PROSPECTUS AS FILED PURSUANT TO RULE 424(b)(3)
October 2, 2002 REGISTRATION STATEMENT NO. 333-98741
$150,000,000
Charming Shoppes, Inc.
4.75% Senior Convertible Notes
Due 2012 and the Common Stock
issuable upon conversion of the Notes
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This prospectus covers $150,000,000 of our 4.75% Senior Convertible Notes
due 2012 and the common stock issuable upon conversion of the notes. We issued
the notes in a private placement in May, 2002. This prospectus will be used by
selling securityholders to resell their notes and the common stock issuable
upon conversion of their notes.
The notes are convertible before maturity into our common stock at an
initial conversion price of $9.88 per share, subject to adjustment for
specified events. We will pay interest on the notes on June 1 and December 1 of
each year, beginning December 1, 2002. The notes will mature on June 1, 2012
unless earlier converted or redeemed.
We may redeem all or a portion of the notes on or after June 4, 2007. In
addition, the holders may require us to repurchase the notes upon a repurchase
event in cash or, at our option, common stock, at 100% of the principal amount
of the notes plus accrued and unpaid interest.
Our common stock is listed on the Nasdaq National Market under the symbol
"CHRS." The reported last sale price of our common stock on the Nasdaq National
Market on September 26, 2002 was $7.05 per share.
-----------------
Investing in the securities offered involves risks. See "Risk Factors"
beginning on page 3.
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These securities have not been approved or disapproved by the Securities and
Exchange Commission or any state securities commission nor has the Securities
and Exchange Commission or any state securities commission passed upon the
accuracy or adequacy of this prospectus. Any representation to the contrary is
a criminal offense.
Table of Contents
SUMMARY.......................................... 1
THE OFFERING..................................... 2
RISK FACTORS..................................... 3
SELECTED FINANCIAL DATA.......................... 9
USE OF PROCEEDS.................................. 11
RATIO OF EARNINGS TO FIXED CHARGES............... 11
DESCRIPTION OF NOTES............................. 12
DESCRIPTION OF OTHER INDEBTEDNESS................ 22
DESCRIPTION OF CAPITAL STOCK..................... 23
CERTAIN UNITED STATES FEDERAL TAX CONSEQUENCES... 28
SELLING SECURITYHOLDERS.......................... 33
PLAN OF DISTRIBUTION............................. 37
LEGAL MATTERS.................................... 38
EXPERTS.......................................... 38
WHERE YOU CAN FIND MORE INFORMATION.............. 39
SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS 41
SUMMARY
This summary contains basic information about us and this prospectus.
Because it is a summary, it does not contain all the information you should
consider before investing. You should read this entire prospectus, including
"Risk Factors" below and the documents incorporated by reference into this
prospectus, carefully before making an investment decision.
We are the leading specialty apparel retailer primarily focused on plus-size
women's apparel through our three distinct brands: Lane Bryant, Fashion Bug,
and Catherine's Plus Sizes. As a result of our Lane Bryant acquisition in
August 2001, our sales of plus-size apparel increased to approximately 66% of
our total net sales during Fiscal 2002 and now exceed 70% of our total net
sales. Through our fashion content, store layouts, and broad merchandise
assortments, we seek to appeal to customers from a broad range of demographic
and cultural profiles. As of August 3, 2002, we operated 2,334 stores in 48
states.
Our principal brands are each designed to attract a distinct customer:
. Lane Bryant. Lane Bryant is a leader in plus-size fashion. Through
private labels, such as Venezia Jeans Clothing Co.(R) and Cacique(TM),
Lane Bryant offers fashionable and sophisticated casual, career and
intimate apparel in plus sizes 14-28 and targets customers ranging in age
from 25 to 45 years old. Lane Bryant has a loyal customer base, that
shops for fashionable merchandise in the moderate price range. Lane
Bryant seeks to differentiate itself through its innovative product
design. Primarily a mall-based destination store, Lane Bryant currently
operates 650 stores in 46 states that average approximately 6,100 square
feet.
. Fashion Bug and Fashion Bug Plus. Fashion Bug and Fashion Bug Plus
stores specialize in selling a wide variety of plus-size, misses, and
junior sportswear, dresses, coats, lingerie, accessories, and casual
footwear. Fashion Bug target customers range in age from 20 to 49 years
old and shop in the low-moderate price range. The majority of our 1,208
Fashion Bug stores are located in strip shopping centers across the
United States and average approximately 8,900 square feet.
. Catherine's Plus Sizes. Catherine's specializes in plus-sizes with an
emphasis on extended sizes (over size 28) and petite plus-sizes.
Catherine's has developed a proprietary body basics fit program, which is
designed to help a woman choose merchandise styles that most flatter her
figure. Catherine's offers classic apparel and accessories for career and
casual lifestyles to target customers who range in age from 40 to 65
years old, shop in the moderate price range, and are concerned with fit
and value when purchasing apparel. Catherine's seeks to differentiate
itself through customer service and by emphasizing a one-on-one selling
environment. Our 467 Catherine's stores are located in 44 states,
primarily in strip shopping centers in the Southeast, Mid-Atlantic, and
Eastern Central regions of the United States, and average approximately
4,100 square feet.
Charming Shoppes, Inc. was incorporated in Pennsylvania in 1969. Our
principal offices are located at 450 Winks Lane, Bensalem, Pennsylvania 19020.
Our telephone number is (215) 245-9100.
1
THE OFFERING
Securities Offered.......... $150,000,000 aggregate principal amount of 4.75%
senior convertible notes due 2012 and the common
stock issuable upon conversion of the notes.
Interest.................... 4.75% per annum on the principal amount, payable
semi-annually in arrears in cash on June 1 and
December 1 of each year, commencing December 1,
2002. The first interest payment will include
interest from the original date of issuance.
Maturity.................... June 1, 2012.
Conversion.................. The notes are convertible into our common stock
at the option of the holder at any time after the
date of original issuance of the notes and before
redemption, repurchase, or maturity at a
conversion price of $9.88 per share, subject to
adjustment upon specified events. See
"Description of Notes--Conversion of the Notes."
The right to convert notes that have been called
for redemption will terminate at the close of
business on the trading day immediately preceding
the date of redemption.
Ranking..................... The notes are our senior unsecured obligations
and rank equally with all of our existing and
future senior unsecured indebtedness. However,
the notes are effectively subordinated to all
existing and future obligations of our
subsidiaries and any of our secured indebtedness.
Optional Redemption......... At any time on or after June 4, 2007, we may
redeem some or all of the notes at the declining
redemption prices listed within this prospectus,
plus accrued interest. See "Description of
Notes--Optional Redemption by Us."
Repurchase at Holder's
Option upon a Repurchase
Event..................... You may require us to repurchase your notes upon
a repurchase event in cash or, at our option, in
common stock, at 100% of the principal amount of
the notes, plus accrued and unpaid interest.
Sinking Fund................ None.
Use of Proceeds............. We will not receive any of the proceeds from the
sale by any selling securityholder of the notes
or the underlying common stock.
Risk Factors................ You should read "Risk Factors" beginning on page
3 of this prospectus to understand the risks
associated with an investment in the notes.
2
RISK FACTORS
You should carefully consider and evaluate all of the information in this
prospectus and the documents incorporated by reference into this prospectus,
including the risk factors listed below. Any of these risks could materially
and adversely affect our business, financial condition and operating results.
This, in turn, could materially and adversely affect the price of our common
stock and the value of the notes.
Risks Related to Our Business And Industry
Our business is dependent upon our being able to accurately predict fashion
trends, customer preferences, and other fashion-related factors.
Customer tastes and fashion trends are volatile and tend to change rapidly,
particularly for women's apparel. Our success depends in part on our ability to
effectively predict and respond to quickly changing fashion tastes and consumer
demands, and to translate market trends into appropriate, saleable product
offerings. If we are unable to successfully predict or respond to changing
styles or trends and misjudge the market for our products or any new product
lines, our sales will be lower and we may be faced with a substantial amount of
unsold inventory or missed sales opportunities. In response, we may be forced
to rely on additional markdowns or promotional sales to dispose of excess, or
slow-moving inventory, which could have a material adverse effect on our
business, financial condition, and results of operations.
Existing and increased competition in the women's retail apparel industry may
reduce our net revenues, profits, and market share.
The women's specialty retail apparel industry is highly competitive. Our
competitors include individual and chain fashion specialty stores, department
stores, discount stores, and Internet-based retailers. As a result of this
competition, we may experience pricing pressures, increased marketing
expenditures, and loss of market share, which could have a material adverse
effect on our business, financial condition, and results of operations. We
believe that the principal bases upon which we compete are merchandise style,
size, selection, quality, and price, as well as store location, design,
advertising, promotion, and personalized service to the customers. Other
women's apparel companies with greater financial resources, marketing
capabilities or brand recognition may enter the plus-size business. We cannot
assure you that we will be able to compete successfully against existing or
future competitors.
The decline in general economic conditions has led to reduced consumer demand
for our apparel and accessories and may continue to do so in the future.
Consumer spending habits, including spending for our apparel and
accessories, are affected by, among other things, prevailing economic
conditions, levels of employment, salaries, wage rates, the availability of
consumer credit, consumer confidence, and consumer perception of economic
conditions. The general slowdown in the United States economy and the uncertain
economic outlook have adversely affected consumer spending habits and mall
traffic, which have resulted in, and may continue to result in, lower net sales
by us. A prolonged economic downturn could have a material adverse effect on
our business, financial condition, and results of operations.
Our operating results fluctuate from season to season.
Our stores experience seasonal fluctuations in net sales and consequently in
operating income, with peak sales occurring during the Easter, Labor Day, and
Christmas seasons. In addition, extreme or unseasonable weather can affect our
sales. Any decrease in net sales or margins during our peak selling periods, or
in the availability of working capital needed in the months before these
periods, could have a material adverse effect on our business, financial
condition, and results of operations. We usually order merchandise in advance
of peak selling periods and sometimes before new fashion trends are confirmed
by customer purchases. We must carry a
3
significant amount of inventory, especially before the peak selling periods. If
we are not successful in selling our inventory, especially during our peak
selling periods, we may be forced to rely on markdowns or promotional sales to
dispose of the inventory or we may not be able to sell the inventory at all,
which could have a material adverse effect on our business, financial
condition, and results of operations.
We may not be able to obtain sufficient working capital financing.
Our business requires substantial investment in our inventory for a long
period before sales occur and consequently we require significant working
capital financing. We depend on the availability of credit to fund our working
capital, including credit we receive from our suppliers and their agents, on
our credit card securitization program, and on our revolving credit facility.
If we are unable to obtain sufficient financing at an affordable cost, we might
be unable to adequately merchandise our stores, which could have a material
adverse effect on our business, financial condition, and results of operations.
We face challenges in managing our recent growth.
Our operating challenges and management responsibilities are increasing as
we continue to grow. Successful growth will require that we continue to expand
and improve our internal systems and our operations, including our distribution
infrastructure. Our business plan depends on our ability to open and operate
new retail stores and to convert, where applicable, the formats of existing
stores on a profitable basis. In addition, we will need to identify, hire and
retain a sufficient number of qualified personnel to work in our new stores. We
are also seeking to complete the integration of Lane Bryant into our current
operating structure, and to transition away from certain services being
provided to our Lane Bryant operations by Limited Brands (formerly The Limited,
Inc.), from which we acquired Lane Bryant. These objectives have created and
may continue to create additional pressure on our staff and on our operating
systems. We cannot assure you that our business plan will be successful, or
that we will achieve our objectives as quickly or as effectively as we hope.
We depend on key personnel and may not be able to retain or replace these
employees or recruit additional qualified personnel.
Our success and our ability to execute our business strategy depend largely
on the efforts and abilities of our Chief Executive Officer, Dorrit J. Bern,
and her management team. The loss of services of one or more of our key
personnel could have a material adverse effect on our business, as we may not
be able to find suitable management personnel to replace departing executives
on a timely basis. We do not maintain key-person life insurance policies with
respect to any of our employees.
We could be materially and adversely affected if any of our distribution
centers are shut down.
We operate distribution facilities in Greencastle, Indiana, Memphis,
Tennessee, and Columbus, Ohio, and we have recently also acquired a
distribution center in Baltimore County, Maryland. Most of the merchandise we
purchase is shipped directly to our distribution centers, where it is prepared
for shipment to the appropriate stores. If any of our distribution centers were
to shut down or lose significant capacity for any reason, the other
distribution centers may not be able to support the resulting additional
distribution demands, in part because of capacity constraints and in part
because each distribution center services a particular brand. As a result, we
could incur significantly higher costs and longer lead times associated with
distributing our products to our stores during the time it takes for us to
reopen or replace the center.
War, acts of terrorism, or the threat of either may negatively impact the
availability of merchandise and otherwise adversely impact our business.
In the event of war or acts of terrorism, or if either are threatened, our
ability to obtain merchandise for sale in our stores may be negatively
impacted. A substantial portion of our merchandise is imported from other
countries. If imported goods become difficult or impossible to bring into the
United States, and if we cannot
4
obtain such merchandise from other sources at similar costs, our net sales and
profit margins may be adversely affected. If commercial transportation is
curtailed or substantially delayed, our business may be adversely impacted, as
we may have difficulty shipping merchandise to our distribution centers and
stores. On September 11, 2001, in response to terrorist attacks on the United
States, a majority of our retail stores either did not open or were closed
early. Since then, the government has reported threats of further attacks
against United States locations, including malls. In the event of war or
additional acts of terrorism, or the threat of either, we may be required to
suspend operations in some or all of our stores, which could have a material
adverse impact on our business, financial condition, and results of operations.
We rely on foreign sources of production.
We purchase a significant portion of our apparel directly in foreign markets
and indirectly through domestic vendors with foreign sources. We face a variety
of risks generally associated with doing business in foreign markets and
importing merchandise from abroad, including:
. political instability;
. increased security requirements applicable to imported goods;
. imposition of duties, taxes, and other charges on imports;
. currency and exchange risks;
. delays in shipping; and
. increased costs of transportation.
New initiatives may be proposed that may have an impact on the trading
status of certain countries and may include retaliatory duties or other trade
sanctions that, if enacted, could increase the cost of products purchased from
suppliers in such countries or restrict the importation of products from such
countries. The future performance of our business will depend on our foreign
suppliers and may be adversely affected by the factors listed above, all of
which are beyond our control.
Issues of global workplace conditions may adversely affect our business.
If any one of our manufacturers or vendors:
. fails to operate in compliance with applicable laws and regulations;
. is perceived by the public as failing to meet certain labor standards in
the United States; or
. employs unfair labor practices,
our business could be adversely affected. Current global workplace concerns of
the public include perceived low wages, poor working conditions, age of
employees, and various other employment standards. These globalization issues
may affect the available supply of certain manufacturers' products, which may
result in increased costs to us. Furthermore, a negative customer perception of
any of our key vendors or their products may result in a lower customer demand
for our apparel.
We depend on strip shopping center and mall traffic and our ability to identify
suitable store locations.
Our sales are dependent in part on a high volume of strip shopping center
and mall traffic. Strip shopping center and mall traffic may be adversely
affected by, among other things, economic downturns, the closing of anchor
stores or changes in customer shopping preferences. A decline in the popularity
of strip shopping center or mall shopping among our target customers could have
a material adverse effect on our business.
5
To take advantage of customer traffic and the shopping preferences of our
customers, we need to maintain or acquire stores in desirable locations. We
cannot assure you that desirable store locations will continue to be available.
We may be unable to protect our trademarks and other intellectual property
rights.
We believe that our trademarks and service marks are important to our
success and our competitive position due to their name recognition with our
customers. We devote substantial resources to the establishment and protection
of our trademarks and service marks on a worldwide basis. We are not aware of
any claims of infringement or challenges to our right to use any of our
trademarks and service marks in the United States. Nevertheless, there can be
no assurance that the actions we have taken to establish and protect our
trademarks and service marks will be adequate to prevent imitation of our
products by others or to prevent others from seeking to block sales of our
products as a violation of the trademarks, service marks and proprietary rights
of others. Also, others may assert rights in, or ownership of, our trademarks
and other proprietary rights, and we may not be able to successfully resolve
these types of conflicts to our satisfaction. In addition, the laws of certain
foreign countries may not protect proprietary rights to the same extent as do
the laws of the United States.
Risks of Investing in These Notes
The notes rank below our secured debt and the liabilities of our subsidiaries.
The notes are our senior unsecured obligations and rank equally with all of
our existing and future unsecured, unsubordinated indebtedness. However, the
notes are effectively subordinated to all of our existing and future secured
indebtedness to the extent of the collateral securing such indebtedness. As a
result, our assets that have been pledged to our secured creditors will be
available to pay obligations on the notes only after such secured indebtedness
has been paid in full, and we may not have sufficient assets remaining to repay
in full all of the notes then outstanding, if any of the following occur:
. we become insolvent or are forced to liquidate our assets;
. we default on our secured indebtedness; or
. the notes are accelerated due to any other event of default.
The notes are also effectively subordinated in right of payment to all of
our subsidiaries' indebtedness and other liabilities, including trade payables.
The notes are exclusively obligations of Charming Shoppes. Substantially all of
our operations are conducted through our subsidiaries. As a result, our cash
flow and our ability to service our debt, including the notes, depends upon
dividends, distributions, loans or other payments by our subsidiaries to us,
which, in turn, depends on the earnings of our subsidiaries.
Our subsidiaries are separate and distinct legal entities and have no
obligation to pay any amounts due on the notes, whether by dividends,
distributions, loans or other payments. In addition, any payment of dividends,
distributions, loans or advances by our subsidiaries to us could be subject to
statutory or contractual restrictions, and are also subject to certain
restrictions in our existing credit agreements.
The incurrence of additional indebtedness and other liabilities could
materially and adversely affect our ability to pay our obligations on the
notes. The indenture governing the notes does not limit our ability to incur
any indebtedness, including secured indebtedness, and does not limit the
ability of our subsidiaries to incur indebtedness or other liabilities. As of
August 3, 2002, we had outstanding letters of credit totaling $75.7 million
under our revolving credit facility. There were no cash borrowings outstanding
under the facility as of August 3, 2002. As of that date, we had unused
availability under the revolving credit facility of $166.5 million. See
"Description of Notes--Ranking."
6
We may be unable to repay or repurchase the notes.
At maturity, the entire outstanding principal amount of the notes will
become due and payable by us. In addition, if we experience a repurchase event
upon a change in control, you will be entitled to require us to repurchase all
or a portion of your notes. We may elect, subject to certain conditions, to pay
the repurchase price in shares of our common stock. We may not have enough
funds to pay the redemption price in cash for all tendered notes. The credit
agreements or other agreements relating to our indebtedness may:
. contain provisions requiring payment of that indebtedness after a
repurchase event; or
. expressly prohibit our repurchase of the notes after a repurchase event.
If we are prohibited from repurchasing the notes, we could seek consent from
our lenders to repurchase the notes. If we were unable to obtain their consent,
we could attempt to refinance the notes. If we were unable to obtain a consent
or refinance, we would be prohibited from repurchasing the notes. If we were
unable to repurchase the notes upon a repurchase event, it would result in an
event of default under the indenture. An event of default under the indenture
could also result in an event of default with respect to our other debt.
The fact that a change in control is a repurchase event may not necessarily
afford you protection in the event of a highly leveraged transaction. The term
"change in control" is limited to certain specified transactions and may not
include other events that might harm our financial condition. Our obligation to
offer to purchase the notes upon a repurchase event may not preserve the value
of the notes in the event of a highly leveraged transaction, reorganization,
merger or similar transaction involving us. See "Description of
Notes--Repurchase at Option of Holders."
You may have difficulty selling the notes because no trading market exists for
the notes.
Currently, there is no existing trading market for the notes, and we cannot
assure you that a trading market will develop or that any trading market that
develops will continue or allow you to sell your notes quickly. We also cannot
assure you of the price at which you will be able to sell your notes, if you
are able to sell them at all.
The initial purchasers have advised us that they intend to make a market in
the notes, but they are not obligated to do so, and their market making may be
interrupted or discontinued without notice. If the initial purchasers were to
make a market, the notes could trade at prices that are higher or lower than
the principal amount of the notes depending on many factors, including:
. prevailing interest rates;
. the market for similar securities;
. our operating results; and
. our common stock's trading price.
The notes are eligible for trading on The PORTAL Market of the National
Association of Securities Dealers, Inc., but we do not intend to apply for
listing of the notes on any securities exchange or for inclusion of the notes
in any automated quotation system.
We expect that the trading value of the notes will be significantly affected by
the price of our common stock.
The market price of the notes is expected to be significantly affected by
the market price of our common stock. The stock market has from time to time
experienced extreme price and volume fluctuations which have often been
unrelated to the operating performance of particular companies. Our common
stock has also experienced significant price fluctuations. This may result in
greater volatility in the value of the notes than would be expected for
nonconvertible debt securities we issue.
7
Changes in our credit rating or the credit markets could adversely affect the
trading price of the notes.
The trading price for the notes will be based on a number of factors,
including:
. our rating with major credit rating agencies;
. the prevailing interest rates being paid by other companies similar to
us; and
. the overall condition of the financial markets.
The condition of the credit markets and prevailing interest rates have
fluctuated in the past and are likely to fluctuate in the future. Fluctuations
in these factors could have an adverse effect on the price of the notes. In
addition, credit rating agencies continually revise their ratings for the
companies that they follow, including us. The credit rating agencies also
evaluate the specialty retail or apparel industries as a whole and may change
their credit rating for us based on their overall view of our industry. We
cannot be sure that credit rating agencies will maintain their ratings on the
notes. A negative change in our rating could have an adverse effect on the
price of the notes.
The market price of our common stock could be affected by the substantial
number of shares that are eligible for future sale.
As of September 18, 2002, we had 112,763,060 shares of common stock
outstanding. Also as of that date, we had outstanding options to purchase
12,402,239 shares of our common stock. We cannot predict the effect, if any,
that future sales of our debt securities or shares of common stock or the
notes, or the availability of the notes or shares of common stock for future
sale, will have on the market price of our common stock prevailing from time to
time.
Other Risks
Anti-takeover provisions in our governing documents and Pennsylvania law may
discourage other companies from attempting to acquire us.
Some provisions of our articles of incorporation and bylaws and of
Pennsylvania law may discourage some transactions where we would otherwise
experience a change in control. For example, our articles of incorporation and
bylaws contain provisions that:
. classify our board into three classes, with one class being elected each
year;
. do not permit cumulative voting;
. permit our board to issue "blank check" preferred stock without
shareholder approval;
. require certain advance notice procedures with regard to the nomination
of candidates for election as directors, other than nominations by or at
the direction of our board;
. prohibit us from engaging in some types of business combinations with a
holder of 10% or more of our voting securities without super-majority
shareholder or board approval;
. prevent our directors from being removed without cause except upon
super-majority shareholder approval; and
. prevent a holder of 20% or more of our common stock from taking certain
actions without certain approvals.
We also have adopted a Shareholder Rights Plan. This plan may make it more
difficult and more expensive to acquire us, and may discourage open market
purchases of our common stock or a non-negotiated tender or exchange offer for
such stock, and, accordingly, may limit a shareholder's ability to realize a
premium over the market price of our common stock in connection with any such
transaction.
8
SELECTED FINANCIAL DATA
The following selected financial data should be read in conjunction with our
financial statements and related notes incorporated in this prospectus by
reference.
In July 2001, the Financial Accounting Standards Board ("FASB") issued
Statement of Financial Accounting Standards ("SFAS") No. 141, "Business
Combinations," and SFAS No. 142, "Goodwill and Other Intangible Assets." SFAS
No. 141 requires the use of the purchase method of accounting for business
combinations initiated after June 30, 2001, and expands the definition of
intangible assets that are to be recorded separately from goodwill. For
business combinations accounted for under the purchase method that were
completed prior to July 1, 2001, previously recorded goodwill and intangibles
are to be evaluated against the criteria in SFAS No. 141, which may result in
the reclassification of certain intangible assets into or out of recorded
goodwill. SFAS No. 142 requires that goodwill and intangible assets with an
indefinite useful life not be amortized, but reviewed for impairment at least
annually and written down in periods in which the recorded value of the
goodwill or intangible asset exceeds its fair value. The transition provisions
of SFAS No. 142 require the continuation of amortization of goodwill acquired
prior to June 30, 2001, and require non-amortization of goodwill and
indefinite-lived intangible assets acquired subsequent to June 30, 2001, until
the provisions of SFAS No. 142 are adopted in full.
We adopted the provisions of SFAS No. 142 in full as of February 3, 2002.
Our consolidated balance sheet as of February 2, 2002 included $87,205,000 of
goodwill related to the acquisition of Catherine's Stores Corporation
("Catherine's"). We recognized $4,885,000 of amortization of the Catherine's
goodwill during each of the fiscal years ended February 2, 2002 and February 3,
2001. Commencing February 3, 2002, we are no longer amortizing goodwill.
However, the goodwill will be subject to periodic impairment reviews in
accordance with the provisions of SFAS No. 142.
Consequently, in accordance with the transition provisions of SFAS No. 142,
we tested the Catherine's goodwill for impairment during the thirteen weeks
ended August 3, 2002. We have determined that the carrying value of the
Catherine's goodwill (including the value of the intangible assets not
separately accounted for) exceeded the estimated fair value of the Catherine's
goodwill under SFAS No. 142. We have determined the estimated fair value of the
Catherine's goodwill using the present value of expected future cash flows
associated with the Catherine's assets and we recorded a write-down, which is
not deductible for income tax purposes, of $43,975,000 to reduce the carrying
value of the goodwill to its estimated fair value. The write-down has been
recorded as the cumulative effect of an accounting change as of February 3,
2002, the beginning of our year ended February 1, 2003. The calculation
required estimates, assumptions and judgments, and results might have been
materially different if different estimates, assumptions and judgments had been
used.
We have evaluated our recorded trademarks and Lane Bryant goodwill in
accordance with the provisions of SFAS No. 142 as of February 3, 2002, and have
determined that there has been no impairment.
9
The pro forma effect of applying the non-amortization provisions of SFAS No.
142 for the fiscal years ended February 2, 2002, February 3, 2001, and January
29, 2000 is as follows:
Year Ended
-----------------------------------
February 2, February 3, January 29,
2002 2001 2000
----------- ----------- -----------
(In thousands, except per share data)
Income (loss) before cumulative effect of accounting change, as
reported(1)....................................................... $(4,406) $51,638 $45,059
Pro forma effect of excluding goodwill amortization(2).............. 4,885 4,885 0
------- ------- -------
Pro forma income before cumulative effect of accounting change...... 479 56,523 45,059
Cumulative effect of accounting change, net of income tax benefit of
$334.............................................................. 0 (540) 0
------- ------- -------
Pro forma net income................................................ $ 479 $55,983 $45,059
======= ======= =======
Basic net income (loss) per share:
Income (loss) before cumulative effect of accounting change, as
reported(1).................................................... $ (.04) $ .51 $ .46
Pro forma effect of excluding goodwill amortization(2)........... .04 .05 .00
------- ------- -------
Pro forma income before cumulative effect of accounting change... .00 .56 .46
Cumulative effect of accounting change, net of income taxes...... $ .00 (.01) .00
------- ------- -------
Pro forma net income............................................. $ .00 $ .55 $ .46
======= ======= =======
Fully diluted net income (loss) per share...........................
Income (loss) before cumulative effect of accounting change, as
reported(1).................................................... $ (.04) $ .49 $ .43
Pro forma effect of excluding goodwill amortization(2)........... .04 .05 .00
------- ------- -------
Pro forma income before cumulative effect of accounting change... .00 .54 .43
Cumulative effect of accounting change, net of income taxes...... .00 (.01) .00
------- ------- -------
Pro forma net income per share................................... $ .00 $ .53 $ .43
======= ======= =======
--------
(1) During the quarter ended August 3, 2002, the Company adopted FAS 145,
"Rescission of FAS Statements No. 4, 44, and 64, Amendment of FAS 13, and
Technical Corrections," which requires that prior period financial
statements be reclassified consistent with the new rule. During the year
ended January 29, 2000, the Company had reported a $1.2 million after-tax
gain on the early retirement of debt as an extraordinary item in accordance
with the accounting rules in effect at that time. This item does not
qualify as an extraordinary item pursuant to FAS 145; accordingly it has
been reclassified to income before the cumulative effect of accounting
change.
(2) The goodwill amortization is not deductible for tax purposes and therefore
has no related tax effect.
10
USE OF PROCEEDS
We will not receive any proceeds from the sale by any selling securityholder
of the notes or the underlying common stock.
RATIO OF EARNINGS TO FIXED CHARGES
The unaudited ratio of earnings to fixed charges for each of the periods
indicated is as follows:
Fiscal Years Ended Six Months Ended
--------------------------------------------- -------------------
Jan. 31, Jan. 30, Jan. 29, Feb. 3, Feb. 2 August 4, August 3,
1998 1999 2000(2) 2001(1)(2) 2002(2) 2001 2002
-------- -------- -------- ---------- ------- --------- ---------
Ratio of earnings to fixed charges(3).......... 1.86x .09x 3.16x 2.91x .93x 2.67x 2.57x
Adjusted ratio of earnings to fixed charges(4). 1.48x 1.68x 2.86x 2.91x 1.50x 2.67x 2.57x
Pro forma ratio of earnings to fixed charges(5) NA NA NA NA 1.08x NA 2.87x
--------
(1) Fiscal year ended February 3, 2001 consisted of 53 weeks.
(2) Results for fiscal year ended February 2, 2002 and the six months ended
August 3, 2002 include the results of Lane Bryant, Inc., acquired August
16, 2001, from the date of acquisition. Results for fiscal years ended
February 2, 2002, February 3, 2001, and January 29, 2000 and the six months
ended August 3, 2002 and August 4, 2001 include the results of Catherines
Stores Corporation, acquired January 7, 2000, and Modern Woman Holdings,
Inc., acquired August 2, 1999, from the dates of their respective
acquisitions.
(3) In accordance with the rules and regulations of the SEC, for purposes of
computing the ratios of earnings to fixed charges, earnings represent
income from operations before fixed charges and income taxes, and fixed
charges represent gross interest expense, including capitalized interest,
and a share of rental expense, which is deemed to be representative of the
interest factor. We would have had to generate additional earnings of
$4,526,000 in the fiscal year ended February 2, 2002 and $30,989,000 in the
fiscal year ended January 30, 1999 to achieve a ratio of 1:1.
(4) For purposes of this adjusted ratio of earnings to fixed charges, earnings
represent income (loss) before cumulative effect of accounting change,
restructuring charge (credit), non-recurring gain from demutualization of
insurance company, nonrecurring gain from asset securitization, fixed
charges and income taxes, and fixed charges represent gross interest
expense, including capitalized interest, and a share of rental expense,
which is deemed to be representative of the interest factor.
(5) All proceeds from the offering of the notes to be registered will be
received by the selling noteholders. The net proceeds received by the
Company from the sales of notes to the initial purchasers were used to
retire $67.5 million of term notes, redeem $6.9 million of convertible
notes called for redemption and paydown $3.5 million of revolving credit
debt. The remaining $67.6 million, together with $16.5 million in existing
cash, was used to purchase $84.1 million of treasury stock. In connection
with the sale of notes to the initial purchasers, the Company called for
redemption all of its $96.0 million of 7.5% convertible notes due 2006.
$89.1 million of those notes were converted to common stock. The pro forma
ratio of earnings to fixed charges adjusts the historical ratio for the
elimination of all interest expense associated with the Company's 7.5%
convertible notes that were either converted or redeemed, the elimination
of interest expense associated with the term debt and revolving credit
borrowings which were paid, and the addition of interest expense related to
$77.9 million of the 4.75% Senior Convertible Notes, which were used to
redeem the 7.5% convertible notes and pay the term debt and revolving
credit borrowings. Borrowings used to pay the term debt were assumed to be
outstanding from August 16, 2001, when the term debt was issued. The pro
forma adjustments do not include any interest expense on the amount of
indebtedness used to purchase treasury stock. The pro forma ratio of
earnings to fixed charges is not necessarily indicative of what the future
ratio of earnings to fixed charges will be.
11
DESCRIPTION OF NOTES
We issued the notes under an indenture dated as of May 28, 2002 between
Charming Shoppes and Wachovia Bank, National Association, as trustee. The
following summarizes some, but not all, of the provisions of the notes and the
indenture. We urge you to read the indenture and the notes in their entirety
because they, and not this description, define your rights as a holder of the
notes. A copy of the form of indenture and the form of certificate evidencing
the notes has been filed as an exhibit to the registration statement of which
this prospectus is a part and is available to you upon request. In this
"Description of Notes," when we refer to "Charming Shoppes," "we," "our," or
"us," we are referring to Charming Shoppes, Inc., and not to any of its
subsidiaries.
General
The notes are our unsecured general obligations and are ranked in right of
payment as described under "--Ranking." The notes are convertible into our
common stock as described under "--Conversion of the Notes." The notes were
issued only in denominations of $1,000 or in integral multiples of $1,000.
The notes bear interest at the annual rate of 4.75% from the date of
original issuance or from the most recent payment date to which interest has
been paid or duly provided for. Interest is payable semi-annually in arrears on
June 1 and December 1, commencing on December 1, 2002 to holders of record at
the close of business on the preceding May 15 and November 15, respectively,
except:
. that the interest payable upon redemption or repurchase, unless the date
of redemption or repurchase is an interest payment date, will be payable
to the person to whom principal is payable; and
. as set forth in the next succeeding paragraph.
In the case of any note, or portion of any note, that is converted into our
common stock during the period from, but excluding, a record date for any
interest payment date to, but excluding, that interest payment date, either:
. if the note, or portion of the note, has been called for redemption on a
redemption date that occurs during that period, or is to be repurchased
on a repurchase date, as defined below, that occurs during that period,
then we will not be required to pay interest on that interest payment
date in respect of any note, or portion of any note, that is so redeemed
or repurchased; or
. if otherwise, any note or portion of any note that is not called for
redemption that is submitted for conversion during that period, must be
accompanied by funds equal to the interest payable on that interest
payment date on the principal amount so converted.
See "--Conversion of the Notes."
Interest will be paid, at our option, either:
. by check mailed to the address of the person entitled to the interest as
it appears in the note register; provided that a holder of notes with an
aggregate principal amount in excess of $10 million will, at the written
election of the holder, be paid by wire transfer in immediately available
funds; or
. by transfer to an account maintained by that person located in the United
States.
Payments to The Depository Trust Company, New York, New York ("DTC"), will
be made by wire transfer of immediately available funds to the account of DTC
or its nominee. Interest will be computed on the basis of a 360-day year
composed of twelve 30-day months.
The notes will mature on June 1, 2012 unless earlier converted, redeemed or
repurchased as described below. The indenture does not contain any financial
covenants or restrictions on the payment of dividends, the
12
incurrence of indebtedness or our issuance or repurchase of securities. The
indenture contains no covenants or other provisions to protect holders of the
notes in the event of a highly leveraged transaction or a change in control of
Charming Shoppes except to the extent described below under "--Repurchase at
Option of Holders."
Conversion of the Notes
Any registered holder of notes may, at any time before the close of business
on the business day before the date of repurchase, redemption or final maturity
of the notes, as appropriate, convert the principal amount of any notes or
portions thereof, in denominations of $1,000 or integral multiples of $1,000,
into our common stock, at the conversion price set forth on the cover page of
this prospectus, subject to adjustment as described below.
Except as described below, no payment or adjustment will be made on
conversion of any notes for interest accrued thereon or for dividends on any
common stock issued upon conversion. If any notes not called for redemption are
converted between a record date and the next interest payment date, those notes
must be accompanied by funds equal to the interest payable on the next interest
payment date on the principal amount so converted. We are not required to issue
fractional shares of common stock upon conversion of the notes and, instead,
will pay a cash adjustment based upon the market price of common stock on the
last trading day before the date of conversion. In the case of notes called for
redemption or tendered for repurchase, conversion rights will expire at the
close of business on the business day preceding the day fixed for redemption or
repurchase unless we default in the payment of the redemption or repurchase
price. A note that the holder has elected to be repurchased may be converted
only if the holder withdraws its election to have its notes repurchased in
accordance with the terms of the indenture.
The initial conversion price set forth on the cover page of this prospectus
is subject to adjustment upon specified events, including:
(1) the issuance of our common stock as a dividend or distribution on our
common stock;
(2) the issuance to all holders of common stock of rights or warrants to
purchase common stock at a price per share less than the current market
price;
(3) specified subdivisions and combinations of our common stock;
(4) the distribution to all holders of common stock of capital stock, other
than common stock, or evidences of our indebtedness or of assets,
including securities, but excluding those rights, warrants, dividends,
and distributions referred to above or paid in cash;
(5) a dividend or distribution consisting exclusively of cash to all holders
of our common stock if the aggregate amount of these distributions
combined together with (A) all other all-cash distributions made within
the preceding 12 months in respect of which no adjustment has been made
plus (B) any cash and the fair market value of other consideration
payable in any tender offer by us for common stock concluded within the
preceding 12 months in respect of which no adjustment has been made,
exceeds 15% of our market capitalization; or
(6) the purchase of our common stock pursuant to a tender offer made by us
to the extent that the same involves an aggregate consideration that,
together with (A) any cash and the fair market value of any other
consideration payable in any other tender offer by us for our common
stock expiring within the 12 months preceding such tender offer in
respect of which no adjustment has been made plus (B) the aggregate
amount of any such all-cash distributions referred to in (5) above to
all holders of our common stock within the 12 months preceding the
expiration of the tender offer for which no adjustment has been made,
exceeds 15% of our market capitalization on the expiration of such
tender offer.
We may, instead of making any required adjustment in the conversion price
under clause (4), (5) or (6), make proper provision so that each holder of
notes who converts a note shall be entitled to receive upon
13
conversion, in addition to shares of common stock, the amount and kind of
distributions that the holder would have been entitled to receive if the holder
had converted the note immediately prior to the date fixed for determining the
shareholders entitled to receive the distribution and, in the case of clauses
(5) and (6), interest accrued as a consequence of the investment of the cash
amount that the holder would have been so entitled to receive in U.S.
Government obligations with a maturity of not more than three months.
In the case of:
. any reclassification or change of the outstanding shares of our common
stock;
. a consolidation, merger or combination involving us; or
. a sale or conveyance to another person of our property and assets as an
entirety or substantially as an entirety in which holders of common stock
would be entitled to receive stock, other securities, other property or
assets, including cash, in respect of or in exchange for all shares of
our common stock.
Then the holders of the notes then outstanding will generally be entitled
thereafter to convert the notes into the same type of consideration that they
would have owned or been entitled to receive upon such event had the notes been
converted into common stock immediately before that event, assuming that a
holder of notes would not have exercised any rights of election as to the
consideration receivable in connection with that transaction.
If we make a taxable distribution to holders of our common stock or in
specified other circumstances requiring an adjustment to the conversion price,
the holders of notes may, in some circumstances, be deemed to have received a
distribution subject to U.S. income tax as a dividend. In some other
circumstances, the absence of an adjustment to the conversion price may result
in a taxable dividend to the holders of our common stock. See "Certain United
States Federal Tax Considerations."
We may from time to time, to the extent permitted by law, reduce the
conversion price by any amount for any period of at least 20 days, in which
case we will give at least 15 days' notice of the reduction. We may, at our
option, make reductions to the conversion price, in addition to those described
above, as our board deems advisable to avoid or diminish any income tax to
holders of our common stock resulting from any dividend or distribution of
stock, or rights to acquire stock, or from any event treated as dividends or
distributions of, or rights to acquire, stock for income tax purposes.
No adjustment in the conversion price will be required unless that
adjustment would require an increase or decrease of at least 1% in the
conversion price then in effect; however, any adjustment that would otherwise
be required to be made will be carried forward and taken into account in any
subsequent adjustment. Except as stated above, the conversion price will not be
adjusted for the issuance of common stock or any securities convertible into or
exchangeable for common stock or carrying the right to purchase any of the
foregoing.
Optional Redemption by Us
The notes are not entitled to any sinking fund.
At any time on or after June 4, 2007, we may redeem the notes on at least 20
days' notice as a whole or, from time to time, in part at the following prices,
expressed as a percentage of the principal amount, together with accrued
interest to, but excluding, the date fixed for redemption:
Redemption
Period Price
------ ----------
Beginning June 4, 2007 and ending on May 31, 2008 102.38%
Beginning June 1, 2008 and ending on May 31, 2009 101.90%
Beginning June 1, 2009 and ending on May 31, 2010 101.43%
Beginning June 1, 2010 and ending on May 31, 2011 100.95%
Beginning June 1, 2011 and ending on May 31, 2012 100.48%
14
Any accrued interest becoming due on the date fixed for redemption will be
payable to the holders of record on the relevant record date of the notes being
redeemed.
If less than all of the outstanding notes are to be redeemed, the trustee
will select the notes to be redeemed in principal amounts of $1,000 or integral
multiples of $1,000 by lot, pro rata or by another method the trustee considers
fair and appropriate. If a portion of a holder's notes is selected for partial
redemption and that holder converts a portion of that holder's notes, the
converted portion will be deemed to be of the portion selected for redemption.
On and after the redemption date, unless we default in the payment of the
redemption price, interest will cease to accrue on the principal amount of the
notes or portions of notes called for redemption and for which funds have been
set apart for payment. In the case of notes or portions of notes redeemed on a
redemption date which is also a regularly scheduled interest payment date, the
interest payment due on such date will be paid to the person in whose name the
note is registered at the close of business on the relevant record date.
Repurchase at Option of Holders
You will have the right, at your option, to require us to repurchase all or
any portion of your notes following the occurrence of a repurchase event.
The repurchase price will be 100% of the principal amount of the notes
submitted for repurchase, plus accrued and unpaid interest to, but excluding,
the repurchase date. If a repurchase date is an interest payment date, then the
interest payable on that date will be paid to the holder of record on the
preceding record date.
At our option, instead of paying the repurchase price in cash, we may pay
the repurchase price in shares of our common stock, valued at 95% of the
average of the closing prices for the five trading days immediately before and
including the third trading day preceding the repurchase date. The repurchase
price may be paid in shares of common stock only if the following conditions
are satisfied:
. such shares have been registered under the Securities Act or are freely
transferable without such registration;
. the issuance of such common stock does not require registration with or
approval of any governmental authority under any state law or any other
federal law, which registration or approval has not been made or obtained;
. such shares have been approved for quotation on the Nasdaq National
Market or listing on a national securities exchange; and
. such shares will be issued out of our authorized but unissued common
stock and, upon issuance, will be duly and validly issued and fully paid
and non-assessable and free of any preemptive rights.
A repurchase event will be considered to have occurred if one of the
following "change in control" events occurs:
. any person or group is or becomes the beneficial owner of more than 50%
of the voting power of our outstanding securities entitled to generally
vote for directors;
. we consolidate with or merge into any other person or any other person
merges into us and, as a result, our outstanding common stock is changed
or exchanged for other assets or securities, unless our shareholders
immediately before the transaction own, directly or indirectly,
immediately following the transaction more than 50% of the combined
voting power of the person resulting from the transaction, or unless such
transaction is effected solely to change our jurisdiction of
incorporation;
. we convey, transfer or lease all or substantially all of our assets to
any person other than our subsidiaries, unless our shareholders
immediately before the transaction own, directly or indirectly,
15
immediately following the transaction more than 50% of the combined
voting power of the transferee person; or
. we are liquidated or dissolved or adopt a plan of liquidation or
dissolution other than in a transaction which complies with the
provisions described under "--Consolidation, Merger and Sale of Assets."
However, a change in control will not be deemed to have occurred if either:
. the last sale price of our common stock for any five trading days within
(A) the period of ten consecutive trading days immediately after the
later of the change in control or the public announcement of the change
in control, in the case of a change in control resulting solely from a
change in control under the first bullet point above; or (B) the period
of ten consecutive trading days immediately preceding the change in
control, in the case of a change in control under the second and third
bullet points above, is at least equal to 105% of the conversion price in
effect on such day; or
. in the case of a merger or consolidation, at least 90% of the
consideration excluding cash payments for fractional shares in the merger
or consolidation constituting the change in control consists of common
stock traded on a United States national securities exchange or quoted on
the Nasdaq National Market (or which will be so traded or quoted when
issued or exchanged in connection with such change in control) and as a
result of such transaction or transactions the notes become convertible
solely into such common stock.
We are required to mail you a notice no later than 10 business days after
the occurrence of a repurchase event. The notice must describe, among other
things, the repurchase event, your right to elect repurchase of the notes, and
the repurchase date. We must deliver a copy of the notice to the trustee. You
may exercise your repurchase rights by delivering written notice to the
trustee. The notice must be accompanied by the notes duly endorsed for transfer
to us. You must deliver the exercise notice on or before the 30th day after the
date of our notice of such repurchase event (the "Repurchase Date").
Any repurchase notice may be withdrawn by the holder by a written notice of
withdrawal delivered to us and the trustee before the close of business on the
business day prior to the Repurchase Date.
The interpretation of the phrase "all or substantially all" used in the
definition of change in control would likely depend on the facts and
circumstances existing at such time. As a result, there may be uncertainty as
to whether or not a sale or transfer of "all or substantially all" assets has
occurred. As a result, we cannot assure you how a court would interpret this
phrase under applicable law if you elect to exercise your rights following the
occurrence of a transaction which you believe constitutes a transfer of "all or
substantially all" of our assets.
We may not have sufficient cash funds to repurchase the notes upon a
repurchase event. We may elect, subject to certain conditions, to pay the
repurchase price in common stock. Our debt agreements may prohibit us from
paying the repurchase price in either cash or common stock. If we are
prohibited from repurchasing the notes, we could seek consent from our lenders
to repurchase the notes. If we are unable to obtain their consent, we could
attempt to refinance the notes. If we were unable to obtain a consent or
refinance, we would be prohibited from repurchasing the notes. If we were
unable to repurchase the notes upon a repurchase event, it would result in an
event of default under the indenture. An event of default under the indenture
could result in a further event of default under our other then-existing debt.
In addition, the occurrence of the repurchase event may be an event of default
under our other debt.
The change in control feature may not necessarily afford you protection in
the event of a highly leveraged transaction, a change in control or similar
transactions involving us. We could, in the future, enter into transactions,
including recapitalizations, that would not constitute a change in control but
that would increase the amount of our senior indebtedness or other debt. We are
not prohibited from incurring senior indebtedness or debt under the indenture.
If we incur significant amounts of additional debt, this could have an adverse
effect on
16
our ability to make payments on the notes. In addition, our management could
undertake leveraged transactions that could constitute a change in control. Our
board does not have the right under the indenture to limit or waive the
repurchase right in the event of these types of leveraged transaction.
The requirement to repurchase notes upon a repurchase event could delay,
defer or prevent a change in control. As a result, the repurchase right may
discourage:
. a merger, consolidation or tender offer; and
. the assumption of control by a holder of a large block of our shares.
The repurchase feature was a result of negotiations between us and the
initial purchasers. The repurchase feature is not the result of any specific
effort to accumulate shares of common stock or to obtain control of us by means
of a merger, tender offer or solicitation, or part of a plan by us to adopt a
series of anti-takeover provisions. We have no present intention to engage in a
transaction involving a change in control, although it is possible that we may
decide to do so in the future.
The Exchange Act and the rules thereunder require the distribution of
specific types of information to securityholders in the event of issuer tender
offers. These rules may apply in the event of a repurchase. We will comply with
these rules to the extent applicable.
Ranking
The notes are our senior unsecured obligations and rank equally with all of
our existing and future senior indebtedness. However, the notes are effectively
subordinated to all existing and future obligations (including obligations to
trade creditors) of our subsidiaries, and to any of our secured indebtedness to
the extent of the collateral securing such indebtedness. See "Description of
Other Indebtedness--Loan and Security Agreement." As of August 3, 2002, we had
outstanding letters of credit totaling $75.7 million under our revolving credit
facility. No other amounts were outstanding under our revolving credit
agreement as of that date.
Satisfaction and Discharge
We may be discharged from our obligations on the notes if they mature within
one year or will be redeemed within one year, and we deposit with the trustee
enough cash and/or U.S. government obligations to pay all the principal,
premium, if any, and interest due to the stated maturity date or redemption
date of the notes.
Defeasance
The indenture also contains a provision that permits us to elect:
. to be discharged from all of our obligations, subject to limited
exceptions, with respect to the notes then outstanding; and/or
. to be released from our obligations under the covenants relating to the
required offer to repurchase upon a repurchase event, maintenance of our
corporate existence, reports to holders, and certain other obligations.
To make either of the above elections, we must deposit in trust with the
trustee enough money to pay in full the principal, premium, if any, and
interest on the notes. This amount may be made in cash and/or U.S. government
obligations. As a condition to either of the above elections, we must deliver
to the trustee an opinion of counsel that the holders of the notes will not
recognize income, gain or loss for Federal income tax purposes as a result of
the action. If we elect to be discharged from all of our obligations as
outlined above in the first bullet point in this section, the holders of the
notes will not be entitled to the benefits of the indenture, except for
registration of transfer and exchange of notes and replacement of lost, stolen
or mutilated notes.
17
Transfer and Exchange
We issued the notes in registered form, without interest coupons. Notes may
be transferred or exchanged at the office of the security registrar in
accordance with the indenture. We will not impose a service charge for any
transfer or exchange, but we may require holders to pay any tax or other
governmental charges associated with any transfer or exchange. In the event of
any potential redemption of the notes, we will not be required to:
. issue, authenticate or register the transfer of or exchange any note
during a period beginning at the opening of business 10 business days
before the mailing of a notice of redemption and ending at the close of
business on the day of the mailing; or
. register the transfer of or exchange any note selected for redemption, in
whole or in part, except the unredeemed portion of notes being redeemed
in part.
Consolidation, Merger and Sale of Assets
We may not consolidate with or merge into any other person, in a transaction
in which we are not the surviving corporation, or convey, transfer or lease our
properties and assets substantially as an entirety to, any person, unless:
. the successor, if any, is a U.S. or a District of Columbia corporation,
limited liability company, partnership, trust or other business entity;
. the successor assumes our obligations under the notes, the indenture and
the registration rights agreement; and
. immediately after giving effect to the transaction, no default or event
of default will have occurred and be continuing, and certain other
conditions are met.
Events of Default
The indenture defines an event of default with respect to the notes as one
or more of the following events:
(1) our failure to pay principal of or any premium on the notes when due;
(2) our failure to pay any interest on the notes when due, if such failure
continues for 30 days;
(3) our failure to perform any other covenant in the indenture, if such
failure continues for 90 days after the notice required in the indenture;
(4) any indebtedness under any bonds, debentures, notes or other evidences
of indebtedness for money borrowed, or any guarantee thereof, by us or
any of our significant subsidiaries, in an aggregate principal amount in
excess of $50 million is not paid when due either at its stated maturity
or upon acceleration thereof, and such indebtedness is not discharged,
or such acceleration is not rescinded or annulled within a period of 30
days after notice as provided in the indenture; or
(5) our bankruptcy, insolvency or reorganization (which in the case of a
proceeding instituted against us is not dismissed within 90 days).
If an event of default, other than an event of default described in the last
clause above, occurs and continues, either the trustee or the holders of at
least 25% in aggregate principal amount of the outstanding notes, by written
notice to us and the trustee, may declare the principal amount, including any
accrued and unpaid interest on the notes, to be due and payable. Upon such
declaration, such principal amount, premium, if any, and accrued and unpaid
interest and liquidated damages, if any, will become immediately due and
payable, notwithstanding anything contained in the indenture or the notes to
the contrary. If an event of default described in the last clause above occurs,
the principal amount of all the notes will automatically become immediately due
and payable.
After acceleration but before a judgment or decree of the money due in
respect of the notes has been obtained, the holders of a majority in aggregate
principal amount of the outstanding notes may rescind such
18
acceleration and its consequences, except default in the payment of principal
or interest on the notes (other than the nonpayment of principal or interest on
the notes that has become due solely by virtue of an acceleration that has been
duly rescinded as provided above).
Other than the duty to act with the required care during an event of
default, the trustee will not be obligated to exercise any of its rights or
powers at the request of the holders unless the holders offer the trustee
reasonable indemnity. Generally, the holders of a majority in aggregate
principal amount of the notes will have the right to direct the time, method,
and place of conducting any proceeding for any remedy available to the trustee
or exercising any trust or power conferred on the trustee. If a default or
event of default occurs and notice is delivered to the trustee, the indenture
requires the trustee to mail a notice of default or event of default to each
holder within 60 days of the occurrence of such default or event of default.
However, the trustee may withhold from the holders notice of any continuing
default or event of default (except a default or event of default in the
payment of principal or interest on the notes) if it determines in good faith
that withholding notice is in their best interest.
A holder will have the right to begin a proceeding under the indenture, or
for the appointment of a receiver or a trustee, or for any other remedy under
the indenture only if:
(1) the holder gives to the trustee written notice of a continuing event of
default;
(2) holders of at least 25% in aggregate principal amount of notes then
outstanding made a written request to the trustee to pursue the remedy;
(3) such holder or holders offer to the trustee indemnity satisfactory to
the trustee against any loss, liability or expense;
(4) the trustee does not comply with the request within 60 days after
receipt of the request and the offer of indemnity; and
(5) during such 60-day period the holders of a majority in aggregate
principal amount of the notes then outstanding do not give the trustee a
direction inconsistent with the request.
Holders may, however, sue to enforce the payment of principal, premium or
interest on or after the due date or their right to convert without following
the procedures listed in (1) through (5) above.
We will furnish the trustee an annual statement by our officers as to
whether or not, to the officer's knowledge, we are in default in the
performance of the indenture and, if so, specifying all known defaults.
Modification and Waiver
We and the trustee may make certain modifications and amendments to the
indenture or the notes without notice to or the consent of any holder,
including modifications or amendments to comply with the merger provisions
described in the indenture, to provide for uncertificated notes in addition to
or in place of certificated notes, to comply with the provisions of the Trust
Indenture Act, to appoint a successor trustee, to cure any ambiguity, defect or
inconsistency, or to make any other change that does not adversely affect the
rights of the holders.
We may make modifications and amendments to the indenture with the consent
of the holders of a majority in aggregate principal amount of the outstanding
notes affected by the modification or amendment. However, we may not make any
modification or amendment without the consent of the holder of each outstanding
note affected by the modification or amendment if such modification or
amendment would:
. change the stated maturity of the notes;
. reduce the principal, premium, if any, or interest on the notes;
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. change the place of payment from New York, New York or the currency in
which the notes are payable;
. waive a default in payment of the principal of or interest on any note
(except a rescission of acceleration of the notes by the holders of at
least a majority in aggregate principal amount of the notes and a waiver
of the payment default that resulted from such acceleration);
. impair the right to sue for any payment after the stated maturity or
redemption date;
. modify the ranking of the notes in a materially adverse manner to the
holders;
. adversely affect the right to convert the notes other than as provided in
or under the indenture; or
. change the provisions in the indenture that relate to modifying or
amending the indenture.
Generally, the holders of not less than a majority of the aggregate
principal amount of the outstanding notes may, on behalf of all holders of the
notes, waive any past default or event of default unless:
. we fail to pay principal, premium or interest on any note when due (other
than on account of acceleration that may be rescinded by the majority
holders);
. we fail to convert any note into common stock; or
. we fail to comply with any of the provisions of the indenture that would
require the consent of the holder of each outstanding note affected.
Any notes held by us or by any persons directly or indirectly controlling or
controlled by or under direct or indirect common control with us will be
disregarded (from both the numerator and denominator) for purposes of
determining whether the holders of a majority in principal amount of the
outstanding notes have consented to a modification, amendment or waiver of the
terms of the indenture.
Notices
Notices to holders will be given by mail to the addresses of the holders in
the security register.
Governing Law
The indenture and the notes are governed by, and construed under, the law of
the State of New York, without regard to conflicts of laws principles.
Regarding the Trustee
Wachovia Bank, National Association is the trustee under the indenture. The
trustee will be permitted to deal with us and any affiliate of ours with the
same rights as if it were not trustee. However, under the Trust Indenture Act,
if the trustee acquires any conflicting interest and there exists a default
with respect to the notes, the trustee must eliminate such conflicts or resign.
Wachovia Bank, National Association is an affiliate of First Union
Securities, Inc., an initial purchaser of the notes. Pursuant to the Trust
Indenture Act of 1939, if an event of default were to occur with respect to the
notes, Wachovia Bank, National Association might be deemed to have a
conflicting interest by virtue of being an affiliate of one of the initial
purchasers of the notes. In that event, Wachovia Bank, National Association
would be required to resign as a trustee or eliminate the conflicting interest.
The holders of a majority in principal amount of all outstanding notes will
have the right to direct the time, method and place of conducting any
proceeding for exercising any remedy or power available to the trustee.
However, any such direction may not conflict with any law or the indenture, may
not be unduly prejudicial to the rights of another holder or the trustee and
may not involve the trustee in personal liability.
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We have initially appointed the trustee as the security registrar, paying
agent and conversion agent. We may designate additional registrars, paying or
conversion agents or change registrars, paying or conversion agents. However,
we will be required to maintain a paying agent in the place of payment for the
notes.
Purchase and Cancellation
All notes surrendered for payment, redemption, registration of transfer or
exchange or conversion will, if surrendered to any person other than the
trustee, be delivered to the trustee. All notes delivered to the trustee will
be cancelled promptly by the trustee. No notes will be issued in exchange for
any notes cancelled as provided in the indenture.
We may, to the extent permitted by law, purchase notes in the open market or
by tender offer at any price or by private agreement. Any notes purchased by us
may, to the extent permitted by law, be reissued or resold or may, at our
option, be surrendered to the trustee for cancellation. Any notes surrendered
for cancellation may not be reissued or resold and will be promptly cancelled.
Replacement Notes
We will replace mutilated, destroyed, stolen or lost notes at your expense
upon delivery to the trustee of the mutilated notes, or evidence of the loss,
theft or destruction of the notes satisfactory to the trustee and us. In the
case of a lost, stolen or destroyed note, indemnity satisfactory to the trustee
and us may be required at the expense of the holder of such note before a
replacement note will be issued.
No Recourse Against Others
None of our directors, officers, employees, shareholders or affiliates, as
such, will have any liability or any obligations under the notes or the
indenture or for any claim based on, in respect of or by reason of such
obligations or the creation of such obligations. Each holder by accepting a
note waives and releases all such liability. The waiver and release are part of
the consideration for the notes.
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DESCRIPTION OF OTHER INDEBTEDNESS
The following summarizes the material provisions of certain of our
indebtedness currently outstanding. The capitalized terms used below and not
otherwise defined in this prospectus have the definitions applied to them
within our loan and security agreement.
Loan and Security Agreement
In connection with the acquisition of Lane Bryant, we replaced our existing
$150 million revolving credit facility with a $375 million loan and security
agreement. We also terminated two existing $20 million and $10 million
revolving credit facilities. The loan and security agreement consists of a
$300.0 million four year revolving credit facility and a $75.0 million three
year term-loan. The loan and security agreement also enables us to have issued
up to $150 million of letters of credit for overseas purchases of merchandise.
During the second quarter of fiscal 2003 we repaid in full amounts then
outstanding under the term-loan totaling $67.5 million. As of August 3, 2002,
we had outstanding letters of credit totaling $75.7 million under our revolving
credit facility. As of that date, we had no cash borrowings outstanding under
the revolving credit facility and had unused availability under the facility of
$166.5 million. The availability of borrowings under our revolving credit
facility is subject to limitations based on eligible inventory and the value of
certain real property. The credit facility is secured by our general assets,
except for certain assets related to our credit card securitization program,
certain real properties and equipment subject to other mortgages, our interest
in our joint venture with Monsoon plc, and the assets of our non-U.S.
subsidiaries.
The interest rate on borrowings under the revolving credit facility ranges
from Prime to Prime plus .75% per annum for Prime Rate Loans, and LIBOR plus
2.0% to LIBOR plus 2.75% per annum for Eurodollar Rate Loans, and is determined
quarterly, based on our Leverage Ratio or excess availability, as defined in
the loan and security agreement. The interest rate on borrowings under the
three year term-loan that was repaid was 11.5%.
The loan and security agreement includes limitations on sales and
leasebacks, the incurrence of additional liens and debt, capital lease
financing, and other limitations. The loan and security agreement also
requires, among other things, that we not pay dividends on our common stock,
under certain circumstances, and that we maintain an Adjusted Tangible Net
Worth of $228.0 million (subject to adjustment). As of August 3, 2002, we were
not in violation of any of the covenants included in the loan and security
agreement.
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DESCRIPTION OF CAPITAL STOCK
Pursuant to our articles of incorporation, our authorized capital stock
consists of 301,000,000 shares, of which:
. 1,000,000 shares are designated as preferred stock, of which 500,000
shares of Participating Series A Junior Preferred Stock (the "Series A
Preferred Shares"), $1.00 par value, have been authorized, none of which
are outstanding; and
. 300,000,000 shares are designated as common stock, $0.10 par value, of
which 112,763,060 shares are outstanding as of September 18, 2002.
Common Stock
Holders of common stock are entitled to one vote per share on all matters to
be voted upon by shareholders generally, including the election of directors.
Shareholders are entitled to receive such dividends as may be declared from
time to time by our board out of funds legally available for dividends and in
the event of our liquidation, dissolution or winding up, to share ratably in
all assets remaining after the payment of liabilities and any liquidation
preference associated with outstanding preferred stock. The holders of our
common stock have no cumulative voting rights, no preemptive rights, and no
conversion rights. Our common stock outstanding as of the date of this
prospectus is fully paid and nonassessable.
The transfer agent for our common stock is American Stock Transfer and Trust
Company.
Preferred Stock
The board is authorized under our articles of incorporation to provide,
without further shareholder action, for the issuance of preferred stock in one
or more series with such designations, rights, qualifications, preferences,
restrictions, and special or relative rights as may be set forth in resolutions
adopted by our board. Accordingly, our board may issue preferred stock with
dividend, liquidation, conversion, voting or other rights that could adversely
affect the voting power or other rights of the holders of common stock. For
example, the issuance of series preferred stock could result in a class of
securities outstanding that will have certain preferences with respect to
dividends and in liquidation over our common stock, may enjoy certain voting
rights, contingent or otherwise, in addition to that of our common stock, and
could result in the dilution of the voting rights, net income per share, and
net book value of our common stock.
Except for the Series A Preferred Shares (as described below), we have not
authorized for issuance any preferred stock.
Series A Preferred Shares
In connection with the adoption of the Shareholder Rights Plan described
below, our board authorized 500,000 Series A Preferred Shares. As of the date
of this prospectus, there were no Series A Preferred Shares outstanding.
As of the date of this prospectus, holders of Series A Preferred Shares are
entitled to 300 votes per share on all matters to be voted upon by our
shareholders. If we, at any time after the date of this prospectus: (i) declare
a dividend on common stock payable in shares of common stock; (ii) subdivide
the outstanding shares of common stock; or (iii) combine the outstanding shares
of common stock into a smaller number of shares (with each of (i)-(iii) being a
"Preferred Adjustment Event"), then, in each such case, the number of votes per
share to which a holder of Series A Preferred was entitled immediately before
such event will be adjusted by multiplying such number by a fraction, the
numerator of which will be the number of shares of common stock outstanding
immediately after such event and the denominator of which will be the number of
shares of common stock outstanding immediately before such event (the
"Preferred Adjustment Factor").
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Dividends on Series A Preferred Shares accrue quarterly, on a cumulative
basis and will be paid out of funds legally available for such purpose. As of
the date of this prospectus, the rate of dividends payable on the first day of
March, June, September and December or such other quarterly date as may be
specified by our board will be in an amount per Series A Preferred Share equal
to the greater of (i) $1.50 or (ii) subject to the provision for adjustment set
forth below, 300 times the aggregate per share amount of cash dividends, and
300 times the aggregate per share amount of all non-cash dividends or other
distributions, other than a dividend payable in shares of common stock or a
subdivision of the outstanding shares of common stock, declared on our common
stock since the immediately preceding quarterly dividend payment date, or with
respect to the first quarterly dividend payment date, since the first issuance
of any share or fraction of a share of the Series A Preferred Shares. If a
Preferred Adjustment Event occurs at any time after the date of this offering
memorandum, the amount of dividends specified in (ii) to which holders of
Series A Preferred Shares were entitled immediately before such event will be
adjusted by multiplying such number by the Preferred Adjustment Factor.
In the event of our liquidation, dissolution or winding up, holders of
Series A Preferred Shares will be entitled to receive the greater of (i) $1.00
per Series A Preferred Share, plus accrued dividends to the date of
distribution, whether or not earned or declared or (ii) an amount per share,
subject to the provision for adjustment set forth below, equal to 300 times the
aggregate amount to be distributed per share to the holders of common stock. If
a Preferred Adjustment Event occurs any time after the date of this prospectus,
then the liquidation payment contemplated by (ii) will be adjusted by
multiplying such amount by the Preferred Adjustment Factor.
If the dividends upon the Series A Preferred Shares are in arrears in an
amount equal to six full quarterly dividends thereon, the holders of such
series will be entitled to elect two directors. Such voting rights will
continue until all accumulated and unpaid dividends have been paid or set aside
for such purpose. At any time when such a right to elect directors has vested,
we may, and upon the written request of not less than 20% of the then
outstanding total number of Series A Preferred Shares having the right to elect
directors in such circumstances will, call a special meeting of holders of such
Series A Preferred Shares for the election of directors; provided that we will
not be required to call a special meeting if the request is received less than
120 days before the next scheduled annual meeting or special meeting of the
shareholders.
The Series A Preferred Stock is not redeemable, and will rank junior with
respect to payment of dividends and on liquidation to all other series of our
preferred stock, except to the extent that any such series specifically
provides that it will rank on parity with or junior to the Series A Preferred
Stock.
Shareholder Rights Plan
In February 1999, our board adopted a Shareholder Rights Plan to replace our
prior Shareholder Rights Plan. Our board also authorized an increase of the
Series A Preferred Shares from 300,000 shares to 500,000 shares and declared a
dividend of one Right for each outstanding share of our common stock, payable
as of the close of business on April 26, 1999 to shareholders of record as of
the close of business on April 12, 1999.
Each Right entitles the registered holder to purchase from us one
three-hundredth of a share of Series A Preferred Stock, or, under certain
circumstances, a combination of securities and assets of equivalent value, at a
Purchase Price of $20.00 per share of common stock or Right, subject to
adjustment. The Purchase Price may be paid in cash or, if we permit, by the
delivery of Rights under certain circumstances. The description and terms of
the Rights are set forth in an Amended and Restated Rights Agreement (the
"Rights Agreement") between us and American Stock Transfer & Trust Company, as
Rights Agent. Each capitalized term in this "--Shareholder Rights Plan" has the
meaning assigned to it within the Rights Agreement.
Initially, ownership of the Rights will be evidenced by the certificates
representing shares of our common stock then outstanding, and no separate
Rights certificates will be distributed. The Rights will separate from shares
of our common stock and a "Distribution Date" will occur upon the earlier of
(i) 10 days following a
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public announcement that (subject to certain exceptions) a person or group of
affiliated or associated persons (an "Acquiring Person") has acquired, or
obtained the right to acquire, beneficial ownership of 20% or more of shares of
our outstanding common stock (the "Stock Acquisition Date") or (ii) the close
of business on such date as may be fixed by our board, after the commencement
of a tender or exchange offer that would result in a person or group
beneficially owning 20% or more of our outstanding common stock. Until the
Distribution Date, (i) the Rights will be evidenced by the certificates
representing shares of our common stock and will be transferred with and only
with such certificates; (ii) certificates issued after April 26, 1999 will
contain a notation incorporating the Rights Agreement by reference; and (iii)
the surrender for transfer of any certificates for our common stock outstanding
will also constitute the transfer of the Rights associated with the common
stock represented by such certificate. The Rights will not be exercisable until
the Distribution Date and will expire at the close of business on April 25,
2009, unless earlier redeemed by us as provided in the Rights Agreement.
If at any time following the Distribution Date a person becomes an Acquiring
Person, each holder of a Right will thereafter have the right to receive, upon
exercise, our common stock (or, in certain circumstances, cash, property or
other of our securities) having a value equal to two times the exercise price
of the Right. Instead of requiring payment of the purchase price upon exercise
of the Rights following any such event, we may permit the holders simply to
surrender the Rights under certain circumstances in which event they will be
entitled to receive our common stock (and other property, as the case may be)
with a value of 50% of what could be purchased by payment of the full purchase
price. Notwithstanding any of the foregoing, all Rights that are, or (under
certain circumstances specified in the Rights Agreement) were, beneficially
owned by the Acquiring Person will be null and void. However, Rights are not
exercisable until such time as the Rights are no longer redeemable by us as set
forth in the Rights Agreement.
If at any time following the Stock Acquisition Date, (i) we are acquired in
a merger or other business combination transaction in which we are not the
surviving corporation (other than a merger that is described, or that follows a
tender offer or exchange offer described, above) or (ii) 50% or more of our
assets or earning power are sold or transferred, each holder of a Right (except
Rights that previously have been voided) will thereafter have the right to
receive, upon exercise, common shares of the acquiring company having a value
equal to two times the exercise price of the Right. Again, provision is made to
permit the surrender of the Rights in exchange for one-half of the value
otherwise purchasable. The events set forth in this paragraph and in the
preceding paragraph are referred to as the "Triggering Events."
The purchase price payable, and the number of shares of our common stock or
other securities or property issuable, upon exercise of the Rights are subject
to adjustment from time to time to prevent dilution as described in the Rights
Agreement. With certain exceptions, no adjustment in the purchase price will be
required until cumulative adjustments amount to at least 1% of the purchase
price. No fractional share of common stock will be issued and, in lieu thereof,
an adjustment in cash will be made based on the market price of the common
stock on the last trading date prior to the date of exercise.
At any time until ten days following the Stock Acquisition Date, we may
redeem the Rights in whole, but not in part, at a redemption price of $.01 per
Right, subject to adjustment. The ten-day period may be extended by our board
so long as the Rights are still redeemable. Immediately upon the action of the
board ordering redemption of the Rights, the Rights will terminate and the only
right of the holders of Rights will be to receive the redemption price.
Anti-takeover Provisions of Applicable Pennsylvania Law and our Articles of
Incorporation and Bylaws
Certain provisions of the Pennsylvania Business Corporation Law of 1988, as
amended (the "PBCL"), and our articles of incorporation and bylaws, summarized
in the following paragraphs, may be deemed to have an anti-takeover effect and
may delay, deter or prevent a tender offer or takeover attempt that a
shareholder might consider in his or her best interest, including those
attempts that might result in a premium over the market price for the shares of
common stock held by shareholders.
25
Pennsylvania Business Corporation Law
Generally, Subchapters 25E, F, G and H of the PBCL place certain procedural
requirements and establish certain restrictions upon the acquisition of voting
shares of a corporation which would entitle the acquiring person to cast or
direct the casting of a certain percentage of votes in an election of
directors. As a consequence of amendments to our bylaws that were effected in
1984 and 1990, only Subchapter 25F of the PBCL applies to us.
Subchapter 25F applies to a transaction between a publicly traded
corporation and an interested shareholder (defined generally to be any
beneficial owner of 20% or more of the corporation's voting stock). Subchapter
25F prohibits such a corporation from engaging in a "business combination" (as
defined in the PBCL) with an interested shareholder unless (i) the board of
such corporation gives approval to the proposed transaction or gives approval
to the interested shareholder's acquisition of 20% of the shares entitled to
vote in an election of directors of such corporation, in either case before the
date on which the shareholder first becomes an interested shareholder (the
"Share Acquisition Date"); (ii) the interested shareholder owns at least 80% of
the stock of such corporation entitled to vote in an election of directors and,
no earlier than three months after such interested shareholder reaches such 80%
level, the majority of the remaining shareholders approve the proposed
transaction and shareholders receive a minimum "fair price" for their shares
(as set forth in the PBCL) in the transaction and the other conditions of
Subchapter 25F are met; (iii) holders of all outstanding shares of common stock
approve the transaction; (iv) no earlier than five years after the Share
Acquisition Date, a majority of the remaining shares entitled to vote in an
election of directors approve the transaction; or (v) no earlier than five
years after the Share Acquisition Date, a majority of all the shares approve
the transaction, all shareholders receive a minimum "fair price" for their
shares (as set forth in the PBCL) and the other conditions of Subchapter 25F
are met.
Under certain circumstances, Subchapter 25F makes it more difficult for an
interested shareholder to effect various business combinations with a
corporation for a five-year period following a Share Acquisition Date. The
provisions of Subchapter 25F should encourage persons interested in acquiring
us to negotiate in advance with our board, since the higher shareholder voting
requirements would not be invoked if such person, before acquiring 20% of our
common stock, obtains the approval of our board for such acquisition or for the
proposed business combination transaction (unless such person acquires 80% or
more of our voting shares in such transaction, excluding certain shares as
described above).
Subchapter 25F will not prevent a hostile takeover of us. It may, however,
make more difficult or discourage a takeover of us or the acquisition of
control of us by a significant shareholder and thus the removal of incumbent
management. Some shareholders may find this disadvantageous in that they may
not be afforded the opportunity to participate in takeovers that are not
approved as required by Subchapter 25F but in which shareholders might receive,
for at least some of their shares, a substantial premium above the market price
at the time of a tender offer or other acquisition transaction.
Articles of Incorporation and Bylaws Provisions
Certain provisions of our articles of incorporation and bylaws may have the
effect of discouraging unilateral tender offers or other attempts to takeover
and acquire our business. These provisions may discourage some potentially
interested purchasers from attempting a unilateral takeover bid for us on terms
which some shareholders might favor. These provisions may also reduce the
likelihood of a change in the management or voting control of us without the
consent of our then incumbent board.
The articles of incorporation and bylaws provide for a classified board
consisting of three classes as nearly equal in number as practicable. The
members of each class are elected for a period of three years, and the term of
at least one class will expire in each year. The terms of the existing three
classes expire in 2003, 2004 and 2005, respectively. Our board, a class of our
board, or any individual director may be removed from office without assigning
cause by the vote of the holders of at least 80% of the combined voting power
of the then outstanding shares of stock of all classes and series of our common
stock then entitled to vote generally in the election of directors, voting
together as a single class ("Voting Power").
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Our articles of incorporation provide that at least 80% of the Voting Power
will be required to approve any "business combination" with an "interested
shareholder" unless our board will have approved by resolution, before the time
such person became an "interested shareholder," a memorandum of understanding
or agreement with the "interested shareholder" setting forth, in general, the
substance of the terms of the "business combination" transaction to be
consummated. The term "business combination" is broadly defined in our articles
of incorporation to include, among other things, the following transactions
involving us and an "interested shareholder": (i) specified mergers,
consolidations, sales or similar dispositions involving $5 million or more in
consideration; (ii) issuances or transfers by us of any of our securities
involving $5 million or more in consideration; (iii) liquidation or dissolution
proposals; and (iv) reclassifications or recapitalizations. The term
"interested shareholder" is broadly defined in our articles of incorporation to
include, among other things, a person or persons, and his, her, its or their
affiliates and associates, who acquire or beneficially own 10% or more of our
Voting Power, unless in certain circumstances such Voting Power has been
maintained for more than ten years. A majority of our board who are
disinterested (i.e., unaffiliated with an "interested shareholder" and on a
board before such person became an "interested shareholder") have the power and
duty to determine "interested shareholder," "Voting Power," "affiliation,"
"association," and "business combination" matters, as such terms are defined or
provided for in our articles of incorporation.
At least 80% of the Voting Power is required to alter, amend or repeal, or
adopt provisions inconsistent with, the provisions of our articles of
incorporation described in the two preceding paragraphs.
Our articles of incorporation do not permit cumulative voting in the
election of directors. Under cumulative voting, it is possible for
representation on a class of our board to be obtained by an individual or group
of individuals which owns less than a majority of the Voting Power.
Our bylaws establish advance notice procedures with regard to the
nomination, other than by or at the direction of our board or a committee
thereof, of candidates for election as directors. These procedures generally
provide that the notice of proposed shareholder nominations for the election of
directors must be given in writing to our Secretary not later than the date on
which a shareholder proposal would be required to be submitted to us in order
to be set forth in our proxy statement, in accordance with Exchange Act rules.
Such notice generally must (i) identify the name and address of the nominating
shareholder and nominee; (ii) contain representations concerning the nominating
shareholder's ownership of common stock and intention to appear at the meeting
and make the nomination; and (iii) include all relevant information concerning
the nominee and his or her relationship or transactions with us that are
required to be disclosed in the proxy statement pursuant to Exchange Act rules.
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CERTAIN UNITED STATES FEDERAL TAX CONSEQUENCES
The following is a summary of certain material U.S. federal income tax
considerations relating to the purchase, ownership and disposition of the notes
and common stock into which the notes may be converted, but does not purport to
be a complete analysis of all the potential tax considerations relating
thereto. This summary is based on the Internal Revenue Code of 1986, as amended
(the "Code"), Treasury Regulations issued thereunder, Internal Revenue Service
("IRS") rulings and judicial decisions now in effect, all of which are subject
to change or differing interpretation, possibly with retroactive effect. This
summary applies only to beneficial owners that hold notes and our common stock
as "capital assets" (within the meaning of section 1221 of the Code).
This discussion does not address all of the tax considerations applicable to
an investor's particular circumstances or to investors that may be subject to
special tax rules, such as banks or other financial institutions, holders
subject to the alternative minimum tax, tax-exempt organizations, insurance
companies, expatriates, foreign persons or entities (except to the extent
specifically set forth below), dealers in securities or currencies,
partnerships or other entities classified as partnerships for U.S. federal
income tax purposes, U.S. Holders whose financial currency is not the U.S.
dollar, persons that hold notes as a position in a hedging transaction,
"straddle" or "conversion transaction" for tax purposes or persons deemed to
sell notes or our common stock under the constructive sale provisions of the
Code.
We have not sought any ruling from the IRS or an opinion of counsel with
respect to the statements made and the conclusions reached in the following
summary, and there can be no assurance that the IRS, or a court, will agree
with these statements and conclusions. This summary does not discuss the effect
of the federal estate or gift tax laws (except as set forth below with respect
to Non-U.S. Holders) or the tax laws of any foreign, state, local or other
jurisdiction.
THE FOLLOWING DISCUSSION OF CERTAIN U.S. FEDERAL INCOME TAX CONSIDERATIONS
IS FOR GENERAL INFORMATION ONLY AND IS NOT TAX ADVICE. ACCORDINGLY, INVESTORS
CONSIDERING THE PURCHASE OF NOTES SHOULD CONSULT THEIR OWN TAX ADVISORS WITH
RESPECT TO THE APPLICATION OF THE UNITED STATES FEDERAL INCOME TAX LAWS TO
THEIR PARTICULAR SITUATIONS AS WELL AS ANY TAX CONSEQUENCES ARISING UNDER THE
FEDERAL ESTATE OR GIFT TAX LAWS OR UNDER THE LAWS OF ANY STATE, LOCAL OR
FOREIGN TAXING JURISDICTION OR UNDER ANY APPLICABLE TAX TREATY.
For purposes of the following discussion, the term "U.S. Holders" means
beneficial owners of notes or common stock that are, for U.S. federal income
tax purposes, (i) individual citizens or residents of the U.S.; (ii)
corporations (or other entities treated as corporations for U.S. federal income
tax purposes) created or organized in or under the laws of the U.S. or of any
political subdivision thereof; (iii) estates, the income of which is subject to
U.S. federal income taxation regardless of source; or (iv) trusts subject to
the primary supervision of a U.S. court and the control of one or more U.S.
persons and certain trusts in existence on August 20, 1996 that elect to be
treated as United States persons, as such term is defined in the Code. The term
"Non-U.S. Holders" means holders of the notes or common stock that are
nonresident aliens, or corporations, estates or trusts that are not U.S.
Holders.
If a partnership is a beneficial owner of a note or our common stock, the
treatment of a partner in the partnership will generally depend upon the status
of the partner and the activities of the partnership. A beneficial owner of
notes or our common stock that is a partnership, or is treated as a partnership
for U.S. federal income tax purposes, and persons who are, or who are treated
as, partners in such partnership should consult their tax advisors about the
U.S. federal income tax consequences of the acquisition, ownership and
disposition of the notes and our common stock.
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U.S. Holders
Taxation of Interest
Interest paid on the notes will be included in the income of a U.S. Holder
as ordinary income at the time it is treated as received or accrued, in
accordance with such holder's regular method of accounting for U.S. federal
income tax purposes.
Sale, Exchange, Redemption or Other Taxable Disposition of the Notes
Upon a sale, exchange, redemption or other taxable disposition of a note, a
U.S. Holder generally will recognize capital gain or loss equal to the
difference between (i) the amount of cash proceeds and the fair market value of
any property received on the sale or redemption (except to the extent such
amount is attributable to accrued interest income not previously included in
income, which will be taxable as ordinary income, or is attributable to accrued
interest that was previously included in income, which amount may be received
without generating further income) and (ii) the holder's adjusted tax basis in
the note. A U.S. Holder's adjusted tax basis in a note generally will equal the
cost of the note to the holder increased by the amount of any market discount
taken into income as ordinary income (as discussed below) or decreased by any
bond premium previously amortized with respect to the note (as discussed
below). Such capital gain or loss will be long-term capital gain or loss if the
U.S. Holders' holding period in the note is more than one year at the time of
sale, exchange or redemption. Long-term capital gains recognized by certain
noncorporate U.S. Holders, including individuals, will generally be subject to
a maximum rate of tax of 20%. The deductibility of capital losses is subject to
limitations.
Market Discount
The market discount rules discussed below apply to any note purchased after
its original issuance at a price that is less than its principal amount, as
well as to any note purchased at its original issuance for an amount that is
less than the price at which a substantial amount of the notes were originally
sold.
A U.S. Holder who purchases a note at a market discount generally will be
required to treat any principal payments on, or any gain on the disposition or
maturity of, such note as ordinary income to the extent of the accrued market
discount (not previously included in income) at the time of such payment or
disposition. In general, market discount is the amount by which the note's
principal amount exceeds the holder's tax basis in the note immediately after
the note is acquired. A note is not treated as purchased at market discount,
however, if the market discount is less than 0.25 percent of the principal
amount of the note multiplied by the number of complete years to maturity from
the acquisition date. Market discount on a note will accrue on a straight-line
basis, unless the holder elects to accrue such discount on a constant yield to
maturity basis. This election is irrevocable and applies only to the note for
which it is made. A holder may also elect to include market discount in income
currently as it accrues. This election, once made, applies to all market
discount obligations acquired on or after the first day of the first taxable
year to which the election applies and may not be revoked without the consent
of the IRS. If a U.S. Holder disposes of a note acquired at a market discount
in any nontaxable transaction (other than certain nonrecognition transactions
referred to in section 1276(d) of the Code), accrued market discount will be
includible in the U.S. Holder's income as ordinary income as if the U.S. Holder
had sold the note at its fair market value. A U.S. Holder who has not elected
to include market discount in income on a current basis will be required to
defer the deduction of a portion of the interest expense attributable to any
debt incurred or continued to purchase or carry a note with market discount
until the maturity of the note, or, in certain circumstances its earlier
disposition.
Amortizable Bond Premium
A U.S. Holder who purchases a note for an amount in excess of its principal
amount generally will be considered to have purchased the note with
"amortizable bond premium." Such a U.S. Holder generally may
29
elect to amortize such premium using the constant yield to maturity method. The
amount amortized in any year will generally be treated as a reduction of
interest income on the note. If the amortizable bond premium allocable to a
year exceeds the amount of interest allocable to that year, the excess will be
allowed as a deduction for that year but only to the extent of the U.S.
Holder's prior interest inclusions on the note. If the U.S. Holder does not
make such an election, the premium on the note will decrease the gain or
increase the loss otherwise recognized on the sale, redemption, retirement or
other disposition of the note. The election to amortize the premium on a
constant yield to maturity method, once made, generally applies to all bonds
held or subsequently acquired by the U.S. Holder on or after the first day of
the first taxable year to which the election applies and may not be revoked
without the consent of the IRS.
Conversion of the Notes
A U.S. Holder generally will not recognize any income, gain or loss upon
conversion of a note into our common stock except with respect to cash received
in lieu of a fractional share of common stock. A U.S. Holder's tax basis in our
common stock received on conversion of a note will be the same as such holder's
adjusted tax basis in the note at the time of conversion (reduced by any basis
allocable to a fractional share interest), and the holding period for our
common stock will generally include the holding period of the note converted.
Cash received in lieu of a fractional share of common stock upon conversion
will be treated as a payment in exchange for the fractional share of common
stock. Accordingly, the receipt of cash in lieu of a fractional share of common
stock generally will result in capital gain or loss (measured by the difference
between the cash received for the fractional share and the holder's adjusted
tax basis in the fractional share).
Dividends
Distributions, if any, made on our common stock after a conversion generally
will be included in the income of a U.S. Holder as dividend income to the
extent of our current or accumulated earnings and profits. Distributions in
excess of our current and accumulated earnings and profits will be treated as a
return of capital to the extent of the U.S. Holder's basis in our common stock
and thereafter as capital gain.
Holders of convertible debt instruments such as the notes may, in certain
circumstances, be deemed to have received distributions of stock if the
conversion price of such instruments is adjusted. Adjustments to the conversion
price made pursuant to a bona fide reasonable adjustment formula which has the
effect of preventing the dilution of the interest of the holders of the debt
instruments, however, will generally not be considered to result in a
constructive distribution of stock. Certain of the possible adjustments
provided in the notes (including, without limitation, adjustments in respect of
taxable dividends to our stockholders) may not qualify as being pursuant to a
bona fide reasonable adjustment formula. If such adjustments do not so qualify,
the U.S. Holders of notes will be deemed to have received constructive
distributions taxable as dividends to the extent of our current and accumulated
earnings and profits even though they have not received any cash or property as
a result of such adjustments. In certain circumstances, the failure to provide
for an anti-dilution adjustment may result in taxable dividend income to the
U.S. Holders of common stock.
Sale of Common Stock
Upon the sale of common stock a U.S. Holder generally will 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 exchange and (ii)
such U.S. Holder's adjusted tax basis in our common stock. Such capital gain or
loss will be long-term capital gain or loss if the U.S. Holder's holding period
in common stock is more than one year at the time of the sale or exchange.
30
Non-U.S. Holders
In general, subject to the discussion below concerning backup withholding:
(a) Payments of principal or interest on the notes by us or our paying agent
to a beneficial owner of a note that is a Non-U.S. Holder will not be
subject to U.S. withholding tax at a rate of 30%, provided that:
(i) in the case of interest that is effectively connected with the
Non-U.S. Holder's conduct of a trade or business in the U.S., the
Non-U.S. Holder provides us with a properly executed IRS W-8ECI;
(ii) in the case of interest not effectively connected with the Non-U.S.
Holders' conduct of a trade or business in the U.S., the Non-U.S.
Holder (A) does not own, actually or constructively, 10% or more of
the total combined voting power of all of our classes of stock
entitled to vote within the meaning of section 871(h)(3) of the
Code; (B) is not a "controlled foreign corporation" that is related
to us through stock ownership; (C) is not a bank receiving interest
described in section 881(c)(3)(A) of the Code; and (D) the
certification requirements under section 871(h) or section 881(c) of
the Code and Treasury Regulations thereunder (discussed below) are
satisfied, or (if the Non-U.S. Holder does not meet the requirements
set forth in (A) through (D)) the Non-U.S. Holder provides a
properly executed IRS Form W-8BEN claiming a reduction of or an
exemption from withholding under an applicable tax treaty;
(b) Distributions on common stock made by us or our paying agent that are
treated as dividends for U.S. federal income tax purposes (including
constructive distributions) will be subject to U.S. withholding tax at a
30% rate except where:
(i) such distributions are effectively connected with the Non-U.S.
Holder's conduct of a trade or business in the U.S. and the Non-U.S.
Holder provides us with a properly executed IRS W-8ECI; or
(ii) such distributions are not effectively connected with the Non-U.S.
Holder's conduct of a trade or business in the U.S. and the Non-U.S.
Holder provides us with a properly executed IRS Form W-8BEN claiming
a reduction of or an exemption from withholding under an applicable
tax treaty.
(c) A Non-U.S. Holder of a note or common stock will not be subject to U.S.
withholding tax on gains realized on a sale, exchange or other
disposition of such note or common stock. A Non-U.S. Holder will also
not be subject to U.S. federal income tax on such gains unless:
(i) such Non-U.S. Holder is an individual who is present in the U.S. for
183 days or more in the taxable year of sale, exchange or other
disposition, and certain conditions are met;
(ii) such gain is effectively connected with the conduct by the Non-U.S.
Holder of a trade or business in the U.S. and, if certain U.S.
income tax treaties apply, is attributable to a U.S. permanent
establishment maintained by the Non-U.S. Holder; or
(iii) we are or have been a "United States real properly holding
corporation" (a "USRPHC") for United States federal income tax
purposes at any time during the shorter of the five-year period
preceding the sale or other disposition or the period such Non-U.S.
Holder held our common stock and (A) our common stock is not
regularly traded on an established securities market or (B) the
Non-U.S. Holder owns more than 5% of our common stock at any time
during the shorter of the two periods described above. We do not
believe that we currently are a USRPHC and do not currently expect
to become one in the future. However, we could become one as a
result of future changes in assets or operations.
To satisfy the certification requirements referred to in (a)(ii)(D) above,
sections 871(h) and 881(c) of the Code and currently effective Treasury
Regulations thereunder require that either (i) the beneficial owner of a note
must certify, under penalties of perjury, to us or our paying agent, as the
case may be, that such owner is a Non-U.S. Holder and must provide the owner's
name and address, and U.S. taxpayer identification number ("TIN"), if
31
any; or (ii) a securities clearing organization, bank or other financial
institution that holds customer securities in the ordinary course of its trade
or business (a "Financial Institution") and holds the note on behalf of the
beneficial owner thereof must certify, under penalties of perjury, to us or our
paying agent, as the case may be, that such certificate has been received from
the beneficial owner and must furnish the payor with a copy thereof. This
requirement will be fulfilled if the beneficial owner of a note certifies on
IRS Forms W-8BEN or W-8EXP, or successor form, under penalties of perjury, that
it is a Non-U.S. Holder and provides his or her name and address or any
Financial Institution holding the note on behalf of the beneficial owner files
a statement with the withholding agent to the effect that it has received such
a statement from the beneficial owner (and furnishes the withholding agent with
a copy thereof). Special rules apply which permit the shifting of primary
responsibility for withholding to certain financial intermediaries acting on
behalf of beneficial owners.
If a Non-U.S. Holder of a note or common stock is engaged in a trade or
business in the U.S. and if interest on the note, dividends on our common
stock, or gain realized on the sale, exchange or other disposition of the note
or common stock is effectively connected with the conduct of such trade or
business (and, if certain tax treaties apply, is attributable to a U.S.
permanent establishment maintained by the Non-U.S. Holder in the U.S.), the
Non-U.S. Holder, although exempt from U.S. withholding tax (provided that the
certification requirements discussed above are met), will generally be subject
to U.S. federal income tax on such interest, dividends or gain on a net income
basis in the same manner as if it were a U.S. Holder. In addition, if such
Non-U.S. Holder is a foreign corporation, it 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.
U.S. Federal Estate Tax
A note held by an individual who at the time of death is not a citizen or
resident of the U.S. (as specially defined for U.S. federal estate tax
purposes) will not be subject to U.S. federal estate tax if the individual did
not actually or constructively own 10% or more of the total combined voting
power of all of our classes of stock and, at the time of the individual's
death, payments with respect to such note would not have been effectively
connected with the conduct by such individual of a trade or business in the
U.S. Common stock held by an individual who at the time of death is not a
citizen or resident of the U.S. (as specially defined for U.S. federal estate
tax purposes) will be included in such individual's estate for U.S. federal
estate tax purposes, unless an applicable estate tax treaty otherwise applies.
Non-U.S. Holders should consult with their tax advisors regarding U.S. and
foreign tax consequences with respect to the notes and our common stock.
Backup Withholding and Information Reporting
Information returns will be filed with the United States Internal Revenue
Service in connection with payments made with respect to notes or common stock,
as well as proceeds from the sale or other disposition of notes or our common
stock. You may be subject to backup withholding tax (currently at a rate of
30%) on these payments unless you comply with identification and certification
requirements. Noncorporate U.S. Holders will be subject to backup withholding
only if such holders fail to furnish their taxpayer identification numbers or
fail to satisfy certain other requirements. Non-U.S. Holders will be subject to
backup withholding only if such holders do not properly certify their non-U.S.
status.
The amount of any backup withholding from a payment to you will be allowed
as a credit against your United States federal income tax liability and may
entitle you to a refund provided that the required information is furnished to
the IRS.
32
SELLING SECURITYHOLDERS
We originally issued the notes in a private placement in May, 2002. Selling
securityholders may offer and sell the notes and the underlying common stock
using this prospectus.
The following table contains information we received from the selling
securityholders on or before September 26, 2002, with respect to the selling
securityholders and the principal amount of notes and the underlying common
stock beneficially owned by each selling securityholder prior to the offering
and that may be offered using this prospectus. The selling securityholders
listed in the table below may have sold or transferred, in transactions exempt
from the registration requirements of the Securities Act, some or all of their
notes since the date on which the information in the table below is presented.
Principal
Amount at Number of Number of
Maturity of Shares of Shares of
Notes Common Common Percentage of
Beneficially Percentage Stock Stock That Common
Owned That of Notes Owned Prior May be Stock
Name May Be Sold Outstanding to the Offering Sold(1) Outstanding(2)
---- ------------ ----------- --------------- ---------- --------------
Aegon Transamerica Series Fund-- $ 1,260,000 * 127,530 127,530 *
Strategic Total Return
AIM Opportunities I Fund 1,255,000 * 127,024 127,024 *
AIM Opportunities II Fund 745,000 * 75,405 75,405 *
Akela Capital Master Fund, Ltd. 2,000,000 1.3% 202,429 202,429 *
Alpine Associates 3,950,000 2.6 399,798 399,798 *
Alpine Partners, L.P. 550,000 * 55,668 55,668 *
Amaranth LLC 1,700,000 1.1 172,065 172,065 *
Arbitex Master Fund, L.P. 10,000,000 6.7 1,012,146 1,012,146 *
Aventis Pension Master Trust 45,000 * 4,555 4,555 *
B.G.I. Global Investors c/o Forest 227,000 * 22,976 22,976 *
Investment Mngt. L.L.C.
Banc One Capital Markets, Inc. 500,000 * 50,607 91,107 *
Bancroft Convertible Fund, Inc. 1,500,000 1.0 151,822 151,822 *
Bank Austria Cayman Islands, LTD 2,250,000 1.5 227,733 227,733 *
BNP Paribas Equity Strategies, SNC 3,155,000 2.1 319,332 319,332 *
Boilermaker--BlackSmith Pension Trust 250,000 * 25,304 25,304 *
CALAMOS(R) Convertible Growth and 5,200,000 3.5 526,316 526,316 *
Income Fund--CALAMOS(R)
Investment Trust
CALAMOS(R) Convertible Portfolio-- 60,000 * 6,073 6,073 *
CALAMOS(R) Advisors Trust
CALAMOS(R) Global Convertible Fund-- 3,885,000 2.6 393,219 393,219 *
CALAMOS(R) Investment Trust
CALAMOS(R) Market Neutral Fund-- 7,000,000 4.7 708,502 708,502 *
CALAMOS(R) Investment Trust
Chrysler Corporation Master Retirement 4,590,000 3.1 464,575 464,575 *
Trust
Consulting Group Capital Markets Funds 650,000 * 65,789 65,789 *
Delta Air Lines Master Trust 1,235,000 * 125,000 125,000 *
Delta Pilots D & S Trust (c/o Oaktree 645,000 * 65,283 65,283 *
Capital Management, LLC)
Delta Pilots Disability and Survivorship 85,000 * 8,603 8,603 *
Trust (c/o CALAMOS(R) Investments)
DaimlerChrysler Corp. Emp. #1 Pension 3,630,000 2.4 367,409 367,409 *
Plan dtd 4/1/89
33
Principal
Amount at Number of Number of
Maturity of Shares of Shares of
Notes Common Common Percentage of
Beneficially Percentage Stock Stock That Common
Owned That of Notes Owned Prior May be Stock
Name May Be Sold Outstanding to the Offering Sold(1) Outstanding(2)
---- ------------ ----------- --------------- ---------- --------------
Dorinco Reinsurance Company 150,000 * 15,182 15,182 *
Ellsworth Convertible Growth and Income 1,250,000 * 126,518 126,518 *
Fund, Inc.
Forest Alternative Strategies II 58,000 * 5,870 5,870 *
Forest Fulcrum Fund L.L.P. 780,000 * 78,947 78,947 *
Forest Global Convertible Fund Series A-5 3,174,000 2.1 321,255 321,255 *
Franklin and Marshall College 207,000 * 20,951 20,951 *
Grace Brothers Management, LLC 3,500,000 2.3 354,251 354,251 *
IDEX--Luther King Management-- 660,000 * 66,802 66,802 *
Strategic Total Return
JP Morgan Securities Inc. 2,850,000 1.9 288,462 289,257 *
LDG Limited 1,000,000 * 101,215 101,215 *
LKCM Balanced Fund 80,000 * 8,097 8,097 *
LLT Limited 221,000 * 22,368 22,368 *
Louisiana Workers' Compensation 125,000 * 12,652 12,652 *
Corporation
Lyxor Master Fund c/o Forest Investment 917,000 * 92,814 92,814 *
Mngt L.L.C.
Macomb County Employees' Retirement 75,000 * 7,591 7,591 *
System
Man Convertible Bond Master Fund, Ltd. 2,168,000 1.4 219,433 219,433 *
MFS Total Return Fund 2,000,000 1.3 202,429 202,429 *
Microsoft Corporation 1,655,000 1.1 167,510 167,510 *
Motion Picture Industry Health Plan--Active 300,000 * 30,364 30,364 *
Motion Picture Industry Health Plan--Retiree 185,000 * 18,725 18,725 *
OCM Convertible Trust 3,060,000 2.0 309,717 309,717 *
Partner Reinsurance Company Ltd. 945,000 * 95,648 95,648 *
Port Authority of Allegheny County 250,000 * 25,304 25,304 *
Retirement and Disability Allowance Plan
for the Employees Represented by Local
85 of the Amalgamated Transit Union
Qwest Occupational Health Trust 355,000 * 35,931 35,931 *
Ram Trading, LTD 9,000,000 6.0 910,931 910,931 *
Ramius, LP 120,000 * 12,146 12,146 *
Ramius Capital Group 400,000 * 40,486 40,486 *
RBC Alternative Asset L.P. 123,000 * 12,449 12,449 *
RCG Baldwin LP 480,000 * 48,583 48,583 *
RCG Halifax Master Fund, LTD 1,500,000 1.0 151,822 151,822 *
RCG Latitude Master Fund, LTD 2,250,000 1.5 227,733 227,733 *
RCG Multi Strategy, LP 3,000,000 2.0 303,644 303,644 *
Relay 11 Holdings c/o Forest Investment 110,000 * 11,134 11,134 *
Mngt L.L.C.
34
Principal
Amount at Number of Number of
Maturity of Shares of Shares of
Notes Common Common Percentage of
Beneficially Percentage Stock Stock That Common
Owned That of Notes Owned Prior May be Stock
Name May Be Sold Outstanding to the Offering Sold(1) Outstanding(2)
---- ------------ ----------- --------------- ---------- --------------
Sage Capital 1,500,000 1.0 151,822 151,822 *
SCI Endowment Care Common Trust Fund--First 15,000 * 1,518 1,518 *
Union
SCI Endowment Care Common Trust--National 25,000 * 2,530 2,530 *
Fiduciary Services
SCI Endowment Care Common Trust--Suntrust 25,000 * 2,530 2,530 *
SG Hambros Trust Company (Jersey) LTD as 400,000 * 40,486 40,486 *
trustee of the Lyxor Master Fund
Silverado Arbitrage Trading, LTD 600,000 * 60,729 60,729 *
Sphinx Convertible Arbitrage c/o Forest 58,000 * 5,870 5,870 *
Investment Mngt L.L.C.
St. Thomas Trading, Ltd. 3,482,000 2.3 352,429 352,429 *
State Employees' Retirement Fund of the State of 1,265,000 * 128,036 128,036 *
Delaware
State of Connecticut Combined Investment Funds 2,900,000 1.9 293,522 293,522 *
State Street Bank custodian for GE Pension Trust 1,663,000 1.1 168,320 168,320 *
Sunrise Partners 2,300,000 1.5 232,794 232,794 *
Sylvan (IMA) Ltd. c/o Forest Investment Mngt 494,000 * 50,000 50,000 *
L.L.C.
TD Securities (USA) Inc. 9,875,000 6.6 999,494 999,494 *
The Class I C Company 2,000,000 * 101,215 101,215 *
The Dow Chemical Company Employees' 500,000 * 50,607 50,607 *
Retirement Plan
The Fondren Foundation 30,000 * 3,036 3,036 *
TQA Master Fund 2,580,000 1.7 261,134 261,134 *
TQA Master Plus Fund 1,920,000 1.3 194,332 194,332 *
UBS O'Connor LLC F/B/O O'Connor Global 250,000 * 25,304 25,304 *
Convertible Portfolio
UBS O'Connor LLC F/B/O O'Connor Global
Convertible Arbitrage Master Ltd. 2,000,000 1.3 202,429 202,429 *
United Food and Commercial Workers Local
1262 and Employers Pension Fund 200,000 * 20,243 20,243 *
Vanguard Convertible Securities Fund, Inc. 4,440,000 3.0 449,393 449,393 *
Vopak USA Inc. Retirement Plan (f.k.a. Van Waters
& Rogers, Inc. Retirement Plan) 55,000 * 5,567 5,567 *
Wachovia Securities, Inc. 7,250,000 4.8 733,806 733,806 *
Wachovia Securities International, LTD. 5,000,000 3.3 506,073 506,073 *
Zurich Inst Bench Master Fund c/o TQA
Investors, LLC 1,000,000 * 101,215 101,215 *
Zurich Master Hedge Fund c/o Forest Investment
Mngt L.L.C. 396,000 * 40,081 40,081 *
--------
* Less than 1%
(1) Assumes conversion of all of the holder's notes at a conversion price of
$9.88. However, this conversion price is subject to adjustment as described
under "Description of Notes--Conversion of the Notes." As a result, the
amount of common stock issuable upon conversion of the notes may increase
or decrease in the future.
35
(2) Calculated based on Rule 13d-3(d)(i) of the Exchange Act using 112,763,060
shares of common stock outstanding as of September 18, 2002. In calculating
this amount, we treated as outstanding the number of shares of common stock
issuable upon conversion of that particular holder's notes. However, we did
not assume the conversion of any other holder's notes.
We prepared this table based on the information supplied to us by the
selling securityholders named in the table. This table assumes that any other
holders of notes, or any future transferees, pledgees, donees or successors of
or from any of these other holders of notes, do not beneficially own any common
stock other than the common stock issuable upon conversion of the notes at the
initial conversion price.
Information about the selling securityholders may change over time. Any
changed information will be set forth, to the extent provided to us by the
selling securityholders, in prospectus supplements, if and when necessary.
Because the selling securityholders may offer all or some of their notes or
the underlying common stock from time to time, we cannot estimate the amount of
the notes or underlying common stock that will be held by any selling
securityholders upon completion of the offering. See "Plan of Distribution."
36
PLAN OF DISTRIBUTION
We are registering the notes and the underlying common stock to allow the
selling securityholders and their successors, including their transferees,
pledgees and donees and their successors, to sell these securities to the
public from time to time after the date of this prospectus. The selling
securityholders may sell the securities directly or through underwriters,
broker-dealers or agents. If the selling securityholders sell the securities
through underwriters or broker-dealers, the selling securityholders will be
responsible for underwriting discounts or commissions or agents' commissions.
We have agreed to pay substantially all of the expenses incidental to the
registration, offering and sale of the securities to the public other than
commissions, fees and discounts of underwriters, brokers, dealers and agents.
The total proceeds to the selling securityholders from selling the
securities will be the purchase price of the securities, less any discounts and
commissions paid by the selling securityholders. We will not receive any of the
proceeds from the sale of the securities offered by this prospectus.
The SEC may deem the selling securityholders and any broker-dealers or
agents who participate in the distribution of the securities to be
"underwriters." As a result the SEC may deem any profits the selling
securityholders make by selling the securities and any discounts, commissions
or concessions received by any broker-dealers or agents to be underwriting
discounts and commissions under the Securities Act. Selling securityholders who
are "underwriters" will be subject to the prospectus delivery requirements of
the Securities Act and may also be subject to liabilities under the securities
laws, including Sections 11, 12 and 17 of the Securities Act and Rule 10b-5
under the Exchange Act. To our knowledge, there are currently no plans,
arrangements or understandings between any selling securityholders and any
underwriter, broker-dealer or agent regarding the sale of the securities.
The selling securityholders and any other person who participates in
distributing the securities will be subject to the Exchange Act. The Exchange
Act rules include Regulation M, which may limit the timing of purchases and
sales of any of the securities by the selling securityholders and any other
person. In addition, Regulation M may restrict the ability of any person
engaged in the distribution of the securities to engage in market-making
activities with respect to the particular securities being distributed for a
period of up to five business days before beginning to distribute the
securities. This may affect the securities' marketability and the ability of
any person or entity to engage in market-making activities with respect to the
securities.
The selling securityholders may sell the securities 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.
The sales may be effected in transactions:
. on any national securities exchange or quotation service on which the
securities are listed or quoted at the time of the sale, including the
Nasdaq National Market in the case of the common stock;
. in the over-the-counter market;
. in transactions other than transactions on national securities exchanges,
quotation services or in the over-the-counter market; or
. through the writing of options.
These transactions may include block transactions or crosses. Crosses are
transactions in which the same broker acts as an agent on both sides of the
transaction.
37
In connection with sales of the securities or otherwise, any selling
securityholder may:
. enter into hedging transactions with broker-dealers, who may in turn
engage in short sales of the securities in the course of hedging the
positions they assume;
. sell the securities short and deliver the securities to close out their
short positions; or
. loan or pledge the securities to broker-dealers, who may in turn sell the
securities.
We cannot assure you any selling securityholders will sell any or all of
securities using this prospectus. In addition, any securities covered by this
prospectus that qualify for sale under Rule 144 or Rule 144A of the Securities
Act may be sold under Rule 144 or Rule 144A rather than under this prospectus.
The selling securityholders also may transfer, devise or gift the securities by
other means not described in this prospectus.
To comply with the securities laws of some states, if applicable, the
selling securityholders may only sell the securities in these jurisdiction
through registered or licensed brokers or dealers.
Our common stock trades on the Nasdaq National Market under the symbol
"CHRS." We do not intend to apply for listing of the notes on any securities
exchange or for quotation through Nasdaq. Accordingly, we cannot assure you
that selling securityholders will be able to sell the notes or that any trading
market for the notes will develop.
With respect to a particular offering of the securities, to the extent
required, we will file an accompanying prospectus supplement or, if
appropriate, a post-effective amendment to the registration statement of which
this prospectus is a part, disclosing the following information:
. the specific notes or common stock to be offered and sold;
. the names of the selling securityholders;
. the respective purchase prices and public offering prices and other
material terms of the offering;
. the names of any participating agents, broker-dealers or underwriters; and
. any applicable commissions, discounts, concessions and other items
constituting compensation from the selling securityholders.
The registration rights agreement filed as an exhibit to this registration
statement provides that we and the selling securityholders will indemnify each
other and each other's directors, officers and controlling persons against
specified liabilities, including liabilities under the Securities Act, or that
we will be entitled to contribution from each other in connection with these
liabilities.
LEGAL MATTERS
Drinker Biddle & Reath LLP has provided us with an opinion as to the
validity of the securities offered by this prospectus.
EXPERTS
Ernst & Young LLP, independent auditors, have audited our consolidated
financial statements included in our Annual Report on Form 10-K for the year
ended February 2, 2002, as set forth in their report, which is incorporated by
reference in this prospectus and registration statement. Our financial
statements are incorporated by reference in reliance on Ernst & Young LLP's
report, given on their authority as experts in accounting and auditing.
38
The financial statements of Lane Bryant, Inc. and Subsidiaries incorporated
by reference in this Prospectus for the years ended February 3, 2001 and
January 29, 2000 and for the three years in the period ended February 3, 2001
have been so incorporated in reliance on the report of PricewaterhouseCoopers
LLP, independent accountants, given on the authority of said firm as experts in
auditing and accounting.
WHERE YOU CAN FIND MORE INFORMATION
We file annual, quarterly and special reports, proxy statements and other
information with the Commission. You may read and copy materials that we have
filed with the Commission at the following Commission public reference rooms:
450 Fifth Street, N.W. 233 Broadway 175 W. Jackson Blvd.
Room 1024 New York, New York 10048 Chicago, Illinois 60604
Washington, D.C. 20549
Please call the Commission at 1-800-SEC-0330 for further information on the
public reference rooms.
Our common stock is quoted on the Nasdaq National Market under the symbol
"CHRS," and our Commission filings can also be read at the following Nasdaq
address:
Nasdaq Operations, 1735 K Street, N.W., Washington, D.C. 20006
Our Commission filings are also available to the public on the Commission's
website at http://www.sec.gov.
We incorporate by reference into this prospectus the documents listed below
and any future filings we make with the Commission under Sections 13(a), 13(c),
14 or 15(d) of the Securities Exchange Act of 1934, including any filings after
the date of this registration statement, until the selling shareholder has sold
all of the common stock to which this registration statement relates or the
offering is otherwise terminated. The information we incorporate by reference
is an important part of this prospectus. Any statement in a document
specifically identified below as incorporated by reference into this
registration statement will be deemed to be modified or superseded to the
extent that a statement contained in (1) this registration statement or (2) any
other subsequently filed document that is incorporated by reference into this
registration statement modifies or supersedes the statement.
. Our Annual Report on Form 10-K for the fiscal year ended February 2, 2002;
. Our Quarterly Reports on Form 10-Q for the quarterly periods ended May 4,
2002 and August 3, 2002;
. Our Current Reports on Form 8-K filed on August 31, 2001 (as amended on
October 30, 2001 and May 17, 2002), May 21, 2002, May 22, 2002, May 28,
2002, May 30, 2002, July 3, 2002 and August 21, 2002; and
. The registration statement on Form 8-A as amended filed by us with the
Commission relating to our common stock, and the description of the stock
purchase rights attached to our common stock contained in our Amended
Form 8-A/12-B filed with the Commissions on April 18, 1999 (File No.
000-07258), as amended on May 3, 2002.
You may request a copy, at no cost, of any or all of the documents referred
to above, other than exhibits to the documents that are not specifically
incorporated by reference in the documents. You should direct written or
telephone requests to Charming Shoppes, Inc., 450 Winks Lane, Bensalem,
Pennsylvania 19020, Attention: Colin D. Stern, Esq., Executive Vice President,
General Counsel and Secretary, telephone (215) 245-9100.
39
You should rely only on the information incorporated by reference or
provided in this prospectus. You should not assume that the information in this
prospectus is accurate as of any date other than the date on the front cover of
this document. We have not authorized anyone to provide you with different or
additional information.
Our logo appearing on the front and back covers of this prospectus and "Lane
Bryant(R)", "Catherines(R)", and "Fashion Bug(R)" are trademarks of Charming
Shoppes, Inc. Other brands, names and trademarks contained in this prospectus
are the property of their respective owners.
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SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS
This prospectus contains or incorporates by reference certain statements and
information that are "forward-looking statements" within the meaning of Section
27A of the Securities Act of 1933 and Section 21E of the Securities Exchange
Act of 1934. These statements may include, but are not limited to, statements
regarding our growth, earnings, sales performance, store openings and closings,
cost savings, capital requirements, our exposure to fluctuations in interest
rates, and other matters. The words "expect," "intend," "project," "estimate,"
"predict," "anticipate," "believes," and similar expressions are also intended
to identify forward-looking statements.
Forward-looking statements are inherently subject to risks and
uncertainties, some of which cannot be predicted or quantified. Some of these
risks are discussed above under "Risk Factors." Should one or more of these
risks or uncertainties materialize, or should our underlying assumptions prove
incorrect, actual outcomes may vary materially from those indicated. Factors
that could cause our results of operations or financial condition to differ
from those described in this prospectus include, but are not necessarily
limited to, the following:
. Our business is dependent upon our being able to accurately predict
rapidly changing fashion trends, customer preferences and other
fashion-related factors, which we may not be able to successfully
accomplish in the future.
. The general slowdown in the United States economy and the uncertain
economic outlook has led to reduced consumer demand for our apparel and
accessories and may continue to do so in the future.
. The women's specialty retail apparel industry is highly competitive and
we may be unable to compete successfully against existing or future
competitors.
. We cannot assure the successful implementation of our business plan for
increased profitability and growth in our plus-size women's apparel
business.
. Our business plan is largely dependent upon the continued growth in the
plus-size women's apparel market which may not continue.
. We depend on key personnel, particularly our Chief Executive Officer,
Dorrit J. Bern, and we may not be able to retain or replace these
employees or recruit additional qualified personnel.
. We depend on our distribution centers and could incur significantly
higher costs and longer lead times associated with distributing our
products to our stores if any of these distribution centers were to shut
down for any reason.
. We depend for our working capital needs on the availability of credit,
including credit we receive from our suppliers and their agents, and on
our credit card securitization program. If we were unable to obtain
sufficient financing at affordable cost, our ability to merchandise our
stores would be adversely affected.
. We rely significantly on foreign sources of production and face a variety
of risks (including political instability, imposition of duties or
quotas, increased security requirements applicable to imports, delays in
shipping, increased costs of transportation, and issues relating to
compliance with domestic or international labor standards) generally
associated with doing business in foreign markets and importing
merchandise from abroad.
. Our stores experience seasonal fluctuations in net sales and operating
income. Any decrease in sales or margins during our peak sales periods,
or in the availability of working capital needed in the months preceding
such periods, could have a material adverse effect on our business. In
addition, extreme or unseasonable weather conditions may have an impact
on our sales.
. War, acts of terrorism, or the threat of either may negatively impact
availability of merchandise, customer traffic to our stores and otherwise
adversely impact our business.
. We may be unable to obtain adequate insurance for our operations at a
reasonable cost.
41
. We may be unable to protect our trademarks and other intellectual
property rights, which we believe are important to our success and our
competitive position.
. We may be unable to hire and retain suitable sales associates at our
stores.
. We may be unable to successfully implement our restructuring plan.
. Our manufacturers may be unable to manufacture and deliver merchandise to
us in a timely manner or to meet our quality standards.
. Our sales are dependent upon a high volume of traffic in the strip
centers and malls in which our stores are located and our future growth
is dependent upon the availability of suitable locations for new stores.
. We may be unable to successfully integrate Lane Bryant into our current
operating structure, and we currently rely on management information
systems and logistics services from Limited Brands with respect to our
Lane Bryant stores.
We operate in a rapidly changing and competitive environment. New risk
factors emerge from time to time and it is not possible for us to predict all
risk factors that may affect us. Future events, actual results, performance and
achievements could differ materially from those set forth in, contemplated by
or underlying the forward-looking statements, which speak only as of the date
on which they were made. We assume no obligation to update any forward-looking
statement to reflect actual results or changes in or additions to the factors
affecting such forward-looking statements. Given those risks and uncertainties,
investors should not place undue reliance on forward-looking statements as a
prediction of actual results.
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[LOGO] LANE BRYANT/R/
[LOGO] FASHION BUG/R/
FASHION CHOICES . FASHION SAVINGS
[LOGO] CATHERINES/R/
PLUS SIZES