<PAGE> 1
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 1996
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from to
Commission File Number 1-11707
DESIGNER HOLDINGS LTD.
(Exact name of registrant as specified in its charter)
Delaware 13-3818542
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
1385 Broadway, 3rd Floor
New York, New York 10018
(Address of principal executive offices)
212-556-9600
(Registrant's telephone number, including area code)
Copies of all communications to:
Designer Holdings Ltd.
1385 Broadway, 3rd floor
New York, New York 10018
212-556-9600
Attention: John J. Jones, Esq., General Counsel
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes [ X ] No [ ]
The number of shares outstanding of the registrant's Common Stock as of
November 14, 1996 is as follows: 32,159,334
<PAGE> 2
DESIGNER HOLDINGS LTD.
INDEX
<TABLE>
<CAPTION>
Part I - Financial Information Page No.
---------
<S> <C>
Item 1. Financial Statements:
Condensed Consolidated Balance Sheets as of
September 30, 1996 and December 31, 1995 3
Condensed Consolidated Statements of Operations
For the Three and Nine Months Ended
September 30, 1996 and 1995 4
Condensed Consolidated Statements of Cash Flows
For the Nine Months Ended September 30,
1996 and 1995 5
Notes to Condensed Consolidated Financial Statements 6-10
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 11-16
Part II - Other Information
Item 1. Legal Proceedings 17
Item 5. Other Information 17
Item 6. Exhibits and Reports on Form 8-K 17
Signatures 18
</TABLE>
<PAGE> 3
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
DESIGNER HOLDINGS LTD.
CONDENSED CONSOLIDATED BALANCE SHEETS
(In thousands, except share data)
<TABLE>
<CAPTION>
SEPTEMBER 30, DECEMBER 31,
1996 1995
------------- -----------
(Unaudited)
<S> <C> <C>
ASSETS
Current assets:
Receivables, net $115,956 $118,400
Inventory 90,978 69,510
Deferred tax assets 9,716 8,065
Prepaid expenses and other
current assets 4,860 3,625
-------- --------
Total current assets 221,510 199,600
Property, plant and equipment, net 10,365 4,953
Prepaid royalties, net 4,975 6,084
Intangible assets, net 108,933 34,880
Other assets 5,429 5,297
-------- --------
Total assets $351,212 $250,814
======== ========
LIABILITIES AND STOCKHOLDER'S EQUITY
Current liabilities:
Current portion of long-term debt $ 5,000 $ 5,000
Current portion of licensing rights payable 23,013 --
Revolving credit loans 45,947 97,016
Accounts payable 38,423 24,857
Accrued expenses 24,956 30,090
Income taxes payable 101 10,966
-------- --------
Total current liabilities 137,440 167,929
Long-term debt, less current portion 7,500 50,403
Licensing rights payable, less current portion 24,724
Deferred tax liabilities 867
Commitments and contingencies
Stockholder's equity:
Common stock, par value $.01 per share;
authorized 75,000,000 shares; issued and
outstanding 32,159,334 and 24,233,868 shares
pursuant to the stock split in April 1996 321 242
Paid-in capital 148,236 20,121
Retained earnings 32,124 12,119
-------- --------
Total stockholder's equity 180,681 32,482
-------- --------
Total liabilities and
stockholder's equity $351,212 $250,814
======== ========
</TABLE>
The accompanying notes are an integral part of the condensed consolidated
financial statements.
3
<PAGE> 4
DESIGNER HOLDINGS LTD.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands, except share data)
<TABLE>
<CAPTION>
THREE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
----------------------------- -----------------------------
1996 1995 1996 1995
----------- ----------- ----------- -----------
(Unaudited) (Unaudited)
<S> <C> <C> <C> <C>
Net revenues $ 136,884 $ 128,325 $ 356,487 $ 302,816
Cost of goods sold 84,396 91,096 220,917 214,613
----------- ----------- ----------- -----------
Gross profit 52,488 37,229 135,570 88,203
Selling, general and administrative
expenses 30,099 24,519 85,184 61,333
----------- ----------- ----------- -----------
Operating income 22,389 12,710 50,386 26,870
Interest expense 1,527 4,677 9,162 10,366
----------- ----------- ----------- -----------
Income before income taxes
and extraordinary item 20,862 8,033 41,224 16,504
Provision for income taxes 9,596 4,101 18,963 8,601
----------- ----------- ----------- -----------
Income before extraordinary item 11,266 3,932 22,261 7,903
Extraordinary loss on
debt extinguishment -- -- 2,256 --
----------- ----------- ----------- -----------
Net income $ 11,266 $ 3,932 $ 20,005 $ 7,903
=========== =========== =========== ===========
Income per share before
extraordinary item $ .35 $ .16 $ .78 $ .33
=========== =========== =========== ===========
Net income per share $ .35 $ .16 $ .70 $ .33
=========== =========== =========== ===========
Weighted average common shares
outstanding 32,477,222 24,233,868 28,710,441 24,233,868
=========== =========== =========== ===========
</TABLE>
The accompanying notes are an integral part of the condensed consolidated
financial statements.
4
<PAGE> 5
DESIGNER HOLDINGS LTD.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands, except share data)
<TABLE>
<CAPTION>
NINE MONTHS ENDED
SEPTEMBER 30,
---------------------
1996 1995
---- ----
(Unaudited)
<S> <C> <C>
Cash flows from operating activities:
Net income $ 20,005 $ 7,905
Adjustments to reconcile net income to
cash (used in) operating activities:
Depreciation 997 403
Amortization 2,270 1,980
Loss on disposal of fixed assets -- 91
Deferred interest (paid) accrued (1,653) 1,020
Deferred income taxes 11 (3,309)
Extraordinary item 4,103 --
Changes in assets and liabilities:
Receivables 2,444 (73,309)
Inventory (21,468) (69,904)
Prepaid expenses (1,235) (1,507)
Prepaid royalties 1,500 1,500
Other assets (2,806) 168
Accounts payable 13,566 6,032
Accrued expenses (8,337) 35,734
Income taxes payable (10,865) 6,691
--------- ---------
Net cash (used in) operating activities (1,468) (86,505)
--------- ---------
Cash flows from investing activities:
Acquisition of DKNY Jeans license (6,000) --
Purchases of equipment (5.206) (2,462)
--------- ---------
Net cash (used in) investing activities (11,206) (2,462)
--------- ---------
Cash flows from financing activities:
Payment of notes payable to related party -- (45,181)
Payments to factor -- (4,602)
(Decrease) increase in revolving credit loans (51,069) 98,870
(Repayment of) proceeds from term loan (11,250) 25,000
(Repayment of) proceeds from senior subordinated notes (30,000) 30,000
Payments of notes payable to factor -- (10,000)
Distributions to stockholders/partners -- (1,495)
Financing costs paid -- (5,057)
Proceeds from sale of common stock 119,640 --
Payment of debt retirement costs ( 2,998) --
Payment of stock issuance costs (11,649) --
--------- ---------
Net cash provided by financing activities 12,674 87,535
--------- ---------
Net increase (decrease) in cash -- (1,432)
Cash, beginning of period -- 1,432
--------- ---------
Cash, end of period $ -- $ --
========= =========
</TABLE>
The accompanying notes are an integral part of the condensed consolidated
financial statements.
5
<PAGE> 6
DESIGNER HOLDINGS LTD.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(In thousands, except share data)
1. ORGANIZATION AND BASIS OF PRESENTATION:
Designer Holdings Ltd. (the "Company") was incorporated on March 27, 1995 for
the purpose of consolidating the ownership interests of Rio Sportswear, Inc.
("Rio Sportswear") and Jeanswear Holdings, Inc., the holding company for Calvin
Klein Jeanswear Company. As of September 30, 1996, 52.2% of the Company's
outstanding common stock was owned by New Rio L.L.C. ("New Rio"), whose
controlling equityholders are Arnold H. Simon, President and Chief Executive
Officer of the Company, and Charterhouse Equity Partners II, L.P. All
significant intercompany balances and transactions have been eliminated.
The accompanying condensed consolidated financial statements have been prepared
pursuant to the rules and regulations of the Securities and Exchange Commission
("SEC"). Certain information and footnote disclosures normally included in
financial statements prepared in accordance with generally accepted accounting
principles have been condensed or omitted pursuant to such rules and
regulations. In the opinion of management, these statements include all
adjustments, consisting only of normal recurring accruals, considered necessary
for a fair presentation of financial position, results of operations and cash
flows. Results of operations for interim periods are not necessarily indicative
of results for the full year.
The year-end condensed consolidated balance sheet data was derived from audited
financial statements, but does not include all disclosures required by generally
accepted accounting principles. The condensed consolidated financial statements
should be read in conjunction with the financial statements and notes thereto
included in the Company's registration statement on Form S-1, as amended (SEC
File No.333-13097), declared effective by the SEC on November 1, 1996.
2. INITIAL PUBLIC OFFERING AND STOCK SPLIT:
On May 9, 1996, the Company consummated an initial public offering of 13,800,000
shares of its common stock for $18.00 per share. Of the total shares offered,
the Company sold 6,650,000 shares and New Rio sold 7,150,000 shares. Net
proceeds to the Company, after underwriting discounts and expenses, were
approximately $108.1 million. Net proceeds to the Company were used primarily to
reduce indebtedness, including approximately $37.0 million to retire a
subordinated loan, including approximately $3.0 million relating to a prepayment
penalty, and $71.1 million to reduce indebtedness under the credit agreement.
The prepayment penalty and the write-off of deferred financing costs associated
with the subordinated loan, which aggregated approximately $2.3 million, net of
applicable tax effects, was reported as an extraordinary loss in the second
quarter of 1996.
In contemplation of the initial public offering of the Company's common stock,
on April 22, 1996, the Company increased the number of shares 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 condensed consolidated financial statements of the
Company have been restated to reflect the foregoing.
6
<PAGE> 7
3. INVENTORY:
Inventory is stated at the lower of cost, determined by the average cost method,
or market, and consists of the following:
<TABLE>
<CAPTION>
September 30, December 31,
1996 1995
------- -------
<S> <C> <C>
Raw materials $ 805 $ 1,536
Work-in-process 2,895 4,091
Finished goods 87,278 63,883
------- -------
$90,978 $69,510
======= =======
</TABLE>
4. DKNY LICENSE:
On September 27, 1996, the Company (through its wholly-owned subsidiaries)
entered into a 30-year licensing agreement with a subsidiary of Donna Karan
International Inc. ("Donna Karan International") for the exclusive production,
sale and distribution of mens, womens and, with certain exceptions, childrens
jeanswear under the DKNY Jeans Label (the "DKNY Jeans Label"), for an aggregate
purchase price of $60 million. Under the terms of the agreement (the "DKNY Jeans
License"), the Company made an initial payment of $6 million and will make
subsequent payments of $24 million on June 1, 1997 and $10 million on each of
June 1, 1998, 1999 and 2000 without interest. As a result, the Company has
recorded a payable of $47.7 million, net of unamortized discount of $6.3
million, based upon an imputed interest rate of 7.35%. Accordingly, intangible
licensing rights of $53.7 million have been recognized on the condensed
consolidated balance sheet as of September 30, 1996.
The DKNY Jeans License requires the Company to pay annual royalties of 7% on
worldwide net sales of DKNY Jeans Label products, as well as an additional
administrative fee of 2% of international net sales. The Company must also pay
at least 3% of net sales of DKNY Jeans Label products to Donna Karan
International, to be spent on consumer media and outdoor advertising. The
initial quarterly guaranteed minimum royalty installment for 1997 of $1.26
million has been paid, and is included in prepaid expenses at September 30,
1996. Minimum annual royalty payments increase from $5.04 million in the first
year to $39.4 million in the thirtieth year. Additionally, pursuant to the DKNY
Jeans License, the Company will incur $5.0 million in pre-launch advertising
expense before June 1997, the month in which sales of DKNY Jeans Label products
are expected to commence, and an additional $15.0 million in advertising
expenses over the remainder of 1997.
The DKNY Jeans License may be terminated by Donna Karan International upon the
occupance of certain events, including but not limited to (I) failure to make
payments when due, after expiration of the applicable grace period, (ii)
discontinuing the DKNY Jeans Label operations in a material portion of the world
for more than 90 days, (iii) after the second annual period, failure to achieve
levels of net sales of an amount necessary to generate the guaranteed minimum
royalty, subject to recovery provisions in certain circumstances, and (iv)
certain events of bankruptcy with respect to the Company.
5. FINANCING:
The Company finances its operations under a credit agreement which provides for
borrowings under a revolving credit facility and a term loan which may be
terminated by the Company or its lenders in the year 2000. On March 29, 1996,
the revolving credit facility was permanently increased from $115.0 million to
$150.0 million.
The Company has commitments from The CIT Group and other lenders to enter into a
new credit agreement (the "New Credit Agreement") for an aggregate commitment of
$150 million, which will
7
<PAGE> 8
consist of a five year new revolving facility (the "New Revolving Facility"),
including a subfacility for the issuance of letters of credit. The borrowings
under the New Revolving Facility will mature on the fifth anniversary of the
closing date thereof. The interest rates on the New Revolving Facility will be
at the Prime Rate plus 0.5% or LIBOR plus 1.75%. The New Credit Agreement will
contain covenants and default and security provisions similar to those in the
existing Credit Agreement.
6. INCOME TAXES:
The higher effective tax rate in 1995, compared to 1996, was principally
attributable to a valuation allowance on net operating loss benefits of Rio
Sportswear. The results of operations of Rio Sportswear were not included in the
consolidated tax returns of the Company until April 1995, when Rio Sportswear
became a subsidiary of the Company.
7. COMMITMENTS AND CONTINGENCIES:
CKJ LICENSE AMENDMENTS:
On April 22, 1996, the exclusive license from Calvin Klein, Inc. ("CKI") for
certain types of sportswear (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 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. In addition, the minimum annual royalty fee payments of
$4,500 in 1995 will increase over the term of the CKJ License to $22,000 for
years 31 through 40.
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 subsequent to May 9, 1996,
the effective date of the registration statement relating to the 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 $20,203 is recorded as capitalized licensing rights and is
being amortized over forty years, the adjusted term of the CKJ License.
EMPLOYMENT AGREEMENT:
As of April 22, 1996, the Company entered into an employment agreement with Mr.
Simon, which became effective on May 9, 1996, the effective date of the
registration statement relating to the 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 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.
8
<PAGE> 9
LITIGATION:
In 1990, an action was filed against Rio Sportswear and certain other defendants
alleging, among other things, that Rio Sportswear 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 is reached and Rio Sportswear is found to have
infringed the patent in suit, damages and attorney's 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 period in which the judgement 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.
8. STOCK OPTION PLAN
The Company's Board of Directors and the sole voting stockholder have approved
the Designer Holdings Ltd. 1996 Stock Option and Incentive Plan ("the Stock
Plan"). 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. The Company has reserved 2,363,200 shares of common stock for issuance of
awards under the Stock Plan. In May 1996, options to purchase approximately
1,575,000 shares of common stock at an exercise price of $18.00 per share were
granted.
The Company has adopted, subject to stockholder approval at the 1997 annual
meeting, the 1996 Outside Director Stock Option Plan (the "Director Plan"),
which provides for the granting of nonqualified options to purchase shares of
Common Stock to any director of the Company who(I) first becomes a member of the
Board of Directors on or after July 16, 1996, (ii) is not an active employee or
officer of the Company or a subsidiary thereof and (iii) is not appointed or
designated to serve as a member of the Board of Directors by the Principal
Stockholder, Charterhouse, Mr. Simon or any of their respective affiliates. The
Director Plan authorizes the issuance of up to 100,000 shares of Common Stock,
subject to adjustments in certain circumstances. No options may be granted 10
years from the effective date of the Director Plan.
9. SUBSEQUENT EVENTS
FINANCING:
On November 6, 1996, the Company closed the sale of 2,400,000 6% Convertible
Trust Originated Preferred Securities having a liquidation amount of $50 per
preferred security (the "Preferred Security") to the public. Net proceeds to the
Company, after underwriting discounts and expenses, were approximately $115.4
million, and were used(I) to repay in full the term loan of $12.5 million, (ii)
to repay in full (excluding outstanding letters of credit) borrowings under the
Revolving Credit Facility of $69.9 million, and (iii) for working capital and
other general corporate purposes, including the acquisition of the Calvin Klein
outlet stores (the "CK Outlets").
9
<PAGE> 10
The Preferred Securities represent preferred undivided beneficial interest in
the assets of Designer Finance Trust (the "Trust"), a statutory business trust
formed under the laws of the State of Delaware in 1996. The Company owns all of
the common securities representing undivided beneficial interest of the assets
of the Trust. The Trust exists for the sole purpose of(I) issuing the Preferred
Securities and common securities (together with the Preferred Securities, the
"Trust Securities"), (ii) investing the gross proceeds of the Trust Securities
in the 6% Convertible Subordinated Debentures of the Company due 2016 (the
"Convertible Debentures") and (iii) engaging in only those other activities
necessary or incidental thereto. The Company owns 100% of the voting common
securities of the Trust which is equal to 3% of the Trust's total capital.
Each Preferred Security is convertible at the option of the holder thereof into
shares of Common Stock of the Company, at a conversion rate of 2.16 shares of
Common Stock for each Preferred Security.
The holders of the Preferred Securities are entitled to receive cumulative cash
distributions at an annual rate of 6% of the liquidation amount of $50 per
Preferred Security, payable quarterly in arrears. This distribution rate and
payment dates corresponds to the interest rate and interest payment dates on the
Convertible Debentures, which are the sole assets of the Trust. Such
distributions will be included in interest expense.
The company has the right to defer payments of interest on the Convertible
Debentures and distributions on the Preferred Securities for up to twenty
consecutive quarters (five years), provided such deferral does not extend past
the maturity date of the Convertible Debentures. Upon the payment in full of
such deferred interest and distributions, the Company may defer such payments
for additional five year periods.
The Trust Securities are redeemable by the Company, in whole or in part, from
time to time, on or after December 31, 1999 upon redemption of the Convertible
Debentures. The Preferred Securities are required to be redeemed upon maturity
of the Convertible Debenture on December 31, 2016. In addition, there are
certain circumstances wherein the Trust will be dissolved, with the result that
the Convertible Debentures will be distributed pro rata to the holders of the
Preferred Securities.
CALVIN KLEIN OUTLETS:
On November 5, 1996, the Company acquired 14 of the 15 existing CK Outlets owned
by CKI located in the United States, and obtained the right to open additional
CK Outlets in the United States, Canada and Mexico. Under the terms of the
agreement, the Company has assumed the existing leases of the CK Outlets and
purchased existing inventory for approximately $4 million and certain fixed
assets for approximately $500. The Company has also acquired both exclusive and
non-exclusive licensing rights (the "Outlet License") to sell certain products
in the CK Outlets, including jeanswear, underwear, bridgewear, collection,
fragrance, hosiery, accessories, home collection, and other products sold under
the CK/Calvin Klein and Calvin Klein labels.
The Outlet License has an initial term of eight years, expiring December 31,
2004, with up to four ten-year renewals, to be coterminous with the CKJ License.
The Company is required to make royalty payments to CKI equal to 7% of sales of
the CK Outlets, in addition to royalties payable pursuant to the CKJ License.
The CKJ License has also been amended to provide that the Company will pay a 3
1/2% royalty to CKI on sales by CKJC to the CK Outlets at more than 25% off
regular wholsale prices. The Outlet License provides for minimum annual royalty
payments in the amount of $2 million through 1999, payable in quarterly
installments. Thereafter, the minimum annual royalty shall be the greater of
$2 million or 75% of the average royalty earned during the three previous
annual periods.
10
<PAGE> 11
Item 2.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
(In thousands, except share data)
GENERAL
The results of operations for the three and nine months ended September 30, 1996
reflect net revenue generated and expenses incurred from the sale of Calvin
Klein Jeans Label products, as well as royalty income earned and certain
contractual expenses incurred related to sales of(I) Rio label and Bill Blass
label products, which the Company licensed effective January 1, 1996 to Commerce
Clothing Company, L.L. C. ("Commerce Clothing "), (ii) Calvin Klein Jeans Label
childrens apparel, within the United States, for which the Company entered into
a sub-licensing agreement effective January 1, 1996 with Commerce Clothing and
(iii) certain other licensing agreements.
On September 27, 1996, the Company entered into the DKNY Jeans License. The cost
of obtaining the DKNY Jeans License includes $6 million as an initial payment,
$24 million payable on June 1, 1997 and a payment for inventory existing at May
31, 1997, currently anticipated to range from $5 million to $10 million. In
addition, the Company will pay $10 million on June 1 of each of 1998, 1999 and
2000. The Company will also incur $5 million in pre-launch advertising expenses
from March through May of 1997 and pursuant to the DKNY Jeans License, the
Company will incur an additional $15 million in advertising expenses before the
end of 1997. The Company expects to incur approximately $10 million in
additional expenses for merchandising and marketing the DKNY Jeans Label
products prior to June 1997, the month in which sales of DKNY Jeans Label
products are expected to commence. The Company has paid a first installment on
its minimum guaranteed royalty obligations for 1997 of $1.26 million.
On November 5, 1996, the Company acquired 14 of the 15 Calvin Klein Outlet
Stores in the United States, as well as rights to open additional Calvin Klein
Outlets in the United States, Canada and Mexico. Under the terms of the
agreement, the Company will assume the existing leases of the CK Outlets and
purchase existing inventory for approximately $4 million and certain fixed
assets for approximately $500. The Company has also acquired both exclusive and
non-exclusive licensing rights to sell Calvin Klein products including
jeanswear, underwear, bridgewear, collection, fragrance, hosiery, accessories,
home collection, and other products sold under the CK/Calvin Klein and Calvin
Klein labels.
RESULTS OF OPERATIONS
The following table sets forth, for the periods indicated, statement of
operations data as a percentage of net revenues:
<TABLE>
<CAPTION>
THREE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
----------------- -----------------
1996 1995 1996 1995
----- ----- ----- -----
(Unaudited) (Unaudited)
<S> <C> <C> <C> <C>
Net revenues 100.0% 100.0% 100.0% 100.0%
Cost of goods sold 61.7 71.0 62.0 70.9
----- ----- ----- -----
Gross profit 38.3 29.0 38.0 29.1
Selling, general and
administrative expenses 22.0 19.1 23.9 20.3
----- ----- ----- -----
Operating income 16.3% 9.9% 14.1% 8.8%
===== ===== ===== =====
</TABLE>
11
<PAGE> 12
Net Revenues. Net revenues for the three months ended September 30, 1996 were
$136.9 million, which represented an increase of $8.6 million or 6.7% over net
revenues for the three months ended September 30, 1995 of $128.3 million. Net
revenues in the 1996 quarter included $127.7 million from the sale of Calvin
Klein Jeans and CK/Calvin Klein Jeans products, and $6.8 million from the sale
of CK/Calvin Klein Jeans Khakis products (collectively "Calvin Klein Jeans
Labels"), totaling $134.5 million. This represents an increase of $40.2 million
compared to net revenue of $94.3 million generated from the sale of Calvin Klein
Jeans and CK/Calvin Klein Jeans products during the three months ended September
30, 1995. The increased level of net revenues generated by the sales of Calvin
Klein Jeans Label products during the 1996 quarter, as compared to the 1995
quarter, was principally attributable to an increase in the volume of products
sold to a larger number of department and specialty retail stores, including the
sale of CK/Calvin Klein Jeans Khakis products in 1996. This broadening of
product distribution into an increased number of stores was experienced across
all of the major lines in which the products are sold.
Royalty income earned during the three months ended September 30, 1996 was $2.4
million. The 1995 comparable quarter contained approximately $.6 million of
royalty income. Net revenues from the sale of the Rio and Bill Blass label
products during the 1995 comparable quarter were $33.4 million.
Net revenues for the nine months ended September 30, 1996 were $356.5 million,
which represented an increase of $53.7 million or 17.7% over net revenues for
the nine months ended September 30, 1995 of $302.8 million. Net revenues for the
1996 period included $333.6 million from the sale of Calvin Klein Jeans and
CK/Calvin Klein Jeans products, and $17.8 million from the sale of CK/Calvin
Klein Jeans Khakis products (collectively "Calvin Klein Jeans Labels"), totaling
$351.4 million. This represents an increase of $135.8 million compared to
revenue of $215.6 million generated from the sale of Calvin Klein Jeans and
CK/Calvin Klein Jeans products during the nine months ended September 30, 1995.
This increase is attributable to the factors described above.
Royalty income earned during the nine months ended September 30, 1996 was $4.5
million. The 1995 comparable period reflected approximately $1.1 million of
royalty income. Net revenues from the sale of the Rio and Bill Blass label
products during the 1995 period were $86.1 million. The Company had waived
royalty income aggregating approximately $1.2 million for the first quarter of
1996 under both Commerce Clothing agreements.
Gross Profit. Gross profit was $52.5 million for the three months ended
September 30, 1996, an increase of $15.3 million from the 1995 comparable
quarter gross profit of $37.2 million. The gross profit percentage was 38.3% for
the 1996 quarter, an increase from 29.0% in the 1995 quarter. The gross profit
percentage on the sale of Calvin Klein Jeans Label products was 38.0% for the
1996 quarter, compared to 35.0% in the 1995 quarter. This margin improvement is
primarily a result of overall operating efficiencies achieved through better
sourcing of product, more efficient distribution of product and more timely
delivery to retailers, as well as strong sales during the 1996 quarter of higher
margin fashion products. The overall gross profit percentage was further
improved due to the absence in the 1996 quarter of the lower gross profit
margins from Rio and Bill Blass products, because the license and sublicense
agreement was executed for such products as of January 1, 1996. The 1995 quarter
contained a gross profit percentage of approximately 12.1% related to the sale
of these products.
Gross profit was $135.6 million for the nine months ended September 30, 1996, an
increase of $47.4 million from the comparable 1995 period gross profit of $88.2
million. The gross profit percentage was 38.0% for the 1996 period, an increase
from 29.1% recorded in the comparable 1995 period.
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The 1996 period gross profit percentage on the Calvin Klein Jeans Label products
was 37.9%, an increase compared with the 1995 comparable period gross profit
percentage of 35.7%, primarily due to the operating efficiencies described
above. The overall gross profit percentage was further improved due to the
absence in the 1996 period of gross profit generated by the sale of Rio and Bill
Blass products, due to the above-mentioned license and sub-license agreements.
The 1995 quarter contained a gross profit percentage of approximately 12.8%
related to the sale of these products.
Selling, general and administrative. Selling, general and administrative
("SG&A") expenses were $30.1 million or 22.0% of net revenues for the three
months ended September 30, 1996, an increase of $5.6 million from $24.5 million
or 19.1% of net revenues for the three months ended September 30, 1995. SG&A
expenses related to the sale of Calvin Klein Jeans Label products were $29.4
million, or 21.6% of net revenues for the 1996 quarter, compared with $20.5
million, or 21.6% of net revenues for the comparable 1995 quarter. The increased
expenses were primarily driven by the increased sales volume and the associated
higher levels of advertising, design and royalty expenses incurred in connection
with the CKJ License, as well as continued increased costs necessary to build
the infrastructure to support increased sales volume and future growth. However,
the percentage of such SG&A costs to net revenues of Calvin Klein Jeans Label
products was constant. 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.
This will yield a higher SG&A percentage to net revenues in 1996 and beyond, as
compared to 1995, as the Rio and Bill Blass revenues are now only comprised of
royalty income.
SG&A expenses were $85.2 million or 23.4% of net revenues for the nine months
ended September 30, 1996, an increase of $23.9 million from $61.3 million or
20.3% of net revenues for the comparable 1995 period. SG&A expenses related to
the sale of Calvin Klein Jeans Label products was $82.7 million, or 23.3% of net
revenues for the 1996 period, compared with $49.1 million or 22.7% of net
revenues for the comparable 1995 period. The increased expenses were primarily
driven by the increased sales volume and the associated higher levels of
advertising, design and royalty expenses incurred in connection with the CKJ
License, as well as continued increased costs necessary to build the
infrastructure to support increased sales volume and future growth. The Rio and
Bill Blass SG&A costs also have a similar impact on the trend described above.
Interest expense. Interest expense for the three months ended September 30, 1996
was $1.5 million, as compared to $4.7 million for the three months ended
September 30, 1995. This decrease is due to the reduction of amounts outstanding
under the revolving credit facility, the term loan and the senior subordinated
debt with the net proceeds of the IPO which closed on May 15, 1996.
Interest expense was $9.2 million for the nine months ended September 30, 1996,
as compared to $10.4 million for the comparable 1995 period. This decrease is
due to the above-mentioned reasons.
Provision for income taxes. The provision for income taxes was $9.6 million or
46.0% of pre-tax income for the three months ended September 30, 1996, as
compared to $4.1 million or 51.1% of pre-tax income for the three months ended
September 30, 1995. The provision for income taxes was $19.0 million or 46.0% of
pre-tax income for the nine months ended September 30, 1996, as compared to $8.6
million or 52.1% of pre-tax income for the comparable 1995 period. The higher
effective tax rate in the 1995 quarter and period was principally attributable
to a valuation allowance on net operating loss benefits of Rio Sportswear. The
results of operations of Rio Sportswear were not included in the consolidated
tax return of the Company until April 1995, when Rio became a subsidiary of the
Company
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LIQUIDITY AND CAPITAL RESOURCES
The Company's primary funding requirements to finance continued business growth
include investments in working capital (primarily receivables and inventory),
capital expenditures, costs related to upgrading distribution and management
information systems, costs related to the shop-in- shop programs and debt
service. In addition, the Company will require funds in connection with
obtaining the DKNY Jeans License and for the related initial start-up costs and
development of the DKNY Jeans Label products business, as well as for the
opening of additional CK Outlet Stores.
On May 15, 1996, the Company closed an initial public offering of 13,800,000
shares of its common stock for $18.00 per share. Of the total shares offered,
the Company sold 6,650,000 shares and New Rio L.L.C. sold 7,150,000 shares. Net
proceeds to the Company, after underwriting discounts and expenses, were
approximately $108.1 million. Net proceeds to the Company increased liquidity by
reducing indebtedness, including approximately $37.0 million to retire the
subordinated loan and a reduction in the revolving credit and term loans of
approximately $71.1 million.
On November 6, 1996, the Company closed an offering of 2,400,000 6% Preferred
Securities having a liquidation amount of $50 per Preferred Security, through
its wholly-owned subsidiary, Designer Finance Trust (the "Trust"). Net proceeds
to the company, after underwriting discounts and expenses, were approximately
$115.4 million. These net proceeds were invested by the Trust in the Company's
6% Convertible Debentures and were used by the Company to(I) repay in full the
Term Loan of $12.5 million, (ii) repay in full (excluding outstanding letters of
credit) borrowings under the Revolving Credit Facility of $69.9 million and
(iii) for working capital and other general corporate purposes, including the
acquisition of the CK Outlets. The Company expects to borrow additional funds
under the Revolving Credit Facility to fund the costs of obtaining the DKNY
Jeans License and developing the DKNY Jeans Label products business.
On April 28, 1995, the Company refinanced its outstanding credit obligations
with borrowings under a new $140 million Credit Agreement. The Credit Agreement
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. 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 under the Credit Agreement are collateralized by
substantially all the assets of the Company. The Credit Agreement contains
restrictive covenants that, among other things, restrict the payment of
dividends, stock repurchases, additional indebtedness, leases, capital
expenditures, investments and a sale of assets or merger of the company with
another entity. The covenants also require the Company to meet certain financial
ratios and maintain minimum levels of net worth.
At September 30, 1996, the Company had amounts outstanding under the credit
agreement of approximately $71.0 million, comprised of approximately $45.9
million outstanding under the revolving credit facility, approximately $12.6
million for open letters of credit and approximately $12.5 million outstanding
under the term loan. Amounts outstanding under the Revolving Credit Facility and
Term Loan were subsequently repaid with the proceeds from the sale of the
Preferred Securities as previously described.
The Company has commitments from The CIT Group and other lenders to enter into
the New Credit Agreement for $150 million. The New Credit Agreement will consist
of a $150 million five year
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New Revolving Facility, including a subfacility for the issuance of letters of
credit. The borrowings under the New Revolving Facility will mature on the fifth
anniversary of the closing date thereof. The interest rates on the New Revolving
Facility will be reduced to the Prime Rate plus 0.5% or LIBOR plus 1.75% (from
the Prime Rate plus 1.25% or LIBOR plus 2.75% under the existing credit
facility). The New Credit Agreement will contain covenants and default and
security provisions similar to those in the existing Credit Agreement.
The Company entered into a factoring agreement dated August 24, 1994, with CIT,
the agent under the Credit Agreement. Pursuant to the terms of the agreement,
CIT 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 and September 30, 1996.
The Company finances its operations primarily through cash flows generated from
operations and from daily borrowings under the Revolving Credit Facility. During
the nine months ended September 30, 1996 and 1995, the Company used $1.5 million
and $86.5 million, respectively, in operating activities. The higher use of cash
during the 1995 period was primarily driven by the build-up of inventory and
receivables, as the Company began to realize its growth strategy and objectives.
. The 1996 period reflected more of a seasonal sales pattern. Operating
activities for the 1996 period included approximately $2.9 million of net costs
incurred in connection with the Calvin Klein Jeans Label shop-in-shop program.
However, with the introduction of the DKNY Jeans Label products, the planned
opening of shop-in-shops for both the Calvin Klein Jeans Label products and the
DKNY Jeans Label products, as well as the acquisition of the CK Outlet stores,
the Company expects a significantly higher use of cash in operations for 1997.
Net cash used in investing activities during the nine months ended September 30,
1996 and 1995 was $11.2 million and $2.5 million, respectively. The increase in
investing activities consisted of capital expenditures primarily for equipment
for distribution facilities and leasehold improvements, and the initial payment
for the acquisition of the DKNY Jeans License.
Net cash provided by financing activities during the nine months ended September
30, 1996 and 1995 was $12.7 million and $87.5 million, respectively. The 1995
period reflected the proceeds of the term loan and the subordinated debt which
was used to repay then outstanding debt, as well as increased borrowings under
the revolving credit agreement. The 1996 period reflected the net proceeds of
the IPO and the application of such proceeds to repay the subordinated debt and
a portion of amounts outstanding under the Credit Agreement.
The Company believes that its sources of financing, including the proceeds from
the offering of Preferred Securities and the borrowings available under the
existing Revolving Credit Facility or the $150 million New Revolving Facility of
the New Credit Agreement, are adequate to fund its current level of operations
and its expected growth through 1998. The Company is also in the initial stages
of planning a program for the installation of DKNY Jeans Label shop-in-shops.
The company currently estimates that it will have approximately 200 DKNY Jeans
Label shop-in-shops and an additional 200 Calvin Klein Jeans Label shop-in-shops
installed in 1997 at an estimated aggregate cost of approximately $11 million.
In addition, the Company expects to incur capital expenditures for opening
additional CK Outlet stores of approximately $3 million per year. These expenses
will be funded from cash flows generated from operations or from borrowings
under the Credit
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Agreement (or the New Credit Agreement).
SEASONALITY
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 and lower
in the second and fourth quarters. Primarily as a result of the significant
growth that the Company has experienced, 1995 quarterly sales trends did not
reflect this seasonality. In addition, the difficulties in distribution
experienced by the Company in the second and third quarters of 1995 caused
fourth quarter sales to be materially higher than anticipated, as products
scheduled to be shipped were delayed. In order to remedy the 1995 shipping
difficulties, the Company has expanded its distribution facilities and
implemented upgraded management information systems. No assurance can be given,
however, that such facilities and systems will continue to function as expected.
Beginning in 1996 (and excluding the impact of new designer brands or licenses),
the Company has experienced expected apparel industry seasonality. Accordingly,
the Company expects that sales and earnings in the fourth quarter of 1996 will
be materially lower than in the corresponding 1995 period.
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PART II - OTHER INFORMATION
Item 1. Legal Proceedings.
Incorporated by reference to Note 6 to the Condensed Consolidated Financial
Statements included in Part I, Item 1 of this Form 10-Q.
Item 5. Other Information.
On November 5, 1996, the Company acquired 14 of the 15 existing Calvin Klein
outlet stores owned by CKI located in the United States (the "CK Outlets"). CKI
retained its collection outlet store located in Secaucus, New jersey. The
Company obtained the right to open additional CK Outlets in the United States,
Canada and Mexico. Pursuant to the terms of the acquisition, the Company assumed
the existing leases of the CK Outlets and purchased existing inventory for
approximately $4 million and certain fixed assets for approximately $500. The
Company also acquired both exclusive and non-exclusive licensing rights (the
"Outlet License") to sell certain products in the CK Outlets, including
jeanswear, underwear, bridgewear, collection, fragrance, hosiery, accessories,
home collection and other products sold under the CK/Calvin Klein and Calvin
Klein labels.
The Outlet License has an initial term of eight years, expiring December 31,
2004, with up to four ten-year renewal periods, to be coterminous with the CKJ
License. The Company is required to make royalty payments to CKI equal to 7% of
sales of the CK Outlets, in addition to royalties payable pursuant to the CKJ
License. The CKJ License has also been amended to provide that the Company will
pay a 3 1/2% royalty to CKI on sales by CKJC to the CK Outlets at more than 25%
off regular wholesale prices. The Outlet License provides for minimum annual
royalty payments in the amount of $2 million through 1999, payable in quarterly
installments. Thereafter, the minimum annual royalty shall be the greater of $2
million or 75% of the average royalty earned during the three previous annual
periods.
Item 6. Exhibits and Reports on Form 8-K
(a). Exhibits
Exhibit 10.43 - Store License Agreement, dated as of November
1, 1996, by and between Outlet Holdings, Inc. And
Calvin Klein, Inc.
Exhibit 10.44 - Asset Purchase Agreement, dated as of November 1,
1996, by and between Outlet Stores, Inc. and Calvin
Klein, Inc.
Exhibit 27 - Financial Data Schedule.
(b). Reports on Form 8-K
None
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
the registrant has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
Designer Holdings Ltd.
Date: November 14, 1996 By: ___________________________
Maurice Dickson
Executive Vice President,
Treasurer and
Chief Financial Officer
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EXHIBIT INDEX
Exhibit No. Description Page No.
- ----------- ----------- --------
10.43 Store License Agreement, dated as of
November 1, 1996, by and between
Outlet Holdings, Inc. and Calvin Klein, Inc.
10.44 Asset Purchase Agreement, dated as of
November 1, 1996, by and between
Outlet Holdings, Inc. and Calvin Klein, Inc.
27 Financial Data Schedule
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<PAGE> 1
EXHIBIT 10.43
CALVIN KLEIN, INC.
and
OUTLET HOLDINGS INC.
AGREEMENT made the 31st day of October 1996 by and between
CALVIN KLEIN, INC. a New York corporation with offices at 205 West 39th Street,
New York, New York 10018 (hereinafter referred to as "CKI") and OUTLET HOLDINGS
INC., a Delaware corporation, (which is a wholly-owned subsidiary of DESIGNER
HOLDINGS LTD.) with offices at 1385 Broadway, New York, New York 10018
(hereinafter referred to as the "Operator").
W I T N E S S E T H:
In consideration of the premises and the mutual covenants
herein contained, the parties agree as follows:
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Definitions
As used in this Agreement, the following terms have the
meanings specified or referred to below:
"Affiliates" shall mean those persons, firms, corporations or
other entities controlled by, controlling or under common control with Operator
or CKI, as applicable.
"Annual Period" shall have the meaning set forth in Section 2.
"Articles" shall mean the products and merchandise bearing the
Mark or the trademark "CK/Calvin Klein" listed on Exhibit 1(a); "Exclusive
Articles" shall mean (i) Articles bearing the trademark "CK/Calvin Klein" in the
form "CK/Calvin Klein Jeans" and/or the form "CK/Calvin Klein Khakis", as
defined in the Jeans License, and other Articles referred to as such on Schedule
1(a); and "Non-Exclusive Articles" shall mean Articles other than the Exclusive
Articles, referred to as such on Schedule 1(a).
"Business Day" shall mean any date that is not a Saturday,
Sunday or a legal holiday on which banking institutions in the State of New York
are authorized or required to close. However, the Stores will be open and
operating on certain non-Business Days, as are consistent with normal retail
operations and requirements of their respective leases.
"CKI" shall have the meaning set forth in the preamble to this
Agreement.
"CRK Advertising" is the division of CKI responsible for the
development and placement of advertising relating to the Mark, and other
trademarks of CKI.
"CRK Fee" shall have the meaning set forth in Section 7(c).
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<PAGE> 3
"Jeans License" shall mean the license agreement dated 4
August 1994, as amended, regarding the use of the trademark "Calvin Klein" only
in the form "Calvin Klein Jeans" and the trademark "CK/Calvin Klein" in the form
"CK/Calvin Klein Jeans".
"Mark" shall mean the name and trademark "Calvin Klein" in the
form attached hereto as Exhibit A. The term "Mark" shall not include any
variation, modification or derivative of the mark "Calvin Klein", including,
without limitation, the mark "CK/Calvin Klein" or "CK/Calvin Klein Jeans".
"Net Sales" shall have the meaning set forth in Article 6.
"Off-Price Articles" shall mean Articles sold at less than
full price (or regular price) retail only, including only: (i) customary
end-of-season merchandise, (ii) damaged merchandise, irregulars or
other-than-first-quality merchandise, (iii) excess inventory, or (iv) as may be
approved by CKI from time to time, consistent with CKI's past practices.
"Operator" shall have the meaning set forth in the preamble to
this Agreement.
"Royalty" shall mean a percentage of Net Sales of all Articles
as set forth in Section 6.
"Stores" shall mean free-standing "outlet" stores in which
only Off-Price Articles are sold identified by the Mark and operating under the
name "Calvin Klein Outlet Store".
"Term" shall have the meaning set forth in Section 2.
"Territory" shall have the meaning set forth in Section 1(a).
Section 1 - Grant
1. (a) Operator is hereby granted the right, and accepts the
obligation, for the duration of this Agreement, to establish, to maintain and
operate Stores throughout the United States,
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Mexico and Canada ( the "Territory"). The operations of the Stores shall consist
only of the off-price (not full-price or regular price) retail sale of Off-Price
Articles, (i) constituting Exclusive Articles and/or (ii) constituting those
categories of Non-Exclusive Articles. No products other than such Off-Price
Articles shall be shown or offered for sale in the Stores. The license granted
hereby applies solely to Operator and may not be assigned or sublicensed to any
other party, except as set forth in Section 16(b).
(b) Operator shall conduct and operate the Stores
under the name "Calvin Klein Outlet Stores", and shall register and file
statements, including fictitious name certificates, of its use of such name with
proper authorities and/or governmental offices where the same may be mandatory.
Operator shall not use the name "Calvin Klein", "CK/Calvin Klein", "CK" or any
portion or derivative thereof or any name similar thereto in the conduct of its
business except: (i) as provided in the preceding sentence, (ii) as provided in
Section 1(a), (iii) by selling Articles bearing any such name or trademark or
(iv) as may be otherwise consented to by CKI, in writing. Operator shall comply
with the quality standards established by CKI (and as the same may be amended
from time to time by CKI in its discretion) in conducting the operations of the
Stores.
(c) Except as set forth in Section 1.1(d), while this
Agreement is in force, CKI will not operate or grant any third party the right
to operate Stores within the Territory for the sale of Exclusive Articles
constituting Off-Price Articles.
(d) CKI retains all rights: (i) to manufacture,
distribute and sell Off-Price Articles, other Articles and any other products,
with or without the Mark, and, in connection therewith, to utilize any and all
channels of distribution (including the right to sell Off-Price Articles in its
own facilities directly to consumers) and to establish and operate retail
outlets of any type or description (except for the
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<PAGE> 5
establishment and operation of Stores within the Territory selling Exclusive
Articles while this Agreement remains in effect), and (ii) to grant others the
rights to do so. CKI also retains the right to open, operate and maintain up to
two (2) free-standing outlet stores bearing the Mark for the sale of Articles
sold by CKI (or its licensees or authorized user of the Mark) constituting the
"Calvin Klein" Women's Collection and the "CK/Calvin Klein" Women's and Men's
Bridge Collections (such a store is currently operating in Secaucus, New Jersey
but CKI may relocate such store from time to time). Operator also acknowledges
that Calvin Klein Underwear, Inc. has the right to open free-standing stores
(and "CK/Calvin Klein" stores or stores bearing any other trademark of CKI),
including outlet stores, for the sale of products covered by their agreement and
that the opening and operation of such Stores does not constitute a breach of or
default under this Agreement. Operator will fully cooperate with CKI and its
authorized licensee, to the extent any of the same owns and/or operates or
intends to own and/or operate any full price retail store primarily for the sale
of Non-Exclusive Articles constituting the "CK/Calvin Klein" Women's Bridge
and/or "CK/Calvin Klein" Men's Bridge or Clothing lines (such third party being
hereinafter referred to as a "Third Party Store Operator". For purposes hereof,
"fully cooperate" may include, at Operator's option, entering into a joint
venture arrangement, on mutually agreeable terms with such Third Party Store
Operator pursuant to which Operator and such Third Party Store Operator operate
outlet stores for the sale of such Non-Exclusive Articles and, as agreed between
Operator and such Third Party Operator, other Articles, but in any event
Operator in its discretion shall sell to such Third Party Operator reasonable
quantities of Exclusive Articles on reasonable terms of purchase and sale and
reasonable discounts. Any retail store or outlet operated by CKI or by any third
party pursuant to a license from CKI shall not be opened in the same center
where any outlet store then being operated by Operator hereunder is located,
without Operator's consent.
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<PAGE> 6
(e) In the event CKI desires to enter into an outlet
store license, commensurate with the terms hereof, for any jurisdiction or
jurisdictions in Central or South America, CKI shall give Operator written
notice (the "First Offer Notice") specifying the material terms and conditions
of any such proposed outlet store license (the "First Offer Terms"). If Operator
desires to enter into a proposed outlet store license for any such jurisdiction
on the First Offer Terms, Operator shall so notify CKI within 30 days after
receipt of the First Offer Notice, and the parties shall thereon use their
reasonable commercial efforts to enter into a definitive outlet store license
agreement for such jurisdiction (or jurisdictions) on mutually acceptable terms
within 45 days following Operator's response to CKI. If no definitive agreement
is reached within the 45-day period, CKI shall have the right to enter into an
outlet store license with a third party within 60 days thereafter on terms and
conditions no less favorable to CKI than the First Offer Terms. After such 60
day period has expired, CKI shall be obligated to deliver a First Offer Notice
and comply with the provisions of this section. CKI may not enter into any such
outlet store license without having complied with the provisions of this
Section.
Section 2 - Term
2. (a) The term of this Agreement (the "Term") shall commence
as of the date of execution of this Agreement and continue through 31 December
2004 unless sooner terminated in accordance with the provisions hereof. The
period through 31 December 1997 and each calendar year thereafter during the
Term shall be referred to herein as an "Annual Period."
(b) CKI shall have the right to terminate this
Agreement, effective 90 days following the date of written notice to Operator,
in the event of termination of the Jeans License.
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(c) Operator shall use its commercially reasonable
efforts to exploit the rights herein granted throughout the Territory.
(d) Operator shall have an option to renew this
Agreement for up to an additional four consecutive ten-year renewal terms
provided the following conditions are met: (i) written notice of Operator's
intention to exercise its renewal option is delivered to CKI prior to the final
Annual Period in the then current term; (ii) Operator is in material compliance
with all of the terms and conditions of the Agreement on the date of exercise of
the option and on the last day of the then current term; (iii) Operator meets
the Minimum Net Sales Thresholds set forth in Schedule 2(c) in the United
States, Canada and Mexico for the penultimate Annual Period during the then
current term; (iv) Operator has throughout the term maintained the quality
standards of operations, sales, advertising and promotional activities
commensurate with the prestige, reputation and image of the Mark, as they relate
to Stores covered hereunder and the sale of Articles as provided herein; and (v)
control of Operator continues to be maintained by the same parties as those who
control the "licensee" under the Jeans License. Operator shall be deemed to have
maintained the quality standards referred to in the preceding clause (iv) if
either: (x) Operator has not received any notice from CKI of failure to comply
with such quality standards, or (y) if Operator has received such a notice,
Operator has rectified such failure to the reasonable satisfaction of CKI within
30 days (or such longer period as may be provided in Section 13 of this
Agreement). CKI and Operator shall use their respective mutual efforts to
amicably resolve a dispute which might exist with respect to the immediately
preceding sentence.
Section 3 - Decor/Location/Operations
7
<PAGE> 8
3. (a) Each Store shall be located at a site, and consist of
the approximate number of square feet, approved in advance by CKI. Operator
shall not make any definitive written commitment with respect to any site or
commence construction at any site without CKI's prior written approval of such
site. Operator shall submit a request for approval of a location together with
details including: square footage, competitors in the area, and the background
of the mall or development or other specific area and its reputation, in order
for CKI to make a determination as to approval or non-approval.
The locations set forth on the attached Schedule 3(a) are approved. CKI may
consider the location of existing or proposed full-price retail stores bearing
the Mark, the trademark "CK/Calvin Klein" or any variation, modification, or
derivative thereof, and existing or proposed in-store areas or shops, or
accounts carrying regularly priced merchandise in making such a determination.
If CKI fails to respond by approving or disapproving such request within 15
Business Days following receipt of Operator's request for such approval,
together with the aforementioned details, CKI shall be deemed to have approved
such location.
(b) The Stores shall be clearly designated with the
name "Calvin Klein Outlet Store" in such manner as shall be approved by CKI and
shall incorporate such concepts of design, architectural planning, lay-out,
decor, signage, lighting fixtures and other aspects of decoration, both interior
and exterior, as well as all visual display and merchandising presentations
(including fixturing) as are consistent with the signature look for such Stores,
as it exists from time to time and as specified or approved by CKI, and as are
in accord with applicable legal rules and regulations. The design, layout,
merchandising standards, visual display elements, fixtures and decor of the
Stores, and any audio or video material utilized in the Stores shall be in
accordance with prototype specifications provided by or approved
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<PAGE> 9
by CKI with such modifications as CKI may from time to time provide or approve
(which approval shall not be unreasonably withheld). An example of a visual
standards manual is attached hereto as Exhibit 3(b) as a guideline. For up to
two years following the "Closing Date" as hereinafter defined, expenses for such
decor shall be substantially consistent, on a Store-by-Store basis, with CKI's
expenditures to construct and maintain the decor levels of those outlet stores
maintained by CKI prior to the Closing Date. The decor of each Store shall be
carried out (based on the prototype decor provided or approved by CKI) by an
architect retained by Operator. The fee for such prototype or the fee per square
foot for such prototype, shall be mutually determined by CKI and Operator and
will then be borne by Operator. The decor of each Store, as carried out by such
architect, shall be subject to the approval of CKI (which approval shall not be
unreasonably withheld). If CKI fails to respond within 30 days following receipt
of Operator's written requests for any such approval, together with all
supporting information reasonably necessary in order to make a determination,
CKI shall be deemed to have given such approval. All costs and expenses
(including where applicable advances or deposits and per diem costs of in-house
personnel such as CKI's visual display department) as to prototype decor, and in
connection with the design and build-out, of such Stores shall be borne, and
promptly paid, by Operator. CKI shall provide Operator with estimated costs for
services of CKI's personnel, which shall be generally commensurate with third
party contractor rates for similar services, for Operator's approval (which
approval shall not be unreasonably withheld). CKI shall also provide estimates
for any other services requested by Operator or provided for under this
Agreement, for Operator's (which approval shall not be unreasonably withheld).
Upon CKI's request, Operator will remit applicable advances and/or deposits (of
up to 30% of the total amount due) as to such estimated
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costs and expenses. Amounts relating to costs or expenses in excess of those
approved by Operator on such estimate, shall be subject to Operator's consent.
(c) Operator shall also be responsible for compliance
with all applicable codes, ordinances, and other legal requirements in
connection with the design and buildout of Stores and shall obtain and maintain
all permits, certificates and licenses necessary for the full and proper
operation and maintenance of the Stores.
(d) CKI shall be entitled at its expense to inspect
Stores periodically. CKI shall endeavor (i) to provide reasonable notice as to
such inspections, (ii) to engage in such inspections during regular business
hours (unless otherwise arranged with Operator), and (iii) not to disrupt
Operator's normal operations in connection with such inspections. To the extent
CKI determines that any Store is not maintained in accordance with the
guidelines provided by CKI, Operator shall promptly make such modifications as
CKI shall reasonably require (and deliver to CKI certification that such
corrections have been made) and bear any reasonable costs incurred in connection
therewith, including costs incurred by CKI in carrying out follow-up
inspections to determine compliance with CKI's corrective requirements.
Section 4 - Approval Standard
4. Except as expressly set forth herein, CKI approvals
required hereunder may be based solely on CKI's subjective aesthetic standards
and may be granted or withheld in CKI's sole and absolute discretion, exercised
in good faith.
Section 5 - Purchases
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(a) (i) During each Annual Period Operator shall
purchase a quantity of each category of Articles sufficient (i) to stock each
Store adequately, (ii) to maintain, on an ongoing basis, inventory levels
sufficient to satisfy consumer demand, (iii) to provide at all times for an
ample display and variety of product in the Stores and (iv) to use its
reasonable commercial efforts to follow the overall guidelines for merchandise
allocation of Articles as provided under Section 8 below; in each case subject
to the availability of adequate quantities of such Articles.
(ii) Operator may purchase Non-Exclusive Articles
(other than the "Calvin Klein" Women's Collection line, the "Calvin Klein" Men's
Collection line and the "Calvin Klein" Home Collection line) as indicated in
Section 5(a)(iii) below. However, if CKI requests or permits Operator to
purchase Non-Exclusive Articles included in the "Calvin Klein" Women's
Collection line, the "Calvin Klein" Men's Collection line or the "Calvin Klein"
Home Collection line, Operator may do so, in quantities as may be offered to it,
in Operator's reasonable discretion at discount rates commensurate with the
discount rates currently charged to CKI's existing outlet stores for such
Non-Exclusive Articles, namely 45% off the regular wholesale price for "Calvin
Klein" Women's Collection Articles.
(iii) During the first and second Annual Periods,
Operator will purchase Non-Exclusive Articles constituting the "CK/Calvin Klein"
Women's Bridge line and the "CK/Calvin Klein" Men's Bridge line, as may be
offered to it, in Operator's reasonable discretion but in no event less than
quantities of approximately 10% of CKI's production thereof (representing excess
production), or aggregating approximately $3 million per Annual Period (at
current wholesale prices), at discount rates commensurate with the amounts
currently charged to CKI's existing outlet stores for such Non-Exclusive
Articles, namely 40% off the regular wholesale price.
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(iv) It is expected that the discounts on prices to
be offered to Operator on Articles will be commensurate with those available to
the outlet stores being operated by CKI prior to the date of this Agreement (it
being understood that CKI may not control the prices charged or discounts given
by its licensees and suppliers). CKI hereby assigns to Operator (a) its rights
of first refusal to purchase Off-Price Articles produced by its Jeans Licensee,
and (b) to the extent it may do so, its rights to purchase certain quantities of
Articles constituting Underwear as indicated on Exhibit 5(a)(iv) for the
duration of this Agreement.
(b) Subject to the provisions of Section 5(a), Operator shall
purchase Off-Price Articles, as they exist from time to time, from CKI's
licensees and authorized user of the Mark as are made available to it, subject
to normal pricing terms and credit considerations, in order to effect an orderly
method of selling the same to consumers.
(c) Operator shall sell Articles only to consumers in or from
the Stores. Operator shall comply, and cause its employees to comply, with the
standards and restrictions reasonably proposed by CKI and accepted by Operator
and/or developed by Operator to ensure the prevention of sale to other
retailers, jobbers or third parties wishing to engage in parallel market sales,
such as limitations on the number of items sold to any single customer. All
Articles shall be sold together with such packaging, labels, tags and other
"Calvin Klein", "CK/Calvin Klein" or other authorized identification as are
shipped with such Articles by CKI or CKI's authorized licensees or other
authorized user of the Mark as well as with price tickets or tags, in a form
subject to CKI's prior approval (which approval shall not be unreasonably
withheld), affixed to the Articles. Operator shall permit CKI's employees to
purchase Articles at the Stores at discounts of 20% from the prices otherwise
charged.
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(d) CKI shall act in good faith and use its
commercially reasonable efforts to supply and ship, and where applicable to
request the licensees and authorized user of the Mark (suppliers) to supply and
ship, promptly such Articles as are ordered by Operator, subject to their
respective rights (if any) to reject orders. Such shipments shall be made in
accordance with Operator's instructions, subject to reasonable credit
considerations and on such terms as may be agreed by Operator and the party
supplying such Articles. CKI shall not be liable for delay, cancellation,
modification or reduction of any orders; provided that as to orders accepted by
CKI, CKI will use its commercially reasonable efforts to ship Articles it has in
inventory which are available for shipment. Operator shall deal directly with
the supplier of each category of Articles, and will look solely to such supplier
in the event of any breach or default by such supplier and acknowledges that CKI
will not be liable or responsible in any event, except to the extent it is the
supplier of Articles or fails to fulfill its obligations in the first sentence
of this Section 5(d). This Agreement shall not prevent CKI or any supplier from
modifying, curtailing or discontinuing production of Articles.
(e) In order to maintain the high quality standards,
reputation and prestige of the Mark, the products and other merchandise bearing
the Mark and other trademarks of CKI and CKTT and to prevent confusion in the
market among consumers regarding the business and operations of the Stores,
Operator agrees not to take any action which could reasonably result in (i)
confusion among consumers that the Stores constitute full-price "Calvin Klein"
or "CK/Calvin Klein" retail stores or (ii) damage to the high quality standards,
reputation and prestige of the Mark and the distribution channels (including
existing Stores) in which Articles are sold.
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Section 6 - Royalty; Minimum Guaranteed Royalty
6. (a) In consideration of the license granted hereunder,
Operator shall pay to CKI an amount equal to seven percent (7%) of Operator's
Net Sales of all Articles during each Annual Period (the "Royalty"). "Net Sales"
shall mean the invoiced amount of Articles sold to customers less returns, sales
taxes and shipping costs separately stated on the invoice. The amounts payable
by Operator for any Annual Period shall in no event be less than the amount set
forth below (the "Minimum Guaranteed Royalty"):
<TABLE>
<CAPTION>
Annual Period (Year) US$ -- Minimum Guaranteed Royalty
-------------------- ---------------------------------
<S> <C>
Each of 1st (1996-1997) US $2 million
2nd (1998) and 3rd (1999)
4th (2000) and each sub- the greater of (i) US $2 million or
sequent Annual Period (ii) 75% of the average Royalty earned
during the three previous Annual Periods.
</TABLE>
(b) The Royalty payments hereunder shall be accounted
for and paid quarterly, within 30 days following the close of each calendar
quarter. The Royalty payable for each quarterly period during each Annual Period
shall be computed on the basis of Net Sales from the beginning of such Annual
Period through the last day of such quarterly period with a credit for the
Minimum Guaranteed Royalty and earned Royalty, if any, theretofore paid to CKI
in respect of such Annual Period. The Minimum Guaranteed Royalty for each Annual
Period will be paid, in advance, in four (4) equal installments on or before the
first day of each January, April, July and October, during each Annual Period.
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The Minimum Guaranteed Fee for the 1st Annual Period shall be paid in five equal
installments: on the date hereof; on 1 January 1997; on 1 April 1997; on 1 July
1997 and on 1 October 1997.
(c) Operator shall deliver to CKI at the time each
Royalty payment is due statements signed by the Chief Financial Officer of
Operator and certified by him as accurate, indicating, separately for each of
the U.S., Mexico and Canada and each Store, by month, and separately for each
category of Exclusive Articles and each category of Non-Exclusive Articles, the
amount of gross sales, credits or deductions therefrom, Net Sales, and a
computation of the amount of the Royalty payable. Each such statement shall also
include, separately for each jurisdiction, the amount and details of any
advertising or promotional expenditures incurred by Operator during such period
pursuant to Section 7 and the amount of the CRK fees due for such period. All
amounts payable under this Agreement shall be paid in US dollars and all foreign
currency amounts shall be translated into US dollars by using the exchange rate
in effect for each such currency on the last day of the quarterly period in
respect of which such payment is being made, as published in the Wall Street
Journal (Dow-Jones Telerate).
(d) Operator shall furnish to CKI, not later than 120
days following the close of each Annual Period during the term of this Agreement
(or portion thereof), a report certified by its independent certified public
accountants covering the Annual Period (or portion thereof) and containing
separately for (i) the United States, (ii) Mexico, and (iii) Canada, the
aggregate amount of Net Sales for the Annual Period and a calculation of the
Royalty for each such area of the Territory, and the amount of advertising or
promotional expenditures and CRK fees incurred.
(e) The Minimum Guaranteed Royalty for any Annual
Period will be credited only against the Royalty for the same Annual Period. In
no event shall any payment of Royalty for any
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<PAGE> 16
Annual Period in excess of payments of Minimum Guaranteed Royalty for the same
Annual Period be credited against the Minimum Guaranteed Royalty due to CKI for
any other Annual Period.
(f) Operator shall prepare and maintain, in
accordance with generally accepted accounting principles consistently applied,
complete and accurate books of account and records covering all transactions
relating to this Agreement and Operator's performance hereunder. CKI and its
duly authorized representatives have the right, during regular business hours
and upon at least five Business Days' prior notice, for the duration of this
Agreement and for three years thereafter, no more than two times in each Annual
Period, to examine said books of account and records and all other documents and
material in the possession or under the control of Operator or its affiliates
with respect to the subject matter and the terms of this Agreement, and , to the
extent Operator can make them available, the work papers of Operator's auditors,
relating to the annual statements referred to in Section 6(d) provided, that,
Operator's auditors receive their customarily required indemnity upon release of
such work papers. All such books of account, records and documents will be kept
available by operator for at least three years after the Annual Period to which
they relate.
(g) If, as a result of any examination of Operator's
books and records, it is shown (to the reasonable satisfaction of Operator's
regular outside accounting firm) that the amount of Royalty computed as earned
by CKI was less than the amount of Royalty which should have been computed as
earned, such discrepancy shall be immediately paid by Operator to CKI. If the
amount of the discrepancy is five percent (5%) or more of the amount of Royalty
originally computed as earned, Operator will also promptly reimburse CKI for the
cost of such examination and will pay interest on the amount of such discrepancy
computed in accordance with Section 13(a).
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Section 7 - Advertising/Promotion
7. (a) Operator shall expend such amounts for advertising and
promotion of the Stores and the Mark during each Annual Period as are consistent
and customary with industry standards for outlet stores which advertising and/or
promotion shall be subject to the approval of CKI (which approval shall not be
unreasonably withheld or delayed).
(b) Any and all advertising, promotion and publicity
of the Mark and the Stores shall be of a type, quality and style consistent with
advertising and promotion of outlet stores by CKI and shall be subject in all
instances to CKI's prior approval. To ensure compliance with the quality
standards and procedures commensurate with the reputation, image and prestige of
the Mark, any "on sale" arrangement shall be subject to review and approval of
CKI, as to duration, timing and any and all advertising or promotion thereof
(including signage) shall be subject to CKI's approval.
(c) CRK Advertising operates as the advertising
agency responsible for advertising campaigns relating to "Calvin Klein"
activities and has developed certain expertise regarding the image of the Mark
and "Calvin Klein" advertising. Operator acknowledges and agrees that CKI shall
have complete control over all aspects of advertising including the content of
advertisements and promotional materials, and the placement thereof. Operator
shall remit to CRK (i) a fee, equal to fifteen percent (15%) of the expenditures
made pursuant to Section 7(a) related to advertising developed or to be
developed by CRK Advertising, or (ii) out-of-pocket costs incurred or to be
incurred by CRK Advertising in connection with the provisions of this Section .
Payments shall be remitted by Operator within 30 days of the date of invoice
(unless earlier payment is required as specified on an estimate or invoice
including, if reasonably required by CKI, advance payments or deposits).
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<PAGE> 18
(d) Operator recognizes that its public actions and
statements can affect the image of CKI, the Mark, the Articles and other
trademarks of CKI, licensees, and other authorized user of the Mark, and
licensed products. Accordingly, (i) the use and release of any and all
promotional material (printed or otherwise) relating to the Stores or Operator's
activities pursuant to this Agreement or by Operator's Affiliate pursuant to the
Jeans License, in the nature of press releases, interviews or other public
relations events, and (ii) any other corporate release, data or information
which Operator has reason to believe might become public and, if so, could
affect such image, will be prepared or conducted in consultation with, and,
except as may be required by law, subject to the prior approval of CKI (through
CKI's Public Relations Department) (such approval not to be unreasonably
withheld or delayed). After any such approval, Operator will not modify or
permit the modification of the approved material or activity or release in any
material respect unless such modification is specifically approved by CKI
(through CKI's Public Relations Department) (such approval not to be
unreasonably withheld or delayed).
Section 8 - Personnel/Standards/Operations
8. (a) CKI may make recommendations as to suitable personnel
and procedures, and will have the right to approve the selection of the General
Manager, for the Stores (and to approve any replacement thereof), which General
Manager's employment shall be devoted exclusively to the operations of the
Stores. CKI's right to approve shall not be unreasonably withheld. In the event
CKI has reason to be dissatisfied with a "sitting" General Manager, CKI will
notify Operator and the parties will endeavor through their reasonable efforts
to resolve the same to both parties' satisfaction.
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(b) No later than 30 September of each Annual Period,
Operator will submit to CKI Operator's business plan for the next succeeding
Annual Period, in a format reasonably approved by CKI illustrating among other
matters, the actual to date, and expected allocation or merchandise mix of each
category of Articles. In connection with its review of such business plans CKI
will review the merchandise mix of categories of Articles for sale in the Stores
and may by notice given to Operator by 1 November of any Annual Period provide
guidelines to Operator for such merchandise mix the subsequent Annual Period, to
ensure a reasonable minimum space allocation and minimum quantities of
categories of Articles, for a reasonable presentation within the Stores, subject
in all cases to availability of such Articles.
(c) Operator will provide CKI with such reasonable
additional information at the time the business plan is submitted pursuant to
Section 8(b) above regarding operations hereunder as CKI may from time to time
reasonably request.
(d) The Stores will be operated and maintained by
Operator continuously and in accordance with merchandising policies, methods and
plans consistent with the standards heretofore maintained for the outlet stores
by CKI prior to the Closing Date, and as may be hereafter reasonably set forth
or approved of by CKI, from time to time, during the term of this Agreement.
Operator will promptly pay the expense of reproduction and editing any customer
service manuals and product information training packages, based upon estimates
provided Operator for its approval (which approval shall not be unreasonably
withheld).
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<PAGE> 20
(e) Operator shall use such packaging, advertising
materials, promotional materials, and supplies as have been previously utilized
or provided by CKI or as may be subsequently approved by CKI in connection with
Stores (which approval shall not be unreasonably withheld).
(f) Operator shall (i) keep the Stores in a clean and
sanitary condition and in good repair at all times, (ii) refurbish the Stores as
reasonably required from time to time, consistent with the "Calvin Klein" image
as it applies to outlet stores as then currently existing, (iii) comply with all
reasonable requests of CKI relating to the maintenance of the physical state of
the Stores, and improvements thereto, (iv) maintain a reserve adequate to
finance such repair and restoration as may from time to time be required, (v)
conform to all applicable health, building and tax regulations, and (vi) pay for
and keep always in good force all appropriate licenses which are required in
connection with its operations. As long as the Stores have been built and are
maintained in accordance with the approved or required specifications, Operator
shall not be required to entirely or substantially renovate a Store, or make
material modifications to a Store, within four (4) years of the original
build-out or renovation.
(g) CKI may from time to time, review the operations
of the Stores and require such changes as it deems necessary or reasonably
desirable to ensure exploitation of the rights hereunder and compliance with the
quality standards commensurate with the image, prestige and reputation of the
Mark.
(h) Operator will hire and maintain, as employees
(including sales and visual display), such personnel as shall be necessary and
sufficient to provide prompt, courteous and quality service to customers of the
Store and, except with respect to part-time employees, who will devote
themselves exclusively to the operations of the Stores in accordance with the
terms of this Agreement.
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<PAGE> 21
Such employees shall be under the full direction and control of Operator and
shall not in any way be deemed employees of CKI.
Section 9 - Financial Requirements
9. (a) Operator shall provide to CKI: (i) copies of its
quarterly financial statements, within 45 days after the close of each quarterly
period; and (ii) copies of its annual audited financial statements within 90
days after the close of each Annual Period.
(b) Operator shall be solely responsible for all the
expenses of the Stores (including all expenses relating to design and decor),
and for taxes and levies of any and all kinds in connection with the Stores and
the income derived by Operator therefrom; and CKI shall not be liable for any
such expenses, taxes or levies, or disbursements otherwise paid or incurred in
connection with the establishment, maintenance or operation of the Stores.
Operator shall indemnify and save CKI, Mr. Calvin Klein and their officers,
directors and employees harmless from any and all claims, lawsuits, demands,
actions and causes of action that may arise or be asserted against any such
indemnified person by reason of the establishment, maintenance or operation of
the Stores, (except for product liability claims with respect to Articles
produced by CKI or of advertising developed by CRK Advertising in accordance
with Section 7(c) above which is determined to be libelous of any person
depicted therein) or by reason of Operator's use of the name "Calvin Klein" or
the Mark, and to pay all counsel fees and expenses in defending same. It is
understood and agreed that CKI has not authorized or empowered Operator to use
the name "Calvin Klein" or the Mark in any capacity other than use in
conformance with the terms of this Agreement (except as may be provided in the
Jeans License) or to sign the name "Calvin Klein" to any
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<PAGE> 22
contracts, documents, bills, checks, drafts, notes, mortgages, bonds, leases,
bills of sales, or any other instruments in writing, or to hold itself out as a
partner, co-venturer or agent of CKI.
(c) While operating the Stores, Operator shall not own or
otherwise have any interest, financial or otherwise, in any other business of a
substantially similar nature, such as retail outlets engaged in the sale of
products of one or several other designers, and shall devote itself exclusively
to the operations of Stores as provided in this Agreement. Employees of Operator
(except for part-time employees and except for certain financial, accounting and
similar "back office" personnel) shall exclusively devote themselves to the
operations hereunder and shall have no involvement in any business of a
substantially similar nature, such as retail outlets of any of Operator's
Affiliates engaged in the sale of products of other designers. Operator will
notify CKI, in writing, in advance in the event any of its Affiliates decides to
enter into an arrangement providing for its engagement by any such designer
(describing the arrangement and the name of the designer and products involved).
Section 10 - Insurance/Security
10. Operator shall procure and maintain in full force and effect at all
times during the term of this Agreement (which may be obtained in conjunction
with a policy or policies maintained under the Jeans License) an insurance
policy or policies protecting Operator, the Calvin Klein Trademark Trust
("CKTT"), CKI, and their respective officers, directors, partners, and
employees, and Mr. Calvin Klein, individually, against any loss, liability, or
expense whatsoever arising from or in connection with the Store or by reason of
Operator's establishment, maintenance, operation, or occupancy of the Store,
whether the same occurs or the cause arises on or off such premises. CKTT, CKI
and Calvin Klein shall be additional
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<PAGE> 23
named insureds in such policy or policies. Such policy or policies shall be
written by a responsible insurance company or companies acceptable to CKI and
shall include general liability insurance with respect to the operations
hereunder and this Agreement, with a limit of liability of not less than U.S.
$5,000,000. In addition, Operator shall adequately insure the premises,
equipment, furnishings, fixtures and inventory in the Store in accordance with
standard full and extended coverage insurance policies. Upon the signing of this
Agreement and annually thereafter, certificates of insurance showing compliance
with the foregoing requirements shall be furnished by Operator to CKI. Such
certificates shall state that the policy or policies will not be canceled or
altered without at least thirty (30) days prior written notice to CKI. The
maintenance of such insurance and the performance by Operator of its obligations
under this paragraph shall not relieve Operator of liability under the
indemnification provisions set forth in Section 9 above.
Section 11 - Mark/Copyright
11. (a) Based upon the representations and warranties set forth in
Section 15(a) as to ownership of the Mark, Operator acknowledges that the CKTT
is the owner and CKI is a beneficial owner of all right, title and interest in
and to the Mark in any form or embodiment thereof; Operator also acknowledges
that CKTT (and CKI, as beneficial owner) is the owner of the goodwill attached
or which shall become attached to the Mark in connection with the business and
goods in relation to which the same has been, is or will be used. Sales by
Operator and the operations of the Stores hereunder shall be deemed to have been
made by CKTT for purposes of trademark registration and all uses of the Mark by
Operator shall inure to the benefit of CKTT. Any copyright which may be created
in any package, design,
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label, tag, other form of printed material or the like, bearing the Mark or
directly relating to the Mark shall be the property of CKI. Any proprietary
right and/or interest in and to the fixtures and/or furnishings and/or
decorations used in the Store which comprise a part of the "Calvin Klein"
signature look or the prototype decor or which become identified with the Mark
or Mr. Calvin Klein shall be the property of CKI. Operator shall take all
reasonable actions required by CKI to preserve and protect such rights. No
right, title or interest in or to the Mark except the right to use the Mark as
specified herein on and in connection with the Stores is granted by this
Agreement to Operator. Operator will not at any time do or suffer to be done any
act or thing (to the extent Operator controls any such act or thing) which may
in any way adversely affect any rights of CKTT or CKI in and to the Mark or any
registration thereof or which, directly or indirectly, may reduce the value of
the Mark or detract from its reputation, image or prestige that of CKTT, CKI, or
Mr. Calvin Klein.
(b) At CKI's request, Operator shall execute any documents
reasonably required by CKTT or CKI to confirm CKTT's ownership or CKI's
beneficial ownership of all rights in and to the Mark, in and to any copyright,
and/or in and to any signature fixtures, furnishings or decorations or prototype
decor and the respective rights of CKTT, CKI and Operator pursuant to this
Agreement.
(c) Operator shall never challenge CKTT's ownership of or
CKI's use of or rights in or to, or the validity of the Mark or any application
for registration thereof, or any trademark registrations thereof, or any rights
of CKTT and CKI therein.
(d) In the event that Operator learns of any infringement or
imitation of the Mark in the Territory or of any use by any person of a
trademark similar to the Mark, it shall promptly notify CKI thereof. CKI
thereupon shall take such action as it deems advisable for the protection of its
rights in
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<PAGE> 25
and to the Mark, and if requested to do so by CKI, Operator will co-operate with
CKI in all reasonable respects. Such cooperation shall not require Operator to
take any legal action or to bear any costs for the same. Operator's co-operation
(such as providing information) shall be at its own expense. Out-of-pocket costs
of Operator (other than legal expenses) shall be reimbursed by CKI. Legal
actions taken by CKI shall be at CKI's expense. In no event, however, shall CKI
be required to take any action if it deems it inadvisable to do so and Operator
shall have no right to take any action with respect to the Mark without CKI's
prior written approval.
(e) Any copyright which may be created in any material or
using or used in connection with the Mark and the prototype decor shall be the
property of CKI. Operator shall take all reasonable actions required by CKI to
preserve and protect such rights.
Section 12 - Lease/Liens
12. (a) Operator will not execute a lease, nor execute a renewal of or
extension of any existing lease of the premises in which a Store is currently
located, unless such lease: (i) contains the landlord's consent to the
assignment of such lease (at CKI's option) by the Operator to CKI or its
designees in connection with the termination of this Agreement, (ii) provides
that copies of all notices under any such lease regarding breach or
non-compliance by Operator shall be concurrently sent to CKI, (iii) affords CKI
the opportunity to concurrently effectuate a cure of any such breach or
non-compliance in the event Operator fails to do so, (iv) is not longer than
five years (unless otherwise agreed to by CKI) and in no event longer than the
then current term of this Agreement. Operator shall ensure that the terms of any
lease for a Store are consistent with the provisions of this Agreement.
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(b) Operator shall neither grant a security interest in any of
the Articles, nor mortgage, pledge, grant a security interest in or otherwise
assign as security, sell, transfer, assign, lease, or sublease the premises in
which any Store is located or any part thereof, or any equipment, furnishings,
or fixtures located therein, or any interest which Operator may have in any part
thereof, unless the holder of such interest acknowledges CKI as beneficial owner
and "licensor" of the Mark, and provides for any disposition of Articles in
accordance with the terms of this Agreement and in the manner approved by CKI.
Section 13 - Breach/Default
13. (a) If Operator shall fail to make any payment when due CKI
(including payments due in accordance with their terms, but if terms are not
specified then not later than 30 days following the date of invoice derived from
services or expenses referred to in or relating to this Agreement), or any
payment to any licensee, or payment to any authorized user of the Mark (or other
trademark of CKI) with respect to its purchase of Articles, as provided
hereunder, (i) Operator agrees to pay interest on such amount at a rate equal to
two percentage points above the prime rate per annum being charged by Chase Bank
as of the close of business on the date such payment becomes due (but not more
than the maximum rate of interest which legally can be charged to corporations)
from and including the date such payment initially becomes due until the date
such amount is paid in full, and (ii) if such default shall continue uncured for
a period of ten days after CKI shall have given Operator written notice of such
default. CKI shall have the right to terminate this Agreement forthwith by
giving written notice thereof to Operator.
(b) If Operator fails to perform any of the terms, conditions,
agreements or covenants in this Agreement affecting or relating in any way to
the Mark and/or use which may adversely
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<PAGE> 27
affect the Mark or the trademark "CK/Calvin Klein", and such default is
incurable, or if such default is curable but continues uncured for a period of
fifteen (15) days after notice thereof has been given in writing by CKI setting
forth with reasonable specificity such default, CKI may in its sole discretion,
terminate this Agreement forthwith by written notice. If Operator fails to
continuously operate the Stores, and/or any Store remains closed for a period of
more than 21 days (except for fire, destruction or other force majeure events,
inventory, remodeling, relocation or vacation period), or more than five percent
(5%) of the Stores in any jurisdiction remains closed for more than fifteen (15)
days (with the same exceptions), and if such closure shall continue for a period
of fifteen (15) days after notice thereof has been given in writing by CKI, CKI
may in its sole discretion terminate this Agreement forthwith by written notice.
(c) If (i) Operator shall default in respect of the payment of
any amounts owing under any financial obligation, the outstanding principal
amount of which equals or exceeds US $5 million dollars and such default remains
uncured after the relevant grace period, if any, and the creditor thereunder
exercises its rights (whether of termination, acceleration, or otherwise), then
CKI shall have the right to terminate this Agreement by written notice
forthwith; provided, that, if and to the extent that Operator is disputing such
acceleration in good faith and the entire amount of the financial obligation is
provided for in the form of a bond, letter of credit or other reasonably
acceptable third party guarantee, CKI may not terminate this Agreement until
such time as Operator 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. Operator shall provide prompt written notice to CKI in the event of any
such default 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 Operator from such creditor). Notwithstanding the foregoing, in the
event either Operator enters into
27
<PAGE> 28
a material debt instrument with a third party commercial lender which provides
for a default threshold higher than US $5 million dollars, then the US $5
million amount of the financial obligation referred to above shall be increased
to such higher amount, provided notice and satisfactory evidence of the same is
delivered to CKI.
(d) If CKI or Operator shall otherwise fail to perform any of
the terms, conditions, agreements or covenants in this Agreement on its part to
be performed, and such default shall continue uncured for a period of 30 days
after notice thereof has been given in writing setting forth with reasonable
specificity such default by the non-defaulting party, the non-defaulting party
may, at its sole election, terminate this Agreement by giving written notice to
the other; provided that to the extent that any such default is curable but not
within such 30 day period and if the defaulting party is diligently proceeding
to cure such default, such default will not constitute grounds for a termination
of this agreement if it is cured within seventy-five (75) days.
(e) In the event Operator files a petition in bankruptcy, or
is adjudicated a bankrupt, or if a petition in bankruptcy is filed against it,
or if it becomes insolvent, or makes an assignment for the benefit of its
creditors, or files a petition or otherwise seeks relief under or pursuant to
any federal or state bankruptcy, insolvency or reorganization statute or
proceeding, or if it discontinues its business, or if a custodian, receiver or
trustee in bankruptcy is appointed for it or a substantial portion of its
business or assets, or it discontinues business operations relating to the
Stores for any reason for more than 60 days (except as referred to above), this
Agreement shall terminate automatically and forthwith.
(f) No assignee for the benefit of creditors, custodian,
receiver, trustee in bankruptcy, sheriff or official charged with taking over
custody of Operator's assets or business shall have
28
<PAGE> 29
the right to continue this Agreement or to exploit or in any way use the Mark if
this Agreement terminates pursuant to Section 13(e) above.
(g) In the event that, notwithstanding the provisions of
Section 13(d) above, pursuant to the Bankruptcy Code or any amendment or
successor thereto (the "Code"), a trustee in bankruptcy of Operator (the
"Trustee") or Operator as debtor (the "Debtor") is permitted to assume this
Agreement and does so and, thereafter, desires to assign to a third party (i)
this Agreement, (ii) the inventory of Articles covered hereby, or (iii)
Operator's entire interest in the Stores and all property used in connection
therewith which assignment satisfies the requirements of the Code; the Trustee
or Debtor, as the case may be, shall notify CKI of same in writing (the
"Notice"). The giving of the Notice shall be deemed to constitute the grant of
an option to CKI to have this Agreement assigned to it or to its designee for
such consideration, or its equivalent in money, and upon such terms, as are
specified in the Notice, provided, however, that if no specific value is placed
on the inventory described in clause (ii) above or on the interest in the Stores
and the property described in clause (iii) above, the values set forth in
paragraph 13(b) and (c), respectively, shall be deemed specified in such Notice.
The aforesaid option may be exercised in whole or in part only by written notice
given by CKI to the Trustee or Debtor, as the case may be, within 15 days after
CKI's receipt of the Notice from such party or such shorter period of time as
may be required by the court in the bankruptcy proceedings. If CKI fails to give
its notice to such party within the exercise period, such party may complete the
assignment referred to in its Notice, but only to the entity named in the Notice
and upon the terms specified therein. Nothing contained herein shall be deemed
to preclude or impair any rights which CKI may have as a creditor in any
bankruptcy or other proceeding.
29
<PAGE> 30
(h) Notwithstanding any termination in accordance with the
foregoing, CKI shall have and hereby reserves all the rights and remedies which
it has, or which are granted to it by operation of law, with respect to the
collection of sums due, earned or payable by Operator pursuant to this
Agreement, to be compensated for damages for breach of this Agreement, and to
enjoin the unlawful or unauthorized use of the Mark without the necessity of
posting any bond or proving any actual damages (which injunctive relief may be
sought prior to or in lieu of termination).
(i) Any notice of termination sent pursuant to this Agreement
shall be in writing and shall set forth the reason or reasons in reasonable
detail for the termination and the effective date of such termination.
Section 14 - Termination
14. Upon the expiration or termination of this Agreement:
(a) Operator shall promptly pay all unpaid amounts payable by
Operator to CKI, its licensees, or authorized user of the Mark.
(b) All of Operator's rights to open Stores shall terminate
and immediately revert to CKI, but the existing Stores operated by Operator may
continue on a non-exclusive basis through the current terms of their respective
leases (subject to Operator's compliance with all the applicable provisions of
this Agreement including, without limitation, the payment of Royalty on Net
Sales) for a period not longer than six months beyond the effective date of
termination of this Agreement. During such period, Operator will continue to
stock such Stores with Articles consistent with Section 5 hereof and cooperate
with CKI and its licensees and authorized user of the Mark as reasonably
requested. If any event occurs
30
<PAGE> 31
during such six month period that would permit CKI to terminate this Agreement
(if it had not already been terminated),all of Operator's rights under this
Section 14(b) shall, upon written notice from CKI, terminate and immediately
revert to CKI.
(c) Except as otherwise provided in Section 14(b) above,
Operator shall immediately discontinue the use of all names, trademarks, signs,
structures, and forms of advertising relating to the Stores, the Mark, and the
business and products thereof, and will make or cause to be made such changes in
signs, buildings, and structures as CKI may reasonably direct, effectively to
reasonably distinguish the new business from its former appearance. If after
CKI's demand Operator shall fail or omit to make or cause to be made such
changes promptly, then CKI shall have the right to enter upon the premises on
two (2) Business Days' notice, without being guilty of trespass or any other
tort, and to make or cause to be made such changes at the expense of Operator,
which expense Operator shall pay on demand;
(d) Operator shall not thereafter directly or indirectly at
any time or in any manner identify itself or any business as a current or former
Store or as otherwise associated with CKI in connection with the Stores, or use
any colorable imitation thereof as may be protectible under trademark law or any
mark substantially identical to or deceptively similar to the Mark in any manner
or for any purpose in connection with the Stores, or utilize for any purpose any
trade name, trademark, service mark or other commercial symbol or trade dress
that would indicate or suggest that the former Store is connected to or
associated with CKI.
(e) CKI may remove from the Stores any or all Articles. CKI
shall in its discretion either remit to Operator, or shall deduct from amounts
due it by Operator, an amount equal to
31
<PAGE> 32
the lesser of (i) fair market value and (ii) the original cost to Operator of
the Articles so removed. Subject to the preceding sentence, Operator may
continue the sale of Articles on a non-exclusive basis as provided in Section 14
(b) above.
(f) Operator shall be deemed to have offered to sell, assign
and transfer to CKI (or at CKI's option, its designee), the Operator's entire
interest in the Stores and all property used in connection therewith (except for
the inventory removed in accordance with Section 14(e) above) for an amount
equal to the lesser of the (i) net depreciated cost to Operator and the (ii)
fair market value as to each such Store. To the extent CKI or its designee
accepts such offer (in whole or in part, as to any one or more Stores), such
interest and property shall be transferred promptly to CKI or to its designee
and payment therefor shall be made to Operator (which payment may be made by
deducting the same from amounts due CKI by Operator). To the extent CKI declines
to accept such offer as to any one or more Stores, Operator may then offer to
sell, assign, and transfer such remaining interest and property with respect to
any such Store to a third party;
(g) Operator shall be deemed to have offered to assign to CKI
or to its designee the leases of the premises in which each Store is located for
the aggregate payment of (i) US $1.00 per Store, in the event this Agreement is
terminated by CKI due to breach or default by Operator, or (ii) fair market
value, in the event of other termination of this Agreement. CKI may accept such
offer as to any one or more Stores by giving notice thereof in writing to
Operator within 30 days after the date of such expiration or termination. In the
event CKI accepts such offer as to assignment of any such lease, that lease
shall be assigned promptly to CKI or to its designee. In the event CKI declines
to accept such
32
<PAGE> 33
offer as to assignment of any such lease, Operator may then take such action as
it desires with respect to that lease, and
(h) if applicable, immediately take such action as may be
reasonably required to cancel any registered user agreements relating to its use
of the Mark.
(i) In the event CKI, after such termination date, grants a
store license for outlet stores, CKI may transfer any or all rights relating to
any or all such Stores previously covered by this Agreement to its designee (or
designees).
Section 15 - Representations
15. (a) CKI Representations. CKI represents and warrants that it has
full right, power and authority to enter into this Agreement including the right
to grant this license to use the Mark contemplated by this Agreement and to
perform all of its obligations hereunder, and that no broker or finder retained
by CKI brought about this transaction. CKTT is the owner of, and CKI is a
beneficial owner of, all of the trademark applications and registrations for the
Mark (and other trademarks) with respect to certain products, in the
jurisdictions in the Territory set forth on Schedule 15(a). CKI is not the
beneficial owner of the Mark or of applications or registrations therefor for
underwear, sleepwear and certain loungewear. To CKI's knowledge, the use of the
trademark "Calvin Klein" by Operator pursuant to the terms and provisions of
this Agreement does not infringe upon any trademark owned by any third party or
the rights of any third party to use such trademark in the Territory pursuant to
the terms and provisions of this Agreement, subject to the provisions of Section
1(d) above, subject to the preceding sentence and subject to the disclosures set
forth on Schedule 13.2 contained in the Jeans License.
33
<PAGE> 34
(b) Operator Representations. Operator represents and warrants
that it has full right, power and authority to enter into this Agreement and to
perform all of its obligations hereunder, and that no broker or finder brought
about this transaction.
Section 16 - Miscellaneous
16. (a) All reports, approvals and notices required or permitted by
this Agreement to be given to a party shall be in writing and shall be deemed to
be duly given if (i) mailed by certified or registered mail, return receipt
requested, (ii) shipped by overnight courier or (iii) sent via facsimile with
fax confirmation of such receipt to the party concerned at the address set forth
below (or at such other address as such party may specify by notice to the
other).
If to CKI:
Calvin Klein, Inc.
205 West 39th Street
New York, New York 10018
Attention: Deirdre Miles-Graeter
Tel. No. (212) 292-9280
Fax No. (212) 768-8930
and to:
Rubin, Rubin & Di Paola
375 Park Avenue
New York, New York 10152
Attention: Robert Di Paola, Esq.
Tel. No. (212) 759-4530
Fax No. (212) 319-0575
If to Operator:
Designer Holdings Ltd.
34
<PAGE> 35
Outlet Holdings Inc.
1385 Broadway
New York, New York 10018
Attention: CEO Arnold Simon
Tel. No. (212) 556-9600
Fax No. (212) 556-9722
With copies to:
Designer Holdings Ltd.
Calvin Klein Jeanswear Company
Attention: John J. Jones III
Tel. No. (212) 556-9607
Fax No. (212) 556-0116
(b) Operator acknowledges and recognizes: that it has been
granted the license herein and CKI has entered into this Agreement because of
its particular expertise, knowledge, judgement, skill and ability; that it has
substantial and direct responsibilities to perform this Agreement in accordance
with all of the terms contained herein; that CKI is relying on Operator's unique
knowledge, experience and capabilities to perform this Agreement in a specific
manner consistent with the high standards of integrity and quality associated
with CKI and its business; that the granting of the license under this Agreement
creates a relationship of confidence and trust between Operator and CKI; and
that this Agreement is one under which applicable law excuses CKI from accepting
performance from, or rendering performance to, a person or entity other than
Operator, within the meaning of Section 365(c) and (e) of the Bankruptcy Code
(Title 11, U.S. Code) ("Code"). Neither this Agreement nor the license or other
rights granted hereunder may be assigned, sublicensed or otherwise transferred.
Any attempted assignment or transfer, whether voluntary or by operation of law,
directly or indirectly, shall be void and of no force or effect. For purposes
hereof, any transaction resulting in Operator ceasing to be controlled
35
<PAGE> 36
by the same parties as those who control the "licensee" under the Jeans License
without the prior written approval of CKI shall be deemed a violative transfer
prohibited hereunder. Notwithstanding the foregoing, Operator may sublicense
this Agreement to an Affiliate provided such Affiliate at all times remains a
wholly-owned subsidiary of Designer Holdings Ltd., a Delaware corporation,
provided that such sublicense agreement and any and all modifications and
amendments thereto are satisfactory in form and substance to CKI. The
substantial beneficial owners of Operator's ultimate parent, together with their
percentage ownership, are as indicated on Schedule 16(b) hereof. Operator shall
notify CKI of any change in the ownership of its capital stock by such
beneficial owners, within three Business Days following such change and shall so
notify CKI of any transaction described in the preceding sentence. Except as
otherwise provided herein, this Agreement shall inure to the benefit of and
shall be binding upon the parties and permitted successors and assigns.
(c) Operator acknowledges that all information relating to the
business and operations of CKI and its Affiliates which it learns during the
term, or has learned during negotiation, of this Agreement (hereinafter referred
to as "CKI's Data"), are valuable property of such entities. Operator
acknowledges the need to preserve the confidentiality and secrecy of CKI's Data
and agrees that, both during the term of this Agreement and after the
termination hereof, it shall not use (except use required to fulfill the
provisions of this Agreement during the term of this Agreement), or disclose
same, except as required by law or except as may be reasonably necessary in
connection with any lawful or governmental proceeding (provided that Operator
shall take reasonable steps to ensure its confidentiality in any such
proceeding), and it shall use all reasonable efforts to ensure that use by it or
by its authorized designees (which use and which designees shall be solely as
necessary for, and in connection with, the manufacture,
36
<PAGE> 37
distribution, sale advertising or promotion of Articles or the Stores) shall
preserve in all respects such confidentiality and secrecy. Operator hereby
indemnifies CKI and its Affiliates against any damage of any kind which may be
suffered by any of them as a result of any willful breach by Operator or its
said designees of the provisions of this paragraph. Notwithstanding the
foregoing, Operator's obligation to retain CKI's Data as confidential shall
terminate at such time and to the extent that such becomes available on a
non-confidential basis or becomes public knowledge and in the public domain
through no fault of Operator.
(d) CKI acknowledges that all information relating to the
business and operations of Operator and its Affiliates which it learns during
the term, or has learned during negotiation, of this Agreement (hereinafter
referred to as "Operator's Data"), are valuable property of such entities. CKI
acknowledges the need to preserve the confidentiality and secrecy of Operator's
Data and agrees that , both during the term of this Agreement and after the
termination hereof, it shall not use (except use required to fulfill the
provisions of this Agreement during the term of this Agreement), or disclose
same , except as required by law or except as may be reasonably necessary in
connection with any lawsuit or governmental proceeding (provided that CKI shall
take reasonable steps to ensure its confidentiality in any such proceeding), and
it shall use all reasonable efforts to ensure that use by it or by its
authorized designees shall preserve in all respects such confidentiality and
secrecy. CKI hereby indemnifies Operator against any damage of any kind which
may be suffered by any of this as a result of any willful breach by CKI or its
said designees of the provisions of this paragraph. Notwithstanding the
foregoing, CKI's obligation to retain Operator's Data as confidential shall
terminate at such time and to the extent that such
37
<PAGE> 38
becomes available on a non-confidential basis or becomes public knowledge and in
the public domain through no fault of CKI.
(e) This Agreement contains the entire understanding and
agreement between the parties hereto with respect to the subject matter hereof,
supersedes all prior oral or written understandings and agreements relating
thereto, and may not be modified, discharged or terminated orally.
(f) Nothing herein contained shall be construed to constitute
the parties hereto as partners or as joint venturers, or either as agent of the
other, and Operator and CKI shall have no power to obligate or bind the other in
any manner whatsoever. CKI shall have no responsibility for the Operation of the
Stores or personnel or for any decisions that may be made in connection
therewith regardless or whether CKI advised Operator in connection with or
approved any of the same. In no event will this Agreement, or the operation of
any Store hereunder by Operator be deemed to constitute doing business at the
location of any such Store by CKI.
(g) This Agreement shall be considered as having been entered
into the State of New York and shall be construed and interpreted in accordance
with the laws of that state applicable to agreements made and to be performed
therein. However, disputes regarding the Mark shall be resolved in accordance
with the Federal trademark laws and related laws, statutes, rules and
regulations of the United States unless there are no Federal laws, statutes,
rules or regulations dispositive of such a dispute in which event such dispute
shall be resolved in accordance with the laws of the State of New York. Each
party also acknowledges that the choice of any law, other than the law of New
York, to govern the construction and enforcement of this contract including its
provisions for term, termination and renewal would be contrary to their
expectations and deprive them of the stability, predictability and uniformity of
38
<PAGE> 39
interpretation and enforcement that they seek to establish by this Agreement.
The parties agree that the law of New York is the most appropriate choice of law
because the Agreement was negotiated and executed in New York City, Operator is
headquartered in New York and New York County is the most mutually convenient
forum for the resolution of any disputes that may arise under or in connection
with this Agreement.
(h) No waiver by either party, whether express or implied, of
any provision of this Agreement, or of any breach or default, shall constitute a
continuing waiver of such provision or of any other provision of this Agreement.
Acceptance of payments by CKI shall not be deemed a waiver of any violation of
or default in any of the provisions of this Agreement by Operator.
17. If any provision or any portion of any provision of this Agreement
shall be held to be void or unenforceable, the remaining provisions and the
remaining portion of any provision of this Agreement held void or unenforceable
in part shall continue in full force and effect.
18. Each party acknowledges that the provisions of this Agreement on
the governing law, jurisdiction and venue, term, termination and renewal are
material terms of the Agreement that affect the financial, economic, and other
consideration provided by each party to the Agreement and that neither party
would have entered into this Agreement absent those provisions and unless they
were enforceable according to their terms.
19. Operator, Calvin Klein Jeanswear Company ("CKJC") and Designer
Holdings Ltd. ("DSH") agree that at all times during the term of this Agreement
Operator shall be and remain a wholly-owned subsidiary of DSH. Furthermore,
simultaneously with execution of this Agreement, each of CKJC and
39
<PAGE> 40
DSH is executing a guarantee of Operator's obligations in the form attached
hereto as Exhibit 19(A) or 19(B).
IN WITNESS WHEREOF, the parties hereto have duly executed this
Agreement the day and year first above written.
CALVIN KLEIN, INC.
By: ____________________________
OUTLET HOLDINGS INC.
By: ____________________________
40
<PAGE> 41
Agreed to as to Section 19:
CALVIN KLEIN JEANSWEAR COMPANY
By: ____________________________
DESIGNER HOLDINGS LTD.
By: ____________________________
<PAGE> 42
Schedule 1(a)
Articles
Exclusive Articles:
Womens and Girls CK/Calvin Klein Jeans
Mens and Boys CK/Calvin Klein Jeans
Womens and Girls CK/Calvin Klein Khakis
Mens and Boys CK/Calvin Klein Khakis
Womens Sheer Hosiery - Calvin Klein and CK/Calvin Klein
Womens Socks - Calvin Klein and CK/Calvin Klein
Mens Socks - Calvin Klein and CK/Calvin Klein
Womens Calvin Klein Collection Shoes
Mens Calvin Klein Collection Shoes
Womens CK/Calvin Klein Belts
Mens Leather Accessories - Calvin Klein and CK/Calvin Klein
Mens and Womens Calvin Klein Collection Eyewear
Womens Calvin Klein Collection Scarves
Mens Calvin Klein Collection Scarves
Womens Calvin Klein Swimwear
Mens and Womens CK/Calvin Klein Footwear and Womens CK/Calvin Klein Handbags and
Accessories
Non-Exclusive Articles:
Women's Calvin Klein Collection
Mens Calvin Klein Collection
Mens CK/Calvin Klein Bridge
Womens CK/Calvin Klein Bridge
Mens CK/Calvin Klein Clothing
Calvin Klein Home Collection
Mens Underwear - Calvin Klein and CK/Calvin Klein
Womens Underwear - Calvin Klein and CK/Calvin Klein
Fragrances under the "Calvin Klein" license
or such other lines of Non-Exclusive Articles, any or all of which only as may
be approved by CKI from time to time.
<PAGE> 43
INDEX
Definitions................................................... 2
1. Grant................................................ 3
2. Term................................................. 6
3. Decor/Location/Operations............................ 7
4. Approval Standard.................................... 10
5. Purchases............................................ 10
6. Royalty; Minimum Guaranteed Royalty.................. 13
7. Advertising/Promotion................................ 16
8. Personnel/Standards.................................. 18
9. Financial Requirements............................... 20
10. Insurance/Security................................... 22
11. Mark/Copyright....................................... 23
12. Lease/Liens.......................................... 25
13. Breach/Default....................................... 26
14. Termination.......................................... 30
15. Representations...................................... 33
16. Miscellaneous........................................ 33
Exhibit A Mark
Exhibit 3(a) Store Locations
Exhibit 3(b) Visual Standards
Exhibit 5(a)(iv) Purchase Rights
Exhibit 19(A) CKJC Guarantee
Exhibit 19(B) DHI Guarantee
Schedule 1(a) Articles
Schedule 2(c) Minimum Net Sales Threshold -- Renewal Contingencies
Schedule 16(b) Substantial Shareholders of Parent
<PAGE> 44
Schedule 2(c)
Minimum Net Sales Thresholds (U.S., Canada, Mexico) -- Renewal Contingencies
Year (Annual Period) U.S. $
- ------------------------ ------
2003 7 The greater of (i) 100 million and (ii) 2
million multiplied by the number of Stores
in existence during such Annual Period.
2015 19 The minimum net sales threshold for the
prior term, multiplied by a fraction, the
numerator of which is the CPI (all Cities
- All Urban Consumers) for December of the
respective Annual Period and the
denominator o/*f which is the CPI (all
Cities - all Urban Consumers) for December
of the 18th Annual Period.
2025 29 The minimum net sales threshold for the
prior term, multiplied by a fraction, the
numerator of which is the CPI (all Cities
- All Urban Consumers) for December of the
respective Annual Period and the
denominator of which is the CPI (all
Cities - all Urban Consumers) for December
of the 28th Annual Period.
2035 39 The minimum net sales threshold for the
prior term, multiplied by a fraction, the
numerator of which is the CPI (all Cities
- All Urban Consumers) for December of the
respective Annual Period and the
denominator of which is the CPI (all
Cities - all Urban Consumers) for December
of the 38th Annual Period.
<PAGE> 45
Schedule 16(b)
Substantial Shareholders of Parent
<PAGE> 46
Exhibit 5(a)(iv)
<PAGE> 47
D. Miles-Graeter Disk 71
Outlet Stores License
24 October 1996
Draft 4
STORE LICENSE AGREEMENT
BETWEEN
CALVIN KLEIN, INC.
and
OUTLET HOLDINGS INC.
<PAGE> 48
Exhibit A
<PAGE> 49
Exhibit 19(a)
GUARANTEE
In order to induce Calvin Klein, Inc. ("CKI") to enter into the license
agreement dated as of the date hereof (the "Agreement") with Outlet Holdings
Inc. ("Operator") which is being executed simultaneously herewith and in
consideration of the covenants and promises made by CKI in the Agreement, the
undersigned (the "Guarantor"), being an affiliate of Operator, unconditionally
guarantees (i) that Operator will perform and observe each and every agreement,
covenant, representation, warranty, term and condition of the Agreement to be
performed or observed by Operator, and upon Operator's failure to do so, the
Guarantor will promptly perform and cause the same promptly to be performed and
observed and (ii) the due and punctual payment of all sums of whatever character
which may become payable by Operator pursuant to the Agreement will be paid by
the Operator (including amounts which would be paid but for the operation of the
automatic stay under Section 362(a) of the Bankruptcy Code, 11 U.S.C 362(a) or
any other provision of bankruptcy law) (clauses (i) and (ii) referred to as the
"Guaranteed Obligations"). If for any reason whatsoever any sum hereinabove
referred to, or any part thereof, shall not be paid promptly when due, the
Guarantor will immediately pay the same regardless of whether CKI has taken
steps to enforce any rights against Operator to collect any of said sums and
regardless of any other condition of contingency.
Notwithstanding anything to the contrary contained herein, to the
extent this Guarantee relates to the payment of sums due to CKI under the
Agreement, it is a Guarantee of payment and not of collection and a continuing
guarantee which will remain in full force and effect and be binding upon the
undersigned until payment in full by Operator to CKI of all sums due pursuant to
the Agreement.
The representation, warranties, obligations, covenants, agreements, and
duties of the Guarantor under this Guarantee shall in no way be affected or
impaired by reason of the happening from time to time of any of the following
with respect to the Agreement although without notice to or the further consent
of the Guarantor: (i) the waiver by Operator of any agreement, covenant,
warranty, representation, term or condition contained in the Agreement; (ii) the
extension, in whole or in part, of the time for the payment by Operator of any
sums owing or payable under the Agreement, or of the time or performance by
Operator of any of its other obligations under or arising out of the Agreement;
(iii) the modification or amendment (whether material or otherwise) of any of
the obligations of Operator under the Agreement; (iv) any failure, omission,
delay or lack on the part of CKI to enforce, assert or exercise any right, power
or remedy conferred on CKI in the Agreement or otherwise; (v) any discharge of
Operator from any of the Guaranteed Obligations in a bankruptcy or similar
proceeding.
No failure on the part of CKI to exercise, and no delay in the exercise
of, any right, remedy or power hereunder will operate as covenant, term or
condition under the Agreement or in the payment of any sums payable by it
thereunder.
<PAGE> 50
This Guarantee shall terminate and be of no further force and effect on
the later of (x) the payment in full of all amounts outstanding under the
Agreement and (y) the termination of the Agreement.
This Guarantee will be construed and enforced under the laws of the
State of New York applicable to agreements made and to be performed in said
state.
The Guarantee cannot be changed, discharged or terminated orally.
The Guarantor hereby waives acceptance of this Guarantee.
CALVIN KLEIN JEANSWEAR COMPANY
Dated:
New York, NY By: ____________________________
Name:
Title:
<PAGE> 51
Exhibit 19(b)
GUARANTEE
In order to induce Calvin Klein, Inc. ("CKI") to enter into the license
agreement dated as of the date hereof (the "Agreement") with Outlet Holdings
Inc. ("Operator") which is being executed simultaneously herewith and in
consideration of the covenants and promises made by CKI in the Agreement, the
undersigned (the "Guarantor"), being the sole shareholder of Operator,
unconditionally guarantees (i) that Operator will perform and observe each and
every agreement, covenant, representation, warranty, term and condition of the
Agreement to be performed or observed by Operator, and upon Operator's failure
to do so, the Guarantor will promptly perform and cause the same promptly to be
performed and observed and (ii) the due and punctual payment of all sums of
whatever character which may become payable by Operator pursuant to the
Agreement will be paid by the Operator (including amounts which would be paid
but for the operation of the automatic stay under Section 362(a) of the
Bankruptcy Code, 11 U.S.C 362(a) or any other provision of bankruptcy law)
(clauses (i) and (ii) referred to as the "Guaranteed Obligations"). If for any
reason whatsoever any sum hereinabove referred to, or any part thereof, shall
not be paid promptly when due, the Guarantor will immediately pay the same
regardless of whether CKI has taken steps to enforce any rights against Operator
to collect any of said sums and regardless of any other condition of
contingency.
Notwithstanding anything to the contrary contained herein, to the
extent this Guarantee relates to the payment of sums due to CKI under the
Agreement, it is a Guarantee of payment and not of collection and a continuing
guarantee which will remain in full force and effect and be binding upon the
undersigned until payment in full by Operator to CKI of all sums due pursuant to
the Agreement.
The representation, warranties, obligations, covenants, agreements, and
duties of the Guarantor under this Guarantee shall in no way be affected or
impaired by reason of the happening from time to time of any of the following
with respect to the Agreement although without notice to or the further consent
of the Guarantor: (i) the waiver by Operator of any agreement, covenant,
warranty, representation, term or condition contained in the Agreement; (ii) the
extension, in whole or in part, of the time for the payment by Operator of any
sums owing or payable under the Agreement, or of the time or performance by
Operator of any of its other obligations under or arising out of the Agreement;
(iii) the modification or amendment (whether material or otherwise) of any of
the obligations of Operator under the Agreement; (iv) any failure, omission,
delay or lack on the part of CKI to enforce, assert or exercise any right, power
or remedy conferred on CKI in the Agreement or otherwise; (v) any discharge of
Operator from any of the Guaranteed Obligations in a bankruptcy or similar
proceeding.
<PAGE> 52
No failure on the part of CKI to exercise, and no delay in the exercise
of, any right, remedy or power hereunder will operate as covenant, term or
condition under the Agreement or in the payment of any sums payable by it
thereunder.
This Guarantee shall terminate and be of no further force and effect on
the later of (x) the payment in full of all amounts outstanding under the
Agreement and (y) the termination of the Agreement.
This Guarantee will be construed and enforced under the laws of the
State of New York applicable to agreements made and to be performed in said
state.
The Guarantee cannot be changed, discharged or terminated orally.
The Guarantor hereby waives acceptance of this Guarantee.
DESIGNER HOLDINGS LTD.
Dated:
New York, NY By: ____________________________
Name:
Title:
<PAGE> 1
EXHIBIT 10.44
- -------------------------------------------------------------------------------
ASSET PURCHASE AGREEMENT
by and between
OUTLET STORES, INC.,
a Delaware corporation,
and
CALVIN KLEIN, INC.,
a New York corporation
Dated as of October 28, 1996
- -------------------------------------------------------------------------------
<PAGE> 2
ASSET PURCHASE AGREEMENT
ASSET PURCHASE AGREEMENT, dated as of October 28, 1996 (this
"Agreement"), by and between OUTLET STORES, INC. ("Buyer"), a Delaware
corporation and wholly owned subsidiary of Calvin Klein Jeanswear Company
("Parent") a Delaware corporation, and CALVIN KLEIN, INC., a New York
corporation ("Seller").
WHEREAS, Buyer desires to acquire Seller's Outlet Store Assets
(as defined herein) and Inventory (as defined herein) and assume certain
liabilities in exchange for the consideration set forth herein, and Seller
desires that the Outlet Store Assets and the Inventory be so sold and certain
liabilities be so assumed; and
WHEREAS, on the Closing Date (as defined herein) Outlet
Holdings Inc. ("Holdings"), a Delaware corporation and wholly owned subsidiary
of Parent, and Seller shall enter into a license agreement substantially in the
form of Exhibit A hereto (the "License Agreement"), pursuant to which Holdings
shall be granted a license to use the trademarks CALVIN KLEIN and CK/CALVIN
KLEIN for and in connection with the operation of the Business (as defined
herein).
NOW, THEREFORE, in consideration of the promises and the
mutual representations, warranties and agreements hereinafter set forth, the
parties hereto, intending legally to be bound, hereby agree as follows:
ARTICLE I
DEFINITIONS
In addition to the other definitions contained herein, the
following definitions shall apply for purposes of this Agreement:
1.1 "Accounts Receivable" shall mean the accounts receivable
relating to the Business.
1.2 "Affiliate" of a specified person means a
Person (as defined herein) that, directly or indirectly,
<PAGE> 3
through one or more intermediaries, controls, is controlled by, or is under
common control with, such Person.
1.3 "Assets" shall have the meaning set forth in Section
2.1(a).
1.4 "Assumed Liabilities" shall have the meaning set forth
in Section 2.3(a).
1.5 "Assumption Agreement" shall have the meaning set forth in
Section 2.3(c).
1.6 "Business" means Seller's and its Affiliates' existing
business of selling at off price (not full price or regularly priced) retail
discounted men's and women's clothing, apparel and related items in Outlet
Stores (except for such business as conducted and related to the Designer Label
Store (as defined herein)).
1.7 "Buyer" shall have the meaning set forth in the preamble
hereto.
1.8 "Buyer Indemnified Party" shall have the meaning set forth
in Section 8.1.
1.9 "Claims" shall have the meaning set forth in Section 8.1.
1.10 "Closing" shall have the meaning set forth in Section
4.1.
1.11 "Closing Date" shall have the meaning set forth in
Section 4.1.
1.12 "Code" shall mean the Internal Revenue Code of 1986, as
amended.
1.13 "Contracts" shall mean all supply agreements and purchase
orders with suppliers, commitments, and other agreements entered into by Seller
and its Affiliates related to the Business except for Leases (as defined herein)
and those contracts which relate to the Designer Label Store.
1.14 "December 1995 Financial Statements" shall have the
meaning set forth in Section 5.4(a).
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<PAGE> 4
1.15 "December 1995 Net Assets Statement" shall have the
meaning set forth in Section 5.4(a).
1.16 "December 1995 Statement of Cash Flows" shall have the
meaning set forth in Section 5.4(a).
1.17 "December 1995 Statement of Operations" shall have the
meaning set forth in Section 5.4(a).
1.18 "Designer Label Store" shall mean the designer label
outlet store located at 55 Hartz Way, Secaucus, NJ.
1.19 "Dispute Notice" shall have the meaning set forth in
Section 3.3.
1.20 "Employee Pension Benefit Plan" shall have the meaning
set forth in Section 3(1) of ERISA.
1.21 "Employees" shall have the meaning set forth in Section
5.13(a).
1.22 "Environmental Claim" shall mean any claim, action, cause
of action, investigation or written notice by any Person alleging potential
liability (including, without limitation, potential liability for investigatory
costs, cleanup costs, governmental response costs, natural resource damages,
property damages, personal injury or penalties) arising out of, based on or
resulting from (a) the presence of any Material of Environmental Concern (as
defined herein) on or prior to the Closing Date at any location where Seller is
conducting the Business, whether or not owned, leased or operated by Seller or
(b) circumstances existing on or prior to the Closing Date forming the basis of
any violation, or alleged violation, of any Environmental Law (as defined
herein).
1.23 "Environmental Law" shall mean all current federal, state
and local statutes, laws, ordinances, rules, regulations, decrees, judgments,
orders, and common law standards or decisions relating to pollution or
protection of human health, safety or the environment (including, without
limitation, ambient air, surface water, groundwater, land surface or subsurface
strata, or natural resources including, without limitation, laws and regulations
relating to emissions, discharges, releases
3
<PAGE> 5
or threatened releases of hazardous materials, or otherwise relating to the
manufacture, processing, distribution, record-keeping, reporting, notification,
disclosure, use, treatment, storage, disposal, transport or handling of
hazardous materials, as enacted and currently in effect as of the Closing Date.
Without limiting the generality of the foregoing, Environmental Law includes,
but is not limited to, the Comprehensive Environmental Response, Compensation,
and Liability Act of 1980, 42 U.S. C. Sections 9601 et seq.; the Solid
Waste Disposal Act, 42 U.S.C. Sections 6901 et seq.; the Emergency
Planning and Community Right-To-Know Act of 1986, 42 U.S.C. Sections 11001
et seq.; the Toxic Substances Control Act, 15 U.S.C. Sections 2601 et
seq.; the Federal Water Pollution Control Act, 33 U.S.C. Sections 1251 et
seq.; the Hazardous Materials Transportation Act, 49 U.S.C. Sections 1801
et seq.; and the Clean Air Act, 42 U.S.C. Sections 7401 et seq.; in each
case as enacted and currently in effect as of the Closing Date.
1.24 "Equipment and Furnishings" shall have the meaning set
forth in Section 2.1(b).
1.25 "ERISA" shall mean the Employee Retirement Income
Security Act of 1974, as amended, and the rules and regulations promulgated
thereunder.
1.26 "Excluded Assets" shall have the meaning set forth in
Section 2.2.
1.27 "Final Inventory Value" shall have the meaning set forth
in Section 3.3.
1.28 "Final Statement of Inventory" shall have the meaning set
forth in Section 3.3.
1.29 "Firm" shall have the meaning set forth in Section 3.4.
1.30 "Guarantee" shall mean the Guarantee entered into between
Parent and Seller dated as of the date hereof.
1.31 "HSR Act" shall mean the Hart-Scott-Rodino Antitrust
Improvement Act of 1976, as amended.
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<PAGE> 6
1.32 "Improvements" shall mean the buildings, improvements and
structures on the premises demised under the Leases.
1.33 "Intellectual Property" shall mean all registered and
unregistered trademarks, service marks, trade names, brands, private labels,
designs, patents, registered and unregistered copyrights, trade secrets,
know-how (other than prototype decor and fixtures identified with the trademark
"Calvin Klein" or any other trademarks of Seller), and computer software and
databases used in connection with the Business.
1.34 "Inventory" shall mean all the clothing, apparel,
fragrances and other products, supplies and other related goods held for sale in
connection with the Business at Seller's existing outlet stores (other than the
Designer Label Store), and all such items held in Seller's warehouse in North
Bergen, N.J. or in transit, owned by Seller or its Affiliates.
1.35 "Inventory Payment" shall mean $3,483,646.00.
1.36 "Inventory Warranty Claims" shall mean claims for the
return, repair or replacement of Inventory.
1.37 "IRS" shall mean the Internal Revenue Service.
1.38 "June 1996 Financial Statements" shall have the meaning
set forth in Section 5.4(b).
1.39 "June 1996 Net Assets Statement shall have the meaning
set forth in Section 5.4(b).
1.40 "June 1996 Statement of Cash Flows" shall have the
meaning set forth in Section 5.4(b).
1.41 "June 1996 Statement of Operations" shall have the
meaning set forth in Section 5.4(b).
1.42 "Leased Property" and "Leased Properties" shall mean all
of Seller's right, title and interest, as tenant, under the Leases in and to the
premises generally
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<PAGE> 7
described in Schedule 1.42 and the Improvements on such premises.
1.43 "Leases" shall have the meaning set forth in Section
5.10(a).
1.44 "License Agreement" shall have the meaning set forth in
the preamble.
1.45 "Liens" shall have the meaning set forth in Section
2.1(a) hereof.
1.46 "Losses" shall have the meaning set forth in Section 8.1.
1.47 "Manchester Deposit" shall have the meaning set forth in
Section 2.1(b)(xi).
1.48 "Material Adverse Effect" shall have the meaning set
forth in Section 5.1.
1.49 "Material of Environmental Concern" shall mean any
substance presently listed, defined, designated or classified as hazardous,
toxic, radioactive, dangerous or otherwise regulated by any Environmental Law,
whether by type or by quantity, including without limitation any material
containing such substance as a component, and, including, without limitation,
pollutants, contaminants, wastes, toxic substances, asbestos, petroleum and
petroleum products.
1.50 "Notice" shall have the meaning set forth in Section
8.3(d).
1.51 "Operating Expenses" shall have the meaning set forth in
Section 4.4(a).
1.52 "Outlet Store Assets" shall have the meaning set forth in
Section 2.1(b) hereof.
1.53 "Outlet Store Assets Payments" shall have the meaning set
forth in Section 2.4.
1.54 "Outlet Stores" shall mean those stores currently
operated by Seller located on the Leased Properties and the contemplated store
located in Clinton, CT.
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<PAGE> 8
1.55 "Parent" shall have the meaning set forth in the preamble
hereto.
1.56 "Permitted Encumbrances" shall mean, collectively, (i)
all statutory or other liens for taxes or assessments which are not yet due;
(ii) all mechanics', materialmen's, carriers', workers' and repairers' liens,
and other similar liens imposed by law, incurred in the ordinary course of
business, which allege unpaid amounts that are less than 30 days delinquent; and
(iii) all other liens which do not materially detract from or materially
interfere with the present use, occupancy or operation of the asset subject
thereto or affected thereby.
1.57 "Person" shall mean any individual, corporation,
partnership, firm, joint venture, association, joint-stock company, trust,
estate, unincorporated organization, governmental or regulatory body or other
entity.
1.58 "Preliminary Statement of Inventory" shall have the
meaning set forth in Section 3.1.
1.59 "Price Waterhouse" shall have the meaning ascribed to
such term in Section 3.2.
1.60 "Product Liability Claims" shall mean claims that
personal injury, property damage or economic loss (whether such claim is based
on a tort theory or other theory), has been caused by, or has otherwise arisen
out of or is incidental to, any defect in the design of materials or workmanship
of a Product or has been caused by, or has otherwise arisen out of or is
incidental to, any other act or omission relating to such a Product, including,
without limitation, failure to warn of hazards associated with a Product or
failure to modify, correct or improve a Product.
1.61 "Products" shall have the meaning ascribed to such term
in the License Agreement.
1.62 "Purchase Orders" shall mean those purchase orders and
other contracts and commitments of Seller and its Affiliates entered into in the
ordinary course of business for the purchase of Products.
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<PAGE> 9
1.63 "Register Cash" shall have the meaning set forth in
Section 2.1(b)(x).
1.64 "Related Agreements" shall have the mean- ing set forth
in Section 4.2.
1.65 "Retail Inventory Method" shall have the meaning set
forth in Section 3.1.
1.66 "Retained Liabilities" shall have the meaning set forth
in Section 2.3(b).
1.67 "Seller" shall have the meaning set forth in the preamble
hereto.
1.68 "Seller Indemnified Party" shall have the meaning set
forth in Section 8.2.
1.69 "Seller Plans" shall have the meaning set forth in
Section 5.12(a).
1.70 "Seller's Knowledge" shall mean the actual knowledge of
Mr. Calvin Klein, Mr. Barry K. Schwartz, Mr. Richard A. Martin, Ms. Deirdre
Miles-Graeter, Mr. Robert B. DiPaola, and Ms. Gabriella Forte.
1.71 "Seller Individual Account Plan" shall have the meaning
ascribed to such term in Section 9.2.
1.72 "Successor Individual Account Plan" shall have the
meaning ascribed to such term in Section 9.2.
1.73 "Tax Return" shall mean any return, report, information
return or other document (including any related or supporting information) with
respect to Taxes (as defined herein).
1.74 "Taxes" shall mean all taxes, charges, fees, levies,
penalties or other assessments imposed by any federal, state, local, or foreign
taxing authority, including, but not limited to, income, excise, property,
sales, transfer, franchise, payroll, withholding, social security or other
taxes, including any interest, penalties or additions attributable thereto.
1.75 "Territory" shall mean the United States, Mexico and
Canada.
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<PAGE> 10
1.76 "Transfer Date" shall have the meaning ascribed to such
term in Section 9.2.
1.77 "Transferring Employee" shall have the meaning ascribed
to such term in Section 9.1(b).
1.78 "Transitional Services Agreement" shall have the meaning
ascribed to such term in Section 4.2.
1.79 "WARN Act" shall mean the Worker Adjustment and
Retraining Notification Act (and any applicable similar state law).
1.80 "Work" shall have the meaning ascribed to
such term in Section 7.12.
ARTICLE II
PURCHASE AND SALE OF ASSETS
2.1 Purchase and Sale of Outlet Store Assets.
(a) On the terms and subject to the
conditions set forth in this Agreement, at the Closing Seller shall sell,
assign, transfer, convey and deliver to Buyer, and Buyer shall purchase and
accept from Seller, all of the Outlet Store Assets and the Inventory
(collectively, the "Assets"), free and clear of all claims, mortgages, deeds of
trust, pledges, security interests, liens, charges, easements, restrictions,
tenancies, options, assignments, judgments, possibilities of reversion, or any
other conflicting ownership or security interest in favor of any third party or
other encumbrances except for Permitted Encumbrances (collectively, "Liens").
(b) The "Outlet Store Assets" shall consist of the
following assets and properties of Seller:
(i) the Leases;
(ii) all tangible personal property
and other equipment, machinery, furniture, furnishings, appliances, and
other tangible personal property of every description and kind owned by
Seller that are located at the Leased Property as well as
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<PAGE> 11
that to be located at the contemplated store located at Clinton, CT
(collectively, the "Equipment and Furnishings");
(iii) all books and records (except
for records necessary for Seller's tax, financial and accounting
purposes, copies of which have been provided or made available to
Buyer) owned and needed in connection with the Business;
(iv) all know-how, packaging supplies,
sales records and histories, customer and supplier lists,
inventory records and other trade secrets now owned and used in
connection with the operation of the Business and marketing plans,
market research data and all other records and materials owned and used
primarily in connection with the Business (except for Intellectual
Property which is granted pursuant to the License Agreement) and all
rights in computer software owned or licensed by Seller and used
exclusively in connection with the Business;
(v) all governmental licenses and
permits relating to the Business that may be lawfully transferred;
(vi) all of Seller's claims, causes
of action, choses in action, rights to recovery (including, without
limitation, rights to insurance proceeds or other recoveries for
damaged Inventory acquired by Buyer (except to the extent any such
insurance proceeds or other recoveries relate to damaged Inventory,
rights to casualty insurance proceeds with respect to the Leased
Property or proceeds resulting from a taking of all or any portion of
the Leased Property), rights of set-off and indemnification and rights
of recoupment relating to the Assets;
(vii) all warranty and other claims
of Seller (express or implied) against third parties
relating to the Outlet Store Assets;
(viii) all right, title and interest
of Seller in and to the Contracts and the Purchase
Orders;
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<PAGE> 12
(ix) all right, title and interest of Seller
in and to any other contracts relating to the Business and any other
assets necessary to conduct the Business consistent with past practice
which is not otherwise utilized by Seller in its other businesses or
operations;
(x) cash in the aggregate amount of $18,300
in the form of cash in the registers and petty cash as set forth in
Schedule 2.1(b)(x) ("Register Cash"); and
(xi) the security deposit in the amount of
$13,333 for the Outlet Store located in Manchester, VT (the "Manchester
Deposit").
2.2 Excluded Assets. Notwithstanding the provisions of
Section 2.1, Seller is not selling and Buyer is not purchasing or
assuming obligations with respect to the following assets (the "Excluded
Assets"):
(a) the stock books, stock ledgers, minute books,
resolutions and corporate seal of Seller or any of its Affiliates;
(b) cash, cash equivalents, securities, insurance
policies and rights under or arising from such policies (other than as set forth
in Section 2.1(b)(vi), (x) or (xi));
(c) any trademarks, copyrights, service marks, logos,
trade names, corporate names or other Intellectual Property (except the
intellectual property being transferred to Buyer pursuant to Section 2.1(b)(iv)
above) or any registrations or applications for registration for any of the
foregoing;
(d) all assets of Seller's businesses other than the
Business and all assets located at the Designer Label Store;
(e) the assets set forth on Schedule 2.2(e) hereto;
(f) all Accounts Receivable that relate to sales
prior to the Closing Date; and
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<PAGE> 13
(g) all security deposits related to the Leased
Property (except for the Manchester Deposit).
2.3 Assumption of Certain Liabilities.
(a) Buyer agrees to assume only the following
liabilities and obligations relating to the Business, whether known or unknown,
fixed or contingent:
(i) all obligations to give notice or
other liabilities arising under the WARN Act arising out of any
termination of Transferring Employees by Buyer or failure by Buyer to
offer employment to any Employee in accordance with Section 9.1(b);
(ii) liabilities and obligations of
Seller under any group health, vacation, severance, salary continuation
or termination pay plans or agreements of Seller for the benefit of
Employees, and, with respect to severance, any plan, practice or
policy, including, but not limited to, liability under Section 4980B of
the Code or Sections 601-607 of ERISA on account of such Employees (as
defined below), in each case resulting from the termination of
employment of the Employees with the Seller and its Affiliates on the
Closing Date or with the Buyer and its Affiliates, after the Closing
Date;
(iii) liabilities and obligations of Seller
under (A) Purchase Orders existing on the Closing Date that are
described on Schedule 5.6(b) and (B) the Contracts (or the applicable
portions thereof that relate to the Business) that are listed or
described on Schedule 5.6(a) and all other contracts entered into in
the ordinary course of business, and (C) the Leases which are assigned
to Buyer;
(iv) all liabilities of the Business
incurred by Buyer or its Affiliates after the Closing Date, other than
Retained Liabilities;
(v) all liabilities of the Seller for
Product Liability Claims relating to occurrences after the Closing
Date; and
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(vi) Environmental Claims relating
to occurrences after the Closing Date (provided that the Seller shall
be liable for indemnification to the Buyer in accordance with Article
VIII for any breach of the representations and warranties set forth in
section 5.16).
The liabilities described in the foregoing
clauses (i)-(vi) (other than the Retained Liabilities) are collectively
hereinafter referred to as the "Assumed Liabilities".
(b) Except as and to the extent otherwise
expressly provided in this Agreement, Buyer does not, and shall not, assume or
be deemed to assume, nor shall Buyer discharge, be responsible for or liable
with respect to any other liabilities or obligations of Seller or any other
Person, whether arising prior to, on, or after the Closing Date (collectively,
the "Retained Liabilities"). Notwithstanding anything to the contrary set forth
herein, Retained Liabilities shall include, without limitation, (i) all of
Seller's liability for accounts payable and accrued expenses, (ii) any
liability, duty or other obligation contained in or arising out of any
agreement, contract, license agreement, lease or sublease relating to the
Business that is not a Contract or Lease that is listed or described on Schedule
5.6(a) or Schedule 5.10(a) or otherwise assumed in Section 2.3(a)(iv), (iii) all
obligations of Seller to any banks, or to any other affiliate with respect to
money borrowed, (iv) except as described in Section 2.3(a)(ii), any liability or
obligation for accrued and unpaid wages, salaries, bonus or incentive
compensation or any other remuneration to any Employee with respect to service
prior to the Closing, (v) any and all costs directly attributable to or arising
directly from any actions, suits, proceedings, investigations, demands,
assessments, or audits which are pending or threatened as of the Closing,
arising under, out of, or in connection with the Business or any of the Assets,
including the matters set forth on Schedule 5.8, (vi) except as described in
Section 2.3(a)(ii), any liability with respect to health, welfare and other
benefit plans of Seller relating to the Employees, including but not limited to
liabilities arising under the Seller Plans set forth on Schedule 5.12(a),
arising on account of services performed prior to the Closing, including but not
limited to liability under Section 4980B of the Code or Sections
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<PAGE> 15
601-607 of ERISA, (vii) any and all liabilities and obligations, direct or
indirect, fixed or contingent, for Taxes (a) of Seller or any member of any
affiliated group (within the meaning of Section 1504(a) of the Code) or any
combined or consolidated group for state or other tax purposes of which Seller
is or has been a member, whenever incurred, or (b) attributable to or incurred
in connection with the Assets or the Business prior to or on the Closing Date,
except as provided in Section 7.2(b), and (viii) all obligations of Seller under
this Agreement.
(c) On the terms and subject to the
conditions set forth in this Agreement, Buyer shall execute and deliver to
Seller on the Closing Date one or more assumption agreement or agreements
(collectively, the "Assumption Agreements") in form and substance reasonably
satisfactory to Buyer and Seller and their respective counsel, pursuant to which
Buyer shall assume and agree to pay, perform and discharge when due, and to
indemnify them against and hold Seller and its Affiliates harmless from, all
obligations and liabilities of Seller to be paid or performed by Buyer under the
Leases.
2.4 Purchase Price for the Outlet Store Assets. Subject to the
terms and conditions of this Agreement, at the Closing Buyer shall pay or cause
to be paid to Seller by wire transfer of immediately available funds to an
account designated by Seller an amount equal to $285,165, which amount
represents (A) $253,532 (Seller's depreciated cost of the fixed assets listed on
Schedule 2.4) plus (B) $250,000 plus (C) the Manchester Deposit, plus (D) the
Register Cash less (E) the $250,000 payment previously made to Seller (the
payment referred to in this Section 2.4 is herein referred to as the "Outlet
Store Assets Payment") in return for the Outlet Store Assets.
2.5 Purchase Price for the Inventory. Subject to the terms and
conditions of this Agreement, at the Closing, Buyer shall pay or cause to be
paid to Seller by wire transfer of immediately available funds to an account
designated by Seller, an amount equal to the Inventory Payment in return for the
transfer to Buyer of all Seller's Inventory on the Closing Date.
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ARTICLE III
DETERMINATION OF PURCHASE PRICE;
PURCHASE PRICE ADJUSTMENTS
3.1 Preliminary Statement of Inventory Valuation. Attached as
Exhibit B is a preliminary statement of Inventory of the Business (the
"Preliminary Statement of Inventory") setting forth as of October 19, 1996, the
value of the Inventory on such date and specifying a value for the Inventory as
determined in accordance with the retail inventory valuation method under GAAP
(as defined herein) on a basis consistent with past practices at the lower of
cost or market (the "Retail Inventory Method"). Such procedure is consistent in
all material respects with the procedure used to calculate inventory value in
the June 1996 Net Assets Statement, giving due consideration to the use of
estimates on an interim basis. The Preliminary Statement of Inventory
categorizes the Inventory of the Business by cost, product category and store.
3.2 Physical Inventory. On or about the Closing Date, at
Buyer's expense, a physical count of the Inventory being transferred to Buyer
hereunder as of the Closing Date shall be taken by Seller and observed by
Coopers & Lybrand L.L.P., Buyer's independent certified public accountants and
Price Waterhouse L.L.P. ("Price Waterhouse"), Seller's independent certified
public accountants. Buyer will provide Seller with the cooperation of its
employees in connection with such physical count.
3.3 Final Statement of Inventory. Within 60 days after the
Closing Date, a final audited Inventory statement (the "Final Statement of
Inventory") shall be prepared by Seller, audited by Price Waterhouse, and
delivered to Buyer and Buyer shall make the payment to Seller specified in
Section 3.5 of this Agreement, unless it objects as specified in Section 3.4 of
this Agreement. The expenses of Price Waterhouse in the preparation of the Final
Statement of Inventory shall be borne by Buyer. Buyer will cooperate fully and
will cause its employees, including the Transferring Employees, to cooperate
fully in assisting Price Waterhouse and Seller in preparing the Final Statement
of Inventory. The Final Statement of Inventory shall incorporate the results of
the physical
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inventory specified in Section 3.2 and shall include the amount of Inventory in
transit as of the Closing Date and a value for the Inventory being transferred
on the Closing Date (with appropriate detail for each category of Inventory,
i.e., clothing and supplies being transferred to Buyer on the Closing Date) in
accordance with the Retail Inventory Method (the "Final Inventory Value"). The
Final Statement of Inventory shall categorize the Inventory of the Business by
cost, product category and store. Buyer shall have access to work papers,
records, and related materials used in preparing the Final Statement of
Inventory. Seller's auditors shall receive a customary indemnity upon release of
such documents. Buyer shall have 30 days from the date the Final Statement of
Inventory is delivered to object to all or any part of such statement by
delivery of a written notice (the "Dispute Notice") to Seller specifying in
reasonable detail its objections. In the event Buyer objects to all or any part
of the Final Statement of Inventory, all such objections shall be resolved in
accordance with Section 3.4 hereof.
3.4 Resolution of Objections. The parties shall use their best
efforts to promptly resolve any objections or disputes as to the Final Inventory
Value specified in the Dispute Notice. If the parties cannot agree as to all or
any part of such valuations within 30 days after the delivery by Buyer of the
Dispute Notice, they shall submit the dispute to a third national accounting
firm agreed to by the parties (the "Firm"), for resolution. If the parties
cannot agree on a firm, the parties' then current independent certified public
accountants shall jointly select such Firm. The fees of the Firm shall be paid
equally by Buyer on the one hand and Seller on the other hand. Buyer and Seller
shall cooperate fully with such Firm. The Firm shall be instructed to reach its
conclusion regarding Final Inventory Value in accordance with the Inventory
valuation procedures set forth in Section 3.1 upon the written submissions of
the parties and, if requested by the Firm, oral presentations of the parties, by
no later than 45 days from the date the dispute is submitted to the Firm for
resolution. The Firm's resolution of the dispute shall be conclusive and binding
upon the parties hereto.
3.5 Purchase Price Adjustment. On the date the Final Inventory
Value has been determined in accor-
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dance with Section 3.3 or 3.4, as the case may be, Buyer or Seller shall
make the following payments:
(a) if the Final Inventory Value as of
the Closing Date as set forth in the Final Statement of Inventory (or as finally
determined by the Firm pursuant to Section 3.4 hereof) exceeds the Inventory
Payment, Buyer shall deliver, by check made to the order of Seller, an amount
equal to the difference, or
(b) if the Inventory Payment exceeds the
Final Inventory Value, as set forth in the Final Statement of Inventory (or as
determined by the Firm pursuant to Section 3.4 hereof), Seller shall deliver to
Buyer, by check made to the order of Buyer, an amount equal to the difference.
Buyer and Seller agree to treat any payment made pursuant to
this Section 3.5 as an adjustment to the purchase price in all of their
respective Tax Returns and not to take any position in any tax or information
return, tax proceeding, tax audit or otherwise inconsistent with such treatment.
ARTICLE IV
THE CLOSING
4.1 The Closing. The closing of the transactions contemplated
by this Agreement (the "Closing") shall take place at the offices of Paul,
Weiss, Rifkind, Wharton & Garrison, 1285 Avenue of the Americas, New York, New
York at 10:00 a.m., local time, on the date
hereof (the "Closing Date").
4.2 Related Agreements. At the Closing, (i) Buyer shall
execute the Assumption Agreement, (ii) Seller and Holdings shall enter into the
License Agreement, (iii) Seller and Buyer shall enter into a Transition Services
Agreement (the "Transition Services Agreement") and (iv) Seller and Parent shall
enter into an amendment (the "Amendment") to the License Agreement, dated August
4, 1994 between Parent and Buyer (such Assumption Agreement, License Agreement,
Transition Services Agreement and Amendment to be collectively referred to as
the "Related Agreements").
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4.3 Deliveries at the Closing.
(a) At the Closing, Seller shall deliver
or cause to be delivered to Buyer:
(i) such general and specific bills
of sale, endorsements, assignments, deeds and other good and sufficient
instruments of transfer and conveyance, in form and substance
reasonably satisfactory to Buyer and Seller and their respective
counsel, as shall be effective to vest in Buyer all of the right, title
and interest of Seller in and to the Assets, including, without
limitation such bills of sale and assignments as shall be necessary to
vest in Buyer good title, free and clear of Liens, to the Assets and
the Leases;
(ii) duly executed instruments of
assignment and assumption for each Lease transferring to Buyer valid
leasehold interest to each Leased Property, free and clear of all
Liens, except Permitted Encumbrances;
(iii) originals or certified copies
of all Leases;
(iv) estoppel certificates executed
by the landlord, for each of the Leases (except for the estoppel
certificate for the Lease for the Outlet Store located in Manchester,
Vermont which will be delivered by the Landlord upon delivery of the
guarantee by Designer Holdings, Inc., a Delaware corporation, of
Buyer's obligations thereunder) substantially in the form attached
hereto as Exhibit C or in such other form as shall be set forth in the
applicable Lease and shall be reasonably satisfactory to Buyer (the
"Estoppel Certificate");
(v) Subject to Section 7.1 of this
Agreement, the written consent from the landlord for each Lease for
each Leased Property to the assignment of such Lease to Buyer whose
such consent is required under the terms of each Lease;
(vi) the written consent from all
parties other than Seller to each Contract being
assigned to Buyer pursuant to this Agreement;
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(vii) a certification in form and
substance reasonably satisfactory to Seller and Buyer, verified as true
and signed and sworn to under penalties of perjury by a duly authorized
officer of Seller, certifying Seller's taxpayer identification numbers
and that Seller is not a "foreign person" as that term is defined for
purposes of the Foreign Investment in Real Property Tax Act, Code
Section 1445, as amended, and the regulations promulgated thereunder;
provided, however, that if Seller shall fail to deliver such
certificate, the Closing shall nevertheless occur and Buyer shall
withhold from payments otherwise to be made to Seller such amounts as
are required to be withheld under applicable laws;
(viii) a certificate signed by a
vice president or president of Seller that states that (A) all the
representations and warranties of Seller set forth in Article V are
true and correct in all material respects and (B) Seller has performed
or complied in all material respects with the agreements contained in
this Agreement required to be performed and complied with by it prior
to the date hereof; and
(ix) all other documents, opinions,
instruments and writings reasonably required by
Buyer.
(b) At the Closing, Buyer shall deliver
to Seller or the appropriate Person:
(i) the Outlet Store Assets Payment;
(ii) the Inventory Payment;
(iii) the payments to be made on the
Closing Date as specified in each of the Related
Agreements;
(iv) a certificate signed by a vice
president or president of Buyer that states that (A) all the
representations and warranties of Buyer in Article VI are true and
correct in all material respects and (B) Buyer has performed or
complied in all material respects with the agreements contained
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in this Agreement required to be performed and complied with by it
prior to the date hereof; and
(v) all other documents, opinions
and writings expressly required to be delivered by
Buyer to Seller pursuant to this Agreement.
4.4 Apportionments.
(a) Expenses for power and utilities
charges, prepaid expenses, sewer and water rents and taxes, real estate taxes
and assessments and "minimum", "fixed" or "base" rent due and payable under the
Leases (including, so called "escalation rent", "additional rent", or "operating
expenses" collectively, "Operating Expenses") and similar prepaid items for the
Leases shall be prorated between Seller and Buyer as of the Closing Date and the
net amount thereof shall be promptly paid to Buyer or Seller or credited to
Buyer, as the case may be, as soon as practicable following the Closing Date
but, in any event, not later than 10 business days following the Closing Date,
on the basis of the fiscal or calendar year for which assessed and based on a
three hundred sixty (360) day year and a thirty (30) day month.
(b) Real estate taxes and assessments
shall be prorated on the basis of the fiscal year for which the same are
assessed. If the Closing Date shall occur either before an assessment is made or
a tax rate is fixed for the tax period in which the Closing occurs, the
proration shall be made on the basis of the tax rate for the preceding year
applied to the latest assessed valuation. After the real estate taxes and
assessments are finally fixed, Buyer and Seller shall make a recalculation and
proration of the same, and Buyer or Seller, as the case may be, shall make an
appropriate payment to the other based on such recalculation. If Buyer shall
receive any refund issued to Buyer, as tenant, with respect to taxes for the
period prior to the Closing, the amount of such refund received by Buyer shall
be apportioned as of the Closing and the amount allocable to the period prior to
the Closing shall be paid by Buyer to Seller within 10 days after such refund is
received. The obligations of Seller under this paragraph shall survive the
Closing.
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(c) Expenses for utilities, unfixed water
rates and charges and sewer rents and taxes shall be apportioned on the basis of
actual current readings or, if such readings have not been made, on the basis of
the most recent bills that are available. If any apportionment is not based on
an actual current reading, then, upon the taking of a subsequent actual reading,
such apportionment shall be readjusted and Seller or Buyer, as the case may be,
shall promptly deliver to the other the amount determined to be due upon such
readjustment.
(d) "Percentage rent" for the calendar,
fiscal or lease year in which the Closing occurs, as the case may be, shall be
apportioned based upon Seller's and Buyer's share of store revenues constituting
the basis of percentage rent under the applicable Lease (as calculated pursuant
to the terms of such Lease). Buyer's share of such store revenues shall be
accompanied by a certificate from Buyer's Chief Financial Officer to the effect
that Buyer's share of such store revenues and the method of calculation of
Buyer's share of such store revenues is true and accurate. If any "percentage
rent" payable after the Closing Date is due with respect to the period in which
the Closing Date occurs and is payable by Seller by reason of the foregoing
allocation, then the appropriate sum shall be promptly paid by Seller to Buyer.
The obligations of Seller under this subparagraph shall survive the Closing.
(e) If Operating Expenses have not been
billed or have not been determined in accordance with the provisions of the
respective Leases, the apportionment of such Operating Expenses shall be made at
the Closing Date by applying the assessed Operating Expenses for each of the
respective Leases for the preceding year, but, promptly after the determination
of Operating Expenses for the current year, the apportionment thereof shall be
recalculated and the Seller or Buyer, as the case may be, shall promptly make an
appropriate payment to the other based on such recalculation.
ARTICLE V
REPRESENTATIONS AND WARRANTIES OF SELLER
Seller represents and warrants to Buyer as follows:
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5.1 Corporate Organization. Seller is a corporation duly
organized, validly existing and in good standing under the laws of the
jurisdiction of its incorporation, has corporate power to own all of its
properties and assets and to carry on its business as it is now being conducted,
and is duly qualified to do business and is in good standing in all
jurisdictions where its ownership, operation or leasing of property or assets or
the conduct of its business requires it to be so qualified, except in such
jurisdictions, if any, where the failure to be so qualified or in good standing
would not, individually or in the aggregate, have a material adverse effect on
the business, operations or condition (financial or otherwise) (a "Material
Adverse Effect") on the Business. Seller has all necessary government
authorizations to own, lease and operate all of its properties and assets and to
carry on its business as now being conducted, except any such authorizations the
failure to obtain which would not have or would not be reasonably likely to
have, individually or in the aggregate, a Material Adverse Effect.
5.2 Due Authorization. The execution, delivery and performance
of this Agreement and the Related Agreements have been duly authorized by all
necessary corporate action on the part of Seller and this Agreement and the
Related Agreements have been duly executed by a duly authorized officer of
Seller. This Agreement and the Related Agreements constitute valid and binding
agreements of Seller enforceable against Seller in accordance with their terms,
subject to applicable bankruptcy, insolvency, reorganization, moratorium or
other similar laws affecting creditors' rights generally and subject to general
principles of equity (regardless of whether enforcement is sought in equity or
law).
5.3 Consents and Approvals; No Violation. Except as set forth
on Schedule 5.3 and subject to the expiration or earlier termination of all
waiting periods under the HSR Act, the execution and delivery of this Agreement
do not, and the consummation of the transactions contemplated hereby will not,
(i) violate or conflict with any provision of Seller's Articles of Incorporation
or Bylaws or other similar charter documents of any of its Affiliates involved
in the Business, (ii) violate or conflict with or result in a default (or give
rise to any right of termination, cancellation or
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acceleration) under any of the terms, conditions or provisions of, any note,
bond, mortgage, indenture, license, lease, agreement or other instrument or
obligation to which Seller or any of its Affiliates involved in the Business is
a party or by which Seller or any of its Affiliates involved in the Business may
be bound, except for such defaults (or rights of termination, cancellation or
acceleration) as to which requisite waivers or consents either have been
obtained by Seller or any of its Affiliates involved in the Business or the
obtaining of which has been waived by Buyer, (iii) result in the creation or
imposition of any material lien, charge or encumbrance by a third party on the
Outlet Store Assets and the Inventory and Seller or any of its Affiliates
involved in the Business or (iv) violate any order, writ, injunction, decree,
arbitration award, statute, rule or regulation applicable to Seller or any of
the Assets, excluding from the foregoing clauses (ii), (iii) and (iv) such
defaults and violations which, individually or in the aggregate, would not have
a Material Adverse Effect.
5.4 Financial Statements. (a) Set forth on Schedule 5.4(a) are
true and complete copies of (i) the statement of net assets to be sold for the
Business for the fiscal year ended December 30, 1995 (the "December 1995 Net
Assets Statement"); (ii) the statement of operations for the Business for the
fiscal year ended December 30, 1995 (the "December 1995 Statement of
Operations"; and (iii) the statement of cash flows to (from) Seller for the
fiscal year ended December 30, 1995 (the "December 1995 Statement of Cash
Flows" and, together with the December 1995 Net Assets Statement and the
December 1995 Statement of Operations, the "December 1995 Financial
Statements"). Seller agrees to have the December 1995 Financial Statements
audited by Price Waterhouse delivered as soon as practicable following the
Closing, but, in any case, not later than 10 business days following the
Closing. The December 1995 Financial Statements were prepared by Seller (i) to
present certain information relative to the Business and are not intended to be
a complete presentation of the Outlet Stores' assets and liabilities and
revenues and expenses and (ii) were derived from Seller's historical financial
statements for such periods and include allocation and estimates based upon
assumptions Seller believes are reasonable (it being understood that these
allocations and estimates are not necessarily indicative of the costs and
expenses that
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would have resulted if the Business had been operated as a separate entity).
Subject to the foregoing, the December 1995 Net Assets Statement fairly
presents, in all material respects, the net assets to be sold of the Business as
of December 30, 1995 and the related results of operations and cash flows to
(from) Seller for the fiscal year then ended; and each of the December 1995
Financial Statements (including the related notes) has been prepared in
accordance with generally accepted accounting principles ("GAAP") consistently
applied.
(b) Set forth on Schedule 5.4(b) are true
and complete copies of (i) the unaudited statement of net assets to be sold for
the Business for the six months ended June 29, 1996 (the "June 1996 Net Assets
Statement"), (ii) the unaudited statement of operations for the Business for the
six months ended June 29, 1996 (the "June 1996 Statement of Operations"); and
(iii) the unaudited statement of cash flows to (from) Seller for the six months
ended June 29, 1996 (the "June 1996 Statement of Cash Flows" and, together with
the June 1996 Net Assets Statement and the June 1996 Statement of Operations,
the "June 1996 Financial Statements"). The June 1996 Financial Statements were
prepared by Seller (i) to present certain information relative to the Business
and are not intended to be a complete presentation of the Outlet Stores' assets
and liabilities and revenues and expenses and (ii) were derived from Seller's
historical financial statements for such periods and include allocation and
estimates based upon assumptions Seller believes are reasonable (it being
understood that these allocations and estimates are not necessarily indicative
of the costs and expenses that would have resulted if the Business had been
operated as a separate entity). Subject to the foregoing, the June 1996 Net
Assets Statement fairly presents the net assets to be sold of the Business as of
June 29, 1996, and the related results of operations and cash flows to (from)
Seller for the six months then ended; and each of the June 1996 Financial
Statements has been prepared in accordance with GAAP consistently applied.
5.5 Absence of Changes. Except as set forth in Schedule 5.5
hereto, since the date of the December 1995 Financial Statements, the Business
has been conducted in the ordinary course and there has not been, with respect
to any store:
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(a) any Material Adverse Effect or any event which is
reasonably likely to result in a Material Adverse Effect;
(b) any change by Seller in the accounting methods,
principles or practices relating to the Business, other than changes required by
GAAP;
(c) any acquisition of, or commitment to acquire, any
Assets, or any entry or commitment to enter into any Contracts, or any
undertaking or commitment to incur or undertake any Assumed Liabilities other
than in the ordinary course of business.
For purposes of this Section 5.5, a Material Adverse Effect shall not be deemed
to include any effect upon the business, prospects, results of operations,
properties, assets, liabilities or condition (financial or otherwise) of the
Business taken as a whole arising out of or resulting from the execution of this
Agreement or the consummation of the transactions contemplated hereby.
5.6 Contracts.
(a) Schedule 5.6(a) lists or describes all Contracts to
which either Seller or any of its Affiliates is a party relating to the Business
(including all contracts and commitments of the contemplated store to be located
in Clinton, CT) other than any Contract entered into in the ordinary course of
business which provides for payments of less than $10,000 and all of which
provide for payments of less than $100,000. True, complete and correct copies of
the written Contracts and a description of all others set forth on Schedule
5.6(a) have been delivered to Buyer. All the Contracts are valid and in full
force and effect, and there does not exist any default or event of default by
Seller or, to Seller's Knowledge, by any other party under any Contract, or any
event that, with notice or lapse of time or both, would constitute a default or
an event of default by Seller or, to Seller's Knowledge, any other party under
any Contract, which in either such case would have a Material Adverse Effect on
any of the Outlet Stores. Seller has not received notice that any party to any
Contract intends to cancel or terminate such Contract. Except as set forth on
Schedule 5.6(a), no consent of any other party to any Contract is required in
connection with the
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execution, delivery and performance of this Agreement and the Related
Agreements.
(b) Schedule 5.6(b) sets forth a list dated as of
September 20, 1996 of all Purchase Orders as of such date. Within five days
prior to the Closing, Seller shall deliver to Buyer an updated list of all
Purchase Orders as of five business days prior to such date of delivery.
5.7 Absence of Undisclosed Liabilities. Seller has no
liabilities or obligations of any kind whatsoever, whether or not accrued and
whether or not contingent or absolute, determined or determinable, that are
Assumed Liabilities, other than (a) liabilities and obligations which are
disclosed or accrued in the December 1995 Financial Statements and the June 1996
Financial Statements or the notes thereto or the Schedules to this Agreement,
(b) liabilities and obligations incurred on behalf of the Business in connection
with this Agreement and the transactions contemplated hereby, (c) liabilities
and obligations incurred in the ordinary course of business after the date of
the December 1995 Financial Statements and the June 1996 Financial Statements
and (d) liabilities that would not have a Material Adverse Effect on any of the
Outlet Stores.
5.8 Litigation. Except as disclosed in Schedule 5.8, or the
June 1996 Financial Statements, there are no claims, actions, suits, proceedings
or investigations pending or, to the best knowledge of Seller, threatened
against the Seller, the Business or the Assets before any government which,
individually or in the aggregate, have a reasonable likelihood of resulting in a
Material Adverse Effect. Seller is not subject to any outstanding order, writ,
injunction or decree which has had or could be reasonably expected to have a
Material Adverse Effect.
5.9 Taxes. There are no liens for taxes on the Assets other
than liens which are Permitted Encumbrances.
5.10 Leases and Leased Property.
(a) Schedule 5.10(a) sets forth a true and complete list
of all leases, subleases, licenses and other occupancy agreements (including all
amendments,
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modifications and supplements or other agreements relating thereto) pursuant to
which Seller has the right to use or occupy the Leased Properties (collectively,
the "Leases"). True, complete and correct copies of the Leases (as amended,
modified or supplemented to the date hereof) have been made available to Buyer.
Seller, or one of its subsidiaries, as the case may be, holds its leasehold
interest in each of the Leased Properties substantially in accordance with the
provisions of the applicable Lease and free of all Liens on such leasehold
interest, except for Permitted Encumbrances. Except as set forth on Schedule
5.10(a), (i) each of the Leases is valid, binding and in full force and effect,
all rent and other sums and charges payable by Seller thereunder are current
within applicable grace periods and no notice of default or termination under
any Leases has been given or received by Seller which describes a default which
has not been cured, and to the best knowledge of Seller, no events have occurred
or circumstances exist which would, with the giving of notice or the passage of
time or both, constitute a material default; (ii) none of Seller nor any of its
Affiliates involved in the Business has an ownership, financial or other
interest in the landlord under any Leases; (iii) to Seller's Knowledge, there
are no brokerage commissions due by Seller with respect to any of the Leases;
(iv) Seller has not received any notice of any existing, pending or contemplated
condemnation, eminent domain, environmental or similar proceeding with respect
to the Leases or the Leased Properties; and (v) Seller has not received notice
of any violation from any building, health, fire or similar governmental agency,
nor has it received notice of any violation of any recorded restrictions,
affecting the Leases or the Leased Properties. The Leased Properties constitute
all interests in real property necessary to operate the Business substantially
in the manner that it has been operated by Seller prior to the Closing.
(b) Except as set forth in Schedule 5.10(b), none of the
Leased Properties is subject to any lease, sublease, license or other agreement
in which Seller grants to any other person any right to the use, occupancy or
enjoyment of the Leased Property or any part thereof.
(c) Except as disclosed in Schedule 5.10(c), Seller has
received no written notice of any
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violation of any applicable zoning and other land use ordinances, any building
codes or other applicable laws, statutes, rules, regulations and ordinances. To
Sellers' knowledge, all Improvements, including but not limited to the roofs and
structural elements thereof and the heating, ventilation, air conditioning,
plumbing, electrical, mechanical, sewer, waste water, storm water, paving and
parking equipment, systems and facilities included therein (other than items and
categories of items which Seller is not required to maintain or repair under the
applicable Lease), in the aggregate, are in substantially good condition and
repair in all material respects, except for normal wear and tear, and are
adequate for the purposes for which they are being put in the ordinary course of
the Business. All water, gas, electrical, steam, telecommunication, sanitary and
storm sewage lines and systems and other similar systems and utilities, if any,
serving the Leased Properties are installed and operating and are reasonably
sufficient to enable each of the Leased Properties to continue to be used and
operated in the manner currently being used and operated, and any so-called
hookup fees or other associated charges payable by Seller have been fully paid.
(d) Seller has, and provided Seller receives consent when
required under any Lease after the Closing Date, will convey to Buyer a valid
leasehold interest in and to all of the Leased Properties, subject to no Lien
except for Permitted Encumbrances.
(e) Except for the consents set forth on Schedule 5.10(e), the
assignment to Buyer of each of the Leases pursuant to the terms of this
Agreement does not require the consent of any party thereto.
(f) If Buyer receives an Estoppel Certificate covering any
matter that is a subject of a representation or warranty made by Seller, then
Seller's representation and warranties covered by such Estoppel Certificate
shall expire and terminate to the extent that they are confirmed by such
Estoppel Certificate.
5.11 Inventory. All Inventory included in the Assets is, and
will be as of the Closing Date, of substantially similar quality and saleability
as that maintained in the Outlet Stores in accordance with past
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practice and will be subject to no Lien at the Closing Date.
5.12 Employee Benefit Plans; ERISA.
(a) Schedule 5.12(a) contains a true and complete list of each
bonus, deferred compensation, incentive compensation, stock purchase, stock
option, severance or termination pay, hospitalization or other medical, life or
other insurance, supplemental unemployment benefits, profit-sharing, pension, or
retirement plan, program, agreement or arrangement, and each other employee
benefit plan, program, agreement or arrangement, sponsored, maintained or
contributed to or required to be contributed to by Seller or by any trade or
business, whether or not incorporated (an "ERISA Affiliate"), that together with
Seller would be deemed a "single employer" within the meaning of section
4001(b)(1) of ERISA, for the benefit of any employee or former employee of
Seller involved in the Business, whether formal or informal and whether legally
binding or not (the "Seller Plans").
(b) With respect to each of the Seller Plans, Seller has
heretofore delivered to Buyer true and complete copies of each of the following
documents:
(i) a copy of the Seller Plan (including all amendments
thereto); and
(ii) the most recent determination letter received from the
IRS with respect to each Seller Plan that is intended to be qualified under
section 401 of the Code.
(c) No liability under Title IV of ERISA that would have a
Material Adverse Effect has been incurred by Seller or any ERISA Affiliate since
the effective date of ERISA that has not been satisfied in full.
(d) Each of the Seller Plans has been operated and
administered in all respects in accordance with applicable laws, including but
not limited to ERISA and the Code, except where the failure to be so
administered and operated would not have a Material Adverse Effect.
(e) Except as set forth on Schedule 5.12(e), each of the
Seller Plans that is intended to be "quali-
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fied" within the meaning of section 401(a) of the Code has been determined by
the IRS to be qualified under Section 401(a) of the Code and Seller is not aware
of any event that has occurred since the date of such determination that would
adversely affect such qualification.
5.13 Labor Relations and Employment. Except as set forth in
Schedule 5.13(a): (a) Seller and its Affiliates are in material compliance with
all applicable laws respecting employment and employment practices, terms and
conditions of employment and wages and hours, and are not engaged in any unfair
labor practices concerning employees of Seller and/or the Affiliates relating to
the Business ("Employees") and have been in such compliance during the past five
years; (b) Seller and/or its Affiliates have not entered into or become a party
to any collective bargaining agreement or similar agreement with any labor
organization, or agreed to any work rules or practices with any labor
organization or employee association applicable to the Employees; (c) there is
no unfair labor practice complaint pending or, to Seller's Knowledge, threatened
before the National Labor Relations Board regarding any Employee; (d) there is
no labor strike, dispute, slowdown, stoppage or lockout actually pending, or to
the knowledge of Seller, threatened against or affecting Seller and/or its
Affiliates with regard to the Business and during the past five years there has
not been any such action; (e) no union claims to represent any of the Employees;
(f) to Seller's Knowledge, there are no current union organizing activities
among the Employees and no representation question exists respecting any of the
Employees; (g) no grievance or any arbitration proceeding arising out of or
under a collective bargaining agreement is pending or, to Seller's Knowledge,
threatened with regard to any Employee and no claim therefor exists; (h) Seller
and/or its Affiliates have not received notice of the intent of any federal,
state, local or foreign agency responsible for the enforcement of labor or
employment laws to conduct an investigation with respect to or relating to the
Business and no such investigation is in progress; (i) no pending or, to
Seller's Knowledge, threatened lawsuits, administrative proceedings or
investigations between Seller and/or its Affiliates, on the one hand, and
current or former directors or officers of Seller and/or its Affiliates, or
Employees, on the other hand, including without limitation, any claims for
wrongful termination, breach
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of express or implied contract of employment or for violation of equal
employment opportunity laws; (j) there are no employment contracts or written
severance or termination agreements with any Employee; (k) without giving effect
to the transactions contemplated hereby, since the enactment of the WARN Act,
Seller and/or its Affiliates have not effectuated (A) a "plant closing" (as
defined in the WARN Act) affecting any site of employment or one or more
facilities or operating units within any site of employment or facility of
Seller and/or its Affiliates relating to the Business, or (B) a "mass lay-off"
(as defined in the WARN Act) affecting any site of employment or facility of
Seller and/or its Affiliates relating to the Business without complying with the
WARN Act; and (l) Seller and/or its Affiliates have not been affected by any
transaction or engaged in layoffs or employment terminations of current or
former employees of Seller and/or its Affiliates relating to the Business
sufficient in number to trigger application of any similar foreign, state or
local law without complying with any such law. Except as disclosed in Schedule
5.13(a), no current or former Employee has suffered an "employment loss" (as
defined in the WARN Act) since 6 months prior to the Closing Date.
5.14 Brokers and Finders. No financial adviser, broker, agent
or finder has been retained by Seller in connection with this Agreement or any
transaction contemplated hereby and no such financial adviser, broker, agent or
finder is entitled to any fee or other compensation from Seller on account of
this Agreement or any transaction contemplated hereby.
5.15 Insurance. Schedule 5.15 contains an accurate and
complete description of all policies of liability, fire, workers' compensation
and other forms of insurance owned or held by Seller and covering the Business
or any of the Seller Plans. All such policies are valid and enforceable and in
full force and effect, are underwritten by unaffiliated financially sound and
reputable insurers, are sufficient for all applicable requirements of law and
provide insurance, including, without limitation, fire, general liability and
product liability insurance, in such amounts and against such risks as is
customary for companies engaged in similar businesses to protect the Assets.
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5.16 Environmental. Schedule 5.16 contains an accurate and
complete description of all environmental reports known to Seller that affect
any of the Assets, and Seller has delivered a complete copy of each such report
to Buyer. Except as set forth in Schedule 5.16 or in the reports listed therein,
Seller has no knowledge of the presence or release of any toxic substance or
hazardous material or of any other environmental condition or contamination in
or from the Assets.
5.17 Disclosure. No representation or warranty by Seller in
this Agreement contains or will contain any untrue statement of material fact or
omits or will omit to state any material fact necessary to make the statements
herein or therein not misleading, it being understood that as used in this
Section "material" means material to the Business taken as a whole.
ARTICLE VI
REPRESENTATIONS AND WARRANTIES OF BUYER
Buyer hereby represents and warrants to Seller as follows:
6.1 Corporate Organization. Buyer is a corporation duly
organized, validly existing and in good standing under the laws of the State of
Delaware, has corporate power to own all of its properties and assets and to
carry on its business as it is now being conducted, and is duly qualified to do
business and is in good standing in all jurisdictions where its ownership,
operation or leasing of property or assets or the conduct of its business
requires it to be so qualified, except in such jurisdictions, if any, where the
failure to be so qualified or in good standing would not, individually or in the
aggregate, have a Material Adverse Effect. Buyer has all necessary government
authorizations to own, lease and operate all of its properties and assets and to
carry on its business as now being conducted, except any such authorizations the
failure to obtain which would not have or would not be reasonably likely to
have, individually or in the aggregate, a Material Adverse Effect. True and
complete copies of the Articles of Incorporation and Bylaws of Buyer as
currently in effect have been provided to Seller.
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6.2 Due Authorization. The execution, delivery and performance
of this Agreement have been duly authorized by all necessary corporate action on
the part of Buyer and this Agreement has been duly executed, by a duly
authorized officer of Buyer. This Agreement constitutes a valid and binding
agreement of Buyer, enforceable against Buyer in accordance with its terms,
subject to applicable bankruptcy, insolvency, reorganization, moratorium or
other similar laws affecting creditors' rights generally and subject to general
principles of equity (regardless of whether enforcement is sought in equity or
law).
6.3 Consents and Approvals, No Violation. Except as set forth
in Schedule 6.3 hereto, subject to the expiration or earlier termination of all
waiting periods under the HSR Act, the execution and delivery of this Agreement
do not, and the consummation of the transactions contemplated hereby will not,
(i) violate or conflict with any provision of Buyer's Articles of Incorporation
or By-laws, (ii) violate or conflict with or result in a default (or give rise
to any right of termination, cancellation or acceleration) under any of the
terms, conditions or provisions of, any note, bond, mortgage, indenture,
license, lease, agreement or other instrument or obligation to which Buyer is a
party or by which Buyer or any of its respective properties or assets may be
bound, except for such defaults (or rights of termination, cancellation or
acceleration) as to which requisite waivers or consents either have been
obtained by the Buyer or the obtaining of which has been waived by Seller, (iii)
result in the creation or imposition of any material lien, charge or encumbrance
by a third party on the assets of Buyer or (iv) violate any order, writ,
injunction, decree, arbitration award, statute, rule or regulation applicable to
Buyer, any of its Subsidiaries or any of their respective properties or assets,
excluding from the foregoing clauses (ii), (iii) and (iv) such defaults and
violations which, individually or in the aggregate, would not have a Material
Adverse Effect.
6.4 Brokers and Finders. No financial adviser, broker, agent
or finder has been retained by Buyer in connection with this Agreement or any
transaction contemplated hereby and no such financial adviser, broker, agent or
finder is entitled to any fee or other compensa-
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tion from Buyer on account of this Agreement or any transaction contemplated
hereby.
ARTICLE VII
COVENANTS OF THE PARTIES
7.1 Consents. Buyer and Seller shall use their respective
reasonable best efforts to obtain all consents and approvals required in
connection with, and waivers of any violations, breaches and defaults that may
be caused by, the consummation of the transactions contemplated by this
Agreement.
7.2 Tax Matters.
(a) Allocation of Purchase Price. Seller and Buyer hereby
agree upon the allocation of the purchase price being paid by Buyer under this
Agreement in accordance with the allocation set forth on Schedule 7.2(a). Such
allocation shall be utilized by Buyer and Seller in all of their respective Tax
Returns and Seller and Buyer shall not take a position in any Tax or information
return, Tax proceeding, Tax audit or otherwise inconsistent with an agreed upon
allocation pursuant to this Section 7.2(a). Each of Buyer and Seller shall
timely file a Form 8594 in accordance with the requirements of Section 1060 of
the Code and this Section 7.2(a).
(b) Sales and Transfer Taxes and Fees. All sales, use,
transfer, stamp, recording and registration Taxes and fees incurred in
connection with the consummation of the transactions contemplated by this
Agreement whether imposed on Seller or Buyer, including, without limitation, all
Taxes and fees incurred in connection with the transfer of the Leases and the
Leased Properties demised thereby or otherwise, shall be paid equally by Buyer
and Seller, and each of Buyer and Seller shall, at its own expense, file all
necessary Tax Returns and other documentation with respect to all such Taxes and
fees. Seller and Buyer agree to cooperate with each other in connection with the
preparation and timely filing of all necessary forms and clearances required by
any taxing authority.
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(c) Withholding. Seller shall withhold (and pay over to
the relevant taxing authority) all income, employment and other taxes required
to be withheld from wages and other remuneration paid (or considered paid) prior
to the Closing Date, and shall make available to Buyer copies of payroll records
for the calendar year which includes the Closing Date (which shall show the
remuneration paid (or considered paid) by Seller to each employee and the taxes
withheld for such year).
(d) Employment Taxes.
(i) Seller and Buyer will, to the extent permitted by
law, (A) treat Buyer as a "successor employer" and Seller as a "predecessor,"
within the meaning of sections 3121(a)(1) and 3306(b)(1) of the Code, with
respect to Transferring Employees who are employed by Buyer for purposes of
Taxes imposed under the United States Federal Unemployment Tax Act ("FUTA") or
the United States Federal Insurance Contributions Act ("FICA") and (B) cooperate
with each other to avoid, to the extent possible, the filing of more than one
IRS Form W-2 with respect to each such Transferring Employee for the calendar
year within which the Closing Date occurs.
(ii) At the request of the Buyer with respect to any
particular applicable Tax law relating to employment, unemployment insurance,
social security, disability, workers' compensation, payroll, health care or
other similar Tax other than Taxes imposed under FICA and FUTA, Seller and Buyer
will, to the extent permitted by law, (A) treat Buyer as a successor employer
and Seller as a predecessor employer, within the meaning of the relevant
provisions of such Tax law, with respect to Transferring Employees who are
employed by Buyer and (B) cooperate with each other to avoid, to the extent
possible, the filing of more than one individual information reporting form
pursuant to each such Tax law with respect to each such Transferring Employee
for the calendar year within which the Closing Date occurs.
7.3 Public Announcements. Except as provided below, Buyer and
Seller shall not, and they shall use their best efforts to cause their
respective Affiliates not to, issue any press release or otherwise make any
public statement or respond to any press inquiry with respect to this Agreement
or the transactions contemplat-
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ed hereby without the prior approval of the other party, which approval shall
not be unreasonably withheld, except as may be required by law. Buyer and Seller
shall consult with each other regarding announcements and press releases
regarding the transactions to be made upon execution of this Agreement and upon
Closing.
7.4 Expenses. Whether or not the transactions contemplated
hereby are consummated, Buyer and Seller shall each bear their own costs and
expenses incurred in connection with this Agreement and the Related Agreements
and the transactions contemplated hereby and thereby including, without
limitation, fees of legal counsel, accountants, and other consultants or
representatives. The fees and expenses of the Firm shall be paid equally by
Buyer and Seller.
7.5 Access to Records and Leased Properties. From and after
the Closing, Seller shall provide Buyer and its agents and representatives with
reasonable access during regular business hours to the extent necessary for
Buyer to operate the Business and to prepare financial statements, to all tax,
financial, accounting and other records relating to the Business which were
retained by Seller
7.6 Accounts Payable. From and after the Closing, Seller
agrees that it shall pay its accounts payable and accrued expenses relating to
the Business which constitute Retained Liabilities, in accordance with past
practice.
7.7 Contracts. At the Closing, Seller is assigning and Buyer
is assuming the Contracts or the relevant portions thereof set forth on Schedule
5.6(a); provided that, to the extent any such Contracts relate to Seller's or
its Affiliates' businesses other than the Business, Seller is only assigning the
interests in such Contracts as they relate to the Business. Seller shall,
following the Closing Date, use commercially reasonable efforts to cause the
portions of the distribution agreements which constitute Contracts being
assigned to Buyer hereunder to be executed as separate agreements by the parties
thereto and assigned to Buyer.
7.8 Buyer's Mail and Other Documents. Following the Closing,
Seller agrees to deliver to Buyer all
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mail and other documents received by Seller which relate to the Business and
which, from its review, should be delivered to Buyer.
7.9 Seller's Mail and Other Documents. Buyer agrees to deliver
to Seller all mail and other documents received by Buyer and which from its
review, should be delivered to Seller.
7.10 Returns. From and after the Closing, Buyer agrees that it
will accept returns from customers of the Business in accordance with the
Business's return policy existing immediately prior to the Closing Date whether
or not the merchandise being returned was sold prior to or after the Closing
Date.
7.11 Accounts Receivable. Seller shall retain all of the
Accounts Receivable existing on the Closing Date and shall collect such
receivables in accordance with its credit and collection policies. Buyer agrees
that it shall, if requested by Seller, assist Seller in connection with the
collection of such Accounts Receivable and that it shall take no action that
would interfere with Seller's ability to collect such Accounts Receivable.
7.12 Post Closing Leasehold Improvements. If in connection
with the action described in item 1 of Schedule 5.8 hereof, Seller shall be
compelled or shall in its sole discretion agree to cause the construction of
certain improvements or alterations (the "Work") at the Leased Property located
in Manchester, Vermont, then Seller, its contractors and agent shall be allowed
by Buyer to enter upon the leased premises at reasonable times for the purposes
of performing the Work and for related purposes. Seller shall request the
consent of Buyer no less than five business days prior to the date the Work
shall commence, which consent shall not be unreasonably withheld. Buyer shall
cooperate with Seller, at Seller's sole cost and expense, in connection with
Seller's performance of the Work, which cooperation shall include, without
limitation, entering into agreements reasonably required in connection with the
performance of the Work. Seller hereby agrees that, unless compelled to do so by
court order or equivalent legal process, Seller shall not (i) perform any such
Work unless Seller shall have first submitted plans and specifications detailing
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such Work to Buyer and shall have obtained Buyer's approval thereof, which
approval shall not be unreasonably withheld or delayed or (ii) take any action
in connection with such Work in violation of the applicable Lease. Seller shall
cause all such Work to be performed (i) in a good and workmanlike manner, (ii)
as expeditiously as is reasonably practicable, (iii) in a manner so as to
minimize the disturbance to Buyer's conduct of business and (iv) in accordance
with all applicable laws, and shall obtain all consents to such Work, if any,
required under the applicable Lease. Prior to commencement of the Work, Seller
shall present to Buyer evidence of such required consents, governmental licenses
and permits as Buyer shall reasonably request. Seller hereby agrees to indemnify
and hold harmless Buyer against any Losses arising directly or indirectly as a
result of such Work or the improvements or alterations constructed.
ARTICLE VIII
INDEMNIFICATION
8.1 Indemnification by Seller. Subject to the terms and
conditions of this Article VIII, Seller agrees to indemnify and hold harmless
each of Buyer, its respective officers, directors, shareholders and Affiliates
and the successors and assigns of each of them (the party or parties being
indemnified collectively referred to herein as the "Buyer Indemnified Party")
from and against each and every demand, claim, loss, liability, damage, cost and
expense (including, without limitation, interest, penalties, and reasonable
attorneys' fees and disbursements) (collectively, "Losses") imposed upon or
incurred by the Buyer Indemnified Party, directly or indirectly resulting from
or arising out of (i) any breach of any representation or warranty of Seller
contained herein or in any of the Related Agreements and any actual or
threatened action or proceeding in connection therewith, (ii) any failure to
comply with any agreement of Seller contained herein or in any of the Related
Agreements and any actual or threatened action or proceeding in connection
therewith, any claim or demand for commission or other compensation arising out
of the transactions contemplated by this Agreement by any broker, finder or
agent or agent claiming to be entitled thereto, (iii) any failure by Seller to
comply with any "bulk sales" law under the
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Uniform Commercial Code, the tax laws of any jurisdiction or any similar
applicable laws applicable to the transactions contemplated by this Agreement,
or (iv) the Retained Liabilities. Each matter for which Seller has agreed to
provide indemnification pursuant to this Section 8.1 hereof is hereinafter
referred to individually as a "Claim" and collectively as the "Claims."
8.2 Indemnification by Buyer. Subject to the terms and
conditions of this Article VIII, Buyer agrees to indemnify and hold harmless
each of Seller, its shareholders, officers, directors and Affiliates and its
successors and assigns (the party or parties being indemnified collectively
referred to herein as the "Seller Indemnified Party") from and against all
Losses imposed upon or incurred by the Seller Indemnified Party, directly or
indirectly resulting from or arising out of (i) any breach of any representation
or warranty of Buyer contained herein and any actual or threatened action or
proceeding in connection therewith (ii) any failure to comply with any agreement
of Buyer contained herein and any actual or threatened action or proceeding in
connection therewith, (iii) any claim or demand for commission or other
compensation arising out of the transactions contemplated by this Agreement by
any broker, finder or agent claiming to be entitled thereto, or (iv) any Assumed
Liability. Each matter for which Buyer has agreed to provide indemnification
pursuant to this Section 8.2 hereof is hereinafter referred to individually as a
"Claim" and collectively as the "Claims."
8.3 Conditions of Indemnification. The obligations and
liabilities of any party to indemnify any other party under Sections 8.1 and 8.2
hereof with respect to Claims shall be subject to the following terms and
conditions:
(a) The party to be indemnified (the "Indemnified
Party") shall give the other party or parties (the "Indemnifying Party") prompt
notice of any such Claim; provided, however that the failure to notify the
Indemnifying Party promptly shall not relieve such Indemnifying Party of its
obligations under this Article VIII except to the extent that the failure to so
notify adversely prejudices the Indemnifying Party's ability to defend such
Claim.
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(b) The Indemnifying Party shall be entitled to contest
and defend any Claim, subject to the provisions of Section 8.3(c) hereof, by all
appropriate legal proceedings, at the Indemnifying Party's own cost and expense;
provided, that the Indemnifying Party so notifies the Indemnified Party within
30 days after receipt of notice of the Claim (or sooner, if the nature of the
asserted liability so requires it). If the Indemnifying Party assumes the
defense of a Claim, the Indemnified Party shall have the right to participate in
all proceedings and to be represented by attorneys of the Indemnified Party's
own choosing at the Indemnified Party's own cost and expense. If the
Indemnifying Party fails to take reasonable steps necessary to defend such Claim
within 30 calendar days after receiving notice from the Indemnified Party that
the Indemnified Party believes the Indemnifying Party has failed to take such
steps, the Indemnified Party may assume its own defense, and the Indemnifying
Party shall be liable for any reasonable expenses therefor. Notwithstanding
anything contained herein to the contrary, the Indemnified Party shall have the
right to employ separate counsel at the Indemnifying Party's expense and to
control its own defense of such action or proceeding if the named parties to any
such litigation include the Indemnified Party and the Indemnifying Party and, in
the opinion of counsel to the Indemnified Party addressed to the Indemnifying
Party that representation of both parties would be inappropriate due to actual
or potential conflicts between the parties. In addition, if the Indemnifying
Party assumes the defense of a Claim, (i) no compromise or settlement thereof
may be effected by the Indemnifying Party without the Indemnified Party's
consent (which shall not be unreasonably withheld) unless (A) there is no
finding or admission of any violation of law by the Indemnified Party and no
effect on any other claims that may be made against the Indemnified Party and
(B) the sole relief provided is monetary damages that are paid in full by the
Indemnifying Party and (ii) the Indemnified Party shall have no liability with
respect to any compromise or settlement thereof effected without its consent.
(c) In the event that the Indemnifying Party does not
elect to assume the defense of a Claim in accordance with the provisions of
subparagraph (b) above, the Indemnified Party shall keep the Indemnifying Party
fully informed of the facts of the Claim and the progress
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of the defense thereof and the Indemnifying Party shall be bound by any
determination made or any settlement or compromise effected with respect thereto
by the Indemnified Party. Notwithstanding any other provision of this Section
8.3, if an Indemnified Party determines in good faith that there is a reasonable
probability that an action which is the basis of a Claim may adversely affect it
or its affiliates other than as a result of monetary damages, such Indemnified
Party may, by notice to the Indemnifying Party, assume the exclusive right to
defend, compromise or settle such action, but the Indemnifying Party shall not
be bound by any determination of an action so defended or any compromise or
settlement thereof effected without its consent (which shall not be unreasonably
withheld).
(d) The notice referred to in Section 8.3(a) hereof shall
set forth the details of the Claim (including the amount, estimated if
necessary, of the asserted damages) and the specific provisions of this
Agreement relating thereto (the "Notice") and with respect to any Claim pursuant
to Section 8.1(i) (other than Seller's representations and warranties specified
in the following proviso) or 8.2(i), respectively, shall have been given by the
Indemnified Party no later than eighteen months from the Closing Date; provided,
that, with regard to Claims arising out of a breach of the Sellers'
representations and warranties set forth in Section 5.2, 5.9 and 5.14 the notice
shall have been given prior to the applicable statute of limitation for such
Claim and with regard to Claims arising out of a breach of the Sellers'
representations and warranties set forth in Section 5.16 the notice shall have
been given prior to the earlier of (i) the fifth anniversary of the date hereof
or (ii) the applicable statute of limitation for such claim. Notwithstanding the
foregoing, no Notice shall be required with respect to any claims pursuant to
Sections 8.1(iv) and 8.2(iv) and the indemnifications provided thereunder shall
survive the Closing Date in perpetuity.
8.4 No Set-Off. No Indemnified Party under this Agreement
shall have any right of set off or recoupment with respect to the amount of any
Claim against any sums of money or other property payable or deliverable by the
Indemnified Party or any Affiliate to the Indemnifying Party or any Affiliate
pursuant to this Agreement or
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any other agreement, instrument or undertaking to which they are a party to with
another party to this Agreement.
8.5 Limitations on Indemnification. Notwithstanding anything
to the contrary set forth in this Agreement, the indemnification provided for in
Sections 8.1 and 8.2 shall be subject to the following limitations:
(a) No liability shall be enforced against the Seller to
the extent of any insurance proceeds received by Buyer Indemnified Party with
respect to such Losses. If any Buyer Indemnified Party receives any such
insurance proceeds after the Seller shall have made any payment to any Buyer
Indemnified Party with respect to such Losses, any Buyer Indemnified Party shall
promptly return such payment to the Seller to the extent of such insurance
proceeds received.
(b) No indemnification payment for any Losses shall be
made by Seller or Buyer, as the case may be, pursuant to Section 8.1 or 8.2
(except for Section 8.2(iv) hereof which shall not be subject to this
limitation) hereof, respectively, except to the extent that the aggregate
amounts which would otherwise be payable pursuant to either such Section
relating to such Losses exceed $50,000 (the "Minimum Amount"), and such Minimum
Amount shall be deducted from the aggregate amount payable under Section 8.1 or
8.2, as the case may be, with respect to damages payable pursuant to such
Sections of this Agreement.
(c) Each of the Sellers and the Buyers shall not be
obligated to pay any amount for indemnification under Sections 8.1(i) and
8.2(i), respectively, in excess of $1,000,000.
(d) This Article VIII shall be the sole and exclusive
basis of any remedy each party may have against the other party for a breach of
or violation of a representation, warranty, covenant or agreement under this
Agreement or any agreement contemplated hereby and each party hereby waives any
claim (other than under this Article VIII) it may have against the other party
with respect to a breach of any such representation, warranty, covenant or
agreement unless such breach or violation is
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a result of fraud or intentional or wilful misrepresentation or gross negligence
by a party hereto.
ARTICLE IX
EMPLOYEES AND EMPLOYEE PLANS
9.1 Offer of Employment.
(a) Prior to Closing, Seller shall provide a complete
and accurate list of the names, job titles, functions and wage or salary rates
for all Employees.
(b) Buyer shall offer to hire, effective as of the Closing
Date, all of the Employees in a comparable position at levels of total
compensation (which shall include salary, bonus and benefits) that are
substantially similar in the aggregate to the total compensation including, but
not limited to, severance benefits paid and offered to such employees on the
date hereof, including any such Employees who are on approved leave of absence.
The Employees who accept such offers of employment by the Closing Date pursuant
to this Section 9.1(b) shall become Employees of Buyer as of the Closing Date
or, if on leave, as of the date of resumption of employment, and are referred to
as the "Transferring Employees." Except for the Employees offered employment
pursuant to the first and second sentences of this Section 9.1(b), Buyer shall
have no obligations, liabilities or entitlements to make offers to or otherwise
hire any employees of Seller. Seller will have sole responsibility for any
obligations or liabilities to all of Seller's employees who are not Employees at
all locations under WARN, and Buyer will have sole responsibility for any
obligations and liabilities to the Employees under WARN to the extent that WARN
thresholds are exceeded as a result of actions taken or not taken by Buyer on or
after the Closing Date, including but not limited to the failure by Buyer to
offer employment to the Employees as described in this Section 9.1(b).
(c) Except as otherwise provided in this Article IX,
following the Closing Date the employment of the Transferring Employees shall be
upon such terms and conditions as Buyer, in its sole discretion, shall deter-
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mine. From and after the date of this Agreement, upon Buyer's request, Seller
shall provide Buyer reasonable access to and copies of all data (including
computer data) regarding the dates of hire, hours, compensation and job
description of the Transferring Employees and such other employment records
covering employees of the Business as Buyer may reasonably request.
(d) Transferring Employees shall receive credit for all
periods of employment with Seller prior to the Closing Date under each Buyer's
employee benefit plan for purposes of vacation accruals and eligibility, vesting
and entitlements to early retirement benefits and severance practices and
policies to the extent such periods were recognized for such purposes under the
Seller Plans prior to the Closing Date. In addition, with respect to any welfare
benefit plan established or maintained by Buyer or its Affiliates for the
benefit of the Employees Buyer shall, or shall cause the relevant Affiliates to,
waive any insurability requirement or pre-existing condition exclusions (other
than any insurability requirement or pre-existing condition that was not waived
by the corresponding Seller Plan) and provide that any covered expenses incurred
under a Seller Plan on or before the Closing Date in respect of the current plan
year by any employee (or any covered dependent of such employee) shall be taken
into account for purposes of satisfying applicable deductible, coinsurance and
maximum out-of-pocket provisions under Buyer's comparable type of plan after the
Closing Date in respect of such current plan year.
(e) All offers of employment by Buyer pursuant to this
Section 9.1 shall be expressly conditioned upon the consummation the
transactions contemplated by this Asset Purchase Agreement.
9.2 Individual Account Plan.
(a) As soon as practicable after the Closing Date, Buyer
shall establish or designate an individual account plan for the benefit of
Transferring Employees (the "Successor Individual Account Plan"), shall take all
necessary action, if any, to qualify such plan under the applicable provisions
of the Code and shall make any and all filings and submissions to the
appropriate governmental agencies required to be made by
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it in connection with the transfer of assets described below. As soon as
practicable following the establishment or designation of the Successor
Individual Account Plan, Seller shall cause the trustee of the Calvin Klein Inc.
Retirement Savings Plan and Trust (the "Seller Individual Account Plan") to
transfer (such date of transfer being referred to herein as the "Transfer Date")
in the form of cash, securities and/or other property the full account balances
of the Transferring Employees under the Seller Individual Account Plan as of the
Closing Date (which account balances will have been credited with appropriate
earnings attributable to the period from the Closing Date to the Transfer Date
and reduced by any benefit or withdrawal payments to or in respect of
Transferring Employees occurring during the period from the Closing Date to
Transfer Date), together with any notes held by the Seller Individual Account
Plan in connection with participant loans to any Transferring Employee, to the
appropriate trustee as designated by Buyer under the trust agreement forming a
part of the Successor Individual Account Plan.
(b) In consideration for the transfer of assets described
herein, Buyer shall, (i) effective as of the Transfer Date, cause the Successor
Individual Account Plan to assume all of the obligations of the Seller
Individual Account Plan and any of its Affiliates in respect of the account
balances accumulated by Transferring Employees under the Seller Individual
Account Plan on or prior to the Transfer Date and (ii) indemnify Seller and its
Affiliates and each officer, employee and director of the Seller and its
Affiliates and each fiduciary of the Seller Individual Account Plan from any and
all losses, claims, damages and liabilities incurred or suffered by them arising
out of, in respect of, or in connection with, the qualified status of the
Successor Individual Account Plan. Neither Buyer nor any of its Affiliates shall
assume any other obligations or liabilities arising under or attributable to the
Seller Individual Account Plan.
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ARTICLE X
MISCELLANEOUS PROVISIONS
10.1 Further Assurances. At any time or from time to time
after the Closing, either party shall, at the request of the other party,
execute and deliver any further instruments and documents and take such further
action as each party may reasonably request, in order to consummate and make
effective the transactions contemplated by this Agreement.
10.2 Amendment and Modification. Subject to applicable law,
this Agreement may be amended, modified or supplemented only by written
agreement of each of the parties hereto, or their respective successors or
assigns.
10.3 Waiver of Compliance; Consents. Except as otherwise
provided in this Agreement, any failure of either of the parties to comply with
any obligation, covenant, agreement or condition herein may be waived by the
party entitled to the benefits thereof only by a written instrument signed by
the party granting such waiver, but any such waiver or failure to insist upon
strict compliance with any such obligation, covenant, agreement or condition
shall not operate as a waiver of, or estoppel with respect to, any subsequent or
other failure of such obligation, covenant, agreement or condition. Whenever
this Agreement requires or permits consent by or on behalf of either party
hereto, such consent shall be given in writing and signed by the party granting
such consent.
10.4 Investigations. All representations and warranties of the
parties hereto contained in this Agreement shall survive the Closing Date
regardless of any investigation made by the parties hereto, provided that
indemnification with respect thereto shall be limited as provided in Sections
8.3 and 8.5. This Section 10.4 shall have no effect upon any other obligation of
the parties hereto, whether to be performed before or after the Closing Date.
10.5 Notices. All notices and other communications required or
permitted hereunder shall be given in writing and shall be deemed given on the
day delivered if
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delivered by hand or sent by telecopy, and on the next business day if sent by
reputable overnight air courier or on the third business day if mailed by
registered or certified mail (return receipt requested), postage pre-paid,
addressed as follows:
(a) if to Buyer, to:
c/o Designer Holdings Ltd.
1385 Broadway
Third Floor
New York, New York 10018
Attention: Arnold H. Simon
Telecopier: (212) 556-9722
with a copy to:
Skadden, Arps, Slate, Meagher & Flom
LLP
919 Third Avenue
New York, New York 10022-3897
Attention: Mark N. Kaplan, Esq.
Telecopier: (212) 735-2000
(b) if to either Seller, to:
Calvin Klein, Inc.
205 West 39th Street
New York, New York 10018
Attention: Richard A. Martin
Telecopier: (212) 354-3035
with a copy to:
Paul, Weiss, Rifkind, Wharton & Garrison
1285 Avenue of the Americas
New York, New York 10019-6064
Attention: Leslie Gordon Fagen, Esq.
Telecopier: (212) 757-3990
10.6 Assignment. This Agreement and all of the provisions
hereof shall be binding upon and inure to the benefit of the parties hereto and
their respective succes-
47
<PAGE> 49
sors and permitted assigns, but neither this Agreement nor any of the rights,
interests or obligations hereunder shall be assigned by any of the parties
hereto without the prior written consent of the other party, provided, however,
that such written consent shall not be required with respect to the assignment
of the rights provided to Buyer in Section 2.1(a), nor is this Agreement
intended to confer upon any other person except the parties hereto any rights or
remedies hereunder provided, further, that no such assignment shall be valid
unless such successor assignee agrees to be bound by, and such assignor shall
remain liable for, all such assignor's obligations hereunder.
10.7 Governing Law. This Agreement shall be governed by and
construed in accordance with the laws of the State of New York without giving
effect to the provisions thereof relating to conflicts of law.
10.8 Specific Performance. The parties hereto agree that if
any of the provisions of this Agreement were not performed in accordance with
their specific terms or were otherwise breached, irreparable damage would occur,
no adequate remedy at law would exist and damages would be difficult to
determine, and that the parties shall be entitled to specific performance of the
terms hereof, in addition to any remedy at law or equity.
10.9 Counterparts. This Agreement may be executed in two or
more counterparts, each of which shall be deemed an original, but all of which
together shall constitute one and the same instrument.
10.10 Interpretation. The article and section headings
contained in this Agreement are solely for the purpose of reference, are not
part of the agreement of the parties and shall not in any way affect the meaning
or interpretation of this Agreement.
10.11 Entire Agreement. This Agreement, including the exhibits
hereto and the documents, schedules, certificates and instruments referred to
herein, and the Confidentiality Agreement, dated July 19, 1995, by and among
Parent and Seller (the "Confidentiality Agreement") embody the entire agreement
and understanding of the parties hereto in respect of the subject matter hereof.
There are no restrictions, promises, representations, warranties, covenants or
undertakings, other than those expressly set forth
48
<PAGE> 50
or referred to herein or therein. This Agreement supersedes all prior agreements
and understandings between the parties, other than the Confidentiality
Agreement, with respect to such subject matter.
10.12 No Third Party Beneficiaries. This Agreement is not
intended to, and does not, create any rights or benefits of any party other than
the parties hereto.
10.13 Parent Guarantee. Parent hereby unconditionally
guarantees all of Buyer's obligations under this Agreement in accordance with
the Guarantee set forth on Exhibit D hereto.
10.14 Clinton, CT Store. For the avoidance of any ambiguity,
the Outlet Store Assets to be sold by Seller and the Assumed Liabilities to be
assumed by Buyer shall include those relating to the contemplated store to be
located in Clinton, CT (as more fully described in Schedule 5.6(a)).
49
<PAGE> 51
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
duly executed by their respective officers thereunto duly authorized, as of the
day and year first above written.
OUTLET STORES, INC.
By:_____________________________
Name:
Title:
CALVIN KLEIN, INC.
By:_____________________________
Name:
Title:
50
<PAGE> 52
TABLE OF CONTENTS
Page
----
ARTICLE I
DEFINITIONS
ARTICLE II
PURCHASE AND SALE OF ASSETS
2.1 Purchase and Sale of Outlet Store Assets.............................. 9
2.2 Excluded Assets....................................................... 11
2.3 Assumption of Certain Liabilities..................................... 12
2.4 Purchase Price for the Outlet Store Assets............................ 14
2.5 Purchase Price for the Inventory...................................... 14
ARTICLE III
DETERMINATION OF PURCHASE PRICE;
PURCHASE PRICE ADJUSTMENTS
3.1 Preliminary Statement of Inventory Valuation.......................... 15
3.2 Physical Inventory.................................................... 15
3.3 Final Statement of Inventory.......................................... 15
3.4 Resolution of Objections.............................................. 16
3.5 Purchase Price Adjustment............................................. 17
ARTICLE IV
THE CLOSING
4.1 The Closing........................................................... 17
4.2 Related Agreements.................................................... 17
4.3 Deliveries at the Closing............................................. 18
4.4 Apportionments........................................................ 20
ARTICLE V
REPRESENTATIONS AND WARRANTIES OF SELLER
5.1 Corporate Organization................................................ 22
5.2 Due Authorization..................................................... 22
5.3 Consents and Approvals; No Violation.................................. 22
5.4 Financial Statements.................................................. 23
5.5 Absence of Changes.................................................... 25
5.6 Contracts......................................................... 25
5.7 Absence of Undisclosed Liabilities.................................... 26
5.8 Litigation............................................................ 26
5.9 Taxes................................................................. 27
i
<PAGE> 53
Page
----
5.10 Leases and Leased Property........................................... 27
5.11 Inventory............................................................ 29
5.12 Employee Benefit Plans; ERISA........................................ 29
5.13 Labor Relations and Employment....................................... 30
5.14 Brokers and Finders.................................................. 31
5.15 Insurance............................................................ 31
5.16 Environmental........................................................ 32
5.17 Disclosure........................................................... 32
ARTICLE VI
REPRESENTATIONS AND WARRANTIES OF BUYER
6.1 Corporate Organization................................................ 32
6.2 Due Authorization..................................................... 33
6.3 Consents and Approvals, No Violation.................................. 33
6.4 Brokers and Finders................................................... 34
ARTICLE VII
COVENANTS OF THE PARTIES
7.1 Consents.............................................................. 34
7.2 Tax Matters........................................................... 34
7.3 Public Announcements.................................................. 36
7.4 Expenses.............................................................. 36
7.5 Access to Records and Leased Properties............................... 36
7.6 Accounts Payable...................................................... 36
7.7 Contracts............................................................. 36
7.8 Buyer's Mail and Other Documents...................................... 37
7.9 Seller's Mail and Other Documents..................................... 37
7.10 Returns............................................................... 37
7.11 Accounts Receivable................................................... 37
7.12 Post Closing Leasehold Improvements................................... 37
ARTICLE VIII
INDEMNIFICATION
8.1 Indemnification by Seller............................................. 38
8.2 Indemnification by Buyer.............................................. 39
8.3 Conditions of Indemnification......................................... 39
8.4 No Set-Off............................................................ 42
8.5 Limitations on Indemnification........................................ 42
ii
<PAGE> 54
Page
----
ARTICLE IX
EMPLOYEES AND EMPLOYEE PLANS
9.1 Offer of Employment................................................... 43
9.2 Individual Account Plan............................................... 45
ARTICLE X
MISCELLANEOUS PROVISIONS
10.1 Further Assurances................................................... 46
10.2 Amendment and Modification........................................... 46
10.3 Waiver of Compliance; Consents....................................... 46
10.4 Investigations....................................................... 46
10.5 Notices.............................................................. 47
10.6 Assignment........................................................... 48
10.7 Governing Law........................................................ 48
10.8 Specific Performance................................................. 48
10.9 Counterparts......................................................... 48
10.10 Interpretation....................................................... 48
10.11 Entire Agreement..................................................... 49
10.12 No Third Party Beneficiaries......................................... 49
10.13 Parent Guarantee..................................................... 49
10.14 Clinton, CT Store ................................................... 49
Exhibits
Exhibit A -- License Agreement
Exhibit B -- Preliminary Statement of Inventory
Exhibit C -- Form of Estoppel Certificate executed by
the landlord
Exhibit D -- Parent Guarantee
Schedules
Schedule 1.42 Leased Properties
Schedule 2.1(b)(x) Register Cash
Schedule 2.2(e) Excluded Assets
Schedule 2.4 Fixed Assets
Schedule 5.3 Consents and Approvals
Schedule 5.4(a) December 1995 Financial Statements
Schedule 5.4(b) June 1996 Financial Statements
Schedule 5.5 Material Changes
iii
<PAGE> 55
Schedule 5.6(a) Contracts
Schedule 5.6(b) Purchase Orders as of October
12, 1996
Schedule 5.8 Litigation
Schedule 5.10(a) Leases
Schedule 5.10(b) Subleases
Schedule 5.10(c) Compliance with Zoning
Schedule 5.10(e) Consents to Assignment of Lease
Schedule 5.12(a) Employee Benefit Plans
Schedule 5.12(e) Non-qualified ERISA Plans
Schedule 5.13(a) Labor Relations and Employment
Schedule 5.15 Insurance
Schedule 5.16 Environment
Schedule 6.3 Buyer's Consents and Approvals
Schedule 7.2(a) Allocation of Purchase Price
iv
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<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> SEP-30-1996
<CASH> 0
<SECURITIES> 0
<RECEIVABLES> 137,103
<ALLOWANCES> (21,147)
<INVENTORY> 90,978
<CURRENT-ASSETS> 221,510
<PP&E> 12,294
<DEPRECIATION> (1,928)
<TOTAL-ASSETS> 351,212
<CURRENT-LIABILITIES> 137,440
<BONDS> 7,500
0
0
<COMMON> 321
<OTHER-SE> 180,360
<TOTAL-LIABILITY-AND-EQUITY> 351,212
<SALES> 351,966
<TOTAL-REVENUES> 356,487
<CGS> 220,917
<TOTAL-COSTS> 220,917
<OTHER-EXPENSES> 0
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<INCOME-TAX> 18,963
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<EXTRAORDINARY> 2,256
<CHANGES> 0
<NET-INCOME> 20,005
<EPS-PRIMARY> .70
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