<PAGE> 1
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON MAY 6, 1996
REGISTRATION STATEMENT NO. 333-2236
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------
AMENDMENT NO. 3
TO
FORM S-1
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
------------------------
DESIGNER HOLDINGS LTD.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
<TABLE>
<S> <C> <C>
DELAWARE 2339 13-3818542
(STATE OR OTHER JURISDICTION OF (PRIMARY STANDARD INDUSTRIAL (I.R.S. EMPLOYER
INCORPORATION OR ORGANIZATION) CLASSIFICATION CODE NUMBER) IDENTIFICATION NUMBER)
</TABLE>
1385 BROADWAY
NEW YORK, NEW YORK 10018
(212) 556-9600
(ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER,
INCLUDING AREA CODE, OF REGISTRANT'S PRINCIPAL EXECUTIVE OFFICES)
------------------------
JOHN J. JONES, ESQ.
GENERAL COUNSEL
DESIGNER HOLDINGS LTD.
1385 BROADWAY, 3RD FLOOR
NEW YORK, NEW YORK 10018
(212) 556-9600
(NAME, ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE,
OF AGENT FOR SERVICE)
COPIES TO:
<TABLE>
<S> <C>
ROBERT M. CHILSTROM, ESQ. WILLIAM M. HARTNETT, ESQ.
SKADDEN, ARPS, SLATE, MEAGHER & FLOM CAHILL GORDON & REINDEL
919 THIRD AVENUE EIGHTY PINE STREET
NEW YORK, NEW YORK 10022 NEW YORK, NEW YORK 10005
(212) 735-3000 (212) 701-3000
</TABLE>
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC:
As soon as practicable after the effective date of this Registration Statement.
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, as amended, 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 delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. / /
------------------------
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL
FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(A) OF
THE SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(A),
MAY DETERMINE.
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<PAGE> 2
DESIGNER HOLDINGS LTD.
CROSS REFERENCE SHEET
PURSUANT TO ITEM 501 OF REGULATION S-K
<TABLE>
<CAPTION>
FORM S-1 LOCATION OR HEADING
ITEM NUMBER AND CAPTION IN THE PROSPECTUS
--------------------------------------------------------- -------------------------------------
<C> <S> <C>
1. Forepart of the Registration Statement and Outside Front
Cover Page of Prospectus............................... Outside front cover
2. Inside Front and Outside Back Cover Pages of
Prospectus............................................. Inside front cover; Outside back
cover; Available Information
3. Summary Information, Risk Factors and Ratio of Earnings
to Fixed Charges....................................... Prospectus Summary; Risk Factors
4. Use of Proceeds.......................................... Prospectus Summary; Use of Proceeds;
Description of Indebtedness
5. Determination of Offering Price.......................... Outside front cover; Underwriting
6. Dilution................................................. Risk Factors; Dilution
7. Selling Security Holders................................. Principal and Selling Stockholders
8. Plan of Distribution..................................... Outside front cover; Underwriting
9. Description of Securities to be Registered............... Outside front cover; Prospectus
Summary; Description of Capital Stock
10. Interests of Named Experts and Counsel................... Legal Matters; Experts
11. Information with Respect to the Registrant............... Outside front cover; Prospectus
Summary; Risk Factors; The Company;
Dividend Policy; Use of Proceeds;
Capitalization; Dilution; Unaudited
Pro Forma Financial Information;
Selected Financial Information;
Management's Discussion and Analysis
of Financial Condition and Results of
Operations; Business; Management;
Certain Transactions; Principal and
Selling Stockholders; Description of
Capital Stock; Description of
Indebtedness; Shares Eligible for
Future Sale
12. Disclosure of Commission Position on Indemnification for
Securities Act Liabilities............................. Not applicable
</TABLE>
<PAGE> 3
EXPLANATORY NOTE
This Registration Statement contains two forms of prospectus: one to be
used in connection with an offering in the United States and Canada (the "U.S.
Prospectus") and one to be used in a concurrent offering outside the United
States and Canada (the "International Prospectus"). The two prospectuses are
identical except for the front and back cover pages, the inside front cover page
and the section entitled "Underwriting". The form of U.S. Prospectus is included
herein and is followed by the alternate pages to be used in the International
Prospectus. Each of the alternate pages for the International Prospectus
included herein is labeled "Alternate Page for International Prospectus." Final
forms of each Prospectus will be filed with the Securities and Exchange
Commission under Rule 424(b).
<PAGE> 4
INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A
REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR
MAY OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT
BECOMES EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR
THE SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE
SECURITIES IN ANY JURISDICTION IN WHICH SUCH OFFER, SOLICITATION OR SALE
WOULD BE UNLAWFUL PRIOR TO REGISTRATION OR QUALIFICATION UNDER THE
SECURITIES LAWS OF ANY SUCH JURISDICTION.
LOGO
SUBJECT TO COMPLETION
PRELIMINARY PROSPECTUS DATED MAY 6, 1996
PROSPECTUS
10,000,000 SHARES
DESIGNER HOLDINGS LTD.
COMMON STOCK
------------------------
Of the 10,000,000 shares of Common Stock offered hereby, 5,000,000 shares
are being sold by Designer Holdings Ltd. and 5,000,000 shares are being sold by
the Selling Stockholder of the Company. The Company will not receive any
proceeds from the sale of shares of Common Stock by the Selling Stockholder.
Of the 10,000,000 shares of Common Stock offered hereby, 8,000,000 shares
are being offered initially in the United States and Canada by the U.S.
Underwriters and 2,000,000 shares are being offered outside the United States
and Canada by the International Managers. The initial public offering price and
the aggregate underwriting discount per share will be identical for both
Offerings.
Prior to the Offerings, there has been no public market for the Common
Stock. It is currently estimated that the initial public offering price will be
between $14 and $16 per share. See "Underwriting" for a discussion of the
factors to be considered in determining the initial price of the Common Stock.
The Common Stock has been approved for listing, subject to official notice
of issuance, on the New York Stock Exchange under the symbol "DSH."
SEE "RISK FACTORS" BEGINNING ON PAGE 7 FOR A DISCUSSION OF CERTAIN FACTORS
THAT SHOULD BE CONSIDERED IN CONNECTION WITH AN INVESTMENT IN THE COMMON STOCK
OFFERED HEREBY.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION, NOR HAS
THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES
COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF THIS
PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY
IS A CRIMINAL OFFENSE.
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------
PROCEEDS TO
PRICE UNDERWRITING PROCEEDS TO SELLING
TO PUBLIC DISCOUNT(1) THE COMPANY(2) STOCKHOLDER
- ------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Per Share..................... $ $ $ $
- ------------------------------------------------------------------------------------------------------
Total(3)...................... $ $ $ $
- - - -
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- ------------------------------------------------------------------------------------------------------
</TABLE>
(1) The Company and the Selling Stockholder have agreed to indemnify the several
Underwriters against certain liabilities, including certain liabilities
under the Securities Act of 1933, as amended. See "Underwriting."
(2) Before deducting expenses of the Offerings payable by the Company estimated
at $2,950,000.
(3) The Company and the Selling Stockholder have granted the U.S. Underwriters
and the International Managers options, exercisable within 30 days after the
date of this Prospectus, to purchase up to 1,200,000 and 300,000 additional
shares of Common Stock, respectively, solely to cover over-allotments, if
any. If such options are exercised in full, the total Price to Public,
Underwriting Discount, Proceeds to the Company and Proceeds to Selling
Stockholder will be $ , $ , $ and $ ,
respectively. See "Underwriting."
------------------------
The shares of Common Stock are offered by the Underwriters, subject to
prior sale, when, as and if issued and accepted by them, subject to approval of
certain legal matters by counsel for the Underwriters and certain other
conditions. The Underwriters reserve the right to withdraw, cancel or modify
such offer and to reject orders in whole or in part. It is expected that
delivery of the shares of Common Stock will be made in New York, New York on or
about , 1996.
------------------------
MERRILL LYNCH & CO. MORGAN STANLEY & CO.
INCORPORATED
------------------------
The date of this Prospectus is , 1996.
<PAGE> 5
The logo form of the registered trademarks CALVIN KLEIN and CK/CALVIN KLEIN are
owned by The Calvin Klein Trademark Trust and are used under license from Calvin
Klein, Inc.
IN CONNECTION WITH THE OFFERINGS, THE UNDERWRITERS MAY OVER-ALLOT OR EFFECT
TRANSACTIONS WHICH STABILIZE OR MAINTAIN THE MARKET PRICE OF THE COMMON STOCK OF
THE COMPANY AT A LEVEL ABOVE THAT WHICH MIGHT OTHERWISE PREVAIL IN THE OPEN
MARKET. SUCH TRANSACTIONS MAY BE EFFECTED ON THE NEW YORK STOCK EXCHANGE OR
OTHERWISE. SUCH STABILIZING, IF COMMENCED, MAY BE DISCONTINUED AT ANY TIME.
<PAGE> 6
APPENDIX TO ELECTRONIC FORMAT DOCUMENT
(INSIDE FRONT COVER)
[PHOTOGRAPH 1] - is two models wearing Calvin Klein Jeans clothing.
[PHOTOGRAPH 2] - is a model wearing Calvin Klein Jeans clothing.
[PHOTOGRAPH 3] - is a model wearing Calvin Klein Jeans clothing.
(INSIDE BACK COVER)
[PHOTOGRAPH] - is four pictures of Calvin Klein Jeans clothing displays.
<PAGE> 7
PROSPECTUS SUMMARY
The following summary is qualified in its entirety by, and should be read
in conjunction with, the more detailed information and financial statements
(including the notes thereto) appearing elsewhere in this Prospectus.
THE COMPANY
Designer Holdings Ltd. (the "Company") develops, sources and markets
designer sportswear lines for men, juniors, women and petites under the Calvin
Klein Jeans, CK/Calvin Klein Jeans and CK/Calvin Klein Jeans Khakis labels
(collectively, the "Calvin Klein Jeans Labels"). The Company's products target
youthful, culturally conscious consumers and capitalize on the cachet and image
created by over 20 years of extensive image advertising for Calvin Klein, one of
the world's most influential designers. The Company collaborates with the
in-house design teams of Calvin Klein, Inc. ("CKI") to create products
characterized by high quality and casual, contemporary fashion. Each of the
Company's lines combines both basic and fashion items in a broad range of casual
fabrications, including jeans, khakis, knit and woven tops and bottoms,
T-shirts, shorts, fleece shirts and pants, outerwear such as leather and denim
jackets, caps and related accessories. In 1995, the mens, juniors, womens and
petites lines accounted for approximately 41%, 31%, 20% and 3%, respectively, of
net sales of Calvin Klein Jeans Label products. In 1993, the year before the
Company obtained the CKJ License, net revenues from the sale of Calvin Klein
Jeans Label products by CKI were approximately $59 million. Since the Company
obtained the exclusive license from CKI for certain types of sportswear (the
"CKJ License") in August 1994, net revenues (including royalties) of Calvin
Klein Jeans Label products have risen to $361.4 million in 1995.
The key initiatives implemented by the Company since obtaining the CKJ
License have included: (i) broadening its target market by re-engineering the
garments to provide a comfortable fit and flattering appearance for a greater
number of potential consumers, (ii) increasing the value offered to consumers by
lowering the price of its designer-quality products to "better" from "designer"
price points, (iii) targeting juniors, petites and childrens lines with a
specific marketing strategy and product offering, (iv) enlarging the core of
basic styles for each line and (v) establishing an inventory replenishment plan
to meet the requirements of retailers. Based on the Calvin Klein image and an
interpretation of current trends, the Company and the in-house design teams of
CKI produce a "fashion blueprint" for each line that includes both basic and
fashion items. Basic items, which vary only slightly from season to season and
are available on a replenishment basis throughout the year, accounted for
approximately 65% of net sales generated by Calvin Klein Jeans Label products in
1995. Fashion items are modified for current trends in color, fabrication and
styling to continually update the merchandise assortment. Fashion items
accounted for approximately 35% of net sales generated by Calvin Klein Jeans
Label products in 1995. The Company contracts through third parties for the
manufacture of substantially all of its products. During 1995, approximately 80%
of the Company's products were produced in the United States. The Company
believes that domestic manufacturing allows it to respond quickly to changing
sales and fashion trends and that third party manufacturing permits it to avoid
capacity constraints and significant investment in capital assets.
The Company currently distributes products under the Calvin Klein Jeans
Labels to a broad range of department stores and specialty retailers. Because of
strong consumer demand for the Company's products and the trend among major
retailers to devote more selling space to a decreasing number of designer
brands, the Company expects that it will continue to grow through both the
addition of new locations and increased floor space. At the same time, the
Company seeks those specialty retailers that have the ability to offer the
proper presentation of the Company's products. The mens line (which is the most
widely distributed of the Company's lines) was carried in approximately 680
department store locations and approximately 1,400 specialty retail stores as of
December 31, 1995. As of March 1, 1996, the number of department store locations
in which the mens line was carried had increased to approximately 880 and the
number of specialty retailers had decreased to approximately 1,100. In an effort
to enhance visibility, increase dedicated selling space and increase sales per
square foot generated by the Calvin Klein Jeans Label products, the Company has
developed a program to place shops dedicated to Calvin Klein Jeans Label
products within the stores of its major retailing customers. A prototype
"shop-in-shop" began operation in Bloomingdale's in New York City in late 1995,
and the Company has recently contracted for the construction and installation of
50 shops. The Company plans to install approximately 150 shops during 1996.
3
<PAGE> 8
The Company's growth strategy is to continue to capitalize on the strength
of the Calvin Klein image and the quality, fit and value of the Company's
products. The key elements of the Company's growth strategy include: (i)
selectively adding new accounts and further penetrating its existing accounts by
introducing lines into more store locations, (ii) expanding its shop-in-shop
program, (iii) continuing to deepen its product offerings, (iv) expanding the
distribution of its products outside the United States and (v) improving
operating efficiencies. The Company is also seeking to obtain additional
designer brands or licenses in designer sportswear. See "Risk Factors -- Ability
to Achieve and Manage Future Growth." The Company has recently deepened its
product offerings by introducing khaki products within each of its lines. In
July 1995, the Company entered into a distribution agreement for its Calvin
Klein Jeans Label mens, juniors, womens and petites lines in Canada, and in the
first quarter of 1996, it entered into a distribution agreement for its Calvin
Klein Jeans Label childrens apparel in the United States, which accounted for
approximately 5% of 1995 net sales for Calvin Klein Jeans Label products. The
Company is also exploring additional opportunities to distribute its products
outside the United States. To provide a foundation for continued growth and to
improve operating efficiencies, the Company is substantially increasing the
capacity of its distribution facilities and is in the process of bringing
on-line an integrated management information system. See "Business -- Business
Strategy."
The Company began operations in 1984 by designing, sourcing and marketing
moderately priced sportswear bearing the Rio label and, in 1987, obtained an
exclusive license for womens jeanswear under the Bill Blass labels and began to
produce private label products for a limited number of retailing customers. As
of January 1, 1996, the Company has licensed the Rio label and sublicensed the
Bill Blass labels to Commerce Clothing Company, LLC ("Commerce Clothing"), an
affiliate of one of its principal suppliers. See "Business -- Licensing
Operations."
RECENT DEVELOPMENTS
Set forth below are the preliminary unaudited results of operations for the
three months ended March 31, 1995 and 1996 and the adjusted pro forma and pro
forma results of operations for the three months ended March 31, 1995 and 1996,
respectively. The unaudited adjusted pro forma results of operations for the
three months ended March 31, 1995 give effect to (i) the agreements by the
Company, which became effective as of January 1, 1996, to grant to another
company the right to produce and distribute sportswear under the Bill Blass and
the Rio labels, and childrens apparel in the United States under the Calvin
Klein Jeans Labels (the "Agreements"), (ii) certain amendments to the CKJ
License and the related issuance to CKI of 1,275,466 shares of non-voting common
stock (the "Amendments") and (iii) completion of the Offerings and application
of the estimated net proceeds to the Company therefrom as described in "Use of
Proceeds," as if they had been consummated on January 1, 1995. The unaudited pro
forma results of operations for the three months ended March 31, 1996 give
effect to the Amendments and the Offerings, as if they had been consummated on
January 1, 1996.
<TABLE>
<CAPTION>
THREE MONTHS ENDED MARCH 31,
-----------------------------------------------------------
ACTUAL ADJUSTED
--------------------------- PRO FORMA PRO FORMA
1995 1996 1995 1996
----------- ----------- ----------- -----------
(DOLLARS IN THOUSANDS, EXCEPT SHARE DATA)
<S> <C> <C> <C> <C>
Net revenues.......................... $ 83,404 $ 114,636(1) $ 55,887(2) $ 114,636
Cost of goods sold.................... 58,416 70,821 34,361 70,821
----------- ----------- ----------- -----------
Gross profit.......................... 24,988 43,815 21,526 43,815
Selling, general and administrative
expenses............................ 16,697 27,147 13,520 27,271
----------- ----------- ----------- -----------
Operating income...................... 8,291 16,668 8,006 16,544
Interest expense...................... 1,795 4,525 135 2,302
----------- ----------- ----------- -----------
Income before income taxes............ 6,496 12,143 7,871 14,242
Provision for income taxes............ 3,451 5,586 4,032 6,551
----------- ----------- ----------- -----------
Net income............................ $ 3,045 $ 6,557 $ 3,839 $ 7,691
=========== =========== =========== ===========
Net income per share.................. $ 0.13 $ 0.27 $ 0.13 $ 0.25
Weighted average shares outstanding... 24,233,868 24,233,868 30,509,334 30,509,334
</TABLE>
- ---------------
(1) During the three months ended March 31, 1996, the first quarter for which
the terms of the Agreements were effective, the Company waived the royalty
income due under the Agreements of $1,161.
(2) For comparative presentation purposes, the pro forma results of operations
have been adjusted to exclude royalty income of $1,233 attributable to the
Agreements since such royalties were waived for the three months ended March
31, 1996.
4
<PAGE> 9
THE OFFERINGS
Of the 10,000,000 shares of Common Stock, par value $.01 per share (the
"Common Stock"), offered hereby, 8,000,000 shares are initially being offered in
the United States and Canada by the U.S. Underwriters (the "U.S. Offering") and
2,000,000 shares are initially being offered outside the United States and
Canada by the International Managers (the "International Offering" and, together
with the U.S. Offering, the "Offerings").
Common Stock offered by:
<TABLE>
<S> <C>
The Company................................. 5,000,000 shares
The Selling Stockholder..................... 5,000,000 shares
Common Stock to be outstanding after the
Offerings(1)(2)................................ 30,509,334 shares
Use of Proceeds(2)............................... The estimated net proceeds to the
Company of $67.2 million will be used
primarily to reduce indebtedness,
including approximately $34.7 million
to retire the Subordinated Loan (as
defined herein) and $31.4 million to
reduce indebtedness under the Credit
Agreement (as defined herein).
New York Stock Exchange symbol................... "DSH"
</TABLE>
- ------------------------
(1) Includes 1,275,466 shares of non-voting common stock issued to CKI in April
1996, which shares are convertible, at any time, into an equal number of
shares of Common Stock (see "Business -- CKJ License"), and excludes
2,288,200 shares of Common Stock reserved for issuance under the Company's
1996 Stock Option and Incentive Plan (including approximately 1,500,000
shares subject to options to be granted at the initial public offering
price).
(2) Assumes that the over-allotment options are not exercised.
The Company was incorporated in March 1995 for the purpose of consolidating
the ownership interests of Rio Sportswear, Inc. (a Delaware corporation) ("Rio
Sportswear") and Jeanswear Holdings, Inc. ("Jeanswear"), commonly controlled and
managed entities. Rio Sportswear was formed in August 1994 to acquire the equity
interests of Rio Sportswear, Inc. (a California corporation), Rio II Sportswear,
Inc., Adamson Sales Corp., AEI Management Corporation and Huang Management
Company (collectively, the "Predecessor Companies") that were jointly engaged in
designing, sourcing, marketing and distributing sportswear under the Rio, Bill
Blass and certain private-label tradenames and were commonly controlled and
managed by Arnold H. Simon, who is currently President and Chief Executive
Officer of the Company, and Stephen Huang, who was Mr. Simon's business
associate at the time. As part of the transaction, Mr. Simon exchanged
approximately 83% of his interests in the Predecessor Companies for a 50% equity
interest in Rio Sportswear and Jeanswear and sold his remaining interests to the
Company for $4 million. Mr. Huang sold his interests in the Predecessor
Companies to Rio Sportswear for cash provided by Charterhouse Equity Partners
II, L.P. (together with an associated entity) ("Charterhouse"). See "Certain
Transactions." In August 1994, Jeanswear, through its subsidiary Calvin Klein
Jeanswear Company ("CKJC"), obtained the license to produce sportswear under the
Calvin Klein Jeans Labels. On April 22, 1996, the CKJ License was amended and as
consideration therefor, the Company issued 1,275,466 shares of non-voting common
stock to CKI, which are convertible, at any time, into an equal number of shares
of Common Stock. See "Business -- CKJ License" and "Principal and Selling
Stockholders."
Unless the context otherwise requires, (i) all information set forth herein
assumes that CKI has converted its 1,275,466 shares of non-voting common stock
into 1,275,466 shares of Common Stock (see "Business -- CKJ License"), (ii) the
"Company" means Designer Holdings Ltd. and its consolidated subsidiaries, (iii)
the "Company" prior to its formation in March 1995 means its predecessors Rio
Sportswear, Jeanswear and the Predecessor Companies and (iv) the "Selling
Stockholder" means New Rio, L.L.C.
5
<PAGE> 10
SUMMARY FINANCIAL INFORMATION
The summary historical financial information has been derived from the
audited consolidated financial statements of the Company and the combined
financial statements of the Predecessor Companies. The pro forma statement of
operations data for the year ended December 31, 1995 has been adjusted to
reflect (i) the agreements by the Company, which became effective as of January
1, 1996, to grant to another company the right to produce and distribute
sportswear under the Bill Blass and Rio labels and childrens apparel in the
United States under the Calvin Klein Jeans Labels, (ii) certain amendments to
the CKJ License and the related issuance to CKI of 1,275,466 shares of
non-voting common stock and (iii) the completion of the Offerings and
application of the estimated net proceeds to the Company therefrom as described
in "Use of Proceeds," as if such transactions occurred on January 1, 1995. The
as adjusted balance sheet data as of December 31, 1995 presents the pro forma
effect of such issuance and the Offerings, as if such issuance and the Offerings
had occurred on December 31, 1995. The pro forma financial adjustments are based
upon available information and certain assumptions that management of the
Company believes are reasonable. The pro forma financial data is for
informational purposes only and may not necessarily be indicative of the results
of operations (or the financial position) of the Company that actually would
have occurred had such agreements, amendments and the Offerings been consummated
on such dates. The following summary financial data should be read in
conjunction with "Capitalization," "Unaudited Pro Forma Financial Information,"
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" and the audited consolidated financial statements of the Company and
the combined financial statements of the Predecessor Companies and related notes
thereto included elsewhere in this Prospectus.
<TABLE>
<CAPTION>
PREDECESSOR COMPANIES THE COMPANY
(COMBINED) (CONSOLIDATED)
--------------------------------------------- -----------------------------------------
EIGHT MONTHS FOUR MONTHS YEAR ENDED
YEAR ENDED DECEMBER 31, ENDED ENDED DECEMBER 31, 1995
------------------------------ AUGUST 25, DECEMBER 31, --------------------------
1991 1992 1993 1994 1994(1) ACTUAL PRO FORMA
-------- -------- -------- ------------ ------------ ------------ -----------
(DOLLARS IN THOUSANDS, EXCEPT SHARE DATA)
<S> <C> <C> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Net revenues................... $122,640 $145,040 $173,561 $ 93,969 $ 102,038 $ 462,122 $ 349,669
Cost of goods sold............. 100,312 119,195 146,620 81,143 75,246 323,638 217,960
-------- -------- -------- -------- ----------- ----------- ----------
Gross profit................... 22,328 25,845 26,941 12,826 26,792 138,484 131,709
Selling, general and
administrative expenses...... 13,897 19,686 23,323 12,318 20,079 100,391 88,605
-------- -------- -------- -------- ----------- ----------- ----------
Operating income............... 8,431 6,159 3,618 508 6,713 38,093 43,104
Interest expense............... 1,445 1,339 1,808 1,142 2,557 16,160 5,799
-------- -------- -------- -------- ----------- ----------- ----------
Income (loss) before income
taxes........................ 6,986 4,820 1,810 (634) 4,156 21,933 37,305
Provision (benefit) for income
taxes........................ 1,869 1,189 (331) (399) 2,239 10,870 17,788
-------- -------- -------- -------- ----------- ----------- ----------
Net income (loss).............. $ 5,117 $ 3,631 $ 2,141 $ (235) $ 1,917 $ 11,063 $ 19,517
======== ======== ======== ======== =========== =========== ==========
Net income per share........... $ 0.08 $ 0.46 $ 0.64
Weighted average shares
outstanding(2)............... 24,233,868 24,233,868 30,509,334
</TABLE>
<TABLE>
<CAPTION>
AS OF DECEMBER 31, 1995
---------------------------
ACTUAL AS ADJUSTED
----------- -----------
<S> <C> <C>
BALANCE SHEET DATA:
Working capital......................................................................... $ 31,671 $ 56,217
Total assets............................................................................ 250,814 267,586
Current debt............................................................................ 102,016 79,344
Long-term debt, less current portion.................................................... 50,403 10,000
Stockholders' equity.................................................................... 32,482 114,203 (3)
</TABLE>
- ------------------------
(1) Amounts include the results of operations from the sale of Calvin Klein
Jeans Label products beginning August 4, 1994, the date the Company obtained
the CKJ License.
(2) The pro forma weighted average shares outstanding gives effect (i) to the
issuance to CKI of 1,275,466 shares of non-voting common stock in April
1996, which shares are convertible, at any time, into an equal number of
shares of Common Stock, and (ii) the sale by the Company of 5,000,000 shares
of Common Stock pursuant to the Offerings, as if such issuance and the
Offerings were consummated on January 1, 1995.
(3) Reflects a combined $2.3 million charge for a prepayment fee and write-off
of deferred financing costs, net of applicable tax effects, related to the
prepayment of the Subordinated Loan with a portion of the estimated net
proceeds to the Company of the Offerings. See "Use of Proceeds" and Note 11
to the audited consolidated financial statements of the Company and the
combined financial statements of the Predecessor Companies included
elsewhere in this Prospectus.
6
<PAGE> 11
RISK FACTORS
Prospective purchasers of the Common Stock offered hereby should consider
carefully the factors set forth below, as well as other information set forth in
this Prospectus, in evaluating an investment in the Common Stock.
SUBSTANTIAL COMPETITION; CHANGING CONSUMER PREFERENCES; DEPENDENCE ON CKJ
LICENSE
The apparel industry is highly competitive. Certain of the Company's
competitors are significantly larger and more diversified than the Company and
have substantially greater resources. The apparel industry historically has been
subject to substantial cyclical variations, and a recession in the general
economy or uncertainties regarding future economic prospects that affect
consumer spending habits could have a material adverse effect on the Company's
results of operations. The Company believes that its success depends in large
part upon its ability to anticipate, gauge and respond to changing consumer
demands and fashion trends in a timely manner and upon the continued appeal to
consumers of the Calvin Klein image. Failure by the Company to identify and
respond appropriately to changing consumer demands and fashion trends could
adversely affect consumer acceptance of Calvin Klein Jeans Label products and
may have an adverse effect on the Company's business, financial condition and
results of operations. The Company's ability to produce and sell Calvin Klein
Jeans Label products is dependent upon the retention of the CKJ License, which
contains provisions that, under certain circumstances, could permit CKI to
terminate the CKJ License. Such provisions include, among other things, (i) a
default in the payment of certain amounts payable under the CKJ License that
continues beyond the specified grace period and (ii) the failure to comply with
the covenants contained in the CKJ License. The Company believes that it is
currently in compliance with all material provisions of the CKJ License and has
no reason to believe that any events are likely to occur that would permit CKI
to terminate the CKJ License. In addition, under the CKJ License, CKI has
retained the right to produce, distribute, advertise and sell, and to authorize
others to produce, distribute, advertise and sell, certain garments (not of
jeans-type construction) that are similar to some of the Company's products. The
Company believes that any production, distribution, advertisement or sale of
such garments by CKI or another authorized party would not have a material
adverse effect on the Company's business, financial condition and results of
operations, although there can be no assurance to that effect. See
"Business -- CKJ License."
ABILITY TO ACHIEVE AND MANAGE FUTURE GROWTH
In 1993, the year before the Company obtained the CKJ License, net revenues
from the sale of Calvin Klein Jeans Label products by CKI were approximately $59
million. Since the Company obtained the CKJ License in August 1994, net revenues
(including royalties) of Calvin Klein Jeans Label products increased
substantially and were $361.4 million in 1995. No assurance can be given that
the growth of net sales will not decline or that the Company will be successful
in increasing net sales in the future. In order to manage anticipated levels of
demand, the Company will be required to continue to (i) expand its distribution
capabilities, (ii) develop its financial management systems and controls,
including inventory management, and (iii) attract and retain qualified
personnel, including middle management. As sales increased significantly since
January 1, 1995, the Company experienced difficulties in meeting the increased
demands on its distribution systems. The Company has responded by expanding and
improving its distribution facilities and implementing improved management
information systems. The Company believes that its current distribution
facilities and management information systems are sufficient for its current
level of operations and, together with planned expansions and improvements, will
be sufficient for anticipated growth. Any disruption or slow down in the
Company's order processing and fulfillment systems could cause orders to be
shipped late, and under industry practices, retailers can cancel orders and
refuse to receive goods on account of late shipment. Such cancellation of orders
and returns of refused goods can mean a reduction of revenue, increased
administrative and shipping costs, a further burden on the Company's
distribution capacity and added costs associated with liquidating inventory out
of season. There can be no assurance that the planned expansions and
improvements will be completed as planned or that when completed the
distribution facilities and systems will function as anticipated. In addition,
failure to continue to enhance operating control systems, or unexpected
7
<PAGE> 12
difficulties encountered during expansion, could adversely affect the Company's
business, financial condition and results of operations. The Company may also
experience some delays in connection with the introduction of new products as
such products are integrated into the Company's operations.
The Company regularly evaluates, and is currently in discussions with
regard to the possibility of acquiring, additional licenses and brand names. No
agreements or letters of intent to acquire such licenses or brand names have
been entered into and there can be no assurance that the Company will obtain any
such licenses or brand names. If the Company does obtain significant new
licenses or brand names, investment in management, personnel, inventory,
advertising and promotion may be required in advance of the receipt of revenues.
New licenses may also entail minimum guarantees or payments and could put
further strains on the Company's management and financial resources.
While the Company believes that its sources of financing are adequate to
fund its current level of operations and its expected growth through 1997, the
Company will need to seek additional debt or equity financing if it obtains
additional designer brands or licenses or makes significant acquisitions, as
well as to support continued expansion in 1998 and later years.
DEPENDENCE ON KEY PERSONNEL
The continued success of the Company currently depends, to a significant
extent, on the abilities and continued service of a small group of key
management executives, in particular, Mr. Simon, President and Chief Executive
Officer of the Company. Mr. Simon's employment agreement with the Company,
effective upon the closing of the Offerings, expires December 31, 1998. See
"Management -- Employment Agreements." Mr. Simon, through his ownership interest
in the Selling Stockholder, is also the beneficial owner of a substantial
portion of the Common Stock of the Company. See "Principal and Selling
Stockholders." The Company maintains a $10 million key man life insurance policy
on Mr. Simon, which has been assigned to The CIT Group/Commercial Services, Inc.
("The CIT Group") pursuant to the terms of the Credit Agreement (as defined in
"Use of Proceeds"). Three other key management executives also have employment
contracts and non-competition agreements either with the Company or certain of
its subsidiaries. See "Management -- Employment Agreements." There can be no
assurance that the Company will be able to retain the services of such
executives, and the loss of the services of Mr. Simon or certain other key
executives could have a material adverse effect upon the Company's business,
financial condition and results of operations.
DEPENDENCE ON MANUFACTURERS
Substantially all the Company's products are manufactured by third parties.
The Company's three largest suppliers, Azteca Productions, Inc. ("Azteca"), Koos
Manufacturing, Inc. and Nemanco Inc., accounted for approximately 60% of the
Company's finished goods purchased during 1995. The Company is the principal
customer of each of these suppliers, and the Company's relationship with these
suppliers dates back several years. The Company believes that such relationships
provide a significant competitive advantage to the Company. Although the Company
believes that it could find alternative manufacturing sources, establishment of
new manufacturing relationships could involve various uncertainties and
disruptions, and the loss of a substantial portion of such manufacturing could
have a material adverse effect on the Company's business, financial condition
and results of operations. The Company continually explores the availability and
feasibility of alternative locations around the world to manufacture its
products. The inability of a manufacturer to ship products in a timely manner or
to meet the Company's quality standards could adversely affect the Company's
ability to deliver products in a timely manner. From time to time, the Company
has experienced delays in shipments from suppliers in the ordinary course of
operations, but none of such delays has had a material effect on the Company's
business, financial condition or results of operations. In January 1996, the
Company entered into an agreement with Commerce Clothing, an affiliate of
Azteca, granting the right to source and distribute Calvin Klein Jeans Label
products for children in the United States as well as the Bill Blass and Rio
label products.
8
<PAGE> 13
During 1995, the Company imported approximately 20% of the Calvin Klein
Jeans Label products that it sold. Approximately 6% of the Company's Calvin
Klein Jeans Label products were sourced in China (including Hong Kong). There
was no other country that accounted for more than 3% of such products. The
Company's imports are subject to bilateral textile agreements between the United
States and a number of foreign countries. Such agreements, which have been
negotiated under the framework established by the Arrangement Regarding
International Trade in Textiles, allow the United States to impose restraints at
any time on the importation of categories of merchandise that, under the terms
of the agreements, are not currently subject to specific limits. The Company
does not own the right to import finished garments into the United States, but
it relies on its contract manufacturers and its agents to obtain the necessary
quotas. In the past, to the extent that necessary import quotas have not been
available with respect to a particular source of supply, the Company has been
able to find an alternative source of supply. Accordingly, the availability of
quotas has not had a material effect upon the Company's business, financial
conditions or results of operations. The Company's continued ability to source
products that it imports may be adversely affected by a significant decrease in
available import quotas as well as any additional bilateral agreements and
unilateral trade restrictions.
CONTROL BY SELLING STOCKHOLDER
Upon completion of the Offerings, the Selling Stockholder will own of
record approximately 63% of the Common Stock of the Company. The Selling
Stockholder is a limited liability company and its operative agreement allows
the holders of ownership interests therein generally to cause the Selling
Stockholder to exercise voting and disposition rights as directed by each such
holder independently with respect to such holder's allocable percentage of the
shares of Common Stock of the Company. Therefore, such persons may be deemed to
be the beneficial owners of shares of Common Stock of the Company. Through their
ownership interests in the Selling Stockholder, Charterhouse and Mr. Simon will
be deemed to own beneficially approximately 31.5% and 29.1%, respectively, of
the outstanding shares of Common Stock (29.3% and 27.1%, respectively, if the
Underwriters' over-allotment options are exercised in full). See "Principal and
Selling Stockholders." The Selling Stockholder acting alone, and Charterhouse
and Mr. Simon, acting through the Selling Stockholder, will be able to elect a
sufficient number of directors to control the Board of Directors and take other
corporate actions requiring stockholder approval, as well as effectively control
the direction and policies of the Company. The Selling Stockholder will vote its
shares of Common Stock as directed by and in proportion to the interests of the
holders of the ownership interests of the Selling Stockholder, acting
independently. In addition, there can be no assurance that, in any transfer of a
controlling interest in the Company, any other holders of Common Stock will be
allowed to participate in any such transaction or will realize any premium with
respect to their shares of Common Stock. The foregoing may have the effect of
discouraging or preventing certain types of transactions involving an actual or
potential change of control of the Company.
SHARES ELIGIBLE FOR FUTURE SALE
Upon completion of the Offerings, the Company will have 30,509,334 shares
of Common Stock outstanding. The Common Stock offered hereby will be freely
tradeable (other than by an "affiliate" of the Company as such term is defined
in the Securities Act of 1933, as amended (the "Securities Act")) without
restriction or registration under the Securities Act. All remaining shares may
be sold under Rule 144. The Company, the Selling Stockholder, each of the
Company's directors and certain officers and CKI have agreed not to (subject to
certain exceptions in the case of the Company relating to employee stock options
and conversion into Common Stock of the non-voting common stock owned by CKI),
directly or indirectly, sell, offer to sell, grant any option for sale of, or
otherwise dispose of, any capital stock of the Company, or any security
convertible or exchangeable into, or exercisable for, such capital stock, or, in
the case of the Company, file any registration statement with respect to any of
the foregoing, for a period of 180 days after the date of this Prospectus,
without the prior written consent of Merrill Lynch, Pierce, Fenner & Smith
Incorporated. See "Underwriting." The holders of ownership interests in the
Selling Stockholder also have certain registration rights with respect to the
shares of Common Stock beneficially owned by them, which may
9
<PAGE> 14
be exercised independently but only through the Selling Stockholder. In
addition, CKI has agreed to hold its shares for at least 18 months, although it
has certain registration rights. See "Business -- CKJ License", "Certain
Transactions -- Registration Rights Agreements" and "Principal and Selling
Stockholders." Sales of substantial amounts of Common Stock in the public
market, or the perception that such sales may occur, could have a material
adverse effect on the market price of the Common Stock. See "Shares Eligible for
Future Sale" and "Underwriting."
ABSENCE OF PRIOR PUBLIC MARKET
Prior to the Offerings, there has been no public market for the Common
Stock. There can be no assurance that an active public market for the Common
Stock will develop or be sustained after the Offerings. The initial public
offering price of the Common Stock will be determined through negotiations among
the Company, the Selling Stockholder and the Representatives of the Underwriters
and may bear no relationship to the market price of the Common Stock after
completion of the Offerings or the price at which Common Stock may be sold in
the public market after the Offerings. Subsequent to the Offerings, prices for
the Common Stock will be determined by the market and may be influenced by a
number of factors, including depth and liquidity of the market for the Common
Stock, investor perceptions of the Company, changes in conditions or trends in
the Company's industry or in the industry of the Company's significant
customers, publicly traded comparable companies and general economic and other
conditions. See "Underwriting" for a description of certain factors considered
in determining the initial public offering price of the Common Stock.
DILUTION
Purchasers of the Common Stock offered hereby will experience immediate and
substantial dilution in the net tangible book value per share of the Common
Stock from the initial public offering price. Based on an assumed initial public
offering price at the midpoint of the filing range of $15.00 per share, such
dilution would have been equal to $12.99 per share as of December 31, 1995. See
"Dilution."
10
<PAGE> 15
THE COMPANY
The Company develops, sources and markets designer sportswear lines for
men, juniors, women and petites under the Calvin Klein Jeans Labels. The
Company's products target youthful, culturally conscious consumers and
capitalize on the cachet and image created by over 20 years of extensive image
advertising for Calvin Klein, one of the world's most influential designers. The
Company collaborates with the in-house design teams of CKI to create products
characterized by high quality and casual, contemporary fashion. Each of the
Company's lines combines both basic and fashion items in a broad range of casual
fabrications, including jeans, khakis, knit and woven tops and bottoms,
T-shirts, shorts, fleece shirts and pants, outerwear such as leather and denim
jackets, caps and related accessories. In 1995, the mens, juniors, womens and
petites lines accounted for approximately 41%, 31%, 20% and 3%, respectively, of
net sales of Calvin Klein Jeans Label products. In 1993, the year before the
Company obtained the CKJ License, net revenues from the sale of Calvin Klein
Jeans Label products by CKI were approximately $59 million. Since the Company
obtained the CKJ License from CKI for certain types of sportswear in August
1994, net revenues (including royalties) of Calvin Klein Jeans Label products
have risen to $361.4 million in 1995.
The original predecessor of the Company was formed in 1984 by Mr. Simon and
a business associate to design, source, produce and market denim apparel and
other sportswear under the Rio label. Mr. Simon and his organization were
principally responsible for design, sales and advertising. His associate was
initially responsible for the other facets of the business. The business
expanded from the original Rio label to include production of designer label
products under an exclusive license, obtained in 1987, from Bill Blass, a well-
known designer, and private label products for a limited number of retailing
customers. Rio Sportswear was formed in August 1994 to acquire the equity
interests of the Predecessor Companies, which were commonly controlled and
managed by Mr. Simon and his business associate. As part of the transaction, Mr.
Simon exchanged approximately 83% of his interests in the Predecessor Companies
for a 50% equity interest in Rio Sportswear and Jeanswear and sold his remaining
interests to the Company for $4 million. The business associate sold his
interests in the Predecessor Companies to Rio Sportswear. See "Certain
Transactions." In August 1994, through CKJC, the Company obtained the license to
produce sportswear under the Calvin Klein Jeans Labels. In March 1995, Rio
Sportswear and Jeanswear became wholly-owned subsidiaries of the Company. As of
January 1, 1996, the Company has licensed the Rio label and sublicensed the Bill
Blass labels to Commerce Clothing, an affiliate of Azteca. The Company entered
into the license and sublicense in order to focus more on the Calvin Klein Jeans
Label products, which offer the Company a greater profit potential than it
believes possible under the Bill Blass license because the CKJ License permits
the Company to offer a broader line of products to a larger population of
potential consumers. On April 22, 1996, the CKJ License was amended and as
consideration therefor, the Company issued 1,275,466 shares of non-voting common
stock to CKI, which are convertible, at any time, into an equal number of shares
of Common Stock. See "Business -- CKJ License" and "Principal and Selling
Stockholders."
The Company was incorporated in Delaware in March 1995. The Company's
principal executive offices are located at 1385 Broadway, Third Floor, New York,
New York 10018, and its telephone number is (212) 556-9600.
11
<PAGE> 16
DIVIDEND POLICY
The Company currently intends to retain its earnings for use in the
business and does not anticipate declaring and paying dividends in the
foreseeable future. Payment of future dividends, if any, will be at the
discretion of the Company's Board of Directors after taking into account various
factors, including the Company's financial condition, operating results, current
and anticipated cash needs and plans for expansion. The Company is prohibited
(subject to certain limited exceptions) by the terms of its Credit Agreement
from paying dividends, and it may in the future enter into loan or other
agreements or issue debt securities or preferred stock that restrict the payment
of dividends. See "Description of Indebtedness."
USE OF PROCEEDS
The net proceeds from the sale of 5,000,000 shares of Common Stock being
offered by the Company are estimated to be approximately $67.2 million ($74.2
million if the Underwriters' over-allotment options are exercised in full),
assuming an initial public offering price of $15 per share and after deducting
the underwriting discount and estimated expenses of the Offerings payable by the
Company. Approximately $34.7 million of the net proceeds of the Offerings will
be used to retire the subordinated loan, incurred on April 28, 1995 (the
"Subordinated Loan"), and approximately $31.4 million will be used to pay
principal and interest outstanding under the credit agreement, dated April 28,
1995, as amended, among the Company, the lenders named therein and The CIT
Group, as agent (the "Credit Agreement"). Approximately $1.1 million will be
reserved to pay a potential additional contingent portion of the purchase price
on the repurchase in August 1994 of the interests of a former business associate
that may be due upon closing of the Offerings (see "The Company" and "Certain
Transactions"). The Company will not receive any proceeds from the sale of
Common Stock by the Selling Stockholder.
The Subordinated Loan bears current interest at 12% per annum and deferred
interest at the rate of 8% per annum until April 28, 1997 when the deferred
interest rate increases. If not prepaid, amounts outstanding under the
Subordinated Loan will become due in installments ending on April 28, 2005. The
Company will incur a prepayment penalty upon retirement of the Subordinated Loan
of approximately $3.0 million. See "Management's Discussion and Analysis of
Financial Condition and Results of Operations -- Capital Resources and
Liquidity."
Amounts outstanding under the Credit Agreement bear interest either at the
rate announced by Chemical Bank of New York from time to time as its prime rate
plus 1.25% or at a rate equal to LIBOR plus 2.75% at the election of the
Company, subject to certain limitations. The term loan portion of the Credit
Agreement is payable in installments, with the final installment due on March
31, 2000. The final maturity date for the revolving credit facility portion of
the Credit Agreement is April 28, 2000, although the revolving credit facility
will continue until April 28 of each succeeding calendar year unless terminated
as provided in the Credit Agreement. As of March 31, 1996, the Company had
amounts outstanding under the Credit Agreement of approximately $147.5 million,
including $15.7 million for open letters of credit. The outstanding borrowings
of $131.8 million bear interest at a weighted average rate of 8.8% per annum.
See "Description of Indebtedness."
12
<PAGE> 17
CAPITALIZATION
The following table sets forth the actual capitalization of the Company as
of December 31, 1995 and as adjusted to give effect to (i) the issuance to CKI
of 1,275,466 shares of non-voting common stock with a value of $16.8 million in
April 1996, which shares are convertible, at any time, into an equal number of
shares of Common Stock, and (ii) the issuance of 5,000,000 shares of Common
Stock offered by the Company and the application of the net proceeds of $67.2
million therefrom as described in "Use of Proceeds." This table should be read
in conjunction with "Selected Financial Information" and the audited
consolidated financial statements of the Company and the combined financial
statements of the Predecessor Companies and related notes thereto included
elsewhere in this Prospectus.
<TABLE>
<CAPTION>
AS OF DECEMBER 31, 1995
------------------------
ACTUAL AS ADJUSTED
-------- -----------
(DOLLARS IN THOUSANDS)
<S> <C> <C>
Current debt:
Revolving credit loans...................................... $ 97,016 $ 74,344
Current portion of long-term debt........................... 5,000 5,000
-------- ---------
Total current debt.................................. $102,016 $ 79,344
======== =========
Long-term debt, net of current portion:
Term loan portion of Credit Agreement....................... $ 18,750 $ 10,000
Subordinated Loan, including deferred interest.............. 31,653
-------- ---------
Total long-term debt................................ 50,403 10,000
-------- ---------
Stockholders' equity:
Common Stock, par value $.01 per share, authorized
75,000,000 shares, issued and outstanding 24,233,868
shares, actual, and 30,509,334 shares, as adjusted(1).... 242 305
Additional paid-in capital.................................. 20,121 104,069
Retained earnings........................................... 12,119 9,829(2)
-------- ---------
Total stockholders' equity.......................... 32,482 114,203
-------- ---------
Total capitalization........................... $ 82,885 $ 124,203
======== =========
</TABLE>
- ------------------------
(1) Assumes conversion of the 1,275,466 shares of non-voting common stock issued
to CKI in April 1996 into 1,275,466 shares of Common Stock and excludes an
aggregate of 2,288,200 shares of Common Stock reserved for issuance upon
exercise of options under the Company's 1996 Stock Option and Incentive Plan
(including approximately 1,500,000 shares subject to options to be granted
at the initial public offering price). See "Management -- Stock Option
Plan."
(2) Reflects a combined $2.3 million charge for a prepayment fee and write-off
of deferred financing costs, net of applicable tax effects, related to the
prepayment of the Subordinated Loan with a portion of the net proceeds of
the Offerings. See "Use of Proceeds" and Note 11 to the audited consolidated
financial statements of the Company and the combined financial statements of
the Predecessor Companies included elsewhere in this Prospectus.
13
<PAGE> 18
DILUTION
As of December 31, 1995, the Company had a deficit in net tangible book
value of $(2.4) million, or $(.10) per share of Common Stock. "Net tangible book
value" per share of Common Stock represents the difference between the net
tangible assets and the liabilities of the Company, on a consolidated basis,
divided by the total number of shares of Common Stock outstanding. Without
taking into account any changes in net tangible book value after December 31,
1995, other than to give effect to (i) the issuance to CKI of 1,275,466 shares
of non-voting common stock in April 1996, which shares are convertible, at any
time, into an equal number of shares of Common Stock, and (ii) the sale by the
Company of 5,000,000 shares of Common Stock pursuant to the Offerings and the
application of the estimated net proceeds therefrom (assuming an initial public
offering price at the midpoint of the filing range of $15 per share), the pro
forma net tangible book value of the Company at December 31, 1995 would have
been approximately $61.4 million, or $2.01 per share. This represents an
immediate dilution of $12.99 per share to new investors. The following table
illustrates this per share dilution:
<TABLE>
<S> <C> <C>
Assumed initial public offering price per share............ $15.00
Actual deficit in net tangible book value per share as of
December 31, 1995..................................... $(0.10)
Increase in net tangible book value per share
attributable to the issuance of non-voting common
stock in April 1996................................... .01
Increase in net tangible book value per share
attributable to the Offerings......................... 2.10
------
Pro forma net tangible book value per share as of December
31, 1995(1)........................................... 2.01
------
Immediate dilution per share to new investors in the
Offerings................................................ $12.99
======
</TABLE>
The following table summarizes, on a pro forma basis as of December 31,
1995, the number of shares of Common Stock purchased from the Company, the
estimated value of the total consideration or value paid or deemed attributable
thereto and the average price per share paid by or attributable to the Selling
Stockholder, CKI and the new investors purchasing shares in the Offerings.
<TABLE>
<CAPTION>
AVERAGE
SHARES PURCHASED TOTAL CONSIDERATION PRICE
---------------------- --------------------- PER
NUMBER PERCENT AMOUNT PERCENT SHARE
---------- ------- ----------- ------- -------
<S> <C> <C> <C> <C> <C>
Selling Stockholder
(2).................... 24,233,868 79.4% $40,000,000 30.3% $ 1.65
CKI...................... 1,275,466(3) 4.2% $16,836,000 12.8% $ 13.20
New Investors............ 5,000,000 16.4% $75,000,000 56.9% $ 15.00
</TABLE>
- ------------------------
(1) Excludes 2,288,200 shares of Common Stock reserved for issuance under the
Company's 1996 Stock Option and Incentive Plan. See "Management--Stock
Option Plan."
(2) The sale by the Selling Stockholder in the Offerings will cause the number
of shares held by it to be reduced to 19,233,868 shares, or 63% of the total
number of shares to be outstanding after the Offerings (18,233,868 shares,
or 59%, if the Underwriters' over-allotment options are exercised in full).
(3) Assumes conversion of the 1,275,466 shares of non-voting common stock into
1,275,466 shares of Common Stock.
14
<PAGE> 19
UNAUDITED PRO FORMA FINANCIAL INFORMATION
The unaudited pro forma financial information set forth below for the year
ended December 31, 1995 gives effect to (i) the agreements by the Company, which
became effective as of January 1, 1996, to grant to another company the right to
produce and distribute sportswear under the Bill Blass and the Rio labels, and
childrens apparel in the United States under the Calvin Klein Jeans Labels (the
"Agreements"), (ii) certain amendments to the CKJ License and the related
issuance to CKI of 1,275,466 shares of non-voting common stock (the
"Amendments") and (iii) completion of the Offerings and application of the
estimated net proceeds to the Company therefrom as described in "Use of
Proceeds," as if they had been consummated on January 1, 1995. The pro forma
financial adjustments are based upon available information and certain
assumptions that management of the Company believes are reasonable. The pro
forma financial data is for informational purposes only and may not necessarily
be indicative of the results of operations of the Company that actually would
have occurred had the Agreements, the Amendments and the Offerings been
consummated on such dates. The following pro forma financial information should
be read in conjunction with "Capitalization," "Management's Discussion and
Analysis of Financial Condition and Results of Operations" and the audited
consolidated financial statements of the Company and related notes thereto
included elsewhere in this Prospectus.
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, 1995
------------------------------------------------------------------------------
PRO FORMA PRO FORMA
ADJUSTMENTS FOR THE FOR THE
TO REFLECT AGREEMENTS ADJUSTMENTS AGREEMENTS,
THE AGREEMENTS AND TO REFLECT AMENDMENTS AND
HISTORICAL AND AMENDMENTS AMENDMENTS THE OFFERINGS THE OFFERINGS
---------- -------------- ---------- ------------- --------------
(DOLLARS IN THOUSANDS, EXCEPT SHARE DATA)
<S> <C> <C> <C> <C> <C>
Net revenues................. $ 462,122 $ (112,453)(1) $349,669 $ 349,669
Cost of goods sold........... 323,638 (105,678)(1) 217,960 217,960
---------- ---------- -------- --------- ----------
Gross profit................. 138,484 (6,775) 131,709 131,709
Selling, general and (12,280)(2)
administrative expenses.... 100,391 421(3) 88,532 $ 73(4) 88,605
---------- ---------- -------- --------- ----------
Operating income............. 38,093 5,084 43,177 (73) 43,104
Interest expense............. 16,160 16,160 (10,361)(4) 5,799
---------- ---------- -------- --------- ----------
Income before income taxes... 21,933 5,084 27,017 10,288 37,305
Provision for income taxes... 10,870 2,288(5) 13,158 4,630(5) 17,788
---------- ---------- -------- --------- ----------
Net income................... $ 11,063 $ 2,796 $ 13,859 $ 5,658(6) $ 19,517
========== ========== ======== ========= ==========
Net income per share......... $ 0.46 $ 0.64
Weighted average shares
outstanding(7)............. 24,233,868 30,509,334
</TABLE>
- ------------------------
(1) Adjustments to (i) eliminate sales and related cost of goods sold of Bill
Blass and Rio products of $100,729 and $93,502, respectively, and reflect
royalty income of $4,587, representing 5% of 1995 historical net sales of
the Bill Blass products and 4% of 1995 historical net sales of Rio products
pursuant to the provisions of the Agreements, and (ii) eliminate sales and
related cost of goods sold of Calvin Klein Jeans Label childrens apparel in
the United States of $17,311 and $12,176, respectively, and reflect minimum
royalty due in the initial year of the agreement of $1,000.
(2) Adjustment to eliminate selling, general and administrative expenses, which
were eliminated upon consummation of the Agreements.
(3) Adjustment to reflect amortization of $16,836 capitalized licensing rights
over forty years, the adjusted term of the CKJ License. The capitalized
licensing rights represent the Company's estimate of the fair value of the
1,275,466 shares of non-voting common stock issued to CKI in connection with
the Amendments.
(4) Adjustments to reflect (i) amortization of goodwill resulting from $1.1
million additional consideration that may be due upon closing of the
Offerings to a former business associate for the purchase in August 1994 of
his interests in the Predecessor Companies, (ii) decrease in interest
expense resulting from the use of $66.1 million of net proceeds to repay
indebtedness as described in "Use of Proceeds" and (iii) the elimination of
$124 in amortization expense of deferred financing costs.
(5) Adjustments to reflect Federal and state income tax adjustments using an
effective tax rate of 45%.
(6) No adjustment has been made to reflect the prepayment fee incurred in
connection with the repayment of the Subordinated Loan and the write-off of
related deferred financing costs of $2.3 million, net of applicable tax
effects. Such amounts will be treated as an extraordinary loss in the period
in which the repayment occurs.
(7) The pro forma weighted average shares outstanding gives effect to (i) the
issuance to CKI of 1,275,466 shares of non-voting common stock in April
1996, which shares are convertible, at any time, into an equal number of
shares of Common Stock, and (ii) the sale by the Company of 5,000,000 shares
of Common Stock pursuant to the Offerings, as if such issuance and the
Offerings were consummated on January 1, 1995.
15
<PAGE> 20
SELECTED FINANCIAL INFORMATION
The selected historical financial information has been derived from the
audited consolidated financial statements of the Company and the combined
financial statements of the Predecessor Companies. The following selected
financial information should be read in conjunction with "Capitalization,"
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" and the audited consolidated financial statements of the Company and
the combined financial statements of the Predecessor Companies and related notes
thereto included elsewhere in this Prospectus.
<TABLE>
<CAPTION>
PREDECESSOR COMPANIES THE COMPANY
(COMBINED) (CONSOLIDATED)
--------------------------------------------- ---------------------------
EIGHT MONTHS FOUR MONTHS
YEAR ENDED DECEMBER 31, ENDED ENDED YEAR ENDED
------------------------------ AUGUST 25, DECEMBER 31, DECEMBER 31,
1991 1992 1993 1994 1994(1) 1995
-------- -------- -------- ------------ ------------ ------------
(DOLLARS IN THOUSANDS, EXCEPT SHARE DATA)
<S> <C> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Net revenues.............. $122,640 $145,040 $173,561 $ 93,969 $ 102,038 $ 462,122
Cost of goods sold........ 100,312 119,195 146,620 81,143 75,246 323,638
-------- -------- -------- -------- ---------- ----------
Gross profit.............. 22,328 25,845 26,941 12,826 26,792 138,484
Selling, general and
administrative
expenses................ 13,897 19,686 23,323 12,318 20,079 100,391
-------- -------- -------- -------- ---------- ----------
Operating income.......... 8,431 6,159 3,618 508 6,713 38,093
Interest expense.......... 1,445 1,339 1,808 1,142 2,557 16,160
-------- -------- -------- -------- ---------- ----------
Income (loss) before
income taxes............ 6,986 4,820 1,810 (634) 4,156 21,933
Provision (benefit) for
income taxes............ 1,869 1,189 (331) (399) 2,239 10,870
-------- -------- -------- -------- ---------- ----------
Net income (loss)......... $ 5,117 $ 3,631 $ 2,141 $ (235) $ 1,917 $ 11,063
======== ======== ======== ======== ========== ==========
Net income per share...... $ 0.08 $ 0.46
Weighted average shares
outstanding............. 24,233,868 24,233,868
</TABLE>
<TABLE>
<CAPTION>
AS OF DECEMBER 31, AS OF AUGUST 25, AS OF DECEMBER 31,
------------------------------ ---------------- ---------------------------
1991 1992 1993 1994 1994 1995
-------- -------- -------- ---------------- ------------ ------------
<S> <C> <C> <C> <C> <C> <C>
BALANCE SHEET DATA:
Working capital........... $ 8,054 $ 8,907 $ 9,248 $ 6,639 $ 27,070 $ 31,671
Total assets.............. 22,659 20,942 28,740 22,765 114,833 250,814
Current debt.............. 4,035 329 5,271 2,400 7,528 102,016
Long-term debt, less
current portion......... - - - - 52,255 50,403
Stockholder's equity...... 8,427 10,460 10,437 7,896 23,006 32,482
</TABLE>
- ------------------------
(1) Amounts include the results of operations from the sale of Calvin Klein
Jeans Label products beginning August 4, 1994, the date the Company obtained
the CKJ License.
16
<PAGE> 21
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following is a discussion of the financial condition and results of
operations of the Company for the years ended December 31, 1993, 1994 and 1995.
This discussion should be read in conjunction with the audited consolidated
financial statements of the Company and the combined financial statements of the
Predecessor Companies and the related notes thereto and other financial
information included elsewhere in this Prospectus. For presentation purposes,
the results of operations of the Company for the year ended December 31, 1994
have been combined with the results of operations of the Predecessor Companies
for the same period.
GENERAL
On August 4, 1994, the Company obtained the CKJ License, under which it
develops, sources and markets designer sportswear lines for men, juniors, women
and petites under the Calvin Klein Jeans Labels. Each of the Company's lines
combines both basic and fashion items in a broad range of casual fabrications,
including jeans, khakis, knit and woven tops and bottoms, T-shirts, shorts,
fleece shirts and pants, outerwear such as leather and denim jackets, caps and
related accessories. The key initiatives implemented by the Company since
obtaining the CKJ License include: (i) broadening its target market by
re-engineering the garments to provide a comfortable fit and flattering
appearance for a greater number of potential consumers, (ii) increasing the
value offered to consumers by lowering the price of its designer-quality
products to "better" from "designer" price points, (iii) targeting juniors,
childrens and petites lines with a specific marketing strategy and product
offering, (iv) enlarging the core of basic styles for each line and (v) in the
latter part of 1995, establishing an inventory replenishment plan to meet the
requirements of retailers. See "Business -- Products," "-- Divisions" and
"-- Distribution."
Prior to January 1, 1996, the Company designed, sourced and marketed Bill
Blass and Rio products. As of January 1, 1996, the Company has licensed the Rio
label and sublicensed the Bill Blass labels to Commerce Clothing. For the years
ended 1993, 1994 and 1995, the Company had net revenues of the Bill Blass and
Rio products of $173.6 million, $137.3 million and $100.7 million, respectively.
As of January 1, 1996, the Company also entered into an agreement with Commerce
Clothing to produce, market and distribute childrens apparel under the Calvin
Klein Jeans Labels. The Company will receive combined revenues under these
agreements ranging from 4% to 5% of net sales of products sold thereunder, net
of royalties due to CKI and Bill Blass Ltd. As a result of the distribution
agreement with respect to childrens apparel under the Calvin Klein Jeans Labels,
the license of the Rio label and the sublicense of the Bill Blass labels, sales
during 1996 will not include any material amounts for the sale of such childrens
apparel or Rio products or any amount for the sale of Bill Blass products;
however, the Company will receive royalty income under such distribution
agreement, license and sublicense.
The following table sets forth the net revenues from the sale of the
Company's Calvin Klein Jeans Label products by line and the income received
pursuant to the distribution agreement with respect to the sale of Calvin Klein
Jeans Label products in Canada for each of the last two years:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-----------------------
1994(1) 1995
------- --------
(DOLLARS IN THOUSANDS)
<S> <C> <C>
Mens.......................................................... $30,106 $149,626
Juniors....................................................... 11,745 111,374
Womens........................................................ 16,465 72,431
Petites....................................................... 380 9,860
Childrens(2).................................................. -- 17,311
Royalty income................................................ -- 791
------- --------
$58,696 $361,393
======= ========
</TABLE>
- ------------------------
(1) Reflects sales beginning August 4, 1994, the date the Company obtained the
CKJ License.
(2) As of January 1, 1996, the Company has entered into an agreement pursuant to
which Commerce Clothing will produce, market and distribute Calvin Klein
Jeans Label childrens apparel in the United States.
17
<PAGE> 22
RESULTS OF OPERATIONS
The following table sets forth, for the periods indicated, statement of
operations data as a percentage of net revenues:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
---------------------------------
1993 1994 1995
----- ----- -----
<S> <C> <C> <C>
Net revenues............................................ 100.0% 100.0% 100.0%
Cost of goods sold...................................... 84.5 79.8 70.0
----- ----- -----
Gross profit............................................ 15.5 20.2 30.0
Selling, general and administrative expenses............ 13.4 16.5 21.7
----- ----- -----
Operating income........................................ 2.1 3.7 8.3
===== ===== =====
</TABLE>
YEAR ENDED DECEMBER 31, 1995 COMPARED TO YEAR ENDED DECEMBER 31, 1994
Net Revenues. Net revenues for the year ended December 31, 1995 were $462.1
million, which represented an increase of $266.1 million or 135.8% over 1994 net
revenues of $196.0 million. Net revenues in 1995 included $361.4 million from
the sale of Calvin Klein Jeans Label products, an increase of $302.7 million
over net revenues for the period from August 4, 1994 (the date the Company
obtained the CKJ License) to December 31, 1994. The growth in revenues of the
Calvin Klein Jeans Label products during 1995 was principally attributable to an
increase in the volume of products sold from the distribution of such products
to a larger number of department stores and specialty retail stores. This
increased distribution was in large part due to the fact that the Company
broadened its target market by re-engineering the garments to provide greater
appeal to a greater number of potential consumers, lowered the price of its
designer-quality products to "better" from "designer" price points, targeted
juniors, petites and childrens lines with a specific marketing strategy and
product offering and enlarged the core of basic styles for each line. The
elements of the Company's strategy that contributed to the increase in volume
were implemented when the Company obtained the CKJ License in August 1994. Also
included in 1995 revenues is net royalty income of $.8 million from the sale of
Calvin Klein Jeans Label products by a distributor in Canada. There was no such
royalty income in 1994. In 1995, the net revenues from the sale of Bill Blass
and Rio products were $100.7 million, a decline of $36.6 million or 26.7% from
1994 net revenues of $137.3 million, was due to continuing increased competition
at the moderate price points and a continuing shift by retailers toward private
label products. In addition, in 1995, management further increased its focus on
sales of the Calvin Klein Jeans Label products.
Gross Profit. Gross profit was $138.5 million for 1995, an increase of
$98.9 million from 1994 gross profit of $39.6 million. The gross profit
percentage was 30.0% in 1995, an increase from 20.2% in 1994. The gross profit
percentage on the sale of the Calvin Klein Jeans Label products and related
royalty income for 1995 was 36.3%, an increase from 30.3% for 1994, reflecting
lower cost sourcing of such products, a shift in product mix toward more basic
products versus fashion products and a reduction of the quantity of products
sold at off-price. The gross profit percentage for the Bill Blass and Rio
products for 1995 was 7.2%, a decrease from 15.9% in 1994. The decline in the
gross profit on the sale of Bill Blass and Rio products was due to increased
competition combined with pricing pressure from retailers and the sale of
remaining inventory at a loss of approximately $4.4 million in 1995.
Selling, General and Administrative. Selling, general and administrative
("SG&A") expenses were $100.4 million or 21.7% of net revenues in 1995, an
increase of $68.0 million from $32.4 million or 16.5% of net revenues in 1994.
The overall increase in SG&A expense levels was primarily a result of the higher
level of advertising, design and royalty expenses incurred in connection with
the CKJ License, combined with a higher volume of sales over 1994. The increase
in SG&A expenses also reflects the growth in the Company's management and the
expense associated with building the infrastructure necessary to support the
sales growth the Company experienced during 1995. Although the Company licensed
the Rio label and sublicensed the Bill Blass labels as of January 1, 1996, it
retained responsibility for the sales function and will continue to incur
related costs.
Interest Expense. Interest expense in 1995 was $16.2 million as compared to
$3.7 million in 1994. The increase in the level of interest expense incurred was
the result of the full year of interest charges on loans
18
<PAGE> 23
incurred in connection with the leveraged buyout of the Predecessor Companies by
Rio Sportswear and obtaining the CKJ License and acquiring related assets from
CKI in August 1994, an increase in the working capital necessary to support the
higher level of sales, and the incurrence of a Subordinated Loan that bears an
effective interest rate of 20%.
Provision (benefit) for income taxes. The provision for income taxes was
$10.9 million and $1.8 million for 1995 and 1994, respectively. The increase in
the provision for income taxes in 1995 was primarily attributable to increased
earnings. The Company's effective tax rate decreased to 49.6% in 1995 from 52.2%
in 1994, principally due to lower state tax rates.
YEAR ENDED DECEMBER 31, 1994 COMPARED TO YEAR ENDED DECEMBER 31, 1993
Net Revenues. Net revenues for the year ended December 31, 1994 were $196.0
million, an increase of $22.4 million or 12.9% over 1993 net revenues of $173.6
million. Net revenues in 1994 included $58.7 million from the sale of Calvin
Klein Jeans Label products for the period from August 4, 1994 (the date the
Company obtained the CKJ License) to December 31, 1994. The net revenues from
the sale of the Bill Blass and Rio products contributed $137.3 million to 1994
net revenues, a decrease of $36.3 million or 20.9% from 1993 net revenues of
$173.6 million. The decrease in Bill Blass and Rio sales was due to increased
competition at the moderate price points and a shift by retailers, such as J.C.
Penney, toward private label products, and the elimination of certain Bill Blass
and Rio product lines.
Gross Profit. Gross profit was $39.6 million for 1994, an increase of $12.7
million from 1993 gross profit of $26.9 million. The gross profit percentage was
20.2% in 1994, an increase from 15.5% in 1993. The sale of Calvin Klein Jeans
Label products contributed $17.8 million to 1994 gross profit, which represented
30.3% on its net revenues. The Bill Blass and Rio products contributed $21.9
million to 1994 gross profit, or 15.9% of net revenues, compared to 1993 gross
profit of $26.9 million, or 15.5% of its net revenues. The improvement reflected
in the gross profit percentage of the Bill Blass and Rio products was due to the
elimination of certain less profitable product lines.
Selling, General and Administrative. SG&A expenses were $32.4 million or
16.5% of net revenues in 1994, an increase of $9.1 million from $23.3 million or
13.4% of net revenues in 1993. The overall increase in SG&A expense levels was
primarily driven by the addition of the Calvin Klein Jeans Label products and
the associated increased cost of advertising, design and royalties.
Interest Expense. Interest expense for 1994 was $3.7 million as compared to
$1.8 million for 1993. The increase in the level of interest expense reflected
increased borrowings incurred in connection with the purchase of the ownership
interests in the Predecessor Companies by Rio Sportswear and obtaining the CKJ
License and acquiring related assets from CKI in August 1994.
Provision (benefit) for income taxes. The provision for income taxes was
approximately $1.8 million in 1994 as compared to a benefit of approximately $.3
million in 1993. The benefit for income taxes in 1993 principally resulted from
S Corporation earnings included in the combined operating results of the
Predecessor Companies which are not subject to federal and state corporate
income taxes. In addition, in 1993, certain deferred tax liabilities of one of
the entities in the Predecessor Companies became the responsibility of a
stockholder as a result of that entity converting from a C Corporation to an S
Corporation.
CAPITAL RESOURCES AND LIQUIDITY
On April 28, 1995, the Company refinanced its outstanding credit
obligations with borrowings under a new $140 million Credit Agreement. This
facility consists of a revolving credit facility of $115 million, and a term
loan of $25 million. Borrowings under the revolving credit facility, including
the opening of letters of credit, are limited in the aggregate to specified
percentages of eligible factored receivables and inventory (as defined in the
Credit Agreement). The portion of the revolving credit facility available for
the opening of letters of credit is limited to $45 million. At December 31,
1995, outstanding letters of credit aggregated $21.4 million. The amount of the
revolving credit facility was increased to $125 million on September 15, 1995,
to $135 million on November 8, 1995 and to $150 million on March 29, 1996.
Amounts outstanding
19
<PAGE> 24
under the Credit Agreement are collateralized by substantially all the assets of
the Company. The Credit Agreement contains restrictive covenants that, among
other things, prohibit the payment of dividends or stock repurchases and
restrict additional indebtedness, leases, capital expenditures, investments and
a sale of assets or merger of the Company with another entity. The covenants, as
amended March 8, 1996, also require the Company to meet certain financial ratios
and maintain minimum levels of net worth. In connection with the Offerings, the
Company will continue to evaluate alternatives to its current Credit Agreement
in order to increase operating flexibility. See "Description of Indebtedness."
In addition to the Credit Agreement, on April 28, 1995, the Company
incurred a $30 million Subordinated Loan. The Subordinated Loan bears a current
interest rate of 12% payable in June and December of each year and a deferred
interest rate of 8% for the first two years. This deferred interest rate
increases 1% per annum each year thereafter, compounded annually. Deferred
interest is payable upon maturity or upon payment of any part of the principal
amount of the Subordinated Loan to which the deferred interest relates.
The Company entered into a factoring agreement dated August 24, 1994, with
The CIT Group, the agent under the Credit Agreement. Pursuant to the terms of
the agreement, The CIT Group purchases the Company's eligible accounts
receivables and assumes the credit risk only on those accounts for which it has
given prior credit approval in writing. The Company is also a party to an
intercreditor agreement under which the factor, as agent, is obligated to apply
all monies, otherwise due to the Company, against amounts outstanding under the
Credit Agreement. The Company borrows its daily cash requirements under the
revolving credit facility and therefore shows no cash balance as of December 31,
1995.
During 1995, the Company financed its operations primarily through cash
flows generated from operations and from daily borrowings under the revolving
credit facility. In the past, the Company's borrowing requirements have been
somewhat seasonal, with peak working capital needs arising at the end of the
second and beginning of the third quarter of the fiscal year. The sales growth
experienced during 1995 as a result of the addition of the Calvin Klein Jeans
Label products overshadowed the historical seasonal pattern in that year.
Net cash used in operating activities was $2.7 million, $14.8 million and
$83.1 million for 1993, 1994 and 1995, respectively. The increase in net cash
used for operating activities during 1994 and 1995 resulted primarily from an
increase in receivables and inventories as a result of the increased sales
growth resulting from the sale of Calvin Klein Jeans Label products beginning in
August 1994. Net cash used for investing activities was $2.8 million in 1995 and
$36.8 million in 1994, respectively. Net cash used in investing activities for
1995 included capital expenditures of $2.8 million. Net cash used in such
investing activities for 1994 included $24.0 million for the purchase of the
ownership interest in the Predecessor Companies, $10.3 million for obtaining the
CKJ License and related assets and a $2.4 million loan to a stockholder.
Net cash provided by financing activities was $2.8 million, $51.9 million
and $84.5 million in 1993, 1994 and 1995, respectively. The net cash provided in
1995 principally represented borrowings under the Company's revolving credit
facility. In 1994, the cash provided by financing activities principally
represented $45.2 million of proceeds from notes payable to Charterhouse and
capital contributions by Charterhouse of $20.0 million, which were used to
purchase the ownership interests of the Predecessor Companies and to obtain the
CKJ License and acquire related assets. The notes payable to Charterhouse bore
interest at a fluctuating annual rate equal to the rate publicly announced by
Chemical Bank in New York as its reference rate plus 3% per annum. The notes
were repaid in full by the Company with proceeds of the Term Loan and
Subordinated Loan.
The Company intends to use the estimated net proceeds from the Offerings of
approximately $68.4 million to satisfy all obligations existing under the
Subordinated Loan (approximately $35.0 million including the prepayment penalty)
and to reduce amounts outstanding under the Credit Agreement.
The Company believes that its sources of financing are adequate to fund its
current level of operations and its expected growth through 1997. The Company
will need to seek additional debt, equity or equity-linked financing if it
obtains additional designer brands or licenses or makes significant
acquisitions, as well as to support continued expansion in 1998 and later years.
20
<PAGE> 25
The Company has recently contracted for the construction and installation
of 50 "shop-in-shops" and plans to install approximately 150 such shops during
1996. The Company expects that the cost of constructing, equipping and
installing the first 50 shops will not exceed $2.0 million in the aggregate. The
Company expects to fund the construction of the shops with borrowings under the
Credit Agreement and cash from operations.
SEASONALITY
The following table sets forth the net revenues from the sale of the
Company's Calvin Klein Jeans Label products by line and the income received
pursuant to the distribution agreement with respect to the sale of Calvin Klein
Jeans Label products in Canada for the last six quarters:
<TABLE>
<CAPTION>
1994 1995
------------------- --------------------------------------------
THIRD FOURTH FIRST SECOND THIRD FOURTH
QUARTER QUARTER QUARTER QUARTER QUARTER QUARTER
------- ------- ------- ------- ------- --------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
Mens...................... $ 9,221 $20,885 $29,951 $31,215 $30,774 $ 57,686
Juniors................... 2,745 9,000 10,861 23,163 32,552 44,798
Womens.................... 6,196 10,269 14,668 9,538 20,966 27,259
Petites................... 55 325 407 1,461 2,288 5,704
Childrens................. -- -- -- 100 7,695 9,516
Royalty income............ -- -- -- -- 459 332
------- ------- ------- ------- ------- --------
$18,217 $40,479 $55,887 $65,477 $94,734 $145,295
======= ======= ======= ======= ======= ========
</TABLE>
The Company's business is affected by general seasonal trends that are
characteristic of the apparel industry. In the Company's segment of the apparel
industry, sales typically are higher in the first and third quarters. Primarily
as a result of the significant growth that the Company has experienced, recent
quarterly sales trends have not reflected this seasonality. In 1996 and future
years, assuming the Company does not obtain additional significant designer
brands or licenses, the Company expects that its sales may reflect greater
seasonal trends as its growth rate moderates. Additionally, the difficulties in
distribution experienced by the Company in the second and third quarters of 1995
caused subsequent quarter sales to be higher than anticipated, as products
scheduled to be shipped were delayed. In order to remedy these difficulties, the
Company has expanded its distribution facilities and is implementing upgraded
management information systems. See "Business -- Distribution" and
"-- Management Information Systems." No assurance can be given, however, that
such facilities and systems will function as anticipated. See "Risk
Factors -- Ability to Achieve and Manage Future Growth."
INFLATION
The Company does not believe that inflation has had a significant effect on
its net revenues or its profitability. The Company believes that, in the past,
it has been able to offset such effects by increasing prices or by instituting
improvements in efficiency.
NEW ACCOUNTING STANDARDS
In March 1995, Statement of Financial Accounting Standards No. 121,
"Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to
Be Disposed Of," ("SFAS No. 121") was issued and became effective January 1,
1996. SFAS No. 121 requires that in the event certain facts and circumstances
indicate an asset may be impaired, an evaluation of recoverability must be
performed to determine whether or not the carrying amount of the asset is
required to be written down. The Company does not expect the adoption of this
statement to have a material effect on its financial condition or results of
operations.
21
<PAGE> 26
BUSINESS
The Company develops, sources and markets designer sportswear lines for
men, juniors, women and petites under the Calvin Klein Jeans Labels. The
Company's products target youthful, culturally conscious consumers and
capitalize on the cachet and image created by over 20 years of extensive image
advertising for Calvin Klein, one of the world's most influential designers. The
Company collaborates with the in-house design teams of CKI to create products
characterized by high quality and casual, contemporary fashion. Each of the
Company's lines combines both basic and fashion items in a broad range of casual
fabrications, including jeans, khakis, knit and woven tops and bottoms,
T-shirts, shorts, fleece shirts and pants, outerwear such as leather and denim
jackets, caps and related accessories. In 1995, the mens, juniors, womens and
petites lines accounted for approximately 41%, 31%, 20% and 3%, respectively, of
net sales of Calvin Klein Jeans Label products. In 1993, the year before the
Company obtained the CKJ License, net revenues from the sale of Calvin Klein
Jeans Label products by CKI were approximately $59 million. Since the Company
obtained the CKJ License from CKI for certain types of sportswear in August
1994, net revenues (including royalties) of Calvin Klein Jeans Label products
have risen to $361.4 million in 1995.
Since August 1994, the Company has experienced substantial growth in net
revenues for its Calvin Klein Jeans Label products. The Company believes that
the quality and casual style of its products combined with the youthful image
presented in its advertising, provide the Company with the opportunity to
experience further sales growth by taking advantage of certain market trends.
The Company believes such trends include: (i) a move towards more "relaxed"
dress including the introduction of "casual days" in the workplace, (ii)
demographic changes indicating that the juniors market will be one of the
fastest growing segments of the industry, (iii) strong consumer demand for
higher-end designer quality merchandise and (iv) a shift by major retailers
towards devoting more selling space to a select group of designer brands.
Beginning in August 1994, the Company implemented a number of key
initiatives to increase market share and improve profitability of the Calvin
Klein Jeans Label products, including: (i) broadening its target market by
re-engineering the garments to provide a comfortable fit and flattering
appearance for a greater number of potential consumers, (ii) increasing the
value offered to consumers by lowering the price of its designer-quality
products to "better" from "designer" price points, (iii) targeting juniors,
petites and childrens lines with a specific marketing strategy and product
offering, (iv) expanding the core of basic styles for each line and (v)
establishing an inventory replenishment plan to meet the requirements of
retailers.
BUSINESS STRATEGY
The Company's growth strategy is to capitalize on the strength of the
Calvin Klein image and the quality, fit and value of the Company's products as
well as the Company's expertise in marketing and sourcing designer sportswear.
The Company's strategy includes the following:
EXPAND ACCOUNT BASE AND NUMBER OF STORE LOCATIONS ON A SELECTIVE
BASIS. The Company currently distributes products under the Calvin Klein
Jeans Labels to a broad range of department stores and specialty retailers.
The Company believes that the strong demand for its Calvin Klein Jeans
Label products positions it to selectively add to its account base. Within
the Company's existing retailing customers, the Company believes it has
opportunity to increase the number of store locations that carry each of
its product lines, particularly its womens and juniors lines. At the same
time, the Company seeks those speciality retailers that have the ability to
offer the proper presentation of the Company's products.
EXPAND SHOP-IN-SHOP PROGRAM. The Company expects to increase the
retail presence of its Calvin Klein Jeans Label products through the
installation of "shop-in-shops," which are dedicated to Calvin Klein Jeans
Label products, in the stores of its department store customers. The
shop-in-shops create a specialized shopping environment that is consistent
with the Calvin Klein image. The shop-in-shops are designed to hold more of
the Company's merchandise than conventional department store displays and
will be approximately 750 square feet in size. The Company believes that
the shop-in-shops will enhance the consumer's shopping experience and will
build loyalty among consumers and the Company's retailing customers. The
Company has one prototype shop-in-shop in operation in Bloomingdale's
(Federated Department Stores, Inc.) in New York City, and the Company has
recently contracted for the construction and installation of 50 shops. The
Company plans to install approximately 150 shops during 1996. The fixtures
will be constructed off-site and are intended to be suitable for quick
installation.
22
<PAGE> 27
DEEPEN PRODUCT OFFERINGS. The Company continually evaluates consumer
demand for its products and will seek to complement its existing lines with
new products that fit well with the Calvin Klein image. During 1995, the
Company added leather and different textures of cotton to its product
offerings and has recently introduced khaki sportswear to all its lines.
The Company plans to support the introduction of the khaki products with an
extensive marketing campaign.
EXPAND GEOGRAPHICALLY THROUGH THIRD PARTY DISTRIBUTORS. The Company
believes that opportunities exist to continue to expand its market
geographically by entering into agreements to have its Calvin Klein Jeans
Label products distributed in various regions outside the United States.
The Company has recently entered into a distribution agreement for its
Calvin Klein Jeans Label mens, womens, juniors and petites lines in Canada,
and the Company is currently negotiating distribution agreements with
respect to childrens apparel and khaki products in Canada. The Company also
is currently negotiating distribution agreements for Mexico, Central
America and South America.
IMPROVE OPERATING EFFICIENCIES. In order to provide infrastructure to
support its growth and to improve its operating profitability, the Company
is in the process of upgrading its distribution and management information
systems. Upon full implementation and integration of these systems, the
Company expects to have sufficient capacity in its inventory management,
distribution and management information systems to effectively manage all
reasonably anticipated levels of growth. The Company also plans to improve
its distribution capabilities by leasing a new automated, 375,000 square
foot distribution facility in North Arlington, New Jersey that is expected
to become operational during 1997. The Company believes that the North
Arlington facility will have the capacity to ship approximately the same
volume of products that can be shipped out of its two currently operating
distribution facilities. The addition of the distribution capacity in North
Arlington will permit the Company to reevaluate its distribution plan to
maximize operating efficiencies.
ACQUIRE ADDITIONAL LICENSES/BRANDS. The Company regularly evaluates,
and is currently in discussions with regard to the possibility of
acquiring, additional licenses and brand names. No agreements or letters of
intent to acquire such licenses or brand names have been entered into and
there can be no assurance that the Company will obtain any such licenses or
brand names. See "Risk Factors -- Ability to Achieve and Manage Future
Growth."
PRODUCTS
The Company believes that the strength of the Calvin Klein image and the
design, fit, quality and value of the products are key elements in maintaining
and promoting consumer demand for the Calvin Klein Jeans Label products. Before
the Company obtained the CKJ License, Calvin Klein Jeans Label products were
targeted primarily to the 30 to 50 year-old age group and the apparel was
tailored to fit only a limited range of the consumer population. Since obtaining
the CKJ License, the Company has retailored the products to provide a
comfortable fit and flattering appearance for a greater number of potential
consumers. The Company now designs, tailors and targets the products to both
older and younger consumers, including the teen market, which has substantially
increased the potential market for Calvin Klein Jeans Label products. The
Company categorizes its products as either basic or fashion. The basic products,
which represented approximately 65% of 1995 net sales, consist of items such as
jeans, T-shirts, shorts, shirts, vests, jackets, fleece shirts and pants and
caps. The Company currently offers approximately 50 styles of its basic products
in each of its lines, and those styles reflect little variation from season to
season. The Company complements its basic products with fashion products, which
represented approximately 35% of 1995 net sales. Fashion items currently include
approximately 120 styles in the mens, womens and juniors lines and approximately
20 styles in its petites line, and the assortment of fashion styles that are
offered may be changed up to ten times per year, with variations appropriate to
the season and items that are updated for current trends in color, fabrication
or styling. For example, during the course of 1995, the Company offered a total
of approximately 65 basic styles and approximately 600 fashion styles in its
mens line. The Company uses the fashion items to continually introduce variety
into its merchandise assortment.
The in-house design staff at CKI designs the Company's Calvin Klein Jeans
Label products to meet the requests of the Company's merchandising team for
specific garments, fabrics and colors. The Company and
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CKI work together to produce a "fashion blueprint" for each of four fashion
seasons. The image, colors and styles of the Company's Calvin Klein Jeans Label
products are intended to be consistent with the other sportswear sold by CKI and
other companies under the Calvin Klein brand name. The design goal is to capture
looks that are fresh and uncluttered. Products are made in a wide range of
fabrics that are given distinctive looks through a variety of finishes, many of
which are developed by the Company, and through an array of colors that are
varied over time. Special attention is given, among other things, to the feel of
the fabrics and the details of the trim. In addition, the Company has developed
a line of khaki products, which it began introducing during the fall of 1995 and
which became available in stores in March 1996.
Upon obtaining the CKJ License, the Company increased the value offered to
consumers by lowering the price of its designer-quality products to "better"
from "designer" price points. The following chart indicates the approximate
range of current retail prices at which certain Calvin Klein Jeans Label
products are sold:
<TABLE>
<CAPTION>
BASIC
-------------------------- FASHION
KNITS, -------------------------
INCLUDING WOVEN
JEANS T-SHIRTS BOTTOMS WOVEN TOPS
----------- ----------- ----------- ----------
<S> <C> <C> <C> <C>
Mens...................... $45 to $52 $20 to $32 $54 to $68 $48 to $68
Juniors................... $45 to $52 $16 to $32 $48 to $72 $48 to $84
Womens.................... $45 to $52 $16 to $32 $48 to $72 $48 to $84
Petites................... $45 to $52 $16 to $32 $48 to $72 $48 to $84
</TABLE>
DIVISIONS
The following chart sets forth the amount of 1995 net sales for each of the
Company's product lines:
<TABLE>
<CAPTION>
% OF
NET SALES(1) NET SALES
------------ ---------
<S> <C> <C>
(DOLLARS IN THOUSANDS)
Mens.................................................. $149,626 41.5%
Juniors............................................... 111,374 30.9
Womens................................................ 72,431 20.1
Petites............................................... 9,860 2.7
Childrens(2).......................................... 17,311 4.8
-------- -----
$360,602 100.0%
======== =====
</TABLE>
-------------------------------
(1) Excludes amounts received as royalties.
(2) As of January 1, 1996, the Company has entered into an
agreement pursuant to which Commerce Clothing will produce
and distribute Calvin Klein Jeans Label childrens apparel in
the United States.
Mens. The Calvin Klein Jeans Label mens line contributed the greatest
amount to 1995 net sales and was carried in approximately 680 department store
locations and approximately 1,400 specialty retail stores as of December 31,
1995. As of March 1, 1996, the number of department store locations in which the
mens line was carried had increased to approximately 880. At the same time, the
Company is seeking to limit distribution to include only those specialty
retailers that have the ability to offer the proper presentation of the
Company's products and has reduced the number of specialty retailers that
distribute its mens line to approximately 1,100 as of March 1, 1996. The Company
currently dedicates a staff of 10 to the sale of the mens line.
Juniors. In the third quarter of 1994, the Company began targeting juniors.
The Company believes the Calvin Klein image advertising and the style of the
Calvin Klein Jeans Label products have significant appeal to consumers in this
category. The Company further believes that juniors is one of the fastest
growing segments of the retail market and that, as a result, its retailing
customers are increasing the floor space dedicated to the Calvin Klein Jeans
Label juniors line. As of the end of 1995, the juniors line was carried in
approximately 840 department store locations and approximately 800 specialty
retail stores. The Company currently dedicates a staff of 11 to the sale of the
juniors line.
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<PAGE> 29
Womens. The Company believes the womens line is currently underrepresented
in department store locations in comparison to the Company's mens and juniors
lines, and there is a significant opportunity for growth. As of the end of 1995,
such products were carried in approximately 800 department store locations. The
Company currently dedicates a staff of 11 to the sale of the womens line.
Petites. The Company began targeting petites with a specific marketing
strategy and product offering in the third quarter of 1995. The line was
originally introduced into approximately 95 department store locations and grew
to approximately 200 department store locations as of December 31, 1995. The
Company currently dedicates a staff of 3 to the sale of the petites line.
Childrens. As of January 1, 1996, the Company has entered into an agreement
pursuant to which a subsidiary of one of its principal suppliers will produce
and distribute Calvin Klein Jeans Label childrens apparel in the United States.
The Company continues to direct and oversee the sale of the products, and it
supervises the distributor's sales staff.
PRODUCTION AND QUALITY CONTROL
The Company engages both foreign and domestic contractors to manufacture
its Calvin Klein Jeans Label products, and it owns and operates two production
facilities in the United States. In 1995, approximately 75% of the Company's
products, as measured by finished goods purchased, were produced by third-party
vendors in the United States and approximately 20% of the Company's products
were produced by overseas vendors. In 1995, approximately 5% of the Company's
products were produced by the Company's production facilities. The Company
balances the relatively low cost of production outside the United States with
the relatively quick turnaround time on orders produced domestically. By doing
so, the Company hopes to achieve an optimum balance of cost and timeliness of
order fulfillment. Cost management has enabled the Company to maintain the
prices for its basic products at levels that are attractive to consumers and
that provide ample margins for both the Company and its retailing customers. The
Company believes that there is little difference in the quality of the products
produced domestically and outside the United States, provided that adequate
quality controls are in place. The Company selects the fabrics and other
materials and informs the manufacturers as to where to obtain them. The Company
buys finished goods from its manufacturers, enabling the Company to avoid
significant capital expenditures, work-in-process inventories and the costs
associated with maintaining a large production work force. The Company believes
that its relationships with its suppliers are good. The loss of such suppliers
could involve various uncertainties and disruptions, which could have a material
adverse effect on the Company's business, financial condition and results of
operations. See "Risk Factors -- Dependence on Manufacturers." The Company
retains sourcing agents in the international markets to assist the Company in
selecting and overseeing third-party contractors, sourcing fabric, monitoring
quota and other trade regulations, as well as performing quality control
functions.
The Company's quality control program is designed to provide that all of
the Company's products meet the Company's standards. The Company maintains a
staff of 16 quality control personnel in the United States and eight sourcing
agents abroad. The Company develops and inspects prototypes of each product
prior to production, establishes fittings based on the prototype, inspects
samples and, through its employees or sourcing agents, inspects fabric prior to
cutting and several times during the production process. The Company or its
sourcing agents inspect the final product prior to shipment to the Company's
distribution facilities. With respect to products produced under licenses or
distribution agreements, the Company oversees the quality control programs of
its licensees and distributors and regularly inspects samples of their products.
DISTRIBUTION
The Company currently distributes its Calvin Klein Jeans Label products
through distribution facilities located in Secaucus, New Jersey and in New
Bedford, Massachusetts. The Secaucus facility, which is operated by an
independent contractor, contains approximately 200,000 square feet and under
normal operating conditions can ship up to 300,000 units per week. The New
Bedford facility, which is leased and operated by the Company, contains
approximately 370,000 square feet and under normal operating conditions can ship
up to 500,000 units per week. In order to improve capacity and operating
efficiency within these
25
<PAGE> 30
facilities, the Company is installing inventory shelves at the Secaucus facility
and conveyor systems at both the Secaucus and New Bedford facilities. In
addition, the Company plans to lease an automated 375,000 square foot
distribution facility in North Arlington, New Jersey that is expected to become
operational in 1997. The Company believes that the North Arlington facility will
have the capacity to ship approximately the same amount of products that can be
shipped out of its two currently operating distribution facilities. The addition
of the distribution capacity in North Arlington will permit the Company to
reevaluate its distribution plans.
Under the Company's inventory replenishment program, the Company offers
retailers the ability to reorder basic items for immediate shipment. The Company
keeps an inventory of products covered by the program and accepts replenishment
orders through its EDI system (see " -- Management Information Systems"). The
Company typically fills replenishment orders within five days of receipt. While
the program requires an increased investment in inventories, the Company
believes its ability to offer this flexibility to its retailing customers is a
significant competitive advantage and reduces the risk of mark-down allowances
and returns.
Fashion items are shipped in pre-packaged containers, prepared by the
manufacturer, each containing a single type of item in a standard array of
sizes. In general, the Company does not ship individual fashion items to fill-in
the inventory of a retailing customer but rather offers to ship pre-packaged
containers of the next comparable fashion item. Shipping its fashion items in
this manner permits the Company both to distribute a greater volume of products
and to reduce its per unit distribution costs.
As sales increased significantly since January 1, 1995, the Company
experienced difficulties in meeting the increased demands on its distribution
systems. The Company has responded by expanding and improving its distribution
facilities and implementing improved management information systems. The Company
believes that its current distribution facilities and management information
systems are sufficient for its current level of operations and, together with
planned expansions and improvements, will be sufficient for anticipated growth.
There can be no assurance, however, that the planned expansions and improvements
will be completed as planned or that when completed the distribution facilities
and systems will function as anticipated. See "Risk Factors -- Ability to
Achieve and Manage Future Growth."
MANAGEMENT INFORMATION SYSTEMS
The Company is in the process of upgrading its management information
system in order to maintain better control of its inventory and to provide
management with information that is both more current and more accurate than was
available previously. The Company's management information system is intended to
provide, among other things, comprehensive order processing, production,
accounting and management information for the marketing, manufacturing,
importing and distribution functions of the Company's business. The Company's
distribution facilities and administrative offices are being linked by the
computer system. The Company has purchased and is implementing a software
program that will enable the Company to track, among other things, orders,
manufacturing schedules, inventory, sales and mark-downs of its products. In
addition, to support the Company's replenishment program, the Company has an
electronic data interchange ("EDI") system, through which certain customers'
orders are automatically placed by the retailer with the Company. The Company
currently serves approximately 24 customers in its EDI system. The upgraded and
expanded management information system is scheduled to become fully operational
in 1996. No assurance can be given, however, that expansions and improvements
will be completed as planned, or that when completed, they will function as
anticipated. See "Risk Factors -- Ability to Achieve and Manage Future Growth."
CUSTOMERS
The Company's Calvin Klein Jeans Label products are sold through major
department stores and specialty retail stores. The Company seeks to maintain and
enhance the image of its Calvin Klein Jeans Label products by controlling the
distribution channels, based on criteria that include the image of the store,
availability of desirable locations within the store and the ability of the
retailing customer to display and promote the products. In addition to the
in-house sales force that is dedicated to the sale of the Company's Calvin Klein
Jeans Label products, the Company retains a small number of sales agents and
agencies who are
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<PAGE> 31
assigned to specific geographic regions and are compensated on a commission
basis. Beginning mid-1996, the Company also plans to retain agents who will
supervise the presentation of Calvin Klein Jeans Label products by the Company's
retailing customers, provide detailed product information to the sales people
employed by its retailing customers and advise the Company concerning the
consumer demand experienced by its retailing customers.
The Company's department store customers include major United States
retailers, certain of which are under common ownership. When considered together
as a group under common ownership, sales to the department store customers owned
by Federated Department Stores Inc. and May Department Stores Co. accounted for
approximately 15.8% and 8.3%, respectively, of 1995 gross sales of Calvin Klein
Jeans Label products. The ten largest purchasers of Calvin Klein Jeans Label
products represented approximately 53% of the Company's net revenues in fiscal
1995. While the Company believes that purchasing decisions in many cases are
made independently by each department store customer, there can be no assurance
that purchasing decisions will not be made on a centralized basis. A decision by
the controlling owner of a group of department stores to decrease the amount of
product purchased from the Company or to cease carrying the Company's products
could adversely affect the Company.
ADVERTISING
The appeal to consumers of the Calvin Klein Jeans Label has been built up
over 20 years by the distinctive advertising for the variety of products that
are sold by CKI and other companies under the Calvin Klein brand name, including
couture apparel, sportswear, outerwear, intimate apparel for men and women,
fragrances, eyewear, accessories, hosiery and home furnishings. All the
advertising campaigns for all the Calvin Klein brand products are designed and
executed by CRK Advertising, the in-house advertising agency at CKI. The
advertising campaigns by CKI and its licensees are intended to be mutually
supportive, so that all the producers of Calvin Klein products should benefit
from each advertisement. For example, if the advertising for underwear or
fragrance products calls for the models to wear sportswear, they wear sportswear
designed by CKI, including Calvin Klein Jeans Label products.
Advertising for the Company's products includes outdoor advertising, print
media and television. The advertising strategy is to saturate the urban markets
in Atlanta, Chicago, Dallas, Los Angeles, New York City, San Francisco and
Washington, D.C. with images from the current advertising campaign by placing
the advertisements where the Company's products benefit from the cumulative
effect of multiple exposures, such as billboards, exterior bus panels, bus
shelters and kiosks. Advertising for Calvin Klein Jeans Label products appears
prominently in 24 fashion and special interest magazines such as Harpers'
Bazaar, Mademoiselle, Rolling Stone, Skateboarding, Spin, The New York Times
Magazine, Vanity Fair and Vogue. A significant portion of the 1996 advertising
budget has been allocated to television advertising. The Company supplements
this advertising strategy with promotional activities, such as sponsoring
concert tours and organizing product giveaways at sporting events.
Pursuant to the CKJ License, the Company must contribute not less than 3%
of gross sales of Calvin Klein Jeans Label products, net of discounts, to CKI
for advertising such products. During 1995, the Company incurred approximately
$11.3 million for advertising expenditures to CKI under the CKJ License
Agreement (as defined below). The CKJ License Agreement provides that amounts
not spent in one year are to be spent in the next. A portion of the payment made
to CKI for advertising in 1995 remains available to support the advertising
strategy in 1996.
BACKLOG AND SEASONALITY
The Company generally receives orders for Calvin Klein Jeans Label products
approximately six to eight months prior to the time the products are delivered
to stores. The EDI system has significantly reduced the average order period,
the effect of which has been to decrease backlog in 1996 from comparable dates
in 1995 notwithstanding the growth in sales during this period. At April 25,
1996, the Company's backlog of orders for Calvin Klein Jeans Label products, all
of which are expected to be shipped during fiscal 1996, was approximately $123
million, as compared to approximately $128 million at April 6, 1995. Backlog as
of any given date may not be indicative of backlog at a subsequent date because
the backlog depends upon, among other things, the timing of the "market weeks"
during which a significant percentage of the Company's orders
27
<PAGE> 32
for Calvin Klein Jeans Label products are received. As a consequence, a
comparison of backlog from period to period is not necessarily meaningful and
may not be indicative of eventual shipments.
The Company's business is affected by general seasonal trends that are
characteristic of the apparel industry. In the Company's segment of the apparel
industry, sales typically are higher in the first and third quarters. Primarily
as a result of the significant growth that the Company experienced, recent
quarterly sales trends have not reflected this seasonality. In 1996 and future
years, assuming the Company does not obtain additional significant designer
brands or licenses, the Company expects that its sales may reflect greater
seasonal trends as its growth rate moderates. See "Management's Discussion and
Analysis of Financial Condition and Results of Operations -- Seasonality."
CKJ LICENSE
Under the terms of the CKJ License, as amended through April 22, 1996, the
Company (through its wholly-owned subsidiary, Calvin Klein Jeanswear Company)
has been granted an exclusive license to use the registered trademarks Calvin
Klein and CK/Calvin Klein (the "Trademarks") in the form of the logos Calvin
Klein Jeans, CK/Calvin Klein Jeans and CK/Calvin Klein Jeans Khakis in
connection with the manufacture, distribution and sale at wholesale of the
following three categories of womens (including juniors and petites), mens and
childrens garments: (1) jeans made of denim, corduroy, twill and sheeting, (2)
shorts, overalls, shirts, jackets, coats and dresses of a jeans-type
construction made of denim, corduroy, twill, sheeting and chambray and (3)
casual woven shirts made of denim, chambray and other fabrics and knit tops and
bottoms, including fleece, sweat shirts and T-shirts. CKI has retained the right
to produce, distribute, advertise and sell, and to authorize others to produce,
distribute, advertise and sell, pants, shirts, knit tops, knit bottoms and other
items that may be similar to the items listed in clauses (2) and (3) above,
provided that such items are not made of a jeans-type construction. An amendment
in February 1995 added khaki pants, skirts, shorts and related items for an
original term of ten years (the "Khaki Collection"), and a second amendment
added caps, to the list of garments covered by the CKJ License on a
non-exclusive season to season basis. The Company is required to produce at
least two collections per year, a spring collection and a fall collection, and
to submit merchandise plans and design and product specifications to CKI for its
review and approval. In addition, CKI has the right to examine products produced
under the CKJ License during manufacture as part of its quality control program.
The Company has exclusive use of the Trademarks for the collection, in the
United States, its territories and possessions, Canada, Mexico, Guatemala,
Belize, El Salvador, Honduras, Nicaragua, Costa Rica, Panama, certain
jurisdictions in the British West Indies, certain jurisdictions in the Greater
Antilles, Colombia, Ecuador, Brazil, Peru, Bolivia, Paraguay, Chile, Venezuela,
Guyana, Suriname and French Guyana. Additionally, upon termination of the
license between CKI and a third party licensee covering Argentina and Uruguay,
the Company has the right to add such countries to the list of jurisdictions
covered by the CKJ License. The CKJ License Agreement provides that CKI can
terminate the grant of the CKJ License with respect to Central and South America
if net sales are not at least $5 million and $10 million throughout Central and
South America, respectively, for any annual period beginning in 1997.
Additionally, CKI may terminate the grant of the CKJ License with respect to
South America if net sales are not at least $15 million for any period after
1998. CKI may also terminate the Company's right to sell the Khaki Collection if
the net sales of such items are less than $25 million in 1998.
The CKJ License has an initial term of forty years, expiring December 31,
2034, and is renewable for one additional ten-year period, commencing January 1,
2035 so long as the Company has net sales within the United States and Mexico of
at least $375 million and net sales within Canada of $35 million during the
twelve months ending June 30, 2034. The Company is required to make payments to
CKI equal to 3% of gross sales of Calvin Klein Jeans Label products (other than
the Khaki Collection), net of discounts, in exchange for advertising and
promotional support provided by CKI. The Company also must remit an aggregate of
$1.7 million to CKI, which amount will be used to advertise the Khaki Collection
in 1995 and 1996. In addition, in 1997, the Company must remit 5% of the gross
sales of the Khaki Collection to CKI for advertising and 3% of gross sales each
year thereafter. The Company is also required to make royalty payments to CKI
equal to 7% of the Company's net sales of Calvin Klein Jeans Label products. The
royalty payments for closeout articles (as defined) are 3 1/2% of net sales. The
CKJ License provides for minimum annual royalty payments for
28
<PAGE> 33
jurisdictions other than Canada which increase from $4.4 million in the first
year to $22 million (but not less than 75% of the fees earned during the
thirtieth year) in the fortieth year. During the renewal period such minimum
annual royalty payments increase to the greater of $27 million or 75% of the
fees earned in the fortieth year. In connection with obtaining the CKJ License
in August 1994, the Company paid $9.5 million for which it receives a credit
against the royalty payments of $12.5 million at the rate of $2.0 million per
year.
The CKJ License may be terminated by CKI upon the occurrence of certain
events, including but not limited to the following: (i) failure by the Company
to make payments due under the CKJ License, if such failure continues for a
period of ten days, (ii) decrease in the Company's consolidated net worth to
less than $10 million, (iii) increase in the Company's ratio of consolidated
debt/consolidated net worth to more than 5-to-1, (iv) default by CKJC in the
payment of debt exceeding $5 million, if such default remains uncured after the
relevant grace period and the creditor under such instrument exercises its
rights (whether termination, acceleration or otherwise), (v) default by the
Company in the payment of debt exceeding $5 million, if such default remains
uncured after the relevant grace period and the creditor under such instrument
exercises its rights (whether termination, acceleration or otherwise), (vi) any
other acceleration of debt of the Company exceeding $5 million, (vii) failure by
the Company to obtain minimum sales thresholds in the United States, Mexico and
Canada of at least $205 million in at least one of 2001, 2002, and 2003, $269
million in at least one of 2011, 2012 and 2013 or $344 million in at least one
of 2021, 2022 or 2023; provided that net sales for the subsequent annual period
or subsequent two annual periods does not represent (x) less than 75% of net
sales for the annual period in which such net sales threshold was met, and (y)
less than 90% of the minimum net sales threshold for the annual periods in any
such three year grouping, (viii) failure by the Company to perform any of its
other obligations under the CKJ License, if such failure remains uncured for
thirty days, or (ix) filing of a bankruptcy petition by or against the Company.
Notwithstanding the foregoing, if either the Company or CKJC enters into a
material debt instrument that provides for a default threshold of more than $5
million, the $5 million referred to above will be increased to such greater
amount.
The foregoing description of the CKJ License reflects certain amendments
thereto made on April 22, 1996. Among other things, these amendments (i)
modified the term of the license from a ten year initial term with four ten year
renewal terms to a forty year initial term with one ten year renewal term, (ii)
modified net sales thresholds, (iii) extended the term of the CKJ License for
the Khaki Collection from ten years to forty years, (iv) granted the Company the
non-exclusive right to sell caps for the term of the CKJ License, (v) expanded
the geographical territory for the Khaki Collection, (vi) added certain
territories in Central and South America to the License and (vii) liberalized
certain covenants. As consideration for such amendments, the Company issued
1,275,466 shares of non-voting common stock to CKI. Such shares are convertible
at any time upon notice to the Company into an equal number of shares of voting
Common Stock. CKI has agreed to hold such shares for at least 18 months,
although the Company has granted CKI certain registration rights that can be
exercised at any time after the shares are converted into Common Stock.
During the term of the CKJ License, only CKJC is prohibited from engaging
in any business other than the manufacture, distribution and sale of the
products produced under the CKJ License. Neither the Company nor any of its
other subsidiaries is subject to such prohibition. The Company regularly
evaluates the possibility of acquiring additional licenses and brand names.
LICENSING OPERATIONS
Prior to obtaining the CKJ License, the Company produced and distributed
sportswear under the Bill Blass and Rio labels and produced sportswear for
various retailers under private labels. As of January 1, 1996, the Company
licensed the Rio label and sublicensed the Bill Blass labels to Commerce
Clothing. The Company continues to market the products produced under the
license and sublicense and will receive revenues of approximately 4.5% of net
sales of products under the Rio license and 5% of net sales of products under
the Bill Blass sublicense. In addition, Commerce Clothing pays to the Company
amounts equivalent to those the Company must pay under the license agreement
between the Company and Bill Blass.
The Company has entered into a distribution agreement for Calvin Klein
Jeans Label products, other than khaki products and childrens apparel, for sale
in Canada. The Company also has entered into a distribution agreement for Calvin
Klein Jeans Label childrens apparel in the United States. Under the distribution
agreement for Canada, the Company will receive net revenues of approximately 7%
of net sales,
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<PAGE> 34
and under the distribution agreement for childrens apparel in the United States,
the Company will receive net revenues of approximately 4% of net sales. Such
amounts are in addition to a payment of 7% on net sales that the distributor
pays to the Company and that the Company remits to CKI pursuant to the CKJ
License. Under both agreements, the Company remains responsible for working with
CKI to develop the lines for presentation to the distributor, and the
distributor pays 3% of gross sales, net of discounts, as a fee for advertising,
which the Company remits to CKI. Entering into the distribution agreement with
respect to the childrens business will permit the Company to concentrate its
efforts on the production and marketing of products for adults. The Company is
negotiating distribution agreements with respect to khaki products and childrens
apparel for Canada. The Company also is currently negotiating distribution
agreements for its products in Mexico, Central America and South America.
COMPETITION
The apparel industry in the United States is highly-competitive. The
Company competes with numerous producers of sportswear, many of which are
significantly larger and have significantly greater financial resources than the
Company. The labels that the Company's products compete with include Guess?,
Lee, Levis, Liz Claiborne, Nautica, Polo/Ralph Lauren and Tommy Hilfiger, as
well as certain other designer and non-designer lines. The Company's ability to
compete depends, in substantial part, upon the endurance of the Calvin Klein
image and upon the ability of the Company to continue to offer high-quality
garments at competitive prices.
Although the CKJ License grants the Company the exclusive right to sell
certain types of sportswear under the Calvin Klein Jeans Labels, the terms of
the CKJ License permit CKI to sell, or to grant a license to sell, other types
of apparel, including certain types of sportswear, under a Calvin Klein
trademark that could be similar to, and competitive with, the Calvin Klein Jeans
Label products sold by the Company. See "-- CKJ License."
The Company's Bill Blass label products compete principally with premium
designer and non-designer sportswear products, and its Rio label products
compete primarily with non-designer sportswear.
IMPORT RESTRICTIONS
During 1995, the Company imported approximately 20% of the Calvin Klein
Jeans Label products that it sold. Such imports are subject to bilateral textile
agreements between the United States and a number of foreign countries. Such
agreements, which have been negotiated under the framework established by the
Arrangement Regarding International Trade in Textiles, allow the United States
to impose restraints at any time on the importation of categories of merchandise
that, under the terms of the agreements, are not currently subject to specified
limits. The Company does not own the right to import finished garments into the
United States, but it relies on its contract manufacturers and its agents to
obtain the necessary quotas. In the past, to the extent that necessary import
quotas have not been available with respect to a particular source of supply,
the Company has been able to find an alternative source of supply. Accordingly,
the availability of quotas has not had a material effect upon the Company's
business, financial condition or results of operations. The Company's continued
ability to source products that it imports may be adversely affected by a
significant decrease in available import quotas as well as any additional
bilateral agreements and unilateral trade restrictions.
EMPLOYEES
As of March 31, 1996, the Company and its subsidiaries employed
approximately 930 persons. Approximately 600 of such employees were covered by
collective bargaining agreements at the Company's New Bedford, Abbeville and
Nesquehoning facilities. The agreements for the Company's New Bedford and
Nesquehoning facilities will expire on May 31, 1997, and the agreement with
respect to the Abbeville facility will expire on June 30, 1997. The Company has
not experienced any work stoppage and management believes that its relations
with its employees are good.
30
<PAGE> 35
PROPERTIES
The following table sets forth the Company's distribution and manufacturing
facilities as of December 31, 1995:
<TABLE>
<CAPTION>
APPROXIMATE
FLOOR SPACE
LOCATION USE (SQ. FT.)
- ---------------- ------------------------------------------------------- -----------
<S> <C> <C>
New Bedford, MA Warehousing and distribution (leased) 370,000
Secaucus, NJ Warehousing and distribution (operated under contract) 200,000
Abbeville, SC Manufacturing (owned) 40,000
Nesquehoning, PA Manufacturing (owned) 56,000
</TABLE>
The Company acquired its two manufacturing facilities located in Abbeville
and Nesquehoning in connection with obtaining the CKJ License. Since that time,
the Company has been able to improve operational efficiencies and reduce costs
at these facilities. The Company plans to lease a distribution facility in North
Arlington, New Jersey during 1997, which will contain approximately 375,000
square feet.
In addition to the facilities described above, the Company leases 42,000
square feet for its executive offices in New York, New York and rents an entire
floor for a showroom for its Calvin Klein Jeans Label products and for offices
in CKI's headquarters building in New York, New York.
LEGAL PROCEEDINGS
On October 15, 1990, an amended complaint (the "Complaint") was filed
against Rio Sportswear, a subsidiary of the Company, and certain other
defendants in the United States District Court for the Southern District of New
York under the caption Golden Trade, S.r.L. et. al. v. Jordache Enterprises,
Inc. et. al. The Complaint alleges, among other things, that the Company
infringed a patent held by Greater Texas and Golden Trade S.r.L. relating to
acid wash processes used in the manufacture of garments having a random fade
effect. Similar suits are pending against the major manufacturers of such jeans
wear. The Complaint seeks damages against all the defendants in unspecified
amounts. On November 27, 1990, the Company filed an answer denying the material
allegations of the Complaint and asserting affirmative defenses and
counterclaims. On December 1, 1995, a revised opinion and order was issued by
the court in which, among other things, the court granted certain of the
defendants' motions for summary judgment, and denied others of such motions. On
January 31, 1996, the case was assigned to a new judge. No trial date has been
set. Rio Sportswear had received a proposal from plaintiffs offering to settle
the litigation, which was subsequently withdrawn, and Rio Sportswear made a
counterproposal, which was also withdrawn. There can be no assurance that
plaintiffs will make or consider further settlement proposals with respect to
the litigation. If the parties are unable to reach a settlement, Rio Sportswear
intends to contest the action vigorously. The outcome of litigation is
inherently unpredictable and, in the event that no settlement were reached and
Rio Sportswear were found to have infringed the patent in suit, damages and
attorneys' fees could be assessed against Rio Sportswear. No assurance can be
given that such damages and fees would not have a material adverse effect upon
the Company's results of operations in the period in which the judgment is
rendered; however, the Company believes that any such damages and fees would not
have a material adverse effect upon the Company's business or financial
condition.
The Company is involved from time to time in various routine legal and
administrative proceedings and threatened legal and administrative proceedings
incidental to the ordinary course of its business. The Company has been active
in pursuing actions against counterfeiters and diverters of its Calvin Klein
Jeans Label products. In the opinion of the Company's management, the resolution
of such matters will not have a material adverse effect on its business,
financial condition or results of operations.
31
<PAGE> 36
MANAGEMENT
DIRECTORS AND EXECUTIVE OFFICERS OF THE COMPANY
The following table sets forth certain information as of March 1, 1996
concerning the directors and executive officers of the Company.
<TABLE>
<CAPTION>
NAME AGE POSITION
------------------------ --- ----------------------------------------------------
<S> <C> <C>
Merril M. Halpern 61 Chairman of the Board
Arnold H. Simon 50 Chief Executive Officer, President and Director
Debra Simon 40 Executive Vice President and Director
A. Lawrence Fagan 66 Director
Maurice Dickson 51 Executive Vice President and Chief Financial Officer
Daniel J. Gladstone 39 Executive Vice President and President of Calvin
Klein Jeanswear Company
David Fidlon 53 Senior Vice President, Controller and Chief
Accounting Officer
John J. Jones 29 Vice President, General Counsel and Secretary
</TABLE>
Merril M. Halpern has been a director of the Company since March 1994.
Since October 1984, Mr. Halpern has served as Chairman of the Board of
Charterhouse Group International, Inc., a privately-owned investment firm
("Charterhouse Group"). From 1973 to October 1984, Mr. Halpern served as
President and Chief Executive Officer of Charterhouse Group. Mr. Halpern is also
a director of Dreyer's Grand Ice Cream, Inc., Del Monte Corporation, Insignia
Financial Group, Inc., Charter Power Systems, Inc. and Microwave Power Devices,
Inc.
Arnold H. Simon has been President of Rio Sportswear since 1984 and Chief
Executive Officer, President and a director of the Company since it was founded.
Mr. Simon has an aggregate of 28 years of experience in the apparel industry.
Mr. Simon is married to Debra Simon.
Debra Simon has been Executive Vice President and a director of the Company
since March 1994 and Vice President of Rio Sportswear since 1985. Ms. Simon has
over 17 years of experience in the sale and merchandising of jeans and
sportswear. Ms. Simon is married to Arnold H. Simon.
A. Lawrence Fagan has been a director of the Company since March 1994. Mr.
Fagan has been Executive Vice President and Chief Operating Officer of
Charterhouse Group since 1985 and was Senior Vice President of Charterhouse
Group from 1983 to 1985. For 25 years prior to joining Charterhouse, he held
various corporate executive and investment banking positions. He is a director
of Microwave Power Devices, Inc.
Maurice Dickson has been Executive Vice President and Chief Financial
Officer of the Company since September 1, 1995. Prior to that time, from 1981 to
1995, Mr. Dickson served as Chief Financial Officer of Ellen Tracy, Inc. Mr.
Dickson has an aggregate of 27 years of experience in the apparel industry.
Daniel J. Gladstone has been Executive Vice President of the Company since
April 1996 and President of Calvin Klein Jeanswear Company since July 1994.
Prior to that time, from 1990 to July 1994, he served as President of CKI's
Women's Sportswear Division and CKI's Women's Division and from 1992 to July
1994 he also served as President of CKI's Men's Division.
David Fidlon has been Senior Vice President and Controller of the Company
since June 1995 and was named Chief Accounting Officer on January 22, 1996.
Prior to joining the Company, Mr. Fidlon served as Director of Compliance and
Financial Reporting for Ellen Tracy, Inc. from June 1994 to June 1995, and as
Senior Manager and Audit Compliance Manager at Weidenbaum Ryder & Co.
Accountants & Auditors from 1989 to June 1994.
John J. Jones has served as Vice President, General Counsel and Corporate
Secretary of the Company since January 1996. Prior to that time, Mr. Jones was
engaged in the private practice of law at the law firm of Skadden, Arps, Slate,
Meagher & Flom beginning in 1991.
32
<PAGE> 37
BOARD OF DIRECTORS
Shortly following the consummation of the Offerings, the Company intends to
appoint at least two directors who are neither officers nor employees of the
Company. The Company has three classes of directors, which are elected for
staggered terms of three years. The initial terms of each class expire at the
annual meeting of stockholders in 1997 (Class I), 1998 (Class II) and 1999
(Class III), respectively. Mr. Fagan is a Class I director, Ms. Simon is a Class
II director and Mr. Simon and Mr. Halpern are Class III directors. Each director
holds office until his or her successor is duly elected and qualified or until
his or her resignation or removal, if earlier.
Upon the appointment of the additional directors, the Board of Directors
will establish an Audit Committee and a Compensation Committee. The Audit
Committee will be responsible for recommending to the Board of Directors the
engagement of the independent auditors of the Company and reviewing with the
independent auditors the scope and results of the audits, the internal
accounting controls of the Company, audit practices and the professional
services furnished by the independent auditors. The Compensation Committee will
be responsible for reviewing and approving all compensation arrangements for
officers of the Company, and will also be responsible for administering the
Stock Plan (as defined below).
The Delaware General Corporation Law provides that a Company may indemnify
its directors and officers as to certain liabilities. The Company's Certificate
of Incorporation and By-laws provide for the indemnification of its directors
and officers to the fullest extent permitted by law, and the Company intends to
enter into separate indemnification agreements with each of its directors and
officers to effectuate these provisions and to purchase directors and officers
liability insurance. The effect of such provisions is to indemnify, to the
fullest extent permitted by law, the directors and officers of the Company
against all costs, expenses and liabilities incurred by them in connection with
any action, suit or proceeding in which they are involved by reason of their
affiliation with the Company.
CERTAIN OTHER SIGNIFICANT EMPLOYEES
The following persons make significant business contributions to the
Company:
Guy Kinberg has been Vice President of Production since April 1995. Prior
to that time, from September 1992 to April 1995, he served as Senior Vice
President of Manufacturing for Pepe Clothing Inc., and from January 1991 to
September 1992, as President of Worldwide Sourcing, Inc.
Joseph Purritano has served as Vice President of the
Women's/Juniors/Petites Division since 1994. From 1990 to 1994, Mr. Purritano
was Vice President of the Women's Division of Rio Sportswear. From 1984 to 1990,
he was National Sales Manager of Rio Sportswear. Mr. Purritano is Ms. Simon's
brother.
Art Krulish has been Vice President of Management Information Systems since
June 1995. Prior to that time Mr. Krulish worked as Corporate Vice President,
Information Systems for Liz Claiborne, Inc. from 1987 until June 1995.
George Criscione has been Vice President of Sales for the Men's Division
since October 1995. Prior to that date, Mr. Criscione was a Sales Account
Representative for Calvin Klein Jeanswear Inc. from May 1995 until October 1995.
Mr. Criscione was a Sales Account Representative for Rio Sportswear, Inc. from
August 1993 until May 1995. Prior to that time, Mr. Criscione worked as a
Terminal Manager for Roadway Package Service from April 1990 until July 1993.
33
<PAGE> 38
EXECUTIVE COMPENSATION
The following table sets forth certain compensation awarded to, earned by
or paid to the Chief Executive Officer and the four most highly paid executive
officers other than the Chief Executive Officer, who served as executive
officers of the Company as of December 31, 1995 for services rendered in all
capacities to the Company and its subsidiaries during 1995.
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
ANNUAL COMPENSATION(1)
----------------------------------
YEAR SALARY BONUS
---- ---------- ----------
<S> <C> <C> <C>
Arnold H. Simon........................................... 1995 $1,000,000 $3,350,000
President and Chief Executive 1994 1,544,958 --
Officer 1993 2,764,769 --
Maurice Dickson(2)........................................ 1995 300,000 50,000
Executive Vice President and 1994
Chief Financial Officer 1993
Daniel J. Gladstone....................................... 1995 350,000 1,208,862
Executive Vice President and 1994 141,475 249,185
President, CKJC 1993
Debra Simon............................................... 1995 400,000 50,000
Executive Vice President 1994 341,964
1993 587,886
David Fidlon(3)........................................... 1995 150,000
Senior Vice President, Controller 1994
and Chief Accounting Officer 1993
</TABLE>
- ---------------
(1) While each of the five named individuals received perquisites or other
personal benefits in the years shown, in accordance with applicable
regulations, the value of these benefits is not indicated since they did not
exceed in the aggregate the lesser of $50,000 or 10% of the individual's
salary and bonus in any year.
(2) Mr. Dickson has been employed with the Company since September 1995. The
amounts shown in these columns are the annual salary and bonus that are set
forth in Mr. Dickson's employment agreement with the Company. For 1995, Mr.
Dickson's total compensation was $99,230.
(3) Mr. Fidlon has been employed by the Company since June 1995. The amounts
shown in these columns are the annual salary and bonus that the Company has
agreed to pay to Mr. Fidlon. For 1995, Mr. Fidlon's total compensation was
$81,693.
EMPLOYMENT AGREEMENTS
The Company has entered into an employment agreement, effective upon the
closing of the Offerings, with Arnold H. Simon (the "Simon Employment
Agreement"). The Simon Employment Agreement, which expires on December 31, 1998,
provides for Mr. Simon to be President and Chief Executive Officer of the
Company at an annual base salary of not less than $1.5 million. The Simon
Employment Agreement also provides that he will receive an annual cash bonus in
1996 equal to the difference between (i) 2% of all Adjusted EBITDA (as defined)
if such 1996 Adjusted EBITDA is between $50 million and $60 million or 3% of all
Adjusted EBITDA if it exceeds $60 million and (ii) $2 million. With respect to
1997 and 1998, the Simon Employment Agreement provides that he will receive an
annual cash bonus based on specified increases in Adjusted EBITDA ranging from
2 1/2% to 4% of all Adjusted EBITDA in the applicable year. In addition, Mr.
Simon will be entitled to participate in the plans and programs maintained by
the Company for its senior executives.
The Simon Employment Agreement may be terminated at any time by Mr. Simon
for "Good Reason," which shall be deemed to exist if, without his consent, among
other things, (i) a majority of Additional Board Members (as defined) shall
consist of persons whose election or appointment was not approved in writing by
Mr. Simon (other than those persons who are members as of the date of the
agreement); (ii) there shall occur
34
<PAGE> 39
(A) any liquidation of the Company or of CKJC, or the sale of substantially all
of the assets of the Company and CKJC taken as whole or (B) any merger,
consolidation or other business combination of the Company or CKJC (each a
"Transaction") or any combination of such Transactions, other than a Transaction
immediately after which the stockholders of the Company who are stockholders
immediately prior to the Transaction continue to own beneficially, directly or
indirectly, more than 80% of the then outstanding voting securities of the
Company or (iii) any person or group (as such term is defined under the
Securities Exchange Act of 1934), or group of related persons (other than
Charterhouse) which is not an affiliate of the Company currently shall
beneficially own, directly or indirectly, more than 50% of the then outstanding
voting stock of the Company.
Upon termination by Mr. Simon for Good Reason or termination by the Company
without Cause (as defined), Mr. Simon will be entitled, in addition to any
accrued base salary and annual bonus earned but not yet paid, a lump sum payment
in an amount equal to the sum of (i) Mr. Simon's highest annual base salary
during the term multiplied by 2.99 (299%) and (ii) Mr. Simon's average annual
bonus paid or payable with respect to then immediately preceding three fiscal
years multiplied by 2.99 (299%); provided that the maximum amount payable shall
not exceed $9 million in the aggregate. Mr. Simon has the obligation to notify
the Company in writing of the reason for his proposed termination for Good
Reason, and the Company will have the right to correct certain acts or failures
described in such notice.
The Simon Employment Agreement also provides that the Company may terminate
Mr. Simon for Cause, at which time he will be entitled, among other things, to
his then existing base salary through the date of termination and any annual
bonus for the prior fiscal year not yet paid together with the pro rata portion
of the annual bonus for the calendar year in which termination occurs through
the date of termination. Mr. Simon has also agreed that if he voluntarily
terminates his employment other than for Good Reason, that he will not compete
with the Company for the lesser of the remaining term of the agreement or 24
months following the date of termination.
Rio Sportswear and CKJC entered into an employment agreement with Maurice
Dickson (the "Dickson Employment Agreement") effective September 1, 1995. The
Dickson Employment Agreement, which expires on August 15, 1997, unless renewed,
provides for Mr. Dickson to be employed as Chief Financial Officer of the
Company and, commencing on January 1, 1996, to receive an annual base salary of
$400,000, an annual bonus based upon the Company's performance and certain other
benefits. The Dickson Employment Agreement will automatically renew for
additional one year periods unless the Company gives written notice of
non-renewal at least five months prior to the renewal date.
On August 5, 1994, CKJC entered into an employment agreement with Daniel J.
Gladstone (the "Gladstone Employment Agreement"). The Gladstone Employment
Agreement, which expires on December 31, 1997, unless renewed, provides for Mr.
Gladstone to be employed as President of CKJC and, commencing on January 1,
1996, to receive an annual base salary of $450,000, an annual bonus based on the
Company's performance and certain other benefits.
On October 9, 1995, Rio Sportswear and CKJC entered into an employment
agreement with David Fidlon (the "Fidlon Employment Agreement"). The Fidlon
Employment Agreement, which expires on June 12, 1997, provides for Mr. Fidlon to
be employed as Senior Vice President and Controller of the Company and,
commencing on January 1, 1996, to receive an annual base salary of $225,000,
annual bonus based upon the Company's performance and certain other benefits.
The Fidlon Employment Agreement will automatically renew for additional one year
periods unless the Company gives written notice of non-renewal at least five
months prior to the renewal date.
It is anticipated that on or prior to the consummation of the Offerings,
Ms. Simon, Mr. Jones and Mr. Kinberg will each execute an employment agreement
with the Company, which will become effective prior to consummation of the
Offerings, providing for their continued employment in their present positions.
35
<PAGE> 40
STOCK OPTION PLAN
The Company's Board of Directors and stockholder have approved the Designer
Holdings Ltd. 1996 Stock Option and Incentive Plan (the "Stock Plan"). The
description in this Prospectus of the principal terms of the Stock Plan is a
summary, does not purport to be complete, and is qualified in its entirety by
the full text of the Stock Plan, a copy of which has been filed as an exhibit to
the Registration Statement of which this Prospectus is a part.
Pursuant to the Stock Plan, executive officers, key employees and
consultants of the Company are eligible to receive awards of stock options,
stock appreciation rights, limited stock appreciation rights and restricted
stock. Options granted under the Stock Plan may be "incentive stock options"
("ISOs"), within the meaning of Section 422 of the Internal Revenue Code of
1986, as amended (the "Code"), or nonqualified stock options ("NQSOs"). Stock
appreciation rights ("SARs") may be granted simultaneously with the grant of an
option or (in the case of NQSOs), at any time during its term. Restricted stock
may be granted in addition to or in lieu of any other award granted under the
Stock Plan.
Under the Stock Plan, the Company has reserved 2,288,200 shares of Common
Stock for issuance of awards under the Stock Plan (subject to antidilution and
similar adjustments). Approximately 1,500,000 shares subject to options that are
expected to be granted at the initial public offering price, including options
to purchase , and shares to Messrs. Dickson, Gladstone
and Fidlon, respectively.
The Stock Plan will be administered by the Compensation Committee (the
"Committee") appointed by the Board of Directors of the Company (the "Board").
Subject to the provisions of the Stock Plan, the Committee will determine the
type of award, when and to whom awards will be granted, the number of shares
covered by each award and the terms, provisions and kind of consideration
payable (if any), with respect to awards. The Committee may interpret the Plan
and may at any time adopt such rules and regulations for the Stock Plan as it
deems advisable. The Committee may, additionally, cancel or suspend awards.
In determining the persons to whom awards shall be granted and the number
of shares covered by each award the Committee shall take into account the duties
of the respective persons, their present and potential contribution to the
success of the Company and such other factors as the Committee shall deem
relevant in connection with accomplishing the purposes of the Stock Plan.
An option may be granted on such terms and conditions as the Committee may
approve, and generally may be exercised for a period of up to 10 years from the
date of grant. Generally, ISOs will be granted with an exercise price equal to
the "Fair Market Value" (as defined in the Stock Plan) on the date of grant. In
the case of ISOs, certain limitations will apply with respect to the aggregate
value of option shares which can become exercisable for the first time during
any one calendar year, and certain additional limitations will apply to ISOs
granted to "Ten Percent Stockholders" (as defined in the Stock Plan). The
Committee may provide for the payment of the option price in cash, by delivery
of other Common Stock having a Fair Market Value equal to such option price, by
a combination thereof or by such other manner as the Committee shall determine,
including a cashless exercise procedure through a broker-dealer. The Committee
may, in its discretion, make a loan to a grantee in an amount sufficient to pay
the option price payable by such grantee. Options granted under the Stock Plan
will become exercisable at such times and under such conditions as the Committee
shall determine, subject to acceleration of the exercisability of options in the
event of, among other things, a "Change in Control" (as defined in the Stock
Plan). Generally, stock options may not be exercised unless the grantee is
employed by the Company.
The Stock Plan also permits the Committee to grant SARs with respect to all
or any portion of the shares of Common Stock covered by options. SARs will be
exercisable only at such time or times and only to the extent that the related
option is exercisable and, if such option is an ISO, only if the Fair Market
Value per share of Common Stock exceeds the ISO purchase price.
Upon exercise of an SAR, a grantee will receive for each share for which a
SAR is exercised, an amount in cash or Common Stock, as determined by the
Committee, equal to the excess, if any of (i) the Fair Market
36
<PAGE> 41
Value of a share of Common Stock on the date the SAR is exercised over (2) the
exercise price per share of the option to which the SAR relates.
When a SAR is exercised, the option to which it relates will cease to be
exercisable to the extent of the number of shares with respect to which the SAR
is exercised, but will be deemed to have been exercised for purposes of
determining the number of shares available for the future grant of awards under
the Stock Plan.
The Stock Plan further provides for the granting of restricted stock
awards, which are awards of Common Stock which may not be disposed of, except by
will or the laws of descent and distribution, for such period as the Committee
determines (the "restricted period"). The Committee may also impose such other
conditions and restrictions, if any, on the shares as it deems appropriate,
including the satisfaction of performance criteria. All restrictions affecting
the awarded shares lapse in the event of a Change in Control.
During the restricted period, the grantee will be entitled to receive
dividends with respect to, and to vote the shares awarded to him. If, during the
restricted period, the grantee's service with the Company terminates for any
reason, any shares remaining subject to restrictions will be forfeited. The
Committee has the authority to cancel any or all outstanding restrictions prior
to the end of the restricted period, including the cancellation of restrictions
in connection with certain types of termination of service.
The Board may at any time and from time to time suspend, amend, modify or
terminate the Stock Plan; provided however, that, to the extent required by Rule
16b-3 promulgated under the Exchange Act or any other law, regulation or stock
exchange rule, no such change shall be effective without the requisite approval
of the Company's stockholders. In addition, no such change may adversely affect
any award previously granted, except with the written consent of the grantee.
No awards may be granted under the Stock Plan after the tenth anniversary
of the approval of the Stock Plan.
37
<PAGE> 42
CERTAIN TRANSACTIONS
On August 4, 1994, Mr. Simon contributed approximately 83% of his interests
in the Predecessor Companies to the Company in exchange for a 50% beneficial
equity interest in the Company through his interest in New Rio, L.L.C., the
Selling Stockholder. Mr. Simon also granted the Company an option to acquire his
remaining approximately 17% interest in the Predecessor Companies for $4.0
million. Mr. Simon's interests in the Predecessor Companies were contributed in
connection with the transaction in which Mr. Simon and Charterhouse (including
Chef Nominees Limited) each received a 50% equity interest in the Selling
Stockholder. Charterhouse contributed $20 million in cash in exchange for its
interest. Mr. Simon's contribution of his equity interest in the Predecessor
Companies was deemed by Mr. Simon and Charterhouse to be equal in value to
Charterhouse's cash contribution. In April 1995, the Company exercised its
option, and purchased Mr. Simon's remaining interests for approximately $1.3
million in cash and the cancellation of notes receivable from Mr. Simon on which
approximately $2.7 million principal and accrued interest was outstanding.
In 1994, the Company loaned an aggregate of $2.4 million to Mr. Simon and
Ms. Simon, including $850,000 in connection with the transactions described
above. Such loans, evidenced by promissory notes, bore interest at a fluctuating
annual rate equal to the rate publicly announced by Chemical Bank in New York as
its reference rate plus 3% per annum. The loans were secured by the retained 17%
interest in the Predecessor Companies. In April 1995, upon the exercise by the
Company of its option to acquire such interest, the notes were cancelled.
In 1994, Charterhouse loaned $45.2 million to the Company and received
notes payable in an equal amount. The notes payable to Charterhouse bore
interest at a fluctuating annual rate equal to the rate publicly announced by
Chemical Bank in New York as its reference rate plus 3% per annum. The notes
were repaid in full by the Company with proceeds of the Term Loan and the
Subordinated Loan.
In connection with the repurchase of Mr. Huang's interests in the
Predecessor Companies in August 1994, the Company may be liable for additional
purchase price of approximately $1.1 million upon closing of the Offerings. See
"The Company," "Use of Proceeds" and Note 3 to the audited consolidated
financial statements of the Company included elsewhere in this Prospectus.
REGISTRATION RIGHTS AGREEMENTS
Prior to the completion of the Offerings, the Company intends to enter into
a registration rights agreement with the Selling Stockholder and CKI (the
"Registration Rights Agreement") providing for certain registration rights with
respect to shares of Common Stock owned by the Selling Stockholder and CKI.
Under the Registration Rights Agreement, through their respective ownership
interests in the Selling Stockholder, each of Charterhouse and Mr. Simon will
have independent rights to request not less than two demand registrations. The
Selling Stockholder will also have the right to require the Company to include
shares of Common Stock held by it on behalf of the holders of ownership
interests in the Selling Stockholder in certain other registrations of the
Company's securities initiated by the Company on its own behalf or on behalf of
any other stockholder of the Company. Holders of ownership interests in the
Selling Stockholder may exercise such rights independently but only through the
Selling Stockholder. After conversion of its non-voting common stock into Common
Stock, CKI will also have the right to include its shares in such other
registrations. In addition, CKI may pledge such shares to lenders and after
expiration of the 180-day "lock-up" period (see "Underwriting"), such lenders
shall have a one-time demand right following foreclosure on such shares;
provided that such lenders in good faith shall first have taken substantial
steps to pursue and obtain the collection of the obligations owed to them from
CKI. Any such request to have Common Stock registered under the Registration
Rights Agreement may be delayed by the Company for up to 120 days if the Company
determines in its reasonable judgment that the registration and offering would
interfere with any material financing, acquisition, corporate reorganization or
other material corporate transaction or development involving the Company. All
fees, costs and expenses of any registration under the Registration Rights
Agreement, other than underwriting discounts and any other expenses attributable
to Common Stock sold by the Selling Stockholder or CKI, will be paid by the
Company.
38
<PAGE> 43
PRINCIPAL AND SELLING STOCKHOLDERS
The following table sets forth as of April 22, 1996 the total number of
shares of Common Stock of the Company beneficially owned, and the percent so
owned, by (i) each director of the Company who is a beneficial owner of any such
shares of Common Stock, (ii) each person who has an ownership interest in the
Selling Stockholder, (iii) each person known to the Company to be the beneficial
owner of more than five percent of the outstanding Common Stock of the Company,
(iv) each of the executive officers listed in the Summary Compensation Table and
(v) all directors and officers as a group. The number of shares owned are those
"beneficially owned," as determined under the rules of the Securities and
Exchange Commission, and such information is not necessarily indicative of
beneficial ownership for any other purpose. The Selling Stockholder is a limited
liability company and is the record owner of the shares of Common Stock
described below. Its operative agreement allows the holders of ownership
interests therein generally to cause the Selling Stockholder to exercise voting
and disposition rights as directed by each such holder independently with
respect to such holder's allocable percentage of the shares of Common Stock of
the Company. Therefore, such persons may be deemed to be the beneficial owners
of shares of Common Stock of the Company.
<TABLE>
<CAPTION>
SHARES BENEFICIALLY SHARES BENEFICIALLY
OWNED OWNED
BEFORE THE OFFERINGS SHARES AFTER THE OFFERINGS
--------------------- BEING ---------------------
NAME OF BENEFICIAL OWNER NUMBER PERCENT OFFERED NUMBER PERCENT
- ----------------------------------------- ---------- ------- --------- ---------- -------
<S> <C> <C> <C> <C> <C>
NEW RIO, L.L.C.:
Charterhouse Equity
Partners II, L.P. ................ 12,092,700 47.4% 2,495,000 9,597,700 31.5%
535 Madison Avenue
New York, New York 10022
Arnold H. Simon..................... 11,171,813 43.8 2,305,000 8,866,813 29.1
1385 Broadway
New York, New York 10018
Martin L. Berman(1)................. 212,046 * 43,750 168,296 *
Steven E. Berman.................... 79,972 * 16,500 63,472 *
Phyllis West Berman................. 77,064 * 15,900 61,164 *
Trust for the benefit of Mark K.
Berman and Allison A. Berman...... 236,765 * 48,850 187,915 *
Michael A. Covino................... 339,274 1.3 70,000 269,274 *
Chef Nominees Limited............... 24,234 * 5,000 19,234 *
Calvin Klein, Inc.(2).................... 1,275,466 5.0 1,275,466 4.2
205 West 39th Street
New York, New York
Merril M. Halpern(3)..................... -- --
Debra Simon.............................. -- --
A. Lawrence Fagan(3)..................... -- --
Maurice Dickson.......................... -- --
Daniel J. Gladstone...................... -- --
David Fidlon............................. -- --
All current officers and directors as a
group (7 persons)(3)................... 11,171,813 43.8% 8,866,813 29.1%
</TABLE>
- ------------------------
* Less than one percent.
(1) Formerly a director of the Company.
(2) Assumes conversion of 1,275,466 shares of non-voting common stock into
1,275,466 shares of Common Stock.
(3) Messrs. Halpern and Fagan are executive officers of Charterhouse Group
International, Inc., which indirectly controls Charterhouse. Messrs. Halpern
and Fagan may be deemed to own beneficially the shares of Common Stock
beneficially owned by Charterhouse. Messrs. Halpern and Fagan disclaim all
such beneficial ownership.
39
<PAGE> 44
DESCRIPTION OF CAPITAL STOCK
GENERAL
The Company's Certificate of Incorporation provides that the Company may
issue up to 75,000,000 shares of Common Stock, 1,300,000 shares of non-voting
common stock and 15,000,000 shares of Preferred Stock.
COMMON STOCK
Holders of Common Stock are entitled to one vote for each share held of
record on all matters to be submitted to a vote of the stockholders, and do not
have preemptive rights. Subject to preferences that may be applicable to any
outstanding shares of Preferred Stock, holders of Common Stock are entitled to
receive ratably such dividends, if any, as may be declared from time to time by
the Board of Directors of the Company out of funds legally available therefor.
See "Dividend Policy." All outstanding shares of Common Stock are, and the
shares to be sold by the Company in the Offerings when issued and paid for will
be, fully paid and nonassessable. In the event of any liquidation, dissolution
or winding-up of the affairs of the Company, holders of Common Stock will be
entitled to share ratably in the assets of the Company remaining after payment
or provision for payment of all of the Company's debts and obligations and
liquidation payments to holders of outstanding shares of Preferred Stock.
Holders of non-voting common stock are not entitled to any voting rights
except as otherwise required by law, and do not have any preemptive rights. In
all other respects, the non-voting common stock is identical to the Common
Stock. The shares of non-voting common stock are convertible at any time, on a
one-for-one basis, into shares of Common Stock. Outstanding shares of non-voting
common stock will be convertible into an equal number of shares of Common Stock
at any time at the option of the Company prior to any vote of the non-voting
common stock required by law.
PREFERRED STOCK
The Board of Directors, without further stockholder authorization, is
authorized to issue shares of Preferred Stock in one or more series and to
determine and fix the rights, preferences and privileges of each series,
including dividend rights and preferences over dividends on the Common Stock and
one or more series of the Preferred Stock, conversion rights, voting rights (in
addition to those provided by law), redemption rights and the terms of any
sinking fund therefor, and rights upon liquidation, dissolution or winding up,
including preferences over the Common Stock and one or more series of the
Preferred Stock. Although the Company has no present plans to issue any shares
of Preferred Stock following the consummation of the Offerings, the issuance of
shares of Preferred Stock, or the issuance of rights to purchase such shares,
may have the effect of delaying, deferring or preventing a change in control of
the Company or an unsolicited acquisition proposal.
CERTAIN PROVISIONS OF THE COMPANY'S CERTIFICATE OF INCORPORATION, BY-LAWS AND
DELAWARE LAW
Classified Board of Directors. The Certificate of Incorporation of the
Company provides for the Board of Directors to be divided into three classes of
directors, as nearly equal in number as is reasonably possible, serving
staggered terms so that directors' initial terms will expire either at the 1997,
1998 or 1999 annual meeting of the stockholders. Starting with the 1997 annual
meeting of the stockholders, one class of directors will be elected each year
for a three-year term.
The Company believes that a classified board of directors will help to
assure the continuity and stability of the Board of Directors and the Company's
business strategies and policies as determined by the Board of Directors, since
a majority of the directors at any given time will have had prior experience as
directors of the Company. The Company believes that this, in turn, will permit
the Board of Directors to more effectively represent the interest of
stockholders. With a classified board of directors, at least two annual meetings
of stockholders, instead of one, will generally be required to effect a change
in the majority of the Board of Directors. As a result, a provision relating to
a classified Board of Directors may discourage proxy contests for
40
<PAGE> 45
the election of directors or purchases of a substantial block of the Common
Stock because its provisions could operate to prevent obtaining control of the
Board of Directors in a relatively short period of time. The classification
provision could also have the effect of discouraging a third party from making a
tender offer or otherwise attempting to obtain control of the Company. Under the
Delaware General Corporation Law (the "DGCL"), a director on a classified board
may be removed by the stockholders of the corporation only for cause.
Advance Notice Provisions for Stockholder Nominations of Directors and
Stockholder Proposals. The By-Laws of the Company establish an advance notice
procedure with regard to the nomination, other than by or at the direction of
the Board of Directors or a committee thereof, of candidates for election as
directors (the "Nomination Procedure") and with regard to other matters to be
brought by stockholders before an annual meeting of stockholders of the Company
(the "Business Procedure").
The Nomination Procedure requires that a stockholder give prior written
notice, in proper form, of a planned nomination for the Board of Directors to
the Secretary of the Company. The requirements as to the form and timing of that
notice are specified in the By-Laws of the Company. If the Chairman of the Board
of Directors determines that a person was not nominated in accordance with the
Nomination Procedure, such person will not be eligible for election as a
director.
Under the Business Procedure, a stockholder seeking to have any business
conducted at an annual meeting must give prior written notice, in proper form,
to the Secretary of the Company. The requirements as to the form and timing of
that notice are specified in the By-Laws. If the Chairman of the Board of
Directors determines that the other business was not properly brought before
such meeting in accordance with the Business Procedure, such business will not
be conducted at such meeting.
Although the By-Laws of the Company do not give the Board of Directors any
power to approve or disapprove stockholder nominations for the election of
directors or of any business desired by stockholders to be conducted at an
annual meeting, the By-Laws of the Company (i) may have the effect of precluding
a nomination for the election of directors or precluding the conduct of business
at a particular annual meeting if the proper procedures are not followed or (ii)
may discourage or deter a third party from conducting a solicitation of proxies
to elect its own slate of directors or otherwise attempting to obtain control of
the Company, even if the conduct of such solicitation or such attempt might be
beneficial to the Company and its stockholders.
Section 203 of Delaware Law. The Company is a Delaware corporation and is
subject to Section 203 of DGCL. In general, Section 203 prevents an "interested
stockholder" (defined as a person who, together with affiliates and associates,
beneficially owns or if an affiliate or associate of the corporation did
beneficially own within the last three years 15% or more of a corporation's
outstanding voting stock) from engaging in a "business combination" (as defined)
with a Delaware corporation for three years following the time such person
became an interested stockholder unless (i) before such persons became an
interested stockholder, the board of directors of the corporation approved the
transaction in which the interested stockholder became an interested stockholder
or approved the business combination; (ii) upon consummation of the transaction
that resulted in the interested stockholder becoming an interested stockholder,
the interested stockholder owned at least 85% of the voting stock of the
corporation outstanding at the time the transaction commenced (excluding shares
owned by persons who are both officers and directors of the corporation, and
shares held by certain employee stock ownership plans in which employee
participants do not have the right to determine confidentially whether shares
held subject to the plan will be tendered in a tender or exchange offer); or
(iii) following the transaction in which such person became an interested
stockholder, the business combination is approved by the board of directors of
the corporation and authorized at a meeting of stockholders by the affirmative
vote of the holders of a least two-thirds of the outstanding voting stock of the
corporation not owned by the "interested stockholder." A "business combination"
generally includes mergers, stock or asset sales involving 10% or more of the
market value of the corporation's assets or stock, certain stock transactions
and certain other transactions resulting in a financial benefit to the
interested stockholders or an increase in their proportionate share of any class
or series of a corporation. The existence of Section 203 of the
41
<PAGE> 46
DGCL could have the effect of discouraging an acquisition of the Company or
stock purchasers in furtherance of an acquisition.
Limitation on Directors' Liabilities and Indemnification. The Company's
Certificate of Incorporation and By-Laws provide that to the fullest extent
permitted by the DGCL as it currently exists, a director of the Company shall
not be liable to the Company or its stockholders for monetary damages for breach
of fiduciary duty as a director. Under the current DGCL, liability of a director
may not be limited (i) for any breach of the director's duty of loyalty to the
Company or its stockholders, (ii) for acts or omissions not in good faith or
that involve intentional misconduct or a knowing violation of law, (iii) in
respect of certain unlawful dividend payments or stock redemptions or
repurchases and (iv) for any transaction from which the director derives an
improper personal benefit. The effect of this provision of the Company's
Certificate of Incorporation is to eliminate the rights of the Company and its
stockholders (through stockholders' derivative suits on behalf of the Company)
to recover monetary damages against a director for breach of the fiduciary duty
of care as director (including breaches resulting from negligent or grossly
negligent behavior) except in the situations described in clauses (i) through
(iv) above. This provision does not limit or eliminate the rights of the Company
or any stockholder to seek non-monetary relief such as an injunction or
rescission in the event of a breach of a director's duty of care. In addition,
the Company's Certificate of Incorporation and By-Laws provides that the Company
shall indemnify its directors, officers, employees and agents to the fullest
extent permitted by DGCL.
TRANSFER AGENT AND REGISTRAR
Chemical Mellon Shareholder Services will be transfer agent and registrar
for the Common Stock.
42
<PAGE> 47
DESCRIPTION OF INDEBTEDNESS
Each of the following summaries of certain indebtedness of the Company is
subject to and qualified in its entirety by reference to the detailed provisions
of the respective agreements and instruments to which each summary relates.
Copies of such agreements and instruments have been filed as exhibits to the
Registration Statement of which this Prospectus forms a part. Capitalized terms
used below and not defined have the meanings set forth in the respective
agreements.
CREDIT AGREEMENT
The following summary does not purport to be complete and is qualified in
its entirety by reference to the provisions of the Credit Agreement and other
related documents governing the Credit Agreement. Capitalized terms used below
and not defined have the meanings set forth in the Credit Agreement.
On April 28, 1995, CKJC and Rio Sportswear, as Borrowers, and the Company,
New Rio, L.L.C. and Jeanswear, as Guarantors, entered into the Credit Agreement
with certain lenders and The CIT Group, as agent for the lenders, that provides
up to $140 million comprised of two senior secured credit facilities: the $25
million Term Loan Facility and the $115 million Revolving Credit Facility. On
March 29, 1996, pursuant to an amendment to the Credit Agreement, the Revolving
Credit Facility was increased to $150 million. The Revolving Credit Facility
provides for borrowings subject to the borrowing base formula described below
and the issuance of letters of credit up to $45 million. Pursuant to such
amendment, Rio Sportswear will no longer borrow revolving loans, but will
otherwise continue certain of its obligations under the Credit Agreement. The
Term Loan is payable in equal installments, with the final installment due on
March 31, 2000. The final maturity date for the Revolving Credit Facility is
April 28, 2000, although the Revolving Credit Facility will continue until April
28 of each succeeding calendar year unless terminated as provided in the Credit
Agreement.
The Term Loan and all loans made under the Revolving Credit Facility bear
interest either at the Chemical Bank of New York prime rate plus 1.25% or at a
rate equal to LIBOR plus 2.75%. The Borrowers pay a commitment fee of 1/2 of 1%
on the unused portion of the Revolving Credit Commitment.
The total amount of revolving loans and the stated amount of letters of
credit that may be outstanding under the Revolving Credit Facility is limited to
not more than the lesser of (a) $150 million and (b) the borrowing base, which
is equal to the difference between (i) the sum of (A) 95% of the net amount of
eligible accounts receivable of CKJC (including certain receivables purchased by
The CIT Group in its capacity as factor pursuant to a factoring arrangement with
CKJC), (B) the lesser of 60% of the value of eligible inventory of CKJC and $65
million and (C) an additional amount, if any, agreed to by CIT at any time in
its sole discretion and, (ii) without duplication, such reserves for any claims
against the collateral as The CIT Group in its sole discretion deems
appropriate. In addition, the Credit Agreement has a "clean-down" provision
requiring that, between December 1 and December 21 of each year, the Revolving
Credit Facility be reduced to $105 million for at least one Business Day.
In order to secure its obligations under the Credit Agreement, each of the
Borrowers (including Rio Sportswear), the Guarantors and certain of their
subsidiaries has granted to The CIT Group a continuing security interest in all
its tangible and intangible personal property and fixtures and has granted a
mortgage of its real property and Rio Sportswear has pledged to The CIT Group
each of the trademarks listed in the Trademark Security Agreement. Such pledge
does not encompass the Trademarks. In addition, each of New Rio, L.L.C., the
Company, Jeanswear, CKJC and Rio Sportswear has pledged the shares of its
subsidiaries and CKJC has pledged a demand note, in the principal amount of
approximately $2 million, payable to Rio Sportswear.
The Credit Agreement contains various covenants that restrict the ability
of New Rio, L.L.C. and the Borrowers (including their subsidiaries), among other
things, (i) to create liens or other encumbrances on their assets or revenues,
(ii) to incur additional indebtedness, (iii) to guarantee any indebtedness, (iv)
to engage in merger transactions or sale of assets, (v) to make investments,
(vi) to enter into any lease agreement, (vii) to make capital expenditures in
excess of certain specified amounts, (viii) to make dividend
43
<PAGE> 48
payments or other distributions to their stockholders, (ix) to adjust any of the
accounts receivable or granting any discounts other than as permitted by the
factoring agreements, (x) to enter into any transaction with affiliates of New
Rio, L.L.C. other than upon terms no less favorable to New Rio, L.L.C. or its
subsidiaries than it would obtain in an arms' length transaction, (xi) to prepay
indebtedness, and (xii) to permit or cause any factoring agreement to terminate
unless certain specified conditions have been satisfied. In addition to the
foregoing, the Credit Agreement contains certain financial covenants including,
among other things, a minimum consolidated adjusted tangible net worth, a
minimum consolidated net worth, a minimum consolidated ratio of EBIT to interest
expense, a minimum consolidated current ratio and a minimum consolidated fixed
charge coverage ratio. For interest rate protection, the Credit Agreement calls
for the Company to enter into a hedging agreement in an amount of at least $30
million. Upon termination of such hedging agreement, the Company is required to
enter into not less than four successive one year hedging agreements.
Events of default under the Credit Agreement include those usual and
customary for a transaction of this type, including, among other things, (i) a
default in the payment of any principal payable on the loans under the Credit
Agreement, (ii) a default in the payment of any interest or other amounts
payable under the Credit Agreement which continues for more than five days,
(iii) the failure to comply with the covenants contained in the Credit Agreement
or related loan documents, (iv) a default by the Borrowers and the Guarantors
under any debt instrument in excess of $500,000 (after giving effect to any
applicable grace period), (v) the commencement of a bankruptcy, insolvency,
receivership or similar action by or against any Borrower or Guarantor, (vi) the
failure of the Lenders' lien on any collateral with an aggregate fair market
value in excess of $1 million to be perfected, enforceable or valid, (vii) one
or more judgments in an aggregate amount in excess of $500,000 (to the extent
not covered by insurance) rendered against the Borrowers or the Guarantors,
(viii) a change of control, which shall occur, if, among other things, (a)
Charterhouse Equity Partners II, L.P. and certain of its affiliates cease to own
at least 50% of the then outstanding voting rights of New Rio, L.L.C., (b) the
Company ceases to own and control all of the outstanding voting stock of the
Borrowers and Jeanswear, or (c) Mr. Simon ceases to be involved in the
day-to-day operations of New Rio, L.L.C., the Company and the Borrowers and a
successor reasonably acceptable to the Agent is not appointed within six months
of such cessation and (ix) a default under any license agreement if the effect
of such default is to permit Bill Blass or CKI to terminate its respective
license agreement or to exercise any remedies which could reasonably adversely
affect the ability of the Borrowers to perform their obligations under the
Credit Agreement. Upon the occurrence and continuance of an Event of Default
under the Credit Agreement, the lenders may terminate their commitments to make
loans and issue letters of credit thereunder, declare the then outstanding loans
due and payable and demand cash collateral in respect of outstanding letters of
credit.
At March 31, 1996, the Company had amounts outstanding under the Credit
Agreement of approximately $147.5 million. This includes approximately $109.3
million outstanding under the Revolving Credit Facility, including approximately
$15.7 million for open letters of credit and approximately $22.5 million
outstanding under the Term Loan Facility.
44
<PAGE> 49
SHARES ELIGIBLE FOR FUTURE SALE
Upon consummation of the Offerings, the Company will have outstanding
30,509,334 shares of Common Stock, assuming that the U.S. Underwriters and
International Managers do not exercise their over-allotment options. Of these
shares, the 10,000,000 shares of Common Stock sold in the Offerings (or a
maximum of 11,500,000 shares if the over-allotment options are exercised in
full) will be freely tradeable without restriction under the Securities Act,
unless purchased by "affiliates" of the Company (as that term is defined in Rule
144). The remaining shares of Common Stock outstanding upon completion of the
Offerings will be "restricted securities" as that term is defined in Rule 144
("Restricted Shares"). Restricted Shares may be sold in the public market only
if registered or if they qualify for an exemption from registration under Rule
144, which is summarized below.
In general, under Rule 144 as currently in effect, a person (or persons
whose shares are required to be aggregated) who has beneficially owned shares of
Common Stock that constitute restricted securities and have been outstanding and
not held by any "affiliate" of the Company for a period of two years may sell,
within any three-month period, a number of shares that does not exceed the
greater of one percent of the then outstanding shares of Common Stock or the
average weekly reported trading volume of the Common Stock during the four
calendar weeks preceding the date on which notice of such sale is given,
provided certain requirements as to the manner of sale, notice of sale and the
availability of current public information are satisfied (which requirements as
to the availability of current public information are expected to be satisfied
commencing 90 days after the date of this Prospectus). Affiliates of the Company
must comply with the foregoing restrictions and requirements of Rule 144 as to
both restricted and non-restricted securities, except that the two-year holding
period requirement does not apply to shares of Common Stock that are not
"restricted securities" (such as shares acquired by affiliates in the
Offerings). Under Rule 144(k), a person who is not deemed an "affiliate" of the
Company at any time during the three months preceding a sale by such person, and
who has beneficially owned shares of Common Stock that were not acquired from
the Company or an "affiliate" of the Company within the previous three years,
would be entitled to sell such shares without regard to volume limitation,
manner of sale provisions, notification requirements or the availability of
current public information concerning the Company. As defined in Rule 144, an
"affiliate" of an issuer is a person that directly or indirectly through one or
more intermediaries controls, or is controlled by, or is under common control
with, such issuer.
The Company, the Selling Stockholder, the directors and certain officers of
the Company and CKI have entered into contractual "lock-up" agreements providing
that they will not offer, sell, contract to sell or otherwise dispose of the
shares of Common Stock (except for the shares offered hereby and subject to
certain exceptions in the case of the Company relating to employee stock options
and conversion into Common Stock of the non-voting common stock owned by CKI),
or securities convertible into or exchangeable or exercisable for Common Stock
for a period of 180 days after the date of this Prospectus without the prior
written consent of Merrill Lynch. In addition, CKI has agreed to hold its shares
for at least 18 months, although it has certain registration rights. See
"Certain Transactions -- Registration Rights Agreement" for a description of
certain registration rights of the Selling Stockholder and its members and of
CKI.
Prior to the Offerings, there has been no public market for the Common
Stock. No predictions can be made as to the effect, if any, that future sales of
shares of Common Stock, and options to acquire shares of Common Stock, or the
availability of shares for future sale, will have on the market price prevailing
from time to time. Sales of substantial amounts of Common Stock in the public
market, or the perception that such sales may occur, could have a material
adverse effect on the market price of the Common Stock. See "Risk
Factors -- Shares Eligible for Future Sale."
45
<PAGE> 50
CERTAIN UNITED STATES FEDERAL TAX CONSEQUENCES
TO NON-UNITED STATES HOLDERS
The following is a general discussion of certain United States federal
income and estate tax consequences of the acquisition, ownership and disposition
of Common Stock by a holder that, for United States federal income tax purposes,
is not a "United States person" (a "Non-United States Holder"). For purposes of
this discussion, a "United States person" means a citizen or resident of the
United States, a corporation or partnership created or organized in the United
States or under the laws of the United States or of any State, or an estate or
trust whose income is includible in gross income for United States federal
income tax purposes regardless of its source. This discussion does not address
all aspects of United States federal tax that may be relevant to Non-United
States Holders in light of their specific circumstances. Prospective investors
are urged to consult their tax advisors with respect to the particular tax
consequences to them of acquiring, holding and disposing of Common Stock, as
well as any tax consequences which may arise under the laws of any foreign,
state, local or other taxing jurisdiction.
DIVIDENDS
The Company currently intends to retain its earnings for use in the
business and does not anticipate declaring and paying dividends in the
foreseeable future. In the event that the Company does pay dividends, dividends
paid to a Non-United States Holder will generally be subject to withholding of
United States federal income tax at the rate of 30% (or a lower rate prescribed
by an applicable treaty). This withholding tax generally will not apply to
dividends which are effectively connected with the conduct of a trade or
business within the United States by the Non-United States Holder (provided such
holder files certain tax forms with the payor of the dividends), in which case
the dividends will be subject to the United States federal income tax on net
income that applies to United States persons (and in the case of corporate
holders, such dividends might also be subject to the United States branch
profits tax). An applicable income tax treaty may, however, change these rules.
To determine the applicability of a tax treaty providing for a lower rate of
withholding, dividends paid to an address in a foreign country are presumed
under current interpretation of existing Treasury regulations to be paid to a
resident of that country. Treasury regulations proposed in 1984 which have not
been finally adopted, however, would require Non-United States Holders to file
certain new forms to obtain the benefit of any applicable tax treaty providing
for a lower rate of withholding tax on dividends. Such forms would contain the
holder's name and address and an official statement by the competent authority
in the foreign country (as designated in the applicable tax treaty) attesting to
the holder's status as a resident thereof.
GAIN ON DISPOSITION
GENERAL RULE
Subject to special rules applicable to individuals as described below, a
Non-United States Holder will generally not be subject to United States federal
income tax on gain recognized on a sale or other disposition of Common Stock
except to the extent (i) the gain is effectively connected with the conduct of a
trade or business within the United States by the Non-United States Holder
("effectively connected") or (ii) the gain is treated as effectively connected
because the Company is or becomes a "United States real property holding
corporation" for United States federal income tax purposes and certain other
requirements are met. The Company believes that it is not currently, and is not
likely to become, a United States real property holding corporation. Assuming
the Company is not a United States real property holding company, any such gain
that is (or is treated as being) effectively connected will not be subject to
withholding, but will be subject to United States federal income tax (and, in
the case of corporate holders, possibly the United States branch profits tax).
Non-United States Holders should consult applicable treaties, which may provide
for different rules (including possibly the exemption of certain capital gains
from tax).
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<PAGE> 51
INDIVIDUALS
In addition to the rules described above, an individual Non-United States
Holder who holds Common Stock as a capital asset will generally be subject to
tax at a 30% rate on any gain recognized on the disposition of such stock if
such individual is present in the United States for 183 days or more in the
taxable year of disposition and (i) has a "tax home" in the United States (as
specifically defined under the United States federal income tax laws) or (ii)
maintains an office or other fixed place of business in the United States to
which the gain from the sale of the stock is attributable. Certain individual
Non-United States Holders may also be subject to tax pursuant to provisions of
United States federal income tax law applicable to certain United States
expatriates.
FEDERAL ESTATE TAXES
Common Stock owned or treated as owned by an individual who is neither a
citizen nor a resident (as defined for United States federal estate tax
purposes) of the United States at the date of death will be subject to United
States federal estate tax imposed upon the estates of non-residents who are not
United States citizens, except to the extent that an applicable estate tax
treaty provides otherwise.
INFORMATION REPORTING AND BACKUP WITHHOLDING
The Company or its designated paying agent (the "payor") must report
annually to the Internal Revenue Service (the "Service") and to each Non-United
States Holder the amount of dividends paid to, and the tax, if any, withheld
with respect to, such holder. That information may also be made available to the
tax authorities of the country in which the Non-United States Holder resides.
United States federal backup withholding (imposed at a 31% rate on certain
payment to nonexempt persons) and information reporting with respect to such
withholding will generally not apply to dividends paid to a Non-United States
Holder that are otherwise subject to withholding or taxed as effectively
connected income as described above under "Dividends".
The backup withholding and information reporting requirements also apply to
the payment of gross proceeds to a Non-United States Holder upon the disposition
of Common Stock by or through a United States office of a United States or
foreign broker, unless the holder certifies to the broker under penalties of
perjury as to its name, address, and status as a Non-United States Holder or the
holder otherwise establishes an exemption. Information reporting requirements
(but not backup withholding if the payor does not have actual knowledge that the
payee is a United States person) will apply to a payment of the proceeds of a
disposition of Common Stock by or through a foreign office of (i) a United
States broker, (ii) a foreign broker 50% or more of whose gross income for
certain periods is effectively connected with the conduct of a trade or business
in the United States or (iii) a foreign broker that is a "controlled foreign
corporation" for United States federal income tax purposes, unless the broker
has documentary evidence in its records that the holder is a Non-United States
Holder and certain other conditions are met, or the holder otherwise establishes
an exemption. Neither backup withholding nor information reporting will
generally apply to a payment of the proceeds of a disposition of Common Stock by
or through a foreign office of a foreign broker not subject to the preceding
sentence.
Backup withholding is not an additional tax. Any amounts withheld under the
backup withholding rules will be refunded or credited against the Non-United
States Holder's United States federal income tax liability, if any, provided
that required information is furnished to the Service.
47
<PAGE> 52
UNDERWRITING
Subject to the terms and conditions set forth in the U.S. purchase
agreement (the "U.S. Purchase Agreement") among the Company, the Selling
Stockholder and each of the underwriters named below (the "U.S. Underwriters"),
and concurrently with the sale of 2,000,000 shares of Common Stock to the
International Managers (as defined below), the Company and the Selling
Stockholder have agreed to sell to the U.S. Underwriters, and each of the U.S.
Underwriters severally has agreed to purchase from the Company and the Selling
Stockholder the number of shares of Common Stock set forth opposite its name
below.
<TABLE>
<CAPTION>
NUMBER OF
U.S. UNDERWRITERS SHARES
----------
<S> <C>
Merrill Lynch, Pierce, Fenner & Smith
Incorporated.........................................................
Morgan Stanley & Co. Incorporated.................................................
---------
Total................................................................ 8,000,000
=========
</TABLE>
Merrill Lynch, Pierce, Fenner & Smith Incorporated ("Merrill Lynch") and
Morgan Stanley & Co. Incorporated are acting as representatives (the "U.S.
Representatives") of the U.S. Underwriters.
The Company and the Selling Stockholder have also entered into the
international purchase agreement (the "International Purchase Agreement") with
certain underwriters outside the United States and Canada (the "International
Managers" and, together with the U.S. Underwriters, the "Underwriters") for whom
Merrill Lynch International and Morgan Stanley & Co. International Limited are
acting as representatives (the "International Representatives"). Subject to the
terms and conditions set forth in the International Purchase Agreement, and
concurrently with the sale of 8,000,000 shares of Common Stock to the U.S.
Underwriters pursuant to the U.S. Purchase Agreement, the Company and the
Selling Stockholder have agreed to sell to each of the International Managers,
and the International Managers severally have agreed to purchase from the
Company and the Selling Stockholder an aggregate of 2,000,000 shares of Common
Stock. The initial public offering price per share of the Common Stock and the
total underwriting discount per share are identical under the U.S. Purchase
Agreement and the International Purchase Agreement.
In the U.S. Purchase Agreement and the International Purchase Agreement,
the several U.S. Underwriters and the several International Managers,
respectively, have agreed, subject to the terms and conditions set forth
therein, to purchase all of the shares of Common Stock being sold pursuant to
each such Purchase Agreement if any of such shares of Common Stock being sold
pursuant to each such agreement are purchased. Under certain circumstances, the
commitments of non-defaulting U.S. Underwriters or International Managers (as
the case may be) may be increased. The closings with respect to the sale of
shares of Common Stock to be purchased by the International Managers and the
U.S. Underwriters are conditioned upon one another.
The U.S. Underwriters and the International Managers have entered into an
intersyndicate agreement (the "Intersyndicate Agreement") providing for the
coordination of their activities. Under the terms of the Intersyndicate
Agreement, the U.S. Underwriters and the International Managers are permitted to
sell shares of Common Stock to each other for purposes of resale at the initial
public offering price, less an amount not greater than the selling concession.
Under the terms of the Intersyndicate Agreement, the U.S. Underwriters and any
dealer to whom they sell shares of Common Stock will not offer to sell or sell
shares of Common Stock to persons who are non-United States persons or
non-Canadian persons or to persons they believe intend
48
<PAGE> 53
to resell to persons who are non-United States persons or non-Canadian persons,
and the International Managers and any dealer to whom they sell shares of Common
Stock will not offer to sell or sell shares of Common Stock to persons who are
United States or Canadian persons or to persons they believe intend to resell to
United States or Canadian persons, except, in each case, for transactions
pursuant to the Intersyndicate Agreement.
The U.S. Representatives have advised the Company and the Selling
Stockholder that the U.S. Underwriters propose to offer the shares of Common
Stock offered hereby to the public at the initial public offering price set
forth on the cover page of this Prospectus, and to certain dealers at such price
less a concession not in excess of $ per share of Common Stock. The
U.S. Underwriters may allow, and such dealers may reallow, a discount not in
excess of $ per share of Common Stock on sales to certain other
dealers. After the initial public offering, the public offering price,
concession and discount may be changed.
The Company and the Selling Stockholder have granted an option to the U.S.
Underwriters, exercisable during the 30-day period after the date of this
Prospectus, to purchase up to an aggregate of 1,200,000 additional shares of
Common Stock at the initial public offering price, less the underwriting
discount. The U.S. Underwriters may exercise this option only to cover
over-allotments, if any, made on the sale of Common Stock offered hereby. To the
extent that the U.S. Underwriters exercise this option, each U.S. Underwriter
will be obligated, subject to certain conditions, to purchase the number of
additional shares of Common Stock proportionate to such U.S. Underwriter's
initial amount reflected in the foregoing table. The Company and the Selling
Stockholder also have granted an option to the International Managers,
exercisable during the 30-day period after the date of this Prospectus, to
purchase up to an aggregate of 300,000 additional shares of Common Stock to
cover over-allotments, if any, on terms similar to those granted to the U.S.
Underwriters.
At the request of the Company, the Underwriters have reserved up to 500,000
shares of Common Stock for sale at the initial public offering price to certain
employees of the Company and other persons associated with the Company or
affiliated with any director, officer or management employee of the Company who
have expressed an interest in purchasing such shares. The number of shares of
Common Stock available to the general public will be reduced to the extent such
persons purchase such reserved shares. Any reserved shares not so purchased by
such employees at the closing of the Offerings will be offered by the
Underwriters to the general public on the same terms as the other shares offered
hereby. Certain individuals purchasing reserved shares may be required to agree
not to sell, offer or otherwise dispose of any shares of Common Stock for a
period of three months after the date of this Prospectus.
The Company, the Selling Stockholder, each of the Company's directors and
certain officers and CKI have agreed not to (except for the shares offered
hereby and subject to certain exceptions in the case of the Company for the
grant of, and the issuance of shares pursuant to the exercise of, employee stock
options and the issuance of shares of Common Stock to CKI upon conversion of the
non-voting common stock owned by it) directly or indirectly sell, offer to sell,
grant any option for sale of, or otherwise dispose of any shares of Common Stock
or any securities convertible or exchangeable into, or exercisable for, Common
Stock for a period of 180 days after the date of this Prospectus without the
prior written consent of Merrill Lynch. See "Shares Eligible For Future Sale."
Prior to the Offerings, there has been no public market for the Common
Stock. The initial public offering price will be determined by negotiation among
the Company, the Selling Stockholder and the U.S. Representatives. Among the
factors that will be considered in determining the initial public offering price
are an assessment of the Company's recent results of operations, the future
prospects of the Company and the industry in general, the price-earnings ratio
and market prices of securities of other companies engaged in activities similar
to the Company and prevailing conditions in the securities market. There can be
no assurance that an active trading market will develop for the Common Stock or
that the Common Stock will trade in the public market subsequent to the
Offerings at or above the initial public offering price.
The Common Stock has been approved for listing, subject to official notice
of issuance, on the New York Stock Exchange under the symbol "DSH." In order to
meet the requirements for listing of the Common Stock on such exchange, the U.S.
Underwriters have undertaken to sell lots of 100 or more shares to a minimum of
2,000 beneficial owners.
49
<PAGE> 54
The Underwriters do not intend to confirm sales of the shares of Common
Stock offered hereby to any accounts over which they exercise discretionary
authority.
The Company and the Selling Stockholder have agreed to indemnify the
Underwriters against certain liabilities, including certain liabilities under
the Securities Act, or to contribute to payments the Underwriters may be
required to make in respect thereof.
LEGAL MATTERS
Certain legal matters with respect to the Common Stock will be passed upon
for the Company by Skadden, Arps, Slate, Meagher & Flom, New York, New York.
Certain legal matters will be passed upon for the Underwriters by Cahill Gordon
& Reindel (a partnership including a professional corporation), New York, New
York. Skadden, Arps, Slate, Meagher & Flom has from time to time represented,
and may continue to represent, certain of the Underwriters. Mark N. Kaplan, a
partner in the firm of Skadden, Arps, Slate, Meagher & Flom, is trustee of a
trust for the benefit of Mark K. Berman and Allison A. Berman, which is one of
the beneficial owners of the Selling Stockholder.
EXPERTS
The consolidated balance sheets of the Company as of December 31, 1995 and
1994 and the consolidated statements of operations, changes in stockholder's
equity and cash flows for the year ended December 31, 1995 and the four months
ended December 31, 1994 and the combined statements of operations, changes in
stockholders' equity and cash flows of the Predecessor Companies for the eight
months ended August 25, 1994 included in this Prospectus, have been included
herein in reliance on the report of Coopers & Lybrand L.L.P., independent
accountants, given on the authority of that firm as experts in accounting and
auditing.
The combined statements of operations, stockholders' equity and cash flows
of Rio Sportswear, Inc. and affiliated companies for the year ended December 31,
1993 and the related financial statement schedule for the year then ended
included in this Prospectus, have been audited by Deloitte & Touche LLP,
independent auditors, as stated in their report appearing herein and are
included in reliance upon the report of such firm given upon their authority as
experts in accounting and auditing.
In 1994, the Company retained Coopers & Lybrand L.L.P. as accountants for
the Company after the Company's management, in consultation with the Board of
Directors, decided to replace Deloitte & Touche LLP. During 1993, there were no
disagreements on any matter of accounting principles or practices, financial
statement disclosure or auditing scope or procedure, which disagreements (if not
resolved to the satisfaction of Deloitte & Touche LLP) would have caused it to
make reference to the subject matter of the disagreement in connection with
their report. The report of Deloitte & Touche LLP on the 1993 Predecessor
Companies' financial statements did not contain an adverse opinion or a
disclaimer of opinion and was not qualified as to uncertainty, audit scope or
accounting principles. Prior to the retention of Coopers & Lybrand L.L.P.,
neither the Company nor anyone on the Company's behalf consulted Coopers &
Lybrand L.L.P. regarding either the application of accounting principles related
to a specified transaction, completed or proposed, or the type of audit opinion
that might be rendered on the Company's financial statements.
50
<PAGE> 55
ADDITIONAL INFORMATION
The Company has filed with the Securities and Exchange Commission (the
"Commission") in Washington D.C. a Registration Statement on Form S-1 under the
Securities Act with respect to the securities offered hereby. This Prospectus
does not contain all the information set forth in the Registration Statement and
the exhibits and schedules thereto, to which reference is hereby made.
Statements made in this Prospectus as to the contents of any contract, agreement
or other document are not necessarily complete; with respect to each such
contract, agreement or other document filed as an exhibit to the Registration
Statement, reference is made to the exhibit for a more complete description of
the matter involved, and each such statement shall be deemed qualified in its
entirety by this reference. The Registration Statement and the exhibits thereto
filed by the Company with the Commission may be inspected and copied at the
public reference facilities maintained by the Commission at Room 1024, Judiciary
Plaza, 450 Fifth Street, N.W., Washington, D.C. 20549 and will also be available
for inspection and copying at the regional offices of the Commission located at
Room 1400, 75 Park Place, New York, New York 10007 and at Northwest Atrium
Center, 500 West Madison Street (Suite 1400), Chicago, Illinois 60661. Copies of
such material may also be obtained from the Public Reference Section of the
Commission at 450 Fifth Street, N.W., Washington, D.C. 20549 at prescribed
rates.
Upon completion of the Offerings, the Company will be subject to the
informational requirements of the Exchange Act and, in accordance therewith,
will file reports, proxy and information statements and other information with
the Commission. Such reports, proxy and information statements and other
information can be inspected and copied at the addresses set forth above. The
Company intends to furnish its stockholders with annual reports containing
consolidated financial statements audited by its independent certified public
accountants and with quarterly reports containing unaudited condensed
consolidated financial statements for each of the first three quarters of each
fiscal year.
51
<PAGE> 56
INDEX OF FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
-----
<S> <C>
Reports of Independent Accountants.................................................... F-2
Consolidated Balance Sheets as of December 31, 1994 and December 31, 1995............. F-4
Combined Statements of Operations for the year ended December 31, 1993 and the eight
months ended August 25, 1994, and Consolidated Statements of Operations for the four
months ended December 31, 1994 and the year ended December 31, 1995................. F-5
Combined Statements of Changes in Stockholder's Equity for the year ended December 31,
1993 and the eight months ended August 25, 1994, and Consolidated Statements of
Changes in Stockholder's Equity for the four months ended December 31, 1994 and the
year ended December 31, 1995........................................................ F-6
Combined Statements of Cash Flows for the year ended December 31, 1993 and the eight
months ended August 25, 1994, and Consolidated Statements of Cash Flows for the four
months ended December 31, 1994 and the year ended December 31, 1995................. F-7
Notes to Financial Statements......................................................... F-8
</TABLE>
F-1
<PAGE> 57
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors and Stockholder of
Designer Holdings Ltd.:
We have audited the consolidated balance sheets of Designer Holdings Ltd.
(the "Company") as of December 31, 1995 and 1994, the related consolidated
statements of operations, changes in stockholder's equity and cash flows for the
year ended December 31, 1995 and the four months ended December 31, 1994, and
the combined statements of operations, changes in stockholder's equity and cash
flows of the Predecessor Companies for the eight months ended August 25, 1994.
These financial statements are the responsibility of the Company's and the
Predecessor Companies' management. Our responsibility is to express an opinion
on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the consolidated financial position of Designer
Holdings Ltd. as of December 31, 1995 and 1994, the consolidated results of
their operations and their cash flows for the year ended December 31, 1995 and
the four months ended December 31, 1994, and the combined results of operations
and cash flows of the Predecessor Companies for the eight months ended August
25, 1994, in conformity with generally accepted accounting principles.
COOPERS & LYBRAND L.L.P.
New York, New York
February 29, 1996, except for Note 1, the tenth
paragraph of Note 11, the thirteenth paragraph of
Note 13 and Note 16, for which the date is April 22, 1996.
F-2
<PAGE> 58
INDEPENDENT AUDITORS' REPORT
To the Directors and Shareholders of
Rio Sportswear, Inc.
We have audited the combined statements of operations, shareholders' equity
and cash flows of Rio Sportswear, Inc. and affiliated companies (the
"Predecessor Companies") for the year ended December 31, 1993. These financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audit.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audit provides a reasonable basis for our opinion.
In our opinion, such financial statements present fairly, in all material
respects, the combined results of operations and cash flows of the Predecessor
Companies for the year ended December 31, 1993 in conformity with generally
accepted accounting principles.
DELOITTE & TOUCHE LLP
New York, New York
April 1, 1994
F-3
<PAGE> 59
DESIGNER HOLDINGS LTD.
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
DECEMBER 31,
---------------------
1994 1995
-------- --------
(IN THOUSANDS, EXCEPT
SHARE DATA)
<S> <C> <C>
ASSETS
Current assets:
Cash................................................................. $ 1,432
Receivables, net..................................................... 27,128 $118,400
Inventory............................................................ 31,907 69,510
Deferred tax assets.................................................. 2,147 8,065
Prepaid expenses and other current assets............................ 3,142 3,625
-------- --------
Total current assets......................................... 65,756 199,600
Property, plant and equipment, net..................................... 2,871 4,953
Prepaid royalties, net................................................. 7,500 6,084
Intangible assets, net................................................. 37,881 34,880
Deferred financing costs, net.......................................... 3,946
Deferred tax assets.................................................... 795
Other assets........................................................... 825 556
-------- --------
Total assets................................................. $114,833 $250,814
======== ========
LIABILITIES AND STOCKHOLDER'S EQUITY
Current liabilities:
Current portion of long-term debt.................................... $ 2,926 $ 5,000
Revolving credit loans............................................... 97,016
Due to factor........................................................ 4,602
Accounts payable..................................................... 15,323 24,857
Accrued expenses..................................................... 15,044 30,090
Income taxes payable................................................. 791 10,966
-------- --------
Total current liabilities.................................... 38,686 167,929
Long-term debt, less current portion................................. 52,255 50,403
Deferred tax liabilities............................................. 886
-------- --------
Total liabilities............................................ 91,827 218,332
-------- --------
Commitments and contingencies (Note 13)
Stockholder's equity:
Common stock, par value $.01 per share; authorized 75,000,000 shares;
issued and outstanding 24,233,868 shares, pursuant to the
reorganization in March 1995 and the stock split in April 1996.... 242 242
Paid-in capital...................................................... 24,121 20,121
Retained earnings.................................................... 1,056 12,119
-------- --------
25,419 32,482
Less, Notes receivable from related party............................ (2,413)
-------- --------
Total stockholder's equity................................... 23,006 32,482
-------- --------
Total liabilities and stockholder's equity................... $114,833 $250,814
======== ========
</TABLE>
The accompanying notes are an integral part of the financial statements.
F-4
<PAGE> 60
DESIGNER HOLDINGS LTD.
STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
PREDECESSOR COMPANIES THE COMPANY
(COMBINED) (CONSOLIDATED)
---------------------------- ----------------------------
EIGHT MONTHS FOUR MONTHS
YEAR ENDED ENDED ENDED YEAR ENDED
DECEMBER 31, AUGUST 25, DECEMBER 31, DECEMBER 31,
1993 1994 1994 1995
------------ ------------ ------------ ------------
(IN THOUSANDS, EXCEPT SHARE DATA)
<S> <C> <C> <C> <C>
Net revenues.............................. $173,561 $ 93,969 $ 102,038 $ 462,122
Cost of goods sold........................ 146,620 81,143 75,246 323,638
-------- -------- ------------ ------------
Gross profit.............................. 26,941 12,826 26,792 138,484
Selling, general and administrative
expenses................................ 23,323 12,318 20,079 100,391
-------- -------- ------------ ------------
Operating income.......................... 3,618 508 6,713 38,093
Interest expense.......................... 1,808 1,142 2,557 16,160
-------- -------- ------------ ------------
Income (loss) before income taxes......... 1,810 (634) 4,156 21,933
Provision (benefit) for income taxes...... (331) (399) 2,239 10,870
-------- -------- ------------ ------------
Net income (loss)......................... $ 2,141 $ (235) $ 1,917 $ 11,063
======== ======== ============ ============
Net income per share...................... $ .08 $ .46
============ ============
Weighted average shares outstanding....... 24,233,868 24,233,868
============ ============
</TABLE>
The accompanying notes are an integral part of the financial statements.
F-5
<PAGE> 61
DESIGNER HOLDINGS LTD.
STATEMENTS OF CHANGES IN STOCKHOLDER'S EQUITY
<TABLE>
<CAPTION>
COMMON PAID-IN RETAINED
STOCK CAPITAL EARNINGS
------- ------- --------
(IN THOUSANDS)
<S> <C> <C> <C>
PREDECESSOR COMPANIES (Combined):
Balance, January 1, 1993........................................ $ 1,611 $ 4,200 $ 4,649
Capital contributions........................................... 15
Distributions to stockholders................................... (2,179)
Net income...................................................... 2,141
-------- ------- --------
Balance, December 31, 1993...................................... 1,611 4,215 4,611
Distributions to stockholders................................... (8) (2,298)
Net loss........................................................ (235)
-------- ------- --------
Balance, August 25, 1994........................................ 1,611 4,207 2,078
THE COMPANY (Consolidated):
Distributions to stockholder.................................... (16)
Purchase of certain equity interests in predecessor companies... (1,457) (2,923)
Initial capitalization of Jeanswear Holdings, Inc............... 20,002
Net income...................................................... 1,917
Retroactive effect of issuance and exchange of common stock
pursuant to reorganization, effective March 1995, and stock
split, effective April 1996 (Note 1).......................... (1,369) 1,369
-------- ------- --------
Balance, December 31, 1994...................................... 242 24,121 1,056
Purchase of remaining interests in
predecessor companies......................................... (4,000)
Net income...................................................... 11,063
-------- ------- --------
Balance, December 31, 1995...................................... $ 242 $20,121 $ 12,119
======== ======= ========
</TABLE>
The accompanying notes are an integral part of the financial statements.
F-6
<PAGE> 62
DESIGNER HOLDINGS LTD.
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
PREDECESSOR COMPANIES THE COMPANY
(COMBINED) (CONSOLIDATED)
--------------------------- ---------------------------
YEAR EIGHT MONTHS FOUR MONTHS YEAR
ENDED ENDED ENDED ENDED
DECEMBER 31, AUGUST 25, DECEMBER 31, DECEMBER 31,
1993 1994 1994 1995
------------ ------------ ------------ ------------
(IN THOUSANDS)
<S> <C> <C> <C> <C>
Cash flows from operating activities:
Net income (loss)................................................... $ 2,141 $ (235) $ 1,917 $ 11,063
Adjustments to reconcile net income (loss) to cash provided by (used
in) operating activities:
Depreciation...................................................... 214 50 150 595
Amortization...................................................... 6 1,480 3,426
Loss on disposal of fixed assets.................................. 182
Deferred interest................................................. 1,653
Provision for receivables......................................... (26) 7 891 12,300
Deferred income taxes............................................. (823) (224) (122) (7,599)
Changes in assets and liabilities:
Receivables..................................................... (542) (1,122) (23,530) (103,572)
Inventory....................................................... (6,961) 6,752 (1,493) (37,603)
Prepaid expenses and other current assets....................... (331) (103) 103 (611)
Prepaid royalties............................................... (9,500) 2,000
Other assets.................................................... 129 161 (702) 158
Accounts payable................................................ 3,637 67 (4,886) 9,534
Accrued expenses................................................ 100 (515) 15,481 15,163
Income taxes payable............................................ (236) (115) 673 10,175
-------- -------- -------- ----------
Net cash provided by (used in) operating activities........... (2,698) 4,729 (19,538) (83,136)
-------- -------- -------- ----------
Cash flows from investing activities:
Sale of equipment................................................... 21
Purchase of ownership interest of predecessor companies............. (24,000)
Acquisition of license agreement and related assets................. (10,314)
Loan to related party............................................... (2,350)
Purchase of equipment............................................... (21) (84) (2,757)
-------- -------- -------- ----------
Net cash provided by (used in) investing activities........... 21 (21) (36,748) (2,757)
-------- -------- -------- ----------
Cash flows from financing activities:
Capital contributions............................................... 15 20,002
Proceeds from (payment of) notes payable to related party........... (200) 45,181 (45,181)
Proceeds from note payable.......................................... 5,142
Advance from (payments to) factor................................... 4,602 (4,602)
Proceeds from senior subordinated notes............................. 30,000
Proceeds from term loan............................................. 25,000
Increase in revolving credit loans.................................. 97,016
Payment of note payable to factor................................... (10,000) (10,000)
Distributions to stockholders/partners.............................. (2,179) (2,306) (16) (1,495)
Payment of notes payable............................................ (2,871) (2,400)
Payment of term loan................................................ (1,250)
Financing costs paid................................................ (320) (5,027)
-------- -------- -------- ----------
Net cash provided by (used in) financing activities........... 2,778 (5,177) 57,049 84,461
-------- -------- -------- ----------
Net increase (decrease) in cash............................... 101 (469) 763 (1,432)
Cash, beginning of period............................................. 1,037 1,138 669 1,432
-------- -------- -------- ----------
Cash, end of period........................................... $ 1,138 $ 669 $ 1,432 $ --
======== ======== ======== ==========
Supplemental disclosure of cash flow information:
Cash paid for interest................................................ $ 1,845 $ 996 $ 445 $ 16,448
======== ======== ======== ==========
Cash paid for income taxes............................................ $ 796 $ 253 $ 2,079 $ 7,340
======== ======== ======== ==========
Supplemental schedule of noncash investing and financing activities:
The acquisition of license agreement and related assets and the
purchase of ownership interests in predecessor companies included
the following noncash amounts.....................................
Fair value of net assets acquired............................. $ 61,735
Note payable issued to seller................................. (20,000)
Other liabilities created or assumed.......................... (7,421)
--------
Cash paid..................................................... $ 34,314
========
</TABLE>
The accompanying notes are an integral part of the financial statements.
F-7
<PAGE> 63
DESIGNER HOLDINGS LTD.
NOTES TO FINANCIAL STATEMENTS
(IN THOUSANDS)
1. ORGANIZATION AND BASIS OF PRESENTATION
Designer Holdings Ltd. ("Designer") (formerly, Denim Holdings Inc.) was
incorporated on March 27, 1995 for the purpose of consolidating the ownership
interests of Rio Sportswear, Inc. ("Rio Sportswear") and Jeanswear Holdings,
Inc. ("Jeanswear"), the holding company for Calvin Klein Jeanswear Company
("CKJC"). Designer is a wholly-owned subsidiary of New Rio L.L.C. ("New Rio"),
whose controlling equityholders are Arnold H. Simon and Charterhouse Equity
Partners II, L.P. ("CEP II").
The consolidated financial statements as of December 31, 1995 and 1994 and
for the year ended December 31, 1995 and the four months ended December 31, 1994
include the accounts of Designer and its subsidiaries, Rio Sportswear, Jeanswear
and CKJC and their respective subsidiaries (collectively, the "Company"). The
combined statements of operations, stockholders' equity and cash flows for the
year ended December 31, 1993 and the eight months ended August 25, 1994 include
the accounts of five separate entities commonly controlled and managed by Mr.
Simon and Stephen Huang (collectively, the "Predecessor Companies"). All
significant intercompany balances have been eliminated in consolidation.
The Company is principally engaged in developing, sourcing, producing and
marketing designer sportswear for men, women, juniors and petites under the
Calvin Klein Jeans Labels pursuant to a license agreement (the "CKJ License")
with Calvin Klein, Inc. ("CKI"). The principal markets for the Company's
products are a broad range of department stores and specialty retailers in the
United States.
In contemplation of a public offering of common stock, on April 22, 1996,
Designer increased the number of authorized common stock to 75,000,000 shares,
par value $.01 per share, and effected a 24,234-for-one stock split of its
common stock. All share and per share amounts included in the accompanying
financial statements of the Company have been restated to reflect the foregoing.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Revenue Recognition:
Revenue from the sale of merchandise is recognized at the date of shipment
to the customer. Allowances for estimated returns, discounts and credits are
provided when a sale is recorded.
The Company earns royalty fees from the licensing of the Rio tradename and
the sublicensing of the Bill Blass tradename. The Company earns commissions as
an agent for the manufacturing of private-label apparel for certain of its
customers. Royalty income from the Rio and Bill Blass licensing rights is
recognized on the basis of net sales generated by the licensee and commission
income for acting as a manufacturing agent is recognized at the date merchandise
is shipped to the private-label customer.
Effective July 1, 1995, the Company also earns royalty fees from a
distribution arrangement for the manufacturing, marketing and distribution of
Calvin Klein Jeans Label products in Canada. Royalty fees are recognized as a
percentage of net sales generated by the distributor.
Cash and Cash Equivalents:
The Company considers all highly-liquid temporary investments purchased
with a maturity of three months or less to be cash equivalents. The Company
maintains its cash in bank deposit accounts which, at times, may exceed
federally insured limits.
Inventory:
Inventory is stated at the lower of cost or market. Cost is determined by
the average cost method.
F-8
<PAGE> 64
DESIGNER HOLDINGS LTD.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
(IN THOUSANDS)
Property, Plant and Equipment:
Property, plant and equipment are stated at cost, less accumulated
depreciation and amortization. Depreciation of property, plant and equipment is
computed by the straight-line method over the estimated useful lives of the
related assets. Leasehold improvements are amortized on a straight-line basis
over the shorter of their estimated useful lives or lease terms. The cost and
related accumulated depreciation or amortization of assets retired or sold are
removed from the respective accounts, and any resulting gain or loss is included
in the statement of operations.
Intangible Assets:
Goodwill arising from the acquisition described in Note 3 is amortized on a
straight-line basis over fifteen years. Licensing rights resulting from
obtaining the CKJ License are also amortized on a straight-line basis over
fifteen years. The non-compete agreements entered into in connection with
obtaining the CKJ License are effective over the term of the CKJ License,
including renewals, and the related costs of the agreements are being amortized
on a straight-line basis over fifteen years. The Company periodically evaluates
the recoverability of its intangible assets and measures the amount of
impairment, if any, by assessing current and future levels of income and cash
flows as well as other factors, such as business trends and prospects and market
and economic conditions.
Deferred Financing Costs:
Deferred financing costs relate to the Company's debt refinancing (see Note
11) and are being amortized using the interest method over the terms of the
underlying indebtedness of five and ten years. These costs are stated net of
accumulated amortization of $1,006 at December 31, 1995.
Income Taxes:
The Company records deferred tax assets and liabilities for differences
between the financial statement and tax bases of assets and liabilities
("temporary differences") at enacted tax rates in effect for the year in which
the differences are expected to reverse. The effect on deferred taxes of a
change in tax rates is recognized in income in the period that includes the
enactment date. In addition, valuation allowances are established, when
necessary, to reduce deferred tax assets to the amounts expected to be realized.
Management Estimates:
The financial statements are prepared in conformity with generally accepted
accounting principles, which require management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting periods. The most significant estimates relate to sales returns,
discounts and allowances. Actual results could differ from those estimates.
Recently Issued Accounting Standards:
In March 1995, Statement of Financial Accounting Standards No. 121,
"Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to
Be Disposed Of " ("SFAS No. 121"), was issued and is effective January 1, 1996.
SFAS No. 121 requires that in the event certain facts and circumstances indicate
an asset may be impaired, an evaluation of recoverability must be performed to
determine whether or not the carrying amount of the asset is required to be
written down. The Company does not expect the adoption of this statement to have
a material effect on its financial condition or results of operations.
F-9
<PAGE> 65
DESIGNER HOLDINGS LTD.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
(IN THOUSANDS)
3. REORGANIZATION AND ACQUISITION
The formation of Designer and its acquisitions of Rio Sportswear and
Jeanswear has been accounted for as a reorganization of entities under common
control in a manner similar to a pooling of interests effective August 26, 1994.
New Rio and its wholly-owned subsidiary, Rio Sportswear, were formed in
July and August 1994, respectively, for the purpose of combining the business
activities of the Predecessor Companies which were jointly engaged in the
designing, sourcing, marketing and distribution of jeans and jeans-related
products under the Rio, Bill Blass and certain private label tradenames.
On August 4, 1994, Mr. Simon contributed a portion of his interests in the
Predecessor Companies to Rio Sportswear in exchange for a $20,000 preferential
equity interest in New Rio. Mr. Simon also granted an option, which was
exercised in April 1995, to Rio Sportswear to acquire his remaining residual
interests in the Predecessor Companies for $4,000. The consideration exchanged
comprised cash of $1,345 and the cancellation of notes receivable from Mr. Simon
amounting to $2,655. The transaction was accounted for as a redemption of equity
securities.
On August 25, 1994, CEP II loaned $24,849 to Rio Sportswear. The proceeds
of this loan were used to fund the purchase of the interests of Mr. Huang in the
Predecessor Companies for $24,000, excluding costs of the acquisition. This
transaction resulted in a change in control of the Predecessor Companies.
The contribution of Mr. Simon's interests in the Predecessor Companies and
the acquisition of Mr. Huang's interests have been accounted for in accordance
with the consensus reached by the Emerging Issues Task Force of the Financial
Accounting Standards Board in Issue 88-16, "Basis in Leveraged Buyout
Transactions" ("EITF 88-16"). Under the provisions of EITF 88-16, the interests
of Mr. Simon in the Predecessor Companies have been carried over to Rio
Sportswear at their historical cost bases. The purchase of Mr. Huang's interests
in the Predecessor Companies has been accounted for as a step acquisition,
accordingly, the purchase price has been allocated to the assets and liabilities
of the Predecessor Companies represented by Mr. Huang's interests based on their
estimated fair values at August 25, 1994. This allocation resulted in the
recognition of $21,283 in goodwill.
The final purchase price is subject to adjustment based upon an audit of
the combined balance sheet of the Predecessor Companies as of August 25, 1994.
Based on the audited balance sheet, the purchase price should be reduced by
approximately $903; however, the final determination is subject to review by Mr.
Huang and this review is not yet complete.
The purchase agreement also provides for contingent consideration of up to
$2,000 to be paid to Mr. Huang if net sales of Rio Sportswear, as defined, reach
certain levels in each of the next three years. In addition, $2,000 (net of any
payments as described in the prior sentence) may be due upon a public offering
of Rio Sportswear or an affiliate of Rio Sportswear. Such contingent
consideration, if paid, will increase goodwill.
At the time Rio Sportswear acquired the Predecessor Companies, CEP II
formed Jeanswear and its wholly-owned subsidiary, CKJC. On August 4, 1994, CKJC
entered into the CKJ License with CKI and purchased certain other assets from
Calvin Klein Sport, Inc. ("CKS") (see Note 4).
In connection with these acquisitions, Mr. Simon and CEP II entered into an
operating agreement to jointly control and operate the businesses of these
entities. Mr. Simon and CEP II also agreed to grant each other a right to
require the contribution of Jeanswear by CEP II to New Rio in exchange for a
$20,000 preferential equity interest in New Rio, pari passu with the existing
$20,000 preferential equity interest acquired by Mr. Simon in connection with
the transfer of his ownership interests in the Predecessor Companies to New Rio.
This right was exercised by both parties effective March 1995. As a result,
Jeanswear became a wholly-owned subsidiary of Designer.
F-10
<PAGE> 66
DESIGNER HOLDINGS LTD.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
(IN THOUSANDS)
4. CALVIN KLEIN LICENSE
On August 4, 1994, CKJC entered into the CKJ License with CKI whereby CKJC
obtained the right to manufacture, market and distribute, among other things,
jeans, shirts, shorts, skirts, jackets and overalls under the Calvin Klein Jeans
labels. The CKJ License expires on December 31, 2004, with an option to renew
for four additional ten-year periods provided certain minimum sales levels are
achieved. As part of the transaction, the Company also advanced CKI $9,500 for
future royalties payable under the CKJ License, acquired on-hand inventory, was
required to acquire two manufacturing facilities, and entered into noncompete
agreements with CKI and two of its principal officers.
The total consideration for the transaction of $45,900, including costs of
approximately $5,400, was allocated to the individual assets acquired, including
identified intangibles, based upon their estimated fair values.
The royalty advance of $9,500 represents a prepayment for which the Company
will receive a $12,500 credit against future royalty payments in quarterly
installments of $500. The difference between the advance and the credit of
$3,000 is being amortized as a reduction of royalty expense in proportion to the
utilization of the credit under the agreement.
The above transaction was financed with (i) $20,000 in capital
contributions by CEP II; (ii) certain proceeds from a $20,332 loan from CEP II;
and, (iii) the issuance of a $20,000 note payable to CKS which was subsequently
assigned to a bank.
The acquisition costs incurred in connection with the transactions
described above and in Note 3 include $650 in investment advisory fees to a
related party. Such costs are included in accrued expenses at December 31, 1994
and were paid in 1995.
5. RECEIVABLES AND FACTORING AGREEMENTS
Receivables consist of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
--------------------
1994 1995
------- --------
<S> <C> <C>
Due from factor................................................. $24,062 $100,692
Trade receivables............................................... 4,318 21,220
Other receivables............................................... 444 10,484
------- --------
28,824 132,396
Less, allowances for sales returns, discounts, credits and
doubtful accounts............................................. (1,696) (13,996)
------- --------
$27,128 $118,400
======= ========
</TABLE>
Rio Sportswear and CKJC have factoring agreements with a financial
institution (the "Factor") that require the sale of all trade accounts
receivable to the Factor except for export sales, which are sold to the Factor
at the option of Rio Sportswear and CKJC. In addition, all related sales orders
must be submitted to the Factor for credit approval prior to shipment. The
Factor collects all cash remittances on receivables factored and assumes credit
risk on all approved sales. Factored receivables are reflected on the balance
sheet in the due from factor account. The Company holds no collateral with
respect to amounts due from Factor.
Prior to the debt refinancing on April 28, 1995 (see Note 11), the
agreements provided that, upon request, the Factor may advance funds to Rio
Sportswear and CKJC based upon specified levels of eligible accounts receivable
and inventory. Such advances were recorded as a reduction in the due from factor
account. In addition, Rio Sportswear and CKJC had letter of credit agreements
with the Factor pursuant to
F-11
<PAGE> 67
DESIGNER HOLDINGS LTD.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
(IN THOUSANDS)
which the Factor would open letters of credit for the purchase of inventory in
its sole discretion. Drawdowns on these letters of credit were charged as an
advance under the factoring agreements.
In connection with the debt refinancing (see Note 11), all advances under
the factoring agreements were repaid, the letter of credit agreements were
terminated and the Factor and the Company agreed not to engage in any further
advances, borrowings or other financing transactions under the factoring
agreements. The Company, however, continues to factor its receivables with the
Factor and such factored receivables are included in the collateral to
borrowings outstanding under the new financing.
6. INVENTORY
The components of inventory are summarized as follows:
<TABLE>
<CAPTION>
DECEMBER 31,
-------------------
1994 1995
------- -------
<S> <C> <C>
Raw materials................................................... $ 1,027 $ 1,536
Work-in-process................................................. 671 4,091
Finished goods.................................................. 30,209 63,883
------- -------
$31,907 $69,510
------- -------
</TABLE>
Finished goods inventory includes in-transit amounts of $9,138 and $7,377
at December 31, 1994 and 1995, respectively.
7. NOTES RECEIVABLE FROM RELATED PARTY
During 1994, Rio Sportswear made $2,350 in loans to Mr. Simon, bearing
interest at the prime rate plus 3%. At December 31, 1994, notes receivable from
Mr. Simon include accrued interest of approximately $63. This interest was
forgiven in 1995 and no further interest was accrued. The loans were repaid in
connection with the purchase of the remaining interests in the Predecessor
Companies as described in Note 3. At December 31, 1994, the notes receivable
were treated as a reduction of stockholder's equity.
8. PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment consist of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
-----------------
1994 1995
------ ------
<S> <C> <C>
Land............................................................... $ 12 $ 12
Buildings.......................................................... 1,400 1,400
Machinery and equipment............................................ 1,379 1,481
Computer equipment................................................. 143 1,146
Furniture, fixtures and office equipment........................... 520 1,039
Leasehold improvements............................................. 148 806
------ ------
3,602 5,884
Less, accumulated depreciation and amortization.................... (731) (931)
------ ------
$2,871 $4,953
====== ======
</TABLE>
F-12
<PAGE> 68
DESIGNER HOLDINGS LTD.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
(IN THOUSANDS)
9. INTANGIBLE ASSETS
Intangible assets consist of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
-------------------
1994 1995
------- -------
<S> <C> <C>
Goodwill......................................................... $21,805 $21,283
Licensing rights................................................. 9,736 9,736
Noncompete agreements............................................ 7,500 7,500
Other............................................................ 211
------- -------
39,041 38,730
Less, accumulated amortization................................... (1,160) (3,850)
------- -------
$37,881 $34,880
======= =======
</TABLE>
During 1995, the Company reduced goodwill by $522 to reflect the final
determination of certain purchase accounting adjustments.
10. ACCRUED EXPENSES
Accrued expenses consist of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
-------------------
1994 1995
------- -------
<S> <C> <C>
Accrued compensation............................................. $ 4,921 $ 5,995
Accrued royalties................................................ 3,228 13,382
Other............................................................ 6,895 10,713
------- -------
$15,044 $30,090
======= =======
</TABLE>
11. FINANCING
Borrowings outstanding under financing arrangements consist of the
following:
<TABLE>
<CAPTION>
DECEMBER 31,
-------------------
1994 1995
------- -------
<S> <C> <C>
Revolving credit loans........................................... $97,016
=======
Long-term debt:
Notes payable to CEP II........................................ $45,181
Note payable to bank........................................... 10,000
Term loan...................................................... $23,750
Senior subordinated notes, including deferred interest......... 31,653
------- -------
55,181 55,403
Less, current portion............................................ (2,926) (5,000)
------- -------
$52,255 $50,403
======= =======
</TABLE>
In connection with the transactions described in Notes 3 and 4, CEP II
loaned the Company $45,181. These loans had a one-year term and bore interest at
the prime rate plus 3%. On May 1, 1995, the Company concluded a long-term
refinancing of its indebtedness to CEP II ($45,181) and a financial institution
F-13
<PAGE> 69
DESIGNER HOLDINGS LTD.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
(IN THOUSANDS)
($10,000). Interest expense under the CEP II indebtedness was $1,259 and $1,806
for the four months ended December 31, 1994 and the year ended December 31,
1995, respectively.
The new financing consists of a senior credit facility and a subordinated
loan. The senior credit facility involves several lenders and consists of (i) a
revolving credit facility which provides for the issuance of loans and letters
of credit up to $115,000, limited, in the aggregate, to specified percentages of
eligible factored receivables and inventory, as defined, and, with respect to
open letters of credit, limited to $45,000; and (ii) a term loan of $25,000.
This facility may be terminated by the Company or the lenders on April 28, 2000
or each anniversary thereafter.
Borrowings under the revolving credit facility are made under revolving
credit notes which mature upon termination of the agreement. However, the
agreement requires that customer remittances paid directly to the Factor be
assigned to the lenders and used to reduce the outstanding borrowings. The
agreement also contains a provision whereby borrowings under the revolving
credit facility require that there be no material adverse change in the
Company's business or condition. As a result, the revolving credit loans are
classified as current in the accompanying balance sheet. The Company expects to
maintain substantially all of these borrowings as outstanding over the next
year.
On September 15, 1995, the revolving credit facility was temporarily
increased by $10,000 and on November 8, 1995, it was further increased by
another $10,000, subject to the same limitations as previously described. These
increases expire on March 29, 1996.
At December 31, 1995, open letters of credit and open collection letters
amounted to $21,441.
The term loan is payable in quarterly principal installments of $1,250
commencing December 31, 1995 ($5,000 annually from 1996 through 1999) and a
final installment of $3,750 on March 31, 2000. The term loan agreement requires
prepayments of the latest installments based on excess cash flows as defined in
the agreement. If the term loan is refinanced prior to April 28, 1997, the
Company will be subject to a prepayment fee.
Borrowings outstanding under revolving credit loans and the term loan bear
interest at one month LIBOR plus 2.75% or the Chemical Bank of New York prime
rate plus 1.25%, adjustable monthly. Letters of credit bear applicable drawing
and maintenance fees. The weighted average interest rate on short term
borrowings outstanding at December 31, 1995 was 9.1%. The Company pays a
commitment fee of 1/2 of 1% on the unused portion of the revolving credit
commmitment.
Under a subordinated loan agreement, Designer issued Senior Subordinated
Notes (the "Subordinated Loan") for $30,000. The Subordinated Loan bears a
current interest rate of 12%, payable in June and December of each year, and a
deferred interest rate of 8% for the first two years, increasing 1% per annum
each year thereafter, compounded annually, and payable upon maturity or
prepayment of any portion of the principal amount of the Subordinated Loan to
which the deferred interest relates. At December 31, 1995, deferred interest
amounted to approximately $1,653 and is included in the Subordinated Loan
account. The Subordinated Loan is payable in installments of $5,000 on April 28,
2002, $10,000 each on April 28, 2003 and 2004 and the remaining balance on April
28, 2005. Prepayments are subject to a prepayment fee during the first two years
of the loan. The Company intends to prepay the Subordinated Loan with the
estimated proceeds to the Company from the proposed initial public offering of
common stock described in Note 1. If the prepayment occurs prior to June 30,
1996, the Company will record an extraordinary charge consisting of the
prepayment fee of approximately $3,000 and the write-off of related deferred
financing costs. The Subordinated Loan is subordinate to amounts outstanding
under the senior credit facility.
Amounts outstanding under the senior credit facility are collateralized by
substantially all the assets of the Company. The senior credit facility and the
Subordinated Loan agreements contain restrictive covenants
F-14
<PAGE> 70
DESIGNER HOLDINGS LTD.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
(IN THOUSANDS)
which, among other requirements, prohibit the payment of dividends or stock
repurchases and restrict additional indebtedness, leases, capital expenditures,
investments and a sale of assets or merger of the Company with another entity.
The covenants, as amended March 8, 1996, also require the Company to meet
certain financial ratios and maintain minimum levels of net worth.
The carrying amount for the revolving credit loans and the term loan
approximates fair value because the underlying instruments are variable rate
notes which reprice frequently. It is not practicable to estimate the fair value
of the Subordinated Loan based on the lack of available information for similar
instruments of privately-held entities.
12. INCOME TAXES
The provision (benefit) for income taxes consists of the following:
<TABLE>
<CAPTION>
PREDECESSOR COMPANIES THE COMPANY
(COMBINED) (CONSOLIDATED)
---------------------------- ---------------------------
YEAR EIGHT MONTHS FOUR MONTHS YEAR
ENDED ENDED ENDED ENDED
DECEMBER 31, AUGUST 25, DECEMBER 31, DECEMBER 31,
1993 1994 1994 1995
------------ ------------ ----------- ------------
<S> <C> <C> <C> <C>
Current:
Federal.......................... $ 317 $ 1,634 $ 13,329
State and local.................. 175 $ (175) 727 5,140
------ ------ ------- --------
492 (175) 2,361 18,469
------ ------ ------- --------
Deferred:
Federal.......................... (797) (207) (25) (5,628)
State and local.................. (26) (17) (97) (1,971)
------ ------ ------- --------
(823) (224) (122) (7,599)
------ ------ ------- --------
Total.................... $ (331) $ (399) $ 2,239 $ 10,870
====== ====== ======= ========
</TABLE>
The components of deferred tax assets and liabilities are as follows:
<TABLE>
<CAPTION>
DECEMBER 31,
-----------------
1994 1995
------ ------
<S> <C> <C>
Deferred tax assets, current:
Inventory basis adjustment....................................... $ 373 $ 946
Reserves and accrued expenses.................................... 1,774 7,119
------ ------
$2,147 $8,065
====== ======
Deferred tax assets, noncurrent:
Net operating loss carryforwards................................. $ 27 $ 826
Deferred interest................................................ 711
------ ------
$ 27 $1,537
====== ======
Deferred tax liabilities, noncurrent:
Depreciation of property, plant and equipment.................... $ (56) $ (96)
Amortization of intangible assets................................ (857) (646)
------ ------
$ (913) $ (742)
====== ======
</TABLE>
F-15
<PAGE> 71
DESIGNER HOLDINGS LTD.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
(IN THOUSANDS)
The provision (benefit) for income taxes differs from the amount computed
by applying the statutory Federal income tax rate to pre-tax income as follows:
<TABLE>
<CAPTION>
PREDECESSOR COMPANIES
(COMBINED) THE COMPANY
-------------------------- (CONSOLIDATED)
EIGHT ----------------------------
YEAR MONTHS FOUR MONTHS YEAR
ENDED ENDED ENDED ENDED
DECEMBER 31, AUGUST 25, DECEMBER 31, DECEMBER 31,
1993 1994 1994 1995
------------ ---------- ------------ ------------
<S> <C> <C> <C> <C>
Tax provision (benefit) at statutory
Federal income tax rate............. $ 615 $ (207) $1,455 $ 7,677
State income taxes, net of Federal
benefit............................. 97 410 2,031
Nondeductible goodwill amortization... 227 493
S corporation/partnership income not
subject to tax...................... (373)
Income tax liability assumed by
stockholder upon conversion to S
Corporation status.................. (622)
Other................................. (48) (192) 147 669
------ ------ ------ --------
$ (331) $ (399) $2,239 $ 10,870
====== ====== ====== ========
</TABLE>
Prior to August 26, 1994, the results of operations reflect the Predecessor
Companies which included two S corporations and a partnership which were not
subject to Federal and state income taxes. One of these entities converted from
a C corporation to an S corporation in 1993. As a result, $622 of deferred taxes
payable became the responsibility of a stockholder and were treated as a
reduction of deferred tax expense.
As of December 31, 1995, the Company has a net operating loss carryforward
for Federal income tax purposes of approximately $1,922 which expires in 2010.
13. COMMITMENTS AND CONTINGENCIES
Leases:
The Company leases showrooms, office facilities, warehouses, equipment and
automobiles under noncancelable operating leases. In addition to minimum rental
payments, these leases require payment of various expenses incidental to the use
of the property and, in some cases, provide for rent adjustments based upon
changes in the consumer price index. Rent expense under these leases
approximated $1,238, $871, $262 and $1,807 for the year ended December 31, 1993,
the eight months ended August 25, 1994, the four months ended December 31, 1994
and the year ended December 31, 1995, respectively. Included in rent expense in
1993 and the eight months ended August 25, 1994 is $840 and $560, respectively,
for office and warehouse facilities leased from a then owner of the Company.
Future minimum rental payments required under these leases in the aggregate
and for each of the next five years, exclusive of a lease currently under
renegotiation, are as follows:
<TABLE>
<S> <C>
Year ending December 31:
1996.............................................................. $2,616
1997.............................................................. 1,896
1998.............................................................. 1,009
1999.............................................................. 710
2000.............................................................. 476
Thereafter........................................................ 2,601
------
$9,308
======
</TABLE>
F-16
<PAGE> 72
DESIGNER HOLDINGS LTD.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
(IN THOUSANDS)
In April 1995, the Company executed, subject to the approval of the
Company's board of directors, a triple net ten-year lease for a warehouse to be
constructed and available for occupancy during 1997. The terms of this lease,
which are presently being renegotiated, provide for an initial annual base rent
of approximately $1,500, adjusted for increases in the consumer price index, and
contain two five-year renewal options.
License Agreements:
CKJ LICENSE. CKJC has the CKJ License with CKI to use the Calvin Klein
Jeans Labels for jeans and jeans-related products in the United States, Canada,
Mexico, Guatemala, Belize, Honduras, Nicaragua, Costa Rica, Panama, Columbia,
Ecuador, Brazil, Peru, Bolivia, Paraguay and Chile. The CKJ License requires
royalty and advertising fee payments based on percentages of sales, as defined.
It also requires minimum annual royalty fee payments of approximately $4,500 in
1995 which increase to approximately $11,400 by 2004. Royalty and advertising
fees aggregated approximately $5,985 and $36,065 for the four months ended
December 31, 1994 and the year ended December 31, 1995, respectively, and are
included in selling, general and administrative expenses. The CKJ License
expires December 31, 2004, with an option to renew for four additional ten-year
periods providing certain minimum sales levels are achieved. It also contains
covenants which require Jeanswear to meet certain net worth and debt-to-net
worth levels.
Effective July 1, 1995, CKJC entered into a distribution agreement for the
sale of Calvin Klein Jeans Label products in Canada. The agreement provides for
royalty and advertising fee payments to CKJC based on percentages of sales of
the distributor, as defined. The agreement also requires minimum annual royalty
fee payments of approximately $1,800 in 1996 which increase to approximately
$3,000 in 1999. Royalty fees approximated $791, net of royalty fee payments due
CKI by CKJC, under this agreement from its inception (July 1, 1995) to December
31, 1995 and are included in net revenues. The initial term of this agreement is
through December 31, 1995 with an option to renew for four additional one-year
terms. The agreement has been renewed for 1996.
The Company also has entered into a distribution agreement for Calvin Klein
Jeans Label childrens apparel in the United States, effective January 1, 1996.
Under this agreement CKJC will receive royalty and advertising fees based on
percentages of sales of the distributor, as defined. The agreement will continue
through December 31, 2004 with an option to renew the agreement for four
additional ten year terms if CKJC has renewed the license agreement with CKI and
the distributor has met certain minimum net sales thresholds.
BILL BLASS LICENSE. Rio Sportswear has a licensing agreement with Bill
Blass Ltd. to use the Bill Blass labels in connection with the manufacture,
distribution and sale of women's jeans and jeans-related skirts, dresses and
jackets in the Western Hemisphere. The agreement requires royalty fee payments
based on percentages of sales, as defined, subject to a minimum annual royalty
fee payment of $1,000. Royalty fees approximated $2,948, $1,800, $893 and $2,354
under this agreement for the year ended December 31, 1993, the eight months
ended August 25, 1994, the four months ended December 31, 1994 and the year
ended December 31, 1995, respectively, and are included in selling, general and
administrative expenses. The agreement expires on December 31, 1997 and contains
an option to renew for an additional three-year period and a further option to
renew for an additional ten-year period for which minimum annual royalty fee
payments during such ten-year period will increase to $1,500.
BILL BLASS SUBLICENSE AND RIO LICENSE. In December 1995, Rio Sportswear
entered into an agreement, commencing January 1, 1996, to (i) sublicense its
rights under the Bill Blass licensing agreement, (ii) grant a license of its Rio
tradename for use on a full line of products, exclusive of certain womens shirts
and tops and childrenswear, and (iii) place the manufacture of its private label
business, all with a manufacturer affiliated with a primary supplier to the
Company. In connection with this agreement, Rio Sportswear sold its remaining
F-17
<PAGE> 73
DESIGNER HOLDINGS LTD.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
(IN THOUSANDS)
inventory of Bill Blass, Rio and private label products to the manufacturer and
incurred a loss in connection with the sale of approximately $4,400.
Under the terms of the agreement, Rio Sportswear will earn a royalty fee
based on sales orders accepted by the manufacturer. In addition, Rio Sportswear
will continue to market the products under the agreement and is required to pay
substantially all selling expenses, as stipulated in the agreement, including
the maintenance of a showroom and sales staff. The agreement requires minimum
annual royalty fee payments in addition to the minimum royalties payable to Bill
Blass, of approximately $667 for 1996 which increase to approximately $1,000 for
1998 and thereafter. The initial term of the agreement expires on December 31,
2005 and is renewable for five additional ten-year periods.
Multi-Employer Pension Plan:
The Company contributes to a multi-employer defined benefit pension plan on
behalf of union employees of its two manufacturing facilities and a warehouse
and distribution facility. Contribution expense is determined in accordance with
the provisions of collective bargaining agreements and amounted to $85 and
$1,438 for the four months ended December 31, 1994 and the year ended December
31, 1995, respectively. Under the Employee Retirement Income Security Act, as
amended, an employer upon withdrawal from a multi-employer plan is required to
continue funding its proportionate share of the plan's unfunded vested benefits.
The plan administrator has not provided the Company with information regarding
its proportionate share of the plan's unfunded vested benefits (for withdrawal
liability purposes); however, the Company has no immediate intention of
withdrawing from the plan. Under the purchase agreement to the assets acquired
with the Calvin Klein license, the Company's obligation from any such withdrawal
is limited to $3,500 and CKI is responsible for any additional liability. In
1995, the Company acquired a lease on a warehouse and distribution facility from
CKI. Pursuant to this agreement, CKI indemnified the Company for any pension
withdrawal liability at a rate of 100% decreasing to 25% of such liability, in
annual decrements of 15%, in each of the first five years subsequent to the
acquisition of the lease. The remaining 25% indemnification will remain in
effect through the initial term of the lease which expires in June 1999.
Other Commitments:
CKJC has employment agreements with certain employees which, in addition to
base salaries, provide incentive bonuses based upon net sales, as defined, in
excess of certain minimum amounts.
The Company has guaranteed to a fabric supplier the payment of up to $1,300
in trade accounts payable of two of its contractors.
Litigation:
In 1990, an action was filed against Rio Sportswear and certain other
defendants alleging, among other things, that the Company infringed a patent
held by the plaintiffs relating to acid wash processes used in the manufacture
of jeanswear having a random fade effect. Similar suits are pending against the
major manufacturers of such jeanswear. The plaintiffs seek damages against all
defendants in unspecified amounts. No trial date has been set. Rio Sportswear
had received a proposal from plaintiffs offering to settle the litigation, which
was subsequently withdrawn, and Rio Sportswear made a counterproposal, which has
also been withdrawn. There can be no assurance that plaintiffs will make or
consider further settlement proposals with respect to the litigation. If the
parties are unable to reach a settlement, Rio Sportswear intends to contest the
action vigorously. The outcome of litigation is inherently unpredictable and, in
the event that no settlement were reached and Rio Sportswear were found to have
infringed the patent in suit, damages and attorneys' fees could be assessed
against Rio Sportswear. No assurance can be given that such damages and fees
would not have a material adverse effect upon the Company's results of
operations or cash flows in the
F-18
<PAGE> 74
DESIGNER HOLDINGS LTD.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
(IN THOUSANDS)
period in which the judgment is rendered; however, the Company believes that any
such damages and fees would not have a material adverse effect upon the
Company's financial position.
The Company is subject to other legal proceedings for which the outcome, in
the opinion of management, is not expected to have a material adverse effect on
results of operations, financial position or cash flows.
14. SIGNIFICANT CUSTOMERS
For the year ended December 31, 1993, one customer accounted for
approximately 18% of gross sales. For the eight months ended August 25, 1994,
three customers accounted for approximately 36% of gross sales. For the four
months ended December 31, 1994, one customer accounted for approximately 11% of
gross sales. For the year ended December 31, 1995, two customers accounted for
approximately 27% of gross sales.
15. STOCK OPTION AND INCENTIVE PLAN
The Company's Board of Directors has approved in principle the Designer
Holdings Ltd. 1996 Stock Option and Incentive Plan (the "Stock Plan"). The Stock
Plan is expected to be approved by the stockholders of the Company prior to the
initial public offering.
Pursuant to the Stock Plan, executive officers, key employees and
consultants of the Company are eligible to receive awards of stock options,
stock appreciation rights, limited stock appreciation rights and restricted
stock. Under the Stock Plan, the Company has reserved 2,288,200 shares of Common
Stock for issuance of awards under the Stock Plan (subject to antidilution and
similar adjustments).
16. SUBSEQUENT EVENTS
CKJ LICENSE AMENDMENTS
On April 22, 1996, the CKJ License was amended to provide for, among other
things, the (i) modification of the term of the CKJ License from a ten-year
initial term with four ten-year renewal terms to a forty-year initial term with
one ten-year renewal term, (ii) modification of net sales thresholds, (iii)
extension of the term of the CKJ License for the Khaki Collection from ten years
to forty years, (iv) granting to the Company the non-exclusive right to sell
caps for the term of the CKJ License, (v) expansion of the geographical
territory for the Khaki Collection, (vi) addition of certain territories in
Central and South America to the CKJ License, and (vii) liberalization of
certain covenants. As consideration for such amendments, the Company issued
1,275,466 shares of non-voting common stock to CKI. Such shares are convertible
at any time upon notice to the Company into an equal number of shares of common
stock. CKI has agreed to hold such shares for at least 18 months following the
effective date of the proposed initial public offering of the Company's common
stock, although the Company has granted CKI certain "piggy-back" registration
rights that can be exercised at any time after the shares are converted into
voting common stock.
The value of the shares issued to CKI of $16,836 will be recorded as
capitalized licensing rights and amortized over forty years, the adjusted term
of the CKJ License. Had the transaction been consummated at December 31, 1995,
intangible assets, total assets and stockholder's equity would have been
$51,716, $267,650, and $49,318, respectively.
EMPLOYMENT AGREEMENT
As of April 22, 1996, the Company entered into an employment agreement with
Mr. Simon, which becomes effective upon the closing of the proposed initial
public offering of the Company's Common Stock. The agreement, which expires on
December 31, 1998, provides for Mr. Simon to be President and Chief Executive
Officer of the Company at an annual base salary of not less than $1,500. The
agreement also
F-19
<PAGE> 75
DESIGNER HOLDINGS LTD.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
(IN THOUSANDS)
provides for an annual cash bonus based on a percentage of adjusted earnings
before interest, taxes and certain non-cash charges (as defined). In addition,
upon certain events of termination and change in control of the Company, the
agreement provides that Mr. Simon will be entitled to certain payments, provided
that the maximum amount payable shall not exceed $9,000 in the aggregate.
F-20
<PAGE> 76
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
NO DEALER, SALESPERSON OR OTHER INDIVIDUAL HAS BEEN AUTHORIZED TO GIVE ANY
INFORMATION OR MAKE ANY REPRESENTATIONS NOT CONTAINED IN THIS PROSPECTUS IN
CONNECTION WITH THE OFFERING COVERED BY THIS PROSPECTUS. IF GIVEN OR MADE, SUCH
INFORMATION OR REPRESENTATIONS MUST NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED
BY THE COMPANY, THE SELLING STOCKHOLDER OR THE UNDERWRITERS. THIS PROSPECTUS
DOES NOT CONSTITUTE AN OFFER TO SELL, OR A SOLICITATION OF AN OFFER TO BUY, THE
COMMON STOCK IN ANY JURISDICTION WHERE, OR TO ANY PERSON TO WHOM, IT IS UNLAWFUL
TO MAKE SUCH OFFER OR SOLICITATION. NEITHER THE DELIVERY OF THIS PROSPECTUS NOR
ANY SALE MADE HEREUNDER SHALL, UNDER ANY CIRCUMSTANCES, CREATE ANY IMPLICATION
THAT THERE HAS NOT BEEN ANY CHANGE IN THE FACTS SET FORTH IN THIS PROSPECTUS OR
IN THE AFFAIRS OF THE COMPANY SINCE THE DATE HEREOF.
------------------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Prospectus Summary.................... 3
Risk Factors.......................... 7
The Company........................... 11
Dividend Policy....................... 12
Use of Proceeds....................... 12
Capitalization........................ 13
Dilution.............................. 14
Unaudited Pro Forma Financial
Information......................... 15
Selected Financial Information........ 16
Management's Discussion and Analysis
of Financial Condition and Results
of Operations....................... 17
Business.............................. 22
Management............................ 32
Certain Transactions.................. 38
Principal and Selling Stockholders.... 39
Description of Capital Stock.......... 40
Description of Indebtedness........... 43
Shares Eligible for Future Sale....... 45
Certain United States Federal Tax
Consequences to Non-United States
Holders............................. 46
Underwriting.......................... 48
Legal Matters......................... 50
Experts............................... 50
Additional Information................ 51
Index of Financial Statements......... F-1
</TABLE>
UNTIL , 1996 ( DAYS AFTER THE DATE OF THIS PROSPECTUS), ALL
DEALERS EFFECTING TRANSACTIONS IN THE COMMON STOCK, WHETHER OR NOT PARTICIPATING
IN THIS DISTRIBUTION, MAY BE REQUIRED TO DELIVER A PROSPECTUS. THIS DELIVERY
REQUIREMENT IS IN ADDITION TO THE OBLIGATION OF DEALERS TO DELIVER A PROSPECTUS
WHEN ACTING AS UNDERWRITERS AND WITH RESPECT TO THEIR UNSOLD ALLOTMENTS OR
SUBSCRIPTIONS.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
10,000,000 SHARES
DESIGNER HOLDINGS LTD.
COMMON STOCK
LOGO
--------------------
PROSPECTUS
---------------------
MERRILL LYNCH & CO.
MORGAN STANLEY & CO.
INCORPORATED
, 1996
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE> 77
INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A
REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR
MAY OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT
BECOMES EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR
THE SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE
SECURITIES IN ANY JURISDICTION IN WHICH SUCH OFFER, SOLICITATION OR SALE
WOULD BE UNLAWFUL PRIOR TO REGISTRATION OR QUALIFICATION UNDER THE
SECURITIES LAWS OF ANY SUCH JURISDICTION.
LOGO
[ALTERNATE PAGE FOR INTERNATIONAL PROSPECTUS]
SUBJECT TO COMPLETION
PRELIMINARY PROSPECTUS DATED MAY 6, 1996
PROSPECTUS
10,000,000 SHARES
DESIGNER HOLDINGS LTD.
COMMON STOCK
------------------------
Of the 10,000,000 shares of Common Stock offered hereby, 5,000,000 shares
are being sold by Designer
Holdings Ltd. and 5,000,000 shares are being sold by the Selling Stockholder of
the Company. The Company will not receive any proceeds from the sale of shares
of Common Stock by the Selling Stockholder.
Of the 10,000,000 shares of Common Stock offered hereby, 2,000,000 shares
are being offered outside the United States and Canada by the International
Managers and 8,000,000 shares are being offered in the United States and Canada
by the U.S. Underwriters. The initial public offering price and the aggregate
underwriting discount per share will be identical for both Offerings.
Prior to the Offerings, there has been no public market for the Common
Stock. It is currently estimated that the initial public offering price will be
between $14 and $16 per share. See "Underwriting" for a discussion of the
factors to be considered in determining the initial price of the Common Stock.
The Common Stock has been approved for listing, subject to official notice
of issuance, on the New York Stock Exchange under the symbol "DSH."
SEE "RISK FACTORS" BEGINNING ON PAGE 7 FOR A DISCUSSION OF CERTAIN FACTORS
THAT SHOULD BE CONSIDERED IN CONNECTION WITH AN INVESTMENT IN THE COMMON STOCK
OFFERED HEREBY.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION, NOR HAS THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION
PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY
REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------
PROCEEDS TO
PRICE UNDERWRITING PROCEEDS TO SELLING
TO PUBLIC DISCOUNT(1) THE COMPANY(2) STOCKHOLDER
- ------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Per Share..................... $ $ $ $
- ------------------------------------------------------------------------------------------------------
Total(3)...................... $ $ $ $
- - - -
- ------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------
</TABLE>
(1) The Company and the Selling Stockholder have agreed to indemnify the several
International Managers against certain liabilities, including certain
liabilities under the Securities Act of 1933, as amended. See
"Underwriting."
(2) Before deducting expenses of the Offerings payable by the Company estimated
at $2,950,000.
(3) The Company and the Selling Stockholder have granted the International
Managers and the U.S. Underwriters options, exercisable within 30 days after
the date of this Prospectus, to purchase up to 300,000 and 1,200,000
additional shares of Common Stock, respectively, solely to cover
over-allotments, if any. If such options are exercised in full, the total
Price to Public, Underwriting Discount and Proceeds to Selling Stockholder
will be $ , $ , and $ , respectively. See
"Underwriting."
------------------------
The shares of Common Stock are offered by the International Managers,
subject to prior sale, when, as and if issued and accepted by them, subject to
approval of certain legal matters by counsel for the International Managers and
certain other conditions. The International Managers reserve the right to
withdraw, cancel or modify such offer and to reject orders in whole or in part.
It is expected that delivery of the shares of Common Stock will be made in New
York, New York on or about , 1996.
------------------------
MERRILL LYNCH INTERNATIONAL MORGAN STANLEY & CO.
INTERNATIONAL
------------------------
The date of this Prospectus is , 1996.
<PAGE> 78
[ALTERNATE PAGE FOR INTERNATIONAL PROSPECTUS]
UNDERWRITING
Subject to the terms and conditions set forth in the international purchase
agreement (the "International Purchase Agreement") among the Company, the
Selling Stockholder and each of the underwriters named below (the "International
Managers"), and concurrently with the sale of 8,000,000 shares of Common Stock
to the U.S. Underwriters (as defined below), the Company and the Selling
Stockholder have agreed to sell to the International Managers, and each of the
International Managers severally has agreed to purchase from the Company and the
Selling Stockholder the number of shares of Common Stock set forth opposite its
name below.
<TABLE>
<CAPTION>
NUMBER OF
INTERNATIONAL MANAGERS SHARES
- ---------------------------------------------------------------------------------- ----------
<S> <C>
Merrill Lynch International.......................................................
Morgan Stanley & Co. International Limited........................................
---------
Total................................................................ 2,000,000
=========
</TABLE>
The Company and the Selling Stockholder have also entered into the U.S.
purchase agreement (the "U.S. Purchase Agreement") with certain other
underwriters in the United States and Canada (the "U.S. Underwriters" and,
together with the International Managers, the "Underwriters") for whom Merrill
Lynch, Pierce, Fenner & Smith Incorporated ("Merrill Lynch") and Morgan Stanley
& Co. are acting as Representatives (the "U.S. Representatives"). Subject to the
terms and conditions set forth in the U.S. Purchase Agreement and concurrently
with the sale of 2,000,000 shares of Common Stock to the International Managers
pursuant to the International Purchase Agreement, the Company and the Selling
Stockholder have agreed to sell to each of the U.S. Underwriters, and the U.S.
Underwriters severally have agreed to purchase from the Company and the Selling
Stockholder an aggregate of 8,000,000 shares of Common Stock. The initial public
offering price per share and the total underwriting discount per share of the
Common Stock are identical under the International Purchase Agreement and the
U.S. Purchase Agreement.
In the International Purchase Agreement and the U.S. Purchase Agreement,
the several International Managers and the several U.S. Underwriters,
respectively, have agreed, subject to the terms and conditions set forth
therein, to purchase all of the shares of Common Stock being sold pursuant to
each such agreement if any of such shares of Common Stock being sold pursuant to
each such Purchase Agreement are purchased. Under certain circumstances, the
commitments of non-defaulting International Managers or U.S. Underwriters (as
the case may be) may be increased. The closings with respect to the sale of
shares of Common Stock to be purchased by the International Managers and the
U.S. Underwriters are conditioned upon one another.
The International Managers and the U.S. Underwriters have entered into an
intersyndicate agreement (the "Intersyndicate Agreement") providing for the
coordination of their activities. Under the terms of the Intersyndicate
Agreement, the International Managers and the U.S. Underwriters are permitted to
sell shares of Common Stock to each other for purposes of resale at the initial
public offering price, less an amount not greater than the selling concession.
Under the terms of the Intersyndicate Agreement, the International Managers and
any dealer to whom they sell shares of Common Stock will not offer to sell or
sell shares of Common Stock to persons who are United States and Canadian
persons or to persons they believe intend to resell to United States and
Canadian persons, and the U.S. Underwriters and any dealer to whom they sell
shares of Common Stock will not offer to sell or sell shares of Common Stock to
persons who are non-United States persons or non-Canadian persons or to persons
they believe intend to resell to persons who are non-United States persons or
non-Canadian persons, except in each case for transactions pursuant to such
agreement.
48
<PAGE> 79
[ALTERNATE PAGE FOR INTERNATIONAL PROSPECTUS]
The International Managers have advised the Company and the Selling
Stockholder that the International Managers propose to offer the shares of
Common Stock offered hereby to the public at the initial public offering price
set forth on the cover page of this Prospectus, and to certain dealers at such
price less a concession not in excess of $ per share of Common Stock.
The International Managers may allow, and such dealers may reallow, a discount
not in excess of $ per share of Common Stock on sales to certain other
dealers. After the initial public offering, the public offering price,
concession and discount may be changed.
The Company and the Selling Stockholder have granted an option to the
International Managers, exercisable during the 30-day period after the date of
this Prospectus, to purchase up to an aggregate of 300,000 additional shares of
Common Stock at the initial public offering price, less the underwriting
discount. The International Managers may exercise this option only to cover
over-allotments, if any, made on the sale of Common Stock offered hereby. To the
extent that the International Managers exercise this option, each International
Manager will be obligated, subject to certain conditions, to purchase the number
of additional shares of Common Stock proportionate to such International
Manager's initial amount reflected in the foregoing table. The Company and the
Selling Stockholder also have granted an option to the U.S. Underwriters,
exercisable during the 30-day period after the date of this Prospectus, to
purchase up to an aggregate of 1,200,000 additional shares of Common Stock to
cover over-allotments, if any, on terms similar to those granted to the
International Managers.
At the request of the Company, the Underwriters (as defined below) have
reserved up to 500,000 shares of Common Stock for sale at the initial public
offering price to certain employees of the Company and other persons associated
with the Company or affiliated with any director, officer or management employee
of the Company who have expressed an interest in purchasing such shares. The
number of shares of Common Stock available to the general public will be reduced
to the extent such persons purchase such reserved shares. Any reserved shares
not so purchased by such employees at the closing of the Offerings will be
offered by the Underwriters to the general public on the same terms as the other
shares offered hereby. Certain individuals purchasing reserved shares may be
required to agree not to sell, offer or otherwise dispose of any shares of
Common Stock for a period of three months after the date of this Prospectus.
The Company, the Selling Stockholder, each of the Company's directors and
certain officers and CKI have agreed not to (except for the shares offered
hereby and subject to certain exceptions in the case of the Company for the
grant of, and the issuance of shares pursuant to the exercise of, employee stock
options and the issuance of shares of Common Stock to CKI upon conversion of the
non-voting common stock owned by it) directly or indirectly sell, offer to sell,
grant any option for sale of, contract or otherwise dispose of any shares of
Common Stock or any securities convertible or exchangeable into, or exercisable
for, Common Stock for a period of 180 days after the date of this Prospectus
without the prior written consent of Merrill Lynch. See "Shares Eligible For
Future Sale."
Prior to the Offerings, there has been no public market for the Common
Stock of the Company. The initial public offering price will be determined
through negotiations among the Company, the Selling Stockholder and the U.S.
Representatives. Among the factors that will be considered in determining such
price are an assessment of the Company's recent results of operations, the
future prospects of the Company and the industry in general, the price-earnings
ratio and market prices of other companies engaged in activities similar to the
Company and prevailing conditions in the securities market. There can be no
assurance that an active trading market will develop for the Common Stock or
that the Common Stock will trade in the public market subsequent to the
Offerings at or above the initial public offering price.
Each International Manager has agreed that (i) it has not offered or sold
and it will not offer or sell, directly or indirectly, any shares of Common
Stock offered hereby in the United Kingdom by means of any document, except in
circumstances which do not constitute an offer to the public within the meaning
of the Companies Act 1985, (ii) it has complied and will comply with all
applicable provisions of the Financial Services Act 1986 with respect to
anything done by it in relation to the Common Stock in, from or otherwise
involving the United Kingdom, and (iii) it has only issued or passed on and will
only issue or pass on to any person in the United Kingdom any document received
by it in connection with the issuance of Common Stock
49
<PAGE> 80
[ALTERNATE PAGE FOR INTERNATIONAL PROSPECTUS]
if that person is of a kind described in Article 9(3) of the Financial Services
Act 1986 (Investment Advertisements) (Exemptions) Order 1988 or is a person to
whom the document may otherwise lawfully be issued or passed on.
No action has been or will be taken in any jurisdiction (except in the
United States) that would permit a public offering of the shares of Common
Stock, or the possession, circulation or distribution of this Prospectus or any
other material relating to the Company, the Selling Stockholder or shares of
Common Stock, in any jurisdiction where action for that purpose is required.
Accordingly, the shares of Common Stock may not be offered or sold, directly or
indirectly, and neither this prospectus nor any other offering material or
advertisements in connection with the shares of the Common Stock may be
distributed or published, in or from any country or jurisdiction except in
compliance with any applicable rules and regulations of such country or
jurisdiction.
Purchasers of the shares of Common Stock offered hereby may be required to
pay stamp taxes and other charges in accordance with the laws and practices of
the country of purchase, in addition to the offering price set forth on the
cover page hereof.
The Common Stock has been approved for listing, subject to official notice
of issuance, on the New York Stock Exchange under the symbol "DSH." In order to
meet the requirements for listing of the Common Stock on such exchange, the
International Managers have undertaken to sell lots of 100 or more shares to a
minimum of 2,000 beneficial owners.
The Underwriters do not intend to confirm sales of the shares of Common
Stock offered hereby to any accounts over which they exercise discretionary
authority.
The Company and the Selling Stockholder have agreed to indemnify the
Underwriters against certain liabilities, including certain liabilities under
the Securities Act, or to contribute to payments the Underwriters may be
required to make in respect thereof.
LEGAL MATTERS
Certain legal matters with respect to the Common Stock will be passed upon
for the Company by Skadden, Arps, Slate, Meagher & Flom, New York, New York.
Certain legal matters will be passed upon for the Underwriters by Cahill Gordon
& Reindel (a partnership including a professional corporation), New York, New
York. Skadden, Arps, Slate, Meagher & Flom has from time to time represented,
and may continue to represent, certain of the International Managers. Mark N.
Kaplan, a partner in the firm of Skadden, Arps, Slate, Meagher & Flom, is
trustee of a trust for the benefit of Mark K. Berman and Allison A. Berman,
which is one of the beneficial owners of the Selling Stockholder.
EXPERTS
The consolidated balance sheets of the Company as of December 31, 1995 and
1994 and the consolidated statements of operations, changes in stockholder's
equity and cash flows for the year ended December 31, 1995 and the four months
ended December 31, 1994 and the combined statements of operations, changes in
stockholders' equity and cash flows of the Predecessor Companies for the eight
months ended August 25, 1994 included in this Prospectus, have been included
herein in reliance on the report of Coopers & Lybrand L.L.P., independent
accountants, given on the authority of that firm as experts in accounting and
auditing.
The combined statements of operations, stockholders' equity and cash flows
of Rio Sportswear, Inc. and affiliated companies for the year ended December 31,
1993 and the related financial statement schedule for the year then ended
included in this Prospectus, have been audited by Deloitte & Touche LLP,
independent auditors, as stated in their report appearing herein and are
included in reliance upon the report of such firm given upon their authority as
experts in accounting and auditing.
50
<PAGE> 81
[ALTERNATE PAGE FOR INTERNATIONAL PROSPECTUS]
In 1994, the Company retained Coopers & Lybrand L.L.P. as accountants for
the Company after the Company's management, in consultation with the Board of
Directors, decided to replace Deloitte & Touche LLP. During 1993, there were no
disagreements on any matter of accounting principles or practices, financial
statement disclosure or auditing scope or procedure, which disagreements (if not
resolved to the satisfaction of Deloitte & Touche LLP) would have caused it to
make reference to the subject matter of the disagreement in connection with
their report. The report of Deloitte & Touche LLP on the 1993 Predecessor
Companies' financial statements did not contain an adverse opinion or a
disclaimer of opinion and was not qualified as to uncertainty, audit scope or
accounting principles. Prior to the retention of Coopers & Lybrand L.L.P.,
neither the Company nor anyone on the Company's behalf consulted Coopers &
Lybrand L.L.P. regarding either the application of accounting principles related
to a specified transaction, completed or proposed, or the type of audit opinion
that might be rendered on the Company's financial statements.
ADDITIONAL INFORMATION
The Company has filed with the Securities and Exchange Commission (the
"Commission") in Washington D.C. a Registration Statement on Form S-1 under the
Securities Act with respect to the securities offered hereby. This Prospectus
does not contain all the information set forth in the Registration Statement and
the exhibits and schedules thereto, to which reference is hereby made.
Statements made in this Prospectus as to the contents of any contract, agreement
or other document are not necessarily complete; with respect to each such
contract, agreement or other document filed as an exhibit to the Registration
Statement, reference is made to the exhibit for a more complete description of
the matter involved, and each such statement shall be deemed qualified in its
entirety by this reference. The Registration Statement and the exhibits thereto
filed by the Company with the Commission may be inspected and copied at the
public reference facilities maintained by the Commission at Room 1024, Judiciary
Plaza, 450 Fifth Street, N.W., Washington, D.C. 20549 and will also be available
for inspection and copying at the regional offices of the Commission located at
Room 1400, 75 Park Place, New York, New York 10007 and at Northwest Atrium
Center, 500 West Madison Street (Suite 1400), Chicago, Illinois 60661. Copies of
such material may also be obtained from the Public Reference Section of the
Commission at 450 Fifth Street, N.W., Washington, D.C. 20549 at prescribed
rates.
Upon completion of the Offerings, the Company will be subject to the
informational requirements of the Exchange Act and, in accordance therewith,
will file reports, proxy and information statements and other information with
the Commission. Such reports, proxy and information statements and other
information can be inspected and copied at the addresses set forth above. The
Company intends to furnish its stockholders with annual reports containing
consolidated financial statements audited by its independent certified public
accountants and with quarterly reports containing unaudited condensed
consolidated financial statements for each of the first three quarters of each
fiscal year.
51
<PAGE> 82
[ALTERNATE PAGE FOR INTERNATIONAL PROSPECTUS]
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
NO DEALER, SALESPERSON OR OTHER INDIVIDUAL HAS BEEN AUTHORIZED TO GIVE ANY
INFORMATION OR TO MAKE ANY REPRESENTATIONS NOT CONTAINED IN THIS PROSPECTUS IN
CONNECTION WITH THE OFFERING COVERED BY THIS PROSPECTUS. IF GIVEN OR MADE, SUCH
INFORMATION OR REPRESENTATIONS MUST NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED
BY THE COMPANY, THE SELLING STOCKHOLDER OR THE UNDERWRITERS. THIS PROSPECTUS
DOES NOT CONSTITUTE AN OFFER TO SELL, OR A SOLICITATION OF AN OFFER TO BUY, THE
COMMON STOCK IN ANY JURISDICTION WHERE, OR TO ANY PERSON TO WHOM, IT IS UNLAWFUL
TO MAKE SUCH OFFER OR SOLICITATION. NEITHER THE DELIVERY OF THIS PROSPECTUS NOR
ANY SALE MADE HEREUNDER SHALL, UNDER ANY CIRCUMSTANCES, CREATE ANY IMPLICATION
THAT THERE HAS NOT BEEN ANY CHANGE IN THE FACTS SET FORTH IN THIS PROSPECTUS OR
IN THE AFFAIRS OF THE COMPANY SINCE THE DATE HEREOF.
THERE ARE RESTRICTIONS ON THE OFFER AND SALE OF THE COMMON STOCK OFFERED
HEREBY IN THE UNITED KINGDOM. ALL APPLICABLE PROVISIONS OF THE FINANCIAL
SERVICES ACT 1986 AND THE COMPANIES ACT 1985 WITH RESPECT TO ANYTHING DONE BY
ANY PERSONS IN RELATION TO THE COMMON STOCK IN, FROM OR OTHERWISE INVOLVING THE
UNITED KINGDOM MUST BE COMPLIED WITH. SEE "UNDERWRITING".
IN THIS PROSPECTUS, REFERENCE TO "DOLLARS" AND "$" ARE TO UNITED STATES
DOLLARS UNLESS STATED OTHERWISE.
------------------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Prospectus Summary.................... 3
Risk Factors.......................... 7
The Company........................... 11
Dividend Policy....................... 12
Use of Proceeds....................... 12
Capitalization........................ 13
Dilution.............................. 14
Unaudited Pro Forma Financial
Information......................... 15
Selected Financial Information........ 16
Management's Discussion and Analysis
of Financial Condition and Results
of Operations....................... 17
Business.............................. 22
Management............................ 32
Certain Transactions.................. 38
Principal and Selling Stockholders.... 39
Description of Capital Stock.......... 40
Description of Indebtedness........... 43
Shares Eligible for Future Sale....... 45
Certain United States Federal Tax
Consequences to Non-United States
Holders............................. 46
Underwriting.......................... 48
Legal Matters......................... 50
Experts............................... 50
Additional Information................ 51
Index of Financial Statements......... F-1
</TABLE>
UNTIL , 1996 ( DAYS AFTER THE DATE OF THIS PROSPECTUS), ALL
DEALERS EFFECTING TRANSACTIONS IN THE COMMON STOCK, WHETHER OR NOT PARTICIPATING
IN THIS DISTRIBUTION, MAY BE REQUIRED TO DELIVER A PROSPECTUS. THIS DELIVERY
REQUIREMENT IS IN ADDITION TO THE OBLIGATION OF DEALERS TO DELIVER A PROSPECTUS
WHEN ACTING AS UNDERWRITERS AND WITH RESPECT TO THEIR UNSOLD ALLOTMENTS OR
SUBSCRIPTIONS.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
10,000,000 SHARES
DESIGNER HOLDINGS LTD.
COMMON STOCK
LOGO
--------------------
PROSPECTUS
---------------------
MERRILL LYNCH INTERNATIONAL
MORGAN STANLEY & CO.
INTERNATIONAL
, 1996
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE> 83
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 13. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION
Set forth below is a table of the registration fee for the Securities and
Exchange Commission, the filing fee for the National Association of Securities
Dealers, Inc., the listing fee for New York Stock Exchange and estimates of all
other expenses to be incurred in connection with the issuance and distribution
of the securities described in this Registration Statement, other than
underwriting discounts and commissions:
<TABLE>
<S> <C>
SEC registration fee............................................. $ 63,449
NASD filing fee.................................................. 18,900
Listing fee...................................................... 102,100
Blue sky fees and expenses....................................... 25,000
Printing and engraving expenses.................................. 425,000
Legal fees and expenses.......................................... 1,800,000
Accounting fees and expenses..................................... 500,000
Transfer agent and registrar fees................................ 2,000
Miscellaneous.................................................... 13,551
----------
Total.................................................. $2,950,000
==========
</TABLE>
ITEM 14. INDEMNIFICATION OF DIRECTORS AND OFFICERS
Pursuant to Section 145 of the General Corporation Law of Delaware (the
"Delaware Corporation Law") Article VIII of the By-laws of the Registrant, a
copy of which is filed as Exhibit 3.2 to this Registration Statement, provides
that the Registrant shall indemnify any person in connection with the defense or
settlement of any threatened, pending or completed legal proceeding (other than
a legal proceeding by or in the right of the Registrant) by reason of the fact
that he is or was a director or officer of the Registrant or is or was a
director or officer of the Registrant serving at the request of the Registrant
as a director, officer, employee or agent of another corporation, partnership or
other enterprise against expenses (including attorney's fees), judgments, fines
and amounts paid in settlement actually and reasonably incurred in connection
with the defense or settlement of such legal proceedings if he acted in good
faith and in a manner that he reasonably believed to be in or not opposed to the
best interests of the Registrant, and, with respect to any criminal action or
proceeding, if he had no reasonable cause to believe that his conduct was
unlawful. If the legal proceeding, however, is by or in the right of the
Registrant, the director or officer may be indemnified by the Registrant against
expenses (including attorney's fees) actually and reasonably incurred in
connection with the defense or settlement of such legal proceeding if he acted
in good faith and in a manner he reasonably believed to be in or not opposed to
the best interests of the Registrant and except that he may not be indemnified
in respect of any claim, issue or matter as to which he shall have been adjudged
to be liable to the Registrant unless a court determines otherwise.
Article VIII of the Registrant's By-laws allows the Registrant to maintain
director and officer liability insurance on behalf of any person who is or was a
director or officer of the Registrant or such person who serves or served as a
director, officer, agent or employee, at another corporation, partnership or
other enterprise at the request of the Registrant.
Pursuant to Section 102(b)(7) of the Delaware Corporation Law, Article
Sixth of the Certificate of Incorporation of the Registrant, a copy of which is
filed as Exhibit 3.1 to this Registration Statement, provides that no director
of the Registrant shall be personally liable to the Registrant or its
shareholders for monetary damages for any breach of his fiduciary duty as a
director; provided, however, that such clause shall not apply to any liability
of a director (1) for any breach of his duty of loyalty to the Registrant or its
stockholders, (2) for acts or omissions that are not in good faith or involve
intentional misconduct or a knowing violation of the
II-1
<PAGE> 84
law, (3) under Section 174 of the Delaware Corporation Law, or (4) for any
transaction from which the director derived an improper personal benefit.
The Company has purchased an insurance policy covering indemnification of
directors and officers of the Registrant against certain liabilities arising
under the Securities Act that might be incurred by them in such capacities.
ITEM 15. RECENT SALES OF UNREGISTERED SECURITIES.
On March 27, 1995, Designer Holdings Ltd. sold 1,000 (which, pursuant to a
stock split as of April 22, 1996 currently equal 24,233,868) shares of Common
Stock to the Selling Stockholder for $40,000,000 in reliance on Section 4(2) of
the Securities Act of 1933. On April 22, 1996, Designer Holdings Ltd. sold
1,275,466 shares of non-voting common stock to Calvin Klein, Inc., in reliance
on Section 4(2) of the Securities Act of 1933. See "Business -- CKJ License."
ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
(a) Exhibits:
<TABLE>
<CAPTION>
EXHIBIT NO. DESCRIPTION
----------- ------------------------------------------------------------------------
<C> <S>
1.1 Form of U.S. Purchase Agreement.**
1.2 Form of International Purchase Agreement.**
3.1 Certificate of Incorporation of the Registrant.**
3.2 By-Laws of Registrant.*
4.1 Specimen Certificate of Common Stock.**
5.1 Opinion of Skadden, Arps, Slate, Meagher & Flom.**
10.1 Form of Registration Rights Agreement.***
10.2 Financing Agreement dated as of April 28, 1995 (the "Credit Agreement")
by and among New Rio, L.L.C., Denim Holdings Inc., Jeanswear Holdings,
Inc., Rio Sportswear, Inc., Calvin Klein Jeanswear Company, the Lenders
referred to therein and The CIT Group/Commercial Services, Inc. as
Agent.*
10.3 Third Amendment to the Credit Agreement, dated as of March 29, 1996.*
10.4 Intentionally omitted.
10.5 Third Supplemental Funding Agreement to the Credit Agreement dated
January 16, 1996.*
10.6 Factoring Agreement dated as of August 24, 1994 between Rio Sportswear,
Inc. and The CIT Group/BCC, Inc.*
10.7 Letter Amendment dated as of August 24, 1994 to the Factoring Agreement
between Rio Sportswear, Inc. and The CIT Group/BCC, Inc.*
10.8 Factoring Agreement dated as of August 4, 1994 between Calvin Klein
Jeanswear Company and The CIT Group/BCC, Inc.*
10.9 Intercreditor Agreement and Assignment of Factoring Proceeds dated as of
April 28, 1995 between Rio Sportswear, Inc. and The CIT Group/Commercial
Services, Inc.*
10.10 Intercreditor Agreement and Assignment of Factoring Proceeds dated as of
April 28, 1995 between Calvin Klein Jeanswear Company and The CIT
Group/Commercial Services, Inc.*
10.11 Subordinated Loan Agreement dated as of April 28, 1995 by and among BIB
Holdings (Bermuda) Ltd., Denim Holdings, Inc., and New Rio, L.L.C.*
10.12 Asset Purchase Agreement dated as of July 8, 1994 among Calvin Klein
Jeanswear Company, Abbeville Acquisition Company, Kaijay Acquisition
Company, Calvin Klein Sport, Inc. and Kaijay Pants Co., Inc.*
10.13 License Agreement dated as of August 20, 1987 (the "Bill Blass License
Agreement") by and between Bill Blass, Ltd. and Rio Sportswear, Inc.*
10.14 Amendment to the Bill Blass License Agreement dated as of May 27, 1992.*
10.15 Amendment to the Bill Blass License Agreement dated as of June 1, 1992.*
</TABLE>
II-2
<PAGE> 85
<TABLE>
<CAPTION>
EXHIBIT NO. DESCRIPTION
----------- ------------------------------------------------------------------------
<C> <S>
10.16 Amendment to the Bill Blass License Agreement dated as of January 27,
1993.*
10.17 Amendment to the Bill Blass License Agreement dated as of March 30,
1994.*
10.18 Amendment to the Bill Blass License Agreement dated as of May 19, 1994.*
10.19 Amendment to the Bill Blass License Agreement dated as of December 7,
1994.*
10.20 License Agreement dated as of August 4, 1994 (the "Calvin Klein License
Agreement") between Calvin Klein, Inc. and Calvin Klein Jeanswear
Company.*
10.21 Amendment to the Calvin Klein License Agreement dated as of December 7,
1994.*
10.22 Amendment to the Calvin Klein License Agreement dated as of January 10,
1995.*
10.23 Amendment to the Calvin Klein License Agreement dated as of February 28,
1995.*
10.24 Agreement dated as of December 12, 1995 by and between Rio Sportswear,
Inc. and Commerce Clothing Company, LLC.*
10.25 Distributorship Agreement dated as of February 1996, between Calvin
Klein Jeanswear Company, Commerce Clothing Company LLC, and Calvin
Klein, Inc.*
10.26 Designer Holdings Ltd. 1996 Stock Option and Incentive Plan.***
10.27 Employment Agreement between New Rio Sportswear Inc., Calvin Klein
Jeanswear Company and Maurice Dickson.***
10.28 Employment Agreement between Calvin Klein Jeanswear Company and Daniel
J. Gladstone.***
10.29 Agreement of Lease by and between Erika Realty Trust and Calvin Klein
Jeanswear Company.*
10.30 Distribution Agreement dated September 7, 1995 between Calvin Klein
Jeanswear and Floor Ready Company, L.L.C.*
10.31 Distributorship Agreement dated as of June 26, 1995, between Calvin
Klein Jeanswear Company, Western Glove Works R.S., and Calvin Klein,
Inc.*
10.32 Lease Agreement dated as of April 28, 1995 between North Arlington
Associates and Rio Sportswear, Inc.*
10.33 Amendment to the Bill Blass License Agreement dated as of March 22,
1996.*
10.34 Employment Agreement between Designer Holdings Ltd., Calvin Klein
Jeanswear Company and Arnold H. Simon.***
10.35 Employment Agreement between Designer Holdings Ltd., Calvin Klein
Jeanswear Company and Debra Simon.***
10.36 Employment Agreement between Calvin Klein Jeanswear Company and New Rio
Sportswear, Inc. and David Fidlon.***
10.37 Employment Agreement between Designer Holdings Ltd., Calvin Klein
Jeanswear Company and John J. Jones.***
10.38 Amendment to the Calvin Klein License Agreement dated as of April 22,
1996.**
10.39 Amendment to the Lease Agreement between North Arlington Associates and
Rio Sportswear, Inc., dated as of February 22, 1996.**
10.40 Stock Acquisition Agreement dated as of April 22, 1996 between Designer
Holdings Ltd. and Calvin Klein Inc.**
16.1 Letter of Deloitte & Touche LLP, re change in certifying accountant.*
21.1 Subsidiaries of the Registrant.*
23.1 Consent of Coopers & Lybrand L.L.P.**
23.2 Consent of Deloitte & Touche LLP.**
23.3 Consent of Skadden, Arps, Slate, Meagher & Flom(included in Exhibit
5.1).**
</TABLE>
Financial Statement Schedules
Schedule II -- Valuation and Qualifying Accounts
- ---------------
* Previously filed.
** Filed with this Amendment No. 3.
*** To be filed by amendment.
II-3
<PAGE> 86
ITEM 17. UNDERTAKINGS
The undersigned Registrant hereby undertakes to provide to the Underwriters
at the closing specified in the Underwriting Agreement certificates in such
denominations and registered in such names as required by the Underwriters to
permit prompt delivery to each purchaser.
Insofar as indemnification for liabilities arising under the Securities Act
of 1933 may be permitted to directors, officers and controlling persons of the
Registrant pursuant to the foregoing provisions, or otherwise, the Registrant
has been advised that in the opinion of the Securities and Exchange Commission
such indemnification is against public policy as expressed in the Securities Act
and is, therefore, unenforceable. In the event that a claim for indemnification
against such liabilities (other than the payment by the Registrant of expenses
incurred or paid by a director, officer or controlling person of the Registrant
in the successful defense of any action, suit or proceeding) is asserted by such
director, officer or controlling person in connection with the securities being
registered, the Registrant will, unless in the opinion of its counsel the matter
has been settled by controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it is against public
policy as expressed in the Securities Act and will be governed by the final
adjudication of such issue.
The undersigned Registrant hereby undertakes that:
(1) For purposes of determining any liability under the Securities
Act, the information omitted from the form of prospectus filed as part of a
registration statement in reliance upon Rule 430A and contained in the form
of prospectus filed by the Registrant pursuant to Rule 424(b)(1) or (4) or
497(h) under the Securities Act shall be deemed to be part of the
registration statement as of the time it was declared effective.
(2) For the purpose of determining any liability under the Securities
Act, each post-effective amendment that contains a form of prospectus shall
be deemed to be a new registration statement relating to the securities
offered therein, and the offering of such securities at that time shall be
deemed to be the initial bona fide offering thereof.
II-4
<PAGE> 87
SIGNATURES
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, AS AMENDED, THE
REGISTRANT HAS DULY CAUSED THIS AMENDMENT TO ITS REGISTRATION STATEMENT TO BE
SIGNED ON ITS BEHALF BY THE UNDERSIGNED, THEREUNTO DULY AUTHORIZED, IN THE CITY
OF NEW YORK, STATE OF NEW YORK, ON MAY 6, 1996.
DESIGNER HOLDINGS LTD.
By: /s/ Maurice Dickson
-------------------------------
MAURICE DICKSON
TREASURER AND CHIEF FINANCIAL
OFFICER
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, THIS AMENDMENT
TO THE REGISTRATION STATEMENT HAS BEEN SIGNED BELOW BY THE FOLLOWING PERSONS IN
THE CAPACITIES AND ON THE DATES INDICATED.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
- ----------------------------------------------- ------------------------------ ---------------
<S> <C> <C>
* President, Chief Executive
------------------------------------ Officer and Director
ARNOLD H. SIMON
/s/ MAURICE DICKSON Treasurer and Chief May 6, 1996
------------------------------------ Financial Officer
MAURICE DICKSON
* Controller and Chief
------------------------------------ Accounting Officer
DAVID FIDLON
* Chairman of the
------------------------------------ Board of Directors
MERRIL M. HALPERN
* Executive Vice President
------------------------------------ and Director
DEBRA SIMON
* Director
------------------------------------
A. LAWRENCE FAGAN
*By: /s/ MAURICE DICKSON Attorney-in-Fact May 6, 1996
------------------------------------
MAURICE DICKSON
</TABLE>
II-5
<PAGE> 88
DESIGNER HOLDINGS LTD.
SCHEDULE II -- VALUATION AND QUALIFYING ACCOUNTS
(IN THOUSANDS)
<TABLE>
<CAPTION>
ADDITIONS
-----------------------
BALANCE AT CHARGED TO CHARGED TO BALANCE AT
BEGINNING COSTS AND OTHER END OF
DESCRIPTION OF PERIOD EXPENSES ACCOUNTS DEDUCTIONS(A) PERIOD
- ------------------------------------------ ---------- ---------- ---------- ------------- ----------
<S> <C> <C> <C> <C> <C>
PREDECESSOR COMPANIES (COMBINED)..........
Year ended December 31, 1993:
Allowance for doubtful accounts, sales
returns, discounts and other
credits.............................. $ 824 $ 26 $ 798
====== ======== ======= ======= ========
Eight months ended August 25, 1994:
Allowance for doubtful accounts, sales
returns, discounts and other
credits.............................. $ 798 $ 7 $ 805
====== ======== ======= ======= ========
THE COMPANY (CONSOLIDATED)................
Four months ended December 31, 1994:
Allowance for doubtful accounts, sales
returns, discounts and other
credits.............................. $ 805 $ 891 $ 1,696
====== ======== ======= ======= ========
Year ended December 31, 1995:
Allowance for doubtful accounts, sales
returns, discounts and other
credits.............................. $1,696 $ 12,300 $ 13,996
====== ======== ======= ======= ========
</TABLE>
- ---------------
(A) Represents recoveries of accounts previously charged off.
S-1
<PAGE> 89
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors and Stockholder
of Designer Holdings Ltd.:
In connection with our audits of the consolidated financial statements of
Designer Holdings Ltd. as of December 31, 1995 and 1994 and for the year ended
December 31, 1995 and the four months ended December 31, 1994 and the combined
financial statements for the eight months ended August 25, 1994, we have also
audited the financial statement schedule listed in Item 16 herein.
In our opinion, this financial statement schedule, when considered in relation
to the basic financial statements taken as a whole, presents fairly, in all
material respects, the information required to be included therein.
COOPERS & LYBRAND L.L.P.
New York, New York
February 29, 1996, except
for Note 1, the tenth paragraph of Note 11,
the thirteenth paragraph of Note 13 and Note 16,
for which the date is April 22, 1996
S-2
<PAGE> 90
EXHIBIT INDEX
<TABLE>
<CAPTION>
SEQUENTIALLY
NUMBERED
EXHIBIT NO. DESCRIPTION PAGES
- ----------- --------------------------------------------------------------------------- ------------
<C> <S> <C>
1.1 Form of U.S. Purchase Agreement.**.........................................
1.2 Form of International Purchase Agreement.**................................
3.1 Certificate of Incorporation of the Registrant.**..........................
3.2 By-Laws of Registrant.*....................................................
4.1 Specimen Certificate of Common Stock.**....................................
5.1 Opinion of Skadden, Arps, Slate, Meagher & Flom.**.........................
10.1 Form of Registration Rights Agreement.***..................................
10.2 Financing Agreement dated as of April 28, 1995 (the "Credit Agreement") by
and among New Rio, L.L.C., Denim Holdings Inc., Jeanswear Holdings, Inc.,
Rio Sportswear, Inc., Calvin Klein Jeanswear Company, the Lenders referred
to therein and The CIT Group/Commercial Services, Inc. as Agent.*..........
10.3 Third Amendment to the Credit Agreement, dated as of March 29, 1996.*......
10.4 Intentionally omitted......................................................
10.5 Third Supplemental Funding Agreement to the Credit Agreement dated January
16, 1996.*.................................................................
10.6 Factoring Agreement dated as of August 24, 1994 between Rio Sportswear,
Inc. and The CIT Group/BCC, Inc.*..........................................
10.7 Letter Amendment dated as of August 24, 1994 to the Factoring Agreement
between Rio Sportswear, Inc. and The CIT Group/BCC, Inc.*..................
10.8 Factoring Agreement dated as of August 4, 1994 between Calvin Klein
Jeanswear Company and The CIT Group/BCC, Inc.*.............................
10.9 Intercreditor Agreement and Assignment of Factoring Proceeds dated as of
April 28, 1995 between Rio Sportswear, Inc. and The CIT Group/Commercial
Services, Inc.*............................................................
10.10 Intercreditor Agreement and Assignment of Factoring Proceeds dated as of
April 28, 1995 between Calvin Klein Jeanswear Company and The CIT
Group/Commercial Services, Inc.*...........................................
10.11 Subordinated Loan Agreement dated as of April 28, 1995 by and among BIB
Holdings (Bermuda) Ltd., Denim Holdings, Inc., and New Rio, L.L.C.*........
10.12 Asset Purchase Agreement dated as of July 8, 1994 among Calvin Klein
Jeanswear Company, Abbeville Acquisition Company, Kaijay Acquisition
Company, Calvin Klein Sport, Inc. and Kaijay Pants Co., Inc.*..............
10.13 License Agreement dated as of August 20, 1987 (the "Bill Blass Licensee
Agreement") by and between Bill Blass, Ltd. and Rio Sportswear, Inc.*......
10.14 Amendment to the Bill Blass License Agreement dated as of May 27, 1992.*...
10.15 Amendment to the Bill Blass License Agreement dated as of June 1, 1992.*...
10.16 Amendment to the Bill Blass License Agreement dated as of January 27,
1993.*.....................................................................
10.17 Amendment to the Bill Blass License Agreement dated as of March 30,
1994.*.....................................................................
10.18 Amendment to the Bill Blass License Agreement dated as of May 19, 1994.*...
10.19 Amendment to the Bill Blass License Agreement dated as of December 7,
1994.*.....................................................................
10.20 License Agreement dated as of August 4, 1994 (the "Calvin Klein Licensee
Agreement") between Calvin Klein, Inc. and Calvin Klein Jeanswear
Company.*..................................................................
10.21 Amendment to the Calvin Klein Licensee Agreement dated as of December 7,
1994.*.....................................................................
</TABLE>
<PAGE> 91
<TABLE>
<CAPTION>
SEQUENTIALLY
NUMBERED
EXHIBIT NO. DESCRIPTION PAGES
- ----------- --------------------------------------------------------------------------- ------------
<C> <S> <C>
10.22 Amendment to the Calvin Klein Licensee Agreement dated as of January 10,
1995.*.....................................................................
10.23 Amendment to the Calvin Klein Licensee Agreement dated as of February 28,
1995.*.....................................................................
10.24 Agreement dated as of December 12, 1995 by and between Rio Sportswear, Inc.
and Commerce Clothing Company, LLC.*.......................................
10.25 Distributorship Agreement dated as of February 1996, between Calvin Klein
Jeanswear Company, Commerce Clothing Company LLC, and Calvin Klein Inc.*...
10.26 Designer Holdings Ltd. 1996 Stock Option and Incentive Plan.***............
10.27 Employment Agreement between New Rio Sportswear Inc., Calvin Klein
Jeanswear Company and Maurice Dickson.***..................................
10.28 Employment Agreement between Calvin Klein Jeanswear Company and Daniel J.
Gladstone.***..............................................................
10.29 Agreement of Lease by and between Erika Realty Trust and Calvin Klein
Jeanswear Company.*........................................................
10.30 Distribution Agreement dated September 7, 1995 between Calvin Klein
Jeanswear and Floor Ready Company, L.L.C.*.................................
10.31 Distributorship Agreement dated as of June 26, 1995, between Calvin Klein
Jeanswear Company, Western Glove Works R.S., and Calvin Klein, Inc.*.......
10.32 Lease Agreement dated as of April 28, 1995 between North Arlington
Associates and Rio Sportswear, Inc.*.......................................
10.33 Amendment to the Bill Blass License Agreement dated as of March 22,
1996.*.....................................................................
10.34 Employment Agreement between Designer Holdings Ltd., Calvin Klein Jeanswear
Company and Arnold H. Simon.***............................................
10.35 Employment Agreement between Designer Holdings Ltd., Calvin Klein Jeanswear
Company and Debra Simon.***................................................
10.36 Employment Agreement between Calvin Klein Jeanswear Company and New Rio
Sportswear, Inc. and David Fidlon.***......................................
10.37 Employment Agreement between Designer Holdings Ltd., Calvin Klein Jeanswear
Company and John J. Jones.***..............................................
10.38 Amendment to the Calvin Klein License Agreement dated as of April 22,
1996.**....................................................................
10.39 Amendment to the Lease Agreement between North Arlington Associates and Rio
Sportswear, Inc., dated as of February 22, 1996.**.........................
10.40 Stock Acquisition Agreement, dated as of April 22, 1996, between Designer
Holdings Ltd. and Calvin Klein Inc.**......................................
16.1 Letter of Deloitte & Touche LLP, re change in certifying accountant........
21.1 Subsidiaries of the Registrant.*...........................................
23.1 Consent of Coopers & Lybrand L.L.P.**......................................
23.2 Consent of Deloitte & Touche LLP.**........................................
23.3 Consent of Skadden, Arps, Slate, Meagher & Flom (included in Exhibit
5.1).**....................................................................
</TABLE>
- ---------------
* Previously filed.
** Filed with this Amendment No. 3.
*** To be filed by amendment.
<PAGE> 1
EXHIBIT 1.1
DRAFT
8,000,000 Shares
DESIGNER HOLDINGS LTD.
(a Delaware corporation)
Common Stock
(Par Value $.01 Per Share)
PURCHASE AGREEMENT
May / /, 1996
MERRILL LYNCH & CO.
Merrill Lynch, Pierce, Fenner & Smith
Incorporated
MORGAN STANLEY & CO. INCORPORATED
as U.S. Representatives of the several U.S. Underwriters
c/o Merrill Lynch, Pierce, Fenner & Smith
Incorporated
Merrill Lynch World Headquarters
North Tower
World Financial Center
New York, New York 10281
Ladies and Gentlemen:
Designer Holdings Ltd., a Delaware corporation (the "Company"),
confirms, and each of New Rio, L.L.C., a Delaware limited liability company (the
"Selling Stockholder"), [Charterhouse Equity Partners, II, L.P., a principal
member of the Selling Stockholder ("Charterhouse"), and Arnold H. Simon, a
principal member of the Selling Stockholder (together with Charterhouse, the
"Principal Members"),] severally confirms, their respective agreements with
Merrill Lynch, Pierce, Fenner & Smith Incorporated ("Merrill Lynch"), Morgan
Stanley & Co. Incorporated ("Morgan Stanley") and each of the other Underwriters
named in Schedule A hereto (collectively, the "U.S. Underwriters," which term
shall also include any underwriter
<PAGE> 2
-2-
substituted as hereinafter provided in Section 10 hereof), for whom Merrill
Lynch and Morgan Stanley are acting as representatives (in such capacity,
Merrill Lynch and Morgan Stanley shall hereinafter be referred to as the "U.S.
Representatives"), with respect to the sale by the Company and the Selling
Stockholder, acting severally and not jointly, and the purchase by the U.S.
Underwriters, acting severally and not jointly, of the respective aggregate
numbers of shares of Common Stock, par value $.01 per share, of the Company (the
"Common Stock") set forth in said Schedule A, and with respect to the grant by
the Company and the Selling Stockholder to the U.S. Underwriters, acting
severally and not jointly, of the options described in Section 2(b) hereof to
purchase all or any part of an aggregate of 1,200,000 additional shares of
Common Stock to cover over-allotments, in each case except as may otherwise be
provided in the U.S. Pricing Agreement, as hereinafter defined. The aforesaid
aggregate of 8,000,000 shares of Common Stock (the "Initial U.S. Securities") to
be purchased by the U.S. Underwriters and all or any part of the aggregate of
1,200,000 shares of Common Stock subject to the options described in Section
2(b) hereof (the "U.S. Option Securities") are collectively hereinafter called
the "U.S. Securities." The number of Initial U.S. Securities to be sold by the
Company and the Selling Stockholder is 4,000,000 and 4,000,000, respectively.
It is understood and agreed by all parties that the Company and the
Selling Stockholder are concurrently entering into an agreement dated the date
hereof (the "International Purchase Agreement") providing for the sale by the
Company and the Selling Stockholder of up to 2,000,000 shares of Common Stock
(the "Initial International Securities") through arrangements with certain
managing underwriters outside the United States and Canada (the "Managers"; and
together with the U.S. Underwriters, the "Underwriters") for whom Merrill Lynch
International Limited and Morgan Stanley & Co. International Limited are acting
as lead managers (the "Lead Managers") and the grant by the Company and the
Selling Stockholder to the Managers of an option to purchase all or any part of
an aggregate of 300,000 additional shares of Common Stock (the "International
Option Securities") to cover over-allotments of the Initial International
Securities. The Initial International Securities and the International Option
Securities are hereinafter called the "International Securities." The U.S.
Securities and the International Securities, collectively, are hereinafter
called the "Securities." It is understood that the Company and the Selling
Stockholder are not obligated to sell, and the U.S. Underwriters are not
obligated to purchase, any Initial U.S.
<PAGE> 3
-3-
Securities unless all of the Initial International Securities are
contemporaneously purchased by the International Managers.
The U.S. Underwriters and the Managers are concurrently entering into
an Intersyndicate Agreement of even date herewith (the "Intersyndicate
Agreement") providing for the coordination of certain transactions among the
U.S. Underwriters and the Managers under the direction of Merrill Lynch.
Prior to the purchase and public offering of the U.S. Securities by
the several U.S. Underwriters, the Company, the Selling Stockholder, [the
Principal Members] and the U.S. Representatives, acting on behalf of the several
U.S. Underwriters, shall enter into an agreement substantially in the form of
Exhibit A hereto (the "U.S. Pricing Agreement"). The U.S. Pricing Agreement may
take the form of an exchange of any standard form of written telecommunication
between the Company, the Selling Stockholder, [the Principal Members] and the
U.S. Representatives and shall specify such applicable information as is
indicated in Exhibit A hereto. The offering of the U.S. Securities will be
governed by this U.S. Purchase Agreement (this "Agreement"), as supplemented by
the U.S. Pricing Agreement. From and after the date of the execution and
delivery of the U.S. Pricing Agreement, this Agreement shall be deemed to
incorporate the U.S. Pricing Agreement.
The initial public offering price and the purchase price with respect
to the International Securities shall be set forth in a separate instrument (the
"International Pricing Agreement"), the form of which is attached to the
International Purchase Agreement. The price per security for the International
Securities to be purchased by the Managers pursuant to the International
Purchase Agreement shall be identical to the price per security for the U.S.
Securities to be purchased by the U.S. Underwriters hereunder.
Two forms of prospectus are to be used in connection with the offering
and sale of the Securities, one relating to the International Securities (the
"International Form of Prospectus") and the other relating to the U.S.
Securities (the "U.S. Form of Prospectus"). The U.S. Form of Prospectus is
identical to the International Form of Prospectus, except for the front cover
page, the "Underwriting" section and the back cover page.
The Company has filed with the Securities and Exchange Commission (the
"Commission") a registration statement
<PAGE> 4
-4-
on Form S-1 (No. 333-2236) and a related preliminary prospectus for the
registration of the Securities under the Securities Act of 1933, as amended (the
"1933 Act"), has filed such amendments thereto and such amended preliminary
prospectuses as may have been required to the date hereof, and will file such
additional amendments thereto and such amended prospectuses as may hereafter be
required. Such registration statement (as amended, if applicable) and the U.S.
Form of Prospectus and the International Form of Prospectus constituting parts
thereof (including in each case the information, if any, deemed to be part
thereof pursuant to Rule 430A(b) (the "Rule 430A Information") or Rule 434 (the
"Rule 434 Information") of the rules and regulations of the Commission under the
1933 Act (the "1933 Act Regulations")), as from time to time amended or
supplemented pursuant to the 1933 Act or otherwise, are hereinafter referred to
as the "Registration Statement," the "U.S. Prospectus," and the "International
Prospectus," respectively, and the U.S. Prospectus and the International
Prospectus are hereinafter called, collectively, the "Prospectuses," and, each
individually, a "Prospectus," except that if any revised U.S. Prospectus or
revised International Prospectus shall be provided to the U.S. Underwriters or
the Managers, respectively, by the Company or the Selling Stockholder for use in
connection with the offering of the Securities which differs from the form of
such prospectus on file at the Commission at the time the Registration Statement
becomes effective (whether or not such revised prospectus is required to be
filed by the Company pursuant to Rule 424(b) of the 1933 Act Regulations), the
terms "U.S. Prospectus," "International Prospectus," "Prospectuses" and
"Prospectus" shall refer to such revised prospectuses from and after the time
they are first provided to the U.S. Underwriters and the Managers, respectively,
for such use. If the Company elects to rely on Rule 434 of the 1933 Act
Regulations, all references to the Prospectuses shall be deemed to include,
without limitation, the form of Prospectuses and the term sheets taken together,
provided to the Underwriters by the Company in reliance on Rule 434 of the 1933
Act Regulations (the "Rule 434 Prospectus"). If the Company files a registration
statement to register a portion of the Securities and relies on Rule 462(b) of
the 1933 Act Regulations for such registration statement to become effective
upon filing with the Commission (the "Rule 462 Registration Statement"), then
any reference to the Registration Statement herein shall be deemed to refer to
both the registration statement referred to above and the Rule 462 Registration
Statement, as each such registration statement may be amended pursuant to the
1933 Act.
<PAGE> 5
-5-
The Company has reserved up to 500,000 of the Initial U.S. Securities
to be issued by the Company for offering and sale to certain of its employees
and certain other persons pursuant to a reserve share program (the "Reserve
Share Program"). These Initial U.S. Securities will be sold to the employees and
other persons by the U.S. Underwriters pursuant to this Agreement at the public
offering price. Any such shares not orally confirmed for purchase by such
persons by the end of the first business day after either (a) the later of the
date on which the Registration Statement and any Rule 462(b) Registration
Statement has become effective or (b) if the Company has elected to rely on Rule
430A of the 1933 Act Regulations, the date of the U.S. Pricing Agreement, will
be offered to the public by the U.S. Underwriters as set forth in the
Prospectuses.
The Company and the Selling Stockholder understand that the U.S.
Underwriters propose to make a public offering of the U.S. Securities as soon as
the U.S. Representatives deem advisable after the Registration Statement becomes
effective and the U.S. Pricing Agreement has been executed and delivered.
SECTION 1. Representations and Warranties.
(a) The Company [and the Selling Stockholder] represent and warrant to
each U.S. Underwriter as of the date hereof and as of the date of the U.S.
Pricing Agreement (such latter date being hereinafter referred to as the
"Representation Date") as follows:
(i) At the time the Registration Statement becomes effective and at
the Representation Date, the Registration Statement, including the
information deemed to be part of the Registration Statement at the time of
effectiveness pursuant to Rule 430A(b) or Rule 434, will comply in all
material respects with the requirements of the 1933 Act and the 1933 Act
Regulations and will not contain an untrue statement of a material fact or
omit to state a material fact required to be stated therein or necessary to
make the statements therein not misleading. The Prospectuses, at the
Representation Date (unless the term "Prospectuses" refers to prospectuses
which have been provided to the U.S. Underwriters or the Managers by the
Company for use in connection with the offering of the Securities which
differ from the Prospectuses on file at the Commission at the time the
Registration Statement becomes effective, in which case at the time they
are first provided to the U.S. Underwriters or the Managers for such
<PAGE> 6
-6-
use) and at Closing Time referred to in Section 2 hereof, will not include
an untrue statement of a material fact or omit to state a material fact
necessary in order to make the statements therein, in the light of the
circumstances under which they were made, not misleading; provided,
however, that the representations and warranties in this subsection shall
not apply to statements in or omissions from the Registration Statement or
Prospectuses made in reliance upon and in conformity with information
relating to a U.S. Underwriter or Manager furnished to the Company in
writing by such U.S. Underwriter or Manager through the U.S.
Representatives, or the Lead Managers, respectively, expressly for use in
the Registration Statement or Prospectuses.
(ii) Coopers & Lybrand L.L.P., the accountants who certified the
financial statements and supporting schedules of the Company included in
the Registration Statement, and Deloitte & Touche LLP, the accountants who
certified the financial statements and supporting schedules of Rio
Sportswear, Inc. and affiliated companies included in the Registration
Statement, are independent public accountants as required by the 1933 Act
and 1933 Act Regulations.
(iii) The financial statements included in the Registration Statement
and the Prospectuses present fairly the financial position of each of the
Company and its consolidated subsidiaries as at the dates indicated and the
results of their operations for the periods specified; except as otherwise
stated in the Registration Statement, said financial statements have been
prepared in conformity with generally accepted accounting principles
applied on a consistent basis; and the supporting schedules included in the
Registration Statement present fairly the information required to be stated
therein.
(iv) Since the respective dates as of which information is given in the
Registration Statement and the Prospectuses, except as otherwise stated
therein, (A) there has been no material adverse change in the condition
(financial or otherwise), earnings, business affairs or business prospects
of the Company and its subsidiaries considered as one enterprise (a
"Material Adverse Change"), whether or not arising in the ordinary course
of business, (B) there have been no transactions entered into by the
Company or any of its subsidiaries, other than
<PAGE> 7
-7-
those in the ordinary course of business, which are material with respect
to the Company and its subsidiaries considered as one enterprise, and (C)
there has been no dividend or distribution of any kind declared, paid or
made by the Company on any class of its capital stock.
(v) The Company has been duly incorporated and is validly existing as
a corporation in good standing under the laws of the State of Delaware with
corporate power and authority to own, lease and operate its properties and
to conduct its business as described in the Prospectuses and to enter into
and perform its obligations under this Agreement and the U.S. Pricing
Agreement, the International Purchase Agreement and the International
Pricing Agreement, including the issuance, sale and delivery of the
Securities to be sold by the Company under the Agreements; and the Company
is duly qualified to transact business as a foreign corporation and is in
good standing in each jurisdiction in which such qualification is required,
whether by reason of the ownership or leasing of property or the conduct of
business, except where the failure to so qualify could not reasonably be
expected to have a material adverse effect on the condition (financial or
otherwise), earnings, business affairs or business prospects of the Company
and its subsidiaries considered as one enterprise (a "Material Adverse
Effect").
(vi) Each subsidiary of the Company has been duly incorporated and is
validly existing as a corporation in good standing under the laws of the
jurisdiction of its incorporation, has corporate power and authority to
own, lease and operate its properties and to conduct its business as
described in the Prospectuses and is duly qualified to transact business as
a foreign corporation and is in good standing in each jurisdiction in which
such qualification is required, whether by reason of the ownership or
leasing of property or the conduct of business, except where the failure to
so qualify could not reasonably be expected to have a Material Adverse
Effect; except as described in the Registration Statement and Prospectuses,
all of the issued and outstanding capital stock of each such subsidiary has
been duly authorized and validly issued, is fully paid and non-assessable
and is owned by the Company, directly or through subsidiaries, free and
clear of any security interest, lien, claim or other encumbrance.
<PAGE> 8
-8-
(vii) At the Closing Time the authorized, issued and outstanding capital
stock of the Company is as set forth in the Prospectuses under
"Capitalization" under the column "As Adjusted," which gives effect to the
issuance to Calvin Klein, Inc. ("CKI") of 1,275,466 shares of non-voting
common stock (and assuming that such non-voting common stock is converted
to Common Stock) and the issuance of 5,000,000 shares of Common Stock
pursuant to this Agreement and the International Purchase Agreement; the
shares of issued and outstanding Common Stock, including the Securities to
be purchased by the Underwriters from the Selling Stockholder, have been
duly authorized and validly issued and are fully paid and non-assessable;
the Securities to be issued and sold by the Company pursuant to this
Agreement and the International Purchase Agreement have been duly
authorized and, when issued and delivered by the Company pursuant to this
Agreement and the International Purchase Agreement against payment of the
consideration set forth in the U.S. Pricing Agreement and the International
Pricing Agreement, respectively, will be validly issued and fully paid and
non-assessable; the Common Stock conforms in all material respects to all
statements relating thereto contained in the Prospectuses under the caption
"Description of Capital Stock"; and the issuance of the Securities is not
subject to preemptive or other similar rights.
(viii) Neither the Company nor any of the Company's subsidiaries is (A)
in violation of its charter, (B) in default in the performance or
observance of any obligation, agreement, covenant or condition contained in
any contract, indenture, mortgage, loan agreement, note, lease or other
instrument to which the Company or any of the Company's subsidiaries is a
party or by which it or any of them may be bound, or to which any of the
property or assets of the Company or any of the Company's subsidiaries is
subject, or (C) in violation of any applicable law, rule or regulation, or
any judgment, order or decree of any court with jurisdiction over the
Company or any subsidiary of the Company, or other governmental or
regulatory authority with jurisdiction over the Company or any of its
subsidiaries, except as disclosed in the Registration Statement and the
Prospectuses and except, in the case of clause (B), for such defaults that
could not reasonably be expected to have a Material Adverse Effect; and the
execution, delivery and performance of this Agreement (and the U.S. Pricing
Agreement) and International
<PAGE> 9
-9-
Purchase Agreement (and the International Pricing Agreement) and the
consummation of the transactions contemplated herein and therein and
compliance by the Company with its obligations hereunder and thereunder
have been duly authorized by all necessary corporate action and will not
conflict with or constitute a breach of, or a default under, or result in
the creation or imposition of any lien, charge or encumbrance upon any
property or assets of the Company or any of the Company's subsidiaries
pursuant to, any contract, indenture, mortgage, loan agreement, note, lease
or other instrument to which the Company or any of the Company's
subsidiaries is a party or by which it or any of them may be bound, or to
which any of the property or assets of the Company or any of the Company's
subsidiaries is subject, nor will such action result in any violation of or
conflict with the provisions of the charter or by-laws of the Company or
any applicable law, rule or regulation, or any judgment, order or decree of
any court with jurisdiction over the Company or any subsidiary of the
Company, or other governmental or regulatory authority with jurisdiction
over the Company or any of its subsidiaries.
(ix) No labor dispute with the employees of the Company or any of its
subsidiaries exists or, to the knowledge of the Company, is imminent; and
the Company is not aware of any existing or imminent labor disturbance by
the employees of any of its principal suppliers, manufacturers or
contractors which could reasonably be expected to result in a Material
Adverse Change.
(x) Except as described in the Registration Statement and the
Prospectuses, there is no action, suit or proceeding before or by any court
or governmental agency or body, domestic or foreign, now pending, or, to
the knowledge of the Company [or the Selling Stockholder], threatened,
against or affecting the Company or any of its subsidiaries, which is
required to be disclosed in the Registration Statement (other than as
disclosed therein), or which otherwise, if adversely determined, could
reasonably be expected to result in any Material Adverse Change, or which
could reasonably be expected to materially and adversely affect the
properties or assets of the Company or any of its subsidiaries or which
could reasonably be expected to materially and adversely affect the
consummation of the transactions contemplated by this Agreement or the
International Purchase Agreement; and there are no
<PAGE> 10
-10-
contracts or documents of the Company or any of its subsidiaries which are
required to be filed as exhibits to the Registration Statement by the 1933
Act or by the 1933 Act Regulations which have not been so filed.
(xi) The License Agreement dated August 4, 1994 and as amended through
April 22, 1996 (the "License Agreement") between CKI and Calvin Klein
Jeanswear Company ("CKJC") has been duly authorized, executed and delivered
by CKJC and is enforceable by CKJC against CKI in accordance with its
terms, except to the extent that enforcement thereof may be limited by (a)
bankruptcy, insolvency, reorganization, moratorium or other similar laws
now or hereafter in effect relating to creditors' rights generally and (b)
general principles of equity (regardless of whether enforceability is
considered in a proceeding at law or in equity). The Company and each of
its subsidiaries have fulfilled and performed all of their material
obligations with respect to the License Agreement and the License Agreement
remains in full force and effect; and to the best of the Company's
knowledge, no event has occurred with respect to the License Agreement
which would result in a Material Adverse Change.
(xii) The Company and its subsidiaries own or possess, or are licensed
or otherwise have the full legal right to utilize, the patents, patent
rights, licenses, inventions, copyrights, know-how (including trade secrets
and other unpatented and/or unpatentable proprietary or confidential
information, systems or procedures), trademarks (including, without
limitation, the exclusive right to use the marks "CALVIN KLEIN" and
"CK/CALVIN KLEIN" upon the terms and conditions set forth in the License
Agreement and as described in the Prospectuses), service marks, trade names
and other intangible property (collectively, the "Intellectual Property
Rights") presently employed by them in connection with the business now
operated by them except where the failure to so own or possess such legal
right could not reasonably be expected to have a Material Adverse Effect,
and neither the Company nor any of its subsidiaries has received any notice
or is otherwise aware of any infringement of or conflict with asserted
rights of others with respect to any patent or proprietary rights which,
singularly or in the aggregate, if the subject of an unfavorable final
determination, could reasonably be expected to result in any Material
Adverse Change.
<PAGE> 11
-11-
(xiii) No authorization, approval or consent of any court or governmental
authority or agency is necessary in connection with the offering, issuance
or sale of the Securities being sold by the Company hereunder or under the
International Purchase Agreement, except such as may be required under the
1933 Act, the 1933 Act Regulations, the Securities Exchange Act of 1934, as
amended (the "1934 Act"), the rules and regulations of the Commission under
the 1934 Act, state or foreign securities laws or by the rules and
regulations of the National Association of Securities Dealers, Inc.
("NASD").
(xiv) The Company and its subsidiaries possess such licenses,
certificates, authorities, permits, approvals, consents and other
authorizations issued by the appropriate state, federal or foreign
regulatory agencies or bodies necessary to conduct the business now
operated by them, except where the failure to possess such licenses,
certificates, authorities, permits, approvals, consents and other
authorizations could not reasonably be expected to have a Material Adverse
Effect, and neither the Company nor any of its subsidiaries has received
any notice of proceedings relating to the revocation or modification of any
such certificate, authority or permit.
(xv) This Agreement has been, and at the Representation Date, the
Pricing Agreement will have been, duly executed and delivered by the
Company.
(xvi) The Company and its subsidiaries are in compliance in all material
respects with all applicable laws, statutes, ordinances, rules or
regulations of any applicable jurisdiction (other than Environmental Laws,
which are referred to in clause (xviii) below) the enforcement of which
could reasonably be expected to have a Material Adverse Effect.
(xvii) The Company is not, and upon the issuance and sale by the Company
of the Securities as herein contemplated and the application of the net
proceeds therefrom as described in the Prospectuses under the caption "Use
of Proceeds" will not be, an "investment company" or an entity "controlled"
by an "investment company" as such terms are defined in the Investment
Company Act of 1940, as amended.
<PAGE> 12
-12-
(xviii) Except as disclosed in the Registration Statement and the
Prospectuses, and except as could not reasonably be expected to
individually or in the aggregate have a Material Adverse Effect, (A) each
of the Company and its subsidiaries is in compliance with all applicable
Environmental Laws (as defined), (B) each of the Company and its
subsidiaries has all permits, authorizations and approvals required under
any applicable Environmental Laws and is in compliance with their
requirements, (C) there are no pending or, to the knowledge of the Company,
threatened Environmental Claims (as defined) against the Company or any of
its subsidiaries, and (D) the Company has no knowledge of any circumstances
with respect to any property or operations of the Company or any of its
subsidiaries that could reasonably be anticipated to form the basis of any
Environmental Claim against the Company or any of its subsidiaries.
For purposes of this Agreement, the following terms shall have the
following meanings: "Environmental Law" means any federal, state, local or
municipal statute, law, rule, regulation, ordinance, code, policy or rule
of common law and any published judicial or administrative interpretation
thereof including any judicial or administrative order, consent decree or
judgment binding on the Company or any of its subsidiaries, relating to the
environment, health, safety or any chemical, material or substance,
exposure to which is prohibited, limited or regulated by any such
governmental authority. "Environmental Claims" means any and all
administrative, regulatory or judicial actions, suits, demands, demand
letters, claims, liens, notices of noncompliance or violation,
investigations or proceedings relating in any way to any Environmental Law.
(xix) The Company and each of its subsidiaries have filed all federal or
state income and franchise tax returns required to be filed and have paid
all taxes shown thereon as due, and there is no material tax deficiency
which has been or is reasonably likely to be asserted against the Company
or any of its subsidiaries; all material tax liabilities of the Company and
its subsidiaries are adequately provided for on the books of the Company
and its subsidiaries.
(xx) The Company has obtained the written agreements of each of CKI,
Merril M. Halpern, Arnold H. Simon, Debra
-13-
<PAGE> 13
Simon, A. Lawrence Fagan, Maurice Dickson, David Fidlon, John Jones, Daniel
J. Gladstone, Guy Kinberg, Joseph Purritano, Art Krulish and George
Criscione, in the forms previously furnished to you, that, for a period of
180 days from the date hereof, such parties will not, without prior written
consent of Merrill Lynch, directly or indirectly, offer to sell, sell,
grant any option for sale of or otherwise dispose of any capital stock of
the Company or any securities convertible or exchangeable into or
exercisable for capital stock of the Company.
(xxi) Except as set forth in the Prospectuses, there are no holders of
securities (debt or equity) of the Company, or holders of rights
(including, without limitation, preemptive rights), warrants or options to
obtain securities of the Company or its subsidiaries, who have the right to
request the Company to register securities held by them under the 1933 Act.
(b) The Company hereby agrees with the U.S. Underwriters that, for all
purposes of this Agreement, the only information furnished to the Company by any
U.S. Underwriter or International Manager expressly for use in the Registration
Statement, the Prospectuses, or any amendment or supplement thereto, or any
related preliminary prospectus, are the last paragraph of the cover page of, the
statements with respect to stabilization on the inside front cover page of, and
the fifth, sixth and twelfth paragraphs under the heading "Underwriting" in the
U.S. Prospectus and any related preliminary prospectus and the fourth, fifth and
tenth paragraph under the heading "Underwriting" in the International Prospectus
and any related preliminary prospectus.
(c) The Selling Stockholder represents and warrants to, and agrees
with, each U.S. Underwriter as of the date hereof and as of the Representation
Date as follows:
(i) The execution, delivery and performance of this Agreement, the
International Purchase Agreement, the U.S. Pricing Agreement and the
International Pricing Agreement and the consummation of the transactions
contemplated herein and therein and compliance by the Selling Stockholder
with its obligations hereunder and thereunder will not conflict with or
constitute a breach of or a default under any contract, indenture,
mortgage, loan agreement, note, lease or other instrument to which the
Selling
<PAGE> 14
-14-
Stockholder is a party or by which the Selling Stockholder may be bound.
(ii) The Selling Stockholder has and will have at the Closing Time
referred to in Section 2(d) good and marketable title to the Securities to
be sold by the Selling Stockholder hereunder and under the International
Purchase Agreement, free and clear of any security interest, lien, option,
claim, equity or other encumbrance other than pursuant to this Agreement or
the International Purchase Agreement; except for the shares of capital
stock of the Company issued to CKI as described in the Registration
Statement and Prospectuses, all of the issued and outstanding capital stock
of the Company is owned by the Selling Stockholder, directly or through
subsidiaries, free and clear of any security interest, lien, option, claim,
equity or other encumbrance; the Selling Stockholder has full right, power
and authority to sell, transfer and deliver the Securities to be sold by
the Selling Stockholder hereunder and under the International Purchase
Agreement; and upon delivery of the Securities to be sold by the Selling
Stockholder hereunder and under the International Purchase Agreement and
payment of the purchase price therefor as herein and therein contemplated,
each of the U.S. Underwriters and Managers who has purchased such
Securities in good faith and without notice of any "adverse claim" (as such
term is defined in Section 8-302 of the New York Uniform Commercial Code)
will acquire such Securities free of any adverse claim.
(iii) All authorizations, approvals and consents necessary for the
execution and delivery by or on behalf of the Selling Stockholder of this
Agreement and the International Purchase Agreement, and the sale and
delivery of the Securities to be sold by the Selling Stockholder hereunder
(except such as may be required under the 1933 Act, the 1933 Act
Regulations, the 1934 Act, the rules and regulations of the Commission
under the 1934 Act, state or foreign securities laws or by the rules and
regulations of the NASD) have been obtained and are in full force and
effect; and the Selling Stockholder has the full right, power and authority
to enter into this Agreement and the International Purchase Agreement and
to sell, transfer and deliver the Securities to be sold by the Selling
Stockholder hereunder and under the International Purchase Agreement.
<PAGE> 15
-15-
(iv) For a period of 180 days from the date hereof, the Selling
Stockholder will not, without the prior written consent of Merrill Lynch,
directly or indirectly, offer to sell, sell, grant any option for the sale
of, or otherwise dispose of, any capital stock of the Company or any
securities convertible or exchangeable into or exercisable for capital
stock of the Company owned by the Selling Stockholder or with respect to
which the Selling Stockholder has the power of disposition, other than to
the Underwriters pursuant to this Agreement and the International Purchase
Agreement.
[(v) The Selling Stockholder does not have any knowledge or any reason
to believe that the representations and warranties of the Company contained
in Section 1(a) hereof are not true and correct; the Selling Stockholder
does not have any knowledge or any reason to believe that the Registration
Statement (or any amendment or supplement thereto) contained an untrue
statement of a material fact or omitted to state a material fact required
to be stated therein or necessary to make the statements therein not
misleading or that the Prospectuses (or any amendment or supplement thereto
or any documents incorporated by reference therein) included or include an
untrue statement of a material fact or omitted or omit to state a material
fact necessary in order to make the statements therein, in the light of the
circumstances under which they were made, not misleading; and the Selling
Stockholder is not prompted to sell the Securities to be sold by it
hereunder by any information concerning the Company or any subsidiary of
the Company which is not set forth in the Registration Statement and the
Prospectuses.]
(vi) The Selling Stockholder has not taken, and will not take, directly
or indirectly, any action which is designed to or which has constituted or
which might reasonably be expected to cause or result in stabilization or
manipulation of the price of any security of the Company to facilitate the
sale or resale of the Securities.
(vii) Each of the agreements entered into between the Selling
Stockholder or any affiliate thereof and the Company and its subsidiaries
described in the sections of the Registration Statement and the
Prospectuses entitled "Certain Transactions" has been duly authorized,
executed and delivered and constitutes a valid, binding and enforceable
<PAGE> 16
16
agreement of the Selling Stockholder and each such affiliate, as the case
may be.
(d) Any certificate signed by any officer of the Company and delivered
pursuant to this Agreement and the International Purchase Agreement shall be
deemed a representation and warranty by the Company to each U.S. Underwriter and
Manager as to the matters covered thereby; and any certificate signed by or on
behalf of the Selling Stockholder and delivered, pursuant to this Agreement and
the International Purchase Agreement or in connection with the payment of the
purchase price and delivery of the certificates for the Initial Securities or
the Option Securities, to the U.S. Underwriters or Managers or counsel for the
U.S. Underwriters or Managers shall be deemed a representation and warranty by
the Selling Stockholder to each U.S. Underwriter and Manager as to the matters
covered thereby.
SECTION 2. Sale and Delivery to the U.S. Underwriters;
Closing.
(a) On the basis of the representations and warranties herein
contained and subject to the terms and conditions herein set forth, the Company
and the Selling Stockholder agree to sell to each U.S. Underwriter, severally
and not jointly, and each U.S. Underwriter, severally and not jointly, agrees to
purchase from the Company and the Selling Stockholder, at the price per share
set forth in the U.S. Pricing Agreement, the number of Initial U.S. Securities
set forth in Schedule A opposite the name of such U.S. Underwriter in the same
proportion from the Company and the Selling Stockholder as the number of Initial
U.S. Securities being sold by the Company and the Selling Stockholder bears to
the total number of Initial U.S. Securities (except as otherwise provided in the
U.S. Pricing Agreement), plus any additional number of Initial U.S. Securities
which such U.S. Underwriter may become obligated to purchase pursuant to the
provisions of Section 10 hereof.
(1) If the Company has elected not to rely upon Rule 430A under the
1933 Act Regulations, the initial public offering price and the purchase
price per share to be paid by the several U.S. Underwriters for the U.S.
Securities have each been determined and set forth in the U.S. Pricing
Agreement, dated the date hereof, and an amendment to the Registration
Statement and the Prospectuses containing such information will be filed
before the Registration Statement becomes effective.
<PAGE> 17
-17-
(2) If the Company has elected to rely upon Rule 430A under the 1933
Act Regulations, the purchase price per share to be paid by the several
U.S. Underwriters for the U.S. Securities shall be an amount equal to the
initial public offering price, less an amount per share to be determined by
agreement among the U.S. Representatives, the Company and the Selling
Stockholder. The initial public offering price per share of the U.S.
Securities shall be a fixed price to be determined by agreement between the
U.S. Representatives, the Company, and the Selling Stockholder. The initial
public offering price and the purchase price, when so determined, shall be
set forth in the U.S. Pricing Agreement. In the event that such prices have
not been agreed upon and the U.S. Pricing Agreement has not been executed
and delivered by all parties thereto by the close of business on the
fourteenth business day following the date of this Agreement, this
Agreement shall terminate forthwith, without liability of any party to any
other party, unless otherwise agreed to by the Company, the Selling
Stockholder and the U.S. Representatives, except that Sections 6 and 7
shall remain in effect. For purposes of this Agreement, the term "business
day" means a day on which the New York Stock Exchange (the "NYSE") is open
for business and the trading of securities is permitted thereon.
(b) In addition, on the basis of the representations and warranties
herein contained and subject to the terms and conditions herein set forth, each
of the Company and the Selling Stockholder hereby grant options to the U.S.
Underwriters, severally and not jointly, to purchase up to an additional 400,000
shares of Common Stock and 800,000 shares of Common Stock, respectively, at the
price per share set forth in the U.S. Pricing Agreement. The options hereby
granted will expire 30 days after (i) the date the Registration Statement
becomes effective, if the Company has elected not to rely on Rule 430A under the
1933 Act Regulations, or (ii) the Representation Date, if the Company has
elected to rely on Rule 430A under the 1933 Act Regulations, and may be
exercised in whole or in part only for the purpose of covering over-allotments
which may be made in connection with the offering and distribution of the
Initial U.S. Securities upon notice by the U.S. Representatives to each of the
Company and the Selling Stockholder setting forth the number of U.S. Option
Securities as to which the several U.S. Underwriters are then exercising the
options and the time and date of payment and delivery for such U.S. Option
Securities. Such time and date of delivery (the "Date of
<PAGE> 18
-18-
Delivery"), if any, shall be determined by the U.S. Representatives, but shall
not be later than seven full business days after the exercise of said options,
nor in any event prior to the Closing Time, as hereinafter defined, unless
otherwise agreed by the U.S. Representatives, the Company and the Selling
Stockholder. If the options are exercised as to all or any portion of the U.S.
Option Securities, each of the U.S. Underwriters, acting severally and not
jointly, will purchase that proportion of the total number of U.S. Option
Securities which the number of Initial U.S. Securities set forth in Schedule A
opposite the name of such U.S. Underwriter bears to the total number of Initial
U.S. Securities (except as otherwise provided in the U.S. Pricing Agreement),
subject in each case to such adjustments as the U.S. Representatives in their
discretion shall make to eliminate any sales or purchases of fractional shares.
(c) Payment of the purchase price for, and delivery of certificates
for, the Initial U.S. Securities shall be made at the offices of Cahill Gordon &
Reindel, 80 Pine Street, New York, New York 10005, or at such other place as
shall be agreed upon by the U.S. Representatives and the Company, at 9:00 A.M.
on the third business day (unless postponed in accordance with the provisions of
Section 10) following the date the Registration Statement becomes effective (or,
if the Company has elected to rely upon Rule 430A of the 1933 Act Regulations,
the third business day after execution of the Pricing Agreement), or such other
time not later than ten business days after such date as shall be agreed upon by
the U.S. Representatives, the Company and the Selling Stockholder (such time and
date of payment and delivery being herein called "Closing Time"). In addition,
in the event that any or all of the U.S. Option Securities are purchased by the
U.S. Underwriters, payment of the purchase price for, and delivery of
certificates for, such U.S. Option Securities shall be made at the
above-mentioned offices of Cahill Gordon & Reindel, 80 Pine Street, New York,
New York 10005, or at such other place as shall be agreed upon by the U.S.
Representatives and the Company on the Date of Delivery specified in the notice
from the U.S. Representatives to the Company. Payment shall be made to the
Company and the Selling Stockholder, respectively, by wire transfer of
immediately available funds to any account designated in writing by the Company
and the Selling Stockholder, respectively, against delivery to the U.S.
Representatives for the respective accounts of the U.S. Underwriters of
certificates for the U.S. Securities to be purchased by them. Certificates for
the Initial U.S. Securities and the U.S. Option Securities, if any,
<PAGE> 19
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shall be in such denominations and registered in such names as the U.S.
Representatives may request in writing at least two business days before Closing
Time or the relevant Date of Delivery, as the case may be. It is understood that
each U.S. Underwriter has authorized the U.S. Representatives, for its account,
to accept delivery of, receipt for, and make payment of the purchase price for,
the Initial U.S. Securities and the U.S. Option Securities, if any, which it has
agreed to purchase. Merrill Lynch, individually and not as representative of the
U.S. Underwriters, may (but shall not be obligated to) make payment of the
purchase price for the Initial U.S. Securities or the U.S. Option Securities, if
any, to be purchased by any U.S. Underwriter whose check has not been received
by Closing Time or the relevant Date of Delivery, as the case may be, but such
payment shall not relieve such U.S. Underwriter from its obligations hereunder.
The certificates for the Initial U.S. Securities and the U.S. Option Securities,
if any, will be made available for examination and packaging by the U.S.
Representatives not later than 10:00 A.M. on the last business day prior to
Closing Time or the relevant Date of Delivery, as the case may be.
SECTION 3. Covenants of the Company. The Company covenants with each
U.S. Underwriter as follows:
(a) The Company will use its best efforts to cause the Registration
Statement to become effective (as and when requested by the
Representatives) and, if the Company elects to rely upon Rule 430A of the
1933 Act Regulations and subject to Section 3(b), will comply with the
requirements of Rule 430A of the 1933 Act Regulations and will notify the
U.S. Representatives immediately, and confirm the notice in writing, (i) of
the effectiveness of the Registration Statement or any amendment thereto or
of the filing of any Supplement to the Prospectuses or amended
Prospectuses, (ii) of the receipt of any comments from the Commission,
(iii) of any request by the Commission for any amendment to the
Registration Statement or any amendment or supplement to the Prospectuses
or for additional information, (iv) of the issuance by the Commission of
any stop order suspending the effectiveness of the Registration Statement
or the initiation of any proceedings for that purpose, and (v) of the
receipt by the Company of any notification with respect to the suspension
of the qualification of the Securities for offering or sale in any
jurisdiction, or the initiation or threatening of any proceedings for any
such purpose. The Company will make
<PAGE> 20
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every reasonable effort to prevent the issuance of any stop order and, if
any stop order is issued, to obtain the lifting thereof at the earliest
possible moment. If the Company elects to rely on Rule 434 of the 1933 Act
Regulations, the Company will prepare a term sheet that complies with the
requirements of Rule 434 of the 1933 Act Regulations. If the Company elects
not to rely on Rule 434 of the 1933 Act Regulations, the Company will
provide the U.S. Underwriters with copies of the form of Prospectuses, in
such number as the U.S. Underwriters may reasonably request, and file with
the Commission such Prospectuses in accordance with Rule 424(b) of the 1933
Act Regulations by the close of business in New York on the business day
immediately succeeding the date of the U.S. Pricing Agreement. If the
Company elects to rely on Rule 434 of the 1933 Act Regulations, the Company
will provide the U.S. Underwriters with copies of the Rule 434 Prospectus
in such number as the U.S. Underwriters may reasonably request by the close
of business in New York on the business day immediately succeeding the date
of the U.S. Pricing Agreement.
(b) The Company will give the U.S. Representatives notice of its
intention to file or prepare any amendment to the Registration Statement
(including any post-effective amendment) or any amendment or supplement to
the Prospectuses (including (i) any revised prospectuses which the Company
proposes for use by the U.S. Underwriters in connection with the offering
of the Securities which differ from the Prospectuses on file at the
Commission at the time the Registration Statement becomes effective,
whether or not such revised prospectuses are required to be filed pursuant
to Rule 424(b) of the 1933 Act Regulations or (ii) any term sheet prepared
in reliance on Rule 434 of the 1933 Act Regulations), will furnish the U.S.
Representatives with copies of any such amendment or supplement a
reasonable amount of time prior to such proposed filing or use, as the case
may be, and will not file any such amendment or supplement or use any such
prospectus to which the U.S. Representatives or counsel for the U.S.
Underwriters shall reasonably object.
(c) The Company will deliver to the U.S. Representatives without
charge three signed copies of the Registration Statement as originally
filed and of each amendment thereto (including exhibits filed therewith or
incorporated by reference therein) and will also deliver to the
<PAGE> 21
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U.S. Representatives without charge a conformed copy of the Registration
Statement as originally filed and of each amendment thereto (without
exhibits) for each of the U.S. Underwriters.
(d) The Company will deliver to each U.S. Underwriter, without charge,
from time to time until the effective date of the Registration Statement
or, if the Company has elected to rely upon Rule 430A of the 1933 Act
Regulations, until such time as the U.S. Pricing Agreement is executed and
delivered, as many copies of each preliminary prospectus as the U.S.
Underwriters may reasonably request, and the Company hereby consents to the
use of said copies for purposes permitted by the 1933 Act. The Company will
furnish to each U.S. Underwriter, from time to time during the period when
the Prospectuses are required to be delivered under the 1933 Act or the
Securities Exchange Act of 1934 (the "1934 Act"), such number of copies of
the Prospectuses (as amended or supplemented) as such U.S. Underwriter may
reasonably request for the purposes contemplated by the 1933 Act or the
1934 Act or the respective applicable rules and regulations of the
Commission thereunder.
(e) If, at any time when the Prospectuses relating to the Securities
are required to be delivered under the 1933 Act, any event shall occur as a
result of which the Prospectuses would include any untrue statement of a
material fact or omit to state any material fact necessary in order to make
the statements therein, in the light of the circumstances existing at the
time they are delivered to the purchaser, not misleading, or if it shall be
necessary to amend the Registration Statement or supplement the
Prospectuses to comply with the 1933 Act or the 1933 Act Regulations, the
Company will promptly prepare and file with the Commission such amendment
or supplement (in form and substance reasonably satisfactory to counsel for
the U.S. Underwriters) which will correct such statement or omission or
effect such compliance.
(f) The Company will endeavor, in cooperation with the U.S.
Underwriters, to qualify the Securities for offering and sale under the
applicable securities laws of such states and other jurisdictions of the
United States as the U.S. Representatives may designate; provided, however,
that the Company shall not be obligated to qualify as a foreign corporation
or dealer in securities or file
<PAGE> 22
-22-
any general consent to service of process or subject itself to taxation in
any jurisdiction in which it is not otherwise so qualified or so subject.
In each jurisdiction in which the Securities have been so qualified, the
Company will file such statements and reports as may be required by the
laws of such jurisdiction to continue such qualification in effect for a
period of not less than one year from the effective date of the
Registration Statement.
(g) The Company will make generally available to its security holders
as soon as practicable, but not later than 90 days after the close of the
period covered thereby, an earnings statement (in form complying with the
provisions of Rule 158 of the 1933 Act Regulations) covering a twelve month
period beginning not later than the first day of the Company's fiscal
quarter next following the fiscal quarter that includes the "effective
date" (as defined in said Rule 158) of the Registration Statement.
(h) The Company will use the net proceeds received by it from the sale
of the Securities in the manner specified in the Prospectuses under "Use of
Proceeds."
(i) If, at the time that the Registration Statement becomes effective,
any information shall have been omitted therefrom in reliance upon Rule
430A of the 1933 Act Regulations, then immediately following the execution
of the U.S. Pricing Agreement, the Company will prepare, and file or
transmit for filing with the Commission in accordance with such Rule 430A
or Rule 434 and Rule 424(b) of the 1933 Act Regulations, copies of amended
Prospectuses, or, if required by such Rule 430A or Rule 434, a
post-effective amendment to the Registration Statement (including amended
Prospectuses), containing all information so omitted and will use its
reasonable best efforts to cause any such post-effective amendment to be
declared effective as soon as possible.
(j) The Company will file with the Commission such reports on Form SR
as may be required pursuant to Rule 463 of the 1933 Act Regulations.
(k) The Company will use its reasonable best efforts to effect the
listing of the Common Stock on the NYSE and will file with the NYSE all
documents and notices required
<PAGE> 23
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by the NYSE of companies that seek to have or that have issued securities
that are listed on the NYSE.
(l) During a period of 180 days from the date of the U.S. Pricing
Agreement, the Company will not, without Merrill Lynch's prior written
consent, directly or indirectly, sell, offer to sell, grant any option for
the sale of, or otherwise dispose of, any capital stock of the Company or
any security convertible or exchangeable into or exercisable for capital
stock of the Company except (i) to the Underwriters pursuant to this
Agreement, (ii) the Company may grant stock options pursuant to its stock
option plan or file any registration statement with respect to any of the
foregoing, except that the Company may file a registration statement on
Form S-8 with respect to its stock option plan, and (iii) to CKI upon
conversion of the 1,275,466 shares of non-voting common stock.
(m) The Company hereby agrees that it will ensure that the U.S.
Securities sold to persons pursuant to the Reserve Share Program will be
restricted as required by the NASD or the NASD rules from sale, transfer,
assignment, pledge or hypothecation for a period of three months following
the date of the effectiveness of the Registration Statement. The
Underwriters will notify the Company as to which persons will need to be so
restricted. At the request of the Underwriters, the Company will direct the
transfer agent to place a stop transfer restriction upon such securities
for such period of time. Should the Company release, or seek to release,
from such restrictions any securities sold pursuant to the Reserve Share
Program, the Company agrees to reimburse the Underwriters for any
reasonable expenses including, without limitation, legal expenses they
incur directly in connection with such release.
SECTION 4. Payment of Expenses. (a) The Company will pay all expenses
incident to the performance of its obligations under this Agreement, including
(i) the preparation, printing and filing of the Registration Statement as
originally filed and of each amendment thereto, any preliminary prospectuses,
Prospectuses and any "Blue Sky" memoranda, (ii) the preparation (including
printing), issuance and delivery of certificates for the Securities to the U.S.
Underwriters, including any security transfer or other taxes or duties payable
upon the delivery of the Securities to the U.S. Underwriters, and the fees and
expenses of the transfer agent for the Securities,
<PAGE> 24
-24-
(iii) the printing of this Agreement, the U.S. Pricing Agreement and the
Intersyndicate Agreement, (iv) the fees and disbursements of the Company's
counsel, accountants and any other experts or advisors retained by the
Company, (v) the qualification of the Securities under state or foreign
securities laws in accordance with the provisions of Section 3(f),
including filing fees and the reasonable fees and disbursements of counsel
for the U.S. Underwriters in connection therewith and in connection with
the preparation of the Blue Sky Survey, (vi) the delivery to the U.S.
Underwriters of as many copies as may reasonably be requested of the
Registration Statement as originally filed and of each amendment thereto,
of the preliminary prospectuses, and of the Prospectuses and any amendments
or supplements thereto, including any term sheet delivered by the Company
pursuant to Rule 434 of the 1933 Act Regulations, (vii) the printing and/or
copying and delivery to the U.S. Underwriters of copies of the Blue Sky
Survey, (viii) the fee of any filing for review of the offering with the
National Association of Securities Dealers, Inc. relating to the
Securities, (ix) expenses of the Company in connection with any meetings
with prospective investors in the Securities, (x) all expenses and listing
fees in connection with the listing of the Securities on the NYSE and (xi)
the reasonable fees and disbursements of counsel for the U.S. Underwriters
in connection with matters relating to Securities which are designated by
the Company for sale to employees and others having a business relationship
with the Company.
(b) The Selling Stockholder will pay any transfer taxes attributable
to the sale by the Selling Stockholder of the Securities and any fees and
disbursements of the Selling Stockholder's counsel, if any, not paid or payable
by the Company pursuant to Section 4(a) or otherwise.
(c) If this Agreement is terminated by the U.S. Representatives in
accordance with the provisions of Section 5 or Section 9(a)(i) or Section 11
hereof, the Company shall reimburse the U.S. Underwriters for all of their
out-of-pocket expenses, including the reasonable fees and disbursements of
counsel for the U.S. Underwriters.
SECTION 5. Conditions of U.S. Underwriters' Obligations. The
obligations of the U.S. Underwriters hereunder are subject to the accuracy of
the representations and warranties of the Company and the Selling Stockholder,
respectively, herein contained, to the performance by the Company and the
<PAGE> 25
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Selling Stockholder of their respective obligations hereunder, and to the
following further conditions:
(a) The Registration Statement shall have become effective not later
than 5:30 P.M. on the date hereof, or with the consent of the U.S.
Representatives, which shall not be unreasonably withheld at a later time
and date, not later, however, than 5:30 P.M. on the first business day
following the date hereof, or at such later time and date as may be
approved by a majority in interest of the U.S. Underwriters and a majority
in interest of the Managers; and at Closing Time no stop order suspending
the effectiveness of the Registration Statement shall have been issued
under the 1933 Act or proceedings therefor initiated or threatened by the
Commission. If the Company has elected to rely upon Rule 430A or Rule 434
of the 1933 Act Regulations, the price of the Securities and any
price-related information previously omitted from the effective
Registration Statement pursuant to such Rule 430A or Rule 434 shall have
been transmitted to the Commission for filing pursuant to Rule 424(b) of
the 1933 Act Regulations within the prescribed time period and prior to
Closing Time the Company shall have provided evidence satisfactory to the
U.S. Representatives of such timely filing, or a post-effective amendment
providing such information shall have been promptly filed and declared
effective in accordance with the requirements of Rule 430A of the 1933 Act
Regulations.
(b) (1) At the Closing Time, you shall have received the signed
opinion of John J. Jones, Esq., Vice President, General Counsel and
Secretary for the Company, dated as of the Closing Time, in the form
attached hereto as Exhibit B, together with reproduced copies of such
opinions for each of the U.S. Underwriters, and in form and substance
satisfactory to counsel for the U.S. Underwriters.
(2) At the Closing Time, you shall have received the signed opinions
of Skadden, Arps, Slate, Meagher & Flom, counsel for the Company, dated as
of the Closing Time, in the forms attached hereto as Exhibit C, together
with reproduced copies of such opinions for each of the U.S. Underwriters,
in form and substance satisfactory to counsel for the U.S. Underwriters.
<PAGE> 26
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(3) The favorable opinion, dated as of Closing Time, of Cahill Gordon
& Reindel, counsel for the U.S. Underwriters, with respect to the validity
of the Securities, the Registration Statement, the U.S. Prospectus and
other related matters as the U.S. Representatives may reasonably request.
(c) At Closing Time there shall not have been, since the date hereof
or since the respective dates as of which information is given in the
Prospectuses, any Material Adverse Change, whether or not arising in the
ordinary course of business, and the U.S. Representatives shall have
received a certificate of the President or a Vice President of the Company
and of the chief financial or chief accounting officer of the Company,
dated as of Closing Time, to the effect that (i) there has been no such
Material Adverse Change, (ii) the representations and warranties in Section
1 hereof are true and correct with the same force and effect as though
expressly made at and as of Closing Time, (iii) the Company has complied
with all agreements and satisfied all conditions on its part to be
performed or satisfied at or prior to Closing Time, and (iv) no stop order
suspending the effectiveness of the Registration Statement has been issued
and no proceedings for that purpose have been initiated or threatened by
the Commission. As used in this Section 5(c), the term "Prospectuses" means
the Prospectuses in the form first used to confirm sales of the Securities.
(d) At Closing Time the U.S. Representatives shall have received a
certificate of two executive officers of the Selling Stockholder, dated as
of Closing Time, to the effect that (i) the representations and warranties
of the Selling Stockholder contained in Section 1 are true and correct with
the same force and effect as though expressly made at and as of Closing
Time and (ii) the Selling Stockholder has complied with all agreements and
satisfied all conditions on its part to be performed or satisfied at or
prior to Closing Time.
(e) At the Closing Time the U.S. Representatives shall have received a
certificate from an executive officer of CKI dated as of a date within two
days prior to the Closing Time, to the effect that, to the best of such
officer's knowledge after due inquiry, as of the date thereof, the Company
and CKJC are in compliance with all the terms and provisions of the License
Agreement and that
<PAGE> 27
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no event has occurred that would (with or without notice
or the passage of time, or both) constitute a default under the License
Agreement.
(f) At the time that this Agreement is signed and at the Closing Time,
Coopers & Lybrand L.L.P. shall have furnished to the Underwriters a letter
or letters, dated respectively as of the date of this Agreement and as of
the Closing Time, in form and substance reasonably satisfactory to the
Underwriters, containing statements and information of the type customarily
included in accountants' "comfort letters" to underwriters with respect to
certain financial information relating to the Company contained in the
Registration Statement and the Prospectuses.
(g) At Closing Time, the Securities shall have been approved for
listing on the NYSE upon official notice of issuance.
(h) At Closing Time and at each Date of Delivery, if any, counsel for
the U.S. Underwriters shall have been furnished with such documents and
opinions as they may reasonably require for the purpose of enabling them to
pass upon the issuance and sale of the Securities as herein contemplated
and related proceedings, or in order to evidence the accuracy of any of the
representations or warranties, or the fulfillment of any of the conditions,
herein contained; and all proceedings taken by the Company in connection
with the issuance and sale of the Securities as herein contemplated shall
be reasonably satisfactory in form and substance to the U.S.
Representatives and counsel for the U.S. Underwriters.
(i) Concurrently with the purchase and sale of the U.S. Securities
hereunder, the closing of the issuance and sale of the International
Securities pursuant to the terms and conditions of the International
Purchase Agreement and International Pricing Agreement shall have occurred.
(j) The Company will have amended the terms of its bank credit
facility to allow for the consummation of the transaction contemplated by
this Agreement and the International Purchase Agreement.
(k) In the event that the U.S. Underwriters exercise their options
provided in Section 2(b) hereof to purchase all or any portion of the U.S.
Option Securities, the
<PAGE> 28
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representations and warranties of the Company and the Selling Stockholder
contained herein and the statements in any certificates furnished by the
Company and the Selling Stockholder hereunder shall be true and correct as
of each Date of Delivery and, at the relevant Date of Delivery, the U.S.
Representatives shall have received:
(1) A certificate, dated such Date of Delivery, of the President
or a Vice President of the Company and of the chief financial or chief
accounting officer of the Company confirming that the certificate
delivered at the Closing Time pursuant to Section 5(c) hereof remains
true and correct as of such Date of Delivery.
(2) A certificate, dated such Date of Delivery, of two executive
officers of the Selling Stockholder, confirming that the certificate
delivered at the Closing Time pursuant to Section 5(d) hereof remains
true and correct as of such Date of Delivery.
(3) The favorable opinion of John J. Jones, Esq., Vice President,
General Counsel and Secretary for the Company, in form and substance
satisfactory to counsel for the U.S. Underwriters, dated such Date of
Delivery, relating to the U.S. Option Securities to be purchased on
such Date of Delivery and otherwise to the same effect as the opinion
required by Section 5(b)(1) hereof.
(4) The favorable opinion of Skadden, counsel for the Company, in
form and substance satisfactory to counsel for the U.S. Underwriters,
dated such Date of Delivery, relating to the U.S. Option Securities to
be purchased on such Date of Delivery and otherwise to the same effect
as the opinion required by Section 5(b)(2) hereof.
(5) The favorable opinion of Cahill Gordon & Reindel, counsel for
the U.S. Underwriters, dated such Date of Delivery, relating to the
U.S. Option Securities to be purchased on such Date of Delivery and
otherwise to the same effect as the opinion required by Section
5(b)(3) hereof.
(6) A letter from Coopers & Lybrand L.L.P., in form and substance
satisfactory to the U.S.
<PAGE> 29
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Representatives and dated such Date of Delivery, substantially the
same in form and substance as the letters furnished to the U.S.
Representatives pursuant to Section 5(e) hereof, except that the
"specified date" in the letter furnished pursuant to this Section
5(h)(5) shall be a date not more than three days prior to such Date of
Delivery.
If any condition specified in this Section shall not have been
fulfilled when and as required to be fulfilled, this Agreement may be terminated
by the U.S. Representatives by notice to the Company and the Selling Stockholder
at any time at or prior to Closing Time, and such termination shall be without
liability of any party to any other party except as provided in Section 4
hereof.
SECTION 6. Indemnification.
(a) The Company, the Selling Stockholder and each of the Principal
Members, severally, agree to indemnify and hold harmless each U.S. Underwriter
and each person, if any, who controls any U.S. Underwriter within the meaning of
Section 15 of the 1933 Act or Section 20 of the 1934 Act as follows:
(i) against any and all loss, liability, claim, damage and expense
whatsoever, as incurred, arising out of any untrue statement or alleged
untrue statement of a material fact contained in the Registration Statement
(or any amendment thereto), including the Rule 430A Information and the
Rule 434 Information, if applicable, or the omission or alleged omission
therefrom of a material fact required to be stated therein or necessary to
make the statements therein not misleading or arising out of any untrue
statement or alleged untrue statement of a material fact contained in any
preliminary prospectuses or the Prospectuses (or any amendment or
supplement thereto), or the omission or alleged omission therefrom of a
material fact necessary in order to make the statements therein, in the
light of the circumstances under which they were made, not misleading;
(ii) against any and all loss, liability, claim, damage and expense
whatsoever, as incurred, to the extent of the aggregate amount paid in
settlement of any litigation, or any investigation or proceeding by any
governmental agency or body, commenced or threatened, or of any claim
whatsoever based upon any such untrue statement or
<PAGE> 30
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omission, or any such alleged untrue statement or omission; provided that
(subject to Section 6(d) below) any such settlement is effected with the
written consent of the Company and the Principal Stockholders; and
(iii) against any and all expense whatsoever, as incurred (including,
subject to the last sentence of Section 6(d), the fees and disbursements of
counsel chosen by Merrill Lynch), reasonably incurred in investigating,
preparing or defending against any litigation, or any investigation or
proceeding by any governmental agency or body, commenced or threatened, or
any claim whatsoever based upon any such untrue statement or omission, or
any such alleged untrue statement or omission, to the extent that any such
expense is not paid under (i) or (ii) above;
provided, however, that (A) this indemnity shall not apply to any loss,
liability, claim, damage or expense to the extent arising out of any untrue
statement or omission or alleged untrue statement or omission made in the
Registration Statement (or any amendment thereto) including the 430A Information
and the Rule 434 Information, if applicable, or any preliminary prospectuses or
the Prospectuses (or any amendment or supplement thereto) in reliance upon and
in conformity with written information relating to a U.S. Underwriter furnished
to the Company by such U.S. Underwriter through Merrill Lynch expressly for use
in the Registration Statement (or any amendment thereto), and (B) such indemnity
with respect to any preliminary prospectus shall not inure to the benefit of any
U.S. Underwriter (or any persons controlling such U.S. Underwriter) from whom
the person asserting such loss, claim, damage or liability purchased the
Securities which are the subject thereof if such person did not receive a copy
of the U.S. Prospectus (or the U.S. Prospectus as amended or supplemented) at or
prior to the confirmation of the sale of such Securities to such person in any
case where such delivery is required by the 1933 Act and the untrue statement or
omission or alleged untrue statement or omission of a material fact contained in
such preliminary prospectus was corrected in the U.S. Prospectus (or the U.S.
Prospectus as amended or supplemented).
In making a claim for indemification under this Section 6 (other than
pursuant to clause (a)(iii) of this Section 6) or contribution under Section 7
by the Company, the Selling Stockholder or the Principal Members, the
indemnified parties may proceed against either (i) collectively the Company, the
Selling Stockholder and the Principal Members or (ii) the
<PAGE> 31
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Company and/or the Selling Stockholder only, but may not proceed solely against
the Principal Members. In the event that the indemnified parties are entitled to
seek indemnity or contribution hereunder against any loss, liability, claim,
damage and expense incurred with respect to a final judgment from a court of
competent jurisdiction then, as a precondition to any indemnified party
obtaining indemnification or contribution from the Principal Members, the
indemnified parties shall first obtain a final judgment from a court of
competent jurisdiction that such indemnified parties are entitled to indemnity
or contribution under this Agreement with respect to such loss, liability,
claim, damage or expense (the "Final Judgment") from the Company, the Selling
Stockholder and the Principal Members and shall seek to satisfy such Final
Judgment in full from the Company and the Selling Stockholder by making a
written demand upon the Company and the Selling Stockholder for such
satisfaction. Only in the event such Final Judgment shall remain unsatisfied in
whole or in part 45 days following the date of receipt by the Company or the
Selling Stockholder of such demand shall any indemnified party have the right to
take action to satisfy such Final Judgment by making demand directly on the
Principal Members (but only if and to the extent the Company or the Selling
Stockholder has not already satisfied such Final Judgment, whether by
settlement, release or otherwise). The indemnified parties may exercise this
right to first seek to obtain payment from the Company or the Selling
Stockholder and thereafter obtain payment from the Principal Members without
regard to the pursuit by any party of its rights to the appeal of such Final
Judgment. The indemnified parties shall, however, be relieved of their
obligation to first obtain a Final Judgment, seek to obtain payment from the
Company or the Selling Stockholder with respect to such Final Judgment or,
having sought such payment, to wait such 45 days after failure by the Company or
the Selling Stockholder to immediately satisfy any such Final Judgment if (i)
the Company or the Selling Stockholder files a petition for relief under the
United States Bankruptcy Code (the "Bankruptcy Code"), (ii) an order for relief
is entered against the Company or the Selling Stockholder in an involuntary case
under the Bankruptcy Code, (iii) the Company or the Selling Stockholder makes an
assignment for the benefit of its creditors, or (iv) any court of competent
jurisdiction orders or approves the appointment of a receiver or custodian for
the Company or the Selling Stockholder or a substantial portion of either of
their assets. The foregoing provisions of this paragraph are not intended to
require any indemnified party to obtain a Final Judgment against the Company,
the Selling Stockholder or the Principal
<PAGE> 32
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Members before obtaining reimbursement of expenses pursuant to clause (a)(iii)
of this Section 6. However, the indemnified parties shall first seek to obtain
such reimbursement in full from the Company or the Selling Stockholder by making
a written demand upon the Company or the Selling Stockholder for such
reimbursement. Only in the event such expenses shall remain unreimbursed in
whole or in part 45 days following the date of receipt by the Company or the
Selling Stockholder of such demand shall any indemnified party have the right to
receive reimbursement of such expenses from the Principal Members by making
written demand directly on the Principal Members (but only if and to the extent
the Company or the Selling Stockholder has not already satisfied the demand for
reimbursement, whether by settlement, release or otherwise). The indemnified
parties shall, however, be relieved of their obligation to first seek to obtain
such reimbursement in full from the Company or the Selling Stockholder or,
having made written demand therefor, to wait such 45 days after failure by the
Company or the Selling Stockholder to immediately reimburse such expenses if (i)
the Company or the Selling Stockholder files a petition for relief under the
Bankruptcy Code, (ii) an order for relief is entered against the Company or the
Selling Stockholder in an involuntary case under the Bankruptcy Code, (iii) the
Company or the Selling Stockholder makes an assignment for the benefit of its
creditors, or (iv) any court of competent jurisdiction orders or approves the
appointment of a receiver or custodian for the Company or the Selling
Stockholders or a substantial portion of either of their assets.
(b) Each U.S. Underwriter agrees, severally and not jointly, to
indemnify and hold harmless the Company, its directors, each of its officers who
signed the Registration Statement, and each person, if any, who controls the
Company within the meaning of Section 15 of the 1933 Act or Section 20 of the
1934 Act, and the Selling Stockholder against any and all loss, liability,
claim, damage and expense described in the indemnity contained in subsection (a)
of this Section, as incurred, but only with respect to untrue statements or
omissions, or alleged untrue statements or omissions, made in the Registration
Statement (or any amendment thereto), including the Rule 430A Information and
the Rule 434 Information, if applicable, or any preliminary prospectuses or the
Prospectuses (or any amendment or supplement thereto) in reliance upon and in
conformity with written information relating to a U.S. Underwriter furnished to
the Company by such U.S. Underwriter through Merrill Lynch expressly for use in
the Registration Statement (or any amendment thereto) including Rule 430A
Information and Rule 434
<PAGE> 33
-33-
Information, if applicable, or such preliminary prospectuses or the Prospectuses
(or any amendment or supplement thereto).
(c) The Selling Stockholder agrees to indemnify and hold harmless the
Company, its directors, each of its officers who signed the Registration
Statement, and each person, if any, who controls the Company within the meaning
of Section 15 of the 1933 Act or Section 20 of the 1934 Act against any and all
loss, liability, claim, damage and expense described in the indemnity contained
in subsection (a) of this Section, as incurred, but only with respect to untrue
statements or omissions, or alleged untrue statements or omissions made in the
Registration Statement (or any amendment thereto), including the Rule 430A
Information and the Rule 434 Information, if applicable, or any preliminary
prospectuses or the Prospectuses (or any amendment or supplement thereto) in
reliance upon and in conformity with written information furnished to the
Company by the Selling Stockholder expressly for use in the Registration
Statement (or any amendment thereto) or such preliminary prospectuses or the
Prospectuses (or any amendment or supplement thereto). The Company and the
Selling Stockholder acknowledge for all purposes under this Agreement, including
this Section 6, that the information set forth in the Registration Statement and
the Prospectuses under the caption "Principal and Selling Stockholders"
constitutes the only written information furnished to the Company by or on
behalf of the Selling Stockholder expressly for use in the Registration
Statement, the preliminary prospectus or the Prospectus (or any amendment or
supplement to any of them).
(d) Each indemnified party shall give notice as promptly as reasonably
practicable to each indemnifying party of any action commenced against it in
respect of which indemnity may be sought hereunder, but failure to so notify an
indemnifying party shall not relieve such indemnifying party from any liability
which it may have otherwise than on account of this indemnity agreement, except
to the extent it has been materially prejudiced by such failure as determined by
a court of competent jurisdiction in a final judgment. Any indemnifying party
may participate at its own expense in the defense of such action. If it so
elects within reasonable time after receipt of such notice, an indemnifying
party, jointly with any other indemnifying parties receiving such notice, may
assume the defense of such action with counsel chosen by it and approved by the
indemnified parties, unless such indemnified parties reasonably object to such
assumption on the ground that there may be legal defenses available to them
which are
<PAGE> 34
-34-
different from or in addition to those available to such indemnifying party. If
an indemnifying party assumes the defense of such action, the indemnifying
parties shall not be liable for any fees and expenses of counsel for the
indemnified parties incurred thereafter in connection with such action. In no
event shall the indemnifying party or parties be liable for the fees and
expenses of more than one counsel for all indemnified parties in connection with
any one action or separate but similar or related actions in the same
jurisdictions arising out of the same general allegations or circumstances.
(e) No Principal Members shall be responsible for the payment of an
amount, pursuant to this Section 6, which exceeds the net proceeds received by
such Principal Members from the sale of the Securities by such Principal Members
hereunder and under the International Purchase Agreement.
(f) No indemnifying party shall, without the prior written consent of
the indemnified party, effect any settlement of any pending or threatened
proceeding in respect of which any indemnified party is or could have been a
party and indemnity could have been sought hereunder by such indemnified party,
unless such settlement includes an unconditional release of such indemnified
party from all liability on claims that are the subject matter of such
proceeding. No indemnifying party shall be liable for any settlement of any
action or claim for monetary damages which an indemnified party may effect
without the written consent of the indemnifying party.
(g) In connection with the Reserve Share Program, the Company agrees
to indemnify and hold harmless the Underwriters from and against any and all
losses, expenses and liabilities incurred by them as a result of the failure of
the designated employees or other persons to pay for and accept delivery of
shares which were subject to a properly confirmed agreement to purchase.
SECTION 7. Contribution. In order to provide for just and equitable
contribution in circumstances under which the indemnity provided for in Section
6 is for any reason held to be unenforceable by the indemnified parties although
applicable in accordance with its terms, subject to the last paragraph of
Section 6(a) hereof, the Company, the Selling Stockholder, the Principal Members
and the U.S. Underwriters shall contribute to the aggregate losses, liabilities,
claims, damages and expenses of the nature contemplated by such indemnity
incurred by the Company, the Selling Stockholders, the
<PAGE> 35
-35-
Principal Members, and one or more of the U.S. Underwriters, as incurred, in
such proportion that (a) the U.S. Underwriters are responsible for that portion
represented by the percentage that the underwriting discount appearing on the
cover page of the U.S. Prospectus in respect of the U.S. Securities bears to the
initial public offering price appearing thereon and (b) the Company, the Selling
Stockholders and the Principal Members are severally liable for the balance on
the same basis as each of them would have been obligated to provide
indemnification pursuant to Section 7; provided, further, that no person guilty
of fraudulent misrepresentation (within the meaning of Section 11(f) of the 1933
Act) shall be entitled to contribution from any person who was not guilty of
such fraudulent misrepresentation. For purposes of this Section 7, each person,
if any, who controls a U.S. Underwriter within the meaning of Section 15 of the
1933 Act shall have the same rights to contribution as the U.S. Underwriter, and
each director of the Company, each officer of the Company who signed the
Registration Statement, the Selling Stockholder the Principal Members and each
director, officer or employee thereof and each person, if any, who controls the
Company or the Selling Stockholder within the meaning of Section 15 of the 1933
Act shall have the same rights to contribution as the Company, the Selling
Stockholder and the Principal Members. Notwithstanding the provisions of this
Section 7, no Principal Member shall be required to contribute any amount under
this Section 7 in excess of the amount by which the proceeds received by such
Principal Member in connection herewith exceed the aggregate amount such
Principal Member has otherwise paid pursuant hereto and to Section 6(a).
SECTION 8. Representations, Warranties and Agreements to Survive
Delivery. All representations, warranties and agreements contained in this
Agreement and the Pricing Agreement, or contained in certificates of officers of
the Company or the Selling Stockholders submitted pursuant hereto, shall remain
operative and in full force and effect regardless of any investigation made by
or on behalf of any U.S. Underwriter or controlling person, or by or on behalf
of the Company or the Selling Stockholder, and shall survive delivery of the
Securities to the U.S. Underwriters.
SECTION 9. Termination of Agreement.
(a) The U.S. Representatives may terminate this Agreement, by notice
to the Company and the Selling Stockholders, at any time at or prior to Closing
Time (i) if there has been, since the date of this Agreement or since the
respective
<PAGE> 36
-36-
dates as of which information is given in the Prospectuses, a Material Adverse
Change, whether or not arising in the ordinary course of business, or (ii) if
there has occurred any material adverse change in the financial markets in the
United States, Europe or elsewhere or any outbreak of hostilities or escalation
thereof or other calamity or crisis the effect of which is such as to make it,
in the judgment of the U.S. Representatives, impracticable to market the U.S.
Securities or to enforce contracts for the sale of the U.S. Securities, or (iii)
if trading in the Common Stock has been suspended or limited by the Commission
or the NYSE, or if trading generally on the American Stock Exchange, the NYSE or
in the over-the-counter market has been suspended or limited, or minimum or
maximum prices for trading have been fixed, or maximum ranges for prices for
securities have been required, by said exchanges or by order of the Commission,
the National Association of Securities Dealers, Inc. or any other governmental
authority, or if a banking moratorium has been declared by either Federal or New
York authorities. As used in this Section 9(a), the term "Prospectuses" means
the Prospectuses in the form first used to confirm sales of the Securities.
(b) If this Agreement is terminated pursuant to this Section, such
termination shall be without liability of any party to any other party except as
provided in Section 4 hereof. Notwithstanding any such termination, the
provisions of Sections 1, 6 and 7 shall remain in effect.
SECTION 10. Default by One or More of the U.S. Underwriters. If one or
more of the U.S. Underwriters shall fail at Closing Time to purchase the Initial
U.S. Securities which it or they are obligated to purchase under this Agreement
and the U.S. Pricing Agreement (the "Defaulted Securities"), the U.S.
Representatives shall have the right, within 24 hours thereafter, to make
arrangements for one or more of the non-defaulting U.S. Underwriters, or any
other underwriters, to purchase all, but not less than all, of the Defaulted
Securities in such amounts as may be agreed upon and upon the terms herein set
forth; if, however, the U.S. Representatives shall not have completed such
arrangements within such 24-hour period, then:
(a) if the number of Defaulted Securities does not exceed 10% of the
number of Initial U.S. Securities, each of the non-defaulting U.S.
Underwriters shall be obligated, severally and not jointly, to purchase the
full amount thereof in the proportions that their respective
<PAGE> 37
-37-
underwriting obligations hereunder bear to the underwriting obligations of
all nondefaulting U.S. Underwriters, or
(b) if the number of Defaulted Securities exceeds 10% of the number
of Initial U.S. Securities, this Agreement shall terminate without
liability on the part of any non-defaulting U.S. Underwriter.
No action taken pursuant to this Section shall relieve any defaulting
U.S. Underwriter from liability in respect of its default.
In the event of any such default which does not result in a
termination of this Agreement, either the U.S. Representatives or the Company
and the Selling Stockholder shall have the right to postpone Closing Time for a
period not exceeding seven days in order to effect any required changes in the
Registration Statement or the Prospectuses or in any other documents or
arrangements.
SECTION 11. Default by the Selling Stockholder or the Company. If the
Company or the Selling Stockholder shall fail at Closing Time or at the Date of
Delivery to sell and deliver the number of Securities which it is obligated to
sell hereunder, then the U.S. Underwriters may, at their option, by notice from
the U.S. Underwriters to the Company and the non-defaulting Selling Stockholders
either (a) terminate this Agreement without any liability on the part of any
non-defaulting party except to the extent provided in Section 4 and except that
the provisions of Sections 6 and 7 shall remain in effect or (b) elect to
purchase the Securities which the non-defaulting party has agreed to sell
thereunder.
No action pursuant to this Section shall relieve the Company or any
Selling Stockholder from liability in respect of such default.
SECTION 12. Notices. All notices and other communications hereunder
shall be in writing and shall be deemed to have been duly given if mailed or
transmitted by any standard form of telecommunication. Notices to the U.S.
Underwriters shall be directed to the U.S. Representatives at Merrill Lynch
World Headquarters, North Tower, World Financial Center, New York, New York
10281-1201, attention of Mary Beth Henson, Managing Director; notices to the
Company or the Selling Stockholder shall be directed to the Company at 1385
Broadway, New York, New York 10018, attention of Arnold H. Simon, Chief
<PAGE> 38
-38-
Executive Officer, to Charterhouse Equity Partners II, L.P., 535 Madison Avenue,
New York, New York 10022, attention: Merril M. Halpern and Mark N. Kaplan,
Skadden, Arps, Slate, Meagher & Flom, 919 Third Avenue, New York, New York
10022.
SECTION 13. Parties. This Agreement and the U.S. Pricing Agreement
shall each inure to the benefit of and be binding upon the U.S. Underwriters,
the Company and the Selling Stockholder and their respective successors. Nothing
expressed or mentioned in this Agreement or the U.S. Pricing Agreement is
intended or shall be construed to give any person, firm or corporation, other
than the U.S. Underwriters, the Company, the Selling Stockholder and their
respective successors and the controlling persons and officers and directors
referred to in Sections 6 and 7 and their heirs and legal representatives, any
legal or equitable right, remedy or claim under or in respect of this Agreement
or the U.S. Pricing Agreement or any provision herein or therein contained. This
Agreement and the U.S. Pricing Agreement and all conditions and provisions
hereof and thereof are intended to be for the sole and exclusive benefit of the
U.S. Underwriters, the Company, the Selling Stockholder, their respective
successors and said controlling persons and officers and directors and their
heirs and legal representatives, and for the benefit of no other person, firm or
corporation. No purchaser of Securities from any U.S. Underwriter shall be
deemed to be a successor by reason merely of such purchase.
SECTION 14. Governing Law and Time. This Agreement and the U.S.
Pricing Agreement shall be governed by and construed in accordance with the laws
of the State of New York applicable to agreements made and to be performed in
said State. Specified times of day refer to New York City time.
<PAGE> 39
-39-
If the foregoing is in accordance with your understanding of our
agreement, please sign and return to the Company, the Selling Stockholder and
each of the Principal Members a counterpart hereof, whereupon this instrument,
along with all counterparts, will become a binding agreement among the U.S.
Underwriters, the Company, the Selling Stockholder and each of the Principal
Members in accordance with its terms.
Very truly yours,
DESIGNER HOLDINGS LTD.
By: _______________________________
Name:
Title:
NEW RIO, L.L.C.
By: _______________________________
Name:
Title:
CHARTERHOUSE EQUITY PARTNERS II, L.P., as a
principal member of New Rio, L.L.C.
By: _______________________________
Name:
Title:
___________________________________
ARNOLD H. SIMON, a principal
member of New Rio, L.L.C.
<PAGE> 40
-40-
CONFIRMED AND ACCEPTED,
as of the date first above written:
MERRILL LYNCH & CO.
Merrill Lynch, Pierce, Fenner & Smith
Incorporated
MORGAN STANLEY & CO. INCORPORATED
By: MERRILL LYNCH & CO.
Merrill Lynch, Pierce, Fenner & Smith
Incorporated
By: ___________________________
Name:
Title:
For themselves and as U.S. Representatives
of the other U.S. Underwriters named in
Schedule A hereto.
<PAGE> 41
SCHEDULE A
Number of
Initial Securities
Name of Underwriter to Be Purchased
- ------------------- ---------------
Merrill Lynch, Pierce, Fenner & Smith
Incorporated .....................
Morgan Stanley & Co. Incorporated ............
Total
<PAGE> 42
Exhibit A
8,000,000 Shares
DESIGNER HOLDINGS LTD.
(a Delaware corporation)
(Par Value $.01 Per Share)
Pricing Agreement
May [ ], 1996
MERRILL LYNCH & CO.
Merrill Lynch, Pierce, Fenner & Smith
Incorporated
MORGAN STANLEY & CO. INCORPORATED
as U.S. Representatives of the several U.S. Underwriters
named in the within-mentioned Purchase Agreement
c/o Merrill Lynch, Pierce, Fenner & Smith
Incorporated
Merrill Lynch World Headquarters
North Tower
World Financial Center
New York, New York 10281
Ladies and Gentlemen:
Reference is made to the U.S. Purchase Agreement dated [ ] (the "U.S.
Purchase Agreement") among Designer Holdings Ltd., a Delaware corporation (the
"Company"), and each of New Rio L.L.C., a Delaware limited liability company
(the "Selling Stockholder"), Charterhouse Equity Partners, II, a principal
member of the Selling Stockholder ("Charterhouse"), and Arnold H. Simon, a
principal member of the Selling Stockholder (together with Charterhouse, the
"Principal Members"), and the several U.S. Underwriters named in Schedule A
thereto, (the "U.S. Underwriters"), for whom Merrill Lynch, Pierce, Fenner &
Smith Incorporated and Morgan Stanley & Co. Incorporated are acting as
representatives (the "U.S. Representatives"). The U.S. Purchase Agreement
provides for the purchase by the U.S. Underwriters from the Company and the
Selling Stockholder, subject to the terms and conditions set forth therein, of
an aggregate of 8,000,000 shares of the Company's Common Stock, par value $.01
per share (the "U.S. Securities").
<PAGE> 43
Pursuant to Section 2 of the U.S. Purchase Agreement, the Company and
the Selling Stockholder agree with each U.S. Underwriter as follows:
SECTION 1. The initial public offering price per share for the U.S.
Securities, determined as provided in said Section 2, shall be $[ ].
SECTION 2. The purchase price per share for the U.S. Securities to be
paid by the several U.S. Underwriters shall be $[ ], being an amount equal
to the initial public offering price set forth above less $[ ] per share.
If the foregoing is in accordance with your understanding of our
agreement, please sign and return to the Company, the Selling Stockholder and
each of the Principal Members a counterpart hereof, whereupon this instrument,
along with all counterparts, will become a binding agreement among the U.S.
Underwriters, the Company, the Selling Stockholder and each of the Principal
Members in accordance with its terms.
Very truly yours,
DESIGNER HOLDINGS, LTD.
By: __________________________________
Name:
Title:
NEW RIO, L.L.C.
By: __________________________________
Name:
Title:
CHARTERHOUSE EQUITY PARTNERS II,
L.P., as a principal
member of New Rio, L.L.C.
By: __________________________________
Name:
Title:
<PAGE> 44
___________________________________
ARNOLD H. SIMON, a principal
member of New Rio, L.L.C.
CONFIRMED AND ACCEPTED,
as of the date first above written:
MERRILL LYNCH & CO.
Merrill Lynch, Pierce, Fenner & Smith
Incorporated
MORGAN STANLEY & CO. INCORPORATED
By: Merrill Lynch, Pierce, Fenner & Smith
Incorporated
By: _______________________________________
Name:
Title:
For themselves and as U.S. Representatives
of the other U.S. Underwriters named in the
Purchase Agreement.
<PAGE> 45
Exhibit B
Form of Opinion, dated as of Closing Time of John J. Jones, Esq., Vice
President, General Counsel and Secretary for the Company, substantially to the
effect that:
(i) Each subsidiary of the Company has been duly incorporated and is
validly existing as a corporation in good standing under the laws of the
jurisdiction of its incorporation, has corporate power and authority to own,
lease and operate its properties and to conduct its business as described in the
Registration Statement and is duly qualified as a foreign corporation to
transact business and is in good standing in each jurisdiction in which such
qualification is required, except where the failure to so qualify would not have
a Material Adverse Effect; except as described in the Registration Statement and
Prospectuses, all of the issued and outstanding capital stock of each such
subsidiary has been duly authorized and validly issued, is fully paid and
nonassessable and is owned by the Company, directly, free and clear of any
security interest, lien, option, claim or other encumbrance.
(ii) Except as disclosed in or specifically contemplated by the
Prospectuses, to such counsel's knowledge, there are no outstanding options,
warrants or other rights calling for the issuance of, and no commitments,
obligations, plans or arrangements to issue, any shares of capital stock of the
Company or any security convertible into or exchangeable for capital stock of
the Company. All issued and outstanding stock options, if any, relating to the
Company's Common Stock have been duly authorized and validly issued and the
description thereof contained in the Prospectuses is accurate in all material
respects.
(iii) To the best of such counsel's knowledge no default exists in the
due performance or observance of any material obligation, agreement, covenant or
condition contained in any contract, indenture, mortgage, loan agreement, note,
lease or other instrument so described or referred to in the Registration
Statement or to be filed as exhibits thereto.
(iv) To the best of such counsel's knowledge, there are no material
legal or governmental proceedings pending or threatened which are required to be
disclosed in the Registration Statement, other than those disclosed therein, and
all pending legal or governmental proceedings to which the Company or any
subsidiary is a party or to which any of their property is subject which are not
described in the Registration
<PAGE> 46
Statement, including ordinary routine litigation incidental to the business,
are, considered in the aggregate, not material.
<PAGE> 47
Exhibit C
Form of opinion, dated as of Closing Time, of Skadden, Arps, Slate,
Meagher & Flom ("Skadden"), counsel for the Company and the Selling Stockholder,
substantially to the effect that:
(i) The Company has been duly incorporated and is validly existing as
a corporation in good standing under the laws of the State of Delaware.
(ii) The Company has corporate power and authority to own, lease and
operate its properties and to conduct its business as described in the
Registration Statement and to enter into and perform its obligations under
this Agreement, the U.S. Pricing Agreement, the International Purchase
Agreement and the International Pricing Agreement.
(iii) The Company is duly qualified as a foreign corporation to transact
business and is in good standing under the laws of the States of New York,
Delaware, New Jersey, South Carolina, Pennsylvania, California and the
Commonwealth of Massachusetts.
(iv) The Selling Stockholder has the corporate power and authority to
enter into and perform its obligations under this Agreement and the Pricing
Agreement.
(v) The authorized, issued and outstanding capital stock of the
Company is as set forth in the Prospectuses under "Capitalization"; the
shares of issued and outstanding Common Stock, including the Securities to
be purchased by the U.S. Underwriters from the Selling Stockholders, have
been duly authorized and validly issued and are fully paid and
nonassessable.
(vi) This Agreement, the U.S. Pricing Agreement, the International
Purchase Agreement and the International Pric ing Agreement have each been
duly authorized, executed and delivered by the Company, the Selling
Stockholder, Charter house Equity Partners II, L.P. and Arnold H. Simon.
(vii) The Securities, when issued and delivered by the Company and
delivered by the Selling Stockholder pursuant to this Agreement and the
International Purchase Agreement against payment of the consideration set
forth in the U.S. Pricing Agreement and the International Pricing
Agreement, (A) with respect to the Securities being sold by the Company,
will be validly issued and (B) with respect to the
<PAGE> 48
Securities being sold by the Selling Stockholders, will be validly
transferred to the Underwriters and upon such transfer the Underwriters
will have good and marketable title therefor, and in each case such
Securities will be fully paid and nonassessable, free and clear of any
security interest, lien, option, claim, equity or other encumbrance.
(viii) The issuance of the Securities by the Company is not subject to
preemptive or other similar rights arising by operation of law, under the
charter or by-laws of the Company.
(ix) Such counsel has been orally advised by the Commission that the
Registration Statement was declared effective under the 1933 Act on May __,
1996; any required filing of the Prospectuses pursuant to Rule 424(b) under
the 1933 Act has been made in the manner and within the time period
required by Rule 424(b) and, such counsel has been orally advised by the
Commission that no stop order suspending the effectiveness of the
Registration Statement has been issued by the Commission and, to such
Counsel's knowledge, no proceeding for that purpose is pending or
threatened by the Commission.
(x) The Registration Statement, as of its effective date, and the
Prospectuses, as of their date, appeared on their face to be appropriately
responsive in all material respects to the requirements of the 1933 Act and
the 1933 Act Regulations, except that in each case such counsel need not
express an opinion as to the financial statements, schedules and other
financial and statistical data included therein or excluded therefrom or
the exhibits to the Registration Statement, and such counsel need not
assume any responsibility for the accuracy, completeness or fairness of the
statements contained in the Registration Statement and the Prospectuses
except for those made under the caption "Description of Common Stock" in
the Prospectuses insofar as they relate to provisions of documents therein
described.
(xi) The capital stock of the Company, including the Common Stock, in
all material respects conforms to the description thereof contained in the
Prospectuses, and the form of certificate used to evidence shares of the
Common Stock is in due and proper form and complies with all applicable
statutory requirements.
(xii) The License Agreement has been duly authorized, executed and
delivered by CKJC and is enforceable against
<PAGE> 49
CKI in accordance with its terms, except to the extent that enforcement
thereof may be limited by (a) bankruptcy, insolvency, reorganization,
moratorium or other similar laws now or hereafter in effect relating to
creditors' rights generally and (b) general principles of equity
(regardless of whether enforceability is considered in a proceeding at law
or in equity). CKJC has the exclusive right to use the trademarks "CALVIN
KLEIN" and "CK/CALVIN KLEIN" upon the terms, conditions, and subject to the
limitations set forth in the License Agreement and as described in the
Prospectuses.
(xiii) No authorization, approval, consent or order of any court or
governmental authority or agency is required under the General Corporation
Law of the State of Delaware, the laws of the State of New York or the laws
of the United States of America in connection with the transactions
contemplated by this Agreement, the U.S. Pricing Agreement, the
International Purchase Agreement and the International Pricing Agreement,
except that such counsel need not express any opinion as to (i) the
securities laws of any jurisdiction or the rules and regulations of the
NASD, (ii) laws other than those that, in such counsel's experience, are
normally applicable to transactions of the type contemplated by this
Agreement, the U.S. Pricing Agreement, the International Purchase Agreement
and the International Pricing Agreement and (iii) any consent or
authorization which may have become applicable to the Company as a result
of the involvement of the U.S. Underwriters or of the International
Managers in the transactions contemplated by this Agreement or the
International Purchase Agreement because of their legal or regulatory
status or because of any other facts specifically pertaining to them. The
execution, delivery and performance of this Agreement, the U.S. Pricing
Agreement, the International Purchase Agreement and the International
Pricing Agreement and the consummation of the transactions contemplated
herein and therein and compliance by the Company with its obligations
hereunder and thereunder will not conflict with or constitute a breach of,
or a default under, or result in the creation or imposition of any lien,
charge or encumbrance upon any property or assets of the Company or any of
its subsidiaries pursuant to, any contract, indenture, mortgage, loan
agreement, note, lease or other instrument to which the Company or any of
its subsidiaries is a party or by which it or any of them may be bound, or
to which any of the property or assets of the Company or any of its
subsidiaries is subject, nor will such action result in any violation of
the provisions of the charter or by-laws of the Company or any of its
subsidiaries, or
<PAGE> 50
any applicable law, administrative regulation or administrative or court
decree.
(xiv) To the best of such counsel's knowledge, there are no persons
other than the Selling Stockholder with registration or other similar
rights to have any securities registered by the Company under the
Registration Statement.
Additionally, in giving its opinion required by subsections (b)(1) of
this Section, Skadden shall additionally state that such counsel has
participated in conferences with representatives of the U.S. Underwriters,
officers and other representatives of the Company and representatives of the
independent certified public accountants of the Company, at which conferences
the contents of the Registration Statement and the Prospectuses and related
matters were discussed, and although such counsel does not pass upon and does
not assume any responsibility for the accuracy, completeness or fairness of the
statements contained in the Registration Statement and the Prospectuses (except
and only to the extent as set forth in the first clause of paragraph (vi) and
paragraph (xii) of subsection (b)(1) above), on the basis of the foregoing
(relying as to materiality to a large extent upon the discussions with and
representations and opinions of officers and other representatives of the
Company), no facts have come to the attention of such counsel which lead such
counsel to believe that the Registration Statement at the time it became
effective contained an untrue statement of a material fact or omitted to state a
material fact required to be stated therein or necessary to make the statements
therein not misleading or that the Prospectuses, at the Representation Date
(unless the term "Prospectuses" refers to a prospectus which has been provided
to the Underwriters by the Company for use in connection with the offering of
the Securities which differs from the Prospectuses on file at the Commission at
the Representation Date, in which case at the time it is first provided to the
Underwriters for such use) or at the Closing Time, included an untrue statement
of a material fact or omitted to state a material fact necessary in order to
make the statements therein, in the light of the circumstances under which they
were made, not misleading; provided that such counsel does not express any
comment with respect to the financial statements including the notes thereto and
supporting schedules, or any other financial and statistical data set forth or
referred to in the Registration Statement or the Prospectuses.
<PAGE> 1
EXHIBIT 1.2
DRAFT
2,000,000 Shares
DESIGNER HOLDINGS LTD.
(a Delaware corporation)
Common Stock
(Par Value $.01 Per Share)
INTERNATIONAL PURCHASE AGREEMENT
London, England
May [ ], 1996
MERRILL LYNCH INTERNATIONAL
MORGAN STANLEY & CO. INTERNATIONAL LIMITED
as Lead Managers of the several Managers
c/o Merrill Lynch International
Ropemaker Place
25 Ropemaker Street
London EC2Y 9LY
Ladies and Gentlemen:
Designer Holdings Ltd., a Delaware corporation (the "Company"),
confirms, and each of New Rio, L.L.C., a Delaware limited liability company (the
"Selling Stockholder"), [Charter-house Equity Partners, II, L.P., a principal
member of the Selling Stockholder ("Charterhouse"), and Arnold H. Simon, a
principal member of the Selling Stockholder (together with Charter-house, the
"Principal Members"),] severally confirms, their respective agreements with
Merrill Lynch International ("MLIL"), Morgan Stanley & Co. International Limited
("MSIL") and each of the other Managers named in Schedule A hereto
(collectively, the "Managers," which term shall also include any underwriter
substituted as hereinafter provided in Section 10 hereof), for whom MLIL and
MSIL are acting as lead managers (in such capacity, MLIL and MSIL shall
hereinafter be referred to as the "Lead Managers"), with respect to the sale
<PAGE> 2
-2-
by the Company and the Selling Stockholder, acting severally and not jointly,
and the purchase by the Managers, acting severally and not jointly, of the
respective aggregate numbers of shares of Common Stock, par value $.01 per
share, of the Company (the "Common Stock") set forth in said Schedule A, and
with respect to the grant by the Company and the Selling Stockholder to the
Managers, acting severally and not jointly, of the options described in Section
2(b) hereof to purchase all or any part of an aggregate of 300,000 additional
shares of Common Stock to cover over-allotments, in each case except as may
otherwise be provided in the International Pricing Agreement, as hereinafter
defined. The aforesaid aggregate of 2,000,000 shares of Common Stock (the
"Initial International Securities") to be purchased by the Managers and all or
any part of the aggregate of 300,000 shares of Common Stock subject to the
options described in Section 2(b) hereof (the "International Option Securities")
are collectively hereinafter called the "International Securities." The number
of Initial International Securities to be sold by the Company and the Selling
Stockholder is 1,000,000 and 1,000,000, respectively.
It is understood and agreed by all parties that the Company and the
Selling Stockholder are concurrently entering into an agreement dated the date
hereof (the "U.S. Purchase Agreement") providing for the sale by the Company and
the Selling Stockholder of up to 8,000,000 shares of Common Stock (the "Initial
U.S. Securities") through arrangements with certain managing Underwriters within
the United States and Canada (the "U.S. Underwriters"; and together with the
Managers, the "Underwriters") for whom Merrill Lynch, Pierce, Fenner & Smith
Incorporated ("Merrill Lynch") and Morgan Stanley & Co. Incorporated are acting
as representatives (the "U.S. Representatives") and the grant by the Company and
the Selling Stockholder to the U.S. Underwriters of an option to purchase all or
any part of an aggregate of 1,200,000 additional shares of Common Stock (the
"U.S. Option Securities") to cover over-allotments of the Initial U.S.
Securities. The Initial U.S. Securities and the U.S. Option Securities are
hereinafter called the "U.S. Securities." The International Securities and the
U.S. Securities, collectively, are hereinafter called the "Securities." It is
understood that the Company and the Selling Stockholder are not obligated to
sell, and the Managers are not obligated to purchase, any Initial International
Securities unless all of the Initial U.S. Securities are contemporaneously
purchased by the U.S. Underwriters.
<PAGE> 3
-3-
The Managers and the U.S. Underwriters are concurrently entering into
an Intersyndicate Agreement of even date herewith (the "Intersyndicate
Agreement") providing for the coordination of certain transactions among the
Managers and the U.S. Underwriters under the direction of Merrill Lynch.
Prior to the purchase and public offering of the International
Securities by the several Managers, the Company, the Selling Stockholder, [the
Principal Members] and the Lead Managers, acting on behalf of the several
Managers, shall enter into an agreement substantially in the form of Exhibit A
hereto (the "International Pricing Agreement"). The International Pricing
Agreement may take the form of an exchange of any standard form of written
telecommunication between the Company, the Selling Stockholder, [the Principal
Members] and the Lead Managers and shall specify such applicable information as
is indicated in Exhibit A hereto. The offering of the International Securities
will be governed by this International Purchase Agreement (this "Agreement"), as
supplemented by the International Pricing Agreement. From and after the date of
the execution and delivery of the International Pricing Agreement, this
Agreement shall be deemed to incorporate the International Pricing Agreement.
The initial public offering price and the purchase price with respect
to the U.S. Securities shall be set forth in a separate instrument (the "U.S.
Pricing Agreement"), the form of which is attached to the U.S. Purchase
Agreement. The price per security for the U.S. Securities to be purchased by the
U.S. Underwriters pursuant to the U.S. Purchase Agreement shall be identical to
the price per security for the International Securities to be purchased by the
Managers hereunder.
Two forms of prospectus are to be used in connection with the offering
and sale of the Securities, one relating to the International Securities (the
"International Form of Prospectus") and the other relating to the U.S.
Securities (the "U.S. Form of Prospectus"). The U.S. Form of Prospectus is
identical to the International Form of Prospectus, except for the front cover
page, the "Underwriting" section and the back cover page.
The Company has filed with the Securities and Exchange Commission (the
"Commission") a registration statement on Form S-1 (No. 333-2236) and a related
preliminary prospectus for the registration of the Securities under the
Securities Act of 1933, as amended (the "1933 Act"), has filed such amendments
<PAGE> 4
-4-
thereto and such amended preliminary prospectuses as may have been required to
the date hereof, and will file such additional amendments thereto and such
amended prospectuses as may hereafter be required. Such registration statement
(as amended, if applicable) and the U.S. Form of Prospectus and the
International Form of Prospectus constituting parts thereof (including in each
case the information, if any, deemed to be part thereof pursuant to Rule 430A(b)
(the "Rule 430A Information") or Rule 434 (the "Rule 434 Information") of the
rules and regulations of the Commission under the 1933 Act (the "1933 Act
Regulations")), as from time to time amended or supplemented pursuant to the
1933 Act or otherwise, are hereinafter referred to as the "Registration
Statement," the "U.S. Prospectus," and the "International Prospectus,"
respectively, and the U.S. Prospectus and the International Prospectus are
hereinafter called, collectively, the "Prospectuses," and, each individually, a
"Prospectus," except that if any revised U.S. Prospectus or revised
International Prospectus shall be provided to the U.S. Underwriters or the
Managers, respectively, by the Company or the Selling Stockholder for use in
connection with the offering of the Securities which differs from the form of
such prospectus on file at the Commission at the time the Registration Statement
becomes effective (whether or not such revised prospectus is required to be
filed by the Company pursuant to Rule 424(b) of the 1933 Act Regulations), the
terms "U.S. Prospectus," "International Prospectus," "Prospectuses" and
"Prospectus" shall refer to such revised prospectuses from and after the time
they are first provided to the U.S. Underwriters and the Managers, respectively,
for such use. If the Company elects to rely on Rule 434 of the 1933 Act
Regulations, all references to the Prospectuses shall be deemed to include,
without limitation, the form of Prospectuses and the term sheets taken together,
provided to the Underwriters by the Company in reliance on Rule 434 of the 1933
Act Regulations (the "Rule 434 Prospectus"). If the Company files a registration
statement to register a portion of the Securities and relies on Rule 462(b) of
the 1933 Act Regulations for such registration statement to become effective
upon filing with the Commission (the "Rule 462 Registration Statement"), then
any reference to the Registration Statement herein shall be deemed to refer to
both the registration statement referred to above and the Rule 462 Registration
Statement, as each such registration statement may be amended pursuant to the
1933 Act.
The Company has reserved up to 500,000 of the Initial U.S. Securities
to be issued by the Company for offering and sale to certain of its employees
and certain other persons
<PAGE> 5
-5-
pursuant to a reserve share program (the "Reserve Share Program"). These Initial
U.S. Securities will be sold to the employees and other persons by the U.S.
Underwriters pursuant to the U.S. Purchase Agreement at the public offering
price. Any such shares not orally confirmed for purchase by such persons by the
end of the first business day after either (a) the later of the date on which
the Registration Statement and any Rule 462(b) Registration Statement has become
effective or (b) if the Company has elected to rely on Rule 430A of the 1933 Act
Regulations, the date of the U.S. Pricing Agreement, will be offered to the
public by the U.S. Underwriters as set forth in the Prospectuses.
The Company and the Selling Stockholder understand that the Managers
propose to make a public offering of the International Securities as soon as the
Lead Managers deem advisable after the Registration Statement becomes effective
and the International Pricing Agreement has been executed and delivered.
SECTION 1. Representations and Warranties.
(a) The Company [and the Selling Stockholder] represent and warrant to
each Manager as of the date hereof and as of the date of the International
Pricing Agreement (such latter date being hereinafter referred to as the
"International Representation Date") as follows:
(i) At the time the Registration Statement becomes effective and at
the International Representation Date, the Registration Statement,
including the information deemed to be part of the Registration Statement
at the time of effectiveness pursuant to Rule 430A(b) or Rule 434, will
comply in all material respects with the requirements of the 1933 Act and
the 1933 Act Regulations and will not contain an untrue statement of a
material fact or omit to state a material fact required to be stated
therein or necessary to make the statements therein not misleading. The
Prospectuses, at the International Representation Date (unless the term
"Prospectuses" refers to prospectuses which have been provided to the U.S.
Underwriters or the Managers by the Company for use in connection with the
offering of the Securities which differ from the Prospectuses on file at
the Commission at the time the Registration Statement becomes effective, in
which case at the time they are first provided to the U.S. Underwriters or
the Managers for such use) and at Closing
<PAGE> 6
-6-
Time referred to in Section 2 hereof, will not include an untrue statement
of a material fact or omit to state a material fact necessary in order to
make the statements therein, in the light of the circumstances under which
they were made, not misleading; provided, however, that the representations
and warranties in this subsection shall not apply to statements in or
omissions from the Registration Statement or Prospectuses made in reliance
upon and in conformity with information relating to a U.S. Underwriter or
Manager furnished to the Company in writing by such U.S. Underwriter or
Manager through the U.S. Representatives, or the Lead Managers,
respectively, expressly for use in the Registration Statement or
Prospectuses.
(ii) Coopers & Lybrand L.L.P., the accountants who certified the
financial statements and supporting schedules of the Company included in
the Registration Statement, and Deloitte & Touche LLP, the accountants who
certified the financial statements and supporting schedules of Rio
Sports-wear, Inc. and affiliated companies included in the Registration
Statement, are independent public accountants as required by the 1933 Act
and 1933 Act Regulations.
(iii) The financial statements included in the Registration Statement
and the Prospectuses present fairly the financial position of each of the
Company and its consolidated subsidiaries as at the dates indicated and the
results of their operations for the periods specified; except as otherwise
stated in the Registration Statement, said financial statements have been
prepared in conformity with generally accepted accounting principles
applied on a consistent basis; and the supporting schedules included in the
Registration Statement present fairly the information required to be stated
therein.
(iv) Since the respective dates as of which information is given in the
Registration Statement and the Prospectuses, except as otherwise stated
therein, (A) there has been no material adverse change in the condition
(financial or otherwise), earnings, business affairs or business prospects
of the Company and its subsidiaries considered as one enterprise (a
"Material Adverse Change"), whether or not arising in the ordinary course
of business, (B) there have been no transactions entered into by the
Company or any of its subsidiaries, other than those in the ordinary course
of business, which are
<PAGE> 7
-7-
material with respect to the Company and its subsidiaries considered as one
enterprise, and (C) there has been no dividend or distribution of any kind
declared, paid or made by the Company on any class of its capital stock.
(v) The Company has been duly incorporated and is validly existing as
a corporation in good standing under the laws of the State of Delaware with
corporate power and authority to own, lease and operate its properties and
to conduct its business as described in the Prospectuses and to enter into
and perform its obligations under this Agreement and the International
Pricing Agreement, the U.S. Purchase Agreement and the U.S. Pricing
Agreement, including the issuance, sale and delivery of the Securities to
be sold by the Company under the Agreements; and the Company is duly
qualified to transact business as a foreign corporation and is in good
standing in each jurisdiction in which such qualification is required,
whether by reason of the ownership or leasing of property or the conduct of
business, except where the failure to so qualify could not reasonably be
expected to have a material adverse effect on the condition (financial or
otherwise), earnings, business affairs or business prospects of the Company
and its subsidiaries considered as one enterprise (a "Material Adverse
Effect").
(vi) Each subsidiary of the Company has been duly incorporated and is
validly existing as a corporation in good standing under the laws of the
jurisdiction of its incorporation, has corporate power and authority to
own, lease and operate its properties and to conduct its business as
described in the Prospectuses and is duly qualified to transact business as
a foreign corporation and is in good standing in each jurisdiction in which
such qualification is required, whether by reason of the ownership or
leasing of property or the conduct of business, except where the failure to
so qualify could not reasonably be expected to have a Material Adverse
Effect; except as described in the Registration Statement and Prospectuses,
all of the issued and outstanding capital stock of each such subsidiary has
been duly authorized and validly issued, is fully paid and non-assessable
and is owned by the Company, directly or through subsidiaries, free and
clear of any security interest, lien, claim or other encumbrance.
<PAGE> 8
-8-
(vii) At the Closing Time the authorized, issued and outstanding capital
stock of the Company is as set forth in the Prospectuses under
"Capitalization" under the column "As Adjusted," which gives effect to the
issuance to Calvin Klein, Inc. ("CKI") of 1,275,466 shares of non-voting
common stock (and assuming that such non-voting common stock is converted
to Common Stock) and the issuance of 5,000,000 shares of Common Stock
pursuant to this Agreement and the U.S. Purchase Agreement; the shares of
issued and outstanding Common Stock, including the Securities to be
purchased by the Underwriters from the Selling Stockholder, have been duly
authorized and validly issued and are fully paid and nonassessable; the
Securities to be issued and sold by the Company pursuant to this Agreement
and the U.S. Purchase Agreement have been duly authorized and, when issued
and delivered by the Company pursuant to this Agreement and the U.S.
Purchase Agreement against payment of the consideration set forth in the
International Pricing Agreement and the U.S. Pricing Agreement,
respectively, will be validly issued and fully paid and nonassessable; the
Common Stock conforms in all material respects to all statements relating
thereto contained in the Prospectuses under the caption "Description of
Capital Stock"; and the issuance of the Securities is not subject to
preemptive or other similar rights.
(viii) Neither the Company nor any of the Company's subsidiaries is (A)
in violation of its charter, (B) in default in the performance or
observance of any obligation, agreement, covenant or condition contained in
any contract, indenture, mortgage, loan agreement, note, lease or other
instrument to which the Company or any of the Company's subsidiaries is a
party or by which it or any of them may be bound, or to which any of the
property or assets of the Company or any of the Company's subsidiaries is
subject, or (C) in violation of any applicable law, rule or regulation, or
any judgment, order or decree of any court with jurisdiction over the
Company or any subsidiary of the Company, or other governmental or
regulatory authority with jurisdiction over the Company or any of its
subsidiaries, except as disclosed in the Registration Statement and the
Prospectuses and except, in the case of clause (B), for such defaults that
could not reasonably be expected to have a Material Adverse Effect; and the
execution, delivery and performance of this Agreement (and the
International Pricing Agreement) and U.S. Purchase Agreement (and the U.S.
Pricing Agreement) and the
<PAGE> 9
-9-
consummation of the transactions contemplated herein and therein and
compliance by the Company with its obligations hereunder and thereunder
have been duly authorized by all necessary corporate action and will not
conflict with or constitute a breach of, or a default under, or result in
the creation or imposition of any lien, charge or encumbrance upon any
property or assets of the Company or any of the Company's subsidiaries
pursuant to, any contract, indenture, mortgage, loan agreement, note, lease
or other instrument to which the Company or any of the Company's
subsidiaries is a party or by which it or any of them may be bound, or to
which any of the property or assets of the Company or any of the Company's
subsidiaries is subject, nor will such action result in any violation of or
conflict with the provisions of the charter or by-laws of the Company or
any applicable law, rule or regulation, or any judgment, order or decree of
any court with jurisdiction over the Company or any subsidiary of the
Company, or other governmental or regulatory authority with jurisdiction
over the Company or any of its subsidiaries.
(ix) No labor dispute with the employees of the Company or any of its
subsidiaries exists or, to the knowledge of the Company, is imminent; and
the Company is not aware of any existing or imminent labor disturbance by
the employees of any of its principal suppliers, manufacturers or
contractors which could reasonably be expected to result in a Material
Adverse Change.
(x) Except as described in the Registration Statement and the
Prospectuses, there is no action, suit or proceeding before or by any court
or governmental agency or body, domestic or foreign, now pending, or, to
the knowledge of the Company [or the Selling Stockholder], threatened,
against or affecting the Company or any of its subsidiaries, which is
required to be disclosed in the Registration Statement (other than as
disclosed therein), or which otherwise, if adversely determined, could
reasonably be expected to result in any Material Adverse Change, or which
could reasonably be expected to materially and adversely affect the
properties or assets of the Company or any of its subsidiaries or which
could reasonably be expected to materially and adversely affect the
consummation of the transactions contemplated by this Agreement or the U.S.
Purchase Agreement; and there are no contracts or documents of the Company
or any of its subsidiaries which are required to be filed as exhibits to
the Registration
<PAGE> 10
-10-
Statement by the 1933 Act or by the 1933 Act Regulations which have not
been so filed.
(xi) The License Agreement dated August 4, 1994 and as amended through
April 22, 1996 (the "License Agreement") between CKI and Calvin Klein
Jeanswear Company ("CKJC") has been duly authorized, executed and delivered
by CKJC and is enforceable by CKJC against CKI in accordance with its
terms, except to the extent that enforcement thereof may be limited by (a)
bankruptcy, insolvency, reorganization, moratorium or other similar laws
now or hereafter in effect relating to creditors' rights generally and (b)
general principles of equity (regardless of whether enforceability is
considered in a proceeding at law or in equity). The Company and each of
its subsidiaries have fulfilled and performed all of their material
obligations with respect to the License Agreement and the License Agreement
remains in full force and effect; and to the best of the Company's
knowledge, no event has occurred with respect to the License Agreement
which would result in a Material Adverse Change.
(xii) The Company and its subsidiaries own or possess, or are licensed
or otherwise have the full legal right to utilize, the patents, patent
rights, licenses, inventions, copyrights, know-how (including trade secrets
and other unpatented and/or unpatentable proprietary or confidential
information, systems or procedures), trademarks (including, without
limitation, the exclusive right to use the marks "CALVIN KLEIN" and
"CK/CALVIN KLEIN" upon the terms and conditions set forth in the License
Agreement and as described in the Prospectuses), service marks, trade names
and other intangible property (collectively, the "Intellectual Property
Rights") presently employed by them in connection with the business now
operated by them except where the failure to so own or possess such legal
right could not reasonably be expected to have a Material Adverse Effect,
and neither the Company nor any of its subsidiaries has received any notice
or is otherwise aware of any infringement of or conflict with asserted
rights of others with respect to any patent or proprietary rights which,
singularly or in the aggregate, if the subject of an unfavorable final
determination, could reasonably be expected to result in any Material
Adverse Change.
(xiii) No authorization, approval or consent of any court or governmental
authority or agency is necessary in
<PAGE> 11
-11-
connection with the offering, issuance or sale of the Securities being sold
by the Company hereunder or under the U.S. Purchase Agreement, except such
as may be required under the 1933 Act, the 1933 Act Regulations, the
Securities Exchange Act of 1934, as amended (the "1934 Act"), the rules and
regulations of the Commission under the 1934 Act, state or foreign
securities laws or by the rules and regulations of the National Association
of Securities Dealers, Inc. ("NASD").
(xiv) The Company and its subsidiaries possess such licenses,
certificates, authorities, permits, approvals, consents and other
authorizations issued by the appropriate state, federal or foreign
regulatory agencies or bodies necessary to conduct the business now
operated by them, except where the failure to possess such licenses,
certificates, authorities, permits, approvals, consents and other
authorizations could not reasonably be expected to have a Material Adverse
Effect, and neither the Company nor any of its subsidiaries has received
any notice of proceedings relating to the revocation or modification of any
such certificate, authority or permit.
(xv) This Agreement has been, and at the International Representation
Date, the International Pricing Agreement will have been, duly executed and
delivered by the Company.
(xvi) The Company and its subsidiaries are in compliance in all material
respects with all applicable laws, statutes, ordinances, rules or
regulations of any applicable jurisdiction (other than Environmental Laws,
which are referred to in clause (xviii) below) the enforcement of which
could reasonably be expected to have a Material Adverse Effect.
(xvii) The Company is not, and upon the issuance and sale by the Company
of the Securities as herein contemplated and the application of the net
proceeds therefrom as described in the Prospectuses under the caption "Use
of Proceeds" will not be, an "investment company" or an entity "controlled"
by an "investment company" as such terms are defined in the Investment
Company Act of 1940, as amended.
(xviii) Except as disclosed in the Registration Statement and the
Prospectuses, and except as could not reasonably be expected to
individually or in the aggregate have
<PAGE> 12
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a Material Adverse Effect, (A) each of the Company and its subsidiaries is
in compliance with all applicable Environmental Laws (as defined), (B) each
of the Company and its subsidiaries has all permits, authorizations and
approvals required under any applicable Environmental Laws and is in
compliance with their requirements, (C) there are no pending or, to the
knowledge of the Company, threatened Environmental Claims (as defined)
against the Company or any of its subsidiaries, and (D) the Company has no
knowledge of any circumstances with respect to any property or operations
of the Company or any of its subsidiaries that could reasonably be
anticipated to form the basis of any Environmental Claim against the
Company or any of its subsidiaries.
For purposes of this Agreement, the following terms shall have the
following meanings: "Environmental Law" means any federal, state, local or
municipal statute, law, rule, regulation, ordinance, code, policy or rule
of common law and any published judicial or administrative interpretation
thereof including any judicial or administrative order, consent decree or
judgment binding on the Company or any of its subsidiaries, relating to the
environment, health, safety or any chemical, material or substance,
exposure to which is prohibited, limited or regulated by any such
governmental authority. "Environmental Claims" means any and all
administrative, regulatory or judicial actions, suits, demands, demand
letters, claims, liens, notices of noncompliance or violation,
investigations or proceedings relating in any way to any Environmental Law.
(xix) The Company and each of its subsidiaries have filed all federal or
state income and franchise tax returns required to be filed and have paid
all taxes shown thereon as due, and there is no material tax deficiency
which has been or is reasonably likely to be asserted against the Company
or any of its subsidiaries; all material tax liabilities of the Company and
its subsidiaries are adequately provided for on the books of the Company
and its subsidiaries.
(xx) The Company has obtained the written agreements of each of CKI,
Merril M. Halpern, Arnold H. Simon, Debra Simon, A. Lawrence Fagan, Maurice
Dickson, David Fidlon, John Jones, Daniel J. Gladstone, Guy Kinberg, Joseph
Purritano, Art Krulish and George Criscione, in the forms
<PAGE> 13
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previously furnished to you, that, for a period of 180 days from the date
hereof, such parties will not, without prior written consent of Merrill
Lynch, directly or indirectly, offer to sell, sell, grant any option for
sale of or otherwise dispose of any capital stock of the Company or any
securities convertible or exchangeable into or exercisable for capital
stock of the Company.
(xxi) Except as set forth in the Prospectuses, there are no holders of
securities (debt or equity) of the Company, or holders of rights
(including, without limitation, preemptive rights), warrants or options to
obtain securities of the Company or its subsidiaries, who have the right to
request the Company to register securities held by them under the 1933 Act.
(b) The Company hereby agrees with the Managers that, for all purposes
of this Agreement, the only information furnished to the Company by any U.S.
Underwriter or Manager expressly for use in the Registration Statement, the
Prospectuses, or any amendment or supplement thereto, or any related preliminary
prospectus, are the last paragraph of the cover page of, the statements with
respect to stabilization on the inside front cover page of, and the fifth, sixth
and twelfth paragraphs under the heading "Underwriting" in the U.S. Prospectus
and any related preliminary prospectus and the fourth, fifth and tenth paragraph
under the heading "Underwriting" in the International Prospectus and any related
preliminary prospectus.
(c) The Selling Stockholder represents and warrants to, and agrees
with, each Manager as of the date hereof and as of the Representation Date as
follows:
(i) The execution, delivery and performance of this Agreement, the
U.S. Purchase Agreement, the International Pricing Agreement and the U.S.
Pricing Agreement and the consummation of the transactions contemplated
herein and therein and compliance by the Selling Stockholder with its
obligations hereunder and thereunder will not conflict with or constitute a
breach of or a default under any contract, indenture, mortgage, loan
agreement, note, lease or other instrument to which the Selling Stockholder
is a party or by which the Selling Stockholder may be bound.
(ii) The Selling Stockholder has and will have at the Closing Time
referred to in Section 2(d) good and
<PAGE> 14
-14-
marketable title to the Securities to be sold by the Selling Stockholder
hereunder and under the U.S. Purchase Agreement, free and clear of any
security interest, lien, option, claim, equity or other encumbrance other
than pursuant to this Agreement or the U.S. Purchase Agreement; except for
the shares of capital stock of the Company issued to CKI as described in
the Registration Statement and Prospectuses, all of the issued and
outstanding capital stock of the Company is owned by the Selling
Stockholder, directly or through subsidiaries, free and clear of any
security interest, lien, option, claim, equity or other encumbrance; the
Selling Stockholder has full right, power and authority to sell, transfer
and deliver the Securities to be sold by the Selling Stockholder hereunder
and under the U.S. Purchase Agreement; and upon delivery of the Securities
to be sold by the Selling Stockholder hereunder and under the U.S. Purchase
Agreement and payment of the purchase price therefor as herein and therein
contemplated, each of the U.S. Underwriters and Managers who has purchased
such Securities in good faith and without notice of any "adverse claim" (as
such term is defined in Section 8-302 of the New York Uniform Commercial
Code) will acquire such Securities free of any adverse claim.
(iii) All authorizations, approvals and consents necessary for the
execution and delivery by or on behalf of the Selling Stockholder of this
Agreement and the U.S. Purchase Agreement, and the sale and delivery of the
Securities to be sold by the Selling Stockholder hereunder (except such as
may be required under the 1933 Act, the 1933 Act Regulations, the 1934 Act,
the rules and regulations of the Commission under the 1934 Act, state or
foreign securities laws or by the rules and regulations of the NASD) have
been obtained and are in full force and effect; and the Selling Stockholder
has the full right, power and authority to enter into this Agreement and
the U.S. Purchase Agreement and to sell, transfer and deliver the
Securities to be sold by the Selling Stockholder hereunder and under the
U.S. Purchase Agreement.
(iv) For a period of 180 days from the date hereof, the Selling
Stockholder will not, without the prior written consent of Merrill Lynch,
directly or indirectly, offer to sell, sell, grant any option for the sale
of, or otherwise dispose of, any capital stock of the Company or any
securities convertible or exchangeable into or exercisable for capital
stock of the Company owned by the
<PAGE> 15
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Selling Stockholder or with respect to which the Selling Stockholder has
the power of disposition, other than to the Underwriters pursuant to this
Agreement and the U.S. Purchase Agreement.
[(v) The Selling Stockholder does not have any knowledge or any reason
to believe that the representations and warranties of the Company contained
in Section 1(a) hereof are not true and correct; the Selling Stockholder
does not have any knowledge or any reason to believe that the Registration
Statement (or any amendment or supplement thereto) contained an untrue
statement of a material fact or omitted to state a material fact required
to be stated therein or necessary to make the statements therein not
misleading or that the Prospectuses (or any amendment or supplement thereto
or any documents incorporated by reference therein) included or include an
untrue statement of a material fact or omitted or omit to state a material
fact necessary in order to make the statements therein, in the light of the
circumstances under which they were made, not misleading; and the Selling
Stockholder is not prompted to sell the Securities to be sold by it
hereunder by any information concerning the Company or any subsidiary of
the Company which is not set forth in the Registration Statement and the
Prospectuses.]
(vi) The Selling Stockholder has not taken, and will not take, directly
or indirectly, any action which is designed to or which has constituted or
which might reasonably be expected to cause or result in stabilization or
manipulation of the price of any security of the Company to facilitate the
sale or resale of the Securities.
(vii) Each of the agreements entered into between the Selling
Stockholder or any affiliate thereof and the Company and its subsidiaries
described in the sections of the Registration Statement and the
Prospectuses entitled "Certain Transactions" has been duly authorized,
executed and delivered and constitutes a valid, binding and enforceable
agreement of the Selling Stockholder and each such affiliate, as the case
may be.
(d) Any certificate signed by any officer of the Company and delivered
pursuant to this Agreement and the U.S. Purchase Agreement shall be deemed a
representation and warranty by the Company to each U.S. Underwriter and Manager
as to the matters covered thereby; and any certificate signed by or
<PAGE> 16
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on behalf of the Selling Stockholder and delivered, pursuant to this Agreement
and the U.S. Purchase Agreement or in connection with the payment of the
purchase price and delivery of the certificates for the Initial Securities or
the Option Securities, to the U.S. Underwriters or Managers or counsel for the
U.S. Underwriters or Managers shall be deemed a representation and warranty by
the Selling Stockholder to each U.S. Underwriter and Manager as to the matters
covered thereby.
SECTION 2. Sale and Delivery to the Managers; Closing.
(a) On the basis of the representations and warranties herein
contained and subject to the terms and conditions herein set forth, the Company
and the Selling Stockholder agree to sell to each Manager, severally and not
jointly, and each Manager, severally and not jointly, agrees to purchase from
the Company and the Selling Stockholder, at the price per share set forth in the
Internationl Pricing Agreement, the number of Initial International Securities
set forth in Schedule A opposite the name of such Manager in the same proportion
from the Company and the Selling Stockholder as the number of Initial
International Securities being sold by the Company and the Selling Stockholder
bears to the total number of Initial International Securities (except as
otherwise provided in the International Pricing Agreement), plus any additional
number of Initial International Securities which such Manager may become
obligated to purchase pursuant to the provisions of Section 10 hereof.
(1) If the Company has elected not to rely upon Rule 430A under the
1933 Act Regulations, the initial public offering price and the purchase
price per share to be paid by the several Managers for the International
Securities have each been determined and set forth in the International
Pricing Agreement, dated the date hereof, and an amendment to the
Registration Statement and the Prospectuses containing such information
will be filed before the Registration Statement becomes effective.
(2) If the Company has elected to rely upon Rule 430A under the 1933
Act Regulations, the purchase price per share to be paid by the several
Managers for the International Securities shall be an amount equal to the
initial public offering price, less an amount per share to be determined by
agreement among the Managers, the Company and the Selling Stockholder. The
initial public offering
<PAGE> 17
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price per share of the International Securities shall be a fixed price to
be determined by agreement between the Managers, the Company and the
Selling Stockholder. The initial public offering price and the purchase
price, when so determined, shall be set forth in the International Pricing
Agreement. In the event that such prices have not been agreed upon and the
International Pricing Agreement has not been executed and delivered by all
parties thereto by the close of business on the fourteenth business day
following the date of this Agreement, this Agreement shall terminate
forthwith, without liability of any party to any other party, unless
otherwise agreed to by the Company, the Selling Stockholder and the
Managers, except that Sections 6 and 7 shall remain in effect. For purposes
of this Agreement, the term "business day" means a day on which the New
York Stock Exchange (the "NYSE") is open for business and the trading of
securities is permitted thereon.
(b) In addition, on the basis of the representations and warranties
herein contained and subject to the terms and conditions herein set forth, each
of the Company and the Selling Stockholder hereby grant options to the Managers,
severally and not jointly, to purchase up to an additional 200,000 shares of
Common Stock and 100,000 shares of Common Stock, respectively, at the price per
share set forth in the International Pricing Agreement. The options hereby
granted will expire 30 days after (i) the date the Registration Statement
becomes effective, if the Company has elected not to rely on Rule 430A under the
1933 Act Regulations, or (ii) the International Representation Date, if the
Company has elected to rely on Rule 430A under the 1933 Act Regulations, and may
be exercised in whole or in part only for the purpose of covering
over-allotments which may be made in connection with the offering and
distribution of the Initial International Securities upon notice by the Managers
to each of the Company and the Selling Stockholder setting forth the number of
International Option Securities as to which the several Managers are then
exercising the options and the time and date of payment and delivery for such
International Option Securities. Such time and date of delivery (the "Date of
Delivery"), if any, shall be determined by the Managers, but shall not be later
than seven full business days after the exercise of said options, nor in any
event prior to the Closing Time, as hereinafter defined, unless otherwise agreed
by the Lead Managers, the Company and the Selling Stockholder. If the options
are exercised as to all or any portion of the International Option Securities,
each of the
<PAGE> 18
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Managers, acting severally and not jointly, will purchase that proportion of the
total number of International Option Securities which the number of Initial
International Securities set forth in Schedule A opposite the name of such
Manager bears to the total number of Initial International Securities (except as
otherwise provided in the International Pricing Agreement), subject in each case
to such adjustments as the Lead Managers in their discretion shall make to
eliminate any sales or purchases of fractional shares.
(c) Payment of the purchase price for, and delivery of certificates
for, the Initial International Securities shall be made at the offices of Cahill
Gordon & Reindel, 80 Pine Street, New York, New York 10005, or at such other
place as shall be agreed upon by the Lead Managers and the Company, at 9:00 A.M.
on the third business day (unless postponed in accordance with the provisions of
Section 10) following the date the Registration Statement becomes effective (or,
if the Company has elected to rely upon Rule 430A of the 1933 Act Regulations,
the third business day after execution of the Pricing Agreement), or such other
time not later than ten business days after such date as shall be agreed upon by
the Lead Managers, the Company and the Selling Stockholder (such time and date
of payment and delivery being herein called "Closing Time"). In addition, in the
event that any or all of the International Option Securities are purchased by
the Managers, payment of the purchase price for, and delivery of certificates
for, such International Option Securities shall be made at the above-mentioned
offices of Cahill Gordon & Reindel, 80 Pine Street, New York, New York 10005, or
at such other place as shall be agreed upon by the Lead Managers and the Company
on the Date of Delivery specified in the notice from the Lead Managers to the
Company. Payment shall be made to the Company and the Selling Stockholder,
respectively, by wire transfer of immediately available funds to any account
designated in writing by the Company and the Selling Stockholder, respectively,
against delivery to the Managers for the respective accounts of the Managers of
certificates for the International Securities to be purchased by them.
Certificates for the Initial International Securities and the International
<PAGE> 19
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Option Securities, if any, shall be in such denominations and registered in such
names as the Lead Managers may request in writing at least two business days
before Closing Time or the relevant Date of Delivery, as the case may be. It is
understood that each Manager has authorized the Lead Managers, for its account,
to accept delivery of, receipt for, and make payment of the purchase price for,
the Initial International Securities and the International Option Securities, if
any, which it has agreed to purchase. MLIL, individually and not as
representative of the Managers, may (but shall not be obligated to) make payment
of the purchase price for the Initial International Securities or the
International Option Securities, if any, to be purchased by any Manager whose
check has not been received by Closing Time or the relevant Date of Delivery, as
the case may be, but such payment shall not relieve such Manager from its
obligations hereunder. The certificates for the Initial International Securities
and the International Option Securities, if any, will be made available for
examination and packaging by the Lead Managers not later than 10:00 A.M. on the
last business day prior to Closing Time or the relevant Date of Delivery, as the
case may be.
SECTION 3. Covenants of the Company. The Company covenants with each
Manager as follows:
(a) The Company will use its best efforts to cause the Registration
Statement to become effective (as and when requested by the Lead Managers)
and, if the Company elects to rely upon Rule 430A of the 1933 Act
Regulations and subject to Section 3(b), will comply with the requirements
of Rule 430A of the 1933 Act Regulations and will notify the Lead Managers
immediately, and confirm the notice in writing, (i) of the effectiveness of
the Registration Statement or any amendment thereto or of the filing of any
Supplement to the Prospectuses or amended Prospectuses, (ii) of the receipt
of any comments from the Commission, (iii) of any request by the Commission
for any amendment to the Registration Statement or any amendment or
supplement to the Prospectuses or for additional information, (iv) of the
issuance by the Commission of any stop order suspending the effectiveness
of the Registration Statement or the initiation of any proceedings for that
purpose, and (v) of the receipt by the Company of any notification with
respect to the suspension of the qualification of the Securities for
offering or sale in any jurisdiction, or the initiation or threatening of
any proceedings for any such purpose. The Company will make every
reasonable effort to prevent the issuance of any stop order and, if any
stop order is issued, to obtain the lifting thereof at the earliest
possible moment. If the Company elects to rely on Rule 434 of
the 1933 Act Regulations, the Company will prepare a term sheet that
complies with the requirements of Rule 434 of the 1933 Act Regulations. If
the Company elects not to rely on Rule 434 of
<PAGE> 20
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the 1933 Act Regulations, the Company will provide the Managers with copies
of the form of Prospectuses, in such number as the Managers may reasonably
request, and file with the Commission such Prospectuses in accordance with
Rule 424(b) of the 1933 Act Regulations by the close of business in New
York on the business day immediately succeeding the date of the
International Pricing Agreement. If the Company elects to rely on Rule 434
of the 1933 Act Regulations, the Company will provide the Managers with
copies of the Rule 434 Prospectus in such number as the Managers may
reasonably request by the close of business in New York on the business day
immediately succeeding the date of the International Pricing Agreement.
(b) The Company will give the Lead Managers notice of its intention to
file or prepare any amendment to the Registration Statement (including any
post-effective amendment) or any amendment or supplement to the
Prospectuses (including (i) any revised prospectuses which the Company
proposes for use by the Managers in connection with the offering of the
Securities which differ from the Prospectuses on file at the Commission at
the time the Registration Statement becomes effective, whether or not such
revised prospectuses are required to be filed pursuant to Rule 424(b) of
the 1933 Act Regulations or (ii) any term sheet prepared in reliance on
Rule 434 of the 1933 Act Regulations), will furnish the Lead Managers with
copies of any such amendment or supplement a reasonable amount of time
prior to such proposed filing or use, as the case may be, and will not file
any such amendment or supplement or use any such prospectus to which the
Lead Managers or counsel for the Managers shall reasonably object.
(c) The Company will deliver to the Lead Managers without charge three
signed copies of the Registration Statement as originally filed and of each
amendment thereto (including exhibits filed therewith or incorporated by
reference therein) and will also deliver to the Lead Managers without
charge a conformed copy of the Registration Statement as originally filed
and of each amendment thereto (without exhibits) for each of the Managers.
(d) The Company will deliver to each Manager, without charge, from
time to time until the effective date of the Registration Statement or, if
the Company has elected to rely upon Rule 430A of the 1933 Act Regulations,
until
<PAGE> 21
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such time as the International Pricing Agreement is executed and delivered,
as many copies of each preliminary prospectus as the Managers may
reasonably request, and the Company hereby consents to the use of said
copies for purposes permitted by the 1933 Act. The Company will furnish to
each Manager, from time to time during the period when the Prospectuses are
required to be delivered under the 1933 Act or the Securities Exchange Act
of 1934 (the "1934 Act"), such number of copies of the Prospectuses (as
amended or supplemented) as such Manager may reasonably request for the
purposes contemplated by the 1933 Act or the 1934 Act or the respective
applicable rules and regulations of the Commission thereunder.
(e) If, at any time when the Prospectuses relating to the Securities
are required to be delivered under the 1933 Act, any event shall occur as a
result of which the Prospectuses would include any untrue statement of a
material fact or omit to state any material fact necessary in order to make
the statements therein, in the light of the circumstances existing at the
time they are delivered to the purchaser, not misleading, or if it shall be
necessary to amend the Registration Statement or supplement the
Prospectuses to comply with the 1933 Act or the 1933 Act Regulations, the
Company will promptly prepare and file with the Commission such amendment
or supplement (in form and substance reasonably satisfactory to counsel for
the Managers) which will correct such statement or omission or effect such
compliance.
(f) The Company will endeavor, in cooperation with the Managers, to
qualify the Securities for offering and sale under the applicable
securities laws of such states and other jurisdictions of the United States
as the Lead Managers may designate; provided, however, that the Company
shall not be obligated to qualify as a foreign corporation or dealer in
securities or file any general consent to service of process or subject
itself to taxation in any jurisdiction in which it is not otherwise so
qualified or so subject. In each jurisdiction in which the Securities have
been so qualified, the Company will file such statements and reports as may
be required by the laws of such jurisdiction to continue such qualification
in effect for a period of not less than one year from the effective date of
the Registration Statement.
<PAGE> 22
-22-
(g) The Company will make generally available to its security holders
as soon as practicable, but not later than 90 days after the close of the
period covered thereby, an earnings statement (in form complying with the
provisions of Rule 158 of the 1933 Act Regulations) covering a twelve month
period beginning not later than the first day of the Company's fiscal
quarter next following the fiscal quarter that includes the "effective
date" (as defined in said Rule 158) of the Registration Statement.
(h) The Company will use the net proceeds received by it from the sale
of the Securities in the manner specified in the Prospectuses under "Use of
Proceeds."
(i) If, at the time that the Registration Statement becomes effective,
any information shall have been omitted therefrom in reliance upon Rule
430A of the 1933 Act Regulations, then immediately following the execution
of the International Pricing Agreement, the Company will prepare, and file
or transmit for filing with the Commission in accordance with such Rule
430A or Rule 434 and Rule 424(b) of the 1933 Act Regulations, copies of
amended Prospectuses, or, if required by such Rule 430A or Rule 434, a
post-effec-tive amendment to the Registration Statement (including amended
Prospectuses), containing all information so omitted and will use its
reasonable best efforts to cause any such post-effective amendment to be
declared effective as soon as possible.
(j) The Company will file with the Commission such reports on Form SR
as may be required pursuant to Rule 463 of the 1933 Act Regulations.
(k) The Company will use its reasonable best efforts
to effect the listing of the Common Stock on the NYSE and will file with
the NYSE all documents and notices required by the NYSE of companies that
seek to have or that have issued securities that are listed on the NYSE.
(l) During a period of 180 days from the date of the International
Pricing Agreement, the Company will not, without Merrill Lynch's prior
written consent, directly or indirectly, sell, offer to sell, grant any
option for the sale of, or otherwise dispose of, any capital stock of the
Company or any security convertible or exchangeable into or exercisable for
capital stock of the Company except (i) to the Underwriters pursuant to
this Agreement, (ii) the
<PAGE> 23
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Company may grant stock options pursuant to its stock option plan or file
any registration statement with respect to any of the foregoing, except
that the Company may file a registration statement on Form S-8 with respect
to its stock option plan, and (iii) to CKI upon conversion of the 1,275,466
shares of non-voting common stock.
(m) The Company hereby agrees that it will ensure that the U.S.
Securities sold to persons pursuant to the Reserve Share Program will be
restricted as required by the NASD or the NASD rules from sale, transfer,
assignment, pledge or hypothecation for a period of three months following
the date of the effectiveness of the Registration Statement. The
Underwriters will notify the Company as to which persons will need to be so
restricted. At the request of the Underwriters, the Company will direct the
transfer agent to place a stop transfer restriction upon such securities
for such period of time. Should the Company release, or seek to release,
from such restrictions any securities sold pursuant to the Reserve Share
Program, the Company agrees to reimburse the Underwriters for any
reasonable expenses including, without limitation, legal expenses they
incur directly in connection with such release.
SECTION 4. Payment of Expenses. (a) The Company will pay all expenses
incident to the performance of its obligations under this Agreement, including
(i) the preparation, printing and filing of the Registration Statement as
originally filed and of each amendment thereto, any preliminary prospectuses,
Prospectuses and any "Blue Sky" memoranda, (ii) the preparation (including
printing), issuance and delivery of certificates for the Securities to the
Managers, including any security transfer or other taxes or duties payable upon
the delivery of the Securities to the Managers, and the fees and expenses of the
transfer agent for the Securities, (iii) the printing of this Agreement, the
International Pricing Agreement and the Intersyndicate Agreement, (iv) the fees
and disbursements of the Company's counsel, accountants and any other experts or
advisors retained by the Company, (v) the qualification of the Securities under
state or foreign securities laws in accordance with the provisions of Section
3(f), including filing fees and the reasonable fees and disbursements of counsel
for the Managers in connection therewith and in connection with the preparation
of the Blue Sky Survey, (vi) the delivery to the Managers of as many copies as
may reasonably be requested of the Registration Statement as originally filed
and
<PAGE> 24
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of each amendment thereto, of the preliminary prospectuses, and of the
Prospectuses and any amendments or supplements thereto, including any term sheet
delivered by the Company pursuant to Rule 434 of the 1933 Act Regulations, (vii)
the printing and/or copying and delivery to the Managers of copies of the Blue
Sky Survey, (viii) the fee of any filing for review of the offering with the
National Association of Securities Dealers, Inc. relating to the Securities,
(ix) expenses of the Company in connection with any meetings with prospective
investors in the Securities, (x) all expenses and listing fees in connection
with the listing of the Securities on the NYSE and (xi) the reasonable fees and
disbursements of counsel for the Managers in connection with matters relating to
Securities which are designated by the Company for sale to employees and others
having a business relationship with the Company.
(b) The Selling Stockholder will pay any transfer taxes attributable
to the sale by the Selling Stockholder of the Securities and any fees and
disbursements of the Selling Stock-holder's counsel, if any, not paid or payable
by the Company pursuant to Section 4(a) or otherwise.
(c) If this Agreement is terminated by the Lead Managers in accordance
with the provisions of Section 5 or Section 9(a)(i) or Section 11 hereof, the
Company shall reimburse the Managers for all of their out-of-pocket expenses,
including the reasonable fees and disbursements of counsel for the Managers.
SECTION 5. Conditions of Managers' Obligations. The obligations of the
Managers hereunder are subject to the accuracy of the representations and
warranties of the Company and the Selling Stockholder, respectively, herein
contained, to the performance by the Company and the Selling Stockholder of
their respective obligations hereunder, and to the following further conditions:
(a) The Registration Statement shall have become effective not later
than 5:30 P.M. on the date hereof, or with the consent of the Lead
Managers, which shall not be unreasonably withheld at a later time and
date, not later, however, than 5:30 P.M. on the first business day
following the date hereof, or at such later time and date as may be
approved by a majority in interest of the Managers and a majority in
interest of the U.S. Underwriters; and at Closing Time no stop order
suspending the effectiveness of the Registration Statement shall have been
issued under the 1933 Act or proceedings therefor initiated or
<PAGE> 25
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threatened by the Commission. If the Company has elected to rely upon Rule
430A or Rule 434 of the 1933 Act Regulations, the price of the Securities
and any price-related information previously omitted from the effective
Registration Statement pursuant to such Rule 430A or Rule 434 shall have
been transmitted to the Commission for filing pursuant to Rule 424(b) of
the 1933 Act Regulations within the prescribed time period and prior to
Closing Time the Company shall have provided evidence satisfactory to the
Lead Managers of such timely filing, or a post-effective amendment
providing such information shall have been promptly filed and declared
effective in accordance with the requirements of Rule 430A of the 1933 Act
Regulations.
(b) (1) At the Closing Time, you shall have received the signed
opinion of John J. Jones, Esq., Vice President, General Counsel and
Secretary for the Company, dated as of the Closing Time, in the form
attached hereto as Exhibit B, together with reproduced copies of such
opinions for each of the Managers, and in form and substance satisfactory
to counsel for the Managers.
(2) At the Closing Time, you shall have received the signed opinions
of Skadden, Arps, Slate, Meagher & Flom, counsel for the Company, dated as
of the Closing Time, in the forms attached hereto as Exhibit C, together
with reproduced copies of such opinions for each of the Managers, in form
and substance satisfactory to counsel for the Managers.
(3) The favorable opinion, dated as of Closing Time, of Cahill Gordon
& Reindel, counsel for the Managers, with respect to the validity of the
Securities, the Registration Statement, the U.S. Prospectus and other
related matters as the Lead Managers may reasonably request.
(c) At Closing Time there shall not have been, since the date hereof
or since the respective dates as of which information is given in the
Prospectuses, any Material Adverse Change, whether or not arising in the
ordinary course of business, and the Lead Managers shall have received a
certificate of the President or a Vice President of the Company and of the
chief financial or chief accounting officer of the Company, dated as of
Closing Time, to the effect that (i) there has been no such Material
Adverse Change, (ii) the representations and warranties in Section 1 hereof
are true and correct with the
<PAGE> 26
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same force and effect as though expressly made at and as of Closing Time,
(iii) the Company has complied with all agreements and satisfied all
conditions on its part to be performed or satisfied at or prior to Closing
Time, and (iv) no stop order suspending the effectiveness of the
Registration Statement has been issued and no proceedings for that purpose
have been initiated or threatened by the Commission. As used in this
Section 5(c), the term "Prospectuses" means the Prospectuses in the form
first used to confirm sales of the Securities.
(d) At Closing Time the Lead Managers shall have received a
certificate of two executive officers of the Selling Stockholder, dated as
of Closing Time, to the effect that (i) the representations and warranties
of the Selling Stockholder contained in Section 1 are true and correct with
the same force and effect as though expressly made at and as of Closing
Time and (ii) the Selling Stockholder has complied with all agreements and
satisfied all conditions on its part to be performed or satisfied at or
prior to Closing Time.
(e) At the Closing Time the Lead Managers shall have received a
certificate from an executive officer of CKI dated as of a date within two
days prior to the Closing Time, to the effect that, to the best of such
officer's knowledge after due inquiry, as of the date thereof, the Company
and CKJC are in compliance with all the terms and provisions of the License
Agreement and that no event has occurred that would (with or without notice
or the passage of time, or both) constitute a default under the License
Agreement.
(f) At the time that this Agreement is signed and at
the Closing Time, Coopers & Lybrand L.L.P. shall have furnished to the
Underwriters a letter or letters, dated respectively as of the date of
this Agreement and as of the Closing Time, in form and substance
reasonably satisfactory to the Underwriters, containing statements and
information of the type customarily included in accountants' "comfort
letters" to underwriters with respect to certain financial information
relating to the Company contained in the Registration Statement and the
Prospectuses.
(g) At Closing Time, the Securities shall have been approved for
listing on the NYSE upon official notice of issuance.
<PAGE> 27
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(h) At Closing Time and at each Date of Delivery, if any, counsel for
the Managers shall have been furnished with such documents and opinions as
they may reasonably require for the purpose of enabling them to pass upon
the issuance and sale of the Securities as herein contemplated and related
proceedings, or in order to evidence the accuracy of any of the
representations or warranties, or the fulfillment of any of the conditions,
herein contained; and all proceedings taken by the Company in connection
with the issuance and sale of the Securities as herein contemplated shall
be reasonably satisfactory in form and substance to the Lead Managers and
counsel for the Lead Managers.
(i) Concurrently with the purchase and sale of the
International Securities hereunder, the closing of the issuance and sale of
the U.S. Securities pursuant to the terms and conditions of the U.S.
Purchase Agreement and U.S. Pricing Agreement shall have occurred.
(j) The Company will have amended the terms of its
bank credit facility to allow for the consummation of the transaction
contemplated by this Agreement and the U.S. Purchase Agreement.
(k) In the event that the Managers exercise their options provided in
Section 2(b) hereof to purchase all or any portion of the International
Option Securities, the representations and warranties of the Company and
the Selling Stockholder contained herein and the statements in any
certificates furnished by the Company and the Selling Stockholder hereunder
shall be true and correct as of each Date of Delivery and, at the relevant
Date of Delivery, the Lead Managers shall have received:
(1) A certificate, dated such Date of Delivery, of the President
or a Vice President of the Company and of the chief financial or chief
accounting officer of the Company confirming that the certificate
delivered at the Closing Time pursuant to Section 5(c) hereof remains
true and correct as of such Date of Delivery.
(2) A certificate, dated such Date of Delivery, of two executive
officers of the Selling Stockholder, confirming that the certificate
delivered at the
<PAGE> 28
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Closing Time pursuant to Section 5(d) hereof remains true and
correct as of such Date of Delivery.
(3) The favorable opinion of John J. Jones, Esq., Vice President,
General Counsel and Secretary for the Company, in form and substance
satisfactory to counsel for the Managers, dated such Date of Delivery,
relating to the International Option Securities to be purchased on
such Date of Delivery and otherwise to the same effect as the opinion
required by Section 5(b)(1) hereof.
(4) The favorable opinion of Skadden, counsel for the Company, in
form and substance satisfactory to counsel for the Managers, dated
such Date of Delivery, relating to the International Option Securities
to be purchased on such Date of Delivery and otherwise to the same
effect as the opinion required by Section 5(b)(2) hereof.
(5) The favorable opinion of Cahill Gordon & Reindel, counsel for
the Managers, dated such Date of Delivery, relating to the
International Option Securities to be purchased on such Date of
Delivery and otherwise to the same effect as the opinion required by
Section 5(b)(3) hereof.
(6) A letter from Coopers & Lybrand L.L.P., in form and substance
satisfactory to the Lead Managers and dated such Date of Delivery,
substantially the same in form and substance as the letters furnished
to the Lead Managers pursuant to Section 5(e) hereof, except that the
"specified date" in the letter furnished pursuant to this Section
5(h)(5) shall be a date not more than three days prior to such Date of
Delivery.
If any condition specified in this Section shall not have been
fulfilled when and as required to be fulfilled, this Agreement may be terminated
by the Lead Managers by notice to the Company and the Selling Stockholder at any
time at or prior to Closing Time, and such termination shall be without
liability of any party to any other party except as provided in Section 4
hereof.
<PAGE> 29
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SECTION 6. Indemnification.
(a) The Company, the Selling Stockholder and each of the Principal
Members, severally, agree to indemnify and hold harmless each Manager and each
person, if any, who controls any Manager within the meaning of Section 15 of the
1933 Act or Section 20 of the 1934 Act as follows:
(i) against any and all loss, liability, claim, damage and expense
whatsoever, as incurred, arising out of any untrue statement or alleged
untrue statement of a material fact contained in the Registration Statement
(or any amendment thereto), including the Rule 430A Information and the
Rule 434 Information, if applicable, or the omission or alleged omission
therefrom of a material fact required to be stated therein or necessary to
make the statements therein not misleading or arising out of any untrue
statement or alleged untrue statement of a material fact contained in any
preliminary prospectuses or the Prospectuses (or any amendment or
supplement thereto), or the omission or alleged omission therefrom of a
material fact necessary in order to make the statements therein, in the
light of the circumstances under which they were made, not misleading;
(ii) against any and all loss, liability, claim, damage and expense
whatsoever, as incurred, to the extent of the aggregate amount paid in
settlement of any litigation, or any investigation or proceeding by any
governmental agency or body, commenced or threatened, or of any claim
whatsoever based upon any such untrue statement or omission, or any such
alleged untrue statement or omission; provided that (subject to Section
6(d) below) any such settlement is effected with the written consent of the
Company and the Principal Stockholders; and
(iii) against any and all expense whatsoever, as incurred (including,
subject to the last sentence of Section 6(d), the fees and disbursements of
counsel chosen by Merrill Lynch), reasonably incurred in investigating,
preparing or defending against any litigation, or any investigation or
proceeding by any governmental agency or body, commenced or threatened, or
any claim whatsoever based upon any such untrue statement or omission, or
any such alleged untrue statement or omission, to the extent that any such
expense is not paid under (i) or (ii) above;
<PAGE> 30
-30-
provided, however, that (A) this indemnity shall not apply to any loss,
liability, claim, damage or expense to the extent arising out of any untrue
statement or omission or alleged untrue statement or omission made in the
Registration Statement (or any amendment thereto) including the 430A Information
and the Rule 434 Information, if applicable, or any preliminary prospectuses or
the Prospectuses (or any amendment or supplement thereto) in reliance upon and
in conformity with written information relating to a Manager furnished to the
Company by such Manager through Merrill Lynch expressly for use in the
Registration Statement (or any amendment thereto), and (B) such indemnity with
respect to any preliminary prospectus shall not inure to the benefit of any
Manager (or any persons controlling such Manager) from whom the person asserting
such loss, claim, damage or liability purchased the Securities which are the
subject thereof if such person did not receive a copy of the International
Prospectus (or the International Prospectus as amended or supplemented) at or
prior to the confirmation of the sale of such Securities to such person in any
case where such delivery is required by the 1933 Act and the untrue statement or
omission or alleged untrue statement or omission of a material fact contained in
such preliminary prospectus was corrected in the International Prospectus (or
the International Prospectus as amended or supplemented).
In making a claim for indemification under this Section 6 (other than
pursuant to clause (a)(iii) of this Section 6) or contribution under Section 7
by the Company, the Selling Stockholder or the Principal Members, the
indemnified parties may proceed against either (i) collectively the Company, the
Selling Stockholder and the Principal Members or (ii) the Company and/or the
Selling Stockholder only, but may not proceed solely against the Principal
Members. In the event that the indemnified parties are entitled to seek
indemnity or contribution hereunder against any loss, liability, claim, damage
and expense incurred with respect to a final judgment from a court of competent
jurisdiction then, as a precondition to any indemnified party obtaining
indemnification or contribution from the Principal Members, the indemnified
parties shall first obtain a final judgment from a court of competent
juridiction that such indemnified parties are entitled to indemnity or
contribution under this Agreement with respect to such loss, liability, claim,
damage or expense (the "Final Judgment") from the Company, the Selling
Stockholder and the Principal Members and shall seek to satisfy such Final
Judgment in full from the Company and the Selling Stockholder by making a
written demand upon the Company and the Selling Stockholder for such
<PAGE> 31
-31-
satisfaction. Only in the event such Final Judgment shall remain unsatisfied in
whole or in part 45 days following the date of receipt by the Company or the
Selling Stockholder of such demand shall any indemnified party have the right to
take action to satisfy such Final Judgment by making demand directly on the
Principal Members (but only if and to the extent the Company or the Selling
Stockholder has not already satisfied such Final Judgment, whether by
settlement, release or otherwise). The indemnified parties may exercise this
right to first seek to obtain payment from the Company or the Selling
Stockholder and thereafter obtain payment from the Principal Members without
regard to the pursuit by any party of its rights to the appeal of such Final
Judgment. The indemnified parties shall, however, be relieved of their
obligation to first obtain a Final Judgment, seek to obtain payment from the
Company or the Selling Stockholder with respect to such Final Judgment or,
having sought such payment, to wait such 45 days after failure by the Company or
the Selling Stockholder to immediately satisfy any such Final Judgment if (i)
the Company or the Selling Stockholder files a petition for relief under the
United States Bankruptcy Code (the "Bankruptcy Code"), (ii) an order for relief
is entered against the Company or the Selling Stockholder in an involuntary case
under the Bankruptcy Code, (iii) the Company or the Selling Stockholder makes an
assignment for the benefit of its creditors, or (iv) any court of competent
jurisdiction orders or approves the appointment of a receiver or custodian for
the Company or the Selling Stockholder or a substantial portion of either of
their assets. The foregoing provisions of this paragraph are not intended to
require any indemnified party to obtain a Final Judgment against the Company,
the Selling Stockholder or the Principal Members before obtaining reimbursement
of expenses pursuant to clause (a)(iii) of this Section 6. However, the
indemnified parties shall first seek to obtain such reimbursement in full from
the Company or the Selling Stockholder by making a written demand upon the
Company or the Selling Stockholder for such reimbursement. Only in the event
such expenses shall remain unreimbursed in whole or in part 45 days following
the date of receipt by the Company or the Selling Stockholder of such demand
shall any indemnified party have the right to receive reimbursement of such
expenses from the Principal Members by making written demand directly on the
Principal Members (but only if and to the extent the Company or the Selling
Stockholder has not already satisfied the demand for reimbursement, whether by
settlement, release or otherwise). The indemnified parties shall, however, be
relieved of their obligation to first seek to obtain such reimbursement in full
from the
<PAGE> 32
-32-
Company or the Selling Stockholder or, having made written demand
therefor, to wait such 45 days after failure by the Company or the Selling
Stockholder to immediately reimburse such expenses if (i) the Company or the
Selling Stockholder files a petition for relief under the Bankruptcy Code, (ii)
an order for relief is entered against the Company or the Selling Stockholder in
an involuntary case under the Bankruptcy Code, (iii) the Company or the Selling
Stockholder makes an assignment for the benefit of its creditors, or (iv) any
court of competent jurisdiction orders or approves the appointment of a receiver
or custodian for the Company or the Selling Stockholder or a substantial portion
of either of their assets.
(b) Each Manager agrees, severally and not jointly, to indemnify and
hold harmless the Company, its directors, each of its officers who signed the
Registration Statement, and each person, if any, who controls the Company within
the meaning of Section 15 of the 1933 Act or Section 20 of the 1934 Act, and the
Selling Stockholder against any and all loss, liability, claim, damage and
expense described in the indemnity contained in subsection (a) of this Section,
as incurred, but only with respect to untrue statements or omissions, or alleged
untrue statements or omissions, made in the Registration Statement (or any
amendment thereto), including the Rule 430A Information and the Rule 434
Information, if applicable, or any preliminary prospectuses or the Prospectuses
(or any amendment or supplement thereto) in reliance upon and in conformity with
written information relating to a Manager furnished to the Company by such
Manager through MLIL expressly for use in the Registration Statement (or any
amendment thereto) including Rule 430A Information and Rule 434 Information, if
applicable, or such preliminary prospectuses or the Prospectuses (or any
amendment or supplement thereto).
(c) The Selling Stockholder agrees to indemnify and hold harmless the
Company, its directors, each of its officers who signed the Registration
Statement, and each person, if any, who controls the Company within the meaning
of Section 15 of the 1933 Act or Section 20 of the 1934 Act against any and all
loss, liability, claim, damage and expense described in the indemnity contained
in subsection (a) of this Section, as incurred, but only with respect to untrue
statements or omissions, or alleged untrue statements or omissions made in the
Registration Statement (or any amendment thereto), including the Rule 430A
Information and the Rule 434 Information, if applicable, or any preliminary
prospectuses or the Prospectuses (or any amendment or supplement thereto) in
reliance upon and
<PAGE> 33
-33-
in conformity with written information furnished to the Company by the Selling
Stockholder expressly for use in the Registration Statement (or any amendment
thereto) or such preliminary prospectuses or the Prospectuses (or any amendment
or supplement thereto). The Company and the Selling Stockholder acknowledge for
all purposes under this Agreement, including this Section 6, that the
information set forth in the Registration Statement and the Prospectuses under
the caption "Principal and Selling Stockholders" constitutes the only written
information furnished to the Company by or on behalf of the Selling Stockholder
expressly for use in the Registration Statement, the preliminary prospectus or
the Prospectus (or any amendment or supplement to any of them).
(d) Each indemnified party shall give notice as promptly as reasonably
practicable to each indemnifying party of any action commenced against it in
respect of which indemnity may be sought hereunder, but failure to so notify an
indemnifying party shall not relieve such indemnifying party from any liability
which it may have otherwise than on account of this indemnity agreement, except
to the extent it has been materially prejudiced by such failure as determined by
a court of competent jurisdiction in a final judgment. Any indemnifying party
may participate at its own expense in the defense of such action. If it so
elects within reasonable time after receipt of such notice, an indemnifying
party, jointly with any other indemnifying parties receiving such notice, may
assume the defense of such action with counsel chosen by it and approved by the
indemnified parties, unless such indemnified parties reasonably object to such
assumption on the ground that there may be legal defenses available to them
which are different from or in addition to those available to such indemnifying
party. If an indemnifying party assumes the defense of such action, the
indemnifying parties shall not be liable for any fees and expenses of counsel
for the indemnified parties incurred thereafter in connection with such action.
In no event shall the indemnifying party or parties be liable for the fees and
expenses of more than one counsel for all indemnified parties in connection with
any one action or separate but similar or related actions in the same
jurisdictions arising out of the same general allegations or circumstances.
(e) No Principal Members shall be responsible for the payment of an
amount, pursuant to this Section 6, which exceeds the net proceeds received by
such Principal Members from the sale of the Securities by such Principal Members
hereunder and under the U.S. Purchase Agreement.
<PAGE> 34
-34-
(f) No indemnifying party shall, without the prior written consent of
the indemnified party, effect any settlement of any pending or threatened
proceeding in respect of which any indemnified party is or could have been a
party and indemnity could have been sought hereunder by such indemnified party,
unless such settlement includes an unconditional release of such indemnified
party from all liability on claims that are the subject matter of such
proceeding. No indemnifying party shall be liable for any settlement of any
action or claim for monetary damages which an indemnified party may effect
without the written consent of the indemnifying party.
(g) In connection with the Reserve Share Program, the Company agrees
to indemnify and hold harmless the Underwriters from and against any and all
losses, expenses and liabilities incurred by them as a result of the failure of
the designated employees or other persons to pay for and accept delivery of
shares which were subject to a properly confirmed agreement to purchase.
SECTION 7. Contribution. In order to provide for just and equitable
contribution in circumstances under which the indemnity provided for in Section
6 is for any reason held to be unenforceable by the indemnified parties although
applicable in accordance with its terms, subject to the last paragraph of
Section 6(a) hereof, the Company, the Selling Stockholder, the Principal Members
and the Managers shall contribute to the aggregate losses, liabilities, claims,
damages and expenses of the nature contemplated by such indemnity incurred by
the Company, the Selling Stockholder, the Principal Members, and one or more of
the Managers, as incurred, in such proportion that (a) the Managers are
responsible for that portion represented by the percentage that the underwriting
discount appearing on the cover page of the International Prospectus in respect
of the International Securities bears to the initial public offering price
appearing thereon and (b) the Company, the Selling Stockholder and the Principal
Members are severally liable for the balance on the same basis as each of them
would have been obligated to provide indemnification pursuant to Section 7;
provided, further, that no person guilty of fraudulent misrepresentation (within
the meaning of Section 11(f) of the 1933 Act) shall be entitled to contribution
from any person who was not guilty of such fraudulent misrepresentation. For
purposes of this Section 7, each person, if any, who controls a Manager within
the meaning of Section 15 of the 1933 Act shall have the same rights to
contribution as the Manager, and each director of the Company, each officer of
the Company who signed
<PAGE> 35
-35-
the Registration Statement, the Selling Stockholder, the Principal Members and
each director, officer or employee thereof and each person, if any, who controls
the Company or the Selling Stockholder within the meaning of Section 15 of the
1933 Act shall have the same rights to contribution as the Company, the Selling
Stockholder and the Principal Members. Notwithstanding the provisions of this
Section 7, no Principal Member shall be required to contribute any amount under
this Section 7 in excess of the amount by which the proceeds received by such
Principal Member in connection herewith exceed the aggregate amount such
Principal Member has otherwise paid pursuant hereto and to Section 6(a).
SECTION 8. Representations, Warranties and Agreements to Survive
Delivery. All representations, warranties and agreements contained in this
Agreement and the Pricing Agreement, or contained in certificates of officers of
the Company or the Selling Stockholder submitted pursuant hereto, shall remain
operative and in full force and effect regardless of any investigation made by
or on behalf of any Manager or controlling person, or by or on behalf of the
Company or the Selling Stockholder, and shall survive delivery of the Securities
to the Managers.
SECTION 9. Termination of Agreement.
(a) The Lead Managers may terminate this Agreement, by notice to the
Company and the Selling Stockholder, at any time at or prior to Closing Time (i)
if there has been, since the date of this Agreement or since the respective
dates as of which information is given in the Prospectuses, a Material Adverse
Change, whether or not arising in the ordinary course of business, or (ii) if
there has occurred any material adverse change in the financial markets in the
United States, Europe or elsewhere or any outbreak of hostilities or escalation
thereof or other calamity or crisis the effect of which is such as to make it,
in the judgment of the Lead Managers, impracticable to market the International
Securities or to enforce contracts for the sale of the International Securities,
or (iii) if trading in the Common Stock has been suspended or limited by the
Commission or the NYSE, or if trading generally on the American Stock Exchange,
the NYSE or in the over-the-counter market has been suspended or limited, or
minimum or maximum prices for trading have been fixed, or maximum ranges for
prices for securities have been required, by said exchanges or by order of the
Commission, the National Association of Securities Dealers, Inc. or any other
governmental authority, or if a banking
<PAGE> 36
-36-
moratorium has been declared by either Federal or New York authorities. As used
in this Section 9(a), the term "Prospectuses" means the Prospectuses in the form
first used to confirm sales of the Securities.
(b) If this Agreement is terminated pursuant to this Section, such
termination shall be without liability of any party to any other party except as
provided in Section 4 hereof. Notwithstanding any such termination, the
provisions of Sections 1, 6 and 7 shall remain in effect.
SECTION 10. Default by One or More of the Managers. If one or more of
the Managers shall fail at Closing Time to purchase the Initial International
Securities which it or they are obligated to purchase under this Agreement and
the International Pricing Agreement (the "Defaulted Securities"), the Lead
Managers shall have the right, within 24 hours thereafter, to make arrangements
for one or more of the non-defaulting Managers, or any other underwriters, to
purchase all, but not less than all, of the Defaulted Securities in such amounts
as may be agreed upon and upon the terms herein set forth; if, however, the Lead
Managers shall not have completed such arrangements within such 24- hour period,
then:
(a) if the number of Defaulted Securities does not exceed 10% of the
number of Initial International Securities, each of the non-defaulting
Managers shall be obligated, severally and not jointly, to purchase the
full amount thereof in the proportions that their respective underwriting
obligations hereunder bear to the underwriting obligations of all
nondefaulting Managers, or
(b) if the number of Defaulted Securities exceeds 10% of the number of
Initial International Securities, this Agreement shall terminate without
liability on the part of any non-defaulting Manager.
No action taken pursuant to this Section shall relieve any defaulting
Manager from liability in respect of its default.
In the event of any such default which does not result in a
termination of this Agreement, either the Lead Managers or the Company and the
Selling Stockholder shall have the right to postpone Closing Time for a period
not exceeding seven days in order to effect any required changes in the
<PAGE> 37
-37-
Registration Statement or the Prospectuses or in any other documents or
arrangements.
SECTION 11. Default by the Selling Stockholder or the Company. If the
Company or the Selling Stockholder shall fail at Closing Time or at the Date of
Delivery to sell and deliver the number of Securities which it is obligated to
sell hereunder, then the Managers may, at their option, by notice from the
Managers to the Company and the non-defaulting Selling Stockholder either (a)
terminate this Agreement without any liability on the part of any non-defaulting
party except to the extent provided in Section 4 and except that the provisions
of Sections 6 and 7 shall remain in effect or (b) elect to purchase the
Securities which the non-defaulting party has agreed to sell thereunder.
No action pursuant to this Section shall relieve the Company or any
Selling Stockholder from liability in respect of such default.
SECTION 12. Notices. All notices and other communications hereunder
shall be in writing and shall be deemed to have been duly given if mailed or
transmitted by any standard form of telecommunication. Notices to the Managers
shall be directed to the Lead Managers c/o Merrill Lynch International,
Ropemaker Place, 25 Ropemaker Street, London, EC2Y 9LY, attention of Equity
Syndicate; notices to the Company or the Selling Stockholder shall be directed
to the Company at 1385 Broadway, New York, New York 10018, attention of Arnold
H. Simon, Chief Executive Officer, to Charterhouse Equity Partners II, L.P., 535
Madison Avenue, New York, New York 10022, attention: Merril M. Halpern and Mark
N. Kaplan, Skadden, Arps, Slate, Meagher & Flom, 919 Third Avenue, New York, New
York 10022.
SECTION 13. Parties. This Agreement and the International Pricing
Agreement shall each inure to the benefit of and be binding upon the Managers,
the Company and the Selling Stockholder and their respective successors. Nothing
expressed or mentioned in this Agreement or the International Pricing Agreement
is intended or shall be construed to give any person, firm or corporation, other
than the Managers, the Company, the Selling Stockholder and their respective
successors and the controlling persons and officers and directors referred to in
Sections 6 and 7 and their heirs and legal representatives, any legal or
equitable right, remedy or claim under or in respect of this Agreement or the
International Pricing Agreement or any provision herein or therein contained.
This Agreement and the
<PAGE> 38
-38-
International Pricing Agreement and all conditions and provisions hereof and
thereof are intended to be for the sole and exclusive benefit of the Managers,
the Company, the Selling Stockholder, their respective successors and said
controlling persons and officers and directors and their heirs and legal
representatives, and for the benefit of no other person, firm or corporation. No
purchaser of Securities from any Manager shall be deemed to be a successor by
reason merely of such purchase.
SECTION 14. Governing Law and Time. This Agreement and the
International Pricing Agreement shall be governed by and construed in accordance
with the laws of the State of New York applicable to agreements made and to be
performed in said State. Specified times of day refer to New York City time.
<PAGE> 39
-39-
If the foregoing is in accordance with your understanding of our
agreement, please sign and return to the Company, the Selling Stockholder and
each of the Principal Members a counterpart hereof, whereupon this instrument,
along with all counterparts, will become a binding agreement among the Managers,
the Company, the Selling Stockholder and each of the Principal Members in
accordance with its terms.
Very truly yours,
DESIGNER HOLDINGS LTD.
By:
------------------------------------------
Name:
Title:
NEW RIO, L.L.C.
By:
------------------------------------------
Name:
Title:
CHARTERHOUSE EQUITY PARTNERS II, L.P., as a
principal member of New Rio, L.L.C.
By:
------------------------------------------
Name:
Title:
----------------------------------------------
ARNOLD H. SIMON, a principal
member of New Rio, L.L.C.
<PAGE> 40
-40-
CONFIRMED AND ACCEPTED,
as of the date first above written:
MERRILL LYNCH INTERNATIONAL
MORGAN STANLEY & CO. INTERNATIONAL LIMITED
By: MERRILL LYNCH INTERNATIONAL
By:
-------------------------------
Name:
Title:
For themselves and as Lead Managers
of the other Managers named in
Schedule A hereto.
<PAGE> 41
SCHEDULE A
Number of
Initial Securities
Name of International Manager to Be Purchased
Merrill Lynch International...................
Morgan Stanley & Co. International Limited....
Total
<PAGE> 42
Exhibit A
8,000,000 Shares
DESIGNER HOLDINGS LTD.
(a Delaware corporation)
(Par Value $.01 Per Share)
Pricing Agreement
May [ ], 1996
MERRILL LYNCH INTERNATIONAL
MORGAN STANLEY & CO. INTERNATIONAL LIMITED
as Lead Managers of the several Managers
named in the within-mentioned Purchase Agreement
c/o Merrill Lynch International
Ropemaker Place
25 Ropemaker Street
London, EC2Y 9LY
Ladies and Gentlemen:
Reference is made to the International Purchase Agreement
dated [ ] (the "International Purchase Agreement") among
Designer Holdings Ltd., a Delaware corporation (the "Company"), and each of New
Rio L.L.C., a Delaware limited liability company (the "Selling Stockholder"),
Charterhouse Equity Partners, II, a principal member of the Selling Stockholder
("Charterhouse"), and Arnold H. Simon, a principal member of the Selling
Stockholder (together with Charterhouse, the "Principal Members"), and the
several Managers named in Schedule A thereto, (the "Managers"), for whom Merrill
Lynch International and Morgan Stanley & Co. International Limited are acting as
representatives (the "Lead Managers"). The International Purchase Agreement
provides for the purchase by the Managers from the Company and the Selling
Stockholder, subject to the terms and conditions set forth therein, of an
aggregate of 2,000,000 shares of the Company's Common Stock, par value $.01
per share (the "International Securities").
Pursuant to Section 2 of the International Purchase Agreement, the
Company and the Selling Stockholder agree with each Managers as follows:
<PAGE> 43
SECTION 1. The initial public offering price per share for the
International Securities, determined as provided in said Section 2, shall
be $[ ].
SECTION 2. The purchase price per share for the International
Securities to be paid by the several Managers shall be $[ ], being an
amount equal to the initial public offering price set forth above less
$[ ] per share.
If the foregoing is in accordance with your understanding of our
agreement, please sign and return to the Company, the Selling Stockholder and
each of the Principal Members a counterpart hereof, whereupon this instrument,
along with all counterparts, will become a binding agreement among the Managers,
the Company, the Selling Stockholder and each of the Principal Members in
accordance with its terms.
Very truly yours,
DESIGNER HOLDINGS, LTD.
By: __________________________________
Name:
Title:
NEW RIO, L.L.C.
By: __________________________________
Name:
Title:
CHARTERHOUSE EQUITY PARTNERS II,
L.P., as a principal
member of New Rio, L.L.C.
By: __________________________________
Name:
Title:
___________________________________
ARNOLD H. SIMON, a principal
member of New Rio, L.L.C.
<PAGE> 44
CONFIRMED AND ACCEPTED,
as of the date first above written:
MERRILL LYNCH INTERNATIONAL
MORGAN STANLEY & CO. INTERNATIONAL LIMITED
By: Merrill Lynch International
By: ______________________________________
Name:
Title:
For themselves and as Lead Managers
of the other Managers named in the
Purchase Agreement.
<PAGE> 45
Exhibit B
Form of Opinion, dated as of Closing Time of John J. Jones, Esq., Vice
President, General Counsel and Secretary for the Company, substantially to the
effect that:
(i) Each subsidiary of the Company has been duly incorporated and is
validly existing as a corporation in good standing under the laws of the
jurisdiction of its incorporation, has corporate power and authority to own,
lease and operate its properties and to conduct its business as described in the
Registration Statement and is duly qualified as a foreign corporation to
transact business and is in good standing in each jurisdiction in which such
qualification is required, except where the failure to so qualify would not have
a Material Adverse Effect; except as described in the Registration Statement and
Prospectuses, all of the issued and outstanding capital stock of each such
subsidiary has been duly authorized and validly issued, is fully paid and
nonassessable and is owned by the Company, directly, free and clear of any
security interest, lien, option, claim or other encumbrance.
(ii) Except as disclosed in or specifically contemplated by the
Prospectuses, to such counsel's knowledge, there are no outstanding options,
warrants or other rights calling for the issuance of, and no commitments,
obligations, plans or arrangements to issue, any shares of capital stock of the
Company or any security convertible into or exchangeable for capital stock of
the Company. All issued and outstanding stock options, if any, relating to the
Company's Common Stock have been duly authorized and validly issued and the
description thereof contained in the Prospectuses is accurate in all material
respects.
(iii) To the best of such counsel's knowledge no default exists in the
due performance or observance of any material obligation, agreement, covenant or
condition contained in any contract, indenture, mortgage, loan agreement, note,
lease or other instrument so described or referred to in the Registration
Statement or to be filed as exhibits thereto.
(iv) To the best of such counsel's knowledge, there are no material
legal or governmental proceedings pending or threatened which are required to be
disclosed in the Registration Statement, other than those disclosed therein, and
all pending legal or governmental proceedings to which the Company or any
subsidiary is a party or to which any of their property is subject which are not
described in the Registration
<PAGE> 46
Statement, including ordinary routine litigation incidental to the business,
are, considered in the aggregate, not material.
<PAGE> 47
Exhibit C
Form of opinion, dated as of Closing Time, of Skadden, Arps, Slate,
Meagher & Flom ("Skadden"), counsel for the Company and the Selling Stockholder,
substantially to the effect that:
(i) The Company has been duly incorporated and is validly existing as
a corporation in good standing under the laws of the State of Delaware.
(ii) The Company has corporate power and authority to own, lease and
operate its properties and to conduct its business as described in the
Registration Statement and to enter into and perform its obligations under
this Agreement, the U.S. Pricing Agreement, the International Purchase
Agreement and the International Pricing Agreement.
(iii) The Company is duly qualified as a foreign corporation to transact
business and is in good standing under the laws of the States of New York,
Delaware, New Jersey, South Carolina, Pennsylvania, California and the
Commonwealth of Massachusetts.
(iv) The Selling Stockholder has the corporate power and authority to
enter into and perform its obligations under this Agreement and the Pricing
Agreement.
(v) The authorized, issued and outstanding capital stock of the
Company is as set forth in the Prospectuses under "Capitalization"; the
shares of issued and outstanding Common Stock, including the Securities to
be purchased by the U.S. Underwriters from the Selling Stockholder, have
been duly authorized and validly issued and are fully paid and
nonassessable.
(vi) This Agreement, the U.S. Pricing Agreement, the
International Purchase Agreement and the International Pric-
ing Agreement have each been duly authorized, executed and
delivered by the Company, the Selling Stockholder, Charter-
house Equity Partners II, L.P. and Arnold H. Simon.
(vii) The Securities, when issued and delivered by the Company and
delivered by the Selling Stockholder pursuant to this Agreement and the
International Purchase Agreement against payment of the consideration set
forth in the U.S. Pricing Agreement and the International Pricing
Agreement, (A) with respect to the Securities being sold by the Company,
will be validly issued and (B) with respect to the
<PAGE> 48
Securities being sold by the Selling Stockholder, will be validly
transferred to the Underwriters and upon such transfer the Underwriters
will have good and marketable title therefor, and in each case such
Securities will be fully paid and nonassessable, free and clear of any
security interest, lien, option, claim, equity or other encumbrance.
(viii) The issuance of the Securities by the Company is not subject to
preemptive or other similar rights arising by operation of law, under the
charter or by-laws of the Company.
(ix) Such counsel has been orally advised by the Commission that the
Registration Statement was declared effective under the 1933 Act on May __,
1996; any required filing of the Prospectuses pursuant to Rule 424(b) under
the 1933 Act has been made in the manner and within the time period
required by Rule 424(b) and, such counsel has been orally advised by the
Commission that no stop order suspending the effectiveness of the
Registration Statement has been issued by the Commission and, to such
Counsel's knowledge, no proceeding for that purpose is pending or
threatened by the Commission.
(x) The Registration Statement, as of its effective date, and the
Prospectuses, as of their date, appeared on their face to be appropriately
responsive in all material respects to the requirements of the 1933 Act and
the 1933 Act Regulations, except that in each case such counsel need not
express an opinion as to the financial statements, schedules and other
financial and statistical data included therein or excluded therefrom or
the exhibits to the Registration Statement, and such counsel need not
assume any responsibility for the accuracy, completeness or fairness of the
statements contained in the Registration Statement and the Prospectuses
except for those made under the caption "Description of Common Stock" in
the Prospectuses insofar as they relate to provisions of documents therein
described.
(xi) The capital stock of the Company, including the Common Stock, in
all material respects conforms to the description thereof contained in the
Prospectuses, and the form of certificate used to evidence shares of the
Common Stock is in due and proper form and complies with all applicable
statutory requirements.
(xii) The License Agreement has been duly authorized, executed and
delivered by CKJC and is enforceable against
<PAGE> 49
CKI in accordance with its terms, except to the extent that enforcement
thereof may be limited by (a) bankruptcy, insolvency, reorganization,
moratorium or other similar laws now or hereafter in effect relating to
creditors' rights generally and (b) general principles of equity
(regardless of whether enforceability is considered in a proceeding at law
or in equity). CKJC has the exclusive right to use the trademarks "CALVIN
KLEIN" and "CK/CALVIN KLEIN" upon the terms, conditions, and subject to the
limitations set forth in the License Agreement and as described in the
Prospectuses.
(xiii) No authorization, approval, consent or order of any court or
governmental authority or agency is required under the General Corporation
Law of the State of Delaware, the laws of the State of New York or the laws
of the United States of America in connection with the transactions
contemplated by this Agreement, the U.S. Pricing Agreement, the
International Purchase Agreement and the International Pricing Agreement,
except that such counsel need not express any opinion as to (i) the
securities laws of any jurisdiction or the rules and regulations of the
NASD, (ii) laws other than those that, in such counsel's experience, are
normally applicable to transactions of the type contemplated by this
Agreement, the U.S. Pricing Agreement, the International Purchase Agreement
and the International Pricing Agreement and (iii) any consent or
authorization which may have become applicable to the Company as a result
of the involvement of the U.S. Underwriters or of the Managers in the
transactions contemplated by this Agreement or the International Purchase
Agreement because of their legal or regulatory status or because of any
other facts specifically pertaining to them. The execution, delivery and
performance of this Agreement, the U.S. Pricing Agreement, the
International Purchase Agreement and the International Pricing Agreement
and the consummation of the transactions contemplated herein and therein
and compliance by the Company with its obligations hereunder and thereunder
will not conflict with or constitute a breach of, or a default under, or
result in the creation or imposition of any lien, charge or encumbrance
upon any property or assets of the Company or any of its subsidiaries
pursuant to, any contract, indenture, mortgage, loan agreement, note, lease
or other instrument to which the Company or any of its subsidiaries is a
party or by which it or any of them may be bound, or to which any of the
property or assets of the Company or any of its subsidiaries is subject,
nor will such action result in any violation of the provisions of the
charter or by-laws of the Company or any of its subsidiaries, or any
<PAGE> 50
applicable law, administrative regulation or administrative or court
decree.
(xiv) To the best of such counsel's knowledge, there are no persons
other than the Selling Stockholder with registration or other similar
rights to have any securities registered by the Company under the
Registration Statement.
Additionally, in giving its opinion required by subsections (b)(1) of
this Section, Skadden shall additionally state that such counsel has
participated in conferences with representatives of the U.S. Underwriters,
officers and other representatives of the Company and representatives of the
independent certified public accountants of the Company, at which conferences
the contents of the Registration Statement and the Prospectuses and related
matters were discussed, and although such counsel does not pass upon and does
not assume any responsibility for the accuracy, completeness or fairness of the
statements contained in the Registration Statement and the Prospectuses (except
and only to the extent as set forth in the first clause of paragraph (vi) and
paragraph (xii) of subsection (b)(1) above), on the basis of the foregoing
(relying as to materiality to a large extent upon the discussions with and
representations and opinions of officers and other representatives of the
Company), no facts have come to the attention of such counsel which lead such
counsel to believe that the Registration Statement at the time it became
effective contained an untrue statement of a material fact or omitted to state a
material fact required to be stated therein or necessary to make the statements
therein not misleading or that the Prospectuses, at the Representation Date
(unless the term "Prospectuses" refers to a prospectus which has been provided
to the Underwriters by the Company for use in connection with the offering of
the Securities which differs from the Prospectuses on file at the Commission at
the Representation Date, in which case at the time it is first provided to the
Underwriters for such use) or at the Closing Time, included an untrue statement
of a material fact or omitted to state a material fact necessary in order to
make the statements therein, in the light of the circumstances under which they
were made, not misleading; provided that such counsel does not express any
comment with respect to the financial statements including the notes thereto and
supporting schedules, or any other financial and statistical data set forth or
referred to in the Registration Statement or the Prospectuses.
<PAGE> 1
Exhibit 3.1
CERTIFICATE OF INCORPORATION
OF
DESIGNER HOLDINGS LTD.
FIRST: The name of the Corporation is Designer Holdings Ltd.
(hereinafter the "Corporation").
SECOND: The address of the registered office of the Corporation in
the State of Delaware is 1013 Centre Road, in the City of Wilmington, County of
New Castle. The name of its registered agent at that address is Corporation
Service Company.
THIRD: The purpose of the Corporation is to engage in any lawful act
or activity for which a corporation may be organized under the General
Corporation Law of the State of Delaware as set forth in Title 8 of the
Delaware Code ("GCL").
FOURTH: The total number of shares of stock which the Corporation
shall have the authority to issue is 91,300,000 shares consisting of 75,000,000
shares of Common Stock, each having a par value of one cent ($0.01) (the
"Common Stock"), 1,300,000 shares of Non-Voting Common Stock, each having a par
value of one cent ($0.01) (the "Non-Voting Common Stock"), and 15,000,000
shares of Preferred Stock, each having a par value of one cent ($0.01) (the
"Preferred Stock").
Each holder of Common Stock shall have one vote in respect of each
share of Common Stock held by such holder on each matter voted upon by the
stockholders. Each holder of Non-Voting Common Stock shall have no votes in
respect of each share of Non-Voting Common Stock except as required by law.
Shares of Non-Voting Common Stock shall be convertible at any time into an
equal amount of shares of Common Stock and, after the conversion, shall be
cancelled. Outstanding shares of Non-Voting Common Stock shall be convertible
into an equal number of shares of Common Stock at any time at the
<PAGE> 2
option of the Corporation prior to any vote of the Non-Voting Common Stock
required by law. The Common Stock and the Non-Voting Common Stock shall be
identical in all respects and shall have equal rights and privileges, except as
otherwise provided above in this Article FOURTH.
The Board of Directors is expressly authorized to provide for the
issuance of all or any shares of the Preferred Stock in one or more classes or
series, and to fix for each such class or series such voting powers, full or
limited, or no voting powers, and such distinctive designations, preferences and
relative, participating, optional or other special rights and such
qualifications, limitations or restrictions thereof, as shall be stated and
expressed in the resolution or resolutions adopted by the Board of Directors
providing for the issuance of such class or series and as may be permitted by
the GCL, including, without limitation, the authority to provide that any such
class or series may be (i) subject to redemption at such time or times and at
such price or prices, (ii) entitled to receive dividends (which may be
cumulative or non-cumulative) at such rates, on such conditions, and at such
times, and payable in preference to, or in such relation to, the dividends
payable on any other class or classes or any other series, (iii) entitled to
such rights upon the dissolution of, or upon any distribution of the assets of,
the Corporation or (iv) convertible into, or exchangeable for, shares of any
other class or classes of stock, or of any other series of the same or any other
class or classes of stock, of the Corporation at such price or prices or at such
rates of exchange and with such adjustments, all as may be stated in such
resolution or resolutions.
FIFTH: The following provisions are inserted for the management of the
business and the conduct of the affairs of the Corporation, and for further
definition, limitation and regulation of the powers of the Corporation and of
its directors and stockholders:
(1) The business and affairs of the Corporation shall be managed by or
under the direction of the Board of Directors.
(2) The directors shall have concurrent power with the stockholders to
make, alter,
2
<PAGE> 3
amend, change, add to or repeal the By-Laws of the Corporation.
(3) The number of directors of the Corporation shall be as from time to
time determined by resolution adopted by the Board of Directors. Election of
directors need not be by written ballot unless the By-Laws so provide.
(4) No director shall be personally liable to the Corporation or any of
its stockholders for monetary damages for breach of fiduciary duty as a
director, except for liability (i) for any breach of the director's duty of
loyalty to the Corporation or its stockholders, (ii) for acts or omissions not
in good faith or that involve intentional misconduct or a knowing violation of
law, (iii) pursuant to Section 174 of the GCL or (iv) for any transaction from
which the director derived an improper personal benefit. Any repeal or
modification of this Article FIFTH by the stockholders of the Corporation shall
not adversely affect any right or protection of a director of the Corporation
existing at the time of such repeal or modification with respect to acts or
omissions occurring prior to such repeal or modification.
(5) In addition to the powers and authority hereinbefore or by statute
expressly conferred upon them, the directors are hereby empowered to exercise
all such powers and do all such acts and things as may be exercised or done by
the Corporation, subject, nevertheless, to the provisions of the GCL, this
Certificate of Incorporation, and any By-Laws adopted by the stockholders;
provided, however, that no By-Laws hereafter adopted by the stockholders shall
invalidate any prior act of the directors that would have been valid if such
By-Laws had not been adopted.
(6) The directors shall be divided, with respect to the terms for which
they severally hold office, into three classes, as nearly equal in number of
directors as possible, as determined by the Board of Directors, with the
3
<PAGE> 4
term of office of the first class to expire at the Annual Meeting of
Stockholders to be held in 1997, the term of office of the second class to
expire at the Annual Meeting of Stockholders to be held in 1998, and the term
of office of the third class to expire at the Annual Meeting of Stockholders to
be held in 1999, with each class of directors to hold office until their
successors are duly elected and have qualified. At each Annual Meeting of
Stockholders following such initial classification and election, directors
elected to succeed those directors whose terms expire at such annual meeting,
other than those directors elected under particular circumstances by a separate
class vote of the holders of any class or series of stock having a preference
over the Common Stock as to dividends or upon liquidation of the Corporation,
shall be elected to hold office for a term expiring at the Annual Meeting of
Stockholders in the third year following the year of their election and until
their successors are duly elected and have qualified. When the number of
directors is changed, any newly created directorships or any decrease in
directorships shall be so apportioned among the classes as to make all classes
as nearly equal in number of directors as possible, as determined by the Board
of Directors. No decrease in the number of directors constituting the Board of
Directors shall shorten the term of any incumbent director.
To the extent that any holders of any class or series of stock other
than Common Stock issued by the Corporation shall have the separate right,
voting as a class or series, to elect directors, the directors elected by such
class or series shall be deemed to constitute an additional class of directors
and shall have a term of office for one year or such other period as may be
designated by the provisions of such class or series providing such separate
voting right to the holders of such class or series of stock, and any such
class of directors shall be in addition to the classes designated above.
4
<PAGE> 5
SIXTH: Meetings of stockholders may be held within or without the State
of Delaware, as the By-Laws may provide. The books of the Corporation may be
kept (subject to any provision contained in the GCL) outside the State of
Delaware at such place or places as may be designated from time to time by the
Board of Directors or in the By-Laws of the Corporation.
Any action required or permitted to be taken at any annual or special
meeting of the stockholders of the Corporation may not be taken without a
meeting, without prior written notice and without a vote; provided, however,
that any action required or permitted to be taken at any meeting of a class of
holders of Preferred Stock of the Corporation, may be taken without a meeting,
without prior notice and without a vote, if a consent in writing, setting forth
the action so taken, shall be signed by the class of holders of outstanding
Preferred Stock having not less than the minimum number of votes that would be
necessary to authorize or take such action at a meeting at which all shares of
Preferred Stock entitled to vote thereon were present and voted. Prompt notice
of the taking of the corporate action without a meeting by less than unanimous
written consent shall be given to those holders of Preferred Stock who have not
consented in writing.
SEVENTH: The Corporation reserves the right to amend, alter, change or
repeal any provision contained in this Certificate of Incorporation, in the
manner now or hereafter prescribed by statute, and all rights conferred upon
stockholders herein are granted subject to this reservation.
<PAGE> 1
Exhibit 4.1
INCORPORATED UNDER THE LAWS
OF THE STATE OF DELAWARE
DESIGNER HOLDINGS LTD.
THIS CERTIFIES THAT
IS THE OWNER OF
FULLY PAID AND NONASSESSABLE SHARES OF COMMON STOCK OF THE PAR VALUE OF
ONE CENT ($.01) EACH OF
Designer Holdings Ltd., transferable on the books of the Corporation by the
holder hereof in person or by duly authorized attorney, upon surrender of this
certificate properly endorsed. This certificate and the shares represented
hereby are issued and shall be held subject to all the provisions of the
Certificate of Incorporation of the Corporation and any amendments thereto to
all of which the holder of this certificate by acceptance hereof assents. This
certificate is not valid unless countersigned and registered by the Transfer
Agent and Registrar.
Witness the facsimile seal of the Corporation and the facsimile signatures of
its duly authorized officers.
Dated:
Countersigned and Registered:
CHEMICAL MELLON SHAREHOLDER SERVICES, L.L.C.
Transfer Agent and Registrar
By
Authorized Signature
[DESIGNER HOLDINGS LTD. SEAL]
/s/ ARNOLD H. SIMON
--------------------------------
CHIEF EXECUTIVE OFFICER
/s/ JOHN J. JONES
--------------------------------
SECRETARY
<PAGE> 2
The following abbreviations, when used in the inscription on the face
of this certificate, shall be construed as though they were written out in full
according to applicable laws or regulations:
<TABLE>
<S> <C>
TEN COM - as tenants in common UNIF GIFT MIN ACT - ______________ Custodian ______________
(Cus) (Minors)
TEN ENT - as tenants by their entireties under Uniform Gifts to Minors
Act _________________________
JT TEN - as joint tenants with right of (name)
survivorship and as tenants
in common
</TABLE>
Additional abbreviations may also be used though not in the above line.
For value received, ____________________ hereby sell, assign and transfer unto
PLEASE INSERT SOCIAL SECURITY OR OTHER
IDENTIFICATION NUMBER OF ASSIGNEES
______________________________________
______________________________________
_______________________________________________________________________________
(PLEASE PRINT OR TYPEWRITE NAME AND ADDRESS, INCLUDING ZIP CODE, OF ASSIGNEE)
_______________________________________________________________________________
_______________________________________________________________________________
________________________________________________________________________ shares
of the capital stock represented by the within Certificate, and do hereby
irrevocably constitute and appoint
_______________________________________________________________________Attorney
to transfer the said stock on the books of the within named Corporation
with full power of substitution in the premises.
Dated ________________
_______________________________________________________________
NOTICE: THE SIGNATURE TO THIS ASSIGNMENT MUST CORRESPOND WITH THE NAME
AS WRITTEN UPON THE FACE OF THE CERTIFICATE IN EVERY
PARTICULAR, WITHOUT ALTERATION OR ENLARGEMENT OR ANY CHANGE
WHATEVER.
Signature(s) Guaranteed:
______________________________________________________________
THE SIGNATURE(S) SHOULD BE GUARANTEED BY AN ELIGIBLE GUARANTOR
INSTITUTION BANKS, STOCKBROKERS, SAVINGS AND LOAN ASSOCIATIONS
AND CREDIT UNION WITH MEMBERSHIP IN AN APPROVED SIGNATURE
GUARANTEE MEDALLION PROGRAM, PURSUANT TO S.E.C. RULE 17AD-16.
_______________________________________________________________________________
AMERICAN BANKNOTE COMPANY ??????
550 Old Mill Road PROOF OF APRIL 19 ???
Wordham, PA 10064 DESIGNER HOLDINGS LTD.
215-225-3400 1443625 book
_______________________________________________________________________________
SALESPERSON - J. NAROLITANO 214-225-3400 OP. NEW
_______________________________________________________________________________
/home/larry/homeII/DESIGNER 43825 insert banknote name
_______________________________________________________________________________
<PAGE> 1
Exhibit 5.1
May 6, 1996
Designer Holdings Ltd.
1385 Broadway, Third Floor
New York, New York 10018
Re: Designer Holdings Ltd.
Registration Statement on Form S-1
Ladies and Gentlemen:
We have acted as special counsel to Designer Holdings Ltd., a Delaware
corporation (the "Company"), in connection with the initial public offering by
the Company of up to 6,000,000 shares (including 1,000,000 shares subject to an
over-allotment option) (the "Company Shares") and by a certain stockholder of
the Company (the "Selling Stockholder") of up to 5,500,000 shares (including
500,000 shares subject to an over-allotment option) (the "Selling Stockholder
Shares") and, together with the Company Shares, the "Shares") of the Company's
Common Stock, par value $.01 per share (the "Common Stock").
This opinion is being furnished in accordance with the requirements of
Item 601(b)(5) of Regulation S-K under the Securities Act of 1933, as amended
(the "Act").
In connection with this opinion, we have examined originals or copies,
certified or otherwise identified to our satisfaction, of (i) the Registration
Statement on Form S-1 (File No. 333-2236) as filed with the Securities and
Exchange Commission (the "Commission") on March 11, 1996 under the Act,
Amendment No. 1 thereto filed with the Commission on April 17, 1996, Amendment
No. 2 thereto filed with the Commission on April 22, 1996, and Amendment No. 3
thereto filed with the Commis-
<PAGE> 2
Designer Holdings Ltd.
May 6, 1996
Page 2
sion on May 6, 1996 (such Registration Statement, as so amended, being
hereinafter referred to as the "Registration Statement"), (ii) the form of the
U.S. Purchase Agreement (the "U.S. Purchase Agreement") proposed to be entered
into among the Company, as issuer, the Selling Stockholder and Merrill Lynch,
Pierce, Fenner & Smith Incorporated and Morgan Stanley & Co. Incorporated, as
representatives of the several underwriters named therein (the "U.S.
Underwriters"), filed as an exhibit to the Registration Statement, (iii) the
form of the International Purchase Agreement (the "International Purchase
Agreement" and, together with the U.S. Purchase Agreement, the "Purchase
Agreements") proposed to be entered into among the Company, as issuer, the
Selling Stockholder and Merrill Lynch International Limited and Morgan Stanley &
Co. International Limited, as lead managers of the several managing underwriters
named therein (the "Managers" and, together with the U.S. Underwriters, the
"Underwriters"), filed as an exhibit to the Registration Statement, (iv) a draft
specimen certificate representing the Common Stock, (v) the Certificate of
Incorporation of the Company, as presently in effect, (vi) the By-Laws of the
Company, as presently in effect and (vii) certain resolutions of the Board of
Directors of the Company and drafts of certain resolutions (the "Draft
Resolutions") of the Pricing Committee of the Board of Directors of the Company
(the "Pricing Committee") in each case relating to the issuance and sale of the
Shares and related matters. We have also examined originals or copies, certified
or otherwise identified to our satisfaction, of such records of the Company and
such agreements, certificates of public officials, certificates of officers or
other representatives of the Company and others, and such other documents,
certificates and records as we have deemed necessary or appropriate as a basis
for the opinions set forth herein.
In our examination, we have assumed the legal capacity of all natural
persons, the genuineness of all signatures, the authenticity of all documents
submitted to us as originals, the conformity to original documents of all
documents submitted to us as certified, conformed or photostatic copies and the
authenticity of the originals of such latter documents. In making our
examination of documents executed or to be executed by parties other
<PAGE> 3
Designer Holdings ltd.
May 6, 1996
Page 3
than the Company and the Selling Stockholder, we have assumed that such parties
had or will have the power, corporate or other, to enter into and perform all
obligations thereunder and have also assumed the due authorization by all
requisite action, corporate or other, and execution and delivery by such
parties of such documents and the validity and binding effect thereof. As to
any facts material to the opinions expressed herein which we have not
independently established or verified, we have relied upon statements and
representations of officers and other representatives of the Company and others.
Members of our firm are admitted to the bar in the State of Delaware,
and we do not express any opinion as to the laws of any other jurisdiction.
Based upon and subject to the foregoing, we are of the opinion that:
(1) When (i) the Registration Statement becomes effective, (ii) the
Draft Resolutions have been adopted by the Pricing Committee, (iii) the price
at which the Shares are to be sold to the Underwriters pursuant to the Purchase
Agreements and other matters relating to the issuance and sale of the Shares
have been approved by the Pricing Committee in accordance with the Draft
Resolutions, (iv) the Purchase Agreements have been duly executed and delivered
and (v) certificates representing the Shares substantially in the form of the
specimen certificates examined by us have been manually signed by an authorized
officer of the transfer agent and registrar for the Common Stock and registered
by such transfer agent and registrar, and delivered to and paid for by the
Underwriters at a price per share not less than the per share par value of the
Common Stock, as contemplated by the Purchase Agreements, the issuance and sale
of the Company Shares will have bene duly authorized, and the Company Shares
will be validly issued, fully paid and nonassessable.
(2) The Selling Stockholder Shares have been duly authorized and
validly issued and are fully paid and nonassessable.
<PAGE> 4
Designer Holdings Ltd.
May 6, 1996
Page 4
We hereby consent to the filing of this opinion with the Commission as
an exhibit to the Registration Statement. We also consent to the reference to
our firm under the caption "Legal Matters" in the Registration Statement. In
giving this consent, we do not thereby admit that we are included in the
category of persons whose consent is required under Section 7 of the Act or the
rules and regulations of the Commission.
Very truly yours,
SKADDEN, ARPS, SLATE, MEAGHER & FLOM
<PAGE> 1
EXHIBIT 10.38
22 April 1996
Calvin Klein Jeanswear Company
1385 Broadway
Suite #305
New York, NY 10018
Re: Calvin Klein Inc. ("Licensor") with Calvin Klein Jeanswear Company
("Licensee"): Jeans and Khaki Apparel License
Ladies and Gentlemen:
We are parties to a license agreement dated 4 August 1994 as amended
("Agreement") regarding the use of the marks "CALVIN KLEIN" and "CK/CALVIN
KLEIN" in the Form of "CK/CALVIN KLEIN JEANS" and "CALVIN KLEIN JEANS" on and
in connection with the sale of certain jeans, khaki, and related apparel
Articles in the U.S. and certain other jurisdictions.
Capitalized terms not defined herein shall have the meanings set forth in the
Agreement, the Khaki Amendment and the Canada Amendment (as hereinafter
respectively defined). Subject to and effective upon Licensor's receipt of a
five percent (5%) equity interest in Designer Holdings Ltd. ("DHL") pursuant to
an acquisition agreement dated as of the date hereof, among Licensor, Licensee,
and DHL, the parties hereby agree as follows:
1. The first sentence of Section 1.1(a) shall be amended and restated to read
as follows:
"1.1(a) Licensor hereby grants to Licensee an exclusive license even as
against Licensor, except as otherwise provided herein, only throughout (a)
the United States of America, its territories and possessions, (b) Mexico,
(c) Guatemala, Belize, El Salvador, Honduras, Nicaragua, Costa Rica, Panama,
the British West Indies [jurisdictions to be specified] and the Greater
Antilles [jurisdiction to be specified] but specifically excluding Cuba
(referred to hereinafter as "Central America") (d) Columbia, Ecuador,
Brazil, Peru, Bolivia, Paraguay, Chile, Venezuela, Guyana, Suriname, and
French Guyana, (referred to hereinafter as "South America") and (e) Canada,
(the United States, its territories and possessions, together with Mexico,
Central America and South America and Canada, referred to hereinafter as
the "Territory") to use the marks "CALVIN KLEIN" and "CK/CALVIN KLEIN" as
per the attached Exhibit A, or the then current version of the marks "CALVIN
KLEIN" and "CK/CALVIN KLEIN" generally being utilized by Licensor and its
licensees on apparel (referred to hereinafter as the "Licensed Marks") in
the form of the logos "CALVIN KLEIN JEANS", "CK/CALVIN KLEIN JEANS", and
"CK/CALVIN KLEIN JEANS KHAKIS", as applicable, as per the attached Exhibit
A, or the then current version of the logos "CALVIN KLEIN JEANS", "CK/CALVIN
KLEIN JEANS", and "CK/CALVIN KLEIN JEANS KHAKIS", as applicable, approved by
Licensor (the "Form"), on and in connection with the distribution and sale
at wholesale solely of certain men's and women's jeans and jeans-related
items, and boys' and girls' jeans and jeans-related items, and certain men's
and women's "khaki" pants, skirts, shorts and "khaki" related items as are
set forth on Exhibit B hereto; provided that, Licensee
1
<PAGE> 2
acknowledges that Licensor has retained the rights specified in Section 1.2.
Licensee shall be entitled to manufacture, or to have manufactured on its
behalf, Articles anywhere in the world for distribution and sale within the
Territory. In the event the version of the Licensed Marks and/or the Form
are changed, Licensor will so notify Licensee. Licensee shall effect such
change as promptly as practicable, with respect to Licensee's next selling
season; provided, that, to the extent Licensee has inventory of Articles or
other items (e.g., tags, labels) in inventory, Licensee may continue to sell
such Articles bearing the then existing version of the Form (and may utilize
its current inventory of such other items) for a period of up to six (6)
months following the date Licensee receives such notice."
2. Upon termination of the license between Licensor and a third party licensee,
regarding sales of certain jeans apparel in Argentina and Uruguay, Licensor
will notify Licensee in writing and if Licensee wishes to add such
jurisdictions to the Territory, it will promptly (within ten (10) business
days) notify Licensor of such intent in writing. The parties will thereupon
promptly enter into an amendment adding such jurisdictions to the Territory.
3. Section 2.1 shall be amended and restated to read as follows:
"2.1 The initial term of this Agreement will commence as of the date hereof,
and continue through December 31, 2034, unless sooner terminated in
accordance with the provisions hereof. The period commencing on the date
hereof and continuing through December 31, 1994 shall constitute and shall
be referred to as the "Initial Period." Each twelve (12) month period
commencing on each January 1 during the term of this Agreement (or any
extension thereof) shall each constitute and be referred to as an "Annual
Period." Licensee shall have the option to renew this Agreement for one (1)
additional ten (10) year term, commencing January 1, 2035 provided: (a)
Licensee has not delivered to Licensor written notice of its intention not
to renew this Agreement on a date at least six (6) months prior to the
expiration of the initial term, (b) during the twelve (12) months ending 30
June 2034 Licensee has attained Net Sales (i) within the United States and
Mexico of at least US $375 million and, (ii) within Canada of at least US
$35 million, and (c) Licensee is in material compliance with all the terms
of this Agreement on the exercise date of the option and on the last day of
the initial term (31 December 2034).
4. A new Section 2.2 shall be added to read as follows:
"2.2 Licensor may terminate this Agreement upon at least six (6) months'
prior written notice: (a) unless Licensee's Net Sales for the United States,
Mexico and Canada for at least one of the Annual Periods in a "Grouping"
specified in the table below are at least equal to the applicable Minimum
Net Sales Thresholds set forth therein or (b) if Licensee shall have
satisfied the requirements of Section 2.2(a) for one of the Annual Periods
in a Grouping, but Licensee's Net Sales for the United States, Mexico and
Canada for the subsequent Annual Period or subsequent two (2) Annual Periods
represents (i) less than 75% of the Net Sales for the Annual Period for
which such Net Sales Threshold was met, and (ii) less than 90% of the
Minimum Net Sales Threshold for the Annual Periods in such Grouping.
Minimum Net Sales Threshold
Annual Period Grouping (United States, Mexico and Canada)
---------------------- ----------------------------------
7th, 8th and 9th Annual Period US $205 million
2
<PAGE> 3
17th, 18th and 19th Annual Period US $269 million
27th, 28th and 29th Annual Period US $344 million
Notwithstanding the foregoing, if Licensee promptly submits to Licensor
(within 60 days following the close of the applicable Annual Period) for its
approval, a business plan indicating attainment of the Minimum Net Sales
Threshold for such Grouping during one of the next two Annual Periods
("Catch-up Periods"), and Licensor approves such plan (which approval shall
not be unreasonably withheld), Licensor's right to terminate this Agreement
shall be suspended, and if Licensee's Net Sales for the United States,
Mexico and Canada for either of the Catch-up Periods is at least equal to
such Minimum Net Sales Threshold, then it shall be deemed to have satisfied
this Section 2.2 with respect to the Grouping in question."
5. The third sentence of Section 7.1 shall be amended to read as follows:
"Notwithstanding the foregoing, the amount payable by Licensee to Licensor
hereunder shall in no event be less than the minimum guaranteed fee (the
"Minimum Guaranteed Fee") which shall be payable for the Initial Period and
for each Annual Period during the Term (including the renewal term)
hereunder, as follows:
<TABLE>
<CAPTION>
Period/Term Minimum Guaranteed Fee
----------- -----------------------
<S> <C>
Initial Period (1994). US $1,624,658
Each of 1st and 2nd Annual Period (1995 and 1996). US $4.42 million
3rd Annual Period (1997). US $6.4 million
Each of the 4th and 5th US $6.75 million
Annual Periods (1998-1999).
6th Annual Period (2000). US $7.75 million
7th Annual Period (2001). US $8.1 million
8th Annual Period (2002). US $9.1 million
9th Annual Period (2003). US $10.1 million
10th Annual Period (2004). US $11.1 million
Each of the 11th through the US $13.0 million (but not
20th Annual Periods (2005-2014). less than seventy-five
percent (75%) of the
Percentage Fee earned
during the tenth (10th)
Annual Period).
Each of the 21st through the US $17 million (but not
30th Annual Periods (2015-2024). less than seventy-five
percent (75%) of the
Percentage Fee earned
during the twentieth
(20th) Annual Period).
Each of the 31st through the US $22 million (but not
40th Annual Periods (2025-2034). less than seventy-five
percent (75%) of the
Percentage Fee earned
during the thirtieth
(30th) Annual Period).
Each Annual Period, during US $27 million (but not
the renewal term (2035-2044). less than seventy-five
percent (75%) of the
Percentage Fee earned
during
</TABLE>
3
<PAGE> 4
the fortieth (40th)
Annual Period).
The Minimum Guaranteed Fees shall be credited towards the Percentage Fees
payable with respect to sales of all Articles. However, the Percentage Fees
payable shall be separately computed with respect to Khaki Articles and
other Articles covered by this Agreement.
6. However, of the foregoing Minimum Guaranteed Fees set forth above (as
originally provided in the Khaki Amendment), the amounts indicated below
shall not be subject to the "offset" provisions contained in Section 7.4 of
the Agreement.
<TABLE>
<CAPTION>
Annual Period/Year US $
------------------ ----
<S> <C> <C>
Each of 1 and 2 (1995-6) $420,000
3 (1997) $1.4 million
Each of 4, 5 and 6 (1998-2000) $1.75 million
Each of 7, 8, 9, and 10 (2001-2004) $2.1 million
Each of 11 through 20 (2005-2014) $2.5 million
Each of 21 through 30 (2015-2024) $3 million
Each of 31 through 40 (2025-2034) $4 million
Each of 41 through 50 (2035-2044) $6 million
</TABLE>
7. Section 11.1(b) shall be amended to read as follows:
"(b) If (i) Licensee shall (A) fail to observe any covenant contained in
Section 13.1(d) or (B) Licensee shall default in respect of the payment of
any amounts owing under any Debt, the outstanding principal amount of which
Debt equals or exceeds $5,000,000, and in the case of clause (B), such
default remains uncured after the relevant grace period, if any, set forth
in such Debt instrument or agreement and the creditor under such Debt
instrument exercises its rights (whether of termination, acceleration, or
otherwise), or (ii) (A) Holdings shall default in respect of the payments of
any amounts owing under any Debt, the outstanding principal amount of which
Debt equals or exceeds $5,000,000 (the "Holdings Debt"), and such default
remains uncured after the relevant grace period, if any, set forth in such
Debt instrument or agreement and the creditor under such Debt instrument
exercises its rights (whether of termination, acceleration or otherwise), or
(B) in the event that any Holdings Debt, the outstanding principal amount of
which equals or exceeds $5,000,000 has been accelerated in accordance with
its terms, then Licensor, in any such case, shall have the right to
terminate this Agreement by written notice forthwith; provided, that, with
respect solely to clause (ii)(B) above, if and of the extent Holdings
is disputing such acceleration in good faith and the entire amount of the
accelerated Holdings Debt is provided for in the form of a bond, letter of
credit or other reasonably acceptable third party guarantee, Licensor may
not terminate this Agreement until such time as Licensee is no longer
disputing such acceleration or such bond, letter of credit or other third
party guarantee is no longer in full force and effect. Licensee (and
Holdings, as applicable) shall provide prompt written notice to Licensor in
the event of any such default under (i)(B) or (ii)(B) above, and shall
advise of the relevant grace period and the action or intended action of the
applicable creditor (including a copy of any notices received by Licensee or
DHL from such creditor). Notwithstanding the foregoing, in the event either
Licensee or Holdings enters into a material debt instrument with a third
party commercial lender which provides for a default threshold higher than
$5 million dollars, then the $5 million amount of the Debt referred to above
shall be increased to such higher amount, provided notice and satisfactory
evidence of the same is delivered to Licensor.
4
<PAGE> 5
8. The following provisions of the amendment dated 28 February 1995
("Khaki Amendment") are amended as follows:
(i) Section B of the Khaki Amendment shall be deleted, the term of the
grant with respect to Khaki Articles shall be for the full term of the
Agreement (and any extension thereof).
(ii) Sections 4 and 6 and the second sentence of Section 5 of the Khaki
Amendment shall be deleted; Net Sales of Khaki Articles shall be
credited towards the Minimum Net Sales thresholds provided for Renewal
purposes; and Khaki Articles may be sold throughout the Territory
covered by the Agreement.
(iii) Section 3 of the Khaki Amendment shall be amended and restated to
read as follows:
"The "Net Sales" of such Khaki Articles during the fourth Annual Period
must be at least U.S. $25 million. In the event Licensee fails to have
aggregate Net Sales of Khaki Articles of at least U.S. $25 million in
the fourth Annual Period (1998), Licensor shall have the right to cause
reversion of the grant of the license to Licensor with respect to Khaki
Articles upon written notice to Licensee, effective six (6) months
following the date of such notice, which notice may only be given within
60 days of Licensor's receipt of Licensee's certified statement
delivered pursuant to Section 7.5 of the Agreement for such Annual
Period."
9. Except for Sections 5 and 6 (superceded by the provisions of this
amendment) of the amendment dated 10 January 1995 ("Canada Amendment"),
the terms contained therein, including, but not by way of limitation,
separate Minimum Guaranteed Fees and separate Minimum Advertising
Expenditures, remain in full force and effect as originally stated
therein.
10. By amendment dated 7 December 1994, Licensor granted Licensee the right
to produce, distribute and sell a certain style or styles of baseball
cap(s), bearing the Form in the Territory on a non-exclusive, season to
season basis only. Henceforth, such non-exclusive grant shall be for the
full term of the Agreement (and any extension thereof) and such
Products, as approved under the terms of the Agreement, shall be
considered Articles.
11. Except as otherwise provided herein, all of the provisions of the
Agreement shall remain in full force and effect.
12. This amendment may not be amended, modified, terminated or discharged
orally.
If the foregoing sets forth your understanding with respect to the subject
matter hereof, please so indicate by signing below.
Very truly yours,
Calvin Klein, Inc.
By /s/ Barry Schwartz
___________________________
5
<PAGE> 6
Agreed to:
Calvin Klein Jeanswear Company
By: /s/
---------------------------
6
<PAGE> 1
EXHIBIT 10.39
NORTH ARLINGTON ASSOCIATES
375 Route 1 & 9 South
Jersey City, New Jersey 07306
February 22, 1996
RIO-SPORTSWEAR, INC.
1385 Broadway, Suite 305
New York, New York 10018
CALVIN KLEIN JEANSWEAR COMPANY
1385 Broadway, Suite 305
New York, New York 10018
Re: Net Lease as of April 28, 1995, as amended by
Letter Agreement dated May, 1995 (the "Lease")
between North Arlington Associates, as lessor ("Lessor")
and Rio Sportswear, Inc., as initial lessee ("Lessee")
Gentlemen:
Reference is hereby made to the Lease. Capitalized terms used herein
and not separately defined in this letter agreement ("Second Amendment") shall
have the respective meanings set forth in the Lease. This Second Amendment
shall, and is intended to, confirm our agreement as follows with regard to the
Lease notwithstanding anything to the contrary contained therein:
1. The Blowout Date referred to in Section 20 I is hereby extended
until March 15, 1997.
2. For all purposes under the Lease, the Lessee is hereby deemed
to be CALVIN KLEIN JEANSWEAR COMPANY a Delaware Corporation ("CKJ") as if CKJ
initially signed the Lease. CKJ shall have all of the rights and liabilities of
the Lessee under the Lease, as modified by this Second Amendment. CKJ hereby
represents and warrants to Lessor that the execution and delivery of this
Second Amendment has been approved and ratified by all necessary corporate
action.
<PAGE> 2
RIO-SPORTSWEAR, INC.
CALVIN KLEIN JEANSWEAR COMPANY
February 22, 1996
Page 2
Except as expressly modified above, the Lease shall be and continue to
be unmodified and in full force and effect. If the foregoing accurately sets
forth our agreement, please sign this letter in the space provided for below.
Very truly yours,
NORTH ARLINGTON ASSOCIATES
By: /s/ MYRON FELDMAN
----------------------
Name: MYRON FELDMAN
Title: PARTNER
ACCEPTED AND AGREED TO:
RIO-SPORTSWEAR, INC.
By: /s/
--------------------------
Name:
Title:
CALVIN KLEIN JEANSWEAR COMPANY
By: /s/
--------------------------
Name:
Title:
<PAGE> 1
Exhibit 10.40
DESIGNER HOLDINGS LTD.
1385 Broadway
New York, New York 10018
April 22, 1996
Calvin Klein, Inc.
205 West 39th Street
New York, NY 10018
Attention: Mr. Barry Schwartz
Dear Barry:
The purpose of this letter is to set forth our agreement with respect
to the transfer of an equity interest in Designer Holdings Ltd. ("Designer
Holdings") to Calvin Klein, Inc. ("CKI") and the amendment of the license
agreement (the "License Agreement"), dated August 4, 1994, as amended, by and
between CKI and Calvin Klein Jeanswear Company ("Jeanswear"). Jeanswear is an
indirect, wholly owned subsidiary of New Rio, L.L.C. ("New Rio"). Prior to the
transfer hereunder, Designer Holdings shall be merged with and into Denim
Holdings, Inc., a direct, wholly owned subsidiary of New Rio, and Denim
Holdings, Inc. shall change its name to "Designer Holdings Ltd." (the "Merger").
In consideration of the mutual covenants and representations and
warranties of the parties, CKI and Designer Holdings hereby agree as follows:
1. Amendment to License Agreement. Concurrently with and as
------------------------------
consideration for the execution and delivery hereof, the amendment to the
License Agreement attached hereto as Exhibit A shall be executed and delivered
by CKI and Jeanswear.
2. Transfer. As consideration for the amendment to the License
--------
Agrement, following the Merger, Designer Holdings shall issue to CKI (the
"Stock Transfer") 1,275,466 shares of its non-voting common stock, which shall
be convertible at the option of the holder at any time and from time to time
into an equal number of shares of the common stock, par value $.01 per share,
of Designer Holdings ("Common Stock"). The term "CKI Stock" shall
<PAGE> 2
mean the 1,275,466 shares of non-voting common stock to be issued pursuant to
the Stock Transfer and shall include any shares of Common Stock into which such
shares of non-voting stock are converted.
3. Restrictions on Transfer. CKI shall not, directly or
------------------------
indirectly, sell, assign, transfer, pledge or otherwise encumber or dispose of
(collectively, "Transfer") all or part of the CKI Stock until the date 18
months following the earlier of (a) consummation of the IPO and (b) June 30,
1996 except pursuant to the piggyback rights granted below, and any purported
Transfer of any of the CKI Stock prior to the end of such 18 months shall be
null and void ab initio. Notwithstanding the foregoing to the contrary, CKI may
-- ------
pledge the CKI Stock to one or more lenders as collateral security for a bona
fide loan that is with full recourse to CKI, and, at any time after the date
that is six months after the consummation of the IPO, such lenders may sell any
shares of CKI Stock that they have foreclosed upon following (i) an event of
default on the loan to CKI and (ii) demand by such lenders for payment from
CKI. CKI shall notify Designer Holdings in writing prior to any such pledge, and
as a condition to obtaining such pledge, all such lenders shall agree in
writing to be bound by the provisions of the first sentence of this Section 3
and Registration Rights Agreement (as defined below) to the same extent that
such provisions apply to CKI.
4. Registration Rights. As soon as practicable after the
-------------------
execution and delivery of this Agreement, Designer Holding and CKI shall enter
into a registration rights agreement (the "Registration Rights Agreement") that
shall entitle CKI to exercise piggyback registration rights in connection with
registration statements filed by Designer Holdings (other than on Forms S-4 and
S-8) following completion of the IPO, and shares of CKI Stock that are pledged
to lenders as permitted by Section 3 of this Agreement shall enjoy the benefit
of such piggyback rights and such lenders shall also be entitled to a demand
registration right for the shares of CKI Stock pledged to such lenders
following foreclosure in accordance with the second sentence of Section 3,
provided that before such lenders shall be entitled to exercise such demand
registration right, they shall have in good faith taken substantial steps to
pursue and obtain the collection of the obligations owed to them from CKI and
2
<PAGE> 3
from all other persons, if any, obligated in respect of the loan secured by
such stock. CKI shall not be entitled to any demand registration rights. The
registration rights granted with respect to the CKI Stock shall pertain only to
the shares of Common Stock into which any shares of non-voting common stock have
been converted, and Designer Holdings shall not be required to register any
share of non-voting common stock. The Registration Rights Agreement shall
contain customary terms, including, without limitation, customary provisions
enabling Designer Holdings and underwriters to cut back the number of piggyback
shares included in a registration statement and customary provisions concerning
costs. Notwithstanding the first sentence of Section 3 of this Agreement, CKI
may exercise its piggyback registration rights, and sell CKI Stock under such
registration statement, at any time following completion of the IPO.
5. Representations. (a) Designer Holdings is a corporation duly
---------------
organized, validly existing and in good standing under the laws of the State
of Delaware. Designer Holdings represents and warrants that it has full power
and authority to enter into this Agreement and that, prior to the consummation
of the Stock Transfer, the transactions contemplated hereby shall have been
authorized by all necessary corporate action on the part of Designer Holdings.
Following the completion of the Merger, Jeanswear shall be a wholly owned
subsidiary of Designer Holdings. Designer Holdings further represents and
warrants that (i) there are no options, rights, agreements or understandings to
issue additional stock of Designer Holdings other than in connection with the
IPO (including pursuant to the reserved shares program that is a part of the
IPO and shares reserved for issuance pursuant to employee stock options), (ii)
following consummation of the Merger, the authorized capital of Designer
Holdings shall consist of 75,000,000 shares of Common Stock, 1,300,000 shares
of non-voting common stock and 15,000,000 shares of preferred stock, (iii)
assuming completion of the Stock Transfer, following completion of the Merger
all the issued and outstanding shares of capital stock of Designer Holdings
shall consist of 24,233,868 shares of Common Stock and 1,275,466 shares of
non-voting common stock and (iv) assuming the issuance of only the CKI Stock
and the 24,233,868 shares of Common Stock to be issued in connection with the
Merger and before consummation of the IPO, the CKI Stock would con-
3
<PAGE> 4
stitute approximately 5.00% of the equity of Designer Holdings that would be
outstanding, provided that nothing in this Agreement shall entitle CKI to any
adjustment of the number of shares of CKI Stock on account of any subsequent
issuance of equity securities by Designer Holdings or any other event.
(b) CKI represents and warrants that it has full power and authority to
enter into this Agreement. CKI acknowledges that the CKI Stock has not been
registered under federal or state securities laws and that the CKI stock is not
transferable except pursuant to an effective registration statement under the
Securities Act of 1933, as amended or an applicable exemption from such
registration requirement, that CKI is familiar with the business and condition
of Denim Holdings and its subsidiaries and that it has had an opportunity to
make its own investigation of such business and condition and to ask questions
of the officers and managers, that CKI is an "accredited investor" within the
meaning of the federal securities laws, and that it is acquiring the CKI Stock
without a view to distribution. The issuance of the CKI Stock pursuant to this
Agreement does not require any filing under the Hart-Scott-Rodino Antitrust
Improvements Act of 1978, as amended.
6. Covenants. Designer Holdings agrees that from the date hereof until
---------
the consummation of the IPO, it shall not issue any shares of capital stock or
securities convertible into or exchangeable for capital stock other than the CKI
Stock, Common Stock issued pursuant to the IPO, stock options with an exercise
price equal to at least the initial offering price of the IPO and that are
granted pursuant to any stock option plan adopted for the benefit of officers,
directors or employees of Designer Holdings and its subsidiaries and approved by
the Board of Directors and shares of Common Stock issued pursuant to such
options. To the extent that the conversion of the CKI Stock requires any filing
under the Hart-Scott-Rodino Antitrust Improvements Act of 1978, as amended (the
"Act"), the parties shall make the requisite filings and use their best efforts
to achieve early termination of the applicable waiting period under the Act.
7. Delivery of Stock Certificates. Upon the consummation of the Stock
------------------------------
Transfer, Designer Holdings shall deliver to CKI certificates representing the
CKI Stock,
4
<PAGE> 5
which certificates shall bear the appropriate legend regarding restriction on
transfer pursuant to this Agreement and the lack of registration under federal
and state securities laws. Designer Holdings represents that (a) the shares of
CKI Stock conveyed under this Agreement shall be validly issued, fully paid and
non-assessable, (b) Designer Holdings shall reserve and keep available, free
from preemptive rights, out of its authorized but unissued Common Stock, solely
for the purpose of issuance upon conversion of the CKI Stock, that number of
shares of Common Stock into which the CKI Stock (in the form of non-voting
common stock) is convertible and (c) when the CKI Stock is converted into shares
of Common Stock, such shares of Common Stock shall be validly issued, fully paid
and non-assessable.
8. Specific Performance. The parties recognize that the obligations imposed
--------------------
on them in this Agreement are special, unique and of extraordinary character,
and that in the event of breach by any party, damages will be an insufficient
remedy; consequently, it is agreed that the parties hereto may have specific
performance (in addition to damages) as a remedy for the enforcement hereof,
without proving damages.
5
<PAGE> 6
Please indicate your concurrence with the foregoing by executing the
enclosed copies and returning one fully executed copy to us.
Very truly yours,
DESIGNER HOLDINGS LTD.
By: /s/ Arnold H. Simon
------------------------
Arnold H. Simon
Chief Executive Officer
Agreed:
CALVIN KLEIN, INC.
By: /s/ Barry Schwartz
------------------------
Name:
Title:
Date: April 22, 1996
<PAGE> 1
EXHIBIT 23.1
CONSENT OF INDEPENDENT ACCOUNTANTS
We consent to the inclusion in this Amendment No. 3 to the Registration
Statement of Designer Holdings Ltd. on Form S-1 (No. 333-2236) of our reports
dated February 29, 1996, except for Note 1, the tenth paragraph of Note 11, the
thirteenth paragraph of Note 13 and Note 16, for which the date is April 22,
1996, on our audits of the financial statements and financial statement schedule
of Designer Holdings Ltd. We also consent to the reference to our firm under the
caption "Experts."
COOPERS & LYBRAND L.L.P.
New York, New York
May 3, 1996
<PAGE> 1
EXHIBIT 23.2
CONSENT OF INDEPENDENT AUDITORS
We consent to the use in this Amendment No. 3 to the Registration Statement
of Designer Holdings Ltd. on Form S-1 (No. 333-2236) of our report dated April
1, 1994 on the combined statements of operations, stockholders' equity and cash
flows of Rio Sportswear, Inc. and affiliated companies for the year ended
December 31, 1993, appearing in the Prospectus, which is part of this
Registration Statement and to the reference to us under the heading "Experts" in
such Prospectus.
Our audit of the financial statements referred to in our aforementioned
report also included the financial statement schedule of Rio Sportswear, Inc.
and affiliated companies, listed in Item 16. This financial statement schedule
is the responsibility of the Company's management. Our responsibility is to
express an opinion based on our audit. In our opinion, such financial statement
schedule, when considered in relation to the basic financial statements taken as
a whole, presents fairly, in all material respects, the information set forth
therein.
Deloitte & Touche LLP
New York, New York
May 3, 1996
