S-1/A 1 d559406ds1a.htm AMENDMENT NO. 3 TO FORM S-1 Amendment No. 3 to Form S-1
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As filed with the Securities and Exchange Commission on November 12, 2013

Registration No. 333-191336

 

 

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

 

AMENDMENT NO. 3

TO

FORM S-1

REGISTRATION STATEMENT

UNDER THE SECURITIES ACT OF 1933

 

 

APPAREL HOLDING CORP.*

(Exact name of registrant as specified in its charter)

 

 

 

Delaware   5600   75-3264870
(State or other jurisdiction of incorporation or organization)  

(Primary Standard Industrial

Classification Code Number)

  (I.R.S. Employer Identification No.)
 

1441 Broadway—6th Floor

New York, New York 10018

(212) 515-2600

 

(Address, including zip code, and telephone number, including area code, of registrant’s principal executive offices)

 

 

Lisa Klinger

Chief Financial Officer and Treasurer

1441 Broadway—6th Floor

New York, New York 10018

(212) 515-2600

(Name, address, including zip code, and telephone number, including area code, of agent for service)

 

 

Copies of all communications, including communications sent to agent for service, should be sent to:

 

Gerald T. Nowak, P.C.

Kirkland & Ellis LLP

300 North LaSalle

Chicago, Illinois 60654

(312) 862-2000

 

Kevin P. Kennedy

Simpson Thacher & Bartlett LLP

2475 Hanover Street

Palo Alto, California 94304

(650) 251-5000

 

 

Approximate date of commencement of proposed sale to the public: As soon as practicable after this Registration Statement becomes effective.

If any of the securities being registered on this Form are to be offered on a delayed or continuous basis pursuant to Rule 415 under the Securities Act of 1933, check the following box:  ¨

If this Form is filed to register additional securities for an offering pursuant to Rule 462(b) under the Securities Act, please check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering.  ¨

If this Form is a post-effective amendment filed pursuant to Rule 462(c) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering.  ¨

If this Form is a post-effective amendment filed pursuant to Rule 462(d) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering.  ¨

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check one):

 

Large accelerated filer  ¨   Accelerated filer  ¨    Non-accelerated filer  x   Smaller reporting company  ¨
     (Do not check if a smaller reporting company)

 

 

Title of Each Class of

Securities to be Registered

 

Amount to be

Registered(1)

 

Estimated Maximum

Offering Price

per Share(2)

 

Estimated Maximum

Aggregate

Offering Price(2)(3)

  Amount of
Registration Fee(3)(4)

Common stock, par value $0.01 per share

  11,500,000   $18.00   $207,000,000   $28,181.60

 

 

(1) Includes 1,500,000 additional shares of common stock that the underwriters have the option to purchase from the selling stockholders.
(2) Estimated solely for purposes of calculating the registration fee pursuant to Rule 457(o) of the Securities Act of 1933, as amended.
(3) Includes the offering price of any additional shares of common stock that the underwriters have the option to purchase.
(4) Of this amount, $27,280 was previously paid in connection with the initial filing of this registration statement and $901.60 has been paid in connection with this filing.

The registrant hereby amends this Registration Statement on such date or dates as may be necessary to delay its effective date until the registrant shall file a further amendment which specifically states that this Registration Statement shall thereafter become effective in accordance with Section 8(a) of the Securities Act of 1933 or until this Registration Statement shall become effective on such date as the Commission, acting pursuant to said Section 8(a), may determine.

* Apparel Holding Corp., the registrant whose name appears on the cover of this registration statement, is a Delaware corporation. Immediately prior to the consummation of this offering, Apparel Holding Corp. will change its name to Vince Holding Corp. Shares of the common stock of Vince Holding Corp. are being offered by the prospectus.

 

 

 


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The information in this preliminary prospectus is not complete and may be changed. These securities may not be sold until the registration statement filed with the Securities and Exchange Commission is effective. This preliminary prospectus is not an offer to sell nor does it seek an offer to buy these securities in any jurisdiction where the offer or sale is not permitted.

 

Subject to Completion, dated November 12, 2013

10,000,000 Shares

 

LOGO

Apparel Holding Corp.

Common Stock

 

 

This is an initial public offering of shares of common stock of Apparel Holding Corp. (to be renamed Vince Holding Corp. prior to the consummation of this offering). Apparel Holding Corp. is selling 10,000,000 shares of common stock in this offering.

Prior to this offering, there has been no public market for the common stock. It is currently estimated that the initial public offering price per share will be between $17.00 and $19.00. We intend to list the common stock on the New York Stock Exchange under the symbol “VNCE”.

We are an “emerging growth company” as defined under the federal securities laws and are therefore subject to reduced public company reporting requirements.

 

 

See ‘‘Risk Factors’’ on page 30 to read about the factors you should consider before buying shares of the common stock.

 

 

Neither the Securities and Exchange Commission nor any other regulatory body has approved or disapproved of these securities or passed upon the accuracy or adequacy of this prospectus. Any representation to the contrary is a criminal offense.

 

 

 

     Per Share      Total  

Initial public offering price

   $                    $                

Underwriting discount(1)

   $                    $                

Proceeds, before expenses, to us

   $                    $                

 

(1) We have agreed to reimburse the underwriters for certain expenses in connection with this offering. See “Other Information Related to this Offering—Underwriting.”

To the extent that the underwriters sell more than 10,000,000 shares of common stock, the underwriters have the option to purchase up to an additional 1,500,000 shares from the selling stockholders at the initial price to the public less the underwriting discount. We will not receive any proceeds with respect to such shares.

 

 

The underwriters expect to deliver the shares against payment in New York, New York on or about                     , 2013.

 

Goldman, Sachs & Co.    Baird

 

BofA Merrill Lynch   Barclays   J.P. Morgan   Wells Fargo Securities
KeyBanc Capital Markets   Stifel   William Blair

 

 

Prospectus dated                     , 2013.


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PROSPECTUS SUMMARY

     1   

RISK FACTORS

     30   

SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS

     67   

RESTRUCTURING TRANSACTIONS

     69   

USE OF PROCEEDS

     74   

DIVIDEND POLICY OF AHC

     77   

CAPITALIZATION OF AHC

     78   

DILUTION

     82   

ADDITIONAL INFORMATION RELATED TO AHC

     84   

SELECTED HISTORICAL CONSOLIDATED FINANCIAL DATA OF AHC

     85   

UNAUDITED PRO FORMA CONSOLIDATED FINANCIAL DATA OF AHC

     88   

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS OF AHC

     108   

AHC BUSINESS

     149   

AHC MANAGEMENT

     152   

AHC EXECUTIVE COMPENSATION

     156   

DESCRIPTION OF CERTAIN INDEBTEDNESS OF AHC

     166   

ADDITIONAL INFORMATION RELATED TO VINCE

     168   

SUPPLEMENTAL SELECTED HISTORICAL FINANCIAL DATA OF VINCE, LLC

     169   

SUPPLEMENTAL MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS OF VINCE, LLC

     171   

VINCE BUSINESS

     198   

VINCE MANAGEMENT

     210   

VINCE EXECUTIVE COMPENSATION

     217   

DESCRIPTION OF CERTAIN INDEBTEDNESS OF VINCE, LLC

     233   

OTHER INFORMATION RELATED TO THIS OFFERING

     235   

CERTAIN RELATIONSHIPS AND RELATED PARTY TRANSACTIONS OF AHC

     236   

SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS OF AHC

     246   

DESCRIPTION OF CAPITAL STOCK OF AHC

     249   

SHARES ELIGIBLE FOR FUTURE SALE

     255   

MATERIAL U.S. TAX CONSIDERATIONS FOR NON-U.S. HOLDERS OF COMMON STOCK

     258   

UNDERWRITING

     263   

VALIDITY OF COMMON STOCK

     269   

EXPERTS

     269   

WHERE YOU CAN FIND ADDITIONAL INFORMATION

     269   

INDEX TO THE AUDITED FINANCIAL STATEMENTS FOR AHC

     F-1   

INDEX TO THE AUDITED FINANCIAL STATEMENTS FOR VINCE, LLC

     V-1   

 

 

We have not authorized anyone to provide any information or to make any representations other than those contained in this prospectus or in any free writing prospectuses we have prepared. This prospectus is an offer to sell only the shares offered hereby, but only under circumstances and in jurisdictions where it is lawful to do so. The information contained in this prospectus is current only as of its date.

 

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Persons who come into possession of this prospectus and any such free writing prospectus in jurisdictions outside the United States (the “U.S.”) are required to inform themselves about and to observe any restrictions as to this offering and the distribution of this prospectus and any such free writing prospectus applicable to that jurisdiction.

Market and Industry Data

We obtained the industry, market and competitive position data throughout this prospectus from our own internal estimates and research, as well as from industry and general publications and research, surveys and studies conducted by third parties, including (i) the Worldwide Luxury Markets Monitor, Spring 2012 Update (dated May 7, 2012), the 2012 Luxury Goods Worldwide Market Study (11th Edition) (dated October 15, 2012) and the Worldwide Luxury Markets Monitor, Spring 2013 Update (dated May 16, 2013) (the “Bain Studies”) each of which was prepared by the Altagamma Foundation in cooperation with Bain & Company and (ii) the Vince Survey Among Qualified Non-Customers (dated January 9, 2013) (the “Harris Study”) which was prepared by Harris Interactive. Industry publications, studies and surveys generally state that they have been obtained from sources believed to be reliable, although they do not guarantee the accuracy or completeness of such information. While we believe that each of these studies and publications is reliable, we have not independently verified market and industry data from third-party sources. Further, while we believe the market opportunity information included in this prospectus is generally reliable, such information is inherently imprecise. In addition, projections, assumptions and estimates of the future performance of the industry in which we operate and our future performance are necessarily subject to a high degree of uncertainty and risk due to a variety of factors, including those described in “Risk Factors.” These and other factors could cause results to differ materially from those expressed in the estimates made by the independent parties and by us. See “Special Note Regarding Forward-Looking Statements.”

The Bain Studies analyze the global luxury market, including the market and financial performance of more than 230 of the world’s leading luxury goods companies and brands. All 2012 figures derived from the Bain Studies are based on an exchange rate of $1.00 to 0.809.

We commissioned the Harris Study to analyze awareness of the Vince brand, affinity for the Vince brand and overall brand and purchase behavior among 500 qualified respondents.

 

 

Basis of Presentation

Our fiscal year ends on the Saturday closest to January 31. Fiscal years are identified in this prospectus according to the calendar year prior to the calendar year in which they end. For example, references to “2012,” “fiscal 2012” or “fiscal year 2012” or similar references refer to the fiscal year ended on February 2, 2013. References to the “first six months of fiscal 2012” and the “first six months of fiscal 2013” refer to the six month periods ended July 28, 2012 and August 3, 2013, respectively.

Unless the context otherwise requires, references to the “company,” “we,” “us” and “our” collectively refer to Vince Holding Corp. (currently known as Apparel Holding Corp.) and its consolidated subsidiaries, which will include Vince, LLC after giving effect to the transactions to be effected immediately prior to the consummation of this offering. When discussing periods prior to the consummation of this offering, such references refer to the historical results and operations of Vince, LLC. We describe these transactions in the “Restructuring Transactions” section of this prospectus as “IPO Restructuring Transactions”. Additionally, unless the context otherwise requires, references to:

 

  Ÿ   “AHC” refer to Apparel Holding Corp. and its consolidated subsidiaries (including Kellwood Company) prior to the completion of the IPO Restructuring Transactions. Apparel Holding Corp. is the historical owner and operator of the Vince and non-Vince businesses;

 

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  Ÿ   “Kellwood” refer to Kellwood Holding, LLC and its consolidated subsidiaries (including Kellwood Company, LLC) after giving effect to the IPO Restructuring Transactions, as the future owner and operator of the non-Vince businesses, or to the non-Vince businesses of AHC prior to the completion of the IPO Restructuring Transactions, as the context requires;

 

  Ÿ   “Kellwood Company” refer to Kellwood Company prior to the completion of the IPO Restructuring Transactions and “Kellwood Company, LLC” references refer to such entity after completion of the IPO Restructuring Transactions;

 

  Ÿ   “Vince” refer to the Vince business after giving effect to the IPO Restructuring Transactions; and

 

  Ÿ   “Vince, LLC” refer to the entity that has historically held the Vince assets and liabilities and will continue to do so after completion of the IPO Restructuring Transactions and the consummation of this offering and the application of the proceeds of this offering as described herein. Apparel Holding Corp. is the legal issuer of the shares offered in this offering. Investors will be investing in the Vince business, however, they will be purchasing shares issued by Apparel Holding Corp., not Vince, LLC.

In connection with the IPO Restructuring Transactions, affiliates of Sun Capital Partners, Inc. (“Sun Capital”) will retain their ownership of the non-Vince businesses through their ownership of Kellwood Holding, LLC.

 

 

Trademarks

Prior to giving effect to the IPO Restructuring Transactions, AHC owned or had rights to trademarks or trade names that it used in conjunction with the operation of both the Vince and non-Vince businesses, including Vince®, Rebecca Taylor®, David Meister®, My Michelle®, XOXO®, Jolt®, Rewind®, Democracy™, Sag Harbor®, Briggs New York®, Jax®, Sangria™, Kelty®, Sierra Designs®, Ultimate Direction®, Slumberjack®, Wenzel® and Isis®. After giving effect to the IPO Restructuring Transactions, we will own or have the right to use the Vince® trademark, under which we will operate our business, and Kellwood will continue to own the trademarks and tradenames necessary to operate the non-Vince businesses. Solely for convenience, trademarks and trade names referred to in this prospectus may appear without the ® or ™ symbols, but such references are not intended to indicate, in any way, that we will not assert, to the fullest extent under applicable law, our rights or the rights of the applicable licensor to these trademarks and trade names. In this prospectus, we also refer to product names, trademarks, trade names and service marks that are the property of other companies. Each of the trademarks, trade names or service marks of other companies appearing in this prospectus belongs to its owners. Our use or display of other companies’ product names, trademarks, trade names or service marks is not intended to and does not imply a relationship with, or endorsement or sponsorship by us of, the product, trademark, trade name or service mark owner, unless we otherwise indicate.

 

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PROSPECTUS SUMMARY

This summary highlights information contained elsewhere in this prospectus. It does not contain all of the information that may be important to you and your investment decision. You should carefully read the following summary together with the entire prospectus, including the matters set forth under “Risk Factors,” “Additional Information Related to Vince—Supplemental Management’s Discussion and Analysis of Financial Condition and Results of Operations of Vince, LLC” and our financial statements and related notes included in the “Additional Information Related to Vince—Supplemental Selected Historical Financial Data of Vince, LLC” section of this prospectus. Some of the statements in this prospectus constitute forward-looking statements. See “Special Note Regarding Forward-Looking Statements.” Statement of operations data set forth in this “Prospectus Summary” and the “Additional Information Related to Vince—Vince Business” and “Risk Factors—Risks Related to Vince” sections are calculated and presented on a stand-alone basis for Vince, LLC as if the Vince Transfer (as defined below in “—Corporate and Other Information”) was consummated on the first day of the applicable period, unless the context otherwise requires. See “—Summary Historical Financial Data of Vince, LLC” for additional information.

Restructuring Transactions

Apparel Holding Corp. was formed to hold the assets and liabilities of Kellwood Company in connection with the February 2008 acquisition of Kellwood Company by affiliates of Sun Capital Partners, Inc. (“Sun Capital”). In September 2012, Kellwood Company transferred the assets and liabilities of the Vince business to Vince, LLC in anticipation of this offering. Immediately prior to the consummation of this offering, affiliates of Sun Capital will engage in a series of transactions pursuant to which they will establish new corporate entities that will retain all of the non-Vince businesses after this offering. These non-Vince businesses will accordingly remain privately-held and will not be owned by the investors in this offering. In addition, in connection with the IPO Restructuring Transactions, as described below in “—The Offering—Restructuring Transactions,” Apparel Holding Corp., the entity offering stock in this offering, will change its name to Vince Holding Corp. and its only assets, liabilities, and operations will consist of the Vince business. Vince is the business in which you are investing by buying shares of common stock in this offering. Notwithstanding the foregoing, an investment in us is not the same as an investment in Vince, LLC as there are assets and liabilities of Apparel Holding Corp. not reflected in the Vince, LLC balance sheet. These assets and liabilities will be significantly impacted by the IPO Restructuring Transactions and the application of the net proceeds of this offering. See “Additional Information Related to AHC—Unaudited Pro Forma Consolidated Financial Data of AHC.”

Consummation of this offering is conditioned upon the successful completion of the IPO Restructuring Transactions, including entry into the Transfer Agreement, which requires the issuance of the Kellwood Note Receivable, the application of the proceeds of this offering to the repayment of the Kellwood Note Receivable and the repayment, discharge or refinancing, as applicable, of certain indebtedness of Kellwood Company. The indebtedness that is to be repaid or discharged immediately after the closing of this offering (after giving effect to an additional capital contribution to be made by affiliates of Sun Capital as part of the IPO Restructuring Transactions) includes the Cerberus Term Loan Agreement, which had an outstanding balance of $45.7 million as of August 3, 2013, and the Sun Term Loan Agreements, which totaled $118.0 million in the aggregate as of August 3, 2013 (each as defined in “Restructuring Transactions”). Kellwood Company, LLC will also, at closing, issue an unconditional redemption notice to redeem all of its 12.875% Second-Priority Senior Secured Payment-In-Kind Notes due 2014, which totaled $146.8 million as of August 3, 2013 (the “12.875% Notes”), and refinance its $155 million revolving credit facility (the “Wells Fargo Facility”), which had an

 

 

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outstanding balance of $115.6 million as of August 3, 2013, to, among other things, release Vince, LLC as a guarantor. At or after the closing of this offering, Kellwood Company, LLC may use proceeds remaining from the repayment of the Kellwood Note Receivable to repurchase some or all of its 7.625% 1997 Debentures due 2017, which totaled $87.0 million in the aggregate as of August 3, 2013 (the “7.625% Notes”) and some or all of its 3.5% 2004 Convertible Debentures due June 15, 2034, which totaled $0.2 million in the aggregate as of August 3, 2013 (the “3.5% Convertible Notes”). Neither Apparel Holding Corp. nor Vince, LLC is a guarantor or obligor of the 7.625% Notes or the 3.5% Convertible Notes. Although the repayment, discharge, repurchase or refinancing of the Kellwood Company indebtedness described in this paragraph is not a condition to the closing of this offering, the Transfer Agreement requires that Kellwood Company, LLC apply the proceeds from the repayment of the Kellwood Note Receivable to effect such repayments, discharges, repurchases and refinancings and entry into the Transfer Agreement is a closing condition. See “Restructuring Transactions,” “Use of Proceeds” and “Other Information Related to this Offering—Description of Certain Indebtedness of AHC” for additional information. If any of these conditions are not satisfied, the offering will not be consummated and you will not receive or be obligated to pay for shares of Vince Holding Corp. common stock until such time as all such conditions are satisfied or the offering is withdrawn in accordance with applicable law.

Our Company

Apparel Holding Corp. is currently a diversified apparel company that designs, manufactures, and markets a collection of fashion brands which include Vince, Rebecca Taylor, David Meister, Sag Harbor, My Michelle and XOXO, along with numerous private label businesses for major retailers. AHC has four reportable segments which include (i) Vince, contemporary fashion apparel and accessories sold under the Vince® brand name; (ii) American Recreational Products (“ARP”), recreational apparel and products sold under Kelty, Sierra Designs, Ultimate Direction, Slumberjack, Wenzel and Isis brand names; (iii) Juniors, a collection of denim, dresses and sportswear labels sold under the Rewind, My Michelle and Jolt brand name as well as private label; and (iv) Moderate, moderately priced related separates and pants covering career and casual lifestyles sold through wholesale distribution and produced under private labels, as well as under the Sag Harbor and Briggs New York brands. After giving effect to the IPO Restructuring Transactions, Apparel Holding Corp. will be renamed Vince Holding Corp. and its assets, liabilities, and operations will consist solely of the Vince business. An investment in us is an investment in the Vince business.

Vince is a prominent, high-growth contemporary apparel brand known for its modern, effortless style and everyday luxury essentials. The Vince brand was founded in 2002 with a collection of stylish women’s knits and cashmere sweaters that rapidly attracted a loyal customer base drawn to the casual sophistication and luxurious feel of our products. Over the last decade, Vince has generated strong sales momentum and has successfully grown to include a men’s collection in 2007, expanded denim, leather and outerwear lines in 2010 and women’s footwear, which was launched through a licensing partnership in 2012. The Vince brand is synonymous with a clean, timeless aesthetic, sophisticated design and superior quality. We believe these attributes have generated strong customer loyalty and allow us to hold a distinctive position among contemporary apparel brands. We also believe that we will achieve continued success by expanding our product assortment and distributing this expanded product assortment through our premier wholesale partners in the U.S. and select international markets, as well as through our growing number of branded retail locations and on our e-commerce platform.

 

 

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The strength of the Vince brand is demonstrated by our growth trajectory, with net sales, comparable store sales growth, Adjusted EBITDA and net income, as set forth below, for each of fiscal 2010, fiscal 2011 and fiscal 2012 and the first six months of fiscal 2012 and 2013:

 

Period

  Net Sales     Change
from
Prior Period
    Comparable
Store Sales
Growth
    Adjusted
EBITDA
    Change
from
Prior Period
    Net Income  
(Dollars in Millions)                                    

Fiscal 2010

  $ 111.5               9.3   $ 23.6             $ 9.1   

Fiscal 2011

    175.3        57.2     7.6     44.2        86.9     16.7   

Fiscal 2012

    240.4        37.1     23.1     51.5        16.6     10.3   
           

First six months of Fiscal 2012

    90.5               13.9     15.3               1.2   

First six months of Fiscal 2013

    114.7        26.6     31.7     21.5        40.9     2.4   

See “—Non-GAAP Financial Measures” for the definition of Adjusted EBITDA and a reconciliation from net income to Adjusted EBITDA.

Led by an experienced management team, Vince is evolving from a U.S. wholesale-driven women’s apparel business to a global, dual-gender, multi-channel lifestyle brand. We believe we have significant and visible growth opportunities that include:

 

  Ÿ   expanding the brand’s appeal with new product offerings;

 

  Ÿ   increasing wholesale penetration and productivity in premier department stores and specialty stores;

 

  Ÿ   opening new retail locations and improving productivity in existing Vince stores;

 

  Ÿ   growing our e-commerce business;

 

  Ÿ   selectively adding new points of distribution globally; and

 

  Ÿ   building brand awareness to attract new customers.

We serve our customers through a variety of channels that reinforce the Vince brand image. Our diversified channel strategy allows us to introduce our products to customers through multiple distribution points that are reported in two segments: wholesale and direct-to-consumer. Our wholesale segment is comprised of sales to premier department stores and specialty stores in the U.S. and in select international markets, with U.S. wholesale representing 76% of our fiscal 2012 sales and 70.4% of our sales for the first six months of fiscal 2013. We believe that our success in the U.S. wholesale segment and strong relationships with premier wholesale partners provide opportunities for continued growth. These growth initiatives include creating enhanced product assortments and brand extensions through both in-house development activities and licensing arrangements, as well as by continuing the build-out of Vince branded shop-in-shops in select wholesale partner locations. We also believe international wholesale, which represented 8% of net sales for fiscal year 2012 and 10.3% of net sales for the first six months of fiscal 2013, presents a significant growth opportunity as we strengthen our presence in existing geographies and introduce Vince in new markets globally.

In 2008, we began to broaden our distribution beyond the wholesale channel with the opening of our first retail store. Since then, we have expanded our direct-to-consumer presence, and as of October 5, 2013, we operated 27 stores, which consist of 21 full-price retail stores and six outlet locations. Based on a combination of third-party analyses and internal projections, we believe the U.S. market can currently support at least 100 free-standing Vince store locations. The direct-to-consumer

 

 

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segment also includes our website, www.vince.com, which was launched in 2008. The direct-to-consumer segment accounted for 15.5% of fiscal 2012 net sales and 19.3% of net sales for the first six months of fiscal 2013, and we expect sales from this channel to accelerate as we drive productivity in existing stores, open new stores and upgrade and re-launch our website in 2014.

Our Competitive Strengths

Differentiated Brand for Everyday Luxury Essentials.    We believe that the Vince brand holds a distinct position in today’s marketplace driven by a premium product assortment that combines sophisticated comfort with contemporary and timeless fashion that can be worn virtually everyday. The Vince brand is distinguished by a refined, modern aesthetic with superior quality and attention to detail and fit. The premium nature of the Vince brand is reinforced through our highly selective wholesale partnerships with premier department stores and specialty stores and a retail strategy designed to ensure a consistent brand presentation and enhanced customer experience. We believe the enduring fashion and effortless style of the Vince brand, coupled with a pricing strategy that positions us as an affordable luxury, have created strong and proven global appeal.

Exceptional Customer Loyalty and Reach.    The quality, consistency and design of our products have attracted a loyal following among style-savvy consumers across a broad age demographic. Based on a 2012 third-party survey that we commissioned among 500 qualified consumers, Vince has high levels of brand affinity and purchase intent. Among women surveyed who are aware of Vince, 41% express that they “love” the brand, and 35% report that they are “highly likely” to purchase the brand within the next six months, representing the highest levels of affinity and purchase intent compared to 20 other peer brands included in the survey. While our target customer is between the ages of 30 and 50, we have successfully attracted fashion-conscious customers as young as 18 and customers over 55 who appreciate our brand’s sophistication and design aesthetic.

Established Network of Premier Wholesale Partners.     Vince is a leading brand in premier U.S. department stores, including Nordstrom, Saks Fifth Avenue, Neiman Marcus and Bloomingdale’s, as well as in select specialty stores nationwide. Based on industry experience, we believe that in the majority of these U.S. department stores, Vince was a top selling brand on the contemporary floor in fiscal 2012 and the first six months of fiscal 2013. Our product offerings and brand also resonate with customers outside the U.S., as demonstrated by the strong growth experienced through premium international stores including Harrods and Harvey Nichols in both these periods and by Lane Crawford in the first six months of fiscal 2013. Looking forward, we believe there are opportunities for further growth and productivity gains with our wholesale partners through new initiatives such as product line extensions and the transformation of Vince product displays at select department stores into branded shop-in-shops.

Scalable and Flexible Retail Format.    We opened our first retail location in 2008 and have since grown our retail footprint in the U.S. to a total of 27 stores, which consist of 21 full-price retail stores and six outlet locations, as of October 5, 2013. Our stores offer a personalized, service-oriented shopping experience in a boutique setting that reflects the lifestyle and modern aesthetic of the brand. We have a proven and flexible full-price retail format that targets both street and mall locations, which can accommodate both dual and single gender assortments. The strength of our retail channel is evidenced by the revenue growth across our existing store base, with a 9.3%, 7.6% and 23.1% comparable store sales growth in fiscal 2010, fiscal 2011 and fiscal 2012, respectively, and 31.7% comparable store sales growth in the first six months of fiscal 2013. We continue to open retail locations and invest in infrastructure to support the long-term growth of this channel.

 

 

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Experienced Management Team.    We have assembled a world-class management team with extensive experience across a broad range of disciplines including global brand building, merchandising, marketing, design, operations, retail, international, licensing and finance. Our highly skilled team is led by our Chief Executive Officer (“CEO”), Jill Granoff, who was previously CEO of Kenneth Cole Productions, our President and Chief Creative Officer, Karin Gregersen, who was previously Managing Director of Chloé/Richemont Americas, and our Chief Financial Officer (“CFO”), Lisa Klinger, who was previously CFO of The Fresh Market.

Growth Strategy

Capitalize on New and Existing Product Opportunities.    We believe there are significant opportunities to capitalize on our strong customer loyalty and growing customer base by enhancing our current product assortment and introducing new product categories in order to provide additional reasons to shop the Vince brand. We plan to build sales of existing product categories by elevating our men’s collection, expanding our denim and outerwear offerings, increasing our assortment of women’s bottoms and dresses and implementing a replenishment program for core items. Additionally, we continue to identify new product categories that will allow us to capture incremental share from existing customers and attract new customers. Categories already identified include handbags and leather accessories, which we anticipate launching in 2015, as well as more tailored collections for women and men. We also entered into a licensing agreement for women’s footwear, which launched in 2012, and signed a licensing agreement in 2013 for the launch of children’s apparel in 2014. We also anticipate launching men’s footwear in 2014 through a licensing partner. We will continue to explore additional licensing opportunities for select categories requiring specialized expertise, such as intimates/loungewear, men’s footwear and fashion accessories.

Increase Wholesale Penetration.    In fiscal 2012, we grew our wholesale net sales in the U.S. by 35% compared to fiscal 2011. This revenue growth exceeded our growth of 17% in the number of wholesale doors during fiscal 2012, which illustrates our ability to improve productivity within existing locations. We believe we can continue to increase wholesale net sales by enhancing assortments in existing product categories, introducing new product categories and improving our visual presentation, space layout and fixtures. Working with our wholesale partners, we are planning to open 15 to 20 new branded shop-in-shops in fiscal 2013 and believe there is an attractive opportunity to open additional shop-in-shops in 2014 and beyond. We believe our shop-in-shop strategy will provide our customers with a more elevated retail shopping experience and allow us to better showcase the Vince lifestyle.

Accelerate Growth of U.S. Direct-to-Consumer Segment.    As of October 5, 2013, we operated 27 stores, which consist of 21 full-price retail stores and six outlet locations. Based on a combination of third-party analyses and internal projections, we believe the U.S. market can currently support at least 100 free-standing Vince store locations. We plan to double our current store base over the next three to five years, including opening a net total of six new stores in fiscal 2013. Our new full-price store model ranges from 2,000 to 3,000 gross square feet, and we target a payback period on our new store investments of two to three years. In addition to new store expansion, we also have an opportunity to increase productivity in our existing stores through enhanced merchandising with a focus on a broad lifestyle presentation, personalized customer service strategies, the launch of new product categories, improved inventory management and the expansion of made-for-outlet product. We believe our recently enhanced e-commerce strategy creates additional opportunities for growth. As a component of this strategy, we intend to upgrade and re-launch our www.vince.com website in 2014 to offer a more compelling shopping experience and richer content to increase customer engagement and visit frequency.

 

 

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Expand Our International Business.    Given increasing worldwide demand for affordable luxury goods, targeted international expansion represents a compelling growth opportunity. Vince products are currently sold in 43 countries, either directly to premier department and specialty stores, or through distribution relationships with highly-regarded international partners with exclusive rights to certain territories. As of October 5, 2013, we had eight international shop-in-shops. We believe we can increase international sales by supplementing existing distribution partnerships, increasing wholesale penetration and productivity and selectively adding retail locations with current and prospective partners in attractive international markets including Canada, select European countries, Asia and the Middle East.

Build Our Brand Awareness.    Vince has a significant opportunity to increase brand awareness and drive incremental sales. Based on a 2012 third-party consumer survey we commissioned, Vince has aided brand awareness of 20% compared to 30% to 50% for other contemporary brands and approximately 75% to 90% for brands like Michael Kors, Diane von Furstenburg and Ralph Lauren. Aided brand awareness is when a respondent indicates recognition of a specific brand from a list of possible names presented by those conducting the survey instead of indicating recognition of a specific brand without being offered a list of potential responses. Our low awareness level, coupled with the high affinity and purchase intent we have among existing consumers, underscores what we believe is a significant growth opportunity to convert potential new customers to loyal brand enthusiasts. To address this opportunity, we intend to increase our marketing investment across a range of strategic initiatives, including cooperative advertising with wholesale partners, print media, digital media, editorial coverage, direct mail, search engine optimization, social media initiatives, targeted product placement, celebrity outreach and in-store events. We also believe our brand awareness will increase as we open new retail stores in prominent, high-visibility locations, increase the number of shop-in-shops at our wholesale partner locations and upgrade and re-launch our www.vince.com website.

Recent Developments of Apparel Holding Corp.

Set forth below is selected preliminary, unaudited consolidated financial data of Apparel Holding Corp. and its consolidated subsidiaries for the third quarter of fiscal 2013, based upon AHC’s estimates. It includes selected preliminary, unaudited consolidated financial data associated with the combined Vince and non-Vince businesses and assets and liabilities associated with the Vince business as well as the non-Vince businesses that will be transferred to Kellwood Holding, LLC and its consolidated subsidiaries in connection with the IPO Restructuring Transactions. An investment in us after giving effect to the IPO Restructuring Transactions is an investment in the Vince business. We will not have ongoing involvement with the non-Vince businesses following separation, with the exception of our payments to Kellwood for certain services to be provided under the Shared Services Agreement as further described elsewhere in this prospectus. Similarly, Kellwood will not have ongoing involvement in our business, other than pursuant to the Shared Services Agreement. Once we have completed the IPO Restructuring Transactions, results of operations of the non-Vince businesses will be reported as discontinued operations for accounting purposes and our continuing operations will consist solely of the Vince business.

This data has been prepared by, and is the responsibility of, AHC management. AHC’s independent registered public accounting firm, PricewaterhouseCoopers LLP, has not audited, reviewed, compiled or performed any procedures related to, and does not express an opinion or any other form of assurance with respect to, this data. This summary is not a comprehensive statement of AHC’s financial results for the third quarter of fiscal 2013 and AHC’s actual results may differ materially from these estimates due to the completion of its financial closing procedures, final adjustments and

 

 

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other developments that may arise between now and the time the financial results for this period are finalized.

 

  Ÿ   Net sales are estimated to be between $212.9 million and $215.0 million for the third quarter of fiscal 2013, an increase of 5.0% at the midpoint of the range as compared to $203.4 million for the third quarter of fiscal 2012. The estimated increase in net sales is primarily due to higher net sales within our Vince and Juniors segments, partially offset by lower net sales within our ARP segment.

 

  Ÿ   Gross margin rate for the third quarter of fiscal 2013 is estimated to be between 31.3% and 32.7%, an increase of approximately 110 basis points compared to the third quarter fiscal 2012 rate of 30.9%. The estimated increase in gross margin is driven primarily by a higher percentage of our sales coming from the Vince segment, in which AHC generally recognizes higher margins.

 

  Ÿ   Income from operations is estimated to be between $12.0 million and $15.0 million for the third quarter of fiscal 2013 as compared to $16.1 million for the third quarter of fiscal 2012. The increase in net sales noted above is expected to be offset by increased selling, general and administrative expenses, which are expected to be between $52.8 million and $53.8 million, primarily in its Vince segment and partially offset by a decrease in unallocated corporate selling, general and administrative expenses.

 

  Ÿ   Net loss is estimated to be between $(4.5) million and $(1.5) million for the third quarter of fiscal 2013 as compared to net loss of $(14.9) million for the third quarter of fiscal 2012. The estimated decrease in net loss compared to the corresponding period in fiscal 2012 is primarily driven by the net loss from discontinued operations of $6.7 million for the third quarter of fiscal 2012, which was not repeated in fiscal 2013.

 

  Ÿ   Adjusted EBITDA is estimated to be between $16.1 million and $20.3 million for the third quarter of fiscal 2013, as compared to $21.5 million for the third quarter of fiscal 2012. AHC’s adjusted EBITDA estimate for the third quarter of fiscal 2013 reflects AHC’s estimated net loss from continuing operations before income taxes of between $(4.4) million and $(1.4) million, plus estimated deprecation of $1.2 million, plus estimated amortization of $0.5 million, plus estimated interest expense, net of $14.8 million plus estimated restructuring, environmental and other charges of between $0.1 million and $1.3 million, plus estimated public company transition costs of $3.2 million. AHC’s Adjusted EBITDA for the third quarter of fiscal 2012 reflects AHC’s loss from continuing operations before provision of income taxes of $(8.3) million plus depreciation of $1.0 million, plus amortization of $0.5 million, plus interest expense, net of $23.8 million, plus restructuring, environmental and other charges of $0.6 million plus public company transition costs of $3.9 million, in each case for the third quarter of fiscal 2012.

AHC includes Adjusted EBITDA for a number of reasons as described in “Additional Information Related to AHC—Management’s Discussion and Analysis of Financial Condition and Results of Operations of AHC.” AHC’s use of Adjusted EBITDA has certain limitations because it does not reflect all items of income and expense that affect AHC’s operations. Investors are encouraged to review AHC’s financial information in its entirety and not rely on a single financial measure.

AHC has provided a range from the preliminary results described above primarily because its financial closing procedures for the month ended November 2, 2013 and the third quarter of fiscal 2013 have not yet been completed and as such, the financial closing procedures are not yet complete. As a result, AHC expects that its financial results upon completion of our closing procedures will vary from the preliminary estimates within the ranges as described above. Among the components of AHC’s financial results as to which it is unable to determine specific amounts prior to the completion of its

 

 

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quarter end closing procedures are: (i) net sales, which AHC estimates based upon recent historical trends, internal analysis and forecasting and preliminary unaudited results for the two fiscal months ended October 5, 2013; (ii) certain general operating expenses associated with accrued liabilities arising at the end of the period, which are estimated based upon recent historical trends and internal reporting and forecasting; (iii) employee bonus expenses, which are included in AHC’s operating expenses and estimated based upon a formula that is dependent upon AHC’s forecasted Adjusted EBITDA; (iv) certain operating expenses associated with commitments and contingencies; and (v) AHC’s income tax provision, which has been estimated based upon AHC’s current tax provision as of and at August 3, 2013 and AHC’s forecasted pre-tax income (loss) for the period. AHC expects to complete its closing procedures with respect to the month ending November 2, 2013 and the third quarter of fiscal 2013 in December 2013.

Recent Developments of Vince, LLC

Set forth below is selected preliminary, unaudited financial data of Vince, LLC for the third quarter of fiscal 2013, based upon our estimates. This data has been prepared by, and is the responsibility of, management. Our independent auditor, PricewaterhouseCoopers LLP, has not audited, reviewed, compiled or performed any procedures, and does not express an opinion or any other form of assurance with respect to this data. This summary is not a comprehensive statement of our financial results for this period and our actual results may differ materially from these estimates due to the completion of our financial closing procedures, final adjustments and other developments that may arise between now and the time the financial results for this period are finalized.

Please note the following:

  Ÿ   Apparel Holding Corp. (to be renamed Vince Holding Corp. prior to the consummation of this offering) is the legal issuer of the shares offered in this offering.

 

  Ÿ   The information set forth below is provided as supplemental information and should not be considered in lieu of the information pertaining to Apparel Holding Corp; and

 

  Ÿ   The financial information included in this discussion and in Vince, LLC’s historical financial statements may not be indicative of Apparel Holding Corp.’s financial position, operating results and changes in equity after the completion of the IPO Restructuring Transactions, or what they would have been had the Vince business operated separately from the non-Vince businesses during the periods presented.

 

  Ÿ   Net sales for the third quarter of fiscal 2013 are estimated to be between $85.3 million and $86.2 million, an increase of 10.8% to 11.9% as compared to $77.0 million for the third quarter of fiscal 2012. This net sales growth is on top of a 34.0% increase in net sales during the corresponding third quarter period in fiscal 2012. The increase in net sales is expected to be primarily due to an increase in our direct to consumer channel with comparable store sales growth of 16.5%, the opening of seven additional retail stores, and increased e-commerce sales volume. The 16.5% comparable store sales growth expectation for the third quarter of fiscal 2013 is in addition to 23.4% comparable store sales growth reported in the third quarter of fiscal 2012. We also estimate 2.0% to 3.0% growth in the wholesale channel driven by net sales growth in the high-teens at our premier U.S. wholesale partners and the opening of 13 new global shop-in-shops, mostly offset by the fact that our international wholesale partners shifted some of their purchases from the third quarter of fiscal 2013 to the second quarter of fiscal 2013 and the fact that our off-price partners shifted some of their purchases into the fourth quarter of fiscal 2013. These timing shifts impacted our third quarter fiscal 2013 wholesale sales growth by eight percentage points.

 

 

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  Ÿ   Gross margin rate for the third quarter of fiscal 2013 is estimated to be between 48.5% and 49.0%, an increase of approximately 290 to 340 basis points compared to the third quarter fiscal 2012 rate of 45.6%. The estimated increase in gross margin is driven by (i) a higher percentage of our sales coming from the direct-to-consumer segment, where we generally recognize higher margins, which we estimate will deliver approximately 200 to 240 basis points of gross margin expansion and (ii) an increased percentage of full-price sales compared to off-price sales in the third quarter of fiscal 2013, which we estimate will deliver approximately 300 to 350 basis points of gross margin improvement relative to the third quarter of fiscal 2012. These margin expansion drivers will be partially offset by increased margin contribution payments provided to our wholesale partners in the third quarter of fiscal 2013, which are estimated to result in a 210 to 250 basis points decline in gross margin.

 

  Ÿ   Income from operations for the third quarter of fiscal 2013 is estimated to be between $17.3 million and $17.8 million, an increase of 11.4% to 14.2% as compared to $15.6 million for the third quarter of fiscal 2012. The estimated increase in income from operations compared to the corresponding period in fiscal 2012 is primarily due to increased net sales, partially offset by higher selling, general and administrative (“SG&A”) expenses. Total SG&A expenses are estimated to be between $23.9 million and $24.3 million, or 28.0% to 28.2% as a percentage of sales, versus $19.4 million, or 25.2% as a percentage of sales, in the corresponding period in fiscal 2012. The increased SG&A expenses were driven by incremental compensation costs associated with the hiring of the stand-alone Vince management team estimated at 80 to 85 basis points, incremental new store costs estimated at 145 to 155 basis points and increased marketing and design expense estimated at 55 to 60 basis points, each of which reflect continued investment in the business for future growth.

 

  Ÿ   Net income for the third quarter of fiscal 2013 is estimated to be between $6.3 million and $6.5 million, an increase of 12.7% to 16.7% as compared to net income of $5.6 million for the third quarter of fiscal 2012. The estimated increase in net income versus the corresponding period in fiscal 2012 is primarily due to increased net sales, partially offset by higher SG&A expenses.

 

  Ÿ   Adjusted EBITDA for the third quarter of fiscal 2013 is estimated to be between $21.1 million and $21.6 million, an increase of 6.4% to 8.6% as compared to $19.9 million for the third quarter of fiscal 2012. Our adjusted EBITDA estimate for the third quarter of fiscal 2013 reflects estimated income before income taxes of between $10.4 million and $10.7 million, plus estimated depreciation of $0.6 million, plus estimated amortization of $0.2 million, plus estimated net interest expense of between $6.8 million and $6.9 million, plus estimated public company transition costs of $3.2 million. The adjusted EBITDA for the third quarter of fiscal 2012 reflects income before income taxes of $9.3 million plus depreciation of $0.4 million, plus amortization of $0.2 million, plus net interest expense of $6.1 million, plus public company transition costs of $3.9 million.

We include Adjusted EBITDA for a number of reasons as described in “Additional Information Related to Vince—Management’s Discussion and Analysis of Financial Condition and Results of Operations of Vince.” Our use of Adjusted EBITDA has certain limitations because it does not reflect all items of income and expense that affect our operations. Investors are encouraged to review our financial information in its entirety and not rely on a single financial measure.

We have provided a range from the preliminary results described above primarily because the financial closing procedures for the month ended November 2, 2013 and the third quarter of fiscal 2013 have not yet been completed. As a result, we expect that our financial results upon completion of our closing procedures will vary from our preliminary estimates within the ranges as described above.

 

 

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Among the components of our financial results as to which we are unable to determine specific amounts prior to the completion of its quarter end closing procedures are : (i) net sales, which we estimate based upon recent historical trends, internal analysis and forecasting and preliminary unaudited results for the two months ended October 5, 2013; (ii) certain general operating expenses associated with accrued liabilities arising at the end of the period, which are estimated based upon recent historical trends and internal reporting and forecasting; (iii) employee bonus expenses, which are included in our operating expenses and estimated based upon a formula that is dependent upon our forecasted Adjusted EBITDA; (iv) certain operating expenses associated with commitments and contingencies; and (v) our income tax provision, which has been estimated based upon our current tax provision as of and at August 3, 2013 and our forecasted pre-tax income for the period. We expect to complete our closing procedures with respect to the month ending November 2, 2013 and the third quarter of fiscal 2013 in December 2013.

Our Market Opportunity

We operate in the global personal luxury goods industry. According to the Bain Studies, the luxury goods market grew at a compound annual growth rate of approximately 6% between 1996 and 2012, with estimated sales of approximately $260 billion in 2012. The Bain Studies define the global personal luxury goods market to include design, hospitality, wines & spirits, food, cars and yachts. According to the Bain Studies, for fiscal 2010 through fiscal 2012, the global personal luxury goods market grew at an 11% compounded annual growth rate. Going forward, Bain & Company expects the global personal luxury goods market to grow 4% to 5% in 2013, and at a 5% to 6% compounded annual growth rate over the next few years, reflecting a growing middle class possessing increased purchasing power in select international markets, increased demand for higher-end apparel and leather goods, and growing demand for luxury goods in China and South-East Asia. We believe our business is well-positioned to benefit from these trends.

Risks Associated with our Business

There are a number of risks and uncertainties that may affect our financial and operating performance and our growth prospects. You should carefully consider all of the risks discussed in “Risk Factors” before investing in our common stock. Some of these risks include the following:

 

  Ÿ   General economic conditions in the U.S. and other parts of the world, including a continued weakening of the economy and restricted credit markets, can affect consumer confidence and consumer spending patterns;

 

  Ÿ   Intense competition in the apparel industry could reduce our sales and profitability;

 

  Ÿ   A substantial portion of our revenue is derived from a small number of large wholesale partners, and the loss of any of these wholesale partners could substantially reduce our total revenue;

 

  Ÿ   We have grown rapidly in recent years and we have limited operating experience as a team at our current scale of operations. If we are unable to manage our operations at our current size or are unable to manage any future growth effectively, our business results and financial performance may suffer;

 

  Ÿ   Kellwood provides us with certain key services for our business. If Kellwood fails to perform its obligations to us or if we do not find appropriate replacement services, we may be unable to perform these services or implement substitute arrangements on a timely and cost-effective basis on terms favorable to us; and

 

  Ÿ   Our historical financial information may not be representative of our results as a stand-alone public company.

 

 

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Our Equity Sponsor

Sun Capital is a leading private investment firm focused on leveraged buyouts, equity, debt and other investments in market-leading companies that can benefit from its in-house operating professionals and experience. Since its inception in 1995, Sun Capital affiliates have invested in over 320 companies worldwide with combined sales in excess of $45 billion. Sun Capital affiliates have invested in several specialty retail and apparel companies, including Gerber Childrenswear, Hanna Andersson, Limited Stores, Gordmans, Scotch & Soda, Mattress Firm, Pamida and Shopko Stores.

On February 12, 2008, investment funds advised by affiliates of Sun Capital acquired Kellwood Company for aggregate consideration of $955.4 million, including the assumption of debt, in a cash tender offer and subsequent squeeze-out merger. Sun Cardinal, LLC (“Sun Cardinal”) and SCSF Cardinal, LLC (“SCSF Cardinal”), affiliates of Sun Capital and the selling stockholders in this offering, have offered the underwriters an option to purchase an additional 1,500,000 shares in this offering. Following consummation of this offering, affiliates of Sun Capital will own approximately 72% of our outstanding common stock, or 68% if the underwriters’ option to purchase additional shares from the selling stockholders is fully exercised. See “Other Information Related to this Offering—Security Ownership of Certain Beneficial Owners of AHC.” Sun Cardinal, LLC, a Sun Capital affiliate, will have the ability to designate a majority of our directors for so long as affiliates of Sun Capital own 30% or more of the outstanding shares of our common stock. As a result, funds advised by affiliates of Sun Capital will be able to have a significant effect relating to votes over fundamental and significant corporate matters and transactions. See “Risk Factors—Risks Related to this Offering and Our Common Stock—We are a “controlled company,” controlled by investment funds advised by affiliates of Sun Capital, whose interests in our business may be different from yours.”

Company History

Kellwood Company was founded in 1961 as the successor by merger of fifteen independent suppliers to Sears, Roebuck & Co. Beginning in 1985, Kellwood implemented a strategy to expand its branded business, broaden its customer base, diversify its distribution channels and further develop its global sourcing capability. In 2006, Kellwood Company acquired the Vince business from its founders. As described above, affiliates of Sun Capital acquired Kellwood Company in February 2008 through Apparel Holding Corp. Affiliates of Sun Capital will continue to control the non-Vince businesses through their ownership of Kellwood Holding, LLC, after giving effect to the IPO Restructuring Transactions.

Corporate and Other Information

Apparel Holding Corp. was incorporated in Delaware in February 2008 in connection with the acquisition of Kellwood Company by affiliates of Sun Capital. In September 2012, Kellwood Company formed Vince, LLC and all assets constituting the Vince business were contributed to Vince, LLC at such time (the “Vince Transfer”). Immediately prior to the consummation of this offering, Apparel Holding Corp. will be renamed Vince Holding Corp., the entity issuing common stock in this offering. Our principal executive office is located at 1441 Broadway, 6th Floor, New York, New York 10018 and our telephone number is (212) 515-2600. Our corporate website address is www.vince.com. The information contained on, or accessible through, our corporate website does not constitute part of this prospectus.

Affiliates of Sun Capital are Apparel Holding Corp.’s controlling stockholders. After consummation of this offering, affiliates of Sun Capital will continue to control both Kellwood and Vince. Kellwood will continue to provide certain services to us through the Shared Services Agreement (as described in “Other

 

 

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Information Related to this Offering—Certain Relationships and Related Party Transactions of AHC—Shared Services Agreement”), such as distribution, information technology and back office support.

Emerging Growth Company Status

We are, and will continue to be after completing the IPO Restructuring Transactions, an “emerging growth company,” as defined in the Jumpstart Our Business Startups Act (the “JOBS Act”). For as long as we are an “emerging growth company,” we may take advantage of certain exemptions from various reporting requirements that are applicable to other public companies that are not “emerging growth companies,” including, but not limited to, not being required to comply with the auditor attestation requirements of Section 404(b) of the Sarbanes-Oxley Act of 2002 (the “Sarbanes-Oxley Act”), reduced disclosure obligations regarding executive compensation in our periodic reports and proxy statements, and exemptions from the requirements of holding advisory “say-on-pay” votes on executive compensation and stockholder advisory votes on golden parachute compensation.

Under the JOBS Act, we will remain an “emerging growth company” until the earliest of:

 

  Ÿ   the last day of the fiscal year during which we have total annual gross revenues of $1 billion or more;

 

  Ÿ   the last day of the fiscal year following the fifth anniversary of the consummation of this offering;

 

  Ÿ   the date on which we have, during the previous three-year period, issued more than $1 billion in non-convertible debt; and

 

  Ÿ   the date on which we are deemed to be a “large accelerated filer” under the Securities Exchange Act of 1934, as amended (the “Exchange Act”). We will qualify as a large accelerated filer as of the first day of the first fiscal year after we have (i) more than $700 million in outstanding common equity held by our non-affiliates and (ii) been public for at least 12 months. The value of our outstanding common equity will be measured each year on the last day of our second fiscal quarter.

The JOBS Act also provides that an “emerging growth company” can utilize the extended transition period provided in Section 7(a)(2)(B) of the Securities Act of 1933, as amended (the “Securities Act”) for complying with new or revised accounting standards. However, we are choosing to “opt out” of such extended transition period, and, as a result, we will comply with new or revised accounting standards on the relevant dates on which adoption of such standards is required for companies that are not “emerging growth companies.” Section 107 of the JOBS Act provides that our decision to opt out of the extended transition period for complying with new or revised accounting standards is irrevocable.

 

 

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The Offering

 

Common stock offered by us

 

10,000,000 shares.

Option to purchase additional shares offered by the selling stockholders

 


The selling stockholders have agreed to allow the underwriters to purchase up to an additional 1,500,000 shares in the aggregate from them, at the public offering price, less the underwriting discount, within 30 days of the date of this prospectus. We will not receive proceeds, if any, from the underwriters’ option to purchase additional shares.

Common stock outstanding immediately after the offering

 


36,263,585 shares.

Selling stockholders

  Sun Cardinal, LLC and SCSF Cardinal, LLC, affiliates of Sun Capital.

Use of proceeds

 

We expect to receive net proceeds from this offering of approximately $159 million, based upon an assumed initial public offering price of $18.00 per share, the midpoint of the range set forth on the cover of this prospectus, and after deducting underwriting discounts and estimated offering expenses payable by us.

 

We expect to receive approximately $159 million of net proceeds from this offering and retain approximately $5.0 million of such net proceeds for general corporate purposes. We expect to use the remaining estimated net proceeds, together with net borrowings of $169.5 million under our new term loan facility, to repay the Kellwood Note Receivable, as described in “Restructuring Transactions.” The final amount of the Kellwood Note Receivable will equal the sum of net proceeds from this offering plus net borrowings under our new term loan facility. We estimate that the Kellwood Note Receivable will total $323.5 million, based on our current estimated net offering proceeds and anticipated net borrowings under our new term loan facility.

 

After giving effect to the contribution of certain indebtedness under the Sun Term Loan Agreements to be made by Sun Capital or its affiliates as part of the IPO Restructuring Transactions (the “Additional Sun Capital Contribution”), which capital contribution will be in addition to the Sun Capital Contribution, as described below in “—Restructuring Transactions,” Kellwood Company, LLC will use

 

 

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  proceeds from our repayment of the Kellwood Note Receivable to repay, discharge or repurchase a portion of its indebtedness, including fees, expenses and accrued and unpaid interest related thereto. Additionally, Kellwood Company, LLC will refinance the remainder of such then outstanding indebtedness for which Apparel Holding Corp. or Vince, LLC is a guarantor or obligor. Kellwood Company, LLC also intends to utilize a portion of the proceeds from repayment of the Kellwood Note Receivable to pay (i) a restructuring fee equal to 1% of the aggregate of this offering and certain related debt repayment and the amount of the new Vince and Kellwood credit facilities to Sun Capital Partners Management V, LLC (“Sun Capital Management”) pursuant to that certain management services agreement, as described in “Other Information Related to this Offering—Certain Relationships and Related Party— Transactions of AHC—Management Fees” (the “Management Services Agreement”) and (ii) a debt recovery bonus of up to $6.0 million to our Chief Executive Officer, as described in “Additional Information Related to Vince—Vince Executive Compensation— Employment Agreements.” See “Restructuring Transactions” and “Use of Proceeds” for additional information. It is currently estimated that the restructuring fee described in clause (i) above and payable to Sun Capital Management in connection with this offering will total $3.1 million.

Restructuring Transactions

  Effective September 1, 2012, Kellwood Company, a wholly-owned subsidiary of Apparel Holding Corp., contributed the assets and liabilities constituting the Vince business to Vince, LLC, a Delaware limited liability company and wholly-owned subsidiary of Kellwood Company, in the Vince Transfer.
  In anticipation of this offering and effective June 18, 2013, affiliates of Sun Capital, contributed $407.5 million of indebtedness to Apparel Holding Corp. as a capital contribution. We refer to this contribution as the “Sun Capital Contribution.” Affiliates of Sun Capital will contribute an estimated $87.9 million of indebtedness under the Sun Term Loan Agreements to Apparel Holding Corp. in the Additional Sun Capital Contribution as part of the IPO Restructuring Transactions. Such number assumes that the amount of the Kellwood Note Receivable will be $323.5 million and that the aggregate amount of uses of the Kellwood Note

 

 

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Receivable proceeds (as described in “Use of Proceeds”) totals $411.4 million.

 

We will complete the IPO Restructuring Transactions immediately prior to the consummation of this offering through which (i) Kellwood Holding, LLC will acquire the non-Vince businesses, which include Kellwood Company, LLC (to be converted from Kellwood Company in connection with these transactions) and (ii) Vince Intermediate Holding, LLC, a to be formed direct subsidiary of Apparel Holding Corp., will retain the Vince business, which includes Vince, LLC. Sun Capital affiliates will continue to own and control the non-Vince businesses through their ownership of Kellwood Holding, LLC after giving effect to the IPO Restructuring Transactions. Additionally, immediately prior to consummation of this offering, and as part of the IPO Restructuring Transactions, Apparel Holding Corp. will (A) convert all of its issued and outstanding non-voting common stock into common stock on a one-for-one basis, (B) effect a stock split of its common stock on a 28.5177 for one basis and (C) change its name to Vince Holding Corp. We refer to the Vince Transfer, the Sun Capital Contribution and the IPO Restructuring Transactions collectively as the “Restructuring Transactions.” Successful completion of the IPO Restructuring Transactions is a condition to the consummation of this offering. For a more detailed discussion and charts showing our structure before and after consummation of this offering, see “Restructuring Transactions.”

Dividend policy

  We currently expect to retain all available funds and any future earnings to fund the development and growth of our business and to repay indebtedness and therefore we do not anticipate paying any cash dividends in the foreseeable future. We anticipate that our ability to pay dividends on our common stock will be limited by our new revolving credit facility and our new term loan facility and may be further restricted by the terms of any other of our future debt or preferred securities. See “Dividend Policy of AHC” and “Additional Information Related to Vince—Description of Certain Indebtedness of Vince, LLC.”

Risk factors

  See “Risk Factors” and the other information in this prospectus for a discussion of the factors you should consider before you decide to invest in our common stock.

Proposed New York Stock Exchange Symbol

  We intend to apply to list our common stock on the New York Stock Exchange (the “NYSE”) under the symbol “VNCE”.

 

 

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The number of shares of our common stock to be outstanding following this offering is based on          shares of our common stock outstanding as of October 15, 2013, and excludes:

 

  Ÿ   99,812 shares of our common stock issuable upon the exercise of options that we intend to grant under our new management equity incentive plan (the "Vince 2013 Incentive Plan"), as described in “Additional Information Related to Vince—Vince Executive Compensation —Employee Stock Plans—Vince 2013 Incentive Plan,” to our Chief Financial Officer with an exercise price equal to the public offering price set forth on the cover of this prospectus in connection with the consummation of this offering;

 

  Ÿ   up to approximately 260,000 shares of our common stock issuable upon the exercise of options that we intend to grant under the Vince 2013 Incentive Plan to certain of our employees (excluding our named executive officers) with an exercise price equal to the public offering price set forth on the cover of this prospectus in connection with the consummation of this offering;

 

  Ÿ   approximately 2,208,290 shares of our common stock issuable upon the exercise of options that were issued to Vince employees and a former AHC executive under the 2010 Option Plan of Kellwood Company (the “2010 Option Plan”), after giving effect to the IPO Restructuring Transactions (including the related stock split) and Apparel Holding Corp.’s assumption of Kellwood Company’s remaining obligations under the 2010 Option Plan. Affiliates of Sun Capital have the right to acquire the 262,112 shares of stock issuable upon the exercise of options previously granted to such former AHC executive and to exercise those options upon the closing of this offering, or the options themselves. See note (5) to “Additional Information Related to AHC—AHC Executive Compensation—Outstanding Equity Awards at Fiscal 2012 Year-End” for additional information regarding such options and the related purchase right held by affiliates of Sun Capital. The exact number of options to be so issued to each employee shall be calculated by dividing the aggregate spread value of such employee’s options (determined as the difference between the exercise price and the public offering price set forth on the cover of this prospectus, multiplied by the aggregate number of vested options held by such employee) by this public offering price. Assuming a public offering price equal to the midpoint of the initial public offering price range indicated on the cover of this prospectus, these options would have a weighted average exercise price of $5.38 per share. See “Additional Information Related to AHC—AHC Executive Compensation—Employee Stock Plans—2010 Option Plan” for a description of the impact of a $1.00 increase or $1.00 decrease to the assumed initial public offering price of $18.00 per share on the adjusted exercise prices and the number of adjusted options;

 

  Ÿ   up to approximately 204,447 shares of our common stock which are to be issued to non-Vince employees in exchange for their vested Kellwood Company stock options previously issued under the 2010 Option Plan (as such options are adjusted to give effect to the IPO Restructuring Transactions, including the related stock split). The exact number of shares to be so issued to each employee shall be calculated by dividing the aggregate spread value of such employee’s vested options (determined as the difference between the exercise price and the public offering price set forth on the cover of this prospectus) by this public offering price See “Additional Information Related to AHC—AHC Executive Compensation—Employee Stock Plans—2010 Option Plan” for a description of the impact of a $1.00 increase or $1.00 decrease to the assumed initial public offering price of $18.00 per share on the number of shares of our common stock to be issued to such non-Vince employees;

 

  Ÿ  

8,333 restricted stock units, representing the right, at the option of the company, to deliver 8,333 shares of our common stock or an equivalent cash amount, that we intend to grant to our

 

 

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non-employee directors in the aggregate in connection with the consummation of this offering (assuming the midpoint of the initial public offering price range indicated on the cover of this prospectus);

 

  Ÿ   approximately 3,000,000 shares of our common stock that will be reserved and available for issuance under our Vince 2013 Incentive Plan, after giving effect to the option and restricted stock grants described above, to certain of our employees (including our Chief Financial Officer) at or after the consummation of this offering; and

 

  Ÿ   1,000,000 shares of our common stock reserved for future issuance under our 2013 Employee Stock Purchase Plan (the "Vince ESPP") which we plan to adopt in connection with this offering (as described in “Additional Information Related to Vince—Vince Executive Compensation—Employee Stock Plans—Employee Stock Purchase Plan”).

Unless otherwise indicated, this prospectus reflects and assumes the following:

 

  Ÿ   the conversion of all of our issued and outstanding non-voting common stock into common stock on a one-for-one basis;

 

  Ÿ   the subsequent stock split of our common stock on a 28.5177 for one basis;

 

  Ÿ   the completion of the remainder of the IPO Restructuring Transactions; and

 

  Ÿ   an initial public offering price of $18.00 per share, the midpoint of the initial public offering price range indicated on the cover of this prospectus.

 

 

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Summary Historical Consolidated Financial Data of Apparel Holding Corp.

The following tables set forth summary historical consolidated financial data of Apparel Holding Corp. and its consolidated subsidiaries. They include the results of operations associated with the combined Vince and non-Vince businesses and assets and liabilities associated with the Vince business as well as the non-Vince businesses that will be transferred to Kellwood Holding, LLC and its consolidated subsidiaries in connection with the IPO Restructuring Transactions. An investment in us after giving effect to the IPO Restructuring Transactions is an investment in the Vince business. We will not have ongoing involvement with the non-Vince businesses following separation, with the exception of our payments to Kellwood for certain services to be provided under the Shared Services Agreement as further described in “Other Information Related to this Offering—Certain Relationships and Related Party Transactions of AHC—Shared Services Agreement” contained elsewhere in this prospectus. Similarly, Kellwood will not have ongoing involvement in our business, other than pursuant to the Shared Services Agreement. You should read the information set forth below in conjunction with “Use of Proceeds,” “Capitalization of AHC,” “Additional Information Related to AHC—Selected Historical Consolidated Financial Data of AHC,” “Additional Information Related to AHC—Management’s Discussion and Analysis of Financial Condition and Results of Operations of AHC” and Apparel Holding Corp.’s audited historical consolidated financial statements and notes thereto included elsewhere in this prospectus.

The statement of operations data for each of fiscal 2010, fiscal 2011 and fiscal 2012 set forth below are derived from AHC’s audited consolidated financial statements included elsewhere in this prospectus. The statements of operations data for each of the six month periods ended July 28, 2012 and August 3, 2013 and the balance sheet data as of August 3, 2013 set forth below are derived from AHC’s unaudited quarterly consolidated financial statements included elsewhere in this prospectus and contain all adjustments, consisting of normal recurring adjustments, that management considers necessary for a fair presentation of our financial position and results of operations for the periods presented. Operating results for the six month periods are not necessarily indicative of results for a full financial year, or any other periods. Historical results are not necessarily indicative of results to be expected for future periods.

Once we have completed the IPO Restructuring Transactions, results of operations of the non-Vince businesses will be reported as discontinued operations for accounting purposes and our continuing operations will consist solely of the Vince business. See “—Summary Historical Financial Data of Vince, LLC” for additional information regarding the operations and assets and liabilities of Vince, LLC.

 

    Fiscal Year     Six Months Ended  
    2010(1)     2011(1)     2012     July 28,
2012
    August 3,
2013
 
(In thousands, except per share data)                              
                      (unaudited)     (unaudited)  

Statement of Operations Data:

         

Net sales

  $ 586,574      $ 662,846      $ 707,995      $ 319,445      $ 363,967   

Cost of products sold

    430,801        490,110        507,905        235,293        256,031   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Gross profit

    155,773        172,736        200,090        84,152        107,936   

Operating expenses:

         

Selling, general and administrative expenses

    140,567        155,220        177,755        83,526        93,503   

Amortization of intangible assets

    954        1,941        1,899        950        950   

Restructuring, environmental remediation and other charges(2)

    9,729        2,651        5,091        2,264        827   

Impairment of long-lived assets (excluding goodwill)

    438        2,504        2,349        717          

Impairment of goodwill

           10,821                        

Change in fair value of contingent consideration, net(3)

           (1,578     (7,162     (4,507     (54
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total operating expenses

    151,688        171,559        179,932        82,950        95,226   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Income from operations

    4,085        1,177        20,158        1,202        12,710   

Interest expense, net

    103,074        127,148        122,383        74,151        43,671   

Gain on acquisition, net of tax(3)

    (939                            

Gain on debt extinguishment(3)

    (15,912                            

Other expense, net

    2,442        1,914        2,723        1,215        1,233   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Loss before provision for income taxes

    (84,580     (127,885     (104,948     (74,164     (32,194

Provision for income taxes

    3,507        3,401        708        2,245        2,679   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

 

 

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    Fiscal Year     Six Months Ended  
    2010(1)     2011(1)     2012     July 28,
2012
    August 3,
2013
 
(In thousands, except per share data)                              
                      (unaudited)     (unaudited)  

Net loss from continuing operations(2)(3)

  $ (88,087   $ (131,286   $ (105,656   $ (76,409   $ (34,873

Net (loss) income from discontinued operations(2)(4)

    (16,391     (16,580     (2,053     (4,798     9,230   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Net loss

  $ (104,478   $ (147,866   $ (107,709   $ (81,207   $ (25,643
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Pro forma basic and diluted loss per share from continuing operations(5)

  $ (3.36   $ (5.00   $ (4.03   $ (2.92   $ (1.33

Pro forma basic and diluted (loss) income per share from discontinued operation(5)

    (.63     (.63     (.08     (.18     .35   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Pro forma basic and diluted loss per share(5)

  $ (3.99   $ (5.63   $ (4.11   $ (3.10   $ (.98
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Pro forma weighted average shares outstanding:

         

Basic and diluted(5)

    26,211,131        26,211,131        26,211,131        26,211,131        26,211,131   

 

(1) In January 2011, AHC acquired Rebecca Taylor, a women’s contemporary apparel and accessory company. In July 2011, AHC acquired Zobha, a women’s athletic apparel brand, primarily focused on the yoga market. See “Additional Information Related to AHC—Management’s Discussion and Analysis or Financial Condition and Results of Operations of AHC—Basis of Presentation” for information regarding AHC’s decision to divest the Zobha business during the second quarter of 2013.
(2) During the years presented, AHC performed several rationalization efforts aimed at improving its operational efficiency to streamline the fashion apparel and recreational apparel and products businesses. These restructuring activities, along with impairment of long-lived assets, environmental remediation charges and other charges included in net loss from continuing operations, are $10.2 million in fiscal 2010, $16.0 million in fiscal 2011, $7.4 million in fiscal 2012, $3.0 million in the first six months of fiscal 2012 and $0.8 million in the first six months of fiscal 2013. These restructuring activities, along with impairment of long-lived assets and other charges included in net (loss) income from discontinued operations, are $27.7 million in fiscal 2010, $6.6 million in fiscal 2011, $4.8 million in fiscal 2012, $0.2 million in the six months of fiscal 2012 and $0.9 million in the six months of fiscal 2013.
(3) Net loss from continuing operations includes net gains affecting comparability of the following:

 

  Ÿ   $16.8 million in fiscal 2010 comprised of a $0.9 million gain on the acquisition of certain net assets from Adampluseve, Inc, (the “Adam operations”) as the fair value of the identifiable assets less the liabilities assumed exceeded the fair value of the purchase price consideration, and a $15.9 million gain on debt extinguishment as a result of AHC’s repurchase of $29.7 million of face value of certain notes outstanding from an affiliate of Sun Capital for $9.1 million in cash;

 

  Ÿ   $1.6 million in fiscal 2011 due to a reduction in the estimated contingent payments related to the acquisitions of Rebecca Taylor and Zobha as those purchase agreements contained provisions for contingent consideration that would be paid to the respective sellers if certain performance targets are met within a specified timeframe and during the periods presented expectations related to the achievement of these targets were revised; and

 

  Ÿ   $7.2 million in fiscal 2012, of which $4.5 million was recognized during the six months ended July 28, 2012, due to further reductions in the estimated contingent payments related to the acquisitions of Rebecca Taylor and Zobha.

 

(4) During fiscal 2011, AHC discontinued its Adam operations and Koret wholesale operations. During fiscal 2012, AHC discontinued its Baby Phat wholesale and Lamb & Flag businesses. Additionally, AHC sold its Royal Robbins and BLK DNM businesses. During the first quarter of fiscal 2013, AHC discontinued its Phat Licensing business because it sold the related trademarks. During the second quarter of fiscal 2013, AHC divested its Zobha business. As such, these operations have been reflected as discontinued operations for all periods presented.

 

(5) Gives effect to the stock split of our common stock on a 28.5177 for one basis.

 

 

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AHC’s consolidated balance sheet data as of August 3, 2013 is presented on an actual basis:

 

     As of August 3,
2013
 
     Actual  
(In thousands)       
     (unaudited)  

Balance Sheet Data:

  

Cash and cash equivalents

   $ 2,178   

Total current assets

     228,891   

Total assets

     467,791   

Total current liabilities

     221,230   

Long-term debt

     386,842   

Total stockholders’ deficit

     (179,102

Total liabilities and stockholders’ deficit

     467,791   

For information relating to the impact of the IPO Restructuring Transactions and this offering on AHC’s consolidated balance sheet, see the balance sheet data of AHC, as presented as of August 3, 2013 on an actual, pro forma and pro forma, as adjusted basis in “—Summary Historical Financial Data of Vince, LLC.”

 

 

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Summary Unaudited Pro Forma Consolidated Financial Data of AHC

The following tables set forth the summary unaudited consolidated pro forma financial data of AHC for fiscal 2012 and the first six months of fiscal 2013. They give effect to anticipated transactions and adjustments that are relevant to the understanding of the business being offered and will have a material impact on the comparability of AHC’s results of operations. They are described below and are as follows: (i) “—Kellwood Separation,’ (ii) “—Sun Capital Contribution and Tax Receivable Agreement,’ and (iii) “—This Offering.” You should read the information set forth below together with “Additional Information Related to AHC—Unaudited Pro Forma Consolidated Financial Data of AHC” included elsewhere in this prospectus for our pro forma results of operations for fiscal 2010 and fiscal 2011. For summary information related to the pro forma, as adjusted balance sheet of AHC after giving effect to this offering, please see “Summary Historical Financial Data of Vince, LLC.” Finally, for additional information relating to the IPO Restructuring Transactions and the use of our proceeds from this offering, please see “Restructuring Transactions,” “Use of Proceeds,” and “Capitalization of AHC.”

The Kellwood Separation.    AHC will use a series of transactions (including the Additional Sun Capital Contribution) to legally separate the Vince business from the non-Vince businesses immediately prior to consummation of this offering. We refer to this series of transactions as the “Kellwood Separation.” Once these transactions have occurred, the non-Vince businesses will be owned and operated separately from us. After consummation of this offering, the Vince business will be our only assets, liabilities and operations. Although Apparel Holding Corp. is the legal issuer of the shares offered in this offering, an investment in us after giving effect to the IPO Restructuring Transactions is an investment in the Vince business.

Sun Capital Contribution and Tax Receivable Agreement.    Additional restructuring activities that have occurred or will occur in order to effect the consummation of this offering, include the following:

 

  Ÿ   effective June 18, 2013, affiliates of Sun Capital contributed $407.5 million of indebtedness under the Sun Capital Loan Agreement and the Sun Promissory Notes (each as defined in “Restructuring Transactions”) as a capital contribution to Apparel Holding Corp. in the Sun Capital Contribution; and

 

  Ÿ   we will enter into a tax receivable agreement (the “Tax Receivable Agreement” or “TRA”) with our stockholders immediately prior to the consummation of this offering (which will include affiliates of Sun Capital, the “Pre-IPO Stockholders”).

This Offering.    Pro forma adjustments to reflect (i) our receipt of the estimated net proceeds from the sale of common stock by us in the offering at an assumed initial public offering price of $18.00 per share, the midpoint of the range appearing on the cover page of this prospectus, after deducting the assumed underwriting discount and commissions and estimated fees and expenses payable by us; and (ii) our use of these proceeds and the incurrence of approximately $175 million of borrowings under our new term loan facility, as described in “Use of Proceeds,” including repayment of the Kellwood Note Receivable, are described as “Offering Adjustments.”

 

 

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Fiscal 2012 Unaudited Pro Forma Statement of Operations of Historical Consolidated AHC(1)

 

          Kellwood Separation     Sun Capital Contribution
and TRA
    This Offering(4)  
    Historical
Consolidated
AHC
    Kellwood
Separation
Adjustments(2)
    Pro
Forma
    Sun Capital
Contribution
and TRA
Adjustments(3)
    Pro Forma     Adjustments     Pro
Forma,
As Adjusted
 
(In thousands, except per share
amounts)
                                         

Net sales

  $ 707,995      $ (467,643   $ 240,352      $      $ 240,352      $      $ 240,352   

Cost of products sold

    507,905        (375,749     132,156               132,156               132,156   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Gross profit

    200,090        (91,894     108,196               108,196               108,196   

Operating Expenses:

             

Selling, general and administrative expenses

    177,755        (111,094     66,661               66,661               66,661   

Amortization of intangible assets

    1,899        (1,301     598               598               598   

Impairment (excluding goodwill), restructuring, environmental remediation, and other charges

    7,440        (7,440                                   

Impairment of goodwill

                                                

Change in fair value of contingent consideration, net

    (7,162     7,162                                      
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total operating expenses

    179,932        (112,673     67,259               67,259               67,259   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Income from operations

    20,158        20,779        40,937               40,937               40,937   

Interest expense,
net(5)

    122,383        (53,700     68,683        (68,683            11,400        11,400   

Other expense, net

    2,723        (1,944     779               779               779   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

(Loss) income before provision for income taxes

    (104,948     76,423        (28,525     68,683        40,158        (11,400     28,758   

Provision for income
taxes(6)

    708        15,512        16,220               16,220        (4,560     11,660   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Net (loss) income from continuing operations

  $ (105,656   $ 60,911      $ (44,745   $ 68,683      $ 23,938      $ (6,840   $ 17,098   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Basic earnings (loss) per share(7)

  $ (4.03     $ (1.71     $ .91        $ .47   
 

 

 

     

 

 

     

 

 

     

 

 

 

Diluted earnings (loss) per share(7)

  $ (4.03     $ (1.71     $ .89        $ .46   
 

 

 

     

 

 

     

 

 

     

 

 

 

Weighted average number of common shares outstanding, basic(7)

    26,211,131          26,211,131          26,211,131          36,211,131   

Weighted average number of common shares outstanding, diluted(7)

    26,211,131          26,211,131          26,858,255          36,858,255   

See accompanying notes to Summary Unaudited Pro Forma Consolidated Financial Data of AHC.

 

 

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First Six Months of 2013 Unaudited Pro Forma Statement of Operations of Historical Consolidated AHC(1)

 

          Kellwood Separation     Sun Capital
Contribution
and TRA
    This Offering(4)  
    Historical
Consolidated
AHC
    Kellwood
Separation
Adjustments(2)
    Pro
Forma
    Sun Capital
Contribution
and TRA
Adjustments(3)
    Pro Forma     Adjustments     Pro
Forma,
As Adjusted
 
(In thousands, except per share
amounts)
                                         

Net sales

  $ 363,967      $ (249,310   $ 114,657      $      $ 114,657      $      $ 114,657   

Cost of products sold

    256,031        (192,525     63,506               63,506               63,506   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

     

 

 

 

Gross profit

    107,936        (56,785     51,151               51,151          51,151   

Operating Expenses:

             

Selling, general and administrative expenses

    93,503        (59,537     33,966               33,966               33,966   

Amortization of intangible assets

    950        (650     300               300               300   

Impairment (excluding goodwill), restructuring, environmental remediation, and other charges

    827        (827                                   

Impairment of goodwill

   

  
                                         

Change in fair value of contingent consideration, net

    (54     54                                      
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total operating expenses

    95,226        (60,960     34,266               34,266               34,266   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Income from operations

    12,710        4,175        16,885               16,887               16,887   

Interest expense, net(5)

    43,671        (27,788     15,883        (15,883            5,700        5,700   

Other expense, net

    1,233        (721     512               512               512   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

(Loss) income before provision for income taxes

    (32,194     32,684        490        15,883        16,375        (5,700     10,675   

Provision for income taxes(6)

    2,679        3,909        6,588               6,588        (2,280     4,308   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Net (loss) income from continuing operations

  $ (34,873   $ 28,775      $ (6,098   $ 15,883      $ 9,787      $ (3,420   $ 6,367   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Basic earnings (loss) per share(7)

  $ (1.33     $ (.23     $ .37        $ .18   
 

 

 

     

 

 

     

 

 

     

 

 

 

Diluted earnings (loss) per share(7)

  $ (1.33     $ (.23     $ .37        $ .17   
 

 

 

     

 

 

     

 

 

     

 

 

 

Weighted average number of common shares outstanding, basic(7)

    26,211,131          26,211,131          26,211,131          36,211,131   

Weighted average number of common shares outstanding, diluted(7)

    26,211,131          26,211,131          26,715,649          36,715,649   

See accompanying notes to Summary Unaudited Pro Forma Consolidated Financial Data of AHC.

 

 

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(1) You should refer to the Notes to the Unaudited Pro Forma Consolidated Financial Data of AHC contained in “Additional Information Related to AHC—Unaudited Pro Forma Consolidated Financial Data of AHC” for detailed information regarding the pro forma adjustments.
(2) As described within “Restructuring Transactions” included elsewhere in this prospectus, AHC will use a series of transactions (including the Additional Sun Capital Contribution) to legally separate the non-Vince businesses from the Vince business immediately prior to the consummation of this offering. Once these transactions have occurred, the non-Vince businesses will be owned and operated separately from us. After consummation of this offering, the Vince business will be our only assets, liabilities and operations. An investment in us after giving effect to the IPO Restructuring Transactions is an investment in the Vince business. We will not have ongoing involvement with the non-Vince businesses following separation, with the exception of our payments to Kellwood for certain services to be provided under the Shared Services Agreement as further described in “Other Information Related to this Offering—Certain Relationships and Related Party Transactions of AHC—Shared Services Agreement” contained elsewhere in this prospectus. Similarly, Kellwood will not have ongoing involvement in our business, other than pursuant to the Shared Services Agreement. Following the consummation of this offering, we expect to report the non-Vince businesses as discontinued operations in accordance with ASC Topic 205 Presentation of Financial Statements beginning with our first financial statements filed after the effectiveness of the registration statement of which this prospectus forms a part. All pro forma adjustments to AHC’s historical financial statements that relate to the separation of the Vince business from the non-Vince businesses are described as Kellwood Separation Adjustments and they are included under the caption “Kellwood Separation.”
(3) On June 18, 2013, affiliates of Sun Capital contributed $407.5 million of indebtedness under the Sun Capital Loan Agreement and the Sun Promissory Notes to AHC in the Sun Capital Contribution. As such, the related interest expense on such indebtedness has been removed from AHC’s pro forma statements of operations for fiscal 2012 and the first six months of fiscal 2013.
(4) Reflects pro forma adjustments related to (i) our receipt of the estimated net proceeds from the sale of common stock by us in the offering at an assumed initial public offering price of $18.00 per share, the midpoint of the range appearing on the cover page of this prospectus, after deducting the assumed underwriting discount and commissions and estimated fees and expenses payable by us; (ii) our use of these proceeds and the incurrence of approximately $175 million of borrowings under our new term loan facility, as described in “Use of Proceeds,” including repayment of the Kellwood Note Receivable; and (iii) recognition of applicable deferred financing costs capitalized; interest expense on our new term loan facility at 6% per annum (including amortization of deferred financing costs); related adjustment to provision for income taxes at a 40% effective tax rate; and pro forma basic and diluted weighted average shares outstanding have been adjusted to reflect the offering of 10,000,000 shares and impact of potential dilutive shares as applicable. As reflected in the table, the interest expense of this borrowing, had it been incurred on the first day of fiscal 2012 or the first day of fiscal 2013, would have been $11.4 million or $5.7 million, respectively.
(5) Historical AHC interest represents interest costs and amortization of debt issuance costs on the following indebtedness: the Wells Fargo Facility, the Sun Capital Loan Agreement, the Sun Promissory Notes, the Cerberus Term Loan, the Sun Term Loan Agreements, the 12.875% Notes, the 7.625% Notes and the 3.5% Convertible Notes (each as defined and described in “Restructuring Transactions”). Pro forma for Kellwood Separation interest represents interest costs on the Sun Capital Loan Agreement and the Sun Promissory Notes. Pro forma for Sun Capital Contribution and Tax Receivable Agreement contains no interest. Pro forma, as adjusted includes interest costs on a new revolving credit facility and a new term loan facility we expect to enter into in connection with the consummation of this offering.
(6) AHC has historically included the operating results of the combined Vince business and non-Vince businesses in its U.S. federal and state income tax returns. Provision for income taxes in this pro forma presentation have been determined assuming the Kellwood Separation had occurred at the beginning of the earliest period presented, and would therefore exclude the historical operating results of the non-Vince businesses. These amounts are not necessarily indicative of the provision for income taxes that would have been recorded had we operated separately from the non-Vince businesses during the periods presented. The adjustment represents the difference between the amount calculated in accordance with the methodology described herein and the historical amounts recorded.
(7) Gives effect to the stock split of our common stock on a 28.5177 for one basis.

 

 

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Summary Historical Financial Data of Vince, LLC

The following tables set forth the summary historical financial data of Vince, LLC, the entity that has historically held the Vince assets and liabilities and will continue to do so after completion of the IPO Restructuring Transactions and the consummation of this offering.

Please note the following:

 

  Ÿ   Apparel Holding Corp. (to be renamed Vince Holding Corp. prior to the consummation of this offering) is the legal issuer of the shares offered in this offering. Investors will be investing in the Vince business, however, they will be purchasing shares issued by Apparel Holding Corp., not Vince, LLC;

 

  Ÿ   The information set forth below is provided as supplemental information and should not be considered in lieu of the information pertaining to Apparel Holding Corp; and

 

  Ÿ   The financial information included in this discussion and in Vince, LLC’s historical financial statements may not be indicative of Apparel Holding Corp.’s financial position, operating results and changes in equity after the completion of the IPO Restructuring Transactions, or what they would have been had the Vince business operated separately from the non-Vince businesses during the periods presented.

You should read the information set forth below in conjunction with “Use of Proceeds,” “Capitalization of AHC,” “Additional Information Related to Vince—Supplemental Management’s Discussion and Analysis of Financial Condition and Results of Operations of Vince, LLC,” “Additional Information Related to Vince—Supplemental Selected Historical Financial Data of Vince, LLC,” and Vince, LLC’s audited financial statements and notes thereto included elsewhere in this prospectus. The statement of operations data for each of fiscal 2010, fiscal 2011 and fiscal 2012 are derived from Vince, LLC’s audited financial statements included elsewhere in this prospectus.

The statement of operations data for the six month periods ended July 28, 2012 and August 3, 2013 and the balance sheet of Vince, LLC dated as of August 3, 2013 set forth below are derived from Vince, LLC’s unaudited quarterly financial statements and contain all adjustments, consisting of normal recurring adjustments, that our management considers necessary for a fair presentation of our financial position and results of operations for the periods presented. The balance sheet data of AHC dated as of August 3, 2013 set forth below is derived from AHC’s unaudited quarterly consolidated financial statements included elsewhere in this prospectus and contain all adjustments, consisting of normal recurring adjustments, that AHC’s management considers necessary for a fair presentation of our financial position and results of operation for the periods presented. We have included the balance sheet data of AHC on an actual, pro forma and pro forma, as adjusted basis, each as of August 3, 2013, to reflect the assets and liabilities of the business in which you will be investing.

Operating results for the six month periods are not necessarily indicative of results for a full financial year, or any other periods. Vince, LLC’s summary historical financial data include charges from Kellwood Company for certain expenses, including centralized legal, tax, treasury, information technology, employee benefits and other centralized services and infrastructure costs. The charges have been determined on bases that we consider to be reasonable reflections of the utilization of services provided or the benefit received by Vince, LLC.

 

 

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Summary Historical Financial Data of Vince, LLC

 

     Fiscal Year     Six Months Ended  
     2010     2011     2012     July 28,
2012
    August 3,
2013
 
(In thousands, except for percentages and store counts)                    
            (unaudited)     (unaudited)  

Statement of Operations Data:

          

Net sales

   $ 111,492      $ 175,255      $ 240,352      $ 90,531      $ 114,657   

Cost of products sold

     55,695        89,545        132,156        50,119        63,506   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Gross profit

     55,797        85,710        108,196        40,412        51,151   

Operating expenses:

          

Selling, general and administrative expenses(1)(2)

     32,704        42,148        66,639        27,057        33,954   

Amortization of intangible assets

     598        599        598        299        300   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total operating expenses

     33,302        42,747        67,237        27,356        34,254   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Income from operations

     22,495        42,963        40,959        13,056        16,897   

Interest expense(3)

     7,172        15,004        22,903        10,690        12,429   

Other expense, net

     350        478        779        396        512   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Income before provision for income taxes

     14,973        27,481        17,277        1,970        3,956   

Provision for income taxes

     5,923        10,812        6,964        789        1,556   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Net income

   $ 9,050      $ 16,669      $ 10,313      $ 1,181      $ 2,400   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Other Operating and Financial Data:

          

Total stores at end of period

     16        19        22        19        24   

Comparable store sales growth

     9.3     7.6     23.1     13.9     31.7

Capital expenditures

   $ 1,602      $ 1,450      $ 1,821      $ 457      $ 3,406   

 

(1) Includes the impact of our public company transition costs and certain one-time costs of $9.3 million, $1.7 million and $4.0 million for fiscal 2012, the first six months of fiscal 2012 and the first six months of fiscal 2013, respectively. These costs include transition payments to our founders, charges that are directly attributable to this offering, incremental costs for external legal counsel and consulting fees incurred to effect the Restructuring Transactions and other one-time charges. We expect additional transaction costs (excluding underwriting discounts and commissions) of approximately $5.0 million for the remainder of fiscal 2013 will be charged to selling, general and administrative expenses (“SG&A”).
(2) Vince, LLC is charged for the use of services provided by the departments and shared facilities of Kellwood, which will own and operate the non-Vince businesses after the consummation of this offering. These charges are based upon the actual cost incurred, without markup. These functions and facilities will remain with Kellwood upon separation in the IPO Restructuring Transactions and will continue to be an integral part of the non-Vince businesses going forward. Vince, LLC will continue to use certain of these services for a period of time through the Shared Services Agreement described in “Other Information Related to this Offering—Certain Relationships and Related Party Transactions of AHC—Shared Services Agreement” and will be charged accordingly. The charges to Vince, LLC may not be representative of what the costs would have been had Vince, LLC been a separate, stand-alone entity during the periods presented.
(3) Interest expense for fiscal 2010, fiscal 2011 and fiscal 2012 and the six month periods ended July 28, 2012 and August 3, 2013 represents interest costs and amortization of debt issuance costs on certain Kellwood Company indebtedness, including the Wells Fargo Facility, the Cerberus Term Loan and the Sun Term Loan Agreements (each as defined and described in “Restructuring Transactions”). These debt instruments and related interest expense are included in the Vince, LLC financial statements as Vince, LLC is a borrower party thereunder. We intend to enter into a new revolving credit facility and a new term loan facility in connection with the consummation of this offering and expect to incur interest expense on those at market rates prevailing at the time. We also intend to borrow approximately $175 million under our new term loan facility at that time. The interest expense of this borrowing (including amortization of deferred financing costs), had it been incurred on the first day of fiscal 2012 or the first day of fiscal 2013, would have been $11.4 million or $5.7 million for fiscal 2012 or the six months ended August 3, 2013, respectively.

The balance sheet data as of August 3, 2013 is presented:

 

  Ÿ   on an actual basis for Vince, LLC;

 

  Ÿ   on an actual basis for AHC.;

 

 

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  Ÿ   on a pro forma basis to reflect changes in AHC’s balance sheet assuming (i) the separation of the assets constituting the Vince business from those of the non-Vince businesses and (ii) our entry into the Tax Receivable Agreement, each in the IPO Restructuring Transactions (as further described in “Restructuring Transactions”) and as if such transactions had occurred on August 3, 2013. See “Restructuring Transactions” for additional information; and

 

  Ÿ   on a pro forma, as adjusted basis to further reflect changes in AHC’s balance sheet including (i) our receipt of the estimated net proceeds from the sale of 10,000,000 shares of common stock by us in this offering at an assumed initial public offering price of $18.00 per share, the midpoint of the range appearing on the cover page of this prospectus, after deducting the underwriting discount and commissions payable by us, (ii) our use of these proceeds as described in “Use of Proceeds,” including repayment of the Kellwood Note Receivable and (iii) our entry into our new term loan and revolving credit facilities and approximately $175 million of borrowings under such term loan facility.

 

     As of August 3, 2013  
     Actual
(Vince, LLC)
    Actual
(AHC)
    Pro Forma
(AHC)
    Pro Forma,
As Adjusted
(AHC)
 
(In thousands)                         
     (unaudited)     (unaudited)     (unaudited)     (unaudited)  

Balance Sheet Data:

        

Cash and cash equivalents

   $ 106      $ 2,178      $ 325      $ 5,325   

Total current assets

     82,603        228,891        82,892        87,892   

Total assets

     290,562        467,791        389,580        400,080   

Kellwood Note Receivable(1)

                   323,500          

Total current liabilities

     148,005 (2)      221,230        356,023        32,523   

Long-term debt

     163,675 (2)      386,842               175,000   

Tax Receivable Agreement due(3)

    

  
           172,151        172,151   

Invested equity/Stockholders’ deficit

     (26,159     (179,102     (141,836     17,164   

Total liabilities and invested equity/Stockholders’ deficit

     290,562        467,791        389,580        400,080   

 

(1) In connection with Vince Intermediate Holding, LLC’s acquisition of Vince, LLC in the IPO Restructuring Transactions, Vince Intermediate Holding, LLC will issue the Kellwood Note Receivable to Kellwood Company, LLC. The principal amount of the Kellwood Note Receivable represents (i) the face value of the indebtedness, including accrued and unpaid interest and any related fees and expenses, to be repaid, discharged or repurchased by Kellwood Company, LLC in connection with the consummation of this offering, (ii) a restructuring fee equal to 1% of the aggregate of this offering and certain related debt repayment and the amount of the new Vince and Kellwood credit facilities to Sun Capital Management pursuant to the Management Services Agreement, as described in “Other Information Related to this Offering—Certain Relationships and Related Party Transactions of AHC—Management Fees,” and (iii) a debt recovery bonus of up to $6.0 million to our Chief Executive Officer, as described in “Additional Information Related to Vince—Vince Executive Compensation—Employment Agreements,” all after giving effect to the Additional Sun Capital Contribution. It is currently estimated that the restructuring fee described in clause (ii) above and payable to Sun Capital Management in connection with this offering will total $3.1 million. Most of the proceeds from this offering, along with the net borrowings under our new term loan facility, will be used to repay the Kellwood Note Receivable.
(2) Included within current liabilities are short-term borrowings under the Wells Fargo Facility of $115.6 million as of August 3, 2013. Long-term debt includes the Cerberus Term Loan and the Sun Term Loan Agreements. Total current liabilities Pro Forma (AHC) include amounts outstanding under the Kellwood Note Receivable. These debt instruments and the related capitalized deferred issuance costs are included in the Vince, LLC financial statements as Vince, LLC is a borrower party. This debt was incurred to fund the operation and growth of the Vince and non-Vince businesses, including to finance certain acquisitions made by AHC since 2008. As discussed above, we intend to enter into a new revolving credit facility and a new term loan facility with the consummation of this offering. We also intend to borrow approximately $175 million under our new term loan facility at that time. The interest expense of this borrowing, (including amortization of deferred financing costs) had it been incurred on the first day of fiscal 2012 or the first day of fiscal 2013, would have been $11.4 million or $5.7 million, respectively.
(3) As described in “Other Information Related to the OfferingCertain Relationships and Related Party Transactions of AHC—Tax Receivable Agreement” included elsewhere in this Prospectus, we will enter into the Tax Receivable Agreement with the Pre-IPO Stockholders, where we will be obligated to pay 85% of cash savings on federal, state and local income taxes realized by us through our use of certain net tax assets held by us subsequent to the IPO Restructuring Transactions. The amount set forth in this line represents 85% of the value of these net tax assets.

 

 

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Non-GAAP Financial Measures

To provide investors with additional information about our financial results, we disclose within this prospectus Adjusted EBITDA, a non-GAAP financial measure of Vince, LLC, after giving effect to the Vince Transfer. This metric is derived exclusively from the operations of the Vince business, as reflected in the Vince, LLC financial statements and results of operations. We have provided below a reconciliation between Adjusted EBITDA and net income. Net income is the most directly comparable financial measure prepared in accordance with U.S. generally accepted accounting principles (“GAAP”).

We have included Adjusted EBITDA in this prospectus because we believe it enhances investors’ understanding of Vince, LLC’s operating results. Adjusted EBITDA is provided because management believes it is an important measure of financial performance commonly used to determine the value of companies, to define standards for borrowing from institutional lenders and because it is the primary measure used by management to evaluate our performance.

Some limitations of Adjusted EBITDA are:

 

  Ÿ   Adjusted EBITDA does not reflect the interest expense of, or the cash requirements necessary to service interest or principal payments on, our debts;

 

  Ÿ   Adjusted EBITDA does not reflect income tax payments that may represent a reduction in cash available to us;

 

  Ÿ   although depreciation and amortization are non-cash charges, the assets being depreciated and amortized may have to be replaced in the future; and

 

  Ÿ   other companies may calculate Adjusted EBITDA differently or not at all, which reduces its usefulness as a comparative measure.

Because of these limitations, you should consider Adjusted EBITDA alongside other financial performance measures, including net income and Vince, LLC’s audited historical financial results presented elsewhere in the prospectus in accordance with GAAP.

The following table presents a reconciliation of Vince, LLC net income to Adjusted EBITDA based on Vince, LLC’s statements of operations for each of the periods indicated:

 

     Fiscal Year      Six Months Ended  
     2010      2011      2012      July 28,
2012
    August 3,
2013
 
(In thousands)                                  
                          (unaudited)     (unaudited)  

Net income

   $ 9,050       $ 16,669       $ 10,313       $ 1,181      $ 2,400   

Interest expense(a)

     7,172         15,004         22,903         10,690        12,429   

Provision for income taxes

     5,923         10,812         6,964         789        1,556   

Depreciation and amortization expense

     1,492         1,701         2,009         921        1,106   
  

 

 

    

 

 

    

 

 

    

 

 

   

 

 

 

EBITDA

     23,637         44,186         42,189         13,581        17,491   

Public company transition costs(b)

                     9,331         1,679        4,011   
  

 

 

    

 

 

    

 

 

    

 

 

   

 

 

 

Adjusted EBITDA

   $ 23,637       $ 44,186       $ 51,520       $ 15,260      $ 21,502   
  

 

 

    

 

 

    

 

 

    

 

 

   

 

 

 

 

(a)

Interest expense for fiscal 2010, fiscal 2011 and fiscal 2012 and the six month periods ended July 28, 2012 and August 3, 2013 represents certain interest costs and amortization of debt issuance costs on Kellwood Company indebtedness, including the Wells Fargo Facility, the Cerberus Term Loan and the Sun Term Loan Agreements. These debt instruments and related interest expense are included in the Vince, LLC financial statements as Vince, LLC is a borrower party thereunder. We intend to enter into a new revolving credit facility and new term loan facility in connection with the consummation of this offering and expect to incur interest expense on those at market rates prevailing at the time. We also intend to borrow approximately

 

 

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$175 million under our new term loan facility at that time. The interest expense of this borrowing (including amortization of deferred financing costs), had it been incurred on the first day of fiscal 2012 or the first day of fiscal 2013, would have been $11.4 million or $5.7 million, respectively.

(b) Adjusted EBITDA does not include the impact of our public company transition costs and certain one-time costs of $9.3 million, $1.7 million and $4.0 million for fiscal 2012, the first six months of fiscal 2012 and the first six months of fiscal 2013, respectively. These costs include transition payments to our founders, charges that are directly attributable to this offering, incremental costs for external legal counsel and consulting fees incurred to effect the Restructuring Transactions and other one-time costs. These charges are excluded due to their non-recurring nature and ability to impact comparability to other periods.

 

 

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RISK FACTORS

An investment in our common stock involves a high degree of risk. You should carefully consider the risks described below, together with all of the other information included in this prospectus, before making an investment decision. If any of the following risks actually occurs, our business, financial condition and results of operations could be materially and adversely affected. In that event, the trading price of our common stock could decline and you could lose all or part of your investment.

We have divided the risk factors set forth in this section into the following four categories: (i) Risks Related to Vince; (ii) Risks Related to the Restructuring Transactions; (iii) Risks Related to AHC; and (iv) Risks Related to this Offering and Our Common Stock. The risks set forth in the “Risks Related to AHC” section of this “Risk Factors” section relate to risks related to the Apparel Holding Corp. business (which includes the Vince and non-Vince businesses). Although Apparel Holding Corp. is the legal issuer of the shares offered in this offering, an investment in our common stock is an investment in the Vince business and does not constitute an investment in the non-Vince businesses.

Risks Related to Vince

General economic conditions in the U.S. and other parts of the world, including a continued weakening of the economy and restricted credit markets, can affect consumer confidence and consumer spending patterns.

The apparel industry has historically been subject to cyclical variations, recessions in the general economy or uncertainties regarding future economic prospects that affect consumer spending habits which could negatively impact our business overall, the carrying value of our tangible and intangible assets and specifically sales, gross margins and profitability. The success of our operations depends on consumer spending. Consumer spending is impacted by a number of factors, including actual and perceived economic conditions affecting disposable consumer income (such as unemployment, wages, energy costs and consumer debt levels), business conditions, interest rates and availability of credit and tax rates in the general economy and in the international, regional and local markets in which our products are sold.

Recent global economic conditions have included significant recessionary pressures and declines in employment levels, disposable income and actual and/or perceived wealth and further declines in consumer confidence and economic growth. These conditions have led and could lead to continued declines in consumer spending over the foreseeable future and may have resulted in a shift in consumer spending habits that makes it unlikely that spending will return to prior levels for the foreseeable future. The current depressed economic environment has been characterized by a decline in consumer discretionary spending and has disproportionately affected retailers and sellers of consumer goods, particularly those whose goods are viewed as discretionary or luxury purchases, including fashion apparel such as ours. While we have seen occasional signs of stabilization in the North American markets during 2012 and 2013, a shift towards continued recessionary conditions could adversely impact our sales volumes and overall profitability in the future. Further, the European debt crisis resulting from growing concerns that European countries could default on their national debt, has caused instability in the European economy, which is one of the areas that we are currently targeting for international expansion. Continued economic volatility and declines in the value of the Euro or other foreign currencies could negatively impact the global economy as a whole. Such a condition may have a material adverse impact on the profitability and liquidity of our international operations, as well as hinder our ability to grow through expansion in the international markets.

Economic conditions have also led to a highly promotional environment and strong discounting pressure from both our wholesale partners and retail customers, which have had a negative impact on our revenues and profitability. This promotional environment may continue even after economic growth

 

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returns, as we expect consumer spending trends are likely to remain at historically depressed levels for the foreseeable future. The domestic and international political situation also affects consumer confidence. The threat, outbreak or escalation of terrorism, military conflicts or other hostilities around the world could lead to further decreases in consumer spending.

Intense competition in the apparel industry could reduce our sales and profitability.

As an apparel company, we face intense competition from other domestic and foreign apparel, footwear and accessories manufacturers and retailers. Competition may result in pricing pressures, reduced profit margins, lost market share or failure to grow our market share, any of which could substantially harm our business and results of operations. Competition is based on many factors including, without limitation, the following:

 

  Ÿ   establishing and maintaining favorable brand recognition;

 

  Ÿ   developing products that appeal to consumers;

 

  Ÿ   pricing products appropriately;

 

  Ÿ   determining and maintaining product quality;

 

  Ÿ   obtaining access to sufficient floor space in retail locations;

 

  Ÿ   providing appropriate services and support to retailers;

 

  Ÿ   maintaining and growing market share;

 

  Ÿ   hiring and retaining key employees; and

 

  Ÿ   protecting intellectual property.

Competition in the apparel industry is intense and is dominated by a number of very large brands, many of which have longer operating histories, larger customer bases, more established relationships with a broader set of suppliers, greater brand recognition and greater financial, research and development, marketing, distribution and other resources than we do. These capabilities of our competitors may allow them to better withstand downturns in the economy or apparel industry. Any increased competition, or our failure to adequately address any of these competitive factors, could result in reduced sales, which could adversely affect our business, financial condition and operating results.

Competition, along with such other factors as consolidation within the retail industry and changes in consumer spending patterns, could also result in significant pricing pressure. These factors may cause us to reduce our sales prices to our wholesale partners and retail consumers, which could cause our gross margins to decline if we are unable to appropriately manage inventory levels and/or otherwise offset price reductions with comparable reductions in our operating costs. If our sales prices decline and we fail to sufficiently reduce our product costs or operating expenses, our profitability may decline, which could have a material adverse effect on our business, financial condition and operating results.

Our business depends on a strong brand image, and if we are not able to maintain or enhance our brand, particularly in new markets where we have limited brand recognition, we may be unable to sell sufficient quantities of our merchandise, which would harm our business and cause our results of operations to suffer.

We believe that maintaining and enhancing the Vince brand is critical to maintaining and expanding our customer base. Maintaining and enhancing our brand may require us to make substantial investments in areas such as visual merchandising (including working with our wholesale partners to transform select Vince displays into branded shop-in-shops), marketing and advertising,

 

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employee training and store operations. A primary component of our strategy involves expanding into other geographic markets and working with existing wholesale partners, particularly within the U.S. We anticipate that, as our business expands into new markets and further penetrates existing markets, and as the markets in which we operate become increasingly competitive, maintaining and enhancing our brand may become increasingly difficult and expensive. Certain of our competitors in the apparel industry have faced adverse publicity surrounding the quality, attributes and performance of their products. Our brand may similarly be adversely affected if our public image or reputation is tarnished by failing to maintain high standards for merchandise quality and integrity. Any negative publicity about these types of concerns may reduce demand for our merchandise. Maintaining and enhancing our brand will depend largely on our ability to be a leader in the contemporary apparel industry and to continue to provide high quality products. If we are unable to maintain or enhance our brand image, our results of operations may suffer and our business may be harmed.

A substantial portion of our revenue is derived from a small number of large wholesale partners, and the loss of any of these wholesale partners could substantially reduce our total revenue.

We have a small number of wholesale partners who account for a significant portion of our net sales. Net sales to the full-price, off-price and e-commerce operations of our four largest wholesale partners were 61% of our total revenue for fiscal 2012 and 63% of our total revenue for the first six months of fiscal 2013. These partners, each of which accounted for more than 10% of our total revenue for fiscal 2012, include Nordstrom, Saks Fifth Avenue, Neiman Marcus and Bloomingdale’s. Nordstrom, Saks Fifth Avenue and Neiman Marcus each accounted for more than 10% of our total revenue for the first six months of fiscal 2013 and collectively represented 55.7% of our total revenue in such period. We do not have written agreements with any of our wholesale partners, and purchases generally occur on an order-by-order basis. A decision by any of our major wholesale partners, whether motivated by marketing strategy, competitive conditions, financial difficulties or otherwise, to significantly decrease the amount of merchandise purchased from us or our licensing partners, or to change their manner of doing business with us or our licensing partners, could substantially reduce our revenue and have a material adverse effect on our profitability. Furthermore, due to the concentration of our wholesale partner base, our results of operations could be adversely affected if any of these customers fails to satisfy its payment obligations to us when due. During the past several years, the retail industry has experienced a great deal of ownership change, and we expect such change will continue. For example, Saks Fifth Avenue, one of our top four customers, recently agreed to be acquired by a third party. We cannot guarantee that our relationship with Saks Fifth Avenue will not be impacted by this ownership change and any strategic changes Saks Fifth Avenue may implement as a result. In addition, store closings by our wholesale partners decrease the number of stores carrying our products, while the remaining stores may purchase a smaller amount of our products and may reduce the retail floor space designated for our brand. In the future, retailers may further consolidate, undergo restructurings or reorganizations, realign their affiliations or reposition their stores’ target markets. Any of these types of actions could decrease the number of stores that carry our products or increase the ownership concentration within the retail industry. These changes could decrease our opportunities in the market, increase our reliance on a diminishing number of large wholesale partners and decrease our negotiating strength with our wholesale partners. These factors could have a material adverse effect on our business, financial condition and operating results.

We may not be able to successfully expand our wholesale partnership base or grow our presence with existing wholesale partners.

As part of our growth strategy, we intend to increase productivity and penetration with existing wholesale partners and form relationships with new, international wholesale partners. These initiatives may include the establishment of additional shop-in-shops within select department stores. The

 

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location of Vince displays or shop-in-shops within department stores is controlled in large part by our wholesale partners. Although the investments made by us and our wholesale partners in the development and installation of Vince displays and shop-in-shops decreases the risk that our wholesale partners will require us to move to a less desirable area of their store or reduce the space allocated to such displays and shops, they are not contractually prohibited from doing so or required to grant additional or more desirable space to us. As of October 5, 2013, we had seven shop-in-shops with our U.S. wholesale partners and eight shop-in-shops with our international wholesale partners. While expanding the number of shop-in-shops is part of our growth strategy, there can be no assurances we will be able to align our wholesale partners with this strategy and continue to receive floor space from our wholesale partners to open or expand shop-in-shops.

Our ability to attract customers to our stores depends heavily on successfully locating our stores in suitable locations and any impairment of a store location, including any decrease in customer traffic, could cause our sales to be less than expected.

Our approach to identifying locations for our retail stores typically favors street and mall locations near luxury and contemporary retailers that we believe are consistent with our key customers’ demographics and shopping preferences. Sales at these stores are derived, in part, from the volume of foot traffic in these locations. Changes in areas around our existing retail locations that result in reductions in customer foot traffic or otherwise render the locations unsuitable could cause our sales to be less than expected and the related leases are generally non-cancelable. Store locations may become unsuitable due to, and our sales volume and customer traffic generally may be harmed by, among other things:

 

  Ÿ   economic downturns in a particular area;

 

  Ÿ   competition from nearby retailers selling similar apparel;

 

  Ÿ   changing consumer demographics in a particular market;

 

  Ÿ   changing preferences of consumers in a particular market;

 

  Ÿ   the closing or decline in popularity of other businesses located near our store; and

 

  Ÿ   store impairments due to acts of God or terrorism.

Our ability to successfully open and operate new retail stores depends on many factors, including, among others, our ability to:

 

  Ÿ   identify new markets where our products and brand image will be accepted or the performance of our retail stores will be successful;

 

  Ÿ   obtain desired locations, including store size and adjacencies, in targeted malls or streets;

 

  Ÿ   negotiate acceptable lease terms, including desired rent and tenant improvement allowances, to secure suitable store locations;

 

  Ÿ   achieve brand awareness, affinity and purchase intent in the new markets;

 

  Ÿ   hire, train and retain store associates and field management;

 

  Ÿ   assimilate new store associates and field management into our corporate culture;

 

  Ÿ   source and supply sufficient inventory levels; and

 

  Ÿ   successfully integrate new retail stores into our existing operations and information technology systems, which will initially be provided by Kellwood under the terms of the Shared Services Agreement.

As of October 5, 2013, we had 27 stores, which consist of 21 full-price retail stores and six outlet locations. We plan to double our store base over the next three to five years, including opening a net total of six new stores in fiscal 2013. Our new stores, however, may not be immediately profitable and

 

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we may incur losses until these stores become profitable. Unavailability of desired store locations, delays in the acquisition or opening of new stores, delays or costs resulting from a decrease in commercial development due to capital restraints, difficulties in staffing and operating new store locations or a lack of customer acceptance of stores in new market areas may negatively impact our new store growth and the costs or the profitability associated with new stores. There can be no assurance that we will open the planned number of stores in fiscal 2013 or thereafter. Any failure to successfully open and operate new stores may adversely affect our business, financial condition and operating results.

As we expand our store base, we may be unable to maintain or grow comparable store sales or average sales per square foot at the same rates that we have achieved in the past, which could cause our share price to decline.

As we expand our store base, we may not be able to maintain or grow at the same rates of comparable store sales growth that we have achieved historically. In addition, we may not be able to maintain or grow our historic average sales per square foot as we move into new markets. If our future comparable store sales or average sales per square foot decline or fail to meet market expectations, the price of our common stock could decline. In addition, the aggregate results of operations through our wholesale partners and at our retail locations have fluctuated in the past and can be expected to continue to fluctuate in the future. A variety of factors affect both comparable store sales and average sales per square foot, including, among others, consumer spending patterns, fashion trends, competition, current economic conditions, pricing, inflation, the timing of the release of new merchandise and promotional events, changes in our product assortment, the success of marketing programs and weather conditions. If we misjudge the market for our products, we may incur excess inventory for some of our products and miss opportunities for other products. These factors may cause our comparable store sales results and average sales per square foot in the future to be materially lower than recent periods or our expectations, which could harm our results of operations and result in a decline in the price of our common stock.

We have grown rapidly in recent years and we have limited operating experience as a team at our current scale of operations. If we are unable to manage our operations at our current size or are unable to manage any future growth effectively, our business results and financial performance may suffer.

We have expanded our operations rapidly since our inception in 2002, and we have limited operating experience at our current size. Our business has more than doubled over the past two years, as we have grown our total net sales from $111.5 million in fiscal 2010 to $240.4 million in fiscal 2012 and from $90.5 million for the first six months of fiscal 2012 to $114.7 million for the first six months of fiscal 2013. We have made and are making investments to support our near and longer-term growth. If our operations continue to grow over the longer term, of which there can be no assurance, we will be required to expand our sales and marketing, product development and distribution functions, to upgrade our management information systems and other processes, and to obtain more space for our expanding administrative support and other headquarters personnel. Kellwood will continue to provide services to us after this offering under the Shared Services Agreement. Our expansion may exceed the capacity that Kellwood is able to provide, on attractive pricing terms or at all, under the terms of the Shared Services Agreement (as more fully described below in “—Problems with our distribution system could harm our ability to meet customer expectations, manage inventory, complete sales and achieve targeted operating efficiencies”). Our continued growth could strain our existing resources, and we could experience operating difficulties, including obtaining sufficient raw materials at acceptable prices, securing manufacturing capacity to produce our products and experiencing delays in production and shipments. These difficulties would likely lead to a decrease in net revenue, income from operations and the price of our common stock.

 

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Kellwood provides us with certain key services for our business. If Kellwood fails to perform its obligations to us or if we do not find appropriate replacement services, we may be unable to perform these services or implement substitute arrangements on a timely and cost-effective basis on terms favorable to us.

As a business unit of Kellwood, we have historically relied on the financial resources and the administrative and operational support systems of Kellwood to run our business. Some of the Kellwood systems we are using include enterprise resource planning (“ERP”), human resource management systems and distribution applications. Many of these systems are complex and either highly customized or proprietary. In conjunction with our separation from Kellwood, we are in the process of separating our assets from those of Kellwood and either creating our own financial, administrative, operational and other support systems or contracting with third parties to replace Kellwood’s systems that will not be provided to us under the terms of the Shared Services Agreement as discussed below. In order to successfully implement our own systems and operate as a stand-alone business, we must be able to attract and retain a number of highly skilled employees. We must also obtain goods, technology and services without the benefit of Kellwood’s purchasing power. As an entity separate from Kellwood, we may be unable to obtain such goods, technology and services at prices and on terms as favorable as those available to us prior to the separation, which could increase our costs and reduce our profitability.

We will enter into the Shared Services Agreement in connection with the consummation of the IPO Restructuring Transactions. The Shared Services Agreement will govern the provision by Kellwood of certain support services to us, including distribution, information technology and back office support. Kellwood will provide these services until we elect to terminate the provision thereof in accordance with the terms of such agreement or, for services which require a term as a matter of law or which are based on a third-party agreement with a set term, the related termination date specified in the schedule thereto. Upon the termination of certain services, Kellwood may no longer be in a position to provide certain other related services. Assuming we proceed with our request to terminate the original services, such related services shall also be terminated in connection with such termination. The Shared Services Agreement will terminate automatically upon the termination of all services provided thereunder, unless earlier terminated by either party in connection with the other party’s material breach upon 30 days prior notice to such defaulting party. After termination of the agreement, Kellwood will have no obligation to provide any services to us. See “Other Information Related to this Offering—Certain Relationships and Related Party Transactions of AHC—Shared Services Agreement” for a description of these services. The services provided under the Shared Services Agreement (as may be amended from time to time) may not be sufficient to meet our needs and we may not be able to replace these services at favorable costs and on favorable terms, if at all. In addition, Kellwood has experienced financial difficulty in the past. For example, in 2009, Kellwood’s independent auditors raised substantial doubt regarding Kellwood’s ability to continue as a going concern. If Kellwood encounters any issues during the transitional period which impact its ability to provide services pursuant to the Shared Services Agreement, our business could be materially harmed. Any failure or significant downtime in our own financial or administrative systems or in Kellwood’s financial or administrative systems during the transitional period and any difficulty in separating our assets from Kellwood’s assets and integrating newly acquired assets into our business could result in unexpected costs, impact our results or prevent us from paying our suppliers and employees and performing other administrative services on a timely basis and could materially harm our business, financial condition, results of operations and cash flows.

Our limited operating experience and brand recognition in international markets may delay our expansion strategy and cause our business and growth to suffer.

We face additional risks with respect to our strategy to expand internationally, including our efforts to further expand our business in Canada, select European countries, Asia and the Middle East

 

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through arrangements with international partners. Our current operations are based largely in the U.S., with international sales representing approximately 8% of net sales for fiscal 2012 and 10.3% of net sales for the first six months of fiscal 2013. Therefore we have a limited number of customers and experience in operating outside of the U.S. We also do not have extensive experience with regulatory environments and market practices outside of the U.S. and cannot guarantee, notwithstanding our international partners’ familiarity with such environments and market practices, that we will be able to penetrate or successfully operate in any market outside of the U.S. Many of these markets have different operational characteristics, including employment and labor regulations, transportation, logistics, real estate (including lease terms) and local reporting or legal requirements. Furthermore, consumer demand and behavior, as well as style preferences, size and fit, and purchasing trends, may differ in these markets and, as a result, sales of our product may not be successful, or the margins on those sales may not be in line with those that we currently anticipate. In addition, in many of these markets there is significant competition to attract and retain experienced and talented employees. Failure to develop new markets outside of the U.S. or disappointing sales growth outside of the U.S. may harm our business and results of operations.

Our plans to improve and expand our product offerings may not be successful, and the implementation of these plans may divert our operational, managerial and administrative resources, which could harm our competitive position and reduce our net revenue and profitability.

In addition to our store expansion strategy, we plan to grow our business by increasing our core product offerings, which includes expanding our men’s collection, denim, outerwear, women’s bottoms and dresses assortment. We also plan to develop and introduce select new product categories and pursue select additional licensing opportunities such as intimates/loungewear, men’s footwear and fashion accessories.

The principal risks to our ability to successfully carry out our plans to improve and expand our product offerings are that:

 

  Ÿ   if our expected product offerings fail to maintain and enhance our brand identity, our image may be diminished or diluted and our sales may decrease;

 

  Ÿ   if we fail to find and enter into relationships with external partners with the necessary specialized expertise or execution capabilities, we may be unable to offer our planned product extensions or to realize the additional revenue we have targeted for those extensions; and

 

  Ÿ   the use of licensing partners may limit our ability to conduct comprehensive final quality checks on merchandise before it is shipped to our stores or to our wholesale partners.

In addition, our ability to successfully carry out our plans to improve and expand our product offerings may be affected by economic and competitive conditions, changes in consumer spending patterns and changes in consumer preferences and style trends. These plans could be abandoned, could cost more than anticipated and could divert resources from other areas of our business, any of which could impact our competitive position and reduce our net revenue and profitability.

Our current and future licensing arrangements may not be successful and may make us susceptible to the actions of third parties over whom we have limited control.

Our current and future licensing arrangements may not be successful and may make us susceptible to the actions of third parties over whom we have limited control. We entered into a licensing agreement when we launched women’s footwear in 2012 and signed a licensing agreement in 2013 for the launch of children’s apparel in 2014. We also anticipate launching men’s footwear in 2014 through a licensing partner. In the future, we may enter into select additional licensing

 

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arrangements for product offerings which require specialized expertise. We may also enter into select licensing agreements pursuant to which we may grant third parties the right to distribute and sell our products in certain geographic areas. Although we have taken and will continue to take steps to select potential licensing partners carefully and monitor the activities of our licensing partners (through, among other things, approval rights over product design, production quality, packaging, merchandising, marketing, distribution and advertising), such arrangements may not be successful. Our licensing partners may fail to fulfill their obligations under their license agreements or have interests that differ from or conflict with our own, such as the pricing of our products and the offering of competitive products. In addition, the risks applicable to the business of our licensing partners may be different than the risks applicable to our business, including risks associated with each such partner’s ability to:

 

  Ÿ   obtain capital;

 

  Ÿ   exercise operational and financial control over its business;

 

  Ÿ   manage its labor relations;

 

  Ÿ   maintain relationships with suppliers;

 

  Ÿ   manage its credit and bankruptcy risks; and

 

  Ÿ   maintain customer relationships.

Any of the foregoing risks, or the inability of any of our licensing partners to successfully market our products or otherwise conduct its business, may result in loss of revenue and competitive harm to our operations in regions or product categories where we have entered into such licensing arrangements.

Our business will suffer if we fail to respond to changing customer tastes.

Customer tastes can change rapidly. We may not be able to anticipate, gauge or respond to these changes within a timely manner. We may also not be able to continue to satisfy our customers’ existing tastes and preferences. If we misjudge the market for products or product groups, or if we fail to identify and respond appropriately to changing consumer demands, we may be faced with unsold finished goods inventory, which could materially adversely affect expected operating results and decrease sales, gross margins and profitability.

If we are unable to accurately forecast customer demand for our products, our manufacturers may not be able to deliver products to meet our requirements, and this could result in delays in the shipment of products to our stores and to wholesale partners.

We stock our stores, and provide inventory to our wholesale partners, based on our or their estimates of future demand for particular products. Our inventory management and planning team determines the number of pieces of each product that we will order from our manufacturers based upon past sales of similar products, sales trend information and anticipated demand at our suggested retail prices. However, if our inventory and planning team fails to accurately forecast customer demand, we may experience excess inventory levels or a shortage of products. There can be no assurance that we will be able to successfully manage our inventory at a level appropriate for future customer demand.

Factors that could affect our inventory management and planning team’s ability to accurately forecast customer demand for our products include:

 

  Ÿ   a substantial increase or decrease in demand for our products or for products of our competitors;

 

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  Ÿ   our failure to accurately forecast customer acceptance for our new products;

 

  Ÿ   new product introductions or pricing strategies by competitors;

 

  Ÿ   more limited historical store sales information for our newer markets;

 

  Ÿ   weakening of economic conditions or consumer confidence in the future, which could reduce demand for discretionary items, such as our products; and

 

  Ÿ   acts or threats of war or terrorism which could adversely affect consumer confidence and spending or interrupt production and distribution of our products and our raw materials.

Because of our rapid growth, we have occasionally placed insufficient levels of desirable product with our wholesale partners and in our retail locations such that we were unable to fully satisfy customer demand at those locations. We cannot guarantee that we will be able to match supply with demand in all cases in the future, whether as a result of our inability to produce sufficient levels of desirable product or our failure to forecast demand accurately. As a result of these inabilities or failures, we may encounter difficulties in filling customer orders or in liquidating excess inventory at discount prices and may experience significant write-offs. Additionally, if we over-produce a product based on an aggressive forecast of demand, retailers may not be able to sell the product and cancel future orders or require give backs. These outcomes could have a material adverse effect on brand image and adversely impact sales, gross margins and profitability.

Our senior management team has limited experience working together as a group, and may not be able to manage our business effectively.

Our CEO, Jill Granoff, and CFO, Lisa Klinger, joined the company in 2012. Many of the other members of our senior management team, including our new President and Chief Creative Officer, Karin Gregersen, have been with us less than one year. As a result, our senior management team has limited experience working together as a group. This lack of shared experience could negatively impact our senior management team’s ability to quickly and efficiently respond to problems and effectively manage our business. If our management team is not able to work together as a group, our results of operations may suffer and our business may be harmed.

Loss of key personnel could disrupt our operations.

Our continued success is dependent on the ability to attract, retain and motivate qualified management, designers, administrative talent and sales associates to support existing operations and future growth. Competition for qualified talent in the apparel industry is intense, and we compete for these individuals with other companies that in many cases have greater financial and other resources. The loss of the services of any members of senior management or the inability to attract and retain other qualified executives could have a material adverse effect on our business, results of operations and financial condition.

Our competitive position could suffer if our intellectual property rights are not protected.

We believe that our trademarks and designs are of great value. From time to time, third parties have challenged, and may in the future try to challenge, our ownership of our intellectual property. In some cases, third parties with similar trademarks or other intellectual property may have pre-existing and potentially conflicting trademark registrations. We rely on cooperation from third parties with similar trademarks to be able to register our trademarks in jurisdictions in which such third parties have already registered their trademarks. We are susceptible to others imitating our products and infringing our intellectual property rights. Imitation or counterfeiting of our products or infringement of our intellectual property rights could diminish the value of our brands or otherwise adversely affect our

 

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revenues. The actions we have taken to establish and protect our trademarks and other intellectual property rights may not be adequate to prevent imitation of our products by others or to prevent others from seeking to invalidate our trademarks or block sales of our products as a violation of the trademarks and intellectual property rights of others. In addition, others may assert rights in, or ownership of, our trademarks and other intellectual property rights or in similar marks or marks that we license and/or market and we may not be able to successfully resolve these conflicts to our satisfaction. We may need to resort to litigation to enforce our intellectual property rights, which could result in substantial costs and diversion of resources. Successful infringement claims against us could result in significant monetary liability or prevent us from selling some of our products. In addition, resolution of claims may require us to redesign our products, license rights from third parties or cease using those rights altogether. Any of these events could harm our business and cause our results of operations, liquidity and financial condition to suffer.

We license our website domain name from a third-party. Pursuant to the license agreement (the “License Agreement”), our license to use www.vince.com will expire in 2018 and will automatically renew for successive one year periods, subject to our right to terminate the arrangement with or without cause; provided, that we must pay the applicable early termination fee and provide 30 days prior notice in connection with a termination without cause. The licensor has no termination rights under the License Agreement. Any failure by the licensor to perform its obligations under the License Agreement could adversely affect our brand and make it more difficult for users to find our website.

Problems with our distribution system could harm our ability to meet customer expectations, manage inventory, complete sales and achieve targeted operating efficiencies.

In the U.S., we rely on a distribution facility operated by Kellwood in City of Industry, California. Our ability to meet the needs of our wholesale partners and our own retail stores depends on the proper operation of this distribution facility. Kellwood will continue to provide distribution services, until we elect to terminate such services, as part of the Shared Services Agreement, as described in “Other Information Related to this Offering—Certain Relationships and Related Party Transactions of AHC—Shared Services Agreement.” We also have a warehouse in Belgium operated by a third-party logistics provider to support our wholesale orders for customers located in Europe. There can be no assurance that we will be able to enter into other contracts for an alternate or replacement distribution centers on acceptable terms or at all. Such an event could disrupt our operations. In addition, because substantially all of our products are distributed from one location, our operations could also be interrupted by labor difficulties, or by floods, fires, earthquakes or other natural disasters near such facility. We maintain business interruption insurance and are a beneficiary under similar Kellwood insurance policies related to Kellwood assets or services we will continue to utilize under the Shared Services Agreement. These policies, however, may not adequately protect us from the adverse effects that could result from significant disruptions to our distribution system. If we encounter problems with our distribution system, our ability to meet customer expectations, manage inventory, complete sales and achieve targeted operating efficiencies could be harmed. Any of the foregoing factors could have a material adverse effect on our business, financial condition and operating results.

The extent of our foreign sourcing may adversely affect our business.

Our products are primarily produced by, and purchased or procured from, independent manufacturing contractors located outside of the U.S., with approximately 94% of our total revenue for fiscal 2012 and 93% of our total revenue for the first six months of fiscal 2013 attributable to manufacturing contractors located outside of the U.S. These manufacturing contractors are located mainly in countries in Asia and South America, with approximately 70% and 21% of our purchases for fiscal 2012 and approximately 73% and 21% of our purchases for the first six months of fiscal 2013, attributable to manufacturing contractors located in China and Peru, respectively. A manufacturing

 

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contractor’s failure to ship products to us in a timely manner or to meet the required quality standards could cause us to miss the delivery date requirements of our customers for those items. The failure to make timely deliveries may cause customers to cancel orders, refuse to accept deliveries or demand reduced prices, any of which could have a material adverse effect on us. As a result of the magnitude of our foreign sourcing, our business is subject to the following risks:

 

  Ÿ   political and economic instability in countries or regions, especially Asia, including heightened terrorism and other security concerns, which could subject imported or exported goods to additional or more frequent inspections, leading to delays in deliveries or impoundment of goods;

 

  Ÿ   imposition of regulations, quotas and other trade restrictions relating to imports, including quotas imposed by bilateral textile agreements between the U.S. and foreign countries;

 

  Ÿ   imposition of increased duties, taxes and other charges on imports;

 

  Ÿ   labor union strikes at ports through which our products enter the U.S.;

 

  Ÿ   labor shortages in countries where contractors and suppliers are located;

 

  Ÿ   a significant decrease in availability or an increase in the cost of raw materials;

 

  Ÿ   restrictions on the transfer of funds to or from foreign countries;

 

  Ÿ   disease epidemics and health-related concerns, which could result in closed factories, reduced workforces, scarcity of raw materials and scrutiny or embargoing of goods produced in infected areas;

 

  Ÿ   the migration and development of manufacturing contractors, which could affect where our products are or are planned to be produced;

 

  Ÿ   increases in the costs of fuel, travel and transportation;

 

  Ÿ   reduced manufacturing flexibility because of geographic distance between our foreign manufacturers and us, increasing the risk that we may have to mark down unsold inventory as a result of misjudging the market for a foreign-made product; and

 

  Ÿ   violations by foreign contractors of labor and wage standards and resulting adverse publicity.

If these risks limit or prevent us from manufacturing products in any significant international market, prevent us from acquiring products from foreign suppliers, or significantly increase the cost of our products, our operations could be seriously disrupted until alternative suppliers are found or alternative markets are developed, which could negatively impact our business.

We do not have written agreements with any of our third-party manufacturing contractors. As a result, any single manufacturing contractor could unilaterally terminate its relationship with us at any time. Two of our manufacturers in China, one of which we have worked with since our inception in 2002 and the other with whom we have worked for over five years, accounted for the production of approximately 25% and 23.5% of our finished products during fiscal 2012 and the first six months of fiscal 2013, respectively. Supply disruptions from these manufacturers (or any of our other manufacturers) could have a material adverse effect on our ability to meet customer demands, if we are unable to source suitable replacement materials at acceptable prices or at all. Our inability to promptly replace manufacturing contractors that terminate their relationships with us or cease to provide high quality products in a timely and cost-efficient manner could have a material adverse effect on our business, financial condition and operating results.

 

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Fluctuations in the price, availability and quality of raw materials could cause delays and increase costs and cause our operating results and financial condition to suffer.

Fluctuations in the price, availability and quality of the fabrics or other raw materials, particularly cotton, leather, and synthetics used in our manufactured apparel, could have a material adverse effect on cost of sales or our ability to meet customer demands. The prices of fabrics depend largely on the market prices of the raw materials used to produce them. The price and availability of the raw materials and, in turn, the fabrics used in our apparel may fluctuate significantly, depending on many factors, including crop yields, weather patterns, labor costs and changes in oil prices. We may not be able to create suitable design solutions that utilize raw materials with attractive prices or, alternatively, to pass higher raw materials prices and related transportation costs on to our customers. We are not always successful in our efforts to protect our business from the volatility of the market price of raw materials, and our business can be materially affected by dramatic movements in prices of raw materials. The ultimate effect of this change on our earnings cannot be quantified, as the effect of movements in raw materials prices on industry selling prices are uncertain, but any significant increase in these prices could have a material adverse effect on our business, financial condition and operating results.

Our reliance on independent manufacturers could cause delays or quality issues which could damage customer relationships.

We use independent manufacturers to assemble or produce all of our products, whether inside or outside the U.S. We are dependent on the ability of these independent manufacturers to adequately finance the production of goods ordered and maintain sufficient manufacturing capacity. The use of independent manufacturers to produce finished goods and the resulting lack of direct control could subject us to difficulty in obtaining timely delivery of products of acceptable quality. We generally do not have long-term contracts with any independent manufacturers. Alternative manufacturers, if available, may not be able to provide us with products or services of a comparable quality, at an acceptable price or on a timely basis. Identifying a suitable supplier is an involved process that requires us to become satisfied with their quality control, responsiveness and service, financial stability and labor and other ethical practices. There can be no assurance that there will not be a disruption in the supply of our products from independent manufacturers or, in the event of a disruption, that we would be able to substitute suitable alternative manufacturers in a timely manner. The failure of any independent manufacturer to perform or the loss of any independent manufacturer could have a material adverse effect on our business, results of operations and financial condition.

If our independent manufacturers fail to use ethical business practices and comply with applicable laws and regulations, our brand image could be harmed due to negative publicity.

We have established and currently maintain operating guidelines which promote ethical business practices such as fair wage practices, compliance with child labor laws and other local laws. While we monitor compliance with those guidelines, we do not control our independent manufacturers or their business practices. Accordingly, we cannot guarantee their compliance with our guidelines. A lack of demonstrated compliance could lead us to seek alternative suppliers, which could increase our costs and result in delayed delivery of our products, product shortages or other disruptions of our operations.

Violation of labor or other laws by our independent manufacturers or the divergence of an independent manufacturer’s labor or other practices from those generally accepted as ethical in the U.S. or other markets in which we do business could also attract negative publicity for us and our brand. From time to time, our audit results have revealed a lack of compliance in certain respects, including with respect to local labor, safety and environmental laws. Other apparel companies have faced criticism after highly-publicized incidents or compliance issues have occurred or been exposed at factories producing their products. To the extent our manufacturers do not bring their operations into

 

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compliance with such laws or resolve material issues identified in any of our audit results, we may face similar criticism and negative publicity. This could diminish the value of our brand image and reduce demand for our merchandise. In addition, other apparel companies have encountered organized boycotts of their products in such situations. If we, or other companies in our industry, encounter similar problems in the future, it could harm our brand image, stock price and results of operations.

Monitoring compliance by independent manufacturers is complicated by the fact that expectations of ethical business practices continually evolve, may be substantially more demanding than applicable legal requirements and are driven in part by legal developments and by diverse groups active in publicizing and organizing public responses to perceived ethical shortcomings. Accordingly, we cannot predict how such expectations might develop in the future and cannot be certain that our guidelines would satisfy all parties who are active in monitoring and publicizing perceived shortcomings in labor and other business practices worldwide.

Our operating results are subject to seasonal and quarterly variations in our net revenue and income from operations, which could cause the price of our common stock to decline.

We have experienced, and expect to continue to experience, seasonal variations in our net revenue and income from operations. Seasonal variations in our net revenue are primarily related to increased sales of our products during our fiscal third and fourth quarters, reflecting our historical strength in sales during the fall and holiday seasons. Historically, seasonable variations in our income from operations have been driven principally by increased net revenue in such fiscal quarters.

Our rapid growth may have overshadowed whatever seasonal or cyclical factors might have influenced our business to date. In addition, as our revenue mix evolves over time to include more sales from additional retail stores, we may see an increase in the percentage of sales occurring during the fourth quarter. Such seasonal or cyclical variations in our business may harm our results of operations in the future, if we do not plan inventory appropriately, if customer shopping patterns fluctuate during such seasonal periods or if bad weather during the fourth quarter constrains shopping activity.

Any future seasonal or quarterly fluctuations in our results of operations may not match the expectations of market analysts and investors to assess the longer-term profitability and strength of our business at any particular point, which could lead to increased volatility in our stock price. Increased volatility could cause our stock price to suffer in comparison to less volatile investments.

We are subject to risks associated with leasing retail space, are generally subject to long-term non-cancelable leases and are required to make substantial lease payments under our operating leases, and any failure to make these lease payments when due would likely harm our business, profitability and results of operations.

We do not own any of our stores, but instead lease all of our retail stores under operating leases. Our leases generally have initial terms of 10 years, and generally can be extended only for one additional 5-year term. All of our leases require a fixed annual rent, and most require the payment of additional rent if store sales exceed a negotiated amount. Most of our leases are “net” leases, which require us to pay all of the cost of insurance, taxes, maintenance and utilities, and we generally cannot cancel these leases at our option. Additionally, certain of our leases allow the lessor to terminate the lease if we do not achieve a specified gross sales threshold. We have experienced circumstances in the past where landlords have attempted to invoke these contractual provisions. Although we believe we will achieve the required threshold to continue those leases, we cannot assure you that we will do so. Any loss of our store locations due to underperformance may harm our results of operations, stock price and reputation.

 

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Payments under these leases account for a significant portion of our SG&A expenses. For example, as of October 5, 2013, we were a party to operating leases associated with our retail stores requiring future minimum lease payments of $6.8 million in the aggregate through fiscal 2013 and approximately $55.2 million thereafter. We expect that any new retail stores we open will also be leased by us under operating leases, which will further increase our operating lease expenses and require significant capital expenditures. Our substantial operating lease obligations could have significant negative consequences, including, among others:

 

  Ÿ   increasing our vulnerability to general adverse economic and industry conditions;

 

  Ÿ   limiting our ability to obtain additional financing;

 

  Ÿ   requiring a substantial portion of our available cash to pay our rental obligations, thus reducing cash available for other purposes;

 

  Ÿ   limiting our flexibility in planning for or reacting to changes in our business or in the industry in which we compete; and

 

  Ÿ   placing us at a disadvantage with respect to some of our competitors.

We depend on cash flow from operations to pay our lease expenses and to fulfill our other cash needs. If our business does not generate sufficient cash flow from operating activities, and sufficient funds are not otherwise available to us from borrowings under our new credit facilities or from other sources, we may not be able to service our operating lease expenses, grow our business, respond to competitive challenges or fund our other liquidity and capital needs, which would harm our business.

In addition, additional sites that we lease are likely to be subject to similar long-term non-cancelable leases. If an existing or future store is not profitable, and we decide to close it, we may nonetheless be committed to perform our obligations under the applicable lease including, among other things, paying the base rent for the balance of the lease term if we cannot negotiate a mutually acceptable termination payment. In addition, as our leases expire, we may fail to negotiate renewals, either on commercially acceptable terms or at all, which could cause us to close stores in desirable locations. Of our existing leases, one retail lease expires in fiscal 2013 and no existing retail leases expire in fiscal 2014. If we are unable to enter into new leases or renew existing leases on terms acceptable to us or be released from our obligations under leases for stores that we close, our business, profitability and results of operations may be harmed.

The Patient Protection and Affordable Care Act may materially increase our costs and/or make it harder for us to compete as an employer.

The Patient Protection and Affordable Care Act imposed new mandates on employers, including a requirement effective January 1, 2014 (which has temporarily been extended to January 1, 2015 due to a recent executive order) that employers with 50 or more full-time employees provide “credible” health insurance to employees or pay a financial penalty. Given our current health plan design, and assuming the law is implemented without significant changes, these mandates could materially increase our costs. Moreover, if we choose to opt out of offering health insurance to our employees, we may become less attractive as an employer and it may be harder for us to compete for qualified employees.

System security risk issues could disrupt our internal operations or information technology services, and any such disruption could negatively impact our net sales, increase our expenses and harm our reputation.

Experienced computer programmers and hackers, and even internal users, may be able to penetrate our network security and misappropriate our confidential information or that of third parties,

 

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including our customers, create system disruptions or cause shutdowns. In addition, employee error, malfeasance or other errors in the storage, use or transmission of any such information could result in a disclosure to third parties outside of our network. As a result, we could incur significant expenses addressing problems created by any such inadvertent disclosure or any security breaches of our network. This risk is heightened because we collect and store customer information, including credit card information, and use certain customer information for our marketing purposes. In addition, we rely on third parties for the operation of our website, www.vince.com, and for the various social media tools and websites we use as part of our marketing strategy.

Consumers are increasingly concerned over the security of personal information transmitted over the internet, consumer identity theft and user privacy, and any compromise of customer information could subject us to customer or government litigation and harm our reputation, which could adversely affect our business and growth. Moreover, we could incur significant expenses or disruptions of our operations in connection with system failures or breaches. In addition, sophisticated hardware and operating system software and applications that we procure form third parties may contain defects in design or manufacture, including “bugs” and other problems that could unexpectedly interfere with the operation of our systems. The costs to us to eliminate or alleviate security problems, viruses and bugs, or any problems associated with the outsourced services could be significant, and the efforts to address these problems could result in interruptions, delays or cessation of service that may impeded our sales, distribution or other critical functions. In addition to taking the necessary precautions ourselves, we require that third-party service providers implement reasonable security measures to protect our customers’ identity and privacy. We do not, however, control these third-party service providers and cannot guarantee that no electronic or physical computer break-ins and security breaches will occur in the future.

Changes in laws, including employment laws and laws related to our merchandise, could make conducting our business more expensive or otherwise change the way we do business.

We are subject to numerous regulations, including labor and employment, customs, truth-in-advertising, consumer protection, and zoning and occupancy laws and ordinances that regulate retailers generally or govern the importation, promotion and sale of merchandise and the operation of stores and warehouse facilities. If these regulations were to change or were violated by our management, employees, vendors, independent manufacturers or partners, the costs of certain goods could increase, or we could experience delays in shipments of our products, be subject to fines or penalties, or suffer reputational harm, which could reduce demand for our merchandise and hurt our business and results of operations.

In addition to increased regulatory compliance requirements, changes in laws could make ordinary conduct of business more expensive or require us to change the way we do business. For example, changes in federal and state minimum wage laws could raise the wage requirements for certain of our employees at our retail locations, which would increase our selling costs and may cause us to reexamine our wage structure for such employees. Other laws related to employee benefits and treatment of employees, including laws related to limitations on employee hours, supervisory status, leaves of absence, mandated health benefits, overtime pay, unemployment tax rates and citizenship requirements, could negatively impact us, by increasing compensation and benefits costs which would in turn reduce our profitability.

Moreover, changes in product safety or other consumer protection laws could lead to increased costs to us for certain merchandise, or additional labor costs associated with readying merchandise for sale. It is often difficult for us to plan and prepare for potential changes to applicable laws and future actions or payments related to such changes could be material to us.

 

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If we are unable to attract, assimilate and retain new employees, we may not be able to grow or successfully operate our business.

To be successful in continuing to grow our business, we will need to continue to attract, assimilate, retain and motivate highly talented employees with a range of skills and experience, especially at the store management levels. Although we have recently hired and trained new store managers and experienced sales associates at several of our retail locations, competition for employees in our industry is intense and we may from time to time experience difficulty in retaining our associates or attracting the additional talent necessary to support the growth of our business. These problems could be exacerbated as we embark on our strategy of opening new retail stores over the next several years. We will also need to attract and retain other professionals across a range of disciplines, including design, production, sourcing and international business, as we develop new product categories and continue to expand our international presence. Furthermore, we will need to recruit employees to provide, or enter into consulting or outsourcing arrangements with respect to the provision of, services to be provided by Kellwood under the Shared Services Agreement when Kellwood no longer provides such services thereunder. If we are unable to attract, assimilate and retain additional employees with the necessary skills, we may not be able to grow or successfully operate our business.

Our operations will be restricted by our new credit facilities.

We intend to enter into a new revolving credit facility and a new term loan facility in connection with the consummation of this offering. We expect that our new credit facilities will contain significant restrictive covenants. These covenants may impair our financing and operational flexibility and make it difficult for us to react to market conditions and satisfy our ongoing capital needs and unanticipated cash requirements. Specifically, such covenants will likely restrict our ability and, if applicable, the ability of our subsidiaries to, among other things:

 

  Ÿ   incur additional debt;

 

  Ÿ   make certain investments and acquisitions;

 

  Ÿ   enter into certain types of transactions with affiliates;

 

  Ÿ   use assets as security in other transactions;

 

  Ÿ   pay dividends;

 

  Ÿ   sell certain assets or merge with or into other companies;

 

  Ÿ   guarantee the debt of others;

 

  Ÿ   enter into new lines of businesses;

 

  Ÿ   make capital expenditures;

 

  Ÿ   prepay, redeem or exchange our debt; and

 

  Ÿ   form any joint ventures or subsidiary investments.

Our ability to comply with the covenants and other terms of our debt obligations will depend on our future operating performance. If we fail to comply with such covenants and terms, we would be required to obtain waivers from our lenders to maintain compliance with our debt obligations. If we are unable to obtain any necessary waivers and the debt is accelerated, a material adverse effect on our financial condition and future operating performance would likely result. See “Additional Information Related to Vince—Description of Certain Indebtedness of Vince, LLC.” The terms of our debt obligations may restrict or delay our ability to fulfill our obligations under the Tax Receivable Agreement. In accordance with the terms of the Tax Receivable Agreement, delayed or unpaid

 

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amounts thereunder would accrue interest at a default rate of one-year LIBOR plus 500 basis points until paid. Our obligations under the Tax Receivable Agreement could result in a failure to comply with covenants or financial ratios required by our debt financing agreements and could result in an event of default under such a debt financing. See “Other Information Related to this Offering—Certain Relationships and Related Party Transactions of AHC—Tax Receivable Agreement” for more information regarding the terms of the Tax Receivable Agreement.

We could incur significant costs in complying with environmental, health and safety laws or as a result of satisfying any liability or obligation imposed under such laws.

Our operations are subject to various federal, state, local and foreign environmental, health and safety laws and regulations. We could be held liable for the costs to address contamination of any real property ever owned, operated or used as a disposal site. In addition, in the event that Kellwood Company becomes financially incapable of addressing the environmental liability incurred prior to the structural reorganization separating Kellwood Company from Vince, LLC, a third-party may file suit and attempt to allege that AHC engaged in a fraudulent transfer by arguing that the purpose of the separation of the non-Vince assets from AHC was to insulate AHC assets from the environmental liability. For example, pursuant to a Consent Decree with the U.S. Environmental Protection Agency (“EPA”) and the State of Missouri, a non-Vince subsidiary of AHC is conducting a cleanup of contamination at the site of a plant in New Haven, Missouri, which occurred between 1973 and 1985. Kellwood Company has posted a letter of credit in the amount of $5.9 million as a performance guarantee for the estimated cost of the required remediation work. If, despite the financial assurance provided by Kellwood Company as required by the EPA, Kellwood Company became financially unable to address this remediation, and if the corporate separateness of Vince, LLC is disregarded or if a fraudulent transfer is found to have occurred, Vince, LLC could be liable for the full amount of the remediation. If this were to occur or if we were to became liable for other environmental liabilities or obligations, it could have a material adverse effect on our business, financial condition or results of operations.

We will incur significant expenses as a result of being a public company, which will negatively impact our financial performance and could cause our results of operations and financial condition to suffer.

We will incur significant legal, accounting, insurance, share-based compensation and other expenses as a result of being a public company. The Sarbanes-Oxley Act, as well as related rules implemented by the SEC and the securities regulators and by the NYSE, have required changes in corporate governance practices of public companies. We expect that compliance with these laws, rules and regulations, including compliance with Section 404(b) of the Sarbanes-Oxley Act once we are no longer an emerging growth company, will substantially increase our expenses, including our legal and accounting costs, and make some activities more time-consuming and costly. We also expect these laws, rules and regulations to make it more expensive for us to obtain director and officer liability insurance and we may be required to accept reduced policy limits and coverage or to incur substantially higher costs to obtain the same or similar coverage. As a result, it may be more difficult for us to attract and retain qualified persons to serve on our board of directors or as officers. To assist in the recruitment of qualified directors, officers and other members of senior management and to help align their interests with those of our stockholders, we intend to make equity grants under the Vince 2013 Incentive Plan. The Vince, LLC audited financial statements included elsewhere in this prospectus do not include charges for shared based compensation. We will, however, in future periods report charges associated with grants made under the Vince 2013 Incentive Plan as we expect that shared based compensation will constitute a significant component of our executive compensation program. As a result of the foregoing, we expect an increase in legal, accounting, insurance, share based compensation and certain other expenses in the future, which will negatively impact our financial performance and could cause our results of operations and financial condition to suffer.

 

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Risks Related to the Restructuring Transactions

Our historical financial information may not be representative of our results as a stand-alone public company.

The historical financial information we have included in this prospectus has been derived from the consolidated financial statements of AHC and does not necessarily reflect what our financial position, results of operations or cash flows would have been had we operated separately from the non-Vince businesses during the historical periods presented. The historical costs and expenses reflected in our consolidated financial statements include charges for certain corporate functions historically provided by Kellwood Company, including centralized legal, accounting, tax, treasury, information technology and other services and infrastructure costs. We and Kellwood believe these charges are reasonable reflections of the historical utilization levels of these services in support of our business. The historical financial information is not necessarily indicative of our future results of operations, financial position, cash flows or costs and expenses. We have not made adjustments to reflect many significant changes that will occur in our cost structure, funding and operations as a result of our separation from the non-Vince businesses, including changes in our employee base, changes in our legal structure, and increased costs associated with being a publicly traded, stand-alone company. For additional information, see “Additional Information Related to Vince—Supplemental Selected Historical Financial Data of Vince, LLC,” “Additional Information Related to Vince—Supplemental Management’s Discussion and Analysis of Financial Condition and Results of Operations of Vince, LLC” and Vince, LLC’s historical consolidated financial statements and notes thereto included elsewhere in this prospectus.

Any disputes that arise between us and Kellwood with respect to our past and ongoing relationships could harm our business operations.

Disputes may arise between Kellwood and us in a number of areas relating to our past and ongoing relationships, including:

 

  Ÿ   intellectual property and technology matters;

 

  Ÿ   labor, tax, employee benefit, indemnification and other matters arising from our separation from Kellwood;

 

  Ÿ   employee retention and recruiting;

 

  Ÿ   business combinations involving us;

 

  Ÿ   the nature, quality and pricing of transitional services Kellwood has agreed to provide us; and

 

  Ÿ   business opportunities that may be attractive to both Kellwood and us.

We may not be able to resolve any potential conflicts, and even if we do, the resolution may be less favorable than if we were dealing with an unaffiliated party. We anticipate that following this offering, affiliates of Sun Capital, who will also continue to control Kellwood after consummation of this offering, will own approximately 72% of our common stock (assuming no exercise of the underwriters’ option to purchase additional shares) and Sun Cardinal, LLC, an affiliate of Sun Capital, will have the ability to designate a majority of our directors.

Third parties may seek to hold us responsible for liabilities related to the non-Vince businesses that we will not retain in the IPO Restructuring Transactions or for liabilities associated with Vince assets not yet transferred to us.

We are currently subject to a number of liabilities, including the Cerberus Term Loan, the 12.875% Notes, the Sun Term Loan Agreements, the Wells Fargo Facility and various trade credit or other general unsecured obligations. As described further below, in connection with the separation of the non-Vince businesses from the Vince business in the IPO Restructuring Transactions and the

 

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consummation of this offering, Kellwood Company, LLC will repay, repurchase or discharge certain of these obligations in full (after giving effect to the Additional Sun Capital Contribution) using proceeds from the repayment of the Kellwood Note Receivable and will otherwise refinance certain of its other indebtedness (including the Wells Fargo Facility). Kellwood Company, LLC will remain liable for any remaining obligations related to the non-Vince businesses. Despite this fact, third parties may seek to hold us responsible for liabilities related to the non-Vince businesses.

As described in “Restructuring Transactions” and “Use of Proceeds,” Kellwood Company, LLC will, immediately after the closing of this offering, (i) use proceeds from the repayment of the Kellwood Note Receivable to repay or discharge the Cerberus Term Loan and the Sun Term Loan Agreements and to deposit with the trustee of the 12.875% Notes an amount sufficient to redeem such notes in full, in connection with the concurrent issuance of an unconditional redemption notice for the 12.875% Notes and the satisfaction and discharge of the indenture governing the 12.875% Notes and (ii) refinance the Wells Fargo Facility to, among other things, release Vince, LLC as an obligor thereunder. While the execution of the IPO Restructuring Transactions is in fact a technical default under these agreements, because we believe that the concurrent repayment, discharge or refinancing of those obligations satisfies any such default, we do not believe any consent of the lenders or noteholders under the related agreements or instruments is necessary and accordingly we do not intend to seek any such consent. We could nevertheless be subject to claims from Kellwood Company’s creditors as a result of such technical defaults and these claims may force us to engage in costly litigation. If such claims are successful and indemnity is unavailable from Kellwood Company, LLC, our financial condition and results of operations may be harmed.

Also, Kellwood Company will conduct a tender offer to purchase any and all of the 7.625% Notes at par plus accrued but unpaid interest thereon in connection with this offering. Neither Apparel Holding Corp. nor Vince, LLC is a guarantor or obligor of the 7.625% Notes. We do not intend to take any extraordinary steps with regard to any other liabilities, including the 3.5% Convertible Notes, trade credit or other general unsecured obligations of Kellwood Company. While we believe the execution of the IPO Restructuring Transactions is not a default under, nor does it create any additional rights with respect to, the 7.625% Notes or any other general unsecured liabilities, it is possible that any holders of 7.625% Notes that remain untendered after consummation of our proposed tender offer or other holders of general unsecured liabilities could attempt to draw the ongoing Vince business into any attempts to collect on any such liabilities from Kellwood Company, LLC.

Kellwood Company, LLC has agreed, pursuant to the Transfer Agreement to be entered into as part of the IPO Restructuring Transactions, to indemnify us for any claims and losses that may arise related to its failure to repay, repurchase, discharge or refinance certain of its indebtedness, as described in the three immediately prior paragraphs. But if Kellwood Company, LLC is not able to satisfy its related indemnification obligations to us, our financial condition or results of operations could suffer. See “—Risks Related to Vince—Kellwood provides us with certain key services for our business. If Kellwood fails to perform its obligations to us or if we do not find appropriate replacement services, we may be unable to perform these services or implement substitute arrangements on a timely and cost-effective basis on terms favorable to us” and “Other Information Related to this Offering—Certain Relationships and Related Party Transactions of AHC—Transfer Agreement” for additional information regarding the risks related to Kellwood’s ability to satisfy its obligations to us and the indemnity to be provided to us by Kellwood Company, LLC pursuant to the terms of the Transfer Agreement.

We will be required to pay for 85% of certain tax benefits, and could be required to make substantial cash payments in which the stockholders purchasing shares in this offering will not participate.

Immediately prior to the consummation of this offering, we intend to enter into the Tax Receivable Agreement with the Pre-IPO Stockholders. Under the Tax Receivable Agreement, we will be obligated

 

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to pay to the Pre-IPO Stockholders an amount equal to 85% of the cash savings in federal, state and local income tax realized by us by virtue of our future use of the federal, state and local net operating losses (“NOLs”) held by us as of October 5, 2013, together with section 197 intangible deductions (collectively, the “Pre-IPO Tax Benefits”). “Section 197 intangible deductions” means amortization deductions with respect to certain amortizable intangible assets which are held by us and our subsidiaries immediately after this offering. Cash tax savings generally will be computed by comparing our actual federal, state and local income tax liability to the amount of such taxes that we would have been required to pay had such Pre-IPO Tax Benefits not been available to us. While payments made under the Tax Receivable Agreement will depend upon a number of factors, including the amount and timing of taxable income we generate in the future and any future limitations that may be imposed on our ability to use the Pre-IPO Tax Benefits, the payments could be substantial. Assuming the federal, state and local corporate income tax rates presently in effect, no material change in applicable tax law and no limitation on our ability to use the Pre-IPO Tax Benefits under Section 382 of the U.S. Internal Revenue Code, as amended (the “Code”), the estimated cash benefit of the full use of these Pre-IPO Tax Benefits would be approximately $200 million, of which 85%, or $170 million, is potentially payable to the Pre-IPO Stockholders under the terms of the Tax Receivable Agreement. The Tax Receivable Agreement accordingly could require us to make substantial cash payments in which the stockholders purchasing shares in this offering will not participate.

Although we are not aware of any issue that would cause the U.S. Internal Revenue Service (the “IRS”), to challenge any tax benefits arising under the Tax Receivable Agreement, the affiliates of Sun Capital will not reimburse us for any payments previously made if such benefits subsequently were disallowed, although the amount of any tax savings subsequently disallowed will reduce any future payment otherwise owed to the Pre-IPO Stockholders. For example, if our determinations regarding the applicability (or lack thereof) and amount of any limitations on the NOLs under Section 382 of the Code were to be successfully challenged by the IRS after payments relating to such NOLs had been made to the Pre-IPO Stockholders, we would not be reimbursed by the Pre-IPO Stockholders and our recovery would be limited to the extent of future payments (if any) otherwise remaining under the Tax Receivable Agreement. As a result, in such circumstances we could make payments to the Pre-IPO Stockholders under the Tax Receivable Agreement in excess of our actual cash tax savings. Furthermore, while we will generally only make payments under the Tax Receivable Agreement after we have recognized a cash flow benefit from the utilization of the Pre-IPO Tax Benefits, (other than upon a change of control or other acceleration event), the payments required under the agreement could require us to use a substantial portion of our cash from operations for those purposes.

At the effective date of the Tax Receivable Agreement, any liability recognized will be accounted for in our financial statements as a reduction of additional paid-in capital. Subsequent changes in the Tax Receivable Agreement liability will be recorded through earnings in operating expenses. Although we currently have a valuation allowance on the entire amount of NOLs, if we continue to be profitable, the valuation allowance could be reduced or eliminated. Even if the NOLs are available to us, the Tax Receivable Agreement will operate to transfer significantly all of the benefit to the Pre-IPO Stockholders. Additionally, the payments we make to the Pre-IPO Stockholders under the Tax Receivable Agreement are not expected to give rise to any incidental tax benefits to us, such as deductions or an adjustment to the basis of our assets.

Federal and state laws impose substantial restrictions on the utilization of NOL carry-forwards in the event of an “ownership change,” as defined in Section 382 of the Code. Under the rules, such an ownership change is generally any change in ownership of more than 50 percent of a company’s stock within a rolling three-year period, as calculated in accordance with the rules. The rules generally operate by focusing on changes in ownership among stockholders considered by the rules as owning directly or indirectly 5% or more of the stock of the company and any change in ownership arising from new issuances of stock by the company.

 

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At this time, we have not performed a detailed analysis under Section 382 of the Code to determine if the IPO Restructuring Transactions would constitute an ownership change. With this offering and other transactions that have occurred over the past three years, we may trigger or have already triggered an “ownership change” limitation. We may also experience ownership changes in the future as a result of subsequent shifts in stock ownership. As a result, if we earn net taxable income, our ability to use the pre-change NOL carry-forwards (after giving effect to payments to be made to the Pre-IPO Stockholders under the Tax Receivable Agreement) to offset U.S. federal taxable income may be subject to limitations, which could potentially result in increased future tax liability to us. Notwithstanding the foregoing, our preliminary analysis under Section 382 of the Code indicates that the IPO Restructuring Transactions would not trigger an “ownership change” limitation.

If we did not enter into the Tax Receivable Agreement, we would be entitled to realize the full economic benefit of the Pre-IPO Tax Benefits, to the extent allowed by federal, state and local law, including Section 382 of the Code. Subject to exceptions, the Tax Receivable Agreement is designed with the objective of causing our annual cash costs attributable to federal state and local income taxes (without regard to our continuing 15% interest in the Pre-IPO Tax Benefits) to be the same as we would have paid had we not had the Pre-IPO Tax Benefits available to offset our federal, state and local taxable income. As a result, stockholders purchasing shares in this offering will not be entitled to the economic benefit of the Pre-IPO Tax Benefits that would have been available if the Tax Receivable Agreement were not in effect (except to the extent of our continuing 15% interest in the Pre-IPO Tax Benefits).

In certain cases, payments under the Tax Receivable Agreement to the Pre-IPO stockholders may be accelerated and/or significantly exceed the actual benefits we realize in respect of the Pre-IPO Tax Benefits.

Upon the election of an affiliate of Sun Capital to terminate the Tax Receivable Agreement pursuant to a change in control (as defined in the Tax Receivable Agreement) or upon our election to terminate the Tax Receivable Agreement early, all of our payment and other obligations under the Tax Receivable Agreement will be accelerated and will become due and payable. Additionally, the Tax Receivable Agreement provides that in the event that we breach any of our material obligations under the Tax Receivable Agreement by operation of law as a result of the rejection of the Tax Receivable Agreement in a case commenced under Title 11 of the United States Code (the “Bankruptcy Code”) then all of our payment and other obligations under the Tax Receivable Agreement will be accelerated and will become due and payable.

In the case of any such acceleration, we would be required to make an immediate payment equal to 85% of the present value of the tax savings represented by any portion of the Pre-IPO Tax Benefits for which payment under the Tax Receivable Agreement has not already been made, which upfront payment may be made years in advance of the actual realization of such future benefits. Such payments could be substantial and could exceed our actual cash tax savings from the Pre-IPO Tax Benefits. In these situations, our obligations under the Tax Receivable Agreement could have a substantial negative impact on our liquidity and could have the effect of delaying, deferring or preventing certain mergers, asset sales, other forms of business combinations or other changes of control. There can be no assurance that we will have sufficient cash available or that we will be able to finance our obligations under the Tax Receivable Agreement.

If we were to elect to terminate the Tax Receivable Agreement immediately after this offering, based on a discount rate equal to monthly LIBOR plus 200 basis points, we estimate that we would be required to pay $158.7 million in the aggregate under the Tax Receivable Agreement. See “Certain Relationships and Related Party Transactions of AHC—Tax Receivable Agreement.”

 

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Risks Related to AHC

General economic conditions in the U.S., Europe and other parts of the world, including a continued weakening of the economy and restricted credit markets, can affect consumer confidence and consumer spending patterns.

The apparel industry has historically been subject to cyclical variations, recessions in the general economy or uncertainties regarding future economic prospects that affect consumer spending habits which could negatively impact AHC’s business overall, the carrying value of AHC’s tangible assets and intangible assets and specifically sales, gross margins and profitability. The success of AHC’s operations depends on consumer spending. Consumer spending is impacted by a number of factors, including actual and perceived economic conditions affecting disposable consumer income (such as unemployment, wages, energy costs, consumer debt levels, etc.), business conditions, interest rates and availability of credit and tax rates in the general economy and in the international, regional and local markets where AHC’s products are sold.

Recent global economic conditions have included significant recessionary pressures and declines in employment levels, disposable income and actual and/or perceived wealth and further declines in consumer confidence and economic growth. These conditions have led and could lead to continued substantial declines in consumer spending over the foreseeable future and may have resulted in a resetting of consumer spending habits that makes it unlikely that spending will return to prior levels for the foreseeable future. The current depressed economic environment has been characterized by a dramatic decline in consumer discretionary spending and has disproportionately affected retailers and sellers of consumer goods, particularly those whose goods are viewed as discretionary purchases, including fashion apparel such as AHC brands. While there have been occasional signs of stabilization in the North American markets during 2012, a shift towards continued recessionary conditions could adversely impact AHC’s sales volumes and overall profitability in the future. Further, the European debt crisis resulting from growing concerns that European countries could default on their national debt, have caused instability in the European economy. Continued economic volatility and declines in the value of the Euro could negatively impact the global economy as a whole. Such a condition would have a material adverse impact on the profitability and liquidity of AHC’s international operations, as well as hinder AHC’s ability to grow through expansion in the international markets.

Economic conditions have also led to a highly promotional environment and strong discounting pressure from both AHC’s wholesale and retail customers, which have had a negative effect on its revenues and profitability. This promotional environment may likely continue even after economic growth returns, as AHC expects consumer spending trends are likely to remain at historically depressed levels for the foreseeable future. The domestic and international political situation also affects consumer confidence. The threat, outbreak or escalation of terrorism, military conflicts or other hostilities could lead to further decreases in consumer spending.

Intense competition in the apparel industry could reduce AHC’s sales and profitability.

As an apparel company, AHC faces intense competition from other domestic and foreign apparel, footwear and accessories producers and retailers. Competition may result in pricing pressures, reduced profit margins or lost market share or failure to grow AHC’s market share, any of which could substantially harm its business and results of operations. Competition is based on many factors including, without limitation, the following:

 

  Ÿ   establishing and maintaining favorable brand recognition;

 

  Ÿ   developing products that appeal to consumers;

 

  Ÿ   pricing products appropriately;

 

  Ÿ   determining and maintaining product quality;

 

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  Ÿ   obtaining access to sufficient floor space in retail outlets;

 

  Ÿ   providing appropriate services and support to retailers;

 

  Ÿ   maintaining and growing market share;

 

  Ÿ   maintaining key employees; and

 

  Ÿ   protecting intellectual property.

Competition in the apparel industry is intense and is dominated by a number of very large brands, many of which have longer operating histories, larger customer bases, more established relationships with a broader set of suppliers, greater brand recognition and greater financial, research and development, marketing, distribution and other resources than AHC does. These capabilities of AHC’s competitors may allow them to better withstand downturns in the economy or apparel industry. The aggressive and competitive nature of the apparel industry may result in lower prices for AHC’s products and decreased gross profit margins, either of which may materially adversely affect sales and profitability. Any increased competition, or AHC’s failure to adequately address any of these competitive factors, could result in reduced sales, which could adversely affect AHC’s business, financial condition and operating results.

 

AHC’s business will suffer if AHC fails to continually anticipate fashion trends and consumer tastes.

Customer tastes and fashion trends can change rapidly. AHC may not be able to anticipate, gauge or respond to these changes within a timely manner. If AHC misjudges the market for its products or product groups, or if AHC fails to identify and respond appropriately to changing consumer demands and fashion trends, it may be faced with unsold finished goods inventory, which could materially adversely affect expected operating results and decrease sales, gross margins and profitability.

Alternatively, even if AHC reacts appropriately to changes in fashion trends and consumer preferences, consumers may consider its various brand images to be outdated or associate its brands with styles that are no longer popular or trend-setting. Any of these outcomes could have a material adverse effect on AHC’s brands, business and results of operations.

The apparel industry has relatively long lead times for the design and production of products. Consequently, AHC must in some cases commit to production in advance of orders based on forecasts of customer and consumer demand. If AHC fails to forecast demand accurately, it may under-produce or over-produce a product and encounter difficulty in filling customer orders or in liquidating excess inventory. Additionally, if AHC over-produces a product based on an aggressive forecast of demand, retailers may not be able to sell the product and cancel future orders or require retrospective price adjustments. These outcomes could have a material adverse effect on sales and brand image and adversely impact sales, gross margins and profitability.

A substantial portion of AHC’s revenue is derived from a small number of large wholesale partners, and the loss of any of these wholesale partners could substantially reduce AHC’s total revenue.

A small number of AHC’s wholesale partners account for a significant portion of its total revenue. Total revenue to AHC’s ten largest wholesale partners was 55% of its total revenue for fiscal 2012 and 60% for the first six months of fiscal 2013. AHC does not have written agreements with any of its wholesale partners, and purchases generally occur on an order-by-order basis. A decision by any of AHC’s major wholesale partners, whether motivated by marketing strategy, competitive conditions, financial difficulties or otherwise, to decrease significantly the amount of merchandise purchased from AHC or its licensing partners, or to change their manner of doing business with AHC or its licensing partners, could substantially reduce AHC’s revenue and have a material adverse effect on its profitability. During the past several years, the retail industry has experienced a great deal of

 

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consolidation and other ownership changes, and AHC expects such changes will continue. In addition, store closings by AHC’s wholesale partners decrease the number of stores carrying its products, while the remaining stores may purchase a smaller amount of AHC’s products and may reduce the retail floor space designated for AHC’s brands. In the future, retailers may further consolidate, undergo restructurings or reorganizations, realign their affiliations or reposition their stores’ target markets. Any of these types of actions could decrease the number of stores that carry AHC’s products or increase the ownership concentration within the retail industry. These changes could decrease AHC’s opportunities in the market, increase its reliance on a diminishing number of large wholesale partners and decrease AHC’s negotiating strength with its wholesale partners. These factors could have a material adverse effect on AHC’s business, financial condition and operating results.

Consolidation and change in the retail industry may eliminate existing or potential customers.

A number of apparel retailers have experienced significant changes and difficulties over the past several years, including consolidation of ownership, increased centralization of buying decisions, restructurings, bankruptcies and liquidations. During past years, various apparel retailers, including some of AHC’s customers, have experienced financial problems including bankruptcy that have increased the risk of extending credit to those retailers. Financial problems with respect to any of AHC’s customers could cause it to reduce or discontinue business with those customers or require AHC to assume more credit risk relating to those customers’ receivables, either of which could have a material adverse effect on Kellwood’s business, results of operations and financial condition.

There has been, and continues to be, merger, acquisition and consolidation activity in the retail industry. In 2012, the apparel industry experienced a number of consolidation agreements and acquisitions by private-equity investors. If consumer confidence and overall economic conditions continue to recover in the foreseeable future, AHC would expect consolidation and merger activity to continue. Future consolidation could reduce the number of AHC’s customers and potential customers. A smaller market for AHC’s products could have a material adverse impact on its business and results of operations. In addition, it is possible that the larger customers, which result from mergers or consolidations, could decide to perform many of the services that AHC currently provides. If that were to occur, it could cause AHC’s business to suffer.

With increased consolidation in the retail industry, AHC is increasingly dependent upon key retailers whose bargaining strength and share of AHC’s business is growing. Accordingly, AHC faces greater pressure from these customers to provide more favorable trade terms, often in form of customers requiring AHC to provide price concessions on prior shipments as a prerequisite for obtaining future orders. AHC could be negatively affected by changes in the policies or negotiating positions of its customers. Pressure for these concessions is largely determined by overall retail sales performance and, more specifically, the performance of AHC’s products at retail. To the extent AHC’s customers have more of its goods on hand at the end of the season, there will be greater pressure for AHC to grant markdown concessions on prior shipments. Additionally, AHC could be negatively affected by changes in the policies or negotiating positions of its customers. AHC’s inability to develop satisfactory programs and systems to satisfy these customers could adversely affect operating results in any reporting period.

AHC is reliant on its retail customers for the sale of its goods.

AHC is primarily a wholesale manufacturer and marketer of womens, juniors and girls apparel. AHC’s customers are primarily retailers who sell AHC’s goods in their retail stores or online. AHC’s success in selling its products is largely dependent on its retail customers’ success in selling to their customers, the end users of AHC’s products. The success of AHC’s retail customers is in turn subject to a number of factors, many of which are outside of AHC’s and their control.

 

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Loss of key personnel could disrupt AHC’s operations.

AHC’s continued success is dependent on its ability to attract, retain and motivate qualified management, designers, administrative and sales personnel to support existing operations and future growth. Competition for qualified personnel in the apparel industry is intense, and AHC competes for these individuals with other companies that in many cases have greater financial and other resources. The loss of the services of any members of senior management or the inability to attract and retain other qualified personnel could have a material adverse effect on AHC’s business, results of operations and financial condition.

The extent of AHC’s foreign sourcing may adversely affect AHC’s business.

AHC’s products are primarily produced by, and purchased or procured from, independent manufacturing contractors located mainly in countries in Asia. A manufacturing contractor’s failure to ship products to AHC in a timely manner or to meet the required quality standards could cause us to miss the delivery date requirements of AHC’s customers for those items. The failure to make timely deliveries may cause customers to cancel orders, refuse to accept deliveries or demand reduced prices, any of which could have a material adverse effect on it. As a result of the magnitude of AHC’s foreign sourcing, its business is subject to the following risks:

 

  Ÿ   political and economic instability in countries, including heightened terrorism and other security concerns, which could subject imported or exported goods to additional or more frequent inspections, leading to delays in deliveries or impoundment of goods;

 

  Ÿ   imposition of regulations and quotas relating to imports, including quotas imposed by bilateral textile agreements between the United States and foreign countries;

 

  Ÿ   imposition of increased duties, taxes and other charges on imports;

 

  Ÿ   significant fluctuation of the value of the dollar against foreign currencies;

 

  Ÿ   labor shortages in countries where contractors and suppliers are located;

 

  Ÿ   a significant decrease in availability or an increase in the cost of raw materials;

 

  Ÿ   restrictions on the transfer of funds to or from foreign countries;

 

  Ÿ   disease epidemics and health-related concerns, which could result in closed factories, reduced workforces, scarcity of raw materials and scrutiny or embargoing of goods produced in infected areas;

 

  Ÿ   the migration and development of manufacturing contractors, which could affect where AHC’s products are or are planned to be produced;

 

  Ÿ   increases in the costs of fuel, travel and transportation;

 

  Ÿ   reduced manufacturing flexibility because of geographic distance between AHC’s foreign manufacturers and us, increasing the risk that we may have to mark down unsold inventory as a result of misjudging the market for a foreign-made product;

 

  Ÿ   increases in manufacturing costs in the event of a decline in the value of the United States dollar against major world currencies, particularly the Chinese Yuan, and higher labor costs being experienced by our foreign manufacturers in China; and

 

  Ÿ   violations by foreign contractors of labor and wage standards and resulting adverse publicity.

If these risks limit or prevent AHC from selling or manufacturing products in any significant international market, prevent AHC from acquiring products from foreign suppliers, or significantly increase the cost of its products, AHC’s operations could be seriously disrupted until alternative suppliers are found or alternative markets are developed, which could negatively impact its business.

 

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The success of AHC’s licenses depends on the value of the licensed brands.

Some of AHC’s products are produced under license agreements with third parties. Similarly, AHC licenses some of its brand names to other companies. Brands that AHC licenses from third parties are integral to its business as is the implementation of AHC’s strategies for growing and expanding these brands and trademarks. AHC markets some of its products under the names and brands of recognized designers. AHC’s sales of these products could decline if any of those designer’s images or reputations were to be negatively impacted. Additionally, AHC relies on continued good relationships with both licensees and licensors, of certain trademarks and brand names. Adverse actions by any of these third parties could damage the brand equity associated with these trademarks and brands, which could have a material adverse effect on AHC’s business, results of operations and financial condition.

AHC’s competitive position could suffer if its intellectual property rights are not protected.

AHC believes that its trademarks, patents and designs are of great value. From time to time, third parties have challenged, and may in the future try to challenge, AHC’s ownership of its intellectual property. AHC is susceptible to others imitating its products and infringing its intellectual property rights. AHC Imitation or counterfeiting of AHC’s products or infringement of its intellectual property rights could diminish the value of AHC’s brands or otherwise adversely affect AHC’s revenues. The actions AHC has taken to establish and protect its trademarks and other intellectual property rights may not be adequate to prevent imitation of its products by others or to prevent others from seeking to invalidate AHC’s trademarks or block sales of its products as a violation of the trademarks and intellectual property rights of others. In addition, others may assert rights in, or ownership of, AHC’s trademarks and other intellectual property rights or in similar marks or marks that AHC licenses and/or market and AHC may not be able to successfully resolve these conflicts to its satisfaction. AHC may need to resort to litigation to enforce its intellectual property rights, which could result in substantial costs and diversion of resources. Successful infringement claims against AHC could result in significant monetary liability or prevent AHC from selling some of its products. In addition, resolution of claims may require AHC to redesign its products, license rights from third parties or cease using those rights altogether. Any of these events could harm AHC’s business and cause its results of operations, liquidity and financial condition to suffer.

AHC currently owns the exclusive right to use various domain names containing or relating to its brands. AHC may be unable to prevent third parties from acquiring and using domain names that infringe or otherwise decrease the value of its trademarks and other proprietary rights. Failure to protect AHC’s domain names could adversely affect its brands and make it more difficult for users to find AHC’s websites.

Fluctuations in the price, availability and quality of raw materials could cause delays and increase costs and cause AHC’s operating results and financial condition to suffer.

Fluctuations in the price, availability and quality of the fabrics or other raw materials, particularly cotton, leather, and synthetics used in AHC’s manufactured apparel, could have a material adverse effect on cost of sales or AHC’s ability to meet customer demands. The prices of fabrics depend largely on the market prices of the raw materials used to produce them. The price and availability of the raw materials and, in turn, the fabrics used in AHC’s apparel may fluctuate significantly, depending on many factors, including crop yields, weather patterns, labor costs and changes in oil prices. AHC may not be able to pass higher raw materials prices and related transportation costs on to its customers. AHC is not always successful in its efforts to protect its business from the volatility of the market price of raw materials, and AHC’s business can be materially affected by dramatic movements in prices of raw materials. The ultimate effect of this change on AHC’s earnings cannot be quantified, as the effect of movements in raw materials prices on industry selling prices are uncertain, but any significant increase in these prices could have a material adverse effect on its business, financial condition and operating results.

 

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Problems with AHC’s distribution system could harm its ability to meet customer expectations, manage inventory, complete sales and achieve objectives for operating efficiencies.

AHC operates two distribution facilities in City of Industry, California and St. George, Utah, as well as utilizing seven third-party distribution facilities. AHC’s ability to meet the needs of its wholesale partners and its own retail stores depends on the proper operation of these distribution facilities. Because a substantial portion of AHC’s products are distributed from these locations, AHC’s operations could also be interrupted by labor difficulties, or by floods, fires, earthquakes or other natural disasters near such either facility. AHC maintains business interruption insurance, but it may not adequately protect AHC from the adverse effects that could result from significant disruptions to its distribution system, such as the long-term loss of customers or an erosion of AHC’s brand image. If AHC encounters problems with its distribution system, its ability to meet customer expectations, manage inventory, complete sales and achieve objectives for operating efficiencies could be harmed. Any of the foregoing factors could have a material adverse effect on AHC’s business, financial condition and operating results.

AHC’s ability to source its merchandise profitably or at all could be hurt if new trade restrictions are imposed or existing trade restrictions become more burdensome.

The majority of AHC’s products are currently manufactured for it outside of the U.S. The U.S. and the countries in which AHC’s products are produced or sold internationally have imposed and may impose additional quotas, duties, tariffs, or other restrictions or regulations, or may adversely adjust prevailing quota, duty or tariff levels. Countries impose, modify and remove tariffs and other trade restrictions in response to a diverse array of factors, including global and national economic and political conditions, which make it impossible for AHC to predict future developments regarding tariffs and other trade restrictions. Trade restrictions, including tariffs, quotas, embargoes, safeguards and customs restrictions, could increase the cost or reduce the supply of products available to AHC or may require AHC to modify its supply chain organization or other current business practices, any of which could harm AHC’s business, financial condition and results of operations.

If AHC is unable to accurately forecast customer demand for its products AHC’s manufacturers may not be able to deliver products to meet its requirements, and this could result in delays in the shipment of products to AHC’s wholesale partners.

AHC provides stock to its wholesale partners, based on its estimates of future demand for particular products. AHC’s inventory management and planning teams determine the number of pieces of each product that AHC will order from its manufacturers based upon past sales of similar products, feedback from focus groups, sales trend information and anticipated retail price. However, if AHC’s inventory and planning teams fail to accurately forecast customer demand, AHC may experience excess inventory levels or a shortage of products.

Factors that could affect AHC’s inventory and planning team’s ability to accurately forecast customer demand for its products include:

 

  Ÿ   a substantial increase or decrease in consumer demand for AHC’s products or for products of AHC’s competitors;

 

  Ÿ   AHC’s failure to accurately forecast customer acceptance for its new products;

 

  Ÿ   new product introductions or pricing strategies by competitors;

 

  Ÿ   more limited historical store sales information for AHC’s newer markets;

 

  Ÿ   weakening of economic conditions or consumer confidence in future economic conditions, which could reduce demand for discretionary items, such as AHC’s products; and

 

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  Ÿ   acts or threats of war or terrorism which could adversely affect consumer confidence and spending or interrupt production and distribution of AHC’s products and AHC’s raw materials.

Inventory levels in excess of customer demand may result in inventory write-downs or write-offs and the sale of excess inventory at discount prices, which would cause our gross margin to suffer and could impair the strength and exclusivity of AHC’s brand.

In addition, if AHC underestimates customer demand for its products, AHC’s manufacturers may not be able to deliver products to meet its requirements, and this could result in delays in the shipment of products to AHC’s wholesale partners and may damage our reputation and customer relationships. There can be no assurances that AHC will be able to successfully manage its inventory at a level appropriate for future customer demand.

We could incur significant costs in complying with environmental, health and safety laws or as a result of satisfying any liability or obligation imposed under such laws.

Our operations are subject to various federal, state, local and foreign environmental, health and safety laws and regulations. We could be held liable for the costs to address contamination of any real property we have ever owned, operated or used as a disposal site. For example, pursuant to a Consent Decree with the EPA and the State of Missouri, we are conducting a cleanup of contamination at the site of a plant in New Haven, Missouri, which occurred between 1973 and 1985. As of August 3, 2013 AHC’s best estimate of the discounted value of the total obligation for required and voluntary remedial activities at this New Haven site was $9.7 million. If AHC’s estimated amount of the discounted value is incorrect or if AHC were to become liable for other environmental liabilities or obligations, it could have a material adverse effect on its business, financial condition or results of operations.

System security risk issues could disrupt AHC’s internal operations or information technology services, and any such disruption could harm AHC’s net sales, increase our expenses and harm its reputation.

Experienced computer programmers and hackers, and even internal users, may be able to penetrate AHC’s network security and misappropriate AHC’s confidential information or that of third parties, including our customers, create system disruptions or cause shutdowns. In addition, employee error, malfeasance or other errors in the storage, use or transmission of any such information could result in a disclosure to third parties outside of AHC’s network. As a result, AHC could incur significant expenses addressing problems created by any such inadvertent disclosure or any security breaches of its network. This risk is heightened because AHC collects and stores customer information, including credit card information, and use certain customer information for its marketing purposes. In addition, AHC relies on third parties for the operation of its various websites and for the various social media tools and websites AHC uses as part of its marketing strategy.

Consumers are increasingly concerned over the security of personal information transmitted over the internet, consumer identity theft and user privacy, and any compromise of customer information could subject AHC to customer or government litigation and harm AHC’s reputation, which could adversely affect AHC’s business and growth. Moreover, AHC could incur significant expenses or disruptions of its operations in connection with system failures or breaches. In addition, sophisticated hardware and operating system software and applications that AHC procures from third parties may contain defects in design or manufacture, including “bugs” and other problems that could unexpectedly interfere with the operation of AHC’s systems. The costs to AHC to eliminate or alleviate security problems, viruses and bugs, or any problems associated with the outsourced services, could be significant, and the efforts to address these problems could result in interruptions, delays or cessation of service that may impeded AHC’s sales, distribution or other critical functions. In addition to taking

 

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the necessary precautions, AHC requires that third-party service providers implement reasonable security measures to protect its customers’ identity and privacy. AHC does not, however, control these third-party service providers and cannot guarantee that no electronic or physical computer break-ins and security breaches will occur in the future.

There are claims made against AHC from time to time that can result in litigation or regulatory proceedings which could distract management from AHC’s business activities and result in significant liability.

AHC faces the risk of litigation and other claims against it. Litigation and other claims may arise in the ordinary course of its business and include commercial disputes, intellectual property issues, product-oriented allegations and slip and fall claims. In addition, AHC could face a wide variety of associate claims against it, including general discrimination, privacy, labor and employment, ERISA and disability claims. Any claims could result in litigation against AHC and could also result in regulatory proceedings being brought against AHC by various federal and state agencies that regulate its business, including the U.S. Equal Employment Opportunity Commission. Often these cases raise complex factual and legal issues, which are subject to risks and uncertainties and which could require significant management time and expense. Litigation and other claims and regulatory proceedings against AHC could result in unexpected expenses and liability, and could also materially and adversely affect AHC’s operations and reputation.

Changes in laws, including employment laws and laws related to AHC’s merchandise, could make conducting AHC’s business more expensive or otherwise change the way AHC does business.

AHC is subject to numerous regulations, including labor and employment, customs, truth-in-advertising, consumer protection and zoning and occupancy laws and ordinances that regulate retailers generally or govern the importation, promotion and sale of merchandise and the operation of stores and warehouse facilities. If these regulations were to change or were violated by AHC’s management, associates, vendors, buying agents or trading companies, the costs of certain goods could increase, or AHC could experience delays in shipments of its products, be subject to fines or penalties, or suffer reputational harm, which could reduce demand for AHC’s merchandise and hurt its business and results of operations.

In addition to increased regulatory compliance requirements, changes in laws could make ordinary conduct of business more expensive or require us to change the way AHC does business. Other laws related to employee benefits and treatment of associates, including laws related to limitations on associate hours, supervisory status, leaves of absence, mandated health benefits or overtime pay, could negatively impact AHC, such as by increasing compensation and benefits costs for overtime and medical expenses.

Moreover, changes in product safety or other consumer protection laws could lead to increased costs to AHC for certain merchandise, or additional labor costs associated with readying merchandise for sale. It is often difficult for AHC to plan and prepare for potential changes to applicable laws and future actions or payments related to such changes could be material to AHC.

AHC is subject to potential challenges relating to overtime pay and other regulations that impact its employees, which could cause its business, financial condition, results of operations or cash flows to suffer.

U.S. federal and state labor laws govern AHC’s relationship with its employees and affect its operating costs. These laws include minimum wage requirements, overtime pay, unemployment tax rates, workers’ compensation rates and citizenship requirements. These laws change frequently and

 

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may be difficult to interpret and apply. In particular, as a retailer, AHC may be subject to challenges regarding the application of overtime and related pay regulations to its employees. A determination that AHC does not comply with these laws could harm its brand image, business, financial condition and results of operation. Additional government-imposed increases in minimum wages, overtime pay, paid leaves of absence or mandated health benefits could also cause our business, financial condition, results of operations or cash flows to suffer.

Risks Related to this Offering and Our Common Stock

We cannot assure that a market will develop for our common stock or what the price of our common stock will be.

Before this offering, there was no public trading market for our common stock, and we cannot assure you that one will develop or be sustained after this offering. If a market does not develop or is not sustained, it may be difficult for you to sell your shares of common stock at an attractive price or at all. We cannot predict the prices at which our common stock will trade. The initial public offering price for our common stock will be determined through our negotiations with the underwriters and may not bear any relationship to the market price at which our common stock will trade after this offering or to any other established criteria of the value of our business. It is possible that, in future quarters, our operating results may be below the expectations of securities analysts and investors. As a result of these and other factors, the price of our common stock may decline, possibly materially.

Our stock price may be volatile and your investment in our common stock could suffer a decline in value.

Broad market and industry factors may harm the price of our common stock, regardless of our actual operating performance. Factors that could cause fluctuation in the price of our common stock may include, among other things:

 

  Ÿ   actual or anticipated fluctuations in quarterly operating results or other operating metrics, such as comparable store sales, that may be used by the investment community;

 

  Ÿ   changes in financial estimates by us or by any securities analysts who might cover our stock;

 

  Ÿ   speculation about our business in the press or the investment community;

 

  Ÿ   conditions or trends affecting our industry or the economy generally;

 

  Ÿ   stock market price and volume fluctuations of other publicly traded companies and, in particular, those that are in the apparel, accessories and retail industries;

 

  Ÿ   announcements by us or our competitors of new products, significant acquisitions, strategic partnerships or divestitures;

 

  Ÿ   announcements by our wholesale partners of negative business performance or the projection that future business performance will be negative;

 

  Ÿ   changes in product assortment between high and low margin products;

 

  Ÿ   capital commitments;

 

  Ÿ   our entry into new markets;

 

  Ÿ   timing of new store openings;

 

  Ÿ   percentage of sales from new stores versus established stores;

 

  Ÿ   additions or departures of key business leaders;

 

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  Ÿ   actual or anticipated sales of our common stock, including sales by our directors, officers or significant stockholders;

 

  Ÿ   significant developments relating to our manufacturing, distribution, or supplier relationships;

 

  Ÿ   customer purchases of new products from us and our competitors;

 

  Ÿ   investor perceptions of the apparel, accessories and retail industries in general and our company in particular;

 

  Ÿ   major catastrophic events;

 

  Ÿ   volatility in our stock price, which may lead to higher stock-based compensation expense under applicable accounting standards;

 

  Ÿ   changes in accounting standards, policies, guidance, interpretation or principles; and

 

  Ÿ   material litigation or government investigations.

In the past, securities class action litigation has often been instituted against companies following periods of volatility in their stock price. This type of litigation, even if it does not result in liability for us, could result in substantial costs to us and divert management’s attention and resources.

We are a “controlled company,” controlled by investment funds advised by affiliates of Sun Capital, whose interests in our business may be different from yours.

Upon consummation of this offering, affiliates of Sun Capital will own approximately 72% of our outstanding common stock, assuming the underwriters do not exercise their option to purchase additional shares from the selling stockholders. If the underwriters exercise their option to purchase additional shares from the selling stockholders, affiliates of Sun Capital will own approximately 68% of our outstanding common stock. As such, affiliates of Sun Capital will, for the foreseeable future, have significant influence over our reporting and corporate management and affairs, and will be able to control virtually all matters requiring stockholder approval. For so long as affiliates of Sun Capital own 30% or more of our outstanding shares of common stock, Sun Cardinal, one of our selling stockholders, will have the right to designate a majority of our board of directors. For so long as Sun Cardinal has the right to designate a majority of our board of directors, the directors designated by Sun Cardinal are expected to constitute a majority of each committee of our board of directors, other than the Audit Committee, and the chairman of each of the committees, other than the Audit Committee, is expected to be a director serving on such committee who is designated by Sun Cardinal, provided that, at such time as we are not a “controlled company” under the NYSE corporate governance standards, our committee membership will comply with all applicable requirements of those standards and a majority of our board of directors will be “independent directors,” as defined under the rules of the NYSE.

As a “controlled company,” the rules of the NYSE exempt us from the obligation to comply with certain corporate governance requirements, including the requirements that a majority of our board of directors consists of “independent directors,” as defined under such rules and that we have nominating and corporate governance and compensation committees that are each composed entirely of independent directors. These exemptions do not modify the requirement for a fully independent audit committee, which is permitted to be phased-in as follows: (1) one independent committee member at the time of listing; (2) a majority of independent committee members within 90 days of our initial public offering; and (3) all independent committee members within one year of our initial public offering. Similarly, once we are no longer a “controlled company,” we must comply with the independent board committee requirements as they relate to the nominating and corporate governance and compensation committees, on the same phase-in schedule as set forth above, with the trigger date being the date we are no longer a “controlled company” as opposed to our initial public offering date. Additionally, we will have 12 months from the date we cease to be a “controlled company” to have a majority of independent directors on our board of directors.

 

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Affiliates of Sun Capital will control actions to be taken by us and our board of directors, including amendments to our amended and restated certificate of incorporation and amended and restated bylaws and approval of significant corporate transactions, including mergers and sales of substantially all of our assets. The directors designated by Sun Cardinal will have the authority, subject to the terms of our indebtedness and the rules and regulations of the NYSE, to issue additional stock, implement stock repurchase programs, declare dividends and make other decisions. The NYSE independence standards are intended to ensure that directors who meet the independence standard are free of any conflicting interest that could influence their actions as directors. Our amended and restated certificate of incorporation will provide that the doctrine of “corporate opportunity” will not apply against Sun Capital or its affiliates, or any of our directors who are associates of, or affiliated with, Sun Capital, in a manner that would prohibit them from investing in competing businesses or doing business with our partners or customers. It is possible that the interests of Sun Capital and its affiliates may in some circumstances conflict with our interests and the interests of our other stockholders, including you. For example, Sun Capital may have different tax positions from other stockholders which could influence their decisions regarding whether and when we should dispose of assets, whether and when we should incur new or refinance existing indebtedness, especially in light of the existence of the Tax Receivable Agreement that we will enter into in connection with this offering, and whether and when we should terminate the Tax Receivable Agreement and accelerate our obligations thereunder. In addition, the structuring of future transactions may take into consideration tax or other considerations of Sun Capital and its affiliates even where no similar benefit would accrue to us. See “Other Information Related to this Offering—Certain Relationships and Related Party Transactions of AHC—Tax Receivable Agreement.”

If you purchase shares of our common stock in this offering, you will experience substantial and immediate dilution.

If you purchase shares of common stock in this offering, you will incur immediate and substantial dilution in the amount of $22.48 per share, because the assumed initial public offering price of $18.00, which is the midpoint of the price range listed on the cover page of this prospectus, is substantially higher than the net tangible book value per share of our outstanding common stock. This dilution is due in large part to the fact that affiliates of Sun Capital paid substantially less than the initial public offering price when they acquired their shares of our capital stock in February 2008.

Our business and stock price may suffer as a result of our lack of public company operating experience. In addition, if securities or industry analysts do not publish research or publish inaccurate or unfavorable research about our business, our stock price and trading volume could decline.

We are a privately-held company. Our lack of recent public company operating experience may make it difficult to forecast and evaluate our future performance. If we are unable to execute our business strategy, either as a result of our inability to effectively manage our business in a public company environment or for any other reason, our business performance, financial condition and results of operations may be harmed. In addition, the trading market for our common stock will depend in part on the research and reports that securities or industry analysts publish about us or our business. We do not currently have and may never obtain research coverage by securities and industry analysts. If no securities or industry analysts commence coverage of our company, the trading price for our stock would be negatively impacted. If we obtain securities or industry analyst coverage and if one or more of the analysts who covers us downgrades our stock or publishes inaccurate or unfavorable research about our business, our stock price would likely decline. If one or more of these analysts ceases coverage of us or fails to publish reports on us regularly, demand for our stock could decrease, which could cause our stock price and trading volume to decline.

 

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We do not intend to pay dividends for the foreseeable future.

We have never declared or paid any dividends on our common stock. We intend to retain all of our earnings for the foreseeable future to finance the operation and expansion of our business and we do not anticipate paying any cash dividends in the future. As a result, you may only receive a return on your investment in our common stock if the market price of our common stock increases. Our board of directors retains the discretion to change this policy.

We are a holding company and we are dependent upon distributions from our subsidiaries to pay dividends and taxes and other expenses.

Vince Holding Corp. will be a holding company with no material assets other than its ownership of membership interests in Vince Intermediate Holding, LLC, a holding company that will have no material assets other than its interest in Vince, LLC. Neither Vince Holding Corp. nor Vince Intermediate Holding, LLC will have any independent means of generating revenue. To the extent that we need funds, for a cash dividend to holders of our common stock or otherwise, and Vince Intermediate Holding, LLC or Vince, LLC is restricted from making such distributions under applicable law or regulation or is otherwise unable to provide such funds, it could materially adversely affect our liquidity and financial condition.

We will file consolidated income tax returns on behalf of Vince Holding Corp. and Vince Intermediate Holding, LLC. Most of our future tax obligations will likely be attributed to the operations of Vince, LLC. Accordingly, most of the payments against the Tax Receivable Agreement will be attributed to the operations of Vince, LLC. We intend to cause Vince, LLC to pay dividends or make funds available to us in an amount sufficient to allow us to pay our taxes and any payments due to the Pre-IPO Stockholders under the Tax Receivable Agreement. If, as a consequence of these various limitations and restrictions, we do not have sufficient funds to pay tax or other liabilities, we may have to borrow funds and thus our liquidity and financial condition could be materially adversely affected. To the extent that we are unable to make payments under the Tax Receivable Agreement for any reason, such payments will be deferred and will accrue interest at a default rate of one-year LIBOR plus 500 basis points until paid. See “Other Information Related to this Offering—Certain Relationships and Related Party Transactions of AHC—Tax Receivable Agreement” for more information regarding the terms of the Tax Receivable Agreement.

We will have broad discretion over the use of proceeds from this offering after repayment of the Kellwood Note Receivable, and such remaining proceeds will be limited. Additionally, drawings under our new term loan facility will also be used to help repay the Kellwood Note Receivable and we will have no availability under such facility after giving effect to such repayment.

Most of the net proceeds from this offering are being used, along with net borrowings under our new term loan facility, to repay the Kellwood Note Receivable that will be issued to Kellwood Company, LLC in connection with the IPO Restructuring Transactions. Kellwood Company, LLC will use proceeds from the repayment of the Kellwood Note Receivable to (i) repay or retire long-term indebtedness (including accrued and unpaid interest thereon and any related fees and expenses) that was incurred to fund the operation and growth of the Vince and non-Vince businesses, (ii) pay a restructuring fee equal to 1% of the aggregate of this offering and certain related debt repayment and the amount of the new Vince and Kellwood credit facilities to Sun Capital Management pursuant to the Management Services Agreement, as described in “Other Information Related to this Offering—Certain Relationships and Related Party Transactions of AHC—Management Fees,” and (iii) a debt recovery bonus of up to $6.0 million to our Chief Executive Officer, as described in “Additional Information Related to Vince—Vince Executive Compensation—Employment Agreements,” all after giving effect to the Additional Sun Capital Contribution. It is currently estimated that the restructuring fee described in clause (ii) above and payable to Sun Capital Management in connection with this offering will

 

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total $3.1 million. Most of the net proceeds from this offering, along with the net borrowings under our new term loan facility, are being used to repay the Kellwood Note Receivable. Kellwood Company, LLC will use the proceeds from such repayment to repay, discharge or repurchase debt incurred to acquire and operate the non-Vince businesses of Apparel Holding Corp. or to pay fees associated with the operation of such businesses, investors should expect that these proceeds will not directly benefit the Vince business or be used to fund its expansion or growth. Additionally, we will have broad discretion over the use of the net proceeds from this offering that are not used to repay the Kellwood Note Receivable. You will be relying on the judgment of our board of directors and management regarding the application of any such remaining proceeds. Finally, as drawings under our new term loan facility will be used to help repay the Kellwood Note Receivable (in an amount equal to the entire availability under such facility), no portion of such facility will available to support our future growth and operations and we may need to draw on our new revolving credit facility to fund such future growth and operations.

Anti-takeover provisions of Delaware law and our amended and restated certificate of incorporation and bylaws could delay and discourage takeover attempts that stockholders may consider to be favorable.

Our amended and restated certificate of incorporation and amended and restated bylaws will contain provisions that may make the acquisition of our company more difficult without the approval of our board of directors. These provisions include:

 

  Ÿ   the classification of our board of directors so that not all members of our board of directors are elected at one time;

 

  Ÿ   the authorization of the issuance of undesignated preferred stock, the terms of which may be established and the shares of which may be issued without stockholder approval, and which may include super voting, special approval, dividend, or other rights or preferences superior to the rights of the holders of common stock;

 

  Ÿ   stockholder action can only be taken at a special or regular meeting and not by written consent following the time that Sun Capital and its affiliates cease to beneficially own a majority of our common stock;

 

  Ÿ   advance notice procedures for nominating candidates to our board of directors or presenting matters at stockholder meetings;

 

  Ÿ   removal of directors only for cause following the time that Sun Capital and its affiliates cease to beneficially own a majority of our common stock;

 

  Ÿ   allowing Sun Cardinal to fill any vacancy on our board of directors for so long as affiliates of Sun Capital own 30% or more of our outstanding shares of common stock and thereafter, allowing only our board of directors to fill vacancies on our board of directors; and

 

  Ÿ   following the time that Sun Capital and its affiliates cease to beneficially own a majority of our common stock, super-majority voting requirements to amend our bylaws and certain provisions of our certificate of incorporation.

Our amended and restated certificate of incorporation will also contain a provision that provides us with protections similar to Section 203 of the Delaware General Corporation Law (“DGCL”), and will prevent us from engaging in a business combination, such as a merger, with a person or group who acquires at least 15% of our voting stock for a period of three years from the date such person became an interested stockholder, unless board or stockholder approval is obtained prior to acquisition. However, our amended and restated certificate of incorporation will also provide that both Sun Capital

 

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and its affiliates and any persons to whom a Sun Capital affiliate sells its common stock will be deemed to have been approved by our board of directors.

These anti-takeover provisions and other provisions under Delaware law could discourage, delay or prevent a transaction involving a change of control of our company, even if doing so would benefit our stockholders. These provisions could also discourage proxy contests and make it more difficult for you and other stockholders to elect directors of your choosing and to cause us to take other corporate actions you desire.

A total of 26,263,585, or 68.9%, of our total outstanding shares after the offering are restricted from immediate resale, but may be sold on the NYSE in the near future. The large number of shares eligible for public sale or subject to rights requiring us to register them for public sale could depress the market price of our common stock.

The market price of our common stock could decline significantly as a result of sales of a large number of shares of our common stock in the market after this offering. The sales, or the perception that these sales might occur, could depress the market price of our common stock. These sales, or the possibility that these sales may occur, also might make it more difficult for us to sell equity securities in the future at a time and at a price that we deem appropriate.

Upon consummation of this offering and after giving effect to the IPO Restructuring Transactions, we will have 36,263,585 shares of common stock outstanding. The shares of common stock offered in this offering will be freely tradable without restriction under the Securities Act, except for any shares of our common stock that may be held or acquired by our directors, executive officers and other affiliates, as that term is defined in the Securities Act, which will be restricted securities under the Securities Act. Restricted securities may not be sold in the public market unless the sale is required under the Securities Act or an exemption from registration is available. In addition, pursuant to our Registration Agreement, affiliates of Sun Capital have rights to require us to file registration statements registering additional sales of shares of common stock or to include sales of such shares of common stock in registration statements that we may file for ourselves. Subject to compliance with applicable lock-up restrictions and satisfaction of certain conditions, shares of common stock sold under these registration statements can be freely sold in the public market. In the event such registration rights are exercised and a large number of shares of common stock are sold in the public market, such sales could reduce the trading price of our common stock. These sales could also impede our ability to raise future capital. Additionally, we will bear all expenses in connection with any such registrations (other than underwriting discounts and commissions). See “Other Information Related to this Offering—Certain Relationships and Related Party Transactions of AHC—Registration Agreement.”

We and the holders of substantially all of our common stock outstanding on the date of this prospectus, including each of our executive officers and directors, have agreed with the underwriters, that for a period of 180 days after the date of this prospectus, we or they will not offer, sell, contract to sell, pledge, grant any option to purchase, make any short sale or otherwise dispose of or hedge any shares of our common stock, or any options or warrants to purchase any shares of our common stock or any securities convertible into or exchangeable for shares of common stock, subject to specified exceptions. The representatives of the underwriters may, in their discretion, at any time without prior notice, release all or any portion of the shares from the restrictions in any such agreement. See “Other Information Related to this Offering—Underwriting” for more information. Substantially all of our shares of common stock outstanding as of the date of this prospectus may be sold in the public market by existing stockholders 90 days after the date of this prospectus, subject to the lock-up agreements and applicable volume and other limitations imposed under federal securities laws. See “Other Information Related to this Offering—Shares Eligible for Future Sale” for a more detailed description of the restrictions on selling shares of our common stock after this offering. Sales by our existing stockholders

 

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of a substantial number of shares in the public market, or the perception that these sales might occur, could cause the market price of our common stock to decrease significantly.

 

Number of shares and % of total outstanding

 

Date Available for Sale into Public Market

10,000,000, or 27.6%

  Immediately after this offering

26,263,585, or 68.9%

  180 days after the date of this prospectus due to contractual obligations and lock-up agreements between the holders of these shares and the underwriters. However, the underwriters can waive the provisions of these lock-up agreements and allow these stockholders to sell their shares at any time

In the future, we may also issue our securities in connection with investments or acquisitions. The number of shares of our common stock issued in connection with an investment or acquisition could constitute a material portion of our then-outstanding shares of common stock. Any issuance of additional securities in connection with investments or acquisitions may result in additional dilution to you.

Any issuance of preferred stock could make it difficult for another company to acquire us or could otherwise adversely affect holders of our common stock, which could depress the price of our common stock.

Upon consummation of this offering, our board of directors will have the authority to issue preferred stock and to determine the preferences, limitations and relative rights of shares of preferred stock and to fix the number of shares constituting any series and the designation of such series, without any further vote or action by our stockholders. Our preferred stock could be issued with voting, liquidation, dividend and other rights superior to the rights of our common stock. The potential issuance of preferred stock may delay or prevent a change in control of us, discouraging bids for our common stock at a premium over the market price, and adversely affect the market price and the voting and other rights of the holders of our common stock.

We are an “emerging growth company” and may elect to comply with reduced public company reporting requirements, which could make our common stock less attractive to investors.

After giving effect to the IPO Restructuring Transactions, we will continue to be an “emerging growth company,” as defined by the JOBS Act. For as long as we continue to be an emerging growth company, we may choose to take advantage of exemptions from various public company reporting requirements. These exemptions include, but are not limited to, (i) not being required to comply with the auditor attestation requirements of Section 404 of the Sarbanes-Oxley Act, (ii) reduced disclosure obligations regarding executive compensation in our periodic reports, proxy statements and registration statements, and (iii) exemptions from the requirements of holding a nonbinding advisory vote on executive compensation and stockholder approval of any golden parachute payments not previously approved. We could be an emerging growth company for up to five years after the first sale of our common equity securities pursuant to an effective registration statement under the Securities Act, which such fifth anniversary will occur in 2018. However, if certain events occur prior to the end of such five-year period, including if we become a “large accelerated filer,” our annual gross revenues exceed $1.0 billion or we issue more than $1.0 billion of non-convertible debt in any three-year period, we would cease to be an emerging growth company prior to the end of such five-year period. We will become a large accelerated filer the year after we have an aggregate worldwide market value of the voting and non-voting common equity held by non-affiliates of $700 million or more. We have taken advantage of certain

 

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of the reduced disclosure obligations regarding executive compensation in this prospectus and may elect to take advantage of other reduced burdens in future filings. As a result, the information we provide to holders of our common stock may be different than you might receive from other public reporting companies in which you hold equity interests. We cannot predict if investors will find our common stock less attractive as a result of our reliance on these exemptions. If some investors find our common stock less attractive as a result of any choice we make to reduce disclosure, there may be a less active trading market for our common stock and the price for our common stock may be more volatile.

As an emerging growth company we will not be required to comply with the rules of the SEC implementing Section 404(b) of the Sarbanes-Oxley Act and therefore our independent registered public accounting firm is not required to formally attest to the effectiveness of our internal controls over financial reporting until the year following the year we cease to be an emerging growth company. Upon becoming a public company, we will be required to comply with the SEC’s rules implementing Section 302 and 404 other than 404(b) of the Sarbanes-Oxley Act. These rules will require management to certify financial and other information in our quarterly and annual reports and provide an annual management report on the effectiveness of controls over financial reporting. Though we will be required to disclose changes made in our internal controls and procedures on a quarterly basis, we will not be required to make our first annual assessment of our internal control over financial reporting pursuant to Section 404 until the year following the year our first annual report is required to be filed with the SEC. If we are unable to conclude that we have effective internal control over financial reporting, our independent registered public accounting firm is unable to provide us with an unqualified report as and when required by Section 404 or we are required to restate our financial statements, we may fail to meet our public reporting obligations and investors could lose confidence in our reported financial information, which could have a negative impact on the trading price of our stock.

Under the JOBS Act, emerging growth companies can delay adopting new or revised accounting standards until such time as those standards apply to private companies. However, we have irrevocably elected not to avail ourselves of this extended transition period for complying with new or revised accounting standards and, therefore, we will be subject to the same new or revised accounting standards as other public companies that are not emerging growth companies.

Our amended and restated certificate of incorporation will also provide that the Court of Chancery of the State of Delaware will be the sole and exclusive forum for substantially all disputes between us and our stockholders, which could limit our stockholders’ ability to obtain a favorable judicial forum for disputes with us or our directors, officers or employees.

Our amended and restated certificate of incorporation will provide that the Court of Chancery of the State of Delaware is, to the fullest extent permitted by applicable law, the sole and exclusive forum for any derivative action or proceeding brought on our behalf; any action asserting a breach of fiduciary duty; any action asserting a claim against us arising under the Delaware General Corporation Law, our amended and restated certificate of incorporation or our bylaws; or any action asserting a claim against us that is governed by the internal affairs doctrine. The choice of forum provision may limit a stockholder’s ability to bring a claim in a judicial forum that it finds favorable for disputes with us or our directors, officers or other employees, which may discourage such lawsuits against us and our directors, officers and other employees. Alternatively, if a court were to find the choice of forum provision contained in our amended and restated certificate of incorporation to be inapplicable or unenforceable in an action, we may incur additional costs associated with resolving such action in other jurisdictions, which could adversely affect our business and financial condition.

 

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SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS

Some of the statements contained in this prospectus constitute forward-looking statements, including in the sections captioned “Prospectus Summary,” “Risk Factors,” “Additional Information Related to AHC—AHC Business,” “Additional Information Related to AHC—Management’s Discussion and Analysis of Financial Condition and Results of Operations of AHC,” “Additional Information Related to Vince—Supplemental Management’s Discussion and Analysis of Financial Condition and Results of Operations of Vince, LLC” and “Additional Information Related to Vince—Vince Business,” Forward-looking statements relate to expectations, beliefs, projections, future plans and strategies, anticipated events or trends and similar expressions concerning matters that are not historical facts or present facts or conditions, such as statements regarding our future financial condition or results of operations, our prospects and strategies for future growth, the introduction of new merchandise, and the implementation of our marketing and branding strategies. In many cases, you can identify forward-looking statements by terms such as “may,” “will,” “should,” “expects,” “plans,” “anticipates,” “believes,” “estimates,” “predicts,” “potential” or the negative of these terms or other comparable terminology.

The forward-looking statements contained in this prospectus reflect our views as of the date of this prospectus about future events and are subject to risks, uncertainties, assumptions and changes in circumstances that may cause events or our actual activities or results to differ significantly from those expressed in any forward-looking statement. Although we believe that the expectations reflected in the forward-looking statements are reasonable, we cannot guarantee future events, results, actions, levels of activity, performance or achievements. A number of important factors could cause actual results to differ materially from those indicated by the forward-looking statements, including, but not limited to, those factors described in “Risk Factors,” “Additional Information Related to AHC—Management’s Discussion and Analysis of Financial Condition and Results of Operations of AHC” and “Additional Information Related to Vince—Supplemental Management’s Discussion and Analysis of Financial Condition and Results of Operations of Vince, LLC” These factors include without limitation:

 

  Ÿ   changes in consumer spending and general economic conditions;

 

  Ÿ   our ability to respond to market competition;

 

  Ÿ   our dependence on a strong brand image;

 

  Ÿ   our ability to maintain and expand our relationships with our significant wholesale partners;

 

  Ÿ   our ability to locate suitable locations to open new stores and to attract customers to our stores;

 

  Ÿ   our ability to maintain recent levels of comparable store sales or average sales per square foot;

 

  Ÿ   our ability to manage our operations at our current size or manage future growth effectively;

 

  Ÿ   our reliance on Kellwood to provide us with certain key services for our business;

 

  Ÿ   our ability to successfully improve and expand our product offerings;

 

  Ÿ   the success of our current and future licensing arrangements;

 

  Ÿ   our ability to successfully anticipate customer tastes;

 

  Ÿ   our ability to forecast customer demand for our products and deliver products to our stores and wholesale partners;

 

  Ÿ   our ability to successfully expand in the U.S. and other new markets;

 

  Ÿ   the ability of our senior management team to work together as a group;

 

  Ÿ   our ability to attract and retain the services of our senior management and key employees;

 

  Ÿ   our inability to protect our trademarks or other intellectual property rights;

 

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  Ÿ   the ability of our suppliers or manufacturers to produce or deliver our products in a timely or cost-effective manner;

 

  Ÿ   our reliance on foreign sourcing for our product offerings;

 

  Ÿ   our ability to respond to fluctuations in the price, availability and quality of raw materials;

 

  Ÿ   harm to our brand image due to the failure of our independent manufacturers to use ethical business practices;

 

  Ÿ   our ability to accurately anticipate and respond to seasonal or quarterly fluctuations in our operating results;

 

  Ÿ   risks associated with leasing retail space subject to long-term non-cancelable leases;

 

  Ÿ   changes in laws and regulations applicable to our business;

 

  Ÿ   system security risk issues that could disrupt our internal operations or information technology services;

 

  Ÿ   the success of our advertising, marketing and promotional strategies;

 

  Ÿ   our ability to source our merchandise profitably or at all;

 

  Ÿ   restrictions imposed by our indebtedness on our current and future operations;

 

  Ÿ   increased costs as a result of being a public company; and

 

  Ÿ   our failure to maintain adequate internal controls.

Readers are urged to consider these factors carefully in evaluating the forward-looking statements and are cautioned not to place undue reliance on these forward-looking statements. All of the forward-looking statements we have included in this prospectus are based on information available to us on the date of this prospectus. We undertake no obligation to publicly update or revise any forward-looking statement, whether as a result of new information, future events or otherwise, except as otherwise required by law.

 

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RESTRUCTURING TRANSACTIONS

Effective September 1, 2012, Kellwood Company, a wholly-owned subsidiary of Apparel Holding Corp., contributed the assets and liabilities constituting our business to Vince, LLC in the Vince Transfer. Affiliates of Sun Capital contributed, effective June 18, 2013, $407.5 million of indebtedness under the following instruments as a capital contribution to Apparel Holding Corp. in the Sun Capital Contribution: (i) that certain Loan Authorization Agreement, originally dated February 13, 2008 (the “Sun Capital Loan Agreement”), by and between Apparel Holding Corp. and certain Sun Capital affiliates for a $72.0 million line of credit, (ii) that certain $225,000,000 Senior Subordinated Promissory Note, dated May 2, 2008 (as amended, the “First Sun Promissory Note”), of Apparel Holding Corp. in favor of a certain Sun Capital affiliate and (iii) that certain $75,000,000 Senior Subordinated Promissory Note, dated as of May 2, 2008 (as amended on July 19, 2012, the “Second Sun Promissory Note” and collectively with the First Sun Promissory Note, the “Sun Promissory Notes”), of Apparel Holding Corp. in favor of a certain Sun Capital affiliate (such transactions in clauses (i)-(iii), the “Sun Capital Contribution”).

We have elected to complete the IPO Restructuring Transactions discussed in this section so that investors may invest in a stand-alone Vince business. In addition, the IPO Restructuring Transactions preserve the value of certain of AHC’s pre-offering tax attributes and allow the Pre-IPO Stockholders and Vince Holding Corp. to benefit from those pre-offering tax attributes after the consummation of this offering. We have elected to complete the IPO Restructuring Transactions immediately prior to the consummation of this offering to reduce the risk of incurring the costs and expenses related to the IPO Restructuring Transactions if the offering is not completed.

The chart below is a summary of Apparel Holding Corp.’s current structure prior to the consummation of this offering after giving effect to the Vince Transfer and the Sun Capital Contribution.

 

LOGO

 

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(1) Consists of the Sun Term Loan A Agreement and the Sun Term Loan B/C/D/E/F/G Agreement, as described below. A portion of the indebtedness under such agreements will be contributed by affiliates of Sun Capital to Apparel Holding Corp. in the Additional Sun Capital Contribution, which is a part of the IPO Restructuring Transactions.
(2) Vince, LLC is currently a borrower party or guarantor to the Wells Fargo Facility, the Cerberus Term Loan, the Sun Term Loan Agreements and the 12.875% Notes (each as defined below). Vince, LLC will be released from such obligations in connection with the repayment, discharge or refinancing, as applicable, by Kellwood Company, LLC of such obligations, which will happen contemporaneously with the consummation of this offering.

Immediately prior to consummation of this offering, the following IPO Restructuring Transactions will take place:

 

  Ÿ   affiliates of Sun Capital will contribute certain indebtedness under the Sun Term Loan Agreements as a capital contribution to Apparel Holding Corp., as part of the Additional Sun Capital Contribution;

 

  Ÿ   Apparel Holding Corp. will contribute such indebtedness to Kellwood Company as a capital contribution, at which time such indebtedness will be cancelled;

 

  Ÿ   Vince Intermediate Holding, LLC will be formed and become a direct subsidiary of Vince Holding Corp.;

 

  Ÿ   Kellwood Company, LLC (which is to be converted from Kellwood Company in connection with the IPO Restructuring Transactions) will be contributed to Vince Intermediate Holding, LLC;

 

  Ÿ   Apparel Holding Corp. and Vince Intermediate Holding, LLC will enter into the Transfer Agreement with Kellwood Company, LLC, as described in “Other Information Related to this Offering—Certain Relationships and Related Party Transactions of AHC—Transfer Agreement;”

 

  Ÿ   Kellwood Company, LLC will distribute 100% of Vince, LLC’s membership interests to Vince Intermediate Holding, LLC, who will issue the Kellwood Note Receivable to Kellwood Company, LLC. Proceeds from the repayment of the Kellwood Note Receivable will be used to, among other things, repay, discharge or repurchase indebtedness of Kellwood Company, LLC, as described in “Use of Proceeds.” Assuming net proceeds from this offering of $159 million and net borrowings of $169.5 million under our new term loan facility, the Kellwood Note Receivable will be issued in the amount of $323.5 million The final amount of the Kellwood Note Receivable will be adjusted to equal the actual net proceeds from this offering (less the $5.0 million of net offering proceeds to be retained by us for general corporate purposes) and net borrowings under our new term loan facility;

 

  Ÿ   Kellwood Holding, LLC will be formed by Vince Intermediate Holding, LLC and Vince Intermediate Holding, LLC will, through a series of steps, contribute 100% of the membership interests of Kellwood Company, LLC to Kellwood Intermediate Holding, LLC (which will be formed as a wholly-owned subsidiary of Kellwood Holding, LLC);

 

  Ÿ   100% of the membership interests of Kellwood Holding, LLC will be distributed to the Pre-IPO Stockholders; and

 

  Ÿ   Vince Holding Corp. will enter into the Tax Receivable Agreement with the Pre-IPO Stockholders, as described in “Other Information Related to this Offering—Certain Relationships and Related Party Transactions of AHC—Tax Receivable Agreement;”

 

  Ÿ   Vince, LLC will enter into the Shared Services Agreement with Kellwood Company, LLC, as described in “Other Information Related to this Offering—Certain Relationships and Related Party Transactions of AHC—Shared Services Agreement;” and

 

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  Ÿ   the conversion of all of our issued and outstanding non-voting common stock into common stock on a one-for-one basis and the subsequent stock split of our common stock on a 28.5177 for one basis, at which time Apparel Holding Corp. will become Vince Holding Corp.

As a result of the IPO Restructuring Transactions, the non-Vince businesses will be separated from the Vince business, the Pre-IPO Stockholders (through their ownership of Kellwood Holding, LLC) will retain the ownership and control of the non-Vince businesses and a stand-alone Vince business will remain. We refer to the Vince Transfer, the Sun Capital Contribution and the IPO Restructuring Transactions collectively as the “Restructuring Transactions.”

Immediately after the consummation of this offering and as described below, Vince Holding Corp. will contribute the net proceeds from this offering to Vince Intermediate Holding, LLC. Vince Intermediate Holding, LLC will use such proceeds, less $5.0 million to be retained for general corporate purposes, and approximately $169.5 million of net borrowings under its new term loan facility (as described in “Additional Information Related to Vince—Description of Certain Indebtedness of Vince, LLC”) to immediately repay the Kellwood Note Receivable. There will be no outstanding balance on the Kellwood Note Receivable after giving effect to such repayment. Proceeds from the repayment of the Kellwood Note Receivable will be used to (i) repay, discharge or repurchase indebtedness of Kellwood Company, LLC in connection with the closing of this offering (including $9.1 million of accrued and unpaid interest on such indebtedness, assuming that this offering closes on November 27, 2013) and (ii) pay (A) the restructuring fee payable to Sun Capital Management and (B) the debt recovery bonus payable to our Chief Executive Officer, all after giving effect to the Additional Sun Capital Contribution. The Kellwood Note Receivable will not include amounts outstanding under the Wells Fargo Facility. As discussed in “Additional Information Related to AHC—Description of Certain Indebtedness of AHC,” Kellwood Company, LLC will refinance the Wells Fargo Facility in connection with the consummation of this offering. Neither Apparel Holding Corp. nor Vince, LLC will guarantee or be a borrower party to the refinanced credit facility.

Kellwood Company, LLC (currently known as Kellwood Company) will use the proceeds from the repayment of the Kellwood Note Receivable to, after giving effect to the Additional Sun Capital Contribution, (i) repay, at closing, all indebtedness outstanding under (A) the term loan with Cerberus Business Finance, LLC (the “Cerberus Term Loan”), which had an outstanding balance of $45.7 million as of August 3, 2013, (B) that certain Fifth Amended and Restated B/C/D/E/F/G Loan Agreement (the “Sun Term Loan B/C/D/E/F/G Agreement”) between Kellwood Company and certain Sun Capital affiliates and (C) that certain Second Amended and Restated Sun Term Loan A Agreement (the “Sun Term Loan A Agreement” and collectively with the Sun Term Loan B/C/D/E/F/G Agreement, the “Sun Term Loan Agreements”) between Kellwood Company and certain Sun Capital affiliates, and which Sun Term Loan Agreements collectively totaled $118.0 million in the aggregate as of August 3, 2013, (ii) redeem at par all of the 12.875% Notes, which totaled $146.8 million as of August 3, 2013, pursuant to an unconditional redemption notice to be issued at the closing of this offering, plus, with respect to clauses (i) and (ii), fees, expenses and accrued and unpaid interest thereon, (iii) pay a restructuring fee equal to 1% of the aggregate of the offering and certain related debt repayment and the amount of the new Vince and Kellwood credit facilities to Sun Capital Management pursuant to the Management Services Agreement and (iv) pay a debt recovery bonus of up to $6.0 million to our Chief Executive Officer, as described in “Additional Information Related to Vince—Vince Executive Compensation—Employment Agreements.” It is currently estimated that the restructuring fee described in clause (iii) above and payable to Sun Capital Management in connection with this offering will total $3.1 million.

In addition, Kellwood Company will conduct a tender offer for all of its outstanding 7.625% Notes, which totaled $87.0 million in aggregate principal amount as of August 3, 2013, at par plus accrued and unpaid interest thereon, using proceeds from the repayment of the Kellwood Note Receivable. The tender offer will close at or after the closing of this offering. Kellwood Company, LLC may also, at or

 

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after the closing of this offering, use proceeds remaining from the repayment of the Kellwood Note Receivable to discharge or repurchase at par all or any of its 3.5% Convertible Notes, which totaled $0.2 million in aggregate principal amount as of August 3, 2013, plus accrued and unpaid interest thereon. Neither Apparel Holding Corp. nor Vince, LLC is a guarantor or obligor of either the 7.625% Notes or the 3.5% Convertible Notes.

If the tender offer for the 7.625% Notes is not completed contemporaneously with the closing of this offering, Kellwood Company, LLC shall enter into an escrow agreement with Vince Intermediate Holding, LLC and US Bank, National Association (the “Escrow Agent”) at the closing of this offering, pursuant to which Kellwood Company, LLC will escrow an amount necessary to purchase the 7.625% Notes which may be tendered in the tender offer at the closing of the tender offer until the termination of the related escrow agreement. If the tender offer is completed contemporaneously with the consummation of this offering, we will not enter into the escrow agreement. No interest will accrue on the funds placed into escrow with the Escrow Agent and both Vince Intermediate Holding, LLC and Kellwood Company, LLC must consent to any distributions from the escrow account in accordance with the terms of the Escrow Agreement. The escrow agreement will automatically terminate upon the earlier of (i) the closing of the tender offer for the 7.625% Notes and (ii) the three-month anniversary of the closing of this offering. Amounts in escrow shall be held for the benefit of Kellwood Company, LLC and not for the benefit of any holders of the 7.625% Notes. Kellwood Company, LLC will retain amounts remaining in the escrow account, if any, after consummation of the tender offer.

In addition, Kellwood Company, LLC will, immediately after the consummation of this offering, refinance the Wells Fargo Facility, to among other things, remove Vince, LLC as an obligor thereunder. See “Use of Proceeds” and “Other Information Related to this Offering—Certain Relationships and Related Party Transactions of AHC” for additional information. As of August 3, 2013, the Wells Fargo Facility had an outstanding balance of $115.6 million.

After completion of these various transactions (including the Additional Sun Capital Contribution) and payments and application of the net proceeds from the repayment of the Kellwood Note Receivable, Vince, LLC’s obligations under the Wells Fargo Facility, the Cerberus Term Loan, the Sun Term Loan Agreements and the 12.875% Notes will be terminated or discharged. Neither Apparel Holding Corp. nor Vince, LLC is a guarantor or obligor of the 7.625% Notes or the 3.5% Convertible Notes. Thereafter, Vince Holding Corp., and by extension the investors in this offering, will not be responsible for the obligations described above and the only outstanding obligations of Vince Holding Corp. and its subsidiaries immediately after the consummation of this offering will be the $175 million outstanding under its new term loan facility.

While the execution of the IPO Restructuring Transactions is a technical default under the agreements or instruments governing the Cerberus Term Loan, the Sun Term Loan Agreements and the indenture governing the 12.875% Notes, because we believe that the concurrent repayment or discharge of those obligations satisfies any such default, we do not believe any consent of the lenders or noteholders under the related agreements or instruments is necessary and accordingly we do not intend to seek any such consent. We could nevertheless be subject to claims from Kellwood Company’s creditors as a result of such technical defaults and these claims may force us to engage in costly litigation. If such claims are successful and indemnity if unavailable from Kellwood Company, LLC (pursuant to the Transfer Agreement or otherwise), our financial condition and results of operations may be harmed. See “Risk Factors—Risks Related to the Restructuring Transactions—Third parties may seek to hold us responsible for liabilities related to the non-Vince businesses that we will retain in the IPO Restructuring Transactions or for liabilities associated with the Vince assets not yet transferred to us.”

 

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The chart below is a summary of our corporate structure and that of the assets constituting the non-Vince businesses upon consummation of this offering, assuming the underwriters do not exercise their option to purchase additional shares from the selling stockholders.

 

LOGO

 

(1) The Kellwood Note Receivable will be repaid immediately after the closing of this offering with most of the net proceeds from this offering, along with the net borrowings under our new term loan facility. See “Use of Proceeds.”

 

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USE OF PROCEEDS

We estimate that we will receive net proceeds from the sale of shares of our common stock in this offering of approximately $159 million, assuming an initial public offering price of $18.00 per share, which is the midpoint of the range set forth on the cover page of this prospectus, and after deducting estimated underwriting discounts and commissions and estimated offering expenses payable by us. If the underwriters exercise their option to purchase additional shares of our common stock from the selling stockholders, we will not receive any proceeds from the sale of any such shares.

We intend to retain approximately $5.0 million of the net proceeds from this offering for general corporate purposes. We intend to use the remaining $154 million of net proceeds from this offering, together with net borrowings of $169.5 million under our new term loan facility, to repay the Kellwood Note Receivable, which would then total $323.5 million. The final amount of the Kellwood Note Receivable will be adjusted to equal the actual net proceeds from this offering (less the $5.0 million of net offering proceeds to be retained by us for general corporate purposes) and net borrowings under our new term loan facility.

As discussed in “Restructuring Transactions” immediately prior to consummation of this offering, Vince Intermediate Holding, LLC will issue the Kellwood Note Receivable to Kellwood Company, LLC in connection with Vince Intermediate Holding, LLC’s acquisition of Vince, LLC. Proceeds from the repayment of the Kellwood Note Receivable will be used to (i) repay, discharge or repurchase certain indebtedness of Kellwood Company, LLC and (ii) pay (A) the restructuring fee payable to Sun Capital Management and (B) the debt recovery bonus payable to our Chief Executive Officer, all after giving effect to the Additional Sun Capital Contribution. The Kellwood Note Receivable will not include amounts outstanding under the Wells Fargo Facility. As discussed in “Additional Information Related to AHC—Description of Certain Indebtedness of AHC,” Kellwood will refinance the Wells Fargo Facility in connection with the consummation of this offering. Neither Apparel Holding Corp. nor Vince, LLC will guarantee or be a borrower party to the refinanced credit facility. It will not bear interest and will be due the date of its issuance. Vince Holding Corp. will contribute all of the net proceeds from this offering to Vince Intermediate Holding, LLC immediately after the consummation of this offering. Vince Intermediate Holding, LLC will use such proceeds (less $5 million which will be retained for general corporate purposes) and approximately $169.5 million of net borrowings under its new term loan facility to immediately repay the Kellwood Note Receivable. There will be no outstanding balance on the Kellwood Note Receivable after giving effect to such repayment.

As described in the table below, Kellwood Company, LLC will use the proceeds from the repayment of the Kellwood Note Receivable to, after giving effect to the Additional Sun Capital Contribution, (i) repay, at closing, all indebtedness outstanding under (A) the Cerberus Term Loan, which had an outstanding balance of $45.7 million as of August 3, 2013 and (B) the Sun Term Loan Agreements, which collectively totaled $118.0 million in the aggregate as of August 3, 2013, (ii) redeem at par all of the outstanding 12.875% Notes, which totaled $146.8 million as of August 3, 2013, pursuant to an unconditional redemption notice to be issued at the closing of this offering, plus, with respect to clauses (i) and (ii), fees, expenses and accrued and unpaid interest thereon, (iii) pay a restructuring fee equal to the aggregate of 1% of the offering and certain related debt repayment and the amount of the new Vince and Kellwood credit facilities to Sun Capital Management pursuant to the Management Services Agreement and (iv) pay a debt recovery bonus of up to $6.0 million to our Chief Executive Officer. It is currently estimated that the restructuring fee described in clause (iii) above and payable to Sun Capital Management in connection with this offering will total $3.1 million.

 

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In addition, Kellwood Company will conduct a tender offer for all of its outstanding 7.625% Notes, which totaled $87.0 million in aggregate principal amount as of August 3, 2013, at par plus accrued and unpaid interest thereon, using proceeds from the repayment of the Kellwood Note Receivable. The tender offer will close at or after the closing of this offering. Kellwood Company, LLC may also, at or after the closing of this offering, use proceeds remaining from the repayment of the Kellwood Note Receivable to discharge or repurchase at par all or any of its 3.5% Convertible Notes, which totaled $0.2 million in aggregate principal amount as of August 3, 2013, plus accrued and unpaid interest thereon. Neither Apparel Holding Corp. nor Vince, LLC is a guarantor or obligor of either the 7.625% Notes or the 3.5% Convertible Notes.

If the tender offer for the 7.625% Notes is not completed contemporaneously with the closing of this offering, Kellwood Company, LLC shall enter into an escrow agreement with Vince Intermediate Holding, LLC and the Escrow Agent at the closing of this offering, pursuant to which Kellwood Company, LLC will escrow an amount necessary to purchase the 7.625% Notes which may be tendered in the tender offer at the closing of the tender offer until the termination of the related escrow agreement. If the tender offer is completed contemporaneously with the consummation of this offering, we will not enter into the escrow agreement. No interest will accrue on the funds placed into escrow with the Escrow Agent and both Vince Intermediate Holding, LLC and Kellwood Company, LLC must consent to any distributions from the escrow account in accordance with the terms of the Transfer Agreement. The escrow agreement will automatically terminate upon the earlier of (i) the closing of the tender offer for the 7.625% Notes and (ii) the three-month anniversary of the closing of this offering. Amounts in escrow shall be held for the benefit of Kellwood Company, LLC and not for the benefit of any holders of the 7.625% Notes. Kellwood Company, LLC will retain amounts remaining in the escrow account, if any, after consummation of the tender offer.

The following table sets forth the uses from the repayment of the Kellwood Note Receivable, which we currently estimate will total $323.5 million, after giving effect to the estimated $87.9 million Additional Sun Capital Contribution. The final amount of the Kellwood Note Receivable will be adjusted to equal the actual net proceeds from this offering (less the $5.0 million of net offering proceeds to be retained by us for general corporate purposes) and net borrowings under our new term loan facility. The final amount of the Additional Sun Capital Contribution will be adjusted to fill any gap between the final amount of the Kellwood Note Receivable and the amount of all payments to be made and indebtedness to be repaid, repurchased or redeemed at or after closing in connection with this offering (including all accrued and unpaid interest thereon and all fees and expenses related thereto).

 

Use

  

Amount

Repayment of Cerberus Term Loan

   $45.7 million(1)

Repayment of Sun Term Loan Agreements

   $118 million(1)

Redemption of the 12.875% Notes

   $147.6 million(1)

Repurchase or refinancing of the 7.625% Notes

   $90.8 million(1)(2)(3)

Repurchase of the 3.5% Convertible Notes

   $0.2 million(1)(2)                                  

Restructuring fee payable to Sun Capital Management

   $3.1 million

Debt recovery bonus payable to our Chief Executive Officer

   $6.0 million

 

(1) Amount includes estimated fees and expenses and accrued and unpaid interest as of August 3, 2013.
(2) Amount includes estimated fees and expenses and accrued and unpaid interest as of August 3, 2013.
(3) An amount sufficient to repurchase the 7.625% Notes which may be tendered in the tender offer at the closing of the tender offer will be placed into escrow with the Escrow Agent, in accordance with the terms of the related escrow agreement and for the period described above.

 

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After consummation of the IPO Restructuring Transactions and this offering, neither Vince Holding Corp. nor any subsidiary thereof (including Vince, LLC) will have any obligations under any of the following agreements or instruments, which are to be repaid, repurchased or discharged by Kellwood Company, LLC using proceeds from the repayment of the Kellwood Note Receivable:

 

  Ÿ   Cerberus Term Loan.    The Cerberus Term Loan terminates upon the earliest to occur of (i) October 19, 2015, (ii) the date on which the Wells Fargo Facility has been paid in full and all commitments thereunder have been terminated, (iii) 60 days prior to the scheduled December 31, 2014 maturity date of the 12.875% Notes (including any extensions thereof agreed to after October 19, 2011) and (iv) the date on which the loans under the Sun Term Loan Agreements are accelerated. All borrowings under the Cerberus Term Loan bear interest at a rate per annum equal to the applicable margin (which ranges from 10.75% to 11.25% per annum for LIBOR rate loans, based on leverage and income tests contained therein, plus, at the borrowers’ election, LIBOR or an applicable reference rate).

 

  Ÿ   Sun Term Loan Agreements.    The Sun Term Loan Agreements terminate upon the earliest to occur of (i) January 19, 2017 and (ii) the scheduled maturity of the Cerberus Term Loan (unless such maturity has been extended, in which case the maturity set forth in clause (i) shall be extended by the same amount of time). All borrowings under the Sun Term Loan A Agreement and the Term B Loan, Term C Loan and Term D Loan under the Sun Term Loan B/C/D/E/F/G Agreement bear interest at a rate equal to 10% per annum. All borrowings under the Term E Loan, Term F Loan and Term G Loan under the Sun Term Loan B/C/D/E/F/G Agreement bear interest at a rate equal to 12% per annum. The Term G Loan was entered into on June 28, 2013 and there are currently no amounts outstanding under the Term G Loan. The Term G Loan was entered into to fund working capital, capital expenditures and other general corporate purposes of the Company.

 

  Ÿ   12.875% Notes.    The 12.875% Notes are scheduled to mature on December 31, 2014. Interest on such notes is paid (i) in cash, at a rate of 7.875% per annum, payable in January and July and (ii) in the form of PIK interest at a rate of 5% per annum.

Additionally, in connection with the consummation of this offering and the payment of a restructuring fee equal to the aggregate of 1% of this offering and certain related debt repayment and the amount of the new Vince and Kellwood credit facilities to Sun Capital Management from proceeds from the repayment of the Kellwood Note Receivable, the Management Services Agreement will be terminated, as will Vince, LLC’s guarantee of obligations thereunder. It is currently estimated that this restructuring fee will total $3.1 million. Additionally, Kellwood Company, LLC will use proceeds from the repayment of the Kellwood Note Receivable to pay a debt recovery bonus of up to $6.0 million to our Chief Executive Officer immediately after the consummation of this offering.

All of the indebtedness under the facilities or agreements described above was incurred to fund the operation and growth of the Vince and non-Vince businesses, including to finance certain acquisitions made by AHC since 2008. See “Risk Factors—Risks Related to this Offering and Our Common Stock—We will have broad discretion over the use of proceeds from this offering after repayment of the Kellwood Note Receivable, and such remaining proceeds will be limited. Additionally, drawings under our new term loan facility will also be used to help repay the Kellwood Note Receivable and we will have no availability under such facility after giving effect to such repayment.”

A $1.00 increase or decrease in the assumed initial public offering price of $18.00 per share would increase or decrease, respectively, the net proceeds to us from this offering by approximately $9.3 million, assuming the number of shares offered by us, as set forth on the cover page of this prospectus, remains the same and after deducting estimated underwriting discounts and commissions and estimated offering expenses payable by us. Any such increase or decrease would increase or decrease the amount of the Kellwood Note Receivable by $9.3 million for each dollar change.

 

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DIVIDEND POLICY OF AHC

We currently intend to retain all available funds and any future earnings to fund the development and growth of our business and to repay indebtedness, therefore we do not anticipate paying any cash dividends in the foreseeable future. Additionally, because we are a holding company, our ability to pay dividends on our common stock will be limited by restrictions on the ability of our subsidiaries to pay dividends or make distributions to us, including restrictions under the terms of the agreements governing our new revolving credit facility or new term loan facility. See “Additional Information Related to Vince—Description of Certain Indebtedness of Vince, LLC.” Any future determination to pay dividends will be at the discretion of our board of directors, subject to compliance with covenants in current and future agreements governing our indebtedness, and will depend upon our results of operations, financial condition, capital requirements, general business conditions, expansion plans and other factors that our board of directors may deem relevant.

 

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CAPITALIZATION OF AHC

The following table sets forth our cash and cash equivalents, short-term borrowings and capitalization as of August 3, 2013 on:

 

  Ÿ   an actual basis;

 

  Ÿ   on a pro forma basis to give effect to the IPO Restructuring Transactions (including the Additional Sun Capital Contribution and the conversion of all of our issued and outstanding non-voting common stock on a one-for-one basis), and

 

  Ÿ   on a pro forma, as adjusted basis to further reflect (i) our receipt of the estimated net proceeds from the sale of 10,000,000 shares of common stock by us in this offering at an assumed initial public offering price of $18.00 per share, the midpoint of the range appearing on the cover page of this prospectus, after deducting the assumed underwriting discount and commissions payable by us and our estimated fees and expenses; and (ii) our use of these proceeds and the incurrence of approximately $175 million of borrowings under our new term loan facility, as described in “Use of Proceeds,” including repayment of the Kellwood Note Receivable.

You should read this table together with the sections entitled “Use of Proceeds,” “Additional Information Related to Vince—Supplemental Selected Historical Financial Data of Vince, LLC” and the notes thereto and “Additional Information Related to Vince—Supplemental Management’s Discussion and Analysis of Financial Condition and Results of Operations of Vince, LLC” included elsewhere in this prospectus.

 

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    August 3, 2013  
    Actual     Pro Forma     Pro Forma,
As Adjusted
 
(In thousands)                  
    (unaudited)     (unaudited)     (unaudited)  

Cash and restricted cash:

     

Cash and cash equivalents

  $ 2,178      $ 325      $ 5,325   
 

 

 

   

 

 

   

 

 

 

Short-term borrowings:

     

Wells Fargo Facility(1)(2)

  $ 115,601      $      $   

Kellwood Note Receivable(3)

           323,500          
 

 

 

   

 

 

   

 

 

 

Long-term debt:

     

New Vince revolving credit facility

  $      $      $   

New Vince term loan facility

                  175,000   

Cerberus Term Loan(2)

    45,660                 

12.875% Notes(2)

    143,962                 

7.625% Notes

    78,991                 

3.5% Convertible Notes

    214                 

Sun Term Loan Agreements(2)

    118,015                 
 

 

 

   

 

 

   

 

 

 

Total long-term debt

    386,842               175,000   

Stockholders’ (Deficit) Equity:

     

Preferred Stock, $0.001 par value per share actual, $0.01 par value per share pro forma and pro forma, as adjusted; 100,000 shares authorized actual, 10,000,000 shares authorized pro forma and pro forma, as adjusted; no shares issued and outstanding actual, pro forma and pro forma, as adjusted

                    

Non-Voting Common Stock, $0.001 par value per share actual; 1,700,000 shares authorized actual, no shares authorized pro forma and pro forma, as adjusted; 193 shares issued and outstanding actual, no shares issued or outstanding, pro forma and pro forma, as adjusted

                    

Common Stock, $0.001 par value per share actual, $0.01 par value per share pro forma and pro forma, as adjusted; 1,200,000 shares authorized actual, 100,000,000 shares authorized pro forma and pro forma, as adjusted; 919,118 shares issued and outstanding actual, 26,216,635 shares issued and outstanding pro forma and 36,216,635 shares issued and outstanding pro forma, as adjusted

  $ 1      $ 262      $ 362   

Additional paid in capital

    794,528        831,533        990,433   

Accumulated deficit

    (973,523     (973,523     (973,523

Accumulated other comprehensive loss

    (108     (108     (108
 

 

 

   

 

 

   

 

 

 

Total stockholders’ (deficit) equity

    (179,102     (141,836     17,164   
 

 

 

   

 

 

   

 

 

 

Total capitalization

  $ (565,944   $ (141,836   $ (157,836
 

 

 

   

 

 

   

 

 

 

 

(1) Includes $12.6 million of outstanding letters of credit. Kellwood Company, LLC will refinance the Wells Fargo Facility in connection with this offering. See “Use of Proceeds” and “Restructuring Transactions.”
(2) Vince, LLC is a borrower party or guarantor under the agreements governing the Wells Fargo Facility, the Cerberus Term Loan, the Sun Term Loan Agreements and the 12.875% Notes. Vince, LLC’s obligations under all of the above, other than with respect to the Wells Fargo Facility, which will be refinanced by Kellwood Company, LLC in connection with this offering as described in footnote (1) above, will be terminated or discharged in connection with the repayment of such indebtedness with net proceeds from this offering and borrowings under our new term loan facility, as described in “Use of Proceeds,” after giving effect to the Additional Sun Capital Contribution.
(3) As a result of the IPO Restructuring Transactions, Vince Intermediate Holding, LLC will acquire Vince, LLC from Kellwood Company, LLC in exchange for the Kellwood Note Receivable. The net proceeds from this offering (after giving effect to underwriting discounts, fees and expenses related to this offering and $5.0 million of proceeds to be retained by us), along with $169.5 million of net indebtedness under our new term loan facility, will be used to repay the Kellwood Note Receivable. Proceeds from the repayment of the Kellwood Note Receivable will be used to (i) repay, discharge or repurchase indebtedness of Kellwood Company, LLC (including accrued and unpaid interest and any related fees and expenses) in connection with the consummation of this offering and (ii) pay (A) a restructuring fee equal to 1% of the aggregate of this offering and certain related debt repayment and the amount of the new Vince and Kellwood credit facilities to Sun Capital Management pursuant to the Management Services Agreement, as described in “Other Information Related to this Offering—Certain Relationships and Related Party Transactions of AHC—Management Fees,” and (B) a debt recovery bonus of up to $6.0 million to our Chief Executive Officer, as described in “Additional Information Related to Vince—Vince Executive Compensation—Employment Agreements,” all after giving effect to the Additional Sun Capital Contribution. It is currently estimated that the restructuring fee described in clause (ii) above and payable to Sun Capital Management in connection with this offering will total $3.1 million.

 

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The number of pro forma, as adjusted shares of common stock shown as issued and outstanding as of October 15, 2013 excludes:

 

  Ÿ   99,812 shares of our common stock issuable upon the exercise of options that we intend to grant under the Vince 2013 Incentive Plan, as described in “Additional Information Related to Vince—Vince Executive Compensation —Employee Stock Plans—Vince 2013 Incentive Plan,” to our Chief Financial Officer with an exercise price equal to the public offering price set forth on the cover of this prospectus in connection with the consummation of this offering;

 

  Ÿ   up to approximately 260,000 shares of our common stock issuable upon the exercise of options that we intend to grant under the Vince 2013 Incentive Plan to certain of our employees (excluding our named executive officers) with an exercise price equal to the public offering price set forth on the cover of this prospectus in connection with the consummation of this offering;

 

  Ÿ   approximately 2,208,290 shares of our common stock issuable upon the exercise of options that were issued to Vince employees and a former AHC executive under the 2010 Option Plan, after giving effect to the IPO Restructuring Transactions (including the related stock split) and Apparel Holding Corp.’s assumption of Kellwood Company’s remaining obligations under the 2010 Option Plan. Affiliates of Sun Capital have the right to acquire the 262,112 shares of stock issuable upon the exercise of options previously granted to such former AHC executive and to exercise those options upon the closing of this offering, or the options themselves. See note (5) to “Additional Information Related to AHC—AHC Executive Compensation—Outstanding Equity Awards at Fiscal 2012 Year-End” for additional information regarding such options and the related purchase right held by affiliates of Sun Capital. The exact number of options to be so issued to each employee shall be calculated by dividing the aggregate spread value of such employee’s options (determined as the difference between the exercise price and the public offering price set forth on the cover of this prospectus, multiplied by the aggregate number of vested options held by such employee) by this public offering price. Assuming a public offering price equal to the midpoint of the initial public offering price range indicated on the cover of this prospectus, these options would have a weighted average exercise price of $5.38 per share. See “Additional Information Related to AHC—AHC Executive Compensation—Employee Stock Plans—2010 Option Plan”. for a description of the impact of a $1.00 increase or $1.00 decrease to the assumed initial public offering price of $18.00 per share on the adjusted exercise prices and the number of adjusted options;

 

  Ÿ   up to approximately 204,447 shares of our common stock which are to be issued to non-Vince employees, in exchange for their vested Kellwood Company stock options previously issued under the 2010 Option Plan (as such options are adjusted to give effect to the IPO Restructuring Transactions, including the related stock split). The exact number of shares to be so issued to each employee shall be calculated by dividing the aggregate spread value of such employee’s vested options (determined as the difference between the exercise price and the public offering price set forth on the cover of this prospectus) by this public offering price See “Additional Information Related to AHC—AHC Executive Compensation—Employee Stock Plans—2010 Option Plan”. for a description of the impact of a $1.00 increase or $1.00 decrease to the assumed initial public offering price of $18.00 per share on the number of shares of our common stock to be issued to such non-Vince employees;

 

  Ÿ   8,333 restricted stock units, representing the right, at the option of the company, to deliver 8,333 shares of our common stock or an equivalent cash amount, that we intend to grant to our non-employee directors in the aggregate in connection with the consummation of this offering (assuming the midpoint of the initial public offering price range indicated on the cover of this prospectus);

 

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  Ÿ   approximately 3,000,000 shares of our common stock that will be reserved and available for future issuance under our Vince 2013 Incentive Plan, after giving effect to the option and restricted stock grants described above, to certain of our employees (including our Chief Financial Officer) at or after the consummation of this offering; and

 

  Ÿ   1,000,000 shares of our common stock reserved for future issuance under the Vince ESPP which we plan to adopt in connection with this offering (as described in “Additional Information Related to Vince—Vince Executive Compensation—Employee Stock Plans—Employee Stock Purchase Plan”).

The number of pro forma, as adjusted shares of our common stock shown as issued and outstanding excludes 1,838 shares of our non-voting common stock issued to a former AHC executive in October 2013. Such shares shall be converted into 52,422 shares of our common stock in the IPO Restructuring Transactions (assuming the midpoint of the initial public offering price range indicated on the cover of this prospectus).

A $1.00 increase or decrease in the assumed initial public offering price of $18.00 per share, which is the midpoint of the range set forth on the cover of this prospectus, would increase or decrease the amount of the Kellwood Note Receivable by $9.3 million for each dollar change, assuming the number of shares offered by us, as set forth on the cover of this prospectus, remains the same, after deducting the estimated underwriting discounts and commissions an estimated offering expenses payable by us.

 

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DILUTION

If you invest in our common stock in this offering, you will experience immediate and substantial dilution in the pro forma net tangible book value of your shares of our common stock. The pro forma net tangible book value (deficit) of our common stock as of August 3, 2013 was $(316.1) million, or approximately $(12.04) per share. Pro forma net tangible book value per share represents the amount of total pro forma tangible assets reduced by the amount of our total pro forma liabilities divided by the pro forma number of shares of common stock that would have been outstanding on August 3, 2013, prior to the sale of 10,000,000 shares of our common stock in this offering. Pro forma net tangible book value as of August 3, 2013 gives pro forma effect to the IPO Restructuring Transactions (including (i) the conversion of all of our issued and outstanding non-voting common stock into common stock on a one-for-one basis; and (ii) the subsequent stock split of our common stock on a 28.5177 for one basis).

On February 12, 2008, affiliates of Sun Capital acquired Kellwood Company for aggregate consideration of $955.4 million, including the assumption of our debt (or approximately $36.38 per pro forma share, as compared to the initial public offering price of $18.00 per share based on the midpoint of the range set forth on the cover page of this prospectus).

Dilution to new investors in pro forma net tangible book value per share represents the difference between the amount per share paid by new investors purchasing shares of common stock in this offering and the pro forma net tangible book value per share of our common stock immediately after the consummation of this offering. After giving effect to the sale of shares of our common stock in this offering based upon an assumed initial public offering price of $18.00, the midpoint of the range set forth on the cover of this prospectus, and after deducting estimated underwriting discounts and commissions and estimated offering expenses payable by us, the Sun Capital Contribution and IPO Restructuring Transactions and the application of the estimated net proceeds therefrom (including the repayment of the Kellwood Note Receivable), our pro forma, as adjusted net tangible book value as of August 3, 2013 would have been $(162.6) million, or $(4.48) per share. This represents an immediate increase in pro forma net tangible book value of $7.55 per share to the Pre-IPO Stockholders and an immediate dilution of $22.48 per share to new investors purchasing shares of common stock in this offering at the initial public offering price. The following table illustrates this per share dilution:

 

Assumed initial public offering price per share

     $ 18.00   
    

 

 

 

Pro forma net tangible book value per share as of August 3, 2013 (before giving effect to this offering)

   $ (12.04  

Increase in pro forma net tangible book value per share attributable to new investors in this offering

     7.55     
  

 

 

   

Pro forma, as adjusted net tangible book value per share as of August 3, 2013 (after giving effect to this offering)

       (4.48
    

 

 

 

Dilution per share to new investors

     $ 22.48   
    

 

 

 

A $1.00 increase or decrease in the assumed initial public offering price of $18.00 per share, the midpoint of the range set forth on the cover of this prospectus, would increase or decrease the amount of the Kellwood Note Receivable by $9.3 million for each dollar change but would not otherwise impact our pro forma net tangible book value of this offering, our pro forma net tangible book value per share after this offering or the dilution in pro forma net tangible book value to new investors in this offering (assuming the number of shares set forth on the cover of this preliminary prospectus remains the same and after deducting the assumed underwriting discounts and commissions payable by us).

The following table sets forth, on a pro forma basis as adjusted as of August 3, 2013, after giving effect to the IPO Restructuring Transactions as described in “Restructuring Transactions” included

 

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elsewhere in this prospectus and the sale of 10,000,000 shares of our common stock in this offering, the total number of shares of common stock purchased from us, the total consideration paid to us and the average price per share paid to us by the Pre-IPO Stockholders and by new investors who purchase shares of common stock in this offering, before deducting the estimated underwriting discounts and commissions and estimated offering expenses payable by us, assuming an initial public offering price of $18.00 per share:

 

     Shares Purchased     Total Consideration     Average Price
Per Share
 
     Number      Percent     Amount      Percent    

Pre-IPO Stockholders

     26,263,585         72     955,400,000         84   $ 36.38   

New investors

     10,000,000         28     180,000,000         16   $ 18.00   
  

 

 

    

 

 

   

 

 

    

 

 

   

Total

     36,263,585         100     1,135,400,000         100   $ 31.31   
  

 

 

    

 

 

   

 

 

    

 

 

   

A $1.00 increase or decrease in the assumed initial public offering price of $18.00 per share, the midpoint of the range set forth on the cover of this prospectus, would increase or decrease total consideration paid by new investors by approximately $9.3 million, and increase or decrease the percent of total consideration paid by new investors by 0.8%, assuming the number of shares set forth on the cover of this preliminary prospectus remains the same.

Upon consummation of this offering, the Pre-IPO Stockholders will own 72%, and new investors will own 28% of the total number of shares of common stock outstanding after this offering. Except as otherwise indicated, the discussion and tables above assume no exercise of the underwriters’ option to purchase an additional 1,500,000 shares from the selling stockholders. If the underwriters exercise their option to purchase additional shares in full from the selling stockholders, the Pre-IPO Stockholders would own 68% and new investors would own 32% of the total number of shares of common stock outstanding after this offering.

The foregoing discussion and the tables and calculations above exclude:

 

  Ÿ   3,400,000 shares of our common stock reserved for issuance under the Vince 2013 Incentive Plan (including the 99,812 shares of our common stock to be issued to our Chief Financial Officer, the approximately 260,000 shares of our common stock that may be issued to other Vince employees (other than our named executive officers), and the 8,333 restricted stock units that are to be issued to our non-employee directors, in each case at the closing of this offering);

 

  Ÿ   approximately 2,208,290 shares of our common stock issuable upon the exercise of options that were issued to Vince employees and to a former AHC executive under the 2010 Option Plan, after giving effect to the IPO Restructuring Transactions;

 

  Ÿ   up to approximately 204,447 shares of our common stock which are to be issued to non-Vince employees in exchange for their vested Kellwood Company stock options previously issued under the 2010 Option Plan (as such options are adjusted to give effect to the IPO Restructuring Transactions, including the related stock split); and

 

  Ÿ   1,000,000 shares of our common stock reserved for future issuance under the Vince ESPP.

See “Additional Information Related to AHC—AHC Executive Compensation—Employee Stock Plans—2010 Option Plan” for a description of the impact of a $1.00 increase or a $1.00 decrease to the assumed initial offering price of $18.00 per share on the number of shares of our common stock referred to in the second and third bullets listed above.

To the extent that any options or equity incentive grants are issued in the future, including pursuant to the Vince 2013 Incentive Plan or the Vince ESPP, with an exercise or purchase price below the initial offering price, new investors will experience further dilution. See “Additional Information Related to Vince—Vince Executive Compensation—Employee Stock Plans—Vince 2013 Incentive Plan.”

 

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ADDITIONAL INFORMATION RELATED TO AHC

The information appearing in this section includes additional information regarding the non-Vince businesses that are to be transferred to Kellwood Holding, LLC and its subsidiaries in the IPO Restructuring Transactions. The Pre-IPO Stockholders will continue to own and operate 100% of the non-Vince businesses through their ownership of Kellwood Holding, LLC after giving effect to the IPO Restructuring Transactions. Vince Holding Corp., the issuer of common stock in this offering, will have no interest in the non-Vince businesses after giving effect to the IPO Restructuring Transactions.

As used in this Additional Information Related to AHC Section, unless the context otherwise requires:

 

  Ÿ   “Kellwood” refers to Kellwood Holding, LLC and its consolidated subsidiaries (including Kellwood Company, LLC) after giving effect to the IPO Restructuring Transactions, or to the non-Vince businesses of AHC prior to the consummation of the IPO Restructuring Transactions, as the context requires; and

 

  Ÿ   “AHC” refers to Apparel Holding Corp. and its consolidated subsidiaries (including Kellwood Company) prior to consummation of the IPO Restructuring Transactions. Apparel Holding Corp. is the historical owner and operator of the Vince and non-Vince business.

 

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SELECTED HISTORICAL CONSOLIDATED FINANCIAL DATA OF AHC

The following tables set forth selected historical consolidated financial data of Apparel Holding Corp. and its consolidated subsidiaries. They include assets and liabilities associated with the Kellwood business that will be transferred to Kellwood Holding, LLC and its consolidated subsidiaries in the IPO Restructuring Transactions. They also include the assets and liabilities of the Vince business transferred to Vince, LLC in connection with the Vince Transfer in September 2012. The Vince, LLC assets and liabilities have no relation to the non-Vince businesses. The following reflects the results of operations associated with the combined Vince and non-Vince assets. An investment in us after giving effect to the IPO Restructuring Transactions is an investment in the Vince business. We will not have ongoing involvement with the non-Vince businesses following separation, with the exception of our payments to Kellwood for certain services to be provided under the Shared Services Agreement as further described in “Other Information Related to this Offering—Certain Relationships and Related Party Transactions of AHC—Shared Services Agreement” contained elsewhere in this prospectus. Similarly, Kellwood will not have ongoing involvement in our business, other than pursuant to the Shared Services Agreement. You should read the information set forth below in conjunction with “Use of Proceeds,” “Capitalization of AHC,” “Additional Information Related to AHC—Management’s Discussion and Analysis of Financial Condition and Results of Operations of AHC” and AHC’s audited historical consolidated financial statements and notes thereto included elsewhere in this prospectus.

The statement of operations data for each of fiscal 2010, fiscal 2011 and fiscal 2012 and the historical balance sheet data as of fiscal 2010, fiscal 2011 and fiscal 2012 set forth below are derived from AHC’s audited consolidated financial statements included elsewhere in this prospectus. The statements of operations data for each of the six month periods ended July 28, 2012 and August 3, 2013 and the balance sheet data as of August 3, 2013 set forth below are derived from AHC’s unaudited quarterly consolidated financial statements included elsewhere in this prospectus and contain all adjustments, consisting of normal recurring adjustments, that management considers necessary for a fair presentation of AHC’s financial position and results of operations for the periods presented. Operating results for the six month periods are not necessarily indicative of results for a full financial year, or any other periods. Historical results are not necessarily indicative of results to be expected for future periods.

After consummation of this offering and the IPO Restructuring Transactions, AHC’s results of the non-Vince businesses will be reported as discontinued operations for accounting purposes and AHC’s continuing operations will consist solely of the non-Vince businesses. See “Additional Information Related to Vince—Supplemental Selected Historical Financial Data of Vince, LLC” for additional information regarding the operations and assets and liabilities of Vince, LLC.

 

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    Fiscal Year     Six Months Ended  
    2010(1)     2011(1)     2012     July 28,
2012
    August 3,
2013
 
(In thousands, except per share data)                              
                      (unaudited)     (unaudited)  

Statement of Operations Data:

         

Net sales

  $ 586,574      $ 662,846      $ 707,995      $ 319,445      $ 363,967   

Cost of products sold

    430,801        490,110        507,905        235,293        256,031   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Gross profit

    155,773        172,736        200,090        84,152        107,936   

Operating expenses:

         

Selling, general and administrative expenses

    140,567        155,220        177,755        83,526        93,503   

Amortization of intangible assets

    954        1,941        1,899        950        950   

Restructuring, environmental remediation and other charges(3)

    9,729        2,651        5,091        2,264        827   

Impairment of long-lived assets (excluding goodwill)

    438        2,504        2,349        717          

Impairment of goodwill

           10,821                        

Change in fair value of contingent consideration, net(2)

           (1,578     (7,162     (4,507     (54
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total operating expenses

    151,688        171,559        179,932        82,950        95,226   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Income from operations

    4,085        1,177        20,158        1,202        12,710   

Interest expense, net

    103,074        127,148        122,383        74,151        43,671   

Gain on acquisition, net of tax(2)

    (939                            

Gain on debt extinguishment(2)

    (15,912                            

Other expense, net

    2,442        1,914        2,723        1,215        1,233   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Loss before provision for income taxes

    (84,580     (127,885     (104,948     (74,164     (32,194

Provision for income taxes

    3,507        3,401        708        2,245        2,679   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Net loss from continuing operations(2)(3)

    (88,087     (131,286     (105,656     (76,409     (34,873

Net (loss) income from discontinued operations(3)(4)

    (16,391     (16,580     (2,053     (4,798     9,230   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Net loss

  $ (104,478   $ (147,866   $ (107,709   $ (81,207   $ (25,643
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Pro forma Basic and diluted loss per share from continuing operations(5)

  $ (3.36   $ (5.00   $ (4.03   $ (2.92   $ (1.33

Pro forma Basic and diluted (loss) income per share from discontinued operation(5)

    (.63     (.63     (.08     (.18     .35   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Pro forma Basic and diluted loss per share(5)

  $ (3.99   $ (5.63   $ (4.11   $ (3.10   $ (.98
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Pro forma Weighted average shares outstanding:

         

Basic and diluted(5)

    26,211,131        26,211,131        26,211,131        26,211,131        26,211,131   

 

(1) In January 2011, AHC acquired Rebecca Taylor, a women’s contemporary apparel and accessory company. In July 2011, AHC acquired Zobha, a women’s athletic apparel brand, primarily focused on the yoga market. See “Additional Information Related to AHC—Management’s Discussion and Analysis of Financial Condition and Results of Operations of AHC—Basis of Presentation” for information regarding AHC’s decision to divest the Zobha business during the second quarter of fiscal 2013.

 

(2) Net loss from continuing operations includes net gains affecting comparability of the following:

 

  Ÿ   $16.8 million in fiscal 2010 comprised of a $0.9 million gain on the acquisition of certain net assets from the Adam operations as the fair value of the identifiable assets less the liabilities assumed exceeded the fair value of the consideration, and a $15.9 million gain on debt extinguishment as a result of AHC’s repurchase of $29.7 million of face value of certain notes outstanding from an affiliate of Sun Capital for $9.1 million in cash;

 

  Ÿ   $1.6 million in fiscal 2011 due to a reduction in the estimated contingent payments related to the acquisitions of Rebecca Taylor and Zobha as those purchase agreements contain provisions for contingent consideration that will be paid to the respective sellers if certain performance targets are met within a specified timeframe and during the periods presented expectations related to the achievement of these targets were revised; and

 

  Ÿ   $7.2 million in fiscal 2012, of which $4.5 million was recognized during the six months ended July 28, 2012, due to further reductions in the estimated contingent payments related to the acquisitions of Rebecca Taylor and Zobha.

 

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(3) During the years presented AHC performed several rationalization efforts aimed at improving AHC’s operational efficiency to streamline the fashion apparel business and recreational apparel and products businesses. These restructuring activities, along with impairment of long-lived assets, environmental remediation charges and other charges included in net loss from continuing operations are $10.2 million in fiscal 2010, $15.1 million in fiscal 2011, $7.4 million in fiscal 2012, $3.0 million in the first six months of fiscal 2012, and $0.8 million in the first six months of fiscal 2013. These restructuring activities, along with impairment of long-lived assets and other charges included in net (loss) income from discontinued operations are $27.7 million in fiscal 2010, $6.3 million in fiscal 2011, $4.8 million in fiscal 2012, $0.2 million in the first six months of fiscal 2012, and $0.9 million in the first six months of fiscal 2013.

 

(4) During fiscal 2011, AHC discontinued its Adam operations and Koret wholesale operations. AHC had previously acquired the net assets which comprised its Adam operations during fiscal 2010. During fiscal 2012, AHC discontinued its Baby Phat wholesale and Lamb & Flag businesses. Additionally, AHC sold its Royal Robbins and BLK DNM businesses. During the first quarter of fiscal 2013, AHC discontinued its Phat Licensing business because AHC sold the related trademarks. During the second quarter of fiscal 2013, AHC divested its Zobha business. As such, these operations have been reflected as discontinued operations for all periods presented.

 

(5) Gives effect to the stock split of our common stock on a 28.5177 for one basis.

 

     As of  
     January 29,
2011
    January 28,
2012
    February 2,
2013
    August 3,
2013
 
(In thousands)                         
                       (unaudited)  

Balance Sheet Data:

        

Cash and cash equivalents

   $ 5,194      $ 1,839      $ 1,881      $ 2,178   

Total current assets

     186,673        211,254        199,792        228,891   

Total assets

     410,718        468,445        442,124        467,791   

Total current liabilities

     180,939        213,403        190,046        221,230   

Long-term debt

     758,473        934,354        761,752        386,842   

Total stockholders’ deficit

     (595,219     (743,021     (561,265     (179,102

Total liabilities and stockholders’ deficit

     410,718        468,445        442,124        467,791   

 

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UNAUDITED PRO FORMA CONSOLIDATED FINANCIAL DATA OF AHC

The following unaudited selected consolidated financial data presents AHC’s historical consolidated statements of operations and consolidated balance sheet after giving effect to the transactions and adjustments as described in the accompanying notes. The unaudited pro forma consolidated financial data was prepared (i) on a basis consistent with that used in preparing AHC’s audited consolidated financial statements and includes all adjustments, consisting of normal and recurring items, that AHC considers necessary for a fair presentation of its financial position and results of operations for the unaudited periods and (ii) consistent with the requirements of Article 11 of Regulation S-X.

This unaudited pro forma consolidated financial data should be read in conjunction with the information contained in “Additional Information Related to Vince—Supplemental Management’s Discussion and Analysis of Financial Condition and Results of Operations of Vince, LLC,” “Additional Information Related to Vince—Supplemental Selected Historical Financial Data of Vince, LLC,” the audited financial statements of Vince, LLC and the related notes thereto appearing elsewhere in this prospectus, “Additional Information Related to AHC—Management’s Discussion and Analysis of Financial Condition and Results of Operations of AHC,” “Additional Information Related to AHC—Selected Historical Consolidated Financial Data of AHC,” the audited consolidated financial statements of AHC and related notes thereto appearing elsewhere in this prospectus and “Restructuring Transactions.”

As used in this section, unless the context requires otherwise:

 

  Ÿ   “our,” “us,” “we” and “Vince Holding Corp.” refer to Vince Holding Corp. (currently known as Apparel Holding Corp.) and its consolidated subsidiaries (including Vince, LLC) after giving effect to the IPO Restructuring Transactions;

 

  Ÿ   “Vince” refers to the Vince business after giving effect to the IPO Restructuring Transactions;

 

  Ÿ   “Vince, LLC” refers to the entity that has historically held the Vince assets and liabilities and will continue to do so after completion of the IPO Restructuring Transactions and the consummation of this offering and the application of the proceeds of this offering as described herein. Apparel Holding Corp. is the legal issuer of the shares offered in this offering. Investors will be investing in the Vince business, however, they will be purchasing shares issued by Apparel Holding Corp., not Vince, LLC;

 

  Ÿ   “AHC” refers to Apparel Holding Corp. and its consolidated subsidiaries (including Kellwood Company) prior to the completion of the IPO Restructuring Transactions. Apparel Holding Corp. is the historical owner and operator of the Vince and non-Vince businesses; and

 

  Ÿ   “Kellwood” refers to Kellwood Holding, LLC and its consolidated subsidiaries (including Kellwood Company, LLC) after giving effect to the IPO Restructuring Transactions, as the future owner and operator of the non-Vince businesses, or to the non-Vince businesses of AHC prior to the completion of the IPO Restructuring Transactions, as the context requires.

This unaudited pro forma consolidated financial data gives effect to anticipated transactions that we believe are relevant to the understanding of the business being offered and will have a material impact on the comparability of our results of operations. They are described below and are as follows: (i) “—Kellwood Separation,” (ii) “—Sun Capital Contribution and Tax Receivable Agreement,” and (iii) “—This Offering.”

The Kellwood Separation

As described within “Restructuring Transactions” included elsewhere in this prospectus, AHC will use a series of transactions to legally separate the Vince business from the non-Vince businesses immediately prior to consummation of this offering. We refer to this series of transactions as the

 

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“Kellwood Separation”. Once these transactions have occurred, the non-Vince businesses will be owned and operated separately from us. After consummation of this offering, the Vince business will be our only assets, liabilities, and operations. Although Apparel Holding Corp. is the legal issuer of the shares offered in this offering, an investment in us after giving effect to the IPO Restructuring Transactions is an investment in the Vince business. Following the consummation of this offering, we expect to report the non-Vince operations as discontinued operations in accordance with ASC Topic 205 Presentation of Financial Statements beginning with our first financial statements filed after the effectiveness of the registration statement of which this prospectus forms a part. All pro forma adjustments to our historical financial statements that relate to the separation from the non-Vince businesses are described as “Kellwood Separation Adjustments” and they are included under the caption “—Kellwood Separation.”

In addition, set forth below is supplemental disclosure of the allocation of the pro forma results of operations and financial position of the “Kellwood Separation Adjustments”. This supplemental disclosure is referred to as “Allocation of Pro Forma” and represents the allocation of the unaudited pro forma results of operations and financial position among Apparel Holding Corp., Vince Intermediate Holding, LLC and Vince, LLC after giving effect to the Kellwood Separation. Apparel Holding Corp., Vince Intermediate Holding, LLC and Vince, LLC, collectively, will represent the three corporate or limited liability company entities that represent the consolidated group that will constitute the Vince business after consummation of the IPO Restructuring Transactions. The financial results of Vince, LLC are presented since after giving effect to the IPO Restructuring Transactions, Vince, LLC will be the sole operating subsidiary of the business in which you are investing in this offering. The Vince, LLC financials have been prepared on a standalone, carve-out basis. As such we present an adjustment column within the “Allocation of Pro Forma” table to reconcile the Vince, LLC financials on a stand-alone carve-out basis with the pro forma presentation of AHC after giving effect to the Kellwood Separation.

Sun Capital Contribution and Tax Receivable Agreement

Additional restructuring activities that have occurred or will occur in order to effect the consummation of this offering, include the following:

 

  Ÿ   effective June 18, 2013, affiliates of Sun Capital contributed $407.5 million of indebtedness under the Sun Capital Loan Agreement and the Sun Promissory Notes as a capital contribution to Apparel Holding Corp. in the Sun Capital Contribution; and

 

  Ÿ   we will enter into the Tax Receivable Agreement, (referred to in this “Unaudited Pro Forma Consolidated Financial Data of AHC” as the “TRA”), with the Pre-IPO Stockholders as described in “Other Information Related to the Offering—Certain Relationships and Related Party transactions of AHC—Tax Receivable Agreement.”

Pro forma adjustments related to these additional restructuring activities are described as “Sun Capital Contribution and TRA Adjustments.”

This Offering

Pro forma adjustments to reflect (i) our receipt of the estimated net proceeds from the sale of shares of common stock by us in this offering at an assumed initial public offering price of $18.00 per share, the midpoint of the range appearing on the cover page of this prospectus, after deducting the assumed underwriting discount and commissions and estimated fees and expenses payable by us; and (ii) our use of these proceeds and the incurrence of approximately $175 million of borrowings under our new term loan facility, as described in “Use of Proceeds,” including repayment of the Kellwood Note Receivable, are described as “ Offering Adjustments.”

 

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Unaudited Pro Forma Statements of Operations

In accordance with Article 11 of Regulation S-X we have provided AHC’s unaudited pro forma consolidated statements of operations for fiscal 2010, fiscal 2011, fiscal 2012 and the first six months of fiscal 2012 and the first six months of fiscal 2013, presented on a pro forma basis to give effect to the Kellwood Separation as if it had occurred at the beginning of fiscal 2010.

Additionally, the unaudited pro forma consolidated statements of operations for fiscal 2012 and the first six months of fiscal 2013 are presented on a pro forma basis, to give effect to the Sun Capital Contribution and entry into the TRA, as if such transactions had been consummated on the first day of fiscal 2012; and finally, the unaudited pro forma consolidated statements of operations are presented for fiscal 2012 and the first six months of fiscal 2013 on a pro forma, as adjusted basis, to further reflect the impact of the Offering Adjustments.

 

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Fiscal 2010 Unaudited Pro Forma Statement of Operations of Historical Consolidated AHC

 

          Kellwood Separation         Allocation of Pro Forma(2)  
    Historical
Consolidated
AHC
    Kellwood
Separation
Adjustments(1)
    Pro Forma         AHC     Vince
Intermediate
Holding,
LLC
    Vince, LLC(3)     Adjustments     Pro
Forma
 
(In thousands, except per share amounts)                                                

Net sales

  $ 586,574      $ (475,082 )(a)    $ 111,492        $      $  —      $ 111,492      $      $ 111,492   

Cost of products sold

    430,801        (375,106 )(a)      55,695                        55,695               55,695   
 

 

 

   

 

 

   

 

 

     

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Gross profit

    155,773        (99,976     55,797                        55,797               55,797   

Operating Expenses:

                 

Selling, general and administrative expenses

    140,567        (107,829 )(b)      32,738          34 (g)             32,704 (i)             32,738   

Amortization of intangible assets

    954        (356     598                        598               598   

Restructuring, environmental remediation and other charges

    9,729        (9,729                                            

Impairment of long-lived assets (excluding goodwill)

    438        (438                                            

Impairment of goodwill

                                                         

Change in fair value of contingent consideration, net

                                                         
 

 

 

   

 

 

   

 

 

     

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total operating expenses

    151,688        (118,352     33,336          34               33,302               33,336   
 

 

 

   

 

 

   

 

 

     

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Income (loss) from operations

    4,085        18,376        22,461          (34            22,495               22,461   

Interest expense, net

    103,074        (35,124 )(c)      67,950          67,950 (h)             7,172 (j)      (7,172 )(k)      67,950   

Gain on acquisition, net of tax

    (939     939 (d)                                             

Gain on debt extinguishment

    (15,912     15,912 (e)                                             

Other expense, net

    2,442        (2,092     350                        350               350   
 

 

 

   

 

 

   

 

 

     

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Income (loss) before provision for income taxes

    (84,580     38,741        (45,839       (67,984            14,973        7,172        (45,839

Provision for income taxes

    3,507        5,462 (f)      8,969                        5,923        3,046 (l)      8,969   
 

 

 

   

 

 

   

 

 

     

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Net income (loss) from continuing operations

  $ (88,087   $ 33,279      $ (54,808     $ (67,984   $      $ 9,050      $ 4,126      $ (54,808
 

 

 

   

 

 

   

 

 

     

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Basic and diluted loss per share

  $ (3.36     $ (2.09            
 

 

 

     

 

 

             

Weighted average number of common shares outstanding, basic and diluted

    26,211,131          26,211,131               

See accompanying notes to Unaudited Pro Forma Consolidated Financial Data.

 

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Fiscal 2011 Unaudited Pro Forma Statement of Operations of Historical Consolidated AHC

 

          Kellwood Separation         Allocation of Pro Forma(2)  
    Historical
Consolidated
AHC
    Kellwood
Separation
Adjustments(1)
    Pro Forma         AHC     Vince
Intermediate
Holding,
LLC
    Vince, LLC(3)     Adjustments     Pro
Forma
 
(In thousands, except per share amounts)                                                    

Net sales

  $ 662,846      $ (487,591 )(a)    $ 175,255        $      $  —      $ 175,255      $      $ 175,255   

Cost of products sold

    490,110        (400,565 )(a)      89,545                        89,545               89,545   
 

 

 

   

 

 

   

 

 

     

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Gross profit

    172,736        (87,026     85,710                        85,710               85,710   

Operating Expenses:

                 

Selling, general and administrative expenses

    155,220        (113,027 )(b)      42,193          45 (g)             42,148 (i)             42,193   

Amortization of intangible assets

    1,941        (1,342     599                        599               599   

Restructuring, environmental remediation and other charges

    2,651        (2,651                                            

Impairment of long-lived assets (excluding goodwill)

    2,504        (2,504                                            

Impairment of goodwill

    10,821        (10,821                                            

Change in fair value of contingent consideration, net

    (1,578     1,578 (m)                                             
 

 

 

   

 

 

   

 

 

     

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total operating expenses

    171,559        (128,767     42,792          45               42,747               42,792   
 

 

 

   

 

 

   

 

 

     

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Income (loss) from operations

    1,177        41,741        42,918          (45            42,963               42,918   

Interest expense, net

    127,148        (45,785 )(c)      81,363          81,363 (h)             15,004 (j)      (15,004 )(k)      81,363   

Other expense, net

    1,914        (1,436     478                        478               478   
 

 

 

   

 

 

   

 

 

     

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

(Loss) Income before provision for income taxes

    (127,885     88,962        (38,923       (81,408            27,481        15,004        (38,923

Provision for income taxes

    3,401        13,693 (f)      17,094                        10,812        6,282 (l)      17,094   
 

 

 

   

 

 

   

 

 

     

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Net (loss) income from continuing operations

  $ (131,286   $ 75,269      $ (56,017     $ (81,408   $      $ 16,669      $ 8,722      $ (56,017
 

 

 

   

 

 

   

 

 

     

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Basic and diluted loss per share

  $ (5.00     $ (2.14            
 

 

 

     

 

 

             

Weighted average number of common shares outstanding, basic and diluted

    26,211,131          26,211,131               

See accompanying notes to Unaudited Pro Forma Consolidated Financial Data.

 

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Table of Contents

Fiscal 2012 Unaudited Pro Forma Statement of Operations of Historical Consolidated AHC

 

          Kellwood Separation         Allocation of Pro Forma(2)  
    Historical
Consolidated
AHC
    Kellwood
Separation
Adjustments(1)
    Pro Forma         AHC     Vince
Intermediate
Holding,
LLC
    Vince,
LLC(3)
    Adjustments     Pro
Forma
 
(In thousands, except per share amounts)                                                    

Net sales

  $ 707,995      $ (467,643 )(a)    $ 240,352        $      $  —      $ 240,352      $      $ 240,352   

Cost of products sold

    507,905        (375,749 )(a)      132,156                        132,156               132,156   
 

 

 

   

 

 

   

 

 

   

 

 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Gross profit

    200,090        (91,894     108,196                        108,196               108,196   

Operating Expenses:

                 

Selling, general and administrative expenses

    177,755        (111,094 )(b)      66,661          22 (g)             66,639 (i)             66,661   

Amortization of intangible assets

    1,899        (1,301     598                        598               598   

Restructuring, environmental remediation and other charges

    5,091        (5,091                                            

Impairment of long-lived assets (excluding goodwill)

    2,349        (2,349                                            

Impairment of goodwill

                                                         

Change in fair value of contingent consideration, net

    (7,162     7,162 (m)                                             
 

 

 

   

 

 

   

 

 

   

 

 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total operating expenses

    179,932        (112,673     67,259          22               67,237               67,259   
 

 

 

   

 

 

   

 

 

   

 

 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Income (loss) from operations

    20,158        20,779        40,937          (22            40,959               40,937   

Interest expense, net

    122,383        (53,700 )(c)      68,683          68,683 (h)             22,903 (j)      (22,903 )(k)      68,683   

Other expense, net

    2,723        (1,944     779                        779               779   
 

 

 

   

 

 

   

 

 

   

 

 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

(Loss) income before provision for income taxes

    (104,948     76,423        (28,525       (68,705            17,277        22,903        (28,525

Provision for income taxes

    708        15,512 (f)      16,220                        6,964        9,256 (l)      16,220   
 

 

 

   

 

 

   

 

 

   

 

 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Net (loss) income from continuing operations

  $ (105,656   $ 60,911      $ (44,745     $ (68,705   $      $ 10,313      $ 13,647      $ (44,745
 

 

 

   

 

 

   

 

 

   

 

 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Basic and diluted loss per share

  $ (4.03     $ (1.71            
 

 

 

     

 

 

   

 

         

Weighted average number of common shares outstanding, basic and diluted

    26,211,131          26,211,131               

See accompanying notes to Unaudited Pro Forma Consolidated Financial Data.

 

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Table of Contents

First Six Months of Fiscal 2012 Unaudited Pro Forma Statement of Operations of Historical Consolidated AHC

 

          Kellwood Separation         Allocation of Pro Forma(2)  
    Historical
Consolidated
AHC
    Kellwood
Separation
Adjustments(1)
    Pro Forma         AHC     Vince
Intermediate
Holding,
LLC
    Vince,
LLC(3)
    Adjustments     Pro
Forma
 
(In thousands, except per share amounts)                                                    

Net sales

  $ 319,445      $ (228,914 )(a)    $ 90,531        $      $      $ 90,531      $      $ 90,531   

Cost of products sold

    235,293        (185,174 )(a)      50,119                        50,119               50,119   
 

 

 

   

 

 

   

 

 

     

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Gross profit

    84,152        (43,740     40,412                        40,412               40,412   

Operating Expenses:

                 

Selling, general and administrative expenses

    83,526        (56,457 )(b)      27,069          12 (g)             27,057 (i)             27,069   

Amortization of intangible assets

    950        (651     299                        299               299   

Restructuring, environmental remediation and other charges

    2,264        (2,264                                            

Impairment of long-lived assets (excluding goodwill)

    717        (717                                            

Impairment of goodwill

                                                         

Change in fair value of contingent consideration, net

    (4,507     4,507 (m)                                             
 

 

 

   

 

 

   

 

 

     

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total operating expenses

    82,950        (55,582     27,368          12               27,356               27,368   
 

 

 

   

 

 

   

 

 

     

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Income (loss) from operations

    1,202        11,842        13,044          (12            13,056               13,044   

Interest expense, net

    74,151        (26,256 )(c)      47,895          47,895 (h)             10,690 (j)      (10,690 )(k)      47,895   

Other expense, net

    1,215        (819     396                        396               396   
 

 

 

   

 

 

   

 

 

     

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

(Loss) income before provision for income taxes

    (74,164     38,917        (35,247       (47,907            1,970        10,690        (35,247

Provision for income taxes

    2,245        2,872 (f)      5,117                        789        4,328 (l)      5,117   
 

 

 

   

 

 

   

 

 

     

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Net (loss) income from continuing operations

  $ (76,409   $ 36,045      $ (40,364     $ (47,907   $      $ 1,181      $ 6,362      $ (40,364
 

 

 

   

 

 

   

 

 

     

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Basic and diluted loss per share

  $ (2.92     $ (1.54            
 

 

 

     

 

 

             

Weighted average number of common shares outstanding, basic and diluted

    26,211,131          26,211,131               

See accompanying notes to Unaudited Pro Forma Consolidated Financial Data.

 

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Table of Contents

First Six Months of Fiscal 2013 Unaudited Pro Forma Statement of Operations of Historical Consolidated AHC

 

          Kellwood Separation         Allocation of Pro Forma(2)  
    Historical
Consolidated
AHC
    Kellwood
Separation
Adjustments(1)
    Pro Forma         AHC     Vince
Intermediate
Holding,
LLC
    Vince,
LLC(3)
    Adjustments     Pro
Forma
 
(In thousands, except per share amounts)                                                    

Net sales

  $ 363,967      $ (249,310 )(a)    $ 114,657        $      $      $ 114,657      $      $ 114,657   

Cost of products sold

    256,031        (192,525 )(a)      63,506                        63,506               63,506   
 

 

 

   

 

 

   

 

 

     

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Gross profit