As filed with the Securities and Exchange Commission on October 13, 1999
Registration Statement No. 333-
================================================================================
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM S-2
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
PERRY ELLIS INTERNATIONAL, INC.*
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
<TABLE>
<S> <C> <C>
FLORIDA 2321 59-1162998
(STATE OR OTHER JURISDICTION OF (PRIMARY STANDARD (I.R.S. EMPLOYER IDENTIFICATION
INCORPORATION OR ORGANIZATION) INDUSTRIAL CLASSIFICATION NO.)
CODE NUMBER)
</TABLE>
GEORGE FELDENKREIS
CHAIRMAN OF THE BOARD AND CHIEF
EXECUTIVE OFFICER
3000 N.W. 107TH AVENUE
MIAMI, FLORIDA 33172
(305) 592-2830
(ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE
NUMBER INCLUDING AREA CODE, OF AGENT FOR
SERVICE)
COPIES TO:
ROSEMARY TRUDEAU DALE S. BERGMAN, P.A.
VICE PRESIDENT OF FINANCE BROAD AND CASSEL
PERRY ELLIS INTERNATIONAL, INC. 201 SOUTH BISCAYNE BOULEVARD
3000 N.W. 107TH AVENUE MIAMI CENTER, SUITE 3000
MIAMI, FLORIDA 33172 MIAMI, FLORIDA 33131
TELEPHONE: (305) 592-2830 TELEPHONE: (305) 373-9400
TELECOPIER: (305) 406-0513 TELECOPIER: (305) 373-9443
--------------------------------------
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC:
AS SOON AS PRACTICABLE AFTER THIS REGISTRATION STATEMENT BECOMES EFFECTIVE.
If any of the securities being registered on this Form are to be
offered on a delayed or continuous basis pursuant to Rule 415 under the
Securities Act, check the following box. [X]
If the registrant elects to deliver its latest annual report to
security holders, or a complete and legal facsimile thereof, pursuant to Item
11(a)(1) of this Form, check the following box. [_]
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, check the following box and
list the Securities Act registration number of the earlier effective
registration statement for the same offering. [_]
If this Form is a post-effective amendment filed pursuant to Rule
462(c) under the Securities Act, check the following box and list the Securities
Act registration statement number of the earlier effective registration
statement for the same offering. [_]
If this Form is a post-effective amendment filed pursuant to Rule
462(d) under the Securities Act, check the following box and list the Securities
Act registration statement number of the earlier effective registration
statement for the same offering. [_]
If delivery of the prospectus is expected to be made pursuant to Rule
434, please check the following box. [_]
<PAGE>
CALCULATION OF REGISTRATION FEE
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<CAPTION>
===========================================================================================================================
PROPOSED MAXIMUM PROPOSED
TITLE OF EACH CLASS AMOUNT TO BE OFFERING PRICE MAXIMUM AGGREGATE AMOUNT OF
OF SECURITIES TO BE REGISTERED REGISTERED PER NOTE OFFERING PRICE(1) REGISTRATION FEE
- ---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
12-1/4% Series A Senior
Subordinated Notes Due 2006 $5,000,000 100% $5,000,000 $1,390
- ---------------------------------------------------------------------------------------------------------------------------
Guarantees of 12-1/4% Senior -- -- -- None pursuant to
Subordinated Notes due 2006(2) Rule 457(a)
===========================================================================================================================
</TABLE>
(1) Estimated solely for the purpose of calculating the registration fee in
accordance with Rule 457 under the Securities Act of 1933, as amended
(the "Securities Act").
(2) Guarantee of the 12-1/4% Series A Senior Subordinated Notes due 2006 by
the Guarantor as further described herein. See "Description of the
Notes - Subsidiary Guarantees."
-------------------------------------
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL
FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(A) OF
THE SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SECTION 8(A), MAY
DETERMINE.
-------------------------------------
* The subsidiaries of Perry Ellis International, Inc. will guarantee the
securities being registered hereby and therefore are also registrants.
Information about such additional registrants appears on the following
pages.
================================================================================
<PAGE>
ADDITIONAL REGISTRANTS
SUPREME ACQUISITION CORPORATION
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
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<S> <C> <C>
FLORIDA 5136 65-0780799
(STATE OR OTHER JURISDICTION OF (PRIMARY STANDARD INDUSTRIAL (I.R.S. EMPLOYER
INCORPORATION OR ORGANIZATION) CLASSIFICATION CODE NUMBER) IDENTIFICATION NO.)
</TABLE>
SUPREME INTERNATIONAL (N.Y.), INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
<TABLE>
<S> <C> <C>
NEW YORK 5136 13-3882409
(STATE OR OTHER JURISDICTION OF (PRIMARY STANDARD INDUSTRIAL (I.R.S. EMPLOYER
INCORPORATION OR ORGANIZATION) CLASSIFICATION CODE NUMBER) IDENTIFICATION NO.)
</TABLE>
SUPREME INTERNATIONAL (DELAWARE), INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
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<S> <C> <C>
DELAWARE 5136 65-0916514
(STATE OR OTHER JURISDICTION OF (PRIMARY STANDARD INDUSTRIAL (I.R.S. EMPLOYER
INCORPORATION OR ORGANIZATION) CLASSIFICATION CODE NUMBER) IDENTIFICATION NO.)
</TABLE>
SUPREME MUNSINGWEAR CANADA, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
<TABLE>
<S> <C> <C>
CANADA 5136 89-1353534
(STATE OR OTHER JURISDICTION OF (PRIMARY STANDARD INDUSTRIAL (I.R.S. EMPLOYER
INCORPORATION OR ORGANIZATION) CLASSIFICATION CODE NUMBER) IDENTIFICATION NO.)
</TABLE>
SUPREME INTERNATIONAL CORPORATION DE MEXICO, S.A. DE C.V.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
<TABLE>
<S> <C> <C>
MEXICO 5136 N/A
(STATE OR OTHER JURISDICTION OF (PRIMARY STANDARD INDUSTRIAL (I.R.S. EMPLOYER
INCORPORATION OR ORGANIZATION) CLASSIFICATION CODE NUMBER) IDENTIFICATION NO.)
</TABLE>
PERRY ELLIS INTERNATIONAL LICENSING CORP.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
<TABLE>
<S> <C> <C>
NEW YORK 6794 13-2963077
(STATE OR OTHER JURISDICTION OF (PRIMARY STANDARD INDUSTRIAL (I.R.S. EMPLOYER
INCORPORATION OR ORGANIZATION) CLASSIFICATION CODE NUMBER) IDENTIFICATION NO.)
</TABLE>
<PAGE>
The information in this prospectus is not complete and may be changed.
The noteholder may not sell these securities until the registration statement
filed with the SEC is effective. This prospectus is not an offer to sell these
securities and it is not soliciting an offer to sell these securities in any
state where the sale is not permitted.
PROSPECTUS
SUBJECT TO COMPLETION, DATED OCTOBER 13, 1999
PERRY ELLIS INTERNATIONAL, INC.
$5,000,000 12-1/4 SERIES A SENIOR SUBORDINATED NOTES DUE 2006
The selling noteholder is offering for sale up to $5,000,000 in
principal amount 12-1/4% Series A senior subordinated notes due 2006.
The selling noteholder may sell the notes in public or private
transactions, at prevailing market prices or at privately negotiated prices. We
will not receive any proceeds from the sale of the notes. We are registering the
re-sale of the notes held by the noteholder and are paying all of the expenses
associated therewith.
Interest on the notes offered hereby accrues from April 6, 1999 at the
rate of 12-1/4% per annum, payable semi-annually in arrears on each April 1 and
October 1, beginning October 1, 1999. The notes are unsecured senior
subordinated indebtedness of Perry Ellis International, Inc.
YOU SHOULD CAREFULLY CONSIDER THE RISK FACTORS BEGINNING ON PAGE 14 OF
THIS PROSPECTUS.
NEITHER THE SECURITIES AND EXCHANGE COMMISSION NOR ANY STATE SECURITIES
COMMISSION HAS APPROVED OR DISAPPROVED OF THESE SECURITIES OR DETERMINED IF THIS
PROSPECTUS IS TRUTHFUL OR COMPLETE. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
The information in this prospectus is not complete and may be changed.
The noteholder may not sell these securities until the registration statement
filed with the SEC is effective. This prospectus is not an offer to sell these
securities and it is not soliciting an offer to sell these securities in any
state where the sale is not permitted.
---------------------
THE DATE OF THIS PROSPECTUS IS OCTOBER __, 1999.
<PAGE>
TABLE OF CONTENTS
Forward-Looking Statements..................................................ii
Summary......................................................................1
Risk Factors................................................................14
Use of Proceeds.............................................................24
Capitalization..............................................................24
Unaudited Pro Forma Combined Financial Information..........................25
Selected Historical Financial Information...................................31
Management's Discussion and Analysis of Financial Condition and
Results of Operations..............................................34
Business....................................................................42
Description of Other Indebtedness...........................................55
Description of the Notes....................................................57
Selling Noteholder..........................................................92
Plan of Distribution........................................................92
Legal Matters...............................................................93
Experts.....................................................................93
Where You Can Find More Information.........................................94
Index to Financial Statements..............................................F-1
UNLESS THE CONTEXT OTHERWISE REQUIRES, ALL REFERENCES TO "PERRY ELLIS
INTERNATIONAL," THE "COMPANY," "WE," "US" OR "OUR" INCLUDE PERRY ELLIS
INTERNATIONAL, INC. (FORMERLY KNOWN AS SUPREME INTERNATIONAL CORPORATION) AND
ITS SUBSIDIARIES. REFERENCES IN THIS PROSPECTUS TO ANNUAL FINANCIAL DATA FOR
PERRY ELLIS INTERNATIONAL REFER TO FISCAL YEARS ENDING JANUARY 31. EFFECTIVE
JUNE 21, 1999, SUPREME INTERNATIONAL CORPORATION CHANGED ITS NAME TO PERRY ELLIS
INTERNATIONAL, INC. THE TERM "CONSOLIDATED FINANCIAL STATEMENTS" MEANS THE
CONSOLIDATED FINANCIAL STATEMENTS OF PERRY ELLIS INTERNATIONAL, INC., AND ITS
SUBSIDIARIES AND ACCOMPANYING NOTES CONTAINED IN THIS PROSPECTUS.
i
<PAGE>
FORWARD-LOOKING STATEMENTS
This prospectus includes forward-looking statements. We have based
these forward-looking statements on our current expectations and projections
about future events. These forward-looking statements are subject to risks,
uncertainties and assumptions about us, including, among other things:
o our anticipated growth strategies;
o our expected internal growth;
o integration of our completed acquisitions and ability to
obtain additional financing;
o our ability to integrate acquired businesses, trademarks,
tradenames and licenses;
o the expected efficiencies from our new office and warehouse
facility;
o anticipated trends and conditions in our industry, including
future consolidation;
o our future capital needs;
o our ability to compete; and
o the continued economic health of our markets.
We undertake no obligation to update or revise any forward-looking
statements, whether as a result of new information, future events or otherwise.
In light of these risks, uncertainties and assumptions, the forward-looking
events discussed in this prospectus might not occur.
---------------
This prospectus contains trademarks and tradenames owned by or licensed
to us as well as trademarks owned by third parties.
---------------
This prospectus is based on information provided by us and by other
sources that we believe are reliable. We cannot assure you that this information
is accurate or complete. This prospectus summarizes certain documents and other
information and we refer you to them for a more complete understanding of what
we discuss in this prospectus. In making an investment decision, you must rely
on your own examination of our company and the terms of the offering and the
notes, including the merits and risks involved.
You should rely only on the information contained in this prospectus.
We have not authorized any person to provide you with different information. If
anyone provides you with different or inconsistent information, you should not
rely on it. We are not making an offer to sell the securities in any
jurisdiction except where the offer or sale is permitted. You should assume that
the information appearing in this prospectus is accurate only as of the date on
the front cover of this prospectus. Our business, financial condition, results
of operations and prospects may have changed since that date.
ii
<PAGE>
------------------------
NO DEALER, SALESPERSON OR OTHER PERSON HAS BEEN AUTHORIZED TO GIVE ANY
INFORMATION OR TO MAKE ANY REPRESENTATIONS OTHER THAN THOSE CONTAINED IN THIS
PROSPECTUS, AND, IF GIVEN OR MADE, SUCH INFORMATION OR MISREPRESENTATIONS MUST
NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED BY US. THIS PROSPECTUS DOES NOT
CONSTITUTE AN OFFER TO SELL OR A SOLICITATION OF AN OFFER TO BUY ANY SECURITIES
OTHER THAN THE SECURITIES TO WHICH IT RELATES OR ANY OFFER TO SELL OR THE
SOLICITATION OF AN OFFER TO BUY SUCH SECURITIES IN ANY CIRCUMSTANCES IN WHICH
SUCH OFFER OR SOLICITATION IS UNLAWFUL. NEITHER THE DELIVERY OF THIS PROSPECTUS
NOR ANY SALE MADE HEREUNDER SHALL, UNDER ANY CIRCUMSTANCES, CREATE ANY
IMPLICATION THAT THERE HAS BEEN NO CHANGE IN OUR AFFAIRS SINCE THE DATE HEREOF
OR THAT THE INFORMATION CONTAINED HEREIN IS CORRECT AS OF ANY TIME SUBSEQUENT TO
ITS DATE.
------------------------
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
The SEC allows us to "incorporate by reference" information into this
prospectus, which means that we can disclose important information to you by
referring you to another document filed separately with the SEC. The information
incorporated by reference is considered to be part of this prospectus, except
for any information superseded by information contained directly in this
prospectus. This prospectus incorporates by reference the documents set forth
below that we have previously filed with the SEC. These documents contain
important information about us and our financial condition.
We hereby incorporate by reference our (a) Annual Report on Form 10-K
for the year ended January 31, 1999 and as amended on April 9, 1999, (b)
Quarterly Report on Form 10-Q for the quarter ended April 30, 1999, (c) Current
Report on Form 8-K, as filed with the SEC on April 9, 1999 and as amended on
April 16, 1999 and on June 14, 1999, (d) Current Report on Form 8-K, as filed
with the SEC on April 19, 1999, (e) Current Report on Form 8-K, as filed with
the SEC on June 23, 1999 and (f) Quarterly Report on Form 10-Q for the quarter
ended July 31, 1999.
Documents incorporated by reference are available from us without
charge, excluding all exhibits unless we have specifically incorporated by
reference an exhibit in this prospectus. You may obtain documents incorporated
by reference in this prospectus by requesting them in writing or by telephone
from us at the following address:
Perry Ellis International, Inc.
3000 N.W. 107th Avenue
Miami, Florida 33172
Attention: Corporate Secretary
(305) 592-2830
iii
<PAGE>
SUMMARY
THIS IS ONLY A SUMMARY AND IT MAY NOT CONTAIN ALL THE INFORMATION THAT
IS IMPORTANT TO YOU. WE ENCOURAGE YOU TO READ THIS ENTIRE DOCUMENT AND THE
DOCUMENTS WE HAVE REFERRED TO, AS WELL AS, CONSULT YOUR OWN LEGAL AND TAX
ADVISORS. THE TERM "NOTES" REFERS TO THE 12 1/4% SERIES A SENIOR SUBORDINATED
NOTES DUE 2006 THAT WERE ISSUED ON APRIL 6, 1999, INCLUDES THE NOTES OFFERED IN
THIS PROSPECTUS AND INCLUDE THE EXISTING NOTES THAT WERE SUBSEQUENTLY ISSUED IN
AN EXCHANGE OFFER. THE TERM "EXISTING NOTES" REFERS TO THE NOTES THAT WERE
SUBSEQUENTLY EXCHANGED IN AN EXCHANGE OFFER CONSUMMATED IN AUGUST 1999. THE
NOTES AND THE EXISTING NOTES HAVE IDENTICAL TERMS AND WERE ISSUED UNDER AND
GOVERNED BY THE SAME INDENTURE. REFERENCE IS MADE IN THIS PROSPECTUS TO THE PEI
ACQUISITION AND THE JOHN HENRY/MANHATTAN ACQUISITION. THE PEI ACQUISITION CLOSED
CONCURRENTLY WITH THE CLOSING OF THE SALE OF THE NOTES ON APRIL 6, 1999. THE
JOHN HENRY/ MANHATTAN ACQUISITION WAS COMPLETED ON MARCH 29, 1999.
THE COMPANY
We are a leading designer and marketer of a broad line of high quality
men's sportswear, including sport and dress shirts, golf sportswear, sweaters,
urban wear, casual and dress pants and shorts which we sell to all levels of
retail distribution. We have built a broad portfolio of brands through selective
acquisitions and the establishment of our own brands over our 32-year operating
history. Our distribution channels include regional, national and international
department stores, chain stores, mass merchandisers and specialty stores
throughout the United States, Puerto Rico and Canada. We are one of the top five
branded suppliers to department stores in the knit and woven shirt product
categories. Our largest customers include Dayton Hudson Corp., Federated
Department Stores, Inc., Sears Roebuck & Co., Kohl's Corporation, Wal-Mart
Stores, Inc. and J.C. Penney Company, Inc. We currently use over 70 independent
suppliers, located mostly in the Far East, other parts of Asia, Mexico and
Central America, to source our products.
Through consolidation of brands and internal growth, we have
experienced significant overall growth in recent years. Our total revenues have
increased to $224.4 million for fiscal 1999 from $90.6 million for fiscal 1995,
representing a compound annual growth rate of 25.5%. During that same period,
our EBITDA (as defined herein; see "Summary Historical Financial Information")
grew to $18.7 million from $7.9 million, representing a compound annual growth
rate of 24.0%. On a pro forma basis, assuming that the PEI acquisition and John
Henry/Manhattan acquisition were completed on February 1, 1998, our EBITDA for
fiscal 1999 would have been $33.3 million. See "Summary Pro Forma and
Supplemental Financial Information."
We own or license from third parties the brands under which most of our
products are sold. These brands include Crossings(R) and Natural Issue(R) for
casual sportswear, John Henry(R) for dress casual wear, Andrew Fezza(R) for
dress sportswear, Ping(R) and Munsingwear(R) for golf sportswear and PNB
Nation(R) for urban wear. Through our "family of brands" marketing strategy, we
seek to develop and enhance a distinct brand name for each product category
within each distribution channel. We market our brands to a wide range of
demographic segments, targeting consumers in specific age, income and ethnic
groups. Currently, our products are predominantly produced for the men's segment
of the apparel industry, in which fashion trends tend to be less volatile than
in other segments. The percentage of our revenues from branded products
increased to 81.4% in fiscal 1999 from 71.5% in fiscal 1997.
We also license our proprietary brands to third parties for the
manufacture and marketing of various products which we do not sell, including
underwear, activewear and loungewear. In addition to generating additional
sources of revenue for us, these licensing arrangements raise the overall
awareness
1
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of our brands. In order to expand our licensing operations, we recently acquired
Perry Ellis International, Inc., a New York corporation ("PEI") which owns and
licenses the prestigious and well-known Perry Ellis(R) brand name. PEI haD
royalty revenues of $16.2 million for the year ended December 31, 1998. To
reflect this acquisition, we recently changed our name to "Perry Ellis
International, Inc." In March 1999, we also purchased the trademarks for John
Henry, a leading brand of men's dress casualwear sold at Sears Roebuck, for
Manhattan(R), a popular dress shirT brand sold at Wal-Mart and Kmart Stores and
for Lady Manhattan(R).
We believe that our competitive strengths position us to capitalize on
several trends that have affected the apparel industry in recent years. These
include the consolidation of the department and chain store sectors into a
smaller number of stronger retailers, which represent some of our most important
customers; the increased reliance of retailers on reliable suppliers with design
expertise and advanced systems and technology; and the continued importance of a
brand as a source of product differentiation.
COMPETITIVE STRENGTHS
We believe that we have the following competitive advantages in our
industry:
PORTFOLIO OF STRONG BRANDS. We currently own seven major brands (Perry
Ellis, John Henry, Manhattan, Munsingwear, Crossings, Natural Issue and Grand
Slam(R)) with a total of over 40 sub-brands (such as Penguin(R) ANd Career
Club(R)). We also design, source and market three other major brands (PNB
Nation, Andrew Fezza, and Ping) which we license under customary agreements with
various expiration dates and renewal options. These brands enjoy national
recognition in their respective sectors of the apparel industry and we believe
that they have a loyal consumer and retailer following. Brand recognition is
critical in the apparel industry, where strong brand names help define consumer
preferences and drive department store floor space allocation. We believe that
each of the PEI and John Henry/Manhattan acquisitions will further enhance our
established portfolio of recognizable brands.
STRONG RETAILER RELATIONSHIPS. We believe our established relationships
with retailers at all distribution levels give us the opportunity to maximize
the selling space dedicated to our products, monitor our brand presentation and
merchandising selection, and introduce new brands and products. We have
long-standing relationships with our largest customers, including J.C. Penney
and Sears Roebuck (more than 20 years), Federated Department Stores (12 years),
Wal-Mart (10 years), Kohl's (6 years) and Dayton Hudson (5 years). We believe
that we have maintained these long relationships as a result of our quality
brand name products and our dedication to customer service. Management, in
conjunction with our 30 salespeople, meets with our major customers frequently
to review product offerings, establish and monitor sales plans, and design joint
advertising and promotional campaigns. We believe our reliable delivery times,
consistent product quality and quick response to design trends and inventory
demands allow us to meet our retailers' current requirements. In addition, our
global sourcing network, design expertise, advanced systems and technology, and
new warehousing facility enhance our ability to meet the changing and increasing
needs of our retailers.
STRONG LICENSING CAPABILITIES AND RELATIONSHIPS. By actively licensing
the brands we own, we have gained significant experience in identifying
potential licensing opportunities and have established relationships with many
active licensees. We believe that our broad portfolio of brands appeals to
licensees because it gives them the opportunity to sell their products in many
different retail distribution channels. For example, a manufacturer of men's
accessories might license the Crossings brand to sell to national department
stores and the Munsingwear brand to target mass merchandisers. We believe that
our licensing expertise, which is supported by a dedicated staff, will allow us
to continue marketing our brands to apparel producers effectively.
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WORLD-WIDE LOW-COST SOURCING CAPABILITIES. Our global network of
suppliers enables us to purchase apparel products at competitive cost without
sacrificing quality, while at the same time reacting quickly to our retailers'
needs and maximizing production flexibility. We developed this expertise through
more than 32 years of experience in purchasing our products from suppliers
around the world. No individual supplier in fiscal 1999 accounted for more than
7.3% of our total sourcing needs. We currently maintain a staff of experienced
professionals principally located in the United States, Korea, China and Mexico,
and a global network of ten sourcing and quality assurance offices, which
closely monitor our suppliers to maintain strict quality standards and identify
new sourcing opportunities. By sourcing our products, we manage our inventories
more effectively and do not incur the costs of maintaining and operating
production facilities.
DESIGN EXPERTISE AND ADVANCED TECHNOLOGY. Our in-house staff consists
of five designers, who have an average of 18 years of experience, and are
supported by a staff of 14 other design professionals. Together, they design
substantially all of our products utilizing computer-aided design technology.
The use of this technology minimizes the time-consuming and costly production of
actual sewn samples prior to customer approval. It also allows us to create
custom-designed products meeting the specific needs of our customers and
facilitates a quick response to changing fashion trends. Our computer-aided
design technology produces approximately 800 designs per month and our library
currently contains approximately 52,000 designs.
CAPACITY FOR GROWTH. We will be able to leverage our recent investments
in infrastructure and our skilled personnel to accommodate future internal
growth and selected acquisitions. Our recent move to a new approximately 238,000
sq. ft. office and warehouse facility in Miami, which includes 170,000 sq. ft.
of warehouse space, has positioned us to increase capacity with no significant
additional capital expenditure. This facility and our 15,000 sq. ft. of office
space in New York are sufficient to accommodate additional personnel. However,
we expect that our staffing levels will rise at a lower rate than our revenue
growth.
PROVEN ABILITY TO INTEGRATE ACQUISITIONS. From 1993 to 1998, we
acquired and integrated four major brands, which currently have over 40
sub-brands. We selectively target brands that we believe are underperforming and
can be revitalized using our competitive strengths. Prior to the PEI and John
Henry/Manhattan acquisitions, our most significant brand purchase was the
Munsingwear brand in 1996. As part of an extensive integration process, we:
o repositioned the brand based on our "family of brands"
strategy;
o improved the responsiveness to market trends by applying our
design and sourcing expertise; and
o communicated the new positioning of the brand through a wide
ranging marketing program.
As a result, Munsingwear annual revenues increased by 55.7% to approximately
$66.0 million in fiscal 1999 from approximately $42.4 million in fiscal 1998,
the first full year of our ownership. We believe that we can successfully
integrate additional brands into our family of brands and further develop and
revitalize them. For example, since our acquisition of the Perry Ellis brand, we
have been licensing and intend to continue to license the brand for additional
product categories such as women's wear and expand into geographic areas where
we believe the Perry Ellis brand has been historically underrepresented, such as
Europe and Asia.
3
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EXPERIENCED MANAGEMENT TEAM. Our senior management team averages nearly
20 years of experience in the apparel industry. Our management team also has
significant experience in developing and revitalizing brand names, has an
established reputation with retailers, the trade and the financial community,
and possesses a diverse skill base, which incorporates brand marketing, sourcing
and management information systems.
BUSINESS STRATEGY
Our "family of brands" marketing approach is designed to develop a
distinct brand for each product category within each distribution channel. For
example, we sell our golf sportswear under the Munsingwear brand to mass
merchants, under the Grand Slam brand to department stores and under the Ping
brand to higher-end retailers, golf shops and resorts. By differentiating our
brands in this manner, we can better satisfy the needs of each type of retailer
by offering brands tailored to its specific distribution channel. In addition,
we believe that this strategy helps insulate us from changing retail patterns,
allows us to maintain the integrity of each distribution channel and helps
prevent brand erosion.
Our objective is to develop and enhance our brands by:
o carefully maintaining distinct distribution channels for each
of our brands;
o consistently designing, sourcing and marketing quality
products;
o reinforcing the image of our brands and continuously promoting
them; and
o updating our styles to keep them current.
Controlling strong brands allows us to increase our retail base,
license these brands to third parties, develop sub-brands and grow
internationally.
To achieve our objective, we have adopted a strategy based on the
following elements:
INCREASE BRAND NAME RECOGNITION. We intend to enhance recognition of
our brand names by promoting our brands at both the retailer and consumer
levels. We conduct cooperative advertising in print and broadcast media in which
various retailers feature our products in their advertisements. We have also
begun direct consumer advertising in select markets by placing highly visible
billboards, sponsorships, special event advertisements and magazine
advertisements in periodicals such as Men's Health and Gentleman's Quarterly.
Licensing our brands to third parties also serves to enhance brand recognition
by providing increased consumer exposure. We have also established Web sites for
each of our major brands to position us to take advantage of opportunities
created by the Internet.
INCREASE DISTRIBUTION. We intend to increase the distribution of our
existing products by expanding the number of regional, national and
international retailers that carry our brands and increasing the number of
stores in which each of these retailers sells our products. This increased
exposure should broaden our established reputation at the retail and consumer
levels. We selectively pursue new channels of distribution for our products,
focusing on maintaining the integrity of our products and reinforcing our image
at existing retail stores, as well as introducing our products to geographic
areas and consumer sectors that are presently less familiar with our products.
CONTINUE TO DIVERSIFY PRODUCT LINE. We intend to broaden the range of
our product lines, capitalizing on the name recognition, popularity and discrete
target customer segmentation of each major
4
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brand. For example, we introduced a sweater line under the Crossings brand and
expanded it to include several of our other brands. We have also expanded into
urban wear with the licensing of the PNB Nation brand, dress sportswear with the
licensing of the Andrew Fezza brand and high-end golf sportswear with the
licensing of the Ping brand.
EXPAND LICENSING ACTIVITIES. Since acquiring Munsingwear in 1996, we
have significantly expanded the licensing of our brands to third parties for
various product categories. Similar to the Munsingwear acquisition, we believe
the PEI and John Henry/Manhattan acquisitions will provide significant licensing
opportunities. Since completing these acquisitions we have been using and we
intend to continue to use these nationally-recognized brands to expand our
licensing activities, particularly with respect to additional product
categories, such as women's wear, and into geographic areas where we believe
these brands have been historically underrepresented, such as Europe and Asia.
We plan to work with our licensees to strengthen their marketing efforts and
thereby increase our revenues.
THE PEI AND JOHN HENRY/MANHATTAN ACQUISITIONS
The apparel industry has followed the consolidation trend of the retail
industry as large retailers have continued to give preference to more dependable
and flexible wholesalers. We are frequently presented with and evaluate new
acquisition opportunities and intend to continue our strategy of making
selective acquisitions to add new product lines and expand our portfolio of
brands. Since 1993, we have acquired, or obtained licenses for, several brands,
including Munsingwear, John Henry, Andrew Fezza, Crossings, Ping and PNB Nation.
PEI. In January 1999, we agreed to buy PEI for approximately $74.6
million in cash, net of purchase price adjustments. PEI was a privately held
company which owned and licensed the Perry Ellis brand, currently one of the top
selling brands in department stores in the United States. PEI was the licensor
under 40 license agreements, primarily for various categories of men's wear,
boys' wear and fragrances. During the year ended December 31, 1998, PEI had
royalty revenues of $16.2 million and EBITDA of $7.8 million. Under our
management of the brand we expect to benefit from certain operating efficiencies
and to increase the licensing royalties the Perry Ellis brand generates. This
acquisition was financed from the net proceeds from the issuance of the notes.
JOHN HENRY/MANHATTAN. In December 1998, we entered into an agreement to
buy certain assets of the John Henry and Manhattan dress shirt business from
Salant Corporation, which entered into a Chapter 11 bankruptcy proceeding. On
February 24, 1999, the bankruptcy court approved the purchase for $27.0 million
plus the value of the existing dress shirt inventory (which was subsequently
valued at approximately $17.2 million). The acquisition was completed on March
29, 1999. The assets purchased consist of the John Henry, Manhattan and Lady
Manhattan trademarks and trade names, license agreements, certain manufacturing
equipment and the existing dress shirt inventory. On March 29, 1999,
Phillips-Van Heusen Corporation purchased the existing dress shirt inventory at
our acquisition cost and licensed from us the John Henry and Manhattan brands
for men's dress shirts. In connection with the John Henry/Manhattan acquisition,
we assumed a lease for a shirt manufacturing facility located in Mexico which
expires in July 1999. In May 1999, we assigned the lease for the facility and
sold certain manufacturing equipment to a non-affiliated party. The acquisition
price, net of the $1.0 million deposit we have paid and proceeds from the sale
of the existing dress shirt inventory, was approximately $26.0 million and was
financed with borrowings under our Senior Credit Facility.
We believe that these acquisitions will greatly expand our licensing
revenues, add to our strong portfolio of brands, allow us to broaden our product
line into product categories, such as women's wear and provide opportunities to
expand into geographic areas where we believe these brands have been
historically underrepresented, such as Europe and Asia.
5
<PAGE>
We were incorporated in Florida in April 1967. Our executive offices
are located at 3000 N.W. 107th Avenue, Miami, Florida 33172, and our telephone
number is (305) 592-2830.
6
<PAGE>
THE OFFERING
GENERAL................... In April 1999, we sold $100,000,000 in principal
amount of notes to initial purchasers under a
purchase agreement dated March 31, 1999. Pursuant to
the purchase agreement, we, our subsidiaries who
guaranteed our obligations under the notes and the
initial purchasers entered into a registration rights
agreement which granted the holders of the notes
certain exchange and registration rights. Carfel,
Inc., one of our affiliates, purchased $5,000,000
aggregate principal of the notes and agreed not to
sell its notes except pursuant to a shelf
registration statement and not before September 13,
1999.
In August 1999, we consummated an exchange offer
whereby all the holders of the notes (except Carfel)
exchanged their notes for freely transferable notes
as required by the purchase agreement. This
prospectus relates to the registration of the re-sale
of the notes held by Carfel. All references to the
notes are to all $100,000,000 in principal amount of
notes outstanding unless the context otherwise
requires.
RESALE.................... We believe that you will be able to freely transfer
the notes without registration or any prospectus
delivery requirement.
USE OF PROCEEDS........... We will not receive any cash proceeds from the sale
of the notes being offered by Carfel under this
prospectus.
SUMMARY OF TERMS OF THE NOTES
ISSUER.................... Perry Ellis International, Inc.
3000 N.W. 107th Avenue
Miami, Florida 33172
(305) 592-2830
NOTES OFFERED............. $5,000,000 aggregate principal of 12 1/4% Series A
Senior Subordinated Notes due 2006.
MATURITY DATE............. April 1, 2006.
INTEREST PAYMENT DATES.... April 1 and October 1 of each year, commencing
October 1, 1999.
GUARANTEES................ Each of our current subsidiaries fully and
unconditionally guarantee the notes on a senior
subordinated basis. Future subsidiaries also may be
required to guarantee the notes. See "Description of
the Notes--Subsidiary Guarantees" and "--Certain
Covenants--Limitation on Guarantees of Indebtedness
by Restricted Subsidiaries."
7
<PAGE>
RANKING................... The notes and the subsidiary guarantees are unsecured
senior subordinated indebtedness. The notes rank
behind all of our existing and future senior
indebtedness including borrowings under our $90.0
million credit agreement consisting of a revolving
credit facility of up to an aggregate amount of $75.0
million and a term loan in the aggregate amount of
$15.0 million (the "Senior Credit Facility") and
three letter of credit facilities totaling $60.0
million (the "Letter of Credit Facilities") for the
purchase of our products from suppliers. The
guarantees of the notes rank behind all existing and
future guarantor senior indebtedness, including
guarantees of the Senior Credit Facility. The terms
"senior indebtedness" and "guarantor senior
indebtedness" are defined in the "Description of the
Notes--Ranking" section of this prospectus.
After the issuance of the notes, our use of the net
proceeds, the John Henry/Manhattan acquisition and
related Phillips-Van Heusen transactions and the PEI
acquisition, at July 31, 1999, we had $126.1 million
of consolidated indebtedness outstanding, including
$27.2 million of senior indebtedness (all of which is
secured and is guarantor senior indebtedness). In
addition, we would have had additional availability
under the Senior Credit Facility of approximately
$23.9 million as of July 31, 1999, all of which would
have been senior secured indebtedness. We also have
approximately $15.7 million in obligations, all of
which are secured, over the next four years under a
synthetic lease (the "Lease") which we entered into
to finance our new office and warehouse facility. See
"Description of Other Indebtedness."
We and our subsidiaries may incur additional
indebtedness, subject to certain limitations. See
"Description of the Notes-- Ranking" and "--Certain
Covenants--Limitation on Indebtedness."
OPTIONAL REDEMPTION....... We may redeem the notes, in whole or in part, at any
time, on or after April 1, 2003, at the redemption
prices (expressed as percentages of principal amount)
set forth below, plus accrued and unpaid interest, if
any, to the redemption date, if redeemed during the
12-month period beginning on April 1 of the years
indicated below:
REDEMPTION
YEAR PRICE
-----------------------------------------------
2003..................... 106.125%
2004..................... 103.063%
2005 and thereafter...... 100.000%
8
<PAGE>
PUBLIC EQUITY OFFERING
OPTIONAL REDEMPTION....... On or before April 1, 2002, we may redeem up to 35%
of the aggregate principal amount of the notes with
the net proceeds of certain public sales of common
stock at 112.25% of the principal amount thereof,
plus accrued and unpaid interest, if any, if at least
65% of the aggregate principal amount of the notes
originally issued remains outstanding after such
redemption. See "Description of the
Notes--Redemption."
CHANGE IN CONTROL......... Upon certain changes in control, we must offer to
repurchase all or a portion of the notes at a
purchase price equal to 101% of the principal amount
of the notes, plus accrued and unpaid interest, if
any, to the purchase date. See "Description of the
Notes--Certain Covenants--Purchase of Notes upon a
Change in Control."
CERTAIN COVENANTS......... The indenture governing the notes contains covenants
that, among other things, restrict our ability and
the ability of our subsidiaries to:
o incur additional indebtedness;
o pay dividends on, redeem or repurchase our
capital stock;
o make certain investments;
o issue or sell capital stock of restricted
subsidiaries;
o create certain liens;
o sell assets;
o in the case of our restricted subsidiaries,
make dividends or other payments;
o in the case of our restricted subsidiaries,
guarantee indebtedness;
o engage in transactions with affiliates; and
o consolidate, merge or transfer all or
substantially all of our assets and the
assets of our subsidiaries on a consolidated
basis.
These covenants are subject to important exceptions
and qualifications, which are described under the
heading "Description of the Notes" in this
prospectus.
9
<PAGE>
RISK FACTORS.............. You should carefully consider all of the information
contained in this prospectus prior to investing in
the notes. In particular, we urge you to carefully
consider the factors set forth under "Risk Factors"
beginning on page 13 of this prospectus.
See "Description of Notes" for more detailed information concerning the
terms of the notes.
10
<PAGE>
SUMMARY PRO FORMA AND SUPPLEMENTAL FINANCIAL INFORMATION
The "Pro Forma Financial Information" set forth below gives effect to
(i) the PEI acquisition, (ii) the offering of the notes, (iii) the John
Henry/Manhattan acquisition, and (iv) additional indebtedness incurred under the
Senior Credit Facility to finance the John Henry and Manhattan acquisition as if
they had occurred on February 1, 1998.
The information presented below has been derived from our audited and
unaudited consolidated financial statements, the audited and unaudited financial
statements of Perry Ellis International, Inc. and the audited financial
statements of the John Henry and Manhattan Business. This information does not
purport to represent what our operating results or financial condition would
actually have been had the PEI acquisition and/or the John Henry/Manhattan
acquisition and related transactions actually occurred as of the dates indicated
above or to project our financial condition for any future period. The
information presented below should be read in conjunction with our consolidated
financial statements and notes thereto, "Unaudited Pro Forma Combined Financial
Information" and notes thereto, "Management's Discussion and Analysis of
Financial Condition and Results of Operations" and the financial statements and
notes thereto of PEI and of the John Henry and Manhattan Business included
elsewhere herein.
PRO FORMA FINANCIAL INFORMATION
PRO FORMA PRO FORMA
FISCAL YEAR ENDED SIX MONTHS ENDED
JANUARY 31, 1999 JULY 31, 1999
---------------- -------------
(DOLLARS IN MILLIONS)
STATEMENT OF INCOME DATA:
Total revenues................................. $245.5 $117.7
Depreciation and amortization.................. 4.8 3.1
Operating income............................... 28.4 14.8
Interest expense............................... 16.4 8.2
OTHER FINANCIAL DATA AND RATIOS:
Pro Forma EBITDA (a)........................... $33.3 $17.9
Ratio of Pro Forma EBITDA to interest expense.. 2.0x 2.2x
Ratio of total debt to Pro Forma EBITDA........ 4.0x 7.0x
11
<PAGE>
SUMMARY HISTORICAL FINANCIAL INFORMATION
(DOLLARS IN THOUSANDS)
The following table presents summary historical financial data derived
from the audited and unaudited consolidated financial statements of the Company,
and the audited and unaudited financial statements of PEI and the audited
financial statements of the John Henry and Manhattan Business. The historical
financial information should be read in conjunction with our consolidated
financial statements and notes thereto, the financial statements and notes
thereto of PEI and the audited financial statements and notes thereto of the
John Henry and Manhattan Business appearing elsewhere herein.
<TABLE>
<CAPTION>
SIX MONTHS
FISCAL YEAR ENDED JANUARY 31, ENDED JULY 31,
---------------------------------------------------------- ---------------------
1995 1996 1997 1998 1999 1998 1999
------- -------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C>
PERRY ELLIS INTERNATIONAL HISTORICAL
STATEMENT OF INCOME DATA:
Net sales $90,564 $121,839 $157,373 $190,689 $221,347 $109,795 104,752
Royalty income.......................... -- 759 1,654 4,032 3,057 2,003 9,060
------- -------- -------- -------- -------- -------- --------
Total revenues.......................... 90,564 122,598 159,027 194,721 224,404 111,798 113,812
Cost of sales........................... 69,187 92,145 122,046 145,991 166,198 82,983 77,482
------- -------- -------- -------- -------- -------- --------
Gross profit............................ 21,377 30,453 36,981 48,730 58,206 28,815 36,330
Selling, general and administrative
expenses................................ 13,493 20,395 24,729 34,137 39,478 20,130 20,970
Depreciation and amortization........... 474 725 1,147 1,748 2,161 1,033 2,382
------- -------- -------- -------- -------- -------- --------
Operating income........................ 7,410 9,333 11,105 12,845 16,567 7,652 12,978
Interest expense........................ 1,219 2,224 1,664 2,782 3,494 1,864 5,906
------- -------- -------- -------- -------- -------- --------
Income before income taxes.............. 6,191 7,109 9,441 10,063 13,073 5,788 7,072
Income taxes............................ 2,319 2,685 3,597 2,885 4,491 2,095 2,573
------- -------- -------- -------- -------- -------- --------
Net income.............................. $3,872 $4,424 $5,844 $7,178 $8,582 $3,693 $4,499
======= ======== ======== ======== ======== ======== ========
OTHER FINANCIAL DATA AND RATIOS:
Net cash provided by (used in)
operating activities.................... $(20,015) $5,303 $1,874 $(3,101) $14,341 $125 $ 9,494
Net cash provided by (used in)
investing activities.................... (825) (1,492) (24,456) (4,555) (10,240) (3,697) (101,894)
Net cash provided by (used in)
financing activities.................... 21,094 (3,894) 23,080 7,910 (4,938) 3,094 92,658
EBITDA (a).............................. 7,884 10,058 12,252 14,593 18,728 8,685 15,360
Capital expenditures.................... 747 1,309 1,058 3,828 4,005 3,612 252
Ratio of earnings to fixed charges (b).. 5.3x 3.8x 5.7x 4.1x 4.2x 3.8x 2.1x
BALANCE SHEET DATA (AT PERIOD END):
Working capital......................... $43,067 $47,760 $23,575 $66,166 $71,300 73,975 59,548
Total assets............................ 55,512 53,735 88,158 101,650 108,958 108,904 210,680
Total debt (c).......................... 28,256 6,968 31,949 39,658 33,511 42,327 126,120
Total stockholders' equity.............. 22,016 43,833 47,775 55,155 64,946 59,273 69,550
</TABLE>
(continued on following page)
12
<PAGE>
<TABLE>
<CAPTION>
FISCAL YEAR ENDED DECEMBER 31, QUARTER ENDED
MARCH 31,
------------------------------------------------------- --------------------
1994 1995 1996 1997 1998 1998 1999
------- ------- ------- ------- ------- ------ ------
<S> <C> <C> <C> <C> <C> <C> <C>
PEI HISTORICAL
STATEMENT OF INCOME DATA:
Net royalty revenues..................... $10,074 $11,685 $10,917 $15,660 $16,177 $6,738 5,760
Selling, general and administrative
expenses................................. 7,239 5,594 8,606 7,109 8,398 1,819 2,393
Depreciation and amortization............ 37 200 212 226 228 58 58
------- ------- ------- ------- ------- ------ ------
Operating income......................... 2,798 5,891 2,099 8,325 7,551 4,861 3,309
Interest income.......................... 43 82 144 136 32 9 7
------- ------- ------- ------- ------- ------ ------
Income before income taxes............... 2,841 5,973 2,243 8,461 7,583 4,870 3,316
Income taxes............................. 308 640 218 852 760 __ __
------- ------- ------- ------- ------- ------ ------
Net income............................... $2,533 $5,333 $2,025 $7,609 $6,823 $4,870 $3,316
======= ======= ======= ======= ======= ====== ======
OTHER FINANCIAL DATA AND RATIOS:
Net cash provided by (used in) operating
activities............................... $3,982 6,572 2,311 $7,454 $5,624 $766 $3,601
Net cash provided by (used in) investing
activities............................... (1,902) (355) (1,047) 913 (21) (9) --
Net cash provided by (used in) financing
activities............................... (2,423) (4,763) (1,413) (9,679) (4,354) (800) (2,900)
EBITDA (a)............................... 2,878 6,173 2,455 8,688 7,811 4,919 3,367
Capital expenditures..................... 1,402 355 47 87 21 9 --
BALANCE SHEET DATA (AT PERIOD END):
Working capital.......................... $ (204) $1,281 $1,995 $(27) $2,665 $3,656 $3,139
Total assets............................. 2,985 4,121 4,803 3,112 4,563 6,445 5,233
Total debt............................... 700 -- -- -- -- -- --
Total stockholders' equity............... 1,557 2,827 3,439 1,369 3,839 5,043 4,255
</TABLE>
<TABLE>
<CAPTION>
FISCAL YEAR ENDED
JANUARY 2, 1999
---------------
<S> <C>
JOHN HENRY/MANHATTAN BUSINESS HISTORICAL
STATEMENT OF INCOME DATA:
Royalty Income............................................................................................ $3,993
Selling, general and administrative expenses.............................................................. (833)
Depreciation and amortization............................................................................. (330)
Other income, net......................................................................................... 17
Income taxes, foreign..................................................................................... (179)
-------
Income before interest and domestic income taxes.......................................................... $2,668
=======
BALANCE SHEET DATA (AT YEAR END)
Total assets.............................................................................................. $27,000
Total stockholders' equity................................................................................ 27,000
</TABLE>
- -------------
(a) EBITDA represents net income before taking into consideration interest
expense, income tax expense, depreciation expense, and amortization
expense. EBITDA is not a measurement of financial performance under
generally accepted accounting principles and does not represent cash
flow from operations. Accordingly, do not regard this figure as an
alternative to net income or as an indicator of our operating
performance or as an alternative to cash flows as a measure of
liquidity. We believe that EBITDA is widely used by analysts, investors
and other interested parties in our industry but is not necessarily
comparable with similarly titled measures for other companies.
(b) For purpose of computing this ratio, earnings consist of earnings
before income taxes and fixed charges. Fixed charges consist of
interest expense, amortization of deferred debt issuance costs and the
portion of rental expense of the Lease deemed representative of the
interest factor.
(c) Total debt includes balances outstanding under credit facilities,
long-term debt and the current portion of long-term debt.
13
<PAGE>
RISK FACTORS
YOUR INVESTMENT IN THE NOTES INVOLVES CERTAIN RISKS. YOU SHOULD
CAREFULLY CONSIDER THE FOLLOWING RISK FACTORS AND THE OTHER INFORMATION IN THIS
PROSPECTUS BEFORE DECIDING TO INVEST IN THE NOTES.
WE HAVE SUBSTANTIAL DEBT AND INTEREST PAYMENT OBLIGATIONS
We now have a significant amount of debt. The following chart, with
dollar amounts in thousands, shows certain important credit statistics and is
presented as of and for the quarter ended July 31, 1999:
Total debt............................................ $126,120
Stockholders' equity.................................. $69,550
Pro forma ratio of earnings to fixed charges.......... 2.1x
Our substantial indebtedness could have important consequences to you,
including:
o making it more difficult for us to satisfy our obligations
with respect to the notes;
o increasing our vulnerability to adverse general economic and
industry conditions;
o limiting our ability to obtain additional financing to fund
future working capital, capital expenditures, acquisitions and
other general corporate requirements;
o requiring us to dedicate a substantial portion of our cash
flow from operations to payments on our indebtedness, thereby
reducing the availability of our cash flow to fund working
capital, capital expenditures, acquisitions or other general
corporate purposes;
o limiting our flexibility in planning for, or reacting to,
changes in our business and the industry in which we operate;
and
o placing us at a competitive disadvantage compared to our less
leveraged competitors.
Our ability to pay interest on the notes and to satisfy our other debt
obligations will depend upon, among other things, our future operating
performance and our ability to refinance indebtedness when necessary. Each of
these factors is, to a large extent, dependent on economic, financial,
competitive and other factors beyond our control. If, in the future, we cannot
generate sufficient cash from operations to make scheduled payments on the notes
or to meet our other obligations, we will need to refinance, obtain additional
financing or sell assets. We cannot assure you that our business will generate
cash flow or that we will be able to obtain funding sufficient to satisfy our
debt service requirements.
A significant portion of our assets consists of trademarks, licenses,
goodwill and certain other intangibles. After giving effect to the (i) offering
of the notes and the use of the net proceeds to finance the PEI acquisition and
to repay a portion of indebtedness under the Senior Credit Facility and (ii)
completion of the John Henry/Manhattan acquisition, we would have had
approximately $120.7 million of intangible assets as of January 31, 1999. The
value of these assets could be reduced materially in the future due to changing
consumer preferences, our failure to implement our business strategy,
competition and other future trends. As a result, our assets may not be
sufficient to repay all of our indebtedness (including the notes) if secured
creditors foreclose on the assets pledged to them or if we are forced to dispose
of our assets to meet our obligations.
14
<PAGE>
See "Description of the Notes--Redemption" and "--Certain
Covenants--Purchase of Notes upon a Change in Control" and "Description of Other
Indebtedness."
THE NOTES AND GUARANTEES ARE SUBORDINATED TO OUR SENIOR INDEBTEDNESS
The notes are subordinated to all our senior indebtedness. The
guarantees are subordinated to all guarantor senior indebtedness. As of July 31,
1999, after giving effect to the (i) offering of the notes and the use of the
net proceeds to finance the PEI acquisition and to repay a portion of our
indebtedness under the Senior Credit Facility and (ii) completion of the John
Henry/Manhattan acquisition, we had outstanding $27.2 million of senior
indebtedness (all of which is guarantor senior indebtedness and all of which is
secured by substantially all our assets). Additionally, we have approximately
$15.7 million of obligations under the Lease over a four-year period, all of
which is secured by substantially all our assets. We also may incur additional
senior indebtedness under the terms of the Senior Credit Facility and the
indenture governing the notes. The maximum availability, subject to borrowing
base requirements for the revolving credit facility, under our Senior Credit
Facility is $90.0 million consisting of a revolving credit facility of up to an
aggregate principal amount of $75.0 million and a term loan in the aggregate
amount of $15.0 million which, if borrowed, would be senior indebtedness and
would be secured by substantially all our assets.
In the event of our bankruptcy, liquidation or dissolution, our assets
would be available to pay obligations on the notes only after all payments have
been made on our senior indebtedness. Similarly, in the event of a bankruptcy,
liquidation or dissolution of any subsidiary, its assets would be available to
pay obligations on the guarantee only after payments had been made on its
guarantor senior indebtedness. In addition, no cash payments may be made with
respect to the notes during the continuance of a payment default with respect to
senior indebtedness. Furthermore, under certain circumstances, no cash payments
with respect to the notes may be made for a period of up to 179 days (during
each period of 360 days) if a nonpayment default exists with respect to
designated senior indebtedness. We cannot assure you that sufficient assets will
remain to make any payments to you or other holders of the notes. In addition,
certain events of default under the Senior Credit Facility would prohibit us
from making any payments on the notes. The terms "senior indebtedness,"
"guarantor senior indebtedness" and "designated senior indebtedness" are defined
in the "Description of the Notes--Ranking" section of this prospectus. See
"Description of Other Indebtedness" and "Description of the Notes."
THE NOTES ARE NOT SECURED BY ANY OF OUR ASSETS
In addition to being subordinate to all of our senior indebtedness, the
notes and the guarantees will not be secured by any of our assets or the assets
of our subsidiaries. Our obligations under the Senior Credit Facility, however,
are secured by all of our assets and those of our subsidiaries. Our obligations
under the Lease are also secured by a lien on all of our assets and those of our
subsidiaries. If we become insolvent or are liquidated, or if payment under the
Senior Credit Facility is accelerated, the lenders under the Senior Credit
Facility and the Lease would be entitled to exercise the remedies available to a
secured lender under applicable law. Under these circumstances, these lenders
will have a claim on substantially all of our assets and those of our
subsidiaries. Because the notes are unsecured, there could be no assets
remaining for the holders of the notes or any remaining assets could be
insufficient to pay off the notes. See "Capitalization," "Management's
Discussion and Analysis of Financial Condition and Results of
Operations--Liquidity and Capital Resources," "Description of Other
Indebtedness," "Description of the Notes," "Unaudited Pro Forma Combined
Financial Information" and "Selected Historical Financial Information."
15
<PAGE>
A CHANGE IN FASHION TRENDS COULD HARM OUR BUSINESS
We believe that our success depends on our ability to anticipate,
identify and respond to changing fashion trends in a timely manner. To the
extent that we decide to increase our marketing of women's apparel, we may be
more subject to changes in fashion trends. If we misjudge consumer preferences
or if a shift in fashion trends turns away from our products, it could have a
material adverse effect on our business, financial condition, results of
operations and prospects. See "Business."
OUR BUSINESS COULD BE HARMED IF GENERAL ECONOMIC CONDITIONS DETERIORATE OR SOME
OF OUR CUSTOMERS EXPERIENCE FINANCIAL DIFFICULTIES
The retail industry has historically been subject to substantial
cyclical variations and is particularly affected by adverse trends in the
general economy, with consumer spending tending to decline during recessionary
periods. The success of our operations depends on consumer spending, which is
impacted by a number of factors including economic conditions (and perceptions
of economic conditions) affecting disposable consumer income (such as
unemployment, wages and salaries), business conditions, interest rates,
availability of credit and taxation, for the economy as a whole and in regional
and local markets where our products are sold. Any significant deterioration in
general economic conditions or increases in interest rates could reduce the
level of consumer spending and thereby have a material adverse effect on our
business, financial condition, results of operations and prospects by, among
other things, inhibiting consumers' use of credit.
In addition, during the past several years, various retailers,
including some of our customers, have experienced significant changes and
difficulties including consolidation of ownership, increased centralization of
buying decisions, restructurings, bankruptcies and liquidations. These and other
financial problems of some of our retailers increase the risk of extending
credit to these retailers. A significant adverse change in a customer or its
financial position could cause us to limit or discontinue business with that
customer, require us to assume more credit risk relating to that customer's
receivables or limit our ability to collect amounts related to previous
purchases by that customer, all of which could have a material adverse effect on
our business, financial condition, results of operation and prospects. See
"Business."
WE RELY ON OUR KEY CUSTOMERS FOR MUCH OF OUR BUSINESS
We derive a significant amount of our revenues from a few major
customers. Net sales to our five largest customers totaled approximately 48% of
net sales during fiscal 1999, 47% of net sales during fiscal 1998 and 54% of net
sales during fiscal 1997. Our largest customers include Dayton Hudson, Sears
Roebuck, Wal-Mart, Federated Department Stores, Kohl's, and J.C. Penney. Sales
to Dayton Hudson accounted for approximately 15% of net sales during fiscal 1999
and sales to Sears Roebuck and Federated Department Stores each accounted for
approximately 10% of net sales during fiscal 1999. Sales to Dayton Hudson
accounted for approximately 12% of net sales during fiscal 1998 and sales to
Sears Roebuck accounted for approximately 13% of net sales during fiscal 1998.
Sales to Kmart Corporation accounted for approximately 15% of net sales during
fiscal 1997 and sales to J.C. Penney and Sears Roebuck each accounted for
approximately 12% of net sales during fiscal 1997. No other single customer
accounted for more than 10% of net sales during these fiscal years. Although we
have long-established relationships with many of our customers, we do not have
long-term contracts with any of them and purchases generally occur on an
order-by-order basis. A decrease in business from or loss of any of our major
customers could have a material adverse effect on our business, financial
condition, results of operations and prospects. See "Business--Marketing and
Distribution."
16
<PAGE>
OUR BUSINESS MAY BE HARMED IF OUR CONTRACT MANUFACTURERS DO NOT PRODUCE OUR
GOODS EFFECTIVELY
We currently utilize independent contract manufacturers to produce
substantially all of our apparel products. We depend upon the ability of our
contract manufacturers to secure a sufficient supply of raw materials,
adequately finance the production of goods ordered and maintain sufficient
manufacturing and shipping capacity. The use of contract manufacturing and the
resulting lack of direct control could subject us to difficulty in obtaining
timely delivery of products of acceptable quality. We do not have long-term
contracts with any of our suppliers. We believe that the loss of any one or more
of our suppliers is not likely to have a long-term material adverse effect on
our business because either new or existing manufacturers would be available to
fulfill our requirements although in the short term it could have a material
adverse effect on our business, financial condition, results of operations and
prospects. Additionally, in the event of supply problems, key customers may turn
to other suppliers. See "Business--Sources of Supply."
OUR BUSINESS MAY BE HARMED IF OUR FOREIGN SUPPLIERS DO NOT ADEQUATELY PROVIDE US
WITH PRODUCT
During fiscal 1999, substantially all of our products were purchased
from independent contract manufacturers located in foreign countries. We
currently use approximately 48 suppliers in countries in the Far East and other
parts of Asia and approximately 24 suppliers in Mexico and countries in Central
America. Because most of our products are manufactured abroad, we are required
to order products further in advance than would be the case if products were
manufactured domestically. If we overestimate retailers' demand, we may be
required to hold goods in inventory which we may be unable to sell at historical
margins; if we underestimate retailers' demand, we may not be able to fill
reorders on a timely basis. Foreign manufacturing is subject to a number of
other risks, including work stoppages, transportation delays and interruptions,
political instability, economic disruptions, the imposition of tariffs and
import and export controls, changes in governmental policies and other events.
If any of these events occur, we could miss an upcoming retailing season, which
could result in loss of revenues, customer orders and customer goodwill and
could have a material adverse effect on our business, financial condition,
results of operations and prospects.
Although we have historically contracted to purchase substantially all
of our goods in U.S. dollars, reductions in the value of the U.S. dollar could
ultimately increase the prices that we pay for our products. See
"Business--Sources of Supply."
IT IS POSSIBLE THAT WE WILL NOT BE ABLE TO RENEW CERTAIN LICENSES
We currently license the Ping, Andrew Fezza and PNB Nation brands from
third parties. These licenses vary in length of term, renewal conditions and
royalty obligations. There can be no guarantee that, if we desire to renew or
extend any of these licenses, we would be able to do so on favorable terms, if
at all. See "Business--Brands."
THE INDENTURE IMPOSES MANY RESTRICTIONS ON US
The indenture governing the notes contains covenants that, among other
things, restrict our ability and the ability of our subsidiaries to:
o incur additional indebtedness;
o pay dividends on, redeem or repurchase our capital stock;
o make certain investments;
17
<PAGE>
o issue or sell capital stock of restricted subsidiaries;
o create certain liens;
o sell assets;
o in the case of our restricted subsidiaries, make dividends or
other payments;
o in the case of our restricted subsidiaries, guarantee
indebtedness;
o engage in transactions with affiliates; and
o consolidate, merge or transfer all or substantially all of our
assets and the assets of our subsidiaries on a consolidated
basis.
These covenants are subject to important exceptions and qualifications
which are described under the heading "Description of the Notes" in this
prospectus.
In addition, the Senior Credit Facility and, to a lesser extent, the
Lease contain many restrictive covenants similar to the indenture's covenants
which, among other things, impose certain limitations on us. The Senior Credit
Facility contains restrictive covenants which are generally more restrictive
than those contained in the indenture. The Senior Credit Facility requires us to
maintain specified consolidated financial ratios and satisfy certain
consolidated financial tests. Our ability to meet those financial ratios and
financial tests may be affected by events beyond our control, and we cannot
assure you that we will meet those tests. If we fail to meet those tests or
breach any of the covenants, the lenders under the Senior Credit Facility or the
lessor under, and the financial institutions which financed, the Lease could
declare all amounts outstanding thereunder, together with accrued interest, to
be immediately due and payable. If we are unable to repay those amounts, each of
the lenders and the financial institutions could proceed against our assets
granted as collateral to secure that indebtedness. We cannot assure you that our
assets would be sufficient to repay in full the indebtedness under the Senior
Credit Facility and/or the Lease.
In addition, if we default under the indenture, the Senior Credit
Facility or the Lease, that default could constitute a cross-default under the
indenture, the Senior Credit Facility or the Lease, as applicable. See
"Description of the Notes" and "Description of Other Indebtedness."
These operating and financial restrictions and covenants may adversely
affect, and in fact may limit or prohibit, our ability to finance future
acquisitions, our operations and our capital needs. See "Description of Other
Indebtedness" and "Description of the Notes."
WE ARE REQUIRED TO FINANCE WORKING CAPITAL
We need significant working capital to purchase inventory and finance
accounts receivable and are generally required to post letters of credit when
placing an order with one of our foreign manufacturers. Currently, a substantial
portion of our working capital requirements are met through the Senior Credit
Facility. We also maintain the Letter of Credit Facilities to permit us to post
letters of credit. In the event we are unable to extend or renew either the
Senior Credit Facility or the Letter of Credit Facilities on satisfactory terms
or in the event borrowings thereunder were unavailable to us as a result of our
non-compliance with the financial and operating covenants contained therein, our
ability to purchase inventory and finance accounts receivable would be curtailed
or eliminated and our business, financial
18
<PAGE>
condition, results of operations and prospects could be materially adversely
affected. See "Management's Discussion and Analysis of Financial Condition and
Results of Operations--Liquidity and Capital Resources" and "Description of
Other Indebtedness."
IMPORTS ARE SUBJECT TO IMPORT RESTRICTIONS
Due to our dependence on foreign suppliers, we are subject to risks
associated with importing products into the United States. Substantially all of
our import operations are subject to the terms of bilateral textile agreements
between the United States and a number of foreign countries. These agreements
allow the United States to impose at any time restraints on the importation of
categories of merchandise that, under the terms of the agreements, are not
subject to specified limits.
Our imported products are also subject to United States customs duties,
which are a material portion of our cost of sales. The United States and the
countries in which our products are manufactured may from time to time impose
new quotas, duties, tariffs or other restrictions or adversely adjust presently
prevailing quotas, duties or tariffs. For example, the United States has imposed
penalties on imported foreign products which are found to have been manufactured
by convict, forced or indentured labor and has, from time to time, threatened to
withdraw China's "most favored nation" status (from where less than 10% of our
products are currently purchased), which could result in the imposition of
reduced quotas and/or higher tariffs on products imported from that country. Any
new or increased quotas, duties, tariffs or other such restrictions could have a
material adverse effect on our business, financial condition, results of
operations and prospects. See "Business--Sources of Supply."
Any changes in these agreements that impose additional restraints on
the products we import could increase our costs, limit the products we have
available to sell and have a material adverse effect on our business, financial
condition, results of operations and prospects.
WE ARE SUBJECT TO CERTAIN RISKS RELATING TO OUR CURRENT AND FUTURE ACQUISITIONS
AND THEIR INTEGRATION
Our business strategy includes making selective acquisitions to add new
product lines and expand our portfolio of brand names, although we currently are
not contemplating any acquisitions. This strategy presents certain risks
inherent in (a) assessing the value, strengths and weaknesses of brand names,
(b) evaluating the costs and uncertain returns of expanding our operations, and
(c) integrating the brands acquired with existing operations. Our growth
strategy may affect short-term cash flow and net income as we increase our
indebtedness and incur expenses to promote newly acquired brands and expand our
inventory. As a result, revenue and operating results may fluctuate. We cannot
assure you that we will successfully expand our portfolio of brands, that any
acquired brand names will be successfully integrated into our operations or that
any expansion will result in profitability. The failure to successfully
implement our growth strategy may have a material adverse effect on our
business, financial condition, results of operations and prospects.
Our anticipated growth may place significant demands on our management
and our operational, financial and marketing resources. In connection with the
acquisition of new brand names, we anticipate expanding the number of our
employees, the scope of our operating systems and the geographic area of our
operations. We believe this growth will increase the complexity of our
operations and the level of responsibility exercised by both existing and new
management personnel. To manage this expected growth, we intend to invest
further in our operating systems and to continue to expand, train and manage our
employee base, although we cannot assure you that our current operating and
financial systems and controls will continue to be adequate as we grow or that
any steps taken to improve such systems and controls will be sufficient. Our
failure to successfully integrate and manage our growth may have a material
adverse effect on our business, financial condition, results of operations and
prospects.
19
<PAGE>
There may be liabilities that we failed or were unable to discover in
the course of performing due diligence investigations related to the PEI
acquisition, the John Henry/Manhattan acquisition and any future acquisitions.
Such liabilities could include those arising from the trademarks, employee
benefits contribution obligations of a prior owner or non-compliance with
applicable federal, state or local environmental requirements by prior owners
for which we, as a successor owner, may be responsible. We try to minimize these
risks by conducting that due diligence, including trademark, employee benefits
and environmental reviews, we deem appropriate under the circumstances. However,
we cannot assure you that we have identified or, in the case of future
acquisitions, will identify, all existing or potential risks. We also seek to
require the sellers to indemnify us against undisclosed liabilities. However, we
cannot assure you that the indemnification, even if obtained, will be
enforceable, collectible or sufficient in amount, scope or duration to fully
offset the possible liabilities associated with the business or property
acquired. Any of these liabilities, individually or in the aggregate, could have
a material adverse effect on our business, financial condition, results of
operations and prospects.
WE FACE INTENSE COMPETITION IN THE RETAIL APPAREL INDUSTRY
The retail apparel industry is highly competitive and fragmented. Our
competitors include numerous apparel designers, manufacturers, importers and
licensors, many of which have greater financial and marketing resources than us.
To date, we have been able to compete successfully but there can be no guarantee
that we will continue to be able to do so in the future. See
"Business--Competition."
WE ARE SUBJECT TO SEASONALITY
Our products have historically been geared toward lighter-weight
products generally worn during the spring and summer months, which typically
caused disproportionately higher revenues to be realized during the first and
third quarters of each fiscal year. Although this seasonality has been somewhat
reduced with the introduction of fall, winter and holiday merchandise, our
business is still affected by seasonality. See "Business--Seasonality and
Backlog."
OUR BUSINESS COULD BE HARMED IF WE EXPANDED OUR BUSINESS WITHOUT THE PROPER
FINANCIAL AND PERSONNEL RESOURCES
During the past six years, we have experienced rapid growth in sales,
expansion of our product offerings, acquisitions and integration of additional
brands and an increase in our customer base. Part of our business strategy is to
expand our licensing activities. Any future growth will require increasing
amounts of working capital and financing and may place a significant strain on
our management and on our financial and information processing systems. The
failure to obtain additional financing, to maintain or upgrade these systems, to
recruit additional staff and key personnel or to respond effectively to other
difficulties associated with rapid expansion could have a material adverse
effect on our business, financial condition, results of operations and
prospects. See "Management's Discussion and Analysis of Financial Condition and
Results of Operations" and "Business."
AN INCREASE IN THE PRICE OF COTTON FABRIC OR ITS REDUCED AVAILABILITY MAY HARM
OUR BUSINESS
Cotton fabric is the principal raw material used in our apparel.
Although we believe that our suppliers will continue to be able to procure a
sufficient supply of cotton fabric for our production needs, the price and
availability of cotton may fluctuate significantly. If the price of cotton
fabric or other raw materials used by us increases, there would be a material
adverse effect on our cost of sales. Additionally, if such raw materials become
scarce or unavailable, we would be unable to meet our customers' demands
20
<PAGE>
and there could be a material adverse effect on our revenues and/or cost of
sales. See "Business--Sources of Supply."
THE LOSS OF GEORGE FELDENKREIS, OSCAR FELDENKREIS OR OTHER KEY EMPLOYEES WOULD
DAMAGE OUR BUSINESS
Our future success depends to a significant extent on retaining the
services of certain executive officers and directors, in particular George
Feldenkreis, our Chairman of the Board and Chief Executive Officer, and Oscar
Feldenkreis, our President and Chief Operating Officer. They are each party to
an employment agreement with us, expiring in May 2000. George Feldenkreis,
however, is only required to devote approximately 50% of his working time to us.
We cannot guarantee that any key member of management will continue in his or
her capacity for any period of time. The loss of the services of either
individual, or any other key member of management, could have a material adverse
effect on our business, financial condition, results of operations and
prospects. Our continued success is also dependent upon our ability to attract
and retain qualified management, administrative and sales personnel to support
our future growth and our inability to do so may have a material adverse effect
on our business, financial condition, results of operations and prospects. See
"Management."
GEORGE FELDENKREIS, OSCAR FELDENKREIS AND THEIR AFFILIATES CONTROL US
As of the date of this prospectus, George Feldenkreis, our Chairman of
the Board and Chief Executive Officer, his children, Oscar Feldenkreis, our
President and Chief Operating Officer, and Fanny Hanono, our
Secretary-Treasurer, and their respective affiliates, beneficially owned
approximately 51.0% of our Common Stock. As a result, such persons will
effectively have the ability to significantly influence the election of our
directors and the outcome of all other issues submitted to our shareholders. See
"Principal Shareholders."
WE MAY NOT ABLE TO REPURCHASE THE NOTES UPON A CHANGE IN CONTROL
Upon the occurrence of certain specific kinds of change in control
events, we will be required to offer to repurchase all the outstanding notes.
However, it is possible that we will not have sufficient funds at the time of
the change in control to make the required repurchase of the notes. In addition,
restrictions in our Senior Credit Facility will not allow such repurchases. In
addition, certain important corporate events, such as leveraged
recapitalizations, that would increase the level of our indebtedness, would not
constitute a "Change of Control" under the indenture. See "Description of the
Notes--Certain Covenants--Purchase of Notes Upon a Change in Control."
WE MAY FACE YEAR 2000 PROBLEMS
Many computer systems were designed using only two digits to designate
years. As such, these systems may not recognize "00" as being 2000 and may read
it as 1900. We undertook a study of our functional application systems to
determine their compliance with year 2000 issues and, to the extent of
noncompliance, required remediation. As a result of this study, we believe the
majority of our systems are year 2000 compliant, although there are less
significant hardware components which will only become year 2000 compliant
during 1999. However, we cannot assure you that all of the software products
currently used by us are in fact year 2000 compliant. To date, the expenses to
third parties incurred by us in order to become year 2000 compliant, including
computer software costs, have been $0.25 million and the current additional
estimated cost to third parties to complete such remediation is expected to be
$0.1 million. These costs, other than software, have been and will continue to
be expensed as incurred.
21
<PAGE>
An assessment of year 2000 compliance of third party entities with
which we have relationships, such as our banking institutions, customers,
payroll processors, suppliers and others is ongoing. We have inquired, or are in
the process of inquiring, of the significant aforementioned third party entities
as to their readiness with respect to year 2000 compliance and to date have
received indications that many of them are either compliant or in the process of
attaining compliance. We will continue to monitor these third party entities to
determine the impact on our business and the actions we must take, if any, in
the event of non-compliance by any of these third parties. There can be no
assurance that the systems of these third parties with which our systems
interact will be compliant by the end of 1999 or that any failure by these third
parties would not have a material adverse affect on our business, financial
condition, results of operations and prospects. We have not developed any
contingency plan to mitigate the adverse affects that the year 2000 issue may
have on our operations. See "Management's Discussion and Analysis of Financial
Condition and Results of Operations--Year 2000."
THERE MAY BE FRAUDULENT CONVEYANCE MATTERS RELATING TO THE GUARANTEES
Various fraudulent conveyance laws have been enacted for the protection
of creditors. These laws may be utilized by a court to find that a guarantee
could be voided or claims in respect of a guarantee could be subordinated to all
other debts of that guarantor if, among other things, the guarantor, at the time
it incurred the debt evidenced by its guarantee received less than reasonably
equivalent value or fair consideration for the incurrence of such guarantee; and
o was insolvent or rendered insolvent by reason of the issuance
of the guarantee; or
o was engaged in a business or transaction for which the
guarantor's remaining assets constituted unreasonably small
capital; or
o intended to incur, or believed that it would incur, debts
beyond its ability to pay such debts as they mature.
In addition, any payment by that guarantor pursuant to its guarantee
could be voided and required to be returned to the guarantor or to a fund for
the benefit of the creditors of the guarantor.
The measures of insolvency for purposes of these fraudulent conveyance
laws will vary depending upon the law applied in any proceeding to determine
whether a fraudulent conveyance has occurred. Generally, however, a guarantor
would be considered insolvent if:
o the sum of its debts, including contingent liabilities, was
greater than the fair saleable value of all of its assets; or
o the present fair saleable value of its assets was less than
the amount that would be required to pay its probable
liability on its existing debts, including contingent
liabilities, as they become absolute and mature; or
o it could not pay its debts as they become due.
On the basis of historical financial information, recent operating
history and other factors, we believe that each guarantor, after giving effect
to the debt incurred by that guarantor in connection with the notes, will not be
insolvent, will not have unreasonably small capital for the business in which it
is engaged and will not have incurred debts beyond its ability to pay such debts
as they mature. However,
22
<PAGE>
we cannot assure you as to what standard a court would apply in making such
determinations or that a court would agree with our conclusions in this regard.
THE TRADING MARKET FOR THE NOTES MAY NOT DEVELOP
There has not been an established trading market for the notes.
Although the initial purchasers currently make a market in the notes, they have
no obligation to do so and may discontinue making a market at any time without
notice.
We do not intend to apply for listing of the notes on any securities
exchange or for quotation through the National Association of Securities Dealers
Automated Quotation System.
The liquidity of any market for the notes will depend upon the number
of holders of the notes, our performance, the market for similar securities, the
interest of securities dealers in making a market in the notes and other
factors. A liquid trading market may not develop for the notes.
FORWARD-LOOKING STATEMENTS
This prospectus contains certain forward-looking statements concerning
our existing and contemplated operations, economic performance and financial
condition. These statements are based upon a number of assumptions and estimates
which are inherently subject to uncertainties and contingencies, many of which
are beyond our control. They include the level of consumer spending for apparel
and other merchandise, competition among department and specialty stores,
management's ability to predict consumer preferences, the effectiveness of
planned advertising, marketing and promotional campaigns, realization of planned
synergies, private brand sales and effective cost containment. See
"Forward-Looking Statements."
23
<PAGE>
USE OF PROCEEDS
We will not receive any cash proceeds from the sale of the notes being
offered by Carfel under this prospectus. We estimate we will spend $40,000 in
registering the notes under this prospectus.
CAPITALIZATION
The following table sets forth our historical capitalization as of July
31, 1999, which includes the offering of the notes, the consummation of the PEI
acquisition, and consummation of the John Henry/Manhattan acquisition. This
table should be read in conjunction with our consolidated financial statements
and notes thereto, and the Unaudited Pro Forma Combined Financial Information
and notes thereto included elsewhere in this prospectus.
JULY 31, 1999
-------------
HISTORICAL
--------------
(IN THOUSANDS)
Total debt:
Senior Credit Facility.................................... $27,213
Senior Subordinated Notes................................. 98,901
--------
Total debt(a).................................... 126,120
--------
Total stockholders' equity................................ 69,550
--------
Total capitalization............................. $195,670
========
- ----------------------
(a) As of July 31, 1999, we had approximately $15.7 million of
obligations under the Lease which are not included in the
amount shown in the table above. See "Description of Other
Indebtedness."
24
<PAGE>
UNAUDITED PRO FORMA COMBINED FINANCIAL INFORMATION
The following sets forth the Company's Unaudited Pro Forma Combined
Financial Information for the fiscal year ended January 31, 1999, and for the
six months ended July 31, 1999 giving effect to the PEI and John Henry/Manhattan
acquisitions under the "purchase" method of accounting and the offering of the
notes. The Company's Unaudited Pro Forma Combined Income Statement Information
presents the (i) PEI acquisition and the offering of the notes and (ii) the John
Henry/Manhattan acquisition, each as if they had been consummated on the first
day of each period presented. The Unaudited Pro Forma Combined Financial
Information of the combined companies are presented for illustrative purposes
only, and therefore do not purport to present the financial position or results
of operations of the Company had the PEI acquisition, the offering of the notes
and the John Henry/Manhattan acquisition occurred on the dates indicated, nor
are they necessarily indicative of the results of operations which may be
expected to occur in the future.
The Company completed the PEI acquisition on April 6, 1999 and the John
Henry/Manhattan acquisition on March 29, 1999. As such, the effect of these
acquisitions is included in the Company's unaudited interim balance sheet as of
July 31, 1999.
The historical financial information for Perry Ellis International, PEI
and the John Henry/Manhattan Business has been derived from the respective
financial statements included in this prospectus. The pro forma adjustments
relating to the acquisition and integration of PEI and John Henry/Manhattan
represent the Company's preliminary determinations of these adjustments and are
based upon available information and certain assumptions the Company considers
reasonable under the circumstances. Final amounts could differ from those set
forth herein.
25
<PAGE>
UNAUDITED PRO FORMA COMBINED FINANCIAL INFORMATION
INCOME STATEMENT
YEAR ENDED JANUARY 31, 1999
<TABLE>
<CAPTION>
Historical(1) Pro Forma Historical(1) Pro Forma
------------------------- ------------------------------ ------------- ------------------------
Perry Ellis John Henry/
International PEI Adjustments(3) Combined Manhattan Adjustments(4) Combined
------------- --------- -------------- ----------- ------------- -------------- --------
(Dollars in thousands)
<S> <C> <C> <C> <C> <C> <C> <C>
Net sales................ $221,347 $ -- $ -- $221,347 $ -- $ -- $221,347
Royalty income........... 3,057 16,177 -- 19,234 3,993 887(a) 24,114
-------- ------- ------- -------- ------ -------- --------
Total revenues........... 224,404 16,177 -- 240,581 3,993 887 245,461
Cost of sales............ 166,198 -- -- 166,198 -- -- 166,198
-------- ------- ------- -------- ------ -------- --------
Gross profit............. 58,206 16,177 -- 74,383 3,993 887 79,263
Selling, general, and
administrative expenses.. 41,639 8,594 (793)(a) 49,440 1,146 243(b) 50,829
-------- ------- ------- -------- ------ -------- --------
Operating income......... 16,567 7,583 793 24,943 2,847 644 28,434
Interest expense......... 3,494 -- 10,896(b) 14,390 -- 2,056(c) 16,446
-------- ------- ------- -------- ------ -------- --------
Income before provision
for income taxes......... 13,073 7,583 (10,103) 10,553 2,847 (1,412) 11,988
Provision for income
taxes.................... 4,491 760 (867)(c) 4,384 179 370(d) 4,933
-------- ------- ------- -------- ------ -------- --------
Net income............... $8,582 $6,823 $(9,236) $6,169 $2,668 $(1,782) $7,055
======== ======= ======= ======== ====== ======== ========
Other Operating Data:
Ratio of earnings to
fixed charges(5)....... 4.3x -- -- 1.7x -- -- 1.7x
Depreciation and
amortization........... $2,161 $228 $1,673 $4,062 $330 $436 $4,828
EBITDA(6).............. $18,728 $7,811 $2,466 $29,005 $3,177 $1,080 $33,262
</TABLE>
See Notes to Unaudited Pro Forma Combined Financial Information.
26
<PAGE>
UNAUDITED PRO FORMA COMBINED FINANCIAL INFORMATION
INCOME STATEMENT
SIX MONTHS ENDED JULY 31, 1999
<TABLE>
<CAPTION>
Historical(1) Pro Forma Historical(1) Pro Forma
------------------------ ------------------------------ ------------- ---------------------------
Perry Ellis John Henry/
International PEI Adjustments(3) Combined Manhattan Adjustments(4) Combined
------------- -------- -------------- ----------- ------------- --------------- --------
(Dollars in thousands)
<S> <C> <C> <C> <C> <C> <C> <C>
Net sales............... $104,752 $ -- $ -- $104,752 $ -- $ -- $104,752
Royalty income.......... 9,060 3,220 -- 12,280 704 -- 12,984
-------- ------ ------- -------- ---- ----- --------
Total revenues.......... 113,812 3,220 -- 117,032 704 -- 117,736
Cost of sales........... 77,482 -- -- 77,482 -- -- 77,482
-------- ------ ------- -------- ---- ----- --------
Gross profit............ 36,330 3,220 -- 39,550 704 -- 40,254
Selling, general, and
administrative expenses. 23,352 1,664 319(a) 25,335 55 66(b) 25,456
-------- ------ ------- -------- ---- ----- --------
Operating income........ 12,978 1,556 (319) 14,215 649 (66) 14,798
Interest expense........ 5,906 -- 1,987(b) 7,893 -- 312(c) 8,205
-------- ------ ------- -------- ---- ----- --------
Income before provision
for income taxes........ 7,072 1,556 (2,306) 6,322 649 (378) 6,593
Provision for income
taxes................... 2,573 -- (272)(c) 2,301 41 57(d) 2,399
-------- ------ ------- -------- ---- ----- --------
Net income.............. $4,499 $1,556 $(2,034) $4,021 $608 $(435) $4,194
======== ====== ======= ======== ==== ===== ========
Other Operating Data:
Ratio of earnings to
fixed charges(5)...... 2.1x -- -- -- -- -- 1.8x
Depreciation and
amortization.......... $2,382 $319 $319 $3,020 $55 $66 $3,141
EBITDA(6)............. $15,360 $1,875 $ -- $17,235 $704 $-- $17,939
</TABLE>
See Notes to Unaudited Pro Forma Combined Financial Information.
27
<PAGE>
NOTES TO UNAUDITED PRO FORMA COMBINED FINANCIAL INFORMATION
(DOLLARS IN THOUSANDS)
(1) The year ended January 31, 1999 is the Company's historical financial
reporting period. For the pro forma year ended January 31, 1999 (i)
PEI's financial information has been included for the twelve months
ended December 31, 1998 and (ii) John Henry/Manhattan has been
included for the year ended January 2, 1999 because they have
historically reported on these fiscal year ends. The Company believes
the effect of the difference in these reporting periods is not
significant and is not reflected in the Unaudited Pro Forma Combined
Financial Information. The six months ended July 31, 1999 is the
Company's historical interim financial reporting period. For the pro
forma six months ended July 31, 1999 the financial information of PEI
has been included for the period of February 1, 1999 to April 6, 1999
(date acquired) and the financial information of John Henry/Manhattan
has been included for the period of February 1, 1999 to March 29, 1999
(date acquired).
(2) On March 29, 1999, the Company acquired the John Henry, Manhattan and
Lady Manhattan trademarks for $27.0 million. On April 6, 1999 the
Company acquired PEI for $75.0 million plus working capital less the
net severance and bonus amounts. The acquisitions were accounted for
using the purchase method of accounting and accordingly, the financial
statements include the results of operations of the acquisitions
commencing on April 1, 1999 for the John Henry/Manhattan acquisition
and April 7, 1999 for the PEI acquisition. The purchase price is
calculated as follows:
PURCHASE PRICE DETERMINATION:
Gross purchase price............................... $102,000
Net adjustments to purchase price.................. 1,685
Expenses incurred in connection with acquisition........ 5,885
--------
Net purchase price............................. $109,570
========
PURCHASE PRICE ALLOCATION:
Current assets..................................... $4,797
Property, plant and equipment...................... 20
Trademarks......................................... 106,170
Accounts payable and accrued expenses.............. (1,417)
--------
Net purchase price............................. $109,570
========
The PEI and John Henry/Manhattan assets acquired and liabilities assumed have
been recorded at their estimated fair values. A final determination of the
required purchase accounting adjustments and of the fair value of the assets and
liabilities acquired or assumed has not yet been made. Accordingly, the purchase
accounting adjustments made in connection with the development of the unaudited
pro forma financial information reflect our best estimate based upon currently
available information.
(3) The pro forma income statement data presents the effects of the PEI
acquisition and the offering of the notes, in each case as if they
occurred as of the beginning of such period, including:
<TABLE>
<CAPTION>
YEAR ENDED SIX MONTHS ENDED
JANUARY 31, 1999 JULY 31, 1999
---------------- ----------------
<S> <C> <C>
(a) Adjustments to selling, general and administrative expenses:
Decrease in depreciation expense to reflect the fair value and
useful lives of the acquired property, plant and equipment.. $ (180) $ --
Amortization expense of trademarks (straight line--40 years)..... 1,853 319
Elimination of consulting fees, licensing fees, severance costs,
28
<PAGE>
occupancy costs and employment costs that will not be
incurred by the Company..................................... (2,466) --
------- -------
Total adjustment to selling, general and administrative expenses..... (793) 319
------- -------
(b) The pro forma adjustments to interest expense arising from the PEI
acquisition and the offering of the notes are presented below:
Reduction of interest expense related to the:
Lower balance outstanding under the credit facility (at
7.60%)..................................................... (1,962) (334)
(A 0.25% increase or decrease in the interest rate used above
would result in an increase or decrease in annual interest
expense of $65)
Additional interest cost related to:
The notes...................................................... 12,250 2,169
Amortization of deferred financing costs and discounts......... 608 152
------- -------
Total adjustment to interest expense................................ 10,896 1,987
------- -------
(c) Adjustment to the provision for income taxes at an effective rate of
34.4% for the year ended January 31, 1999 and 36.3% for the six months
ended July 31, 1999................................................. (867) (272)
------- -------
Total adjustments to income statement............................... $(9,236) $(2,034)
======= =======
</TABLE>
In addition to the above, we believe additional cost savings will be realized
through the combination of the two companies.
(4) The pro forma income statement data present the effects of the John
Henry/Manhattan acquisition, in each case as if they occurred as of the
beginning of such period, including:
<TABLE>
<CAPTION>
YEAR ENDED SIX MONTHS ENDED
JANUARY 31, 1999 JULY 31, 1999
---------------- ----------------
<S> <C> <C>
(a) Adjustments to royalty income:
Additional royalty income as a result of the licensing agreement with
Phillips-Van Heusen......................................... $1,000 $ --
Elimination of inter-company revenues........................... (113) --
------ -----
Total adjustment to royalty income......................... 887 --
(b) Adjustments to selling, general and administrative expenses:
Amortization expense of trademarks (straight-line 40 years)..... 686 121
Elimination of inter-company expenses........................... (113) --
Elimination of amortization of intangible assets not acquired... (330) (55)
------ -----
Total adjustment to selling, general and administrative expenses 243 66
(c) The pro forma adjustments to interest expense arising from the John
Henry/Manhattan acquisition and the corresponding increase in debt are
presented below:
Increase of interest expense related to the increased balance
outstanding under the credit facility (at 7.60%)............ 1,976 299
Amortization of deferred financing costs........................ 80 13
------ -----
Total adjustment to interest expense....................... 2,056 312
(d) Inclusion of a provision for federal income taxes at an effective rate of
34.4% for the year ended January 31, 1999 and 36.3% for the six months
ended July 31, 1999................................................. 370 57
------ -----
Total adjustment to income statement....................... $(1,782) $(435)
======= =====
</TABLE>
In addition to the above, we believe additional cost savings will be realized
through the combination of the two companies.
29
<PAGE>
(5) For purposes of computing this ratio, earnings consist of earnings
before income taxes and fixed charges. Fixed charges consist of
interest expense, amortization of deferred debt issuance costs and the
portion of rental expense of the Lease deemed representative of the
interest factor.
(6) EBITDA represents net income before taking into consideration interest
expense, income tax expense, depreciation expense, and amortization
expense. EBITDA is not a measurement of financial performance under
generally accepted accounting principles and does not represent cash
flow from operations. Accordingly, do not regard this figure as an
alternative to net income or as an indicator of our operating
performance or as an alternative to cash flows as a measure of
liquidity. We believe that EBITDA is widely used by analysts, investors
and other interested parties in our industry but is not necessarily
comparable with similarly titled measures for other companies. See
"Statements of Cash Flows" in our consolidated financial statements
contained elsewhere in this prospectus.
30
<PAGE>
SELECTED HISTORICAL FINANCIAL INFORMATION
(DOLLARS IN THOUSANDS)
The following table presents selected historical financial and
operating data derived from the audited and unaudited consolidated financial
statements of the Company and the audited and unaudited financial statements of
PEI and the audited financial statements of the John Henry and Manhattan
Business. In the opinion of management, the unaudited consolidated financial
statements contain all adjustments necessary for a fair presentation of the
interim periods presented and all adjustments are of a normal and recurring
nature. The results of operations for the six months ended July 31, 1999 and the
three months ended March 31, 1999 are not necessarily indicative of the results
which may be expected for the entire fiscal year. The historical financial data
should be read in conjunction with our consolidated financial statements and the
notes thereto appearing elsewhere herein and the financial statements and notes
thereto of PEI appearing elsewhere herein; and "Management's Discussion and
Analysis of Financial Condition and Results of Operations."
<TABLE>
<CAPTION>
SIX MONTHS ENDED
FISCAL YEAR ENDED JANUARY 31, JULY 31,
---------------------------------------------------------------- ---------------------
1995 1996 1997 1998 1999 1998 1999
------- -------- -------- -------- ------- -------- -------
<S> <C> <C> <C> <C> <C> <C> <C>
PERRY ELLIS INTERNATIONAL HISTORICAL
STATEMENT OF INCOME DATA:
Net sales............................ $90,564 $121,839 $157,373 $190,689 $221,347 $109,795 104,752
Royalty income....................... -- 759 1,654 4,032 3,057 2,003 9,060
------- -------- -------- -------- ------- -------- -------
Total revenues....................... 90,564 122,598 159,027 194,721 224,404 111,798 113,812
Cost of sales........................ 69,187 92,145 122,046 145,991 166,198 82,983 77,482
------- -------- -------- -------- ------- -------- -------
Gross profit......................... 21,377 30,453 36,981 48,730 58,206 28,815 36,330
Operating expenses................... 13,493 20,395 24,729 34,137 39,478 20,130 20,970
Depreciation and amortization........ 474 725 1,147 1,748 2,161 1,033 2,382
------- -------- -------- -------- ------- -------- -------
Operating income..................... 7,410 9,333 11,105 12,845 16,567 7,652 12,978
Interest expense..................... 1,219 2,224 1,664 2,782 3,494 1,864 5,906
------- -------- -------- -------- ------- -------- -------
Income before income taxes........... 6,191 7,109 9,441 10,063 13,073 5,788 7,072
Income taxes......................... 2,319 2,685 3,597 2,885 4,491 2,095 2,573
------- -------- -------- -------- ------- -------- -------
Net income........................... $3,872 $4,424 $5,844 $7,178 $8,582 $3,693 $4,499
======= ======== ======== ======== ======= ======== =======
OTHER FINANCIAL DATA AND RATIOS:
Net cash provided by (used in)
operating activities...............$(20,015) $5,303 $1,874 $(3,101) $14,341 $125 $9,494
Net cash provided by (used in)
investing activities............... (825) (1,492) (24,456) (4,555) (10,240) (3,697) (101,894)
Net cash provided by (used in)
financing activities............... 21,094 (3,894) 23,080 7,910 (4,938) 3,094 92,658
EBITDA (a)........................... 7,884 10,058 12,252 14,593 18,728 8,685 15,360
Capital expenditures................. 747 1,309 1,058 3,828 4,005 3,612 252
Ratio of earnings to
fixed charges (b).................. 5.3x 3.8x 5.7x 4.1x 4.2x 3.8x 2.1x
BALANCE SHEET DATA (AT PERIOD END):
Working capital...................... $43,067 $47,760 $23,575 $66,166 $71,300 73,975 59,548
Total assets......................... 55,512 53,735 88,158 101,650 108,958 108,904 210,680
Total debt (c)....................... 28,256 6,968 31,949 39,658 33,511 42,327 126,120
Total stockholders' equity........... 22,016 43,833 47,775 55,155 64,946 59,273 69,550
</TABLE>
31
<PAGE>
<TABLE>
<CAPTION>
FISCAL YEAR ENDED DECEMBER 31, QUARTER ENDED MARCH 31,
--------------------------------------------------------------- -----------------------
1994 1995 1996 1997 1998 1998 1999
------- ------- ------- ------- ------- ------ ------
<S> <C> <C> <C> <C> <C> <C> <C>
PEI HISTORICAL
STATEMENT OF INCOME DATA:
Net royalty revenues................$10,074 $11,685 $10,917 $15,660 $16,177 $6,738 5,760
Selling, general and
administrative expenses........... 7,239 5,594 8,606 7,109 8,398 1,819 2,393
Depreciation and amortization....... 37 200 212 226 228 58 58
------- ------- ------- ------- ------- ------ ------
Operating income.................... 2,798 5,891 2,099 8,325 7,551 4,861 3,309
Interest income..................... 43 82 144 136 32 9 7
------- ------- ------- ------- ------- ------ ------
Income before income taxes.......... 2,841 5,973 2,243 8,461 7,583 4,870 3,316
Income taxes........................ 308 640 218 852 760 -- --
------- ------- ------- ------- ------- ------ ------
Net income.......................... $2,533 $5,333 $2,025 $7,609 $6,823 $4,870 $3,316
======= ======= ======= ======= ======= ====== ======
OTHER FINANCIAL DATA AND RATIOS:
Net cash provided by (used in)
operating activities.............. $3,982 6,572 2,311 $7,454 $5,624 $766 $3,601
Net cash provided by (used in)
investing activities.............. (1,902) (355) (1,047) 913 (21) (9) --
Net cash provided by (used in)
financing activities.............. (2,423) (4,763) (1,413) (9,679) (4,354) (800) (2,900)
EBITDA (a).......................... 2,878 6,173 2,455 8,688 7,811 4,919 3,367
Capital expenditures................ 1,402 355 47 87 21 9 __
BALANCE SHEET DATA (AT PERIOD END):
Working capital..................... $(204) $1,281 $1,995 $(27) $2,665 $3,656 $3,139
Total assets........................ 2,985 4,121 4,803 3,112 4,563 6,445 5,233
Total debt.......................... 700 -- -- -- -- -- --
Total stockholders' equity.......... 1,557 2,827 3,439 1,369 3,839 5,043 4,255
</TABLE>
<TABLE>
<CAPTION>
FISCAL YEAR ENDED
JANUARY 2,
1999
-----------------
<S> <C>
JOHN HENRY/MANHATTAN BUSINESS HISTORICAL
STATEMENT OF INCOME DATA:
Royalty Income.............................................. $3,993
Selling, general and administrative expenses................ (833)
Depreciation and amortization............................... (330)
Other income, net........................................... 17
Income taxes, foreign....................................... (179)
------
Income before interest and domestic income taxes............ $2,668
======
BALANCE SHEET DATA (AT YEAR END)
Total assets................................................ $27,000
Total stockholders' equity.................................. 27,000
</TABLE>
- -------------
(a) EBITDA represents net income before taking into consideration interest
expense, income tax expense, depreciation expense, and amortization expense.
EBITDA is not a measurement of financial performance under generally
accepted accounting principles and does not represent cash flow from
operations. Accordingly, do not regard this figure as an alternative to net
income or as an indicator of our operating performance or as an alternative
to cash flows as a measure of liquidity. We believe that EBITDA is widely
used by analysts, investors and other interested parties in our industry but
is not necessarily comparable with similarly titled measures for other
companies.
(b) For purpose of computing this ratio, earnings consist of earnings before
income taxes and fixed charges. Fixed charges consist of interest expense,
amortization of deferred debt issuance costs and the portion of rental
expense of the Lease deemed representative of the interest factor.
32
<PAGE>
(c) Total debt includes balances outstanding under credit facilities, long-term
debt and the current portion of long-term debt.
33
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
OVERVIEW
We are a leading designer and marketer of a broad line of high quality
men's sportswear, including sport and dress shirts, golf sportswear, sweaters,
urban wear and casual and dress pants which we sell to all levels of retail
distribution. We have built a broad portfolio of brands through selective
acquisitions and the establishment of our own brands over our 32-year operating
history. We are currently one of the top five branded suppliers to department
stores in the knit and woven shirt product categories. We currently use over 70
independent suppliers, mostly located in the Far East, other parts of Asia,
Mexico and Central America.
We own or license from third parties the brand names under which most
of our products are sold. These brand names include Crossings and Natural Issue
for casual sportswear, John Henry for dress casual wear, Andrew Fezza for dress
sportswear, Ping and Munsingwear for golf sportswear and PNB Nation for urban
wear. We market our brands to a wide range of demographic segments, targeted at
consumers in specific age, income and ethnic groups. Currently, our products are
predominantly produced for the men's segment of the apparel industry, in which
fashion trends tend to be less volatile than in other segments. The percentage
of our revenues from branded products increased to 81.4% in fiscal 1999 from
71.5% in fiscal 1997.
We also license our proprietary brands to third parties for the
manufacture and marketing of various products which we do not sell, including
underwear, activewear and loungewear. In addition to generating additional
sources of revenue for us, these licensing arrangements raise overall awareness
of our brands.
RECENT DEVELOPMENTS
In order to expand our licensing operations, we recently acquired PEI
which owns and licenses the prestigious and well-known Perry Ellis brand name.
In March 1999, we also purchased the trademarks for John Henry, a leading brand
for men's dress casualwear at Sears Roebuck, for Manhattan, a popular dress
shirt brand sold at Wal-Mart and Kmart Corporation and for Lady Manhattan.
PEI ACQUISITION. In January 1999, we agreed to buy PEI for
approximately $74.6 million in cash, net of purchase price adjustments. PEI was
a privately held company which owns and licenses the Perry Ellis brand name,
currently one of the top selling brands in department stores in the United
States. PEI is currently the licensor under 40 license agreements, primarily for
various men's wear, boys' wear and fragrances. During the year ended December
31, 1998, PEI had revenues of $16.2 million and EBITDA of $7.8 million. Under
our management of the brand, we expect to benefit from certain operating
efficiencies and to enhance the licensing royalties the Perry Ellis brand
generates. Net royalty revenues at PEI grew 48.2% from fiscal year end December
31, 1996 to December 31, 1998 while operating expenses grew at a rate of 55.6%
primarily as a result of increased advertising. This acquisition was financed
from the net proceeds from the issuance of the notes.
JOHN HENRY/MANHATTAN ACQUISITION. In December 1998, we entered into an
agreement to buy certain assets of the John Henry and Manhattan dress shirt
business from Salant Corporation which entered into a Chapter 11 bankruptcy
proceeding. On February 24, 1999, the bankruptcy court approved the purchase for
$27.0 million, plus the value of the existing dress shirt inventory (which was
subsequently valued at approximately $17.2 million). The acquisition was
completed on March 29, 1999. The assets purchased consist of the John Henry,
Manhattan and Lady Manhattan trademarks, tradenames,
34
<PAGE>
license agreements, certain manufacturing equipment and the existing dress shirt
inventory. On March 29, 1999, Phillips-Van Heusen Corporation purchased the
existing dress shirt inventory at our acquisition cost and licensed from us the
John Henry and Manhattan brands for men's dress shirts. In connection with the
John Henry/Manhattan acquisition, we assumed a lease for a shirt manufacturing
facility in Mexico which expired in July 1999. We assigned the lease for the
Mexican facility and sold certain manufacturing equipment to a non-affiliated
party. The acquisition price, net of the $1.0 million deposit we have paid and
the proceeds from sale of the existing dress shirt inventory, was approximately
$26.0 million and was financed with borrowings under our Senior Credit Facility.
RESULTS OF OPERATIONS
The following table sets forth, for the periods indicated, selected
items in our consolidated statements of income expressed as a percentage of
total revenues:
<TABLE>
<CAPTION>
FISCAL YEAR ENDED JANUARY 31, SIX MONTHS ENDED JULY 31,
------------------------------------------- -------------------------
1997 1998 1999 1998 1999
------ ----- ----- ----- -----
<S> <C> <C> <C> <C> <C>
Net sales.......................... 99.0% 97.9% 98.6% 98.2% 92.0%
Royalty income..................... 1.0 2.1 1.4 1.8 8.0
----- ----- ----- ----- -----
Total revenues..................... 100.0 100.0 100.0 100.0 100.0
Cost of sales...................... 76.7 75.0 74.1 74.2 68.1
----- ----- ----- ----- -----
Gross profit....................... 23.3 25.0 25.9 25.8 31.9
Selling, general and
administrative expenses.......... 16.3 18.4 18.5 18.9 20.5
----- ----- ----- ----- -----
Operating income................... 7.0 6.6 7.4 6.9 11.4
Interest expense................... 1.0 1.4 1.6 1.7 5.2
----- ----- ----- ----- -----
Income before income taxes......... 6.0 5.2 5.8 5.2 6.2
Income tax provision............... 2.3 1.5 2.0 1.9 2.2
----- ----- ----- ----- -----
Net income......................... 3.7% 3.7% 3.8% 3.3% 4.0%
===== ===== ===== ===== =====
</TABLE>
SIX MONTHS ENDED JULY 31, 1999 AS COMPARED TO SIX MONTHS ENDED JULY 31, 1998
TOTAL REVENUES. Total revenues consist of net sales and royalty income.
Total revenues grew $2.0 million or 1.8% to $113.8 million for the six months
ended July 31, 1999 from $111.8 million for the six months ended July 31, 1998
primarily as a result of the growth in royalty income from the recent
acquisitions of the John Henry, Manhattan and Perry Ellis brands.
NET SALES. Net sales declined $5.0 million or 4.6% to $104.8 million
for the six months ended July 31, 1999 from $109.8 million in the year ago
period. The decrease in sales was the result of the licensing of our boyswear
business, the financial instability and closure of certain retail customers and
a general softness in the golf apparel market.
ROYALTY INCOME. Royalty income increased $7.1 million or 355% to $9.1
million for the six months ended July 31, 1999. All of the increase is
attributed to income generated by our recent acquisitions of the John Henry,
Manhattan and Perry Ellis brands.
COST OF SALES. Cost of sales for the six month period ended July 31,
1999 was $77.5 million, or 74.0% of net sales as compared to $83.0 million or
75.6% of net sales for the six months ended July 31, 1998. The decrease in cost
of sales as a percentage of net sales is a result of our introduction of higher
gross margin brands, our increased sales of branded products which typically
generate higher gross profit
35
<PAGE>
margin than private label products and our discontinuance of our boys wear
business which typically generated lower gross profit margin. Gross profit was
$36.3 million or 34.7% of net sales for the six months ended July 31, 1999 as
compared to $28.8 million or 26.2% of net sales for the six months ended July
31, 1998 due to the reasons stated above and because of the increase in royalty
income for the six months ended July 31, 1999.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES. Selling, general and
administrative expenses excluding depreciation and amortization for the six
months ended July 31, 1999 were $21.0 million or 18.4% of total revenues as
compared to $20.1 million or 18.0% of total revenue for the six months ended
July 31, 1998. The increase in selling, general and administrative expenses is
attributable to personnel costs associated with our recent acquisitions.
Depreciation and amortization for the six months ended July 31, 1999 increased
$1.4 million to $2.4 million from the comparable period a year ago reflecting
the additional amortization resulting from the recent acquisitions of the John
Henry, Manhattan and Perry Ellis brands.
INTEREST EXPENSE. Interest expense increased $4.0 million for the six
months ended July 31, 1999, to $5.9 million from the comparable period a year
ago. The increase is attributable to the additional interest resulting from the
offering of the notes. The proceeds of this financing were used for the PEI
acquisition and to repay debt under the Senior Credit Facility. The average
indebtedness during the six month period ended July 31, 1999 was $104.8 million
and the average interest rate was 10.6%.
INCOME TAXES. During the six month period ended July 31, 1999, our
effective tax rate was 36.4% compared to 36.2% for the six month period ended
July 31, 1998.
NET INCOME. Net income increased $0.8 million or 21.8% to $4.5 million
or 4.0% of total revenues for the six months ended July 31, 1999 as compared to
$3.7 million or 3.3% of total revenues for the six months ended July 31, 1998.
FISCAL 1999 AS COMPARED TO FISCAL 1998
TOTAL REVENUES. Total revenues consist of net sales and royalty income.
Total revenues grew $29.7 million or 15.2% to $224.4 million in fiscal 1999 from
$194.7 million in fiscal 1998 as a result of internal growth.
NET SALES. Net sales increased $30.6 million or 16.1% to $221.3 million
in fiscal 1999 from $190.7 million in fiscal 1998 as branded products grew to
represent nearly 81.4% of net sales in fiscal 1999 compared to 75.4% of net
sales in fiscal 1998. Within branded products, the increase in net sales was
primarily the result of the sales growth in the Munsingwear brand where net
sales increased by $23.6 million to approximately $66.0 million in fiscal 1999.
In addition, net sales of the Natural Issue brand increased by approximately
$10.2 million to $76.2 million for fiscal 1999. In the portfolio of other
branded products, the John Henry brand also experienced an increase in net
sales. We first introduced the Andrew Fezza, PNB Nation and Ping brands during
fiscal 1999. They also contributed to the increase in net sales. The increases
in net sales in fiscal 1999 were slightly offset by declines in net sales of our
other branded and private label products.
ROYALTY INCOME. We had royalty income of $3.1 million for fiscal 1999
compared to $4.0 million for fiscal 1998. The decline of $0.9 million was
primarily due to our relationship with one customer, which shifted from
primarily a licensee basis to primarily a sales basis. Net sales to this
customer increased by $7.0 million to $11.5 million in fiscal 1999.
36
<PAGE>
COST OF SALES. Cost of sales for fiscal 1999 was $166.2 million or
74.1% of total revenues as compared to $146.0 million or 75.0% of total revenues
for fiscal 1998. The decrease in the cost of sales as a percentage of total
revenues is a result of our increased sales in branded products, which typically
generate higher gross profit margin than private label products. Gross profit
was $58.2 million or 25.9% of total revenues for fiscal 1999 as compared to
$48.7 million or 25.0% of total revenues in fiscal 1998.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES. Selling, general and
administrative expenses, including depreciation and amortization, for fiscal
1999 were $41.6 million or 18.5% of total revenues as compared to $35.9 million
or 18.4% of total revenues for fiscal 1998. The increase is primarily
attributable to costs associated with recent license acquisitions and the $0.7
million in costs associated with the increase in temporary personnel hired in
connection with our new inventory management system. The costs associated with
the recent license acquisitions are primarily related to payroll, advertising,
and samples. We will continue to incur expenses related to start up costs of
acquired licenses, including the completion and integration of the recently
completed PEI acquisition and the John Henry/Manhattan acquisition. We believe
that we will achieve greater efficiencies in our new corporate and warehouse
facility during the coming fiscal year, somewhat offsetting these increases.
INTEREST EXPENSE. Interest expense for fiscal 1999 was $3.5 million as
compared to $2.8 million for fiscal 1998. The increase was the result of
additional indebtedness incurred to support the increase in working capital
requirements during the fiscal year particularly in the third quarter.
INCOME TAXES. During fiscal 1999, our effective tax rate was 34.4%
compared to 28.7% in fiscal 1998, which resulted in an increase in the income
tax provision by $1.6 million to $4.5 million. The prior year tax rate was lower
than normal as we adjusted our provision for overpayments in fiscal 1997.
NET INCOME. Net income for fiscal 1999 increased $1.4 million or 19.6%
to $8.6 million or 3.8% of total revenues from $7.2 million or 3.7% of total
revenues for fiscal 1998.
FISCAL 1998 AS COMPARED TO FISCAL 1997
TOTAL REVENUES. Total revenues grew 22.4% or $35.7 million to $194.7
million in fiscal 1998 from $159.0 million in fiscal 1997 primarily as a result
of the growth from our acquisition of the Munsingwear brand and the related
license income.
NET SALES. Net sales for fiscal 1998 increased 21.2% or $33.3 million
to $190.7 million from $157.4 million for fiscal 1997. The increase in net sales
was primarily attributable to the Munsingwear and Grand Slam brands which
increased approximately $33.0 million as well as an increase in the Crossings
brand. We acquired the Munsingwear brand during the final quarter of fiscal
1997. This increase was partially offset by a decrease in revenue from sales of
the Natural Issue brand and private label products.
ROYALTY INCOME. We had royalty income of $4.0 million for fiscal 1998
compared to $1.7 million for fiscal 1997. The increase of $2.3 million was
primarily due to the increase in royalties from the licensing of the Munsingwear
brand.
COST OF SALES. Cost of sales for fiscal 1998 was $146.0 million or
75.0% of total revenues as compared to $122.0 million or 76.7% of total revenues
for fiscal 1997. The decrease in the cost of sales as a percentage of total
revenues reflects a continued shift to more sales of branded products which
typically generate higher gross profit margin than private label products. Gross
profit was $48.7 million or 25.0% of total revenues for fiscal 1998 as compared
to $37.0 million or 23.3% of total revenues in fiscal 1997.
37
<PAGE>
SALES, GENERAL AND ADMINISTRATIVE EXPENSES. Sales, general and
administrative expenses, including depreciation and amortization, for fiscal
1998 were $35.9 million or 18.4% of total revenues as compared to $25.9 million
or 16.3% of sales for fiscal 1997. This increase was due to increased levels of
staffing required to service the Munsingwear brand and increased advertising
costs relating to the start of consumer advertising as a result of brand
imaging.
INTEREST EXPENSE. Interest expense for fiscal 1998 was $2.8 million
compared to $1.7 million for fiscal 1997. This increase in interest expense was
the result of the additional indebtedness incurred by us in connection with the
acquisition of the Munsingwear and Jolem labels, as well as to support increased
levels of working capital requirements proportionate with the increased levels
of revenue.
INCOME TAXES. During fiscal 1998, our effective tax rate was 28.7%
compared to 38.1% in fiscal 1997. This decrease was the result of our adjustment
of our income tax provision because of tax overpayments for the prior two fiscal
years.
NET INCOME. Net income for fiscal 1998 was $7.2 million or 3.7% of
total revenues as compared to $5.8 million or 3.7% of total revenues for fiscal
1997.
LIQUIDITY AND CAPITAL RESOURCES
We rely primarily upon cash flow from operations and borrowings under
our Senior Credit Facility to finance operations and expansion. Cash provided by
operating activities was $9.5 million in the six months ended July 31, 1999
compared to $0.1 million in the year ago period. The current year's operation
includes approximately $4.1 million of accrued interest expense which is payable
semi-annually and will be paid beginning October 1, 1999. The balance of the
increase is primarily attributable to the growth in net income, depreciation and
amortization and a decrease in inventory levels.
Cash provided by operating activities was $14.3 million in fiscal 1999,
compared to a usage of cash of $3.1 million in fiscal 1998. The $17.4 million
increase in fiscal 1999 cash flow from operations as compared to fiscal 1998 is
due primarily to decreases in inventory and accounts receivable levels from
year-to-year in the amount of $6.4 million and $3.2 million, respectively, as
well as increases in accounts payable and accrued expenses of $5.3 million.
Net cash used in investing activities was $101.9 million for the six
months ended July 31, 1999 which reflects the purchase of the John
Henry/Manhattan and Perry Ellis brand names.
Net cash used in investing activities was $10.2 million in fiscal 1999,
of which $5.0 million was for the deposit on the PEI acquisition and $1.0
million was related to the John Henry/Manhattan acquisition. Net cash used in
investing activities for fiscal 1998 totaled $4.6 million, of which $3.8 million
related principally to the new distribution and office facility.
Net cash provided by financing activities for the six months ended July
31, 1999 totaled $92.7 million which was primarily the result of the offering of
the notes and a net increase of $13.8 million in borrowings under the term loan
agreement offset by a decrease of $20.0 million in borrowings under the
revolving credit agreement. These funds were used for the acquisition of the
John Henry, Manhattan and Perry Ellis brands.
Net cash used in financing activities for fiscal 1999 totaled $4.9
million which was primarily due to a reduction of $6.1 million from borrowings
on the Letter of Credit Facilities and the Senior Credit Facility. Net cash
provided by financing activities for fiscal 1998 totaled $7.9 million, which was
primarily due to an increase in borrowings under the Senior Credit Facility.
38
<PAGE>
Working capital (current assets less current liabilities) was $59.5
million and $71.3 million at July 31, 1999 and January 31, 1999, respectively.
Such amount represents a decrease in working capital of $11.8 million primarily
as a result of a decrease in deposits for acquisitions and an increase in bond
interest payable.
Working capital (current assets minus current liabilities) was $71.3
million at the end of fiscal 1999 as compared to $66.2 million at the end of
fiscal 1998. The $5.1 million increase in working capital primarily resulted
from an increase in accounts receivable and other current assets due to the
sales growth and deposits made for pending acquisitions. The current ratio
(current assets divided by current liabilities) was 5.1.1, 8.2:1 and 7.9:1 at
July 31, 1999, January 31, 1999 and January 31, 1998, respectively.
We have a $90.0 million credit facility with a group of banks
consisting of a revolving credit facility of up to an aggregate principal amount
of $75.0 million and a term loan in the aggregate amount of $15.0 million (the
"Senior Credit Facility"). Borrowings pursuant to the revolving credit facility
are limited under its terms to a borrowing base calculation, which generally
restricts the outstanding balances to 85.0% of eligible receivables plus 90.0%
of eligible factored accounts receivable plus 60.0% of eligible inventories
minus all outstanding letters of credit issued pursuant to the Senior Credit
Facility that are not fully secured by cash collateral. The maximum amount of
borrowing under the Senior Credit Facility attributable to eligible inventory is
$30.0 million. Interest on revolving borrowings is variable based, at our
option, upon either LIBOR plus 2.25% or the agent bank's prime rate plus 0.25%.
Interest on the term loan is 25 basis points higher than on the revolving credit
facility. The Senior Credit Facility contains certain covenants, the most
restrictive of which requires us to maintain certain financial ratios and
minimum net worth. In addition, the Senior Credit Facility restricts the payment
of dividends. The Senior Credit Facility is secured by all of our assets and is
guaranteed by our subsidiaries. The outstanding balance under the Company's
previous senior credit facility was $33.5 million on January 31, 1999. The
outstanding balance under the revolving credit facility on July 31, 1999 was
$13.5 million. The Senior Credit Facility expires in October 2002.
Borrowings under the Senior Credit Facility were used to finance the
John Henry/Manhattan acquisition and amounted to approximately $27.0 million. We
financed the $74.6 million acquisition of PEI with the net proceeds from the
offering of the notes. The remaining net proceeds from the offering of the notes
were used to reduce the term loan portion of the Senior Credit Facility from
$25.0 million to $15.0 million and to reduce the revolving credit portion of the
Senior Credit Facility by approximately $15.8 million.
We also maintain three letter of credit facilities which total $60.0
million. Each letter of credit is collateralized by the consignment of
merchandise in transit under that letter of credit. Indebtedness under these
letters of credit bears interest at variable rates approximately equal to the
lenders' specified base lending rates minus 1.0% per annum. As of January 31,
1999, there was $36.6 million available under these facilities. As of July 31,
1999, there was $36.3 million available under these facilities. One of the
facilities expires in July 1999 and the other two facilities, aggregating $15.0
million, have perpetual terms.
Capital expenditures, principally associated with the new office and
warehouse facility, were $4.0 million, $3.8 million and $1.1 million for fiscal
1999, 1998 and 1997 respectively. Capital expenditures, including the
integration costs for the PEI acquisition and the John Henry/Manhattan
acquisition, for fiscal 2000 and 2001 are expected to be approximately $4.0
million and $4.5 million, respectively.
Our products have historically been geared toward lighter-weight
products generally worn during the spring and summer months, which typically
caused a disproportionately higher amount of revenues to
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be realized during the first quarter of each fiscal year. The introduction of
fall, winter and holiday merchandise has also positively affected the third
quarter. Our business is currently more affected by the variations in retail
buying patterns than the seasons of the year.
Management believes that the combination of the borrowing availability
under the Senior Credit Facility, funds anticipated from changes in working
capital and funds anticipated to be generated from operating activities will be
sufficient to meet our operating and capital needs in the foreseeable future.
QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
We are exposed to the impact of interest rate changes. Our policy is to
manage interest rates through use of a combination of fixed and variable rate
debt. Currently, we do not use derivative financial instruments to manage our
interest rate risk. We have no cash flow exposure due to general interest rate
changes for our fixed rate long-term debt obligations. The impact of a 0.25%
increase in the annual effective interest rate on our variable rate long-term
debt obligations based on the outstanding balance at July 31, 1999 would result
in an increase in annual interest expense of approximately $68,000.
EFFECTS OF INFLATION AND FOREIGN CURRENCY FLUCTUATIONS
We do not believe that inflation has significantly affected our results
of operations.
We purchase from foreign suppliers in U.S. dollars. Accordingly, the
Company, to date, has not been materially adversely affected by foreign currency
fluctuations.
NEW ACCOUNTING PRONOUNCEMENTS
In March 1998, the American Institute of Certified Public Accountants
issued Statements of Position 98-1, ACCOUNTING FOR THE COSTS OF COMPUTER
SOFTWARE DEVELOPED OR OBTAINED FOR INTERNAL USE ("SOP 98-1"). SOP 98-1 provides
guidance for capitalizing and expensing the costs of computer software developed
or obtained for internal use. SOP 98-1 is effective for financial statements for
fiscal years beginning after December 15, 1998. Management has not determined
the effect, if any, of adopting SOP 98-1.
In April 1998, the American Institute of Certified Public Accountants
issued Statements of Position 98-5, REPORTING ON THE COSTS OF START-UP
ACTIVITIES ("SOP 98-5"). SOP 98-5 establishes accounting standards for the
reporting of certain costs associated with the start-up of operations, lines of
business, etc. SOP 98-5 requires that costs of start-up activities, including
organizational costs, be expensed as incurred and that in the year of adoption,
start-up costs recorded should be expensed. SOP 98-5 is effective for fiscal
years beginning subsequent to December 15, 1998. Management has not determined
the effect, if any, of adopting SOP 98-5.
In June 1998, the Financial Accounting Standards Board issued Statement
of Financial Accounting Standards No. 133, ACCOUNTING FOR DERIVATIVE INSTRUMENTS
AND HEDGING ACTIVITIES ("SFAS No. 133"). Among other provisions, SFAS No. 133
establishes accounting and reporting standards for derivative instruments and
for hedging activities. It also requires that an entity recognize all
derivatives as either assets or liabilities in the statement of financial
position and measure those instruments at fair value. In July 1999, the
Financial Accounting Standards Board issued Statement of Financial Accounting
Standards No. 137, ACCOUNTING FOR DERIVATIVE INSTRUMENTS AND HEDGING ACTIVITIES
- - DEFERRAL OF THE EFFECTIVE OF FASB STATEMENT NO. 133, which changes the
effective date of SFAS No. 133 for financial statements for fiscal years
beginning after June 15, 2000. Management has not determined the effect, if any,
of adopting SFAS No. 133.
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YEAR 2000 READINESS DISCLOSURE
BACKGROUND. The year 2000 issue refers to the inability of certain
data-sensitive computer chips, software and systems to recognize a two-digit
date field as belonging to the 21st century. Many computer software programs, as
well as certain hardware and equipment containing date-sensitive data, were
structured to utilize a two-digit date field. Accordingly, these programs may
not be able to properly recognize dates in the year 2000 and later, which could
result in significant system and equipment failures. This is a significant issue
for most if not all companies, with far reaching implications, some of which
cannot be anticipated or predicted with any degree of certainty. We recognize
that we must take action to ensure that our operations will not be adversely
impacted by year 2000 software failures.
We have undertaken a study of our functional application systems to
determine their compliance with year 2000 issues and, to the extent of
noncompliance, the required remediation. As a result of such study, we believe
the majority of our systems are year 2000 compliant. To date, the expenses
incurred by Perry Ellis in order to become year 2000 compliant, including
computer software costs, have been $0.25 million and the current additional
estimated cost to complete such remediation is expected to be $0.1 million. Such
costs, other than software, have been and will continue to be expensed as
incurred.
An assessment of the readiness of year 2000 compliance of third party
entities with which the Company has relationships, such as our banking
institutions, customers, payroll processors and others is ongoing. We have
inquired, or are in the process of inquiring, of the significant aforementioned
third party entities as to their readiness with respect to year 2000 compliance
and to date have received indications that many of them are either compliant or
in the process of remediation. We will continue to monitor these third party
entities to determine the impact on our business of the Company and the actions
the Company must take, if any, in the event of non-compliance by any of these
third parties. Our initial assessment of compliance by third party entities is
that there is not a material business risk to the Company posed by any such
noncompliance and, as such, we have not yet developed any related contingency
plan.
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BUSINESS
THE COMPANY
We are a leading designer and marketer of a broad line of high quality
men's sportswear, including sport and dress shirts, golf sportswear, sweaters,
urban wear, casual and dress pants and shorts which we sell to all levels of
retail distribution. We have built a broad portfolio of brands through selective
acquisitions and the establishment of our own brands over our 32-year operating
history. Our distribution channels include regional, national and international
department stores, chain stores, mass merchandisers and specialty stores
throughout the United States, Puerto Rico and Canada. We are one of the top 5
branded suppliers to department stores in the knit and woven shirt product
categories. Our largest customers include Dayton Hudson Corp., Federated
Department Stores, Inc., Sears Roebuck & Co., Kohl's Corporation, Wal-Mart
Stores, Inc. and J.C. Penney Company, Inc. We currently use over 70 independent
suppliers to source our products, located mostly in the Far East, other parts of
Asia, Mexico and Central America.
Through consolidation of brands and internal growth, we have
experienced significant overall growth in recent years. Our total revenues have
increased to $224.4 million for fiscal 1999 from $90.6 million for fiscal 1995,
representing a compound annual growth rate of 25.5%. During that same period,
our EBITDA (as defined herein; see "Summary Historical Financial Information")
grew to $18.7 million from $7.9 million, representing a compound annual growth
rate of 24.0%. On a pro forma basis assuming that the PEI acquisition and John
Henry/Manhattan acquisition were completed on February 1, 1998, our EBITDA for
fiscal 1999, would have been $33.3 million. See "Summary Pro Forma and
Supplemental Financial Information."
We own or license from third parties the brands under which most of our
products are sold. These brands include Crossings and Natural Issue for casual
sportswear, John Henry for dress casual wear, Andrew Fezza for dress sportswear,
Ping and Munsingwear for golf sportswear and PNB Nation for urban wear. Through
our "family of brands" marketing strategy, we seek to develop and enhance a
distinct brand name for each product category within each distribution channel.
We market our brands to a wide range of demographic segments, targeting
consumers in specific age, income and ethnic groups. Currently, our products are
predominantly produced for the men's segment of the apparel industry, in which
fashion trends tend to be less volatile than in other segments. The percentage
of our revenues from branded products increased to 81.4% in fiscal 1999 from
71.5% in fiscal 1997.
We also license our proprietary brands to third parties for the
manufacture and marketing of various products which we do not sell, including
underwear, activewear and loungewear. In addition to generating additional
sources of revenue for us, these licensing arrangements raise the overall
awareness of our brands. In order to expand our licensing operations, we
recently acquired PEI which owns and licenses the prestigious and well-known
Perry Ellis brand name. PEI had licensing revenues of $16.2 million for the year
ended December 31, 1998. To reflect this acquisition, we recently changed our
name to "Perry Ellis International, Inc." In March 1999, we also purchased the
trademarks for John Henry, a leading brand of men's dress casualwear sold at
Sears Roebuck, for Manhattan, a popular dress shirt brand sold at Wal-Mart and
Kmart Stores and for Lady Manhattan.
We believe that our competitive strengths position us to capitalize on
several trends that have affected the apparel industry in recent years. These
include the consolidation of the department and chain store sectors into a
smaller number of stronger retailers, which represent some of our most important
customers; the increased reliance of retailers on reliable suppliers with design
expertise and advanced systems and technology; and the continued importance of a
brand as a source of product differentiation.
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COMPETITIVE STRENGTHS
We believe that we have the following competitive advantages in our
industry:
PORTFOLIO OF STRONG BRANDS. We currently own seven major brands (Perry
Ellis, John Henry, Manhattan, Munsingwear, Crossings, Natural Issue and Grand
Slam) with a total of over 40 sub-brands (such as Penguin and Career Club). We
also design, source and market three other major brands (PNB Nation, Andrew
Fezza, and Ping) which we license under existing agreements with various
expiration dates and renewal options. These brands enjoy national recognition in
their respective sectors of the apparel industry and have a loyal consumer and
retailer following. Brand recognition is critical in the apparel industry, where
strong brand names help define consumer preferences and drive department store
floor space allocation. We believe that each of the PEI and John Henry/Manhattan
acquisitions will further enhance our established portfolio of recognizable
brands.
STRONG RETAILER RELATIONSHIPS. We believe our established relationships
with retailers at all distribution levels give us the opportunity to maximize
the selling space dedicated to our products, monitor our brand presentation and
merchandising selection, and introduce new brands and products. We have
long-standing relationships with our largest customers, including J.C. Penney
and Sears Roebuck (more than 20 years), Federated Department Stores (12 years),
Wal-Mart (10 years), Kohl's (6 years) and Dayton Hudson (5 years). We believe
that we have maintained these long relationships as a result of our quality
brand name products and our dedication to customer service. Management, in
conjunction with our 30 salespeople, meets with our major customers frequently
to review product offerings, establish and monitor sales plans, and design joint
advertising and promotional campaigns. We believe our reliable delivery times,
consistent product quality and quick response to design trends and inventory
demands allow us to meet our retailers' current requirements. In addition, our
global sourcing network, design expertise, advanced systems and technology, and
new warehousing facility enhance our ability to meet the changing and increasing
needs of our retailers.
STRONG LICENSING CAPABILITIES AND RELATIONSHIPS. By actively licensing
the brands we own, we have gained significant experience in identifying
potential licensing opportunities and have established relationships with many
active licensees. We believe that our broad portfolio of brands appeals to
licensees because it gives them the opportunity to sell their products in many
different retail distribution channels. For example, a manufacturer of men's
accessories might license the Crossings brand to sell to national department
stores and the Munsingwear brand to target mass merchandisers. We believe that
our licensing expertise, which is supported by a dedicated staff, will allow us
to continue marketing our brands to apparel producers effectively.
WORLD-WIDE LOW-COST SOURCING CAPABILITIES. Our global network of
suppliers enables us to purchase apparel products at competitive cost without
sacrificing quality, while at the same time reacting quickly to our retailers'
needs and maximizing production flexibility. We developed this expertise through
more than 32 years of experience in purchasing our products from suppliers
around the world. No individual supplier in fiscal 1999 accounted for more than
7.3% of our total sourcing needs. We currently maintain a staff of experienced
professionals principally located in the United States, Korea, China and Mexico,
and a global network of ten sourcing and quality assurance offices, which
closely monitor our suppliers to maintain strict quality standards and identify
new sourcing opportunities. By sourcing our products, we manage our inventories
more effectively and do not incur the costs of maintaining and operating
production facilities.
DESIGN EXPERTISE AND ADVANCED TECHNOLOGY. Our in-house staff consists
of five designers, who have an average of 18 years of experience, and are
supported by a staff of 14 other design professionals. Together, they design
substantially all of our products utilizing computer-aided design technology.
The
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use of this technology minimizes the time-consuming and costly production of
actual sewn samples prior to customer approval. It also allows us to create
custom-designed products meeting the specific needs of our customers and
facilitates a quick response to changing fashion trends. Our computer-aided
design technology produces approximately 800 designs per month and our library
currently contains approximately 52,000 designs.
CAPACITY FOR GROWTH. We will be able to leverage our recent investments
in infrastructure and our skilled personnel to accommodate future internal
growth and selected acquisitions. Our recent move to a new approximately 238,000
sq. ft. office and warehouse facility in Miami with 170,000 sq. ft. of warehouse
space has positioned us to increase capacity with no significant additional
capital expenditure. This facility and our 15,000 sq. ft. of office space in New
York are sufficient to accommodate additional personnel. However, we expect that
our staffing levels will rise at a lower rate than our revenue growth.
PROVEN ABILITY TO INTEGRATE ACQUISITIONS. From 1993 to 1998, we have
acquired and integrated four major brands, which currently have over 40
sub-brands. We selectively target brands that we believe are underperforming and
can be revitalized using our competitive strengths. Prior to the PEI and John
Henry/Manhattan acquisitions our most significant brand purchase was the
Munsingwear brand in 1996. As part of an extensive integration process, we:
o repositioned the brand based on our "family of brands"
strategy;
o improved the responsiveness to market trends by applying our
design and sourcing expertise; and
o communicated the new positioning of the brand through a wide
ranging marketing program.
As a result, Munsingwear annual revenues increased by 55.7% to
approximately $66.0 million in fiscal 1999 from approximately $42.4 million in
fiscal 1998, the first full year of our ownership. We believe that we can
successfully integrate additional brands into our family of brands and
revitalize them. For example, since our acquisition of the Perry Ellis brand, we
have been licensing and intend to continue to license the brand for additional
product categories such as women's wear and expand into geographic areas where
we believe the Perry Ellis brand has been historically underrepresented such as
Europe and Asia.
EXPERIENCED MANAGEMENT TEAM. Our senior management team averages nearly
20 years of experience in the apparel industry. Our management team also has
significant experience in developing and revitalizing brand names, has an
established reputation with retailers, the trade and the financial community,
and possesses a diverse skill base, which incorporates brand marketing, sourcing
and management information systems.
BUSINESS STRATEGY
Our "family of brands" marketing approach is designed to develop a
distinct brand for each product category within each distribution channel. For
example, we sell our golf sportswear under the Munsingwear brand to mass
merchants, under the Grand Slam brand to department stores and under the Ping
brand to higher-end retailers, golf shops and resorts. By differentiating our
brands in this manner, we can better satisfy the needs of each type of retailer
by offering brands tailored to its specific distribution channel. In addition,
we believe that this strategy helps insulate us from changing retail patterns,
allows us to maintain the integrity of each distribution channel and helps
prevent brand erosion.
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Our objective is to develop and enhance our brands by:
o carefully maintaining distinct distribution channels for each
of our brands;
o consistently designing, sourcing and marketing quality
products;
o reinforcing the image of our brands and continuously promoting
them; and
o updating our styles to keep them current.
Controlling strong brands allows us to increase our retail base,
license these brands to third parties, develop sub-brands and grow
internationally.
To achieve our objective, we have adopted a strategy based on the
following elements:
INCREASE BRAND NAME RECOGNITION. We intend to enhance recognition of
our brand names by promoting our brands at both the retailer and consumer
levels. We conduct cooperative advertising in print and broadcast media in which
various retailers feature our products in their advertisements. We have also
begun direct consumer advertising in select markets by placing highly visible
billboards, sponsorships, special event advertisements and magazine
advertisements in periodicals such as Men's Health and Gentleman's Quarterly.
Licensing our brands to third parties also serves to enhance brand recognition
by providing increased consumer exposure. We have also established Web sites for
each of our major brands to position us to take advantage of opportunities
created by the Internet.
INCREASE DISTRIBUTION. We intend to increase the distribution of our
existing products by expanding the number of regional, national and
international retailers that carry our brands and increasing the number of
stores in which each of these retailers sells our products. This increased
exposure should broaden our established reputation at the retail and consumer
levels. We selectively pursue new channels of distribution for our products,
focusing on maintaining the integrity of our products and reinforcing our image
at existing retail stores, as well as introducing our products to geographic
areas and consumer sectors that are presently less familiar with our products.
CONTINUE TO DIVERSIFY PRODUCT LINE. We intend to broaden the range of
our product lines, capitalizing on the name recognition, popularity and discrete
target customer segmentation of each major brand. For example, we introduced a
sweater line under the Crossings brand and expanded it to include several of our
other brands. We have also expanded into urban wear with the licensing of the
PNB Nation brand, dress sportswear with the licensing of the Andrew Fezza brand
and high-end golf sportswear with the licensing of the Ping brand.
EXPAND LICENSING ACTIVITIES. Since acquiring Munsingwear in 1996, we
have significantly expanded the licensing of our brands to third parties for
various product categories. Similar to the Munsingwear acquisition, we believe
the PEI and John Henry/Manhattan acquisitions will provide significant licensing
opportunities. Since completing the acquisitions we have been licensing and we
intend to continue licensing these nationally-recognized brands to expand our
licensing activities, particularly with respect to additional product
categories, such as women's wear, and into geographic areas which we believe
have been historically underrepresented by these brands, such as Europe and
Asia. We plan to work with our licensees to strengthen their marketing efforts
and thereby increase our revenues.
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BRANDS
The key components of our brand strategy are (a) to provide consistent
quality products, (b) to distribute the brands in distinct channels of
distribution and (c) to reinforce and capitalize on the brand's image through
new product development and image advertising. This strategy has enabled us to
increase our customer base, license our brands to third parties and develop
sub-brands.
In fiscal 1999, over 81.4% of our total revenues resulted from sales of
brands we own or license. We currently own seven nationally recognized brands,
which are the Perry Ellis, John Henry, Manhattan, Natural Issue, Munsingwear,
Grand Slam and Crossings brands. There have been over 40 sub-brands developed
from these seven major brands. We also have licenses to distribute other
nationally recognized brands including the Ping, Andrew Fezza and PNB Nation
brands. Our depth of brand selection enables us to target consumers across a
wide range of ages, incomes and ethnic groups.
See "The PEI and John Henry/Manhattan Acquisitions" for information on
our recent acquisitions of the Perry Ellis, John Henry, Manhattan and Lady
Manhattan brands.
NATURAL ISSUE. We developed the Natural Issue brand in 1988 to appeal
to middle-income men who are 25-55 years old. The brand is now a
well-established brand which we have positioned to be associated with value and
quality. Natural Issue products include shirts, pants and shorts and are
primarily sold in chain stores, such as Sears Roebuck, Kohl's, J.C. Penney and
Mervyn's at retail price points ranging from $22.99 to $30.99.
MUNSINGWEAR AND GRAND SLAM. We purchased the Munsingwear and Grand Slam
brands along with their associated sub-brands in 1996 to appeal to middle income
30-70 year-old men who are sports enthusiasts. These well-known brands are
identified by their signature penguin logo and have over 100 years of history.
We have positioned these brands to be associated with fashion at a moderate
price. Munsingwear and Grand Slam products include golf shirts, pants and
shorts. The Munsingwear brand is primarily sold in sporting goods stores such as
The Sports Authority and Foot Locker at retail price points ranging from $12.99
to $26.99. The Grand Slam brand is primarily sold in department stores such as
Dayton Hudson, Federated Department Stores and May's Department Stores at retail
price points ranging from $24.99 to $39.99.
Some of the successful sub-brands of the Munsingwear brand include the
Munsingwear Lifestyle(R) sub-brand for casual sportswear and the Munsingwear
Golf(R) and Slammer(R) sub-brands for golf sportswear. These sub-brands are sold
primarily to regional mass merchandisers such as Meijer and Uptons at retail
price points ranging from $18.99 to $24.99.
We also offer golf sportswear under the Grand Slam Tour sub-brand,
which is sold primarily in golf shops and top-tier stores, and the Penguin
Sport(R) sub-brand, which is sold primarily to the chain stores. The retail
price points of the Grand Slam Tour and Penguin Sport sub-brands are $24.99 to
$39.99 and $23.99 to $24.95, respectively.
CROSSINGS. We purchased the well-known Crossings sweater brand in 1997
in order to increase our product offerings to include sweaters appealing to
middle-income 25-55 year-old men. We positioned the brand to be associated with
value and quality and have expanded it to include shirts. The Crossings brand is
primarily sold to department stores such as Federated Department Stores, May's
Department Stores and Saks Fifth Avenue at retail price points ranging from
$22.99 to $30.99 for sweaters.
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PING. We obtained a license for the prestigious Ping golf brand in 1998
to appeal to high-income 25-50 year-old men who are status-conscious. The
license, which covers the world other than Japan, has an initial term expiring
in December 2001 with the possibility of renewal depending on satisfactory
performance of our obligations under the licensing agreement. The brand is a
well-known and prestigious golf brand which we positioned to be associated with
the highest standard of quality in the golf business. Currently, we sell golf
shirts, sweaters, pants, outerwear and hats under this brand. The brand is sold
primarily in golf shops and top-tier stores at retail price points ranging from
$50.00 to $105.00. See "Risk Factors--Inability to Renew Licenses."
ANDREW FEZZA. We obtained a license for the Andrew Fezza brand in 1998
to appeal to high-income 25-50 year-old men who enjoy shopping for designer
clothes. The license covers the United States, its territories and possessions
and has an initial term expiring in June 2003. We have an option to renew for an
additional 5 years depending on satisfactory performance of our obligations
under the licensing agreement. Andrew Fezza is a recognized living American
designer who is actively involved with the design and marketing of the brand. We
have positioned the brand to be associated with a classic European style at a
moderate price. Andrew Fezza's products include shirts and pants. The Andrew
Fezza brand is primarily sold to department stores such as May's Department
Stores, Federated Department Stores and Saks Fifth Avenue at retail price points
ranging from $25.99 to $34.99 for shirts and $29.99 to $49.99 for pants. See
"Risk Factors--Inability to Renew Licenses."
PNB NATION. We obtained a license for the urban-oriented PNB Nation
brand in 1998 to appeal to 15-30 year-old men whose clothes are very important
to their identities and who enjoy the urban culture, music and night life. The
license covers the United States and has an initial term of at least two years,
and we have an option to purchase the brand. PNB Nation's products include
shirts, pants and outerwear. The brand is primarily sold in urban stores and
sporting goods stores such as The Buckle, Pacific Sunwear and Dr. Jays at retail
price points ranging from $14.99 to $34.99 for shirts and $39.99 to $79.00 for
pants. See "Risk Factors--Inability to Renew Licenses."
PRIVATE LABEL. In addition to our sales of branded products, we sell
products to retailers for marketing as private label, own-store lines. In fiscal
1999, we sold private label products to Wal-Mart, Kmart and Meijer. Private
label sales generally yield lower profit margins than comparable branded
products. Consequently, our strategy is to increase sales of branded products.
Private label sales accounted for approximately 18.6%, 24.6% and 28.5% of net
sales during fiscal 1999, 1998 and 1997.
PRODUCTS AND PRODUCT DESIGN
We offer a broad line of high quality men's sportswear, including sport
and dress shirts, golf sportswear, sweaters, urban wear and casual and dress
pants and shorts. Substantially all of our products are designed by our in-house
staff utilizing our advanced computer-aided design technology. This technology
enables us to produce computer-generated simulated samples that display how a
particular style will look in a given color and fabric. These samples can be
printed on paper or directly onto fabric to more accurately present the colors
and patterns to a potential retailer. In addition, we can quickly alter the
simulated sample in response to retailer comments, such as a request to change
the colors, print layout, collar style and trimming, pocket details and/or
placket treatments. The use of computer-aided design technology minimizes the
time-consuming and costly need to produce actual sewn samples prior to retailer
approval and allows us to create custom-designed products meeting the specific
needs of a retailer.
In designing our apparel, we seek to foster consumer appeal by
combining functional, colorful and high quality fabrics with creative designs
and graphics. Styles, color schemes and fabrics are also selected to encourage
consumers to coordinate outfits, thereby encouraging multiple purchases. Our
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design staff seeks to stay abreast of the latest design trends by attending
trade shows and periodically conducting market research in Europe and the United
States. See "Risk Factors--Fashion Trends" and "--Price and Availability of
Cotton Fabric."
Our products include:
SHIRTS. We offer a broad line of sport shirts, which include cotton and
cotton-blend printed and plain knit shirts, cotton woven shirts, silk, cotton
and rayon printed button front sport shirts, linen sport shirts, golf shirts,
and embroidered cotton shirts. Our shirt line also includes dress shirts,
brushed twill shirts, jacquard knits and yarn-dyed flannels. In addition, we are
a leading distributor in the United States of guayabera shirts. We market shirts
under a number of our own brands as well as the private labels of our retailers.
Sales under our brands and those licensed by us account for a significant
majority of shirt sales. Our shirts are produced in a wide range of men's sizes,
including sizes for the big and tall men's market. Sales of shirts accounted for
approximately 82%, 83% and 87% of net sales during fiscal 1999, 1998 and 1997,
respectively.
PANTS. Our lines of pants include a variety of styles of wool,
wool-blend, linen and poly/rayon dress pants, casual pants in cotton and
poly/cotton and linen/cotton walking shorts. We offer our pants in a wide range
of men's sizes and generally market them as complements to our shirt lines.
Sales of pants accounted for approximately 11%, 11% and 7% of net sales during
fiscal 1999, 1998 and 1997, respectively.
OTHER PRODUCTS. We began to offer sweaters when we purchased the
Crossings brand in 1997 and recently introduced sweaters under our other brands.
The majority of the other products we sell is sweaters, which accounted for
approximately 4% of net sales during fiscal 1999. We also began to offer a line
of urban sportswear, tee-shirts and outerwear when we licensed the PNB Nation
brand. Sales of other products (including sweaters) accounted for approximately
7%, 6% and 6% of net sales during fiscal 1999, 1998 and 1997, respectively.
MARKETING AND DISTRIBUTION
We market our apparel products to retailers principally through the
direct efforts of an in-house sales staff and independent commissioned sales
representatives who work exclusively for us. These in-house employees and
commissioned sales representatives accounted for approximately 84% of net sales
for fiscal 1999. To supplement our sales efforts, we also use other
non-exclusive independent commissioned sales representatives, who generally
market other product lines as well as ours, and we attend major industry trade
shows and tele-market our products to specialty retailers. We also advertise to
retailers through print advertisements in a variety of trade magazines and
newspapers. In order to promote our men's sportswear at the consumer level, we
share the cost of conducting cooperative advertising in print and broadcast
media in which various retailers feature our products in their advertisements.
We also conduct various in-store marketing activities with our retailers, such
as placing displays of our product line with an emphasis on related and
coordinated clothing in highly visible locations and offering promotions geared
to holidays such as Christmas and Father's Day. In fiscal 1997, we started
direct consumer advertising in select markets featuring the Natural Issue, Grand
Slam and Munsingwear brands through the placement of highly visible billboards,
sponsorships, and special event advertising. We also established Web sites
featuring our brands.
The following table sets forth the principal brand names for our
product categories at different levels of retail distribution.
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<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------------------------------
PRODUCT CATEGORY
- -----------------------------------------------------------------------------------------------------------------------------------
RETAIL CASUAL GOLF DRESS URBAN SPORTSWEAR
DISTRIBUTION LEVEL SPORTSWEAR SPORTSWEAR SPORTSWEAR
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
High End Specialty Retailer, -- Perry Ellis(1) Perry Ellis(1) --
Golf Shops, Resorts Ping
Grand Slam Tour
- -----------------------------------------------------------------------------------------------------------------------------------
National Department Stores Crossings Grand Slam Andrew Fezza PNB Nation
Perry Ellis Perry Ellis(1)
America(1)
- -----------------------------------------------------------------------------------------------------------------------------------
Chain Stores Natural Issue Penguin Sport John Henry Tipo's(R)
Alexander Martin(R)
- -----------------------------------------------------------------------------------------------------------------------------------
Regional Stores Munsingwear Munsingwear Golf(R) Corporate Gear(R) --
Lifestyle(R) Slammer(R) Career Club(R)
- -----------------------------------------------------------------------------------------------------------------------------------
Mass Merchandisers Munsingwear Classics(R) Munsingwear Golf etcetera(R) New Step(R)
Classics(R) Manhattan Monte Fino(R)
- -----------------------------------------------------------------------------------------------------------------------------------
Urban Stores -- -- -- PNB Nation
- -----------------------------------------------------------------------------------------------------------------------------------
Sporting Goods Stores -- Munsingwear -- PNB Nation
- -----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
- -----------------------
(1) We are primarily a licensor for the Perry Ellis brand in the dress
sportswear category.
We believe that the PEI acquisition and the John Henry/Manhattan
acquisition have provided us with additional nationally recognized brands which
we can similarly leverage into additional sub-brands, geographic areas and
distribution channels.
We believe that customer service is a key factor in successfully
marketing our apparel products and seek to provide retailers with a high level
of customer service. We coordinate efforts with retailers to develop products
meeting their specific needs using our design expertise and computer-aided
design technology to offer custom-designed products. We also use our sourcing
capabilities to produce and deliver products on a timely basis.
Our in-house sales staff is responsible for retailer follow-up and
support including monitoring prompt order fulfillment and timely delivery. We
utilize an Electronic Data Interchange ("EDI") system for certain retailers in
order to provide advance shipping notices, process orders and conduct billing
operations. In addition, certain retailers use the EDI system to communicate
their weekly inventory requirements per store to us electronically. We then fill
those orders either by shipping directly to the individual stores or by sending
shipments, individually packaged and bar-coded by store, to a retailer's
centralized distribution center.
SOURCES OF SUPPLY
We currently use independent contract foreign manufacturers to produce
all of our products. We have 48 suppliers from countries in the Far East and
other parts of Asia and 24 suppliers in Mexico and from countries in Central
America. We believe that the use of numerous independent suppliers allows us to
maximize production flexibility while avoiding significant capital expenditures
and the costs of maintaining and operating production facilities. In connection
with the John Henry/Manhattan acquisition, we assumed the lease for a shirt
manufacturing facility in Mexico that expires in July 1999. In May 1999, we
assigned the lease for the facility and sold certain manufacturing equipment to
a non-affiliated party. See "Risk Factors--Acquisition and Integration Risks;
Undertaking Manufacturing Activities," "--Dependence on Contract Manufacturing"
and "--Dependence on Foreign Suppliers."
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We maintain offices in Beijing, Guangzhou, Seoul, Taipei and Mexico
City. We also operate through independent agents based in Thailand, Hong Kong,
Pakistan, Korea, Turkey, Indonesia, India and Sri Lanka to source our products
in Asia and monitor production at contract manufacturing facilities in order to
ensure quality control and timely delivery. Similar functions with respect to
our Central American suppliers are performed by our personnel based in our
Miami, Florida executive offices. We conduct periodic inspections of samples of
each product prior to cutting by contractors, during the manufacturing process
and prior to shipment. We also have full-time quality assurance inspectors in
the Dominican Republic, Honduras, El Salvador, Guatemala and each of our
overseas offices. Finished goods are generally shipped to our Miami, Florida
facilities for repackaging and distribution to customers. Our return policy
permits customers to return any defective products for credit. These returns
were not material in any of the last three fiscal years.
In order to assist with timely delivery of finished goods, we function
as our own customs broker enabling us to prepare our own customs documentation
and arrange for any inspections or other clearance procedures with the United
States Customs Service. We are also a member of the United States Customs
Automated Interface program, which permits us to clear our goods through United
States Customs electronically, generally reducing the necessary clearance time
to a matter of hours rather than days. See "Risk Factors--Imports and Import
Restrictions."
LICENSING OPERATIONS
For the past four years, we have been actively licensing the brands we
own to third parties for various product categories. Licensing our brands
enhances their image by increasing their distribution and visibility without
requiring us to make a significant capital investment or incur significant
operating expenses. As a result of this strategy, we have gained significant
experience in identifying potential licensing opportunities and have established
relationships with many active licensees.
We are currently the licensor under approximately __ license agreements
for various products including outerwear, underwear, activewear and loungewear.
Sales of licensed products by our licensees were approximately $78.7 million,
$73.9 million and $67.7 million in fiscal 1999, 1998 and 1997, respectively. We
received royalties from these sales and sign-up fees from new licenses of
approximately $3.1 million, $4.0 million and $1.7 million in fiscal 1999, 1998
and 1997, respectively.
The John Henry/Manhattan acquisition and the PEI acquisition gave us
access to significant additional licensing operations of nationally recognized
brand names. As a result of these acquisitions and the overall growth of our
licensing operations, we hired a new President of Licensing who is an
experienced senior executive to oversee and manage these operations. See
"Management."
To maintain a brand's image, we closely monitor our licensees and
pre-approve all products licensed. In evaluating a potential licensee, we
consider the experience, financial stability, manufacturing performance and
marketing ability of the proposed licensee. We also evaluate the marketability
of the proposed products and their compatibility with products currently being
marketed under that brand. We regularly monitor product design, development,
merchandising and marketing and schedule meetings throughout the year with
licensees to ensure quality, uniformity and consistency with our overall
marketing, merchandising and design strategies. All of our licensees' products,
advertising, promotional and packaging materials must be approved in advance by
us.
As part of our licensing strategy, we work with our licensees to
further enhance the products, brand images and sales. We offer licensees
marketing support and use our relationship with retailers to help them become
more profitable.
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Our license agreements generally extend for a period of 3 to 5 years
with options to renew prior to expiration for an additional multi-year period. A
typical agreement requires that the licensee pay us the greater of a royalty
based on a percentage of the licensee's net sales of the licensed products or a
guaranteed minimum royalty that typically increases over the term of the
agreement. Generally, licensees are required to spend a percentage of the net
sales of licensed products on advertising and promotion of the licensed
products.
THE PEI AND JOHN HENRY/MANHATTAN ACQUISITIONS
THE PEI ACQUISITION. In January 1999, we agreed to buy PEI for
approximately $74.6 million in cash, net of purchase price adjustments. We
consummated the Perry Ellis International acquisition in April 1999,
concurrently with the consummation of the offering of the notes. PEI was a
privately held company, which owned and licensed the Perry Ellis brand,
currently one of the top selling brands in department stores in the United
States. PEI was the licensor under 40 license agreements, primarily for various
categories of men's wear, boys' wear and fragrances. The purchase of the Perry
Ellis brand gives us a widely recognized brand in the market and will be our
premier brand. On a pro forma basis, assuming that the acquisition of PEI was
completed on February 1, 1998, our total revenues for fiscal 1999 would have
been $240.6 million including approximately $5.8 million of net royalty revenue
to PEI from licenses to Salant Corporation, which was in a Chapter 11 bankruptcy
proceeding.
Perry Ellis, who was an internationally-known designer, positioned his
brand to be associated with quality, value and innovative designs and to appeal
to high-income, status-conscious, 25-50 year-old men. His successors have
maintained the brand's premier image into the 1990's as annual retail sales by
the brand's 40 licensees in various product categories exceeded $900 million in
1998 (estimated based on PEI's royalty revenues and the average markup charged
by retailers). Perry Ellis is currently one of the largest selling brands in
department stores such as Dillards, Federated Department Stores, Saks Fifth
Avenue and May's Department Stores at retail price points ranging from $39.99 to
$99.99 for dress shirts.
We intend to capitalize on Perry Ellis' image as a premier brand by
seeking licensing opportunities in the product categories in which we currently
do not have a large presence, such as women's wear and men's accessories, and
into geographic areas that we believe are historically underrepresented by this
brand, such as Europe and Asia. Currently, Perry Ellis branded products are
principally sold in the men's wear, boys' wear and fragrance product categories
and are sold mostly in the United States. Since the acquisition we have been
licensing and intend to continue to license the Perry Ellis brand in the women's
wear, jeanswear and activewear product categories.
We plan to apply the elements of our brand strategy to the Perry Ellis
brand in order to strengthen it. We believe that our significant experience in
identifying strong licensees and our current relationship with experienced
licensees will enable us to capitalize on the various licensing opportunities
for the Perry Ellis brand. We will also work with PEI's current licensees to
further enhance the brand's image and generate greater licensing revenue.
Although the Perry Ellis brand has international recognition, we
perceive the brand to be underperforming in international markets such as Europe
and Asia. We believe that our brand and licensing experience will enable us to
capitalize on these international opportunities.
JOHN HENRY/MANHATTAN ACQUISITION. In December 1998, we entered into an
agreement to buy certain assets of the John Henry and Manhattan dress shirt
business from Salant Corporation, which was in a Chapter 11 bankruptcy
proceeding. On February 24, 1999, the bankruptcy court approved the purchase for
$27.0 million plus the value of the existing dress shirt inventory (which was
subsequently
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valued at approximately $17.2 million). The acquisition was completed on March
29, 1999. The assets purchased consist of the John Henry, Manhattan and Lady
Manhattan trademarks and trade names, license agreements, certain manufacturing
equipment and the existing dress shirt inventory. On March 29, 1999,
Phillips-Van Heusen Corporation purchased the existing dress shirt inventory at
our acquisition cost and licensed from us the John Henry and Manhattan brands
for men's dress shirts. In connection with the acquisition, we assumed a lease
for a shirt manufacturing facility located in Mexico which expired in July 1999.
In May 1999 we assigned the lease for the facility and sold certain
manufacturing equipment to a non-affiliated party.
The acquisition price, net of the $1.0 million deposit we have paid and
the proceeds from sale of the existing dress shirt inventory, was approximately
$26.0 million and was financed with borrowings under our Senior Credit Facility.
The licenses to Phillips-Van Heusen have an initial term of three years
and Phillips-Van Heusen has options to renew the licenses for four additional
terms of three years each. The minimum royalty for the first three years will be
approximately $1.5 million for each of the John Henry and Manhattan licenses,
and will increase by varying percentages in the 12 subsequent years.
Phillips-Van Heusen is required to contribute $1.0 million to an overall $3.0
million advertising/marketing campaign for the first 18 months of the license
term.
In connection with the consummation of the John Henry/Manhattan
acquisition, we paid Icahn Associates Corp., an affiliate of Carl Icahn, or its
affiliates ("IAC"), a financial advisory fee consisting of $1.0 million in cash.
Prior to consummation of the John Henry/Manhattan Acquisition, we were
a licensee for the John Henry brand name and are thus very familiar with the
brand and its potential. The John Henry brand is highly recognizable, appealing
to 25-55 year-old middle-income men and is a leading brand of men's dress
casualwear at Sears Roebuck, one of our existing customers. The John Henry brand
is one which consumers associate with quality and value.
The Manhattan brand has a history in excess of 50 years. The brand
appeals to 25-65 year-old low-income men and is a popular dress shirt at
Wal-Mart and Kmart Corporation. It also has a strong presence in Asia and in
other mass merchandisers such as Meijer. The brand has been positioned to be
associated with value at a moderate price.
CUSTOMERS
We sell merchandise to a broad spectrum of retailers, including chain
stores, department stores, mass merchandisers and specialty stores. Our largest
customers include Dayton Hudson, Sears Roebuck, Federated Department Stores,
Kohl's, Wal-Mart and J.C. Penney. Net sales to our five largest customers
aggregated approximately 48%, 47% and 54% of net sales in fiscal 1999, 1998 and
1997, respectively. For fiscal 1999, sales to Dayton Hudson, Sears Roebuck, and
Federated Department Stores each accounted for approximately 15%, 10% and 10%,
respectively, of net sales. For fiscal 1998, sales to Dayton Hudson and Sears
Roebuck each accounted for approximately 12% and 13% of net sales, respectively.
For fiscal 1997, sales to Kmart Corporation, J.C. Penney and Sears Roebuck each
accounted for approximately 15%, 12% and 12%, respectively, of net sales. No
other single customer accounted for more than 10% of net sales during such
fiscal years. See "Risk Factors--Reliance on Key Customers."
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SEASONALITY AND BACKLOG
Our products were historically geared towards lighter weight products
generally worn during the spring and summer months. We believe that this
seasonality has been reduced with the introduction of fall, winter, and holiday
merchandise. Our higher priced products generally tend to be less sensitive to
economic conditions and the weather, as compared to our lower priced products.
While the variation in our sales on a quarterly basis has narrowed, seasonality
can be affected by a variety of factors, including the mix of advance and
fill-in orders, the amounts of sales to different distribution levels and
overall product mix between traditional and fashion merchandise. See "Risk
Factors--Seasonality."
We generally receive orders from our retailers approximately five to
seven months prior to shipment. For approximately 80.0% of our sales, we have
orders from our retailers before we place orders with our suppliers. A summary
of the order and delivery cycle for our four primary selling seasons is
illustrated below:
<TABLE>
<CAPTION>
MERCHANDISE SEASON ADVANCE ORDER PERIOD DELIVERY PERIOD TO RETAILERS
------------------ -------------------- ----------------------------
<S> <C> <C>
Spring June to August January to March
Summer August to October April and May
Fall November to January July to September
Holiday February and March October and November
</TABLE>
Sales and receivables are recorded when inventory is shipped, with
payment terms generally 30 to 60 days from the date of shipment. At January 31,
1999, our backlog of orders for our products, all of which are expected to be
shipped prior to September 1999, was approximately $99.6 million, compared to
approximately $104.4 million at January 31, 1998.
COMPETITION
The retail apparel industry is highly competitive and fragmented. Our
competitors include numerous apparel designers, manufacturers, importers and
licensors, many of which have greater financial and marketing resources than we
do. We believe that the principal competitive factors in the industry are (1)
timeliness, reliability and quality of services provided, (2) market share and
visibility, (3) price, and (4) the ability to anticipate consumer demands and
maintain appeal of products to customers.
The level of competition and the nature of our competitors varies by
product segment. We believe mass-market manufacturers are our main competitors
in the less expensive segment of the market, and American and foreign designers
and licensors are our main competitors in the more upscale segment of the
market. We believe that our continued dedication to customer service, product
assortment and quality control, as well as our selective pursuit of licensing
and acquisition opportunities, directly addresses the competitive factors listed
above in all market segments. To date, we have competed successfully, but there
can be no guarantee that we will continue to do so in the future. See "Risk
Factors--Competition."
TRADEMARKS
We hold or have applied for U.S. trademarks for our most significant
brand names. We may be subject to claims and suits against us, as well as the
initiator of claims and suits against others, in the ordinary course of our
business, including claims arising from the use of our trademarks. We do not
believe that the resolution of any pending claims will have a material adverse
affect on our business, financial condition, results of operations or cash
flows.
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EMPLOYEES
We employed approximately 370 persons as of October 4, 1999. None of
our employees are subject to a collective bargaining agreement and we believe
that our employee relations are good.
FACILITIES
Our administrative offices, warehouse and distribution facility are
located in a 238,000 square foot leased facility in Miami which was built to our
specifications and was completed in 1997. The facility is occupied pursuant to
the Lease, which has an initial term expiring in 2003 and a minimum annual
rental payment of approximately $1.1 million and a minimum contingent rental
payment of $12.3 million if we do not renew the lease after the initial 5-year
term. In March 1998, for purposes of potential future expansion, we purchased
certain land adjacent to our facility from a non-affiliated third party for $1.1
million.
We also lease 15,000 square feet of showrooms and offices in New York
City pursuant to a 9-year lease with a non-affiliated third party expiring in
December 2007.
In connection with the PEI acquisition, we assumed a lease expiring in
April 2004 on Perry Ellis International, Inc.'s New York City offices. We intend
to integrate the New York operations of Perry Ellis International, Inc. into our
existing New York City facility. In connection with the John Henry/Manhattan
acquisition, we assumed the lease for a shirt manufacturing facility located in
Mexico expiring on July 31, 1999. In May 1999 we sold the facility to one of our
suppliers for use in the production of our products.
In order to monitor Far East production of our respective products, we
maintain an office in Guangzhou and also lease offices jointly with Carfel in
Beijing and Taipei.
LEGAL PROCEEDINGS
We are subject to claims and suits against us, as well as the initiator
of claims and suits against others, in the ordinary course of our business,
including claims arising from the use of our trademarks. We do not believe that
the resolution of any pending claims will have a material adverse affect on our
business, financial condition, results of operations or prospects.
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DESCRIPTION OF OTHER INDEBTEDNESS
SENIOR CREDIT FACILITY
Our Senior Credit Facility, as amended as of March 26, 1999 and August
31, 1999, with NationsBank, N.A. ("NationsBank"), as agent for a syndicate of
lenders (the "Senior Lenders"), provided us with (a) a revolving credit facility
of up to an aggregate amount of $75.0 million (the "Revolver") and (b) a term
loan in the aggregate amount of $25.0 million (the "Term Loan"). As required by
the Senior Credit Facility, we applied $10.0 million of the net proceeds from
the offering of the notes to reduce the principal amount of the Term Loan to
$15.0 million. The amended agreement expires in October 2002 and the
indebtedness will rank ahead of the notes. The following is a description of the
terms of the amended agreement and does not purport to be complete and is
subject to, and qualified in its entirety by reference to, all of the provisions
of the amended Senior Credit Facility.
BORROWING BASE. Borrowings under the Revolver will not be permitted to
exceed the sum of (a) 85.0% of our eligible accounts receivable plus (b) 90.0%
of our eligible factored accounts receivables plus (c) the lesser of 60.0% of
our eligible inventory minus (d) the full amount of all outstanding letters of
credit issued pursuant to the Senior Credit Facility which are not fully secured
by cash collateral. The maximum amount of borrowing under the Senior Credit
Facility attributable to eligible inventory is $30.0 million.
INTEREST. Interest on the principal balance outstanding under the
Revolver shall accrue, at our option, at either (a) NationsBank's prime lending
rate plus 0.25% with adjustments depending upon our ratio of indebtedness to
EBITDA at the time of borrowing or (b) 2.25% above the rate quoted by
NationsBank as the average London interbank offered rate for 1, 2, 3 and 6-month
Eurodollar deposits with adjustments depending upon our ratio of indebtedness to
EBITDA at the time of the borrowing. Interest on the Term Loan is 25 basis
points higher than that on the Revolver and the Term Loan provides for quarterly
payments of principal, each in the amount of $1,250,000 beginning in July 1999.
SECURITY. As security for the indebtedness under the amended Senior
Credit Facility, we granted the Senior Lenders a first priority security
interest in substantially all of our existing and future assets, whether
tangible or intangible, including, without limitation, accounts receivable,
inventory deposit accounts, general intangibles, intellectual property and
equipment.
GUARANTEES. All of our subsidiaries guaranteed the indebtedness under
the amended Senior Credit Facility.
CERTAIN COVENANTS. In addition to customary covenants, the amended
Senior Credit Facility contains various restrictive financial and other
covenants including, without limitation, (a) prohibitions on the incurrence of
additional indebtedness or guarantees, (b) restrictions on the creation of
additional liens, (c) certain limitations on dividends and distributions or
capital expenditures by us, (d) restrictions on mergers or consolidations, sales
of assets, investments and transactions with affiliates, (e) a requirement that
we hire a chief financial officer reasonably acceptable to the Senior Lenders
prior to December 21, 1999 and (f) certain financial maintenance tests. Such
financial maintenance tests, include, among others (i) a maximum funded
indebtedness to EBITDA ratio (measured for the prior four fiscal quarters) of
(1) 5.5 to 1 as of any fiscal quarter end on or prior to January 30, 2000, (2)
5.0 to 1 as of any fiscal quarter end on or after January 31, 2000 but on or
prior to January 30, 2001, (3) 4.5 to 1 as of any fiscal quarter end on or after
January 31, 2001 but on or prior to January 30, 2002, or (4) 3.5 to 1 as of any
fiscal quarter end thereafter; (ii) a minimum current ratio of 1.2 to 1 at the
end of any fiscal quarter; (iii) a minimum fixed charge coverage ratio (measured
for the prior four fiscal quarters) of 1.2 to 1 at the end of any fiscal
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quarter; and (iv) a minimum net worth of $64.0 million and increasing annually
by $5.0 million on January 31 of each year.
EVENTS OF DEFAULT. The events of default under the amended Senior
Credit Facility are customary for facilities of such nature and will include
payment and non-payment defaults and certain events of bankruptcy or insolvency.
OTHER DEBT
THE LEASE. The Lease has an initial term expiring in August 2002, an
annual rental obligation of approximately $1.1 million and an obligation to pay
an additional $12.3 million at the termination of the initial term. The Lease
was entered into with a group of financial institutions to finance our new
office and warehouse facility. The financial institutions assumed our obligation
to purchase the facility and, in turn, leased the facility to us. The
obligations under the Lease are secured by a security interest in substantially
all our existing and future assets, whether tangible or intangible, including,
without limitation, accounts receivable, inventory deposit accounts, general
intangibles, intellectual property and equipment.
In addition to customary covenants the Lease contains various
restrictive financial and other covenants including, without limitation, (a)
prohibitions on the incurrence of additional indebtedness or guarantees, (b)
restrictions on the creation of additional liens, (c) certain limitations on
dividends and distributions or capital expenditures by us, (d) restrictions on
mergers or consolidations, sales of assets, investments and transactions with
affiliates, (e) a requirement that we hire a chief financial officer reasonably
acceptable to the Senior Lenders prior to December 21, 1999 and (f) certain
financial maintenance tests. Such financial maintenance tests, include, among
others (i) a maximum funded indebtedness to EBITDA ratio (measured for the prior
four fiscal quarters) of (1) 5.5 to 1 as of any fiscal quarter end on or prior
to January 30, 2000, (2) 5.0 to 1 as of any fiscal quarter end on or after
January 31, 2000 but on or prior to January 30, 2001, (3) 4.5 to 1 as of any
fiscal quarter end on or after January 31, 2001 but on or prior to January 30,
2002, or (4) 3.5 to 1 as of any fiscal quarter end thereafter; (ii) a minimum
current ratio of 1.2 to 1 at the end of any fiscal quarter; (iii) a minimum
fixed charge coverage ratio (measured for the prior four fiscal quarters) of 1.2
to 1 at the end of any fiscal quarter; and (iv) a minimum net worth of $64.0
million and increasing annually by $5.0 million on January 31 of each year, (v)
a maximum principal amount outstanding under the Senior Credit Facility (as
determined by the amount of eligible receivables and inventory).
LETTER OF CREDIT FACILITIES. We maintain three letter of credit
facilities totaling $60.0 million. Each letter of credit facility is secured by
the consignment of merchandise in transit under such letter of credit.
Indebtedness under these facilities bears interest at variable rates
approximately equal to the lenders' specified base lending rates less 1.0%
annually. One letter of credit facility expires in July 2000 and the other two
facilities, aggregating $15.0 million, have perpetual terms.
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DESCRIPTION OF THE NOTES
The notes were issued under an indenture (the "Indenture") among the
Company, as issuer, each of the Guarantors, as guarantors, and State Street Bank
and Trust Company, as trustee (the "Trustee"). The Indenture is subject to and
governed by the Trust Indenture Act of 1939, as amended (the "Trust Indenture
Act"). References to the "Notes" include all $100,000,000 in principal amount of
notes outstanding unless the context otherwise requires.
The following is a summary of certain provisions of the Indenture and
does not purport to be complete and is subject to, and qualified in its entirety
by reference to, the provisions of the Indenture, including the definitions of
certain terms contained therein and those terms made part of the Indenture by
reference to the Trust Indenture Act. For definitions of certain capitalized
terms used in the following summary, see "--Certain Definitions."
GENERAL
The Notes will mature on April 1, 2006, will be initially limited to
$100,000,000 aggregate principal amount and will be unsecured senior
subordinated obligations of the Company.
Each Note will bear interest at the rate of 12 1/4 from April 6, 1999
or from the most recent interest payment date to which interest has been paid or
duly provided for, payable in cash on October 1, 1999 and semiannually
thereafter on April 1 and October 1 in each year until the principal thereof is
paid or duly provided for to the Person in whose name the Note (or any
predecessor Note) is registered at the close of business on the March 15 or
September 15 next preceding such interest payment date. Interest will be
computed on the basis of a 360-day year comprised of twelve 30-day months.
Principal of, premium, if any, and interest on the Notes will be
payable, and the Notes will be exchangeable and transferable, at the office or
agency of the Company in The City of New York maintained for such purposes
(which initially will be the corporate trust office of the Trustee); PROVIDED,
HOWEVER, that, at the option of the Company, interest may be paid by check
mailed to the address of the Person entitled thereto as such address shall
appear on the security register. See "--Book Entry; Delivery and Form."
The Notes will be issued only in fully registered form without coupons
and only in denominations of $1,000 and any integral multiple thereof. No
service charge will be made for any registration of transfer, exchange or
redemption of Notes, but the Company may require payment in certain
circumstances of a sum sufficient to cover any tax or other governmental charge
that may be imposed in connection therewith.
Pursuant to a registration rights agreement entered into in connection
with the offering of the notes, the Company and the Guarantors agreed for the
benefit of the holders of the notes, at the Company's and the Guarantors' cost,
to effect a registered exchange offer under the Securities Act to exchange the
notes (except for the notes offered hereby) for the existing notes, which would
have terms identical in all material respects to the notes . The exchange offer
was consummated in August 1999.
Subject to the covenants described below under "--Certain Covenants"
and applicable law, the Company may issue additional Notes (the "Additional
Notes") under the Indenture, PROVIDED that the aggregate principal amount of all
Notes issued under the Indenture does not exceed $125,000,000. The Notes offered
hereby and any Additional Notes subsequently issued would be treated as a single
class for all purposes under the Indenture.
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Insofar as indemnification for liabilities arising under the Securities
Act may be permitted to our directors, officers and controlling persons pursuant
to the foregoing provisions, or otherwise, we have been advised that, in the
opinion of the SEC, such indemnification is against public policy as expressed
in the Securities Act and is, therefore, unenforceable.
REDEMPTION
OPTIONAL REDEMPTION. The Notes will be redeemable at the option of the
Company, as a whole or from time to time in part, at any time on or after April
1, 2003 at the redemption prices (expressed as percentages of principal amount)
set forth below, together with accrued interest, if any, to the date of
redemption, if redeemed during the 12-month period beginning on April 1 of the
years indicated below (subject to the right of holders of record on relevant
record dates to receive interest due on an interest payment date):
<TABLE>
<CAPTION>
YEAR REDEMPTION PRICE
---- ----------------
<S> <C>
2003........................... 106.125%
2004........................... 103.063%
2005 and thereafter............ 100.000%
</TABLE>
In addition, at any time or from time to time before April 1, 2002, the
Company may redeem up to 35% of the aggregate principal amount of the Notes
(including the principal amount of any Additional Notes) within 60 days of one
or more Public Equity Offerings with the net proceeds of such offering at a
redemption price equal to 112.25% of the principal amount thereof, together with
accrued interest, if any, to the date of redemption (subject to the right of
holders of record on relevant record dates to receive interest due on relevant
interest payment dates); PROVIDED that, after giving effect to any such
redemption, at least 65% of the aggregate principal amount of the Notes
initially issued (including the principal amount of any Additional Notes)
remains outstanding.
MANDATORY REDEMPTION. Following the occurrence of a Change in Control,
the Company will be required to make an offer to purchase all outstanding Notes
at a price of 101% of the principal amount thereof (determined at the date of
purchase), plus accrued interest thereon, if any, to the date of purchase, and,
upon the occurrence of an Asset Sale, the Company may be obligated to make an
offer to purchase all or a portion of the outstanding Notes at a price of 100%
of the principal amount thereof (determined at the date of purchase), plus
accrued interest, if any, to the date of purchase. See "--Certain
Covenants--PURCHASE OF NOTES UPON A CHANGE IN CONTROL" and "--LIMITATION ON SALE
OF ASSETs," respectively.
SELECTION; EFFECT OF REDEMPTION NOTICE. If less than all the Notes are
to be redeemed, the particular Notes to be redeemed will be selected by the
Trustee in compliance with the requirements of the principal national security
exchange, if any, on which the Notes are listed, or if the Notes are not so
listed, by such method as the Trustee will deem fair and appropriate; PROVIDED
that no such partial redemption will reduce the principal amount of a Note not
redeemed to less than $1,000; PROVIDED FURTHER that any such redemption pursuant
to the provisions relating to a Public Equity Offering shall be made on a pro
rata basis or on as nearly a pro rata basis as practicable (subject to the
procedures of DTC or any other depositary). Notice of redemption will be sent by
first-class mail at least 30 but not more than 60 days before the redemption
date to each holder of Notes to be redeemed at its registered address. On and
after the redemption date, interest will cease to accrue on Notes or portions
thereof called for redemption, unless the Company defaults in the payment of the
redemption price.
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SINKING FUND
The Notes will not be entitled to the benefit of any sinking fund.
RANKING
The payment of the principal of, premium, if any, and interest on the
Notes will be subordinated in right of payment, as set forth in the Indenture,
to the prior payment of all Senior Indebtedness whether outstanding on the date
of the Indenture or thereafter incurred.
In the event of any insolvency or bankruptcy case or proceeding, or any
receivership, liquidation, reorganization or other similar case or proceeding in
connection therewith, relating to the Company or to its assets, or any
liquidation, dissolution or other winding-up of the Company, whether voluntary
or involuntary and whether or not involving insolvency or bankruptcy, or any
assignment for the benefit of creditors or other marshalling of assets or
liabilities of the Company (except in connection with the consolidation or
merger of the Company or its liquidation or dissolution following the
conveyance, transfer or lease of its properties and assets substantially as an
entirety upon the terms and conditions described under "Consolidation, Merger
and Sale of Assets" below), the holders of Senior Indebtedness will be entitled
to receive payment in full in cash or cash equivalents or in any other form
acceptable to each holder of Senior Indebtedness, or provision shall be made for
such payment in full, before the holders of Notes will be entitled to receive
any payment or distribution of any kind or character (other than any payment or
distribution in the form of equity securities or subordinated securities of the
Company or any successor obligor that, in the case of any such subordinated
securities, are subordinated in right of payment to all Senior Indebtedness that
may at the time be outstanding to at least the same extent as the Notes are so
subordinated (such equity securities or subordinated securities hereinafter
being "Permitted Junior Securities") and any payment made pursuant to the
provisions described under "--Defeasance or Covenant Defeasance of Indenture"
from monies or U.S. Government Obligations previously deposited with the
Trustee) on account of principal of, or premium, if any, or interest on the
Notes or on account of the purchase or redemption or other acquisition of Notes.
No payment or distribution of any assets of the Company of any kind or
character, whether in cash, property or securities (other than Permitted Junior
Securities and payments made pursuant to the provisions described under
"--Defeasance or Covenant Defeasance of Indenture" from monies or U.S.
Government Obligations previously deposited with the Trustee), may be made by or
on behalf of the Company on account of principal of, premium, if any, or
interest on the Notes or on account of the purchase, redemption or other
acquisition of Notes upon the occurrence of any default in payment (whether at
stated maturity, upon scheduled installment, by acceleration or otherwise) of
principal of, premium, if any, or interest on Designated Senior Indebtedness (as
defined below) (a "Payment Default") until such Payment Default shall have been
cured or waived or shall have ceased to exist or such Designated Senior
Indebtedness shall have been discharged or paid in full, after which the Company
will resume making any and all required payments in respect of the Notes,
including any missed payments.
No payment or distribution of any assets of the Company of any kind or
character, whether in cash, property or securities (other than Permitted Junior
Securities and payments made pursuant to the provisions described under
"--Defeasance or Covenant Defeasance of Indenture" from monies or U.S.
Government Obligations previously deposited with the Trustee), may be made by or
on behalf of the Company on account of principal of, premium, if any, or
interest on the Notes or on account of the purchase, redemption or other
acquisition of Notes for the period specified below (a "Payment Blockage
Period") upon the occurrence of any default or event of default with respect to
any Designated Senior Indebtedness other than any Payment Default pursuant to
which the maturity thereof may be accelerated
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(a "Non-Payment Default") and receipt by the Trustee of written notice thereof
from the trustee or other representative of holders of Designated Senior
Indebtedness.
The Payment Blockage Period will commence upon the date of receipt by
the Trustee of written notice from the trustee or such other representative of
the holders of Designated Senior Indebtedness in respect of which the
Non-Payment Default exists and shall end on the earliest of (i) 179 days
thereafter (provided that any Designated Senior Indebtedness as to which notice
was given shall not theretofore have been accelerated), (ii) the date on which
such Non-Payment Default is cured, waived or ceases to exist or such Designated
Senior Indebtedness is discharged or paid in full or (iii) the date on which
such Payment Blockage Period shall have been terminated by written notice to the
Trustee or the Company from the trustee or such other representative initiating
such Payment Blockage Period, after which the Company will resume making any and
all required payments in respect of the Notes, including any missed payments. In
any event, not more than one Payment Blockage Period may be commenced during any
period of 360 consecutive days, and there must be a period of at least 181
consecutive days in each period of 360 consecutive days when no Payment Blockage
Period is in effect. No event of default that existed or was continuing on the
date of the commencement of any Payment Blockage Period will be, or can be made,
the basis for the commencement of a subsequent Payment Blockage Period, unless
such default has been cured or waived for a period of not less than 90
consecutive days subsequent to the commencement of such initial Payment Blockage
Period.
In the event that, notwithstanding the provisions of the preceding four
paragraphs, any payment shall be made to the Trustee (and not paid over to the
holders of the Notes) which is prohibited by such provisions, then and in such
event such payment shall be paid over and delivered by the Trustee to the
trustee and any other representative of holders of Designated Senior
Indebtedness, as their interests may appear, for application to Designated
Senior Indebtedness. After all Senior Indebtedness is paid in full and until the
Notes are paid in full, holders of the Notes shall be subrogated (equally and
ratably with all other Indebtedness PARI PASSU with the Notes) to the rights of
holders of Senior Indebtedness to receive distributions applicable to Senior
Indebtedness to the extent that distributions otherwise payable to the holders
of the Notes have been applied to the payment of Senior Indebtedness.
Failure by the Company to make any required payment in respect of the
Notes when due or within any applicable grace period, whether or not occurring
during a Payment Blockage Period, will result in an Event of Default and,
thereafter, holders of the Notes will have the right to accelerate the maturity
thereof. See "--Events of Default."
By reason of such subordination, in the event of liquidation,
receivership, reorganization or insolvency of the Company, creditors of the
Company who are holders of Senior Indebtedness may recover more, ratably, than
the holders of the Notes, and assets which would otherwise be available to pay
obligations in respect of the Notes will be available only after all Senior
Indebtedness has been paid in full, and there may not be sufficient assets
remaining to pay amounts due on any or all of the Notes.
Each Subsidiary Guarantee will be an unsecured senior subordinated
obligation of the respective Guarantor issuing such Subsidiary Guarantee,
ranking PARI PASSU with all other existing and future senior subordinated
indebtedness of such Guarantor, if any. The Indebtedness evidenced by each such
Subsidiary Guarantee will be subordinated on the same basis to the Guarantor
Senior Indebtedness as the Notes are subordinated to Senior Indebtedness.
"Senior Indebtedness" means (i) all obligations of the Company, now or
hereafter existing, under or in respect of the Senior Credit Facility and the
Letter of Credit Facilities, whether for principal, premium, if any, interest
(including interest accruing after the filing of, or which would have accrued
but for the filing of, a petition by or against the Company under Bankruptcy
Law, whether or not such interest
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is allowed as a claim after such filing in any proceeding under such law) and
other amounts due in connection therewith (including any fees, premiums,
expenses and indemnities) and (ii) the principal of, premium, if any, and
interest on all other Indebtedness of the Company (other than the Notes and any
Additional Notes), whether outstanding on the date of the Indenture or
thereafter created, incurred or assumed, unless, in the case of any particular
Indebtedness, the instrument creating or evidencing the same or pursuant to
which the same is outstanding expressly provides that such Indebtedness shall
not be senior in right of payment to the Notes. Notwithstanding the foregoing,
"Senior Indebtedness" shall not include (i) Indebtedness evidenced by the Notes
or any Additional Notes, (ii) Indebtedness of the Company that is expressly
subordinated in right of payment to any Senior Indebtedness of the Company or
the Notes, (iii) Indebtedness of the Company that by operation of law is
subordinate to any general unsecured obligations of the Company, (iv)
Indebtedness of the Company to the extent incurred in violation of any covenant
prohibiting the incurrence of Indebtedness under the Indenture, (v) any
liability for federal, state or local taxes or other taxes, owed or owing by the
Company, (vi) Indebtedness for goods, materials or services purchased in the
ordinary course of business or Indebtedness consisting of trade account payables
or other current liabilities (other than any current liabilities owing under the
Senior Credit Facility, or the current portion of long-term Indebtedness which
would constitute Senior Indebtedness but for the operation of this clause (vi)),
(vii) amounts owed by the Company for compensation to employees or for services
rendered to the Company, (viii) Indebtedness of the Company to any Subsidiary or
any other Affiliate of the Company or any of such Affiliate's Subsidiaries, (ix)
Redeemable Capital Stock of the Company, (x) amounts owing under leases and (xi)
Indebtedness which when incurred and without respect to any election under
Section 1111(b) of Title 11 of the United States Code is without recourse to the
Company or any Restricted Subsidiary.
"Designated Senior Indebtedness" means (i) all Senior Indebtedness
under the Senior Credit Facility and the Hamilton Bank Letter of Credit
Facility, and (ii) any other Senior Indebtedness which, at the time of
determination, has an aggregate principal amount outstanding of at least $25
million and that has been specifically designated in the instrument evidencing
such Senior Indebtedness as "Designated Senior Indebtedness."
"Guarantor Senior Indebtedness" means, with respect to any Guarantor,
(i) all obligations of such Guarantor, now or hereafter existing, under or in
respect of the Senior Credit Facility and the Letter of Credit Facilities,
whether for principal, premium, if any, interest (including interest accruing
after the filing of, or which would have accrued but for the filing of, a
petition by or against such Guarantor under Bankruptcy Law, whether or not such
interest is allowed as a claim after such filing in any proceeding under such
law) and other amounts due in connection therewith (including any fees,
premiums, expenses and indemnities) and (ii) the principal of, premium, if any,
and interest on all other Indebtedness of such Guarantor (other than the
Subsidiary Guarantee issued by such Guarantor or any guarantee by such Guarantor
of Additional Notes), whether outstanding on the date of the Indenture or
thereafter created, incurred or assumed, unless, in the case of any particular
Indebtedness, the instrument creating or evidencing the same or pursuant to
which the same is outstanding expressly provides that such indebtedness shall
not be senior in right of payment to such Subsidiary Guarantee. Notwithstanding
the foregoing, "Guarantor Senior Indebtedness" of a Guarantor shall not include
(i) Indebtedness evidenced by the Subsidiary Guarantee of such Guarantor or any
guarantee by such Guarantor of Additional Notes, (ii) Indebtedness of such
Guarantor that is expressly subordinated in right of payment to any Guarantor
Senior Indebtedness of such Guarantor, (iii) Indebtedness of such Guarantor that
by operation of law is subordinate to any general unsecured obligations of such
Guarantor, (iv) Indebtedness of such Guarantor to the extent incurred in
violation of any covenant of the Indenture, (v) any liability for federal, state
or local taxes or other taxes, owed or owing by such Guarantor, (vi)
Indebtedness for goods, materials or services purchased in the ordinary course
of business or Indebtedness consisting of trade account payables or other
current liabilities (other than any current liabilities under the Senior Credit
Facility, or the current portion of long-term Indebtedness which would
constitute Guarantor Senior Indebtedness but for the
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operation of this clause (vi)) owed or owing by such Guarantor, (vii) amounts
owed by such Guarantor for compensation to employees or for services rendered to
such Guarantor, (viii) Indebtedness of such Guarantor to the Company or any
other Subsidiary or to any other Affiliate of the Company or any of such
Affiliate's Subsidiaries, (ix) Redeemable Capital Stock of such Guarantor, (x)
amounts owing under leases and (xi) Indebtedness which when incurred and without
respect to any election under Section 1111(b) of Title 11 of the United States
Code is without recourse to such Guarantor.
After giving effect to the issuance and sale of the Notes and the use
of the net proceeds therefrom, the John Henry/Manhattan acquisition and the
related Phillips-Van Heusen transactions and consummation of the PEI
acquisition, at January 31, 1999, the Company would have had $133.5 million of
consolidated indebtedness outstanding, including $34.6 million of senior
indebtedness (all of which would have been secured and would also have been
Guarantor Senior Indebtedness). In addition, the Company would have had
additional availability under the Senior Credit Facility of approximately $37.6
million, all of which would have been Senior Indebtedness if borrowed. The
Company also would have had approximately $16.3 million in obligations over the
next four years, all of which would have been secured, under the Lease.
SUBSIDIARY GUARANTEES
Payment of the principal of, premium, if any, and interest on the
Notes, when and as the same become due and payable (whether at Stated Maturity
or on a redemption date, or pursuant to a Change in Control Purchase Offer or an
Excess Proceeds Offer, and whether by declaration of acceleration, call for
redemption or otherwise), are guaranteed, jointly and severally, on an unsecured
senior subordinated basis by the Guarantors. The Indenture provides that the
obligations of each Guarantor under its Subsidiary Guarantee will be limited so
as not to constitute a fraudulent conveyance under applicable laws. Each of the
Company's current Restricted Subsidiaries will be Guarantors. Future Restricted
Subsidiaries also may be required to guarantee the Notes. See "Certain
Covenants--LIMITATION ON GUARANTEES OF INDEBTEDNESS BY RESTRICTED SUBSIDIARIES."
The Indenture provides further that, so long as no Default exists or
would exist, the Subsidiary Guarantee issued by any Guarantor shall be
automatically and unconditionally released and discharged upon any sale,
exchange or transfer to any Person that is not an Affiliate of the Company of
all of the Company's Capital Stock in, or all or substantially all the assets
of, such Guarantor (which transaction is otherwise in compliance with the
Indenture, including, without limitation, the provisions of "--Certain
Covenants--LIMITATION ON SALE of ASSETS" and "--LIMITATION ON ISSUANCES AND
SALES OF RESTRICTED STOCK BY RESTRICTED SUBSIDIARIES").
CERTAIN COVENANTS
The Indenture contains, among others, the following covenants:
LIMITATION ON INDEBTEDNESS. The Company will not, and will not permit
any Restricted Subsidiary to, create, issue, assume, guarantee or in any manner
become directly or indirectly liable for the payment of, or otherwise incur
(collectively, "incur"), any Indebtedness (including any Acquired Indebtedness),
other than Permitted Indebtedness; PROVIDED, HOWEVER, that (i) the Company and
any Guarantor may incur Indebtedness, other than Acquisition Indebtedness, if at
the time of such incurrence the Consolidated Fixed Charge Coverage Ratio for the
four full fiscal quarters immediately preceding the incurrence of such
Indebtedness, taken as one period, would have been at least equal to 2:1 and
(ii) the Company and any Guarantor may incur Acquisition Indebtedness if at the
time of such incurrence the Consolidated Fixed Charge Coverage Ratio for the
four full fiscal quarters immediately preceding the incurrence of such
Indebtedness, taken as one period, would have been at least equal to 2.5:1.
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LIMITATION ON RESTRICTED PAYMENTS. (a) The Company will not, and will
not permit any Restricted Subsidiary to, directly or indirectly, take any of the
following actions:
(i) declare or pay any dividend on, or make any distribution
to holders of, any shares of the Capital Stock of the Company or any
Restricted Subsidiary (other than dividends or distributions payable
solely in shares of Qualified Capital Stock of the Company or in
options, warrants or other rights to acquire such shares of Qualified
Capital Stock) (other than the declaration or payment of dividends or
distributions to the extent declared or paid to the Company or any
Restricted Subsidiary);
(ii) purchase, redeem or otherwise acquire or retire for
value, directly or indirectly, any shares of Capital Stock of the
Company or any Affiliate of the Company (other than Capital Stock of
any Wholly Owned Restricted Subsidiary) or any options, warrants or
other rights to acquire such shares of Capital Stock;
(iii) make any principal payment on, or purchase, redeem,
defease or otherwise acquire or retire for value, prior to any
scheduled principal payment, sinking fund payment or maturity, any
Subordinated Indebtedness of the Company or any Restricted Subsidiary;
or
(iv) make any Investment (other than any Permitted Investment)
in any Person (such payments or other actions described in (but not
excluded from) clauses (i) through (iv) are collectively referred to as
"Restricted Payments"), unless at the time of, and immediately after
giving effect to, the proposed Restricted Payment (the amount of any
such Restricted Payment, if other than cash, being the Fair Market
Value of the assets to be transferred), (1) no Default or Event of
Default shall have occurred and be continuing, (2) the Company could
incur at least $1.00 of additional Indebtedness (other than Permitted
Indebtedness) pursuant to the "LIMITATION ON INDEBTEDNESS" covenant and
(3) the aggregate amount of all Restricted Payments declared or made
after the date of the Indenture shall not exceed the sum of:
(A) 50% of the Consolidated Adjusted Net Income of the Company
accrued on a cumulative basis during the period beginning on date of
the Indenture and ending on the last day of the Company's last fiscal
quarter ending prior to the date of such proposed Restricted Payment
(or, if such aggregate cumulative Consolidated Adjusted Net Income
shall be a loss, minus 100% of such loss), PLUS
(B) the aggregate net cash proceeds received after the date of
the Indenture by the Company from the issuance or sale (other than to
any Subsidiary) of shares of Qualified Capital Stock of the Company
(including upon the exercise of options, warrants or rights) or
warrants, options or rights to purchase shares of Qualified Capital
Stock of the Company, PLUS
(C) the aggregate net cash proceeds received after the date of
the Indenture by the Company from the issuance or sale (other than to
any Subsidiary) of debt securities or Redeemable Capital Stock that
have been converted into or exchanged for Qualified Capital Stock of
the Company, to the extent such securities were originally sold for
cash, together with the aggregate net cash proceeds received by the
Company (other than from a Subsidiary) in connection with such
conversion or exchange, PLUS
(D) to the extent that any Investment constituting a
Restricted Payment that was made after the date of the Indenture is
sold or is otherwise liquidated or repaid, an amount (to the extent not
included in Consolidated Adjusted Net Income) equal to the lesser of
(x) the cash proceeds
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with respect to such Investment (less the cost of the disposition of
such Investment and net of taxes) and (y) the initial amount of such
Investment, PLUS
(E) so long as the Designation thereof was treated as a
Restricted Payment that was made after the date of the Indenture, with
respect to any Unrestricted Subsidiary that has been redesignated as a
Restricted Subsidiary after the date of the Indenture in accordance
with the "LIMITATION ON UNRESTRICTED SUBSIDIARIES" covenant, the Fair
Market Value of the Company's interest in such Subsidiary at the time
of such redesignation; pROVIDED that such amount shall not in any case
exceed the Designation Amount with respect to such Restricted
Subsidiary upon its Designation, minus the Designation Amount (measured
as of the date of Designation) with respect to any Restricted
Subsidiary which has been designated as an Unrestricted Subsidiary
after the date of the Indenture in accordance with the "LIMITATION ON
UNRESTRICTED SUBSIDIARIES" covenant, PLUS
(F) $1.0 million.
(b) Notwithstanding paragraph (a) above, the Company and its Restricted
Subsidiaries may take the following actions so long as (with respect to clauses
(ii), (iii), (iv), (v) and (vi) below) at the time of and after giving effect
thereto no Default or Event of Default shall have occurred and be continuing:
(i) the payment of any dividend within 60 days after the date
of declaration thereof, if at such date of declaration the payment of
such dividend would have complied with the provisions of paragraph (a)
above;
(ii) the purchase, redemption or other acquisition or
retirement for value of any shares of Capital Stock of the Company in
exchange for, or out of the net cash proceeds of a substantially
concurrent issuance and sale (other than to a Subsidiary) of, shares of
Qualified Capital Stock of the Company;
(iii) the purchase, redemption, defeasance or other
acquisition or retirement for value of any Subordinated Indebtedness in
exchange for, or out of the net cash proceeds of a substantially
concurrent issuance and sale (other than to a Subsidiary) of, shares of
Qualified Capital Stock of the Company;
(iv) the purchase of any Indebtedness that is expressly
subordinated in right of payment to the Notes at a purchase price not
greater than 101% of the principal amount thereof in the event of a
Change in Control in accordance with provisions similar to the
"PURCHASE OF NOTES UPON A CHANGE IN CONTROL" covenant; PROVIDED that
prior to such purchase the Company has made the Change in Control Offer
as PROVIDED in such covenant with respect to the Notes and has
purchased all Notes validly tendered for payment in connection with
such Change in Control Offer;
(v) the purchase, redemption, defeasance or other acquisition
or retirement for value of any Subordinated Indebtedness (other than
Redeemable Capital Stock) in exchange for, or out of the net cash
proceeds of a substantially concurrent incurrence (other than to a
Subsidiary) of, new Subordinated Indebtedness of the Company or the
Restricted Subsidiary whose Subordinated Indebtedness is being
purchased, redeemed, defeased, acquired or retired so long as (A) the
principal amount of such new Subordinated Indebtedness does not exceed
the principal amount (or, if such Subordinated Indebtedness being
refinanced provides for an amount less than the principal amount
thereof to be due and payable upon a declaration of acceleration
thereof, such lesser amount as of the date of determination) of the
Indebtedness being so purchased, redeemed,
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defeased, acquired or retired, PLUS either the amount of any premium
required to be paid in connection with such refinancing pursuant to the
terms of such Indebtedness being refinanced or the amount of any
premium reasonably determined by the Company as necessary to accomplish
such refinancing, PLUS, in either case, the amount of reasonable
expenses of the Company incurred in connection with such refinancing,
(B) such new Subordinated Indebtedness is subordinated to the Notes to
the same extent as such Indebtedness so purchased, redeemed, defeased,
acquired or retired and (C) such new Indebtedness has an Average Life
longer than the Average Life of the Notes and no scheduled principal
payment prior to the 91st day after the final Stated Maturity of
principal of the Notes; and
(vi) purchases or redemptions of Capital Stock (including cash
settlements of stock options) held by employees, officers or directors
of the Company or any of its subsidiaries upon their death, disability
or termination of employment with the Company or one of its
subsidiaries; PROVIDED that such payments shall not exceed $1.0 million
in any fiscal year in the aggregate or $3.0 million in the aggregate
during the term of the Notes.
The actions described in clauses (i), (ii), (iii), (iv) and (vi) of
this paragraph (b) shall be Restricted Payments that shall be permitted to be
taken in accordance with this paragraph (b) but shall reduce the amount that
would otherwise be available for Restricted Payments under clause (3) of
paragraph (a) above and the actions described in clause (v) of this paragraph
(b) shall be Restricted Payments that shall be permitted to be taken in
accordance with this paragraph (b) and shall not reduce the amount that would
otherwise be available for Restricted Payments under clause (3) of paragraph
(a).
LIMITATION ON ISSUANCES AND SALES OF PREFERRED STOCK BY RESTRICTED
SUBSIDIARIES. The Indenture provides that the Company (i) will not permit any
Restricted Subsidiary to issue any Preferred Stock (other than to the Company or
a Wholly Owned Restricted Subsidiary) and (ii) will not permit any person (other
than the Company or a Wholly Owned Restricted Subsidiary) to own any Preferred
Stock of any Restricted Subsidiary.
LIMITATION ON TRANSACTIONS WITH AFFILIATES. The Company will not, and
will not permit any Restricted Subsidiary to, directly or indirectly, enter into
or suffer to exist any transaction or series of related transactions (including,
without limitation, the sale, purchase, exchange or lease of assets, property or
services) with, or for the benefit of, any Affiliate of the Company or any
Restricted Subsidiary (other than the Company or a Wholly Owned Restricted
Subsidiary) (collectively, "Interested Persons"), unless (i) such transaction or
series of transactions are on terms that are no less favorable to the Company or
such Restricted Subsidiary, as the case may be, than would have been able to be
obtained in an arm's-length transaction with third parties that are not
Interested Persons, (ii) with respect to any transaction or series of related
transactions involving aggregate consideration equal to or greater than $1.0
million, the Company has delivered an officers' certificate to the Trustee
certifying that such transaction or series of transactions complies with clause
(i) above, (iii) with respect to any transaction or series of related
transactions involving aggregate consideration equal to or greater than $5.0
million, such transaction or series of related transactions (x) has been
approved by the Board of Directors of the Company (including a majority of the
Disinterested Directors of the Company) or (y) the Company has obtained a
written opinion from a nationally recognized investment banking or valuation
firm certifying that such transaction or series of related transactions is fair
to the Company or its Restricted Subsidiary, as the case may be, from a
financial point of view and (iv) with respect to any transaction or series of
related transactions involving aggregate consideration equal to or greater than
$10.0 million, the Company has obtained a written opinion from a nationally
recognized investment banking or valuation firm certifying that such transaction
or series of transactions is fair to the Company or its Restricted Subsidiaries,
as the case may be, from a financial point of view; PROVIDED, HOWEVER, that this
covenant will not restrict (1) the Company from paying regular compensation and
fees to directors of the Company or any Restricted
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Subsidiary who are not employees of the Company or any Restricted Subsidiary
which are reasonable and customary for comparable companies in the same
industry, (2) loans and advances to officers, directors and employees of the
Company or any Restricted Subsidiary in the ordinary course of business in
accordance with the past practices of the Company or any Restricted Subsidiary
not to exceed $1.0 million in the aggregate outstanding at any time, (3) any
transactions made in compliance with the "LIMITATION ON RESTRICTED PAYMENTS"
covenant, (4) the performance of any written agreement as in effect on the date
of the Indenture, (5) the joint leasing of offices with Carfel, Inc. in Beijing,
the People's Republic of China, and Taipei, the Republic of China, under such
arrangements as are in effect on the date of the Indenture and as such
arrangements may be renewed on substantially similar terms and (6) the leasing
of approximately 32,000 square feet of warehouse space and 16,900 square feet of
office space from George Feldenkreis or his Affiliates, on a month-to-month
basis at monthly rents not to exceed $12,000 each.
LIMITATION ON LIENS. The Company will not, and will not permit any
Restricted Subsidiary to, directly or indirectly, create, incur, assume or
suffer to exist any Lien securing Pari Passu Indebtedness or Subordinated
Indebtedness on or with respect to any of its property or assets, including any
shares of stock or indebtedness of any Restricted Subsidiary, whether owned at
the date of the Indenture or thereafter acquired, or any income, profits or
proceeds therefrom, or assign or otherwise convey any right to receive income
thereon, unless (x) in the case of any Lien securing Pari Passu Indebtedness,
the Notes or the Subsidiary Guarantee of such Restricted Subsidiary, as the case
may be, are secured by a Lien on such property, assets or proceeds that is
senior in priority to or PARI PASSU with such Lien and (y) in the case of any
Lien securing Subordinated Indebtedness, the Notes or the Subsidiary Guarantee
of such Restricted Subsidiary, as the case may be, are secured by a Lien on such
property, assets or proceeds that is senior in priority to such Lien; PROVIDED,
HOWEVER, that this covenant shall not apply to Liens as in effect on the date of
the Indenture securing the Lease.
PURCHASE OF NOTES UPON A CHANGE IN CONTROL. If a Change in Control
shall occur at any time, then each holder of Notes will have the right to
require that the Company purchase such holder's Notes, in whole or in part in
integral multiples of $1,000, at a purchase price (the "Change in Control
Purchase Price") in cash in an amount equal to 101% of the principal amount
thereof, plus accrued interest, if any, to the date of purchase (the "Change in
Control Purchase Date"), pursuant to the offer described below (the "Change in
Control Offer") and the other procedures set forth in the Indenture.
Within 30 days following any Change in Control, the Company shall
notify the Trustee thereof and give written notice of such Change in Control to
each holder of Notes by first-class mail, postage prepaid, at the address of
such holder appearing in the security register, stating, among other things, (i)
the Change in Control Purchase Price and the Change in Control Purchase Date,
which shall be a Business Day no earlier than 30 days nor later than 60 days
from the date such notice is mailed, or such later date as is necessary to
comply with requirements under the Exchange Act or any applicable securities
laws or regulations; (ii) that any Note not tendered will continue to accrue
interest; (iii) that, unless the Company defaults in the payment of the Change
in Control Purchase Price, any Notes accepted for payment pursuant to the Change
in Control Offer shall cease to accrue interest after the Change in Control
Purchase Date; and (iv) certain procedures that a holder of Notes must follow to
accept a Change in Control Offer or to withdraw such acceptance.
If a Change in Control Offer is made, there can be no assurance that
the Company will have available funds sufficient to pay the Change in Control
Purchase Price for all of the Notes that might be delivered by holders of the
Notes seeking to accept the Change in Control Offer. Additionally, restrictions
in the Senior Credit Facility do not allow the repurchase of the Notes in the
event of a Change in Control. The failure of the Company to make or consummate
the Change in Control Offer or pay the Change in
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Control Purchase Price when due would result in an Event of Default and would
give the Trustee and the holders of the Notes the rights described under
"--Events of Default."
One of the events which constitutes a Change in Control under the
Indenture is the disposition of "all or substantially all" of the Company's
assets. This term has not been interpreted under New York law (which is the
governing law of the Indenture) to represent a specific quantitative test. As a
consequence, in the event holders of the Notes elect to require the Company to
purchase the Notes and the Company elects to contest such election, there can be
no assurance as to how a court interpreting New York law would interpret the
phrase.
The existence of a holder's right to require the Company to purchase
such holder's Notes upon a Change in Control may deter a third party from
acquiring the Company in a transaction that constitutes a Change in Control.
The Company will not, and will not permit any Restricted Subsidiary to,
create or permit to exist or become effective any restriction (other than
restrictions existing under the Senior Credit Facility or under Indebtedness as
in effect on the date of the Indenture) that would materially impair the ability
of the Company to make a Change in Control Offer to purchase the Notes or, if
such Change in Control Offer is made, to pay for the Notes tendered for
purchase.
The Company will comply with the applicable tender offer rules,
including Rule 14e-1 under the Exchange Act, and any other applicable securities
laws and regulations in connection with a Change in Control Offer.
LIMITATION ON SALE OF ASSETS.
(a) The Company will not, and will not permit any Restricted Subsidiary
to, engage in any Asset Sale unless (i) the consideration received by the
Company or such Restricted Subsidiary for such Asset Sale is not less than the
fair market value of the assets sold (as determined by the Board of Directors of
the Company, whose determination shall be conclusive and evidenced by a Board
Resolution) and (ii) at least 75% of such consideration consists of cash or Cash
Equivalents; PROVIDED, HOWEVER, that (I) the amount of any Indebtedness of a
Restricted Subsidiary that is not a Guarantor or any Senior Indebtedness of the
Company or Guarantor Senior Indebtedness of any Guarantor that is assumed by the
transferee in such Asset Sale and from which the Company and the Restricted
Subsidiaries are fully released shall be deemed to be cash for purposes of
determining the percentage of cash consideration received by the Company and its
Restricted Subsidiaries (excluding any liabilities that are incurred in
connection with or in anticipation of such Asset Sale) and (II) any securities,
notes or other similar obligations received by the Company or such Restricted
Subsidiary from such transferee that are converted within 30 days of the related
Asset Sale into cash or Cash Equivalents (to the extent of the cash or Cash
Equivalents received) shall be deemed to be cash for purposes of determining the
percentage of cash consideration received by the Company or the Restricted
Subsidiaries.
(b) If the Company or any Restricted Subsidiary engages in an Asset
Sale, the Company may use the Net Cash Proceeds thereof, within 365 days after
such Asset Sale, to (i) permanently repay or prepay any then outstanding
Indebtedness of any Restricted Subsidiary that is not a Guarantor or Senior
Indebtedness of the Company or Senior Guarantor Indebtedness of any Restricted
Subsidiary (and to correspondingly reduce commitments with respect thereto) or
(ii) invest (or enter into a legally binding agreement to invest) in other
properties or assets to replace the properties or assets that were the subject
of the Asset Sale or in properties and assets that will be used in businesses of
the Company or its Restricted Subsidiaries, as the case may be, existing at the
time such assets are sold. If any such legally binding agreement to invest such
Net Cash Proceeds is terminated, then the Company may, within 90 days of such
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termination or within 365 days of such Asset Sale, whichever is later, invest
such Net Cash Proceeds as provided in clause (i) or (ii) (without regard to the
parenthetical contained in such clause (ii)) above. The amount of such Net Cash
Proceeds not so used as set forth above in this paragraph (b) constitutes
"Excess Proceeds."
(c) When the aggregate amount of Excess Proceeds exceeds $10.0 million,
the Company shall, within 30 business days, make an offer to purchase (an
"Excess Proceeds Offer") from all holders of Notes, on a pro rata basis, that
aggregate principal amount of Notes as can be purchased with the Note Portion of
Excess Proceeds (defined below) at a price in cash equal to 100% of the
aggregate principal amount of the Notes plus accrued and unpaid interest, if
any, to the date such Excess Proceeds Offer is consummated. To the extent that
the aggregate principal amount of Notes validly tendered and not withdrawn
pursuant to an Excess Proceeds Offer is less than the Note Portion of Excess
Proceeds, the Company may use such surplus for general corporate purposes. If
the aggregate principal amount of Notes validly tendered and not withdrawn by
Holders thereof exceeds the amount of Notes that can be purchased with the Note
Portion of Excess Proceeds, Notes to be purchased will be selected PRO RATA
based on the aggregate principal amount of Notes tendered by each holder. Upon
completion of an Excess Proceeds Offer, the amount of Excess Proceeds shall be
reset to zero.
In the event that any other Indebtedness of the Company that ranks PARI
PASSU with the Notes (the "Other Debt") requires an offer to purchase to be made
to repurchase such Other Debt upon the consummation of an Asset Sale, the
Company may apply the Excess Proceeds otherwise required to be applied to an
Excess Proceeds Offer to offer to purchase such Other Debt and to an Excess
Proceeds Offer so long as the amount of such Excess Proceeds applied to purchase
the Notes is not less than the Note Portion of Excess Proceeds. With respect to
any Excess Proceeds, the Company shall make the Excess Proceeds Offer in respect
thereof at the same time as the analogous offer to purchase is made pursuant to
any Other Debt and the purchase date in respect thereof shall be the same as the
purchase date in respect of any Other Debt.
For purpose of this covenant, "Note Portion of Excess Proceeds" means
(1) if no Other Debt is being offered to be purchased, the amount of the Excess
Proceeds and (2) if Other Debt is being offered to be purchased, the amount of
the Excess Proceeds equal to the product of (z) the Excess Proceeds and (y) a
fraction the numerator of which is the aggregate principal amount of the
outstanding Notes (the "Note Amount") and the denominator of which is the sum of
the Note Amount and the aggregate principal amount (or accreted value in the
case of original issue discount Other Debt) as of the relevant purchase date of
all outstanding Other Debt for which an offer to purchase is being made in
compliance with this covenant.
In the event that the Company makes an Excess Proceeds Offer, the
Company shall comply with any applicable securities laws and regulations,
including any applicable requirements of Section 14(e) of, and Rule 14e-1 under,
the Exchange Act, and any other applicable Federal or state securities laws and
regulations and any applicable requirements of any securities exchange on which
the Notes are listed.
LIMITATION ON GUARANTEES OF INDEBTEDNESS BY RESTRICTED SUBSIDIARIES.
(a) The Company will not permit any Restricted Subsidiary that is not a
Guarantor, directly or indirectly, to guarantee, assume or in any other manner
become liable with respect to any Indebtedness of the Company or any other
Restricted Subsidiary unless (i)(A) such Restricted Subsidiary simultaneously
executes and delivers a supplemental indenture, in form satisfactory to the
Trustee, providing for a guarantee on the same terms as the guarantee of such
Indebtedness of the obligations under the Notes and the Indenture by such
Restricted Subsidiary which Subsidiary Guarantee will be subordinated to the
Guarantor Senior Indebtedness of such Restricted Subsidiary to the same extent
that the Notes are subordinated to Senior Indebtedness and (B), with respect to
any guarantee of Subordinated Indebtedness, any such guarantee shall be
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subordinated to such Restricted Subsidiary's Subsidiary Guarantee at least to
the same extent as such Subordinated Indebtedness is subordinated to the Notes,
and (ii) such Restricted Subsidiary delivers to such Trustee an opinion of
counsel reasonably satisfactory to the Trustee to the effect that such
supplemental indenture has been duly executed and delivered by such Restricted
Subsidiary and is in compliance with the terms of the Indenture.
(c) Notwithstanding the foregoing, any guarantee of the Notes created
pursuant to the provisions described in the foregoing paragraph (a) will provide
by its terms that it will be automatically and unconditionally released and
discharged upon (i) any sale, exchange or transfer to any Person not an
Affiliate of the Company of all of the Company's Capital Stock in, or all or
substantially all the assets of, the applicable Guarantor (which sale, exchange
or transfer is otherwise in compliance with the Indenture) or (ii) the release
by the holders of the Indebtedness of the Company described in the preceding
paragraph of their guarantee by such Restricted Subsidiary (including any deemed
release upon payment in full of all obligations under such Indebtedness), at a
time when (A) no other Indebtedness of the Company has been guaranteed by such
Restricted Subsidiary or (B) the holders of all such other Indebtedness which is
guaranteed by such Restricted Subsidiary also release their guarantee by such
Restricted Subsidiary (including any deemed release upon payment in full of all
obligations under such Indebtedness).
LIMITATION ON DIVIDENDS AND OTHER PAYMENT RESTRICTIONS AFFECTING
RESTRICTED SUBSIDIARIES. The Company will not, and will not permit any
Restricted Subsidiary to, directly or indirectly, create or otherwise cause or
suffer to exist or become effective any consensual encumbrance or restriction of
any kind on the ability of any Restricted Subsidiary to (a) pay dividends, in
cash or otherwise, or make any other distributions on or in respect of its
Capital Stock to the Company or any other Restricted Subsidiary, (b) pay any
Indebtedness owed to the Company or any other Restricted Subsidiary, (c) make
loans or advances to the Company or any other Restricted Subsidiary, (d)
transfer any of its properties or assets to the Company or any other Restricted
Subsidiary (other than customary restrictions on transfers of property subject
to a Lien permitted under the Indenture that would not materially adversely
affect the Company's ability to satisfy its obligations under the Notes and the
Indenture) or (e) guarantee any Indebtedness of the Company or any other
Restricted Subsidiary, except for such encumbrances or restrictions existing
under or by reason of (i) applicable law, (ii) customary provisions restricting
subletting or assignment of any lease or assignment of any other contract to
which the Company or any Restricted Subsidiary is a party or to which any of
their respective properties or assets are subject, (iii) any agreement or other
instrument of a Person acquired by the Company or any Restricted Subsidiary in
existence at the time of such acquisition (but not created in contemplation
thereof), which encumbrance or restriction is not applicable to any Person, or
the properties or assets of any Person, other than the Person, or the property
or assets of the Person, so acquired, (iv) encumbrances and restrictions in
effect on the Issue Date pursuant to the Senior Credit Facility and its related
documentation, (v) any encumbrance or restriction contained in contracts for
sales of assets permitted by the "LIMITATION ON SALE OF ASSETS" covenant with
respect to the assets to be sold pursuant to such contracts and (vi) any
encumbrance or restriction existing under any agreement that extends, renews,
refinances or replaces the agreements containing the encumbrances or
restrictions in the foregoing clauses (iii) and (iv); PROVIDED that the terms
and conditions of any such encumbrances or restrictions are not materially less
favorable to the holders of the Notes than those under or pursuant to the
agreement so extended, renewed, refinanced or replaced.
LIMITATION ON SALE AND LEASEBACK TRANSACTIONS. The Company will not,
and will not permit any Restricted Subsidiary to, directly or indirectly, enter
into any Sale and Leaseback Transaction with respect to any property or assets
(whether now owned or hereafter acquired), unless (i) the sale or transfer of
such property or assets to be leased is treated as an Asset Sale and the Company
complies with the "LIMITATION ON SALE OF ASSETS" covenant and (ii) the Company
or such Restricted Subsidiary would be permitted to incur Indebtedness under the
"LIMITATION ON INDEBTEDNESS" covenant in the amount of the Capitalized Lease
Obligations incurred in respect of such Sale and Leaseback Transaction.
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LIMITATION ON OTHER SENIOR SUBORDINATED INDEBTEDNESS. Neither the
Company nor any Restricted Subsidiary will incur, create, assume, guarantee or
in any other manner become directly or indirectly liable with respect to or
responsible for, or permit to remain outstanding, any Indebtedness, other than
the Notes, that is subordinate or junior in right of payment to any Senior
Indebtedness unless such Indebtedness is also PARI PASSU with, or subordinate in
right of payment to, the Notes pursuant to subordination provisions
substantially similar to those contained in the Indenture.
LIMITATION ON UNRESTRICTED SUBSIDIARIES. (a) The Board of Directors of
the Company may designate any Subsidiary (other than a Guarantor) to be an
"Unrestricted Subsidiary" (a "Designation") only if:
(i) no Default shall have occurred and be continuing at the
time of or after giving effect to such designation;
(ii) the Company would be permitted to make an Investment
(other than a Permitted Investment) at the time of Designation
(assuming the effectiveness of such designation) pursuant to the first
paragraph of the "LIMITATION ON RESTRICTED PAYMENTS" covenant in an
amount (the "Designation Amount") equal to the greater of (1) the net
book value on such date of the Company's interest in such Subsidiary
calculated in accordance with GAAP or (2) the Fair Market Value on such
date of the Company's interest in such Subsidiary as determined in good
faith by the Company's Board of Directors;
(iii) the Company would be permitted under the Indenture to
incur $1.00 of additional Indebtedness (other than Permitted
Indebtedness) pursuant to the "LIMITATION ON INDEBTEDNESS" covenant at
the time of such designation (assuming the effectiveness of such
designation); and
(iv) such Unrestricted Subsidiary does not own any Capital
Stock in any Restricted Subsidiary of the Company which is not
simultaneously being designated an Unrestricted Subsidiary.
In the event of any such Designation, the Company shall be deemed to
have made an Investment constituting a Restricted Payment pursuant to the
"LIMITATION ON RESTRICTED PAYMENTS" covenant for all purposes of the Indenture
in an amount equal to the greater of (1) the net book value of the Company's
interest in such Subsidiary calculated in accordance with GAAP or (2) the Fair
Market Value of the Company's interest in such Subsidiary as determined in good
faith by the Board of Directors of the Company.
The Indenture will further provide that neither the Company nor any
Restricted Subsidiary shall at any time (x) provide a guarantee of, or similar
credit support to, any Indebtedness of any Unrestricted Subsidiary (including of
any undertaking, agreement or instrument evidencing such Indebtedness); PROVIDED
that the Company may pledge Capital Stock of any Unrestricted Subsidiary on a
nonrecourse basis such that the pledgee has no claim whatsoever against the
Company other than to obtain such pledged property, (y) be directly or
indirectly liable for any Indebtedness of any Unrestricted Subsidiary or (z) be
directly or indirectly liable for any other Indebtedness that provides that the
holder thereof may (upon notice, lapse of time or both) declare a default
thereon (or cause the payment thereof to be accelerated or payable prior to its
final scheduled maturity) upon the occurrence of a default with respect to any
other Indebtedness that is Indebtedness of an Unrestricted Subsidiary (including
any corresponding right to take enforcement action against such Unrestricted
Subsidiary).
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(b) The Board of Directors of the Company may designate any
Unrestricted Subsidiary as a Restricted Subsidiary if:
(v) no Default or Event of Default shall have occurred and be
continuing at the time of and after giving effect to such designation;
and
(vi) all Liens and Indebtedness of such Unrestricted
Subsidiary outstanding immediately following such designation would, if
incurred at such time, have been permitted to be incurred for all
purposes under the Indenture.
Any such designation as an Unrestricted Subsidiary or Restricted
Subsidiary by the Board of Directors of the Company shall be evidenced to the
Trustee by filing a board resolution with the Trustee giving effect to such
designation.
REPORTS. The Company will file on a timely basis with the Commission,
to the extent such filings are accepted by the Commission and whether or not the
Company has a class of securities registered under the Exchange Act, the annual
reports, quarterly reports and other documents that the Company would be
required to file if it were subject to Section 13 or 15 of the Exchange Act. The
Company will also be required (a) to file with the Trustee, and provide to each
holder of Notes, without cost to such holder, copies of such reports and
documents within 15 days after the date on which the Company files such reports
and documents with the Commission or the date on which the Company would be
required to file such reports and documents if the Company were so required, and
(b) if filing such reports and documents with the Commission is not accepted by
the Commission or is prohibited under the Exchange Act, to supply at the
Company's cost copies of such reports and documents to any prospective holder of
Notes promptly upon written request. If any Guarantor's financial statements
would be required to be included in the financial statements filed or delivered
pursuant to the Indenture if the Company were subject to Section 13 or 15(d) of
the Exchange Act, the Company shall include such Guarantor's financial
statements in any filing or delivery pursuant to the Indenture. The Indenture
also provides that, so long as any of the Notes remain outstanding, the Company
will make available to any prospective purchaser of Notes or beneficial owner of
Notes in connection with any sale thereof the information required by Rule
144A(d)(4) under the Securities Act, until such time as the Company has either
exchanged the Notes for securities identical in all material respects which have
been registered under the Securities Act or until such time as the holders
thereof have disposed of such Notes pursuant to an effective registration
statement under the Securities Act.
CONSOLIDATION, MERGER AND SALE OF ASSETS
The Company will not, in a single transaction or through a series of
transactions, consolidate with or merge with or into any other Person or sell,
assign, convey, transfer, lease or otherwise dispose of all or substantially all
of its properties and assets as an entirety to any other Person or Persons or
permit any of its Restricted Subsidiaries to enter into any such transaction or
series of transactions if such transaction or series of transactions, in the
aggregate, would result in the sale, assignment, conveyance, transfer, lease or
other disposition of all or substantially all of the properties and assets of
the Company and its Restricted Subsidiaries on a consolidated basis to any other
Person or Persons, unless at the time and immediately after giving effect
thereto (i) either (a) the Company will be the continuing corporation or (b) the
Person (if other than the Company) formed by such consolidation or into which
the Company or such Restricted Subsidiary is merged or the Person that acquires
by sale, assignment, conveyance, transfer, lease or disposition all or
substantially all the properties and assets of the Company and its Restricted
Subsidiaries on a consolidated basis (the "Surviving Entity") (1) will be a
corporation duly organized and validly existing under the laws of the United
States of America, any state thereof or the District of Columbia and (2) will
expressly assume, by a supplemental indenture in form reasonably satisfactory to
the Trustee, the
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Company's obligation for the due and punctual payment of the principal of,
premium, if any, and interest on all the Notes and the performance and
observance of every covenant of the Indenture on the part of the Company to be
performed or observed; (ii) immediately before and immediately after giving
effect to such transaction or series of transactions on a PRO FORMA basis (and
treating any obligation of the Company or any Restricted Subsidiary incurred in
connection with or as a result of such transaction or series of transactions as
having been incurred at the time of such transaction), no Default or Event of
Default will have occurred and be continuing; (iii) immediately after giving
effect to such transaction or series of transactions on a PRO FORMA basis (on
the assumption that the transaction or series of transactions occurred on the
first day of the four-quarter period immediately prior to the consummation of
such transaction or series of transactions with the appropriate adjustments with
respect to the transaction or series of transactions being included in such PRO
FORMA calculation), the Company (or the Surviving Entity if the Company is not
the continuing obligor under the Indenture) could incur at least $1.00 of
additional Indebtedness (other than Permitted Indebtedness) under the provisions
of the "LIMITATION ON INDEBTEDNESS" covenant; (iv) each Guarantor, if any,
unless it is the other party to the transactions described above, shall have by
supplemental indenture confirmed that its Subsidiary Guarantee will apply to
such Person's obligations under the Indenture and the Notes; and (v) if any of
the property or assets of the Company or any of its Restricted Subsidiaries
would thereupon become subject to any Lien, the provisions of the "LIMITATION ON
LIENS" covenant are complied with.
In connection with any such consolidation, merger, sale, assignment,
conveyance, transfer, lease or other disposition, the Company or the Surviving
Entity shall have delivered to the Trustee, in form and substance reasonably
satisfactory to the Trustee, an officers' certificate and an opinion of counsel,
each stating that such consolidation, merger, sale, assignment, conveyance,
transfer, lease or other disposition, and if a supplemental indenture is
required in connection with such transaction, such supplemental indenture,
comply with the requirements of the Indenture and that all conditions precedent
therein provided for relating to such transaction have been complied with.
Each Guarantor, if any (other than any Subsidiary whose Subsidiary
Guarantee is being released pursuant to the provisions under "--Subsidiary
Guarantees" or "--Certain CovenantS--LIMITATION ON ISSUANCE OF GUARANTEES of
INDEBTEDNESS BY SUBSIDIARIES" as a result of such transaction), shall not, and
the Company will not permit a Guarantor to, in a single transaction or through a
series of related transactions, merge or consolidate with or into any other
corporation or other entity (other than the Company or any Guarantor), or sell,
assign, convey, transfer, lease or otherwise dispose of its properties and
assets on a consolidated basis substantially as an entirety to any entity (other
than the Company or any Guarantor) unless (i) either (a) such Guarantor shall be
the continuing corporation or (b) the Person (if other than such Guarantor)
formed by such consolidation or into which such Guarantor is merged or the
entity which acquires by sale, assignment, conveyance, transfer, lease or
disposition all or substantially all of the properties and assets of such
Guarantor, as the case may be, shall be a corporation organized and validly
existing under the laws of the United States, any state thereof or the District
of Columbia, and shall expressly assume by an indenture supplemental to the
Indenture, executed and delivered to the Trustee, in form satisfactory to the
Trustee, all the obligations of such Guarantor under the Notes and the
Indenture; (ii) immediately before and immediately after giving effect to such
transaction on a PRO FORMA basis, no Default or Event of Default shall have
occurred and be continuing; and (iii) such Guarantor shall have delivered to the
Trustee an officers' certificate and an opinion of counsel, each stating that
such consolidation, merger, sale, assignment, conveyance, transfer, lease or
disposition and such supplemental indenture comply with the Indenture.
Upon any consolidation or merger, or any sale, assignment, conveyance,
transfer, lease or disposition of all or substantially all of the properties and
assets of the Company or any Guarantor in accordance with the immediately
preceding paragraphs, the successor Person formed by such consolidation or into
which the Company or such Guarantor, as the case may be, is merged or the
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successor Person to which such sale, assignment, conveyance, transfer, lease or
disposition is made shall succeed to, and be substituted for, and may exercise
every right and power of, the Company or such Guarantor, as the case may be,
under the Indenture and/or the Subsidiary Guarantees, as the case may be, with
the same effect as if such successor had been named as the Company or such
Guarantor, as the case may be, therein and/or in the Subsidiary Guarantees, as
the case may be. When a successor assumes all the obligations of its predecessor
under the Indenture, the Notes or a Subsidiary Guarantee, as the case may be,
the predecessor shall be released from those obligations; PROVIDED that in the
case of a transfer by lease, the predecessor shall not be released from the
payment of principal and interest on the Notes or a Subsidiary Guarantee, as the
case may be.
EVENTS OF DEFAULT
The following are "Events of Default" under the Indenture:
(i) default in the payment of any interest on any Note when it
becomes due and payable and continuance of such default for a period of
30 days;
(ii) default in the payment of the principal of, or premium,
if any, on any Note at its Maturity (upon acceleration, optional
redemption, required purchase or otherwise);
(iii) default in the performance, or breach, of the provisions
described in "Consolidation, Merger and Sale of Assets," the failure to
make or consummate a Change in Control Offer in accordance with the
provisions of the "PURCHASE OF NOTES UPON A CHANGE IN CONTROL" covenant
or the failure to make or consummate an Excess Proceeds Offer in
accordance with the provisions of the "LIMITATION ON SALE OF ASSETS"
covenant;
(iv) default in the performance, or breach, of any covenant or
agreement of the Company or any Guarantor contained in the Indenture or
any Subsidiary Guarantee (other than a default in the performance, or
breach, of a covenant or warranty which is specifically dealt with in
clauses (i), (ii) or (iii) above) and continuance of such default or
breach for a period of 30 days after written notice shall have been
given to the Company by the Trustee or to the Company and the Trustee
by the holders of at least 25% in aggregate principal amount of the
Notes then outstanding;
(v) (A) one or more defaults in the payment of principal of or
premium, if any, on Indebtedness of the Company or any Restricted
Subsidiary aggregating $10.0 million or more, when the same becomes due
and payable at the Stated Maturity thereof, and such default or
defaults shall have continued after any applicable grace period and
shall not have been cured or waived or (B) Indebtedness of the Company
or any Restricted Subsidiary aggregating $10.0 million or more shall
have been accelerated or otherwise declared due and payable, or
required to be prepaid or repurchased (other than by regularly
scheduled required prepayment) prior to the Stated Maturity thereof;
(vi) one or more judgments or orders shall be rendered against
the Company or any Restricted Subsidiary for the payment of money,
either individually or in an aggregate amount, in excess of $10.0
million and shall not be discharged and either (A) an enforcement
proceeding shall have been commenced by any creditor upon such judgment
or order or (B) there shall have been a period of 60 consecutive days
during which a stay of enforcement of such judgment or order, by reason
of a pending appeal or otherwise, was not in effect;
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(vii) any Subsidiary Guarantee of a Significant Subsidiary
ceases to be in full force and effect or is declared null and void or
any of the Subsidiary Guarantees of Significant Subsidiaries is found
to be invalid or any Guarantor which is a Significant Subsidiary denies
that it has any further liability under any Subsidiary Guarantee, or
gives notice to such effect (other than by reason of the termination of
the Indenture or the release of any such Subsidiary Guarantee in
accordance with the Indenture); or
(viii) the occurrence of certain events of bankruptcy,
insolvency or reorganization with respect to the Company or any
Significant Subsidiary.
If an Event of Default (other than as specified in clause (viii) above)
shall occur and be continuing, the Trustee or the holders of not less than 25%
in aggregate principal amount of the Notes then outstanding, by notice to the
Company, may, and the Trustee, upon the request of such holders, shall declare
the principal of, premium, if any, and accrued interest on all of the
outstanding Notes immediately due and payable. Upon any such declaration all
such amounts payable in respect of the Notes shall become immediately due and
payable. If an Event of Default specified in clause (viii) above occurs and is
continuing, then the principal of, premium, if any, and accrued interest on all
of the outstanding Notes shall IPSO FACTO become and be immediately due and
payable without any declaration or other act on the part of the Trustee or any
holder of Notes.
At any time after a declaration of acceleration under the Indenture, but
before a judgment or decree for payment of the money due has been obtained by
the Trustee, the holders of a majority in aggregate principal amount of the
outstanding Notes, by written notice to the Company and the Trustee, may rescind
such declaration and its consequences if (a) the Company has paid or deposited
with the Trustee a sum sufficient to pay (i) all overdue interest on all
outstanding Notes, (ii) all unpaid principal of and premium, if any, on any
outstanding Notes that have become due otherwise than by such declaration of
acceleration and interest thereon at the rate borne by the Notes, (iii) to the
extent that payment of such interest is lawful, interest upon overdue interest
and overdue principal at the rate borne by the Notes, and (iv) all sums paid or
advanced by the Trustee under the Indenture and the reasonable compensation,
expenses, disbursements and advances of the Trustee, its agents and counsel; and
(b) all Events of Default, other than the non-payment of amounts of principal
of, premium, if any, or interest on the Notes that has become due solely by such
declaration of acceleration, have been cured or waived. No such rescission shall
affect any subsequent default or impair any right consequent thereon.
The holders of not less than a majority in aggregate principal amount of
the outstanding Notes may, on behalf of the holders of all the Notes, waive any
past defaults under the Indenture, except a default in the payment of the
principal of, premium, if any, or interest on any Note, or in respect of a
covenant or provision which under the Indenture cannot be modified or amended
without the consent of the holder of each Note outstanding.
If a Default or an Event of Default occurs and is continuing and is known
to the Trustee, the Trustee shall mail to each holder of the Notes notice of the
Default or Event of Default within 10 days after the occurrence thereof. Except
in the case of a Default or an Event of Default in payment of principal of,
premium, if any, or interest on any Notes, the Trustee may withhold the notice
to the holders of such Notes if a committee of its trust officers in good faith
determines that withholding the notice is in the interests of the holders of the
Notes.
The Company is required to furnish to the Trustee annual and quarterly
statements as to the performance by the Company and the Guarantors of their
respective obligations under the Indenture and as to any default in such
performance. The Company is also required to notify the Trustee within five
business days of the occurrence of any Default or Event of Default.
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DEFEASANCE OR COVENANT DEFEASANCE OF INDENTURE
The Company may, at its option and at any time, elect to have the
obligations of the Company and any Guarantor upon the outstanding Notes
discharged ("defeasance"). Such defeasance means that the Company will be deemed
to have paid and discharged the entire Indebtedness represented by the
outstanding Notes and to have satisfied all of its other obligations under such
Notes and the Indenture insofar as such Notes are concerned, except for (i) the
rights of holders of outstanding Notes to receive payments in respect of the
principal of, premium, if any, and interest on such Notes when such payments are
due, (ii) the Company's obligations to issue temporary Notes, register the
transfer or exchange of any Notes, replace mutilated, destroyed, lost or stolen
Notes, maintain an office or agency for payments in respect of the Notes and
segregate and hold such payments in trust, (iii) the rights, powers, trusts,
duties and immunities of the Trustee and (iv) the defeasance provisions of the
Indenture. In addition, the Company may, at its option and at any time, elect to
have the obligations of the Company and any Guarantor released with respect to
certain covenants set forth in the Indenture, and any omission to comply with
such obligations will not constitute a Default or an Event of Default with
respect to the Notes ("covenant defeasance").
In order to exercise either defeasance or covenant defeasance, (i) the
Company must irrevocably deposit or cause to be deposited with the Trustee, as
trust funds in trust, specifically pledged as security for, and dedicated solely
to, the benefit of the holders of the Notes, cash in United States dollars, U.S.
Government Obligations, or a combination thereof, which through the scheduled
payment of principal and interest thereon will provide money in an amount
sufficient, in the opinion of a nationally recognized firm of independent public
accountants, to pay and discharge the principal of, premium, if any, and
interest on the outstanding Notes to redemption or maturity; (ii) no Default or
Event of Default will have occurred and be continuing on the date of such
deposit or, insofar as an event of bankruptcy under clause (viii) of "Events of
Default" above is concerned, at any time during the period ending on the 91st
day after the date of such deposit; (iii) such defeasance or covenant defeasance
will not result in a breach or violation of, or constitute a default under, the
Indenture or any material agreement or instrument to which the Company or any
Guarantor is a party or by which it is bound; (iv) in the case of defeasance,
the Company shall have delivered to the Trustee an opinion of counsel stating
that the Company has received from, or there has been published by, the Internal
Revenue Service a ruling or, since the date of the final prospectus, there has
been a change in applicable federal income tax law, in either case to the effect
that, and based thereon such opinion shall confirm that the holders of the
outstanding Notes will not recognize income, gain or loss for federal income tax
purposes as a result of such defeasance and will be subject to federal income
tax on the same amounts, in the same manner and at the same times as would have
been the case if such defeasance had not occurred; (v) in the case of covenant
defeasance, the Company shall have delivered to the Trustee an opinion of
counsel to the effect that the holders of the Notes outstanding will not
recognize income, gain or loss for federal income tax purposes as a result of
such covenant defeasance and will be subject to federal income tax on the same
amounts, in the same manner and at the same times as would have been the case if
such covenant defeasance had not occurred; (vi) in the case of defeasance or
covenant defeasance, the Company shall have delivered to the Trustee an opinion
of counsel to the effect that (A) the trust funds will not be subject to any
rights of holders of Senior Indebtedness under the subordination provisions of
the Indenture and (B) after the 91st day following the deposit or after the date
such opinion is delivered, the trust funds will not be subject to the effect of
any applicable bankruptcy, insolvency, reorganization or similar laws affecting
creditors' rights generally; (vii) the Company shall have delivered to the
Trustee an officers' certificate stating that the deposit was not made by the
Company with the intent of preferring the holders of the Notes or any Subsidiary
Guarantee over the other creditors of either the Company or any Guarantor with
the intent of hindering, delaying or defrauding creditors of either the Company
or any Guarantor; and (viii) the Company shall have delivered to the Trustee an
officers' certificate and an opinion of counsel, each stating that all
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conditions precedent provided for relating to either the defeasance or the
covenant defeasance, as the case may be, have been complied with.
SATISFACTION AND DISCHARGE
The Indenture will cease to be of further effect (except as to
surviving rights of registration of transfer or exchange of the Notes as
expressly provided for in the Indenture) and the Trustee, at the expense of the
Company, will execute proper instruments acknowledging satisfaction and
discharge of the Indenture when (a) either (i) all the Notes theretofore
authenticated and delivered (other than destroyed, lost or stolen Notes which
have been replaced or paid and Notes for whose payment money has been deposited
in trust with the Trustee or any paying agent or segregated and held in trust by
the Company and thereafter repaid to the Company or discharged from such trust
as provided for in the Indenture) have been delivered to the Trustee for
cancellation or (ii) all Notes not theretofore delivered to the Trustee for
cancellation (x) have become due and payable, (y) will become due and payable at
Stated Maturity within one year or (z) are to be called for redemption within
one year under arrangements satisfactory to the Trustee for the giving of notice
of redemption by the Trustee in the name, and at the expense, of the Company,
and the Company has irrevocably deposited or caused to be deposited with the
Trustee as trust funds in trust for such purpose an amount sufficient to pay and
discharge the entire Indebtedness on the Notes not theretofore delivered to the
Trustee for cancellation, for principal of, premium, if any, and interest on the
Notes to the date of such deposit (in the case of Notes which have become due
and payable) or to the Stated Maturity or redemption date, as the case may be;
(b) the Company has paid or caused to be paid all sums payable under the
Indenture by the Company; and (c) the Company has delivered to the Trustee an
officers' certificate and an opinion of counsel, each stating that all
conditions precedent provided in the Indenture relating to the satisfaction and
discharge of the Indenture have been complied with.
AMENDMENTS AND WAIVERS
With certain exceptions, modifications and amendments of the Indenture
may be made by a supplemental indenture entered into by the Company, the
Guarantors and the Trustee with the consent of the holders of a majority in
aggregate outstanding principal amount of the Notes then outstanding; PROVIDED,
HOWEVER, that no such modification or amendment may, without the consent of the
holder of each outstanding Note affected thereby: (i) change the Stated Maturity
of the principal of, or any installment of interest on, any Note, or reduce the
principal amount thereof, or premium, if any, or the rate of interest thereon or
change the coin or currency in which the principal of any Note or any premium or
the interest thereon is payable, or impair the right to institute suit for the
enforcement of any such payment after the Stated Maturity thereof (or, in the
case of redemption, on or after the redemption date); (ii) amend, change or
modify the obligation of the Company to make and consummate an Excess Proceeds
Offer with respect to any Asset Sale in accordance with the "LIMITATION ON SALE
OF ASSETS" covenant or the obligation of the Company to make and consummate a
Change in Control Offer in the event of a Change in Control in accordance with
the "PURCHASE OF NOTES UPON A CHANGE IN CONTROL" covenant, including, in each
case, amending, changing or modifying any definition relating thereto; (iii)
reduce the percentage in principal amount of outstanding Notes, the consent of
whose holders is required for any such supplemental indenture or the consent of
whose holders is required for any waiver of compliance with certain provisions
of the Indenture; (iv) modify any of the provisions relating to supplemental
indentures requiring the consent of holders or relating to the waiver of past
defaults or relating to the waiver of certain covenants, except to increase the
percentage of outstanding Notes required for such actions or to provide that
certain other provisions of the Indenture cannot be modified or waived without
the consent of the holder of each Note affected thereby; (v) except as otherwise
permitted under "Consolidation, Merger and Sale of Assets" consent to the
assignment or transfer by the Company or any Guarantor of any of their rights or
obligations under the Indenture; or (vi) amend or modify any of
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the provisions of the Indenture or the related definitions affecting the
subordination or ranking of the Notes or any Subsidiary Guarantee in any manner
which adversely affects the holders of the Notes.
Notwithstanding the foregoing, without the consent of any holder of the
Notes, the Company, any Guarantor and the Trustee may modify or amend the
Indenture: (a) to evidence the succession of another Person to the Company, a
Guarantor or any other obligor on the Notes, and the assumption by any such
successor of the covenants of the Company or such obligor or Guarantor in the
Indenture and in the Notes and in any Subsidiary Guarantee in accordance with
"--Consolidation, Merger and Sale of Assets;" (b) to add to the covenants of the
Company, any Guarantor or any other obligor upon the Notes for the benefit of
the holders of the Notes or to surrender any right or power conferred upon the
Company or any other obligor upon the Notes, as applicable, in the Indenture, in
the Notes or in any Subsidiary Guarantee; (c) to cure any ambiguity, or to
correct or supplement any provision in the Indenture, the Notes or any
Subsidiary Guarantee which may be defective or inconsistent with any other
provision in the Indenture, the Notes or any Subsidiary Guarantee or make any
other provisions with respect to matters or questions arising under the
Indenture, the Notes or any Subsidiary Guarantee; PROVIDED that, in each case,
such provisions shall not adversely affect the interest of the holders of the
Notes; (d) to comply with the requirements of the Commission in order to effect
or maintain the qualification of the Indenture under the Trust Indenture Act;
(e) to add a Guarantor under the Indenture; (f) to evidence and provide the
acceptance of the appointment of a successor Trustee under the Indenture; or (g)
to mortgage, pledge, hypothecate or grant a security interest in favor of the
Trustee for the benefit of the holders of the Notes as additional security for
the payment and performance of the Company's and any Guarantor's obligations
under the Indenture, in any property, or assets, including any of which are
required to be mortgaged, pledged or hypothecated, or in which a security
interest is required to be granted to the Trustee pursuant to the Indenture or
otherwise.
The holders of a majority in aggregate principal amount of the Notes
outstanding may waive compliance with certain restrictive covenants and
provisions of the Indenture.
THE TRUSTEE
The Indenture provides that, except during the continuance of an Event
of Default, the Trustee will perform only such duties as are specifically set
forth in the Indenture. If an Event of Default has occurred and is continuing,
the Trustee will exercise such rights and powers vested in it under the
Indenture and use the same degree of care and skill in its exercise as a prudent
Person would exercise under the circumstances in the conduct of such Person's
own affairs.
The Indenture and provisions of the Trust Indenture Act incorporated by
reference therein contain limitations on the rights of the Trustee thereunder,
should it become a creditor of the Company or any Guarantor, to obtain payment
of claims in certain cases or to realize on certain property received by it in
respect of any such claims, as security or otherwise. The Trustee is permitted
to engage in other transactions; PROVIDED, however, that if it acquires any
conflicting interest (as defined) it must eliminate such conflict or resign.
GOVERNING LAW
The Indenture, the Notes and the Subsidiary Guarantees will be governed
by, and construed in accordance with, the laws of the State of New York.
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CERTAIN DEFINITIONS
"Acquired Indebtedness" means Indebtedness of a Person (a) existing at
the time such Person becomes a Restricted Subsidiary or is merged into or
consolidated with the Company or any of its Restricted Subsidiaries or (b)
assumed in connection with the acquisition of assets from such Person. Acquired
Indebtedness shall be deemed to be incurred on the date of the related
acquisition of assets from any Person or the date the acquired Person becomes a
Restricted Subsidiary.
"Acquisition Indebtedness" means Indebtedness of a Person incurred in
connection with or in contemplation of (i) an investment by the Company or any
of its Restricted Subsidiaries in any other Person pursuant to which such Person
becomes a Restricted Subsidiary or shall be merged into or consolidated with the
Company or any of its Restricted Subsidiaries, (ii) an acquisition by the
Company or any of its Restricted Subsidiaries of the property and assets of any
Person other than the Company or any of its Restricted Subsidiaries that
constitute substantially all of a division or line of business of such Person or
(iii) the purchase by the Company or any of its Restricted Subsidiaries from a
third party of any licenses, trademarks, service marks, trade names or other
intellectual property rights of such third party; PROVIDED, HOWEVER that
Indebtedness incurred in a transaction or series of related transactions having
a Fair Market Value of less than $5.0 million will not be considered to be
Acquisition Indebtedness.
"Affiliate" means, with respect to any specified Person, (a) any other
Person directly or indirectly controlling or controlled by or under direct or
indirect common control with such specified Person or (b) any other Person that
owns, directly or indirectly, 5% or more of such specified Person's Capital
Stock or any executive officer or director of any such specified Person or other
Person or, with respect to any natural Person, any Person having a relationship
with such Person by blood, marriage or adoption not more remote than first
cousin. For the purposes of this definition, "control," when used with respect
to any specified Person, means the power to direct the management and policies
of such Person, directly or indirectly, whether through the ownership of voting
securities, by contract or otherwise; and the terms "controlling" and
"controlled" have meanings correlative to the foregoing.
"Asset Sale" means any sale, issuance, conveyance, transfer, lease or
other disposition (including, without limitation, by way of merger,
consolidation or sale and leaseback transaction) (collectively, a "transfer"),
directly or indirectly, in one or a series of related transactions, of (a) any
Capital Stock of any Restricted Subsidiary; (b) all or substantially all of the
properties and assets of the Company or its Restricted Subsidiaries; (c) all or
substantially all of the properties and assets of any division or line of
business of the Company or any Restricted Subsidiary, other than in the ordinary
course of business or (d) any other properties or assets of the Company or any
Restricted Subsidiary outside of the ordinary course of business. For the
purposes of this definition, the term "Asset Sale" shall not include any
transfer of properties or assets (i) that is governed by the provisions of the
Indenture described under "--Consolidation, Merger and Sale of Assets," (ii)
between or among the Company and Wholly Owned Restricted Subsidiaries in
accordance with the terms of the Indenture, (iii) in compliance with the
"LIMITATION ON RESTRICTED PAYMENTS" covenant, (iv) that consists of grants by
the Company or its Restricted Subsidiaries in the ordinary course of business of
licenses or sub-licenses to use any of the intellectual property rights of the
Company or its Restricted Subsidiaries, (v) that consists of the dress shirt
inventory, manufacturing equipment and any facilities acquired from Salant
Corporation in connection with the Company's acquisition of the John Henry,
Manhattan and Lady Manhattan trademarks prior to the date of the Indenture or
(vi) having a Fair Market Value of less than $750,000 in any given fiscal year.
"Average Life" means, as of the date of determination with respect to
any Indebtedness, the quotient obtained by dividing (a) the sum of the products
of (i) the number of years from the date of determination to the date or dates
of each successive scheduled principal payment (including, without
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limitation, any sinking fund requirements) of such Indebtedness multiplied by
(ii) the amount of each such principal payment by (b) the sum of all such
principal payments.
"Bankruptcy Law" means Title 11, United States Bankruptcy Code of 1978,
as amended, or any similar United States federal or state law relating to
bankruptcy, insolvency, receivership, winding-up, liquidation, reorganization or
relief of debtors or any amendment to, succession to or change in any such law.
"Board of Directors" means, with respect to any Person, the board of
directors of such Person or any duly authorized committee of such board.
"Capital Stock" means, with respect to any Person, any and all shares,
interests, partnership interests (whether general or limited), participations,
rights in or other equivalents (however designated) of such Person's equity, and
any other interest or participation that confers the right to receive a share of
the profits and losses, or distributions of assets of, such Person and any
rights (other than debt securities convertible into Capital Stock), warrants or
options exchangeable for or convertible into such Capital Stock, whether now
outstanding or issued after the date of the Indenture.
"Capitalized Lease Obligation" means, with respect to any Person, any
obligation of such Person under a lease of (or other agreement conveying the
right to use) any property (whether real, personal or mixed) that is required to
be classified and accounted for as a capital lease obligation under GAAP, and,
for the purpose of the Indenture, the amount of such obligation at any date
shall be the capitalized amount thereof at such date, determined in accordance
with GAAP.
"Cash Equivalents" means (a) any evidence of Indebtedness with a
maturity of one year or less issued or directly and fully guaranteed or insured
by the United States of America or any agency or instrumentality thereof
(PROVIDED that the full faith and credit of the United States of America is
pledged in support thereof); (b) certificates of deposit or acceptances with a
maturity of one year or less of any financial institution that is a member of
the Federal Reserve System having combined capital and surplus and undivided
profits of not less than $500 million; and (c) commercial paper with a maturity
of one year or less issued by a corporation that is not an Affiliate of the
Company and is organized under the laws of any state of the United States or the
District of Columbia and rated at least A-1 by S&P or any successor rating
agency or at least P-1 by Moody's or any successor rating agency; (d) repurchase
obligations with a term of not more than seven days for underlying securities of
the types described in clauses (a) and (b) above; and (e) demand and time
deposits with a domestic commercial bank that is a member of the Federal Reserve
System having combined capital and surplus and undivided profits of not less
than $500 million.
"Change in Control" means the occurrence of any of the following events:
(a) any "person" or "group" (as such terms are used in
Sections 13(d) and 14(d) of the Exchange Act), other than Permitted
Holders, is or becomes the "beneficial owner" (as defined in Rules
13d-3 and 13d-5 under the Exchange Act, except that a Person shall be
deemed to have "beneficial ownership" of all securities that such
Person has the right to acquire, whether such right is exercisable
immediately or only after the passage of time), directly or indirectly,
of more than 35% of the total voting power of all outstanding Voting
Stock of the Company, and either (x) the Permitted Holders beneficially
own, directly or indirectly, in the aggregate Voting Stock of the
Company that represents a lesser percentage of the aggregate ordinary
voting power of all classes of the Voting Stock of the Company, voting
together as a single class, than such other person or group and are not
entitled (by voting power, contract or otherwise) to elect directors of
the Company having a majority of the total voting power of the Board of
Directors, or (y) such
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other person or group is entitled to elect directors of the Company
having a majority of the total voting power of the Board of Directors;
(b) the Company consolidates with, or merges with or into,
another Person or conveys, transfers, leases or otherwise disposes of
all or substantially all of its assets to any Person, or any Person
consolidates with, or merges with or into, the Company, in any such
event pursuant to a transaction in which the outstanding Voting Stock
of the Company is converted into or exchanged for cash, securities or
other property, other than any such transaction (i) where the
outstanding Voting Stock of the Company is not converted or exchanged
at all (except to the extent necessary to reflect a change in the
jurisdiction of incorporation of the Company) or is converted into or
exchanged for (A) Voting Stock (other than Redeemable Capital Stock) of
the surviving or transferee corporation or (B) Voting Stock (other than
Redeemable Capital Stock) of the surviving or transferee corporation
and cash, securities and other property (other than Capital Stock of
the surviving or transferee corporation) in an amount that could be
paid by the Company as a Restricted Payment as described under the
"Limitation on Restricted Payments" covenant and (ii) immediately after
such transaction, no "person" or "group" (as such terms are used in
Sections 13(d) and 14(d) of the Exchange Act), other than Permitted
Holders, is the "beneficial owner" (as defined in Rules 13d-3 and 13d-5
under the Exchange Act, except that a Person shall be deemed to have
"beneficial ownership" of all securities that such Person has the right
to acquire, whether such right is exercisable immediately or only after
the passage of time), directly or indirectly, of more than 35% of the
total voting power of all outstanding Voting Stock of the surviving or
transferee corporation, and either (x) the Permitted Holders
beneficially own, directly or indirectly, in the aggregate Voting Stock
of the Company that represents a lesser percentage of the aggregate
ordinary voting power of all classes of the Voting Stock of the
Company, voting together as a single class, than such other person or
group and are not entitled (by voting power, contract or otherwise) to
elect directors of the Company having a majority of the total voting
power of the Board of Directors, or (y) such other person or group is
entitled to elect directors of the Company having a majority of the
total voting power of the Board of Directors;
(c) during any consecutive two-year period, individuals who at
the beginning of such period constituted the Board of Directors of the
Company (together with any new directors whose election to such Board
of Directors, or whose nomination for election by the stockholders of
the Company, was approved by a vote of 66 2/3% of the directors then
still in office who were either directors at the beginning of such
period or whose election or nomination for election was previously so
approved) cease for any reason to constitute a majority of the Board of
Directors of the Company then in office; or
(d) the Company is liquidated or dissolved or adopts a plan of
liquidation or dissolution other than in a transaction which complies
with the provisions described under "Consolidation, Merger and Sale of
Assets."
"Consolidated Adjusted Net Income" means, for any period, the
consolidated net income (or loss) of the Company and all Restricted Subsidiaries
for such period as determined in accordance with GAAP, adjusted, to the extent
included in calculating such net income, by excluding, without duplication, (a)
all extraordinary gains or losses (net of taxes, fees and expenses relating
thereto), (b) gains or losses (net of taxes, fees and expenses relating thereto)
attributable to asset dispositions other than in the ordinary course of
business, (c) the portion of net income of any Person (other than the Company or
a Restricted Subsidiary), including Unrestricted Subsidiaries, in which the
Company or any Restricted Subsidiary has an ownership interest, except to the
extent of the amount of dividends or other distributions actually paid to the
Company or any Restricted Subsidiary in cash dividends or cash distributions
during such period,
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(d) the net income (or loss) of any Person combined with the Company or any
Restricted Subsidiary on a "pooling of interests" basis attributable to any
period prior to the date of combination, (e) the net income of any Restricted
Subsidiary to the extent that the declaration or payment of dividends or similar
distributions by such Restricted Subsidiary is not at the date of determination
(regardless of any waiver) permitted, directly or indirectly, by operation of
the terms of its charter or any agreement, instrument, judgment, decree, order,
statute, rule or governmental regulation applicable to such Restricted
Subsidiary or its stockholders, and (f) for purposes of calculating Consolidated
Adjusted Net Income under the "LIMITATION ON RESTRICTED PAYMENT" covenant any
net income (or loss) from any Restricted Subsidiary while it was an Unrestricted
Subsidiary at any time during such period other than any amounts actually
received from such Restricted Subsidiary during such period; PROVIDED that, if
any Restricted Subsidiary is not a Wholly Owned Restricted Subsidiary,
Consolidated Adjusted Net Income will be reduced (to the extent not otherwise
reduced in accordance with GAAP) by an amount equal to (A) the amount of the
Consolidated Adjusted Net Income otherwise attributable to such Restricted
Subsidiary multiplied by (B) the quotient of (1) the number of shares of
outstanding common stock of such Restricted Subsidiary not owned on the last day
of such period by the Company or any of its Restricted Subsidiaries divided by
(2) the total number of shares of outstanding common stock of such Restricted
Subsidiary on the last day of such period.
"Consolidated Fixed Charge Coverage Ratio" of the Company means, for
any period, the ratio of (a) the sum of Consolidated Adjusted Net Income and, to
the extent deducted in computing Consolidated Adjusted Net Income, Consolidated
Interest Expense, Consolidated Income Tax Expense and Consolidated Non-Cash
Charges, in each case, for such period to (b) the sum of (i) Consolidated
Interest Expense for such period and (ii) the aggregate amount of dividends and
other distributions paid, accrued or scheduled to be paid or accrued in respect
of Redeemable Capital Stock of the Company or any Restricted Subsidiary for such
period, in each case after giving PRO FORMA effect to (A) the incurrence of the
Indebtedness giving rise to the need to make such calculation and (if
applicable) the application of the net proceeds therefrom, including to
refinance other Indebtedness, as if such Indebtedness was incurred, and the
application of the net proceeds occurred, on the first day of such period, (B)
the incurrence, repayment or retirement of any other Indebtedness by the Company
and its Restricted Subsidiaries since the first day of such period as if such
Indebtedness was incurred, repaid or retired on the first day of such period
(except that, in making such computation, the amount of Indebtedness under any
revolving credit facility shall be computed based upon the average daily balance
of such Indebtedness during such period) and (C) the acquisition (whether by
purchase, merger or otherwise) or disposition (whether by sale, merger or
otherwise) of any company, entity or business acquired or disposed of by the
Company or its Restricted Subsidiaries, as the case may be, since the first day
of such period, as if such acquisition or disposition occurred on the first day
of such period.
"Consolidated Income Tax Expense" means, for any period, the provision
for federal, state, local and foreign income taxes of the Company and all
Restricted Subsidiaries for such period as determined on a consolidated basis in
accordance with GAAP.
"Consolidated Interest Expense" means, for any period, without
duplication, (1) the sum of (a) the interest expense of the Company and its
Restricted Subsidiaries for such period, including, without limitation, (i)
amortization of debt discount, (ii) the net cost of Interest Rate Agreements
(including amortization of discounts), (iii) the interest portion of any
deferred payment obligation, (iv) all commissions, discounts and other fees and
charges owed with respect to the letter of credit, bankers' acceptance financing
or similar facilities and (v) amortization of debt issuance costs, plus (b) the
interest component of Capitalized Lease Obligations paid, accrued and/or
scheduled to be paid or accrued by the Company and its Restricted Subsidiaries
during such period, plus (c) one-third of lease rental payments in connection
with operating leases paid, accrued and/or scheduled to be paid or accrued
during such period, in each case as determined on a consolidated basis in
accordance with GAAP; PROVIDED that (x) the
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Consolidated Interest Expense attributable to interest on any Indebtedness
computed on a PRO FORMA basis and (A) bearing a floating interest rate shall be
computed as if the rate in effect on the date of computation had been the
applicable rate for the entire period and (B) which was not outstanding during
the period for which the computation is being made but which bears, at the
option of the Company, a fixed or floating rate of interest, shall be computed
by applying, at the option of the Company, either the fixed or floating rate,
and (y) in making such computation, the Consolidated Interest Expense
attributable to interest on any Indebtedness under a revolving credit facility
computed on a PRO FORMA basis shall be computed based upon the average daily
balance of such Indebtedness during the applicable period.
"Consolidated Non-Cash Charges" means, for any period, the aggregate
depreciation, amortization and other non-cash expenses of the Company and any
Restricted Subsidiary reducing Consolidated Adjusted Net Income for such period,
determined on a consolidated basis in accordance with GAAP (excluding any such
non-cash charge that requires an accrual of or reserve for cash charges for any
future period or constituting an extraordinary item or loss).
"Currency Agreements" means any spot or forward foreign exchange
agreements and currency swap, currency option or other similar financial
agreements or arrangements entered into by the Company or any of its Restricted
Subsidiaries designed to protect against or manage exposure to fluctuations in
foreign currency exchange rates.
"Default" means any event that is, or after notice or passage of time
or both would be, an Event of Default.
"Disinterested Director" means, with respect to any transaction or
series of transactions in respect of which the Board of Directors is required to
deliver a resolution of the Board of Directors under the Indenture, a member of
the Board of Directors who does not have any material direct or indirect
financial interest in or with respect to such transaction or series of
transactions.
"Exchange Act" means the Securities Exchange Act of 1934, as amended.
"Fair Market Value" means, with respect to any asset or property, the
sale value that would be obtained in an arm's-length transaction between an
informed and willing seller under no compulsion to sell and an informed and
willing buyer under no compulsion to buy.
"Generally Accepted Accounting Principles" or "GAAP" means generally
accepted accounting principles in the United States, consistently applied, that
are in effect on the date of the Indenture.
"Guarantee" means, as applied to any obligation, (a) a guarantee (other
than by endorsement of negotiable instruments for collection in the ordinary
course of business), direct or indirect, in any manner, of any part or all of
such obligation and (b) an agreement, direct or indirect, contingent or
otherwise, the practical effect of which is to assure in any way the payment or
performance (or payment of damages in the event of non-performance) of all or
any part of such obligation, including, without limiting the foregoing, the
payment of amounts drawn down by letters of credit. A guarantee shall include,
without limitation, any agreement to maintain or preserve any Person's financial
condition or to cause any other Person to achieve certain levels of operating
results; PROVIDED that no license or sub-license entered into in the ordinary
course of business between the Company or any Restricted Subsidiary (other than
with an Affiliate thereof) shall be deemed to be a guarantee as a result of any
minimum royalty or revenue provisions with which the Company or such Restricted
Subsidiary must comply.
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"Guarantor" means any Restricted Subsidiary that incurs a Subsidiary
Guarantee; PROVIDED that, upon the release and discharge of any Person from its
Subsidiary Guarantee in accordance with the Indenture, such Person shall cease
to be a Guarantor.
"Hamilton Bank Letter of Credit Facility" means the $45.0 million Line
of Credit Facility dated August 3, 1998 between Perry Ellis International, Inc.
and Hamilton Bank, N.A.
"Indebtedness" means, with respect to any Person, without duplication,
(a) all liabilities of such Person for borrowed money (including overdrafts) or
for the deferred purchase price of property or services, excluding any trade
payables and other accrued current liabilities incurred in the ordinary course
of business, but including, without limitation, all obligations, contingent or
otherwise, of such Person in connection with any letters of credit and
acceptances issued under letter of credit facilities, acceptance facilities or
other similar facilities, (b) all obligations of such Person evidenced by bonds,
notes, debentures or other similar instruments, (c) all indebtedness of such
Person created or arising under any conditional sale or other title retention
agreement with respect to property acquired by such Person (even if the rights
and remedies of the seller or lender under such agreement in the event of
default are limited to repossession or sale of such property), but excluding
trade payables arising in the ordinary course of business, (d) all Capitalized
Lease Obligations of such Person, (e) all obligations of such Person under or in
respect of Interest Rate Agreements or Currency Agreements, (f) all Indebtedness
referred to in (but not excluded from) the preceding clauses of other Persons
and all dividends of other Persons, the payment of which is secured by (or for
which the holder of such Indebtedness has an existing right, contingent or
otherwise, to be secured by) any Lien upon or with respect to property
(including, without limitation, accounts and contract rights) owned by such
Person, even though such Person has not assumed or become liable for the payment
of such Indebtedness (the amount of such obligation being deemed to be the
lesser of the Fair Market Value of such property or asset or the amount of the
obligation so secured), (g) all guarantees by such Person of Indebtedness
referred to in this definition of any other Person, and (h) all Redeemable
Capital Stock of such Person valued at the greater of its voluntary or
involuntary maximum fixed repurchase price plus accrued and unpaid dividends.
For purposes hereof, the "maximum fixed repurchase price" of any Redeemable
Capital Stock which does not have a fixed repurchase price shall be calculated
in accordance with the terms of such Redeemable Capital Stock as if such
Redeemable Capital Stock were purchased on any date on which Indebtedness shall
be required to be determined pursuant to the Indenture, and if such price is
based upon, or measured by, the fair market value of such Redeemable Capital
Stock, such fair market value shall be determined in good faith by the board of
directors of the issuer of such Redeemable Capital Stock.
"Interest Rate Agreements" means any interest rate protection
agreements and other types of interest rate hedging agreements (including,
without limitation, interest rate swaps, caps, floors, collars and similar
agreements) designed to protect against or manage exposure to fluctuations in
interest rates.
"Investment" means, with respect to any Person, any direct or indirect
advance, loan, guarantee or other extension of credit or capital contribution to
(by means of any transfer of cash or other property to others or any payment for
property or services for the account or use of others), or any purchase,
acquisition or ownership by such Person of any Capital Stock, bonds, notes,
debentures or other securities or evidences of Indebtedness issued or owned by,
any other Person and all other items that would be classified as investments on
a balance sheet prepared in accordance with GAAP. "Investments" shall exclude
extensions of trade credit on commercially reasonable terms in accordance with
normal trade practices.
"Issue Date" means the date on which the Notes are originally issued
under the Indenture.
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"Lease" means the Master Agreement dated August 28, 1997 among the
Company, as lessee and guarantor, SUP Joint Venture, as lessor, Suntrust Bank,
Miami, N.A., as agent, Atlantic Financial Managers, Inc. and Atlantic Financial
Group, Ltd. and certain other financial institutions, as lenders, and the
related Lease Agreement (Land), Lease Agreement (Building), Loan Agreement,
Guaranty and Security Agreement and Financing Statement (all as defined in the
Master Agreement) dated as of August 28, 1997 and any renewal, replacement or
extension thereof on terms similar to those in effect on the date of the
Indenture; PROVIDED that any such renewal, replacement or extension will not
increase the amount of the guarantee by the Company of the obligations of the
lessor under the Lease or the rental obligations of the Company at the
expiration of the term of the Lease Agreement (Building) and Lease Agreement
(Land) as of the date of such renewal, replacement or extension.
"Letter of Credit Facilities" means the Hamilton Bank Letter of Credit
Facility, the Ocean Bank Letter of Credit Facility and The Bank of
Tokyo-Mitsubishi Letter of Credit Facility, as the same may be amended,
supplemented or otherwise modified including any refinancing, refunding,
replacement or extension thereof.
"Lien" means any mortgage, charge, pledge, lien (statutory or
otherwise), privilege, security interest, hypothecation, assignment for
security, claim, or preference or priority or other encumbrance upon or with
respect to any property of any kind, real or personal, movable or immovable, now
owned or hereafter acquired. A Person will be deemed to own subject to a Lien
any property which such Person has acquired or holds subject to the interest of
a vendor or lessor under any conditional sale agreement (other than a
consignment), capital lease or other title retention agreement.
"Maturity" means, with respect to any Note, the date on which any
principal of such Note becomes due and payable provided in such Note or in the
Indenture, whether at the Stated Maturity with respect to such principal or by
declaration of acceleration, call for redemption or purchase or otherwise.
"Moody's" means Moody's Investors Service, Inc. and its successors.
"Net Cash Proceeds" means, with respect to any Asset Sale, the proceeds
thereof in the form of cash or Cash Equivalents including payments in respect of
deferred payment obligations when received in the form of cash or Cash
Equivalents (except to the extent that such obligations are financed or sold
with recourse to the Company or any Restricted Subsidiary), net of (i) brokerage
commissions and other fees and expenses (including fees and expenses of legal
counsel and investment banks) related to such Asset Sale, (ii) provisions for
all taxes payable as a result of such Asset Sale, (iii) payments made to retire
Indebtedness where payment of such Indebtedness is secured by the assets or
properties the subject of such Asset Sale, (iv) amounts required to be paid to
any Person (other than the Company or any Restricted Subsidiary) owning a
beneficial interest in the assets subject to the Asset Sale and (v) appropriate
amounts to be provided by the Company or any Restricted Subsidiary, as the case
may be, as a reserve required in accordance with GAAP against any liabilities
associated with such Asset Sale and retained by the Company or any Restricted
Subsidiary, as the case may be, after such Asset Sale, including, without
limitation, pension and other post- employment benefit liabilities, liabilities
related to environmental matters and liabilities under any indemnification
obligations associated with such Asset Sale, all as reflected in an officers'
certificate delivered to the Trustee.
"Ocean Bank Letter of Credit Facility" means the $7.0 million Line of
Credit Facility dated February 19, 1997 between Perry Ellis International, Inc.,
and Ocean Bank.
"Pari Passu Indebtedness" means (a) with respect to the Notes,
Indebtedness that ranks PARI PASSU in right of payment to the Notes and (b) with
respect to any Subsidiary Guarantee, Indebtedness that ranks PARI passu in right
of payment to such Subsidiary Guarantee.
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"Permitted Holders" means, as of the date of determination, (a) Oscar
Feldenkreis, George Feldenkreis, their spouses, their respective lineal
descendants and the spouses of such lineal descendants, (b) any Person
controlled by any of the Persons included in the foregoing clause (a) (as the
term "controlled" is defined under the definition of "Affiliate"), (c) trusts
for the benefit of any of the Persons included in the foregoing clause (a), and
(d) any charitable foundation a majority of whose members, trustees or
directors, as the case may be, are Persons included in the foregoing clause (a).
"Permitted Indebtedness" means any of the following:
(a) Indebtedness of the Company and the Guarantors under the
Senior Credit Facility in an aggregate principal amount at any one time
outstanding not to exceed the sum of (i) $15.0 million (after giving
effect to the permanent reduction made from the proceeds of the
issuance and sale of the Notes on the Issue Date) less the amount of
permanent reductions made by the Company in respect of any term loans
under the Senior Credit Facility and (ii) the greater of (x) $75.0
million and (y) the sum of (1) 85% of Eligible Receivables (as defined
in clauses (a) through (o) of the definition thereof contained in the
Senior Credit Facility on the date of the Indenture), PLUS (2) the
lesser of (i) 90% of Eligible Factoring Credit Balances (as defined in
clauses (a) through (c) of the definition thereof contained in the
Senior Credit Facility on the date of Indenture) and (ii) $20.0
million, PLUS (3) the lesser of (i) 60% of Eligible Inventory (as
defined in clauses (a) through (e) and (g) through (i) of the
definition thereof contained in the Senior Credit Facility on the date
of Indenture) and (ii) $30.0 million, MINUS (d) the full amount of all
outstanding letters of credit issued pursuant to, or authorized under,
the Senior Credit Facility for the account of the Company or the
Restricted Subsidiaries which are not fully secured by cash collateral;
(b) Indebtedness of the Company with respect to any letters of
credit under the Letter of Credit Facilities in an aggregate principal
amount at any one time outstanding not to exceed $60 million;
(c) Indebtedness of the Company pursuant to the Notes (other
than any Additional Notes) or of any Restricted Subsidiary pursuant to
a Subsidiary Guarantee;
(d) Indebtedness of the Company or any Restricted Subsidiary
outstanding on the date of the Indenture (other than Indebtedness under
the Senior Credit Facility, the Letter of Credit Facilities and the
Lease);
(e) Indebtedness of the Company owing to any Wholly Owned
Restricted Subsidiary; PROVIDED that any Indebtedness of the Company
owing to any such Restricted Subsidiary is unsecured and is
subordinated in right of payment from and after such time as the Notes
shall become due and payable (whether at Stated Maturity, acceleration
or otherwise) to the payment and performance of the Company's
obligations under the Notes; PROVIDED FURTHER that any disposition,
pledge or transfer of any such Indebtedness to a Person (other than a
disposition, pledge or transfer to the Company or another Wholly Owned
Restricted Subsidiary) shall be deemed to be an incurrence of such
Indebtedness by the Company not permitted by this clause (e);
(f) Indebtedness of a Restricted Subsidiary owing to the
Company or to another Wholly Owned Restricted Subsidiary; PROVIDED that
any such Indebtedness of any Guarantor is subordinated in right of
payment to the Subsidiary Guarantee of such Guarantor; PROVIDED FURTHER
that any disposition, pledge or transfer of any such Indebtedness to a
Person (other than a
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disposition, pledge or transfer to the Company or a Wholly Owned
Restricted Subsidiary) shall be deemed to be an incurrence of such
Indebtedness by such Restricted Subsidiary not permitted by this clause
(f);
(g) guarantees of any Restricted Subsidiary made in accordance
with the provisions of the "LIMITATION ON GUARANTEES OF INDEBTEDNESS BY
RESTRICTED SUBSIDIARIES" covenant;
(h) obligations of the Company or any Guarantor entered into
in the ordinary course of business (i) pursuant to Interest Rate
Agreements designed to protect the Company or any Restricted Subsidiary
against fluctuations in interest rates in respect of Indebtedness of
the Company or any Restricted Subsidiary, which obligations do not
exceed the aggregate principal amount of such Indebtedness and (ii)
pursuant to Currency Agreements entered into by the Company or any of
its Restricted Subsidiaries in respect of its (x) assets or (y)
obligations, as the case may be, denominated in a foreign currency;
(i) Indebtedness of the Company or any Guarantor in respect of
purchase money obligations, Capitalized Lease Obligations of the
Company or any Guarantor and Subordinated Indebtedness of the Company
or any Guarantor in an aggregate amount which does not exceed $5.0
million at any one time outstanding;
(j) Indebtedness of the Company or any Guarantor consisting of
guarantees, indemnities or obligations in respect of purchase price
adjustments in connection with the acquisition or disposition of
assets, including, without limitation, shares of Capital Stock of
Restricted Subsidiaries;
(k) Indebtedness of the Company or any Guarantor represented
by (x) letters of credit for the account of the Company or any
Restricted Subsidiary or (y) other obligations to reimburse third
parties pursuant to any surety bond or other similar arrangements,
which letters of credit or other obligations, as the case may be, are
intended to provide security for workers' compensation claims, payment
obligations in connection with self-insurance or other similar
requirements in the ordinary course of business;
(l) the guarantee of the obligations of the lessor under the
Lease; and
(m) any renewals, extensions, substitutions, refinancings or
replacements (each, for purposes of this clause, a "refinancing") of
any Indebtedness, referred to in clause (c) or (d) of this definition,
including any successive refinancings, so long as (i) any such new
Indebtedness shall be in a principal amount that does not exceed the
principal amount (or, if such Indebtedness being refinanced provides
for an amount less than the principal amount thereof to be due and
payable upon a declaration of acceleration thereof, such lesser amount
as of the date of determination) so refinanced, plus the lesser of the
amount of any premium required to be paid in connection with such
refinancing pursuant to the terms of the Indebtedness refinanced or the
amount of any premium reasonably determined as necessary to accomplish
such refinancing, (ii) in the case of any refinancing by the Company of
Pari Passu Indebtedness or Subordinated Indebtedness, such new
Indebtedness is made PARI PASSU with or subordinate to the Notes at
least to the same extent as the Indebtedness being refinanced, (iii) in
the case of any refinancing by any Guarantor of Pari Passu Indebtedness
or Subordinated Indebtedness, such new Indebtedness is made PARI PASSU
with or subordinate to the Subsidiary Guarantee of such Guarantor at
least to the same extent as the Indebtedness being refinanced, (iv)
such new Indebtedness has an Average Life longer than the Average Life
of the Notes and a final Stated Maturity later than the final Stated
Maturity of the Notes and (v) Indebtedness of the Company or a
Guarantor may only be
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refinanced with Indebtedness of the Company or a Guarantor and
Indebtedness of a Restricted Subsidiary that is not a Guarantor may
only be refinanced with Indebtedness of such Restricted Subsidiary.
"Permitted Investments" means any of the following:
(n) Investments in Cash Equivalents;
(o) Investments in the Company or any Restricted Subsidiary;
(p) intercompany Indebtedness to the extent permitted under
clause (e) or (f) of the definition of "Permitted Indebtedness";
(q) Investments in an amount not to exceed $5.0 million at any
one time outstanding;
(r) Investments by the Company or any Restricted Subsidiary in
another Person, if as a result of such Investment (i) such other Person
becomes a Wholly Owned Restricted Subsidiary or (ii) such other Person
is merged or consolidated with or into, or transfers or conveys all or
substantially all of its assets to, the Company or a Wholly Owned
Restricted Subsidiary;
(s) bonds, notes, debentures and other securities received as
consideration for Assets Sales to the extent permitted under the
"LIMITATION OF SALE OF ASSETS" covenant;
(t) any loans or other advances made pursuant to any employee
benefit plans (including plans for the benefit of directors) or
employment agreements or other compensation arrangements (including for
the purchase of Capital Stock of the Company by employees), in each
case as approved by the Board of Directors of the Company, in an
aggregate amount at any one time outstanding not to exceed $1.0
million; or
(u) negotiable instruments held for deposit or collection in
the ordinary course of business, except to the extent they would
constitute Investments in Affiliates.
"Person" means any individual, corporation, limited liability company,
partnership, joint venture, association, joint-stock company, trust,
unincorporated organization or government or any agency or political subdivision
thereof.
"Preferred Stock" means, with respect to any Person, Capital Stock of
any class or classes (however designated) of such Person which is preferred as
to the payment of dividends or distributions, or as to the distribution of
assets upon any voluntary or involuntary liquidation or dissolution of such
Person, over the Capital Stock of any other class of such Person whether now
outstanding, or issued after the date of the Indenture, and including, without
limitation, all classes and series of preferred or preference stock of such
Person.
"Public Equity Offering" means an offer and sale of common stock (which
is Qualified Capital Stock) of the Company made on a primary basis by the
Company pursuant to a registration statement that has been declared effective by
the Commission pursuant to the Securities Act (other than a registration
statement on Form S-8 or otherwise relating to equity securities issuable under
any employee benefit plan of the Company).
"Qualified Capital Stock" of any Person means any and all Capital Stock
of such Person other than Redeemable Capital Stock.
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"Redeemable Capital Stock" means any class or series of Capital Stock
that, either by its terms, by the terms of any security into which it is
convertible or exchangeable or by contract or otherwise, is, or upon the
happening of an event or passage of time would be, required to be redeemed prior
to the final Stated Maturity of the Notes or is redeemable at the option of the
holder thereof at any time prior to such final Stated Maturity, or is
convertible into or exchangeable for debt securities at any time prior to such
final Stated Maturity.
"Restricted Subsidiary" means any Subsidiary other than an Unrestricted
Subsidiary.
"Sale and Leaseback Transaction" means any transaction or series of
related transactions pursuant to which the Company or a Restricted Subsidiary
sells or transfers any property or asset in connection with the leasing of such
property or asset to the seller or transferor.
"S&P" means Standard and Poor's Ratings Group, a division of
McGraw-Hill, Inc. and its successors.
"Senior Credit Facility" means the Amended and Restated Loan and
Security Agreement dated March 26, 1999 among the Company and certain of its
Subsidiaries, as borrowers, NationsBank N.A., as agent, and the banks party
thereto from time to time, together with the related documents thereto
(including, without limitation, any guarantee agreements permitted under the
Indenture and security documents), in each case as such agreements may be
amended (including any amendment and restatement thereof), supplemented or
otherwise modified from time to time, including any agreement extending the
maturity of, refinancing, replacing or otherwise restructuring (including,
subject to the covenants of the Indenture, adding Subsidiaries of the Company as
additional borrowers or guarantors thereunder) all or any portion of the
Indebtedness under such agreement or any successor or replacement agreement in
compliance with the Indenture.
"Significant Subsidiary" means any Restricted Subsidiary of the Company
that, together with its Subsidiaries, (i) for the most recent fiscal year of the
Company, accounted for more than 10% of the consolidated revenues of the Company
and its Restricted Subsidiaries, (ii) as of the end of such fiscal year, was the
owner of more than 10% of the consolidated assets of the Company and its
Restricted Subsidiaries, all as set forth on the most recently available
consolidated financial statements of the Company for such fiscal year or (iii)
was organized or acquired after the beginning of such fiscal year and would have
been a Significant Subsidiary if it had been owned during the entire fiscal
year.
"Stated Maturity" means, when used with respect to any Note or any
installment of interest thereon, the date specified in such Note as the fixed
date on which the principal of such Note or such installment of interest is due
and payable, and, when used with respect to any other Indebtedness, means the
date specified in the instrument governing such Indebtedness as the fixed date
on which the principal of such Indebtedness or any installment of interest
thereon, is due and payable.
"Subordinated Indebtedness" means Indebtedness of the Company or a
Guarantor that is expressly subordinated in right of payment to the Notes or the
Subsidiary Guarantee of such Guarantor, as the case may be.
"Subsidiary" means any Person a majority of the equity ownership or
Voting Stock of which is at the time owned, directly or indirectly, by the
Company or by one or more other Subsidiaries or by the Company and one or more
other Subsidiaries.
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"Subsidiary Guarantee" means any guarantee of the obligations of the
Company under the Indenture and the Notes by any Restricted Subsidiary in
accordance with the provisions of the Indenture.
"The Bank of Tokyo-Mitsubishi Letter of Credit Facility" means the $8.0
million Line of Credit Facility dated August 1, 1996 between Perry Ellis
International, Inc. and The Bank of Tokyo-Mitsubishi, Ltd.
"Unrestricted Subsidiary" means each Subsidiary of the Company
designated as such pursuant to and in compliance with the "LIMITATION ON
UNRESTRICTED SUBSIDIARIES" covenant.
"U.S. Government Obligations" means securities that are (x) direct
obligations of the United States of America for the timely payment of which its
full faith and credit is pledged or (y) obligations of a Person controlled or
supervised by and acting as an agency or instrumentality of the United States of
America the timely payment of which is unconditionally guaranteed as a full
faith and credit obligation by the United States of America, which, in either
case, are not callable or redeemable at the option of the issuer thereof, and
shall also include a depository receipt issued by a bank (as defined in Section
3(a)(2) of the Securities Act), as custodian with respect to any such U.S.
Government Obligation or a specific payment of principal of or interest on any
such U.S. Government Obligation held by such custodian for the account of the
holder of such depository receipt, PROVIDED that (except as required by law)
such custodian is not authorized to make any deduction from the amount payable
to the holder of such depository receipt from any amount received by the
custodian in respect of the U.S. Government Obligation or the specific payment
of principal of or interest on the U.S. Government Obligation evidenced by such
depository receipt.
"Voting Stock" means any class or classes of Capital Stock pursuant to
which the holders thereof have the general voting power under ordinary
circumstances to elect at least a majority of the board of directors, managers
or trustees of any Person (irrespective of whether or not, at the time, stock of
any other class or classes shall have, or might have, voting power by reason of
the happening of any contingency).
"Wholly Owned Restricted Subsidiary" means any Restricted Subsidiary,
all of the outstanding Capital Stock (other than directors' qualifying shares or
shares of foreign Restricted Subsidiaries required to be owned by foreign
nationals pursuant to applicable law) of which are owned by the Company or by
one or more other Wholly Owned Restricted Subsidiaries or by the Company and one
or more other Wholly Owned Restricted Subsidiaries.
BOOK-ENTRY; DELIVERY AND FORM
The notes are represented by a single, permanent global note in
definitive, fully registered book-entry form (the "Global Notes") which will be
deposited with and registered in the name of a nominee of DTC and deposited on
behalf of the holders of the Notes represented thereby with a custodian for DTC
for credit to the respective accounts of the holders (or to such other accounts
as they may direct) at DTC.
Notes that are originally purchased by or transferred to institutional
"accredited investors" (as defined in Rule 501(a)(1), (2), (3) or (7) under the
Securities Act), who are not QIBs, or issued as described below under
"Certificated Securities," will be in registered form without interest coupons.
Upon the transfer to a QIB or Non-U.S. Person, such Certificated Securities
will, unless the Global Notes have been previously exchanged for Certificated
Securities, be exchanged for an interest in the Global Note representing the
principal amount of Notes being transferred.
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THE GLOBAL NOTES. Pursuant to procedures established by DTC, ownership
of the Global Notes are shown on, and the transfer of ownership thereof will be
effected only through, records maintained by DTC or its nominee (with respect to
interests of Participants (as defined below)) and the records of Participants
(with respect to interests of persons other than Participants). Such accounts
initially will be designated by or on behalf of the Initial Purchasers and
ownership of beneficial interests in the Global Notes will be limited to persons
who have accounts with DTC ("Participants") or persons who hold interests
through Participants.
So long as DTC or its nominee is the registered owner or holder of any
of the Notes, DTC or such nominee will be considered the sole owner or holder of
such Notes represented by the Global Notes for all purposes under the Indenture
and under the Notes represented thereby. No beneficial owner of an interest in
the Global Notes will be able to transfer such interest except in accordance
with the applicable procedures of DTC in addition to those provided for under
the Indenture. The laws of some states require that certain persons take
physical delivery in definitive form of securities that they own. Consequently,
the ability to transfer beneficial interest in a Global Note to such persons
will be impaired to that extent. Because DTC can act only on behalf of
Participants, which in turn act on behalf of Indirect Participants (as defined
herein) the ability of a person having beneficial interests in a Global Note to
pledge such interests to persons or entities that do not participate in the DTC
system, or otherwise take actions in respect of such interests, may be impaired
by the lack of a physical certificate evidencing such interests.
Payments of the principal of, premium, if any, and interest on the
Notes represented by the Global Notes are made to DTC or its nominee, as the
case may be, as the registered owner thereof. Neither the Company, the Trustee,
nor any paying agent under the Indenture will have any responsibility or
liability for any aspect of the records relating to or payments made on account
of beneficial ownership interests in the Global Notes or for maintaining,
supervising or reviewing any records relating to such beneficial ownership
interests.
The Company expects that DTC or its nominee, upon receipt of any
payment of the principal of, premium, if any, and interest on the Notes
represented by the Global Notes, will credit Participants' accounts with
payments in amounts proportionate to their respective beneficial interests in
the Global Notes as shown on the records of DTC or its nominee. The Company also
expects that payments by Participants to owners of beneficial interests in the
Global Notes held through such Participants will be governed by standing
instructions and customary practice, as is now the case with securities held for
the accounts of customers registered in the names of nominees for such
customers. Such payments will be the responsibility of such Participants and not
that of the Company or the Trustee.
Transfers between participants in DTC will be effected in accordance
with DTC rules and will be settled in immediately available funds. If a holder
requires physical delivery of a certificated security for any reason, including
to sell notes to persons in states that require physical delivery of such
security or to pledge such securities, such holder must transfer its interest in
the Global Note in accordance with the normal procedures and the procedures in
the indenture.
DTC has advised us that DTC will take any action permitted to be taken
by a Holder of Notes (including the presentation of Notes for exchange as
described below) only at the direction of one or more Participants to whose
account the DTC interests in the Global Securities are credited and only in
respect of the aggregate principal amount as to which such Participant or
Participants has or have given such direction. However, if there is an Event of
Default under the Indenture, DTC will exchange the Global Securities for
Certificated Securities, which it will distribute to its Participants.
DTC has advised the Company as follows: DTC is a limited purpose trust
company organized under the laws of the State of New York, a member of the
Federal Reserve System, a "clearing
90
<PAGE>
corporation" within the meaning of the Uniform Commercial Code and a "Clearing
Agency" registered pursuant to the provisions of Section 17A of the Exchange
Act. DTC was created to hold securities for its Participants and facilitate the
clearance and settlement of securities transactions between Participants through
electronic book-entry changes in accounts of its Participants, thereby
eliminating the need for physical movement of certificates. Participants include
securities brokers and dealers, banks, trust companies and clearing corporations
and certain other organizations. Indirect access to the DTC system is available
to others such as banks, brokers, dealers and trust companies that clear through
or maintain a custodial relationship with a Participant, either directly or
indirectly ("Indirect Participants"). The rules applicable to DTC and its
participants are on file with the SEC.
DTC has further advised us that management of DTC is aware that some
computer applications, systems, and the like for processing data that are
dependent upon calendar dates, including dates before, on, and after January 1,
2000, may encounter "Year 2000 problems." DTC has informed its participants and
other members of the financial community that it has developed and is
implementing a program so that its systems, as the same relate to the timely
payment of distributions (including principal and interest payments) to security
holders, book-entry deliveries, and settlement of trades within DTC, continue to
function appropriately. This program includes a technical assessment and a
remediation plan, each of which DTC reports is complete. Additionally, DTC's
plan includes a testing phase, which DTC expects to be completed within
appropriate time frames.
However, DTC's ability to perform properly its services is also
dependent upon other parties, including but not limited to issuers and their
agents, as well as the DTC's direct and indirect participants and third party
vendors from whom DTC licenses software and hardware, and third party vendors on
whom DTC relies for information or the provision of services, including
telecommunication and electrical utility service providers, among others. DTC
has informed the industry that it is contacting (and will continue to contact)
third party vendors from whom DTC acquires services to: (1) impress upon them
the importance of such services being Year 2000 compliant; and (2) determine the
extent of their efforts for Year 2000 remediation (and, as appropriate, testing)
of their services. In addition, DTC is in the process of developing such
contingency plans as it deems appropriate.
According to DTC, the foregoing information with respect to DTC has
been provided to the industry for informational purposes only and is not
intended to serve as a representation, warranty, or contract modification of any
kind.
Although DTC, Euroclear and Cedel are expected to follow the foregoing
procedures in order to facilitate transfers of interests in the Global Notes
among Participants of DTC, Euroclear and Cedel, they are under no obligation to
perform such procedures, and such procedures may be discontinued at any time.
Neither we nor the Trustee will have any responsibility for the performance by
DTC, Euroclear or Cedel or their respective direct or indirect participants of
their respective obligations under the rules and procedures governing their
operations.
CERTIFICATED SECURITIES. Interests in the Global Notes will be
exchanged for Certificated Securities if (i) DTC notifies the Company that it is
unwilling or unable to continue as depositary for the Global Notes, or DTC
ceases to be a "Clearing Agency" registered under the Exchange Act, and a
successor depositary is not appointed by the Company within 90 days, or (ii) an
Event of Default has occurred and is continuing with respect to the Notes. Upon
the occurrence of any of the events described in the preceding sentence, the
Company will cause the appropriate Certificated Securities to be delivered.
91
<PAGE>
SELLING NOTEHOLDER
We are registering the re-sale of notes held by Carfel, one of our
affiliates. Carfel purchased notes in the aggregate principal amount of
$5,000,000 in April 1999. George Feldenkreis, our Chairman of the Board and
Chief Executive Officer is a director, executive officer and principal
shareholder of Carfel.
PLAN OF DISTRIBUTION
Carfel may sell its notes in various ways and at various prices. Some
of the methods by which Carfel may sell its notes include:
o Ordinary brokerage transactions and transactions in which the
broker solicits purchasers;
o Privately negotiated transactions;
o Block trades in which a broker or dealer will attempt to sell
the notes as agent but may position and resell a portion of
the block as principal to facilitate the transaction;
o Purchases by a broker or dealer as principal and re-sale by
such broker or dealer for Carfel's account pursuant to this
prospectus;
o Sales under Rule 144 rather than by using this prospectus;
o A combination of any such methods of sale; and
o Any other legally permitted method.
Carfel may also pledge its notes pursuant to the margin provisions of
its customer agreements with its brokers. If there is a default by Carfel, the
brokers may offer and sell the pledged notes.
Brokers or dealers may receive commissions or discounts form Carfel
(or, if the broker-dealer acts as agent for the purchaser of the notes, form
such purchaser) in amounts to be negotiated which are not expected to exceed
those customary in the types of transactions involved.
We cannot estimate at the present time the amount of commissions or
discounts, if any, that will be paid by Carfel in connection with sales of the
notes.
Carfel and any broker-dealers or agents that participate with it in
sales of the notes may be deemed to be "underwriters" within the meaning of the
Securities Act in connection with such sales. In that event, any commissions
received by such broker-dealers or agents and any profit on the re-sale of the
notes purchased by them may be deemed to be underwriting commissions or
discounts under the Securities Act.
Under the securities laws of certain states, the notes may be sold in
those states only through registered or licensed broker-dealers or pursuant to
available exemptions form such requirements. In addition, in certain states the
notes may not be sold therein unless the notes have been registered or qualified
for sale in such state or an exemption from such requirement is available and is
complied with.
92
<PAGE>
We have agreed to pay all fees and expenses incident to the
registration of the notes. We have agreed to indemnify Carfel against certain
losses, claims, damages and liabilities, including liabilities under the
Securities Act.
Carfel has also agreed to indemnify us, our directors, officers, agents
and representatives against certain liabilities, including certain liabilities
under the Securities Act.
Carfel and other persons participating in the distribution of the notes
offered hereby are subject to the applicable requirements of Regulation M
promulgated under the Exchange Act in connection with sales of the notes.
LEGAL MATTERS
The validity of the notes offered hereby will be passed upon for the
Company by Broad and Cassel, a partnership including professional associations,
Miami, Florida.
EXPERTS
The consolidated financial statements of Supreme International
Corporation as of January 31, 1998 and 1999 and for each of the three years in
the period ended January 31, 1999, included in this prospectus, have been
audited by Deloitte & Touche LLP, independent auditors, as stated in their
report appearing herein, and are included in reliance upon the report of such
firm given upon their authority as experts in accounting and auditing.
The financial statements of Perry Ellis International, Inc. as of
December 31, 1997 and 1998 and for each of the three years in the period ended
December 31, 1998, included in this prospectus, have been audited by Saul L.
Klaw & Co., P.C., independent auditors, as stated in their report appearing
herein, and are included in reliance upon the report of such firm given upon
their authority as experts in accounting and auditing.
The financial statements of the John Henry and Manhattan Business
(comprising the licensing operations of the John Henry and Manhattan Brands
owned by Salant Corporation) as of and for the year ended January 2, 1999,
included in this prospectus, have been audited by Deloitte & Touche LLP,
independent auditors, as stated in their report appearing herein (which report
expresses an unqualified opinion and includes an explanatory paragraph referring
to the operating support received from Salant Corporation), and are included in
reliance upon the report of such firm given upon their authority as experts in
accounting and auditing.
93
<PAGE>
WHERE YOU CAN FIND MORE INFORMATION
We file annual, quarterly and special reports, proxy statements and
other information with the SEC. You may read and copy any report or document we
file at the public reference facilities maintained by the SEC at 450 Fifth
Street, N.W., Room 1024, Washington, D.C. 20549 and at the SEC's regional
offices located at Seven World Trade Center, Suite 1300, New York, New York
10048, and 500 West Madison Street, Suite 1400, Chicago, Illinois 60661. Please
call the SEC at 1-800-SEC-0880 for more information about the public reference
rooms. Our SEC filings are also available from the SEC's website located at
HTTP: //WWW.SEC.GOV.
We have filed with the SEC a Registration Statement on Form S-2 under
the Securities Act with respect to the notes covered by this prospectus. This
prospectus, which is a part of the Registration Statement, does not contain all
the information set forth in, or annexed as exhibits to the Registration
Statement, as permitted by the SEC's rules and regulations. For further
information with respect to us and the notes offered under this prospectus,
please refer to the Registration Statement, including the exhibits. Copies of
the Registration Statement, including exhibits, may be obtained form the SEC's
public reference facilities listed above upon payment of the fees prescribed by
the SEC, or may be examined without charge at these facilities. Statements
concerning any document filed as an exhibit are not necessarily complete and, in
each instance, we refer you to the copy of the document filed as an exhibit to
the Registration Statement.
We will provide, without charge, to each person to whom a copy of this
Prospectus is delivered, upon request, a copy of any or all of the information
incorporated herein by reference. Exhibits to any of the documents, however,
will not be provided unless such exhibits are specifically incorporated by
reference into such documents. The requests should be addressed to Rosemary
Trudeau, Vice President of Finance, Perry Ellis International, Inc., 3000 N.W.
107th Avenue, Miami, Florida 33173, telephone number (305) 592-2830.
94
<PAGE>
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
SUPREME INTERNATIONAL CORPORATION (CURRENTLY KNOWN AS PERRY ELLIS INTERNATIONAL, INC.)
Financial Statements for each of the three years in the period ended
January 31, 1999:
Independent Auditors' Report.....................................................................................F-2
Consolidated Balance Sheets as of January 31, 1998 and 1999......................................................F-3
Consolidated Statements of Income for each of the three years
in the period ended January 31, 1999...........................................................................F-4
Consolidated Statements of Changes in Stockholders' Equity for each of the three years
in the period ended January 31, 1999...........................................................................F-5
Consolidated Statements of Cash Flow for each of the three years
in the period ended January 31, 1999...........................................................................F-6
Notes to Consolidated Financial Statements.......................................................................F-7
Unaudited Financial Statements for the six months ended July 31, 1999 and 1998:
Consolidated Balance Sheets as of July 31, 1999 (Unaudited) and January 31, 1999.................................F-22
Consolidated Statements of Operations (Unaudited) for the six months ended
July 31, 1999 and July 31, 1998................................................................................F-23
Consolidated Statements of Cash Flows (Unaudited) for the six months ended
July 31, 1999 and July 31, 1998................................................................................F-24
Notes to Consolidated Financial Statements (Unaudited)...........................................................F-25
PERRY ELLIS INTERNATIONAL, INC. (CURRENTLY KNOWN AS PEI)
Independent Auditors' Report.....................................................................................F-29
Balance Sheets as of December 31, 1997 and 1998 and March 31, 1999 (Unaudited)...................................F-30
Statements of Operations for the years ended December 31, 1996, 1997 and 1998
and for the quarters ended March 31, 1998 and 1999 (Unaudited)................................................F-31
Undistributed income for the years ended December 31, 1996, 1997 and 1998
and for the quarters ended March 31, 1998 and 1999 (Unaudited)................................................F-32
Statements of Cash Flow for the years ended December 31, 1996, 1997 and 1998
and for the quarters ended March 31, 1998 and 1999 (Unaudited)................................................F-33
Notes to Financial Statements....................................................................................F-34
JOHN HENRY AND MANHATTAN BUSINESS
Independent Auditors' Report.....................................................................................F-37
Statement of Revenues, Direct Expenses and Allocated Corporate Expenses
before interest and Domestic Income Taxes for the year ended January 2, 1999..................................F-38
Statement of Net Assets to be Sold as of January 2, 1999.........................................................F-39
Notes to Financial Statements Year ended January 2, 1999.........................................................F-40
</TABLE>
F-1
<PAGE>
INDEPENDENT AUDITORS' REPORT
To the Board of Directors and Stockholders of
Supreme International Corporation and subsidiaries:
We have audited the consolidated balance sheets of Supreme International
Corporation and subsidiaries (the "Company") as of January 31, 1998 and 1999,
and the related consolidated statements of income, changes in stockholders'
equity and cash flows for each of the three years in the period ended January
31, 1999. These consolidated financial statements are the responsibility of the
Company's management. Our responsibility is to express an opinion on these
consolidated financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, such consolidated financial statements present fairly, in all
material respects, the financial position of the Company as of January 31, 1998
and 1999, and the results of its operations and its cash flows for each of the
three years in the period ended January 31, 1999 in conformity with generally
accepted accounting principles.
/s/ DELOITTE & TOUCHE LLP
Certified Public Accountants
Miami, Florida
March 12, 1999 (June 11, 1999 as to Note 17)
F-2
<PAGE>
SUPREME INTERNATIONAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
AS OF JANUARY 31, 1998 AND 1999
<TABLE>
<CAPTION>
1998 1999
------------ ------------
<S> <C> <C>
ASSETS
Current Assets:
Cash.......................................... $1,010,256 $173,493
Accounts receivable, net...................... 35,502,607 38,969,845
Inventories................................... 35,799,388 32,965,655
Deferred income taxes......................... 1,154,905 1,091,482
Deposits for acquisitions..................... -- 6,000,000
Other current assets.......................... 2,253,328 2,040,200
------------ ------------
Total current assets...................... 75,720,484 81,240,675
Property and equipment, net........................ 4,899,656 7,851,592
Intangible assets, net............................. 19,716,064 18,842,797
Other.............................................. 1,313,747 1,022,467
------------ ------------
TOTAL..................................... $101,649,951 $108,957,531
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY Current Liabilities:
Accounts payable............................... $4,048,325 $4,595,688
Accrued expenses............................... 2,062,912 4,931,525
Borrowings under letter of credit facilities... 3,000,000 --
Other current liabilities...................... 442,790 413,505
------------ ------------
Total current liabilities................. 9,554,027 9,940,718
Deferred income tax................................ 282,905 559,728
Long term debt--senior credit agreement............ 36,658,174 33,511,157
------------ ------------
Total liabilities......................... 46,495,106 44,011,603
------------ ------------
Commitments and Contingencies: (Note 16)
Stockholders' Equity:
Preferred stock--$.01 par value; 1,000,000 shares
authorized; no shares issued or outstanding.... -- --
Class A Common Stock--$.01 par value; 30,000,000 shares
authorized; no shares issued or outstanding.... -- --
Common stock--$.01 par value; 30,000,000 shares
authorized; 6,555,681 and 6,712,374 shares issued
and outstanding as of January 31, 1998 and 1999,
respectively................................... 65,556 67,123
Additional paid-in-capital......................... 27,598,618 28,806,455
Retained earnings.................................. 27,490,671 36,072,350
------------ ------------
Total stockholders' equity................ 55,154,845 64,945,928
------------ ------------
TOTAL..................................... $101,649,951 $108,957,531
============ ============
</TABLE>
See Notes to consolidated financial statements.
F-3
<PAGE>
SUPREME INTERNATIONAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
FOR EACH OF THE THREE YEARS IN THE PERIOD ENDED JANUARY 31, 1999
<TABLE>
<CAPTION>
1997 1998 1999
------------ ------------ ------------
<S> <C> <C> <C>
Revenues
Net Sales.................................... $157,372,796 $190,689,212 $221,347,295
Royalty Income............................... 1,654,262 4,031,878 3,057,357
------------ ------------ ------------
Total Revenues........................... 159,027,058 194,721,090 224,404,652
Cost of Sales..................................... 122,045,614 145,991,132 166,198,450
------------ ------------ ------------
Gross Profit...................................... 36,981,444 48,729,958 58,206,202
Selling, General and Administrative Expenses...... 25,876,115 35,885,443 41,639,672
------------ ------------ ------------
Operating Income.................................. 11,105,329 12,844,515 16,566,530
Interest Expense.................................. 1,664,392 2,781,509 3,493,985
------------ ------------ ------------
Income Before Income Tax Provision................ 9,440,937 10,063,006 13,072,545
Income Tax Provision.............................. 3,596,918 2,884,844 4,490,866
------------ ------------ ------------
Net Income........................................ $5,844,019 $7,178,162 $8,581,679
============ ============ ============
Net Income Per Share
Basic........................................ $0.89 $1.10 $1.29
============ ============ ============
Diluted...................................... $0.89 $1.08 $1.27
============ ============ ============
Weighted Average Number of Shares Outstanding
Basic........................................ 6,534,446 6,540,604 6,674,103
============ ============ ============
Diluted...................................... 6,595,147 6,665,635 6,769,810
============ ============ ============
</TABLE>
See Notes to consolidated financial statements.
F-4
<PAGE>
SUPREME INTERNATIONAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
FOR EACH OF THE THREE YEARS IN THE PERIOD ENDED JANUARY 31, 1999
<TABLE>
<CAPTION>
COMMON STOCK ADDITIONAL
----------------------- PAID-IN RETAINED
SHARES AMOUNT CAPITAL EARNINGS TOTAL
--------- ------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C>
BALANCE, JANUARY 31, 1996........... 6,800,000 $68,000 $29,296,594 $14,468,490 $43,833,084
Purchase of treasury stock, at cost. (278,069) (2,780) (1,947,599) -- (1,950,379)
Exercise of stock options........... 7,500 75 48,675 -- 48,750
Net Income.......................... -- -- -- 5,844,019 5,844,019
--------- ------- ----------- ----------- -----------
BALANCE, JANUARY 31, 1997........... 6,529,431 65,295 27,397,670 20,312,509 47,775,474
Exercise of stock options........... 26,250 261 200,948 -- 201,209
Net Income.......................... -- -- -- 7,178,162 7,178,162
--------- ------- ----------- ----------- -----------
BALANCE, JANUARY 31, 1998........... 6,555,681 65,556 27,598,618 27,490,671 55,154,845
Exercise of stock options........... 78,525 785 457,367 -- 458,152
Exercise of warrants................ 78,168 782 (782) -- --
Net Income.......................... -- -- -- 8,581,679 8,581,679
Tax benefit for exercise of
non-qualified stock options..... -- -- 751,252 -- 751,252
--------- ------- ----------- ----------- -----------
BALANCE, JANUARY 31, 1999........... 6,712,374 $67,123 $28,806,455 $36,072,350 $64,945,928
========= ======= =========== =========== ===========
</TABLE>
See Notes to consolidated financial statements.
F-5
<PAGE>
SUPREME INTERNATIONAL CORPORATIONS AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOW
FOR EACH OF THE THREE YEARS IN THE PERIOD ENDED JANUARY 31, 1999
<TABLE>
<CAPTION>
1997 1998 1999
----------- ---------- -----------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income.......................................... $5,844,019 $7,178,162 $8,581,679
Adjustments to reconcile net income to net cash
(used in) provided by operating activities:
Depreciation and amortization.................. 1,147,091 1,748,006 2,161,398
Loss on sale and abandonment of property....... 257,221 187,692 --
Decrease (increase) in deferred taxes.......... 159,655 (203,342) 340,246
Changes in operating assets and liabilities:
(net of effects of acquisition)
Accounts receivable, net...................... (8,951,318) (6,695,371) (3,467,238)
Inventories................................... 293,527 (3,598,866) 2,833,733
Other current assets.......................... (359,942) (727,633) 213,128
Other assets.................................. (1,915,477) 889,854 291,280
Accounts payable and accrued expenses......... 4,835,234 (1,907,414) 3,415,976
Other current liabilities..................... 563,756 28,055 (29,285)
----------- ---------- -----------
Net cash provided by (used in)
operating activities.................... 1,873,766 (3,100,857) 14,340,917
----------- ---------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of property and equipment.................. (1,058,061) (3,828,142) (4,004,588)
Proceeds from sale of property and equipment........ 164,545 32,102 --
Payment on purchase of intangible assets............ (137,027) (758,598) (235,479)
Deposit for John Henry/Manhattan acquisition........ -- -- (1,000,000)
Deposit for Perry Ellis International acquisition... -- -- (5,000,000)
Payment for Jolem acquisition....................... (3,657,435) -- --
Payment for Munsingwear acquisition................. (19,768,380) -- --
----------- ---------- -----------
Net cash used in investing activities........ (24,456,358) (4,554,638) (10,240,067)
----------- ---------- -----------
CASH FLOW FROM FINANCING ACTIVITIES:
Net increase (decrease) in borrowings under letter of
credit facilities............................... 6,812,629 (3,812,629) (3,000,000)
Net proceeds from (repayments of) long-term debt.... 18,168,857 11,521,373 (3,147,017)
Purchase of treasury stock.......................... (1,950,379) -- --
Tax benefit for exercise of non-qualified stock options -- -- 751,252
Proceeds from exercise of stock options............. 48,750 201,209 458,152
----------- ---------- -----------
Net cash provided by (used in)
financing activities....................... 23,079,857 7,909,953 (4,937,613)
----------- ---------- -----------
NET INCREASE (DECREASE) IN CASH..................... 497,265 254,458 (836,763)
CASH AT BEGINNING OF YEAR........................... 258,533 755,798 1,010,256
----------- ---------- -----------
CASH AT END OF YEAR................................. $755,798 $1,010,256 $173,493
=========== ========== ===========
SUPPLEMENTAL DISCLOSURE OF CASH FLOW
INFORMATION Cash paid during the year for:
Interest........................................ $1,433,403 $2,820,016 $3,293,877
=========== ========== ===========
Income taxes.................................... $3,394,466 $3,174,807 $1,762,479
=========== ========== ===========
</TABLE>
See Notes to consolidated financial statements.
F-6
<PAGE>
SUPREME INTERNATIONAL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR EACH OF THE THREE YEARS IN THE PERIOD ENDED JANUARY 31, 1999
1. GENERAL
Supreme International Corporation and subsidiaries (the "Company") was
incorporated in the State of Florida and has been in business since 1967. The
Company is a leading designer and marketer of a broad line of high quality men's
sportswear, including sport and dress shirts, golf sportswear, sweaters, urban
wear, casual and dress pants and shorts to all levels of retail distribution.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
The following is a summary of the Company's significant accounting
policies:
PRINCIPLES OF CONSOLIDATION--The consolidated financial statements
include the accounts of Supreme International Corporation and its wholly-owned
subsidiaries. All intercompany transactions and balances have been eliminated in
consolidation.
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 amounts in the consolidated financial
statements and the accompanying notes. Actual results could differ from those
estimates.
FAIR VALUE OF FINANCIAL INSTRUMENTS--The carrying amounts of accounts
receivable and accounts payable approximates fair value due to their short-term
nature. The carrying amount of debt and credit facilities approximate fair value
due to their stated interest rate approximating a market rate. These estimated
fair value amounts have been determined using available market information or
other appropriate valuation methodologies.
INVENTORIES--Inventories are stated at the lower of cost (first-in,
first-out basis) or market. Costs consist of the purchase price, customs,
duties, freight, insurance, and commissions to buying agents.
PROPERTY AND EQUIPMENT--Property and equipment are stated at cost.
Depreciation is computed using the straight-line and accelerated methods over
the estimated useful lives of the assets. Amortization of leasehold improvements
is computed using the straight-line method over the shorter of the lease term or
estimated useful lives of the improvements. The useful lives range from five to
ten years.
INTANGIBLE ASSETS--Intangible assets primarily represent costs
capitalized in connection with the acquisition, registration and maintenance of
brand names and license rights. The amortization periods for the intangible
assets range from fifteen to twenty years, with a weighted average of nineteen
and a half years.
LONG LIVED-ASSETS--Management reviews long-lived assets, including
identifiable intangible assets, for possible impairment whenever events or
circumstances indicate that the carrying amount of an asset may not be
recoverable. If there is an indication of impairment, management prepares an
estimate of future cash flows (undiscounted and without interest charges)
expected to result from the use of the asset and its eventual
F-7
<PAGE>
SUPREME INTERNATIONAL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
FOR EACH OF THE THREE YEARS IN THE PERIOD ENDED JANUARY 31, 1999
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES--(CONTINUED)
disposition. If these cash flows are less than the carrying amount of the asset,
an impairment loss is recognized to reduce the asset to its estimated fair
value. Preparation of estimated expected future cash flows is inherently
subjective and is based on management's best estimate of assumptions concerning
future conditions. At January 31, 1999, management believes there was no
impairment to long-lived assets.
REVENUE RECOGNITION--Sales are recognized upon shipment, returns for
defective goods are netted against sales, and an allowance is provided for
estimated returns and other chargebacks. Royalty income is recognized when
earned on the basis of the terms specified in the underlying contractual
agreements.
INCOME TAXES--Deferred income taxes result primarily from timing
differences in the recognition of expenses for tax and financial reporting
purposes and are accounted for in accordance with Financial Accounting Standards
Board Statement No. 109 ("SFAS No. 109"), Accounting for Income Taxes, which
requires the asset and liability method of computing deferred income taxes.
Under the asset and liability method, deferred taxes are adjusted for tax rate
changes as they occur.
NET INCOME PER SHARE--Basic net income per share is computed by
dividing net income by the weighted average shares of outstanding common stock.
The calculation of diluted net income per share is similar to basic earnings per
share except that the denominator includes dilutive potential common stock. The
dilutive potential common stock included in the Company's computation of diluted
net income per share includes the effects of the stock options and warrants
described in Note 14, as determined using the treasury stock method. The
weighted average number of shares for stock options included in the dilutive
weighted average shares outstanding were 60,701, 125,031 and 95,707 in 1997,
1998 and 1999, respectively.
STOCK SPLIT--On July 21, 1997, the Company's Board of Directors
declared a 3 for 2 stock split in the form of a stock dividend. The accompanying
financial statements reflect the stock split as if it had occurred as of the
earliest period being presented.
ACCOUNTING FOR STOCK-BASED COMPENSATION--The Company has chosen to
account for stock-based compensation to employees and non-employee members of
the Board using the intrinsic value method prescribed by Accounting Principles
Board Opinion ("APB") No. 25, "Accounting for Stock Issued to Employees," and
related interpretations. As required by Statement of Financial Accounting
Standards No. 123 ("SFAS No. 123"), Accounting for Stock-Based Compensation, the
Company has presented certain pro forma and other disclosures related to
stock-based compensation plans.
RECLASSIFICATIONS--Certain amounts in the 1998 and 1997 financial
statements have been reclassified to conform to the 1999 presentation.
NEW ACCOUNTING PRONOUNCEMENTS--In June 1997, the Financial Accounting
Standards Board issued Statement of Financial Accounting Standards No. 130
("SFAS No. 130"), REPORTING COMPREHENSIVE INCOME. SFAS No. 130 requires that all
components of comprehensive income be reported on one of the following: (1) the
statement of income; (2) the statement of changes in stockholders' equity, or
(3) a separate statement of comprehensive income. Comprehensive income is
comprised of net income and all changes to stockholders' equity, except those
due to investments by stockholders (changes in paid-in capital) and
distributions to
F-8
<PAGE>
SUPREME INTERNATIONAL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
FOR EACH OF THE THREE YEARS IN THE PERIOD ENDED JANUARY 31, 1999
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES--(CONTINUED)
stockholders (dividends). SFAS No. 130 is effective for fiscal years beginning
after December 15, 1997. The Company adopted SFAS No. 130 for the fiscal year
ended January 31, 1999. The components of comprehensive income which are
excluded from net income are not significant, individually or in the aggregate,
and therefore no separate statement of comprehensive income has been presented.
In June 1997, the Financial Accounting Standards Board issued Statement
of Financial Accounting Standards No. 131 ("SFAS No. 131"), DISCLOSURE ABOUT
SEGMENTS OF AN ENTERPRISE AND RELATED INFORMATION. SFAS No. 131 changes the way
public companies report information about segments of their business in their
annual financial statements and requires them to report selected segment
information in their quarterly reports issued to shareholders. SFAS No. 131 also
requires entity-wide disclosure about products and services an entity provides,
the foreign countries in which it holds assets and reports revenues and its
major customers. SFAS No. 131 is effective for fiscal years beginning after
December 15, 1997. The Company adopted SFAS No. 131 for the fiscal year ended
January 31, 1999 (see Note 15).
In March 1998, the American Institute of Certified Public Accountants
issued Statements of Position 98-1, ACCOUNTING FOR THE COSTS OF COMPUTER
SOFTWARE DEVELOPED OR OBTAINED FOR INTERNAL USE ("SOP 98-1"). SOP 98-1 provides
guidance for capitalizing and expensing the costs of computer software developed
or obtained for internal use. SOP 98-1 is effective for financial statements for
fiscal years beginning after December 15, 1998. Management has not determined
the effect, if any, of adopting SOP 98-1.
In April 1998, the American Institute of Certified Public Accountants
issued Statements of Position 98-5, REPORTING ON THE COSTS OF START-UP
ACTIVITIES ("SOP 98-5"). SOP 98-5 establishes accounting standards for the
reporting of certain costs associated with the start-up of operations, lines of
business, etc. SOP 98-5 requires that costs of start-up activities, including
organizational costs, be expensed as incurred and that in the year of adoption,
start-up costs recorded should be expensed. SOP 98-5 is effective for fiscal
years beginning subsequent to December 15, 1998. Management has not determined
the effect, if any, of adopting SOP 98-5.
In June 1998, the Financial Accounting Standards Board issued Statement
of Financial Accounting Standards No. 133 ACCOUNTING FOR DERIVATIVE INSTRUMENTS
AND HEDGING Activities ("SFAS No. 133"). Among other provisions, SFAS No. 133
establishes accounting and reporting standards for derivative instruments and
for hedging activities. It also requires that an entity recognize all
derivatives as either assets or liabilities in the statement of financial
position and measure those instruments at fair value. SFAS No. 133 is effective
for financial statements for fiscal year beginning after June 15, 1999.
Management has not determined the effect, if any, of adopting SFAS No. 133.
3. ACQUISITIONS
MUNSINGWEAR ACQUISITION--On September 6, 1996, the Company acquired
certain assets of Munsingwear, Inc. ("Munsingwear"), a manufacturer of men's
casual apparel, for approximately $18,400,000. The assets acquired consisted of
brand names including GRAND SLAM(R), GRAND SLAM TOuR(R), PENGUIN SPort(R), and
other intangible assets. The purchase price amounted to approximately
$19,800,000, which included $1,400,000 of transaction costs, and was primarily
allocated to working capital and intangible assets as follows: inventories
$300,000; accounts receivable $300,000; and brand names $19,200,000. The
acquisition was accounted for under the purchase method of accounting and was
financed with borrowings from the revolving credit agreement (see Note 10).
F-9
<PAGE>
SUPREME INTERNATIONAL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
FOR EACH OF THE THREE YEARS IN THE PERIOD ENDED JANUARY 31, 1999
3. ACQUISITIONS--(CONTINUED)
JOLEM ACQUISITION--On May 6, 1996, the Company acquired all the assets
of Jolem Imports, Inc. ("Jolem"), a Miami based manufacturer of men's and boy's
casual apparel. The purchase price amounted to approximately $3,700,000 and was
primarily allocated to working capital and intangible assets as follows:
inventories $1,800,000; accounts receivable $1,500,000; and brand names
$400,000. The acquisition was accounted for under the purchase method of
accounting.
4. ACCOUNTS RECEIVABLE
Accounts receivable consisted of the following as of January 31:
<TABLE>
<CAPTION>
1998 1999
----------- -----------
<S> <C> <C>
Trade accounts.................................................. $37,499,297 $43,219,125
Royalties and other receivables................................. 2,217,338 1,479,149
----------- -----------
Total........................................................... 39,716,635 44,698,274
Less:Allowance for doubtful accounts............................ (609,874) (609,874)
Allowance for sales returns and other chargebacks........ (3,604,154) (5,118,555)
----------- -----------
Total........................................................... $35,502,607 $38,969,845
=========== ===========
</TABLE>
The activity for the allowance accounts are as follows:
<TABLE>
<CAPTION>
1997 1998 1999
---------- ---------- -----------
<S> <C> <C> <C>
Allowance for doubtful accounts:
Beginning balance......................... $242,792 $250,000 $ $609,874
Provision................................. 135,854 799,129 167,659
Write-offs, net of recoveries............. (128,646) (439,255) (167,659)
---------- ---------- -----------
Ending balance............................ $250,000 $609,874 $ $609,874
========== ========== ===========
Allowance for sales returns and other chargebacks:
Beginning balance......................... $567,014 $1,670,565 $$3,604,154
Provision................................. 9,057,342 13,047,822 11,984,955
Actual returns and other chargebacks...... (7,953,791) (11,114,233) (10,470,554)
---------- ---------- -----------
Ending balance............................ $1,670,565 $3,604,154 $$5,118,555
========== ========== ===========
</TABLE>
The Company carries accounts receivable at the amount it deems to be
collectible. Accordingly, the Company provides allowances for accounts
receivable it deems to be uncollectible based on management's best estimates.
Recoveries are recognized in the period they are received. The ultimate amount
of accounts receivable that become uncollectible could differ from those
estimated.
F-10
<PAGE>
SUPREME INTERNATIONAL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
FOR EACH OF THE THREE YEARS IN THE PERIOD ENDED JANUARY 31, 1999
5. INVENTORIES
Inventories consisted of the following as of January 31:
<TABLE>
<CAPTION>
1998 1999
----------- -----------
<S> <C> <C>
Finished goods.................................................... $31,972,723 $30,730,131
Raw materials and in process...................................... 1,204,841 255,085
Merchandise in transit............................................ 2,621,824 1,980,439
----------- -----------
Total $35,799,388 $32,965,655
=========== ===========
</TABLE>
6. PROPERTY AND EQUIPMENT
Property and equipment consisted of the following as of January 31:
<TABLE>
<CAPTION>
1998 1999
---------- ----------
<S> <C> <C>
Land.............................................................. $ -- $1,125,000
Furniture, fixture and equipment.................................. 5,723,557 7,205,651
Vehicles.......................................................... 309,955 371,364
Leasehold improvements............................................ 1,617,288 2,299,794
---------- ----------
7,650,800 11,001,719
Less: accumulated depreciation................................... (2,751,144) (3,150,127)
---------- ----------
Total............................................................. $4,899,656 $7,851,592
========== ==========
</TABLE>
Depreciation expense relating to property and equipment amounted to
approximately $800,000, $847,000, and $1,052,000 for the fiscal years ended
January 31, 1997, 1998 and 1999, respectively.
7. INTANGIBLE ASSETS
Intangible assets consisted of the following as of January 31:
<TABLE>
<CAPTION>
1998 1999
----------- -----------
<S> <C> <C>
Trademarks & Licenses............................................. $21,306,788 $21,544,562
Goodwill.......................................................... 17,864 16,165
----------- -----------
21,324,652 21,560,727
Accumulated Amortization.......................................... (1,608,588) (2,717,930)
----------- -----------
Balance, net...................................................... $19,716,064 $18,842,797
=========== ===========
</TABLE>
F-11
<PAGE>
SUPREME INTERNATIONAL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
FOR EACH OF THE THREE YEARS IN THE PERIOD ENDED JANUARY 31, 1999
7. INTANGIBLE ASSETS--(CONTINUED)
Amortization expense relating to the intangible assets amounted to
approximately $347,000, $901,000 and $1,109,000, for the fiscal years ended
January 31, 1997, 1998 and 1999, respectively.
8. ACCRUED EXPENSES
Accrued expenses consisted of the following as of January 31:
<TABLE>
<CAPTION>
1998 1999
---------- ----------
<S> <C> <C>
Income taxes.................................................. $370,687 $2,107,457
Salaries and commissions...................................... 662,865 1,549,758
Buying commissions............................................ 597,280 818,188
Other......................................................... 432,080 456,122
---------- ----------
Total......................................................... $2,062,912 $4,931,525
========== ==========
</TABLE>
9. BORROWINGS UNDER LETTER OF CREDIT FACILITIES
The Company has a $45 million facility which provides up to $35 million
to issue sight letters of credit including a sub-limit of $2 million to issue
time letters of credit up to 120 days. In addition, the facility has a $10
million sub-limit for refinancing of sight letters of credit for a period of up
to 120 days. The facility is collateralized by the consignment of merchandise in
transit under each letter of credit. Indebtedness under this facility bears
interest at variable rates substantially equal to the lenders' prime rate minus
1.0% per annum (6.75% as of January 31, 1999). Amounts outstanding under the $10
million sub-limit are collateralized by a secondary interest in the Company's
accounts receivable and inventories.
The Company has two additional letters of credit facilities which
provide for borrowings of up to $15 million to issue sight letters of credit.
The facilities are collateralized by the consignment of the merchandise in
transit under each letter of credit.
Borrowings available under letter of credit facilities consisted of the
following as of January 31:
<TABLE>
<CAPTION>
1998 1999
----------- -----------
<S> <C> <C>
Total Letter of credit facilities...................................... $60,000,000 $60,000,000
Borrowings............................................................. (3,000,000) --
Outstanding letters of credit.......................................... (26,673,016) (23,420,765)
----------- -----------
Available.............................................................. $30,326,984 $36,579,235
=========== ===========
</TABLE>
F-12
<PAGE>
SUPREME INTERNATIONAL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
FOR EACH OF THE THREE YEARS IN THE PERIOD ENDED JANUARY 31, 1999
10. LONG-TERM DEBT--SENIOR CREDIT FACILITy
The Company amended its revolving credit facility (the "Senior Credit
Facility") on August 1, 1998 with a group of banks giving it the right to borrow
$60 million or a portion thereof for its general corporate purposes. The Senior
Credit Facility expires in April 2001. Borrowings are limited under the terms of
a borrowing base calculation which generally restricts the outstanding balance
to 85% of eligible receivables plus 50% of eligible inventories, as defined.
Interest on borrowings is variable, based upon the Company's option of selecting
a LIBOR plus 1.25% or the bank's prime rate. The weighted average interest rate
was 6.69% as of January 31, 1999. The Senior Credit Facility contains certain
covenants, the most restrictive of which require the Company to maintain certain
financial and net worth ratios. In addition, the Senior Credit Facility
restricts the payment of dividends. The Senior Credit Facility is secured by the
Company's assets. The outstanding balance under the Senior Credit Facility as of
January 31, 1998 and 1999 amounted to $36,658,174 and $33,511,157, respectively.
The Company amended the Senior Credit Facility in March, 1999. As
amended, the Senior Credit Facility will provide a revolving credit facility up
to an aggregate amount of $75 million and a term loan of $25 million ($10
million of which is required to be repaid concurrent with the issuance of senior
subordinate notes as discussed in Note 17). The amended agreement expires in
October 2002.
11. INCOME TAXES
The income tax provision consisted of the following for each of the
years ended January 31:
<TABLE>
<CAPTION>
1997 1998 1999
---------- ---------- ----------
<S> <C> <C> <C>
Current income taxes:
Federal.................................... $2,910,509 $2,780,815 $3,057,838
State...................................... 526,754 307,371 1,002,692
Foreign.................................... -- -- 90,090
---------- ---------- ----------
Total.......................................... $3,437,263 $3,088,186 $4,150,620
Deferred income taxes:
Federal and state.......................... 159,655 (203,342) 340,246
---------- ---------- ----------
Total.......................................... $3,569,918 $2,884,844 $4,490,866
========== ========== ==========
</TABLE>
The following table reconciles the statutory federal income tax rate to
the Company's effective income tax rate for each of the years ended January 31:
<TABLE>
<CAPTION>
1997 1998 1999
---- ---- ----
<S> <C> <C> <C>
Statutory federal income tax rate.............................. 35.0% 35.0% 35.0%
Increase (decrease) resulting from
State income taxes, net of federal income tax benefit...... 3.9 2.1 2.9
Benefit of graduated rate.................................. (1.0) (1.0) (1.0)
Reversal of certain income tax reserves.................... -- (5.0) --
Other.......................................................... 0.2 (2.4) (2.5)
---- ---- ----
Total.......................................................... 38.1% 28.7% 34.4%
==== ==== ====
</TABLE>
F-13
<PAGE>
SUPREME INTERNATIONAL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
FOR EACH OF THE THREE YEARS IN THE PERIOD ENDED JANUARY 31, 1999
11. INCOME TAXES--(CONTINUED)
The tax effects of temporary differences that give rise to deferred tax
assets and liabilities are as follows as of January 31:
<TABLE>
<CAPTION>
1998 1999
--------- ---------
<S> <C> <C>
Deferred income tax assets:
Inventories........................................................ $642,944 $795,442
Accounts receivable................................................ 227,468 220,165
Accrued expenses................................................... 183,750 --
Other.............................................................. 100,743 75,875
--------- ---------
Deferred income tax assets......................................... 1,154,905 1,091,482
--------- ---------
Deferred income tax liabilities:
Fixed assets....................................................... (61,742) (318,580)
Intangible......................................................... (99,694) (241,148)
Other.............................................................. (121,469) --
--------- ---------
Deferred income tax liabilities.................................... (282,905) (559,728)
--------- ---------
Net deferred income tax assets..................................... $872,000 $531,754
========= =========
</TABLE>
A valuation allowance for deferred income tax assets is not deemed
necessary as the assets are expected to be recovered.
12. RETIREMENT PLAN
The Company adopted a 401(K) Profit Sharing Plan (the "Plan") in which
eligible employees may participate. Employees are eligible to participate in the
Plan upon the attainment of age 21, and completion of one year of service.
Participants may elect to contribute up to 15% of their annual compensation, not
to exceed amounts prescribed by statutory guidelines. The Company is required to
contribute an amount equal to 50% of each participant's eligible contribution up
to 4% of the participant's annual compensation. The Company may elect to
contribute additional amounts at its discretion. The Company's contributions to
the plan were approximately $34,000, $74,000, and $115,000 for the fiscal years
ended January 31, 1997, 1998 and 1999 respectively.
13. RELATED PARTY TRANSACTIONS
The Company leases certain office and warehouse space owned by the
Company's Chairman of the Board of Directors and Chief Executive Officer under
non-cancelable operating lease arrangements. Rent expense, including taxes, for
these leases amounted to approximately $600,000, $625,000 and $546,000 for the
fiscal years ended January 31, 1997, 1998 and 1999, respectively.
The Company entered into a license agreement (the "License Agreement")
with Isaco International, Inc. ("Isaco"), pursuant to which Isaco was granted an
exclusive license to use the Natural Issues brand name in the United States and
Puerto Rico to market a line of men's underwear and loungewear. The License
Agreement provides for a guaranteed minimum royalty payment to the Company of
$137,500 and expires on May 31, 1999. The principal shareholder of Isaco is the
father-in-law of the Company's President and Chief
F-14
<PAGE>
SUPREME INTERNATIONAL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
FOR EACH OF THE THREE YEARS IN THE PERIOD ENDED JANUARY 31, 1999
13. RELATED PARTY TRANSACTIONS--(CONTINUED)
Operating Officer. Royalty income earned from the License Agreement amounted to
approximately $243,000, $296,000 and $298,000 for the fiscal years ended January
31, 1997, 1998 and 1999, respectively.
In January 1998, the Company entered into two additional three-year
license agreements with Isaco for use of the Natural Issue brand in the United
States and its territories and possessions to market lines of hosiery and
neckwear. The license agreement for neckwear provides for a guaranteed minimum
annual royalty of $15,000 and the license agreement for hosiery provides for a
guaranteed minimum annual royalty of $25,000 during the first year, increasing
by $5,000 in each subsequent year.
14. STOCK OPTIONS AND WARRANTS
STOCK OPTIONS--The Company adopted a 1993 Stock Option Plan (the "1993
Plan") and a Directors Stock Option Plan (the "Directors Plan") (collectively,
the "Stock Option Plans"), under which shares of common stock are reserved for
issuance upon the exercise of the options. The number of shares issuable under
the Directors Plan is 150,000. The 1993 Plan was amended during fiscal 1999 to
increase the number of shares issuable from 450,000 shares to 900,000 shares.
The Stock Option Plans are designed to serve as an incentive for attracting and
retaining qualified and competent employees, directors, consultants, and
independent contractors of the Company. The 1993 Plan provides for the granting
of both incentive stock options and nonstatutory stock options. Incentive stock
options may only be granted to employees. Only non-employee directors are
eligible to receive options under the Directors Plan. All matters relating to
the Directors Plan are administered by a committee of the Board of Directors
consisting of two or more employee directors, including selection of
participants, allotment of shares, determination of price and other conditions
of purchase, except that the per share exercise price of options granted under
the Directors Plan may not be less than the fair market value of the common
stock on the date of grant.
Options can be granted under the 1993 Plan on such terms and at such
prices as determined by the Board of Directors, or a committee thereof, except
that the per share exercise price of incentive stock options granted under the
1993 Plan may not be less than the fair market value of the common stock on the
date of grant, and in the case of an incentive stock option granted to a 10%
shareholder, the per share exercise price will not be less than 110% of such
fair market value. The aggregate fair market value of the shares covered by
incentive stock options granted under the 1993 Plan that become exercisable by a
grantee in any calendar year is subject to a $100,000 limit.
On December 9, 1998, in order to provide an appropriate incentive to
certain members of management whose stock option exercise prices were higher
than the market price on that date, the Company allowed certain options to be
repriced. This repricing was at the consent of the option holders, and all other
terms of the options, including grant dates and exercise dates, remain intact
and in accordance with the 1993 Plan.
F-15
<PAGE>
SUPREME INTERNATIONAL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
FOR EACH OF THE THREE YEARS IN THE PERIOD ENDED JANUARY 31, 1999
14. STOCK OPTIONS AND WARRANTS--(CONTINUED)
A summary of the status of the option plans as of and for the changes
during each of the three years in the period ended January 31, 1999 is presented
below:
<TABLE>
<CAPTION>
OPTION PRICE PER SHARE OPERATIONS EXERCISABLE
--------------------------------------- ------------------------------
NUMBER NUMBER WEIGHTED AVERAGE
OF SHARES LOW HIGH WEIGHTED OF SHARES EXERCISE PRICE
--------- ------ ------ -------- --------- ----------------
<S> <C> <C> <C> <C> <C> <C>
Outstanding January 31, 1996.. 218,250 $ 6.33 $10.75 $ 7.71 114,938 $ 8.06
Granted 1997.................. 90,000 $ 6.67 $10.75 $ 8.87
Exercised 1997................ (7,500) $ 6.50 $ 6.50 $ 6.50
Cancelled 1997................ (7,500) $ 6.50 $ 6.50 $ 6.50
--------
Outstanding January 31, 1997.. 293,250 $ 6.33 $10.75 $ 8.01 192,938 $ 8.14
Granted 1998.................. 24,000 $ 9.17 $10.17 $ 9.84
Exercised 1998................ (26,250) $ 6.67 $10.75 $ 7.73
Cancelled 1998................ --
--------
Outstanding January 31, 1998 291,000 $ 6.33 $10.75 $ 7.92 221,750 $ 7.90
Granted 1999.................. 387,000 $ 9.75 $15.75 $13.18
Exercised 1999................ (103,125) $ 6.33 $10.67 $ 7.36
Cancelled 1999................ (8,875) $10.67 $15.25 $10.96
--------
Outstanding January 31, 1999.. 566,000 $ 6.67 $15.75 $11.95 410,375 $12.66
========
</TABLE>
The following table summarizes the information about options
outstanding at January 31, 1999:
<TABLE>
<CAPTION>
OPTIONS OUTSTANDING OPTIONS EXERCISABLE
---------------------------------------------------------------- -----------------------------------------------------
WEIGHTED AVERAGE
WEIGHTED AVERAGE
REMAINING WEIGHTED
RANGE OF NUMBER CONTRACTUAL LIFE AVERAGE NUMBER WEIGHTED AVERAGE
EXERCISE PRICES OUTSTANDING (IN YEARS) EXERCISE PRICE EXERCISABLE EXERCISE PRICE
--------------- ----------- ---------------- -------------- ----------- ----------------
<S> <C> <C> <C> <C> <C>
$6.50 - $9.75 152,750 3.0 $ 8.20 135,625 $ 8.19
$10.00 - $15.00 172,250 4.7 $10.07 42,750 $10.12
$15.25 - $15.75 238,000 9.1 $15.73 232,000 $15.75
</TABLE>
F-16
<PAGE>
SUPREME INTERNATIONAL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
FOR EACH OF THE THREE YEARS IN THE PERIOD ENDED JANUARY 31, 1999
14. STOCK OPTIONS AND WARRANTS--(CONTINUED)
As described in Note 2, the Company accounts for stock-based
compensation using the provisions of APB No. 25 and related interpretations. No
compensation expense has been recognized in the years ended January 31, 1997,
1998 and 1999 as the exercise prices for stock options granted are equal to
their fair market value at the time of grant. Had compensation cost for options
granted been determined in accordance with the fair value provisions of SFAS
123, the Company's net income and net income per share would have been as
follows for the years ended January 31:
<TABLE>
<CAPTION>
1997 1998 1999
---------- ------------- ----------
<S> <C> <C> <C>
Net income:
As reported................................ $5,844,019 $ 7,178,162 $8,581,679
========== ============= ==========
Pro forma.................................. $5,710,383 $ 7,026,242 $8,145,789
========== ============= ==========
Net income per share:
As reported
Basic................................... $ 0.89 $ 1.10 $ 1.29
========== ============= ==========
Diluted................................. $ 0.89 $ 1.08 $ 1.27
========== ============= ==========
Pro forma:
Basic...................................... $ 0.87 $ 1.07 $ 1.22
========== ============= ==========
Diluted.................................... $ 0.87 $ 1.05 $ 1.20
========== ============= ==========
</TABLE>
The fair value for these options was estimated at the grant date using
the Black-Scholes Option Pricing Model with the following weighted-average
assumptions for 1997, 1998 and 1999:
<TABLE>
<CAPTION>
1997 1998 1999
--------------- --------------- ----------------
<S> <C> <C> <C>
Risk free interest rate............................ 6.5% 6.5% 6.5%
Dividend yield..................................... 0.0% 0.0% 0.0%
Volatility factors................................. 58.0% 45.9% 67.3%
Weighted average life (years)...................... 5.0 5.0 5.0
</TABLE>
Using the Black-Scholes Option Pricing Model, the estimated
weighted-average fair value per option granted in 1997, 1998 and 1999 were
$4.97, $5.99 and $9.22, respectively.
The Black-Scholes option valuation model was developed for use in
estimating the fair value of traded options which have no vesting restrictions
and are fully transferable. In addition, option valuation models require the
input of highly subjective assumptions including the expected stock price
volatility. Because the Company's stock options have characteristics
significantly different from those of traded options, and because changes in the
subjective input assumptions can materially affect the fair value estimate, in
management's opinion, the existing models do not necessarily provide a reliable
single measure of the fair value of its stock options.
F-17
<PAGE>
SUPREME INTERNATIONAL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
FOR EACH OF THE THREE YEARS IN THE PERIOD ENDED JANUARY 31, 1999
14. STOCK OPTIONS AND WARRANTS--(CONTINUED)
The pro forma amounts may not be representative of the future effects
on reported net income and net income per share that will result from the future
granting of stock options, since the pro forma compensation expense is allocated
over the periods in which options become exercisable and new option awards are
granted each year.
WARRANTS --In conjunction with the Company's initial public offering in
May 1993, the Company granted 180,000 warrants entitling the holders of each
warrant to purchase one share of common stock at an exercise price of $9.35 per
share. The warrants became exercisable on May 21, 1995. All warrants were
exercised during fiscal 1999.
15. SEGMENT INFORMATION
The Company is engaged principally in one line of business, that being
a leading designer and marketer of a broad line of high quality men's
sportswear, including sport and dress shirts, golf sportswear, sweaters, urban
wear, casual and dress pants and shorts to all levels of retail distribution. We
own or license the brands under which most of our products are sold. The
percentage of our revenues from branded products amounted to 75% in fiscal 1998
and 81% in fiscal 1999. Sales to any one customer exceeding ten percent amounted
to 15%, 12% and 12% for the year ended January 31, 1997; 12% and 13% for the
year ended January 31, 1998; and 15%, 10% and 10% for the year ended January 31,
1999. The Company does not believe that these concentrations of sales and credit
risk represent a material risk of loss with respect to its financial position as
of January 31, 1999.
16. COMMITMENTS AND CONTINGENCIES
The Company has licensing agreements, as licensee, for the use of
certain branded and designer labels. The license agreements expire on varying
dates through December 31, 2000. Total royalty payments under these license
agreements amounted to approximately $405,000, $330,000 and $573,000 for the
years ended January 31, 1997, 1998 and 1999, respectively, and were classified
as selling, general and administrative expenses.
The Company is party to an employment agreement with Oscar Feldenkreis,
the Company's President and Chief Operating Officer, which expires in May 2000,
and is subject to annual renewal. The employment agreement currently provides
for an annual salary of $350,000, subject to annual cost-of-living increases,
and an annual bonus as may be determined by the Compensation Committee in its
discretion, up to a maximum of $500,000. The employment agreement requires Mr.
Feldenkreis to devote his full-time to the affairs of the Company. Upon
termination of the employment agreement by reason of the employee's death or
disability, Mr. Feldenkreis or his estate will receive a lump sum payment equal
to one year's salary plus a bonus as may be determined by the Compensation
Committee in its discretion. The employment agreement also prohibits Mr.
Feldenkreis from directly or indirectly competing with the Company for one year
after termination of his employment for any reason except the Company's
termination of Mr. Feldenkreis without cause.
The Company is also party to an employment agreement with George
Feldenkreis, the Company's Chairman of the Board and Chief Executive Officer,
expiring in May 2000, and is subject to annual renewal. The
F-18
<PAGE>
SUPREME INTERNATIONAL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
FOR EACH OF THE THREE YEARS IN THE PERIOD ENDED JANUARY 31, 1999
16. COMMITMENTS AND CONTINGENCIES--(CONTINUED)
employment agreement currently provides for an annual salary of $375,000,
subject to annual cost-of-living increases, and an annual bonus as may be
determined by the Compensation Committee in its discretion, up to a maximum of
$250,000. Pursuant to his employment agreement, Mr. Feldenkreis devotes a
majority of his working time to the affairs of the Company. George Feldenkreis'
employment agreement contains termination and non-competition provisions similar
to those set forth in Oscar Feldenkreis' agreement.
The Company consolidated its administrative offices and warehouses and
distribution facilities into a 238,000 square foot facility in Miami. The lease
has a term of five years, minimum annual rental of approximately $1,000,000 and
requires a minimum contingent rental payment at the termination of the lease of
$12,325,000. The minimum contingent rental payment is not required if, at the
Company's option, the lease is renewed after the five year term.
Minimum aggregate annual commitments for all of the Company's
noncancelable operating lease commitments, including the related party leases
described in Note 13 and the minimum contingent rental payment described above,
are as follows.
<TABLE>
<CAPTION>
YEAR ENDING JANUARY 31,
-----------------------
<S> <C>
2000.................................... $1,461,800
2001.................................... 1,335,600
2002.................................... 1,206,200
2003.................................... 13,154,500
2004.................................... 372,100
-----------
Total............................... $17,530,200
===========
</TABLE>
Rent expense for these leases, including the related party rent
payments discussed in Note 13, amounted to $1,078,000, $1,460,000, and
$1,946,000 for the fiscal years ended January 31, 1997, 1998 and 1999,
respectively.
The Company guarantees up to $600,000 of letters of credit of an
unaffiliated entity.
The Company is subject to claims and suits against it, as well as the
initiator of claims and suits against others, in the ordinary course of its
business, including claims arising from the use of its trademarks. The Company
does not believe that the resolution of any pending claims will have a material
adverse affect on its financial position, results of operations or cash flows.
F-19
<PAGE>
SUPREME INTERNATIONAL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
FOR EACH OF THE THREE YEARS IN THE PERIOD ENDED JANUARY 31, 1999
17. SUBSEQUENT EVENTS
PERRY ELLIS INTERNATIONAL, INC. In April 1999, the Company acquired
Perry Ellis International, Inc. for approximately $74.6 million in cash, net of
purchase price adjustments. Perry Ellis International, Inc. is a privately-held
company which owns and licenses the Perry Ellis brand, currently one of the top
selling brands in specialty chains and department stores in the United States.
Perry Ellis International, Inc. is currently the licensor under approximately 34
license agreements, primarily for various categories of men's wear, boys' wear
and fragrances. During the year ended December 31, 1998, Perry Ellis
International, Inc. had revenues of $16.2 million.
SENIOR SUBORDINATED NOTES. Concurrently with the Company's acquisition
of Perry Ellis International, Inc., the Company issued $100,000,000 in 12 1/4%
senior subordinated notes due 2006. The senior subordinated notes are jointly
and severally guaranteed by the Company and it's wholly-owned subsidiaries.
Separate financial statements for the Company's wholly-owned subsidiaries are
not included due to insignificant operations.
JOHN HENRY/MANHATTAN. In March 1999, the Company acquired certain
assets of the John Henry and Manhattan dress shirt business from Salant
Corporation, which is currently in a Chapter 11 bankruptcy proceeding. On
February 24, 1999, the bankruptcy court approved the purchase for approximately
$44.2 million in cash. The assets consist of the John Henry, Manhattan and Lady
Manhattan trademarks and trade names, license agreements, the existing dress
shirt inventory with a value of approximately $17.2 million and certain
manufacturing equipment. The Company assumed a lease for the dress shirt
manufacturing facility located in Mexico. In May 1999, the Company assigned the
lease for the facility and sold certain manufacturing equipment to a
non-affiliated party. The Company has entered into an agreement with
Phillips-Van Heusen Corporation to license the John Henry and Manhattan brands.
Phillips-Van Heusen also bought the existing dress shirt inventory from the
Company at the Company's cost.
Upon consummation of the John Henry/Manhattan acquisition, the Company
paid Icahn Associates Corp. ("IAC") a financial advisory fee of $1.0 million. In
addition, IAC was also granted the right to acquire 1,320,000 shares of the
Company's common stock at $12 per share, which was not exercised and expired on
April 13, 1999.
On June 11, 1999, the Company shareholders approved a change in the
name of the Company to Perry Ellis International, Inc.
F-20
<PAGE>
SUPREME INTERNATIONAL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
FOR EACH OF THE THREE YEARS IN THE PERIOD ENDED JANUARY 31, 1999
18. SUMMARIZED QUARTERLY FINANCIAL DATA (UNAUDITED)
<TABLE>
<CAPTION>
1Q 2Q 3Q 4Q TOTAL
--------- --------- --------- --------- ---------
(DOLLARS IN THOUSANDS EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C>
FISCAL YEAR ENDED JANUARY 31, 1999
Net Sales............................... $ 60,085 $ 49,709 $ 65,012 $ 46,541 $ 221,347
Royalty income.......................... 1,022 981 492 562 3,057
--------- --------- --------- --------- ---------
Total revenues.......................... 61,107 50,690 65,504 47,103 224,404
Gross profit............................ 15,648 13,166 16,085 13,307 58,206
Net Income.............................. 2,637 1,053 2,812 2,080 8,582
Net income per share:
Basic................................ $ 0.40 $ 0.16 $ 0.42 $ 0.31 $ 1.29
Diluted.............................. $ 0.39 $ 0.15 $ 0.42 $ 0.31 $ 1.27
FISCAL YEAR ENDED JANUARY 31, 1998
Net Sales............................... $ 48,841 $ 42,037 $ 54,550 $ 45,261 $ 190,689
Royalty income.......................... 1,123 1,051 887 971 4,032
--------- --------- --------- --------- ---------
Total revenues.......................... 49,964 43,088 55,437 46,232 194,721
Gross profit............................ 12,963 10,538 12,477 12,752 48,730
Net Income.............................. 2,149 826 2,411 1,792 7,178
Net income per share:
Basic................................ $ 0.33 $ 0.13 $ 0.37 $ 0.27 $ 1.10
Diluted.............................. $ 0.33 $ 0.12 $ 0.36 $ 0.27 $ 1.08
FISCAL YEAR ENDED JANUARY 31, 1997
Net Sales............................... $ 37,807 $ 31,159 $ 46,746 $ 41,661 $ 157,373
Royalty income.......................... 28 70 405 1,151 1,654
--------- --------- --------- --------- ---------
Total revenues.......................... 37,835 31,229 47,151 42,812 159,027
Gross profit............................ 8,672 6,824 11,116 10,369 36,981
Net income.............................. 1,615 689 1,974 1,566 5,844
Net income per share:
Basic(1)............................. $ 0.25 $ 0.11 $ 0.30 $ 0.24 $ 0.89
Diluted.............................. $ 0.25 $ 0.10 $ 0.30 $ 0.24 $ 0.89
</TABLE>
- ---------------------
(1) Total does not equal sum of quarters due to effect of the weighted averaging
of shares outstanding.
F-21
<PAGE>
SUPREME INTERNATIONAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
JULY 31, 1999 JANUARY 31, 1999
------------- ----------------
(UNAUDITED)
<S> <C> <C>
ASSETS
Current Assets:
Cash.......................................... $431,961 $173,493
Accounts receivable, net...................... 38,878,937 38,969,845
Inventories................................... 31,140,539 32,965,655
Deferred income taxes......................... 1,091,482 1,091,482
Deposits for acquisitions..................... -- 6,000,000
Prepaid income taxes.......................... 944,134 --
Other current assets.......................... 1,511,769 2,040,200
------------ ------------
Total current assets...................... 73,998,822 81,240,675
Property and equipment, net........................ 75,62,001 7,851,592
Intangible assets, net............................. 123,556,520 18,842,797
Other.............................................. 5,562,174 1,022,467
------------ ------------
TOTAL..................................... $210,679,517 $108,957,531
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Accounts payable............................... $4,094,265 $4,595,688
Accrued expenses............................... 3,745,646 4,754,077
Accrued interest payable....................... 4,254,675 177,448
Other current liabilities...................... 2,356,142 413,505
------------ ------------
Total current liabilities................. 14,450,728 9,940,718
Bonds payable, net............................. 98,906,667 --
Deferred income taxes.......................... 559,727 559,728
Long term debt-senior credit agreement......... 13,462,727 33,511,157
Long term debt-term loan....................... 13,750,000 --
------------ ------------
Total liabilities......................... 141,129,849 44,011,603
------------ ------------
Stockholders' Equity:
Preferred stock--$.01 par value; 1,000,000 shares
authorized; no shares issued or outstanding....
Common stock--$.01 par value; 30,000,000 shares
authorized; 6,555,681 and 6,712,374 shares issued
and outstanding as of January 31, 1998 and 1999,
respectively...................................
67,243 67,123
Additional paid-in-capital......................... 28,911,195 28,806,455
Retained earnings.................................. 40,571,230 36,072,350
------------ ------------
Total stockholders' equity................ 69,549,668 64,945,928
------------ ------------
TOTAL..................................... $210,679,517 $108,957,531
============ ============
</TABLE>
See Notes to consolidated financial statements.
F-22
<PAGE>
SUPREME INTERNATIONAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
<TABLE>
<CAPTION>
SIX MONTHS ENDED
JULY 31,
--------------------------------
1999 1998
------------ ------------
<S> <C> <C>
Revenues:
Net sales.................................... $104,751,870 $109,794,686
Royalty income............................... 9,060,056 2,003,544
------------ ------------
Total Revenues........................... 113,811,926 111,798,230
Cost of Sales..................................... 77,481,828 82,982,874
------------ ------------
Gross Profit 36,330,098 28,815,356
Selling, General and Administrative Expenses...... 20,969,826 20,129,949
Depreciation...................................... 591,337 435,544
Amortization...................................... 1,790,881 586,696
------------ ------------
Total Operating Expenses................. 23,352,044 21,163,189
------------ ------------
Operating Income.................................. 12,978,054 7,652,167
Interest Expense.................................. 5,905,911 1,863,987
------------ ------------
Income before income taxes........................ 7,072,143 5,788,180
Income taxes...................................... 2,573,263 2,095,044
============ ============
Net income........................................ $4,498,880 $3,693,136
============ ============
Net income per share:
Basic........................................ $0.67 $0.56
============ ============
Diluted...................................... $0.66 $0.55
============ ============
Weighted average number of Common Shares outstanding:
Basic........................................ 6,723,786 6,643,318
============ ============
Diluted...................................... 6,836,268 6,760,950
============ ============
</TABLE>
F-23
<PAGE>
SUPREME INTERNATIONAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
<TABLE>
<CAPTION>
SIX MONTHS ENDED
JULY 31,
------------------------------
1999 1998
------------ ----------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income.......................................... $4,498,880 $3,693,136
Adjustments to reconcile net income to net cash (used
in) provided by operating activities:
Depreciation and amortization.................. 2,382,218 1,033,241
Amortization of bond discount.................. 54,667 --
Changes in operating assets and liabilities:
(net of effects of acquisition)
Accounts receivable, net...................... 1,068,462 (3,92,462)
Inventories................................... 1,825,116 (5,281,565)
Other current assets.......................... 1,253,363 (1,620,998)
Other assets.................................. (4,682,009) 968,655
Accounts payable and accrued expenses......... (1,509,854) 1,974,225
Accrued interest payable...................... 4,077,227 60,023
Other current liabilities..................... 526,108 (309,127)
------------ ----------
Net cash provided by (used in)
operating activities.................... 9,494,178 125,128
------------ ----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of property and equipment.................. (251,500) (3,612,354)
Payment on purchase of other intangible assets...... (223,160) (85,119)
Payment for acquired businesses..................... (101,419,490) --
------------ ----------
Net cash used in investing activities........ (101,894,150) (3,697,473)
------------ ----------
CASH FLOW FROM FINANCING ACTIVITIES:
Net increase (decrease) in borrowings under letter of
credit facilities............................... 13,750,000 (3,000,000)
Net (payments) proceeds from long term debt (20,048,430) 5,668,869
Net proceeds from bonds payable..................... 98,852,000 --
Proceeds from exercise of stock options............. 104,870 425,653
------------ ----------
Net cash provided by (used in)
financing activities....................... 92,658,440 3,094,522
------------ ----------
NET INCREASE (DECREASE) IN CASH..................... 258,468 (477,823)
CASH AT BEGINNING OF YEAR........................... 173,493 1,010,256
------------ ----------
CASH AT END OF YEAR................................. $431,961 $532,433
============ ==========
SUPPLEMENTAL DISCLOSURE OF CASH FLOW
INFORMATION Cash paid during the year for:
Interest........................................ $1,525,944 $1,863,811
============ ==========
Income taxes.................................... $4,871,580 $1,307,023
============ ==========
</TABLE>
See Notes to consolidated financial statements.
F-24
<PAGE>
SUPREME INTERNATIONAL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
1. GENERAL
The accompanying unaudited consolidated financial statements have been
prepared in accordance with the instructions for Form 10-Q and therefore do not
include all information and footnotes necessary for a fair presentation of
financial position, results of operations and changes in cash flows in
conformity with generally accepted accounting principles. The unaudited
consolidated financial statements should be read in conjunction with the audited
financial statements and related notes included in the Registrant's Annual
Report on Form 10-K for the year ended January 31, 1999. In the opinion of
management, the unaudited consolidated financial statements contain all
adjustments necessary for a fair presentation of the interim periods presented
and all adjustments are of a normal and recurring nature. The results of
operations for the three and six months ended July 31, 1999 are not necessarily
indicative of the results which may be expected for the entire fiscal year. In
June 1999 Supreme International Corporation changed its name to Perry Ellis
International, Inc. (the "Company").
Certain amounts in the prior period have been reclassified to conform
to the current periods' presentation.
2. INVENTORIES
Inventories consist principally of finished goods and are stated at
lower of cost or market on a first-in first-out basis.
3. LETTERS OF CREDIT FACILITIES
<TABLE>
<CAPTION>
JULY 31, 1999 JANUARY 31, 1999
------------- ----------------
(UNAUDITED)
<S> <C> <C>
Total letter of credit facilities............. $60,000,000 $60,000,000
Borrowings Outstanding letters of credit...... (23,702,967) (23,831,172)
----------- -----------
Total Available............................... $36,297,033 $36,168,828
=========== ===========
</TABLE>
4. SENIOR CREDIT AGREEMENT
The Company amended its revolving senior credit agreement effective
August 12, 1999 upon substantially similar terms. The agreement now provides for
borrowings at the Company's option of Libor plus 2.25%, or the bank's prime rate
plus 0.25%. The interest rate spread may vary based upon the ratio of
Consolidated Funded Indebtedness, as defined in the Agreement, to earnings
before interest, taxes, depreciation and amortization (EBITDA).
5. BONDS PAYABLE (SENIOR SUBORDINATED NOTES)
The Company issued $100 million in bonds on April 6, 1999 as Senior
Subordinated Notes bearing interest at 12 1/4%. The actual proceeds to the
Company were $98,852,000 after the deduction of discounts. The Company will pay
interest on the notes on April 1 and October 1 of each year, commencing on
October 1, 1999. The notes will mature on April 1, 2006. The notes may be
redeemed in whole, or in part, at any time on or after April 1, 2003. In
addition, on or before April 1, 2002, the Company may redeem up to 35% of the
aggregate principal amount of the notes with the net process of a public equity
offering if at least 65% of the aggregate principal amount of the notes
originally issued remains outstanding after such redemption.
F-25
<PAGE>
SUPREME INTERNATIONAL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(UNAUDITED)
6. STOCKHOLDERS' EQUITY
The following is a schedule of the activity in common stock and
additional paid-in capital:
<TABLE>
<CAPTION>
COMMON STOCK
----------------------------- ADDITIONAL
SHARES AMOUNT PAID-IN CAPITAL
--------- ------- ---------------
<S> <C> <C> <C>
Balance, January 31, 1999.............................. 6,712,374 $67,123 $28,806,455
Exercise of stock options.............................. 12,000 120 104,740
--------- ------- -----------
Balance, July 31, 1999................................. 6,724,374 $67,243 $28,911,195
========= ======= ===========
</TABLE>
7. ACQUISITIONS
On March 29, 1999 the Company acquired the John Henry, Manhattan and
Lady Manhattan trademarks and certain manufacturing equipment for $27 million.
The Company acquired all the outstanding capital stock of Perry Ellis
International, Inc. for approximately $75 million in cash. Perry Ellis
International, Inc. was a privately held company which owned and licensed the
Perry Ellis brand name, currently one of the top selling brands in specialty
chains and department stores in the Untied States.
The acquisition were accounted for using the purchase method of
accounting, and accordingly, the financial statements include the results of
operations of the acquisitions commencing on April 1, 1999 for John
Henry/Manhattan acquisition; and April 6, 1999 for the Perry Ellis acquisition.
Costs in excess of the carrying value of the net tangible assets acquired were
allocated to the trademarks acquired, are being amortized over a 40 year life,
and were determined as follows:
<TABLE>
<S> <C>
Purchase Price.................................................$102,000,000
Plus purchase price adjustments................................ 1,684,624
Plus expenses incurred in connection with the acquisition...... 5,885,243
------------
Adjusted purchase price........................................ 109,569,867
============
Tangible asset acquired:
Cash......................................................... 2,150,377
Accounts receivable.......................................... 977,553
Other current assets......................................... 1,669,067
PP&E......................................................... 19,599
------------
104,753,271
Liabilities assumed:
Accounts payables and accrued expenses:...................... 1,416,529
------------
Trademarks.....................................................$106,169,800
============
</TABLE>
8. SUPPLEMENTAL CASH FLOW INFORMATION
The following information presents the non-cash impact on the balance
sheets of assets acquired and liabilities assumed in connection with the Perry
Ellis, John Henry and Manhattan acquisitions. The non-cash effect of these
investing activities during the three months ended July 31, 1999 are as follows:
F-26
<PAGE>
SUPREME INTERNATIONAL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(UNAUDITED)
<TABLE>
<CAPTION>
SIX MONTHS
ENDED
JULY 31, 1999
-------------
<S> <C>
Adjusted Purchase Price......................... $109,569,867
Less cash acquired.............................. (2,150,377)
Less deposits in prior period................... (6,000,000)
------------
Net cash paid for acquisitions....................... $101,419,490
============
</TABLE>
9. PRO FORMA FINANCIAL INFORMATION
The pro forma financial information presented below, based under the
assumption that operations were in effect for each of the periods ending July
31, 1998 and 1999, gives effect to (i) the John Henry/Manhattan acquisition,
(ii) the Perry Ellis International, Inc. acquisition, and (iii) the offering of
the Senior Subordinated Notes. The information presented below is for
illustrative information purposes only and is not indicative of results which
would have been achieved or results which may be achieved in the future.
<TABLE>
<CAPTION>
PR FORMA PRO FORMA PRO FORMA PRO FORMA
(UNAUDITED) (UNAUDITED) (UNAUDITED) (UNAUDITED)
------------- ------------- ---------------- ----------------
THREE MONTHS THREE MONTHS
ENDED ENDED SIX MONTHS ENDED SIX MONTHS ENDED
JULY 31, 1999 JULY 31, 1998 JULY 31, 1999 JULY 31, 1998
------------- ------------- ---------------- ----------------
<S> <C> <C> <C> <C>
Total revenues...................... $52,017,000 $55,221,710 $117,736,367 $121,790,391
=========== =========== ============ ============
Net income.......................... $1,607,000 $338,674 $3,913,661 $1,331,471
=========== =========== ============ ============
Net income per share (diluted)...... $0.23 $0.05 $0.57 $0.20
=========== =========== ============ ============
</TABLE>
10. BUSINESS SEGMENTS
The Company's principal segments are grouped between the
generation of revenues form products and royalties. The Licensing segment
derives its revenues form royalties associated from the use of its brand names,
principally Perry Ellis, John Henry, Manhattan and Munsingwear. The Product
segment derives its revenues form the design, import and distribution of apparel
to department stores and other retail outlets, principally throughout the Untied
States. This is the first year that management has segregated the operations for
the two segments. Shared selling, general and administrative expenses are
allocated amongst the segments.
<TABLE>
<CAPTION>
THREE MONTHS SIX MONTHS
ENDED ENDED
JULY 31, 1999 JULY 31, 1999
------------- -------------
<S> <C> <C>
Revenues:
Product............................... $45,273,099 $104,751,869
Licensing............................. 6,743,539 9,060,057
----------- ------------
Total Revenues............................. $52,016,638 $113,811,926
=========== ============
Operating Income:
Product............................... $2,852,105 $8,157,670
Licensing............................. 3,661,635 4,820,384
----------- ------------
</TABLE>
F-27
<PAGE>
SUPREME INTERNATIONAL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS SIX MONTHS
ENDED ENDED
JULY 31, 1999 JULY 31, 1999
------------- -------------
<S> <C> <C>
Total Operating Income..................... $6,513,740 102,978,054
=========== ============
Depreciation and Amortization:
Product............................... $571,395 $1,084,185
Licensing............................. 832,223 1,298,033
----------- ------------
Total Depreciation and Amortization........ $1,403,618 $2,382,218
=========== ============
Identifiable Assets:
Product............................... $94,364,485
Licensing............................. 113,847,455
Corporate............................. 2,467,577
------------
Total Identifiable Assets.................. $210,679,517
============
</TABLE>
F-28
<PAGE>
INDEPENDENT AUDITORS' REPORT
Perry Ellis International, Inc.:
We have audited the accompanying balance sheet of Perry Ellis
International, Inc. as of December 31, 1997 and December 31, 1998, and the
related statement of operations, undistributed income and cash flows for the
three years ended December 31, 1996, December 31, 1997 and December 31, 1998.
These financial statements are the responsibility of the Company's management.
Our responsibility is to express an opinion on the financial statements based
upon our audit.
We conducted our audit in accordance with generally accepted auditing
standards. These standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement.
An audit includes examining on a test basis evidence supporting the
amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
Management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present
fairly, in all material respects, the financial position of Perry Ellis
International, Inc. as of December 31, 1997 and December 31, 1998, and the
results of its operations and cash flows for the three years ended December 31,
1996, December 31, 1997, and December 31, 1998, in conformity with generally
accepted accounting principles.
/s/ Saul L. Klaw & Co., P.C.
Certified Public Accountants
Dated: March 12, 1999
(May 11, 1999 as to Note 10)
F-29
<PAGE>
PERRY ELLIS INTERNATIONAL, INC.
BALANCE SHEET
<TABLE>
<CAPTION>
DECEMBER 31, MARCH 31,
---------------------------- ----------
1997 1998 1999
---------- ---------- ----------
<S> <C> <C> <C>
ASSETS
Current Assets
Cash Balances...................................................... $ 527,161 $1,776,722 $2,477,511
Due from Licenses.................................................. 389,281 944,885 1,393,734
Prepaid Expenses................................................... 758,171 543,383 60,346
Prepaid Franchise Taxes............................................ -0- 75,232 138,232
Unexpired Insurance................................................ 41,317 43,200 29,305
Employee Loan Receivable........................................... -0- 6,183 5,833
---------- ---------- ----------
Total Current Assets................................................... 1,715,930 3,389,605 4,116,723
Fixed Assets........................................................... 1,995,817 2,016,958 2,016,958
Less: Accumulated Depreciation........................................ (647,380) (875,444) (933,255)
Security Deposits...................................................... 47,688 32,334 32,334
---------- ---------- ----------
Total Assets........................................................... $3,112,055 $4,563,453 $5,232,760
========== ========== ==========
LIABILITIES
Current Liabilities
Accounts Payable, Expenses......................................... $542,170 $163,443 $978,102
Accrued Payroll.................................................... 500,425 452,884 --
Employment Termination Payable, Current............................ 90,000 108,296 --
Franchise Taxes Payable............................................ 610,058 -0- --
---------- ---------- ----------
Total Current Liabilities.............................................. 1,742,653 724,623 $978,102
---------- ---------- ----------
CAPITAL
Capital Stock - no par value; 200 shares
authorized; 50 shares issued........................................ 1,000 1,000 1,000
outstanding............................................................
Undistributed Income................................................... 1,368,402 3,837,830 4,253,658
---------- ---------- ----------
Total Capital.......................................................... 1,369,402 3,838,830 4,254,658
---------- ---------- ----------
Total Liabilities and Capital.......................................... 3,112,055 $4,563,453 $5,232,760
========== ========== ==========
</TABLE>
(See Notes to Financial Statements)
F-30
<PAGE>
PERRY ELLIS INTERNATIONAL, INC.
STATEMENT OF OPERATIONS
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, QUARTER ENDED MARCH 31,
-------------------------------------------------- --------------------------
1996 1997 1998 1998 1999
----------- ----------- ----------- ---------- ----------
<S> <C> <C> <C> <C> <C>
Royalty Revenues....................... $12,191,490 $15,739,291 $16,210,696 $6,738,286 $5,760,066
Less Agent's Commission................ 1,273,879 78,750 33,750 -- --
----------- ----------- ----------- ---------- ----------
Net Royalty Revenues................... 10,917,611 15,660,541 16,176,946 6,738,286 5,760,066
Operating Expenses..................... 5,544,425 7,334,551 8,625,713 1,877,284 2,451,507
Non-recurring Items.................... 3,273,529 -0- -0- -- --
----------- ----------- ----------- ---------- ----------
Operating Income....................... 2,099,657 8,325,990 7,551,233 4,861,002 3,308,559
Interest Income........................ 143,765 135,537 32,061 8,680 7,269
----------- ----------- ----------- ---------- ----------
Income Before Taxes.................... 2,243,422 8,461,257 7,583,294 4,869,682 3,315,828
State and Local Taxes.................. 218,631 852,072 760,346 -- --
----------- ----------- ----------- ---------- ----------
Net Income for the Year................ $2,024,791 $ 7,609,455 $ 6,822,948 $4,869,682 $3,315,828
=========== =========== =========== ========== ==========
</TABLE>
(See Notes to Financial Statements)
F-31
<PAGE>
PERRY ELLIS INTERNATIONAL, INC.
UNDISTRIBUTED INCOME
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, QUARTER ENDED
------------------------------------------------- MARCH 31,
1996 1997 1998 1999
---------- ---------- ---------- -------------
<S> <C> <C> <C> <C>
Balance at Beginning........................... $2,826,046 $3,437,637 $1,368,402 $3,837,830
Net Income for the Year........................ 2,024,791 7,609,455 6,822,948 3,315,828
---------- ---------- ---------- ----------
Total.......................................... 4,850,837 11,047,092 8,191,350 7,153,658
---------- ---------- ---------- ----------
Less Distributions to Stockholder during year:
Dividend Paid......................... 1,390,000 9,625,000 4,325,000 2,900,000
Foreign Tax Credits................... 23,200 53,690 28,520 --
---------- ---------- ---------- ----------
Total.......................................... 1,413,200 9,678,690 4,353,520 2,900,000
---------- ---------- ---------- ----------
Balance at End................................. $3,437,637 $1,368,402 $3,837,830 $4,253,658
========== ========== ========== ==========
</TABLE>
(See Notes to Financial Statements)
F-32
<PAGE>
PERRY ELLIS INTERNATIONAL, INC.
STATEMENT OF CASH FLOWS
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, QUARTER ENDED MARCH 31,
---------------------------------------- --------------------------
1996 1997 1998 1998 1999
---------- ---------- ---------- ---------- ----------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Cash Flow from Operating Activities:
Net Income.................................. $2,024,791 $7,609,455 $6,822,948 $4,869,682 $3,315,828
Depreciation................................ 212,000 225,783 228,064 57,810 57,810
Loss on Investment in Limited Partnership... 154,187 -0- -0- -- --
Changes in Operating Assets and Liabilities:
Due from Licenses........................ 167,120 (362,559) (555,604) (1,627,796) (448,849)
Prepaid Expenses......................... (265,840) (396,439) 212,905 527,745 483,037
Other Current Assets..................... -0- -0- (6,183) (2,355,363) (60,517)
Accounts Payable......................... 486,503 (140,906) (378,727) (42,239) 254,937
Accrued Payroll.......................... (24,814) 325,192 (47,541) (54,000) --
Corporate Taxes Payable.................. (350,947) 610,058 (685,290) (610,058) --
Employment Termination................... (75,000) (126,000) 18,296 -- --
Commissions Payable...................... 200,000 (200,000) -0- -- --
Non-Current Assets....................... (851) (846) 15,354 -- --
Non-Current Liabilities.................. (216,000) (90,000) -0- -- (1,457)
---------- ---------- ---------- ---------- ----------
Net Cash Provided by Operating Activities....... 2,311,149 7,453,738 5,624,222 765,701 3,600,789
---------- ---------- ---------- ---------- ----------
Cash Flow from Investing Activities:
(Credit) for Disposal of Service Agreement.. (1,000,001) 1,000,001 -0- -- --
(Additions) to Fixed Assets................. (47,461) (87,160) (21,141) (8,736) --
---------- ---------- ---------- ---------- ----------
Net Cash (Used) Provided by Investing Activities (1,047,462) 912,841 (21,141) (8,736) --
---------- ---------- ---------- ---------- ----------
Cash Flow from Financing Activities:
Distribution to Stockholders................ (1,413,200) (9,678,690) (4,353,520) (800,000) (2,900,000)
---------- ---------- ---------- ---------- ----------
Net (Decrease) Increase in Cash Flows........... (149,513) (1,312,111) 1,249,561 42,955 700,789
Cash at Beginning of Year....................... 1,988,785 1,839,272 527,161 527,161 1,776,722
---------- ---------- ---------- ---------- ----------
Cash at End of Year............................. $1,839,272 $ 527,161 $1,776,722 484,206 2,477,511
========== ========== ========== ========== ==========
Supplemental Disclosure of Cash Flow
Information:
Taxes Paid...................................... $ 627,773 $ 192,652 $1,446,000 -- --
========== ========== ========== ========== ==========
</TABLE>
(See Notes to Financial Statements)
F-33
<PAGE>
PERRY ELLIS INTERNATIONAL, INC.
NOTES TO FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 1996, 1997, AND 1998
1. DESCRIPTION OF BUSINESS
The Company was incorporated on September 12, 1978 and operates as a
licensor. Its income consists primarily of royalties received from licensees
under licensing agreements. Revenues to a major customer accounted for
approximately 36% in 1997 and 1998.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
UNAUDITED FINANCIAL STATEMENTS
The financial statements as of March 31, 1999 and for the three months
ended March 31, 1998 and 1999 are unaudited. In the opinion of management, the
unaudited financial statements contain all adjustments (consisting only of
normal recurring accruals) necessary for a fair presentation of the balance
sheet and statements of operations, undistributed income and cash flows for such
interim periods presented. The results of operations for the three months ended
March 31, 1999 are not necessarily indicative of the results which may be
expected for the entire fiscal year. The preparation of the 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
financial statements and the reported amounts of revenues and expenses during
the reporting period, Actual results could differ form those estimates.
USE OF ESTIMATES
The preparation of financial statements in conformity with generally
accepted accounting principles requires Management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosures of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
FINANCIAL INSTRUMENTS
The Company's financial instruments include cash, receivables and
payables, for which carrying amounts approximate fair value due to the
short-term nature of the instruments.
FIXED ASSETS
Fixed Assets consist of fixtures, equipment and improvements and are
stated at cost.
Depreciation is computed using the straight-line basis over the
estimated useful life of the assets. The useful lives range from five to ten
years.
Maintenance and Repairs are expensed as incurred. Expenditures for
major renewals are capitalized. Upon the sale, replacement or retirement of
assets, the cost and accumulated depreciation or amortization thereon are
removed from the accounts.
F-34
<PAGE>
PERRY ELLIS INTERNATIONAL, INC.
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
YEARS ENDED DECEMBER 31, 1996, 1997, AND 1998
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES--(CONTINUED)
INCOME TAXES
The Company has qualified as a small business ("S") corporation under
the Internal Revenue Code. The federal income tax effect of income and losses is
passed through to the stockholders. Consequently, there is no provision for
federal income taxes in the financial statements. However, the Company is
subject to state and local income taxes in certain taxing districts in which it
does business.
3. CASH BALANCES
<TABLE>
<CAPTION>
1997 1998
-------- ----------
<S> <C> <C>
Cash balances consist of the following:
Cash in Checking and Savings Accounts........... $519,972 $1,559,711
Cash in Pierpont Money Market Accounts.......... 7,189 217,011
-------- ----------
Total........................................... $527,161 $1,776,722
======== ==========
</TABLE>
4. DUE FROM LICENSEES
The balance due from licensees in the amount of $944,885 represents
charges of advertising and other expenses advanced for the account of the
individual licensees of the Company.
5. PREPAID EXPENSES
The prepaid expense balance consists of the following:
<TABLE>
<CAPTION>
1997 1998
---------- ----------
<S> <C> <C>
The prepaid expense balance consist of the following:
Deposit for Advertising Campaign............................ $ 197,785 $ 75,718
Deposit Paid for Photoshoots................................ 424,441 444,365
Deposit for Outdoor Systems Billboard....................... -0- 20,486
Deposit for Trade Shows..................................... 116,592 -0-
Other Expenses.............................................. 19,353 2,814
---------- ----------
Total....................................................... $ 758,171 $543,383
========== ==========
</TABLE>
6. PROPERTY AND EQUIPMENT
<TABLE>
<CAPTION>
1997 1998
---------- ----------
<S> <C> <C>
Property and equipment balances consist of the following:
Furniture, fixtures and equipment........................... $420,329 $437,763
Leasehold improvements...................................... 1,575,488 1,579,195
---------- ----------
1,995,817 2,016,958
Less: accumulated depreciation and amortization............ (647,380) (875,444)
---------- ----------
Total....................................................... $1,348,437 $1,141,514
========== ==========
</TABLE>
F-35
<PAGE>
PERRY ELLIS INTERNATIONAL, INC.
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
YEARS ENDED DECEMBER 31, 1996, 1997, AND 1998
7. ACCRUED PAYROLL
Accrued Payroll consists of incentive bonuses earned by executives
during the calendar year and payable in the following year.
8. PENSION PLAN
The Company has a Money Purchase and Profit Sharing Plan in effect. All
employees are eligible to participate in both plans upon the completion of one
year of service and reaching the age of 21. The Company is required to
contribute 10% of the compensation of all participants to the Money Purchase
Pension Plan on an annual basis. There is no contribution requirement for the
Profit Sharing Plan. Employees are not required to contribute to either plan.
The contributions for the calendar year 1997 aggregated $127,066 and
for 1998, $66,265.
9. RENTS
The Company leases its executive and design offices. As at December 31,
1998, total minimum rentals are approximately as follows:
<TABLE>
<S> <C>
1999................................................ $215,000
2000................................................ 230,000
2001................................................ 246,000
Thereafter.......................................... 78,000
</TABLE>
Rent expense for this lease amounted to approximately $196,000,
$197,000 and $219,000 for the years ended December 31, 1996, 1997 and 1998,
respectively.
10. SUBSEQUENT EVENT
In January 1999, the Company's sole shareholder agreed to sell 100% of
the Company's outstanding common stock to Supreme International Corporation for
approximately $75 million in cash. The sale closed in April 1999.
F-36
<PAGE>
INDEPENDENT AUDITORS' REPORT
To the Board of Directors and Stockholders of Salant Corporation:
We have audited the accompanying statement of net assets to be sold of the John
Henry and Manhattan Business (the "Business"), comprising the licensing
operations of John Henry and Manhattan brands owned by Salant Corporation
("Salant"), as of January 2, 1999 and the related statement revenues, direct
expenses and allocated corporate expenses before interest and domestic income
taxes for the year then ended. These financial statements are the responsibility
of Salant's management. Our responsibility is to express an opinion on these
financial statements base don our audit.
We conducted our audit in accordance with generally accepted auditing standards.
Those standards require that we plan and perform the audit to obtain reasonable
assurance about whether the financial statements are free of material
misstatement. Au audit includes examining, on a test basis, evidence supporting
the amounts an disclosures in the financial statements. An audit also includes
assessing the overall financial statement presentation. We believe that our
audit provides a reasonable basis for our opinion.
As discussed in Note 2 to the financial statements, the Business comprises the
licensing operations of the John Henry and Manhattan brands owned by Salant. The
Business receives managerial, administrative and other support form Salant.
Certain expenses included in the financial statements represent allocated
amounts from Salant. As a result, the Business' net assets to be sold and its
revenues, direct expenses and allocated corporate expenses before interest and
taxes may not be indicative of conditions that would have existed or results
that would have occurred had the Business operated as an unaffiliated entity.
In our opinion, such financial statements present fairly, in all material
respects, the net assets to be sold of the Business as of January 2, 1999, and
its revenues, direct expenses and allocated corporate expenses before interest
and domestic income taxes for the year then ended in conformity with the
generally accepted accounting principles.
/s/ DELOITTE & TOUCHE LLP
New York, New York
June 4, 1999
F-37
<PAGE>
JOHN HENRY AND MANHATTAN BUSINESS
(COMPRISING THE LICENSING OPERATIONS OF
THE JOHN HENRY AND MANHATTAN BRANDS
OWNED BY SALANT CORPORATION)
STATEMENT OF REVENUES, DIRECT EXPENSES AND ALLOCATED CORPORATE
EXPENSES BEFORE INTEREST AND DOMESTIC INCOME TAXES
<TABLE>
<CAPTION>
YEAR ENDED
JANUARY 2, 1999
---------------
<S> <C>
Royalty income.............................................$3,993,405
Salaries and wages......................................... (177,632)
Amortization of trademarks................................. (330,000
Professional fees (260,044)
Other expenses............................................. (144,753)
Allocated expenses......................................... (251,122)
Foreign taxes (Note 2)..................................... (178,998)
Other income, net.......................................... 17,228
----------
Income before interest and domestic income taxes...........$2,668,084
==========
</TABLE>
See Notes to Financial Statements
F-38
<PAGE>
JOHN HENRY AND MANHATTAN BUSINESS
(COMPRISING THE LICENSING OPERATIONS OF
THE JOHN HENRY AND MANHATTAN BRANDS
OWNED BY SALANT CORPORATION)
STATEMENT OF NET ASSETS TO BE SOLD
<TABLE>
<CAPTION>
JANUARY 2, 1999
---------------
<S> <C>
ASSETS
Property and equipment, net (Note 3)................. 1,762,201
Trademarks (Note 4).................................. 9,680,000
Goodwill (Note 4).................................... 15,557,799
-----------
NET ASSETS TO BE SOLD................................$27,000,000
===========
</TABLE>
See Notes to Financial Statements
F-39
<PAGE>
JOHN HENRY AND MANHATTAN BUSINESS
(COMPRISING THE LICENSING OPERATIONS OF
THE JOHN HENRY AND MANHATTAN BRANDS
OWNED BY SALANT CORPORATION)
NOTES TO FINANCIAL STATEMENTS YEAR ENDED JANUARY 2, 1999
NOTE 1. ORGANIZATION AND OPERATIONS
Frost Bros. Enterprises, Inc. ("Frost Bros."), a wholly-owned
subsidiary of Salant Corporation ("Salant"), owns the JOHN HENRY trademark.
Salant owns the LADY MANHATTAN and MANHATTAN trademarks. Salant operated under
the protection of chapter 11 of title 11 of the United States Code in the United
States Bankruptcy Court for the Southern District of New York ("Bankruptcy
Court") for the period of December 29, 1998 through May 11, 1999. The trademarks
have been registered or are pending registration with the United States Patent
and Trademark Office.
Salant has sought to capitalize on the consumer recognition of and
interest in its trademarks by licensing several of those trademarks to others.
As of January 2, 1999 ("Fiscal 1998"), licenses were outstanding to
approximately 19 licensees to make or sell apparel products and accessories in
the United States and to 29 licensees operating in 32 other countries under the
MANHATTAN, LADY MANHATTAN and JOHN HENRY trademarks. Products under license
include men's belts, leather accessories, neckwear, optical frames, outerwear,
pajamas, robes, scarves, shorts, slacks, socks, sport coats, sunglasses,
suspenders and underwear, and women's blouses and tops, gloves, intimate
apparel, lingerie, optical frames and shirts.
Salant sold its John Henry and Manhattan businesses (the "Business")
pursuant to a Purchase and Sale Agreement (subject to and subsequently approved
by the Bankruptcy Court on February 26, 1999) dated December 28, 1998 (the
"Agreement") between Salant and Supreme International Corporation ("Supreme").
The Business includes the JOHN HENRY, MANHATTAN and Lady Manhattan trade names,
the leasehold interest in a dress shirt facility located in Valle Hermosa,
Mexico, and certain equipment located at the Valle Hermosa facility and certain
related equipment at Salant's facility located in Andalusia, Alabama. The cash
purchase price was $27,000,000 and the transaction was closed on March 29, 1999.
NOTE 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
BASIS OF PRESENTATION
The Business is not a "stand-alone" division or subsidiary of Salant
and was not generally accounted for separately. As a result, the distinct and
separate accounts necessary to present an individual balance sheet, income
statement and cash flow statement of the Business as of January 2, 1999 and the
year then ended have not been maintained.
The Business does not maintain its own stand-alone treasury, legal,
financial, information systems and other similar corporate support functions.
For purposes of preparing these financial statements, an allocation (see Note 5)
was made for various expenses and is included in the financial statements.
However, sufficient information is not available to develop a reasonable cost
allocation for income taxes (other than those withheld by foreign licensees) and
interest.
Due to the limitations noted above, the following financial information
is presented: (i) Statement of Net Assets to be Sold - This statement includes
only the net assets of the Business that is being purchased by Supreme; (ii)
Statement of Revenues, Direct Expenses and Allocated Corporate Expenses before
Interest and Domestic Income Taxes - This statement includes all corporate cost
allocations for which a reasonable method of allocating the cost to the
operations can be developed. A Statement of Cash Flows has not been presented as
the Business does not maintain its own cash accounts.
F-40
<PAGE>
JOHN HENRY AND MANHATTAN BUSINESS
(COMPRISING THE LICENSING OPERATIONS OF
THE JOHN HENRY AND MANHATTAN BRANDS
OWNED BY SALANT CORPORATION)
NOTES TO FINANCIAL STATEMENTS YEAR ENDED JANUARY 2, 1999--(CONTINUED)
NOTE 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES--(CONTINUED)
FISCAL YEAR
The Company's fiscal year ends on the Saturday closest to December 31.
Fiscal 1998 comprised of 52 weeks.
PROPERTY AND EQUIPMENT
Property and equipment are stated at cost and are depreciated or
amortized over their estimated useful lives, or for leasehold improvements, the
lease term, if shorter. Depreciation and amortization are computed principally
by the straight-line method for financial reporting purposes.
The annual depreciation rates are as follows:
<TABLE>
<S> <C>
Machinery, equipment and autos.................. 6.7% - 33.3%
Furniture and fixtures.......................... 10.0% - 33.3%
Leasehold improvements.......................... Shorter of the life of the
asset or the lease term
</TABLE>
INTANGIBLES
Trademarks and goodwill are amortized on a straight-line basis over
their useful lives of 40 years. In evaluating the value and future benefits of
these intangible assets, their carrying value would be reduced by the excess, if
any, of the intangibles over management's best estimate of undiscounted future
operating income before amortization of the related intangible asset over the
remaining amortization period. If an impairment existed, the carrying value
would be reduced to the value of its discounted cash flows.
FOREIGN TAXES
Foreign tax expense represents the withholdings by foreign licensees
for taxes due in the country in which the royalties are earned. No allocation
has been made for domestic income taxes.
REVENUE RECOGNITION
Royalty income is recognized at the time the royalty is earned.
USE OF ESTIMATES
The preparation of the financial statements in conformity with generally
accepted accounting principles requires management to make certain estimates and
assumptions that effect the amounts of
F-41
<PAGE>
JOHN HENRY AND MANHATTAN BUSINESS
(COMPRISING THE LICENSING OPERATIONS OF
THE JOHN HENRY AND MANHATTAN BRANDS
OWNED BY SALANT CORPORATION)
NOTES TO FINANCIAL STATEMENTS YEAR ENDED JANUARY 2, 1999--(CONTINUED)
NOTE 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES--(CONTINUED)
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 3. PROPERTY AND EQUIPMENT
<TABLE>
<CAPTION>
JANUARY 2, 1999
---------------
<S> <C>
Machinery, equipment, furniture and fixtures................... 4,152,505
Leasehold improvements......................................... 87,829
----------
4,240,334
Less accumulated depreciation and amortization................. 2,478,133
----------
$1,762,201
==========
</TABLE>
Pursuant to the Agreement, assets to be sold were transferred from
other operating divisions to the Statement of Net Assets to be Sold as of
January 2, 1999. As the manufacturing operations have been discontinued, no
depreciation expense is included in the accompanying financial statements.
NOTE 4. TRADEMARKS AND GOODWILL
Trademarks consist of the JOHN HENRY, MANHATTAN and LADY MANHATTAN
names that were acquired in Salant's 1988 purchase of Manhattan Industries. At
January 2, 1999, the net book value of the trademarks was $9,680,000, which was
net of accumulated amortization of $3,520,000. Amortization expense for
trademarks for Fiscal 1998 was $330,000. Goodwill arose from the acquisition, in
1988, of the Dress Shirt and the Accessories divisions of Manhattan Industries,
which used the trademarks in the manufacture and sale of products bearing the
trademark names. As the manufacturing operations have been discontinued, no
amortization of goodwill is included in the accompanying financial statements.
As of January 2, 1999, goodwill had a carrying value of $15,557,799, net of
accumulated amortization of $25,323,201.
NOTE 5. ALLOCATIONS
The Business does not maintain stand-alone treasury, legal, financial,
information systems and other similar corporate support functions. The Business
does record certain expenses related to employee payroll and benefits,
professional fees and advertising. For purposes of preparing the financial
information for the Business, certain Salant expenses were allocated based upon
various factors such as square footage, revenues and the identification of costs
specifically attributable to the Business.
Management believes that these allocations are based on assumptions
that are reasonable under the circumstances. However, the Business' net assets
to be sold and the results of revenues, direct expenses and allocated corporate
expenses before interest and domestic taxes may not be indicative of conditions
that would have existed or results that would have occurred had the Business
operated as an unaffiliated entity.
F-42
<PAGE>
================================================================================
PERRY ELLIS INTERNATIONAL, INC.
$5,000,000 SUBORDINATED NOTES DUE 2006
-------------------------------
PROSPECTUS
-------------------------------
October __, 1999
================================================================================
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 14: OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION.
The Registrant estimates that expenses payable by the Registrant in
connection with the offering described in this registration statement (other
than underwriting discounts and commissions) will be as follows:
<TABLE>
<S> <C>
Securities and Exchange Commission registration fee......$ 1,390
Printing and engraving expenses*...........................5,000
Accounting fees and expenses*..............................5,000
Legal fees and expenses*..................................25,000
Transfer Agent's fees and expenses*........................2,500
Miscellaneous*............................................ 1,110
-------
TOTAL..................................................$40,000
=======
</TABLE>
- --------------------
*Estimated
ITEM 15: INDEMNIFICATION OF DIRECTORS AND OFFICERS.
The Registrant has authority under Section 607.0850 of the Florida
Business Corporation Act to indemnify its directors and officers to the extent
provided for in such statute. The Registrant's Second Amended and Restated
Articles of Incorporation and Bylaws provide that the Registrant may insure,
shall indemnify and shall advance expenses on behalf of its officers and
directors to the fullest extent not prohibited by law. The Registrant is also a
party to indemnification agreements with each of its directors and executive
officers.
ITEM 16: EXHIBITS AND FINANCIAL STATEMENT SCHEDULES.
(A) EXHIBITS
EXHIBIT NO. DESCRIPTION OF EXHIBIT
- ------------------- --------------------------------------------------------
4.1 Form of Common Stock Certificate(1)
4.2 Indenture, dated April 6, 1999 between the Company and
State Street Bank and Trust Company
as amended(11)
4.3 Registration rights agreement dated March 31, 1999 by
and among the Company and Supreme Munsingwear Canada,
Inc., Supreme International (Delaware), Inc., Supreme
Acquisition Corporation, Supreme International (N.Y.),
Inc., Supreme International Corporation de Mexico, SA de
C.V. and Merrill Lynch & Co., Merrill Lynch, Pierce,
Fenner & Smith Incorporated, BancBoston Robertson
Stephens Inc., Wasserstein Perella Securities, Inc. and
Barington Capital Group, L.P. (the "Initial
Purchasers")(11)
4.4 Purchase Agreement, dated March 31, 1999 by and among
the Company and the Initial
Purchasers(11)
4.5 Specimen Forms of 12-1/4% Senior Subordinated Notes Due
2006(11)
5.1 Opinion of Broad and Cassel(12)
II-1
<PAGE>
EXHIBIT NO. DESCRIPTION OF EXHIBIT
- ------------------- --------------------------------------------------------
10.3 Form of Indemnification Agreement between the Registrant
and each of the registrant's Directors and Officers(1)
10.6 Business Lease dated October 4, 1990, between George
Feldenkreis and the Registrant relating to warehouse
facilities(1)
10.7 Business Lease dated May 1, 1990, between George
Feldenkreis and the Registrant relating to warehouse
facilities(1)
10.9 1993 Stock Option Plan, as amended(1)(2)
10.10 Director Stock Option(1)(2)
10.15 Loan and Security Agreement dated as of October 5, 1994,
between the Registrant and NationsBank (1)
10.16 First Amendment to Loan and Security Agreement dated as
of August 19, 1995, between the Registrant and
NationsBank of Georgia, N.A.(4)
10.17 Amendment to Business Lease between George Feldenkreis
and the Registrant relating to office facilities(4)
10.18 Revocable Credit Facility Agreement dated May 26, 1995
between the Registrant and Hamilton Bank, N.A.(4)
10.19 Revolving Line of Credit Agreement dated June 23, 1995
between the Registrant and Ocean Bank(4)
10.20 Profit Sharing Plan(2)(4)
10.21 Amended and Restated Employment Agreement between the
Registrant and George Feldenkreis(2)(4)
10.22 Amended and Restated Employment Agreement between the
Registrant and Oscar Feldenkreis(2)(4)
10.23 Business Lease dated December 26, 1995 between George
Feldenkreis and the Registrant relating to office
facilities(5)
10.24 Lease Agreement [Land] dated as of August 28, 1997
between SUP Joint Venture, as Lessor and Registrant, as
Lessee(6)
10.25 Lease Agreement [Building] dated as of August 28, 1997
between SUP Joint Venture, as Lessor and Registrant, as
Lessee(6)
10.26 Amended and Restated Loan and Security Agreement dated
as of March 31, 1998(6)
10.27 Amendment to Amended and Restated Loan and Security
Agreement dated as of August 1, 1998(7)
10.28 Purchase and Sale Agreement dated as of December 28,
1998 among Salant Corporation, Frost Bros. Enterprises,
Inc., Maquiladora Sur, S.A. de C.V. and the Company (the
"Salant Purchase and Sale Agreement")(8)
10.29 First Amendment to the Salant Purchase and Sale
Agreement dated as of February 24, 1999(8)
10.30 Amended and Restated Loan and Security Agreement dated
as of March 26, 1999(8)
10.31 Inventory Purchase Agreement dated March 12, 1999
between the Company and Phillips-Van Heusen
Corporation(8)
10.32 Stock Purchase Agreement dated as of January 28, 1999 by
and among the Company and Christopher C. Angell, Barbara
Gallagher and Morgan Guaranty Trust Company of New York,
as Trustees of the PEI Trust created under Par. E. of
Article 3 of the Agreement dated November 19, 1985, as
amended January 27, 1986 (the "Perry Ellis Purchase and
Sale Agreement")(9)
10.33 First Amendment to the Perry Ellis Purchase and Sale
Agreement dated as of March 31, 1999(9)
10.34 Employment Agreement between Allan Zwerner and the
Company(2)(11)
10.35 Employment Agreement between Neil S. Nackman and the
Company(2)(11)
10.36 First Amendment to Amended and Restated Loan and
Security Agreement dated as of August 12, 1999(12)
12.1 Computation of Ratio of Earnings to Fixed Charges(12)
23.1 Consent of Broad and Cassel (included in its opinion
filed as Exhibit 5.1)
II-2
<PAGE>
EXHIBIT NO. DESCRIPTION OF EXHIBIT
- ------------------- --------------------------------------------------------
23.2 Consent of Deloitte & Touche LLP(12)
23.3 Consent of Saul L. Klaw & Co. P.C.(12)
23.4 Consent of Deloitte & Touche LLP(12)
24.1 Reference is made to the Signatures section of this
Registrant Statement for the Powers of Attorney
contained therein(12)
- ---------------------
(1) Previously filed as an Exhibit of the same number to Registrant's
Registration Statement on Form S-1 (File No. 33-60750) and incorporated
herein by reference.
(2) Management Contract or Compensation Plan
(3) Previously filed as an Exhibit of the same number to Registrant's
Annual Report on Form 10-K for the year ended January 31, 1995 and
incorporated herein by reference.
(4) Previously filed as an Exhibit of the same number to Reigstrant's
Registration Statement on Form S-1 (File No. 33-96304) and incorporated
herein by reference.
(5) Previously filed as an exhibit of the same number to Registrant's
Annual Report on Form 10-K for the year ended January 31, 1996 and
incorporated herein by reference.
(6) Previously filed as an exhibit of the same number to Registrant's
Annual Report on Form 10-K for the year ended January 31, 1998 and
incorporated herein by reference.
(7) Previously filed as an Exhibit of the same number to Registrant's
Annual Report on Form 10-K for the year ended January 31, 1999 and
incorporated herein by reference.
(8) Previously filed as an Exhibit to Registrant's Current Report on Form
8-K dated March 29, 1999, as amended and incorporated herein by
reference.
(9) Previously filed as an Exhibit to Registrant's Current Report on Form
8-K dated April 6, 1999, as amended and incorporated herein by
reference.
(10) Previously filed as an Exhibit to Registrant's Quarterly Report on Form
10-Q for the quarter ended April 30, 1999 and incorporated herein by
reference.
(11) Previously filed as an Exhibit to Registrant's Registration Statement
on Form S-4 (File No. 333-78427) dated May 14, 1999, as amended and
incorporated herein by reference.
(12) Filed herewith.
(B) FINANCIAL STATEMENT SCHEDULES
Schedules for which provision is made in the applicable accounting
regulations of the Commission are not required under the related instructions or
are not applicable, and therefore have been omitted.
ITEM 17: UNDERTAKINGS
The Registrant undertakes:
(1) To file, during any period in which it offers or sells securities, a
post-effective amendment to this Registration Statement to:
(i) Include any prospectus required by Section 10(a)(3) of the
Securities Act;
(ii) Reflect in the prospectus any facts or events which,
individually or together, represent a fundamental change in
the information in the Registration Statement. Notwithstanding
the foregoing, any increase or decrease in volume of
securities offered (if the total dollar value of securities
offered would not exceed that which was registered) and any
deviation from the low or high end of the estimated maximum
offering range may be reflected in the form of prospectus
filed with this Commission pursuant to Rule 424(b) if, in the
aggregate, the changes in volumes and price represent no more
than a 20% change in the maximum aggregate offering price set
forth in the "Calculation of Registration Fee" table in the
effective registration statement; and
II-3
<PAGE>
(iii) Include any additional or changed material information on the
plan of distribution.
(2) For determining liability under the Securities Act, treat each
post-effective amendment as a new registration statement of the
securities offered, and the offering of the securities at that time to
be the initial bona fide offering.
(3) To file a post-effective amendment to remove from registration any of
the securities that remain unsold at the end of the offering.
(4) To provide to the Underwriters at the closing specified in the
Underwriting Agreement certificates in such denominations and
registered in such names as required by the Underwriters to permit
prompt delivery to each purchaser.
(5) Insofar as indemnification for liabilities arising under the Securities
Act may be permitted to directors, officers and controlling persons of
the Registrant pursuant to the foregoing provisions, or otherwise, the
Registrant has been advised that, in the opinion of the Securities and
Exchange Commission, such indemnification is against public policy as
expressed in the Securities Act and is, therefore, unenforceable. In
the event that a claim for indemnification against such liabilities
(other than the payment by the Registrant of expenses incurred or paid
by a director, officer or controlling person of the Registrant in the
successful defense or any action, suit or proceeding) is asserted by
such director, officer or controlling person in connection with the
securities being registered, the Registrant will, unless in the opinion
of its counsel the matter has been settled by controlling precedent,
submit to a court of appropriate jurisdiction the question whether such
indemnification by it is against public policy as expressed in the
Securities Act and will be governed by the final adjudication of such
issue.
(6) For purposes of determining any liability under the Securities Act, the
information omitted from the form of prospectus filed as part of this
registration statement in reliance upon Rule 430A and contained in a
form of prospectus filed by the registrant pursuant to Rule 424(b)(1)
or (4) or 497(h) under the Securities Act shall be deemed to be part of
this registration statement as of the time it was declared effective.
(7) For the purpose of determining any liability under the Securities Act,
each post-effective amendment that contains a form of prospectus shall
be deemed to be a new registration statement relating to the securities
offered therein, and the offering of such securities at that time shall
be deemed to be the initial bona fide offering thereof.
II-4
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, as amended,
the Registrant has duly caused this Registration Statement to be signed on its
behalf by the undersigned, thereto duly authorized, in the City of Miami, State
of Florida, on October 11, 1999.
PERRY ELLIS INTERNATIONAL, INC.
By: /S/ GEORGE FELDENKREIS
---------------------------------------------
George Feldenkreis, Chairman of the Board and
Chief Executive Officer
POWER OF ATTORNEY
Each person whose signature appears below constitutes and appoints
George Feldenkreis and Oscar Feldenkreis or any one of them, as his or her true
and lawful attorneys-in-fact and agents with full power of substitution and
resubstitution for him or her and in his or her name, place and stead in any and
all capacities to execute in the name of each such person who is then an officer
or director of the Registrant any and all amendments (including post-effective
amendments) to this Registration Statement, and any registration statement
relating to the offering hereunder pursuant to Rule 462 under the Securities Act
of 1933, as amended, and to file the same with all exhibits thereto and other
documents in connection therewith with the Securities and Exchange Commission,
granting unto said attorneys-in-fact and agents and each of them full power and
authority to do and perform each and every act and thing required or necessary
to be done in and about the premises as fully as he or she might or could do in
person, hereby ratifying and confirming all that said attorneys-in-fact and
agents, or any of them, or their or his substitute or substitutes, may lawfully
do or cause to be done by virtue thereof.
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed by the following persons in the
capacities and on the date indicated.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<S> <C> <C>
/S/ GEORGE FELDENKREIS Chairman of the Board and Chief Executive Officer October 11, 1999
- ----------------------------------- (Principal Executive Officer)
George Feldenkreis
/S/ OSCAR FELDENKREIS President, Chief Operations Officer October 11, 1999
- ----------------------------------- And Director
Oscar Feldenkreis
/S/ NEIL S. NACKMAN Chief Financial Officer October 11, 1999
- ----------------------------------- (Principal Financial and Accounting Officer)
Neil S. Nackman
/S/ ALLAN ZWERNER Director October 11, 1999
- ----------------------------------
Allan Zwerner
</TABLE>
II-5
<PAGE>
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<S> <C> <C>
/S/ RONALD BUCH Director October 11, 1999
- ----------------------------------
Ronald Buch
/S/ GARY DIX Director October 11, 1999
- ----------------------------------
Gary Dix
/S/ JOSEPH P. LACHER Director October 11, 1999
- ----------------------------------
Joseph P. Lacher
/S/ SALOMON HANONO Director October 11, 1999
- ----------------------------------
Salomon Hanono
/S/ RICHARD MCEWEN Director October 11, 1999
- ----------------------------------
Richard McEwen
/S/ LEONARD MILLER Director October 11, 1999
- ----------------------------------
Leonard Miller
</TABLE>
II-6
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, as amended,
the Registrant has duly caused this Registration Statement to be signed on its
behalf by the undersigned, thereto duly authorized, in the City of Miami, State
of Florida, on October 11, 1999.
SUPREME ACQUISITION CORPORATION
By: /S/ OSCAR FELDENKREIS
-----------------------------------------
Oscar Feldenkreis, President and Director
POWER OF ATTORNEY
Each person whose signature appears below constitutes and appoints
George Feldenkreis and Oscar Feldenkreis or any one of them, as his or her true
and lawful attorneys-in-fact and agents with full power of substitution and
resubstitution for him or her and in his or her name, place and stead in any and
all capacities to execute in the name of each such person who is then an officer
or director of the Registrant any and all amendments (including post-effective
amendments) to this Registration Statement, and any registration statement
relating to the offering hereunder pursuant to Rule 462 under the Securities Act
of 1933, as amended, and to file the same with all exhibits thereto and other
documents in connection therewith with the Securities and Exchange Commission,
granting unto said attorneys-in-fact and agents and each of them full power and
authority to do and perform each and every act and thing required or necessary
to be done in and about the premises as fully as he or she might or could do in
person, hereby ratifying and confirming all that said attorneys-in-fact and
agents, or any of them, or their or his substitute or substitutes, may lawfully
do or cause to be done by virtue thereof.
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed by the following persons in the
capacities and on the date indicated.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<S> <C> <C>
/S/ OSCAR FELDENKREIS President and Director October 11, 1999
- ----------------------------------- (Principal Executive, Financial and
Oscar Feldenkreis Accounting Officer)
/S/ GEORGE FELDENKREIS Vice President and Director October 11, 1999
- -----------------------------------
George Feldenkreis
/S/ ROSEMARY TRUDEAU Secretary and Treasurer October 11, 1999
- ----------------------------------
Rosemary Trudeau
</TABLE>
II-7
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, as amended,
the Registrant has duly caused this Registration Statement to be signed on its
behalf by the undersigned, thereto duly authorized, in the City of Miami, State
of Florida, on October 11, 1999.
EACH OF THE GUARANTORS
NAMED ON SCHEDULE A-1 HERETO
By: /S/ GEORGE FELDENKREIS
------------------------------------------
George Feldenkreis, President and Director
POWER OF ATTORNEY
Each person whose signature appears below constitutes and appoints
George Feldenkreis and Oscar Feldenkreis or any one of them, as his or her true
and lawful attorneys-in-fact and agents with full power of substitution and
resubstitution for him or her and in his or her name, place and stead in any and
all capacities to execute in the name of each such person who is then an officer
or director of the Registrant any and all amendments (including post-effective
amendments) to this Registration Statement, and any registration statement
relating to the offering hereunder pursuant to Rule 462 under the Securities Act
of 1933, as amended, and to file the same with all exhibits thereto and other
documents in connection therewith with the Securities and Exchange Commission,
granting unto said attorneys-in-fact and agents and each of them full power and
authority to do and perform each and every act and thing required or necessary
to be done in and about the premises as fully as he or she might or could do in
person, hereby ratifying and confirming all that said attorneys-in-fact and
agents, or any of them, or their or his substitute or substitutes, may lawfully
do or cause to be done by virtue thereof.
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed by the following persons in the
capacities and on the date indicated.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<S> <C> <C>
/S/ GEORGE FELDENKREIS President and Director October 11, 1999
- ----------------------------------- (Principal Executive, Financial and
George Feldenkreis Accounting Officer)
/S/ OSCAR FELDENKREIS Vice President, and Director October 11, 1999
- -----------------------------------
Oscar Feldenkreis
/S/ ROSEMARY TRUDEAU Secretary and Treasurer October 11, 1999
- -----------------------------------
Rosemary Trudeau
</TABLE>
II-8
<PAGE>
SCHEDULE A-1
Supreme International (N.Y.), Inc.
Supreme International (Delaware), Inc.
II-9
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, as amended,
the Registrant has duly caused this Registration Statement to be signed on its
behalf by the undersigned, thereto duly authorized, in the City of Miami, State
of Florida, on October 11, 1999.
SUPREME MUNSINGWEAR CANADA INC.
By: /S/ LEONARD BLACK
--------------------------------------
Leonard Black, President and Director
POWER OF ATTORNEY
Each person whose signature appears below constitutes and appoints
George Feldenkreis and Oscar Feldenkreis or any one of them, as his or her true
and lawful attorneys-in-fact and agents with full power of substitution and
resubstitution for him or her and in his or her name, place and stead in any and
all capacities to execute in the name of each such person who is then an officer
or director of the Registrant any and all amendments (including post-effective
amendments) to this Registration Statement, and any registration statement
relating to the offering hereunder pursuant to Rule 462 under the Securities Act
of 1933, as amended, and to file the same with all exhibits thereto and other
documents in connection therewith with the Securities and Exchange Commission,
granting unto said attorneys-in-fact and agents and each of them full power and
authority to do and perform each and every act and thing required or necessary
to be done in and about the premises as fully as he or she might or could do in
person, hereby ratifying and confirming all that said attorneys-in-fact and
agents, or any of them, or their or his substitute or substitutes, may lawfully
do or cause to be done by virtue thereof.
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed by the following persons in the
capacities and on the date indicated.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<S> <C> <C>
/S/ LEONARD MILLER President October 11, 1999
- ----------------------------------- (Principal Executive, Financial and
Leonard Miller Accounting Officer)
/S/ GEORGE FELDENKREIS Vice President October 11, 1999
- -----------------------------------
George Feldenkreis
/S/ OSCAR FELDENKREIS Vice President October 11, 1999
- -----------------------------------
Oscar Feldenkreis
/S/ FANNY HANONO Vice President October 11, 1999
- -----------------------------------
Fanny Hanono
/S/ ROSEMARY TRUDEAU Secretary and Treasurer October 11, 1999
- -----------------------------------
Rosemary Trudeau
</TABLE>
II-10
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, as amended,
the Registrant has duly caused this Registration Statement to be signed on its
behalf by the undersigned, thereto duly authorized, in the City of Miami, State
of Florida, on October 11, 1999.
SUPREME INTERNATIONAL CORPORATION DE MEXICO, S.A. DE C.V.
By: /S/ ROSEMARY TRUDEAU
----------------------------------------------------
Rosemary Trudeau, President and Director
POWER OF ATTORNEY
Each person whose signature appears below constitutes and appoints
Rosemary Trudeau and Randall Riccardo or any one of them, as his or her true and
lawful attorneys-in-fact and agents with full power of substitution and
resubstitution for him or her and in his or her name, place and stead in any and
all capacities to execute in the name of each such person who is then an officer
or director of the Registrant any and all amendments (including post-effective
amendments) to this Registration Statement, and any registration statement
relating to the offering hereunder pursuant to Rule 462 under the Securities Act
of 1933, as amended, and to file the same with all exhibits thereto and other
documents in connection therewith with the Securities and Exchange Commission,
granting unto said attorneys-in-fact and agents and each of them full power and
authority to do and perform each and every act and thing required or necessary
to be done in and about the premises as fully as he or she might or could do in
person, hereby ratifying and confirming all that said attorneys-in-fact and
agents, or any of them, or their or his substitute or substitutes, may lawfully
do or cause to be done by virtue thereof.
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed by the following persons in the
capacities and on the date indicated.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<S> <C> <C>
/S/ ROSEMARY TRUDEAU President and Director October 11, 1999
- ----------------------------------- (Principal Executive, Financial and
Rosemary Trudeau Accounting Officer)
/S/ JOSEPH ROISMAN Secretary and Director October 11, 1999
- -----------------------------------
Joseph Roisman
/S/ RANDALL RICCARDO Treasurer and Director October 11, 1999
- -----------------------------------
Randall Riccardo
</TABLE>
II-11
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, as amended,
the Registrant has duly caused this Registration Statement to be signed on its
behalf by the undersigned, thereto duly authorized, in the City of Miami, State
of Florida, on October 11, 1999.
PERRY ELLIS INTERNATIONAL LICENSING CORP.
By: /S/ ALLAN ZWERNER
------------------------------------
Allan Zwerner, President
POWER OF ATTORNEY
Each person whose signature appears below constitutes and appoints
George Feldenkreis and Oscar Feldenkreis or any one of them, as his or her true
and lawful attorneys-in-fact and agents with full power of substitution and
resubstitution for him or her and in his or her name, place and stead in any and
all capacities to execute in the name of each such person who is then an officer
or director of the Registrant any and all amendments (including post-effective
amendments) to this Registration Statement, and any registration statement
relating to the offering hereunder pursuant to Rule 462 under the Securities Act
of 1933, as amended, and to file the same with all exhibits thereto and other
documents in connection therewith with the Securities and Exchange Commission,
granting unto said attorneys-in-fact and agents and each of them full power and
authority to do and perform each and every act and thing required or necessary
to be done in and about the premises as fully as he or she might or could do in
person, hereby ratifying and confirming all that said attorneys-in-fact and
agents, or any of them, or their or his substitute or substitutes, may lawfully
do or cause to be done by virtue thereof.
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed by the following persons in the
capacities and on the date indicated.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<S> <C> <C>
/S/ ALLAN ZWERNER President October 11, 1999
- ------------------------------------ (Principal Executive, Financial and
Allan Zwerner Accounting Officer)
/S/ OSCAR FELDENKREIS Vice President and Director October 11, 1999
- -----------------------------------
Oscar Feldenkreis
/S/ GEORGE FELDENKREIS Vice President and Director October 11, 1999
- -----------------------------------
George Feldenkreis
/S/ ROSEMARY TRUDEAU Secretary and Treasurer October 11, 1999
- ----------------------------------
Rosemary Trudeau
</TABLE>
II-12
<PAGE>
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
EXHIBIT NO. DESCRIPTION OF EXHIBIT
- ------------------- ---------------------------------------------------------------------------------------------
<S> <C>
5.1 Opinion of Broad and Cassel
10.36 First Amendment to Amended and Restated Loan and Security Agreement dated as of August 12,
1999
23.2 Consent of Deloitte & Touche LLP
23.3 Consent of Saul L. Klaw & Co. P.C.
23.4 Consent of Deloitte & Touche, LLP
</TABLE>
EXHIBIT 5.1
BROAD AND CASSEL
ATTORNEYS AT LAW
BOCA RATON o FT. LAUDERDALE o MIAMI o ORLANDO o TALLAHASSEE o TAMPA o WEST PALM
BEACH
SUITE 3000
MIAMI CENTER
201 SOUTH BISCAYNE BOULEVARD
MIAMI, FLORIDA 33131
(305) 373-9400
FAX (305) 373-9443
October 11, 1999
Perry Ellis International, Inc.
3000 N.W. 107th Avenue
Miami, Florida 33172
Re: REGISTRATION OF 12 1/4% SERIES A SENIOR SUBORDINATED NOTES DUE 2006
Ladies and Gentlemen:
Reference is made to that certain Registration Statement on Form S-2
(the "Registration Statement") under the Securities Act of 1933, as amended (the
"Securities Act"), filed by Perry Ellis International, Inc., a Florida
corporation (the "Company"), on the date hereof with the Securities and Exchange
Commission. The Registration Statement relates to the Company's registration of
its Series A 12 1/4% Senior Subordinated Notes due 2006 (the "Notes"). We have
acted as special counsel to the Company in connection with the preparation and
filing of the Registration Statement.
For purposes of this opinion letter, we have examined and relied upon
copies of: (i) the Company's Amended and Restated Articles of Incorporation and
Bylaws; (ii) resolutions of the Company's Board of Directors authorizing the
filing of the Registration Statement and related matters; (iii) the Registration
Statement and exhibits thereto; and (iv) such other documents and instruments as
we have deemed necessary for the expression of opinions herein contained. In
making the foregoing examination, we have assumed the genuineness of all
signatures and authenticity while documents admitted to us as originals, and the
conformity to original documents of all documents submitted to us as certified
photostatic copies. As to various questions of material fact to this opinion, we
have relied, to the extent we deem reasonably appropriate, upon representations
or certificates of officers or directors of the Company and upon documents,
records and instruments furnished to us by the Company, without independently
checking or verifying the accuracy of such documents, records and instruments.
Based on the foregoing examination, we are in opinion that the Notes have been
duly and validly authorized and, are validly issued, fully paid and binding
obligations of the Company, subject to no further assessments.
<PAGE>
Perry Ellis International, Inc.
October 11, 1999
Page 2
This opinion has been prepared and is to be construed in accordance with
the Report on Standards for Florida Opinions, dated April 8, 1991, as amended
and supplemented, issued by the Business Law Section of The Florida Bar (the
"Report"). The Report is incorporated by reference into this opinion.
We hereby consent to the filing of this opinion as an exhibit to the
Registration Statement and to the reference to our name under the caption "Legal
Matters" in the Prospectus comprising a part of the Registration Statement. In
giving such consent, we do not thereby admit that we are included within the
category of persons whose consent is required under Section 7 of the Securities
Act or the rules and regulations promulgated thereunder.
Sincerely,
BROAD AND CASSEL
BROAD AND CASSEL
EXHIBIT 10.36
FIRST AMENDMENT TO AMENDED AND RESTATED
LOAN AND SECURITY AGREEMENT
THIS FIRST AMENDMENT TO Amended and Restated Loan and Security
Agreement (the "Amendment") is made and entered into effective as of the 12th
day of August, 1999, by and among BANK OF AMERICA, N.A., formerly NationsBank,
N.A., as agent for the financial institutions party to the Loan Agreement (as
hereafter defined) from time to time (the "Agent"), the financial institutions
party to the Loan Agreement from time to time (the "Lenders"), PERRY ELLIS
INTERNATIONAL, INC., a Florida corporation, formerly known as Supreme
International Corporation, and PERRY ELLIS INTERNATIONAL LICENSING CORP., a New
York corporation formerly known as Perry Ellis International, Inc., as borrowers
(the "Borrowers").
W I T N E S S E T H :
WHEREAS, the Agent, the Borrowers and the Lenders are parties to that
certain Amended and Restated Loan and Security Agreement, dated as of March 26,
1999 (as amended from time to time, the "Loan Agreement"), pursuant to which the
Agent and the Lenders have agreed to extend certain loans and financial
accommodations to the Borrowers; and
WHEREAS, the Borrowers, the Agent and the Lenders desire to amend the
Loan Agreement on the terms and conditions contained herein.
NOW, THEREFORE, in consideration of the foregoing premises, and other
good and valuable consideration, the receipt and legal sufficiency of which is
hereby acknowledged, the parties hereto hereby agree as follows:
1. The Loan Agreement is amended by adding the following new definition
of "Grantors" to SECTION 1.1:
"GRANTORS" means the Borrowers and Supreme Canada,
collectively, and "GRANTOR" means each Borrower and Supreme Canada,
individually.
2. The Loan Agreement is amended by deleting the existing definitions
of "Borrowing Base", "Eligible Inventory", "Eligible Receivable", "Fixed
Charges", "License Inventory", "Permitted Investments" and "Private Label
Inventory" set forth in SECTION 1.1 and substituting the following in lieu
thereof:
"BORROWING BASE" means at any time THE LESSER OF (a) the
Revolving Credit Facility minus the Letter of Credit Reserve and (b) an
amount equal to the sum of:
(i) 85% (or such lesser percentage as the Agent may in its
sole and absolute discretion determine from time to time) of the face value of
Eligible Receivables due and owing at such time, PLUS
<PAGE>
(ii) 90% (or such lesser percentage as the Agent may in its
sole and absolute discretion determine from time to time) of the Eligible
Factoring Credit Balances due and owing at such time, PLUS
(iii) THE LESSER OF (A) 60% (or such lesser percentage as the
Agent may in its sole and absolute discretion determine from time to time) of
the lesser of cost (computed on a first-in-first-out basis) and fair market
value of Eligible Inventory at such time, and (B) $30,000,000, MINUS
(iv) the Letter of Credit Reserve and such other reserves as
the Agent may determine from time to time in the exercise of its reasonable
credit judgment.
"ELIGIBLE INVENTORY" means items of Inventory of the Grantors
held for sale in the ordinary course of the business of the Grantors
(but not including packaging or shipping materials or maintenance
supplies) which are deemed by the Agent in the exercise of its sole and
absolute discretion to be eligible for inclusion in the calculation of
the Borrowing Base. Unless otherwise approved in writing by the Agent,
no Inventory shall be deemed to be Eligible Inventory unless it meets
all of the following requirements: (a) such Inventory is owned by a
Grantor, is subject to the Security Interest, which is a first priority
perfected Lien as to such Inventory, and which is subject to no other
Lien whatsoever other than a junior Permitted Lien; (b) such Inventory
consists of finished goods and does not consist of raw materials,
work-in-process, supplies or consigned goods; (c) such Inventory is in
good condition and meets all standards applicable to such goods, their
use or sale imposed by any governmental agency, or department or
division thereof, having regulatory authority over such matters; (d)
such Inventory is currently saleable, at prices approximating at least
the cost thereof, in the normal course of a Grantor's business; (e)
such Inventory is not obsolete or repossessed or used goods taken in
trade, or returned goods not suitable for sale as new Inventory; (f)
such Inventory is located at a location listed on SCHEDULE 7.1(U),
attached hereto; (g) such Inventory is in the possession and control of
a Grantor and not any third party and if located in a warehouse or
other facility leased by a Grantor, the lessor has delivered to the
Agent a waiver and consent in form and substance satisfactory to the
Agent; (h) if such Inventory is Private Label Inventory, it comprises
less than 35% of Eligible Inventory; and (i) if such Inventory is
License Inventory, the Grantors have delivered to the Agent a copy of
the applicable license agreement and, either, such license agreement
shall permit the use of the applicable trademark by the Agent in
connection with the sale of such Inventory by the Agent pursuant to
Article 13, or the Grantors shall deliver to the Agent an agreement
from the licensor (in form reasonably acceptable to the Agent)
consenting to such usage of the applicable trademark.
"ELIGIBLE RECEIVABLE" means the unpaid portion of a Receivable
payable in Dollars (or, in the case of Supreme Canada, Canadian
dollars) to a Grantor net of any returns, discounts, claims, credits,
charges or other allowances, offsets, deductions, counterclaims,
disputes or other defenses and reduced by the aggregate amount of all
reserves, limits and deductions provided for in this definition and
elsewhere in this Agreement which is deemed by the Agent in the
exercise of its sole and absolute discretion to be eligible for
inclusion in the calculation of the Borrowing Base. Unless
2
<PAGE>
otherwise approved in writing by the Agent, no Receivable shall be
deemed an Eligible Receivable unless it meets all of the following
requirements: (a) such Receivable is owned by a Grantor and represents
a complete bona fide transaction which requires no further act under
any circumstances on the part of any Grantor to make such Receivable
payable by the Account Debtor; (b) such Receivable is not unpaid more
than 150 days after the date of the original invoice or past due more
than 90 days after its due date, which shall not be later than 60 days
after the invoice date; (c) such Receivable does not arise out of any
transaction with any Subsidiary, Affiliate, creditor, lessor or
supplier of a Grantor; (d) such Receivable is not owing by an Account
Debtor more than 50% of whose then-existing accounts owing to the
Grantors do not meet the requirements set forth in CLAUSE (B) above;
(e) if the Account Debtor with respect thereto is located outside of
the United States of America, Canada or Puerto Rico, the goods which
gave rise to such Receivable were shipped after receipt by the
applicable Grantor from the Account Debtor of an irrevocable letter of
credit that has been confirmed by a financial institution acceptable to
the Agent and is in form and substance acceptable to the Agent, payable
in the full face amount of the face value of the Receivable in Dollars
at a place of payment located within the United States and has been
duly delivered to the Agent; (f) such Receivable is not subject to the
Assignment of Claims Act of 1940, as amended from time to time, or any
applicable law now or hereafter existing similar in effect thereto, as
determined in the sole discretion of the Agent, or to any provision
prohibiting its assignment or requiring notice of or consent to such
assignment; (g) no Grantor is in material breach of any express or
implied representation or warranty with respect to the goods the sale
of which gave rise to such Receivable; (h) the Account Debtor with
respect to such Receivable is not insolvent or the subject of any
bankruptcy or insolvency proceedings of any kind or of any other
proceeding or action, threatened or pending, which might, in the
Agent's sole judgment, have a materially adverse effect on such Account
Debtor; (i) the goods the sale of which gave rise to such Receivable
were shipped or delivered to the Account Debtor on an absolute sale
basis and not on a bill and hold sale basis, a consignment sale basis,
a guaranteed sale basis, a sale or return basis or on the basis of any
other similar understanding, and such goods have not been returned or
rejected; (j) such Receivable, to the extent that it, when taken
together with all other Receivables owing to the Grantors by such
Account Debtor and its Affiliates, causes the total face amount of all
then-existing accounts owing to the Grantors by such Account Debtor and
its Affiliates to exceed in face amount 20% of the Grantors' total
Eligible Receivables; (k) such Receivable is evidenced by an invoice or
other documentation in form acceptable to the Agent containing only
terms normally offered by the Grantors, and dated the date of shipment;
(l) such Receivable is a valid, legally enforceable obligation of an
Account Debtor with respect thereto and is not subject to any present,
or contingent (and no facts exist which are the basis for any future),
offset, deduction or counterclaim, dispute or other defense on the part
of such Account Debtor; (m) such Receivable is not evidenced by chattel
paper or an instrument of any kind; (n) such Receivable does not arise
from the performance of services, including services under or related
to any warranty obligation of a Grantor or out of service charges by a
Grantor or other fees for the time value of money; and (o) such
Receivable is subject to the Security Interest, which is a first
priority perfected Lien as to such Receivable, and is subject to no
other Lien whatsoever other than a Permitted Lien, and the goods giving
rise to such
3
<PAGE>
Receivable were not, at the time of the sale thereof, subject to any
Lien other than a Permitted Lien.
"FIXED CHARGES" means, for any period, (a) Interest Expense,
plus (b) payments of principal which were made or due with respect to
Indebtedness (other than Revolving Credit Loans), including payments
with respect to Capitalized Leases.
"LICENSE INVENTORY" means Inventory owned by a Grantor bearing
trademarks used pursuant to license agreements between such Grantor and
the owners of such trademarks.
"PERMITTED INVESTMENTS" means: (a) Investments in: (i)
negotiable certificates of deposit, time deposits and banker's
acceptances issued by any Lender or any Affiliate of a Lender or by any
United States bank or trust company having capital, surplus and
undivided profits in excess of $250,000,000, (ii) any direct obligation
of the United States of America or any agency or instrumentality
thereof which has a remaining maturity at the time of purchase of not
more than one year and repurchase agreements relating to the same,
(iii) sales on credit in the ordinary course of business on terms
customary in the industry, and (iv) notes, accepted in the ordinary
course of business, evidencing overdue accounts receivable arising in
the ordinary course of business, (b) other Investments, the net
aggregate amount of which does not at any time exceed $250,000, (c) the
Guaranty of Sunny Industries' obligations permitted under SECTION 12.3,
(d) other Guarantees in an aggregate amount outstanding at any time not
in excess of $1,000,000, provided that prior to the issuance of any
such Guaranty the Borrowers shall provide the Agent with written notice
describing the proposed Guaranty and, if requested by the Agent, a copy
of the proposed Guaranty, and (e) Permitted Acquisitions.
"PRIVATE LABEL INVENTORY" means Inventory owned by a Grantor
bearing private label trademarks pursuant to agreements between such
Grantor and the owners of such private label trademarks.
3. The Loan Agreement is amended by deleting CLAUSE (E) of the
definition of "Permitted Liens" set forth in SECTION 1.1 and substituting the
following in lieu thereof:
(e) Liens of Hamilton Bank, N.A., Ocean Bank, Bank of
Tokyo-Mitsubishi, and other financial institutions, in Inventory
acquired by the Borrowers through letters of credit issued by Hamilton
Bank, N.A., Ocean Bank, Bank of Tokyo-Mitsubishi, or such other
financial institutions, but only if such Lien shall at all times be
confined solely to the tangible asset the purchase price of which was
financed by the letter of credit and the reimbursement obligations
relating to which are secured by such Lien, together with other Liens
of Hamilton Bank, N.A. which are junior to the Security Interest
pursuant to an intercreditor agreement between the Agent and Hamilton
Bank, N.A.;
4. The Loan Agreement is amended by deleting SECTION 5.2(C) and
replacing it with the following:
4
<PAGE>
(c) COMMITMENT FEE. In connection with and as consideration
for the Lenders' commitments hereunder, subject to the terms hereof, to
lend to the Borrowers under the Revolving Credit Facility, the
Borrowers shall pay a fee to the Agent, for the ratable benefit of the
Lenders based on their respective Commitment Percentages, from the
Effective Date until the Termination Date, in an amount equal to, (i)
until such time as the used portion of the Revolving Credit Facility
(taking into account all outstanding Revolving Credit Loans and the
Letter of Credit Reserve) exceeds $47,000,000, 0.25% per annum of the
amount by which $50,000,000 exceeds the used portion of the Revolving
Credit Facility, and (ii) at all times thereafter (whether or not the
used portion of the Revolving Credit Facility exceeds $47,000,000 at
any given time), 0.25% per annum of the average daily unused portion of
the Revolving Credit Facility, in each case payable monthly in arrears
on the first day of each month and on the date of any permanent
reduction in the Revolving Credit Facility.
5. The Loan Agreement is amended by deleting SECTION 5.5 and replacing
it with the following:
Section 5.5 TERMINATION OF AGREEMENT. On the Termination Date,
the Borrowers shall pay to the Agent, for the account of the Lenders,
in same day funds, an amount equal to the aggregate amount of all Loans
outstanding on such date, together with accrued interest thereon, all
fees payable pursuant to SECTION 5.2 accrued from the date last paid
through the effective date of termination, any amounts payable to the
Agent or any Lender pursuant to the other provisions of this Agreement,
including, without limitation, SECTIONS 13.2, 16.2, 16.3 and 16.12, any
and all other Secured Obligations then outstanding, and an amount equal
to the Letter of Credit Reserve to be held by the Agent as Cash
Collateral security for the payment of and to be applied to the payment
of any amounts which may thereafter become due with respect to Letters
of Credit, and provide the Agent and the Lenders with an
indemnification agreement in form and substance satisfactory to the
Agent and the Lenders with respect to returned and dishonored items and
such other matters as the Agent and the Lenders shall require. Upon 60
days prior written notice to the Agent, the Borrowers may terminate
this Agreement prior to the Termination Date in effect at such time,
upon payment of all of the amounts described above and an early
termination fee of (a) $500,000 if such termination occurs on or prior
to March 26, 2000, and (b) $150,000 if such termination occurs at any
time thereafter, PROVIDED that, if this Agreement is terminated and the
Secured Obligations are repaid on or prior to March 26, 2000 from the
proceeds of a public offering of equity securities, such early
termination fee shall be reduced to $150,000.
6. The Loan Agreement is amended by deleting SECTION 7.1(U) and
substituting the following in lieu thereof:
(u) STATUS OF INVENTORY. All Inventory included in any
Borrowing Base Certificate delivered to the Agent pursuant to SECTION
9.14(C) meets the criteria enumerated in the definition of Eligible
Inventory, except as disclosed in such Borrowing Base Certificate or in
a subsequent Borrowing Base Certificate or as otherwise specifically
disclosed in writing to the Agent. All Inventory is in good condition,
meets
5
<PAGE>
all standards imposed by any governmental agency or department or
division thereof having regulatory authority over such goods, their use
or sale, and is currently either usable or saleable in the normal
course of the Grantors' business, except to the extent reserved against
in the financial statements delivered pursuant to ARTICLE 11 or as
disclosed on a Schedule of Inventory delivered to the Agent pursuant to
SECTION 9.14(B). Set forth on SCHEDULE 7.1(U) is the (i) address
(including street, city, county and state) of each facility at which
Inventory is located, (ii) the approximate quantity in Dollars (or
Canadian dollars where applicable) of the Inventory customarily located
at each such facility, and (iii) if the facility is leased or is a
third party warehouse or processor location, the name of the landlord
or such third party warehouseman or processor. All Inventory is located
on the premises set forth on SCHEDULE 7.1(U) or is in transit to one of
such locations, except as otherwise disclosed in writing to the Agent.
No Grantor has located Inventory at premises other than those set forth
on SCHEDULE 7.1(U) at any time during the four month period immediately
preceding the Agreement Date.
7. The Loan Agreement is amended by adding the following new SECTION
8.2(E):
(e) Notwithstanding the foregoing provisions of this Section
or any other provision of this Agreement, in the event the Agent or the
Required Lenders elect to record an assignment of trademarks with
respect to trademarks (and applications therefor) of the Grantors
registered with any Governmental Authority outside of Canada and the
United States of America, the Borrowers shall not be responsible for
the costs and expenses associated therewith unless an Event of Default
then exists.
8. The Loan Agreement is amended by deleting SECTION 9.14 and
substituting the following in lieu thereof:
Section 9.14 INFORMATION AND REPORTS.
(a) SCHEDULE OF RECEIVABLES. The Borrowers' Agent shall
deliver to the Agent (i) on or before the Effective Date, a Schedule of
Receivables as of a date not more than three Business Days prior to the
Effective Date setting forth a detailed aged trial balance of all of
the Grantors' then existing Receivables, specifying the name of and the
balance due from (and any rebate due to) each Account Debtor obligated
on a Receivable so listed, and (ii) no later than 15 days after the end
of each accounting month of the Grantors, a Schedule of Receivables as
of the last Business Day of the Grantors' immediately preceding
accounting month setting forth (A) a detailed aged trial balance of all
the Grantors' then existing Receivables, specifying the name of and the
balance due from (and any rebate due to) each Account Debtor obligated
on a Receivable so listed and (B) a reconciliation to the Schedule of
Receivables delivered in respect of the next preceding accounting
month.
(b) SCHEDULE OF INVENTORY. The Borrowers' Agent shall deliver
to the Agent (i) on or before the Effective Date and no later than the
15th day of each accounting month of the Grantors thereafter a Schedule
of Inventory as of the last Business Day of the immediately preceding
accounting month of the Grantors, itemizing and describing the kind,
type, quantity and location of finished goods Inventory not in transit
and not
6
<PAGE>
located at contractor's locations and the cost thereof and specifying
which Inventory is License Inventory and which is Private Label
Inventory, and (ii) at the Agent's request, within 35 days of the end
of each quarter, a Schedule of Inventory as of the last Business Day of
the immediately preceding quarter of the Grantors, itemizing and
describing the kind, type, quantity and location of all Inventory,
including finished goods Inventory, in-transit Inventory, and Inventory
located at contractor's facilities, and the cost thereof.
(c) BORROWING BASE CERTIFICATE. The Borrowers' Agent shall
deliver to the Agent and the Lenders, not later than the 15th day of
each accounting month of the Grantors, a Borrowing Base Certificate
prepared as of the close of business on the last Business Day of the
immediately preceding accounting month.
(d) LETTER OF CREDIT/BANKER'S ACCEPTANCES REPORTS. The
Borrowers' Agent shall deliver to the Agent no later than 15 days after
the end of each accounting month of the Grantors, a report listing all
letters of credit and banker's acceptances outstanding under their
credit facilities with Hamilton Bank, N.A. and other financial
institutions as of the last Business Day of the immediately preceding
accounting month of the Grantors, and the face amount, maturity date
and beneficiary with respect to such letters of credit and banker's
acceptances.
(e) FACTORING REPORTS. The Borrowers' Agent shall deliver to
the Agent upon the Agent's request copies of all reports of the Factors
relating to their factoring arrangement with the Borrowers.
(f) NOTICE OF DIMINUTION OF VALUE. The Borrowers' Agent shall
give prompt notice to the Agent of any matter or event which has
resulted in, or may result in, the actual or potential diminution in
excess of $150,000 in the value of any of the Collateral or any other
collateral for the Secured Obligations, except for any diminution in
the value of any Receivables or Inventory in the ordinary course of
business which has been appropriately reserved against, as reflected in
the financial statements previously delivered to the Lenders pursuant
to ARTICLE 11.
(g) CERTIFICATION. Each of the schedules delivered to the
Agent and/or the Lenders pursuant to this SECTION 9.14 shall be
certified by the Financial Officer to be true, correct and complete as
of the date indicated thereon.
(h) OTHER INFORMATION. The Agent may, in its discretion, from
time to time require the Borrowers' Agent to deliver the schedules
described in SECTION 9.14(A), (B), (C) and (D) more or less often and
on different schedules than specified in such Section, and the
Borrowers' Agent will comply with such requests. The Borrowers' Agent
shall also furnish to the Agent and each Lender such other information
with respect to the Collateral and any other collateral for the Secured
Obligations as the Agent and each Lender may from time to time
reasonably request, including, without limitation, listings of all
outstanding steamship guaranties and letters of credit, specifically
identifying those for which the issuer is not the consignee.
7
<PAGE>
9. The Loan Agreement is amended by deleting SECTION 10.14.
10. The Loan Agreement is amended by deleting SECTION 12.14 and
substituting the following in lieu thereof:
Section 12.14 MINIMUM AVAILABILITY. Permit Availability to be
less than $3,000,000 at any time.
11. The Loan Agreement is amended by deleting the first sentence of
SECTION 14.1(E) and substituting the following in lieu thereof:
Upon its receipt of an Assignment and Acceptance executed by
an assigning Lender and an Eligible Assignee together with any
Notes subject to such assignment, the fee described in CLAUSE
(VII) of SECTION 14.1(B), and the written consent of the Agent
to such assignment, the Agent shall, if such Assignment and
Acceptance has been completed and is in the form of EXHIBIT C,
(i) accept such Assignment and Acceptance, (ii) record the
information contained therein in the Register, (iii) give
prompt notice thereof to the Lenders and the Borrowers' Agent,
and (iv) promptly deliver a copy of such Assignment and
Acceptance to the Borrowers' Agent.
12. The Loan Agreement is amended by deleting SECTION 16.10(B) and
substituting the following in lieu thereof:
(b) Except as otherwise set forth in this Agreement, without
the prior unanimous written consent of the Lenders,
(i) no amendment, consent or waiver shall affect the
amount or extend the time of the obligation of the Lenders to
make Loans or extend the originally scheduled time or times of
payment of the principal of any Loan or alter the time or
times of payment of interest on any Loan or the amount of the
principal thereof or the rate of interest thereon or the
amount of any commitment fee payable hereunder or permit any
subordination of the principal or interest on such Loan,
permit the subordination of the Security Interests in any
material Collateral or amend the provisions of ARTICLE 13 or
of this SECTION 16.10(B),
(ii) no Guarantor or material Collateral shall be
released by the Agent other than as specifically permitted in
this Agreement,
(iii) no amendment shall be made to the definitions
of "Commitment", "Commitment Percentage", "Eligible Assignee",
"Required Lenders" or "Secured Obligations", or, except to the
extent expressly provided herein, the definition of "Borrowing
Base" shall not be amended, and,
(iv) neither the Agent nor any Lender shall consent
to any amendment to or waiver of the amortization, deferral or
subordination provisions of any instrument or agreement
evidencing or relating to obligations of the Borrowers
8
<PAGE>
that are expressly subordinate to any of the Secured
Obligations if such amendment or waiver would be adverse to
the Lenders in their capacities as Lenders hereunder;
PROVIDED, HOWEVER, that anything herein to the contrary
notwithstanding, the Required Lenders shall have the right to
waive any Default or Event of Default (unless such Default or
Event of Default arises out of a provision of this Agreement
which can only be amended with the unanimous consent of the
Lenders) and the consequences hereunder of such Default or
Event of Default and shall have the right to enter into an
agreement with the Borrowers providing for the forbearance
from the exercise of any remedies provided hereunder or under
the other Loan Documents without waiving any such Default or
Event of Default.
13. The Loan Agreement is amended by deleting SCHEDULE 7.1(U) attached
thereto and replacing it with SCHEDULE 7.1(U) attached to this Amendment.
14. The Loan Agreement is amended by deleting the performance pricing
matrix attached thereto as ANNEX I and replacing it with ANNEX I attached to
this Amendment.
15. The effectiveness of this Amendment shall be conditioned upon the
receipt by the Agent of each of the items described on the Schedule of Closing
Documents attached hereto as EXHIBIT A, all of which shall be in form and
substance satisfactory to the Agent.
16. The Borrowers hereby restate, ratify, and reaffirm each and every
term, condition, representation and warranty heretofore made by them under or in
connection with the execution and delivery of the Loan Agreement, as amended
hereby, and the other Loan Documents, as fully as though such representations
and warranties had been made on the date hereof and with specific reference to
this Amendment.
17. As amended hereby, the Loan Agreement shall be and remain in full
force and effect, and shall constitute the legal, valid, binding and enforceable
obligations of the Borrowers to the Agent and the Lenders.
18. The Borrowers agree to pay on demand all costs and expenses of the
Agent in connection with the preparation, execution, delivery and enforcement of
this Amendment and all other Loan Documents and any other transactions
contemplated hereby, including, without limitation, the fees and out-of-pocket
expenses of legal counsel to the Agent.
19. To induce the Agent and each Lender to enter into this Amendment,
the Borrowers hereby (a) represent and warrant that, as of the date hereof, and
after giving effect to the terms hereof, there exists no Default or Event of
Default, and (b) acknowledge and agree that no right of offset, defense,
counterclaim, claim, causes of action or objection in favor of any Borrower
against the Agent or any Lender exists arising out of or with respect to any of
the Secured Obligations, the Loan Agreement, or any of the other Loan Documents,
or with respect to the administration or funding of the Secured Obligations.
9
<PAGE>
20. The Borrowers agree to take such further action as the Agent or any
Lender shall reasonably request in connection herewith to evidence the
amendments herein contained to the Loan Agreement.
21. This Amendment may be executed in any number of counterparts and by
different parties hereto in separate counterparts, each of which, when so
executed and delivered, shall be deemed to be an original and all of which
counterparts, taken together, shall constitute but one and the same instrument.
22. This Amendment shall be binding upon and inure to the benefit of
the successors and permitted assigns of the parties hereto.
23. This Amendment shall be governed by, and construed in accordance
with, the laws of the State of Georgia, other than its laws respecting choice of
law.
IN WITNESS WHEREOF, the Borrowers, the Agent and each Lender have
caused this Amendment to be duly executed under seal by their authorized
officers in several counterparts, all as of the date first above written.
BORROWERS:
PERRY ELLIS INTERNATIONAL, INC.,
formerly Supreme International Corporation
[CORPORATE SEAL]
By: ROSEMARY B. TRUDEAU
Name: ROSEMARY B. TRUDEAU
Title: VP FINANCE
PERRY ELLIS INTERNATIONAL LICENSING CORP.,
formerly Perry Ellis International, Inc.
[CORPORATE SEAL]
By: ROSEMARY B. TRUDEAU
Name: ROSEMARY B. TRUDEAU
Title: VP FINANCE
10
<PAGE>
LENDERS:
BANK OF AMERICA, N.A.,
formerly NationsBank, N.A.
By: STUART A. HALL
Stuart A. Hall
Vice President
HAMILTON BANK, N.A.
By: VANESSA BRYSON
Name: VANESSA BRYSON
Title: VICE PRESIDENT
AGENT:
BANK OF AMERICA, N.A.,
formerly NationsBank, N.A.
By: STUART A. HALL
Stuart A. Hall
Vice President
11
<PAGE>
NOTARY JURAT FOR EXECUTION OF
NOTES AND OTHER
WRITTEN OBLIGATIONS TO PAY MONEY
BY FLORIDA BORROWERS
On this the ____ day of August, 1999, before me, the undersigned, a
Notary Public in and for the State of __________, County of __________,
________________________ personally appeared, personally known to me or proved
to me on the basis of satisfactory evidence to be the ____________________ of
PERRY ELLIS INTERNATIONAL, INC., who executed the foregoing Amendment to Amended
and Restated Loan and Security Agreement on behalf of such corporation and
acknowledged to me that such corporation executed the foregoing pursuant to its
by-laws or a resolution of its board of directors, said execution taking place
in the State of __________, County of __________.
__________________________________
Notary Signature
My Commission Expires:
__________________________________
[Affix Notarial Seal]
12
<PAGE>
NOTARY JURAT FOR EXECUTION OF
NOTES AND OTHER
WRITTEN OBLIGATIONS TO PAY MONEY
BY FLORIDA BORROWERS
On this the ____ day of August, 1999, before me, the undersigned, a
Notary Public in and for the State of __________, County of __________,
________________________ personally appeared, personally known to me or proved
to me on the basis of satisfactory evidence to be the ____________________ of
PERRY ELLIS INTERNATIONAL LICENSING CORP., who executed the foregoing Amendment
to Amended and Restated Loan and Security Agreement on behalf of such
corporation and acknowledged to me that such corporation executed the foregoing
pursuant to its by-laws or a resolution of its board of directors, said
execution taking place in the State of __________, County of __________.
__________________________________
Notary Signature
My Commission Expires:
_________________________________
[Affix Notarial Seal]
13
<PAGE>
AFFIDAVIT REGARDING DELIVERY
I, ________________________________ hereby certify that I am a
_________________ ___________ of Bank of America, N.A., as Agent for the
Lenders, and that the foregoing was delivered to me as a representative of Bank
of America, N.A. , as Agent for the Lenders, in the State of Georgia, County of
Fulton.
_______________________________________
Signature of Officer or Agent of Lender
On this the ____ day of August, 1999, before me, the undersigned, a
Notary Public in and for the State of Georgia, County of Fulton, personally
known to me or proved to me on the basis of satisfactory evidence to be a
_______________ of Bank of America, N.A., a national banking association, as
Agent for the Lenders, who executed the foregoing affidavit on behalf of such
national banking association and acknowledged to me that such national banking
association executed the foregoing pursuant to its by-laws or a resolution of
its board of directors, said execution taking place in the State of Georgia,
County of Fulton.
__________________________________
Notary Signature
14
<PAGE>
SCHEDULE 7.1(u)
[attach updated Schedule 7.1(u) to include Canadian Inventory locations]
15
<PAGE>
ANNEX I
PERFORMANCE PRICING MATRIX
<TABLE>
<CAPTION>
- ----------------------------------------- -------------------------------------- -------------------------------------
CONSOLIDATED FUNDED LIBOR APPLICABLE MARGIN PRIME RATE APPLICABLE MARGIN
INDEBTEDNESS TO
EBITDA RATIO
- ----------------------------------------- ------------------ ------------------- ------------------ ------------------
REVOLVER TERM REVOLVER TERM
- ----------------------------------------- ------------------ ------------------- ------------------ ------------------
<S> <C> <C> <C> <C>
Less than 3.00 1.5% 1.75% 0.0% 0.0%
- ----------------------------------------- ------------------ ------------------- ------------------ ------------------
Less than 3.50 but greater than or
equal to 3.00 1.75% 2.0% 0.0% 0.0%
- ----------------------------------------- ------------------ ------------------- ------------------ ------------------
Less than 4.00 but greater than or
equal to 3.50 2.0% 2.25% 0.0% 0.25%
- ----------------------------------------- ------------------ ------------------- ------------------ ------------------
Greater than or equal to 4.00 2.25% 2.5% 0.25% 0.5%
- ----------------------------------------- ------------------ ------------------- ------------------ ------------------
</TABLE>
16
<PAGE>
EXHIBIT A
Schedule of Closing Documents
1. Revised fee letter between Perry Ellis International, Inc. and Bank of
America, N.A.
17
EXHIBIT 23.2
INDEPENDENT AUDITORS' CONSENT
We consent to the use in this Registration Statement of Perry Ellis
International, Inc. on Form S-2 of our report on the consolidated financial
statements of Supreme International Corporation and subsidiaries dated March 12,
1999 (June 11, 1999 as to Note 17) appearing in the Prospectus, which is part of
such Registration Statement, and to the reference to us under the heading
"Experts" in such Prospectus.
/s/ DELOITTE & TOUCHE LLP
Miami, Florida
October 11, 1999
EXHIBIT 23.3
INDEPENDENT AUDITORS' CONSENT
We consent to the use in this Registration Statement of Perry Ellis
International, Inc. on Form S-2 of our report dated March 12, 1999 (May 11, 1999
as to Note 10) appearing in the Prospectus, which is part of such Registration
Statement, and to the reference to us under the heading "Experts" in such
Prospectus.
/s/ Saul L. Claw & Co., P.C.
Certified Public Accountants
October 11, 1999
EXHIBIT 23.4
INDEPENDENT AUDITORS' CONSENT
We consent to the use in this Registration Statement of Perry Ellis
International, Inc. on Form S-2 of our report on the financial statements of the
John Henry and Manhattan Business dated June 4, 1999 (which report expresses an
unqualified opinion and includes an explanatory paragraph referring to the
operating support received from Salant Corporation), appearing in the
Prospectus, which is part of this Registration Statement.
We also consent to the reference to us under the headings "Selected Historical
Financial Information" and "Experts" in such prospectus.
/s/ Deloitte & Touche LLP
New York, New York
October 11, 1999
