As filed with the Securities and Exchange Commission on July 11,30, 2001
Registration No. 333-333-64930
==============================================================================
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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AMENDMENT NO. 1
FORM S-3
REGISTRATION STATEMENT UNDER
THE SECURITIES ACT OF 1933
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VENATOR GROUP, INC.
(Exact name of Registrant as specified in its charter)
NEW YORK
(State or other jurisdiction of
incorporation or organization)
13-3513936
(I.R.S. Employer Identification No.)
---------------
112 W. 34th Street
New York, New York 10120
(212) 720-3700
Fax: (212) 720-3643
(Address, Including Zip Code, and Telephone Number, Including Area Code,
of Registrant's Principal Executive Offices)
---------------
Gary M. Bahler, Esq.
Senior Vice President, General Counsel and Secretary
Venator Group, Inc.
112 W. 34th Street
New York, New York 10120
(212) 720-3700
Fax: (212) 720-3643
(Name, Address, Including Zip Code, and Telephone Number,
Including Area Code, of Agent for Service)
Copies to:
David J. Goldschmidt, Esq.
Skadden, Arps, Slate, Meagher & Flom LLP
4 Times Square
New York, NY 10036
(212) 735-3000
Fax: (212) 735-2000
----------------------
Approximate date of commencement of proposed sale to
the public: From time to time after the effective date of
this registration statement.
----------------------
If the only securities being registered on this Form are being
offered pursuant to dividend or interest reinvestment plans, check the
following box. |_|
If any of the securities being registered on this Form are to be
offered on a delayed or continuous basis pursuant to Rule 415 under the
Securities Act of 1933, other than securities offered only in connection
with dividend or interest reinvestment plans, check the following box. |X|
If this Form is filed to register additional securities for an
offering pursuant to Rule 462(b) under the Securities Act, please check the
following box and list the Securities Act registration statement number of
the earlier effective registration statement for the same offering. |_|
If this Form is a post-effective amendment filed pursuant to Rule
462(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. |_|
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CALCULATION OF REGISTRATION FEE
============================================================================================================================
Proposed Maximum Proposed Maximum
Title of Each Class Amount to be Offering Price Aggregate Amount of
of Securities to be Registered Registered Per Note Offering Price Registration Fee
- ----------------------------------------------------------------------------------------------------------------------------
5.50 % Convertible Subordinated Notes due 2008 $150,000,000(1) 115%(2)(3) $172,500,000(2)(3) $43,125
- ----------------------------------------------------------------------------------------------------------------------------
Common stock, par value $0.01 per share..... 9,490,067(4) -- -- (5)
============================================================================================================================
(1) Represents the aggregate principal amount at maturity of the notes
that were originally issued by the Registrant in June 2001.
(2) This estimate is made pursuant to Rule 457(c) of the Securities Act of
1933, as amended, solely for purposes of determining the registration
fee. The above calculation is based on the average bid and ask prices
for the Registrant's notes in secondary market transactions executed
by the initial purchasers of the notes on July 9, 2001, as reported to
the Registrant by the initial purchasers.
(3) Exclusive of accrued interest.
(4) Represents the number of shares of common stock that are currently
issuable upon conversion of the notes registered hereby. The number of
shares of common stock that may be issued upon conversion of the notes
in the future is indeterminate, and the Registrant is also registering
this indeterminate amount pursuant to Rule 416 of the Securities Act.
(5) No separate consideration will be received for the shares of common
stock issuable upon conversion of the notes and, therefore, no
registration fee is required pursuant to Rule 457(i) under the
Securities Act.
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THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT
SHALL FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS
REGISTRATION STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH
SECTION 8(a) OF THE SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION
STATEMENT SHALL BECOME EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING
PURSUANT TO SAID SECTION 8(a), MAY DETERMINE.
THE INFORMATION IN THIS PROSPECTUS IS NOT COMPLETE AND MAY BE CHANGED.
THE SELLING SECURITYHOLDERS MAY NOT SELL THESE SECURITIES UNTIL THE
REGISTRATION STATEMENT FILED WITH THE SECURITIES AND EXCHANGE COMMISSION IS
EFFECTIVE. THIS PROSPECTUS IS NOT AN OFFER TO SELL THESE SECURITIES AND IT IS
NOT SOLICITING OFFERS TO BUY THESE SECURITIES IN ANY STATE WHERE THE OFFER OR
SALE IS NOT PERMITTED.
SUBJECT TO COMPLETION, DATED JULY 11,30, 2001
[VENATOR LOGO]
VENATOR GROUP, INC.
$150,000,000
5.50% CONVERTIBLE SUBORDINATED NOTES DUE 2008
AND SHARES OF COMMON STOCK ISSUABLE UPON CONVERSION OF THE NOTES
We issued the notes in a private placement in June 2001. Under this
prospectus, the selling securityholders named in this prospectus or in
prospectus supplements may offer and sell their notes and/or the shares of
common stock issuable upon conversion of their notes.
Holders may surrender the notes for conversion into shares of our common
stock at a conversion price of $15.806 per share at any time before the
close of business on the maturity date, unless we have previously redeemed
or repurchased the notes. The conversion rate may be adjusted as described
in this prospectus under "Description of Notes -- Conversion." The notes
will mature on June 1, 2008.
We will pay interest on the notes in cash on June 1 and December 1 of each
year. The first interest payment will be made on December 1, 2001. The
notes will bear interest at a fixed annual rate of 5.50%.
We may redeem all or a portion of the notes at any time on or after June 4,
2004 at the prices set forth in this prospectus under "Description of the
Notes -- Optional Redemption by Venator." In addition, upon the occurrence
of a change in control, holders of the notes may require us to repurchase
all or a portion of their notes at 100% of the principal amount thereof,
plus accrued and unpaid interest.
The notes are general unsecured obligations of Venator and are subordinated
in right of payment to all of our existing and future senior indebtedness
and structurally subordinated to the indebtedness and other liabilities of
our subsidiaries.
Shares of our common stock are quoted on the New York Stock Exchange under
the symbol "Z." The last reported sale price of our common stock on July
10,27, 2001 was $14.65$15.98 per share.
INVESTING IN OUR NOTES OR SHARES OF OUR COMMON STOCK INVOLVES RISKS. SEE
"RISK FACTORS" BEGINNING ON PAGE 7 OF THIS PROSPECTUS.
We will not receive any of the proceeds from the sale of the notes or the
shares of common stock by any of the selling securityholders. The notes and
the shares of common stock may be offered in negotiated transactions or
otherwise, at market prices prevailing at the time of sale or at negotiated
prices. The timing and amount of any sale are within the sole discretion of
the selling securityholders. In addition, the shares of common stock may be
offered from time to time through ordinary brokerage transactions on the
New York Stock Exchange. See "Plan of Distribution." The selling
securityholders may be deemed to be "underwriters" as defined in the
Securities Act of 1933, as amended. Any profits realized by the selling
securityholders may be deemed to be underwriting commissions. If the
selling securityholders use any broker-dealers, any commission paid to
broker-dealers and, if broker-dealers purchase any notes or shares of
common stock as principals, any profits received by such broker-dealers on
the resale of the notes or shares of common stock may be deemed to be
underwriting discounts or commissions under the Securities Act.
NEITHER THE SECURITIES AND EXCHANGE COMMISSION NOR ANY STATE SECURITIES
COMMISSION HAS APPROVED OR DISAPPROVED OF THESE SECURITIES OR DETERMINED IF
THIS PROSPECTUS OR THE ACCOMPANYING PROSPECTUS SUPPLEMENT IS TRUTHFUL OR
COMPLETE. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
The date of this prospectus is July 11,30, 2001.
NO DEALER, SALESPERSON OR OTHER PERSON HAS BEEN AUTHORIZED TO GIVE ANY
INFORMATION OR TO MAKE ANY REPRESENTATIONS OTHER THAN THOSE CONTAINED OR
INCORPORATED BY REFERENCE IN THIS PROSPECTUS IN CONNECTION WITH THE OFFER
CONTAINED IN THIS PROSPECTUS AND, IF GIVEN OR MADE, SUCH INFORMATION OR
REPRESENTATIONS MUST NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED BY
VENATOR. NEITHER THE DELIVERY OF THIS PROSPECTUS NOR ANY SALE MADE
HEREUNDER SHALL UNDER ANY CIRCUMSTANCES CREATE AN IMPLICATION THAT THERE
HAS BEEN NO CHANGE IN THE AFFAIRS OF VENATOR SINCE THE DATE HEREOF. THIS
PROSPECTUS DOES NOT CONSTITUTE AN OFFER TO SELL OR A SOLICITATION OF AN
OFFER TO BUY SECURITIES OTHER THAN THOSE SPECIFICALLY OFFERED HEREBY OR OF
ANY SECURITIES OFFERED HEREBY IN ANY JURISDICTION WHERE, OR TO ANY PERSON
TO WHOM, IT IS UNLAWFUL TO MAKE SUCH OFFER OR SOLICITATION. THE INFORMATION
CONTAINED IN THIS PROSPECTUS SPEAKS ONLY AS OF THE DATE OF THIS PROSPECTUS
UNLESS THE INFORMATION SPECIFICALLY INDICATES THAT ANOTHER DATE APPLIES.
Table of Contents
Special Note Regarding Forward-Looking Statements.............................2Statements..........................2
Incorporation Of Certain Documents By Reference...............................2Reference............................2
Prospectus Summary............................................................4Summary.........................................................4
The Offering..................................................................6Offering...............................................................6
Risk Factors..................................................................7Factors...............................................................7
Use of Proceeds..............................................................12Proceeds...........................................................12
Price Range of Common Stock..................................................12Stock...............................................12
Dividend Policy..............................................................12Policy...........................................................12
Ratio of Earnings to Fixed Charges...........................................13
Business.....................................................................14
Management...................................................................21Charges........................................13
Business..................................................................14
Management................................................................21
Description of Notes.........................................................24Notes......................................................24
Description of Revolving Credit Facility.....................................38Facility..................................38
Description of Capital Stock.................................................39Stock..............................................39
Selling Securityholders......................................................56Securityholders...................................................56
Plan of Distribution.........................................................57Distribution......................................................59
Legal Matters................................................................59
Experts......................................................................59Matters.............................................................61
Experts...................................................................61
Where You Can Find More Information..........................................59Information.......................................61
Special Note Regarding Forward-Looking Statements
This prospectus and the documents incorporated by reference in this
prospectus contain "forward-looking statements" within the meaning of the
securities laws. These forward-looking statements are subject to a number
of risks and uncertainties, many of which are beyond our control. All
statements other than statements of historical facts included or
incorporated by reference in this prospectus, including the statements
under "Prospectus Summary - Venator Group, Inc." and elsewhere in this
prospectus regarding our strategy, future operations, financial position,
estimated revenues, projected costs, prospects, plans and objectives of
management are forward-looking statements. When used in this prospectus,
the words "will," "believe," "anticipate," "intend," "estimate," "expect,"
"project" and similar expressions are intended to identify forward-looking
statements, although not all forward-looking statements contain such
identifying words. All forward-looking statements speak only as of the date
of this prospectus. We do not undertake any obligation to update or revise
publicly any forward-looking statements, whether as a result of new
information, future events or otherwise. Although we believe that our
plans, intentions and expectations reflected in or suggested by the
forward-looking statements we make in this prospectus are reasonable, we
can give no assurance that such plans, intentions or expectations will be
achieved. The cautionary statements qualify all forward-looking statements
attributable to us or persons acting on our behalf.
Incorporation Of Certain Documents By Reference
This prospectus "incorporates by reference" certain of the reports, proxy
and information statements and other information that we have filed with
the Commission under the Exchange Act. This means that we are disclosing
important information to you by referring you to those documents. The
information that we file later with the Commission will automatically
update and supersede this information. We incorporate by reference the
documents listed below and any future filings made with the Commission
under sections 13(a), 13(c), 14 or 15(d) of the Exchange Act until all of
the securities offered by this prospectus are sold.
o Quarterly Report on Form 10-Q for the quarter ended May 5, 2001,
filed on June 13, 2001;
o Definitive Proxy Statement with respect to the Annual Meeting of
Shareholders held on June 14, 2001 filed on May 2, 2001;
o Annual Report on Form 10-K for the year ended February 3, 2001,
filed on April 23, 2001;
o Current Report on Form 8-K dated June 11, 2001, filed on June 11,
2001;
o Current Report on Form 8-K dated May 30, 2001, filed on May 30,
2001;
o Current Report on Form 8-K dated May 24, 2001, filed on May 24,
2001; and
o Current Report on Form 8-K dated May 17, 2001, filed on May 18,
2001.
All documents that we file with the Commission from the date of this
prospectus to the end of the offering of the notes and shares of common
stock shall also be deemed to be incorporated herein by reference.
Any statement contained in a document incorporated or considered to be
incorporated by reference in this prospectus shall be considered to be
modified or superseded for purposes of this prospectus to the extent that a
statement contained in this prospectus or in any subsequently filed
document that is or is considered to be incorporated by reference modifies
or supersedes such statement. Any statement that is modified or superseded
shall not, except as so modified or superseded, constitute a part of this
prospectus.
You may request a copy of any of the documents that are incorporated by
reference in this prospectus, other than exhibits which are not
specifically incorporated by reference into such documents, at no cost by
writing or telephoning us at the following:
Venator Group, Inc.
112 West 34th Street
New York, New York 10120
Attention: Investor Relations
Telephone: (212) 720-4600
Prospectus Summary
This prospectus constitutes part of the Registration Statement on Form S-3
that we filed with the Securities and Exchange Commission (the "SEC") using
a "shelf" registration process. Under the shelf process, any selling
security holder may sell any combination of the securities described in
this prospectus in one or more offerings. This prospectus provides you with
a general description of the securities the selling securityholders may
offer. When used in this prospectus, unless otherwise indicated, the terms
"we," "our" and "us" refer to Venator and its subsidiaries. Our fiscal year
ends on the Saturday closest to January 31. Our 1997 and 2000 reporting
years included 53 weeks whereas all other reporting years in this
prospectus include 52 weeks. All references to years in this prospectus
when discussing our financial results relate to fiscal years; all other
references to years relate to calendar years. Therefore, references to the
year 2000 in this prospectus shall mean the fiscal year ended February 3,
2001.
Venator Group, Inc.
We are a leading global specialty retailer of athletic footwear and
apparel, offering high quality branded and private label products to men,
women and children through our retail stores and direct-to-customers
business. We currently operate approximately 3,600 stores through a network
of complementary retail store formats under the brand names Foot Locker,
Lady Foot Locker, Kids Foot Locker and Champs Sports. Our stores are
primarily mall-based and are located in 14 countries in North America,
Europe and Australia. Our direct-to-customers business, Footlocker.com,
Inc., through its affiliates, is an integrated e-commerce and direct
marketing business consisting primarily of websites for each of our store
formats and catalogs. We believe that our portfolio strategy is unique in
the athletic industry, with specialized retail store formats, catalogs and
Internet websites targeted specifically to the men's, women's and
children's segments of the market, allowing us to tailor our merchandise
assortments more effectively and enhance our customer service to appeal to
a broad range of customers.
In 1997, we initiated a strategic plan aimed at building on the core
strengths of the Foot Locker business and divesting all non-athletic
footwear and apparel operations to establish a foundation for our future
growth. We believe that our 2000 financial results continue to affirm the
direction of our strategic initiatives. For the fiscal year ended February
3, 2001, sales from our ongoing core athletic businesses grew 11.1 percent,
to $4,232 million, and comparable store sales increased by 11.5 percent.
Operating profit from ongoing operations more than doubled to $270 million
in 2000 from $111 million in 1999, increasing as a percentage of sales to
6.4 percent from 2.9 percent, respectively. Our income from continuing
operations before the cumulative effect of accounting changes increased to
$0.77 per share on a diluted basis in 2000 from $0.43 on a diluted basis in
1999.
Competitive Strengths
Our market leadership position provides competitive advantages that we
strategically leverage across our operations, resulting in the following
key competitive strengths:
o Strong brand recognition. The Foot Locker brand is one of the most
widely recognized names in the market segments in which we operate,
epitomizing high quality for the active lifestyle customer. This brand
equity has aided our ability to successfully develop and increase our
portfolio of complementary retail store formats, specifically, Lady
Foot Locker and Kids Foot Locker, as well as our Footlocker.com, Inc.
direct-to-customers business.
o Key vendor relationships. Our position as a leading global specialty
retailer of athletic footwear and apparel has enabled us to build
strong relationships with key branded vendors, including Nike, adidas,
Reebok, Timberland, New Balance and K-Swiss. From these and other
vendors, we enjoy significant allocations of exclusive and limited
distribution products.
o Product sourcing strengths. Our size and purchasing power enable us to
source private-label products at competitive prices. Our private-label
program provides our customers with athletic footwear and apparel at
lower prices than branded products, driving incremental customer
traffic and sales to our retail stores and direct-to-customers
business.
o International expertise and presence. Through our presence in
international markets, we have established strong brand recognition
and an advantage over our domestic competitors contemplating expansion
into overseas markets. Operating internationally allows our merchants
to share product trend information with our domestic operations. The
sharing of information among our various domestic and international
businesses enables us to anticipate more rapidly new fashion trends
that move from one market to another, often allowing us to be
trend-setters in the domestic market.
o Three synergistic distribution channels. We offer our products through
three integrated channels of distribution: our stores, catalogs and
websites. We believe that our three sales channels allow us to provide
customers with increased shopping flexibility and ease of service,
leverage our existing infrastructure and our experience in customer
service and order fulfillment and increase the visibility of our brand
names.
Business Strategies
We are pursuing the following strategies for future growth:
o Improve productivity of existing stores. We employ a variety of
initiatives designed to increase the productivity of our existing
athletic store formats, including store renovations, stock keeping
unit, or SKU, count reductions and floor space reallocations. As a
result of these initiatives, our comparable store sales increased by
11.5 percent and our stores generated sales of nearly $300 per gross
square foot in 2000, an improvement of approximately $20 from 1999.
Our objective is to increase sales productivity to greater than $350
per gross square foot.
o Further penetrate European markets. We intend to significantly expand
our presence in Europe, where the athletic footwear retail market is
fragmented and there is a strong customer interest in American brands,
such as Nike. We will continue to identify suitable retail locations
in this region and plan to double our current 289 store base in Europe
over the next few years. To support this growth, we recently completed
the construction of a new distribution center in the Netherlands.
o Increase our North American store base. Our plan is to open
approximately 300 Foot Locker stores in urban markets over the next
several years, with 50 scheduled to open in 2001. Since occupancy
costs in urban locations are often significantly lower than in
mall-based stores, resulting in considerably higher profit margins, we
believe our expansion in urban areas will reinforce our brands and
generate strong financial performance.
o Differentiated merchandising strategy. Our objective is to
differentiate our merchandise assortments from those of our
competitors by offering trend-right products at competitive prices
from both branded manufacturers and our own private label program. For
example, we maximize exclusive and marquee product offerings from
leading vendors as a means of differentiation from most smaller
specialty retail chains and department stores.
o Capitalize on profitable direct-to-customers business. During 2000, we
enhanced our websites, which helped drive online sales volume to $58
million from $14 million in 1999, positioning us as a leading online
athletic footwear and apparel retailer. Additionally, each of our
catalog and e-commerce businesses was profitable in 2000. We believe
that our integrated operations, combined with the strength of our Foot
Locker brand name, will allow us to further develop our presence in
this growing market segment. We also plan to develop an international
Internet strategy over the next several years.
Our principal executive offices are located at 112 West 34th Street, New
York, N.Y. 10120. Our telephone number is (212) 720-3700.
The Offering
Notes Offered............................Offered...................... $150,000,000 aggregate principal
amount of 5.50% convertible
subordinated notes due 2008.
Maturity.................................Maturity........................... June 1, 2008.
Interest.................................Interest........................... The notes bear interest at a fixed
annual rate of 5.50% to be paid in
cash every June 1 and December 1 of
each year, beginning on December 1,
2001. The first interest payment will
include interest from June 8, 2001.
Conversion...............................Conversion......................... The notes are convertible into shares
of our common stock at a conversion
price of $15.806 per share. The
conversion price may be subject to
adjustment under certain
circumstances. The notes are
convertible at any time prior to the
close of business on the business day
prior to the date of repurchase,
redemption or final maturity of the
notes, as appropriate. See
"Description of Notes - Conversion of
Notes."
Subordination............................Subordination...................... The notes are subordinated to all
existing and future senior
indebtedness and are effectively
subordinated to all of the
indebtedness and other liabilities
(including trade and other payables)
of our subsidiaries. As of February 3,
2001, we had approximately $290
million of senior indebtedness and we
and our subsidiaries had approximately
$929 million of other liabilities
reflected on our consolidated balance
sheet. In addition, with respect to
our continuing operations, we and our
subsidiaries had total operating lease
commitments of $1,907 million as of
February 3, 2001. Other liabilities on
our consolidated balance sheet include
our estimate of costs to exit leases
of our discontinued operations. The
indenture governing the notes does not
limit the amount of indebtedness,
including senior indebtedness, that we
and our subsidiaries may incur. See
"Description of Notes -- Subordination
of the Notes."
Sinking Fund.............................Fund....................... None.
Optional Redemption......................Redemption................ At any time on or after June 4, 2004,
we may redeem some or all of the notes
at the declining redemption prices
listed herein, plus accrued interest.
See "Description of Notes -- Optional
Redemption by Venator."
Repurchase At Holder's Option
Upon A Repurchase Event................Event.......... You may require us to repurchase your
notes upon a repurchase event in cash
or, at our option, in common stock, at
100% of the principal amount of the
notes, plus accrued and unpaid
interest.
Use Of Proceeds..........................Proceeds.................... We will not receive any of the
proceeds from the sale by any selling
securityholder of the notes or shares
of common stock offered under this
prospectus.
Risk Factors
An investment in the notes and shares of common stock involves significant
risks. In addition to reviewing other information in this prospectus, you
should carefully consider the following factors before deciding to purchase
the notes or shares of common stock.
Risks Related to Our Business
The industry in which we operate is dependent upon fashion trends, customer
preferences and other fashion-related factors.
The athletic footwear and apparel industry is subject to changing fashion
trends and customer preferences. We cannot guarantee that our merchandise
selection will accurately reflect customer preferences on the date of sale
or that we will be able to identify and respond quickly to fashion changes,
particularly given the long lead times for ordering much of our merchandise
from vendors. For example, like our competitors, we order athletic footwear
four to six months prior to delivery to our stores. If we fail to
accurately anticipate either the market for the merchandise in our stores
or our customers' purchasing habits, we may be required to sell a
significant amount of unsold inventory at below average markups or below
cost, which would have a material adverse effect on our business, financial
condition and results of operations.
A substantial portion of our highest margin sales are to young males (ages
12-25), many of whom we believe purchase athletic footwear and licensed
apparel as a fashion statement and are frequent purchasers of athletic
footwear. Any shift in fashion trends that would make athletic footwear or
licensed apparel less attractive to these customers would have a material
adverse effect on our business, financial condition and results of
operations.
The businesses in which we operate are highly competitive.
The retail athletic footwear and apparel business is highly competitive
with relatively low barriers to entry. Our athletic footwear and apparel
operations compete primarily with athletic footwear specialty stores,
sporting goods stores and superstores, department stores, discount stores,
traditional shoe stores and mass merchandisers, many of which are units of
national or regional chains that have significant financial and marketing
resources. The principal competitive factors in our markets are price,
quality, selection of merchandise, reputation, store location, advertising
and customer service. We cannot assure you that we will continue to be able
to compete successfully against existing or future competitors. Our
expansion into markets served by our competitors and entry of new
competitors or expansion of existing competitors into our markets could
have a material adverse effect on our business, financial condition and
results of operations.
Although we sell merchandise via the Internet through Footlocker.com and
its affiliates, a significant shift in customer buying patterns to
purchasing athletic footwear, athletic apparel and sporting goods via the
Internet could have a material adverse effect on us. In particular, some of
the manufacturers of our products distribute products directly through the
Internet and others may follow. Should this occur and if our customers
decide to purchase directly from our manufacturers, it could have a
material adverse effect on our business, financial condition and results of
operations.
We depend on mall traffic and our ability to identify suitable store
locations.
Our sales, particularly in the United States and Canada, are dependent in
part on a high volume of mall traffic. Our stores are located primarily in
enclosed regional and neighborhood malls. Mall traffic may be adversely
affected by, among other things, economic downturns, the closing of anchor
department stores or changes in customer preferences. A decline in the
popularity of mall shopping among our target customers could have a
material adverse effect on us.
To take advantage of customer traffic and the shopping preferences of our
customers, we need to maintain or acquire stores in desirable locations
such as in regional and neighborhood malls anchored by major department
stores. We cannot assure you that desirable mall locations will continue to
be available.
A change in the relationship with any of our key vendors or the
unavailability of our key products at competitive prices could affect our
financial health.
Our business is dependent to a significant degree upon our ability to
purchase brand-name merchandise at competitive prices, including the
receipt of volume discounts and cooperative advertising and other
allowances from our vendors. For the fiscal year ended February 3, 2001,
approximately 71 percent of our merchandise was purchased from five vendors
and approximately 49 percent of our merchandise was purchased from Nike,
reflecting Nike's overall share of the athletic footwear and apparel
market. We have no long-term supply contracts with any of our vendors. Our
inability to obtain merchandise in a timely manner from major suppliers
(particularly Nike) as a result of any disruption in the supply chain could
have a material adverse effect on our business, financial condition and
results of operations. Because of our strong dependence on Nike, any
adverse development in Nike's financial condition and results of operations
or the inability of Nike to develop and manufacture products that appeal to
our target customers could also have an adverse effect on our business,
financial condition and results of operations. We cannot assure you that we
will be able to acquire merchandise at competitive prices or on competitive
terms in the future.
Merchandise that is high profile and in high demand is allocated by our
vendors based upon their internal criteria. Although we have generally been
able to purchase sufficient quantities of this merchandise in the past, we
cannot assure you that our vendors will continue to allocate sufficient
amounts of such merchandise in the future. In addition, our vendors provide
support to us through cooperative advertising allowances and promotional
events. We cannot assure you that such assistance from our vendors will
continue in the future. These risks could have a material adverse effect on
our business, financial condition and results of operations.
We may experience fluctuations in and cyclicality of our comparable store
sales results.
Our comparable store sales have fluctuated significantly in the past, on
both an annual and a quarterly basis, and we expect them to continue to
fluctuate in the future. A variety of factors affect our comparable store
sales results, including, among others, fashion trends, the highly
competitive retail store sales environment, economic conditions, timing of
promotional events, changes in our merchandise mix, calendar shifts of
holiday periods and weather conditions.
Many of our products, particularly high-end athletic footwear and licensed
apparel, represent discretionary purchases. Accordingly, customer demand
for these products could decline in a recession. These risks could have a
material adverse effect on our business, financial condition and results of
operations.
Our operations may be adversely affected by economic or political
conditions in other countries.
Approximately 10 percent of our sales and a significant portion of our
operating profits for 2000 were attributable to our sales in Europe and
Australia. As a result, our business is subject to the risks generally
associated with doing business outside North America, such as foreign
governmental regulations, foreign customer preferences, political unrest,
disruptions or delays in shipments and changes in economic conditions in
countries in which we operate. Although we enter into forward foreign
exchange contracts and option contracts to reduce the effect of foreign
currency exchange rate fluctuations, our operations may be adversely
affected by significant changes in the value of the U.S. dollar as it
relates to certain foreign currencies. In addition, the adoption of a
single European currency will lead to greater product pricing transparency
and a more competitive environment.
In addition, because we and our suppliers have a substantial amount of our
products manufactured in foreign countries, our ability to obtain
sufficient quantities of merchandise on favorable terms may be affected by
governmental regulations and economic, labor and other conditions in the
countries from which our suppliers obtain their product. The People's
Republic of China is a significant source of our footwear and apparel
merchandise. China's failure to maintain its Normal Trading Status
(previously known as "most favored nation" status) could result in a
substantial increase in tariff rates on goods imported from China and,
therefore, could adversely affect our operations. In addition, trade and
other sanctions in the form of retaliatory duties or otherwise, which have
and continue to be threatened against China, could restrict or eliminate
imports from China and thereby adversely affect our business, financial
condition and results of operations.
There are certain risks associated with our businesses currently held for
sale.
In January 2001, we announced a plan for the discontinuance of the Northern
Group operations, which consist of retail outlets selling private label
apparel. The plan provides for the shutdown of 324 U.S. stores and the sale
of 370 Canadian stores. We also currently hold two other businesses for
sale -- The San Francisco Music Box Company and the Hospitality Group. If
we are unable to implement the divestitures of the Northern Group and other
businesses held for sale as planned or if we do not realize the planned
cash proceeds from those divestitures, we may be required to adjust the
reserve already provided for on our balance sheet and our financial
position may be adversely affected.
Complications in our distribution centers may affect our business.
We operate four distribution centers worldwide to support our athletic
business. If complications arise with any one facility or any facility is
severely damaged or destroyed, the other distribution centers may not be
able to support the resulting additional distribution demands. This may
adversely affect our ability to deliver inventory on a timely basis.
We may not be able to successfully expand and implement our point of sale
systems.
Our failure to implement and improve our point of sale systems as required
could adversely affect our future operating results. We are continually
evaluating the adequacy of our existing point of sale systems. However, our
ability to install and operate this point of sale system in each of our
stores depends on our ability to replace existing systems without
disrupting our operations. In connection with the introduction of a single
European currency, we need to modify our point of sale systems in affected
countries to accommodate the single currency. We cannot assure you that we
will be able to install our point of sale systems successfully. We also
cannot assure you that our systems can address all of the changing demands
that our expanding operations will impose on them.
Issues of global workplace conditions may impact our business.
If any one of our manufacturers or vendors:
o fails to operate in compliance with applicable laws and regulations,
o is perceived by the public as failing to meet certain labor standards
that are generally accepted as ethical in the United States or
o employs unfair labor practices,
our business may be adversely affected. Current global workplace concerns
of the public include perceived low wages, poor working conditions, age of
employees and various other employment standards. These globalization
issues may impact the available supply of certain manufacturers' products,
which may result in increased costs to us. Furthermore, a negative customer
perception of any of our key vendors or their products may result in a
lower customer demand for our athletic footwear and apparel.
Risks Related to the Notes
Our substantial indebtedness could adversely affect our financial condition
and prevent us from fulfilling our obligations under these notes.
We have now and, after this offering, will continue to have a significant
amount of indebtedness that could have important consequences to you. For
example, it could:
o make it more difficult for us to satisfy our obligations with respect
to the notes;
o increase our vulnerability to general adverse economic and industry
conditions;
o require 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 and other general corporate purposes;
o limit our flexibility in reacting to changes in our business and the
industry in which we operate;
o place us at a competitive disadvantage compared with our competitors
that have less debt;
o limit, along with the financial and other restrictive covenants in
our indebtedness, among other things, our ability to borrow
additional funds; and
o if we fail to comply with covenants in our indebtedness, result in an
event of default that, if not cured or waived, could result in our
indebtedness becoming immediately due and payable.
Our amended revolving credit facility contains covenants that, among other
things, restrict our ability to incur debt, incur liens and make
investments or acquisitions. We also are required to achieve certain
financial ratios. See "Description of Revolving Credit Facility." In
addition, certain of our other indebtedness contains covenants that, among
other things, restrict our business decisions. These risks could have a
material adverse effect on us. The indenture does not limit our ability to
incur additional indebtedness in the future. If new indebtedness is
incurred, the related risks that we now face could intensify. Our ability
to make required payments on the notes and to satisfy any other debt
obligations will depend upon our future operating performance and our
ability to obtain additional debt or equity financing.
If our subsidiaries do not make sufficient distributions to us, we will not
be able to make payment on our debt, including the notes.
We are a holding company with no material operations and only limited
assets. Because a significant portion of our operations are conducted by
our subsidiaries, our cash flow and our ability to service indebtedness,
including our ability to pay the interest on and principal of the notes,
are dependent to a large extent upon cash dividends and distributions or
other transfers from our subsidiaries. In addition, any payment of
dividends, distributions, loans or advances by our subsidiaries to us could
be subject to restrictions on dividends or repatriation of earnings under
applicable local law, monetary transfer restrictions and foreign currency
exchange regulations in the jurisdictions in which our subsidiaries
operate, and any restrictions imposed by the current and future debt
instruments of our subsidiaries. Such payments to us by our subsidiaries
are contingent upon our subsidiaries' earnings.
Our subsidiaries are separate and distinct legal entities and have no
obligation, contingent or otherwise, to pay any amounts due pursuant to the
notes or to make any funds available therefor, whether by dividends, loans,
distributions or other payments, and do not guarantee the payment of
interest on, or principal of, the notes. Any right that we have to receive
any assets of any of our subsidiaries upon the liquidation or
reorganization of any such subsidiary, and the consequent right of holders
of notes to realize proceeds from the sale of their assets, will be
effectively subordinated to the claims of subsidiary creditors, including
trade creditors and holders of debt issued by the subsidiary.
The notes are subordinated and unsecured.
The notes are subordinated and unsecured in right of payment in full to all
of our existing and future senior indebtedness and are effectively
subordinated to all of the indebtedness and other liabilities (including
trade and other payables) of our subsidiaries. As a result, in the event of
our bankruptcy, winding-up, liquidation, reorganization, insolvency or
similar proceedings, or upon acceleration of the notes due to an event of
default under the indenture, our assets will be available to pay
obligations on the notes only after all senior indebtedness and the
indebtedness of our subsidiaries have been paid in full. After retiring our
senior indebtedness and the indebtedness of our subsidiaries, we may not
have sufficient assets remaining to pay amounts due on any or all of the
notes then outstanding.
The notes are not protected by restrictive covenants.
The indenture governing the notes does not contain any financial or
operating covenants or restrictions on the payments of dividends, the
incurrence of indebtedness or the issuance or repurchase of securities by
us or any of our subsidiaries. The indenture contains no covenants or other
provisions to afford protection to holders of the notes in the event of a
fundamental change involving Venator Group except to the extent described
under "Description of Notes -- Repurchase at Option of Holders."
We may be required to repurchase the notes upon a repurchase event.
You may require us to repurchase all or any portion of your notes upon a
repurchase event. We may not have sufficient cash funds to repurchase the
notes upon a repurchase event. We may elect, subject to certain conditions,
to pay the repurchase price in common stock. Although there are currently
no restrictions on our ability to pay the repurchase price, future debt
agreements may prohibit us from repaying the repurchase price in cash. If
we are prohibited from repurchasing the notes, we could seek consent from
the lenders under such debt agreements to repurchase the notes. If we were
unable to obtain their consent, we could attempt to refinance the notes. If
we were unable to obtain a consent or refinance, we would be prohibited
from repurchasing the notes other than for common stock. If we were unable
to repurchase the notes upon a repurchase event, it would result in an
event of default under the indenture. An event of default under the
indenture could result in an event of default under our other then-existing
debt. In addition, the occurrence of the repurchase event may be an event
of default under our other debt. As a result, we would be prohibited from
paying amounts due on the notes under the subordination provisions of the
indenture.
The trading price of our securities could be subject to significant
fluctuations.
The trading price of our common stock has been volatile, and the trading
price for the notes and the common stock may be volatile in the future.
Factors such as announcements of fluctuations in our or our competitors'
operating results, changes in our prospects and market conditions for
athletic footwear and apparel stocks in general could have a significant
impact on the future trading prices of our common stock and the notes. In
particular, the trading price of the common stock of many athletic footwear
and apparel companies, including us, has experienced extreme price and
volume fluctuations, which have at times been unrelated to the operating
performance of such companies whose stocks were affected. Some of the
factors that may cause volatility in the price of our securities include:
o customer demand and fashion trends;
o competitive market forces;
o uncertainties related to the effect of competitive products and
pricing;
o customer acceptance of our merchandise mix and retail store
locations;
o economic conditions worldwide;
o effect of currency fluctuations; and
o ability to execute our business plans with regard to each of our
operating units.
The price of our securities may also be affected by the estimates and
projections of the investment community, general economic and market
conditions, and the cost of operations in our product markets. While we
cannot predict the individual effect that these factors may have on the
price of our securities, these factors, either individually or in the
aggregate, could result in significant variations in price during any given
period of time. We cannot assure you that these factors will not have an
adverse effect on the trading prices of our common stock and the notes.
Use of Proceeds
We will not receive any of the proceeds from the sale by any selling
securityholder of the notes or the shares of common stock offered under
this prospectus.
Price Range of Common Stock
Our common stock is quoted on the New York Stock Exchange under the symbol
"Z." The following table sets forth the range of high and low closing sale
prices for our common stock on the New York Stock Exchange for the fiscal
quarters indicated since January 31, 1999.
High Low
2001
First Quarter......................................Quarter............................... $13.83 $10.75
Second Quarter to July 10, 2001.................... $16.20 12.8527, 2001............. $16.30 $12.85
2000
First Quarter......................................Quarter............................... $12.25 $5.00
Second Quarter.....................................Quarter.............................. $14.75 $9.88
Third Quarter......................................Quarter............................... $16.50 $11.31
Fourth Quarter.....................................Quarter.............................. $16.75 $9.75
1999
First Quarter......................................Quarter............................... $11.50 $3.19
Second Quarter.....................................Quarter.............................. $12.00 $8.38
Third Quarter......................................Quarter............................... $10.75 $6.50
Fourth Quarter.....................................Quarter.............................. $8.19 $5.88
As of June 2, 2001, we had 31,807 shareholders of record of our common
stock. The closing sale price of our common stock on July 10,27, 2001 was
$14.65$15.98 per share.
Dividend Policy
We suspended payment of dividends in 1995. We do not expect to declare or
pay any dividends on our common stock in the foreseeable future. We intend
to retain all earnings, if any, to invest in our operations. The payment of
future dividends is within the discretion of our board of directors and
will depend upon our future earnings, if any, our capital requirements,
financial condition and other relevant factors. Our revolving credit
agreement requires that we meet certain financial tests before we may pay
dividends on our common stock. We do not meet those tests.
Ratio of Earnings to Fixed Charges
The ratios of earnings to fixed charges for the fiscal years indicated are
stated below. For purposes of computing the ratios, earnings represent
income from continuing operations before fixed charges and taxes, and fixed
charges represent gross interest expense, including capitalized interest,
and a portion of rental expense, which is deemed to be representative of
the interest factor. Earnings were not adequate to cover fixed charges by
$21 million for 1998.
Fiscal Year Ratio
-
----------- -----
2000 1.9x
1999 1.4x
1998 0.9x
1997 2.5x
1996 2.6x
For the first quarter ended May 5, 2001, the ratio of earnings to fixed
charges was 2.1x.
Business
We are a leading global specialty retailer of athletic footwear and apparel
offering high quality branded and private label products to men, women and
children through our retail stores and direct-to-customers business. We
currently operate approximately 3,600 stores through a network of
complementary retail store formats under the brand names Foot Locker, Lady
Foot Locker, Kids Foot Locker and Champs Sports. Our stores are primarily
mall-based and are located in 14 countries in North America, Europe and
Australia. Our direct-to-customers business, Footlocker.com, Inc., through
its affiliates, is the largest Internet and catalog retailer of athletic
footwear, apparel and equipment.
In 1997, we initiated a strategic plan aimed at building on the core
strengths of our Foot Locker business and divesting all non-athletic
footwear and apparel operations to establish a foundation for our future
growth. We believe that our 2000 financial results continue to affirm the
direction of our strategic initiatives. For the fiscal year ended February
3, 2001, sales from our ongoing core athletic businesses increased 11.1
percent, to $4,232 million, and comparable store sales increased by 11.5
percent. Operating profit from ongoing operations more than doubled to $270
million in 2000 from $111 million in 1999, increasing as a percentage of
sales to 6.4 percent from 2.9 percent, respectively. Our income from
continuing operations before the cumulative effect of accounting changes
increased to $0.77 per share on a diluted basis in 2000 from $0.43 on a
diluted basis in 1999.
We believe that our portfolio strategy is unique in the athletic industry,
with specialized retail store formats, catalogs and Internet websites
targeted specifically to the men's, women's and children's segments of the
market, allowing us to tailor our merchandise assortments more effectively
and enhance our customer service to appeal to a broad range of customers.
Our portfolio of operations is comprised of the following retail store
formats and our direct-to-customers businesses:
Foot Locker -- Our primary retail store format, Foot Locker, has
become the world's largest athletic specialty retailer, offering
an in-depth selection of footwear and apparel. Our target
customers at Foot Looker are primarily males between the ages of
12 to 19 years looking to find the latest styles and technologies
in the running, basketball, classic, tennis, walking and
cross-training categories.
Our 1,936 stores are located in 14 countries, including 1,453 in
the United States and Puerto Rico, 129 in Canada, 289 in Europe
and 65 in Australia. Our domestic Foot Locker stores have an
average of 2,300 selling square feet and our international stores
have an average of 1,600 selling square feet.
Lady Foot Locker -- Our Lady Foot Locker format is the only
national specialty store chain that specializes in women's
athletic footwear and apparel. Lady Foot Locker offers a large
selection of major athletic brands. Lady Foot Locker's exclusive
branded product assortments and our private label offerings under
the "Actra" and Lady Foot Locker Sport labels provide a key
strategic advantage over our competitors.
Lady Foot Locker's primary target customer is the 18 to
29-year-old woman who is active, fashion-conscious and
brand-aware. With 662 stores in the United States and Puerto Rico,
our Lady Foot Locker stores average 1,300 selling square feet and
are designed to facilitate a pleasant and effortless shopping
experience.
Kids Foot Locker -- Our Kids Foot Locker format has established a
tradition of fitting excellence and a reputation for outstanding
customer service. At Kids Foot Locker, parents will find a
complete collection of athletic footwear and apparel specifically
targeted for children from five to 11 years old. Our core Kids
Foot Locker customer is a mother of young children who is also
likely to be a primary customer of Lady Foot Locker. Our 398
stores are located in the United States and Puerto Rico and have
an average of 1,400 selling square feet.
Champs Sports -- Our Champs Sports format is one of the largest
mall-based retailers of sporting goods in the United States and
Canada. Each Champs Sports store is designed to provide an
in-depth array of products, one-on-one customer service, and a
high-end store environment appealing to a target customer ages 12
to 25 years old. Because of the breadth of its product offerings,
Champs Sports is able to meet customers' needs for a wide variety
of products suiting their active lifestyles. Apparel, equipment
and accessory categories provide Champs Sports with a significant
point of differentiation compared to other competitors. Our 586
stores are located throughout the United States and Canada and
have an average of 4,000 selling square feet.
Footlocker.com, Inc. -- Our direct-to-customers business consists
of Footlocker.com, Inc. which sells, through its affiliates,
directly to customers through catalogs and its Internet websites.
Eastbay, Inc., one of its affiliates, is one of the largest direct
marketers in the United States of athletic footwear, apparel and
equipment, including licensed and private-label merchandise,
through the Eastbay catalogs. In addition, it provides our
websites, Footlocker.com, Ladyfootlocker.com, Kidsfootlocker.com,
Champssports.com and Eastbay.com, with an integrated fulfillment
and distribution platform to conduct e-commerce. Through
Footlocker.com, Inc., we also have an agreement with the National
Football League to design, merchandise and fulfill the NFL's
official catalog (NFLShop) and e-commerce site linked to
www.NFLShop.com.
Competitive Strengths
Our market leadership position provides competitive advantages that we
strategically leverage across our operations, resulting in the following
key competitive strengths:
Strong Brand Recognition
The Foot Locker brand is one of the most widely recognized names in the
market segments in which we operate, epitomizing high quality for the
active lifestyle customer. This brand equity has aided our ability to
successfully develop and increase our portfolio of complementary retail
store formats, specifically, Lady Foot Locker and Kids Foot Locker, as well
as our Footlocker.com, Inc. direct-to-customers business. Through various
marketing channels, including television campaigns and sponsorships of
various sporting events, we reinforce our image with a consistent message,
namely, that we are the destination store for athletic apparel and footwear
with a wide selection of merchandise in a full-service environment.
Key Vendor Relationships
Our position as a leading global specialty retailer of athletic footwear
and apparel has enabled us to build strong relationships with key branded
vendors, including Nike, adidas, Reebok, Timberland, New Balance and
K-Swiss. We believe that our stores are one of the primary retail
distribution alternatives for brand name vendors of athletic footwear and
apparel. From these and other vendors, we enjoy significant allocations of
exclusive and limited distribution products.
We have worked together with many of our vendors to establish a variety of
favorable arrangements. Currently, we benefit from two key vendor
initiatives. The first enables us to receive a significant allocation of
"marquee" athletic footwear, consisting of limited distribution of higher
priced products available only in a small number of stores. Examples of
recent marquee products include Jordan Retro shoes from Nike and the Kobe
basketball shoe from adidas. The second vendor initiative grants us the
exclusive right to sell certain products. Recent examples of such exclusive
products include Nike Tuned Air, adidas SL, Reebok Pump and New Balance
Trail shoes. We believe these vendor initiatives have allowed us to keep
the most popular brands and styles of athletic footwear and apparel in
stock with greater frequency than most of our competitors.
Product Sourcing Strengths
Our size and purchasing power enable us to source private-label products at
competitive prices. We draw on two internal sources for our proprietary
offerings: (1) our Taiwan-based subsidiary, which we have owned and
operated since the 1960s, arranges and oversees third-party manufacturing
of private-label products, principally in Asia and Central America; and (2)
our U.S.-based manufacturing subsidiary, Team Edition, which we have owned
and operated since 1990, serves as our principal source of licensed
products. Our private-label program provides our customers with athletic
footwear and apparel at lower prices than branded products, driving
incremental customer traffic and sales to our retail stores and
direct-to-customers business.
International Expertise and Presence
We currently operate approximately 500 Foot Locker stores in markets
outside the United States with 289 in Europe, 129 in Canada and 65 in
Australia. Through our presence in international markets, we have
established strong brand recognition and an advantage over our domestic
competitors contemplating expansion into overseas markets. Operating
internationally allows our merchants to share product trend information
with our domestic operations. The sharing of information among our various
domestic and international businesses therefore enables us to anticipate
more rapidly new fashion trends that move from one market to another, often
allowing us to be trend-setters in the domestic market.
Three Synergistic Distribution Channels
We offer our products through three integrated channels of distribution:
our stores, catalogs and websites. We believe that our three sales channels
give us the following competitive strengths:
o our operations allow a customer to identify and purchase a product
over the Internet or in our catalog with the confidence of being able
to return it to a nearby store of the corresponding format for a
refund or credit if desired, and provide our customers with increased
breadth of merchandise selection, shopping flexibility and superior
customer service;
o our existing infrastructure and experience in order fulfillment and
customer service provide us with an advantage over many other online
athletic retailers; and
o our direct-to-customers operations increase the visibility and
exposure of our brands, generate store traffic and provide effective
product marketing for our stores.
Business Strategies
During the last five years, we have invested approximately $1 billion in
capital for store projects, information systems, logistics and facilities
to support our global athletic businesses. We intend to leverage these
prior investments to achieve growth and plan to increase profitability by
concentrating on the following priorities:
Improve Productivity of Existing Stores
We employ a variety of initiatives designed to increase the productivity of
our existing athletic store formats. We have renovated approximately
one-half of our existing store base over the past five years. Additionally,
we have increased the amount of selling space in our stores by eliminating
unnecessary backroom space and have reduced our stock keeping unit, or SKU,
counts in stores by approximately 50 percent, helping to provide better
in-stock positions. As a result, our comparable store sales increased by
11.5 percent and our stores generated sales of nearly $300 per gross square
foot in 2000, an improvement of approximately $20 from 1999. Our objective
is to increase sales productivity to greater than $350 per gross square
foot by continuing these initiatives across our entire store base.
Further Penetrate European Markets
We intend to significantly expand our presence in Europe, where the
athletic footwear retail market is fragmented and there is a strong
customer interest in American brands, such as Nike. Given our strong
representation of these brands, our Foot Locker International stores enjoy
strong performance and are destination locations for European customers
searching for American brands. We will continue to identify suitable retail
locations in this region and plan to double our current 289 store base in
Europe over the next few years. To support this growth, we recently
completed the construction of a new distribution center in the Netherlands.
We expect our newly constructed distribution center in the Netherlands to
have sufficient capacity to accommodate our planned expansion in Europe.
Increase our North American Store Base
We believe that we have a portfolio of retail store formats that can be
successfully implemented in multiple retail venues. Our plan is to open
approximately 300 Foot Locker stores in urban markets over the next several
years, with 50 scheduled to open in 2001. Since occupancy costs in urban
locations are often significantly lower than in mall-based stores,
resulting in considerably higher profit margins, we believe our expansion
in urban areas will reinforce our brands and continue to generate strong
financial performance. Similarly, we plan to seek expansion opportunities
in those Canadian provinces in which we currently have a small presence or
no presence at all.
Differentiated Merchandising Strategy
Our objective is to differentiate our merchandise assortments from those of
our competitors by offering trend-right products at competitive prices from
both branded manufacturers and our own private label program. We provide a
product assortment that emphasizes high, middle and entry level
merchandise. We have recently reduced the total SKU counts in our
assortments by 50 percent to focus on key items and product categories. We
believe this approach has resulted in superior customer service and higher
inventory turns.
In footwear, we maximize exclusive and marquee product offerings from
leading vendors as a means of differentiation from most smaller specialty
retail chains and department stores. Our focus in the apparel category is
to provide private label and licensed merchandise to complement our branded
assortments. These products provide a stylish, more affordable alternative
to our branded offering. We intend to increase our private label product
offering in apparel to increase customer traffic, generate incremental
sales and enhance our overall gross margins.
Capitalize on Profitable Direct-to-Customers Business
Our direct-to-customers business aims to offer our customers an integrated
shopping solution with unparalleled customer service. For example, if a
special size product is unavailable at the retail store, we are able to
meet the customer's needs by fulfilling orders online, thereby reducing our
store level inventory requirements while still capturing the sale. In
addition, any online or catalog purchase can be returned or exchanged at
one of the corresponding retail store formats. With this integrated
approach, our level of service is distinct from that of our online
competitors, which do not have an extensive offline presence. During 2000,
we enhanced our websites, which helped drive online sales volume to $58
million from $14 million in 1999, positioning us as a leading online
athletic footwear and apparel retailer. Our websites are profitable and
enjoy a purchase return rate that is lower than our physical stores. We
believe that our fully integrated operations will provide additional
cross-marketing opportunities across our three sales channels and, combined
with the strength of our Foot Locker brand, will allow us to further
develop our presence in this growing market segment. We also plan to
develop an international Internet strategy over the next several years.
Store Summary
The following table sets forth certain information regarding the 3,582
stores in our core athletic business as of February 3, 2001:
2001
January Remodeled/ February Planned
Store Summary 29, 2000 Opened Closed* Relocated 3, 2001 Openings
- --------------------------------------------------------- ------------ --------- --------- ------------ ------------ ------------------
Foot Locker................. 1,507 3 57 62 1,453 58
Lady Foot Locker............ 690 2 30 14 662 1
Kids Foot Locker............ 403 1 6 4 398 1
Foot Locker International**. 482 22 21 40 483 35
Champs Sports............... 611 -- 25 7 586 5
------ ---- ---- ----- ------ -----
Total.................. 3,693 28 139 127 3,582 100
====== ==== ==== ===== == === ========= ===== ===
* Includes 61 stores from the 1999 accelerated store closing program.
** Foot Locker International includes Foot Locker Canada, Foot Locker
Europe and Foot Locker Australia.
Substantially all merchandise decisions with respect to purchase, prices,
markdowns and advertising are controlled by management at division
headquarters. We have district managers who visit each of our stores on a
regular basis to review the implementation of our policies, monitor
operations and review inventories and the presentation of merchandise.
Accounting and general financial functions for our stores are conducted at
the corporate level.
Marketing
We attempt to price our merchandise to be competitive with athletic
specialty, sporting goods and other stores selling athletic footwear and
apparel. While the bulk of our merchandise is sold at our regular retail
prices, we also conduct promotions that generally revolve around themes
such as back-to-school, holiday seasons and vendor weeks. In addition, we
frequently promote individual items to increase store traffic.
We advertise through many different media, including television, radio,
newspaper and outdoor advertising. We also contribute to mall merchant
association funds that advertise a mall and individual stores within a
mall. In-store promotions with point-of-purchase materials are also an
important part of our marketing strategy.
We also take advantage of advertising and promotional assistance from many
of our suppliers. This assistance takes the form of cooperative advertising
programs, in-store sales incentives, point-of-purchase materials, product
training for employees and other programs. We believe that we benefit
significantly from the advertising campaigns of our key suppliers, such as
Nike, adidas, Reebok, Timberland, New Balance and K-Swiss. See "Risk
Factors -- A change in the relationship with any of our key vendors or the
unavailability of our key products at competitive prices could affect our
financial health."
Management Information Systems
We have a computerized management information system that includes a
network of computers at corporate and divisional headquarters to support
our decision-making processes. During the past four years, we have invested
approximately $200 million to upgrade and implement a new technology
platform to improve information flow and analysis using widely accepted
technologies.
We have installed assortment planning and decision support tools to support
our merchandising processes. The assortment planning and decision support
tools enhance our users' ability to query sales, inventory and on-order by
product classification and location, thereby enhancing our analytical
capability and improving decisions with respect to product purchases,
location and margin management.
We have also enhanced our financial reporting and human resources
management systems through the installation of software based on the
PeopleSoft platform, a widely recognized leader in enterprise systems. The
financial systems provide standard financial reporting and user query
capabilities while providing increased financial results accuracy for our
retail operations. The human resources system provides traditional payroll
and benefits administration functions as well as career planning, position
management and succession planning capabilities. Both the financial and
human resources systems are tightly integrated, providing a consistent look
and feel for all areas of the organization.
We are continuing to enhance our information systems architecture in
critical areas such as point of sale, logistics and distribution center
management working with leading vendors such as Manhattan Associates and
IBM to improve performance while reducing cost in these areas. See "Risk
Factors -- We may not be able to successfully expand and implement our
point of sale systems."
Logistics/Distribution
Our logistics department is responsible for planning, coordinating and
tracking product flow from our suppliers to the retail stores on a
worldwide basis. This includes direct management of all company-operated
distribution centers, as well as management of freight, transportation and
third-party service centers. Logistics also provides technical expertise
and direction for international trade and government compliance, as well as
the development and management of vendor compliance programs. We are
focused on continually improving flexibility, speed-to-market and
efficiencies by increasing the mix of floor-ready merchandise and expanding
cross-docking and shipping full caselot merchandise.
We currently operate four distribution facilities worldwide, occupying, in
the aggregate, approximately two million square feet. Our primary service
center, with an area of 1.3 million square feet, is located in Junction
City, Kansas and supports our U.S. store operations. Our facility in
Wausau, Wisconsin, with an area of 240,000 square feet, supports our
Footlocker.com/Eastbay e-commerce and catalog operations.
In February 1999, we opened a new distribution center in the Netherlands to
service Foot Locker's operations across 11 European countries. This center
incorporates advanced warehouse management software and new material
handling equipment, including mechanized conveyor systems, bar code
scanning and radio frequency technology. This warehouse management system
allows us to receive and immediately ship full caselot merchandise and has
reduced in-transit time in Europe by approximately five days on new product
launches. This capability will allow us to speed goods to our stores in a
cost-effective manner, thereby ensuring a continuous flow of fresh
merchandise to our retail stores.
We believe that our strong distribution support for our domestic and
international stores is a critical element of our business strategy and is
central to our ability to maintain a low cost operating structure.
Vendors
Although we purchase merchandise and supplies from hundreds of vendors
worldwide, for the year ended February 3, 2001, approximately 71 percent of
our merchandise was purchased from five principal vendors, including
approximately 49 percent purchased from Nike. We believe our relationships
with our key vendors are satisfactory. We have no long-term supply
contracts with any of our key vendors. See "Risk Factors -- A change in the
relationship with any of our key vendors or the unavailability of our key
products at competitive prices could affect our financial health."
Properties
Our properties consist of stores and administrative and distribution
facilities, the vast majority of which are leased. Total selling area at
the end of 2000 was approximately 9.4 million square feet, of which
approximately 7.9 million square feet related to our core athletic
business, approximately 1.3 million square feet related to the Northern
Group and approximately 200,000 square feet related to other businesses.
These properties are located in the United States, Canada, Australia and
Europe.
Virtually all of our store properties are held under operating leases. Some
of our store leases contain renewal options with varying terms and
conditions. We expect that in the normal course of business, expiring
leases will generally be renewed or, upon making a decision to relocate,
replaced by leases on other premises. New operating lease periods generally
range from five to ten years. Certain leases provide for additional rent
payments based on a percentage of store sales.
In determining new store locations, we evaluate, among other things, market
areas, mall locations, anchor stores, customer traffic, mall sales per
square foot, competition and occupancy, construction and other costs
associated with opening a store. See "Risk Factors -- We depend on mall
traffic and our ability to identify suitable store locations."
Intellectual Property and Other Property Rights
We own many trademarks and service marks that are used in our businesses.
Our principal marks include Foot Locker, Lady Foot Locker, Kids Foot
Locker, Champs Sports and Eastbay. We maintain and enforce appropriate
federal and international registrations for our marks. However, effective
intellectual property protection may not be available in certain countries
in which we currently operate. Our principal trademarks and service marks
are pledged as collateral to our banks under our amended revolving credit
agreement.
Employees
We had approximately 17,000 full-time employees and 32,000 part-time
employees at February 3, 2001. We consider employee relations to be
satisfactory.
Legal Proceedings
From time to time, we are involved in routine litigation incident to the
conduct of our business, as well as litigation incident to the sale and
disposition of businesses that have occurred in the past several years,
none of which, we believe, will have a material adverse effect on our
financial position or results of operations.
Management
Executive Officers and Directors
Set forth below is certain information regarding our executive officers and
directors:
Name Age Position
J. Carter Bacot(1),(4),(6)............
Name Age Position
J. Carter Bacot(1),(4),(6).............. 68 Chairman of the Board and Director
Matthew D. Serra(1),(5)................. 57 President and Chief Executive Officer and Director
Gary M. Bahler.......................... 49 Senior Vice President, General Counsel and Secretary
Jeffrey L. Berk......................... 46 Senior Vice President -- Real Estate
Bruce L. Hartman(5)..................... 48 Senior Vice President and Chief Financial Officer
Laurie Petrucci(5)...................... 43 Senior Vice President -- Human Resources
John H. Cannon.......................... 59 Vice President and Treasurer
Robert W. McHugh........................ 43 Vice President and Chief Accounting Officer
Purdy Crawford(1),(2),(3)............... 69 Director
Philip H. Geier Jr.(3).................. 66 Director
Jarobin Gilbert Jr.(1),(2),(4).......... 55 Director
James E. Preston(1),(3),(4),(6)......... 68 Director
David Y. Schwartz(2),(6)................ 60 Director
Christopher A. Sinclair(1),(3),(6)...... 50 Director
Cheryl Turpin(3),(4).................... 53 Director
Dona D. Young(2),(4).................... 47 Director
Matthew D. Serra(1),(5)............... 57 President and Chief Executive
Officer and Director
Gary M. Bahler........................ 49 Senior Vice President, General
Counsel and Secretary
Jeffrey L. Berk....................... 45 Senior Vice President -- Real
Estate
Bruce L. Hartman(5)................... 47 Senior Vice President and Chief
Financial Officer
Laurie Petrucci(5).................... 42 Senior Vice President -- Human
Resources
John H. Cannon........................ 59 Vice President and Treasurer
Robert W. McHugh...................... 43 Vice President and Chief
Accounting Officer
Purdy Crawford(1),(2),(3)............. 69 Director
Philip H. Geier Jr.(3)................ 66 Director
Jarobin Gilbert Jr.(1),(2),(4)........ 55 Director
James E. Preston(1),(3),(4),(6)....... 68 Director
David Y. Schwartz(2),(6).............. 60 Director
Christopher A. Sinclair(1),(3),(6).... 50 Director
Cheryl Turpin(3),(4).................. 53 Director
Dona D. Young(2),(4).................. 47 Director
(1) Member of Executive Committee
(2) Member of Audit Committee
(3) Member of Compensation and Management Resources Committee
(4) Member of Nominating and Corporate Governance Committee
(5) Member of Retirement Plan Committee
(6) Member of Finance and Strategic Planning Committee
J. Carter Bacot has served as the non-executive Chairman of the Board since
March 4, 2001 and as a director of Venator since 1993. He was Chairman of
the Board of The Bank of New York Company, Inc. (bank holding company) and
The Bank of New York, its wholly owned subsidiary, from 1982 to February 7,
1998, and Chief Executive Officer of The Bank of New York Company, Inc. and
The Bank of New York from 1982 to July 1, 1997. He is a director of The
Bank of New York Company, Inc. and Phoenix Home Life Mutual Insurance
Company. He is a trustee of Atlantic Mutual Insurance Company and a
director of its subsidiaries, Atlantic Specialty Insurance Company and
Centennial Insurance Company.
Matthew D. Serra has served as President since April 12, 2000 and Chief
Executive Officer since March 4, 2001. He served as Chief Operating Officer
from February 2000 to March 3, 2001 and as President and Chief Executive
Officer of the Foot Locker Worldwide division from September 1998 to
February 2000. He previously served as Chairman and Chief Executive Officer
of Stern's, a division of Federated Department Stores, Inc., from March
1993 to September 1998.
Gary M. Bahler has served as Senior Vice President since August 1998,
General Counsel since February 1993 and Secretary since February 1990. He
served as Vice President from February 1993 to August 1998.
Jeffrey L. Berk has served as Senior Vice President-Real Estate since
February 2000. He was President of Venator Group Realty, North America from
January 1997 to February 2000. He previously served as Vice President-Real
Estate for Barnes & Noble, Inc. from 1994 to 1997.
Bruce L. Hartman has served as Senior Vice President and Chief Financial
Officer since February 1999. Mr. Hartman served as Vice President-Corporate
Shared Services from September 1998 to February 1999 and as Vice President
and Controller from November 1996 to September 1998. He served as the Chief
Financial Officer of various divisions of the May Department Stores Company
from March 1993 to October 1996.
Laurie Petrucci has served as Senior Vice President-Human Resources since
May 2001. She served as Senior Vice President-Human Resources of the Foot
Locker Worldwide division from February 2000 to May 2001, as Vice
President-Organizational Development and Training of Foot Locker Worldwide
from February 1999 to February 2000, and as Vice President-Human
Resources-Apparel Group from February 1997 to February 1999. From June 1995
to February 1997, she served as a human resources consultant with Global HR
Solutions.
John H. Cannon has served as Vice President and Treasurer since October
1983.
Robert W. McHugh has served as Vice President and Chief Accounting Officer
since January 2000 and Vice President-Taxation from November 1997 to
January 2000. He was a partner at KPMG LLP from July 1990 to October 1997.
Purdy Crawford has served as a Director since 1995. He has been Chairman of
the Board of AT&T Canada since June 1999. From 1987 to February 2000, he
served as Chairman of the Board of Imasco Limited (Canada), a consumer
products and services company, and was its Chief Executive Officer from
1987 to 1995. Mr. Crawford is a director of Camco Inc., Canadian National
Railway Company, Inco Limited, Maple Leaf Foods, Ltd., Petro-Canada and
Nova Scotia Power Inc. He is Counsel to the Canadian law firm of Osler,
Hoskin & Harcourt.
Philip H. Geier, Jr. has served as a Director since 1994. He was Chairman
of the Board and Chief Executive Officer of Interpublic Group of Companies,
Inc., an advertising and marketing communications services company, from
1980 to January 2001. He is a director of Fiduciary Trust Company
International and AEA Investors, Inc. and the International Tennis Hall of
Fame.
Jarobin Gilbert, Jr. has served as a Director since 1981. Mr. Gilbert has
been President and Chief Executive Officer of DBSS Group, Inc., a
management, planning and trade consulting services company, since 1992. He
is a director of PepsiAmericas, Inc. and Midas, Inc. He is also a trustee
of Atlantic Mutual Insurance Company and a director of Harlem Partnership,
Inc.
James E. Preston has served as a Director since 1983. He was Chairman of
the Board of Avon Products, Inc. from 1989 to May 1999 and Chief Executive
Officer from 1989 to June 1998. He is a director of ARAMARK Corporation,
Reader's Digest Association, Project Hope, The Edna McConnell Clarke
Foundation, The New Milford Hospital and the Kent Land Trust.
David Y. Schwartz has been a Director since 2000. He has been an
independent business adviser and consultant since July 1997. He was a
partner with Arthur Andersen LLP from 1972 until his retirement in 1997.
Mr. Schwartz is a director of Walgreen Co.
Christopher A. Sinclair has served as a Director since 1995. Mr. Sinclair
has been a Managing Director of Manticore Group, LLC, a venture capital and
advisory firm, since February 1, 2001 and Operating Partner of Pegasus
Capital Advisors, a private equity firm, since June 1, 2000. He was
Chairman of the Board of Caribiner International, a business communications
company, from May 1999 to May 2000, Chief Executive Officer from December
1998 to May 2000, and President from December 1998 to May 1999. He was
President and Chief Executive Officer of Quality Food Centers, Inc., a
supermarket chain, from September 1996 to March 1998. He served as Chairman
and Chief Executive Officer of Pepsi-Cola Company, a division of PepsiCo,
Inc. from April 1996 to July 1996. He was President and Chief Executive
Officer of PepsiCo Foods and Beverages International, a division of
PepsiCo, from 1993 to April 1996. He is a director of Mattel, Inc.,
Merisant, Inc. and the Amos Tuck School of Business Administration at
Dartmouth College.
Cheryl Turpin has served as a Director since January 1, 2001. She served as
President and Chief Executive Officer of The Limited Stores, Inc. from June
1994 to August 1997. She was President and Chief Executive Officer of Lane
Bryant, a subsidiary of The Limited, Inc., from January 1990 to June 1994.
Ms. Turpin is a member of the Board of Trustees of the Columbus School for
Girls.
Dona D. Young has served as a Director since January 1, 2001. She has been
President since February 2000 and Chief Operating Officer since February
2001 of Phoenix Home Life Mutual Insurance Company. She joined Phoenix Home
Life Mutual Insurance Company in 1980 and served in various management and
legal positions, including Executive Vice President and General Counsel
from 1995 to 2000. Ms. Young is a director of Phoenix Home Life Insurance
Company, Sonoco Products Company and Wachovia Corporation. She is also a
director of Hartford Hospital and The Children's Fund.
Description of Notes
We issued the notes under an indenture dated as of June 8, 2001 between
Venator Group, Inc. and The Bank of New York, as trustee. The terms of the
notes include those provided in the indenture, the notes and the
registration rights agreement dated as of June 8, 2001 between us and J.P.
Morgan Securities Inc. The following description is only a summary of the
material provisions of the indenture, the notes and the registration rights
agreement and is not complete. We urge you to read the indenture, the notes
and the registration rights agreement in their entirety because they, and
not this description, define your rights as a holder of the notes. A copy
of the form of indenture, the form of certificate evidencing the notes and
the form of registration rights agreement is available to you upon request.
As used in this section, the words "we," "us," "our" or "Venator" refer to
Venator Group, Inc. and its successors under the indenture and do not
include any current or future subsidiary of Venator Group, Inc.
General
The notes are unsecured general obligations of Venator and are subordinate
in right of payment as described under "-- Subordination of the Notes." The
notes will be convertible into common stock of Venator as described under
"-- Conversion of the Notes." The notes are limited to $150,000,000
aggregate principal amount at maturity. The notes were issued only in
denominations of $1,000 or in integral multiples of $1,000.
The notes will bear interest at the annual rate of 5.50%. Interest will be
payable semi-annually in arrears on June 1 and December 1, commencing on
December 1, 2001, to holders of record at the close of business on the
preceding May 15 and November 15, respectively, except:
o that the interest payable upon redemption or repurchase, unless
the date of redemption or repurchase is an interest payment date,
will be payable to the person to whom principal is payable; and
o as set forth in the next succeeding paragraph.
In the case of any note, or portion of any note, that is converted into
common stock of Venator during the period from, but excluding, a record
date for any interest payment date to, but excluding, that interest payment
date, either:
o if the note, or portion of the note, has been called for
redemption on a redemption date that occurs during that period, or
is to be repurchased on a repurchase date, as defined below, that
occurs during that period, then Venator will not be required to
pay interest on that interest payment date in respect of any note,
or portion of any note, that is so redeemed or repurchased; or
o if otherwise, any note or portion of any note that is not called
for redemption that is submitted for conversion during that period
must be accompanied by funds equal to the interest payable on that
interest payment date on the principal amount so converted.
See "-- Conversion of the Notes."
Interest will be paid, at Venator's option, either:
o by check mailed to the address of the person entitled to the
interest as it appears in the note register; provided that a
holder of notes with an aggregate principal amount in excess of
$10 million will, at the written election of the holder, be paid
by wire transfer in immediately available funds; or
o by transfer to an account maintained by that person located in the
United States.
Payments to The Depository Trust Company, New York, New York, or DTC, will
be made by wire transfer of immediately available funds to the account of
DTC or its nominee. Interest will be computed on the basis of a 360-day
year composed of twelve 30-day months.
The notes will mature on June 1, 2008 unless earlier converted, redeemed or
repurchased as described below. The indenture does not contain any
financial covenants or restrictions on the payment of dividends, the
incurrence of indebtedness or the issuance or repurchase of securities by
Venator or any of its subsidiaries. The indenture contains no covenants or
other provisions to protect holders of the notes in the event of a highly
leveraged transaction or a change in control of Venator except to the
extent described below under "-- Repurchase at Option of Holders."
Conversion of the Notes
Any registered holder of notes may, at any time prior to close of business
on the business day prior to the date of repurchase, redemption or final
maturity of the notes, as appropriate, convert the principal amount of any
notes or portions thereof, in denominations of $1,000 or integral multiples
of $1,000, into common stock of Venator, at a conversion price of $15.806
per share, subject to adjustment as described below.
Except as described below, no payment or adjustment will be made on
conversion of any notes for interest accrued thereon or for dividends on
any common stock issued upon conversion. If any notes not called for
redemption are converted between a record date and the next interest
payment date, those notes must be accompanied by funds equal to the
interest payable on the next interest payment date on the principal amount
so converted. Venator is not required to issue fractional shares of common
stock upon conversion of the notes and, instead, will pay a cash adjustment
based upon the market price of common stock on the last trading day prior
to the date of conversion. In the case of notes called for redemption or
tendered for repurchase, conversion rights will expire at the close of
business on the business day preceding the day fixed for redemption or
repurchase unless Venator defaults in the payment of the redemption or
repurchase price. A note that the holder has elected to be repurchased may
be converted only if the holder withdraws its election to have its notes
repurchased in accordance with the terms of the indenture.
The initial conversion price of $15.806 per share is subject to adjustment
upon specified events, including:
(1) the issuance of common stock of Venator as a dividend or
distribution on the common stock;
(2) the issuance to all holders of common stock of rights or warrants
to purchase common stock;
(3) specified subdivisions and combinations of the common stock;
(4) the distribution to all holders of common stock of capital stock,
other than common stock, or evidences of indebtedness of Venator
or of assets, including securities, but excluding those rights,
warrants, dividends and distributions referred to above or paid in
cash;
(5) a dividend or distribution consisting exclusively of cash to all
holders of common stock if the aggregate amount of these
distributions combined together with (A) all other all-cash
distributions made within the preceding 12 months in respect of
which no adjustment has been made plus (B) any cash and the fair
market value of other consideration payable in any tender offers
by Venator or any of its subsidiaries for common stock concluded
within the preceding 12 months in respect of which no adjustment
has been made, exceeds 10% of Venator's market capitalization; or
(6) the purchase of common stock pursuant to a tender offer made by
Venator or any of its subsidiaries to the extent that the same
involves an aggregate consideration that, together with (A) any
cash and the fair market value of any other consideration payable
in any other tender offer by Venator or any of its subsidiaries
for common stock expiring within the 12 months preceding such
tender offer in respect of which no adjustment has been made plus
(B) the aggregate amount of any such all-cash distributions
referred to in (5) above to all holders of common stock within the
12 months preceding the expiration of the tender offer for which
no adjustment has been made, exceeds 10% of Venator's market
capitalization on the expiration of such tender offer.
In the case of:
o any reclassification or change of the outstanding shares of the
common stock; or
o a consolidation, merger or combination involving Venator; or
o a sale or conveyance to another person of the property and assets
of Venator as an entirety or substantially as an entirety;
in such case as a result of which holders of common stock would be entitled
to receive stock, other securities, other property or assets, including
cash, in respect of or in exchange for all shares of common stock, then the
holders of the notes then outstanding will generally be entitled thereafter
to convert the notes into the same type of consideration that they would
have owned or been entitled to receive upon such event had the notes been
converted into common stock immediately prior to that event, assuming that
a holder of notes would not have exercised any rights of election as to the
consideration receivable in connection with that transaction.
If Venator makes a taxable distribution to holders of common stock or in
specified other circumstances requiring an adjustment to the conversion
price, the holders of notes may, in some circumstances, be deemed to have
received a distribution subject to U.S. income tax as a dividend. In some
other circumstances, the absence of an adjustment to the conversion price
may result in a taxable dividend to the holders of common stock. See
"Certain United States Federal Income Tax Consequences."
Venator may from time to time, to the extent permitted by law, reduce the
conversion price by any amount for any period of at least 20 days, in which
case Venator will give at least 15 days' notice of the reduction. Venator
may, at its option, make reductions in the conversion price, in addition to
those described above, as Venator's board of directors deems advisable to
avoid or diminish any income tax to holders of common stock resulting from
any dividend or distribution of stock, or rights to acquire stock, or from
any event treated as dividends or distributions of, or rights to acquire,
stock for income tax purposes.
No adjustment in the conversion price will be required unless that
adjustment would require an increase or decrease of at least 1% in the
conversion price then in effect; however, any adjustment that would
otherwise be required to be made will be carried forward and taken into
account in any subsequent adjustment. Except as stated above, the
conversion price will not be adjusted for the issuance of common stock or
any securities convertible into or exchangeable for common stock or
carrying the right to purchase any of the foregoing.
Optional Redemption by Venator
The notes are not entitled to any sinking fund.
At any time on or after June 4, 2004, Venator may redeem the notes on at
least 20 days' notice as a whole or, from time to time, in part at the
following prices, expressed as a percentage of the principal amount,
together with accrued interest to, but excluding, the date fixed for
redemption:
Redemption
Period Price
Beginning June 4, 2004 and ending on May 31, 2005.............2005................ 103.1%
Beginning June 1, 2005 and ending on May 31, 2006.............2006................ 102.4%
Beginning June 1, 2006 and ending on May 31, 2007.............2007................ 101.6%
Beginning June 1, 2007 and ending on May 31, 2008.............2008................ 100.8%
Any accrued interest becoming due on the date fixed for redemption will be
payable to the holders of record on the relevant record date of the notes
being redeemed.
If less than all of the outstanding notes are to be redeemed, the trustee
will select the notes to be redeemed in principal amounts of $1,000 or
integral multiples of $1,000 on a pro rata basis or by lot or such other
method as the Trustee shall deem fair and equitable. If a portion of a
holder's notes is selected for partial redemption and that holder converts
a portion of that holder's notes, the converted portion will be deemed to
be of the portion selected for redemption.
Repurchase at Option of Holders
You will have the right, at your option, to require us to repurchase all or
any portion of your notes 30 business days after the occurrence of a
repurchase event.
The repurchase price will be 100% of the principal amount of the notes
submitted for repurchase, plus accrued and unpaid interest to, but
excluding, the repurchase date. If a repurchase date is an interest payment
date, then the interest payable on that date will be paid to the holder of
record on the preceding record date.
At our option, instead of paying the repurchase price in cash, we may pay
the repurchase price in common stock, valued at 95% of the average of the
closing prices for the five trading days immediately before and including
the third trading day preceding the repurchase date. The repurchase price
may be paid in shares of common stock only if the following conditions are
satisfied:
o such shares have been registered under the Securities Act of 1933
or are freely transferable without such registration;
o the issuance of such common stock does not require registration
with or approval of any governmental authority under any state law
or any other federal law, which registration or approval has not
been made or obtained;
o such shares have been approved for quotation on the New York Stock
Exchange or listing on a national securities exchange; and
o such shares will be issued out of our authorized but unissued
common stock and, upon issuance, will be duly and validly issued
and fully paid and non-assessable and free of any preemptive
rights.
A repurchase event will be considered to have occurred if one of the
following "change in control" events occurs:
o any person or group is or becomes the beneficial owner of more
than 50% of the voting power of our outstanding securities
entitled to generally vote for directors;
o we consolidate with or merge into any other person or any other
person merges into Venator or we convey, transfer or lease all or
substantially all of our assets to any person other than our
subsidiaries and, as a result, our outstanding common stock is
changed or exchanged for other assets or securities, unless our
shareholders immediately before the transaction own, directly or
indirectly, immediately following the transaction more than 50% of
the combined voting power of the person resulting from the
transaction or the transferee person; or
o our liquidation or dissolution.
However, a change in control will not be deemed to have occurred if either:
o the last sale price of our common stock for any five trading days
within
o the period of ten consecutive trading days immediately after the
later of the change in control or the public announcement of the
change in control, in the case of a change in control resulting
solely from a change in control under the first bullet point
above, or
o the period of ten consecutive trading days immediately preceding
the change in control, in the case of a change in control under
the second and third bullet points above
is at least equal to 105% of the conversion price in effect on such
day; or
o in the case of a merger or consolidation, all of the consideration
excluding cash payments for fractional shares in the merger or
consolidation constituting the change in control consists of
common stock traded on a United States national securities
exchange or quoted on the Nasdaq National Market (or which will be
so traded or quoted when issued or exchanged in connection with
such change in control) and as a result of such transaction or
transactions the notes become convertible solely into such common
stock.
We will be required to mail you a notice within 10 business days after the
occurrence of a repurchase event. The notice must describe, among other
things, the repurchase event, your right to elect repurchase of the notes
and the repurchase date. We must deliver a copy of the notice to the
trustee. You may exercise your repurchase rights by delivering written
notice to us and the trustee. The notice must be accompanied by the notes
duly endorsed for transfer to Venator. You must deliver the exercise notice
on or before the close of business on the business day prior to the
repurchase date.
The interpretation of the phrase "all or substantially all" used in the
definition of change in control would likely depend on the facts and
circumstances existing at such time. As a result, there may be uncertainty
as to whether or not a sale or transfer of "all or substantially all"
assets has occurred. As a result, we cannot assure you how a court would
interpret this phrase under applicable law if you elect to exercise your
rights following the occurrence of a transaction which you believe
constitutes a transfer of "all or substantially all" of our assets."
We may not have sufficient cash funds to repurchase the notes upon a
repurchase event. We may elect, subject to certain conditions, to pay the
repurchase price in common stock. Future debt agreements may prohibit us
from paying the repurchase price in either cash or common stock. If we are
prohibited from repurchasing the notes, we could seek consent from our
lenders to repurchase the notes. If we are unable to obtain their consent,
we could attempt to refinance the notes. If we were unable to obtain a
consent or refinance, we would be prohibited from repurchasing the notes.
If we were unable to repurchase the notes upon a repurchase event, it would
result in an event of default under the indenture. An event of default
under the indenture could result in a further event of default under our
other then-existing debt. In addition, the occurrence of the repurchase
event may be an event of default under our other debt. As a result, we
could be prohibited from paying amounts due on the notes under the
subordination provisions of the indenture.
The change in control feature may not necessarily afford you protection in
the event of a highly leveraged transaction, a change in control or similar
transactions involving Venator. We could, in the future, enter into
transactions, including recapitalizations, that would not constitute a
change in control but that would increase the amount of our senior
indebtedness or other debt. We are not prohibited from incurring senior
indebtedness or debt under the indenture. If we incur significant amounts
of additional debt, this could have an adverse effect on our ability to
make payments on the notes. In addition, our management could undertake
leveraged transactions that could constitute a change in control. The board
of directors does not have the right under the indenture to limit or waive
the repurchase right in the event of these types of leveraged transaction.
The requirement to repurchase notes upon a repurchase event could delay,
defer or prevent a change of control. As a result, the repurchase right may
discourage:
o a merger, consolidation or tender offer;
o the assumption of control by a holder of a large block of our
shares; and
o the removal of incumbent management.
The repurchase feature was a result of negotiations between Venator and the
initial purchasers of the notes. The repurchase feature is not the result
of any specific effort to accumulate shares of common stock or to obtain
control of Venator by means of a merger, tender offer or solicitation, or
part of a plan by Venator to adopt a series of anti-takeover provisions. We
have no present intention to engage in a transaction involving a change of
control, although it is possible that we may decide to do so in the future.
The Securities Exchange Act of 1934, as amended, and the rules thereunder
require the distribution of specific types of information to security
holders in the event of issuer tender offers. These rules may apply in the
event of a repurchase. We will comply with these rules to the extent
applicable.
Subordination of the Notes
The indebtedness evidenced by the notes is subordinated to the extent
provided in the indenture to the prior payment in full, in cash or other
payment satisfactory to holders of senior indebtedness, of all of our
existing and future senior indebtedness. Upon any distribution of our
assets upon any dissolution, winding-up, liquidation or reorganization, or
in bankruptcy, insolvency, receivership or similar proceedings, payment of
the principal of, premium, if any, interest and all other obligations in
respect of the notes, including by way of redemption, acquisition or other
purchase thereof, on the notes is to be subordinated in right of payment to
the prior payment in full, in cash or other payment satisfactory to holders
of senior indebtedness, of all of our existing and future senior
indebtedness. In addition, the notes are also effectively subordinated to
all indebtedness and other liabilities, including trade payables and lease
obligations and preferred stock, if any, of our subsidiaries.
In the event of any acceleration of the notes because of an event of
default, the holders of any senior indebtedness then outstanding would be
entitled to payment in full, in cash or other payment satisfactory to
holders of senior indebtedness, of all obligations in respect to such
senior indebtedness before the holders of notes are entitled to receive any
payment or other distribution. We are required to promptly notify holders
of senior indebtedness if payment of the notes is accelerated because of an
event of default.
We also may not make any payment upon or redemption of or purchase or
otherwise acquire the notes if:
o a default in the payment of principal, premium, if any, interest
or other obligations in respect of designated senior indebtedness
occurs and is continuing beyond any applicable period of grace, or
o any other default occurs and is continuing with respect to
designated senior indebtedness that permits holders of the
designated senior indebtedness to which such default relates to
accelerate its maturity and the trustee receives a notice of such
default, which we refer to as a payment blockage notice, from us
or any other person permitted to give this notice under the
indenture.
Unless the holders of any senior indebtedness have accelerated its
maturity, we may and shall resume making payments on the notes:
o in the case of a payment default, when the default is cured or
waived or ceases to exist, and
o in the case of a nonpayment default, the earlier of when such
nonpayment default is cured or waived or ceases to exist or 179
days after receipt of the payment blockage notice.
No new period of payment blockage may be commenced pursuant to a payment
blockage notice unless and until 360 days have elapsed since the initial
effectiveness of the prior payment blockage notice.
No default that existed or was continuing on the date of delivery of any
payment blockage notice to the trustee shall be the basis for a subsequent
payment blockage notice, unless the default has been cured or waived for a
period of not less than 90 consecutive days.
In the event of our bankruptcy, dissolution or reorganization, holders of
senior indebtedness may receive more, ratably, and holders of the notes may
receive less, ratably, than our other creditors. Such subordination will
not prevent the occurrence of any event of default under the indenture.
A substantial portion of our operations are conducted through our
subsidiaries. As a result, our cash flow and or ability to service our
debt, including the notes, is dependent upon the earnings of our
subsidiaries. In addition, we are dependent on the distribution of
earnings, loans or other payments by our subsidiaries to us. See "Risk
Factors -- If our subsidiaries do not make sufficient distributions to us,
we will not be able to make payment on our debt, including the notes."
Our subsidiaries are separate and distinct legal entities. Our subsidiaries
have no obligation to pay any amounts due on the notes or to provide us
with funds for our payment obligations, whether by dividends,
distributions, loans or other payments. In addition, any payment of
dividends, distributions, loans or advances by our subsidiaries to us could
be subject to statutory or contractual restrictions. Payments to us by our
subsidiaries will also be contingent upon our subsidiaries' earnings and
business consideration. There can be no assurance that we will receive
adequate funds from our subsidiaries to pay interest due on the notes or to
repay the notes when redeemed or upon maturity.
Our right to receive any assets of any of our subsidiaries upon their
liquidation or reorganization, and therefore the right of the holders of
the notes to participate in those assets, will be effectively subordinated
to the claims of that subsidiary's creditors, including trade creditors. In
addition, even if we were a creditor of any of our subsidiaries, our rights
as a creditor would be subordinate to any security interest in the assets
of our subsidiaries and any indebtedness of our subsidiaries senior to that
held by us.
As of February 3, 2001, we had approximately $290 million of senior
indebtedness and we and our subsidiaries had approximately $929 million of
other liabilities reflected on our consolidated balance sheet. In addition,
with respect to our continuing operations, we and our subsidiaries had
total operating lease commitments of $1,907 million as of February 3, 2001.
Other liabilities on our consolidated balance sheet include our estimate of
costs to exit leases of our discontinued operations.
Neither we nor our subsidiaries are limited in or prohibited from incurring
senior indebtedness or any other indebtedness or liabilities under the
indenture.
Certain Definitions
"credit facility" means the credit agreement dated as of April 9, 1997, as
amended and restated as of June 8, 2001 among Venator Group, Inc., the
lenders and co-agents party thereto and The Bank of New York, as
administrative agent, together with any related documents (including any
security documents and guarantee agreements), as such agreement may be
amended, modified, supplemented, extended, renewed, refinanced or replaced
or substituted from time to time.
"designated senior indebtedness" means (i) all indebtedness under the
credit facility, and (ii) after payment in full in cash of all senior
indebtedness under the credit facility, any particular senior indebtedness
in which the instrument creating or evidencing the senior indebtedness or
the assumption of guarantee thereof (or related documents or agreements to
which we are a party) expressly provides that such indebtedness shall be
"designated senior indebtedness" (provided that such instrument may place
limitations and conditions on the right of such senior indebtedness to
exercise the rights of designated senior indebtedness), the aggregate
principal amount of which is equal to or greater than $50 million.
"indebtedness" means:
(1) all of our indebtedness, obligations and other liabilities,
contingent or otherwise, for borrowed money, including
obligations:
o in respect of overdrafts, foreign exchange contracts, currency
exchange agreements, interest rate protection agreements and any
loans or advance from banks, whether or not evidenced by notes or
similar instruments, or
o evidenced by bonds, debentures, notes or similar instruments,
whether or not the recourse of the lender is to all of our assets
or to only a portion thereof, other than any account payable or
other secured current liability or obligation incurred in the
ordinary course of business in connection with the obtaining of
materials or services,
(2) all of our reimbursement obligations and other liabilities,
contingent or otherwise, with respect to letters of credit, bank
guarantees or bankers' acceptances,
(3) all of our obligations and liabilities, contingent or otherwise,
in respect of leases required, in conformity with generally
accepted accounting principles, to be accounted for as capitalized
lease obligations on our balance sheet,
(4) all of our obligations and other liabilities, contingent or
otherwise, under any lease or related document, including a
purchase agreement, in connection with the lease of real property
or improvements thereon (or any personal property included as part
of any such lease) which provides that we are contractually
obligated to purchase or cause a third party to purchase the
leased property and thereby guarantee a residual value of leased
property to the lessor and all of our obligations under such lease
or related documents to purchase the leased property (whether or
not such lease transaction is characterized as an operating lease
or a capitalized lease in accordance with generally accepted
accounting principles),
(5) all of our obligations, contingent or otherwise, with respect to
an interest rate, currency or other swap, cap, floor or collar
agreement, hedge agreement, forward contract, or other similar
instrument or agreement or foreign currency hedge, exchange,
purchase or similar instrument or agreement,
(6) all of our direct or indirect guarantees or similar agreements to
purchase or otherwise acquire or otherwise assure a creditor
against loss in respect of indebtedness, obligations or
liabilities of another person of the kind described in clauses (1)
through (5) above,
(7) any indebtedness or other obligations described in clauses (1)
through (6) above secured by any mortgage, pledge, lien or other
encumbrance existing on property which owned or held by us,
regardless of whether the indebtedness or other obligation secured
thereby has been assumed by us, and
(8) any and all deferrals, renewals, extensions and refundings of, or
amendments, modifications supplements to, any indebtedness,
obligation or liability of the kind described in clauses (1)
through (7) above.
"obligations" means with respect to any indebtedness, all obligations
(whether in existence on June 8, 2001 or arising afterwards, absolute or
contingent, direct or indirect) for or in respect of principal (when due,
upon acceleration, upon redemption, upon mandatory repayment or repurchase
pursuant to a mandatory offer to purchase, or otherwise), premium,
interest, penalties, fees, indemnification, reimbursement and other amounts
payable and liabilities with respect to such indebtedness, including,
without limitation, all interest accrued or accruing after, or which would
accrue but for, the commencement of any bankruptcy, insolvency or
reorganization or similar case or proceeding at the contract rate
(including, without limitation, any contract rate applicable upon default)
specified in the relevant documentation, whether or not the claim for such
interest is allowed as a claim in such case or proceeding.
"senior indebtedness" means all obligations with respect to indebtedness of
Venator whether outstanding on the date of the indenture or thereafter
created, incurred, assumed guaranteed, or in effect guaranteed, by Venator,
including, without limitation, all deferrals, renewals, extensions or
refundings of, or amendments, modifications or supplements to, the
foregoing, unless in the case of any particular indebtedness the instrument
creating or evidencing the same or the assumption or guarantee thereof
expressly provides that such indebtedness shall not be senior in right of
payment to the notes or expressly provides that such indebtedness ranks
equally in right of payment or junior to the notes.
Senior indebtedness does not include any indebtedness of Venator to any
subsidiary of Venator, any obligation for federal, state, local or other
taxes or any trade accounts payable arising in the ordinary course of
business.
We are obligated to pay compensation to the trustee and to indemnify the
trustee against certain losses, liabilities or expenses incurred by it in
connection with its duties relating to the notes. The trustee's claims for
such payments will generally be senior to those of the holders of the notes
in respect to all funds collected and held by the trustee.
Satisfaction and Discharge
We may be discharged from our obligations on the notes if they mature
within one year or will be redeemed within one year and we deposit with the
trustee enough cash and/or U.S. government obligations to pay all the
principal, premium, if any, and interest due to the stated maturity date or
redemption date of the notes.
Defeasance
The indenture also contains a provision that permits us to elect:
o to be discharged from all of our obligations, subject to limited
exceptions, with respect to the notes then outstanding; and/or
o to be released from our obligations under the covenants relating
to the required offer to repurchase upon a repurchase event,
maintenance of our corporate existence and reports to holders.
To make either of the above elections, we must deposit in trust with the
trustee enough money to pay in full the principal, premium, if any, and
interest on the notes. This amount may be made in cash and/or U.S.
government obligations. As a condition to either of the above elections, we
must deliver to the trustee an opinion of counsel that the holders of the
notes will not recognize income, gain or loss for Federal income tax
purposes as a result of the action. If we elect to be discharged from all
of our obligations as outlined above in the first bullet point in this
section, the holders of the notes will not be entitled to the benefits of
the indenture, except for registration of transfer and exchange of notes
and replacement of lost, stolen or mutilated notes.
Exchange and Transfer
Notes may be transferred or exchanged at the office of the security
registrar. We will not impose a service charge for any transfer or
exchange, but we may require holders to pay any tax or other governmental
charges associated with any transfer or exchange. In the event of any
potential redemption of the notes, we will not be required to:
o issue, authenticate or register the transfer of or exchange any
note during a period beginning at the opening of business 10
business days before the mailing of a notice of redemption and
ending at the close of business on the day of the mailing, or
o register the transfer of or exchange any note selected for
redemption, in whole or in part, except the unredeemed portion of
notes being redeemed in part.
We have initially appointed the trustee as the security registrar, paying
agent and conversion agent. We may designate additional registrars, paying
or conversion agents or change registrars, paying or conversion agents.
However, we will be required to maintain a paying agent in the place of
payment for the notes.
Consolidation, Merger and Sale of Assets
We may not consolidate with or merge into any other person, in a
transaction in which we are not the surviving corporation, or convey,
transfer or lease our properties and assets substantially as an entirety
to, any person, unless:
o the successor, if any, is a U.S. or a District of Columbia
corporation, limited liability company, partnership, trust or
other business entity,
o the successor assumes our obligations under the notes, the
indenture and the registration rights agreement, and
o immediately after giving effect to the transaction, no default or
event of default shall have occurred and be continuing, and
certain other conditions are met.
Events of Default
The indenture defines an event of default with respect to the notes as one
or more of the following events:
(1) our failure to pay principal of or any premium on the notes when
due (whether or not prohibited by the subordination provisions of
the indenture),
(2) our failure to pay any interest on the notes when due, if such
failure continues for 30 days (whether or not prohibited by the
subordination provisions of the indenture),
(3) our failure to perform any other covenant in the indenture, if
such failure continues for 90 days after the notice required in
the indenture, and
(4) our bankruptcy, insolvency or reorganization.
If an event of default, other than an event of default described in clause
(4) above, occurs and continues, either the trustee or the holders of at
least 25% in aggregate principal amount of the outstanding notes may
declare the principal amount including any accrued and unpaid interest on
the notes to be due and payable upon the earlier to occur of (x) the 5th
day after notice thereof has been given to holders of designated senior
indebtedness and (y) the date on which all of the designated senior
indebtedness has been accelerated. If an event of default described in
clause (4) above occurs, the principal amount of all the notes will
automatically become immediately due and payable. Any payment by us on the
notes following any acceleration will be subject to the subordination
provisions described above under "-- Subordination of the Notes."
After acceleration but before a judgment or decree of the money due in
respect of the notes has been obtained, the holders of a majority in
aggregate principal amount of the outstanding notes may rescind such
acceleration and its consequences if all events of default, other than the
non-payment of accelerated principal, or other specified amount, have been
cured or waived.
Other than the duty to act with the required care during an event of
default, the trustee will not be obligated to exercise any of its rights or
powers at the request of the holders unless the holders offer the trustee
reasonable indemnity. Generally, the holders of a majority in aggregate
principal amount of the notes will have the right to direct the time,
method and place of conducting any proceeding for any remedy available to
the trustee or exercising any trust or power conferred on the trustee.
A holder will have the right to begin a proceeding under the indenture, or
for the appointment of a receiver or a trustee, or for any other remedy
under the indenture only if:
(1) the holder gives to the trustee written notice of a continuing
event of default, (2) holders of at least 25% in aggregate
principal amount of notes then outstanding made a written request
to the trustee to pursue the remedy, (3) such holder or holders
offer to the trustee indemnity satisfactory to the trustee against
any loss, liability or expense, (4) the trustee does not comply
with the request within 60 days after receipt of the request and
the offer of indemnity and (5) during such 60-day period the
holders of a majority in aggregate principal amount of the notes
then outstanding do not give the trustee a direction inconsistent
with the request. Holders may, however, sue to enforce the payment
of principal, premium or interest on or after the due date or
their right to convert without following the procedures listed in
(1) through (5) above.
We will furnish the trustee an annual statement by our officers as to
whether or not, to the officer's knowledge, we are in default in the
performance of the indenture and, if so, specifying all known defaults.
Modification and Waiver
We may make modifications and amendments to the indenture with the consent
of the holders of a majority in aggregate principal amount of the
outstanding notes affected by the modification or amendment. However, we
may not make any modification or amendment without the consent of the
holder of each outstanding note affected by the modification or amendment
if such modification or amendment would:
o change the stated maturity of the notes,
o reduce the principal, premium, if any, or interest on the notes,
o change the place of payment from New York, New York or the
currency in which the notes are payable,
o waive a default in payment of the principal of or interest on any
note,
o impair the right to sue for any payment after the stated maturity
or redemption date,
o modify the subordination provisions in a materially adverse manner
to the holders,
o adversely affect the right to convert the notes other than as
provided in or under the indenture, or
o change the provisions in the indenture that relate to modifying or
amending the indenture.
Holders of a majority in aggregate principal amount of the outstanding
notes may waive, on behalf of the holders of all of the notes, compliance
by us with respect to certain restrictive provisions of the indenture.
Generally, the holders of not less than a majority of the aggregate
principal amount of the outstanding notes may, on behalf of all holders of
the notes, waive any past default or event of default unless:
o we fail to pay principal, premium or interest on any note when
due;
o we fail to convert any note into common stock; or
o we fail to comply with any of the provisions of the indenture that
would require the consent of the holder of each outstanding note
affected.
An amendment may not effect any change that adversely affects the rights of
any holder of senior indebtedness then outstanding under the subordination
provisions unless such holder of senior indebtedness, or a representative
for such holder, consents to such change.
Any notes held by us or by any persons directly or indirectly controlling
or controlled by or under direct or indirect common control with us shall
be disregarded (from both the numerator and denominator) for purposes of
determining whether the holders of a majority in principal amount of the
outstanding notes have consented to a modification, amendment or waiver of
the terms of the indenture.
Notices
Notices to holders will be given by mail to the addresses of the holders in
the security register.
Governing Law
The indenture and the notes will be governed by, and construed under, the
law of the State of New York, without regard to conflicts of laws
principles.
Regarding the Trustee
The Bank of New York has agreed to serve as the trustee under the
indenture. The trustee will be permitted to deal with us and any affiliate
of ours with the same rights as if it were not trustee. However, under the
Trust Indenture Act, if the trustee acquires any conflicting interest and
there exists a default with respect to the notes, the trustee must
eliminate such conflicts or resign.
The holders of a majority in principal amount of all outstanding notes will
have the right to direct the time, method and place of conducting any
proceeding for exercising any remedy or power available to the trustee.
However, any such direction may not conflict with any law or the indenture,
may not be unduly prejudicial to the rights of another holder or the
trustee and may not involve the trustee in personal liability.
J. Carter Bacot, Chairman of the Board and a director of Venator, is a
director of The Bank of New York Company, Inc., parent of the trustee under
the indenture.
Registration Rights
We entered into a registration rights agreement with the initial purchasers
of the notes. If you sell the notes or shares of common stock issued upon
conversion of the notes under this registration statement, you generally
will be required to be named as a selling securityholder in this
prospectus, deliver this prospectus to purchasers and be bound by
applicable provisions of the registration rights agreement, including some
indemnification provisions.
In the registration rights agreement, we agreed to file a registration
statement that includes this prospectus with the SEC by September 6, 2001.
We agreed to use all reasonable best efforts to cause this registration
statement to become effective as promptly as practicable, but before
December 5, 2001. We agreed to keep this registration statement effective
until the earliest of (i) June 8, 2003, (ii) the date when all registrable
securities shall have been registered under the Securities Act of 1933 and
disposed of or (iii) the date on which all registrable securities are
eligible to be sold to the public pursuant to Rule 144(k) under the
Securities Act of 1933 (such shortest time period referred to as the
effectiveness period). We may suspend the use of this prospectus under
limited circumstances, including pending corporate developments or public
filings with the SEC, for a period not to exceed 45 days in any 90-day
period and 90 days in any 360-day period. We also agreed to pay liquidated
damages to holders of the notes and shares of common stock issued upon
conversion of the notes if the registration statement is not timely filed
or made effective or if the prospectus is unavailable for periods in excess
of those permitted above. You should refer to the registration rights
agreement for a description of these liquidated damages.
Book-Entry System
The notes were originally issued in the form of a global security issued in
reliance on Rule 144A and a global security issued in reliance on
Regulation S. Upon the issuance of a global security, DTC (referred to as
the depository) or its nominee credited the accounts of persons holding
through it with the respective principal amounts of the notes represented
by such global security. Such accounts were designated by the initial
purchasers with respect to notes placed by the initial purchasers for us.
The notes that are sold under this prospectus will be represented by a new
unrestricted global security. Upon issuance of this new global security,
the depository or its nominee will credit the accounts of persons holding
through it with the respective principal amounts of the notes represented
by the new unrestricted global security. Ownership of beneficial interests
in a global security is limited to persons that have accounts with the
depository ("participants") or persons that may hold interests through
participants. Ownership of beneficial interests by participants in a global
security is shown on, and the transfer of that ownership interest will be
effected only through, records maintained by the depository for such global
security. Ownership of beneficial interests in such global security by
persons that hold through participants will be shown on, and the transfer
of those ownership interests through such participant will be effected only
through, records maintained by such participant. The foregoing may impair
the ability to transfer beneficial interests in a global security.
We will make payment of principal, premium, if any, and interest on notes
represented by any such global security to the depository or its nominee,
as the case may be, as the sole holder of the notes represented thereby for
all purposes under the indenture. None of Venator, the trustee, any agent
of Venator, or the trustee or the initial purchasers will have any
responsibility or liability for any aspect of the depository's records
relating to or payments made on account of beneficial ownership interests
in global security representing any notes or for maintaining, supervising
or reviewing any of the depository's records relating to such beneficial
ownership interests. We have been advised by the depository that, upon
receipt of any payment of principal, premium, if any, or interest on any
global security, the depository will immediately credit, on its book-entry
registration and transfer system, the accounts of participants with
payments in amounts proportionate to their respective beneficial interests
in the principal amount of such global security as shown on the records of
the depository. Payments by participants to owners of beneficial interests
in a global security held through such participants will be governed by
standing instructions and customary practices as is now the case with
securities held for customer accounts registered in "street name," and will
be the sole responsibility of such participants.
A global security may not be transferred except as a whole by the
depository for such global security to a nominee of such depository or by a
nominee of such depository to such depository or another nominee of such
depository or by such depository or any such nominee to a successor of such
depository or a nominee of such successor. If the depository is at any time
unwilling or unable to continue as depository and a successor depository is
not appointed by us or the depository within 90 days, we will issue notes
in definitive form in exchange for the global security. In either instance,
an owner of a beneficial interest in the global security will be entitled
to have notes equal in principal amount to such beneficial interest
registered in its name and will be entitled to physical delivery of such
notes in definitive form. Notes so issued in definitive form will be issued
in denominations of $1,000 and integral multiples thereof and will be
issued in registered form only, without coupons. We will pay principal,
premium, if any, and interest on the notes and the notes may be presented
for registration of transfer or exchange, at the offices of the trustee.
So long as the depository for a global security, or its nominee, is the
registered owner of such global security, such depository or such nominee,
as the case may be, will be considered the sole holder of the notes
represented by such global security for the purposes of receiving payment
on the notes, receiving notices and for all other purposes under the
indenture and the notes. Beneficial interests in notes will be evidenced
only by, and transfers thereof will be effected only through, records
maintained by the depository and its participants. The depository has
nominated Cede & Co. as the nominee. Except as provided above, owners of
beneficial interests in a global security will not be entitled to have the
notes represented by the global security registered in their name, will not
be entitled to receive physical delivery of certificated notes and will not
be considered the holders thereof for any purposes under the indenture.
Accordingly any such person owning a beneficial interest in such a global
security must rely on the procedures of the depository, and, if any such
person is not a participant, on the procedures the participant through
which such person owns its interest, to exercise any rights of a holder
under the indenture. The indenture provides that the depository may grant
proxies and otherwise authorize participants to give or take any request,
demand, authorization, direction, notice, consent, waiver or other action
which a holder is entitled to give or take under the indenture. We
understand that under existing industry practices, in the event that we
request any action of holders or that an owner of a beneficial interest in
such a global security desires to give or take any action which a holder is
entitled to give or take under the indenture, the depository would
authorize the participants holding the relevant beneficial interest to give
or take such action and such participants would authorize beneficial owners
owning through such participants to give or take such action or would
otherwise act upon the instructions of beneficial owners owning through
them.
The depository has advised us that the depository 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 New York Uniform Commercial Code, and a "clearing agency" registered
under the Exchange Act. The depository was created to hold the securities
of its participants and to facilitate the clearance and settlement of
securities transactions among its participants in such securities through
electronic book-entry changes in accounts of the participants, thereby
eliminating the need for physical movement of securities certificates. The
depository's participants include securities brokers and dealers (including
the initial purchasers), banks, trust companies, clearing corporations and
certain other organizations, some of whom (and/or their representatives)
own the depository. Access to the depository's book-entry system is also
available to others, such as banks, brokers, dealers and trust companies,
that clear through or maintain a custodial relationship with a participant,
either directly or indirectly.
Description of Revolving Credit Facility
On June 8, 2001, Venator Group, Inc. and certain of our wholly owned
subsidiaries, collectively, the Borrowers, entered into an amended and
restated senior secured credit facility, amending and restating the
existing senior secured credit facility dated as of April 9, 1997, as
amended and restated, with a syndicate of banks and other lenders arranged
by J.P. Morgan Securities Inc. and BNY Capital Markets, Inc., providing for
$190 million of revolving credit facilities. The senior credit facility
shall mature in June 2004 and may be used to finance capital expenditures,
to provide working capital and for other general corporate purposes of the
borrowers. Below is a summary of certain terms and provisions of the senior
secured credit facility:
Interest Rates. The loans under the senior credit facility bear
interest at a rate equal to a base rate, either LIBOR or prime, at
the Borrowers' option, plus a margin specified in the senior
credit facility. The margins for each interest rate are determined
by reference to a pricing schedule set forth in the senior credit
facility, which is based upon a fixed charge coverage ratio test.
When, on any date of determination, we use more than 50 percent of
the commitments under the senior credit facility, the margins
shall be adjusted upwards as set forth on the pricing schedule.
Guaranty. Each Borrower is severally obligated with respect to all
amounts owing under the senior credit facility. In addition, all
obligations under the senior credit facility are jointly and
severally guaranteed by each material domestic subsidiary of
Venator Group, Inc.
Security. The senior credit facility is secured by a lien on
certain real property held by the Borrowers and the subsidiary
guarantors valued in excess of $2 million and, subject to certain
exceptions, all patents, trademarks and other intellectual
property owned by the Borrowers and the subsidiary guarantors and
65 percent of the shares of stock of all first-tier foreign
subsidiaries, excluding those in Germany and Canada.
Financial Covenants. The senior credit facility requires the
Borrowers to meet certain financial tests, including without
limitation, maximum leverage ratio, minimum consolidated tangible
net worth and minimum fixed charge coverage ratio tests, and
limitations on capital expenditures. There is also a limit on
subsidiary debt.
Other Covenants. The senior credit facility contains certain other
negative covenants that limit, among other things, additional
liens, indebtedness, transactions with affiliates, mergers and
consolidations, liquidations and dissolutions, sales of assets,
dividends, stock repurchases, investments, loans and advances,
prepayments and modifications of debt instruments and other
matters customarily restricted in such agreements.
Events of Default. The senior credit facility contains events of
default typical for these types of facilities, subject in each
case to mutually agreeable grace periods and materiality
thresholds, including, without limitation, (i) non-payment amounts
under the senior credit facility, (ii) material
misrepresentations, (iii) covenant defaults, (iv) cross-defaults
to other indebtedness, (v) judgment defaults, (vi) bankruptcy and
(vii) change of control.
Description of Capital Stock
Our authorized capital stock consists of 500,000,000 shares of common
stock, $0.01 par value, and 7,000,000 shares of preferred stock, par value
$1.00 per share. As of June 2, 2001, there were:
o 139,471,607 shares of our common stock outstanding;
o no shares of preferred stock issued or outstanding; and
o options to purchase 8,656,018 shares of common stock.
Common Stock
The holders of our common stock are entitled to one vote for each share
held of record on all matters submitted to a vote by shareholders. Subject
to preferences that may be applicable to any holders of outstanding
preferred stock, holders of common stock are entitled to receive ratably
such dividends as may be declared by our board of directors out of funds
legally available therefor. In the event of a liquidation or dissolution of
Venator, holders of common stock are entitled to share ratably in all
assets remaining after payment of liabilities and the liquidation
preference of any outstanding preferred stock.
Holders of common stock have no preemptive rights and have no rights to
convert their common stock into any other securities. All of the
outstanding shares of common stock are, and the shares of common stock to
be issued upon conversion of the notes will be, duly authorized, validly
issued, fully paid and nonassessable.
Preferred Stock
Our board of directors is authorized to designate any series of preferred
stock and the powers, preferences and rights of the shares of such series
and the qualifications, limitations or restrictions thereof without further
action by the holders of common stock. As of the record date, no shares of
preferred stock were issued or outstanding.
Anti-Takeover Provisions
We have adopted certain anti-takeover provisions, which may have the effect
of discouraging, delaying or preventing a merger or acquisition of the
company.
Authorized Shares
Our shareholders have currently authorized the issuance of 500 million
shares of common stock. As of June 2, 2001, 139,471,607 shares of common
stock were outstanding and 45,771,428 shares were reserved for issuance. In
addition, our board of directors may create and issue series of preferred
stock with rights, privileges or restrictions, having the effect of
discriminating against an existing or prospective holder of such securities
as a result of such security holder beneficially owning or commencing a
tender offer for a substantial amount of common stock. One of the effects
of authorized but unissued and unreserved shares of capital stock may be to
render more difficult or discourage an attempt by a potential acquiror to
obtain control of Venator by means of a merger, tender offer, proxy contest
or otherwise, and thereby protect the continuity of Venator's management.
Shareholder Rights Plan
Effective April 14, 1998, our board of directors adopted a shareholder
rights plan under which we issued one right for each outstanding share of
common stock. Each right entitles a shareholder to purchase one
two-hundredth of a share of Series B Participating Preferred Stock at an
exercise price of $100, subject to adjustment. Generally, the rights become
exercisable only if a person or group of affiliated or associated persons
(i) becomes an "Interested Shareholder" as defined in Section 912 of the
New York Business Corporation Law (an "Acquiring Person") or (ii) announces
a tender or exchange offer that results in that person or group becoming an
Acquiring Person, other than pursuant to an offer for all of our
outstanding shares of common stock which the board of directors determines
not to be inadequate and to otherwise be in our best interests and in the
best interests for our shareholders. We will be able to redeem the rights
at $0.01 per right at any time during the period prior to the 10th business
day following the date a person or group becomes an Acquiring Person. The
plan is subject to a qualifying offer provision, which makes the Rights
Plan inapplicable to certain kinds of offers to purchase all of our common
stock.
Upon exercise of the right, each holder of a right will be entitled to
receive common stock (or, in certain circumstances, cash, property or other
securities of Venator) having a value equal to two times the exercise price
of the right. The rights, which cannot vote and cannot be transferred
separately from the shares of common stock to which they are presently
attached, expire on April 14, 2008 unless extended prior thereto by the
board, or earlier redeemed or exchanged by us.
Other Provisions of the Certificate of Incorporation and By-laws
Set forth below is a description of certain present provisions of our
certificate of incorporation and by-laws and New York law, which may be
deemed to have an anti-takeover effect.
Classified Board
Our certificate of incorporation provides for a "classified" board of
directors pursuant to which the composition of the board of directors is
divided into three classes of directors serving staggered three-year terms.
Only one class is elected each year, and it is elected for a three-year
term. The provision for a classified board could prevent a party who
acquires control of a majority of the outstanding voting stock from
obtaining control of the board until the second annual shareholders meeting
following the date the acquiror obtains the controlling stock interest.
Anti-greenmail
Our certificate of incorporation includes an "anti-greenmail" provision
that prohibits us from repurchasing any shares of our capital stock at a
price above the fair market value of such shares at the time of such
repurchase from an Interested Shareholder (any person, with certain
exceptions, who is or who has announced or publicly disclosed a plan or
intention to become, a beneficial owner of five percent or more of our
voting stock) or certain related parties who have not beneficially owned
all of their shares for at least two years, unless such repurchase is
approved by a majority vote of shareholders other than such Interested
Shareholder and related parties.
Power of Shareholders to Call Special Shareholders' Meeting
Our by-laws provide that special meetings of shareholders may be called
only by the Chairman of our board of directors, the Chief Executive
Officer, a Vice Chairman of the board, the president, or our board of
directors pursuant to a resolution adopted by a majority of the total
number of authorized directors.
Advance Notice By-Law
Our by-laws establish an advance notice procedure for shareholder proposals
to be brought before an annual meeting of our shareholders, including
proposed nominations of persons for election to the board. Shareholders at
an annual meeting may only consider proposals or nominations specified in
the notice of meeting or brought before the meeting by or at the direction
of the board or by a shareholder who was a shareholder of record on the
record date for the meeting, who is entitled to vote at the meeting and who
has given to our secretary timely written notice, in proper form, of such
shareholder's intention to bring that business before the meeting. Although
our by-laws do not give our board the power to approve or disapprove
shareholder nominations of candidates or proposals regarding other business
to be conducted at a special or annual meeting, our by-laws may have the
effect of precluding the conduct of business at a meeting if the proper
procedures are not followed or may discourage or defer a potential acquiror
from conducting a solicitation of proxies to elect its own slate of
directors or otherwise attempting to obtain control of us.
Provisions of New York Law Governing Business Combinations
Pursuant to Section 912 of the New York Business Corporation Law (the
"BCL"), a New York "domestic corporation" may not engage in certain
business combinations (including among other things, mergers and
consolidations, certain sales or dispositions of assets, liquidations and
recapitalizations) with interested shareholders (beneficial owners of 20
percent or more of the corporation's voting power). We believe that we are
a domestic corporation within the meaning of the BCL. Section 912 would
prohibit an interested shareholder from effecting any business combination
with us for a period of five years following the date that such person
first becomes an interested shareholder, unless there was approval by the
board of directors of either the purchase of the 20 percent or greater
interest or of the proposed business combination prior to the 20 percent
acquisition. Section 912 further provides that, at the expiration of the
five-year period the interested shareholder could engage in a business
combination with us only if such transaction is approved by a majority of
the disinterested shareholders or if the price paid meets a statutory
formula.
Section 513(c) of the BCL prohibits a domestic corporation from purchasing
more than 10 percent of its stock from a shareholder for more than market
value, unless the transaction is approved by a majority of the
shareholders, the offer is made to all shareholders or the selling
shareholder has been the beneficial owner of the stock for more than two
years.
Section 717(b) of the BCL entitles a director in taking action, including
which may involve potential change in control of the corporation to
consider both the long-term and the short-term interests of the corporation
and its shareholders, and the effects of the corporation's actions on
prospects for potential growth, current and retired employees, customers
and creditors, and the communities in which the corporation does business.
Transfer Agent and Registrar
The transfer agent and registrar for common stock is EquiServe Trust
Company N.A.
Selling Securityholders
The notes were originally issued by us and sold by J.P. Morgan Securities
Inc., Banc of America Securities LLC, BNY Capital Markets, Inc., First
Union Securities, Inc., Scotia Capital (USA) Inc. and Fleet Securities,
Inc. (the "initial purchasers") in transactions exempt from the
registration requirements of the Securities Act to persons reasonably
believed by the initial purchasers to be "qualified institutional buyers"
as defined by Rule 144A under the Securities Act. The selling
securityholders may from time to time offer and sell pursuant to this
prospectus any or all of the notes listed below and the shares of common
stock issued upon conversion of such notes. When we refer to the "selling
securityholders" in this prospectus, we mean those persons listed in the
table below, as well as the pledgees, donees, assignees, transferees,
successors and others who later hold any of the selling securityholders'
interests.
The table below sets forth the name of each selling securityholder, the
principal amount at maturity of notes that each selling securityholder may
offer pursuant to this prospectus and the number of shares of common stock
into which such notes are convertible. Unless set forth below, to our
knowledge, none of the selling securityholders has, or within the past
three years has had, any material relationship with us or any of our
predecessors or affiliates or beneficially owns in excess of 1% of the
outstanding common stock.
The principal amounts of the notes provided in the table below is based on
information provided to us by each of the selling securityholders as of
July __,27, 2001, and the percentages are based on $150,000,000 principal
amount at maturity of notes outstanding. The number of shares of common
stock that may be sold is calculated based on the current conversion pricerate
of $15.80663.2671 shares of common stock per share.$1,000 principal amount at maturity
of the notes.
Since the date on which each selling securityholder provided this
information, each selling securityholder identified below may have sold,
transferred or otherwise disposed of all or a portion of its notes in a
transaction exempt from the registration requirements of the Securities
Act. Information concerning the selling securityholders may change from
time to time and any changed information will be set forth in supplements
to this prospectus to the extent required. In addition, the conversion
ratio, and therefore the number of shares of our common stock issuable upon
conversion of the notes, is subject to adjustment. Accordingly, the number
of shares of common stock issuable upon conversion of the notes may
increase or decrease.
The selling securityholders may from time to time offer and sell any or all
of the securities under this prospectus. Because the selling
securityholders are not obligated to sell the notes or the shares of common
stock issuable upon conversion of the notes, we cannot estimate the amount
of the notes or how many shares of common stock that the selling
securityholders will hold upon consummation of any such sales.
AGGREGATE NUMBER OF PERCENTAGE
PRINCIPAL SHARES OF
AMOUNT AT MATURITY OF COMMON STOCK SHARES OF COMMON
OF NOTES PERCENTAGE OF NOTES THAT MAY STOCK OUTSTANDING
NAME THAT MAY BE SOLD OUTSTANDING BE SOLD (1) (2)
- ---- ---------------- ------------------- ----------------- -----------------
AGGREGATE PRINCIPAL NUMBER OF SHARES PERCENTAGE OF
AMOUNT AT MATURITY OF COMMON STOCK SHARES OF
OF NOTES PERCENTAGE OF NOTES THAT MAY COMMON STOCK
NAME THAT MAY BE SOLD OUTSTANDING BE SOLD (1) OUTSTANDING (2)
---- ---------------- ------------------- ---------------- ---------------
AIG/National Union Fire Insurance ... $ 1,100,000 * 69,593 *
Alexandra Global Investment Fund
I, Ltd. ............................ $ 550,000 * 34,796 *
Alpine Associates .................. $ 7,250,000 4.833% 458,686 *
Alpine Partners, L.P. ............... $ 1,250,000 * 79,083 *
Arkansas PERS ....................... $ 1,275,000 * 80,665 *
Bankers Trust Company Trustee for
Daimler Chrysler Corp. Emp. #1
Pension Plan dated 4/1/89 .......... $ 3,445,000 2.297% 217,955 *
BNP CooperNeff Convertible
Strategies Fund, L.P. .............. $ 4,347,000 2.898% 275,022 *
BNP Paribas Equity Strategies, SNC .. $22,653,000 15.102% 1,433,189 1.017%
BP AMOCO PLC. Master Trust .......... $ 1,183,000 * 74,844 *
Chilton International, L.P. ......... $ 8,126,334 5.418% 514,108(3) *
Chilton Investment Partners, L.P. ... $ 2,438,052 1.625% 154,245 *
Chilton QP Investment Partners,
L.P. ............................... $ 1,935,614 1.290% 122,421 *
The Class IC Company, LTD. .......... $ 2,000,000 1.333% 126,534 *
CSFB Convertible and Quantitative
Strategies ......................... $ 2,000,000 1.333% 126,534 *
Deutsche Banc Alex Brown Inc. ....... $ 5,000,000 3.333% 316,335 *
The Estate of James Campbell ........ $ 217,000 * 13,728 *
F.R. Convt. Sec. Fn. ................ $ 185,000 * 11,704 *
Fidelity Devonshire Trust:
Fidelity Equity-Income Fund ........ $ 1,230,000 * 77,818 *
Fidelity Financial Trust:
Fidelity Convertible Securities
Fund ............................... $ 21,750,000 14.500% 1,376,059 *
Fidelity Puritan Trust: Fidelity
Puritan Fund ....................... $ 700,000 * 44,286 *
First Union Securities Inc. ......... $ 1,500,000 1.000% 94,900 *
Franklin and Marshall College ....... $ 205,000 * 12,969 *
Highbridge International LLC ........ $ 6,000,000 4.000% 379,602 *
Independence Blue Cross ............. $ 85,000 * 5,377 *
James Campbell Corporation .......... $ 150,000 * 9,490 *
KBC Financial Products USA .......... $ 1,100,000 * 69,593 *
Lipper Convertibles, L.P. ........... $ 4,250,000 2.833% 268,885 *
Lipper Offshore Convertibles, L.P. .. $ 1,000,000 * 63,267 *
Merrill Lynch Insurance Group ....... $ 210,000 * 13,286 *
Morgan Stanley & Co. ................ $ 1,000,000 * 63,267 *
New York Life Insurance Company ..... $ 6,750,000 4.500% 427,052 *
New York Life Insurance and
Annuity Corporation ................ $ 750,000 * 47,450 *
Ohio Bureau of Workers
Compensation ....................... $ 115,000 * 7,275 *
Ondeo Nalco ......................... $ 360,000 * 22,776 *
Penn Treaty Network America
Insurance Company .................. $ 260,000 * 16,449 *
Quattro Fund Ltd. ................... $ 5,000,000 3.333% 316,335 *
Sage Capital ........................ $ 2,500,000 1.667% 158,167 *
Southern Farm Bureau Life
Insurance .......................... $ 1,075,000 * 68,012 *
Starvest Combined Portfolio ......... $ 1,125,000 * 71,175 *
State Street Bank Custodian for
GE Pension Trust ................... $ 1,590,000 1.060% 100,594 *
Syngenta AG ......................... $ 330,000 * 20,878 *
TCW Group, Inc. ..................... $ 10,450,000 6.967% 661,141 *
Tribeca Investments, L.L.C. ......... $ 5,000,000 3.333% 316,335 *
Variable Insurance Products
Fund: Equity-Income Portfolio ..... $ 570,000 * 36,062 *
Zurich Institutional Benchmarks
Master Fund Limited ................ $ 200,000 * 12,653 *
All other holders of notes or
future transferees, pledges,
donees, assignees or successors
of any such holders (4)(5) ......... $ 9,790,000 6.527% 619,384 *
----------------------------------------------------------------------------------
Total $150,000,000 100% 9,490,065(6) 6.371%(7)
==================================================================================
* Less than one percent (1%).
(1) Assumes conversion of all of the holder's notes at a conversion rate
of 63.2671 shares of common stock per $1,000 principal amount at
maturity of the notes. This conversion rate is subject to adjustment,
however, as described under "Description of the Notes - Conversion of
the Notes." As a result, the number of shares of common stock issuable
upon conversion of the notes may increase or decrease in the future.
(2) Calculated based on Rule 13d-3(d)(i) of the Exchange Act, using
139,471,607 shares of common stock outstanding as of June 2, 2001. In
calculating this amount for each holder, we treated as outstanding the
number of shares of common stock issuable upon conversion of all that
holder's notes, but we did not assume conversion of any other holder's
notes.
(3) Does not include 1,314,552 shares of common stock owned by Chilton
International, L.P. in addition to the common stock into which such
holder's notes are convertible.
(4) Information about other selling shareholders will be set forth in
prospectus supplements, if required.
(5) Assumes that any other holders of the notes or any future pledges, donees,
assignees, transferees or successors of or from any other such holders of
the notes, do not beneficially own any shares of common stock other than
the common stock issuable upon conversion of the notes at the initial
conversion rate.
(6) Represents the number of shares of common stock into which
$150,000,000 of notes would be convertible at the conversion rate
described in footnote 1 above. Because no fractional shares are issued
upon conversion of the notes by the individual holders, the actual
total number of shares of common stock which may be sold after
conversion of the notes will be less than 9,490,065 shares.
(7) Represents the amount which the selling securityholders may sell under
this prospectus divided by the sum of the common stock outstanding as
of June 2, 2001 plus the 9,490,065 shares of common stock into which
the $150,000,000 notes are convertible.
Plan of Distribution
The selling securityholders will be offering and selling all of the
securities offered and sold under this prospectus. We will not receive any
of the proceeds from the offering of the notes or the shares of common
stock by the selling securityholders. In connection with the initial
offering of the notes, we entered into a registration rights agreement
dated June 8, 2001 with the initial purchasers of the notes. Securities may
only be offered or sold under this prospectus pursuant to the terms of the
registration rights agreement. However, selling securityholders may resell
all or a portion of the securities in open market transactions in reliance
upon Rule 144 or Rule 144A under the Securities Act, provided they meet the
criteria and conform to the requirements of one of these rules. We are
registering the notes and shares of common stock covered by this prospectus
to permit holders to conduct public secondary trading of these securities
from time to time after the date of this prospectus. We have agreed, among
other things, to bear all expenses, other than underwriting discounts and
selling commissions, in connection with the registration and sale of the
notes and the shares of common stock covered by this prospectus.
The selling securityholders may sell all or a portion of the notes and
shares of common stock beneficially owned by them and offered hereby from
time to time:
o directly; or
o through underwriters, broker-dealers or agents, who may receive
compensation in the form of discounts, commissions or concessions
from the selling securityholders and/or from the purchasers of the
notes and shares of common stock for whom they may act as agent.
The notes and the shares of common stock may be sold from time to time in
one or more transactions at:
o fixed prices, which may be changed;
o prevailing market prices at the time of sale;
o varying prices determined at the time of sale; or
o negotiated prices.
These prices will be determined by the holders of the securities or by
agreement between these holders and underwriters or dealers who may receive
fees or commissions in connection with the sale. The aggregate proceeds to
the selling securityholders from the sale of the notes or shares of common
stock offered by them hereby will be the purchase price of the notes or
shares of common stock less discounts and commissions, if any.
The sales described in the preceding paragraph may be effected in
transactions:
o on any national securities exchange or quotation service on which
the notes or shares of common stock may be listed or quoted at the
time of sale, including the Nasdaq National Market in the case of
the shares of common stock;
o in the over-the counter market;
o in transactions otherwise than on such exchanges or services or in
the over-the-counter market; or
o through the writing of options.
These transactions may include block transactions or crosses. Crosses are
transactions in which the same broker acts as an agent on both sides of the
trade.
In connection with sales of the notes and shares of common stock or
otherwise, the selling securityholders may enter into hedging transactions
with broker-dealers. These broker-dealers may in turn engage in short sales
of the notes and shares of common stock in the course of hedging their
positions. The selling securityholders may also sell the notes and shares
of common stock short and deliver the notes and shares of common stock to
close out short positions, or loan or pledge notes and shares of common
stock to broker-dealers that in turn may sell the notes and shares of
common stock.
To our knowledge, there are currently no plans, arrangements or
understandings between any selling securityholders and any underwriter,
broker-dealer or agent regarding the sale of the notes and the shares of
common stock by the selling securityholders. Selling securityholders may
not sell any, or may not sell all, of the notes and the shares of common
stock offered by them pursuant to this prospectus. In addition, we cannot
assure you that a selling securityholder will not transfer, devise or gift
the notes and the shares of common stock by other means not described in
this prospectus. In addition, any securities covered by this prospectus
which qualify for sale pursuant to Rule 144 or Rule 144A of the Securities
Act may be sold under Rule 144 or Rule 144A rather than pursuant to this
prospectus.
The notes were issued and sold in June 2001 in transactions exempt from the
registration requirements of the Securities Act to persons reasonably
believed by the initial purchasers to be "qualified institutional buyers,"
as defined in Rule 144A under the Securities Act. Pursuant to the
registration rights agreement, we have agreed to indemnify the initial
purchasers and each selling securityholder, and each selling securityholder
has agreed to indemnify us against specified liabilities arising under the
Securities Act. The selling securityholders may also agree to indemnify any
broker-dealer or agent that participates in transactions involving sales of
the securities against some liabilities, including liabilities that arise
under the Securities Act.
The selling securityholders and any other person participating in such
distribution will be subject to the Exchange Act. The Exchange Act rules
include, without limitation, Regulation M, which may limit the timing of
purchases and sales of any of the notes and the underlying shares of common
stock by the selling securityholders and any such other person. In
addition, Regulation M of the Exchange Act may restrict the ability of any
person engaged in the distribution of the notes and the underlying shares
of common stock to engage in market-making activities with respect to the
particular notes and the underlying shares of common stock being
distributed for a period of up to five business days prior to the
commencement of distribution. This may affect the marketability of the
notes and the underlying shares of common stock and the ability of any
person or entity to engage in market-making activities with respect to the
notes and the underlying shares of common stock.
Under the registration rights agreement, we are obligated to use our
reasonable best efforts to keep the registration statement of which this
prospectus is a part effective until the earlier of:
o two years after the last date of original issuance of any of the
notes;
o the date when the notes and the shares of common stock issuable
upon conversion of the notes (i) may be resold immediately without
restriction pursuant to the volume limitation provisions of Rule
144(k) under the Securities Act or (ii) cease to be outstanding;
and
o the sale, pursuant to the registration statement to which this
prospectus relates, of all the securities registered thereunder.
Our obligation to keep the registration statement to which this prospectus
relates effective is subject to specified, permitted exceptions set forth
in the registration rights agreement. In these cases, we may prohibit
offers and sales of the notes and shares of common stock pursuant to the
registration statement to which this prospectus relates.
We may suspend the use of this prospectus if we learn of any event that
causes this prospectus to include an untrue statement of a material fact
required to be stated in the prospectus or necessary to make the statements
in the prospectus not misleading in light of the circumstances then
existing. If this type of event occurs, a prospectus supplement or
post-effective amendment, if required, will be distributed to each selling
securityholder. Each selling securityholder has agreed not to trade
securities from the time the selling securityholder receives notice from us
of this type of event until the selling securityholder receives a
prospectus supplement or amendment. This time period will not exceed 45
days in any 90-day period or 90 days in a 360-day period.
Legal Matters
Certain legal matters in connection with the notes offered hereby and the
shares of our common stock into which those notes are convertible will be
passed upon for us by our counsel Skadden, Arps, Slate, Meagher & Flom LLP,
New York, New York.
Experts
Our consolidated financial statements, as of February 3, 2001 and January
29, 2000 and for each of the years in the three-year period ended February
3, 2001 included in our annual report on Form 10-K for the year ended
February 3, 2001 have been incorporated by reference herein in reliance
upon the report of KPMG LLP, independent certified public accountants,
incorporated by reference herein and upon the authority of said firm as
experts in accounting and auditing. The report of KPMG LLP refers to
changes in the method of accounting for sales under our layaway program in
2000 and in the method of calculating the market-related value of our U.S.
pension plan assets in 1999.
Where You Can Find More Information
We file annual, quarterly and special reports, proxy statements and other
information with the SEC. You may read and copy any reports, statements or
other information filed by us at the SEC's public reference room at 450
Fifth Street, N.W., Washington, D.C. 20549. Please call the SEC at
1-800-SEC-0330 for further information on the public reference room. Our
filings with the SEC are also available to the public from commercial
document retrieval services and at the SEC's website at www.sec.gov.
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 14. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION
We are paying all of the selling securityholders' expenses related to this
offering, except the selling securityholders will pay any applicable
broker's commissions and expenses. The following table sets forth the
approximate amount of fees and expenses payable by us in connection with
this Registration Statement and the distribution of the notes and the
shares of common stock registered hereby. All of the amounts shown are
estimates except the Securities and Exchange Commission registration fee.
Securities and Exchange Commission Registration Fee......... $43,125
Transfer Agent's, Trustees' and Depositary's Fees and
Expenses.................................................. **
Printing and Engraving Fees and Expenses.................... **52,000
Accounting Fees and Expenses................................ **178,000
Legal Fees.................................................. **450,000
Miscellaneous Expenses...................................... **
-------276,875
----------
Total..................................................$ **
=======
- ---------------
** To be filed by amendment.1,000,000
==========
ITEM 15. INDEMNIFICATION OF DIRECTORS AND OFFICERS
Sections 722 through 726 of the New York Business Corporation Law (the
"BCL") grant New York corporations broad powers to indemnify their present
and former directors and officers and those of affiliated corporations
against expenses (including attorneys' fees), judgments, fines and amounts
paid in settlement actually and reasonably incurred in connection with
threatened, pending or completed actions, suits or proceedings to which
they are parties or are threatened to be made parties by reason of being or
having been such directors or officers, subject to specified conditions and
exclusions; give a director or officer who successfully defends an action
the right to be so indemnified; and permit a corporation to buy directors'
and officers' liability insurance. Such indemnification is not exclusive of
any other rights to which those indemnified may be entitled under any
by-laws, agreement, vote of shareholders or otherwise.
Section 402(b) of the BCL permits a New York corporation to include in its
certificate of incorporation a provision eliminating the potential monetary
liability of a director to the corporation or its stockholders for breach
of fiduciary duty as a director, provided that such provision shall not
eliminate the liability of a director (i) for any breach of the director's
duty of loyalty to the corporation or its stockholders, (ii) for acts or
omissions not in good faith or which involve intentional misconduct or a
knowing violation of law, (iii) for improper payment of dividends, improper
purchase of the shares of the corporation, improper distribution of assets
to shareholders after dissolution of the corporation and improper making of
any loan, or (iv) for any transaction from which the director receives an
improper personal benefit or other advantage.
Our Certificate of Incorporation, as amended, includes the provision
permitted by Section 402(b) of the BCL.
Our By-laws provide that we shall indemnify our present or future directors
and officers from and against any and all liabilities and expenses to the
maximum extent permitted by the BCL as the same presently exists or to the
greater extent permitted by any amendment hereafter adopted.
We have entered into indemnification agreements with each of our officers
and directors. The indemnification agreements provide for indemnification
of our directors and officers to the fullest extent permitted by the BCL.
ITEM 16. EXHIBITS
The following is a list of all exhibits filed as a part of this
registration statement on Form S-3, including those incorporated in this
registration statement by reference.
EXHIBIT
NUMBER DESCRIPTION OF EXHIBITS
- ------- -----------------------
3.1(a) Certificate of Incorporation of the Registrant, as
filed by the Department of State of the State of New
York on April 7, 1989 (incorporated by reference to
the Registrant's Annual Report on Form 10-K for the
fiscal year ended June 30, 1997, Commission File No.
001-10299).
3.1(b) Certificates of Amendment of the Certificate of
Incorporation of the Registrant, as filed by the
Department of State of the State of New York on (a)
July 20, 1989, (b) July 24, 1990, (c) July 9, 1997
(incorporated by reference to the Registrant's Annual
Report on Form 10-K for the fiscal year ended June 30,
1997, Commission File No. 001-10299).
3.2 By-laws of the Registrant, as amended (incorporated by
reference to the Registrant's Quarterly Report on Form
10-Q for the quarter ended May 5, 2001, Commission
File No. 001-10299).
3.33.3* Specimen of Common Stock Certificate.
4.14.1* Indenture dated as of June 8, 2001 between Venator
Group, Inc. and The Bank of New York, as trustee.
4.24.2* Form of 5.50% Convertible Subordinated Note (included
in Exhibit 4.1).
4.34.3* Registration Rights Agreement dated as of June 8,
2001, between Venator Group, Inc. J.P. Morgan
Securities Inc., Banc of America Securities LLC, BNY
Capital Markets, Inc., First Union Securities, Inc.,
Scotia Capital (USA) Inc. and Fleet Securities, Inc.
5.15.1+ Opinion of Skadden, Arps, Slate, Meagher & Flom LLP
12.112.1* Statement re: Computation of Ratio of Earnings to
Fixed Charges.
15.115.1+ Accountants' Acknowledgement.
23.123.1+ Consent of KPMG LLP, Independent Accountants.
23.223.2+ Consent of Skadden, Arps, Slate, Meagher & Flom LLP
(included in Exhibit 5.1).
24.124.1* Powers of Attorney
(included in signature page to this
Registration Statement)
25.125.1* A Statement of Eligibility on Form T-1 under the Trust
Indenture Act of 1939, as amended, of The Bank of New
York, trustee under the Indenture.
* Previously filed.
+ Filed herewith.
ITEM 17. UNDERTAKINGS
The undersigned Registrant hereby undertakes:
(1) To file, during any period in which offers or sales are being
made, a post-effective amendment to this Registration Statement:
(a) To include any prospectus required by Section
10(a)(3) of the Securities Act of 1933, as amended;
(b) To reflect in the prospectus any facts or events
arising after the effective date of the Registration
Statement (or the most recent post-effective amendment
thereof) which, individually or in the aggregate,
represent a fundamental change in the information set
forth 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 the Securities and
Exchange Commission pursuant to Rule 424(b) if, in the
aggregate, the changes in volume 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
(c) To include any material information with respect to
the plan of distribution not previously disclosed in the
Registration Statement or any material change to such
information in the Registration Statement;
provided, however, that paragraphs (1)(a) and (1)(b) shall not apply if the
information required to be included in a post-effective amendment by those
paragraphs is contained in periodic reports filed with or furnished to the
Securities and Exchange Commission by the Registrant pursuant to Section 13
or Section 15(d) of the Securities Exchange Act of 1934 that are
incorporated by reference in the Registration Statement.
(2) That, for the purpose of determining any liability under the
Securities Act of 1933, as amended, each such post-effective
amendment shall be deemed to be a new registration statement
relating to the securities offered therein, and the offering of
such securities at that time shall be deemed to be the initial
bona fide offering thereof.
(3) To remove from registration by means of a post-effective
amendment any of the securities being registered which remain
unsold at the termination of the offering.
The undersigned Registrant hereby undertakes that, for purposes of
determining any liability under the Securities Act of 1933, as amended,
each filing of the Registrant's annual report pursuant to Section 13(a) or
Section 15(d) of the Securities Exchange Act of 1934 (and, where
applicable, each filing of an employee benefit plan's annual report
pursuant to Section 15(d) of the Securities Exchange Act of 1934) that is
incorporated by reference in the Registration Statement shall be deemed to
be a new registration statement relating to the securities offered therein,
and the offering of such securities at that time shall be deemed to be the
initial bona fide offering thereof.
Insofar as indemnification for liabilities arising under the Securities Act
of 1933, as amended, may be permitted to directors, officers and
controlling persons of the Registrant pursuant to the foregoing provisions,
or otherwise, the Registrant has been informed that in the opinion of the
Commission, such indemnification is against public policy as expressed in
the Securities Act of 1933, as amended, and is, therefore, unenforceable.
In the event that a claim for indemnification against such liabilities
(other than the payment by the Registrant of expenses incurred or paid by a
director, officer or controlling person of the registrant in the successful
defense of any action, suit or proceeding) is asserted by such director,
officer or controlling person in connection with 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 of 1933, as
amended, and will be governed by the final adjudication of such issue.
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the Registrant,
Venator Group, Inc., certifies that it has reasonable grounds to believe
that it meets all the requirements for filing on Form S-3 and has duly
caused this Registration Statement to be signed on its behalf by the
undersigned, thereunto duly authorized, in the City of New York, State of
New York, on July 11,30, 2001.
VENATOR GROUP, INC.
By /s/ Bruce L. HartmanHartman*
------------------------------------
Bruce L. Hartman
Senior Vice President and
Chief Financial Officer
POWER OF ATTORNEY
Each person whose signature appears below hereby constitutes and appoints
each of Matthew D. Serra, Gary M. Bahler and Bruce L. Hartman his true and
lawful attorneys-in-fact with full power of substitution and
resubstitution, for him and in his name, place and stead, in any and all
capacities, to sign any and all amendments (including post-effective
amendments) to this Registration Statement as well as any new registration
statement filed to register additional securities pursuant to Rule 462(b)
under the Securities Act of 1933, as amended, and to cause the same to be
filed, with all exhibits thereto and other documents in connection
therewith, with the Securities and Exchange Commission, hereby granting to
said attorneys-in-fact and agent, full power and authority to do and
perform each and every act and thing whatsoever requisite or desirable to
be done in and about the premises, as fully to all intents and purposes as
the undersigned might or could do in person, hereby ratifying and
confirming all acts and things that said attorneys-in-fact and agents, or
their substitutes or substitute, may lawfully do or cause to be done by
virtue hereof.
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed below by the following persons on
behalf of the registrant and in the capacities and on the dates indicated.
SIGNATURE TITLE DATE
/s/ Matthew D. Serra President, Chief Executive July 11, 2001
- --------------------------- Officer and Director
Matthew D. Serra (Principal Executive Officer)
/s/ Bruce L. Hartman Senior Vice President and July 11, 2001
- --------------------------- Chief Financial Officer
Bruce L. Hartman (Principal Financial Officer)
/s/ Robert W. McHugh Vice President and July 11, 2001
- --------------------------- Chief Accounting Officer
Robert W. McHugh (Principal Accounting Officer)
/s/ J. Carter Bacot Chairman of the Board July 11, 2001
- ---------------------------
J. Carter Bacot
/s/ Purdy Crawford Director July 11, 2001
- ---------------------------
Purdy Crawford
/s/ Phillip H. Geier, Jr. Director July 11, 2001
- ---------------------------
Philip H. Geier, Jr.
/s/ Jarobin Gilbert, Jr. Director July 11, 2001
- ---------------------------
Jarobin Gilbert, Jr.
/s/ James E. Preston Director July 11, 2001
- ---------------------------
James E. Preston
/s/ David Y. Schwartz Director July 11, 2001
- ---------------------------
David Y. Schwartz
/s/ Christopher A. Sinclair Director July 11, 2001
- ---------------------------
Christopher A. Sinclair
/s/ Cheryl Turpin Director July 11, 2001
- ---------------------------
SIGNATURE TITLE DATE
/s/ Matthew D. Serra* President, Chief Executive Officer July 30, 2001
--------------------------------------------- and Director
Matthew D. Serra (Principal Executive Officer)
/s/ Bruce L. Hartman* Senior Vice President and
--------------------------------------------- Chief Financial Officer July 30, 2001
Bruce L. Hartman (Principal Financial Officer)
/s/ Robert W. McHugh* Vice President and
-------------------------------------------- Chief Accounting Officer July 30, 2001
Robert W. McHugh (Principal Accounting Officer)
/s/ J. Carter Bacot* Chairman of the Board July 30, 2001
-------------------------------------------
J. Carter Bacot
/s/ Purdy Crawford* Director July 30, 2001
--------------------------------------------
Purdy Crawford
/s/ Phillip H. Geier, Jr.* Director July 30, 2001
--------------------------------------------
Philip H. Geier, Jr.
/s/ Jarobin Gilbert, Jr.* Director July 30, 2001
--------------------------------------------
Jarobin Gilbert, Jr.
/s/ James E. Preston* Director July 30, 2001
--------------------------------------------
James E. Preston
/s/ David Y. Schwartz* Director July 30, 2001
--------------------------------------------
David Y. Schwartz
/s/ Christopher A. Sinclair* Director July 30, 2001
--------------------------------------------
Christopher A. Sinclair
/s/ Cheryl Turpin* Director July 30, 2001
--------------------------------------------
Cheryl Turpin
/s/ Dona D. Young* Director July 30, 2001
--------------------------------------------
Dona D. Young
Director July 11, 2001
- ---------------------------
Dona D. Young
* The undersigned, by signing his name hereto, does sign and execute this
Amendment No. 1 to the Registration Statement pursuant to the powers of
attorney executed by the above-named officers and directors of the
registrant, which have been previously filed with the Securities and
Exchange Commission on behalf of such officers and directors.
/s/ Gary M. Bahler
----------------------------------
Gary M. Bahler
EXHIBIT INDEX
EXHIBIT
NUMBER DESCRIPTION OF EXHIBITS
-
------- -----------------------
3.1(a) Certificate of Incorporation of the Registrant, as
filed by the Department of State of the State of New
York on April 7, 1989 (incorporated by reference to
the Registrant's Annual Report on Form 10-K for the
fiscal year ended June 30, 1997, Commission File No.
001-10299).
3.1(b) Certificates of Amendment of the Certificate of
Incorporation of the Registrant, as filed by the
Department of State of the State of New York on (a)
July 20, 1989, (b) July 24, 1990, (c) July 9, 1997
(incorporated by reference to the Registrant's Annual
Report on Form 10-K for the fiscal year ended June 30,
1997, Commission File No. 001-10299).
3.2 By-laws of the Registrant, as amended (incorporated by
reference to the Registrant's Quarterly Report on Form
10-Q for the quarter ended May 5, 2001, Commission
File No. 001-10299).
3.33.3* Specimen of Common Stock Certificate.
4.14.1* Indenture dated as of June 8, 2001 between Venator
Group, Inc. and The Bank of New York, as trustee.
4.24.2* Form of 5.50% Convertible Subordinated Note (included
in Exhibit 4.1).
4.34.3* Registration Rights Agreement dated as of June 8,
2001, between Venator Group, Inc. J.P. Morgan
Securities Inc., Banc of America Securities LLC, BNY
Capital Markets, Inc., First Union Securities, Inc.,
Scotia Capital (USA) Inc. and Fleet Securities, Inc.
5.15.1+ Opinion of Skadden, Arps, Slate, Meagher & Flom LLP
12.112.1* Statement re: Computation of Ratio of Earnings to
Fixed Charges.
15.115.1+ Accountants' Acknowledgement.
23.123.1+ Consent of KPMG LLP, Independent Accountants.
23.223.2+ Consent of Skadden, Arps, Slate, Meagher & Flom LLP
(included in Exhibit 5.1).
24.124.1* Powers of Attorney
(included in signature page to this
Registration Statement)
25.125.1* A Statement of Eligibility on Form T-1 under the Trust
Indenture Act of 1939, as amended, of The Bank of New
York, trustee under the Indenture.
* Previously filed.
+ Filed herewith.