SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 8-K
PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
Date of Report (Date of earliest event reported): April 1, 1998
TOMMY HILFIGER CORPORATION
(Exact name of registrant as specified in its charter)
British Virgin Islands 1-11226 Not Applicable
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(State or other (Commission File Number) (IRS Employer
jurisdiction of Identification No.)
incorporation)
6/F, Precious Industrial Centre
18 Cheung Yue Street
Cheung Sha Wan
Kowloon, Hong Kong Not Applicable
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(Address of principal executive offices) (Zip Code)
Registrant's Telephone Number, including area code: 852-2745-7798
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(Former name or former address, if changed since last report)
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Item 5. Other Events.
On April 1, 1998, Tommy Hilfiger Corporation (the "Company")
is making this filing to include the exhibits hereto by means of incorporation
by reference into the Company's filings under the Securities Act of 1933, as
amended.
Exhibit 10.1 contains the Lock-Up Agreement, dated as of
January 31, 1998, by and among the Company, Pepe Jeans London Corporation,
Blackwatch Investments Limited, AIHL Investment Group Limited, Anasta Holdings
Limited, Sportswear Holdings Limited, Westleigh Limited, Gadwal Limited, Thomas
J. Hilfiger and Joel J. Horowitz (the "Lock-Up Agreement") entered into in
connection with the Stock Purchase Agreement, dated as of January 31, 1998, by
and among the Company, Tommy Hilfiger U.S.A., Inc., Tommy Hilfiger (Eastern
Hemisphere) Limited and Pepe Jeans London Corporation, pursuant to which the
Company will, subject to the conditions set forth therein, acquire Pepe Jeans
USA, Inc. and Tommy Hilfiger Canada Inc. (the "Acquisition"), which Acquisition
was announced by the Company on February 1, 1998. The Lock-Up Agreement is
hereby incorporated herein by reference.
Exhibit 10.2 contains a form of Registration Rights Agreement
by and among the Company, Pepe Jeans London Corporation, Blackwatch Investments
Limited, AIHL Investment Group Limited, Anasta Holdings Limited, Sportswear
Holdings Limited, Westleigh Limited, Gadwal Limited, Thomas J. Hilfiger and Joel
J. Horowitz (the "Registration Rights Agreement") which will be entered into
upon consummation of the Acquisition. The Registration Rights Agreement is
hereby incorporated herein by reference.
Exhibit 99.1 contains consolidated financial statements of the
Company for each of the three fiscal years in the period ended March 31, 1997
(the "Company Annual Financial Statements"). THE COMPANY ANNUAL FINANCIAL
STATEMENTS, WHICH INCLUDE THE OPINION OF PRICE WATERHOUSE LLP, THE COMPANY'S
INDEPENDENT ACCOUNTANTS, ARE IDENTICAL TO THE CORRESPONDING FINANCIAL STATEMENTS
CONTAINED IN THE COMPANY'S ANNUAL REPORT ON FORM 10-K FOR THE FISCAL YEAR ENDED
MARCH 31, 1997, EXCEPT THAT A NEW NOTE NUMBER 17, CONTAINING SUMMARIZED
FINANCIAL INFORMATION FOR TOMMY HILFIGER U.S.A., INC., A WHOLLY OWNED SUBSIDIARY
OF THE COMPANY ("TH USA"), HAS BEEN ADDED AND EARNINGS PER SHARE DATA HAVE BEEN
PRESENTED IN ACCORDANCE WITH STATEMENT OF FINANCIAL ACCOUNTING STANDARDS NO.
128, "EARNINGS PER SHARE". The Company Annual Financial Statements are hereby
incorporated herein by reference.
Exhibit 99.2 contains unaudited condensed consolidated
financial statements of the Company for the nine months ended December 31, 1997
(the "Company Nine-Month Financial Statements"). THE COMPANY NINE-MONTH
FINANCIAL STATEMENTS ARE IDENTICAL TO THE CORRESPONDING FINANCIAL STATEMENTS
CONTAINED IN THE COMPANY'S QUARTERLY REPORT ON FORM 10-Q FOR THE QUARTERLY
PERIOD ENDED DECEMBER 31, 1997, EXCEPT THAT A NEW NOTE NUMBER 4, CONTAINING
SUMMARIZED FINANCIAL INFORMATION FOR TH USA, HAS BEEN ADDED. The Company
Nine-Month Financial Statements are hereby incorporated herein by reference.
<PAGE>
Item 7. Financial Statements and Exhibits.
(c) Exhibits
Exhibit 10.1 Lock-Up Agreement, dated as of January 31, 1998, by and
among the Company, Pepe Jeans London Corporation,
Blackwatch Investments Limited, AIHL Investment Group
Limited, Anasta Holdings Limited, Sportswear Holdings
Limited, Westleigh Limited, Gadwal Limited, Thomas J.
Hilfiger and Joel J. Horowitz
Exhibit 10.2 Form of Registration Rights Agreement
Exhibit 23.1 Consent of Price Waterhouse LLP
Exhibit 99.1 Consolidated financial statements of the Company for
each of the three fiscal years in the period ended March
31, 1997
Exhibit 99.2 Condensed consolidated financial statements of the Company
for the nine months ended December 31, 1997
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SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of
1934, the registrant has duly caused this report to be signed on its behalf by
the undersigned, thereunto duly authorized.
Dated: April 1, 1998
TOMMY HILFIGER CORPORATION
By: /s/ Benjamin M.T. Ng
Name: Benjamin M.T. Ng
Title: Executive Vice President -
Corporate Finance
<PAGE>
EXHIBIT LIST
Exhibit 10.1 Lock-Up Agreement, dated as of January 31, 1998, by and among
the Tommy Hilfiger Corporation, Pepe Jeans London Corporation,
Blackwatch Investments Limited, AIHL Investment Group Limited,
Anasta Holdings Limited, Sportswear Holdings Limited, Westleigh
Limited, Gadwal Limited, Thomas J. Hilfiger and Joel J. Horowitz
Exhibit 10.2 Form of Registration Rights Agreement
Exhibit 23.1 Consent of Price Waterhouse LLP
Exhibit 99.1 Consolidated financial statements of Tommy Hilfiger Corporation
for each of the three fiscal years in the period ended March 31,
1997
Exhibit 99.2 Condensed consolidated financial statements of Tommy Hilfiger
Corporation for the nine months ended December 31, 1997
Exhibit 10.1
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LOCK-UP AGREEMENT
by and among
TOMMY HILFIGER CORPORATION,
PEPE JEANS LONDON CORPORATION,
BLACKWATCH INVESTMENTS LIMITED,
AIHL INVESTMENT GROUP LIMITED,
ANASTA HOLDINGS LIMITED,
SPORTSWEAR HOLDINGS LIMITED,
WESTLEIGH LIMITED,
GADWAL LIMITED,
THOMAS J. HILFIGER
and
JOEL J. HOROWITZ
Dated as of January 31, 1998
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<PAGE>
LOCK-UP AGREEMENT
THIS AGREEMENT, dated as of January 31, 1998 (the
"Agreement"), is by and among Tommy Hilfiger Corporation, a British Virgin
Islands corporation (the "Company"), Pepe Jeans London Corporation, a British
Virgin Islands corporation ("PJLC"), Blackwatch Investments Limited, a British
Virgin Islands corporation ("Blackwatch"), AIHL Investment Group Limited, a
British Virgin Islands corporation ("AIHL"), Anasta Holdings Limited, a British
Virgin Islands corporation ("Anasta"), Sportswear Holdings Limited, a British
Virgin Islands corporation ("Sportswear"), Westleigh Limited, a British Virgin
Islands Corporation ("Westleigh"), Gadwal Limited, a Hong Kong corporation
("Gadwal"), Thomas J. Hilfiger ("TJH") and Joel J. Horowitz ("JJH" and, together
with TJH, the "Management Stockholders"). The parties hereto other than the
Company are sometimes collectively referred to herein as the "Stockholders."
RECITALS
WHEREAS, the Company, certain subsidiaries of the Company and
PJLC have entered into a Stock Purchase Agreement dated of even date herewith
(the "Stock Purchase Agreement") (all capitalized terms used but not defined
herein have the meanings given to them in the Stock Purchase Agreement);
WHEREAS, pursuant to the Stock Purchase Agreement, upon
consummation of the Stock Purchases, among other things, the Company will
deliver to TH USA and TH USA will deliver to PJLC 9,045,930 Ordinary Shares, par
value $.01 per share, of the Company (the "Shares"), upon which Westleigh,
Gadwal, TJH and JJH collectively will beneficially own (within the meaning of
Rule 13d-3 promulgated under the Securities Exchange Act of 1934, as amended
("Beneficially Own")) 97% of the Shares (the "Partner Shares") and Anasta will
Beneficially Own 3% of the Shares (the "Anasta Shares");
WHEREAS, AIHL has entered into a Guarantee, dated of even date
herewith, pursuant to which AIHL has guaranteed all of the obligations of PJLC
under the Stock Purchase Agreement;
WHEREAS, pursuant to the Stock Purchase Agreement, at the
Closing the Company and the Stockholders will enter into a registration rights
agreement (the "Registration Rights Agreement") pursuant to which the
Stockholders will have certain registration rights with respect to the Shares;
and
WHEREAS, the parties hereto desire to restrict the sale,
assignment, transfer, encumbrance or other disposition of the Shares and
obligations in respect thereof as hereinafter provided.
NOW THEREFORE, in consideration of the premises and of the
terms and conditions contained herein and for other good and valuable
consideration, the receipt and sufficiency of which is hereby acknowledged, the
parties hereto agree as follows:
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<PAGE>
Section 1. Prohibition on Transfers.
(a) Prohibition on Transfers During Restricted Period. Except
as set forth in Section 3, no Stockholder shall, at any time prior to the second
anniversary of the Closing Date (the "Restricted Period"), directly or
indirectly, (i) offer, pledge, sell, contract to sell, sell any option or
contract to purchase, purchase any option or contract to sell, grant any option,
right or warrant to purchase, lend or otherwise transfer or dispose of, directly
or indirectly, any of the Shares or (ii) enter into any swap or other
arrangement that transfers to another, in whole or in part, any of the economic
consequences of ownership of any of the Shares, whether any such transaction
described in clause (i) or (ii) above is to be settled by delivery of Shares, in
cash or otherwise (any such transaction, whether or not for consideration, being
referred to herein as a "Transfer" and each Person to whom a Transfer is made,
regardless of the method of Transfer, is referred as a "Transferee").
(b) Prohibition on Transfers Following Restricted Period.
Except for Transfers described in the next sentence of this paragraph, from the
end of the Restricted Period through the fifth anniversary of the Closing Date,
no Stockholder shall, without the consent of the Company, directly or
indirectly, Transfer any Shares to any Person who would, to such Stockholder's
knowledge, immediately following such Transfer Beneficially Own 5% or more of
the then outstanding Ordinary Shares, par value $.01 per share, of the Company
("Ordinary Shares"). The requirements set forth in this paragraph shall not
apply to Transfers (i) to a Person described in Rule 13d-1(b)(1) promulgated
under the Securities Exchange Act of 1934, as amended (as in effect on the date
hereof), provided that immediately following such Transfer such Person would
not, to the Transferring Stockholder's knowledge, Beneficially Own 10% or more
of the then outstanding Ordinary Shares, (ii) pursuant to an effective
registration statement under the Securities Act of 1933, as amended (the
"Securities Act"), (iii) to an Affiliate of such Stockholder, to another
Stockholder or to an Affiliate of another Stockholder or (iv) in connection with
any merger, consolidation or other business combination of the Company. For
purposes of this Paragraph (b), "Stockholder's knowledge" means, in the case of
an individual Stockholder, the actual knowledge of such Stockholder or, in the
case of any other Stockholder, the actual knowledge of the officers and
directors of such Stockholder.
(c) Obligations of Transferees. Except for Transfers
described in the last sentence of this paragraph, no Transfer by a Stockholder
(including a permitted Transfer pursuant to clause (a), (b) or (c) of Section
3), shall be effective unless the Transferee shall have executed and delivered
to the Company an appropriate document in form and substance reasonably
satisfactory to the Company confirming that the Transferee takes such Shares
subject to all the terms and conditions of this Agreement and the Registration
Rights Agreement to the same extent as its transferor was bound by such
provisions (including without limitation that the Transferred Shares bear
legends substantially in the forms required by Section 4(a) of this Agreement).
Transfers by such Transferees shall be subject to the terms of this Agreement.
The requirements set forth in this paragraph shall not apply to Transfers (i) in
conformity with Rule 144 (a "Rule 144 Transfer") under the Securities Act, (ii)
pursuant to an effective registration statement under the Securities Act, or
(iii) to another Stockholder permitted by clause (a) or (b) of Section 3 of this
Agreement or (iv) permitted by clause (d) of Section 3.
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<PAGE>
Section 2. Compliance with Securities Laws. No Stockholder
shall at any time during or following the Restricted Period make any Transfer
(other than a Transfer permitted pursuant to clause (d) of Section 3), except
(a) Transfers pursuant to an effective registration statement under the
Securities Act, (b) Rule 144 Transfers or (c) if such Stockholder shall have
furnished the Company with an opinion of counsel, if reasonably requested by the
Company, which opinion and counsel shall be reasonably satisfactory to the
Company, to the effect that the Transfer is otherwise exempt from registration
under the Securities Act and that the Transfer otherwise complies with the terms
of this Agreement.
Section 3. Permitted Transfers. The restrictions on Transfers
set forth in Section 1(a) of this Agreement shall not apply to a Transfer (a) of
Anasta Shares to (i) any Stockholder or any permitted Transferee of a
Stockholder pursuant to clause (b) or (c) of this Section 3 or (ii) any Person
so long as immediately following such Transfer the Anasta Shares are
Beneficially Owned by Anasta; (b) of Partner Shares to any Person so long as
immediately following such Transfer the Partner Shares are Beneficially Owned by
Westleigh, Gadwal, TJH and JJH in the respective percentages set forth in
Exhibit 1 hereto; (c) by a Management Stockholder to a legal representative of
such Management Stockholder in the event such Management Stockholder becomes
mentally incompetent or to such Management Stockholder's personal representative
following the death of such Management Stockholder in which event such
Transferred Shares shall be deemed to be Beneficially Owned by such Management
Stockholder following such Transfer for purposes of clause (b) above; or (d) in
connection with any merger, consolidation or other business combination of the
Company.
Section 4. Other Restrictions.
(a) Legends. Each of the Stockholders hereby agrees that each
outstanding certificate representing Shares and issued during the Restricted
Period shall bear legends reading substantially as follows:
(i) The securities represented by this certificate have
not been registered under the Securities Act of 1933, as amended, or
under the securities laws of any state and may not be transferred, sold
or otherwise disposed of except while such a registration is in effect
or pursuant to an exemption from registration under said Act and
applicable state securities laws.
(ii) The securities represented by this certificate are
subject to the terms and conditions set forth in a Lock-up Agreement,
dated as of January 31, 1998, copies of which may be obtained from the
issuer or from the holder of this security. No transfer of such
securities will be made on the books of the issuer unless accompanied
by evidence of compliance with the terms of such agreement.
(b) Termination of Restrictive Legends. The restrictions
referred to in Section 4(a)(i) shall cease and terminate as to any particular
Shares (x) when, in the opinion of counsel for the Company, such restriction is
no longer required in order to assure compliance with the Securities Act or (y)
when such Shares shall have been transferred in a Rule 144 Transfer or
effectively registered under the Securities Act. The restrictions referred to in
Section 4(a)(ii)
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<PAGE>
shall cease and terminate at the end of the Restricted Period. Whenever such
restrictions shall cease and terminate as to any Shares, the Stockholder holding
such shares shall be entitled to receive from the Company, in exchange for such
legended certificates, without expense (other than applicable transfer taxes, if
any, if such unlegended Shares are being delivered and transferred to any Person
other than the registered holder thereof), new certificates for a like number of
Shares not bearing the relevant legend(s) set forth in Section 4(a). The Company
may request from any Stockholder a certificate or an opinion of such
Stockholder's counsel with respect to any relevant matters in connection with
the removal of the legend(s) set forth in Section 4(a)(i) from such
Stockholder's stock certificates, any such certificate or opinion of counsel to
be reasonably satisfactory to the Company.
(c) Copy of Agreement. A copy of this Agreement shall be
filed with the corporate secretary of the Company and shall be kept with the
records of the Company and shall be made available for inspection by any
stockholder of the Company.
(d) Recordation. The Company shall not record upon its books
any Transfer to any Person except Transfers in accordance with this Agreement.
Section 5. No Other Rights. The Stockholders understand and
agree that the Company is under no obligation to register the sale, transfer or
other disposition of the Shares by such Stockholder or on such Stockholder's
behalf under the Securities Act or to take any other action necessary in order
to make compliance with an exemption from such registration available, other
than pursuant to the Registration Rights Agreement.
Section 6. Effectiveness; Term. This Agreement shall become
effective simultaneously with the consummation of the Stock Purchases under the
Stock Purchase Agreement and shall terminate without liability or penalty on the
part of any party or its directors, officers, fiduciaries, employees and
stockholders to any other party or such other party's Affiliates upon
termination of the Stock Purchase Agreement prior to the consummation of the
Stock Purchases pursuant to Article XI thereof.
Section 7. Specific Performance. The Stockholders acknowledge
that there would be no adequate remedy at law if any Stockholder fails to
perform any of its obligations hereunder, and accordingly agree that the
Company, in addition to any other remedy to which it may be entitled at law or
in equity, shall be entitled to compel specific performance of the obligations
of any Stockholder under this Agreement in accordance with the terms and
conditions of this Agreement. Any remedy under this Section 7 is subject to
certain equitable defenses and to the discretion of the court before which any
proceedings therefor may be brought.
Section 8. Notices. All notices, statements, instructions or
other documents required to be given hereunder shall be in writing and shall be
given either personally or by mailing the same in a sealed envelope, first-class
mail, postage prepaid and either certified or registered, return receipt
requested, or by telecopy, and shall be addressed to the Company at its
principal offices and to one or more Stockholders at the respective addresses
furnished to the Company by such Stockholders.
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<PAGE>
Section 9. Successors and Assigns. This Agreement shall be
binding upon and shall inure to the benefit of the parties and their respective
successors and assigns.
Section 10. Recapitalizations and Exchanges Affecting Shares.
The provisions of this Agreement shall apply, to the full extent set forth
herein with respect to the Shares, to any and all shares of capital stock or
equity securities of the Company which may be issued by reason of any stock
dividend, stock split, reverse stock split, combination, recapitalization,
reclassification or otherwise.
Section 11. Governing Law. This Agreement shall be governed
by and construed in accordance with the laws of the State of New York as applied
to contracts to be performed in New York.
Section 12. Jurisdiction; Waiver of Trial by Jury. The
parties hereby consent to the jurisdiction of the United States District Court
for the Southern District of New York and any of the courts of the state of New
York in any dispute arising under this Agreement and agree further that service
of process or notice in any such action, suit or proceeding shall be effective
if in writing and delivered in person or sent as provided in Section 8 hereof.
ANY RIGHT TO TRIAL BY JURY WITH RESPECT TO ANY CLAIM OR ACTION ARISING OUT OF
THIS AGREEMENT OR IN CONNECTION HEREWITH IS HEREBY WAIVED.
Section 13. Descriptive Headings, Etc. The headings in this
Agreement are for convenience of reference only and shall not limit or otherwise
affect the meaning of terms contained herein. Unless the context of this
Agreement otherwise requires, references to "hereof," "herein," "hereby,"
"hereunder" and similar terms shall refer to this entire Agreement.
Section 14. Amendment. This Agreement may not be amended or
supplemented except by an instrument in writing signed by each of the parties
hereto; provided, however, that no amendment may be made to Paragraph (a) of
Section 1, Section 3 or this Section 14 without the approval of a majority of
the votes cast at a meeting of the Company's stockholders excluding votes cast
by the Stockholders or their Affiliates.
Section 15. Severability. If any term or provision of this
Agreement shall to any extent be invalid or unenforceable, the remainder of this
Agreement shall not be affected thereby, and each term and provision of this
Agreement shall be valid and enforceable to the fullest extent permitted by law.
Section 16. Complete Agreement; Counterparts. This Agreement
(together with the Stock Purchase Agreement and the Registration Rights
Agreement) constitutes the entire agreement and supersedes all other agreements
and understandings, both written and oral, among the parties or any of them,
with respect to the subject matter hereof. This Agreement may be executed by any
one or more of the parties hereto in any number of counterparts, each of which
shall be deemed to be an original, but all such counterparts shall together
constitute one and the same instrument.
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<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this
instrument to be duly executed on the date first written above.
TOMMY HILFIGER CORPORATION
By: /s/ Joel J. Horowitz
Name: Joel J. Horowitz
Title: Chief Executive Officer
and President
PEPE JEANS LONDON CORPORATION
By: /s/ Lawrence S. Stroll
Name: Lawrence S. Stroll
Title: Group CEO
BLACKWATCH INVESTMENTS LIMITED
By: /s/ Lawrence S. Stroll
Name: Lawrence S. Stroll
Title: Chairman
AIHL INVESTMENT GROUP LIMITED
By: /s/ Lawrence S. Stroll
Name: Lawrence S. Stroll
Title: Chairman
ANASTA HOLDINGS LIMITED
By: /s/ Gath A. T. Hewlett
Name: Gath A. T. Hewlett
Title: Vice President and
Treasurer
SPORTSWEAR HOLDINGS LIMITED
By: /s/ Silas K. F. Chou
Name: Silas K. F. Chou
Title: Director
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<PAGE>
WESTLEIGH LIMITED
By: /s/ Silas K. F. Chou
Name: Silas K. F. Chou
Title: Director
GADWAL LIMITED
By: /s/ Lawrence S. Stroll
Name: Lawrence S. Stroll
Title: Director
/s/ Thomas J. Hilfiger
Thomas J. Hilfiger
/s/ Joel J. Horowitz
Joel J. Horowitz
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<PAGE>
Exhibit 1
Stockholder Beneficial Ownership
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Westleigh 35.0%
Gadwal 35.0%
TJH 22.5%
JJH 7.5%
Exhibit 10.2
FORM OF
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REGISTRATION RIGHTS AGREEMENT
by and among
TOMMY HILFIGER CORPORATION,
PEPE JEANS LONDON CORPORATION,
BLACKWATCH INVESTMENTS LIMITED,
AIHL INVESTMENT GROUP LIMITED,
ANASTA HOLDINGS LIMITED,
SPORTSWEAR HOLDINGS LIMITED,
WESTLEIGH LIMITED,
GADWAL LIMITED,
THOMAS J. HILFIGER
and
JOEL J. HOROWITZ
Dated as of , 1998
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<PAGE>
REGISTRATION RIGHTS AGREEMENT
THIS REGISTRATION RIGHTS AGREEMENT, dated as of ___________
___, 1998 (the "Agreement"), is by and among Tommy Hilfiger Corporation, a
British Virgin Islands corporation (the "Company"), Pepe Jeans London
Corporation, a British Virgin Islands corporation ("PJLC"), Blackwatch
Investments Limited, a British Virgin Islands corporation, AIHL Investment Group
Limited, a British Virgin Islands corporation ("AIHL"), Anasta Holdings Limited,
a British Virgin Islands corporation, Sportswear Holdings Limited, a British
Virgin Islands corporation, Westleigh Limited, a British Virgin Islands
corporation, Gadwal Limited, a Hong Kong corporation, Thomas J. Hilfiger ("TJH")
and Joel J. Horowitz ("JJH"). The parties hereto other than the Company are
sometimes collectively referred to herein as the "Stockholders."
RECITALS
WHEREAS, the Company, certain subsidiaries of the Company and
PJLC have entered into a Stock Purchase Agreement dated as of January 31, 1998
(the "Stock Purchase Agreement") (all capitalized terms used but not defined
herein have the meanings given to them in the Stock Purchase Agreement);
WHEREAS, pursuant to the Stock Purchase Agreement, upon
consummation of the Stock Purchases, among other things, the Company will
deliver to TH USA and TH USA will deliver to PJLC 9,045,930 Ordinary Shares, par
value $.01 per share, of the Company (the "Shares");
WHEREAS, AIHL has entered into a Guarantee, dated as of the
date of the Stock Purchase Agreement, pursuant to which AIHL has guaranteed all
of the obligations of PJLC under the Stock Purchase Agreement;
WHEREAS, the parties hereto have entered into a lock-up
agreement, dated as of the date of the Stock Purchase Agreement (the "Lock-Up
Agreement"), pursuant to which the Stockholders have agreed to certain
restrictions on the sale, transfer or other disposition of the Shares; and
WHEREAS, the Company has agreed to grant to the Stockholders
certain registration rights with respect to the Shares.
NOW THEREFORE, in consideration of the premises and the
representations, warranties and agreements contained herein, and for other good
and valuable consideration, the receipt and sufficiency of which is hereby
acknowledged, and intending to be legally bound hereby, the parties hereto agree
as follows:
Section 1. Definitions.
(a) As used in this Agreement, the following terms shall have
the following meanings:
<PAGE>
"Agreement" shall have the meaning set forth in the preamble.
"Closing Date" shall mean the date of closing of the Stock
Purchases under the Stock Purchase Agreement.
"Company" shall have the meaning set forth in the preamble and
shall also include the Company's successors.
"Cutback" shall have the meaning set forth in Section
2(a)(iii).
"Demand Notice" shall have the meaning set forth in Section
2(a)(i).
"Demand Request" shall have the meaning set forth in Section
2(a)(i).
"Exchange Act" shall mean the Securities Exchange Act of 1934,
as amended from time to time.
"Incidental Registration" shall mean a registration required
to be effected pursuant to Section 2(b).
"Incidental Registration Statement" shall mean a registration
statement of the Company, as provided in Section 2(b), which covers any of the
Registrable Securities on an appropriate form in accordance with the Securities
Act and all amendments and supplements to such registration statement, including
post-effective amendments, in each case including the Prospectus contained
therein, all exhibits thereto and all material incorporated by reference
therein.
"NASD" shall mean the National Association of Securities
Dealers, Inc.
"Ordinary Shares" shall mean the Ordinary Shares, par value
$.01 per share, of the Company.
"Participating Stockholders" shall mean those Stockholders
electing to participate in a Required Registration pursuant to Section 2(a) or
in an Incidental Registration pursuant to Section 2(b).
"Person" shall mean any individual, limited or general
partnership, corporation, trust, joint venture, association, joint stock company
or unincorporated organization or any government or agency, regulatory body or
other authority or political subdivision thereof.
"Prospectus" shall mean the prospectus included in a
Registration Statement, including any preliminary Prospectus, and any such
Prospectus as amended or supplemented by any prospectus supplement with respect
to the terms of the offering of any portion of the Registrable Securities and by
all other amendments and supplements to such Prospectus, including
post-effective amendments, and in each case including all material incorporated
by reference therein.
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"Registrable Securities" shall mean the Shares and any
securities issued or issuable in respect of the Shares by way of conversion,
exchange, stock dividend, split, combination, recapitalization, merger,
consolidation or other reorganization; provided that any Registrable Security
shall cease to be a Registrable Security when (i) a registration statement
covering such Registrable Security has been declared effective by the SEC and
such Registrable Security has been disposed of pursuant to such effective
registration statement, (ii) it is sold pursuant to Rule 144 promulgated under
the Securities Act, (iii) it has been otherwise transferred, upon which transfer
the Company has delivered a new certificate or other evidence of ownership for
such Registrable Security not bearing the legend required by Section 4(a)(i) of
the Lock-Up Agreement and it may be resold without subsequent registration under
the Securities Act, (iv) the restrictive legends set forth on the certificates
representing such Registrable Security shall be removed pursuant to Section 4(b)
of the Lock-Up Agreement or the holder thereof shall otherwise be able to sell
such shares pursuant to Rule 144(k) under the Securities Act or (v) it shall
have ceased to be outstanding.
"Registration Expenses" shall mean all expenses incurred in
compliance with this Agreement by the Company and its subsidiaries, including:
(i) all fees and expenses incurred in connection with compliance
with state securities or blue sky laws and compliance with the rules of
the NASD (including reasonable fees and disbursements of counsel in
connection with such compliance and the preparation of a Blue Sky
Memorandum and legal investment survey),
(ii) all preparing, printing and mailing costs of any
Registration Statement, any Prospectus, any amendments or supplements
thereto, any underwriting agreements and stock certificates, and
(iii) the fees and disbursements of counsel for the Company and
of the independent public accountants of the Company;
provided, however, that Registration Expenses shall not include (x) SEC, stock
exchange, NASD and other registration, listing and filing fees attributable to
the Registrable Securities, (y) underwriting discounts or commissions
attributable to Registrable Securities or (z) the fees and disbursements of
counsel for any Stockholder.
"Registration Statement" shall mean any registration statement
of the Company which covers any Registrable Securities and all amendments and
supplements to any such Registration Statement, including post-effective
amendments, in each case including the Prospectus contained therein, all
exhibits thereto and all material incorporated by reference therein.
"Required Registration" shall mean a registration required to
be effected pursuant to Section 2(a).
"Required Registration Statement" shall mean a registration
statement of the Company which covers all of the Registrable Securities
requested to be included therein pursuant
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<PAGE>
to the provisions of Section 2(a) on an appropriate form pursuant to the
Securities Act, and which form shall be available for the sale of the
Registrable Securities in accordance with the intended method or methods of
distribution thereof, and all amendments and supplements to such registration
statement, including post-effective amendments, in each case including the
Prospectus contained therein, all exhibits thereto and all material incorporated
by reference therein.
"SEC" shall mean the Securities and Exchange Commission.
"Securities Act" shall mean the Securities Act of 1933, as
amended from time to time.
"Underwriter" shall have the meaning set forth in Section
5(a).
"Underwritten Offering" shall mean a sale of securities of the
Company to an Underwriter or Underwriters for reoffering to the public.
Section 2. Registration Under the Securities Act.
(a) Required Registration.
(i) Right to Request Registration. Subject to Section
2(a)(ii), at any time or from time to time following the second anniversary of
the Closing Date, any Stockholder shall have the right to request in writing (a
"Demand Request") (which request shall specify the number of Registrable
Securities intended to be disposed of by such Stockholder and the intended
method of distribution thereof) that the Company register such Registrable
Securities by filing with the SEC a Required Registration Statement. The Company
will, within 10 days of receiving a Demand Request, give written notice thereof
(a "Demand Notice") to all remaining Stockholders and will, not later than the
60th calendar day after the receipt of such a Demand Request, cause to be filed
a Required Registration Statement covering all the Registrable Securities which
the Stockholders shall request in writing to be included in such Required
Registration Statement (which written requests by the remaining Stockholders
shall specify the number of Registrable Securities requested to be included and,
if the initiator of the Demand Request did not propose to sell through an
Underwritten Offering, the means of distribution, and which written request
shall be given within 10 days of receipt of the Demand Notice) and any Ordinary
Shares that the Company proposes to register, providing for the registration
under the Securities Act of such Registrable Securities to the extent necessary
to permit the disposition of such Registrable Securities so to be registered in
accordance with the intended method of distribution thereof specified in such
request (provided that the Company may delay such filing by not more than 120
days if the Company, prior to the time it would otherwise have been required to
file such Registration Statement, determines in good faith that the filing of
the Registration Statement would require the disclosure of non-public material
information that, in the reasonable judgment of the Company, would be
detrimental to the Company if so disclosed or would otherwise adversely affect a
financing, acquisition, disposition, merger or other material transaction;
provided, further that the Stockholders may withdraw the Demand Request upon
prompt notice to the Company if such delay exceeds 30 days), and shall use its
reasonable efforts to have such Required Registration
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Statement declared effective by the SEC as soon as practicable thereafter and to
keep such Required Registration Statement continuously effective for a period of
at least 180 calendar days following the date on which such Required
Registration Statement is declared effective (or such shorter period which will
terminate when all of the Registrable Securities covered by such Required
Registration Statement have been sold pursuant thereto), including, if
necessary, by filing with the SEC a post-effective amendment or a supplement to
the Required Registration Statement or the related Prospectus or any document
incorporated therein by reference or by filing any other required document or
otherwise supplementing or amending the Required Registration Statement, if
required by the rules, regulations or instructions applicable to the
registration form used by the Company for such Required Registration Statement
or by the Securities Act, any state securities or blue sky laws, or any rules
and regulations thereunder.
The registration rights granted pursuant to the provisions of
this paragraph (a) shall be in addition to the registration rights granted
pursuant to the other provisions of this Section 2.
(ii) Number of Registrations; Size of Offering. The Company
shall not be required, pursuant to this Section 2(a), to effect more than four
(4) Required Registrations. In addition, the Company shall not be required to
file a Required Registration Statement if (x) less than 180 calendar days have
elapsed since the effective date of (i) a prior Registration Statement with
respect to which the Stockholders were given the opportunity to register their
Registrable Securities (without being subject to any reduction, pursuant to
Section 2(b)(ii), in the maximum number of Registrable Securities which they may
register) or (ii) a prior Registration Statement filed pursuant to a Required
Registration or (y) the total number of Registrable Securities requested by the
Stockholders to be included in the registration is less than 1,000,000 (which
number shall be adjusted from time to time for any stock splits, stock dividends
or combinations of Ordinary Shares after the date of this Agreement).
(iii) Pro Rata Participation in Required Registrations. If a
registration pursuant to this Section 2(a) involves an Underwritten Offering of
both Registrable Securities and Ordinary Shares offered by the Company, and the
Underwriter or the managing Underwriter, as the case may be, of such
Underwritten Offering shall advise the Company in writing (with a copy to the
initiating Stockholder and each other Participating Stockholder) on or before
the date 5 days prior to the date then scheduled for such offering that, in its
opinion, the amount of securities (including Registrable Securities) requested
to be included in such registration exceeds the amount which can be sold in (or
during the time of) such offering without adversely affecting the distribution
of the securities being offered, then the number of shares included in such
offering by the Company and the Participating Stockholders shall be reduced pro
rata on the basis of the number of the securities requested to be included by
the Company and the Participating Stockholders (a "Cutback"); provided, however,
that in the event the Company will not, by virtue of this Section 2(a)(iii),
include in any such registration all of the Registrable Securities of a
Participating Stockholder requested to be included in such registration, such
Participating Stockholder may, upon written notice to the Company given within 3
days of the time such Participating Stockholder first is notified of such
matter, reduce the amount of its Registrable Securities it desires to be
included in such registration, in which event (A) only the Registrable
Securities,
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if any, it desires to have included will be included and (B) the number of
Registrable Securities it would otherwise have been able to include, but for
such requested reduction, shall be reallocated to the other Participating
Stockholders on a pro rata basis based on the number of Registrable Securities
that such Participating Stockholders initially had requested to be included. If
the number of Registrable Securities subject to the Cutback exceeds 25% of the
Registrable Securities proposed to be sold by all Participating Stockholders as
a result of the Company participating in such Underwritten Offering, such
Underwritten Offering shall not be deemed to be a Required Registration for
purposes of the first sentence of Section 2(a)(ii).
(b) Incidental Registration.
(i) Right to Include Registrable Securities. If the Company at
any time or from time to time after the second anniversary of the Closing Date,
proposes to register any of its Ordinary Shares under the Securities Act or
proposes to register any other securities under the Securities Act on a form
that would permit registration of the Registrable Securities for resale by the
Stockholders (other than (A) any registration of public sales or distributions
solely by and for the account of the Company of securities issued (x) pursuant
to any employee benefit or similar plan or any dividend reinvestment plan or (y)
in any acquisition by the Company, or (B) pursuant to paragraph (a) of this
Section 2, or (C) pursuant to a registration statement filed in connection with
an exchange offer), whether in connection with a primary or secondary offering,
and there are Registrable Securities which at such time are not then registered
under another Registration Statement which is then effective, the Company will,
each time it intends to effect such a registration, give written notice to the
Stockholders at least 20 days prior to the initial filing of a Registration
Statement with the SEC pertaining thereto, informing the Stockholders of its
intent to file such Registration Statement, the intended method of distribution
thereof and of the Stockholders' right to request the registration of the
Registrable Securities under this paragraph (b). Upon the written request of a
Stockholder made within 10 days after any such notice is given (which request
shall specify the Registrable Securities intended to be disposed of by such
Stockholder), the Company will use its reasonable efforts to effect the
registration under the Securities Act of such Registrable Securities which the
Company has been so requested to register by the Stockholders; provided,
however, that if, at any time after giving written notice of its intention to
register any Ordinary Shares and prior to the effective date of the Incidental
Registration Statement filed in connection with such registration, the Company
shall determine for any reason not to register or to delay registration of such
Ordinary Shares, the Company may, at its election, give written notice of such
determination to the Stockholders and, thereupon, (A) in the case of a
determination not to register, the Company shall be relieved of its obligation
to register any Registrable Securities in connection with such registration (but
not from its obligation to pay the Registration Expenses incurred in connection
therewith), and (B) in the case of a determination to delay such registration,
the Company shall be permitted to delay registration of any Registrable
Securities requested to be included in such Incidental Registration Statement
for the same period as the delay in registering such other securities. The
Stockholders may not elect to exercise their rights under this paragraph (b)(i)
with respect to less than the lesser of (A) 500,000 Registrable Securities
(which number shall be adjusted from time to time for any stock splits, stock
dividends or combinations of Ordinary Shares after the date of this Agreement)
and (B) all of the remaining Registrable Securities then held by the
Stockholders.
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The registration rights granted pursuant to the provisions of
this paragraph (b) shall be in addition to the registration rights granted
pursuant to the other provisions of this Section 2.
(ii) Priority in Incidental Registrations. If a registration
pursuant to this paragraph (b) involves an Underwritten Offering of the
securities so being registered, whether or not for sale for the account of the
Company, which securities are to be distributed (on a firm commitment basis) by
or through one or more Underwriters of recognized standing under underwriting
terms appropriate for such transaction, and the Underwriter or the managing
Underwriter, as the case may be, of such Underwritten Offering shall advise the
Company in writing (with a copy to the Participating Stockholders) on or before
the date 5 days prior to the date then scheduled for such offering that, in its
opinion, the amount of securities (including Registrable Securities) requested
to be included in such registration exceeds the amount which can be sold in (or
during the time of) such offering without adversely affecting the distribution
of the securities being offered, then the Company will include in such
registration first, all the securities proposed to be sold by the Company
pursuant to such registration statement, and second, the amount of other
securities (including Registrable Securities) requested to be included in such
registration that the Company is so advised can be sold in (or during the time
of) such offering, allocated, if necessary, pro rata among the holders
(including the Participating Stockholders) thereof requesting such registration
on the basis of the number of the securities (including Registrable Securities)
requested to be included by all such holders; provided, however, that in the
event the Company will not, by virtue of this subparagraph (b)(ii), include in
any such registration all of the Registrable Securities of any Participating
Stockholder requested to be included in such registration, such Participating
Stockholder may, upon written notice to the Company given within 3 days of the
time such Participating Stockholder first is notified of such matter, withdraw
all of its Registrable Securities from such registration.
(c) Expenses. The Participating Stockholders shall pay all
Registration Expenses in connection with each registration pursuant to Section
2(a) in which the Company is not offering any Ordinary Shares, and the Company
agrees to pay all Registration Expenses in connection with each registration
pursuant to Section 2(b) and each registration pursuant to Section 2(a) in which
the Company is offering Ordinary Shares. The Participating Stockholders shall
pay all SEC, stock exchange, NASD and other registration, listing and filing
fees and all discounts and commissions payable to underwriters, selling brokers,
managers or other similar Persons, in each case attributable to the sale or
disposition of their respective Registrable Securities pursuant to any such
registration, and the fees and disbursements of their respective counsel.
(d) Effective Registration Statement; Suspension. A
Registration Statement pursuant to this Section 2 will not be deemed to have
become effective (and the related registration will not be deemed to have been
effected) unless it has been declared effective by the SEC.
If at any time the Required Registration Statement or any
prospectus included therein contains an untrue statement of a material fact or
omits to state a material fact required to be stated therein or necessary to
make the statement therein not misleading, the Company shall notify the
Participating Stockholders who shall forthwith discontinue sales thereunder. The
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Company shall use its reasonable efforts to prepare a supplement or
post-effective amendment to the Required Registration Statement or the related
prospectus. Any period during which the Company fails to keep any Required
Registration Statement effective and usable for resale of Registrable Securities
as a result of such an omission or misstatement shall be referred to as a
"Suspension Period." A Suspension Period shall commence on and include the date
that the Company gives notice that any Required Registration Statement is no
longer effective or usable for resale of Registrable Securities to and including
the date the Stockholders either receive the copies of the supplemented or
amended Prospectus or are advised in writing by the Company that the use of the
Prospectus may be resumed. In the event of one or more Suspension Periods, the
180-day time periods referenced in paragraph (a) of this Section 2 shall be
extended by the number of days included in each such Suspension Period. If in
connection with a Required Registration a Suspension Period due to an omission
or misstatement of the Company exceeds 60 days, the Stockholders may withdraw
the Demand Request upon prompt notice to the Company, and such Underwritten
Offering shall not be deemed to be a Required Registration for purposes of the
first sentence of Section 2(a)(ii).
(e) Selection of Underwriters. If any securities under an
Incidental Registration Statement are to be sold in an Underwritten Offering,
the Company will select the investment banker or investment bankers and manager
or managers that will serve as Underwriter with respect to the Underwritten
Offering. If any securities under a Required Registration Statement are to be
sold in an Underwritten Offering, the holders of a majority of the Registrable
Securities proposed to be sold by the Participating Stockholders in such
Underwritten Offering may select a nationally recognized investment banking firm
reasonably acceptable to the Company as the manager or managers that will serve
as Underwriter with respect to the Underwritten Offering; provided, however, the
Company will select the manager or managers in any Underwritten Offering in
which the Company is offering to sell more Ordinary Shares than the
Participating Stockholders taken as a whole. No Stockholder may participate in
any Underwritten Offering hereunder unless such Stockholder completes and
executes all questionnaires, powers of attorney, indemnities, underwriting
agreements and other documents required under the terms of such Underwritten
Offering, in each case, in the form and upon terms reasonably acceptable to the
Company.
Section 3. Restrictions on Public Sale by Stockholders.
If any Stockholder's Registrable Securities are covered by an
Incidental Registration Statement filed pursuant to Section 2, such Stockholder
agrees, if the offering is an Underwritten Offering, that to the extent
requested by the Underwriter or managing Underwriter in such an Underwritten
Offering, not to effect any public sale or distribution of Ordinary Shares
during the 14-day period prior to, and during the 120-day period beginning on,
the effective date of the Registration Statement.
Section 4. Registration Procedures.
In connection with the obligations of the Company pursuant to
Section 2, the Company shall use its reasonable efforts to effect or cause to be
effected the registration of the
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Registrable Securities under the Securities Act to permit the sale of such
Registrable Securities by the Stockholders as set forth in Section 2, and the
Company shall use reasonable efforts to:
(a) (i) prepare and file a Registration Statement with the
SEC, within the time period specified in paragraph (a) of Section 2 with respect
to a Required Registration, which Registration Statement (x) shall be on a form
selected by the Company for which the Company qualifies and shall be reasonably
acceptable to counsel for the Stockholders, (y) shall be available for the sale
of the Registrable Securities in accordance with the intended method of
distribution by the Stockholders, and (z) shall comply as to form in all
material respects with the requirements of the applicable form and include all
financial statements required by the SEC to be filed therewith, (ii) cause such
Registration Statement to become effective and remain effective in accordance
with Section 2, and (iii) cause each Registration Statement prepared pursuant to
Section 2 and the related Prospectus and any amendment or supplement thereto, as
of the effective date of such Registration Statement, amendment or supplement
(x) to comply in all material respects with any requirements of the Securities
Act and the rules and regulations of the SEC and (y) not to contain any untrue
statement of a material fact or omit to state a material fact required to be
stated therein or necessary to make the statements therein not misleading;
(b) prepare and file with the SEC such amendments and
post-effective amendments to each such Registration Statement, as may be
necessary to keep such Registration Statement effective for the applicable
period; cause each such Prospectus to be supplemented by any required prospectus
supplement, and as so supplemented to be filed pursuant to Rule 424 under the
Securities Act; and comply with the provisions of the Securities Act with
respect to the disposition of all securities covered by each Registration
Statement during the applicable period in accordance with the intended method of
distribution by the Stockholders, as set forth in such Registration Statement;
(c) furnish to each Stockholder participating in a
registration pursuant to Section 2 and to each Underwriter of an Underwritten
Offering of Registrable Securities, if any, without charge, as many copies of
each Prospectus, including each preliminary Prospectus, and any amendment or
supplement thereto and such other documents as such Stockholder or such
Underwriter may reasonably request in order to facilitate the public sale or
other disposition of the Registrable Securities;
(d) (i) register or qualify the Registrable Securities, no
later than the time the applicable Registration Statement is declared effective
by the SEC, under all applicable state securities or "blue sky" laws of such
jurisdictions as each Underwriter, if any, or each Participating Stockholder
shall reasonably request; and (ii) keep each such registration or qualification
effective during the period such Registration Statement is required to be kept
effective; provided, however, that the Company shall not be obligated to qualify
as a foreign corporation or as a dealer in securities in any jurisdiction in
which it is not so qualified or to subject itself to taxation in respect of
doing business in any jurisdiction in which it is not otherwise so subject or to
consent to be subject to general service of process (other than service of
process in connection with such registration or qualification or any sale of
Registrable Securities in connection therewith) in any such jurisdiction;
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(e) notify each Participating Stockholder promptly (i) when a
Registration Statement has become effective and when any post-effective
amendments and supplements thereto become effective, (ii) of the issuance by the
SEC or any state securities authority of any stop order, injunction or other
order or requirement suspending the effectiveness of a Registration Statement or
the initiation of any proceedings for that purpose, (iii) if, between the
effective date of a Registration Statement and the closing of any sale of
securities covered thereby pursuant to any agreement to which the Company is a
party, the representations and warranties of the Company contained in such
agreement cease to be true and correct in all material respects or if the
Company receives any notification with respect to the suspension of the
qualification of the Registrable Securities for sale in any jurisdiction or the
initiation of any proceeding for such purpose, and (iv) of the occurrence of any
Suspension Period;
(f) furnish counsel for each such Underwriter, if any, and for
each participating Stockholder copies of any request by the SEC or any state
securities authority for amendments or supplements to a Registration Statement
and Prospectus or for additional information;
(g) obtain the withdrawal of any order suspending the
effectiveness of a Registration Statement at the earliest possible time;
(h) upon request, furnish to the Underwriter or managing
Underwriter of an Underwritten Offering of Registrable Securities, if any,
without charge, at least one signed copy of each Registration Statement and any
post-effective amendment thereto, including financial statements and schedules,
all documents incorporated therein by reference and all exhibits; and furnish to
each Participating Stockholder, without charge, one conformed copy of each
Registration Statement and any post-effective amendment thereto (without
documents incorporated therein by reference or exhibits thereto, unless
requested);
(i) in the case of an Underwritten Offering, enter into
underwriting agreements in customary form which include provisions with respect
to indemnification and contribution in customary form and consistent with the
provisions relating to indemnification and contribution contained herein;
(j) cause all Registrable Securities to be listed on any
securities exchange on which the Ordinary Shares are then listed or to be quoted
in any inter-dealer quotations system in which the Ordinary Shares are then
quoted if so requested by the Participating Stockholders or by the Underwriter
or Underwriters of an Underwritten Offering of Registrable Securities, if any;
and
(k) comply with all applicable rules and regulations of the
SEC and make available to its security holders, as soon as reasonably
practicable, an earnings statement covering at least 12 months which shall
satisfy the provisions of Section 11(a) of the Securities Act and Rule 158
thereunder.
Each Stockholder agrees, as a condition to the registration
obligations provided herein, to furnish to the Company such information
regarding such Stockholder, the ownership of
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Registrable Securities by such Stockholder and the proposed distribution by such
Stockholder of such Registrable Securities as the Company may from time to time
reasonably request in writing.
Each Stockholder agrees that, upon receipt of any notice from
the Company of the happening of a Suspension Period, such Stockholder will
forthwith discontinue disposition of Registrable Securities pursuant to the
affected Registration Statement until such Stockholder's receipt of the copies
of any supplemented or amended Prospectus, and, if so directed by the Company,
such Stockholder will deliver to the Company (at the expense of the Company) all
copies in its possession, other than permanent file copies then in such
Stockholder's possession, of the Prospectus covering such Registrable Securities
which was current at the time of receipt of such notice.
Section 5. Indemnification; Contribution.
(a) Indemnification by the Company. The Company agrees to
indemnify and hold harmless each Person who participates as an underwriter (any
such Person being an "Underwriter"), each Stockholder and their respective
partners, directors, officers and employees and each Person, if any, who
controls any Stockholder or any Underwriter within the meaning of Section 15 of
the Securities Act or Section 20 of the Exchange Act against any and all losses,
liabilities, claims, damages, judgments and reasonable expenses arising out of
any untrue statement or alleged untrue statement of a material fact contained in
any Registration Statement (or any amendment thereto) pursuant to which
Registrable Securities were registered under the Securities Act, including all
documents incorporated therein by reference, or the omission or alleged omission
therefrom of a material fact required to be stated therein or necessary to make
the statements therein not misleading or arising out of any untrue statement or
alleged untrue statement of a material fact contained in any Prospectus (or any
amendment or supplement thereto), including all documents incorporated therein
by reference, or the omission or alleged omission therefrom of a material fact
necessary in order to make the statements therein, in light of the circumstances
under which they were made, not misleading; provided, however, that this
indemnity agreement does not apply to any Stockholder or any Underwriter or
their respective partners, directors, officers and employees and each Person, if
any, who controls any Stockholder or any Underwriter within the meaning of
Section 15 of the Securities Act or Section 20 of the Exchange Act with respect
to any loss, liability, claim, damage, judgment or expense to the extent arising
out of any untrue statement or omission or alleged untrue statement or omission
(A) made in reliance upon and in conformity with written information furnished
to the Company by such Stockholder or such Underwriter expressly for use in a
Registration Statement (or any amendment thereto) or any Prospectus (or any
amendment or supplement thereto) or (B) if such untrue statement or omission or
alleged untrue statement or omission was corrected in an amended or supplemented
Registration Statement or Prospectus and the Company had furnished copies
thereof to the selling Underwriter or the selling Stockholder prior to the
relevant date of sale by such Underwriter or such Stockholder to the Person
asserting such loss, liability, claim, damage, judgment or expense (provided, in
the case of an Underwritten Offering, the limitation in this clause (B) shall
not apply to a Participating Stockholder).
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(b) Indemnification by Stockholders, Underwriters, Etc. Each
Stockholder agrees to indemnify and hold harmless the Company and each
Underwriter, and each of their respective partners, directors, officers and
employees (including each officer of the Company who signed the Registration
Statement), and each Person, if any, who controls the Company, or any
Underwriter within the meaning of Section 15 of the Securities Act or Section 20
of the Exchange Act, against any and all losses, liabilities, claims, damages,
judgments and expenses described in the indemnity contained in paragraph (a) of
this Section 5, but only with respect to untrue statements or omissions, or
alleged untrue statements or omissions, made in a Registration Statement (or any
amendment thereto) or any Prospectus (or any amendment or supplement thereto) in
reliance upon and in conformity with written information furnished to the
Company by such Stockholder for use in such Registration Statement (or any
amendment thereto) or such Prospectus (or any amendment or supplement thereto).
The Company shall be entitled to receive indemnification and contribution from
or on behalf of underwriters, selling brokers, dealer managers and similar
securities industry professionals participating in the distribution to the same
extent as provided above with respect to information so furnished in writing by
such Persons for inclusion in any Prospectus or Registration Statement.
(c) Conduct of Indemnification Proceedings. Each indemnified
party or parties shall give reasonably prompt notice to each indemnifying party
or parties of any action or proceeding commenced against it in respect of which
indemnity may be sought hereunder, but failure so to notify an indemnifying
party or parties shall not relieve it or them from any liability which it or
they may have under this indemnity agreement, except to the extent that the
indemnifying party is materially prejudiced by such failure to give notice. If
the indemnifying party or parties so elects within a reasonable time after
receipt of such notice, the indemnifying party or parties may assume the defense
of such action or proceeding at such indemnifying party's or parties' expense
with counsel chosen by the indemnifying party or parties and approved by the
indemnified party defendant in such action or proceeding, which approval shall
not be unreasonably withheld. In the event, however, that an indemnified party
reasonably determines that representation by counsel to an indemnifying party of
both the indemnifying party and such indemnified party could reasonably be
expected to present such counsel with a conflict of interest, then the
indemnified party may employ separate counsel to represent or defend it in any
such action or proceeding and the indemnifying party will pay the fees and
expenses of such counsel; provided, that the indemnifying party shall not, in
connection with any proceeding or related proceedings in the same jurisdiction,
be liable for the fees and expenses of more than one separate firm of attorneys
(in addition to local counsel) at any time for all indemnified parties. If an
indemnifying party or parties does not assume such defense within 30 days, after
having received the notice referred to in the first sentence of this paragraph
(c), the indemnifying party or parties will pay the reasonable fees and expenses
of counsel for the indemnified party or parties (limited in each jurisdiction to
one counsel for all indemnified parties under this Agreement). In such event,
however, no indemnifying party or parties will be liable for any settlement
effected without the written consent of such indemnifying party or parties which
consent shall not unreasonably be withheld or delayed. If an indemnifying party
assumes the defense of such action or proceeding in accordance with this
paragraph (c), such indemnifying party or parties shall not, except as otherwise
provided in this paragraph (c), be liable for any fees and expenses of counsel
for the indemnified parties incurred in connection with such action or
proceeding.
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(d) Contribution. (i) In order to provide for just and
equitable contribution in circumstances in which the indemnity agreement
provided for in this Section 5 is for any reason held to be unenforceable by the
indemnified parties although applicable in accordance with its terms in respect
of any losses, liabilities, claims, damages, judgments and expenses suffered by
an indemnified party referred to therein, each applicable indemnifying party, in
lieu of indemnifying such indemnified party, shall contribute to the amount paid
or payable by such indemnified party as a result of such losses, liabilities,
claims, damages, judgments and expenses in such proportion as is appropriate to
reflect the relative fault of such indemnifying party on the one hand and of
such indemnified party on the other (including, in each case, that of their
respective officers, directors, employees and agents) in connection with the
statements or omissions which resulted in such losses, liabilities, claims,
damages, judgments or expenses, as well as any other relevant equitable
considerations. The relative fault of the indemnifying party on the one hand and
of the indemnified party on the other (including, in each case, that of their
respective officers, directors, employees and agents) shall be determined by
reference to, among other things, whether the untrue or alleged untrue statement
of a material fact or the omission or alleged omission to state a material fact
relates to information supplied by such indemnifying party, on the one hand, or
by or on behalf of such indemnified party, on the other, and the parties'
relative intent, knowledge, access to information and opportunity to correct or
prevent such statement or omission. No Person guilty of fraudulent
misrepresentation (within the meaning of Section 11(f) of the Securities Act)
shall be entitled to contribution from any Person who was not guilty of such
fraudulent misrepresentation.
(ii) For purposes of this Section 5, each Person, if any, who
controls a Stockholder or an Underwriter within the meaning of Section 15 of the
Securities Act shall have the same rights to contribution as such Stockholder or
such Underwriter; and each director of the Company, each officer of the Company
who signed the Registration Statement, and each Person, if any, who controls the
Company within the meaning of Section 15 of the Securities Act, shall have the
same rights to contribution as the Company.
Section 6. Securities Act Exemptions.
(a) The Company (i) shall comply in all material respects with
the reporting requirements of the Exchange Act in a timely manner and (ii) shall
comply in all material respects with all other public information reporting
requirements required by the SEC as a condition to the availability of an
exemption from the registration requirements of the Securities Act for the sale
of the Registrable Securities currently existing or hereafter adopted.
(b) The Company shall cooperate with the Stockholders in
supplying such information as may reasonably be necessary for the Stockholders
to determine the availability of an exemption from the registration requirements
of the Securities Act for the sale of the Registrable Securities and for the
Stockholders to complete and file any information reporting forms currently or
hereafter required by the SEC as a condition to the availability of such
exemption.
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Section 7. Miscellaneous.
(a) Notices. All notices and other communications provided for
or permitted hereunder shall be made in writing by hand delivery, registered
first class mail, telecopier, or any courier guaranteeing overnight delivery (i)
if to a Stockholder, at the most current address given by such Stockholder to
the Company by means of a notice given in accordance with the provisions of this
paragraph (a), or (ii) if to the Company, initially c/o Tommy Hilfiger U.S.A.,
Inc., 25 West 39th Street, New York, New York 10018, Attention: Joel J.
Horowitz, and thereafter at such other address, notice of which is given in
accordance with the provisions of this paragraph (a), with a copy to Wachtell,
Lipton, Rosen & Katz, 51 West 52nd Street, New York, New York 10019, Attention:
Eric S. Robinson, Esq.
All such notices and communications shall be deemed to have
been duly given: at the time delivered by hand, if personally delivered; four
business days after being deposited in the mail, first-class postage prepaid, if
mailed; when receipt is acknowledged, if telecopied; and on the next business
day if timely delivered to a courier guaranteeing overnight delivery.
(b) Successors and Assigns. No Stockholder may transfer or
assign any of its rights and obligations under this Agreement without the prior
written consent of the Company, except that without the prior written consent of
the Company, any Stockholder may assign its rights and obligations hereunder to
any Transferee (as defined in the Lock-Up Agreement) in connection with a
Transfer (as defined in the Lock-Up Agreement) that is not prohibited pursuant
to the Lock-Up Agreement so long as such Transferee shall comply with Section
1(c) of the Lock-Up Agreement, to the extent applicable; provided, however, that
no such assignment shall relieve any Stockholder of liability for any breach of
this Agreement by such assignees. Except as otherwise provided herein, this
Agreement shall inure to the benefit of and be binding upon the successors and
permitted assigns of each of the parties.
(c) Amendment; Beneficiaries. No person or entity other than
the parties hereto, their successors and permitted assigns shall have any right
to enforce any of the provisions of this Agreement or to sue hereunder. This
Agreement and the provisions hereof may be amended, altered, modified or waived
only by the mutual agreement in writing of each of the parties hereto, and the
consent of no person or entity other than each party hereto shall be required to
amend, alter, modify or waive this Agreement or any provision hereof. No person
or entity other than a party hereto shall be deemed a beneficiary or a
third-party beneficiary under this Agreement.
(d) Counterparts. This Agreement may be executed in
counterparts, all of which taken together, shall constitute one and the same
agreement.
(e) Descriptive Headings, Etc. The headings in this Agreement
are for convenience of reference only and shall not limit or otherwise affect
the meaning of terms contained herein. Unless the context of this Agreement
otherwise requires: (i) words of any gender shall be deemed to include each
other gender; (ii) words using the singular or plural number shall also include
the plural or singular number, respectively; (iii) the words "hereof," "herein"
and "hereunder" and words of similar import when used in this Agreement shall
refer to this Agreement as a whole and not to any particular provision of this
Agreement, and Section and para-
-15-
<PAGE>
graph, references are to the Sections and paragraphs to this Agreement unless
otherwise specified; (iv) the word "including" and words of similar import when
used in this Agreement shall mean "including, without limitation," unless
otherwise specified; (A) the word "or" is not exclusive; and (B) provisions
apply to successive events and transactions.
(f) GOVERNING LAW; VENUE. THIS AGREEMENT SHALL BE GOVERNED BY,
AND CONSTRUED IN ACCORDANCE WITH, THE LAWS OF THE STATE OF NEW YORK AS APPLIED
TO CONTRACTS TO BE PERFORMED IN NEW YORK. EACH OF THE PARTIES HERETO CONSENTS TO
AND HEREBY SUBMITS TO THE JURISDICTION OF ANY STATE OR FEDERAL COURT LOCATED IN
THE STATE OF NEW YORK FOR THE PURPOSES OF ALL LEGAL PROCEEDINGS ARISING OUT OF
OR RELATING TO THIS AGREEMENT OR THE TRANSACTIONS CONTEMPLATED HEREBY. EACH OF
THE PARTIES HERETO IRREVOCABLY WAIVES, TO THE FULLEST EXTENT PERMITTED BY LAW,
ANY OBJECTION WHICH IT MAY NOW OR HEREAFTER HAVE TO THE LAYING OF THE VENUE OF
ANY SUCH PROCEEDING BROUGHT IN SUCH A COURT AND ANY CLAIM THAT ANY SUCH
PROCEEDING BROUGHT IN SUCH A COURT HAS BEEN BROUGHT IN AN INCONVENIENT FORUM.
THE PROVISIONS CONTAINED IN THIS PARAGRAPH (F) SHALL SURVIVE ANY TERMINATION OF
THIS AGREEMENT. ANY RIGHT TO TRIAL BY JURY WITH RESPECT TO ANY CLAIM OR ACTION
ARISING OUT OF THIS AGREEMENT OR IN CONNECTION HEREWITH IS HEREBY WAIVED.
(g) Entire Agreement. This Agreement is intended by the
parties as a final expression of their agreement and intended to be a complete
and exclusive statement of the agreement and understanding of the parties hereto
in respect of the subject matter contained herein. There are no restrictions,
premises, warranties or undertakings, other than those set forth or referred to
herein, with respect to the registration rights granted by the Company with
respect to the Registrable Securities. This Agreement supersedes all prior
agreements and understandings between the parties with respect to such subject
matter.
IN WITNESS WHEREOF, the parties hereto have caused this
Agreement to be duly executed as of the date first written above.
TOMMY HILFIGER CORPORATION
By:
Name:
Title:
PEPE JEANS LONDON CORPORATION
By:
Name:
Title:
-16-
<PAGE>
BLACKWATCH INVESTMENTS LIMITED
By:
Name:
Title:
AIHL INVESTMENT GROUP LIMITED
By:
Name:
Title:
ANASTA HOLDINGS LIMITED
By:
Name:
Title:
SPORTSWEAR HOLDINGS LIMITED
By:
Name:
Title:
WESTLEIGH LIMITED
By:
Name:
Title:
GADWAL LIMITED
By:
Name:
Title:
Thomas J. Hilfiger
Joel J. Horowitz
-17-
Exhibit 23.1
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the incorporation by reference in the Registration
Statements on Form S-8 (Nos. 33-52810, 33-77168, 33-89298, 33-80439, 333-20993
and 333-42241) of Tommy Hilfiger Corporation of our report dated May 21, 1997
which is included in Exhibit 99.1 to the Current Report on Form 8-K dated April
1, 1998.
/s/ PRICE WATERHOUSE LLP
PRICE WATERHOUSE LLP
New York, New York
April 1, 1998
Exhibit 99.1
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
Page
Report of Independent Accountants........................................ 2
Consolidated Statements of Operations for the
years ended March 31, 1997, 1996 and 1995................................ 3
Consolidated Balance Sheets as of March 31, 1997
and 1996................................................................. 4
Consolidated Statements of Cash Flows for the
years ended March 31, 1997, 1996 and 1995................................ 5
Consolidated Statements of Changes in
Shareholders' Equity for the years ended
March 31, 1997, 1996 and 1995............................................ 6
Notes to Consolidated Financial Statements............................... 7
<PAGE>
[Letterhead of Price Waterhouse LLP]
REPORT OF INDEPENDENT ACCOUNTANTS
May 21, 1997
To the Board of Directors and Shareholders of
Tommy Hilfiger Corporation
In our opinion, the accompanying consolidated balance sheets and the related
consolidated statements of operations, of cash flows and of changes in
shareholders' equity present fairly, in all material respects, the financial
position of Tommy Hilfiger Corporation and its subsidiaries (the "Company") at
March 31, 1997 and 1996, and the results of their operations and their cash
flows for each of the three years in the period ended March 31, 1997, in
conformity with generally accepted accounting principles. These financial
statements are the responsibility of the Company's management; our
responsibility is to express an opinion on these financial statements based on
our audits. We conducted our audits of these statements in accordance with
generally accepted auditing standards which require that we plan and perform the
audit to obtain reasonable assurance about whether the financial statements are
free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements,
assessing the accounting principles used and significant estimates made by
management, and evaluating the overall financial statement presentation. We
believe our audits provide a reasonable basis for the opinion expressed above.
/s/ PRICE WATERHOUSE LLP
-2-
<PAGE>
TOMMY HILFIGER CORPORATION
CONSOLIDATED STATEMENTS OF OPERATIONS
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
For The Fiscal Year Ended March 31,
-----------------------------------
1997 1996 1995
-------- -------- --------
Net revenue ................................... $661,688 $478,131 $320,985
Cost of goods sold ............................ 344,884 258,419 174,584
-------- -------- --------
Gross profit .................................. 316,804 219,712 146,401
Selling, general and administrative expenses .. 190,976 132,270 85,954
-------- -------- --------
Income from operations ........................ 125,828 87,442 60,447
Interest expense .............................. 761 754 207
Investment income ............................. 6,181 5,712 3,217
-------- -------- --------
Income before income taxes .................... 131,248 92,400 63,457
Provision for income taxes .................... 44,866 30,900 22,742
-------- -------- --------
Net income .................................... $ 86,382 $ 61,500 $ 40,715
======== ======== ========
Earnings per share
Basic.......................................... $ 2.33 $ 1.72 $ 1.16
======== ======== ========
Weighted average shares outstanding............ 37,059 35,767 34,963
======== ======== ========
Diluted........................................ $ 2.28 $ 1.65 $ 1.12
======== ======== ========
Weighted average shares and share equivalents
outstanding.................................... 37,885 37,241 36,346
======== ======== ========
See accompanying Notes to Consolidated Financial Statements.
-3-
<PAGE>
TOMMY HILFIGER CORPORATION
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS, EXCEPT SHARE DATA)
As of March 31,
------------------
1997 1996
---- ----
ASSETS
Current assets
Cash and cash equivalents............................. $109,908 $127,743
Accounts receivable................................... 79,984 68,402
Inventories........................................... 123,847 81,428
Other current assets.................................. 18,614 13,484
------ ------
Total current assets......................... 332,353 291,057
Property and equipment, at cost, less accumulated
depreciation and amortization......................... 121,540 57,845
Other assets............................................... 9,192 9,720
----- ------
Total Assets................................. $463,085 $358,622
======== ========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities
Short-term borrowings................................. $5,980 $13,755
Accounts payable...................................... 5,996 9,454
Accrued expenses and other current liabilities........ 49,710 29,409
------ ------
Total current liabilities.................... 61,686 52,618
Other liabilities.......................................... 2,425 2,877
Long-term debt............................................. 1,510 1,789
Shareholders' equity
Preference Shares, $0.01 par value-shares
authorized 5,000,000; none issued................. -- --
Ordinary Shares, $0.01 par value-shares
authorized 50,000,000; issued and
outstanding 37,249,529 and 36,879,924,
respectively...................................... 372 369
Capital in excess of par value........................ 165,032 155,294
Retained earnings..................................... 232,015 145,633
Cumulative translation adjustment..................... 45 42
-------- --------
Total shareholders' equity.................... 397,464 301,338
Commitments and contingencies _______ _______
Total Liabilities and Shareholders' Equity.... $463,085 $358,622
======== ========
See accompanying Notes to Consolidated Financial Statements.
-4-
<PAGE>
TOMMY HILFIGER CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
<TABLE>
<CAPTION>
For The Fiscal Year Ended March 31,
-----------------------------------
1997 1996 1995
---- ---- ----
<S> <C> <C> <C>
Cash flows from operating activities
Net income $86,382 $61,500 $40,715
Adjustments to reconcile net income to net
cash provided by operating activities
Depreciation and amortization..................... 20,842 13,439 9,308
Deferred income taxes............................. (4,428) (6,287) (845)
Stock compensation expense........................ -- 60 140
Realized and unrealized losses on investments..... -- -- 473
Equity in loss (gain) of equity investee.......... -- 143 (61)
Changes in operating assets and liabilities
(Increase) decrease in assets
Accounts receivable.......................... (11,582) (17,917) (4,413)
Inventories.................................. (42,419) (29,419) (17,195)
Other assets................................. (751) (5,805) 814
Increase (decrease) in liabilities
Accounts payable............................. (3,458) 7,356 2,870
Accrued expenses and other liabilities....... 19,849 16,589 (4,009)
------ ------ ------
Net cash provided by operating activities............. 64,435 39,659 27,797
------ ------ ------
Cash flows from investing activities
Purchases of property and equipment..................... (83,960) (28,694) (20,042)
Purchases of investments................................ -- (101,138) (134,360)
Maturities and sales of investments..................... -- 151,352 114,876
Other................................................... -- -- 277
-------- ------- --------
Net cash (used in) provided by investing activities... (83,960) 21,520 (39,249)
------- ------ -------
Cash flows from financing activities
Proceeds from the exercise of employee stock options.... 3,929 13,027 5,115
Tax benefit from exercise of stock options.............. 5,812 17,715 3,577
Acquisition of treasury stock........................... -- -- (2,441)
Short-term bank (repayments) borrowings................. (7,775) 268 3,168
Payments on long-term debt.............................. (279) (275) (277)
Other................................................... 3 12 (18)
-------- ------- --------
Net cash provided by financing activities............. 1,690 30,747 9,124
Net (decrease) increase in cash....................... (17,835) 91,926 (2,328)
Cash and cash equivalents, beginning of year............... 127,743 35,817 38,145
-------- --------- --------
Cash and cash equivalents, end of year..................... $109,908 $127,743 $35,817
======== ======== =======
</TABLE>
See accompanying Notes to Consolidated Financial Statements.
-5-
<PAGE>
TOMMY HILFIGER CORPORATION
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY
(IN THOUSANDS, EXCEPT SHARE DATA)
<TABLE>
<CAPTION>
Capital Unearned Cumulative Total
Ordinary in excess Retained stock translation Treasury shareholders'
Shares of par earnings compensation adjustment stock equity
value
<S> <C> <C> <C> <C> <C> <C> <C>
BALANCE, MARCH 31, 1994 $346 $116,944 $44,900 ($490) $15 -- $161,715
Net income......................... 40,715 40,715
Ordinary shares obtained for
treasury, 118,576 shares........ ($2,441) (2,441)
Exercise of employee stock options. 6 4,148 (1,482) 2,441 5,113
Tax benefit from exercise of 3,577 3,577
stock options...................
Increase in value of proportionate
interest in subsidiary.......... 190 190
Amortization of unearned stock
compensation.................... 140 140
Translation adjustment............. 15 15
--- ----- ------- ------ ------ ------ --------
BALANCE, MARCH 31, 1995 352 124,859 84,133 (350) 30 -- 209,024
Net income......................... 61,500 61,500
Exercise of employee stock options. 17 13,010 13,027
Tax benefit from exercise of 17,715 17,715
stock options......................
Amortization of unearned stock
compensation.................... (290) 350 60
Translation adjustment............. 12 12
---- -------- ------- ----- ----- ----- -----
BALANCE, MARCH 31, 1996 369 155,294 145,633 -- 42 -- 301,338
Net income......................... 86,382 86,382
Exercise of employee stock options 3 3,926 3,929
Tax benefit from exercise of 5,812 5,812
stock options...................
Translation adjustment............. 3 3
---- -------- -------- ----- ----- ------- --------
BALANCE, MARCH 31, 1997 $372 $165,032 $232,015 -- $ 45 -- $397,464
==== ======== ======== ===== ===== ======= ========
See accompanying Notes to Consolidated Financial Statements
</TABLE>
-6-
<PAGE>
TOMMY HILFIGER CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(a) Basis of Presentation
The consolidated financial statements include the accounts of Tommy
Hilfiger Corporation ("THC") and all majority-owned subsidiaries, including
Tommy Hilfiger U.S.A., Inc. ("TH USA"), Tommy Hilfiger Licensing, Inc. ("THLI"),
Tommy Hilfiger Retail, Inc. ("THR"), Tommy Hilfiger Flagship Stores, Inc., Tommy
Hilfiger (Eastern Hemisphere) Limited ("THEH"), Tommy Hilfiger (HK) Limited
("THHK") and, through June 30, 1996, Tommy Hilfiger Nippon Co., Ltd. ("THN"), as
well as THN's 49% interest in Tommy Hilfiger Japan Co., Ltd. ("TH Japan")
(collectively "the Company").
(b) Organization and Business
THC was incorporated as a British Virgin Islands company in June 1992
and acts as a holding company for each of the following operating subsidiaries.
TH USA designs and imports men's sportswear and boyswear for wholesale
distribution under the trademark license agreement with THLI described below.
THLI licenses the use of the TOMMY HILFIGER(R) trademarks to TH USA,
THR and other affiliates and non affiliates. These agreements grant the licensee
exclusive rights for use of the trademarks for specified products in specified
geographical areas.
THR commenced operations in April 1993 and as of March 31, 1997
operated 55 retail stores.
THEH and THHK act as commissioned buying agents for TH USA, THR and
certain other of THLI's licensees.
THN was a 90% owned subsidiary and acted as a holding company for the
Company's interest in TH Japan, a joint venture with Itochu, Ltd. TH Japan had
licensed the rights to manufacture and distribute the majority of the Company's
products in Japan from THLI and, in turn, sublicensed these rights to various
Japanese companies. The joint venture terminated on June 30, 1996 and THN was
dissolved in November 1996.
(c) Basis of Consolidation
All significant intercompany balances and transactions have been
eliminated. The Company accounted for its interest in TH Japan on the equity
basis.
(d) Cash, and Cash Equivalents and Investments
The Company considers all financial instruments purchased with original
maturities of three months or less to be cash equivalents.
Short-term investments include investments with an original maturity of
greater than three months and a remaining maturity of less than one year. These
investments are carried at market value and are classified as trading
securities.
-7-
<PAGE>
In determining realized gains and losses, the cost of securities sold
is based upon specific identification.
(e) Inventories
Inventories are valued at the lower of cost (weighted average method)
or market.
(f) Property and Equipment
Depreciation is calculated using the straight-line method over the
estimated useful lives of the assets, ranging from three to twenty-five years.
Leasehold improvements are amortized using the straight-line method over the
lesser of the terms of the leases or the estimated useful lives of the assets.
The Company's share of the cost of constructing in-store shop displays is
capitalized and amortized using the straight-line method over their estimated
useful lives. These costs are included in "Furniture and fixtures". Major
additions and betterments are capitalized and repairs and maintenance are
charged to operations in the period incurred.
(g) Income Taxes
The Company has recorded its provision for income taxes under the
liability method. Under this method, deferred tax assets and liabilities are
recognized based on differences between the financial statement and tax bases of
assets and liabilities using presently enacted tax rates.
(h) Earnings Per Share and Share Equivalents
In accordance with the provisions of Statement of Financial Accounting
Standards No. 128, "Earnings Per Share", the Company is presenting net income
per share on a "basic" and "diluted" basis. Basic earnings per share is computed
using the weighted average number of shares outstanding during the period.
Diluted earnings per share is computed using the weighted average number of
shares outstanding adjusted for dilutive common stock equivalents.
The weighted average number of shares outstanding for basic earnings
per share were 37,059,000, 35,767,000 and 34,963,000 during the years ended
March 31, 1997, 1996 and 1995, respectively. For dilutive earnings per share,
these amounts increased by 826,000, 1,474,000 and 1,383,000 during the years
ended March 31, 1997, 1996 and 1995, respectively, due to potentially dilutive
common stock equivalents issuable under the Company's stock option plans.
During fiscal 1995, the Company announced that its Board of Directors
approved a two-for-one stock split, effected in the form of a 100% stock
dividend, payable to shareholders of record at the close of business on December
27, 1994. Earnings per share and share equivalents for all periods presented
reflect the stock split.
(i) Revenues
Net revenues from wholesale product sales are recognized upon shipment
of products to customers. Allowances for estimated returns and discounts are
provided when sales are recorded. Retail store revenues are recognized at the
time of sale. Licensing royalties and buying agency fees are recognized as
earned.
Net wholesale sales to major customers, based upon their ownership at
March 31, 1997, as a percentage of total net wholesale sales for the three-year
period ended March 31, 1997 were as follows:
Fiscal Year Ended March 31,
---------------------------
1997 1996 1995
---- ---- ----
Customer A 23% 22% 22%
Customer B 21% 21% 23%
Customer C 16% 14% 14%
-8-
<PAGE>
(j) Foreign Currency Translation
The consolidated financial statements of the Company are prepared in
United States dollars as this is the currency of the primary economic
environment in which the Company operates, and substantially all of its revenues
are received and expenses are disbursed in United States dollars. The financial
statements of non-United States entities are translated into United States
dollars in accordance with Statement of Financial Accounting Standards ("SFAS")
No. 52. Under this translation method, adjustments resulting from translating
the financial statements of the non-United States entities are recorded in
shareholders' equity.
(k) Segment Information
The Company is engaged in principally one industry segment, the design,
importation and distribution of men's sportswear and childrenswear.
Substantially all of the Company's net revenue and income from
operations are derived from, and identifiable assets (other than the
collateralized time deposits mentioned in Note 4 which are located in Hong Kong)
are located in, the United States and, therefore, constitute foreign operations
in that the Company is incorporated in the British Virgin Islands.
(l) Fair Value of Financial Instruments
The fair values of short-term borrowings and long-term debt approximate
their carrying values as these financial instruments bear interest at variable
market rates. The fair value of the Company's other monetary assets and
liabilities approximate carrying value due to the relatively short-term nature
of these items.
(m) Advertising Costs
Advertising costs are charged to operations when incurred and totaled
$19,651,000, $7,929,000 and $7,358,000 during the years ended March 31, 1997,
1996 and 1995, respectively.
(n) Use of Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
NOTE 2 - ACCOUNTS RECEIVABLE
TH USA collects substantially all of its receivables through a credit
company pursuant to an agreement whereby the credit company pays TH USA after
the credit company receives payment from the Company's customer. If the customer
becomes bankrupt or insolvent or the receivable becomes 120 days past due, the
credit company pays TH USA 50% of the outstanding receivable. The credit company
establishes maximum credit limits for each customer account. Substantially all
accounts receivable are pledged as collateral under a bank financing agreement.
-9-
<PAGE>
NOTE 3 - INVENTORIES
Inventories are summarized as follows:
March 31,
----------
1997 1996
---- ----
Finished goods.................... $122,237,000 $80,210,000
Raw materials..................... 1,610,000 1,218,000
--------------- -------------
$123,847,000 $81,428,000
=============== =============
NOTE 4 - CASH EQUIVALENTS AND INVESTMENTS
Cash equivalents consist of collateralized time deposits and have
original maturities of less than three months. As of March 31, 1997, cash
equivalents in the Consolidated Balance Sheet include $94,520,000 of time
deposits. At March 31, 1997, such investments are earning interest at rates
ranging from 5.16% to 5.31%.
Investment income is comprised of the following:
Fiscal Year Ended March 31,
1997 1996 1995
---- ---- ----
Interest income.............$6,181,000 $5,712,000 $3,690,000
Net realized losses......... -- -- (473,000)
---------- ----------- ----------
Investment income...........$6,181,000 $5,712,000 $3,217,000
========== ========== ==========
NOTE 5 - PROPERTY AND EQUIPMENT
Property and equipment consists of the following:
March 31,
---------
1997 1996
---- ----
Furniture and fixtures................ $88,507,000 $55,880,000
Leasehold improvements................ 27,924,000 19,239,000
Buildings and land.................... 37,885,000 3,128,000
Machinery and equipment............... 16,263,000 8,372,000
------------ -----------
170,579,000 86,619,000
Less: accumulated depreciation and
amortization....................... 49,039,000 28,774,000
------------ -----------
$121,540,000 $57,845,000
============ ===========
NOTE 6 - SHORT-TERM BORROWINGS
-10-
<PAGE>
In July 1996, the Company entered into an amended and restated 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 March 31, 1997, $100,000,000 was available for
utilization under the Credit Agreement, of which $66,822,000 had been used to
open letters of credit. Obligations under the Credit Agreement are
collateralized by substantially all the assets of the Company's U.S. operations.
Direct borrowings under the Credit Agreement, which are limited to $60,000,000,
accrue interest at varying interest rates.
At March 31, 1997, total short-term borrowings of $5,980,000 consisted
of open letters of credit for inventory purchased of $5,705,000 and the current
portion of mortgage debt payable of $275,000.
The Credit Agreement contains various covenants. Among other matters,
the Credit Agreement includes certain restrictions upon capital expenditures,
investments, indebtedness, loans and advances and transactions with related
parties. In addition, the Credit Agreement prohibits certain of the Company's
operating subsidiaries, which are borrowers or guarantors under the Credit
Agreement, from paying dividends. Because THC is a holding company, dividends or
other advances from its subsidiaries will be required to fund any cash dividends
to holders of Ordinary Shares. The Credit Agreement also requires the
maintenance of minimum tangible net worth and interest coverage ratios.
The Company was in compliance with all covenants under the Credit
Agreement as of, and for the year ended, March 31, 1997.
NOTE 7 - ACCRUED EXPENSES AND OTHER CURRENT LIABILITIES
Accrued expenses and other current liabilities are comprised of the
following:
March 31,
---------
1997 1996
---- ----
Accrued compensation................. $15,734,000 $12,393,000
Accrued marketing.................... 6,369,000 1,576,000
Other................................ 27,607,000 15,440,000
----------- -----------
$49,710,000 $29,409,000
=========== ===========
NOTE 8 - LONG-TERM DEBT
In connection with the purchase of real estate, THEH obtained a
ten-year, $2,746,000 mortgage. The debt, payable in equal quarterly installments
through August 2003, is secured by the property and accrues interest at the Hong
Kong prime lending rate, which was 8.5% at March 31, 1997.
-11-
<PAGE>
NOTE 9 - COMMITMENTS AND CONTINGENCIES
(a) Leases
The Company leases office, warehouse and showroom space, retail stores
and office equipment under operating leases which expire not later than 2023.
The Company normalizes fixed escalations in rental expense under its operating
leases. Minimum annual rentals under non-cancelable operating leases, excluding
operating cost escalations and contingent rental amounts based upon retail
sales, are payable as follows:
Fiscal Year Ending March 31,
----------------------------
1998.......................... $8,753,000
1999.......................... 10,635,000
2000.......................... 10,440,000
2001.......................... 8,402,000
2002.......................... 7,169,000
Thereafter.................... 50,687,000
Rent expense was $8,911,000, $5,768,000 and $2,282,000 for the years
ended March 31, 1997, 1996 and 1995, respectively.
(b) Letters of credit
TH USA is contingently liable for unexpired bank letters of credit at
March 31, 1997 of $57,061,000 related to commitments for the purchase of
inventories and $4,056,000 related to leases.
(c) Commitments
At March 31, 1997, the Company had entered into capital commitments
primarily related to construction projects of approximately $14,000,000.
(d) Legal matters
The Company is from time to time involved in routine legal matters
incidental to its business. In the opinion of the Company, based on advice of
counsel, the resolution of such matters will not have a material effect on the
financial position or the results of operations of the Company.
NOTE 10 - INCOME TAXES
The components of the provision for income taxes are as follows:
Fiscal Year Ended March 31,
---------------------------
1997 1996 1995
---- ---- ----
Current:
U.S. Federal............... $39,276,000 $29,100,000 $18,516,000
State and Local............ 6,688,000 6,238,000 3,693,000
Non-U.S.................... 3,330,000 1,849,000 1,378,000
----------- ----------- -----------
49,294,000 37,187,000 23,587,000
----------- ----------- -----------
-12-
<PAGE>
Deferred:
U.S. Federal............... (3,724,000) (4,940,000) (664,000)
State and Local............ (737,000) (1,347,000) (183,000)
Non-U.S.................... 33,000 -- 2,000
----------- ----------- -----------
(4,428,000) (6,287,000) (845,000)
----------- ----------- -----------
Provision for income taxes...... $44,866,000 $30,900,000 $22,742,000
=========== =========== ===========
Significant components of the Company's deferred tax assets are
summarized as follows:
March 31,
---------
1997 1996
---- ----
Deferred tax assets - current:
Inventory costs..................... $5,054,000 $3,457,000
Allowances for doubtful accounts
and sales discounts........... 2,415,000 3,191,000
Accrued compensation................ 1,580,000 --
Other items, net.................... 3,070,000 1,464,000
------------- -------------
12,119,000 8,112,000
Deferred tax assets - non-current:
Depreciation and amortization....... 2,335,000 1,914,000
------------ -------------
Total deferred tax assets................ $14,454,000 $10,026,000
=========== ===========
The U.S. and non-U.S. components of income before income taxes are as
follows:
Fiscal Year Ended March 31,
---------------------------
1997 1996 1995
---- ---- ----
U.S. ..................... $104,671,000 $71,606,000 $51,789,000
Non-U.S................... 26,577,000 20,794,000 11,668,000
------------ ------------ -----------
$131,248,000 $92,400,000 $63,457,000
============ =========== ===========
The provision for income taxes differs from the amounts computed by
applying the applicable U.S. federal statutory rates to income before taxes as
follows:
Fiscal Year Ended March 31,
---------------------------
1997 1996 1995
----- ----- ------
Provision for income taxes at the
U.S. federal statutory rate..... $45,937,000 $32,340,000 $22,210,000
State and local income taxes, net of
federal benefits................ 3,868,000 3,179,000 2,281,000
Non-U.S. income taxed at different
rates........................... (6,350,000) (5,612,000) (2,821,000)
Other................................ 1,411,000 993,000 1,072,000
----------- ----------- -----------
Provision for income taxes........... $44,866,000 $30,900,000 $22,742,000
=========== =========== ===========
THC is not taxed on income in the British Virgin Islands ("BVI") where
it is incorporated. THC's subsidiaries are subject to taxation in the
jurisdictions in which they operate.
Provision has not been made for taxes on undistributed non-BVI,
non-U.S. earnings of $121,642,000 at March 31, 1997, as those earnings will
continue to be reinvested. As a result of
-13-
<PAGE>
various tax planning strategies available to the Company, it is not practical to
estimate the amount of tax, if any, that might be payable on the eventual
remittance of such earnings.
NOTE 11 - RELATED PARTIES
Effective February 1, 1997, the Company entered into a licensing
agreement with Pepe Jeans London Corporation ("Pepe") to distribute the
Company's men's and boys sportswear (excluding jeanswear and jeans related
apparel) throughout the European market. Under this agreement, the licensee pays
THLI a royalty based on a percentage of the value of licensed products sold by
Pepe. Except with the approval of THLI, all products sold by or through Pepe
must be purchased through THEH or TH USA pursuant to buying agency agreements.
Under these agreements, THEH and TH USA are paid a buying agency commission
based on a percentage of the cost of products sourced through them. The
distribution of products under this arrangement is expected to begin in Fall
1997.
Effective June 30, 1996, the Company's joint venture arrangement with
TH Japan covering the Company's Japanese operations expired. Effective July 1,
1996, the Company entered into an exclusive license agreement for Japan with
Novel-ITC Licensing Limited ("NIL"), a related party. Under the license
agreement, NIL pays THLI a royalty based on a percentage of the value of
licensed products sold by NIL's sublicensee. Except with the approval of THLI,
all products sold by or through NIL or its sublicensee must be purchased through
THEH or TH USA pursuant to buying agency agreements. Under these agreements,
THEH and TH USA are paid a buying agency commission based on a percentage of the
cost of products sourced through them. Pursuant to this new arrangement,
royalties and commissions totaled $2,745,000 during fiscal 1997. Pursuant to the
prior arrangement, royalties and commissions totaled $488,000 in fiscal 1997,
$1,939,000 in fiscal 1996 and $1,222,000 in fiscal 1995.
Effective October 1, 1995, the Company entered into a license agreement
with a related party, AIHL Investment Group Limited (formerly SEL International
Investments Corp.) ("AIHL"), the parent of Pepe, for the manufacture, sale and
distribution of men's, women's and girls' jeanswear and jeans related apparel
(which includes women's and girls' casualwear) bearing the TOMMY HILFIGER(R)
registered trademarks. Other assets in the Consolidated Balance Sheet include a
non-interest bearing note receivable from AIHL in connection with this
transaction. The note, which has a face value of $5,000,000, and is due on
September 30, 2000, is recorded at its present value of $3,735,000 at March 31,
1997 and $2,874,000 at March 31, 1996. Under this license agreement, the Company
receives royalties from subsidiaries of Pepe based upon a percentage of net
sales of licensed products. The fiscal 1997 and 1996 results of operations
include $9,963,000 and $1,915,000 of such royalties. Net sales included in the
Consolidated Statements of Operations for these licensed products prior to this
agreement were $12,370,000 in fiscal 1996 and $9,104,000 in fiscal 1995. In
addition, in connection with this license, a subsidiary of Pepe leases certain
space at the Company's U.S. headquarters, for which rent of $214,000 was
received by the Company in fiscal 1997.
In June 1994, the Company granted a director of the Company an option
to purchase a 10% equity interest in THR in connection with entering into an
employment agreement with
-14-
<PAGE>
THR. In July 1994, this option was exercised at $193,000, an exercise price
equal to 10% of the fair market value of THR as determined by an independent
appraisal. As a result of this transaction, the value of the Company's
proportionate interest in THR increased by $190,000. During March 1996, in
connection with the termination of the director's employment, the Company
repurchased this equity interest for its fair value of $1,800,000.
TH USA purchases finished goods in the ordinary course of business from
affiliated companies. Such purchases amounted to $9,852,000, $10,970,000 and
$12,092,000 during the fiscal years ended March 31, 1997, 1996 and 1995,
respectively. In addition, contractors of the Company purchased raw materials in
the ordinary course of business from affiliates of the Company. Such purchases
amounted to $5,811,000, $7,910,000 and $2,977,000 during the fiscal years ended
March 31, 1997, 1996 and 1995, respectively.
THEH has entered into a buying agency agreement with a Canadian
licensee, in which one of the Company's directors has an indirect beneficial
ownership interest. Under this agreement, THEH receives commissions based on a
percentage of the cost of goods sourced on behalf of the licensee. THLI receives
a royalty from the licensee based upon a percentage of net sales of licensed
products. Results of operations include $2,378,000, $1,667,000 and $861,000 for
the years ended March 31, 1997, 1996 and 1995, respectively, for commissions and
royalties received from this licensee.
TH USA sells merchandise in the ordinary course of business to a retail
store that is owned by a relative of a director of the Company. Sales to this
customer amounted to approximately $435,000, $397,000 and $405,000 during the
years ended March 31, 1997, 1996 and 1995, respectively.
THEH has two consulting agreements with affiliates. THEH paid fees of
$875,000 in fiscal 1997 and $375,000 in each of fiscal 1996 and 1995 to such
affiliates.
TH USA had a consulting agreement with an affiliate. The fees and
related expenses under this consulting agreement totaled $619,000 and $637,000
during the years ended March 31, 1996 and 1995, respectively.
During the year ended March 31, 1995, TH USA incurred expenses of
$1,000,000 for the sponsorship of an auto racing team, in which an affiliate of
a director owned an indirect minority interest. The Company did not renew this
sponsorship subsequent to fiscal 1995.
Under the terms of an agreement with an affiliate, THHK reimburses the
affiliate for certain general and administrative expenses incurred by the
affiliate on behalf of THHK. Payments made to the affiliate for the years ended
March 31, 1997, 1996 and 1995 were $58,000, $114,000 and $87,000, respectively.
NOTE 12 - PROFIT SHARING PLAN
-15-
<PAGE>
TH USA maintains employee savings plans for eligible U.S. employees. TH
USA's contributions to the plans are discretionary with matching contributions
of up to 50% of employee contributions of up to 5% of employee compensation. For
the years ended March 31, 1997, 1996 and 1995, the Company made plan
contributions of $345,000, $271,000 and $181,000, respectively.
NOTE 13 - UNEARNED STOCK COMPENSATION
Unearned stock compensation associated with a former key employee of TH
USA was eliminated in 1996 in connection with the termination of such
employment. The balance of the unearned stock compensation was recorded as a
reduction of Capital In Excess of Par Value.
NOTE 14 - STOCK OPTION PLANS
In September 1992, the Company and its subsidiaries adopted stock
option plans (the "Plans") authorizing the issuance of an aggregate of up to
1,450,000 Ordinary Shares to directors, officers and employees of the Company,
as well as 1,520,000 Ordinary Shares reserved for issuance in connection with an
option granted to a former officer of the Company pursuant to his employment
agreement. The remaining unexercised options granted under the terms of the
officer's employment agreement were exercised during fiscal 1996. In December
1993, July 1995 and November 1996, a total of 2,500,000 Ordinary Shares of THC
were authorized and reserved for issuance to directors, officers and employees
of the Company, under the Plans. In August 1994, the Board of Directors and
shareholders of the Company approved the Non-Employee Directors Stock Option
Plan (the "Directors Option Plan"). Under the Directors Option Plan, directors
who are not officers or employees of the Company are eligible to receive stock
option grants. The total number of Ordinary Shares for which options may be
granted under the Directors Option Plan may not exceed 200,000 Ordinary Shares
in the aggregate, subject to certain adjustments.
-16-
<PAGE>
Transactions involving the Plans and the Directors Option Plan are
summarized as follows:
Weighted Average
Exercise
Option Shares Price Per Share
------------- ----------------
Outstanding as of April 1, 1994 3,110,500 $8.31
Granted...................................... 256,000 $18.79
Exercised.................................... (663,776) $7.67
Canceled..................................... (154,700) $15.92
----------
Outstanding as of March 31, 1995 2,548,024 $9.37
Granted...................................... 793,400 $29.50
Exercised.................................... (1,654,724) $7.86
Canceled..................................... (85,100) $18.09
----------
Outstanding as of March 31, 1996 1,601,600 $20.10
Granted...................................... 708,300 $48.20
Exercised.................................... (369,605) $10.64
Canceled..................................... (51,725) $39.56
----------
Outstanding as of March 31, 1997 1,888,570 $31.26
=========
<TABLE>
<CAPTION>
The following table summarizes information concerning currently outstanding and
exercisable options:
Options Outstanding Options Exercisable
------------------------------------ ---------------------------
Weighted
Average Weighted Weighted
Remaining Average Average
Range of Exercise Number Contractual Exercise Number Exercise
Prices Outstanding Life Price Exercisable Price
- ------------------ ------------- ----------- ----------- ------------- ------------
<S> <C> <C> <C> <C> <C>
$7.50-$15.00 328,320 5.70 $8.97 115,820 $7.95
$17.63-$22.00 300,450 7.60 $20.03 22,900 $19.76
$26.75-$30.25 590,800 8.48 $30.22 151,800 $30.25
$44.25-$58.50 669,000 9.22 $48.23 -- --
------- ---- ------ ------- ------
$7.50-$58.50 1,888,570 8.11 $31.26 290,520 $20.53
========= ==== ====== ======= ======
</TABLE>
-17-
<PAGE>
Options vest over periods ranging from 1-6 years. The exercise price of
all options granted under the Plans and the Directors Option Plan is the market
price on the dates of grant.
The Company applies APB Opinion No. 25, "Accounting for Stock Issued to
Employees", and related interpretations in accounting for its stock awards.
Accordingly, no compensation expense has been recognized for stock options. Had
compensation cost been recorded based upon the fair value at the grant dates as
an alternative provided by SFAS No. 123, "Accounting for Stock Based
Compensation", the Company's net income and earnings per share (basic and
diluted) would have been reduced by approximately $2,998,000 and $.08,
respectively, in 1997 and $2,131,000 and $.06, respectively, in 1996. These
amounts are for disclosure purposes only and may not be representative of future
calculations since the estimated fair value of stock options is amortized to
expense over the vesting period, and additional options may be granted in future
years. The fair values of options granted was estimated at $22.33 in 1997 and
$13.72 in 1996 on the dates of grant using the Black-Scholes option-pricing
model with the following weighted-average assumptions for 1997 and 1996,
respectively: volatility of 40% and 42%; risk free interest rate of 6.1% and
6.3%; expected life of 5.7 years and 5.6 years; and no future dividends.
NOTE 15 - STATEMENTS OF CASH FLOWS
Fiscal Year Ended March 31,
---------------------------
1997 1996 1995
---- ---- ----
Supplemental disclosure of cash
flow information:
Cash paid during the year:
Interest $930,000 $1,382,000 $ 515,000
======== ========== ============
Income taxes $34,559,000 $24,428,000 $21,665,000
=========== =========== ===========
<TABLE>
<CAPTION>
NOTE 16 - QUARTERLY FINANCIAL DATA (UNAUDITED)
First Second Third Fourth
Quarter Quarter Quarter Quarter
------- ------- ------- -------
1997
- ----
<S> <C> <C> <C> <C>
Net revenue................... $124,129,000 $178,907,000 $188,199,000 $170,453,000
Gross profit.................. 58,119,000 86,931,000 90,231,000 81,523,000
Net income.................... 12,578,000 24,090,000 27,397,000 22,317,000
Earnings per share
Basic...................... .34 .65 .74 .60
Diluted.................... .34 .63 .72 .59
</TABLE>
-18-
<PAGE>
<TABLE>
<CAPTION>
1996
- ----
<S> <C> <C> <C> <C>
Net revenue................... $89,522,000 $131,965,000 $130,501,000 $126,143,000
Gross profit.................. 40,076,000 60,172,000 58,663,000 60,801,000
Net income.................... 7,789,000 18,204,000 17,585,000 17,922,000
Earnings per share
Basic...................... .22 .51 .49 .50
Diluted.................... .21 .49 .47 .48
</TABLE>
The quarterly financial data for the years ended March 31, 1997 and
1996 are unaudited; however, in the opinion of the Company, the interim data
includes all adjustments, consisting only of normal recurring adjustments
necessary to present such data fairly.
NOTE 17 - SUMMARIZED FINANCIAL INFORMATION
The following presents summarized financial information of TH USA, a wholly
owned subsidiary of the Company, as of March 31, 1997 and 1996 and for each of
the three years in the period ended March 31, 1997.
As of March 31,
----------------
1997 1996
---- ----
Current assets $247,070,000 $175,626,000
Noncurrent assets 128,506,000 66,284,000
Current liability due to THC 26,740,000 17,680,000
Other current liabilities 57,617,000 49,072,000
Noncurrent liability due to THC 168,651,000 105,038,000
Other noncurrent liabilities 2,366,000 2,874,000
For the year ended March 31,
------------------------------
1997 1996 1995
---- ---- ----
Net revenue $656,526,000 $473,322,000 $318,952,000
Gross profit 304,420,000 207,314,000 139,648,000
Net income 52,956,000 11,574,000 22,300,000
-19-
Exhibit 99.2
TOMMY HILFIGER CORPORATION
INDEX TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1997
<TABLE>
<CAPTION>
Page
<S> <C>
Condensed Consolidated Balance Sheets as of December 31, 1997 and March 31, 1997.................... 2
Condensed Consolidated Statements of Operations for the nine months ended December 31,
1997 and 1996 and the three months ended December 31, 1997 and 1996............................. 3
Condensed Consolidated Statements of Cash Flows for the nine months ended December 31,
1997 and 1996................................................................................... 4
Condensed Consolidated Statement of Changes in Shareholders' Equity for the nine months
ended December 31, 1997 and the year ended March 31, 1997....................................... 5
Notes to Condensed Consolidated Financial Statements................................................ 6
</TABLE>
<PAGE>
TOMMY HILFIGER CORPORATION
CONDENSED CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS, EXCEPT SHARE DATA)
<TABLE>
<CAPTION>
(UNAUDITED) AS OF DECEMBER 31, AS OF MARCH 31,
1997 1997
---- ----
ASSETS
<S> <C> <C>
Current assets
Cash and cash equivalents........................................... $148,911 $109,908
Accounts receivable................................................. 91,452 79,984
Inventories......................................................... 157,439 123,847
Other current assets................................................ 18,764 18,614
-------- ------
Total current assets.......................................... 416,566 332,353
Property and equipment, at cost, less accumulated
depreciation and amortization......................................... 150,272 121,540
Other assets .............................................................. 8,614 9,192
-------- --------
Total Assets.................................................. $575,452 $463,085
======== ========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities
Short-term borrowings............................................... $9,323 $5,980
Accounts payable.................................................... 16,787 5,996
Accrued expenses and other current liabilities...................... 58,710 49,710
------ ------
Total current liabilities..................................... 84,820 61,686
Other liabilities........................................................... 2,216 2,425
Long-term debt.............................................................. -- 1,510
Shareholders' equity
Preference Shares, $0.01 par value-shares authorized 5,000,000;
none issued...................................................... -- --
Ordinary Shares, $0.01 par value-shares authorized 50,000,000;
issued and outstanding 37,436,929 and 37,249,529, respectively... 374 372
Capital in excess of par value...................................... 170,250 165,032
Retained earnings................................................... 317,797 232,015
Cumulative translation adjustment................................... (5) 45
------- --------
Total shareholders' equity.................................... 488,416 397,464
------- -------
Commitments and contingencies
Total Liabilities and Shareholders' Equity.................... $575,452 $463,085
======== ========
See Accompanying Notes to Condensed Consolidated Financial Statements.
</TABLE>
-2-
<PAGE>
TOMMY HILFIGER CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
(UNAUDITED) FOR THE NINE MONTHS ENDED FOR THE THREE MONTHS ENDED
DECEMBER 31, DECEMBER 31,
------------ ------------
1997 1996 1997 1996
---- ---- ---- ----
<S> <C> <C> <C> <C>
Net revenue.................................................... $644,385 $491,235 $246,104 $188,199
Cost of goods sold............................................. 337,671 255,954 130,801 97,968
------- ------- ------- ------
Gross profit................................................... 306,714 235,281 115,303 90,231
Selling, general and administrative expenses................... 182,476 141,145 62,919 48,961
------- ------- -------- ------
Income from operations......................................... 124,238 94,136 52,384 41,270
Interest expense .............................................. 1,049 679 355 135
Interest income ............................................... 5,127 4,539 1,552 1,555
-------- ------ ------- ------
Income before income taxes..................................... 128,316 97,996 53,581 42,690
Provision for income taxes .................................... 42,534 33,931 17,200 15,293
------- ------ ------- ------
Net income..................................................... $85,782 $64,065 $36,381 $27,397
======= ======= ======= =======
Earnings per share:
Basic earnings per share....................................... $2.30 $1.73 $ .97 $ .74
===== ===== ======== ========
Weighted average shares outstanding............................ 37,333 37,015 37,387 37,095
====== ====== ====== ======
Diluted earnings per share..................................... $2.26 $1.69 $ .96 $ .72
===== ===== ======== ========
Weighted average shares and share equivalents outstanding...... 37,918 37,838 37,898 38,031
====== ====== ====== ======
See Accompanying Notes to Condensed Consolidated Financial Statements.
</TABLE>
-3-
<PAGE>
TOMMY HILFIGER CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
<TABLE>
<CAPTION>
(UNAUDITED) FOR THE NINE MONTHS
ENDED DECEMBER 31,
-------------------
1997 1996
---- ----
<S> <C> <C>
Cash flows from operating activities
Net income ............................................................ $85,782 $64,065
Adjustments to reconcile net income to net cash provided by
operating activities
Depreciation and amortization...................................... 21,692 14,968
Changes in operating assets and liabilities
Decrease (increase) in assets
Accounts receivable......................................... (11,468) (2,062)
Inventories................................................. (33,592) (30,651)
Other assets................................................ (3) 2,701
Increase (decrease) in liabilities
Accounts payable............................................ 10,791 (2,888)
Accrued expenses and other liabilities...................... 8,791 11,290
----- ------
Net cash provided by operating activities.......................... 81,993 57,423
------ ------
Cash flows from investing activities
Purchases of property and equipment..................................... (49,993) (64,222)
Purchases of investments................................................ (20,000) --
Maturities of investments............................................... 20,000 --
------ -------
Net cash used in investing activities.............................. (49,993) (64,222)
------- -------
Cash flows from financing activities
Proceeds from the exercise of employee stock options.................... 3,886 3,051
Tax benefit from exercise of stock options.............................. 1,334 4,312
Short-term bank borrowings, net......................................... 3,343 (8,454)
Payments on long-term debt.............................................. (1,510) (208)
Other................................................................... (50) 14
------- -------
Net cash provided by (used in) financing activities................ 7,003 (1,285)
----- ------
Net increase (decrease) in cash.................................... 39,003 (8,084)
Cash and cash equivalents, beginning of period............................. 109,908 127,743
------- -------
Cash and cash equivalents, end of period................................... $148,911 $119,659
======== ========
See Accompanying Notes to Condensed Consolidated Financial Statements.
</TABLE>
-4-
<PAGE>
TOMMY HILFIGER CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY
(IN THOUSANDS)
<TABLE>
<CAPTION>
CAPITAL IN
EXCESS CUMULATIVE TOTAL
ORDINARY OF PAR RETAINED TRANSLATION SHAREHOLDERS'
SHARES VALUE EARNINGS ADJUSTMENT EQUITY
-------- ---------- -------- ----------- ------------
<S> <C> <C> <C> <C> <C>
BALANCE, MARCH 31, 1996 $369 $155,294 $145,633 $42 $301,338
Net income............................. 86,382 86,382
Exercise of employee stock options..... 3 3,926 3,929
Tax benefits from exercise of stock
options........................... 5,812 5,812
Translation adjustment................. ____ _______ _______ 3 3
--- --------
BALANCE, MARCH 31, 1997 372 165,032 232,015 45 397,464
Net income............................. 85,782 85,782
Exercise of employee stock options..... 2 3,884 3,886
Tax benefits from exercise of stock
options........................... 1,334 1,334
Translation adjustment................. ____ _______ _______ (50) (50)
--- --------
BALANCE, DECEMBER 31, 1997 (UNAUDITED)...... $374 $170,250 $317,797 ($5) $488,416
==== ======== ======== === ========
See Accompanying Notes to Condensed Consolidated Financial Statements.
</TABLE>
-5-
<PAGE>
TOMMY HILFIGER CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1 - BASIS OF PRESENTATION
The accompanying unaudited condensed consolidated financial statements
have been prepared by Tommy Hilfiger Corporation (the "Company") in a manner
consistent with that used in the preparation of the consolidated financial
statements included in the Company's 1997 Annual Report as filed with the
Securities and Exchange Commission on Form 10-K (the "Form 10-K"). Certain items
contained in these statements are based on estimates. In the opinion of
management, the accompanying financial statements reflect all adjustments,
consisting of only normal and recurring adjustments, necessary for a fair
presentation of the financial position and results of operations and cash flows
for the periods presented. All significant intercompany accounts and
transactions have been eliminated.
Operating results for the nine month period ended December 31, 1997 are
not necessarily indicative of the results that may be expected for the fiscal
year ended March 31, 1998. These unaudited financial statements should be read
in conjunction with the financial statements included in the Form 10-K.
The financial statements as of and for the nine month and the three month
periods ended December 31, 1997 and 1996 are unaudited. The Condensed
Consolidated Balance Sheet as of March 31, 1997, as presented, has been prepared
from the Consolidated Balance Sheet as of March 31, 1997 included in the
Company's Form 10-K.
NOTE 2 - INVENTORIES
Inventories are summarized as follows:
December 31, 1997 March 31, 1997
----------------- --------------
Finished Goods............ $155,216,000 $122,237,000
Raw Materials............. 2,223,000 1,610,000
-------------- --------------
$157,439,000 $123,847,000
============ ============
NOTE 3 - SUBSEQUENT EVENT
On January 31, 1998, the Company entered into a definitive agreement to
acquire its women's, jeans and Canada licensees for $755,760,000 in cash and
9,045,930 Ordinary Shares of the Company. The acquisition is subject to approval
by the Company's shareholders, who will be asked to vote on the proposed
acquisition during the first quarter of fiscal 1999. The acquisition is also
subject to the Company obtaining necessary financing and other customary
conditions. The Company expects that the cash portion of the purchase price will
be funded from a combination of debt financing and cash on hand.
NOTE 4 - SUMMARIZED FINANCIAL INFORMATION
The following presents summarized financial information of Tommy Hilfiger
U.S.A., Inc., a wholly owned subsidiary of the Company, as of December 31, 1997
and March 31, 1997 and for the nine month periods ended December 31, 1997 and
1996.
December 31, 1997 March 31, 1997
----------------- --------------
Current assets $323,729,000 $247,070,000
Noncurrent assets 157,712,000 128,506,000
Current liability due to Parent 15,563,000 26,740,000
Other current liabilities 85,213,000 57,617,000
Noncurrent liability due to Parent 187,764,000 168,651,000
Other noncurrent liabilities 2,216,000 2,366,000
Nine months ended December 31,
------------------------------
1997 1996
---- ----
Net revenue $638,025,000 $487,414,000
Gross profit 294,308,000 226,469,000
Net income 70,483,000 40,757,000
-6-
