This filing is made pursuant to Rule 424(b)(3)
of the Securities Act of 1933 with respect to
Registration Statement No. 333-124336
KELLWOOD COMPANY
$200,000,000 3.50% CONVERTIBLE SENIOR DEBENTURES DUE 2034, RELATED GUARANTEES
AND COMMON STOCK ISSUABLE UPON CONVERSION OF THE DEBENTURES
We issued $180,000,000 aggregate original principal amount of our 3.50%
Convertible Senior Debentures due 2034 pursuant to a private placement on June
22, 2004 and an additional $20,000,000 aggregate original principal amount of
the debentures pursuant to the July 1, 2004 exercise by the initial purchasers
of an option granted to them. This prospectus will be used by selling
securityholders to offer and resell debentures and the common stock issuable
upon conversion of the debentures. We will not receive any proceeds from those
resales.
The debentures bear regular interest at an annual rate of 3.50% on the
original principal amount, payable semiannually in arrears on June 15 and
December 15 of each year, each an interest payment date, beginning December 15,
2004, until June 15, 2011. After June 15, 2011, we will not pay regular interest
on the debentures prior to maturity. Instead, on June 15, 2034, the stated
maturity date of the debentures, a holder will receive the accreted principal
amount of a debenture, which will be equal to the original principal amount of
$1,000 per debenture increased at a fixed yield to maturity, which until June
14, 2011 will be 0% per annum and beginning on June 15, 2011 will be 3.50% per
annum or $2,221.18 at maturity. We will pay contingent interest for the period
commencing on June 20, 2011 and ending December 14, 2011 and thereafter for any
six-month period, if the average trading price of the debentures during the five
trading day period immediately preceding the first day of the applicable period
equals or exceeds 130% of the accreted principal amount of the debentures.
Holders may convert the debentures into shares of our common stock prior to
stated maturity, under the following circumstances: (1) during any fiscal
quarter commencing after July 31, 2004, if the last reported sale price of our
common stock is greater than or equal to 131.30% of the conversion price for at
least 20 trading days in the period of 30 consecutive trading days ending on the
last trading day of the preceding fiscal quarter, provided that once such
threshold is met, the debentures will thereafter be convertible at any time at
the option of the holder, through maturity; (2) subject to certain limitations,
during the five business day period after any five consecutive trading day
period in which the trading price per debenture for each day of that period was
less than 98% of the product of the applicable conversion rate and the last
reported sale price of our common stock; (3) if we call the debentures for
redemption; or (4) upon the occurrence of certain corporate transactions. On
July 29, 2004, we irrevocably elected, by notice to the trustee and the holders
of the debentures, to satisfy our conversion obligation in cash with respect to
100% of the accreted principal amount of debentures converted. We still may
satisfy the remainder of our conversion obligation to the extent it exceeds the
accreted principal amount in cash or common stock or a combination of cash and
common stock.
The conversion rate is initially 18.7434 shares of our common stock per
$1,000 original principal amount of debentures, which is equivalent to an
initial conversion price of $53.35 per share of common stock. The conversion
rate is subject to adjustment upon the occurrence of specified events. In
addition, following certain corporate transactions that occur prior to June 15,
2011 and that also constitute fundamental changes, a holder who elects to
convert its debentures in connection with such corporate transactions is
entitled to receive additional shares of common stock upon conversion in certain
circumstances, subject to our payment elections.
The debentures mature on June 15, 2034, unless earlier converted, redeemed
or repurchased by us. We may redeem some or all of the debentures for cash, at
any time and from time to time, on or after June 20, 2011 at a redemption price
equal to 100% of the accreted principal amount of the debentures to be redeemed,
plus accrued and unpaid interest (including contingent interest, if any) to, but
excluding the redemption date. You may require us to repurchase some or all of
your debentures for cash at a repurchase price equal to 100% of the accreted
principal amount of the debentures to be repurchased, plus accrued and unpaid
interest (including contingent interest, if any) to, but excluding, the
repurchase date, on June 15, 2011, June 15, 2014, June 15, 2019, June 15, 2024
and June 15, 2029, or following a fundamental change that occurs at any time
prior to their maturity as described in this prospectus.
The debentures are our direct, unsecured and unsubordinated obligations and
rank equal in priority with all of our existing and future unsecured and
unsubordinated indebtedness and senior in right of payment to all of our
existing and future subordinated indebtedness. The debentures effectively rank
junior to any of our future secured indebtedness and any of our future
indebtedness that is guaranteed by our subsidiaries that are not guarantors of
the debentures. Payment of principal and interest on the debentures is
structurally subordinated to the liabilities of our subsidiaries which are not
subsidiary guarantors.
As of the date of this prospectus, the debentures were jointly and
severally and fully and unconditionally guaranteed on an unsecured senior basis
by certain of our existing domestic wholly-owned subsidiaries. If a subsidiary
guarantor is released from its guarantee of our senior credit facility, then
that subsidiary will also be automatically released and relieved of all of its
obligations under its guarantee of the debentures as well.
There is no public market for the debentures and we do not intend to apply
for listing of the debentures on any securities exchange or for quotation of the
debentures through any automated quotation system. The debentures currently
trade in the PORTAL Market. However, once debentures are sold under this
prospectus, those debentures will no longer trade in the PORTAL Market. Our
common stock is traded on the New York Stock Exchange under the symbol "KWD."
The last reported sale price for our common stock on the New York Stock Exchange
on June 30, 2005 was $26.93 per share.
INVESTING IN THE DEBENTURES AND OUR COMMON STOCK INVOLVES RISKS. SEE "RISK
FACTORS" BEGINNING ON PAGE 8.
NEITHER THE SECURITIES AND EXCHANGE COMMISSION NOR ANY STATE SECURITIES
COMMISSION HAS APPROVED OR DISAPPROVED OF THESE SECURITIES OR DETERMINED IF THIS
PROSPECTUS IS TRUTHFUL OR COMPLETE. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
The date of this prospectus is July 18, 2005.
IMPORTANT NOTICE TO READERS
This prospectus is part of a registration statement that we filed with the
Securities and Exchange Commission, or SEC, using a "shelf" registration
process. Under this shelf registration process, the selling securityholders may,
from time to time, offer debentures or shares of our common stock issued upon
conversion of the debentures that they own. Each time the selling
securityholders offer debentures or common stock under this prospectus, they
will provide a copy of this prospectus and, if applicable, a copy of a
prospectus supplement. You should read both this prospectus and, if applicable,
any prospectus supplements together with the information incorporated by
reference in this prospectus and, if applicable, any supplement hereto. See
"Where You Can Find More Information" and "Incorporation of Certain Documents by
Reference" for more information.
We have not authorized anyone to provide you with information other than
the information contained herein or incorporated by reference as set forth under
"Incorporation of Certain Documents by Reference". Neither the debentures nor
any shares of common stock issuable upon conversion of the debentures are being
offered in any jurisdiction where the offer or sale is not permitted. The
information contained in this prospectus speaks only as of the date of this
prospectus and the information in the documents incorporated or deemed to be
incorporated by reference in this prospectus speaks only as of the respective
dates those documents were filed with the SEC.
TABLE OF CONTENTS
IMPORTANT NOTICE TO READERS............................................... 2
SUMMARY................................................................... 3
THE OFFERING.............................................................. 4
RISK FACTORS.............................................................. 8
CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS...................... 18
MARKET DATA............................................................... 19
USE OF PROCEEDS........................................................... 20
DIVIDEND POLICY........................................................... 20
COMMON STOCK PRICE RANGE.................................................. 20
RATIO OF EARNINGS TO FIXED CHARGES........................................ 20
DESCRIPTION OF THE DEBENTURES............................................. 21
REGISTRATION RIGHTS....................................................... 43
BOOK-ENTRY SYSTEM......................................................... 44
DESCRIPTION OF CAPITAL STOCK.............................................. 46
MATERIAL UNITED STATES FEDERAL INCOME TAX CONSIDERATIONS.................. 49
SELLING SECURITYHOLDERS................................................... 55
PLAN OF DISTRIBUTION...................................................... 60
WHERE YOU CAN FIND MORE INFORMATION....................................... 62
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE........................... 62
LEGAL MATTERS............................................................. 62
EXPERTS................................................................... 62
Unless otherwise indicated or the context otherwise requires in this
prospectus:
- "Kellwood," the "Company," "we," "us" and "our" refer to Kellwood
Company and its subsidiaries;
- all references to our "common stock" mean our Common Stock, $0.01 par
value per share; and
- all references to "fiscal 2004," "fiscal 2003" and "fiscal 2002" refer
to our fiscal years ended January 29, 2005, January 31, 2004 and
February 1, 2003, respectively.
2
SUMMARY
This summary provides an overview of selected information and does not
contain all the information you should consider. You should read the entire
prospectus, including the section entitled "Risk Factors" and the documents
incorporated by reference in this prospectus, carefully before making an
investment decision.
OUR COMPANY
We market apparel and consumer soft goods for women, men and children and in
fiscal 2004 had sales of approximately $2.56 billion, which we believe placed us
as the 7th largest United States apparel wholesaler as measured by sales. We
believe we differ from other major apparel companies in that we principally are
focused on offering moderately priced fashion. Our mission statement is "To
build on our cornerstones of diversification, fashion and value to enhance our
position as a premier marketer of branded soft goods that appeal to a broad
spectrum of consumers."
We were formed in 1961 as a Delaware corporation. Our principal executive
offices are located at 600 Kellwood Parkway, Chesterfield, Missouri 63017. Our
telephone number is (314) 576-3100.
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THE OFFERING
ISSUER........................ Kellwood Company, a Delaware corporation.
SECURITIES OFFERED............ $200,000,000 aggregate original principal
amount of 3.50% Convertible Senior Debentures
due 2034 and common stock potentially issuable
upon conversion of the debentures.
MATURITY DATE................. June 15, 2034, unless earlier converted,
redeemed or repurchased.
GUARANTEES.................... As of the date of this prospectus, the
debentures were fully and unconditionally
guaranteed, jointly and severally, on an
unsecured senior basis by certain of our
existing domestic wholly-owned subsidiaries. We
refer to the subsidiaries that guarantee the
debentures as the "subsidiary guarantors." All
of the subsidiary guarantors are also
guarantors of all borrowings and amounts
payable by us under our senior credit facility.
If a subsidiary guarantor is released from its
guarantee of the senior credit facility, then
that subsidiary will also be automatically
released and relieved of all of its obligations
under its guarantee of the debentures and the
guarantee will terminate. See "Description of
the Debentures--Subsidiary Guarantees."
RANKING....................... The debentures are our direct, unsecured and
unsubordinated obligations and rank equal in
priority with all of our existing and future
unsecured and unsubordinated indebtedness and
senior in right of payment to all of our future
subordinated indebtedness. The debentures
effectively rank junior to any of our future
secured indebtedness and any of our future
indebtedness that is guaranteed by our
subsidiaries who are not guarantors of the
debentures. The debentures are structurally
subordinated to all liabilities of our
subsidiaries who are not subsidiary guarantors
(referred to herein as "non-guarantor
subsidiaries"). As of April 30, 2005, we had
unsubordinated indebtedness of $469.8 million,
$469.7 million of which is currently guaranteed
by our subsidiary guarantors. At such date, our
non-guarantor subsidiaries had approximately
$45.0 million in liabilities.
The guarantee of the debentures by each
subsidiary guarantor is an unsecured senior
obligation of that subsidiary guarantor, and
effectively ranks junior to any of the secured
indebtedness of such subsidiary guarantor. The
guarantee of each subsidiary guarantor ranks
equal in priority with all existing and future
senior indebtedness of the subsidiary
guarantor. The subsidiary guarantors had
approximately $80.0 million in liabilities at
April 30, 2005 as a whole and the subsidiary
guarantors have also guaranteed all borrowings
and amounts payable by us under our senior
credit facility.
PAYMENT AT MATURITY........... On June 15, 2034, the stated maturity date of
the debentures, a holder will receive the
accreted principal amount per debenture, which
will be equal to the original principal amount
of $1,000 per debenture increased at a fixed
yield to maturity, which until June 14, 2011
will be 0% per annum and beginning on June 15,
2011 will be 3.50% per annum or $2,221.18 at
maturity.
INTEREST...................... 3.50% per annum on the original principal
amount, payable semiannually in arrears on June
15 and December 15 of each year, beginning
December 15, 2004, until June 15, 2011. After
June 15, 2011, we will not pay regular interest
on the debentures prior to maturity. We will
also pay contingent interest and additional
amounts on the debentures under the
circumstances described in this prospectus.
CONTINGENT INTEREST........... We will pay contingent interest to holders of
debentures for the period commencing on June
20, 2011 and ending December 14, 2011 and
thereafter for any six-month period from and
including an interest payment date to but
excluding the next interest payment date,
commencing with the six-month period commencing
on December 15, 2011, if the average trading
price of the debentures during the five trading
day period immediately preceding the first day
of the applicable interest period equals or
exceeds 130% of the accreted
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principal amount of the debentures. The amount
of contingent interest payable per debenture
during each period will equal 0.125% of the
average trading price of a debenture during the
applicable five-trading-day reference period,
payable in arrears.
CONVERSION RIGHTS............. You may convert the debentures into shares of
our common stock at a conversion rate of
18.7434 shares per $1,000 original principal
amount of debentures (equal to an initial
conversion price of approximately $53.35 per
share), subject to adjustment, only under the
following circumstances:
- during any fiscal quarter commencing
after July 31, 2004, if the last
reported sale price of our common
stock is greater than or equal to
131.30% of the applicable conversion
price for at least 20 trading days in
the period of 30 consecutive trading
days ending on the last trading day
of the preceding fiscal quarter;
provided that once such threshold is
met, the debentures will thereafter
be convertible at any time at the
option of the holder, through
maturity;
- during the five business day period
after any five consecutive trading
day period in which the trading price
per debenture for each day of that
period was less than 98% of the
product of the conversion rate and
the last reported sale price of our
common stock (the "98% Trading
Exception"); provided that if, on the
date of any conversion pursuant to
the 98% Trading Exception that is on
or after June 15, 2029, the closing
sale price of our common stock is
greater than the applicable
conversion price but less than
131.30% thereof, then you will
receive, in lieu of common stock
based on the conversion rate, an
amount in cash, shares of our common
stock, or a combination thereof, at
our option, equal to the accreted
principal amount of the debentures
converted, plus accrued and unpaid
interest (including contingent
interest and additional interest, if
any) to but excluding the conversion
date;
- if the debentures have been called
for redemption by us; or
- upon the occurrence of specified
corporate transactions described
under "Description of debentures --
Conversion upon specified corporate
transactions".
You will not receive any cash payment or
additional shares representing accrued and
unpaid interest upon conversion of a debenture,
except in limited circumstances. Instead,
interest (including contingent interest, if
any) will be deemed paid by the common stock
and cash, if any, issued to you upon
conversion. Debentures called for redemption
may be surrendered for conversion prior to the
close of business on the second business day
immediately preceding the redemption date.
On July 29, 2004, we irrevocably elected, by
notice to the trustee and the holders of the
debentures, to satisfy our conversion
obligation in cash with respect to 100% of the
accreted principal amount of debentures
converted. We still may satisfy the remainder
of our conversion obligation to the extent it
exceeds the accreted principal amount in cash
or common stock or a combination of cash and
common stock. See "Description of the
debentures -- Payment upon conversion."
In addition, following certain corporate
transactions that occur prior to June 15, 2011
and that also constitute fundamental changes, a
holder who elects to convert its debentures in
connection with such corporate transactions
will be entitled to receive additional shares
of common stock upon conversion in certain
circumstances, subject to our payment
elections.
SINKING FUND.................. None.
OPTIONAL REDEMPTION........... Prior to June 20, 2011, the debentures are not
redeemable. On or after June 20,
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2011, we may redeem for cash some or all of the
debentures, at any time and from time to time,
upon at least 30 and no more than 60 days'
notice for a price equal to 100% of the
accreted principal amount of the debentures to
be redeemed plus any accrued and unpaid
interest (including contingent interest and
additional amounts, if any) to but excluding
the redemption date.
REPURCHASE OF DEBENTURES BY US........ You may require us to repurchase some or all of
AT THE OPTION OF THE HOLDER your debentures for cash on June 15, 2011, June
15, 2014, June 15, 2019, June 15, 2024 and June
15, 2029 at a repurchase price equal to 100% of
the accreted principal amount of the debentures
being repurchased, plus any accrued and unpaid
interest (including contingent interest and
additional amounts, if any) to but excluding
the applicable repurchase date.
FUNDAMENTAL CHANGE.................... If we undergo a fundamental change (as defined
in this prospectus) prior to maturity, you have
the right, at your option, to require us to
repurchase some or all of your debentures for
cash at a repurchase price equal to 100% of the
accreted principal amount of the debentures
being repurchased, plus any accrued and unpaid
interest (including contingent interest and
additional amounts, if any) to but excluding
the applicable repurchase date.
REGISTRATION RIGHTS................... Pursuant to a registration rights agreement
that we entered into in connection with the
issuance of the debentures, we have filed a
shelf registration statement under the
Securities Act of 1933 relating to the resale
of the debentures and the common stock issuable
upon conversion of the debentures. This
prospectus constitutes a part of that
registration statement. We filed the shelf
registration statement solely to permit the
resale of the debentures and shares of common
stock issued upon conversion of the debentures,
and investors who purchase debentures or shares
of common stock from selling securityholders in
this offering will not be entitled to any
registration rights under the registration
rights agreement. In addition, under the
registration rights agreement, selling
securityholders may be required to discontinue
the sale or other disposition of debentures and
shares of common stock issued upon conversion
of the debentures pursuant to the shelf
registration statement and to discontinue the
use of this prospectus under certain
circumstances specified in the registration
rights agreement.
U.S. FEDERAL INCOME TAX............... Under the indenture governing the debentures,
CONSIDERATIONS we have agreed, and by acceptance of a
beneficial interest in a debenture each holder
of a debenture is deemed to have agreed, to
treat the debentures as indebtedness for United
States federal income tax purposes that is
subject to the Treasury regulations governing
contingent payment debt instruments. For United
States federal income tax purposes, interest
income on the debentures accrues at the rate of
7.65% per year, compounded semiannually, which
we believe represents the yield on comparable
noncontingent, nonconvertible, fixed rate debt
instruments with terms and conditions otherwise
similar to the debentures that we would issue.
A U.S. Holder (as defined herein) is required
to accrue interest income on a constant yield
to maturity basis at this rate (subject to
certain adjustments), with the result that a
U.S. Holder generally will recognize taxable
income significantly in excess of regular
interest payments received while the debentures
are outstanding.
A U.S. Holder will also recognize gain or loss
on the sale, conversion, exchange or retirement
of a debenture in an amount equal to the
difference between the amount realized on the
sale, conversion, exchange or retirement,
including the fair market value of our common
stock received, and the U.S. Holder's adjusted
tax basis in the debenture. Any gain recognized
on the sale, conversion, exchange or retirement
of a debenture generally will be ordinary
interest income; any loss will be ordinary loss
to the extent of the interest previously
included in income, and thereafter, capital
loss. See "Material United States federal
income tax considerations."
USE OF PROCEEDS............... We will not receive any of the proceeds from
the sale by the selling
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securityholders of the debentures or shares of
common stock issued upon conversion of the
debentures.
BOOK-ENTRY FORM............... The debentures have been issued in book-entry
form and are represented by global certificates
deposited with, or on behalf of, The Depository
Trust Company ("DTC") and registered in the
name of a nominee of DTC. Beneficial interests
in any of the debentures are shown on, and
transfers will be effected only through,
records maintained by DTC or its nominee and
any such interest may not be exchanged for
certificated securities except in limited
circumstances.
TRADING....................... There is no public market for the debentures
and we do not intend to apply for listing of
the debentures on any securities exchange or
for quotation of the debentures through any
automated quotation system. The debentures
currently trade in the PORTAL Market. However,
once debentures are sold under this prospectus,
those debentures will no longer trade on the
PORTAL Market. There is a risk that a trading
market for the debentures will not exist or
that any trading market for the debentures that
may exist will not offer adequate liquidity.
NYSE SYMBOL FOR COMMON STOCK.. "KWD"
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RISK FACTORS
You should consider the following risk factors, in addition to the other
information presented in this prospectus and the documents incorporated by
reference in this prospectus, in evaluating us, our business and an investment
in the debentures. Any of the following risks, as well as other risks and
uncertainties, could seriously harm our business and financial results and cause
the value of the debentures and common stock issuable upon conversion of the
debentures to decline, which in turn could cause you to lose all or part of your
investment.
RISKS RELATED TO OUR COMPANY
INTENSE COMPETITION IN THE APPAREL INDUSTRY COULD REDUCE OUR SALES AND OUR
PROFITABILITY.
As an apparel company, we face competition on many fronts including the
following:
- establishing and maintaining favorable brand recognition;
- developing products that appeal to consumers;
- pricing products appropriately; and
- obtaining access to and sufficient floor space in retail outlets.
Competition in the apparel industry is intense and is dominated by a number
of very large brands, many of which have greater financial, technical and
marketing resources, greater manufacturing capacity and more extensive and
established customer relationships than we do. The competitive responses
encountered from these larger, more established apparel companies may be more
aggressive and comprehensive than we anticipate and we may not be able to
compete effectively. The aggressive and competitive nature of the apparel
industry may result in lower prices for our products and decreased gross profit
margins, either of which may materially adversely affect our sales and
profitability.
OUR BUSINESS WILL SUFFER IF WE FAIL TO CONTINUALLY ANTICIPATE FASHION TRENDS AND
CUSTOMER TASTES.
Customer tastes and fashion trends can change rapidly. We may not be able
to anticipate, gauge or respond to these changes within a timely manner. If we
misjudge the market for our products or product groups or if we fail to identify
and respond appropriately to changing consumer demands and fashion trends, we
may be faced with a significant amount of unsold finished goods inventory, which
could materially adversely affect our expected operating results and decrease
our sales, gross margins and profitability.
The apparel industry has relatively long lead times for the design and
production of products. Consequently, we must commit to production tooling, and
in some cases to production in advance of orders based on forecasts of consumer
demand. If we fail to forecast consumer demand accurately, we may under-produce
or over-produce a product and encounter difficulty in filling customer orders or
in liquidating excess inventory. Additionally, if we over-produce a product
based on an aggressive forecast of consumer demand, retailers may not be able to
sell the product and may return the unsold quantities and cancel future orders.
These outcomes could have a material adverse effect on our sales and brand image
and seriously affect our sales and profitability.
OUR REVENUES AND PROFITS ARE SENSITIVE TO CONSUMER CONFIDENCE AND SPENDING
PATTERNS.
The apparel industry has historically been subject to cyclical variations,
recessions in the general economy or uncertainties regarding future economic
prospects that affect consumer spending habits which could negatively impact our
business overall and specifically our sales, gross margins and profitability.
The success of our operations depends on consumer spending. Consumer spending is
impacted by a number of factors, including actual and perceived economic
conditions affecting disposable consumer income (such as unemployment, wages and
salaries), business conditions, interest rates, availability of credit and tax
rates in the general economy and in the international, regional and local
markets where our products are sold. Any significant deterioration in general
economic conditions or increases in interest rates could reduce the level of
consumer spending and inhibit consumers' use of credit. In
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addition, war, terrorist activity or the threat of war and terrorist activity
may adversely affect consumer spending, and thereby have a material adverse
effect on our financial condition and results of operations.
THE CONCENTRATION OF OUR CUSTOMERS COULD ADVERSELY AFFECT OUR BUSINESS.
Our twenty largest customers accounted for 74% of our sales in fiscal 2004,
with our largest customer accounting for 10% of total fiscal 2004 sales. We do
not have long-term contracts with any of our customers, and sales to customers
generally occur on an order-by-order basis and are subject to certain rights of
cancellations and rescheduling by the customer.
A decision by any of our major customers, whether motivated by competitive
conditions, financial difficulties or otherwise, to decrease significantly the
amount of merchandise purchased from us, or to change their manner of doing
business with us, could substantially reduce our revenues and materially
adversely affect our profitability.
CONSOLIDATION AND CHANGE IN THE RETAIL INDUSTRY MAY ELIMINATE EXISTING OR
POTENTIAL CUSTOMERS.
A number of apparel retailers have experienced significant changes and
difficulties over the past several years, including consolidation of ownership,
increased centralization of buying decisions, restructurings, bankruptcies and
liquidations. During past years, various apparel retailers, including some of
our customers, have experienced financial problems that have increased the risk
of extending credit to those retailers. Financial problems with respect to any
of our customers could cause us to reduce or discontinue business with those
customers or require us to assume more credit risk relating to those customers'
receivables, either of which could have a material adverse effect on our
business, results of operations and financial condition.
There has been and continues to be merger, acquisition and consolidation
activity in the retail trade industry. Future consolidation could reduce the
number of our customers and potential customers. A smaller market for our
products could have a material adverse impact on our business and results of
operations. In addition, it is possible that the larger customers, which result
from mergers or consolidations, could decide to perform some or all of the
services that we currently provide. If that were to occur, it could cause our
business to suffer.
With the growing trend toward retail trade consolidation, we are
increasingly dependent upon key retailers whose bargaining strength and share of
our business is growing. Accordingly, we face greater pressure from these
customers to provide more favorable trade terms. We could be negatively affected
by changes in the policies or negotiating positions of our customers. Our
inability to develop satisfactory programs and systems to satisfy these
customers could adversely affect operating results in any reporting period.
LOSS OF KEY PERSONNEL COULD DISRUPT OUR OPERATIONS.
Our continued success is dependent on our ability to attract, retain and
motivate qualified management, administrative and sales personnel to support
existing operations and future growth. Competition for qualified personnel in
the apparel industry is intense and we compete for these individuals with other
companies that have greater financial and other resources than we do. The loss
of the services of any members of our senior management, or the inability to
attract and retain other qualified personnel could have a material adverse
effect on our business, results of operations and financial condition.
THE EXTENT OF OUR FOREIGN SOURCING AND MANUFACTURING MAY ADVERSELY AFFECT OUR
BUSINESS.
For fiscal 2004, approximately 90% of our products were manufactured
outside the United States. As a result of the magnitude of our foreign sourcing
and manufacturing, our business is subject to the following risks:
- uncertainty caused by the elimination of import quotas, which has and
may continue to produce delays in imports and supplies; consequently,
we will have to monitor and manage our sourcing of products and
develop alternative sourcing plans, if necessary, to alleviate the
impact of any anticipated quota shortages;
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- political and economic instability in countries, including heightened
terrorism and other security concerns, which could subject imported or
exported goods to additional or more frequent inspections, leading to
delays in deliveries or impoundment of goods;
- imposition of regulations and quotas relating to imports, including
quotas imposed by bilateral textile agreements between the United
States and foreign countries;
- imposition of duties, taxes and other charges on imports;
- significant fluctuation of the value of the dollar against foreign
currencies;
- restrictions on the transfer of funds to or from foreign countries;
- political instability, military conflict, or terrorism involving the
United States, or any of the many countries where our products are
manufactured, which could cause a delay in transportation, or an
increase in transportation costs of raw materials or finished product;
- disease epidemics and health related concerns, such as SARS or the mad
cow or hoof and mouth disease outbreaks in recent years, which could
result in closed factories, reduced workforces, scarcity of raw
materials and scrutiny or embargoing of goods produced in infected
areas;
- reduced manufacturing flexibility because of geographic distance
between us and our foreign manufacturers, increasing the risk that we
may have to mark down unsold inventory as a result of misjudging the
market for a foreign-made product; and
- violations by foreign contractors of labor and wage standards and
resulting adverse publicity.
If these risks limit or prevent us from selling or manufacturing products
in any significant international market, prevent us from acquiring products from
foreign suppliers, or significantly increase the cost of our products, our
operations could be seriously disrupted until alternative suppliers are found or
alternative markets are developed, which could negatively impact our business.
WE CANNOT PREDICT HOW THE ELIMINATION OF CHINESE IMPORT QUOTAS WILL IMPACT OUR
BUSINESS.
On December 31, 2004, the quotas on Chinese imports were eliminated. The
elimination of these quotas may in the short-term produce delays in imports and
supplies from China if the U.S. government imposes safeguards on Chinese
imports. We cannot predict what safeguards, if any, will be enacted with respect
to Chinese imports as a result of the elimination of these quotas and we cannot
predict what, if any, impact these safeguards may have on our business.
THE SUCCESS OF OUR LICENSES DEPENDS ON THE VALUE OF THE LICENSED BRANDS.
Many of our products are produced under license agreements with third
parties. Similarly, we license some of our brand names to other companies. Our
success depends on the value of the brands and trademarks that we license and
sell. Brands that we license from third parties are integral to our business as
is the implementation of our strategies for growing and expanding these brands
and trademarks. We market some of our products under the names and brands of
recognized designers. Our sales of these products could decline if any of those
designer's images or reputations were to be negatively impacted. Additionally,
we rely on continued good relationships with both our licensees and licensors,
of certain trademarks and brand names. Adverse actions by any of these third
parties could damage the brand equity associated with these trademarks and
brands, which could have a material adverse effect on our business, results of
operations and financial conditions.
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OUR PROFITABILITY AND EARNINGS COULD BE NEGATIVELY AFFECTED IF SALES OF CERTAIN
PRODUCTS ARE NOT SUFFICIENT TO OFFSET THE MINIMUM ROYALTY PAYMENTS WE MUST PAY
WITH RESPECT TO THESE PRODUCTS.
Many of the license agreements we have entered require significant minimum
royalty payments. Our ability to generate sufficient sales and profitability to
cover these minimum royalty requirements is not guaranteed and if sales of such
products are not sufficient to generate these minimum payments, it could have a
material adverse effect on our business, results of operations and financial
conditions.
OUR COMPETITIVE POSITION COULD SUFFER, IF OUR INTELLECTUAL PROPERTY RIGHTS ARE
NOT PROTECTED.
We believe that our trademarks, patents, technologies and designs are of
great value. From time to time, third parties have challenged, and may in the
future try to challenge, our ownership of our intellectual property. We are
susceptible to others imitating our products and infringing our intellectual
property rights. Our licensing agreements with more recognized designers may
cause us to be more susceptible to infringement of our intellectual property
rights, as some of our brands enjoy significant worldwide consumer recognition
and generally higher pricing thus creating additional incentive for
counterfeiters and infringers. Imitation or counterfeiting of our products or
infringement of our intellectual property rights could diminish the value of our
brands or otherwise adversely affect our revenues. We cannot assure you that the
actions we have taken to establish and protect our trademarks and other
intellectual property rights will be adequate to prevent imitation of our
products by others or to prevent others from seeking to invalidate our
trademarks or block sales of our products as a violation of the trademarks and
intellectual property rights of others. In addition, we cannot assure you that
others will not assert rights in, or ownership of, trademarks and other
intellectual property rights of ours or in marks that are similar to ours or
marks that we license and/or market or that we will be able to successfully
resolve these conflicts to our satisfaction. We may need to resort to litigation
to enforce our intellectual property rights, could result in substantial costs
and diversion of resources. Our failure to protect our intellectual property
rights, which could negatively impact our business and our competitive position.
FLUCTUATIONS IN THE PRICE, AVAILABILITY AND QUALITY OF RAW MATERIALS COULD CAUSE
DELAYS AND INCREASE COSTS.
Fluctuations in the price, availability and quality of the fabrics or other
raw materials used in our manufactured apparel could have a material adverse
effect on our cost of sales or our ability to meet customer demands. We mainly
use cotton twill, wool, denim and synthetic and blended fabrics. The prices for
these fabrics depend largely on the market prices for the raw materials used to
produce them, particularly cotton. The price and availability of the raw
materials and, in turn, the fabrics used in our apparel may fluctuate
significantly, depending on many factors, including crop yields, weather
patterns and changes in oil prices. We may not be able to pass all or a portion
of the higher raw materials prices and related transportation costs on to our
customers.
OUR RELIANCE ON INDEPENDENT MANUFACTURERS COULD CAUSE DELAYS AND DAMAGE CUSTOMER
RELATIONSHIPS.
We use independent manufacturers to assemble or produce a substantial
portion of our products. We are dependent on the ability of these independent
manufacturers to adequately finance the assembly or production of goods ordered
and maintain sufficient manufacturing capacity. The use of independent
manufacturers to assemble or produce finished goods and the resulting lack of
direct control could subject us to difficulty in obtaining timely delivery of
products of acceptable quality. We generally do not have long-term contracts
with any independent manufacturers. Alternative manufacturers, if available, may
not be able to provide us with products or services of a comparable quality, at
an acceptable price or on a timely basis. There can be no assurance that there
will not be a disruption in the supply of our products from independent
manufacturers or, in the event of a disruption, that we would be able to
substitute suitable alternative manufacturers in a timely manner. The failure of
any independent manufacturer to perform or the loss of any independent
manufacturer could have a material adverse effect on our business, results of
operations and financial condition.
Additionally, we require our manufacturers to operate in compliance with
applicable laws, rules and regulations regarding working conditions, employment
practices and environmental compliance. We also sometimes impose upon our
business partners operating guidelines that require additional obligations in
those areas in order to promote ethical business practices, and our staff
periodically visits and monitors the operations of our independent manufacturers
to determine compliance. However, we do not control our independent
manufacturers or their labor
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and other business practices. If one of our manufacturers violates labor or
other laws or implements labor or other business practices that are generally
regarded as unethical in the United States, the shipment of finished products to
us could be interrupted, orders could be cancelled, relationships could be
terminated and our reputation could be damaged. Any of these events could have a
material adverse effect on our revenues and, consequently, our results of
operations.
ACQUISITIONS ACCOUNT FOR A SIGNIFICANT PORTION OF OUR SALES GROWTH AND WE MAY
NOT FIND SUITABLE ACQUISITION CANDIDATES IN THE FUTURE.
Acquisitions have accounted for a significant portion of our sales growth
in the recent past, and we expect to continue to generate a significant portion
of our sales growth through acquisitions in the future. Our sales growth may be
adversely affected if we are unable to find suitable acquisition candidates at
reasonable prices, we are not successful in integrating any acquired businesses
in a timely manner, or such acquisitions do not achieve anticipated results. In
addition, future acquisitions could use substantial portions of our available
cash for all or a portion of the purchase price. We could also issue additional
securities as consideration for these acquisitions, which could cause our
stockholders to suffer significant dilution. See " -- Acquisitions may create
transitional challenges."
ACQUISITIONS MAY CREATE TRANSITIONAL CHALLENGES.
Our business strategy includes growth through strategic acquisitions. That
strategy depends on the availability of suitable acquisition candidates at
reasonable prices and our ability to quickly resolve challenges associated with
integrating these acquired businesses into our existing business. These
challenges include:
- integration of product lines, sales forces and manufacturing
facilities;
- decisions regarding divestitures, inventory write-offs and other
charges;
- employee turnover, including key management and creative personnel of
the acquired businesses;
- disruption in product cycles;
- loss of sales momentum;
- maintenance of acceptable standards, controls, procedures and
policies;
- potential disruption of our ongoing business and distraction of
management;
- impairment of relationships with employees and customers, as a result
of integrating new personnel;
- inability to maintain relationships with customers of the acquired
business;
- failure to achieve the expected benefits of the acquisition;
- expenses of the acquisition; and
- potential unknown liabilities and unanticipated expenses associated
with the acquired businesses.
WE MAY NOT BE SUCCESSFUL IN ACHIEVING THE COST REDUCTIONS CONTEMPLATED BY OUR
RECENT OR FUTURE RESTRUCTURING ACTIVITIES.
In fiscal 2002, we implemented realignment actions, including the closing
of warehousing and production facilities and discontinuance of a license
agreement. These actions impacted fiscal 2002 earnings by $15.0 million before
tax ($9.7 million after tax, or $0.39 per diluted share) including $2.9 million
recorded in cost of products sold and $12.1 million recorded as a provision for
business and facilities realignment. In addition, we have recently completed the
consolidation of our distribution centers and other support operations to
service multiple marketing
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units. However, there can be no assurance that the cost reductions contemplated
by such actions will be achieved within the expected time frame, or at all. Any
delays or failure in delivering products to our customers due to the
consolidation of our distribution infrastructure may result in order
cancellations or termination of supply relationships, all of which could
adversely impact our competitive position and would offset any cost savings we
might have achieved. For instance, our existing intimate apparel business has
been underperforming as a result of sourcing and logistical execution
difficulties in connection with our recent consolidation efforts. While we have
taken actions which we believe will address these issues, there can be no
assurance if or when such actions will be successful.
SOME PROVISIONS IN OUR CERTIFICATE OF INCORPORATION AND BYLAWS MAY DETER THIRD
PARTIES FROM ACQUIRING OUR COMPANY AND COULD DEPRIVE YOU OF THE OPPORTUNITY TO
OBTAIN A TAKEOVER PREMIUM FOR YOUR SHARES OF COMMON STOCK.
Our Certificate of Incorporation and Bylaws contain provisions that may
make the acquisition of our company more difficult without the approval of our
board of directors, including the following:
- Our board of directors is classified into two classes, each of which
serves for a staggered two-year term;
- Only our board of directors, the chairman of our board of directors or
our president may call special meetings of our stockholders;
- Our stockholders may take action only at a meeting of stockholders and
not by written consent;
- We have authorized undesignated preferred stock, the terms of which
may be established and shares of which may be issued without
stockholder approvals;
- Our stockholders have only limited rights to amend our Charter and
Bylaws;
- Restrictions on certain business operations;
- We require advance notice requirements for stockholder proposals; and
- We have adopted a Preferred Stock Purchase Rights Plan, or "poison
pill" which discourages investors from buying over 15% of our common
stock.
These anti-takeover defenses could discourage, delay or prevent a
transaction involving a change of control of our company. These provisions could
also discourage proxy contests and make it more difficult for stockholders to
elect directors and cause us to take other corporate actions.
SECTION 203 OF THE DELAWARE GENERAL CORPORATION LAW MAY DELAY, DEFER OR PREVENT
A CHANGE IN CONTROL THAT OUR STOCKHOLDERS MIGHT CONSIDER TO BE IN THEIR BEST
INTERESTS.
We are subject to Section 203 of the Delaware General Corporation Law,
which, subject to certain exceptions, prohibits "business combinations" between
a publicly-held Delaware corporation and an "interested stockholder" which is
generally defined as a stockholder who becomes a beneficial owner of 15% or more
of a Delaware corporation's voting stock during the three-year period following
the date that such stockholder became an interested stockholder. Section 203
could have the effect of delaying, deferring or preventing a change in control
of our company that our stockholders might consider to be in their best
interests.
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RISKS RELATED TO THE DEBENTURES, THE GUARANTEES AND THE COMMON STOCK
THE TRADING PRICE OF THE DEBENTURES WILL BE DIRECTLY AFFECTED BY THE TRADING
PRICE OF OUR COMMON STOCK, WHICH ARE IMPOSSIBLE TO PREDICT.
We expect that the trading price of the debentures in the secondary market,
if such market develops, will be significantly affected by the trading price of
our common stock, the general level of interest rates and our credit quality.
This may result in greater volatility in the trading prices of the debentures
than would be expected for nonconvertible debt securities.
It is impossible to predict whether the price of our common stock or
interest rates will rise or fall. Trading prices of our common stock will be
influenced by our operating results and prospects and by economic, financial,
regulatory and other factors. In addition, general market conditions, including
the level of, and fluctuations in, the trading prices of stocks generally, and
sales of substantial amounts of common stock by us in the market, or the
perception that such sales may occur, could affect the price of our common
stock.
CONVERSION OF THE DEBENTURES WILL DILUTE THE OWNERSHIP INTEREST OF EXISTING
STOCKHOLDERS, INCLUDING HOLDERS WHO HAD PREVIOUSLY CONVERTED THEIR DEBENTURES.
The conversion of some or all of the debentures will dilute the ownership
interests of existing stockholders. Any sales in the public market of the common
stock issuable upon such conversion could adversely affect prevailing market
prices of our common stock. In addition, the existence of the debentures may
encourage short selling by market participants because the conversion of the
debentures could depress the price of our common stock.
AN ACTIVE TRADING MARKET FOR THE DEBENTURES MAY NOT DEVELOP.
There is no established trading market for the debentures. The debentures
are eligible for trading in the PORTAL Market. However, debentures sold pursuant
to this prospectus will not remain eligible for trading in the PORTAL Market. We
do not intend to apply for listing of the debentures on any securities exchange
or include the debentures in any automated quotation system. Moreover, even if
you are able to sell your debentures, we cannot assure you as to the price at
which any sales will be made. Future trading prices of the debentures will
depend on many factors, including, among other things, prevailing interest
rates, our operating results, the price of our common stock and the market for
similar securities. Historically, the market for convertible debt has been
subject to disruptions that have caused volatility in prices. It is possible
that the market for the debentures will be subject to disruptions which may have
a negative effect on the holders of the debentures, regardless of our prospects
or financial performance.
WE MAY NOT HAVE THE ABILITY TO RAISE THE FUNDS NECESSARY TO PURCHASE THE
DEBENTURES UPON A FUNDAMENTAL CHANGE OR OTHER REPURCHASE DATE, AS REQUIRED BY
THE INDENTURE GOVERNING THE DEBENTURES.
On June 15, 2011, June 15, 2014, June 15, 2019, June 15, 2024 and June 15,
2029, holders of the debentures may require us to purchase their debentures for
cash. In addition, holders of the debentures also may require us to purchase
their debentures upon a fundamental change as described under "Description of
the debentures -- Repurchase of debentures by us at the option of the holder
upon a fundamental change." A fundamental change also may constitute an event of
default under, and result in the acceleration of the maturity of, our other
indebtedness under another indenture or other indebtedness that we may incur in
the future. We cannot assure you that we would have sufficient financial
resources, or would be able to arrange financing, to pay the purchase price for
the debentures tendered by holders. In addition, restrictions in our
then-existing credit facilities or other indebtedness may not allow us to
repurchase the debentures. Failure by us to purchase the debentures when
required will result in an event of default with respect to the debentures.
YOU SHOULD CONSIDER THE UNITED STATES FEDERAL INCOME TAX CONSIDERATIONS RELATING
TO OWNING THE DEBENTURES.
We and each holder have agreed in the indenture to treat the debentures as
indebtedness for U.S. federal income tax purposes that is subject to the special
regulations governing contingent payment debt instruments (which we refer to as
the "CPDI Regulations"). Under the CPDI Regulations, you are required to include
amounts in income in
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advance of cash received in respect of a debenture and to accrue interest on a
constant yield to maturity basis at a rate comparable to the rate at which we
would borrow in a noncontingent, nonconvertible, fixed rate borrowing. We have
determined this rate to be 7.65%, compounded semiannually. It is likely that you
will recognize taxable income in each year under the CPDI Regulations
significantly in excess of cash received while the debentures are outstanding.
In addition, you will recognize ordinary interest income upon a sale, exchange,
conversion, redemption or repurchase of the debentures at a gain. In computing
such gain, the amount realized by you will include, in the case of a conversion,
the amount of cash and the fair market value of shares of our common stock
received. To understand how this may affect you, you should seek advice from
your own tax advisor prior to purchasing these debentures. Please read "Material
United States federal income tax considerations" in this prospectus.
You may in certain situations be deemed to have received a distribution
subject to U.S. federal income tax as a dividend in the event of any taxable
distribution to holders of common stock or in certain other situations requiring
a conversion rate adjustment. For non-U.S. holders (as defined) this deemed
distribution may be subject to U.S. federal withholding requirements. See
"Material United States federal income tax considerations."
THE DEBENTURES ARE EFFECTIVELY SUBORDINATED TO EXISTING AND FUTURE LIABILITIES
OF OUR SUBSIDIARIES WHO ARE NOT SUBSIDIARY GUARANTORS AND ANY FUTURE
INDEBTEDNESS THAT IS GUARANTEED BY OUR SUBSIDIARIES WHO ARE NOT SUBSIDIARY
GUARANTORS.
As of the date of this prospectus, the debentures were guaranteed by
certain of our domestic wholly-owned subsidiaries. However, a substantial
portion of our assets is held by subsidiaries that are not guarantors of the
debentures. The debentures are effectively subordinated to all existing and
future liabilities of our subsidiaries who are not subsidiary guarantors and any
of our future indebtedness that is guaranteed by our subsidiaries that are not
guarantors of the debentures. These liabilities may include indebtedness, trade
payables, guarantees, lease obligations and letter of credit obligations. As of
April 30, 2005, our non-guarantor subsidiaries had approximately $45.0 million
in liabilities. Our right to receive any assets of any of our non-guarantor
subsidiaries upon their liquidation or reorganization, and therefore the right
of the holders of the debentures to participate in those assets, is
subordinated to the claims of those subsidiaries' 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 non-guarantor subsidiaries and any indebtedness of our
non-guarantor subsidiaries senior to that held by us.
Our non-guarantor subsidiaries are separate and distinct legal entities.
Our non-guarantor subsidiaries have no obligation to pay any amounts due on the
debentures 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 non-guarantor subsidiaries
will also be contingent upon our non-guarantor subsidiaries' earnings and could
be subject to contractual or statutory restrictions.
ANY DECLINE IN THE RATING OF THE DEBENTURES COULD ADVERSELY AFFECT THE VALUE OF
THE DEBENTURES.
The debentures are currently rated BBB -- by Standard and Poor's. Our
current corporate credit and senior unsecured debt is rated by Standard and
Poor's and Moody's. These ratings could impact the value of the debentures and
the trading price of our common stock. Any decline in any of these ratings or
any indications from the rating agencies that their ratings on the debentures or
our corporate credit and senior unsecured debt are under surveillance or review
with possible negative implications could adversely affect the value of the
debentures and the trading price of our common stock.
IF YOU HOLD DEBENTURES, YOU WILL NOT BE ENTITLED TO ANY RIGHTS WITH RESPECT TO
OUR COMMON STOCK, BUT YOU WILL BE SUBJECT TO ALL CHANGES MADE WITH RESPECT TO
OUR COMMON STOCK.
If you hold debentures, you will not be entitled to any rights with respect
to our common stock (including, without limitation, voting rights and rights to
receive any dividends or other distributions on our common stock), but you will
be subject to all changes affecting the common stock. You will only be entitled
to rights on the common stock if and when we deliver shares of common stock to
you upon conversion of your debentures. For example, in the event that an
amendment is proposed to our Certificate of Incorporation or By-laws requiring
stockholder approval and the record date for determining the stockholders of
record entitled to vote on the amendment occurs prior to your conversion of
debentures, you will not be entitled to vote on the amendment, although you will
-15-
nevertheless be subject to any changes in the powers, preferences or special
rights of our common stock or other classes of capital stock.
WE MAY ISSUE ADDITIONAL SHARES OF COMMON STOCK AND THEREBY MATERIALLY AND
ADVERSELY AFFECT THE PRICE OF OUR COMMON STOCK.
Except for certain restrictions for the first 90 days of the term of the
debentures, we are not restricted from issuing additional common stock, or
securities convertible into or exchangeable for common stock, during the life of
the debentures and have no obligation to consider your interests for any reason.
If we issue additional shares of common stock or such convertible or
exchangeable securities, it may materially and adversely affect the price of our
common stock and, in turn, the price of the debentures.
THE CONVERSION RATE OF THE DEBENTURES MAY NOT BE ADJUSTED FOR ALL DILUTIVE
EVENTS.
The conversion rate of the debentures is subject to adjustment for certain
events, including but not limited to the issuance of stock dividends on our
common stock, the issuance of rights or warrants, subdivisions, combinations,
distributions of capital stock, indebtedness or assets, certain cash dividends
and certain issuer tender or exchange offers as described under "Description of
the debentures -- Conversion rights -- Conversion rate adjustments." The
conversion rate will not be adjusted for other events, such as a third party
tender or exchange offer or an issuance of common stock for cash, that may
adversely affect the trading price of the debentures or the common stock. There
can be no assurance that an event that adversely affects the value of the
debentures, but does not result in an adjustment to the conversion rate, will
not occur.
THE DEBENTURES AND THE GUARANTEES DO NOT RESTRICT OUR OR OUR SUBSIDIARY
GUARANTORS' ABILITY TO INCUR ADDITIONAL DEBT OR TO TAKE OTHER ACTIONS THAT COULD
NEGATIVELY IMPACT YOU.
We are not restricted under the terms of the indenture and the debentures,
and the subsidiary guarantors are not restricted under the terms of the
guarantees, from incurring additional indebtedness or securing indebtedness
other than the debentures. In addition, the debentures and the guarantees do
not require us or the subsidiary guarantors to achieve or maintain any minimum
financial results relating to our or the subsidiary guarantors' financial
position or results of operations. Our and the subsidiary guarantors' ability to
recapitalize, incur additional debt, secure existing or future debt and take a
number of other actions that are not limited by the terms of the indenture, the
debentures or the guarantees could have the effect of diminishing our or the
subsidiary guarantors' ability to make payments on the debentures or the
guarantees when due. In addition, neither we nor the subsidiary guarantors are
restricted from repurchasing subordinated indebtedness or common stock by the
terms of the indenture, the debentures or the guarantees. If we or the
subsidiary guarantors issue other debt securities in the future, our or the
subsidiary guarantors' debt service obligations, as applicable, will increase.
FEDERAL AND STATE STATUTES MAY ALLOW COURTS TO VOID OR SUBORDINATE GUARANTEES
AND OTHER LAWS MAY LIMIT PAYMENTS UNDER THE GUARANTEES.
As of the date of this prospectus, the debentures are guaranteed by certain
of our existing domestic wholly-owned subsidiaries. If a bankruptcy case or
lawsuit is initiated with respect to a subsidiary guarantor, the debt
represented by the guarantee entered into by that subsidiary guarantor may be
reviewed under federal bankruptcy law and comparable provisions of state
fraudulent transfer laws. Under these laws, a guarantee could be voided, or
claims in respect of a guarantee could be subordinated to other indebtedness,
guarantees and other liabilities of the subsidiary guarantor (which, depending
on the amount of such indebtedness and other obligations, could reduce the
subsidiary guarantor's liability on its guarantee of the debentures to zero),
if, among other things, such subsidiary guarantor at the time it incurred the
debt evidenced by the guarantee:
- received less than reasonably equivalent value or fair consideration
for entering into the guarantee;
- was insolvent or rendered insolvent by reason of entering into the
guarantee;
-16-
- was engaged in a business or transaction for which the subsidiary
guarantor's remaining assets constituted unreasonably small capital;
or
- intended to incur, or believed that it would incur, debts or
contingent liabilities beyond its ability to pay such debts or
contingent liabilities as they became due.
In addition, under these circumstances any payment by the subsidiary
guarantor pursuant to its guarantee could be voided and holders of the
debentures could be required to return those payments to the subsidiary
guarantor or to a fund for the benefit of the creditors of us or the subsidiary
guarantor.
The measures of insolvency for purposes of these fraudulent transfer laws
will vary depending upon the law applied in any proceeding to determine whether
a fraudulent transfer has occurred. Generally, however, a subsidiary guarantor
would be considered insolvent if:
- the sum of its debts, including contingent liabilities, was at the
time greater than the fair saleable value of all of its assets;
- if the present fair saleable value of its assets was at the time less
than the amount that would be required to pay its probable liability
on its existing debts, including contingent liabilities, as they
become absolute and mature; or
- it could not pay its debts as they become due.
We cannot predict with certainty what standard a court would apply to
evaluate the parties' intent or to determine whether the applicable subsidiary
guarantor was insolvent at the time of, or rendered insolvent upon consummation
of, the applicable transaction or that, regardless of the standard, a court
would not determine that the subsidiary guarantor was insolvent or rendered
insolvent as a result of that transaction. Accordingly, there is a risk that the
guarantees of the debentures, or any payments made under the guarantees, will be
deemed to violate applicable bankruptcy, fraudulent transfer or similar laws.
Each guarantee is limited to an amount not to exceed the maximum amount that can
be guaranteed by the applicable subsidiary guarantor, after giving effect to all
of its other liabilities, including, without limitation, any guarantees under
our senior credit facility, without rendering the guarantee, as it relates to
such subsidiary guarantor, voidable under applicable laws relating to fraudulent
conveyance or fraudulent transfer or similar laws.
Other laws, including corporate distribution laws, limit or may limit the
amount that any subsidiary guarantor will be permitted to pay under its
guarantee of the debentures. Such limitations could restrict, perhaps
substantially, the amount that any subsidiary guarantor would be permitted to
pay under its guarantee, could prohibit that subsidiary guarantor from making
any payments under its guarantee or could possibly require that amounts paid by
any subsidiary guarantor under its guarantee of the debentures be returned.
THE GUARANTEES CAN BE RELEASED UNDER CERTAIN CIRCUMSTANCES IN THE FUTURE.
If a subsidiary guarantor is released from its guarantee of the senior
credit facility, then that subsidiary will also be automatically released and
relieved of all of its obligations under its guarantee of the debentures and its
guarantee of the debentures will terminate. In the event that the guarantees are
released under the senior credit facility, the debentures will no longer be
entitled to the benefit of such guarantees and we alone will be responsible for
making payments on the debentures.
THE CONDITIONAL CONVERSION FEATURE OF THE DEBENTURES COULD RESULT IN YOU
RECEIVING LESS THAN THE VALUE OF THE COMMON STOCK INTO WHICH A DEBENTURE WOULD
OTHERWISE BE CONVERTIBLE.
The debentures are convertible into shares of our common stock only if
specified conditions are met. If the specific conditions for conversion are not
met, you will not be able to convert your debentures, and you may not be able to
receive the value of the common stock into which the debentures would otherwise
be convertible.
-17-
WE MAY ISSUE PREFERRED STOCK WHOSE TERMS COULD ADVERSELY AFFECT THE VOTING POWER
OR VALUE OF OUR COMMON STOCK.
Our certificate of incorporation authorizes us to issue, without the
approval of our stockholders, one or more classes or series of preferred stock
having such preferences, powers and relative, participating optional and other
rights, including preferences over our common stock respecting dividends and
distributions, as our board of directors may determine. The terms of one or more
classes or series of preferred stock could adversely impact the voting power or
value of our common stock which the debentures are convertible into thereby
adversely affecting the value of the debentures.
THE ACCOUNTING RULES RELATING TO HOW THE DEBENTURES IMPACT THE COMPUTATION OF
OUR DILUTED EARNINGS PER SHARE WILL CAUSE US TO REPORT ADDITIONAL DILUTION IN
OUR DILUTED EARNINGS PER SHARE IF OUR SHARE PRICE INCREASES TO ABOVE THE
CONVERSION PRICE.
Under EITF No. 04-8, "The Effect of Contingently Convertible Debt on
Diluted Earnings per Share," the Financial Accounting Standards Board has
amended certain accounting rules to now require the inclusion of the potential
conversion of the debentures into common stock in our diluted earnings per share
calculation if our share price increases to above the conversion price. The
conversion price is initially equal to $53.35 per share of common stock, subject
to adjustment upon the occurrence of specified events. On July 29, 2004, we
irrevocably elected, by notice to the trustee and the holders of the debentures,
to satisfy in cash 100% of the accreted principal amount of debentures
converted. We may still satisfy the remainder of the conversion obligation, if
any, to the extent it exceeds the accreted principal amount, in cash or common
stock or any combination thereof. The extent to which the conversion obligation
exceeds the accreted principal amount will cause additional dilution in our
diluted earnings per share.
CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS
Certain information contained in this prospectus, including the documents
incorporated by reference herein, include "forward-looking statements" within
the meaning of Section 27A of the Securities Act and Section 21E of the Exchange
Act. Among other things, these statements relate to our financial condition,
results of operation and business. In addition, we and our representatives may
from time to time make forward-looking statements in filings with the Securities
and Exchange Commission. These forward-looking statements are generally
identified by the use of words such as we "expect," "believe," "anticipate,"
"estimate," "intend," "will," or words of similar import. Prospective investors
are cautioned that these forwarding looking statements are not guarantees of
future performance. These forward-looking statements involve certain risks and
uncertainties and other factors that may cause the actual results, performance
or achievements to be materially different from any future results, performance
or achievements expressed or implied by such forward-looking statements. These
factors include but are not limited to:
- changes in the retail environment. With the growing trend towards
retail trade consolidation, we are increasingly dependent upon key
retailers whose bargaining strength and share of our business is
growing. Accordingly, we face greater pressure from these customers to
provide more favorable trade terms. We can be negatively affected by
changes in the policies or negotiating positions of our customers. Our
inability to develop satisfactory programs and systems to satisfy
these customers could adversely affect operating results in any
reporting period;
- the economic effects of safeguards, if any, put in place on Chinese
imports into the U.S.;
- changes in the relative performance of our business units that could
have an adverse impact on the business unit's forecasted cash flows,
resulting in goodwill impairment charges;
- changes in trends in the market segments in which we compete;
- the performance of our products within the prevailing retail
environment;
- customer acceptance of both new designs and newly introduced product
lines;
-18-
- actions of competitors that may impact our business;
- financial or operational difficulties encountered by customers or
suppliers;
- the economic impact of uncontrollable factors, such as terrorism and
war;
- disruptions to transportation systems or shipping lanes used by us or
our suppliers;
- continued satisfactory relationships with licensees and licensors of
trademarks and brands;
- ability to generate sufficient sales and profitability related to
licensing agreements that contain significant minimum royalty
payments;
- the impact of economic changes such as:
- the overall level of consumer spending for apparel,
- national and regional economic conditions,
- inflation or deflation,
- changes in oil prices, including their impact on fabric prices
and/or transportation costs,
- currency exchange fluctuations,
- changes in interest rates and other capital market conditions;
- stable governments and business conditions in the nations where our
products are manufactured;
- the scope, nature or impact of acquisition activity and the ability to
effectively integrate acquired operations; and
- changes in our plans, strategies, objectives, expectations and
intentions that may happen at any time at our discretion.
All forward-looking statements are specifically qualified in their entirety
by the foregoing cautionary statement and the "risk factors" that appear
elsewhere in this prospectus. We do not undertake to update any forward-looking
statement that may be made from time to time by or on our behalf.
In light of these risks and uncertainties, the forward-looking events and
circumstances discussed in this prospectus might not transpire.
MARKET DATA
The information in this prospectus and the documents incorporated by
reference in this prospectus concerning market positions of certain of our
products is based on our sales for fiscal 2004 and management's estimates of our
competitors' respective dollar volumes of sales for the products, markets and
geographic region or regions to which we refer during the same period. These
estimates were prepared in accordance with what we believe to be industry
practice and are based on our internal estimates, our knowledge of our relative
position and the relative position of our competitors in applicable markets,
and, in some limited cases, industry sources. Other market data included in this
prospectus and the documents incorporated by reference in this prospectus is
estimated and is based on independent industry publications or other publicly
available information. Although we believe that the information on which we have
based these estimates of our market position and this market data is generally
reliable, the accuracy and completeness of this information is not guaranteed
and this information has not been independently verified. This prospectus and
the documents incorporated by reference in this prospectus include sales data
for businesses that we acquired prior to their dates of acquisition. This sales
data was provided to us by the sellers of those businesses and has not been
independently verified, and the accuracy and completeness of that information is
not guaranteed.
This prospectus contains summaries of certain provisions contained in some
of the documents described herein, but reference is made to the actual documents
for complete information. Copies of some of the documents referred to herein
have been filed as exhibits to the registration statement of which this
prospectus is a part and you may obtain copies of those documents as described
below under "Where You Can Find More Information" and "Incorporation of Certain
Documents by Reference."
-19-
USE OF PROCEEDS
We will not receive any proceeds from the sale by any selling
securityholder of the debentures or the shares of common stock issuable upon
conversion of the debentures.
DIVIDEND POLICY
Our current dividend policy anticipates the payment of quarterly dividends
in the future. The declaration and payment of dividends to holders of common
stock will be in the discretion of our Board of Directors, will be subject to
contractual restrictions contained in our then-existing credit facilities, and
will be dependent upon our future earnings, financial condition and capital
requirements, as well as other factors.
COMMON STOCK PRICE RANGE
Our common stock trades on the New York Stock Exchange under the symbol
"KWD." The following table sets forth the reported high and low sales prices per
share of common stock on the NYSE Composite Tape, based on published financial
sources, and the dividends per share declared on the common stock for the
quarter indicated.
PRICE RANGE
---------------
HIGH LOW DIVIDENDS
------ ------ ---------
FISCAL YEAR ENDED FEBRUARY 1, 2003
First quarter.................................. $28.90 $22.85 $0.16
Second quarter................................. $32.50 $24.90 $0.16
Third quarter.................................. $26.65 $19.70 $0.16
Fourth quarter................................. $29.07 $23.45 $0.16
FISCAL YEAR ENDED JANUARY 31, 2004
First quarter.................................. $30.54 $22.65 $0.16
Second quarter................................. $34.85 $26.79 $0.16
Third quarter.................................. $38.34 $31.50 $0.16
Fourth quarter................................. $42.89 $34.90 $0.16
FISCAL YEAR ENDED JANUARY 29, 2005
First quarter.................................. $43.60 $37.47 $0.16
Second quarter................................. $45.10 $36.88 $0.16
Third quarter.................................. $41.13 $31.32 $0.16
Fourth quarter................................. $36.17 $28.00 $0.16
FISCAL YEAR ENDING JANUARY 29, 2006
First quarter .................................... $30.55 $24.88 $0.16
Second quarter (through June 30, 2005)............ $27.73 $24.40 $0.16
At June 13, 2005, there were approximately 2,834 stockholders of record.
RATIO OF EARNINGS TO FIXED CHARGES
The ratio of earnings to fixed charges is computed by dividing fixed
charges into earnings. Earnings is defined as pre-tax income from continuing
operations before adjustment for minority interests in consolidated subsidiaries
or income or loss from equity investees, adjusted by adding fixed charges and
distributed income of equity investees. Fixed charges is composed of interest
expense and the estimated interest component of rental expense.
The following table presents our historical ratios of earnings to fixed
charges for each of the periods indicated:
FISCAL YEAR
THREE MONTHS ENDED --------------------------------
APRIL 30, 2005 2004 2003 2002 2001 2000
------------------ ---- ---- ---- ---- ----
Ratio................. 2.71 3.60 3.92 2.57 2.29 3.28
-20-
DESCRIPTION OF THE DEBENTURES
The debentures were issued under an indenture, dated as of June 22, 2004,
between us and Union Bank of California, N.A., as trustee. On March 15, 2005, we
and the subsidiary guarantors entered into a supplemental indenture adding the
guarantees described below. The debentures and the shares of common stock
issuable upon conversion of the debentures are covered by a registration rights
agreement. You may request a copy of the indenture and the registration rights
agreement from the trustee.
The following description is a summary of the material provisions of the
debentures, the guarantees, the indenture and the registration rights agreement
and does not purport to be complete. This summary is subject to and is qualified
by reference to all the provisions of the debentures, the guarantees and the
indenture, including the definitions of certain terms used in the indenture, and
to all provisions of the registration rights agreement. Wherever particular
provisions or defined terms of the indenture or form of debenture or guarantee
are referred to, these provisions or defined terms are incorporated in this
prospectus by reference. We urge you to read the indenture because it, and not
this description, defines your rights as a holder of the debentures.
As used in this "Description of debentures" section, references to "Kellwood,"
"we," "our" or "us" refer solely to Kellwood Company and not to its
subsidiaries.
GENERAL
The debentures will mature on June 15, 2034 unless earlier converted, redeemed
or repurchased. On the maturity date of the debentures, you will receive the
accreted principal amount of each $1,000 original principal amount of debenture
you hold. The accreted principal amount will equal the original principal amount
of $1,000 per debenture increased daily at a fixed yield equal to 0% per annum
until June 14, 2011 and commencing on June 15, 2011 equal to 3.50% per annum, or
$2,221.18 at maturity. The principal amount of a debenture will cease to accrete
upon its maturity, conversion, purchase by us at the option of a holder
(including upon a fundamental change) or redemption.
The debentures bear regular interest at an annual rate of 3.50% on the original
principal amount from June 22, 2004, or from the most recent date to which
interest has been paid or provided for, until June 14, 2011, payable
semi-annually in arrears on each June 15 and December 15, each an "interest
payment date", beginning December 15, 2004. After June 15, 2011, we will not pay
regular interest.
In addition, we will pay contingent interest and additional amounts on the
debentures under the circumstances described below under " -- Contingent
interest" and "Registration rights."
You have the option, subject to fulfillment of certain conditions and during the
periods described below, to convert your debentures into shares of our common
stock initially at a conversion rate of 18.7434 shares of common stock per
$1,000 original principal amount of debentures, subject to our election on July
29, 2004 to deliver cash in lieu of common stock to satisfy 100% of the accreted
principal amount of debentures converted.
Upon conversion of a debenture and subject to our payment elections, you will
receive only shares of our common stock and a cash payment to account for any
fractional share. You will not receive any cash payment for interest (or
contingent interest) accrued and unpaid to the conversion date except under the
limited circumstances described below.
If any interest payment date, maturity date, redemption date or repurchase date
(including upon the occurrence of a fundamental change, as described below)
falls on a day that is not a business day, the required payment will be made on
the next succeeding business day with the same force and effect as if made on
the date that the payment was due, and no additional interest will accrue on
that payment for the period from and after the interest payment date, maturity
date, redemption date or repurchase date (including upon the occurrence of a
fundamental change, as described below), as the case may be, to that next
succeeding business day.
The debentures have been issued only in denominations of $1,000 original
principal amount and integral multiples thereof. References to "a debenture" or
"each debenture" in this prospectus refer to $1,000 original principal amount of
the debentures. The debentures are limited to $200,000,000 aggregate original
principal amount.
-21-
As used in this prospectus, "business day" means any day, other than a Saturday
or Sunday, that is neither a legal holiday nor a day on which commercial banks
are authorized or required by law, regulation or executive order to close in The
City of New York or the city in which the principal corporate trust office of
the trustee is located.
When we refer to "common stock," we mean the common stock, par value $0.01 per
share, of Kellwood Company.
RANKING
The debentures are our direct, unsecured and unsubordinated obligations. The
debentures rank equal in priority with all of our existing and future unsecured
and unsubordinated indebtedness and senior in right of payment to all of our
existing and future subordinated indebtedness. The debentures effectively rank
junior to any of our future secured indebtedness and any of our future
indebtedness guaranteed by our non-guarantor subsidiaries. To the extent we
conduct operations, now or in the future, through non-guarantor subsidiaries,
creditors of those subsidiaries, including trade creditors and secured
creditors, will generally have claims to the assets of our non-guarantor
subsidiaries that are superior to the claims of our creditors, including holders
of the debentures.
As of the date of this prospectus, the debentures were fully and unconditionally
guaranteed, jointly and severally on an unsecured senior basis, by certain of
our domestic wholly-owned subsidiaries. The guarantee of the debentures by each
subsidiary guarantor is an unsecured senior obligation of that subsidiary
guarantor, and effectively ranks equal in priority with all of the existing and
future unsecured and unsubordinated indebtedness of such subsidiary guarantor,
including, without limitation, the guarantee of our senior credit facility, and
senior in right of payment to the subordinated indebtedness of such subsidiary
guarantor. The guarantee of each subsidiary guarantor ranks junior in right of
payment to any secured indebtedness of the subsidiary guarantor.
As of April 30, 2005, we had outstanding approximately $469.8 million of
unsubordinated indebtedness ranking equally in right of payment with the
debentures, excluding indebtedness of subsidiaries. As of April 30, 2005, our
subsidiary guarantors had approximately $80.0 million of liabilities, less than
$1.0 million of which had been guaranteed by us, and our non-guarantor
subsidiaries had $45.0 million of liabilities. The indenture does not limit the
amount of indebtedness we or our subsidiaries may incur.
SUBSIDIARY GUARANTEES
Our obligations pursuant to the debentures are fully and
unconditionally guaranteed, jointly and severally, on an unsecured senior basis,
by the subsidiary guarantors. The subsidiary guarantors have agreed to pay, in
addition to the amounts stated above, any and all out-of-pocket expenses
(including reasonable counsel fees and expenses) incurred by the trustee and the
holders in enforcing any rights under the guarantees with respect to the
subsidiary guarantors. Each guarantor is 100% owned by Kellwood Company.
Each guarantee is limited to an amount not to exceed the maximum
amount that can be guaranteed by the applicable subsidiary guarantor, after
giving effect to all of its other liabilities, contingent or otherwise
(including, without limitation, any guarantees under the senior credit
facility), without rendering its guarantee voidable under applicable law
relating to fraudulent conveyance or fraudulent transfer or similar laws. If any
guarantee were to be rendered voidable, it could be subordinated by a court to
all other indebtedness (including guarantees and other contingent liabilities)
of the relevant subsidiary guarantor, and, depending on the amount of such
indebtedness, the subsidiary guarantor's liability on its guarantee could be
reduced to zero. See "Risk Factors--Federal and state statutes may allow courts
to void or subordinate guarantees and other laws may limit payments under the
guarantees."
Upon any release or termination of the guarantee of the senior credit
facility provided by a subsidiary guarantor, the guarantee of the debentures
provided by that subsidiary guarantor shall also be automatically terminated and
cease to have any further force or effect. The guarantees will also
automatically terminate immediately prior to the conversion of the debentures
into common stock. We may terminate any guaranty if the subsidiary ceases to be
a material subsidiary. We are under no obligation to cause any new material
domestic wholly-owned subsidiary to become a guarantor.
-22-
The subsidiary guarantees will not apply to any performance,
observance or discharge by us with respect to conversion of the debentures and
will automatically terminate prior to the conversion of any debenture into
common stock.
"Subsidiary guarantors" means each of our subsidiaries providing
guarantees under our senior credit facility as of the date of this prospectus.
These subsidiaries consist of Koret of California, Inc., a California
corporation, American Recreation Products, Inc., a Delaware corporation, Briggs
New York, Inc., a Delaware corporation, Costura Dominicana, Inc., a Delaware
corporation, Gerber Childrenswear, Inc., a Delaware corporation, GCW Holdings,
Inc., a Delaware corporation, GCI IP Sub, Inc., a Delaware corporation, Halmode
Apparel, Inc., a Delaware corporation, New Campaign, Inc., a Delaware
corporation, KWD Holdings, Inc., a Delaware corporation, Sierra Designs
Acquisition Corporation, a Delaware corporation, Biflex International, Inc., a
New York corporation, Dorby Frocks, Ltd., a New York corporation, Phat Fashions
LLC, a New York limited liability company, Phat Licensing LLC, a New York
limited liability company, and Kellwood Financial Resources, Inc., a Tennessee
corporation.
INTEREST
The debentures accrue regular interest at a rate of 3.50% per year from and
including June 22, 2004, or from and including the most recent interest payment
date to which interest has been paid or duly provided for, to but excluding the
next interest payment date, or to June 14, 2011, as the case may be. Interest is
calculated on the basis of a 360-day year consisting of twelve 30-day months. We
will also pay contingent interest on the debentures in the circumstances
described under " -- Contingent interest." Interest (including contingent
interest and additional amounts, if any) will be paid semiannually in arrears on
June 15 and December 15 of each year, beginning December 15, 2004 until June 15,
2011. After June 15, 2011, we will not pay regular interest on the debentures.
Interest on a debenture (including contingent interest and additional amounts,
if any) will be paid to the person in whose name the debenture is registered at
the close of business on the June 1 or December 1, as the case may be (each, a
"record date"), immediately preceding the relevant interest payment date
(whether or not such day is a business day). Regular interest will cease to
accrue on a debenture upon the earlier of June 15, 2011 or its conversion,
purchase by us at the option of a holder (including upon a fundamental change)
or redemption.
CONTINGENT INTEREST
Beginning with the period commencing on June 20, 2011 and ending December 14,
2011 and thereafter for any six-month period from and including an interest
payment date to but excluding the next interest payment date, commencing with
the six-month period commencing on December 15, 2011, we will pay contingent
interest to you if the average trading price (as defined below) of the
debentures during the five trading-day period immediately preceding the first
day of the applicable period equals or exceeds 130% of the accreted principal
amount of the debentures.
On any interest payment date when contingent interest shall be payable, the
contingent interest payable per debenture will equal 0.125% of the average
trading price of such debenture during the applicable five trading-day reference
period, payable in arrears.
We will notify the holders of the debentures upon a determination that they will
be entitled to receive contingent interest with respect to any interest period.
The "trading price" of a debenture on any date of determination shall be
determined by us and shall be the average of the secondary market bid quotations
per debenture obtained by the bid solicitation agent for $1,000,000 aggregate
original principal amount of debentures at approximately 4:00 p.m., New York
City time, on such determination date from three independent nationally
recognized securities dealers we select, provided that if:
- at least one such bid is not obtained by the bid solicitation agent,
or
-23-
- in our reasonable judgment, the bid quotations are not indicative of
the secondary market value of debentures as of such determination
date,
then the trading price for such determination date will equal (1) the applicable
conversion rate of the debentures as of such determination date multiplied by
(2) the average last reported sale price (as defined below) of our common stock
on the five trading days ending on such determination date.
The bid solicitation agent will initially be the trustee. We may change the bid
solicitation agent, but the bid solicitation agent will not be our affiliate.
The bid solicitation agent will solicit bids from securities dealers that are
believed by us to be willing to bid for the debentures.
OPTIONAL REDEMPTION BY US
No sinking fund is provided for the debentures. Prior to June 20, 2011, the
debentures will not be redeemable. On or after June 20, 2011, we may redeem the
debentures in whole or in part at any time for a redemption price in cash equal
to 100% of the accreted principal amount of the debentures to be redeemed, plus
any accrued and unpaid interest (including contingent interest and additional
amounts, if any) to but excluding the redemption date.
If the redemption date is an interest payment date, interest (including
contingent interest and additional amounts, if any) shall be paid on such
interest payment date to the record holder on the relevant record date.
We will provide not less than 30 nor more than 60 days' notice of redemption by
mail to each registered holder of debentures to be redeemed. If the redemption
notice is given and funds are deposited as required, then interest will cease to
accrue and the principal amount will cease to accrete on and after the
redemption date on those debentures or portions of debentures called for
redemption.
If we decide to redeem fewer than all of the outstanding debentures, the trustee
will select the debentures to be redeemed (in original principal amounts of
$1,000 or integral multiples thereof) by lot, on a pro rata basis or by another
method the trustee considers fair and appropriate. If the trustee selects a
portion of your debentures for partial redemption and you convert a portion of
your debentures, the converted portion will be deemed to be from the portion
selected for redemption.
We may not redeem the debentures if we have failed to pay any interest
(including contingent interest and additional amounts, if any) on the debentures
when due and such failure to pay is continuing. We will notify all of the
holders if we redeem any of the debentures.
CONVERSION RIGHTS
Subject to the conditions and our election to satisfy in cash 100% of the
accreted principal amount as discussed below under "-Payment upon conversion"
and during the periods described below, you may convert each of your debentures
into shares of our common stock initially at a conversion rate of 18.7434 shares
of common stock per $1,000 original principal amount of debentures at any time
prior to the close of business on June 15, 2034, subject to our ability to elect
to deliver cash or a combination of cash and our common stock in lieu of common
stock. The conversion price as of any date of determination is a dollar amount
(initially $53.35 per share of common stock) derived by dividing the accreted
principal amount of a debenture on such date (which will be $1,000 until June
14, 2011) by the conversion rate in effect on such date. The conversion rate and
the equivalent conversion price in effect at any given time are referred to as
the "applicable conversion rate" and the "applicable conversion price,"
respectively, and are subject to adjustment as described below. You may convert
fewer than all of your debentures so long as the debentures converted are an
integral multiple of $1,000 original principal amount.
You may convert your debentures only in the following circumstances, which are
described in more detail below, and to the following extent:
- in whole or in part, upon satisfaction of the market price condition;
- in whole or in part, upon satisfaction of the trading price condition;
-24-
- if any of your debentures are called for redemption, those debentures
that have been so called; or
- in whole or in part, upon the occurrence of specified corporate
transactions.
If you elect to convert your debentures in connection with a specified corporate
transaction referred to in the last bullet point above that occurs prior to June
15, 2011, and the corporate transaction also constitutes a fundamental change
(as defined under " -- Repurchase of debentures by us at the option of the
holder upon a fundamental change"), in certain circumstances, you will be
entitled to receive, in addition to a number of shares of common stock equal to
the applicable conversion rate, an additional number of shares of common stock
(the "additional shares") as described below, subject in each case to our
payment elections as described under " -- Payment upon conversion."
The number of additional shares will be determined by reference to the table
below, based on the date on which the corporate transaction becomes effective
(the "effective date") and the price (the "stock price") paid per share of our
common stock in the corporate transaction. If holders of our common stock
receive only cash in the corporate transaction, the stock price shall be the
cash amount paid per share. Otherwise, the stock price shall be the average of
the last reported sale prices of our common stock on the five trading days up to
but not including the effective date of the corporate transaction.
The stock prices set forth in the first row of the table below (i.e., column
headers) will be adjusted as of any date on which the conversion rate of the
debentures is adjusted. The adjusted stock prices will equal the stock prices
applicable immediately prior to such adjustment, multiplied by a fraction, the
numerator of which is the conversion rate immediately prior to the adjustment
giving rise to the stock price adjustment and the denominator of which is the
conversion rate as so adjusted. The number of additional shares will be adjusted
in the same manner as the conversion rate as set forth under " -- Conversion
rate adjustments."
The following table sets forth the number of additional shares to be received
per $1,000 original principal amount of debentures:
EFFECTIVE
STOCK PRICE
---------------------------------------------------------------------
DATE $41.04 $47.00 $53.00 $59.00 $65.00 $71.00 $77.00 $83.00
- ---- ------ ------ ------ ------ ------ ------ ------ ------
June 15, 2004............ 5.6231 4.2216 3.0930 2.2927 1.7114 1.2809 0.9571 0.7101
June 15, 2005............ 5.6231 4.2157 3.0474 2.2296 1.6435 1.2152 0.8974 0.6577
June 15, 2006............ 5.6231 4.1348 2.9339 2.1074 1.5258 1.1087 0.8050 0.5793
June 15, 2007............ 5.6231 4.1155 2.8467 1.9916 1.4048 0.9949 0.7037 0.4938
June 15, 2008............ 5.6231 3.9259 2.6062 1.7456 1.1781 0.7987 0.5409 0.3629
June 15, 2009............ 5.6231 3.6689 2.2686 1.4017 0.8691 0.5414 0.3374 0.2079
June 15, 2010............ 5.6231 3.2164 1.6815 0.8303 0.3952 0.1862 0.0885 0.0414
June 15, 2011............ 0.0000 0.0000 0.0000 0.0000 0.0000 0.0000 0.0000 0.0000
STOCK PRICE
--------------------------------------------------------------
DATE $89.00 $95.00 $101.00 $107.00 $113.00 $119.00 $125.00
- ---- ------ ------ ------- ------- ------- ------- -------
June 15, 2004............ 0.5205 0.3741 0.2609 0.1738 0.1072 0.0568 0.0000
June 15, 2005............ 0.4757 0.3368 0.2306 0.1495 0.0883 0.0426 0.0000
June 15, 2006............ 0.4109 0.2842 0.1888 0.1169 0.0634 0.0244 0.0000
June 15, 2007............ 0.3409 0.2281 0.1451 0.0842 0.0395 0.0097 0.0000
June 15, 2008............ 0.2385 0.1497 0.0864 0.0415 0.0096 0.0000 0.0000
June 15, 2009............ 0.1252 0.0677 0.0290 0.0041 0.0000 0.0000 0.0000
June 15, 2010............ 0.0160 0.0001 0.0000 0.0000 0.0000 0.0000 0.0000
June 15, 2011............ 0.0000 0.0000 0.0000 0.0000 0.0000 0.0000 0.0000
The exact stock prices and effective dates may not be set forth in the table
above, in which case:
- If the stock price is between two stock price amounts in the table or
the effective date is between two effective dates in the table, the
number of additional shares will be determined by a straight-line
-25-
interpolation between the number of additional shares set forth for
the higher and lower stock price amounts and the two dates, as
applicable, based on a 365-day year.
- If the stock price is equal to or in excess of $125.00 per share
(subject to adjustment), no additional shares will be issued upon
conversion.
- If the stock price is less than $41.04 per share (subject to
adjustment), no additional shares will be issued upon conversion.
Notwithstanding the foregoing, in no event will the total number of shares of
common stock issuable upon conversion exceed 24.3665 per $1,000 original
principal amount of debentures, subject to adjustments in the same manner as the
conversion rate as set forth under " -- Conversion rate adjustments."
If we call your debentures for redemption, you may convert the debentures only
until the close of business on the second business day prior to the redemption
date unless we fail to pay the redemption price. If you have already delivered a
repurchase election with respect to a debenture as described under either " --
Repurchase of debentures by us at the option of the holder" or " -- Repurchase
of debentures by us at the option of the holder upon a fundamental change," you
may not surrender that debenture for conversion until you have withdrawn the
repurchase election in accordance with the indenture.
Upon conversion, you will not receive any cash payment of accrued and unpaid
interest (including contingent interest) unless such conversion occurs between a
regular record date and the interest payment date to which it relates but you
will receive any additional amounts. We will not issue fractional shares of our
common stock upon conversion of debentures. Instead, we will pay cash in lieu of
fractional shares based on the last reported sale price of the common stock on
the trading day prior to the conversion date. Our delivery to you of the full
number of shares of our common stock and/or cash, if any, into which a debenture
is convertible, together with any cash payment for any fractional share, will be
deemed to satisfy our obligation to pay:
- the accreted principal amount of the debenture; and
- accrued but unpaid interest (including contingent interest, if any) to
but excluding the conversion date.
As a result, accrued but unpaid interest (including contingent interest, if any)
to but excluding the conversion date will be deemed to be paid in full rather
than cancelled, extinguished or forfeited. For a discussion of your tax
treatment upon receipt of our common stock upon conversion, see "Material United
States federal income tax considerations."
Notwithstanding the preceding paragraph, if debentures are converted after the
close of business on a record date, holders of such debentures at the close of
business on the record date will receive the interest (including contingent
interest, if any) payable on such debentures on the corresponding interest
payment date notwithstanding the conversion. Debentures, upon surrender for
conversion during the period from the close of business on any regular record
date to the opening of business on the immediately following interest payment
date, must be accompanied by funds equal to the amount of interest (including
contingent interest, if any) payable on the debentures so converted; provided
that no such payment need be made (1) if we have specified a redemption date
that is after a record date and on or prior to the business day immediately
following the next interest payment date, (2) if we have specified a redemption
date following a fundamental change that is after a record date and prior to the
next interest payment date or (3) to the extent of any overdue interest
(including contingent interest, if any) if any overdue interest exists at the
time of conversion with respect to such debenture.
If you convert debentures, we will pay any documentary, stamp or similar issue
or transfer tax due on the issue of shares, if any, of our common stock upon the
conversion, unless the tax is due because you request the shares to be issued or
delivered to another person, in which case you will pay that tax.
CONVERSION PROCEDURES
To convert your debenture you must do the following:
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- complete and manually sign the conversion notice on the back of the
debenture, or a facsimile of the conversion notice, and deliver this
irrevocable notice to the conversion agent;
- if the debenture is in certificated form, surrender the debenture to
the conversion agent;
- if required, furnish appropriate endorsements and transfer documents;
- if required, pay all transfer or similar taxes; and
- if required, pay funds equal to interest payable on the next interest
payment date.
The date you comply with these requirements is the conversion date under the
indenture. If your interest is a beneficial interest in a global debenture, to
convert you must comply with the last three requirements listed above and comply
with the depositary's procedures for converting a beneficial interest in a
global debenture.
The conversion agent will, on your behalf, convert the debentures into shares of
our common stock, to the extent we elect to satisfy our conversion obligation in
common stock. See " -- Payment upon conversion." You may obtain copies of the
required form of the conversion notice from the conversion agent. A certificate,
or a book-entry transfer through DTC, for the number of full shares of our
common stock into which any debentures are converted, together with a cash
payment for any fractional share, will be delivered through the conversion agent
as soon as practicable, but no later than the fifth business day, following the
conversion date.
PAYMENT UPON CONVERSION
(1) Conversion on or prior to the final notice date. In the event that we
receive your notice of conversion on or prior to the day that is 20 days prior
to maturity or, with respect to debentures being redeemed, the applicable
redemption date (the "final notice date"), the following procedures will apply:
If we choose to satisfy all or any portion of our obligation (the
"conversion obligation") in cash, we will notify you through the trustee of
the dollar amount to be satisfied in cash (which must be expressed either
as 100% of the conversion obligation or as a fixed dollar amount) at any
time on or before the date that is two business days following receipt of
your notice of conversion ("cash settlement notice period"). If we timely
elect to pay cash for any portion of the shares otherwise issuable to you,
you may retract the conversion notice at any time during the two business
day period beginning on the day after the final day of the cash settlement
notice period ("conversion retraction period"); no such retraction can be
made (and a conversion notice shall be irrevocable) if we do not elect to
deliver cash in lieu of shares (other than cash in lieu of fractional
shares). If the conversion notice has not been retracted, then settlement
(in cash and/or shares) will occur on the business day following the final
day of the 10 trading day period beginning on the day after the final day
of the conversion retraction period. Settlement amounts will be computed as
follows:
- If we elect to satisfy the entire conversion obligation in
shares, we will deliver to you a number of shares equal to (1)
the aggregate original principal amount of debentures to be
converted divided by 1,000 multiplied by (2) the sum of the
applicable conversion rate and the applicable number of
additional shares issuable upon conversion of $1,000 original
principal amount of debentures, if any, as described under " --
Conversion rights." On July 29, 2004 we irrevocably elected to
pay in cash 100% of the accreted principal amount of the
debentures that are converted.
- If we elect to satisfy the entire conversion obligation in cash,
we will deliver to you cash in an amount equal to the product of:
- a number equal to (1) the aggregate original principal
amount of debentures to be converted divided by 1,000
multiplied by (2) the sum of the applicable conversion rate
and the applicable number of additional shares issuable upon
conversion of $1,000 original principal amount of
debentures, if any, as described under " -- Conversion
rights," and
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- the average of the last reported sale prices of our common
stock for the ten consecutive trading days immediately
following the date of our notice of our election to deliver
cash (the "cash settlement averaging period").
- If we elect to satisfy in cash a fixed portion of the conversion
obligation other than the entire obligation, or a percentage of
the conversion obligation other than 100%, we will deliver to you
such cash amount ("cash amount") and a number of shares equal to
the excess, if any, of the number of shares equal to (i) the
aggregate original principal amount of debentures to be converted
divided by 1,000, multiplied by (ii) the sum of the applicable
conversion rate and the applicable number of additional shares
issuable upon conversion of $1,000 original principal amount of
debentures, if any, as described under "-- Conversion rights,"
over the number of shares equal to the sum, for each day of the
cash settlement averaging period, of (x) 10% of the cash amount
(other than cash for fractional shares of common stock), divided
by (y) the last reported sale price of our common stock. In
addition, we will pay cash for all fractional shares of common
stock as described above.
(2) Conversion after the final notice date or following a specified
corporate transaction in connection with which you are entitled to additional
shares. In the event that we receive your notice of conversion after the final
notice date, we will not send individual notices of our election to satisfy all
or any portion of the conversion obligation in cash. Instead, if we choose to
satisfy all or any portion of the conversion obligation in cash, we will send a
single notice to the trustee of the dollar amount to be satisfied in cash (which
must be expressed either as 100% of the conversion obligation or as a fixed
dollar amount) at any time on or before the final notice date. Settlement
amounts will be computed in the same manner as set forth above under " --
Conversion on or prior to the final notice date" except that the "cash
settlement averaging period" shall be the five consecutive trading days ending
on the third trading day prior to the conversion date and, for purposes of the
formula set forth in the third bullet point above, 20% shall be used instead of
10%. Settlement (in cash and/or shares) will occur on the business day following
the final day of such cash settlement averaging period.
In addition, if you elect to convert your debentures under " -- Conversion
upon specified corporate transactions" and you are entitled to additional
shares, we will not send individual notices of our election to satisfy all or
any portion of the conversion obligation in cash. Instead, if we choose to
satisfy all or any portion of the conversion obligation in cash, we will send a
single notice to the trustee of the dollar amount to be satisfied in cash (which
must be expressed either as 100% of the conversion obligation or as a fixed
dollar amount) in connection with the announcement of the relevant corporate
transaction. Settlement amounts will be computed in the same manner as set forth
above under " -- Conversion on or prior to the final notice date" except that
(a) the reference to the average of the last reported sale prices of our common
stock during the cash settlement averaging period in the second bullet point
above shall mean the "stock price" used to determine the number of additional
shares, (b) (i) the "cash settlement averaging period" referred to in the third
bullet point above shall be the five consecutive trading days up to but not
including the effective date of the relevant corporate transaction and (ii) if
holders of our common stock receive only cash in such corporate transaction, the
"last reported sale price of our common stock" referred to in clause (y) of the
third bullet point above shall be deemed to be equal to such cash received per
share, and (c) for purposes of the formula set forth above in the third bullet
point above, 20% shall be used instead of 10%. Settlement will occur as promptly
as practicable after the later of the conversion date and the effective date of
the relevant corporate transaction.
"Trading day" means a day during which trading in securities generally
occurs on the New York Stock Exchange or, if our common stock is not listed on
the New York Stock Exchange, on the principal other U.S. national or regional
securities exchange on which our common stock is then listed or, if our common
stock is not listed on a U.S. national or regional securities exchange, on the
principal other market on which our common stock is then traded.
(3) Conversion after irrevocable election to pay principal in cash. On July
29, 2004, we irrevocably elected, by notice to the trustee and the holders of
the debentures, to satisfy in cash 100% of the accreted principal amount of
debentures converted. As a result of this election, any reference in this
prospectus to satisfying 100% of the accreted principal amount in common stock
or a combination of cash and common stock shall be superseded by the provisions
of this paragraph. We still may satisfy the remainder of our conversion
obligation to the extent it exceeds the accreted principal amount in cash or
common stock or a combination of cash and common stock. If we
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choose to satisfy all or a portion of the remainder of our conversion obligation
in cash, we will provide notice of our election in the same manner as set forth
above under either " -- Conversion on or prior to the final notice date" or " --
Conversion after the final notice date," whichever is applicable. If we choose
to satisfy all of the remainder of our conversion obligation in common stock,
notice of our election to deliver cash for the accreted principal amount will be
deemed to have been provided on the last date of the cash settlement notice
period and your notice of conversion will not be retractable. Settlement amounts
will be computed and settlement dates will be determined in the same manner as
set forth above under " -- Conversion on or prior to the final notice date" and
" -- Conversion after the final notice date or following a specified corporate
transaction in connection with which you are entitled to additional shares," as
applicable.
CONVERSION UPON SATISFACTION OF MARKET PRICE CONDITION
You may surrender your debentures for conversion during any fiscal quarter
commencing after July 31, 2004, if the last reported sale price of our common
stock for at least 20 trading days during the period of 30 consecutive trading
days ending on the last trading day of the preceding fiscal quarter is greater
than or equal to 131.30% of the applicable conversion price per share of our
common stock on such last trading day; provided that once such threshold is met,
the debenture will thereafter be convertible at any time at the option of the
holder, through maturity.
The "last reported sale price" of our common stock on any date means the
closing sale price per share (or if no closing sale price is reported, the
average of the bid and asked prices or, if more than one in either case, the
average of the average bid and the average asked prices) on such date as
reported in composite transactions for the principal U.S. securities exchange on
which our common stock is traded or, if our common stock is not listed on a U.S.
national or regional securities exchange, as reported by the Nasdaq National
Market. If our common stock is not listed for trading on a U.S. national or
regional securities exchange and not reported by the Nasdaq National Market on
the relevant date, the "last reported sale price" will be the last quoted bid
price for our common stock in the over-the-counter market on the relevant date
as reported by the National Quotation Bureau Incorporated or similar
organization. If our common stock is not so quoted, the "last reported sale
price" will be the average of the mid-point of the last bid and asked prices for
our common stock on the relevant date from each of at least three independent
nationally recognized investment banking firms selected by us for this purpose.
Because the applicable conversion price of a debenture at any time is
dependent upon the accreted principal amount of a debenture at that time, the
conversion trigger prices for periods ending after June 15, 2011 are indicated
in the following table at June 15 of each year beginning 2011.
CONVERSION TRIGGER PRICE
APPLICABLE CONVERSION
AS OF JUNE 15, CONVERSION PRICE TRIGGER PRICES
- -------------- ---------------- --------------
2011........................................ $53.35 $ 70.05
2012........................................ 55.24 72.52
2013........................................ 57.19 75.09
2014........................................ 59.20 77.74
2015........................................ 61.30 80.48
2016........................................ 63.46 83.32
2017........................................ 65.70 86.26
2018........................................ 68.02 89.31
2019........................................ 70.42 92.46
2020........................................ 72.91 95.73
2021........................................ 75.48 99.11
2022........................................ 78.15 102.61
2023........................................ 80.91 106.23
2024........................................ 83.76 109.98
2025........................................ 86.72 113.86
2026........................................ 89.78 117.88
2027........................................ 92.95 122.04
2028........................................ 96.23 126.35
2029........................................ 99.63 130.81
-29-
2030........................................ 103.15 135.43
2031........................................ 106.79 140.21
2032........................................ 110.56 145.16
2033........................................ 114.46 150.29
2034........................................ 118.50 155.60
This table assumes no events have occurred that would require an adjustment
to the conversion rate.
CONVERSION UPON SATISFACTION OF TRADING PRICE CONDITION
You may surrender your debentures for conversion during the five business
day period after any five consecutive trading day period in which the "trading
price" per debenture, as determined following a request by a holder of
debentures in accordance with the procedures described below, for each day of
that period was less than 98% of the product of the conversion rate and the last
reported sale price of our common stock for each day during such period (the
"98% Trading Exception"); provided that if, on the date of any conversion
pursuant to the 98% Trading Exception that is on or after June 15, 2029, the
last reported sale price of our common stock is greater than the applicable
conversion price but less than 131.30% thereof, then you will receive, in lieu
of common stock based on the applicable conversion rate, an amount in cash,
shares of our common stock, or a combination thereof, at our option, equal to
the accreted principal amount of the debentures converted, plus accrued and
unpaid interest (including contingent interest and additional interest, if any)
to but excluding the conversion date (a "principal value conversion"). Any
common stock delivered upon a principal value conversion will be valued at the
average of the last reported sale prices of our common stock for a five trading
day period starting on the third trading day following the conversion date.
For purposes of this provision, if the trustee cannot reasonably obtain at
least one bid for $1,000,000 original principal amount of the debentures from a
nationally recognized securities dealer, or in our reasonable judgment, the bid
quotations are not indicative of the secondary market value of the debentures,
then the trading price per debenture will be deemed to be less than 98% of the
product of the last reported sale price of our common stock and the applicable
conversion rate.
In connection with any conversion upon satisfaction of the above trading
price condition, the trustee shall have no obligation to determine the trading
price of the debentures unless we have requested such determination; and we
shall have no obligation to make such request unless you provide us with
reasonable evidence that the trading price per debenture would be less than 98%
of the product of the last reported sale price of our common stock and the
applicable conversion rate. At such time, we shall instruct the trustee to
determine the trading price of the debentures beginning on the next trading day
and on each successive trading day until the trading price per debenture is
greater than or equal to 98% of the product of the last reported sale price of
our common stock and the applicable conversion rate.
CONVERSION UPON NOTICE OF REDEMPTION
If we call any or all of the debentures for redemption, you may convert any
of your debentures that have been called for redemption at any time prior to the
close of business on the second business day prior to the redemption date after
which time your right to convert such debentures will expire, unless we fail to
pay the redemption price.
CONVERSION UPON SPECIFIED CORPORATE TRANSACTIONS
If we elect to:
- distribute to all holders of our common stock rights or warrants
entitling them to subscribe for or purchase, for a period expiring
within 45 days after the date of the distribution, shares of our
common stock at less than the last reported sale price of a share of
our common stock on the trading day immediately preceding the
declaration date of the distribution; or
- distribute to all holders of our common stock assets, debt securities
or rights to purchase our securities, which distribution has a per
share value as determined by our board of directors exceeding 10% of
the last
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reported sale price of our common stock on the trading day immediately
preceding the declaration date for such distribution,
we must notify holders of the debentures at least 20 business days prior to the
ex-dividend date for such distribution. Once we have given such notice, holders
may surrender their debentures for conversion at any time until the earlier of
the close of business on the business day immediately prior to the ex-dividend
date or any announcement that such distribution will not take place. No holder
may exercise this right to convert if the holder otherwise will participate in
the distribution without conversion. The "ex-dividend" date is the first date
upon which a sale of the common stock does not automatically transfer the right
to receive the relevant distribution from the seller of the common stock to its
buyer.
In addition, if we are a party to a consolidation, merger, binding share
exchange or transfer of all or substantially all of our assets, in each case
pursuant to which our common stock would be converted into (i) cash or property
other than securities or (ii) cash, securities or other property, provided that
in the case of clause (ii), such transaction also constitutes a fundamental
change, a holder may surrender debentures for conversion at any time from and
after the date which is 15 days prior to the anticipated effective date of the
transaction until and including the date which is 15 days after the actual
effective date of such transaction (or if such consolidation, merger, share
exchange or transfer also constitutes a fundamental change, until the repurchase
date corresponding to such fundamental change). At the effective time of the
transaction referred to above or if we engage in certain reclassifications of
our common stock, the right to convert a debenture into our common stock will be
changed into a right to convert a debenture into the kind and amount of cash,
securities or other property which a holder would have received if the holder
had converted its debentures immediately prior to the applicable record date for
such transaction. If we engage in any transaction described in the preceding
sentence, the conversion rate will not be adjusted as described under " --
Conversion rate adjustments" below. If the transaction also constitutes a
fundamental change, a holder can require us to redeem all or a portion of its
debentures as described under " -- Repurchase of debentures by us at the option
of the holder upon a fundamental change."
The indenture does not limit or restrict the ability of any subsidiary
guarantor to consolidate with or merge with or into any person or sell, convey,
transfer or lease its property or assets.
CONVERSION RATE ADJUSTMENTS
The conversion rate is subject to adjustment as described below, except
that we will not make any adjustments to the conversion rate if holders of the
debentures participate in any of the transactions described below without having
to convert their debentures.
(1) If we issue shares of our common stock as a dividend or distribution on
shares of our common stock, or if we effect a share split or share combination,
the conversion rate will be adjusted based on the following formula:
OS'
CR'=CR(0) X -----
OS(0)
where,
CR(0) = the conversion rate in effect immediately prior to such event
CR' = the conversion rate in effect immediately after such event
OS(0) = the number of our shares of common stock outstanding immediately
prior to such event
OS' = the number of our shares of common stock outstanding immediately
after such event
(2) If we issue to all or substantially all holders of our common stock any
rights or warrants entitling them for a period of not more than 45 days to
subscribe for or purchase shares of our common stock, at a price per share less
than the last reported sale price of shares of our common stock on the business
day immediately preceding the time of announcement of such issuance, the
conversion rate will be adjusted based on the following formula (provided
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that the conversion rate will be readjusted to the extent that such rights or
warrants are not exercised prior to their expiration):
OS(O) + X
CR'=CR(O) X ---------
OS(O) + Y
where,
CR(O) = the conversion rate in effect immediately prior to such event
CR' = the conversion rate in effect immediately after such event
OS(O) = the number of our shares of common stock outstanding immediately
prior to such event
X = the total number of shares of our common stock issuable pursuant to
such rights
Y = the number of shares of our common stock equal to the
aggregate price payable to exercise such rights divided by the
average of the last reported sale prices of our common stock
for the ten consecutive trading days prior to the business day
immediately preceding the record date for the issuance of such
rights
(3) If we distribute shares of our capital stock, evidences of our
indebtedness or other assets or property of ours to all or substantially all
holders of our common stock, excluding:
- dividends, distributions and rights or warrants referred to in clause
(1) or (2) above; and
- dividends or distributions paid exclusively in cash;
then the conversion rate will be adjusted based on the following formula:
SP(O)
CR'=CR(O) X -----------
SP(O) - FMV
where,
CR(O) = the conversion rate in effect immediately prior to such
distribution
CR' = the conversion rate in effect immediately after such distribution
SP(O) = the average of the last reported sale prices of our common stock
for the ten days prior to the business day immediately preceding
the record date for such distribution
FMV = the fair market value (as determined by our board of directors) of
the shares of capital stock, evidences of indebtedness, assets or
property distributed with respect to each outstanding share of our
common stock on the record date for such distribution
With respect to an adjustment pursuant to this clause (3) where there has been a
payment of a dividend or other distribution on our common stock or shares of
capital stock of any class or series, or similar equity interest, of or relating
to a subsidiary or other business unit, which we refer to as a "spin-off," the
conversion rate in effect immediately before the close of business on the record
date fixed for determination of shareholders entitled to receive the
distribution will be increased based on the following formula:
FMV(O) + MP(O)
CR'=CR(O) X --------------
MP(O)
where,
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CR(O) = the conversion rate in effect immediately prior to such
distribution
CR' = the conversion rate in effect immediately after such distribution
FMV(O) = the average of the last reported sale prices of the capital stock
or similar equity interest distributed to holders of our common
stock applicable to one share of our common stock over the first
10 trading days after the effective date of the spin-off
MP(O) = the average of the last reported sale prices of our common stock
over the first 10 consecutive trading days after the effective
date of the spin-off
The adjustment to the conversion rate under the preceding paragraph will occur
on the tenth trading day from, and including, the effective date of the
spin-off.
(4) If we make any cash dividend or distribution during any of our
quarterly fiscal periods to all or substantially all holders of our common
stock, in an aggregate amount that, together with other cash dividends or
distributions made during such quarterly fiscal period, exceeds the product of
$0.16 (appropriately adjusted from time to time for any share dividends on or
subdivisions of our common stock) multiplied by the number of shares of common
stock outstanding on the record date for such distribution, the conversion rate
will be adjusted based on the following formula:
SP(O)
CR'=CR(O) x ---------
SP(O) - C
where,
CR(O) = the conversion rate in effect immediately prior to the record date
for such distribution
CR' = the conversion rate in effect immediately after the record date for
such distribution
SP(O) = the average of the last reported sale prices of our common stock
for the ten consecutive trading days prior to the business day
immediately preceding the record date of such distribution
C = the amount in cash per share we distribute to holders of our common
stock that exceeds $0.16 (appropriately adjusted from time to time
for any share dividends on, or subdivisions of, our common stock)
(5) If we or any of our subsidiaries makes a payment in respect of a tender
offer or exchange offer for our common stock, to the extent that the cash and
value of any other consideration included in the payment per share of common
stock exceeds the last reported sale price of our common stock on the trading
day next succeeding the last date on which tenders or exchanges may be made
pursuant to such tender or exchange offer, the conversion rate will be increased
based on the following formula:
AC + (SP'xOS')
CR'=CR(O) x --------------
OS(O) x SP'
where,
CR(O) = the conversion rate in effect on the date such tender or exchange
offer expires
CR' = the conversion rate in effect on the day next succeeding the date
such tender or exchange offer expires
AC = the aggregate value of all cash and any other consideration (as
determined by our board of directors) paid or payable for shares
purchased in such tender or exchange offer
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OS(O) = the number of shares of common stock outstanding immediately prior
to the date such tender or exchange offer expires
OS' = the number of shares of common stock outstanding immediately after
the date such tender or exchange offer expires
SP' = the average of the last reported sale prices of our common stock for
the ten consecutive trading days commencing on the trading day next
succeeding the date such tender or exchange offer expires
If, however, the application of the foregoing formula would result in a decrease
in the conversion rate, no adjustment to the conversion rate will be made.
Except as stated herein, we will not adjust the conversion rate for the
issuance of shares of our common stock or any securities convertible into or
exchangeable for shares of our common stock or the right to purchase shares of
our common stock or such convertible or exchangeable securities.
In the event of:
- any reclassification of our common stock, or
- a consolidation, merger or combination involving us, or
- a sale or conveyance to another person of all or substantially all of
our property and assets,
in which holders of our outstanding common stock would be entitled to receive
cash, securities or other property for their shares of common stock, holders of
debentures will generally be entitled thereafter to convert their debentures
into the same type of consideration received by holders of our common stock
immediately prior to one of these types of event.
We are permitted to increase the conversion rate of the debentures by any
amount for a period of at least 20 days if our board of directors determines
that such increase would be in our best interest. We are required to give at
least 15 days prior notice of any increase in the conversion rate. We may also
(but are not required to) increase the conversion rate to avoid or diminish
income tax to holders of our common stock or rights to purchase shares of our
common stock in connection with a dividend or distribution of shares (or rights
to acquire shares) or similar event. For discussion of the United States federal
income tax treatment of an adjustment to the conversion rate of the debentures,
see "Material United States federal income tax considerations -- Tax
consequences to United States holders -- Constructive dividends."
To the extent that we have a rights plan in effect upon conversion of the
debentures into common stock, you will receive, in addition to the common stock,
the rights under the rights plan, unless prior to any conversion, the rights
have separated from the common stock, in which case the conversion rate will be
adjusted at the time of separation as if we distributed to all holders of our
common stock, shares of our capital stock, evidences of indebtedness or assets
as described in clause (3) above, subject to readjustment in the event of the
expiration, termination or redemption of such rights.
As used in this prospectus, "current market price" means the average of the
last reported sale prices per share of our common stock for the 20 trading day
period ending on the applicable date of determination (if the applicable date of
determination is a trading day or, if not, then on the last trading day prior to
the applicable date of determination), appropriately adjusted to take into
account the occurrence, during the period commencing on the first of the trading
days during the 20 trading period and ending on the applicable date of
determination, of any event that would result in an adjustment of the conversion
rate under the indenture.
The applicable conversion rate will not be adjusted:
-34-
- upon the issuance of any shares of our common stock pursuant to any
present or future plan providing for the reinvestment of dividends or
interest payable on our securities and the investment of additional
optional amounts in shares of our common stock under any plan;
- upon the issuance of any shares of our common stock or options or
rights to purchase those shares pursuant to any present or future
employee, director or consultant benefit plan or program of or assumed
by us or any of our subsidiaries;
- upon the issuance of any shares of our common stock pursuant to any
option, warrant, right or exercisable, exchangeable or convertible
security not described in the preceding bullet and outstanding as of
the date the debentures were first issued;
- for a change in the par value of the common stock; or
- for accrued and unpaid interest (including contingent interest and
additional amounts, if any).
Adjustments to the applicable conversion rate will be calculated to the
nearest 1/10,000th of a share.
In the event of:
- a taxable distribution to holders of shares of common stock that
results in an adjustment to the conversion rate or
- an increase in the conversion rate at our discretion,
the holders of the debentures may, in certain circumstances, be deemed to have
received a distribution subject to United States federal income tax as a
dividend. In addition, non-U.S. holders of debentures in certain circumstances
may be deemed to have received a distribution subject to United States federal
withholding tax requirements. See "Material United States federal income tax
considerations -- Tax consequences to United States holders -- Constructive
dividends" and " -- Tax consequences to non-United States holders --
Debentures."
REPURCHASE OF DEBENTURES BY US AT THE OPTION OF THE HOLDER
You have the right to require us to repurchase all or a portion of your
debentures for cash on June 15, 2011, June 15, 2014, June 15, 2019, June 15,
2024 and June 15, 2029 (each, a "repurchase date").
We are required to repurchase any outstanding debenture for which you
deliver a written repurchase notice to the paying agent (which will initially be
the trustee). This notice must be delivered during the period beginning at any
time from the opening of business on the date that is 20 business days prior to
the repurchase date until the close of business on the business day prior to the
repurchase date. You may withdraw your repurchase notice at any time prior to
the close of business on the business day prior to the repurchase date. If a
repurchase notice is given and withdrawn during that period, we will not be
obligated to repurchase the debentures listed in the notice. Our repurchase
obligation is subject to certain additional conditions described below.
The repurchase price payable in respect of debentures to be repurchased on
June 15, 2011, June 15, 2014, June 15, 2019, June 15, 2024 and June 15, 2029
will be equal to 100% of the accreted principal amount of the debentures to be
repurchased plus any accrued and unpaid interest (including contingent interest
and additional amounts, if any) to but excluding the repurchase date.
On or before the 20th business day prior to each repurchase date, we will
provide to the trustee, the paying agent and all holders of debentures at their
addresses shown in the register of the registrar, and to beneficial owners as
required by applicable law, a notice stating, among other things:
- the repurchase price;
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- the name and address of the paying agent and the conversion agent; and
- the procedures that holders must follow to require us to repurchase
their debentures.
Your notice electing to require us to repurchase debentures must state:
- if certificated debentures have been issued, the debenture certificate
numbers;
- the portion of the original principal amount of debentures to be
repurchased, which must be in integral multiples of $1,000; and
- that the debentures are to be repurchased by us pursuant to the
applicable provisions of the debentures and the indenture.
If your debentures are not in certificated form, your repurchase notice
must comply with appropriate DTC procedures.
No debentures may be repurchased at the option of holders if there has
occurred and is continuing an event of default under the indenture, other than
an event of default that is cured by the payment of the repurchase price of the
debentures.
You may withdraw any repurchase notice in whole or in part by delivering a
written notice of withdrawal to the paying agent prior to the close of business
on the business day prior to the repurchase date. The withdrawal notice must
state:
- the original principal amount of the withdrawn debentures;
- if certificated debentures have been issued, the certificate numbers
of the withdrawn debentures; and
- the original principal amount, if any, which remains subject to the
repurchase notice.
If your debentures are not in certificated form, your withdrawal notice
must comply with appropriate DTC procedures.
To receive payment of the repurchase price, you must either effect
book-entry transfer of your debentures or deliver your debentures, together with
necessary endorsements, to the office of the paying agent after delivery of your
repurchase notice. Payment of the repurchase price for a debenture will be made
promptly following the later of the repurchase date and the time of book-entry
transfer or delivery of the debenture.
If the paying agent holds money sufficient to pay the repurchase price of
the debentures on the day immediately preceding the repurchase date, then, on
and after the repurchase date:
- the debentures will cease to be outstanding and interest will cease to
accrue and the principal will cease to accrete (whether or not
book-entry transfer of the debentures has been made or the debentures
have been delivered to the paying agent); and
- all other rights of the holders will terminate (other than the right
to receive the repurchase price upon transfer or delivery of the
debentures).
We will comply with the provisions of Rule 13e-4 and any other tender offer
rules under the Exchange Act that may be applicable at the time of our
repurchase notice. If then required by the applicable rules, we will file a
Schedule TO or any other schedule required in connection with any offer by us to
repurchase the debentures.
REPURCHASE OF DEBENTURES BY US AT THE OPTION OF THE HOLDER UPON A FUNDAMENTAL
CHANGE
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If a fundamental change (as defined below in this section) occurs at any
time prior to the maturity date, you will have the right, at your option, to
require us to repurchase for cash any or all of your debentures, or any portion
of the original principal amount thereof that is equal to $1,000 or an integral
multiple of $1,000. The repurchase price we are required to pay is equal to 100%
of the accreted principal amount of the debentures to be purchased plus accrued
and unpaid interest (including contingent interest and additional amounts, if
any) to but excluding the repurchase date.
A "fundamental change" will be deemed to have occurred at the time after
the debentures are originally issued that any of the following occurs:
- a "person" or "group" within the meaning of Section 13(d) of the
Exchange Act other than us, our subsidiaries or our or their employee
benefit plans, files a Schedule TO or any other schedule, form or
report under the Exchange Act disclosing that such person or group has
become the direct or indirect ultimate "beneficial owner," as defined
in Rule 13d-3 under the Exchange Act, of more than 50% of the total
voting power of all shares of our capital stock that are entitled to
vote generally in the election of directors;
- consummation of any share exchange, consolidation or merger of us or
any sale, lease or other transfer in one transaction or a series of
transactions of all or substantially all of the consolidated assets of
us and our subsidiaries, taken as a whole, to any person other than us
or one or more of our subsidiaries, pursuant to which our common stock
will be converted into cash, securities or other property; provided,
however, that a transaction where the holders of our voting capital
stock immediately prior to such transaction have directly or
indirectly more than 50% of the aggregate voting power of all shares
of capital stock of the continuing or surviving corporation or
transferee entitled to vote generally in the election of directors
immediately after such event shall not be a fundamental change;
- continuing directors (as defined below) cease to constitute at least a
majority of our board of directors;
- our shareholders approve any plan or proposal for our liquidation or
dissolution; or
- our common stock or other common stock into which the debentures are
convertible is neither listed for trading on a U.S. national
securities exchange nor approved for trading on the Nasdaq National
Market or another established automated over-the-counter trading
market in the United States.
"Continuing director" means a director who was a member of our board of
directors on the date of the indenture or who becomes a director subsequent to
that date and whose election, appointment or nomination for election by our
shareholders is duly approved by a majority of the continuing directors on our
board of directors at the time of such approval, either by a specific vote or by
approval of the proxy statement issued by us on behalf of our entire board of
directors in which such individual is named as nominee for director.
A fundamental change will not be deemed to have occurred in respect of any
of the foregoing, however, if at least 90% of the consideration, excluding cash
payments for fractional shares, in the transaction or transactions constituting
the fundamental change consists of shares of capital stock traded on a 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 a fundamental
change (these securities being referred to as "publicly traded securities") and
as a result of this transaction or transactions the debentures become
convertible into such publicly traded securities, excluding cash payments for
fractional shares.
For purposes of the above paragraph the term "capital stock" of any person
means any and all shares (including ordinary shares or American Depository
Shares), interests, participations or other equivalents however designated of
corporate stock or other equity participations, including partnership interests,
whether general or limited, of such person and any rights (other than debt
securities convertible or exchangeable into an equity interest), warrants or
options to acquire an equity interest in such person.
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On or before the 30th day after the occurrence of a fundamental change, we
will provide to all holders of the debentures and the trustee and paying agent a
notice of the occurrence of the fundamental change and of the resulting
repurchase right. Such notice shall state, among other things:
- the events causing a fundamental change;
- the date of the fundamental change;
- the last date on which a holder may exercise the repurchase right;
- the fundamental change repurchase price;
- the fundamental change repurchase date;
- the name and address of the paying agent and the conversion agent;
- the applicable conversion rate and any adjustments to the applicable
conversion rate;
- that the debentures with respect to which a fundamental change
repurchase election has been given by the holder may be converted only
if the holder withdraws the fundamental change repurchase election in
accordance with the terms of the indenture; and
- the procedures that holders must follow to require us to repurchase
their debentures.
To exercise the repurchase right, you must deliver prior to the close of
business on the business day immediately preceding the repurchase date, subject
to extension to comply with applicable law, the debentures to be repurchased,
duly endorsed for transfer, together with a written repurchase election and the
form entitled "Form of Fundamental Change Repurchase Notice" on the reverse side
of the debentures duly completed, to the paying agent. Your repurchase election
must state:
- if certificated, the certificate numbers of your debentures to be
delivered for repurchase;
- the portion of the original principal amount of debentures to be
repurchased, which must be $1,000 or an integral multiple thereof; and
- that the debentures are to be repurchased by us pursuant to the
applicable provisions of the debentures and the indenture.
If the debentures are not in certificated form, your notice must comply
with appropriate DTC procedures.
You may withdraw any repurchase election (in whole or in part) by a written
notice of withdrawal delivered to the paying agent prior to the close of
business on the business day prior to the fundamental change repurchase date.
The notice of withdrawal shall state:
- the original principal amount of the withdrawn debentures;
- if certificated debentures have been issued, the certificate numbers
of the withdrawn debentures; and
- the original principal amount, if any, which remains subject to the
repurchase notice.
If the debentures are not in certificated form, your notice must comply
with appropriate DTC procedures.
We are required to repurchase the debentures no later than 30 days after
the date of our notice of the occurrence of the relevant fundamental change
subject to extension to comply with applicable law. You will receive payment of
the fundamental change repurchase price promptly following the later of the
fundamental change repurchase date or
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the time of book-entry transfer or the delivery of the debentures. If the paying
agent holds money sufficient to pay the fundamental change repurchase price of
the debentures on the day immediately preceding the fundamental change
repurchase date, then on the repurchase date:
- the debentures will cease to be outstanding and interest will cease to
accrue and the principal amount will cease to accrete (whether or not
book-entry transfer of the debentures is made or whether or not the
debenture is delivered to the paying agent); and
- all other rights of the holders will terminate (other than the right
to receive the fundamental change repurchase price upon delivery or
transfer of the debentures).
We will comply with the provisions of Rule 13e-4 and any other tender offer
rules under the Exchange Act that may be applicable at the time of our
repurchase of debentures upon a fundamental change. If then required by the
applicable rules, we will file a Schedule TO or any other schedule required in
connection with any offer by us to repurchase the debentures.
The rights of the holders to require us to repurchase their debentures upon
a fundamental change could discourage a potential acquirer of us. The
fundamental change repurchase feature, however, is not the result of
management's knowledge of any specific effort to accumulate shares of our common
stock, to obtain control of us by any means or part of a plan by management to
adopt a series of anti-takeover provisions. Instead, the fundamental change
purchase feature is a standard term contained in other offerings of debt
securities similar to the debentures that have been marketed by the initial
purchasers of the debentures. The terms of the fundamental change repurchase
feature resulted from negotiations between the initial purchasers and us.
The term "fundamental change" is limited to specified transactions and may
not include other events that might adversely affect our financial condition. In
addition, the requirement that we offer to repurchase the debentures upon a
fundamental change may not protect holders in the event of a highly leveraged
transaction, reorganization, merger or similar transaction involving us.
No debentures may be repurchased at the option of holders upon a
fundamental change if there has occurred and is continuing an event of default
under the indenture, other than an event of default that is cured by the payment
of the fundamental change repurchase price of the debentures.
The definition of fundamental change includes a phrase relating to the
conveyance, transfer, sale, lease or disposition of "all or substantially all"
of our consolidated assets. There is no precise, established definition of the
phrase "substantially all" under applicable law. Accordingly, the ability of a
holder of the debentures to require us to repurchase its debentures as a result
of the conveyance, transfer, sale, lease or other disposition of less than all
of our assets may be uncertain.
If a fundamental change were to occur, we may not have enough funds to pay
the fundamental change purchase price or we may be prohibited from doing so
under the terms of our then-existing indebtedness. See "Risk Factors" under the
caption "Risks Related to the Debentures -- We may not have the ability to raise
the funds necessary to purchase the debentures upon a fundamental change or
other purchase date, as required by the indenture governing the debentures." Our
failure to purchase the debentures when required following a fundamental change
would constitute an event of default under the indenture with respect to the
debentures. In addition, we have incurred and may in the future incur, other
indebtedness with similar change in control provisions permitting holders to
accelerate or to require us to purchase our indebtedness upon the occurrence of
similar events or on some specific dates.
MERGER AND SALE OF ASSETS BY US
The indenture provides that we may not consolidate with or merge with or
into any other person or sell, convey, transfer or lease our properties and
assets substantially as an entirety to another person, unless:
- we are the surviving person, or the resulting, surviving or transferee
person, if other than us, is organized and existing under the laws of
the United States, any state thereof or the District of Columbia;
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- the successor person assumes all of our obligations under the
debentures and the indenture;
- immediately after giving effect to such transaction, there is no event
of default or event that, with notice or passage of time or both,
would become an event of default; and
- we have delivered to the trustee an officers' certificate and an
opinion of counsel each stating that such consolidation, merger, sale,
conveyance, transfer or lease complies with these requirements.
Upon any permitted consolidation, merger, sale, conveyance, transfer or
lease, the resulting, surviving or transferee person shall succeed to and be
substituted for us, and may exercise our rights and powers under the indenture
and the debentures, and after any such contemplated transaction, we will be
relieved of all obligations and covenants under the indenture and the
debentures.
EVENTS OF DEFAULT; NOTICE AND WAIVER
The following constitute events of default under the indenture:
- we fail to pay the accreted principal amount of the debentures when
due at maturity, upon redemption, upon repurchase or otherwise;
- we fail to pay any interest (including contingent interest and
additional amounts, if any) on the debentures when due and such
failure continues for a period of 30 days;
- we fail to provide notice of the occurrence of a fundamental change on
a timely basis;
- default in our obligation to convert the debentures into shares of our
common stock, cash or a combination of cash and common stock upon
exercise of a holder's conversion right and such default continues for
a period of 10 days;
- default in our obligation to repurchase the debentures at the option
of a holder upon a fundamental change or on any other repurchase date;
- default in our obligation to redeem the debentures after we have
exercised our option to redeem;
- we fail to perform or observe any of the covenants in the indenture
for 60 days after written notice to us from the trustee or the holders
of at least 25% in original principal amount of the outstanding
debentures;
- there occurs an event of default with respect to our or any of our
subsidiaries' indebtedness having a principal amount then outstanding,
individually or in the aggregate, of at least $25 million, whether
such indebtedness now exists or is hereafter incurred, which default
or defaults:
- shall have resulted in such indebtedness becoming or being
declared due and payable prior to the date on which it would
otherwise have become due and payable; or
- shall constitute the failure to pay such indebtedness at the
final stated maturity thereof (after expiration of any applicable
grace period);
- any final judgment or judgments for the payment of money in excess of
$25 million (to the extent not covered by insurance as to which the
insurer does not dispute coverage) shall be rendered against us and
shall not be discharged for any period of 60 consecutive days during
which a stay of enforcement shall not be in effect; and
- certain events involving our bankruptcy, insolvency or reorganization.
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The trustee may withhold notice to the holders of the debentures of any
default, except defaults in payment of principal or interest (including
contingent interest or additional amounts, if any) on the debentures. However,
the trustee must consider it to be in the interest of the holders of the
debentures to withhold this notice.
If an event of default occurs and continues, the trustee or the holders of
at least 25% in aggregate original principal amount of the outstanding
debentures may declare the accreted principal amount of and accrued and unpaid
interest (including contingent interest and additional amounts, if any) on the
outstanding debentures to be immediately due and payable. In case of certain
events of bankruptcy or insolvency involving us, the accreted principal amount
of and accrued and unpaid interest (including contingent interest and additional
amounts, if any) on the debentures will automatically become due and payable.
However, if we cure all defaults, except the nonpayment of accreted principal
amount or interest (including contingent interest and additional amounts, if
any) that became due as a result of the acceleration, and meet certain other
conditions, with certain exceptions, this declaration may be cancelled and the
holders of a majority of the aggregate original principal amount of outstanding
debentures may waive these past defaults.
The holders of a majority of outstanding aggregate original principal
amount of debentures have the right to direct the time, method and place of any
proceedings for any remedy available to the trustee, subject to limitations
specified in the indenture.
No holder of the debentures may pursue any remedy under the indenture,
except in the case of a default in the payment of the accreted principal amount
of or interest (including contingent interest or additional amounts, if any) on
the debentures, unless:
- the holder has given the trustee written notice of an event of
default;
- the holders of at least 25% in the aggregate original principal amount
of outstanding debentures make a written request, and offer reasonable
indemnity, to the trustee to pursue the remedy;
- the trustee does not receive an inconsistent direction from the
holders of a majority in original principal amount of the debentures;
- the holder or holders have offered reasonable security or indemnity to
the trustee against any costs, liability or expense of the trustee;
and
- the trustee fails to comply with the request within 60 days after
receipt of the request and offer of indemnity.
A default in the payment of the debentures, or a default with respect to
the debentures that causes them to be accelerated, may give rise to a
cross-default under our credit facilities or other indebtedness.
MODIFICATION AND WAIVER
The consent of the holders of a majority in aggregate original principal
amount of the outstanding debentures is required to modify or amend the
indenture. However, a modification or amendment requires the consent of the
holder of each outstanding debenture if it would:
- extend the fixed maturity of any debenture;
- reduce the rate or extend the time for payment of interest (including
contingent interest or additional amounts, if any) on any debenture;
- reduce the original principal amount or accreted principal amount of
any debenture or the accretion rate on the debentures;
- reduce any amount payable upon redemption or repurchase of any
debenture;
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- affect our obligation to redeem any debentures on a redemption date in
a manner adverse to such holder;
- affect our obligation to repurchase any debenture at the option of the
holder in a manner adverse to such holder;
- affect our obligation to repurchase any debenture upon a fundamental
change in a manner adverse to such holder;
- impair the right of a holder to institute suit for payment on any
debenture;
- change the currency in which any debenture is payable;
- impair the right of a holder to convert any debenture or reduce the
number of common shares, the amount of cash or the amount of any other
property receivable upon conversion;
- reduce the quorum or voting requirements under the indenture;
- subject to specified exceptions, modify certain of the provisions of
the indenture relating to modification or waiver of provisions of the
indenture; or
- reduce the percentage in original principal amount of debentures
required for consent to any modification of the indenture.
We are permitted to modify certain provisions of the indenture without the
consent of the holders of the debentures, including to:
- secure any debentures;
- evidence the assumption of our obligations by a successor person;
- add covenants for the benefit of the holders of debentures;
- cure any ambiguity or correct any error in the indenture, so long as
such action will not adversely affect the interests of holders,
provided that any such amendment made solely to conform the provisions
of the indenture to this prospectus will be deemed not to adversely
affect the interests of holders;
- establish the forms or terms of the debentures;
- evidence the acceptance of appointment by a successor trustee;
- qualify or maintain the qualification of the indenture under the Trust
Indenture Act of 1939, as amended; and
- make other changes to the indenture or forms or terms of the
debentures, provided no such change individually or in the aggregate
with all other such changes has or will have a material adverse effect
on the interests of the holders of the debentures.
CALCULATIONS IN RESPECT OF DEBENTURES
We are responsible for making all calculations called for under the
indenture. These calculations include, but are not limited to, determinations of
the market prices of our common stock and the debentures, the accreted principal
amount and the amount of accrued interest (including contingent interest and
additional amounts, if any) payable on the debentures and the applicable
conversion price of the debentures. We will make all these calculations in good
faith, and, absent manifest error, our calculations will be final and binding on
holders of debentures. We will provide
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a schedule of our calculations to each of the trustee and the conversion agent,
and each of the trustee and the conversion agent is entitled to rely upon the
accuracy of our calculations without independent verification. The trustee will
forward our calculations to any holder of debentures upon the request of that
holder.
INFORMATION CONCERNING THE TRUSTEE
We have appointed Union Bank of California, N.A., the trustee under the
indenture, as initial paying agent, conversion agent, debenture registrar and
custodian for the debentures. The trustee or its affiliates may also provide
banking and other services to us in the ordinary course of their business.
GOVERNING LAW
The debentures and the indenture are governed by, and construed in
accordance with, the laws of the State of New York.
FORM, DENOMINATION, EXCHANGE, REGISTRATION AND TRANSFER
The debentures have been issued:
- in fully registered form;
- without interest coupons; and
- in denominations of $1,000 original principal amount and integral
multiples of $1,000.
Holders may present debentures for conversion, registration of transfer and
exchange at the office maintained by us for such purpose, which is initially the
Corporate Trust Office of the trustee in The City of Los Angeles.
PAYMENT AND PAYING AGENT
We will maintain an office where we will pay the accreted principal on the
debentures and you may present the debentures for conversion, registration of
transfer or exchange for other denominations, which shall initially be an office
or agency of the trustee. We may pay interest by check mailed to your address as
it appears in the debenture register, provided that if you are a holder with an
aggregate original principal amount in excess of $2.0 million, you will be paid,
at your written election, by wire transfer in immediately available funds.
However, payments to The Depository Trust Company, New York, New York,
which we refer to as DTC, will be made by wire transfer of immediately available
funds to the account of DTC or its nominee.
NOTICES
Except as otherwise described herein, notice to registered holders of the
debentures will be given by mail to the addresses as they appear in the security
register. Notices will be deemed to have been given on the date of such mailing.
RULE 144A INFORMATION REQUEST
We will furnish to the holders or beneficial holders of the debentures or
the underlying common stock and prospective purchasers, upon their request, the
information, if any, required under Rule 144A(d)(4) under the Securities Act
until such time as such securities are no longer "restricted securities" within
the meaning of Rule 144 under the Securities Act, assuming these securities have
not been owned by an affiliate of ours.
REGISTRATION RIGHTS
On June 22, 2004, we entered into a registration rights agreement with the
initial purchasers pursuant to which we agreed for the benefit of the holders of
the debentures and the common stock issuable upon conversion of the
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debentures that we will, at our cost use our reasonable best efforts to keep the
shelf registration statement effective until the earlier of:
- the expiration of the period referred to in Rule 144(k) of this
Securities Act with respect to the debentures held by non-affiliates
of Kellwood; and
- such time as all of the debentures and the common stock issuable upon
conversion thereof cease to be outstanding or have been sold either
pursuant to the shelf registration statement or pursuant to Rule 144
under the Securities Act or any similar provision then in force.
We may suspend the effectiveness of the shelf registration statement or the use
of this prospectus during specified periods under certain circumstances relating
to pending corporate developments, public filings with the SEC and similar
events. Any such suspension period shall not exceed an aggregate of 120 days in
any 12-month period. In addition, holders will be unable to use the registration
statement if we have filed a post-effective amendment to the registration
statement for the purpose of adding holders to the registration statement until
the post-effective amendment is declared effective, and this inability will not
be subject to the 120-day limit referred to above or the payment of additional
amounts discussed below.
We will pay predetermined additional amounts to holders of debentures if the
shelf registration statement is not timely filed or made effective within
specified time periods or if the prospectus is unavailable for periods in excess
of those permitted above. Those additional amounts will accrue until a failure
to file or become effective or unavailability is cured in respect of any
debentures at a rate equal to 0.25% per annum of the outstanding original
principal amount thereof for the first 90 days after the occurrence of the event
and 0.50% per annum of the outstanding original principal amount thereof after
the first 90 days.
The additional amounts will accrue from and including the date on which the
registration default occurs to but excluding the date on which all registration
defaults have been cured. We will have no other liabilities for monetary damages
with respect to our registration obligations, except that if we breach, fail to
comply with or violate some provisions of the registration rights agreement, the
holders of the debentures may be entitled to equitable relief, including
injunction and specific performance. If a holder converts some or all of its
debentures into shares of common stock, the holder will not be entitled to
receive additional amounts on such shares of common stock.
Upon any sale of the debentures or common stock issued upon conversion of the
debentures, a holder will be required to deliver a notice of such sale in
substantially the form attached as an exhibit to the registration rights
agreement.
The foregoing summary of certain provisions of the registration rights agreement
does not purport to be complete and is subject to all of the provisions of the
registration rights agreement. Because the foregoing is only a summary, it does
not contain all the information that you may find useful. For further
information you should read the registration rights agreement. The registration
rights agreement is filed as an exhibit to the registration statement of which
this prospectus is a part and you may obtain a copy of that agreement as
described below under "Where You Can Find More Information" and "Incorporation
of Certain Documents by Reference."
BOOK-ENTRY SYSTEM
Debentures are evidenced by two global debentures. We have deposited the global
debenture or debentures with DTC and registered the global debentures in the
name of Cede & Co. as DTC's nominee. Except as set forth below, a global
debenture may be transferred, in whole or in part, only to another nominee of
DTC or to a successor of DTC or its nominee.
Beneficial interests in a global debenture may be held through organizations
that are participants in DTC (called "participants"). Transfers between
participants will be effected in the ordinary way in accordance with DTC rules
and will be settled in clearing house funds. The laws of some states require
that certain persons take physical delivery of securities in definitive form. As
a result, the ability to transfer beneficial interests in the global debenture
to such persons may be limited.
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Beneficial interests in a global debenture held by DTC may be held only through
participants, or certain banks, brokers, dealers, trust companies and other
parties that clear through or maintain a custodial relationship with a
participant, either directly or indirectly (called "indirect participants"). So
long as Cede & Co., as the nominee of DTC, is the registered owner of a global
debenture, Cede & Co. for all purposes will be considered the sole holder of
such global debenture. Except as provided below, owners of beneficial interests
in a global debenture will:
- not receive physical delivery of certificates in definitive registered
form; and
- not be considered holders of the global debenture.
We will pay interest (including contingent interest and additional amounts, if
any) on and the redemption price and the repurchase price of a global debenture
to Cede & Co., as the registered owner of the global debenture, by wire transfer
of immediately available funds on each interest payment date or the redemption
or repurchase date, as the case may be. Neither we, the trustee nor any paying
agent will be responsible or liable:
- for the records relating to, or payments made on account of,
beneficial ownership interests in a global debenture; or
- for maintaining, supervising or reviewing any records relating to the
beneficial ownership interests.
Neither we, the trustee, registrar, paying agent nor conversion agent will have
any responsibility for the performance by DTC or its participants or indirect
participants of their respective obligations under the rules and procedures
governing their operations. DTC has advised us that it will take any action
permitted to be taken by a holder of debentures, including the presentation of
debentures for conversion, only at the direction of one or more participants to
whose account with DTC interests in the global debenture are credited, and only
in respect of the accreted principal amount of the debentures represented by the
global debenture as to which the participant or participants has or have given
such direction.
DTC has advised us that it is:
- a limited purpose trust company organized under the laws of the State
of New York, and a member of the Federal Reserve System;
- a "clearing corporation" within the meaning of the Uniform Commercial
Code; and
- a "clearing agency" registered pursuant to the provisions of Section
17A of the Exchange Act.
DTC was created to hold securities for its participants and to facilitate the
clearance and settlement of securities transactions between participants through
electronic book-entry changes to the accounts of its participants. Participants
include securities brokers, dealers, banks, trust companies and clearing
corporations and other organizations. Some of the participants or their
representatives, together with other entities, own DTC. Indirect access to the
DTC system is available to others such as banks, brokers, dealers and trust
companies that clear through or maintain a custodial relationship with a
participant, either directly or indirectly.
DTC has agreed to the foregoing procedures to facilitate transfers of interests
in a global debenture among participants. However, DTC is under no obligation to
perform or continue to perform these procedures, and may discontinue these
procedures at any time. If DTC is at any time unwilling or unable to continue as
depositary and a successor depositary is not appointed by us within 90 days, DTC
has ceased to be a clearing agency registered under the Exchange Act or an event
of default has occurred and is continuing, we will issue debentures in
certificated form in exchange for global debentures. In addition, beneficial
interests in a global debenture may be exchanged for a certificated debenture
upon the reasonable request of any beneficial holder on terms acceptable to us,
the trustee and the depositary. The indenture permits us to determine at any
time and in our sole discretion that debentures shall no longer be represented
by global debentures. DTC has advised us that, under its current practices, it
would notify its participants of our request, but will only withdraw beneficial
interests from the global debenture at the request of each DTC participant. We
would issue definitive certificates in exchange for any beneficial interests
withdrawn.
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DESCRIPTION OF CAPITAL STOCK
The following summary description of our capital stock is qualified in its
entirety by reference to applicable provisions of the Delaware General
Corporation Law and our Restated Certificate of Incorporation, as amended (our
"Charter"), and our Bylaws. The complete text of our Charter and Bylaws is on
file with the Securities and Exchange Commission.
AUTHORIZED AND OUTSTANDING CAPITAL STOCK
Our authorized capital stock consists of 50,000,000 shares of common stock, $.01
par value per share, and 500,000 shares of preferred stock, $.01 par value per
share. On June 13, 2005, there were 27,813,633 shares of common stock issued
and outstanding and no shares of preferred stock issued and outstanding.
COMMON STOCK
The holders of common stock are entitled to one vote for each share on all
matters voted on by stockholders, including elections of directors. In the
election of directors, our stockholders are entitled to cumulate their votes.
Stockholders are entitled to receive such dividends, if any, as may be declared
by the Board of Directors out of available funds. Upon our liquidation, holders
of our common stock are entitled to share equally and ratably in the assets
remaining, if any, after payment of all debts and liabilities upon our winding
up and dissolution, subject to the rights of the holders of any outstanding
preferred stock. The common stock is not subject to redemption or to any
liability for further calls. American Stock Transfer and Trust Company is the
transfer agent and registrar for the common stock.
PREFERRED STOCK
Under our Charter, our Board of Directors is authorized to create, without
stockholder approval, and issue up to 500,000 shares of preferred stock in one
or more series and to determine the rights and preferences of each series, to
the extent permitted by the Charter. The ability of the Board of Directors to
issue preferred stock provides us flexibility in connection with possible
acquisitions and other corporate purposes. However, the ability of the Board of
Directors to issue preferred stock could, among other things, adversely affect
the voting power of holders of common stock. We have reserved 300,000 shares of
Series A Junior Preferred stock, $.01 par value per share, for issuance in
connection with our preferred stock purchase rights described below.
PREEMPTIVE RIGHTS
No holder of any share of common stock or preferred stock has any preemptive
right to subscribe to any of our securities.
CERTAIN ANTI-TAKEOVER EFFECTS OF OUR CHARTER AND BYLAWS
Our Charter and Bylaws contain provisions which may have the effect of delaying
or preventing a change in control of us.
CLASSIFIED BOARD OF DIRECTORS
Our Charter provides for a classified Board of Directors with two-year staggered
terms. The classification of directors will make it more difficult to change the
composition of our Board of Directors. The classification provisions could have
the effect of discouraging a third party from initiating a proxy contest, making
a tender offer or otherwise attempting to obtain control of us, even though such
an attempt might be beneficial to us and the holders of our common stock and the
debentures. In addition, the classification of our Board of Directors could
increase the likelihood that incumbent directors will retain their positions.
Accordingly, holders of our common
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stock could be deprived of certain opportunities to sell their shares at a
higher market price than they might otherwise obtain.
NUMBER OF DIRECTORS; FILLING VACANCIES; REMOVAL OF DIRECTORS
Our Charter provides that our Board of Directors will fix the number of
directors. In addition, our Charter provides that any vacancy that results from
an increase in the number of directors, or for any other reason, may be filled
by a majority of directors then in office, though less than a quorum.
Accordingly, our Board of Directors could prevent a holder of our common stock
from increasing the size of the Board of Directors and filling the newly created
directorships with that stockholder's own nominees. Our Charter also provides
that stockholders may remove an incumbent director only for "cause", and then
only upon the affirmative vote of at least 75% of the outstanding shares
entitled to vote on the election of directors. "Cause" is defined as conviction
of a felony which is no longer subject to direct appeal or adjudication of
liability for negligence or misconduct in the performance of a director's duty
to us which is no longer subject to direct appeal.
NO STOCKHOLDER ACTION BY WRITTEN CONSENT; SPECIAL MEETINGS
Our Charter prohibits stockholder action by written consent in lieu of a
meeting. Our Bylaws do not permit stockholders to call special meetings of the
stockholders. The provisions of our Charter prohibiting stockholder action by
written consent may have the effect of delaying or preventing consideration of a
stockholder proposal. These provisions would also prevent the holders of a
majority of our common stock from unilaterally using the written consent
procedure to take stockholder action. Moreover, a stockholder could not force
stockholder consideration of a proposal by calling a special meeting of
stockholders.
ADVANCE NOTICE OF STOCKHOLDER NOMINATIONS AND STOCKHOLDER PROPOSALS REQUIRED
Our Bylaws establish an advance notice procedure and information requirements
for stockholders to make nominations of candidates for election as directors or
to bring other business before an annual meeting of stockholders. These
provisions may preclude a contest for the election of directors or the
consideration of stockholder proposals if the proper procedures are not
followed. In addition, these procedures may discourage or deter a third party
from conducting a solicitation of proxies to elect its own slate of directors or
to approve its own proposal.
AMENDMENT OF CERTAIN PROVISIONS OF OUR CHARTER AND BYLAWS
Our Charter requires the affirmative vote of the holders of 75% of each class of
our outstanding shares of capital stock to amend the provisions of our Charter
relating to:
- the classified Board of Directors;
- the ability of the Board of Directors to fix the number of directors
and to fill certain vacancies on the Board of Directors;
- the inability of stockholders to remove directors other than for
cause;
- the super-majority vote of stockholders required to amend the Bylaws;
- the prohibition of stockholder action without a meeting; and
- restrictions on certain business combinations.
Our Bylaws may be amended by the affirmative vote of a majority of the Board of
Directors at any meeting of the Board or by the affirmative vote of the holders
of at least 75% of the shares entitled to vote thereon at any meeting of the
stockholders.
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These super-majority voting requirements have the effect of making more
difficult any amendment by stockholders of the Bylaws or of any of the
provisions of the Charter described above, even if a majority of our
stockholders believe that an amendment would be in their best interests.
RESTRICTIONS ON CERTAIN BUSINESS COMBINATIONS
Under our Charter, certain business combinations and other significant corporate
transactions involving us and any beneficial owner of more than 25% of our
outstanding voting shares (a "Substantial Stockholder") must be approved by at
least 75% of our outstanding shares entitled to vote thereon, in addition to any
affirmative vote required by law or under any other provision of the Charter,
unless such transaction has been approved by our Board of Directors or unless
our stockholders shall receive consideration for the transaction not less than
the highest per share price paid by the Substantial Stockholder in acquiring any
shares of our stock.
DELAWARE TAKEOVER STATUTE
As a Delaware corporation, we are subject to Section 203 of the Delaware General
Corporation Law. Section 203 provides that, in general and subject to the
exceptions specified in that section, a corporation may not engage in any
business combination with any interested stockholder, as defined, for a
three-year period following the time that such stockholder became an interested
stockholder unless:
- prior to that time, the board of directors of the corporation approved
either the business combination or the transaction that resulted in
the stockholder becoming an interested stockholder;
- upon consummation of the transaction that resulted in the stockholder
becoming an interested stockholder, the interested stockholder owned
at least 85% of the voting stock of the corporation outstanding at the
time the transaction commenced (excluding certain shares); or
- at or subsequent to that time, the business combination is approved by
the board of directors of the corporation and authorized at an annual
or special meeting of stockholders by the affirmative vote of at least
two-thirds of the outstanding voting stock of the corporation that is
not owned by the interested stockholder.
Subject to exceptions specified in Section 203 of the Delaware General
Corporation Law, an "interested stockholder" is defined, in general, to include:
- any person that is the owner of 15% or more of the outstanding voting
stock of the corporation, or is an affiliate or associate of the
corporation and was the owner of 15% or more of the outstanding voting
stock of the corporation at any time within the three-year period
immediately prior to the date on which it is sought to be determined
whether that person is an interested stockholder; and
- the affiliates and associates of any person described in the preceding
bullet point.
Section 203 of the Delaware General Corporation Law may make it more difficult
for a person who would be an interested stockholder to effect various business
combinations with us.
DESCRIPTION OF PREFERRED STOCK PURCHASE RIGHTS
A dividend of one Series A Junior Preferred Stock purchase right (a "Right") per
share of common stock was distributed to stockholders in June, 1986 so that each
share of common stock now also represents a Right to buy 1/100th of a share of
Series A Junior Preferred Stock from Kellwood for $100. The Rights were issued
pursuant to a Rights Agreement, dated as of June 11, 1986, as amended as of
August 21, 1990, as of May 31, 1996, and as further amended as of November 21,
2002, between us and Boatmen's Trust Company, as successor to Centerre Trust
Company of St. Louis, as Rights Agent. The Rights expire on June 11, 2006. The
following summary of certain terms of the Rights is qualified in its entirety by
reference to the current Rights Agreement, as amended, which is on file with the
Securities and Exchange Commission.
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The Rights are not exercisable or transferable apart from the common stock until
the earlier of (i) ten days following the public announcement that a person or
group of affiliated or associated persons (other than us or our subsidiaries or
any of our employee benefit plans ) (an "Acquiring Person") has acquired, or
obtained the right to acquire, beneficial ownership of 15% or more of the
outstanding shares of common stock (the "Stock Acquisition Date") or (ii) ten
days following the commencement of, or announcement of an intention to make, a
tender offer or exchange offer if, upon consummation thereof, such person or
group (other than us, our subsidiaries or any of our employee benefit plans)
would be the beneficial owner of 15% or more of the outstanding shares of common
stock (the earlier of such dates being the "Distribution Date").
In the event that, on or after a Distribution Date, an Acquiring Person becomes
a 15% or more holder, each Right holder, except the Acquiring Person, has the
right to receive, upon exercise at the then current exercise price, shares of
common stock (or, under certain circumstances, cash, property or other
securities) valued at twice the then applicable exercise price of the Right.
Similarly, on or after the Distribution Date, the Rights may be exercisable at
the then current exercise price for the other party's stock (or assets) having a
value of twice the exercise price if we are acquired in a merger or other
business combination where we do not survive or we survive with a change or
exchange of shares of our common stock or if 50% or more of our assets, earning
power or cash flow is sold or transferred. Generally, Rights may be redeemed by
us for $.05 each prior to earlier of the tenth day following the Stock
Acquisition Date or the expiration date (subject to extension by us).
The exercise price and the number of units of Series A Junior Preferred Stock or
other securities or property issued upon exercise of the Rights are subject to
adjustment to prevent dilution in the event of (i) a stock dividend,
subdivision, combination or reclassification of the Series A Junior Preferred
Stock, (ii) the grant to Series A Junior Preferred stockholders of certain
rights or warrants, or (iii) the distribution to Series A Junior Preferred
stockholders of debt or assets, other than regular quarterly cash dividends, or
of certain rights or warrants. With certain exceptions, no adjustments will be
made until cumulative adjustments equal or exceed a 1% adjustment. The Series A
Junior Preferred Stock carries significant dividend, liquidation and voting
rights.
The Rights Agreement exempts from its application any acquisition by an
underwriter for the purpose of resale in a public distribution.
Until the Rights become exercisable, they are evidenced by the common stock
certificates and are transferable only with such certificates.
The Rights Agreement may be amended by a super-majority vote of our Board of
Directors, provided that no amendment may be made if the effect of such
amendment would adversely affect the holders of the Rights.
MATERIAL UNITED STATES FEDERAL INCOME TAX CONSIDERATIONS
GENERAL
The following is a summary of material United States federal income tax
consequences of the purchase, ownership, conversion, or other disposition of the
debentures by a holder of the debentures, and of the common stock received upon
conversion of the debentures. This summary is based upon laws, regulations,
rulings and decisions now in effect, all of which are subject to change
(including retroactive changes) or possible differing interpretations. The
discussion below deals only with debentures held as capital assets and does not
purport to deal with persons in special tax situations, such as financial
institutions, insurance companies, regulated investment companies, dealers in
securities or currencies, tax-exempt entities, persons holding the debentures in
a tax-deferred or tax-advantaged account, persons subject to the alternative
minimum tax, or persons holding the debentures as a hedge against currency
risks, as a position in a "straddle" or as part of a "hedging" or "conversion"
transaction for tax purposes.
We do not address all of the tax consequences that may be relevant to an
investor in the debentures. In particular, we do not address:
- the United States federal income tax consequences to shareholders in,
or partners or beneficiaries of, an entity that is a holder of the
debentures;
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- the United States federal estate, gift or alternative minimum tax
consequences of the purchase, ownership or disposition of the
debentures;
- U.S. holders (as defined below) who hold the debentures whose
functional currency is not the United States dollar; or
- any state, local or foreign tax consequences of the purchase,
ownership or disposition of the debentures.
Persons considering the purchase of the debentures should consult their own tax
advisors concerning the application of the United States federal income tax laws
to their particular situations as well as any consequences of the purchase,
ownership and disposition of the debentures, and common stock received upon
conversion of the debentures arising under the laws of any other taxing
jurisdiction.
A U.S. holder is a beneficial owner of the debentures who or which is:
- a citizen or individual resident of the United States, as defined in
Section 7701(b) of the Internal Revenue Code of 1986, as amended
(which we refer to as the Code);
- a corporation or partnership, including any entity treated as a
corporation or partnership for United States federal income tax
purposes, created or organized in or under the laws of the United
States, any state thereof or the District of Columbia unless, in the
case of a partnership, Treasury regulations are enacted that provide
otherwise;
- an estate if its income is subject to United States federal income
taxation regardless of its source; or
- a trust if (1) a United States court can exercise primary supervision
over its administration, and (2) one or more United States persons
have the authority to control all of its substantial decisions.
Notwithstanding the preceding sentence, certain trusts in existence on August
20, 1996, and treated as U.S. persons prior to such date, may also be treated as
U.S. holders. A Non-U.S. holder is a beneficial owner of the debentures other
than a U.S. holder.
No statutory or judicial authority directly addresses the treatment of the
debentures or instruments similar to the debentures for United States federal
income tax purposes. The Internal Revenue Service (the "IRS") has issued a
revenue ruling with respect to instruments similar to the debentures. To the
extent it addresses the issue, this ruling supports certain aspects of the
treatment described below. No ruling has been or is expected to be sought from
the IRS with respect to the United States federal income tax consequences of the
issues that are not addressed in the revenue ruling. The IRS would not be
precluded from taking contrary positions. As a result, no assurance can be given
that the IRS will agree with all of the tax characterizations and the tax
consequences described below.
WE URGE PROSPECTIVE INVESTORS TO CONSULT THEIR OWN TAX ADVISORS WITH RESPECT TO
THE TAX CONSEQUENCES TO THEM OF THE PURCHASE, OWNERSHIP AND DISPOSITION OF THE
DEBENTURES AND OUR COMMON STOCK IN LIGHT OF THEIR OWN PARTICULAR CIRCUMSTANCES,
INCLUDING THE TAX CONSEQUENCES UNDER STATE, LOCAL, FOREIGN AND OTHER TAX LAWS
AND THE POSSIBLE EFFECTS OF CHANGES IN UNITED STATES FEDERAL OR OTHER TAX LAWS.
CLASSIFICATION OF THE DEBENTURES
Pursuant to the terms of the indenture, each holder of debentures has agreed to
treat the debentures, for United States federal income tax purposes, as debt
instruments that are subject to the special regulations governing contingent
payment debt instruments (which we refer to as the CPDI regulations) and to be
bound by our application of the CPDI regulations to the debentures, including
our determination of the rate at which interest will be deemed to accrue on the
debentures and the related "projected payment schedule" determined by us. In
addition, under the indenture, each holder is deemed to have agreed to treat the
fair market value of our common stock received by such holder upon conversion of
the debentures as a contingent payment and to accrue interest with respect to
the debentures as tax original issue discount for United States federal income
tax purposes according to the
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"noncontingent bond method" set forth in Section 1.1275-4(b) of the Treasury
regulations, using the comparable yield (as defined below) compounded
semiannually and the projected payment schedule determined by us. The remainder
of this discussion assumes the debentures will be treated in accordance with the
aforementioned agreements and our determinations.
Notwithstanding the issuance of the revenue ruling discussed above, the
application of the CPDI regulations to instruments such as the debentures is
uncertain in several respects, and, as a result, no assurance can be given that
the IRS or a court will agree with the treatment described herein. Any differing
treatment could affect the amount, timing and character of income, gain or loss
in respect of an investment in the debentures. In particular, a holder might be
required to accrue interest income at a higher or lower rate, might not
recognize income, gain or loss upon conversion of the debentures into shares of
our common stock, and might recognize capital gain or loss, rather than ordinary
income or loss, upon a taxable disposition of the debentures. Holders should
consult their tax advisors concerning the tax treatment of holding the
debentures.
TREATMENT OF U.S. HOLDERS
ACCRUAL OF INTEREST ON THE DEBENTURES
Pursuant to the CPDI regulations, a U.S. holder is required to accrue interest
income on the debentures, which we refer to as tax original issue discount, in
the amounts described below, regardless of whether the U.S. holder uses the cash
or accrual method of tax accounting. Accordingly, U.S. holders will likely be
required to include interest in taxable income in each year in excess of the
accruals on the debentures for non-tax purposes (i.e., in excess of the stated
semiannual interest paid or accrued on the debentures and any contingent
interest payments) actually received or accrued in that year.
The CPDI regulations provide that a U.S. holder must accrue an amount of
ordinary interest income, as tax original issue discount for United States
federal income tax purposes, for each accrual period prior to and including the
maturity date of the debentures that equals:
(1) the product of (i) the adjusted issue price (as defined below) of
the debentures as of the beginning of the accrual period and (ii) the
comparable yield (as defined below) of the debentures, adjusted for the
length of the accrual period;
(2) divided by the number of days in the accrual period; and
(3) multiplied by the number of days during the accrual period that
the U.S. holder held the debentures.
The debentures' issue price is the first price at which a substantial amount of
the debentures was sold to the public, excluding sales to bond houses, brokers
or similar persons or organizations acting in the capacity of underwriters,
placement agents or wholesalers. The adjusted issue price of a debenture is its
issue price increased by any interest income previously accrued, determined
without regard to any adjustments to interest accruals described below, and
decreased by the projected amount of any projected payments (as defined below)
previously made (including payments of stated semiannual cash interest) with
respect to the debentures.
Under the CPDI regulations, we are required to establish the "comparable yield"
for the debentures. The comparable yield for the debentures is the annual yield
we would pay, as of the initial issue date, on a noncontingent, nonconvertible,
fixed-rate debt instrument with terms and conditions otherwise similar to those
of the debentures. We intend to take the position that the comparable yield for
the debentures is 7.65%, compounded semiannually. The precise manner of
calculating the comparable yield, however, is not entirely clear. If the
comparable yield were successfully challenged by the IRS, the redetermined yield
could be materially greater or less than the comparable yield provided by us.
Moreover, the projected payment schedule could differ materially from the
projected payment schedule provided by us.
The CPDI regulations require that we provide to U.S. holders, solely for United
States federal income tax purposes, a schedule of the projected amounts of
payments, which we refer to as projected payments, on the debentures. This
schedule must produce the comparable yield. The projected payment schedule
includes the stated semiannual regular
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cash interest payable on the debentures until June 15, 2011, at the rate of
3.50% per annum, estimates for certain contingent interest payments and an
estimate for a payment at maturity taking into account the conversion feature.
In this regard, the fair market value of any common stock (and cash, if any)
received by a holder upon conversion will be treated as a contingent payment.
U.S. holders may also obtain the projected payment schedule by submitting a
written request for such information to: Treasurer, Kellwood Company, at 600
Kellwood Parkway, Chesterfield, Missouri 63017.
THE COMPARABLE YIELD AND THE SCHEDULE OF PROJECTED PAYMENTS ARE NOT DETERMINED
FOR ANY PURPOSE OTHER THAN FOR THE DETERMINATION OF A U.S. HOLDER'S INTEREST
ACCRUALS AND ADJUSTMENTS THEREOF IN RESPECT OF THE DEBENTURES FOR UNITED STATES
FEDERAL INCOME TAX PURPOSES AND DO NOT CONSTITUTE A PROJECTION OR REPRESENTATION
REGARDING THE ACTUAL AMOUNTS PAYABLE ON THE DEBENTURES.
Amounts treated as interest under the CPDI regulations are treated as original
issue discount for all purposes of the Code.
ADJUSTMENTS TO INTEREST ACCRUALS ON THE DEBENTURES
As noted above, the projected payment schedule includes amounts attributable to
the stated semiannual regular cash interest payable on the debentures until June
15, 2011. Accordingly, the receipt of this interest will not be separately
taxable to U.S. holders. If, during any taxable year, a U.S. holder receives
actual payments with respect to the debentures for that taxable year that in the
aggregate exceed the total amount of projected payments for that taxable year,
the U.S. holder will incur a "net positive adjustment" under the CPDI
regulations equal to the amount of such excess. The U.S. holder will treat a
"net positive adjustment" as additional interest income. For this purpose, the
payments in a taxable year include the fair market value of property received in
that year, including the fair market value of our common stock received upon
conversion.
If a U.S. holder receives in a taxable year actual payments with respect to the
debentures for that taxable year that in the aggregate were less than the amount
of projected payments for that taxable year, the U.S. holder will incur a "net
negative adjustment" under the CPDI regulations equal to the amount of such
deficit. This adjustment will (a) first reduce the U.S. holder's interest income
on the debentures for that taxable year and (b) to the extent of any excess
after the application of (a), give rise to an ordinary loss to the extent of the
U.S. holder's interest income on the debentures during prior taxable years,
reduced to the extent such interest was offset by prior net negative
adjustments. A negative adjustment is not subject to the two percent floor
limitation imposed on miscellaneous itemized deductions under Section 67 of the
Code. Any negative adjustment in excess of the amounts described in (a) and (b)
will be carried forward and treated as a negative adjustment in the succeeding
taxable year and will offset future interest income accruals in respect of the
debentures or will reduce the amount realized on the sale, exchange, repurchase
by us at the holder's option, conversion, redemption or retirement of the
debentures.
If a U.S. holder purchases debentures at a discount or premium to the adjusted
issue price, the discount will be treated as a positive adjustment and the
premium will be treated as a negative adjustment. The U.S. holder must
reasonably allocate the adjustment over the remaining term of the debentures by
reference to the accruals of tax original issue discount at the comparable yield
or to the projected payments. It may be reasonable to allocate the adjustment
over the remaining term of the debentures pro rata with the accruals of tax
original issue discount at the comparable yield. You should consult your tax
advisor regarding these allocations.
SALE, EXCHANGE, CONVERSION, REPURCHASE, OR REDEMPTION
Generally, the sale or exchange of a debenture, the repurchase of a debenture by
us at the holder's option, or the redemption or retirement of a debenture for
cash, will result in taxable gain or loss to a U.S. holder. As described above,
our calculation of the comparable yield and the schedule of projected payments
for the debentures includes the receipt of common stock upon conversion as a
contingent payment with respect to the debentures. Accordingly, we intend to
treat the receipt of our common stock by a U.S. holder upon the conversion of a
debenture as a contingent payment under the CPDI regulations. Under this
treatment, conversion also would result in taxable gain or loss to the U.S.
holder. As described above, holders are deemed to have agreed to be bound by our
determination of the comparable yield and the schedule of projected payments.
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The amount of gain or loss on a taxable sale, exchange, repurchase by us at the
holder's option, conversion, redemption or retirement of a debenture would be
equal to the difference between (a) the amount of cash plus the fair market
value of any other property received by the U.S. holder, including the fair
market value of any of our common stock received, and (b) the U.S. holder's
adjusted tax basis in the debenture. A U.S. holder's adjusted tax basis in a
debenture will generally be equal to the U.S. holder's original purchase price
for the debenture, increased by any interest income previously accrued by the
U.S. holder (determined without regard to any adjustments to interest accruals
described above, other than adjustments to reflect a discount or premium to the
adjusted issue price, if any), and decreased by the amount of any projected
payments that have been previously made in respect of the debentures to the U.S.
holder (without regard to the actual amount paid). Gain recognized upon a sale,
exchange, repurchase by us at the holder's option, conversion, redemption or
retirement of a debenture will generally be treated as ordinary interest income;
any loss will be ordinary loss to the extent of interest previously included in
income, and thereafter, capital loss (which will be long-term if the debenture
is held for more than one year). The deductibility of net capital losses by
individuals and corporations is subject to limitations.
A U.S. holder's tax basis in our common stock received upon a conversion of a
debenture will equal the then current fair market value of such common stock.
The U.S. holder's holding period for the common stock received will commence on
the day immediately following the date of conversion.
CONSTRUCTIVE DIVIDENDS
If at any time we were to make a distribution of cash or property to our
stockholders that would be taxable to the stockholders as a dividend for United
States federal income tax purposes and, in accordance with the antidilution
provisions of the debentures, the conversion rate of the debentures were
increased, such increase might be deemed to be the payment of a taxable dividend
to holders of the debentures.
For example, an increase in the conversion rate in the event of distributions of
cash, our evidences of indebtedness or assets may result in deemed dividend
treatment to holders of the debentures, but generally an increase in the event
of stock dividends or the distribution of rights to subscribe for common stock
would not be so treated.
DIVIDENDS ON COMMON STOCK
If we make cash distributions on our common stock, the distributions will
generally be treated as dividends to a U.S. holder of our common stock to the
extent of our current or accumulated earnings and profits as determined under
United States federal income tax principles at the end of the tax year of the
distribution, then as a tax-free return of capital to the extent of the U.S.
holder's tax basis in the common stock, and thereafter as gain from the sale or
exchange of that stock. Under recently enacted tax legislation, eligible
dividends received in tax years beginning on or before December 31, 2008, will
be subject to tax to a non-corporate U.S. holder at the special reduced rate
generally applicable to long-term capital gains. A U.S. holder will be eligible
for this reduced rate only if the U.S. holder has held our common stock for more
than 60 days during the 120-day period beginning 60 days before the ex-dividend
date.
DISPOSITION OF COMMON STOCK
Upon the sale or other disposition of our common stock received on conversion of
a debenture, a U.S. holder will generally recognize capital gain or loss equal
to the difference between (i) the amount of cash and the fair market value of
any property received upon the sale or other disposition, and (ii) the U.S.
holder's tax basis in our common stock. That capital gain or loss will be
long-term if the U.S. holder's holding period in respect of such stock is more
than one year. The deductibility of net capital losses by individuals and
corporations is subject to limitations.
TREATMENT OF NON-U.S. HOLDERS
THE DEBENTURES
All payments on the debentures made to a Non-U.S. holder will be exempt from
United States income or withholding tax provided that: (i) such Non-U.S. holder
does not own, actually, indirectly or constructively, 10% or
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more of the total combined voting power of all classes of our stock entitled to
vote, and is not a controlled foreign corporation related, directly or
indirectly, to us through stock ownership; (ii) the statement requirement set
forth in section 871(h) or section 881(c) of the Code has been fulfilled with
respect to the beneficial owner, as discussed below; (iii) such payments and
gain are not effectively connected with the conduct by such Non-U.S. holder of a
trade or business in the United States; and (iv) we are not a "United States
real property holding corporation." We believe that we are not and do not
anticipate becoming a "United States real property holding corporation."
Notwithstanding the foregoing, if a Non-U.S. holder were deemed to have received
a constructive dividend (see " -- Constructive Dividends" above), the Non-U.S.
holder will generally be subject to United States federal withholding tax at a
30% rate, subject to a reduction by an applicable treaty, on the taxable amount
of such dividend.
The statement requirement referred to in the preceding paragraph will be
fulfilled if the beneficial owner of a debenture certifies on IRS Form W-8BEN,
under penalties of perjury, that it is not a United States person and provides
its name and address or otherwise satisfies applicable documentation
requirements. A holder of a debenture which is not an individual or corporation
(or an entity treated as a corporation for United States federal income tax
purposes) holding the debentures on its own behalf may have substantially
increased reporting requirements. In particular, in the case of debentures held
by a foreign partnership (or certain foreign trusts), the partnership (or trust)
will be required to provide the certification from each of its partners (or
beneficiaries), and the partnership (or trust) will be required to provide
certain additional information.
THE COMMON STOCK
Dividends paid to a Non-U.S. holder of common stock will generally be subject to
withholding tax at a 30% rate subject to reduction (a) by an applicable treaty
if the Non-U.S. holder provides an IRS Form W-8BEN certifying that it is
entitled to such treaty benefits, or (b) upon receipt of an IRS Form W-8ECI from
a Non-U.S. holder claiming that the payments are effectively connected with the
conduct of a United States trade or business.
A Non-U.S. holder will generally not be subject to United States federal income
tax on gain realized on the sale or exchange of the common stock received upon
conversion of debentures unless (a) the gain is effectively connected with the
conduct of a United States trade or business of the Non-U.S. holder, (b) in the
case of a Non-U.S. holder who is a non-resident alien individual, the individual
is present in the United States for 183 or more days in the taxable year of the
disposition and certain other requirements are met, or (c) we will have been a
United States real property holding corporation at any time within the shorter
of the five-year period preceding such sale or exchange and the Non-U.S.
holder's holding period in the common stock.
INCOME EFFECTIVELY CONNECTED WITH A UNITED STATES TRADE OR BUSINESS
If a Non-U.S. holder of the debentures or our common stock is engaged in a trade
or business in the United States, and if interest on the debentures, dividends
on our common stock, or gain realized on the sale, exchange, conversion or other
disposition of the debentures or our common stock is effectively connected with
the conduct of such trade or business, the Non-U.S. holder, although exempt from
the withholding tax discussed in the preceding paragraphs, will generally be
subject to regular United States federal income tax on such interest, dividends
or gain in the same manner as if it were a U.S. holder. Such a Non-U.S. holder
would be required to provide to the withholding agent a properly executed IRS
Form W-8ECI in order to claim an exemption from withholding tax. In addition, if
such a Non-U.S. holder is a foreign corporation, such holder may be subject to a
branch profits tax equal to 30% (or such lower rate provided by an applicable
treaty) of its effectively connected earnings and profits for the taxable year,
subject to certain adjustments.
BACKUP WITHHOLDING TAX AND INFORMATION REPORTING
We will comply with applicable information reporting requirements with
respect to payments on the debentures and common stock. Payments of principal
and interest (including tax original issue discount and a payment in common
stock pursuant to a conversion of the debentures) on, and the proceeds of
dispositions of, the debentures and payments of dividends on, and the proceeds
of dispositions of, the common stock may be subject to United States federal
backup withholding tax at the applicable statutory rate if the U.S. holder
thereof fails to supply an accurate taxpayer identification number or otherwise
fails to comply with applicable United States information reporting or
certification requirements. A Non-U.S. holder may be subject to United States
backup withholding tax
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on payments on, and the proceeds from a sale or other disposition of, the
debentures or common stock unless the Non-U.S. holder complies with
certification procedures to establish that it is not a United States person. Any
amounts so withheld will be allowed as a credit against a holder's United States
federal income tax liability and may entitle a holder to a refund, provided the
required information is timely furnished to the IRS.
SELLING SECURITYHOLDERS
The debentures offered hereby were originally issued by us on June 22, 2004
in a private placement. Pursuant to a purchase agreement that we and the initial
purchasers entered into in connection with that offering, the initial purchasers
agreed to offer and sell the debentures only to persons they reasonably believed
to be "qualified institutional buyers" within the meaning of Rule 144A under the
Securities Act. The selling securityholders, which term includes their
transferees, pledgees, donees and successors, may from time to time offer and
sell pursuant to this prospectus any or all of the debentures and common stock
issued upon conversion of the debentures.
The table below sets forth information regarding the respective principal
amounts of debentures and numbers of shares of common stock beneficially owned
by the selling securityholders prior to this offering and the respective
principal amounts and numbers of shares of common stock offered by the selling
securityholders pursuant to this prospectus. This information, as well as the
information appearing in the footnotes (other than footnotes (1) and (2)) to the
following table, has been obtained from the selling securityholders and we have
not independently verified this information. Except as may be indicated in the
footnotes to the following table, none of the selling securityholders has had
any position, office or other material relationship with us or any of our
affiliates within the past three years. Because the selling securityholders may
offer all or some portion of the debentures or the common stock issuable upon
conversion of the debentures pursuant to this prospectus, no estimate can be
given as to the amount of the debentures or common stock that will be held by
the selling securityholders upon termination of this offering.
We have irrevocably elected to satisfy our conversion obligation in cash
with respect to 100% of the accreted principal amount of debentures converted
after July 29, 2004. We still may satisfy the remainder of our conversion
obligation to the extent it exceeds the accreted principal amount in cash or
common stock or a combination of cash and common stock. The amount of cash
needed to satisfy our conversion obligation with respect to the debentures is
based on the value of common stock that would be issuable upon conversion of the
debentures if we did not make this cash election. The following table includes
all shares of common stock that would have been issuable upon conversion of the
debentures if we had not made this cash election and assumes full conversion of
the debentures into shares of common stock at a conversion rate of 18.7434
shares of our common stock per $1,000 original principal amount of the
debentures and a cash payment in lieu of any fractional share. However, this
conversion rate is subject to adjustment as described under "Description of the
Debentures -- Conversion rate adjustments." In no event will the total number of
shares of common stock issuable upon conversion exceed 24.3665 per $1,000
original principal amount of debentures, subject to adjustments described in
"Conversion rate adjustments." In addition, as described above under
"Description of the Debentures -- Conversion rights," we may, under certain
circumstances, become obligated to issue additional shares of common stock upon
conversion of debentures. As a result of the adjustment features described under
"Description of the Debentures -- Conversion rate adjustments" and the
additional shares issuable described under "Description of the Debentures --
Conversion rights," the number of shares of common stock beneficially owned
prior to this offering and the number of shares of common stock offered hereby
may increase or decrease in the future. As described above under "Description of
the Debentures -- Conversion rights," the debentures are convertible only in
specified circumstances and as of the date of this prospectus were not
convertible. Because the debentures are not currently convertible, and may not
become convertible within the next 60 days, the selling securityholders may not
be deemed to beneficially own the common stock issuable upon conversion of the
debentures. The table below assumes that the debentures are convertible
immediately.
In addition, the selling securityholders identified below may have sold,
transferred or otherwise disposed of all or a portion of their debentures or
common stock since the date on which they provided the information to us for
inclusion in the following table. Amounts indicated in the table may be in
excess of the total amount registered due to sales or transfers exempt from the
registration requirements of the Securities Act since the date upon which the
selling securityholders provided to us the information regarding their
debentures and common stock. In no event will the total amount of securities
offered by this prospectus exceed the amount of $200,000,000 principal amount of
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debentures and underlying common stock registered pursuant to the registration
statement of which this prospectus is a part.
PRINCIPAL AMOUNT
OF DEBENTURES NUMBER OF SHARES NUMBER OF
BENEFICIALLY OF COMMON STOCK SHARES OF
OWNED PRIOR TO BENEFICIALLY COMMON
THIS OFFERING AND OWNED PRIOR TO STOCK OFFERED
NAME OF SELLING SECURITYHOLDER(1) OFFERED HEREBY THIS OFFERING HEREBY
- -------------------------------- ----------------- ---------------- -------------
Akela Capital Master Fund, Ltd. ................. $15,000,000 281,151 281,151
Amaranth LLC(3) ................................. $ 9,500,000 178,062 178,062
Argent LowLev Convertible Arbitrage Fund Ltd. ... $ 2,060,000 38,611 38,611
Argent Classic Convertible Arbitrage Fund
(Bermuda) Ltd. ............................... $ 2,390,000 44,796 44,796
Fore Plan Asset Fund, Ltd. ...................... $ 320,000 5,997 5,997
Fore Convertible Master Fund, Ltd. .............. $ 3,373,000 63,221 63,221
Guggenheim Portfolio Company VIII (Cayman) Ltd.
(3) .......................................... $ 560,000 10,496 10,496
Man Mac I Limited ............................... $ 1,247,000 23,373 23,373
Argent Classic Convertible Arbitrage Fund L.P. .. $ 370,000 6,935 6,935
Argent Classic Convertible Arbitrage Fund II,
L.P. ......................................... $ 60,000 1,124 1,124
Argent LowLev Convertible Arbitrage Fund
LLC .......................................... $ 330,000 6,185 6,185
Argent LowLev Convertible Arbitrage Fund II,
LLC .......................................... $ 30,000 562 562
Class C Trading Company, Ltd. ................... $ 120,000 2,249 2,249
Custom Investments PCC, Ltd. .................... $ 90,000 1,686 1,686
HFR CA Global Select Master Trust Account ....... $ 80,000 1,499 1,499
Lyxor Master Fund ............................... $ 150,000 2,811 2,811
Silver Convertible Arbitrage Fund, LDC .......... $ 90,000 1,686 1,686
Xavex Convertible Arbitrage 2 Fund .............. $ 50,000 937 937
Xavex Convertible Arbitrage 10 Fund ............. $ 180,000 3,373 3,373
American Fidelity Assurance Company ............. $ 335,000 6,279 6,279
CALAMOS(R) Market Neutral Fund - CALAMOS(R)
Investment Trust ............................. $ 3,000,000 56,230 56,230
City of Birmingham Retirement & Relief Fund ..... $ 750,000 14,057 14,057
Genesee County Employees' Retirement System ..... $ 385,000 7,216 7,216
HealthNow New York, Inc. ........................ $ 180,000 3,373 3,373
NORCAL Mutual Insurance Company ................. $ 390,000 7,309 7,309
Physicians' Reciprocal Insurers Account #7 ...... $ 1,140,000 21,367 21,367
Attorney's Title Insurance Fund ................. $ 125,000 2,342 2,342
Boilermakers Blacksmith Pension Trust ........... $ 1,275,000 23,897 23,897
Delta Airlines Master Trust ..................... $ 325,000 6,091 6,091
Duke Endowment .................................. $ 275,000 5,154 5,154
Context Convertible Arbitrage Fund, L.P. ........ $ 950,000 17,806 17,806
Context Convertible Arbitrage Offshore, Ltd. .... $ 2,300,000 43,109 43,109
Lyxor/Context Fund Ltd.(3) ...................... $ 375,000 7,028 7,028
National Bank of Canada(3) ...................... $ 100,000 1,874 1,874
Royal Bank of Canada (Norshield)(3) ............. $ 200,000 3,748 3,748
Univest Convertible Arbitrage Fund II, Ltd.
(Norshield) .................................. $ 75,000 1,405 1,405
MFS Mid Cap Value Fund a Series of MFS Series
Trust XI(3) .................................. $ 3,300,000 61,853 61,853
MFS Total Return Fund a Series of MFS Series
Trust V(3) ................................... $ 3,500,000 65,601 65,601
Mid Cap Value Series a Series of MFS/Sun Life
Series Trust(3) .............................. $ 200,000 3,748 3,748
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PRINCIPAL AMOUNT
OF DEBENTURES NUMBER OF SHARES NUMBER OF
BENEFICIALLY OF COMMON STOCK SHARES OF
OWNED PRIOR TO BENEFICIALLY COMMON
THIS OFFERING AND OWNED PRIOR TO STOCK OFFERED
NAME OF SELLING SECURITYHOLDER(1) OFFERED HEREBY THIS OFFERING HEREBY
- -------------------------------- ----------------- ---------------- -------------
Deutsche Bank Securities Inc.(4) ................ $ 4,500,000 84,345 84,345
Grace Convertible Arbitrage Fund, Ltd. .......... $ 5,500,000 103,088 103,088
McMahan Securities Co. L.P.(4) .................. $ 1,250,000 23,429 23,429
Tribeca Investments Ltd. ........................ $14,000,000 262,407 262,407
FrontPoint Convertible Arbitrage Fund, L.P. ..... $ 7,250,000 135,889 135,889
JMG Capital Partners, LP. ....................... $ 2,250,000 42,172 42,172
KBC Financial Products USA Inc.(4) .............. $ 375,000 7,028 7,028
Sturgeon Limited ................................ $ 546,000 10,233 10,233
BNP Paribas Equity Strategies SNC(3) ............ $ 2,626,000 49,220 49,220
CooperNeff Convertible Strategies (Cayman)
Master Fund, LP .............................. $ 2,184,000 40,935 40,935
Lyxor/Convertible Arbitrage Fund Limited ........ $ 449,000 8,415 8,415
Singlehedge US Convertible Arbitrage Fund ....... $ 695,000 13,026 13,026
AmerUs Life Insurance Co. ....................... $ 4,500,000 84,345 84,345
American Investors Life Insurance Co. ........... $ 675,000 12,651 12,651
Bankers Life Insurance Company of New York ...... $ 200,000 3,748 3,748
Indianapolis Life Insurance Co. ................. $14,000,000 262,407 262,407
Huntrise Capital Leveraged Partners, LLC. ....... $ 50,000 937 937
Inflective Convertible Opportunity Fund I, Ltd. . $ 50,000 937 937
Lyxor/Inflective Convertible Opportunity Fund
Limited ...................................... $ 1,300,000 24,366 24,366
Inflective Convertible Opportunity Fund I, L.P .. $ 700,000 13,120 13,120
JMG Triton Offshore Fund, Ltd. .................. $ 4,750,000 89,031 89,031
HBK Master Fund, L.P.(3) ........................ $ 5,000,000 93,717 93,717
Calyon Securities (USA) Inc.(3)(4) .............. $ 7,000,000 131,203 131,203
UBS Securities LLC(4) ........................... $ 1,201,000 22,510 22,510
Consulting Group Capital Markets Funds .......... $ 850,000 15,931 15,931
Highbridge International LLC(3) ................. $20,000,000 374,868 374,868
Forest Global Convertible Fund, Ltd., Class
A-5 .......................................... $ 2,665,000 49,951 49,951
Xavex Convertible Arbitrage 4 Fund .............. $ 401,000 7,516 7,516
Sphinx Convertible Arbitrage SPC ................ $ 1,458,000 27,327 27,327
HFR RVA Select Performance Master Trust ......... $ 1,296,000 24,291 24,291
HFR CA Global Opportunity Master Trust .......... $ 1,300,000 24,366 24,366
Lyxor/Forest Fund Limited ....................... $ 4,318,000 80,934 80,934
Forest Multi-Strategy Master Fund SPC on behalf
of Multi-Strategy Segregated Portfolio ....... $ 7,324,000 137,276 137,276
Barclays Global Investors Diversified Alpha Plus
Funds ........................................ $ 1,935,000 36,268 36,268
Forest Fulcrum Fund LP(4) ....................... $ 1,531,000 28,696 28,696
Zurich Institutional Benchmarks Master Fund
Ltd. ......................................... $ 2,016,000 37,786 37,786
LLT Limited ..................................... $ 904,000 16,944 16,944
Vicis Capital Master Fund ....................... $ 1,500,000 28,115 28,115
Victus Capital, LP(3) ........................... $ 1,500,000 28,115 28,115
Geode U.S. Convertible Arbitrage Fund, a
segregated account of Geode Capital Master
Fund Ltd. .................................... $ 1,500,000 28,115 28,115
CIBC World Markets(4) ........................... $ 9,500,000 178,062 178,062
Mohican VCA Master Fund, Ltd. ................... $ 1,200,000 22,492 22,492
Salomon Brothers Asset Management, Inc.(3) ...... $10,375,000 194,462 194,462
NMIC Gartmore/Coda Convertible Portfolio ........ $ 1,500,000 28,115 28,115
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PRINCIPAL AMOUNT
OF DEBENTURES NUMBER OF SHARES NUMBER OF
BENEFICIALLY OF COMMON STOCK SHARES OF
OWNED PRIOR TO BENEFICIALLY COMMON
THIS OFFERING AND OWNED PRIOR TO STOCK OFFERED
NAME OF SELLING SECURITYHOLDER(1) OFFERED HEREBY THIS OFFERING HEREBY
- --------------------------------- ----------------- ---------------- -------------
Coda-KHPE Convertible Portfolio.................... $ 350,000 6,560 6,560
Van Eck WW Absolute Rtn. Fund...................... $ 100,000 1,874 1,874
Gartmore Convertible Fund.......................... $ 500,000 9,371 9,371
Coda Capital ND Portfolio.......................... $ 100,000 1,874 1,874
Piper Jaffray & Co.(4)............................. $ 3,000,000 56,230 56,230
Ritchie Convertible Arbitrage Trading.............. $ 800,000 14,994 14,994
Mill River Master Fund, L.P.(3).................... $ 500,000 9,371 9,371
Grace Brothers, Ltd. .............................. $ 1,000,000 18,743 18,743
Zola Partners, L.P................................. $ 3,000,000 56,230 56,230
Lyxor/Zola Fund, Ltd............................... $ 2,750,000 51,544 51,544
Xavex Convertible Arbitrage 1 Fund................. $ 1,000,000 18,743 18,743
HSBC Trustee, Zola Managed Trust................... $ 250,000 4,685 4,685
Convertible Securities Fund (Bank of America)...... $ 25,000 468 468
Nations Convertible Securities Fund (Bank of
America)........................................ $ 4,625,000 86,688 86,688
UBS AG London - F/B/O - HFS........................ $ 3,000,000 56,230 56,230
Tribeca Global Convertible......................... $ 14,000,000 262,407 262,407
Allstate Insurance Company(3)...................... $ 2,500,000 46,858 46,858
Allstate Life Insurance Company(3)................. $ 2,500,000 46,858 46,858
Sunrise Partners Limited Partnership(3)............ $ 6,500,000 121,832 121,832
Polaris Vega Fund L.P.............................. $ 4,000,000 74,973 74,973
Jefferies Umbrella Fund Global Convertible Bonds... $ 2,000,000 37,486 37,486
TQA Master Plus Fund Ltd. ......................... $ 250,000 4,685 4,685
Pyramid Equity Strategies Fund..................... $ 250,000 4,685 4,685
BTOP - Multi Strategy Master Portfolio Ltd. ....... $ 2,000,000 37,486 37,486
Teachers Insurance and Annuity Association of
America(3)...................................... $ 20,000,000 374,868 374,868
American Century Capital Portfolios, Inc. -
Equity Income Fund.............................. $ 29,100,000 545,432 545,432
Alpha US Sub Fund 4, LLC........................... $ 296,000 5,548 5,548
Lyxor Convertible Arb. Fund........................ $ 624,000 11,695 11,695
HFR CA Opportunity Master Trust.................... $ 554,000 10,383 10,383
Advent Convertible Master (Cayman) L.P. ........... $ 7,830,000 146,760 146,760
JP Morgan Securities Inc. (4)...................... $ 6,026,000 112,947 112,947
Elizabeth D. Bruce................................. $ 20,000,000 374,868 374,868
Coda Capital Management, LLC....................... $ 500,000 9,371 9,371
LW Paxson CRUT Convertible Portfolio............... $ 30,000 562 562
DBAG London (3).................................... $ 5,740,000 107,587 107,587
Morgan Stanley & Co. Incorporated(4)............... $ 250,000 4,685 4,685
Pekin Singer Strauss Asset Management F/B/O
Baldwin & Lyons Inc. (3)........................ $ 400,000 7,497 7,497
Conseco Insurance Company-Multibucket Annuity
Convertible Bond Fund(3)........................ $ 2,240,000 41,985 41,985
Managers Convertible Securities-Convertible
Securities Fund(3).............................. $ 250,000 4,685 4,685
UBS (Lux) Bond Sicav-Convertible Global............ $ 790,000 14,807 14,807
Any other holders of debentures or shares of
common stock issued on conversion of the
debentures and future transferors, pledges,
donees and successors thereof (2)............... $ 1,000,000 18,743 18,743
------------ --------- ---------
TOTAL:............................................. $359,934,000 6,746,328 6,746,328
- ----------
(1) Information concerning the selling securityholders may change from time to
time. Any such changed information will be set forth in amendments or
supplements to this prospectus or to the registration statement of
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which this prospectus is a part, if and when required. A post-effective
amendment will be filed to identify unknown securityholders who are not
direct or indirect donees, pledges, successors or transferees of the
selling securityholders listed in the table.
(2) Represents an amount estimated by us that is held by unidentified selling
securityholders. Any of these other holders of debentures or shares of
common stock issued upon conversion of the debentures may be identified at
a later date by means of one or more supplements to this prospectus or, if
required, post-effective amendments to the registration statement of which
this prospectus is a part. Assumes that any of these other holders of
debentures or shares of common stock issuable on conversion of debentures
and their respective direct or indirect transferees, pledgees, donees and
successors do not beneficially own any common stock other than the common
stock issued or issuable upon conversion of the debentures.
(3) This selling securityholder has advised us that it is an affiliate of a
broker or dealer and that it purchased the securities reflected in this
table as being owned by it in the ordinary course of business and, at the
time of purchase, it had no agreements or understandings, directly or
indirectly, with any person to distribute those securities.
(4) This selling securityholder has advised us that it is a broker or dealer.
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PLAN OF DISTRIBUTION
The selling securityholders (including their direct or indirect
transferees, pledgees, donees and successors) may sell the debentures and the
common stock issuable upon conversion of the debentures from time to time
directly to purchasers or through underwriters, broker-dealers or agents who may
receive compensation in the form of discounts, concessions or commissions from
the selling securityholders or the purchasers. If the debentures or the shares
of common stock issuable upon conversion of the debentures are sold through
underwriters, broker-dealers or agents, the selling securityholders will be
responsible for any discounts, concessions or commissions payable to those
underwriters, broker-dealers or agents.
The debentures and the common stock issuable upon conversion of the
debentures may be sold in one or more transactions at:
- fixed prices,
- prevailing market prices at the time of sale,
- varying prices determined at the time of sale, or
- negotiated prices.
These sales may be effected in transactions, which may involve crosses or
block transactions:
- on any national securities exchange or quotation service on which the
debentures or the common stock may be listed or quoted at the time of
sale;
- in the over-the-counter market; or
- otherwise than on such exchanges or services or in the
over-the-counter market.
Crosses are transactions in which the same broker acts as an agent on both sides
of the trade.
The aggregate proceeds to the selling securityholders from the sale of
debentures or the common stock issuable upon the conversion of the debentures
offered by them will be the purchase price of such debentures or common stock
less discounts and commissions, if any, payable by them. Each of the selling
securityholders reserves the right to accept and, together with their
underwriters, broker-dealers or agents from time to time, to reject, in whole or
in part, any proposed purchase of the debentures or the common stock issuable
upon conversion of the debentures to be made directly or through underwriters,
broker-dealers or agents. We will not receive any of the proceeds from the
offering of debentures and the common stock issuable upon conversion of the
debentures.
There is no public market for the debentures and we do not intend to apply
for listing of the debentures on any securities exchange or for quotation of the
debentures through any automated quotation system. The debentures are currently
designated for trading on the PORTAL Market. However, once debentures are sold
by means of this prospectus, those debentures will no longer trade on the PORTAL
Market. Our common stock is listed on the New York Stock Exchange under the
symbol "KWD".
In order to comply with the securities laws of some states, if applicable,
the debentures and the common stock issuable upon conversion of the debentures
may be sold in those jurisdictions only through registered or licensed brokers
or dealers. In addition, in some states the debentures and the common stock
issuable upon conversion of the debentures may not be sold unless they have been
registered or qualified for sale or an exemption from registration or
qualification requirements is available and is complied with.
The selling securityholders may not sell any, or may sell less than all, of
the debentures and shares of common stock issuable upon conversion of the
debentures offered by them pursuant to this prospectus. In addition, any selling
securityholder may, to the extent permitted by applicable law, sell, transfer,
devise or gift the debentures or
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shares of common stock issuable upon conversion of the debentures by means not
described in this prospectus. In that regard, any debentures or shares of common
stock issuable upon conversion of the debentures that qualify for sale pursuant
to Rule 144A or Rule 144 under the Securities Act may be sold under that rule,
if applicable, rather than pursuant to this prospectus.
Some of the selling securityholders and any underwriters, broker-dealers or
agents that participate in the distribution of the debentures and the common
stock issuable upon conversion of the debenture may be deemed to be
"underwriters" within the meaning of Section 2(11) of the Securities Act. As a
result, any profits on the sale of the debentures or the shares of common stock
issued on conversion of the debentures received by any such selling
securityholders and any discounts, commissions or concessions received by any
such underwriters, broker-dealers or agents might be deemed to be underwriting
discounts and commissions under the Securities Act. If the selling
securityholders were deemed to be underwriters, the selling securityholders
could be subject to certain statutory liabilities under the federal securities
laws, including under Sections 11, 12 and 17 of the Securities Act and Rule
10b-5 under the Securities Exchange Act of 1934.
The selling securityholders and any other persons participating in the
distribution of the debentures and the shares of common stock issuable upon
conversion of the debentures will be subject to the Securities Exchange Act. The
Securities Exchange Act rules include, without limitation, Regulation M, which
may limit the timing of or prohibit the purchase and sale of debentures and
shares of common stock by the selling securityholders and any such other person.
In addition, under Regulation M, any selling securityholder or other person
engaged in the "distribution", within the meaning of Regulation M, of the
debentures or the shares of common stock issuable upon conversion of the
debentures may not engage in market-making activities with respect to the
debentures or the common stock for certain periods prior to the commencement of
that distribution, unless, in the case of persons other than selling
securityholders, an applicable exemption is available under Regulation M. The
foregoing may affect the marketability of the debentures and the common stock
issuable upon conversion of the debentures and the ability of any person or
entity to engage in market-making activities with respect to those securities.
In that regard, the selling securityholders are required to acknowledge
that they understand their obligations to comply with the provisions of the
Securities Exchange Act and the rules thereunder relating to stock manipulation,
particularly Regulation M thereunder (or any successor rules or regulations), in
connection with the offering made by this prospectus. Each selling
securityholder is required to agree that neither it nor any person acting on its
behalf will engage in any transaction in violation of such provisions.
To the extent required, the specific debentures or common stock to be sold,
the names of the selling securityholders, the respective purchase prices and
public offering prices, the names of any underwriters, agent or broker-dealer,
and any applicable commissions or discounts with respect to a particular sale or
other disposition of debentures or shares of common stock issued on conversion
of the debentures pursuant to this prospectus will be set forth in a supplement
to this prospectus or, if appropriate, a post-effective amendment to the shelf
registration statement of which this prospectus is a part.
Pursuant to the registration rights agreement described above under
"Registration Rights," we, on the one hand, and the selling securityholders, on
the other hand, have agreed, subject to exceptions, to indemnify each other
against specified liabilities, including liabilities under the Securities Act,
and may be entitled to contribution from each other in respect of those
liabilities.
We will pay substantially all of the expenses incident to the offering and
sale of the debentures and the common stock issuable upon conversion of the
debentures pursuant to this prospectus, other than commissions, fees and
discounts payable to underwriters, brokers-dealers or agents, fees and
disbursements of any counsel or other advisors or experts retained by the
selling securityholders and any documentary, stamp or similar issue or transfer
tax.
Under the registration rights agreement, we may be required from time to
time to require holders of debentures and shares of common stock issued on
conversion of the debentures to discontinue the sale or other disposition of
those debentures and shares of common stock under specified circumstances. See
"Registration Rights" above.
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WHERE YOU CAN FIND MORE INFORMATION
We file annual, quarterly and current reports, proxy statements and other
information with the SEC. You may read and copy materials that we have filed
with the SEC at the SEC's public reference room located at 450 Fifth Street,
N.W. Room 1024, 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 on the Internet at the SEC's website at www.sec.gov. Our SEC
filings are also available to the public through our website at
www.kellwood.com. We have not incorporated by reference into this prospectus the
information included on or linked from our website, and you should not consider
it part of this prospectus.
You may also request a copy of each document incorporated by reference in
this prospectus at no cost, by writing or calling us at the following address or
telephone number:
Kellwood Company
600 Kellwood Parkway
Chesterfield, Missouri 63017
Attention: Treasurer
(314) 576-3100
Exhibits to a document will not be provided unless they are specifically
incorporated by reference in that document.
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
We "incorporate by reference" in this prospectus the information that we file
with the SEC, which means that we can disclose important information to you by
referring you to another document that we have filed with the SEC. The
information incorporated by reference is an important part of this prospectus.
Any statement that is contained in a document incorporated by reference in this
prospectus shall be modified or superseded for the purposes of this prospectus
to the extent that a statement contained in this prospectus or in any other
subsequently filed document that is also incorporated by reference in this
prospectus modifies or supersedes such statement. Any such statement so modified
or superseded shall not be considered, except as so modified or superseded, to
constitute a part of this prospectus.
We incorporate by reference the documents listed below and any documents to the
extent filed with the SEC under Sections 13(a), 13(c), 14 or 15(d) of the
Securities Exchange Act of 1934 after the date of this prospectus but before the
end of the offering made under this prospectus:
- our annual report on Form 10-K for the fiscal year ended January 29,
2005;
- our quarterly report on Form 10-Q for the quarterly period ended April
30, 2005; and
- our Current Reports on Form 8-K filed on March 14, 2005, March 15,
2005 and June 3, 2005 (relating to stockholder approval of two option
plans and the election of certain new officers).
You should read the information relating to us in this prospectus together with
the information in the documents incorporated by reference. We are not
incorporating by reference any information furnished to but not filed with the
SEC.
LEGAL MATTERS
The validity of the debentures and the related guarantees has been passed
upon for us by McDermott Will & Emery LLP, Chicago, Illinois.
EXPERTS
The financial statements incorporated in this prospectus by reference to
the Annual Report on Form 10-K of Kellwood Company for the year ended January
29, 2005 have been so incorporated in reliance on the report of
PricewaterhouseCoopers LLP, an independent registered public accounting firm,
given on the authority of said firm as experts in auditing and accounting.
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