<PAGE>
FILED PURSUANT TO RULE 424(b)(5)
FILE NUMBER 333-48355/48355-01
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
+INFORMATION CONTAINED IN THIS PRELIMINARY PROSPECTUS SUPPLEMENT IS SUBJECT TO +
+COMPLETION OR AMENDMENT AND PROSPECTIVE PURCHASERS ARE REFERRED TO THE +
+RELATED FINAL PROSPECTUS SUPPLEMENT FOR DEFINITIVE INFORMATION ON ANY MATTER +
+CONTAINED HEREIN. NEITHER THIS PRELIMINARY PROSPECTUS SUPPLEMENT NOR THE +
+ACCOMPANYING PROSPECTUS SHALL CONSTITUTE AN OFFER TO SELL OR THE SOLICITATION +
+OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE SECURITIES IN ANY +
+STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE UNLAWFUL PRIOR TO +
+REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS OF ANY STATE. +
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
PROSPECTUS SUPPLEMENT (Subject to Completion, Dated April 24, 1998)
(To Prospectus dated April 24, 1998)
$450,000,000
[LOGO OF TOMMY HILFIGER APPEARS HERE]
Tommy Hilfiger U.S.A., Inc.
$250,000,000 % NOTES DUE 2003
$200,000,000 % NOTES DUE 2008
Payment of principal and interest unconditionally guaranteed by
Tommy Hilfiger Corporation
----------
Interest payable June 1 and December 1
----------
THE % NOTES WILL MATURE ON JUNE 1, 2003 (THE "2003 NOTES"), AND THE % NOTES
WILL MATURE ON JUNE 1, 2008 (THE "2008 NOTES") (COLLECTIVELY THE "NOTES"). THE
NOTES WILL BE UNSECURED SENIOR OBLIGATIONS OF TOMMY HILFIGER U.S.A., INC.
(THE "COMPANY"), RANKING ON A PARITY WITH ALL OTHER UNSECURED AND
UNSUBORDINATED INDEBTEDNESS OF THE COMPANY. THE NOTES WILL BE
UNCONDITIONALLY GUARANTEED AS TO PRINCIPAL AND INTEREST BY TOMMY HILFIGER
CORPORATION, THE PARENT CORPORATION OF THE COMPANY (THE "GUARANTOR"). THE
GUARANTEES OF THE NOTES (THE "GUARANTEES") WILL BE UNSECURED SENIOR
OBLIGATIONS OF THE GUARANTOR AND WILL RANK ON A PARITY WITH ALL OTHER
UNSECURED AND UNSUBORDINATED INDEBTEDNESS OF THE GUARANTOR. THE NOTES
WILL BE REDEEMABLE AS SET FORTH HEREIN UNDER "DESCRIPTION OF THE NOTES
AND THE GUARANTEES--OPTIONAL REDEMPTION." THE NOTES WILL ALSO BE
REDEEMABLE AT THE OPTION OF THE GUARANTOR, IN WHOLE BUT NOT IN PART,
IF THE GUARANTOR WOULD BE REQUIRED TO PAY ADDITIONAL AMOUNTS WITH
RESPECT TO THE NOTES AS A RESULT OF CHANGES IN THE LAWS OF ANY
JURISDICTION IN WHICH THE GUARANTOR IS RESIDENT FOR TAX PURPOSES.
SEE "DESCRIPTION OF DEBT SECURITIES AND GUARANTEES--OPTIONAL TAX
REDEMPTION" IN THE ACCOMPANYING PROSPECTUS. EACH SERIES OF NOTES
WILL BE REPRESENTED BY ONE OR MORE GLOBAL DEBT SECURITIES
REGISTERED IN THE NAME OF THE DEPOSITORY TRUST COMPANY ("DTC")
OR ITS NOMINEE. BENEFICIAL INTERESTS IN THE GLOBAL DEBT
SECURITIES WILL BE SHOWN ON, AND TRANSFERS THEREOF WILL BE
EFFECTED THROUGH, RECORDS MAINTAINED BY DTC OR ITS
PARTICIPANTS. EXCEPT AS DESCRIBED HEREIN, NOTES IN DEFINITIVE
FORM WILL NOT BE ISSUED. SEE "DESCRIPTION OF THE NOTES AND
THE GUARANTEES--BOOK-ENTRY SYSTEM, FORM AND DELIVERY"
HEREIN AND "DESCRIPTION OF DEBT SECURITIES AND
GUARANTEES--GLOBAL NOTES" IN THE ACCOMPANYING PROSPECTUS.
----------
APPLICATION HAS BEEN MADE TO LIST THE NOTES ON THE NEW YORK STOCK EXCHANGE,
INC.
----------
SEE "RISK FACTORS" BEGINNING ON PAGE S-13 FOR INFORMATION THAT
SHOULD BE CONSIDERED BY PROSPECTIVE INVESTORS.
----------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION
PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS SUPPLEMENT OR THE
PROSPECTUS TO WHICH IT RELATES. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
----------
2003 NOTES--PRICE % AND ACCRUED INTEREST, IF ANY
2008 NOTES--PRICE % AND ACCRUED INTEREST, IF ANY
----------
<TABLE>
<CAPTION>
UNDERWRITING
PRICE TO DISCOUNTS AND PROCEEDS TO
PUBLIC(1) COMMISSIONS(2) COMPANY(1)(3)
--------- -------------- -------------
<S> <C> <C> <C>
Per 2003 Note.................... % % %
Total............................ $ $ $
Per 2008 Note.................... % % %
Total............................ $ $ $
</TABLE>
- -----
(1) Plus accrued interest, if any, from May , 1998.
(2) The Company and the Guarantor have agreed to indemnify the several
Underwriters against certain liabilities, including liabilities under
the Securities Act of 1933, as amended. See "Underwriters."
(3) Before deducting expenses payable by the Company estimated at $ .
----------
The Notes are offered, subject to prior sale, when, as and if accepted by the
Underwriters and subject to the approval of certain legal matters by Simpson
Thacher & Bartlett, counsel for the Underwriters. It is expected that delivery
of the Notes will be made through the book-entry facilities of DTC on or about
May , 1998, against payment therefor in immediately available funds.
----------
MORGAN STANLEY DEAN WITTER
CHASE SECURITIES INC.
SALOMON SMITH BARNEY
, 1998
<PAGE>
CERTAIN PERSONS PARTICIPATING IN THIS OFFERING MAY ENGAGE IN TRANSACTIONS
THAT STABILIZE, MAINTAIN OR OTHERWISE AFFECT THE PRICE OF THE NOTES.
SPECIFICALLY, THE UNDERWRITERS MAY OVERALLOT IN CONNECTION WITH THE OFFERING,
AND MAY BID FOR, AND PURCHASE, THE NOTES IN THE OPEN MARKET. FOR A DESCRIPTION
OF THESE ACTIVITIES, SEE "UNDERWRITERS."
----------------
NO DEALER, SALESPERSON OR OTHER PERSON HAS BEEN AUTHORIZED IN CONNECTION
WITH ANY OFFERING MADE HEREBY TO GIVE ANY INFORMATION OR TO MAKE ANY
REPRESENTATIONS NOT CONTAINED OR INCORPORATED BY REFERENCE IN THIS PROSPECTUS
SUPPLEMENT OR THE ACCOMPANYING PROSPECTUS, AND, IF GIVEN OR MADE, SUCH
INFORMATION OR REPRESENTATION MUST NOT BE RELIED UPON AS HAVING BEEN
AUTHORIZED BY THE COMPANY OR THE GUARANTOR OR ANY UNDERWRITER, AGENT OR
DEALER. THIS PROSPECTUS SUPPLEMENT AND THE ACCOMPANYING PROSPECTUS DO NOT
CONSTITUTE AN OFFER TO SELL OR A SOLICITATION OF AN OFFER TO BUY ANY SECURITY
OTHER THAN THE NOTES OFFERED HEREBY, NOR DO THEY CONSTITUTE AN OFFER TO SELL
OR A SOLICITATION OF AN OFFER TO BUY THE NOTES TO ANY PERSON IN ANY
JURISDICTION IN WHICH IT IS UNLAWFUL TO MAKE SUCH AN OFFER OR SOLICITATION TO
SUCH PERSON. NEITHER THE DELIVERY OF THIS PROSPECTUS SUPPLEMENT WITH THE
ACCOMPANYING PROSPECTUS NOR ANY SALE MADE HEREUNDER SHALL, UNDER ANY
CIRCUMSTANCES, CREATE ANY IMPLICATION THAT THE INFORMATION CONTAINED HEREIN OR
THEREIN IS CORRECT AS OF ANY DATE SUBSEQUENT TO THE DATE HEREOF OR THEREOF OR
THAT THERE HAS BEEN NO CHANGE IN THE AFFAIRS OF THE COMPANY OR THE GUARANTOR
SINCE THE DATE HEREOF.
----------------
TABLE OF CONTENTS
PROSPECTUS SUPPLEMENT
<TABLE>
<CAPTION>
PAGE
-----
<S> <C>
Prospectus Supplement Summary....... S-3
Risk Factors........................ S-13
Exchange Rates...................... S-14
Use of Proceeds..................... S-14
The Proposed Acquisition............ S-15
Capitalization...................... S-16
Unaudited Pro Forma Combined
Financial Statements............... S-17
Management's Discussion and Analysis
of Financial Condition and Results
of Operations...................... S-22
Business of Tommy Hilfiger.......... S-27
Businesses of the Acquired
Companies.......................... S-32
Description of the Notes and the
Guarantees......................... S-35
Underwriters........................ S-37
</TABLE>
PROSPECTUS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Available Information.............. 2
Incorporation of Certain Documents
by Reference...................... 2
Enforceability of Civil Liabilities
and Related Matters............... 4
Tommy Hilfiger..................... 5
The Proposed Acquisition........... 5
Use of Proceeds.................... 6
Ratio of Earnings to Fixed Charges
of the Guarantor.................. 6
Description of Debt Securities and
Guarantees........................ 7
Plan of Distribution............... 19
Validity of Offered Debt
Securities........................ 20
Experts............................ 20
</TABLE>
----------------
THIS PROSPECTUS SUPPLEMENT CONTAINS FORWARD-LOOKING STATEMENTS WITHIN THE
MEANING OF SECTION 27A OF THE SECURITIES ACT OF 1933, AS AMENDED (THE
"SECURITIES ACT"), AND SECTION 21E OF THE SECURITIES EXCHANGE ACT OF 1934, AS
AMENDED (THE "EXCHANGE ACT"). SUCH STATEMENTS ARE INDICATED BY WORDS OR
PHRASES SUCH AS "ANTICIPATE," "ESTIMATE," "PROJECT," "MANAGEMENT EXPECTS,"
"TOMMY HILFIGER BELIEVES" AND SIMILAR WORDS OR PHASES. SUCH STATEMENTS ARE
BASED ON CURRENT EXPECTATIONS AND ARE SUBJECT TO CERTAIN RISKS, UNCERTAINTIES
AND ASSUMPTIONS INCLUDING THE RISKS DESCRIBED UNDER "RISK FACTORS." SHOULD ONE
OR MORE OF THESE RISKS OR UNCERTAINTIES MATERIALIZE, OR SHOULD UNDERLYING
ASSUMPTIONS PROVE INCORRECT, ACTUAL RESULTS MAY VARY MATERIALLY FROM THOSE
ANTICIPATED, ESTIMATED OR PROJECTED.
----------------
The names TOMMY HILFIGER(R) and TOMMY JEANS(R), the distinctive red, white
and blue flag logo, the crest and the green eyelet are registered trademarks
of a wholly owned subsidiary of the Company. The name TOMMY ATHLETICS(TM) is a
trademark of such subsidiary, for which an application for registration is
pending.
S-2
<PAGE>
PROSPECTUS SUPPLEMENT SUMMARY
The following Prospectus Supplement Summary should be read in conjunction
with the other information contained elsewhere in this Prospectus Supplement
and the accompanying Prospectus or incorporated by reference therein. The
Guarantor, collectively with its subsidiaries, including the Company, is
referred to in this Prospectus Supplement as "Tommy Hilfiger." Capitalized
terms used in this summary that have not previously been defined or are not
defined in this summary are defined elsewhere in this Prospectus Supplement or
the accompanying Prospectus.
TOMMY HILFIGER
Tommy Hilfiger designs, sources and markets men's sportswear and
childrenswear under the TOMMY HILFIGER(R) trademark. Through a range of
strategic licensing agreements, Tommy Hilfiger continues to expand its product
lines to offer a broader array of apparel, accessories, footwear and fragrance
for men, women and children, as well as a home furnishings collection. Tommy
Hilfiger's products can be found in leading department and specialty stores
throughout the United States, Canada, Europe, Mexico, Central and South
America, Japan, Hong Kong and other Far East locations. The Company and its
subsidiaries carry out all of Tommy Hilfiger's operations in the United States.
Following the Acquisition described below, the Company and its subsidiaries
will also carry out all of Tommy Hilfiger's operations in Canada.
Mr. Hilfiger is the principal designer and provides leadership and direction
for all aspects of the design process. TOMMY HILFIGER(R) sportswear is designed
to combine classic American styling with unique details and fit to give time-
honored basics a fresh and updated look for customers who desire high quality,
designer clothes at competitive prices.
Tommy Hilfiger's principal growth strategy has been to expand its in-store
shop program, whereby participating retailers set aside floor space highlighted
by distinctive fixtures dedicated for the exclusive sale of Tommy Hilfiger's
products by the retailer. Tommy Hilfiger expects to continue to pursue this
strategy by increasing the number and size of its in-store shops in the United
States and internationally. In the United States, the men's in-store shop
program totaled 1,175 shops at December 31, 1997 compared with 1,026 shops at
December 31, 1996. In addition, as of December 31, 1997, Tommy Hilfiger had
established 1,178 fixtured areas in department stores where its childrenswear
is sold compared with 1,010 at December 31, 1996. In addition, Tommy Hilfiger
continues its program to expand certain existing shops.
In addition to continuing to expand the in-store shop program, Tommy Hilfiger
plans to grow by broadening its range of product offerings, both in-house and
through licensing arrangements, and by expanding its channels of distribution.
Through the expansion of its product lines, Tommy Hilfiger believes it will
serve a wider variety of customer needs. Since 1992, Tommy Hilfiger has
introduced several in-house products, including boyswear, childrenswear for
infants and toddlers, swimwear, athleticwear, caps and bags. Additionally,
Tommy Hilfiger has expanded its offerings through licensing agreements
including men's and women's fragrances, jeanswear, women's casualwear, footwear
and other accessories.
As of March 31, 1998, Tommy Hilfiger operated 56 outlet stores and nine
specialty retail stores, including a store in London, England, and currently
plans to open approximately ten additional outlet stores by March 31, 1999.
Tommy Hilfiger also opened a flagship store in Beverly Hills, California in
November 1997 and plans to open a flagship store in London, England by Spring
1999. See "Business of Tommy Hilfiger."
S-3
<PAGE>
THE PROPOSED ACQUISITION
On February 1, 1998, Tommy Hilfiger announced that it had entered into a
stock purchase agreement with Pepe Jeans London Corporation ("PJLC") to acquire
Pepe Jeans USA, Inc., Tommy Hilfiger's United States womenswear and jeanswear
licensee ("Pepe USA"), and TJ Far East Limited, Pepe USA's buying agency
affiliate ("Pepe Far East" and, together with its subsidiaries and Pepe USA,
"Pepe Jeans") (such stock purchases, the "Acquisition"). In the Acquisition,
the Guarantor, through its wholly owned subsidiaries, will purchase Pepe Jeans
for an aggregate purchase price of $755,760,000 in cash plus 9,045,930 Ordinary
Shares, par value $.01 per share, of the Guarantor ("Ordinary Shares").
Immediately following the Acquisition, Pepe USA will purchase from Lawvest
Holdings Inc. ("Lawvest") all of the outstanding shares of Tomcan Investments
Inc. ("Tomcan"), the parent corporation of Tommy Hilfiger Canada Inc., Tommy
Hilfiger's Canadian licensee ("TH Canada" and, together with Tomcan, "Tommy
Canada" and, collectively with Pepe Jeans, the "Acquired Companies"), with
funds provided by PJLC using proceeds from the cash consideration to be paid in
the Acquisition. See "The Proposed Acquisition."
BUSINESSES OF THE ACQUIRED COMPANIES
Pursuant to a license granted by Tommy Hilfiger, Pepe USA has exclusive
United States rights to develop, source and market men's, women's and girls'
jeanswear and jeans-related apparel, including women's and girls' casualwear,
bearing the TOMMY JEANS(R) and TOMMY HILFIGER(R) trademarks. Pepe USA markets
its products principally through in-store shops and fixtured areas in leading
department stores and through leading specialty stores. Pepe USA will be
launching the TOMMY JEANS(R) women's line, which will include jeanswear and
jeans-related apparel for young women, in Fall 1998. Pepe Far East and its
subsidiaries perform buying agency services for womenswear and jeanswear under
the TOMMY HILFIGER(R) and TOMMY JEANS(R) trademarks for both Pepe USA and Tommy
Hilfiger's third-party distributors outside the United States.
Pursuant to a license granted by Tommy Hilfiger, Tommy Canada has exclusive
Canadian rights to source, manufacture and distribute apparel bearing the TOMMY
HILFIGER(R) and TOMMY JEANS(R) trademarks, including men's sportswear and
athleticwear, boys' sportswear, women's and girls' casualwear and men's,
women's and girls' jeanswear. Tommy Canada markets TOMMY HILFIGER(R) and TOMMY
JEANS(R) products principally through leading specialty stores and through in-
store shops and fixtured areas in leading department stores. See "Businesses of
the Acquired Companies."
REASONS FOR THE ACQUISITION
Tommy Hilfiger believes that the acquisition of the U.S. womenswear and
jeanswear businesses and the Canadian business will enhance shareholder value
by providing significant strategic, financial and other benefits:
.BRAND DEVELOPMENT
Combining the major core components of its business under one corporate
umbrella will afford increased control over the TOMMY HILFIGER(R) brand
and greater leverage with its department store customers and suppliers.
Tommy Hilfiger believes these factors are becoming increasingly
important in the current global lifestyle brand business environment,
particularly in light of the recent trends toward consolidation of Tommy
Hilfiger's competitors as well as its department store customers.
.OPPORTUNITY FOR ACCELERATED GROWTH
Tommy Hilfiger believes the integration of these established high-
growth, profitable business lines offers an excellent and unique
opportunity to re-accelerate its growth rate in both revenue and
earnings.
S-4
<PAGE>
.POTENTIAL FOR EARNINGS ACCRETION
The Acquisition is expected to be meaningfully accretive in the first
full year of combined operations, before giving effect to a one-time
pre-tax charge of approximately $15 million to $20 million expected to
be taken in the first quarter of fiscal 1999.
.MANAGEMENT OWNERSHIP
The Acquisition will result in Tommy Hilfiger's founding partners and
senior-most management, Messrs. Silas K.F. Chou, Lawrence S. Stroll,
Thomas J. Hilfiger and Joel J. Horowitz, once again becoming significant
shareholders in the Guarantor through their beneficial ownership
interests in PJLC, which will own approximately 19% of the outstanding
shares of the Guarantor following the Acquisition.
.SEAMLESS INTEGRATION
Given the close working relationships between Tommy Hilfiger and each of
Pepe Jeans and Tommy Canada as well as Tommy Hilfiger's divisional
operating structure, Tommy Hilfiger believes the integration of the
womenswear, jeanswear and Canadian businesses should be virtually
seamless.
S-5
<PAGE>
THE OFFERING
Offered Securities.............. $250,000,000 principal amount of % Notes
due 2003
$200,000,000 principal amount of % Notes
due 2008
Guarantees...................... The Notes will be unconditionally
guaranteed as to principal and interest
by the Guarantor.
Maturity Dates.................. 2003 Notes--June 1, 2003
2008 Notes--June 1, 2008
Interest Payment Dates.......... June 1 and December 1 of each year,
commencing December 1, 1998
Ranking......................... The Notes will be unsecured senior
obligations of the Company and will rank
pari passu in right of payment with the
Company's obligations under all its
existing and future unsecured and
unsubordinated indebtedness.
The Guarantees will be unsecured senior
obligations of the Guarantor and will
rank pari passu in right of payment with
the Guarantor's obligations under all its
existing and future unsecured and
unsubordinated indebtedness.
Optional Redemption............. The Notes will be redeemable in whole or
in part, at the option of the Company, at
any time, at redemption prices as set
forth herein under "Description of the
Notes and the Guarantees --Optional
Redemption."
The Notes will also be redeemable at the
option of the Guarantor, in whole but not
in part, if the Guarantor would be
required to pay additional amounts with
respect to the Notes as a result of
changes in the laws of any jurisdiction
in which the Guarantor is resident for
tax purposes. See "Description of Debt
Securities and Guarantees -- Optional Tax
Redemption" in the accompanying
Prospectus.
Listing......................... Application has been made to list the
Notes on the New York Stock Exchange,
Inc.
Certain Covenants............... The Indenture governing the Notes
contains certain covenants that, among
other things, (1) limit the ability of
the Guarantor and certain of its
subsidiaries, including the Company, to
create liens to secure indebtedness or
enter into sale and leaseback
transactions, (2) limit the ability of
certain subsidiaries of the Guarantor
(other than the Company) to incur
indebtedness and (3) limit the ability of
the Company or the Guarantor to engage in
mergers and consolidations or transfer
substantially all of the Company's or the
Guarantor's assets. See "Description of
Debt Securities and Guarantees" in the
accompanying Prospectus.
Use of Proceeds................. The net proceeds from the offering of the
Notes will be used to finance a portion
of the cash consideration payable in the
Acquisition. See "The Proposed
Acquisition" and "Use of Proceeds."
S-6
<PAGE>
SUMMARY HISTORICAL FINANCIAL INFORMATION
The following tables present summary historical financial information for
Tommy Hilfiger, Pepe Jeans and Tommy Canada for each of the five fiscal years
in the period ended March 31, 1997 and for the nine months ended December 31,
1997 and 1996. The summary financial information should be read in conjunction
with the historical financial statements and related notes thereto of Tommy
Hilfiger, Pepe Jeans and Tommy Canada and management's discussion and analysis
of financial condition and results of operations incorporated into the
accompanying Prospectus by reference or included elsewhere in this Prospectus
Supplement. See "Available Information" and "Incorporation of Certain Documents
by Reference" in the accompanying Prospectus and "Management's Discussion and
Analysis of Financial Condition and Results of Operations."
The summary historical financial information of Tommy Hilfiger for each of
the three fiscal years in the period ended March 31, 1997 has been derived from
Tommy Hilfiger's audited financial statements and related notes thereto
contained in the Guarantor's Current Report on Form 8-K dated April 1, 1998
(the "April 1, 1998 Current Report"). The summary historical financial
information of Tommy Hilfiger for the fiscal years ended March 31, 1994 and
1993 has been derived from Tommy Hilfiger's audited financial statements. The
summary financial information of Tommy Hilfiger as of and for the nine months
ended December 31, 1997 and 1996 was derived from Tommy Hilfiger's unaudited
financial statements and other information contained in the Guarantor's April
1, 1998 Current Report.
The summary historical financial information of Pepe Jeans for each of the
three fiscal years in the period ended March 31, 1997 has been derived from its
audited combined financial statements incorporated into the accompanying
Prospectus by reference to the Guarantor's Proxy Statement dated March 30, 1998
(the "Special Meeting Proxy Statement"). The summary financial information for
Pepe Jeans for each of the two fiscal years in the period ended March 31, 1994
and as of and for the nine months ended December 31, 1997 and 1996 was derived
from the unaudited combined financial statements of Pepe Jeans.
The financial statements of Tommy Canada were prepared in accordance with
accounting principles generally accepted in Canada ("Canadian GAAP"). Material
variations in Canadian GAAP from accounting principles generally accepted in
the United States ("U.S. GAAP") are summarized in the notes to the respective
financial statements of Tomcan and TH Canada incorporated into the accompanying
Prospectus by reference to the Special Meeting Proxy Statement. The summary
historical financial information for Tommy Canada for each of the three fiscal
years in the period ended March 31, 1997 and as of and for the nine months
ended December 31, 1997 has been derived from TH Canada's and Tomcan's
respective audited financial statements incorporated by reference to the
Special Meeting Proxy Statement. The summary historical financial information
for Tommy Canada for the fiscal years ended March 31, 1994 and 1993 has been
derived from TH Canada's audited financial statements. The summary financial
information for Tommy Canada as of and for the nine months ended December 31,
1996 was derived from the unaudited financial statements of TH Canada
incorporated by reference to the Special Meeting Proxy Statement.
The interim financial data of Tommy Hilfiger, Pepe Jeans and Tommy Canada
that are derived from unaudited financial statements are not necessarily
indicative of results for a full year. In the opinion of management, all
adjustments, consisting only of normal recurring adjustments, necessary for a
fair presentation of results of the unaudited historical interim periods have
been included.
See "Exchange Rates" for information regarding historical exchange rates
between U.S. dollars ("US$" or "$") and Canadian dollars ("C$").
S-7
<PAGE>
TOMMY HILFIGER CORPORATION
(in thousands, except ratios)
<TABLE>
<CAPTION>
NINE MONTHS ENDED
DECEMBER 31, FISCAL YEAR ENDED MARCH 31,
---------------------- --------------------------------------------
1997 1996 1997 1996 1995 1994 1993
----------- ---------- -------- -------- -------- -------- --------
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS
DATA:
Net revenue (a)......... $644,385 $491,235 $661,688 $478,131 $320,985 $227,201 $138,638
Cost of goods sold...... 337,671 255,954 344,884 258,419 174,584 127,053 81,502
-------- -------- -------- -------- -------- -------- --------
Gross profit............ 306,714 235,281 316,804 219,712 146,401 100,148 57,136
Selling, general and
administrative
expenses............... 182,476 141,145 190,976 132,270 85,954 58,702 33,181
-------- -------- -------- -------- -------- -------- --------
Income from operations.. 124,238 94,136 125,828 87,442 60,447 41,446 23,955
Interest expense........ 1,049 679 761 754 207 317 1,348
Investment income....... 5,127 4,539 6,181 5,712 3,217 637 219
-------- -------- -------- -------- -------- -------- --------
Income before income
taxes.................. 128,316 97,996 131,248 92,400 63,457 41,766 22,826
Provision for income
taxes.................. 42,534 33,931 44,866 30,900 22,742 16,422 8,220
-------- -------- -------- -------- -------- -------- --------
Net income.............. $ 85,782 $ 64,065 $ 86,382 $ 61,500 $ 40,715 $ 25,344 $ 14,606
======== ======== ======== ======== ======== ======== ========
<CAPTION>
AS OF DECEMBER 31, AS OF MARCH 31,
---------------------- --------------------------------------------
1997 1996 1997 1996 1995 1994 1993
----------- ---------- -------- -------- -------- -------- --------
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C> <C> <C> <C>
BALANCE SHEET DATA:
Cash, cash equivalents
and short-term
investments............ $148,911 $119,659 $109,908 $127,743 $ 86,031 $ 50,867 $ 18,671
Working capital......... 331,746 261,952 270,667 238,439 165,261 110,589 53,748
Total assets............ 575,452 429,804 463,085 358,622 239,493 190,378 84,704
Short-term borrowings... 9,323 5,301 5,980 13,755 13,487 10,319 8,068
Long-term debt.......... -- 1,581 1,510 1,789 2,064 2,341 --
Shareholders' equity.... 488,416 372,781 397,464 301,338 209,024 161,715 68,700
OTHER DATA:
Ratio of earnings to
fixed charges (b)...... 26.6x 33.9x 36.2x 35.5x 66.6x 65.7x 14.4x
</TABLE>
- --------
(a) On October 1, 1995, Tommy Hilfiger entered into a license with the parent
of Pepe USA for the manufacture, sale and distribution in the United States
of men's, women's and girls' jeanswear and jeans-related apparel (which
includes women's and girls' casualwear) bearing the TOMMY JEANS(R) and
TOMMY HILFIGER(R) trademarks. Included in net revenue is royalty income of
$13,311 and $5,894 for the nine months ended December 31, 1997 and 1996,
respectively, and $9,963 and $1,915 in the fiscal years ended March 31,
1997 and 1996, respectively. Net revenue includes denim product sales prior
to entering into this license of $12,370 and $9,104 during the fiscal years
ended March 31, 1996 and 1995, respectively. Amounts for prior years are
not material.
(b) For purposes of calculating the ratio of earnings to fixed charges,
earnings are the sum of net income, provision for income taxes and fixed
charges (less capitalized interest). Fixed charges are the sum of interest
expense, the estimated interest portion of rental charges and capitalized
interest.
S-8
<PAGE>
PEPE JEANS USA, INC. AND TJ FAR EAST LIMITED COMBINED (A)
(in thousands)
<TABLE>
<CAPTION>
NINE MONTHS ENDED
DECEMBER 31, FISCAL YEAR ENDED MARCH 31,
----------------------- ----------------------------------------------------
1997 1996 1997 (b) 1996 1995 1994 1993
----------- ----------- -------- -------- ------- ----------- -----------
(UNAUDITED) (UNAUDITED) (UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS
DATA:
Net revenues (c) (d).... $278,445 $158,267 $234,920 $ 89,029 $75,807 $89,408 $72,819
Cost of goods sold...... 150,673 98,091 146,948 61,875 48,697 55,037 47,273
-------- -------- -------- -------- ------- ------- -------
Gross profit............ 127,772 60,176 87,972 27,154 27,110 34,371 25,546
Selling, general and
administrative
expenses............... 65,198 38,366 69,046 35,657 26,710 31,729 27,960
-------- -------- -------- -------- ------- ------- -------
Income (loss) from
operations............. 62,574 21,810 18,926 (8,503) 400 2,642 (2,414)
Interest expense, net... 838 1,278 1,650 1,543 1,533 641 608
-------- -------- -------- -------- ------- ------- -------
Income (loss) before
income taxes........... 61,736 20,532 17,276 (10,046) (1,133) 2,001 (3,022)
Provision for income
taxes.................. 24,977 4,074 2,113 400 338 335 892
-------- -------- -------- -------- ------- ------- -------
Net income (loss)....... $ 36,759 $ 16,458 $ 15,163 $(10,446) $(1,471) $ 1,666 $(3,914)
-------- -------- -------- -------- ------- ------- -------
<CAPTION>
AS OF DECEMBER 31, AS OF MARCH 31,
----------------------- ----------------------------------------------------
1997 1996 1997 (B) 1996 1995 1994 1993
----------- ----------- -------- -------- ------- ----------- -----------
(UNAUDITED) (UNAUDITED) (UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C> <C> <C> <C>
BALANCE SHEET DATA:
Cash, cash equivalents
and short-term
investments............ $ 5,325 $ 3,360 $ 2,092 $ 2,407 $ 221 $ 446 $ 3,256
Working capital......... 56,279 30,212 27,717 21,373 16,753 21,402 29,694
Total assets............ 141,155 98,332 106,507 55,993 43,906 48,890 45,497
Short-term borrowings... 13,228 24,716 16,665 11,939 10,376 7,439 3,925
Long-term debt.......... 58,634 48,310 48,384 43,079 17,500 17,500 17,500
Shareholders' equity
(deficiency)........... 34,244 3,205 1,931 (13,355) 7,595 9,108 11,187
</TABLE>
- --------
(a) The information presented reflects the financial statements of Pepe USA and
Pepe Far East, which have been combined due to their common ownership. All
material intercompany transactions and balances have been eliminated.
(b) During the year ended March 31, 1997, Pepe USA recorded a restructuring
charge of $3,590, which is included in selling, general and administrative
expenses, related to the discontinuance of the PEPE(R) jeans product line.
(c) Net revenues include sales of the discontinued PEPE(R) jeans product line
as follows: $4,821 and $28,426 in the nine months ended December 31, 1997
and 1996, respectively, and $33,289, $56,646, $69,126, $79,769 and $57,969
in the fiscal years ended March 31, 1997, 1996, 1995, 1994 and 1993,
respectively. Net revenues include $3,686 and $2,877 for the nine months
ended December 31, 1997 and 1996, respectively, and $5,188, $4,355, $6,681,
$9,639 and $14,850 for the fiscal years ended March 31, 1997, 1996, 1995,
1994 and 1993, respectively, related to the wholesale sale of products to
distributors and buying agency commissions on PEPE(R) products, which are
not expected to recur prospectively.
(d) On October 1, 1995, Pepe USA was assigned a license for the manufacture,
sale and distribution in the United States of men's, women's and girls'
jeanswear and jeans-related apparel (which includes women's and girls'
casualwear) bearing the TOMMY JEANS(R) and TOMMY HILFIGER(R) trademarks.
Net revenues include $264,726 and $125,899 in the nine months ended
December 31, 1997 and 1996, respectively, and $194,647 and $28,028 in the
fiscal years ended March 31, 1997 and 1996, respectively, of sales of
products related to this license.
S-9
<PAGE>
TOMCAN INVESTMENTS INC. AND TOMMY HILFIGER CANADA INC. (A)
(in thousands of Canadian dollars)
(prepared in accordance with Canadian GAAP except as noted)
<TABLE>
<CAPTION>
NINE MONTHS ENDED
DECEMBER 31, FISCAL YEAR ENDED MARCH 31,
-------------------- ----------------------------------------------
1997 1996 1997 1996 1995 1994 1993
-------- ----------- -------- -------- -------- -------- -------
(UNAUDITED)
<S> <C> <C> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS
DATA:
Sales................... C$70,063 C$33,929 C$50,297 C$29,330(b) C$17,627 C$11,931 C$8,746
Cost of sales........... 37,269 19,797 29,858 18,642 11,010 7,066 4,949
-------- -------- -------- -------- -------- -------- -------
Gross profit............ 32,794 14,132 20,439 10,688 6,617 4,865 3,797
Selling, general and
administrative
expenses............... 14,608 9,097 14,388 8,765 5,319 4,059 3,230
-------- -------- -------- -------- -------- -------- -------
Income from operations.. 18,186 5,035 6,051 1,923 1,298 806 567
Other expense........... 899 407 491 810 560 177 223
-------- -------- -------- -------- -------- -------- -------
Income before income
taxes.................. 17,287 4,628 5,560 1,113 738 629 344
Provision for income
taxes.................. 6,585 1,758 2,309 503 306 210 94
-------- -------- -------- -------- -------- -------- -------
Net income.............. C$10,702 C$ 2,870 C$ 3,251 C$ 610 C$ 432 C$ 419 C$ 250
======== ======== ======== ======== ======== ======== =======
<CAPTION>
AS OF DECEMBER 31, AS OF MARCH 31,
-------------------- ----------------------------------------------
1997 1996 1997 1996 1995 1994 1993
-------- ----------- -------- -------- -------- -------- -------
(UNAUDITED)
<S> <C> <C> <C> <C> <C> <C> <C>
BALANCE SHEET DATA:
Cash, cash equivalents
and short-term
investments............ C$ 318 C$ 756 C$ 550 C$ 185 C$ 138 C$ -- C$ 56
Working capital......... 13,113 3,437 2,677 870 1,156 1,300 620
Total assets............ 34,931 22,832 27,795 18,068 10,463 6,706 4,823
Short-term borrowings... 1,337 9,164 11,131 11,195 5,245 3,211 2,292
Long-term debt.......... 9,570 -- -- -- -- -- --
Shareholders' equity.... 10,703 5,725 6,106 2,855 2,245 1,863 1,493
FINANCIAL DATA (IN
ACCORDANCE WITH U.S.
GAAP):
Net income.............. C$10,420 C$ 2,870 C$ 3,251 C$ 610 C$ 432 C$ 419 C$ 250
Total assets............ 31,874 22,832 27,795 18,068 10,463 6,706 4,823
Redeemable preferred
stock.................. -- 750 750 750 750 750 750
Shareholders' equity.... 7,646 4,975 5,356 2,105 1,495 1,113 743
</TABLE>
- --------
(a) Tomcan was incorporated on February 28, 1997 and, on April 1, 1997,
acquired the outstanding shares of TH Canada. Tomcan is a non-operating
entity and has no operating subsidiary other than TH Canada. The total
assets and shareholders' equity of Tomcan are not material. Therefore, the
above table includes the results of Tomcan for the nine month period ended
December 31, 1997 and the results of TH Canada for each of the remaining
periods.
(b) In fiscal 1996, TH Canada sold the net assets associated with the PEPE(R)
jeans line to a related party at net book value. Included in the results of
operations for the fiscal year ended March 31, 1996 are sales of C$3,697
related to this line.
S-10
<PAGE>
SUMMARY UNAUDITED PRO FORMA FINANCIAL INFORMATION
The following summary unaudited pro forma financial information has been
derived from the application of pro forma adjustments to the combined
historical financial statements of Tommy Hilfiger, Pepe Jeans and Tommy Canada.
The summary unaudited pro forma financial information gives effect to the
Acquisition as if it had occurred on (1) December 31, 1997 for purposes of the
unaudited pro forma balance sheet data and (2) April 1, 1996 for purposes of
the unaudited pro forma statements of operations data for the year ended March
31, 1997 and the nine months ended December 31, 1997. The summary unaudited pro
forma financial information should be read in conjunction with the unaudited
pro forma combined financial statements and the related notes thereto included
elsewhere in this Prospectus Supplement. The summary unaudited pro forma
financial information does not purport to present the financial position or
results of operations of Tommy Hilfiger had the Acquisition occurred on the
dates specified, nor is it necessarily indicative of the results of operations
that may be achieved in the future. See "Unaudited Pro Forma Combined Financial
Statements."
The exchange rates applied for purposes of preparing the summary unaudited
pro forma financial information were US$1 to C$1.43 for the December 31, 1997
balance sheet data, and US$1 to C$1.39 and US$1 to C$1.36 for the statement of
operations data for the nine months ended December 31, 1997 and the fiscal year
ended March 31, 1997, respectively. See "Exchange Rates."
S-11
<PAGE>
SUMMARY UNAUDITED PRO FORMA FINANCIAL INFORMATION OF
TOMMY HILFIGER, PEPE JEANS AND TOMMY CANADA COMBINED
(in thousands, except ratios)
<TABLE>
<CAPTION>
NINE MONTHS ENDED FISCAL YEAR ENDED
DECEMBER 31, 1997 MARCH 31, 1997
----------------- -----------------
<S> <C> <C>
STATEMENT OF OPERATIONS DATA:
Net revenue............................... $950,367 $908,382
Cost of goods sold........................ 507,254 500,061
-------- --------
Gross profit.............................. 443,113 408,321
Selling, general and administrative
expenses................................. 276,852 297,552
-------- --------
Income from operations.................... 166,261 110,769
Interest expense.......................... 36,483 47,805
Investment income......................... 2,734 1,802
-------- --------
Income before income taxes................ 132,512 64,766
Provision for income taxes................ 39,737 7,891
-------- --------
Net income................................ $ 92,775 $ 56,875
======== ========
OTHER PRO FORMA DATA:
Ratio of earnings to fixed charges (a).... 4.2x 2.2x
</TABLE>
<TABLE>
<CAPTION>
AS OF
DECEMBER 31, 1997
-----------------
<S> <C>
BALANCE SHEET DATA:
ASSETS
Current Assets
Cash........................................................ $ 64,939
Accounts receivable......................................... 141,598
Inventory................................................... 215,840
Other....................................................... 27,289
----------
Total current assets...................................... 449,666
Property and equipment, net................................... 190,007
Intangible and other assets................................... 1,329,632
----------
Total assets.............................................. $1,969,305
==========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current Liabilities
Short-term bank borrowings.................................. $ 23,487
Accounts payable............................................ 28,806
Accrued expenses and other current liabilities.............. 95,889
----------
Total current liabilities................................. 148,182
Long-term debt................................................ 700,000
Deferred tax liability........................................ 251,600
Other liabilities............................................. 3,591
Shareholders' equity
Common stock................................................ 464
Capital in excess of par value.............................. 547,676
Retained earnings........................................... 317,797
Cumulative translation adjustment........................... (5)
----------
Total shareholders' equity.................................... 865,932
----------
Total liabilities and shareholders' equity................ $1,969,305
==========
</TABLE>
- --------
(a) For purposes of calculating the ratio of earnings to fixed charges,
earnings are the sum of net income, provision for income taxes and fixed
charges (less capitalized interest). Fixed charges are the sum of interest
expense, the estimated interest portion of rental charges, capitalized
interest and financing cost amortization.
S-12
<PAGE>
RISK FACTORS
Purchasers of the Notes offered hereby should consider the specific factors
set forth below as well as the other information set forth in this Prospectus
Supplement and the accompanying Prospectus or incorporated by reference
therein.
COMPETITION; CHANGES IN FASHION TRENDS
The apparel industry is highly competitive. Tommy Hilfiger competes with
numerous domestic and foreign designers, brands and manufacturers of apparel,
accessories and other products, some of which may be significantly larger and
more diversified, and have greater resources, than Tommy Hilfiger. In
addition, Tommy Hilfiger believes that its success depends in substantial part
on its ability to anticipate, gauge and respond to changing consumer demand
and fashion trends in a timely manner. Tommy Hilfiger attempts to minimize the
risk of changing fashion trends and product acceptance by closely monitoring
retail sales trends. However, if fashion trends shift away from Tommy
Hilfiger's products, or if Tommy Hilfiger otherwise misjudges the market for
its product lines, it may be faced with a significant amount of unsold
finished goods inventory or other conditions which could have a material
adverse effect on Tommy Hilfiger.
DEPENDENCE ON CUSTOMERS UNDER COMMON CONTROL
Tommy Hilfiger's department store customers include major United States
retailers, certain of which are under common ownership. When considered
together as a group under common ownership, sales by Tommy Hilfiger to the
department store customers which were owned by Federated Department Stores,
Dillard Department Stores and The May Department Stores Company accounted for
approximately 60% of Tommy Hilfiger's fiscal 1998 net wholesale product sales.
Sales to these same customers by Pepe USA accounted for approximately 54% of
Pepe Jeans' fiscal 1998 sales. A decision by the controlling owner of a group
of department stores to decrease the amount purchased of such products or to
cease carrying such products could adversely affect Tommy Hilfiger.
RELATIONSHIPS WITH SUPPLIERS
Tommy Hilfiger does not own or operate any manufacturing facilities and is
therefore dependent upon third parties for the manufacture of all its
products. Management maintains extensive and long-term relationships with
leading manufacturers in the Far East, including, among others, manufacturers
located in Indonesia, Thailand, India, the Philippines, Taiwan and Mauritius.
The inability of a manufacturer to ship orders of Tommy Hilfiger's products in
a timely manner, including as a result of local financial market disruption
which could impair the ability of such suppliers to finance their operations,
or to meet quality standards could cause Tommy Hilfiger to miss the delivery
date requirements of its customers for those items, which could result in
cancellation of orders, refusal to accept deliveries or a reduction in
purchase prices, any of which could have a material adverse effect on Tommy
Hilfiger's financial condition and results of operations. Tommy Hilfiger has
no long-term formal arrangements with any of its suppliers and historically
has experienced only limited difficulty in satisfying its raw material and
finished goods requirements. Although Tommy Hilfiger believes it could replace
such suppliers without a material adverse effect on Tommy Hilfiger, there can
be no assurance that such suppliers could be replaced in a timely manner, and
the loss of such suppliers could have a significant effect on Tommy Hilfiger's
short-term operating results.
CERTAIN FINANCIAL CONSIDERATIONS; SUBSTANTIAL LEVERAGE
Following consummation of the Acquisition, Tommy Hilfiger will be
substantially more leveraged on a consolidated basis than it has been on a
historical basis as a result of borrowings to finance the Acquisition. On a
pro forma basis, Tommy Hilfiger would have had $700 million of long-term debt
outstanding as of December 31, 1997, compared to no long-term debt on an
historical basis. This increased leverage may reduce Tommy Hilfiger's
flexibility in responding to adverse changes in economic, business or market
conditions. See "Unaudited Pro Forma Combined Financial Statements" and
"Management's Discussion and Analysis of Financial Condition and Results of
Operations--Liquidity and Capital Resources."
S-13
<PAGE>
LACK OF PUBLIC MARKET FOR THE NOTES
There is no existing trading market for the Notes, and there can be no
assurance regarding the future development of a market for the Notes or the
ability of holders of the Notes to sell their Notes or the price at which such
holders may be able to sell their Notes. If such a market were to develop, the
Notes could trade at prices that may be higher or lower than the initial
offering price depending on many factors, including prevailing interest rates,
the Company's and the Guarantor's operating results and the market for similar
securities. The Underwriters have advised the Company and the Guarantor that
they currently intend to make a market in the Notes. The Underwriters are not
obligated to do so, however, and any market-making with respect to the Notes
may be interrupted or discontinued at any time without notice. Application has
been made to list the Notes on the New York Stock Exchange, Inc., however
there can be no assurance as to the liquidity of any trading market for the
Notes or that an active public market for the Notes will develop.
EXCHANGE RATES
All currency amounts in this Prospectus Supplement are expressed in US$
unless it is specifically indicated that a different currency is being used.
Certain portions of this Prospectus Supplement contain amounts which have been
converted from C$ into US$ using specified exchange rates. Use of these
exchange rates is not a representation that the converted C$ amounts actually
represent the corresponding US$ amounts or that C$ could be converted into US$
at the exchange rates used or at any other exchange rate. The table below
lists the noon buying rate, certified by the Federal Reserve Bank of New York
for customs purposes, in New York City for cable transfers in C$ (the "Noon
Buying Rate") at fiscal year-end for each of the years 1993 through 1997 and
at December 31, 1997 and 1996. The table also indicates the average, the high
and the low Noon Buying Rates for each of these periods.
<TABLE>
<CAPTION>
NINE MONTHS
ENDED
DECEMBER 31, FISCAL YEAR ENDED MARCH 31,
------------- ----------------------------------
1997 1996 1997 1996 1995 1994 1993
------ ------ ------ ------ ------ ------ ------
<S> <C> <C> <C> <C> <C> <C> <C>
End of period.................. 1.4288 1.3697 1.3835 1.3635 1.3993 1.3838 1.2573
Average for period*............ 1.3894 1.3644 1.3634 1.3613 1.3815 1.3177 1.2334
High for period................ 1.4398 1.3822 1.3835 1.3998 1.4238 1.3838 1.2885
Low for period................. 1.3357 1.3310 1.3310 1.3285 1.3410 1.2562 1.1799
</TABLE>
- --------
* The average for the period was calculated by averaging the Noon Buying Rate
on the last business day of each month during the relevant period.
During the period from January 1, 1998 to April 23, 1998, the high Noon
Buying Rate was C$1.4562 and the low Noon Buying Rate was C$1.4180. The Noon
Buying Rate for C$ in the United States on April 23, 1998 was US$1 to
C$1.4345.
USE OF PROCEEDS
The net proceeds to the Company from the sale of the Notes will be used by
the Company to finance a portion of the cash consideration payable in the
Acquisition. See "The Proposed Acquisition."
S-14
<PAGE>
THE PROPOSED ACQUISITION
GENERAL
On January 31, 1998, the Guarantor, the Company and Tommy Hilfiger (Eastern
Hemisphere) Limited, a wholly owned subsidiary of the Guarantor ("THEH"),
entered into a Stock Purchase Agreement (the "Stock Purchase Agreement") with
PJLC. The Stock Purchase Agreement provides for the Company to purchase from
PJLC all of the outstanding capital stock (the "Pepe USA Shares") of Pepe USA,
Tommy Hilfiger's United States womenswear and jeanswear licensee, and for THEH
to purchase from PJLC all of the outstanding capital stock (the "Pepe Far East
Shares") of Pepe Far East, Pepe USA's buying agency affiliate. Under the Stock
Purchase Agreement, the total purchase price for the Pepe USA Shares is
$730,760,000 in cash plus 9,045,930 Ordinary Shares, and the total purchase
price for the Pepe Far East Shares is $25,000,000 in cash (collectively with
the cash consideration for the Pepe USA Shares, the "Cash Consideration"). The
Stock Purchase Agreement contemplates that, immediately following the
Acquisition, Pepe USA will purchase from Lawvest all of the outstanding shares
of Tomcan, the parent corporation of Tommy Hilfiger's Canadian licensee, with
funds provided by PJLC using proceeds from the Cash Consideration (the "Canada
Purchase"), pursuant to a Share Purchase Agreement entered into between Pepe
USA and Lawvest on January 26, 1998. For a description of the businesses of
the Acquired Companies, see "Businesses of the Acquired Companies."
The Acquisition is subject to, among other things, approval by the
Guarantor's shareholders and specified contractual consents, receipt by the
Guarantor and/or its subsidiaries of financing for the Acquisition on
reasonably satisfactory terms and satisfaction of all conditions to
consummation of the Canada Purchase by Pepe USA, other than payment for and
delivery of the Tomcan shares.
FINANCING OF THE ACQUISITION
Tommy Hilfiger expects to use a combination of proceeds from the offering of
the Notes hereunder, borrowings under new credit facilities described below
and cash on hand to finance the Cash Consideration.
In connection with the Acquisition, Tommy Hilfiger intends to replace its
existing credit agreement and enter into new $450 million term and revolving
credit facilities (the "New Credit Facilities") to finance a portion of the
Cash Consideration. The Guarantor intends to guarantee the Company's repayment
obligations under the New Credit Facilities. The New Credit Facilities will
consist of an unsecured five-year revolving credit facility under which the
Company may borrow from time to time an aggregate principal amount of up to
$250 million and a 5-year term credit facility under which the Company may
borrow an aggregate principal amount of up to $200 million. See "Unaudited Pro
Forma Combined Financial Statements" and "Management's Discussion and Analysis
of Financial Condition and Results of Operations--Liquidity and Capital
Resources."
CERTAIN LITIGATION
On February 2, 1998, February 12, 1998 and February 17, 1998, three alleged
holders of Ordinary Shares filed purported derivative actions in New York
state court on behalf of the Guarantor against the members of the Board of
Directors of the Guarantor. The complaints allege that the approval of the
Acquisition by the Board of Directors of the Guarantor constitutes a breach of
fiduciary duty and corporate waste. The complaints seek equitable relief and
damages in favor of the Guarantor, and awards of fees to the plaintiff's
attorneys. Plaintiffs have moved for an order consolidating the actions for
all purposes, and defendants have agreed to the proposed consolidation.
Plaintiffs have agreed to file a consolidated complaint within thirty days of
the entry of an order consolidating the actions.
S-15
<PAGE>
CAPITALIZATION
The table below summarizes the unaudited capitalization for Tommy Hilfiger
as of December 31, 1997, and the pro forma capitalization to give effect to
the Acquisition and the transactions relating thereto. This information should
be read in conjunction with the "Summary Historical Financial Information" and
the historical and pro forma financial information and notes thereto appearing
elsewhere or incorporated by reference in this Prospectus Supplement and the
accompanying Prospectus.
<TABLE>
<CAPTION>
AS OF DECEMBER 31, 1997
-----------------------
ACTUAL PRO FORMA
----------- -----------
(unaudited) (unaudited)
(in thousands except
share data)
<S> <C> <C>
Short-term bank borrowings...................... $ 9,323 $ 23,487(a)
-------- ----------
Long-term debt
2003 Notes.................................... -- 250,000
2008 Notes.................................... -- 200,000
New Credit Facilities......................... -- 250,000(b)
-------- ----------
Total long-term debt........................ -- 700,000
-------- ----------
Total debt...................................... 9,323 723,487
Shareholders' equity............................ 488,416 865,932(c)
-------- ----------
Total capitalization.......................... $497,739 $1,589,419
======== ==========
</TABLE>
- --------
(a) Reflects assumption in the Acquisition of short-term borrowings
outstanding on December 31, 1997 of $13,288 owed by Pepe Jeans and $936
owed by Tommy Canada.
(b) Assumes $200,000 of term borrowings and $50,000 of borrowings under the
revolving credit facility.
(c) Reflects the issuance of 9,045,930 Ordinary Shares, valued at $46.37 per
share (the average closing price for the five days before and after the
announcement of the Acquisition, reduced by a valuation adjustment of
$41,946 to reflect an agreement among the Guarantor, PJLC and certain of
its affiliates that restricts the transfer of the Ordinary Shares to be
received by PJLC pursuant to the Acquisition).
S-16
<PAGE>
UNAUDITED PRO FORMA COMBINED FINANCIAL STATEMENTS
The following unaudited pro forma combined financial statements have been
derived from the application of pro forma adjustments to the combined
historical consolidated financial statements of Tommy Hilfiger and the
Acquired Companies, which are incorporated into the accompanying Prospectus by
reference. The unaudited pro forma combined financial statements give effect
to the Acquisition as if it had occurred on (1) December 31, 1997 for purposes
of the unaudited pro forma combined balance sheet and (2) April 1, 1996 for
purposes of the unaudited pro forma combined statements of operations for the
year ended March 31, 1997 and the nine months ended December 31, 1997. The
unaudited pro forma combined financial statements should be read in
conjunction with Tommy Hilfiger's consolidated financial statements and with
the historical financial statements of the Acquired Companies, which are
incorporated by reference into the accompanying Prospectus. See "Available
Information" and "Incorporation of Certain Documents by Reference" in the
accompanying Prospectus.
The pro forma adjustments are described in the notes to the unaudited pro
forma combined financial statements and are based on available information and
assumptions that Tommy Hilfiger's management believes are reasonable. The
unaudited pro forma combined financial statements do not purport to present
the financial position or results of operations of Tommy Hilfiger had the
Acquisition occurred on the dates specified, nor are they necessarily
indicative of the results of operations that may be achieved in the future.
The unaudited pro forma combined financial statements do not reflect any
adjustments for synergies that management expects to realize in connection
with the Acquisition. No assurances can be made as to the amount or timing of
such synergies, if any, that may be realized.
The Acquisition will be accounted for using the purchase method of
accounting. Under this method, tangible and identifiable intangible assets
acquired and liabilities assumed are recorded at their estimated fair values.
The excess of the purchase price, including estimated fees and expenses
related to the Acquisition, over the net assets acquired ("goodwill") is
classified with intangible and other assets on the accompanying unaudited pro
forma combined balance sheet. The estimated fair values and useful lives of
assets acquired and liabilities assumed are based upon a preliminary valuation
and are subject to final valuation adjustments. Final allocation of the
purchase price to the net assets acquired could vary the related amortization
period of the excess of cost over the fair value of net assets acquired.
The exchange rates applied for purposes of preparing the unaudited pro forma
combined financial statements were US$1 to C$1.43 for the December 31, 1997
balance sheet data, and US$1 to C$1.39 and US$1 to C$1.36 for the statement of
operations data for the nine months ended December 31, 1997 and the fiscal
year ended March 31, 1997, respectively.
S-17
<PAGE>
UNAUDITED PRO FORMA STATEMENTS OF OPERATIONS OF
TOMMY HILFIGER, PEPE JEANS AND TOMMY CANADA COMBINED
(in thousands)
<TABLE>
<CAPTION>
FOR THE NINE MONTHS ENDED DECEMBER 31, 1997
----------------------------------------------------------
TOMMY
HILFIGER
CORPORATION PEPE JEANS TOMCAN PRO FORMA PRO FORMA
HISTORICAL HISTORICAL HISTORICAL ADJUSTMENTS COMBINED
----------- ---------- ---------- ----------- ---------
<S> <C> <C> <C> <C> <C>
Net revenue............. $644,385 $278,445 $50,305 $ (7,849)(a) $950,367
(14,919)(b)
Cost of goods sold...... 337,671 150,673 26,759 (7,849)(a) 507,254
-------- -------- ------- -------- --------
Gross profit.......... 306,714 127,772 23,546 (14,919) 443,113
Selling, general and
administrative
expenses............... 182,476 65,198 10,489 (14,919)(b) 276,852
27,006 (c)
6,602 (d)
-------- -------- ------- -------- --------
Income from
operations........... 124,238 62,574 13,057 (33,608) 166,261
Interest expense........ 1,049 1,017 817 33,600 (e) 36,483
Investment income....... 5,127 179 172 (2,744)(f) 2,734
-------- -------- ------- -------- --------
Income before income
taxes................ 128,316 61,736 12,412 (69,952) 132,512
Provision for income
taxes.................. 42,534 24,977 4,729 (32,503)(g) 39,737
-------- -------- ------- -------- --------
Net income............ $ 85,782 $ 36,759 $ 7,683 $(37,449) $ 92,775
======== ======== ======= ======== ========
<CAPTION>
FOR THE YEAR ENDED MARCH 31, 1997
----------------------------------------------------------
TOMMY
HILFIGER
CORPORATION PEPE JEANS TH CANADA PRO FORMA PRO FORMA
HISTORICAL HISTORICAL HISTORICAL ADJUSTMENTS COMBINED
----------- ---------- ---------- ----------- ---------
<S> <C> <C> <C> <C> <C>
Net revenue............. $661,688 $234,920 $36,968 $(13,716)(a) $908,382
(11,478)(b)
Cost of goods sold...... 344,884 146,948 21,945 (13,716)(a) 500,061
-------- -------- ------- -------- --------
Gross profit.......... 316,804 87,972 15,023 (11,478) 408,321
Selling, general and
administrative
expenses............... 190,976 69,046 10,575 (11,478)(b) 297,552
36,008 (c)
2,425 (d)
-------- -------- ------- -------- --------
Income from
operations........... 125,828 18,926 4,448 (38,433) 110,769
Interest expense........ 761 1,657 587 44,800 (e) 47,805
Investment income....... 6,181 7 226 (4,612)(f) 1,802
-------- -------- ------- -------- --------
Income before income
taxes................ 131,248 17,276 4,087 (87,845) 64,766
Provision for income
taxes.................. 44,866 2,113 1,697 (40,785)(g) 7,891
-------- -------- ------- -------- --------
Net income............ $ 86,382 $ 15,163 $ 2,390 $(47,060) $ 56,875
======== ======== ======= ======== ========
</TABLE>
S-18
<PAGE>
NOTES TO UNAUDITED PRO FORMA COMBINED STATEMENTS OF OPERATIONS
(a) Reflects elimination of revenue and cost of sales between Tommy Hilfiger
and the Acquired Companies, principally related to merchandise which Tommy
Hilfiger purchased from Pepe USA. The intercompany inventory profit
related to the merchandise on hand at December 31, 1997 and March 31, 1997
is not considered material for elimination in the unaudited pro forma
combined statements of operations.
(b) Reflects elimination of revenue and royalty expense for sales of
merchandise bearing the licensed trademarks between Tommy Hilfiger and the
Acquired Companies.
(c) Reflects amortization of the intangible assets, including goodwill, of the
Acquired Companies, primarily over a 40 year period.
(d) Reflects incremental contractual management compensation.
(e) Reflects interest expense, calculated at an annual rate of 6.4%, on $700.0
million of long-term debt expected to be incurred in connection with the
Acquisition.
(f) Reflects elimination of investment income earned on approximately $79.5
million of Tommy Hilfiger's cash and investment balances expected to be
used for the Acquisition.
(g) Records the income tax effect for the applicable pro forma adjustments.
S-19
<PAGE>
UNAUDITED PRO FORMA BALANCE SHEET OF
TOMMY HILFIGER, PEPE JEANS AND TOMMY CANADA COMBINED
(in thousands)
<TABLE>
<CAPTION>
AS OF DECEMBER 31, 1997
-----------------------------------------------------------------
TOMMY
HILFIGER
CORPORATION PEPE JEANS TOMCAN PRO FORMA PRO FORMA
HISTORICAL HISTORICAL HISTORICAL ADJUSTMENTS COMBINED
----------- ---------- ---------- ----------- -----------
<S> <C> <C> <C> <C> <C>
ASSETS
Current Assets
Cash................... $148,911 $ 5,325 $ 223 $ (79,520) (a) $ 64,939
(10,000) (b)
Accounts receivable.... 91,452 44,401 5,745 -- 141,598
Inventory.............. 157,439 44,992 13,409 -- 215,840
Other.................. 18,764 8,463 62 -- 27,289
-------- -------- ------- ---------- -----------
Total current assets.. 416,566 103,181 19,439 (89,520) 449,666
Property and equipment,
net.................... 150,272 36,862 2,873 -- 190,007
Intangible and other
assets................. 8,614 1,112 -- 1,323,857 (c) 1,329,632
(3,951) (c)
-------- -------- ------- ---------- -----------
Total assets........... $575,452 $141,155 $22,312 $1,230,386 $ 1,969,305
======== ======== ======= ========== ===========
LIABILITIES AND
SHAREHOLDERS' EQUITY
Current Liabilities
Short-term bank
borrowings............ $ 9,323 $ 13,228 $ 936 $ -- $ 23,487
Accounts payable....... 16,787 8,492 3,527 -- 28,806
Accrued expenses and
other current
liabilities........... 58,710 25,182 5,797 6,200 (a) 95,889
-------- -------- ------- ---------- -----------
Total current
liabilities.......... 84,820 46,902 10,260 6,200 148,182
Long-term debt.......... -- 58,634 6,699 700,000 (a) 700,000
(10,000) (b)
(48,634) (d)
(6,699) (e)
Deferred tax liability.. -- -- -- 251,600 (c) 251,600
Other liabilities....... 2,216 1,375 -- -- 3,591
Shareholders' equity
Common Stock........... 374 51 1 90 (c) 464
(52) (f)(g)
Capital in excess of
par value............. 170,250 333 -- 377,093 (h) 547,676
Retained earnings...... 317,797 33,904 5,352 (33,904) (f) 317,797
(5,352) (g)
Cumulative translation
adjustment............ (5) (44) -- 44 (a) (5)
-------- -------- ------- ---------- -----------
Total shareholders'
equity................. 488,416 34,244 5,353 337,919 865,932
-------- -------- ------- ---------- -----------
Total liabilities and
shareholders' equity... $575,452 $141,155 $22,312 $1,230,386 $ 1,969,305
======== ======== ======= ========== ===========
</TABLE>
S-20
<PAGE>
NOTES TO UNAUDITED PRO FORMA COMBINED BALANCE SHEET
(a) Reflects the funding of the $755.7 million cash portion of the purchase
price and $30.0 million of transaction costs using $79.5 million of
corporate cash, $700.0 million of long-term debt and $6.2 million of
accrued liabilities. Transaction costs consist primarily of legal,
financing, accounting and other costs associated with the Acquisition.
(b) Reflects the repayment by the Guarantor of a $10.0 million note owed by
Pepe USA to PJLC.
(c) Records the purchase of the Acquired Companies for approximately $1,167.2
million, comprised of the following: cash--$755.7 million; the issuance of
9,045,930 Ordinary Shares--$377.5 million; transaction costs--$30.0
million and the elimination of $4.0 million, representing the present
value of the $5.0 million note payable to Tommy Hilfiger by AIHL
Investment Group Limited, which is included in Tommy Hilfiger's other
assets and which will be cancelled in connection with the Acquisition. The
deferred tax liability of $251.6 million reflects deferred taxes
associated with acquired identifiable intangible assets other than
goodwill. For accounting purposes, the Ordinary Shares were valued at
$46.37 per share (the average closing price for the five days before and
after the announcement of the Acquisition, reduced by a valuation
adjustment of $41.9 million to reflect an agreement among the Guarantor,
PJLC and certain of its affiliates to restrict the transfer following
consummation of the Acquisition of the Ordinary Shares to be received by
PJLC in the Acquisition). The purchase price was allocated to the fair
value of the net assets acquired as summarized below (amounts in
millions):
<TABLE>
<S> <C>
Cash............................................................ $ 5.5
Accounts receivable............................................. 50.1
Inventory....................................................... 58.4
Other current assets............................................ 8.5
Property and equipment.......................................... 39.7
Intangible assets, including goodwill........................... 1,323.9
Other assets.................................................... 1.1
Short-term bank borrowings...................................... (14.1)
Accounts payable................................................ (12.0)
Accrued expenses and other current liabilities.................. (30.9)
Long-term debt.................................................. (10.0)
Deferred tax liability.......................................... (251.6)
Other liabilities............................................... (1.4)
--------
Total purchase price............................................ $1,167.2
========
</TABLE>
(d) Reflects the reclassification of $48.6 million of Pepe USA's long-term
debt payable to PJLC to shareholders' equity.
(e) Reflects the reclassification of $6.7 million of Tomcan's long-term debt
payable to a related party to shareholders' equity.
(f) Records the elimination of Pepe Jeans' historical shareholders' equity.
(g) Records the elimination of Tomcan's historical shareholders' equity.
(h) Records the net effect of the following adjustments on capital in excess of
par value (amounts in millions):
<TABLE>
<S> <C>
Issuance of shares................................................ $377.5
Reclassification of Pepe Jeans debt............................... 48.6
Reclassification of TH Canada debt................................ 6.7
Elimination of Pepe Jeans' equity................................. (49.0)
Elimination of TH Canada's equity................................. (6.7)
------
$377.1
======
</TABLE>
S-21
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
All references to years relate to the fiscal year ended March 31 of such
year.
RESULTS OF OPERATIONS
The following table sets forth, for the periods indicated, the percentage
relationship to net revenue of certain items in Tommy Hilfiger's consolidated
statements of operations:
<TABLE>
<CAPTION>
NINE MONTHS ENDED
DECEMBER 31, FISCAL YEAR ENDED MARCH 31,
------------------ -------------------------------
1997 1996 1997 1996 1995
-------- -------- --------- --------- ---------
<S> <C> <C> <C> <C> <C>
Net revenue.............. 100.0% 100.0% 100.0% 100.0% 100.0%
Cost of goods sold....... 52.4 52.1 52.1 54.0 54.4
-------- -------- --------- --------- ---------
Gross profit............. 47.6 47.9 47.9 46.0 45.6
Selling, general and ad-
ministrative expenses... 28.3 28.7 28.9 27.7 26.8
-------- -------- --------- --------- ---------
Income from operations... 19.3 19.2 19.0 18.3 18.8
Investment income........ 0.8 0.8 0.9 1.2 1.0
Interest expense......... 0.2 0.1 0.1 0.2 --
-------- -------- --------- --------- ---------
Income before income tax-
es...................... 19.9 19.9 19.8 19.3 19.8
Provision for income tax-
es...................... 6.6 6.9 6.7 6.4 7.1
-------- -------- --------- --------- ---------
Net income............... 13.3% 13.0% 13.1% 12.9% 12.7%
======== ======== ========= ========= =========
</TABLE>
NINE MONTHS ENDED DECEMBER 31, 1997 COMPARED TO NINE MONTHS ENDED DECEMBER
31, 1996
Tommy Hilfiger's net income increased 33.9% to $85,782,000, or $2.26 per
share on a diluted basis, in the first nine months of fiscal 1998 from
$64,065,000, or $1.69 per share on a diluted basis, in the corresponding
period of fiscal 1997. As a percentage of net revenue, net income increased to
13.3% in fiscal 1998 from 13.0% in fiscal 1997.
Net revenue increased $153,150,000, or 31.2%, to $644,385,000 during the
nine months ended December 31, 1997 from $491,235,000 during the nine months
ended December 31, 1996. This improvement was principally due to volume
increases in each of Tommy Hilfiger's operating divisions, as outlined below.
Wholesale net revenue increased to $436,265,000 in the first nine months of
fiscal 1998 from $348,723,000 in the corresponding period of fiscal 1997, an
improvement of $87,542,000 or 25.1%. This improvement consisted of a menswear
wholesale sales increase of 14.4% and a childrenswear wholesale sales increase
of 88.2%. During the nine months ended December 31, 1997, menswear wholesale
sales were $341,442,000 while childrenswear wholesale sales were $94,823,000.
In the corresponding period in the prior fiscal year, menswear wholesale sales
were $298,341,000 while childrenswear wholesale sales were $50,382,000.
Substantially all of these increases were due to increases in volume which
resulted primarily from increased sales to existing customers. The increased
sales to existing customers were partially the result of Tommy Hilfiger's in-
store shop and fixtured area expansion program, whereby certain of Tommy
Hilfiger's customers have increased the amount of square footage where Tommy
Hilfiger's products are featured.
Net revenue in Tommy Hilfiger's retail division increased 34.0% to
$161,972,000 in the first nine months of fiscal 1998 from $120,896,000 in the
corresponding period of fiscal 1997. The increase in the number of stores as
well as an increase in sales at existing stores contributed to the improved
revenue. Of the total increase of $41,076,000, $13,165,000 was attributable to
retail stores opened since December 31, 1996. The total number of retail
stores open as of December 31, 1997 and 1996 were 64 and 54, respectively.
S-22
<PAGE>
Net revenue from royalties and buying agency commissions increased 113.5% to
$46,148,000 during the nine months ended December 31, 1997 from $21,616,000
during the nine months ended December 31, 1996. Of the increase of
$24,532,000, approximately 22.6% was due to products introduced under licenses
entered into since December 31, 1996. The remainder of the increase reflects
the incremental revenue associated with a general increase in sales of
existing licensed products and buying agency services.
Gross profit as a percentage of net revenue decreased to 47.6% in the first
nine months of fiscal 1998 from 47.9% in the first nine months of fiscal 1997.
This decrease is attributable to lower margins in menswear wholesale
operations and a greater contribution to wholesale operations of
childrenswear, which typically produces lower margins than menswear. This was
primarily offset by increased royalty and buying agency commissions, which
produce higher margins than wholesale and retail operations.
Selling, general and administrative expenses, as a percentage of net
revenue, decreased to 28.3% in the first nine months of fiscal 1998 from 28.7%
in the corresponding period of fiscal 1997. This decrease is due to leveraging
these expenses against the higher revenue base. Selling, general and
administrative expenses increased to $182,476,000 in the first nine months of
fiscal 1998 from $141,145,000 in the corresponding period of fiscal 1997. This
increase is primarily due to increased volume related expenses of Tommy
Hilfiger's wholesale and retail operations to support the higher revenue. In
addition, depreciation and amortization increased due to the greater number of
in-store shops and fixtured areas.
The provision for taxes decreased to 33.1% of income before taxes in the
nine months ended December 31, 1997 from 34.6% in the nine months ended
December 31, 1996. The decrease was primarily attributable to the relative
level of earnings in the various taxing jurisdictions in which Tommy
Hilfiger's earnings are subject to taxation.
YEAR ENDED MARCH 31, 1997 COMPARED TO YEAR ENDED MARCH 31, 1996
Tommy Hilfiger's net income increased to $86,382,000, or $2.28 per share on
a diluted basis, in 1997 from $61,500,000, or $1.65 per share on a diluted
basis, in 1996. This represents an improvement of $24,882,000 or 40.5%. As a
percentage of net revenue, net income increased to 13.1% in 1997 from 12.9% in
1996.
Net revenue increased 38.4% to $661,688,000 in 1997 from $478,131,000 in
1996. This increase was a result of improvements in each of Tommy Hilfiger's
wholesale, retail, and licensing and buying agency divisions, as outlined
below.
Wholesale net revenue increased to $479,307,000 in 1997 from $381,239,000 in
1996, an improvement of 25.7%. This improvement included a 23.9% increase in
menswear wholesale sales, to $405,319,000 in 1997 from $327,189,000 in 1996,
and a 36.9% increase in boyswear wholesale sales, to $73,988,000 in 1997 from
$54,050,000 in 1996. These increases were primarily due to volume increases as
a result of increased sales to existing customers, opening new in-store shops
and fixtured areas, and the expansion of certain existing shops. The number of
men's in-store shops increased to 1,046 at March 31, 1997 from 866 at March
31, 1996 while the number of boyswear fixtured areas increased to 1,069 at
March 31, 1997 from 872 at March 31, 1996. In addition to the volume increase,
the change in product mix of Tommy Hilfiger's wholesale sales resulted in a
higher average unit selling price. Of the total wholesale sales increase,
approximately 67% was due to volume and approximately 33% was due to the
increased average unit selling price.
Net revenue in Tommy Hilfiger's retail division increased 81.6% to
$149,312,000 in 1997 from $82,212,000 in 1996. This improvement was due to an
increase in the number of stores open as well as increased sales at existing
stores. Of the total increase of $67,100,000, $31,503,000 was attributable to
new retail stores opened during 1997. The total number of retail stores open
as of March 31, 1997 and 1996 was 55 and 44, respectively.
Net revenue from licensing royalties and buying agency commissions increased
125.3% to $33,069,000 in 1997 from $14,680,000 in 1996. This increase reflects
the incremental revenue associated with newly licensed
S-23
<PAGE>
products and a general increase in sales from existing licensees and buying
agency services. Of this increase, approximately 35% was due to products
introduced under new licenses in 1997 while the balance was due to licenses
existing as of March 31, 1996.
Gross profit improved to 47.9% of net revenue in 1997 from 46.0% of net
revenue in 1996. This increase was attributable to the increases in retail
operations and royalties and buying agency commissions, each of which had
higher percentage revenue increases, and which produce higher margins, than
wholesale operations. In addition, wholesale margins increased due primarily
to the change in mix of products sold.
Selling, general and administrative expenses increased as a percentage of
net revenue to 28.9% in 1997 from 27.7% in 1996. The increased percentage was
due to an increase in marketing and advertising expense to promote and enhance
the TOMMY HILFIGER(R) brand name and the image of Tommy Hilfiger's products.
Selling, general and administrative expenses increased to $190,976,000 in 1997
from $132,270,000 in 1996. This increase was principally due to increased
volume-related expenses to support the higher revenue and the increased
marketing and advertising expenses mentioned above.
The provision for taxes increased to 34.2% of income before taxes in 1997
from 33.4% in 1996. This increase was primarily attributable to the relative
level of earnings in the various taxing jurisdictions in which Tommy
Hilfiger's earnings are subject to taxation.
YEAR ENDED MARCH 31, 1996 COMPARED TO YEAR ENDED MARCH 31, 1995
Net income for 1996 improved to $61,500,000, or $1.65 per share on a diluted
basis, from $40,715,000, or $1.12 per share on a diluted basis, in 1995. This
represented an increase of $20,785,000 or 51.0%. In addition, net income as a
percentage of net revenue increased to 12.9% in 1996 from 12.7% in 1995.
Tommy Hilfiger's net revenue for 1996 increased to $478,131,000, compared to
$320,985,000 in 1995. This improvement of 49.0% reflects the increased demand
for Tommy Hilfiger's products. Substantially all of the wholesale sales
increase was due to volume increases, which in turn were primarily the result
of the continuing expansion of the in-store shop program. The number of men's
in-store shops increased to 866 at March 31, 1996 from 658 at March 31, 1995
and the number of boyswear fixtured areas increased to 872 at March 31, 1996
from 486 at March 31, 1995. Increased sales to existing and new customers and
new store locations also contributed to the wholesale sales increase. Menswear
wholesale sales improved $72,312,000 or 28.4% from $254,877,000 in 1995 to
$327,189,000 in 1996 while boyswear wholesale sales improved $21,815,000 or
67.7% from $32,235,000 in 1995 to $54,050,000 in 1996.
Tommy Hilfiger's retail division also contributed to the increased revenue
level. Retail revenue increased $54,666,000 or 198.5% from $27,546,000 in 1995
to $82,212,000 in 1996. This increase was due to the addition of 18 new stores
during 1996 as well as increased revenue in existing stores. Of the total
increase, $22,645,000 was attributable to new retail stores opened in 1996. At
March 31, 1996, a total of 44 stores were open.
Net revenue from licensing royalties and buying agency commissions increased
132.0% from $6,327,000 in 1995 to $14,680,000 in 1996. This improvement
principally resulted from an increase in sales of existing licensed products
as well as the introduction of several new licensed products, including a
men's fragrance, robes and sleepwear, and golfwear. Of this increase,
approximately 37% was due to products introduced under new licenses in 1996
while the balance was due to licenses existing as of March 31, 1995.
Gross profit as a percentage of net revenue increased from 45.6% in 1995 to
46.0% in 1996. This increase was primarily attributable to the relative
increase in retail operations and royalties and buying agency commissions, all
of which produce higher margins than wholesale operations. Offsetting this
increase was a decrease in wholesale margins which was principally the result
of an increase in the relative level of boyswear products, which generally
produce lower margins than menswear, the mix of products and an overall
increase in product costs.
S-24
<PAGE>
Selling, general and administrative expenses increased to $132,270,000 in
1996 from $85,954,000 in 1995. This increase was primarily attributable to
increased volume-related expenses necessary to support the increase in revenue
of Tommy Hilfiger's wholesale and retail operations. In addition, depreciation
and amortization increased due to the greater number of in-store shops. As a
percentage of net revenue, selling, general and administrative expenses
increased to 27.7% from 26.8% due to the continued expansion of Tommy
Hilfiger's retail division, which operates at a higher cost structure than its
wholesale operations, and a one time charge of $2,350,000 taken by Tommy
Hilfiger to reflect the current cost of a consulting agreement with a former
executive.
The provision for income taxes decreased to 33.4% of income before taxes in
1996 from 35.8% in 1995. The decrease was primarily attributable to the
relative level of earnings in various taxing jurisdictions in which Tommy
Hilfiger's earnings are subject to taxation.
LIQUIDITY AND CAPITAL RESOURCES
Tommy Hilfiger's primary funding requirements are to finance working capital
and the continued growth of its business. Primarily, this includes the
purchase of inventory in anticipation of increased sales of the wholesale and
retail divisions as well as capital expenditures related to the expansion of
the menswear in-store shop and childrenswear fixtured-area programs and
additional retail stores. Tommy Hilfiger's sources of liquidity are cash on
hand, cash from operations and available credit.
As of December 31, 1997, Tommy Hilfiger had approximately $148,911,000 of
cash and cash equivalents compared to a year-end balance of approximately
$109,908,000. This represented an overall increase of $39,003,000 due to cash
provided by operating and financing activities, partially offset by cash used
in investing activities.
Net cash from operating activities during the first nine months of fiscal
1998 was $81,993,000. This amount is primarily made up of cash generated from
net earnings offset, in part, by an increase in working capital. The increase
in working capital is principally due to a higher inventory level which
increased 27.1% to $157,439,000 at December 31, 1997 from $123,847,000 at
March 31, 1997. Higher inventory levels at December 31, 1997 were primarily
attributable to the timing of receipts of inventory for the spring and summer
seasons and increased retail division inventory due to the greater number of
stores. Also contributing to the increased working capital is an increase in
accounts receivable of $11,468,000 from March 31, 1997 to December 31, 1997
due to the increased sales.
Capital expenditures were $49,993,000 for the nine months ended December 31,
1997, compared with $64,222,000 for the nine months ended December 31, 1996.
Significant capital expenditures in the first nine months of fiscal 1998
include additions related to Tommy Hilfiger's first flagship store in Beverly
Hills and Tommy Hilfiger's in-store shop and fixtured area expansion program.
The fiscal 1997 amount includes the purchase of the property which houses
Tommy Hilfiger's executive offices, along with its primary sales, marketing
and licensing offices and its main licensees' showrooms, for approximately
$25,875,000.
In July 1996, Tommy Hilfiger entered into an amended and restated revolving
credit agreement (the "Credit Agreement") effective April 1, 1996. The Credit
Agreement, which expires in June 1999, provides for direct borrowings, bankers
acceptances and letters of credit of amounts ranging from $100,000,000 in
fiscal 1997 to $150,000,000 in fiscal 1999. Available borrowings under the
Credit Agreement are subject to the timed increase of availability under the
Credit Agreement and are based upon eligible accounts receivable, inventory
and open letters of credit. As of December 31, 1997, $125,000,000 was
available for utilization under the Credit Agreement. Obligations under the
Credit Agreement are collateralized by substantially all the assets of Tommy
Hilfiger's U.S. operations. Direct borrowings under the Credit Agreement,
which were limited to $75,000,000 as of December 31, 1997, accrue interest at
varying interest rates.
At December 31, 1997, total short-term borrowings of $9,323,000 consisted
entirely of open letters of credit for inventory purchased. There were no
direct borrowings outstanding under the Credit Agreement at December 31, 1997.
Additionally, at December 31, 1997, Tommy Hilfiger was contingently liable for
unexpired bank letters of credit of $41,199,000 related to commitments of
Tommy Hilfiger to suppliers for the purchase of inventories.
S-25
<PAGE>
The Credit Agreement contains various covenants and, among other matters,
includes certain restrictions upon capital expenditures, investments,
indebtedness, loans and advances and transactions with related parties. In
addition, the Credit Agreement prohibits certain of Tommy Hilfiger's operating
subsidiaries which are borrowers or guarantors under the Credit Agreement from
paying any dividends. Because the Guarantor is a holding company, dividends or
other advances from its subsidiaries will be required to fund cash dividends
to holders of Ordinary Shares. Such dividend restrictions are not expected to
have an adverse impact on Tommy Hilfiger. The Credit Agreement also requires
the maintenance of minimum tangible net worth and interest coverage ratios.
Tommy Hilfiger was in compliance with all covenants under the Credit Agreement
as of, and for the period ended, December 31, 1997.
In connection with the Acquisition, Tommy Hilfiger intends to replace the
Credit Agreement with the New Credit Facilities. The New Credit Facilities
will be used to finance a portion of the Cash Consideration and will also be
available for letters of credit, working capital and other general corporate
purposes. The Guarantor intends to guarantee the Company's repayment
obligations under the New Credit Facilities. The New Credit Facilities will
consist of an unsecured five-year revolving credit facility under which the
Company may borrow from time to time an aggregate principal amount of up to
$250 million (of which up to $150 million may be used for direct borrowings)
and a 5-year term credit facility under which the Company may borrow an
aggregate principal amount of up to $200 million.
Borrowings under the term loan facility will be repayable in quarterly
installments as follows: $40 million in the 12-month period following the
first anniversary of the date of borrowing, $50 million in each of the next
two succeeding 12-month periods and $60 million in the next succeeding 12-
month period.
The New Credit Facilities will contain a number of covenants that, among
other things, will restrict the ability of the Company and its subsidiaries to
dispose of assets, incur additional indebtedness, create liens on assets, pay
dividends or make other payments in respect of capital stock, make
investments, loans and advances, engage in transactions with affiliates, enter
into sale and leaseback transactions, engage in mergers or consolidations or
change the businesses conducted by the Company. In addition, under the New
Credit Facilities, the Guarantor and the Company will be required to comply
with and maintain specified financial ratios and tests (based on the
Guarantor's consolidated financial results), including, without limitation, an
interest expense coverage ratio, a maximum leverage ratio and a minimum
consolidated net worth test.
Other than the financing requirements in connection with the Acquisition
described above, cash requirements in fiscal 1999 will primarily include
working capital and capital expenditures relating to the in-store shop and
fixtured-area programs and the opening of additional retail stores, including
flagship stores. Tommy Hilfiger expects fiscal 1999 capital expenditures
(including those of the Acquired Companies) to approximate $100 million. Tommy
Hilfiger intends to fund such cash requirements for fiscal 1999 and future
years from available cash balances, internally generated funds and borrowings
available under the New Credit Facilities. Tommy Hilfiger believes that these
resources will be sufficient to fund its cash requirements for such periods.
INFLATION
Tommy Hilfiger does not believe that the relatively moderate rates of
inflation experienced over the last few years in the United States, where it
primarily competes, have had a significant effect on its net revenue or
profitability. Higher rates of inflation have been experienced in a number of
foreign countries in which Tommy Hilfiger's products are manufactured but have
not had a material effect net revenue or profitability. Tommy Hilfiger has
been able to partially offset its cost increases by increasing prices or
changing suppliers.
S-26
<PAGE>
EXCHANGE RATES
Tommy Hilfiger receives United States dollars for substantially all of its
product sales and its licensing revenues. Inventory purchases from contract
manufacturers throughout the world are denominated in United States dollars;
however, purchase prices for Tommy Hilfiger's products may be impacted by
fluctuations in the exchange rate between the United States dollar and the
local currencies of the contract manufacturers, which may have the effect of
increasing the cost of goods in the future. During the last three fiscal
years, exchange rate fluctuations have not had a material impact on Tommy
Hilfiger's inventory costs; however, due to the number of currencies involved
and the fact that not all foreign currencies react in the same manner against
the United States dollar, Tommy Hilfiger cannot quantify in any meaningful way
the potential effect of such fluctuations on future income. Tommy Hilfiger
does not engage in hedging activities with respect to such exchange rate risk.
RECENTLY ISSUED ACCOUNTING STANDARDS
In February 1997, the FASB issued Statement No. 129, Disclosure of
Information about Capital Structure, which requires an entity to explain the
pertinent rights and privileges of its various securities outstanding.
Management of Tommy Hilfiger believes that adoption of Statement No. 129 will
not have a significant impact on Tommy Hilfiger's present disclosure.
YEAR 2000
Tommy Hilfiger is assessing the ability of its computerized information
systems to process transactions relating to years 2000 and beyond. While
certain modifications are required, Tommy Hilfiger expects to achieve
necessary modifications on a timely basis at a cost which will not be material
to operations. There can be no assurance, however, that the systems of other
companies on which Tommy Hilfiger's processes rely will be timely converted,
or that a failure to successfully convert by another company, or a conversion
that is incompatible with Tommy Hilfiger's systems, would not have an adverse
impact on Tommy Hilfiger's operations.
BUSINESS OF TOMMY HILFIGER
GENERAL
Tommy Hilfiger designs, sources and markets men's sportswear and
childrenswear under the TOMMY HILFIGER(R) trademark. Through a range of
strategic licensing agreements, Tommy Hilfiger continues to expand its product
lines to offer a broader array of apparel, accessories, footwear and fragrance
for men, women and children, as well as a home furnishings collection. Tommy
Hilfiger's products can be found in leading department and specialty stores
throughout the United States, Canada, Europe, Mexico, Central and South
America, Japan, Hong Kong and other Far East locations. Mr. Hilfiger is the
principal designer and provides leadership and direction for all aspects of
the design process. TOMMY HILFIGER(R) sportswear is designed to combine
classic American styling with unique details and fit to give time-honored
basics a fresh and updated look for customers who desire high quality,
designer clothes at competitive prices. The Guarantor was organized under the
laws of the British Virgin Islands in June 1992.
Tommy Hilfiger's principal growth strategy has been to expand its in-store
shop program, whereby participating retailers set aside floor space
highlighted by distinctive fixtures dedicated for the exclusive sale of Tommy
Hilfiger's products by the retailer. Tommy Hilfiger expects to continue to
pursue this strategy by increasing the number and size of its in-store shops
in the United States and internationally. In the United States, the men's in-
store shop program totaled 1,175 shops at December 31, 1997 compared with
1,026 shops at December 31, 1996. In addition, as of December 31, 1997, Tommy
Hilfiger had established 1,178 fixtured areas in department stores where its
childrenswear is sold compared with 1,010 at December 31, 1996. In addition,
Tommy Hilfiger continues its program to expand certain existing shops.
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In addition to continuing to expand the in-store shop program, Tommy
Hilfiger plans to grow by broadening its range of product offerings, both in-
house and through licensing arrangements, and by expanding its channels of
distribution. Through the expansion of its product lines, Tommy Hilfiger
believes it will serve a wider variety of customer needs. Since 1992, Tommy
Hilfiger has introduced several in-house products, including boyswear,
childrenswear for infants and toddlers, swimwear, athleticwear, caps and bags.
Additionally, Tommy Hilfiger has expanded its offerings through licensing
agreements, including men's and women's fragrances, jeanswear, women's
casualwear, footwear and other accessories. See "--Merchandising Strategies--
Licensing and Distributorships."
As of March 31, 1998, Tommy Hilfiger operated 56 outlet stores and nine
specialty retail stores, including a store in London, England, and currently
plans to open approximately ten additional outlet stores by March 31, 1999.
Tommy Hilfiger also opened a flagship store in Beverly Hills, California in
November 1997 and plans to open a flagship store in London, England by Spring
1999. See "--Merchandising Strategies--Retailing."
MERCHANDISING STRATEGIES
WHOLESALE
Tommy Hilfiger organizes its menswear and childrenswear collections into
three primary product lines: Core, Core Plus and Fashion. The boyswear line is
available in boys' and young men's sizes 4 through 20 and is being sold by
Tommy Hilfiger to many of the same department and specialty store customers as
its menswear lines. In fiscal 1998, Tommy Hilfiger introduced an infant and
toddler line.
Core. The Core line is comprised of Tommy Hilfiger's seasonless products or
"basics," all in classic solid colors. Core items are made available for sale
by Tommy Hilfiger throughout the year and, therefore, generally are kept in
stock by Tommy Hilfiger. Since Core items are seasonless, they do not have
fixed selling periods and, therefore, retailers' inventories of Core products
tend to be maintained throughout the year and reordered as necessary. Tommy
Hilfiger receives orders from most of its larger customers for Core products
on an electronic data interchange system, which expedites reorders.
Core Plus. The Core Plus line is comprised of a broad selection of seasonal
"basics" which are derived from Core but offer a greater variety of fabrics,
colors and patterns, such as stripes and plaids. The Core Plus line also
incorporates certain Fashion products that had previously been successful at
retail. Tommy Hilfiger sells four different seasonal groups of Core Plus
products each year. As compared to Fashion items, Core Plus items provide the
retailer with longer selling periods at regular prices. Because Core Plus is a
broader product category than Fashion, with a longer regular-price selling
period, Tommy Hilfiger's shipping deadlines are more flexible and Tommy
Hilfiger may be able to place reorders when demand is high.
Fashion. The Fashion line represents the most updated component of Tommy
Hilfiger's product line. Fashion items consist of a group of product
classifications coordinated around a seasonal theme selected by Mr. Hilfiger.
Tommy Hilfiger offers Fashion products under at least three themes per season,
thereby creating a continual flow of new merchandise in the marketplace.
LICENSING AND DISTRIBUTORSHIPS
In connection with Tommy Hilfiger's business strategy of expanding its
market penetration through product line and geographic expansion, Tommy
Hilfiger considers entering into licensing and distribution agreements with
respect to certain products if Tommy Hilfiger believes such arrangements
provide more effective manufacturing, distribution and marketing of such
products than could be achieved in-house. Tommy Hilfiger continually pursues
new opportunities in product categories which are believed to be complementary
to its existing product lines, as well as opportunities for geographic
expansion through licenses and distributorships to enhance its international
presence.
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As shown in the table below, since Fall 1992, Tommy Hilfiger has introduced
several product lines through license arrangements with companies which are
among industry leaders in their respective categories and has entered into
several strategic geographic licenses and distributorships:
PRODUCT CATEGORY LICENSEE AVAILABLE AT RETAIL
--------------- -------- -------------------
Socks Mountain High Hosiery, Holiday 1992
Inc.
Neckwear Superba, Inc. Father's Day 1993
Belts and small leather Trafalgar, Inc. Fall 1993
goods
Men's suits, sport coats, Hartmarx Corporation Fall 1994
dress slacks, top coats,
formal wear
Men's dress shirts Oxford Industries, Inc. Fall 1994
Men's underwear Jockey International, Fall 1994
Inc.
Men's fragrance Aramis, Inc. (Estee Father's Day 1995
Lauder)
Men's jeanswear(a) Pepe Jeans USA, Inc. Fall 1995
Men's robes and sleepwear Russell-Newman, Inc. Holiday 1995
Golfwear Oxford Industries, Inc. Holiday 1995
Eyewear Liberty Optical Fall 1996
Women's fragrance Aramis, Inc. (Estee Fall 1996
Lauder)
Women's casualwear(a) Pepe Jeans USA, Inc. Fall 1996
Men's footwear The Stride Rite Spring 1997
Corporation
Men's sunglasses Lantis Eyewear Fall 1997
Corporation
Athletics fragrance Aramis, Inc. (Estee Spring 1998
Lauder)
Formal accessories Marks & Barry Spring 1998
Linens, bedding and bath Revman Industries, Inc. Summer 1998
products
Young women's jeanswear(a) Pepe Jeans USA, Inc. Fall 1998
Leather outerwear GIII Leather Fashions, Fall 1998
Inc.
Women's footwear The Stride Rite Holiday 1998
Corporation
Women's robes and Russell-Newman, Inc. Holiday 1998
sleepwear
GEOGRAPHIC AVAILABLE
TERRITORY LICENSEE/DISTRIBUTOR AT RETAIL
---------- -------------------- ---------
Central and South American Sportswear S.A. 1989
America
Canada(a) Tommy Hilfiger Canada 1990
Inc.
Japan Novel-ITC Licensing 1991(b)
Limited
Mexico Tommy Hilfiger Mexico SA 1995
de CV
Europe Pepe Jeans London 1997
Corporation
Asia-Pacific KSDP International 1998
- --------
(a) Businesses to be acquired in the Acquisition.
(b) From 1991 to 1996, the operations in Japan were conducted through a Tommy
Hilfiger joint venture with Itochu.
In addition to a royalty payment or license fee, all of Tommy Hilfiger's
licensees and distributors are required to contribute to the advertisement and
promotion of TOMMY HILFIGER(R) products on the basis of a percentage of their
net sales of TOMMY HILFIGER(R) products or a percentage of their net purchases
of TOMMY HILFIGER(R) products (depending on the terms of the license or
distributorship agreement), subject to minimum amounts.
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RETAILING
Tommy Hilfiger believes its outlet store business has positioned it to take
advantage of an expanding segment of the retail apparel industry that appeals
to customers' increasing value orientation and provides Tommy Hilfiger with an
additional channel of distribution. Tommy Hilfiger stocks its outlet stores
with a mixture of first-quality products manufactured specifically for its
outlet stores' customers as well as, to a limited degree, out-of-season
products. As of March 31, 1998, Tommy Hilfiger operated 56 outlet stores and
currently plans to open approximately ten additional outlet stores by March
31, 1999. Tommy Hilfiger's outlet stores are located primarily in major outlet
centers in the United States. In addition, Tommy Hilfiger is considering
opening outlet stores for jeanswear and women's casualwear following the
Acquisition. As of March 31, 1998, Tommy Hilfiger operated nine specialty
retail stores, including a store in London, England, and a flagship store in
Beverly Hills, California. In Spring 1999, Tommy Hilfiger also expects to open
a flagship store in London, England. Tommy Hilfiger does not plan to expand
further its existing base of specialty retail stores.
SALES AND MARKETING
Tommy Hilfiger's products are sold in over 2,000 department and specialty
retail store locations. Tommy Hilfiger's department store customers include
major United States retailers such as Dillard Department Stores, Federated
Department Stores (including Macy's, Bloomingdale's and Burdines), The May
Department Stores Company (including Lord & Taylor and Foley's), Belk Stores
and Dayton Hudson. Tommy Hilfiger believes that its relationships with major
retailers, including the active sales involvement of Tommy Hilfiger's senior
management, are important elements of its marketing strategy. Tommy Hilfiger's
strategy is to continue to grow by broadening its United States in-store shop
program, expanding its product lines and marketing to new customers both in
the United States and internationally.
A significant aspect of Tommy Hilfiger's ability to increase the commitment
of its existing customers and to attract new customers is its in-store shop
and fixturing program, whereby participating retailers set aside floor space
highlighted by distinctive fixtures dedicated for exclusive sale of Tommy
Hilfiger's products by the retailer. This program enables the retailer to
create an environment consistent with Tommy Hilfiger's image and to display
and stock a greater volume of Tommy Hilfiger's products per square foot of
retail space. Such shops and fixtured areas encourage longer term commitment
by the retailer to Tommy Hilfiger's products, including the retailer's
provision of upgraded staffing. These shops and fixtured areas also increase
consumer product recognition and loyalty because of the retail customer's
familiarity with the location of Tommy Hilfiger's products in the store. The
continued expansion of Tommy Hilfiger's in-store shop and fixturing programs
is dependent on market conditions, including continued demand for Tommy
Hilfiger's products.
Tommy Hilfiger's sales and marketing departments include individuals located
in Tommy Hilfiger's New York headquarters, Atlanta and Dallas showrooms and
Los Angeles, Chicago, Philadelphia, San Francisco and Cincinnati regional
sales territories. The sales force sells only the TOMMY HILFIGER(R)
collection.
Tommy Hilfiger sells substantially all its out-of-season products, which are
principally from the Fashion and Core Plus product lines, to certain discount
retailers and, to a limited degree, through its own outlet stores. The net
revenues from such sales represented less than 15% of Tommy Hilfiger's net
revenues for each of the last three fiscal years.
SOURCING
Tommy Hilfiger's sourcing strategy is to contract for the manufacture of its
products. Outsourcing allows Tommy Hilfiger to maximize production flexibility
while avoiding significant capital expenditures, work-in-process inventory
buildups and the costs of managing a large production work force. Tommy
Hilfiger inspects products manufactured by contractors to determine whether
they meet Tommy Hilfiger's standards.
Tommy Hilfiger imports most of its finished goods because it believes it can
import higher quality products at lower costs. Management maintains extensive
and long-term relationships with leading manufacturers in the Far East,
including, among others, manufacturers located in Indonesia, Thailand, India,
the Philippines, Taiwan and Mauritius. None of the countries from which Tommy
Hilfiger sources accounts for more than 15% of the
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<PAGE>
total cost of products purchased. Tommy Hilfiger monitors duty, tariff and
quota-related developments and continually seeks to minimize its potential
exposure to duty, tariff and quota-related risks through, among other
measures, geographical diversification of its manufacturing sources, the
maintenance of its buying offices in Hong Kong, Macau and India, allocation of
production to merchandise categories where more quota is available and shifts
of production among countries and manufacturers.
Tommy Hilfiger's production and sourcing staff oversees all aspects of
apparel manufacturing and production, the negotiation for raw materials and
research and development of new products and sources. Tommy Hilfiger operates
buying offices based in Hong Kong, Macau and India, as well as the United
States, which perform product development, sourcing, production scheduling and
quality control. In addition, Tommy Hilfiger contracts with various buying
subagents that perform similar services for Tommy Hilfiger's licensees and
geographic distributors, for specified commissions.
Tommy Hilfiger has its products manufactured according to plans prepared
each year which reflect prior years' experience, current fashion trends,
economic conditions and management estimates of a line's performance. Tommy
Hilfiger separately negotiates with suppliers for the sale of required raw
materials which are then purchased by its contractors in accordance with Tommy
Hilfiger's specifications. Tommy Hilfiger limits its exposure to holding
excess inventory by committing to purchase a portion of total projected demand
and Tommy Hilfiger, in its experience, has been able to satisfy its excess
demand through reorders. Tommy Hilfiger believes that its policy of limiting
its commitments for purchases early in the season reduces its exposure to
excess inventory and obsolescence.
CREDIT AND COLLECTION
Tommy Hilfiger collects substantially all of its receivables through a
credit company pursuant to an agreement whereby the credit company pays Tommy
Hilfiger after the credit company receives payment from Tommy Hilfiger's
customer. If the customer becomes bankrupt or insolvent or the receivable
becomes 120 days past due, the credit company pays Tommy Hilfiger 50% of the
outstanding receivable. The credit company establishes maximum credit limits
for each customer account. Substantially all accounts receivable are currently
pledged as collateral under the Credit Agreement. However, the New Credit
Facilities will be unsecured.
Bad debts as a percentage of net sales were less than 0.1% in each of Tommy
Hilfiger's last three fiscal years.
BACKLOG
Tommy Hilfiger generally receives orders approximately three to five months
prior to the time the products are delivered to stores. Thus, Tommy Hilfiger's
backlog of orders, which Tommy Hilfiger believes, based on industry practice
and past experience, will result in sales, at December 31, 1997 represents a
significant portion of Tommy Hilfiger's expected sales through June 30, 1998.
At December 31, 1997, Tommy Hilfiger's backlog of orders was approximately
$262 million, compared to approximately $239 million at December 31, 1996.
Tommy Hilfiger's backlog depends upon a number of factors, including the
timing of "market weeks" during which a significant percentage of Tommy
Hilfiger's orders are received and the timing of shipments. Accordingly, a
comparison of backlog from period to period is not necessarily meaningful and
may not be indicative of eventual actual shipments.
S-31
<PAGE>
BUSINESSES OF THE ACQUIRED COMPANIES
PEPE JEANS
General. Pepe USA was organized in 1984 to design, source and sell PEPE(R)
jeanswear throughout the United States. In 1997, Pepe USA discontinued
marketing its PEPE(R) jeanswear in order to focus its full attention and
resources on women's and girls' casualwear bearing the TOMMY HILFIGER(R)
trademark ("Tommy Womenswear"), men's jeanswear and jeans-related apparel
bearing the TOMMY JEANS(R) trademark ("Tommy Men's Jeanswear") and the TOMMY
JEANS(R) women's line, which will initially include jeanswear and jeans-
related apparel for young women ("Tommy Women's Jeanswear" and together with
Tommy Men's Jeanswear, "Tommy Jeanswear") businesses. Pursuant to a license
granted by Tommy Hilfiger, Pepe USA has exclusive United States rights to
develop, source and market Tommy Womenswear, Tommy Men's Jeanswear and Tommy
Women's Jeanswear.
Sales and Marketing. Pepe USA currently markets Tommy Womenswear and Tommy
Men's Jeanswear throughout the United States principally through in-store
shops and fixtured areas in leading department stores and through leading
specialty stores. Its department store customers include major United States
retailers such as Dillard Department Stores, Federated Department Stores
(including Macy's, Bloomingdale's and Burdines), The May Department Stores
Company (including Lord & Taylor and Foley's), Belk Stores and Dayton Hudson.
Tommy Womenswear is nationally marketed principally through dedicated in-
store shops and fixtured areas in department stores and, to a lesser degree,
through womenswear specialty stores. As of March 31, 1998, Tommy Womenswear
was sold in over 700 in-store shops and fixtured areas in department stores
and in over 100 specialty store doors.
Tommy Men's Jeanswear is nationally marketed principally through fixtured
areas in leading department stores and through jeanswear specialty stores. As
of March 31, 1998, Tommy Men's Jeanswear products were sold in approximately
1,800 department store doors, including over 500 fixtured areas, and in over
1,200 specialty and other store doors.
Following the Acquisition, Tommy Women's Jeanswear will be nationally
marketed principally through fixtured areas in leading department stores and
through jeanswear specialty stores. Tommy Women's Jeanswear will be initially
rolled out in Fall 1998 in over 500 department store doors (virtually all of
which will have dedicated fixtured areas) and approximately 150 specialty
store doors.
Growth Strategy. Tommy Hilfiger's strategy is to continue to grow these
businesses by rolling out the existing lines in additional department and
specialty retail store doors, by expanding the in-store shop and fixtured area
programs to a greater number of doors and increasing the size of the dedicated
areas in existing doors, by expanding its product offerings (including the
launch of Tommy Women's Jeanswear) and by marketing to new customers. Tommy
Hilfiger believes the Tommy Womenswear business in particular provides a major
platform for product expansion, by in-house production or through licensees,
into additional classifications (e.g. juniors, petites, career) and
accessories.
Sourcing. Pepe Jeans' sourcing strategy is to contract for the manufacture
of its products. Outsourcing allows Pepe Jeans to maximize production
flexibility while avoiding significant capital expenditures, work-in-process
inventory buildups and the costs of managing a large production work force.
Pepe Jeans inspects products manufactured by contractors to determine whether
they meet Pepe Jeans' standards.
Pepe Far East operates a buying office based in Hong Kong that performs
product development, sourcing, production scheduling and quality control
services. In addition, Pepe Far East contracts with various buying subagents.
Pepe Far East and its subsidiaries perform buying agency services with respect
to Tommy Womenswear, Tommy Men's Jeanswear and Tommy Women's Jeanswear for
both Pepe USA and Tommy Hilfiger's third-party distributors outside the United
States.
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<PAGE>
Pepe USA imports much of its finished goods because it believes it can
import higher quality products at lower costs. Pepe Jeans maintains strong
relationships with leading manufacturers in the Far East, including
manufacturers located in Hong Kong, Indonesia, Thailand, India, Singapore and
Taiwan, among other countries. Pepe Far East monitors duty, tariff and quota-
related developments and continually seeks to minimize its potential exposure
to duty, tariff and quota-related risks through, among other measures,
geographical diversification of its manufacturing sources, the maintenance of
its buying office in Hong Kong, allocation of production to merchandise
categories where more quota is available and shifts of production among
countries and manufacturers.
Backlog. Pepe Jeans generally receives orders approximately three to five
months prior to the time the products are delivered to stores. Thus, Pepe
Jean's backlog of orders, which Pepe Jeans believes, based on industry
practice and past experience, will result in sales, at December 31, 1997
represents a significant portion of Pepe Jeans' expected sales through June
30, 1998. At December 31, 1997, Pepe Jeans' backlog of orders was
approximately $209 million, compared to approximately $79 million at December
31, 1996 (in each case excluding PEPE products). Pepe Jeans' backlog depends
upon a number of factors, including the timing of "market weeks" during which
a significant percentage of Pepe Jeans' orders are received and timing of
shipments. Accordingly, a comparison of backlog from period to period is not
necessarily meaningful and may not be indicative of eventual actual shipments.
TOMMY CANADA
General. Pursuant to a license from Tommy Hilfiger, since 1990 Tommy Canada
has had exclusive Canadian rights to source, manufacture and distribute
apparel bearing the TOMMY HILFIGER(R) trademark (and since 1995 the TOMMY
JEANS(R) trademark), including men's sportswear and athleticwear, boys'
sportswear, Tommy Womenswear and Tommy Men's and Women's Jeanswear.
Sales and Marketing. Tommy Canada markets TOMMY HILFIGER(R) and TOMMY
JEANS(R) products principally through leading specialty and department stores
in Canada. Approximately 55% of Tommy Canada's sales are made through
specialty stores, with the remainder made through department stores. Tommy
Canada's major department store customers are the Eaton and The Bay chains. As
of March 31, 1998, TOMMY HILFIGER(R) and TOMMY JEANS(R) products were sold in
Canada in over 2,200 specialty store doors and over 160 department store doors
(substantially all of which had dedicated in-store shops or fixtured areas).
Growth Strategy. Tommy Hilfiger plans to continue to grow Tommy Canada's
business by expanding its product offerings, by rolling out TOMMY HILFIGER(R)
and TOMMY JEANS(R) products in additional specialty and department store
doors, by broadening its in-store shop and fixtured area programs and by
marketing to new customers. While the expansion of Tommy Canada's business
will be dependent on market conditions, including continued demand for Tommy
Hilfiger's products in Canada, Tommy Hilfiger believes that the continued
roll-out and expansion of the Tommy Womenswear, Tommy Men's Jeanswear and
Tommy childrenswear lines, as well as the launch of Tommy Women's Jeanswear,
represents a significant growth opportunity for Tommy Canada. Tommy Hilfiger
plans to initially roll out Tommy Women's Jeanswear in Canada in Fall 1998 to
approximately 800 specialty store doors and approximately 160 department store
doors.
Sourcing. Tommy Canada sources most of its products through the buying
offices of Tommy Hilfiger and Pepe Far East, for which Tommy Canada pays Tommy
Hilfiger and Pepe Jeans a fee based on a percentage of the cost of the sourced
products. In addition, Tommy Canada sources certain products directly from
manufacturers located in Canada.
Backlog. Tommy Canada generally receives orders approximately three to five
months prior to the time the products are delivered to stores. Thus, Tommy
Canada's backlog of orders, which Tommy Canada believes, based on industry
practice and past experience, at December 31, 1997 represents a significant
portion of Tommy Canada's expected sales through June 30, 1998. At December
31, 1997, Tommy Canada's backlog of orders
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<PAGE>
was approximately C$40 million, compared to approximately C$27 million at
December 31, 1996. Tommy Canada's backlog depends upon a number of factors,
including the timing of "market weeks" during which a significant percentage
of Tommy Canada's orders are received and the timing of shipments.
Accordingly, a comparison of backlog from period to period is not necessarily
meaningful and may not be indicative of eventual actual shipments.
S-34
<PAGE>
DESCRIPTION OF THE NOTES AND THE GUARANTEES
The Notes will be unsecured senior obligations of the Company, ranking on a
parity with all other unsecured and unsubordinated indebtedness of the Company
which may be outstanding from time to time. The Guarantees will be unsecured
senior obligations of the Guarantor, ranking on a parity with all other
unsecured and unsubordinated indebtedness of the Guarantor which may be
outstanding from time to time. The description of the Debt Securities and
Guarantees set forth under "Description of Debt Securities and Guarantees" in
the accompanying Prospectus will apply to the Notes and related Guarantees
offered hereby, except as otherwise provided in the following description of
the particular terms of the 2003 Notes and the 2008 Notes. The following
description of the Notes and the Guarantees is qualified in its entirety by
reference to the Indenture. Capitalized terms used but not defined below have
the meanings ascribed to them in the accompanying Prospectus and the
Indenture.
GENERAL
The 2003 Notes will be limited to $250,000,000 in aggregate principal amount
and will mature on June 1, 2003. The 2008 Notes will be limited to
$200,000,000 in aggregate principal amount and will mature on June 1, 2008.
The Notes will bear interest at the respective rates per annum set forth on
the cover page of this Prospectus Supplement from the date of issue, or the
most recent Interest Payment Date to which interest has been paid or provided
for, and will be payable semi-annually on June 1 and December 1 of each year,
commencing December 1, 1998, to the persons in whose names the Notes are
registered at the close of business on May 15 or November 15, as the case may
be, next preceding such Interest Payment Date. Interest will be computed on
the basis of a 360-day year of twelve 30-day months.
BOOK-ENTRY SYSTEM, FORM AND DELIVERY
The Notes will be issued in the form of one or more Global Notes registered
in the name of a nominee of DTC and the provisions set forth under
"Description of Debt Securities and Guarantees -- Global Notes" in the
accompanying Prospectus will apply to the Notes. The Notes will be issued in
denominations of U.S. $1,000 or any integral multiple thereof.
The Notes will trade in DTC's Same-Day Funds Settlement System and secondary
trading activity in the Notes will therefore be required by DTC to settle in
immediately available funds. No assurance can be given as to the effect, if
any, of settlement in immediately available funds on trading activity in the
Notes.
OPTIONAL REDEMPTION
The 2003 Notes and 2008 Notes will be redeemable as a whole or in part, at
the option of the Company at any time, at a redemption price equal to the
greater of (1) 100% of their principal amount or (2) the sum of the present
values of the remaining scheduled payments of principal and interest thereon
discounted to the date of redemption on a semi-annual basis (assuming a 360-
day year consisting of twelve 30-day months) at the Treasury Rate plus
basis points for the 2003 Notes and basis points for the 2008 Notes, plus
in the case of each of clause (1) and (2) accrued interest to the date of
redemption.
"Comparable Treasury Issue" means the United States Treasury security
selected by an Independent Investment Banker as having a maturity comparable
to the remaining term ("Remaining Life") of the series of Notes to be redeemed
that would be utilized, at the time of selection and in accordance with
customary financial practice in pricing new issues of corporate debt
securities of comparable maturity to the remaining term of such Notes.
"Independent Investment Banker" means Morgan Stanley & Co. Incorporated or,
if such firm is unwilling or unable to select the Comparable Treasury Issue,
an independent investment banking institution of national standing appointed
by the Trustee.
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<PAGE>
"Comparable Treasury Price" means (1) the average of five Reference Treasury
Dealer Quotations for such redemption date, after excluding the highest and
lowest Reference Treasury Dealer Quotations, or (2) if the Independent
Investment Banker obtains fewer than five such Reference Treasury Dealer
Quotations, the average of all such quotations.
"Reference Treasury Dealer" means (1) Morgan Stanley & Co. Incorporated,
Chase Securities Inc. and Salomon Brothers Inc and their respective
successors, provided, however, that if any of the foregoing shall cease to be
a primary U.S. Government securities dealer in New York City (a "Primary
Treasury Dealer"), the Company shall substitute therefor another Primary
Treasury Dealer and (2) any other Primary Treasury Dealer selected by the
Independent Investment Banker after consultation with the Company.
"Reference Treasury Dealer Quotations" means, with respect to each Reference
Treasury Dealer and any redemption date, the average, as determined by the
Independent Investment Banker, of the bid and asked prices for the Comparable
Treasury Issue (expressed in each case as a percentage of its principal
amount) quoted in writing to the Independent Investment Banker at 5:00 p.m.,
New York City time, on the third Business Day preceding such redemption date.
"Treasury Rate" means, with respect to any redemption date, (1) the yield,
under the heading which represents the average for the immediately preceding
week, appearing in the most recently published statistical release designated
"H.15(519)" or any successor publication which is published weekly by the
Federal Reserve and which establishes yields on actively traded United States
Treasury securities adjusted to constant maturity under the caption "Treasury
Constant Maturities," for the maturity corresponding to the Comparable
Treasury Issue (if no maturity is within three months before or after the
Remaining Life, yields for the two published maturities most closely
corresponding to the Comparable Treasury Issue shall be determined and the
Treasury Rate shall be interpolated or extrapolated from such yields on a
straight line basis, rounding to the nearest month) or (2) if such release (or
any successor release) is not published during the week preceding the
calculation date or does not contain such yields, the rate per annum equal to
the semi-annual equivalent yield to maturity of the Comparable Treasury Issue,
calculated using a price for the Comparable Treasury Issue (expressed as a
percentage of its principal amount) equal to the Comparable Treasury Price for
such redemption date. The Treasury Rate shall be calculated on the third
Business Day preceding the redemption date.
Holders of Notes to be redeemed will receive notice thereof by first-class
mail at least 30 and not more than 60 days prior to the date fixed for
redemption. If fewer than all of each series of Notes are to be redeemed, the
Trustee will select, not more than 60 days prior to the redemption date, the
particular series of Notes or portions thereof for redemption from the
outstanding series of Notes not previously called by such method as the
Trustee deems fair and appropriate.
The Notes will also be redeemable at the option of the Guarantor, in whole
but not in part, if the Guarantor would be required to pay additional amounts
with respect to the Notes as a result of changes in the laws of any
jurisdiction in which the Guarantor is resident for tax purposes. See
"Description of Debt Securities and Guarantees -- Optional Tax Redemption" in
the accompanying Prospectus
TRUSTEE
The Chase Manhattan Bank is the Trustee under the Indenture. Tommy Hilfiger
maintains bank accounts, borrows money and has customary banking relationships
in the ordinary course of business, with the Trustee. Among other things, the
Trustee has committed to provide a portion of the New Credit Facilities and
will serve as Administrative Agent thereunder.
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UNDERWRITERS
Under the terms and subject to the conditions contained in an Underwriting
Agreement, dated the date of this Prospectus Supplement (the "Underwriting
Agreement"), the underwriters named below (the "Underwriters") have severally
agreed to purchase, and the Company has agreed to sell to them, severally, the
respective principal amounts of the Notes set forth opposite their respective
names below:
<TABLE>
<CAPTION>
PRINCIPAL PRINCIPAL
AMOUNT AMOUNT
OF 2003 OF 2008
NAME NOTES NOTES
- ---- ------------ ------------
<S> <C> <C>
Morgan Stanley & Co. Incorporated.................... $ $
Chase Securities Inc.................................
Salomon Brothers Inc.................................
------------ ------------
Total............................................ $250,000,000 $200,000,000
============ ============
</TABLE>
The Underwriting Agreement provides that the obligation of the several
Underwriters to pay for and accept delivery of the Notes is subject to the
approval of certain legal matters by their counsel and to certain other
conditions. The Underwriters are obligated to take and pay for all of the
Notes if any are taken.
The Underwriters initially propose to offer part of the Notes directly to
the public at the public offering prices set forth on the cover page hereof
and part to certain dealers at prices that represent a concession not to
exceed % of the principal amount in the case of the 2003 Notes and % of
the principal amount in the case of the 2008 Notes. Any Underwriter may allow,
and any such dealers may reallow, a concession to certain other dealers not to
exceed % of the principal amount in the case of the 2003 Notes and % of
the principal amount in the case of the 2008 Notes. After the initial offering
of the Notes, the respective offering prices and other selling terms may from
time to time be varied by the Underwriters.
The Company and the Guarantor have agreed to indemnify the several
Underwriters against certain liabilities, including liabilities under the
Securities Act.
Application has been made to list the Notes on the New York Stock Exchange,
Inc.
In order to facilitate the offering of the Notes, the Underwriters may
engage in transactions that stabilize, maintain or otherwise affect the prices
of the Notes. Specifically, the Underwriters may overallot in connection with
the offering, creating a short position in the Notes for their own account. In
addition, to cover overallotments or to stabilize the price of the Notes, the
Underwriters may bid for, and purchase, the Notes in the open market. Finally,
the underwriting syndicate may reclaim selling concessions allowed to an
underwriter or a dealer for distributing the Notes in the offering, if the
syndicate repurchases previously distributed Notes in transactions to cover
syndicate short positions, in stabilization transactions or otherwise. Any of
these activities may stabilize or maintain the market prices of the Notes
above independent market levels. The Underwriters are not required to engage
in these activities, and may end any of these activities at any time.
Certain of the Underwriters and their respective affiliates have, from time
to time, performed various investment banking and financial advisory services
for the Guarantor, for which they have received usual and customary fees.
Morgan Stanley & Co. Incorporated is acting as financial advisor to the
Guarantor in connection with the Acquisition and has agreed to credit up to
$1,000,000 of its fee for these services toward 50% of its underwriting
discounts and commissions from this offering. Tommy Hilfiger maintains bank
accounts, borrows money and has customary banking relationships in the
ordinary course of business with The Chase Manhattan Bank, an affiliate of
Chase Securities Inc. Chase Securities Inc. is acting as arranger and
syndicator for the New Credit Facilities and The Chase Manhattan Bank has
committed to provide a portion of the New Credit Facilities and will serve as
Administrative Agent thereunder. In addition, The Chase Manhattan Bank will
serve as Trustee under the Indenture.
S-37
<PAGE>
PROSPECTUS
TOMMY HILFIGER U.S.A., INC.
DEBT SECURITIES
TOMMY HILFIGER CORPORATION
GUARANTEES
----------------
Tommy Hilfiger U.S.A., Inc. (the "Company") may offer from time to time, in
one or more series, unsecured notes, debentures or other debt securities (the
"Debt Securities"), in amounts, at prices and on terms to be determined by
market conditions at the time of offering, having an aggregate initial
offering price of up to U.S. $700,000,000 or its equivalent in any other
currency or composite currency. The Debt Securities, when issued, will
constitute unsecured obligations of the Company and will rank on a parity with
all the unsecured and unsubordinated indebtedness of the Company. All Debt
Securities will be unconditionally guaranteed as to payment of principal,
premium, if any, and interest by Tommy Hilfiger Corporation, the parent
corporation of the Company (the "Guarantor," and collectively with the Company
and its other subsidiaries, "Tommy Hilfiger"). The guarantees of the Debt
Securities (the "Guarantees"), when issued, will constitute unsecured
obligations of the Guarantor and will rank on a parity with all other
unsecured indebtedness of the Guarantor.
The specific terms of the Debt Securities and the Guarantees with respect to
which this Prospectus is being delivered will be set forth in a supplement to
this Prospectus (a "Prospectus Supplement"), together with the terms of the
offering and sale of the Debt Securities and the Guarantees, the initial
offering price and the net proceeds to the Company from the sale thereof. The
Prospectus Supplement will include, with regard to the particular Debt
Securities, the following information: the specific designation, aggregate
principal amount, authorized denominations (which may be in U.S. dollars, or
any other currency or composite currency), maturity, rate or method of
calculation of interest and dates for payment thereof, any terms for optional
or mandatory redemption or payment of additional amounts or any sinking fund
provisions, any index or formula for determining the amount of any principal,
premium, or interest, whether the securities are issuable in certificated form
or in the form of global securities and any provisions for the conversion or
exchange of such Debt Securities. The Prospectus Supplement also will contain
information, where applicable, about material United States federal income tax
considerations relating to, and any listing on a securities exchange of, the
Debt Securities and the Guarantees covered by such Prospectus Supplement.
The Debt Securities may be sold directly by the Company through agents
designated from time to time or to or through underwriters or dealers. See
"Plan of Distribution." If any agents of the Company, underwriters or dealers
are involved in the sale of any Debt Securities in respect of which this
Prospectus is being delivered, the names of such agents, underwriters or
dealers and any applicable commissions or discounts and the net proceeds to
the Company will be set forth in a Prospectus Supplement.
The sale of Debt Securities under the Registration Statement of which this
Prospectus forms a part or under a Registration Statement to which this
Prospectus relates will reduce the amount of Debt Securities which may be sold
hereunder.
This Prospectus may not be used to consummate sales of Debt Securities
unless accompanied by a Prospectus Supplement.
----------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS
THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION
PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY
REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
The date of this Prospectus is April 24, 1998.
<PAGE>
NO DEALER, SALESPERSON OR OTHER PERSON HAS BEEN AUTHORIZED TO GIVE ANY
INFORMATION OR TO MAKE ANY REPRESENTATIONS NOT CONTAINED IN THIS PROSPECTUS OR
ANY PROSPECTUS SUPPLEMENT, AND, IF GIVEN OR MADE, SUCH INFORMATION OR
REPRESENTATIONS MUST NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED BY THE
COMPANY OR THE GUARANTOR OR ANY UNDERWRITER, AGENT OR DEALER. NEITHER THIS
PROSPECTUS NOR ANY PROSPECTUS SUPPLEMENT CONSTITUTES AN OFFER TO SELL OR A
SOLICITATION OF AN OFFER TO BUY ANY OF THE SECURITIES OFFERED HEREBY IN ANY
JURISDICTION TO ANY PERSON TO WHOM IT IS UNLAWFUL TO MAKE SUCH AN OFFER IN
SUCH JURISDICTION. NEITHER THE DELIVERY OF THIS PROSPECTUS OR ANY PROSPECTUS
SUPPLEMENT NOR ANY SALE MADE HEREUNDER OR THEREUNDER SHALL, UNDER ANY
CIRCUMSTANCES, CREATE ANY IMPLICATION THAT THERE HAS BEEN NO CHANGE IN THE
AFFAIRS OF THE COMPANY OR THE GUARANTOR SINCE THE DATE HEREUNDER OR THEREOF.
AVAILABLE INFORMATION
The Guarantor is subject to the reporting requirements of the Securities
Exchange Act of 1934, as amended (the "Exchange Act"), and in accordance
therewith files periodic reports and other information with the Securities and
Exchange Commission (the "Commission"). Reports, proxy statements and other
information concerning the Guarantor may be inspected and copies may be
obtained (at prescribed rates) at the Commission's Public Reference Section,
450 Fifth Street, N.W., Room 1024, Washington, D.C. 20549, at the web site
(http://www.sec.gov) maintained by the Commission and at the Commission's
Regional Offices located at Seven World Trade Center, 13th Floor, New York,
New York 10048 and Citicorp Center, 500 West Madison Street, Suite 1400,
Chicago, Illinois 60661. The Ordinary Shares of the Guarantor are listed on
the New York Stock Exchange, where reports, proxy statements and other
information concerning the Guarantor can also be inspected. The offices of the
New York Stock Exchange are located at 20 Broad Street, New York, New York
10005.
The Company plans to request that the Commission grant to the Company an
order exempting it from the reporting obligations of Sections 13 and 15(d) of
the Exchange Act. If such order or other relief is granted, the Company will
not file reports under the Exchange Act.
The Guarantor and the Company have filed a combined registration statement
on Form S-3 (the "Registration Statement") under the Securities Act of 1933,
as amended (the "Securities Act"), with the Commission with respect to the
Debt Securities and the Guarantees offered hereby. As permitted by the rules
and regulations of the Commission, this Prospectus omits certain information
contained in the Registration Statement. For further information with respect
to the Guarantor, the Company, the Debt Securities and the Guarantees,
reference is hereby made to such Registration Statement, including the
exhibits filed as a part thereof. Statements contained in this Prospectus
concerning the provisions of certain documents filed with, or incorporated by
reference in, the Registration Statement are not necessarily complete, each
such statement being qualified in all respects by such reference. Copies of
all or any part of the Registration Statement, including the documents
incorporated by reference therein or exhibits thereto, may be obtained upon
payment of the prescribed rates at the offices of the Commission set forth
above.
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
The following documents filed with the Commission by the Guarantor pursuant
to the Exchange Act are incorporated herein by reference:
(a) the Guarantor's Annual Report on Form 10-K for the fiscal year ended
March 31, 1997, filed with the Commission on June 27, 1997 (the financial
statements included therein have been modified to include summarized
financial information of the Company and disclosure requirements related to
Statement of Financial Accounting Standards No. 128, "Earnings Per Share,"
as filed on Current Report on Form 8-K dated April 1, 1998);
2
<PAGE>
(b) the Guarantor's Proxy Statement for the October 27, 1997 Annual
Meeting of Shareholders of the Guarantor, filed with the Commission on
September 19, 1997;
(c) the Guarantor's Quarterly Reports on Form 10-Q for the fiscal
quarters ended June 30, 1997, September 30, 1997 and December 31, 1997,
filed with the Commission on August 5, 1997, November 5, 1997 and February
9, 1998, respectively;
(d) the Guarantor's Current Reports on Form 8-K dated January 31, 1998
and April 1, 1998, filed with the Commission on February 5, 1998 and April
1, 1998, respectively; and
(e) the following information included in the Guarantor's Proxy Statement
dated March 30, 1998, filed with the Commission on March 30, 1998:
(i) the unaudited condensed combined balance sheet of Pepe Jeans USA,
Inc. and TJ Far East Limited as of December 31, 1997, and the related
condensed combined statements of operations and retained earnings
(accumulated deficit) and condensed combined statements of cash flows
for the nine month periods ended December 31, 1997 and December 31,
1996 and the accompanying notes thereto (set forth at pages F-2 through
F-6);
(ii) the audited combined balance sheets of Pepe Jeans USA, Inc. and
Pepe Jeans Far East Limited (subsequently named TJ Far East Limited) as
of March 31, 1997 and March 31, 1996, and the related combined
statements of operations and retained earnings (accumulated deficit)
and combined statements of cash flows for each of the three fiscal
years in the period ended March 31, 1997 and the accompanying notes
thereto (set forth at pages F-7 through F-19);
(iii) the audited consolidated balance sheet of Tomcan Investments
Inc. as of December 31, 1997, and the related consolidated statement of
income and retained earnings and consolidated statement of changes in
financial position for the nine month period ended December 31, 1997
and the accompanying notes thereto (set forth at pages F-20 through F-
30);
(iv) the unaudited statement of income and retained earnings and
statement of changes in financial position of Tommy Hilfiger Canada
Inc. for the nine month period ended December 31, 1996 and the
accompanying notes thereto (set forth at pages F-31 through F-33);
(v) the audited balance sheets of Tommy Hilfiger Canada Inc. as of
March 31, 1997 and March 31, 1996, and the related statements of income
and retained earnings and statements of changes in financial position
for each of the three fiscal years in the period ended March 31, 1997
and the accompanying notes thereto (set forth at pages F-34 through F-
44);
(vi) the selected historical financial information of Tommy Hilfiger
as of and for the nine months ended December 31, 1997 (unaudited) and
1996 (unaudited) and as of and for each of the five fiscal years in the
period ended March 31, 1997 and the accompanying notes thereto (set
forth at pages 49 through 50); and
(vii) the unaudited pro forma combined balance sheet of Tommy
Hilfiger as of December 31, 1997, and unaudited pro forma combined
statements of operations of Tommy Hilfiger for the fiscal year ended
March 31, 1997 and for the nine months ended December 31, 1997,
reflecting the Acquisition (as defined below) and the accompanying
notes thereto (set forth at pages 64 through 68).
All documents filed by the Guarantor or the Company pursuant to Section
13(a), 13(c), 14 or 15(d) of the Exchange Act subsequent to the date of this
Prospectus and prior to the termination of the offering of the Debt Securities
shall be deemed to be incorporated by reference in this Prospectus and to be a
part hereof from the date of filing such documents. Any statement contained
herein or in a document, all or a portion of which is incorporated or deemed
to be incorporated by reference herein, shall be deemed to be modified or
superseded for purposes of this Prospectus to the extent that a statement
contained herein or in any other subsequently filed document or portion
thereof which also is or is deemed to be incorporated by reference herein
modifies or supersedes such statement. Any such statement so modified or
superseded shall not be deemed, except as so modified or superseded, to
constitute a part of this Prospectus.
The Guarantor and the Company will provide without charge to each person,
including any beneficial owner, to whom a Prospectus is delivered, on written
or oral request of such person, a copy of any or all of the
3
<PAGE>
documents incorporated by reference herein (other than exhibits to such
documents unless such exhibits are incorporated by reference into such
documents). Such written requests should be addressed to the Investor
Relations Department, Tommy Hilfiger U.S.A., Inc., 25 West 39th Street, New
York, New York 10018. Telephone requests may be directed to the Investor
Relations Department at (212) 840-8888.
ENFORCEABILITY OF CIVIL LIABILITIES AND RELATED MATTERS
The Guarantor is organized under the laws of the British Virgin Islands.
Certain of its directors and officers are residents of non-United States
jurisdictions and certain of the assets of the Guarantor, and all or a
substantial portion of the assets of such other persons, are located in non-
United States jurisdictions. As a result, it may be difficult for investors to
effect service within the United States upon such persons or to enforce
against them in the United States, such judgments of courts of the United
States predicated upon civil liabilities under the United States federal
securities laws. Additionally, there is doubt as to the enforceability in the
British Virgin Islands, in original actions or in actions for enforcement of
judgments of United States courts, of liabilities predicated upon the United
States federal securities laws.
4
<PAGE>
TOMMY HILFIGER
Tommy Hilfiger designs, sources and markets men's sportswear and
childrenswear under the TOMMY HILFIGER(R) trademark. Through a range of
strategic licensing agreements, Tommy Hilfiger continues to expand its product
lines to offer a broader array of apparel, accessories, footwear and fragrance
for men, women and children, as well as a home furnishings collection. Tommy
Hilfiger's products can be found in leading department and specialty stores
throughout the United States, Canada, Europe, Mexico, Central and South
America, Japan, Hong Kong and other Far East locations. The Company and its
subsidiaries carry out all of Tommy Hilfiger's operations in the United
States. Following the Acquisition described below, the Company and its
subsidiaries will also carry out all of Tommy Hilfiger's operations in Canada.
The Guarantor is organized under the laws of the British Virgin Islands. The
principal executive offices of the Guarantor are located at 6/F, Precious
Industrial Centre, 18 Cheung Yue Street, Cheung Sha Wan, Kowloon, Hong Kong.
The Guarantor's telephone number is 852-2745-7798.
The Company is a direct, wholly owned subsidiary of the Guarantor and is
organized under the laws of the State of Delaware. The principal executive
offices of the Company are located at 25 West 39th Street, New York, New York
10018. The Company's telephone number is (212) 840-8888.
THE PROPOSED ACQUISITION
GENERAL
On January 31, 1998, the Guarantor, the Company and Tommy Hilfiger (Eastern
Hemisphere) Limited, a wholly owned subsidiary of the Guarantor ("THEH"),
entered into a Stock Purchase Agreement (the "Stock Purchase Agreement") with
Pepe Jeans London Corporation ("PJLC"). The Stock Purchase Agreement provides
for the Company to purchase from PJLC all of the outstanding capital stock
(the "Pepe USA Shares") of Tommy Hilfiger's U.S. womenswear and jeanswear
licensee, Pepe Jeans USA, Inc. ("Pepe USA"), and for THEH to purchase from
PJLC all of the outstanding capital stock (the "Pepe Far East Shares") of Pepe
USA's buying agency affiliate, TJ Far East Limited ("Pepe Far East" and
together with its subsidiaries and Pepe USA, "Pepe Jeans") (such stock
purchases, the "Acquisition"). Under the Stock Purchase Agreement, the total
purchase price for the Pepe USA Shares is $730,760,000 in cash plus 9,045,930
ordinary shares, par value $.01 per share, of the Guarantor, and the total
purchase price for the Pepe Far East Shares is $25,000,000 in cash
(collectively with the cash consideration for the Pepe USA Shares, the "Cash
Consideration"). The Stock Purchase Agreement contemplates that, immediately
following the Acquisition, Pepe USA will purchase from Lawvest Holdings Inc.
("Lawvest") all of the outstanding shares of Tomcan Investments Inc.
("Tomcan"), the parent corporation of Tommy Hilfiger Canada Inc., Tommy
Hilfiger's Canadian licensee (together with Tomcan, "Tommy Canada," and,
collectively with Pepe Jeans, the "Acquired Companies"), with funds provided
by PJLC using proceeds from the Cash Consideration (the "Canada Purchase"),
pursuant to a Share Purchase Agreement entered into between Pepe USA and
Lawvest on January 26, 1998.
The Acquisition is subject to, among other things, approval by the
Guarantor's shareholders and specified contractual consents, receipt by the
Guarantor and/or its subsidiaries of financing for the Acquisition on
reasonably satisfactory terms and satisfaction of all conditions to
consummation of the Canada Purchase by Pepe USA, other than payment for and
delivery of the Tomcan shares.
DESCRIPTION OF THE ACQUIRED COMPANIES
Pepe Jeans. Pepe USA was organized in 1984 to design, source and sell
PEPE(R) jeanswear throughout the United States. Pursuant to a license
agreement between Tommy Hilfiger and Pepe Jeans, Pepe USA acquired exclusive
United States rights to develop, source and market women's and girls'
casualwear bearing the TOMMY HILFIGER(R) trademark ("Tommy Womenswear"), men's
jeanswear and jeans-related apparel bearing
5
<PAGE>
the TOMMY JEANS(R) trademark ("Tommy Men's Jeanswear") and the TOMMY JEANS(R)
women's line, which will initially include jeanswear and jeans-related apparel
for young women ("Tommy Women's Jeanswear"). In December 1997, Pepe USA
discontinued marketing its PEPE(R) jeanswear in order to focus its full
attention and resources on Tommy Womenswear, Tommy Men's Jeanswear and Tommy
Women's Jeanswear. Pepe USA currently markets Tommy Womenswear and Tommy Men's
Jeanswear throughout the United States principally through in-store shops and
fixtured areas in leading department stores and through leading specialty
stores. Its department store customers include major United States retailers
such as Dillard Department Stores, Federated Department Stores (including
Macy's, Bloomingdale's and Burdines), The May Department Stores Company
(including Lord & Taylor and Foley's), Belk Stores and Dayton Hudson.
Pepe Far East operates a buying office based in Hong Kong which performs
product development, sourcing, production scheduling and quality control
services. In addition, Pepe Far East contracts with various buying subagents.
Pepe Far East and its subsidiaries perform buying agency services with respect
to Tommy Womenswear, Tommy Men's Jeanswear and Tommy Women's Jeanswear for
both Pepe USA and Tommy Hilfiger's third party distributors outside the United
States.
Tommy Canada. Pursuant to a license agreement between Tommy Hilfiger and
Tommy Canada, since 1990 Tommy Canada has had exclusive Canadian rights to
source, manufacture and distribute apparel bearing the TOMMY HILFIGER(R)
trademark (and since 1995 the TOMMY JEANS(R) trademark), including men's
sportswear and athleticwear, boys' sportswear, Tommy Womenswear and Tommy
Men's and Women's Jeanswear. Tommy Canada markets TOMMY HILFIGER(R) and TOMMY
JEANS(R) products principally through leading specialty and department stores
in Canada. Approximately 55% of Tommy Canada's sales are made through
specialty stores, with the remainder made through department stores. Tommy
Canada's major department store customers are the Eaton and The Bay chains.
USE OF PROCEEDS
Unless otherwise provided in the applicable Prospectus Supplement, the net
proceeds from the sale of the Debt Securities will be used by the Company to
finance the Acquisition and for general corporate purposes.
RATIO OF EARNINGS TO FIXED CHARGES OF THE GUARANTOR
The following table sets forth the Guarantor's consolidated ratios of
earnings to fixed charges for the nine month period ended December 31, 1997
and for each of the fiscal years ended March 31, 1997, 1996, 1995, 1994 and
1993, and pro forma for the proposed Acquisition for the periods indicated:
<TABLE>
<CAPTION>
FISCAL YEAR ENDED MARCH 31,
-----------------------------
NINE MONTH PERIOD
ENDED
DECEMBER 31, 1997 1997 1996 1995 1994 1993
----------------- ----- ----- ----- ----- -----
<S> <C> <C> <C> <C> <C> <C>
Historical................. 26.6x 36.2x 35.5x 66.6x 65.7x 14.4x
Pro Forma for the Acquisi-
tion...................... 4.2x 2.2x
</TABLE>
For purposes of calculating the ratio of earnings to fixed charges, earnings
are the sum of net income, provision for income taxes and fixed charges (less
capitalized interest). Fixed charges are the sum of interest expense, the
estimated interest portion of rental charges and capitalized interest and,
with respect to the pro forma ratios only, financing cost amortization.
6
<PAGE>
DESCRIPTION OF DEBT SECURITIES AND GUARANTEES
The Debt Securities are to be issued under an Indenture (the "Indenture"),
among the Company, the Guarantor and The Chase Manhattan Bank, as trustee (the
"Trustee"), a copy of which is filed as an Exhibit to the Registration
Statement of which this Prospectus is a part. The following summary of certain
provisions of the Debt Securities, the Guarantees and the Indenture does not
purport to be complete and is subject to and is qualified in its entirety by
reference to all the provisions of the Indenture, including the definitions
therein of certain terms. Wherever particular Sections, Articles or defined
terms of the Indenture are referred to, it is intended that such Sections,
Articles or defined terms shall be incorporated herein by reference.
Capitalized terms not otherwise defined herein shall have the meaning given in
the Indenture.
The following sets forth certain general terms and provisions of the Debt
Securities and Guarantees. The specific terms of the Debt Securities and
Guarantees offered by any Prospectus Supplement (the "Offered Debt
Securities") will be described in the Prospectus Supplement relating to such
Offered Debt Securities (the "Applicable Prospectus Supplement").
GENERAL
All Debt Securities will be unsecured obligations of the Company, will rank
on a parity with all other unsecured and unsubordinated indebtedness of the
Company and will have the benefit of the Guarantees described below.
The Indenture does not limit the aggregate principal amount of the Debt
Securities or of any particular series of Offered Debt Securities and provides
that Debt Securities may be issued thereunder from time to time in one or more
series. All Debt Securities of any series need not be issued at the same time
or bear interest at the same rate or mature on the same date.
Reference is made to the Applicable Prospectus Supplement relating to the
Offered Debt Securities for the following terms thereof: (1) the title of the
Offered Debt Securities; (2) any limit on the aggregate principal amount of
the Offered Debt Securities; (3) the date or dates on which the Offered Debt
Securities will mature; (4) the rate or rates per annum (or the method of
calculating such rates) at which the Offered Debt Securities will bear
interest, if any, and the date from which such interest, if any, will accrue;
(5) the Interest Payment Dates on which any such interest on the Offered Debt
Securities will be payable and the Regular Record Date for any interest
payable on any Offered Debt Securities on any Interest Payment Date and the
extent to which, or the manner in which, any interest payable on a global Debt
Security (a "Global Note") on an Interest Payment Date will be paid if other
than in the manner described under "Global Notes" below; (6) the dates, if
any, on which and the price or prices at which the Offered Debt Securities
may, pursuant to any mandatory or optional sinking fund provisions, be
redeemed by the Company and other detailed terms and provisions of any such
sinking funds; (7) the date, if any, after which and the price or prices at
which the Offered Debt Securities may, pursuant to any optional redemption
provisions (other than as set forth under "Optional Tax Redemption"), be
redeemed at the option of the Company or of the holder thereof and other
detailed terms and provisions of any such optional redemption; (8) the
denominations (if other than U.S.$1,000 and integral multiples thereof) in
which the Offered Debt Securities are issuable; (9) the currency or
currencies, which may be a composite currency such as the European Currency
Unit, of payment of principal of and premium, if any, and interest of the
Offered Debt Securities, if other than U.S. dollars; (10) whether the Offered
Debt Securities are to be issued with original issue discount within the
meaning of Section 1273(a) of the Internal Revenue Code of 1986, as amended
(the "Code"), and the regulations thereunder; (11) whether the Offered Debt
Securities are to be issued in whole or in part in the form of one or more
Global Notes and, if so, the identity of the depositary, if any, for such
Global Note or Notes; (12) any addition to, or modification or deletion of,
any Events of Default or covenants provided for with respect to the Offered
Debt Securities; (13) any index used to determine the amount of payments of
principal of and premium, if any, and interest on the Offered Debt Securities;
and (14) any other terms of the Offered Debt Securities not inconsistent with
the terms of the Indenture.
7
<PAGE>
Unless otherwise indicated in the Applicable Prospectus Supplement relating
thereto, principal of and any premium and interest on the Offered Debt
Securities will be payable, and the Offered Debt Securities will be
exchangeable and transfers thereof will be registrable, at the corporate trust
office of the Trustee in New York, New York, provided that, at the option of
the Company, payment of any interest may be made by check mailed to the
address of the person entitled thereto as it appears in the Security Register.
Unless otherwise indicated in the Applicable Prospectus Supplement, payment of
any interest due on any Offered Debt Security will be made to the person in
whose name such Offered Debt Security is registered at the close of business
on the Regular Record Date for such interest. (Sections 301, 305, 307 and
1002)
Unless otherwise indicated in the Applicable Prospectus Supplement, the
Offered Debt Securities will be issued only in fully registered form without
coupons in denominations of $1,000 or any integral multiple thereof, and no
service charge will be made for any transfer or exchange of such Offered Debt
Securities, but the Company may require payment of a sum sufficient to cover
any tax or other governmental charge payable in connection therewith.
(Sections 302 and 305)
Debt Securities may be issued under the Indenture as Original Issue Discount
Securities to be offered and sold at a substantial discount from the principal
amount thereof. Special federal income tax, accounting and other
considerations applicable thereto will be described in the Applicable
Prospectus Supplement relating to any such Original Issue Discount Securities.
GUARANTEES
The Guarantor will unconditionally guarantee the due and punctual payment of
the principal, premium, if any, and interest (including additional amounts, if
any) on the Debt Securities when and as the same shall become due and payable,
whether at maturity, upon redemption, or otherwise. (Section 1301) The
Guarantees will rank equally with all other unsecured and unsubordinated
indebtedness of the Guarantor.
GLOBAL NOTES
The Debt Securities of a series may be issued in whole or in part in the
form of one or more Global Notes that will be deposited with or on behalf of a
depositary located in the United States (the "Depositary") identified in the
Applicable Prospectus Supplement relating to such series, which unless
otherwise specified therein will be The Depository Trust Company, New York,
New York.
The Depositary has advised the Company that the Depositary is a limited-
purpose trust company organized under the New York Banking Law, a "banking
organization" within the meaning of the New York Banking Law, a member of the
Federal Reserve System, a "clearing corporation" within the meaning of the New
York Uniform Commercial Code and a "clearing agency" registered pursuant to
the provisions of Section 17A of the Exchange Act. The Depositary was created
to hold securities of its participants and to facilitate the clearance and
settlement of securities transactions among its participants through
electronic book-entry changes in accounts of the participants, thereby
eliminating the need for physical movement of securities certificates. The
Depositary's participants include securities brokers and dealers, banks, trust
companies, clearing corporations and certain other organizations, some of whom
(and/or their representatives) own the Depositary. Access to the Depositary's
book-entry system is also available to others, such as banks, brokers, dealers
and trust companies that clear through or maintain a custodial relationship
with a participant, either directly or indirectly.
Unless otherwise specified in the Applicable Prospectus Supplement, Debt
Securities which are to be represented by a Global Note to be deposited with
or on behalf of a Depositary will be represented by a Global Note registered
in the name of such Depositary or its nominee. Upon the issuance of a Global
Note in registered form, the Depositary for such Global Note will credit, on
its book-entry registration and transfer system, the respective principal
amounts of the Debt Securities represented by such Global Note to the accounts
of institutions that have accounts with such Depositary or its nominee
("participants"). The accounts to be credited shall be designated by the
underwriters or agents of such Debt Securities or by the Company, if such Debt
Securities are offered and sold directly by the Company. Ownership of
beneficial interests in such Global Notes
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will be limited to participants or persons that may hold interests through
participants. Ownership of beneficial interests by participants in such Global
Notes will be shown on, and the transfer of that ownership interest will be
effected only through, records maintained by the Depositary or its nominee for
such Global Note. Ownership of beneficial interests in Global Notes by persons
that hold through participants will be effected only through records
maintained by such participants. The laws of some jurisdictions require that
certain purchasers of securities take physical delivery of such securities in
definitive form. Such limits and such laws may impair the ability to transfer
beneficial interests in a Global Note.
So long as the Depositary for a Global Note, or its nominee, is the
registered owner of such Global Note, such depositary or such nominee, as the
case may be, will be considered the sole owner or holder of the Debt
Securities represented by such Global Note for all purposes under the
Indenture. Except as set forth below, owners of beneficial interests in such
Global Note will not be entitled to have Debt Securities of the series
represented by such Global Note registered in their names, will not receive or
be entitled to receive physical delivery of Debt Securities of such series in
definitive form and will not be considered the owners or holders thereof under
the Indenture. Accordingly, each person owning a beneficial interest in such
Global Security must rely on the procedures of the Depositary and, if such
person is not a participant, on the procedures of the participant through
which such person owns its interest, to exercise any rights of a holder under
the Indenture. The Company understands that under existing practice, in the
event that the Company requests the holders to take, or a beneficial owner
desires to take, any action, the Depositary would act upon the instructions
of, or authorize, the participant to take such action.
Payment of principal of, premium, if any, and any interest on Debt
Securities registered in the name of or held by a Depositary or its nominee
will be made to the Depositary or its nominee, as the case may be, as the
registered owner or the holder of the Global Note representing such Debt
Securities. None of the Company, the Trustee, any Paying Agent or the Security
Registrar for such Debt Securities will have any responsibility or liability
for any aspect of the records relating to or payments made on account of
beneficial ownership interests in a Global Note for such Debt Securities or
for maintaining, supervising or reviewing any records relating to such
beneficial ownership interests.
The Company expects that the Depositary for Debt Securities of a series,
upon receipt of any payment of principal, premium, or interest in respect of a
permanent Global Note, will credit immediately participants' accounts with
payments in amounts proportionate to their respective beneficial interests in
the principal amount of such Global Note as shown on the records of such
Depositary. The Company also expects that payments by participants to owners
of beneficial interest in such Global Note held through such participants will
be governed by standing instructions and customary practices, as is now the
case with securities held for the accounts of customers registered in "street
name," and will be the responsibility of such participants.
A Global Note may not be transferred except as a whole by the Depositary for
such Global Note to a nominee of such Depositary or by a nominee of such
Depositary to such Depositary or another nominee of such depositary or by such
depositary or any such nominee to a successor of such depositary or a nominee
of such successor. (Section 304(b)) If a Depositary for Debt Securities of a
series is at any time unwilling or unable to continue as Depositary and a
successor depositary is not appointed by the Company within ninety days, the
Company will issue Debt Securities in definitive registered form in exchange
for the Global Note or Notes representing such Debt Securities. In addition,
the Company may at any time and in its sole discretion determine not to have
any Debt Securities represented by one or more Global Notes and, in such
event, will issue Debt Securities in definitive registered form in exchange
for all the Global Notes representing such Debt Securities. In any such
instance, an owner of a beneficial interest in a Global Note will be entitled
to physical delivery in definitive form of Debt Securities of the series
represented by such Global Note equal in principal amount to such beneficial
interest and to have such Debt Securities registered in its name.
CERTAIN COVENANTS OF THE COMPANY AND THE GUARANTOR
Restrictions on Liens. Except as provided below under "Exempted Debt," the
Company and the Guarantor will not, and will not permit any Restricted
Subsidiary to, create or suffer to exist any mortgage, lien, pledge, charge,
security interest or encumbrance (a "Lien" or "Liens") to secure any
Indebtedness of the
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Company, the Guarantor or any Restricted Subsidiary on any property of or any
shares of equity interests or evidences of Indebtedness issued by the Company,
the Guarantor or any Restricted Subsidiary and owned by the Company, the
Guarantor or any Restricted Subsidiary, without making, or causing such
Restricted Subsidiary to make, effective provision to secure all of the Debt
Securities offered hereunder and then outstanding by such Lien, equally and
ratably with any and all other such Indebtedness thereby secured, so long as
such other Indebtedness is so secured, except that the foregoing restrictions
shall not apply (subject in certain instances to certain qualifications) to:
(a) Liens on property of a corporation existing at the time such corporation
is merged into or consolidated with the Company, the Guarantor or a Restricted
Subsidiary or at the time of sale, lease or other disposition of the
properties of such corporation (or a division thereof) as an entirety or
substantially as an entirety to the Company, the Guarantor or a Restricted
Subsidiary; (b) Liens on property or shares of equity interests or evidences
of indebtedness of a corporation existing at the time such corporation becomes
a Restricted Subsidiary; (c) Liens securing Indebtedness between a Restricted
Subsidiary and the Company or the Guarantor or between Restricted Subsidiaries
or between the Guarantor and the Company; (d) Liens on any property created,
assumed or otherwise brought into existence in contemplation of the sale or
other disposition of the underlying property, whether directly or indirectly,
by way of share disposition or otherwise, provided that the Company, the
Guarantor or the Restricted Subsidiary, as applicable, must have disposed of
such property within 180 days after the creation of such Liens and that any
Indebtedness secured by such Liens shall be without recourse to the Company,
the Guarantor or any Restricted Subsidiary; (e) Liens in favor of the United
States of America or any State thereof, or any department, agency or
instrumentality or political subdivision thereof, to secure partial, progress,
advance or other payments; (f) Liens arising solely by virtue of any statutory
or common law provision relating to banker's liens, rights of setoff or
similar rights and remedies, in each case as to deposit accounts or other
funds maintained with a creditor depository institution, provided that (1)
such deposit account is not a dedicated cash collateral account and is not
subject to restrictions against access by the Company, the Guarantor or
applicable Restricted Subsidiary in excess of those set forth by regulations
promulgated by the Federal Reserve Board, and (2) such deposit account is not
intended by the Company or any Restricted Subsidiary to provide collateral to
the depository institution; (g) Liens arising from Uniform Commercial Code
financing statements regarding leases; (h) Liens on the Company's office
facility located at 25 West 39th Street, New York, New York; (i) the giving,
simultaneously with or within 180 days after the latest of the date of the
Indenture, or the acquisition or construction of such property, of a purchase
money Lien on property acquired or constructed after the date of the
Indenture, or the acquisition after the date of the Indenture, of property
subject to any Lien which is limited to such property and which secures
Indebtedness not in excess of the lesser of the cost or fair market value of
such property; (j) the giving of a Lien on real property which is the sole
security for Indebtedness incurred within two years after the latest of the
date of the Indenture, the acquisition of the property or completion of the
first substantial improvements thereon, provided that the Indebtedness does
not exceed the lesser of the cost of the property and improvements or their
fair market value and the holder of such Indebtedness is entitled to enforce
its payment only by resorting to such security; (k) Liens arising under Tommy
Hilfiger Canada Inc.'s existing loan agreement securing Indebtedness not to
exceed Can.$25,000,000; (l) Liens arising by the terms of letters of credit
entered into in the ordinary course of business to secure reimbursement
obligations thereunder; (m) Liens existing on the date of the Indenture; and
(n) extension, renewal, replacement or refunding of any Lien existing on the
date of the Indenture or referred to in clauses (a) to (d) and (i) to (k),
provided that the principal amount of Indebtedness secured thereby and not
otherwise authorized by clauses (a) to (d) and (i) to (k) shall not exceed the
principal amount of Indebtedness, plus any premium or fee payable in
connection with any such extension, renewal, replacement or refunding, so
secured at the time of such extension, renewal, replacement or refunding.
(Section 1007)
Restrictions on Sale and Leaseback Transactions. Except as provided below
under "Exempted Debt," the Company and the Guarantor will not, nor will they
permit any Restricted Subsidiary to, enter into any arrangements with any
person providing for the leasing by the Company, the Guarantor or any
Restricted Subsidiary of any property or asset now owned or hereafter acquired
which has been or is to be sold or transferred by the Company, the Guarantor
or such Restricted Subsidiary to such person with the intention of taking back
a lease of such property (a "Sale and Leaseback Transaction"), unless the net
proceeds of such sale or transfer have been determined by the Board of
Directors of the Company or the Guarantor (as applicable) to
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be at least equal to the fair value of such property or asset at the time of
such sale and transfer and either (i) the Company, the Guarantor or a
Restricted Subsidiary applies or causes to be applied an amount equal to the
net proceeds of such sale or transfer, within 180 days of receipt thereof, to
the retirement or prepayment (other than any mandatory retirement or
prepayment) of Senior Funded Debt of the Company, the Guarantor or any
Restricted Subsidiary or to the purchase of property or assets to be used in
the ordinary course of business, or (ii) the Company, the Guarantor or such
Restricted Subsidiary would, on the effective date of such sale or transfer,
be entitled, pursuant to the Indenture, to issue, assume or guarantee
Indebtedness secured by a Lien upon such property or asset at least equal in
amount to the Attributable Debt in respect of such Sale and Leaseback
Transaction without equally and ratably securing the Debt Securities having
the benefit of the "Restrictions on Liens." The foregoing restriction will not
apply to any Sale and Leaseback Transaction (i) between the Company and the
Guarantor, the Company or the Guarantor and any Restricted Subsidiary or
between Restricted Subsidiaries provided that the lessor shall be the Company,
the Guarantor or a Wholly-owned Restricted Subsidiary, or (ii) which has a
lease of less than three years in length. (Section 1008)
Exempted Debt. Notwithstanding the restrictions in the Indenture on (i)
Liens and (ii) Sale and Leaseback Transactions, the Company, the Guarantor or
the Restricted Subsidiaries may, in addition to amounts permitted under such
restrictions, create Indebtedness secured by Liens, or enter into Sale and
Leaseback Transactions, provided that, at the time of such transaction and
after giving effect thereto, the aggregate outstanding amount of all such
Indebtedness secured by Liens plus Attributable Debt resulting from such Sale
and Leaseback Transactions does not exceed 10% of Consolidated Stockholders
Equity. (Sections 1007(b) and 1008(b))
Restrictions on Subsidiary Indebtedness. The Company and the Guarantor will
not permit any Restricted Subsidiary to create, incur, issue, assume or
guarantee any Funded Debt, except: (i) Funded Debt outstanding on the date of
the Indenture; (ii) Funded Debt issued to and held by the Company, the
Guarantor or a Wholly-owned Restricted Subsidiary; (iii) Funded Debt created,
incurred, issued, assumed or guaranteed by a person prior to the time (a) such
person became a Restricted Subsidiary; (b) such person merges into or
consolidates with a Restricted Subsidiary; or (c) a Restricted Subsidiary
merges into or consolidates with such person (in a transaction in which such
person becomes a Restricted Subsidiary) (in the case of each of clauses (a),
(b) and (c), which Funded Debt was not incurred in anticipation of such
transaction and was outstanding prior to such transaction); (iv) Funded Debt
incurred to provide funds for all or part of the cost of acquisition,
construction, development or improvement of property (including shares of
equity interests), provided that the commitment of the creditor to extend the
credit evidenced by such Funded Debt shall have been obtained not later than
180 days after the later of (a) the completion of the acquisition,
construction, development or improvement of such property or (b) the placing
in operation of such property; (v) Funded Debt under Tommy Hilfiger Canada
Inc.'s existing loan agreement in a principal amount not to exceed
Can.$25,000,000; (vi) Funded Debt which is exchanged for, or the proceeds of
which are used to replace or refund, any Funded Debt permitted to be
outstanding pursuant to clauses (i) through (v) above (or any extension or
renewal thereof), in an aggregate principal amount not to exceed the principal
amount of the Indebtedness so exchanged, replaced or refunded; (vii) Funded
Debt not otherwise permitted pursuant to clauses (i) through (vi) above that,
together with any other outstanding Funded Debt created, incurred, issued,
assumed or guaranteed pursuant to this clause (vii), has an aggregate
principal amount at any time outstanding that does not exceed 10% of
Consolidated Stockholders Equity; and (viii) Funded Debt which would be
permitted to be incurred under the "Restrictions on Liens." (Section 1009)
No Special Protection in the Event of a Highly Leveraged Transaction. Unless
otherwise indicated in the Applicable Prospectus Supplement, the terms of the
Offered Debt Securities will not afford the holders special protection in the
event of a highly leveraged transaction.
Certain Definitions. Set forth below are certain significant terms which are
defined in Section 101 of the Indenture:
"Attributable Debt" in respect of a Sale and Leaseback Transaction means, at
the time of determination, the present value (discounted at the actual rate of
interest of such transaction) of the obligation of the lessee for net rental
payments during the remaining term of the lease included in such Sale and
Leaseback Transaction (including any period for which such lease has been
extended or may, at the option of the lessor, be extended).
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The term "net rental payments" under any lease for any period shall mean the
sum of the rental and other payments required to be paid in such period by the
lessee thereunder, not including, however, any amounts required to be paid by
such lessee (whether or not designated as rental or additional rental) on
account of maintenance and repairs, insurance, taxes, assessments, water rates
or similar charges required to be paid by such lessee thereunder or any
amounts required to be paid by such lessee thereunder contingent upon the
amount of sales, maintenance and repairs, insurance, taxes, assessments, water
rates or similar charges.
"Capitalized Lease Obligations" means obligations created pursuant to leases
which are required to be shown on the liability side of the balance sheet in
accordance with generally accepted accounting principles.
"Consolidated Stockholders Equity" means consolidated stockholders equity of
the Guarantor and its Subsidiaries as determined in accordance with generally
accepted accounting principles and reflected on the most recent balance sheet
delivered to the Trustee pursuant to the Indenture.
"Funded Debt" means Indebtedness, whether incurred, assumed or guaranteed,
maturing by its terms more than one year from the date of creation thereof or
which is extendable or renewable at the sole option of the obligor in such
manner that it may become payable more than one year from the date of creation
thereof; provided, however, that Funded Debt shall not include obligations
created pursuant to leases, or any Indebtedness or portion thereof maturing by
its terms within one year from the time of any computation of the amount of
outstanding Funded Debt unless such Indebtedness shall be extendable or
renewable at the sole option of the obligor in such manner that it may become
payable more than one year from such time, or any Indebtedness for the payment
or redemption of which money in the necessary amount shall have been deposited
in trust either at or before the maturity or redemption date thereof.
"Indebtedness" of a person means indebtedness for borrowed money and all
indebtedness under purchase money mortgages or other purchase money liens or
conditional sales or similar title retention agreements in each case where
such indebtedness has been created, incurred, assumed or guaranteed by such
person or where such person is otherwise liable therefor and indebtedness for
borrowed money secured by any mortgage, pledge or other lien or encumbrance
upon property owned by such person even though such person has not assumed or
become liable for the payment of such indebtedness.
"Restricted Subsidiary" means, at any time, any Subsidiary of the Guarantor,
other than the Company, which would be a "Significant Subsidiary" at such
time, as such term is defined in Regulation S-X promulgated by the Commission,
as in effect on the date of the Indenture.
"Subsidiary" as to any person, means a corporation more than 50% of the
outstanding voting stock of which is owned, directly or indirectly, by such
person or by one or more of its Subsidiaries, or by such person and one or
more of its Subsidiaries. For the purposes of this definition "voting stock"
means stock which ordinarily has voting power for the election of directors,
whether at all times or only so long as no senior class of stock has such
voting power by reason of any contingency.
MERGER AND CONSOLIDATION
The Indenture provides that the Company may not consolidate with or merge
into any other corporation or convey, transfer or lease its properties and
assets substantially as an entirety to any person, and the Company may not
permit any person to consolidate with or merge into the Company or convey,
transfer or lease its properties and assets substantially as an entirety to
the Company, unless: (i) in case the Company consolidates with or merges into
another corporation or conveys, transfers or leases its properties and assets
substantially as an entirety to any person, the corporation formed by such
consolidation or into which the Company is merged or the person which acquires
by conveyance or transfer, or which leases, the properties and assets of the
Company substantially as an entirety shall be a corporation organized and
existing under the laws of the United States of America, any State thereof or
the District of Columbia and shall expressly assume, by a supplemental
indenture,
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the due and punctual payment of the principal of (and premium, if any) and
interest on all the Debt Securities and the performance of every covenant of
the Indenture on the part of the Company to be performed or observed; (ii)
immediately after giving effect to such transaction and treating any
Indebtedness which becomes an obligation of the Company or a Subsidiary of the
Company as a result of such transaction as having been incurred by the Company
or such Subsidiary at the time of such transaction, no Event of Default, and
no event which, after notice or lapse of time or both, would become an Event
of Default, shall have happened and be continuing; and (iii) if, as a result
of any such consolidation or merger or such conveyance, transfer or lease,
properties or assets of the Company would become subject to a mortgage,
pledge, lien, security interest or other encumbrance which would not be
permitted by this Indenture, the Company or such successor corporation or
person, as the case may be, shall take such steps as shall be necessary
effectively to secure the Debt Securities equally and ratably with (or prior
to) all indebtedness secured thereby. (Section 801)
The Indenture provides that the Guarantor may not consolidate with or merge
into any other corporation or convey, transfer or lease its properties and
assets substantially as an entirety to any person, and the Guarantor may not
permit any person to consolidate with or merge into the Guarantor or convey,
transfer or lease its properties and assets substantially as an entirety to
the Guarantor, unless: (i) in case the Guarantor shall consolidate with or
merge into another corporation or convey, transfer or lease its properties and
assets substantially as an entirety to any person, the corporation formed by
such consolidation or into which the Guarantor is merged or the person which
acquires by conveyance or transfer, or which leases, the properties and assets
of the Guarantor substantially as an entirety shall be a corporation organized
and existing under the laws of the United States of America, any State thereof
or the District of Columbia or the British Virgin Islands and shall expressly
assume, by a supplemental indenture, the Guarantees and the performance of
every covenant of this Indenture on the part of the Guarantor to be performed
or observed; (ii) immediately after giving effect to such transaction and
treating any indebtedness which becomes an obligation of the Guarantor as a
result of such transaction as having been incurred by the Guarantor at the
time of such transaction, no Event of Default, and no event which, after
notice or lapse of time or both, would become an Event of Default, shall have
happened and be continuing; and (iii) if, as a result of any such
consolidation or merger or such conveyance, transfer or lease, properties or
assets of the Guarantor would become subject to a mortgage, pledge, lien,
security interest or other encumbrance which would not be permitted by this
Indenture, the Guarantor or such successor corporation or person, as the case
may be, shall take such steps as shall be necessary effectively to secure the
Debt Securities equally and ratably with (or prior to) all indebtedness
secured thereby. (Section 1303)
PAYMENT OF ADDITIONAL AMOUNTS
If any deduction or withholding for any present or future taxes, assessments
or other governmental charges of any jurisdiction (or any political
subdivision or taxing authority thereof or therein) in which the Guarantor is
resident for tax purposes shall at any time be required by such jurisdiction
in respect of any amounts to be paid by the Guarantor under the Guarantee of
Debt Securities of such series, the Guarantor will pay as additional interest
such additional amounts as may be necessary in order that the net amounts paid
to the holder of any such Debt Security pursuant to the terms of such Debt
Security, after such deduction or withholding, will be not less than the
amounts specified in such Debt Security to be then due and payable; provided,
however, that the Guarantor shall not be required to make any payment of
additional amounts for or on account of:
(a) any tax, assessment or other governmental charge which would not have
been imposed but for (i) the existence of any present or former connection
between such holder (or between a fiduciary, settlor, beneficiary, member
or shareholder of such holder, if such holder is an estate, trust,
partnership, limited liability company or corporation) and the taxing
jurisdiction or any political subdivision or territory or possession
thereof or area subject to its jurisdiction, including, without limitation,
such holder (or such fiduciary, settlor, beneficiary, member or
shareholder) being or having been a citizen or resident or treated as a
resident thereof or being or having been present or engaged in trade or
business therein or having had a permanent establishment therein or (ii)
the presentation of such Debt Security (where presentation is required) for
payment on a date more than 30 days after the date on which such payment
became due and payable or the date on which payment thereof was duly
provided for, whichever occurs later;
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(b) any estate, inheritance, gift, sale, transfer, personal property or
similar tax, assessment or other governmental charge;
(c) any tax, assessment or other governmental charge which is payable
otherwise than by withholding from payments of (or in respect of) principal
of, premium, if any, or interest on such Debt Security;
(d) any tax, assessment or other governmental charge that is imposed or
withheld by reason of the failure to comply by the holder or the beneficial
owner of a Debt Security with a request of the Guarantor addressed to the
holder (i) to provide information concerning the nationality, residence or
identity of the holder or beneficial owner of such Debt Security, or (ii)
to make such declaration or other similar claim or reporting requirement,
which is required by a statute, treaty, regulation or administrative
practice of the taxing jurisdiction as a precondition to exemption from all
or part of such tax, assessment or other governmental charge; provided
that, in the case of (ii), the holder is legally entitled to deliver such
declaration or similar claim; or
(e) any combination of items (a), (b), (c) and (d) above;
nor will additional amounts be paid with respect to any payment of the
principal of or interest on any such Debt Security to any such holder who is a
fiduciary or partnership or limited liability company or other than the sole
beneficial owner of such payment to the extent such payment would be required
by the laws of any jurisdiction in which the Guarantor is resident for tax
purposes (or any political subdivision or taxing authority thereof or therein)
to be included in the income for tax purposes of a beneficiary or settlor with
respect to such fiduciary or a member of such partnership, limited liability
company, or a beneficial owner who would not have been entitled to such
additional amounts had it been the holder of such Debt Security. (Section
1306)
Under the laws of the British Virgin Islands, where the Guarantor is
incorporated, and Barbados, where the Guarantor is licensed as an external
International Business Company, as applied and interpreted on the date of this
Prospectus, no taxes, levies, imposts or charges of the British Virgin
Islands, Barbados or any political subdivision or taxing authority thereof or
therein would be required to be deducted or withheld from any payment by the
Guarantor under the Guarantees of the Debt Securities.
OPTIONAL TAX REDEMPTION
Debt Securities of any series may be redeemed at the option of the
Guarantor, in whole but not in part, upon not less than 30 nor more than 60
days' notice given as provided in the Indenture, at a redemption price equal
to the principal amount thereof (except for Debt Securities issued at a price
representing a discount from the principal amount payable at maturity which
may be redeemed at the redemption price set forth in such Debt Securities)
plus accrued interest to the date fixed for redemption if, as a result of any
change in or amendment to the laws or any regulations or ruling promulgated
thereunder of any jurisdiction (or of any political subdivision or taxing
authority thereof or therein) in which the Guarantor is resident for tax
purposes, or any change in the official application or interpretation of such
laws, regulations or rulings, or any change in the official application or
interpretation of, or any execution of or amendment to, any treaty or treaties
affecting taxation to which such jurisdiction (or such political subdivision
or taxing authority) is a party, which becomes effective on or after the
original issue date of such Debt Securities, the Guarantor is or would be
required on the next succeeding interest payment date to pay additional
amounts with respect to the Debt Securities (as described under "Payment of
Additional Amounts" above), and the payment of such additional amounts cannot
be avoided by the use of any reasonable measures available to the Guarantor.
The Debt Securities of any series may also be redeemed at the option of the
Guarantor, in whole but not in part, upon not less than 30 days' nor more than
60 days' notice at a redemption price equal to the principal amount thereof
(except for Debt Securities issued at a price representing a discount from the
principal amount payable at maturity which may be redeemed at the redemption
price set forth in such Debt Securities) plus accrued interest to the date
fixed for redemption if the person formed by a consolidation or amalgamation
of the Guarantor or into which the Guarantor is merged or to which the
Guarantor conveys, transfers or leases its properties and assets substantially
as an entirety is required, as a consequence of such consolidation,
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amalgamation, merger, conveyance, transfer or lease and as a consequence of a
change in tax law occurring after the date of such consolidation,
amalgamation, merger, conveyance, transfer or lease, to pay additional amounts
in respect of any tax, assessment or governmental charge imposed on any
holder.
The Guarantor will also pay, or make available for payment, to holders on
the redemption date any additional amounts (as described under "Payment of
Additional Amounts" above) resulting from the payment of such redemption
price. (Section 1305)
EVENTS OF DEFAULT
The following will be Events of Default under the Indenture with respect to
Debt Securities of any series: (a) default in the payment of any interest upon
any Debt Security of that series when it becomes due and payable, and
continuance of such default for a period of 30 days; (b) default in the
payment of the principal of (or premium, if any, on) any Debt Security of that
series at its maturity; (c) default in the deposit of any sinking fund
payment, when and as due by the terms of a Debt Security of that series; (d)
default in the performance, or breach, of any covenant or warranty of the
Company or the Guarantor (other than a covenant or warranty a default in whose
performance or whose breach is elsewhere in the Indenture specifically dealt
with or which has expressly been included in the Indenture solely for the
benefit of series of Debt Securities other than that series), and continuance
of such default or breach for a period of 60 days after written notice as
provided in the Indenture; (e) acceleration of indebtedness of the Guarantor
or any Subsidiary of the Guarantor for borrowed money in an outstanding
principal amount in excess of $25 million (including a default with respect to
Securities of any series other than that series) whether such indebtedness now
exists or shall hereafter be created, without such being cured within a period
of 10 days after written notice as provided in the Indenture; (f) certain
events occurring under bankruptcy, insolvency, reorganization or other similar
laws; (g) the Guarantee with respect to that series shall be held in any
judicial proceeding to be unenforceable or invalid or shall cease for any
reason to be in full force and effect; or (h) any other event of default
provided with respect to Debt Securities of that series. No Event of Default
with respect to a particular series of Debt Securities issued under the
Indenture (except as to such events in bankruptcy, insolvency or
reorganization) necessarily constitutes an Event of Default with respect to
any other series of Debt Securities issued thereunder. (Section 501)
If an Event of Default with respect to Debt Securities of any series at the
time outstanding occurs and is continuing, then in every such case the Trustee
or the holders of not less than 25% in principal amount of the outstanding
Debt Securities of that series may declare the principal amount (or, if any of
the Debt Securities of that series are Original Issue Discount Securities,
such portion of the principal amount of such Debt Securities as may be
specified in the terms thereof) of all of the Debt Securities of that series
to be due and payable immediately, by a notice in writing to the Company (and
to the Trustee if given by holders), and upon any such declaration such
principal amount (or specified amount) shall become immediately due and
payable. However, at any time after such a declaration of acceleration with
respect to Debt Securities of any series has been made, the Holders of a
majority in principal amount of outstanding Debt Securities of that series
may, subject to certain conditions, rescind and annul such acceleration if all
Events of Default, other than the non-payment of accelerated principal, with
respect to Debt Securities of that series have been cured or waived as
provided in the Indenture. (Section 502) For information as to waiver of
defaults, see "Modification and Waiver" herein.
Reference is made to the Prospectus Supplement relating to any series of
Offered Debt Securities which are Original Issue Discount Securities for the
particular provisions relating to acceleration of a portion of the principal
amount of such Original Issue Discount Securities upon the occurrence of an
Event of Default and the continuation thereof.
Subject to the provisions of the Indenture relating to the duties of the
Trustee in case an Event of Default shall occur and be continuing, the
Indenture provides that the Trustee will be under no obligation to exercise
any of its rights or powers under the Indenture at the request or direction of
any of the Holders, unless such Holders shall have offered to the Trustee
reasonable security and indemnity. (Sections 601 and 603) Subject to such
provisions for security and indemnification of the Trustee and certain other
rights of the Trustee, the Holders of
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a majority in principal amount of the Outstanding Debt Securities of any
series shall have the right to direct the time, method and place of conducting
any proceedings for any remedy available to the Trustee or exercising any
trust or power conferred on the Trustee with respect to the Debt Securities of
that series. (Section 512)
No Holder of any Debt Security of any series will have any right to
institute any proceeding with respect to the Indenture or for any remedy
thereunder, unless such Holder shall have previously given to the Trustee
written notice of a continuing Event of Default with respect to Debt
Securities of that series and unless also the Holders of at least 25% in
principal amount of the Outstanding Debt Securities of that series shall have
made written request, and offered reasonable security and indemnity, to the
Trustee to institute such proceeding as trustee, and the Trustee shall not
have received from the Holders of a majority in principal amount of the
Outstanding Debt Securities of that series a direction inconsistent with such
request and shall have failed to institute such proceeding within 60 days.
(Section 507) Notwithstanding the foregoing, the Holder of any Debt Security
will have an absolute and unconditional right to receive payment of the
principal of (and premium, if any) and any interest on such Debt Security on
or after the due dates expressed in such Debt Security and to institute suit
for the enforcement of any such payment. (Section 508)
The Indenture requires the Company and the Guarantor to furnish to the
Trustee annually statements as to compliance with the Indenture. (Section
1011) The Indenture provides that the Trustee may withhold notice to the
Holders of Debt Securities of any series of any default (except in payment of
principal, any premium, interest or any sinking fund payments) with respect to
Debt Securities of such series if it considers it in the interest of the
Holders of Debt Securities of such series to do so. (Section 602)
MODIFICATION AND WAIVER
With the consent of the holders of a majority of the outstanding Debt
Securities of each series affected, the Company, the Guarantor and the Trustee
may enter into an indenture or indentures supplemental to the Indenture for
the purpose of adding any provisions to or changing in any manner or
eliminating any of the provisions of the Indenture or of modifying in any
manner the rights of the holders of Debt Securities of such series under the
Indenture; provided, however, that no such supplemental indenture shall,
without the consent of the Holder of each outstanding Debt Security affected
thereby: (a) change the stated maturity date of the principal of, or any
installment of principal of or interest on, any Debt Security, or reduce the
principal amount thereof or the rate of interest thereon or any premium
payable upon the redemption thereof, or reduce the amount of the principal of
an Original Issue Discount Security that would be due and payable upon a
declaration of acceleration of the maturity thereof or change any place of
payment where, or the coin or currency in which, any Debt Security or any
premium or the interest thereon is payable, or impair the right to institute
suit for the enforcement of any such payment on or after the stated maturity
thereof (or, in the case of redemption, on or after the redemption date); (b)
reduce the percentage in principal amount of the Outstanding Securities of any
series, the consent of whose holders is required for any such supplemental
indenture, or the consent of whose holders is required for any waiver (of
compliance with certain provisions of the Indenture or certain defaults under
the Indenture and their consequences) provided for in the Indenture; (c)
subject to certain exceptions, modify certain specified provisions of the
Indenture relating to modification and waiver, except to increase any
percentage required to approve a modification or waiver or to provide that
certain other provisions of the Indenture cannot be modified or waived without
the consent of the holder of each outstanding Security affected thereby; or
(d) modify any of the substantive provisions of the Guarantees or release or
discharge the Guarantor thereunder. (Section 902)
The Company and the Guarantor may omit in any particular instance to comply
with certain specified covenants in the Indenture with respect to the Debt
Securities of any series if before the time for such compliance the holders of
at least a majority in principal amount of the outstanding Debt Securities of
such series shall either waive such compliance in such instance or generally
waive compliance with such covenant but no such waiver shall extend to or
affect such covenant except to the extent so expressly waived, and, until such
waiver shall become effective, the obligations of the Company and the
Guarantor and the duties of the Trustee in respect of any such covenant shall
remain in full force and effect. (Section 1012)
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The holders of not less than a majority in principal amount of the
outstanding Debt Securities of any series may on behalf of the holders of all
the Debt Securities of such series waive any past default with respect to such
series and its consequences, except a default: (a) in the payment of the
principal of (or premium, if any) or interest on any Debt Security of such
series, or (b) in respect of a covenant or provision of the Indenture which
under the Indenture cannot be modified or amended without the consent of the
holder of each outstanding Debt Security of such series affected. Upon any
such waiver, such default shall cease to exist, and any Event of Default
arising therefrom shall be deemed to have been cured, for every purpose of the
Indenture; but no such waiver shall extend to any subsequent or other default
or impair any right consequent thereon. (Section 513)
DEFEASANCE OF OFFERED DEBT SECURITIES OR CERTAIN COVENANTS IN CERTAIN
CIRCUMSTANCES
Defeasance and Discharge. The provisions of the Indenture, as it relates to
outstanding Debt Securities of a series, shall no longer be in effect on the
91st day after the date the Company deposits or causes to be deposited
irrevocably with the Trustee as trust funds in trust for the purpose of making
the following payments: (i) in the case of Debt Securities of such series
denominated in U.S. dollars, cash in U.S. dollars (or such other money or
currencies as shall then be legal tender in the United States) and/or U.S.
government obligations, or (ii) in the case of Debt Securities of such series
denominated in a foreign currency (other than a basket currency), money and/or
foreign government securities in the same foreign currency, which through the
payment of interest and principal in respect thereof, in accordance with their
terms, will provide (and without reinvestment and assuming no tax liability
will be imposed on such Trustee), not later than one day before the due date
of any payment of money, an amount in cash, sufficient to pay and discharge
each installment of principal (and premium, if any) (including mandatory
sinking fund or analogous payments) of and any interest on all the Debt
Securities of such series on the dates such installments of interest or
principal are due. It is a condition of such defeasance that (a) such deposit
will not result in a breach or violation of, or constitute a default under,
the Indenture or any other agreement or instrument to which the Company is a
party or by which it is bound; (b) cause any outstanding Debt Securities of
such series then listed on the New York Stock Exchange or other securities
exchange to be de-listed as a result thereof; (c) no Event of Default or event
which with notice or lapse of time would become an Event of Default with
respect to the Debt Securities of such series shall have occurred and be
continuing on the date of such deposit or during the period ending on the 91st
day after such date; and (d) the Company has delivered to the Trustee an
opinion of counsel to the effect that (i) the Company has received from, or
there has been published by, the Internal Revenue Service a ruling to the
effect that, and based thereon, such opinion shall confirm that holders of the
Debt Securities of such series will not recognize income, gain or loss for
Federal income tax purposes as a result of such deposits, defeasance and
discharge and will be subject to Federal income tax on the same amount and in
the same manner and at the same times, as would have been the case if such
deposit, defeasance and discharge had not occurred and (ii) upon the 91st day
after the date of such deposit, the trust funds would not be subject to being
characterized as a preference for Bankruptcy Law purposes. (Section 403)
Defeasance of Certain Covenants. The Company and the Guarantor may omit to
comply with certain specified covenants in the Indenture with respect to the
Debt Securities of a series, if the Company deposits or causes to be
irrevocably deposited with the Trustee as trust funds in trust specifically
pledged as security for, and dedicated solely to, the benefit of the holders
of such Debt Securities (i) in the case of Debt Securities of such series
denominated in U.S. dollars, cash in U.S. dollars (or such other money or
currencies as shall then be legal tender in the United States) and/or U.S.
government obligations, or (ii) in the case of Debt Securities of such series
denominated in a foreign currency (other than a basket currency), money and/or
foreign government securities in the same foreign currency, which through the
payment of interest and principal in respect thereof, in accordance with their
terms, will provide (and without reinvestment and assuming no tax liability
will be imposed on such Trustee), not later than one day before the due date
of any payment of money, an amount in cash, sufficient to pay and discharge
each installment of principal (and premium, if any) (including mandatory
sinking fund or analogous payments) of and any interest on all the Debt
Securities of such series on the dates such installments of interest or
principal are due. It is a condition of such defeasance that (a) such deposit
shall not, in the opinion of counsel, cause the Trustee with respect to the
Debt Securities of such series to have a
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conflicting interest with respect to the Debt Securities of such series; (b)
such deposit will not result in a breach or violation of, or constitute a
default under, the Indenture or any other agreement or instrument to which the
Company is a party or by which it is bound; (c) no Event of Default or event
which with notice or lapse of time would become an Event of Default with
respect to the Debt Securities of such series shall have occurred and be
continuing on the date of such deposit; and (d) the Company has delivered to
the Trustee an opinion of counsel to the effect that (i) holders of the Debt
Securities of such series will not recognize income gain or loss for Federal
income tax purposes as a result of such deposit and defeasance of certain
obligations and will be subject to Federal income tax on the same amount and
in the same manner and at the same times as would have been the case if such
deposit and defeasance had not occurred and (ii) upon the 91st day after the
date of such deposit, the trust funds would not be subject to being
characterized as a preference for bankruptcy law purposes. (Section 1010)
Defeasance and Events of Default. In the event the Company exercises its
option to omit compliance with certain covenants of the Indenture with respect
to any series of Debt Securities and the Debt Securities of such series are
declared due and payable because of the occurrence of any Event of Default,
the amount of money and U.S. government obligations on deposit with the
Trustee will be sufficient to pay amounts due on the Debt Securities of such
series at the time of their stated maturity but may not be sufficient to pay
amounts due on the Debt Securities of such series at the time of the
acceleration resulting from such Event of Default. However, the Company shall
remain liable for such payments.
CONCERNING THE TRUSTEE
The Chase Manhattan Bank is the Trustee under the Indenture. The Trustee
performs services for the Company and the Guarantor in the ordinary course of
business and is the administrative agent under a Credit Agreement under which
the Company is a borrower.
GOVERNING LAW
The Indenture, the Debt Securities and the Guarantees are governed by and
construed in accordance with the laws of the State of New York. (Section 112)
Under New York law, claims for payment of principal, premium, if any, and
interest will be barred by the statute of limitations six years after such
amounts become due and payable.
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PLAN OF DISTRIBUTION
The Company may sell the Offered Debt Securities in or outside the United
States through underwriters or dealers, directly to one or more purchasers, or
through agents. The Applicable Prospectus Supplement with respect to the
Offered Debt Securities will set forth the terms of the offering of the
Offered Debt Securities, including the name or names of any underwriters,
dealers or agents, the purchase price of the Offered Debt Securities and the
proceeds to the Company from such sale, any delayed delivery arrangements, any
underwriting discounts and other items constituting underwriters'
compensation, the initial public offering price, any discounts or concessions
allowed or re-allowed or paid to dealers, and any securities exchanges on
which the Offered Debt Securities may be listed.
If underwriters are used in the sale, the Offered Debt Securities will be
acquired by the underwriters for their own account and may be resold from time
to time in one or more transactions, including negotiated transactions, at a
fixed public offering price or at varying prices determined at the time of
sale. The Offered Debt Securities may be offered to the public either through
underwriting syndicates represented by one or more managing underwriters or
directly by one or more firms acting as underwriters. The underwriter or
underwriters with respect to a particular underwritten offering of Offered
Debt Securities will be named in the Applicable Prospectus Supplement relating
to such offering, and if an underwriting syndicate is used, the managing
underwriter or underwriters will be set forth on the cover of such Prospectus
Supplement. Unless otherwise set forth in the Applicable Prospectus
Supplement, the obligations of the underwriters or agents to purchase the
Offered Debt Securities will be subject to conditions precedent, and the
underwriters will be obligated to purchase all the Offered Debt Securities if
any are purchased. The initial public offering price and any discounts or
concessions allowed or re-allowed or paid to dealers may be changed from time
to time.
If dealers are used in the sale of Offered Debt Securities with respect to
which this Prospectus is delivered, the Company will sell such Offered Debt
Securities to the dealers as principals. The dealers may then resell such
Offered Debt Securities to the public at varying prices to be determined by
such dealers at the time of resale. The names of the dealers and the terms of
the transaction will be set forth in the Prospectus Supplement relating
thereto.
Offered Debt Securities may be sold directly by the Company or through
agents designated by the Company from time to time at fixed prices, which may
be changed, or at varying prices determined at the time of sale. Any agent
involved in the offer or sale of the Offered Debt Securities with respect to
which this Prospectus is delivered will be named, and any commissions payable
by the Company to such agent will be set forth, in the Applicable Prospectus
Supplement. Unless otherwise indicated in the Applicable Prospectus
Supplement, any such agent will be acting on a best efforts basis for the
period of its appointment.
Offered Debt Securities may be sold directly by the Company to institutional
investors or others, who may be deemed to be underwriters within the meaning
of the Securities Act with respect to any resale thereof. The terms of any
such sales will be described in the Applicable Prospectus Supplement.
In connection with the sale of the Offered Debt Securities, underwriters or
agents may receive compensation from the Company or from purchasers of Offered
Debt Securities for whom they may act as agents in the form of discounts,
concessions or commissions. Underwriters, agents and dealers participating in
the distribution of the Offered Debt Securities may be deemed to be
underwriters, and any discounts or commissions received by them from the
Company and any profit on the resale of the Offered Debt Securities by them
may be deemed to be underwriting discounts or commissions under the Securities
Act.
If so indicated in the Applicable Prospectus Supplement, the Company will
authorize agents, underwriters or dealers to solicit offers from certain types
of institutions to purchase Offered Debt Securities from the Company at the
public offering price set forth in the Applicable Prospectus Supplement
pursuant to delayed delivery contracts providing for payment and delivery on a
specified date in the future. Such contracts will be subject only to those
conditions set forth in the Applicable Prospectus Supplement, and the
Applicable Prospectus Supplement will set forth the commission payable for
solicitation of such contracts.
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Agents, dealers and underwriters may be entitled under agreements entered
into with the Company to indemnification by the Company against certain civil
liabilities, including liabilities under the Securities Act, or to
contribution with respect to payments that such agents, dealers, or
underwriters may be required to make with respect thereto.
Some or all of the Offered Debt Securities may be new issues of securities
with no established trading market. Any underwriters to whom Offered Debt
Securities are sold by the Company for public offering and sale may make a
market in such Offered Debt Securities, but such underwriters will not be
obligated to do so and may discontinue any market making at any time without
notice. No assurance can be given as to the liquidity of or the trading
markets for any Offered Debt Securities.
Certain of the underwriters, dealers or agents and their affiliates may be
customers of, engage in transactions with, and perform services for, the
Guarantor or the Company in the ordinary course of business.
VALIDITY OF OFFERED DEBT SECURITIES
The validity of the Offered Debt Securities will be passed upon for the
Company by Wachtell, Lipton, Rosen & Katz, New York, New York, and for any
underwriters by Simpson Thacher & Bartlett, New York, New York. The validity
of the Guarantees will be passed upon for the Guarantor by Harney, Westwood &
Riegels, the British Virgin Islands.
EXPERTS
The audited financial statements of Tommy Hilfiger at March 31, 1997 and
1996 and for the three years in the period ended March 31, 1997 incorporated
in this Registration Statement on Form S-3 by reference to (a) the Current
Report on Form 8-K of the Guarantor dated April 1, 1998 (the "April 1, 1998
Form 8-K"), (b) the Annual Report on Form 10-K of the Guarantor for the fiscal
year ended March 31, 1997, which financial statements have been modified as
filed on the April 1, 1998 Form 8-K and (c) the audited combined financial
statements of Pepe Jeans USA, Inc. and Pepe Jeans Far East Limited included in
the Guarantor's Proxy Statement dated March 30, 1998, have been so
incorporated in reliance on the reports of Price Waterhouse LLP, independent
accountants, given on the authority of said firm as experts in auditing and
accounting.
The audited financial statements of Tomcan Investments Inc. as at and for
the nine months ended December 31, 1997 and of Tommy Hilfiger Canada Inc. as
at and for the fiscal year ended March 31, 1997 incorporated in this
Registration Statement on Form S-3 by reference to the Guarantor's Proxy
Statement dated March 30, 1998, have been so incorporated in reliance on the
report of Price Waterhouse, independent accountants, given on the authority of
said firm as experts in auditing and accounting.
The audited financial statements of Tommy Hilfiger Canada Inc. as at March
31, 1996 and for the fiscal years ended March 31, 1996 and March 31, 1995
incorporated in this Registration Statement on Form S-3 by reference to the
Guarantor's Proxy Statement dated March 30, 1998, have been so incorporated in
reliance on the report of Ptack Schnarch Basevitz, independent accountants,
given on the authority of said firm as experts in auditing and accounting.
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