AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON JULY 1, 1999
REGISTRATION STATEMENT NO. 333-78427
================================================================================
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
---------------
AMENDMENT
NO. 1
TO
FORM S-4
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
---------------
PERRY ELLIS INTERNATIONAL, INC.*
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
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FLORIDA 2321 59-1162998
(STATE OR OTHER JURISDICTION OF (PRIMARY STANDARD INDUSTRIAL (I.R.S. EMPLOYER
INCORPORATION OR ORGANIZATION) CLASSIFICATION CODE NUMBER) IDENTIFICATION 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:
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ROSEMARY TRUDEAU DALE S. BERGMAN, P.A.
VICE PRESIDENT OF FINANCE BROAD AND CASSEL
SUPREME INTERNATIONAL CORPORATION 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
</TABLE>
---------------
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC:
AS SOON AS PRACTICABLE AFTER THIS REGISTRATION STATEMENT BECOMES EFFECTIVE.
If the securities being registered on this Form are being offered in
connection with the formation of a holding company and there is compliance with
General Instruction 6, 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 delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. [x]
---------------
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
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SUPREME ACQUISITION CORPORATION
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
FLORIDA 5136 65-0780799
(STATE OR OTHER (PRIMARY STANDARD INDUSTRIAL (I.R.S. EMPLOYER
JURISDICTION OF CLASSIFICATION CODE NUMBER) IDENTIFICATION NO.)
INCORPORATION OR
ORGANIZATION)
SUPREME INTERNATIONAL (N.Y.), INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
NEW YORK 5136 13-3882409
(STATE OR OTHER (PRIMARY STANDARD INDUSTRIAL (I.R.S. EMPLOYER
JURISDICTION OF CLASSIFICATION CODE NUMBER) IDENTIFICATION NO.)
INCORPORATION OR
ORGANIZATION)
SUPREME INTERNATIONAL (DELAWARE), INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
DELAWARE 5136 65-0916514
(STATE OR OTHER (PRIMARY STANDARD INDUSTRIAL (I.R.S. EMPLOYER
JURISDICTION OF CLASSIFICATION CODE NUMBER) IDENTIFICATION NO.)
INCORPORATION OR
ORGANIZATION)
SUPREME MUNSINGWEAR CANADA, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
CANADA 5136 89-1353534
(STATE OR OTHER (PRIMARY STANDARD INDUSTRIAL (I.R.S. EMPLOYER
JURISDICTION OF CLASSIFICATION CODE NUMBER) IDENTIFICATION NO.)
INCORPORATION OR
ORGANIZATION)
SUPREMEINTERNATIONAL CORPORATION DE MEXICO, S.A. DE C.V.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
MEXICO 5136 N/A
(STATE OR OTHER (PRIMARY STANDARD INDUSTRIAL (I.R.S. EMPLOYER
JURISDICTION OF CLASSIFICATION CODE NUMBER) IDENTIFICATION NO.)
INCORPORATION OR
ORGANIZATION)
PERRY ELLIS INTERNATIONAL LICENSING CORP.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
NEW YORK 6794 13-2963077
(STATE OR OTHER (PRIMARY STANDARD INDUSTRIAL (I.R.S. EMPLOYER
JURISDICTION OF CLASSIFICATION CODE NUMBER) IDENTIFICATION NO.)
INCORPORATION OR
ORGANIZATION)
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<PAGE>
INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A
REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR MAY
OFFERS TO BUY BE ACCPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT BECOMES
EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR THE
SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE SECURITIES
IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE UNLAWFUL PRIOR
TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS OF ANY SUCH STATE.
PROSPECTUS
SUBJECT TO COMPLETION, DATED JULY 1, 1999
PERRY ELLIS INTERNATIONAL, INC.
OFFER TO EXCHANGE
$95,000,000 SERIES B SENIOR SUBORDINATED NOTES DUE 2006
FOR ANY AND ALL OUTSTANDING
12 1/4% SERIES A SENIOR SUBORDINATED NOTES DUE 2006
($95,000,000 IN PRINCIPAL AMOUNT)
----------------
THE EXCHANGE OFFER
Expires 5:00 p.m., New York City time, August 2, 1999, unless extended.
Subject to certain customary conditions, which we may waive, the exchange
offer is not conditioned upon a minimum aggregate principal amount of existing
notes being tendered.
All outstanding notes validly tendered and not withdrawn will be
exchanged.
Not subject to any condition other than that the exchange offer not
violate applicable law or any applicable interpretation of the Staff of the
Securities and Exchange Commission ("SEC" or "Commission").
THE EXCHANGE NOTES
The terms of the exchange notes to be issued in the exchange offer are
substantially identical to the existing notes, except that we have registered
the exchange notes with the SEC. In addition, the exchange notes will not be
subject to certain transfer restrictions, and certain provisions relating to an
increase in the stated interest rate on the existing notes will be eliminated.
Interest on the exchange notes will accrue 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.
YOU SHOULD CAREFULLY CONSIDER THE RISK FACTORS BEGINNING ON PAGE 16 OF
THIS PROSPECTUS BEFORE PARTICIPATING IN THE EXCHANGE OFFER.
NEITHER THE 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. We
may not exchange these securities until the registration statement filed with
the SEC is effective. This prospectus is not an offer to exchange these
securities and it is not soliciting an offer to exchange these securities in
any state where the exchange is not permitted.
----------------
THE DATE OF THIS PROSPECTUS IS JULY 1, 1999.
<PAGE>
TABLE OF CONTENTS
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PAGE
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Summary ............................................................................... 1
Risk Factors .......................................................................... 16
The Exchange Offer .................................................................... 25
Use of Proceeds. ...................................................................... 33
Capitalization ........................................................................ 34
Unaudited Pro Forma Combined Financial Information .................................... 35
Selected Historical Financial Information. ............................................ 41
Management's Discussion and Analysis of Financial Condition And Results Of Operations. 43
Business .............................................................................. 51
Management ............................................................................ 63
Principal Shareholders ................................................................ 69
Certain Relationships and Related Transactions ........................................ 70
Description of Other Indebtedness. .................................................... 71
Description of The Notes .............................................................. 73
Registration Rights ................................................................... 106
Plan of Distribution. ................................................................. 108
Certain Federal Tax Considerations. ................................................... 109
Legal Matters ......................................................................... 111
Experts ............................................................................... 111
Where You Can Find More Information ................................................... 112
Index to Financial Statements ......................................................... F-1
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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.
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<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:
/bullet/ our anticipated growth strategies;
/bullet/ our expected internal growth;
/bullet/ integration of our completed acquisitions and ability to obtain
additional financing;
/bullet/ our ability to integrate acquired businesses, trademarks,
tradenames and licenses;
/bullet/ the expected efficiencies from our new office and warehouse
facility;
/bullet/ anticipated trends and conditions in our industry, including
future consolidation;
/bullet/ our future capital needs;
/bullet/ our ability to compete; and
/bullet/ 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.
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<PAGE>
NOTICE TO NEW HAMPSHIRE RESIDENTS
NEITHER THE FACT THAT A REGISTRATION STATEMENT OR AN APPLICATION FOR A
LICENSE HAS BEEN FILED UNDER CHAPTER 421-B OF THE NEW HAMPSHIRE REVISED
STATUTES ANNOTATED 1955, AS AMENDED ("RSA"), WITH THE STATE OF NEW HAMPSHIRE
NOR THE FACT THAT A SECURITY IS EFFECTIVELY REGISTERED OR A PERSON IS LICENSED
IN THE STATE OF NEW HAMPSHIRE CONSTITUTES A FINDING BY THE SECRETARY OF STATE
THAT ANY DOCUMENT FILED UNDER RSA 421-B IS TRUE, COMPLETE AND NOT MISLEADING.
NEITHER ANY SUCH FACT NOR THE FACT THAT AN EXEMPTION OR EXCEPTION IS AVAILABLE
FOR A SECURITY OR A TRANSACTION MEANS THAT THE SECRETARY OF STATE HAS PASSED IN
ANY WAY UPON THE MERITS OR QUALIFICATIONS OF, OR RECOMMENDED OR GIVEN APPROVAL
TO, ANY PERSON, SECURITY OR TRANSACTION. IT IS UNLAWFUL TO MAKE OR CAUSE TO BE
MADE TO ANY PROSPECTIVE PURCHASER, CUSTOMER OR CLIENT ANY REPRESENTATION
INCONSISTENT WITH THE PROVISIONS OF THE PARAGRAPH.
----------------
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 deemed 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 8, 1999 and as amended on April 16,
1999 and as amended on June 14, 1999, (d) Current Report on Form 8-K, as filed
with the SEC on April 19, 1999 and (e) Current Report on Form 8-K, as filed
with the SEC on June 23, 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
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SUMMARY
THE FOLLOWING SUMMARY CONTAINS BASIC INFORMATION ABOUT THIS EXCHANGE
OFFER. IT MAY NOT CONTAIN ALL THE INFORMATION THAT IS IMPORTANT TO YOU. FOR A
MORE COMPLETE UNDERSTANDING OF THIS EXCHANGE OFFER, 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 "EXISTING NOTES" REFERS TO THE 12
1/4% SERIES A SENIOR SUBORDINATED NOTES DUE 2006 THAT WERE ISSUED ON APRIL 6,
1999. THE TERM "EXCHANGE NOTES" REFERS TO THE 12 1/4% SERIES B SENIOR
SUBORDINATED NOTES DUE 2006 ISSUABLE IN THIS EXCHANGE OFFER. REFERENCE IS MADE
IN THIS EXCHANGE OFFER TO THE PEI ACQUISITION AND THE JOHN HENRY/MANHATTAN
ACQUISITION. THE PEI ACQUISITION CLOSED CONCURRENTLY WITH THE CLOSING OF THE
EXISTING 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.
We own or license from third parties the brands under which most of our
products are sold. These brands include Crossings/registered trademark/ and
Natural Issue/registered trademark/ for casual sportswear, John
Henry/registered trademark/ for dress casual wear, Andrew Fezza/registered
trademark/ for dress sportswear, Ping/registered trademark/ and
Munsingwear/registered trademark/ for golf sportswear and PNB Nation/registered
trademark/ 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 Perry Ellis International, Inc., a New York corporation
("PEI") which owns and licenses the prestigious and well-known Perry
Ellis/registered trademark/ brand name. PEI had royalty revenues of $16.2
million for the year ended
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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/registered trademark/, a popular dress shirt brand
sold at Wal-Mart and Kmart Corporation and for Lady Manhattan/registered
trademark/.
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/registered trademark/) with a total of over 40 sub-brands (such as
Penguin/registered trademark/ and Career Club/registered trademark/). 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.
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
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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 under performing 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:
/bullet/ repositioned the brand based on our "family of brands" strategy;
/bullet/ improved the responsiveness to market trends by applying our
design and sourcing expertise; and
/bullet/ 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, we intend to license the Perry Ellis 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
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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:
/bullet/ carefully maintaining distinct distribution channels for each of
our brands;
/bullet/ consistently designing, sourcing and marketing quality products;
/bullet/ reinforcing the image of our brands and continuously promoting
them; and
/bullet/ 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 also recently 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. We intend 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.
4
<PAGE>
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 owns and licenses the Perry Ellis brand, 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 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 existing 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.
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.
5
<PAGE>
THE EXCHANGE OFFER
REGISTRATION RIGHTS AGREEMENT..... We sold the existing notes on April 6,
1999 to the initial purchasers under a
purchase agreement dated March 31, 1999.
Pursuant to the purchase agreement, we, our
subsidiaries who guaranteed our obligations
under the existing notes and the initial
purchasers entered into a registration
rights agreement which granted the holders
of the existing notes certain exchange and
registration rights. This exchange offer is
intended to satisfy certain of our
obligations under the registration rights
agreement.
Carfel, Inc., one of our affiliates,
purchased $5,000,000 aggregate principal
of the existing notes. Carfel will not
participate in the exchange offer and has
agreed not to sell the existing notes
except pursuant to a shelf registration
statement and not before September 13,
1999.
THE EXCHANGE OFFER................ We are offering to exchange up to
$95,000,000 aggregate principal of the
exchange notes for up to $95,000,000
aggregate principal of the existing notes.
Existing notes may be exchanged only in
$1,000 increments.
The terms of the exchange notes are
identical in all material respects to the
existing notes except for certain transfer
restrictions and registration rights
relating to the existing notes and certain
provisions relating to an increase in the
stated interest rate on the existing
notes.
RESALE............................ We believe that you will be able to
freely transfer the exchange notes without
registration or any prospectus delivery
requirement; however, certain
broker-dealers and certain of our
affiliates may be required to deliver
copies of this prospectus if they resell
any exchange notes.
EXPIRATION DATE................... 5:00 p.m., New York City time, on August
2, 1999, unless the exchange offer is
extended. You may withdraw existing notes
you tender pursuant to the exchange offer
at any time prior to August 2, 1999. See
"The Exchange Offer--Expiration Date" and
"--Extensions and Amendments."
ACCRUED INTEREST ON THE EXCHANGE NOTES
AND THE EXISTING NOTES........... The exchange notes will bear interest at
a rate of 12 1/4% per annum, payable
semi-annually on April 1 and August 1 of
each year, commencing October 1, 1999.
Holders of exchange notes of record at the
close of business on the March 15 and
September 15
6
<PAGE>
immediately preceding such interest
payment date will receive interest
accruing from the most recent date to
which interest has been paid.
TERMINATION OF THE
EXCHANGE OFFER.................... We may terminate the exchange offer if we
determine that our ability to proceed could
be materially impaired due to the
occurrence of certain conditions. We do not
expect any of the foregoing conditions to
occur, although there can be no assurance
that such conditions will not occur. You
will have certain rights against us under
the registration rights agreement should we
fail to consummate the exchange offer. See
"The Exchange Offer--Termination."
PROCEDURES FOR TENDERING
EXISTING NOTES.................... If you wish to accept the exchange offer,
sign and date the letter of transmittal in
accordance with the instructions, and
deliver the letter of transmittal, along
with the existing notes and any other
required documentation, to the exchange
agent. By executing the letter of
transmittal, you will represent to us that,
among other things:
/bullet/ the exchange notes you receive
will be acquired in the ordinary course
of your business,
/bullet/ you have no arrangement with any
person to participate in the
distribution of the exchange notes, and
/bullet/ you are not an affiliate or, if
you are an affiliate, you will comply
with the registration and prospectus
delivery requirements of the Securities
Act to the extent applicable.
SPECIAL PROCEDURES FOR
BENEFICIAL OWNERS................. If you are a beneficial owner whose
existing notes are registered in the name
of a broker, dealer, commercial bank, trust
company or other nominee and wish to tender
such existing notes in the exchange offer,
please contact the registered holder as
soon as possible and instruct them to
tender on your behalf and comply with our
instructions set forth elsewhere in this
prospectus.
GUARANTEED DELIVERY PROCEDURES.... If you wish to tender your existing
notes, you may, in certain instances, do so
according to the guaranteed delivery
procedures set forth elsewhere in this
prospectus under "The Exchange
Offer--Guaranteed Delivery Procedures."
WITHDRAWAL RIGHTS................. You may withdraw existing notes you
tender pursuant to the exchange offer by
furnishing a written or facsimile
transmission notice of withdrawal to the
7
<PAGE>
exchange agent containing the information
set forth in "The Exchange
Offer--Withdrawal of Tenders."
ACCEPTANCE OF EXISTING NOTES AND
DELIVERY OF EXCHANGE NOTES....... Subject to certain conditions (as
summarized above in "Termination of the
Exchange Offer" and described more fully in
"The Exchange Offer--Termination"), we will
accept for exchange any and all existing
notes that are properly tendered in the
exchange offer prior to the expiration
date. See "The Exchange Offer--
Procedures for Tendering." The exchange
notes issued pursuant to the exchange
offer will be delivered promptly following
the expiration date.
EXCHANGE AGENT.................... State Street Bank and Trust Company, the
trustee under the indenture, is serving as
exchange agent in connection with the
exchange offer. The mailing address of the
exchange agent is State Street Bank and
Trust Company, Corporate Trust Department,
P.O. Box 778, Boston, Massachusetts
02102-0078, Attention: Ralph Jones, and the
address for hand or overnight delivery is
State Street Bank and Trust Company,
Corporate Trust Company, 2 Avenue de
Lafayette, 5th Floor, Corporate Trust
Window, Boston, Massachusetts 02111-1724
Attention: Ralph Jones. Any deliveries in
New York should be sent to the exchange
agent at State Street Bank and Trust
Company, 61 Broadway, 15th Floor, New York,
New York 10006, Attention: Ralph Jones. For
assistance and requests for additional
copies of this Prospectus, the Letter of
Transmittal or the Notice of Guaranteed
Delivery, the telephone number for the
exchange agent is (617) 662-1452, and the
facsimile number for the exchange agent is
(617) 662-1548, Attention: Ralph Jones.
See "The Exchange Offer" for more detailed information concerning the terms of
the exchange offer.
SUMMARY OF TERMS OF EXCHANGE NOTES
ISSUER............................ Perry Ellis International, Inc.
3000 N.W. 107th Avenue
Miami, Florida 33172
(305) 592-2830
GENERAL........................... The exchange notes will be freely
tradable and otherwise substantially
identical to the existing notes. The
exchange notes will not have registration
rights or provisions for additional
interest. The exchange notes will evidence
the same debt as the existing notes, and
the existing notes are and the exchange
8
<PAGE>
rates will be governed by the same
indenture. See "The Exchange
Offer--Purpose and Effect of the Exchange
Offer".
NOTES OFFERED..................... $95,000,000 aggregate principal of 12
1/4% 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 will
fully and unconditionally guarantee the
exchange notes on a senior subordinated
basis. Future subsidiaries also may be
required to guarantee the exchange notes.
See "Description of the Notes--Subsidiary
Guarantees" and "--Certain
Covenants--Limitation on Guarantees of
Indebtedness by Restricted Subsidiaries."
RANKING........................... The exchange notes and the subsidiary
guarantees will be unsecured senior
subordinated indebtedness. The exchange
notes will 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 exchange notes will
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 existing notes,
our use of the net proceeds, the John
Henry/Manhattan acquisition and related
Phillips-Van Heusen transactions and the
PEI acquisition, at April 30, 1999, we had
$139.0 million of consolidated
indebtedness outstanding, including $43.1
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
$8.4 million as of April 30, 1999, all of
which would have been senior secured
indebtedness. We also have approximately
9
<PAGE>
$16.0 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 exchange 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:
<TABLE>
<CAPTION>
REDEMPTION
YEAR PRICE
------------------------------ -------------
<S> <C>
2003 ......................... 106.125%
2004 ......................... 103.063%
2005 and thereafter .......... 100.000%
</TABLE>
PUBLIC EQUITY OFFERING
OPTIONAL REDEMPTION.............. On or before April 1, 2002, we may redeem
up to 35% of the aggregate principal amount
of the exchange 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 exchange 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
exchange notes at a purchase price equal to
101% of the principal amount of the
exchange notes, plus accrued and unpaid
interest, if any, to the purchase date. See
"Description of the Notes--Certain
Covenants--Purchase of Exchange Notes upon
a Change in Control."
CERTAIN COVENANTS................. The indenture governing the exchange
notes will contain covenants that, among
other things, restrict our ability and the
ability of our subsidiaries to:
/bullet/ incur additional indebtedness;
/bullet/ pay dividends on, redeem or
repurchase our capital stock;
/bullet/ make certain investments;
10
<PAGE>
/bullet/ issue or sell capital stock of
restricted subsidiaries;
/bullet/ create certain liens;
/bullet/ create certain liens;
/bullet/ sell assets;
/bullet/ in the case of our restricted
subsidiaries, make dividends or other
payments;
/bullet/ in the case of our restricted
subsidiaries, guarantee indebtedness;
/bullet/ engage in transactions with
affiliates; and
/bullet/ 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.
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 16 of this
prospectus.
See "Description of Notes" for more detailed information concerning the
terms of the exchange notes.
11
<PAGE>
SUMMARY PRO FORMA FINANCIAL INFORMATION
The "Pro Forma Financial Information" set forth below gives effect to (i)
the PEI acquisition, (ii) the offering of the existing notes, (iii) the John
Henry/Manhattan acquisition and (iv) additional indebtedness incurred under the
Senior Credit Facility to finance the John Henry/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
<TABLE>
<CAPTION>
PRO FORMA PRO FORMA
FISCAL YEAR ENDED QUARTER ENDED
JANUARY 31, 1999 APRIL 30, 1999
------------------- ---------------
(DOLLARS IN MILLIONS)
<S> <C> <C>
STATEMENT OF INCOME DATA:
Total revenues ........................................ $ 245.5 $ 65.7
Depreciation and amortization ......................... 7.4 2.2
Operating income ...................................... 25.9 7.8
Interest expense ...................................... 16.4 4.2
OTHER FINANCIAL DATA AND RATIOS:
Pro Forma EBITDA(a) ................................... $ 33.3 $ 10.0
Ratio of Pro Forma EBITDA to interest expense ......... 2.0 x 2.4 x
Ratio of total debt to Pro Forma EBITDA ............... 4.0 x --
</TABLE>
12
<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, 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>
FISCAL YEAR ENDED JANUARY 31,
-------------------------------------------------------------
1995 1996 1997 1998 1999
------------- ----------- ----------- ----------- -----------
<S> <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
Royalty income ............................ -- 759 1,654 4,032 3,057
--------- -------- --------- -------- ---------
Total revenues ............................ 90,564 122,598 159,027 194,721 224,404
Cost of sales ............................. 69,187 92,145 122,046 145,991 166,198
--------- -------- --------- -------- ---------
Gross profit .............................. 21,377 30,453 36,981 48,730 58,206
Selling, general and administrative
expenses .................................. 13,493 20,395 24,729 34,137 39,478
Depreciation and amortization ............. 474 725 1,147 1,748 2,161
--------- -------- --------- -------- ---------
Operating income .......................... 7,410 9,333 11,105 12,845 16,567
Interest expense .......................... 1,219 2,224 1,664 2,782 3,494
--------- -------- --------- -------- ---------
Income before income taxes ................ 6,191 7,109 9,441 10,063 13,073
Income taxes .............................. 2,319 2,685 3,597 2,885 4,491
--------- -------- --------- -------- ---------
Net income ................................ $ 3,872 $ 4,424 $ 5,844 $ 7,178 $ 8,582
========= ======== ========= ======== =========
OTHER FINANCIAL DATA AND RATIOS:
Net cash provided by (used in)
operating activities ..................... $ (20,015) $ 5,303 $ 1,874 $ (3,101) $ 14,341
Net cash provided by (used in)
investing activities ..................... (825) (1,492) (24,456) (4,555) (10,240)
Net cash provided by (used in)
financing activities ..................... 21,094 (3,894) 23,080 7,910 (4,938)
EBITDA(a) ................................. 7,884 10,058 12,252 14,593 18,728
Capital expenditures ...................... 747 1,309 1,058 3,828 4,005
Ratio of earnings to fixed charges(b) ..... 5.3x 3.8x 5.7x 4.1x 4.2x
BALANCE SHEET DATA (AT PERIOD END):
Working capital ........................... $ 43,067 $ 47,760 $ 23,575 $ 66,166 $ 71,300
Total assets .............................. 55,512 53,735 88,158 101,650 108,958
Total debt (c) ............................ 28,256 6,968 31,949 39,658 33,511
Total stockholders' equity ................ 22,016 43,833 47,775 55,155 64,946
<CAPTION>
QUARTER ENDED APRIL 30,
--------------------------
1998 1999
------------ -------------
<S> <C> <C>
PERRY ELLIS INTERNATIONAL HISTORICAL
STATEMENT OF INCOME DATA:
Net sales ................................. $ 60,085 $ 59,479
Royalty income ............................ 1,022 2,316
-------- -----------
Total revenues ............................ 61,107 61,795
Cost of sales ............................. 45,459 44,173
-------- -----------
Gross profit .............................. 15,648 17,622
Selling, general and administrative
expenses .................................. 10,154 10,179
Depreciation and amortization ............. 493 979
-------- -----------
Operating income .......................... 5,001 6,464
Interest expense .......................... 891 1,948
-------- -----------
Income before income taxes ................ 4,110 4,516
Income taxes .............................. 1,473 1,624
-------- -----------
Net income ................................ $ 2,637 $ 2,892
======== ===========
OTHER FINANCIAL DATA AND RATIOS:
Net cash provided by (used in)
operating activities ..................... $ (4,710) $ (4,609)
Net cash provided by (used in)
investing activities ..................... (1,868) (100,642)
Net cash provided by (used in)
financing activities ..................... 7,133 (105,526)
EBITDA(a) ................................. 5,494 7,443
Capital expenditures ...................... 1,831 139
Ratio of earnings to fixed charges(b) ..... 4.9x 3.1x
BALANCE SHEET DATA (AT PERIOD END):
Working capital ........................... $ 68,812 $ 76,394
Total assets .............................. 112,124 219,613
Total debt (c) ............................ 38,400 138,991
Total stockholders' equity ................ 58,124 67,933
</TABLE>
(Continued on following page)
13
<PAGE>
<TABLE>
<CAPTION>
QUARTER ENDED
FISCAL YEAR ENDED DECEMBER 31, 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 -- $ 3,139
Total assets .......................... 2,985 4,121 4,803 3,112 4,563 -- 5,233
Total debt ............................ 700 -- -- -- -- -- --
Total stockholders' equity ............ 1,557 2,827 3,439 1,369 3,839 -- 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>
(Continued on following page)
14
<PAGE>
- ----------------
(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.
15
<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 April 30, 1999:
<TABLE>
<S> <C>
Total debt ........................................... $ 138,991
Stockholders' equity ................................. $ 67,933
Pro forma ratio of earnings to fixed charges ......... 1.6x
</TABLE>
Our substantial indebtedness could have important consequences to you,
including:
/bullet/ making it more difficult for us to satisfy our obligations with
respect to the exchange notes;
/bullet/ increasing our vulnerability to adverse general economic and
industry conditions;
/bullet/ limiting our ability to obtain additional financing to fund future
working capital, capital expenditures, acquisitions and other
general corporate requirements;
/bullet/ 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;
/bullet/ limiting our flexibility in planning for, or reacting to, changes
in our business and the industry in which we operate; and
/bullet/ placing us at a competitive disadvantage compared to our less
leveraged competitors.
Our ability to pay interest on the exchange 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
exchange 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 existing 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 exchange 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.
See "Description of the Notes--Redemption" and "--Certain
Covenants--Purchase of Notes upon a Change in Control" and "Description of
Other Indebtedness."
THE EXCHANGE NOTES AND GUARANTEES ARE SUBORDINATED TO OUR SENIOR INDEBTEDNESS
The exchange notes are subordinated to all our senior indebtedness. The
guarantees are subordinated to all guarantor senior indebtedness. As of April
30, 1999, after giving effect to the
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(i) offering of the existing 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
would have had outstanding $43.1 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 $16.0 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
exchange 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 exchange 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 exchange notes during the continuance of a payment default
with respect to senior indebtedness. Furthermore, under certain circumstances,
no cash payments with respect to the exchange 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 exchange notes. In addition, certain events of default under the Senior
Credit Facility would prohibit us from making any payments on the exchange
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
exchange 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 exchange notes are
unsecured, there could be no assets remaining for the holders of the exchange
notes or any remaining assets could be insufficient to pay off the exchange
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."
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."
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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."
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."
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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 exchange notes will contain covenants that,
among other things, restrict our ability and the ability of our subsidiaries
to:
/bullet/ incur additional indebtedness;
/bullet/ pay dividends on, redeem or repurchase our capital stock;
/bullet/ make certain investments;
/bullet/ issue or sell capital stock of restricted subsidiaries;
/bullet/ create certain liens;
/bullet/ sell assets;
/bullet/ in the case of our restricted subsidiaries, make dividends or
other payments;
/bullet/ in the case of our restricted subsidiaries, guarantee
indebtedness;
/bullet/ engage in transactions with affiliates; and
/bullet/ 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.
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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
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."
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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.
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
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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 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 EMPLOYEE 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 EXCHANGE 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 outstanding exchange notes.
However, it is possible that we will not have
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sufficient funds at the time of the change in control to make the required
repurchase of exchange 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 $0.2 million and the current additional
estimated cost to third parties to complete such remediation is expected to be
$0.2 million. These costs, other than software, have been and will continue to
be expensed as incurred.
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
/bullet/ was insolvent or rendered insolvent by reason of the issuance of
the guarantee; or
/bullet/ was engaged in a business or transaction for which the guarantor's
remaining assets constituted unreasonably small capital; or
/bullet/ 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:
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/bullet/ the sum of its debts, including contingent liabilities, was
greater than the fair saleable value of all of its assets; or
/bullet/ 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
/bullet/ 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 exchange 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, 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 EXCHANGE NOTES MAY NOT DEVELOP
There has not been an established trading market for the existing notes.
Although each initial purchaser has informed us that it currently intends to
make a market in the exchange notes, it has 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 exchange 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 exchange notes will depend upon the
number of holders of the exchange 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
exchange 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."
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THE EXCHANGE OFFER
PURPOSE AND EFFECT OF THE EXCHANGE OFFER
The existing notes were sold by us on April 6, 1999, to the initial
purchasers, Merrill Lynch & Co., Merrill Lynch, Pierce, Fenner & Smith
Incorporated, BancBoston Robertson Stephens Inc., Wasserstein Perella
Securities, Inc. and Barington Capital Group, L.P., pursuant to a purchase
agreement. The initial purchasers subsequently placed the existing notes with
qualified institutional buyers in reliance on Rule 144A under the Securities
Act of 1933, as amended (the "Securities Act"). As a condition to the purchase
of the existing notes by the initial purchasers, we and the guarantors entered
into a registration rights agreement with the initial purchasers, which
requires, among other things, that promptly following the issuance and sale of
the existing notes, we and the guarantors file with the SEC the registration
statement with respect to the exchange notes, use their reasonable best efforts
to cause the registration statement to become effective under the Securities
Act and, upon the effectiveness of the registration statement, offer to the
holders of the existing notes the opportunity to exchange their existing notes
for a like principal amount of exchange notes, which will be issued without a
restrictive legend and may be reoffered and resold by the holder without
restrictions or limitations under the Securities Act. A copy of the
registration rights agreement has been filed as an exhibit to the registration
statement of which this prospectus is a part. The term "holder" with respect to
the exchange offer means any person in whose name existing notes are registered
on our books.
Based on existing interpretations of the Securities Act by the staff of
the SEC set forth in several no-action letters to third parties, and subject to
the immediately following sentence, we believe that the exchange notes issued
pursuant to the exchange offer may be offered for resale, resold and otherwise
transferred by the holders thereof (other than holders who are broker-dealers
or a person that is our "affiliate" (within the meaning of Rule 405 of the
Securities Act)) without further compliance with the registration and
prospectus delivery provisions of the Securities Act. However, any purchaser of
notes who is our affiliate or who intends to participate in the exchange offer
for the purpose of distributing the exchange notes, or any broker-dealer who
purchased the notes from us to resell pursuant to Rule 144A or any other
available exemption under the Securities Act, (i) will not be able to rely on
the interpretations by the staff of the SEC set forth in the above-mentioned
no-action letters, (ii) will not be able to tender its existing notes in the
exchange offer; and (iii) must comply with the registration and prospectus
delivery requirements of the Securities Act in connection with any sale or
transfer of the notes unless such sale or transfer is made pursuant to an
exemption from such requirements. We do not intend to seek our own no-action
letter, and there is no assurance that the staff of the Commission would make a
similar determination with respect to the exchange notes as it has in such
no-action letters to third parties. See "Plan of Distribution."
As a result of the filing and effectiveness of the registration statement
of which this prospectus is a part, we and the guarantors will not be required
to pay an increased interest rate on the existing notes. Following the
consummation of the exchange offer, holders of existing notes not tendered will
not have any further registration rights except in certain limited
circumstances requiring the filing of a shelf registration statement, and the
existing notes will continue to be subject to certain restrictions on transfer.
Accordingly, the liquidity of the market for the existing notes could be
adversely affected.
TERMS OF THE EXCHANGE OFFER
Upon the terms and subject to the conditions set forth in this prospectus
and in the letter of transmittal, we will accept all existing notes properly
tendered and not withdrawn prior to 5:00 p.m. New York City time, on the
expiration date. After authentication of the exchange notes by the trustee or
an authenticating agent, we will issue $1,000 principal amount of exchange
notes in exchange for each $1,000 principal amount of outstanding existing
notes accepted in the exchange offer. Holders may tender some or all of their
existing notes pursuant to the exchange offer in denominations of $1,000 and
integral multiples thereof.
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<PAGE>
Each holder of the existing notes (other than certain specified holders)
who wishes to exchange existing notes for exchange notes in the exchange offer
will be required to represent that (i) it is not our affiliate or of any
guarantor, (ii) any exchange notes to be received by it were acquired in the
ordinary course of its business and (iii) it has no arrangement with any person
to participate in the distribution (within the meaning of the Securities Act)
of the exchange notes.
Each broker-dealer that receives exchange notes for its own account
pursuant to the exchange offer must acknowledge that it will deliver a
prospectus in connection with any resale of such exchange notes. The letter of
transmittal states that by so acknowledging and by delivering a prospectus, a
broker-dealer will not be deemed to admit that it is an "underwriter" within
the meaning of the Securities Act. The staff of the SEC has taken the position
that participating broker-dealers may fulfill their prospectus delivery
requirements with respect to the exchange notes (other than a resale of an
unsold allotment from the original sale of the existing notes) with the
prospectus contained in this exchange offer registration statement. We will be
required to allow participating broker-dealers to use the prospectus contained
in the exchange offer registration statement (subject to certain "black out"
periods) following the exchange offer, in connection with the resale of
exchange notes received in exchange for existing notes acquired by such
participating broker-dealers for their own account as a result of market-making
or other trading activities. See "Plan of Distribution."
The form and terms of the exchange notes are identical in all material
respects to the form and terms of the existing notes except that (i) the
exchange notes will be issued in a transaction registered under the Securities
Act, (ii) the exchange notes will not be subject to transfer restrictions and
(iii) certain provisions relating to an increase in the stated interest rate on
the existing notes provided for in certain circumstances will be eliminated.
The exchange notes will evidence the same debt as the existing notes. The
exchange notes will be issued under and entitled to the benefits of the
indenture.
As of the date of this prospectus, $100,000,000 aggregate principal amount
of the existing notes is outstanding. In connection with the issuance of the
existing notes, we arranged for the existing notes, of which $95,000,000
aggregate principal amount was initially purchased by qualified institutional
buyers as defined pursuant to Rule 144A under the Securities Act, to be issued
and transferable in book-entry form through the facilities of the depositary,
acting as depositary. The exchange notes will also be issuable and transferable
in book-entry form through the depositary. The remaining $5,000,000 aggregate
principal amount was purchased by Carfel, an affiliate of ours, and an
institutional accredited investor as defined under "Description of the
Notes--Book Entry; Delivery and Form." Carfel will not participate in the
exchange offer.
This prospectus, together with the accompanying letter of transmittal, is
initially being sent to all registered holders as of the close of business on
July 2, 1999. We intend to conduct the exchange offer in accordance with the
applicable requirements of the Exchange Act, and the rules and regulations of
the Commission thereunder, including Rule 14e-1, to the extent applicable. The
exchange offer is not conditioned upon any minimum aggregate principal amount
of existing notes being tendered, and holders of the existing notes do not have
any appraisal or dissenters' rights under the Business Corporation Act of the
State of Florida or under the indenture in connection with the exchange offer.
We shall be deemed to have accepted validly tendered existing notes when, as
and if we have given oral or written notice thereof to the exchange agent. See
"--Exchange Agent." The exchange agent will act as agent for the tendering
holders for the purpose of receiving exchange notes from us and delivering
exchange notes to such holders.
If any tendered existing notes are not accepted for exchange because of an
invalid tender or the occurrence of certain other events set forth herein,
certificates for any such unaccepted existing notes will be returned, at our
cost, to the tendering holder thereof as promptly as practicable after the
expiration date.
Holders who tender existing notes in the exchange offer will not be
required to pay brokerage commissions or fees or, subject to the instructions
in the letter of transmittal, transfer taxes with
26
<PAGE>
respect to the exchange of existing notes pursuant to the exchange offer. We
will pay all charges and expenses, other than certain applicable taxes, in
connection with the exchange offer. See "--
Solicitation of Tenders; Fees and Expenses."
NEITHER OUR BOARD OF DIRECTORS OR US MAKES ANY RECOMMENDATION TO HOLDERS
OF EXISTING NOTES AS TO WHETHER TO TENDER OR REFRAIN FROM TENDERING ALL OR ANY
PORTION OF THEIR EXISTING NOTES PURSUANT TO THE EXCHANGE OFFER. MOREOVER, NO
ONE HAS BEEN AUTHORIZED TO MAKE ANY SUCH RECOMMENDATION. HOLDERS OF EXISTING
NOTES MUST MAKE THEIR OWN DECISION WHETHER TO TENDER PURSUANT TO THE EXCHANGE
OFFER AND, IF SO, THE AGGREGATE AMOUNT OF EXISTING NOTES TO TENDER AFTER
READING THIS PROSPECTUS AND THE LETTER OF TRANSMITTAL AND CONSULTING WITH THEIR
ADVISORS, IF ANY, BASED ON THEIR OWN FINANCIAL POSITION AND REQUIREMENTS.
EXPIRATION DATE
The term "expiration date" shall mean 5:00 p.m., New York City time, on
August 2, 1999, unless we, in our sole discretion, extend the exchange offer,
in which case the term "expiration date" shall mean the latest date to which
the exchange offer is extended.
EXTENSIONS AND AMENDMENTS
We expressly reserve the right, in its sole discretion (i) to delay
acceptance of any existing notes, to extend the exchange offer or to terminate
the exchange offer and to refuse to accept existing notes not previously
accepted, if any of the conditions set forth herein under "--Termination" shall
have occurred and shall not have been waived by us (if permitted to be waived
by us), by giving oral or written notice of such delay, extension or
termination to the exchange agent and (ii) to amend the terms of the exchange
offer in any manner. Any such delay in acceptance, extension, termination or
amendment will be followed as promptly as practicable by oral or written notice
thereof by us to the registered holders of the existing notes. If the exchange
offer is amended in a manner determined by us to constitute a material change,
we will promptly disclose such amendment in a manner reasonably calculated to
inform the holders of such amendment.
Without limiting the manner in which we may choose to make public
announcements of any delay in acceptance, extension, termination or amendment
of the exchange offer, we shall have no obligation to publish, advise, or
otherwise communicate any such public announcement, other than by making a
timely release to the Dow Jones News Service.
INTEREST ON THE EXCHANGE NOTES
The exchange notes will bear interest from the date of issuance of the
existing notes that are tendered in exchange for the exchange notes (or the
most recent date on which interest was paid or duly provided for on the
existing notes surrendered in exchange for the exchange notes). Accordingly,
holders of existing notes that are accepted for exchange will not receive
interest that is accrued but unpaid on such existing notes at the time of
tender. Interest on the exchange notes will be payable semi-annually on each
April 1 and October 1, commencing on October 1, 1999.
PROCEDURES FOR TENDERING
Only a holder may tender its existing notes in the exchange offer. To
tender in the exchange offer, a holder must complete, sign and date the letter
of transmittal or a facsimile thereof, have the signatures thereof guaranteed
if required by the letter of transmittal, and mail or otherwise deliver such
letter of transmittal or such facsimile, together with the existing notes
(unless such tender is being effected pursuant to the procedure for book-entry
transfer described below) and any other required documents, to the Exchange
Agent, prior to 5:00 p.m. New York City time, on the expiration date.
Any financial institution that is a participant in the depositary's
book-entry transfer facility system may make book-entry delivery of the
existing notes by causing the depositary to transfer such existing
27
<PAGE>
notes into the exchange agent's account in accordance with the depositary's
procedure for such transfer. Although delivery of existing notes may be
effected through book-entry transfer into the exchange agent's account at the
depositary, the letter of transmittal (or facsimile thereof), with any required
signature guarantees and any other required documents, must, in any case, be
transmitted to and received by the exchange agent at its address set forth
herein under "--Exchange Agent" prior to 5:00 p.m., New York City time, on the
expiration date. DELIVERY OF DOCUMENTS TO THE DEPOSITARY IN ACCORDANCE WITH ITS
PROCEDURES DOES NOT CONSTITUTE DELIVERY TO THE EXCHANGE AGENT.
The tender by a holder will constitute an agreement between such holder,
us and the exchange agent in accordance with the terms and subject to the
conditions set forth herein and in the letter of transmittal.
THE LETTER OF TRANSMITTAL WILL INCLUDE REPRESENTATIONS TO US THAT, AMONG
OTHER THINGS, (1) THE EXCHANGE NOTES RECEIVED PURSUANT TO THE EXCHANGE OFFER
ARE BEING ACQUIRED IN THE ORDINARY COURSE OF BUSINESS OF THE PERSON RECEIVING
SUCH EXCHANGE NOTES (WHETHER OR NOT SUCH PERSON IS THE HOLDER), (2) NEITHER THE
HOLDER NOR ANY SUCH OTHER PERSON HAS AN ARRANGEMENT OR UNDERSTANDING WITH ANY
PERSON TO PARTICIPATE IN THE DISTRIBUTION OF SUCH EXCHANGE NOTES, (3) NEITHER
THE HOLDER NOR ANY SUCH OTHER PERSON IS AN "AFFILIATE," AS DEFINED IN RULE 405
UNDER THE SECURITIES ACT, OF THE COMPANY OR ANY GUARANTOR, (4) THE HOLDER IS
NOT ENGAGED IN, AND DOES NOT INTEND TO ENGAGE IN, A DISTRIBUTION OF THE
EXCHANGE NOTES, AND (5) IF THE TENDERING HOLDER IS A BROKER OR DEALER (AS
DEFINED IN THE EXCHANGE ACT) (A) IT ACQUIRED THE EXISTING NOTES FOR ITS OWN
ACCOUNT AS A RESULT OF MARKET-MAKING ACTIVITIES OR OTHER TRADING ACTIVITIES AND
(B) IT HAS NOT ENTERED INTO ANY ARRANGEMENT OR UNDERSTANDING WITH US, ANY
GUARANTOR OR ANY OF OUR "AFFILIATES" OR ANY GUARANTOR (WITHIN THE MEANING OF
RULE 405 UNDER THE SECURITIES ACT) TO DISTRIBUTE THE EXCHANGE NOTES TO BE
RECEIVED IN THE EXCHANGE OFFER. In the case of a broker-dealer that receives
exchange notes for its own account in exchange for existing notes which were
acquired by it as a result of market-making or other trading activities, the
letter of transmittal will also include an acknowledgment that the
broker-dealer will deliver a copy of this prospectus in connection with the
resale by it of exchange notes received pursuant to the exchange offer. See
"Plan of Distribution."
THE METHOD OF DELIVERY OF EXISTING NOTES AND THE LETTER OF TRANSMITTAL AND
ALL OTHER REQUIRED DOCUMENTS TO THE EXCHANGE AGENT IS AT THE ELECTION AND RISK
OF THE HOLDERS. INSTEAD OF DELIVERY BY MAIL, IT IS RECOMMENDED THAT HOLDERS USE
AN OVERNIGHT OR HAND DELIVERY SERVICE. IN ALL CASES, SUFFICIENT TIME SHOULD BE
ALLOWED TO ASSURE DELIVERY TO THE EXCHANGE AGENT PRIOR TO THE EXPIRATION DATE.
NO LETTER OF TRANSMITTAL OR EXISTING NOTES SHOULD BE SENT TO US. HOLDERS MAY
ALSO REQUEST THAT THEIR RESPECTIVE BROKERS, DEALERS, COMMERCIAL BANKS, TRUST
COMPANIES OR NOMINEES EFFECT SUCH TENDER FOR HOLDERS IN EACH CASE AS SET FORTH
HEREIN AND IN THE LETTER OF TRANSMITTAL.
Any beneficial owner whose existing notes are registered in the name of
his broker, dealer, commercial bank, trust company or other nominee and who
wishes to tender should contact such registered holder promptly and instruct
such registered holder to tender on his behalf. If such beneficial owner wishes
to tender on his own behalf, such beneficial owner must, prior to completing
and executing the letter of transmittal and delivering his existing notes,
either make appropriate arrangements to register ownership of the existing
notes in such owner's name or obtain a properly completed bond power from the
registered holder. The transfer of record ownership may take considerable time.
Signatures on a letter of transmittal or a notice of withdrawal, as the
case may be, must be guaranteed by a member firm of a registered national
securities exchange or of the National Association of Securities Dealers, Inc.
or a commercial bank or trust company having an office or correspondent in the
United States or an "eligible guarantor institution" within the meaning of Rule
17Ad-15 under the Exchange Act unless the existing notes tendered pursuant
thereto are tendered (i) by a registered holder who has not completed the box
entitled "Special Registration Instructions" or "Special Delivery Instructions"
of the letter of transmittal or (ii) for the account of an eligible
institution. If the letter of transmittal is signed by a person other than the
registered holder
28
<PAGE>
listed therein, such existing notes must be endorsed or accompanied by
appropriate bond powers which authorize such person to tender the existing
notes on behalf of the registered holder, in either case signed as the name of
the registered holder or holders appears on the existing notes. If the letter
of transmittal or any existing notes or bond powers are signed or endorsed by
trustees, executors, administrators, guardians, attorneys-in-fact, officers of
corporations or others acting in a fiduciary or representative capacity, such
persons should so indicate when signing, and unless waived by us, evidence
satisfactory to us of their authority to so act must be submitted with such
letter of transmittal.
All questions as to the validity, form, eligibility (including time of
receipt), acceptance and withdrawal of the tendered existing notes will be
determined by us in our sole discretion, which determination will be final and
binding. We reserve the absolute right to reject any and all existing notes not
properly tendered or any existing notes our acceptance of which would, in the
opinion of our counsel, be unlawful. We also reserve the absolute right to
waive any irregularities or conditions of tender as to particular existing
notes. Our interpretation of the terms and conditions of the exchange offer
(including the instructions in the letter of transmittal) will be final and
binding on all parties. Unless waived, any defects or irregularities in
connection with tenders of existing notes must be cured within such time as we
shall determine. Although we intend to notify holders of defects or
irregularities with respect to tenders of existing notes, neither we, the
exchange agent nor any other person shall be under any duty to give
notification of defects or irregularities with respect to tenders of existing
notes nor shall any of them incur any liability for failure to give such
notification. Tenders of existing notes will not be deemed to have been made
until such irregularities have been cured or waived. Any existing notes
received by the exchange agent that we determine are not properly tendered or
the tender of which is otherwise rejected by us and as to which the defects or
irregularities have not been cured or waived by us will be returned by the
exchange agent to the tendering holder unless otherwise provided in the letter
of transmittal, as soon as practicable following the expiration date.
In addition, we reserve the right in our sole discretion to (a) purchase
or make offers for any existing notes that remain outstanding subsequent to the
expiration date, or, as set forth under "--
Termination," to terminate the exchange offer and (b) to the extent permitted
by applicable law, purchase existing notes in the open market, in privately
negotiated transactions or otherwise. The terms of any such purchases or offers
may differ from the terms of the exchange offer.
BOOK-ENTRY TRANSFER
We understand that the exchange agent will make a request promptly after
the date of this prospectus to establish accounts with respect to the existing
notes at the DTC for the purpose of facilitating the exchange offer, and
subject to the establishment thereof, any financial institution that is a
participant in the book-entry transfer facility's system may make book-entry
delivery of existing notes by causing such book-entry transfer facility to
transfer such existing notes into the exchange agent's account with respect to
the existing notes in accordance with the book-entry transfer facility's
procedures for such transfer. Although delivery of existing notes may be
effected through book-entry transfer into the exchange agent's account at the
book-entry transfer facility, an appropriate letter of transmittal properly
completed and duly executed with any required signature guarantee and all other
required documents must in each case be transmitted to and received or
confirmed by the exchange agent at its address set forth below on or prior to
the expiration date, or, if the guaranteed delivery procedures described below
are complied with, with the time period provided under such procedures.
Delivery of documents to the book-entry transfer facility does not constitute
delivery to the exchange agent.
GUARANTEED DELIVERY PROCEDURES
Holders who wish to tender their existing notes and (i) whose existing
notes are not immediately available, or (ii) who cannot deliver their existing
notes, the letter of transmittal or any other required
29
<PAGE>
documents to the exchange agent prior to the expiration date, or if such holder
cannot complete the procedure for book-entry transfer on a timely basis, may
effect a tender if:
(a) the tender is made through an eligible institution;
(b) prior to the expiration date, the exchange agent receives from such
eligible institution a properly completed and duly executed notice of
guaranteed delivery (by facsimile transmittal, mail or hand delivery)
setting forth the name and address of the holder, the certificate number or
numbers of such holder's existing notes and the principal amount of such
existing notes tendered, stating that the tender is being made thereby, and
guaranteeing that, within five business days after the expiration date, the
letter of transmittal (or facsimile thereof), together with the
certificate(s) representing the existing notes to be tendered in proper
form for transfer and any other documents required by the letter of
transmittal will be deposited by the eligible institution with the exchange
agent; and
(c) such properly completed and executed letter of transmittal (or
facsimile thereof), together with the certificate(s) representing all
tendered existing notes in proper form for transfer (or confirmation of a
book-entry transfer into the exchange agent's account at the depositary of
existing notes delivered electronically) and all other documents required
by the letter of transmittal are received by the exchange agent within five
business days after the expiration date.
Upon request to the exchange agent, a notice of guaranteed delivery will
be sent to holders who wish to tender their existing notes according to the
guaranteed delivery procedures set forth above.
WITHDRAWAL OF TENDERS
Except as otherwise provided herein, tenders of existing notes may be
withdrawn at any time prior to 5:00 p.m., New York City time, on the expiration
date.
To withdraw a tender of existing notes in the exchange offer, a written or
facsimile transmission notice of withdrawal must be received by the exchange
agent at its address set forth herein prior to 5:00 p.m., New York City time,
on the expiration date. Any such notice of withdrawal must (i) specify the name
of the person having deposited the existing notes to be withdrawn (the
"Depositor"), (ii) identify the existing notes to be withdrawn (including the
certificate number or numbers and principal amount of such existing notes or,
in the case of existing notes transferred by book-entry transfer, the name and
number of the account at the depositary to be credited), (iii) be signed by the
Depositor in the same manner as the original signature on the letter of
transmittal by which such existing notes were tendered (including any required
signature guarantee) or be accompanied by documents of transfer sufficient to
permit the trustee with respect to the existing notes to register the transfer
of such existing notes into the name of the Depositor withdrawing the tender
and (iv) specify the name in which any such existing notes are to be
registered, if different from that of the Depositor. All questions as to the
validity, form and eligibility (including time of receipt) of such withdrawal
notices will be determined by us, whose determination shall be final and
binding on all parties. Any existing notes so withdrawn will be deemed not to
have been validly tendered for purposes of the exchange offer, and no exchange
notes will be issued with respect thereto unless the existing notes so
withdrawn are validly retendered. Any existing notes that have been tendered
but are not accepted for exchange will be returned to the holder thereof
without cost to such holder as soon as practicable after withdrawal, rejection
of tender or termination of the exchange offer. Properly withdrawn existing
notes may be retendered by following one of the procedures described above
under "--Procedures for Tendering" at any time prior to the expiration date.
TERMINATION
Notwithstanding any other term of the exchange offer, we will not be
required to accept for exchange, or to exchange notes for, any existing notes,
and may terminate or amend the exchange
30
<PAGE>
offer as provided herein before the acceptance of such existing notes if, in
our judgment, our ability to proceed with the exchange offer can reasonably be
expected to be impaired as a result of certain events set forth in the
registration rights agreement. Accordingly, the exchange offer is subject to
the following conditions: (i) that the exchange offer, or the making of any
exchange by a holder, does not violate applicable law or any applicable
interpretation of the staff of the Commission, (ii) that no action or
proceeding shall have been instituted or threatened in any court or by or
before any governmental agency or body with respect to the exchange offer,
(iii) that there shall not have been adopted or enacted any law, statute, rule
or regulation that can reasonably be expected to impair our ability to proceed
with the exchange offer, (iv) that there shall not have been declared by United
States federal or Florida or New York state authorities a banking moratorium,
(v) that trading on the Nasdaq National Market or generally in the United
States over-the-counter market shall not have been suspended by order of the
Commission or any other governmental agency and (vi) other conditions
reasonably acceptable to the initial purchasers.
If we determine that it may terminate the exchange offer for any of the
reasons set forth above, we may (i) refuse to accept any existing notes and
return any existing notes that have been tendered to the holders thereof, (ii)
extend the exchange offer and retain all existing notes tendered prior to the
expiration date of the exchange offer, subject to the rights of such holders of
tendered existing notes to withdraw their tendered existing notes or (iii)
waive such termination event with respect to the exchange offer and accept all
properly tendered existing notes that have not been withdrawn. If such waiver
constitutes a material change in the exchange offer, we will disclose such
change by means of a supplement to this prospectus that will be distributed to
each registered holder, and we will extend the exchange offer for a period of
five to ten business days, depending upon the significance of the waiver and
the manner of disclosure to the registered holders, if the exchange offer would
otherwise expire during such period.
EXCHANGE AGENT
State Street Bank and Trust Company, the trustee under the indenture, has
been appointed as exchange agent for the exchange offer. In such capacity, the
exchange agent has no fiduciary duties and will be acting solely on the basis
of our directions. Requests for assistance and requests for additional copies
of this prospectus or of the letter of transmittal should be directed to the
exchange agent addressed as follows:
By Mail: State Street Bank and Trust Company
Corporate Trust Department
P.O. Box 778
Boston, Massachusetts 02102-0078
Attention: Ralph Jones
By Hand or Overnight Delivery: State Street Bank and Trust Company
Corporate Trust Department
2 Avenue de LaFayette
5th Floor, Corporate Trust Window
Boston, Massachusetts 02111-1724
Attention: Ralph Jones
By Mail, Hand Delivery, or State Street Bank and Trust Company
Overnight Courier in New York: 61 Broadway, 15th Floor
New York, New York 10006
Attention: Ralph Jones
By Facsimile: State Street Bank and Trust
Attention: Ralph Jones
(617) 662-1542
To Confirm: (617) 662-1548
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DELIVERY OF THE LETTER OF TRANSMITTAL TO AN ADDRESS OTHER THAN AS SET
FORTH ABOVE OR TRANSMISSION OF INSTRUCTIONS VIA FACSIMILE OTHER THAN AS SET
FORTH ABOVE DOES NOT CONSTITUTE A VALID DELIVERY OF SUCH LETTER OF TRANSMITTAL.
SOLICITATION OF TENDERS; FEES AND EXPENSES
The expenses of soliciting tenders pursuant to the exchange offer will be
borne by us. The principal solicitation pursuant to the exchange offer is being
made by mail. Additional solicitations may be made by our officers and regular
employees and our affiliates in person, by telegraph, telephone or telecopier.
We have not retained any dealer-manager in connection with the exchange
offer and will not make any payments to brokers, dealers or other persons
soliciting acceptances of the exchange offer. We, however, will pay the
exchange agent reasonable and customary fees for its services and will
reimburse the exchange agent for its reasonable out-of-pocket costs and
expenses in connection therewith and will indemnify the exchange agent for all
losses and claims incurred by it as a result of the exchange offer. We may also
pay brokerage houses and other custodians, nominees and fiduciaries the
reasonable out-of-pocket expenses incurred by them in forwarding copies of this
prospectus, letters of transmittal and related documents to the beneficial
owners of the existing notes and in handling or forwarding tenders for
exchange.
The expenses to be incurred in connection with the exchange offer,
including fees and expenses of the exchange agent and trustee and accounting
and legal fees and printing costs, will be paid by us.
We will pay all transfer taxes, if any, applicable to the exchange of
existing notes pursuant to the exchange offer. If, however, certificates
representing exchange notes or existing notes for principal amounts not
tendered or accepted for exchange are to be delivered to, or are to be
registered or issued in the name of, any person other than the registered
holder of the existing notes tendered, or if tendered existing notes are
registered in the name of any person other than the person signing the letter
of transmittal, or if a transfer tax is imposed for any reason other than the
exchange of existing notes pursuant to the exchange offer, then the amount of
any such transfer taxes (whether imposed on the registered holder or any other
persons) will be payable by the tendering holder. If satisfactory evidence of
payment of such taxes or exemption therefrom is not submitted with the letter
of transmittal, the amount of such transfer taxes will be billed by us directly
to such tendering holder.
ACCOUNTING TREATMENT
The exchange notes will be recorded at the same carrying value as the
existing notes, as reflected in our accounting records on the date of the
exchange. Accordingly, no gain or loss for accounting purposes will be
recognized by us upon the consummation of the exchange offer. The expenses of
the exchange offer will be amortized by us over the term of the exchange notes.
FEDERAL INCOME TAX CONSEQUENCES
The exchange of exchange notes for existing notes pursuant to the exchange
offer should not be treated as an "exchange" for United States federal income
tax purposes because the exchange notes should not be considered to differ
materially in kind or extent from the existing notes. Rather, the exchange
notes received by a United States holder should be treated as a continuation of
the existing notes in the hands of such holder. As a result, there should be no
United States federal income tax consequences to United States holders
exchanging existing notes for exchange notes pursuant to the exchange offer.
32
<PAGE>
OTHER
Participation in the exchange offer is voluntary. Holders of the existing
notes are urged to consult their financial and tax advisors in making their own
decisions on what action to take.
As a result of the making of, and upon acceptance for exchange of all
validly tendered existing notes pursuant to the terms of, this exchange offer,
us will have fulfilled a covenant contained in the terms of the registration
rights agreement. Holders of the existing notes who do not tender their
certificates in the exchange offer will continue to hold such certificates and
will be entitled to all the rights, and subject to the limitations applicable
thereto, under the indenture, except for any such rights under the registration
rights agreement that by their term terminate or cease to have further effect
as a result of the making of this exchange offer. See "Description of the
Notes." All untendered existing notes will continue to be subject to the
restrictions on transfer set forth in the indenture. To the extent that
existing notes are tendered and accepted in the exchange offer, the trading
market for untendered existing notes could be adversely affected.
We may in the future seek to acquire untendered existing notes in the open
market or through privately negotiated transactions, through subsequent
exchange offers or otherwise. We intend to make any such acquisitions of
existing notes in accordance with the applicable requirements of the Exchange
Act, and the rules and regulations of the Commission thereunder, including Rule
14e-1, to the extent applicable. We have no present plan to acquire any
existing notes that are not tendered in the exchange offer or to file a
registration statement to permit resales of any existing notes that are not
tendered pursuant to the exchange offer.
USE OF PROCEEDS
We will not receive any cash proceeds from the issuance of the exchange
notes. In consideration for issuing the exchange notes as contemplated in this
prospectus, we will receive existing notes in like principal amount which are
identical in all material respects to the exchange notes. That the exchange
notes, however, will be issued in a transaction registered under the Securities
Act and hence will not bear legends restricting the transfer thereof. In
addition, certain provisions relating to an increase in the stated interest
rate on the existing notes provided for under certain circumstances will be
eliminated. The existing notes surrendered in exchange for exchange notes will
be retired and canceled and cannot be reissued. Accordingly, issuance of the
exchange notes will not result in a change in our indebtedness.
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CAPITALIZATION
The following table sets forth our historical capitalization as of April
30, 1999, which includes the offering of the existing 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.
<TABLE>
<CAPTION>
APRIL 30, 1999
---------------
HISTORICAL
---------------
(IN THOUSANDS)
<S> <C>
Total debt:
Senior Credit Facility ............. $ 43,090
Senior Subordinated Notes .......... 95,901
--------
Total debt(a) .................... 138,991
--------
Total stockholders' equity ......... 67,933
--------
Total capitalization ............. $206,924
========
</TABLE>
- ----------------
(a) As of April 30, 1999, we had approximately $16.0 million of obligations
under the Lease which are not included in the amount shown in the table
above. See "Description of Other Indebtedness."
34
<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
quarter ended April 30, 1999 giving effect to the PEI and John Henry/Manhattan
acquisitions under the "purchase" method of accounting and the offering of the
existing notes. The Company's Unaudited Pro Forma Combined Income Statement
Information presents the (i) PEI acquisition and the offering of the existing
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 existing 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
April 30, 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.
35
<PAGE>
UNAUDITED PRO FORMA COMBINED FINANCIAL INFORMATION
INCOME STATEMENT
YEAR ENDED JANUARY 31, 1999
<TABLE>
<CAPTION>
HISTORICAL(1) PRO FORMA
------------------------- ------------------------------
PERRY ELLIS
INTERNATIONAL PEI ADJUSTMENTS(3) COMBINED
--------------- --------- ---------------- -------------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C>
Net sales ......................... $ 221,347 $ -- $ -- $ 221,347
Royalty income .................... 3,057 16,177 -- 19,234
--------- ------- ---------- ---------
Total revenues .................... 224,404 16,177 -- 240,581
Cost of sales ..................... 166,198 -- -- 166,198
--------- ------- ---------- ---------
Gross profit ...................... 58,206 16,177 -- 74,383
Selling, general, and
administrative expenses .......... 41,639 8,594 1,059 (a) 51,292
--------- ------- ---------- ---------
Operating income .................. 16,567 7,583 (1,059) 23,091
Interest expense .................. 3,494 -- 10,896 (b) 14,390
--------- ------- ---------- ---------
Income before provision for
income taxes ..................... 13,073 7,583 (11,955) 8,701
Provision for income taxes ........ 4,491 760 (1,504)(c) 3,747
--------- ------- ---------- ---------
Net income ........................ $ 8,582 $ 6,823 $ (10,451) $ 4,954
========= ======= ========== =========
Other Operating Data:
Ratio of earnings to fixed
charges(6) ..................... 4.3x -- -- 1.6x
Depreciation and amortization..... $ 2,161 $ 228 $ 3,525 $ 5,914
EBITDA(7) ........................ $ 18,728 $ 7,811 $ 2,466 $ 29,005
<CAPTION>
HISTORICAL(1) PRO FORMA
--------------- ------------------------------
JOHN HENRY/
MANHATTAN ADJUSTMENTS(5) COMBINED
--------------- ---------------- -------------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C>
Net sales ......................... $ -- $ -- $ 221,347
Royalty income .................... 3,993 887 (a) 24,114
------ --------- ---------
Total revenues .................... 3,993 887 245,461
Cost of sales ..................... -- -- 166,198
------ --------- ---------
Gross profit ...................... 3,993 887 79,263
Selling, general, and
administrative expenses .......... 1,146 929 (b) 53,367
------ --------- ---------
Operating income .................. 2,847 (42) 25,896
Interest expense .................. -- 2,056 (c) 16,446
------ --------- ---------
Income before provision for
income taxes ..................... 2,847 (2,098) 9,450
Provision for income taxes ........ 179 258 (d) 4,184
------ --------- ---------
Net income ........................ $2,668 $ (2,356) $ 5,266
====== ========= =========
Other Operating Data:
Ratio of earnings to fixed
charges(6) ..................... -- -- 1.6x
Depreciation and amortization..... $ 330 $ 1,122 $ 7,366
EBITDA(7) ........................ $3,177 $ 1,080 $ 33,262
</TABLE>
See Notes to Unaudited Pro Forma Combined Financial
Information.
36
<PAGE>
UNAUDITED PRO FORMA COMBINED FINANCIAL INFORMATION
INCOME STATEMENT
QUARTER ENDED APRIL 30, 1999
<TABLE>
<CAPTION>
HISTORICAL(1) PRO FORMA
------------------------ -----------------------------
PERRY ELLIS
INTERNATIONAL PEI ADJUSTMENTS(3) COMBINED
--------------- -------- ---------------- ------------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C>
Net sales .............................. $ 59,479 $ -- $ -- $ 59,479
Royalty income ......................... 2,316 3,220 -- 5,536
-------- ------ --------- --------
Total revenues ......................... 61,795 3,220 -- 65,015
Cost of sales .......................... 44,173 -- -- 44,173
-------- ------ --------- --------
Gross profit ........................... 17,622 3,220 -- 20,842
Selling, general, and
administrative expenses ............... 11,158 1,664 638 (a) 13,460
-------- ------ --------- --------
Operating income ....................... 6,464 1,556 (638) 7,382
Interest expense ....................... 1,948 -- 1,987 (b) 3,935
-------- ------ --------- --------
Income before provision for
income taxes .......................... 4,516 1,556 (2,625) 3,447
Provision for income taxes ............. 1,624 -- (388)(c) 1,236
-------- ------ --------- --------
Net income ............................. $ 2,892 $1,556 $ (2,237) $ 2,211
======== ====== ========= ========
Other Operating Data:
Ratio of earnings to fixed
charges(6) .......................... 3.1x -- -- 1.8x
Depreciation and amortization ......... $ 979 $ 319 $ 638 $ 1,936
EBITDA(7) ............................. $ 7,443 $1,875 $ -- $ 9,318
<CAPTION>
HISTORICAL(1) PRO FORMA
--------------- -----------------------------
JOHN HENRY/
MANHATTAN ADJUSTMENTS(5) COMBINED
--------------- ---------------- ------------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C>
Net sales .............................. $ -- $ -- $ 59,479
Royalty income ......................... 704 -- 6,240
---- ------- --------
Total revenues ......................... 704 -- 65,719
Cost of sales .......................... -- -- 44,173
---- ------- --------
Gross profit ........................... 704 -- 21,546
Selling, general, and
administrative expenses ............... 55 187 (b) 13,702
---- ------- --------
Operating income ....................... 649 (187) 7,844
Interest expense ....................... -- 312 (c) 4,247
---- ------- --------
Income before provision for
income taxes .......................... 649 (499) 3,597
Provision for income taxes ............. 41 14 (d) 1,291
---- ------- --------
Net income ............................. $608 $ (513) $ 2,306
==== ======= ========
Other Operating Data:
Ratio of earnings to fixed
charges(6) .......................... -- -- 1.8x
Depreciation and amortization ......... $ 55 $ 187 $ 2,178
EBITDA(7) ............................. $704 $ -- $ 10,022
</TABLE>
See Notes to Unaudited Pro Forma Combined Financial
Information.
37
<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 quarter ended
April 30, 1999 is the Company's historical interim financial reporting
period. For the pro forma quarter ended April 30, 1999 financial
information has been included for (i) PEI for the period of February 1,
1999 to April 6, 1999 (date acquired) and (ii) John Henry/Manhattan has
been included for the period of February 1, 1999 to March 29, 1999 (date
acquired).
(2) The PEI purchase price is $75,000, plus working capital less the net
severance and bonus amounts. Based upon PEI's December 31, 1998 balance
sheet, the purchase price is calculated as follows:
<TABLE>
<S> <C>
Purchase Price Determination:
Gross purchase price ..................................... $75,000
Net adjustments to purchase price ........................ 1,685
Expenses incurred in connection with acquisition ......... 2,916
-------
Net purchase price ...................................... $79,601
=======
Purchase Price Allocation:
Current assets ........................................... $ 3,477
Property, plant and equipment ............................ 20
Trademarks ............................................... 76,574
Accounts payable and accrued expenses .................... (470)
-------
Net purchase price ...................................... $79,601
=======
</TABLE>
The PEI 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 of
PEI 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.
38
<PAGE>
(3) The pro forma income statement data presents the effects of the PEI
acquisition and the offering of the existing notes, in each case as if
they occurred as of the beginning of such period, including:
<TABLE>
<CAPTION>
YEAR ENDED QUARTER ENDED
JANUARY 31, 1999 APRIL 30, 1999
------------------ ---------------
<S> <C> <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--20 years) ......... 3,705 638
Elimination of consulting fees, licensing fees, severance costs,
occupancy costs and employment costs that will not be incurred by
the Company ........................................................... (2,466) --
--------- --------
Total adjustment to selling, general and administrative expenses ...... 1,059 638
--------- --------
(b) The pro forma adjustments to interest expense arising from the PEI
acquisition and the offering of the existing note 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 existing 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 quarter
ended April 30, 1999 .................................................. (1,504) (388)
--------- --------
Total adjustment to income statement .................................. $ (10,451) $ (2,237)
========= ========
</TABLE>
In addition to the above, we believe additional cost savings will be realized
through the combination of the two companies.
(4) The John Henry/Manhattan purchase price is $27,000. Based upon the
financial statements of the John Henry and Manhattan Business of Salant
Corporation as of January 2, 1999, the allocation of the purchase price is
as follows:
<TABLE>
<S> <C>
PURCHASE PRICE ALLOCATION:
Current assets ................................................ $ 1,500
Trademarks .................................................... 27,440
Current Liabilities (expenses related to the acquisition) ..... (1,940)
--------
Net purchase price ................................... ..... $ 27,000
========
</TABLE>
The 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 of the John Henry/Manhattan acquisition 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.
39
<PAGE>
(5) 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 QUARTER ENDED
JANUARY 31, 1999 APRIL 30, 1999
------------------ ---------------
<S> <C> <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 20 years) ................ 1,372 242
Elimination of inter-company expenses ...................................... (113) --
Elimination of amortization of intangible assets not acquired .............. (330) (55)
-------- ------
Total adjustment to selling, general and administrative expenses .......... 929 187
-------- ------
(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 quarter
ended April 30, 1999 ........................................................ 258 14
-------- ------
Total adjustment to income statement ....................................... $ (2,356) $ (513)
======== ======
</TABLE>
In addition to the above, we believe additional cost savings will be realized
through the combination of the two companies.
(6) 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.
(7) 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.
40
<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 three months ended April 30, 1999 and 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>
FISCAL YEAR ENDED JANUARY 31,
-------------------------------------------------------------
1995 1996 1997 1998 1999
------------- ----------- ----------- ----------- -----------
<S> <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
Royalty income .............................................. -- 759 1,654 4,032 3,057
--------- -------- --------- -------- ---------
Total revenues .............................................. 90,564 122,598 159,027 194,721 224,404
Cost of sales ............................................... 69,187 92,145 122,046 145,991 166,198
--------- -------- --------- -------- ---------
Gross profit ................................................ 21,377 30,453 36,981 48,730 58,206
Selling, general and administrative expenses ................ 13,493 20,395 24,729 34,137 39,478
Depreciation and amortization ............................... 474 725 1,147 1,748 2,161
--------- -------- --------- -------- ---------
Operating income ............................................ 7,410 9,333 11,105 12,845 16,567
Interest expense ............................................ 1,219 2,224 1,664 2,782 3,494
--------- -------- --------- -------- ---------
Income before income taxes .................................. 6,191 7,109 9,441 10,063 13,073
Income taxes ................................................ 2,319 2,685 3,597 2,885 4,491
--------- -------- --------- -------- ---------
Net income .................................................. $ 3,872 $ 4,424 $ 5,844 $ 7,178 $ 8,582
========= ======== ========= ======== =========
OTHER FINANCIAL DATA AND RATIOS:
Net cash provided by (used in) operating activities ......... $ (20,015) $ 5,303 $ 1,874 $ (3,101) $ 14,341
Net cash provided by (used in) investing activities ......... (825) (1,492) (24,456) (4,555) (10,240)
Net cash provided by (used in) financing activities ......... 21,094 (3,894) 23,080 7,910 (4,938)
EBITDA(a) ................................................... 7,884 10,058 12,252 14,593 18,728
Capital expenditures ........................................ 747 1,309 1,058 3,828 4,005
Ratio of earnings to fixed charges(b) ....................... 5.3x 3.8x 5.7x 4.1x 4.2x
BALANCE SHEET DATA (AT PERIOD END):
Working capital ............................................. $ 43,067 $ 47,760 $ 23,575 $ 66,166 $ 71,300
Total assets ................................................ 55,512 53,735 88,158 101,650 108,958
Total debt(c) ............................................... 28,256 6,968 31,949 39,658 33,511
Total stockholders' equity .................................. 22,016 43,833 47,775 55,155 64,946
<CAPTION>
QUARTER ENDED APRIL 30,
--------------------------
1998 1999
------------ -------------
<S> <C> <C>
PERRY ELLIS INTERNATIONAL HISTORICAL
STATEMENT OF INCOME DATA:
Net sales ................................................... $ 60,085 $ 59,479
Royalty income .............................................. 1,022 2,316
-------- -----------
Total revenues .............................................. 61,107 61,795
Cost of sales ............................................... 45,459 44,173
-------- -----------
Gross profit ................................................ 15,648 17,622
Selling, general and administrative expenses ................ 10,154 10,179
Depreciation and amortization ............................... 493 979
-------- -----------
Operating income ............................................ 5,001 6,464
Interest expense ............................................ 891 1,948
-------- -----------
Income before income taxes .................................. 4,110 4,516
Income taxes ................................................ 1,473 1,624
-------- -----------
Net income .................................................. $ 2,637 $ 2,892
======== ===========
OTHER FINANCIAL DATA AND RATIOS:
Net cash provided by (used in) operating activities ......... $ (4,710) $ (4,609)
Net cash provided by (used in) investing activities ......... (1,868) (100,642)
Net cash provided by (used in) financing activities ......... 7,133 (105,526)
EBITDA(a) ................................................... 5,494 7,443
Capital expenditures ........................................ 1,831 139
Ratio of earnings to fixed charges(b) ....................... 4.9x 3.1x
BALANCE SHEET DATA (AT PERIOD END):
Working capital ............................................. $ 68,812 $ 76,394
Total assets ................................................ 112,124 219,613
Total debt(c) ............................................... 38,400 138,991
Total stockholders' equity .................................. 58,124 67,933
</TABLE>
(Continued on following page)
41
<PAGE>
<TABLE>
<CAPTION>
FISCAL YEAR ENDED DECEMBER 31,
------------------------------------------------------
1994 1995 1996 1997 1998
---------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C>
PEI HISTORICAL
STATEMENT OF INCOME DATA:
Net royalty revenues .................................... $ 10,074 $ 11,685 $ 10,917 $ 15,660 $ 16,177
Selling, general and administrative expenses ............ 7,239 5,594 8,606 7,109 8,398
Depreciation and amortization ........................... 37 200 212 226 228
-------- -------- -------- -------- --------
Operating income ........................................ 2,798 5,891 2,099 8,325 7,551
Interest income ......................................... 43 82 144 136 32
-------- -------- -------- -------- --------
Income before income taxes .............................. 2,841 5,973 2,243 8,461 7,583
Income taxes ............................................ 308 640 218 852 760
-------- -------- -------- -------- --------
Net income .............................................. $ 2,533 $ 5,333 $ 2,025 $ 7,609 $ 6,823
======== ======== ======== ======== ========
OTHER FINANCIAL DATA AND RATIOS:
Net Cash provided by (used in) operating activities ..... $ 3,982 $ 6,572 $ 2,311 $ 7,454 $ 5,624
Net Cash provided by (used in) investing activities ..... (1,902) (355) (1,047) 913 (21)
Net Cash provided by (used in) financing activities ..... (2,423) (4,763) (1,413) (9,679) (4,354)
EBITDA(a) ............................................... 2,878 6,173 2,455 8,688 7,811
Capital expenditures .................................... 1,402 355 47 87 21
BALANCE SHEET DATA (AT PERIOD END):
Working capital ......................................... $ (204) $ 1,281 $ 1,995 $ (27) $ 2,665
Total assets ............................................ 2,985 4,121 4,803 3,112 4,563
Total debt .............................................. 700 -- -- -- --
Total stockholders' equity .............................. 1,557 2,827 3,439 1,369 3,839
<CAPTION>
QUARTER ENDED
MARCH 31,
---------------------
1998 1999
--------- -----------
<S> <C> <C>
PEI HISTORICAL
STATEMENT OF INCOME DATA:
Net royalty revenues .................................... $6,738 $ 5,760
Selling, general and administrative expenses ............ 1,819 2,393
Depreciation and amortization ........................... 58 58
------ ---------
Operating income ........................................ 4,861 3,309
Interest income ......................................... 9 7
------ ---------
Income before income taxes .............................. 4,870 3,316
Income taxes ............................................ -- --
------ ---------
Net income .............................................. $4,870 $ 3,316
====== =========
OTHER FINANCIAL DATA AND RATIOS:
Net Cash provided by (used in) operating activities ..... $ 766 $ 3,601
Net Cash provided by (used in) investing activities ..... (9) --
Net Cash provided by (used in) financing activities ..... (800) (2,900)
EBITDA(a) ............................................... 4,919 3,367
Capital expenditures .................................... 9 --
BALANCE SHEET DATA (AT PERIOD END):
Working capital ......................................... -- $ 3,139
Total assets ............................................ -- 5,233
Total debt .............................................. -- --
Total stockholders' equity .............................. -- 4,255
</TABLE>
<TABLE>
<CAPTION>
FISCAL YEAR ENDED
JANUARY 2,
1999
------------------
<S> <C>
JOHN HENRY AND 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:
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.
42
<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 existing 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 is 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, 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
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men's dress shirts. In connection with the John Henry/Manhattan acquisition, we
assumed a lease for a shirt manufacturing facility in Mexico which expires 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 THREE MONTHS ENDED
JANUARY 31, APRIL 30,
------------------------------------ -----------------------
1997 1998 1999 1998 1999
---------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C>
Net sales ............................................ 99.0% 97.9% 98.6% 98.3% 96.3%
Royalty income ....................................... 1.0 2.1 1.4 1.7 3.7
----- ----- ----- ----- -----
Total revenues ....................................... 100.0 100.0 100.0 100.0 100.0
Cost of sales ........................................ 76.7 75.0 74.1 74.4 71.5
----- ----- ----- ----- -----
Gross profit ......................................... 23.3 25.0 25.9 25.6 28.5
Selling, general and administrative expenses ......... 16.3 18.4 18.5 17.4 18.0
----- ----- ----- ----- -----
Operating income ..................................... 7.0 6.6 7.4 8.2 10.5
Interest expense ..................................... 1.0 1.4 1.6 1.5 3.2
----- ----- ----- ----- -----
Income before income taxes ........................... 6.0 5.2 5.8 6.7 7.3
Income tax provision ................................. 2.3 1.5 2.0 2.4 2.6
----- ----- ----- ----- -----
Net income ........................................... 3.7% 3.7% 3.8% 4.3% 4.7%
===== ===== ===== ===== =====
</TABLE>
THREE MONTHS ENDED APRIL 30, 1999 AS COMPARED TO THREE MONTHS ENDED APRIL 30,
1998
TOTAL REVENUES. Total revenues consist of net sales and royalty income.
Total revenues grew $0.7 million or 1.1% to $61.8 million for the three months
ended April 30, 1999 from $61.1 million for the three months ended April 30,
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 $0.6 million or 1.0% to $59.5 million for
the three months ended April 30, 1999 from $60.1 million in the year ago
period. The decrease in sales was the result of the licensing of our boyswear
business, the financial instability of certain retail customers and a general
softness in the golf apparel market. These declines were partially offset by
increases in other branded products overall which grew to represent 85.3% of
net sales. Within branded products, the Natural Issue/Crossings brands
increased approximately $11.2 million to $23.4 million in net sales with
smaller increases experienced in the Andrew Fezza, PNB Nation and PING brand
names. Net sales of the Munsingwear brand declined during the three months
ended April 30, 1999 to approximately $16.2 million in net sales from $19.9
million in net sales from the year ago period due to the softness in the golf
apparel market.
ROYALTY INCOME. Royalty income increased $1.3 million or 126.7% to $2.3
million for the three months ended April 30, 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 three month period ended April 30,
1999 was $44.2 million, or 74.3% of net sales as compared to $45.5 million or
75.7% of net sales for the three months ended April 30, 1998. The decrease in
cost of sales as a percentage of net sales is a result of our increased sales
of branded products which typically generate higher gross profit margin than
private label
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products. Gross profit was $17.6 million or 29.6% of net sales for the three
months ended April 30, 1999 as compared to $15.6 million or 26.0% of net sales
for the three months ended April 30, 1998 due to the reasons stated above.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES. Selling, general and
administrative expenses excluding depreciation and amortization for the three
months ended April 30, 1999 were $10.2 million or 16.5% of total revenues as
compared to $10.2 million or 16.6% of total revenue for the three months ended
April 30, 1998. Depreciation and amortization for the three months ended April
30, 1999 increased $0.5 million to $1.0 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 $1.1 million for the three
months ended April 30, 1999, to $1.9 million from the comparable period a year
ago. The increase is attributable to the additional interest resulting from the
offering of the existing 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 three month period ended April 30, 1999 was
$42.7 million and the average interest rate was 7.54%.
INCOME TAXES. During the three month period ended April 30, 1999, our
effective tax rate remained unchanged at 36.0% compared to the three month
period ended April 30, 1998.
NET INCOME. Net income increased $0.3 million or 9.7% to $2.9 million or
4.7% of total revenues for the three months ended April 30, 1999 as compared to
$2.6 million or 4.3% of total revenues for the three months ended April 30,
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.
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
45
<PAGE>
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.
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.
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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 used in
operating activities was $4.6 million in the three months ended April 30, 1999
compared to $4.7 million in the year ago period.
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 and cash provided by
operating activities of $1.9 million in 1997. 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 $100.6 million for the three
months ended April 30, 1999 of which $27.9 million reflects the purchase of the
John Henry/Manhattan brand names and $72.5 million is the result of the PEI
acquisition.
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 three months ended April
30, 1999 totaled $105.6 million which was primarily the result of the offering
of the existing notes and a net increase of $15.0 million in borrowings under
the term loan 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.
Working capital (current assets less current liabilities) was $76.4
million and $71.3 million at April 30, 1999 and January 31, 1999, respectively.
Such amount represents an increase in working capital of $5.1 primarily as a
result of an increase in account receivables.
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 7.3:1, 8.2:1 and 7.9:1 at
April 30, 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
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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 (i) eligible factored accounts receivable is $20.0
million and (ii) eligible inventory is $30.0 million. Interest on revolving
borrowings is variable based, at our option, upon either LIBOR plus 2.50% or
the agent bank's prime rate plus 0.50%. 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 April 30, 1999 was $28.1 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 existing notes. The remaining net proceeds from the offering of
the existing 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 April 30,
1999, there was $38.3 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 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 April 30, 1999 would
result in an increase in annual interest expense of approximately $108,000.
EFFECTS OF INFLATION AND FOREIGN CURRENCY FLUCTUATIONS
We do not believe that inflation has significantly affected our results of
operations.
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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. 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.
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. Our current distribution
software was modified by expanding the date to be century compliant, and all
entry forms were modified using a windowing algorithm. The financial systems
Account Receivables, Accounts Payables and General Ledger were replaced with
Oracle Financial release 11.01, under Oracle 8.0.5 database. This is year 2000
compliant, and enhances our business analysis capabilities.
Our EDI application is software purchased from NGC, a company in Miami
Lakes, Florida. While we do not own the source code to this software, NGC
provided written certification of year 2000 compliance. Furthermore, we passed
the EDI year 2000 compliance test from NRF (National Retail Federation).
Results of the test can be found at http://www.nrf/editest/web.com. We are
ready to change to the new EDI 4010 documents whenever our customers are ready.
Some of our larger customers are already doing 4010 transactions with us. Our
EDI software is also ready to convert any non-compliant year 2000 EDI documents
to an internal year 2000 compliant transaction.
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All of our PBXs or telephone systems are year 2000 compliant and were
certified and tested by Lucent Technologies. The security system equipment year
2000 compliant certification could be found under http://www.napcosecurity.com.
The monitoring company, Security One, has provided us a year 2000 certification
of any Date Based System. We completed the required remediation noted above,
including testing, by December 31, 1998. However, there are also less
significant hardware options which will be remediated during 1999. To date, the
expense to outsiders incurred by us in order to become year 2000 compliant,
including computer software costs, have been $0.2 million and the current
additional estimated cost to outsiders to complete such remediation is expected
to be $0.2 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 we have 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 and the actions we must take, if any,
in the event of non-compliance by any of these third parties. Our initial
assessment of compliance by third party is that there is not a material
business risk to us 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.
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 Corporation and 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.
COMPETITIVE STRENGTHS
We believe that we have the following competitive advantages in our
industry:
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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 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
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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:
/bullet/ repositioned the brand based on our "family of brands" strategy;
/bullet/ improved the responsiveness to market trends by applying our
design and sourcing expertise; and
/bullet/ 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, we intend to license the Perry Ellis 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.
Our objective is to develop and enhance our brands by:
/bullet/ carefully maintaining distinct distribution channels for each of
our brands;
/bullet/ consistently designing, sourcing and marketing quality products;
/bullet/ reinforcing the image of our brands and continuously promoting
them; and
/bullet/ 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.
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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 also recently 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. We intend 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 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.
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 four nationally recognized brands,
which are the Natural Issue, Munsingwear, Grand Slam and Crossings brands.
There have been over 40 sub-brands developed from these four 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.
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
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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/registered trademark/ sub-brand for casual sportswear and
the Munsingwear Golf/registered trademark/ and Slammer/registered trademark/
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/registered trademark/ 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.
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,
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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
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
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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.
<TABLE>
<CAPTION>
PRODUCT CATEGORY
RETAIL CASUAL
DISTRIBUTION LEVEL SPORTSWEAR
<S> <C>
High End Specialty --
Retailer, Golf Shops,
Resorts
National Department Crossings
Stores Perry Ellis America(1)
Chain Stores Natural Issue
Alexander Martin/registered trademark/
Regional Stores Munsingwear
Lifestyle/registered trademark/
Mass Merchandisers Munsingwear
Classics/registered trademark/
Urban Stores --
Sporting Goods Stores --
<CAPTION>
RETAIL GOLF DRESS
DISTRIBUTION LEVEL SPORTSWEAR SPORTSWEAR
<S> <C> <C>
High End Specialty Perry Ellis(1) Perry Ellis(1)
Retailer, Golf Shops, Ping
Resorts Grand Slam Tour
National Department Grand Slam Andrew Feza
Stores Perry Ellis(1)
Chain Stores Penguin Sport John Henry
Regional Stores Munsingwear Golf/registered trademark/ Corporate Gear/registered trademark/
Slammer/registered trademark/ Career Club/registered trademark/
Mass Merchandisers Munsingwear Golf etcetera/registered trademark/
Classics/registered trademark/ Manhattan
Urban Stores -- --
Sporting Goods Stores Munsingwear --
<CAPTION>
RETAIL URBAN
DISTRIBUTION LEVEL SPORTSWEAR
<S> <C>
High End Specialty --
Retailer, Golf Shops,
Resorts
National Department PNB Nation
Stores
Chain Stores Tipo's/registered trademark/
Regional Stores --
Mass Merchandisers New Step/registered trademark/
Monte Fino/registered trademark/
Urban Stores PNB Nation
Sporting Goods Stores 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.
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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;"
"--Dependence on Contract Manufacturing" and "--Dependence on Foreign
Suppliers."
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 40 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 give 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
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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.
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 PEI acquisition in April 1999, concurrently with the
consummation of the offering of the existing notes. PEI was a privately held
company, which owns and licenses the Perry Ellis brand, 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 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). PEI 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. 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
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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 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 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
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."
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
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<PAGE>
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.
EMPLOYEES
We employed approximately 370 persons as of April 30, 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
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<PAGE>
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.
62
<PAGE>
MANAGEMENT
DIRECTORS AND EXECUTIVE OFFICERS
Our directors and executive officers are as follows:
<TABLE>
<CAPTION>
NAME AGE POSITION
- -------------------------------- ----- --------------------------------------------------
<S> <C> <C>
George Feldenkreis(1) .......... 63 Chairman of the Board and Chief Executive Officer
Oscar Feldenkreis .............. 39 President, Chief Operating Officer and Director
Neil S. Nackman ................ 39 Chief Financial Officer
Joseph Roisman ................. 53 Executive Vice President
Fanny Hanono ................... 38 Secretary-Treasurer
Allan Zwerner .................. 54 President of Licensing and Director
Ronald L. Buch ................. 63 Director
Gary Dix(1) .................... 51 Director
Salomon Hanono ................. 49 Director
Richard W. McEwen(2) ........... 78 Director
Leonard Miller(1)(2) ........... 69 Director
</TABLE>
- ----------------
(1) Member of Audit Committee.
(2) Member of Compensation Committee.
GEORGE FELDENKREIS founded the Company in 1967. He has been involved in
all aspects of its operations since that time and served as our President and a
Director until February 1993, at which time he was elected Chairman of the
Board and Chief Executive Officer. Mr. Feldenkreis is also a director,
executive officer and principal shareholder of Carfel, an importer and
distributor of automotive parts which he founded in 1961. He is Vice President
of the Greater Miami Jewish Federation and is a trustee of the University of
Miami.
OSCAR FELDENKREIS was elected Vice President and a Director in 1979 and
joined the Company on a full-time basis in 1980. Mr. Feldenkreis has been
involved in all aspects of its operations since that time and was elected
President and Chief Operating Officer in February 1993. Oscar Feldenkreis also
serves as a director of Carfel but does not devote any of his working time to
its affairs. He is also a board member of the Greater Miami Jewish Federation.
NEIL S. NACKMAN was appointed Chief Financial Officer in June 1999. From
1995 to present, Mr. Nackman was Vice President of Finance at Nautica
Enterprises, Inc. From 1992 to 1995, Mr. Nackman was an Audit and Consulting
Partner at Grant Thornton, a national accounting firm.
JOSEPH ROISMAN was appointed Executive Vice President of the Company in
September 1995. Previously, Mr. Roisman, who has been employed by the Company
since 1988, was Vice President, Sales.
FANNY HANONO was elected Secretary-Treasurer in September 1990. Mrs.
Hanono has been employed by Carfel since 1988 in various administrative
positions, most recently as Vice President of Carfel. Since 1996, Mrs. Hanono
has served as a board member of the Michael-Ann Russell Jewish Community
Center.
ALLAN ZWERNER was elected President of Licensing and a Director in April
1999. From September 1998 to present, Mr. Zwerner was Senior Vice
President-General Merchandising Manager, Menswear at J. Crew Group, Inc. From
March 12, 1982 to September 1998, Mr. Zwerner served in a
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<PAGE>
number of executive positions at Federated Department Stores, Inc., most
recently serving as Senior Vice President- General Merchandising Manager for
Market and Product Development, Men's and Children's Clothing.
RONALD L. BUCH was elected to our Board of Directors in January 1996.
Prior to his retirement in 1995, Mr. Buch was employed by Kmart Corporation for
over 39 years, most recently as Vice President and General Merchandise Manager.
GARY DIX was elected to our Board of Directors in May 1993. Since February
1994, Mr. Dix, a certified public accountant, has been a partner at Mallah
Furman & Company, P.A., an accounting firm in Miami, Florida. From 1979 to
January 1994, Mr. Dix was a partner of Silver Dix & Hammer, P.A., another Miami
accounting firm.
SALOMON HANONO was elected to our Board of Directors in February 1993. Mr.
Hanono has been employed by Carfel in various sales capacities since 1987 and
currently is its Export Director, with overall responsibilities for Carfel's
export sales. Mr. Hanono devotes substantially all of his working time to the
affairs of Carfel.
RICHARD W. MCEWEN was elected to our Board of Directors in September 1994.
Mr. McEwen serves as a director of Wometco Enterprises, Inc. Prior to his
retirement in 1985, Mr. McEwen was Chairman of the Board and Chief Executive
Officer of Burdines, a division of Federated Department Stores, Inc.
LEONARD MILLER was elected to our Board of Directors in May 1993. Mr.
Miller has been Vice President and Secretary of Pasadena Homes, Inc., a home
construction firm in Miami, Florida, since 1959.
George Feldenkreis is the father of Oscar Feldenkreis and Fanny Hanono and
the father-in-law of Salomon Hanono, Fanny Hanono's spouse. There are no other
family relationships among our directors and executive officers.
Our executive officers are elected annually by the Board of Directors and
serve at the discretion of the Board of Directors.
Our Articles of Incorporation were amended in 1998 to divide the Board of
Directors into three approximately equal classes with staggered terms.
Directors are elected for three-year terms and, in each case, until their
successors are duly elected and qualified or until their earlier death,
resignation or removal. Richard W. McEwen, Allan Zwerner and Oscar Feldenkreis
hold office until the 2000 annual meeting of shareholders, Gary Dix, Leonard
Miller and George Feldenkreis hold office until the 2001 annual meeting of
shareholders and Ronald L. Buch and Salomon Hanono hold office until the 2002
annual meeting of shareholders.
64
<PAGE>
COMPENSATION OF DIRECTORS
During fiscal 1999, non-employee directors, with the exception of Salomon
Hanono, were compensated at the rate of $1,500 per quarter and $500 for
meetings of the Board of Directors or any committee thereof attended during a
quarter, up to a maximum of $8,000 per annum. Effective April 23, 1999 the rate
at which non-employee directors are compensated has been increased to $5,000
per quarter, and Mr. Hanono will receive cash compensation for his services as
director. Directors are reimbursed for travel and lodging expenses in
connection with their attendance at meetings. Directors are also entitled to
receive options under the 1993 Plan and Directors' Plan. During fiscal 1999,
each employee director was granted options to purchase 5,000 shares of Common
Stock at an exercise price of $15.75 per share. In April 1999, each of
non-employee director was granted options to purchase 10,000 shares of Common
Stock at an exercise price of $8.81 per share. As of the date of this
prospectus, the following options granted to non-employee directors were
outstanding under the 1993 Plan and the Directors' Plan:
<TABLE>
<CAPTION>
NAME OF OPTIONEE NUMBER OF SHARES EXERCISE PRICE($) EXPIRATION DATE
- ---------------------------- ------------------ ------------------- ----------------
<S> <C> <C> <C>
Ronald L. Buch ............. 10,000 8.81 April 22, 2009
5,000 15.75 May 7, 2008
Gary Dix ................... 10,000 8.81 April 22, 2009
5,000 15.75 May 7, 2008
11,250 8.00 June 2, 2000
Richard W. McEwen .......... 10,000 8.81 April 22, 2009
5,000 15.75 May 7, 2008
7,500 8.00 June 2, 2000
Leonard Miller ............. 10,000 8.81 April 22, 2009
5,000 15.75 May 7, 2008
11,250 8.00 June 2, 2000
Salomon Hanono ............. 10,000 8.81 April 22, 2009
5,000 15.75 May 7, 2008
11,250 8.00 June 2, 2000
</TABLE>
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
None
65
<PAGE>
EXECUTIVE COMPENSATION
SUMMARY COMPENSATION TABLE
The following compensation table sets forth for fiscal 1999, fiscal 1998
and fiscal 1997, the cash and certain other compensation paid to the Chief
Executive Officer ("CEO") and such other executive officers whose annual salary
and bonus exceeded $100,000 during fiscal 1999 (together with the CEO,
collectively, the "Named Executive Officers"):
<TABLE>
<CAPTION>
LONG-TERM
ANNUAL COMPENSATION COMPENSATION AWARDS
------------------------------------- ------------------------------
SECURITIES
UNDERLYING ALL OTHER
SALARY BONUS OPTION/SAR'S COMPENSATION
NAME AND PRINCIPAL POSITION FISCAL YEAR ($) ($) (#) ($)(1)
- ---------------------------------------- ------------- --------- --------- -------------- -------------
<S> <C> <C> <C> <C> <C>
George Feldenkreis 1999 270,833 55,000 150,000 9,615
Chairman and CEO 1998 125,000 100,000 -- 4,750
1997 120,000 50,000 -- 500
Oscar Feldenkreis 1999 373,000 470,000 55,000 19,542
President and Chief Operating Officer 1998 350,000 460,000 -- 4,750
1997 350,000 450,000 -- 500
Joseph Roisman 1999 152,000 15,000 3,000 1,109
Executive Vice President 1998 147,000 21,000 -- 4,750
1997 140,000 10,000 -- 500
</TABLE>
- ----------------
(1) The dollar amount represents Company contributions for the Named Executive
Officer under the Company's 401(k) plan and Company payments for leased
vehicles.
EMPLOYMENT AGREEMENTS
We have an employment agreement with Oscar Feldenkreis, the President and
Chief Operating Officer, which was renewed in May 1998 for a two-year period.
In connection with the renewal of the employment agreement, Mr. Feldenkreis was
granted ten-year options under the 1993 Plan to purchase a total of 55,000
shares of Common Stock at an exercise price of $15.75 per share. The employment
agreement 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. In April
1999, the Compensation Committee increased Mr. Feldenkreis' annual salary to
$370,000 and adjusted his annual bonus to be based on the greater of $470,000
or 4% of the Company's pre tax income. The Compensation Committee also granted
him ten-year options under the 1993 Plan to purchase a total of 100,000 shares
of Common Stock at an exercise price of $8.81 per share, subject to the
approval by the shareholders at the 1999 annual meeting of shareholders. The
employment agreement also prohibits Mr. Feldenkreis from directly or indirectly
competing with us for one year after termination of his employment for any
reason except our termination of Mr. Feldenkreis without cause. Upon
termination of the employment agreement by reason of his 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.
We also have an employment agreement with George Feldenkreis, the Chairman
of the Board and CEO, which was renewed in May 1998 for a two-year period. In
connection with the renewal of the employment agreement, Mr. Feldenkreis was
granted options under the 1993 Plan to purchase a total of 150,000 shares of
Common Stock at an exercise price of $15.75 per share, subject to the approval
by the shareholders at the 1999 annual meeting of shareholders. The employment
agreement 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
66
<PAGE>
$250,000. George Feldenkreis' employment agreement contains termination and
non-competition provisions similar to those set forth in Oscar Feldenkreis'
agreement. In April 1999, the Compensation Committee increased Mr. Feldenkreis'
annual salary to $400,000 and granted him ten-year options under the 1993 Plan
to purchase a total of 250,000 shares of Common Stock at an exercise price of
$8.81 per share.
We are also party to an employment agreement with Allan Zwerner, the
President of Licensing, effective April 1999 and expiring in April 2002.
Pursuant to the employment agreement, Mr. Zwerner was granted options under the
1993 Plan to purchase a total of 25,000 shares of Common Stock vesting over a
three year period and at an exercise price equal to $8.81 per share. The
employment agreement provides for an annual salary of $350,000, subject to
annual cost of living increases and an annual performance bonus up to a maximum
of $175,000. The employment agreement prohibits Mr. Zwerner from directly or
indirectly competing with us for two years after termination of his employment
for any reason.
We are also party to an employment agreement with Neil S. Nackman, our
Chief Financial Officer, effective June 10, 1999 and expiring January 31, 2001.
Pursuant to the employment agreement, Mr. Nackman was granted options under the
1993 Plan to purchase a total of 30,000 shares of Common Stock vesting over a
three year period and at an exercise price equal to 10.75 per share. In
addition, in the event Mr. Nackman is employed with us on January 31, 2001 Mr.
Nackman will be granted options under the 1993 Plan to purchase total of 20,000
shares of Common Stock vesting over a three year period and at an exercise
price equal to the fair market value of the Common Stock on January 31, 2001.
The employment agreement provides for an annual salary of $244,400 and provides
for a guaranteed bonus of $20,000 on each of January 31, 2000 and January 31,
2001 provided he is still employed on those dates. The employment agreement
prohibits Mr. Nackman from directly or indirectly competing with us for one
year after termination of his employment for any reason.
OPTION GRANTS IN LAST FISCAL YEAR
The following table sets forth information concerning individual grants of
options made during fiscal 1999 to any of the Named Executive Officers.
<TABLE>
<CAPTION>
POTENTIAL REALIZABLE
VALUE OF ASSUMED
ANNUAL RATES OF
NUMBER OF % OF TOTAL STOCK PRICE
SHARES OPTIONS APPRECIATION FOR
UNDERLYING GRANTED TO EXERCISE OPTION TERMS
OPTIONS EMPLOYEES OR BASE ($)(1)
GRANTED IN FISCAL PRICE EXPIRATION ------------------------
(#)(1) YEAR ($/SH) DATE 5% 10%
------------ ------------ --------- ----------- ----------- ----------
<S> <C> <C> <C> <C> <C> <C>
George Feldenkreis ......... 150,000 38.8 15.75 5/07/08 1,485,764 3,765,217
Oscar Feldenkreis .......... 55,000 14.2 15.75 5/07/08 544,780 1,380,579
Joseph Roisman ............. 3,000 0.8 10.00 5/04/03 8,288 18,315
</TABLE>
- ----------------
(1) Based upon the exercise price, which was equal to the fair market on the
date of grant, and annual appreciation at the rate stated on such price
through the expiration date of the options. Amounts represented hypothetical
gains that could be achieved for the options if exercised at the end of the
term. The assumed 5% and 10% rates of stock price appreciation are provided
in accordance with the rules of the Securities and Exchange Commission (the
"Commission") and do not represent the Company's estimate or projection of
the future stock price. Actual gains, if any, are contingent upon the
continued employment of the Named Executive Officer through the expiration
date, as well as being dependent upon the general performance of the Common
Stock. The potential realizable values have not taken into account amounts
required to be paid for federal income taxes.
67
<PAGE>
STOCK OPTIONS HELD AT END OF FISCAL 1999
The following table indicates the total number and value of exercisable
and unexercisable stock options held by each of the Named Executive Officers as
of January 31, 1999. No options to purchase stock were exercised by any of the
Named Executive Officers in fiscal 1999.
<TABLE>
<CAPTION>
NUMBER OF SECURITIES VALUE OF UNEXERCISED
UNDERLYING UNEXERCISED IN-THE-MONEY
OPTIONS AT FISCAL YEAR-END(#) OPTIONS AT FISCAL YEAR-END($)
------------------------------- ---------------------------------
NAME EXERCISABLE UNEXERCISABLE EXERCISABLE(1) UNEXERCISABLE
- ---------------------------- ------------- --------------- ---------------- --------------
<S> <C> <C> <C> <C>
George Feldenkreis ......... 150,000 0 37,500 0
Oscar Feldenkreis .......... 100,000 0 354,400 0
Joseph Roisman ............. 12,000 2,500 98,213 13,500
</TABLE>
- ----------------
(1) Based on the Nasdaq National Market last sales price for the Company's
Common Stock on January 29, 1999 in the amount of $16.00 per share.
1993 STOCK OPTION PLAN
The purpose of the 1993 Plan is to advance our interests by providing an
additional incentive to attract and retain qualified persons as employees,
directors and consultants upon whose efforts and judgment our success is
largely dependent, through the encouragement of stock ownership in us by such
persons.
The 1993 Plan provides for the issuance of incentive stock options
("Incentive Stock Options") and nonqualified stock options ("Nonqualified Stock
Options"). An Incentive Stock Option is an option to purchase Common Stock that
meets the definition of "incentive stock option" set forth in Section 422 of
the Internal Revenue Code of 1986, as amended (the "Code"). A Nonqualified
Stock Option is an option to purchase Common Stock that meets certain
requirements in the 1993 Plan but does not meet the definition of an "incentive
stock option" set forth in Section 422 of the Code. Nonqualified Stock Options
and Incentive Stock Options are sometimes referred to herein as "options."
The number of shares of Common Stock that may be issued pursuant to
options granted under the 1993 Plan is 900,000. Our Board of Directors has
approved the amendment of the 1993 Plan, subject to shareholder approval at the
annual meeting of shareholders to be held on June 11, 1999, to increase the
number of shares of common stock that may be issued pursuant to options granted
under the 1993 Plan from 900,000 to 1,500,000. If any option granted pursuant
to the 1993 Plan terminates, expires, or is canceled or surrendered, in whole
or in part, shares subject to the unexercised portion may again be issued
pursuant to the exercise of options granted under the 1993 Plan. The shares
acquired upon exercise of options granted under the 1993 Plan are authorized
and unissued shares of Common Stock. Our shareholders will not have any
preemptive rights to purchase or subscribe for the shares reserved for issuance
under the 1993 Plan.
The 1993 Plan is administered by the Compensation Committee. The
Compensation Committee has the right to determine, among other things, the
persons to whom options are granted, the number of shares of Common Stock
subject to options, the exercise price of options and the terms thereof.
As of April 30, 1999, options to purchase a total 1,141,500 shares of
Common Stock had been granted pursuant to the 1993 Plan, 147,875 of which have
been exercised and 997,000 of which are outstanding (of which 820,187 options
are exercisable). Outstanding options, which are held by approximately 53
persons, are exercisable through various expiration dates from 1999 to 2009.
68
<PAGE>
PRINCIPAL SHAREHOLDERS
The following table sets forth certain information regarding the
beneficial ownership of the Company's Common Stock as of the date of this
prospectus, by (i) each of the shareholders of the Company who is known by the
Company to own more than 5% of the outstanding shares of Common Stock, (ii)
each director of the Company, (iii) each Named Executive Officer and (iv) all
directors and executive officers of the Company as a group.
<TABLE>
<CAPTION>
NUMBER OF
NAME AND ADDRESS OF BENEFICIAL OWNER(1)(2) SHARES % OF CLASS OUTSTANDING
- -------------------------------------------- ----------- -----------------------
<S> <C> <C>
George Feldenkreis(3) ...................... 1,988,153 27.9
Oscar Feldenkreis(4) ....................... 1,408,188 20.3
Fanny Hanono(5) ............................ 399,858 6.0
Salomon Hanono(5)(6) ....................... 426,108 6.3
Carfel, Inc.(7) ............................ 361,525 5.4
Joseph Roisman(8) .......................... 13,500 *
Allan Zwerner(9) ........................... 0 *
Ronald Buch(10) ............................ 15,750 *
Gary Dix(11) ............................... 31,800 *
Richard W. McEwen(12) ...................... 24,750 *
Leonard Miller(13) ......................... 65,250 *
FMR Corporation ............................ 872,500 13.0
82 Devonshire Street
Boston, Massachusetts 02109(14)
The Kaufmann Funds, Inc. ................... 450,000 13.0
140 East 45th Street, 43rd Floor
New York, New York 10017(15)
All directors and executive officers as
a group (10 persons)(16) .................. 3,803,699 51.0
</TABLE>
- ----------------
Less than 1%
(1) Except as otherwise indicated, the address of each beneficial owner is
c/o Perry Ellis International, Inc., 3000 N.W. 107th Avenue, Miami,
Florida 33172.
(2) Except as otherwise indicated, we believe that all beneficial owners named
in the table have sole voting and investment power with respect to all
shares of Common Stock beneficially owned by them.
(3) Represents (a) 1,141,728 shares of Common Stock held by George
Feldenkreis, (b) 400,000 shares of Common Stock issuable upon the exercise
of stock options held by George Feldenkreis, (c) 361,525 shares of Common
Stock held by Carfel, Inc. ("Carfel") of which company Mr. Feldenkreis is
a director, executive officer and principal shareholder and (d) 84,900
shares of Common Stock held by a charitable foundation of which George
Feldenkreis, Oscar Feldenkreis and Fanny Hanono are each directors and
officers (the "Foundation").
(4) Represents (a) 1,122,288 shares of Common Stock held by a limited
partnership of which Oscar Feldenkreis is the sole shareholder of the
general partner and the sole limited partner, (b) 1,000 shares of Common
Stock held by Mr. Feldenkreis directly, (c) 200,000 shares of Common Stock
issuable upon the exercise of stock options held by Oscar Feldenkreis and
(d) 84,900 shares held by the Foundation.
(5) Represents (a) 314,958 shares of Common Stock held by a limited
partnership of which Fanny Hanono is the sole shareholder of the general
partner and the sole limited partner and (b) 84,900 shares held by the
Foundation. Fanny Hanono and Salomon Hanono are husband and wife.
(6) Also includes 26,250 shares of Common Stock issuable upon the exercise of
stock options held by Mr. Hanono.
(7) The shares of Common Stock held by Carfel are pledged to a bank to secure
Carfel's credit facility.
(8) Represents (a) 1,500 shares of Common Stock held by Mr. Roisman and (b)
12,000 shares of Common Stock issuable upon the exercise of stock options
held by Mr. Roisman.
(9) Does not include unvested stock options to acquire 25,000 shares of Common
Stock held by Mr. Zwerner. Mr. Zwerner joined the Company as President of
Licensing and a director in April 1999.
(10) Represents (a) 750 shares of Common Stock held by Mr. Buch and (b) 15,000
shares of Common Stock issuable upon the exercise of stock options held by
Mr. Buch.
(11) Represents (a) 3,000 shares of Common Stock held by Mr. Dix, (b) 1,800
shares of Common Stock held in trust for his children, (c) 750 shares held
in an individual retirement account and (d) 26,250 shares of Common Stock
issuable upon the exercise of stock options held by Mr. Dix.
(12) Represents (a) 2,250 shares of Common Stock held by Mr. McEwen and (b)
22,500 shares of Common Stock issuable upon the exercise of stock options
held by Mr. McEwen.
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<PAGE>
(13) Represents (a) 39,000 shares of Common Stock held by Mr. Miller and (b)
26,250 shares of Common Stock issuable upon the exercise of stock options
held by Mr. Miller.
(14) Based solely on information contained in an amendment to Schedule 13G
dated December 30, 1998 filed with the Commission. 380,000 of these shares
of Common Stock are owned by Fidelity Capital Appreciation Fund, a
wholly-owned subsidiary of FMR Corporation.
(15) Based solely on information contained in Schedule 13G dated December 31,
1996 filed with the Commission.
(16) Includes the shares of Common Stock and options to purchase shares of
Common Stock described in notes (3) through (6), (8) and (10) through
(13).
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
LEASE AGREEMENTS
See "Business--Facilities" with respect to certain facilities leased
jointly by the Company and Carfel.
Prior to the consolidation of our administrative offices and warehouse and
distribution facilities, we occupied the following properties from affiliated
parties.
We lease an approximately 16,900 square foot building in Miami, Florida
which housed our executive offices. The space is leased from George
Feldenkreis, the Company's Chairman of the Board, pursuant to a lease which
expires in December 2000. The annual rental for the office facility is
approximately $128,000. We will continue to pay rent on this facility until the
expiration of the lease or until the lease of the facility to another party.
We also leased an approximately 49,000 square foot warehouse/office
building adjacent to our former executive offices from George Feldenkreis
pursuant to a lease which expired in April 1998. Fiscal 1999 rental for this
facility was approximately $282,000. In January 1999, we vacated this building.
We also lease an approximately 32,000 square foot warehouse and
approximately 16,900 square feet of office space from a partnership of which
Mr. Feldenkreis is a general partner. This warehouse was leased pursuant to a
lease which expired in June 1998. Fiscal 1999 rental for this facility was
approximately $136,000. This facility is currently being leased on a
month-to-month basis for a monthly rental of $11,333.
LICENSING AGREEMENTS
In January 1995, we entered into a license agreement ("Isaco License
Agreement") with Isaco International, Inc. ("Isaco"), pursuant to which Isaco
was granted an exclusive license to use the Natural Issue brand in the United
States and its territories and possessions to market a line of men's underwear
and loungewear. In June 1998, the Company and Isaco extended the Isaco License
Agreement for an additional year at a guaranteed minimum royalty of $137,500.
Royalty income earned from Isaco License Agreement amounted to approximately
$298,000, $296,000 and $243,000 for fiscal 1999, 1998 and 1997, respectively.
The principal shareholder of Isaco is Isaac Zelcer, who is Oscar Feldenkreis'
father-in-law.
In January 1998, we 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.
PURCHASE OF EXISTING NOTES
In connection with the offering of the existing notes, Carfel purchased
$5,000,000 aggregate principal of existing notes. Carfel will not participate
in the exchange offer and has agreed not to sell the existing notes except
pursuant to a shelf registration statement and not before September 13, 1999.
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The Company believes that its arrangements with George Feldenkreis, Carfel
and Isaco are on terms at least as favorable as the Company could secure from a
non-affiliated third party.
DESCRIPTION OF OTHER INDEBTEDNESS
SENIOR CREDIT FACILITY
Our Senior Credit Facility, as amended as of March 26, 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 existing 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) 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 (i) eligible factored accounts receivable is $20.0 million, and
(ii) 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 0.50% with adjustments depending upon our ratio of indebtedness to EBITDA
at the time of borrowing or (b) 2.50% 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
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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.
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 1999 and the other two facilities, aggregating
$15.0 million, have perpetual terms.
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DESCRIPTION OF THE NOTES
The exchange notes will be issued and the existing 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"). Upon the issuance of the exchange notes, if any, or the
effectiveness of the shelf registration statement, the Indenture will be
subject to and governed by the Trust Indenture Act of 1939, as amended (the
"Trust Indenture Act"). References to the Notes include the exchange notes
unless the context otherwise requires.
The following 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 existing notes, the Company and the Guarantors agreed
for the benefit of the holders of the existing notes, at the Company's and the
Guarantors' cost, to effect a registered exchange offer under the Securities
Act to exchange the existing notes for exchange notes, which will have terms
identical in all material respects to the exchange notes (except that the
exchange notes will not contain terms with respect to transfer restrictions or
interest rate increases) and in certain circumstances to register the Notes for
resale under the Securities Act through the shelf registration statement. The
failure to consummate the exchange offer or to register the Notes for resale
under the shelf registration statement may result in the Company paying
additional interest on the Notes.
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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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.
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
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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 (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
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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 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
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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 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 existing 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.
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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.
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
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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 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;
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(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, 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,
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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
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.
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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 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
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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 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.
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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
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.
(b) 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.
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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 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.
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.
(d) 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
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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).
(e) The Board of Directors of the Company may designate any Unrestricted
Subsidiary as a Restricted Subsidiary if:
(i) no Default or Event of Default shall have occurred and be continuing
at the time of and after giving effect to such designation; and
(ii) 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
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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, theCompany'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
successor Person to which such sale, assignment, conveyance, transfer, lease or
disposition is made
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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:
(iii) 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;
(iv) 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);
(v) 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;
(vi) 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;
(vii) (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;
(viii) 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;
(ix) 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
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(x) 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.
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
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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 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
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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 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
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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 ccurred 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.
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
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(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 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
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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 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;
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(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, (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
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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 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.
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"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.
"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
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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.
"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.
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"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.
"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
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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 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 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.
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"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.
"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.
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"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.
"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
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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 exchange notes are expected to be 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.
THE GLOBAL NOTES. We expect that, pursuant to procedures established by
DTC, ownership of the Global Notes will be 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
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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 will be 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 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
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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.
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REGISTRATION RIGHTS
The Company, the Guarantors and the initial purchasers entered into the
registration rights agreement on March 31, 1999, pursuant to which the Company
and the Guarantors agreed, for the benefit of the holders of the existing
notes, that they will, at their own expense, (i) file an exchange offer
registration statement with the Commission with respect to an offer to exchange
the existing notes for the exchange notes having substantially identical terms
in all material respects to the existing notes (except that the exchange notes
will not contain terms with respect to transfer restrictions or interest rate
increases as described herein) within 65 calendar days after the issue date of
the existing notes, (ii) use their best efforts to cause the exchange offer
registration statement to be declared effective by the Commission under the
Securities Act within 135 calendar days after the issue date and (iii) use
their best efforts to consummate the exchange offer within 160 calendar days
after the issue date. Upon the exchange offer registration statement being
declared effective, the Company will offer the exchange notes in exchange for
surrender of the existing notes. The Company and the Guarantors will keep the
exchange offer open for at least 30 days (or longer if required by applicable
law) after the date that notice of the exchange offer is mailed holders of the
existing notes.
In the event that (i) any changes in law or the applicable interpretations
of the staff of the Commission do not permit the Company to effect the exchange
offer, (ii) for any other reason the exchange offer is not consummated within
160 days after the issue date, (iii) under certain circumstances, if the
initial purchasers shall so request or (iv) any holder of existing Notes (other
than the Initial Purchasers) is not eligible to participate in the exchange
offer, the Company and the Guarantors will, at their expense, (a) as promptly
as practicable, file with the Commission a shelf registration statement
covering resales of the existing Notes, (b) use their best efforts to cause the
shelf registration statement to be declared effective under the Securities Act
on or prior to 150 days after the issue date and (c) use their best efforts to
keep effective the shelf registration statement until the earlier of two years
after its issue date or such shorter period ending when all Notes covered by
the shelf registration statement have been sold in the manner set forth and as
contemplated in the shelf registration statement or when the Notes become
eligible for resale pursuant to Rule 144 under the Securities Act without
volume restrictions, if any. The Company, will, in the event of the filing of
the shelf registration statement, provide to each holder of the Notes copies of
the prospectus which is a part of the shelf registration statement, notify each
such holder when the shelf registration statement has become effective and take
certain other actions as are required to permit unrestricted resales of the
Notes. A holder of Notes that sells its Notes pursuant to the shelf
registration statement generally will be required to be named as a selling
securityholder in the related prospectus and to deliver a prospectus to
purchasers, will be subject to certain of the civil liability provisions under
the Securities Act in connection with such sales and will be bound by the
provisions of the registration rights agreement that are applicable to such a
holder (including certain indemnification rights and obligations thereunder).
In addition, each holder of the Notes will be required to deliver information
to be used in connection with the shelf registration statement and to provide
comments on the shelf registration statement within the time periods set forth
in the registration rights agreement in order to have their Notes included in
the shelf registration statement and to benefit from the provisions regarding
liquidated damages set forth in the following paragraph.
In the event that either (a) the exchange offer registration statement has
not been declared effective on or prior to the 135th calendar day following the
issue date or (b) the exchange offer is not consummated or a shelf registration
statement is not declared effective on or prior to the 160th calendar day
following the issue date, the interest rate borne by the Notes shall be
increased by one-quarter of one percent per annum following such 65-day period
in the case of clause (a) above, following such 135-day period in the case of
clause (b) above or following such 160-day period in the case of clause (c)
above, which rate will be increased by an additional one-quarter of one percent
per annum for each 90-day period that any additional interest continues to
accrue; provided that the aggregate increase in such annual interest rate may
in no event exceed one percent. Upon (x) the filing of the exchange offer
registration statement after the 65-day period described in clause (a) above,
(y) the effectiveness of the exchange offer registration statement after the
135-day period
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described in clause (b) above or (z) the consummation of the exchange offer or
the effectiveness of a shelf registration statement, as the case may be, after
the 160-day period described in clause (c) above, the interest rate borne by
the Notes from the date of such filing, effectiveness or consummation, as the
case may be, will be reduced to the original interest rate if the Company and
the Guarantors are otherwise in compliance with this paragraph; provided,
however, that if, after any such reduction in interest rate, a different event
specified in clause (a), (b) or (c) above occurs, the interest rate may again
be increased pursuant to the foregoing provisions. The registration rights
agreement is also attached as an exhibit to this registration statement. In
addition, the information set forth above concerning certain interpretations of
and positions taken by the staff of the SEC is not intended to constitute legal
advice, and prospective investors should consult their own advisors with
respect to such matters.
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PLAN OF DISTRIBUTION
Each broker-dealer that receives exchange notes for its own account
pursuant to the exchange offer must acknowledge that it will deliver a
prospectus in connection with any resale of such exchange notes. This
prospectus, as it may be amended or supplemented from time to time, may be used
by a broker-dealer in connection with resales of exchange notes received in
exchange for existing notes where such existing notes were acquired as a result
of market-making activities or other trading activities. In addition, until
August 2, 1999 all dealers effecting transactions in the exchange notes may be
required to deliver a prospectus.
The Company will not receive any proceeds from any sale of exchange notes
by broker-dealers. Exchange notes received by broker-dealers for their own
account pursuant to the exchange offer may be sold from time to time in one or
more transactions in the over-the-counter market, in negotiated transactions,
through the writing of options on the exchange notes or a combination of such
methods of resale, at market prices prevailing at the time of resale, at prices
related to such prevailing market prices or at negotiated prices. Any such
resale may be made directly to purchasers or to or through brokers or dealers
who may receive compensation in the form of commissions or concessions from any
such broker-dealer or the purchasers of any such exchange notes. Any
broker-dealer that resells exchange notes that were received by it for its own
account pursuant to the exchange offer and any broker or dealer that
participates in a distribution of such exchange notes may be deemed to be an
"underwriter" within the meaning of the Securities Act and any profit on any
such resale of exchange notes and any commission or concessions received by any
such person may be deemed to be underwriting compensation under the Securities
Act. The letter of transmittal states that, by acknowledging that it will
deliver and by delivering a prospectus, a broker-dealer will not be deemed to
admit that it is an "underwriter", within the meaning of the Securities Act.
The Company has agreed to pay all expenses incident to the exchange offer
(including the expenses of one counsel for the holders of the notes), other
than commissions or concessions of any broker-dealers, and will indemnify the
holders of the notes (including any broker-dealers) against certain
liabilities, including liabilities under the Securities Act.
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CERTAIN FEDERAL TAX CONSIDERATIONS
EFFECT OF EXCHANGE OF EXISTING NOTES FOR EXCHANGE NOTES
The following discussion is based on the current provisions of the
Internal Revenue Code of 1986, as amended (the "Code"), applicable Treasury
regulations, judicial authority and administrative rulings and practice. There
can be no assurance that the Internal Revenue Service (the "Service") will not
take a contrary view, and no ruling from the Service has been or will be
sought. Legislative, judicial or administrative changes or interpretations may
be forthcoming that could alter or modify the statements and conditions set
forth herein. Any such changes or interpretations may or may not be retroactive
and could affect the tax consequences to holders. Certain holders (including
insurance companies, tax-exempt organizations, financial institutions,
broker-dealers, foreign corporations and persons who are not citizens or
residents of the United States) may be subject to special rules not discussed
below. We recommend that each holder consult such holder's own tax advisor as
to the particular tax consequences of exchanging such holder's existing notes
for exchange notes, including the applicability and effect of any state, local
or foreign tax laws.
We believe that the exchange of the existing notes for notes pursuant to
the exchange offer will not be treated as an "exchange" for federal income tax
purposes because the exchange notes will not be considered to differ materially
in kind or extent from the exchange notes. Rather, the exchange notes received
by a holder will be treated as a continuation of the existing notes in the
hands of such holder. As a result, there will be no federal income tax
consequences to holders exchanging outstanding notes for exchange notes
pursuant to the exchange offer.
EFFECTS ON NON-UNITED STATES HOLDERS
The following is a general discussion of certain United States federal
income and estate tax consequences of the acquisition, ownership and
disposition of notes by an initial beneficial owner of notes that, for United
States federal income tax purposes, is a Non-United States Holder. This
discussion is based upon the United States federal tax law now in effect, which
is subject to change, possibly retroactively. For purposes of this discussion,
a "Non-United States Holder" means a holder of a note that is, for United
States federal income tax purposes, (a) a nonresident alien individual, (b) a
foreign corporation, (c) a foreign estate, (d) a foreign trust, or (e) a
foreign partnership one or more of the members of which is, for United States
federal income tax purposes, a nonresident alien individual, a foreign
corporation, a foreign estate, or a foreign trust. (For United States federal
income tax purposes: (a) a corporation or partnership is foreign unless it is
created or organized under the laws of the United States or of a political
subdivision of the United States; (b) a foreign estate is an estate other than
an estate whose income is includable in gross income for federal income tax
purposes regardless of its source; and (c) a foreign trust is any trust other
than a trust as to which (i) a United States court is able to exercise primary
supervision over the administration of the trust, and (ii) one or more United
States persons have the authority to control all substantial decisions of the
trust.) The tax treatment of the holders of the notes may vary depending upon
their particular situations. United States persons acquiring the notes are
subject to different rules than those discussed below. In addition, certain
other holders (including insurance companies, tax-exempt organizations,
financial institutions and broker-dealers) may be subject to special rules not
discussed below. Prospective investors are urged to consult their tax advisors
regarding the United States federal tax consequences of acquiring, holding and
disposing of notes, as well as any tax consequences that may arise under the
laws of any foreign, state, local, or other taxing jurisdiction.
INTEREST
Interest paid by us on the notes to a Non-United States Holder will not be
subject to United States federal income or withholding tax if such interest is
not effectively connected with the conduct of a trade or business within the
United States by such Non-United States Holder and such Non-United States
Holder (a) does not actually or constructively own 10% of the total combined
voting
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power of stock of all classes of our stock; (b) is not a controlled foreign
corporation with respect to which we directly or indirectly is a "related
person" within the meaning of the United States Internal Revenue Code of 1986,
as amended (the "Code"); (c) is not a bank making a loan in its ordinary course
of business; and (d) either (A) the beneficial owner of the note certifies to
us or our agent, under penalties of perjury, that such owner is not a United
States person and provides its name and address (which certification can be
made on IRS Form W-8 or Form W-8BEN) or (B) a securities clearing organization,
bank or other financial institution that holds customers' securities in the
ordinary course of its trade or business (a "Financial Institution") certifies
to us or to our agent, under penalties of perjury, that the certification
described in clause (A) hereof has been received from the beneficial owner or
by another financial institution acting for the beneficial owner. Recently
issued final Treasury Regulations (the "Final Regulations"), which apply to
payments on a note after December 31, 1999, also provide that the certification
requirements set forth above generally will be fulfilled if beneficial owners
(including partners of certain foreign partnerships), as well as certain
foreign partnerships, meet the two conditions set forth in the preceding
sentence. However, certain beneficial owners including foreign estates or
trusts (or a fiduciary thereof) and foreign partnerships that have entered into
a withholding agreement with the IRS will be required to provide their
"taxpayer identification number" in addition to their name and address on Form
W-8. Foreign partnerships and their partners should consult their tax advisors
regarding possible additional reporting requirements.
GAIN ON DISPOSITION
A Non-United States Holder will generally not be subject to United States
federal income tax on a gain recognized on a sale, redemption or other
disposition of a note unless (a) the gain is effectively connected with the
conduct of a trade or business within the United States by the Non-United
States Holder or (b) in the case of a Non-United States Holder who is a
nonresident alien individual and holds the note as capital asset, such holder
is present in the United States for 183 or more days in the taxable year of
disposition and certain other requirements are met.
FEDERAL ESTATE TAXES
If interest on the notes is exempt from withholding of United States
federal income tax under the rules described above, the notes will not be
included in the estate of a deceased Non-United States Holder for United States
federal estate tax purposes.
INFORMATION REPORTING AND BACKUP WITHHOLDING
We will, where required, report to the holders of notes and the Internal
Revenue Service the amount of any interest paid on the notes in each calendar
year and the amounts of tax withheld, if any, with respect to such payments.
In the case of payments of interest to Non-United States Holders, Treasury
regulations provide that the 31% backup withholding tax and certain information
reporting will not apply to such payments with respect to which either the
requisite certification, as described above, has been received or an exemption
has otherwise been established; provided that neither we nor our paying agent
has actual knowledge that the holder is a United States person or that the
conditions of any other exemption are not in fact satisfied. Under these
Treasury regulations, information reporting and backup withholding will apply,
however, to the gross proceeds paid to a Non-United States Holder on the
disposition of the notes by or through a United States office of a United
States or foreign broker, unless the holder certifies to the broker under
penalties of perjury as to its name, address and status as a foreign person or
the holder otherwise establishes an exemption. Information reporting
requirements, but not backup withholding, will also apply to a payment of the
proceeds of a disposition of the notes by or through a foreign office of a
United States broker or foreign brokers with certain types of relationships to
the United States unless such broker has documentary evidence in its file that
the holder of the notes is not a United States person, and such broker has no
actual
110
<PAGE>
knowledge to the contrary, or the holder establishes an exception. Neither
information reporting nor backup withholding generally will apply to a payment
of the proceeds of a disposition of the notes by or through a foreign office of
a foreign broker not subject to the preceding sentence. The Final Regulations
modify the application of the information reporting and backup withholding tax
to Non-United States Holders for payments made after December 31, 1999. Among
other things, these regulations may require such holders to furnish new
certifications of their non-United States status. Prospective investors,
including foreign partnerships and their partners, should consult their tax
advisors regarding possible additional reporting requirements.
Backup withholding is not an additional tax. Any amounts withheld under
the backup withholding rules may be refunded or credited against the Non-United
States Holder's United States federal income tax liability provided that the
required information is furnished to the Internal Revenue Service.
The Treasury Department recently promulgated final regulations regarding
the withholding and information reporting rules discussed above. The final
regulations do not significantly alter the substantive withholding and
information reporting requirements but rather unify current certification
procedures and forms and clarify reliance standards. The final regulations are
generally effective for payments made after December 31, 1999, subject to
certain transition rules. Non-United States holders should consult their own
tax advisors with respect to the impact, if any, of the new final regulations.
LEGAL MATTERS
The validity of the notes offered hereby will be passed upon for us 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, and are
included in reliance upon the report of such firm given upon their authority as
experts in accounting and auditing.
111
<PAGE>
WHERE YOU CAN FIND MORE INFORMATION
We are subject to the informational requirements of the Securities
Exchange Act of 1934, as amended, and in accordance therewith files reports,
proxy statements and other information with the Commission. Such reports, proxy
statements and other information may be inspected and copied, without charge,
at the public reference facilities of the Commission located at 450 Fifth
Street, N.W., Washington, D.C. 20549 and at the Commission's regional offices
located at Seven World Trade Center, New York, New York 10048 and Northwestern
Atrium Center, 500 West Madison Street, Suite 1400, Chicago, Illinois
60661-2511. Such materials can also be obtained on the Commission's site on the
Internet at http://www.sec.gov. Copies can also be obtained by mail at
prescribed rates. Requests for copies should be directed to the Commission's
Public Reference Section, Judiciary Plaza, 450 Fifth Street, N.W., Washington,
D.C. 20549. Our common stock is traded on the Nasdaq National Market/registered
trademark/ and, as a result, the periodic reports, proxy statements and other
information filed by us with the Commission can be inspected at the offices of
the Nasdaq National Market, 1735 K Street, N.W., Washington, D.C. 20006.
112
<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 three months ended April 30, 1999 and 1998:
Consolidated Balance Sheets as of April 30, 1999 (Unaudited) and January 31, 1999 ....... F-22
Consolidated Statements of Operations (Unaudited) for the three months ended
April 30, 1999 and April 30, 1998 ..................................................... F-23
Consolidated Statements of Cash Flows (Unaudited) for the three months ended
April 30, 1999 and April 30, 1998 ..................................................... F-24
Notes to Consolidated Financial Statements (Unaudited) .................................. F-25
PERRY ELLIS INTERNATIONAL, INC. (CURRENTLY KNOWN AS PEI)
Independent Auditors' Report ............................................................. F-30
Balance Sheets as of December 31, 1997 and 1998 and March 31, 1999 (unaudited) ........... F-31
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-32
Undistributed income for the years ended December 31, 1996, 1997 and 1998
and for the quarter ended March 31, 1999 (unaudited) .................................... F-33
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-34
Notes to Financial Statements ............................................................ F-35
JOHN HENRY AND MANHATTAN BUSINESS
Independent Auditors' Report ............................................................. F-38
Statement of Revenues, Direct Expenses and Allocated Corporate Expenses
Before Interest and Domestic Income Taxes for the year ended January 2, 1999 ............ F-39
Statement of Net Assets to be Sold as of January 2, 1999 ................................. F-40
Notes to Financial Statements Year ended January 2, 1999 ................................. F-41
</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
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 CORPORATION 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 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
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)
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 stockholders (dividends). SFAS No. 130 is effective for fiscal
years beginning after December 15, 1997. The Company adopted SFAS No. 130
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)
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/registered trademark/, GRAND SLAM
TOUR/registered trademark/, PENGUIN SPORT/registered trademark/, 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
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)
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).
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 2,299,704
------------ ------------
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>
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.
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
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>
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.
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--(CONTINUED)
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. 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 Operating Officer. Royalty
income earned from the License
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)
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 OPTIONS 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
REMAINING WEIGHTED WEIGHTED
RANGE OF NUMBER CONTRACTUAL LIFE AVERAGE NUMBER 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.
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.
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)
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 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.
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)
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.
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.
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--(CONTINUED)
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>
APRIL 30, 1999 JANUARY 31, 1999
---------------- -----------------
(UNAUDITED)
<S> <C> <C>
ASSETS
Current Assets
Cash ............................................................... $ 448,551 $ 173,493
Accounts receivable, net ........................................... 54,615,839 38,969,845
Inventories ........................................................ 28,155,298 32,965,655
Deferred income taxes .............................................. 1,091,482 1,091,482
Deposits for acquisitions .......................................... -- 6,000,000
Other current assets ............................................... 4,211,552 2,040,200
------------ ------------
Total current assets ........................................... 88,522,722 81,240,675
Property and equipment, net ........................................ 7,744,995 7,851,592
Intangible assets, net ............................................. 122,243,599 18,842,797
Other .............................................................. 1,101,790 1,022,467
------------ ------------
TOTAL .......................................................... $219,613,106 $108,957,531
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Accounts payable ................................................... $ 6,790,864 $ 4,595,688
Accrued expenses ................................................... 4,303,243 4,931,525
Other current liabilities .......................................... 1,034,554 413,505
------------ ------------
Total current liabilities ...................................... 12,128,661 9,940,718
Bonds payable, net ................................................. 95,901,381 --
Deferred income taxes .............................................. 559,728 559,728
Long term debt--senior credit agreement ............................ 28,090,346 33,511,157
Long term debt--term loans ......................................... 15,000,000 --
------------ ------------
Total liabilities .............................................. 151,680,116 44,011,603
------------ ------------
Commitments and Contingencies: (Note 9)
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; 6,723,374 and 6,712,374 shares issued and outstanding
as of April 30, 1999 and January 31, 1999, respectively ......... 67,233 67,123
Additional paid-in-capital ......................................... 28,901,619 28,806,455
Retained earnings .................................................. 38,964,138 36,072,350
------------ ------------
Total stockholders' equity ..................................... 67,932,990 64,945,928
------------ ------------
TOTAL .......................................................... $219,613,106 $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>
THREE MONTHS ENDED
APRIL 30,
-----------------------------------
1999 1998
---------------- ----------------
<S> <C> <C>
Revenues:
Net Sales ......................................... $ 59,478,771 $ 60,085,191
Royalty Income .................................... 2,316,518 1,021,784
------------ ------------
Total Revenues .................................. 61,795,289 61,106,975
Cost of Sales ....................................... 44,172,579 45,459,010
------------ ------------
Gross Profit ........................................ 17,622,710 15,647,965
Selling, General & Adminstrative Expenses ........... 10,179,795 10,153,871
Depreciation & Amortization ......................... 978,599 492,977
------------ ------------
Total Operating Expenses ............................ 11,158,394 10,646,848
------------ ------------
Operating Income .................................... 6,464,316 4,945,406
Interest Expense .................................... 1,947,989 891,226
------------ ------------
Income Before Income Tax Provisions ................. 4,516,327 4,109,891
Income Tax Provisions ............................... 1,624,539 1,472,789
------------ ------------
Net Income .......................................... $ 2,891,788 $ 2,637,102
============ ============
Net Income Per Share:
Basic ............................................. $ 0.43 $ 0.40
Diluted ........................................... $ 0.43 $ 0.39
Weighted Average Number of Common Shares Outstanding:
Basic ............................................. 6,723,374 6,585,168
Diluted ........................................... 6,803,228 6,760,770
</TABLE>
See Notes to consolidated financial statements.
F-23
<PAGE>
SUPREME INTERNATIONAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
APRIL 30,
---------------------------------
1999 1998
---------------- --------------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income .......................................................... $ 2,891,788 $ 2,637,102
Adjustments to reconcile net income to net cash provided by (used in)
operating activities:
Depreciation and amortization ..................................... 978,599 492,977
Amortization of bond discount ..................................... 49,381 --
Changes in operating assets and liabilities, net of acquisitions:
Accounts receivable, net ........................................ (14,528,133) (6,457,177)
Inventories ..................................................... 4,810,357 (2,193,424)
Other current assets ............................................ (481,827) 231,090
Other assets .................................................... (46,987) (406,363)
Accounts payable and accrued expenses ........................... 3,204,096 (229,458)
Other current liabilities ....................................... (1,486,408) 1,215,628
------------ ------------
Net cash used in operating activities: ........................ (4,609,134) (4,709,625)
------------ ------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of property and equipment .................................. (139,550) (1,831,419)
Payment on purchase of other intangible assets ...................... (99,500) (37,015)
Payment for acquired businesses ..................................... (100,403,221) --
------------ ------------
Net cash used in investing activities: ........................ (100,642,271) (1,868,434)
------------ ------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Net increase in borrowings under credit facilities .................. 15,000,000 5,060,000
Net (payments) proceeds from long-term debt ......................... (5,420,811) 1,741,344
Net proceeds from bonds payable ..................................... 95,852,000 --
Proceeds from exercise of stock options ............................. 95,274 332,018
------------ ------------
Net cash provided by financing activities: .................... 105,526,463 7,133,362
------------ ------------
NET INCREASE IN CASH ................................................ 275,058 555,303
CASH AT BEGINNING OF YEAR ........................................... 173,493 1,010,256
------------ ------------
CASH AT END OF PERIOD ............................................... $ 448,551 $ 1,565,559
============ ============
SUPPLEMENTAL DISCLOSURE OF CASH FLOW
INFORMATION
Cash paid during the period for:
Interest .......................................................... $ 706,628 $ 831,58
============ ============
Income taxes ...................................................... $ 1,896,580 $ 69,875
============ ============
</TABLE>
See Notes to consolidated financial statements.
F-24
<PAGE>
SUPREME INTERNATIONAL CORPORATION AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
1. GENERAL
The accompanying unaudited consolidated financial statements of Supreme
International Corporation and subsidiaries "Supreme" 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 months
ended April 30, 1999 are not necessarily indicative of the results which may be
expected for the entire fiscal year.
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>
APRIL 30, JANUARY 31,
1999 1998
--------------- ---------------
(UNAUDITED)
<S> <C> <C>
Total letter of credit facilities ................ $ 60,000,000 $ 60,000,000
Borrowings Outstanding letters of credit ......... (21,747,287) (23,831,172)
------------- -------------
Total Available .................................. $ 38,252,713 $ 36,168,828
============= =============
</TABLE>
4. BONDS PAYABLE (SENIOR SUBORDINATED NOTES)
Concurrently with the Company's acquisition of Perry Ellis International,
Inc., described in Note 6, 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 its wholly-owned subsidiaries.
The following is a schedule of bonds payable and the unamortized discount:
<TABLE>
<CAPTION>
APRIL 30, JANUARY 31,
1999 1999
--------------- ------------
(UNAUDITED)
<S> <C> <C>
Principal amount ................................ $100,000,000 $ 0
Less unamortized discount ....................... 4,098,619 0
------------ ---
Bonds payable less unamortized discount ......... $ 95,901,381 $ 0
============ ===
</TABLE>
F-25
<PAGE>
SUPREME INTERNATIONAL CORPORATION AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(UNAUDITED)
5. 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 1, 1999 .......... 6,712,374 $ 67,123 $28,806,455
Exercise of stock options ......... 11,000 110 95,164
--------- -------- -----------
Balance, April 30, 1999 ........... 6,723,374 $ 67,233 $28,901,619
========= ======== ===========
</TABLE>
6. ACQUISITIONS
On March 29, 1999 Supreme acquired the John Henry, Manhattan and Lady
Manhattan trademarks and certain manufacturing equipment for $27 million. In
connection with the acquisition, Supreme also assumed a lease for a shirt
manufacturing facility in Mexico which expires in July, 1999. In May, 1999
Supreme assigned the lease for the facility and sold certain manufacturing
equipment to a non-affiliated third party. The acquisition, accounted for
according to the purchase method of accounting, includes operations of the John
Henry, Manhattan and Lady Manhattan brand names commencing on March 29, 1999.
Supreme intends to amortize the trademarks over a period of 20 years based on
the straight line method.
On April 6, 1999 Supreme acquired Perry Ellis International, Inc. for
approximately $75 million in cash, as well as the components of working capital
and the assumption of severance payments for certain employees of the former
company. 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 United States. The
acquisition, accounted for according to the purchase method of accounting,
includes operations of the Perry Ellis brand name commencing on April 6, 1999,
the date of purchase. Supreme intends to amortize the trademarks over a period
of 20 years based on the straight line method.
Management is currently in the process of determining the fair value of
these trademarks in order to finalize the allocation of the purchase price. The
acquisitions were accounted for using the purchase method of accounting, which
resulted in costs in excess of the carrying value of the net assets acquired of
approximately $104,014,157.
F-26
<PAGE>
SUPREME INTERNATIONAL CORPORATION AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(UNAUDITED)
6. ACQUISITIONS--(CONTINUED)
The carrying value of the trademarks acquired was 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 ......... 4,856,189
------------
Adjusted purchase price ........................................... 108,540,813
Tangible asset acquired:
Cash ............................................................. 2,137,592
Accounts receivable .............................................. 1,117,861
Other current assets ............................................. 1,721,859
PP&E ............................................................. 19,599
------------
103,543,902
Liabilities assumed:
Accounts payables and accrued expenses: .......................... 470,255
------------
Trademarks ........................................................ $104,014,157
============
</TABLE>
7. 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 and John Henry/Manhattan acquisitions. The non-cash effect of these
investing activities during the three months ended April 30, 1999 are as
follows:
<TABLE>
<CAPTION>
THREE MONTHS
ENDED
APRIL 30, 1999
-----------------
<S> <C>
Assets acquired ........................................................ $ 104,154,879
Liabilities assumed .................................................... (470,255)
-------------
Cash paid ............................................................. $ 103,684,624
Less cash acquired .................................................... (2,137,592)
Less deposits in prior period ......................................... (6,000,000)
-------------
Net cash paid for acquisitions ......................................... $ 95,547,032
Cost related to acquisition ............................................ 4,856,189
-------------
Cash paid for acquisitions and acquisition costs, net of cash acquired $ 100,403,221
=============
</TABLE>
F-27
<PAGE>
SUPREME INTERNATIONAL CORPORATION AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(UNAUDITED)
8. PRO FORMA FINANCIAL INFORMATION
The pro forma financial information presented below, based under the
assumption that operations were in effect for each of the quarters ending April
30, 1998 and 1999, gives effect to (i) the Perry Ellis International, Inc.
Acquisition, (ii) the John Henry/Manhattan 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>
THREE MONTHS THREE MONTHS
ENDED ENDED
APRIL 30, 1999 APRIL 30, 1998
---------------- ---------------
(UNAUDITED) (UNAUDITED)
<S> <C> <C>
Total revenues ......................... $ 65,719,367 $ 66,568,681
============= ============
Net income ............................. $ 2,306,661 $ 992,797
============= ============
Net income per share (diluted) ......... $ 0.34 $ 0.15
============= ============
</TABLE>
9. COMMITMENTS AND CONTINGENCIES
Supreme is party to an employment agreement with Oscar Feldenkreis,
Supreme'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 $370,000, subject to annual cost-of-living increases,
an annual bonus defined as 4% of pretax profit with a minimum to be paid of
$470,000, and an award of 100,000 options to purchase shares priced at the
close of business Friday, April 23, 1999. The employment agreement requires Mr.
Feldenkreis to devote his full time to the affairs of Supreme. 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 Supreme for one year after termination of
his employment for any reason except Supreme's termination of Mr. Feldenkreis
without cause.
Supreme is also party to an employment agreement with George Feldenkreis,
Supreme's Chairman of the Board and Chief Executive Officer, expiring in May,
2000, and is subject to annual renewal. The employment agreement currently
provides for an annual salary of $400,000, subject to annual cost-of-living
increases, and the award of 100,000 shares priced at the close of business on
Friday, April 23, 1999. Pursuant to his employment agreement, Mr. Feldenkreis
devotes a majority of his working time to the affairs of Supreme. George
Feldenkreis' employment agreement contains termination and non-competition
provisions similar to those set forth in Oscar Feldenkreis' agreement.
Supreme has entered into an employment agreement with Alan Zwerner as
President of Licensing. The agreement terminates without notice on April 30,
2002 or can terminate "for cause" at any time or without notice. The employment
agreement provides for an annual salary of $350,000, with increases on May 1 of
each subsequent year subject to annual cost-of-living increases, performance
bonuses based on certain revenue increases not to exceed $70,000 per year and
non-qualified stock options to purchase 25,000 shares of common stock at an
exercise price equal to closing stock price as of May 3, 1999. The employment
agreement requires Mr. Zwerner to devote his
F-28
<PAGE>
SUPREME INTERNATIONAL CORPORATION AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(UNAUDITED)
9. COMMITMENTS AND CONTINGENCIES--(CONTINUED)
entire time, attention and energies to Supreme's business. Upon termination of
the employment agreement by reason of the employee's death, the employment
agreement and Supreme's obligation to pay Mr. Zwerner's salary and compensation
shall automatically end. If by reason of disability his employment duties
cannot be performed for a cumulative period of six months within a span of
twelve months, this agreement, employment and compensation will be
automatically terminated.
Supreme has entered into an employment agreement with Neal Nackman as
Chief Financial Officer. The agreement terminates without further notice on
January 31, 2001 or can terminate "for cause" at any time with or without
notice. The employment agreement provides for an annual salary of $244,400, a
guaranteed performance bonus of $20,000 per annum, as well as options to
purchase 30,000 shares of common stock at an exercise price equal to the
closing stock price as of June 14, 1999. For the fiscal year commencing
February 1, 2001, Mr. Nackman, if employed by Supreme will receive a salary
increase and performance bonus based on Supreme's ability to substantially
increase certain financial indicators. On January 31, 2001 the Company shall
grant the purchase of an additional 20,000 options to purchase shares of common
stock at an exercise price equal to the fair market value on that date. The
employment agreement requires Mr. Nackman to devote his entire time, attention
and energies to Supreme's business. Upon termination of the employment
agreement by reason of the employee's death the employment agreement and
Supreme's obligation to pay Mr. Nackman's salary and compensation shall
automatically end. If by reason of disability, his employment duties cannot be
performed for a cumulative period of six months within a span of twelve months,
this agreement, employment and compensation will be automatically terminated.
F-29
<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-30
<PAGE>
PERRY ELLIS INTERNATIONAL, INC.
BALANCE SHEET
<TABLE>
<CAPTION>
DECEMBER 31,
----------------------------- MARCH 31,
1997 1998 1999
------------- ------------- --------------
(UNAUDITED)
<S> <C> <C> <C>
ASSETS
Current Assets
Cash Balances .................................... $ 527,161 $1,776,722 $2,477,511
Due from Licensees ............................... 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 and outstanding ................. 1,000 1,000 1,000
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-31
<PAGE>
PERRY ELLIS INTERNATIONAL, INC.
STATEMENT OF OPERATIONS
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, QUARTER ENDED MARCH 31,
------------------------------------------------ -----------------------------
1996 1997 1998 1998 1999
-------------- -------------- -------------- ------------- -------------
(UNAUDITED)
<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 8,461,527 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-32
<PAGE>
PERRY ELLIS INTERNATIONAL, INC.
UNDISTRIBUTED INCOME
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, QUARTER ENDED
--------------------------------------------- MARCH 31,
1996 1997 1998 1999
------------- ------------- ------------- --------------
(UNAUDITED)
<S> <C> <C> <C> <C>
Balance at Beginning ............. $2,826,046 $3,437,637 $1,368,402 $3,837,830
Net Income ....................... 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:
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-33
<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 Licensees ................... 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 5,624,222 765,781 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-34
<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 from 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.
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.
F-35
<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)
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
Cash balances consist of the following:
<TABLE>
<CAPTION>
1997 1998
----------- -------------
<S> <C> <C>
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>
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
Property and equipment balances consist of the following:
<TABLE>
<CAPTION>
1997 1998
------------- -------------
<S> <C> <C>
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>
7. ACCRUED PAYROLL
Accrued Payroll consists of incentive bonuses earned by executives during
the calendar year and payable in the following year.
F-36
<PAGE>
PERRY ELLIS INTERNATIONAL, INC.
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
YEARS ENDED DECEMBER 31, 1996, 1997, AND 1998
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 ......... 478,000
</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-37
<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 of 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 based on 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. An audit includes examining, on a test basis, evidence
supporting the amounts and 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 from 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-38
<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-39
<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-40
<PAGE>
JOHN HENRY AND MANHATTAN BUSINESS
(COMPRISING THE LICENSING OPERATIONS OF
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
F-41
<PAGE>
JOHN HENRY AND MANHATTAN BUSINESS
(COMPRISING THE LICENSING OPERATIONS OF
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)
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.
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-42
<PAGE>
JOHN HENRY AND MANHATTAN BUSINESS
(COMPRISING THE LICENSING OPERATIONS OF
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-43
<PAGE>
================================================================================
PERRY ELLIS INTERNATIONAL, INC.
$95,000,000 SERIES B SUBORDINATED NOTES DUE 2006
FOR ANY AND ALL OUTSTANDING
12 1/4% SERIES A SUBORDINATED NOTES DUE 2006
----------------
PROSPECTUS
----------------
, 1999
================================================================================
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 20: 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 21: EXHIBITS AND FINANCIAL STATEMENT SCHEDULES.
(a) EXHIBITS
<TABLE>
<CAPTION>
EXHIBIT
NO. DESCRIPTION OF EXHIBIT
- -------- ---------------------------------------------------------------------------------------------
<S> <C>
3.1 Registrant's Second Amended and Restated Articles of Incorporation(1)
3.2 Registrant's Amended and Restated Bylaws(1)
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(6)
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")(6)
4.4 Purchase Agreement, dated March 31, 1999 by and among the Company and the Initial
Purchasers(6)
4.5 Specimen Forms of 12 1/4% Senior Subordinated Notes Due 2006(6)
5.1 Opinion of Broad and Cassel(5)
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(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.(1)
10.17 Amendment to Business Lease between George Feldenkreis and the Registrant relating to
office facilities(1)
10.18 Revocable Credit Facility Agreement dated May 26, 1995 between the Registrant and
Hamilton Bank, N.A.(1)
10.19 Revolving Line of Credit Agreement dated June 23, 1995 between the Registrant and Ocean
Bank(1)
10.20 Profit Sharing Plan(1)(2)
10.21 Amended and Restated Employment Agreement between the Registrant and George
Feldenkreis(1)(2)
</TABLE>
II-1
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT
NO. DESCRIPTION OF EXHIBIT
- ---------- -------------------------------------------------------------------------------------------------
<S> <C>
10.22 Amended and Restated Employment Agreement between the Registrant and Oscar
Feldenkreis(1)(2)
10.23 Business Lease dated December 26, 1995 between George Feldenkreis and the Registrant
relating to office facilities(1)
10.24 Lease Agreement [Land] dated as of August 28, 1997 between SUP Joint Venture, as Lessor
and Registrant, as Lessee(1)
10.25 Lease Agreement [Building] dated as of August 28, 1997 between SUP Joint Venture, as
Lessor and Registrant, as Lessee(1)
10.26 Amended and Restated Loan and Security Agreement dated as of March 31, 1998(1)
10.27 Amendment to Amended and Restated Loan and Security Agreement dated as of August 1,
1998(3)
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")(3)
10.29 First Amendment to the Salant Purchase and Sale Agreement dated as of February 24, 1999(3)
10.30 Amended and Restated Loan and Security Agreement dated as of March 26, 1999(3)
10.31 Inventory Purchase Agreement dated March 12, 1999 between the Company and Phillips-Van
Heusen Corporation(3)
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")(4)
10.33 First Amendment to the Perry Ellis Purchased and Sale Agreement dated as of March 31,
1999(4)
10.34 Employment Agreement between Allan Zwerner and the Company(2)(6)
10.35 Employment Agreement between Neil S. Nackman and the Company(2)(6)
12.1 Computation of Ratio of Earnings to Fixed Charges(6)
22.1 Subsidiaries of Registrant(6)
23.1 Consent of Broad and Cassel (included in its opinion filed as Exhibit 5.1)(6)
23.2 Consent of Deloitte & Touche LLP(7)
23.3 Consent of Saul L. Klaw & Co. P.C.(7)
23.4 Consent of Deloitte & Touche LLP(7)
24.1 Reference is made to the Signatures section of this Registrant Statement for the Powers of
Attorney contained therein(6)
25.1 Form T-1 Statement of Eligibility and Qualification of Trustee for Senior Subordinated Notes
under the Trust Indenture Act of 1939(6)
99.1 Form of Letter of Transmittal(6)
99.2 Notice of Guaranteed Delivery(6)
</TABLE>
- ----------------
(1) 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, except for an amendment to the Registrant's Second
Amended and Restated Articles of Incorporation thereto, which is previously
filed as an Exhibit to the Registrant's Current Report in Form 8-K dated
June 23, 1999, and incorporated herein by reference..
(2) Management Contract or Compensation Plan
(3) 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.
(4) 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.
(5) Previously filed as an Exhibit to Registrant's Quarterly Report on Form
10-Q for the quarter ended April 30, 1999 and incorporated by reference.
(6) Previously filed.
(7) Filed herewith.
II-2
<PAGE>
(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 22: 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
(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-3
<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 June 30, 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 June 30, 1999
- -------------------------------- Chief Executive Officer
George Feldenkreis (Principal Executive Officer)
/s/ OSCAR FELDENKREIS President, Chief Operations Officer June 30, 1999
- -------------------------------- and Director
Oscar Feldenkreis
/s/ NEIL S. NACHMAN Chief Financial Officer June 30, 1999
- -------------------------------- (Principal Financial and
Neil S. Nachman Accounting Officer)
/s/ ALLAN ZWERNER Director June 30, 1999
- ---------------------------------
Allan Zwerner
</TABLE>
II-4
<PAGE>
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
- --------------------------- ---------- --------------
<S> <C> <C>
/s/ RONALD BUCH Director June 30, 1999
- ---------------------------------
Ronald Buch
/s/ GARY DIX Director June 30, 1999
- ---------------------------------
Gary Dix
/s/ SALOMON HANONO Director June 30, 1999
- ---------------------------------
Salomon Hanono
/s/ RICHARD McEWEN Director June 30, 1999
- ---------------------------------
Richard McEwen
/s/ LEONARD MILLER Director June 30, 1999
- ---------------------------------
Leonard Miller
</TABLE>
II-5
<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 June 30, 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 June 30, 1999
- -------------------------------- (Principal Executive, Financial
Oscar Feldenkreis and Accounting Officer)
/s/ GEORGE FELDENKREIS Vice President and Director June 30, 1999
- ---------------------------------
George Feldenkreis
/s/ ROSEMARY TRUDEAU Secretary and Treasurer June 30, 1999
- ---------------------------------
Rosemary Trudeau
</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 June 30, 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 June 30, 1999
- -------------------------------- (Principal Executive, Financial
George Feldenkreis and Accounting Officer)
/s/ OSCAR FELDENKREIS Vice President and Director June 30, 1999
- ---------------------------------
Oscar Feldenkreis
/s/ ROSEMARY TRUDEAU Secretary and Treasurer June 30, 1999
- ---------------------------------
Rosemary Trudeau
</TABLE>
II-7
<PAGE>
SCHEDULE A-1
Supreme International (N.Y.), Inc.
Supreme International (Delaware), Inc.
II-8
<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 June 30, 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 June 30, 1999
- -------------------------------- (Principal Executive, Financial
Leonard Miller and Accounting Officer)
/s/ GEORGE FELDENKREIS Vice President June 30, 1999
- ---------------------------------
George Feldenkreis
/s/ OSCAR FELDENKREIS Vice President June 30, 1999
- ---------------------------------
Oscar Feldenkreis
/s/ FANNY HANONO Vice President June 30, 1999
- ---------------------------------
Fanny Hanono
/s/ ROSEMARY TRUDEAU Secretary and Treasurer June 30, 1999
- ---------------------------------
Rosemary Trudeau
</TABLE>
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 June 30, 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 June 30, 1999
- ------------------------------ (Principal Executive, Financial
Rosemary Trudeau and Accounting Officer)
/s/ JOSEPH ROISMAN Secretary and Director June 30, 1999
- ---------------------------------
Joseph Roisman
/s/ RANDALL RICCARDO Treasurer and Director June 30, 1999
- ---------------------------------
Randall Riccardo
</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 June 30, 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 June 30, 1999
- -------------------------------- (Principal Executive, Financial
Allan Zwerner and Accounting Officer)
/s/ OSCAR FELDENKREIS Vice President and Director June 30, 1999
- ---------------------------------
Oscar Feldenkreis
/s/ GEORGE FELDENKREIS Vice President and Director June 30, 1999
- ---------------------------------
George Feldenkreis
/s/ ROSEMARY TRUDEAU Secretary and Treasurer June 30, 1999
- ---------------------------------
Rosemary Trudeau
</TABLE>
II-11
<PAGE>
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
EXHIBIT
NO. DESCRIPTION OF EXHIBIT
- -------- ------------------------------------
<S> <C>
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 23.2
INDEPENDENT AUDITORS' CONSENT
We consent to the use in this Amendment No. 1 to Registration Statement No.
333-78427 of Perry Ellis International, Inc. on Form S-4 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
June 30, 1999
EXHIBIT 23.3
INDEPENDENT AUDITORS' CONSENT
We consent to the use in this Amendment No. 1 to Registration Statement
No. 333-78427 of Perry Ellis International, Inc. on Form S-4 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. Klaw & Co., P.C.
Certified Public Accountants
New York, New York
Dated: June 30, 1999
EXHIBIT 23.4
INDEPENDENT AUDITORS' CONSENT
We consent to the use in this Amendment No. 1 to Registration Statement No.
333-78427 of Perry Ellis International, Inc. on Form S-4 of our report on the
financial statements of the John Henry and Manhattan Business dated June 4,
1999, appearing in the Prospectus, which is part of this Registration
Statement, and to the reference to us under the heading "Experts" in such
Prospectus.
/s/ Deloitte & Touche LLP
New York, New York
June 30, 1999
