAREHOLDER ACCOUNTS AND RECEIVE MORE THAN ONE SET OF THESE MATERIALS, PLEASE BE
SURE TO VOTE EACH PROXY AND RETURN IT IN THE RESPECTIVE POSTAGE-PAID ENVELOPE
PROVIDED.
Thank you for your continued interest and cooperation.
Very truly yours,
/s/ STEPHEN H. GREENSPAN
Stephen H. Greenspan
Chairman of the Board, President and
Chief Executive Officer
<PAGE> 3
K&G MEN'S CENTER, INC.
1225 CHATTAHOOCHEE AVENUE, NW
ATLANTA, GEORGIA 30318
PHONE: (404) 351-7987
NOTICE OF ANNUAL MEETING OF SHAREHOLDERS
The 1999 Annual Meeting of Shareholders of K&G Men's Center, Inc. ("K&G")
will be held at 11:00 a.m. on Tuesday, June 1, 1999 at K&G's headquarters at
1225 Chattahoochee Avenue, NW, Atlanta, Georgia 30318. The meeting is called for
the following purposes:
(1) To consider and vote upon a proposal to approve an Agreement and
Plan of Merger, dated March 3, 1999, by and among The Men's Wearhouse, Inc.
("TMW"), TMW Combination Company, a newly formed wholly owned subsidiary of
TMW ("Merger Sub"), and K&G. Under the merger agreement, TMW will acquire
K&G through a merger of Merger Sub with and into K&G. The merger agreement
provides that, upon completion of the merger, K&G shareholders will receive
between 0.4 and 0.43 of a share of TMW common stock in exchange for each
outstanding share of K&G common stock.
(2) To elect K&G's Class I directors to serve a three-year term
expiring in 2002 in accordance with K&G's Articles of Incorporation;
(3) To ratify the appointment of Arthur Andersen LLP by the board of
directors of K&G as the independent public accountants of K&G; and
(4) To transact such other business as may properly come before the
meeting.
THE BOARD OF DIRECTORS OF K&G HAS CAREFULLY CONSIDERED THE TERMS OF THE
MERGER AGREEMENT AND THE MERGER AND BELIEVES THAT THE MERGER IS FAIR TO, AND IN
THE BEST INTERESTS OF, K&G AND ITS SHAREHOLDERS. THE BOARD OF DIRECTORS OF K&G
HAS UNANIMOUSLY APPROVED THE MERGER AGREEMENT AND THE MERGER AND UNANIMOUSLY
RECOMMENDS THAT SHAREHOLDERS VOTE "FOR" APPROVAL OF THE MERGER, AND FOR EACH OF
THE OTHER PROPOSALS INCLUDED HEREIN.
The board of directors has fixed the close of business on April 20, 1999,
as the record date for the determination of shareholders entitled to notice of,
and to vote at, the annual meeting or any adjournment or postponement thereof.
Only shareholders of record at the close of business on the record date are
entitled to notice of and to vote at the annual meeting. A complete list of
shareholders will be available for examination at the annual meeting and at
K&G's offices at 1225 Chattahoochee Avenue, N.W., Atlanta, Georgia, during
ordinary business hours, after May 20, 1999, for the examination by any K&G
shareholder for any purpose related to the annual meeting.
By Order of the Board of Directors,
/s/ JOHN C. DANCU
John C. Dancu,
Assistant Secretary
April 26, 1999
IMPORTANT
YOU ARE CORDIALLY INVITED TO ATTEND THE ANNUAL MEETING IN PERSON. EVEN IF
YOU PLAN TO BE PRESENT, YOU ARE URGED TO MARK, DATE, SIGN AND RETURN THE
ENCLOSED PROXY AT YOUR EARLIEST CONVENIENCE IN THE ENVELOPE PROVIDED, WHICH
REQUIRES NO POSTAGE IF MAILED IN THE UNITED STATES. IF YOU ATTEND THE ANNUAL
MEETING, YOU MAY VOTE EITHER IN PERSON OR BY YOUR PROXY.
<PAGE> 4
PROSPECTUS
THE MEN'S WEARHOUSE, INC.
(COMMON STOCK, PAR VALUE $.01 PER SHARE)
K&G MEN'S CENTER, INC.
PROXY STATEMENT
ANNUAL MEETING OF SHAREHOLDERS TO BE HELD JUNE 1, 1999
This proxy statement/prospectus relates to the 1999 Annual Meeting of
Shareholders of K&G Men's Center, Inc., a Georgia corporation ("K&G") at which
K&G's shareholders will be asked to consider, among other things, a proposed
merger pursuant to the terms of an Agreement and Plan of Merger, dated March 3,
1999, by and among The Men's Wearhouse, Inc., a Texas corporation ("TMW"), TMW
Combination Company, a Georgia corporation and a wholly owned subsidiary of TMW
("Merger Sub"), and K&G. Under the merger agreement, each shareholder of K&G
will receive between 0.4 and 0.43 of a share of TMW common stock in exchange for
each share of K&G common stock that they own on the record date. In the merger,
Merger Sub will be merged into K&G. K&G will survive and become a wholly owned
subsidiary of TMW.
TMW has filed a registration statement on Form S-4 under the Securities Act
of 1933, as amended, covering the number of shares of TMW common stock that TMW
will need to issue to shareholders of K&G in the merger (between approximately
4.1 million shares and 4.4 million shares with an approximate aggregate market
value of between $118 million and $127 million). This proxy statement/prospectus
constitutes the prospectus that TMW files as part of its registration statement
and also constitutes the proxy statement that K&G furnishes to its shareholders
in connection with the solicitation of proxies by the board of directors of K&G
for use at the Annual Meeting of the Shareholders of K&G scheduled to be held on
June 1, 1999, or at any adjournment or postponement of that meeting.
This proxy statement/prospectus and the accompanying form of proxy, along
with the enclosed copies of K&G's 1999 Annual Report to Shareholders and TMW's
annual report on Form 10-K for the year ended January 30, 1999, are first being
mailed to shareholders of K&G on or about April 28, 1999.
On April 22, 1999, the closing price of TMW common stock on the Nasdaq
National Market System was $28.88 per share and the closing price of K&G common
stock on Nasdaq was $10.38 per share. The equivalent value of the K&G common
stock (derived by multiplying the closing price of TMW common stock by an
exchange ratio of .4218) was $12.18 on that date.
AN INVESTMENT IN TMW COMMON STOCK AFTER THE MERGER INVOLVES RISKS. SEE
"RISK FACTORS" BEGINNING ON PAGE 11.
NEITHER THE SECURITIES AND EXCHANGE COMMISSION NOR ANY STATE SECURITIES
COMMISSION HAS APPROVED OR DISAPPROVED OF THE MERGER AND THE SHARES OF TMW
COMMON STOCK TO BE ISSUED IN THE MERGER OR DETERMINED IF THIS PROSPECTUS IS
TRUTHFUL OR COMPLETE. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
The date of this proxy statement/prospectus is April 26, 1999.
<PAGE> 5
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
WHERE YOU CAN FIND MORE INFORMATION......................... iii
SUMMARY..................................................... 1
SUMMARY HISTORICAL AND PRO FORMA FINANCIAL INFORMATION
SOURCES OF INFORMATION.................................... 6
TMW Summary Consolidated Financial and Operating
Information............................................ 7
K&G Selected Consolidated Financial Data.................. 9
Summary Unaudited Pro Forma Combined Financial
Information............................................ 10
RISK FACTORS................................................ 11
QUESTIONS AND ANSWERS ABOUT THE MERGER FOR K&G
SHAREHOLDERS.............................................. 17
COMPARATIVE PER SHARE DATA.................................. 20
MARKET PRICES AND DIVIDEND INFORMATION...................... 21
CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING STATEMENTS... 22
THE COMPANIES............................................... 23
TMW and its Subsidiaries.................................. 23
Merger Sub................................................ 25
K&G....................................................... 25
THE ANNUAL MEETING OF K&G SHAREHOLDERS...................... 26
Time, Date and Place...................................... 26
Purpose of the Annual Meeting............................. 26
Record Date; Voting Rights; Vote Required for Approval.... 26
Proxies................................................... 26
Availability of Accountants............................... 27
THE MERGER AND RELATED TRANSACTIONS......................... 28
The Merger................................................ 28
Background of the Merger.................................. 28
K&G's Reasons for the Merger.............................. 30
Recommendation of the K&G Board of Directors.............. 31
Opinion of NationsBanc to the Directors of K&G............ 31
Interests of Certain Persons in the Merger................ 37
Certain United States Federal Income Tax Consequences..... 38
Accounting Treatment...................................... 39
Governmental and Regulatory Matters....................... 39
No Appraisal Rights....................................... 40
Federal Securities Law Consequences; Resale
Restrictions........................................... 40
CERTAIN TERMS OF THE MERGER AGREEMENT....................... 41
The Merger................................................ 41
Certain Covenants......................................... 41
Certain Representations and Warranties.................... 43
Conditions to the Merger.................................. 43
Termination of the Merger Agreement....................... 44
Expenses.................................................. 45
Amendments................................................ 46
TMW SELECTED CONSOLIDATED FINANCIAL INFORMATION............. 47
K&G SELECTED CONSOLIDATED FINANCIAL DATA.................... 49
PRO FORMA COMBINED FINANCIAL STATEMENTS..................... 50
Basis of Presentation..................................... 50
Unaudited Pro Forma Combined Balance Sheet, January 30,
1999................................................... 52
Unaudited Pro Forma Combined Statement of Earnings for the
Year Ended January 30, 1999............................ 53
Unaudited Pro Forma Combined Statement of Earnings for the
Year Ended January 31, 1998............................ 54
Unaudited Pro Forma Combined Statement of Earnings for the
Year Ended February 1, 1997............................ 55
Notes to Pro Forma Combined Financial Statements.......... 56
</TABLE>
i
<PAGE> 6
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
DESCRIPTION OF TMW CAPITAL STOCK............................ 57
Common Stock.............................................. 57
Preferred Stock........................................... 57
Limitation of Director Liability.......................... 58
Transfer Agent and Registrar.............................. 58
Comparative Rights of TMW and K&G Shareholders............ 58
TMW MANAGEMENT INFORMATION.................................. 61
Board of Directors........................................ 61
Executive Officers........................................ 62
Executive Compensation.................................... 63
Certain Relationships and Related Transactions............ 67
Security Ownership of Certain Beneficial Owners and
Management of TMW...................................... 68
K&G ADDITIONAL PROPOSALS AND MANAGEMENT INFORMATION......... 70
PROPOSAL -- ELECTION OF DIRECTORS........................... 70
Nominee for Election -- Term Expiring 2002 -- Class I..... 70
Additional Information Concerning the Board of
Directors.............................................. 71
Executive Officers........................................ 72
Employment Agreements..................................... 73
Compliance with Section 16(a) of the Securities Exchange
Act of 1934............................................ 73
Beneficial Ownership of K&G Common Stock.................. 74
Security Ownership of Certain Beneficial Owners and
Management of K&G...................................... 74
Executive Compensation.................................... 75
Report on Executive Compensation.......................... 75
Compensation Committee Interlocks and Insider
Participation.......................................... 76
Certain Relationships and Related Transactions............ 76
Table I -- Summary Compensation Table..................... 77
Table II -- Option Grants in Fiscal 1998.................. 78
Table III -- Option Exercises in Fiscal 1998 and Fiscal
1998 Year-End Option Values............................ 78
Performance Graph......................................... 79
PROPOSAL -- RATIFICATION OF APPOINTMENT OF K&G'S INDEPENDENT
PUBLIC ACCOUNTANTS........................................ 79
SHAREHOLDER PROPOSALS....................................... 79
ANNUAL REPORT............................................... 80
LEGAL MATTERS............................................... 80
EXPERTS..................................................... 80
ANNEX A -- Agreement and Plan of Merger..................... A-i
ANNEX B -- Opinion of NationsBanc Montgomery Securities
LLC....................................................... B-1
ANNEX C -- The Men's Wearhouse, Inc. Annual Report on Form
10-K for the year ended January 30, 1999.................. C-i
</TABLE>
ii
<PAGE> 7
WHERE YOU CAN FIND MORE INFORMATION
TMW and K&G are each subject to the informational requirements of the
Securities Exchange Act of 1934, as amended, and in accordance with the Exchange
Act file annual, quarterly and current reports, proxy statements and other
information with the Securities and Exchange Commission. You may read and copy
any reports, statements or other information TMW and K&G file at the SEC's
public reference rooms at 450 Fifth Street, N.W., Washington, D.C. 20549, Seven
World Trade Center, New York, New York 10048 and 500 West Madison, 14th Floor,
Chicago, Illinois 60661. Please call the SEC at 1-800-SEC-0300 for further
information on the public reference rooms. TMW and K&G SEC filings also are
available to the public from commercial document retrieval services and at the
world wide web site maintained by the SEC at http://www.sec.gov. You may also
inspect such reports, proxy statements and other information concerning TMW and
K&G at the offices of the Nasdaq National Market, 9801 Washingtonian Boulevard,
Gaithersburg, Maryland, 20898.
TMW has filed the TMW Registration Statement on Form S-4 with the SEC to
register the TMW common stock to be issued in the merger. This proxy
statement/prospectus will be a part of the TMW Registration Statement and will
constitute a prospectus of TMW in addition to being a proxy statement of K&G for
the annual meeting.
As allowed by SEC rules, this proxy statement/prospectus does not contain
all the information you can find in the TMW Registration Statement or the
exhibits to the TMW Registration Statement.
The SEC allows TMW and K&G to "incorporate by reference" information into
this proxy statement/prospectus. This means that TMW and K&G can disclose
important information to you by referring you to another document filed
separately with the SEC. The information incorporated by reference is deemed to
be part of this proxy statement/prospectus, except for any information
superseded by information in this proxy statement/prospectus. This proxy
statement/prospectus incorporates by reference the documents set forth below.
TMW or K&G has previously filed these documents with the SEC. These documents
contain important information about TMW or K&G, as applicable.
The following documents filed by TMW with the SEC (File No. 0-20036) are
incorporated herein by this reference:
- TMW's Annual Report on Form 10-K for the year ended January 30, 1999, a
copy of which is included in this proxy statement/prospectus as Annex C;
- TMW's Current Reports on Form 8-K, which were filed with the SEC on
February 25, 1999, March 5, 1999 and April 26, 1999;
- TMW's Definitive Proxy Statement for the Annual Meeting held June 24,
1998, which was filed with the SEC on May 19, 1998 as part of Schedule
14A; and
- The description of TMW's common stock contained in its Form 8-A, dated
April 3, 1993.
The following documents filed by K&G with the SEC (File No.0-27348) are
incorporated herein by this reference:
- K&G's Annual Report on Form 10-K for the year ended January 31, 1999; and
- K&G's Current Report on Form 8-K which was filed with the SEC on March
10, 1999.
TMW and K&G also are incorporating by reference all additional documents
that either files with the SEC pursuant to Section 13(a), 13(c), 14 or 15(d) of
the Exchange Act between the date of this proxy statement/prospectus and the
date of the annual meeting.
If you are a shareholder of TMW or K&G, you may have already received some
of the documents incorporated by reference, but you can obtain any of them from
TMW or K&G, as applicable, or the SEC. Documents incorporated by reference are
available from TMW or K&G, as applicable, without charge, excluding exhibits
unless those exhibits are specifically incorporated by reference as an exhibit
in this proxy
iii
<PAGE> 8
statement/prospectus. Shareholders may obtain documents that are referred to or
that are incorporated by reference in this proxy statement/prospectus by
requesting them in writing or by telephone at the following addresses:
<TABLE>
<S> <C>
If from TMW: If from K&G:
5803 Glenmont Drive 1225 Chattahoochee Avenue, N.W.
Houston, Texas 77081 Atlanta, Georgia 30318
Attn: Investor Relations Attn: Investor Relations
Department Department
Tel: (713) 592-7200 Tel: (404) 351-7987
</TABLE>
IF YOU WOULD LIKE TO REQUEST DOCUMENTS, PLEASE DO SO BY MAY 24, 1999 TO
RECEIVE THEM BEFORE THE ANNUAL MEETING.
YOU SHOULD RELY ONLY ON THE INFORMATION CONTAINED OR INCORPORATED BY
REFERENCE IN THIS PROXY STATEMENT/ PROSPECTUS IN CONNECTION WITH DECIDING YOUR
VOTE UPON THE APPROVAL OF THE MERGER AGREEMENT AND THE MERGER. NEITHER TMW NOR
K&G HAS AUTHORIZED ANYONE TO PROVIDE YOU WITH INFORMATION DIFFERENT FROM WHAT IS
CONTAINED IN THIS PROXY STATEMENT/PROSPECTUS. THIS PROXY STATEMENT/PROSPECTUS IS
DATED APRIL 26, 1999. YOU SHOULD NOT ASSUME THAT THE INFORMATION CONTAINED IN
THIS PROXY STATEMENT/PROSPECTUS IS ACCURATE AS OF ANY DATE OTHER THAN SUCH DATE,
AND NEITHER THE MAILING OF THIS PROXY STATEMENT/PROSPECTUS TO SHAREHOLDERS NOR
THE ISSUANCE OF TMW COMMON STOCK IN THE MERGER SHALL CREATE ANY IMPLICATION TO
THE CONTRARY.
iv
<PAGE> 9
SUMMARY
This summary highlights selected information from this proxy
statement/prospectus and may not contain all of the information that is
important to you. To understand the merger and related transactions more fully,
you should carefully read this entire document and the documents referred to
under the caption "Where You Can Find More Information" on page iii.
THE COMPANIES (SEE PAGE 23)
TMW. The Men's Wearhouse, Inc. is a Texas corporation organized in 1974. As
used in this proxy statement/prospectus, "TMW" means The Men's Wearhouse, Inc.,
and the "Company" means TMW and its subsidiaries, including Value Priced
Clothing, Inc. ("VPC") and Moores Retail Group Inc. and its subsidiaries
("Moores"). The Company is one of the largest off-price specialty retailers of
men's tailored business attire in North America. Its principal executive offices
are located at:
<TABLE>
<S> <C>
THE MEN'S WEARHOUSE, INC. THE MEN'S WEARHOUSE, INC.
40650 Encyclopedia Circle 5803 Glenmont Drive
Fremont, California 94538 Houston, Texas 77081
(510) 657-9821 (713) 592-7200
</TABLE>
The Company operates its stores in the United States in two formats. The
first format, Men's Wearhouse stores, targets middle and upper middle income men
by offering quality merchandise at everyday low prices. At March 26, 1999, TMW
operated 413 Men's Wearhouse stores in 40 states and the District of Columbia.
These stores are referred to as "Men's Wearhouse stores" or "traditional
stores".
The Company launched the second format, VPC, in late 1996 to address the
market for a more price sensitive customer. VPC operates stores under the names
"C&R", "SuitMax" and "Suit Warehouse". The stores operated by VPC are referred
to in this document as "VPC stores". At March 26, 1999, the Company operated 17
VPC stores in five states, including one C&R store which will be converted to a
SuitMax store and excluding three C&R stores that the Company is in the process
of closing.
On February 10, 1999, TMW acquired Moores for securities exchangeable for
an aggregate of 2.5 million shares of TMW common stock. Moores stores offer
quality men's tailored clothing at everyday low prices. At March 26, 1999,
through its subsidiary, Moores The Suit People Inc., Moores operated 109 stores
throughout Canada. In addition, Golden Brand Clothing (Canada) Ltd., a wholly
owned subsidiary of Moores, operates a manufacturing facility in Montreal,
Canada which manufactures nearly all of the tailored clothing offered for sale
in the Moores stores. Moores also operated eight stores in the United States;
however, the Company plans to close seven of these stores and to convert the
eighth store to a Men's Wearhouse store to eliminate duplicate store sites in
existing Men's Wearhouse markets. The Company has recorded estimated store
closing costs of approximately $3 million (before taxes) in connection with the
closing of these stores.
In this document, Moores Retail Group Inc. and its wholly owned
subsidiaries are collectively referred to as "Moores". The Canadian stores
operated by Moores are referred to as "Moores stores".
K&G. K&G was incorporated in Georgia in 1990. K&G is a superstore retailer
of men's apparel and accessories to more price sensitive customers. Thus, K&G is
more similar to VPC than to Men's Wearhouse. Its principal executive offices are
located at:
K&G MEN'S CENTER, INC.
1225 Chattahoochee Avenue, N.W.
Atlanta, Georgia 30318
(404) 351-7987
THE MERGER AND RELATED TRANSACTIONS (SEE PAGE 28)
Merger Sub will be merged into K&G. K&G will be the surviving corporation
and will become a wholly owned subsidiary of TMW.
1
<PAGE> 10
The merger agreement that provides for the merger and related transactions
is attached as Annex A to this proxy statement/prospectus. We encourage you to
read carefully that document in its entirety.
WHAT K&G SHAREHOLDERS WILL RECEIVE
If the merger is completed, K&G shareholders will receive between 0.4 and
0.43 of a share of TMW common stock for each share of K&G common stock that they
own. The exact exchange ratio will depend on the average trading price for the
TMW common stock during a 15 trading day period ending on the third trading day
before the merger.
Set forth below is a table showing a range of prices of TMW common stock,
along with entries showing the corresponding exchange ratios and corresponding
valuations of a share of K&G common stock. The table also highlights the minimum
and maximum Exchange Ratios and the point at which K&G's right to elect not to
proceed with the merger ("walk-away right") would be effective:
<TABLE>
<CAPTION>
AVERAGE
CLOSING PRICE VALUE OF A
OF TMW EXCHANGE SHARE OF K&G
COMMON STOCK RATIO COMMON STOCK
------------- -------- ------------
<S> <C> <C> <C>
$36.00 .4 $14.40
34.00 .4 13.60
Exchange Ratio Limitation....................... 32.50 .4 13.00
30.00 .415 12.45
28.00 .427 11.96
Exchange Ratio Limitation....................... 27.50 .43 11.83
26.00 .43 11.18
24.00 .43 10.32
22.00 .43 9.46
Walk Away Right................................. 20.00 .43 8.60
</TABLE>
For a shareholder who owns 100 shares of K&G common stock, if the exchange
ratio was .427, for example, this would translate into 42.7 shares of TMW common
stock. Since cash will be paid instead of fractional shares, that K&G
shareholder would receive 42 shares of TMW common stock and a check in the
amount equal to the fractional share multiplied by TMW's closing market price on
the trading day before completion of the merger.
The method for calculating the exchange ratio is explained in more detail
in "The Merger and Related Transactions -- The Merger" beginning on page 28.
K&G SHAREHOLDERS' APPROVAL
The K&G shareholders will be asked to approve the merger agreement and the
merger. Approval requires the favorable vote of holders of a majority of the
outstanding shares of K&G common stock.
VOTING BY K&G DIRECTORS AND EXECUTIVE OFFICERS
On the record date, the directors and executive officers of K&G, including
their affiliates, had voting power with respect to a total of 2,242,549 shares
of K&G common stock, or approximately 22% of the shares of K&G common stock
outstanding at that date.
K&G currently expects that its directors and executive officers will vote
their shares of K&G common stock "FOR" the proposal to approve the merger
agreement.
2
<PAGE> 11
RECOMMENDATION TO K&G SHAREHOLDERS
The board of directors of K&G believes the merger is in the best interests
of K&G and its shareholders and recommends that you vote "FOR" the merger
proposal.
In reaching its recommendation in favor of the merger, the K&G board of
directors considered the opportunities for K&G as a separate company and as
combined with TMW, as well as other factors, which are discussed in "The Merger
and Related Transactions -- K&G's Reasons for the Merger" beginning on page 30.
OPINION OF NATIONSBANC TO THE DIRECTORS OF K&G (SEE PAGE 31)
In deciding to approve the merger, the board of directors of K&G received
and considered the opinion of NationsBanc Montgomery Securities LLC
(NationsBanc) as to the fairness, from a financial point of view, of the merger
consideration as of March 3, 1999, the date the board of directors of K&G
considered and approved the TMW merger proposal. NationsBanc subsequently
confirmed its earlier opinion by delivery of its written opinion dated as of the
date hereof. The opinions of NationsBanc were addressed solely to the directors
of K&G. The opinions contain certain important qualifications and a description
of assumptions made, matters considered, areas of reliance on others and
limitations on the review undertaken by NationsBanc. A copy of the opinion dated
as of the date hereof is attached as Annex B to this proxy statement/prospectus.
A summary of that opinion is set forth on page 31.
ADDITIONAL CONSIDERATIONS FOR K&G SHAREHOLDERS
Interests of K&G Officers and Directors in the Merger (see page 37). When
considering the recommendations of the board of directors of K&G, you should be
aware that officers and directors of K&G have interests and arrangements that
may be different from your interests as shareholders:
- If the merger closes as currently expected, TMW has agreed to name Mr.
Greenspan Chief Executive Officer of the combined businesses of K&G and
VPC pursuant to an employment agreement with an initial term of three
years. Mr. Greenspan's annual base salary would be $250,000.
- If the merger closes as currently expected, TMW intends to elect Mr.
Greenspan to its board of directors.
- Pursuant to a termination agreement between K&G, TMW and Mr. Dancu, Mr.
Dancu is entitled to be paid $400,000 by K&G if the merger closes as
expected.
- Certain unvested stock options held by directors of K&G will vest upon
consummation of the merger.
CONDITIONS TO THE MERGER AND RELATED TRANSACTIONS (SEE PAGE 43)
We will complete the merger and related transactions only if certain
conditions, including the following, are satisfied or waived:
- The K&G shareholders approve the merger.
- Nasdaq approves for trading the shares of TMW common stock to be issued
in the merger.
- We receive all material governmental and other consents and approvals
required (including those under the Hart-Scott-Rodino Antitrust
Improvements Act).
- We receive favorable letters from the respective independent accountants
of TMW and K&G to the effect that the merger qualifies to be accounted
for as a pooling-of-interests.
- We receive favorable tax opinions from the respective counsel of TMW and
K&G.
3
<PAGE> 12
TERMINATION OF THE MERGER AGREEMENT (SEE PAGE 44)
We may mutually agree to terminate the merger agreement without completing
the merger. The merger agreement may also be terminated in certain other
circumstances, including the following:
- Either TMW or K&G may terminate the merger agreement if (i) the
shareholders of K&G do not vote to approve the merger, (ii) a court or
government authority has acted to prevent the merger or (iii) the merger
has not been completed by August 31, 1999.
- K&G may terminate the merger agreement if the average closing price of
TMW common stock for the 15 trading days ending on the third trading day
before the closing date of the merger is less than $20.00 and K&G pays
TMW $750,000. This is sometimes referred to as K&G's walk away right.
- K&G may terminate the merger agreement if it receives another proposal to
acquire all of the K&G common stock or all of the assets of K&G and K&G's
board of directors determines in good faith that the other proposal is
more favorable to K&G shareholders than the merger.
- TMW may terminate the merger agreement if the K&G board of directors
withdraws or modifies its recommendation of the merger agreement or
approves or recommends that K&G shareholders approve another proposal to
acquire a 10% or greater equity interest in K&G.
TERMINATION FEE (SEE PAGE 45)
If the merger agreement is terminated for certain reasons, as explained on
page 45, K&G must pay TMW a termination fee of $3 million.
REGULATORY APPROVALS (SEE PAGE 39)
We have made filings and taken other actions necessary to obtain approvals
from certain regulatory authorities, including antitrust authorities, in
connection with the merger. The initial filings under the Hart-Scott-Rodino
Antitrust Improvements Act were made on March 31, 1999. We expect to obtain all
necessary regulatory approvals before the annual meeting. However, it is not
certain that we will obtain all required regulatory approvals by then. Any
approvals that we receive may be subject to conditions that could be detrimental
to TMW or K&G.
ACCOUNTING TREATMENT AND CONSIDERATIONS (SEE PAGE 39)
We expect to account for the merger as a "pooling-of-interests." As a
result, the historical financial statements for periods prior to the merger will
be restated as though TMW and K&G had been combined from inception.
CERTAIN FEDERAL INCOME TAX CONSEQUENCES (SEE PAGE 38)
The merger is conditioned on the receipt of opinions from legal counsel
that, among other things:
- The merger qualifies as a tax-free reorganization.
- No gain or loss will be recognized by K&G's shareholders in connection
with the merger, except with respect to cash received instead of
fractional shares.
Tax matters are complicated, and the tax consequences of the proposed
transactions to you will depend on the facts of your own situation. You should
consult your own tax advisors for a full understanding of the tax consequences
to you of the merger.
NO APPRAISAL RIGHTS (SEE PAGE 40)
Under Georgia law, K&G shareholders will not have any right to an appraisal
of the value of their shares in connection with the merger.
4
<PAGE> 13
K&G MARKET PRICE INFORMATION (SEE PAGE 21)
K&G common stock is listed on the Nasdaq National Market System. On March
3, 1999, the last full trading day prior to the public announcement of the
proposed merger, K&G common stock closed at $8.38 per share. On April 22, 1999,
K&G common stock closed at $10.38 per share.
TMW MARKET PRICE INFORMATION (SEE PAGE 21)
TMW common stock is listed on the Nasdaq National Market System. On March
3, 1999, the last full trading day prior to the public announcement of the
proposed merger, TMW common stock closed at $26.75 per share. On April 22, 1999,
TMW common stock closed at $28.88 per share.
LISTING OF TMW COMMON STOCK (SEE PAGE 43)
We will apply to list on Nasdaq the TMW common stock to be delivered to K&G
shareholders under the merger agreement. The ticker symbol for the TMW common
stock on Nasdaq is "SUIT".
ANNUAL MEETING (SEE PAGE 26)
At the Annual Meeting, K&G shareholders are being asked to elect directors
and ratify the appointment of independent public accountants, in addition to
voting on the merger.
5
<PAGE> 14
SUMMARY HISTORICAL AND PRO FORMA FINANCIAL INFORMATION SOURCES OF INFORMATION
TMW and K&G are providing the following summary financial information to
help you in your analysis of the financial aspects of the proposed merger. TMW
and K&G derived this information from the audited historical and the unaudited
pro forma combined financial statements for the periods presented. The
information is only a summary and you should read it in conjunction with the
financial information included or incorporated by reference in this proxy
statement/prospectus. See "Where You Can Find More Information" on page iii,
"TMW Selected Consolidated Financial Information" on page 47, "K&G Selected
Consolidated Financial Data" on page 49 and "Pro Forma Combined Financial
Statements" on page 50.
On February 10, 1999, TMW acquired Moores Retail Group Inc., a New
Brunswick, Canada corporation ("Moores"), in exchange for securities
exchangeable for an aggregate of 2.5 million shares of TMW common stock. Moores
operated 107 men's tailored clothing stores in Canada and eight stores in the
United States as of that date. Moores also operates a manufacturing facility in
Montreal, Canada, which manufactures nearly all the tailored clothing offered
for sale in the Moores stores.
In connection with the closing of the Moores transaction, approximately US
$59 million of Moores' existing indebtedness was repaid. At the same time TMW
closed the Moores combination, TMW entered into two new Canadian credit
facilities for CAN $105 million (US $70 million) to fund the repayment of
Moores' debt and to provide working capital for the ongoing needs of Moores.
PREPARATION OF THE SUMMARY UNAUDITED PRO FORMA COMBINED FINANCIAL INFORMATION
The unaudited pro forma combined financial information is presented to show
you how TMW might have looked if the companies had been combined for the periods
presented. TMW and K&G prepared the pro forma financial information using the
pooling-of-interests method of accounting. See "The Merger and Related
Transactions-Accounting Treatment" on page 39.
If the companies had been combined in the past, they might have performed
differently. You should not rely on the pro forma financial information as an
indication of the results that TMW would have achieved if the merger had taken
place earlier or the future results that TMW will experience after the merger.
MERGER-RELATED EXPENSES
TMW and K&G estimate that the merger and related transactions will result
in fees and expenses totaling approximately $1.7 million, net of income tax
benefit of $0.3 million, which will be expensed upon closing of the merger.
After the merger, TMW may incur charges and expenses relating to integrating the
operations of K&G. We did not adjust the summary pro forma information for these
charges and expenses or for operating efficiencies that TMW may realize as a
result of the merger.
6
<PAGE> 15
THE MEN'S WEARHOUSE, INC.
SUMMARY CONSOLIDATED FINANCIAL AND OPERATING INFORMATION OF
The following summary of TMW historical consolidated financial information
is derived from and should be read in conjunction with TMW's consolidated
financial information incorporated by reference herein. References herein to
years are to TMW's 52- or 53-week fiscal year, which ends on the Saturday
nearest January 31 in the following calendar year. For example, references to
"1998" mean the fiscal year ended January 30, 1999. All fiscal years for which
financial information of TMW is included in this proxy statement/prospectus had
52 weeks, except for 1995, which had 53 weeks.
The table below also includes TMW/Moores pro forma summary consolidated
financial information in order to give effect to TMW's combination on a
pooling-of-interests basis with Moores Retail Group Inc. ("Moores") on February
10, 1999. The TMW/Moores pro forma statement of earnings and operating
information assumes the combination of the two entities occurred at the
beginning of fiscal 1997 and that 2.5 million shares of TMW common stock were
issued at that time. No information is presented for prior years as Moores
commenced operations on December 23, 1996. Moores' operating results for the
40-day period in fiscal 1996 were not significant. The TMW/Moores pro forma
balance sheet information assumes that TMW and Moores were combined on January
30, 1999 and reflects adjustments that give effect to nonrecurring charges
directly attributable to the combination, as well as to the effects of
refinancing approximately US $59 million of Moores' existing indebtedness at the
date of the combination. See "Unaudited Pro Forma Combined Financial Statements"
on page 50.
<TABLE>
<CAPTION>
TMW/MOORES
TMW HISTORICAL PRO FORMA
YEAR YEAR
--------------------------------------------------------- ---------------------
1994 1995 1996 1997 1998 1997 1998
--------- --------- --------- --------- --------- --------- ---------
(DOLLARS AND SHARES IN THOUSANDS, EXCEPT PER SHARE AND PER SQUARE FOOT DATA.)
<S> <C> <C> <C> <C> <C> <C> <C>
STATEMENT OF EARNINGS INFORMATION:
Net sales................................. $317,127 $406,343 $483,547 $631,110 $767,922 $762,524 $898,597
Gross margin.............................. 121,878 157,615 188,366 242,593 299,735 291,256 348,927
Operating income.......................... 22,375 30,606 38,134 51,530 71,682 64,897 85,711
Net earnings before extraordinary item.... 12,108 16,508 21,143 28,883 40,920 30,951 43,913
Basic earnings per share of common
stock(1)................................ $ 0.43 $ 0.55 $ 0.67 $ 0.89 $ 1.21 $ 0.89 $ 1.21
Diluted earnings per share of common
stock(1)................................ $ 0.42 $ 0.54 $ 0.67 $ 0.87 $ 1.17 $ 0.87 $ 1.17
Weighted average shares outstanding(1).... 28,216 29,821 31,354 32,343 33,849 34,843 36,349
Weighted average shares outstanding plus
dilutive potential common shares(1)..... 28,744 30,339 34,101 35,384 36,075 37,884 38,575
OPERATING INFORMATION:
Percentage increase in comparable store
sales(2):
TMW..................................... 8.4% 6.8% 3.9% 8.5% 10.4% 8.5% 10.4%
Moores.................................. 4.5% 2.2%
Average square footage -- all stores(3):
TMW..................................... 4,553 4,687 4,863 5,097 5,297 5,097 5,297
Moores.................................. 5,997 5,973
Average sales per square foot of selling
space(4):
TMW..................................... $ 406 $ 416 $ 413 $ 420 $ 437 $ 420 $ 437
Moores.................................. $ 228 $ 234
Number of stores:
Open at beginning of period............. 183 231 278 345 396 443 501
Opened.................................. 48 48 50 50 47 57 57
Acquired................................ -- -- 17 6 4 6 4
Closed.................................. -- (1) -- (5) (16) (5) (16)
-------- -------- -------- -------- -------- -------- --------
Open at end of period................... 231 278 345 396 431 501 546
CAPITAL EXPENDITURES...................... $ 23,736 $ 22,538 $ 26,222 $ 27,380 $ 46,247 $ 30,564 $ 50,050
</TABLE>
7
<PAGE> 16
<TABLE>
<CAPTION>
JAN. 28, FEB. 3, FEB. 1, JAN. 31, JAN. 30, JAN. 30,
1995 1996 1997 1998 1999 1999
-------- ------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C>
BALANCE SHEET INFORMATION:
Working capital....................................... $68,078 $88,798 $136,837 $182,561 $174,055 $198,208
Total assets.......................................... 160,494 204,105 295,478 379,415 403,732 473,549
Long-term debt(5)..................................... 24,575 4,250 57,500 57,500 -- 56,326
Shareholders' equity.................................. 84,944 136,961 159,129 220,048 298,218 297,763
</TABLE>
- ---------------
(1) All periods have been adjusted to give effect to a 50% stock dividend
effected on November 15, 1995 and a 50% stock dividend effected on June 19,
1998. Basic and diluted earnings per share are based on net earnings before
extraordinary item.
(2) Comparable store sales data is calculated by excluding the net sales of a
store for any month of one period if the store was not open throughout the
same month of the prior period.
(3) Average square footage for all stores is calculated by dividing the total
square footage for all stores open at the end of the period by the number of
stores open at the end of such period.
(4) Average sales per square foot of selling space is calculated by dividing
total selling square footage for all stores open the entire period into
total sales for those stores. All amounts presented for Moores have been
translated from Canadian dollars at the average exchange rate for the 1998
fiscal year.
(5) February 1, 1997 and January 31, 1998 balances represent the 5 1/4%
Convertible Subordinated Notes Due 2003. See "Management's Discussion and
Analysis of Financial Condition and Results of Operations -- Liquidity and
Capital Resources" in the TMW Annual Report on Form 10-K which is
incorporated by reference herein and is included in this proxy
statement/prospectus as Annex C for a discussion of the redemption of the
Notes.
8
<PAGE> 17
K&G MEN'S CENTER, INC.
SELECTED CONSOLIDATED FINANCIAL DATA
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AND OPERATING DATA)
The selected consolidated financial data below should be read in
conjunction with K&G's Consolidated Financial Statements and Notes thereto and
with "Management's Discussion and Analysis of Financial Condition and Results of
Operations" incorporated by reference herein from K&G's Annual Report on Form
10-K for the year ended January 31, 1999. The statement of earnings and balance
sheet data set forth below for the years ended February 2, 1997 (fiscal 1996),
February 1, 1998 (fiscal 1997) and January 31, 1999 (fiscal 1998), and as of
those dates have been derived from K&G's Consolidated Financial Statements,
which have been audited by Arthur Andersen LLP, K&G's independent public
accountants. All of the share and per share information set forth below has been
retroactively adjusted to give effect to a 3-for-2 stock split effected April
25, 1997.
<TABLE>
<CAPTION>
YEAR
-------------------------------------------------
1994 1995 1996 1997 1998
------- ------- ------- -------- --------
<S> <C> <C> <C> <C> <C>
STATEMENT OF EARNINGS INFORMATION:
Net sales.................................. $49,801 $60,027 $88,104 $112,795 $139,234
Gross margin............................... 11,557 14,433 20,760 26,282 32,153
Operating income........................... 3,722 5,138 7,008 9,607 9,536
Net earnings............................... 2,298 3,186 4,584 6,383 6,229
Basic earnings per share of common stock... $ 0.32 $ 0.40 $ 0.47 $ 0.63 $ 0.61
Diluted earnings per share of common
stock.................................... $ 0.32 $ 0.40 $ 0.47 $ 0.63 $ 0.61
Weighted average shares outstanding........ 7,245 7,875 9,682 10,118 10,207
Weighted average shares outstanding plus
dilutive potential common shares......... 7,245 7,875 9,787 10,211 10,207
OPERATING INFORMATION:
Percentage increase in comparable store
sales(1)................................. 17.2% 11.9% 12.4% 13.0% 5.7%
Average square footage -- all stores(2).... 16,966 17,000 17,207 17,543 17,839
Average sales per square foot of selling
space(3)................................. $ 539 $ 517 $ 436 $ 404 $ 363
Number of stores:
Open at beginning of period.............. 7 9 11 17 25
Opened................................... 2 3 6 8 8
Closed................................... (1)
------- ------- ------- -------- --------
Open at end of period.................... 9 11 17 25 33
CAPITAL EXPENDITURES....................... $ 367 $ 885 $ 1,128 $ 1,261 $ 3,424
BALANCE SHEET INFORMATION(4):
Working capital............................ $ 5,601 $ 7,813 $29,305 $ 35,025 $ 41,359
Total assets............................... 12,464 17,203 42,384 47,931 57,230
Long-term debt............................. 895 205 205 205 205
Shareholders' equity....................... 6,188 2,643 31,280 37,817 46,797
</TABLE>
- ---------------
(1) New stores become comparable stores beginning in their fourteenth full month
of operation.
(2) Average square footage for all stores is calculated by dividing the total
square footage for all stores open at the end of the period by the number of
stores open at the end of such period.
(3) Average sales per square foot of selling area is calculated by dividing
selling square footage for all stores open the entire period into net sales
for those stores. Selling area excludes administrative, storage, alterations
and fitting areas.
(4) K&G effected its initial public offering on January 24, 1996 (before fiscal
1995 year end). This transaction closed on January 30, 1996 (after year
end). The transaction has not been reflected in K&G's financial statements
as of January 28, 1996.
9
<PAGE> 18
SUMMARY UNAUDITED PRO FORMA COMBINED FINANCIAL INFORMATION
(IN THOUSANDS, EXCEPT PER SHARE DATA)
The following summary unaudited pro forma combined financial information of
TMW and K&G is presented to give effect to the merger under the
pooling-of-interests accounting method and assumes that the merger had occurred
at the beginning of the earliest period presented for the statement of earnings
information and as of the end of each period for the balance sheet information.
The pro forma information presented for 1997 and 1998 also gives effect to the
February 10, 1999 combination of TMW and Moores on a pooling-of-interests basis.
See "Summary Historical and Pro Forma Financial Information Sources of
Information" on page 6. The unaudited pro forma combined financial information
has been derived from and should be read in conjunction with the TMW and K&G
historical consolidated financial information and unaudited pro forma combined
financial statements included elsewhere or incorporated by reference in this
proxy statement/prospectus.
The summary unaudited pro forma combined financial information is not
necessarily an indication of the results TMW would have achieved if the merger
had taken place on the assumed dates or of the future results that TMW will
experience after the merger.
<TABLE>
<CAPTION>
YEAR
--------------------------------
1996 1997 1998(2)
-------- -------- ----------
<S> <C> <C> <C>
STATEMENT OF EARNINGS INFORMATION
Net sales................................................... $571,651 $875,319 $1,037,831
Gross margin................................................ 206,908 314,819 377,381
Operating income............................................ 45,142 74,504 95,247
Net earnings before extraordinary item...................... 25,727 37,334 50,142
Basic earnings per share of common stock(1)................. $ 0.72 $ 0.95 $ 1.23
Diluted earnings per share of common stock(1)............... 0.72 0.93 1.19
Weighted average shares outstanding(1)...................... 35,517 39,194 40,738
Weighted average shares outstanding plus dilutive potential
common shares(1).......................................... 38,309 42,275 42,964
BALANCE SHEET INFORMATION
Working capital............................................. $166,142 $234,376 $ 237,892
Total assets................................................ 337,862 500,371 531,104
Long-term debt.............................................. 57,705 107,800 56,531
</TABLE>
- ---------------
(1) Basic and diluted earnings per share are based on net earnings before
extraordinary item and are computed using the number of shares of TMW common
stock that would have been outstanding in each year based on the maximum
Exchange Ratio of 0.43. Data for 1997 and 1998 also gives effect to the
issuance of 2.5 million shares of TMW common stock issuable upon exchange of
certain exchangeable securities of Moores issued in the February 10, 1999
combination of TMW and Moores.
(2) Balance sheet information presented as of year end 1998 gives effect to
nonrecurring charges and the refinancing of approximately US $59 million of
Moores indebtedness in connection with the February 10, 1999 combination of
TMW and Moores and to nonrecurring charges in connection with the merger of
TMW and K&G. See "Pro Forma Combined Financial Statements" on page 50.
10
<PAGE> 19
RISK FACTORS
An investment in the TMW common stock offered by this proxy
statement/prospectus involves a high degree of risk. Before you decide to invest
in the TMW common stock offered by this proxy statement/prospectus, you should
carefully consider the following risk factors, together with the other
information contained or incorporated by reference in this proxy
statement/prospectus.
COMBINATIONS WITH MOORES AND K&G
On February 10, 1999, TMW combined with Moores. Moores operated 107 men's
tailored clothing stores in Canada and eight stores in the United States as of
that date. Moores also operates a manufacturing facility in Montreal, Canada,
which manufactures men's suits, sport coats and pants. The combination of both
Moores and K&G with TMW will require our management to focus considerable
attention on integration of their operations with the Company. This will
temporarily divert some of our management's attention from normal day-to-day
business. Also, combining personnel with different business backgrounds and
locations and combining companies with different corporate cultures could be
difficult. This is especially true with respect to Moores since we have not
previously had any operations outside the United States and have not previously
engaged in manufacturing. We cannot assure you that we will be able to integrate
both K&G and Moores with TMW on a timely or profitable basis. While we believe
that both K&G's and Moores' employees are well qualified, we cannot assure you
that key employees will continue to work for us.
EXCHANGE RATE FLUCTUATIONS
Moores conducts most of its business in Canadian dollars. The exchange rate
between Canadian dollars and U.S. dollars has fluctuated over the last ten
years. If the value of the Canadian dollar against the U.S. dollar weakens, then
the revenues and earnings of the Company's Canadian operations will be reduced
when they are translated to U.S. dollars. Also, the value of the Company's
Canadian net assets in U.S. dollars may decline.
The Company and K&G use direct sourcing programs for inventory purchases.
Some of these transactions are denominated in foreign currencies, primarily the
Italian lira, which create currency exchange risks. Forward exchange contracts
are used to protect against these risks, but the Company cannot assure you that
currency exchange losses will not occur.
MANUFACTURING RISKS
Moores, through its wholly owned subsidiary, Golden Brand Clothing (Canada)
Ltd., manufactures nearly all of the tailored clothing offered for sale by
Moores stores. Prior to the combination with Moores, the Company did not own any
manufacturing facilities. A large part of Moores' growth and profitability has
resulted from the ability of Golden Brand to manufacture high quality clothes in
an efficient and timely manner. A long interruption in Golden Brand's ability to
manufacture tailored clothing could have a material negative impact on the
Moores operations.
There are a variety of risks associated with the manufacturing business
including:
- labor,
- machinery,
- maintenance,
- product scheduling and delivery systems, and
- obtaining raw materials on a timely basis.
11
<PAGE> 20
The Company could experience shortages in men's tailored clothing to sell
in its Moores stores if Golden Brand fails to meet its production goals for any
reasons, including:
- labor disputes,
- delays in production, or
- machinery breakdowns or repair problems.
Golden Brand's principal raw material is fabric. Many of Golden Brand's
suppliers have supplied fabric to Golden Brand for more than ten years. If one
of the current suppliers is unable or unwilling to provide fabric, we believe
that there are other suppliers of fabric who could supply fabric to Golden
Brand, although we cannot assure you that it would be at comparable cost. As is
normal in the industry, most of Golden Brand's supply contracts are seasonal.
There could be a negative effect on the ability of Golden Brand to meet its
production goals if any of the following occurred:
- an unexpected loss of a supplier of fabric,
- a long interruption in shipments from any fabric supplier,
- an unexpected loss of any of the suppliers of raw materials other than
fabric or other finished goods, or
- a long interruption in the shipment of raw materials or finished goods.
The negative effect would be particularly noticeable with regard to Golden
Brand's seasonal or time-sensitive products.
EXPANSION STRATEGY
A large part of the Company's growth has resulted from the addition of new
Men's Wearhouse stores and the increased sales volume and profitability provided
by these stores. The Company will continue to depend on adding new stores to
increase its sales volume and profitability. The Company believes that its
ability to increase the number of traditional stores in the United States above
500 will be limited. However, the Company anticipates that additional growth
opportunities exist through the VPC operations. When the Company enters new
markets, it has to:
- obtain suitable store locations,
- hire personnel,
- establish distribution methods, and
- advertise its name and its distinguishing characteristics to consumers
who may not be familiar with them.
The Company cannot assure you that it will be able to open and operate new
Men's Wearhouse or VPC stores on a timely and profitable basis. The costs
associated with opening new stores may negatively affect the Company's
profitability. The Company's expansion strategy may also be negatively affected
by conditions in the commercial real estate market existing at the time it seeks
to expand.
In addition to its growth through adding new stores, the Company, excluding
Moores, has experienced increases in U.S. store sales over the previous year for
each of the past five years. Comparable store sales increased:
- 3.9% for 1996,
- 8.5% for 1997, and
- 10.4% for 1998.
12
<PAGE> 21
Comparable store sales increases for Moores during the same periods were:
- 4.5% for 1997, and
- 2.2% for 1998.
The Company cannot assure you that it will experience similar rates of
comparable store sales growth in future periods.
The Company is also focused on integrating and developing operations that
target the more price sensitive clothing customers. The combination with K&G is
part of this focus. VPC acquired 17 C&R stores, six NAL stores and four Suit
Warehouse stores to begin this process. The Company has closed most of the C&R
locations and anticipates that all C&R locations will be closed by the end of
the first quarter of 1999. In some cases, the Company relocated Men's Wearhouse
stores to old C&R store locations. SuitMax stores are being opened to replace
C&R stores. However, in connection with the combination with K&G, VPC is
re-evaluating its store branding opportunities. VPC will incur substantial
advertising expenditures to gain and expand market identity once it has selected
its store branding approach. At least temporarily, these expenditures will lower
operating margins. The Company cannot assure you that its expansion into the
more price sensitive market will be successful.
After the closing of this transaction, the Company's management intends to
evaluate the K&G operations with regard to duplicate facilities within existing
markets. This could result in store modifications, relocations or closures of
certain of the Company's stores or K&G's stores. Management is not able to
estimate at this time the costs, if any, that may be incurred for such
modifications, relocations or closures.
SEASONALITY AND GENERAL ECONOMIC CONDITIONS
Like K&G and most other retail businesses, the Company's business is
seasonal. Historically, over 30% of the Company's net sales and approximately
50% of its net earnings have been made during November, December and January.
Like other retail businesses, our operations may be negatively affected by
local, regional or national economic downturns. Any economic downturn affecting
us might cause consumers to reduce their spending, which would affect our sales.
We cannot assure you that a long economic downturn would not have a noticeable
negative effect on us.
DECLINING UNIT SALES OF MEN'S TAILORED CLOTHING
According to industry sources, sales in the men's tailored clothing market
generally have declined over the past several years. We believe that this
decline is attributable primarily to: (1) men allocating less of their income to
tailored clothing and (2) certain employers relaxing their dress codes. We
believe that this decrease in sales has contributed, and will continue to
contribute, to a consolidation among retailers of men's tailored clothing.
Despite this overall decline, the Company has been able to increase its share of
the men's tailored clothing market. Although the Company believes it is in a
consolidating segment of the retailing industry, the Company cannot assure you
that it will continue to be able to expand its sales volume or maintain its
profitability within that segment of the industry.
COMPETITION
The men's tailored clothing market is fragmented, and the Company faces
intense competition for:
- customers,
- access to quality merchandise, and
- suitable store locations.
13
<PAGE> 22
The Company competes with:
- specialty men's clothing stores,
- traditional department stores,
- other off-price retailers and manufacturer-owned stores,
- independently owned outlet stores,
- discount operators, and
- three-day stores.
Several of these competitors are part of large department store chains that
have much greater financial, marketing and other resources than the Company has
available. The Company cannot assure you that it will be able to compete
successfully with its competitors in the future.
POSSIBLE FLUCTUATIONS IN STOCK PRICE
The market price of TMW common stock has fluctuated in the past and may
change rapidly in the future depending on news announcements and changes in
general market conditions. See "Market Prices and Dividend Information" on page
21. The following factors, among others, may cause significant fluctuations in
TMW's stock price:
- news announcements regarding quarterly or annual results of operations,
- monthly comparable store sales,
- acquisitions,
- competitive developments,
- litigation affecting the Company, or
- market views as to the prospects of retailing generally.
In addition, the shares of TMW common stock issuable as a result of the
Moores transaction and the shares of TMW common stock to be issued in the merger
will represent between approximately 15.9% and 16.5% of the outstanding shares
of TMW common stock. If the holders of a significant amount of those shares
decide to sell at about the same time, the price of TMW common stock could
decline significantly as a result.
CONTROL OF TMW
After the shares of K&G common stock are exchanged for TMW common stock in
the merger, TMW's executive officers and directors, excluding Mr. Greenspan who
will own between 1.2% and 1.3%, will own between approximately 21.5% and 21.4%
of the outstanding shares of TMW common stock. Because the executive officers
and directors own such a large percentage of the outstanding shares of TMW
common stock, if they act together, they could exercise substantial control
over:
- the election of all of the directors,
- the approval of any sale of assets, merger or consolidation, and
- the outcome of all of the matters submitted to TMW's shareholders for a
vote.
RELIANCE ON KEY PERSONNEL
Mr. George Zimmer has been very important to the Company's success. Mr.
Zimmer is the Company's Chairman of the Board, Chief Executive Officer and
primary advertising spokesman. The loss of Mr. Zimmer's services could have a
significant negative effect on the Company.
14
<PAGE> 23
Also, the Company's continued success and the achievement of its expansion
goals are dependent upon its ability to attract and retain additional qualified
employees as it expands.
PREFERRED STOCK AUTHORIZED FOR ISSUANCE
TMW has available for issuance 1,999,999 shares of preferred stock, par
value $.01 per share. TMW's board of directors is authorized to issue any or all
of this preferred stock, in one or more series, without any further action on
the part of shareholders. Your rights as a holder of TMW common stock may be
negatively affected if TMW issues a series of preferred stock in the future that
has preference over TMW common stock with respect to the payment of dividends or
distribution upon TMW's liquidation, dissolution or winding up. See "Description
of Capital Stock -- Preferred Stock" on page 57.
YEAR 2000 RISKS
In mid-1997, the Company began a company-wide project to upgrade its
information technology. This information technology is designed to increase the
efficiency and the future productivity of the Company's operations. By
completing these changes, the Company expects its computer systems to properly
recognize and use dates beyond December 31, 1999. The costs related to the
project are expected to be between $20.0 million and $25.0 million, including
past and future expenditures. The costs related specifically to Year 2000 issues
cannot be separated from this amount. The Company expects all of its business
systems to be Year 2000 compliant by mid-1999. The Company does not anticipate
that the cost will have a material effect on its consolidated financial position
or results of operations in any given year. However, the Company may not
identify or be able to address all Year 2000 compliance issues. Also, the
Company also cannot assure you that third parties with whom it does business
will not experience system failures as a result of the Year 2000 issue. The
Company cannot predict the consequences of noncompliance. For additional
information concerning the Company's response to the year 2000 issues and the
risk associated therewith, see "Management's Discussion and Analysis of
Financial Condition and Results of Operations -- Year 2000 Risks" in TMW's
Annual Report on Form 10-K for the year ended January 30, 1999 attached as Annex
C to this proxy statement/prospectus.
The statements included in this section "Year 2000 Risks" are intended to
be and are designated "Year 2000 Readiness Disclosure" statements within the
meaning of the Year 2000 Information and Readiness Disclosure Act.
FORWARD-LOOKING STATEMENTS
Certain statements made in this proxy statement/prospectus and in other
public filings and releases by TMW and K&G contain "forward-looking" information
(as defined in the Private Securities Litigation Reform Act of 1995) that
involve risk and uncertainty. These forward-looking statements may include, but
are not limited to:
- future capital expenditures,
- acquisitions (including the amount and nature thereof),
- future sales,
- earnings,
- margins,
- costs,
- number and costs of store openings,
- demand for men's clothing,
- market trends in the retail men's clothing business,
- currency fluctuations,
15
<PAGE> 24
- inflation, and
- various economic and business trends.
Management may make forward-looking statements orally or in writing,
including but not limited to, this proxy statement/prospectus and other of our
filings with the SEC under the Securities Exchange Act of 1934 and the
Securities Act of 1933.
In connection with such forward-looking statements, you should consider
that they involve known and unknown risks, uncertainties and other factors that
are, in some cases, beyond our control. You are cautioned that any such
statements are not guarantees of future performance and that actual results and
trends in the future may differ materially. Differences may result from a
variety of factors including, but not limited to:
- success in integrating K&G and Moores with existing operations,
- U.S. and international economic activity and inflation,
- success in execution of internal operating plans,
- success in execution of new store and new market expansion plans,
- performance issues with key suppliers,
- foreign currency fluctuations,
- government export and import policies,
- legal proceedings,
- our ability to continue to identify and complete successful expansions
into existing markets, and
- our ability to continue to identify and complete successful penetrations
into new markets.
16
<PAGE> 25
QUESTIONS AND ANSWERS ABOUT THE MERGER FOR K&G SHAREHOLDERS
The following questions and answers highlight selected information
regarding the merger and related transactions described in this proxy
statement/prospectus and may not contain all information that is important to
you as you consider the merits of the merger. For a more complete description of
the terms of the merger and the related transactions, please read this entire
proxy statement/prospectus and the documents we refer to. See also "Where You
Can Find More Information" on page iii.
In this proxy statement/prospectus:
- We refer to The Men's Wearhouse, Inc., a Texas corporation, as "TMW".
- We refer to TMW and its subsidiaries as the "Company".
- We refer to TMW Combination Company, a Georgia corporation and a newly
formed subsidiary of TMW, as "Merger Sub".
- We refer to K&G Men's Center, Inc., a Georgia corporation, as "K&G".
- We refer to the merger of Merger Sub into K&G as the "merger".
- We refer to the agreement between TMW, Merger Sub and K&G concerning the
merger as the "merger agreement".
Q: PLEASE BRIEFLY DESCRIBE THE PROPOSED MERGER AND THE RELATED TRANSACTIONS.
A: Merger Sub, a newly formed, wholly owned subsidiary of TMW, will be merged
into K&G, with K&G being the surviving corporation and becoming a wholly
owned subsidiary of TMW.
Q: WHAT WILL I RECEIVE IN THE MERGER?
A: As a K&G shareholder, you will receive between 0.4 and 0.43 of a share of
TMW common stock in exchange for each share of K&G common stock that you
own. We will determine the final Exchange Ratio based on an average closing
price per share of TMW common stock, as reported on Nasdaq, for the 15
trading days ending on the third trading day before the closing date of the
merger. You will receive only whole shares of TMW common stock. We will pay
you cash for any fractional shares you would otherwise receive in the
exchange.
Q: WHY IS THE BOARD OF DIRECTORS OF K&G RECOMMENDING THAT I VOTE IN FAVOR OF
THE MERGER?
A: In the opinion of K&G's board of directors, the merger is in the best
interests of K&G and its shareholders. For the merger to occur, the holders
of a majority of K&G's outstanding common stock must approve the merger. A
more detailed description of the background and reasons for the merger
appears on pages 28 and 30, respectively.
Q: HOW MANY SHARES OF TMW COMMON STOCK WILL BE OUTSTANDING AFTER THE MERGER?
A: When the merger is completed, we expect that there will be between
approximately 41.6 million shares and 41.9 million shares of TMW common
stock outstanding, approximately 9.9% to 10.5% of which will be held by
former shareholders of K&G.
Q: WHAT DIVIDENDS WILL I RECEIVE IN THE FUTURE?
A: TMW has not paid any cash dividends on the TMW common stock and for the
foreseeable future TMW intends to retain all of its earnings for the future
operation and expansion of its business. TMW's credit agreement prohibits
the payment of cash dividends on TMW common stock.
Q: WHERE WILL THE SHARES OF TMW COMMON STOCK BE LISTED?
A: The shares of TMW common stock to be delivered in the merger will be listed
on the Nasdaq National Market System.
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<PAGE> 26
Q: WHAT ARE THE TAX CONSEQUENCES TO K&G SHAREHOLDERS OF THE MERGER?
A: TMW and K&G believe the merger will be tax-free to the shareholders of K&G
for U.S. federal income tax purposes, except for cash received instead of
fractional shares. A more detailed description of the U.S. federal income
tax consequences of the merger appears on page 38.
Q: WHEN IS THE MERGER EXPECTED TO BE COMPLETED?
A: TMW and K&G expect that the merger will be completed promptly after the
annual meeting and receipt of governmental approvals, including antitrust
clearance. TMW and K&G anticipate closing the transaction late in the
second quarter of 1999.
Q: WHAT SHOULD I DO NOW?
A: After reading this document carefully, you should complete and sign your
proxy card and mail it in the enclosed return envelope as soon as possible,
so that your shares may be represented at the annual meeting. The K&G board
of directors recommends voting for adoption of the merger agreement and the
merger.
Q: SHOULD I SEND MY STOCK CERTIFICATES NOW?
A: No. After the merger is completed, TMW will send you instructions for
exchanging your shares of K&G common stock for shares of TMW common stock.
Q: IF MY SHARES ARE HELD IN "STREET NAME" BY MY BROKER, WILL MY BROKER VOTE MY
SHARES FOR ME?
A: With respect to the merger, your broker will vote your shares only if you
provide instructions on how to vote. You should follow the directions
provided by your broker regarding how to instruct your broker to vote your
shares.
Q: MAY I CHANGE MY VOTE AFTER I HAVE MAILED MY SIGNED PROXY CARD?
A: Yes. You can change your vote by sending in a later-dated, signed proxy
card to K&G's Secretary before the annual meeting or by attending the
annual meeting and voting in person.
Q: WHAT OTHER MATTERS WILL BE VOTED ON AT THE ANNUAL MEETING?
A: You will be asked to vote to elect two members of K&G's board of directors,
to ratify the appointment of Arthur Andersen LLP by the K&G board of
directors and to transact such other business as may properly come before
the meeting.
Q: MUST I VOTE ON THE MERGER TO VOTE ON THE OTHER MATTERS?
A: No. You may vote, or withhold your vote, on each matter.
Q: WHOM SHOULD I CALL WITH QUESTIONS?
A: If you have any questions about the merger, or if you would like copies of
any of the documents referred to or incorporated by reference in this proxy
statement/prospectus, please call: (i) Gary G. Ckodre, Vice
President -- Finance of TMW, at (713) 592-7200; or (ii) John C. Dancu,
Chief Operating Officer of K&G, at (404) 351-7987. See also "Where You Can
Find More Information" on page iii.
Q: WHAT WILL HAPPEN IN THE MERGER TO EMPLOYEE STOCK OPTIONS HELD BY K&G
EMPLOYEES?
A: Each outstanding option to purchase K&G common stock, whether vested or
unvested, will be converted into an option to purchase TMW common stock.
TMW will adjust the exercise prices of those options and the number of
shares of TMW common stock covered by those options using formulas designed
to maintain the approximate economic value of the K&G options at the time
of the merger. For this purpose, the number of shares of K&G common stock
that may be acquired by exercising options will be multiplied by the
Exchange Ratio and the exercise price per share will be divided by the
Exchange Ratio.
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<PAGE> 27
Q: MAY I EXERCISE STOCK OPTIONS AND SELL SHARES OF K&G COMMON STOCK BETWEEN
NOW AND THE COMPLETION OF THE MERGER?
A: Yes, unless you are subject to limitations on trading by persons defined as
K&G "affiliates" and other restrictions on "insider trading" under
securities laws. The limitations on "affiliates" are described beginning on
page 40.
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<PAGE> 28
COMPARATIVE PER SHARE DATA
The following table compares certain historical and pro forma earnings per
share and book value per share data for TMW and K&G. The table also includes
TMW/Moores pro forma data in order to give effect to TMW's combination on a
pooling-of-interests basis with Moores on February 10, 1999. The TMW/K&G pro
forma combined and equivalent data has been computed using the historical K&G
and the TMW/Moores pro forma data and is presented for the minimum and maximum
Exchange Ratios of 0.4 and 0.43. No cash dividends were paid by TMW or K&G
during any of the periods presented. You should read the table in conjunction
with the financial information for TMW and K&G included or incorporated by
reference in this proxy statement/prospectus. You should not rely on the pro
forma financial information as an indication of the results that TMW would have
achieved if the merger had taken place earlier or of the results of TMW after
the merger.
<TABLE>
<CAPTION>
TMW/K&G PRO FORMA (UNAUDITED)
-------------------------------------------------------
COMBINED(3) EQUIVALENT(4)
-------------------------- --------------------------
HISTORICAL TMW/MOORES HISTORICAL EXCHANGE EXCHANGE EXCHANGE EXCHANGE
TMW(1) PRO FORMA(1)(2) K&G(1) RATIO - 0.4 RATIO - 0.43 RATIO - 0.4 RATIO - 0.43
---------- --------------- ---------- ----------- ------------ ----------- ------------
<S> <C> <C> <C> <C> <C> <C> <C>
Basic earnings per share
from earnings before
extraordinary item:
Fiscal year 1998.......... 1.21 1.21 0.61 1.24 1.23 0.50 0.53
Fiscal year 1997.......... 0.89 0.89 0.63 0.96 0.95 0.38 0.41
Fiscal year 1996.......... 0.67 0.67 0.47 0.73 0.72 0.29 0.31
Diluted earnings per share
from earnings before
extraordinary item:
Fiscal year 1998.......... 1.17 1.17 0.61 1.20 1.19 0.48 0.51
Fiscal year 1997.......... 0.87 0.87 0.63 0.94 0.93 0.37 0.40
Fiscal year 1996.......... 0.67 0.67 0.47 0.72 0.72 0.29 0.31
Book value per share at
fiscal 1998 year end...... 8.55 7.97 4.56 8.27 8.21 3.31 3.53
</TABLE>
- ---------------
(1) Basic earnings per share is computed based on the weighted average number of
common shares outstanding. Diluted earnings per share is computed based on
the same weighted average shares plus the dilutive effect of options and
convertible securities for each period. Book value per share is computed by
dividing shareholders' equity at year end by the number of common shares
outstanding at year end.
(2) The TMW/Moores pro forma earnings per share data assumes the combination of
the two entities occurred at the beginning of fiscal 1997 and that 2.5
million shares of TMW common stock were issued at that time. The 1996 data
reflects TMW only since operating results for Moores in 1996 were not
significant. The book value per share assumes that TMW and Moores were
combined on January 30, 1999 and reflects adjustments to shareholders'
equity that give effect to nonrecurring charges and to the refinancing of
the approximately US $59 million of Moores' existing indebtedness at the
date of the combination. See "Unaudited Pro Forma Combined Financial
Statements" on page 50.
(3) The TMW/K&G pro forma combined data assumes the merger is completed on a
pooling-of-interests basis and is presented using the number of shares of
TMW common stock that would have been outstanding in each year based on the
minimum and maximum Exchange Ratios of 0.4 and 0.43.
(4) The TMW/K&G pro forma equivalent data is computed by multiplying the TMW/K&G
pro forma combined data by the minimum and maximum Exchange Ratios of 0.4
and 0.43.
20
<PAGE> 29
MARKET PRICES AND DIVIDEND INFORMATION
TMW common stock is traded on Nasdaq under the symbol "SUIT". K&G common
stock is traded on Nasdaq under the symbol "MENS". The following table sets
forth the high and low quoted sales prices of TMW common stock and K&G common
stock as reported by Nasdaq for the periods indicated, during which neither TMW
nor K&G paid cash dividends. The quotations are as reported in published
financial sources. Also presented are the high and low equivalent sales prices
for K&G common stock calculated by multiplying the quoted sales prices of TMW
common stock for each of the periods presented by the minimum and maximum
Exchange Ratios of 0.4 and 0.43.
<TABLE>
<CAPTION>
K&G COMMON STOCK
TMW COMMON ---------------------------------------------------
STOCK EQUIVALENT PRICE
--------------- ---------------------------------
QUOTED SALES QUOTED SALES EXCHANGE EXCHANGE
PRICE PRICE RATIO - 0.4 RATIO - 0.43
--------------- --------------- --------------- ---------------
HIGH LOW HIGH LOW HIGH LOW HIGH LOW
------ ------ ------ ------ ------ ------ ------ ------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
1997
First Quarter.................................. $20.67 $15.33 $20.08 $16.25 $ 8.27 $ 6.13 $ 8.89 $ 6.59
Second Quarter................................. 25.08 16.75 23.25 14.75 10.03 6.70 10.78 7.20
Third Quarter.................................. 27.50 22.33 23.00 18.25 11.00 8.93 11.83 9.60
Fourth Quarter................................. 26.50 20.00 21.50 18.25 10.60 8.00 11.40 8.60
1998
First Quarter.................................. $29.67 $22.33 $25.00 $17.88 $11.87 $ 8.93 $12.76 $ 9.60
Second Quarter................................. 36.88 26.67 28.00 21.50 14.75 10.67 15.86 11.47
Third Quarter.................................. 34.63 14.00 23.50 4.00 13.85 5.60 14.89 6.02
Fourth Quarter................................. 32.50 22.00 10.25 7.50 13.00 8.80 13.98 9.46
1999
First Quarter (through April 22, 1999)......... $34.94 $23.50 $11.00 $ 6.75 $13.98 $ 9.40 $15.02 $10.11
</TABLE>
On March 3, 1999, the last full trading day prior to the joint public
announcement by TMW and K&G of the signing of the merger agreement, the closing
sale prices per share of TMW common stock and K&G common stock as reported by
Nasdaq were $26.75 and $8.38, respectively, and the equivalent per share prices
of K&G common stock calculated by multiplying the closing sale price of TMW
common stock by the minimum and maximum Exchange Ratios of 0.4 and 0.43 were
$10.70 and $11.50, respectively. On April 22, 1999, the closing sale prices per
share of TMW common stock and K&G common stock as reported by Nasdaq were $28.88
and $10.38, respectively, and, consequently, given an exchange ratio of .4218,
the equivalent per share price of K&G common stock would be $12.18.
Following the merger, TMW common stock will continue to be traded on Nasdaq
and K&G common stock will cease to be traded on Nasdaq and will represent only
the right to obtain TMW common stock under the merger agreement.
TMW has not paid any cash dividends on TMW common stock and for the
foreseeable future TMW intends to retain all of its earnings for the future
operation and expansion of its business. TMW's credit agreement prohibits the
payment of cash dividends on TMW common stock.
21
<PAGE> 30
CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING STATEMENTS
Certain statements made herein and in other public filings and releases by
both TMW and K&G contain "forward-looking" information (as defined in the
Private Securities Litigation Reform Act of 1995) that involve risk and
uncertainty. These forward-looking statements may include, but are not limited
to, future capital expenditures, acquisitions (including the amount and nature
thereof), future sales, earnings, margins, costs, number and costs of store
openings, demand for men's clothing, market trends in the retail men's clothing
business, currency fluctuations, inflation and various economic and business
trends. You can identify forward-looking statements by the use of words such as
"expect," "estimate," "project," "budget," "forecast," "anticipate," "plan" and
similar expressions. Forward-looking statements include all statements regarding
expected financial position, results of operations, cash flows, dividends,
financing plans, business strategies, operating efficiencies or synergies,
budgets, capital and other expenditures, competitive positions, growth
opportunities for existing products, plans and objectives of management, and
markets for stock of TMW and K&G. TMW and K&G caution you not to place undue
reliance on these forward-looking statements, which speak only as of their
dates. TMW and K&G undertake no obligation to publicly update or revise any
forward-looking statements, whether as a result of new information, future
events or otherwise. Forward-looking statements may be made by management orally
or in writing, including but not limited to, the Management's Discussion and
Analysis of Financial Condition and Results of Operations section and other
sections of TMW's and K&G's filings with the SEC under the Securities Exchange
Act of 1934 and the Securities Act of 1933, incorporated by reference herein.
Actual results and trends in the future may differ materially depending on
a variety of factors including, but not limited to, domestic and international
economic activity and inflation, successful execution of internal operating
plans and new store and new market expansion plans, performance issues with key
suppliers, foreign currency fluctuations, government export and import policies
and legal proceedings. Future results will also be dependent upon the ability of
TMW and K&G to continue to identify and complete successful expansions and
penetrations into existing and new markets and their ability to integrate such
expansions with TMW's and K&G's existing operations.
22
<PAGE> 31
THE COMPANIES
TMW AND ITS SUBSIDIARIES
The Company is one of the largest off-price specialty retailers of men's
tailored business clothing in North America. At March 26, 1999, the Company
operated 548 stores in 40 states, the District of Columbia and Canada.
The Company operates nearly all its stores in the following three formats:
Men's Wearhouse. TMW targets middle and upper middle income men by
offering quality merchandise at everyday low prices. In addition to value,
TMW provides a superior level of customer service. Men's Wearhouse stores
offer a broad selection of designer, brand name and private label
merchandise at prices TMW believes are typically 20% to 30% below the
regular prices found at traditional department and specialty stores. The
prices of suits in Men's Wearhouse stores generally range from $199 to
$599. TMW considers its merchandise to be conservative. Merchandise in
Men's Wearhouse stores includes suits, sport coats, slacks, business
casual, sportswear, outerwear, dress shirts, shoes and accessories. TMW
concentrates on tailored business attire that is characterized by
infrequent and more predictable fashion changes. Therefore, TMW believes it
is not as exposed to trends typical of more fashion-forward apparel
retailers, where significant markdowns and promotional pricing are more
common. At March 26, 1999, TMW operated 413 Men's Wearhouse stores in 40
states and the District of Columbia with approximately 30% of those
locations in Texas and California. These stores are referred to as "Men's
Wearhouse stores" or "traditional stores".
Value Priced Clothing. The Company launched Value Priced Clothing in
late 1996 to address the market for a more price sensitive customer. The
Company believes VPC's more basic, value-oriented approach appeals to
certain customers in the men's tailored clothing market. VPC offers a
selection of brand names and private label merchandise that the Company
believes to be typically 30% to 50% below the regular prices of traditional
department stores and specialty stores. The prices of suits at these stores
generally range from $99 to $199. VPC operates stores under the names
"C&R", "SuitMax" and "Suit Warehouse". At March 26, 1999, the Company
operated 17 VPC stores in five states, including one C&R store which will
be converted to a SuitMax store and excluding three C&R stores that the
Company is in the process of closing.
Moores Retail Group Inc. On February 10, 1999, TMW acquired Moores for
securities exchangeable for an aggregate of 2.5 million shares of TMW
common stock. Moores is one of Canada's leading specialty retailers of
men's tailored clothing and offers its customer conservative, basic
tailored apparel. Moores distinguishes itself from other Canadian retailers
of men's tailored clothing by manufacturing virtually all of the tailored
clothing offered for sale in its stores. As a result, Moores achieves
certain cost savings compared to other retailers and is able to provide
greater value to its customer by offering a broad selection of quality
merchandise at everyday low prices, which the Company believes typically
range from 20% to 30% below traditional Canadian department and specialty
stores. The prices of suits at the Moores stores generally range from Can
$149 to Can $299. At March 26, 1999, the Company operated 109 Moores stores
in the ten Canadian provinces. Moores also operated eight stores in the
United States; however, the Company plans to close seven of these stores
and to convert the eighth store to a Men's Wearhouse store to eliminate
duplicate store sites in existing Men's Wearhouse markets. The Company has
recorded estimated store closing costs of approximately $3 million (before
taxes) in connection with the closing of these stores.
Golden Brand Clothing (Canada) Ltd., a wholly owned subsidiary of
Moores, operates a tailored clothing manufacturing facility in Montreal,
Quebec. This facility includes a cutting room, fusing department, pant shop
and coat shop. At full capacity, the coat shop can produce 12,000 units per
week and the pant shop can produce 25,000 units per week.
23
<PAGE> 32
Expansion Strategy
The Company's expansion strategy includes:
- opening additional Men's Wearhouse stores in new and existing markets,
- increasing the size of certain existing Men's Wearhouse stores,
- increasing productivity and profitability in its existing markets,
- developing the VPC store format in new and existing markets,
- identifying strategic acquisition opportunities, and
- testing expanded merchandise categories in selected stores.
In general terms, the Company considers a geographic area served by a
common group of television stations as a single market.
On a limited basis, the Company has acquired store locations, inventories,
customer lists, trademarks and tradenames from existing menswear retailers in
both new and existing markets. The Company may do so again in the future. During
1998, the Company opened 43 new Men's Wearhouse stores and four new SuitMax
stores. The Company also plans to open an additional 40 to 45 new Men's
Wearhouse stores and 5 to 10 new SuitMax stores in 1999, to close approximately
five stores in 1999, to remodel and relocate existing stores and to continue
expansion in subsequent years. The Company believes that its ability to increase
the number of traditional stores in the United States above 500 will be limited.
However, the Company believes that additional growth opportunities exist through
selectively expanding existing stores, improving and diversifying the
merchandise mix, relocating stores and expanding our VPC operations.
The Company has focused on acquiring and growing its VPC store format. The
Company completed three acquisitions between January 1997 and February 1998.
These acquisitions included:
- the January 1997 acquisition of C&R Clothiers, a privately held retailer
of 17 men's tailored clothing stores in Southern California,
- the May 1997 acquisition of Walter Pye's Men's Shops, Inc. ("NAL"), which
operated four stores in the greater Houston area and one in each of San
Antonio, Texas and New Orleans, Louisiana, and
- the February 1998 acquisition of T.H.C., Inc. ("Suit Warehouse")
operating four stores in metropolitan Detroit.
The Company is integrating these acquired operations to create a similar
store format and focus. In the process, the Company has closed most of the C&R
stores. To achieve this format and focus, the Company intends to:
- close the remaining four C&R stores in early 1999, with one being
converted to a SuitMax store, and
- open new stores under a common format.
In connection with the combination with K&G, the Company intends to
re-evaluate the store branding opportunities for VPC. Once a decision is made
with respect to VPC store branding, the Company anticipates that it will embark
on an advertising campaign to gain and expand market identity for the VPC store
format.
As a result of the consolidation of the men's tailored clothing industry,
the Company has been and expects to continue to be presented with significant
opportunities for growth within its industry. Such opportunities may include,
but are not limited to:
- increased direct sourcing of merchandise, including possible ventures
with apparel manufacturers,
- acquisitions of menswear retailers,
- the acquisition or licensing of designer or nationally recognized brand
labels,
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- expansion and remodeling of certain existing stores,
- testing of new product categories, and
- enhancing our website to allow the sale of merchandise over the internet.
MERGER SUB
Merger Sub is a newly formed, wholly owned subsidiary of TMW. Merger Sub
has transacted no business to date other than in connection with the merger
agreement. Merger Sub is a Georgia corporation that was incorporated in 1999.
K&G
K&G is a superstore retailer of men's apparel and accessories. K&G's stores
offer first-quality, current-season men's apparel and accessories comparable in
quality to that of traditional department and fine specialty stores, at everyday
low prices 30% to 70% below retail prices typically charged by such stores.
K&G's merchandising strategy emphasizes broad and deep assortments across all
major menswear categories, including tailored clothing, casual sportswear, dress
furnishings, footwear and accessories. This dominant merchandise selection,
which includes brand name as well as private label merchandise, positions K&G to
attract a wide range of menswear customers in each of its markets. In addition,
K&G's philosophy of delivering everyday value distinguishes K&G from other
retailers that adopt a more promotional pricing strategy.
K&G's 34 stores operating in 16 states are "destination" stores located
primarily in low-cost warehouses and secondary strip shopping centers easily
accessible from major highways and thoroughfares. K&G's stores are open for
business on Fridays, Saturdays and Sundays only, typically for a total of 24
hours per week. K&G pioneered the weekend strategy in menswear retailing as a
means of responding to its customers' shopping habits and creating a sense of
urgency to purchase, while facilitating cost control and inventory
replenishment. This strategy is an integral element of K&G's retail formula that
emphasizes low operating costs, low mark-ups and high inventory turnover to
produce attractive store-level economics.
K&G's 34 stores are located in Atlanta (4); Baltimore; Boston (2);
Charlotte; Cincinnati; Cleveland; Dallas (3); Denver (2); Houston (2);
Indianapolis; Long Island (2); Los Angeles; Minneapolis (2); Philadelphia (3);
Seattle (2); Washington, D.C. (2); Kansas City, Kansas; Rahway, New Jersey;
Fairfield, New Jersey; and Columbus, Ohio.
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THE ANNUAL MEETING OF K&G SHAREHOLDERS
This proxy statement/prospectus is furnished in connection with the
solicitation of proxies from the holders of K&G common stock by the K&G board of
directors for use at the 1999 annual meeting of shareholders. This proxy
statement/prospectus and accompanying form of proxy are first being mailed to
the shareholders of K&G beginning on or about April 28, 1999.
TIME, DATE AND PLACE
The annual meeting will be held at 11:00 a.m., Atlanta, Georgia time, on
Tuesday, June 1, 1999, at K&G's headquarters at 1225 Chattahoochee Avenue, N.W.,
Atlanta, Georgia.
PURPOSE OF THE ANNUAL MEETING
At the annual meeting (and any adjournment or postponement thereof), K&G's
shareholders will be asked to consider and vote upon (i) a proposal to approve
the merger and the merger agreement, (ii) the election of K&G's Class I
directors to serve a three-year term expiring in 2002 in accordance with K&G's
Articles of Incorporation, (iii) the ratification of the appointment by the K&G
board of directors of Arthur Andersen LLP to serve as K&G's independent public
accountants and (iv) such other matters as may properly be brought before the
annual meeting.
RECORD DATE; VOTING RIGHTS; VOTE REQUIRED FOR APPROVAL
K&G's board of directors has fixed the close of business on April 20, 1999
(the "K&G Record Date") as the record date for K&G's shareholders entitled to
notice of and to vote at the annual meeting.
Only holders of record of shares of K&G common stock on the K&G Record Date
are entitled to notice of and to vote at the annual meeting. Each holder of
record of K&G common stock as of the K&G Record Date is entitled to cast one
vote per share on all matters submitted to K&G's shareholders.
At the close of business on April 20, 1999, there were 10,253,688 shares of
K&G common stock outstanding and entitled to vote at the annual meeting.
The presence, in person or by proxy, of the holders of a majority of the
outstanding shares of K&G common stock entitled to vote is necessary to
constitute a quorum at the annual meeting. The affirmative vote of the holders
of a majority of the outstanding shares of K&G common stock is required to
approve and adopt the merger proposal.
The directors and executive officers of K&G beneficially own approximately
23.2% of the outstanding K&G common stock. For additional information on the
ownership of K&G common stock by K&G directors and executive officers, see
"Security Ownership of Certain Beneficial Owners and Management of K&G" on page
74.
PROXIES
All shares of K&G common stock represented by properly executed proxies
received prior to or at the annual meeting, and not revoked, will be voted in
accordance with the instructions indicated in those proxies. If no instructions
are indicated on a properly executed returned proxy, such proxy will be voted
"FOR" the approval of the merger proposal.
Abstentions may be specified with respect to any of the proposals being
considered at the annual meeting. A properly executed proxy marked "ABSTAIN"
will be counted as present for purposes of determining whether there is a quorum
and for purposes of determining the aggregate voting power and number of shares
represented and entitled to vote at the meeting. Because the affirmative vote of
a majority of the outstanding shares of K&G common stock is required for
approval of the merger proposal, a proxy marked "ABSTAIN" with respect to the
merger proposal will have the effect of a vote against the merger proposal. In
addition, the failure of a shareholder of K&G to return a proxy will have the
effect of a vote against the merger proposal. Under Nasdaq rules, brokers who
hold shares in street name for customers have the authority to vote on
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certain "routine" proposals when they have not received instructions from
beneficial owners. Under Nasdaq rules, such brokers are precluded from
exercising their voting discretion with respect to proposals for non-routine
matters such as the merger proposal. Thus, absent specific instructions from the
beneficial owner of such shares, brokers are not empowered to vote such shares
with respect to the approval and adoption of the merger proposal (i.e., "broker
non-votes"). Since the affirmative votes described above are required for
approval of the merger proposal, a "broker non-vote" with respect to the merger
proposal will have the effect of a vote against the merger proposal. In
addition, with regard to the other matters to be voted on at the annual meeting,
a proxy marked "ABSTAIN" will have the same effect as a vote against a proposal,
or in the case of the election of directors, as shares to which voting power has
been withheld. Under Georgia law, directors are elected by the affirmative vote,
in person or by proxy, of a plurality of the shares entitled to vote in the
election at a meeting at which a quorum is present. Only votes actually cast
will be counted for the purpose of determining whether a particular nominee
received more votes than the persons, if any, nominated for the same seat on the
K&G board of directors.
A shareholder may revoke his or her proxy at any time prior to its use by
delivering to the Secretary of K&G a signed notice of revocation or a
later-dated, signed proxy, or by attending the annual meeting and voting in
person. Attendance at the meeting will not in itself constitute the revocation
of a proxy.
The cost of solicitation of proxies will be paid by K&G. In addition to
solicitation by mail, arrangements will be made with brokerage houses and other
custodians, nominees and fiduciaries to send the proxy materials to beneficial
owners; and K&G will, upon request, reimburse such brokerage houses and
custodians for their reasonable expenses in so doing. K&G does not expect to
engage a firm to aid in the solicitation of proxies; however, should it be
determined necessary at a later date, K&G estimates that related fees will not
exceed $5,000 (plus expenses). To the extent necessary in order to ensure
sufficient representation at its annual meeting, K&G or its proxy solicitor may
request the return of proxy cards by personal interview, mail, telephone,
facsimile or other means of electronic transmission. The extent to which this
will be necessary depends entirely upon how promptly proxy cards are returned.
Shareholders are urged to send in their proxies without delay.
Shareholders should not send in any stock certificates with their proxy
cards. As soon as practicable after the consummation of the merger, a
transmittal form will be sent to former shareholders of K&G with instructions
for receiving TMW common stock.
As of the date of this proxy statement/prospectus, the K&G board of
directors does not know of any business to be presented at the annual meeting
other than the proposals set forth above. If any other matters should properly
come before the meeting, it is intended that the shares represented by proxies
will be voted with respect to such matters in accordance with the judgment of
the persons voting such proxies. Proxies voted "against" the merger proposal
will not be used to vote for any adjournment pursuant to this authority.
AVAILABILITY OF ACCOUNTANTS
A representative of Arthur Andersen LLP, K&G's independent public
accountants, is expected to be present at the annual meeting and to be available
to respond to appropriate questions. Such representative will have the
opportunity to make a statement at the annual meeting if he or she so desires.
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THE MERGER AND RELATED TRANSACTIONS
The discussion in this proxy statement/prospectus of the merger and the
principal terms of the merger agreement is subject to, and qualified in its
entirety by reference to, the merger agreement, which is attached to this proxy
statement/prospectus as Annex A and is incorporated herein by reference.
THE MERGER
Pursuant to the terms and conditions of the merger agreement, including
approval by the shareholders of K&G, Merger Sub will be merged with and into
K&G, with K&G being the surviving corporation and becoming a wholly owned
subsidiary of TMW. In connection with the merger, each shareholder of K&G will
receive between 0.4 and 0.43 of a share (the "Exchange Ratio") of TMW common
stock for each outstanding share of K&G common stock. We will determine the
final Exchange Ratio by computing the average of the closing prices per share of
TMW common stock, as reported on Nasdaq, for the 15 trading days ending on the
third trading day before the closing date of the merger. If the average closing
price is $32.50 or more, the Exchange Ratio will be 0.4. If the average closing
price is $27.50 or less, the Exchange Ratio will be 0.43. If the average closing
price is between $27.50 and $32.50, the Exchange Ratio will be the sum of .4
plus a decimal, calculated to four decimal places, equal to .03 times a fraction
with a numerator equal to the difference between $32.50 and the average
described above and a denominator of $5.00. For example, if the average closing
price is $30.00, then the Exchange Ratio will be equal to .4 + .03
[(32.50 -30.00) / 5)], which equals .4 + (.03)(.5), which equals .415.
Therefore, each shareholder of K&G would receive 0.415 of a share of TMW common
stock in exchange for each share of K&G common stock held. Cash will be paid
instead of issuing fractional shares of TMW common stock. At the effective time
of the merger, each outstanding option of K&G will be converted into an option
to acquire the number of shares of TMW common stock equal to the Exchange Ratio
times the number of shares of K&G common stock issuable under the old option at
a per share price equal to the exercise price under the old option divided by
the Exchange Ratio.
Following the merger, the former shareholders of K&G will hold between
approximately 4.1 million shares and 4.4 million shares of TMW common stock or
between approximately 9.9% and 10.5% of the outstanding shares of TMW common
stock. In addition, approximately 0.2 million shares of TMW common stock will be
subject to the converted K&G stock options.
The merger will become effective when a Certificate of Merger is duly filed
with the Secretary of State of the State of Georgia or at such other time as
will be specified in the Certificate of Merger (the "Effective Time"). The
closing of the merger (the "Closing") will occur on the date of the annual
meeting or as soon as practicable after the last condition in the merger
agreement has been satisfied or waived, unless the parties agree otherwise. TMW
and K&G expect the Closing to occur promptly after the annual meeting if all
governmental approvals have been received at that time.
BACKGROUND OF THE MERGER
The retail men's clothing industry has become increasingly competitive over
time. Demand for tailored menswear has undergone a downward trend due to a
number of factors, including employers' increased acceptance of casual work
clothing and men allocating less of their income to tailored clothing. This
decrease in demand has contributed, and will likely continue to contribute, to a
consolidation among retailers of men's tailored clothing. Larger chains enjoy
economies of scale from improved vendor purchasing power, more efficient
marketing and advertising programs and improved access to capital markets.
Recognizing these trends, the K&G board of directors has occasionally considered
whether a business combination that would enhance K&G's competitive position as
a leading retailer of value-priced men's clothing would be in the best interests
of shareholders.
In October 1998, David Edwab, President of TMW, called Stephen Greenspan,
President of K&G, to advise Mr. Greenspan that Mr. Edwab would be in Atlanta for
TMW's regular annual Atlanta area holiday party in late November, and requested
the opportunity to meet with Mr. Greenspan at that time. On November 21, 1998,
Mr. Edwab and Richard Goldman, Executive Vice President of TMW, met with Mr.
Greenspan and John Dancu, Chief Operating Officer of K&G, in Atlanta. At that
time,
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Messrs. Greenspan and Dancu showed Messrs. Edwab and Goldman certain of K&G's
operations in the Atlanta area. During the course of the meeting, Mr. Edwab
indicated that TMW was interested in a possible transaction with K&G subject to
further due diligence. Messrs. Greenspan and Dancu indicated that while they
might have some interest, further discussion would be subject to TMW giving K&G
some indication of the possible price and to entering into a confidentiality
agreement.
No further substantive discussions regarding a possible transaction
occurred until January 1999, when Mr. Greenspan met with George Zimmer, Chairman
and Chief Executive Officer of TMW, and Mr. Edwab at TMW's offices in Fremont,
California, to discuss the possibility of a business combination. These
discussions were informal in nature, but Messrs. Greenspan, Zimmer and Edwab
acknowledged that the possibility of a business combination was worth exploring
further.
In February 1999, K&G and TMW entered into more formal discussions
regarding a possible business combination. On February 18, 1999, Messrs.
Greenspan and Dancu met with Mr. Edwab and legal counsel and accountants of TMW
in Houston regarding a possible business combination, with K&G's legal counsel
participating in part of the meeting by telephone. At the meeting, TMW and K&G
agreed to, and executed, mutual confidentiality agreements. This meeting
included due diligence presentations by both TMW and K&G, and resulted in Mr.
Edwab making an offer for TMW to exchange between 4,200,000 and 4,500,000 shares
of TMW common stock for all of the outstanding shares of K&G common stock and
all outstanding options to purchase K&G common stock issued by K&G. Mr. Edwab's
offer included a proposed exchange ratio based on the average trading price of
TMW common stock.
Later in the day on February 18, 1999, and during the day of February 19,
further discussions with advisors led TMW to conclude that offering TMW common
shares in exchange for cancellation of outstanding options would be impractical.
As a result, TMW modified its offer on February 19 by offering to exchange
between .4 and .43 shares of TMW common stock for each share of K&G common
stock. TMW also offered to issue substitute options to the existing holders of
options to purchase K&G common stock issued by K&G. Messrs. Greenspan and Dancu
advised Mr. Edwab that they would discuss the matter with K&G's board of
directors. The parties then discussed conducting further due diligence assuming
the board of directors of K&G was willing to accept the financial terms offered
by Mr. Edwab.
On February 19, 1999, the K&G board of directors held a special meeting at
which Messrs. Greenspan and Dancu discussed the Houston meeting and explained
the TMW offer to the K&G board. The K&G board inquired as to the mechanics of
the exchange ratio, the role of investment bankers and legal advisors, the
effect of a merger on employees and holders of options to purchase K&G common
stock, and other aspects of the proposed merger. While the discussions at this
meeting were general in nature, the board indicated the desire that Messrs.
Greenspan and Dancu pursue further the TMW offer. The board then agreed that K&G
should seek to engage NationsBanc, as investment bankers, to review the proposed
merger from a financial point of view and to provide an opinion and financial
analysis to the K&G board members regarding such terms for use by the board
members in connection with their consideration of the merits of the proposed
merger.
On February 22, 1999, the K&G board of directors held a special meeting to
consider whether to proceed with formal negotiations with TMW regarding the
merger. At this meeting, NationsBanc representatives discussed their preliminary
valuation analysis of K&G and their preliminary assessment of the proposed
exchange ratio with the K&G directors. The board considered whether K&G could
negotiate a higher exchange ratio, a "walk-away" right for K&G in the event of a
significant decline in the market price of TMW's common stock, and a reduced
"break-up" fee to be paid by K&G in the event K&G received a superior proposal
(TMW's initial offer included a "break-up" fee of $4,000,000). The K&G board of
directors was not, and is not, aware of any other company with an interest in
completing a business combination with K&G that is comparable to the interest
expressed by TMW prior to this February 22 meeting. Nevertheless, the K&G board
of directors remained interested in and open to any alternative proposals from
other companies.
From February 22 to March 3, 1999, representatives of both companies and
their legal and other advisors performed due diligence and negotiated the terms
of the definitive agreements in connection with the merger. As part of the due
diligence review, TMW's advisors performed a due diligence review of K&G at the
offices
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of K&G's legal counsel, Hunton & Williams, Atlanta, representatives of K&G
senior management and K&G's advisors performed a due diligence review of TMW at
TMW's corporate offices, and the parties exchanged business, financial and other
information.
At a meeting of TMW's board of directors on March 1, 1999, TMW's senior
management and legal advisors updated the TMW directors on the status of the
negotiations and informed them that most substantive issues had been resolved.
Prior to the meeting, TMW's legal counsel had provided to TMW's directors copies
and a summary of the merger agreement and the other definitive agreements. Such
counsel reviewed the principle terms of the agreements with TMW's directors at
the meeting. TMW's board of directors, by unanimous vote, determined that the
merger was in the best interests of TMW, and approved and adopted the terms of
the merger agreement and the other definitive agreements contemplated by that
agreement and authorized their execution.
At a special meeting of the K&G board held March 3, 1999, K&G's senior
management and legal advisors updated the K&G directors on the status of
negotiations and informed the directors that all substantive issues had been
resolved. K&G's senior management and legal counsel reviewed in detail the terms
of the merger agreement and the other definitive agreements. NationsBanc
presented its financial analysis of the terms of the proposed merger and
rendered its opinion to the members of K&G's board of directors to the effect
that, as of the date of the meeting and subject to the conditions, limitations,
qualifications, assumptions and other matters contained in its opinion, the
aggregate consideration to be received by K&G shareholders in the merger was
fair to K&G shareholders from a financial point of view. The K&G board of
directors, by unanimous vote, determined that the merger was in the best
interests of K&G and its shareholders, and approved and adopted the terms of the
merger agreement and the other definitive agreements contemplated by that
agreement and authorized their execution.
On the evening of March 3, 1999, K&G and TMW executed and delivered the
merger agreement and other definitive agreements. On the morning of March 4,
1999, K&G and TMW publicly announced the signing of the merger agreement.
K&G'S REASONS FOR THE MERGER
In reaching its decision to approve the merger, the K&G board of directors
consulted with K&G senior management about both long and short term strategic
and operational matters. K&G also sought the advice of its legal counsel and
independent accountants regarding (1) the legal duties of the K&G board of
directors, (2) regulatory, tax and accounting matters, (3) the terms of the
merger agreement, (4) the other definitive agreements contemplated by that
agreement and (5) other relevant matters. The K&G board of directors also
consulted with NationsBanc regarding the overall fairness from a financial point
of view of the aggregate consideration to be received by K&G shareholders
pursuant to the merger agreement. While the K&G board of directors did not
assign any relative weight to the various factors it considered, some of the
more important factors considered by K&G's board of directors in approving the
merger were the following:
- the fact that the exchange ratio contained in the merger agreement would
enable K&G shareholders to realize a premium of approximately 36% over
the last reported sales price of K&G common stock on March 2, 1999;
- the opinion of NationsBanc that as of March 3, 1999, the date the merger
agreement was executed, the merger consideration was fair to K&G
shareholders from a financial point of view. A copy of that opinion,
which set forth certain important qualifications, assumptions made,
matters considered, areas of reliance on others and limitations is
attached as Annex B, and a summary description is included in "-- Opinion
of NationsBanc to the Directors of K&G";
- the value of K&G continuing as a stand-alone entity compared to the
prospects for a combined company constituting one of the largest
retailers of value-priced men's clothing, in light of the current
economic and business environment and taking into account recent trends
regarding men's clothing in particular and tailored clothing in general.
In this context, the following factors were particularly compelling: (1)
the merger offered a strategic fit between K&G and TMW's Value Priced
Clothing
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Division, and the combined company would operate the Value Priced
Clothing Division with Stephen Greenspan as Chief Executive Officer of
the Division; and (2) the merger would afford K&G shareholders the
chance, as equity holders of TMW, to participate in the continued growth
of a larger and more geographically diverse retailer having greater
financial resources, competitive strengths, business opportunities and
expansion potential than would be possible for K&G as an independent
company;
- recent and historical market prices of K&G common stock and TMW common
stock;
- the merger agreement allows K&G and its board of directors to terminate
the merger if the K&G board of directors receives what it deems to be a
"superior proposal" as that term is defined in the merger agreement.
However, the K&G board of directors also considered that under the merger
agreement K&G is prohibited from soliciting, as opposed to responding to,
other competing offers for K&G and that under certain circumstances K&G
may be required to pay TMW a termination fee of $3,000,000 if a competing
bid is approved or recommended by the K&G board of directors. The K&G
board of directors did not view the termination fee provision of the
merger agreement as unreasonably impeding any interested third party from
proposing a superior transaction. See "Certain Terms of the Merger
Agreement -- Certain Covenants -- No Solicitation" and "-- Termination of
the Merger Agreement -- Termination Fees Payable by K&G";
- the merger agreement contains a "walk-away" right by which K&G may
terminate the merger and pay a reasonable termination fee ($750,000) upon
a significant drop in the price of TMW's common stock (if the average
closing price per share of TMW common stock, as reported on Nasdaq, for
the 15 trading days ending on the third trading day before the closing
date of the merger is below $20.00);
- the likelihood that the merger will be completed, including the
likelihood of obtaining the regulatory approvals required pursuant to,
and the other conditions to completion of, the merger, the experience,
reputation and financial condition of TMW and the risks to K&G if the
merger is not completed;
- the other terms and attributes of the merger, including the tax-free
nature of the transaction with respect to K&G shareholders; and
- the expectation that the merger will be accounted for as a
pooling-of-interests under generally accepted accounting principles.
The foregoing discussion of the information and factors considered by the
K&G board of directors is not intended to be exhaustive but is believed to
include all material factors considered by the K&G board of directors.
RECOMMENDATION OF THE K&G BOARD OF DIRECTORS
The K&G board of directors has unanimously approved and adopted the merger
agreement. The K&G board of directors believes that the merger agreement and the
transactions related to it are in the best interests of K&G and its
shareholders, and unanimously recommends that K&G shareholders vote "FOR"
approval of the merger agreement. In approving the merger agreement, the K&G
board of directors took into account the potential conflicts of interest of Mr.
Greenspan and Mr. Dancu resulting from their employment and termination
agreements, respectively. See "-- Interests of Certain Persons in the Merger."
OPINION OF NATIONSBANC TO THE DIRECTORS OF K&G
Pursuant to an engagement letter dated February 22, 1999, the board of
directors of K&G retained NationsBanc to review the merger and render an opinion
as investment bankers to K&G's directors as to whether the aggregate
consideration to be received by K&G's shareholders pursuant to the merger is
fair to such shareholders from a financial point of view. NationsBanc was not
retained to act as financial advisor to K&G or the board of directors of K&G in
connection with the merger, and NationsBanc was not retained or requested to
consider any strategic or financial alternatives to the merger or to seek
indications of interest from other potential buyers in connection with rendering
its opinion. K&G selected and retained NationsBanc for this assignment on the
basis of NationsBanc's experience and expertise in transactions similar to the
merger,
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and its reputation in the retail and investment communities. NationsBanc is a
nationally recognized investment banking and financial advisory firm and, as
part of its activities, is regularly engaged in the valuation of businesses and
their securities in connection with mergers and acquisitions, negotiated
underwritings, secondary distributions of listed and unlisted securities,
private placements and valuations for corporate and other purposes.
In connection with the consideration by K&G's board of directors of the
merits of the merger, NationsBanc was asked to perform various financial
analyses and deliver to K&G's board of directors its opinion based on its
analyses. These analyses are described below. At the March 3, 1999 meeting of
K&G's board of directors, NationsBanc delivered its oral opinion to K&G's board
of directors and this opinion was later confirmed in writing as of such date and
is described below. This earlier opinion was subsequently reconfirmed in writing
as of the date hereof as described below. THE OPINIONS OF NATIONSBANC WERE
DIRECTED SOLELY TO K&G'S BOARD OF DIRECTORS FOR ITS CONSIDERATION IN CONNECTION
WITH THE MERGER, AND ARE NOT A RECOMMENDATION TO ANY SHAREHOLDER AS TO WHETHER
THE MERGER IS IN SUCH SHAREHOLDER'S BEST INTERESTS OR AS TO WHETHER K&G'S
SHAREHOLDERS SHOULD VOTE FOR OR AGAINST THE MERGER. ADDITIONALLY, THE OPINIONS
ADDRESS ONLY THE FINANCIAL FAIRNESS OF THE CONSIDERATION TO BE RECEIVED BY K&G'S
SHAREHOLDERS PURSUANT TO THE MERGER AND DO NOT ADDRESS THE RELATIVE MERITS OF
THE MERGER OR ANY ALTERNATIVES TO THE MERGER, THE UNDERLYING DECISION OF THE K&G
BOARD OF DIRECTORS TO PROCEED WITH OR EFFECT THE MERGER OR ANY OTHER ASPECT OF
THE MERGER. THE FULL TEXT OF NATIONSBANC'S OPINION DATED AS OF THE DATE HEREOF
IS ATTACHED TO THIS PROXY STATEMENT/PROSPECTUS AS ANNEX B, AND SETS FORTH
CERTAIN IMPORTANT QUALIFICATIONS, ASSUMPTIONS MADE, MATTERS CONSIDERED, AREAS OF
RELIANCE ON OTHERS, AND LIMITATIONS ON THE REVIEW UNDERTAKEN IN CONNECTION WITH
NATIONBANC'S OPINION.
The summary description of NationsBanc's opinion set forth below is
qualified in its entirety by the full text of the opinion attached hereto as
Annex B.
In connection with its opinions, NationsBanc among other things:
- reviewed certain publicly available financial and other data with respect
to K&G and TMW, including the consolidated financial statements of K&G
and TMW for recent years, consolidated financial statements of K&G for
interim periods to January 31, 1999, consolidated financial statements of
TMW for interim periods to January 30, 1999, pro forma combined financial
statements of TMW and Moores contained in TMW's Current Reports on Form
8-K filed through February 25, 1999 and certain other relevant financial
and operating data relating to K&G and TMW made available to it from
published sources and from the internal records of K&G and TMW;
- reviewed the financial terms and conditions of the merger agreement;
- reviewed certain publicly available information concerning the trading
of, and the trading market for, K&G's common stock and TMW's common
stock;
- compared K&G and TMW from a financial point of view with certain other
companies in the apparel industry which NationsBanc deemed to be
relevant;
- considered the financial terms, to the extent publicly available, of
selected recent business combinations involving companies in the retail
industry which NationsBanc deemed to be comparable, in whole or in part,
to the merger;
- reviewed and discussed with representatives of the management of K&G and
TMW certain information of a business and financial nature regarding K&G
and TMW furnished by K&G and TMW to NationsBanc, including financial
forecasts and related assumptions of K&G and TMW;
- made inquiries regarding and discussed the merger, the merger agreement
and other matters related thereto with K&G's counsel; and
- performed such other analyses and examinations as NationsBanc deemed
appropriate.
Based upon its review of the foregoing, but subject to the limitations set
forth below and in reliance upon the assumptions set forth below, NationsBanc
provided K&G's board of directors with its opinion as investment bankers that as
of March 3, 1999, the date of its opinion, the aggregate consideration to be
received
32
<PAGE> 41
by K&G's shareholders pursuant to the merger agreement was fair to such
shareholders from a financial point of view. This opinion was reconfirmed as of
the date hereof in the opinion attached hereto as Annex B. The terms of the
merger and the amount of the consideration to be received by K&G's shareholders
under the merger agreement was determined pursuant to negotiations between K&G
and TMW and not pursuant to recommendations of NationsBanc. No limitations were
imposed by K&G on NationsBanc with respect to the investigations made or
procedures followed in rendering its opinion.
In connection with its review, NationsBanc did not assume any obligation to
independently verify the information reviewed by NationsBanc, and NationsBanc
relied on the information being accurate and complete in all material respects.
With the consent of K&G's board of directors, NationsBanc assumed for purposes
of its opinions that:
- the financial forecasts for K&G and TMW provided by their respective
managements had been reasonably prepared on bases reflecting the best
available estimates and judgments of their respective managements as to
the future financial performance of K&G and TMW;
- the financial forecasts provided a reasonable basis upon which
NationsBanc could form its opinion;
- there had been no material changes in K&G's or TMW's assets, financial
condition, results of operations, business or prospects since the
respective dates of their last financial statements made available to
NationsBanc; and
- the merger will be consummated in a manner that complies in all respects
with the applicable provisions of the Securities Act of 1933, the
Securities Exchange Act of 1934 and all other applicable federal and
state statutes, rules and regulations.
K&G's representatives informed NationsBanc, and NationsBanc assumed without
verification and with the consent of K&G's board of directors, that:
- the merger would be treated as a pooling-of-interests under Accounting
Principles Board Opinion No. 16; and
- the merger would be treated as a tax-free reorganization within the
meaning of Section 368(a) of the Internal Revenue Code.
NationsBanc did not assume responsibility for making an independent
evaluation, appraisal or physical inspection of any of the assets or liabilities
(contingent or otherwise) of K&G or TMW, nor was NationsBanc furnished with any
such appraisals. Additionally, NationsBanc relied on advice of the counsel and
the independent accountants to K&G as to all legal, tax and financial reporting
matters with respect to K&G, TMW, the merger and the merger agreement. Finally,
NationsBanc's opinions were based on economic, monetary, market and other
conditions as in effect on, and the information made available to NationsBanc as
of, March 3, 1999 and the date hereof, respectively. Accordingly, although
subsequent developments may affect its opinion, NationsBanc did not assume any
obligation to update, revise or reaffirm its opinions.
NationsBanc further assumed with the consent of K&G's board of directors
that the merger would be completed in accordance with the terms described in the
merger agreement, without any amendments and without waiver by K&G of any of the
conditions to its obligations under the merger agreement. The full text of the
merger agreement is attached as Annex A and the terms described in the merger
agreement and the conditions to K&G's obligations under the merger agreement
should be reviewed and understood by K&G's shareholders in connection with their
consideration of the merger.
Finally, NationsBanc did not and could not express any opinion regarding
the price at which TMW's common stock may trade at any future time. The
aggregate consideration to be received by K&G's shareholders pursuant to the
merger is based upon an exchange ratio which will be determined from the average
of the daily closing prices for the TMW common stock for the 15 consecutive
trading days ending three trading days prior to the consummation of the merger
and the market price of the TMW common stock at the time of the merger. The
exchange ratio becomes fixed if such average of the closing prices for TMW
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<PAGE> 42
common stock is below $27.50 or above $32.50, and between $27.50 and $32.50 the
exchange ratio varies as and to the extent described in the summary section.
Accordingly, the market value of the consideration received by K&G's
shareholders, if and when the proposed merger is consummated, could vary
significantly from what the shareholders would have received if the merger had
been completed on March 3, 1999 when NationsBanc presented its analyses and
delivered its earlier opinion to K&G's board of directors.
Set forth below is a brief summary of the report presented by NationsBanc
to K&G's board of directors on March 3, 1999 in connection with its opinion.
Comparable Public Company Analysis. Using public and other available
information, NationsBanc calculated a range of implied values for K&G's common
stock based on a comparison of the last 12 months' revenues ("LTM Revenues"),
last 12 months' earnings before interest, taxes, depreciation and amortization
("LTM EBITDA"), last 12 months' earnings before interest and taxes ("LTM EBIT"),
estimated 1998 earnings per share ("EPS") and estimated 1999 EPS of five
publicly traded men's suit retail companies and six publicly traded off-price
apparel retail companies. The publicly traded suit retail companies used in this
analysis were:
<TABLE>
<S> <C>
- - Burlington Coat Factory Warehouse Corporation - S&K Famous Brands, Inc.
- - Jos. A. Bank Clothiers, Inc.
- - The Men's Wearhouse, Inc. - Syms Corp
</TABLE>
The publicly traded off-price apparel retail companies used in this
analysis were:
<TABLE>
<S> <C>
- - Burlington Coat Factory Warehouse Corporation - The Dress Barn, Inc.
- - Filene's Basement Corp. - Stein Mart, Inc.
- - Ross Stores, Inc. - The TJX Companies, Inc.
</TABLE>
The February 26, 1999 stock prices of all these suit retail companies and
the off-price apparel retail companies identified by NationsBanc, when
considered together, reflected the following average multiples:
<TABLE>
<CAPTION>
LTM REVENUES LTM EBITDA LTM EBIT
------------ ---------- --------
<S> <C> <C> <C>
For aggregate value (equity value plus net
debt)........................................ 0.6x 7.1x 9.4x
</TABLE>
<TABLE>
<CAPTION>
ESTIMATED 1998 EPS ESTIMATED 1999 EPS
------------------ ------------------
<S> <C> <C>
For equity value.................................. 14.6x 11.8x
</TABLE>
NationsBanc applied the average multiples for the suit retail companies and
the off-price apparel retail companies to the applicable results and forecasts
for K&G and, where applicable, made adjustments by adding $16.2 million from the
results to adjust for K&G's net debt as of October 31, 1998, to determine the
implied equity value of K&G. The range of values produced from these
calculations for the implied equity value of K&G was between $7.68 and $10.60
per share of K&G's common stock. NationsBanc then weighted the results to
reflect its assessment of the appropriate reasonable range for the implied
equity value of K&G, which was between $8.00 and $10.00 per share based on this
analysis.
Comparable Merger and Acquisition Transaction Analysis. NationsBanc
reviewed the consideration paid in 94 retail merger and acquisition transactions
that have been completed since January 1996. Of these 94 retail merger and
acquisition transactions, 23 transactions involved apparel or department stores.
NationsBanc analyzed the consideration paid in these transactions as a multiple
of equity value plus net debt to the target companies' LTM Revenues, LTM EBITDA,
and LTM EBIT. Such analysis yielded the following average multiples:
<TABLE>
<CAPTION>
LTM REVENUES LTM EBITDA LTM EBIT
------------ ---------- --------
<S> <C> <C> <C>
All retail transactions........................ 0.7x 10.0x 15.3x
Apparel and department store transactions...... 0.6x 8.1x 12.2x
</TABLE>
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<PAGE> 43
The transactions reviewed by NationsBanc included acquisitions of privately
owned companies, and in certain cases complete financial data was not available,
publicly or otherwise, to NationsBanc for its analysis. The following table
presents the number of transactions considered by NationsBanc where the required
LTM Revenues, LTM EBITDA and LTM EBIT data were fully available to NationsBanc.
<TABLE>
<CAPTION>
LTM REVENUES LTM EBITDA LTM EBIT
------------ ---------- --------
<S> <C> <C> <C>
All retail transactions........................ 79 53 60
Apparel and department store transactions...... 18 13 13
</TABLE>
NationsBanc then applied the foregoing multiples to K&G's estimated 1998
Revenues, estimated 1998 EBITDA and estimated 1998 EBIT, and added $16.2 million
from the results to adjust for K&G's net debt as of October 31, 1998 to
determine the implied equity value of K&G. The range of values produced from
these calculations indicated an implied equity value of K&G of between $9.68 and
$15.78 per share. This range of values was then weighted and narrowed by
NationsBanc to reflect its assessment of the appropriate reasonable range for
the implied equity value of K&G, which was between $10.00 and $12.00 per share
based on this analysis.
Premiums Paid Analysis. NationsBanc reviewed the consideration paid in U.S.
acquisitions involving consideration of between $75 million and $250 million
that have been announced since January 1996. Of these acquisitions, certain
involved stock-for-stock transactions. NationsBanc calculated the premiums paid
in these transactions over the applicable stock prices of the target companies
one day, one week and 30 days prior to the announcement of the acquisition, and
then calculated the average of those premiums. Such analysis yielded the
following average premiums:
<TABLE>
<CAPTION>
ONE DAY ONE WEEK 30 DAYS
------- -------- -------
<S> <C> <C> <C>
All transactions......................................... 25.6% 31.2% 40.2%
Stock-for-stock transactions............................. 24.0% 28.5% 37.0%
</TABLE>
NationsBanc then applied the average premiums so derived to K&G's closing
stock price on February 26, 1999, which was $8.19. Based on this analysis, an
application of the average premiums to the closing stock price of K&G's common
stock indicated an implied equity value of K&G of between $9.63 and $12.09 per
share. This range of values was then weighted and narrowed by NationsBanc to
reflect its assessment of the appropriate reasonable range for the implied
equity value of K&G, which was between $10.00 and $12.00 per share based on this
analysis.
No company or transaction used in the comparable company analysis, the
comparable transactions analysis or the premiums paid analysis as a comparison
is identical to K&G or the merger. Accordingly, an analysis of the results of
the foregoing is not mathematical; rather, it involves complex considerations
and judgments concerning differences in financial and operating characteristics
of the companies and other factors that could affect the public trading value of
the companies to which K&G and the merger are being compared.
Discounted Cash Flow Analysis. NationsBanc performed a discounted cash flow
analysis based on financial forecasts for 1999 through 2003 provided by K&G's
management. In conducting this discounted cash flow analysis, NationsBanc first
calculated the estimated future streams of free cash flows that K&G would
produce through 2003 and then applied a range of exit multiples from 6.0x to
8.0x K&G's estimated EBITDA in 2003. Such cash flow streams and terminal values
were discounted to present values using discount rates ranging from 14.0% to
16.0%, chosen to reflect reasonable ranges of K&G's cost of capital. This
analysis indicated an implied equity value of K&G of between $10.41 and $15.38
per share. This range of values was then weighted and narrowed by NationsBanc to
reflect its assessment of the appropriate reasonable range for the implied
equity value of K&G, which was between $11.50 and $13.50 per share based on this
analysis.
Pro Forma Merger Analysis. Holders of K&G's common stock will receive TMW's
common stock in the merger. NationsBanc reviewed and analyzed the pro forma
financial impact of the merger on TMW's projected earnings per share for TMW's
1999 fiscal year, assuming a Base Period Trading Price of $29.38. Assuming the
accuracy of the financial forecasts used for K&G and TMW, and without giving
effect to any
35
<PAGE> 44
operating synergies that might be realized following the merger, this analysis
indicated that the merger should be slightly accretive to TMW's anticipated 1999
earnings per share.
Pro Forma Contribution Analysis. Assuming an exchange ratio of 0.42 shares
of TMW's common stock for each share of K&G's common stock (i.e., that the Base
Period Trading Price is $29.38), K&G's current shareholders would have an
aggregate ownership interest in TMW of approximately 10.3% after the
consummation of the merger. On a pro forma basis, assuming the accuracy of the
financial forecasts used for K&G and TMW, K&G would contribute to the combined
operations of TMW, after giving effect to the merger, the following: 13.4% of
estimated 1998 revenues, 8.4% of estimated 1998 EBITDA, 10.0% of estimated 1998
EBIT and 12.1% of estimated 1998 net income.
While the foregoing summary describes all analyses and examinations that
NationsBanc deemed material to the preparation of its opinion to K&G's board of
directors dated March 3, 1999, it is not a comprehensive description of all
analyses and examinations actually conducted by NationsBanc. The preparation of
a fairness opinion necessarily is not susceptible to partial analysis or summary
description. NationsBanc believes that its analysis and the summary set forth
above must be considered as a whole, and that selecting portions of the analyses
and of the factors considered by NationsBanc, without considering all analyses
and factors, would create an incomplete view of the process underlying the
analyses set forth in the presentation of NationsBanc to K&G's board of
directors on March 3, 1999. In addition, NationsBanc may have given some
analyses more or less weight than other analyses, and may have deemed various
assumptions more or less probable than other assumptions. Accordingly, the
ranges of valuations resulting from any particular analysis described above
should not be taken to be NationsBanc's view of the actual value of K&G or K&G's
common stock. To the contrary, NationsBanc expressed no opinion on the actual
value of K&G or K&G's common stock, and its opinions which are addressed and
limited to K&G's board of directors, extend only to the belief expressed by
NationsBanc that the immediate value to K&G's shareholders, from a financial
point of view under the merger, is within the range of values that might fairly
be ascribed to K&G's common stock as of March 3, 1999 and the date hereof,
respectively, the dates of the opinions of NationsBanc.
In performing its analyses, NationsBanc made numerous assumptions with
respect to industry performance, general business and economic conditions and
other matters, many of which are beyond the control of K&G and TMW. The analyses
performed by NationsBanc are not necessarily indicative of actual values or
actual future results, which may be significantly more or less favorable than
those suggested by these analyses. These analyses were prepared solely as part
of NationsBanc's analysis of the fairness of the aggregate consideration to be
received by K&G's shareholders pursuant to the merger from a financial point of
view, and were provided solely to K&G's board of directors in connection with
the delivery of NationsBanc's opinion on March 3, 1999. The analyses do not
purport to be appraisals or to reflect the prices at which any company might
actually be sold or the prices at which any securities may trade at any time in
the future. NationsBanc used in its analyses various projections of future
performance prepared or adopted by the managements of K&G and TMW. The
projections are based on numerous variables and assumptions which are inherently
unpredictable and in large part are beyond the control of K&G and its advisors.
Accordingly, actual results could vary significantly from those set forth in the
projections used by NationsBanc in its analyses, and none of K&G, NationsBanc or
any other person assumes any responsibility if future results are later found to
be materially different from the results contained in these projections.
As described above, the opinions of NationsBanc and the presentation to
K&G's board of directors summarized above were among the many factors taken into
consideration by K&G's board of directors in making its determination to approve
and to recommend that its shareholders approve the merger agreement.
NationsBanc, however, does not make any recommendation to K&G's shareholders (or
to any other person or entity) as to whether the merger is in a shareholder's
best interest.
In accordance with its engagement letter, the opinions of NationsBanc are
addressed solely to K&G's board of directors for the use of the directors in
their capacity as members of K&G's board of directors in connection with their
review and evaluation of the merger. Neither the opinions nor NationsBanc's
underlying financial analysis may be relied upon by any person other than the
directors in their capacity as members of K&G's board of directors without the
prior written consent of NationsBanc. Accordingly, under the terms of
36
<PAGE> 45
the engagement letter and the NationsBanc opinion letters prepared pursuant to
the engagement letter, no K&G shareholder may rely or allege any reliance on
NationsBanc's opinions or analysis in connection with the shareholder's
consideration of the merits of the merger or otherwise. It is NationsBanc's
position that its duties in connection with its fairness opinions are solely to
K&G's board of directors, and that it has no legal responsibility to any other
persons, including K&G's shareholders, under New York state law, the governing
law of the engagement letter. NationsBanc would likely assert the substance of
this disclaimer as a defense to claims, if any, that might be brought against it
by K&G's shareholders with respect to its fairness opinions. However, since no
New York court has definitely ruled on the availability to a financial advisor
of this defense to shareholder liability with respect to its fairness opinion,
this issue necessarily would have to be resolved by a court of competent
jurisdiction. Furthermore, there can be no assurance that a court of competent
jurisdiction would apply New York state law to the resolution of this issue if
it were ever to be presented. In any event, the availability or non-availability
of this defense will have no effect on NationsBanc's rights and responsibilities
under the federal securities laws, or the rights and responsibilities of K&G's
board of directors under governing state law or under the federal securities
laws.
As set forth in NationsBanc's opinion attached to this proxy
statement/prospectus as Annex B, NationsBanc consented to the reproduction of
its opinion letter in this proxy statement/prospectus for the limited purpose of
allowing K&G to comply with its disclosure obligations under the Exchange Act.
NationsBanc has also consented to the summary description of the opinion letter
that is included in this section of the proxy statement/prospectus. In
furnishing its consent to the inclusion of its opinion letter and a summary in
this proxy statement/prospectus, NationsBanc did not admit that it is an expert
for the purposes of, and within the meaning of the term "expert" as used in, the
Securities Act, nor did it admit that its opinion constitutes a report or
valuation within the meaning of the Securities Act. Statements to this effect
are included in the NationsBanc opinion.
Pursuant to the terms of the engagement letter, NationsBanc was entitled to
a $250,000 fee upon the delivery of its opinion on March 3, 1999, plus
reasonable out-of-pocket costs and expenses. NationsBanc's fee for delivering
the above described opinions was not conditioned on the outcome of the opinions,
or whether such opinions were deemed favorable or unfavorable by K&G or its
Board of Directors. Pursuant to a separate letter agreement, K&G has agreed to
indemnify NationsBanc and its affiliates against certain liabilities, including
liabilities under the federal securities laws, relating to or arising out of
NationsBanc's engagement.
In the past, NationsBanc has provided financial advisory and investment
banking services to K&G and has received customary fees for the rendering of
such services. During the past two years, these fees totaled $1.03 million. In
the ordinary course of its business, NationsBanc actively trades the equity
securities of K&G for its own account and for the accounts of customers and,
accordingly, may at any time hold a long or short position in such securities.
Additionally, an affiliate of NationsBanc is currently a lender to TMW, and
NationsBanc or its affiliates may participate in arranging, underwriting or
providing debt or equity financing to TMW in the future.
INTERESTS OF CERTAIN PERSONS IN THE MERGER
In considering the recommendation of the K&G board of directors with
respect to the merger, K&G's shareholders should be aware that certain members
of the K&G board of directors and certain officers of K&G have interests in
respect of the merger separate from their interests as holders of K&G common
stock. In connection with their approval of the merger agreement and the
transactions contemplated by that agreement, the K&G board of directors and the
TMW board of directors considered the interests of K&G management and the
directors described below.
Greenspan Employment Agreement. In connection with the merger agreement,
K&G and Mr. Greenspan agreed to enter into an amended and restated employment
agreement upon the closing of the proposed merger. Under the amended agreement,
K&G would employ Mr. Greenspan as Chief Executive Officer. Mr. Greenspan's
initial term of employment would be three years, and would automatically renew
from year to year until terminated. Mr. Greenspan would receive an annual base
salary of $250,000 during the term of the agreement, would be reimbursed for
expenses incurred while conducting business for the
37
<PAGE> 46
Company, and would be eligible to participate in employee benefit plans and
bonus programs including incentive compensation and stock option plans on a
comparable basis with other senior executives of TMW. The employment agreement
also contains a severance package for Mr. Greenspan equal to 100% of his then
current annual salary if his employment is terminated without cause.
Additionally, the agreement contains restrictive covenants that, for five years
from the date the merger is consummated, or for three years after the
termination of his employment, whichever is longer, would prevent Mr. Greenspan
from competing in certain respects with K&G and from hiring any employees of
K&G. Finally, the agreement provides that Mr. Greenspan will not use or disclose
any confidential information related to K&G during his employment or for a
period of two years after the termination of his employment.
Greenspan's Election to the TMW Board of Directors. Upon the effectiveness
of the merger, the board of directors of TMW shall increase the number of its
directors by one and shall elect Mr. Greenspan as a director to serve until the
next annual meeting of the shareholders of TMW. The board of directors shall
also include Mr. Greenspan in its nominees for election at the 1999 Annual
Meeting of Shareholders of TMW.
Dancu Termination Agreement. In connection with the merger agreement, K&G,
TMW and Mr. Dancu agreed to enter into a Termination Agreement upon the closing
of the proposed merger that would terminate Mr. Dancu's employment with K&G as
of the closing date of the merger. Pursuant to the Termination Agreement, Mr.
Dancu will receive a payment of $400,000 from K&G upon consummation of the
merger. In addition, pursuant to the Termination Agreement, Mr. Dancu has agreed
not to compete against K&G or solicit employees from K&G for a period of 24
months after his employment is terminated, and Mr. Dancu has agreed not to use
or disclose confidential information about K&G at any time during his employment
with K&G or thereafter.
Vesting of Certain Director Options. As of April 22, 1999, there were
options to purchase 37,500 shares of K&G common stock outstanding under the K&G
Men's Center Director Stock Option Plan. On the completion of the merger, the
10,000 outstanding options that are not currently vested would vest immediately.
The shares of K&G common stock subject to all of the options would then be
converted into shares of TMW common stock pursuant to the merger agreement.
CERTAIN UNITED STATES FEDERAL INCOME TAX CONSEQUENCES
The following discussion summarizes certain U.S. Federal income tax
consequences of the merger which are generally applicable to holders of K&G
common stock under the Internal Revenue Code of 1986, as amended (the "Code").
Tax consequences which are different from or in addition to those described
herein may apply to K&G shareholders who are subject to special treatment under
the U.S. federal income tax laws, such as non-U.S. persons, tax exempt
organizations, financial institutions, insurance companies, broker-dealers, K&G
shareholders who hold their K&G common stock as part of a hedge, straddle, wash
sale, synthetic security, conversion transaction, or other integrated investment
comprised of K&G common stock and one or more other investments, persons who
acquired their shares in compensatory transactions, and any K&G shareholder who,
after the merger, owns 5% or more of either the total voting power or the total
value of the stock of TMW. The discussion does not address non-U.S. or state or
local tax considerations.
THIS SUMMARY IS NOT A SUBSTITUTE FOR AN INDIVIDUAL ANALYSIS OF THE TAX
CONSEQUENCES OF THE MERGER TO A K&G SHAREHOLDER. EACH K&G SHAREHOLDER SHOULD
CONSULT A TAX ADVISER REGARDING THE PARTICULAR FEDERAL, STATE, LOCAL AND
NON-U.S. TAX CONSEQUENCES OF THE MERGER IN LIGHT OF SUCH SHAREHOLDER'S OWN
SITUATION.
It is a condition precedent to the closing of the merger that opinions of
counsel (the "Opinions") be delivered to the effect that, among other things,
the merger qualifies as a reorganization under section 368(a) of the Code. The
Opinions will be subject to certain qualifications and assumptions as noted
therein and will rely upon certain representations of TMW and K&G provided to
counsel as a basis for the Opinions, including the representation that no
consideration other than TMW common stock (and cash for fractional shares) will
be delivered in exchange for K&G common stock. The Opinions will be based upon
counsel's interpretation of the Code, applicable Treasury regulations, judicial
authority and administrative rulings and practice, all as of the date of the
Opinions. There can be no assurance that future legislative, judicial or
administrative changes or interpretations will not adversely affect the accuracy
of the conclusions set forth herein. The Opinions will
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<PAGE> 47
not be binding upon the Internal Revenue Service (the "Service"), and the
Service will not be precluded from adopting a contrary position.
Assuming the merger qualifies as a reorganization under Section 368(a) of
the Code, the U.S. Federal income tax consequences will include the following:
- No gain or loss will be recognized by TMW or K&G as a result of the
merger.
- No gain or loss will be recognized by holders of K&G common stock solely
upon their receipt in the merger of TMW common stock in exchange
therefor.
- The tax basis of the shares of TMW common stock received by a K&G
shareholder in the merger (including any fractional share not actually
received) will be the same as the tax basis of the K&G common stock
surrendered in exchange therefor.
- The holding period of the shares of TMW common stock received by a K&G
shareholder in the merger will include the holding period of the shares
of K&G common stock surrendered in exchange therefor, provided that such
shares of K&G common stock are held as capital assets at the effective
time of the merger.
- A cash payment in lieu of a fractional share will be treated as if a
fractional share of TMW common stock had been received in the merger and
then redeemed by TMW. Such redemption should qualify as a distribution in
full payment in exchange for the fractional share rather than as a
distribution of a dividend. Accordingly, a K&G shareholder receiving cash
in lieu of a fractional share will recognize gain or loss upon such
payment in an amount equal to the difference, if any, between such
shareholder's basis in the fractional share and the amount of cash
received. Such gain or loss will be a capital gain or loss if the K&G
common stock is held as a capital asset at the effective time of the
merger.
In the event that the merger were held not to qualify as a reorganization
under Section 368(a) of the Code, a K&G shareholder would recognize gain or loss
in an amount equal to the difference between the shareholder's basis in his or
her shares and the fair market value, as of the effective date of the merger, of
the TMW common stock received in exchange therefor. In such event, the
shareholder's basis in the TMW common stock so received would be equal to its
fair market value as of the effective date of the merger, and the holding period
for such stock would begin on the day after the effective date of the merger.
THE U.S. FEDERAL INCOME TAX CONSEQUENCES SUMMARIZED ABOVE ARE FOR GENERAL
INFORMATION ONLY. EACH K&G SHAREHOLDER SHOULD CONSULT A TAX ADVISER AS TO THE
PARTICULAR CONSEQUENCES OF THE MERGER THAT MAY APPLY TO SUCH SHAREHOLDER,
INCLUDING THE APPLICATION OF STATE, LOCAL, NON-U.S. AND OTHER FEDERAL TAX LAWS.
ACCOUNTING TREATMENT
TMW and K&G intend to account for the merger using the pooling-of-interests
method of accounting pursuant to Opinion No. 16 of the Accounting Principles
Board. The pooling-of-interests method of accounting assumes that the combining
companies have been merged from inception, and the historical financial
statements for periods prior to consummation of the merger are restated as
though the companies had been combined from inception. The restated financial
statements are adjusted to conform the accounting policies of the companies, if
necessary.
The merger is conditioned on the receipt of favorable letters from the
independent public accountants of each of TMW and K&G to the effect that, in
accordance with generally accepted accounting principles and the applicable
rules and regulations of the Securities and Exchange Commission, TMW and K&G are
each eligible to be a party to a merger accounted for as a pooling-of-interests.
GOVERNMENTAL AND REGULATORY MATTERS
Under the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended,
and the rules and regulations promulgated thereunder (the "HSR Act"), the merger
may not be consummated until notifica-
39
<PAGE> 48
tions have been given and certain information has been furnished to the Federal
Trade Commission (the "FTC") and the Antitrust Division of the United States
Department of Justice (the "Antitrust Division") and specified waiting period
requirements have been satisfied. TMW and K&G filed the required notification
and report forms under the HSR Act with the FTC and the Antitrust Division on
March 31, 1999.
Each state in which the Company or K&G has operations also may review the
merger under state antitrust laws.
At any time before the Effective Time, the Justice Department, the FTC, a
state or non-U.S. governmental authority or a private person or an entity could
seek under the antitrust laws, among other things, to enjoin the merger or to
cause TMW to divest itself, in whole or in part, of businesses conducted by K&G
or of other businesses conducted by the Company. There can be no assurance that
a challenge to the merger will not be made, or that, if such a challenge is
made, TMW and K&G will prevail. The obligations of TMW and K&G to consummate the
merger are subject to the condition that there be no temporary restraining
order, preliminary or permanent injunction or other order issued by any court of
competent jurisdiction or other legal restraint or prohibition preventing the
consummation of the merger. Each party has agreed to use reasonable efforts to
have any such injunction, order, restraint or prohibition vacated.
TMW and K&G believe that they will obtain all material required regulatory
approvals prior to the annual meeting. However, it is not certain that all such
approvals will be received by such time, or at all, and governmental authorities
may impose unfavorable conditions for granting the required approvals.
NO APPRAISAL RIGHTS
K&G is a Georgia corporation. Article 13 of the Georgia Business
Corporation Code provides dissenters' rights (sometimes referred to as
"appraisal rights") to shareholders of a Georgia corporation that is involved in
a merger under certain circumstances. However, Article 13 appraisal rights are
not available to shareholders of a corporation whose securities are listed on a
national securities exchange and whose shareholders are not required to accept
in exchange for their stock anything other than stock of another corporation
listed on a national securities exchange and cash in lieu of fractional shares.
Because K&G common stock is traded on Nasdaq, and because K&G's shareholders
will receive only TMW common stock (which is also traded on Nasdaq) and cash in
lieu of fractional shares in the merger, shareholders of K&G will not have
appraisal rights with respect to the merger.
FEDERAL SECURITIES LAW CONSEQUENCES; RESALE RESTRICTIONS
All shares of TMW common stock that will be distributed to shareholders of
K&G in the merger will be freely transferable, except for certain restrictions
applicable to "affiliates" of K&G. Shares of TMW common stock received by
persons who are deemed to be affiliates of K&G may be resold by them only in
transactions permitted by the resale provisions of Rule 145 or as otherwise
permitted under the Securities Act of 1933, as amended (the "Securities Act").
Persons who may be deemed to be affiliates of K&G generally include certain
officers, directors and significant shareholders of K&G. The merger agreement
requires K&G to cause each of its affiliates to execute a written agreement to
the effect that such persons will not sell or dispose of any of the shares of
TMW common stock issued to them in the merger unless such sale or disposition
has been registered under the Securities Act, is in conformity with Rule 145 or
is otherwise exempt from the registration requirements under the Securities Act.
Under generally accepted accounting principles, the sale of TMW common
stock or K&G common stock by an affiliate of either TMW or K&G within 30 days
prior to the Effective Time or thereafter prior to publication of financial
results that include at least 30 days of combined operations of TMW and K&G
after the Effective Time could preclude pooling-of-interests accounting
treatment for the merger. The merger is conditioned on each of K&G's affiliates
delivering a written undertaking that they will not transfer any of the TMW
common stock received or to be received by them pursuant to the merger until
final results of operations of TMW covering at least 30 days of combined
operations of TMW and K&G have been published. Additionally, each of TMW's
affiliates must deliver a written undertaking that they will not transfer
40
<PAGE> 49
TMW common stock they own until final results of operations of TMW covering at
least 30 days of combined operations of TMW and K&G have been published.
CERTAIN TERMS OF THE MERGER AGREEMENT
This section describes the material provisions of the merger agreement.
This description does not purport to be complete and is qualified in its
entirety by reference to the merger agreement, a copy of which is attached
hereto as Annex A, and which is incorporated herein by reference. All
shareholders are urged to read the merger agreement carefully in its entirety.
THE MERGER
Structure. In the merger, Merger Sub, a wholly owned subsidiary of TMW,
will be merged into K&G, with K&G being the surviving corporation. As a result,
K&G will become a wholly owned subsidiary of TMW.
Effective Time. The merger will become effective when a certificate of
merger relating to the merger is duly filed with the Secretary of State of the
State of Georgia (the "Effective Time"), which is expected to occur as soon as
practicable after the shareholders of K&G have approved the merger and all of
the other conditions set forth in the merger agreement have been satisfied or
waived. TMW and K&G anticipate that the Effective Time will occur late in the
second quarter of 1999.
Share Conversion. Under the terms and subject to the conditions of the
merger agreement, each share of K&G common stock outstanding immediately prior
to the Effective Time will be converted into the number of shares of TMW common
stock equal to the Exchange Ratio, which will be from 0.4 to 0.43. We will
determine the final Exchange Ratio by computing the average of the closing
prices per share of TMW common stock, as reported on Nasdaq, for the 15 trading
days ending on the third trading day before the closing date of the merger. If
the average closing price is $32.50 or more, the Exchange Ratio will be 0.4. If
the average closing price is $27.50 or less, the Exchange Ratio will be 0.43. If
the average closing price is between $27.50 and $32.50, the Exchange Ratio will
be the sum of .4 plus a decimal, calculated to four decimal places, equal to .03
times a fraction with a numerator equal to the difference between $32.50 and the
average described above and a denominator of $5.00. For example, if the average
closing price is $30.00, the Exchange Ratio will be equal to .4 + .03 [(32.50 -
30.00) / 5)], which equals .4 + (.03)(.5), which equals .415. Therefore, each
shareholder of K&G would receive 0.415 of a share of TMW common stock in
exchange for each share of K&G common stock held. Cash will be paid instead of
issuing fractional shares of TMW common stock. All shares of K&G common stock
that are owned by K&G or its subsidiaries or TMW or its subsidiaries, if any,
will, at the Effective Time, be canceled and retired and will cease to exist,
without any payment for those shares.
K&G Stock Options. Each outstanding option to purchase K&G common stock as
of the Effective Time will become an option to acquire a number of shares of TMW
common stock equal to the number of shares purchasable under the K&G option
multiplied by the Exchange Ratio at a per share price equal to the exercise
price under the K&G option divided by the Exchange Ratio. If the conversion in
the previous sentence would otherwise result in an optionholder's being entitled
to a fractional share of TMW common stock, that optionholder will receive cash
in lieu of that fractional share when the option is fully exercised as set forth
in the merger agreement.
CERTAIN COVENANTS
Interim Operations. From the date of signing the merger agreement until the
Effective Time, K&G and its subsidiaries are required to conduct their
businesses in the ordinary course consistent with past practice, to use all
commercially reasonable efforts to preserve their business organizations intact,
to keep available the services of their current officers and employees and to
preserve their relationships with customers, suppliers
41
<PAGE> 50
and others with whom they do business. In addition, K&G and its subsidiaries may
not, subject to certain limited exceptions, take certain other actions during
this period, including the following:
- declare or pay any dividends;
- split, combine or reclassify any of its capital stock;
- purchase, redeem or otherwise acquire any shares of K&G's capital stock;
- issue, deliver, sell or pledge any of their securities;
- amend their articles of incorporation or bylaws;
- acquire or agree to acquire any business or entity;
- borrow money or issue letters of credit, except for borrowings and
letters of credit under its existing credit facility that would not
result in K&G's total indebtedness exceeding $8 million; or
- sell, lease, mortgage, pledge or otherwise encumber or dispose of any
assets except for sales of inventory in the ordinary course of business
consistent with past practice and other dispositions not aggregating more
than $500,000.
No Solicitation. K&G may not, directly or indirectly, solicit, initiate or
encourage any Takeover Proposal (as defined below) nor may it engage in any
discussions or negotiations relating to a Takeover Proposal. K&G may, however,
engage in discussions with a party making an unsolicited Takeover Proposal for
the limited purpose of determining whether that proposal is a Superior Proposal
(as defined below).
Notwithstanding these restrictions, until the K&G shareholders have
approved the merger, K&G may furnish information (pursuant to confidentiality
arrangements) in response to an unsolicited written request from a proposed
bidder if the K&G Board of Directors concludes, based on the written advice of
outside counsel, that the failure to do so would breach the fiduciary duties of
the K&G board of directors. K&G has agreed to promptly notify TMW of the
pendency of any negotiations respecting, or the receipt of, any Takeover
Proposal.
If the board of directors of K&G receives a Takeover Proposal that it
believes is a Superior Proposal before the shareholders of K&G have approved the
merger, K&G may terminate the merger agreement and pay a $3 million Termination
Fee. See "-- Termination of the Merger Agreement".
"Takeover Proposal" means any proposal or offer for a merger, share
exchange or other business combination involving, or a purchase of a greater
than 10% equity interest in or a material amount of the assets of K&G and its
subsidiaries.
A "Superior Proposal" means any bona fide Takeover Proposal to acquire,
directly or indirectly, all of the outstanding K&G common stock or all of the
assets of K&G and its subsidiaries and otherwise on terms which the board of
directors of K&G determines in its good faith judgment, based on the written
advice of a nationally recognized financial advisor, to be more favorable to the
K&G shareholders than the merger.
Shareholders Meeting. K&G has agreed to call, give notice of and hold the
shareholders meeting as promptly as practicable for the purpose of voting upon
the adoption of the merger agreement and any related matters.
Mutual Covenants. K&G and TMW have agreed, among other things, not to take
any action or to fail to take any action that (i) is reasonably likely to breach
their respective representations and warranties or (ii) would knowingly
jeopardize the merger as a pooling-of-interests for accounting purposes.
Certain Other Covenants. K&G and TMW agreed to certain other customary
covenants in the merger agreement, including covenants relating to obtaining
necessary consents and approvals; cooperating with each other to obtain
antitrust clearances; providing access to and furnishing information; providing
notices of certain events and consulting with each other regarding public
statements and filings; obtaining agreements from
42
<PAGE> 51
affiliates relating to stock trading; certain employee matters; and mutually
defending any claims or actions questioning the validity or legality of the
transactions contemplated by the merger agreement.
CERTAIN REPRESENTATIONS AND WARRANTIES
The merger agreement contains substantially reciprocal representations and
warranties by TMW and K&G as to the following, among other things:
capitalization; due organization and good standing; corporate authorization to
effect the merger; governmental approvals required in connection with the
merger; absence of certain undisclosed litigation; accuracy of its public
filings; absence of certain changes or events; absence of certain undisclosed
liabilities; absence of defaults under certain agreements; compliance with
applicable laws; tax matters; employee benefit matters; labor matters;
environmental matters; and brokerage fees.
In addition, K&G has made certain additional representations and warranties
to TMW and Merger Sub in the merger agreement with respect to, among other
things: opinion of financial advisor; antitakeover statutes; and inventory.
The representations and warranties in the merger agreement do not survive
the Effective Time.
CONDITIONS TO THE MERGER
Conditions to Each Party's Obligations. The obligations of K&G, TMW and
Merger Sub to consummate the merger are subject to the satisfaction of the
following conditions:
- the receipt of approval of the shareholders of K&G;
- the approval for trading on Nasdaq of the shares of TMW common stock to
be issued in the merger;
- the expiration or termination of the applicable waiting period under the
HSR Act and receipt of all governmental and other consents and approvals
required in connection with the consummation of the merger;
- the absence of any temporary restraining order, preliminary or permanent
injunction or other legal restraint or prohibition preventing the
consummation of the merger;
- the effectiveness of this Registration Statement, with no stop order
suspending its effectiveness and no proceedings seeking a stop order;
- receipt of letters from their respective independent accountants to the
effect that TMW and K&G are each eligible to be a party to a merger
accounted for as a pooling-of-interests.
Additional Conditions to Obligations of TMW. The obligations of TMW to
consummate the merger are subject to the satisfaction or waiver by TMW at or
prior to the Closing Date of the following additional conditions:
- the representations and warranties of K&G in the merger agreement must be
true in all material respects as of the date of the merger agreement,
other than representations and warranties as of a specific date, as of
the Closing Date as though made on and as of the Closing Date;
- the performance in all material respects by K&G of its obligations under
the merger agreement required to be performed at or prior to the Closing
Date;
- the receipt from K&G's directors and executive officers who are
affiliates of K&G of their agreements not to sell their stock for a
certain period of time;
- the receipt of a favorable tax opinion from Fulbright & Jaworski L.L.P.,
counsel to TMW;
- the receipt of certain customary certificates, opinions and other closing
documents;
- the failure of NationsBanc to revoke or modify its opinion in a
materially adverse manner;
- the existing employment agreement with Stephen Greenspan shall have been
amended;
43
<PAGE> 52
- the receipt by TMW of written resignations from all officers and
directors of K&G and its subsidiaries; and
- the receipt of an executed Termination Agreement from John Dancu, Chief
Operating Officer of K&G.
As previously reported in K&G's filings with the SEC, on June 4, 1998, a
former employee of K&G filed a complaint in California Superior Court against
K&G and an officer and director of K&G relating to the plaintiff's employment
relationship with K&G. The several causes of action stated in the complaint
relate primarily to an alleged employment agreement between the plaintiff and
K&G and K&G's alleged breach thereof. The plaintiff is seeking approximately $10
million plus punitive damages. While K&G believes that it has valid defenses to
the plaintiff's claims, TMW required that the litigation be settled on terms no
less favorable to K&G than those set forth below as a condition to closing of
the merger. Accordingly, K&G entered into a settlement agreement with the
plaintiff effective April 5, 1999. Under the settlement agreement, upon closing
of the merger, the plaintiff would receive a payment of $1.9 million in exchange
for a complete release of all claims against K&G and the other defendants. K&G's
employment practices liability insurer would pay $1 million of this $1.9 million
obligation. In the event the merger does not close, K&G has no obligation to
settle this claim.
Additional Conditions to Obligations of K&G. The obligations of K&G to
consummate the merger are subject to the satisfaction or waiver by K&G at or
prior to the Closing Date of the following additional conditions:
- the representations and warranties of TMW in the merger agreement must be
true and correct in all material respects as of the date of the merger
agreement and, other than representations and warranties as of a specific
date, as of the Closing Date as though made on and as of the Closing
Date;
- the performance in all material respects by TMW of its obligations under
the merger agreement required to be performed at or prior to the Closing
Date;
- the receipt of a favorable tax opinion from Hunton & Williams, counsel to
K&G;
- the receipt of certain customary certificates, opinions and other closing
documents;
- the failure of NationsBanc to revoke or modify its opinion in a
materially adverse manner; and
- the receipt from K&G's directors and executive officers who are
affiliates of K&G of their agreements not to sell their stock for a
certain period of time;
- TMW causing K&G to honor certain existing employment contracts after the
merger; and
- the receipt of an executed Termination Agreement from TMW with respect to
John Dancu.
TERMINATION OF THE MERGER AGREEMENT
Rights to Terminate. At any time prior to the Effective Time, the merger
agreement may be terminated and the transactions contemplated may be abandoned
as follows (any of the following rights to terminate may be waived by the party
possessing the right):
- by the mutual written consent of each party to the merger agreement;
- by either K&G or TMW if:
- any required approval of the shareholders of K&G shall not have been
obtained by reason of the failure to obtain the required vote;
- any court or other governmental authority has issued an order, decree or
ruling permanently enjoining, restraining or otherwise prohibiting the
merger; or
44
<PAGE> 53
- the merger shall not have been consummated by August 31, 1999, unless
the failure to consummate the merger is the result of a material breach
of the merger agreement by the party seeking to terminate the merger
agreement.
- by TMW if:
- K&G breaches in any material respects any of its representations or
warranties, or fails to perform any of its agreements, under the merger
agreement, provided that breach has not been cured within 30 days
following receipt by K&G of notice of the breach;
- the Board of Directors of K&G or any committee thereof: (i) withdraws or
modifies its recommendation of the merger agreement or the merger in a
manner adverse to TMW or (ii) approves or recommends, or proposes to
approve or recommend, any Superior Proposal and K&G pays TMW the
Termination Fee (described below).
- by K&G if:
- TMW breaches in any material respects any of its representations or
warranties, or fails to perform any of its agreements, under the merger
agreement, provided that breach has not been cured within 30 days
following receipt by TMW of notice of the breach;
- prior to approval of the merger and the merger agreement by the
shareholders of K&G, K&G receives a Superior Proposal and pays TMW the
Termination Fee (described below); or
- the average closing price of TMW common stock, as computed for purposes
of the Exchange Ratio, is less than $20 and K&G pays TMW $750,000.
If the merger agreement is terminated pursuant to its terms, no provision
of the merger agreement will survive (other than the provisions relating to
confidentiality), and termination will be without any liability on the part of
any party, other than liability for which the Termination Fee is the sole remedy
or liability for an intentional breach of the merger agreement.
Termination Fees Payable by K&G. K&G has agreed to pay TMW $3 million in
immediately available funds (the "Termination Fee") if the merger agreement is
terminated:
- by K&G because it receives a Superior Proposal prior to receiving
shareholder approval of the merger and the merger agreement;
- by TMW because the K&G Board of Directors approves or recommends, or
proposes to approve or recommend, to K&G shareholders any Takeover
Proposal;
- by TMW because the K&G Board of Directors withdraws or modifies its
recommendation of the merger agreement or the merger in an adverse manner
and K&G consummates the alternative transaction on or before the date
that is 12 months after the date of termination of the merger agreement,
in which case the termination fee will be payable upon consummation of
that transaction; or
- because an alternate Acquisition Proposal is made and publicly announced,
the shareholders of K&G do not approve the merger, and K&G consummates a
transaction pursuant to the alternate Acquisition Proposal on or prior to
the date that is 12 months after the date of termination of the merger
agreement, in which case the Termination Fee will be payable upon
consummation of that transaction.
EXPENSES
Whether or not the merger or other transactions contemplated by the merger
agreement are consummated, all costs and expenses incurred in connection with
the merger agreement and the transactions contemplated thereby will be paid by
the party incurring such costs or expenses. However, TMW and K&G will each be
responsible for 50% of the registration fees and printing costs incurred in
connection with this proxy statement/prospectus.
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<PAGE> 54
AMENDMENTS
The merger agreement may be amended by TMW and K&G by written instrument at
any time before or after adoption of the merger agreement by the shareholders of
K&G. However, after adoption by the K&G shareholders, no amendment may be made
that by law requires further approval by those shareholders without that further
approval.
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<PAGE> 55
THE MEN'S WEARHOUSE, INC. AND SUBSIDIARIES
SELECTED CONSOLIDATED FINANCIAL INFORMATION
The following selected statement of earnings and balance sheet information
for the fiscal years indicated has been derived from the Company's consolidated
financial information. The Company's consolidated financial statements as of
January 31,1998 and January 30, 1999 and for each of the three years in the
period ended January 30, 1999 were audited by Deloitte & Touche LLP, independent
auditors, whose report thereon is incorporated by reference herein. The
information set forth below should be read in conjunction with the consolidated
financial statements and notes thereto of the Company incorporated by reference
herein. References herein to years are to the Company's 52- or 53-week fiscal
year, which ends on the Saturday nearest January 31 in the following calendar
year. For example, references to "1998" mean the fiscal year ended January 30,
1999. All fiscal years for which financial information is included in this proxy
statement/prospectus had 52 weeks, except for 1995 which had 53 weeks.
The table below also includes TMW/Moores pro forma selected consolidated
financial information in order to give effect to TMW's combination on a
pooling-of-interests basis with Moores on February 10, 1999. The TMW/Moores pro
forma statement of earnings and operating information assumes the combination of
the two entities occurred at the beginning of fiscal 1997 and that 2.5 million
shares of TMW common stock were issued at that time. No information is presented
for prior years as Moores commenced operations on December 23, 1996. Moores'
operating results for the 40-day period in fiscal 1996 were not significant. The
TMW/Moores pro forma balance sheet information assumes that TMW and Moores were
combined on January 30, 1999 and reflects adjustments that give effect to
nonrecurring charges directly attributable to the combination, as well as to the
effects of refinancing approximately US $59 million of Moores' existing
indebtedness at the date of the combination. See "Unaudited Pro Forma Combined
Financial Statements" on page 50.
<TABLE>
<CAPTION>
TMW/MOORES
TMW HISTORICAL YEAR PRO FORMA YEAR
--------------------------------------------------------- ---------------------
1994 1995 1996 1997 1998 1997 1998
--------- --------- --------- --------- --------- --------- ---------
(DOLLARS AND SHARES IN THOUSANDS, EXCEPT PER SHARE AND PER SQUARE FOOT DATA.)
<S> <C> <C> <C> <C> <C> <C> <C>
STATEMENT OF EARNINGS INFORMATION:
Net sales................................. $317,127 $406,343 $483,547 $631,110 $767,922 $762,524 $898,597
Gross margin.............................. 121,878 157,615 188,366 242,593 299,735 291,256 348,927
Operating income.......................... 22,375 30,606 38,134 51,530 71,682 64,897 85,711
Net earnings before extraordinary item.... 12,108 16,508 21,143 28,883 40,920 30,951 43,913
Basic earnings per share of common
stock(1)................................ $ 0.43 $ 0.55 $ 0.67 $ 0.89 $ 1.21 $ 0.89 $ 1.21
Diluted earnings per share of common
stock(1)................................ $ 0.42 $ 0.54 $ 0.67 $ 0.87 $ 1.17 $ 0.87 $ 1.17
Weighted average shares outstanding(1).... 28,216 29,821 31,354 32,343 33,849 34,843 36,349
Weighted average shares outstanding plus
dilutive potential common shares(1)..... 28,744 30,339 34,101 35,384 36,075 37,884 38,575
OPERATING INFORMATION:
Percentage increase in comparable store
sales(2):
TMW..................................... 8.4% 6.8% 3.9% 8.5% 10.4% 8.5% 10.4%
Moores.................................. 4.5% 2.2%
Average square footage -- all stores(3):
TMW..................................... 4,553 4,687 4,863 5,097 5,297 5,097 5,297
Moores.................................. 5,997 5,973
Average sales per square foot of selling
space(4):
TMW..................................... $ 406 $ 416 $ 413 $ 420 $ 437 $ 420 $ 437
Moores.................................. $ 228 $ 234
Number of stores:
Open at beginning of period............. 183 231 278 345 396 443 501
Opened.................................. 48 48 50 50 47 57 57
Acquired................................ -- -- 17 6 4 6 4
Closed.................................. -- (1) -- (5) (16) (5) (16)
-------- -------- -------- -------- -------- -------- --------
Open at end of period................... 231 278 345 396 431 501 546
CAPITAL EXPENDITURES...................... $ 23,736 $ 22,538 $ 26,222 $ 27,380 $ 46,247 $ 30,564 $ 50,050
</TABLE>
47
<PAGE> 56
<TABLE>
<CAPTION>
JANUARY 28, FEBRUARY 3, FEBRUARY 1, JANUARY 31, JANUARY 30, JANUARY 30,
1995 1996 1997 1998 1999 1999
----------- ----------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C>
BALANCE SHEET INFORMATION:
Working capital....................... $68,078 $88,798 $136,837 $182,561 $174,055 $198,208
Total assets.......................... 160,494 204,105 295,478 379,415 403,732 473,549
Long-term debt(5)..................... 24,575 4,250 57,500 57,500 -- 56,326
Shareholders' equity.................. 84,944 136,961 159,129 220,048 298,218 297,763
</TABLE>
- ---------------
(1) All periods have been adjusted to give effect to a 50% stock dividend
effected on November 15, 1995 and a 50% stock dividend effected on June 19,
1998. Basic and diluted earnings per share are based on net earnings before
extraordinary item.
(2) Comparable store sales data is calculated by excluding the net sales of a
store for any month of one period if the store was not open throughout the
same month of the prior period.
(3) Average square footage for all stores is calculated by dividing the total
square footage for all stores open at the end of the period by the number of
stores open at the end of such period.
(4) Average sales per square foot of selling space is calculated by dividing
total selling square footage for all stores open the entire period into
total sales for those stores. The amounts presented for Moores have been
translated from Canadian dollars at the average exchange rate for the 1998
year.
(5) February 1, 1997 and January 31, 1998 balances represent the 5 1/4%
Convertible Subordinated Notes Due 2003. See "Management's Discussion and
Analysis of Financial Condition and Results of Operations-Liquidity and
Capital Resources" in the TMW Annual Report on Form 10-K which is
incorporated by reference herein and is included in this proxy
statement/prospectus as Annex C for a discussion of the redemption of the
Notes.
48
<PAGE> 57
K&G MEN'S CENTER, INC.
SELECTED CONSOLIDATED FINANCIAL DATA
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AND OPERATING DATA)
The selected consolidated financial data below should be read in
conjunction with K&G's Consolidated Financial Statements and Notes thereto and
with "Management's Discussion and Analysis of Financial Condition and Results of
Operations" incorporated by reference herein from K&G's Annual Report on Form
10-K for the year ended January 31, 1999. The statement of earnings and balance
sheet data set forth below for the years ended February 2, 1997 (fiscal 1996),
February 1, 1998 (fiscal 1997) and January 31,1999 (fiscal 1998), and as of
those dates have been derived from K&G's Consolidated Financial Statements,
which have been audited by Arthur Andersen LLP, K&G's independent public
accountants. All of the share and per share information set forth below has been
retroactively adjusted to give effect to a 3-for-2 stock split effected April
25, 1997.
<TABLE>
<CAPTION>
YEAR
-------------------------------------------------
1994 1995 1996 1997 1998
------- ------- ------- -------- --------
<S> <C> <C> <C> <C> <C>
STATEMENT OF EARNINGS INFORMATION:
Net sales.................................. $49,801 $60,027 $88,104 $112,795 $139,234
Gross margin............................... 11,557 14,433 20,760 26,282 32,153
Operating income........................... 3,722 5,138 7,008 9,607 9,536
Net earnings............................... 2,298 3,186 4,584 6,383 6,229
Basic earnings per share of common stock... $ 0.32 $ 0.40 $ 0.47 $ 0.63 $ 0.61
Diluted earnings per share of common
stock.................................... $ 0.32 $ 0.40 $ 0.47 $ 0.63 $ 0.61
Weighted average shares outstanding........ 7,245 7,875 9,682 10,118 10,207
Weighted average shares outstanding plus
dilutive potential common shares......... 7,245 7,875 9,787 10,211 10,207
OPERATING INFORMATION:
Percentage increase in comparable store
sales(1)................................. 17.2% 11.9% 12.4% 13.0% 5.7%
Average square footage -- all stores(2).... 16,966 17,000 17,207 17,543 17,839
Average sales per square foot of selling
space(3)................................. $ 539 $ 517 $ 436 $ 404 $ 363
Number of stores:
Open at beginning of period.............. 7 9 11 17 25
Opened................................... 2 3 6 8 8
Closed................................... (1)
------- ------- ------- -------- --------
Open at end of period.................... 9 11 17 25 33
CAPITAL EXPENDITURES....................... $ 367 $ 885 $ 1,128 $ 1,261 $ 3,424
BALANCE SHEET INFORMATION(4):
Working capital............................ $ 5,601 $ 7,813 $29,305 $ 35,025 $ 41,359
Total assets............................... 12,464 17,203 42,384 47,931 57,230
Long-term debt............................. 895 205 205 205 205
Shareholders' equity....................... 6,188 2,643 31,280 37,817 46,797
</TABLE>
- ---------------
(1) New stores become comparable stores beginning in their fourteenth full month
of operation.
(2) Average square footage for all stores is calculated by dividing the total
square footage for all stores open at the end of the period by the number of
stores open at the end of such period.
(3) Average sales per square foot of selling area is calculated by dividing
selling square footage for all stores open the entire period into net sales
for those stores. Selling area excludes administrative, storage, alterations
and fitting areas.
(4) K&G effected its initial public offering on January 24, 1996 (before fiscal
1995 year end). This transaction closed on January 30, 1996 (after year
end). The transaction has not been reflected in K&G's financial statements
as of January 28, 1996.
49
<PAGE> 58
THE MEN'S WEARHOUSE, INC. AND SUBSIDIARIES
PRO FORMA COMBINED FINANCIAL STATEMENTS
BASIS OF PRESENTATION
(UNAUDITED, IN THOUSANDS)
The unaudited pro forma combined financial statements of The Men's
Wearhouse, Inc. ("TMW") give effect to (a) the February 10, 1999 combination on
a pooling-of-interests basis of TMW with Moores Retail Group Inc. ("Moores") and
(b) the proposed combination of TMW and K&G Men's Center, Inc. ("K&G") under the
pooling-of-interests method of accounting. The unaudited pro forma combined
financial statements should be read in conjunction with the historical
consolidated financial statements and the notes thereto of TMW and K&G, which
are incorporated by reference in this proxy statement/prospectus. The unaudited
pro forma combined balance sheet as of January 30, 1999 first assumes that the
February 10, 1999 combination of TMW and Moores was consummated on January 30,
1999 and combines the TMW and Moores consolidated balance sheets as of January
30, 1999 ("TMW/Moores Pro Forma"), then assumes that the proposed combination of
TMW and K&G was consummated on January 30, 1999 and combines the TMW/Moores Pro
Forma January 30, 1999 and K&G January 31, 1999 consolidated balance sheets. The
unaudited pro forma combined balance sheet includes adjustments which give
effect to events that are directly attributable to the transactions.
TMW/Moores Pro Forma. With respect to the February 10, 1999 combination of
TMW with Moores, the unaudited pro forma combined statements of earnings assume
that the combination was consummated at the beginning of fiscal 1997 and combine
the historical results of TMW and Moores for fiscal 1997 and 1998. The
historical results of Moores for fiscal 1996 have not been combined with TMW's
fiscal 1996 historical results as Moores commenced operations on December 23,
1996 and its reported net loss of $96 for the 40 day period from December 23,
1996 to January 31, 1997 is not significant. Nonrecurring charges totaling
$5,261, net of a $291 tax benefit, which resulted directly from the combination
and will be included in TMW's fiscal 1999 results of operations have been
excluded from the unaudited pro forma combined statements of earnings. In
addition, an extraordinary charge of $2,913, net of a $1,355 tax benefit,
relating to the refinancing of the February 10, 1999 outstanding debt of Moores
has not been reflected. The effects of these nonrecurring and extraordinary
charges have, however, been reflected in the pro forma adjustments to retained
earnings for TMW/Moores Pro Forma in the pro forma combined balance sheet.
The historical consolidated financial statements of Moores included in the
pro forma combined balance sheet and statements of earnings are stated in United
States dollars and have been prepared in accordance with generally accepted
accounting principles in the United States. The exchange rates used in
translating the historical Canadian currency financial statements of Moores
reflect the current exchange rate as of the balance sheet date and the weighted
average exchange rates for the periods presented in the statements of earnings.
The cumulative translation adjustments are reported as a separate component of
shareholders' equity. The historical statements of earnings for Moores included
in the pro forma combined statements of earnings do not reflect earnings per
share data since Moores, as a privately owned company, has not reported such
data. The TMW/Moores Pro Forma earnings per share in the pro forma combined
statements of earnings reflect the 2.5 million shares of TMW common stock that
TMW will ultimately issue to the former shareholders and option holders of
Moores as a result of the February 10, 1999 combination of TMW and Moores.
TMW/K&G Pro Forma Combined. With respect to the proposed combination of TMW
and K&G, the unaudited pro forma combined statements of earnings assume that the
proposed combination was consummated at the beginning of fiscal 1996 and have
been prepared by combining the historical results of K&G with the historical
results of TMW for fiscal 1996 and with the TMW/Moores pro forma combined
results for fiscal 1997 and 1998. Nonrecurring charges totaling $1,675, net of a
$325 tax benefit, which result directly from the transaction and which are
expected to be included in the results of operations of TMW within the twelve
months succeeding the transaction have been excluded from the unaudited pro
forma combined statements of earnings. The effect of these nonrecurring charges
has, however, been reflected in the pro forma adjustments to retained earnings
for TMW/K&G Pro Forma Combined in the pro forma combined balance sheet.
50
<PAGE> 59
The preparation of unaudited pro forma combined financial statements
requires management to make estimates and assumptions based on information
currently available. The pro forma adjustments made in connection with the
development of the pro forma information are preliminary and have been made
solely for purposes of developing such pro forma information for illustrative
purposes necessary to comply with the disclosure requirements of the Securities
and Exchange Commission. The unaudited pro forma combined financial statements
do not purport to be indicative of the results of operations for future periods
or the combined financial positions or the results that actually would have been
realized had the entities been a single entity during the periods presented.
51
<PAGE> 60
THE MEN'S WEARHOUSE, INC. AND SUBSIDIARIES
PRO FORMA COMBINED BALANCE SHEET
JANUARY 30, 1999
(UNAUDITED -- IN THOUSANDS)
<TABLE>
<CAPTION>
ASSETS
AS REPORTED AS REPORTED TMW/K&G
------------------ PRO FORMA TMW/MOORES ----------- PRO FORMA PRO FORMA
TMW MOORES ADJUSTMENTS PRO FORMA K&G ADJUSTMENTS COMBINED
-------- ------- ----------- ---------- ----------- ----------- ---------
<S> <C> <C> <C> <C> <C> <C> <C>
CURRENT ASSETS:
Cash.............................. $ 19,651 $ 19,651 $11,361 $ 31,012
Inventories....................... 236,105 $35,841 271,946 30,771 302,717
Marketable securities............. -- 6,025 6,025
Other current assets.............. 14,740 2,108 784(5)(6) 17,632 3,030 325(1) 20,987
-------- ------- ------- -------- ------- ------- --------
Total current assets........ 270,496 37,949 784 309,229 51,187 325 360,741
PROPERTY AND EQUIPMENT, net......... 107,889 10,296 118,185 5,586 123,771
OTHER ASSETS, net................... 25,347 25,869 (5,081)(5)(6) 46,135 457 46,592
-------- ------- ------- -------- ------- ------- --------
Total assets................ $403,732 $74,114 $(4,297) $473,549 $57,230 $ 325 $531,104
======== ======= ======= ======== ======= ======= ========
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable and accrued
liabilities..................... $ 89,316 $10,952 $ 569(5) $100,837 $ 8,358 $ 2,000(1) $111,195
Short-term borrowings............. 7,568 (7,568)(6) -- --
Current portion of long-term
debt............................ 3,644 (1,160)(6) 2,484 2,484
Income taxes payable.............. 7,125 575 7,700 1,470 9,170
-------- ------- ------- -------- ------- ------- --------
Total current liabilities... 96,441 22,739 (8,159) 111,021 9,828 2,000 122,849
LONG-TERM DEBT...................... 44,665 11,661(5)(6) 56,326 205 56,531
OTHER LIABILITIES................... 9,073 270 (904)(6) 8,439 8,439
-------- ------- ------- -------- ------- ------- --------
Total liabilities........... 105,514 67,674 2,598 175,786 10,033 2,000 187,819
-------- ------- ------- -------- ------- ------- --------
MINORITY INTEREST................... 400 400
------- --------
SHAREHOLDERS' EQUITY:
Common stock...................... 349 1,708 (1,683)(7) 374 103 (59)(3) 418
Capital in excess of par.......... 148,446 2,920(5)(7) 151,366 27,931 59(3) 179,356
Retained earnings................. 150,418 4,965 (8,132)(5)(6) 147,251 18,763 (1,675)(1) 164,339
-------- ------- ------- -------- ------- ------- --------
299,213 6,673 (6,895) 298,991 46,797 (1,675) 344,113
Currency translation adjustment... (233) (233) (233)
Treasury stock, at cost........... (995) (995) (995)
-------- ------- ------- -------- ------- ------- --------
Total shareholders'
equity.................... 298,218 6,440 (6,895) 297,763 46,797 (1,675) 342,885
-------- ------- ------- -------- ------- ------- --------
Total liabilities and
shareholders' equity...... $403,732 $74,114 $(4,297) $473,549 $57,230 $ 325 $531,104
======== ======= ======= ======== ======= ======= ========
</TABLE>
See Notes to Pro Forma Combined Financial Statements
52
<PAGE> 61
THE MEN'S WEARHOUSE, INC. AND SUBSIDIARIES
PRO FORMA COMBINED STATEMENT OF EARNINGS
FOR THE YEAR ENDED JANUARY 30, 1999
(UNAUDITED -- IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
AS REPORTED TMW/K&G
-------------------- PRO FORMA TMW/MOORES AS REPORTED PRO FORMA PRO FORMA
TMW MOORES ADJUSTMENTS PRO FORMA K&G ADJUSTMENTS COMBINED
--------- -------- ----------- ---------- ----------- ----------- ----------
<S> <C> <C> <C> <C> <C> <C> <C>
Net sales................. $ 767,922 $130,675 -- $898,597 $139,234 -- $1,037,831
Cost of goods sold,
including buying and
occupancy costs......... 468,187 81,483 -- 549,670 107,081 $ 3,699(2) 660,450
--------- -------- -------- -------- -------- -------- ----------
Gross margin.............. 299,735 49,192 -- 348,927 32,153 (3,699) 377,381
Selling, general and
administrative
expenses................ 228,053 35,163 -- 263,216 22,617 (3,699)(2) 282,134
--------- -------- -------- -------- -------- -------- ----------
Operating income.......... 71,682 14,029 -- 85,711 9,536 -- 95,247
Other income.............. -- -- 1,061 -- 1,061
Interest expense, net..... (2,032) (6,993) -- (9,025) (29) -- (9,054)
--------- -------- -------- -------- -------- -------- ----------
Earnings before income
taxes................... 69,650 7,036 -- 76,686 10,568 -- 87,254
Provision for income
taxes................... (28,730) (4,043) (32,773) (4,137) (36,910)
--------- -------- -------- -------- -------- -------- ----------
Earnings before minority
interest................ 40,920 2,993 -- 43,913 6,431 -- 50,344
Minority interest......... -- (202) -- (202)
--------- -------- -------- -------- -------- -------- ----------
Net earnings before
extraordinary item...... $ 40,920 $ 2,993 -- $ 43,913 $ 6,229 -- $ 50,142
========= ======== ======== ======== ======== ======== ==========
ASSUMING EXCHANGE RATIO OF
0.4:
Net earnings before
extraordinary item per
share:
Basic................... $ 1.21 $ 1.21 $ 0.61 $ 1.24
Diluted................. 1.17 1.17 0.61 1.20
Weighted average shares
outstanding:
Basic................... 33,849 2,500(7) 36,349 10,207 (6,124)(4) 40,432
Diluted................. 36,075 2,500(7) 38,575 10,207 (6,124)(4) 42,658
ASSUMING EXCHANGE RATIO OF
0.43:
Net earnings before
extraordinary item per
share:
Basic................... $ 1.21 $ 1.21 $ 0.61 $ 1.23
Diluted................. 1.17 1.17 0.61 1.19
Weighted average shares
outstanding:
Basic................... 33,849 2,500(7) 36,349 10,207 (5,818)(4) 40,738
Diluted................. 36,075 2,500(7) 38,575 10,207 (5,818)(4) 42,964
</TABLE>
See Notes to Pro Forma Combined Financial Statements
53
<PAGE> 62
THE MEN'S WEARHOUSE, INC. AND SUBSIDIARIES
PRO FORMA COMBINED STATEMENT OF EARNINGS
FOR THE YEAR ENDED JANUARY 31, 1998
(UNAUDITED -- IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
AS REPORTED TMW/K&G
------------------- PRO FORMA TMW/MOORES AS REPORTED PRO FORMA PRO FORMA
TMW MOORES ADJUSTMENTS PRO FORMA K&G ADJUSTMENTS COMBINED
-------- -------- ----------- ---------- ----------- ----------- ---------
<S> <C> <C> <C> <C> <C> <C> <C>
Net sales.................. $631,110 $131,414 -- $762,524 $112,795 -- $875,319
Cost of goods sold,
including buying and
occupancy costs.......... 388,517 82,751 -- 471,268 86,513 $ 2,719(2) 560,500
-------- -------- ----- -------- -------- ------- --------
Gross margin............... 242,593 48,663 -- 291,256 26,282 (2,719) 314,819
Selling, general and
administrative
expenses................. 191,063 35,296 226,359 16,675 (2,719)(2) 240,315
-------- -------- ----- -------- -------- ------- --------
Operating income........... 51,530 13,367 -- 64,897 9,607 -- 74,504
Other income............... -- 1,166 1,166
Interest expense, net...... (2,366) (7,234) (9,600) (29) (9,629)
-------- -------- ----- -------- -------- ------- --------
Earnings before income
tax...................... 49,164 6,133 -- 55,297 10,744 -- 66,041
Provision for income
taxes.................... (20,281) (4,065) (24,346) (4,189) (28,535)
-------- -------- ----- -------- -------- ------- --------
Earnings before minority
interest................. 28,883 2,068 -- 30,951 6,555 -- 37,506
Minority interest.......... -- (172) -- (172)
-------- -------- ----- -------- -------- ------- --------
Net earnings before
extraordinary item....... $ 28,883 $ 2,068 -- $ 30,951 $ 6,383 $ -- $ 37,334
======== ======== ===== ======== ======== ======= ========
ASSUMING EXCHANGE RATIO OF
0.4:
Net earnings before
extraordinary item per
share:
Basic.................... $ 0.89 $ 0.89 $ 0.63 $ 0.96
Diluted.................. 0.87 0.87 0.63 0.94
Weighted average shares
outstanding:
Basic.................... 32,343 2,500(7) 34,843 10,118 (6,071)(4) 38,890
Diluted.................. 35,384 2,500(7) 37,884 10,211 (6,127)(4) 41,968
ASSUMING EXCHANGE RATIO OF
0.43:
Net earnings before
extraordinary item per
share:
Basic.................... $ 0.89 $ 0.89 $ 0.63 $ 0.95
Diluted.................. 0.87 0.87 0.63 0.93
Weighted average shares
outstanding:
Basic.................... 32,343 2,500(7) 34,843 10,118 (5,767)(4) 39,194
Diluted.................. 35,384 2,500(7) 37,884 10,211 (5,820)(4) 42,275
</TABLE>
See Notes to Pro Forma Combined Financial Statements
54
<PAGE> 63
THE MEN'S WEARHOUSE, INC. AND SUBSIDIARIES
PRO FORMA COMBINED STATEMENT OF EARNINGS
FOR THE YEAR ENDED FEBRUARY 1, 1997
(UNAUDITED -- IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
AS REPORTED TMW/K&G
------------------ PRO FORMA PRO FORMA
TMW K&G ADJUSTMENTS COMBINED
-------- ------- ----------- ---------
<S> <C> <C> <C> <C>
Net sales......................................... $483,547 $88,104 $571,651
Cost of goods sold, including buying and occupancy
costs........................................... 295,181 67,344 $ 2,218(2) 364,743
-------- ------- ------- --------
Gross margin...................................... 188,366 20,760 (2,218) 206,908
Selling, general and administrative expenses...... 150,232 13,752 (2,218)(2) 161,766
-------- ------- ------- --------
Operating income.................................. 38,134 7,008 -- 45,142
Other income...................................... 735 735
Interest expense, net............................. (2,146) (43) (2,189)
-------- ------- ------- --------
Earnings before income taxes...................... 35,988 7,700 -- 43,688
Provision for income taxes........................ (14,845) (2,991) (17,836)
-------- ------- ------- --------
Earnings before minority interest................. 21,143 4,709 -- 25,852
Minority interest................................. (125) (125)
-------- ------- ------- --------
Net earnings before extraordinary item............ $ 21,143 $ 4,584 -- $ 25,727
======== ======= ======= ========
ASSUMING EXCHANGE RATIO OF 0.4:
Net earnings before extraordinary item per share:
Basic........................................... $ 0.67 $ 0.47 $ 0.73
Diluted......................................... 0.67 0.47 0.72
Weighted average shares outstanding:
Basic........................................... 31,354 9,682 (5,810)(4) 35,226
Diluted......................................... 34,101 9,787 (5,872)(4) 38,016
ASSUMING EXCHANGE RATIO OF 0.43:
Net earnings before extraordinary item per share:
Basic........................................... $ 0.67 $ 0.47 $ 0.72
Diluted......................................... 0.67 0.47 0.72
Weighted average shares outstanding:
Basic........................................... 31,354 9,682 (5,519)(4) 35,517
Diluted......................................... 34,101 9,787 (5,579)(4) 38,309
</TABLE>
See Notes to Pro Forma Combined Financial Statements.
55
<PAGE> 64
THE MEN'S WEARHOUSE, INC. AND SUBSIDIARIES
NOTES TO PRO FORMA COMBINED FINANCIAL STATEMENTS
(UNAUDITED, IN THOUSANDS)
The pro forma combined financial statements as of January 30, 1999 and for
the years ended January 30, 1999, January 31, 1998 and February 1, 1997 include
the following adjustments to reflect the combination of TMW and K&G as a
pooling-of-interests:
1. To record the estimated transaction costs to complete the
combination of TMW and K&G under pooling-of-interests accounting. The
costs, which primarily relate to investment banking fees, professional fees
and contract termination payments, are currently estimated to be
approximately $1,675, net of a tax benefit of $325, and are reflected as a
reduction in retained earnings in the accompanying balance sheet. These
costs are not reflected in the pro forma combined statements of earnings.
2. To reclassify certain K&G buying and occupancy expenses to cost of
sales to conform with classifications used by TMW.
3. To adjust common stock and capital in excess of par value to
reflect the issuance of 4.4 million shares of TMW common stock to K&G
shareholders based on an Exchange Ratio of 0.43.
4. Pro forma basic earnings per share is computed based on the
weighted average number of common shares outstanding. Pro forma diluted
earnings per share is computed based on the weighted average number of
common shares plus the dilutive impact of options and convertible
securities for each period after giving effect to the combination on a
pooling-of-interests basis. Pro forma shares and earnings per share data is
presented to reflect the issuance of TMW common stock based on the minimum
and maximum Exchange Ratios of 0.4 and 0.43.
The pro forma combined financial statements as of January 30, 1999 and for
the years ended January 30, 1999 and January 31, 1998 include the following
adjustments to reflect the February 10, 1999 combination of TMW and Moores as a
pooling-of-interests and the concurrent debt refinancing:
5. To record the transaction costs incurred in the combination of TMW
and Moores under pooling-of-interests accounting. The costs, which
primarily relate to investment banking fees, professional fees, contract
termination payments and unamortized stock option compensation expenses,
totaled approximately $5,261, net of a tax benefit of $291, and are
reflected as a reduction in retained earnings in the accompanying balance
sheet. These costs are not reflected in the pro forma combined statements
of earnings.
6. To adjust the pro forma combined balance sheet for the effects of
refinancing approximately US $59 million of existing Moores debt as
follows:
<TABLE>
<S> <C>
Revolving debt refinanced with long-term debt............... $ 7,568
Current portion of long-term debt refinanced with long-term
debt...................................................... 3,644
Prepayment penalty from early retirement of long-term
debt...................................................... 1,496
-------
Addition to long-term debt.................................. $12,708
=======
Write off of Moores historical deferred financing costs, net
of tax of $814............................................ $ 1,958
Prepayment penalty from early retirement of long-term debt,
net of tax of $541........................................ 955
-------
Adjustment to retained earnings............................. $ 2,913
=======
</TABLE>
7. To adjust common stock and capital in excess of par value to
reflect the issuance of 2.5 million shares of TMW common stock issuable to
Moores shareholders and option holders upon exchange of certain
exchangeable securities of Moores issued in the February 10, 1999
combination of TMW and Moores.
56
<PAGE> 65
DESCRIPTION OF TMW CAPITAL STOCK
The authorized capital stock of TMW consists of 50,000,000 shares of TMW
common stock, par value $.01 per share, and 2,000,000 shares of preferred stock,
par value $.01 per share (the "Preferred Stock"). At April 22, 1999, 34,993,014
shares of TMW common stock were outstanding and held by approximately 1,100
holders of record and one share of Preferred Stock was outstanding. A total of
6,470,488 shares of TMW common stock are reserved for future issuance of which
(i) 642,262 shares are reserved for issuance upon the exercise of options
granted under TMW's 1992 Stock Option Plan, (ii)1,098,129 shares are reserved
for issuance upon the exercise of options granted under TMW's 1996 Stock Option
Plan, (iii) 745,425 shares are reserved for issuance upon the exercise of
options granted under TMW's 1998 Key Employee Stock Option Plan, (iv) 1,393,449
shares are reserved for issuance under TMW's Employee Stock Discount Plan, (v)
67,500 shares are reserved for issuance upon the exercise of options granted
under TMW's Non-Employee Director Stock Option Plan, (vi) 57,000 shares are
reserved for issuance upon the exercise of options granted under miscellaneous
employee stock option agreements and (vii) 2,466,723 shares are reserved for
issuance upon the exchange of Exchangeable Shares issued by Moores. In
connection with the consummation of the Moores combination, one share of
Preferred Stock, to which voting rights attach for the benefit of the holders of
the Exchangeable Shares, was issued to a voting trustee designated by TMW. At
present, TMW anticipates seeking shareholder approval at the annual meeting of
shareholders scheduled to be held on July 1, 1999 to amend its articles of
incorporation to increase the number of authorized shares of TMW common stock
from 50,000,000 shares to 100,000,000 shares.
COMMON STOCK
Holders of shares of TMW common stock are entitled to one vote per share in
the election of directors and on all other matters submitted to a vote of
shareholders. Such holders do not have the right to cumulate their votes in the
election of directors. Holders of TMW common stock have no redemption or
conversion rights and no preemptive or other rights to subscribe for securities
of TMW. In the event of a liquidation, dissolution or winding up of TMW, holders
of TMW common stock are entitled to share equally and ratably in all of the
assets remaining, if any, after satisfaction of all debts and liabilities of
TMW, and the preferential rights of any series of Preferred Stock then
outstanding. The shares of TMW common stock outstanding are fully paid and
non-assessable.
Holders of TMW common stock have an equal and ratable right to receive
dividends, when, as and if declared by the TMW board of directors out of funds
legally available therefor and only after payment of, or provision for, full
dividends on all outstanding shares of any series of Preferred Stock and after
TMW has made provision for any required sinking or purchase funds for any series
of Preferred Stock. TMW's Credit Agreement prohibits the payment of cash
dividends on TMW common stock.
PREFERRED STOCK
The Preferred Stock may be issued, from time to time in one or more series,
and the TMW board of directors, without further approval of the shareholders, is
authorized to fix the dividend rights and terms, redemption rights and terms,
liquidation preferences, conversion rights, voting rights and sinking fund
provisions applicable to each such series of Preferred Stock. If TMW issues a
series of Preferred Stock in the future that has voting rights or preference
over TMW common stock with respect to the payment of dividends and upon TMW's
liquidation, dissolution or winding up, the rights of the holders of TMW common
stock offered hereby may be adversely affected. The issuance of shares of
Preferred Stock could be utilized, under certain circumstances, in an attempt to
prevent an acquisition of TMW. TMW has no present intention to issue any shares
of Preferred Stock other than the one share of Preferred Stock issued in
connection with the Moores combination.
One share of Preferred Stock, designated "Series A Special Voting Preferred
Stock", was issued in connection with the Moores transaction. The holder of this
share of Series A Special Voting Preferred Stock is entitled to vote on all
matters on which the holders of TMW common stock vote and is entitled to that
number of votes as are equal to the number of Exchangeable Shares then
outstanding. The trustee who holds the one
57
<PAGE> 66
share of Series A Special Voting Preferred Stock must vote such share in
accordance with instructions from the holders of Exchangeable Shares. In the
event of a liquidation, dissolution or winding up of TMW, the holder of the one
share of Series A Special Voting Preferred Stock will be entitled to receive
$0.01, after satisfaction of all debts and liabilities of TMW and the
preferential rights of any other series of Preferred Stock then outstanding. The
holder of the Series A Special Voting Preferred Stock shall have no rights as to
the payment of dividends nor shall the holder thereof be entitled to convert the
Series A Special Voting Preferred Stock into TMW common stock.
LIMITATION OF DIRECTOR LIABILITY
The Restated Articles of Incorporation of TMW contain a provision that
limits the liability of TMW's directors as permitted under Texas law. The
provision eliminates the liability of a director to TMW or its shareholders for
monetary damages for negligent or grossly negligent acts or omissions in the
director's capacity as a director. The provision does not affect the liability
of a director (i) for breach of his duty of loyalty to TMW or to shareholders,
(ii) for acts or omissions not in good faith or that involve intentional
misconduct or a knowing violation of law, (iii) for acts or omissions for which
the liability of a director is expressly provided by an applicable statute, or
(iv) in respect of any transaction from which a director received an improper
personal benefit. Pursuant to the Restated Articles of Incorporation, the
liability of directors will be further limited or eliminated without action by
shareholders if Texas law is amended to further limit or eliminate the personal
liability of directors.
TRANSFER AGENT AND REGISTRAR
The transfer agent and registrar for the TMW common stock is American Stock
Transfer & Trust Company.
COMPARATIVE RIGHTS OF TMW AND K&G SHAREHOLDERS
General. As a result of the merger, holders of K&G common stock will become
shareholders of TMW, and the rights of the former shareholders of K&G will
thereafter be governed by the TMW Articles of Incorporation, as amended, the TMW
Bylaws and the Texas Business Corporation Act (the "TBCA"). The rights of K&G
shareholders are currently governed by the K&G Articles of Incorporation, the
K&G Bylaws and the Georgia Business Corporation Code ("Georgia Law"). The
following summarizes certain differences between the rights of K&G shareholders
and the rights of TMW shareholders.
Shareholder Meetings. Pursuant to the Amended and Restated Bylaws of K&G,
the annual shareholders meeting shall be held within 120 days following the
close of K&G's fiscal year. TMW's By-laws require that its annual meeting be
held at such date and time as shall be designated by TMW's board of directors.
Under K&G's Amended and Restated Bylaws, special meetings of the shareholders
can be called at any time by K&G's board of directors, chairman of the board,
president or upon the written request of the holders of 40% of all the votes
entitled to be cast on any issue or issues to be considered at such meeting.
TMW's By-laws provide that special meetings of shareholders may be called at the
request of the chairman of the board or the president, at the request in writing
of a majority of the TMW board of directors or at the request in writing of
shareholders owning at least ten percent of all the shares entitled to vote at
meetings.
Shareholder Action By Written Consent. TMW's By-laws provide that
shareholders may act by written consent provided that the consent is signed by
the holder or holders of all of the shares entitled to vote on the action which
is the subject of the consent. Georgia Law provides that K&G shareholders may
act by written consent of all of the shareholders entitled to vote on the
action, provided that each consenting shareholder has been furnished, or has
waived the right to be furnished, the same material that would have been
required to be sent to shareholders in a notice of a meeting at which the
proposed action would have been submitted to the shareholders for action.
Board of Directors. TMW's entire board of directors stands for reelection
each year. Directors are elected by a plurality of the votes cast by the holders
of shares entitled to vote in the election of directors at a meeting of
shareholders at which a quorum is present. Under both the TBCA and TMW's
By-laws, vacancies,
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<PAGE> 67
whether by resignation, death or removal or by reason of an increase in the size
of the board, may be filled by the remaining members of the board of directors.
The number of vacancies that may be filled by action of the TMW board of
directors where the vacancy is created through an increase in the size of the
board is limited to two persons during the period between any two successive
annual meetings. In addition, under the TBCA the term of office of a director
elected by reason of an increase in the number of directors will expire no later
than the next election of directors by the shareholders. TMW's By-laws provide
that directors may be removed for cause by the vote of a majority of the shares
entitled to vote at an election of directors.
K&G has a classified board structure under which one-third of its directors
stand for election each year. Directors are elected by a plurality of the votes
cast by the shares entitled to vote in the election at a meeting at which a
quorum is present. Under K&G's Amended and Restated Articles of Incorporation,
any vacancy, whether the result of death, resignation, retirement,
disqualification, removal from office for cause or an increase in the number of
directors, shall be filled by a majority of the board of directors then in
office, though less than a quorum, or by the sole remaining director. The term
of any director elected to fill a vacancy shall be the same remaining term as
that of his or her predecessor, except that the term of a director elected to
fill a vacancy resulting from an increase in the number of directors shall
expire at the next election of directors by the shareholders. Georgia Law
provides that directors who have staggered terms, as K&G's directors do, may
only be removed for cause by the vote of a plurality of the shares voting at a
meeting called for the purpose of removing a director, and only if the notice of
the meeting stated that one of the purposes of the meeting was to remove one of
the directors.
Indemnification of Officers and Directors. The TBCA permits corporations to
indemnify their directors and officers for liabilities incurred by them by
reason of serving as directors or officers of their corporations or of other
corporations and entities at the request of their corporations. The TBCA does
not generally restrict the scope of indemnification for officers and permits
broader indemnification of directors and officers if the indemnification
arrangement is approved by shareholders. TMW's Articles of Incorporation, in the
case of directors, and TMW's By-laws, in the case of both officers and
directors, provide that the officers and directors of TMW shall be indemnified
to the fullest extent permitted or required by the TBCA or any other applicable
Texas statute.
Georgia Law permits corporations to indemnify their directors and officers
for liabilities incurred by them by reason of serving as directors or officers
of their corporations or of other corporations and entities at the request of
their corporations. K&G's Amended and Restated Articles of Incorporation and
bylaws, in the case of both officers and directors, provide that the officers
and directors of K&G shall be indemnified to the fullest extent permitted or
required by Georgia Law.
Under the terms of the merger agreement, for six years after the effective
time of the merger, the surviving corporation shall maintain in effect K&G's
current director and officer liability insurance on terms and in an amount no
less favorable than those contained in the policy currently in effect. See
Section 5.6(c) of the merger agreement which is attached to this proxy
statement/prospectus as Annex A.
Certain Transactions. Under the TBCA, an amendment to TMW's articles of
incorporation requires the affirmative vote of two-thirds of the outstanding
shares entitled to vote thereon unless any class or series of shares is entitled
to vote thereon as a class, in which event the proposed amendment shall be
adopted upon receiving the affirmative vote of the holders of at least
two-thirds of the shares within each class or series of outstanding shares
entitled to vote thereon as a class and of at least two-thirds of the total
outstanding shares entitled to vote thereon. Also, under the TBCA, unless
otherwise provided in the articles of incorporation, a plan of merger or
exchange must be approved by the affirmative vote of the holders of at least
two-thirds of the outstanding shares of the corporation entitled to vote thereon
and the affirmative vote of the holders of at least two-thirds of the
outstanding shares within each class or series of shares entitled to vote
thereon as a class, unless the board of directors conditions its submission to
shareholders of a plan of merger or exchange by requiring a greater vote or a
vote by class or series. Under the TBCA, the same two-thirds approval is
required if the corporation wishes to dissolve by act of the corporation. TMW's
By-laws may be amended only by a vote of a majority of the board of directors.
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<PAGE> 68
Under Georgia Law, an amendment to K&G's Amended and Restated Articles of
Incorporation requires the affirmative vote of a majority of the votes entitled
to be cast on the amendment by each voting group entitled to vote on the
amendment. Also, under Georgia Law, a plan of merger or share exchange must be
approved by a majority of all the votes entitled to be cast on the plan by all
shares entitled to vote on the plan, voting as a single voting group, unless the
articles of incorporation or the board of directors in its submission of the
plan require a greater vote. The same majority vote approval is required if the
corporation wishes to dissolve. K&G's bylaws may be amended by a vote of the
majority of either the board of directors or the shareholders.
Shareholder Access to Information. Under the TBCA, any shareholder who
holds at least 5% of all of the outstanding shares of a corporation or that has
held his shares for at least six months will have the right to examine at any
reasonable time, for any proper purpose, the relevant books and records of
account, minutes and share transfer records of the corporation. Under Georgia
Law and K&G's bylaws, shareholders who own at least two percent of the total
shares of the corporation have the right to inspect K&G's books and records. The
K&G board of directors has the right to determine whether to make books and
records of the corporation available for inspection by shareholders who own less
than two percent of the total outstanding shares of K&G.
Special Vote Required for Certain Combinations with Interested
Shareholders. Part Thirteen ("Part Thirteen") of the TBCA imposes a special
voting requirement for the approval of certain business combinations and related
party transactions between public corporations and affiliated shareholders
unless the transaction or the acquisition of shares by the affiliated
shareholder is approved by the board of directors of the corporation prior to
the affiliated shareholder becoming an affiliated shareholder. Part Thirteen
prohibits certain mergers, sales of assets, reclassifications and other
transactions (defined as business combinations) between shareholders
beneficially owning 20% or more of the outstanding stock of a Texas public
corporation (such shareholders being defined as affiliated shareholders) for a
period of three years following the shareholder acquiring shares representing
20% or more of the corporation's voting power unless two-thirds of the
unaffiliated shareholders approve the transaction at a meeting held no earlier
than six months after the shareholder acquires that ownership. The provisions
requiring such a vote of shareholders do not apply to any transaction with an
affiliated shareholder if the transaction or the purchase of shares by the
affiliated shareholder is approved by the board of directors before the
affiliated shareholder acquires beneficial ownership of 20% of the shares or if
the affiliated shareholder was an affiliated shareholder prior to December 31,
1996, and continued as such through the date of the transaction.
Georgia Law permits, but does not require, a corporation to impose
restrictions on the corporation's ability to transact business with interested
shareholders. K&G's bylaws do not impose any such restrictions.
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THE MEN'S WEARHOUSE, INC.
MANAGEMENT INFORMATION
For a discussion of the business of the Company, please see TMW's Annual
Report on Form 10-K for the year ended January 30, 1999, a copy of which is
enclosed with this proxy statement/prospectus.
BOARD OF DIRECTORS
The following table lists the name, age, current position and period of
service with TMW of each director of TMW. All directors of TMW hold office until
the next annual meeting of shareholders or until their respective successors are
elected and qualified or their earlier resignation or removal.
<TABLE>
<CAPTION>
DIRECTOR
NAME AGE POSITION WITH TMW SINCE
- ---- --- ----------------- --------
<S> <C> <C> <C>
George Zimmer....... 50 Chairman of the Board and Chief Executive Officer 1974
David Edwab......... 44 President and Director 1991
Richard E. Goldman.. 48 Executive Vice President and Director 1975
Harry M. Levy....... 50 Executive Vice President -- Planning and Systems and 1991
Director
Robert E. Zimmer.... 75 Senior Vice President -- Real Estate and Director 1974
James E. Zimmer..... 47 Senior Vice President -- Merchandising and Director 1975
Rinaldo Brutoco..... 52 Director 1992
Michael L. Ray...... 60 Director 1992
Sheldon I. Stein.... 45 Director 1995
</TABLE>
George Zimmer, together with Robert E. Zimmer and Harry M. Levy, founded
The Men's Wearhouse as a partnership in 1973. Mr. Zimmer has served as Chairman
of the Board of TMW since its incorporation in 1974. George Zimmer served as
President from 1974 until February 1997 and has served as Chief Executive
Officer of TMW since 1991.
David Edwab joined TMW in February 1991 and was elected Senior Vice
President, Treasurer and Chief Financial Officer of TMW. In February 1993 he was
elected Chief Operating Officer of TMW. In February 1997 Mr. Edwab was elected
President of TMW. He was elected a director of TMW in 1991.
Richard E. Goldman joined The Men's Wearhouse in 1973 shortly after its
inception and has served as Executive Vice President and a director of TMW since
1975. Mr. Goldman is responsible for overall marketing and advertising for the
Company.
Harry M. Levy served as a Vice President of TMW from December 1979 to
February 1992, at which time he was elected Senior Vice President and Chief
Information Officer of TMW. In May 1998, Mr. Levy was named Executive Vice
President. He was elected a director of TMW in November 1991.
Robert E. Zimmer has served as Senior Vice President and a director of TMW
since its incorporation in 1974 and is primarily responsible for new store site
selection and arrangements.
James E. Zimmer has served as Senior Vice President and a director of TMW
since 1975 and works primarily with the Chief Operating Officer in coordinating
the Company's merchandising function.
Rinaldo Brutoco is and has been since 1981, President and Chief Executive
Officer of Dorason Corporation, a privately held consulting and merchant banking
concern. In addition, through October 1998, Mr. Brutoco served as the Chief
Executive Officer and a director of Red Rose Collection, Inc., a San
Francisco-based mail order catalog and retail company.
Michael L. Ray has been on the faculty at Stanford University since 1967
and is currently the John G. McCoy -- Banc One Corporation Professor of
Creativity and Innovation and of Marketing at Stanford University's Graduate
School of Business. Professor Ray is a social psychologist with training and
extensive
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<PAGE> 70
experience in advertising and marketing management and has served as a private
consultant to numerous companies since 1967. He is also a director of
Gardenburger, Inc.
Sheldon I. Stein is a Senior Managing Director of Bear, Stearns & Co. Inc.
("Bear Stearns") and oversees its United States regional investment banking
offices. Mr. Stein joined Bear Stearns in August 1986. He is a director of
CellStar Corporation, Home Interiors & Gifts, Inc., Fresh America Corp., Precept
Business Services, Inc. and Tandycrafts, Inc. He is also a Trustee of the
Greenhill School in Dallas and Brandeis University.
George Zimmer and James E. Zimmer are brothers, and Robert E. Zimmer is
their father.
EXECUTIVE OFFICERS
The following table lists the name, age, current position and period of
service with TMW of each executive officer of TMW. Each executive officer of TMW
was elected by the board of directors of TMW and will hold office until the next
annual meeting of the board of directors or until his successor shall have been
elected and qualified.
<TABLE>
<CAPTION>
EXECUTIVE
OFFICER
NAME AGE POSITION WITH TMW SINCE
- ---- --- ----------------- ---------
<S> <C> <C> <C>
George Zimmer.................. 50 Chairman of the Board and Chief Executive Officer 1974
David Edwab.................... 44 President 1991
Eric J. Lane................... 39 Chief Operating Officer 1993
Richard E. Goldman............. 48 Executive Vice President 1975
Bruce Hampton.................. 44 Executive Vice President 1992
Charles Bresler, Ph.D.......... 49 Executive Vice President 1993
Harry M. Levy.................. 50 Executive Vice President -- Planning and Systems 1991
Robert E. Zimmer............... 75 Senior Vice President -- Real Estate 1974
James E. Zimmer................ 47 Senior Vice President -- Merchandising 1975
Theodore T. Biele, Jr. ........ 48 Senior Vice President -- Store Operations 1996
Gary G. Ckodre................. 49 Vice President -- Finance 1992
Neill P. Davis................. 42 Vice President and Treasurer 1997
</TABLE>
See the table under "Board of Directors" for the past business experience
of Messrs. George Zimmer, Edwab, Goldman, Robert E. Zimmer, James E. Zimmer and
Levy.
Eric J. Lane joined TMW in 1988. From 1991 to 1993 he served as Vice
President -- Store Operations and in 1993 he was named Senior Vice
President -- Merchandising. In February 1997 Mr. Lane became Chief Operating
Officer of TMW.
Bruce Hampton joined TMW in 1980. From 1991 to 1992 he served as Vice
President -- Store Operations and in 1992 he was named Senior Vice
President -- Store Operations. In 1995 he was named Executive Vice President.
Charles Bresler, Ph.D. joined TMW in 1993. From 1993 to 1998 he served as
Senior Vice President -- Human Development. In February 1998 he was named
Executive Vice President.
Theodore T. Biele Jr. joined TMW in 1983. Since 1990 he served in various
management capacities within store operations. From 1994 to 1996 he served as
Vice President -- Store Operations and in 1996 he was named Senior Vice
President -- Store Operations.
Gary G. Ckodre joined TMW in 1992. Since 1992 he served as the Chief
Accounting Officer and in February 1997 he was named Vice President -- Finance
and Principal Financial and Accounting Officer.
Neill P. Davis joined TMW in 1997. Since 1997 he served as Vice President
and Treasurer. Before joining TMW he served as Senior Vice President and Manager
in the Global Corporate Group of
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<PAGE> 71
NationsBank since 1987. He has 17 years of corporate banking experience, all
with NationsBank and its predecessors.
EXECUTIVE COMPENSATION
Summary Compensation Table. The following table sets forth certain
information regarding cash compensation paid for services rendered during the
last three fiscal years to each of TMW's five most highly compensated executive
officers, including the Chief Executive Officer:
<TABLE>
<CAPTION>
LONG TERM
COMPENSATION
ANNUAL COMPENSATION AWARDS
----------------------------------- ------------
OTHER ANNUAL SECURITIES ALL OTHER
COMPENSATION UNDERLYING COMPENSATION
NAME AND PRINCIPAL POSITION YEAR SALARY($) BONUS($) ($)(5) OPTIONS(9) ($)(6)
- --------------------------- ---- --------- -------- ------------ ------------ ------------
<S> <C> <C> <C> <C> <C> <C>
George Zimmer............... 1998 420,000 87,500(1) -- -- 66,489(7)
Chairman of the Board and 1997 420,000 87,500(2) -- -- 62,038(7)
Chief Executive Officer 1996 420,000 50,000(3) -- -- 69,403(7)
David Edwab................. 1998 405,000 87,500(1) -- -- 9,619(8)
President 1997 350,000 332,575(4) -- 150,000 8,617(8)
1996 298,000 313,825(4) -- 75,000 8,908(8)
Eric Lane................... 1998 258,000 43,750(1) -- -- 933
Chief Operating Officer 1997 247,553 35,000(2) -- 7,500 506
1996 164,000 18,000(3) -- 26,250 1,338
Richard E. Goldman.......... 1998 270,000 35,000(1) -- -- 933
Executive Vice President 1997 270,000 35,000(2) -- -- 506
1996 281,000 24,000(3) -- -- 1,338
James E. Zimmer............. 1998 360,000 52,500(1) -- -- 933
Senior Vice President -- 1997 356,000 52,500(2) -- -- 506
Merchandising 1996 336,000 30,000(3) -- -- 1,338
</TABLE>
- ---------------
(1) Represents bonus paid in April 1999 relating to services performed in 1998.
(2) Represents bonus paid in April 1998 relating to services performed in 1997.
(3) Represents bonus paid in April 1997 relating to services performed in 1996.
(4) Represents (i) the cash amount of $288,825 and $288,825 paid to Mr. Edwab
during 1997 and 1996, respectively, pursuant to his Employment Agreement
with TMW upon the exercise of his option to acquire 110,654 shares and
110,652 shares, respectively, of TMW common stock, which amounts were used
to fund the purchase price thereof (see "-- Employment Agreement and Stock
Options") and (ii) a bonus of $43,750 and $25,000 paid in April 1998 and
1997, respectively, relating to services performed in the preceding fiscal
year.
(5) Excludes perquisites and other benefits because the aggregate amount of such
compensation was the lesser of $50,000 or 10% of the total annual salary and
bonus reported for the named executive officer.
(6) Represents the amount of TMW's contribution to the ESP allocated in the
indicated year to the account of the named executive officer.
(7) Also includes $65,556, $61,532 and $68,065 in 1998, 1997 and 1996,
respectively, for the allocated dollar value of the benefits to Mr. George
Zimmer of life insurance premiums paid on his behalf, subject to certain
split-dollar provisions in favor of TMW.
(8) Also includes $8,683, $8,111, and $7,570 in 1998, 1997, and 1996,
respectively, for the allocated dollar value of the benefit to Mr. Edwab of
life insurance premiums paid on his behalf, subject to certain split-dollar
provisions in favor of TMW.
(9) All share amounts have been adjusted to reflect a 50% stock dividend
effected in June 1998.
Employment Agreement and Stock Options. To induce David Edwab to leave his
employment and join the Company, TMW entered into an Employment Agreement with
Mr. Edwab effective January 31, 1991 (as
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<PAGE> 72
amended, the "Employment Agreement") for an initial term beginning February 25,
1991 and extending through February 24, 1999. Under the Employment Agreement TMW
agreed, among other things, to:
- pay Mr. Edwab an annual base salary of $226,000, plus $12,000 per year
for reimbursement of automobile and club membership expenses;
- pay Mr. Edwab a cash amount (net of state and federal taxes) sufficient
to fund the payment of the purchase price for any option shares acquired
upon any exercise of the option granted to Mr. Edwab under his Employment
Agreement;
- pay the premiums on $3,000,000 in life insurance policies to be owned by
a trust established by Mr. Edwab and payable to beneficiaries designated
by him (subject to certain split-dollar provisions in favor of TMW). To
secure the repayment of the premiums, the Trust has assigned the policies
to TMW as collateral; and
- provide disability and medical insurance coverage and certain other
benefits provided to other employees (other than participation in stock
option plans).
Pursuant to the Employment Agreement, TMW granted Mr. Edwab an option to
purchase 796,705 shares of TMW common stock at $1.57 per share until the later
of the termination of Mr. Edwab's employment and January 31, 2011. The option
was immediately exercisable with respect to 33.3% of the option shares. Since
that time the remaining 66.7% of the option shares have become fully exercisable
and the option has been exercised as to all of the option shares.
TMW may terminate Mr. Edwab's employment under the Employment Agreement for
"cause" (as defined in the Employment Agreement). If that happens, TMW must pay
all compensation and benefits due Mr. Edwab under the Employment Agreement to
the date of termination, which will satisfy all of TMW's obligations under the
Employment Agreement.
Effective September 30, 1991, TMW entered into an Option Issuance Agreement
with Mr. Edwab pursuant to which he was granted the right to purchase additional
shares of TMW common stock on the same basis and subject to the same terms as
the option shares under the Employment Agreement in the event TMW issues any
shares of TMW common stock or any warrants, options, convertible securities or
other rights to acquire TMW common stock (collectively, "Rights") during the
term of the Option Issuance Agreement. At the same time, the Employment
Agreement was amended to eliminate certain anti-dilution provisions that
provided him with protection in the event of future issuances of TMW common
stock by TMW. Should TMW issue any such shares or Rights, excluding the option
shares issuable under the Employment Agreement, Mr. Edwab would automatically
have the right to purchase a number of shares of TMW common stock equal to
.030928 times the number of shares so issued or issuable upon exercise of the
Rights. The purchase price would be equal to the price per share paid to TMW for
the TMW common stock so issued or, in the case of Rights, for the Rights plus
the exercise price per share of TMW common stock issuable thereunder.
Mr. Edwab waived his right to receive additional options under the Option
Issuance Agreement in connection with:
- options granted under TMW's option plans;
- the issuance of 2,531,250 shares of TMW common stock pursuant to a public
offering consummated in April 1992;
- the issuance of 1,423,125 shares of TMW common stock pursuant to a public
offering consummated in April 1993; and
- the issuance of TMW common stock upon conversion of TMW's 5 1/4%
Convertible Subordinated Notes due 2003.
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<PAGE> 73
In April 1994, the Option Issuance Agreement was amended to provide that no
options would be granted to Mr. Edwab thereunder in connection with underwritten
public offerings of equity securities by TMW. As amended, both the Employment
Agreement and the Option Issuance Agreement provide that Mr. Edwab may satisfy
his obligation to pay withholding tax relating to his exercise of any options
thereunder by having TMW withhold a number of shares of TMW common stock that
would have been issued upon such exercise equal in value to the amount of such
tax owed.
Split-Dollar Life Insurance Agreement. The George Zimmer 1988 Living Trust
is presently the owner of 4,097,783 shares of TMW common stock. TMW has been
advised that on the demise of George Zimmer, his estate may be required to
publicly sell all or substantially all of such shares to satisfy estate tax
obligations. The public sale of such number of shares in all probability would
destabilize the market for TMW's publicly traded stock. Accordingly, in November
1994, an agreement was entered into (commonly known as split-dollar life
insurance agreement) under the terms of which TMW makes advances of a portion of
the premiums for certain life insurance policies on the life of George Zimmer
with an aggregate face value of $25,500,000 purchased by a trust established by
Mr. Zimmer. To secure the repayment of the advances, the trust has assigned the
policies to TMW as collateral. In addition, a second split-dollar life insurance
agreement with essentially the same terms as the existing agreement was entered
into relating to a life insurance policy on the life of George Zimmer with a
face value of $1,000,000 purchased by a second trust established by Mr. Zimmer.
The trusts have assigned the additional policies to TMW as collateral.
Employee Stock Option Plans. TMW maintains The Men's Wearhouse, Inc. 1992
Stock Option Plan (the "1992 Option Plan"), 1996 Stock Option Plan (the "1996
Option Plan"), and 1998 Key Employee Stock Option Plan (the "1998 Option Plan")
(collectively, the "Plans") for the benefit of its full-time key employees.
Under the 1992 Option Plan, options to purchase up to 1,071,507 shares of TMW
common stock may be granted. Under the 1996 Option Plan, options to purchase up
to 1,125,000 shares of TMW common stock may be granted. Additionally, under the
1998 Option Plan, options to purchase up to 750,000 shares of TMW common stock
may be granted. As of April 22, 1999, of the 1,071,507 shares of TMW common
stock initially reserved for issuance pursuant to the 1992 Option Plan, only
1,847 shares of TMW common stock remained available for issuance pursuant to
such plan.
The Plans are administered by the Stock Option Committee of the TMW board
of directors which consists of George Zimmer and Richard Goldman. The
individuals eligible to participate in the Plans are such full-time key
employees, including officers and employee directors, of the Company as the
Stock Option Committee may determine from time to time. However:
- George Zimmer, Richard E. Goldman, Robert E. Zimmer and James E. Zimmer
are not eligible to participate in any of the Plans;
- David Edwab may not participate in the 1992 Option Plan; and
- no executive officers of TMW may participate in the 1998 Option Plan.
The Stock Option Committee may grant either (i) incentive stock options
within the meaning of section 422 of the Internal Revenue Code of 1986, as
amended, or (ii) non-statutory stock options. 500,000 shares of TMW common stock
is the maximum number of shares subject to options that may be awarded under the
1996 Option Plan or the 1998 Option Plan to any employee during any consecutive
three-year period. The purchase price of shares subject to an option granted
under the Plans is determined by the Stock Option Committee at the time of
grant. The purchase price may not be less than 50% of the fair market value of
the shares of TMW common stock on the date of grant. Options granted under the
Plans must be exercised within ten years from the date of grant. Unless
otherwise provided by the Stock Option Committee, the options vest with respect
to one-third of the shares covered thereby on each of the first three
anniversaries of the date of grant. In the case of any eligible employee who
owns or is deemed to own stock possessing more than 10% of the total combined
voting power of all classes of stock of TMW or its parent or subsidiaries, (i)
the option price of any incentive stock option granted may not be less than 110%
of the fair market value of the TMW common stock on the date of grant, and (ii)
the exercisable period may not exceed five years from date of grant.
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<PAGE> 74
Options granted under the Plans terminate on the earlier of (i) the
expiration date of the option or (ii) one day less than one month after the date
the holder of the option terminated his or her employment with the Company for
any reason other than the death, disability or retirement of such holder. During
such one-month period, the holder may exercise the option in respect of the
number of shares that were vested on the date of such severance of employment.
In the event of severance because of the disability of a holder before the
expiration date of the option, the option terminates on the earlier of such (i)
expiration date or (ii) one year following the date of severance. During this
period the holder may exercise the option in respect of the number of shares
that were vested on the date of severance because of disability. In the event of
the death or retirement of a holder, the option terminates on the earlier of (i)
the expiration date of the option or (ii) one year following the date of death
or retirement.
Option Grants. No options were granted to the named executive officers
during the fiscal year ended January 30, 1999.
Option Exercises. The following table sets forth the aggregate option
exercises during the last fiscal year and the value of options outstanding at
year-end held by certain executive officers:
AGGREGATE OPTION EXERCISES IN FISCAL 1998 AND OPTION VALUES AT JANUARY 30, 1999
<TABLE>
<CAPTION>
VALUE OF UNEXERCISED
IN-THE-MONEY OPTIONS
SHARES NUMBER OF SECURITIES UNDERLYING AT YEAR END
ACQUIRED ON VALUE UNEXERCISED OPTIONS AT YEAR END(#) ($)EXERCISABLE/
NAME EXERCISE(#) REALIZED($) EXERCISABLE/UNEXERCISABLE UNEXERCISABLE
---- ----------- ----------- ---------------------------------- --------------------
<S> <C> <C> <C> <C>
George Zimmer................ -- -- -- --
David Edwab.................. -- -- 45,000/180,000 538,000/1,721,000
Richard E. Goldman........... -- -- -- --
Eric Lane(1)................. 5,000 128,000 28,751/48,750 506,000/712,000
James E. Zimmer.............. -- -- -- --
</TABLE>
- ---------------
(1) The options exercised were granted under the 1992 Option Plan.
Compensation of Directors. All directors of TMW who are also employees of
the Company do not receive fees for attending meetings of the TMW board of
directors. Each non-employee director of TMW receives a quarterly retainer of
$2,500. In addition, under TMW's 1992 Non-Employee Director Stock Option Plan
(the "Director Plan"), each person who is a non-employee director on the last
business day of each fiscal year of TMW is granted an option to acquire 2,000
shares of TMW common stock. All options granted permit the non-employee director
to purchase the option shares at the closing price on the date of grant. All
options granted under the Director Plan become exercisable one year after the
date of grant and must be exercised within 10 years of the date of grant. Such
options terminate on the earlier of (i) the expiration date of the option or
(ii) one day less than one month after the date the director ceases to serve as
a director of TMW for any reason other than death, disability or retirement as a
director.
On January 29, 1999, TMW granted each of Messrs. Brutoco, Stein and Ray an
option to purchase 2,000 shares of TMW common stock at $29.625 per share
pursuant to the Director Plan.
Compensation Committee Interlocks and Insider Participation. During fiscal
1998, no member of the Compensation Committee of the board of directors of TMW:
- was an officer or employee of TMW or any of its subsidiaries;
- was formerly an officer of TMW or any of its subsidiaries; or
- had any relationships requiring disclosure by TMW under Item 404 of
Regulation S-K.
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During fiscal 1998, no executive officer of TMW served as:
- a member of the compensation committee (or other board committee
performing equivalent functions) of another entity, one of whose
executive officers served on the Compensation Committee of the board of
directors of TMW;
- a director of another entity, one of whose executive officers served on
the Compensation Committee of TMW; or
- a member of the compensation committee (or other board committee
performing equivalent functions) of another entity, one of whose
executive officers served as a director of TMW.
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
TMW leases a warehouse facility in Houston, Texas from Zig Zag, a Texas
joint venture, in which George Zimmer, James E. Zimmer and Richard E. Goldman
are the sole and equal joint venturers. During 1998, TMW paid rentals of $78,000
to Zig Zag. The lease expires on August 31, 2005.
TMW also leases the land underlying a store in Dallas, Texas (which
building is owned by TMW) from 8239 Preston Road, Inc., a Texas corporation.
George Zimmer, James E. Zimmer and Richard E. Goldman each own 20% of the
outstanding common stock of 8239 Preston Road, Inc. Laurie Zimmer, sister of
George and James Zimmer and daughter of Robert E. Zimmer, owns the remaining 40%
of the outstanding common stock of that company. TMW paid 8239 Preston Road,
Inc. aggregate rentals on such property of $49,200 in 1998. The lease expires
April 30, 2004.
Management believes that the terms of the foregoing leasing arrangements
are comparable to what would have been available to TMW from unaffiliated third
parties at the time such leases were entered into.
8239 Preston Road, Inc. and Zig Zag each have loans with NationsBank of
Texas, N.A. ("NationsBank") and have agreed that a default by TMW under TMW's
Credit Agreement with NationsBank will constitute a default under the loan
agreements of such partnership or corporation with NationsBank. If for any
reason TMW's loan with NationsBank becomes due and payable or is paid, the loans
to such partnership or corporation from NationsBank will become automatically
due and payable. The loans from NationsBank to Zig Zag and 8239 Preston Road,
Inc. mature in June 2000. The maximum principal amount outstanding under the
loans to Zig Zag during 1998 was $548,000. The maximum principal amount
outstanding under the loans to 8239 Preston Road, Inc. during 1998 was $365,000.
With the exception of Laurie Zimmer, each of the partners and shareholders of
such partnership or corporation has personally guaranteed the obligations of the
respective entity under the loan agreements.
The Company has engaged Dorason Corporation to provide consulting services,
on a non-exclusive basis, to the Company with respect to general business
matters including, specifically, internet commerce for a fee of $20,000 per
month plus reimbursement of certain expenses. This engagement is cancellable by
either party on 60 days notice. Mr. Brutoco is the chairman and chief executive
officer, and, together with his wife, owns 100% of Dorason Corporation.
The board of directors of TMW has authorized a corporate joint venture to
develop and implement certain retail store systems software to be used by the
Company and to be marketed to third parties. TMW will own a 50% interest in the
joint venture and Blue Water Resources LLC ("Blue Water") will own 50%. Harry
Levy, an officer and director TMW, will own a one-third interest in Blue Water.
The Company will pay the actual costs incurred by the joint venture to develop
and implement the software in the Company's operations. After development and
implementation of the software for the Company, the joint venture will attempt
to market the software to third parties.
In February 1998, Insight Out Collaborations LLC provided consulting and
training services to TMW for consideration of $69,000. Mr. Ray is an officer and
director of Insight Out Collaborations LLC and owns 10.8% of the outstanding
shares of stock of such company.
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<PAGE> 76
In December 1996, TMW advanced $166,000 to Mr. Lane to enable him to
purchase a residence. In 1998, Mr. Lane paid TMW $9,097 in interest on this
advance at an average rate of 5.5% per annum.
Bear Stearns acted as co-managing underwriter of TMW's public offering of
(i) 2,300,000 shares of TMW common stock in August 1995, (ii) $57,500,000
principal amount of 5 1/4% Convertible Subordinated Notes Due 2003 in March 1996
and (iii) 2,041,250 shares of TMW common stock in July 1997. In addition, under
the terms of an Engagement Letter dated September 9, 1998, Bear Stearns served
as TMW's financial advisor in connection with the Moores transaction. Mr. Stein,
a director of TMW, is a Senior Managing Director and head of the Southwestern
Corporate Finance Department for Bear Stearns.
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT OF TMW
The following table sets forth information, as of April 22, 1999, except as
noted in notes (1) and (2) below, with respect to the beneficial ownership of
TMW common stock by (i) each director, which includes each executive officer
named in the Summary Compensation Table, (ii) each shareholder known by TMW to
be the beneficial owner of more than 5% of the TMW common stock and (iii) all
executive officers and directors of TMW as a group. Unless otherwise indicated,
each person has sole voting power and investment power with respect to the
shares attributed to him or her.
<TABLE>
<CAPTION>
% OF
OUTSTANDING
NAME NUMBER OF SHARES SHARES
- ---- ---------------- -----------
<S> <C> <C>
AMVESCAP PLC
11 Devonshire Square
London, England EC2M 4YR
-or-
1315 Peachtree Street, N.E.
Atlanta, Georgia 30309................................... 3,504,337(1) 10.5
State Street Research & Management Company
One Financial Center, 30th Floor
Boston, Massachusetts 02111-2690......................... 1,889,874(2) 5.1
George Zimmer(3)........................................... 4,141,542(5)(6)(14) 11.0(15)
Robert E. Zimmer(3)........................................ 1,331,034(6)(7)(14) 3.5(15)
Richard E. Goldman(3)...................................... 1,973,243(14) 5.2(15)
James E. Zimmer(4)......................................... 1,157,682(8)(14) 3.1(15)
David Edwab(3)............................................. 94,062(6)(9)(14) *(15)
Harry M. Levy(4)........................................... 112,511(10)(14) *(15)
Rinaldo Brutoco............................................ 21,750(11) *(15)
Michael L. Ray............................................. 7,500(11) *(15)
Sheldon I. Stein........................................... 18,561(12) *(15)
All executive officers and directors as a group (15
persons)................................................. 8,992,660(13)(14) 23.9(15)
</TABLE>
- ---------------
* Less than 1%
(1) Based on a Schedule 13G filed February 11, 1999, AMVESCAP PLC, a parent
holding company, and certain of its subsidiaries, AVZ, Inc., AIM Management
Group Inc., AMVESCAP Group Services, Inc., INVESCO, Inc., INVESCO North
American Holdings, Inc., INVESCO Capital Management, Inc., INVESCO Funds
Group, Inc., INVESCO Management & Research, Inc., INVESCO Realty Advisers,
Inc. and INVESCO (NY) Asset Management, Inc., have shared voting and
dispositive powers with respect to these shares and hold these shares on
behalf of other persons who have the right to receive or the power to
direct the receipt of dividends from, or the proceeds from the sale of such
shares.
(2) Based on a Schedule 13G filed February 8, 1999, State Street Research &
Management Company, an investment advisor, has sole voting and dispositive
power with respect to these shares owned by its clients and disclaims any
beneficial interest in such shares.
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<PAGE> 77
(3) The business address of the shareholder is 40650 Encyclopedia Circle,
Fremont, California 94538-2453.
(4) The business address of the shareholder is 5803 Glenmont Drive, Houston,
Texas 77081.
(5) All such shares are held by George Zimmer in his capacity as trustee for
the George Zimmer 1988 Living Trust.
(6) Excludes 231,724 shares held by The Zimmer Family Foundation with respect
to which this officer and director has shared voting and dispositive power.
(7) Does not include the 31,666 shares of TMW common stock held by Robert
Zimmer's wife.
(8) Includes 1,117,899 shares held by James Zimmer in his capacity as trustee
for the James Edward Zimmer 1989 Living Trust and 8,199 shares held by Mr.
Zimmer's wife and minor children.
(9) Includes 47,662 shares held by David Edwab in his capacity as trustee of
the David H. Edwab and Mary Margaret Edwab Family Trust. Also includes
45,000 shares that may be acquired within 60 days upon exercise of stock
options.
(10) Includes 43,437 shares that may be acquired within 60 days upon the
exercise of stock options and includes 300 shares held by Mr. Levy's minor
daughter.
(11) Represents shares that may be acquired within 60 days upon the exercise of
stock options.
(12) Includes 13,500 shares that may be acquired within 60 days upon the
exercise of stock options and includes 3,561 shares held by Mr. Stein's
minor sons.
(13) Includes 236,815 shares that may be acquired within 60 days upon the
exercise of stock options.
(14) Includes 43,759 shares, 2,696 shares, 39,942 shares, 31,584 shares, 1,400
shares, 17,172 shares and 156,983 shares, respectively, allocated to the
Employee Stock Plan (the "ESP") accounts of Messrs. George Zimmer, Robert
Zimmer, Goldman, James Zimmer, Edwab and Levy and to all executive officers
and directors of TMW as a group, under The Men's Wearhouse ESP. The ESP
provides that participants have voting power with respect to these shares
but do not have investment power over these shares.
(15) The number of total outstanding shares used in calculating the percentage
includes the 2.5 million shares to be issued in connection with the
February 10, 1999 combination of TMW and Moores. The total outstanding
shares does not include the shares of TMW common stock to be issued in
connection with the merger of TMW and K&G.
69
<PAGE> 78
K&G MEN'S CENTER, INC.
ADDITIONAL PROPOSALS AND MANAGEMENT INFORMATION
PROPOSAL -- ELECTION OF DIRECTORS
Pursuant to K&G's Amended and Restated Articles of Incorporation, at the
Annual Meeting, each of the two members of Class I of the K&G board of directors
will be proposed for election for a three-year term expiring upon the third
annual meeting of shareholders following their election and upon the election
and qualification of their respective successors. It is a condition to closing
under the merger agreement that each of the directors of K&G resign immediately
prior to closing.
All shares of K&G common stock represented by properly executed proxies
received in response to this solicitation will be voted for the election of the
directors as specified therein by the shareholders. Unless otherwise specified
in the proxy, it is the intention of the persons named on the enclosed proxy
card to vote FOR the election of each of the nominees listed in this proxy
statement/prospectus to the K&G board of directors. Each nominee has consented
to serve as a director of K&G if elected. If at the time of the annual meeting,
the nominee is unable or declines to serve as a director, the discretionary
authority provided in the enclosed proxy card will be exercised to vote for a
substitute candidate designated by the K&G board of directors. The K&G board of
directors has no reason to believe that the nominee will be unable or will
decline to serve as a director. Shareholders may withhold their votes from the
nominee by so indicating in the space provided on the enclosed proxy card.
Under Georgia law, directors are elected by the affirmative vote, in person
or by proxy, of a plurality of the shares entitled to vote in the election at a
meeting at which a quorum is present. Only votes actually cast will be counted
for the purpose of determining whether a particular nominee received more votes
than the persons, if any, nominated for the same seat on the K&G board of
directors.
Set forth below is certain information furnished to K&G by each director
nominee. Each nominee currently serves as a director of K&G.
NOMINEE FOR ELECTION -- TERM EXPIRING 2002 -- CLASS I
JAMES W. INGLIS
AGE: 55
JAMES W. INGLIS has been a director of K&G since March 1997. Mr. Inglis is
currently an independent business consultant. From 1996 to 1998, Mr. Inglis
served as the Chief Operating Officer, Senior Vice President and Director of The
Maxim Group, a publicly-held retailer of floor coverings. From 1983 to 1996, Mr.
Inglis served in various capacities with The Home Depot, Inc., including most
recently as its Executive Vice President of Strategic Development and as a
member of its board of directors.
CAMPBELL B. LANIER, III
AGE: 48
CAMPBELL B. LANIER, III has served as a director of K&G since May 1995. Mr.
Lanier serves as Chairman of the Board and Chief Executive Officer of ITC
Holding Company, Inc. ("ITC Holding") and has served as a director of ITC
Holding (or its predecessor companies) since K&G's inception in 1985. In
addition, Mr. Lanier is an officer and director of several ITC Holding
subsidiaries. Mr. Lanier also is a director of Innotrac Corporation, which
provides customized, technology-based marketing support services; Chairman of
the Board and a director of ITC-DeltaCom, Inc., which provides retail and
wholesale telecommunications services; a director of MindSpring Enterprises,
Inc., an Internet access provider; a director of Vista Eyecare, Inc. (formerly
National Vision Associates, Ltd.), a full service optical retailer; and a
director of Powertel, Inc., a personal communications services company. Mr.
Lanier also is a special limited partner in the South Atlantic Venture Fund II,
Limited Partnership and South Atlantic Venture Fund III, Limited Partnership and
he is a Managing Director of South Atlantic Private Equity Fund IV, Limited
Partnership.
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<PAGE> 79
THE BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS THAT SHAREHOLDERS VOTE "FOR"
THE ELECTION AS A DIRECTOR OF EACH OF THE NOMINEES NAMED ABOVE.
ADDITIONAL INFORMATION CONCERNING THE BOARD OF DIRECTORS
Other members of K&G's board of directors are listed below:
STEPHEN H. GREENSPAN
AGE: 58
STEPHEN H. GREENSPAN founded K&G in December 1989, and has served as its
Chairman of the Board, President and Chief Executive Officer since K&G's
incorporation. He has more than 31 years of experience in the apparel industry.
In addition to owning and operating K&G and other apparel retailers, during his
career as an entrepreneur in the apparel industry, Mr. Greenspan has owned and
operated companies that liquidated the remaining merchandise of failing retail
businesses, and he has also served as a manufacturer's representative for
various apparel lines.
W. PAUL RUBEN
AGE: 58
W. PAUL RUBEN has been a director and Secretary of K&G since its
incorporation in June 1990. Mr. Ruben is primarily a private investor.
JOHN C. DANCU
AGE: 39
JOHN C. DANCU has served as Chief Financial Officer of K&G since March
1995. Effective March 1997, he became K&G's Chief Operating Officer and a
director of K&G. Prior to joining K&G, from May 1986 to March 1995, Mr. Dancu
was an investment banker in the corporate finance department of The Robinson-
Humphrey Company, Inc., ultimately serving as a First Vice President. In this
capacity, Mr. Dancu was involved in numerous public and private financings and
merger and acquisition transactions involving companies in the retail industry.
DONALD W. BURTON
AGE: 55
DONALD W. BURTON has been a director of K&G since February, 1997. Since
1981, Mr. Burton has served as Chairman and Managing General Partner of South
Atlantic Venture Funds. Mr. Burton has been the general partner of The Burton
Partnership, Limited Partnership since January 1979. Mr. Burton serves on the
Board of Directors of ITC-DeltaCom, Inc., Powertel, Inc. (each of which is
described above), KNOLOGY Holdings, Inc., a broadband communications services
company, The Heritage Group of Mutual Funds and several private companies. Mr.
Burton also serves as a director of the National Venture Capital Association.
Prior to founding the South Atlantic Venture Funds, Mr. Burton was a General
Partner of Fidelity Ventures, Limited, Boston, Massachusetts. See "-- Beneficial
Ownership of Common Stock."
Committees of the K&G Board of Directors and Meeting Attendance. K&G's
board of directors held six meetings during the fiscal year ended January 30,
1999 ("fiscal 1998"). In contemplation of K&G's initial public offering, which
was completed in January 1996, the K&G board of directors formed an Audit
Committee and a Compensation Committee. The board has not established a
Nominating Committee. No director attended less than 75% of the aggregate number
of meetings of the board and the committees of the board on which he served that
were held during his term as a director of K&G.
The Audit Committee of the K&G board of directors is responsible for
reviewing and making recommendations regarding K&G's employment of independent
auditors, the annual audit of K&G's financial statements and K&G's internal
accounting practices and policies. It presently consists of Messrs. Lanier and
Burton, with Mr. Burton serving as Chairman. The Audit Committee met on February
10, 1998 to discuss the
71
<PAGE> 80
progress of K&G's fiscal 1997 audit. The Audit Committee also met on June 5,
1998 to discuss the final results of the fiscal year 1997 audit. It is presently
intended that Messrs. Lanier and Burton will continue to serve on the Audit
Committee after the Annual Meeting.
The Compensation Committee of the K&G board of directors is responsible for
making determinations regarding compensation arrangements for executive officers
and other members of management of K&G, including approving the annual incentive
compensation plans of K&G and K&G's awards to executive officers under each
incentive plan. It consists of Messrs. Lanier and Inglis, with Mr. Lanier
serving as Chairman. The Compensation Committee met five times during fiscal
1998 to discuss various compensation issues, including compensation payable to
K&G's executive management for fiscal 1998 and the issuance of stock options
under the Plan. It is presently intended that Messrs. Lanier and Inglis will
continue to serve on the Compensation Committee after the Annual Meeting.
K&G's board of directors is comprised of six members. K&G currently does
not pay director's fees, although it does reimburse directors for expenses
incurred in connection with attendance at meetings of the board of directors or
committees thereof. K&G has implemented a Director Stock Option Plan which
provides for automatic grants of options to purchase K&G common stock to be made
periodically to non-management directors.
EXECUTIVE OFFICERS
The executive officers of K&G serve at the discretion of the board of
directors and presently include Messrs. Greenspan, Dancu, Martin Schwartz,
George ("Skip") H. Briggs, III and R. Scott Saban. Set forth below is certain
information furnished by each of Messrs. Schwartz, Briggs and Saban. For
additional information concerning Messrs. Dancu and Greenspan, see "--Additional
Information Concerning the Board of Directors".
MARTIN SCHWARTZ
AGE: 57
MARTIN SCHWARTZ has served as K&G's General Merchandising Manager since he
joined K&G in February 1991. Effective January 1996, he assumed the additional
title of Senior Vice President. Prior to joining K&G, from October 1986 to
January 1991, Mr. Schwartz served as Senior Vice President, General
Merchandising Manager -- Merchandising and Marketing for a division of Woolworth
& Co., and from May 1984 to September 1986, he served as Vice President and
General Merchandise Manager for the menswear and children's departments of
Montgomery Ward. Mr. Schwartz has over 31 years of experience in the retail
industry, and has also served in various merchandising capacities with Dayton
Hudson, Macy's, Federated and Rich's.
GEORGE ("SKIP") H. BRIGGS, III
AGE: 49
GEORGE ("SKIP") H. BRIGGS, III has served as K&G's Vice President of Store
Operations since he joined K&G in March 1998. Prior to joining K&G, from May
1995 to March 1998, Mr. Briggs served as a Management Consultant for The
Strategic Initiatives Group and KMR Management, Inc. From 1993 to 1995, he
served as a Vice President and later as Senior Vice President Store Operations
for Jos. A. Bank Clothiers. From 1979 to 1993 Mr. Briggs was President/CEO of G.
Briggs, a chain of men's and women's off-price apparel stores. Mr. Briggs has 30
years of retail experience in merchandising, marketing and operations
capacities.
R. SCOTT SABAN
AGE 33
R. SCOTT SABAN served as the Vice President of Operations and Management
Information Systems of K&G from January 1995 to April 1998. Effective March
1998, Mr. Saban assumed the title and responsibilities of Vice President of
Management Information Systems and Store Construction. Prior to January 1995,
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<PAGE> 81
Mr. Saban served as K&G's Management Information Systems Director and as an
Assistant Store Manager. Mr. Saban is the son-in-law of Mr. Greenspan.
EMPLOYMENT AGREEMENTS
In May 1995, K&G entered into a five-year employment agreement with each of
Messrs. Greenspan and Schwartz. Under his agreement, K&G agreed to employ Mr.
Greenspan as its Chairman of the Board and its President at a salary of $120,000
per year plus such other benefits as are made available to other senior
executives of K&G. The agreement provides that if Mr. Greenspan is terminated by
K&G other than for "cause," as defined in the agreement, he is entitled to
severance compensation equal to 100% of his then-current annual salary. The
agreement contains provisions that purport to restrict Mr. Greenspan's ability
to compete with K&G or solicit its employees for a specified period following
the termination of his employment. Mr. Schwartz' employment agreement is similar
in form except that it (i) provides for Mr. Schwartz to be employed as K&G's
General Merchandising Manger at a salary of $114,000 per year plus such other
benefits as are made available to other senior executives of K&G, and (ii)
entitles Mr. Schwartz to severance compensation equal to 200% of his
then-current annual salary in the event of termination of his employment other
than for "cause."
In March 1995, K&G entered into a two-year employment agreement with Mr.
Dancu under which he is employed as K&G's Chief Financial Officer. Effective
March 1997, Mr. Dancu assumed the additional duties of Chief Operating Officer
and his salary was set at $150,000 per year plus such other benefits as are made
available to other senior executives of K&G. Mr. Dancu's employment agreement,
pursuant to its terms was automatically extended for a year in March 1997 and
March 1998, and his salary was set at $165,000 per year as of April 1, 1998. The
agreement provides that if Mr. Dancu is terminated by K&G other than for
"cause," he is entitled to 50% of his then-current annual salary plus amounts
accrued to date to Mr. Dancu under any bonus or incentive compensation programs
then in effect. The agreement contains provisions that purport to restrict Mr.
Dancu's ability to compete with K&G or solicit its employees for a specified
period following the termination of his employment. In connection with the
execution of Mr. Dancu's employment agreement, each of K&G's then-existing
shareholders granted Mr. Dancu an option to purchase a number of shares of K&G
common stock equal to 4.5% of the respective stock holdings of each such
shareholder. These options, which relate to an aggregate of 354,373 shares and
are exercisable at $2.54 per share, vested upon consummation of K&G's initial
public offering in January 1996. As of April 22, 1999, 254,373 of these options
to purchase shares remained outstanding and were unexercised.
In March 1998, K&G entered into a three-year employment agreement with Mr.
Briggs. Under this agreement, K&G agrees to employ Mr. Briggs as its Vice
President-Store Operations with a year 1 base salary of $110,000 and a
guaranteed bonus of $40,000. The base salary will increase to $121,000 in year
2, with a guaranteed bonus of $44,000, and $133,000 in year 3, with a guaranteed
bonus of $48,000. The agreement further provides that if Mr. Briggs is
terminated by K&G, for other than cause or nonperformance, after September 30,
1998 but before April 1, 2000, Mr. Briggs will be entitled to receive as
severance twelve monthly payments equal to one-twelfth of his then current
annual salary and bonus. If Mr. Briggs is terminated after April 1, 2001, he
will be entitled to receive as severance monthly payments equal to one-twelfth
of his then current annual salary and bonus through March 31, 2001.
As described above in "The Merger and Related Transactions -- Interests of
Certain Persons in the Merger," Mr. Greenspan's and Mr. Dancu's employment
agreements would be amended upon consummation of the merger.
COMPLIANCE WITH SECTION 16(a) OF THE SECURITIES EXCHANGE ACT OF 1934
Section 16(a) of the Exchange Act requires K&G's directors, executive
officers and persons who own beneficially more than 10% of K&G's common stock to
file reports of ownership and changes in ownership of such stock with the SEC
and the National Association of Securities Dealers, Inc. Directors, executive
officers and greater than 10% shareholders are required by SEC regulations to
furnish K&G with copies of all such forms they file. To K&G's knowledge, based
solely on a review of the copies of such reports furnished to K&G
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<PAGE> 82
and written representations from such persons that no other reports were
required, its directors, executive officers and greater then 10% shareholders
complied during fiscal 1998 with all applicable Section 16(a) filing
requirements, except that a Form 5 was filed four days late on March 19, 1999,
in connection with a gift of 1,000 shares of K&G common stock made by Mr.
Greenspan to a charity.
BENEFICIAL OWNERSHIP OF K&G COMMON STOCK
The following table sets forth information concerning (i) those persons
known by K&G to own beneficially more then 5% of K&G's outstanding common stock,
(ii) the directors and executive officers of K&G and (iii) the directors and
executive officers of K&G as a group. Except as otherwise indicated in the
footnotes below, such information is provided as of April 22, 1999. According to
rules adopted by the SEC, a person is the "beneficial owner" of securities if he
or she has or shares the power to vote them or to direct their investment or has
the right to acquire beneficial ownership of such securities within 60 days
through the exercise of an option, warrant or right, the conversion of a
security or otherwise. Except as otherwise noted, the indicated owners have sole
voting and investment power with respect to shares beneficially owned. An
asterisk in the percent of class column indicates beneficial ownership of less
than 1% of the outstanding K&G common stock.
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT OF K&G
<TABLE>
<CAPTION>
AMOUNT AND NATURE
NAME OF BENEFICIAL OWNER OF BENEFICIAL OWNERSHIP PERCENT OF CLASS
------------------------ ----------------------- ----------------
<S> <C> <C>
EXECUTIVE OFFICERS AND DIRECTORS
Stephen H. Greenspan(1).................................... 1,250,899 12.2%
W. Paul Ruben(2)........................................... 656,871 6.4%
John C. Dancu(3)........................................... 303,643 3.0%
Martin Schwartz............................................ 253,256 2.5%
R. Scott Saban............................................. 24,711 *
George ("Skip") H. Briggs, III............................. 4,950 *
James W. Inglis............................................ 13,900 *
Campbell B. Lanier, III(4)................................. 6,250 *
Donald W. Burton(5)........................................ 54,125 *
All executive officers and directors as a group (9
persons)................................................. 2,376,299 23.2%
OTHER SHAREHOLDERS(6)
Northwestern Mutual Life Insurance Company................. 776,450 7.6%
Wasatch Advisors, Inc...................................... 858,692 8.5%
Gilder, Gagnon, Howe & Co, LLC............................. 3,248,559 32.0%
</TABLE>
- ---------------
(1) Includes 835,431 shares owned of record by a partnership established for Mr.
Greenspan's family and 21,800 shares held in a foundation. Mr. Greenspan's
business address is that of K&G.
(2) Includes 520,966 shares owned of record by a partnership established for Mr.
Ruben's family. Mr. Ruben's business address is that of K&G.
(3) Includes 23,520 shares owned directly by Mr. Dancu and 254,373 shares
subject to options held by him to purchase outstanding shares of K&G common
stock. Mr. Dancu's options were granted to him prior to K&G's initial public
offering by K&G's shareholders at that time. Accordingly, Mr. Dancu's share
holdings relate to shares held by various shareholders, including certain of
the shareholders identified herein.
(4) The business address of ITC Holding Company ("ITC") is 1239 OG Skinner
Drive, P.O. Box 510, West Point, Georgia 31833.
(5) Includes 47,625 owned of record by The Burton Partnership, Limited
Partnership, of which Mr. Burton is the General Partner.
(6) Based on information contained in the most recent Schedule 13G filed by such
shareholders with the Securities and Exchange Commission.
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<PAGE> 83
EXECUTIVE COMPENSATION
Pursuant to SEC rules for proxy statement disclosure of executive
compensation, the Compensation Committee of the board of directors of K&G has
prepared the following Report on Executive Compensation. The Committee intends
that this report clearly describe the current executive compensation program of
K&G, including the underlying philosophy of the program and the specific
performance criteria on which executive compensation is based, including
compensation of K&G's Chief Executive Officer.
REPORT ON EXECUTIVE COMPENSATION
Until the establishment of the Compensation Committee in November 1995, the
K&G board of directors made decisions involving executive compensation based
primarily upon the recommendations of the Chairman of the Board, President and
Chief Executive Officer, Mr. Stephen H. Greenspan. Although management continues
to make initial recommendations concerning adjustments to executive
compensation, upon the establishment of the Compensation Committee, that
Committee became primarily responsible for establishing salaries, bonuses and
other compensation for K&G's executive officers for fiscal 1995 and thereafter,
as well as administering the 1995 Stock Option Plan for Employees (the "Plan").
Each member of the Compensation Committee is a non-employee director.
Compensation Policy. K&G's executive compensation policy is designed to
provide levels of compensation that integrate compensation with K&G's annual and
long-term performance goals and reward above-average corporate performance,
thereby allowing K&G to attract and retain qualified executives. Specifically,
K&G's executive compensation policy is intended to:
- Provide compensation levels that are consistent with K&G's business plan,
financial objectives and operating performance;
- Reward performance that facilitates the achievement of K&G's business
plan goals;
- Motivate executives to achieve strategic operating objectives; and
- Align the interest of executives with those of shareholders and the
long-term interests of K&G by providing long-term incentive compensation
in the form of stock options.
In light of K&G's compensation policy, the components of its executive
compensation program for fiscal 1998 were base salaries, cash bonuses and stock
options.
Base Salary. Each executive officer's base salary (including the Chief
Executive Officer's base salary) is based upon a number of factors, including
the responsibilities borne by the executive officer and his or her length of
service to K&G. Each executive officer's base salary is reviewed annually and
occasionally adjusted to account for K&G's financial performance, any change in
the executive officer's responsibilities and the executive officer's overall
performance. Factors considered in evaluating performance include financial
results such as increases in sales, net income before taxes and earnings per
share, as well as non-financial measures such as improvements in service and
relationships with suppliers and employees, and leadership and management
development. These non-financial measures are subjective in nature. No
particular weight is given by the Compensation Committee to any particular
factor.
Cash Bonuses. Each executive officer, including the Chief Executive
Officer, is eligible to receive a discretionary annual cash bonus. In
determining the discretionary bonus payable to any particular executive officer,
the executive officer's performance during the preceding fiscal year and the
aggregate cash compensation (salary plus bonus) to be received by such officer
if K&G achieves its projected financial performance is evaluated, as well as
such other factors as are deemed relevant in calculating the officer's bonus.
Such other factors generally include the officer's level of responsibility and
length of service to K&G. No weight is given by the Compensation Committee to
any particular factor.
Stock Options. In November 1995, K&G adopted the Plan under which executive
officers, including the Chief Executive Officer, are eligible to receive stock
options. In general, stock option awards are granted as warranted by K&G's
growth and profitability.
75
<PAGE> 84
Under the Plan, all stock options granted to date have been granted at
exercise prices no less than the fair market value of K&G's common stock on the
date of grant, although that is not a requirement of the Plan. All options
granted to date to employees become exercisable in varying increments over no
greater than a five-year period. The Compensation Committee believes that these
features serve to align the interests of the executives with those of
shareholders and the long-term interests of K&G.
In March 1998, Mr. Dancu received a grant of options to purchase 35,000
shares of K&G common stock, and Mr. Briggs received a grant to purchase 20,000
shares of K&G common stock. These options become exercisable in increments over
a five-year period. In the future, the amount of each executive officer's grant
of stock options will be based upon an evaluation of such executive officer's
responsibilities and performance, the desirability of long-term service from the
particular executive officer, the aggregate amount of stock or stock options
previously held by such executive officer and K&G's overall financial
performance. While the Compensation Committee has not established a target level
of stock ownership by K&G's executive officers, it does encourage such ownership
and intends to gradually increase the ownership of K&G common stock by executive
officers and other key employees through grants of options to purchase such
stock.
Compensation of Chief Executive Officer. As stated above, until the
establishment of the Compensation Committee in November 1995, the K&G board of
directors made decisions involving executive compensation based primarily upon
the recommendations of the Chairman of the Board, President and Chief Executive
Officer, Mr. Stephen H. Greenspan.
Mr. Greenspan's compensation for fiscal 1998 consisted of cash compensation
in the form of his salary.
Limitations on Deductibility of Compensation. Under the 1993 Omnibus Budget
Reconciliation Act, a portion of annual compensation payable after 1993 to any
of K&G's five highest paid executive officers would not be deductible by K&G for
federal income tax purposes to the extent such officer's overall compensation
exceeds $1,000,000. Qualifying performance-based incentive compensation,
however, would be both deductible and excluded for purposes of calculating the
$1,000,000 base. Although the Compensation Committee does not presently intend
to award compensation in excess of the $1,000,000 cap, it will address this
issue when formulating compensation arrangements for K&G's executive officers
and will seek, where possible, to maintain the deductibility of any such
payments.
Campbell B. Lanier, III
James W. Inglis
The Report on Executive Compensation of the Compensation Committee of the
K&G board of directors shall not be deemed to be incorporated by reference as a
result of any general incorporation by reference of this proxy
statement/prospectus or any part hereof in K&G's Annual Report to Shareholders
or its Annual Report on Form 10-K.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
The Compensation Committee of the K&G board of directors consists of
Messrs. Lanier and Burton. During fiscal 1998, the Compensation Committee did
not include any member of the K&G board of directors who at that time served as
an officer or employee of K&G, nor did any executive officer of K&G serve as a
member of the board of directors of any entity that had executive officers who
served on the K&G board of directors during that year.
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Prior to K&G's initial public offering in January 1996, K&G was operated as
a privately-held business and as such entered into various transactions in the
ordinary course of business with certain entities affiliated with Messrs.
Greenspan, Ruben and Richard M. Vehon, Sr. Mr. Greenspan is the Chairman of the
Board, President and Chief Executive Officer of K&G, and also its principal
shareholder. Mr. Ruben is a director and Mr. Vehon was formerly a director of
K&G, and both of Messrs. Ruben and Vehon owned greater than 10% of the
outstanding K&G common stock prior to its initial public offering. Mr. Vehon is
now deceased.
76
<PAGE> 85
Management has sought to reduce the number and dollar volume of related party
transactions involving K&G. The Audit Committee of the K&G board of directors is
responsible for evaluating the appropriateness of any future related party
transactions.
K&G leases its Irving, Texas store from Messrs. Greenspan and Ruben and the
Estate of Mr. Vehon. Pursuant to this arrangement, K&G made lease payments of
$66,000 in fiscal 1998. The lease for this store currently provides that K&G pay
rent of $5,500 per month.
In fiscal 1995, Ellsworth Realty, L.L.C., a limited liability company whose
shareholders are Messrs. Greenspan, Ruben and Dancu, acquired a building located
across the street from K&G's original store in Atlanta. In February 1996, K&G
relocated its original Atlanta store in this building. The lease for the
building provides for K&G to pay Ellsworth Realty a specified amount for the
warehouse and office space and a specified amount for the retail space plus 1%
of the net sales of the store in excess of a certain threshold amount. Pursuant
to this arrangement, K&G paid or accrued to Ellsworth Realty approximately
$280,713 in fiscal 1998.
Management believes that the principal terms of all of the transactions
described above were no less favorable to K&G as could have been obtained from
unaffiliated third parties.
TABLE I -- SUMMARY COMPENSATION TABLE
The following table presents certain information required by the SEC
relating to various forms of compensation awards to, earned by or paid to K&G's
Chief Executive Officer and the most highly compensated officers other than the
Chief Executive Officer who earned more than $100,000 during fiscal 1998 and
were serving in such capacities at the end of fiscal 1998. Such executive
officers are hereinafter referred to as K&G's "Named Executive Officers."
<TABLE>
<CAPTION>
LONG TERM
COMPENSATION
AWARDS
-------------
SECURITIES
ANNUAL COMPENSATION UNDERLYING ALL OTHER
FISCAL -------------------- OPTIONS COMPENSATION
NAME AND PRINCIPAL POSITION YEAR SALARY($) BONUS($) (# OF SHARES) ($)(1)
- --------------------------- ------ --------- -------- ------------- ------------
<S> <C> <C> <C> <C> <C>
Stephen H. Greenspan......................... 1998 81,812 0 0 4,242
Chairman, President and Chief 1997 120,000 0 37,500 3,882
Executive Officer 1996 120,000 0 0 4,792
John C. Dancu................................ 1998 149,595 35,000 35,000 6,079
Chief Operating Officer and 1997 150,000 25,000 37,500 5,491
Chief Financial Officer 1996 120,000 0 0 6,587
Martin Schwartz.............................. 1998 105,500 0 0 4,242
Senior Vice President and 1997 114,000 0 37,500 3,882
General Merchandising Manager 1996 114,000 0 0 4,736
R. Scott Saban............................... 1998 93,231 6,000 0 5,968
Vice President of Management 1997 88,462 12,000 37,500 5,431
Information Systems and Store 1996 78,154 8,000 0 6,527
Construction
George ("Skip") H. Briggs, III............... 1998 93,500 0 20,000 5,189
Vice President -- Store 1997 0 0 0 0
Operations 1996 0 0 0 0
</TABLE>
- ---------------
(1) These figures represent premiums for K&G's medical and dental coverage paid
by K&G on behalf of the Named Executive Officers.
77
<PAGE> 86
TABLE II -- OPTION GRANTS IN FISCAL 1998
This table represents information regarding options to purchase shares of
K&G common stock granted to Named Executive Officers in Fiscal 1998.
<TABLE>
<CAPTION>
POTENTIAL
REALIZABLE
VALUE AT
ASSUMED
ANNUAL RATES
OF STOCK
NUMBER PERCENT OF APPRECIATION
OF SECURITIES TOTAL OPTIONS FOR THE
UNDERLYING GRANTED TO EXERCISE OPTION
OPTIONS EMPLOYEES PRICE EXPIRATION ------------
NAME GRANTED(1) IN FISCAL 1998 ($/SH) DATE 5% 10%
- --------------------------------- --------------- -------------- -------- ---------- --- ---
<S> <C> <C> <C> <C> <C> <C>
Mr. Dancu........................ 35,000 31.0% $20.50 3/27/08 $0 $0
Mr. Briggs....................... 20,000 17.7% $20.50 3/27/08 $0 $0
</TABLE>
- ---------------
(1) Options vest 20% on each anniversary so that they are fully vested on the
fifth anniversary of the date of the grant.
(2) Amounts represent hypothetical gains that could be achieved for the
respective options at the end of the option term. These gains are based on
assumed rates of stock price appreciation of 5% and 10% compounded annually
from the option grant date to their expiration date based upon a closing
price of $7.875 per share, the closing price of K&G common stock as of
January 29, 1999, which was less than the option exercise price. These
assumptions are not intended to forecast or represent future prices of K&G
common stock. The potential realizable value calculation does not take into
account federal or state income tax consequences.
TABLE III -- OPTION EXERCISES IN FISCAL 1998 AND FISCAL 1998 YEAR-END OPTION
VALUES
Mr. Dancu and Mr. Saban exercised options to purchase K&G common stock
during fiscal 1998. The shares acquired on exercise and the related value
received are shown in the following table. The following table also shows the
number of shares of K&G common stock subject to exercisable and unexercisable
stock options held by each of the Named Executive Officers as of January 31,
1999. The table also reflects the value of such options based on the positive
spread between the exercisable price of such options and $7.875, which was the
closing sale price of a share of K&G common stock reported in the Nasdaq
National Market on January 29, 1999 (the last trading day prior to the end of
K&G's fiscal year).
<TABLE>
<CAPTION>
VALUE OF UNEXERCISED
NUMBER OF UNEXERCISED IN-THE-MONEY
SHARES OPTIONS AT YEAR-END(#) OPTIONS AT YEAR-END(1)($)
ACQUIRED ON VALUE --------------------------- ---------------------------
NAME EXERCISE(#) REALIZED($) EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
- ---- ----------- ----------- ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
Mr. Greenspan........ 0 0 18,750 18,750 0 0
Mr. Schwartz......... 0 0 33,938 23,812 $ 18,302 $6,100
Mr. Dancu............ 100,000 $1,790,000 280,123 46,750 1,357,080 0
Mr. Saban............ 10,126 140,043 23,812 28,812 6,100 6,100
Mr. Briggs........... 0 0 0 20,000 0 0
</TABLE>
- ---------------
(1) The value of unexercised in-the-money options at January 29, 1999 is
calculated as follows: [(Per Share Closing Sale Price on January 29,
1999) -- (Per Share Exercise Price)] x Number of Shares Subject to
Unexercised Options. The closing sale price reported by the Nasdaq National
Market for K&G common stock on January 29, 1999 was $7.875 per share.
78
<PAGE> 87
PERFORMANCE GRAPH
The following indexed line graph indicates K&G's total return to
shareholders from January 24, 1996, the first day K&G common stock traded on the
Nasdaq National Market, to January 29, 1999, the last trading day prior to the
end of fiscal 1998, as compared to the total return for the Nasdaq Composite
Index and an index comprised of the Nasdaq Retail Trade Stock for the same
period. The calculations in the graph assume that $100 was invested on January
24, 1996 in each of K&G common stock and each index and also assumes dividend
reinvestment.
<TABLE>
<CAPTION>
Measurement Period Nasdaq Nasdaq
(Fiscal Year Covered) Comp. Retail K&G
<S> <C> <C> <C>
1/24/96 100.00 100.00 100.00
1/26/96 99.75 101.23 104.95
1/31/97 132.45 126.73 279.91
1/30/98 157.38 148.22 290.61
1/29/99 245.60 180.65 118.07
</TABLE>
PROPOSAL -- RATIFICATION OF APPOINTMENT OF K&G'S
INDEPENDENT PUBLIC ACCOUNTANTS
The board of directors of K&G has appointed the firm of Arthur Andersen LLP
to serve as independent public accountants of K&G for the fiscal year ending
January 30, 2000, and has directed that such appointment be submitted to
shareholders of K&G for ratification at the Annual Meeting. Arthur Andersen LLP
has served as independent public accountants of K&G since 1994 and is considered
by management of K&G to be well qualified to serve in this capacity. If the
shareholders do not ratify the appointment of Arthur Andersen LLP, the K&G board
of directors will reconsider the appointment.
Representatives of Arthur Andersen LLP will be present at the Annual
Meeting and will have an opportunity to make a statement if they desire to do
so. They also will be available to respond to appropriate questions from
shareholders.
THE K&G BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS THAT THE SHAREHOLDERS
VOTE "FOR" THE RATIFICATION OF THE APPOINTMENT OF ARTHUR ANDERSEN LLP AS THE
INDEPENDENT PUBLIC ACCOUNTANTS OF K&G.
SHAREHOLDER PROPOSALS
K&G will hold a 2000 annual meeting of K&G shareholders only if the merger
is not completed before the time of such meeting. In the event that such a
meeting is held, any proposals of K&G shareholders intended to be presented at
the 2000 annual meeting of K&G shareholders must have been received by the
79
<PAGE> 88
Chief Operating Officer of K&G no later than December 28, 1999 in order to be
considered for inclusion in the 2000 proxy materials for K&G.
ANNUAL REPORT
K&G's Annual Report to Shareholders for fiscal 1998 (which is not part of
K&G's proxy soliciting material) is being mailed to K&G's shareholders with this
proxy statement/prospectus.
LEGAL MATTERS
The validity of the shares of TMW common stock to be issued in connection
with the merger and certain tax consequences of the merger will be passed on by
Fulbright & Jaworski L.L.P., Houston, Texas. Michael W. Conlon, a partner in the
firm of Fulbright & Jaworski L.L.P., is the Secretary of TMW. Certain tax
consequences of the merger will be passed on for K&G by Hunton & Williams,
Atlanta, Georgia.
EXPERTS
The consolidated financial statements incorporated in this proxy
statement/prospectus by reference from the TMW Annual Report on Form 10-K for
the year ended January 30, 1999 have been audited by Deloitte & Touche LLP,
independent auditors, as stated in their report, which is incorporated herein by
reference, and have been so incorporated in reliance upon the report of such
firm given upon their authority as experts in accounting and auditing.
K&G's consolidated financial statements incorporated in this proxy
statement/prospectus by reference from the K&G Annual Report on Form 10-K for
the year ended January 31, 1999 have been audited by Arthur Andersen LLP,
independent public accountants, as indicated in their report with respect
thereto, and is incorporated herein by reference in reliance upon the authority
of said firm as experts in giving said report.
80
<PAGE> 89
ANNEX A
AGREEMENT AND PLAN OF MERGER
AMONG
THE MEN'S WEARHOUSE, INC.
AND
K&G MEN'S CENTER, INC.
DATED AS OF MARCH 3, 1999
The following reflects the merger agreement, as amended by Amendment No. 1
dated March 30, 1999, by and between The Men's Wearhouse, Inc., TMW Combination
Company and K&G Men's Center, Inc.
A-i
<PAGE> 90
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C> <C>
ARTICLE I
THE MERGER................................................................. A-1
SECTION 1.1. The Merger.................................................. A-1
SECTION 1.2. Effective Time.............................................. A-1
SECTION 1.3. Effects of the Merger....................................... A-1
SECTION 1.4. Articles of Incorporation and By-laws....................... A-2
SECTION 1.5. Directors................................................... A-2
ARTICLE II
EFFECT OF THE MERGER ON THE CAPITAL STOCK OF THE CONSTITUENT
CORPORATIONS; EXCHANGE OF CERTIFICATES..................................... A-2
SECTION 2.1. Effect on Capital Stock..................................... A-2
(a) Cancellation of Company and TMW Owned Stock........................ A-2
(b) Conversion of Company Shares....................................... A-2
(c) No Fractional TMW Shares........................................... A-3
(d) Combination Company Stock.......................................... A-3
SECTION 2.2. Exchange of Certificates.................................... A-3
(a) Exchange Agent..................................................... A-3
(b) Payment of Merger Consideration.................................... A-3
(c) Exchange Procedure................................................. A-3
(d) Distributions with Respect to Unexchanged Company Shares........... A-4
(e) No Further Ownership Rights in Company Shares...................... A-4
(f) No Liability....................................................... A-4
SECTION 2.3. Conversion of Stock Options................................. A-4
ARTICLE III
REPRESENTATIONS AND WARRANTIES............................................. A-5
SECTION 3.1. Representations and Warranties of the Company............... A-5
(a) Organization; Standing and Power................................... A-5
(b) Subsidiaries; Other Investments.................................... A-5
(c) Capital Structure.................................................. A-6
(d) Authority; Non-contravention....................................... A-6
(e) SEC Documents...................................................... A-7
(f) Information Supplied............................................... A-8
(g) Absence of Certain Changes or Events............................... A-8
(h) State Takeover Statutes; Absence of Supermajority Provision........ A-8
(i) Brokers............................................................ A-8
(j) Litigation......................................................... A-9
(k) Accounting Matters................................................. A-9
(l) Employee Benefits Matters.......................................... A-9
(m) Taxes............................................................... A-11
(n) No Excess Parachute Payments....................................... A-11
(o) Environmental Matters.............................................. A-12
(p) Compliance with Laws............................................... A-12
(q) Material Contracts and Agreements.................................. A-12
(r) Title to and Conditions of Properties.............................. A-12
(s) Intellectual Property.............................................. A-13
(t) Personnel Information; Labor Matters............................... A-13
(u) No Default......................................................... A-14
</TABLE>
A-ii
<PAGE> 91
<TABLE>
<CAPTION>
PAGE
----
<S> <C> <C>
(v) Undisclosed Liabilities............................................ A-14
(w) Insurance.......................................................... A-15
(x) Certain Additional Information..................................... A-15
(y) Credit Items....................................................... A-15
(z) Inventory.......................................................... A-15
(aa) Y2K Readiness...................................................... A-15
(bb) Opinion of Financial Advisor....................................... A-15
(cc) Pooling Opinion.................................................... A-16
(dd) Third Party Standstill Agreements.................................. A-16
SECTION 3.2. Representations and Warranties of TMW....................... A-16
(a) Organization; Standing and Power................................... A-16
(b) Subsidiaries....................................................... A-16
(c) Capital Structure.................................................. A-16
(d) Authority; Non-contravention....................................... A-17
(e) SEC Documents...................................................... A-17
(f) Information Supplied............................................... A-18
(g) Absence of Certain Changes or Events............................... A-18
(h) Brokers............................................................ A-18
(i) Litigation......................................................... A-18
(j) Accounting Matters................................................. A-18
(k) Taxes.............................................................. A-19
(l) Environmental Matters.............................................. A-19
(m) Compliance with Laws................................................ A-19
(n) No Default......................................................... A-19
(o) Undisclosed Liabilities............................................ A-20
(p) Pooling Opinion.................................................... A-20
(q) Board Recommendation............................................... A-20
(r) Y2K Readiness...................................................... A-20
(s) 1999 Financial Forecast............................................ A-20
ARTICLE IV
COVENANTS RELATING TO CONDUCT OF BUSINESS.................................. A-20
SECTION 4.1. Conduct of Business of the Company.......................... A-20
(a) Ordinary Course.................................................... A-20
(b) Changes in Employment Arrangements................................. A-21
(c) Severance Arrangements............................................. A-21
(d) Other Actions...................................................... A-21
SECTION 4.2. Conduct of Business of TMW.................................. A-22
(a) Ordinary Course.................................................... A-22
(b) Other Actions...................................................... A-22
ARTICLE V
ADDITIONAL AGREEMENTS...................................................... A-23
SECTION 5.1. Stockholder Approval; Preparation of Proxy Statement;
Preparation of Registration Statement....................... A-23
SECTION 5.2. Letter of the Company's Accountants......................... A-23
SECTION 5.3. Letter of TMW's Accountants................................. A-23
SECTION 5.4. Access to Information....................................... A-23
SECTION 5.5. Reasonable Efforts; Notification............................ A-24
SECTION 5.6. Indemnification............................................. A-25
</TABLE>
A-iii
<PAGE> 92
<TABLE>
<CAPTION>
PAGE
----
<S> <C> <C>
SECTION 5.7. Fees and Expenses........................................... A-26
SECTION 5.8. Public Announcements........................................ A-26
SECTION 5.9. Accounting Matters.......................................... A-26
SECTION 5.10. Purchases of Common Stock of the Other Party................ A-26
SECTION 5.11. Agreement to Defend......................................... A-26
SECTION 5.12. Accounting Matters.......................................... A-26
SECTION 5.13. Other Actions............................................... A-27
SECTION 5.14. TMW Board of Directors...................................... A-27
ARTICLE VI
CONDITIONS PRECEDENT....................................................... A-27
SECTION 6.1. Conditions to Each Party's Obligation to Effect the
Merger...................................................... A-27
(a) Stockholder Approval............................................... A-27
(b) NASDAQ............................................................. A-27
(c) HSR Act; Other Approvals........................................... A-27
(d) No Injunctions or Restraints....................................... A-27
(e) Registration Statement Effectiveness............................... A-27
(f) Blue Sky Filings................................................... A-27
SECTION 6.2. Conditions of TMW........................................... A-27
(a) Compliance......................................................... A-27
(b) Certifications and Opinion......................................... A-28
(c) Representations and Warranties True................................ A-28
(d) Company Affiliate Letters.......................................... A-28
(e) Tax Opinion........................................................ A-29
(f) Pooling Accounting................................................. A-29
(g) Consents, etc...................................................... A-29
(h) No Litigation...................................................... A-29
(i) Fairness Opinion................................................... A-29
(j) Employment Contracts; Covenants not to Compete..................... A-29
(k) Bank Accounts...................................................... A-29
(l) Resignations....................................................... A-30
(m) Termination Agreement............................................... A-30
SECTION 6.3. Conditions of the Company................................... A-30
(a) Compliance......................................................... A-30
(b) Certifications and Opinion......................................... A-30
(c) Representations and Warranties True................................ A-30
(d) Tax Opinion........................................................ A-31
(e) Consents, etc...................................................... A-31
(f) No Litigation...................................................... A-31
(g) Fairness Opinion................................................... A-31
(h) TMW Affiliate Letters.............................................. A-31
(i) Employment Contracts............................................... A-31
(j) Termination Agreement.............................................. A-31
ARTICLE VII
TERMINATION, AMENDMENT AND WAIVER.......................................... A-32
SECTION 7.1. Termination................................................. A-32
SECTION 7.2. Effect of Termination....................................... A-32
</TABLE>
A-iv
<PAGE> 93
<TABLE>
<CAPTION>
PAGE
----
<S> <C> <C>
SECTION 7.3. Amendment................................................... A-32
SECTION 7.4. Extension; Waiver........................................... A-32
SECTION 7.5. Procedure for Termination, Amendment, Extension or Waiver... A-33
ARTICLE VIII
SPECIAL PROVISIONS AS TO CERTAIN MATTERS................................... A-33
SECTION 8.1. Takeover Defenses........................................... A-33
SECTION 8.2. No Solicitation............................................. A-33
SECTION 8.3. Fee and Expense Reimbursements.............................. A-34
ARTICLE IX
GENERAL PROVISIONS......................................................... A-35
SECTION 9.1. Nonsurvival of Representations and Warranties............... A-35
SECTION 9.2. Notices..................................................... A-35
SECTION 9.3. Definitions................................................. A-36
SECTION 9.4. Interpretation.............................................. A-36
SECTION 9.5. Counterparts................................................ A-36
SECTION 9.6. Entire Agreement; No Third-Party Beneficiaries.............. A-36
SECTION 9.7. Governing Law............................................... A-36
SECTION 9.8. Assignment.................................................. A-36
SECTION 9.9. Enforcement of the Agreement................................ A-37
SECTION 9.10. Severability................................................ A-37
SECTION 9.11. Arbitration................................................. A-37
</TABLE>
A-v
<PAGE> 94
AGREEMENT AND PLAN OF MERGER dated as of March 3, 1999, by and between THE
MEN'S WEARHOUSE, INC., a Texas corporation ("TMW"), TMW COMBINATION COMPANY, a
Georgia corporation ("Combination Company"), and K&G MEN'S CENTER, INC., a
Georgia corporation (the "Company").
WHEREAS, the respective Boards of Directors of TMW, Combination Company and
the Company have approved the merger of the Combination Company with and into
the Company (the "Merger"), upon the terms and subject to the conditions of this
Agreement and Plan of Merger (this "Agreement"), whereby each issued and
outstanding share of the Company's common stock, $.01 par value (a "Company
Share"), not owned by the Company, TMW or any wholly owned subsidiary of the
Company or TMW will be converted into a fraction of a share of TMW's common
stock, $.01 par value ("TMW Common Stock") as provided herein;
WHEREAS, for federal income tax purposes, it is intended that the Merger
shall qualify as a reorganization within the meaning of Section 368(a) of the
Internal Revenue Code of 1986, as amended (the "Code");
WHEREAS, for accounting purposes, it is intended that the Merger shall be
accounted for as a pooling of interests; and
WHEREAS, TMW, Combination Company and the Company desire to make certain
representations, warranties and agreements in connection with the Merger and
also to prescribe various conditions to the Merger;
NOW, THEREFORE, in consideration of the premises and the representations,
warranties and agreements herein contained, the parties agree as follows:
ARTICLE I
THE MERGER
SECTION 1.1. The Merger. Upon the terms and subject to the conditions
hereof and in accordance with the Georgia Business Corporation Code (the
"GBCC"), the Combination Company shall be merged with and into Company at the
Effective Time of the Merger (as hereinafter defined). Following the Merger, the
separate corporate existence of the Combination Company shall cease and Company
shall continue as the surviving corporation (the "Surviving Corporation") and
shall succeed to and assume all the rights and obligations of the Company in
accordance with the GBCC.
SECTION 1.2. Effective Time. As soon as practicable following the
satisfaction or, to the extent permitted hereunder, waiver of the conditions set
forth in Article VI, the Surviving Corporation shall file the certificate of
merger required by the GBCC with respect to the Merger and other appropriate
documents (the "Certificate of Merger") executed in accordance with the relevant
provisions of the GBCC. The Merger shall become effective at such time as the
Certificate of Merger is duly filed with the Georgia Secretary of State, or at
such other time as TMW and the Company shall agree should be specified in the
Certificate of Merger (the time the Merger becomes effective being the
"Effective Time of the Merger"). The closing of the Merger (the "Closing") shall
take place at the offices of Fulbright & Jaworski L.L.P., in Houston, Texas, on
the date of the meeting of the Company's stockholders to approve the Merger (the
"Company Stockholders Meeting"), or, if any of the conditions set forth in
Article VI have not been satisfied, then as soon as practicable thereafter, or
at such other time and place or such other date as TMW and the Company shall
agree (the "Closing Date").
SECTION 1.3. Effects of the Merger. The Merger shall have the effects set
forth in Section 14-2-1106 of the GBCC. If at any time after the Effective Time
of the Merger, the Surviving Corporation shall consider or be advised that any
further assignments or assurances in law or otherwise are necessary or desirable
to vest, perfect or confirm, of record or otherwise, in the Surviving
Corporation, all rights, title and interests in all real estate and other
property and all privileges, powers and franchises of the Company and the
Combination Company, the Surviving Corporation and its proper officers and
directors, in the name and on behalf of the Company and the Combination Company,
shall execute and deliver all such proper deeds, assignments and
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assurances in law and do all things necessary and proper to vest, perfect or
confirm title to such property or rights in the Surviving Corporation and
otherwise to carry out the purpose of this Agreement, and the proper officers
and directors of the Surviving Corporation are fully authorized in the name of
the Company and the Combination Company or otherwise to take any and all such
action.
SECTION 1.4. Articles of Incorporation and Bylaws.
(a) The Amended and Restated Articles of Incorporation of the Company, as
in effect immediately prior to the Effective Time of the Merger, shall be
amended and restated as of the Effective Time of the Merger to read as set forth
in Exhibit A hereto, and, as so amended, such Amended and Restated Articles of
Incorporation shall be the Articles of Incorporation of the Surviving
Corporation until thereafter changed or amended as provided therein or by
applicable law.
(b) The By-laws of the Company, as in effect immediately prior to the
Effective Time of the Merger, shall be amended and restated as of the Effective
Time of the Merger to read as set forth in Exhibit B hereto, and, as so amended,
shall be the By-laws of the Surviving Corporation until thereafter changed or
amended as provided therein or by applicable law.
SECTION 1.5. Directors and Officers.
The directors and officers of Combination Company shall, from and after the
Effective Time, be the directors and officers of the Surviving Corporation and
shall serve until their successors have been duly elected or appointed and
qualified or until their earlier death, resignation or removal in accordance
with the Surviving Corporation's Articles of Incorporation and Bylaws.
ARTICLE II
EFFECT OF THE MERGER ON THE CAPITAL STOCK OF THE CONSTITUENT CORPORATIONS;
EXCHANGE OF CERTIFICATES
SECTION 2.1. Effect on Capital Stock. As of the Effective Time of the
Merger, by virtue of the Merger and without any action on the part of the holder
of any Company Shares or capital stock of Combination Company:
(a) Cancellation of Company and TMW Owned Stock. All Company Shares that
are owned by the Company, any wholly owned subsidiary of the Company and any
Company Shares owned by TMW or any wholly owned subsidiary of TMW shall be
canceled and no consideration shall be delivered in exchange therefor.
(b) Conversion of Company Shares. Subject to Sections 2.1(a) and 2.1(c),
each issued and outstanding Company Share shall be converted into the right to
receive, upon the surrender of the certificate formerly representing such
Company Shares pursuant to Section 2.2, a fraction of a share of TMW Common
Stock (the "Merger Consideration") as follows:
If the average of the closing prices of the TMW Common Stock on the
National Association of Securities Dealers Automated Quotation National
Market Systems ("NASDAQ NMS") (as reported in The Wall Street Journal or,
if not reported thereby, any other authoritative source selected by TMW)
for the 15 trading days ending on the third trading day before the Closing
Date is equal to or greater than $32.50, then each Company Share shall be
converted into the right to receive .4 of a share of TMW Common Stock; if
such average is equal to or less than $27.50, then each Company Share shall
be converted into the right to receive .43 of a share of TMW Common Stock;
if such average is between $32.50 and $27.50, then each Company Share shall
be converted into a fraction of a share of TMW Common Stock equal to .4
plus a decimal, calculated to four decimal places, equal to .03 times a
fraction with a numerator equal to the difference between $32.50 and such
average and the denominator equal to $5.00. For example, if such average is
$30.00, then each Company Share would be converted into .415 of a share of
TMW Common Stock.
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Such ratio of a fraction of a share of TMW Common Stock for each Company
Share is herein referred to as the "Exchange Ratio".
(c) No Fractional TMW Shares. No fractional shares of TMW Common Stock
shall be issued in the Merger. All fractional shares of TMW Common Stock that a
holder of Company Shares would otherwise be entitled to receive as a result of
the Merger shall be aggregated and if a fractional share of TMW Common Stock
results from such aggregation, such holder shall be entitled to receive, in lieu
thereof, an amount in cash determined by multiplying the closing sale price per
share of a share of TMW Common Stock on NASDAQ NMS on the first trading day
immediately preceding the Effective Time of the Merger by the fraction of a
share of TMW Common Stock to which such holder would otherwise have been
entitled. No such cash in lieu of fractional shares of TMW Common Stock shall be
paid to any holder of fractional TMW Common Stock until that holder's
Certificates (as defined in Section 2.2(c)) are surrendered and exchanged in
accordance with Section 2.2(c).
(d) Combination Company Stock. Each share of common stock, par value $1.00
per share, of Combination Company issued and outstanding immediately prior to
the Effective Time will be converted into one share of common stock, par value
$.01 per share, of the Surviving Corporation, and the stock of the Surviving
Corporation issued on that conversion will constitute all of the issued and
outstanding shares of capital stock of the Surviving Corporation.
SECTION 2.2. Exchange of Certificates.
(a) Exchange Agent. Prior to the Effective Time of the Merger, TMW shall
engage American Stock Transfer & Trust Company or such other bank or trust
company reasonably acceptable to the Company, to act as exchange agent (the
"Exchange Agent") for the issuance of the Merger Consideration upon surrender of
Certificates.
(b) Payment of Merger Consideration. TMW shall deliver to Combination
Company or the Surviving Corporation, as applicable and cause Combination
Company or the Surviving Corporation to provide to the Exchange Agent on a
timely basis, as and when needed after the Effective Time of the Merger,
certificates for the TMW Common Stock to be issued upon the conversion of the
Company Shares pursuant to Section 2.1. The Surviving Corporation shall timely
make available to the Exchange Agent any cash necessary to make payments in lieu
of fractional shares.
(c) Exchange Procedure. As soon as practicable after the Effective Time of
the Merger, the Exchange Agent shall mail to each holder of record of a
certificate or certificates that immediately prior to the Effective Time of the
Merger represented outstanding Company Shares (the "Certificates"), other than
the Company, TMW and any wholly owned subsidiary of the Company or TMW, (i) a
letter of transmittal (which shall specify that delivery shall be effected, and
risk of loss and title to the Certificates shall pass, only upon delivery of the
Certificates to the Exchange Agent and shall be in a form and have such other
provisions as TMW may reasonably specify) and (ii) instructions for use in
effecting the surrender of the Certificates in exchange for the certificates
representing the TMW Common Stock and any cash in lieu of a fractional share of
TMW Common Stock. Upon surrender of a Certificate for cancellation to the
Exchange Agent or to such other agent or agents as may be appointed by the
Surviving Corporation, together with such letter of transmittal, duly executed,
and such other documents as may reasonably be required by the Exchange Agent,
the holder of such Certificate shall be entitled to receive in exchange therefor
a certificate or certificates representing the number of whole shares of TMW
Common Stock into which the Company Shares theretofore represented by such
Certificate shall have been converted pursuant to Section 2.1 and any cash
payable in lieu of a fractional share of TMW Common Stock, and the Certificate
so surrendered shall forthwith be canceled. If the shares of TMW Common Stock
are to be issued to a Person other than the Person in whose name the Certificate
so surrendered is registered, it shall be a condition of exchange that such
Certificate shall be properly endorsed or otherwise in proper form for transfer
and that the Person requesting such exchange shall pay any transfer or other
taxes required by reason of the exchange to a Person other than the registered
holder of such Certificate or establish to the reasonable satisfaction of the
Surviving Corporation that such tax has been paid or is not applicable. Until
surrendered as contemplated by this Section 2.2, each Certificate shall be
deemed at any time after the Effective Time of the Merger to represent only the
right to receive, upon surrender of such
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Certificate, the number of shares of TMW Common Stock and cash, if any, in lieu
of a fractional share of TMW Common Stock into which the Company Shares
theretofore represented by such Certificate shall have been converted pursuant
to Section 2.1. The Exchange Agent shall not be entitled to vote or exercise any
rights of ownership with respect to the TMW Common Stock held by it from time to
time hereunder, except that it shall receive and hold all dividends or other
distributions paid or distributed with respect thereto for the account of
Persons entitled thereto.
(d) Distributions with Respect to Unexchanged Company Shares. No dividends
or other distributions declared or made after the Effective Time of the Merger
with respect to the TMW Common Stock with a record date after the Effective Time
of the Merger shall be paid to the holder of any unsurrendered Certificate with
respect to the TMW Common Stock represented thereby and no cash payment in lieu
of fractional shares shall be paid to any such holder pursuant to Section 2.1(c)
until the holder of record of such Certificate shall surrender such Certificate.
Subject to the effect of applicable laws, following surrender of any such
Certificate, there shall be paid to the record holder of the Certificates
representing the TMW Common Stock issued in exchange therefor, without interest,
(i) at the time of such surrender, the amount of any cash payable in lieu of a
fractional share of TMW Common Stock to which such holder is entitled pursuant
to Section 2.1(c) and the amount of dividends or other distributions with a
record date after the Effective Time of the Merger theretofore paid with respect
to such whole share of TMW Common Stock, as the case may be, and (ii) at the
appropriate payment date, the amount of dividends or other distributions with a
record date after the Effective Time of the Merger but prior to surrender and a
payment date subsequent to surrender payable with respect to such whole share of
TMW Common Stock.
(e) No Further Ownership Rights in Company Shares. All shares of TMW Common
Stock issued upon the surrender of Certificates in accordance with the terms of
this Article II, together with any dividends payable thereon to the extent
contemplated by this Section 2.2, shall be deemed to have been exchanged and
paid in full satisfaction of all rights pertaining to the Company Shares
theretofore represented by such Certificates and there shall be no further
registration of transfers on the stock transfer books of the Surviving
Corporation of the Company Shares that were outstanding immediately prior to the
Effective Time of the Merger. If, after the Effective Time of the Merger,
Certificates are presented to the Surviving Corporation for any reason, they
shall be canceled and exchanged as provided in this Article II.
(f) No Liability. Neither TMW nor the Company nor any of their subsidiaries
shall be liable to any holder of Company Shares or TMW Common Stock, as the case
may be, for such shares (or dividends or distributions with respect thereto) or
cash in lieu of fractional shares of TMW Common Stock delivered to a public
official pursuant to any applicable abandoned property, escheat or similar law.
SECTION 2.3. Conversion of Stock Options.
(a) At the Effective Time, each option or other right to purchase shares of
Company Common Stock (as hereinafter defined) pursuant to stock options (the
"Company Options") granted by the Company under the Employee Stock Option Plan
and the Directors Stock Option Plan (the "Company Stock Plans"), which is
outstanding at the Effective Time, whether or not exercisable, shall be
converted into options and become rights with respect to TMW Common Stock, and
TMW shall assume each Company Option, in accordance with the terms of the
Company Stock Plans and stock option agreement by which it is evidenced, except
that from and after the Effective Time, (i) TMW and its Stock Option Committee
shall be substituted for the Company and the Committee of the Company's Board of
Directors (including, if applicable, the entire Board of Directors of the
Company) administering such Company Stock Plans, (ii) each Company Option
assumed by TMW may be exercised solely for shares of TMW Common Stock, (iii) the
number of shares of TMW Common Stock subject to such Company Option shall be
equal to the number of shares of Company Common Stock subject to such Company
Option immediately prior to the Effective Time multiplied by the Exchange Ratio,
and (iv) the per share exercise price under each such Company Option shall be
adjusted by dividing the per share exercise price under each such Company Option
by the Exchange Ratio and rounding up any fraction of a cent to the nearest
cent. Notwithstanding the provisions of clause (iii) of the preceding sentence,
TMW shall not be obligated to issue any fraction of a share of TMW Common Stock
upon exercise of Company Options and any fraction of a share of TMW Common Stock
that otherwise would be subject to a
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converted Company Option shall represent the right to receive a cash payment
upon exercise of such converted Company Option equal to the product of such
fraction and the difference between the market value of one share of TMW Common
Stock at the time of exercise and the per share exercise price of such Option.
The market value of one share of TMW Common Stock at the time of exercise of an
Option shall be the closing price of such common stock on the NASDAQ NMS (as
reported by The Wall Street Journal or, if not reported thereby, any other
authoritative source selected by TMW) on the last trading day preceding the date
of exercise. Each of the Company and TMW agrees to take all necessary steps to
effectuate the foregoing provisions of this Section 2.3, including using its
reasonable efforts to obtain from each holder of a Company Option any consent or
contract that may be deemed necessary or advisable in order to effect the
transactions contemplated by this Section 2.3.
(b) As soon as practicable after the Effective Time, TMW shall deliver to
the participants in each Company Stock Plan an appropriate notice setting forth
such participant's rights pursuant thereto, and the grants subject to such
Company Stock Plan shall continue in effect on the same terms and conditions
(subject to the adjustments required by Section 2.3(a) after giving effect to
the Merger). At or prior to the Effective Time, TMW shall take all corporate
action necessary to reserve for issuance sufficient shares of TMW Common Stock
for delivery upon exercise of Company Options assumed by it in accordance with
this Section 2.3. Within 10 business days after the Effective Time, TMW shall
file a registration statement on Form S-3, Form S-4/A or Form S-8, as applicable
(which shall include a re-offer prospectus, if necessary), as the case may be
(or any successor or other appropriate forms), with respect to the shares of TMW
Common Stock subject to such options and shall use its reasonable efforts to
maintain the effectiveness of such registration statements (and maintain the
current status of the prospectus or prospectuses contained therein) for so long
as required to permit the issuance of TMW Common Stock upon exercise of options
and the resale of the shares acquired upon exercise of the options.
ARTICLE III
REPRESENTATIONS AND WARRANTIES
SECTION 3.1. Representations and Warranties of the Company. The Company
represents and warrants to, and agrees with, TMW and Combination Company as
follows, subject to any exceptions specified in the Disclosure Letter of the
Company provided to TMW on the date hereof (the "Company Disclosure Letter") and
except as expressly contemplated by this Agreement:
(a) Organization; Standing and Power. The Company is a corporation duly
organized, validly existing and in good standing under the laws of the State of
Georgia and has the requisite corporate power and authority to carry on its
business as now being conducted. The Company is duly qualified to do business
and is in good standing in each jurisdiction in which the nature of its business
or the ownership or leasing of its properties makes such qualification
necessary, other than in such jurisdictions where the failure to be so qualified
to do business or in good standing (individually, or in the aggregate) would not
have a Material Adverse Effect on the Company and its subsidiaries, taken as a
whole.
(b) Subsidiaries; Other Investments. Except as set forth in Section 3.1(b)
of the Company Disclosure Letter, the Company does not own, directly or
indirectly, any capital stock or other ownership interest in any Person. Section
3.1(b) of the Company Disclosure Letter contains a complete and accurate list of
the Company's direct and indirect subsidiaries. The Company's subsidiaries are
all corporations and are duly organized, validly existing and in good standing
under the laws of their respective jurisdictions of incorporation and have the
requisite corporate power and authority to carry on their respective businesses
as they are now being conducted and to own, operate and lease the assets they
now own, operate or hold under lease. The Company's subsidiaries are duly
qualified to do business and are in good standing in each jurisdiction in which
the nature of their respective businesses or the ownership or leasing of their
respective properties makes such qualification necessary, other than in such
jurisdictions where the failure to be so qualified or in good standing would not
have a Material Adverse Effect on the Company and its subsidiaries, taken as a
whole. Except as set forth in Section 3.1(b) of the Company Disclosure Letter or
in the Company SEC Documents, all the outstanding shares of capital stock of the
Company's subsidiaries are owned by the Company or its
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subsidiaries and have been duly authorized and validly issued and are fully paid
and non-assessable and were not issued in violation of any preemptive rights or
other preferential rights of subscription or purchase of any Person other than
those that have been waived or otherwise cured or satisfied. All such stock and
ownership interests are owned of record and beneficially by the Company or by a
direct or indirect wholly owned subsidiary of the Company, free and clear of all
liens, pledges, security interests, charges, claims, rights of third parties and
other encumbrances of any kind or nature ("Liens").
(c) Capital Structure. The authorized capital stock of the Company consists
of 40,000,000 shares of common stock, $.01 par value ("Company Common Stock"),
and 2,000,000 shares of preferred stock, $.01 par value ("Company Preferred
Stock"). At the date hereof, 10,252,844 Company Shares were issued and
outstanding and no shares of Company Preferred Stock were issued and
outstanding. In addition, at the date hereof, an aggregate of 1,114,930 shares
of Company Common Stock were reserved for issuance under various employee and
director plans and agreements of the Company all as accurately described in all
material respects in Section 3.1(c) of the Company Disclosure Letter. Except as
set forth above, no shares of capital stock or other equity or voting securities
of the Company are reserved for issuance or outstanding. All outstanding shares
of capital stock of the Company are, and all such shares issuable upon the
exercise of stock options will be, validly issued, fully paid and nonassessable
and not subject to preemptive rights. No capital stock has been issued by the
Company since July 14, 1998, to the date hereof, other than shares of Company
Common Stock issued pursuant to options outstanding on or prior to such date in
accordance with their terms at such date. Except pursuant to stock option plans
of the Company described in Section 3.1(l) of the Company Disclosure Letter
(collectively, the "Company Stock Plans"), there are no outstanding or
authorized securities, options, warrants, calls, rights, commitments, preemptive
rights, agreements, arrangements or undertakings of any kind to which the
Company or any of its subsidiaries is a party, or by which any of them is bound,
obligating the Company or any of its subsidiaries to issue, deliver or sell, or
cause to be issued, delivered or sold, any shares of capital stock or other
equity or voting securities of, or other ownership interests in, the Company or
any of its subsidiaries or obligating the Company or any of its subsidiaries to
issue, grant, extend or enter into any such security, option, warrant, call,
right, commitment, agreement, arrangement or undertaking. Except as set forth in
Section 3.1(c) of the Company Disclosure Letter, all of which shall be
terminated without cost to the Company by the Effective Time of the Merger,
there are not as of the date hereof and there will not be at the Effective Time
any stockholder agreements, voting trusts or other agreements or understandings
to which the Company is a party or by which it is bound relating to the voting
of any shares of the capital stock of the Company. There are no restrictions on
the Company with respect to voting the stock of any of its subsidiaries.
(d) Authority; Non-contravention. The Board of Directors of the Company has
approved the Merger and this Agreement, by unanimous vote of the directors, and
declared the Merger and this Agreement to be in the best interests of the
stockholders of the Company. The directors of the Company have advised the
Company and TMW that they intend to vote or cause to be voted all of the shares
of the Company Common Stock for which they have voting power in favor of
approval of the Merger and this Agreement. The Company has the requisite
corporate power and authority to enter into this Agreement and, subject to
approval of the Merger and this Agreement by the holders of a majority of the
outstanding Company Shares as of the record date for the Company Stockholders
Meeting ("Company Stockholder Approval"), to consummate the transactions
contemplated hereby and to take such actions, if any, as shall have been taken
with respect to the matters referred to in Section 3.1(h). The execution and
delivery of this Agreement by the Company and the consummation by the Company of
the transactions contemplated hereby have been duly authorized by all necessary
corporate action on the part of the Company, subject to Company Stockholder
Approval. This Agreement has been duly and validly executed and delivered by the
Company and constitutes a valid and binding obligation of the Company,
enforceable against the Company in accordance with its terms, except that (i)
such enforcement may be subject to bankruptcy, insolvency, reorganization,
moratorium or other similar laws or judicial decisions now or hereafter in
effect relating to creditors' rights generally, (ii) the remedy of specific
performance and injunctive relief may be subject to equitable defenses and to
the discretion of the court before which any proceeding therefor may be brought
and (iii) the enforceability of any indemnification provision contained herein
may be limited by applicable federal or state securities laws. The execution and
delivery of this Agreement by the Company do not, and the consummation of the
transactions contemplated
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hereby and compliance with the provisions hereof will not, conflict with, or
result in any violation of, or default (with or without notice or lapse of time,
or both) under, or give rise to a right of termination, cancellation or
acceleration of or "put" right with respect to any obligation or to loss of a
material benefit under, or result in the creation of any Lien, upon any of the
properties or assets of the Company or any of its subsidiaries under, any
provision of (i) the Amended and Restated Articles of Incorporation or Amended
and Restated Bylaws of the Company or any provision of the comparable
organizational documents of its subsidiaries, (ii) any loan or credit agreement,
note, bond, mortgage, indenture, lease, or other agreement, instrument, permit,
concession, franchise or license applicable to the Company or any of its
subsidiaries or their respective properties or assets or (iii) subject to the
governmental filings and other matters referred to in the following sentence,
any judgment, order, decree, statute, law, ordinance, rule or regulation or
arbitration award applicable to the Company or any of its subsidiaries or their
respective properties or assets, other than, in the case of clauses (ii) and
(iii), any such conflicts, violations, defaults, rights or Liens that
individually or in the aggregate would not have a Material Adverse Effect on the
Company and its subsidiaries taken as a whole and would not materially impair
the ability of the Company to perform its obligations hereunder or prevent the
consummation of any of the transactions contemplated hereby. No consent,
approval, order or authorization of, or registration, declaration or filing
with, any court, administrative agency or commission or other governmental
authority or agency, domestic or foreign, including local authorities (a
"Governmental Entity") or other Person, is required by or with respect to the
Company or any of its subsidiaries in connection with the execution and delivery
of this Agreement by the Company or the consummation by the Company of the
transactions contemplated hereby, except for (i) the filing by the Company of a
pre-merger notification and report form under the Hart-Scott-Rodino Antitrust
Improvements Act of 1976, as amended (the "HSR Act") and the expiration or
termination of the waiting period thereunder, (ii) the filing with the SEC of
(A) a proxy statement relating to the Company Stockholder Approval (such proxy
statement as amended or supplemented from time to time, the "Proxy Statement")
and (B) the Registration Statement (as defined in Section 5.1(b)) and (C) such
reports under Section 13(a) of Exchange Act, as may be required in connection
with this Agreement and the transactions contemplated hereby, (iii) Company
Stockholder Approval and (iv) the filing of the Certificate of Merger with and
approval by the Georgia Secretary of State with respect to the Merger as
provided in the GBCC and appropriate documents with the relevant authorities of
other states in which the Company is qualified to do business and such other
consents, approvals, orders, authorizations, registrations, declarations and
filings the failure of which to be obtained or made would not have a Material
Adverse Effect on the Company and its subsidiaries, taken as a whole. Assuming
that the TMW Common Stock is listed on a "national securities exchange" within
the meaning of Section 14-2-1302 of the GBCC, the shareholders of the Company
are not entitled to dissenter's rights in connection with the Merger.
(e) SEC Documents. The Company has filed all required reports, schedules,
forms, statements and other documents with the SEC since January 1, 1996 (such
documents, together with all exhibits and schedules thereto and documents
incorporated by reference therein, collectively referred to herein as the
"Company SEC Documents"). As of their respective dates, the Company SEC
Documents complied in all material respects with the requirements of the
Securities Act of 1933, as amended (the "Securities Act"), or the Exchange Act,
as the case may be, and the rules and regulations of the SEC promulgated
thereunder applicable to such Company SEC Documents, and none of the Company SEC
Documents contained any untrue statement of a material fact or omitted to state
a material fact required to be stated therein or necessary in order to make the
statements therein, in light of the circumstances under which they were made,
not misleading. The consolidated financial statements of the Company included in
the Company SEC Documents complied in all material respects with applicable
accounting requirements and the published rules and regulations of the SEC with
respect thereto, have been prepared in accordance with generally accepted
accounting principles (except, in the case of unaudited statements, as permitted
by Form 10-Q of the SEC) applied on a consistent basis during the periods
involved (except as may be indicated in the notes thereto or, in the case of
unaudited statements, as permitted by Rule 10-01 of Regulation S-X of the SEC)
and fairly present the consolidated financial position of the Company and its
consolidated subsidiaries as of the dates thereof and the consolidated results
of their operations and cash flows for the periods then ended (subject, in the
case of unaudited statements, to normal year-end audit adjustments and other
adjustments described
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therein). Except as set forth in the Company SEC Documents, since the date of
filing of such financial statements until the date hereof there has been no
Material Adverse Change with respect to the Company and its subsidiaries taken
as a whole. The preliminary consolidated statements of operations for the year
ended January 31, 1999 and the consolidated balance sheet at January 31, 1999 of
the Company and its subsidiaries, in the form disclosed in Section 3.1(e) of the
Company Disclosure Letter, are true and correct in all material respects.
(f) Information Supplied. None of the information supplied or to be
supplied by the Company for inclusion or incorporation by reference in (i) the
Registration Statement will, at the time the Registration Statement is filed
with the SEC, and at any time it is amended or supplemented or at the time it
becomes effective under the Securities Act, contain any untrue statement of a
material fact or omit to state any material fact required to be stated therein
or necessary to make the statements therein not misleading, and (ii) the Proxy
Statement will, at the date the Proxy Statement is first mailed to the Company's
stockholders and at the time of the Company Stockholders Meeting, contain any
untrue statement of a material fact or omit to state any material fact required
to be stated therein or necessary in order to make the statements therein, in
light of the circumstances under which they are made, not misleading. The Proxy
Statement, as it relates to the Company Stockholders Meeting, will comply as to
form in all material respects with the requirements of the Exchange Act and the
rules and regulations thereunder, except that no representation or warranty is
made by the Company with respect to statements made or incorporated by reference
therein based on information supplied by TMW for inclusion or incorporation by
reference therein.
(g) Absence of Certain Changes or Events. Except as disclosed in Section
3.1(g) of the Company Disclosure Letter or the Company SEC Documents, since
January 30, 1998, the Company has conducted its business only in the ordinary
course consistent with past practice, and there has not been (i) as of the date
hereof, any material adverse change with respect to the Company, (ii) any
declaration, setting aside or payment of any dividend (whether in cash, stock or
property) with respect to any of the Company's capital stock, (iii)(A) any
granting by the Company or any of its subsidiaries to any executive officer of
the Company or any of its subsidiaries of any increase in compensation, except
in the ordinary course of business consistent with prior practice or as was
required under employment agreements described in Section 3.1(g) to the
Disclosure Letter, (B) any granting by the Company or any of its subsidiaries to
any such executive officer of any increase in severance or termination pay,
except as was required under employment, severance or termination agreements
listed in Section 3.1(g) to the Company Disclosure Letter, true copies of which
have been provided to TMW, or (C) any entry by the Company or any of its
subsidiaries into any employment, severance or termination agreement with any
such executive officer, (iv) any amendment of any material term of any
outstanding equity security of the Company or any subsidiary; (v) any
repurchase, redemption or other acquisition by the Company or any subsidiary of
any outstanding shares of capital stock or other equity securities of, or other
ownership interests in, the Company or any subsidiary, except as contemplated by
Company Benefit Plans; (vi) any damage, destruction or other property loss,
whether or not covered by insurance, that has or reasonably could be expected to
have a Material Adverse Effect on the Company and its subsidiaries, taken as a
whole or (vii) any change in accounting methods, principles or practices by the
Company materially affecting its assets, liabilities or business, except insofar
as may have been required by a change in generally accepted accounting
principles.
(h) State Takeover Statutes; Absence of Supermajority Provision. The
Company has taken all action to assure that no state takeover statute or similar
statute or regulation, including, without limitation Sections 14-2-1103,
14-2-1111 and 14-2-1132 of the GBCC, shall apply to the Merger or any of the
other transactions contemplated hereby. The Company has also taken such other
action with respect to any other anti-takeover provisions in its Bylaws or
Articles of Incorporation to the extent necessary to consummate the Merger on
the terms set forth in this Agreement.
(i) Brokers. Except for NationsBanc Montgomery Securities LLC (the "Company
Financial Advisor"), whose fees are to be paid by the Company, no broker,
investment banker or other Person is entitled to receive from the Company or any
of its subsidiaries any investment banking, broker's, finder's or similar fee or
commission in connection with this Agreement or the transactions contemplated
hereby, including any fee for any opinion rendered by any investment banker. The
engagement letter dated February 22, 1999, between the
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Company and the Company Financial Advisor provided to TMW prior to the date of
this Agreement constitutes the entire understanding of the Company and the
Company Financial Advisor with respect to the matters referred to therein, and
has not been amended or modified, nor will it be amended or modified prior to
the Effective Time of the Merger.
(j) Litigation. Except as disclosed in Section 3.1(j) of the Company
Disclosure Letter or the Company SEC Documents, there is no claim, suit, action,
proceeding or investigation pending or, to the Company's knowledge, threatened
against or affecting the Company or any of its subsidiaries that either
individually or in the aggregate could reasonably be expected to have a Material
Adverse Effect on the Company and its subsidiaries, taken as a whole, or prevent
or materially delay the ability of the Company to consummate the transactions
contemplated by this Agreement, nor is there any judgment, decree, injunction,
rule or order of any Governmental Entity or arbitrator outstanding against the
Company or any of its subsidiaries having, or which, insofar as reasonably can
be foreseen, in the future could have, any such effect.
(k) Accounting Matters. Neither the Company nor, to its knowledge, any of
its affiliates, has through the date of this Agreement taken or agreed to take
any action that (without giving effect to any action taken or agreed to be taken
by TMW or any of its affiliates) would prevent TMW from accounting for the
business combination to be effected by the Merger as a pooling of interests. The
books, records and accounts of the Company and its subsidiaries (i) have been
maintained in accordance with good business practices on a basis consistent with
prior years, (ii) are stated in reasonable detail and accurately and fairly
reflect in all material respects the transactions and dispositions of the assets
of the Company and its subsidiaries and (iii) accurately and fairly reflect in
all material respects the basis for the Company's financial statements. The
Company maintains a system of internal accounting controls sufficient to provide
reasonable assurances that (i) transactions are executed in accordance with
management's general or specific authorization and (ii) transactions are
recorded as necessary (A) to permit preparation of financial statements in
conformity with generally accepted accounting principles and (B) to maintain
accountability for assets.
(l) Employee Benefits Matters.
(i) Benefit Plans. Section 3.1(l) of the Company Disclosure Letter
contains a true and complete list of (1) all employee welfare benefit and
employee pension benefit plans as defined in sections 3(1) and 3(2) of the
Employee Retirement Income Security Act of 1974, as amended ("ERISA"),
including, but not limited to, plans that provide retirement income or
result in a deferral of income by employees for periods extending to
termination of employment or beyond, and plans that provide medical,
surgical, or hospital care benefits or benefits in the event of sickness,
accident, disability, death or unemployment and (2) all other employee
benefit agreements or arrangements, including without limitation deferred
compensation plans, incentive plans, bonus plans or arrangements, stock
option plans, stock purchase plans, stock award plans, golden parachute
agreements, severance pay plans, dependent care plans, cafeteria plans,
employee assistance programs, scholarship programs, employee discount
programs, employment contracts, retention incentive agreements,
noncompetition agreements, consulting agreements, confidentiality
agreements, vacation policies, and other similar plans, agreements and
arrangements that are currently in effect as of the date of this Agreement,
or have been approved before this date but are not yet effective, for the
benefit of any director, officer, employee or former employee (or any of
their beneficiaries) of the Company or any of its subsidiaries
(collectively, a "Company Beneficiary"), or with respect to which the
Company or any of its subsidiaries may have any liability ("Company Benefit
Plans").
(ii) Disclosure of Documents. With respect to each Company Benefit
Plan, the Company has heretofore made available to TMW, as applicable,
complete and correct copies of each of the following documents which the
Company has prepared or has been required to prepare:
(1) the Company Benefit Plan and any amendments thereto (or if the
Company Benefit Plan is not a written agreement, a description thereof);
(2) the three most recent annual Form 5500 reports filed with the
Internal Revenue Service (the "IRS");
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(3) the most recent statement filed with the Department of Labor
(the "DOL") pursuant to 29 U.S.C. sec. 2520.104-23;
(4) the three most recent annual Form 990 and 1041 reports filed
with the IRS;
(5) the three most recent actuarial reports;
(6) the three most recent reports prepared in accordance with
Statement of Financial Accounting Standards No. 106;
(7) the most recent summary plan description and summaries of
material modifications thereto;
(8) the trust agreement, group annuity contract or other funding
agreement that provides for the funding of the Company Benefit Plan;
(9) the most recent financial statement;
(10) the most recent determination letter received from the IRS;
and
(11) any agreement pursuant to which the Company or any of its
subsidiaries is obligated to indemnify any person.
(iii) Contributions and Payments. All contributions and other payments
required to have been made by the Company or any entity (whether or not
incorporated) that is treated as a single employer with the Company under
section 414 of the Code (a "Company ERISA Affiliate") with respect to any
Company Benefit Plan (or to any person pursuant to the terms thereof) have
been or will be timely made and all such amounts properly accrued through
the date of this Agreement have been reflected in the financial statements
of the Company included in the Company SEC Documents.
(iv) Qualification; Compliance. The terms of all Company Benefit Plans
that are intended to be "qualified" within the meaning of section 401(a) of
the Code have been determined by the IRS to be so qualified or the
applicable remedial periods will not have ended prior to the Effective
Time. Except as disclosed in Section 3.1(l)(iii) of the Company Disclosure
Letter, no event or condition exists or has occurred that could cause the
IRS to disqualify any Company Benefit Plan that is intended to be qualified
under section 401(a) of the Code. Except as disclosed in Section
3.1(l)(iii) of the Company Disclosure Letter, with respect to each Company
Benefit Plan, the Company and each Company ERISA Affiliate are in
compliance in all material respects with, and each Company Benefit Plan and
related source of benefit payment is and has been operated in compliance
with, its terms, all applicable laws, rules and regulations governing such
plan or source, including, without limitation, ERISA, the Code and
applicable local law. To the knowledge of the Company, except as set forth
in Section 3.1(l)(iii) of the Company Disclosure Letter, no Company Benefit
Plan is subject to any ongoing audit, investigation, or other
administrative proceeding of the IRS, the DOL, or any other federal, state,
or local governmental entity or is scheduled to be subject to such an audit
investigation or proceeding.
(v) Liabilities. With respect to each Company Benefit Plan, to the
knowledge of the Company, there exists no condition or set of circumstances
that could subject the Company or any Company ERISA Affiliate to any
liability arising under the Code, ERISA or any other applicable law
(including, without limitation, any liability to or under any such plan or
under any indemnity agreement to which the Company or any Company ERISA
Affiliate is a party), which liability, excluding liability for benefit
claims and funding obligations, each payable in the ordinary course, could
reasonably be expected to have a Material Adverse Effect on the Company. No
claim, action or litigation has been made, commenced or, to the knowledge
of the Company, threatened, by or against and Company Benefit Plan or the
Company or any of its subsidiaries with respect to any Company Benefit Plan
(other than for benefits in the ordinary course) that could reasonably be
expected to have a Material Adverse Effect on the Company.
(vi) Retiree Welfare Plans. Except as disclosed in Section 3.1(l)(vi)
of the Company Disclosure Letter, no Company Benefit Plan that is a
"welfare benefit plan" (within the meaning of section 3(1) of ERISA)
provides benefits for any retired or former employees (other than as
required under the
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Consolidated Omnibus Budget Reconciliation Act of 1985, as amended, or
other applicable state or local law that specifically mandates continued
health coverage).
(vii) Payments Resulting from Merger. Except as disclosed in Section
3.1(l)(vii) of the Company Disclosure Letter, the consummation or
announcement of any transaction contemplated by this Agreement will not
(either alone or in conjunction with another event, including termination
of employment) result in (A) any payment (whether of severance pay or
otherwise) becoming due from the Company or any of its subsidiaries to any
Company Beneficiary or to the trustee under any "rabbi trust" or similar
arrangement, or (B) any benefit under any Company Benefit Plan being
established or increased, or becoming accelerated, vested or payable.
(viii) Defined Benefit Pension Plans. Neither the Company nor any
entity that was at any time during the six-year period ending on the date
of this Agreement a Company ERISA Affiliate has ever maintained, had an
obligation to contribute to, contributed to, or had any liability with
respect to any plan that is or was a pension plan (as defined in section
3(2) of ERISA) that is or was subject to Title IV of ERISA.
(m) Taxes. Each of the Company and each of its subsidiaries, and any
consolidated, combined, unitary or aggregate group for Tax (as defined below)
purposes of which the Company or any of its subsidiaries is or has been a
member, has timely filed all Tax Returns (as defined below) required to be filed
by it and has timely paid or deposited (or the Company has paid or deposited on
its behalf) all Taxes which are required to be paid or deposited except where
the failure to do so would not have a Material Adverse Effect on the Company and
its subsidiaries, taken as a whole. Each of the Tax Returns filed by the Company
or any of its subsidiaries is accurate and complete in all material respects.
The most recent consolidated financial statements of the Company contained in
the filed Company SEC Documents reflect an adequate reserve for all Taxes
payable by the Company and its subsidiaries for all taxable periods and portions
thereof through the date of such financial statements whether or not shown as
being due on any Tax Returns. No material deficiencies for any Taxes have been
proposed, asserted or assessed against the Company or any of its subsidiaries;
no requests for waivers of the time to assess any such Taxes have been granted
or are pending; and there are no tax liens upon any assets of the Company or any
of its subsidiaries. The consolidated Federal income Tax Returns of the Company
and its subsidiaries consolidated in such Tax Returns have been examined by the
IRS through the year ended January 31, 1993. Except as set forth on Section
3.1(m) of the Company Disclosure Letter, there are no current examinations of
any Tax Return of the Company or any of its subsidiaries being conducted and
there are no settlements or any prior examinations which could reasonably be
expected to adversely affect any taxable period for which the statute of
limitations has not run. The consummation of the transactions contemplated
hereby will not accelerate or otherwise cause to come due any Taxes or
obligation with respect to Taxes (including any indemnification of a third party
for their Tax liability) of the Company or any of its subsidiaries, other than
any acceleration arising solely as a result of the Company being required to
file a Tax Return for a period ending before its normal taxable year. As used
herein, "Tax" or "Taxes" shall mean all taxes of any kind, including, without
limitation, those on or measured by or referred to as income, gross receipts,
sales, use, ad valorem, franchise, profits, license, withholding, payroll,
employment, estimated, excise, severance, stamp, occupation, premium, value
added, property or windfall profits taxes, customs, duties or similar fees,
assessments or charges of any kind whatsoever, together with any interest and
any penalties, additions to tax or additional amounts imposed by any
Governmental Entity, domestic or foreign. As used herein, "Tax Return" shall
mean any return, report, statement or information required to be filed with any
Governmental Entity with respect to Taxes.
(n) No Excess Parachute Payments. No amount that could be received (whether
in cash or property or the vesting of property) as a result of any of any
transaction contemplated by this Agreement, either alone or in conjunction with
another event, including termination of employment, by any employee, officer or
director of the Company or any of its affiliates who is a "disqualified
individual" (as such term is defined in proposed Treasury Regulation Section
1.280G-1) under any Company Benefit Plan would be characterized as an "excess
parachute payment" (as such term is defined in section 280G(b)(1) of the Code).
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(o) Environmental Matters. Except as would not have a Material Adverse
Effect on the Company and its subsidiaries, taken as a whole, (i) the business
and operations of the Company and its subsidiaries are being conducted in
compliance with all limitations, restrictions, standards and requirements
established under all environmental laws, (ii) no facts or circumstances exist
that impose, or, to the Company's knowledge, with the passage of time, notice,
cessation of operations or otherwise will impose, on the Company or any of its
subsidiaries an obligation under environmental laws to conduct any removal,
remediation or similar response action, at present or in the future (iii) there
is no obligation, undertaking or liability arising out of or relating to
environmental laws that the Company or any of its subsidiaries has agreed to,
assumed or retained, by contract or otherwise, or that has been imposed on the
Company or any of its subsidiaries by any writ, injunction, decree, order or
judgment, and (iv) there are no actions, suits, claims, investigations,
inquiries or proceedings pending or, to the Company's knowledge, threatened
against the Company or any of its subsidiaries that arise out of or relate to
environmental laws.
(p) Compliance with Laws. The Company and its subsidiaries hold all
required, necessary or applicable permits, licenses, variances, exemptions,
orders, franchises and approvals of all Governmental Entities, except where the
failure to so hold, in the aggregate, would not have a Material Adverse Effect
on the Company and its subsidiaries, taken as a whole (the "Company Permits").
The Company and its subsidiaries are in compliance with the terms of the Company
Permits except where the failure to so comply, in the aggregate, would not have
a Material Adverse Effect on the Company and its subsidiaries, taken as a whole.
Neither the Company nor any of its subsidiaries has violated or failed to comply
with, nor has it received any written notice of any alleged violation of or
failure to comply with, any statute, law, ordinance, regulation, rule, permit or
order of any Governmental Entity, any arbitration award or any judgment, decree
or order of any court or other Governmental Entity, applicable to the Company or
any of its subsidiaries or their respective businesses, assets or operations,
except for violations and failures to comply that could not, individually or in
the aggregate, reasonably be expected to have a Material Adverse Effect on the
Company and its subsidiaries, taken as a whole.
(q) Material Contracts and Agreements.
(i) All material contracts of the Company or its subsidiaries have
been included as exhibits or described in the Company SEC Documents, except
for those contracts not required to be filed pursuant to the rules and
regulations of the SEC.
(ii) Section 3.1(q) of the Company Disclosure Letter sets forth a list
of (1) all written or oral contracts, agreements or arrangements to which
the Company or any of its subsidiaries is a party or by which the Company
or any of its subsidiaries or any of their respective assets is bound which
would be required to be filed as exhibits (not previously filed in other
Company SEC Documents) to the Company's Annual Report on Form 10-K for the
year ended January 31, 1999, (2) all written contracts, agreements, or
arrangements, other than Company Benefit Plans, that require payments which
in the aggregate exceed $300,000 or exceed $100,000 in any fiscal year and
(3) any agreement containing a covenant not to compete or a confidentiality
agreement.
(r) Title to and Conditions of Properties.
(i) Each of the Company and its subsidiaries has good title to, or
valid leasehold interests in, all its properties and assets purported to be
owned by it in the Company SEC Documents, except for such as are no longer
used or useful in the conduct of its businesses or as have been disposed of
in the ordinary course of business and except for minor defects in title,
easements, restrictive covenants and similar encumbrances or impediments
that, in the aggregate, do not and will not materially interfere with its
ability to conduct its business as currently conducted. Except as set forth
on Section 3.1(r)(i) of the Company Disclosure Letter, all such assets and
properties, other than assets and properties in which the Company or any of
the subsidiaries has leasehold interests, are free and clear of all Liens,
other than those set forth in the Company SEC Documents and except for
minor Liens, that, in the aggregate, do not and will not materially
interfere with the ability of the Company or any of its subsidiaries to
conduct business as currently conducted or as reasonably expected to be
conducted.
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(ii) Except as would not have a Material Adverse Effect on the Company
and its subsidiaries, taken as a whole, each of the Company and each of its
subsidiaries has complied in all material respects with the terms of all
leases to which it is a party and under which it is in occupancy, and all
such leases are in full force and effect. Each of the Company and each of
its subsidiaries enjoys peaceful and undisturbed possession under all such
leases.
(iii) Except as set forth on Section 3.1(r)(iii) of the Company
Disclosure Letter, to the knowledge of the Company, the buildings and
premises of the Company and each of its subsidiaries that are used in its
business are in reasonably good operating condition and in a state of
reasonably good maintenance and repair, normal wear and tear excepted, and
are reasonably adequate and suitable for the purpose for which they are
currently being used, have access to adequate utility services necessary
for the conduct of the business. All items of operating equipment of the
Company and its subsidiaries are in reasonably good operating condition and
in a state of reasonable maintenance and repair, ordinary wear and tear
excepted. Except as set forth in Section 3.1(r)(iii) of the Company
Disclosure Letter, no material tenant repairs are required with respect to
any leased stores other than normal and routine repairs consistent with
past practice. To the knowledge of the Company, there are no zoning law
changes or similar restrictions that would materially and adversely impact
any of the stores operated by the Company or any of its subsidiaries.
(s) Intellectual Property. The Company Disclosure Letter contains a
complete and accurate list of all trademarks, trade names, service marks or
other slogans, jingles, phrases, symbols or labels used in the business of the
Company or its subsidiaries (collectively, the "Identifying Marks"). The Company
and its subsidiaries own, or are licensed or otherwise have the right to use,
all the Identifying Marks and all other patents, patent rights, trademarks,
trademark rights, trade names, trade name rights, service marks, service mark
rights, copyrights, technology, know-how, processes and other proprietary
intellectual property rights and computer programs, (collectively, the
"Intellectual Property") which are material to the condition (financial or
otherwise) or conduct of the business and operations of the Company and its
subsidiaries taken as a whole. Other than computer software, the licensing of
which cost less than $5,000 per year, Section 3.1(s) of the Company Disclosure
Letter contains a complete and accurate list of all licenses and agreements
pursuant to which the Company has the right to use the Identifying Marks or the
Intellectual Property. To the Company's knowledge, the use of the Identifying
Marks and such patents, patent rights, trademarks, trademark rights, service
marks, service mark rights, trade names, copyrights, technology, know-how,
processes and other proprietary intellectual property rights and computer
programs by the Company and its subsidiaries does not infringe on the rights of
any Person. Neither the Company nor any of its subsidiaries have granted to any
person any license or right to use the Identifying Marks or the Intellectual
Property.
(t) Personnel Information; Labor Matters.
(i) List of Employees and Directors. Section 3.1(t)(i) of the Company
Disclosure Letter sets forth a complete and correct list of each director
and officer of the Company or any of its subsidiaries and each other
individual employed by the Company or any of its subsidiaries who has
aggregate total cash compensation from the Company and its subsidiaries for
the last calendar year ending prior to the Closing Date in excess of
$50,000, together with such individual's title and/or job description and
date of hire by the Company or its subsidiary, and, for each such salaried
individual, such individual's salary (with last date of increase) and
incentive compensation arrangements with the Company and its subsidiaries.
Except as and to the extent set forth on Section 3.1(t)(i) of the Company
Disclosure Letter, as of the date prior to the date hereof, the Company has
not received written notification that any of the current employees
(excluding employees below the store manager level) of the Company or any
of its subsidiaries presently plans to terminate his or her employment
during the 1999 calendar year, whether by reason of the transactions
contemplated by this Agreement or otherwise.
(ii) Labor Relations. Except as and to the extent set forth on Section
3.1(t)(ii) of the Company Disclosure Letter (1) there is no labor strike,
work stoppage, lockout or material dispute or material slowdown pending or,
to the knowledge of the Company, threatened against or involving the
Company or any of its subsidiaries, and there has not been any such action
during the last three years; (2) neither the
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Company nor any of its subsidiaries is a party to or bound by any
collective bargaining or similar agreement with any labor organization; (3)
no employee of the Company or any of its subsidiaries is represented by any
labor organization and, to the knowledge of the Company, there are no
current union organizing activities among the employees of the Company or
any of its subsidiaries; (4) there are no material written personnel
policies, rules or procedures applicable to employees of the Company or any
of its subsidiaries; (5) the Company and its subsidiaries are and during
the last three years have been, in material compliance with all applicable
laws in respect of employment and employment practices, terms and
conditions of employment, wages, hours of work and occupational safety and
health, and is not engaged in any unfair labor practices as defined in the
National Labor Relations Act; (6) there is no unfair labor practice charge
or complaint against the Company pending or, to the knowledge of the
Company, threatened before the National Labor Relations Board or any
similar state agency; (7) no charges with respect to or relating to the
Company or any of its subsidiaries are pending before the Equal Employment
Opportunity Commission or any other agency responsible for the prevention
of unlawful employment practices; (8) neither the Company nor any of its
subsidiaries has received notice of the intent of any governmental
authority responsible for the enforcement of labor or employment laws to
conduct an investigation with respect to or relating to the Company or any
of its subsidiaries and no such investigation is in progress; (9) there are
no complaints, lawsuits or other proceedings pending or, to the knowledge
of the Company, threatened in any forum against the Company or any of its
subsidiaries by or on behalf of any present or former employee of the
Company or any of its subsidiaries, any applicant for employment or classes
of the foregoing, alleging breach of any express or implied contract of
employment, any law governing employment or the termination thereof or
other discriminatory, wrongful or tortious conduct in connection with the
employment relationship; and (10) there is no proceeding, claim, suit,
action or governmental investigation pending or, to the knowledge of the
Company or any of its subsidiaries, threatened, in respect to which any
current or former director, officer, employee or agent of the Company or
any of its subsidiaries is or may be entitled to claim indemnification from
the Company or any of its subsidiaries (A) pursuant to their respective
charters or bylaws, (B) as provided in any indemnification agreement to
which the Company or any subsidiary of the Company is a party or (C)
pursuant to the applicable law.
(iii) WARN Matters. During the last four years, neither the Company
nor any of its subsidiaries has effectuated (1) a "plant closing" (as
defined in the Worker Adjustment Retraining Notification Act of 1988 (the
"WARN Act")) affecting any site of employment or one or more facilities or
operating units within any site of employment or facility of a the Company
or any of its subsidiaries; or (2) a "mass layoff" (as defined in the WARN
Act) affecting any site of employment or facility of the Company or any of
its subsidiaries; nor has the Company or any of its subsidiaries been
affected by any transaction or engaged in layoffs or employment
terminations sufficient in number to trigger application of any similar
state or local law. Except as and to the extent set forth on Section
3.1(t)(i) of the Company Disclosure Letter no employee of the Company or
any of its subsidiaries has suffered an "employment loss" (as defined in
the WARN Act) during the past six months.
(u) No Default. Neither the Company nor any of its subsidiaries is in
default or violation (and no event has occurred which, with notice or the lapse
of time or both, would constitute a default or violation) of any material term,
condition or provision of (i) in the case of the Company and its subsidiaries,
their respective charter and bylaws, (ii) except as disclosed in the Company
Disclosure Letter, any material note, bond, mortgage, indenture, license,
agreement or other instrument or obligation to which the Company or any of its
subsidiaries is now a party or by which the Company or any of its subsidiaries
or any of their respective properties or assets may be bound or (iii) any order,
writ, injunction, decree, statute, rule or regulation applicable to the Company
or any of its subsidiaries, except in the case of (ii) and (iii) for defaults or
violations which in the aggregate would not have a Material Adverse Effect on
the Company and its subsidiaries taken as a whole.
(v) Undisclosed Liabilities. Except as set forth in the Company SEC
Documents or Section 3.1(v) of the Company Disclosure Letter, at the date of the
most recent audited financial statements of the Company included in the Company
SEC Documents, neither the Company nor any of its subsidiaries had, and since
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such date neither the Company nor any of such subsidiaries has incurred (except
in the ordinary course of business), any liabilities or obligations of any
nature (whether accrued, absolute, contingent or otherwise), required by
generally accepted accounting principles to be set forth on a financial
statement or in the notes thereto or which, individually or in the aggregate,
could reasonably be expected to have a Material Adverse Effect on the Company
and its subsidiaries, taken as a whole.
(w) Insurance. The Company Disclosure Letter accurately lists in reasonable
detail all insurance policies maintained by the Company. The Company maintains
insurance coverage reasonably adequate for the operation of the business of the
Company and each of its subsidiaries, and the transactions contemplated hereby
will not materially adversely affect such coverage.
(x) Certain Additional Information. Section 3.1(x) of the Company
Disclosure Letter contains true, complete and correct lists of the following:
(i) each parcel of real property owned by the Company;
(ii) each parcel of real property leased, or subject to a lease
commitment, with a copy of the lease abstract maintained by the Company;
(iii) all promissory notes, installment contracts, loan agreements,
credit agreements, letters of credit, and financing and operating leases
not covered by clause (ii) above, with respect to which the Company or any
subsidiary is a debtor, obligor or lessee;
(iv) all guaranties, suretyships, financial accommodations and other
arrangements whereby the Company or any subsidiary is contingently liable,
directly or indirectly, with regard to the obligations of any other person;
(v) all persons to whom the Company or any subsidiary has given a
currently effective power of attorney;
(vi) the sales, retail gross margin percentage and lease expenses for
each store operated by the Company or any of its subsidiaries for each of
the past two complete fiscal years;
(vii) advertising expense by store for each of the past two complete
fiscal years; and
(viii) a copy of the Company's budget or plan for fiscal 1999.
(y) Credit Items. The aggregate of all credit slips, due bills, gift
certificates and other credit items of the Company and its subsidiaries
outstanding as of January 31, 1999 does not exceed $350,000.
(z) Inventory. The retail inventory of the Company and its subsidiaries is
of quality, style, condition and saleability consistent with the ordinary past
practices of the Company and is not damaged, obsolete or unsaleable such that
the Company and its subsidiaries would incur any Material Adverse Effect as a
result thereof. The inventory is fairly valued at cost in the accounting records
of the Company. Section 3.1(z) of the Company Disclosure Letter accurately sets
forth the inventory level by categories of the inventory of the Company and its
subsidiaries as of the end of each month for the past two complete fiscal years
from the Company's stock ledger. The last physical inventory taken by the
Company for purposes of financial reporting was completed on February 3, 1999.
(aa) Y2K Readiness. The statements of the Company under the heading
"Liquidity and Capital Resources" in the Company's Quarterly Report on Form 10-Q
for the period ended November 1, 1998, relating to the Company's year 2000
readiness do not contain any untrue statement of material fact or omit to state
any material fact required to be stated therein or necessary to make the
statements therein not misleading.
(bb) Opinion of Financial Advisor. The Company has received an oral opinion
from the Company Financial Advisor, to the effect that, as of the date of this
Agreement, the Exchange Ratio is fair to the holders of the Company Shares from
a financial point of view.
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(cc) Pooling Opinion. The Company's board of directors has received a
written opinion from Arthur Andersen LLP ("AA") dated March 2, 1999, relating to
the eligibility of the Company to be a party to a Merger accounted for as a
"pooling interests" (the Company Pooling Opinion").
(dd) Third Party Standstill Agreements. Neither the Company nor any of its
subsidiaries is a party to any standstill or similar agreement.
SECTION 3.2. Representations and Warranties of TMW. TMW represents and
warrants to, and agrees with, the Company as follows, subject to any exceptions
specified in the Disclosure Letter of TMW previously provided to the Company on
the date hereof (the "TMW Disclosure Letter") and except as expressly
contemplated by this Agreement:
(a) Organization; Standing and Power. TMW is a corporation duly organized,
validly existing and in good standing under the laws of the State of Texas and
has the requisite corporate power and authority to carry on its business as now
being conducted. TMW is duly qualified to do business and is in good standing in
each jurisdiction in which the nature of its business or the ownership or
leasing of its properties makes such qualification necessary, other than in such
jurisdictions where the failure to be so qualified to do business or in good
standing (individually or in the aggregate) would not have a Material Adverse
Effect on TMW and its subsidiaries, taken as a whole.
(b) Subsidiaries. Except as set forth in the exhibits to the TMW SEC
Documents (as defined in Section 3.2(e)), TMW does not own, directly or
indirectly, any capital stock or other ownership interest in any subsidiary
which would be required to be listed as a subsidiary of TMW under the rules of
the SEC with the filing by TMW of an Annual Report on Form 10-K. TMW's
subsidiaries that are corporations are corporations duly organized, validly
existing and in good standing under the laws of their respective jurisdictions
of incorporation and have the requisite corporate power and authority to carry
on their respective businesses as they are now being conducted and to own,
operate and lease the assets they now own, operate or hold under lease, except
where the failure to be so organized, existing or in good standing would not
have a Material Adverse Effect on TMW and its subsidiaries, taken as a whole.
TMW's subsidiaries are duly qualified to do business and are in good standing in
each jurisdiction in which the nature of their respective businesses or the
ownership or leasing of their respective properties makes such qualification
necessary, other than in jurisdictions where the failure to be so qualified or
in good standing would not have a Material Adverse Effect on TMW and its
subsidiaries, taken as a whole. All the outstanding shares of capital stock of
TMW's subsidiaries that are corporations and that are owned by TMW or its
subsidiaries have been duly authorized and validly issued and are fully paid and
non-assessable and were not issued in violation of any preemptive rights or
other preferential rights of subscription or purchase of any Person other than
those that have been waived or otherwise cured or satisfied. All such stock and
ownership interests are owned of record and beneficially by TMW or by a direct
or indirect wholly owned subsidiary of TMW free and clear of all Liens.
(c) Capital Structure. The authorized capital stock of TMW consists of
50,000,000 shares of TMW Common Stock and 2,000,000 shares of preferred stock,
$.01 par value ("TMW Preferred Stock"). At the date hereof, 34,894,251 shares of
TMW Common Stock (excluding 71,384 shares of TMW Common Stock held in treasury),
were issued and outstanding, and one share of TMW Preferred Stock was issued and
outstanding. In addition, at the date hereof, an aggregate of 3,552,978 shares
of TMW Common Stock were reserved for issuance pursuant to various employee and
director plans and agreements described in the TMW Disclosure Letter and
2,478,121 shares of TMW Common Stock were reserved for issuance upon the
exchange of the Exchangeable Shares of Moores Retail Group Inc., a subsidiary of
the Company. Except as set forth above, no shares of capital stock or other
equity or voting securities of TMW are reserved for issuance or outstanding. All
outstanding shares of capital stock of TMW are, and all such shares issuable
upon the exercise of stock options will be, validly issued, fully paid and
nonassessable and not subject to preemptive rights. Except as set forth in
Section 3.2(c) to the TMW Disclosure Letter, no capital stock has been issued by
TMW since October 31, 1998 to the date hereof, other than TMW Common Stock
issued pursuant to options outstanding on or prior to such date in accordance
with their terms at such date. Except as described above, as of February 28,
1999, there were no outstanding or authorized securities, options, warrants,
calls, rights, commitments, preemptive rights, agreements, arrangements or
undertakings of any kind to which TMW or
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any of its subsidiaries is a party, or by which any of them is bound, obligating
TMW or any of its subsidiaries to issue, deliver or sell, or cause to be issued,
delivered or sold, any shares of capital stock or other equity or voting
securities of, or other ownership interests in, TMW or any of its subsidiaries
or obligating TMW or any of its subsidiaries to issue, grant, extend or enter
into any such security, option, warrant, call, right, commitment, agreement,
arrangement or undertaking. The shares of TMW Common Stock to be issued pursuant
to the terms of this Agreement will, when issued, be validly issued, fully paid
and non-assessable and not subject to preemptive rights. Such shares of TMW
Common Stock will, when issued, be registered under the Securities Act and the
Exchange Act and will, when issued, be approved for trading on NASDAQ NMS.
(d) Authority; Non-contravention. TMW has the requisite corporate power and
authority to enter into this Agreement and to consummate the transactions
contemplated hereby. The execution and delivery of this Agreement by TMW and the
consummation by TMW of the transactions contemplated hereby have been duly
authorized by all necessary corporate action on the part of TMW. This Agreement
has been duly executed and delivered by TMW and constitutes a valid and binding
obligation of TMW, enforceable against TMW in accordance with its terms, except
that (i) such enforcement may be subject to bankruptcy, insolvency,
reorganization, moratorium or other similar laws or judicial decisions now or
hereafter in effect relating to creditors' rights generally, (ii) the remedy of
specific performance and injunctive relief may be subject to equitable defenses
and to the discretion of the court before which any proceeding therefor may be
brought and (iii) the enforceability of any indemnification provision contained
herein may be limited by applicable federal and state securities laws. The
execution, delivery and performance of this Agreement by TMW do not, and the
consummation of the transactions contemplated hereby and compliance with the
provisions hereof will not, conflict with, or result in any violation of, or
default (with or without notice or lapse of time, or both) under, or give rise
to a right of termination, cancellation or acceleration of or "put" right with
respect to any obligation or to loss of a material benefit under, or result in
the creation of any Lien upon any of the properties or assets of TMW or any of
its subsidiaries, under any provision of (i) the Restated Articles of
Incorporation or By-laws of TMW or any provision of any comparable
organizational documents of its subsidiaries, (ii) any loan or credit agreement,
note, bond, mortgage, indenture, lease or other agreement, instrument, permit,
concession, franchise or license applicable to TMW or any of its subsidiaries or
its respective properties or assets or (iii) subject to the governmental filings
and other matters referred to in the following sentence, any judgment, order,
decree, statute, law, ordinance, rule or regulation or arbitration award
applicable to TMW or any of its subsidiaries or their respective properties or
assets, other than, in the case of clause (ii), any such conflicts, violations,
defaults, rights or Liens that individually or in the aggregate would not have a
Material Adverse Effect on TMW and its subsidiaries, taken as a whole, and would
not materially impair the ability of TMW to perform its obligations hereunder or
prevent the consummation of any of the transactions contemplated hereby. No
consent, approval, order or authorization of, or registration, declaration or
filing with, any Governmental Entity is required by or with respect to TMW or
any of its subsidiaries in connection with the execution and delivery of this
Agreement by TMW or the consummation by TMW of the transactions contemplated
hereby, except for (i) the filing by TMW of a pre-merger notification and report
form under the HSR Act and the expiration or termination of the waiting period
thereunder, (ii) the filing with the SEC of such reports under Section 13(a) of
the Exchange Act as may be required in connection with this Agreement and the
transactions contemplated hereby, (iii) the filing and effectiveness of the
Registration Statement under the Securities Act, and (iv) the filing of the
Certificate of Merger with and approval by the Georgia Secretary of State with
respect to the Merger as provided in the GBCC and appropriate documents with the
relevant authorities of other states in which TMW is qualified to do business
and such other consents, approvals, orders, authorizations, registrations,
declarations and filings as may be required under the "takeover" or "blue sky"
laws of various states and such other consents, approvals, orders,
authorizations, registrations, declarations and filings the failure of which to
be obtained or made would not have a Material Adverse Effect on TMW and its
subsidiaries, taken as a whole.
(e) SEC Documents. TMW has filed all required reports, schedules, forms,
statements and other documents with the SEC since January 30, 1998 (such
documents, together with all exhibits and schedules thereto and documents
incorporated by reference therein, collectively referred to herein as the "TMW
SEC Documents"). As of their respective dates, the TMW SEC Documents complied in
all material respects with the requirements of the Securities Act or the
Exchange Act, as the case may be, and the rules and regulations
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of the SEC promulgated thereunder applicable to such TMW SEC Documents, and none
of the TMW SEC Documents contained any untrue statement of a material fact or
omitted to state a material fact required to be stated therein or necessary in
order to make the statements therein, in light of the circumstances under which
they were made, not misleading. The consolidated financial statements of TMW
included in the TMW SEC Documents complied in all material respects with
applicable accounting requirements and the published rules and regulations of
the SEC with respect thereto, have been prepared in accordance with generally
accepted accounting principles (except, in the case of unaudited statements, as
permitted by Form 10-Q of the SEC) applied on a consistent basis during the
periods involved (except as may be indicated in the notes thereto or, in the
case of unaudited statements, as permitted by Rule 10-01 of Regulation S-X of
the SEC) and fairly present the consolidated financial position of TMW and its
consolidated subsidiaries as of the dates thereof and the consolidated results
of their operations and cash flows for the periods then ended (subject, in the
case of unaudited statements, to normal year-end audit adjustments and other
adjustments described therein). Except as set forth in the TMW SEC Documents,
since the date of filing of such financial statements there has been no Material
Adverse Change with respect to TMW and its subsidiaries taken as a whole.
(f) Information Supplied. None of the information supplied or to be
supplied by TMW for inclusion or incorporation by reference in (i) the
Registration Statement will, at the time the Registration Statement is filed
with the SEC, and at any time it is amended or supplemented or at the time it
becomes effective under the Securities Act, contain any untrue statement of a
material fact or omit to state any material fact required to be stated therein
or necessary to make the statements therein not misleading, and (ii) the Proxy
Statement will, at the date the Proxy Statement is first mailed to the Company's
stockholders and at the time of the Company Stockholders Meeting, contain any
untrue statement of a material fact or omit to state any material fact required
to be stated therein or necessary in order to make the statements therein, in
light of the circumstances under which they are made, not misleading in all
material respects within the requirements of the Securities Act and the rules
and regulations thereunder. The preliminary consolidated statements of
operations for the year ended January 30, 1999 and the consolidated balance
sheet as of January 30, 1999 of TMW and its subsidiaries in the form attached as
Exhibit I to the TMW Disclosure Letter are true and correct in all material
respects.
(g) Absence of Certain Changes or Events. Except as disclosed in the TMW
SEC Documents or in Section 3.2(g) of the TMW Disclosure Letter, since January
30, 1998, TMW has conducted its business only in the ordinary course consistent
with past practice, and there has not been (i) any material adverse change with
respect to TMW, (ii) any declaration, setting aside or payment of any dividend
(whether in cash, stock or property) with respect to any of TMW's capital stock,
(iii) any damage, destruction or loss, whether or not covered by insurance, that
has or reasonably could be expected to have a Material Adverse Effect on TMW and
its subsidiaries, taken as a whole, or (iv) any change in accounting methods,
principles or practices by TMW materially affecting its assets, liabilities or
business, except insofar as may have been required by a change in generally
accepted accounting principles.
(h) Brokers. No broker, investment banker or other Person, is entitled to
receive from TMW or any of its subsidiaries any investment banking, broker's,
finder's or other similar fee or commission in connection with this Agreement or
the transactions contemplated by this Agreement, including any fee for any
opinion rendered by any investment banker.
(i) Litigation. Except as disclosed in the TMW SEC Documents, there is no
claim, suit, action, proceeding or investigation pending or, to TMW's knowledge,
threatened against or affecting TMW or any of its subsidiaries that either
individually or in the aggregate could reasonably be expected to have a Material
Adverse Effect on TMW and its subsidiaries, taken as a whole, or prevent, hinder
or materially delay the ability of TMW and its subsidiaries, taken as a whole,
or prevent, hinder or materially delay the ability of TMW to consummate the
transactions contemplated by this Agreement, nor is there any judgment, decree,
injunction, rule or order of any Governmental Entity or arbitrator outstanding
against TMW or any of its subsidiaries having, or which, insofar as reasonably
can be foreseen, in the future could have, any such effect.
(j) Accounting Matters. Neither TMW nor, to its knowledge, any of its
affiliates, has through the date of this Agreement taken or agreed to take any
action that (without giving effect to any action taken or agreed
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to be taken by the Company or any of its affiliates) would prevent TMW from
accounting for the business combination to be effected by the Merger as a
pooling of interests.
(k) Taxes. Each of TMW and each of its subsidiaries, and any consolidated,
combined, unitary or aggregate group for Tax purposes of which TMW or any of its
subsidiaries is or has been a member, has timely filed all Tax Returns required
to be filed by it and has timely paid or deposited (or TMW has paid or deposited
on its behalf) all Taxes which are required to be paid or deposited except where
the failure to do so would not have a Material Adverse Effect on TMW and its
subsidiaries, taken as a whole. Each of the Tax Returns filed by TMW or any of
its subsidiaries is accurate and complete in all material respects. The most
recent consolidated financial statements of TMW contained in the filed TMW SEC
Documents reflect an adequate reserve for all Taxes payable by TMW and its
subsidiaries for all taxable periods and portions thereof through the date of
such financial statements whether or not shown as being due on any Tax Returns.
No material deficiencies for any Taxes have been proposed, asserted or assessed
against TMW or any of its subsidiaries; no requests for waivers of the time to
assess any such Taxes have been granted or are pending; and there are no tax
liens upon any assets of TMW or any of its subsidiaries. The Federal income Tax
Returns of TMW and its subsidiaries consolidated in such Tax Returns have been
examined by the IRS through the year ended February 1, 1997. Except as set forth
in Section 3.2(k) of the TMW Disclosure Letter there are no current examinations
of any Tax Return of TMW or any of its subsidiaries being conducted and there
are no settlements or any prior examinations which could reasonably be expected
to adversely affect any taxable period for which the statute of limitations has
not run.
(l) Environmental Matters. Except as would not have a Material Adverse
Effect on TMW and its subsidiaries, taken as a whole, (i) the business and
operations of TMW and its subsidiaries are being conducted in compliance with
all limitations, restrictions, standards and requirements established under all
environmental laws, (ii) no facts or circumstances exist that, to TMW's
knowledge, with the passage of time, notice, cessation of operations or
otherwise will impose on TMW or any of its subsidiaries an obligation under
environmental laws to conduct any removal, remediation or similar response
action at present or in the future, (iii) there is no obligation, undertaking or
liability arising out of or relating to environmental laws that TMW or any of
its subsidiaries has agreed to, assumed or retained, by contract or otherwise,
or that has been imposed on TMW or any of its subsidiaries by any writ,
injunction, decree, order or judgment, and (iv) there are no actions, suits,
claims, investigations, inquiries or proceedings pending, or to TMW's knowledge,
threatened against TMW or any of its subsidiaries that arise out of or relate to
environmental laws.
(m) Compliance with Laws. TMW and its subsidiaries hold all required,
necessary or applicable permits, licenses, variances, exemptions, orders,
franchises and approvals of all Governmental Entities, except where the failure
to so hold in the aggregate would not have a Material Adverse Effect on TMW and
its subsidiaries, taken as a whole (the "TMW Permits"). TMW and its subsidiaries
are in compliance with the terms of the TMW Permits except where the failure to
so comply in the aggregate would not have a Material Adverse Effect on TMW and
its subsidiaries, taken a whole. Neither TMW nor any of its subsidiaries has
violated or failed to comply with, nor has it received any written notice of any
alleged violation or failure to comply with, any statute, law, ordinance,
regulation, rule, permit or order of any Governmental Entity, any arbitration
award or any judgment, decree or order of any court or other Governmental
Entity, applicable to TMW or any of its subsidiaries or their respective
businesses, assets or operations, except for violations and failures to comply
that could not, individually or in the aggregate, reasonably be expected to have
a Material Adverse Effect on TMW and its subsidiaries, taken as a whole.
(n) No Default. Neither TMW nor any of its subsidiaries is in default or
violation (and no event has occurred which, with notice or the lapse of time or
both, would constitute a default or violation) of any material term, condition
or provision of (i) in the case of TMW and its subsidiaries, their respective
charter and bylaws, (ii) except as disclosed in the TMW Disclosure Letter, any
material note, bond, mortgage, indenture, license, agreement or other instrument
or obligation to which TMW or any of its subsidiaries is now a party or by which
TMW or any of its subsidiaries or any of their respective properties or assets
may be bound or (iii) any order, writ, injunction, decree, statute, rule or
regulation applicable to TMW or any of its subsidiaries, except in the case of
(ii) and (iii) for defaults or violations which in the aggregate would not have
a Material Adverse Effect on TMW.
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(o) Undisclosed Liabilities. Except as set forth in the TMW SEC Documents,
at the date of the most recent audited financial statements of TMW included in
the TMW SEC Documents, neither TMW nor any of its subsidiaries had, and since
such date neither TMW nor any of such subsidiaries has incurred (except in the
ordinary course of business), any liabilities or obligations of any nature
(whether accrued, absolute, contingent or otherwise), required by generally
accepted accounting principles to be set forth on a financial statement or in
the notes thereto or which, individually or in the aggregate, could reasonably
be expected to have a Material Adverse Effect on TMW and its subsidiaries, taken
as a whole.
(p) Pooling Opinion. TMW's board of directors has received a written
opinion from Deloitte & Touche LLP ("D&T") dated February 10, 1999, relating to
the eligibility of TMW to be a party to a Merger accounted for as a "pooling of
interests" (the "TMW Pooling Opinion"). To the knowledge of TMW, it is eligible
to be a party to a merger accounted for as a "pooling of interests".
(q) Board Recommendation. The Board of Directors of TMW, at a meeting duly
called and held, has by vote of those directors present, without a negative
vote, determined that this Agreement and the transactions contemplated hereby,
including the Merger and the transactions contemplated thereby, are fair to and
in the best interests of the stockholders of TMW.
(r) Y2K Readiness. The statements of TMW under the heading "Year 2000" in
TMW's Quarterly Report on Form 10-Q for the period ended October 31, 1998,
relating to the Company's year 2000 readiness do not contain any untrue
statement of material fact or omit to state any material fact required to be
stated therein or necessary to make the statements therein not misleading.
(s) 1999 Financial Forecast. TMW has made available to the Company for
review a true, complete and correct copy of TMW's current 1999 financial
forecast.
ARTICLE IV
COVENANTS RELATING TO CONDUCT OF BUSINESS
SECTION 4.1. Conduct of Business of the Company.
(a) Ordinary Course. During the period from the date of this Agreement to
the Effective Time of the Merger (except as otherwise specifically contemplated
by the terms of this Agreement), the Company shall and shall cause its
subsidiaries to carry on their respective businesses in the usual, regular and
ordinary course in substantially the same manner as heretofore conducted and, to
the extent consistent therewith, use all commercially reasonable efforts to
preserve intact their current business organizations, keep available the
services of their current officers and employees and preserve their
relationships with customers, suppliers, licensors, licensees, distributors and
others having business dealings with them, in each case consistent with past
practice in the ordinary course of business. Without limiting the generality of
the foregoing, and except as otherwise expressly contemplated by this Agreement,
the Company shall not, and shall not permit any of its subsidiaries of which it
owns directly or indirectly more than 50% of the voting or equity interests in
to:
(i) (A) declare, set aside or pay any dividends on, or make any other
distributions in respect of, any of its capital stock, other than dividends
and distributions by any direct or indirect wholly owned subsidiary of the
Company to the Company or a wholly owned subsidiary of the Company and
immaterial dividends, distributions and other similar transactions
involving the existing subsidiaries, (B) split, combine or reclassify any
of its capital stock or issue or authorize the issuance of any other
securities in respect of, in lieu of or in substitution for shares of its
capital stock or (C) purchase, redeem or otherwise acquire any shares of
capital stock of the Company or any other securities thereof or any rights,
warrants or options to acquire any such shares or other securities;
(ii) issue, deliver, sell, pledge or otherwise encumber any shares of
its capital stock, any other voting securities or any securities
convertible into, or any rights, warrants or options to acquire, any such
shares, voting securities or convertible securities (other than, in the
case of the Company, the issuance of shares of Company Common Stock upon
the exercise of stock options and similar rights outstanding on the date of
this Agreement in accordance with their current terms);
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(iii) amend the Company's Articles of Incorporation or By-laws;
(iv) acquire or agree to acquire any business, corporation,
partnership, association, joint venture, limited liability company or other
entity or division thereof;
(v) incur any obligation for borrowed money or purchase money
indebtedness, whether or not evidenced by a note, bond, debenture or
similar instrument, except for such borrowings under the Company existing
revolving credit facilities or letters of credit that would not result in
the total outstanding indebtedness of the Company and its subsidiaries on a
consolidated basis being in excess of $8,000,000 at any one time;
(vi) sell, lease, mortgage, pledge or grant a Lien on or otherwise
encumber or dispose of any of its properties or assets, except (A) sales of
inventory in the ordinary course of business consistent with past practice,
(B) immaterial liens not relating to the borrowing of money or the
incurrence of any monetary obligation and (C) other immaterial transactions
not in excess of $500,000 in the aggregate;
(vii) make any material election relating to Taxes or settle or
compromise any material Tax liability;
(viii) adopt a plan of complete or partial liquidation of the Company
or any of its significant subsidiaries or resolutions providing for or
authorizing such a liquidation or a dissolution, merger, consolidation,
restructuring, recapitalization or reorganization;
(ix) change any material accounting principle used by it, except as
required by regulations promulgated by the SEC; or
(x) conduct any unusual liquidation of inventory or going out of
business sale or any discount or other sale other than in the ordinary
course of business consistent with past practices, including with respect
to time of year, pricing, location and goods sold;
(xi) fail to advise TMW in writing of any contract, commitment or
series of related contracts or commitments, for the purchase of inventory
in excess of $250,000, and all such contracts and commitments less than or
equal to $250,000, to the extent they aggregate more than $2,000,000,
except for any contract or commitment disclosed in Section 4.1(a) of the
Company Disclosure Letter;
(xii) fail to maintain insurance upon all its properties and with
respect to the conduct of its business of such kinds and in such amounts as
is current in effect;
(xiii) fail to provide to TMW copies of all financial statements and
reports provided to any creditor of the Company or any of its subsidiary at
the same time they are providing to such creditor; and
(xiv) authorize any of, or commit or agree to take any of, the
foregoing actions.
(b) Changes in Employment Arrangements. Neither the Company nor any of its
subsidiaries shall (except as may be required in order to give effect to the
requirements of Section 2.3) adopt or amend (except as may be required by law)
any bonus, profit sharing, compensation, stock option, pension, retirement,
deferred compensation, employment or other employee benefit plan, agreement,
trust, fund or other arrangement (including any Company Benefit Plan) for the
benefit or welfare of any employee, director or former director or employee,
increase the compensation or fringe benefits of any officer of the Company or
any of its subsidiaries, or, except as provided in an existing Company Benefit
Plan or in the ordinary course of business consistent with past practice,
increase the compensation or fringe benefits of any employee or former employee
or pay any benefit not required by any existing plan, arrangement or agreement.
(c) Severance Arrangements. Neither the Company nor any of its subsidiaries
shall grant any new or modified severance or termination arrangement or increase
or accelerate any benefits payable under its severance or termination pay
policies in effect on the date hereof.
(d) Other Actions. The Company shall not, and shall not permit any of its
subsidiaries to, take any action that would, or that could reasonably be
expected to, result in any of the representations and warranties of the Company
set forth in this Agreement becoming untrue.
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SECTION 4.2. Conduct of Business of TMW.
(a) Ordinary Course. During the period from the date of this Agreement to
the Effective Time of the Merger (except as otherwise specifically contemplated
by the terms of this Agreement), TMW shall and shall cause each of its
significant subsidiaries to carry on their respective businesses in the usual,
regular and ordinary course in substantially the same manner as heretofore
conducted and, to the extent consistent therewith, use all reasonable efforts to
preserve intact their current business organizations, keep available the
services of their current officers and employees and preserve their
relationships with customers, suppliers, licensors, licensees, distributors and
others having business dealings with them, in each case consistent with past
practice, to the end that their goodwill and ongoing businesses shall be
unimpaired to the fullest extent possible at the Effective Time of the Merger.
Without limiting the generality of the foregoing, and except as otherwise
expressly contemplated by this Agreement, TMW shall not, and shall not permit
any of its subsidiaries to:
(i) (A) declare, set aside or pay any dividends on, or make any other
distributions in respect of, any of its capital stock, other than dividends
and distributions by any direct or indirect subsidiary of TMW to TMW or a
subsidiary of TMW and immaterial dividends, distributions and other similar
transactions involving existing subsidiaries, (B) split, combine or
reclassify any of its capital stock or issue or authorize the issuance of
any other securities in respect of, in lieu of or in substitution for
shares of its capital stock or (C) purchase, redeem or otherwise acquire
any shares of capital stock of TMW or any of its subsidiaries or any other
securities thereof or any rights, warrants or options to acquire any such
shares or other securities other than in connection with exercise of
outstanding stock options and satisfaction of withholding obligations under
outstanding stock options, purchase of shares of TMW Common Stock to fund
current requirements under employee benefit plans and except in connection
with the Exchangeable Shares of Moores Retail Group, Inc. ("MRG") and the
Subscription Agreement between MRG and Golden Moores Finance Company;
(ii) issue, deliver, sell, pledge or otherwise encumber any shares of
its capital stock, any other voting securities or any securities
convertible into, or any rights, warrants or options to acquire, any such
shares, voting securities or convertible securities other than, in the case
of TMW, (A) the issuance of TMW Common Stock upon the exercise of stock
options outstanding on the date of this Agreement in accordance with their
current terms, (B) the issuance of a number of shares of TMW Common Stock,
not to exceed 10% of the number of shares of TMW Common Stock currently
outstanding, in connection with the acquisition of assets or equity
securities of other entities or businesses, (C) pursuant to the existing
bank credit agreements of TMW and its subsidiaries, or (D) in connection
with the Exchangeable Shares of MRG or the Subscription Agreement;
(iii) amend TMW's Restated Articles of Incorporation;
(iv) acquire or agree to acquire any business, corporation,
partnership, association, joint venture, limited liability company or other
entity or division thereof involving the payment of consideration, in
aggregate for all such acquisitions, in excess of $100 million without the
written consent of the Company, which consent shall not be unreasonably
withheld;
(v) adopt a plan of complete or partial liquidation of TMW or
resolutions providing for or authorizing such a liquidation or a
dissolution, merger, consolidation, restructuring, recapitalization or
reorganization;
(vi) change any material accounting principle used by it, except as
required by regulations promulgated by the SEC; or
(vii) authorize any of, or commit or agree to take any of, the
foregoing actions.
(b) Other Actions. TMW shall not, and shall not permit any of its
subsidiaries to, take any action that would, or that could reasonably be
expected to, result in any of the representations and warranties of TMW set
forth in this Agreement becoming untrue.
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ARTICLE V
ADDITIONAL AGREEMENTS
SECTION 5.1. Stockholder Approval; Preparation of Proxy Statement;
Preparation of Registration Statement.
(a) Each of the Company and TMW shall, as soon as practicable following the
execution and delivery of this Agreement on dates to be agreed upon between TMW
and the Company, which dates shall be set taking into account the status of
pending regulatory matters pertaining to the transactions contemplated hereby,
duly call, give notice of, convene and hold the Company Stockholders Meeting for
the purpose of approving the Merger, this Agreement and the transactions
contemplated hereby. Subject to the provisions of Section 8.2(b), including,
without limitation, the Board of Directors' fiduciary obligations, the Company
will, through its Board of Directors, recommend to its stockholders the approval
and adoption of the Merger. The Company and TMW shall coordinate and cooperate
with respect to the timing of the Company Stockholders Meeting and shall
endeavor to hold such meeting as soon as reasonably practical after the date
hereof.
(b) Promptly following the date of this Agreement, the Company and TMW
shall prepare and file with the SEC the Proxy Statement, and TMW shall prepare
and file with the SEC a registration statement on Form S-4 (the "Registration
Statement"), in which the Proxy Statement will be included as a prospectus. Each
of the Company and TMW shall use its reasonable efforts as promptly as
practicable, subject to the setting of the date for the Company Stockholders
Meeting as provided in Section 5.1(a), to have the Registration Statement
declared effective under the Securities Act as promptly as practicable after
such filing. Each of the Company and TMW will use its reasonable efforts to
cause the Proxy Statement to be mailed to the Company's stockholders as promptly
as practicable after the Registration Statement is declared effective under the
Securities Act. TMW shall also take such reasonable actions (other than
qualifying to do business in any jurisdiction in which it is not now so
qualified) as may be required to be taken under any applicable state securities
laws in connection with the issuance of TMW Common Stock in the Merger, and the
Company shall furnish all information concerning the Company and the holders of
the Company Shares and rights to acquire Company Shares pursuant to the Company
Stock Plans as may be reasonably requested in connection with any such action.
The Company and TMW will notify each other promptly of the receipt of any
written or oral comments from the SEC or its staff and of any request by the SEC
or its staff for amendments or supplements to the Proxy Statement or for
additional information and will supply each other with copies of all
correspondence between the Company or TMW, respectively, or any of its
representatives, on the one hand, and the SEC or its staff, on the other hand,
with respect to the Proxy Statement or the Merger. TMW will use its best efforts
to cause the TMW Common Stock to be issued in the Merger to be approved for
trading on NASDAQ NMS.
(c) The Company will cause its transfer agent to make stock transfer
records relating to the Company available to the extent reasonably necessary to
effectuate the intent of this Agreement.
SECTION 5.2. Letter of the Company's Accountants. The Company shall use
its best efforts to cause to be delivered to TMW a letter of Arthur Andersen
LLP, the Company's independent public accountants, substantially in the form of
Exhibit C, dated a date within two business days before the date on which the
Registration Statement shall become effective and addressed to TMW and customary
in scope and substance for letters delivered by independent public accountants
in connection with registration statements similar to the Registration
Statement.
SECTION 5.3. Letter of TMW's Accountants. TMW shall use its best efforts
to cause to be delivered to the Company a letter of Deloitte & Touche LLP, TMW's
independent public accountants, substantially in the form of Exhibit D and dated
a date within two business days before the date on which the Registration
Statement shall become effective and addressed to the Company and customary in
scope and substance for letters delivered by independent public accountants in
connection with registration statements similar to the Registration Statement.
SECTION 5.4. Access to Information. Upon reasonable notice, the Company
and TMW shall each (and shall cause each of their respective subsidiaries to)
afford to the officers, employees, accountants, counsel and other
representatives of the other, reasonable access during normal business hours
during the period from the
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date hereof to the Effective Time of the Merger, to all of its properties,
books, contracts, commitments and records, and during such period, each of the
Company and TMW shall (and shall cause each of their respective subsidiaries to)
furnish promptly to the other (i) a copy of each report, schedule, registration
statement and other document filed or received by it during such period pursuant
to the requirements of the Exchange Act or the Securities Act (including all
comment letters from the staff of the SEC) and (ii) all other information
concerning its business, properties and personnel as such other party may
reasonably request; provided, however, that notwithstanding the foregoing
provisions of this Section 5.4 or any other provision of this Agreement, neither
the Company nor TMW shall be required to provide to the other party any
information that is subject to a confidentiality agreement and that relates
primarily to a party other than the Company, TMW or any subsidiary or former
subsidiary of the Company or TMW. Each of the Company and TMW agrees that it
will not, and it will cause its respective representatives not to, use any
information obtained pursuant to this Section 5.4 for any purpose unrelated to
the consummation of the transactions contemplated by this Agreement. The
Confidentiality Agreement dated February 18, 1999 (the "Confidentiality
Agreement"), by and between the Company and TMW, shall apply with respect to
information furnished by the Company, TMW and their respective subsidiaries and
representatives thereunder or hereunder and any other activities contemplated
thereby. The parties agree that this Agreement and the transactions contemplated
hereby shall not constitute a violation of the Confidentiality Agreement and
that the provisions hereof shall supersede all provisions of the Confidentiality
Agreement in the event of a conflict.
SECTION 5.5. Reasonable Efforts; Notification.
(a) Upon the terms and subject to the conditions set forth in this
Agreement, except to the extent otherwise required by United States regulatory
considerations and otherwise provided in this Section 5.5, each of the parties
agrees to use commercially reasonable efforts to take, or cause to be taken, all
actions, and to do, or cause to be done, and to assist and cooperate with the
other parties in doing, all things necessary, proper or advisable to consummate
and make effective, in the most expeditious manner practicable, the Merger, and
the other transactions contemplated by this Agreement, including (i) the
obtaining of all necessary actions or nonactions, waivers, consents and
approvals from Governmental Entities and the making of all necessary
registrations and filings (including filings with Governmental Entities, if any)
and the taking of all reasonable steps as may be necessary to obtain an approval
or waiver from, or to avoid an action or proceeding by, any Governmental Entity,
(ii) the obtaining of all necessary consents, approvals or waivers from third
parties, (iii) the defending of any lawsuits or other legal proceedings, whether
judicial or administrative, challenging this Agreement or the consummation of
the transactions contemplated hereby, including seeking to have any stay or
temporary restraining order entered by any court or other Governmental Entity
vacated or reversed and (iv) the execution and delivery of any additional
instruments (including any required supplemental indentures) necessary to
consummate the transactions contemplated by this Agreement. Notwithstanding the
foregoing, neither party shall be required to agree to any consent, approval or
waiver that would require such party to take an action that would impair the
value that such party reasonably attributes to the Merger and the transactions
contemplated thereby. In connection with and without limiting the foregoing,
each of the Company and TMW and its respective Board of Directors shall (i) take
all action reasonably necessary to ensure that no state takeover statute or
similar statute or regulation is or becomes applicable to the Merger and (ii) if
any state takeover statute or similar statute or regulation becomes applicable
to the Merger, take all action reasonably necessary to ensure that the Merger
may be consummated as promptly as practicable on the terms contemplated by this
Agreement and otherwise to minimize the effect of such statute or regulation on
the Merger.
(b) The Company shall give prompt notice to TMW, and TMW shall give prompt
notice to the Company, of (i) any representation or warranty made by it
contained in this Agreement becoming untrue or inaccurate in any material
respect or (ii) the failure by it to comply with or satisfy in any material
respect any covenant, condition or agreement to be complied with or satisfied by
it under this Agreement; provided, however, that no such notification shall
affect the representations or warranties or covenants or agreements of the
parties or the conditions to the obligations of the parties hereunder.
(c) (i) Each of the parties hereto shall file a premerger notification and
report form under the HSR Act with respect to the Merger as promptly as
reasonably possible following execution and delivery of this
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Agreement. Each of the parties agrees to use reasonable efforts to promptly
respond to any request for additional information pursuant to Section
(e)(1) of the HSR Act.
(ii) Except as otherwise required by United States regulatory
considerations, the Company will furnish to TMW copies of all
correspondence, filings or communications (or memoranda setting forth the
substance thereof (collectively, "Company HSR Documents")) between the
Company, or any of its respective representatives, on the one hand, and any
Governmental Entity, or members of the staff of such agency or authority,
on the other hand, with respect to this Agreement or the Merger; provided,
however, that (x) with respect to documents and other materials filed by or
on behalf of the Company with the Antitrust Division of the Department of
Justice, the Federal Trade Commission, or any state attorneys general that
are available for review by TMW, copies will not be required to be provided
to TMW and (y) with respect to any Company HSR Documents (1) that contain
any information which, in the reasonable judgment of Hunton & Williams,
should not be furnished to TMW because of antitrust considerations or (2)
relating to a request for additional information pursuant to Section (e)(1)
of the HSR Act, the obligation of the Company to furnish any such Company
HSR Documents to TMW shall be satisfied by the delivery of such Company HSR
Documents on a confidential basis to Fulbright & Jaworski L.L.P. pursuant
to a confidentiality agreement in form and substance reasonably
satisfactory to TMW. Except as otherwise required by United States
regulatory considerations, TMW will furnish to the Company copies of all
correspondence, filings or communications (or memoranda setting forth the
substance thereof (collectively, "TMW HSR Documents")) between TMW or any
of its representatives, on the one hand, and any Governmental Entity, or
member of the staff of such agency or authority, on the other hand, with
respect to this Agreement or the Merger; provided, however, that (x) with
respect to documents and other materials filed by or on behalf of TMW with
the Antitrust Division of the Department of Justice, the Federal Trade
Commission, or any state attorneys general that are available for review by
the Company, copies will not be required to be provided to the Company, and
(y) with respect to any TMW HSR Documents (1) that contain information
which, in the reasonable judgment of Fulbright & Jaworski L.L.P., should
not be furnished to the Company because of antitrust considerations or (2)
relating to a request for additional information pursuant to Section (e)(1)
of the HSR Act, the obligation of TMW to furnish any such TMW HSR Documents
to the Company shall be satisfied by the delivery of such TMW HSR Documents
on a confidential basis to Hunton & Williams pursuant to a confidentiality
agreement in form and substance reasonably satisfactory to the Company.
(iii) Nothing contained in this Agreement shall be construed so as to
require TMW or the Company, or any of their respective subsidiaries or
affiliates, to sell, license, dispose of, or hold separate, or to operate
in any specified manner, any material assets or businesses of TMW, the
Company or the Surviving Corporation (or to require TMW, the Company or any
of their respective subsidiaries or affiliates to agree to any of the
foregoing). The obligations of each party under Section 5.5(a) to use
reasonable efforts with respect to antitrust matters shall be limited to
compliance with the reporting provisions of the HSR Act and with its
obligations under this Section 5.5(c).
SECTION 5.6. Indemnification.
(a) TMW agrees that all rights to indemnification and exculpation for acts
or omissions occurring prior to the Effective Time of the Merger now existing in
favor of the current or former directors or officers of the Company and its
subsidiaries (the "Indemnified Parties") as provided in their respective
certificates of incorporation or by-laws and indemnity agreements shall survive
the Merger, and the Surviving Corporation shall continue such indemnification
rights in full force and effect in accordance with their terms and be
financially responsible therefor.
(b) If the Surviving Corporation or any of its successors or assigns (i)
consolidates with or merges into any other Person and shall not be the
continuing or surviving corporation or entity of such consolidation or merger or
(ii) transfers all or substantially all of its properties and assets to any
Person, then and in each such case, proper provisions shall be made so that the
successors and assigns of the Surviving Corporation, which shall be financially
responsible Persons or entities, assume the obligations set forth in this
Section 5.6.
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(c) For six years after the Effective Time, the Surviving Corporation shall
maintain in effect the Company's current director and officer liability
insurance covering acts or omissions occurring prior to the Effective Time with
respect to those Persons who are currently covered by the Company's director and
officer liability insurance policy on terms with respect to such coverage and
amount no less favorable than those of such policy in effect on the date hereof;
provided, that the Surviving Corporation may substitute therefor policies of the
Surviving Corporation or its subsidiaries containing terms with respect to
coverage and amount no less favorable to such directors and officers.
(d) All rights and obligations under this Section 5.6 shall be in addition
to any rights that an Indemnified Party may have under the Amended and Restated
Articles of Incorporation or Amended and Restated Bylaws of the Company as in
effect on the date hereof, or pursuant to any other agreement, arrangement or
document in effect prior to the date hereof. The provisions of this Section 5.6
are intended to be for the benefit of, and shall be enforceable by, the parties
hereto and each Indemnified Party, his heirs and his representatives. This
Section 5.6 shall be binding upon all successors and assigns of the Company, TMW
and the Surviving Corporation.
SECTION 5.7. Fees and Expenses. Except as provided in Article VIII, all
fees and expenses incurred in connection with the Merger, this Agreement and the
transactions contemplated hereby shall be paid by the party incurring such fees
or expenses, whether or not the Merger is consummated; provided, that TMW and
the Company shall each be responsible for 50% of the registration fees and
printing costs incurred by the parties pursuant to Section 5.1. The Company has
delivered to TMW an estimate of the fees and expenses to be incurred by the
Company in connection with this Agreement and the transactions contemplated
hereby.
SECTION 5.8. Public Announcements. TMW and the Company will consult with
each other before issuing any press release or otherwise making any public
statements with respect to the transactions contemplated by this Agreement and
shall not issue any such press release or make any such public statement prior
to such consultation, except that each party may respond to questions from
stockholders and may respond to inquiries from financial analysts and media
representatives in a manner consistent with its past practice and each party may
make such disclosure as may be required by applicable law or by obligations
pursuant to any listing agreement with any national securities exchange without
prior consultation to the extent such consultation is not reasonably
practicable. The parties agree that the initial press release or releases to be
issued in connection with the execution of this Agreement shall be mutually
agreed upon prior to the issuance thereof.
SECTION 5.9. Accounting Matters. Each of the Company and TMW shall not
take or agree to take, and each shall use its best efforts to cause their
respective affiliates not to take or agree to take, any action that would
prevent TMW from accounting for the business combination to be effected by the
Merger as a pooling of interests.
SECTION 5.10. Purchases of Common Stock of the Other Party. During the
period from the date hereof through the Effective Time of the Merger, neither
TMW nor any of its subsidiaries or other affiliates will purchase any shares of
Company Common Stock, and neither the Company nor any of its subsidiaries or
other affiliates will purchase any shares of TMW Common Stock.
SECTION 5.11. Agreement to Defend. In the event any claim, action, suit,
investigation or other proceeding by any governmental body or other person or
other legal or administrative proceeding is commenced that questions the
validity or legality of the transactions contemplated hereby or seeks damages in
connection therewith, the parties hereto agree to cooperate and use their
reasonable efforts to defend against and respond thereto.
SECTION 5.12. Accounting Matters. During the period from the date of this
Agreement through the Effective Time, unless the parties shall otherwise agree
in writing, neither TMW nor the Company or any of their respective subsidiaries
shall take or fail to take any reasonable action which action or failure to act
would knowingly jeopardize the treatment of the Company's combination with
Combination Company as a pooling of interests for accounting purposes and each
of the Company will take all reasonable steps to permit the Merger to be treated
as a pooling of interest for accounting purposes.
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SECTION 5.13. Other Actions. Except as contemplated by this Agreement,
neither TMW nor the Company shall, and shall not permit any of its subsidiaries
to, take or agree or commit to take any action that is reasonably likely to
result in any of its respective representations or warranties hereunder being
untrue in any material respect or in any of the conditions to the Merger set
forth in Article VI not being satisfied.
SECTION 5.14. TMW Board of Directors. Upon the Effectiveness of the
Merger, the Board of Directors of TMW shall increase the number of its directors
by one and shall elect Stephen Greenspan as a director to serve until the next
annual meeting of the shareholders of TMW. The Board of Directors shall also
include Stephen Greenspan in its nominees for election at the 1999 Annual
Meeting of Shareholders of TMW.
ARTICLE VI
CONDITIONS PRECEDENT
SECTION 6.1. Conditions to Each Party's Obligation to Effect the
Merger. The respective obligation of each party to effect the Merger is subject
to the satisfaction or waiver on or prior to the Closing Date of the following
conditions:
(a) Stockholder Approval. The Company Stockholder Approval shall have been
obtained.
(b) NASDAQ. The shares of TMW Common Stock issuable to the Company's
stockholders pursuant to the Merger shall have been approved for trading on the
NASDAQ NMS, subject to official notice of issuance.
(c) HSR Act; Other Approvals. The waiting period (and any extension
thereof) applicable to the Merger under the HSR Act shall have been terminated
or shall have expired and all filings required to be made prior to the Effective
Time with, and all consents, approvals, permits and authorizations required to
be obtained prior to the Effective Time from, any governmental entity in
connection with the execution and delivery of this Agreement and the
consummation of the transactions contemplated hereby shall have been made or
obtained (as the case may be), except where the failure to obtain such consents,
approvals, permits and authorizations could not reasonably be expected to have a
Material Adverse Effect on TMW (assuming the Merger has taken place) or to
materially adversely affect the consummation of the Merger.
(d) No Injunctions or Restraints. No temporary restraining order,
preliminary or permanent injunction or other order issued by any court of
competent jurisdiction or other legal restraint or prohibition preventing the
consummation of the Merger shall be in effect; provided, however, that the
parties hereto shall, subject to Section 5.5, use reasonable efforts to have any
such injunction, order, restraint or prohibition vacated.
(e) Registration Statement Effectiveness. The Registration Statement shall
have become effective under the Securities Act, and all post-effective
amendments filed shall have been declared effective or shall have been
withdrawn; and no stop order suspending the effectiveness thereof shall have
been issued and no proceedings for that purpose shall have been initiated or, to
the knowledge of the parties, threatened by the SEC.
(f) Blue Sky Filings. There shall have been obtained any and all material
permits, approvals and consents of securities or "blue sky" authorities of any
jurisdiction that are necessary so that the consummation of the Merger and the
transactions contemplated thereby will be in compliance with applicable laws,
the failure to comply with which would have a Material Adverse Effect on TMW and
its subsidiaries, taken as a whole.
SECTION 6.2. Conditions of TMW. The obligation of TMW to consummate the
Merger is further subject to the satisfaction or waiver on or prior to the
Closing Date of the following conditions:
(a) Compliance. The agreements and covenants of the Company to be complied
with or performed on or before the Closing Date pursuant to the terms hereof
shall have been duly complied with or performed in all material respects and TMW
shall have received a certificate dated the Closing Date and executed on behalf
of the Company by the chief executive officer and the chief financial officer of
the Company to such effect.
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(b) Certifications and Opinion. The Company shall have furnished TMW with:
(i) a certified copy of a resolution or resolutions duly adopted by
the Board of Directors of the Company approving this Agreement and
consummation of the Merger and the transactions contemplated hereby and
directing the submission of the Merger to a vote of the stockholders of the
Company;
(ii) a certified copy of a resolution or resolutions duly adopted by
the holders of a majority of the outstanding Company Shares approving the
Merger and the transactions contemplated hereby;
(iii) an opinion, dated the Closing Date, in customary form and
substance and limitations, of Hunton & Williams, counsel for the Company,
dated the Closing Date to the effect that:
(A) The Company is a corporation duly incorporated, validly
existing and in good standing under the laws of the State of Georgia and
has corporate power to own its properties and assets and to carry on its
business as presently conducted and as described in the Registration
Statement;
(B) The Company has the requisite corporate power to effect the
Merger as contemplated by this Agreement; the execution and delivery of
this Agreement did not, and the consummation of the Merger will not,
violate any provision of the Company's Amended and Restated Articles of
Incorporation or Amended and Restated Bylaws; and upon the filing by the
Surviving Corporation of the Certificate of Merger, the Merger shall
become effective;
(C) Each of the Company's subsidiaries is a corporation duly
incorporated, validly existing and in good standing under the laws of
its jurisdiction of incorporation, and has corporate power to own its
properties and assets and to carry on its business as presently
conducted; and
(D) The Board of Directors of the Company has taken all action
required by its Amended and Restated Articles of Incorporation or its
Amended and Restated Bylaws to approve the Merger and to authorize the
execution and delivery of this Agreement and the transactions
contemplated hereby; the Board of Directors and the stockholders of the
Company have taken all action required by the Company's Amended and
Restated Articles of Incorporation and Amended and Restated Bylaws to
authorize the Merger in accordance with the terms of this Agreement; and
this Agreement is a valid and binding agreement of the Company
enforceable in accordance with its terms, except as such enforceability
may be limited by bankruptcy, insolvency, reorganization, moratorium or
other similar laws or judicial decisions now or hereafter in effect
relating to creditor's rights generally or governing the availability of
equitable relief.
(c) Representations and Warranties True. The representations and warranties
of the Company contained in this Agreement (other than any representations and
warranties made as of a specific date) shall be true in all material respects
(except to the extent the representation or warranty is already qualified by
materiality, in which case it shall be true in all respects) on and as of the
Closing Date with the same effect as though such representations and warranties
had been made on and as of such date, except as contemplated or permitted by
this Agreement, and TMW shall have received a certificate to that effect dated
the Closing Date and executed on behalf of the Company by the chief executive
officer and the chief financial officer of the Company.
(d) Company Affiliate Letters. Within five business days of the signing of
this Agreement, TMW shall have received from the Company a list of such Persons,
if any, that TMW, after discussions with counsel for the Company, believes may
be "affiliates" of the Company, within the meaning of Rule 145 of the SEC
pursuant to the Securities Act ("Affiliates"). At or prior to the time of filing
of the Registration Statement, the Company shall deliver or cause to be
delivered to TMW an undertaking by each Affiliate in form satisfactory to TMW
that (i) such Affiliate has no current plan or intention to sell, exchange or
otherwise dispose of any Company Shares or options to acquire Company Shares
owned by such Affiliate or the shares of TMW Common Stock to be received by such
Affiliate pursuant to the Merger, (ii) no disposition will be made by such
Affiliate of any Company Shares or any options to acquire Company Shares owned
by the Affiliate or any shares of TMW Common Stock received or to be received
pursuant to the Merger nor will the Affiliate exercise any option to acquire
Company Shares or TMW Common Stock substituted therefor from
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any other Affiliate until such time as final results of operations of the
Surviving Corporation covering at least 30 days of combined operations of TMW
and the Company have been published and (iii) no shares of TMW Common Stock
received or to be received by such Affiliate pursuant to the Merger will be sold
or disposed of except pursuant to an effective registration statement under the
Securities Act or in accordance with the provisions of paragraph (d) of Rule 145
under the Securities Act or another exemption from registration under the
Securities Act.
(e) Tax Opinion. TMW shall have received an opinion of Fulbright & Jaworski
L.L.P., in form and substance reasonably satisfactory to TMW, to the effect that
for Federal income tax purposes and conditioned upon certain representations of
the Company and TMW as to certain customary facts and circumstances regarding
the Merger: (i) the Merger will qualify as a "reorganization" within the meaning
of Section 368(a) of the Code, (ii) each of the Company and TMW are parties to
the reorganization within the meaning of Section 368(b) of the Code and (iii) no
gain or loss will be recognized by the Company or TMW as a result of the Merger.
(f) Pooling Accounting. TMW shall not have been advised by D&T or AA that
the Merger may not be accounted for as a pooling of interest and the SEC shall
not have advised or otherwise indicated to TMW that TMW may not account for the
transaction as a pooling of interest, and TMW shall have received an opinion
from D&T updating the TMW Pooling Opinion as of the Closing Date to the effect
that the transactions contemplated hereby are poolable and an opinion of AA
updating the Company Pooling Letter as of the Closing Date to the effect that
the Company is eligible to be a party to a merger accounted for as a "pooling of
interests".
(g) Consents, etc. TMW shall have received evidence, in form and substance
reasonably satisfactory to it, that such licenses, permits, consents, approvals,
authorizations, qualifications and orders of governmental authorities and other
third parties as are reasonably necessary in connection with the transactions
contemplated hereby have been obtained, except such licenses, permits, consents,
approvals, authorizations, qualifications and orders which are not, individually
or in the aggregate, material to the Surviving Corporation and its subsidiaries,
taken as a whole, or the failure of which to have received would not (as
compared to the situation in which such license, permit, consent, approval,
authorization, qualification or order had been obtained) have a Material Adverse
Effect on the Surviving Corporation and its subsidiaries, taken as a whole,
after giving effect to the Merger.
(h) No Litigation. There shall not be pending or threatened by any
Governmental Entity any suit, action or proceeding (or by any other Person any
pending suit, action or proceeding which has a reasonable likelihood of
success), (i) challenging or seeking to restrain or prohibit the consummation of
the Merger or any of the other transactions contemplated by this Agreement or
seeking to obtain from TMW or any of its subsidiaries any damages that are
material in relation to TMW and its subsidiaries taken as a whole, (ii) seeking
to prohibit or limit the ownership or operation by the Surviving Corporation or
any of its subsidiaries of any material portion of the business or assets of the
Company, TMW or any of their respective subsidiaries, to dispose of or hold
separate any material portion of the business or assets of the Company, TMW or
any of their respective subsidiaries, as a result of the Merger or any of the
other transactions contemplated by this Agreement or (iii) seeking to prohibit
the Surviving Corporation or any of its subsidiaries from effectively
controlling in any material respect the business or operations of TMW, the
Company or their respective subsidiaries.
(i) Fairness Opinion. The Company Financial Advisor will not have revoked
or modified in a materially adverse manner its opinion referred to in Section
3.1(bb).
(j) Employment Contracts; Covenants not to Compete. The existing employment
contract with Stephen Greenspan shall have been amended in the form of Exhibit E
attached hereto.
(k) Bank Accounts. TMW shall have received a true, complete and correct
list of all bank accounts and safety deposit arrangements of the Company or any
subsidiary.
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(l) Resignations. TMW shall have received written resignations from all
officers and directors of the Company and its subsidiaries resigning as of the
Effective Time from all positions with the Company and its subsidiaries.
(m) Termination Agreement. John Dancu shall have entered into a Termination
Agreement in the form attached as Exhibit F.
SECTION 6.3. Conditions of the Company. The obligation of the Company to
consummate the Merger is further subject to the satisfaction or waiver on or
prior to the Closing Date of the following conditions:
(a) Compliance. The agreements and covenants of TMW to be complied with or
performed on or before the Closing Date pursuant to the terms hereof shall have
been duly complied with or performed in all material respects and the Company
shall have received a certificate dated the Closing Date on behalf of TMW by the
chief executive officer and the chief financial officer of TMW to such effect.
(b) Certifications and Opinion. TMW shall have furnished the Company with:
(i) a certified copy of a resolution or resolutions duly adopted by
the Board of Directors or a duly authorized committee thereof of TMW
approving this Agreement and consummation of the Merger and the
transactions contemplated hereby, including the issuance, listing and
delivery of the shares of TMW Common Stock pursuant hereto;
(ii) [Intentionally Omitted];
(iii) a favorable opinion, dated the Closing Date, in customary form
and substance, of Fulbright & Jaworski L.L.P., counsel for TMW to the
effect that:
(A) TMW is a corporation duly incorporated, validly existing and in
good standing under the laws of the State of Texas and has corporate
power to own its properties and assets and to carry on its business as
presently conducted and as described in the Registration Statement; TMW
has the requisite corporate power to effect the Merger as contemplated
by this Agreement; the execution and delivery of this Agreement did not,
and the consummation of the Merger will not, violate any provision of
TMW's Restated Articles of Incorporation or By-Laws; and upon the filing
by the Surviving Corporation of the Certificate of Merger, the Merger
shall become effective;
(B) The Board of Directors of TMW has taken all action required
under the TBCA, its Restated Articles of Incorporation or its By-Laws to
authorize the execution and delivery of this Agreement and the
transactions contemplated hereby; the Board of Directors and the
stockholders of TMW have taken all action required by the TBCA and TMW's
Restated Articles of Incorporation and By-Laws to authorize the Merger
in accordance with the terms of this Agreement; and this Agreement is a
valid and binding agreement of TMW enforceable in accordance with its
terms, except as such enforceability may be limited by bankruptcy,
insolvency, reorganization, moratorium or other similar laws or judicial
decisions now or hereafter in effect relating to creditor's rights
generally or governing the availability of equitable relief; and
(C) Each of TMW's subsidiaries is a corporation duly incorporated,
validly existing and in good standing under the laws of its jurisdiction
of incorporation, and has corporate power to own its properties and
assets and to carry on its business as presently conducted; and
(D) The shares of TMW Common Stock to be issued pursuant to the
Merger have been duly authorized and, when issued and delivered as
contemplated hereby, will have been legally and validly issued and will
be fully paid and non-assessable and no stockholder of TMW will have any
preemptive right of subscription or purchase in respect thereof under
Delaware law or TMW's Articles of Incorporation or By-laws and such
shares of TMW Common Stock have been registered under the Securities Act
of 1933.
(c) Representations and Warranties True. The representations and warranties
of TMW contained in this Agreement (other than any representations and
warranties made as of a specific date) shall be true in all
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material respects (except to the extent the representation or warranty is
already qualified by materiality, in which case it shall be true in all
respects) on and as of the Closing Date with the same effect as though such
representations and warranties had been made on and as of such date, except as
contemplated or permitted by this Agreement, and the Company shall have received
a certificate to that effect dated the Closing Date and executed on behalf of
TMW by the chief executive officer and the chief financial officer of TMW.
(d) Tax Opinion. The Company shall have received an opinion of Hunton &
Williams, in form and substance satisfactory to the Company, to the effect that
for Federal income tax purposes and conditioned upon certain representations of
the Company and TMW as to certain customary facts and circumstances regarding
the Merger: (i) the Merger will qualify as a "reorganization" within the meaning
of Section 368(a) of the Code; (ii) each of the Company and TMW are parties to
the reorganization within the meaning of Section 368(b) of the Code; and (iii)
no gain or loss will be recognized by the stockholders of the Company upon the
receipt by them of shares of TMW Common Stock in exchange for their Company
Shares pursuant to the Merger.
(e) Consents, etc. The Company shall have received evidence, in form and
substance reasonably satisfactory to it, that such licenses, permits, consents,
approvals, authorizations, qualifications and orders of governmental authorities
and other third parties as are necessary in connection with the transactions
contemplated hereby have been obtained, except such licenses, permits, consents,
approvals, authorizations, qualifications and orders which are not, individually
or in the aggregate, material to the Surviving Corporation and its subsidiaries,
taken as a whole, or the failure of which to have received would not (as
compared to the situation in which such license, permit, consent, approval,
authorization, qualification or order had been obtained) have a Material Adverse
Effect on the Surviving Corporation, after giving effect to the Merger.
(f) No Litigation. There shall not be pending or threatened by any
Governmental Entity any suit, action or proceeding (i) challenging or seeking to
restrain or prohibit the consummation of the Merger or any of the other
transactions contemplated by this Agreement or seeking to obtain from the
Company, the Surviving Corporation or any of their respective subsidiaries any
damages that are material in relation to the Company and its subsidiaries taken
as a whole, (ii) seeking to prohibit or limit the ownership or operation by the
Surviving Corporation or any of its subsidiaries of any material portion of the
business or assets of the Company, TMW or any of their respective subsidiaries,
to dispose of or hold separate any material portion of the business or assets of
the Company, TMW or any of their respective subsidiaries, as a result of the
Merger or any of the other transactions contemplated by this Agreement or (iii)
seeking to prohibit the Surviving Corporation or any of its subsidiaries from
effectively controlling in any material respect the business or operations of
the Company or its subsidiaries.
(g) Fairness Opinion. The Company Financial Advisor shall not have revoked,
modified or changed its opinion referred to in Section 3.1(bb) in any manner
adverse to the holders of the Company Shares.
(h) TMW Affiliate Letters. At or prior to the time of filing of the
Registration Statement, TMW shall deliver or cause to be delivered to TMW and
the Company an undertaking by each Affiliate in form satisfactory to TMW that no
disposition will be made by such Affiliate of any shares of TMW Common Stock
owned by the Affiliate until such time as final results of operations of the
Surviving Corporation covering at least 30 days of combined operations of TMW
and the Company have been published.
(i) Employment Contracts. TMW shall cause the Company to honor the
employment contracts identified on Section 6.3(i) of the Company Disclosure
Letter.
(j) Termination Agreement. TMW shall have entered into a Termination
Agreement in the form attached as Exhibit F.
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ARTICLE VII
TERMINATION, AMENDMENT AND WAIVER
SECTION 7.1. Termination. This Agreement may be terminated and the Merger
abandoned at any time prior to the Effective Time of the Merger, whether before
or after approval of matters presented in connection with the Merger by the
stockholders of the Company;
(a) by mutual written consent of TMW, Combination Company and the Company;
(b) by either TMW or the Company:
(i) if the stockholders of the Company fail to give any required
approval of the Merger and the transactions contemplated hereby upon a vote
at a duly held meeting of stockholders of the Company or at any adjournment
thereof;
(ii) if any court of competent jurisdiction or any governmental,
administrative or regulatory authority, agency or body shall have issued an
order, decree or ruling or taken any other action permanently enjoining,
restraining or otherwise prohibiting the Merger; or
(iii) if the Merger shall not have been consummated on or before
August 31, 1999, unless the failure to consummate the Merger is the result
of a material breach of this Agreement by the party seeking to terminate
this Agreement.
(c) by TMW or the Company to the extent permitted under Section 8.2 or 8.3;
(d) by TMW, if the Company breaches in any material respects any of its
representations or warranties herein or fails to perform in any material respect
any of its covenants, agreements or obligations under this Agreement, which
breach has not been cured within 30 days following receipt by the Company of
notice of breach or by the date specified in Section 7.1(b)(iii);
(e) by the Company, if TMW breaches in any material respects any of its
representations or warranties herein or fails to perform in any material respect
any of its covenants, agreements or obligations under this Agreement, which
breach has not been cured within 30 days following receipt by TMW of notice of
breach or by the date specified in Section 7.1(b)(iii); and
(f) by the Company, if the average of the closing prices of the TMW Common
Stock determined pursuant to Section 2.1(b) is less than $20.00; provided, that
the Company immediately pay to TMW $750,000.
SECTION 7.2. Effect of Termination. In the event of termination of this
Agreement by either the Company or TMW as provided in Section 7.1, this
Agreement shall forthwith become void and have no effect, without any current or
future liability or obligation on the part of TMW or the Company, other than (i)
the confidentiality provisions of Section 5.4 and the provisions of Sections
5.8, 8.2, 8.3 and Article IX and (ii) such termination shall not relieve any
party hereto for any intentional breach prior to such termination by a party
hereto of any of its representations or warranties or any of its covenants or
agreements set forth in this Agreement.
SECTION 7.3. Amendment. This Agreement may be amended by the parties at
any time before or after any required approval of matters presented in
connection with the Merger by the stockholders of the Company; provided,
however, that after any such approval, there shall be made no amendment that by
law requires further approval by such stockholders without the further approval
of such stockholders. This Agreement may not be amended except by an instrument
in writing signed on behalf of each of the parties hereto.
SECTION 7.4. Extension; Waiver. At any time prior to the Effective Time of
the Merger, the parties may, to the extent legally allowed, (a) extend the time
for the performance of any of the obligations or the other acts of the other
parties, (b) waive any inaccuracies in the representations and warranties
contained herein or in any document delivered pursuant hereto or (c) subject to
the proviso of Section 7.3, waive compliance with any of the agreements or
conditions contained herein. Any agreement on the part of a party
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to any such extension or waiver shall be valid only if set forth in an
instrument in writing signed on behalf of such party. The failure of any party
to this Agreement to assert any of its rights under this Agreement or otherwise
shall not constitute a waiver of such rights.
SECTION 7.5. Procedure for Termination, Amendment, Extension or Waiver. A
termination of this Agreement pursuant to Section 7.1, an amendment of this
Agreement pursuant to Section 7.3 or an extension or waiver pursuant to Section
7.4 shall, in order to be effective, require in the case of TMW or the Company,
action by its respective Board of Directors or the duly authorized designee of
such Board of Directors.
ARTICLE VIII
SPECIAL PROVISIONS AS TO CERTAIN MATTERS
SECTION 8.1. Takeover Defenses. The Company shall take such action with
respect to any anti-takeover provisions in its Articles of Incorporation or
Bylaws, or afforded it by statute, including Section 14-2-1103 of the GBCC, to
the extent necessary to consummate the Merger on the terms set forth in the
Agreement.
SECTION 8.2. No Solicitation.
(a) The Company shall not, nor shall it permit any of its subsidiaries to,
nor shall it authorize or permit any officer, director or employee of or any
investment banker, attorney or other advisor, agent or representative of the
Company or any of its subsidiaries to, directly or indirectly, (i) solicit,
initiate or encourage the submission of any takeover proposal, (ii) enter into
any agreement (other than confidentiality and standstill agreements in
accordance with the immediately following proviso) with respect to any takeover
proposal, or (iii) participate in any discussions or negotiations regarding, or
furnish to any Person any information with respect to, or take any other action
to facilitate any inquiries or the making of any proposal that constitutes, or
may reasonably be expected to lead to, any takeover proposal; provided, however,
in the case of this clause (iii), that prior to the vote of stockholders of the
Company for approval of the Merger (and not thereafter if the Merger is approved
thereby) to the extent required by the fiduciary obligations of the Board of
Directors of the Company, determined in good faith by the Board of Directors
based on the advice of outside counsel, the Company may, in response to an
unsolicited request therefor, furnish information to any Person or "group"
(within the meaning of Section 13(d)(3) of the Exchange Act) pursuant to a
confidentiality agreement on substantially the same terms as the Confidentiality
Agreement, including the standstill provisions thereof, and enter into
discussions or negotiations with regard to such other transaction. Without
limiting the foregoing, it is understood that any violation of the restrictions
set forth in the preceding sentence by any officer, director or employee of the
Company or any of its subsidiaries or any investment banker, attorney or other
advisor, agent or representative of the Company, whether or not such Person is
purporting to act on behalf of the Company or otherwise, shall be deemed to be a
material breach of this Agreement by the Company. For purposes of this
Agreement, "takeover proposal" means (i) any proposal or offer, other than a
proposal or offer by TMW or any of its affiliates, for a merger, share exchange
or other business combination involving the Company (excluding an acquisition by
the Company otherwise permitted to be made by the Company under this Agreement
and which does not involve a direct merger with or into the Company), (ii) any
proposal or offer, other than a proposal or offer by TMW or any of its
affiliates, to acquire from the Company or any of its affiliates in any manner,
directly or indirectly, a greater than 10% voting or equity interest in the
Company or the acquisition of a material amount of the assets of the Company and
its subsidiaries, taken as a whole, including an investment in or acquisition of
securities of a subsidiary of the Company, to the extent so material, or (iii)
any proposal or offer, other than a proposal or offer by TMW or any of its
affiliates, to acquire from the stockholders of the Company by tender offer,
exchange offer or otherwise more than 10% of the Company Shares then
outstanding.
(b) Neither the Board of Directors of the Company nor any committee thereof
shall, except in connection with the termination of this Agreement pursuant to
Section 7.1(a), (b)(ii), (b)(iii) or (e), (i) withdraw or modify, or propose to
withdraw or modify, in a manner adverse to TMW the approval or recommendation by
the Board of Directors of the Company or any such committee of this Agreement or
the
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Merger or take any action having such effect or (ii) approve or recommend, or
propose to approve or recommend, any takeover proposal. Notwithstanding the
foregoing, in the event the Board of Directors of the Company receives a
takeover proposal that, in the exercise of its fiduciary obligations (as
determined in good faith by the Board of Directors based on the advice of
outside counsel), it determines to be a superior proposal, the Board of
Directors may withdraw or modify its approval or recommendation of this
Agreement or the Merger and may (subject to the following sentence) terminate
this Agreement, in each case at any time after midnight on the fifth business
day following TMW's receipt of written notice (a "Notice of Superior Proposal")
advising TMW that the Board of Directors has received a takeover proposal which
it has determined to be a superior proposal, specifying the material terms and
conditions of such superior proposal (including the proposed financing for such
proposal and a copy of any documents conveying such proposal) and identifying
the Person making such superior proposal. The Company may terminate this
Agreement pursuant to the preceding sentence only if the stockholders of the
Company shall not yet have voted upon the Merger and the Company shall have paid
to TMW the Company Termination Fee (as defined below). Any of the foregoing to
the contrary notwithstanding, the Company may engage in discussions with any
Person or group that has made an unsolicited takeover proposal for the limited
purpose of determining whether such proposal (as opposed to any further
negotiated proposal) is a superior proposal. Nothing contained herein shall
prohibit the Company from taking and disclosing to its stockholders a position
contemplated by Rule 14e-2(a) following TMW's receipt of a Notice of Superior
Proposal.
(c) In the event that the Board of Directors of the Company or any
committee thereof shall (i) withdraw or modify in a manner adverse to TMW the
approval or recommendation by the Board of Directors of the Company or any such
committee of this Agreement or the Merger or take any action having such effect
or (ii) approve or recommend, or propose to approve or recommend, any Superior
Proposal, TMW may terminate this Agreement subject to Section 7.2 hereof.
(d) For purposes of this Agreement, a "superior proposal" means any bona
fide takeover proposal to acquire, directly or indirectly, all of the Company
Shares then outstanding or all of the assets of the Company and its
subsidiaries, and otherwise on terms which the Board of Directors of the Company
determines in its good faith reasonable judgment (based on the written advice of
a financial advisor of nationally recognized reputation, a copy of which shall
be provided to TMW) to be more favorable to the Company's stockholders than the
Merger.
(e) In addition to the obligations of the Company set forth in paragraph
(b), the Company shall promptly advise TMW orally and in writing of any takeover
proposal or any inquiry with respect to or which could lead to any takeover
proposal, the material terms and conditions of such inquiry or takeover proposal
(including the financing for such proposal and a copy of such documents
conveying such proposal), and the identity of the Person making any such
takeover proposal or inquiry. The Company will keep TMW fully informed of the
status and details of any such takeover proposal or inquiry.
SECTION 8.3. Fee and Expense Reimbursements.
(a) The Company agrees to pay TMW a fee in immediately available funds of
$3,000,000 (the "Company Termination Fee") promptly upon the termination of the
Agreement in the event this Agreement is terminated by the Company pursuant to
Section 8.2(b) or by TMW pursuant to Section 8.2(c).
(b) In the event this Agreement is terminated as a result of a material
breach by the Company or pursuant to Section 7.1(b)(i), the Company also agrees
to pay to TMW the Company Termination Fee if (i) after the date hereof and
before the termination of this Agreement, a takeover proposal shall have been
made and publicly announced by any Person or group of Persons (an "Acquiring
Person"), (ii) the stockholders of the Company shall not have approved the
Merger and (iii) after the date hereof and at or prior to 12 months after the
date of termination of this Agreement, the Company shall have effected an
Alternative Transaction (as defined below) with such Acquiring Person or an
affiliate thereof. An Alternative Transaction shall mean (i) a merger, share
exchange or other business combination or other transaction in which more than
10% of the voting securities of the Company or a material amount of the assets
of the Company and its subsidiaries, taken as a whole, is acquired, including an
investment in or acquisition of securities of a subsidiary of the Company to the
extent so material, or (ii) any acquisition from the stockholders of the
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Company by tender offer, exchange offer or otherwise of more than 10% of the
outstanding Company Shares. The Company Termination Fee payable under this
Section 8.3(b) shall be payable as a condition to the consummation of the
Alternative Transaction.
ARTICLE IX
GENERAL PROVISIONS
SECTION 9.1. Nonsurvival of Representations and Warranties. None of the
representations, warranties, covenants or agreements in this Agreement or in any
instrument delivered by the Company or TMW pursuant to this Agreement shall
survive the Effective Time of the Merger, except any covenant or agreement of
the parties which by its terms contemplates performance after the Effective Time
of the Merger.
SECTION 9.2. Notices. All notices and other communications hereunder shall
be in writing and shall be deemed given if delivered personally or by facsimile
or sent by overnight courier to the parties at the following addresses (or at
such other address for a party as shall be specified by like notice):
(a) if to TMW, to
The Men's Wearhouse, Inc.
40650 Encyclopedia Circle
Fremont, California 94538
Attention: David Edwab
Facsimile: (510) 657-0872
The Men's Wearhouse, Inc.
5803 Glenmont
Houston, Texas 77081
Attention: Gary Ckodre
Facsimile: (713) 664-7140
with a copy to:
Fulbright & Jaworski L.L.P.
1301 McKinney, Suite 5100
Houston, Texas 77010-3095
Attention: Michael W. Conlon
Facsimile: (713) 651-5246
(b) if to the Company, to
K&G Men's Center, Inc.
1225 Chattahoochee Avenue, N.W.
Atlanta, Georgia 30318
Attention: John C. Dancu
Telephone: (404) 351-7987
Facsimile: (404) 351-8038
with a copy to:
Hunton & Williams
NationsBank Plaza, Suite 4100
600 Peachtree Street, N.E.
Atlanta, Georgia 30308-2216
Attention: David Carter
Telephone: (404) 888-4246
Facsimile: (404) 888-4190
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SECTION 9.3. Definitions. For purposes of this Agreement:
(a) an "affiliate" of any Person means another Person that directly or
indirectly, through one or more intermediaries, controls, is controlled by, or
is under common control with, such first Person;
(b) "knowledge" means, with respect to any matter stated herein to be "to
the Company's knowledge," or similar language, the actual knowledge of the
Chairman of the Board, the Chief Executive Officer, President, Senior Vice
President -- Merchandising, Chief Financial Officer and Chief Accounting Officer
of the Company, and with respect to any matter stated herein to be "to TMW's
knowledge," or similar language, the actual knowledge of the Chairman of the
Board, the Chief Executive Officer, President, Chief Merchandising Officer,
Chief Financial Officer and Chief Accounting Officer of TMW.
(c) "Material Adverse Effect" or "material adverse change" means any change
or effect applicable to the business, properties, assets, condition (financial
or otherwise) or results of operations which could reasonably be expected to
result in a loss, damage, liabilities, cost or other expenses aggregating on a
cumulative basis $3,500,000 or more, in the case of the Company and its
subsidiaries taken as a whole or $20,000,000 or more in the case of TMW and its
subsidiaries taken as a whole, or could reasonably be expected to result in a
reduction of annual cash flow or annual net income for each of the next two
fiscal years of $750,000 and $450,000, respectively, in the case of the Company
and its subsidiaries and $5,000,000 and $3,000,000 or more in the case of TMW
and its subsidiaries; provided, however, a Material Adverse Effect or material
adverse change with respect to the Company or TMW shall not include (i) changes
in national economic conditions or industry conditions generally, (ii) changes,
or possible changes, in Federal, state or local statutes and regulations
applicable to the Company and TMW, as the case may be, or (iii) the matters
referred to in Section 9.3(c) of the TMW Disclosure Letter.
(d) "Person" means an individual, corporation, partnership, joint venture,
limited liability company, association, trust, unincorporated organization or
other entity; and
(e) a "subsidiary" of a Person means any corporation, partnership or other
legal entity of which securities or other ownership interests having ordinary
voting power to elect a majority of the board of directors or other Persons
performing similar functions are directly or indirectly owned by such first
mentioned Person.
SECTION 9.4. Interpretation. When a reference is made in this Agreement to
a Section, Exhibit or Schedule, such reference shall be to a Section of, or an
Exhibit or Schedule to, this Agreement unless otherwise indicated. The table of
contents and headings contained in this Agreement are for reference purposes
only and shall not affect in any way the meaning or interpretation of this
Agreement. Whenever the word "include", "includes" or "including" are used in
this Agreement, they shall be deemed to be followed by the words "without
limitation".
SECTION 9.5. Counterparts. This Agreement may be executed in one or more
counterparts, all of which shall be considered one and the same agreement and
shall become effective when one or more counterparts have been signed by each of
the parties and delivered to the other parties.
SECTION 9.6. Entire Agreement; No Third-Party Beneficiaries. This
Agreement (including the documents and instruments referred to herein) and the
Confidentiality Agreement (a) constitute the entire agreement and supersede all
prior agreements and understandings, both written and oral, among the parties
with respect to the subject matter hereof and (b) except for the provisions of
Sections 1.5, 5.6 and 5.7, are not intended to confer upon any Person other than
the parties any rights or remedies hereunder.
SECTION 9.7. Governing Law. This Agreement shall be governed by, and
construed in accordance with, the laws of the State of Texas, regardless of the
laws that might otherwise govern under applicable principles of conflicts of
laws thereof.
SECTION 9.8. Assignment. Neither this Agreement nor any of the rights,
interests or obligations hereunder shall be assigned by any of the parties
without the prior written consent of the other parties. This
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Agreement will be binding upon, inure to the benefit of, and be enforceable by,
the parties and their respective successors and assigns.
SECTION 9.9. Enforcement of the Agreement. The parties agree that
irreparable damage would occur in the event that any of the provisions of this
Agreement were not performed in accordance with their specific terms or were
otherwise breached. It is accordingly agreed that the parties shall be entitled
to an injunction or injunctions to prevent breaches of this Agreement and to
enforce specifically the terms and provisions hereof in any court of the United
States located in the State of Texas or in any other Texas state court, this
being in addition to any other remedy to which they are entitled at law or in
equity.
SECTION 9.10. Severability. In the event any one or more of the provisions
contained in this Agreement should be held invalid, illegal or unenforceable in
any respect, the validity, legality and enforceability of the remaining
provisions contained herein shall not in any way be affected or impaired
thereby. The parties shall endeavor in good faith negotiations to replace the
invalid, illegal or unenforceable provisions with valid provisions, the economic
effect of which comes as close as possible to that of the invalid, illegal or
unenforceable provisions.
SECTION 9.11 Arbitration.
(a) Subject to the limitations set forth herein with respect to the
parties' rights to make claims hereunder, including, but not limited to, the
limitations set forth in Sections 7.2 and 9.1, any dispute, controversy, or
claim arising out of or relating to this Agreement, or the breach, termination
or invalidity hereof, including claims for tortious interference or other
tortious or statutory claims arising before, during or after termination,
providing only that such claim touches upon matters covered by this contract,
shall be finally settled by arbitration. The parties expressly agree that
nothing in this Agreement shall prevent the parties from applying to a court
that would otherwise have jurisdiction over the parties for provisional or
interim measures, including injunctive relief. After the arbitration panel is
empaneled, it shall have sole jurisdiction to hear such applications, except
that the parties agree that any measures ordered by arbitrators may be
immediately and specifically enforced by a court otherwise having jurisdiction
over the parties. The parties agree that judgment on the arbitration award may
be entered by any court having jurisdiction thereof.
(b) The parties agree that the federal courts located in Dallas, Texas
shall have exclusive jurisdiction over an action brought to enforce the rights
and obligations created in or arising from this agreement to arbitrate, and each
of the parties hereto irrevocably submits to the jurisdiction of said courts.
Notwithstanding the above, application may be made by a party to any court of
competent jurisdiction wherever situated for enforcement of any judgment and the
entry of whatever orders are necessary for such enforcement. Process in any
action arising out of or related to this Agreement may be served on any party to
the Agreement anywhere in the world by delivery in person against receipt or by
registered or certified mail, return receipt requested.
(c) The arbitration shall be conducted before a tribunal composed of three
arbitrators. If the panel is selected prior to Closing, the Company and TMW
shall each select an arbitrator. If the arbitration panel is selected after
Closing, TMW, on the one hand, and all parties adverse to TMW with respect to
the matter to be arbitrated, collectively, on the other, shall each select an
arbitrator. In either case, the two arbitrators so selected shall select a third
arbitrator within 10 days of selection of the two arbitrators. If the two
arbitrators are unable to agree on a third arbitrator, either party may petition
the Chief Judge of the United States District Court of the Northern District of
Texas, Dallas Division to appoint the third arbitrator. In addition, if any one
of the parties fails to appoint the arbitrator which it is responsible for
appointing within 10 days of the request of the other party, then such other
party may petition the Chief Judge of the United States District Court of the
Northern District of Texas, Dallas Division to appoint the first party's
arbitrator. Prior to his or her formal appointment, each arbitrator shall
disclose to the parties and to the other members of the tribunal, any financial,
fiduciary, kinship or other relationship between that arbitrator and any party
or its counsel, or between that arbitrator and any individual or entity with
financial, fiduciary, kinship or other relationship with any party. Any award or
portion thereof, whether preliminary or final, shall be in a written opinion
containing findings of fact and conclusions of law signed by each arbitrator.
The arbitrator dissenting from an award or portion thereof shall issue a dissent
from the award or portion thereof in writing, stating the reasons for his
dissent. The arbitrators shall hear and determine any preliminary issue of law
asserted by a party to be
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dispositive of any claim, in whole or in part, in the manner of a court hearing
a motion to dismiss for failure to state a claim or for summary judgment,
pursuant to such terms and procedures as the arbitrators deem appropriate.
(d) It is the intent of the parties that, barring extraordinary
circumstances, any arbitration hearing shall be concluded within two months of
the date the third arbitrator is appointed. Unless the parties otherwise agree,
once commenced, hearings shall be held five days a week, with each hearing day
to begin at 9:00 a.m. and to conclude at 5:00 p.m. The parties may upon
agreement extend these time limits, or the chairman of the panel may extend them
if he determines that the interests of justice otherwise requires. The
arbitrators shall use their best efforts to issue the final award or awards
within a period of 30 days after closure of the proceedings. Failure to do so
shall not be a basis for challenging the award. The parties and arbitrators
shall treat all aspects of the arbitration proceedings, including without
limitation, discovery, testimony, and other evidence, briefs and the award as
strictly confidential. The place of arbitration shall be Dallas, Texas unless
otherwise agreed by the parties.
(e) The parties agree that discovery shall be limited and shall be handled
expeditiously. Discovery procedures available in litigation before the courts
shall not apply in an arbitration conducted pursuant to this Agreement. However,
each party shall produce relevant and non-privileged documents or copies thereof
requested by the other parties within the time limits set and to the extent
required by order to the arbitrators. All disputes regarding discovery shall be
promptly resolved by the arbitrators. No witness or party may be required to
waive any privilege recognized at law. The parties hereby waive any claim to
damages in the nature of punitive, exemplary, or statutory damages in excess of
compensatory damages, or any form of damages in excess of compensatory damages,
and the arbitration tribunal is specially divested of any power to award any
damages in the nature of punitive, exemplary, or statutory damages in excess of
compensatory damages, or any form of damages in excess of compensatory damages.
The party prevailing on substantially all of its claims shall be entitled to
recover its costs, including attorneys' fees, for the arbitration proceedings,
as well as for any ancillary proceeding, including a proceeding to compel
arbitration, to request interim measures, or to confirm or set aside an award.
Notwithstanding anything to the contrary contained in this Agreement, the
partied hereby waive any claim to damages in the nature of consequential
damages.
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IN WITNESS WHEREOF, TMW and the Company have caused this Agreement to be
signed by their respective officers thereunto duly authorized, all as of the
date first written above.
THE MEN'S WEARHOUSE, INC.
By: /s/ DAVID H. EDWAB
----------------------------------
Name: David H. Edwab
Title: President
TMW COMBINATION COMPANY
By: /s/ DAVID H. EDWAB
----------------------------------
Name: David H. Edwab
Title: President
K&G MEN'S CENTER, INC.
By: /s/ STEPHEN H. GREENSPAN
----------------------------------
Name: Stephen H. Greenspan
Title: Chairman of the Board,
President and
Chief Executive Officer
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ANNEX B
NATIONSBANC MONTGOMERY SECURITIES LLC
April 26, 1999
Board of Directors
K&G Men's Center, Inc.
1225 Chattahoochee Avenue, N.W.
Atlanta, Georgia 30318
Gentlemen and Ladies:
We understand that K&G Men's Center, Inc., a Georgia corporation (the
"Company"), TMW Combination Company, a Georgia corporation ("Sub") and The Men's
Wearhouse, Inc., a Texas corporation ("Buyer"), have entered into an Agreement
and Plan of Merger dated March 3, 1999 (the "Merger Agreement"), pursuant to
which Sub will be merged with and into the Company (the "Merger"), and the
Company will become a wholly-owned subsidiary of Buyer. Pursuant to the Merger
Agreement, each outstanding share of the common stock, $0.01 par value per
share, of the Company ("Company Common Stock") will be converted into and
exchangeable for that number of shares of common stock, $0.01 par value per
share, of Buyer ("Buyer Common Stock") determined pursuant to the Merger
Agreement (from the average of the daily closing prices for the shares of Buyer
Common Stock for the fifteen consecutive trading days on which shares of Buyer
Common Stock are actually traded on the Nasdaq National Market ending on the
closing of trading on the third trading day immediately preceding the date of
consummation of the Merger (the "Base Period Trading Price")) as follows: (i) if
the Base Period Trading Price is equal to or greater than $32.50, the number of
shares of Buyer Common Stock to be received in the Merger for each share of
Company Common Stock shall equal 0.40, (ii) if the Base Period Trading Price is
less than or equal to $27.50, the number of shares of Buyer Common Stock to be
received in the Merger for each share of Company Common Stock shall equal 0.43,
and (iii) if the Base Period Common stock is between $27.50 and $32.50, the
number of shares of Buyer Common Stock to be received in the Merger for each
share of Company Common Stock shall be between 0.43 and 0.40, determined pro
rata as set forth in the Merger Agreement. The terms and conditions of the
Merger are set forth in more detail in the Merger Agreement.
We previously delivered to you an opinion dated March 3, 1999 (the "Prior
Letter") which stated, subject to the limitations and conditions contained
therein, our opinion as investment bankers that the Consideration to be received
by the shareholders of the Company pursuant to the Merger is fair to such
shareholders from a financial point of view, as of the date of the Merger
Agreement. You have asked us to reconfirm our opinion expressed in the Prior
Letter, and further asked for our opinion as investment bankers as to whether
the Consideration to be received by the shareholders of the Company pursuant to
the Merger is fair to such shareholders from a financial point of view, as of
the date hereof. As you are aware, we were engaged solely for the purpose of
examining the fairness of the Merger from a financial point of view, as set
forth above. We were not engaged as the Company's financial advisor for the
Merger, and we were not requested to (nor did we) solicit or assist the Company
in soliciting indications of interest from third parties for the Company or any
part of it. Additionally, we were not retained to consider (nor did we advise
the Company with respect to) alternatives to the Merger or the Company's
underlying decision to proceed with or effect the Merger.
In connection with our opinion, we have, among other things: (i) reviewed
certain publicly available financial and other data with respect to the Company
and Buyer, including the consolidated financial statements of the Company and
Buyer for recent years, consolidated financial statements of the Company for
interim periods to January 31, 1999 and consolidated financial statements of
Buyer for interim periods to January 30, 1999, and certain other relevant
financial and operating data relating to the Company and Buyer made available to
us from published sources and from the internal records of the Company and
Buyer, (ii) reviewed the financial terms and conditions of the Merger Agreement,
(iii) reviewed certain publicly available information concerning the trading of,
and the trading market for, Company Common Stock and
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Buyer Common Stock, (iv) compared the Company and Buyer from a financial point
of view with certain other companies in the apparel industry which we deemed to
be relevant, (v) considered the financial terms, to the extent publicly
available, of selected recent business combinations involving companies in the
retail industry which we deemed to be comparable, in whole or in part, to the
Merger, (vi) reviewed and discussed with representatives of the management of
the Company and Buyer certain information of a business and financial nature
regarding the Company and Buyer furnished to us by them, including financial
forecasts and related assumptions of the Company and Buyer, (vii) made inquiries
regarding and discussed the Merger, the Merger Agreement and other matters
related thereto with the Company's counsel and (viii) performed such other
analyses and examinations as we have deemed appropriate.
In connection with our review, we have not assumed any obligation
independently to verify the foregoing information and have relied on its being
accurate and complete in all material respects. With respect to the financial
forecasts for the Company and Buyer provided to us by their respective
managements, upon their advice and with your consent we have assumed for
purposes of our opinion that the forecasts have been reasonably prepared on
bases reflecting the best currently available estimates and judgments of their
respective managements as to the future financial performance of the Company and
Buyer and that they provide a reasonable basis upon which we can form our
opinion. We have also assumed that there have been no material changes in the
Company's or Buyer's assets, financial condition, results of operations,
business or prospects since the respective dates of their last financial
statements made available to us. We have relied on advice of the counsel and the
independent accountants to the Company as to all legal, tax and financial
reporting matters with respect to the Company, Buyer, the Merger and the Merger
Agreement. You have informed us, and we have assumed without verification and
with your consent, that the Merger will be treated as a pooling of interests
under Accounting Principles Board Opinion No. 16 and that the Merger will be
treated as a tax-free reorganization within the meaning of Section 368(a) of the
Internal Revenue Code. We have assumed that the Merger will be consummated in a
manner that complies in all respects with the applicable provisions of the
Securities Act of 1933, as amended (the "Securities Act"), the Securities
Exchange Act of 1934, as amended, and all other applicable federal and state
statutes, rules and regulations. In addition, we have not assumed responsibility
for making an independent evaluation, appraisal or physical inspection of any of
the assets or liabilities (contingent or otherwise) of the Company or Buyer, nor
have we been furnished with any such appraisals. Finally, our opinion is based
on economic, monetary and market and other conditions as in effect on, and the
information made available to us as of, the date hereof. Accordingly, although
subsequent developments may affect this opinion, we have not assumed any
obligations to update, revise or reaffirm this opinion.
We have further assumed with your consent that the Merger will be
consummated in accordance with the terms described in the Merger Agreement,
without any further amendments thereto, and without waiver by the Company of any
of the conditions to its obligations thereunder.
Based upon the foregoing and in reliance thereon, it is our opinion as
investment bankers that the Consideration to be received by the shareholders of
the Company pursuant to the Merger was fair to such shareholders from a
financial point of view, as of the date of the Merger Agreement, and is fair to
such shareholders from a financial point of view, as of the date hereof.
We are not expressing (and cannot express) an opinion regarding the price
at which shares of Buyer Common Stock may trade at any future time. The
Consideration to be received by the shareholders of the Company pursuant to the
Merger Agreement is based upon an exchange ratio which becomes fixed if the Base
Period Trading Price (when determined three days prior to the consummation of
the Merger) has risen above $32.50 or has fallen below $27.50, and which varies
on a pro rata basis if the Base Period Trading Price falls between these
amounts. Accordingly, the market value of the Consideration received by
shareholders of the Company could vary significantly from what such shareholders
would receive if the Merger were completed today.
In the ordinary course of our business, we trade the equity securities of
the Company for our own account and for the accounts of customers and,
accordingly, may at any time hold a long or short position in such securities.
We have also acted as an underwriter in connection with offers of securities of
the Company.
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Additionally, our affiliate is currently a lender to Buyer, and we may
participate directly or indirectly in arranging, underwriting or providing debt
or equity financing to Buyer in connection with the Merger or in connection with
subsequent financing (or refinancing) transactions involving Buyer.
This opinion is directed solely to the Board of Directors of the Company in
connection with its consideration of the Merger, and is not a recommendation to
any shareholder as to how shareholders should vote with respect to the Merger.
Shareholders of the Company are neither addressees nor intended beneficiaries of
our opinion or our underlying financial analysis (which was prepared solely for
the members of the Board of Directors of the Company for their personal use as
directors in connection with their review and evaluation of the Merger), and no
shareholder of the Company may rely or allege any reliance on our opinion or
analysis in connection with such shareholder's consideration of the merits of
the Merger or otherwise. Furthermore, this opinion addresses only the fairness
from a financial point of view of the Consideration to the shareholders of the
Company, as of the date hereof, and does not address any other aspect of the
Merger including, without limitation, the relative merits of the Merger, any
alternatives to the Merger or the Company's underlying decision to proceed with
or effect the Merger. This opinion may not be used or referred to by the
Company, or quoted or disclosed to any person in any manner, without our prior
written consent, which consent is hereby given to the inclusion of this opinion
in its entirety in any proxy statement or prospectus filed by the Company with
the Securities and Exchange Commission in connection with the Merger that
requires a description of the factors considered by the Board of the Directors
of the Company in connection with its approval of the Merger. In furnishing this
opinion, we do not admit that we are experts within the meaning of the term
"experts" as used in the Securities Act and the rules and regulations
promulgated thereunder, nor do we admit that this opinion constitutes a report
or evaluation within the meaning of Section 11 of the Securities Act.
Very truly yours,
NationsBanc Montgomery Securities
LLC
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ANNEX C
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UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
---------------------
FORM 10-K
(MARK ONE)
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
FOR THE FISCAL YEAR ENDED JANUARY 30, 1999
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
FOR THE TRANSITION PERIOD FROM TO
COMMISSION FILE NUMBER 0-20036
---------------------
THE MEN'S WEARHOUSE, INC.
(Exact Name of Registrant as Specified in its Charter)
<TABLE>
<S> <C>
TEXAS 74-1790172
(State or Other Jurisdiction of (IRS Employer
Incorporation or Organization) Identification Number)
5803 GLENMONT DRIVE
HOUSTON, TEXAS 77081-1701
(Address of Principal Executive Offices) (Zip Code)
</TABLE>
(713) 592-7200
(Registrant's telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Act:
<TABLE>
<CAPTION>
NAME OF EACH EXCHANGE
TITLE OF EACH CLASS ON WHICH REGISTERED
------------------- ---------------------
<S> <C>
</TABLE>
NONE
Securities registered pursuant to Section 12(g) of the Act:
COMMON STOCK, PAR VALUE $.01 PER SHARE
---------------------
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
Registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes [X] No [ ]
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to the
best of the registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. [ ]
The aggregate market value of the voting stock held by non-affiliates of
the Registrant, based on the closing price of shares of common stock on the
NASDAQ National Market System on March 26, 1999, was approximately $623.4
million.
The number of shares of common stock of the Registrant outstanding on March
26, 1999 was 34,968,848, excluding 71,384 shares classified as Treasury Stock.
DOCUMENTS INCORPORATED BY REFERENCE
<TABLE>
<CAPTION>
DOCUMENT INCORPORATED AS TO
-------- ------------------
<S> <C>
Notice and Proxy Statement for the Annual Part III: Items 10, 11, 12 and 13
Meeting of Shareholders scheduled to be held
July 1, 1999.
Registration Statement on Form S-4 relating to Part I: Item 1
the acquisition of K&G Men's Center, Inc.
filed with the Securities and Exchange
Commission on April 5, 1999.
</TABLE>
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FORM 10-K REPORT INDEX
10-K PART AND ITEM NO.
<TABLE>
<CAPTION>
PAGE
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<S> <C> <C>
PART I
Item 1. Business.................................................... C-1
Item 2. Properties.................................................. C-9
Item 3. Legal Proceedings........................................... C-10
Item 4. Submission of Matters to a Vote of Security Holders......... C-10
PART II
Item 5. Market for the Company's Common Equity and Related
Stockholder Matters......................................... C-11
Item 6. Selected Financial Data..................................... C-12
Item 7. Management's Discussion and Analysis of Financial Condition
and Results of Operations................................... C-13
Item 7A. Market Risk................................................. C-18
Item 8. Financial Statements and Supplementary Data................. C-22
Item 9. Changes in and Disagreements with Accountants on Accounting
and Financial Disclosure.................................... C-40
PART III
Item 10. Directors and Executive Officers of the Registrant.......... C-40
Item 11. Executive Compensation...................................... C-40
Item 12. Security Ownership of Certain Beneficial Owners and
Management.................................................. C-40
Item 13. Certain Relationships and Related Transactions.............. C-40
PART IV
Item 14. Exhibits, Financial Statement Schedules and Reports on Form
8-K......................................................... C-40
</TABLE>
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PART I
ITEM 1. BUSINESS
GENERAL
The Men's Wearhouse began operations in 1973 as a partnership and was
incorporated as The Men's Wearhouse, Inc. (the "Company") under the laws of
Texas in May 1974. Our principal executive offices are located at 5803 Glenmont
Drive, Houston, Texas 77081-1701 (telephone number 713/592-7200), and at 40650
Encyclopedia Circle, Fremont, California 94538-2453 (telephone number
510/657-9821).
THE COMPANY
We are one of the largest off-price specialty retailers of men's tailored
business clothing in the United States. At January 30, 1999, we operated 431
stores in 40 states and the District of Columbia, with approximately 32% of our
locations in Texas and California.
We operate our stores in the following two formats:
Men's Wearhouse. We target middle and upper middle income men by
offering quality merchandise at everyday low prices. In addition to value,
we provide a superior level of customer service. Men's Wearhouse stores
offer a broad selection of designer, brand name and private label
merchandise at prices we believe are typically 20% to 30% below the regular
prices found at traditional department and specialty stores. The prices of
our suits generally range from $199 to $599. We consider our merchandise to
be conservative. Our merchandise includes suits, sport coats, slacks,
business casual, sportswear, outerwear, dress shirts, shoes and
accessories. We concentrate on tailored business attire that is
characterized by infrequent and more predictable fashion changes.
Therefore, we believe we are not as exposed to trends typical of more
fashion-forward apparel retailers, where significant markdowns and
promotional pricing are more common. At January 30, 1999, we operated 411
Men's Wearhouse stores in 40 states and the District of Columbia. These
stores are referred to as "Men's Wearhouse stores" or "traditional stores".
Value Priced Clothing. We launched Value Priced Clothing in late 1996
to address the market for a more price sensitive customer. We believe that
Value Priced Clothing's more basic, value-oriented approach appeals to
certain customers in the men's tailored clothing market. Value Priced
Clothing offers a selection of brand names and private label merchandise
that we believe is typically 30% to 50% below the regular prices of
traditional department stores and specialty stores. The price of suits at
these stores generally range from $99 to $199. At January 30, 1999, we
operated 20 Value Priced Clothing stores in five states. Value Priced
Clothing operates stores under the names "C&R", "SuitMax" and "Suit
Warehouse".
We are in the process of closing the remaining four C&R stores, with one to
be converted to a SuitMax store. See "Business -- VPC Operations".
In this document, Value Priced Clothing and its wholly owned subsidiary are
collectively referred to as "VPC". The stores operated by VPC are referred to in
this document as "VPC stores".
STORE OPERATIONS AND EXPANSION
Our expansion strategy includes:
- opening additional Men's Wearhouse stores in new and existing markets,
- increasing the size of certain existing Men's Wearhouse stores,
- increasing productivity and profitability in our existing markets,
- developing the VPC store format in new and existing markets,
- identifying strategic acquisition opportunities (see "-- Recent
Developments"), and
- testing expanded merchandise categories in selected stores.
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In general terms, we consider a geographic area served by a common group of
television stations as a single market.
On a limited basis, we have acquired store locations, inventories, customer
lists, trademarks and tradenames from existing menswear retailers in both new
and existing markets. We may do so again in the future. At present, we plan to
open an additional 40 to 45 new Men's Wearhouse stores and five to ten new
SuitMax stores in 1999, to close approximately five stores in 1999, to remodel
and relocate existing stores and to continue expansion in subsequent years. We
believe that our ability to increase the number of traditional stores in the
United States above 500 will be limited. However, we believe that additional
growth opportunities exist through selectively expanding existing stores,
improving and diversifying the merchandise mix, relocating stores and expanding
our VPC operations.
We have focused on acquiring and growing our VPC store format. We have
completed three acquisitions between January 1997 and February 1998. These
acquisitions included:
- the January 1997 acquisition of C&R Clothiers ("C&R"), a privately held
retailer of 17 men's tailored clothing stores in Southern California,
- the May 1997 acquisition of Walter Pye's Men's Shops, Inc. ("NAL") which
operated four stores in the greater Houston area and one in each of San
Antonio, Texas and New Orleans, Louisiana, and
- the February 1998 acquisition of T.H.C., Inc. ("Suit Warehouse") which
operated four stores in metropolitan Detroit.
We are integrating these acquired operations to create a similar store
format and focus. In the process, we have closed most of the C&R stores. We
expect to utilize a common format under the name SuitMax to build brand
awareness with customers. To achieve this format and focus, we intend to:
- close the four remaining C&R stores in early 1999, with one to be
converted to a SuitMax store, and
- open new stores under a common format.
In connection with the proposed combination with K&G Men's Center, Inc.
("K&G") (see "-- Recent Developments"), the Company intends to re-evaluate the
store branding opportunities for VPC. Once a decision is made with respect to
VPC store branding, the Company anticipates that it will embark on an
advertising campaign to gain and expand market identity for the VPC store
format.
As a result of the consolidation of the men's tailored clothing industry,
we have been and expect to continue to be presented with significant
opportunities for growth within our industry. Such opportunities may include,
but are not limited to:
- increased direct sourcing of merchandise, including possible ventures
with apparel manufacturers,
- acquisitions of menswear retailers,
- the acquisition or licensing of designer or nationally recognized brand
labels,
- expansion and remodeling of certain existing stores,
- testing of new product categories, and
- enhancing our website to allow the sale of merchandise over the internet.
MERCHANDISING
Our stores offer a broad selection of designer, brand name and private
label men's business attire, including a consistent stock of core items (such as
navy blazers, tuxedos and basic suits) and considers its merchandise
conservative. Although basic styles are emphasized, each season's merchandise
reflects current fabric and color trends, and a small percentage of inventory,
accessories in particular, are usually more fashion oriented. The broad
merchandise selection creates increased sales opportunities by permitting a
customer to
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purchase substantially all of his tailored wardrobe and accessory requirements,
including shoes, at our stores. Within our tailored clothing, we offer an
assortment of styles from a variety of manufacturers and maintain a broad
selection of fabrics and colors. We believe that the depth of selection offered
provides us with an advantage over most of our competitors.
In 1995, the Company expanded its inventory mix to include "business
casual" merchandise designed to meet increased demand for such product resulting
from the trend toward more relaxed dress codes in the workplace. The added
merchandise consists of tailored and non-tailored clothing that complements the
existing product mix and provides opportunity for enhanced sales without
significant inventory risk. The expanded inventory includes, among other things,
more sport coats, casual slacks, knits and woven sports shirts, sweaters and
casual shoes.
We believe our stores differ from most other off-price retailers in that we
do not purchase significant quantities of merchandise overruns or close-outs. We
provide recognizable quality merchandise at consistent prices that assist the
customer in identifying the value available at our stores. We believe that the
merchandise at Men's Wearhouse stores is generally offered 20% to 30% below
traditional department and specialty store regular prices. A ticket is affixed
to each item, which displays our selling price alongside the price we regard as
the regular retail price of the item. At the checkout counter, the customer's
receipt reflects the savings from what we consider the regular retail price.
By targeting men's tailored business attire, a category of men's clothing
characterized by infrequent and more predictable fashion changes, we believe we
are not as exposed to trends typical of more fashion-forward apparel retailers.
This allows us to carry basic merchandise over to the following season and
reduces the need for markdowns; for example, a navy blazer or gray business suit
may be carried over to the next season. Men's Wearhouse stores have a
once-a-year sale after Christmas that runs through the month of January, during
which prices on many items are reduced 20% to 50% off the everyday low prices.
This sale reduces stock at year-end and prepares for the arrival of the new
season's merchandise.
During 1996, 1997 and 1998, 72%, 71% and 68%, respectively, of our total
net sales were attributable to tailored clothing (suits, sport coats and
slacks), and 28%, 29% and 32%, respectively, were attributable to casual attire,
sportswear, shoes, shirts, ties, outerwear and other accessories.
In addition to accepting cash, checks or nationally recognized credit
cards, beginning on October 27, 1998 we started offering our own private label
credit card to customers. The private label credit card offers the customer a
discount based on sales volume -- for every $500 purchased on the credit card
during a specified period, the customer receives a gift certificate for $50 that
is valid for six months. We have contracted with a third-party vendor to provide
all necessary servicing, processing and to assume all credit risks associated
with our private label credit card program. We believe that the private label
credit card provides us with an important tool for targeted marketing and
presents an excellent opportunity to communicate with our customers via monthly
statements and possibly over time to increase the average dollar amount per
transaction and the frequency of shopping visits.
CUSTOMER SERVICE AND MARKETING
The Company's sales personnel are trained as clothing consultants to
provide customers with assistance and advice on their apparel needs, including
product style, color coordination, fabric and garment fit. Clothing consultants
at Men's Wearhouse stores attend an intensive training program at our training
facility in Fremont, California, which is further supplemented with weekly store
meetings, periodic merchandise meetings, and frequent interaction with
multi-unit managers and merchandise managers.
The Company encourages its clothing consultants to be friendly and
knowledgeable and to promptly greet each customer entering the store.
Consultants are encouraged to offer guidance to the customer at each stage of
the decision-making process, making every effort to earn the customer's
confidence and to create a professional relationship that will continue beyond
the initial visit. Clothing consultants are also encouraged to contact customers
after the purchase or pick-up of tailored clothing to determine whether
customers are satisfied with their purchases and, if necessary, to take
corrective action. Store personnel have full authority to
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respond to customer complaints and reasonable requests, including the approval
of returns, exchanges, refunds, re-alterations and other special requests, all
of which we believe helps promote customer satisfaction and loyalty.
Each of the Company's stores provides on-site tailoring services to
facilitate timely alterations at a reasonable cost to customers. Tailored
clothing purchased at a Men's Wearhouse store will be pressed and re-altered (if
the alterations were performed at a Men's Wearhouse store) free of charge for
the life of the garment.
Because management believes that men prefer direct and easy store access,
we attempt to locate our stores in neighborhood strip and specialty retail
centers or in freestanding buildings to enable customers to park near the
entrance of the store.
Our total annual advertising expenditures, which were $31.0 million, $38.0
million and $43.4 million in 1996, 1997 and 1998, respectively, are significant.
However, we believe that once we attract prospective customers, the experience
of shopping in our stores will be the primary factor encouraging subsequent
visits. The Company advertises principally on television and radio, which we
consider the most effective means of attracting and reaching potential
customers, and our advertising campaign is designed to reinforce our image of
providing value and customer service. "I guarantee it" is a long-standing phrase
associated with Men's Wearhouse stores and our advertising campaign. In the
advertisements, our Chief Executive Officer and co-founder guarantees customer
satisfaction with the apparel purchased, the quality of tailoring and the total
shopping experience.
VPC OPERATIONS
We launched VPC in late 1996 to address the market for a more price
sensitive customer. We believe that VPC's more basic, value-oriented approach
appeals to certain customers in the men's tailored clothing market. VPC offers a
selection of brand names and private label merchandise that we believe is
typically 30% to 50% below the regular retail prices of traditional department
store and specialty store prices. The prices of suits generally range from $99
to $199.
VPC operates stores under the names "C&R", "SuitMax" and "Suit Warehouse".
At January 30, 1999, we operated 20 VPC stores in five states, which consist of
12 SuitMax stores, four Suit Warehouse stores and four C&R stores.
We have begun a process to integrate and develop the VPC operations into a
similar format and focus. This process will include a move toward a common
average store size, ranging from 10,000 to 15,000 square feet and hours of
operations from Friday through Sunday only in most markets. To build brand
awareness with customers, these stores will be operated under the name SuitMax.
To achieve this similar format, we have closed most of the existing C&R
stores, and it is anticipated that by the end of the first quarter of 1999 the
four remaining C&R locations will be closed, with one being converted to a
SuitMax store. In some cases, Men's Wearhouse stores have been relocated to C&R
locations. Management expects that estimated closing costs related to the
closure of the remaining C&R stores will not have a material effect on our
operations. The four Suit Warehouse stores will continue to operate in Detroit,
Michigan. The main focus of the VPC operations will be the SuitMax stores. We
plan to add approximately five to ten new SuitMax stores in 1999 and to continue
the expansion of the SuitMax stores in subsequent years. We expect that we will
experience lesser operating margins from VPC as it makes substantial advertising
expenditures to gain market identity and rationalizes acquired assets to meet
the new SuitMax format.
If the proposed merger with K&G is consummated (see "-- Recent
Developments"), it is contemplated that K&G will become part of the VPC
operations. At such time, the Company intends to re-evaluate the store branding
opportunities for VPC. Once a decision is made with respect to VPC store
branding, the Company anticipates that it will embark on an advertising campaign
to gain and expand market identity for the VPC store format.
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PURCHASING AND DISTRIBUTION
We purchase merchandise from approximately 280 vendors. In 1998, no vendor
accounted for 10% or more of purchases. Management does not believe that the
loss of any vendor would significantly impact us. While we have no material
long-term contracts with our vendors, we believe that we have developed an
excellent relationship with our vendors, which is supported by consistent
purchasing practices.
We believe we obtain favorable buying opportunities relative to many of our
competitors. We do not request cooperative advertising support from
manufacturers, which reduces the manufacturers' costs of doing business and
enables them to offer us lower prices. Further, we believe we obtain better
discounts by entering into purchase arrangements that provide for limited return
policies, although we always retain the right to return goods that are damaged
upon receipt or determined to be improperly manufactured. Finally, volume
purchasing of specifically planned quantities purchased well in advance of the
season enables more efficient production runs by manufacturers, who, in turn,
are provided the opportunity to pass some of the cost savings back to us.
During 1993, we expanded our inventory sourcing capabilities by
implementing a direct sourcing program. Under this program, we purchase fabric
from mills and contract with certain factories for the assembly of the end
product (suits, sport coats or slacks). Such arrangements for fabric and
assembly have been with both domestic and foreign mills and factories. Previous
purchases from such mills and factories had been through other suppliers.
Product acquired during 1996, 1997 and 1998 through the direct sourcing program
represented approximately 28%, 31% and 35%, respectively, of total inventory
purchases. We expect that purchases through the direct sourcing program will
represent approximately 38% of total purchases in 1999.
To protect against currency exchange risks associated with certain firmly
committed and certain other probable, but not firmly committed inventory
transactions denominated in a foreign currency (primarily the Italian lira), we
enter into forward exchange contracts. In addition, many of the purchases from
foreign vendors are financed by letters of credit.
In 1995, we entered into license agreements with a limited number of
parties under which we are entitled to use designer labels, such as "Vito
Rufolo", and nationally recognized brand labels such as "Botany" and "Botany
500", in return for royalties paid to the licensor based on the costs of the
relevant product. These license agreements generally limit the use of the
individual label to products of a specific nature (such as men's suits, men's
formal wear or men's shirts). The labels licensed under these agreements will
continue to be used in connection with a portion of the purchases under the
direct sourcing program described above, as well as purchases from other
vendors. We monitor the performance of these licensed labels compared to their
cost and may elect to selectively terminate any license. During 1996, we
purchased several trademarks, including "Cricketeer," "Joseph & Feiss
International," "Baracuta," and "Country Britches," which are used similarly to
our licensed labels. Because of the continued consolidation in the men's
tailored clothing industry, we may be presented with opportunities to acquire or
license other designer or nationally recognized brand labels.
All merchandise is received into our central warehouse located in Houston,
Texas. Once received, merchandise is arranged by size. Our computer system
generates bar-coded garment tags and labels and recommends distribution of the
merchandise on the basis of each store's past performance with similar
merchandise and existing inventory levels. This distribution is reviewed by a
member of our merchandise staff and any necessary changes are made. Merchandise
for a store is picked and then moved to the appropriate staging area for
shipping. In addition to the central distribution center in Houston, we have
additional space within certain Men's Wearhouse stores in the majority of our
markets, which function as redistribution facilities for their respective areas.
We lease and operate 31 long-haul tractors and 49 trailers, which, together
with common carriers, ship merchandise from the vendors to our distribution
facilities and from the distribution facilities to centrally located stores
within each market. We also lease or own 74 smaller van-like trucks, which are
used to ship merchandise locally or within a given geographic region.
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MANAGEMENT INFORMATION AND TELECOMMUNICATION SYSTEMS
We have aggressively pursued the implementation of technology which
provides the opportunity for competitive advantage and which leverages human
resources. By implementing a sophisticated management information system, and by
integrating it with a highly functional telecommunication system, we have
effectively managed the operation of our business and inventory while
experiencing substantial growth.
The Company's inventory control systems, including purchase order
management, automatic replenishment of basic items, and real-time point of sale,
have contributed to enhanced performance and profitability and to achieving
inventory shrinkage rates that are consistently below industry averages. The use
of Electronic Data Interchange with several suppliers combined with the use of
data warehousing and decision support technologies have substantially leveraged
the efforts of the merchandising team, allowing them to reallocate time from
simple and repetitive tasks to those requiring more analytical skills.
The Company's voice mail system has not only enhanced internal
communication capabilities, it also has provided an actively used channel for
improving customer service and it has contributed to our advertising efforts by
giving us access to unsolicited customer testimonials.
Moores Retail Group Inc. ("Moores"), which combined with the Company on
February 10, 1999 (see "-- Recent Development"), operates a fully-integrated,
point-of-sale inventory and management information system processed by a DEC
Alpha Unix-based computer with proprietary software. The system provides
inventory and sales information by store and by SKU. Moores' POS systems have
been designed to integrate all major aspects of Moores' business, including
sales by store, inventory levels, purchase order management, merchandise
planning and the general ledger functions. Store inventory levels are regularly
monitored and adjusted to reflect sales trends. The inventory control system
provides information that enhances management's ability to make informed and
timely buying and manufacturing decisions and accommodate unexpected increases
or decreases in demand for a particular item. The inventory management system is
capable of reporting product information, such as style, fabric, vendor lot,
model number, size and color. Through its stock replenishment system, the
merchandise of each Moores store is restocked on a weekly or, if needed, more
frequent basis.
Due to the dramatic changes in the state of the art of information
technology, both in general and with regard to the retail industry, in mid-1997,
the Company commenced an enterprise-wide project to upgrade our information
technology by acquiring products that are generally available and field tested
and are designed to increase the efficiency and the future productivity of our
operations. We have benefited significantly from investments in technology in
the past, and it is anticipated that these modifications will further increase
the benefit that we derive from technology, both in the near term and in the
future. In completing these modifications, we expect to achieve Year 2000 date
conversion compliance. See "Management's Discussion and Analysis of Financial
Condition and Results of Operations -- Year 2000 Risks."
COMPETITION
We believe that the unit demand for men's tailored clothing has declined.
Our primary competitors include specialty men's clothing stores, traditional
department stores, off-price retailers, manufacturer-owned and independently
owned outlet stores and three-day stores. Over the past several years market
conditions have resulted in consolidation of the industry. We believe that the
principal competitive factors in the men's tailored clothing market are
merchandise assortment, quality, price, garment fit, merchandise presentation,
store location and customer service. We attempt to distinguish ourselves from
our competitors by providing what we believe to be the best features of each
competing shopping alternative.
We believe that strong vendor relationships, our direct sourcing program
and our buying power are the principal factors enabling us to obtain quality
merchandise at attractive prices. We believe that our vendors rely on our
predictable payment record and history of honoring all promises, including our
promise not to advertise names of labeled and unlabeled designer merchandise,
when requested. Certain of our competitors (principally department stores) are
larger and have substantially greater financial, marketing and other resources
than we have and there can be no assurance that we will be able to compete
successfully with them in the future.
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SEASONALITY
Like most retailers, our business is subject to seasonal fluctuations.
Historically, over 30% of our net sales and approximately 50% of our net
earnings have been generated during the fourth quarter of each year. Because of
the seasonality of our business, results for any quarter are not necessarily
indicative of the results that may be achieved for the full year. See Note 9 of
Notes to Consolidated Financial Statements.
TRADEMARKS AND SERVICE MARKS
We are the owner in the United States of the trademark and service mark,
"The Men's Wearhouse(R) ", and of federal registrations therefor expiring in
2009 and 2002, respectively, subject to renewal. We have also been granted
registrations for that trademark and service mark in 36 states (including Texas
and California) of the 40 states, plus the District of Columbia, in which we do
business and have used those marks. Applications for the most recent states
entered are in process. Our rights in the "The Men's Wearhouse" mark are a
significant part of our business, as the mark has become well known through our
television and radio advertising campaigns. Accordingly, we intend to maintain
our mark and the related registrations.
We are also the owner in the United States of the servicemarks "C&R", "C&R
Clothiers", "Walter Pye's", "NAL", "Suit Warehouse" and "SuitMax". Such marks
are used to identify the retail store services of and are the tradenames
utilized by the retail clothing stores operated by VPC.
In addition to The Men's Wearhouse, C&R Clothiers and NAL
trademarks/service marks, we own or license other trademarks/service marks used
in the business, principally in connection with the labeling of product
purchased through the direct sourcing program.
EMPLOYEES
At January 30, 1999, we had approximately 6,800 employees, of whom
approximately 5,900 were full-time and approximately 900 were part-time
employees. Seasonality affects the number of part-time employees as well as the
number of hours worked by full-time and part-time personnel. As of January 30,
1999, we had no collective bargaining agreements.
RECENT DEVELOPMENTS
Moores Retail Group Inc.
On February 10, 1999, we acquired Moores Retail Group Inc., a privately
owned Canadian corporation, in exchange for securities ("Exchangeable Shares")
exchangeable for 2.5 million shares of our common stock. The Exchangeable Shares
have substantially identical economic and legal rights as, and will ultimately
be exchanged on a one-on-one basis for, shares of our common stock. The
Exchangeable Shares were issued to the shareholders and option holders of Moores
in exchange for all of the outstanding shares of capital stock and options of
Moores because of Canadian tax law considerations. All Exchangeable Shares must
be converted into our common stock within five years and will be reflected as
common stock outstanding for financial reporting purposes. The merger has been
accounted for as a pooling of interests.
In connection with closing the Moores acquisition, we repaid approximately
U.S. $59 million of Moores' existing indebtedness and entered into two new
Canadian credit facilities for this purpose. The credit facilities, which will
also be used to provide working capital for the ongoing needs of Moores, include
a Can$30 million (U.S. $20 million) revolving loan and a Can$75 million (U.S.
$50 million) term loan.
Moores is one of Canada's leading specialty retailers of men's tailored
clothing, with 107 stores in the ten Canadian provinces and eight stores in the
United States. Moores distinguishes itself from other Canadian retailers of
men's tailored clothing by manufacturing virtually all of the tailored clothing
for sale in its stores.
Moores focuses on conservative, basic tailored apparel. This limits
exposure to changes in fashion trends and the need for significant markdowns.
Approximately 60% of Moores' merchandise consists of men's tailored clothing.
The remaining 40% includes dress shirts, sportswear, outerwear and accessories.
Moores typically offers a full assortment of suits and sport coats in sizes
ranging from 36 short to 54 extra long. The
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prices of suits generally range from Can $149 to Can $299 in Moores Canadian
stores and US $169 to US $299 in Moores U.S. stores.
Moores conducts its manufacturing operations through its wholly owned
subsidiary, Golden Brand Clothing (Canada) Ltd. ("Golden Brand"), which is the
second largest manufacturer of men's suits and sport coats in Canada, and one of
the largest in North America. Golden Brand's manufacturing facility in Montreal,
Canada, includes a cutting room, fusing department, pant shop and coat shop. At
full capacity, the coat shop can produce 12,000 units per week and the pant shop
can produce 25,000 units per week. As a result of the vertical integration and
the related cost savings, Moores is able to provide greater value to its
customer by offering a broad selection of quality merchandise at everyday low
prices, which the Company believes typically range from 20% to 30% below
traditional Canadian department and specialty stores.
Except for certain supervisory and office personnel, all of Golden Brand's
employees belong to the Union of Needletrades, Industrial and Textile Employees.
Golden Brand is part of a collective bargaining unit, of which it is the largest
company.
The Company expects to close seven of the Moores US stores and to convert
the eighth store to a Men's Wearhouse store in order to eliminate duplicate
store sites in existing Men's Wearhouse markets. The Company expects to incur
costs of approximately $3.0 million in connection with the closing of these
stores.
K&G Men's Center, Inc.
On March 4, 1999, we announced the signing of an Agreement and Plan of
Merger with K&G Men's Center, Inc. ("K&G"), a retailer of men's apparel and
accessories with 33 stores in the United States. Under the terms of the proposed
merger, we will issue between 0.40 and 0.43 of a share of our common stock in
exchange for each share of K&G common stock. The exact exchange ratio will
depend on the average trading price for our common stock during a 15 trading day
period ending on the third trading day before the merger. K&G has approximately
10.3 million shares outstanding. It is expected that the merger with K&G will be
accounted for as a pooling of interests. Consummation of the proposed merger is
dependent upon, among other things, the approval of the shareholders of K&G.
K&G is a superstore retailer of men's apparel and accessories. K&G's stores
offer first-quality, current-season men's apparel and accessories comparable in
quality to that of traditional department and fine specialty stores, at everyday
low prices 30% to 70% below retail prices typically charged by such stores.
K&G's merchandising strategy emphasizes broad and deep assortments across all
major menswear categories, including tailored clothing, casual sportswear, dress
furnishings, footwear and accessories. This dominant merchandise selection,
which includes brand name as well as private label merchandise, positions K&G to
attract a wide range of menswear customers in each of its markets. Like the
Company, K&G's philosophy of delivering everyday value distinguishes K&G from
other retailers that adopt a more promotional pricing strategy.
K&G's stores are "destination" stores located primarily in low-cost
warehouses and secondary strip shopping centers easily accessible from major
highways and thoroughfares. K&G's stores are open for business on Fridays,
Saturdays and Sundays only, typically for a total of 24 hours per week. K&G
pioneered the weekend strategy in menswear retailing as a means of responding to
its customers' shopping habits and creating a sense of urgency to purchase,
while facilitating cost control and inventory replenishment. This weekend
strategy is an integral element of K&G's retail formula that emphasizes low
operating costs, low mark-ups and high inventory turnover to produce attractive
store-level economics.
K&G's 33 stores are located in Atlanta (4); Baltimore; Boston (2);
Charlotte; Cincinnati; Cleveland; Dallas (3); Denver (2); Houston (2);
Indianapolis; Long Island (2); Los Angeles; Minneapolis; Philadelphia (3);
Seattle (2); Washington, D.C. (2); Kansas City, Kansas; Rahway, New Jersey;
Fairfield, New Jersey; and Columbus, Ohio.
For additional information and financial data regarding K&G, please see the
Registration Statement on Form S-4 filed on April 5, 1999, which is incorporated
by reference herein.
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ITEM 2. PROPERTIES
As of January 30, 1999, we operated 431 stores in 40 states and the
District of Columbia. The following table sets forth the location, by state, of
these stores:
<TABLE>
<CAPTION>
MEN'S
WEARHOUSE VPC
--------- ---
<S> <C> <C>
California.................................................. 82 6
Texas....................................................... 42 7
Florida..................................................... 26 --
Illinois.................................................... 20 --
Michigan.................................................... 18 4
Ohio........................................................ 15 --
Pennsylvania................................................ 14 --
New York.................................................... 13 --
Virginia.................................................... 13 --
Washington.................................................. 13 --
North Carolina.............................................. 12 --
Georgia..................................................... 11 2
Colorado.................................................... 10 --
Massachusetts............................................... 10 --
Maryland.................................................... 9 --
Minnesota................................................... 9 --
Arizona..................................................... 8 --
Indiana..................................................... 8 --
Missouri.................................................... 7 --
Tennessee................................................... 7 --
Connecticut................................................. 6 --
New Jersey.................................................. 6 --
Oregon...................................................... 6 --
Wisconsin................................................... 6 --
Utah........................................................ 5 --
Louisiana................................................... 4 1
Nevada...................................................... 4 --
South Carolina.............................................. 4 --
Alabama..................................................... 3 --
Kentucky.................................................... 3 --
New Hampshire............................................... 3 --
Oklahoma.................................................... 3 --
Kansas...................................................... 2 --
Nebraska.................................................... 2 --
Delaware.................................................... 1 --
District of Columbia........................................ 1 --
Idaho....................................................... 1 --
Iowa........................................................ 1 --
Mississippi................................................. 1 --
New Mexico.................................................. 1 --
Rhode Island................................................ 1 --
--- --
Total............................................. 411 20
--- --
</TABLE>
Men's Wearhouse stores vary in size from approximately 2,800 to 10,800
total square feet (average square footage at January 30, 1999 was 4,938 square
feet). Men's Wearhouse stores are primarily located in middle and upper middle
income neighborhood strip and specialty retail shopping centers. We believe our
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customers generally prefer to limit the amount of time they spend shopping for
men's tailored clothing and seek easily accessible store sites.
Men's Wearhouse stores are designed to further our strategy of facilitating
sales while making the shopping experience pleasurable. Men's Wearhouse attempts
to create a specialty store atmosphere through effective merchandise
presentation and sizing, attractive in-store signs and efficient checkout
procedures. Most of the traditional stores have similar floor plans and
merchandise presentation to facilitate the shopping experience and sales
process. Designer, brand name and private label garments are intermixed, and
emphasis is placed on the fit of the garment rather than on a particular label
or manufacturer. Each store is staffed with clothing consultants and sales
associates and has a tailoring facility with at least one tailor.
SuitMax and Suit Warehouse stores vary in size from approximately 5,400 to
30,700 total square feet (average square footage at January 30, 1999 was 14,301
square feet).
We own the building that houses one of our stores in Dallas, Texas, and
lease the underlying land from certain of our principal shareholders. We lease
the remainder of our stores on terms generally from five to ten years with
renewal options at higher fixed rates in most cases. Leases typically provide
for percentage rent over sales break points. Additionally, most leases provide
for a base rent as well as "triple net charges", including but not limited to
common area and maintenance expenses, property taxes, utilities, center
promotions and insurance. In certain markets, we lease between 1,000 and 5,000
additional square feet in a Men's Wearhouse store to be utilized as a
redistribution facility in that geographic area.
We own a 240,000 square foot facility situated on approximately seven acres
of land in Houston, Texas which serves as our principal office, warehouse and
distribution facility. Approximately 65,000 square feet of this facility is used
as office space for our financial, information technology and merchandising
departments with the remaining 175,000 square feet serving as a warehouse and
distribution center. We also own a 150,000 square foot facility, situated on an
adjacent six acres, comprised of approximately 9,000 square feet of office space
and 141,000 square feet serving as a warehouse and distribution center.
Our executive offices in Fremont, California are housed in a 35,500 square
foot facility which we own. This facility serves as an office, training and
redistribution facility.
We lease, from certain of our principal shareholders, a building used as a
supply depot. The lease term on this one acre facility in Houston, Texas runs
until August 31, 2005, and is on terms that we believe are no less favorable
than could be obtained from an independent third party.
ITEM 3. LEGAL PROCEEDINGS
We are involved in various routine legal proceedings, including ongoing
litigation, incidental to the conduct of our business. Management believes that
none of these matters will have a material adverse effect on our financial
condition or results of operations.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
No matters were submitted to a vote of security holders during the fourth
quarter of the fiscal year ended January 30, 1999.
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PART II
ITEM 5. MARKET FOR THE COMPANY'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
Our common stock is traded on the NASDAQ under the symbol "SUIT." The
following table sets forth, on a per share basis for the periods indicated, the
high and low sale prices per share for our common stock as reported by NASDAQ.
The prices set forth below for periods prior to June 19, 1998 have been adjusted
to give retroactive effect to the 50% stock dividend paid on that date.
<TABLE>
<CAPTION>
HIGH LOW
------ ------
<S> <C> <C>
FISCAL YEAR 1997
First quarter ended May 3, 1997........................... $20.67 $15.33
Second quarter ended August 2, 1997....................... 25.08 16.75
Third quarter ended November 1, 1997...................... 27.50 22.33
Fourth quarter ended January 31, 1998..................... 26.50 20.00
FISCAL YEAR 1998
First quarter ended May 2, 1998........................... $29.67 $22.33
Second quarter ended August 1, 1998....................... 36.88 26.67
Third quarter ended October 31, 1998...................... 34.63 14.00
Fourth quarter ended January 30, 1999..................... 32.50 22.00
</TABLE>
On March 26, 1999, there were approximately 1,100 holders of record and
approximately 4,187 beneficial holders of our common stock.
We have not paid dividends on our common stock and for the foreseeable
future we intend to retain all of our earnings for the future operation and
expansion of our business. Our credit agreement prohibits the payment of cash
dividends on our common stock. See Note 4 of Notes to Consolidated Financial
Statements.
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<PAGE> 149
ITEM 6. SELECTED FINANCIAL DATA
The following selected statement of earnings and balance sheet information
for the fiscal years indicated has been derived from The Men's Wearhouse, Inc.
(the "Company") audited consolidated financial statements. The Company's
consolidated financial statements as of January 31, 1998 and January 30, 1999
and for each of the three years in the period ended January 30, 1999 were
audited by Deloitte & Touche LLP, independent auditors, whose report thereon
appears elsewhere herein. The Selected Financial Data should be read in
conjunction with "Management's Discussion and Analysis of Financial Condition
and Results of Operations" and the Consolidated Financial Statements and notes
thereto. References herein to years are to the Company's 52-week or 53-week
fiscal year, which ends on the Saturday nearest January 31 in the following
calendar year. For example, references to "1998" mean the fiscal year ended
January 30, 1999. All fiscal years for which financial information is included
herein had 52 weeks, except 1995 which had 53 weeks.
<TABLE>
<CAPTION>
1994 1995 1996 1997 1998
-------- -------- -------- -------- --------
(DOLLARS AND SHARES IN THOUSANDS, EXCEPT
PER SHARE AND PER SQUARE FOOT DATA)
<S> <C> <C> <C> <C> <C>
STATEMENT OF EARNINGS DATA:
Net sales.................................. $317,127 $406,343 $483,547 $631,110 $767,922
Gross margin............................... 121,878 157,615 188,366 242,593 299,735
Operating income........................... 22,375 30,606 38,134 51,530 71,682
Earnings before extraordinary item......... 12,108 16,508 21,143 28,883 40,920
Earnings per share of common stock before
extraordinary item (1):
Basic................................... $ 0.43 $ 0.55 $ 0.67 $ 0.89 $ 1.21
Diluted................................. $ 0.42 $ 0.54 $ 0.67 $ 0.87 $ 1.17
Weighted average shares outstanding(1)..... 28,216 29,821 31,354 32,343 33,849
Weighted average shares outstanding plus
dilutive potential common shares(1)..... 28,744 30,339 34,101 35,384 36,075
OPERATING INFORMATION:
Percentage increase in comparable store
sales(2)................................ 8.4% 6.8% 3.9% 8.5% 10.4%
Average square footage-- all stores(3)..... 4,553 4,687 4,863 5,097 5,297
Average sales per square foot of selling
space(4)................................ $ 406 $ 416 $ 413 $ 420 $ 437
NUMBER OF STORES:
Open at beginning of the period............ 183 231 278 345 396
Opened..................................... 48 48 50 50 47
Acquired................................... -- -- 17 6 4
Closed..................................... -- (1) -- (5) (16)
-------- -------- -------- -------- --------
Open at end of the period.................. 231 278 345 396 431
CAPITAL EXPENDITURES......................... $ 23,736 $ 22,538 $ 26,222 $ 27,380 $ 46,247
</TABLE>
<TABLE>
<CAPTION>
JANUARY 28, FEBRUARY 3, FEBRUARY 1, JANUARY 31, JANUARY 30,
1995 1996 1997 1998 1999
----------- ------------ ------------ ----------- -----------
<S> <C> <C> <C> <C> <C>
BALANCE SHEET INFORMATION:
Working capital.................... $ 68,078 $ 88,798 $136,837 $182,561 $174,055
Total assets....................... 160,494 204,105 295,478 379,415 403,732
Long-term debt(5).................. 24,575 4,250 57,500 57,500 --
Shareholders' equity............... 84,944 136,961 159,129 220,048 298,218
</TABLE>
- ---------------
(1) Adjusted to give effect to a 50% stock dividend effected on November 15,
1995 and a 50% stock dividend effected June 19, 1998.
(2) Comparable store sales data is calculated by excluding the net sales of a
store for any month of one period if the store was not open throughout the
same month of the prior period.
(3) Average square footage -- all stores is calculated by dividing the total
square footage for all stores open at the end of the period by the number of
stores open at the end of such period.
(4) Average sales per square foot of selling space is calculated by dividing
total selling square footage for all stores open the entire year into total
sales for those stores.
(5) February 1, 1997 and January 31, 1998 balances represent the 5 1/4%
Convertible Subordinated Notes Due 2003. See "Management's Discussion and
Analysis of Financial Condition and Results of Operations -- Liquidity and
Capital Resources" for a discussion of the redemption of the Notes.
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ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
GENERAL
The Company opened its first store in Houston, Texas in August 1973,
growing to 431 stores by January 30, 1999. The Company opened 50 stores in 1996,
50 stores in 1997 and 47 stores in 1998; in addition, the Company acquired 17
stores in January 1997 (C&R), six stores in May 1997 (NAL) and four stores in
February 1998 (Suit Warehouse) as part of its VPC operations. This growth has
resulted in significant increases in net sales and has also contributed to
increased net earnings for the Company.
Generally, new Men's Wearhouse traditional stores contribute toward
covering corporate overhead and other indirect costs within three months of
opening, depending primarily upon the month within which the store is opened. In
determining store contribution, the Company considers net sales, cost of sales
and other direct store costs, but excludes buying costs, corporate overhead,
depreciation and amortization, financing costs and advertising. Expansion is
generally continued within a market as long as management believes it will
provide profitable incremental sales volume.
Like most retailers, our business is subject to seasonal fluctuations.
Historically, over 30% of our net sales and approximately 50% of our net
earnings have been generated during the fourth quarter of each year. Because of
the seasonality of our business, results for any quarter are not necessarily
indicative of the results that may be achieved for the full year.
The Company currently intends to continue its expansion in new and existing
markets and plans to open approximately 40 to 45 new traditional stores and five
to ten new VPC stores in 1999. The average cost (excluding telecommunications
and point-of-sale equipment and inventory) of opening a new store is expected to
be approximately $300,000 to $325,000 in 1999.
In addition to increases in net sales resulting from new stores and
acquisitions, the Company has experienced comparable store sales increases in
each of the past five years, including a 10.4% increase for 1998.
The Company has closed 21 stores in the three years ended January 30, 1999.
Generally, in determining whether to close a store, the Company considers the
store's historical and projected performance and the continued desirability of
the store's location. Store performance is continually monitored and,
occasionally, as neighborhoods and shopping areas change, management may
determine that it is in the best interest of the Company to close or relocate a
store. In 1997, the Company closed two traditional stores in California and two
traditional stores in Texas due to substandard performance and/or the proximity
of a newly opened store. Also in 1997, after the acquisition of NAL, the Company
closed one of its outlet centers due to the proximity of an acquired store. In
1998, the Company closed two traditional stores in California and one
traditional store in Tennessee due to substandard performance or the proximity
of another store. The remaining 13 stores closed in 1998 were C&R stores that
were closed as part of the Company's efforts to integrate and develop the VPC
operations that target the more price sensitive clothing customer. It is
anticipated that the four remaining C&R stores will be closed by the end of the
first quarter of 1999, with one being converted to a SuitMax store.
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The following table sets forth the Company's results of operations
expressed as a percentage of net sales for the periods indicated:
<TABLE>
<CAPTION>
FISCAL YEAR
-----------------------
1996 1997 1998
----- ----- -----
<S> <C> <C> <C>
Net sales........................................... 100.0% 100.0% 100.0%
Cost of goods sold, including buying and occupancy
costs............................................. 61.0 61.6 61.0
----- ----- -----
Gross margin........................................ 39.0 38.4 39.0
Selling, general and administrative expenses........ 31.1 30.3 29.7
----- ----- -----
Operating income.................................... 7.9 8.1 9.3
Interest expense.................................... 0.4 0.3 0.2
----- ----- -----
Earnings before income taxes........................ 7.5 7.8 9.1
Income taxes........................................ 3.1 3.2 3.8
----- ----- -----
Earnings before extraordinary item.................. 4.4% 4.6% 5.3%
----- ----- -----
</TABLE>
RESULTS OF OPERATIONS
1998 Compared with 1997
The following table presents a breakdown of 1997 and 1998 net sales of the
Company by stores open in each of these periods:
<TABLE>
<CAPTION>
NET SALES
--------------------------
1997 1998 INCREASE
------ ------ --------
(IN MILLIONS)
<S> <C> <C> <C>
STORES
51 stores opened or acquired in 1998(1)............ $ -- $ 50.9 $ 50.9
56 stores opened or acquired in 1997(2)............ 46.6 92.1 45.5
Stores opened before 1997.......................... 584.5 624.9 40.4
------ ------ ------
Total.................................... $631.1 $767.9 $136.8
====== ====== ======
</TABLE>
- ---------------
(1) Sales include $16.1 million attributable to the four Suit Warehouse stores
acquired in February 1998, with the remaining $34.8 million attributable to
the four SuitMax and 43 Men's Wearhouse stores opened in 1998.
(2) Sales include $10.6 million and $15.4 million for 1997 and 1998,
respectively, attributable to the six NAL stores acquired in May 1997, with
the remaining $36.0 million and $76.7 million attributable to the 50 Men's
Wearhouse stores opened in 1997.
The Company's net sales increased $136.8 million, or 21.7%, to $767.9
million for 1998 due primarily to sales resulting from the increased number of
stores and increased sales at existing stores. Comparable store sales (which are
calculated by excluding the net sales of a store for any month of one period if
the store was not open throughout the same month of the prior period) increased
10.4% from 1997.
Gross margin increased $57.1 million, or 23.6%, to $299.7 million in 1998.
As a percentage of sales, gross margin increased from 38.4% in 1997 to 39.0% in
1998. This increase in gross margin predominantly related to a decrease in
product and occupancy costs as a percentage of sales for the traditional Men's
Wearhouse stores. This increase was partially offset by the lower product
margins realized in the VPC stores, as compared to the traditional Men's
Wearhouse stores.
Selling, general and administrative ("SG&A") expenses decreased, as a
percentage of sales, from 30.3% in 1997 to 29.7% in 1998, while SG&A
expenditures increased by $37.0 million to $228.1 million. On an absolute dollar
basis, the principal components of SG&A expenses increased primarily due to the
Company's growth. The decrease in SG&A expenses as a percentage of sales was
related primarily to the impact of traditional store comparable sales increases.
Advertising expense decreased from 6.0% to 5.6% of net sales and
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store salaries decreased from 12.1% to 12.0% of net sales, while other SG&A
expenses decreased from 12.2% to 12.1% of net sales.
Interest expense, net of interest income, decreased from $2.4 million in
1997 to $2.0 million in 1998. Weighted average borrowings outstanding decreased
$12.2 million from the prior year to $45.5 million in 1998, while the weighted
average interest rates on outstanding indebtedness increased from 6.3% to 6.5%.
The change in weighted average borrowings resulted from the early retirement of
the $57.5 million in 5 1/4% Convertible Subordinated Notes in the third quarter
of 1998, of which $36.8 million was converted to common stock. The impact of the
decrease in weighted average borrowings was partially offset by higher interest
rate borrowings under the Company's revolving credit facility during the last
half of 1998. Interest expense was offset by interest income of $1.3 million in
1997 and $0.9 million in 1998, which resulted from the investment of excess
cash.
The Company's effective income tax rate for the year ended January 30, 1999
was 41.3% and remained unchanged from the prior year. The effective tax rate was
higher than the statutory federal rate of 35% primarily due to the effect of
state income taxes and the nondeductibility of a portion of meal and
entertainment expenses. This, combined with the factors discussed above,
resulted in 1998 earnings before extraordinary item of $40.9 million, or 5.3%,
of net sales, compared with 1997 earnings before extraordinary item of $28.9
million, or 4.6% of net sales. The extraordinary item of $0.7 million, net of a
$0.5 million tax benefit, related to the early retirement of the Company's
5 1/4% Subordinated Notes.
1997 Compared with 1996
The following table presents a breakdown of 1996 and 1997 net sales of the
Company by stores open in each of these periods:
<TABLE>
<CAPTION>
NET SALES
--------------------------
1996 1997 INCREASE
------ ------ --------
(IN MILLIONS)
<S> <C> <C> <C>
STORES
56 stores opened or acquired in 1997(1)............ $ -- $ 46.6 $ 46.6
67 stores opened or acquired in 1996(2)............ 36.8 103.2 66.4
Stores opened before 1996.......................... 446.7 481.3 34.6
------ ------ ------
Total.................................... $483.5 $631.1 $147.6
====== ====== ======
</TABLE>
- ---------------
(1) Sales include $10.6 million attributable to the six NAL stores acquired in
May 1997, with the remaining $36.0 million attributable to the 50 Men's
Wearhouse stores opened in 1997.
(2) Sales include $0.9 million and $23.4 million for 1996 and 1997,
respectively, attributable to the 17 C&R stores acquired in 1996, with the
remaining $35.9 million and $79.8 million for 1996 and 1997, respectively,
attributable to the 50 Men's Wearhouse stores opened in 1996.
The Company's net sales increased $147.6 million, or 30.5%, to $631.1
million for 1997 due primarily to sales resulting from the increased number of
stores and increased sales at existing stores. Comparable store sales increased
8.5% from 1996. The comparable store sales increase for 1997 does not include
sales from the VPC stores. Acquired VPC stores accounted for $33.1 million of
the sales increase for 1997.
Gross margin increased $54.2 million, or 28.8%, to $242.6 million in 1997.
As a percentage of sales, gross margin decreased from 39.0% in 1996 to 38.4% in
1997. This decline in gross margin predominantly resulted from the lower gross
margin realized in the VPC stores, as compared to the traditional Men's
Wearhouse stores; however, this decline was partially offset by an increase in
the gross margin percentage for the traditional Men's Wearhouse stores,
primarily due to a decrease in occupancy costs and product costs as a percentage
of sales.
Selling, general and administrative expenses decreased, as a percentage of
sales, from 31.1% in 1996 to 30.3% in 1997, while SG&A expenditures increased by
$40.8 million to $191.1 million. On an absolute dollar
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basis, the principal components of SG&A expenses increased primarily due to the
Company's growth. The decrease in SG&A expenses as a percentage of sales was
related primarily to the lower operating costs associated with the VPC stores as
compared to the traditional Men's Warehouse stores, and the impact of
traditional store comparable sales increases. Advertising expense decreased from
6.4% to 6.0% of net sales and store salaries decreased from 12.4% to 12.1% of
net sales, while other SG&A expenses decreased from 12.3% to 12.2% of net sales.
Interest expense, net of interest income, increased from $2.1 million in
1996 to $2.4 million in 1997. Weighted average borrowings outstanding increased
$3.1 million from the prior year to $57.7 million in 1997, while the weighted
average interest rates on outstanding indebtedness increased from 6.2% to 6.3%.
Interest expense associated with the 5 1/4% Convertible Subordinated Notes was
offset by interest income of $1.3 million in 1997 and $1.2 million in 1996
resulting from the investment of excess cash.
The Company's effective income tax rate for the year ended January 31, 1998
was 41.3% and remained unchanged from the prior year. The effective tax rate was
higher than the statutory federal rate of 35% primarily due to the effect of
state income taxes and the nondeductibility of a portion of meal and
entertainment expenses. This, combined with the factors discussed above,
resulted in 1997 net earnings of $28.9 million, or 4.6%, of net sales, compared
with 1996 net earnings of $21.1 million, or 4.4% of net sales.
LIQUIDITY AND CAPITAL RESOURCES
In July 1997, the Company issued 1,500,000 shares of common stock for net
proceeds of $30.0 million. The Company used the proceeds from such offering to
fund its continued expansion and upgrade its information technology
infrastructure. The remaining cash was invested in short-term securities.
In August 1998, the Company gave notice to the holders of its outstanding
5 1/4% Convertible Subordinated Notes (the "Notes") that the Company would
redeem the Notes on September 14, 1998. As a result, $36.8 million principal
amount of the Notes was converted into 1.6 million shares of the Company's
common stock and $20.7 million principal amount was redeemed for an aggregate of
$21.5 million. An extraordinary charge of $0.7 million, net of tax benefit of
$0.5 million, related to the retirement of the debt was recognized in the third
quarter of 1998.
In February 1999, the Company amended and restated its revolving credit
agreement with a group of banks (the "Credit Agreement"). This agreement
provides for borrowing of up to $125 million through February 5, 2004. Advances
under the Credit Agreement bear interest at a rate per annum equal to, at the
Company's option, the agent's prime rate or the reserve adjusted LIBOR rate plus
an interest rate margin varying between .75% to 1.25%. The Credit Agreement
provides for fees applicable to unused commitments of .125% to .225%. As of
January 30, 1999, there was no indebtedness outstanding under the Credit
Agreement.
The Credit Agreement contains certain restrictive and financial covenants,
including the requirement to maintain a minimum amount of Consolidated Net Worth
(as defined). The Company is also required to maintain certain debt to cash
flow, cash flow coverage and current ratio. In addition, the Credit Agreement
limits additional indebtedness, creation of liens, Restrictive Payments (as
defined) and Investments (as defined). The Credit Agreement also prohibits
payment of cash dividends on the common stock of the Company. The Credit
Agreement permits, with certain limitations, the Company to merge or consolidate
with another company, sell or dispose of its property, make acquisitions, issue
options or enter into transactions with affiliates. The Company is in compliance
with the covenants in the Credit Agreement.
In February 1999, the Company also entered into two new Canadian credit
facilities in conjunction with the combination with Moores. These facilities
include a revolving credit agreement which provides for borrowings up to Can $30
million (U.S. $20 million) through February 5, 2004 and a term credit agreement
which provides for borrowings of Can $75 million (U.S. $50 million) to be repaid
in quarterly installments of Can $0.9 million (U.S. $0.6 million) beginning May
1, 1999; remaining unpaid principal is payable on February 5, 2004. Covenants
and interest rates are substantially similar to those contained in the Company's
Credit Agreement. Borrowings under these agreements were used to repay
approximately U.S. $59 million in
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<PAGE> 154
outstanding indebtedness of Moores with the remaining availability to be used to
fund operating and other requirements of Moores.
The Company's primary sources of working capital are cash flow from
operations and borrowings under the Credit Agreement. The Company had working
capital of $136.8 million, $182.6 million and $174.1 million at the end of 1996,
1997 and 1998, respectively. Historically, the Company's working capital has
been at its lowest level in January and February, and has increased through
November as inventory buildup is financed with both short-term and long-term
borrowings in preparation for the fourth quarter selling season.
Net cash provided by operating activities amounted to $19.8 million, $28.9
million and $33.0 million in 1996, 1997, and 1998, respectively. These amounts
primarily represent net earnings plus depreciation and amortization and
increases in current liabilities, offset by increases in inventories and other
current assets and, in 1996 and 1997, a decrease in income taxes payable. The
increase in inventories of $27.3 million in 1996, $39.3 million in 1997 and
$32.7 million in 1998 resulted from the addition of inventory for new and
acquired stores and stores expected to be opened shortly after the year-end,
backstocking and the purchase of fabric used in the direct sourcing of
inventory.
Capital expenditures totaled $26.2 million, $27.4 million and $46.2 million
in 1996, 1997 and 1998, respectively. The following table details capital
expenditures (in millions):
<TABLE>
<CAPTION>
1996 1997 1998
----- ----- -----
<S> <C> <C> <C>
New store construction................................ $13.6 $ 9.1 $19.6
Information technology................................ 5.5 5.9 12.8
Distribution facilities............................... 0.7 4.2 2.9
Relocation and remodeling of existing stores.......... 3.9 5.0 6.1
Other................................................. 2.5 3.2 4.8
----- ----- -----
Total....................................... $26.2 $27.4 $46.2
===== ===== =====
</TABLE>
Property additions relating to new stores include stores in various stages
of completion at the end of the fiscal year (eight stores at the end of 1996,
three stores at the end of 1997 and two stores at the end of 1998). New store
construction cost is net of $1.2 million and $2.8 million in 1996 and 1997,
respectively, related to proceeds from sale and leaseback transactions and
includes $2.2 million in 1998 for land costs that the Company expects to recover
from a sale and leaseback transaction in 1999. New store construction costs were
higher in 1998 due in part to the Company's entering higher cost markets in the
northeastern U.S.
The Company acquired certain other assets in connection with various
transactions including, but not limited to, trademarks, tradenames, customer
lists, non-compete agreements and license agreements, for $12.0 million in 1996,
$4.6 million in 1997 and $6.2 million in 1998.
Net cash provided by financing activities was $50.0 million in 1996 and
$28.8 million in 1997. Net cash used in financing activities was $20.8 million
in 1998. Cash provided by financing activities includes the proceeds from the
sale of Notes of $55.5 million in 1996 (net of $2.0 million in related costs),
and the net proceeds of the public offering of common stock of $30.0 million in
1997, as well as borrowings under the Company's revolving credit facilities in
1996. Cash used in financing activities is principally comprised of repayments
of amounts outstanding under the Company's revolving credit facilities in 1996
and, as described above, redemption of a portion of the Notes in 1998.
The Company's primary cash requirements are to finance working capital
increases and to fund capital expenditure requirements anticipated to be between
approximately $35.0 million and $40.0 million for 1999. This amount includes the
anticipated costs of opening approximately 40 to 45 new traditional stores and
five to ten new VPC stores in 1999 at an expected average cost per store of
approximately $300,000 to $325,000 (excluding telecommunications and
point-of-sale equipment and inventory). The balance of the capital expenditures
for 1999, which includes capital expenditure requirements for Moores, will be
used for telecommunications, point-of-sale and other computer equipment and
store remodeling and expansion. The Company anticipates that each of the
approximately 40 to 45 new traditional stores will require, on average, an
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<PAGE> 155
initial inventory costing approximately $500,000 (subject to the same seasonal
patterns affecting inventory at all stores), which will be funded by the
Company's revolving credit facility, trade credit and cash from operations. The
actual amount of future capital expenditures and inventory purchases will depend
in part on the number of new stores opened and the terms on which new stores are
leased. If the proposed merger with K&G is consummated, there may be additional
cash requirements. Additionally, the continuing consolidation of the men's
tailored clothing industry and recent financial difficulties of significant
menswear retailers may present the Company with opportunities to acquire retail
chains significantly larger than the Company's past acquisitions. Any such
acquisitions may be undertaken as an alternative to opening new stores. The
Company may use cash on hand, together with its cash flow from operations,
borrowings under the Credit Agreement and issues of equity securities, to take
advantage of significant acquisition opportunities.
The Company anticipates that its existing cash and cash flow from
operations, supplemented by borrowings under its various credit agreements, will
be sufficient to fund planned store openings, other capital expenditures and
operating cash requirements for at least the next 12 months.
In connection with the Company's direct sourcing program, the Company may
enter into purchase commitments that are denominated in a foreign currency
(primarily the Italian lira). The Company generally enters into forward exchange
contracts to reduce the risk of currency fluctuations related to such
commitments. The majority of the forward exchange contracts are with one
financial institution. Therefore, the Company is exposed to credit risk in the
event of nonperformance by this party. However, due to the creditworthiness of
this major financial institution, full performance is anticipated. The Company
may also be exposed to market risk as a result of changes in foreign exchange
rates. This market risk should be substantially offset by changes in the
valuation of the underlying transactions being hedged.
MARKET RISK
The Company is subject to exposure from fluctuations in U.S. dollar/Italian
lira exchange rates. As further described in Note 7 of the Company's
consolidated financial statements, the Company utilizes foreign currency forward
exchange contracts to limit exposure to changes in currency exchange rates. At
January 30, 1999, the Company had 15 contracts maturing in monthly increments to
purchase an aggregate notional amount of $9.6 million in foreign currency. These
forward contracts do not extend beyond September 15, 1999. Unrealized pretax
losses on these forward contracts totaled approximately $0.1 million at January
30, 1999. A hypothetical 10% change in applicable January 30, 1999 forward rates
would increase or decrease this pretax loss by approximately $0.9 million
related to these positions. However, it should be noted that any change in the
value of these contracts, whether real or hypothetical, would be significantly
offset by an inverse change in the value of the underlying hedged item.
Moores conducts its business in Canadian dollars. The exchange rate between
Canadian dollars and U.S. dollars has fluctuated over the last ten years. If the
value of the Canadian dollar against the U.S. dollar weakens, then the revenues
and earnings of the Company's Canadian operations will be reduced when they are
translated to U.S. dollars. Also, the value of the Company's Canadian net assets
in U.S. dollars may decline.
IMPACT OF NEW ACCOUNTING PRONOUNCEMENTS
The Company has adopted Statement of Financial Accounting Standards No.
130, "Reporting Comprehensive Income." For the three years ended January 30,
1999, comprehensive income equaled net income.
The Company has adopted Statement of Financial Accounting Standards No.
131, "Disclosures about Segments of an Enterprise and Related Information," and
reports its operations in one business segment -- retail sales of men's tailored
business attire.
In June 1998, the Financial Accounting Standards Board issued Statement No.
133, "Accounting for Derivative Instruments and Hedging Activities" ("SFAS
133"), which requires that an entity recognize all derivative instruments as
either assets or liabilities on its balance sheet at their fair value. Gains and
losses resulting from changes in the fair value of derivatives are recorded each
period in current earnings or comprehensive earnings, depending on whether a
derivative is designated as part of a hedge transaction and, if
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<PAGE> 156
it is, the type of hedge transaction. Gains and losses on derivative instruments
reported in comprehensive earnings will be reclassified as earnings in the
period in which earnings are affected by the hedged item. SFAS 133 is effective
for fiscal years beginning after June 15, 1999. The Company is currently
evaluating the impact, if any, of SFAS 133 on its financial position and results
of operations.
YEAR 2000 RISKS
The statements included in this section are intended to be and are
designated "Year 2000 Readiness Disclosure" statements within the meaning of the
Year 2000 Information and Readiness Disclosure Act.
The Company
Due to the dramatic changes in the state of the art of information
technology, both in general and with regard to the retail industry, in mid-1997
the Company commenced an enterprise-wide project to upgrade its information
technology by acquiring products that are generally available and field tested
and are designed to increase the efficiency and the future productivity of its
operations. The Company has benefited significantly from investments in
technology in the past, and it is anticipated that these modifications will
further increase the benefit that it derives from technology, both in the near
term and in the future. In completing these modifications, the Company expects
to achieve Year 2000 date conversion compliance. Capital expenditures related to
the project are anticipated to be between $20.0 million and $25.0 million
including past and future expenditures. The amounts of expenditures related
specifically to Year 2000 date conversion compliance are not separable from this
amount. The Company expects that all of its business systems will be Year 2000
compliant by mid-1999, and does not anticipate that the cost will have a
material effect on its consolidated financial position or results of operations
in any given year. However, no assurances can be given that the Company will be
able to completely identify or address all Year 2000 compliance issues, or that
third parties with whom it does business will not experience system failures as
a result of the Year 2000 issue, nor can the Company fully predict the
consequences of noncompliance.
As part of its assessment of the Year 2000 issue, the Company has completed
an inventory of its hardware and software systems, including the embedded
systems in its buildings, property and equipment. The Company is presently in
the process of implementing converted and replacement systems for all of its
non-compliant hardware and software systems to ensure that the operations of
such systems will not be materially adversely affected by the Year 2000 date
change. The Company estimates that its efforts to make all internal systems Year
2000 compliant are approximately 85% complete.
To date, the Company has made expenditures of approximately $500,000
related to its telephone and security systems specifically to address the Year
2000 issue. The Company does not anticipate that it will incur significant
additional expenditures to address the Year 2000 issue beyond those associated
with the updating and upgrading of the information systems discussed above.
The Company has requested and has received written responses from all of
our significant vendors and suppliers confirming that they will be Year 2000
compliant. Of the 52 current vendors and suppliers with whom the Company
exchanges information by some form of electronic transfer, 33 have indicated
that they have tested their systems and found them to be Year 2000 compliant and
19 have indicated that they are in the process of completing their conversion
and/or testing. The Company will continue to monitor these vendors and
suppliers, as well as any new vendors or suppliers.
Assuming no general failure of utilities to provide basic services over
large geographic areas or of the banking systems generally to conduct business
substantially as usual, or of the credit card systems to confirm credit
generally, the Company believes that, at the store level, the worst case
scenario would require the processing of credit approvals by telephone and the
ordering and allocation of inventory by telephone. While each of these scenarios
would increase the cost of doing business and may result in the loss of some
sales, the Company does not believe that either of these situations would have a
material adverse effect on its results of operations.
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<PAGE> 157
If the Company is unable to purchase or receive inventory, or is unable to
arrange for the manufacture of acquired piece goods into tailored clothing, such
failure, depending on how extensive, could have a material adverse effect on its
operations. However, no vendor or supplier accounts for more than 10% of the
inventory the Company purchases and in most cases alternative suppliers are
available.
The Company anticipates that it will increase inventory for approximately
one month prior to the Year 2000 to insure that it has adequate inventory to
cover possible disruptions associated with the Year 2000 date change.
The Company has not developed a contingency plan at present. However, it
will adopt such a plan, if necessary, in mid-1999 to address any unresolved
issues or risks that may exist at that time.
Moores
Moores has been in the process of updating and upgrading its information
systems to be Year 2000 compliant. Moores has converted or reprogrammed its
payroll, accounting and merchandising systems to ensure that the operation of
such systems will not be materially adversely affected by the Year 2000 date
change. With respect to its point of sale system, Moores is in the process of
installing new equipment and software that is Year 2000 compliant in its stores
and has completed approximately 80% of the installations. The remaining
installations are expected to be completed by June 30, 1999. Moores has also
completed the process of evaluating the machinery and embedded technology
involved in its manufacturing operations and has determined that the
manufacturing technology is Year 2000 compliant. Moores total costs related to
Year 2000 compliance are not expected to exceed Can $500,000.
Moores has requested and is in the process of receiving written responses
from its vendors and suppliers confirming that the vendor or supplier is Year
2000 compliant. Moores will continue to monitor those vendors and suppliers, as
well as those that have not provided written assurance. Moores expects to use
alternate sources to replace those vendors and suppliers who do not provide
written assurance of their Year 2000 readiness.
Assuming no general failure of utilities to provide basic services over
large geographic areas or of the banking systems generally to conduct business
substantially as usual, or of the credit card systems to confirm credit
generally, Moores believes that at the store level, the worst case scenario
would require the processing of credit approvals by telephone and the ordering
and allocation of inventory by telephone. While each of these scenarios would
increase the cost of doing business and may result in the loss of some sales,
Moores does not believe that either of these situations would have a material
adverse effect on Moores' results of operations.
At the manufacturing level, if all suppliers were unable to supply the
fabric needs of the manufacturing operations, then, given this worst case
scenario, one to two months of production could be lost. However, no one
supplier accounts for more than 14% of the fabric used and this supplier has
provided a written response that it is Year 2000 compliant. Moores anticipates
that if any one supplier is unable to provide fabric, an alternate source could
be found to meet production needs. If there is a significant disruption in the
supply chain due to the Year 2000 issue and the amount of fabric available from
suppliers is limited, it may be difficult to obtain the fabric necessary to meet
the demands of the manufacturing operations and available fabric may experience
a significant increase in cost.
Moores has not developed a contingency plan at present. However, Moores
intends to adopt such a plan, if necessary, in mid-1999 to address any
unresolved issues or risks that may exist at that time.
INFLATION
The impact of inflation on the Company has been minimal.
FORWARD-LOOKING STATEMENTS
Certain statements made herein and in other public filings and releases by
the Company contain "forward-looking" information (as defined in the Private
Securities Litigation Reform Act of 1995) that
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<PAGE> 158
involve risk and uncertainty. These forward-looking statements may include, but
are not limited to, future capital expenditures, acquisitions (including the
amount and nature thereof), future sales, earnings, margins, costs, number and
costs of store openings, demand for men's clothing, market trends in the retail
men's clothing business, currency fluctuations, inflation and various economic
and business trends. Forward-looking statements may be made by management orally
or in writing, including but not limited to, this Management's Discussion and
Analysis of Financial Condition and Results of Operations section and other
sections of the Company's filings with the Securities and Exchange Commission
under the Securities Exchange Act of 1934 and the Securities Act of 1933.
Actual results and trends in the future may differ materially depending on
a variety of factors including, but not limited to, domestic and international
economic activity and inflation, the Company's successful execution of internal
operating plans and new store and new market expansion plans, performance issues
with key suppliers, foreign currency fluctuations, government export and import
policies and legal proceedings. Future results will also be dependent upon the
ability of the Company to continue to identify and complete successful
expansions and penetrations into existing and new markets, and its ability to
integrate such expansions with the Company's existing operations.
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<PAGE> 159
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
INDEPENDENT AUDITORS' REPORT
Board of Directors and Shareholders
The Men's Wearhouse, Inc.
Houston, Texas
We have audited the accompanying consolidated balance sheets of The Men's
Wearhouse, Inc. and its subsidiaries (the "Company") as of January 31, 1998 and
January 30, 1999 and the related consolidated statements of earnings,
shareholders' equity, and cash flows for each of the three years in the period
ended January 30, 1999. These financial statements are the responsibility of the
Company's management. Our responsibility is to express an opinion on these
financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, such consolidated financial statements present fairly, in
all material respects, the financial position of the Company and its
subsidiaries as of January 31, 1998 and January 30, 1999, and the results of
their operations and their cash flows for each of the three years in the period
ended January 30, 1999 in conformity with generally accepted accounting
principles.
DELOITTE & TOUCHE LLP
Houston, Texas
March 9, 1999
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<PAGE> 160
THE MEN'S WEARHOUSE, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS, EXCEPT SHARES)
ASSETS
<TABLE>
<CAPTION>
JANUARY 31, JANUARY 30,
1998 1999
----------- -----------
<S> <C> <C>
CURRENT ASSETS:
Cash...................................................... $ 59,883 $ 19,651
Inventories............................................... 203,390 236,105
Other current assets...................................... 14,297 14,740
-------- --------
Total current assets.............................. 277,570 270,496
-------- --------
PROPERTY AND EQUIPMENT, AT COST:
Land...................................................... 2,447 4,598
Buildings................................................. 11,631 14,663
Leasehold improvements.................................... 52,386 69,588
Furniture, fixtures and equipment......................... 67,036 89,000
-------- --------
133,500 177,849
Less accumulated depreciation and amortization............ (52,234) (69,960)
-------- --------
Net property and equipment............................. 81,266 107,889
-------- --------
OTHER ASSETS, NET........................................... 20,579 25,347
-------- --------
TOTAL............................................. $379,415 $403,732
======== ========
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable.......................................... $ 51,836 $ 55,209
Accrued expenses.......................................... 33,408 34,107
Income taxes payable...................................... 9,765 7,125
-------- --------
Total current liabilities......................... 95,009 96,441
LONG-TERM DEBT.............................................. 57,500 --
OTHER LIABILITIES........................................... 6,858 9,073
-------- --------
Total liabilities................................. 159,367 105,514
-------- --------
COMMITMENTS AND CONTINGENCIES (Note 7)
SHAREHOLDERS' EQUITY:
Preferred stock, $.01 par value, 2,000,000 shares
authorized, none issued................................ -- --
Common stock, $.01 par value, 50,000,000 shares
authorized, 33,198,361 and 34,931,124 shares issued.... 221 349
Capital in excess of par.................................. 109,969 148,446
Retained earnings......................................... 110,199 150,418
-------- --------
Total............................................. 220,389 299,213
Treasury stock, 80,603 and 71,384 shares at cost............ (341) (995)
-------- --------
Total shareholders' equity............................. 220,048 298,218
-------- --------
TOTAL............................................. $379,415 $403,732
======== ========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
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THE MEN'S WEARHOUSE, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF EARNINGS
FOR THE YEARS ENDED FEBRUARY 1, 1997,
JANUARY 31, 1998 AND JANUARY 30, 1999
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
FISCAL YEAR
--------------------------------
1996 1997 1998
-------- -------- --------
<S> <C> <C> <C>
Net sales.................................................. $483,547 $631,110 $767,922
Cost of goods sold, including buying and occupancy costs... 295,181 388,517 468,187
-------- -------- --------
Gross margin............................................... 188,366 242,593 299,735
Selling, general and administrative expenses............... 150,232 191,063 228,053
-------- -------- --------
Operating income........................................... 38,134 51,530 71,682
Interest expense (net of interest income of $1,237, $1,275
and $940, respectively).................................. 2,146 2,366 2,032
-------- -------- --------
Earnings before income taxes............................... 35,988 49,164 69,650
Provision for income taxes................................. 14,845 20,281 28,730
-------- -------- --------
Earnings before extraordinary item......................... 21,143 28,883 40,920
Extraordinary item, net of tax............................. -- -- 701
-------- -------- --------
Net earnings............................................... $ 21,143 $ 28,883 $ 40,219
======== ======== ========
Net earnings per basic share:
Earnings before extraordinary item....................... $ 0.67 $ 0.89 $ 1.21
Extraordinary item, net of tax........................... -- -- (0.02)
-------- -------- --------
$ 0.67 $ 0.89 $ 1.19
======== ======== ========
Net earnings per diluted share:
Earnings before extraordinary item....................... $ 0.67 $ 0.87 $ 1.17
Extraordinary item, net of tax........................... -- -- (0.02)
-------- -------- --------
$ 0.67 $ 0.87 $ 1.15
======== ======== ========
Weighted average shares outstanding:
Basic.................................................... 31,354 32,343 33,849
======== ======== ========
Diluted.................................................. 34,101 35,384 36,075
======== ======== ========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
C-24
<PAGE> 162
THE MEN'S WEARHOUSE, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
FOR THE YEARS ENDED FEBRUARY 1, 1997,
JANUARY 31, 1998 AND JANUARY 30, 1999
(IN THOUSANDS, EXCEPT SHARES)
<TABLE>
<CAPTION>
CAPITAL IN
COMMON EXCESS OF RETAINED TREASURY
STOCK PAR EARNINGS STOCK TOTAL
------ ---------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
BALANCE -- February 3, 1996................ $209 $ 77,299 $ 60,173 $(720) $136,961
Net earnings............................. -- -- 21,143 -- 21,143
Common stock issued upon exercise of
stock options -- 184,596 shares....... 1 713 -- -- 714
Common stock withheld to satisfy tax
withholding liabilities of
optionees -- 65,316 shares............ -- (1,415) -- -- (1,415)
Tax benefit recognized upon exercise of
stock options......................... -- 1,101 -- -- 1,101
Treasury stock issued to profit sharing
plan -- 33,186 shares................. -- 484 -- 141 625
---- -------- -------- ----- --------
BALANCE -- February 1, 1997................ 210 78,182 81,316 (579) 159,129
Net earnings............................. -- -- 28,883 -- 28,883
Common stock issued in public offering --
1,500,000 shares...................... 10 29,951 -- -- 29,961
Common stock issued upon exercise of
stock options -- 264,185 shares....... 1 1,409 -- -- 1,410
Common stock withheld to satisfy tax
withholding liabilities of
optionees -- 84,921 shares............ -- (1,949) -- -- (1,949)
Tax benefit recognized upon exercise of
stock options......................... -- 1,614 -- -- 1,614
Treasury stock issued to profit sharing
plan -- 56,339 shares................. -- 762 -- 238 1,000
---- -------- -------- ----- --------
BALANCE -- January 31, 1998................ 221 109,969 110,199 (341) 220,048
Net earnings............................. -- -- 40,219 -- 40,219
Stock dividend -- 50%.................... 111 (111) -- -- --
Common stock issued upon conversion of
subordinated notes -- 1,615,501
shares................................ 16 35,909 -- -- 35,925
Common stock issued to stock discount
plan -- 21,588 shares................. -- 428 -- -- 428
Common stock issued upon exercise of
stock options -- 121,724 shares....... 1 1,394 -- -- 1,395
Common stock withheld to satisfy tax
withholding liabilities of
optionees -- 26,050 shares............ -- (905) -- -- (905)
Tax benefit recognized upon exercise of
stock options......................... -- 534 -- -- 534
Treasury stock issued to profit sharing
plan -- 64,218 shares................. -- 1,228 -- 272 1,500
Treasury stock purchased -- 55,000
shares................................ -- -- -- (926) (926)
---- -------- -------- ----- --------
BALANCE -- January 30, 1999................ $349 $148,446 $150,418 $(995) $298,218
==== ======== ======== ===== ========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
C-25
<PAGE> 163
THE MEN'S WEARHOUSE, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED
FEBRUARY 1, 1997, JANUARY 31, 1998 AND JANUARY 30, 1999
(IN THOUSANDS)
<TABLE>
<CAPTION>
1996 1997 1998
-------- -------- --------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net earnings.............................................. $ 21,143 $ 28,883 $ 40,219
Adjustments to reconcile net earnings to net cash provided
by operating activities:
Depreciation and amortization.......................... 12,563 16,802 21,587
Deferred tax provision (benefit)....................... (1,093) (3,562) 2,665
Increase in inventories................................ (27,343) (39,250) (32,715)
Increase in other current assets....................... (3,083) (1,207) (1,375)
Increase in accounts payable and accrued expenses...... 13,138 24,089 4,274
Increase (decrease) in income taxes payable............ 4,019 3,185 (2,106)
Increase (decrease) in other liabilities............... 455 (2) 482
-------- -------- --------
Net cash provided by operating activities......... 19,799 28,938 33,031
-------- -------- --------
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures...................................... (26,222) (27,380) (46,247)
Investment in trademarks, tradenames and other
intangibles............................................ (11,972) (4,557) (6,240)
-------- -------- --------
Net cash used in investing activities............. (38,194) (31,937) (52,487)
-------- -------- --------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from issuance of common stock.................... 714 31,371 1,823
Bank borrowings........................................... 18,750 -- 42,500
Principal payments on bank debt........................... (23,000) -- (42,500)
Net proceeds from (repayment of) convertible notes........ 55,500 -- (20,747)
Principal payments under capital lease obligations........ (588) (423) (21)
Payment of deferred loan costs............................ -- (230) --
Tax payments related to options exercised................. (1,415) (1,949) (905)
Purchase of treasury stock................................ -- -- (926)
-------- -------- --------
Net cash provided by (used in) financing
activities...................................... 49,961 28,769 (20,776)
-------- -------- --------
INCREASE (DECREASE) IN CASH................................. 31,566 25,770 (40,232)
CASH:
Beginning of period....................................... 2,547 34,113 59,883
-------- -------- --------
End of period............................................. $ 34,113 $ 59,883 $ 19,651
======== ======== ========
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
Cash paid during the year for:
Interest............................................... $ 2,145 $ 2,877 $ 3,932
======== ======== ========
Income taxes........................................... $ 11,919 $ 20,657 $ 27,910
======== ======== ========
SUPPLEMENTAL SCHEDULE OF NONCASH INVESTING AND FINANCING
ACTIVITIES:
Additional paid in capital, net of unamortized deferred
financing costs, resulting from conversion of long-term
debt into common stock................................. $ -- $ -- $ 35,909
======== ======== ========
Additional paid in capital resulting from tax benefit
recognized upon exercise of stock options.............. $ 1,101 $ 1,614 $ 534
======== ======== ========
Treasury stock contributed to employee stock ownership
plan................................................... $ 625 $ 1,000 $ 1,500
======== ======== ========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
C-26
<PAGE> 164
THE MEN'S WEARHOUSE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Organization and Business -- The Men's Wearhouse, Inc. is an off-price
specialty retailer of men's tailored business attire with operations throughout
the United States. The Men's Wearhouse, Inc. follows the standard fiscal year of
the retail industry, which is a 52-week or 53-week period ending on the Saturday
closest to January 31. Fiscal year 1996 ended on February 1, 1997, fiscal year
1997 ended on January 31, 1998 and fiscal year 1998 ended on January 30, 1999.
Each of these fiscal years included 52 weeks.
Principles of Consolidation -- The consolidated financial statements
include the accounts of the Men's Wearhouse, Inc. and its wholly owned
subsidiaries (the "Company"). Intercompany accounts and transactions have been
eliminated in the consolidated financial statements.
Use of Estimates -- The preparation of financial statements in conformity
with generally accepted accounting principles requires management to make
estimates and assumptions that affect the reported amounts of assets and
liabilities and disclosures of contingent assets and liabilities at the date of
the financial statements and the reported amounts of revenues and expenses
during the reporting period. Actual results could differ from those estimates.
Cash and Cash Equivalents -- For purposes of the statement of cash flows,
the Company considers all highly liquid investments with maturities of three
months or less to be cash equivalents.
Inventories -- Inventories are valued at the lower of cost or market, with
cost determined on the retail first-in, first-out method.
Property and Equipment -- Property and equipment are stated at cost. Normal
repairs and maintenance costs are charged to earnings as incurred and additions
and major improvements are capitalized. The cost of assets retired or otherwise
disposed of and the related allowances for depreciation are eliminated from the
accounts in the year of disposal and the resulting gain or loss is credited or
charged to earnings. The Company computes depreciation using the straight-line
method. The estimated useful lives used in computing depreciation generally
range from 20 to 25 years for buildings, three to eight years for furniture,
fixtures and equipment and eight years for leasehold improvements.
Other Assets -- Other assets include the cost of trademarks, tradenames and
other intangibles acquired. Such cost is amortized over 15 years using the
straight-line method.
Impairment of Long-Lived Assets -- The Company evaluates the carrying value
of long-lived assets, such as property and equipment and trademarks, tradenames
and other intangibles, for impairment whenever events or changes in
circumstances indicate that the carrying amount of an asset may not be
recoverable. If it is determined, based on estimated undiscounted future cash
flows, that an impairment has occurred, a loss is recognized currently for the
impairment.
Fair Value of Financial Instruments -- As of January 31, 1998 and January
30, 1999, management estimates that the fair value of cash and cash equivalents,
receivables, accounts payable, accrued expenses and other liabilities payable
are carried at amounts that reasonably approximate their fair value.
New Store Costs -- Promotion and other costs associated with the opening of
new stores are expensed as incurred.
Revenue Recognition -- The Company records revenue at the point-of-sale.
Stock Based Compensation -- As permitted by Statement of Financial
Accounting Standards No. 123, "Accounting for Stock-Based Compensation" ("SFAS
No. 123"), the Company accounts for stock-based compensation using the intrinsic
value method prescribed in Accounting Principles Board Opinion No. 25,
"Accounting for Stock Issued to Employees." Accordingly, no compensation expense
has been recognized for
C-27
<PAGE> 165
THE MEN'S WEARHOUSE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
the Company's employee stock option plans. The disclosures required by SFAS No.
123 are included in Note 6.
Stock Dividend -- In June 1998, the Company effected a three-for-two common
stock split by paying a 50% stock dividend to stockholders of record as of June
12, 1998. All share and per share information included in the accompanying
consolidated financial statements and related notes have been restated to
reflect the stock dividend.
Derivative Financial Instruments -- The Company enters into foreign
currency forward exchange contracts to hedge against foreign exchange risks
associated with certain firmly committed, and certain other probable, but not
firmly committed, inventory purchase transactions that are denominated in a
foreign currency (primarily the Italian lira). Gains and losses associated with
these contracts are accounted for as part of the underlying inventory purchase
transactions.
Comprehensive Income -- The Company has adopted Statement of Financial
Accounting Standards No. 130, "Reporting Comprehensive Income." For the three
years ended January 30, 1999, comprehensive income equaled net income.
Segment Information -- The Company has adopted Statement of Financial
Accounting Standards No. 131, "Disclosures about Segments of an Enterprise and
Related Information," and reports its operations in one business
segment -- retail sales of men's tailored business attire.
New Accounting Pronouncements -- In June 1998, the Financial Accounting
Standards Board issued Statement No. 133, "Accounting for Derivative Instruments
and Hedging Activities" ("SFAS 133"), which requires that an entity recognize
all derivative instruments as either assets or liabilities on its balance sheet
at their fair value. Gains and losses resulting from changes in the fair value
of derivatives are recorded each period in current earnings or comprehensive
earnings, depending on whether a derivative is designated as part of a hedge
transaction, and if it is, the type of hedge transaction. Gains and losses on
derivative instruments reported in comprehensive earnings will be reclassified
as earnings in the period in which earnings are affected by the hedged item.
SFAS 133 is effective for fiscal years beginning after June 15, 1999. The
Company is currently evaluating the impact, if any, of SFAS 133 on its financial
position and results of operations.
C-28
<PAGE> 166
THE MEN'S WEARHOUSE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
2. EARNINGS PER SHARE
Basic EPS is computed using the weighted average number of common shares
outstanding during the period and net earnings. Diluted EPS gives effect to the
potential dilution which would have occurred if additional shares were issued
for (i) stock options exercised under the treasury stock method and (ii)
conversion of the convertible debt, with net earnings adjusted for interest
expense associated with the convertible debt. The following table reconciles the
earnings and shares used in the basic and diluted EPS computations (in
thousands, except per share amounts):
<TABLE>
<CAPTION>
FISCAL YEAR
---------------------------
1996 1997 1998
------- ------- -------
<S> <C> <C> <C>
Earnings before extraordinary item.............. $21,143 $28,883 $40,920
Extraordinary item, net of tax.................. -- -- 701
------- ------- -------
Net earnings.................................... $21,143 $28,883 $40,219
======= ======= =======
Weighted average number of common shares
outstanding................................... 31,354 32,343 33,849
======= ======= =======
Basic EPS
Earnings before extraordinary item............ $ 0.67 $ 0.89 $ 1.21
Extraordinary item, net of tax................ -- -- (0.02)
------- ------- -------
Net earnings.................................. $ 0.67 $ 0.89 $ 1.19
======= ======= =======
Earnings before extraordinary item.............. $21,143 $28,883 $40,920
Interest on notes, net of taxes................. 1,777 1,943 1,144
------- ------- -------
As adjusted..................................... 22,920 30,826 42,064
Extraordinary item, net of tax.................. -- -- 701
------- ------- -------
As adjusted..................................... $22,920 $30,826 $41,363
======= ======= =======
Weighted average number of common shares
outstanding................................... 31,354 32,343 33,849
Assumed exercise of stock options............... 435 513 684
Assumed conversion of notes..................... 2,312 2,528 1,542
------- ------- -------
As adjusted..................................... 34,101 35,384 36,075
======= ======= =======
Diluted EPS
Earnings before extraordinary item............ $ 0.67 $ 0.87 $ 1.17
Extraordinary item, net of tax................ -- -- (0.02)
------- ------- -------
Net earnings.................................. $ 0.67 $ 0.87 $ 1.15
======= ======= =======
</TABLE>
3. ACCRUED EXPENSES
Accrued expenses consist of the following (in thousands):
<TABLE>
<CAPTION>
JANUARY 31, JANUARY 30,
1998 1999
----------- -----------
<S> <C> <C>
Sales, payroll and property taxes payable.............. $ 6,567 $ 9,924
Accrued salary, bonus and vacation..................... 9,773 8,484
Other.................................................. 17,068 15,699
------- -------
Total........................................ $33,408 $34,107
======= =======
</TABLE>
C-29
<PAGE> 167
THE MEN'S WEARHOUSE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
4. LONG-TERM DEBT
In February 1999, the Company amended and restated its revolving credit
agreement with a group of banks ("the Credit Agreement"). This agreement
provides for borrowing of up to $125 million through February 5, 2004. Advances
under the Credit Agreement bear interest at a rate per annum equal to, at the
Company's option, the agent's prime rate or the reserve adjusted LIBOR rate plus
an interest rate margin varying between .75% to 1.25%. The Credit Agreement
provides for fees applicable to unused commitments of .125% to .225%. As of
January 30, 1999, there was no indebtedness outstanding under the Credit
Agreement.
The Credit Agreement contains certain restrictive and financial covenants,
including the requirement to maintain a minimum amount of Consolidated Net Worth
(as defined). The Company is also required to maintain certain debt to cash
flow, cash flow coverage and current ratio. In addition, the Credit Agreement
limits additional indebtedness, creation of liens, Restrictive Payments (as
defined) and Investments (as defined). The Credit Agreement also prohibits
payment of cash dividends on the common stock of the Company. The Credit
Agreement permits, with certain limitations, the Company to merge or consolidate
with another company, sell or dispose of its property, make acquisitions, issue
options or enter into transactions with affiliates. The Company is in compliance
with the covenants in the Credit Agreement.
In February 1999, the Company also entered into two new Canadian credit
facilities in conjunction with the combination with Moores Retail Group Inc.
("Moores") (see Note 10). These facilities include a revolving credit agreement
which provides for borrowings up to Can $30 million (U.S. $20 million) through
February 5, 2004 and a term credit agreement which provides for borrowings of
Can $75 million (U.S. $50 million) to be repaid in quarterly installments of Can
$0.9 million (U.S. $0.6 million beginning May 1, 1999; remaining unpaid
principal is payable on February 5, 2004. Covenants and interest rates are
substantially similar to those contained in the Company's Credit Agreement.
Borrowings under these agreements were used to repay approximately U.S. $59
million in outstanding indebtedness of Moores with the remaining availability to
be used to fund cash operating and other requirements of Moores.
In August 1998, the Company gave notice to the holders of its outstanding
5 1/4% Convertible Subordinated Notes (the "Notes") that the Company would
redeem the Notes on September 14, 1998. As a result, $36.8 million principal
amount of the Notes was converted into 1.6 million shares of the Company's
common stock and $20.7 million principal amount was redeemed for an aggregate of
$21.5 million. An extraordinary charge of $0.7 million, net of tax benefit of
$0.5 million, related to the early retirement of the Notes was recognized.
5. INCOME TAXES
The provision for income taxes consists of the following (in thousands):
<TABLE>
<CAPTION>
FISCAL YEAR
---------------------------
1996 1997 1998
------- ------- -------
<S> <C> <C> <C>
Current tax expense:
Federal....................................... $13,410 $19,881 $22,065
State......................................... 2,528 3,962 4,000
Deferred tax expense (benefit):
Current....................................... (1,750) (3,039) 931
Noncurrent.................................... 657 (523) 1,734
------- ------- -------
Total................................. $14,845 $20,281 $28,730
======= ======= =======
</TABLE>
The table above does not include the current tax expense effect of the
extraordinary item in 1998 of $0.5 million.
C-30
<PAGE> 168
THE MEN'S WEARHOUSE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
A reconciliation of the statutory federal income tax rate to the Company's
effective tax rate is as follows:
<TABLE>
<CAPTION>
FISCAL YEAR
------------------
1996 1997 1998
---- ---- ----
<S> <C> <C> <C>
Federal statutory rate.................................... 35% 35% 35%
State income taxes, net of federal benefit................ 5 5 5
Other..................................................... 1 1 1
-- -- --
41% 41% 41%
== == ==
</TABLE>
At January 31, 1998, the Company had net deferred tax assets of $4.8
million with $6.5 million classified as other current assets and $1.7 million
classified as other liabilities (noncurrent). At January 30, 1999, the Company
had net deferred tax assets of $2.1 million with $5.6 million classified as
other current assets and $3.5 million classified as other liabilities
(noncurrent). No valuation allowance was required for the deferred tax assets.
Total deferred tax assets and liabilities and the related temporary differences
as of January 31, 1998 and January 30, 1999 were as follows (in thousands):
<TABLE>
<CAPTION>
JANUARY 31, JANUARY 30,
1998 1999
----------- -----------
<S> <C> <C>
Deferred tax assets:
Accrued rent and other expenses...................... $ 4,775 $ 4,242
Accrued compensation................................. 1,148 1,164
Accrued markdowns.................................... 2,511 1,731
Other................................................ 502 85
------- -------
8,936 7,222
------- -------
Deferred tax liabilities:
Capitalized inventory costs.......................... (1,193) (2,444)
Property and equipment capitalization................ (2,461) (2,409)
Other................................................ (501) (253)
------- -------
(4,155) (5,106)
------- -------
Net deferred tax assets...................... $ 4,781 $ 2,116
======= =======
</TABLE>
6. CAPITAL STOCK, STOCK OPTIONS AND BENEFIT PLANS
In July 1997, the Company sold 1,500,000 shares of common stock with net
proceeds to the Company of $30.0 million. In addition, the Company effected a
50% stock dividend on June 19, 1998. All share and per share amounts reflected
in the financial statements give retroactive effect to the stock dividend.
The Company has adopted the 1992 Stock Option Plan ("1992 Plan") which, as
amended, provides for the grant of options to purchase up to 1,071,507 shares of
the Company's common stock to full-time key employees (excluding certain
officers), the 1996 Stock Option Plan ("1996 Plan") which provides for the grant
of options to purchase up to 1,125,000 shares of the Company's common stock to
full-time key employees (excluding certain officers), and the 1998 Key Employee
Stock Option Plan ("1998 Plan") which provides for the grant of options to
purchase up to 750,000 shares of the Company's common stock to full-time key
employees (excluding certain officers). Each of the plans will expire at the end
of ten years and no option may be granted pursuant to the plans after the
expiration date. In fiscal 1992, the Company also adopted a Non-Employee
Director Stock Option Plan ("Director Plan") which, as amended, provides for the
grant of options to purchase up to 67,500 shares of the Company's common stock
to non-employee directors of the Company. Options granted under these plans must
be exercised within ten years of the date of grant.
C-31
<PAGE> 169
THE MEN'S WEARHOUSE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Generally, options granted under the 1992 Plan, 1996 Plan and 1998 Plan
vest at the rate of 1/3 of the shares covered by the grant on each of the first
three anniversaries of the date of grant and may not be issued at a price less
than 50% of the fair market value of the Company's stock on the date of grant.
However, a significant portion of options granted under these Plans vest
annually in varying increments over a period from one to ten years. Options
granted under the Director Plan vest one year after the date of grant and are
issued at a price equal to the fair market value of the Company's stock on the
date of grant.
In connection with an employment agreement entered into in January 1991
with an officer of the Company, that officer was granted options to acquire
796,705 shares of common stock of the Company at a price of $1.57 per share.
Among other things, the employment agreement provides that upon the exercise of
any of these options, the Company will pay the officer an amount which, after
the payment of income taxes by the officer on such amount, will equal the $1.57
per share purchase price for the shares purchased upon exercise of the options.
The Company recognized compensation expense as the options vested. The officer
exercised 110,652 options in 1996 and 110,654 options in 1997. As of January 31,
1998, all stock options granted in connection with this employment agreement
have been exercised.
The following table is a summary of the Company's stock option activity:
<TABLE>
<CAPTION>
WEIGHTED
SHARES AVERAGE
UNDER EXERCISE OPTIONS
OPTION PRICE EXERCISABLE
--------- -------- -----------
<S> <C> <C> <C>
Options outstanding, February 3, 1996........ 1,041,797 $ 7.76 479,358
====== =======
Granted.................................... 543,000 15.78
Exercised.................................. (184,596) 3.49
Forfeited.................................. (4,463) 11.86
---------
Options outstanding, February 1, 1997........ 1,395,738 $11.43 519,468
====== =======
Granted.................................... 640,875 21.12
Exercised.................................. (264,185) 4.99
Forfeited.................................. (8,155) 14.27
---------
Options outstanding, January 31, 1998........ 1,764,273 $15.90 520,520
====== =======
Granted.................................... 261,350 26.59
Exercised.................................. (121,724) 10.88
Forfeited.................................. (24,977) 20.15
---------
Options outstanding, January 30, 1999........ 1,878,922 $17.66 703,494
========= ====== =======
</TABLE>
Grants of stock options outstanding as of January 30, 1999 are summarized
as follows:
<TABLE>
<CAPTION>
OPTIONS OUTSTANDING OPTIONS EXERCISABLE
------------------------------------- -----------------------
WEIGHTED-
AVERAGE WEIGHTED- WEIGHTED-
REMAINING AVERAGE AVERAGE
NUMBER CONTRACTUAL EXERCISE NUMBER EXERCISE
RANGE OF EXERCISE PRICES OUTSTANDING LIFE PRICE EXERCISABLE PRICE
------------------------ ----------- ----------- --------- ----------- ---------
<S> <C> <C> <C> <C> <C>
$ 3.85 to 9.90................ 324,300 5.0 years $ 8.39 256,800 $ 8.59
9.91 to 17.76................ 735,572 7.7 years 15.62 336,809 15.55
17.77 to 29.63................ 819,050 9.2 years 23.16 109,885 22.03
--------- -------
3.85 to 29.63................ 1,878,922 17.66 703,494 14.02
========= ====== ======= ======
</TABLE>
C-32
<PAGE> 170
THE MEN'S WEARHOUSE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
As of January 30, 1999, 761,873 options were available for grant under
existing plans and 2,640,795 shares of common stock were reserved for future
issuance under these plans.
The difference between the option price and the fair market value of the
Company's common stock on the dates that options for 184,596, 264,185 and
121,724 shares of common stock were exercised during 1996, 1997 and 1998,
respectively, resulted in a tax benefit to the Company of $1.1 million in 1996,
$1.6 million in 1997 and $0.5 million in 1998, which has been recognized as
capital in excess of par. In addition, the Company withheld 65,316 shares,
84,921 shares and 26,050 shares, respectively, of such common stock for
withholding payments made to satisfy the optionees' income tax liabilities
resulting from the exercises.
The Company has a profit sharing plan, in the form of an employee stock
plan, which covers all eligible employees, and an employee tax-deferred savings
plan. Contributions to the profit sharing plan are made at the discretion of the
Board of Directors. During 1996, 1997 and 1998, contributions charged to
operations were $1.0 million, $1.5 million and $2.1 million, respectively, for
the plans.
In 1998, the Company adopted an Employee Stock Discount Plan ("ESDP"),
which allows employees to authorize after-tax payroll deductions to be used for
the purchase of up to 1,425,000 shares of the Company's common stock at 85% of
the then fair market value. The Company makes no contributions to this plan but
pays all brokerage, service and other costs incurred. A participant may not
purchase more than $2,500 in value of shares during any calendar quarter. During
1998, employees purchased 21,588 shares under the ESDP, the weighted-average
fair value of which was $19.86 per share. As of January 30, 1999, 1,403,412
shares were reserved for future issuance under the ESDP.
The Company has adopted the disclosure-only provisions of SFAS No. 123 and
continues to apply APB Opinion 25 and related interpretations in accounting for
the stock option plans and the employee stock purchase plan. Accordingly, no
compensation cost has been recognized in the accompanying consolidated financial
statements for the stock option plans or the employee stock discount plan. Had
the Company elected to apply the accounting standards of SFAS No. 123, the
Company's net earnings and net earnings per share would have approximated the
pro forma amounts indicated below (in thousands, except per share data):
<TABLE>
<CAPTION>
1996 1997 1998
------- ------- -------
<S> <C> <C> <C>
Earnings before extraordinary item:
As reported................................... $21,143 $28,883 $40,920
Pro forma..................................... $20,586 $27,885 $39,246
Earnings per share before extraordinary item
As reported:
Basic...................................... $ 0.67 $ 0.89 $ 1.21
Diluted.................................... $ 0.67 $ 0.87 $ 1.17
Pro forma:
Basic...................................... $ 0.65 $ 0.86 $ 1.16
Diluted.................................... $ 0.65 $ 0.84 $ 1.12
</TABLE>
The fair value of each option grant is estimated on the date of grant using
the Black-Scholes option-pricing model, which resulted in a weighted-average
fair value of $5.14, $6.83 and $7.28 for grants made during fiscal 1996, 1997
and 1998, respectively. The following assumptions were used for option grants in
1996, 1997 and 1998, respectively: expected volatility of 50.91%, 52.15% and
52.07%, risk-free interest rates (U.S. Treasury five year notes) of 6.21%, 6.00%
and 5.84%, and an expected life of five years.
C-33
<PAGE> 171
THE MEN'S WEARHOUSE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
7. COMMITMENTS AND CONTINGENCIES
Lease commitments
The Company leases retail business locations, office and warehouse
facilities, computer equipment and automotive equipment under operating leases
expiring in various years through 2015. Rent expense for fiscal 1996, 1997 and
1998 was $26.9 million, $35.2 million and $41.5 million, respectively, and
includes contingent rentals of $0.3 million, $0.3 million and $0.4 million,
respectively.
Minimum future rental payments under noncancelable operating leases as of
January 30, 1999 for each of the next five years and in the aggregate are as
follows (in thousands):
<TABLE>
<CAPTION>
FISCAL YEAR AMOUNT
- ----------- --------
<S> <C>
1999...................................................... $ 43,495
2000...................................................... 39,820
2001...................................................... 37,164
2002...................................................... 33,211
2003...................................................... 28,616
Thereafter................................................ 78,749
--------
Total........................................... $261,055
========
</TABLE>
Leases on retail business locations specify minimum rentals plus common
area maintenance charges and possible additional rentals based upon percentages
of sales. Most of the retail business location leases provide for renewal
options at rates specified in the leases. In the normal course of business,
these leases are generally renewed or replaced by other leases.
Legal matters
The Company is a defendant in various lawsuits and subject to various
claims and proceedings encountered in the normal conduct of its business. In the
opinion of management, any uninsured losses that might arise from these lawsuits
and proceedings would not have a material adverse effect on the business or
consolidated financial position or results of operations of the Company.
Currency contracts
The Company routinely enters into inventory purchase commitments that are
denominated in a foreign currency (primarily the Italian lira). To protect
against currency exchange risks associated with certain firmly committed and
certain other probable, but not firmly committed inventory transactions, the
Company enters into foreign currency forward exchange contracts. At January 30,
1999, the Company held forward exchange contracts with notional amounts totaling
$9.6 million. All such contracts expire within 9 months. Gains and losses
associated with these contracts are accounted for as part of the underlying
inventory purchase transactions. The fair value of the forward exchange
contracts is estimated by comparing the cost of the foreign currency to be
purchased under the contracts using the exchange rates obtained under the
contracts (adjusted for forward points) to the hypothetical cost using the spot
rate at year end. At January 30, 1999, the contracts outstanding had a fair
value of $0.1 million less than their notional value.
The majority of the forward exchange contracts are with one financial
institution. Therefore, the Company is exposed to credit risk in the event of
nonperformance by this party. However, due to the creditworthiness of this major
financial institution, full performance is anticipated. The Company may also be
exposed to market risk as a result of changes in foreign exchange rates. This
market risk should be substantially offset by changes in the valuation of the
underlying transactions being hedged.
C-34
<PAGE> 172
THE MEN'S WEARHOUSE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
8. ACQUISITIONS
In January 1997, the Company acquired 17 men's tailored clothing stores,
including inventory, operating in southern California and entered into a lease
for a distribution facility for those stores. In May 1997, the Company acquired
six men's tailored clothing stores, including inventory, operating in Texas and
Louisiana. In February 1998, the Company acquired four stores, including
inventory, operating in Detroit, Michigan. Also acquired were trademarks,
tradenames and other intangible assets associated with these businesses.
9. QUARTERLY RESULTS OF OPERATIONS (UNAUDITED)
The Company's quarterly results of operations reflect all adjustments,
consisting only of normal, recurring adjustments, which are, in the opinion of
management, necessary for a fair statement of the results for the interim
periods presented. The consolidated results of operations by quarter for the
1997 and 1998 fiscal years are presented below (in thousands, except per share
amounts):
<TABLE>
<CAPTION>
FISCAL 1997
QUARTERS ENDED
------------------------------------------------
MAY 3, AUGUST 2, NOVEMBER 1, JANUARY 31,
1997 1997 1997 1998
-------- --------- ----------- -----------
<S> <C> <C> <C> <C>
Net sales........................ $130,621 $133,935 $146,311 $220,243
Gross margin..................... 48,433 51,191 55,139 87,830
Net earnings..................... 4,016 5,356 5,569 13,942
Basic earnings per share......... $ 0.13 $ 0.17 $ 0.17 $ 0.42
Diluted earnings per share....... $ 0.13 $ 0.17 $ 0.17 $ 0.40
FISCAL 1998
QUARTERS ENDED
------------------------------------------------
MAY 2, AUGUST 1, OCTOBER 31, JANUARY 30,
1998 1998 1998 1999
-------- --------- ----------- -----------
Net sales........................ $170,850 $162,858 $170,742 $263,472
Gross margin..................... 63,845 63,892 65,281 106,717
Earnings before extraordinary
item........................... 6,718 8,014 7,260 18,928
Net earnings..................... $ 6,718 $ 8,014 $ 6,559 $ 18,928
Earnings per share before
extraordinary item :
Basic....................... $ 0.20 $ 0.24 $ 0.21 $ 0.54
Diluted..................... $ 0.20 $ 0.23 $ 0.21 $ 0.53
</TABLE>
An extraordinary charge of $0.7 million, net of tax benefit of $0.5
million, related to the early retirement of the Notes (Note 4) was recognized in
the third quarter of 1998.
Due to the method of calculating weighted average common shares
outstanding, the sum of the quarterly per share amounts may not equal earnings
per share for the respective years.
10. SUBSEQUENT EVENTS
K&G Men's Center, Inc.
On March 4, 1999, the Company announced the signing of an Agreement and
Plan of Merger with K&G Men's Center, Inc. ("K&G"), a retailer of men's apparel
and accessories with 33 stores in the United States. Under the terms of the
proposed merger, the Company will issue between 0.40 and 0.43 of a share of its
common stock in exchange for each share of K&G common stock. The exact exchange
ratio will depend on the average trading price for the Company's common stock
during a 15 trading day period ending on the third trading day before the
merger. K&G has approximately 10.3 million shares outstanding. It is expected
that the
C-35
<PAGE> 173
THE MEN'S WEARHOUSE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
merger with K&G by the Company will be accounted for as a pooling of interests.
Consummation of the proposed merger is dependent upon, among other things, the
approval of the shareholders of K&G.
Moores Retail Group Inc.
On February 10, 1999, the Company acquired Moores, a privately owned
Canadian corporation, in exchange for securities ("Exchangeable Shares")
exchangeable for 2.5 million shares of the Company's common stock. The
Exchangeable Shares have substantially identical economic and legal rights as,
and will ultimately be exchanged on a one-on-one basis for, shares of the
Company's common stock. The Exchangeable Shares were issued to the shareholders
and option holders of Moores in exchange for all of the outstanding shares of
capital stock and options of Moores because of Canadian tax law considerations.
All Exchangeable Shares must be converted into common stock of the Company
within five years and will be reflected as common stock outstanding for
financial reporting purposes by the Company. The merger has been accounted for
as a pooling of interests.
Moores operates 107 men's tailored clothing stores in Canada and eight
stores in the United States. Moores also operates a manufacturing facility in
Montreal, Canada that manufactures substantially all of the tailored clothing
for sale in the Moores stores. In connection with closing the Moores
combination, the Company repaid approximately U.S. $59.0 million of Moores'
existing indebtedness and entered into two new Canadian credit facilities for
this purpose. The credit facilities, which will also be used to provide working
capital for the ongoing needs of Moores, include a Can $30 million (U.S. $20
million) revolving loan and a Can $75 million (U.S. $50 million) term loan.
There have been no significant transactions between the Company and Moores prior
to the combination and no adjustments will be necessary to conform accounting
practices or fiscal years.
The following unaudited pro forma combined financial statements of the
Company and Moores give effect to the February 10, 1999 combination on a
pooling-of-interests basis. The unaudited pro forma combined financial
statements should be read in conjunction with the historical consolidated
financial statements and the notes thereto of the Company. The unaudited pro
forma combined balance sheet as of January 30, 1999 assumes that the February
10, 1999 combination of the Company and Moores was consummated on January 30,
1999 and combines the consolidated balance sheets of the Company and Moores as
of January 30, 1999. The unaudited pro forma combined balance sheet includes
adjustments which give effect to events that are directly attributable to the
transactions.
The unaudited pro forma combined statements of earnings assume that the
combination was consummated at the beginning of fiscal 1997 and combine the
historical results of the Company and Moores for fiscal 1997 and 1998. The
historical results of Moores for fiscal 1996 have not been combined with the
Company's fiscal 1996 historical results as Moores commenced operations on
December 23, 1996 and its reported net loss of $0.1 million for the 40 day
period from December 23, 1996 to January 31, 1997 is not significant.
Nonrecurring charges totaling $5.3 million, net of a $0.3 million tax benefit,
which resulted directly from the combination and will be included in the
Company's fiscal 1999 results of operations have been excluded from the
unaudited pro forma combined statements of earnings. In addition, an
extraordinary charge of $2.9 million, net of a $1.4 million tax benefit,
relating to the refinancing of the February 10, 1999 outstanding debt of Moores
has not been reflected. The effects of these nonrecurring and extraordinary
charges have, however, been reflected in the pro forma adjustments to retained
earnings in the pro forma combined balance sheet.
The historical consolidated financial statements of Moores included in the
pro forma combined balance sheet and statements of earnings are stated in United
States dollars and have been prepared in accordance with generally accepted
accounting principles in the United States. The exchange rates used in
translating the historical Canadian currency financial statements of Moores
reflect the current exchange rate as of the balance sheet date and the weighted
average exchange rates for the periods presented in the statements of earnings.
The cumulative translation adjustments are reported as a separate component of
shareholders' equity. The
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<PAGE> 174
THE MEN'S WEARHOUSE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
historical statements of earnings for Moores included in the pro forma combined
statements of earnings do not reflect earnings per share data since Moores, as a
privately owned company, has not reported such data. The pro forma earnings per
share in the pro forma combined statements of earnings reflect the 2.5 million
shares of common stock that the Company will ultimately issue to the former
shareholders and option holders of Moores as a result of the February 10, 1999
combination of the Company and Moores.
PRO FORMA COMBINED BALANCE SHEET
(UNAUDITED -- IN THOUSANDS)
<TABLE>
<CAPTION>
JANUARY 30,
1999
-----------
<S> <C>
ASSETS
Current assets.............................................. $309,229
Property and equipment, net................................. 118,185
Other assets, net........................................... 46,135
--------
Total assets...................................... $473,549
========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities......................................... $111,021
Long-term debt.............................................. 56,326
Other liabilities........................................... 8,439
--------
Total liabilities................................. 175,786
Shareholders' equity........................................ 297,763
--------
Total liabilities and shareholders' equity........ $473,549
========
</TABLE>
PRO FORMA COMBINED STATEMENT OF EARNINGS
FOR THE YEARS ENDED JANUARY 31, 1998 AND JANUARY 30, 1999
(UNAUDITED -- IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
FISCAL 1997 FISCAL 1998
----------- -----------
<S> <C> <C>
Net sales................................................... $762,524 $898,597
Cost of goods sold, including buying and occupancy costs.... 471,268 549,670
-------- --------
Gross margin................................................ 291,256 348,927
Selling, general and administrative expenses................ 226,359 263,216
-------- --------
Operating income............................................ 64,897 85,711
Interest expense, net....................................... (9,600) (9,025)
-------- --------
Earnings before income taxes................................ 55,297 76,686
Provision for income taxes.................................. (24,346) (32,773)
-------- --------
Earnings before extraordinary item.......................... $ 30,951 $ 43,913
======== ========
Earnings before extraordinary item per share:
Basic..................................................... $ 0.89 $ 1.21
Diluted................................................... 0.87 1.17
Weighted average shares outstanding:
Basic..................................................... 34,843 36,349
Diluted................................................... 37,884 38,575
</TABLE>
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<PAGE> 175
THE MEN'S WEARHOUSE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The pro forma combined financial statements as of January 30, 1999 and for
the years ended January 31, 1998 and January 30, 1999 have been adjusted for the
following to reflect the February 10, 1999 combination of the Company and Moores
as a pooling-of-interests and the concurrent debt refinancing:
a. Transaction costs incurred in the combination of the Company and Moores
under pooling-of-interests accounting. The costs, which primarily relate to
investment banking fees, professional fees, contract termination payments and
unamortized stock option compensation expenses, totaled approximately $5.3
million, net of a tax benefit of $0.3 million, and are reflected as a reduction
in retained earnings in the accompanying balance sheet. These costs are not
reflected in the pro forma combined statements of earnings.
b. The effects of refinancing approximately U.S. $59 million of existing
Moores debt as follows (in thousands):
<TABLE>
<S> <C>
Revolving debt refinanced with long-term debt............. $ 7,568
Current portion of long-term debt refinanced with
long-term debt.......................................... 3,644
Prepayment penalty from early retirement of long-term
debt.................................................... 1,496
-------
Addition to long-term debt................................ $12,708
=======
Write off of Moores historical deferred financing costs,
net of tax of $814...................................... $ 1,958
Prepayment penalty from early retirement of long-term
debt, net of tax of $541................................ 955
-------
Adjustment to retained earnings........................... $ 2,913
=======
</TABLE>
c. The effect on common stock and capital in excess of par value for the
issuance of 2.5 million shares of the Company's common stock issuable to Moores
shareholders and option holders upon exchange of the Exchangeable Shares.
The pro forma combined results of operations by quarter for the 1997 and
1998 fiscal years are presented below (in thousands, except per share amounts):
<TABLE>
<CAPTION>
FISCAL 1997
QUARTERS ENDED
--------------------------------------------------------
NOVEMBER 1, JANUARY 31,
MAY 3, 1997 AUGUST 2, 1997 1997 1998
----------- -------------- ----------- -----------
<S> <C> <C> <C> <C>
Net sales............................ $154,749 $168,699 $179,821 $259,255
Gross margin......................... 56,518 64,290 68,228 102,220
Net earnings......................... 3,758 6,923 6,321 13,949
Basic earnings per share............. $ 0.11 $ 0.20 $ 0.18 $ 0.39
Diluted earnings per share........... $ 0.11 $ 0.20 $ 0.18 $ 0.37
</TABLE>
<TABLE>
<CAPTION>
FISCAL 1998
QUARTERS ENDED
--------------------------------------------------------
OCTOBER 31, JANUARY 30,
MAY 2, 1998 AUGUST 1, 1998 1998 1999
----------- -------------- ----------- -----------
<S> <C> <C> <C> <C>
Net sales............................. $199,521 $196,310 $203,301 $299,465
Gross margin.......................... 74,402 76,695 77,601 120,229
Earnings before extraordinary item.... 6,804 9,088 7,914 20,107
Net earnings.......................... 6,804 9,088 7,213 20,107
Earnings per share before
extraordinary item:
Basic............................... $ 0.19 $ 0.25 $ 0.22 $ 0.54
Diluted............................. $ 0.19 $ 0.24 $ 0.21 $ 0.53
</TABLE>
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<PAGE> 176
THE MEN'S WEARHOUSE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Due to the method of calculating weighted average common shares
outstanding, the sum of the quarterly per share amounts may not equal earnings
per share for the respective years.
These pro forma results do not purport to be indicative of the results of
operations which actually would have resulted had the pooling of interests been
completed on the date indicated, nor are they necessarily indicative of future
operations.
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<PAGE> 177
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
The information required by this Item is incorporated herein by reference
from the Company's Proxy Statement for its Annual Meeting of Shareholders to be
held July 1, 1999.
ITEM 11. EXECUTIVE COMPENSATION
The information required by this Item is incorporated herein by reference
from the Company's Proxy Statement for its Annual Meeting of Shareholders to be
held July 1, 1999.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The information required by this Item is incorporated herein by reference
from the Company's Proxy Statement for its Annual Meeting of Shareholders to be
held July 1, 1999.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The information required by this Item is incorporated herein by reference
from the Company's Proxy Statement for its Annual Meeting of Shareholders to be
held July 1, 1999.
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
(a) 1. Financial Statements.
The following consolidated financial statements of the Company are included
in Part II, Item 8.
<TABLE>
<S> <C>
Independent Auditors' Report
Consolidated Balance Sheets as of January 31, 1998 and
January 30, 1999
Consolidated Statements of Earnings for the years ended
February 1, 1997, January 31, 1998 and January 30, 1999
Consolidated Statements of Shareholders' Equity for the
years ended February 1, 1997, January 31, 1998 and January
30, 1999
Consolidated Statements of Cash Flows for the years ended
February 1, 1997, January 31, 1998 and January 30, 1999
Notes to Consolidated Financial Statements
</TABLE>
2. Financial Statement Schedules
All such schedules are omitted because they are not applicable or because
the required information is included in the Consolidated Financial Statements or
Notes thereto.
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<PAGE> 178
3. EXHIBITS
<TABLE>
<CAPTION>
EXHIBIT
NUMBER EXHIBIT INDEX
------- -------------
<C> <S>
2.1 -- Combination Agreement dated November 18, 1998, by and
between The Men's Wearhouse, Inc., Golden Moores Company,
Moores Retail Group Inc. and the Shareholders of Moores
Retail Group Inc. signatory thereto. (incorporated by
reference from Exhibit 2.1 to the Company's Registration
Statement on Form S-3 (Registration No. 333-69979)).
2.2 -- Agreement and Plan of Merger dated March 3, 1999, by and
between The Men's Wearhouse, Inc., TMW Combination
Company and K&G Men's Center, Inc. (Filed herewith.)
2.3 -- Amendment No. 1 to Agreement and Plan of Merger dated
March 30, 1999 by and between The Men's Wearhouse, Inc.,
TMW Combination Company and K&G Men's Center, Inc. (Filed
herewith.)
3.1 -- Restated Articles of Incorporation (incorporated by
reference from Exhibit 3.1 to the Company's Quarterly
Report on Form 10-Q for the quarter ended July 30, 1994).
3.2 -- By-laws, as amended (incorporated by reference from
Exhibit 3.2 to the Company's Annual Report of Form 10-K
for the fiscal year ended February 1, 1997).
3.3 -- Certificate of Designation, Preferences, Limitations and
Relative Rights of the Series A Special Voting Preferred
Stock. (Filed herewith.)
4.1 -- Restated Articles of Incorporation (included as Exhibit
3.1).
4.2 -- By-laws (included as Exhibit 3.2).
4.3 -- Form of Common Stock certificate (incorporated by
reference from Exhibit 4.3 to the Company's Registration
Statement on Form S-1 (Registration No. 33-45949)).
*4.4 -- Employment Agreement dated as of January 31, 1991, by and
between the Company and David H. Edwab, including the
First Amendment thereto dated as of September 30, 1991
(incorporated by reference from Exhibit 4.4 to the
Company's Registration Statement on Form S-1
(Registration No. 33-45949)).
*4.5 -- Second Amendment effective as of January 1, 1993, to
Employment Agreement dated as of January 31, 1991, by and
between the Company and David H. Edwab (incorporated by
reference from Exhibit 4.5 to the Company's Registration
Statement on Form S-1 (Registration No. 33-60516)).
*4.6 -- Second [sic] Amendment dated as of April 12, 1994, to
Employment Agreement dated as of January 31, 1991
(incorporated by reference to Exhibit 4.6 to the
Company's Annual Report on Form 10-K for the fiscal year
ended January 28, 1995).
*4.7 -- Option Issuance Agreement dated as of September 30, 1991,
by and between the Company and David H. Edwab
(incorporated by reference from Exhibit 4.5 to the
Company's Registration Statement on Form S-1
(Registration No. 33-45949)).
*4.8 -- First Amendment to Option Issuance Agreement dated April
22, 1992, but effective as of September 30, 1991
(incorporated by reference from Exhibit 4.7 to the
Company's Registration Statement on Form S-8
(Registration No. 33-48109)).
*4.9 -- Second Amendment to Option Issuance Agreement dated
effective as of January 1, 1993 (incorporated by
reference from Exhibit 4.8 to the Company's Registration
Statement on Form S-1 (Registration No. 33-60516)).
</TABLE>
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<PAGE> 179
<TABLE>
<CAPTION>
EXHIBIT
NUMBER EXHIBIT INDEX
------- -------------
<C> <S>
*4.10 -- First [sic] Amendment to Option Issuance Agreement dated
as of April 12, 1994 (incorporated by reference to
Exhibit 4.10 to the Company's Annual Report on Form 10-K
for the fiscal year ended January 28, 1995).
4.11 -- Registration Rights Agreement dated as of November 18,
1998, by and among The Men's Wearhouse, Inc. and Marpro
Holdings, Inc., MGB Limited Partnership, Capital
D'Amerique CDPQ Inc., Cerberus International, Ltd., Ultra
Cerberus Fund, Ltd., Styx International Ltd., The Long
Horizons Overseas Fund Ltd., The Long Horizons Fund, L.P.
and Styx Partners, L.P. (incorporated by reference from
Exhibit 4.13 to the Company's Registration Statement on
Form S-3 (Registration No. 333-69979)).
4.12 -- Support Agreement dated February 10, 1999, between The
Men's Wearhouse, Inc., Golden Moores Company, Moores
Retail Group Inc. and Marpro Holdings, Inc., MGB Limited
Partnership, Capital D'Amerique CDPQ Inc., Cerberus
International, Ltd., Ultra Cerberus Fund, Ltd., Styx
International Ltd., The Long Horizons Overseas Fund Ltd.,
The Long Horizons Fund, L.P. and Styx Partners, L.P.
(incorporated by reference from Exhibit 4.2 to the
Company's Current Report on Form 8-K (Registration No.
333-72549)).
4.13 -- Revolving Credit Agreement dated as of February 5, 1999,
by and among the Company and NationsBank of Texas N.A.
and the Banks listed therein, including form of Revolving
Note. (Filed herewith.)
4.14 -- Term Credit Agreement dated as of February 5, 1999, by
and among the Company, certain subsidiaries of the
Company and NationsBank of Texas N.A. and the Banks
listed therein, including form of Term Note. (Filed
herewith.)
4.15 -- Revolving Credit Agreement dated as of February 10, 1999,
by and among the Company, certain subsidiaries of the
Company and Bank of America Canada and the Banks listed
therein, including form of Revolving Note. (Filed
herewith.)
4.16 -- Certificate of Designation, Preferences, Limitations and
Relative Rights of the Series A Special Voting Preferred
Stock (included as Exhibit 3.3).
9.1 -- Voting Trust Agreement dated February 10, 1999, by and
between The Men's Wearhouse, Inc., Golden Moores Company,
Moores Retail Group Inc. and The Trust Company of Bank of
Montreal (incorporated by reference from Exhibit 9.1 to
the Company's Current Report on Form 8-K (Registration
No. 333-72579)).
*10.1 -- Employment Agreement dated as of January 31, 1991,
including the First Amendment thereto dated as of
September 30, 1991 by and between the Company and David
H. Edwab (included as Exhibit 4.4).
*10.2 -- Second Amendment effective as of January 1, 1993, to
Employment Agreement dated as of January 31, 1991, by and
between the Company and David H. Edwab (included as
Exhibit 4.5).
*10.3 -- Second [sic] Amendment dated as of April 12, 1994, to
Employment Agreement dated as of January 31, 1991
(incorporated by reference to Exhibit 4.6 to the
Company's Annual Report on Form 10-K for the fiscal year
ended January 28, 1995).
*10.4 -- Option Issuance Agreement dated as of September 30, 1991,
by and between the Company and David H. Edwab (included
as Exhibit 4.7).
*10.5 -- First Amendment to Option Issuance Agreement dated April
22, 1992, but effective as of September 30, 1991
(included as Exhibit 4.8).
</TABLE>
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<PAGE> 180
<TABLE>
<CAPTION>
EXHIBIT
NUMBER EXHIBIT INDEX
------- -------------
<C> <S>
*10.6 -- Second Amendment to Option Issuance Agreement dated
effective as of January 1, 1993 (included as Exhibit
4.9).
*10.7 -- First [sic] Amendment to Option Issuance Agreement dated
as of April 12, 1994 (incorporated by reference to
Exhibit 4.10 to the Company's Annual Report on Form 10-K
for the fiscal year ended January 28, 1995).
*10.8 -- 1992 Stock Option Plan (incorporated by reference from
Exhibit 10.5 to the Company's Registration Statement on
Form S-1 (Registration No. 33-45949)).
*10.9 -- First Amendment to 1992 Stock Option Plan (incorporated
by Reference from Exhibit 10.9 to the Company's
Registration Statement on Form S-1 (Registration No.
33-60516)).
*10.10 -- Non-Employee Director Stock Option Plan (incorporated by
reference from Exhibit 10.7 to the Company's Registration
Statement on Form S-1 (Registration No. 33-45949)).
*10.11 -- First Amendment to Non-Employee Director Stock Option
Plan (incorporated by reference from Exhibit 10.16 to the
Company's Registration Statement on Form S-1
(Registration No. 33-45949)).
10.12 -- Commercial Lease dated September 1, 1995, by and between
the Company and Zig Zag, A Joint Venture (incorporated by
reference from Exhibit 10.1 to the Company's Quarterly
Report on Form 10-Q for the quarter ended May 4, 1996).
10.13 -- Commercial Lease dated April 5, 1989, by and between the
Company and Preston Road Partnership (incorporated by
reference from Exhibit 10.10 to the Company's
Registration Statement on Form S-1 (Registration No.
33-45949)).
*10.14 -- Stock Agreement dated as of March 23, 1992, between the
Company and George Zimmer (incorporated by reference from
Exhibit 10.13 to the Company's Registration Statement on
Form S-1 (Registration No. 33-45949)).
*10.15 -- Split-Dollar Agreement and related Split-Dollar
Collateral Assignment dated November 25, 1994 between the
Company, George Zimmer and David Edwab, Co-Trustee of the
Zimmer 1994 Irrevocable Trust (incorporated by reference
to Exhibit 10.20 to the Company's Annual Report on Form
10-K for the fiscal year ended January 28, 1995).
*10.16 -- 1996 Stock Option Plan (incorporated by reference from
Exhibit 10.2 to the Company's Quarterly Report on Form
10-Q for the quarter ended August 3, 1996).
*10.17 -- Second Amendment to Non-Employee Director Stock Option
Plan (incorporated by reference to Exhibit 10.3 to the
Company's Quarterly Report on Form 10-Q for the quarter
ended August 3, 1996).
10.18 -- 1998 Key Employee Stock Option Plan (incorporated by
reference from Exhibit 10.18 to the Company's Annual
Report on Form 10-K for the fiscal year ended January 31,
1998).
21.1 -- Subsidiaries of the Company. (Filed herewith.)
23.1 -- Consent of Deloitte & Touche LLP, independent auditors.
(Filed herewith.)
27.1 -- Financial Data Schedule. (Filed herewith.)
</TABLE>
- ---------------
* Management Compensation or Incentive Plan
As permitted by Item 601(b)(4)(iii)(A) of Regulation S-K, the Registrant
has not filed with this Annual Report on Form 10-K certain instruments defining
the rights of holders of long-term debt of the Registrant and its subsidiaries
because the total amount of securities authorized under any of such instruments
does not exceed 10% of the total assets of the Registrant and its subsidiaries
on a consolidated basis. The
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<PAGE> 181
Registrant agrees to furnish a copy of any such agreements to the Securities and
Exchange Commission upon request.
The Company will furnish a copy of any exhibit described above to any
beneficial holder of its securities upon receipt of a written request therefor,
provided that such request sets forth a good faith representation that, as of
the record date for the Company's 1999 Annual Meeting of Shareholders, such
beneficial holder is entitled to vote at such meeting, and provided further that
such holder pays to the Company a fee compensating the Company for its
reasonable expenses in furnishing such exhibits.
(b) Reports on Form 8-K.
On December 30, 1998, the Company filed one report on Form 8-K relating to
the signed Combination Agreement with Moores Retail Group Inc. and the
shareholders of Moores for the proposed merger with a subsidiary of The Men's
Wearhouse, Inc. Pro forma financial statements including a combined balance
sheet as of October 31, 1998 and combined statements of net earnings for the
years ended January 31, 1998 and for the nine months ended November 1, 1997 and
October 31, 1998 were included in this current report on Form 8-K.
On February 25, 1999, the Company filed a report on Form 8-K, pursuant to
Item 2, related to the closing of the Moores combination. Moores consolidated
financial statements including a consolidated balance sheet as of January 31,
1998 and October 31, 1998, a consolidated statement of income and comprehensive
income, a consolidated statement of stockholders' equity and a consolidated
statement of cash flows, each for the year ended January 31, 1998 and for the
nine months ended October 31, 1997 and October 31, 1998, as well as pro forma
financial statements including a combined balance sheet as of October 31, 1998
and combined statements of earnings for the years ended January 31, 1998 and for
the nine months ended November 1, 1997 and October 31, 1998 were included in
this current report on Form 8-K.
On March 5, 1999, the Company filed a current report on Form 8-K (Item 5)
related to the signing of the merger agreement with K&G.
C-44
<PAGE> 182
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized.
THE MEN'S WEARHOUSE, INC.
By /s/ GEORGE ZIMMER
-----------------------------------
George Zimmer
Chairman of the Board and
Chief Executive Officer
Dated: April 1, 1999
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
Registrant and in the capacity and on the dates indicated.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<C> <S> <C>
/s/ GEORGE ZIMMER Chairman of the Board, Chief April 1, 1999
- ----------------------------------------------------- Executive Officer and Director
George Zimmer
/s/ DAVID EDWAB President and Director April 1, 1999
- -----------------------------------------------------
David Edwab
/s/ GARY G. CKODRE Vice President -- Finance and April 1, 1999
- ----------------------------------------------------- Principal Financial and
Gary G. Ckodre Accounting Officer
/s/ RICHARD E. GOLDMAN Executive Vice President and April 1, 1999
- ----------------------------------------------------- Director
Richard E. Goldman
/s/ HARRY M. LEVY Executive Vice April 1, 1999
- ----------------------------------------------------- President -- Planning and
Harry M. Levy Systems and Director
/s/ ROBERT E. ZIMMER Senior Vice President -- Real April 1, 1999
- ----------------------------------------------------- Estate and Director
Robert E. Zimmer
/s/ JAMES E. ZIMMER Senior Vice President -- April 1, 1999
- ----------------------------------------------------- Merchandising and Director
James E. Zimmer
/s/ RINALDO BRUTOCO Director April 1, 1999
- -----------------------------------------------------
Rinaldo Brutoco
/s/ MICHAEL L. RAY Director April 1, 1999
- -----------------------------------------------------
Michael L. Ray
/s/ SHELDON I. STEIN Director April 1, 1999
- -----------------------------------------------------
Sheldon I. Stein
</TABLE>
C-45
<PAGE> 183
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 20. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
Article 2.02-1 of the Texas Business Corporation Act provides that any
director or officer of a Texas corporation may be indemnified against judgments,
penalties, fines, settlements and reasonable expenses actually incurred by him
in connection with or in defending any action, suit or proceeding in which he is
a party by reason of his position. With respect to any proceeding arising from
actions taken in his official capacity as a director or officer, he may be
indemnified so long as it shall be determined that he conducted himself in good
faith and that he reasonably believed that such conduct was in the corporation's
best interests. In cases not concerning conduct in his official capacity as a
director or officer, a director may be indemnified as long as he reasonably
believed that his conduct was not opposed to the corporation's best interests.
In the case of any criminal proceeding, a director or officer may be indemnified
if he had no reasonable cause to believe his conduct was unlawful. If a director
or officer is wholly successful, on the merits or otherwise, in connection with
such a proceeding, such indemnification is mandatory. The Registrant's Bylaws
provide for indemnification of its present and former directors and officers to
the fullest extent provided by Article 2.02-1.
The Registrant's Bylaws further provide for indemnification of officers and
directors against reasonable expenses incurred in connection with the defense of
any such action, suit or proceeding in advance of the final disposition of the
proceeding.
The Registrant's Articles of Incorporation were amended on September 6,
1991, to eliminate or limit liabilities of directors for breaches of their duty
of care. The amendment does not limit or eliminate the right of the Registrant
or any shareholder to pursue equitable remedies such as an action to enjoin or
rescind a transaction involving a breach of a director's duty of care, nor does
it affect director liability to parties other than the Registrant or its
shareholders. In addition, directors will continue to be liable for (i) breach
of their duty of loyalty, (ii) acts or omissions not in good faith or which
involve intentional misconduct or a knowing violation of the law, (iii)
declaring an illegal dividend or stock repurchase, (iv) any transaction in which
the directors received an improper personal benefit, or (v) acts or omissions
for which the liability of directors is expressly provided by statute. In
addition, the amendment applies only to claims under Texas law against a
director arising out of his role as a director and not, if he is also an
officer, his role as an officer or in any other capacity and does not limit a
director's liability under any other law, such as federal securities law.
Texas corporations are also authorized to obtain insurance to protect
officers and directors from certain liabilities, including liabilities against
which the corporation cannot indemnify its directors and officers. The
Registrant currently has in effect a director's and officer's liability
insurance policy, which provides coverage in the maximum amount of $15,000,000.
ITEM 21. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES.
(a) Exhibits.
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
------- -----------
<C> <S>
2.1* -- Agreement and Plan of Merger dated as of March 3, 1999
among TMW, Merger Sub and K&G (incorporated by reference
from Exhibit 2.2 to TMW's Annual Report on Form 10-K for
the fiscal year ended January 30, 1999).
2.2* -- Amendment No. 1 to Agreement and Plan of Merger dated as
of March 30, 1999 among TMW, Merger Sub and K&G
(incorporated by reference from Exhibit 2.3 to TMW's
Annual Report on Form 10-K for the fiscal year ended
January 30, 1999).
</TABLE>
II-1
<PAGE> 184
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
------- -----------
<C> <S>
3.1* -- Restated Articles of Incorporation of TMW (incorporated
by reference from Exhibit 3.1 to TMW's Quarterly Report
on Form 10-Q for the quarter ended July 30, 1994).
3.2* -- By-laws of TMW, as amended (incorporated by reference
from Exhibit 3.2 to TMW's Annual Report on From 10-K for
the fiscal year ended February 1, 1997).
3.3* -- Certificate of Designation, Preferences, Limitations and
Relative Rights of the Series A Special Voting Preferred
Stock (incorporated by reference from Exhibit 3.3 to
TMW's Annual Report on Form 10-K for the fiscal year
ended January 30, 1999).
4.1* -- Restated Articles of Incorporation (included as Exhibit
3.1).
4.2* -- By-laws (included as Exhibit 3.2)
4.3* -- Form of Common Stock Certificate (incorporated by
reference from Exhibit 4.3 to TMW's Registration
Statement on Form S-1 (Registration No. 33-45949)).
4.4* -- Employment Agreement dated as of January 31, 1991, by and
between the Company and David H. Edwab, including the
First Amendment thereto dated as of September 30, 1991
(incorporated by reference from Exhibit 4.4 to the
Company's Registration Statement on Form S-1
(Registration No. 33-45949)).
4.5* -- Second Amendment effective as of January 1, 1993, to
Employment Agreement dated as of January 31, 1991, by and
between the Company and David H. Edwab (incorporated by
reference from Exhibit 4.5 to the Company's Registration
Statement on Form S-1 (Registration No. 33-60516)).
4.6* -- Second [sic] Amendment dated as of April 12, 1994, to
Employment Agreement dated as of January 31, 1991
(incorporated by reference to Exhibit 4.6 to the
Company's Annual Report on Form 10-K for the fiscal year
ended January 28, 1995).
4.7* -- Option Issuance Agreement dated as of September 30, 1991,
by and between the Company and David H. Edwab
(incorporated by reference from Exhibit 4.5 to the
Company's Registration Statement on Form S-1
(Registration No. 33-45949)).
4.8* -- First Amendment to Option Issuance Agreement dated April
22, 1992, but effective as of September 30, 1991
(incorporated by reference from Exhibit 4.7 to the
Company's Registration Statement on Form S-8
(Registration No. 33-48109)).
4.9* -- Second Amendment to Option Issuance Agreement dated
effective as of January 1, 1993 (incorporated by
reference from Exhibit 4.8 to the Company's Registration
Statement on Form S-1 (Registration No. 33-60516)).
4.10* -- First [sic] Amendment to Option Issuance Agreement dated
as of April 12, 1994 (incorporated by reference to
Exhibit 4.10 to the Company's Annual Report on Form 10-K
for the fiscal year ended January 28, 1995).
4.11* -- Registration Rights Agreement dated as of November 18,
1998, by and among The Men's Wearhouse, Inc. and Marpro
Holdings, Inc., MGB Limited Partnership, Capital
D'Amerique CDPQ Inc., Cerberus International, Ltd., Ultra
Cerberus Fund, Ltd., Styx International Ltd., The Long
Horizons Overseas Fund Ltd., The Long Horizons Fund, L.P.
and Styx Partners, L.P. (incorporated by reference from
Exhibit 4.13 to the Company's Registration Statement on
From S-3 (Registration No. 333-69979)).
</TABLE>
II-2
<PAGE> 185
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
------- -----------
<C> <S>
4.12* -- Support Agreement dated February 10, 1999, between The
Men's Wearhouse, Inc., Golden Moores Company, Moores
Retail Group Inc. and Marpro Holdings, Inc., MGB Limited
Partnership, Capital D'Amerique CDPQ Inc., Cerberus
International, Ltd., Ultra Cerberus Fund, Ltd., Styx
International Ltd., The Long Horizons Overseas Fund Ltd.,
The Long Horizons Fund, L.P. and Styx Partners, L.P.
(incorporated by reference from Exhibit 4.2 to the
Company's Current Report on Form 8-K (Registration No.
333-72549)).
4.13* -- Revolving Credit Agreement dated as of February 5, 1999,
by and among the Company and NationsBank of Texas N.A.
and the Banks listed therein, including form of Revolving
Note (incorporated by reference from Exhibit 4.13 to
TMW's Annual Report on Form 10-K for the fiscal year
ended January 30, 1999).
4.14* -- Term Credit Agreement dated as of February 5, 1999, by
and among the Company and NationsBank of Texas N.A. and
the Banks listed therein, including form of Term Note
(incorporated by reference from Exhibit 4.14 to TMW's
Annual Report on Form 10-K for the fiscal year ended
January 30, 1999).
4.15* -- Revolving Credit Agreement dated as of February 10, 1999,
by and among the Company and Bank of America Canada and
the Banks listed therein, including form of Revolving
Note (incorporated by reference from Exhibit 4.15 to
TMW's Annual Report on Form 10-K for the fiscal year
ended January 30, 1999).
4.16* -- Certificate of Designation, Preferences, Limitations and
Relative Rights of the Series A Special Voting Preferred
Stock (included as Exhibit 3.3).
5.1*** -- Opinion of Fulbright & Jaworski L.L.P., regarding
legality of securities.
8.1** -- Opinion of Fulbright & Jaworski L.L.P., regarding certain
tax matters.
8.2** -- Opinion of Hunton & Williams, regarding certain tax
matters.
9.1* -- Voting Trust Agreement dated February 10, 1999, by and
between The Men's Wearhouse, Inc., Golden Moores Company,
Moores Retail Group Inc. and The Trust Company of Bank of
Montreal (incorporated by reference from Exhibit 9.1 to
the Company's Current Report on Form 8-K (Registration
No. 333-72579)).
23.1*** -- Consent of Deloitte & Touche LLP, with respect to the
financial statements of TMW.
23.2*** -- Consent of Arthur Andersen LLP, with respect to the
financial statements of K&G.
23.3*** -- Consent of Fulbright & Jaworski L.L.P. (included in
Exhibit 5.1).
23.4** -- Consent of Fulbright & Jaworski L.L.P. (included in
Exhibit 8.1).
23.5** -- Consent of Hunton & Williams (included in Exhibit 8.2).
24.1*** -- Powers of Attorney from certain members of the Board of
Directors of the Company.
99.1** -- Proxy card for use at Annual Meeting of K&G, as amended.
99.2** -- Consent of NationsBanc Montgomery Securities LLC.
</TABLE>
- ---------------
* Incorporated by reference.
** Filed herewith.
*** Previously filed.
(b) Financial Statement Schedules.
All schedules are omitted because they are not applicable or because the
required information is contained in the Financial Statements or Notes thereto.
II-3
<PAGE> 186
ITEM 22. UNDERTAKINGS.
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 Securities 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 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.
The undersigned registrant hereby undertakes:
(1) To respond to requests for information that is incorporated by
reference into the prospectus pursuant to Items 4, 10(b), 11, or 13 of this
Form, within one business day of receipt of such request, and to send the
incorporated documents by first class mail or other equally prompt means.
This includes information contained in documents filed subsequent to the
effective date of the registration statement through the date of responding
to the request.
(2) To supply by means of a post-effective amendment all information
concerning a transaction, and the company being acquired involved therein,
that was not the subject of and included in the Registration Statement when
it became effective.
(3) That prior to any public reoffering of the securities registered
hereunder through use of a prospectus which is a part of this Registration
Statement, by any person or party who is deemed to be an underwriter within
the meaning of Rule 145(c), the issuer undertakes that such reoffering
prospectus will contain the information called for by the applicable
registration form with respect to reofferings by persons who may be deemed
underwriters, in addition to the information called for by the other Items
of the applicable form.
(4) That every prospectus (i) that is filed pursuant to the paragraph
immediately preceding, or (ii) that purports to meet the requirements of
section 10(a)(3) of the Securities Act of 1933 and is used in connection
with an offering of securities subject to Rule 415, will be filed as part
of an amendment to the Registration Statement and will not be used until
such amendment is effective, and that, for purposes of determining any
liability under the Securities Act of 1933, each such post-effective
amendment shall be deemed to be a new registration statement relating to
the securities offered therein, and the offering of such securities at that
time shall be deemed to be the initial bona fide offering thereof.
(5) 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.
II-4
<PAGE> 187
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the Registrant
has duly caused this Amendment No. 1 to Registration Statement to be signed on
its behalf by the undersigned, thereunto duly authorized, in the City of
Houston, State of Texas, on April 26, 1999.
THE MEN'S WEARHOUSE, INC.
By: /s/ GARY G. CKODRE
----------------------------------
Gary G. Ckodre
Vice President -- Finance and
Principal Financial and Accounting
Officer
Pursuant to the requirements of the Securities Act of 1933, this Amendment
No. 1 to Registration Statement has been signed by the following persons on
April 26, 1999 in the capacities indicated.
<TABLE>
<CAPTION>
SIGNATURE TITLE
--------- -----
<C> <S>
* Chairman of the Board, Chief Executive
- ----------------------------------------------------- Officer and Director (Principal
George Zimmer Executive Officer)
*
- -----------------------------------------------------
David Edwab President and Director
/s/ GARY G. CKODRE
- ----------------------------------------------------- Vice President -- Finance and Principal
Gary G. Ckodre Financial and Accounting Officer
*
- -----------------------------------------------------
Richard E. Goldman Executive Vice President and Director
*
- ----------------------------------------------------- Senior Vice President -- Real Estate and
Robert E. Zimmer Director
*
- ----------------------------------------------------- Senior Vice President -- Merchandising
James E. Zimmer and Director
*
- ----------------------------------------------------- Executive Vice President -- Planning and
Harry M. Levy Systems and Director
*
- -----------------------------------------------------
Rinaldo Brutoco Director
*
- -----------------------------------------------------
Michael L. Ray Director
*
- -----------------------------------------------------
Sheldon I. Stein Director
</TABLE>
* By: /s/ GARY G. CKODRE
-------------------------------
Gary G. Ckodre
As Attorney-In-Fact for each
of the persons indicated
II-5
<PAGE> 188
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
------- -----------
<C> <S>
2.1* -- Agreement and Plan of Merger dated as of March 3, 1999
among TMW, Merger Sub and K&G (incorporated by reference
from Exhibit 2.2 to TMW's Annual Report on Form 10-K for
the fiscal year ended January 30, 1999).
2.2* -- Amendment No. 1 to Agreement and Plan of Merger dated as
of March 30, 1999 among TMW, Merger Sub and K&G
(incorporated by reference from Exhibit 2.3 to TMW's
Annual Report on Form 10-K for the fiscal year ended
January 30, 1999).
3.1* -- Restated Articles of Incorporation of TMW (incorporated
by reference from Exhibit 3.1 to TMW's Quarterly Report
on Form 10-Q for the quarter ended July 30, 1994).
3.2* -- By-laws of TMW, as amended (incorporated by reference
from Exhibit 3.2 to TMW's Annual Report on From 10-K for
the fiscal year ended February 1, 1997).
3.3* -- Certificate of Designation, Preferences, Limitations and
Relative Rights of the Series A Special Voting Preferred
Stock (incorporated by reference from Exhibit 3.3 to
TMW's Annual Report on Form 10-K for the fiscal year
ended January 30, 1999).
4.1* -- Restated Articles of Incorporation (included as Exhibit
3.1).
4.2* -- By-laws (included as Exhibit 3.2)
4.3* -- Form of Common Stock Certificate (incorporated by
reference from Exhibit 4.3 to TMW's Registration
Statement on Form S-1 (Registration No. 33-45949)).
4.4* -- Employment Agreement dated as of January 31, 1991, by and
between the Company and David H. Edwab, including the
First Amendment thereto dated as of September 30, 1991
(incorporated by reference from Exhibit 4.4 to the
Company's Registration Statement on Form S-1
(Registration No. 33-45949)).
4.5* -- Second Amendment effective as of January 1, 1993, to
Employment Agreement dated as of January 31, 1991, by and
between the Company and David H. Edwab (incorporated by
reference from Exhibit 4.5 to the Company's Registration
Statement on Form S-1 (Registration No. 33-60516)).
4.6* -- Second [sic] Amendment dated as of April 12, 1994, to
Employment Agreement dated as of January 31, 1991
(incorporated by reference to Exhibit 4.6 to the
Company's Annual Report on Form 10-K for the fiscal year
ended January 28, 1995).
4.7* -- Option Issuance Agreement dated as of September 30, 1991,
by and between the Company and David H. Edwab
(incorporated by reference from Exhibit 4.5 to the
Company's Registration Statement on Form S-1
(Registration No. 33-45949)).
4.8* -- First Amendment to Option Issuance Agreement dated April
22, 1992, but effective as of September 30, 1991
(incorporated by reference from Exhibit 4.7 to the
Company's Registration Statement on Form S-8
(Registration No. 33-48109)).
4.9* -- Second Amendment to Option Issuance Agreement dated
effective as of January 1, 1993 (incorporated by
reference from Exhibit 4.8 to the Company's Registration
Statement on Form S-1 (Registration No. 33-60516)).
4.10* -- First [sic] Amendment to Option Issuance Agreement dated
as of April 12, 1994 (incorporated by reference to
Exhibit 4.10 to the Company's Annual Report on Form 10-K
for the fiscal year ended January 28, 1995).
</TABLE>
<PAGE> 189
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
------- -----------
<C> <S>
4.11* -- Registration Rights Agreement dated as of November 18,
1998, by and among The Men's Wearhouse, Inc. and Marpro
Holdings, Inc., MGB Limited Partnership, Capital
D'Amerique CDPQ Inc., Cerberus International, Ltd., Ultra
Cerberus Fund, Ltd., Styx International Ltd., The Long
Horizons Overseas Fund Ltd., The Long Horizons Fund, L.P.
and Styx Partners, L.P. (incorporated by reference from
Exhibit 4.13 to the Company's Registration Statement on
From S-3 (Registration No. 333-69979)).
4.12* -- Support Agreement dated February 10, 1999, between The
Men's Wearhouse, Inc., Golden Moores Company, Moores
Retail Group Inc. and Marpro Holdings, Inc., MGB Limited
Partnership, Capital D'Amerique CDPQ Inc., Cerberus
International, Ltd., Ultra Cerberus Fund, Ltd., Styx
International Ltd., The Long Horizons Overseas Fund Ltd.,
The Long Horizons Fund, L.P. and Styx Partners, L.P.
(incorporated by reference from Exhibit 4.2 to the
Company's Current Report on Form 8-K (Registration No.
333-72549)).
4.13* -- Revolving Credit Agreement dated as of February 5, 1999,
by and among the Company and NationsBank of Texas N.A.
and the Banks listed therein, including form of Revolving
Note (incorporated by reference from Exhibit 4.13 to
TMW's Annual Report on Form 10-K for the fiscal year
ended January 30, 1999).
4.14* -- Term Credit Agreement dated as of February 5, 1999, by
and among the Company and NationsBank of Texas N.A. and
the Banks listed therein, including form of Term Note
(incorporated by reference from Exhibit 4.14 to TMW's
Annual Report on Form 10-K for the fiscal year ended
January 30, 1999).
4.15* -- Revolving Credit Agreement dated as of February 10, 1999,
by and among the Company and Bank of America Canada and
the Banks listed therein, including form of Revolving
Note (incorporated by reference from Exhibit 4.15 to
TMW's Annual Report on Form 10-K for the fiscal year
ended January 30, 1999).
4.16* -- Certificate of Designation, Preferences, Limitations and
Relative Rights of the Series A Special Voting Preferred
Stock (included as Exhibit 3.3).
5.1*** -- Opinion of Fulbright & Jaworski L.L.P., regarding
legality of securities.
8.1** -- Opinion of Fulbright & Jaworski L.L.P., regarding certain
tax matters.
8.2** -- Opinion of Hunton & Williams, regarding certain tax
matters.
9.1* -- Voting Trust Agreement dated February 10, 1999, by and
between The Men's Wearhouse, Inc., Golden Moores Company,
Moores Retail Group Inc. and The Trust Company of Bank of
Montreal (incorporated by reference from Exhibit 9.1 to
the Company's Current Report on Form 8-K (Registration
No. 333-72579)).
23.1*** -- Consent of Deloitte & Touche LLP, with respect to the
financial statements of TMW.
23.2*** -- Consent of Arthur Andersen LLP, with respect to the
financial statements of K&G.
23.3*** -- Consent of Fulbright & Jaworski L.L.P. (included in
Exhibit 5.1).
23.4** -- Consent of Fulbright & Jaworski L.L.P. (included in
Exhibit 8.1).
23.5** -- Consent of Hunton & Williams (included in Exhibit 8.2).
24.1*** -- Powers of Attorney from certain members of the Board of
Directors of the Company.
99.1** -- Proxy card for use at Annual Meeting of K&G, as amended.
99.2** -- Consent of NationsBanc Montgomery Securities LLC.
</TABLE>
- ---------------
* Incorporated by reference.
** Filed herewith.
*** Previously filed.
<PAGE> 1
EXHIBIT 8.1
[FULBRIGHT & JAWORSKI L.L.P.]
April 26, 1999
The Men's Wearhouse
5803 Glenmont
Houston, Texas 77081
Gentlemen:
You have requested our opinion concerning certain United States
federal income tax consequences of the proposed merger (the "MERGER") of TMW
Combination Company, a Georgia corporation ("COMBINATION COMPANY") and wholly
owned subsidiary of The Men's Wearhouse, Inc., a Texas corporation ("TMW"),
with and into K&G Men's Center, Inc., a Georgia corporation ("COMPANY"),
pursuant to the Agreement and Plan of Merger, dated as of March 3, 1999 as
amended by agreement dated as of March 30, 1999 (the "MERGER AGREEMENT"), by
and among Company, Combination Company, and TMW.
Descriptions of the parties and the Merger and related transactions
are set forth in the Joint Proxy Statement/Prospectus included as part of the
Registration Statement on Form S-4 filed with the Securities and Exchange
Commission on April 5, 1999 as amended by an amendment filed April 26, 1999
(the "REGISTRATION STATEMENT").
TMW and Company have represented to us that the information contained
in the Merger Agreement and in the Registration Statement, is true, accurate
and complete and will be true, accurate and complete as of the effective time
of the Merger. In connection with this opinion we have reviewed the Merger
Agreement, and TMW and Company have represented to us that the Merger and
related transactions will be carried out in accordance with the terms and
provisions thereof.
SUMMARY OF TRANSACTIONS
Pursuant to the Merger Agreement, at the effective time Combination
Company will be merged with and into Company pursuant to the provisions of and
with the effect provided in the Business Corporation Code of the State of
Georgia. Company will be the surviving corporation resulting from the Merger.
In the Merger, Company will succeed to all of the assets of Combination
Company.
<PAGE> 2
The Men's Wearhouse
April 26, 1999
Page 2
At the effective time of the Merger, the issued and outstanding
capital stock of Company will consist solely of shares of common stock, $.01
par value ("COMPANY STOCK"). In the Merger, each share of Company Stock not
owned by Company, TMW, Combination Company or any wholly owned subsidiary of
Company, TMW or Combination Company, will be converted into the right to
receive a number of shares of voting common stock, $.01 par value, of TMW ("TMW
STOCK") based upon a formula provided in the Merger Agreement.
Pursuant to the Merger Agreement, cash will be paid in lieu of any
fractional shares of TMW Stock. Apart from the cash paid in lieu of fractional
shares, the consideration paid to Company shareholders for their Company Stock
will consist solely of TMW Stock.
The Merger Agreement provides that the parties intend the Merger to
constitute a reorganization, within the meaning of section 368(a) of the
Internal Revenue Code of 1986, as amended (the "CODE"). Further, TMW and
Company have made certain representations to us in certificates dated the same
date as this opinion. Copies of those certificates are attached hereto as
Exhibit A.
OPINION
Based upon the foregoing and such legal considerations as we deem
relevant, it is our opinion that for United States federal income tax purposes:
1. The Merger will qualify as a reorganization within the meaning of
section 368(a) of the Code;
2. TMW and Company will each be a party to the reorganization within
the meaning of section 368(b) of the Code; and
3. No gain or loss will be recognized by TMW or Company as a result
of the Merger.
LIMITATIONS AND QUALIFICATIONS
This opinion is based on statutes, regulations promulgated thereunder,
and governmental rulings and court decisions published to date, all of which
are subject to change by the Congress, governmental agencies, and the courts.
Our opinion does not address all tax consequences applicable to the Merger and
is limited to the conclusions set forth above, and no other opinions are
expressed or implied. Moreover, our opinion is limited to the United States
federal income tax consequences of the transactions described herein. Thus, for
<PAGE> 3
The Men's Wearhouse
April 26, 1999
Page 3
example, no opinion is expressed concerning any state, local, or foreign tax
consequences of such transactions.
The parties have not requested or received any advance ruling from the
Internal Revenue Service (the "SERVICE") pertaining to the transactions
described herein. Our opinion is not binding upon the Service or any court.
Accordingly, the Service may challenge some or all of the conclusions set forth
above in an audit of TMW or of one or more of the parties to the Merger. If
such challenge occurs, it may be necessary to resort to administrative
proceedings or litigation in an effort to sustain such conclusions, and there
can be no assurance that such conclusions ultimately will be sustained.
The opinions set forth above are based in part upon facts and
representations concerning the transactions contained in the Merger Agreement,
and upon the additional representations set forth in the certificates of TMW
and Company, copies of which are attached hereto as Exhibit A. We have not made
an independent investigation to determine the truth, accuracy or completeness
of such facts and representations, and our opinion is conditioned on the truth,
accuracy and completeness of such facts and representations and upon the
assumption that they will be true, accurate and complete as of the effective
time of the Merger.
We hereby consent to the filing of this opinion as an exhibit to the
Registration Statement, and to the reference to us under the captions "The
Merger and Related Transactions -- Certain United States Federal Income Tax
Consequences" and "Legal Matters" in the Joint Proxy Statement/Prospectus
forming a part of the Registration Statement. In giving this consent, however,
we do not hereby admit that we are within the category of persons whose consent
is required under section 7 of the Securities Act of 1933, as amended, or the
rules and regulations of the Securities and Exchange Commission thereunder.
Very truly yours,
/s/ FULBRIGHT & JAWORSKI L.L.P.
Fulbright & Jaworski L.L.P.
Attachments
<PAGE> 4
EXHIBIT A
THE MEN'S WEARHOUSE, INC.
OFFICER'S CERTIFICATE
The undersigned, a duly authorized officer of The Men's Wearhouse,
Inc., a Texas corporation ("TMW"), and acting as such, in connection with the
opinion to be delivered by the law firm of Fulbright & Jaworski L.L.P. with
respect to the proposed merger (the "MERGER") of TMW Combination Company, a
Georgia corporation ("COMBINATION COMPANY") and a wholly owned subsidiary of
TMW, with and into K&G Men's Center, Inc., a Georgia corporation ("COMPANY"),
pursuant to the Agreement and Plan of Merger, dated as of March 3, 1999 as
amended by agreement dated as of March 30, 1999 (the "AGREEMENT"), by and among
TMW, Combination Company and Company, and recognizing that Fulbright & Jaworski
L.L.P. will rely on this Officer's Certificate in delivering its opinion,
hereby certifies that the undersigned is familiar with the transactions
contemplated by, and the terms and provisions of, the Agreement, has personal
knowledge of the matters covered by the representations made herein, and is
authorized to make these representations on behalf of TMW, and the undersigned
further certifies to the best knowledge and belief of the management of TMW as
follows:
1. The facts and other information contained in the Joint Proxy
Statement/Prospectus included in the Registration Statement on Form S-4 filed
with the Securities and Exchange Commission April 5, 1999 as amended by an
amendment filed
<PAGE> 5
April 26, 1999 (the "REGISTRATION STATEMENT"), are true, accurate and complete,
and will be true, accurate and complete at the effective time of the Merger
(the "EFFECTIVE TIME").
2. The fair market value of the TMW stock and other consideration to
be received by the Company's shareholders will be approximately equal to the
fair market value of Company stock surrendered by such shareholders in exchange
therefor.
3. Prior to the Merger, TMW will be in control of Combination Company
within the meaning of section 368(c) of the Internal Revenue Code of 1986, as
amended (the "CODE").
4. Following the Merger, Company will hold at least ninety percent
(90%) of the fair market value of its net assets and at least seventy percent
(70%) of the fair market value of its gross assets and at least ninety percent
(90%) of the fair market value of Combination Company's net assets and at least
seventy percent (70%) of the fair market value of Combination Company's gross
assets held immediately prior to the Merger, taking into account amounts paid
by Company or Combination Company to dissenters, amounts paid by Company or
Combination Company to shareholders who receive cash or other property, amounts
used by Company or Combination Company to pay merger expenses, and any
redemptions or distributions other than regular dividends.
5. TMW has no plan or intention to (i) liquidate Company, (ii) merge
Company with and into another entity with such other entity being the surviving
entity, (iii) sell or otherwise dispose of the stock of Company except for
transfers of stock to corporations controlled (within the meaning of section
368(c) of the Code) by TMW, (iv) cause or permit Company to issue additional
shares of its capital stock that would result in TMW losing control (within the
meaning of section 368(c) of the Code) of Company, (v) cause or permit Company
to sell or otherwise dispose of any of its assets or any of the assets acquired
from
-2-
<PAGE> 6
Combination Company, except for dispositions made in the ordinary course of
business or transfers of assets to a corporation controlled by TMW, or (vi)
reacquire any of its stock issued to the holders of Company stock pursuant to
the Merger.
6. Combination Company will have no liabilities assumed by Company,
and will not transfer to Company any assets subject to liabilities, in the
Merger.
7. No person related to TMW within the meaning of Treasury Regulation
section 1.368-1(e) has acquired (or has any plan or intention to acquire) any
Company stock other than the acquisition of Company stock pursuant to the
Merger.
8. Following the Merger, Company will continue its "historic business"
or use a "significant portion" of its historic business assets in a business,
as such terms are used in Treasury Regulation section 1.368-1(d).
9. TMW and Combination Company will each pay their respective
expenses, if any, incurred in connection with the Merger, except that TMW and
Company will share equally the registration fees and printing costs incurred in
connection with filing and printing the Registration Statement.
10. There is no intercorporate indebtedness existing between TMW and
Company or between Combination Company and Company that was issued, acquired or
will be settled at a discount.
11. In the Merger, shares of Company stock representing control of
Company, as defined in section 368(c) of the Code, will be exchanged solely for
voting stock of TMW. For purposes of this representation, shares of Company
stock exchanged for cash or other property originating with TMW will be treated
as outstanding Company stock on the date of the Merger.
-3-
<PAGE> 7
12. TMW does not own, and has not owned during the past five years,
any shares of the capital stock of Company.
13. Neither TMW nor Combination Company is an investment company as
defined in sections 368(a)(2)(F)(iii) and (iv) of the Code.
14. None of the compensation to be received by any
shareholder-employees of Company will be separate consideration for, or
allocable to, any of their shares of Company stock; none of the shares of TMW
stock to be received by any shareholder-employees will be separate
consideration for, or allocable to, any employment agreement; and the
compensation paid to any shareholder-employee will be for services actually
rendered and will be commensurate with amounts paid to third parties bargaining
at arm's length for similar services.
15. The payment of cash in lieu of fractional shares of TMW stock is
solely for the purpose of avoiding the expense and inconvenience to TMW of
issuing fractional shares and does not represent separately bargained-for
consideration. The total cash consideration that will be paid instead of
issuing fractional shares of TMW stock will not exceed one percent (1%) of the
total consideration that will be issued pursuant to the Merger to the Company
shareholders in exchange for their Company stock. The fractional share
interests will be aggregated, and no Company shareholder will receive cash in
an amount greater than the value of one (1) full share of TMW stock.
16. Neither TMW nor Combination Company will take or omit to take any
action (whether before, on or after the Effective Time) that would cause the
Merger to fail to qualify as a reorganization within the meaning of section
368(a) of the Code.
-4-
<PAGE> 8
17. Following the Merger, TMW, Combination Company and Company will
treat, record and account for the Merger as a reorganization under section
368(a) of the Code for all purposes, including, but not limited to, United
States federal income tax purposes, and all financial accounting and regulatory
purposes.
18. The Merger and related transactions will be carried out in
accordance with the terms of the Agreement, including any attachments or
amendments thereto, and there are no other relevant agreements, arrangements or
understandings relating to the Merger other than those described or referenced
in the Agreement.
19. TMW is authorized to make all of the representations made by it
and set forth herein.
I understand that (i) you will rely upon the above representations by
us in connection with issuing your opinion, (ii) the representations in this
Officer's Certificate are made as of the date hereof and as of the Effective
Time, and (iii) you may disclose these representations in connection with
issuing your opinion.
Dated: April 26, 1999.
THE MEN'S WEARHOUSE, INC.
By: /s/ GARY G. CKODRE
-------------------------------------
Name: Gary G. Ckodre
-----------------------------------
Title: Vice President-Finance
----------------------------------
-5-
<PAGE> 9
K&G MEN'S CENTER, INC.
OFFICER'S CERTIFICATE
The undersigned, a duly authorized officer of K&G Men's Center, Inc.,
a Georgia corporation ("COMPANY"), and acting as such, in connection with the
opinion to be delivered by the law firm of Fulbright & Jaworski L.L.P. with
respect to the proposed merger (the "MERGER") of TMW Combination Company, a
Georgia corporation ("COMBINATION COMPANY") and a wholly owned subsidiary of
The Men's Wearhouse, Inc., a Texas corporation ("TMW"), with and into Company,
pursuant to the Agreement and Plan of Merger, dated as of March 3, 1999 as
amended by agreement dated as of March 30, 1999 (the "AGREEMENT"), by and among
TMW, Combination Company and Company, and recognizing that Fulbright & Jaworski
L.L.P. will rely on this Officer's Certificate in delivering its opinion,
hereby certifies that the undersigned is familiar with the transactions
contemplated by, and the terms and provisions of, the Agreement, has personal
knowledge of the matters covered by the representations made herein, and is
authorized to make these representations on behalf of Company, and the
undersigned further certifies to the best knowledge and belief of the
management of Company as follows:
1. The facts and other information contained in the Joint Proxy
Statement/Prospectus included in the Registration Statement on Form S-4 filed
with the Securities and Exchange Commission April 5, 1999 as amended by an
amendment filed April 26, 1999 (the "REGISTRATION STATEMENT"), are true,
accurate and complete, and will be true, accurate and complete at the effective
time of the Merger (the "EFFECTIVE TIME").
<PAGE> 10
2. The fair market value of the TMW stock and other consideration to
be received by the Company's shareholders will be approximately equal to the
fair market value of Company stock to be surrendered by such shareholders in
exchange therefor.
3. Following the Merger, Company will hold at least ninety percent
(90%) of the fair market value of its net assets and at least seventy percent
(70%) of the fair market value of its gross assets held immediately prior to
the Merger, taking into account amounts paid by Company to shareholders who
receive cash or other property, amounts used by Company to pay merger expenses,
and any redemptions or distributions made in connection with the Merger other
than regular dividends.
4. Prior to the Merger, (i) Company has not redeemed (and will not
redeem) any Company stock and has not made (and will not make) any
extraordinary distributions, within the meaning of Temporary Treasury
Regulation section 1.368-1T(e)(1)(ii)(A), with respect thereto; and (ii) no
person that is related to Company, within the meaning of Temporary Treasury
Regulation section 1.368-1T(e)(2)(ii) has acquired (or will acquire) Company
stock from any holder thereof.
5. Company has no plan or intention to issue any additional shares of
its stock that would result in TMW losing control of Company within the meaning
of section 368(c) of the Internal Revenue Code of 1986, as amended (the
"CODE").
6. Company and the shareholders of Company will each pay their
respective expenses, if any, incurred in connection with the Merger, except
that TMW and Company will share equally the registration fees and printing
costs incurred in connection with filing and printing the Registration
Statement.
-2-
<PAGE> 11
7. There is no intercorporate indebtedness existing between TMW and
Company or between Combination Company and Company that was issued, acquired,
or will be settled at a discount.
8. In the Merger, shares of Company stock representing control of
Company, as defined in section 368(c) of the Code, will be exchanged solely for
voting stock of TMW. For purposes of this representation, shares of Company
stock exchanged for cash or other property originating with TMW will be treated
as outstanding Company stock on the date of the Merger.
9. At the Effective Time, Company will not have outstanding any
warrants, options, convertible securities, or any other type of right pursuant
to which any person could acquire stock in Company that, if exercised or
converted, would affect TMW's acquisition or retention of control of Company,
as defined in section 368(c) of the Code.
10. Company is not an investment company as defined in section
368(a)(2)(F)(iii) and (iv) of the Code.
11. At the Effective Time, the fair market value of the assets of
Company will exceed the sum of its liabilities, plus the amount of liabilities,
if any, to which the assets are subject.
12. Company is not under the jurisdiction of a court in a Title 11 or
similar case within the meaning of section 368(a)(3)(A) of the Code. That is,
Company is not a party to a case under Title 11 of the United States Code or to
a receivership, foreclosure or similar proceeding in a federal or state court.
-3-
<PAGE> 12
13. Company will not take or omit to take any action (whether before,
on or after the Effective Time) that would cause the Merger to fail to qualify
as a reorganization within the meaning of section 368(a) of the Code.
14. The Merger and related transactions will be carried out in
accordance with the terms of the Agreement, including any attachments or
amendments thereto, and there are no other relevant agreements, arrangements or
understandings relating to the Merger other than those described or referenced
in the Agreement.
15. Company is authorized to make all of the representations made by
it and set forth herein.
I understand that (i) you will rely upon the above representations by
us in connection with issuing your opinion, (ii) the representations in this
Officer's Certificate are made as of the date hereof and as of the Effective
Time, and (iii) you may disclose these representations in connection with
issuing your opinion.
Dated: April 26, 1999.
K&G MEN'S CENTER, INC.
By: /s/ JOHN C. DANCU
-------------------------------------
Name: John C. Dancu
-----------------------------------
Title: Chief Operating Officer
----------------------------------
-4-
<PAGE> 1
EXHIBIT 8.2
April 26, 1999
K&G Men's Center, Inc.
1225 Chattahoochee Avenue, N.W.
Atlanta, Georgia 30318
MERGER OF TMW COMBINATION COMPANY INTO
K&G MEN'S CENTER, INC.
CERTAIN FEDERAL INCOME TAX MATTERS
Ladies and Gentlemen:
We have acted as counsel to K&G Men's Center, Inc. ("K&G"), a Georgia
corporation, in connection with the proposed merger (the "Merger") of TMW
Combination Company ("Merger Corporation"), a Georgia corporation and
wholly-owned subsidiary of The Men's Wearhouse, Inc. ("TMW"), a Texas
corporation, with and into K&G, pursuant to the Agreement and Plan of Merger
dated as of March 3, 1999, among TMW, the Merger Corporation, and K&G, as
amended by Amendment No. 1 to Agreement and Plan of Merger dated as of March
30, 1999 (the "Agreement"). This opinion letter is delivered to you pursuant
to Section 6.3(d) of the Agreement. Any capitalized term used but not defined
in this letter has the meaning given that term in the Agreement.
K&G's only class of stock outstanding is common stock. Each
outstanding share of K&G common stock will be converted into a fraction of a
share of TMW common stock according to an exchange ratio based on the average
closing price of the TMW common stock for the 15 trading days ending on the
third trading day before the closing date of the Merger. The maximum exchange
ratio will be 0.43, and the minimum exchange ratio will be 0.40. If a K&G
shareholder otherwise would be entitled to receive a fractional share of TMW
common stock upon the exchange of shares of K&G common stock, TMW will pay cash
in lieu of issuing any fractional share. K&G has issued certain stock options
to employees and directors of K&G, and at the time of the Merger, each
outstanding option to purchase K&G stock will be converted into an option to
purchase TMW common stock. The conversion will result in preserving the
current economics under those outstanding options.
<PAGE> 2
K&G Men's Center, Inc.
April 26, 1999
Page 2
There are no dissenters or appraisal rights available to K&G shareholders in
connection with the Merger.
You have requested our opinion concerning certain federal income tax
consequences of the Merger. In giving this opinion, we have reviewed the
Agreement, the Form S-4 Registration Statement under the Securities Act of 1933
relating to the Merger (the "S-4"), and such other documents as we have
considered necessary. In addition, we have been advised by appropriate
officers of TMW and K&G as follows:
1. The fair market value of the TMW common stock (including any
fractional share interest) received by a K&G shareholder in exchange for K&G
common stock will be approximately equal to the fair market value of K&G common
stock surrendered in the exchange.
2. None of the compensation received by any shareholder-employee
of K&G will be separate consideration for, or allocable to, any shares of K&G
common stock; none of the shares of TMW common stock received by any
shareholder-employee in the Merger will be separate consideration for, or
allocable to, any employment agreement; and the compensation paid to any
shareholder-employee will be for services actually rendered and will be
commensurate with amounts paid to third parties bargaining at arm's length for
similar services.
3. The payment of cash in lieu of fractional shares of TMW common
stock is solely for the purpose of avoiding the expense and inconvenience to
TMW of issuing fractional shares and does not represent separately bargained-
for consideration. The total cash that will be paid in the Merger in lieu of
fractional shares of TMW common stock will not exceed one percent (1%) of the
total consideration that will be issued in the Merger to K&G shareholders in
exchange for their K&G stock.
4. No share of K&G stock has been or will be redeemed directly or
indirectly (including, without limitation, through a partnership) by K&G or
acquired directly or indirectly (including, without limitation, through a
partnership) by any subsidiary of K&G in anticipation of the Merger, and K&G
has not made and will not make any extraordinary distribution with respect to
its stock in anticipation of the Merger.
5. There is no plan or intention for TMW or any subsidiary of TMW
to acquire directly or indirectly (including, without limitation, through a
partnership) any of the TMW common stock
<PAGE> 3
K&G Men's Center, Inc.
April 26, 1999
Page 3
issued in the Merger or to make any extraordinary distribution with respect to
such stock.
6. Neither TMW nor any subsidiary of TMW (a) owns any shares of
K&G stock or (b) has acquired or will acquire directly or indirectly
(including, without limitation, through a partnership) any shares of K&G common
stock in anticipation of the Merger.
7. Following the Merger, K&G will hold (a) at least 90 percent of
the fair market value of the net assets and at least 70 percent of the fair
market value of the gross assets held by K&G immediately before the Merger and
(b) at least 90 percent of the fair market value of the net assets and at least
70 percent of the fair market value of the gross assets held by Merger
Corporation immediately before the Merger. For this purpose, amounts paid by
K&G or Merger Corporation for expenses related to the Merger and amounts paid
with respect to any redemptions and distributions (except for regular, normal
dividends) made in connection with the Merger will be included as assets held
by K&G or Merger Corporation, as appropriate, immediately before the Merger,
but any assets transferred to Merger Corporation by TMW in connection with the
Merger are not taken into account.
8. On the effective date of the Merger, the fair market value of
K&G's assets will exceed the sum of K&G's liabilities plus the amount of
liabilities, if any, to which its assets are subject.
9. Following the Merger, K&G will continue its historic business
or use a significant portion of its historic business assets in a business.
10. The liabilities of Merger Corporation, if any, that will be
assumed by K&G and the liabilities, if any, to which assets of Merger
Corporation are subject were incurred by Merger Corporation in the ordinary
course of business. Merger Corporation holds, and will hold, only those assets
necessary for it to effect the Merger.
11. There is no indebtedness existing between (a) K&G or any
subsidiary of K&G and (b) TMW, Merger Corporation, or any other subsidiary of
TMW.
12. TMW, Merger Corporation, K&G, and the shareholders of K&G have
paid or will pay their respective expenses, if any, incurred in connection with
the Merger, except that TMW and K&G
<PAGE> 4
K&G Men's Center, Inc.
April 26, 1999
Page 4
each will pay one-half of the registration fees and printing costs incurred in
connection with filing and printing the S-4 and the Proxy Statement relating to
the Merger.
13. TMW owns, and immediately before the Merger will own, all the
outstanding stock of Merger Corporation.
14. After the Merger, K&G will not issue additional shares of its
stock that would result in TMW's owning less than 80 percent of the total
combined voting power of all classes of K&G voting stock or less than 80
percent of each class of K&G nonvoting stock.
15. Neither TMW nor K&G has any plan or intention (a) to liquidate
K&G, (b) to merge K&G into another entity with the other entity being the
surviving entity, (c) to sell or otherwise dispose of any stock of K&G, other
than in connection with a transfer to a corporation controlled by TMW within
the meaning of section 368(c) of the Internal Revenue Code of 1986, as amended
(the "Code"), or (d) to sell or otherwise dispose of any of K&G's assets,
except for dispositions made in the ordinary course of business or transfers of
assets to corporations controlled by K&G within the meaning of section 368(c)
of the Code.
16. For each of TMW, Merger Corporation, and K&G, either (i) less
than 50 percent of the fair market value of its adjusted total assets consists
of stock and securities, (ii) less than 80 percent of the fair market value of
its adjusted total assets consists of assets held for investment, or (iii) not
more than 25 percent of the fair market value of its adjusted total assets
consists of stock and securities of any one issuer and not more than 50 percent
of the fair market value of its adjusted total assets consists of stock and
securities of five or fewer issuers. For purposes of the preceding sentence,
(a) a corporation's adjusted total assets exclude cash, cash items (including
accounts receivable and cash equivalents), and United States government
securities, (b) a corporation's adjusted total assets exclude stock and
securities issued by any subsidiary at least 50 percent of the voting power or
50 percent of the total fair market value of the stock of which is owned by the
corporation, but the corporation is treated as owning directly a ratable share
(based on the percentage of the fair market value of the subsidiary's stock
owned by the corporation) of the assets owned by any such subsidiary, (c) all
corporations that are members of the same "controlled group" within the meaning
of section 1563(a) of the Code are treated as a single issuer, and (d) an
asset is held for investment if it is held primarily for gain
<PAGE> 5
K&G Men's Center, Inc.
April 26, 1999
Page 5
from appreciation in value or for the production of passive income (including
royalties, rents, dividends, and interest).
17. No shares of K&G common stock, if any, that were acquired in
connection with the performance of services are subject to a substantial risk
of forfeiture with the meaning of section 83(c) of the Code.
18. At all times during the five-year period ending on the
effective date of the Merger, no K&G shareholder that is a nonresident alien or
foreign entity has owned directly or indirectly of record or, to the knowledge
of K&G, beneficially more than five percent of the outstanding K&G common
stock.
19. Since April 16, 1997, K&G has not distributed to its
shareholders or security holders stock or securities of a controlled
corporation in a transaction to which section 355(a) of the Code applied.
20. Any shares of TMW common stock received in exchange for shares
of K&G common stock that (a) were acquired in connection with the performance
of services, including stock acquired through the exercise of an option or
warrant acquired in connection with the performance of services, and (b) are
subject to a substantial risk of forfeiture within the meaning of section 83(a)
of the Code will be subject to substantially the same risk of forfeiture after
the Merger.
We assume that the preceding enumerated statements are and will remain
accurate. On the basis of the foregoing, and assuming that the Merger will be
consummated in accordance with the Agreement, we are of the opinion that (under
existing law) for federal income tax purposes:
(a) The Merger will be a reorganization within the
meaning of section 368(a) of the Code, and TMW, the Merger Corporation, and K&G
each will be a "party to a reorganization" within the meaning of section 368(b)
of the Code.
(b) A K&G shareholder will not recognize gain or loss on
the exchange of shares of K&G common stock solely for shares of TMW common
stock (including any fractional share interest) in the Merger.
(c) The aggregate basis of shares of TMW (including any
fractional share interest) received in the Merger by a K&G
<PAGE> 6
K&G Men's Center, Inc.
April 26, 1999
Page 6
shareholder will be the same as the aggregate basis of the shares of K&G common
stock exchanged therefor.
(d) The holding period for shares of TMW common stock
(including fractional share interest) received in the Merger by a K&G
shareholder will include the holding period for the shares of K&G common stock
exchanged therefor, if such shares of K&G common stock are held as a capital
asset on the effective date of the Merger.
(e) Cash received by a K&G shareholder in lieu of a
fractional share of TMW common stock will be treated as having been received as
full payment in exchange for such fractional share pursuant to section 302(a)
of the Code. Accordingly, a K&G shareholder who receives cash in lieu of a
fractional share will recognize gain or loss equal to the difference between
the amount of cash received and the shareholder's basis in the fractional share
interest.
Except as set forth above, we express no opinion regarding any tax
consequences of the Merger. We consent to the use of this opinion as an
exhibit to the S-4 and to the reference to this firm in such S-4. In giving
this consent, we do not admit that we are within the category of persons whose
consent is required by section 7 of the Securities Act of 1933 or the rules and
regulations promulgated thereunder by the Securities and Exchange Commission.
Very truly yours,
/s/ HUNTON & WILLIAMS
<PAGE> 1
EXHIBIT 99.1
THIS PROXY IS SOLICITED ON BEHALF OF THE
BOARD OF DIRECTORS OF K&G MEN'S CENTER, INC.
The undersigned shareholder(s) of K&G Men's Center, Inc., a Georgia
corporation (the "Company"), hereby acknowledges receipt of the Notice of Annual
Meeting of Shareholders and Proxy Statement/Prospectus, each dated April 26,
1999, and hereby appoints Stephen H. Greenspan and John C. Dancu, or either of
them, proxies and attorneys-in-fact, with full power of substitution, on behalf
and in the name of the undersigned, to represent the undersigned at the 1999
Annual Meeting of Shareholders of the Company to be held at 11:00 a.m. local
time on Tuesday, June 1, 1999, at the Company's headquarters located at 1225
Chattahoochee Avenue, N.W., Atlanta, Georgia 30318, and at any adjournment(s)
thereof, and to vote all shares of Common Stock which the undersigned would be
entitled to vote if then and there personally present, on the matters set forth
below:
(1) To consider and vote upon a proposal to approve an Agreement and Plan of
Merger dated March 3, 1999, by and among The Men's Wearhouse, Inc.
("TMW"), TMW Combination Company, a newly formed wholly owned subsidiary
of TMW ("Merger Sub"), and K&G. Under the merger agreement, TMW will
acquire K&G through a merger of Merger Sub with and into K&G. The merger
agreement provides that, upon completion of the merger, K&G shareholders
will receive between 0.4 and 0.43 of a share of TWM common stock in
exchange for each outstanding share of K&G common stock.
[ ] FOR the approval [ ] WITHHOLD authority to vote [ ] ABSTAIN
for approval
(2) To elect K&G's Class I directors to serve a three-year term expiring in
2002 in accordance with K&G's Articles of Incorporation;
[ ] FOR the approval of [ ] WITHHOLD authority to vote [ ] ABSTAIN
all nominees listed, for election of all nominees
except as indicated
to the contrary below
Nominees: James W. Inglis and Campbell B. Lanier, III
INSTRUCTIONS: TO WITHHOLD AUTHORITY FOR ANY INDIVIDUAL NOMINEE, MARK "FOR"
ABOVE, AND WRITE THE NAME OF THE NOMINEE AS TO WHOM YOU WISH TO WITHHOLD
AUTHORITY IN THE SPACE BELOW:
(3) To ratify the appointment of Arthur Andersen LLP by the board of directors
of K&G as the independent public accountants of K&G; and
[ ] FOR the approval [ ] WITHHOLD authority to vote [ ] ABSTAIN
for approval
<PAGE> 2
(4) To transact such other business as may properly come before the meeting.
PLEASE COMPLETE, DATE, SIGN AND RETURN THIS PROXY PROMPTLY. THIS PROXY, WHEN
PROPERLY EXECUTED, WILL BE VOTED IN ACCORDANCE WITH THE DIRECTIONS GIVEN BY THE
UNDERSIGNED SHAREHOLDER(S). IF NO DIRECTION IS MADE, IT WILL BE VOTED TO
WITHHOLD THE APPROVAL OF AN AMENDMENT AND PLAN OF MERGER AS SET FORTH IN (1)
ABOVE, FOR DIRECTOR NOMINEES NAMED IN ITEM (2) ABOVE, FOR THE RATIFICATION OF
THE APPOINTMENT OF ARTHUR ANDERSEN LLP AS THE INDEPENDENT PUBLIC ACCOUNTANTS AS
SET FORTH IN ITEM (3) ABOVE, AND AS THE PROXIES DEEM ADVISABLE ON SUCH OTHER
MATTERS AS MAY PROPERLY COME BEFORE THIS MEETING.
Dated: , 1999
----------------------
----------------------------------
Signature
----------------------------------
Signature (if held jointly)
Title or Authority (if applicable)
NOTE: PLEASE SIGN EXACTLY AS NAME
APPEARS HEREON. IF SHARES ARE
REGISTERED IN MORE THAN ONE NAME,
THE SIGNATURES OF ALL SUCH PERSONS
ARE REQUIRED. A CORPORATION SHOULD
SIGN IN ITS FULL CORPORATE NAME BY
A DULY AUTHORIZED OFFICER, STATING
HIS OR HER TITLE. TRUSTEES,
GUARDIANS, EXECUTORS AND
ADMINISTRATORS SHOULD SIGN IN
THEIR OFFICIAL CAPACITY, GIVING
THEIR FULL TITLE AS SUCH. IF A
PARTNERSHIP, PLEASE SIGN IN THE
FULL PARTNERSHIP NAME BY AN
AUTHORIZED PERSON.
<PAGE> 1
EXHIBIT 99.2
[Letterhead of]
[NationsBanc Montgomery Securities LLC]
April 26, 1999
Board of Directors
K&G Men's Center, Inc.
1225 Chattahoochee Avenue, N.W.
Atlanta, Georgia 30318
Gentlemen:
We hereby consent to the inclusion of our opinion letter dated April 26,
1999 to the Board of Directors of K&G Men's Center, Inc. ("K&G") regarding the
proposed merger between K&G and a wholly-owned subsidiary of The Men's
Wearhouse, Inc. ("TMW"), in Amendment No. 1 to TMW's Registration Statement on
Form S-4 (as so amended, the "Registration Statement") to be filed with the
Securities and Exchange Commission on April 26, 1999, and to the references
therein to our firm and to our opinion under the headings "Summary--Opinion of
NationsBanc to the Directors of K&G", "The Merger and Related
Transactions--Background of the Merger", "--K&G's Reasons for the Merger",
"--Opinion of NationsBanc to the Directors of K&G" and "Certain Terms of the
Merger Agreement--Conditions to the Merger". In giving the foregoing consent,
we do not admit and we hereby disclaim (i) that we come within the category of
persons whose consent is required under Section 7 of the Securities Act of
1933, as amended (the "Securities Act"), or the rules and regulations of the
Securities and Exchange Commission promulgated thereunder, and (ii) that we are
experts with respect to any part of the Registration Statement within the
meaning of the term "experts" as used in the Securities Act and the rules and
regulations of the Securities and Exchange Commission promulgated thereunder.
Very truly yours,
/s/ NATIONSBANC MONTGOMERY
SECURITIES LLC
----------------------------
NationsBanc Montgomery
Securities LLC
