<PAGE> 1
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON MAY 8, 1996
REGISTRATION STATEMENT NO. 333-2236
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------
AMENDMENT NO. 4
TO
FORM S-1
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
------------------------
DESIGNER HOLDINGS LTD.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
<TABLE>
<S> <C> <C>
DELAWARE 2339 13-3818542
(STATE OR OTHER JURISDICTION OF (PRIMARY STANDARD INDUSTRIAL (I.R.S. EMPLOYER
INCORPORATION OR ORGANIZATION) CLASSIFICATION CODE NUMBER) IDENTIFICATION NUMBER)
</TABLE>
1385 BROADWAY
NEW YORK, NEW YORK 10018
(212) 556-9600
(ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER,
INCLUDING AREA CODE, OF REGISTRANT'S PRINCIPAL EXECUTIVE OFFICES)
------------------------
JOHN J. JONES, ESQ.
GENERAL COUNSEL
DESIGNER HOLDINGS LTD.
1385 BROADWAY, 3RD FLOOR
NEW YORK, NEW YORK 10018
(212) 556-9600
(NAME, ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE,
OF AGENT FOR SERVICE)
COPIES TO:
<TABLE>
<S> <C>
ROBERT M. CHILSTROM, ESQ. WILLIAM M. HARTNETT, ESQ.
SKADDEN, ARPS, SLATE, MEAGHER & FLOM CAHILL GORDON & REINDEL
919 THIRD AVENUE EIGHTY PINE STREET
NEW YORK, NEW YORK 10022 NEW YORK, NEW YORK 10005
(212) 735-3000 (212) 701-3000
</TABLE>
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC:
As soon as practicable after the effective date of this Registration Statement.
If any of the securities being registered on this Form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, as amended, check the following box: / /
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following box
and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering. / /
If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. / /
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. / /
CALCULATION OF REGISTRATION FEE
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<TABLE>
<S> <C> <C> <C> <C>
PROPOSED
PROPOSED MAXIMUM
TITLE OF EACH CLASS AMOUNT MAXIMUM AGGREGATE AMOUNT OF
OF SECURITIES TO TO BE OFFERING PRICE OFFERING REGISTRATION
BE REGISTERED REGISTERED(1) PER SHARE(2) PRICE(2) FEE
----------------
- -------------------------------------------------------------------------------------------------------
Common Stock ($.01 par
value).................. 13,800,000 shares $18.00 $248,400,000 $77,725(3)
</TABLE>
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(1) Includes 1,800,000 shares subject to options granted to the U.S.
Underwriters and International Managers to cover any over-allotments.
(2) Estimated solely for the purpose of calculating the registration fee
pursuant to Rule 457(c) under the Securities Act of 1933, as amended.
(3) Includes $63,449 previously paid with respect to 11,500,000 shares at $16.00
per share.
------------------------
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL
FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(A) OF
THE SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(A),
MAY DETERMINE.
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<PAGE> 2
DESIGNER HOLDINGS LTD.
CROSS REFERENCE SHEET
PURSUANT TO ITEM 501 OF REGULATION S-K
<TABLE>
<CAPTION>
FORM S-1 LOCATION OR HEADING
ITEM NUMBER AND CAPTION IN THE PROSPECTUS
--------------------------------------------------------- -------------------------------------
<C> <S> <C>
1. Forepart of the Registration Statement and Outside Front
Cover Page of Prospectus............................... Outside front cover
2. Inside Front and Outside Back Cover Pages of
Prospectus............................................. Inside front cover; Outside back
cover; Available Information
3. Summary Information, Risk Factors and Ratio of Earnings
to Fixed Charges....................................... Prospectus Summary; Risk Factors
4. Use of Proceeds.......................................... Prospectus Summary; Use of Proceeds;
Description of Indebtedness
5. Determination of Offering Price.......................... Outside front cover; Underwriting
6. Dilution................................................. Risk Factors; Dilution
7. Selling Security Holders................................. Principal and Selling Stockholders
8. Plan of Distribution..................................... Outside front cover; Underwriting
9. Description of Securities to be Registered............... Outside front cover; Prospectus
Summary; Description of Capital Stock
10. Interests of Named Experts and Counsel................... Legal Matters; Experts
11. Information with Respect to the Registrant............... Outside front cover; Prospectus
Summary; Risk Factors; The Company;
Dividend Policy; Use of Proceeds;
Capitalization; Dilution; Unaudited
Pro Forma Financial Information;
Selected Financial Information;
Management's Discussion and Analysis
of Financial Condition and Results of
Operations; Business; Management;
Certain Transactions; Principal and
Selling Stockholders; Description of
Capital Stock; Description of
Indebtedness; Shares Eligible for
Future Sale
12. Disclosure of Commission Position on Indemnification for
Securities Act Liabilities............................. Not applicable
</TABLE>
<PAGE> 3
EXPLANATORY NOTE
This Registration Statement contains two forms of prospectus: one to be
used in connection with an offering in the United States and Canada (the "U.S.
Prospectus") and one to be used in a concurrent offering outside the United
States and Canada (the "International Prospectus"). The two prospectuses are
identical except for the front and back cover pages, the inside front cover page
and the section entitled "Underwriting". The form of U.S. Prospectus is included
herein and is followed by the alternate pages to be used in the International
Prospectus. Each of the alternate pages for the International Prospectus
included herein is labeled "Alternate Page for International Prospectus." Final
forms of each Prospectus will be filed with the Securities and Exchange
Commission under Rule 424(b).
<PAGE> 4
INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A
REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR
MAY OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT
BECOMES EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR
THE SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE
SECURITIES IN ANY JURISDICTION IN WHICH SUCH OFFER, SOLICITATION OR SALE
WOULD BE UNLAWFUL PRIOR TO REGISTRATION OR QUALIFICATION UNDER THE
SECURITIES LAWS OF ANY SUCH JURISDICTION.
LOGO
SUBJECT TO COMPLETION
PRELIMINARY PROSPECTUS DATED MAY 8, 1996
PROSPECTUS
12,000,000 SHARES
DESIGNER HOLDINGS LTD.
COMMON STOCK
------------------------
Of the 12,000,000 shares of Common Stock offered hereby, 6,000,000 shares
are being sold by Designer Holdings Ltd. and 6,000,000 shares are being sold
by the Selling Stockholder of the Company. The Company will not receive any
proceeds from the sale of shares of Common Stock by the Selling Stockholder.
Of the 12,000,000 shares of Common Stock offered hereby, 9,600,000 shares
are being offered initially in the United States and Canada by the U.S.
Underwriters and 2,400,000 shares are being offered outside the United States
and Canada by the International Managers. The initial public offering price and
the aggregate underwriting discount per share will be identical for both
Offerings.
Prior to the Offerings, there has been no public market for the Common
Stock. It is currently estimated that the initial public offering price will be
between $16 and $18 per share. See "Underwriting" for a discussion of the
factors to be considered in determining the initial price of the Common Stock.
The Common Stock has been approved for listing, subject to official notice
of issuance, on the New York Stock Exchange under the symbol "DSH."
SEE "RISK FACTORS" BEGINNING ON PAGE 7 FOR A DISCUSSION OF CERTAIN FACTORS
THAT SHOULD BE CONSIDERED IN CONNECTION WITH AN INVESTMENT IN THE COMMON STOCK
OFFERED HEREBY.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION, NOR HAS
THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES
COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS.
ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C>
PROCEEDS TO
PRICE UNDERWRITING PROCEEDS TO SELLING
TO PUBLIC DISCOUNT(1) THE COMPANY(2) STOCKHOLDER
<CAPTION>
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<S> <C> <C> <C> <C>
Per Share..................... $ $ $ $
- ------------------------------------------------------------------------------------------------------
Total(3)...................... $ $ $ $
- - - -
</TABLE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
(1) The Company and the Selling Stockholder have agreed to indemnify the several
Underwriters against certain liabilities, including certain liabilities
under the Securities Act of 1933, as amended. See "Underwriting."
(2) Before deducting expenses of the Offerings payable by the Company estimated
at $3,000,000.
(3) The Company and the Selling Stockholder have granted the U.S. Underwriters
and the International Managers options, exercisable within 30 days after the
date of this Prospectus, to purchase up to 1,440,000 and 360,000 additional
shares of Common Stock, respectively, solely to cover over-allotments, if
any. If such options are exercised in full, the total Price to Public,
Underwriting Discount, Proceeds to the Company and Proceeds to Selling
Stockholder will be $ , $ , $ and $ ,
respectively. See "Underwriting."
------------------------
The shares of Common Stock are offered by the Underwriters, subject to
prior sale, when, as and if issued and accepted by them, subject to approval of
certain legal matters by counsel for the Underwriters and certain other
conditions. The Underwriters reserve the right to withdraw, cancel or modify
such offer and to reject orders in whole or in part. It is expected that
delivery of the shares of Common Stock will be made in New York, New York on or
about , 1996.
------------------------
MERRILL LYNCH & CO. MORGAN STANLEY & CO.
INCORPORATED
------------------------
The date of this Prospectus is May , 1996.
<PAGE> 5
The logo form of the registered trademarks CALVIN KLEIN and CK/CALVIN KLEIN are
owned by The Calvin Klein Trademark Trust and are used under license from Calvin
Klein, Inc.
IN CONNECTION WITH THE OFFERINGS, THE UNDERWRITERS MAY OVER-ALLOT OR EFFECT
TRANSACTIONS WHICH STABILIZE OR MAINTAIN THE MARKET PRICE OF THE COMMON STOCK OF
THE COMPANY AT A LEVEL ABOVE THAT WHICH MIGHT OTHERWISE PREVAIL IN THE OPEN
MARKET. SUCH TRANSACTIONS MAY BE EFFECTED ON THE NEW YORK STOCK EXCHANGE OR
OTHERWISE. SUCH STABILIZING, IF COMMENCED, MAY BE DISCONTINUED AT ANY TIME.
<PAGE> 6
APPENDIX TO ELECTRONIC FORMAT DOCUMENT
(INSIDE FRONT COVER)
[PHOTOGRAPH 1] - is two models wearing Calvin Klein Jeans clothing.
[PHOTOGRAPH 2] - is a model wearing Calvin Klein Jeans clothing.
[PHOTOGRAPH 3] - is a model wearing Calvin Klein Jeans clothing.
(INSIDE BACK COVER)
[PHOTOGRAPH] - is four pictures of Calvin Klein Jeans clothing displays.
<PAGE> 7
PROSPECTUS SUMMARY
The following summary is qualified in its entirety by, and should be read
in conjunction with, the more detailed information and financial statements
(including the notes thereto) appearing elsewhere in this Prospectus.
THE COMPANY
Designer Holdings Ltd. (the "Company") develops, sources and markets
designer sportswear lines for men, juniors, women and petites under the Calvin
Klein Jeans, CK/Calvin Klein Jeans and CK/Calvin Klein Jeans Khakis labels
(collectively, the "Calvin Klein Jeans Labels"). The Company's products target
youthful, culturally conscious consumers and capitalize on the cachet and image
created by over 20 years of extensive image advertising for Calvin Klein, one of
the world's most influential designers. The Company collaborates with the
in-house design teams of Calvin Klein, Inc. ("CKI") to create products
characterized by high quality and casual, contemporary fashion. Each of the
Company's lines combines both basic and fashion items in a broad range of casual
fabrications, including jeans, khakis, knit and woven tops and bottoms,
T-shirts, shorts, fleece shirts and pants, outerwear such as leather and denim
jackets, caps and related accessories. In 1995, the mens, juniors, womens and
petites lines accounted for approximately 41%, 31%, 20% and 3%, respectively, of
net sales of Calvin Klein Jeans Label products. In 1993, the year before the
Company obtained the CKJ License, net revenues from the sale of Calvin Klein
Jeans Label products by CKI were approximately $59 million. Since the Company
obtained the exclusive license from CKI for certain types of sportswear (the
"CKJ License") in August 1994, net revenues (including royalties) of Calvin
Klein Jeans Label products have risen to $361.4 million in 1995.
The key initiatives implemented by the Company since obtaining the CKJ
License have included: (i) broadening its target market by re-engineering the
garments to provide a comfortable fit and flattering appearance for a greater
number of potential consumers, (ii) increasing the value offered to consumers by
lowering the price of its designer-quality products to "better" from "designer"
price points, (iii) targeting juniors, petites and childrens lines with a
specific marketing strategy and product offering, (iv) enlarging the core of
basic styles for each line and (v) establishing an inventory replenishment plan
to meet the requirements of retailers. Based on the Calvin Klein image and an
interpretation of current trends, the Company and the in-house design teams of
CKI produce a "fashion blueprint" for each line that includes both basic and
fashion items. Basic items, which vary only slightly from season to season and
are available on a replenishment basis throughout the year, accounted for
approximately 65% of net sales generated by Calvin Klein Jeans Label products in
1995. Fashion items are modified for current trends in color, fabrication and
styling to continually update the merchandise assortment. Fashion items
accounted for approximately 35% of net sales generated by Calvin Klein Jeans
Label products in 1995. The Company contracts through third parties for the
manufacture of substantially all of its products. During 1995, approximately 80%
of the Company's products were produced in the United States. The Company
believes that domestic manufacturing allows it to respond quickly to changing
sales and fashion trends and that third party manufacturing permits it to avoid
capacity constraints and significant investment in capital assets.
The Company currently distributes products under the Calvin Klein Jeans
Labels to a broad range of department stores and specialty retailers. Because of
strong consumer demand for the Company's products and the trend among major
retailers to devote more selling space to a decreasing number of designer
brands, the Company expects that it will continue to grow through both the
addition of new locations and increased floor space. At the same time, the
Company seeks those specialty retailers that have the ability to offer the
proper presentation of the Company's products. The mens line (which is the most
widely distributed of the Company's lines) was carried in approximately 680
department store locations and approximately 1,400 specialty retail stores as of
December 31, 1995. As of March 1, 1996, the number of department store locations
in which the mens line was carried had increased to approximately 880 and the
number of specialty retailers had decreased to approximately 1,100. In an effort
to enhance visibility, increase dedicated selling space and increase sales per
square foot generated by the Calvin Klein Jeans Label products, the Company has
developed a program to place shops dedicated to Calvin Klein Jeans Label
products within the stores of its major retailing customers. A prototype
"shop-in-shop" began operation in Bloomingdale's in New York City in late 1995,
and the Company has recently contracted for the construction and installation of
50 shops. The Company plans to install approximately 150 shops during 1996.
3
<PAGE> 8
The Company's growth strategy is to continue to capitalize on the strength
of the Calvin Klein image and the quality, fit and value of the Company's
products. The key elements of the Company's growth strategy include: (i)
selectively adding new accounts and further penetrating its existing accounts by
introducing lines into more store locations, (ii) expanding its shop-in-shop
program, (iii) continuing to deepen its product offerings, (iv) expanding the
distribution of its products outside the United States and (v) improving
operating efficiencies. The Company is also seeking to obtain additional
designer brands or licenses in designer sportswear. See "Risk Factors -- Ability
to Achieve and Manage Future Growth." The Company has recently deepened its
product offerings by introducing khaki products within each of its lines. In
July 1995, the Company entered into a distribution agreement for its Calvin
Klein Jeans Label mens, juniors, womens and petites lines in Canada, and in the
first quarter of 1996, it entered into a distribution agreement for its Calvin
Klein Jeans Label childrens apparel in the United States, which accounted for
approximately 5% of 1995 net sales for Calvin Klein Jeans Label products. The
Company is also exploring additional opportunities to distribute its products
outside the United States. To provide a foundation for continued growth and to
improve operating efficiencies, the Company is substantially increasing the
capacity of its distribution facilities and is in the process of bringing
on-line an integrated management information system. See "Business -- Business
Strategy."
The Company began operations in 1984 by designing, sourcing and marketing
moderately priced sportswear bearing the Rio label and, in 1987, obtained an
exclusive license for womens jeanswear under the Bill Blass labels and began to
produce private label products for a limited number of retailing customers. As
of January 1, 1996, the Company has licensed the Rio label and sublicensed the
Bill Blass labels to Commerce Clothing Company, LLC ("Commerce Clothing"), an
affiliate of one of its principal suppliers. See "Business -- Licensing
Operations."
RECENT DEVELOPMENTS
Set forth below are the preliminary unaudited results of operations for the
three months ended March 31, 1995 and 1996 and the adjusted pro forma and pro
forma results of operations for the three months ended March 31, 1995 and 1996,
respectively. The unaudited adjusted pro forma results of operations for the
three months ended March 31, 1995 give effect to (i) the agreements by the
Company, which became effective as of January 1, 1996, to grant to another
company the right to produce and distribute sportswear under the Bill Blass and
the Rio labels, and childrens apparel in the United States under the Calvin
Klein Jeans Labels (the "Agreements"), (ii) certain amendments to the CKJ
License and the related issuance to CKI of 1,275,466 shares of non-voting common
stock (the "Amendments") and (iii) completion of the Offerings and application
of the estimated net proceeds to the Company therefrom as described in "Use of
Proceeds," as if they had been consummated on January 1, 1995. The unaudited pro
forma results of operations for the three months ended March 31, 1996 give
effect to the Amendments and the Offerings, as if they had been consummated on
January 1, 1996.
<TABLE>
<CAPTION>
THREE MONTHS ENDED MARCH 31,
-----------------------------------------------------------
ACTUAL ADJUSTED
--------------------------- PRO FORMA PRO FORMA
1995 1996 1995 1996
----------- ----------- ----------- -----------
(DOLLARS IN THOUSANDS, EXCEPT SHARE DATA)
<S> <C> <C> <C> <C>
Net revenues.......................... $ 83,404 $ 114,636(1) $ 55,887(2) $ 114,636
Cost of goods sold.................... 58,416 70,821 34,361 70,821
----------- ----------- ----------- -----------
Gross profit.......................... 24,988 43,815 21,526 43,815
Selling, general and administrative
expenses............................ 16,697 27,147 13,541 27,292
----------- ----------- ----------- -----------
Operating income...................... 8,291 16,668 7,985 16,523
Interest expense...................... 1,795 4,525 -- 1,624
----------- ----------- ----------- -----------
Income before income taxes............ 6,496 12,143 7,985 14,899
Provision for income taxes............ 3,451 5,586 4,121 6,854
----------- ----------- ----------- -----------
Net income............................ $ 3,045 $ 6,557 $ 3,864 $ 8,045
========== ========== ========== ==========
Net income per share.................. $ 0.13 $ 0.27 $ 0.12 $ 0.26
Weighted average shares outstanding... 24,233,868 24,233,868 31,509,334 31,509,334
</TABLE>
- ---------------
(1) During the three months ended March 31, 1996, the first quarter for which
the terms of the Agreements were effective, the Company waived the royalty
income due under the Agreements of $1,161.
(2) For comparative presentation purposes, the pro forma results of operations
have been adjusted to exclude royalty income of $1,233 attributable to the
Agreements since such royalties were waived for the three months ended March
31, 1996.
4
<PAGE> 9
THE OFFERINGS
Of the 12,000,000 shares of Common Stock, par value $.01 per share (the
"Common Stock"), offered hereby, 9,600,000 shares are initially being offered in
the United States and Canada by the U.S. Underwriters (the "U.S. Offering") and
2,400,000 shares are initially being offered outside the United States and
Canada by the International Managers (the "International Offering" and, together
with the U.S. Offering, the "Offerings").
Common Stock offered by:
<TABLE>
<S> <C>
The Company................................. 6,000,000 shares
The Selling Stockholder..................... 6,000,000 shares
Common Stock to be outstanding after the
Offerings(1)(2)................................ 31,509,334 shares
Use of Proceeds(2)............................... The estimated net proceeds to the
Company of $98.0 million will be used
primarily to reduce indebtedness,
including approximately $34.7 million
to retire the Subordinated Loan (as
defined herein) and $62.2 million to
reduce indebtedness under the Credit
Agreement (as defined herein).
New York Stock Exchange symbol................... "DSH"
</TABLE>
- ------------------------
(1) Includes 1,275,466 shares of non-voting common stock issued to CKI in April
1996, which shares are convertible, at any time, into
an equal number of shares of Common Stock (see "Business -- CKJ License"),
and excludes 2,363,200 shares of Common Stock reserved for issuance under
the Company's 1996 Stock Option and Incentive Plan (including approximately
1,500,000 shares subject to options to be granted at the initial public
offering price).
(2) Assumes that the over-allotment options are not exercised.
The Company was incorporated in March 1995 for the purpose of consolidating
the ownership interests of Rio Sportswear, Inc. (a Delaware corporation) ("Rio
Sportswear") and Jeanswear Holdings, Inc. ("Jeanswear"), commonly controlled and
managed entities. Rio Sportswear was formed in August 1994 to acquire the equity
interests of Rio Sportswear, Inc. (a California corporation), Rio II Sportswear,
Inc., Adamson Sales Corp., AEI Management Corporation and Huang Management
Company (collectively, the "Predecessor Companies") that were jointly engaged in
designing, sourcing, marketing and distributing sportswear under the Rio, Bill
Blass and certain private-label tradenames and were commonly controlled and
managed by Arnold H. Simon, who is currently President and Chief Executive
Officer of the Company, and Stephen Huang, who was Mr. Simon's business
associate at the time. As part of the transaction, Mr. Simon exchanged
approximately 83% of his interests in the Predecessor Companies for a 50% equity
interest in Rio Sportswear and Jeanswear and sold his remaining interests to the
Company for $4 million. Mr. Huang sold his interests in the Predecessor
Companies to Rio Sportswear for cash provided by Charterhouse Equity Partners
II, L.P. (together with an associated entity) ("Charterhouse"). See "Certain
Transactions." In August 1994, Jeanswear, through its subsidiary Calvin Klein
Jeanswear Company ("CKJC"), obtained the license to produce sportswear under the
Calvin Klein Jeans Labels. On April 22, 1996, the CKJ License was amended and as
consideration therefor, the Company issued 1,275,466 shares of non-voting common
stock to CKI, which are convertible, at any time, into an equal number of shares
of Common Stock. See "Business -- CKJ License" and "Principal and Selling
Stockholders."
Unless the context otherwise requires, (i) all information set forth herein
assumes that CKI has converted its 1,275,466 shares of non-voting common stock
into 1,275,466 shares of Common Stock (see "Business -- CKJ License"), (ii) the
"Company" means Designer Holdings Ltd. and its consolidated subsidiaries, (iii)
the "Company" prior to its formation in March 1995 means its predecessors Rio
Sportswear, Jeanswear and the Predecessor Companies and (iv) the "Selling
Stockholder" means New Rio, L.L.C.
5
<PAGE> 10
SUMMARY FINANCIAL INFORMATION
The summary historical financial information has been derived from the
audited consolidated financial statements of the Company and the combined
financial statements of the Predecessor Companies. The pro forma statement of
operations data for the year ended December 31, 1995 has been adjusted to
reflect (i) the agreements by the Company, which became effective as of January
1, 1996, to grant to another company the right to produce and distribute
sportswear under the Bill Blass and Rio labels and childrens apparel in the
United States under the Calvin Klein Jeans Labels, (ii) certain amendments to
the CKJ License and the related issuance to CKI of 1,275,466 shares of
non-voting common stock and (iii) the completion of the Offerings and
application of the estimated net proceeds to the Company therefrom as described
in "Use of Proceeds," as if such transactions occurred on January 1, 1995. The
as adjusted balance sheet data as of December 31, 1995 presents the pro forma
effect of such issuance and the Offerings, as if such issuance and the Offerings
had occurred on December 31, 1995. The pro forma financial adjustments are based
upon available information and certain assumptions that management of the
Company believes are reasonable. The pro forma financial data is for
informational purposes only and may not necessarily be indicative of the results
of operations (or the financial position) of the Company that actually would
have occurred had such agreements, amendments and the Offerings been consummated
on such dates. The following summary financial data should be read in
conjunction with "Capitalization," "Unaudited Pro Forma Financial Information,"
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" and the audited consolidated financial statements of the Company and
the combined financial statements of the Predecessor Companies and related notes
thereto included elsewhere in this Prospectus.
<TABLE>
<CAPTION>
THE COMPANY
PREDECESSOR COMPANIES (CONSOLIDATED)
(COMBINED) -----------------------------------------
---------------------------------------------
EIGHT MONTHS FOUR MONTHS YEAR ENDED
YEAR ENDED DECEMBER 31, ENDED ENDED DECEMBER 31, 1995
------------------------------ AUGUST 25, DECEMBER 31, --------------------------
1991 1992 1993 1994 1994(1) ACTUAL PRO FORMA
-------- -------- -------- ------------ ------------ ------------ -----------
(DOLLARS IN THOUSANDS, EXCEPT SHARE DATA)
<S> <C> <C> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Net revenues................... $122,640 $145,040 $173,561 $ 93,969 $ 102,038 $ 462,122 $ 349,669
Cost of goods sold............. 100,312 119,195 146,620 81,143 75,246 323,638 217,960
-------- -------- -------- ------- -------- -------- --------
Gross profit................... 22,328 25,845 26,941 12,826 26,792 138,484 131,709
Selling, general and
administrative expenses...... 13,897 19,686 23,323 12,318 20,079 100,391 88,689
-------- -------- -------- ------- -------- -------- --------
Operating income............... 8,431 6,159 3,618 508 6,713 38,093 43,020
Interest expense............... 1,445 1,339 1,808 1,142 2,557 16,160 4,485
-------- -------- -------- ------- -------- -------- --------
Income (loss) before income
taxes........................ 6,986 4,820 1,810 (634) 4,156 21,933 38,535
Provision (benefit) for income
taxes........................ 1,869 1,189 (331) (399) 2,239 10,870 18,341
-------- -------- -------- ------- -------- -------- --------
Net income (loss).............. $ 5,117 $ 3,631 $ 2,141 $ (235) $ 1,917 $ 11,063 $ 20,194
======== ======== ======== ======= ======== ======== ========
Net income per share........... $ 0.08 $ 0.46 $ 0.64
Weighted average shares
outstanding(2)............... 24,233,868 24,233,868 31,509,334
</TABLE>
<TABLE>
<CAPTION>
AS OF DECEMBER 31, 1995
---------------------------
ACTUAL AS ADJUSTED
----------- -----------
<S> <C> <C>
BALANCE SHEET DATA:
Working capital......................................................................... $ 31,671 $ 87,022
Total assets............................................................................ 250,814 270,953
Current debt............................................................................ 102,016 48,539
Long-term debt, less current portion.................................................... 50,403 10,000
Stockholders' equity.................................................................... 32,482 148,375 (3)
</TABLE>
- ------------------------
(1) Amounts include the results of operations from the sale of Calvin Klein
Jeans Label products beginning August 4, 1994, the date the Company obtained
the CKJ License.
(2) The pro forma weighted average shares outstanding gives effect (i) to the
issuance to CKI of 1,275,466 shares of non-voting common stock in April
1996, which shares are convertible, at any time, into an equal number of
shares of Common Stock, and (ii) the sale by the Company of 6,000,000 shares
of Common Stock pursuant to the Offerings, as if such issuance and the
Offerings were consummated on January 1, 1995.
(3) Reflects a combined $2.3 million charge for a prepayment fee and write-off
of deferred financing costs, net of applicable tax effects, related to the
prepayment of the Subordinated Loan with a portion of the estimated net
proceeds to the Company of the Offerings. See "Use of Proceeds" and Note 11
to the audited consolidated financial statements of the Company and the
combined financial statements of the Predecessor Companies included
elsewhere in this Prospectus.
6
<PAGE> 11
RISK FACTORS
Prospective purchasers of the Common Stock offered hereby should consider
carefully the factors set forth below, as well as other information set forth in
this Prospectus, in evaluating an investment in the Common Stock.
SUBSTANTIAL COMPETITION; CHANGING CONSUMER PREFERENCES; DEPENDENCE ON CKJ
LICENSE
The apparel industry is highly competitive. Certain of the Company's
competitors are significantly larger and more diversified than the Company and
have substantially greater resources. The apparel industry historically has been
subject to substantial cyclical variations, and a recession in the general
economy or uncertainties regarding future economic prospects that affect
consumer spending habits could have a material adverse effect on the Company's
results of operations. The Company believes that its success depends in large
part upon its ability to anticipate, gauge and respond to changing consumer
demands and fashion trends in a timely manner and upon the continued appeal to
consumers of the Calvin Klein image. Failure by the Company to identify and
respond appropriately to changing consumer demands and fashion trends could
adversely affect consumer acceptance of Calvin Klein Jeans Label products and
may have an adverse effect on the Company's business, financial condition and
results of operations. The Company's ability to produce and sell Calvin Klein
Jeans Label products is dependent upon the retention of the CKJ License, which
contains provisions that, under certain circumstances, could permit CKI to
terminate the CKJ License. Such provisions include, among other things, (i) a
default in the payment of certain amounts payable under the CKJ License that
continues beyond the specified grace period and (ii) the failure to comply with
the covenants contained in the CKJ License. The Company believes that it is
currently in compliance with all material provisions of the CKJ License and has
no reason to believe that any events are likely to occur that would permit CKI
to terminate the CKJ License. In addition, under the CKJ License, CKI has
retained the right to produce, distribute, advertise and sell, and to authorize
others to produce, distribute, advertise and sell, certain garments (not of
jeans-type construction) that are similar to some of the Company's products. The
Company believes that any production, distribution, advertisement or sale of
such garments by CKI or another authorized party would not have a material
adverse effect on the Company's business, financial condition and results of
operations, although there can be no assurance to that effect. See
"Business -- CKJ License."
ABILITY TO ACHIEVE AND MANAGE FUTURE GROWTH
In 1993, the year before the Company obtained the CKJ License, net revenues
from the sale of Calvin Klein Jeans Label products by CKI were approximately $59
million. Since the Company obtained the CKJ License in August 1994, net revenues
(including royalties) of Calvin Klein Jeans Label products increased
substantially and were $361.4 million in 1995. No assurance can be given that
the growth of net sales will not decline or that the Company will be successful
in increasing net sales in the future. In order to manage anticipated levels of
demand, the Company will be required to continue to (i) expand its distribution
capabilities, (ii) develop its financial management systems and controls,
including inventory management, and (iii) attract and retain qualified
personnel, including middle management. As sales increased significantly since
January 1, 1995, the Company experienced difficulties in meeting the increased
demands on its distribution systems. The Company has responded by expanding and
improving its distribution facilities and implementing improved management
information systems. The Company believes that its current distribution
facilities and management information systems are sufficient for its current
level of operations and, together with planned expansions and improvements, will
be sufficient for anticipated growth. Any disruption or slow down in the
Company's order processing and fulfillment systems could cause orders to be
shipped late, and under industry practices, retailers can cancel orders and
refuse to receive goods on account of late shipment. Such cancellation of orders
and returns of refused goods can mean a reduction of revenue, increased
administrative and shipping costs, a further burden on the Company's
distribution capacity and added costs associated with liquidating inventory out
of season. There can be no assurance that the planned expansions and
improvements will be completed as planned or that when completed the
distribution facilities and systems will function as anticipated. In addition,
failure to continue to enhance operating control systems, or unexpected
7
<PAGE> 12
difficulties encountered during expansion, could adversely affect the Company's
business, financial condition and results of operations. The Company may also
experience some delays in connection with the introduction of new products as
such products are integrated into the Company's operations.
The Company regularly evaluates, and is currently in discussions with
regard to the possibility of acquiring additional licenses and brand names. No
agreements or letters of intent to acquire such licenses or brand names have
been entered into and there can be no assurance that the Company will obtain any
such licenses or brand names. If the Company does obtain significant new
licenses or brand names, investment in management, personnel, inventory,
advertising and promotion may be required in advance of the receipt of revenues.
New licenses may also entail minimum guarantees or payments and could put
further strains on the Company's management and financial resources.
While the Company believes that its sources of financing are adequate to
fund its current level of operations and its expected growth through 1997, the
Company will need to seek additional debt or equity financing if it obtains
additional designer brands or licenses or makes significant acquisitions, as
well as to support continued expansion in 1998 and later years.
DEPENDENCE ON KEY PERSONNEL
The continued success of the Company currently depends, to a significant
extent, on the abilities and continued service of a small group of key
management executives, in particular, Mr. Simon, President and Chief Executive
Officer of the Company. Mr. Simon's employment agreement with the Company,
effective upon the closing of the Offerings, expires December 31, 1998. See
"Management -- Employment Agreements." Mr. Simon, through his ownership interest
in the Selling Stockholder, is also the beneficial owner of a substantial
portion of the Common Stock of the Company. See "Principal and Selling
Stockholders." The Company maintains a $10 million key man life insurance policy
on Mr. Simon, which has been assigned to The CIT Group/Commercial Services, Inc.
("The CIT Group") pursuant to the terms of the Credit Agreement (as defined in
"Use of Proceeds"). Three other key management executives also have employment
contracts and non-competition agreements either with the Company or certain of
its subsidiaries. See "Management -- Employment Agreements." There can be no
assurance that the Company will be able to retain the services of such
executives, and the loss of the services of Mr. Simon or certain other key
executives could have a material adverse effect upon the Company's business,
financial condition and results of operations.
DEPENDENCE ON MANUFACTURERS
Substantially all the Company's products are manufactured by third parties.
The Company's three largest suppliers, Azteca Productions, Inc. ("Azteca"), Koos
Manufacturing, Inc. and Nemanco Inc., accounted for approximately 60% of the
Company's finished goods purchased during 1995. The Company is the principal
customer of each of these suppliers, and the Company's relationship with these
suppliers dates back several years. The Company believes that such relationships
provide a significant competitive advantage to the Company. Although the Company
believes that it could find alternative manufacturing sources, establishment of
new manufacturing relationships could involve various uncertainties and
disruptions, and the loss of a substantial portion of such manufacturing could
have a material adverse effect on the Company's business, financial condition
and results of operations. The Company continually explores the availability and
feasibility of alternative locations around the world to manufacture its
products. The inability of a manufacturer to ship products in a timely manner or
to meet the Company's quality standards could adversely affect the Company's
ability to deliver products in a timely manner. From time to time, the Company
has experienced delays in shipments from suppliers in the ordinary course of
operations, but none of such delays has had a material effect on the Company's
business, financial condition or results of operations. In January 1996, the
Company entered into an agreement with Commerce Clothing, an affiliate of
Azteca, granting the right to source and distribute Calvin Klein Jeans Label
products for children in the United States as well as the Bill Blass and Rio
label products.
8
<PAGE> 13
During 1995, the Company imported approximately 20% of the Calvin Klein
Jeans Label products that it sold. Approximately 6% of the Company's Calvin
Klein Jeans Label products were sourced in China (including Hong Kong). There
was no other country that accounted for more than 3% of such products. The
Company's imports are subject to bilateral textile agreements between the United
States and a number of foreign countries. Such agreements, which have been
negotiated under the framework established by the Arrangement Regarding
International Trade in Textiles, allow the United States to impose restraints at
any time on the importation of categories of merchandise that, under the terms
of the agreements, are not currently subject to specific limits. The Company
does not own the right to import finished garments into the United States, but
it relies on its contract manufacturers and its agents to obtain the necessary
quotas. In the past, to the extent that necessary import quotas have not been
available with respect to a particular source of supply, the Company has been
able to find an alternative source of supply. Accordingly, the availability of
quotas has not had a material effect upon the Company's business, financial
conditions or results of operations. The Company's continued ability to source
products that it imports may be adversely affected by a significant decrease in
available import quotas as well as any additional bilateral agreements and
unilateral trade restrictions.
CONTROL BY SELLING STOCKHOLDER
Upon completion of the Offerings, the Selling Stockholder will own of
record approximately 58% of the Common Stock of the Company. The Selling
Stockholder is a limited liability company and its operative agreement allows
the holders of ownership interests therein generally to cause the Selling
Stockholder to exercise voting and disposition rights as directed by each such
holder independently with respect to such holder's allocable percentage of the
shares of Common Stock of the Company. Therefore, such persons may be deemed to
be the beneficial owners of shares of Common Stock of the Company. Through their
ownership interests in the Selling Stockholder, Charterhouse and Mr. Simon will
be deemed to own beneficially approximately 27.5% and 28.1%, respectively, of
the outstanding shares of Common Stock (25.0% and 26.1%, respectively, if the
Underwriters' over-allotment options are exercised in full). See "Principal and
Selling Stockholders." The Selling Stockholder acting alone, and Charterhouse
and Mr. Simon, acting through the Selling Stockholder, will be able to elect a
sufficient number of directors to control the Board of Directors and take other
corporate actions requiring stockholder approval, as well as effectively control
the direction and policies of the Company. The Selling Stockholder will vote its
shares of Common Stock as directed by and in proportion to the interests of the
holders of the ownership interests of the Selling Stockholder, acting
independently. In addition, there can be no assurance that, in any transfer of a
controlling interest in the Company, any other holders of Common Stock will be
allowed to participate in any such transaction or will realize any premium with
respect to their shares of Common Stock. The foregoing may have the effect of
discouraging or preventing certain types of transactions involving an actual or
potential change of control of the Company.
SHARES ELIGIBLE FOR FUTURE SALE
Upon completion of the Offerings, the Company will have 31,509,334 shares
of Common Stock outstanding. The Common Stock offered hereby will be freely
tradeable (other than by an "affiliate" of the Company as such term is defined
in the Securities Act of 1933, as amended (the "Securities Act")) without
restriction or registration under the Securities Act. All remaining shares may
be sold under Rule 144. The Company, the Selling Stockholder, each of the
Company's directors and certain officers and CKI have agreed not to (subject to
certain exceptions in the case of the Company relating to employee stock options
and conversion into Common Stock of the non-voting common stock owned by CKI),
directly or indirectly, sell, offer to sell, grant any option for sale of, or
otherwise dispose of, any capital stock of the Company, or any security
convertible or exchangeable into, or exercisable for, such capital stock, or, in
the case of the Company, file any registration statement with respect to any of
the foregoing, for a period of 180 days after the date of this Prospectus,
without the prior written consent of Merrill Lynch, Pierce, Fenner & Smith
Incorporated. See "Underwriting." The holders of ownership interests in the
Selling Stockholder also have certain registration rights with respect to the
shares of Common Stock beneficially owned by them, which may
9
<PAGE> 14
be exercised independently but only through the Selling Stockholder. In
addition, CKI has agreed to hold its shares for at least 18 months, although it
has certain registration rights. See "Business -- CKJ License", "Certain
Transactions -- Registration Rights Agreements" and "Principal and Selling
Stockholders." Sales of substantial amounts of Common Stock in the public
market, or the perception that such sales may occur, could have a material
adverse effect on the market price of the Common Stock. See "Shares Eligible for
Future Sale" and "Underwriting."
ABSENCE OF PRIOR PUBLIC MARKET
Prior to the Offerings, there has been no public market for the Common
Stock. There can be no assurance that an active public market for the Common
Stock will develop or be sustained after the Offerings. The initial public
offering price of the Common Stock will be determined through negotiations among
the Company, the Selling Stockholder and the Representatives of the Underwriters
and may bear no relationship to the market price of the Common Stock after
completion of the Offerings or the price at which Common Stock may be sold in
the public market after the Offerings. Subsequent to the Offerings, prices for
the Common Stock will be determined by the market and may be influenced by a
number of factors, including depth and liquidity of the market for the Common
Stock, investor perceptions of the Company, changes in conditions or trends in
the Company's industry or in the industry of the Company's significant
customers, publicly traded comparable companies and general economic and other
conditions. See "Underwriting" for a description of certain factors considered
in determining the initial public offering price of the Common Stock.
DILUTION
Purchasers of the Common Stock offered hereby will experience immediate and
substantial dilution in the net tangible book value per share of the Common
Stock from the initial public offering price. Based on an assumed initial public
offering price of $18.00 per share, such dilution would have been equal to
$15.07 per share as of December 31, 1995. See "Dilution."
10
<PAGE> 15
THE COMPANY
The Company develops, sources and markets designer sportswear lines for
men, juniors, women and petites under the Calvin Klein Jeans Labels. The
Company's products target youthful, culturally conscious consumers and
capitalize on the cachet and image created by over 20 years of extensive image
advertising for Calvin Klein, one of the world's most influential designers. The
Company collaborates with the in-house design teams of CKI to create products
characterized by high quality and casual, contemporary fashion. Each of the
Company's lines combines both basic and fashion items in a broad range of casual
fabrications, including jeans, khakis, knit and woven tops and bottoms,
T-shirts, shorts, fleece shirts and pants, outerwear such as leather and denim
jackets, caps and related accessories. In 1995, the mens, juniors, womens and
petites lines accounted for approximately 41%, 31%, 20% and 3%, respectively, of
net sales of Calvin Klein Jeans Label products. In 1993, the year before the
Company obtained the CKJ License, net revenues from the sale of Calvin Klein
Jeans Label products by CKI were approximately $59 million. Since the Company
obtained the CKJ License from CKI for certain types of sportswear in August
1994, net revenues (including royalties) of Calvin Klein Jeans Label products
have risen to $361.4 million in 1995.
The original predecessor of the Company was formed in 1984 by Mr. Simon and
a business associate to design, source, produce and market denim apparel and
other sportswear under the Rio label. Mr. Simon and his organization were
principally responsible for design, sales and advertising. His associate was
initially responsible for the other facets of the business. The business
expanded from the original Rio label to include production of designer label
products under an exclusive license, obtained in 1987, from Bill Blass, a well-
known designer, and private label products for a limited number of retailing
customers. Rio Sportswear was formed in August 1994 to acquire the equity
interests of the Predecessor Companies, which were commonly controlled and
managed by Mr. Simon and his business associate. As part of the transaction, Mr.
Simon exchanged approximately 83% of his interests in the Predecessor Companies
for a 50% equity interest in Rio Sportswear and Jeanswear and sold his remaining
interests to the Company for $4 million. The business associate sold his
interests in the Predecessor Companies to Rio Sportswear. See "Certain
Transactions." In August 1994, through CKJC, the Company obtained the license to
produce sportswear under the Calvin Klein Jeans Labels. In March 1995, Rio
Sportswear and Jeanswear became wholly-owned subsidiaries of the Company. As of
January 1, 1996, the Company has licensed the Rio label and sublicensed the Bill
Blass labels to Commerce Clothing, an affiliate of Azteca. The Company entered
into the license and sublicense in order to focus more on the Calvin Klein Jeans
Label products, which offer the Company a greater profit potential than it
believes possible under the Bill Blass license because the CKJ License permits
the Company to offer a broader line of products to a larger population of
potential consumers. On April 22, 1996, the CKJ License was amended and as
consideration therefor, the Company issued 1,275,466 shares of non-voting common
stock to CKI, which are convertible, at any time, into an equal number of shares
of Common Stock. See "Business -- CKJ License" and "Principal and Selling
Stockholders."
The Company was incorporated in Delaware in March 1995. The Company's
principal executive offices are located at 1385 Broadway, Third Floor, New York,
New York 10018, and its telephone number is (212) 556-9600.
11
<PAGE> 16
DIVIDEND POLICY
The Company currently intends to retain its earnings for use in the
business and does not anticipate declaring and paying dividends in the
foreseeable future. Payment of future dividends, if any, will be at the
discretion of the Company's Board of Directors after taking into account various
factors, including the Company's financial condition, operating results, current
and anticipated cash needs and plans for expansion. The Company is prohibited
(subject to certain limited exceptions) by the terms of its Credit Agreement
from paying dividends, and it may in the future enter into loan or other
agreements or issue debt securities or preferred stock that restrict the payment
of dividends. See "Description of Indebtedness."
USE OF PROCEEDS
The net proceeds from the sale of 6,000,000 shares of Common Stock being
offered by the Company are estimated to be approximately $98.0 million ($108.9
million if the Underwriters' over-allotment options are exercised in full),
assuming an initial public offering price of $18 per share and after deducting
the underwriting discount and estimated expenses of the Offerings payable by the
Company. Approximately $34.7 million of the net proceeds of the Offerings will
be used to retire the subordinated loan, incurred on April 28, 1995 (the
"Subordinated Loan"), and approximately $62.2 million will be used to pay
principal and interest outstanding under the credit agreement, dated April 28,
1995, as amended, among the Company, the lenders named therein and The CIT
Group, as agent (the "Credit Agreement"). Approximately $1.1 million will be
reserved to pay a potential additional contingent portion of the purchase price
on the repurchase in August 1994 of the interests of a former business associate
that may be due upon closing of the Offerings (see "The Company" and "Certain
Transactions"). The Company will not receive any proceeds from the sale of
Common Stock by the Selling Stockholder.
The Subordinated Loan bears current interest at 12% per annum and deferred
interest at the rate of 8% per annum until April 28, 1997 when the deferred
interest rate increases. If not prepaid, amounts outstanding under the
Subordinated Loan will become due in installments ending on April 28, 2005. The
Company will incur a prepayment penalty upon retirement of the Subordinated Loan
of approximately $3.0 million. See "Management's Discussion and Analysis of
Financial Condition and Results of Operations -- Capital Resources and
Liquidity."
Amounts outstanding under the Credit Agreement bear interest either at the
rate announced by Chemical Bank of New York from time to time as its prime rate
plus 1.25% or at a rate equal to LIBOR plus 2.75% at the election of the
Company, subject to certain limitations. The term loan portion of the Credit
Agreement is payable in installments, with the final installment due on March
31, 2000. The final maturity date for the revolving credit facility portion of
the Credit Agreement is April 28, 2000, although the revolving credit facility
will continue until April 28 of each succeeding calendar year unless terminated
as provided in the Credit Agreement. As of March 31, 1996, the Company had
amounts outstanding under the Credit Agreement of approximately $147.5 million,
including $15.7 million for open letters of credit. The outstanding borrowings
of $131.8 million bear interest at a weighted average rate of 8.8% per annum.
See "Description of Indebtedness."
12
<PAGE> 17
CAPITALIZATION
The following table sets forth the actual capitalization of the Company as
of December 31, 1995 and as adjusted to give effect to (i) the issuance to CKI
of 1,275,466 shares of non-voting common stock with a value of $20.2 million in
April 1996, which shares are convertible, at any time, into an equal number of
shares of Common Stock, and (ii) the issuance of 6,000,000 shares of Common
Stock offered by the Company and the application of the net proceeds of $98.0
million therefrom as described in "Use of Proceeds." This table should be read
in conjunction with "Selected Financial Information" and the audited
consolidated financial statements of the Company and the combined financial
statements of the Predecessor Companies and related notes thereto included
elsewhere in this Prospectus.
<TABLE>
<CAPTION>
AS OF DECEMBER 31, 1995
------------------------
ACTUAL AS ADJUSTED
-------- -----------
(DOLLARS IN THOUSANDS)
<S> <C> <C>
Current debt:
Revolving credit loans...................................... $ 97,016 $ 43,539
Current portion of long-term debt........................... 5,000 5,000
-------- --------
Total current debt.................................. $102,016 $ 48,539
======== ========
Long-term debt, net of current portion:
Term loan portion of Credit Agreement....................... $ 18,750 $ 10,000
Subordinated Loan, including deferred interest.............. 31,653
-------- --------
Total long-term debt................................ 50,403 10,000
-------- --------
Stockholders' equity:
Common Stock, par value $.01 per share, authorized
75,000,000 shares, issued and outstanding 24,233,868
shares, actual, and 31,509,334 shares, as adjusted(1).... 242 315
Additional paid-in capital.................................. 20,121 138,231
Retained earnings........................................... 12,119 9,829(2)
-------- --------
Total stockholders' equity.......................... 32,482 148,375
-------- --------
Total capitalization........................... $ 82,885 $ 158,375
======== ========
</TABLE>
- ------------------------
(1) Assumes conversion of the 1,275,466 shares of non-voting common stock issued
to CKI in April 1996 into 1,275,466 shares of Common Stock and excludes an
aggregate of 2,363,200 shares of Common Stock reserved for issuance upon
exercise of options under the Company's 1996 Stock Option and Incentive Plan
(including approximately 1,500,000 shares subject to options to be granted
at the initial public offering price). See "Management -- Stock Option
Plan."
(2) Reflects a combined $2.3 million charge for a prepayment fee and write-off
of deferred financing costs, net of applicable tax effects, related to the
prepayment of the Subordinated Loan with a portion of the net proceeds of
the Offerings. See "Use of Proceeds" and Note 11 to the audited consolidated
financial statements of the Company and the combined financial statements of
the Predecessor Companies included elsewhere in this Prospectus.
13
<PAGE> 18
DILUTION
As of December 31, 1995, the Company had a deficit in net tangible book
value of $(2.4) million, or $(.10) per share of Common Stock. "Net tangible book
value" per share of Common Stock represents the difference between the net
tangible assets and the liabilities of the Company, on a consolidated basis,
divided by the total number of shares of Common Stock outstanding. Without
taking into account any changes in net tangible book value after December 31,
1995, other than to give effect to (i) the issuance to CKI of 1,275,466 shares
of non-voting common stock in April 1996, which shares are convertible, at any
time, into an equal number of shares of Common Stock, and (ii) the sale by the
Company of 6,000,000 shares of Common Stock pursuant to the Offerings and the
application of the estimated net proceeds therefrom (assuming an initial public
offering price of $18 per share), the pro forma net tangible book value of the
Company at December 31, 1995 would have been approximately $92.2 million, or
$2.93 per share. This represents an immediate dilution of $15.07 per share to
new investors. The following table illustrates this per share dilution:
<TABLE>
<S> <C> <C>
Assumed initial public offering price per share............ $18.00
Actual deficit in net tangible book value per share as of
December 31, 1995..................................... $(0.10)
Increase in net tangible book value per share
attributable to the issuance of non-voting common
stock in April 1996................................... .01
Increase in net tangible book value per share
attributable to the Offerings......................... 3.02
---
Pro forma net tangible book value per share as of December
31, 1995(1)........................................... 2.93
---
Immediate dilution per share to new investors in the
Offerings................................................ $15.07
===
</TABLE>
The following table summarizes, on a pro forma basis as of December 31,
1995, the number of shares of Common Stock purchased from the Company, the
estimated value of the total consideration or value paid or deemed attributable
thereto and the average price per share paid by or attributable to the Selling
Stockholder, CKI and the new investors purchasing shares in the Offerings.
<TABLE>
<CAPTION>
AVERAGE
SHARES PURCHASED TOTAL CONSIDERATION PRICE
---------------------- ---------------------- PER
NUMBER PERCENT AMOUNT PERCENT SHARE
---------- ------- ------------ ------- -------
<S> <C> <C> <C> <C> <C>
Selling Stockholder
(2)................... 24,233,868 76.9% $ 40,000,000 23.8% $ 1.65
CKI..................... 1,275,466(3) 4.1% $ 20,203,000 12.0% $ 15.84
New Investors........... 6,000,000 19.0% $108,000,000 64.2% $ 18.00
</TABLE>
- ------------------------
(1) Excludes 2,363,200 shares of Common Stock reserved for issuance under the
Company's 1996 Stock Option and Incentive Plan. See "Management--Stock
Option Plan."
(2) The sale by the Selling Stockholder in the Offerings will cause the number
of shares held by it to be reduced to 18,233,868 shares, or 58% of the total
number of shares to be outstanding after the Offerings (17,083,868 shares,
or 53%, if the Underwriters' over-allotment options are exercised in full).
(3) Assumes conversion of the 1,275,466 shares of non-voting common stock into
1,275,466 shares of Common Stock.
14
<PAGE> 19
UNAUDITED PRO FORMA FINANCIAL INFORMATION
The unaudited pro forma financial information set forth below for the year
ended December 31, 1995 gives effect to (i) the agreements by the Company, which
became effective as of January 1, 1996, to grant to another company the right to
produce and distribute sportswear under the Bill Blass and the Rio labels, and
childrens apparel in the United States under the Calvin Klein Jeans Labels (the
"Agreements"), (ii) certain amendments to the CKJ License and the related
issuance to CKI of 1,275,466 shares of non-voting common stock (the
"Amendments") and (iii) completion of the Offerings and application of the
estimated net proceeds to the Company therefrom as described in "Use of
Proceeds," as if they had been consummated on January 1, 1995. The pro forma
financial adjustments are based upon available information and certain
assumptions that management of the Company believes are reasonable. The pro
forma financial data is for informational purposes only and may not necessarily
be indicative of the results of operations of the Company that actually would
have occurred had the Agreements, the Amendments and the Offerings been
consummated on such dates. The following pro forma financial information should
be read in conjunction with "Capitalization," "Management's Discussion and
Analysis of Financial Condition and Results of Operations" and the audited
consolidated financial statements of the Company and related notes thereto
included elsewhere in this Prospectus.
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, 1995
------------------------------------------------------------------------------
PRO FORMA PRO FORMA
ADJUSTMENTS FOR THE FOR THE
TO REFLECT AGREEMENTS ADJUSTMENTS AGREEMENTS,
THE AGREEMENTS AND TO REFLECT AMENDMENTS AND
HISTORICAL AND AMENDMENTS AMENDMENTS THE OFFERINGS THE OFFERINGS
---------- -------------- ---------- ------------- --------------
(DOLLARS IN THOUSANDS, EXCEPT SHARE DATA)
<S> <C> <C> <C> <C> <C>
Net revenues................. $ 462,122 $ (112,453)(1) $349,669 $ 349,669
Cost of goods sold........... 323,638 (105,678)(1) 217,960 217,960
---------- ---------- -------- -------- ----------
Gross profit................. 138,484 (6,775) 131,709 131,709
Selling, general and (12,280)(2)
administrative expenses.... 100,391 505(3) 88,616 $ 73(4) 88,689
---------- ---------- -------- -------- ----------
Operating income............. 38,093 5,000 43,093 (73) 43,020
Interest expense............. 16,160 16,160 11,675(4) 4,485
---------- ---------- -------- -------- ----------
Income before income taxes... 21,933 5,000 26,933 11,602 38,535
Provision for income taxes... 10,870 2,250(5) 13,120 5,221(5) 18,341
---------- ---------- -------- -------- ----------
Net income................... $ 11,063 $ 2,750 $ 13,813 $ 6,381(6) $ 20,194
========== ========== ======== ======== ==========
Net income per share......... $ 0.46 $ 0.64
Weighted average shares
outstanding(7)............. 24,233,868 31,509,334
</TABLE>
- ------------------------
(1) Adjustments to (i) eliminate sales and related cost of goods sold of Bill
Blass and Rio products of $100,729 and $93,502, respectively, and reflect
royalty income of $4,587, representing 5% of 1995 historical net sales of
the Bill Blass products and 4% of 1995 historical net sales of Rio products
pursuant to the provisions of the Agreements, and (ii) eliminate sales and
related cost of goods sold of Calvin Klein Jeans Label childrens apparel in
the United States of $17,311 and $12,176, respectively, and reflect minimum
royalty due in the initial year of the agreement of $1,000.
(2) Adjustment to eliminate selling, general and administrative expenses, which
were eliminated upon consummation of the Agreements.
(3) Adjustment to reflect amortization of $20,203 capitalized licensing rights
over forty years, the adjusted term of the CKJ License. The capitalized
licensing rights represent the Company's estimate of the fair value of the
1,275,466 shares of non-voting common stock issued to CKI in connection with
the Amendments.
(4) Adjustments to reflect (i) amortization of goodwill resulting from $1.1
million additional consideration that may be due upon closing of the
Offerings to a former business associate for the purchase in August 1994 of
his interests in the Predecessor Companies, (ii) decrease in interest
expense resulting from the use of $96.9 million of net proceeds to repay
indebtedness as described in "Use of Proceeds" and (iii) the elimination of
$124 in amortization expense of deferred financing costs.
(5) Adjustments to reflect Federal and state income tax adjustments using an
effective tax rate of 45%.
(6) No adjustment has been made to reflect the prepayment fee incurred in
connection with the repayment of the Subordinated Loan and the write-off of
related deferred financing costs of $2.3 million, net of applicable tax
effects. Such amounts will be treated as an extraordinary loss in the period
in which the repayment occurs.
(7) The pro forma weighted average shares outstanding gives effect to (i) the
issuance to CKI of 1,275,466 shares of non-voting common stock in April
1996, which shares are convertible, at any time, into an equal number of
shares of Common Stock, and (ii) the sale by the Company of 6,000,000 shares
of Common Stock pursuant to the Offerings, as if such issuance and the
Offerings were consummated on January 1, 1995.
15
<PAGE> 20
SELECTED FINANCIAL INFORMATION
The selected historical financial information has been derived from the
audited consolidated financial statements of the Company and the combined
financial statements of the Predecessor Companies. The following selected
financial information should be read in conjunction with "Capitalization,"
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" and the audited consolidated financial statements of the Company and
the combined financial statements of the Predecessor Companies and related notes
thereto included elsewhere in this Prospectus.
<TABLE>
<CAPTION>
PREDECESSOR COMPANIES THE COMPANY
(COMBINED) (CONSOLIDATED)
--------------------------------------------- ---------------------------
EIGHT MONTHS FOUR MONTHS
YEAR ENDED DECEMBER 31, ENDED ENDED YEAR ENDED
------------------------------ AUGUST 25, DECEMBER 31, DECEMBER 31,
1991 1992 1993 1994 1994(1) 1995
-------- -------- -------- ------------ ------------ ------------
(DOLLARS IN THOUSANDS, EXCEPT SHARE DATA)
<S> <C> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Net revenues.............. $122,640 $145,040 $173,561 $ 93,969 $ 102,038 $ 462,122
Cost of goods sold........ 100,312 119,195 146,620 81,143 75,246 323,638
-------- -------- -------- -------- ---------- ----------
Gross profit.............. 22,328 25,845 26,941 12,826 26,792 138,484
Selling, general and
administrative
expenses................ 13,897 19,686 23,323 12,318 20,079 100,391
-------- -------- -------- -------- ---------- ----------
Operating income.......... 8,431 6,159 3,618 508 6,713 38,093
Interest expense.......... 1,445 1,339 1,808 1,142 2,557 16,160
-------- -------- -------- -------- ---------- ----------
Income (loss) before
income taxes............ 6,986 4,820 1,810 (634) 4,156 21,933
Provision (benefit) for
income taxes............ 1,869 1,189 (331) (399) 2,239 10,870
-------- -------- -------- -------- ---------- ----------
Net income (loss)......... $ 5,117 $ 3,631 $ 2,141 $ (235) $ 1,917 $ 11,063
======== ======== ======== ======== ========== ==========
Net income per share...... $ 0.08 $ 0.46
Weighted average shares
outstanding............. 24,233,868 24,233,868
</TABLE>
<TABLE>
<CAPTION>
AS OF DECEMBER 31, AS OF AUGUST 25, AS OF DECEMBER 31,
------------------------------ ---------------- ---------------------------
1991 1992 1993 1994 1994 1995
-------- -------- -------- ---------------- ------------ ------------
<S> <C> <C> <C> <C> <C> <C>
BALANCE SHEET DATA:
Working capital........... $ 8,054 $ 8,907 $ 9,248 $ 6,639 $ 27,070 $ 31,671
Total assets.............. 22,659 20,942 28,740 22,765 114,833 250,814
Current debt.............. 4,035 329 5,271 2,400 7,528 102,016
Long-term debt, less
current portion......... - - - - 52,255 50,403
Stockholder's equity...... 8,427 10,460 10,437 7,896 23,006 32,482
</TABLE>
- ------------------------
(1) Amounts include the results of operations from the sale of Calvin Klein
Jeans Label products beginning August 4, 1994, the date the Company obtained
the CKJ License.
16
<PAGE> 21
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following is a discussion of the financial condition and results of
operations of the Company for the years ended December 31, 1993, 1994 and 1995.
This discussion should be read in conjunction with the audited consolidated
financial statements of the Company and the combined financial statements of the
Predecessor Companies and the related notes thereto and other financial
information included elsewhere in this Prospectus. For presentation purposes,
the results of operations of the Company for the year ended December 31, 1994
have been combined with the results of operations of the Predecessor Companies
for the same period.
GENERAL
On August 4, 1994, the Company obtained the CKJ License, under which it
develops, sources and markets designer sportswear lines for men, juniors, women
and petites under the Calvin Klein Jeans Labels. Each of the Company's lines
combines both basic and fashion items in a broad range of casual fabrications,
including jeans, khakis, knit and woven tops and bottoms, T-shirts, shorts,
fleece shirts and pants, outerwear such as leather and denim jackets, caps and
related accessories. The key initiatives implemented by the Company since
obtaining the CKJ License include: (i) broadening its target market by
re-engineering the garments to provide a comfortable fit and flattering
appearance for a greater number of potential consumers, (ii) increasing the
value offered to consumers by lowering the price of its designer-quality
products to "better" from "designer" price points, (iii) targeting juniors,
childrens and petites lines with a specific marketing strategy and product
offering, (iv) enlarging the core of basic styles for each line and (v) in the
latter part of 1995, establishing an inventory replenishment plan to meet the
requirements of retailers. See "Business -- Products," "-- Divisions" and
"-- Distribution."
Prior to January 1, 1996, the Company designed, sourced and marketed Bill
Blass and Rio products. As of January 1, 1996, the Company has licensed the Rio
label and sublicensed the Bill Blass labels to Commerce Clothing. For the years
ended 1993, 1994 and 1995, the Company had net revenues of the Bill Blass and
Rio products of $173.6 million, $137.3 million and $100.7 million, respectively.
As of January 1, 1996, the Company also entered into an agreement with Commerce
Clothing to produce, market and distribute childrens apparel under the Calvin
Klein Jeans Labels. The Company will receive combined revenues under these
agreements ranging from 4% to 5% of net sales of products sold thereunder, net
of royalties due to CKI and Bill Blass Ltd. As a result of the distribution
agreement with respect to childrens apparel under the Calvin Klein Jeans Labels,
the license of the Rio label and the sublicense of the Bill Blass labels, sales
during 1996 will not include any material amounts for the sale of such childrens
apparel or Rio products or any amount for the sale of Bill Blass products;
however, the Company will receive royalty income under such distribution
agreement, license and sublicense.
The following table sets forth the net revenues from the sale of the
Company's Calvin Klein Jeans Label products by line and the income received
pursuant to the distribution agreement with respect to the sale of Calvin Klein
Jeans Label products in Canada for each of the last two years:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-----------------------
1994(1) 1995
------- --------
(DOLLARS IN THOUSANDS)
<S> <C> <C>
Mens.......................................................... $30,106 $149,626
Juniors....................................................... 11,745 111,374
Womens........................................................ 16,465 72,431
Petites....................................................... 380 9,860
Childrens(2).................................................. -- 17,311
Royalty income................................................ -- 791
------- --------
$58,696 $361,393
======= ========
</TABLE>
- ------------------------
(1) Reflects sales beginning August 4, 1994, the date the Company obtained the
CKJ License.
(2) As of January 1, 1996, the Company has entered into an agreement pursuant to
which Commerce Clothing will produce, market and distribute Calvin Klein
Jeans Label childrens apparel in the United States.
17
<PAGE> 22
RESULTS OF OPERATIONS
The following table sets forth, for the periods indicated, statement of
operations data as a percentage of net revenues:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
---------------------------------
1993 1994 1995
----- ----- -----
<S> <C> <C> <C>
Net revenues............................................ 100.0% 100.0% 100.0%
Cost of goods sold...................................... 84.5 79.8 70.0
----- ----- -----
Gross profit............................................ 15.5 20.2 30.0
Selling, general and administrative expenses............ 13.4 16.5 21.7
----- ----- -----
Operating income........................................ 2.1 3.7 8.3
===== ===== =====
</TABLE>
YEAR ENDED DECEMBER 31, 1995 COMPARED TO YEAR ENDED DECEMBER 31, 1994
Net Revenues. Net revenues for the year ended December 31, 1995 were $462.1
million, which represented an increase of $266.1 million or 135.8% over 1994 net
revenues of $196.0 million. Net revenues in 1995 included $361.4 million from
the sale of Calvin Klein Jeans Label products, an increase of $302.7 million
over net revenues for the period from August 4, 1994 (the date the Company
obtained the CKJ License) to December 31, 1994. The growth in revenues of the
Calvin Klein Jeans Label products during 1995 was principally attributable to an
increase in the volume of products sold from the distribution of such products
to a larger number of department stores and specialty retail stores. This
increased distribution was in large part due to the fact that the Company
broadened its target market by re-engineering the garments to provide greater
appeal to a greater number of potential consumers, lowered the price of its
designer-quality products to "better" from "designer" price points, targeted
juniors, petites and childrens lines with a specific marketing strategy and
product offering and enlarged the core of basic styles for each line. The
elements of the Company's strategy that contributed to the increase in volume
were implemented when the Company obtained the CKJ License in August 1994. Also
included in 1995 revenues is net royalty income of $.8 million from the sale of
Calvin Klein Jeans Label products by a distributor in Canada. There was no such
royalty income in 1994. In 1995, the net revenues from the sale of Bill Blass
and Rio products were $100.7 million, a decline of $36.6 million or 26.7% from
1994 net revenues of $137.3 million, was due to continuing increased competition
at the moderate price points and a continuing shift by retailers toward private
label products. In addition, in 1995, management further increased its focus on
sales of the Calvin Klein Jeans Label products.
Gross Profit. Gross profit was $138.5 million for 1995, an increase of
$98.9 million from 1994 gross profit of $39.6 million. The gross profit
percentage was 30.0% in 1995, an increase from 20.2% in 1994. The gross profit
percentage on the sale of the Calvin Klein Jeans Label products and related
royalty income for 1995 was 36.3%, an increase from 30.3% for 1994, reflecting
lower cost sourcing of such products, a shift in product mix toward more basic
products versus fashion products and a reduction of the quantity of products
sold at off-price. The gross profit percentage for the Bill Blass and Rio
products for 1995 was 7.2%, a decrease from 15.9% in 1994. The decline in the
gross profit on the sale of Bill Blass and Rio products was due to increased
competition combined with pricing pressure from retailers and the sale of
remaining inventory at a loss of approximately $4.4 million in 1995.
Selling, General and Administrative. Selling, general and administrative
("SG&A") expenses were $100.4 million or 21.7% of net revenues in 1995, an
increase of $68.0 million from $32.4 million or 16.5% of net revenues in 1994.
The overall increase in SG&A expense levels was primarily a result of the higher
level of advertising, design and royalty expenses incurred in connection with
the CKJ License, combined with a higher volume of sales over 1994. The increase
in SG&A expenses also reflects the growth in the Company's management and the
expense associated with building the infrastructure necessary to support the
sales growth the Company experienced during 1995. Although the Company licensed
the Rio label and sublicensed the Bill Blass labels as of January 1, 1996, it
retained responsibility for the sales function and will continue to incur
related costs.
Interest Expense. Interest expense in 1995 was $16.2 million as compared to
$3.7 million in 1994. The increase in the level of interest expense incurred was
the result of the full year of interest charges on loans
18
<PAGE> 23
incurred in connection with the leveraged buyout of the Predecessor Companies by
Rio Sportswear and obtaining the CKJ License and acquiring related assets from
CKI in August 1994, an increase in the working capital necessary to support the
higher level of sales, and the incurrence of a Subordinated Loan that bears an
effective interest rate of 20%.
Provision (benefit) for income taxes. The provision for income taxes was
$10.9 million and $1.8 million for 1995 and 1994, respectively. The increase in
the provision for income taxes in 1995 was primarily attributable to increased
earnings. The Company's effective tax rate decreased to 49.6% in 1995 from 52.2%
in 1994, principally due to lower state tax rates.
YEAR ENDED DECEMBER 31, 1994 COMPARED TO YEAR ENDED DECEMBER 31, 1993
Net Revenues. Net revenues for the year ended December 31, 1994 were $196.0
million, an increase of $22.4 million or 12.9% over 1993 net revenues of $173.6
million. Net revenues in 1994 included $58.7 million from the sale of Calvin
Klein Jeans Label products for the period from August 4, 1994 (the date the
Company obtained the CKJ License) to December 31, 1994. The net revenues from
the sale of the Bill Blass and Rio products contributed $137.3 million to 1994
net revenues, a decrease of $36.3 million or 20.9% from 1993 net revenues of
$173.6 million. The decrease in Bill Blass and Rio sales was due to increased
competition at the moderate price points and a shift by retailers, such as J.C.
Penney, toward private label products, and the elimination of certain Bill Blass
and Rio product lines.
Gross Profit. Gross profit was $39.6 million for 1994, an increase of $12.7
million from 1993 gross profit of $26.9 million. The gross profit percentage was
20.2% in 1994, an increase from 15.5% in 1993. The sale of Calvin Klein Jeans
Label products contributed $17.8 million to 1994 gross profit, which represented
30.3% on its net revenues. The Bill Blass and Rio products contributed $21.9
million to 1994 gross profit, or 15.9% of net revenues, compared to 1993 gross
profit of $26.9 million, or 15.5% of its net revenues. The improvement reflected
in the gross profit percentage of the Bill Blass and Rio products was due to the
elimination of certain less profitable product lines.
Selling, General and Administrative. SG&A expenses were $32.4 million or
16.5% of net revenues in 1994, an increase of $9.1 million from $23.3 million or
13.4% of net revenues in 1993. The overall increase in SG&A expense levels was
primarily driven by the addition of the Calvin Klein Jeans Label products and
the associated increased cost of advertising, design and royalties.
Interest Expense. Interest expense for 1994 was $3.7 million as compared to
$1.8 million for 1993. The increase in the level of interest expense reflected
increased borrowings incurred in connection with the purchase of the ownership
interests in the Predecessor Companies by Rio Sportswear and obtaining the CKJ
License and acquiring related assets from CKI in August 1994.
Provision (benefit) for income taxes. The provision for income taxes was
approximately $1.8 million in 1994 as compared to a benefit of approximately $.3
million in 1993. The benefit for income taxes in 1993 principally resulted from
S Corporation earnings included in the combined operating results of the
Predecessor Companies which are not subject to federal and state corporate
income taxes. In addition, in 1993, certain deferred tax liabilities of one of
the entities in the Predecessor Companies became the responsibility of a
stockholder as a result of that entity converting from a C Corporation to an S
Corporation.
CAPITAL RESOURCES AND LIQUIDITY
On April 28, 1995, the Company refinanced its outstanding credit
obligations with borrowings under a new $140 million Credit Agreement. This
facility consists of a revolving credit facility of $115 million, and a term
loan of $25 million. Borrowings under the revolving credit facility, including
the opening of letters of credit, are limited in the aggregate to specified
percentages of eligible factored receivables and inventory (as defined in the
Credit Agreement). The portion of the revolving credit facility available for
the opening of letters of credit is limited to $45 million. At December 31,
1995, outstanding letters of credit aggregated $21.4 million. The amount of the
revolving credit facility was increased to $125 million on September 15, 1995,
to $135 million on November 8, 1995 and to $150 million on March 29, 1996.
Amounts outstanding
19
<PAGE> 24
under the Credit Agreement are collateralized by substantially all the assets of
the Company. The Credit Agreement contains restrictive covenants that, among
other things, prohibit the payment of dividends or stock repurchases and
restrict additional indebtedness, leases, capital expenditures, investments and
a sale of assets or merger of the Company with another entity. The covenants, as
amended March 8, 1996, also require the Company to meet certain financial ratios
and maintain minimum levels of net worth. In connection with the Offerings, the
Company will continue to evaluate alternatives to its current Credit Agreement
in order to increase operating flexibility. See "Description of Indebtedness."
In addition to the Credit Agreement, on April 28, 1995, the Company
incurred a $30 million Subordinated Loan. The Subordinated Loan bears a current
interest rate of 12% payable in June and December of each year and a deferred
interest rate of 8% for the first two years. This deferred interest rate
increases 1% per annum each year thereafter, compounded annually. Deferred
interest is payable upon maturity or upon payment of any part of the principal
amount of the Subordinated Loan to which the deferred interest relates.
The Company entered into a factoring agreement dated August 24, 1994, with
The CIT Group, the agent under the Credit Agreement. Pursuant to the terms of
the agreement, The CIT Group purchases the Company's eligible accounts
receivables and assumes the credit risk only on those accounts for which it has
given prior credit approval in writing. The Company is also a party to an
intercreditor agreement under which the factor, as agent, is obligated to apply
all monies, otherwise due to the Company, against amounts outstanding under the
Credit Agreement. The Company borrows its daily cash requirements under the
revolving credit facility and therefore shows no cash balance as of December 31,
1995.
During 1995, the Company financed its operations primarily through cash
flows generated from operations and from daily borrowings under the revolving
credit facility. In the past, the Company's borrowing requirements have been
somewhat seasonal, with peak working capital needs arising at the end of the
second and beginning of the third quarter of the fiscal year. The sales growth
experienced during 1995 as a result of the addition of the Calvin Klein Jeans
Label products overshadowed the historical seasonal pattern in that year.
Net cash used in operating activities was $2.7 million, $14.8 million and
$83.1 million for 1993, 1994 and 1995, respectively. The increase in net cash
used for operating activities during 1994 and 1995 resulted primarily from an
increase in receivables and inventories as a result of the increased sales
growth resulting from the sale of Calvin Klein Jeans Label products beginning in
August 1994. Net cash used for investing activities was $2.8 million in 1995 and
$36.8 million in 1994, respectively. Net cash used in investing activities for
1995 included capital expenditures of $2.8 million. Net cash used in such
investing activities for 1994 included $24.0 million for the purchase of the
ownership interest in the Predecessor Companies, $10.3 million for obtaining the
CKJ License and related assets and a $2.4 million loan to a stockholder.
Net cash provided by financing activities was $2.8 million, $51.9 million
and $84.5 million in 1993, 1994 and 1995, respectively. The net cash provided in
1995 principally represented borrowings under the Company's revolving credit
facility. In 1994, the cash provided by financing activities principally
represented $45.2 million of proceeds from notes payable to Charterhouse and
capital contributions by Charterhouse of $20.0 million, which were used to
purchase the ownership interests of the Predecessor Companies and to obtain the
CKJ License and acquire related assets. The notes payable to Charterhouse bore
interest at a fluctuating annual rate equal to the rate publicly announced by
Chemical Bank in New York as its reference rate plus 3% per annum. The notes
were repaid in full by the Company with proceeds of the Term Loan and
Subordinated Loan.
The Company intends to use the estimated net proceeds from the Offerings of
approximately $98.0 million to satisfy all obligations existing under the
Subordinated Loan (approximately $34.7 million including the prepayment penalty)
and to reduce amounts outstanding under the Credit Agreement.
The Company believes that its sources of financing are adequate to fund its
current level of operations and its expected growth through 1997. The Company
will need to seek additional debt, equity or equity-linked financing if it
obtains additional designer brands or licenses or makes significant
acquisitions, as well as to support continued expansion in 1998 and later years.
20
<PAGE> 25
The Company has recently contracted for the construction and installation
of 50 "shop-in-shops" and plans to install approximately 150 such shops during
1996. The Company expects that the cost of constructing, equipping and
installing the first 50 shops will not exceed $2.0 million in the aggregate. The
Company expects to fund the construction of the shops with borrowings under the
Credit Agreement and cash from operations.
SEASONALITY
The following table sets forth the net revenues from the sale of the
Company's Calvin Klein Jeans Label products by line and the income received
pursuant to the distribution agreement with respect to the sale of Calvin Klein
Jeans Label products in Canada for the last six quarters:
<TABLE>
<CAPTION>
1994 1995
------------------- --------------------------------------------
THIRD FOURTH FIRST SECOND THIRD FOURTH
QUARTER QUARTER QUARTER QUARTER QUARTER QUARTER
------- ------- ------- ------- ------- --------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
Mens...................... $ 9,221 $20,885 $29,951 $31,215 $30,774 $ 57,686
Juniors................... 2,745 9,000 10,861 23,163 32,552 44,798
Womens.................... 6,196 10,269 14,668 9,538 20,966 27,259
Petites................... 55 325 407 1,461 2,288 5,704
Childrens................. -- -- -- 100 7,695 9,516
Royalty income............ -- -- -- -- 459 332
------- ------- ------- ------- ------- --------
$18,217 $40,479 $55,887 $65,477 $94,734 $145,295
======= ======= ======= ======= ======= ========
</TABLE>
The Company's business is affected by general seasonal trends that are
characteristic of the apparel industry. In the Company's segment of the apparel
industry, sales typically are higher in the first and third quarters. Primarily
as a result of the significant growth that the Company has experienced, recent
quarterly sales trends have not reflected this seasonality. In 1996 and future
years, assuming the Company does not obtain additional significant designer
brands or licenses, the Company expects that its sales may reflect greater
seasonal trends as its growth rate moderates. Additionally, the difficulties in
distribution experienced by the Company in the second and third quarters of 1995
caused subsequent quarter sales to be higher than anticipated, as products
scheduled to be shipped were delayed. In order to remedy these difficulties, the
Company has expanded its distribution facilities and is implementing upgraded
management information systems. See "Business -- Distribution" and
"-- Management Information Systems." No assurance can be given, however, that
such facilities and systems will function as anticipated. See "Risk
Factors -- Ability to Achieve and Manage Future Growth."
INFLATION
The Company does not believe that inflation has had a significant effect on
its net revenues or its profitability. The Company believes that, in the past,
it has been able to offset such effects by increasing prices or by instituting
improvements in efficiency.
NEW ACCOUNTING STANDARDS
In March 1995, Statement of Financial Accounting Standards No. 121,
"Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to
Be Disposed Of," ("SFAS No. 121") was issued and became effective January 1,
1996. SFAS No. 121 requires that in the event certain facts and circumstances
indicate an asset may be impaired, an evaluation of recoverability must be
performed to determine whether or not the carrying amount of the asset is
required to be written down. The Company does not expect the adoption of this
statement to have a material effect on its financial condition or results of
operations.
21
<PAGE> 26
BUSINESS
The Company develops, sources and markets designer sportswear lines for
men, juniors, women and petites under the Calvin Klein Jeans Labels. The
Company's products target youthful, culturally conscious consumers and
capitalize on the cachet and image created by over 20 years of extensive image
advertising for Calvin Klein, one of the world's most influential designers. The
Company collaborates with the in-house design teams of CKI to create products
characterized by high quality and casual, contemporary fashion. Each of the
Company's lines combines both basic and fashion items in a broad range of casual
fabrications, including jeans, khakis, knit and woven tops and bottoms,
T-shirts, shorts, fleece shirts and pants, outerwear such as leather and denim
jackets, caps and related accessories. In 1995, the mens, juniors, womens and
petites lines accounted for approximately 41%, 31%, 20% and 3%, respectively, of
net sales of Calvin Klein Jeans Label products. In 1993, the year before the
Company obtained the CKJ License, net revenues from the sale of Calvin Klein
Jeans Label products by CKI were approximately $59 million. Since the Company
obtained the CKJ License from CKI for certain types of sportswear in August
1994, net revenues (including royalties) of Calvin Klein Jeans Label products
have risen to $361.4 million in 1995.
Since August 1994, the Company has experienced substantial growth in net
revenues for its Calvin Klein Jeans Label products. The Company believes that
the quality and casual style of its products combined with the youthful image
presented in its advertising, provide the Company with the opportunity to
experience further sales growth by taking advantage of certain market trends.
The Company believes such trends include: (i) a move towards more "relaxed"
dress including the introduction of "casual days" in the workplace, (ii)
demographic changes indicating that the juniors market will be one of the
fastest growing segments of the industry, (iii) strong consumer demand for
higher-end designer quality merchandise and (iv) a shift by major retailers
towards devoting more selling space to a select group of designer brands.
Beginning in August 1994, the Company implemented a number of key
initiatives to increase market share and improve profitability of the Calvin
Klein Jeans Label products, including: (i) broadening its target market by
re-engineering the garments to provide a comfortable fit and flattering
appearance for a greater number of potential consumers, (ii) increasing the
value offered to consumers by lowering the price of its designer-quality
products to "better" from "designer" price points, (iii) targeting juniors,
petites and childrens lines with a specific marketing strategy and product
offering, (iv) expanding the core of basic styles for each line and (v)
establishing an inventory replenishment plan to meet the requirements of
retailers.
BUSINESS STRATEGY
The Company's growth strategy is to capitalize on the strength of the
Calvin Klein image and the quality, fit and value of the Company's products as
well as the Company's expertise in marketing and sourcing designer sportswear.
The Company's strategy includes the following:
EXPAND ACCOUNT BASE AND NUMBER OF STORE LOCATIONS ON A SELECTIVE
BASIS. The Company currently distributes products under the Calvin Klein
Jeans Labels to a broad range of department stores and specialty retailers.
The Company believes that the strong demand for its Calvin Klein Jeans
Label products positions it to selectively add to its account base. Within
the Company's existing retailing customers, the Company believes it has
opportunity to increase the number of store locations that carry each of
its product lines, particularly its womens and juniors lines. At the same
time, the Company seeks those speciality retailers that have the ability to
offer the proper presentation of the Company's products.
EXPAND SHOP-IN-SHOP PROGRAM. The Company expects to increase the
retail presence of its Calvin Klein Jeans Label products through the
installation of "shop-in-shops," which are dedicated to Calvin Klein Jeans
Label products, in the stores of its department store customers. The
shop-in-shops create a specialized shopping environment that is consistent
with the Calvin Klein image. The shop-in-shops are designed to hold more of
the Company's merchandise than conventional department store displays and
will be approximately 750 square feet in size. The Company believes that
the shop-in-shops will enhance the consumer's shopping experience and will
build loyalty among consumers and the Company's retailing customers. The
Company has one prototype shop-in-shop in operation in Bloomingdale's
(Federated Department Stores, Inc.) in New York City, and the Company has
recently contracted for the construction and installation of 50 shops. The
Company plans to install approximately 150 shops during 1996. The fixtures
will be constructed off-site and are intended to be suitable for quick
installation.
22
<PAGE> 27
DEEPEN PRODUCT OFFERINGS. The Company continually evaluates consumer
demand for its products and will seek to complement its existing lines with
new products that fit well with the Calvin Klein image. During 1995, the
Company added leather and different textures of cotton to its product
offerings and has recently introduced khaki sportswear to all its lines.
The Company plans to support the introduction of the khaki products with an
extensive marketing campaign.
EXPAND GEOGRAPHICALLY THROUGH THIRD PARTY DISTRIBUTORS. The Company
believes that opportunities exist to continue to expand its market
geographically by entering into agreements to have its Calvin Klein Jeans
Label products distributed in various regions outside the United States.
The Company has recently entered into a distribution agreement for its
Calvin Klein Jeans Label mens, womens, juniors and petites lines in Canada,
and the Company is currently negotiating distribution agreements with
respect to childrens apparel and khaki products in Canada. The Company also
is currently negotiating distribution agreements for Mexico, Central
America and South America.
IMPROVE OPERATING EFFICIENCIES. In order to provide infrastructure to
support its growth and to improve its operating profitability, the Company
is in the process of upgrading its distribution and management information
systems. Upon full implementation and integration of these systems, the
Company expects to have sufficient capacity in its inventory management,
distribution and management information systems to effectively manage all
reasonably anticipated levels of growth. The Company also plans to improve
its distribution capabilities by leasing a new automated, 375,000 square
foot distribution facility in North Arlington, New Jersey that is expected
to become operational during 1997. The Company believes that the North
Arlington facility will have the capacity to ship approximately the same
volume of products that can be shipped out of its two currently operating
distribution facilities. The addition of the distribution capacity in North
Arlington will permit the Company to reevaluate its distribution plan to
maximize operating efficiencies.
ACQUIRE ADDITIONAL LICENSES/BRANDS. The Company regularly evaluates,
and is currently in discussions with regard to the possibility of acquiring
additional licenses and brand names. No agreements or letters of intent to
acquire such licenses or brand names have been entered into and there can
be no assurance that the Company will obtain any such licenses or brand
names. See "Risk Factors -- Ability to Achieve and Manage Future Growth."
PRODUCTS
The Company believes that the strength of the Calvin Klein image and the
design, fit, quality and value of the products are key elements in maintaining
and promoting consumer demand for the Calvin Klein Jeans Label products. Before
the Company obtained the CKJ License, Calvin Klein Jeans Label products were
targeted primarily to the 30 to 50 year-old age group and the apparel was
tailored to fit only a limited range of the consumer population. Since obtaining
the CKJ License, the Company has retailored the products to provide a
comfortable fit and flattering appearance for a greater number of potential
consumers. The Company now designs, tailors and targets the products to both
older and younger consumers, including the teen market, which has substantially
increased the potential market for Calvin Klein Jeans Label products. The
Company categorizes its products as either basic or fashion. The basic products,
which represented approximately 65% of 1995 net sales, consist of items such as
jeans, T-shirts, shorts, shirts, vests, jackets, fleece shirts and pants and
caps. The Company currently offers approximately 50 styles of its basic products
in each of its lines, and those styles reflect little variation from season to
season. The Company complements its basic products with fashion products, which
represented approximately 35% of 1995 net sales. Fashion items currently include
approximately 120 styles in the mens, womens and juniors lines and approximately
20 styles in its petites line, and the assortment of fashion styles that are
offered may be changed up to ten times per year, with variations appropriate to
the season and items that are updated for current trends in color, fabrication
or styling. For example, during the course of 1995, the Company offered a total
of approximately 65 basic styles and approximately 600 fashion styles in its
mens line. The Company uses the fashion items to continually introduce variety
into its merchandise assortment.
The in-house design staff at CKI designs the Company's Calvin Klein Jeans
Label products to meet the requests of the Company's merchandising team for
specific garments, fabrics and colors. The Company and
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<PAGE> 28
CKI work together to produce a "fashion blueprint" for each of four fashion
seasons. The image, colors and styles of the Company's Calvin Klein Jeans Label
products are intended to be consistent with the other sportswear sold by CKI and
other companies under the Calvin Klein brand name. The design goal is to capture
looks that are fresh and uncluttered. Products are made in a wide range of
fabrics that are given distinctive looks through a variety of finishes, many of
which are developed by the Company, and through an array of colors that are
varied over time. Special attention is given, among other things, to the feel of
the fabrics and the details of the trim. In addition, the Company has developed
a line of khaki products, which it began introducing during the fall of 1995 and
which became available in stores in March 1996.
Upon obtaining the CKJ License, the Company increased the value offered to
consumers by lowering the price of its designer-quality products to "better"
from "designer" price points. The following chart indicates the approximate
range of current retail prices at which certain Calvin Klein Jeans Label
products are sold:
<TABLE>
<CAPTION>
BASIC
-------------------------- FASHION
KNITS, -------------------------
INCLUDING WOVEN
JEANS T-SHIRTS BOTTOMS WOVEN TOPS
----------- ----------- ----------- ----------
<S> <C> <C> <C> <C>
Mens...................... $45 to $52 $20 to $32 $54 to $68 $48 to $68
Juniors................... $45 to $52 $16 to $32 $48 to $72 $48 to $84
Womens.................... $45 to $52 $16 to $32 $48 to $72 $48 to $84
Petites................... $45 to $52 $16 to $32 $48 to $72 $48 to $84
</TABLE>
DIVISIONS
The following chart sets forth the amount of 1995 net sales for each of the
Company's product lines:
<TABLE>
<CAPTION>
% OF
NET SALES(1) NET SALES
------------ ---------
<S> <C> <C>
(DOLLARS IN THOUSANDS)
Mens.................................................. $149,626 41.5%
Juniors............................................... 111,374 30.9
Womens................................................ 72,431 20.1
Petites............................................... 9,860 2.7
Childrens(2).......................................... 17,311 4.8
-------- -----
$360,602 100.0%
======== =====
</TABLE>
-------------------------------
(1) Excludes amounts received as royalties.
(2) As of January 1, 1996, the Company has entered into an
agreement pursuant to which Commerce Clothing will produce
and distribute Calvin Klein Jeans Label childrens apparel in
the United States.
Mens. The Calvin Klein Jeans Label mens line contributed the greatest
amount to 1995 net sales and was carried in approximately 680 department store
locations and approximately 1,400 specialty retail stores as of December 31,
1995. As of March 1, 1996, the number of department store locations in which the
mens line was carried had increased to approximately 880. At the same time, the
Company is seeking to limit distribution to include only those specialty
retailers that have the ability to offer the proper presentation of the
Company's products and has reduced the number of specialty retailers that
distribute its mens line to approximately 1,100 as of March 1, 1996. The Company
currently dedicates a staff of 10 to the sale of the mens line.
Juniors. In the third quarter of 1994, the Company began targeting juniors.
The Company believes the Calvin Klein image advertising and the style of the
Calvin Klein Jeans Label products have significant appeal to consumers in this
category. The Company further believes that juniors is one of the fastest
growing segments of the retail market and that, as a result, its retailing
customers are increasing the floor space dedicated to the Calvin Klein Jeans
Label juniors line. As of the end of 1995, the juniors line was carried in
approximately 840 department store locations and approximately 800 specialty
retail stores. The Company currently dedicates a staff of 11 to the sale of the
juniors line.
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<PAGE> 29
Womens. The Company believes the womens line is currently underrepresented
in department store locations in comparison to the Company's mens and juniors
lines, and there is a significant opportunity for growth. As of the end of 1995,
such products were carried in approximately 800 department store locations. The
Company currently dedicates a staff of 11 to the sale of the womens line.
Petites. The Company began targeting petites with a specific marketing
strategy and product offering in the third quarter of 1995. The line was
originally introduced into approximately 95 department store locations and grew
to approximately 200 department store locations as of December 31, 1995. The
Company currently dedicates a staff of 3 to the sale of the petites line.
Childrens. As of January 1, 1996, the Company has entered into an agreement
pursuant to which a subsidiary of one of its principal suppliers will produce
and distribute Calvin Klein Jeans Label childrens apparel in the United States.
The Company continues to direct and oversee the sale of the products, and it
supervises the distributor's sales staff.
PRODUCTION AND QUALITY CONTROL
The Company engages both foreign and domestic contractors to manufacture
its Calvin Klein Jeans Label products, and it owns and operates two production
facilities in the United States. In 1995, approximately 75% of the Company's
products, as measured by finished goods purchased, were produced by third-party
vendors in the United States and approximately 20% of the Company's products
were produced by overseas vendors. In 1995, approximately 5% of the Company's
products were produced by the Company's production facilities. The Company
balances the relatively low cost of production outside the United States with
the relatively quick turnaround time on orders produced domestically. By doing
so, the Company hopes to achieve an optimum balance of cost and timeliness of
order fulfillment. Cost management has enabled the Company to maintain the
prices for its basic products at levels that are attractive to consumers and
that provide ample margins for both the Company and its retailing customers. The
Company believes that there is little difference in the quality of the products
produced domestically and outside the United States, provided that adequate
quality controls are in place. The Company selects the fabrics and other
materials and informs the manufacturers as to where to obtain them. The Company
buys finished goods from its manufacturers, enabling the Company to avoid
significant capital expenditures, work-in-process inventories and the costs
associated with maintaining a large production work force. The Company believes
that its relationships with its suppliers are good. The loss of such suppliers
could involve various uncertainties and disruptions, which could have a material
adverse effect on the Company's business, financial condition and results of
operations. See "Risk Factors -- Dependence on Manufacturers." The Company
retains sourcing agents in the international markets to assist the Company in
selecting and overseeing third-party contractors, sourcing fabric, monitoring
quota and other trade regulations, as well as performing quality control
functions.
The Company's quality control program is designed to provide that all of
the Company's products meet the Company's standards. The Company maintains a
staff of 16 quality control personnel in the United States and eight sourcing
agents abroad. The Company develops and inspects prototypes of each product
prior to production, establishes fittings based on the prototype, inspects
samples and, through its employees or sourcing agents, inspects fabric prior to
cutting and several times during the production process. The Company or its
sourcing agents inspect the final product prior to shipment to the Company's
distribution facilities. With respect to products produced under licenses or
distribution agreements, the Company oversees the quality control programs of
its licensees and distributors and regularly inspects samples of their products.
DISTRIBUTION
The Company currently distributes its Calvin Klein Jeans Label products
through distribution facilities located in Secaucus, New Jersey and in New
Bedford, Massachusetts. The Secaucus facility, which is operated by an
independent contractor, contains approximately 200,000 square feet and under
normal operating conditions can ship up to 300,000 units per week. The New
Bedford facility, which is leased and operated by the Company, contains
approximately 370,000 square feet and under normal operating conditions can ship
up to 500,000 units per week. In order to improve capacity and operating
efficiency within these
25
<PAGE> 30
facilities, the Company is installing inventory shelves at the Secaucus facility
and conveyor systems at both the Secaucus and New Bedford facilities. In
addition, the Company plans to lease an automated 375,000 square foot
distribution facility in North Arlington, New Jersey that is expected to become
operational in 1997. The Company believes that the North Arlington facility will
have the capacity to ship approximately the same amount of products that can be
shipped out of its two currently operating distribution facilities. The addition
of the distribution capacity in North Arlington will permit the Company to
reevaluate its distribution plans.
Under the Company's inventory replenishment program, the Company offers
retailers the ability to reorder basic items for immediate shipment. The Company
keeps an inventory of products covered by the program and accepts replenishment
orders through its EDI system (see " -- Management Information Systems"). The
Company typically fills replenishment orders within five days of receipt. While
the program requires an increased investment in inventories, the Company
believes its ability to offer this flexibility to its retailing customers is a
significant competitive advantage and reduces the risk of mark-down allowances
and returns.
Fashion items are shipped in pre-packaged containers, prepared by the
manufacturer, each containing a single type of item in a standard array of
sizes. In general, the Company does not ship individual fashion items to fill-in
the inventory of a retailing customer but rather offers to ship pre-packaged
containers of the next comparable fashion item. Shipping its fashion items in
this manner permits the Company both to distribute a greater volume of products
and to reduce its per unit distribution costs.
As sales increased significantly since January 1, 1995, the Company
experienced difficulties in meeting the increased demands on its distribution
systems. The Company has responded by expanding and improving its distribution
facilities and implementing improved management information systems. The Company
believes that its current distribution facilities and management information
systems are sufficient for its current level of operations and, together with
planned expansions and improvements, will be sufficient for anticipated growth.
There can be no assurance, however, that the planned expansions and improvements
will be completed as planned or that when completed the distribution facilities
and systems will function as anticipated. See "Risk Factors -- Ability to
Achieve and Manage Future Growth."
MANAGEMENT INFORMATION SYSTEMS
The Company is in the process of upgrading its management information
system in order to maintain better control of its inventory and to provide
management with information that is both more current and more accurate than was
available previously. The Company's management information system is intended to
provide, among other things, comprehensive order processing, production,
accounting and management information for the marketing, manufacturing,
importing and distribution functions of the Company's business. The Company's
distribution facilities and administrative offices are being linked by the
computer system. The Company has purchased and is implementing a software
program that will enable the Company to track, among other things, orders,
manufacturing schedules, inventory, sales and mark-downs of its products. In
addition, to support the Company's replenishment program, the Company has an
electronic data interchange ("EDI") system, through which certain customers'
orders are automatically placed by the retailer with the Company. The Company
currently serves approximately 24 customers in its EDI system. The upgraded and
expanded management information system is scheduled to become fully operational
in 1996. No assurance can be given, however, that expansions and improvements
will be completed as planned, or that when completed, they will function as
anticipated. See "Risk Factors -- Ability to Achieve and Manage Future Growth."
CUSTOMERS
The Company's Calvin Klein Jeans Label products are sold through major
department stores and specialty retail stores. The Company seeks to maintain and
enhance the image of its Calvin Klein Jeans Label products by controlling the
distribution channels, based on criteria that include the image of the store,
availability of desirable locations within the store and the ability of the
retailing customer to display and promote the products. In addition to the
in-house sales force that is dedicated to the sale of the Company's Calvin Klein
Jeans Label products, the Company retains a small number of sales agents and
agencies who are
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<PAGE> 31
assigned to specific geographic regions and are compensated on a commission
basis. Beginning mid-1996, the Company also plans to retain agents who will
supervise the presentation of Calvin Klein Jeans Label products by the Company's
retailing customers, provide detailed product information to the sales people
employed by its retailing customers and advise the Company concerning the
consumer demand experienced by its retailing customers.
The Company's department store customers include major United States
retailers, certain of which are under common ownership. When considered together
as a group under common ownership, sales to the department store customers owned
by Federated Department Stores Inc. and May Department Stores Co. accounted for
approximately 15.8% and 8.3%, respectively, of 1995 gross sales of Calvin Klein
Jeans Label products. The ten largest purchasers of Calvin Klein Jeans Label
products represented approximately 53% of the Company's net revenues in fiscal
1995. While the Company believes that purchasing decisions in many cases are
made independently by each department store customer, there can be no assurance
that purchasing decisions will not be made on a centralized basis. A decision by
the controlling owner of a group of department stores to decrease the amount of
product purchased from the Company or to cease carrying the Company's products
could adversely affect the Company.
ADVERTISING
The appeal to consumers of the Calvin Klein Jeans Label has been built up
over 20 years by the distinctive advertising for the variety of products that
are sold by CKI and other companies under the Calvin Klein brand name, including
couture apparel, sportswear, outerwear, intimate apparel for men and women,
fragrances, eyewear, accessories, hosiery and home furnishings. All the
advertising campaigns for all the Calvin Klein brand products are designed and
executed by CRK Advertising, the in-house advertising agency at CKI. The
advertising campaigns by CKI and its licensees are intended to be mutually
supportive, so that all the producers of Calvin Klein products should benefit
from each advertisement. For example, if the advertising for underwear or
fragrance products calls for the models to wear sportswear, they wear sportswear
designed by CKI, including Calvin Klein Jeans Label products.
Advertising for the Company's products includes outdoor advertising, print
media and television. The advertising strategy is to saturate the urban markets
in Atlanta, Chicago, Dallas, Los Angeles, New York City, San Francisco and
Washington, D.C. with images from the current advertising campaign by placing
the advertisements where the Company's products benefit from the cumulative
effect of multiple exposures, such as billboards, exterior bus panels, bus
shelters and kiosks. Advertising for Calvin Klein Jeans Label products appears
prominently in 24 fashion and special interest magazines such as Harpers'
Bazaar, Mademoiselle, Rolling Stone, Skateboarding, Spin, The New York Times
Magazine, Vanity Fair and Vogue. A significant portion of the 1996 advertising
budget has been allocated to television advertising. The Company supplements
this advertising strategy with promotional activities, such as sponsoring
concert tours and organizing product giveaways at sporting events.
Pursuant to the CKJ License, the Company must contribute not less than 3%
of gross sales of Calvin Klein Jeans Label products, net of discounts, to CKI
for advertising such products. During 1995, the Company incurred approximately
$11.3 million for advertising expenditures to CKI under the CKJ License
Agreement (as defined below). The CKJ License Agreement provides that amounts
not spent in one year are to be spent in the next. A portion of the payment made
to CKI for advertising in 1995 remains available to support the advertising
strategy in 1996.
BACKLOG AND SEASONALITY
The Company generally receives orders for Calvin Klein Jeans Label products
approximately six to eight months prior to the time the products are delivered
to stores. The EDI system has significantly reduced the average order period,
the effect of which has been to decrease backlog in 1996 from comparable dates
in 1995 notwithstanding the growth in sales during this period. At April 25,
1996, the Company's backlog of orders for Calvin Klein Jeans Label products, all
of which are expected to be shipped during fiscal 1996, was approximately $123
million, as compared to approximately $128 million at April 6, 1995. Backlog as
of any given date may not be indicative of backlog at a subsequent date because
the backlog depends upon, among other things, the timing of the "market weeks"
during which a significant percentage of the Company's orders
27
<PAGE> 32
for Calvin Klein Jeans Label products are received. As a consequence, a
comparison of backlog from period to period is not necessarily meaningful and
may not be indicative of eventual shipments.
The Company's business is affected by general seasonal trends that are
characteristic of the apparel industry. In the Company's segment of the apparel
industry, sales typically are higher in the first and third quarters. Primarily
as a result of the significant growth that the Company experienced, recent
quarterly sales trends have not reflected this seasonality. In 1996 and future
years, assuming the Company does not obtain additional significant designer
brands or licenses, the Company expects that its sales may reflect greater
seasonal trends as its growth rate moderates. See "Management's Discussion and
Analysis of Financial Condition and Results of Operations -- Seasonality."
CKJ LICENSE
Under the terms of the CKJ License, as amended through April 22, 1996, the
Company (through its wholly-owned subsidiary, Calvin Klein Jeanswear Company)
has been granted an exclusive license to use the registered trademarks Calvin
Klein and CK/Calvin Klein (the "Trademarks") in the form of the logos Calvin
Klein Jeans, CK/Calvin Klein Jeans and CK/Calvin Klein Jeans Khakis in
connection with the manufacture, distribution and sale at wholesale of the
following three categories of womens (including juniors and petites), mens and
childrens garments: (1) jeans made of denim, corduroy, twill and sheeting, (2)
shorts, overalls, shirts, jackets, coats and dresses of a jeans-type
construction made of denim, corduroy, twill, sheeting and chambray and (3)
casual woven shirts made of denim, chambray and other fabrics and knit tops and
bottoms, including fleece, sweat shirts and T-shirts. CKI has retained the right
to produce, distribute, advertise and sell, and to authorize others to produce,
distribute, advertise and sell, pants, shirts, knit tops, knit bottoms and other
items that may be similar to the items listed in clauses (2) and (3) above,
provided that such items are not made of a jeans-type construction. An amendment
in February 1995 added khaki pants, skirts, shorts and related items for an
original term of ten years (the "Khaki Collection"), and a second amendment
added caps, to the list of garments covered by the CKJ License on a
non-exclusive season to season basis. The Company is required to produce at
least two collections per year, a spring collection and a fall collection, and
to submit merchandise plans and design and product specifications to CKI for its
review and approval. In addition, CKI has the right to examine products produced
under the CKJ License during manufacture as part of its quality control program.
The Company has exclusive use of the Trademarks for the collection, in the
United States, its territories and possessions, Canada, Mexico, Guatemala,
Belize, El Salvador, Honduras, Nicaragua, Costa Rica, Panama, certain
jurisdictions in the British West Indies, certain jurisdictions in the Greater
Antilles, Colombia, Ecuador, Brazil, Peru, Bolivia, Paraguay, Chile, Venezuela,
Guyana, Suriname and French Guyana. Additionally, upon termination of the
license between CKI and a third party licensee covering Argentina and Uruguay,
the Company has the right to add such countries to the list of jurisdictions
covered by the CKJ License. The CKJ License Agreement provides that CKI can
terminate the grant of the CKJ License with respect to Central and South America
if net sales are not at least $5 million and $10 million throughout Central and
South America, respectively, for any annual period beginning in 1997.
Additionally, CKI may terminate the grant of the CKJ License with respect to
South America if net sales are not at least $15 million for any period after
1998. CKI may also terminate the Company's right to sell the Khaki Collection if
the net sales of such items are less than $25 million in 1998.
The CKJ License has an initial term of forty years, expiring December 31,
2034, and is renewable for one additional ten-year period, commencing January 1,
2035 so long as the Company has net sales within the United States and Mexico of
at least $375 million and net sales within Canada of $35 million during the
twelve months ending June 30, 2034. The Company is required to make payments to
CKI equal to 3% of gross sales of Calvin Klein Jeans Label products (other than
the Khaki Collection), net of discounts, in exchange for advertising and
promotional support provided by CKI. The Company also must remit an aggregate of
$1.7 million to CKI, which amount will be used to advertise the Khaki Collection
in 1995 and 1996. In addition, in 1997, the Company must remit 5% of the gross
sales of the Khaki Collection to CKI for advertising and 3% of gross sales each
year thereafter. The Company is also required to make royalty payments to CKI
equal to 7% of the Company's net sales of Calvin Klein Jeans Label products. The
royalty payments for closeout articles (as defined) are 3 1/2% of net sales. The
CKJ License provides for minimum annual royalty payments for
28
<PAGE> 33
jurisdictions other than Canada which increase from $4.4 million in the first
year to $22 million (but not less than 75% of the fees earned during the
thirtieth year) in the fortieth year. During the renewal period such minimum
annual royalty payments increase to the greater of $27 million or 75% of the
fees earned in the fortieth year. In connection with obtaining the CKJ License
in August 1994, the Company paid $9.5 million for which it receives a credit
against the royalty payments of $12.5 million at the rate of $2.0 million per
year.
The CKJ License may be terminated by CKI upon the occurrence of certain
events, including but not limited to the following: (i) failure by the Company
to make payments due under the CKJ License, if such failure continues for a
period of ten days, (ii) decrease in the Company's consolidated net worth to
less than $10 million, (iii) increase in the Company's ratio of consolidated
debt/consolidated net worth to more than 5-to-1, (iv) default by CKJC in the
payment of debt exceeding $5 million, if such default remains uncured after the
relevant grace period and the creditor under such instrument exercises its
rights (whether termination, acceleration or otherwise), (v) default by the
Company in the payment of debt exceeding $5 million, if such default remains
uncured after the relevant grace period and the creditor under such instrument
exercises its rights (whether termination, acceleration or otherwise), (vi) any
other acceleration of debt of the Company exceeding $5 million, (vii) failure by
the Company to obtain minimum sales thresholds in the United States, Mexico and
Canada of at least $205 million in at least one of 2001, 2002, and 2003, $269
million in at least one of 2011, 2012 and 2013 or $344 million in at least one
of 2021, 2022 or 2023; provided that net sales for the subsequent annual period
or subsequent two annual periods does not represent (x) less than 75% of net
sales for the annual period in which such net sales threshold was met, and (y)
less than 90% of the minimum net sales threshold for the annual periods in any
such three year grouping, (viii) failure by the Company to perform any of its
other obligations under the CKJ License, if such failure remains uncured for
thirty days, or (ix) filing of a bankruptcy petition by or against the Company.
Notwithstanding the foregoing, if either the Company or CKJC enters into a
material debt instrument that provides for a default threshold of more than $5
million, the $5 million referred to above will be increased to such greater
amount.
The foregoing description of the CKJ License reflects certain amendments
thereto made on April 22, 1996. Among other things, these amendments (i)
modified the term of the license from a ten year initial term with four ten year
renewal terms to a forty year initial term with one ten year renewal term, (ii)
modified net sales thresholds, (iii) extended the term of the CKJ License for
the Khaki Collection from ten years to forty years, (iv) granted the Company the
non-exclusive right to sell caps for the term of the CKJ License, (v) expanded
the geographical territory for the Khaki Collection, (vi) added certain
territories in Central and South America to the License and (vii) liberalized
certain covenants. As consideration for such amendments, the Company issued
1,275,466 shares of non-voting common stock to CKI. Such shares are convertible
at any time upon notice to the Company into an equal number of shares of voting
Common Stock. CKI has agreed to hold such shares for at least 18 months,
although the Company has granted CKI certain registration rights that can be
exercised at any time after the shares are converted into Common Stock.
During the term of the CKJ License, only CKJC is prohibited from engaging
in any business other than the manufacture, distribution and sale of the
products produced under the CKJ License. Neither the Company nor any of its
other subsidiaries is subject to such prohibition. The Company regularly
evaluates the possibility of acquiring additional licenses and brand names.
LICENSING OPERATIONS
Prior to obtaining the CKJ License, the Company produced and distributed
sportswear under the Bill Blass and Rio labels and produced sportswear for
various retailers under private labels. As of January 1, 1996, the Company
licensed the Rio label and sublicensed the Bill Blass labels to Commerce
Clothing. The Company continues to market the products produced under the
license and sublicense and will receive revenues of approximately 4.5% of net
sales of products under the Rio license and 5% of net sales of products under
the Bill Blass sublicense. In addition, Commerce Clothing pays to the Company
amounts equivalent to those the Company must pay under the license agreement
between the Company and Bill Blass.
The Company has entered into a distribution agreement for Calvin Klein
Jeans Label products, other than khaki products and childrens apparel, for sale
in Canada. The Company also has entered into a distribution agreement for Calvin
Klein Jeans Label childrens apparel in the United States. Under the distribution
agreement for Canada, the Company will receive net revenues of approximately 7%
of net sales,
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<PAGE> 34
and under the distribution agreement for childrens apparel in the United States,
the Company will receive net revenues of approximately 4% of net sales. Such
amounts are in addition to a payment of 7% on net sales that the distributor
pays to the Company and that the Company remits to CKI pursuant to the CKJ
License. Under both agreements, the Company remains responsible for working with
CKI to develop the lines for presentation to the distributor, and the
distributor pays 3% of gross sales, net of discounts, as a fee for advertising,
which the Company remits to CKI. Entering into the distribution agreement with
respect to the childrens business will permit the Company to concentrate its
efforts on the production and marketing of products for adults. The Company is
negotiating distribution agreements with respect to khaki products and childrens
apparel for Canada. The Company also is currently negotiating distribution
agreements for its products in Mexico, Central America and South America.
COMPETITION
The apparel industry in the United States is highly-competitive. The
Company competes with numerous producers of sportswear, many of which are
significantly larger and have significantly greater financial resources than the
Company. The labels that the Company's products compete with include Guess?,
Lee, Levis, Liz Claiborne, Nautica, Polo/Ralph Lauren and Tommy Hilfiger, as
well as certain other designer and non-designer lines. The Company's ability to
compete depends, in substantial part, upon the endurance of the Calvin Klein
image and upon the ability of the Company to continue to offer high-quality
garments at competitive prices.
Although the CKJ License grants the Company the exclusive right to sell
certain types of sportswear under the Calvin Klein Jeans Labels, the terms of
the CKJ License permit CKI to sell, or to grant a license to sell, other types
of apparel, including certain types of sportswear, under a Calvin Klein
trademark that could be similar to, and competitive with, the Calvin Klein Jeans
Label products sold by the Company. See "-- CKJ License."
The Company's Bill Blass label products compete principally with premium
designer and non-designer sportswear products, and its Rio label products
compete primarily with non-designer sportswear.
IMPORT RESTRICTIONS
During 1995, the Company imported approximately 20% of the Calvin Klein
Jeans Label products that it sold. Such imports are subject to bilateral textile
agreements between the United States and a number of foreign countries. Such
agreements, which have been negotiated under the framework established by the
Arrangement Regarding International Trade in Textiles, allow the United States
to impose restraints at any time on the importation of categories of merchandise
that, under the terms of the agreements, are not currently subject to specified
limits. The Company does not own the right to import finished garments into the
United States, but it relies on its contract manufacturers and its agents to
obtain the necessary quotas. In the past, to the extent that necessary import
quotas have not been available with respect to a particular source of supply,
the Company has been able to find an alternative source of supply. Accordingly,
the availability of quotas has not had a material effect upon the Company's
business, financial condition or results of operations. The Company's continued
ability to source products that it imports may be adversely affected by a
significant decrease in available import quotas as well as any additional
bilateral agreements and unilateral trade restrictions.
EMPLOYEES
As of March 31, 1996, the Company and its subsidiaries employed
approximately 930 persons. Approximately 600 of such employees were covered by
collective bargaining agreements at the Company's New Bedford, Abbeville and
Nesquehoning facilities. The agreements for the Company's New Bedford and
Nesquehoning facilities will expire on May 31, 1997, and the agreement with
respect to the Abbeville facility will expire on June 30, 1997. The Company has
not experienced any work stoppage and management believes that its relations
with its employees are good.
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<PAGE> 35
PROPERTIES
The following table sets forth the Company's distribution and manufacturing
facilities as of December 31, 1995:
<TABLE>
<CAPTION>
APPROXIMATE
FLOOR SPACE
LOCATION USE (SQ. FT.)
- ---------------- ------------------------------------------------------- -----------
<S> <C> <C>
New Bedford, MA Warehousing and distribution (leased) 370,000
Secaucus, NJ Warehousing and distribution (operated under contract) 200,000
Abbeville, SC Manufacturing (owned) 40,000
Nesquehoning, PA Manufacturing (owned) 56,000
</TABLE>
The Company acquired its two manufacturing facilities located in Abbeville
and Nesquehoning in connection with obtaining the CKJ License. Since that time,
the Company has been able to improve operational efficiencies and reduce costs
at these facilities. The Company plans to lease a distribution facility in North
Arlington, New Jersey during 1997, which will contain approximately 375,000
square feet.
In addition to the facilities described above, the Company leases 42,000
square feet for its executive offices in New York, New York and rents an entire
floor for a showroom for its Calvin Klein Jeans Label products and for offices
in CKI's headquarters building in New York, New York.
LEGAL PROCEEDINGS
On October 15, 1990, an amended complaint (the "Complaint") was filed
against Rio Sportswear, a subsidiary of the Company, and certain other
defendants in the United States District Court for the Southern District of New
York under the caption Golden Trade, S.r.L. et. al. v. Jordache Enterprises,
Inc. et. al. The Complaint alleges, among other things, that the Company
infringed a patent held by Greater Texas and Golden Trade S.r.L. relating to
acid wash processes used in the manufacture of garments having a random fade
effect. Similar suits are pending against the major manufacturers of such jeans
wear. The Complaint seeks damages against all the defendants in unspecified
amounts. On November 27, 1990, the Company filed an answer denying the material
allegations of the Complaint and asserting affirmative defenses and
counterclaims. On December 1, 1995, a revised opinion and order was issued by
the court in which, among other things, the court granted certain of the
defendants' motions for summary judgment, and denied others of such motions. On
January 31, 1996, the case was assigned to a new judge. No trial date has been
set. Rio Sportswear had received a proposal from plaintiffs offering to settle
the litigation, which was subsequently withdrawn, and Rio Sportswear made a
counterproposal, which was also withdrawn. There can be no assurance that
plaintiffs will make or consider further settlement proposals with respect to
the litigation. If the parties are unable to reach a settlement, Rio Sportswear
intends to contest the action vigorously. The outcome of litigation is
inherently unpredictable and, in the event that no settlement were reached and
Rio Sportswear were found to have infringed the patent in suit, damages and
attorneys' fees could be assessed against Rio Sportswear. No assurance can be
given that such damages and fees would not have a material adverse effect upon
the Company's results of operations in the period in which the judgment is
rendered; however, the Company believes that any such damages and fees would not
have a material adverse effect upon the Company's business or financial
condition.
The Company is involved from time to time in various routine legal and
administrative proceedings and threatened legal and administrative proceedings
incidental to the ordinary course of its business. The Company has been active
in pursuing actions against counterfeiters and diverters of its Calvin Klein
Jeans Label products. In the opinion of the Company's management, the resolution
of such matters will not have a material adverse effect on its business,
financial condition or results of operations.
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<PAGE> 36
MANAGEMENT
DIRECTORS AND EXECUTIVE OFFICERS OF THE COMPANY
The following table sets forth certain information as of March 1, 1996
concerning the directors and executive officers of the Company.
<TABLE>
<CAPTION>
NAME AGE POSITION
------------------------ --- ----------------------------------------------------
<S> <C> <C>
Merril M. Halpern 61 Chairman of the Board
Arnold H. Simon 50 Chief Executive Officer, President and Director
Debra Simon 40 Executive Vice President and Director
A. Lawrence Fagan 66 Director
Maurice Dickson 51 Executive Vice President and Chief Financial Officer
Daniel J. Gladstone 39 Executive Vice President and President of Calvin
Klein Jeanswear Company
David Fidlon 53 Senior Vice President, Controller and Chief
Accounting Officer
John J. Jones 29 Vice President, General Counsel and Secretary
</TABLE>
Merril M. Halpern has been a director of the Company since March 1994.
Since October 1984, Mr. Halpern has served as Chairman of the Board of
Charterhouse Group International, Inc., a privately-owned investment firm
("Charterhouse Group"). From 1973 to October 1984, Mr. Halpern served as
President and Chief Executive Officer of Charterhouse Group. Mr. Halpern is also
a director of Dreyer's Grand Ice Cream, Inc., Del Monte Corporation, Insignia
Financial Group, Inc., Charter Power Systems, Inc. and Microwave Power Devices,
Inc.
Arnold H. Simon has been President of Rio Sportswear since 1984 and Chief
Executive Officer, President and a director of the Company since it was founded.
Mr. Simon has an aggregate of 28 years of experience in the apparel industry.
Mr. Simon is married to Debra Simon.
Debra Simon has been Executive Vice President and a director of the Company
since March 1994 and Vice President of Rio Sportswear since 1985. Ms. Simon has
over 17 years of experience in the sale and merchandising of jeans and
sportswear. Ms. Simon is married to Arnold H. Simon.
A. Lawrence Fagan has been a director of the Company since March 1994. Mr.
Fagan has been Executive Vice President and Chief Operating Officer of
Charterhouse Group since 1985 and was Senior Vice President of Charterhouse
Group from 1983 to 1985. For 25 years prior to joining Charterhouse, he held
various corporate executive and investment banking positions. He is a director
of Microwave Power Devices, Inc.
Maurice Dickson has been Executive Vice President and Chief Financial
Officer of the Company since September 1, 1995. Prior to that time, from 1981 to
1995, Mr. Dickson served as Chief Financial Officer of Ellen Tracy, Inc. Mr.
Dickson has an aggregate of 27 years of experience in the apparel industry.
Daniel J. Gladstone has been Executive Vice President of the Company since
April 1996 and President of Calvin Klein Jeanswear Company since July 1994.
Prior to that time, from 1990 to July 1994, he served as President of CKI's
Women's Sportswear Division and CKI's Women's Division and from 1992 to July
1994 he also served as President of CKI's Men's Division.
David Fidlon has been Senior Vice President and Controller of the Company
since June 1995 and was named Chief Accounting Officer on January 22, 1996.
Prior to joining the Company, Mr. Fidlon served as Director of Compliance and
Financial Reporting for Ellen Tracy, Inc. from June 1994 to June 1995, and as
Senior Manager and Audit Compliance Manager at Weidenbaum Ryder & Co.
Accountants & Auditors from 1989 to June 1994.
John J. Jones has served as Vice President, General Counsel and Corporate
Secretary of the Company since January 1996. Prior to that time, Mr. Jones was
engaged in the private practice of law at the law firm of Skadden, Arps, Slate,
Meagher & Flom beginning in 1991.
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<PAGE> 37
BOARD OF DIRECTORS
Shortly following the consummation of the Offerings, the Company intends to
appoint at least two directors who are neither officers nor employees of the
Company. The Company has three classes of directors, which are elected for
staggered terms of three years. The initial terms of each class expire at the
annual meeting of stockholders in 1997 (Class I), 1998 (Class II) and 1999
(Class III), respectively. Mr. Fagan is a Class I director, Ms. Simon is a Class
II director and Mr. Simon and Mr. Halpern are Class III directors. Each director
holds office until his or her successor is duly elected and qualified or until
his or her resignation or removal, if earlier.
Upon the appointment of the additional directors, the Board of Directors
will establish an Audit Committee and a Compensation Committee. The Audit
Committee will be responsible for recommending to the Board of Directors the
engagement of the independent auditors of the Company and reviewing with the
independent auditors the scope and results of the audits, the internal
accounting controls of the Company, audit practices and the professional
services furnished by the independent auditors. The Compensation Committee will
be responsible for reviewing and approving all compensation arrangements for
officers of the Company, and will also be responsible for administering the
Stock Plan (as defined below).
The Delaware General Corporation Law provides that a Company may indemnify
its directors and officers as to certain liabilities. The Company's Certificate
of Incorporation and By-laws provide for the indemnification of its directors
and officers to the fullest extent permitted by law, and the Company intends to
enter into separate indemnification agreements with each of its directors and
officers to effectuate these provisions and to purchase directors and officers
liability insurance. The effect of such provisions is to indemnify, to the
fullest extent permitted by law, the directors and officers of the Company
against all costs, expenses and liabilities incurred by them in connection with
any action, suit or proceeding in which they are involved by reason of their
affiliation with the Company.
CERTAIN OTHER SIGNIFICANT EMPLOYEES
The following persons make significant business contributions to the
Company:
Guy Kinberg has been Vice President of Production since April 1995. Prior
to that time, from September 1992 to April 1995, he served as Senior Vice
President of Manufacturing for Pepe Clothing Inc., and from January 1991 to
September 1992, as President of Worldwide Sourcing, Inc.
Joseph Purritano has served as Vice President of the
Women's/Juniors/Petites Division since 1994. From 1990 to 1994, Mr. Purritano
was Vice President of the Women's Division of Rio Sportswear. From 1984 to 1990,
he was National Sales Manager of Rio Sportswear. Mr. Purritano is Ms. Simon's
brother.
Art Krulish has been Vice President of Management Information Systems since
June 1995. Prior to that time Mr. Krulish worked as Corporate Vice President,
Information Systems for Liz Claiborne, Inc. from 1987 until June 1995.
George Criscione has been Vice President of Sales for the Men's Division
since October 1995. Prior to that date, Mr. Criscione was a Sales Account
Representative for Calvin Klein Jeanswear Inc. from May 1995 until October 1995.
Mr. Criscione was a Sales Account Representative for Rio Sportswear, Inc. from
August 1993 until May 1995. Prior to that time, Mr. Criscione worked as a
Terminal Manager for Roadway Package Service from April 1990 until July 1993.
33
<PAGE> 38
EXECUTIVE COMPENSATION
The following table sets forth certain compensation awarded to, earned by
or paid to the Chief Executive Officer and the four most highly paid executive
officers other than the Chief Executive Officer, who served as executive
officers of the Company as of December 31, 1995 for services rendered in all
capacities to the Company and its subsidiaries during 1995.
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
ANNUAL COMPENSATION(1)
----------------------------------
YEAR SALARY BONUS
---- ---------- ----------
<S> <C> <C> <C>
Arnold H. Simon........................................... 1995 $1,000,000 $3,350,000
President and Chief Executive 1994 1,544,958 --
Officer 1993 2,764,769 --
Maurice Dickson(2)........................................ 1995 300,000 50,000
Executive Vice President and 1994
Chief Financial Officer 1993
Daniel J. Gladstone....................................... 1995 350,000 1,208,862
Executive Vice President and 1994 141,475 249,185
President, CKJC 1993
Debra Simon............................................... 1995 400,000 50,000
Executive Vice President 1994 341,964
1993 587,886
David Fidlon(3)........................................... 1995 150,000
Senior Vice President, Controller 1994
and Chief Accounting Officer 1993
</TABLE>
- ---------------
(1) While each of the five named individuals received perquisites or other
personal benefits in the years shown, in accordance with applicable
regulations, the value of these benefits is not indicated since they did not
exceed in the aggregate the lesser of $50,000 or 10% of the individual's
salary and bonus in any year.
(2) Mr. Dickson has been employed with the Company since September 1995. The
amounts shown in these columns are the annual salary and bonus that are set
forth in Mr. Dickson's employment agreement with the Company. For 1995, Mr.
Dickson's total compensation was $99,230.
(3) Mr. Fidlon has been employed by the Company since June 1995. The amounts
shown in these columns are the annual salary and bonus that the Company has
agreed to pay to Mr. Fidlon. For 1995, Mr. Fidlon's total compensation was
$81,693.
EMPLOYMENT AGREEMENTS
The Company has entered into an employment agreement, effective upon the
closing of the Offerings, with Arnold H. Simon (the "Simon Employment
Agreement"). The Simon Employment Agreement, which expires on December 31, 1998,
provides for Mr. Simon to be President and Chief Executive Officer of the
Company at an annual base salary of not less than $1.5 million. The Simon
Employment Agreement also provides that he will receive an annual cash bonus in
1996 equal to the difference between (i) 2% of all Adjusted EBITDA (as defined)
if such 1996 Adjusted EBITDA is between $50 million and $60 million or 3% of all
Adjusted EBITDA if it exceeds $60 million and (ii) $2 million. With respect to
1997 and 1998, the Simon Employment Agreement provides that he will receive an
annual cash bonus based on specified increases in Adjusted EBITDA ranging from
2 1/2% to 4% of all Adjusted EBITDA in the applicable year. In addition, Mr.
Simon will be entitled to participate in the plans and programs maintained by
the Company for its senior executives.
The Simon Employment Agreement may be terminated at any time by Mr. Simon
for "Good Reason," which shall be deemed to exist if, without his consent, among
other things, (i) a majority of Additional Board Members (as defined) shall
consist of persons whose election or appointment was not approved in writing by
Mr. Simon (other than those persons who are members as of the date of the
agreement); (ii) there shall occur
34
<PAGE> 39
(A) any liquidation of the Company or of CKJC, or the sale of substantially all
of the assets of the Company and CKJC taken as whole or (B) any merger,
consolidation or other business combination of the Company or CKJC (each a
"Transaction") or any combination of such Transactions, other than a Transaction
immediately after which the stockholders of the Company who are stockholders
immediately prior to the Transaction continue to own beneficially, directly or
indirectly, more than 80% of the then outstanding voting securities of the
Company or (iii) any person or group (as such term is defined under the
Securities Exchange Act of 1934), or group of related persons (other than
Charterhouse) which is not an affiliate of the Company currently shall
beneficially own, directly or indirectly, more than 50% of the then outstanding
voting stock of the Company.
Upon termination by Mr. Simon for Good Reason or termination by the Company
without Cause (as defined), Mr. Simon will be entitled, in addition to any
accrued base salary and annual bonus earned but not yet paid, a lump sum payment
in an amount equal to the sum of (i) Mr. Simon's highest annual base salary
during the term multiplied by 2.99 (299%) and (ii) Mr. Simon's average annual
bonus paid or payable with respect to then immediately preceding three fiscal
years multiplied by 2.99 (299%); provided that the maximum amount payable shall
not exceed $9 million in the aggregate. Mr. Simon has the obligation to notify
the Company in writing of the reason for his proposed termination for Good
Reason, and the Company will have the right to correct certain acts or failures
described in such notice.
The Simon Employment Agreement also provides that the Company may terminate
Mr. Simon for Cause, at which time he will be entitled, among other things, to
his then existing base salary through the date of termination and any annual
bonus for the prior fiscal year not yet paid together with the pro rata portion
of the annual bonus for the calendar year in which termination occurs through
the date of termination. Mr. Simon has also agreed that if he voluntarily
terminates his employment other than for Good Reason, that he will not compete
with the Company for the lesser of the remaining term of the agreement or 24
months following the date of termination.
Rio Sportswear and CKJC entered into an employment agreement with Maurice
Dickson (the "Dickson Employment Agreement") effective September 1, 1995. The
Dickson Employment Agreement, which expires on August 15, 1997, unless renewed,
provides for Mr. Dickson to be employed as Chief Financial Officer of the
Company and, commencing on January 1, 1996, to receive an annual base salary of
$400,000, an annual bonus based upon the Company's performance and certain other
benefits. The Dickson Employment Agreement will automatically renew for
additional one year periods unless the Company gives written notice of
non-renewal at least five months prior to the renewal date.
On August 5, 1994, CKJC entered into an employment agreement with Daniel J.
Gladstone (the "Gladstone Employment Agreement"). The Gladstone Employment
Agreement, which expires on December 31, 1997, unless renewed, provides for Mr.
Gladstone to be employed as President of CKJC and, commencing on January 1,
1996, to receive an annual base salary of $450,000, an annual bonus based on the
Company's performance and certain other benefits.
On October 9, 1995, Rio Sportswear and CKJC entered into an employment
agreement with David Fidlon (the "Fidlon Employment Agreement"). The Fidlon
Employment Agreement, which expires on June 12, 1997, provides for Mr. Fidlon to
be employed as Senior Vice President and Controller of the Company and,
commencing on January 1, 1996, to receive an annual base salary of $225,000,
annual bonus based upon the Company's performance and certain other benefits.
The Fidlon Employment Agreement will automatically renew for additional one year
periods unless the Company gives written notice of non-renewal at least five
months prior to the renewal date.
The Company has an employment agreement with Ms. Simon, effective upon the
Offerings, which expires on December 31, 1997, and provides for Ms. Simon to be
employed as Executive Vice President at an annual salary of $400,000 and a bonus
at the discretion of the Company. Ms. Simon's agreement will automatically renew
for additional one year periods unless the Company gives written notice of
non-renewal by the August 31 prior to the renewal year.
35
<PAGE> 40
The Company has an employment with Mr. Kinberg, effective upon the
Offerings, which terminates on May 9, 1998, and provides for an annual salary of
$350,000 and any bonus amount above his salary at the discretion of the Company.
Mr. Kinberg's agreement will automatically renew for additional one year periods
unless the Company gives written notice of non-renewal by the December 9 prior
to the renewal year.
The Company has an employment agreement with Mr. Jones, effective upon the
Offerings, which terminates on January 29, 1998, and provides for an annual
salary of $175,000 and a bonus at the discretion of the Company. Mr. Jones'
agreement will automatically renew for additional one year periods unless the
Company gives written notice of non-renewal by the August 29 prior to the
renewal year.
STOCK OPTION PLAN
The Company's Board of Directors and stockholder have approved the Designer
Holdings Ltd. 1996 Stock Option and Incentive Plan (the "Stock Plan"). The
description in this Prospectus of the principal terms of the Stock Plan is a
summary, does not purport to be complete, and is qualified in its entirety by
the full text of the Stock Plan, a copy of which has been filed as an exhibit to
the Registration Statement of which this Prospectus is a part.
Pursuant to the Stock Plan, executive officers, key employees and
consultants of the Company are eligible to receive awards of stock options,
stock appreciation rights, limited stock appreciation rights and restricted
stock. Options granted under the Stock Plan may be "incentive stock options"
("ISOs"), within the meaning of Section 422 of the Internal Revenue Code of
1986, as amended (the "Code"), or nonqualified stock options ("NQSOs"). Stock
appreciation rights ("SARs") may be granted simultaneously with the grant of an
option or (in the case of NQSOs), at any time during its term. Restricted stock
may be granted in addition to or in lieu of any other award granted under the
Stock Plan.
Under the Stock Plan, the Company has reserved 2,363,200 shares of Common
Stock for issuance of awards under the Stock Plan (subject to antidilution and
similar adjustments). Approximately 1,500,000 shares subject to options that are
expected to be granted at the initial public offering price, including options
to purchase 250,000, 200,000 and 150,000 shares to Messrs. Dickson, Gladstone
and Fidlon, respectively.
The Stock Plan will be administered by the Compensation Committee (the
"Committee") appointed by the Board of Directors of the Company (the "Board").
Subject to the provisions of the Stock Plan, the Committee will determine the
type of award, when and to whom awards will be granted, the number of shares
covered by each award and the terms, provisions and kind of consideration
payable (if any), with respect to awards. The Committee may interpret the Plan
and may at any time adopt such rules and regulations for the Stock Plan as it
deems advisable. The Committee may, additionally, cancel or suspend awards.
In determining the persons to whom awards shall be granted and the number
of shares covered by each award the Committee shall take into account the duties
of the respective persons, their present and potential contribution to the
success of the Company and such other factors as the Committee shall deem
relevant in connection with accomplishing the purposes of the Stock Plan.
An option may be granted on such terms and conditions as the Committee may
approve, and generally may be exercised for a period of up to 10 years from the
date of grant. Generally, ISOs will be granted with an exercise price equal to
the "Fair Market Value" (as defined in the Stock Plan) on the date of grant. In
the case of ISOs, certain limitations will apply with respect to the aggregate
value of option shares which can become exercisable for the first time during
any one calendar year, and certain additional limitations will apply to ISOs
granted to "Ten Percent Stockholders" (as defined in the Stock Plan). The
Committee may provide for the payment of the option price in cash, by delivery
of other Common Stock having a Fair Market Value equal to such option price, by
a combination thereof or by such other manner as the Committee shall determine,
including a cashless exercise procedure through a broker-dealer. The Committee
may, in its discretion, make a loan to a grantee in an amount sufficient to pay
the option price payable by such grantee. Options granted under the Stock Plan
will become exercisable at such times and under such conditions as the Committee
shall determine, subject to acceleration of the exercisability of options in the
event of, among other
36
<PAGE> 41
things, a "Change in Control" (as defined in the Stock Plan). Generally, stock
options may not be exercised unless the grantee is employed by the Company.
The Stock Plan also permits the Committee to grant SARs with respect to all
or any portion of the shares of Common Stock covered by options. SARs will be
exercisable only at such time or times and only to the extent that the related
option is exercisable and, if such option is an ISO, only if the Fair Market
Value per share of Common Stock exceeds the ISO purchase price.
Upon exercise of an SAR, a grantee will receive for each share for which a
SAR is exercised, an amount in cash or Common Stock, as determined by the
Committee, equal to the excess, if any of (i) the Fair Market Value of a share
of Common Stock on the date the SAR is exercised over (2) the exercise price per
share of the option to which the SAR relates.
When a SAR is exercised, the option to which it relates will cease to be
exercisable to the extent of the number of shares with respect to which the SAR
is exercised, but will be deemed to have been exercised for purposes of
determining the number of shares available for the future grant of awards under
the Stock Plan.
The Stock Plan further provides for the granting of restricted stock
awards, which are awards of Common Stock which may not be disposed of, except by
will or the laws of descent and distribution, for such period as the Committee
determines (the "restricted period"). The Committee may also impose such other
conditions and restrictions, if any, on the shares as it deems appropriate,
including the satisfaction of performance criteria. All restrictions affecting
the awarded shares lapse in the event of a Change in Control.
During the restricted period, the grantee will be entitled to receive
dividends with respect to, and to vote the shares awarded to him. If, during the
restricted period, the grantee's service with the Company terminates for any
reason, any shares remaining subject to restrictions will be forfeited. The
Committee has the authority to cancel any or all outstanding restrictions prior
to the end of the restricted period, including the cancellation of restrictions
in connection with certain types of termination of service.
The Board may at any time and from time to time suspend, amend, modify or
terminate the Stock Plan; provided however, that, to the extent required by Rule
16b-3 promulgated under the Exchange Act or any other law, regulation or stock
exchange rule, no such change shall be effective without the requisite approval
of the Company's stockholders. In addition, no such change may adversely affect
any award previously granted, except with the written consent of the grantee.
No awards may be granted under the Stock Plan after the tenth anniversary
of the approval of the Stock Plan.
37
<PAGE> 42
CERTAIN TRANSACTIONS
On August 4, 1994, Mr. Simon contributed approximately 83% of his interests
in the Predecessor Companies to the Company in exchange for a 50% beneficial
equity interest in the Company through his interest in New Rio, L.L.C., the
Selling Stockholder. Mr. Simon also granted the Company an option to acquire his
remaining approximately 17% interest in the Predecessor Companies for $4.0
million. Mr. Simon's interests in the Predecessor Companies were contributed in
connection with the transaction in which Mr. Simon and Charterhouse (including
Chef Nominees Limited) each received a 50% equity interest in the Selling
Stockholder. Charterhouse contributed $20 million in cash in exchange for its
interest. Mr. Simon's contribution of his equity interest in the Predecessor
Companies was deemed by Mr. Simon and Charterhouse to be equal in value to
Charterhouse's cash contribution. In April 1995, the Company exercised its
option, and purchased Mr. Simon's remaining interests for approximately $1.3
million in cash and the cancellation of notes receivable from Mr. Simon on which
approximately $2.7 million principal and accrued interest was outstanding.
In 1994, the Company loaned an aggregate of $2.4 million to Mr. Simon and
Ms. Simon, including $850,000 in connection with the transactions described
above. Such loans, evidenced by promissory notes, bore interest at a fluctuating
annual rate equal to the rate publicly announced by Chemical Bank in New York as
its reference rate plus 3% per annum. The loans were secured by the retained 17%
interest in the Predecessor Companies. In April 1995, upon the exercise by the
Company of its option to acquire such interest, the notes were cancelled.
In 1994, Charterhouse loaned $45.2 million to the Company and received
notes payable in an equal amount. The notes payable to Charterhouse bore
interest at a fluctuating annual rate equal to the rate publicly announced by
Chemical Bank in New York as its reference rate plus 3% per annum. The notes
were repaid in full by the Company with proceeds of the Term Loan and the
Subordinated Loan.
In connection with the repurchase of Mr. Huang's interests in the
Predecessor Companies in August 1994, the Company may be liable for additional
purchase price of approximately $1.1 million upon closing of the Offerings. See
"The Company," "Use of Proceeds" and Note 3 to the audited consolidated
financial statements of the Company included elsewhere in this Prospectus.
REGISTRATION RIGHTS AGREEMENTS
Prior to the completion of the Offerings, the Company intends to enter into
a registration rights agreement with the Selling Stockholder and CKI (the
"Registration Rights Agreement") providing for certain registration rights with
respect to shares of Common Stock owned by the Selling Stockholder and CKI.
Under the Registration Rights Agreement, through their respective ownership
interests in the Selling Stockholder, each of Charterhouse and Mr. Simon will
have independent rights to request not less than two demand registrations,
although under certain circumstances, the Company may be required to effect
additional demand registrations in connection with the shares of Common Stock
attributable to Charterhouse and Mr. Simon. The Selling Stockholder will also
have the right to require the Company to include shares of Common Stock held by
it on behalf of the holders of ownership interests in the Selling Stockholder in
certain other registrations of the Company's securities initiated by the Company
on its own behalf or on behalf of any other stockholder of the Company. Holders
of ownership interests in the Selling Stockholder may exercise such rights
independently but only through the Selling Stockholder. After conversion of its
non-voting common stock into Common Stock, CKI will also have the right to
include its shares in such other registrations. In addition, CKI may pledge such
shares to lenders and after expiration of the 180-day "lock-up" period (see
"Underwriting"), such lenders shall have a one-time demand right following
foreclosure on such shares; provided that such lenders in good faith shall first
have taken substantial steps to pursue and obtain the collection of the
obligations owed to them from CKI. Any such request to have Common Stock
registered under the Registration Rights Agreement may be delayed by the Company
for up to 120 days if the Company determines in its reasonable judgment that the
registration and offering would interfere with any material financing,
acquisition, corporate reorganization or other material corporate transaction or
development involving the Company. All fees, costs and expenses of any
registration under the Registration Rights Agreement, other than underwriting
discounts and any other expenses attributable to Common Stock sold by the
Selling Stockholder or CKI, will be paid by the Company.
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<PAGE> 43
PRINCIPAL AND SELLING STOCKHOLDERS
The following table sets forth as of the date hereof the total number of
shares of Common Stock of the Company beneficially owned, and the percent so
owned, by (i) each director of the Company who is a beneficial owner of any such
shares of Common Stock, (ii) each person who has an ownership interest in the
Selling Stockholder, (iii) each person known to the Company to be the beneficial
owner of more than five percent of the outstanding Common Stock of the Company,
(iv) each of the executive officers listed in the Summary Compensation Table and
(v) all directors and officers as a group. The number of shares owned are those
"beneficially owned," as determined under the rules of the Securities and
Exchange Commission, and such information is not necessarily indicative of
beneficial ownership for any other purpose. The Selling Stockholder is a limited
liability company and is the record owner of the shares of Common Stock
described below. Its operative agreement allows the holders of ownership
interests therein generally to cause the Selling Stockholder to exercise voting
and disposition rights as directed by each such holder independently with
respect to such holder's allocable percentage of the shares of Common Stock of
the Company. Therefore, such persons may be deemed to be the beneficial owners
of shares of Common Stock of the Company.
<TABLE>
<CAPTION>
SHARES BENEFICIALLY SHARES BENEFICIALLY
OWNED OWNED
BEFORE THE OFFERINGS SHARES AFTER THE OFFERINGS
------------------------ BEING ------------------------
NAME OF BENEFICIAL OWNER NUMBER PERCENT(1) OFFERED NUMBER PERCENT(1)
- ------------------------------------- ---------- ---------- --------- ---------- ----------
<S> <C> <C> <C> <C> <C>
NEW RIO, L.L.C.:
Charterhouse Equity
Partners II, L.P. ............ 12,092,700 47.4% 3,421,000 8,671,700 27.5%
535 Madison Avenue
New York, New York 10022
Arnold H. Simon................. 11,171,813 43.8 2,305,000 8,866,813(2) 28.1
1385 Broadway
New York, New York 10018
Martin L. Berman(3)............. 212,046 * 59,750 152,296 *
Steven E. Berman................ 79,972 * 22,500 57,472 *
Phyllis West Berman............. 77,064 * 21,900 55,164 *
Trust for the benefit of Mark K.
Berman and Allison A.
Berman........................ 236,765 * 66,850 169,915 *
Michael A. Covino............... 339,274 1.3 96,000 243,274 *
Chef Nominees Limited........... 24,234 * 7,000 17,234 *
---------- ----- --------- ---------- -----
TOTAL...................... 24,233,868 95.0% 6,000,000 18,233,868 57.9
Calvin Klein, Inc.(1)................ 1,275,466 5.0 1,275,466 4.0
205 West 39th Street
New York, New York
Merril M. Halpern(4)................. -- --
Debra Simon(5)....................... -- --
A. Lawrence Fagan(4)................. -- --
Maurice Dickson...................... -- --
Daniel J. Gladstone.................. -- --
David Fidlon......................... -- --
All current officers and directors as
a group (7 persons)(4)............. 11,171,813 43.8% 8,866,813 28.1%
</TABLE>
- ------------------------
* Less than one percent.
(1) Assumes conversion of 1,275,466 shares of non-voting common stock into
1,275,466 shares of Common Stock.
(2) Includes 318,867 shares owned by AS Enterprises LLC, a company owned by Mr.
and Ms. Simon.
(3) Formerly a director of the Company.
(4) Messrs. Halpern and Fagan are executive officers of Charterhouse Group
International, Inc., which indirectly controls Charterhouse. Messrs. Halpern
and Fagan may be deemed to own beneficially the shares of Common Stock
beneficially owned by Charterhouse. Messrs. Halpern and Fagan disclaim all
such beneficial ownership.
(5) Ms. Simon is Mr. Simon's wife. See Mr. Simon's beneficial ownership above.
39
<PAGE> 44
DESCRIPTION OF CAPITAL STOCK
GENERAL
The Company's Certificate of Incorporation provides that the Company may
issue up to 75,000,000 shares of Common Stock, 1,300,000 shares of non-voting
common stock and 15,000,000 shares of Preferred Stock.
COMMON STOCK
Holders of Common Stock are entitled to one vote for each share held of
record on all matters to be submitted to a vote of the stockholders, and do not
have preemptive rights. Subject to preferences that may be applicable to any
outstanding shares of Preferred Stock, holders of Common Stock are entitled to
receive ratably such dividends, if any, as may be declared from time to time by
the Board of Directors of the Company out of funds legally available therefor.
See "Dividend Policy." All outstanding shares of Common Stock are, and the
shares to be sold by the Company in the Offerings when issued and paid for will
be, fully paid and nonassessable. In the event of any liquidation, dissolution
or winding-up of the affairs of the Company, holders of Common Stock will be
entitled to share ratably in the assets of the Company remaining after payment
or provision for payment of all of the Company's debts and obligations and
liquidation payments to holders of outstanding shares of Preferred Stock.
Holders of non-voting common stock are not entitled to any voting rights
except as otherwise required by law, and do not have any preemptive rights. In
all other respects, the non-voting common stock is identical to the Common
Stock. The shares of non-voting common stock are convertible at any time, on a
one-for-one basis, into shares of Common Stock. Outstanding shares of non-voting
common stock will be convertible into an equal number of shares of Common Stock
at any time at the option of the Company prior to any vote of the non-voting
common stock required by law.
PREFERRED STOCK
The Board of Directors, without further stockholder authorization, is
authorized to issue shares of Preferred Stock in one or more series and to
determine and fix the rights, preferences and privileges of each series,
including dividend rights and preferences over dividends on the Common Stock and
one or more series of the Preferred Stock, conversion rights, voting rights (in
addition to those provided by law), redemption rights and the terms of any
sinking fund therefor, and rights upon liquidation, dissolution or winding up,
including preferences over the Common Stock and one or more series of the
Preferred Stock. Although the Company has no present plans to issue any shares
of Preferred Stock following the consummation of the Offerings, the issuance of
shares of Preferred Stock, or the issuance of rights to purchase such shares,
may have the effect of delaying, deferring or preventing a change in control of
the Company or an unsolicited acquisition proposal.
CERTAIN PROVISIONS OF THE COMPANY'S CERTIFICATE OF INCORPORATION, BY-LAWS AND
DELAWARE LAW
Classified Board of Directors. The Certificate of Incorporation of the
Company provides for the Board of Directors to be divided into three classes of
directors, as nearly equal in number as is reasonably possible, serving
staggered terms so that directors' initial terms will expire either at the 1997,
1998 or 1999 annual meeting of the stockholders. Starting with the 1997 annual
meeting of the stockholders, one class of directors will be elected each year
for a three-year term.
The Company believes that a classified board of directors will help to
assure the continuity and stability of the Board of Directors and the Company's
business strategies and policies as determined by the Board of Directors, since
a majority of the directors at any given time will have had prior experience as
directors of the Company. The Company believes that this, in turn, will permit
the Board of Directors to more effectively represent the interest of
stockholders. With a classified board of directors, at least two annual meetings
of stockholders, instead of one, will generally be required to effect a change
in the majority of the Board of Directors. As a result, a provision relating to
a classified Board of Directors may discourage proxy contests for
40
<PAGE> 45
the election of directors or purchases of a substantial block of the Common
Stock because its provisions could operate to prevent obtaining control of the
Board of Directors in a relatively short period of time. The classification
provision could also have the effect of discouraging a third party from making a
tender offer or otherwise attempting to obtain control of the Company. Under the
Delaware General Corporation Law (the "DGCL"), a director on a classified board
may be removed by the stockholders of the corporation only for cause.
Advance Notice Provisions for Stockholder Nominations of Directors and
Stockholder Proposals. The By-Laws of the Company establish an advance notice
procedure with regard to the nomination, other than by or at the direction of
the Board of Directors or a committee thereof, of candidates for election as
directors (the "Nomination Procedure") and with regard to other matters to be
brought by stockholders before an annual meeting of stockholders of the Company
(the "Business Procedure").
The Nomination Procedure requires that a stockholder give prior written
notice, in proper form, of a planned nomination for the Board of Directors to
the Secretary of the Company. The requirements as to the form and timing of that
notice are specified in the By-Laws of the Company. If the Chairman of the Board
of Directors determines that a person was not nominated in accordance with the
Nomination Procedure, such person will not be eligible for election as a
director.
Under the Business Procedure, a stockholder seeking to have any business
conducted at an annual meeting must give prior written notice, in proper form,
to the Secretary of the Company. The requirements as to the form and timing of
that notice are specified in the By-Laws. If the Chairman of the Board of
Directors determines that the other business was not properly brought before
such meeting in accordance with the Business Procedure, such business will not
be conducted at such meeting.
Although the By-Laws of the Company do not give the Board of Directors any
power to approve or disapprove stockholder nominations for the election of
directors or of any business desired by stockholders to be conducted at an
annual meeting, the By-Laws of the Company (i) may have the effect of precluding
a nomination for the election of directors or precluding the conduct of business
at a particular annual meeting if the proper procedures are not followed or (ii)
may discourage or deter a third party from conducting a solicitation of proxies
to elect its own slate of directors or otherwise attempting to obtain control of
the Company, even if the conduct of such solicitation or such attempt might be
beneficial to the Company and its stockholders.
Section 203 of Delaware Law. The Company is a Delaware corporation and is
subject to Section 203 of DGCL. In general, Section 203 prevents an "interested
stockholder" (defined as a person who, together with affiliates and associates,
beneficially owns or if an affiliate or associate of the corporation did
beneficially own within the last three years 15% or more of a corporation's
outstanding voting stock) from engaging in a "business combination" (as defined)
with a Delaware corporation for three years following the time such person
became an interested stockholder unless (i) before such persons became an
interested stockholder, the board of directors of the corporation approved the
transaction in which the interested stockholder became an interested stockholder
or approved the business combination; (ii) upon consummation of the transaction
that resulted in the interested stockholder becoming an interested stockholder,
the interested stockholder owned at least 85% of the voting stock of the
corporation outstanding at the time the transaction commenced (excluding shares
owned by persons who are both officers and directors of the corporation, and
shares held by certain employee stock ownership plans in which employee
participants do not have the right to determine confidentially whether shares
held subject to the plan will be tendered in a tender or exchange offer); or
(iii) following the transaction in which such person became an interested
stockholder, the business combination is approved by the board of directors of
the corporation and authorized at a meeting of stockholders by the affirmative
vote of the holders of a least two-thirds of the outstanding voting stock of the
corporation not owned by the "interested stockholder." A "business combination"
generally includes mergers, stock or asset sales involving 10% or more of the
market value of the corporation's assets or stock, certain stock transactions
and certain other transactions resulting in a financial benefit to the
interested stockholders or an increase in their proportionate share of any class
or series of a corporation. The existence of Section 203 of the
41
<PAGE> 46
DGCL could have the effect of discouraging an acquisition of the Company or
stock purchasers in furtherance of an acquisition.
Limitation on Directors' Liabilities and Indemnification. The Company's
Certificate of Incorporation and By-Laws provide that to the fullest extent
permitted by the DGCL as it currently exists, a director of the Company shall
not be liable to the Company or its stockholders for monetary damages for breach
of fiduciary duty as a director. Under the current DGCL, liability of a director
may not be limited (i) for any breach of the director's duty of loyalty to the
Company or its stockholders, (ii) for acts or omissions not in good faith or
that involve intentional misconduct or a knowing violation of law, (iii) in
respect of certain unlawful dividend payments or stock redemptions or
repurchases and (iv) for any transaction from which the director derives an
improper personal benefit. The effect of this provision of the Company's
Certificate of Incorporation is to eliminate the rights of the Company and its
stockholders (through stockholders' derivative suits on behalf of the Company)
to recover monetary damages against a director for breach of the fiduciary duty
of care as director (including breaches resulting from negligent or grossly
negligent behavior) except in the situations described in clauses (i) through
(iv) above. This provision does not limit or eliminate the rights of the Company
or any stockholder to seek non-monetary relief such as an injunction or
rescission in the event of a breach of a director's duty of care. In addition,
the Company's Certificate of Incorporation and By-Laws provides that the Company
shall indemnify its directors, officers, employees and agents to the fullest
extent permitted by DGCL.
TRANSFER AGENT AND REGISTRAR
Chemical Mellon Shareholder Services will be transfer agent and registrar
for the Common Stock.
42
<PAGE> 47
DESCRIPTION OF INDEBTEDNESS
Each of the following summaries of certain indebtedness of the Company is
subject to and qualified in its entirety by reference to the detailed provisions
of the respective agreements and instruments to which each summary relates.
Copies of such agreements and instruments have been filed as exhibits to the
Registration Statement of which this Prospectus forms a part. Capitalized terms
used below and not defined have the meanings set forth in the respective
agreements.
CREDIT AGREEMENT
The following summary does not purport to be complete and is qualified in
its entirety by reference to the provisions of the Credit Agreement and other
related documents governing the Credit Agreement. Capitalized terms used below
and not defined have the meanings set forth in the Credit Agreement.
On April 28, 1995, CKJC and Rio Sportswear, as Borrowers, and the Company,
New Rio, L.L.C. and Jeanswear, as Guarantors, entered into the Credit Agreement
with certain lenders and The CIT Group, as agent for the lenders, that provides
up to $140 million comprised of two senior secured credit facilities: the $25
million Term Loan Facility and the $115 million Revolving Credit Facility. On
March 29, 1996, pursuant to an amendment to the Credit Agreement, the Revolving
Credit Facility was increased to $150 million. The Revolving Credit Facility
provides for borrowings subject to the borrowing base formula described below
and the issuance of letters of credit up to $45 million. Pursuant to such
amendment, Rio Sportswear will no longer borrow revolving loans, but will
otherwise continue certain of its obligations under the Credit Agreement. The
Term Loan is payable in equal installments, with the final installment due on
March 31, 2000. The final maturity date for the Revolving Credit Facility is
April 28, 2000, although the Revolving Credit Facility will continue until April
28 of each succeeding calendar year unless terminated as provided in the Credit
Agreement.
The Term Loan and all loans made under the Revolving Credit Facility bear
interest either at the Chemical Bank of New York prime rate plus 1.25% or at a
rate equal to LIBOR plus 2.75%. The Borrowers pay a commitment fee of 1/2 of 1%
on the unused portion of the Revolving Credit Commitment.
The total amount of revolving loans and the stated amount of letters of
credit that may be outstanding under the Revolving Credit Facility is limited to
not more than the lesser of (a) $150 million and (b) the borrowing base, which
is equal to the difference between (i) the sum of (A) 95% of the net amount of
eligible accounts receivable of CKJC (including certain receivables purchased by
The CIT Group in its capacity as factor pursuant to a factoring arrangement with
CKJC), (B) the lesser of 60% of the value of eligible inventory of CKJC and $65
million and (C) an additional amount, if any, agreed to by CIT at any time in
its sole discretion and, (ii) without duplication, such reserves for any claims
against the collateral as The CIT Group in its sole discretion deems
appropriate. In addition, the Credit Agreement has a "clean-down" provision
requiring that, between December 1 and December 21 of each year, the Revolving
Credit Facility be reduced to $105 million for at least one Business Day.
In order to secure its obligations under the Credit Agreement, each of the
Borrowers (including Rio Sportswear), the Guarantors and certain of their
subsidiaries has granted to The CIT Group a continuing security interest in all
its tangible and intangible personal property and fixtures and has granted a
mortgage of its real property and Rio Sportswear has pledged to The CIT Group
each of the trademarks listed in the Trademark Security Agreement. Such pledge
does not encompass the Trademarks. In addition, each of New Rio, L.L.C., the
Company, Jeanswear, CKJC and Rio Sportswear has pledged the shares of its
subsidiaries and CKJC has pledged a demand note, in the principal amount of
approximately $2 million, payable to Rio Sportswear.
The Credit Agreement contains various covenants that restrict the ability
of New Rio, L.L.C. and the Borrowers (including their subsidiaries), among other
things, (i) to create liens or other encumbrances on their assets or revenues,
(ii) to incur additional indebtedness, (iii) to guarantee any indebtedness, (iv)
to engage in merger transactions or sale of assets, (v) to make investments,
(vi) to enter into any lease agreement, (vii) to make capital expenditures in
excess of certain specified amounts, (viii) to make dividend
43
<PAGE> 48
payments or other distributions to their stockholders, (ix) to adjust any of the
accounts receivable or granting any discounts other than as permitted by the
factoring agreements, (x) to enter into any transaction with affiliates of New
Rio, L.L.C. other than upon terms no less favorable to New Rio, L.L.C. or its
subsidiaries than it would obtain in an arms' length transaction, (xi) to prepay
indebtedness, and (xii) to permit or cause any factoring agreement to terminate
unless certain specified conditions have been satisfied. In addition to the
foregoing, the Credit Agreement contains certain financial covenants including,
among other things, a minimum consolidated adjusted tangible net worth, a
minimum consolidated net worth, a minimum consolidated ratio of EBIT to interest
expense, a minimum consolidated current ratio and a minimum consolidated fixed
charge coverage ratio. For interest rate protection, the Credit Agreement calls
for the Company to enter into a hedging agreement in an amount of at least $30
million. Upon termination of such hedging agreement, the Company is required to
enter into not less than four successive one year hedging agreements.
Events of default under the Credit Agreement include those usual and
customary for a transaction of this type, including, among other things, (i) a
default in the payment of any principal payable on the loans under the Credit
Agreement, (ii) a default in the payment of any interest or other amounts
payable under the Credit Agreement which continues for more than five days,
(iii) the failure to comply with the covenants contained in the Credit Agreement
or related loan documents, (iv) a default by the Borrowers and the Guarantors
under any debt instrument in excess of $500,000 (after giving effect to any
applicable grace period), (v) the commencement of a bankruptcy, insolvency,
receivership or similar action by or against any Borrower or Guarantor, (vi) the
failure of the Lenders' lien on any collateral with an aggregate fair market
value in excess of $1 million to be perfected, enforceable or valid, (vii) one
or more judgments in an aggregate amount in excess of $500,000 (to the extent
not covered by insurance) rendered against the Borrowers or the Guarantors,
(viii) a change of control, which shall occur, if, among other things, (a)
Charterhouse Equity Partners II, L.P. and certain of its affiliates cease to own
at least 50% of the then outstanding voting rights of New Rio, L.L.C., (b) the
Company ceases to own and control all of the outstanding voting stock of the
Borrowers and Jeanswear, or (c) Mr. Simon ceases to be involved in the
day-to-day operations of New Rio, L.L.C., the Company and the Borrowers and a
successor reasonably acceptable to the Agent is not appointed within six months
of such cessation and (ix) a default under any license agreement if the effect
of such default is to permit Bill Blass or CKI to terminate its respective
license agreement or to exercise any remedies which could reasonably adversely
affect the ability of the Borrowers to perform their obligations under the
Credit Agreement. Upon the occurrence and continuance of an Event of Default
under the Credit Agreement, the lenders may terminate their commitments to make
loans and issue letters of credit thereunder, declare the then outstanding loans
due and payable and demand cash collateral in respect of outstanding letters of
credit.
At March 31, 1996, the Company had amounts outstanding under the Credit
Agreement of approximately $147.5 million. This includes approximately $109.3
million outstanding under the Revolving Credit Facility, including approximately
$15.7 million for open letters of credit and approximately $22.5 million
outstanding under the Term Loan Facility.
44
<PAGE> 49
SHARES ELIGIBLE FOR FUTURE SALE
Upon consummation of the Offerings, the Company will have outstanding
31,509,334 shares of Common Stock, assuming that the U.S. Underwriters and
International Managers do not exercise their over-allotment options. Of these
shares, the 12,000,000 shares of Common Stock sold in the Offerings (or a
maximum of 13,800,000 shares if the over-allotment options are exercised in
full) will be freely tradeable without restriction under the Securities Act,
unless purchased by "affiliates" of the Company (as that term is defined in Rule
144). The remaining shares of Common Stock outstanding upon completion of the
Offerings will be "restricted securities" as that term is defined in Rule 144
("Restricted Shares"). Restricted Shares may be sold in the public market only
if registered or if they qualify for an exemption from registration under Rule
144, which is summarized below.
In general, under Rule 144 as currently in effect, a person (or persons
whose shares are required to be aggregated) who has beneficially owned shares of
Common Stock that constitute restricted securities and have been outstanding and
not held by any "affiliate" of the Company for a period of two years may sell,
within any three-month period, a number of shares that does not exceed the
greater of one percent of the then outstanding shares of Common Stock or the
average weekly reported trading volume of the Common Stock during the four
calendar weeks preceding the date on which notice of such sale is given,
provided certain requirements as to the manner of sale, notice of sale and the
availability of current public information are satisfied (which requirements as
to the availability of current public information are expected to be satisfied
commencing 90 days after the date of this Prospectus). Affiliates of the Company
must comply with the foregoing restrictions and requirements of Rule 144 as to
both restricted and non-restricted securities, except that the two-year holding
period requirement does not apply to shares of Common Stock that are not
"restricted securities" (such as shares acquired by affiliates in the
Offerings). Under Rule 144(k), a person who is not deemed an "affiliate" of the
Company at any time during the three months preceding a sale by such person, and
who has beneficially owned shares of Common Stock that were not acquired from
the Company or an "affiliate" of the Company within the previous three years,
would be entitled to sell such shares without regard to volume limitation,
manner of sale provisions, notification requirements or the availability of
current public information concerning the Company. As defined in Rule 144, an
"affiliate" of an issuer is a person that directly or indirectly through one or
more intermediaries controls, or is controlled by, or is under common control
with, such issuer.
The Company, the Selling Stockholder, the directors and certain officers of
the Company and CKI have entered into contractual "lock-up" agreements providing
that they will not offer, sell, contract to sell or otherwise dispose of the
shares of Common Stock (except for the shares offered hereby and subject to
certain exceptions in the case of the Company relating to employee stock options
and conversion into Common Stock of the non-voting common stock owned by CKI),
or securities convertible into or exchangeable or exercisable for Common Stock
for a period of 180 days after the date of this Prospectus without the prior
written consent of Merrill Lynch. In addition, CKI has agreed to hold its shares
for at least 18 months, although it has certain registration rights. See
"Certain Transactions -- Registration Rights Agreement" for a description of
certain registration rights of the Selling Stockholder and its members and of
CKI.
Prior to the Offerings, there has been no public market for the Common
Stock. No predictions can be made as to the effect, if any, that future sales of
shares of Common Stock, and options to acquire shares of Common Stock, or the
availability of shares for future sale, will have on the market price prevailing
from time to time. Sales of substantial amounts of Common Stock in the public
market, or the perception that such sales may occur, could have a material
adverse effect on the market price of the Common Stock. See "Risk
Factors -- Shares Eligible for Future Sale."
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<PAGE> 50
CERTAIN UNITED STATES FEDERAL TAX CONSEQUENCES
TO NON-UNITED STATES HOLDERS
The following is a general discussion of certain United States federal
income and estate tax consequences of the acquisition, ownership and disposition
of Common Stock by a holder that, for United States federal income tax purposes,
is not a "United States person" (a "Non-United States Holder"). For purposes of
this discussion, a "United States person" means a citizen or resident of the
United States, a corporation or partnership created or organized in the United
States or under the laws of the United States or of any State, or an estate or
trust whose income is includible in gross income for United States federal
income tax purposes regardless of its source. This discussion does not address
all aspects of United States federal tax that may be relevant to Non-United
States Holders in light of their specific circumstances. Prospective investors
are urged to consult their tax advisors with respect to the particular tax
consequences to them of acquiring, holding and disposing of Common Stock, as
well as any tax consequences which may arise under the laws of any foreign,
state, local or other taxing jurisdiction.
DIVIDENDS
The Company currently intends to retain its earnings for use in the
business and does not anticipate declaring and paying dividends in the
foreseeable future. In the event that the Company does pay dividends, dividends
paid to a Non-United States Holder will generally be subject to withholding of
United States federal income tax at the rate of 30% (or a lower rate prescribed
by an applicable treaty). This withholding tax generally will not apply to
dividends which are effectively connected with the conduct of a trade or
business within the United States by the Non-United States Holder (provided such
holder files certain tax forms with the payor of the dividends), in which case
the dividends will be subject to the United States federal income tax on net
income that applies to United States persons (and in the case of corporate
holders, such dividends might also be subject to the United States branch
profits tax). An applicable income tax treaty may, however, change these rules.
To determine the applicability of a tax treaty providing for a lower rate of
withholding, dividends paid to an address in a foreign country are presumed
under current interpretation of existing Treasury regulations to be paid to a
resident of that country. Treasury regulations proposed in 1984 which have not
been finally adopted, however, would require Non-United States Holders to file
certain new forms to obtain the benefit of any applicable tax treaty providing
for a lower rate of withholding tax on dividends. Such forms would contain the
holder's name and address and an official statement by the competent authority
in the foreign country (as designated in the applicable tax treaty) attesting to
the holder's status as a resident thereof.
GAIN ON DISPOSITION
GENERAL RULE
Subject to special rules applicable to individuals as described below, a
Non-United States Holder will generally not be subject to United States federal
income tax on gain recognized on a sale or other disposition of Common Stock
except to the extent (i) the gain is effectively connected with the conduct of a
trade or business within the United States by the Non-United States Holder
("effectively connected") or (ii) the gain is treated as effectively connected
because the Company is or becomes a "United States real property holding
corporation" for United States federal income tax purposes and certain other
requirements are met. The Company believes that it is not currently, and is not
likely to become, a United States real property holding corporation. Assuming
the Company is not a United States real property holding company, any such gain
that is (or is treated as being) effectively connected will not be subject to
withholding, but will be subject to United States federal income tax (and, in
the case of corporate holders, possibly the United States branch profits tax).
Non-United States Holders should consult applicable treaties, which may provide
for different rules (including possibly the exemption of certain capital gains
from tax).
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<PAGE> 51
INDIVIDUALS
In addition to the rules described above, an individual Non-United States
Holder who holds Common Stock as a capital asset will generally be subject to
tax at a 30% rate on any gain recognized on the disposition of such stock if
such individual is present in the United States for 183 days or more in the
taxable year of disposition and (i) has a "tax home" in the United States (as
specifically defined under the United States federal income tax laws) or (ii)
maintains an office or other fixed place of business in the United States to
which the gain from the sale of the stock is attributable. Certain individual
Non-United States Holders may also be subject to tax pursuant to provisions of
United States federal income tax law applicable to certain United States
expatriates.
FEDERAL ESTATE TAXES
Common Stock owned or treated as owned by an individual who is neither a
citizen nor a resident (as defined for United States federal estate tax
purposes) of the United States at the date of death will be subject to United
States federal estate tax imposed upon the estates of non-residents who are not
United States citizens, except to the extent that an applicable estate tax
treaty provides otherwise.
INFORMATION REPORTING AND BACKUP WITHHOLDING
The Company or its designated paying agent (the "payor") must report
annually to the Internal Revenue Service (the "Service") and to each Non-United
States Holder the amount of dividends paid to, and the tax, if any, withheld
with respect to, such holder. That information may also be made available to the
tax authorities of the country in which the Non-United States Holder resides.
United States federal backup withholding (imposed at a 31% rate on certain
payment to nonexempt persons) and information reporting with respect to such
withholding will generally not apply to dividends paid to a Non-United States
Holder that are otherwise subject to withholding or taxed as effectively
connected income as described above under "Dividends".
The backup withholding and information reporting requirements also apply to
the payment of gross proceeds to a Non-United States Holder upon the disposition
of Common Stock by or through a United States office of a United States or
foreign broker, unless the holder certifies to the broker under penalties of
perjury as to its name, address, and status as a Non-United States Holder or the
holder otherwise establishes an exemption. Information reporting requirements
(but not backup withholding if the payor does not have actual knowledge that the
payee is a United States person) will apply to a payment of the proceeds of a
disposition of Common Stock by or through a foreign office of (i) a United
States broker, (ii) a foreign broker 50% or more of whose gross income for
certain periods is effectively connected with the conduct of a trade or business
in the United States or (iii) a foreign broker that is a "controlled foreign
corporation" for United States federal income tax purposes, unless the broker
has documentary evidence in its records that the holder is a Non-United States
Holder and certain other conditions are met, or the holder otherwise establishes
an exemption. Neither backup withholding nor information reporting will
generally apply to a payment of the proceeds of a disposition of Common Stock by
or through a foreign office of a foreign broker not subject to the preceding
sentence.
Backup withholding is not an additional tax. Any amounts withheld under the
backup withholding rules will be refunded or credited against the Non-United
States Holder's United States federal income tax liability, if any, provided
that required information is furnished to the Service.
47
<PAGE> 52
UNDERWRITING
Subject to the terms and conditions set forth in the U.S. purchase
agreement (the "U.S. Purchase Agreement") among the Company, the Selling
Stockholder and each of the underwriters named below (the "U.S. Underwriters"),
and concurrently with the sale of 2,400,000 shares of Common Stock to the
International Managers (as defined below), the Company and the Selling
Stockholder have agreed to sell to the U.S. Underwriters, and each of the U.S.
Underwriters severally has agreed to purchase from the Company and the Selling
Stockholder the number of shares of Common Stock set forth opposite its name
below.
<TABLE>
<CAPTION>
NUMBER OF
U.S. UNDERWRITERS SHARES
----------
<S> <C>
Merrill Lynch, Pierce, Fenner & Smith
Incorporated.........................................................
Morgan Stanley & Co. Incorporated.................................................
---------
Total................................................................ 9,600,000
=========
</TABLE>
Merrill Lynch, Pierce, Fenner & Smith Incorporated ("Merrill Lynch") and
Morgan Stanley & Co. Incorporated are acting as representatives (the "U.S.
Representatives") of the U.S. Underwriters.
The Company and the Selling Stockholder have also entered into the
international purchase agreement (the "International Purchase Agreement") with
certain underwriters outside the United States and Canada (the "International
Managers" and, together with the U.S. Underwriters, the "Underwriters") for whom
Merrill Lynch International and Morgan Stanley & Co. International Limited are
acting as representatives (the "International Representatives"). Subject to the
terms and conditions set forth in the International Purchase Agreement, and
concurrently with the sale of 9,600,000 shares of Common Stock to the U.S.
Underwriters pursuant to the U.S. Purchase Agreement, the Company and the
Selling Stockholder have agreed to sell to each of the International Managers,
and the International Managers severally have agreed to purchase from the
Company and the Selling Stockholder an aggregate of 2,400,000 shares of Common
Stock. The initial public offering price per share of the Common Stock and the
total underwriting discount per share are identical under the U.S. Purchase
Agreement and the International Purchase Agreement.
In the U.S. Purchase Agreement and the International Purchase Agreement,
the several U.S. Underwriters and the several International Managers,
respectively, have agreed, subject to the terms and conditions set forth
therein, to purchase all of the shares of Common Stock being sold pursuant to
each such Purchase Agreement if any of such shares of Common Stock being sold
pursuant to each such agreement are purchased. Under certain circumstances, the
commitments of non-defaulting U.S. Underwriters or International Managers (as
the case may be) may be increased. The closings with respect to the sale of
shares of Common Stock to be purchased by the International Managers and the
U.S. Underwriters are conditioned upon one another.
The U.S. Underwriters and the International Managers have entered into an
intersyndicate agreement (the "Intersyndicate Agreement") providing for the
coordination of their activities. Under the terms of the Intersyndicate
Agreement, the U.S. Underwriters and the International Managers are permitted to
sell shares of Common Stock to each other for purposes of resale at the initial
public offering price, less an amount not greater than the selling concession.
Under the terms of the Intersyndicate Agreement, the U.S. Underwriters and any
dealer to whom they sell shares of Common Stock will not offer to sell or sell
shares of Common Stock to persons who are non-United States persons or
non-Canadian persons or to persons they believe intend
48
<PAGE> 53
to resell to persons who are non-United States persons or non-Canadian persons,
and the International Managers and any dealer to whom they sell shares of Common
Stock will not offer to sell or sell shares of Common Stock to persons who are
United States or Canadian persons or to persons they believe intend to resell to
United States or Canadian persons, except, in each case, for transactions
pursuant to the Intersyndicate Agreement.
The U.S. Representatives have advised the Company and the Selling
Stockholder that the U.S. Underwriters propose to offer the shares of Common
Stock offered hereby to the public at the initial public offering price set
forth on the cover page of this Prospectus, and to certain dealers at such price
less a concession not in excess of $ per share of Common Stock. The
U.S. Underwriters may allow, and such dealers may reallow, a discount not in
excess of $ per share of Common Stock on sales to certain other
dealers. After the initial public offering, the public offering price,
concession and discount may be changed.
The Company and the Selling Stockholder have granted an option to the U.S.
Underwriters, exercisable during the 30-day period after the date of this
Prospectus, to purchase up to an aggregate of 1,440,000 additional shares of
Common Stock at the initial public offering price, less the underwriting
discount. The U.S. Underwriters may exercise this option only to cover
over-allotments, if any, made on the sale of Common Stock offered hereby. To the
extent that the U.S. Underwriters exercise this option, each U.S. Underwriter
will be obligated, subject to certain conditions, to purchase the number of
additional shares of Common Stock proportionate to such U.S. Underwriter's
initial amount reflected in the foregoing table. The Company and the Selling
Stockholder also have granted an option to the International Managers,
exercisable during the 30-day period after the date of this Prospectus, to
purchase up to an aggregate of 360,000 additional shares of Common Stock to
cover over-allotments, if any, on terms similar to those granted to the U.S.
Underwriters. Of the aggregate 1,800,000 shares subject to the over-allotment
options, options with respect to 650,000 shares and 1,150,000 shares have been
granted by the Company and the Selling Stockholder, respectively.
At the request of the Company, the Underwriters have reserved up to 600,000
shares of Common Stock for sale at the initial public offering price to certain
employees of the Company and other persons associated with the Company or
affiliated with any director, officer or management employee of the Company who
have expressed an interest in purchasing such shares. The number of shares of
Common Stock available to the general public will be reduced to the extent such
persons purchase such reserved shares. Any reserved shares not so purchased by
such employees at the closing of the Offerings will be offered by the
Underwriters to the general public on the same terms as the other shares offered
hereby. Certain individuals purchasing reserved shares may be required to agree
not to sell, offer or otherwise dispose of any shares of Common Stock for a
period of three months after the date of this Prospectus.
The Company, the Selling Stockholder, each of the Company's directors and
certain officers and CKI have agreed not to (except for the shares offered
hereby and subject to certain exceptions in the case of the Company for the
grant of, and the issuance of shares pursuant to the exercise of, employee stock
options and the issuance of shares of Common Stock to CKI upon conversion of the
non-voting common stock owned by it) directly or indirectly sell, offer to sell,
grant any option for sale of, or otherwise dispose of any shares of Common Stock
or any securities convertible or exchangeable into, or exercisable for, Common
Stock for a period of 180 days after the date of this Prospectus without the
prior written consent of Merrill Lynch. See "Shares Eligible For Future Sale."
Prior to the Offerings, there has been no public market for the Common
Stock. The initial public offering price will be determined by negotiation among
the Company, the Selling Stockholder and the U.S. Representatives. Among the
factors that will be considered in determining the initial public offering price
are an assessment of the Company's recent results of operations, the future
prospects of the Company and the industry in general, the price-earnings ratio
and market prices of securities of other companies engaged in activities similar
to the Company and prevailing conditions in the securities market. There can be
no assurance that an active trading market will develop for the Common Stock or
that the Common Stock will trade in the public market subsequent to the
Offerings at or above the initial public offering price.
The Common Stock has been approved for listing, subject to official notice
of issuance, on the New York Stock Exchange under the symbol "DSH." In order to
meet the requirements for listing of the Common
49
<PAGE> 54
Stock on such exchange, the U.S. Underwriters have undertaken to sell lots of
100 or more shares to a minimum of 2,000 beneficial owners.
The Underwriters do not intend to confirm sales of the shares of Common
Stock offered hereby to any accounts over which they exercise discretionary
authority.
The Company and the Selling Stockholder have agreed to indemnify the
Underwriters against certain liabilities, including certain liabilities under
the Securities Act, or to contribute to payments the Underwriters may be
required to make in respect thereof.
LEGAL MATTERS
Certain legal matters with respect to the Common Stock will be passed upon
for the Company by Skadden, Arps, Slate, Meagher & Flom, New York, New York.
Certain legal matters will be passed upon for the Underwriters by Cahill Gordon
& Reindel (a partnership including a professional corporation), New York, New
York. Skadden, Arps, Slate, Meagher & Flom has from time to time represented,
and may continue to represent, certain of the Underwriters. Mark N. Kaplan, a
partner in the firm of Skadden, Arps, Slate, Meagher & Flom, is trustee of a
trust for the benefit of Mark K. Berman and Allison A. Berman, which is one of
the beneficial owners of the Selling Stockholder.
EXPERTS
The consolidated balance sheets of the Company as of December 31, 1995 and
1994 and the consolidated statements of operations, changes in stockholder's
equity and cash flows for the year ended December 31, 1995 and the four months
ended December 31, 1994 and the combined statements of operations, changes in
stockholders' equity and cash flows of the Predecessor Companies for the eight
months ended August 25, 1994 included in this Prospectus, have been included
herein in reliance on the report of Coopers & Lybrand L.L.P., independent
accountants, given on the authority of that firm as experts in accounting and
auditing.
The combined statements of operations, stockholders' equity and cash flows
of Rio Sportswear, Inc. and affiliated companies for the year ended December 31,
1993 and the related financial statement schedule for the year then ended
included in this Prospectus, have been audited by Deloitte & Touche LLP,
independent auditors, as stated in their report appearing herein and are
included in reliance upon the report of such firm given upon their authority as
experts in accounting and auditing.
In 1994, the Company retained Coopers & Lybrand L.L.P. as accountants for
the Company after the Company's management, in consultation with the Board of
Directors, decided to replace Deloitte & Touche LLP. During 1993, there were no
disagreements on any matter of accounting principles or practices, financial
statement disclosure or auditing scope or procedure, which disagreements (if not
resolved to the satisfaction of Deloitte & Touche LLP) would have caused it to
make reference to the subject matter of the disagreement in connection with
their report. The report of Deloitte & Touche LLP on the 1993 Predecessor
Companies' financial statements did not contain an adverse opinion or a
disclaimer of opinion and was not qualified as to uncertainty, audit scope or
accounting principles. Prior to the retention of Coopers & Lybrand L.L.P.,
neither the Company nor anyone on the Company's behalf consulted Coopers &
Lybrand L.L.P. regarding either the application of accounting principles related
to a specified transaction, completed or proposed, or the type of audit opinion
that might be rendered on the Company's financial statements.
50
<PAGE> 55
ADDITIONAL INFORMATION
The Company has filed with the Securities and Exchange Commission (the
"Commission") in Washington D.C. a Registration Statement on Form S-1 under the
Securities Act with respect to the securities offered hereby. This Prospectus
does not contain all the information set forth in the Registration Statement and
the exhibits and schedules thereto, to which reference is hereby made.
Statements made in this Prospectus as to the contents of any contract, agreement
or other document are not necessarily complete; with respect to each such
contract, agreement or other document filed as an exhibit to the Registration
Statement, reference is made to the exhibit for a more complete description of
the matter involved, and each such statement shall be deemed qualified in its
entirety by this reference. The Registration Statement and the exhibits thereto
filed by the Company with the Commission may be inspected and copied at the
public reference facilities maintained by the Commission at Room 1024, Judiciary
Plaza, 450 Fifth Street, N.W., Washington, D.C. 20549 and will also be available
for inspection and copying at the regional offices of the Commission located at
Room 1400, 75 Park Place, New York, New York 10007 and at Northwest Atrium
Center, 500 West Madison Street (Suite 1400), Chicago, Illinois 60661. Copies of
such material may also be obtained from the Public Reference Section of the
Commission at 450 Fifth Street, N.W., Washington, D.C. 20549 at prescribed
rates.
Upon completion of the Offerings, the Company will be subject to the
informational requirements of the Exchange Act and, in accordance therewith,
will file reports, proxy and information statements and other information with
the Commission. Such reports, proxy and information statements and other
information can be inspected and copied at the addresses set forth above. The
Company intends to furnish its stockholders with annual reports containing
consolidated financial statements audited by its independent certified public
accountants and with quarterly reports containing unaudited condensed
consolidated financial statements for each of the first three quarters of each
fiscal year.
51
<PAGE> 56
INDEX OF FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
-----
<S> <C>
Reports of Independent Accountants.................................................... F-2
Consolidated Balance Sheets as of December 31, 1994 and December 31, 1995............. F-4
Combined Statements of Operations for the year ended December 31, 1993 and the eight
months ended August 25, 1994, and Consolidated Statements of Operations for the four
months ended December 31, 1994 and the year ended December 31, 1995................. F-5
Combined Statements of Changes in Stockholder's Equity for the year ended December 31,
1993 and the eight months ended August 25, 1994, and Consolidated Statements of
Changes in Stockholder's Equity for the four months ended December 31, 1994 and the
year ended December 31, 1995........................................................ F-6
Combined Statements of Cash Flows for the year ended December 31, 1993 and the eight
months ended August 25, 1994, and Consolidated Statements of Cash Flows for the four
months ended December 31, 1994 and the year ended December 31, 1995................. F-7
Notes to Financial Statements......................................................... F-8
</TABLE>
F-1
<PAGE> 57
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors and Stockholder of
Designer Holdings Ltd.:
We have audited the consolidated balance sheets of Designer Holdings Ltd.
(the "Company") as of December 31, 1995 and 1994, the related consolidated
statements of operations, changes in stockholder's equity and cash flows for the
year ended December 31, 1995 and the four months ended December 31, 1994, and
the combined statements of operations, changes in stockholder's equity and cash
flows of the Predecessor Companies for the eight months ended August 25, 1994.
These financial statements are the responsibility of the Company's and the
Predecessor Companies' management. Our responsibility is to express an opinion
on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the consolidated financial position of Designer
Holdings Ltd. as of December 31, 1995 and 1994, the consolidated results of
their operations and their cash flows for the year ended December 31, 1995 and
the four months ended December 31, 1994, and the combined results of operations
and cash flows of the Predecessor Companies for the eight months ended August
25, 1994, in conformity with generally accepted accounting principles.
COOPERS & LYBRAND L.L.P.
New York, New York
February 29, 1996, except for Note 1, the tenth
paragraph of Note 11, the thirteenth paragraph of
Note 13 and Note 16, for which the date is April 22, 1996.
F-2
<PAGE> 58
INDEPENDENT AUDITORS' REPORT
To the Directors and Shareholders of
Rio Sportswear, Inc.
We have audited the combined statements of operations, shareholders' equity
and cash flows of Rio Sportswear, Inc. and affiliated companies (the
"Predecessor Companies") for the year ended December 31, 1993. These financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audit.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audit provides a reasonable basis for our opinion.
In our opinion, such financial statements present fairly, in all material
respects, the combined results of operations and cash flows of the Predecessor
Companies for the year ended December 31, 1993 in conformity with generally
accepted accounting principles.
DELOITTE & TOUCHE LLP
New York, New York
April 1, 1994
F-3
<PAGE> 59
DESIGNER HOLDINGS LTD.
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
DECEMBER 31,
---------------------
1994 1995
-------- --------
(IN THOUSANDS, EXCEPT
SHARE DATA)
<S> <C> <C>
ASSETS
Current assets:
Cash................................................................. $ 1,432
Receivables, net..................................................... 27,128 $118,400
Inventory............................................................ 31,907 69,510
Deferred tax assets.................................................. 2,147 8,065
Prepaid expenses and other current assets............................ 3,142 3,625
-------- --------
Total current assets......................................... 65,756 199,600
Property, plant and equipment, net..................................... 2,871 4,953
Prepaid royalties, net................................................. 7,500 6,084
Intangible assets, net................................................. 37,881 34,880
Deferred financing costs, net.......................................... 3,946
Deferred tax assets.................................................... 795
Other assets........................................................... 825 556
-------- --------
Total assets................................................. $114,833 $250,814
======== ========
LIABILITIES AND STOCKHOLDER'S EQUITY
Current liabilities:
Current portion of long-term debt.................................... $ 2,926 $ 5,000
Revolving credit loans............................................... 97,016
Due to factor........................................................ 4,602
Accounts payable..................................................... 15,323 24,857
Accrued expenses..................................................... 15,044 30,090
Income taxes payable................................................. 791 10,966
-------- --------
Total current liabilities.................................... 38,686 167,929
Long-term debt, less current portion................................. 52,255 50,403
Deferred tax liabilities............................................. 886
-------- --------
Total liabilities............................................ 91,827 218,332
-------- --------
Commitments and contingencies (Note 13)
Stockholder's equity:
Common stock, par value $.01 per share; authorized 75,000,000 shares;
issued and outstanding 24,233,868 shares, pursuant to the
reorganization in March 1995 and the stock split in April 1996.... 242 242
Paid-in capital...................................................... 24,121 20,121
Retained earnings.................................................... 1,056 12,119
-------- --------
25,419 32,482
Less, Notes receivable from related party............................ (2,413)
-------- --------
Total stockholder's equity................................... 23,006 32,482
-------- --------
Total liabilities and stockholder's equity................... $114,833 $250,814
======== ========
</TABLE>
The accompanying notes are an integral part of the financial statements.
F-4
<PAGE> 60
DESIGNER HOLDINGS LTD.
STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
PREDECESSOR COMPANIES THE COMPANY
(COMBINED) (CONSOLIDATED)
---------------------------- ----------------------------
EIGHT MONTHS FOUR MONTHS
YEAR ENDED ENDED ENDED YEAR ENDED
DECEMBER 31, AUGUST 25, DECEMBER 31, DECEMBER 31,
1993 1994 1994 1995
------------ ------------ ------------ ------------
(IN THOUSANDS, EXCEPT SHARE DATA)
<S> <C> <C> <C> <C>
Net revenues.............................. $173,561 $ 93,969 $ 102,038 $ 462,122
Cost of goods sold........................ 146,620 81,143 75,246 323,638
-------- -------- ------------ ------------
Gross profit.............................. 26,941 12,826 26,792 138,484
Selling, general and administrative
expenses................................ 23,323 12,318 20,079 100,391
-------- -------- ------------ ------------
Operating income.......................... 3,618 508 6,713 38,093
Interest expense.......................... 1,808 1,142 2,557 16,160
-------- -------- ------------ ------------
Income (loss) before income taxes......... 1,810 (634) 4,156 21,933
Provision (benefit) for income taxes...... (331) (399) 2,239 10,870
-------- -------- ------------ ------------
Net income (loss)......................... $ 2,141 $ (235) $ 1,917 $ 11,063
======== ======== ============ ============
Net income per share...................... $ .08 $ .46
============ ============
Weighted average shares outstanding....... 24,233,868 24,233,868
============ ============
</TABLE>
The accompanying notes are an integral part of the financial statements.
F-5
<PAGE> 61
DESIGNER HOLDINGS LTD.
STATEMENTS OF CHANGES IN STOCKHOLDER'S EQUITY
<TABLE>
<CAPTION>
COMMON PAID-IN RETAINED
STOCK CAPITAL EARNINGS
------- ------- --------
(IN THOUSANDS)
<S> <C> <C> <C>
PREDECESSOR COMPANIES (Combined):
Balance, January 1, 1993........................................ $ 1,611 $ 4,200 $ 4,649
Capital contributions........................................... 15
Distributions to stockholders................................... (2,179)
Net income...................................................... 2,141
-------- ------- --------
Balance, December 31, 1993...................................... 1,611 4,215 4,611
Distributions to stockholders................................... (8) (2,298)
Net loss........................................................ (235)
-------- ------- --------
Balance, August 25, 1994........................................ 1,611 4,207 2,078
THE COMPANY (Consolidated):
Distributions to stockholder.................................... (16)
Purchase of certain equity interests in predecessor companies... (1,457) (2,923)
Initial capitalization of Jeanswear Holdings, Inc............... 20,002
Net income...................................................... 1,917
Retroactive effect of issuance and exchange of common stock
pursuant to reorganization, effective March 1995, and stock
split, effective April 1996 (Note 1).......................... (1,369) 1,369
-------- ------- --------
Balance, December 31, 1994...................................... 242 24,121 1,056
Purchase of remaining interests in
predecessor companies......................................... (4,000)
Net income...................................................... 11,063
-------- ------- --------
Balance, December 31, 1995...................................... $ 242 $20,121 $ 12,119
======== ======= ========
</TABLE>
The accompanying notes are an integral part of the financial statements.
F-6
<PAGE> 62
DESIGNER HOLDINGS LTD.
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
PREDECESSOR COMPANIES THE COMPANY
(COMBINED) (CONSOLIDATED)
--------------------------- ---------------------------
YEAR EIGHT MONTHS FOUR MONTHS YEAR
ENDED ENDED ENDED ENDED
DECEMBER 31, AUGUST 25, DECEMBER 31, DECEMBER 31,
1993 1994 1994 1995
------------ ------------ ------------ ------------
(IN THOUSANDS)
<S> <C> <C> <C> <C>
Cash flows from operating activities:
Net income (loss)................................................... $ 2,141 $ (235) $ 1,917 $ 11,063
Adjustments to reconcile net income (loss) to cash provided by (used
in) operating activities:
Depreciation...................................................... 214 50 150 595
Amortization...................................................... 6 1,480 3,426
Loss on disposal of fixed assets.................................. 182
Deferred interest................................................. 1,653
Provision for receivables......................................... (26) 7 891 12,300
Deferred income taxes............................................. (823) (224) (122) (7,599)
Changes in assets and liabilities:
Receivables..................................................... (542) (1,122) (23,530) (103,572)
Inventory....................................................... (6,961) 6,752 (1,493) (37,603)
Prepaid expenses and other current assets....................... (331) (103) 103 (611)
Prepaid royalties............................................... (9,500) 2,000
Other assets.................................................... 129 161 (702) 158
Accounts payable................................................ 3,637 67 (4,886) 9,534
Accrued expenses................................................ 100 (515) 15,481 15,163
Income taxes payable............................................ (236) (115) 673 10,175
-------- -------- -------- ----------
Net cash provided by (used in) operating activities........... (2,698) 4,729 (19,538) (83,136)
-------- -------- -------- ----------
Cash flows from investing activities:
Sale of equipment................................................... 21
Purchase of ownership interest of predecessor companies............. (24,000)
Acquisition of license agreement and related assets................. (10,314)
Loan to related party............................................... (2,350)
Purchase of equipment............................................... (21) (84) (2,757)
-------- -------- -------- ----------
Net cash provided by (used in) investing activities........... 21 (21) (36,748) (2,757)
-------- -------- -------- ----------
Cash flows from financing activities:
Capital contributions............................................... 15 20,002
Proceeds from (payment of) notes payable to related party........... (200) 45,181 (45,181)
Proceeds from note payable.......................................... 5,142
Advance from (payments to) factor................................... 4,602 (4,602)
Proceeds from senior subordinated notes............................. 30,000
Proceeds from term loan............................................. 25,000
Increase in revolving credit loans.................................. 97,016
Payment of note payable to factor................................... (10,000) (10,000)
Distributions to stockholders/partners.............................. (2,179) (2,306) (16) (1,495)
Payment of notes payable............................................ (2,871) (2,400)
Payment of term loan................................................ (1,250)
Financing costs paid................................................ (320) (5,027)
-------- -------- -------- ----------
Net cash provided by (used in) financing activities........... 2,778 (5,177) 57,049 84,461
-------- -------- -------- ----------
Net increase (decrease) in cash............................... 101 (469) 763 (1,432)
Cash, beginning of period............................................. 1,037 1,138 669 1,432
-------- -------- -------- ----------
Cash, end of period........................................... $ 1,138 $ 669 $ 1,432 $ --
======== ======== ======== ==========
Supplemental disclosure of cash flow information:
Cash paid for interest................................................ $ 1,845 $ 996 $ 445 $ 16,448
======== ======== ======== ==========
Cash paid for income taxes............................................ $ 796 $ 253 $ 2,079 $ 7,340
======== ======== ======== ==========
Supplemental schedule of noncash investing and financing activities:
The acquisition of license agreement and related assets and the
purchase of ownership interests in predecessor companies included
the following noncash amounts.....................................
Fair value of net assets acquired............................. $ 61,735
Note payable issued to seller................................. (20,000)
Other liabilities created or assumed.......................... (7,421)
--------
Cash paid..................................................... $ 34,314
========
</TABLE>
The accompanying notes are an integral part of the financial statements.
F-7
<PAGE> 63
DESIGNER HOLDINGS LTD.
NOTES TO FINANCIAL STATEMENTS
(IN THOUSANDS)
1. ORGANIZATION AND BASIS OF PRESENTATION
Designer Holdings Ltd. ("Designer") (formerly, Denim Holdings Inc.) was
incorporated on March 27, 1995 for the purpose of consolidating the ownership
interests of Rio Sportswear, Inc. ("Rio Sportswear") and Jeanswear Holdings,
Inc. ("Jeanswear"), the holding company for Calvin Klein Jeanswear Company
("CKJC"). Designer is a wholly-owned subsidiary of New Rio L.L.C. ("New Rio"),
whose controlling equityholders are Arnold H. Simon and Charterhouse Equity
Partners II, L.P. ("CEP II").
The consolidated financial statements as of December 31, 1995 and 1994 and
for the year ended December 31, 1995 and the four months ended December 31, 1994
include the accounts of Designer and its subsidiaries, Rio Sportswear, Jeanswear
and CKJC and their respective subsidiaries (collectively, the "Company"). The
combined statements of operations, stockholders' equity and cash flows for the
year ended December 31, 1993 and the eight months ended August 25, 1994 include
the accounts of five separate entities commonly controlled and managed by Mr.
Simon and Stephen Huang (collectively, the "Predecessor Companies"). All
significant intercompany balances have been eliminated in consolidation.
The Company is principally engaged in developing, sourcing, producing and
marketing designer sportswear for men, women, juniors and petites under the
Calvin Klein Jeans Labels pursuant to a license agreement (the "CKJ License")
with Calvin Klein, Inc. ("CKI"). The principal markets for the Company's
products are a broad range of department stores and specialty retailers in the
United States.
In contemplation of a public offering of common stock, on April 22, 1996,
Designer increased the number of authorized common stock to 75,000,000 shares,
par value $.01 per share, and effected a 24,234-for-one stock split of its
common stock. All share and per share amounts included in the accompanying
financial statements of the Company have been restated to reflect the foregoing.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Revenue Recognition:
Revenue from the sale of merchandise is recognized at the date of shipment
to the customer. Allowances for estimated returns, discounts and credits are
provided when a sale is recorded.
The Company earns royalty fees from the licensing of the Rio tradename and
the sublicensing of the Bill Blass tradename. The Company earns commissions as
an agent for the manufacturing of private-label apparel for certain of its
customers. Royalty income from the Rio and Bill Blass licensing rights is
recognized on the basis of net sales generated by the licensee and commission
income for acting as a manufacturing agent is recognized at the date merchandise
is shipped to the private-label customer.
Effective July 1, 1995, the Company also earns royalty fees from a
distribution arrangement for the manufacturing, marketing and distribution of
Calvin Klein Jeans Label products in Canada. Royalty fees are recognized as a
percentage of net sales generated by the distributor.
Cash and Cash Equivalents:
The Company considers all highly-liquid temporary investments purchased
with a maturity of three months or less to be cash equivalents. The Company
maintains its cash in bank deposit accounts which, at times, may exceed
federally insured limits.
Inventory:
Inventory is stated at the lower of cost or market. Cost is determined by
the average cost method.
F-8
<PAGE> 64
DESIGNER HOLDINGS LTD.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
(IN THOUSANDS)
Property, Plant and Equipment:
Property, plant and equipment are stated at cost, less accumulated
depreciation and amortization. Depreciation of property, plant and equipment is
computed by the straight-line method over the estimated useful lives of the
related assets. Leasehold improvements are amortized on a straight-line basis
over the shorter of their estimated useful lives or lease terms. The cost and
related accumulated depreciation or amortization of assets retired or sold are
removed from the respective accounts, and any resulting gain or loss is included
in the statement of operations.
Intangible Assets:
Goodwill arising from the acquisition described in Note 3 is amortized on a
straight-line basis over fifteen years. Licensing rights resulting from
obtaining the CKJ License are also amortized on a straight-line basis over
fifteen years. The non-compete agreements entered into in connection with
obtaining the CKJ License are effective over the term of the CKJ License,
including renewals, and the related costs of the agreements are being amortized
on a straight-line basis over fifteen years. The Company periodically evaluates
the recoverability of its intangible assets and measures the amount of
impairment, if any, by assessing current and future levels of income and cash
flows as well as other factors, such as business trends and prospects and market
and economic conditions.
Deferred Financing Costs:
Deferred financing costs relate to the Company's debt refinancing (see Note
11) and are being amortized using the interest method over the terms of the
underlying indebtedness of five and ten years. These costs are stated net of
accumulated amortization of $1,006 at December 31, 1995.
Income Taxes:
The Company records deferred tax assets and liabilities for differences
between the financial statement and tax bases of assets and liabilities
("temporary differences") at enacted tax rates in effect for the year in which
the differences are expected to reverse. The effect on deferred taxes of a
change in tax rates is recognized in income in the period that includes the
enactment date. In addition, valuation allowances are established, when
necessary, to reduce deferred tax assets to the amounts expected to be realized.
Management Estimates:
The financial statements are prepared in conformity with generally accepted
accounting principles, which require management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting periods. The most significant estimates relate to sales returns,
discounts and allowances. Actual results could differ from those estimates.
Recently Issued Accounting Standards:
In March 1995, Statement of Financial Accounting Standards No. 121,
"Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to
Be Disposed Of " ("SFAS No. 121"), was issued and is effective January 1, 1996.
SFAS No. 121 requires that in the event certain facts and circumstances indicate
an asset may be impaired, an evaluation of recoverability must be performed to
determine whether or not the carrying amount of the asset is required to be
written down. The Company does not expect the adoption of this statement to have
a material effect on its financial condition or results of operations.
F-9
<PAGE> 65
DESIGNER HOLDINGS LTD.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
(IN THOUSANDS)
3. REORGANIZATION AND ACQUISITION
The formation of Designer and its acquisitions of Rio Sportswear and
Jeanswear has been accounted for as a reorganization of entities under common
control in a manner similar to a pooling of interests effective August 26, 1994.
New Rio and its wholly-owned subsidiary, Rio Sportswear, were formed in
July and August 1994, respectively, for the purpose of combining the business
activities of the Predecessor Companies which were jointly engaged in the
designing, sourcing, marketing and distribution of jeans and jeans-related
products under the Rio, Bill Blass and certain private label tradenames.
On August 4, 1994, Mr. Simon contributed a portion of his interests in the
Predecessor Companies to Rio Sportswear in exchange for a $20,000 preferential
equity interest in New Rio. Mr. Simon also granted an option, which was
exercised in April 1995, to Rio Sportswear to acquire his remaining residual
interests in the Predecessor Companies for $4,000. The consideration exchanged
comprised cash of $1,345 and the cancellation of notes receivable from Mr. Simon
amounting to $2,655. The transaction was accounted for as a redemption of equity
securities.
On August 25, 1994, CEP II loaned $24,849 to Rio Sportswear. The proceeds
of this loan were used to fund the purchase of the interests of Mr. Huang in the
Predecessor Companies for $24,000, excluding costs of the acquisition. This
transaction resulted in a change in control of the Predecessor Companies.
The contribution of Mr. Simon's interests in the Predecessor Companies and
the acquisition of Mr. Huang's interests have been accounted for in accordance
with the consensus reached by the Emerging Issues Task Force of the Financial
Accounting Standards Board in Issue 88-16, "Basis in Leveraged Buyout
Transactions" ("EITF 88-16"). Under the provisions of EITF 88-16, the interests
of Mr. Simon in the Predecessor Companies have been carried over to Rio
Sportswear at their historical cost bases. The purchase of Mr. Huang's interests
in the Predecessor Companies has been accounted for as a step acquisition,
accordingly, the purchase price has been allocated to the assets and liabilities
of the Predecessor Companies represented by Mr. Huang's interests based on their
estimated fair values at August 25, 1994. This allocation resulted in the
recognition of $21,283 in goodwill.
The final purchase price is subject to adjustment based upon an audit of
the combined balance sheet of the Predecessor Companies as of August 25, 1994.
Based on the audited balance sheet, the purchase price should be reduced by
approximately $903; however, the final determination is subject to review by Mr.
Huang and this review is not yet complete.
The purchase agreement also provides for contingent consideration of up to
$2,000 to be paid to Mr. Huang if net sales of Rio Sportswear, as defined, reach
certain levels in each of the next three years. In addition, $2,000 (net of any
payments as described in the prior sentence) may be due upon a public offering
of Rio Sportswear or an affiliate of Rio Sportswear. Such contingent
consideration, if paid, will increase goodwill.
At the time Rio Sportswear acquired the Predecessor Companies, CEP II
formed Jeanswear and its wholly-owned subsidiary, CKJC. On August 4, 1994, CKJC
entered into the CKJ License with CKI and purchased certain other assets from
Calvin Klein Sport, Inc. ("CKS") (see Note 4).
In connection with these acquisitions, Mr. Simon and CEP II entered into an
operating agreement to jointly control and operate the businesses of these
entities. Mr. Simon and CEP II also agreed to grant each other a right to
require the contribution of Jeanswear by CEP II to New Rio in exchange for a
$20,000 preferential equity interest in New Rio, pari passu with the existing
$20,000 preferential equity interest acquired by Mr. Simon in connection with
the transfer of his ownership interests in the Predecessor Companies to New Rio.
This right was exercised by both parties effective March 1995. As a result,
Jeanswear became a wholly-owned subsidiary of Designer.
F-10
<PAGE> 66
DESIGNER HOLDINGS LTD.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
(IN THOUSANDS)
4. CALVIN KLEIN LICENSE
On August 4, 1994, CKJC entered into the CKJ License with CKI whereby CKJC
obtained the right to manufacture, market and distribute, among other things,
jeans, shirts, shorts, skirts, jackets and overalls under the Calvin Klein Jeans
labels. The CKJ License expires on December 31, 2004, with an option to renew
for four additional ten-year periods provided certain minimum sales levels are
achieved. As part of the transaction, the Company also advanced CKI $9,500 for
future royalties payable under the CKJ License, acquired on-hand inventory, was
required to acquire two manufacturing facilities, and entered into noncompete
agreements with CKI and two of its principal officers.
The total consideration for the transaction of $45,900, including costs of
approximately $5,400, was allocated to the individual assets acquired, including
identified intangibles, based upon their estimated fair values.
The royalty advance of $9,500 represents a prepayment for which the Company
will receive a $12,500 credit against future royalty payments in quarterly
installments of $500. The difference between the advance and the credit of
$3,000 is being amortized as a reduction of royalty expense in proportion to the
utilization of the credit under the agreement.
The above transaction was financed with (i) $20,000 in capital
contributions by CEP II; (ii) certain proceeds from a $20,332 loan from CEP II;
and, (iii) the issuance of a $20,000 note payable to CKS which was subsequently
assigned to a bank.
The acquisition costs incurred in connection with the transactions
described above and in Note 3 include $650 in investment advisory fees to a
related party. Such costs are included in accrued expenses at December 31, 1994
and were paid in 1995.
5. RECEIVABLES AND FACTORING AGREEMENTS
Receivables consist of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
--------------------
1994 1995
------- --------
<S> <C> <C>
Due from factor................................................. $24,062 $100,692
Trade receivables............................................... 4,318 21,220
Other receivables............................................... 444 10,484
------- --------
28,824 132,396
Less, allowances for sales returns, discounts, credits and
doubtful accounts............................................. (1,696) (13,996)
------- --------
$27,128 $118,400
======= ========
</TABLE>
Rio Sportswear and CKJC have factoring agreements with a financial
institution (the "Factor") that require the sale of all trade accounts
receivable to the Factor except for export sales, which are sold to the Factor
at the option of Rio Sportswear and CKJC. In addition, all related sales orders
must be submitted to the Factor for credit approval prior to shipment. The
Factor collects all cash remittances on receivables factored and assumes credit
risk on all approved sales. Factored receivables are reflected on the balance
sheet in the due from factor account. The Company holds no collateral with
respect to amounts due from Factor.
Prior to the debt refinancing on April 28, 1995 (see Note 11), the
agreements provided that, upon request, the Factor may advance funds to Rio
Sportswear and CKJC based upon specified levels of eligible accounts receivable
and inventory. Such advances were recorded as a reduction in the due from factor
account. In addition, Rio Sportswear and CKJC had letter of credit agreements
with the Factor pursuant to
F-11
<PAGE> 67
DESIGNER HOLDINGS LTD.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
(IN THOUSANDS)
which the Factor would open letters of credit for the purchase of inventory in
its sole discretion. Drawdowns on these letters of credit were charged as an
advance under the factoring agreements.
In connection with the debt refinancing (see Note 11), all advances under
the factoring agreements were repaid, the letter of credit agreements were
terminated and the Factor and the Company agreed not to engage in any further
advances, borrowings or other financing transactions under the factoring
agreements. The Company, however, continues to factor its receivables with the
Factor and such factored receivables are included in the collateral to
borrowings outstanding under the new financing.
6. INVENTORY
The components of inventory are summarized as follows:
<TABLE>
<CAPTION>
DECEMBER 31,
-------------------
1994 1995
------- -------
<S> <C> <C>
Raw materials................................................... $ 1,027 $ 1,536
Work-in-process................................................. 671 4,091
Finished goods.................................................. 30,209 63,883
------- -------
$31,907 $69,510
------- -------
</TABLE>
Finished goods inventory includes in-transit amounts of $9,138 and $7,377
at December 31, 1994 and 1995, respectively.
7. NOTES RECEIVABLE FROM RELATED PARTY
During 1994, Rio Sportswear made $2,350 in loans to Mr. Simon, bearing
interest at the prime rate plus 3%. At December 31, 1994, notes receivable from
Mr. Simon include accrued interest of approximately $63. This interest was
forgiven in 1995 and no further interest was accrued. The loans were repaid in
connection with the purchase of the remaining interests in the Predecessor
Companies as described in Note 3. At December 31, 1994, the notes receivable
were treated as a reduction of stockholder's equity.
8. PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment consist of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
-----------------
1994 1995
------ ------
<S> <C> <C>
Land............................................................... $ 12 $ 12
Buildings.......................................................... 1,400 1,400
Machinery and equipment............................................ 1,379 1,481
Computer equipment................................................. 143 1,146
Furniture, fixtures and office equipment........................... 520 1,039
Leasehold improvements............................................. 148 806
------ ------
3,602 5,884
Less, accumulated depreciation and amortization.................... (731) (931)
------ ------
$2,871 $4,953
====== ======
</TABLE>
F-12
<PAGE> 68
DESIGNER HOLDINGS LTD.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
(IN THOUSANDS)
9. INTANGIBLE ASSETS
Intangible assets consist of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
-------------------
1994 1995
------- -------
<S> <C> <C>
Goodwill......................................................... $21,805 $21,283
Licensing rights................................................. 9,736 9,736
Noncompete agreements............................................ 7,500 7,500
Other............................................................ 211
------- -------
39,041 38,730
Less, accumulated amortization................................... (1,160) (3,850)
------- -------
$37,881 $34,880
======= =======
</TABLE>
During 1995, the Company reduced goodwill by $522 to reflect the final
determination of certain purchase accounting adjustments.
10. ACCRUED EXPENSES
Accrued expenses consist of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
-------------------
1994 1995
------- -------
<S> <C> <C>
Accrued compensation............................................. $ 4,921 $ 5,995
Accrued royalties................................................ 3,228 13,382
Other............................................................ 6,895 10,713
------- -------
$15,044 $30,090
======= =======
</TABLE>
11. FINANCING
Borrowings outstanding under financing arrangements consist of the
following:
<TABLE>
<CAPTION>
DECEMBER 31,
-------------------
1994 1995
------- -------
<S> <C> <C>
Revolving credit loans........................................... $97,016
=======
Long-term debt:
Notes payable to CEP II........................................ $45,181
Note payable to bank........................................... 10,000
Term loan...................................................... $23,750
Senior subordinated notes, including deferred interest......... 31,653
------- -------
55,181 55,403
Less, current portion............................................ (2,926) (5,000)
------- -------
$52,255 $50,403
======= =======
</TABLE>
In connection with the transactions described in Notes 3 and 4, CEP II
loaned the Company $45,181. These loans had a one-year term and bore interest at
the prime rate plus 3%. On May 1, 1995, the Company concluded a long-term
refinancing of its indebtedness to CEP II ($45,181) and a financial institution
F-13
<PAGE> 69
DESIGNER HOLDINGS LTD.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
(IN THOUSANDS)
($10,000). Interest expense under the CEP II indebtedness was $1,259 and $1,806
for the four months ended December 31, 1994 and the year ended December 31,
1995, respectively.
The new financing consists of a senior credit facility and a subordinated
loan. The senior credit facility involves several lenders and consists of (i) a
revolving credit facility which provides for the issuance of loans and letters
of credit up to $115,000, limited, in the aggregate, to specified percentages of
eligible factored receivables and inventory, as defined, and, with respect to
open letters of credit, limited to $45,000; and (ii) a term loan of $25,000.
This facility may be terminated by the Company or the lenders on April 28, 2000
or each anniversary thereafter.
Borrowings under the revolving credit facility are made under revolving
credit notes which mature upon termination of the agreement. However, the
agreement requires that customer remittances paid directly to the Factor be
assigned to the lenders and used to reduce the outstanding borrowings. The
agreement also contains a provision whereby borrowings under the revolving
credit facility require that there be no material adverse change in the
Company's business or condition. As a result, the revolving credit loans are
classified as current in the accompanying balance sheet. The Company expects to
maintain substantially all of these borrowings as outstanding over the next
year.
On September 15, 1995, the revolving credit facility was temporarily
increased by $10,000 and on November 8, 1995, it was further increased by
another $10,000, subject to the same limitations as previously described. These
increases expire on March 29, 1996.
At December 31, 1995, open letters of credit and open collection letters
amounted to $21,441.
The term loan is payable in quarterly principal installments of $1,250
commencing December 31, 1995 ($5,000 annually from 1996 through 1999) and a
final installment of $3,750 on March 31, 2000. The term loan agreement requires
prepayments of the latest installments based on excess cash flows as defined in
the agreement. If the term loan is refinanced prior to April 28, 1997, the
Company will be subject to a prepayment fee.
Borrowings outstanding under revolving credit loans and the term loan bear
interest at one month LIBOR plus 2.75% or the Chemical Bank of New York prime
rate plus 1.25%, adjustable monthly. Letters of credit bear applicable drawing
and maintenance fees. The weighted average interest rate on short term
borrowings outstanding at December 31, 1995 was 9.1%. The Company pays a
commitment fee of 1/2 of 1% on the unused portion of the revolving credit
commmitment.
Under a subordinated loan agreement, Designer issued Senior Subordinated
Notes (the "Subordinated Loan") for $30,000. The Subordinated Loan bears a
current interest rate of 12%, payable in June and December of each year, and a
deferred interest rate of 8% for the first two years, increasing 1% per annum
each year thereafter, compounded annually, and payable upon maturity or
prepayment of any portion of the principal amount of the Subordinated Loan to
which the deferred interest relates. At December 31, 1995, deferred interest
amounted to approximately $1,653 and is included in the Subordinated Loan
account. The Subordinated Loan is payable in installments of $5,000 on April 28,
2002, $10,000 each on April 28, 2003 and 2004 and the remaining balance on April
28, 2005. Prepayments are subject to a prepayment fee during the first two years
of the loan. The Company intends to prepay the Subordinated Loan with the
estimated proceeds to the Company from the proposed initial public offering of
common stock described in Note 1. If the prepayment occurs prior to June 30,
1996, the Company will record an extraordinary charge consisting of the
prepayment fee of approximately $3,000 and the write-off of related deferred
financing costs. The Subordinated Loan is subordinate to amounts outstanding
under the senior credit facility.
Amounts outstanding under the senior credit facility are collateralized by
substantially all the assets of the Company. The senior credit facility and the
Subordinated Loan agreements contain restrictive covenants
F-14
<PAGE> 70
DESIGNER HOLDINGS LTD.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
(IN THOUSANDS)
which, among other requirements, prohibit the payment of dividends or stock
repurchases and restrict additional indebtedness, leases, capital expenditures,
investments and a sale of assets or merger of the Company with another entity.
The covenants, as amended March 8, 1996, also require the Company to meet
certain financial ratios and maintain minimum levels of net worth.
The carrying amount for the revolving credit loans and the term loan
approximates fair value because the underlying instruments are variable rate
notes which reprice frequently. It is not practicable to estimate the fair value
of the Subordinated Loan based on the lack of available information for similar
instruments of privately-held entities.
12. INCOME TAXES
The provision (benefit) for income taxes consists of the following:
<TABLE>
<CAPTION>
PREDECESSOR COMPANIES THE COMPANY
(COMBINED) (CONSOLIDATED)
---------------------------- ---------------------------
YEAR EIGHT MONTHS FOUR MONTHS YEAR
ENDED ENDED ENDED ENDED
DECEMBER 31, AUGUST 25, DECEMBER 31, DECEMBER 31,
1993 1994 1994 1995
------------ ------------ ----------- ------------
<S> <C> <C> <C> <C>
Current:
Federal.......................... $ 317 $ 1,634 $ 13,329
State and local.................. 175 $ (175) 727 5,140
------ ------ ------- --------
492 (175) 2,361 18,469
------ ------ ------- --------
Deferred:
Federal.......................... (797) (207) (25) (5,628)
State and local.................. (26) (17) (97) (1,971)
------ ------ ------- --------
(823) (224) (122) (7,599)
------ ------ ------- --------
Total.................... $ (331) $ (399) $ 2,239 $ 10,870
====== ====== ======= ========
</TABLE>
The components of deferred tax assets and liabilities are as follows:
<TABLE>
<CAPTION>
DECEMBER 31,
-----------------
1994 1995
------ ------
<S> <C> <C>
Deferred tax assets, current:
Inventory basis adjustment....................................... $ 373 $ 946
Reserves and accrued expenses.................................... 1,774 7,119
------ ------
$2,147 $8,065
====== ======
Deferred tax assets, noncurrent:
Net operating loss carryforwards................................. $ 27 $ 826
Deferred interest................................................ 711
------ ------
$ 27 $1,537
====== ======
Deferred tax liabilities, noncurrent:
Depreciation of property, plant and equipment.................... $ (56) $ (96)
Amortization of intangible assets................................ (857) (646)
------ ------
$ (913) $ (742)
====== ======
</TABLE>
F-15
<PAGE> 71
DESIGNER HOLDINGS LTD.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
(IN THOUSANDS)
The provision (benefit) for income taxes differs from the amount computed
by applying the statutory Federal income tax rate to pre-tax income as follows:
<TABLE>
<CAPTION>
PREDECESSOR COMPANIES
(COMBINED) THE COMPANY
-------------------------- (CONSOLIDATED)
EIGHT ----------------------------
YEAR MONTHS FOUR MONTHS YEAR
ENDED ENDED ENDED ENDED
DECEMBER 31, AUGUST 25, DECEMBER 31, DECEMBER 31,
1993 1994 1994 1995
------------ ---------- ------------ ------------
<S> <C> <C> <C> <C>
Tax provision (benefit) at statutory
Federal income tax rate............. $ 615 $ (207) $1,455 $ 7,677
State income taxes, net of Federal
benefit............................. 97 410 2,031
Nondeductible goodwill amortization... 227 493
S corporation/partnership income not
subject to tax...................... (373)
Income tax liability assumed by
stockholder upon conversion to S
Corporation status.................. (622)
Other................................. (48) (192) 147 669
------ ------ ------ --------
$ (331) $ (399) $2,239 $ 10,870
====== ====== ====== ========
</TABLE>
Prior to August 26, 1994, the results of operations reflect the Predecessor
Companies which included two S corporations and a partnership which were not
subject to Federal and state income taxes. One of these entities converted from
a C corporation to an S corporation in 1993. As a result, $622 of deferred taxes
payable became the responsibility of a stockholder and were treated as a
reduction of deferred tax expense.
As of December 31, 1995, the Company has a net operating loss carryforward
for Federal income tax purposes of approximately $1,922 which expires in 2010.
13. COMMITMENTS AND CONTINGENCIES
Leases:
The Company leases showrooms, office facilities, warehouses, equipment and
automobiles under noncancelable operating leases. In addition to minimum rental
payments, these leases require payment of various expenses incidental to the use
of the property and, in some cases, provide for rent adjustments based upon
changes in the consumer price index. Rent expense under these leases
approximated $1,238, $871, $262 and $1,807 for the year ended December 31, 1993,
the eight months ended August 25, 1994, the four months ended December 31, 1994
and the year ended December 31, 1995, respectively. Included in rent expense in
1993 and the eight months ended August 25, 1994 is $840 and $560, respectively,
for office and warehouse facilities leased from a then owner of the Company.
Future minimum rental payments required under these leases in the aggregate
and for each of the next five years, exclusive of a lease currently under
renegotiation, are as follows:
<TABLE>
<S> <C>
Year ending December 31:
1996.............................................................. $2,616
1997.............................................................. 1,896
1998.............................................................. 1,009
1999.............................................................. 710
2000.............................................................. 476
Thereafter........................................................ 2,601
------
$9,308
======
</TABLE>
F-16
<PAGE> 72
DESIGNER HOLDINGS LTD.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
(IN THOUSANDS)
In April 1995, the Company executed, subject to the approval of the
Company's board of directors, a triple net ten-year lease for a warehouse to be
constructed and available for occupancy during 1997. The terms of this lease,
which are presently being renegotiated, provide for an initial annual base rent
of approximately $1,500, adjusted for increases in the consumer price index, and
contain two five-year renewal options.
License Agreements:
CKJ LICENSE. CKJC has the CKJ License with CKI to use the Calvin Klein
Jeans Labels for jeans and jeans-related products in the United States, Canada,
Mexico, Guatemala, Belize, Honduras, Nicaragua, Costa Rica, Panama, Columbia,
Ecuador, Brazil, Peru, Bolivia, Paraguay and Chile. The CKJ License requires
royalty and advertising fee payments based on percentages of sales, as defined.
It also requires minimum annual royalty fee payments of approximately $4,500 in
1995 which increase to approximately $11,400 by 2004. Royalty and advertising
fees aggregated approximately $5,985 and $36,065 for the four months ended
December 31, 1994 and the year ended December 31, 1995, respectively, and are
included in selling, general and administrative expenses. The CKJ License
expires December 31, 2004, with an option to renew for four additional ten-year
periods providing certain minimum sales levels are achieved. It also contains
covenants which require Jeanswear to meet certain net worth and debt-to-net
worth levels.
Effective July 1, 1995, CKJC entered into a distribution agreement for the
sale of Calvin Klein Jeans Label products in Canada. The agreement provides for
royalty and advertising fee payments to CKJC based on percentages of sales of
the distributor, as defined. The agreement also requires minimum annual royalty
fee payments of approximately $1,800 in 1996 which increase to approximately
$3,000 in 1999. Royalty fees approximated $791, net of royalty fee payments due
CKI by CKJC, under this agreement from its inception (July 1, 1995) to December
31, 1995 and are included in net revenues. The initial term of this agreement is
through December 31, 1995 with an option to renew for four additional one-year
terms. The agreement has been renewed for 1996.
The Company also has entered into a distribution agreement for Calvin Klein
Jeans Label childrens apparel in the United States, effective January 1, 1996.
Under this agreement CKJC will receive royalty and advertising fees based on
percentages of sales of the distributor, as defined. The agreement will continue
through December 31, 2004 with an option to renew the agreement for four
additional ten year terms if CKJC has renewed the license agreement with CKI and
the distributor has met certain minimum net sales thresholds.
BILL BLASS LICENSE. Rio Sportswear has a licensing agreement with Bill
Blass Ltd. to use the Bill Blass labels in connection with the manufacture,
distribution and sale of women's jeans and jeans-related skirts, dresses and
jackets in the Western Hemisphere. The agreement requires royalty fee payments
based on percentages of sales, as defined, subject to a minimum annual royalty
fee payment of $1,000. Royalty fees approximated $2,948, $1,800, $893 and $2,354
under this agreement for the year ended December 31, 1993, the eight months
ended August 25, 1994, the four months ended December 31, 1994 and the year
ended December 31, 1995, respectively, and are included in selling, general and
administrative expenses. The agreement expires on December 31, 1997 and contains
an option to renew for an additional three-year period and a further option to
renew for an additional ten-year period for which minimum annual royalty fee
payments during such ten-year period will increase to $1,500.
BILL BLASS SUBLICENSE AND RIO LICENSE. In December 1995, Rio Sportswear
entered into an agreement, commencing January 1, 1996, to (i) sublicense its
rights under the Bill Blass licensing agreement, (ii) grant a license of its Rio
tradename for use on a full line of products, exclusive of certain womens shirts
and tops and childrenswear, and (iii) place the manufacture of its private label
business, all with a manufacturer affiliated with a primary supplier to the
Company. In connection with this agreement, Rio Sportswear sold its remaining
F-17
<PAGE> 73
DESIGNER HOLDINGS LTD.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
(IN THOUSANDS)
inventory of Bill Blass, Rio and private label products to the manufacturer and
incurred a loss in connection with the sale of approximately $4,400.
Under the terms of the agreement, Rio Sportswear will earn a royalty fee
based on sales orders accepted by the manufacturer. In addition, Rio Sportswear
will continue to market the products under the agreement and is required to pay
substantially all selling expenses, as stipulated in the agreement, including
the maintenance of a showroom and sales staff. The agreement requires minimum
annual royalty fee payments in addition to the minimum royalties payable to Bill
Blass, of approximately $667 for 1996 which increase to approximately $1,000 for
1998 and thereafter. The initial term of the agreement expires on December 31,
2005 and is renewable for five additional ten-year periods.
Multi-Employer Pension Plan:
The Company contributes to a multi-employer defined benefit pension plan on
behalf of union employees of its two manufacturing facilities and a warehouse
and distribution facility. Contribution expense is determined in accordance with
the provisions of collective bargaining agreements and amounted to $85 and
$1,438 for the four months ended December 31, 1994 and the year ended December
31, 1995, respectively. Under the Employee Retirement Income Security Act, as
amended, an employer upon withdrawal from a multi-employer plan is required to
continue funding its proportionate share of the plan's unfunded vested benefits.
The plan administrator has not provided the Company with information regarding
its proportionate share of the plan's unfunded vested benefits (for withdrawal
liability purposes); however, the Company has no immediate intention of
withdrawing from the plan. Under the purchase agreement to the assets acquired
with the Calvin Klein license, the Company's obligation from any such withdrawal
is limited to $3,500 and CKI is responsible for any additional liability. In
1995, the Company acquired a lease on a warehouse and distribution facility from
CKI. Pursuant to this agreement, CKI indemnified the Company for any pension
withdrawal liability at a rate of 100% decreasing to 25% of such liability, in
annual decrements of 15%, in each of the first five years subsequent to the
acquisition of the lease. The remaining 25% indemnification will remain in
effect through the initial term of the lease which expires in June 1999.
Other Commitments:
CKJC has employment agreements with certain employees which, in addition to
base salaries, provide incentive bonuses based upon net sales, as defined, in
excess of certain minimum amounts.
The Company has guaranteed to a fabric supplier the payment of up to $1,300
in trade accounts payable of two of its contractors.
Litigation:
In 1990, an action was filed against Rio Sportswear and certain other
defendants alleging, among other things, that the Company infringed a patent
held by the plaintiffs relating to acid wash processes used in the manufacture
of jeanswear having a random fade effect. Similar suits are pending against the
major manufacturers of such jeanswear. The plaintiffs seek damages against all
defendants in unspecified amounts. No trial date has been set. Rio Sportswear
had received a proposal from plaintiffs offering to settle the litigation, which
was subsequently withdrawn, and Rio Sportswear made a counterproposal, which has
also been withdrawn. There can be no assurance that plaintiffs will make or
consider further settlement proposals with respect to the litigation. If the
parties are unable to reach a settlement, Rio Sportswear intends to contest the
action vigorously. The outcome of litigation is inherently unpredictable and, in
the event that no settlement were reached and Rio Sportswear were found to have
infringed the patent in suit, damages and attorneys' fees could be assessed
against Rio Sportswear. No assurance can be given that such damages and fees
would not have a material adverse effect upon the Company's results of
operations or cash flows in the
F-18
<PAGE> 74
DESIGNER HOLDINGS LTD.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
(IN THOUSANDS)
period in which the judgment is rendered; however, the Company believes that any
such damages and fees would not have a material adverse effect upon the
Company's financial position.
The Company is subject to other legal proceedings for which the outcome, in
the opinion of management, is not expected to have a material adverse effect on
results of operations, financial position or cash flows.
14. SIGNIFICANT CUSTOMERS
For the year ended December 31, 1993, one customer accounted for
approximately 18% of gross sales. For the eight months ended August 25, 1994,
three customers accounted for approximately 36% of gross sales. For the four
months ended December 31, 1994, one customer accounted for approximately 11% of
gross sales. For the year ended December 31, 1995, two customers accounted for
approximately 27% of gross sales.
15. STOCK OPTION AND INCENTIVE PLAN
The Company's Board of Directors has approved in principle the Designer
Holdings Ltd. 1996 Stock Option and Incentive Plan (the "Stock Plan"). The Stock
Plan is expected to be approved by the stockholders of the Company prior to the
initial public offering.
Pursuant to the Stock Plan, executive officers, key employees and
consultants of the Company are eligible to receive awards of stock options,
stock appreciation rights, limited stock appreciation rights and restricted
stock. Under the Stock Plan, the Company has reserved 2,288,200 shares of Common
Stock for issuance of awards under the Stock Plan (subject to antidilution and
similar adjustments).
16. SUBSEQUENT EVENTS
CKJ LICENSE AMENDMENTS
On April 22, 1996, the CKJ License was amended to provide for, among other
things, the (i) modification of the term of the CKJ License from a ten-year
initial term with four ten-year renewal terms to a forty-year initial term with
one ten-year renewal term, (ii) modification of net sales thresholds, (iii)
extension of the term of the CKJ License for the Khaki Collection from ten years
to forty years, (iv) granting to the Company the non-exclusive right to sell
caps for the term of the CKJ License, (v) expansion of the geographical
territory for the Khaki Collection, (vi) addition of certain territories in
Central and South America to the CKJ License, and (vii) liberalization of
certain covenants. 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 following the effective
date of the proposed initial public offering of the Company's common stock,
although the Company has granted CKI certain "piggy-back" registration rights
that can be exercised at any time after the shares are converted into voting
common stock.
The value of the shares issued to CKI of $20,203 will be recorded as
capitalized licensing rights and amortized over forty years, the adjusted term
of the CKJ License. Had the transaction been consummated at December 31, 1995,
intangible assets, total assets and stockholder's equity would have been
$55,083, $271,017, and $52,685, respectively.
EMPLOYMENT AGREEMENT
As of April 22, 1996, the Company entered into an employment agreement with
Mr. Simon, which becomes effective upon the closing of the proposed initial
public offering of the Company's Common Stock.
F-19
<PAGE> 75
DESIGNER HOLDINGS LTD.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
(IN THOUSANDS)
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.
F-20
<PAGE> 76
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- ------------------------------------------------------
NO DEALER, SALESPERSON OR OTHER INDIVIDUAL HAS BEEN AUTHORIZED TO GIVE ANY
INFORMATION OR MAKE ANY REPRESENTATIONS NOT CONTAINED IN THIS PROSPECTUS IN
CONNECTION WITH THE OFFERING COVERED BY THIS PROSPECTUS. IF GIVEN OR MADE, SUCH
INFORMATION OR REPRESENTATIONS MUST NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED
BY THE COMPANY, THE SELLING STOCKHOLDER OR THE UNDERWRITERS. THIS PROSPECTUS
DOES NOT CONSTITUTE AN OFFER TO SELL, OR A SOLICITATION OF AN OFFER TO BUY, THE
COMMON STOCK IN ANY JURISDICTION WHERE, OR TO ANY PERSON TO WHOM, IT IS UNLAWFUL
TO MAKE SUCH OFFER OR SOLICITATION. NEITHER THE DELIVERY OF THIS PROSPECTUS NOR
ANY SALE MADE HEREUNDER SHALL, UNDER ANY CIRCUMSTANCES, CREATE ANY IMPLICATION
THAT THERE HAS NOT BEEN ANY CHANGE IN THE FACTS SET FORTH IN THIS PROSPECTUS OR
IN THE AFFAIRS OF THE COMPANY SINCE THE DATE HEREOF.
------------------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Prospectus Summary.................... 3
Risk Factors.......................... 7
The Company........................... 11
Dividend Policy....................... 12
Use of Proceeds....................... 12
Capitalization........................ 13
Dilution.............................. 14
Unaudited Pro Forma Financial
Information......................... 15
Selected Financial Information........ 16
Management's Discussion and Analysis
of Financial Condition and Results
of Operations....................... 17
Business.............................. 22
Management............................ 32
Certain Transactions.................. 38
Principal and Selling Stockholders.... 39
Description of Capital Stock.......... 40
Description of Indebtedness........... 43
Shares Eligible for Future Sale....... 45
Certain United States Federal Tax
Consequences to Non-United States
Holders............................. 46
Underwriting.......................... 48
Legal Matters......................... 50
Experts............................... 50
Additional Information................ 51
Index of Financial Statements......... F-1
UNTIL , 1996 (25 DAYS AFTER
THE DATE OF THIS PROSPECTUS), ALL DEALERS
EFFECTING TRANSACTIONS IN THE COMMON STOCK,
WHETHER OR NOT PARTICIPATING IN THIS
DISTRIBUTION, MAY BE REQUIRED TO DELIVER A
PROSPECTUS. THIS DELIVERY REQUIREMENT IS IN
ADDITION TO THE OBLIGATION OF DEALERS TO
DELIVER A PROSPECTUS WHEN ACTING AS
UNDERWRITERS AND WITH RESPECT TO THEIR
UNSOLD ALLOTMENTS OR SUBSCRIPTIONS.
- --------------------------------------------
- --------------------------------------------
</TABLE>
- ------------------------------------------------------
- ------------------------------------------------------
12,000,000 SHARES
DESIGNER HOLDINGS LTD.
COMMON STOCK
LOGO
--------------------
PROSPECTUS
---------------------
MERRILL LYNCH & CO.
MORGAN STANLEY & CO.
INCORPORATED
MAY , 1996
- ------------------------------------------------------
- ------------------------------------------------------
<PAGE> 77
INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A
REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR
MAY OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT
BECOMES EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR
THE SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE
SECURITIES IN ANY JURISDICTION IN WHICH SUCH OFFER, SOLICITATION OR SALE
WOULD BE UNLAWFUL PRIOR TO REGISTRATION OR QUALIFICATION UNDER THE
SECURITIES LAWS OF ANY SUCH JURISDICTION.
LOGO
[ALTERNATE PAGE FOR INTERNATIONAL PROSPECTUS]
SUBJECT TO COMPLETION
PRELIMINARY PROSPECTUS DATED MAY 8, 1996
PROSPECTUS
12,000,000 SHARES
DESIGNER HOLDINGS LTD.
COMMON STOCK
------------------------
Of the 12,000,000 shares of Common Stock offered hereby, 6,000,000 shares
are being sold by Designer Holdings Ltd. and 6,000,000 shares are being sold by
the Selling Stockholder of the Company. The Company will not receive any
proceeds from the sale of shares of Common Stock by the Selling Stockholder.
Of the 12,000,000 shares of Common Stock offered hereby, 2,400,000 shares
are being offered outside the United States and Canada by the International
Managers and 9,600,000 shares are being offered in the United States and Canada
by the U.S. Underwriters. The initial public offering price and the aggregate
underwriting discount per share will be identical for both Offerings.
Prior to the Offerings, there has been no public market for the Common
Stock. It is currently estimated that the initial public offering price will be
between $16 and $18 per share. See "Underwriting" for a discussion of the
factors to be considered in determining the initial price of the Common Stock.
The Common Stock has been approved for listing, subject to official notice
of issuance, on the New York Stock Exchange under the symbol "DSH."
SEE "RISK FACTORS" BEGINNING ON PAGE 7 FOR A DISCUSSION OF CERTAIN FACTORS
THAT SHOULD BE CONSIDERED IN CONNECTION WITH AN INVESTMENT IN THE COMMON STOCK
OFFERED HEREBY.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION, NOR HAS THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION
PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY
REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C>
PROCEEDS TO
PRICE UNDERWRITING PROCEEDS TO SELLING
TO PUBLIC DISCOUNT(1) THE COMPANY(2) STOCKHOLDER
- ------------------------------------------------------------------------------------------------------
Per Share..................... $ $ $ $
- ------------------------------------------------------------------------------------------------------
Total(3)...................... $ $ $ $
- - - -
</TABLE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
(1) The Company and the Selling Stockholder have agreed to indemnify the several
International Managers against certain liabilities, including certain
liabilities under the Securities Act of 1933, as amended. See
"Underwriting."
(2) Before deducting expenses of the Offerings payable by the Company estimated
at $3,000,000.
(3) The Company and the Selling Stockholder have granted the International
Managers and the U.S. Underwriters options, exercisable within 30 days after
the date of this Prospectus, to purchase up to 360,000 and 1,440,000
additional shares of Common Stock, respectively, solely to cover
over-allotments, if any. If such options are exercised in full, the total
Price to Public, Underwriting Discount and Proceeds to Selling Stockholder
will be $ , $ , and $ , respectively. See
"Underwriting."
------------------------
The shares of Common Stock are offered by the International Managers,
subject to prior sale, when, as and if issued and accepted by them, subject to
approval of certain legal matters by counsel for the International Managers and
certain other conditions. The International Managers reserve the right to
withdraw, cancel or modify such offer and to reject orders in whole or in part.
It is expected that delivery of the shares of Common Stock will be made in New
York, New York on or about , 1996.
------------------------
MERRILL LYNCH INTERNATIONAL MORGAN STANLEY & CO.
INTERNATIONAL
------------------------
The date of this Prospectus is May , 1996.
<PAGE> 78
[ALTERNATE PAGE FOR INTERNATIONAL PROSPECTUS]
UNDERWRITING
Subject to the terms and conditions set forth in the international purchase
agreement (the "International Purchase Agreement") among the Company, the
Selling Stockholder and each of the underwriters named below (the "International
Managers"), and concurrently with the sale of 9,600,000 shares of Common Stock
to the U.S. Underwriters (as defined below), the Company and the Selling
Stockholder have agreed to sell to the International Managers, and each of the
International Managers severally has agreed to purchase from the Company and the
Selling Stockholder the number of shares of Common Stock set forth opposite its
name below.
<TABLE>
<CAPTION>
NUMBER OF
INTERNATIONAL MANAGERS SHARES
- ---------------------------------------------------------------------------------- ----------
<S> <C>
Merrill Lynch International.......................................................
Morgan Stanley & Co. International Limited........................................
-----
Total................................................................ 2,400,000
=====
</TABLE>
The Company and the Selling Stockholder have also entered into the U.S.
purchase agreement (the "U.S. Purchase Agreement") with certain other
underwriters in the United States and Canada (the "U.S. Underwriters" and,
together with the International Managers, the "Underwriters") for whom Merrill
Lynch, Pierce, Fenner & Smith Incorporated ("Merrill Lynch") and Morgan Stanley
& Co. are acting as Representatives (the "U.S. Representatives"). Subject to the
terms and conditions set forth in the U.S. Purchase Agreement and concurrently
with the sale of 2,400,000 shares of Common Stock to the International Managers
pursuant to the International Purchase Agreement, the Company and the Selling
Stockholder have agreed to sell to each of the U.S. Underwriters, and the U.S.
Underwriters severally have agreed to purchase from the Company and the Selling
Stockholder an aggregate of 9,600,000 shares of Common Stock. The initial public
offering price per share and the total underwriting discount per share of the
Common Stock are identical under the International Purchase Agreement and the
U.S. Purchase Agreement.
In the International Purchase Agreement and the U.S. Purchase Agreement,
the several International Managers and the several U.S. Underwriters,
respectively, have agreed, subject to the terms and conditions set forth
therein, to purchase all of the shares of Common Stock being sold pursuant to
each such agreement if any of such shares of Common Stock being sold pursuant to
each such Purchase Agreement are purchased. Under certain circumstances, the
commitments of non-defaulting International Managers or U.S. Underwriters (as
the case may be) may be increased. The closings with respect to the sale of
shares of Common Stock to be purchased by the International Managers and the
U.S. Underwriters are conditioned upon one another.
The International Managers and the U.S. Underwriters have entered into an
intersyndicate agreement (the "Intersyndicate Agreement") providing for the
coordination of their activities. Under the terms of the Intersyndicate
Agreement, the International Managers and the U.S. Underwriters are permitted to
sell shares of Common Stock to each other for purposes of resale at the initial
public offering price, less an amount not greater than the selling concession.
Under the terms of the Intersyndicate Agreement, the International Managers and
any dealer to whom they sell shares of Common Stock will not offer to sell or
sell shares of Common Stock to persons who are United States and Canadian
persons or to persons they believe intend to resell to United States and
Canadian persons, and the U.S. Underwriters and any dealer to whom they sell
shares of Common Stock will not offer to sell or sell shares of Common Stock to
persons who are non-United States persons or non-Canadian persons or to persons
they believe intend to resell to persons who are non-United States persons or
non-Canadian persons, except in each case for transactions pursuant to such
agreement.
48
<PAGE> 79
[ALTERNATE PAGE FOR INTERNATIONAL PROSPECTUS]
The International Managers have advised the Company and the Selling
Stockholder that the International Managers propose to offer the shares of
Common Stock offered hereby to the public at the initial public offering price
set forth on the cover page of this Prospectus, and to certain dealers at such
price less a concession not in excess of $ per share of Common Stock.
The International Managers may allow, and such dealers may reallow, a discount
not in excess of $ per share of Common Stock on sales to certain other
dealers. After the initial public offering, the public offering price,
concession and discount may be changed.
The Company and the Selling Stockholder have granted an option to the
International Managers, exercisable during the 30-day period after the date of
this Prospectus, to purchase up to an aggregate of 360,000 additional shares of
Common Stock at the initial public offering price, less the underwriting
discount. The International Managers may exercise this option only to cover
over-allotments, if any, made on the sale of Common Stock offered hereby. To the
extent that the International Managers exercise this option, each International
Manager will be obligated, subject to certain conditions, to purchase the number
of additional shares of Common Stock proportionate to such International
Manager's initial amount reflected in the foregoing table. The Company and the
Selling Stockholder also have granted an option to the U.S. Underwriters,
exercisable during the 30-day period after the date of this Prospectus, to
purchase up to an aggregate of 1,440,000 additional shares of Common Stock to
cover over-allotments, if any, on terms similar to those granted to the
International Managers. Of the aggregate 1,800,000 shares subject to the over-
allotment options, options with respect to 650,000 and 1,150,000 shares have
been granted by the Company and the Selling Stockholder, respectively.
At the request of the Company, the Underwriters (as defined below) have
reserved up to 600,000 shares of Common Stock for sale at the initial public
offering price to certain employees of the Company and other persons associated
with the Company or affiliated with any director, officer or management employee
of the Company who have expressed an interest in purchasing such shares. The
number of shares of Common Stock available to the general public will be reduced
to the extent such persons purchase such reserved shares. Any reserved shares
not so purchased by such employees at the closing of the Offerings will be
offered by the Underwriters to the general public on the same terms as the other
shares offered hereby. Certain individuals purchasing reserved shares may be
required to agree not to sell, offer or otherwise dispose of any shares of
Common Stock for a period of three months after the date of this Prospectus.
The Company, the Selling Stockholder, each of the Company's directors and
certain officers and CKI have agreed not to (except for the shares offered
hereby and subject to certain exceptions in the case of the Company for the
grant of, and the issuance of shares pursuant to the exercise of, employee stock
options and the issuance of shares of Common Stock to CKI upon conversion of the
non-voting common stock owned by it) directly or indirectly sell, offer to sell,
grant any option for sale of, contract or otherwise dispose of any shares of
Common Stock or any securities convertible or exchangeable into, or exercisable
for, Common Stock for a period of 180 days after the date of this Prospectus
without the prior written consent of Merrill Lynch. See "Shares Eligible For
Future Sale."
Prior to the Offerings, there has been no public market for the Common
Stock of the Company. The initial public offering price will be determined
through negotiations among the Company, the Selling Stockholder and the U.S.
Representatives. Among the factors that will be considered in determining such
price are an assessment of the Company's recent results of operations, the
future prospects of the Company and the industry in general, the price-earnings
ratio and market prices of other companies engaged in activities similar to the
Company and prevailing conditions in the securities market. There can be no
assurance that an active trading market will develop for the Common Stock or
that the Common Stock will trade in the public market subsequent to the
Offerings at or above the initial public offering price.
Each International Manager has agreed that (i) it has not offered or sold
and it will not offer or sell, directly or indirectly, any shares of Common
Stock offered hereby in the United Kingdom by means of any document, except in
circumstances which do not constitute an offer to the public within the meaning
of the Companies Act 1985, (ii) it has complied and will comply with all
applicable provisions of the Financial Services Act 1986 with respect to
anything done by it in relation to the Common Stock in, from or otherwise
49
<PAGE> 80
[ALTERNATE PAGE FOR INTERNATIONAL PROSPECTUS]
involving the United Kingdom, and (iii) it has only issued or passed on and will
only issue or pass on to any person in the United Kingdom any document received
by it in connection with the issuance of Common Stock if that person is of a
kind described in Article 9(3) of the Financial Services Act 1986 (Investment
Advertisements) (Exemptions) Order 1988 or is a person to whom the document may
otherwise lawfully be issued or passed on.
No action has been or will be taken in any jurisdiction (except in the
United States) that would permit a public offering of the shares of Common
Stock, or the possession, circulation or distribution of this Prospectus or any
other material relating to the Company, the Selling Stockholder or shares of
Common Stock, in any jurisdiction where action for that purpose is required.
Accordingly, the shares of Common Stock may not be offered or sold, directly or
indirectly, and neither this prospectus nor any other offering material or
advertisements in connection with the shares of the Common Stock may be
distributed or published, in or from any country or jurisdiction except in
compliance with any applicable rules and regulations of such country or
jurisdiction.
Purchasers of the shares of Common Stock offered hereby may be required to
pay stamp taxes and other charges in accordance with the laws and practices of
the country of purchase, in addition to the offering price set forth on the
cover page hereof.
The Common Stock has been approved for listing, subject to official notice
of issuance, on the New York Stock Exchange under the symbol "DSH." In order to
meet the requirements for listing of the Common Stock on such exchange, the
International Managers have undertaken to sell lots of 100 or more shares to a
minimum of 2,000 beneficial owners.
The Underwriters do not intend to confirm sales of the shares of Common
Stock offered hereby to any accounts over which they exercise discretionary
authority.
The Company and the Selling Stockholder have agreed to indemnify the
Underwriters against certain liabilities, including certain liabilities under
the Securities Act, or to contribute to payments the Underwriters may be
required to make in respect thereof.
LEGAL MATTERS
Certain legal matters with respect to the Common Stock will be passed upon
for the Company by Skadden, Arps, Slate, Meagher & Flom, New York, New York.
Certain legal matters will be passed upon for the Underwriters by Cahill Gordon
& Reindel (a partnership including a professional corporation), New York, New
York. Skadden, Arps, Slate, Meagher & Flom has from time to time represented,
and may continue to represent, certain of the International Managers. Mark N.
Kaplan, a partner in the firm of Skadden, Arps, Slate, Meagher & Flom, is
trustee of a trust for the benefit of Mark K. Berman and Allison A. Berman,
which is one of the beneficial owners of the Selling Stockholder.
EXPERTS
The consolidated balance sheets of the Company as of December 31, 1995 and
1994 and the consolidated statements of operations, changes in stockholder's
equity and cash flows for the year ended December 31, 1995 and the four months
ended December 31, 1994 and the combined statements of operations, changes in
stockholders' equity and cash flows of the Predecessor Companies for the eight
months ended August 25, 1994 included in this Prospectus, have been included
herein in reliance on the report of Coopers & Lybrand L.L.P., independent
accountants, given on the authority of that firm as experts in accounting and
auditing.
The combined statements of operations, stockholders' equity and cash flows
of Rio Sportswear, Inc. and affiliated companies for the year ended December 31,
1993 and the related financial statement schedule for the year then ended
included in this Prospectus, have been audited by Deloitte & Touche LLP,
independent
50
<PAGE> 81
[ALTERNATE PAGE FOR INTERNATIONAL PROSPECTUS]
auditors, as stated in their report appearing herein and are included in
reliance upon the report of such firm given upon their authority as experts in
accounting and auditing.
In 1994, the Company retained Coopers & Lybrand L.L.P. as accountants for
the Company after the Company's management, in consultation with the Board of
Directors, decided to replace Deloitte & Touche LLP. During 1993, there were no
disagreements on any matter of accounting principles or practices, financial
statement disclosure or auditing scope or procedure, which disagreements (if not
resolved to the satisfaction of Deloitte & Touche LLP) would have caused it to
make reference to the subject matter of the disagreement in connection with
their report. The report of Deloitte & Touche LLP on the 1993 Predecessor
Companies' financial statements did not contain an adverse opinion or a
disclaimer of opinion and was not qualified as to uncertainty, audit scope or
accounting principles. Prior to the retention of Coopers & Lybrand L.L.P.,
neither the Company nor anyone on the Company's behalf consulted Coopers &
Lybrand L.L.P. regarding either the application of accounting principles related
to a specified transaction, completed or proposed, or the type of audit opinion
that might be rendered on the Company's financial statements.
ADDITIONAL INFORMATION
The Company has filed with the Securities and Exchange Commission (the
"Commission") in Washington D.C. a Registration Statement on Form S-1 under the
Securities Act with respect to the securities offered hereby. This Prospectus
does not contain all the information set forth in the Registration Statement and
the exhibits and schedules thereto, to which reference is hereby made.
Statements made in this Prospectus as to the contents of any contract, agreement
or other document are not necessarily complete; with respect to each such
contract, agreement or other document filed as an exhibit to the Registration
Statement, reference is made to the exhibit for a more complete description of
the matter involved, and each such statement shall be deemed qualified in its
entirety by this reference. The Registration Statement and the exhibits thereto
filed by the Company with the Commission may be inspected and copied at the
public reference facilities maintained by the Commission at Room 1024, Judiciary
Plaza, 450 Fifth Street, N.W., Washington, D.C. 20549 and will also be available
for inspection and copying at the regional offices of the Commission located at
Room 1400, 75 Park Place, New York, New York 10007 and at Northwest Atrium
Center, 500 West Madison Street (Suite 1400), Chicago, Illinois 60661. Copies of
such material may also be obtained from the Public Reference Section of the
Commission at 450 Fifth Street, N.W., Washington, D.C. 20549 at prescribed
rates.
Upon completion of the Offerings, the Company will be subject to the
informational requirements of the Exchange Act and, in accordance therewith,
will file reports, proxy and information statements and other information with
the Commission. Such reports, proxy and information statements and other
information can be inspected and copied at the addresses set forth above. The
Company intends to furnish its stockholders with annual reports containing
consolidated financial statements audited by its independent certified public
accountants and with quarterly reports containing unaudited condensed
consolidated financial statements for each of the first three quarters of each
fiscal year.
51
<PAGE> 82
[ALTERNATE PAGE FOR INTERNATIONAL PROSPECTUS]
- ------------------------------------------------------
- ------------------------------------------------------
NO DEALER, SALESPERSON OR OTHER INDIVIDUAL HAS BEEN AUTHORIZED TO GIVE ANY
INFORMATION OR TO MAKE ANY REPRESENTATIONS NOT CONTAINED IN THIS PROSPECTUS IN
CONNECTION WITH THE OFFERING COVERED BY THIS PROSPECTUS. IF GIVEN OR MADE, SUCH
INFORMATION OR REPRESENTATIONS MUST NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED
BY THE COMPANY, THE SELLING STOCKHOLDER OR THE UNDERWRITERS. THIS PROSPECTUS
DOES NOT CONSTITUTE AN OFFER TO SELL, OR A SOLICITATION OF AN OFFER TO BUY, THE
COMMON STOCK IN ANY JURISDICTION WHERE, OR TO ANY PERSON TO WHOM, IT IS UNLAWFUL
TO MAKE SUCH OFFER OR SOLICITATION. NEITHER THE DELIVERY OF THIS PROSPECTUS NOR
ANY SALE MADE HEREUNDER SHALL, UNDER ANY CIRCUMSTANCES, CREATE ANY IMPLICATION
THAT THERE HAS NOT BEEN ANY CHANGE IN THE FACTS SET FORTH IN THIS PROSPECTUS OR
IN THE AFFAIRS OF THE COMPANY SINCE THE DATE HEREOF.
THERE ARE RESTRICTIONS ON THE OFFER AND SALE OF THE COMMON STOCK OFFERED
HEREBY IN THE UNITED KINGDOM. ALL APPLICABLE PROVISIONS OF THE FINANCIAL
SERVICES ACT 1986 AND THE COMPANIES ACT 1985 WITH RESPECT TO ANYTHING DONE BY
ANY PERSONS IN RELATION TO THE COMMON STOCK IN, FROM OR OTHERWISE INVOLVING THE
UNITED KINGDOM MUST BE COMPLIED WITH. SEE "UNDERWRITING".
IN THIS PROSPECTUS, REFERENCE TO "DOLLARS" AND "$" ARE TO UNITED STATES
DOLLARS UNLESS STATED OTHERWISE.
------------------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Prospectus Summary.................... 3
Risk Factors.......................... 7
The Company........................... 11
Dividend Policy....................... 12
Use of Proceeds....................... 12
Capitalization........................ 13
Dilution.............................. 14
Unaudited Pro Forma Financial
Information......................... 15
Selected Financial Information........ 16
Management's Discussion and Analysis
of Financial Condition and Results
of Operations....................... 17
Business.............................. 22
Management............................ 32
Certain Transactions.................. 38
Principal and Selling Stockholders.... 39
Description of Capital Stock.......... 40
Description of Indebtedness........... 43
Shares Eligible for Future Sale....... 45
Certain United States Federal Tax
Consequences to Non-United States
Holders............................. 46
Underwriting.......................... 48
Legal Matters......................... 50
Experts............................... 50
Additional Information................ 51
Index of Financial Statements......... F-1
UNTIL , 1996 (25 DAYS AFTER
THE DATE OF THIS PROSPECTUS), ALL DEALERS
EFFECTING TRANSACTIONS IN THE COMMON STOCK,
WHETHER OR NOT PARTICIPATING IN THIS
DISTRIBUTION, MAY BE REQUIRED TO DELIVER A
PROSPECTUS. THIS DELIVERY REQUIREMENT IS IN
ADDITION TO THE OBLIGATION OF DEALERS TO
DELIVER A PROSPECTUS WHEN ACTING AS
UNDERWRITERS AND WITH RESPECT TO THEIR
UNSOLD ALLOTMENTS OR SUBSCRIPTIONS.
- --------------------------------------------
- --------------------------------------------
</TABLE>
- ------------------------------------------------------
- ------------------------------------------------------
12,000,000 SHARES
DESIGNER HOLDINGS LTD.
COMMON STOCK
LOGO
--------------------
PROSPECTUS
---------------------
MERRILL LYNCH INTERNATIONAL
MORGAN STANLEY & CO.
INTERNATIONAL
MAY , 1996
- ------------------------------------------------------
- ------------------------------------------------------
<PAGE> 83
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 13. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION
Set forth below is a table of the registration fee for the Securities and
Exchange Commission, the filing fee for the National Association of Securities
Dealers, Inc., the listing fee for New York Stock Exchange and estimates of all
other expenses to be incurred in connection with the issuance and distribution
of the securities described in this Registration Statement, other than
underwriting discounts and commissions:
<TABLE>
<S> <C>
SEC registration fee............................................. $ 77,725
NASD filing fee.................................................. 23,040
Listing fee...................................................... 109,100
Blue sky fees and expenses....................................... 25,000
Printing and engraving expenses.................................. 425,000
Legal fees and expenses.......................................... 1,800,000
Accounting fees and expenses..................................... 500,000
Transfer agent and registrar fees................................ 2,000
Miscellaneous.................................................... 38,135
----------
Total.................................................. $3,000,000
=========
</TABLE>
ITEM 14. INDEMNIFICATION OF DIRECTORS AND OFFICERS
Pursuant to Section 145 of the General Corporation Law of Delaware (the
"Delaware Corporation Law") Article VIII of the By-laws of the Registrant, a
copy of which is filed as Exhibit 3.2 to this Registration Statement, provides
that the Registrant shall indemnify any person in connection with the defense or
settlement of any threatened, pending or completed legal proceeding (other than
a legal proceeding by or in the right of the Registrant) by reason of the fact
that he is or was a director or officer of the Registrant or is or was a
director or officer of the Registrant serving at the request of the Registrant
as a director, officer, employee or agent of another corporation, partnership or
other enterprise against expenses (including attorney's fees), judgments, fines
and amounts paid in settlement actually and reasonably incurred in connection
with the defense or settlement of such legal proceedings if he acted in good
faith and in a manner that he reasonably believed to be in or not opposed to the
best interests of the Registrant, and, with respect to any criminal action or
proceeding, if he had no reasonable cause to believe that his conduct was
unlawful. If the legal proceeding, however, is by or in the right of the
Registrant, the director or officer may be indemnified by the Registrant against
expenses (including attorney's fees) actually and reasonably incurred in
connection with the defense or settlement of such legal proceeding if he acted
in good faith and in a manner he reasonably believed to be in or not opposed to
the best interests of the Registrant and except that he may not be indemnified
in respect of any claim, issue or matter as to which he shall have been adjudged
to be liable to the Registrant unless a court determines otherwise.
Article VIII of the Registrant's By-laws allows the Registrant to maintain
director and officer liability insurance on behalf of any person who is or was a
director or officer of the Registrant or such person who serves or served as a
director, officer, agent or employee, at another corporation, partnership or
other enterprise at the request of the Registrant.
Pursuant to Section 102(b)(7) of the Delaware Corporation Law, Article
Sixth of the Certificate of Incorporation of the Registrant, a copy of which is
filed as Exhibit 3.1 to this Registration Statement, provides that no director
of the Registrant shall be personally liable to the Registrant or its
shareholders for monetary damages for any breach of his fiduciary duty as a
director; provided, however, that such clause shall not apply to any liability
of a director (1) for any breach of his duty of loyalty to the Registrant or its
stockholders, (2) for acts or omissions that are not in good faith or involve
intentional misconduct or a knowing violation of the
II-1
<PAGE> 84
law, (3) under Section 174 of the Delaware Corporation Law, or (4) for any
transaction from which the director derived an improper personal benefit.
The Company has purchased an insurance policy covering indemnification of
directors and officers of the Registrant against certain liabilities arising
under the Securities Act that might be incurred by them in such capacities.
ITEM 15. RECENT SALES OF UNREGISTERED SECURITIES.
On March 27, 1995, Designer Holdings Ltd. sold 1,000 (which, pursuant to a
stock split as of April 22, 1996 currently equal 24,233,868) shares of Common
Stock to the Selling Stockholder for $40,000,000 in reliance on Section 4(2) of
the Securities Act of 1933. On April 22, 1996, Designer Holdings Ltd. sold
1,275,466 shares of non-voting common stock to Calvin Klein, Inc., in reliance
on Section 4(2) of the Securities Act of 1933. See "Business -- CKJ License."
ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
(a) Exhibits:
<TABLE>
<CAPTION>
EXHIBIT NO. DESCRIPTION
----------- ------------------------------------------------------------------------
<C> <S>
1.1 Form of U.S. Purchase Agreement.*
1.2 Form of International Purchase Agreement.*
3.1 Certificate of Incorporation of the Registrant.*
3.2 By-Laws of Registrant.*
4.1 Specimen Certificate of Common Stock.*
5.1 Opinion of Skadden, Arps, Slate, Meagher & Flom.**
10.1 Form of Registration Rights Agreement.**
10.2 Financing Agreement dated as of April 28, 1995 (the "Credit Agreement")
by and among New Rio, L.L.C., Denim Holdings Inc., Jeanswear Holdings,
Inc., Rio Sportswear, Inc., Calvin Klein Jeanswear Company, the Lenders
referred to therein and The CIT Group/Commercial Services, Inc. as
Agent.*
10.3 Third Amendment to the Credit Agreement, dated as of March 29, 1996.*
10.4 Intentionally omitted.
10.5 Third Supplemental Funding Agreement to the Credit Agreement dated
January 16, 1996.*
10.6 Factoring Agreement dated as of August 24, 1994 between Rio Sportswear,
Inc. and The CIT Group/BCC, Inc.*
10.7 Letter Amendment dated as of August 24, 1994 to the Factoring Agreement
between Rio Sportswear, Inc. and The CIT Group/BCC, Inc.*
10.8 Factoring Agreement dated as of August 4, 1994 between Calvin Klein
Jeanswear Company and The CIT Group/BCC, Inc.*
10.9 Intercreditor Agreement and Assignment of Factoring Proceeds dated as of
April 28, 1995 between Rio Sportswear, Inc. and The CIT Group/Commercial
Services, Inc.*
10.10 Intercreditor Agreement and Assignment of Factoring Proceeds dated as of
April 28, 1995 between Calvin Klein Jeanswear Company and The CIT
Group/Commercial Services, Inc.*
10.11 Subordinated Loan Agreement dated as of April 28, 1995 by and among BIB
Holdings (Bermuda) Ltd., Denim Holdings, Inc., and New Rio, L.L.C.*
10.12 Asset Purchase Agreement dated as of July 8, 1994 among Calvin Klein
Jeanswear Company, Abbeville Acquisition Company, Kaijay Acquisition
Company, Calvin Klein Sport, Inc. and Kaijay Pants Co., Inc.*
10.13 License Agreement dated as of August 20, 1987 (the "Bill Blass License
Agreement") by and between Bill Blass, Ltd. and Rio Sportswear, Inc.*
10.14 Amendment to the Bill Blass License Agreement dated as of May 27, 1992.*
10.15 Amendment to the Bill Blass License Agreement dated as of June 1, 1992.*
</TABLE>
II-2
<PAGE> 85
<TABLE>
<CAPTION>
EXHIBIT NO. DESCRIPTION
----------- ------------------------------------------------------------------------
<C> <S>
10.16 Amendment to the Bill Blass License Agreement dated as of January 27,
1993.*
10.17 Amendment to the Bill Blass License Agreement dated as of March 30,
1994.*
10.18 Amendment to the Bill Blass License Agreement dated as of May 19, 1994.*
10.19 Amendment to the Bill Blass License Agreement dated as of December 7,
1994.*
10.20 License Agreement dated as of August 4, 1994 (the "Calvin Klein License
Agreement") between Calvin Klein, Inc. and Calvin Klein Jeanswear
Company.*
10.21 Amendment to the Calvin Klein License Agreement dated as of December 7,
1994.*
10.22 Amendment to the Calvin Klein License Agreement dated as of January 10,
1995.*
10.23 Amendment to the Calvin Klein License Agreement dated as of February 28,
1995.*
10.24 Agreement dated as of December 12, 1995 by and between Rio Sportswear,
Inc. and Commerce Clothing Company, LLC.*
10.25 Distributorship Agreement dated as of February 1996, between Calvin
Klein Jeanswear Company, Commerce Clothing Company LLC, and Calvin
Klein, Inc.*
10.26 Designer Holdings Ltd. 1996 Stock Option and Incentive Plan.**
10.27 Employment Agreement between New Rio Sportswear Inc., Calvin Klein
Jeanswear Company and Maurice Dickson, as amended.**
10.28 Employment Agreement between Calvin Klein Jeanswear Company and Daniel
J. Gladstone, as amended.**
10.29 Agreement of Lease by and between Erika Realty Trust and Calvin Klein
Jeanswear Company.*
10.30 Distribution Agreement dated September 7, 1995 between Calvin Klein
Jeanswear and Floor Ready Company, L.L.C.*
10.31 Distributorship Agreement dated as of June 26, 1995, between Calvin
Klein Jeanswear Company, Western Glove Works R.S., and Calvin Klein,
Inc.*
10.32 Lease Agreement dated as of April 28, 1995 between North Arlington
Associates and Rio Sportswear, Inc.*
10.33 Amendment to the Bill Blass License Agreement dated as of March 22,
1996.*
10.34 Employment Agreement between Designer Holdings Ltd., Calvin Klein
Jeanswear Company and Arnold H. Simon.**
10.35 Employment Agreement between Designer Holdings Ltd., Calvin Klein
Jeanswear Company and Debra Simon.**
10.36 Employment Agreement between Calvin Klein Jeanswear Company and New Rio
Sportswear, Inc. and David Fidlon, as amended.**
10.37 Employment Agreement between Designer Holdings Ltd., Calvin Klein
Jeanswear Company and John J. Jones.**
10.38 Amendment to the Calvin Klein License Agreement dated as of April 22,
1996.*
10.39 Amendment to the Lease Agreement between North Arlington Associates and
Rio Sportswear, Inc., dated as of February 22, 1996.*
10.40 Stock Acquisition Agreement dated as of April 22, 1996 between Designer
Holdings Ltd. and Calvin Klein Inc.*
10.41 Employment Agreement between Calvin Klein Jeanswear Company, Rio
Sportswear, Inc. and Guy Kinberg.**
16.1 Letter of Deloitte & Touche LLP, re change in certifying accountant.*
21.1 Subsidiaries of the Registrant.*
23.1 Consent of Coopers & Lybrand L.L.P.**
23.2 Consent of Deloitte & Touche LLP.**
23.3 Consent of Skadden, Arps, Slate, Meagher & Flom(included in Exhibit
5.1).**
</TABLE>
Financial Statement Schedules
Schedule II -- Valuation and Qualifying Accounts
- ---------------
* Previously filed.
** Filed with this Amendment No. 4.
II-3
<PAGE> 86
ITEM 17. UNDERTAKINGS
The undersigned Registrant hereby undertakes to provide to the Underwriters
at the closing specified in the Underwriting Agreement certificates in such
denominations and registered in such names as required by the Underwriters to
permit prompt delivery to each purchaser.
Insofar as indemnification for liabilities arising under the Securities Act
of 1933 may be permitted to directors, officers and controlling persons of the
Registrant pursuant to the foregoing provisions, or otherwise, the Registrant
has been advised that in the opinion of the Securities and Exchange Commission
such indemnification is against public policy as expressed in the Securities Act
and is, therefore, unenforceable. In the event that a claim for indemnification
against such liabilities (other than the payment by the Registrant of expenses
incurred or paid by a director, officer or controlling person of the Registrant
in the successful defense of any action, suit or proceeding) is asserted by such
director, officer or controlling person in connection with the securities being
registered, the Registrant will, unless in the opinion of its counsel the matter
has been settled by controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it is against public
policy as expressed in the Securities Act and will be governed by the final
adjudication of such issue.
The undersigned Registrant hereby undertakes that:
(1) For purposes of determining any liability under the Securities
Act, the information omitted from the form of prospectus filed as part of a
registration statement in reliance upon Rule 430A and contained in the form
of prospectus filed by the Registrant pursuant to Rule 424(b)(1) or (4) or
497(h) under the Securities Act shall be deemed to be part of the
registration statement as of the time it was declared effective.
(2) For the purpose of determining any liability under the Securities
Act, each post-effective amendment that contains a form of prospectus shall
be deemed to be a new registration statement relating to the securities
offered therein, and the offering of such securities at that time shall be
deemed to be the initial bona fide offering thereof.
II-4
<PAGE> 87
SIGNATURES
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, AS AMENDED, THE
REGISTRANT HAS DULY CAUSED THIS AMENDMENT TO ITS REGISTRATION STATEMENT TO BE
SIGNED ON ITS BEHALF BY THE UNDERSIGNED, THEREUNTO DULY AUTHORIZED, IN THE CITY
OF NEW YORK, STATE OF NEW YORK, ON MAY 8, 1996.
DESIGNER HOLDINGS LTD.
By: /s/ Maurice Dickson
MAURICE DICKSON
TREASURER AND CHIEF FINANCIAL
OFFICER
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, THIS AMENDMENT
TO THE REGISTRATION STATEMENT HAS BEEN SIGNED BELOW BY THE FOLLOWING PERSONS IN
THE CAPACITIES AND ON THE DATES INDICATED.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
- ----------------------------------------------- ------------------------------ ---------------
<S> <C> <C>
* President, Chief Executive
ARNOLD H. SIMON Officer and Director
/s/ MAURICE DICKSON Treasurer and Chief May 8, 1996
MAURICE DICKSON Financial Officer
* Controller and Chief
DAVID FIDLON Accounting Officer
* Chairman of the
MERRIL M. HALPERN Board of Directors
* Executive Vice President
DEBRA SIMON and Director
* Director
A. LAWRENCE FAGAN
*By: /s/ MAURICE DICKSON Attorney-in-Fact May 8, 1996
MAURICE DICKSON
</TABLE>
II-5
<PAGE> 88
DESIGNER HOLDINGS LTD.
SCHEDULE II -- VALUATION AND QUALIFYING ACCOUNTS
(IN THOUSANDS)
<TABLE>
<CAPTION>
ADDITIONS
-----------------------
BALANCE AT CHARGED TO CHARGED TO BALANCE AT
BEGINNING COSTS AND OTHER END OF
DESCRIPTION OF PERIOD EXPENSES ACCOUNTS DEDUCTIONS(A) PERIOD
- ------------------------------------------ ---------- ---------- ---------- ------------- ----------
<S> <C> <C> <C> <C> <C>
PREDECESSOR COMPANIES (COMBINED)..........
Year ended December 31, 1993:
Allowance for doubtful accounts, sales
returns, discounts and other
credits.............................. $ 824 $ 26 $ 798
====== ======== ======= ======= ========
Eight months ended August 25, 1994:
Allowance for doubtful accounts, sales
returns, discounts and other
credits.............................. $ 798 $ 7 $ 805
====== ======== ======= ======= ========
THE COMPANY (CONSOLIDATED)................
Four months ended December 31, 1994:
Allowance for doubtful accounts, sales
returns, discounts and other
credits.............................. $ 805 $ 891 $ 1,696
====== ======== ======= ======= ========
Year ended December 31, 1995:
Allowance for doubtful accounts, sales
returns, discounts and other
credits.............................. $1,696 $ 12,300 $ 13,996
====== ======== ======= ======= ========
</TABLE>
- ---------------
(A) Represents recoveries of accounts previously charged off.
S-1
<PAGE> 89
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors and Stockholder
of Designer Holdings Ltd.:
In connection with our audits of the consolidated financial statements of
Designer Holdings Ltd. as of December 31, 1995 and 1994 and for the year ended
December 31, 1995 and the four months ended December 31, 1994 and the combined
financial statements for the eight months ended August 25, 1994, we have also
audited the financial statement schedule listed in Item 16 herein.
In our opinion, this financial statement schedule, when considered in relation
to the basic financial statements taken as a whole, presents fairly, in all
material respects, the information required to be included therein.
COOPERS & LYBRAND L.L.P.
New York, New York
February 29, 1996, except
for Note 1, the tenth paragraph of Note 11,
the thirteenth paragraph of Note 13 and Note 16,
for which the date is April 22, 1996
S-2
<PAGE> 90
EXHIBIT INDEX
<TABLE>
<CAPTION>
SEQUENTIALLY
NUMBERED
EXHIBIT NO. DESCRIPTION PAGES
- ----------- --------------------------------------------------------------------------- ------------
<C> <S> <C>
1.1 Form of U.S. Purchase Agreement.*..........................................
1.2 Form of International Purchase Agreement.*.................................
3.1 Certificate of Incorporation of the Registrant.*...........................
3.2 By-Laws of Registrant.*....................................................
4.1 Specimen Certificate of Common Stock.*.....................................
5.1 Opinion of Skadden, Arps, Slate, Meagher & Flom.**.........................
10.1 Form of Registration Rights Agreement.**...................................
10.2 Financing Agreement dated as of April 28, 1995 (the "Credit Agreement") by
and among New Rio, L.L.C., Denim Holdings Inc., Jeanswear Holdings, Inc.,
Rio Sportswear, Inc., Calvin Klein Jeanswear Company, the Lenders referred
to therein and The CIT Group/Commercial Services, Inc. as Agent.*..........
10.3 Third Amendment to the Credit Agreement, dated as of March 29, 1996.*......
10.4 Intentionally omitted......................................................
10.5 Third Supplemental Funding Agreement to the Credit Agreement dated January
16, 1996.*.................................................................
10.6 Factoring Agreement dated as of August 24, 1994 between Rio Sportswear,
Inc. and The CIT Group/BCC, Inc.*..........................................
10.7 Letter Amendment dated as of August 24, 1994 to the Factoring Agreement
between Rio Sportswear, Inc. and The CIT Group/BCC, Inc.*..................
10.8 Factoring Agreement dated as of August 4, 1994 between Calvin Klein
Jeanswear Company and The CIT Group/BCC, Inc.*.............................
10.9 Intercreditor Agreement and Assignment of Factoring Proceeds dated as of
April 28, 1995 between Rio Sportswear, Inc. and The CIT Group/Commercial
Services, Inc.*............................................................
10.10 Intercreditor Agreement and Assignment of Factoring Proceeds dated as of
April 28, 1995 between Calvin Klein Jeanswear Company and The CIT
Group/Commercial Services, Inc.*...........................................
10.11 Subordinated Loan Agreement dated as of April 28, 1995 by and among BIB
Holdings (Bermuda) Ltd., Denim Holdings, Inc., and New Rio, L.L.C.*........
10.12 Asset Purchase Agreement dated as of July 8, 1994 among Calvin Klein
Jeanswear Company, Abbeville Acquisition Company, Kaijay Acquisition
Company, Calvin Klein Sport, Inc. and Kaijay Pants Co., Inc.*..............
10.13 License Agreement dated as of August 20, 1987 (the "Bill Blass License
Agreement") by and between Bill Blass, Ltd. and Rio Sportswear, Inc.*......
10.14 Amendment to the Bill Blass License Agreement dated as of May 27, 1992.*...
10.15 Amendment to the Bill Blass License Agreement dated as of June 1, 1992.*...
10.16 Amendment to the Bill Blass License Agreement dated as of January 27,
1993.*.....................................................................
10.17 Amendment to the Bill Blass License Agreement dated as of March 30,
1994.*.....................................................................
10.18 Amendment to the Bill Blass License Agreement dated as of May 19, 1994.*...
10.19 Amendment to the Bill Blass License Agreement dated as of December 7,
1994.*.....................................................................
10.20 License Agreement dated as of August 4, 1994 (the "Calvin Klein License
Agreement") between Calvin Klein, Inc. and Calvin Klein Jeanswear
Company.*..................................................................
10.21 Amendment to the Calvin Klein License Agreement dated as of December 7,
1994.*.....................................................................
10.22 Amendment to the Calvin Klein License Agreement dated as of January 10,
1995.*.....................................................................
10.23 Amendment to the Calvin Klein License Agreement dated as of February 28,
1995.*.....................................................................
</TABLE>
<PAGE> 91
<TABLE>
<CAPTION>
SEQUENTIALLY
NUMBERED
EXHIBIT NO. DESCRIPTION PAGES
- ----------- --------------------------------------------------------------------------- ------------
<C> <S> <C>
10.24 Agreement dated as of December 12, 1995 by and between Rio Sportswear, Inc.
and Commerce Clothing Company, LLC.*.......................................
10.25 Distributorship Agreement dated as of February 1996, between Calvin Klein
Jeanswear Company, Commerce Clothing Company LLC, and Calvin Klein,
Inc.*......................................................................
10.26 Designer Holdings Ltd. 1996 Stock Option and Incentive Plan.**.............
10.27 Employment Agreement between New Rio Sportswear Inc., Calvin Klein
Jeanswear Company and Maurice Dickson, as amended.**.......................
10.28 Employment Agreement between Calvin Klein Jeanswear Company and Daniel J.
Gladstone, as amended.**...................................................
10.29 Agreement of Lease by and between Erika Realty Trust and Calvin Klein
Jeanswear Company.*........................................................
10.30 Distribution Agreement dated September 7, 1995 between Calvin Klein
Jeanswear and Floor Ready Company, L.L.C.*.................................
10.31 Distributorship Agreement dated as of June 26, 1995, between Calvin Klein
Jeanswear Company, Western Glove Works R.S., and Calvin Klein, Inc.*.......
10.32 Lease Agreement dated as of April 28, 1995 between North Arlington
Associates and Rio Sportswear, Inc.*.......................................
10.33 Amendment to the Bill Blass License Agreement dated as of March 22,
1996.*.....................................................................
10.34 Employment Agreement between Designer Holdings Ltd., Calvin Klein Jeanswear
Company and Arnold H. Simon.**.............................................
10.35 Employment Agreement between Designer Holdings Ltd., Calvin Klein Jeanswear
Company and Debra Simon.**.................................................
10.36 Employment Agreement between Calvin Klein Jeanswear Company and New Rio
Sportswear, Inc. and David Fidlon, as amended.**...........................
10.37 Employment Agreement between Designer Holdings Ltd., Calvin Klein Jeanswear
Company and John J. Jones.**...............................................
10.38 Amendment to the Calvin Klein License Agreement dated as of April 22,
1996.*.....................................................................
10.39 Amendment to the Lease Agreement between North Arlington Associates and Rio
Sportswear, Inc., dated as of February 22, 1996.*..........................
10.40 Stock Acquisition Agreement dated as of April 22, 1996 between Designer
Holdings Ltd. and Calvin Klein Inc.*.......................................
10.41 Employment Agreement between Calvin Klein Jeanswear Company, Rio
Sportswear, Inc. and Guy Kinberg.**........................................
16.1 Letter of Deloitte & Touche LLP, re change in certifying accountant.*......
21.1 Subsidiaries of the Registrant.*...........................................
23.1 Consent of Coopers & Lybrand L.L.P.**......................................
23.2 Consent of Deloitte & Touche LLP.**........................................
23.3 Consent of Skadden, Arps, Slate, Meagher & Flom(included in Exhibit
5.1).**....................................................................
</TABLE>
Financial Statement Schedules
Schedule II -- Valuation and Qualifying Accounts
- ---------------
* Previously filed.
** Filed with this Amendment No. 4.
<PAGE> 1
Exhibit 5.1
[SKADDEN, ARPS, SLATE, MEAGHER & FLOM LETTERHEAD]
May 8, 1996
Designer Holdings Ltd.
1385 Broadway, Third Floor
New York, New York 10018
Re: Designer Holdings Ltd.
Registration Statement on Form S-1
Ladies and Gentlemen:
We have acted as special counsel to Designer Holdings Ltd., a
Delaware corporation (the "Company"), in connection with the initial public
offering by the Company of up to 6,650,000 shares (including 650,000 shares
subject to an over-allotment option) (the "Company Shares") and by a certain
stockholder of the Company (the "Selling Stockholder") of up to 7,150,000 shares
(including 1,150,000 shares subject to an over-allotment option) (the "Selling
Stockholder Shares" and, together with the Company Shares, the "Shares") of the
Company's Common Stock, par value $.01 per share (the "Common Stock").
This opinion is being furnished in accordance with the
requirements of Item 601(b)(5) of Regulation S-K under the Securities Act of
1933, as amended (the "Act").
In connection with this opinion, we have examined originals or
copies, certified or otherwise identified to our satisfaction, of (i) the
Registration Statement on Form S-1 (File No. 333-2236) as filed with the
Securities and Exchange Commission (the "Commission") on March 11, 1996 under
the Act, Amendment No. 1 thereto filed with the Commission on April 17, 1996,
Amendment No. 2 thereto filed with the Commission on April 22, 1996, Amendment
No. 3 thereto filed with the Commission on May 6, 1996 and Amendment No. 4 filed
with the Commis-
<PAGE> 2
Designer Holdings Ltd.
May 8, 1996
Page 2
sion on May 8, 1996 (such Registration Statement, as so amended, being
hereinafter referred to as the "Registration Statement"), (ii) the form of the
U.S. Purchase Agreement (the "U.S. Purchase Agreement") proposed to be entered
into among the Company, as issuer, the Selling Stockholder and Merrill Lynch,
Pierce, Fenner & Smith Incorporated and Morgan Stanley & Co. Incorporated, as
representatives of the several underwriters named therein (the "U.S.
Underwriters"), filed as an exhibit to the Registration Statement, (iii) the
form of the International Purchase Agreement (the "International Purchase
Agreement" and, together with the U.S Purchase Agreement, the "Purchase
Agreements") proposed to be entered into among the Company, as issuer, the
Selling Stockholder and Merrill Lynch International Limited and Morgan Stanley &
Co. International Limited, as lead managers of the several managing underwriters
named therein (the "Managers" and, together with the U.S. Underwriters, the
"Underwriters"), filed as an exhibit to the Registration Statement, (iv) a draft
specimen certificate representing the Common Stock, (v) the Certificate of
Incorporation of the Company, as presently in effect, (vi) the By-Laws of the
Company, as presently in effect and (vii) certain resolutions of the Board of
Directors of the Company and drafts of certain resolutions (the "Draft
Resolutions") of the Pricing Committee of the Board of Directors of the Company
(the "Pricing Committee") in each case relating to the issuance and sale of the
Shares and related matters. We have also examined originals or copies, certified
or otherwise identified to our satisfaction, of such records of the Company and
such agreements, certificates of public officials, certificates of officers or
other representatives of the Company and others, and such other documents,
certificates and records as we have deemed necessary or appropriate as a basis
for the opinions set forth herein.
In our examination, we have assumed the legal capacity of all
natural persons, the genuineness of all signatures, the authenticity of all
documents submitted to us as originals, the conformity to original documents of
all documents submitted to us as certified, conformed or photostatic copies and
the authenticity of the originals of such latter documents. In making our
examination of documents executed or to be executed by parties other
<PAGE> 3
Designer Holdings Ltd.
May 8, 1996
Page 3
than the Company and the Selling Stockholder, we have assumed that such parties
had or will have the power, corporate or other, to enter into and perform all
obligations thereunder and have also assumed the due authorization by all
requisite action, corporate or other, and execution and delivery by such parties
of such documents and the validity and binding effect thereof. As to any facts
material to the opinions expressed herein which we have not independently
established or verified, we have relied upon statements and representations of
officers and other representatives of the Company and others.
Members of our firm are admitted to the bar in the State of
Delaware, and we do not express any opinion as to the laws of any other
jurisdiction.
Based upon and subject to the foregoing, we are of the opinion
that:
(1) When (i) the Registration Statement becomes effective,
(ii) the Draft Resolutions have been adopted by the Pricing Committee, (iii) the
price at which the Shares are to be sold to the Underwriters pursuant to the
Purchase Agreements and other matters relating to the issuance and sale of the
Shares have been approved by the Pricing Committee in accordance with the Draft
Resolutions, (iv) the Purchase Agreements have been duly executed and delivered
and (v) certificates representing the Shares substantially in the form of the
specimen certificates examined by us have been manually signed by an authorized
officer of the transfer agent and registrar for the Common Stock and registered
by such transfer agent and registrar, and delivered to and paid for by the
Underwriters at a price per share not less than the per share par value of the
Common Stock, as contemplated by the Purchase Agreements, the issuance and sale
of the Company Shares will have been duly authorized, and the Company Shares
will be validly issued, fully paid and nonassessable.
(2) The Selling Stockholder Shares have been duly authorized
and validly issued and are fully paid and nonassessable.
<PAGE> 4
Designer Holdings Ltd.
May 8, 1996
Page 4
We hereby consent to the filing of this opinion with the
Commission as an exhibit to the Registration Statement. We also consent to the
reference to our firm under the caption "Legal Matters" in the Registration
Statement. In giving this consent, we do not thereby admit that we are included
in the category of persons whose consent is required under Section 7 of the Act
or the rules and regulations of the Commission.
Very truly yours,
/s/ SKADDEN, ARPS, SLATE, MEAGHER & FLOM
<PAGE> 1
Exhibit 10.1
[FORM OF REGISTRATION RIGHTS AGREEMENT]
REGISTRATION RIGHTS AGREEMENT, dated as of May 9, 1996 (the
"Agreement"), among DESIGNER HOLDINGS LTD., a Delaware corporation (the
"Company"), NEW RIO, L.L.C., a Delaware limited liability company ("New Rio"),
and CALVIN KLEIN, INC., a New York corporation ("CKI").
WHEREAS, at the date hereof, New Rio owns all the Company's
issued and outstanding common stock, par value $.01 per share (the "Common
Stock") and CKI owns all the Company's issued and outstanding non-voting common
stock, par value $.01 per share (the "Non-Voting Common Stock");
WHEREAS, the Non Voting Common Stock is convertible at any
time, on a one-for-one basis, into shares of Common Stock; and
WHEREAS, the parties hereto desire to enter into this
Agreement, which sets forth the terms of certain registration rights applicable
to the Registrable Shares (as defined below).
NOW, THEREFORE, the parties agree as follows:
Section 1. Certain Definitions. In addition to the terms
defined elsewhere in this Agreement, the following terms shall have the
following meanings:
"CKI Lender" means any lender to whom CKI pledges any shares of CKI
Stock as collateral security for a bona fide loan that is with full recourse to
CKI.
"CKI Stock" means the 1,275,466 shares of either Non-Voting Common
Stock or Common Stock owned by CKI.
"Demand Registration" has the meaning set forth in Section 3(a).
"Demand Request" has the meaning set forth in Section 3(a).
"Demanding Stockholder" has the meaning set forth in Section 3(a).
<PAGE> 2
"Exchange Act" means the Securities Exchange Act of 1934, as amended.
"Initial Public Offering" means the initial public offering by the
Company of Common Stock registered under the Securities Act.
"Inspectors" has the meaning set forth in Section 5(g).
"New Rio L.L.C. Agreement" means the Third Amended and Restated Limited
Liability Company Agreement of New Rio, dated as of May 9, 1996.
"Non-Demanding Stockholder" has the meaning set forth in Section 3(a).
"Non-Voting Common Stock" means the Company's non-voting common stock,
which are convertible at any time, on a one-for-one basis, into shares of Common
Stock.
"Piggyback Registration" has the meaning set forth in Section 2(a).
"Piggyback Request" has the meaning set forth in Section 2(a).
"Records" has the meaning set forth in Section 5(g).
"Registrable Shares" means any shares of Common Stock held by any of
the Stockholders from time to time, including, without limitation, any shares of
Common Stock issued upon conversion of any shares of Non-Voting Common Stock, so
long as such securities are Restricted Securities; provided that, a security
ceases to be a Registrable Share when it is no longer a Restricted Security and
provided, further that Registrable Shares shall not mean shares of Non-Voting
Common Stock.
"Restricted Securities" Registrable Shares are Re- stricted Securities
unless or until:
(i) a Registration Statement with respect to the sale of such
securities shall have been declared effective under the Securities Act
and such securities shall have
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<PAGE> 3
been disposed of pursuant to such Registration
Statement,
(ii) such securities are permitted to be distributed pursuant
to Rule 144(k) (or any successor provision to such Rule) under the
Securities Act, or
(iii) such securities shall have been otherwise transferred
pursuant to an applicable exemption under the Securities Act, new
certificates for such securities not bearing a legend restricting
further transfer shall have been delivered by the Company and such
securities shall be freely transferable to the public without
registration under the Securities Act.
"SEC" means the Securities and Exchange Commission.
"Securities Act" means the Securities Act of 1933, as amended.
"Stockholders" means New Rio and CKI; provided, however, that if a CKI
Lender forecloses on any Registrable Shares or participates in a Demand
Registration or makes a Demand Request as provided in this Agreement, such CKI
Lender shall have the same rights and obligations under this Agreement as a
Stockholder.
"underwritten registration or underwritten offering" means a
registration in which securities of the Company are sold to underwriters for
reoffering to the public.
Section 2. Piggyback Registrations.
(a) Right to Piggyback. At any time after the consummation of
the Initial Public Offering, whenever the Company proposes to register any of
its Common Stock (or securities convertible into or exchangeable or exercisable
for Common Stock) under the Securities Act for its own account or the account of
any stockholder of the Company (other than offerings pursuant to employee plans
on Form S-8 or any successor form thereto, or noncash offerings in connection
with a proposed acquisition, exchange offer, recapitalization or similar
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<PAGE> 4
transaction on Form S-4 or any successor form thereto) and the registration form
to be used can be used for the registration of Registrable Shares (a "Piggyback
Registration"), the Company shall give prompt written notice to each Stockholder
of its intention to effect such a registration and, subject to paragraph (c)
below, shall include in such registration all Registrable Shares with respect to
which the Company has received a written request (a "Piggyback Request")
specifying the number of Registrable Shares for inclusion therein within 30 days
after receipt of the Company's notice by each Stockholder; provided, that the
Company shall not be required to include any shares of Non Voting Common Stock
in any Piggyback Registration.
(b) Designation of Pricing. The Company may designate a
minimum offering price and maximum underwriting or selling discounts at which
shares of Common Stock may be sold in respect of a registered underwritten
offering initiated by the Company.
(c) Priority. If a Piggyback Registra tion pursuant to this
Section 2 involves an underwritten offering, the Company shall not be required
to register any Registrable Shares held by any Stockholder unless such
Stockholder accepts the terms of the underwriting agreement and then only in
such quantity as shall not, in the written opinion of the managing underwriter,
exceed the maximum shares of Common Stock that can be marketed without
materially and adversely affecting the offering, if any, by the Company or the
stockholder of the Company, as the case may be. If the managing underwriter
advises the Company or the Demanding Stockholder (as defined below), as the case
may be, in good faith that in its opinion the number of securities requested to
be included in such registration exceeds the number that can be sold in such
offering without having an adverse effect on such offering, including the price
at which such securities can be sold, then the Company shall be required to
include in such registration the maximum number of shares that such underwriter
advises can be so sold, allocated
(i) if such registration was initiated by the Company, (x)
first, to the securities the Company proposes to sell, (y) second,
among the Registrable Shares requested to be included in such
registration by the
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<PAGE> 5
Stockholders pro rata, on the basis of the number of Registrable Shares
each Stockholder owns, and (z) third, among other securities, if any,
requested and otherwise eligible to be included in such registration;
and
(ii) if such registration was initiated by any stockholder of
the Company, (x) first, among the shares (including Registrable Shares)
requested to be included in such registration by any stockholder, pro
rata, on the basis of the number of shares each such stockholder
requests be included in such registration, and (y) second, to any
securities the Company proposes to sell.
Section 3. Requested Registrations.
(a) Right to Request Registration. At any time after
180 days after the consummation of the Initial Public Offering, New Rio and any
CKI Lender (each, a "Demanding Stockholder") may request ("Demand Request")
registration under the Securities Act ("Demand Registration") of Registrable
Shares, provided that, the Company shall not be required to effect a Demand
Registration pursuant to this Section 3 unless, (i) with respect to the
Registrable Shares held by New Rio, the conditions set forth in the applicable
sections of Article 11 of the New Rio L.L.C. Agreement are met and (ii) with
respect to a CKI Lender, such CKI Lender shall have (x) foreclosed, pursuant to
the applicable loan and security agreements and in accordance with applicable
law, on the shares of CKI Stock pledged to it and (y) taken substantial steps,
in good faith, to pursue and obtain the collection of the obligations owed to it
from CKI and from all other persons, if any, obligated in respect of the loan
secured by the shares of CKI Stock pledged to such CKI Lender; provided,
however, that a CKI Lender must make such Demand Request with respect to all the
Registrable Shares upon which it has foreclosed.
Within 10 days after receipt of any Demand Request, the
Company shall give written notice of the Demand Request to the other Stockholder
(the "Non-Demanding Stockholder") and shall, subject to the provisions of the
next succeeding paragraph of this Section 3(a), use
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<PAGE> 6
all reasonable efforts to effect the Demand Registration of the Registrable
Shares specified in the Demand Request and, subject to Section 3(b), to include
in the registration all the additional Registrable Shares with respect to which
the Company has received a written request for inclusion therein within 60 days
after the receipt of the Demand Request by the Non-Demanding Stockholder.
The Company shall not be obligated to effect more than nine
Demand Registrations by New Rio and not more than one Demand Registration by all
CKI Lenders in the aggregate. Notwithstanding anything to the contrary in this
Agreement, if for any reason (other than the fault of the Demanding
Stockholder), the registration fails to become effective or is not applicable to
all the Registrable Shares specified in the Demand Request, or the effectiveness
is not maintained for at least 60 days or the Company fails to perform all its
obligations under this Section 3(a) with respect to that registration, such
Demand Registration shall not reduce the number of Demand Registrations
available to that Demanding Stockholder; provided that such Demand Registration
shall reduce the number of Demand Registrations available to that Demanding
Stockholder, notwithstanding that the effectiveness of the registration has not
been maintained for at least 60 days, as of the date of the first day of such 60
day period on which such Demanding Stockholder consummates the sale of all of
the Registrable Shares requested by such Demanding Stockholder to be included in
such registration.
Notwithstanding anything in this Agreement to the contrary,
(x) CKI shall not be entitled to make a Demand Request and (y) the Company shall
not be required to register any shares of Non Voting Common Stock.
(b) Priority. If a Demand Registration pursuant to
this Section 3 involves an underwritten offering, the Company shall not be
required to register any Registrable Shares held by any Stockholder other than
the Demanding Stockholder unless such Stockholder accepts the terms of the
underwriting agreement and then, only in such quantity as shall not, in the
written opinion of the managing underwriter, exceed the maximum shares of Common
Stock that can be marketed without materially adversely affecting the offering,
if any, by the Demanding Stockholder. If the managing underwriter advises the
Company
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<PAGE> 7
or the Demanding Stockholder, as the case may be, in good faith that in its
opinion the number of securities requested to be included in such registration
exceeds the number which can be sold in such offering without having an adverse
effect on such offering, including the price at which such securities can be
sold, then the Company shall be required to include in such registration the
maximum number of shares that such underwriter advises can be so sold, allocated
(x) first, to the Registrable Shares requested to be included in such
registration by such Demanding Stockholder, (y) second, among the Registrable
Shares requested to be included in such registration by any other Stockholder,
pro rata, on the basis of the number of Registrable Shares each such Stockholder
requests to be included in such registration, and (z) third, to any securities
the Company proposes to sell.
Section 4. Conditions to Obligations of the Company. It shall
be a condition precedent to the obligation of the Company to take any action
pursuant to this Agreement in respect of the shares of Common Stock which are to
be registered at the request of any Stockholder that such Stockholder shall
furnish to the Company such information regarding the securities held by such
Stockholder and the intended method of disposition thereof as the Company shall
reasonably request and as shall be required in connection with the action taken
by the Company.
Notwithstanding any provision in this Agreement to the
contrary, if the Board of Directors of the Company determines in its reasonable
judgment, at the time it receives a Demand Request, that (i) there shall be an
adverse effect on a then contemplated public offering of the Company's
securities, (ii) the registration and offering would interfere with any material
financing, acquisition, corporate reorganization or other material corporate
transaction or development involving the Company that is pending or imminent,
(iii) the disclosures that would be required to be made by the Company in
connection with such registration would be materially harmful to the Company
because of transactions then being considered by, or other events then
concerning, the Company, or (iv) registration at the time would require the
inclusion of pro forma or other information, which requirement the Company is
reasonably unable to comply
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<PAGE> 8
with without incurring material expense, and the Company promptly gives each
Stockholder, in the case of any registration statement referred to in Section 2,
notice of that determination (it being understood, however, that in any such
event, the Company shall use all reasonable efforts to minimize the length of
the postponement), then the Company may defer the filing of the registration
statement which is required to effect any registration pursuant to this Section
4 for a reasonable period of time, but not in excess of 120 calendar days;
provided, that the Company may not exercise the holdback rights set forth in
this Section 4 more frequently than every 18 months. If the Company shall so
postpone the filing of a registration statement, the Demanding Stockholder, in
the case of any registration statement referred to in Section 3, shall have the
right to withdraw its or his Demand Request by giving written notice to the
Company within 30 days after the receipt of the notice of the postponement and,
in the event of the withdrawal, the Demand Request that was withdrawn shall not
be deemed to have been made.
Section 5. Registration Procedures. With respect to any
registration statement referred to in Sections 2 or 3, the Company shall:
(a) use all reasonable efforts to prepare and file
with the SEC as expeditiously as possible but in no event later than 90 days
after receipt of a request for registration with respect to such Registrable
Shares, a registration statement on any form for which the Company then
qualifies or that counsel for the Company shall deem appropriate, which form
shall be available for the sale of the Registrable Shares in accordance with the
intended methods of distribution thereof, and use all commercially reasonable
efforts to cause such registration statement to become effective as promptly as
practicable, and promptly notify each Stockholder and such other persons as the
Stockholder designates, if any, and confirm such advice in writing (i) when the
registration statement becomes effective, (ii) when any post-effective amendment
to the registration statement becomes effective, (iii) of any request by the SEC
for any amendment or supplement to the registration statement or any prospectus
relating to the registration statement for additional information, and (iv) of
any stop order issued or threatened by the SEC and take all reasonable actions
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<PAGE> 9
required to prevent the entry of such stop order or to remove it if entered;
(b) use commercially reasonable efforts to prepare
and file with the SEC such amendments and supplements to such registration
statement and the prospectus used in connection therewith as may be necessary to
keep such registration statement effective for a period of not less than 90 days
or such shorter period that shall terminate when all Registrable Shares covered
by such registration statement have been sold (but not before the expiration of
the 90-day period referred to in Section 4(3) of the Securities Act and Rule
174, or any successor thereto, thereunder, if applicable), and comply with the
provisions of the Securities Act with respect to the disposition of all
securities covered by such registration statement during such period in
accordance with the intended methods of disposition by the sellers thereof set
forth in such registration statement;
(c) furnish, without charge, each Stock- holder, such
number of copies of such registration statement, each amendment and supplement
thereto, and the prospectus included in such registration statement (including
each preliminary prospectus), in conformity with the requirements of the
Securities Act, and such other documents as each Stockholder may reasonably
request in order to facilitate the disposition of the Registrable Shares
registered thereunder;
(d) use all commercially reasonable efforts to
register or qualify, not later than the effective date of the registration
statement, such Registrable Shares covered by such registration statement under
such other securities or blue sky laws of such jurisdictions, if any, as each
Stockholder reasonably requests and do any and all other acts and things which
may be reasonably necessary or advisable to enable each Stockholder, and each
underwriter, if any, to consummate the disposition in such jurisdictions of the
Registrable Shares registered thereunder; provided, that, the Company shall not
be required to (i) qualify generally to do business in any jurisdiction where it
would not otherwise be required to qualify but for this paragraph (d), (ii)
subject itself to taxation in any such jurisdiction or (iii) consent to general
service of process in any such jurisdiction;
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<PAGE> 10
(e) immediately notify each Stockholder, at any time
when a prospectus relating thereto is required to be delivered under the
Securities Act, of the happening of any event which comes to the Company's
attention if as a result of such event the prospectus included in such
registration statement contains an untrue statement of a material fact or omits
to state any material fact required to be stated therein or necessary to make
the statements therein not misleading, and the Company shall promptly prepare
and furnish each Stockholder and any other holder of securities covered by such
registration statement and prospectus with a supplement or amendment to such
prospectus so that as thereafter delivered, such prospectus shall not contain an
untrue statement of a material fact or omit to state any material fact required
to be stated therein or necessary to make the statements therein not misleading;
provided, that, if the Company determines in good faith that the disclosure that
would be required to be made by the Company would be materially harmful to the
Company because of transactions then being considered by, or other events then
concerning, the Company, or a supplement or amendment to such prospectus at such
time would require the inclusion of pro forma or other information, which
requirement the Company is reasonably unable to comply with, then the Company
may defer furnishing to each Stockholder and any other holder of securities
covered by such registration statement and prospectus a supplement or amendment
to such prospectus;
(f) use commercially reasonable efforts to cause all
such securities being registered to be listed on each securities exchange on
which similar securities issued by the Company are then listed, and enter into
such customary agreements including a listing application and indemnification
agreement in customary form, provided, that, the applicable listing requirements
are satisfied, and to provide a transfer agent and registrar for such
Registrable Shares covered by such registration statement no later than the
effective date of such registration statement;
(g) make available for inspection by any underwriters
participating in any distribution pursuant to such registration statement, and
any attorney, accountant or other agent retained by each Stockholder or the
underwriters (collectively, the "Inspectors"), all finan-
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<PAGE> 11
cial and other records, pertinent corporate documents and properties of the
Company and its subsidiaries (collectively, "Records"), if any, as shall be
reasonably necessary to enable them to demonstrate that they have conducted a
reasonable investigation of matters described in the registration statement, and
cause the Company's and its subsidiaries' officers, directors and employees to
supply all information and respond to all inquiries reasonably requested by any
such Inspector in connection with such registration statement and permit any
Inspector to participate in the preparation of any such registration statement.
Notwithstanding the foregoing, the Company shall have no obligation to disclose
any Records to the Inspectors in the event the Company determines that such
disclosure is reasonable likely to have an adverse effect on the Company's
ability to assert the existence of an attorney-client privilege with respect
thereto;
(h) if requested, use its best reasonable efforts to
obtain (1) a "cold comfort" letter from the Company's independent public
accountants in customary form and covering such matters of the type customarily
covered by "cold comfort" letters and (2) an opinion from counsel for the
Company relating to the registration statement used in connection with such
Demand Request or Piggyback Request, in customary form; and
(i) otherwise use commercially reasonable efforts to
comply with all applicable rules and regulations of the SEC, and make available
to its security holders, as soon as reasonably practicable, an earning statement
covering a period of at least 12 months, beginning with the first month after
the effective date of the registration statement (as the term "effective date"
is defined in Rule 158(c) under the Securities Act), which earning statement
shall satisfy the provisions of Section 11(a) of the Securities Act and Rule 158
thereunder.
Section 6. Restriction on Disposition of Registrable Shares.
Each of the Stockholders agrees that, upon receipt of any notice from the
Company of the happening of any event of the kind described in Section 5(e),
such Stockholder shall discontinue disposition of Registrable Shares pursuant to
the registration statement covering such Registrable Shares until receipt of the
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<PAGE> 12
copies of the supplemented or amended prospectus contemplated by Section 5(e),
or until otherwise notified by the Company, and, if so directed by the Company,
such Stockholder shall deliver to the Company (at the Company's expense) all
copies (including, without limitation, any and all drafts), other than permanent
file copies, then in such Stockholder's possession, of the prospectus covering
such Registrable Shares at the time of receipt of such notice. In the event the
Company shall give any such notice, the period mentioned in Section 5(b) shall
be extended by the greater of (x) three months or (y) the number of days during
the period from and including the date of the giving of such notice pursuant to
this Section 6 to and including the date when such Stockholder shall have
received the copies of the supplemented or amended prospectus contemplated by
Section 5(e) hereof.
Section 7. Selection of Underwriters. If any offering pursuant
to a registration statement is to be an underwritten offering, the Company shall
select a managing underwriter or underwriters to administer the offering;
provided, that, in connection with any Demand Registration, the Demanding
Stockholder shall select a managing underwriting or underwriters, which
underwriter or underwriters shall be nationally recognized and shall be
reasonably acceptable to the Company.
Section 8. Registration Expenses. All expenses (including
reasonable fees and disbursements of counsel for each Stockholder, with respect
to any registration statement referred to in Sections 2 and 3 hereof (except as
otherwise may be provided in the New Rio L.L.C. Agreement), but excluding
underwriting or brokerage commissions attributable to the Registrable Shares to
be sold) incurred in connection with all registrations under this Agreement and
the "blue sky" qualifications referred to in Section 5(d) hereof, including,
without limitation, all registration and qualification fees, printers' and
accounting fees and fees and disbursements of counsel for the Company, shall be
borne by the Company. Underwriting or brokerage commissions attributable to the
Registrable Shares to be sold shall be borne by each Stockholder on the basis of
the number of Registra-
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<PAGE> 13
ble Shares of each such Stockholder included in any registration.
Section 9. Indemnification; Contribution.
(a) The Company agrees to indemnify and hold harmless
each Stockholder and each person, if any, who controls each Stockholder within
the meaning of Section 15 of the Securities Act or Section 20 of the Exchange
Act from and against any and all losses, claims, damages, liabilities and
expenses (including reasonable costs of investigation) arising out of or based
upon any untrue statement or alleged untrue statement of a material fact
contained in any repricing prospectus, registration statement or prospectus or
in any amendment or supplement thereto, or arising out of or based upon any
omission or alleged omission to state therein a material fact required to be
stated therein or necessary to make the statements therein not misleading,
except insofar as such losses, claims, damages, liabilities or expenses arise
out of or are based upon any untrue statement or omission or alleged untrue
statement or omission which has been made therein or omitted therefrom in
reliance upon and in conformity with the information relating to such
Stockholder furnished in writing to the Company by or on behalf of such
Stockholder expressly for use in connection therewith. The foregoing indemnity
agreement shall be in addition to any liability the Company may otherwise have.
(b) If any action, suit or proceeding shall be
brought against any Stockholder or any person controlling any Stockholder in
respect of which indemnity may be sought against the Company, such person or
such controlling person shall promptly notify the Company, and the Company shall
assume the defense thereof, including the employment of counsel and payment of
all fees and expenses; provided, that, failure to so notify the Company shall
not relieve it from any liability which it may have on account of this Section
9, except to the extent the Company has been materially prejudiced by such
failure as determined by a court of competent jurisdiction in a final judgment
not subject to appeal or review. Such Stockholder or any such controlling person
shall have the right to employ separate counsel in any such action, suit or
proceeding and to participate in the defense thereof, but the fees and expenses
of such counsel shall be at the
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expense of such person unless (i) the Company has agreed in writing to pay such
fees and expenses, (ii) the Company has failed to assume the defense and employ
counsel, or (iii) the named parties to any such action, suit or proceeding
(including any impleaded parties) include both such Stockholder or such
controlling person and the Company and such Stockholder or such controlling
person shall have been advised by its counsel that representation of such
indemnified party and the Company by the same counsel would be inappropriate
under applicable standards of professional conduct (whether or not such
representation by the same counsel has been proposed) due to actual or potential
differing interests between them (in which case the Company shall not have the
right to assume the defense of such action, suit or proceeding on behalf of such
Stockholder or such controlling person). It is understood, however, that the
Company shall, in connection with any one such action, suit or proceeding or
separate but substantially similar or related actions, suits or proceedings in
the same jurisdiction arising out of the same general allegations or
circumstances, be liable for the reasonable fees and expenses of only one
separate firm of attorneys (in addition to any local counsel) at any time for
all such indemnified persons not having actual or potential differing interests
among themselves, and that all such fees and expenses shall be reimbursed as
they are incurred. The Company shall not be liable for any settlement of any
such action, suit or proceeding effected without its written consent, but if
settled with such written consent, or if there be a final judgment for the
plaintiff in any such action, suit or proceeding, the Company agrees to
indemnify and hold harmless each Stockholder, to the extent provided in the
preceding paragraph, and any such controlling person from and against any loss,
claim, damage, liability or expense by reason of such settlement or judgment.
(c) Each Stockholder agrees to indemnify and hold
harmless the Company, its directors, its officers who sign the registration
statement, and any person who controls the Company within the meaning of Section
15 of the Securities Act or Section 20 of the Exchange Act, to the same extent
as the foregoing indemnity from the Company to each Stockholder, but only with
respect to information relating to any Stockholder furnished in writing by or on
behalf of such Stockholder expressly for use in the registration statement,
prospectus or any re-
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<PAGE> 15
pricing prospectus, or any amendment or supplement thereto. If any action, suit
or proceeding shall be brought against the Company, any of its directors, any
such officer, or any such controlling person based on the registration
statement, prospectus or any repricing prospectus, or any amendment or
supplement thereto, and in respect of which indemnity may be sought against any
Stockholder pursuant to this paragraph (c), such Stockholder shall have the
rights and duties given to the Company by paragraph (b) above (except that if
the Company shall have assumed the defense thereof such Stockholder shall not be
required to do so, but may employ separate counsel therein and control the
defense thereof, but the fees and expenses of such counsel shall be at such
Stockholder's expense), and the Company, its directors, any such officer, and
any such controlling person shall have the rights and duties given to each
Stockholder by paragraph (b) above. The foregoing indemnity agreement shall be
in addition to any liability that such Stockholder may otherwise have.
(d) If the indemnification provided for in this
Section 9 is unavailable to an indemnified party under paragraphs (a) or (c)
hereof in respect of any losses, claims, damages, liabilities or expenses
referred to therein, then an indemnifying party, in lieu of indemnifying such
indemnified party, shall contribute to the amount paid or payable by such
indemnified party as a result of such losses, claims, damages, liabilities or
expenses in such proportion as is appropriate to reflect the relative fault of
the Company on the one hand and each Stockholder on the other in connection with
the statements or omissions that resulted in such losses, claims, damages,
liabilities or expenses, as well as any other relevant equitable considerations.
The relative benefits received by the Company and each Stockholder shall be
deemed to be in the same proportion as the total net proceeds from the offering
(before deducting expenses) received by the Company bear to the total net
proceeds from the offering (before deducting expenses) received by each
Stockholder. The relative fault of the Company and each Stockholder shall be
determined by reference to, among other things, whether the untrue or alleged
untrue statement of a material fact or the omission or alleged omission to state
a material fact relates to information supplied by the Company or by such
Stockholder and the parties' relative intent, knowledge,
15
<PAGE> 16
access to information and opportunity to correct or prevent such statement or
omission.
(e) The Company and each Stockholder agree that it
would not be just and equitable if contribution pursuant to this Section 9 were
determined by a pro rata allocation or by any other method of allocation that
does not take account of the equitable considerations referred to in paragraph
(d) above. The amount paid or payable by an indemnifying party as a result of
the losses, claims, damages, liabilities and expenses referred to in this
Section 9 above shall be deemed to include, subject to the limitations set forth
above, any legal or other expenses reasonably incurred by such indemnified party
in connection with investigating any claim or defending any such action, suit or
proceeding. Notwithstanding the provisions of this Section 9, no Stockholder
shall be required to contribute any amount in excess of the amount by which the
proceeds to such Stockholder exceeds the amount of any damages which such
Stockholder has otherwise been required to pay by reason of such untrue or
alleged untrue statement or omission or alleged omission. No person guilty of
fraudulent misrepresentation (within the meaning of Section 11(f) of the
Securities Act) shall be entitled to contribution from any person who was not
guilty of such fraudulent misrepresentation.
(f) No indemnifying party shall, without the prior
written consent of the indemnified party, effect any settlement of any pending
or threatened action, suit or proceeding in respect of which any indemnified
party is or could have been a party and indemnity could have been sought
hereunder by such indemnified party, unless such settlement includes an
unconditional release of such indemnified party from all liability on claims
that are the subject matter of such action, suit or proceeding.
(g) Any losses, claims, damages, liabili- ties or
expenses for which an indemnified party is entitled to indemnification or
contribution under this Section 9 shall be paid by the indemnifying party to the
indemnified party as such losses, claims, damages, liabilities or expenses are
incurred. The indemnity and contribution agreements contained in this Section 9
shall remain operative and in full force and effect, regardless
16
<PAGE> 17
of (i) any investigation made by or on behalf of any Stockholder or any person
controlling any Stockholder, the Company, its directors or officers, or any
person controlling the Company, and (ii) any termination of this Agreement.
Section 10. Obligation of Stockholder. Any Demand Request or
Piggyback Request shall express the present intent to offer for sale to the
public the number of Registrable Shares to be included in the registration
statement and contain an undertaking to provide all such information and
materials and to take all such action as may be required to permit the Company
to comply with all applicable requirements of the SEC and to obtain acceler-
ation of the effective date of the registration state- ment.
Section 11. Holdback. At the request of the Company at any
time before the fifth anniversary of the effective date of this Agreement, each
Stockholder and the Company shall agree with the underwriters in any
underwritten public offering of Common Stock not to sell or otherwise dispose of
any shares of Common Stock for up to 180 days, in the case of the Initial Public
Offering, or, in the case of each Stockholder other than CKI, up to 90 days, in
the case of other public offerings of Common Stock, after the effective date of
any registration statement covering any such public offering (provided, that CKI
shall not be required to execute such 90 day holdback if it owns less than 2% of
the outstanding Common Stock of the Company), except pursuant to such
underwritten public offering and, in the case of the Company, except for
issuance of Common Stock upon the exercise of options and securities that are
convertible or exercisable for Common Stock, to the extent that such options or
such securities are outstanding prior to the time of such underwritten public
offering.
Section 12. Participation in Underwritten Registrations. No
Stockholder may participate in any underwritten offering pursuant to Section 2
or Section 3 hereunder unless such Stockholder (i) agrees to sell its
Registrable Shares on the basis provided in any underwriting arrangements
approved by the Company or the
17
<PAGE> 18
Demanding Stockholder, as the case may be, in its reasonable discretion and (ii)
completes and executes all questionnaires, powers of attorney, indemnities,
underwriting agreements and other documents (including lock-up agreements)
reasonably required under the terms of such underwriting arrangements.
Section 13. Conversion of Other Securities. If the Company
offers any options, rights, warrants or other securities issued by it or any
other person that are offered with, convertible into or exercisable or
exchangeable for any Registrable Securities, the Registrable Securities
underlying such options, rights, warrants or other securities shall be eligible
for registration pursuant to Section 2 and Section 3 of this Agreement.
Section 14. Rule 144. The Company shall take such measures and
file such information, documents and reports as shall be required by the SEC as
a condition to the availability of Rule 144 (or any successor provision).
Section 15. Other Registration Rights. The Company shall not
enter into any other agreement enti- tling any person or entity to registration
rights that would materially and adversely affect the rights of a Stockholder
under this Agreement (it being understood that any registration rights that
would have the effect of reducing the number of Registrable Shares that would
otherwise be included in a registration statement shall be deemed materially and
adversely to affect the rights of a Stockholder under this Agreement).
Section 16. New Rio. All actions of New Rio under this
Agreement shall be taken in accordance with the New Rio L.L.C. Agreement. The
Company agrees that upon the liquidation of New Rio and/or the distribution of
the Registrable Shares by New Rio to its members, the members of New Rio shall
be entitled to exercise the Demand Registration and Piggyback Registration
Rights described in this Agreement as being exercisable by New Rio as then
provided in the New Rio L.L.C. Agree-
18
<PAGE> 19
ment and shall be entitled to the other rights and benefits on this Agreement
provided to New Rio, including, without limitation, the right to
indemnification. The Company further agrees to have prepared and to execute and
deliver an amendment to this Registration Rights Agreement setting forth such
rights and terms as then in effect. As used in this Section, "members of New
Rio" shall include those persons who are "Permitted Transferees" as defined in
the New Rio L.L.C. Agreement and those lenders to whom registration rights can
be assigned in accordance with the New Rio L.L.C. Agreement.
Section 17. Term. This Agreement shall expire with respect to
any Stockholder when the Registrable Shares held by such Stockholder cease to be
Registrable Shares or when such Stockholder otherwise ceases to own any
Registrable Shares; provided, that, the provisions of Section 9 shall not
terminate.
Section 18. Miscellaneous.
(a) Notices. All notices and other communications
provided for hereunder shall be dated and in writing and shall be deemed to have
been given (i) when delivered, if delivered personally, sent by confirmed
telecopy or sent by registered or certified mail, return receipt requested,
postage prepaid, (ii) on the next business day if sent by overnight courier and
(iii) when received if delivered otherwise. Such notices shall be delivered to
the address set forth below, or to such other address as a party shall have
furnished to the other party in accordance with this Section 1.
if to the Company, to:
Designer Holdings Ltd.
1385 Broadway, Third Floor
New York, New York 10018
Attention: Arnold H. Simon
Phone: (212) 556-9600
Fax: (212) 556-9722
with a copy to:
Skadden, Arps, Slate, Meagher & Flom
919 Third Avenue
New York, New York 10022
Attention: Mark N. Kaplan, Esq.
Phone: (212) 735-3800
Fax: (212) 735-2000
19
<PAGE> 20
if to CKI, to:
Calvin Klein, Inc.
205 West 39th Street
New York, New York 10018
with a copy to:
Paul, Weiss, Rifkind, Wharton & Garrison
1285 Avenue of the Americas
New York, New York 10019-6064
Attention: Leslie G. Fagen, Esq.
Phone: (212) 373-3231
Fax: (212) 373-2249
if to New Rio:
New Rio
1385 Broadway, Third Floor
New York, New York 10018
Attention: Arnold H. Simon
Phone: (212) 556-9600
Fax: (212) 556-9722
Arnold Simon
1385 Broadway, Third Floor
New York, New York 10018
Phone: (212) 556-9600
Fax: (212) 556-9722
Merril M. Halpern
Charterhouse Group International, Inc.
535 Madison Avenue, 28th Floor
New York, New York 10022-4299
Phone: (212) 421-3125
Fax: (212) 750-9704
with a copy to:
Sills Cummis Zuckerman Radin Tischman
Epstein & Gross
One Riverfront Plaza
Newark, New Jersey 07102
Attention: Jerry Genberg, Esq.
Phone: (201) 643-7000
Fax: (212) 643-6500
20
<PAGE> 21
Proskauer Rose Goetz & Mendelsohn
1585 Broadway
New York, New York 10036
Attention: Jack P. Jackson, Esq.
Phone: (212) 969-3000
Fax: (212) 939-2900
(b) Expenses. Each of the parties hereto shall be
responsible for their own costs and expenses incurred in connection with the
negotiation, drafting and performance of this Agreement and the transactions
contemplated hereby, except as provided in Sections 8 and 9 of this Agreement.
(c) Binding Nature of Agreement. This Agreement shall
be binding upon and inure to the benefit of and be enforceable by the
Stockholders, except as expressly otherwise provided herein.
(d) Descriptive Headings. The descriptive headings of
the several sections and paragraphs of this Agreement are inserted for reference
only and shall not limit or otherwise affect the meaning hereof.
(e) Specific Performance. Without limiting the rights
of each party hereto to pursue any and all other legal and equitable rights
available to such party for the other parties' failure to perform their
obligations under this Agreement, the parties hereto acknowledge and agree that
the remedy at law for any failure to perform their obligations hereunder may be
inadequate and that each of them, respectively, shall be entitled to specific
performance, injunctive relief or other equitable remedies in the event of any
such failure.
(f) Governing Law. This Agreement shall be construed
and enforced in accordance with, and the rights and duties of the parties shall
be governed by, the laws of the State of New York, without regard to the
principles of conflicts of law.
(g) Counterparts. This Agreement may be executed in
one or more counterparts, each of which shall be deemed an original, but all of
which together shall constitute one and the same instrument.
21
<PAGE> 22
(h) Severability. In the event that any one or more
of the provisions contained herein, or the application thereof in any
circumstances, is held invalid, illegal or unenforceable in any respect for any
reason, the validity, legality and enforceability of any such provision in every
other respect and of the remaining provisions contained herein shall not be in
any way impaired thereby, it being intended that all of the rights and
privileges of the parties hereto shall be enforceable to the fullest extent
permitted by law.
(i) Amendment and Modification. Subject to applicable
law, this Agreement may be amended, modified or supplemented only by written
agreement of the parties hereto at any time with respect to any of the terms
contained herein.
(j) Entire Agreement. This Agreement, including any
schedules or exhibits annexed hereto, embodies the entire agreement and
understanding of the parties hereto in respect of the transactions contemplated
by this Agreement. There are no restrictions, promises, representations,
warranties, covenants or undertakings, other than those expressly set forth or
referred to herein. This Agreement supersedes all prior agreements and
understandings between the parties with respect to such subject matter.
(k) No Third Party Beneficiaries. Except as otherwise
provided in Section 16, nothing in this Agreement shall convey any rights upon
any person or entity which is not a Stockholder.
(l) No Assignment. Except as otherwise provided in
Section 16, neither this Agreement nor any of the rights, interests or
obligations of any party hereto may be assigned by such party without the prior
written consent of the other parties.
(m) Recapitalization, Dilution Adjust- ments, etc. In
the event that any capital stock or other securities are issued in respect of,
in exchange for, or in substitution of, any shares of Common Stock by reason of
any reorganization, recapitalization, reclassification, merger, consolidation,
spin-off, partial or complete liquidation, stock dividend, split-up, sale of
assets, distribution to stockholders or combination of
22
<PAGE> 23
the shares of Common Stock then, in each such case, appropriate adjustments
shall be made so as to fairly and equitably preserve, as far as practicable, the
original rights and obligations of the parties hereto under this Agreement.
(n) Further Assurances. Each party hereto shall, on
notice of request from any other party hereto, take such further action not
specifically required hereby at the expense of the requesting party, as the
requesting party may reasonably request for the implementation of the
transactions contemplated hereby.
23
<PAGE> 24
IN WITNESS HEREOF, the parties have caused this Registration
Rights Agreement to be executed and delivered as of the date first above
written.
DESIGNER HOLDINGS LTD.
By
------------------------------------------
Name:
Title:
NEW RIO, L.L.C.
By
------------------------------------------
Name:
Title:
CALVIN KLEIN, INC.
By
------------------------------------------
Name:
Title:
24
<PAGE> 1
Exhibit 10.26
DESIGNER HOLDINGS LTD.
1996 STOCK OPTION AND INCENTIVE PLAN
1. Purpose; Types of Awards; Construction.
The purpose of the Designer Holdings Ltd. 1996 Stock Option
and Incentive Plan (the "Plan") is to afford an incentive to executive officers,
other key employees and consultants of Designer Holdings Ltd. (the "Company"),
or any subsidiary of the Company that now exists or hereafter is organized or
acquired by the Company, to acquire a proprietary interest in the Company, to
continue as employees or consultants, to increase their efforts on behalf of the
Company and to promote the success of the Company's business. The provisions of
the Plan are intended to satisfy the requirements of Section 16(b) of the
Securities Exchange Act of 1934, as amended, and of Section 162(m) of the
Internal Revenue Code of 1986, as amended, and shall be interpreted in a manner
consistent with the requirements thereof.
2. Definitions.
As used in this Plan, the following words and phrases shall
have the meanings indicated:
(a) "Acceleration Date" shall have the meaning set
forth in Section 11.
(b) "Agreement" shall mean an agreement entered
into between the Company and a Grantee in connection with an award under the
Plan.
(c) "Board" shall mean the Board of Directors of the
Company.
(d) "Code" shall mean the Internal Revenue Code of
1986, as amended from time to time.
(e) "Committee" shall mean a committee
established by the Board to administer the Plan.
<PAGE> 2
(f) "Common Stock" shall mean shares of common
stock, par value $.01 per share, of the Company.
(g) "Company" shall mean Designer Holdings Ltd., a
corporation organized under the laws of the State of Delaware, or any successor
corporation.
(h) "Disability" shall mean a Grantee's inability to
perform his duties with the Company or any of its affiliates by reason of any
medically determinable physical or mental impairment, as determined by a
physician selected by the Grantee and acceptable to the Company.
(i) "Exchange Act" shall mean the Securities
Exchange Act of 1934, as amended from time to time.
(j) "Fair Market Value" per share as of a particular
date shall mean (i) the closing sales price per share of Common Stock on the
national securities exchange on which the Common Stock is principally traded for
the last preceding date on which there was a sale of such Common Stock on such
exchange, or (ii) if the shares of Common Stock are not then listed on a
national securities exchange and are then traded in an over-the-counter market,
the average of the closing bid and asked prices for the shares of Common Stock
in such over-the-counter market for the last preceding date on which there was a
sale of such Common Stock in such market, or (iii) if the shares of Common Stock
are not then listed on a national securities exchange or traded in an
over-the-counter market, such value as the Committee, in its sole discretion,
shall determine.
(k) "Grantee" shall mean a person who receives a
grant of Options, Stock Appreciation Rights or Restricted Stock under the Plan.
(l) "Incentive Stock Option" shall mean any option
intended to be, and designated as, an incentive stock option within the meaning
of Section 422 of the Code.
(m) "Initial Public Offering" shall mean the
underwritten initial public offering of shares of Common Stock.
2
<PAGE> 3
(n) "Insider" shall mean a Grantee who is subject to
the reporting requirements of Section 16(a) of the Exchange Act.
(o) "Nonqualified Stock Option" shall mean any
option not designated as an Incentive Stock Option.
(p) "Option" or "Options" shall mean a grant to a
Grantee of an option or options to purchase shares of Common Stock.
(q) "Option Price" shall mean the exercise price of
the shares of Common Stock covered by an Option.
(r) "Parent" shall mean any company (other than the
Company) in an unbroken chain of companies ending with the Company if, at the
time of granting an Option, each of the companies other than the Company owns
stock possessing fifty percent (50%) or more of the total combined voting power
of all classes of stock in one of the other companies in such chain.
(s) "Plan" means this Designer Holdings Ltd. 1996
Stock Option and Incentive Plan, as amended from time to time.
(t) "Retirement" shall mean a Grantee's retirement
in accordance with the terms of any tax-qualified retirement plan maintained by
the Company or any of its affiliates in which the Grantee participates.
(u) "Rule 16b-3" shall mean Rule 16b-3, as from time
to time in effect, promulgated under the Exchange Act, including any successor
to such Rule.
(v) "Stock Appreciation Right" shall mean the right,
granted to a Grantee under Section 9, to be paid an amount measured by the
appreciation in the Fair Market Value of a share of Common Stock from the date
of grant to the date of exercise of the right, with payment to be made in cash
or Common Stock as specified in the award or determined by the Committee.
(w) "Subsidiary" shall mean any company (other than
the Company) in an unbroken chain of compa-
3
<PAGE> 4
nies beginning with the Company if, at the time of granting an Option, each of
the companies other than the last company in the unbroken chain owns stock
possessing fifty percent (50%) or more of the total combined voting power of all
classes of stock in one of the other companies in such chain.
(x) "Ten Percent Stockholder" shall mean a Grantee
who, at the time an Incentive Stock Option is granted, owns stock possessing
more than ten percent (10%) of the total combined voting power of all classes of
stock of the Company or any Parent or Subsidiary.
3. Administration.
The Plan shall be administered by the Committee, the members
of which shall, except as may otherwise be determined by the Board, be
"disinterested directors" under Rule 16b-3 and "outside directors" under Section
162(m) of the Code.
The Committee shall have the authority in its discretion,
subject to and not inconsistent with the express provisions of the Plan, to
administer the Plan and to exercise all the powers and authorities either
specifically granted to it under the Plan or necessary or advisable in the
administration of the Plan, including, without limitation, the authority to
grant Options, Stock Appreciation Rights and Restricted Stock; to determine
which Options shall constitute Incentive Stock Options and which Options shall
constitute Nonqualified Stock Options; to determine the purchase price of the
shares of Common Stock covered by each Option; to determine the persons to whom,
and the time or times at which awards shall be granted; to determine the number
of shares to be covered by each award; to interpret the Plan; to prescribe,
amend and rescind rules and regulations relating to the Plan; to determine the
terms and provisions of the Agreements (which need not be identical) and to
cancel or suspend awards, as necessary; and to make all other determinations
deemed necessary or advisable for the administration of the Plan.
All decisions, determination and interpretations of the
Committee shall be final and binding on all Grantees of any awards under this
Plan. No member of the Board or Committee shall be liable for any action taken
4
<PAGE> 5
or determination made in good faith with respect to the Plan or any award
granted hereunder.
4. Eligibility.
Awards may be granted to executive officers and other key
employees and consultants of the Company, including officers and directors who
are employees, except as proscribed by the Exchange Act or the Code. In
determining the persons to whom awards shall be granted and the number of shares
to be covered by each award, the Committee shall take into account the duties of
the respective persons, their present and potential contributions to the success
of the Company and such other factors as the Committee shall deem relevant in
connection with accomplishing the purpose of the Plan.
5. Stock.
The maximum number of shares of Common Stock reserved for the
grant of awards under the Plan shall be 2,288,200 subject to adjustment as
provided in Section 12 hereof. Such shares may, in whole or in part, be
authorized but unissued shares or shares that shall have been or may be
reacquired by the Company.
If any outstanding award under the Plan should, for any reason
expire, be cancelled or be forfeited (other than in connection with the exercise
of a Stock Appreciation Right), without having been exercised in full, the
shares of Common Stock allocable to the unexercised, cancelled or terminated
portion of such award shall (unless the Plan shall have been terminated) become
available for subsequent grants of awards under the Plan.
In no event may a Grantee be granted during any calendar year
Options to acquire more than 750,000 shares of Common Stock or more than 750,000
shares of Restricted Stock.
6. Terms and Conditions of Options.
Each Option granted pursuant to the Plan shall be evidenced by
a written agreement between the Company and the Grantee (the "Option
Agreement"), in substantially the form attached hereto as Exhibit A or in such
other form and containing such terms and conditions as the
5
<PAGE> 6
Committee shall from time to time approve, which Option Agreement shall comply
with and be subject to the following terms and conditions, unless otherwise
specifically provided in such Option Agreement:
(a) NUMBER OF SHARES. Each Option Agreement shall
state the number of shares of Common Stock to which the Option relates.
(b) TYPE OF OPTION. Each Option Agreement shall
specifically state that the Option constitutes an Incentive Stock Option or a
Nonqualified Stock Option.
(c) OPTION PRICE. Each Option Agreement shall state
the Option Price, which, in the case of an Incentive Stock Option, shall not be
less than one hundred percent (100%) of the Fair Market Value of the shares of
Common Stock covered by the Option on the date of grant. The Option Price shall
be subject to adjustment as provided in Section 11 hereof.
(d) MEDIUM AND TIME OF PAYMENT. The Option Price
shall be paid in full, at the time of exercise, in cash or in shares of Common
Stock (whether then owned by the Grantee or issuable upon exercise of the
Option) having a Fair Market Value equal to such Option Price or in a
combination of cash and Common Stock or in such other manner as the Committee
shall determine including a cashless exercise procedure through a broker-dealer.
The Committee may in its discretion make a loan to a Grantee on such terms and
conditions as may be determined by the Committee in an amount sufficient to pay
the Option Price payable by such Grantee.
(e) TERM AND EXERCISABILITY OF OPTIONS. Each Option
Agreement shall provide the exercise schedule for the Option as determined by
the Committee, provided that the Committee shall have the authority to
accelerate the exercisability of any outstanding Option at such time and under
such circumstances as it, in its sole discretion, deems appropriate. The
exercise period shall be ten (10) years from the date of the grant of the Option
unless otherwise determined by the Committee; provided, however, that in the
case of an Incentive Stock Option, such exercise period shall not exceed ten
(10) years from the date of grant of such Option. The exercise period shall be
subject to earlier termination as provided in
6
<PAGE> 7
Sections 6(f) and 6(g) hereof. An Option may be exercised, as to any or all full
shares of Common Stock as to which the Option has become exercisable, by written
notice delivered in person or by mail to the Secretary of the Company,
specifying the number of shares of Common Stock with respect to which the Option
is being exercised.
(f) TERMINATION. Except as provided in this Section
6(f) and in Section 6(g) hereof, an Option may not be exercised unless the
Grantee is then in the employ of or maintaining a consultant relationship with
the Company or a Subsidiary thereof (or a company or a Parent or Subsidiary
company of such company issuing or assuming the Option in a transaction to which
Section 424(a) of the Code applies), and unless the Grantee has remained
continuously so employed or in the consultant relationship since the date of
grant of the Option. In the event that the employment or consultant relationship
of a Grantee shall terminate (other than by reason of death, Disability or
Retirement), all Options of such Grantee that are exercisable at the time of
such termination may, unless earlier terminated in accordance with their terms,
be exercised within thirty (30) days after the date of such termination (or such
different period as the Committee shall prescribe).
(g) DEATH, DISABILITY OR RETIREMENT OF GRANTEE. If
a Grantee shall die while employed by, or maintaining a consultant relationship
with, the Company or a Subsidiary thereof, or within thirty (30) days after the
date of termination of such Grantee's employment or consultant relationship (or
within such different period as the Committee may have provided pursuant to
Section 6(f) hereof), or if the Grantee's employment or consultant relationship
shall terminate by reason of Disability, all Options theretofore granted to such
Grantee (to the extent otherwise exercisable) may, unless earlier terminated in
accordance with their terms, be exercised by the Grantee or by the Grantee's
estate or by a person who acquired the right to exercise such Options by bequest
or inheritance or otherwise by reason of death or Disability of the Grantee, at
any time within 180 days after the death or Disability of the Grantee (or such
different period as the Committee shall prescribe). In the event that an Option
granted hereunder shall be exercised by the legal representatives of a deceased
or
7
<PAGE> 8
former Grantee, written notice of such exercise shall be accompanied by a
certified copy of letters testamentary or equivalent proof of the right of such
legal representative to exercise such Option. In the event that the employment
or consultant relationship of a Grantee shall terminate on account of such
Grantee's Retirement, all Options of such Grantee that are exercisable at the
time of such Retirement may, unless earlier terminated in accordance with their
terms, be exercised at any time within one hundred eighty (180) days after the
date of such Retirement (or such different period as the Committee shall
prescribe).
(h) OTHER PROVISIONS. The Option Agreements
evidencing awards under the Plan shall contain such other terms and conditions
not inconsistent with the Plan as the Committee may determine.
7. Nonqualified Stock Options.
Options granted pursuant to this Section 7 are intended to
constitute Nonqualified Stock Options and shall be subject only to the general
terms and conditions specified in Section 6 hereof.
8. Incentive Stock Options.
Options granted pursuant to this Section 8 are intended to
constitute Incentive Stock Options and shall be subject to the following special
terms and conditions, in addition to the general terms and conditions specified
in Section 6 hereof.
(a) VALUE OF SHARES. The aggregate Fair Market
Value (determined as of the date the Incentive Stock Option is granted) of the
shares of Common Stock with respect to which Incentive Stock Options granted
under this Plan and all other option plans of any subsidiary become exercisable
for the first time by each Grantee during any calendar year shall not exceed
$100,000.
(b) TEN PERCENT STOCKHOLDER. In the case of an
Incentive Stock Option granted to a Ten Percent Stockholder, (i) the Option
Price shall not be less than one hundred ten percent (110%) of the Fair Market
Value of the shares of Common Stock on the date of grant of such Incentive Stock
Option and (ii) the exercise period
8
<PAGE> 9
shall not exceed five (5) years from the date of grant of such Incentive Stock
Option.
9. Stock Appreciation Rights.
The Committee shall have authority to grant a Stock
Appreciation Right to the Grantee of any Option under the Plan with respect to
all or some of the shares of Common Stock covered by such related Option. A
Stock Appreciation Right shall, except as provided in this Section 9 or as may
be determined by the Committee, be subject to the same terms and conditions as
the related Option. Each Stock Appreciation Right granted pursuant to the Plan
shall be evidenced by a written Agreement between the Company and the Grantee,
in such form as the Committee shall from time to time approve, which Agreement
shall comply with and be subject to the following terms and conditions, unless
otherwise specifically provided in such Agreement:
(a) TIME OF GRANT. A Stock Appreciation Right may
be granted either at the time of grant of the related option, or at any time
thereafter during the term of the Option; provided, however, that Stock
Appreciation Rights related to Incentive Stock Options may only be granted at
the time of grant of the related Option.
(b) PAYMENT. A Stock Appreciation Right shall
entitle the holder thereof, upon exercise of the Stock Appreciation Right or any
portion thereof, to receive payment of an amount computed pursuant to Section
9(d).
(c) EXERCISE. A Stock Appreciation Right shall be
exercisable at such time or times and only to the extent that the related Option
is exercisable, and shall not be transferable except to the extent the related
Option may be transferable. A Stock Appreciation Right granted in connection
with an Incentive Stock Option shall be exercisable only if the Fair Market
Value of a share of Common Stock on the date of exercise exceeds the purchase
price specified in the related Incentive Stock Option.
(d) AMOUNT PAYABLE. Upon the exercise of a Stock
Appreciation Right, the Grantee shall be entitled to receive an amount
determined by multiplying (i) the
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<PAGE> 10
excess of the Fair Market Value of a share of Common Stock on the date of
exercise of such Stock Appreciation Right over the Option Price under the
related Option by (ii) the number of shares of Common Stock as to which such
Stock Appreciation Right is being exercised.
(e) TREATMENT OF RELATED OPTIONS AND STOCK
APPRECIATION RIGHTS UPON EXERCISE. Upon the exercise of a Stock Appreciation
Right, the related Option shall be cancelled to the extent of the number of
shares of Common Stock as to which the Stock Appreciation Right is exercised.
Upon the exercise or termination of an Option related to a Stock Appreciation
Right, the Stock Appreciation Right related to such Option shall terminate to
the extent of the number of shares of Common Stock with respect to which the
Option was exercised or terminated.
(f) METHOD OF EXERCISE. Stock Appreciation Rights
shall be exercised by a Grantee only by a written notice delivered in person or
by mail to the Secretary of the Company, specifying the number of shares of
Common Stock with respect to which the Stock Appreciation Right is being
exercised. If requested by the Committee, the Grantee shall deliver the
Agreement evidencing the Stock Appreciation Right being exercised and the Option
Agreement evidencing any related Option to the Secretary of the Company who
shall endorse thereon a notation of such exercise and return such Agreements to
the Grantee.
(g) FORM OF PAYMENT. Payment of the amount
determined under Section 9(d) may be made solely in whole shares of Common Stock
in a number determined based upon their Fair Market Value on the date of
exercise of the Stock Appreciation Right or, alternatively, at the sole
discretion of the Committee, solely in cash, or in a combination of cash and
shares of Common Stock as the Committee deems advisable. If the Committee
decides to make full payment in shares of Common Stock, and the amount payable
results in a fractional share, payment for the fractional share shall be made in
cash. Notwithstanding the foregoing, to the extent required by Rule 16b-3, no
payment in the form of cash may be made upon the exercise of a Stock
Appreciation Right pursuant to Section 9(d) to an Insider unless the exercise of
such Stock Appreciation Right is made during the period begin-
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<PAGE> 11
ning on the third business day and ending on the twelfth business day following
the date of release for publication of the Company's quarterly or annual
statements of earnings.
10. Restricted Stock.
The Committee may award restricted shares of Common Stock
("Restricted Stock") to any eligible employee or consultant. Each award of
Restricted Stock under the Plan shall be evidenced by a written Agreement
between the Company and the Grantee, in such form as the Committee shall from
time to time approve, which Agreement shall comply with and be subject to the
following terms and conditions, unless otherwise specifically provided in such
Agreement:
(a) NUMBER OF SHARES. Each Agreement shall state
the number of shares of Restricted Stock to be subject to an award.
(b) RESTRICTIONS. Shares of Restricted Stock may
not be sold, assigned, transferred, pledged, hypothecated or otherwise disposed
of, except by will or the laws of descent and distribution, for such period as
the Committee shall determine from the date on which the award is granted (the
"Restricted Period"). The Committee may also impose such additional or
alternative restrictions and conditions on the shares as it deems appropriate
including the satisfaction of performance criteria. Such performance criteria
may include sales, earnings before interest and taxes, return on investment,
earnings per share, any combination of the foregoing or rate of growth of any of
the foregoing, as determined by the Committee. Certificates for shares of stock
issued pursuant to Restricted Stock awards shall bear an appropriate legend
referring to such restrictions, and any attempt to dispose of any such shares of
stock in contravention of such restrictions shall be null and void and without
effect. During the Restricted Period, such certificates shall be held in escrow
by an escrow agent appointed by the Committee. In determining the Restricted
Period of an award, the Committee may provide that the foregoing restrictions
shall lapse with respect to specified percentages of the awarded shares on
successive anniversaries of the date of such award.
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<PAGE> 12
(c) FORFEITURE. Subject to such exceptions as may
be determined by the Committee, if the Grantee's continuous employment or
consultant relationship with the Company or any Subsidiary shall terminate for
any reason prior to the expiration of the Restricted Period of an award, any
shares remaining subject to restrictions (after taking into account the
provisions of Subsection (e) of this Section 10) shall thereupon be forfeited by
the Grantee and transferred to, and reacquired by, the Company or a subsidiary
at no cost to the Company or subsidiary.
(d) OWNERSHIP. During the Restricted Period the
Grantee shall possess all incidents of ownership of such shares, subject to
Subsection (b) of this Section 10, including the right to receive dividends with
respect to such shares and to vote such shares.
(e) ACCELERATED LAPSE OF RESTRICTIONS. Upon the
occurrence of an Acceleration Event, all restrictions then outstanding with
respect to shares of Restricted Stock awarded hereunder shall automatically
expire and be of no further force and effect. The Committee shall have the
authority (and the Agreement may so provide) to cancel all or any portion of any
outstanding restrictions prior to the expiration of the Restricted Period with
respect to any or all of the shares of Restricted Stock awarded on such terms
and conditions as the Committee shall deem appropriate.
11. Effect of Certain Changes.
(a) In the event of any extraordinary dividend,
stock dividend, recapitalization, merger, consolidation, stock split, warrant or
rights issuance, or combination or exchange of such shares, or other similar
transactions, the number of shares of Common Stock available for awards, the
number of such shares covered by outstanding awards, and the price per share of
Options or the applicable market value of Stock Appreciation Rights shall be
equitably adjusted by the Committee to reflect such event and preserve the value
of such awards; provided, however, that any fractional shares resulting from
such adjustment shall be eliminated.
(b) If, subsequent to the Initial Public Offering,
while any awards remain outstanding under the
12
<PAGE> 13
Plan, any of the following events shall occur (which events shall constitute a
"Change in Control" of the Company) --
(I) any "person," as such term is used in
Sections 13(d) and 14(d) of the Exchange Act (other than (1)
the Company or any of its subsidiaries, (2) any trustee or
other fiduciary holding securities under an employee benefit
plan of the Company or any of its subsidiaries, (3) an
underwriter temporarily holding securities pursuant to an
offering of such securities, (4) any corporation owned,
directly or indirectly, by the stockholders of the Company in
substantially the same proportions as their ownership of stock
of the Company, or (5) any person who, immediately prior to
the Initial Public Offering, owned more than 25% of the
combined voting power of the Company's then outstanding voting
securities), is or becomes the "beneficial owner" (as defined
in Rule 13d- 3 under the Exchange Act), directly or
indirectly, of securities of the Company (not including in the
securities beneficially owned by such person any securities
acquired directly from the Company or its affiliates)
representing 25% or more of the combined voting power of the
Company's then outstanding securities, excluding any person
who becomes such a beneficial owner in connection with a
transaction described in clause (i) of paragraph (III) below;
or
(II) the following individuals cease for any
reason to constitute a majority of the number of directors
then serving: individuals who, on the date hereof, constitute
the Board and any new director (other than a director whose
initial assumption of office is in connection with an actual
or threatened election contest, including but not limited to a
consent solicitation, relating to the election of directors of
the Company) whose appointment or election by the Board or
nomination for election by the Company's stockholders was
approved or recommended by a vote of at least two-thirds (2/3)
of the directors then still in office who
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<PAGE> 14
either were directors on the date hereof or whose appointment,
election or nomination for election was previously so approved
or recommended; or
(III) the stockholders of the Company
approve a merger or consolidation of the Company with any
other corporation or the issuance of voting securities of the
Company in connection with a merger or consolidation of the
Company (or any direct or indirect subsidiary of the Company)
pursuant to applicable stock exchange requirements, other than
(i) a merger or consolidation which would result in the voting
securities of the Company outstanding immediately prior to
such merger or consolidation continuing to represent (either
by remaining outstanding or by being converted into voting
securities of the surviving entity or any parent thereof) at
least 75% of the combined voting power of the securities of
the Company or such surviving entity or any parent thereof
outstanding immediately after such merger or consolidation, or
(ii) a merger or consolidation effected to implement a
recapitalization of the Company (or similar transaction) in
which no person is or becomes the beneficial owner, directly
or indirectly, of securities of the Company (not including in
the securities beneficially owned by such person any
securities acquired directly from the Company or its
affiliates other than in connection with the acquisition by
the Company or its affiliates of a business) representing 25%
or more of the combined voting power of the Company's then
outstanding securities; or
(IV) the stockholders of the Company approve
a plan of complete liquidation or dissolution of the Company
or an agreement for the sale or disposition by the Company of
all or substantially all of the Company's assets;
notwithstanding the foregoing, a "Change in
Control" shall not be deemed to have occurred by virtue of the
consummation of any transaction or series of integrated
transac-
14
<PAGE> 15
tions immediately following which the record holders of the
Common Stock of the Company immediately prior to such
transaction or series of transactions continue to have
substantially the same proportionate ownership in an entity
which owns all or substantially all of the assets of the
Company immediately following such transaction or series of
transactions --
then from and after the date on which any such Change in Control shall have
occurred (the "Acceleration Date"), the award covered by such Agreement shall be
exercisable or otherwise nonforfeitable in full, whether or not otherwise
exercisable or forfeitable.
(c) In the event of a change in the Common Stock of
the Company as presently constituted that is limited to a change of all of its
authorized shares of Common Stock into the same number of shares with a
different par value or without par value, the shares resulting from any such
change shall be deemed to be the Common Stock within the meaning of the Plan.
12. Period During Which Awards May Be Granted.
Awards may be granted pursuant to the Plan from time to time
within a period of ten (10) years from the date the Plan is adopted by the
Board.
13. Nontransferability of Awards.
Awards granted under the Plan shall not be transferable
otherwise than by will or by the laws of descent and distribution, and awards
may be exercised or otherwise realized, during the lifetime of the Grantee, only
by the Grantee or by his guardian or legal representative.
14. Approval of Stockholders.
The Plan shall take effect upon its adoption by the Board and
shall terminate on the tenth anniversary of such date, but the Plan (and any
grants of awards made prior to the stockholder approval mentioned herein) shall
be subject to the approval of the Company's stockholders.
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<PAGE> 16
15. Agreement by Grantee Regarding Withholding Taxes.
If the Committee shall so require, as a condition of exercise
of an Option or Stock Appreciation Right or the expiration of the Restricted
Period (each a "Tax Event"), each Grantee shall agree that no later than the
date of the Tax Event, the Grantee shall pay to the Company or make arrangements
satisfactory to the Committee regarding payment of any federal, state or local
taxes of any kind required by law to be withheld upon the Tax Event.
Alternatively, the Committee may provide that a Grantee may elect, to the extent
permitted or required by law, to have the Company deduct federal, state and
local taxes of any kind required by law to be withheld upon the Tax Event from
any payment of any kind due to the Grantee. The withholding obligation may be
satisfied by the withholding or delivery of Common Stock.
16. Amendment and Termination of the Plan.
The Board at any time and from time to time may suspend,
terminate, modify or amend the Plan; provided, however, that unless otherwise
determined by the Board, an amendment that requires stockholder approval in
order for the Plan to continue to comply with Rule 16b-3 or any other law,
regulation or stock exchange requirement shall not be effective unless approved
by the requisite vote of stockholders. Except as provided in Section 11(a)
hereof, no suspension, termination, modification or amendment of the Plan may
adversely affect any award previously granted, unless the written consent of the
Grantee is obtained.
17. Rights as a Stockholder.
Except as provided in Section 10(d) hereof, a Grantee or a
transferee of an award shall have no rights as a stockholder with respect to any
shares covered by the award until the date of the issuance of a stock
certificate to him for such shares. No adjustment shall be made for dividends
(ordinary or extraordinary, whether in cash, securities or other property) or
distribution of other rights for which the record date is prior to the date such
stock certificate is issued, except as provided in Section 11(a) hereof.
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<PAGE> 17
18. No Rights to Employment.
Nothing in the Plan or in any award granted or Agreement
entered into pursuant hereto shall confer upon any Grantee the right to continue
in the employ of, or in a consultant relationship with, the Company or any
Subsidiary or to be entitled to any remuneration or benefits not set forth in
the Plan or such Agreement or to interfere with or limit in any way the right of
the Company or any such Subsidiary to terminate such Grantee's employment.
Awards granted under the Plan shall not be affected by any change in duties or
position of a Grantee as long as such Grantee continues to be employed by, or in
a consultant relationship with, the Company or any Subsidiary.
19. Beneficiary.
A Grantee may file with the Committee a written designation of
a beneficiary on such form as may be prescribed by the Committee and may, from
time to time, amend or revoke such designation. If no designated beneficiary
survives the Grantee, the executor or administrator of the Grantee's estate
shall be deemed to be the Grantee's beneficiary.
20. Governing Law.
The Plan and all determinations made and actions taken
pursuant hereto shall be governed by the laws of the State of Delaware.
17
<PAGE> 1
Exhibit 10.27
EMPLOYMENT AGREEMENT
AGREEMENT, made this 8th day of June, 1995, by and between New
Rio Sportswear, Inc. and Calvin Klein Jeanswear Company, Inc., located at 1385
Broadway, New York, New York 10018 (collectively the "Companies") and Maurice
Dickson residing at 363 East 76th Street, Apartment 17F, New York, New York
10021 ("Executive").
WITNESSETH
WHEREAS, the Companies are engaged in the business of
distributing, manufacturing, marketing and selling jeans and sports wear (the
"Business");
WHEREAS, Executive has represented that he has all of the
expertise, background and experience as will enable him to perform all of the
duties and execute all of the responsibilities contemplated by this Agreement;
WHEREAS, based on such representation the Companies wish to
employ Executive as Chief Financial Officer of the Jeanswear Division upon the
terms hereinafter set forth; and
WHEREAS, Executive wishes to be so employed by
the Companies;
NOW, THEREFORE, in consideration of the premises and the
mutual covenants and agreements herein contained, the Companies and Executive
agree as follows:
1. Employment: The Companies hereby agree to employ Executive,
and Executive hereby agrees to serve, subject to the provisions of this
Agreement, as an employee of the Companies. Executive shall perform such duties
and responsibilities as are from time to time assigned to Executive by the Chief
Executive Officer and/or the Board of Directors of the Companies. Executive
agrees to devote all of his business time, attention and energies to the
performance of the duties assigned to
<PAGE> 2
him hereunder, and to perform such duties faithfully, diligently and to the best
of his abilities and subject to such laws, rules, regulations and policies from
time to time applicable to the Companies' employees. Executive agrees to refrain
from engaging in any activity that does, will or could reasonably be deemed to
conflict with the best interests of the Companies, except that any involvement
of Executive with Karlyn Personnel that does not prevent Executive from
performing his duties under this Agreement shall not present a conflict of
interest under this Agreement. Without limiting the generality of the foregoing,
Executive shall perform the duties associated with the position of Chief
Financial Officer of the Companies.
2. Term: This Agreement shall commence on August 15, 1995, and
shall expire on August 15, 1997. This Agreement shall automatically renew for
additional one (1) year periods beginning August 15, 1997 (and thereafter on
each August 15 for all subsequent years) unless on or before the March 15
immediately preceding any August 15 renewal date, the Companies shall give
written notice that they do not wish to renew the Agreement for an additional
year. This Agreement may be sooner terminated in accordance with Section 9
hereof.
3. Compensation:
(a) Salary: Executive's salary shall be
at the annual rate of $300,000, payable in accordance with the Companies'
regular payroll practices. All applicable withholding taxes shall be deducted
from such payments. The Companies shall review Executive's salary annually to
determine if Executive's salary should be increased. The decision to increase
Executive's salary and any increase in Executive's salary shall be in the sole
discretion of the Companies.
(b) Bonus: Executive shall receive as
additional compensation an annual bonus of at least $50,000. The Companies shall
determine in their sole discretion to pay Executive any bonus amount above
$50,000. The bonus shall be paid no later than August 15 each year commencing
August 15, 1996.
4. Benefits: During Executive's employment
with the Companies, Executive shall be entitled to par-
2
<PAGE> 3
ticipate in any and all current or future retirement, profit-sharing, medical,
health, disability, or life insurance program, or other group employee benefit
plans and arrangements as are, or may be, made available by the Companies to its
senior executive employees.
5. Vacation: Executive shall be entitled to paid vacation of
four (4) weeks annually. Such vacation shall be taken at such times as will
interfere as little as possible with the performance of Executive's duties
hereunder.
6. Expenses: The Companies will reimburse Executive for
reasonable and necessary business expenses of Executive for travel, meals and
similar items incurred in connection with the performance of Executive's duties,
and which are consistent with such guidelines as the senior executive officers
and/or the Board of Directors of the Companies may from time to time establish.
All payments for reimbursement of such expenses shall be made to the Executive
only upon the presentation to the Companies of appropriate vouchers or receipts.
Executive shall be entitled to use of an automobile and shall be reimbursed
for garage, maintenance, insurance and operating expenses.
7. Stock Options: In the event the Companies shall offer their
executive employees the opportunity to participate in a stock option plan, such
opportunity also shall be offered to Executive. Nothing herein shall require the
Companies to initiate a stock option plan. Notwithstanding any other provision
of this Agreement, Executive's rights under this section, including without
limitation the right to participate in a stock option plan offered by the
Companies, shall terminate upon the termination of Executive's employment with
the Companies for any reason and regardless of whether Executive continues to
receive any other compensation or benefit from the Companies after such
termination.
8. Confidentiality, Non-Competition, etc.:
(a) Executive acknowledges that: (1) the
Business is intensely competitive and that Executive's employment by the
Companies will require that Executive have access to and knowledge of
confidential information of the Companies, including, but not limited to, the
3
<PAGE> 4
identity of the Companies' customers, the identity of the representatives of
customers with whom the Companies have dealt, the kinds of services provided by
the Companies to customers and offered to be performed for potential customers,
the manner in which such services are performed or offered to be performed, the
service needs of actual or prospective customers, pricing information,
information concerning the creation, acquisition or disposition of products and
services, customer maintenance listings, computer software applications and
other programs, personnel information and other trade secrets (the "Confidential
Information"); (ii) the direct and indirect disclosure of any such Confidential
Information to existing or potential competitors of the Companies would place
the Companies at a competitive disadvantage and would do damage, monetary or
otherwise, to the Companies' business; and (iii) the engaging by Executive in
any of the activities prohibited by this Section 8 may constitute improper
appropriation and/or use of such information and trade secrets. Executive
expressly acknowledges the trade secret status of the Confidential Information
and that the Confidential Information constitutes a protectible business
interest of the Companies. Accordingly, the Companies and Executive agree as
follows:
(b) For purposes of this Section 8, the Companies
shall be construed to include the Companies and their parents, subsidiaries and
affiliates engaged in the Business, including any divisions managed by
Executive.
(c) During the Executive's employment and at all
times after the termination of Executive's employment, Executive shall not,
directly or indirectly, whether individually, as a director, stockholder, owner,
partner, employee, principal or agent of any business, or in any other capacity,
make known, disclose, furnish, make available or utilize any of the Confidential
Information, other than in the proper performance of the duties contemplated
herein. Executive agrees to return all Confidential Information, including all
photocopies, extracts and summaries thereof, and any such information stored
electronically on tapes, computer disks or in any other manner to the Companies
at any time upon request by the Companies and upon the termination of his
employment for any reason.
4
<PAGE> 5
(d) Executive shall not, so long as he is employed by
the Companies, engage in "Competition" with the Companies. For purposes of this
Agreement, Competition by Executive shall mean Executive's engaging in, or
otherwise directly or indirectly being employed by or acting as a consultant or
lender to, or being a director, officer, employee, principal, agent,
stockholder, member, owner or partner of, or permitting his name to he used in
connection with the activities of any other business or organization anywhere in
the United States which competes, directly or indirectly, with the business of
the Companies as the same shall be constituted at any time during or following
his employment. It is expressly understood that the payments Executive is
scheduled to receive until approximately the year 2005 from Ellen Tracy shall
not violate the non-competition provisions of this Agreement.
(e) For so long as Executive continues to receive
compensation under the terms of this Agreement following the termination of
Executive's employment for any reason, Executive shall not engage in
Competition, as defined above, with the Companies in any locality or region of
the United States in which the Companies had operations at the time of, or
within six (6) months prior to, Executive's termination, or in which, during the
six (6) month period prior to Executive's termination, the Companies had made
substantial plans with the intention of establishing operations in such locality
or region and such plans were known or should have been known by Executive;
provided that, it shall not be a violation of this sub-paragraph for Executive
to become the registered or beneficial owner of up to five percent (5%) of any
class of the capital stock of a competing corporation registered under the
Securities Exchange Act of 1934, as amended, provided that Executive does not
actively participate in the business of such corporation until such time as this
covenant expires.
(f) For so long as Executive continues to receive
compensation under the terms of this Agreement following the termination of
Executive's employment for any reason, Executive agrees that he will not,
directly or indirectly, for his benefit or for the benefit of any other person,
firm or entity, do any of the following:
5
<PAGE> 6
(i) solicit from any customer doing business
with the Companies as of Executive's termination, business of the same or of a
similar nature to the business of the Companies with such customer;
(ii) solicit from any known poten- tial
customer of the Companies business of the same or of a similar nature to that
which has been the subject of a known written or oral bid, offer or proposal by
the Companies, or of substantial preparation with a view to making such a bid,
proposal or offer, within six (6) months prior to Executive's termination;
(iii) solicit the employment or services of,
or hire, any person who was known to be employed by or was a known consultant to
the Companies upon Executive's termination of Executive's employment, or within
six (6) months prior thereto; or
(iv) otherwise knowingly interfere with the
business or accounts of the Companies.
(g) Executive acknowledges that the services to be
rendered by him to the Companies are of a special and unique character, which
gives this Agreement a peculiar value to the Companies, the loss of which may
not be reasonably or adequately compensated for by damages in an action at law,
and that a material breach or threatened breach by him of any of the provisions
contained in this Section 8 will cause the Companies irreparable injury.
Executive therefore agrees that the Companies may be entitled, in addition to
any other right or remedy, to a temporary, preliminary and permanent injunction,
without the necessity of proving the inadequacy of monetary damages or the
posting of any bond or security, enjoining or restraining Executive from any
such violation or threatened violations.
(h) Executive further acknowledges and agrees that
due to the uniqueness of his services and confidential nature of the information
he will possess, the covenants set forth herein are reasonable and necessary for
the protection of the business and goodwill of the Companies.
6
<PAGE> 7
9. Termination:
(a) Notwithstanding any provision of this Agreement
to the contrary, the employment of Executive hereunder shall terminate on the
first to occur of the following dates:
(i) the date of Executive's death or
adjudicated incompetency;
(ii) the date on which the Compa- nies shall
give Executive notice of termination on account of Disability (as
hereinafter defined);
(iii) the date on which the Compa- nies
shall give Executive notice of termination for Cause;
(iv) expiration of the term follow- ing
proper notice of non-renewal by the Companies, in which event Executive
shall be entitled to receive as his sole and exclusive remedy,
a. a severance payment less taxes
equal to Executive's annual compensation for the last year of
employment under this Agreement (paid in installments at such
times as Executive would normally receive payroll checks as
though employed through the severance payment period); and
b. coverage in the Companies'
employee benefit plans for one (1) year and continued use of a
car for one year on the same basis as set forth in Section 6
hereof, provided however, that coverage in the Companies'
employee benefit plans and the right to continued use of a car
by Executive at the expense of the Companies shall terminate
immediately upon Executive becoming employed or receiving
benefit coverage from another source after termination of his
employment hereunder; or
7
<PAGE> 8
(v) the date on which the Compa- nies shall
give Executive notice of termination for any reason other than
the reasons set forth in (i) through (iv), above, in which
event Executive shall be entitled to receive, as his sole and
exclusive remedy and provided that he continues to comply with
his obligations under Section 8 herein,
a. the balance of any compensation
due Executive for the remainder of the Term of this Agreement,
as set forth in Section 2 herein and paid in installments at
such times as Executive would normally receive payroll checks
as though employed through the remainder of the Term; and
b. a severance payment less taxes
in an amount equal to one year of Executive's compensation
hereunder at the time notice of termination is given to
Executive paid after the balance of compensation payments
under a. above are completed, and in installments at such
times as Executive would normally receive payroll checks as
though employed through the severance payment period; and
c. coverage in the Companies'
employee benefit plans and continued use of a car on the same
basis as set forth in Section 6 hereof so long as Executive
receives payments under a. or b. above, provided however, that
during the period Executive is receiving severance payments
pursuant to b. above, coverage in the Companies' employee
benefit plans and the right to continued use of a car by
Executive at the expense of the Companies shall terminate
immediately upon Executive becoming employed or receiving
benefit coverage from another source after termination of his
employment hereunder.
(b) The Companies shall be entitled at any time, upon notice
to Executive, to terminate his employment hereunder on account of the Disability
of Executive or for Cause, and, in either of such events, or in the event that
Executive's employment hereunder shall terminate on account of the death or
adjudicated incompe-
8
<PAGE> 9
tency of Executive, Executive or his estate, conservator or designated
beneficiary, as the case may be, shall be entitled to payment of any earned but
unpaid salary and payment for unused vacation days, through the date of
termination. Following any such termination, neither Executive nor his estate,
conservator or designated beneficiary shall be entitled to receive any salary or
other payment provided for hereunder with respect to any period after such
termination, except that in the event that Executive's employment is terminated
hereunder on account of the Disability of Executive, Executive shall be entitled
to receive a payment less taxes equal to six (6) months of the salary Executive
was receiving at the time of such termination (paid in installments at such
times as Executive would normally receive payroll checks as though employed) and
a continuation for six (6) months of the benefits set forth in Section 4 herein.
(c) For purposes of this Agreement, "Disability"
shall mean an illness, injury or other incapacitating condition as a result of
which Executive is unable to perform the services required to be performed under
this Agreement for (i) ninety (90) consecutive days, or (ii) a period or periods
aggregating more than ninety (90) days in any six (6) consecutive months. In any
such event, the Companies, in their sole discretion, may terminate this
Agreement by giving notice to Executive of termination for Disability. Executive
agrees to submit to such medical examinations as may be necessary to determine
whether a Disability exists, pursuant to such reasonable requests made by the
Companies from time to time.
(d) For purposes of this Agreement, "Cause" shall
mean the occurrence of any of the following, as reasonably determined by the
Companies:
(i) the willful failure, neglect or refusal
by Executive to perform his duties hereunder (including, without
limitation, Executive's inability to perform such duties as a result of
alcohol or drug abuse, chronic alcoholism or drug addiction);
(ii) any willful, intentional or reckless
act by Executive having the effect of materially injuring the business
or reputation of
9
<PAGE> 10
the Companies, any of their parents, subsidiaries or
affiliates and any divisions Executive may manage;
(iii) willful misconduct by Execu- tive,
including insubordination, in respect of the duties or obligations of
Executive under this Agreement;
(iv) Executive's conviction for a felony
(including entry of a nolo contendere plea);
(v) any misappropriation or embezzlement
of the property of the Companies and their affiliates and subsidiaries
(whether or not a misde- meanor or felony); and
(vi) a material breach of any one or more of
the covenants of this Agreement by Executive;
provided however, that before Executive is terminated for Cause the Companies
shall notify Executive at least five (5) days in advance of the Companies'
intention to terminate Executive for Cause and, where the conduct resulting in
Cause can be cured, the Companies shall allow Executive an opportunity to cure
such conduct within the five (5) day notice period before terminating
Executive's employment in accordance with this paragraph.
10. Return of Companies' Property: Executive agrees that
following the termination of his employment for any reason, he shall return all
property of the Companies, its subsidiaries, affiliates and any divisions
thereof he may have managed which is then in or thereafter comes into his
possession, including, but not limited to, documents, contracts, agreements,
plans, photographs, books, notes, electronically stored data and all copies of
the foregoing as well as any automobile or other materials or equipment supplied
by the Companies to Executive. If Executive's employment hereunder is termi-
nated pursuant to Section 9(a)(v) hereof, Executive shall return any automobile
supplied by the Companies following the termination of Executive's right to such
automobile in accordance with the provisions of Section 9(a)(v)c. hereunder.
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<PAGE> 11
11. Compensation in Event of Termination; Survival: Upon
termination of Executive's employment for any reason, this Agreement shall
terminate and the Companies shall have no further obligation to Executive except
to the extent Executive is otherwise entitled to any unpaid compensation or
benefits hereunder, insurance coverage in accordance with applicable law and
this Agreement, and severance pay as provided herein; provided that the
provisions set forth in Sections 8 and 10 hereof shall remain in full force and
effect after the termination of Executive's employment, notwithstanding the
expiration or termination of this Agreement.
12. Entire Agreement: This Agreement sets forth the entire
agreement between the parties with respect to its subject matter and merges and
supersedes all prior discussions, agreements and understandings of every kind
and nature between them and neither party shall be bound by any term or
condition other than as expressly set forth or provided for in this Agreement.
This Agreement may not be changed or modified except by an agreement in writing,
signed by the parties hereto.
13. Waiver: The failure of either party to this Agreement to
enforce any of its terms, provisions or covenants shall not be construed as a
waiver of the same or of the right of such party to enforce the same. Waiver by
either party hereto of any breach or default by the other party of any term or
provision of this Agreement shall not operate as a waiver of any other breach or
default.
14. Severability: In the event that any one or more of the
provisions of this Agreement shall be held to be invalid, illegal or
unenforceable, the validity, legality and enforceability of the remainder of the
Agreement shall not in any way be affected or impaired thereby. Moreover, if any
one or more of the provisions contained in this Agreement shalt be held to be
excessively broad as to duration, activity or subject, such provisions shall be
construed by limiting and reducing them so as to be enforceable to the maximum
extent allowed by applicable law.
15. Notices: Any notice given hereunder shall
be in writing and shall be deemed to have been given when
delivered by messenger or courier service (against appro-
11
<PAGE> 12
priate receipt), or mailed by registered or certified mail (return receipt
requested), addressed as follows:
If to the Companies:
New Rio Sportswear, Inc.,
Calvin Klein Jeanswear
Company, Inc.,
1385 Broadway
New York, New York 10018
Attn: Arnold Simon
If to Executive:
363 East 76th Street
Apt. 17F
New York, New York 10021
or at such other address as shall be indicated to either party in writing.
Notice of change of address shall be effective only upon receipt.
16. Governing Law: This Agreement shall be governed by and
construed in accordance with the laws of the State of New York, without regard
to its conflict of law rules.
17. Descriptive Headings: The paragraph head- ings contained
herein are for reference purposes only and shall not in any way affect the
meaning or interpretation of this Agreement.
18. Counterparts: This Agreement may be exe- cuted in one or
more counterparts, which, together, shall constitute one and the same agreement.
12
<PAGE> 13
IN WITNESS WHEREOF, the parties hereto have executed this
Agreement on the date first written above.
NEW RIO SPORTSWEAR, INC. THE EXECUTIVE
By: /s/ Arnold Simon By: /s/ Maurice Dickson
--------------------- -----------------------
Name: Arnold Simon Name: Maurice Dickson
Title:
CALVIN KLEIN JEANSWEAR COMPANY, INC.
By: /s/ Arnold Simon
---------------------
Name: Arnold Simon
Title:
13
<PAGE> 14
AMENDMENT NO. 1 TO EMPLOYMENT AGREEMENT
THIS AMENDMENT NO. 1, dated as of this 1st day of January,
1996, amends the Employment Agreement, entered into as of June 8, 1995, by and
between Rio Sportswear, Calvin Klein Jeanswear Company (Collectively the
"Companies") and Maurice Dickson ("Executive").
19. Paragraph 3(a) is hereby amended to state in part as
follows: "(a) Salary: Executive's salary shall be at the annual rate of
$400,000, payable in accordance with companies' regular payroll practices)." All
other terms and conditions of this paragraph 3(a) not heretofore addressed by
this Amendment remain in full force and effect.
20. Paragraph 3(b) is hereby amended to state as follows:
"Executive shall receive for 1996 as additional compensation a bonus of 1.25% of
EBITDA over $50 million. The bonus shall be paid no later than March 31, 1997."
Executive's bonus calculation for subsequent years shll be as determined in the
discretion of the Companies.
All other terms and conditions not heretofore addressed by
this Amendment remain in full force and effect.
IN WITNESS WHEREOF, the parties have executed this Amendment
on the day first stated above.
-----------------------------
Maurice Dickson
RIO SPORTSWEAR, INC.
By:__________________________
Arnold H. Simon
CALVIN KLEIN JEANSWEAR COMPANY
By:__________________________
Arnold H. Simon
14
<PAGE> 1
Exhibit 10.28
EMPLOYMENT AGREEMENT
AGREEMENT, made this 5th day of August, 1994, by and between
Calvin Klein Jeanswear Company (the "Company") and Daniel J. Gladstone
("Executive").
WITNESSETH:
WHEREAS, the Company is engaged in the business of
distributing, manufacturing, marketing and selling jeans and sports wear (the
"Business");
WHEREAS, Executive has represented that he has all of the
expertise, background and experience as will enable him to perform all of the
duties and execute all of the responsibilities contemplated by this Agreement;
WHEREAS, based on such representation the Company wishes to
employ Executive as President of the Company upon the terms hereinafter set
forth; and
WHEREAS, Executive wishes to be so employed by
the Company;
NOW, THEREFORE, in consideration of the premises and the
mutual covenants and agreements herein contained, the Company and Executive
agree as follows:
1. Employment. The Company hereby agrees to employ Executive,
and Executive hereby agrees to serve, subject to the provisions of this
Agreement, as an employee of the Company. Executive shall perform such duties
and responsibilities as are from time to time assigned to Executive by the Chief
Executive Officer and/or the Board of Directors of the Company and such duties
shall be compatible with the office of President of the Company. Executive
agrees to devote all of his business time, attention and energies to the
performance of the duties assigned to him hereunder, and to perform such duties
faithfully, diligently and to the best of his
<PAGE> 2
abilities and subject to such laws, rules, regulations and policies from time to
time applicable to the Company's employees. Executive agrees to refrain from
engaging in any activity that does or could reasonably be deemed to conflict
with the best interests of the Company. Without limiting the generality of the
foregoing, Executive shall perform the duties associated with the position of
President, and shall be responsible for the Women's, Junior's, Men's, and Girl's
Division of the Company.
2. Term. This Agreement shall commence on August 5, 1994, and
shall expire on December 31, 1997 (the "Term"), unless sooner terminated in
accordance with Section 8 hereof. There shall be no extension of this Agreement
other than by written instrument executed by both parties hereto.
3. Compensation:
(a) Salary: Executive's salary shall be at the annual
rate of $350,000, payable in accordance with the Company's regular payroll
practices. All applicable withholding taxes shall be deducted from such
payments. Increments or decreases in the annual rate shall be based on a
percentage of the Incentive Bonus in accordance with terms of Appendix A hereto.
(b) Incentive Bonus: Any bonus compensation shall
be in accordance with the terms of Appendix A hereto.
4. Benefits: Executive shall receive the benefits listed in
Appendix A hereto. The benefits listed in Appendix A shall be provided to
Executive in accordance with the terms and conditions of such benefit plans and
programs as are maintained by the Company for individuals in positions
comparable to those of Executive, as such plans are amended from time to time.
5. Vacation: Executive shall be entitled to paid vacation of
four weeks annually. Such vacation shall be taken at such times as will
interfere as little as possible with the performance of Executive's duties
hereunder.
2
<PAGE> 3
6. Expenses: The Company will reimburse Executive for
reasonable and necessary business expenses of Executive for travel, meals and
similar items incurred in connection with the performance of Executive's duties,
and which are consistent with such guidelines as the senior executive officers
and/or the Board of Directors of the Company may from time to time establish.
All payments for reimbursement of such expenses shall be made to the Executive
only upon the presentation to the Company of appropriate vouchers or receipts.
7. Confidentiality, Non-Competition, etc.:
(a) Executive acknowledges that: (i) the Business is
intensely competitive and that Executive's employment by the Company will
require that Executive have access to and knowledge of confidential information
of the Company, including, but not limited to, the identity of the Company's
customers, the identity of the representatives of customers with whom the
Company has dealt, the kinds of services provided by the Company to customers
and offered to be performed for potential customers, the manner in which such
services are performed or offered to be performed, the service needs of actual
or prospective customers, pricing information, information concerning the
creation, acquisition or disposition of products and services, customer
maintenance listings, computer software applications and other programs,
personnel information and other trade secrets (the "Confidential Information");
(ii) the direct and indirect disclosure of any such Confidential Information to
existing or potential competitors of the Company would place the Company at a
competitive disadvantage and would do damage, monetary or otherwise, to the
Company's business; and (iii) the engaging by Executive in any of the activities
prohibited by this Section 7 may constitute improper appropriation and/or use of
such information and trade secrets. Executive expressly acknowledges the trade
secret status of the Confidential Information and that the Confidential
Information constitutes a protectible business interest of the Company.
Accordingly the Company and Executive agree as follows:
(b) For purposes of this Section 7, the Company shall
be construed to include the Company and its parents, subsidiaries and affiliates
engaged in the Business, including any divisions managed by Executive.
3
<PAGE> 4
(c) During the Term of, this Agreement and at all
times after the termination of Executive Is employment by expiration of the Term
or otherwise, Executive shall not, directly or indirectly, whether individually,
as a director, stockholder, owner, partner, employee, principal or agent of any
business, or in any other capacity, make known, disclose, furnish, make
available or utilize any of the Confidential Information, other than in the
proper performance of the duties contemplated herein. Executive agrees to return
all Confidential Information, including all photocopies, extracts and summaries
thereof, and any such information stored electronically on tapes, computer disks
or in any other manner to the Company at any time upon request by the Company
and upon the termination of his employment for any reason.
(d) Executive shall not, so long as he is employed by
the Company, engage in "Competition" with the Company. For purposes of this
Agreement, Competition by Executive shall mean Executive's engaging in, or
otherwise directly or indirectly being employed by or acting as a consultant or
lender to, or being a director, officer, employee, principal agent, stockholder,
member, owner or partner of, or permitting his name to be used in connection
with the activities of any other business or organization anywhere in the United
States which competes, directly or indirectly, with the business of the Company
as the same shall be constituted at any time during his employment.
(e) for a period of six (6) months after he resigns
his employment, without cause and ceases to be employed hereunder by the
Company, Executive agrees that he will not, directly or indirectly for his
benefit, or for the benefit of any other person, firm or entity, do any of the
following:
(i) solicit from any customer doing business
with the Company as of Executive's termination, business of the same of
a similar nature to the business of the Company with such customer;
(ii) solicit from any known poten- tial
customer of the Company business of the same or of a similar nature to
that which has been the subject of a known written or oral bid, offer
or
4
<PAGE> 5
proposal by the Company, or of substantial preparation with a view to
making such a bid, proposal or offer, within six (6) months prior to
Executive's termination;
(iii) solicit the employment or services of,
or hire, any person who was known to be employed by or was a known
consultant to the company upon Executive's termination of Executive's
employment, or within six (6) months prior thereto; or
(iv) commit any willful or international
act having the effect of materially injuring the business or accounts
of the Company.
(f) Executive acknowledges that the services to be
rendered by him to the Company are of a special and unique character, which
gives this Agreement a peculiar value to the Company, the loss of which may not
be reasonably or adequately compensated for by damages in an action at law, and
that a material breach or threatened breach by him of any of the provisions
contained in this Section 7 will cause the Company irreparable injury. Executive
therefore agrees that the Company shall be entitled, in addition to any other
right or remedy, to a temporary, preliminary and permanent injunction, without
the necessity of proving the inadequacy of monetary damages or the posting of
any bond or security, enjoining or restraining Executive from any such violation
or threatened violations.
(g) Executive further acknowledges and agrees that
due to the uniqueness of his services and confidential nature of the information
he will possess, the covenants set forth herein are reasonable and necessary for
the protection of the business and goodwill of the Company.
8. Termination:
(a) Notwithstanding any provision of this Agreement
to the contrary, the employment of Executive hereunder shall terminate on the
first to occur of the following dates:
(i) the date of Executive's death,
adjudicated incompetency or adjudicated bankruptcy;
5
<PAGE> 6
(ii) the date on which the Company shall
give Executive notice of termination on account of Disability (as
hereinafter defined);
(iii) the date on which the Company shall
give Executive notice of termination for cause and specifying that
cause as such is defined in paragraph 8 (d) below;
(iv) expiration of the Term; or
(v) the date on which the Company shall give
Executive notice of termination without Cause, as set forth herein, or
for reasons other than set forth in 8(a)(i) through (iv) above;
(b) The Company shall be entitled at any time, upon
notice to Executive, to terminate his employment hereunder on account of the
Disability of Executive or for Cause, and, in either of such events, or in the
event that Executive's employment hereunder shall terminate on account of the
death, adjudicated incompetency or adjudicated bankruptcy of Executive,
Executive or his estate, conservator or designated beneficiary, as the case may
be, shall be entitled to payment of any earned but unpaid salary and earned but
unpaid bonus and payment for unused vacation days, through the date of
termination. Following any such termination, neither Executive nor his estate,
conservator or designated beneficiary shall be entitled to receive any salary or
other payment provided for hereunder with respect to any period after such
termination except as may be specifically provided herein.
(i) the Company shall also be entitled at
any time upon notice to Executive, to terminate his employment without
Cause as set forth herein or for reasons other than set forth in
8(a)(i) through (iv) above. In the event of termination of Executive
without Cause or for reasons other than set forth in 8(a)(i) through
(iv) above Company shall pay Executive twelve months' salary and any
unpaid bonus to the date of termination and shall provide continuation
of medical benefits coverage for Executive and any covered dependents
during such twelve month period.
6
<PAGE> 7
(ii) Executive shall not be required to
mitigate amounts payable pursuant to Section 8(b)(i) hereof by seeking
other employment or otherwise, except to the extent that the Executive
shall receive from a subsequent employer medical benefits coverage
substantially similar to those provided by the Company, the benefits to
be provided under the provisions of Sections 8(a)(v) and 8(b)(i) hereof
shall be correspondingly reduced.
(c) For purposes of this Agreement, "Disability"
shall mean an illness, injury or other incapacitating condition as a result of
which Executive is unable to perform the services required to be performed under
this Agreement for (i) one hundred eighty-three (183) consecutive days during
the Term, or (ii) a period or periods aggregating more than one hundred
eighty-three (183) days in any twelve (12) consecutive months. In any such
event, the Company, in its sole discretion, may terminate this Agreement by
giving notice to Executive of termination for Disability. Executive agrees to
submit to such medical examinations as may be necessary to determine whether a
Disability exists, pursuant to such reasonable requests made by the Company from
time to time.
(d) For purposes of this Agreement, "Cause" shall
mean the occurrence of any of the following, as reasonably and in good faith
determined by the Company:
(i) the willful failure, neglect or refusal
by Executive to perform his duties hereunder (including, without
limitation, Executive's inability to perform such duties as a result of
alcohol or drug abuse, chronic alcoholism or dug addiction);
(ii) any willful, intentional or grossly
negligent act by Executive having the effect of materially injuring the
business or reputation of the Company, any of its parents, subsidiaries
or affiliates and any divisions Executive may manage;
(iii) willful misconduct by Executive,
including insubordination, in respect of the duties or obligations of
Executive as such is indicated under this Agreement;
7
<PAGE> 8
(iv) Executive's commission of a felony or
misdemeanor involving moral turpitude (including entry of a nono
contender plea);
(v) any misappropriation or embezzlement
of the property of the Company and its affiliates and subsidiaries
(whether or not a misdemeanor or felony); and
(vi) a willful and intentional breach of any
one or more of the material covenants of this Agreement by Executive.
(e) Unless Company gives Executive notice of the
non-renewal of this Employment Agreement at least six (6) months before the end
of the term hereof this Employment Agreement will be automatically extended for
one year and all the terms hereof shall be in effect during that one year
extension.
9. Return of Company Property: Executive agrees that following
the termination of his employment for any reason, he shall return all property
of the Company, its subsidiaries, affiliates and any divisions thereof he may
have managed which is then in or thereafter comes into his possession,
including, but not limited to, documents, contracts, agreements, plans,
photographs, books, notes, electronically stored data and all copies of the
foregoing as well as any automobile or other materials or equipment supplied by
the Company to Executive.
10. Compensation in Event of Termination; Survival: Upon
termination of Executive's employment for any reason, this Agreement shall
terminate and the Company shall have no further obligation to Executive except
to the extent Executive is otherwise entitled to any unpaid salary or benefits
hereunder, insurance coverage in accordance with applicable law, and severance
pay or bonus payments as provided herein; provided that the provisions set forth
in Sections 7 and 9 hereof shall remain in full force and effect after the
termination of Executive's employment, notwithstanding the expiration or
termination of this Agreement.
11. Entire Agreement: This Agreement sets
forth the entire agreement between the parties with
8
<PAGE> 9
respect to its subject matter and merges and supersedes all prior discussions,
agreements and understandings of every kind and nature between them and neither
party shall be bound by any term or condition other than as expressly set forth
or provided for in this Agreement. This Agreement may not be changed or modified
except by an agreement in writing, signed by the parties hereto.
12. Waiver: The failure of either party to this Agreement to
enforce any of its terms, provisions or covenants shall not be construed as a
waiver of the same or of the right of such party to enforce the same. Waiver by
either party hereto of any breach or default by the other party of any term or
provision of this Agreement shall not operate as a waiver of any other breach or
default.
13. Severability: In the event that any one or more of the
provisions of this Agreement shall be held to be invalid, illegal or
unenforceable, the validity, legality and enforceability of the remainder of the
Agreement shall not in any way be affected or impaired thereby. Moreover, if any
one or more of the provisions contained in this Agreement shall be held to be
excessively broad as to duration, activity of subject, such provisions shall be
construed by limiting and reducing them so as to be enforceable to the maximum
extent allowed by applicable law.
14. Notices: Any notice given hereunder shall be in writing
and shall be deemed to have been given when delivered by messenger or courier
service (against appropriate receipt), or mailed by registered or certified mail
(return receipt requested), addressed as follows:
If to the Company: Calvin Klein Jeanswear Company
205 W. 39th Street, 12th Floor
New York, New York 10018
Attn: Arnold H. Simon
If to Executive: Mr. Daniel J. Gladstone
11 Annandale Drive
Chappaqua, New York 10514
or at such other address as shall be indicated to either party in writing.
Notice of change of address shall be effective only upon receipt.
9
<PAGE> 10
15. Governing Law: This Agreement shall be governed by and
construed in accordance with the laws of the State of New York, without regard
to its conflict of law rules. Any claim arising out of or relating to this
Agreement, or a breach thereof, shall be settled by arbitration in accordance
with the Commercial Arbitration Rules of the American Arbitration Association in
New York, Borough of Manhattan and judgment upon the award rendered by the
arbitrators) may be entered in any court having jurisdiction thereof.
16. Descriptive Headings: The paragraph headings contained
herein are for reference purposes only and shall not in any way affect the
meaning or interpretation
of this Agreement.
17. Counterparts: This Agreement may be executed in one or
more counterparts, which, together, shall constitute one and the same agreement.
IN WITNESS WHEREOF, the parties hereto have executed this
Agreement on the date first written above.
THE EXECUTIVE
By:___________________________
Daniel J. Gladstone
THE COMPANY
CALVIN KLEIN JEANSWEAR COMPANY
By:___________________________
Arnold H. Simon
Chief Executive Officer
10
<PAGE> 11
APPENDIX A
DANIEL J. GLADSTONE
1. BASE SALARY - $350,000 annually plus a 7 1/2% increase in such Base
Salary commencing on January 1, 1995 and on the first day of each
succeeding year during the term of this Employment Agreement.
2. BENEFITS - Qualified retirement and welfare and any other benefit plans
sponsored by the Company for all senior executives of the Company.
3. STOCK OPTIONS - In event stock options and registration rights
agreements are entered into with either employee or investors,
executive will be treated in a fair and equitable manner consistent
with status of being the President of the Company. The existing
agreement will be amended to provide for vesting of shares consistent
with terms of this agreement.
4. BONUS - If annual net sales exceed $60 million in calendar year 1994
Executive shall receive an Incentive Bonus in an amount equal to
one-half (1/2) of one percent of the Company's annual net sales ex-
ceeding $60 million during that year (1994); in calendar year 1995 such
Incentive Bonus shall be paid in an amount equal to one-half (1/2) of
one percent of the Company's annual (1995) net sales which exceed $65
million; in calendar year 1996 such Incentive Bonus shall be paid in an
amount equal to one-half (1/2) of one percent of the Company's annual
(1996) net sales which exceed $70 million; in calendar year 1997 such
Incentive Bonus shall be paid in an amount equal to one-half (1/2) of
one percent of the Company's annual (1997) net sales which exceed $75
million.
The term "net sales" shall mean gross sales minus returns, allowances
and discounts.
11
<PAGE> 12
AMENDMENT NO. 1 TO EMPLOYMENT AGREEMENT
This Amendment No. 1, dated this 9th day of May, 1996, amends the
Employment Agreement, entered into as of August 5, 1994, by and between Calvin
Klein Jeanswear Company (the "Company") and Daniel J. Gladstone ("Executive").
1. Paragraph 3(a) is hereby amended and restated in its entirety as
follows:
(a) Salary: As of January 1, 1996, Executive's salary shall be an
annual base draw of $450,000 against Executive's bonus, payable in accordance
with the Company's regular payroll practices. All applicable withholding taxes
shall be deducted for such payments. In the event that the bonus compensation is
less than the base draw amount, Executive shall still be entitled to the annual
base draw. Executive's base draw and bonus compensation combined shall be
limited to a maximum of one million dollars ($1,000,000) in any one calendar
year.
2. Paragraph 1 of Appendix A is hereby amended and restated in its
entirety as follows: "BASE SALARY - $450,000 draw against Executive's bonus
annually commencing on January 1, 1996.
3. Paragraph 4 of Appendix A is hereby amended and restated in its
entirety as follows: "If annual net sales exceed $65 million in calendar year
1995 Executive shall receive an Incentive Bonus in an amount equal to one-half
(1/2) of one percent of the Company's annual net sales exceeding $65 million
during that year (1995); in calendar year 1996 such Incentive Bonus shall be
paid in an amount equal to one-half (1/2) of one percent of the Company's annual
(1996) net sales which exceed $70 million; in calendar year 1997 such Incentive
Bonus shall be paid in an amount equal to one-half of one percent of the
Company's annual (1997) net sales which exceed $75 million.
The last sentence of Appendix A is hereby amended and restated in its
entirety as follows: "The term "net sales" shall mean gross sales minus returns,
allowances
12
<PAGE> 13
and discounts, and off-price sales at more than 20% below wholesale."
All other terms and conditions not addressed by this Amendment remain
in full force and effect.
IN WITNESS WHEREOF, the parties have executed this Amendment on the day
first stated above.
CALVIN KLEIN JEANSWEAR THE EXECUTIVE
COMPANY
By: ___________________ By:_____________________
Arnold H. Simon Daniel J. Gladstone
Chief Executive Officer
13
<PAGE> 1
Exhibit 10.34
EMPLOYMENT AGREEMENT
This Agreement (this "Agreement") dated as of January 1, 1996 is made
by and among DESIGNER HOLDINGS, LTD., a Delaware corporation (the "Company"),
CALVIN KLEIN JEANSWEAR COMPANY, a Delaware corporation (the "Subsidiary"), and
ARNOLD H. SIMON (the "Executive").
RECITALS
A. The Executive is a director of the Company and of the Subsidiary and
is currently employed as the President and Chief Executive Officer of the
Company.
B. The Board of Directors of the Company desires to continue the
services of the Executive as President and Chief Executive Officer and desires
to use its best efforts to continue the Executive as a director of the Company
and desires to continue the services of the Executive as a director of the
Subsidiary and to continue the employment of the Executive with the Company and
to enter into an agreement embodying the terms of those continued relationships.
C. The Executive is willing to serve as a director, President and Chief
Executive Officer of the Company, is willing to serve as a director of the
Subsidiary (so long as it is a subsidiary of the Company) and is willing to
accept continued employment by the Company on the terms set forth herein.
D. The Company and the Subsidiary are members of a group of affiliated
enterprises which include, but are not limited to, Rio Sportswear, Inc.,
Jeanswear Holdings Inc., Abbeville Acquisition Company and Kaijay Acquisition
Company, which enterprises together with the Company and the Subsidiary are
commonly and collectively referred to in this Agreement as the "Company"
<PAGE> 2
unless otherwise required by the specific context of a particular provision
hereof, provided that such entities shall not be included in the definition of
"Company" from and after the date they cease to be direct or indirect
subsidiaries of Designer Holdings, Ltd.
AGREEMENT
NOW, THEREFORE, in consideration of the premises and mutual covenants
herein contained, and other good and valuable consideration, the Company, the
Subsidiary and the Executive hereby agree as follows:
1. DEFINITIONS.
1.1 "Affiliate" means any Person controlling, controlled by or
under common control with the Company provided however, that the term Affiliate
shall not include Charterhouse Group International, Inc. or any Person
controlling, controlled by or under common control with Charterhouse Group
International, Inc.
1.2 "Board" means the Board of Directors of the Company and/or
the Subsidiary.
1.3 "Cause" means (a) the Executive is convicted of or pleads
guilty to a felony involving dishonesty as against the Company or the
Subsidiary, (b) the Executive is convicted of a felony not involving the
Company, and after exhausting all rights of appeal, is obligated to serve ten
(10) or more days in prison or pay a fine of more than Five Hundred Thousand
($500,000) Dollars, or (c) the Executive, in carrying out the Executive's duties
and responsibilities under this Agreement, is guilty of gross neglect or gross
misconduct resulting, in either case, in material economic harm to the Company
and/or the Subsidiary, unless such act, or failure to act, was reasonably
believed by the Executive in good faith, using reasonable judgment under the
circumstances, to be in the best interests of the Company and/or the Subsidiary.
-2-
<PAGE> 3
1.4 "Date of Termination" means (a) in the case of a
termination for which a Notice of Termination (as hereinafter defined in Section
6.6) is required, the date of actual receipt of such Notice of Termination or,
if later, the date specified therein, as the case may be, and (b) in all other
cases, the actual date on which the Executive's employment terminates during the
Term of Employment (as hereinafter defined in Section 3) (it being understood
that nothing contained in this definition of "Date of Termination" shall affect
any of the cure rights provided to the Executive or the Company in this
Agreement).
1.5 "Disability" means the Executive's inability to render,
for a period of six consecutive months, services hereunder. In no event shall
the Executive be considered disabled for the purposes of this Agreement unless
the Executive is deemed disabled pursuant to both the Company's regular
long-term disability plan and any Special LTD Policy.
1.6 "Adjusted EBITDA" means for any fiscal year the sum of (a)
the net income including royalty income of the Consolidated Company for such
fiscal year as determined in accordance with GAAP except as specifically noted
below in this definition, (b) taxes in respect of income, (c) interest for money
borrowed, (d) depreciation, (e) amortization and (f) factoring fees, charges and
expenses, provided that (i) the following shall be excluded from Adjusted
EBITDA: (A) extraordinary items (whether extraordinary gains or extraordinary
losses), (B) gains and losses from financing transactions and (C) gains and
losses from the sale or other disposition of material assets (other than
inventory) outside of the ordinary course of business; and (ii) to the extent
that, in connection with or otherwise related to the performance of a material
arrangement with a new licensor entered into at any time after January 1, 1996,
in the year such license arrangement is entered into the revenues, if any,
associated with such license are exceeded by the costs and expenses (including
general and administrative expenses related thereto) associated with such
license (thereby resulting in a net reduction in Adjusted EBITDA), such net
reduction shall be (A) excluded when calculating
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Adjusted EBITDA for such fiscal year and (B) included when calculating Adjusted
EBITDA for the next fiscal year provided further that there shall be no such
exclusion pursuant to clause (A) in the fiscal year ended December 31, 1998. It
is understood and agreed that there shall be an appropriate calculation so that
the amount of any bonus payable in respect of any fiscal year pursuant to
Section 5.2 shall reduce the Adjusted EBITDA in the manner provided for in the
next to last sentence of Section 5.2. For purposes of this Section 1.6, as well
as Sections 5.2, 6.1(c), 6.2(b), and 6.3(b), the term Consolidated Company shall
mean the Company, the Subsidiary and any other subsidiary or other Affiliate of
the Company, the results of the fiscal operations of which are included in the
Company's consolidated net income statement, and "GAAP" shall mean generally
accepted accounting principles as such are applied in the United States of
America on the Commencement Date (as hereinafter defined in Section 3).
1.7 "Good Reason" means and shall be deemed to exist if (a)
without the Executive's express prior written consent, the Executive is assigned
any duties or responsibilities inconsistent in any material respect with the
scope of the duties or responsibilities associated with the Executive's titles
or positions, as set forth and described in Article 4 of this Agreement; (b)
without the Executive's express prior written consent, the Executive suffers in
any material respect a reduction in the duties, responsibilities or effective
authority associated with Executive's titles and positions as set forth and
described in Article 4 of this Agreement; (c) without the Executive's express
prior written consent, the Executive is not appointed to and/or elected to, or
is removed from, the offices or positions provided for in Section 4.1 of this
Agreement (whether or not the Company uses its best efforts to cause the
Executive to be elected as a director of the Company); (d) the Company or the
Subsidiary fails to substantially perform or otherwise substantially breaches
any material term or provision of this Agreement; (e) without the Executive's
express prior written consent, and except as provided in Section 5.2 hereof, the
Executive's compensation under this Agreement is decreased, or
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the Executive's benefits under employee benefit or health or welfare plans or
programs of the Company or the Subsidiary are in the aggregate materially
decreased; (f) the Company's or Subsidiary's principal office or the Executive's
own office location is relocated to a location more than thirty (30) miles from
the location at which the Executive was based immediately prior to the execution
of this Agreement; (g) the Company or the Subsidiary fails to obtain the full
assumption of this Agreement by a successor entity in accordance with Section
12.2 of this Agreement; (h) the Company fails to use reasonable efforts to
maintain, or cause to be maintained, directors and officers liability insurance
coverage for the Executive as provided in Section 13.10 of this Agreement; (i)
the Company or the Subsidiary purports to terminate the Executive's employment
for Cause and the Company or the Subsidiary, as applicable, is not entitled to
terminate this Agreement for Cause; (j) a majority of Additional Board Members
of either Board shall consist of persons whose election or appointment was not
approved in writing by the Executive; "Additional Board Members" means members
of the Board excluding the four members of each Board on the Effective Date; (k)
there shall occur (i) any liquidation of the Company or the Subsidiary, either
or both, or the sale of substantially all of the assets of the Company and the
Subsidiary taken as a whole, or (ii) any merger, consolidation or other business
combination of the Company or the Subsidiary (a "Transaction") or any
combination of any such Transactions, other than a Transaction (A) involving
only the Company and the Subsidiary, or (B) immediately after which the
stockholders of the Company who were stockholders immediately prior to the
Transaction continue to own beneficially, directly or indirectly, more than
eighty percent (80%) of the then outstanding voting securities of the Company
and the Subsidiary; or (l) any Person or group (as such term is defined in Rule
13d-5 of the Securities Exchange Act of 1934, as amended (the "Exchange Act"))
of related Persons (other than Charterhouse Group International, Inc.) which is
not an Affiliate of the Company or the Subsidiary as of the
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Commencement Date shall beneficially own, directly or indirectly, more than 50%
of the then outstanding voting stock of the Company or the Subsidiary.
1.8 "Person(s)" means any individual or entity of any kind or
nature, including any other person as defined in Section 3(a)(9) of the Exchange
Act, and as used in Sections 13(d) and 14(d) thereof.
2. EMPLOYMENT. Subject to the terms and provisions set forth in this
Agreement, the Company hereby employs the Executive during the Term of
Employment as the President and Chief Executive Officer of the Company, agrees
to use best efforts to cause the Executive to be a director of the Company at
all times during the Term of Employment, and agrees to cause the Executive to be
a director of the Subsidiary at all times during the Term of Employment and the
Executive hereby accepts such employment.
3. TERM OF EMPLOYMENT. The term of employment under this Agreement
shall commence as of the date hereof, i.e., January 1, 1996 (the "Commencement
Date") and, unless terminated earlier pursuant to the terms hereof, shall
terminate on December 31, 1998 (the "Term of Employment").
4. POSITIONS, RESPONSIBILITIES AND DUTIES.
4.1 POSITIONS. During the Term of Employment, the Executive
shall be employed as, and the Company shall at all times cause the Executive to
be, the President and Chief Executive Officer of (i) the Company; and (ii) all
existing and future direct or indirect subsidiaries of the Company (for such
period as they continue to be subsidiaries); provided however, that to the
extent that the Company is required under the terms of an existing designer
license (and any future designer license agreed to by the Executive) to create a
separate subsidiary to conduct the business associated with such designer and to
appoint a Chief Executive Officer and/or President employed as such on a
full-time basis acceptable to that designer, the Executive is hereby granted the
authority to select and
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replace such subsidiary's Chief Executive Officer and/or President, who shall
report directly to and be under the supervision of the Executive or Executive's
designees (it being further agreed that, subject to the right of replacement
provided for in the preceding part of this Section 4.1, Daniel Gladstone shall
be permitted to be Chief Executive Officer and/or President of Calvin Klein
Jeanswear; provided that Executive shall be permitted to elect not to be
President and Chief Executive Officer of any direct or indirect subsidiary of
the Company). In addition to such positions, it is acknowledged that the
Executive shall, if elected, serve as a director of each of the Company and the
Subsidiary during the Term of Employment and be a member of the Board of
Director Committees of each of the Company and the Subsidiary identified in
Schedule 4.1 hereto provided that insofar as the election of the Executive as a
director of Designer Holdings Ltd., the Company's obligations shall be to use
its best efforts to cause the Executive to be elected as a director provided
further that the parties hereto confirm and agree that the Executive's not being
elected as a director of Designer Holdings Ltd. constitutes Good Reason pursuant
to Section 1.7(c) hereof. In such positions, the Executive shall have the
duties, responsibilities and authority normally associated with the office and
position of director, President and Chief Executive Officer of a company
including, but not limited to, those set forth in Schedule 4.1. In no event
shall any other employee have duties, responsibilities and/or effective
authority with respect to the Company or the Subsidiary that are equal to or
greater than those of the Executive (it being acknowledged that directors, in
their capacity as directors, shall have equal duties, responsibilities and
authority). The Executive shall report solely and directly to the Board of
Directors of the Company and the audit committee of the Company and all other
officers and other employees of the Company and the Subsidiary and any other
direct or indirect subsidiary of the Company shall report directly to the
Executive or the Executive's designees. Notwithstanding the above, the Executive
shall not be required to perform any duties and responsibilities which would be
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likely to result in a non-compliance with or violation of any applicable law or
regulation or contract of the Company or any Subsidiary.
4.2 DUTIES. During the Term of Employment, the Executive shall
devote substantially all of Executive's business time, during normal business
hours, to the business and affairs of the Company and the Subsidiary and the
Executive shall use the Executive's best efforts to perform faithfully and
efficiently the duties and responsibilities contemplated by this Agreement;
provided, however, that the Executive shall be allowed, to the extent such
activities do not substantially interfere with the performance by the Executive
of the Executive's duties and responsibilities hereunder, to (a) manage the
Executive's personal, financial and legal affairs, and (b) subject to the
Company's consent, which shall not be unreasonably withheld, serve on corporate,
civic or charitable boards or committees.
5. COMPENSATION AND OTHER BENEFITS.
5.1 BASE SALARY. During the Term of Employment, the Executive
shall receive a base salary of no less than $1,500,000 per annum ("Base Salary")
payable in equal monthly installments. Such Base Salary shall be reviewed
annually for increase (but not decrease) in the sole discretion of the Board. In
conducting any such annual review, the Board shall take into account any change
in the Executive's responsibilities, increases in the compensation of other
executives of the Company or the Subsidiary or of competitors of either, the
performance of the Executive and other pertinent factors. The increased Base
Salary shall then constitute the "Base Salary" for purposes of this Agreement.
5.2 ANNUAL BONUS. With respect to 1996 (and in addition to the
Base Salary), the Executive shall be entitled to receive an annual cash bonus
payment (the "1996 Annual Bonus") equal to (i) the product of the applicable
Bonus Rate listed below for 1996 and the consolidated Adjusted EBITDA for such
fiscal year minus (ii) $2,000,000. For the purposes of this Section 5.2, "1996
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EBITDA" shall mean (i) consolidated Adjusted EBITDA for the fiscal year ended
December 31, 1996 minus (ii) the amount of the bonus that would be payable for
the fiscal year ended December 31, 1996 pursuant to the preceding sentence if
there was no deduction of $2,000,000 pursuant to clause (ii). For purposes of
this Section 5.2, the 1996 "Bonus Rate" shall be determined as follows:
<TABLE>
<CAPTION>
1996 Adjusted EBITDA 1996 Bonus Rate
-------------------- ---------------
<S> <C>
Under $50 million -0-
$50 million - $60 million 2% of all Adjusted EBITDA
Over $60 million 3% of all Adjusted EBITDA
</TABLE>
For purposes of illustration only, if the Consolidated Company were to have
Adjusted EBITDA in 1996 of (a) $55 million, the Executive's 1996 Annual Bonus
would be $-0- (i.e., $55 million times 2% - $2,000,000) or (b) $70 million, the
Executive's 1996 Annual Bonus would be $100,000 (i.e., $70 million times 3% -
$2,000,000). With respect to 1997 (and in addition to the Base Salary) the
Executive shall be entitled to receive an annual cash bonus payment as follows:
if the consolidated Adjusted EBITDA in 1997 ("1997 EBITDA") (a) is less than
110% of 1996 EBITDA, the Executive shall not receive any bonus; (b) is between
110% and 119.99% of 1996 EBITDA, the Executive shall receive a bonus of 2 1/2%
of all 1997 EBITDA; (c) is between 120% and 124.99% of 1996 EBITDA, the
Executive shall receive a bonus of 3.5% of all 1997 EBITDA; and (d) is 125% or
more of 1996 EBITDA, the Executive shall receive a bonus of 4% of all 1997
EBITDA. With respect to 1998 (and in addition to the Base Salary) the Executive
shall be entitled to receive an annual cash bonus payment as follows: if the
consolidated Adjusted EBITDA in 1998 ("1998 EBITDA") (a) is less than 121% of
1996 EBITDA, the Executive shall not receive any bonus; (b) is between 121% and
143.99% of 1996 EBITDA, the Executive shall receive a bonus of 2 1/2% of all
1998 EBITDA; (c) is between 144% and 156.25% of 1996 EBITDA, the Executive shall
receive a bonus of 3.5% of all 1998 EBITDA; and (d) is more than 156.25% 1996
EBITDA, the Executive shall receive a bonus of 4% of all 1998 EBITDA. "Annual
Bonus" means the bonus paid or payable to the Executive in respect of
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each calendar year. Notwithstanding the foregoing, if during the Term of
Employment (a) there occurs any material change in either the capitalization of
the Company, or the indebtedness for borrowed money of the Company or both or
(b) the Company or the Subsidiary effect a material acquisition of any business,
by merger, purchase of assets, stock purchase, a combination thereof, or
otherwise, then the Executive and the Company will in good faith review the
"bonus provisions" set forth above and negotiate in good faith to agree upon an
adjustment in the "bonus provision" amounts set forth above which fairly takes
account of the effects of such changed capitalization, change in borrowed money
or acquisition, provided further that, except as expressly provided in Section
1.6 hereof respecting certain start up costs and expenses incurred in connection
with certain license arrangements, the foregoing provisions of this sentence
shall not apply to any license arrangements entered into by the Company, either
as licensee or licensor. Any such adjustment shall become effective immediately
upon agreement by the Company and the Executive as to such adjustment, which
agreement shall be evidenced by a writing which shall constitute an amendment to
this Agreement. To the extent that (a) any reduction in Adjusted EBITDA by
reason of the deduction of the Annual Bonus pursuant to the next to last
sentence in Section 1.6 hereof would reduce Adjusted EBITDA below a threshold
provided for above (including, without limitation, any minimum threshold to
receive any bonus) and (b) the Executive's Annual Bonus would be greater if the
Executive's Annual Bonus is the difference between the Adjusted EBITDA prior to
any such reduction for the Annual Bonus and such threshold, the Executive's
Annual Bonus shall be such difference (by way of two examples only, (A) if (i)
1996 EBITDA is $65,000,000, (ii) the "minimum threshold" for 1997 is $71,500,000
(1.10 x 65,000,000), and (iii) the 1997 Adjusted EBITDA prior to the bonus
calculation is $73,200,000, the Executive's Annual Bonus shall be $1,700,000;
and (B) if (i) 1996 EBITDA is $65,000,000 and (ii) 1997 Adjusted EBITDA prior to
the bonus calculation is $80,600,000, the
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<PAGE> 11
Executive's Annual Bonus for 1997 shall be $2,600,000, it being agreed that
these two examples carry out the intent of the parties).
The Annual Bonus shall be paid to the Executive in cash as
soon as practicable after the end of the fiscal year to which it relates, but in
any event no later than one hundred five (105) calendar days after the end of
such fiscal year (and, to the extent there is any disagreement as to the amount
thereof, any amount acknowledged as payable by the Company shall be paid by such
date).
5.3 INTENTIONALLY OMITTED.
5.4 INCENTIVE, RETIREMENT, AND SAVINGS PLANS. During the Term
of Employment, the Executive shall be entitled to participate in all incentive,
pension, retirement, savings and other employee benefit plans and programs
maintained by the Company and/or the Subsidiary for the benefit of senior
executives; provided however, that notwithstanding any other provisions of this
Section 5.4, the Executive shall not be entitled to receive incentive stock
options, non-qualified stock options, stock appreciation rights or limited stock
appreciation rights issued on or within one month after the Effective Date but
shall be, at the discretion of the Board of the Company, eligible to receive any
one or more of same at any time thereafter. The Company shall provide the
Executive with benefits, taken as a whole, that are at least equal to those
provided by the Company (including, the Subsidiary) to the Executive under the
plans and programs in effect on the Commencement Date or, if more favorable to
the Executive, as in effect any time thereafter; provided, however, that no
reduction in levels of participation or benefits under any such plans or
programs shall discriminate against the Executive as compared to all other
senior executives of the Company or the Subsidiary. The Company (including the
Subsidiary) hereby represents and warrants to the Executive that there are
currently no duplication of benefits provided to the Executive. The Company
(including the Subsidiary) agrees to meet with the Executive and jointly
determine whether, in connection with any implementation of any new plans or
other benefit arrangements of a type described in this Section 5.4
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and in Section 5.5, any such benefit plans or other arrangements provide for
benefits which are intended to be duplicative or non-duplicative, and document
same in writing.
5.5 WELFARE BENEFIT PLANS. During the Term of Employment, the
Executive, the Executive's spouse and their eligible dependents, if any, shall
be entitled to participate in and be covered under all the welfare benefit plans
or programs maintained by the Company and/or the Subsidiary, including, without
limitation, all term life insurance, long term disability insurance, medical,
hospitalization, dental, disability, accidental death and dismemberment and
travel accident insurance plans and programs. The Company (including the
Subsidiary) shall provide, in the aggregate, substantially equivalent levels of
participation and benefits as were available to the Executive on the
Commencement Date or, if more favorable to the Executive, at the levels in
effect any time thereafter; provided, however, that no reduction in levels of
participation or benefits under any such plans or programs shall discriminate
against the Executive as compared to all other senior executives of the Company
or the Subsidiary. In addition to the above, the Company or the Subsidiary,
during the Term of Employment, shall provide the Executive with term life
insurance coverage through an individual policy, a group policy or a combination
thereof, in an amount equal to $10,000,000. The Executive shall retain the right
to select and change the beneficiary(ies) of such life insurance policy or
policies. The Company, during the Term of Employment, shall also pay or cause
the Subsidiary to pay to the Executive, within five (5) days after the execution
of this Agreement (for calendar year 1996) and on each succeeding January 2, an
annual amount which equals the actual annual cost, if any, of any special
long-term disability insurance policy selected by the Executive, which policy
(the "Special LTD Policy") provides payments to the Executive which, when added
to any other payments made under disability insurance policies provided by the
Company, provides the Executive until age 65 or until the Executive is no longer
disabled, whichever occurs earlier, the greatest reasonable amount of disability
insurance that can be purchased from time to time taking into consideration the
cost of
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<PAGE> 13
the premiums, but in any event not less than $30,000 per month (the "Disability
Payments"); provided, however, to the extent that coverage provided for in the
preceding part of this sentence is not obtained, it shall be the Company's
obligation to pay to the Executive the difference between the Disability
Payments provided for in the preceding part of this sentence and the amount paid
pursuant to any one of the policies which in the aggregate provide for the
payment of any lower amount.
5.6 KEY MAN LIFE INSURANCE. During the Term of Employment, the
Company shall purchase, subject to the insurability of the Executive at rates
reasonably comparable to those of other senior executives of similar age for the
amount of insurance to be purchased, "key man" life insurance, providing a death
benefit to the Company of no less than the amount payable to the Executive's
estate in the event of his death on the Commencement Date or, at the levels in
effect any time thereafter if greater (collectively, the "Key Man Insurance
Policy"). In connection therewith, the Executive hereby authorizes the Company,
at its sole cost and expense, to purchase and maintain upon the life of the
Executive such insurance policy, and agrees to submit to such medical
examinations, and to provide and/or consent to the release of such medical
information, as may be necessary or desirable in order to secure the issuance
thereof.
5.7 EXPENSE REIMBURSEMENT. During the Term of Employment, the
Executive shall be entitled to receive prompt reimbursement for all reasonable
expenses incurred by the Executive in performing the Executive's duties and
responsibilities hereunder in accordance with the policies and procedures of the
Company as in effect and actually applied immediately prior to the Commencement
Date, or, if more favorable to the Executive, as in effect at any time
thereafter with respect to the Executive or other executives of the Company or
the Subsidiary. At the end of each fiscal year, the Executive and the Company
shall in good faith reconcile any differences and disputes with respect to
timing, right to reimbursement, reasonableness or documentation of any items of
expense reimbursement, it being agreed that no dispute respecting any of the
foregoing shall constitute
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<PAGE> 14
a basis for either Executive or the Company (including the Subsidiary)
terminating or attempting to terminate this Agreement.
5.8 VACATION AND FRINGE BENEFITS. During the Term of
Employment, the Executive shall be entitled to such paid vacation, fringe
benefits and perquisites as set forth in Schedule 5.8 or, if more favorable to
the Executive, as provided by the Company or the Subsidiary at any time
hereafter.
5.9 OFFICE AND SUPPORT STAFF. Unless the Executive otherwise
agrees in writing, during the Term of Employment the Executive shall be entitled
to executive secretarial and other administrative assistance of a type and to
the extent, and to an office or offices (with furnishings and other
appointments) of a type and size, at least equal to that provided to the
Executive immediately prior to the Commencement Date or, if more favorable to
the Executive, as is provided to any other employee of the Company or the
Subsidiary at any time thereafter.
6. TERMINATION.
6.1 TERMINATION DUE TO DEATH OR DISABILITY. The Company or the
Executive may terminate the Executive's employment hereunder due to Disability.
In the event of the Executive's death or a termination of the Executive's
employment by the Company due to Disability, the Executive, Executive's estate
or Executive's legal representative, as the case may be, shall be entitled to:
(a) (i) in the case of death, (x) Base Salary continuation at
the rate in effect (as provided for by Section 5.1 of this Agreement)
on the Date of Termination for a period of three (3) months after the
date of death, plus (y) a death benefit in an amount equal to
$10,000,000 less any amounts paid pursuant to the group and/or
individual life insurance policies referred to in Section 5.5 of this
Agreement, and (ii) in the case of Disability, an amount equal to the
maximum amount of disability income insurance the Company can
reasonably obtain on behalf of the Executive after giving appropriate
consideration to the cost
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<PAGE> 15
thereof, but not less than $30,000 per month (less any payments
received under the Special LTD Policy, if any, and any long-term
disability plan or policy maintained by the Company) for so long as the
Executive is subject to a Disability or until age 65, whichever occurs
first;
(b) any Base Salary accrued or any Annual Bonus earned but not
yet paid;
(c) a pro rata Annual Bonus for the calendar year in which
death or Disability occurs (determined and payable in accordance with
Section 5.2 of this Agreement);
(d) any deferred compensation not yet paid to the Executive
(including, without limitation, interest or other credits on such
deferred amounts) and any accrued vacation pay;
(e) reimbursement pursuant to Section 5.7 hereof or any other
provision of this Agreement for expenses incurred but not yet paid
prior to such death or Disability;
(f) in the case of death, any other compensation and benefits
as may be provided in accordance with the terms and provision of any
applicable plans and programs of the Company and/or the Subsidiary; and
(g) in the case of Disability, (i) continuation of the
Executive's health and welfare benefits (as described in section 5.5 of
this Agreement) at the level in effect (as provided for by Section 5.5)
on the Date of Termination through the end of the three-year period
following the termination of the Executive's employment due to
Disability (or the Company shall provide the economic equivalent
thereof), (ii) the Company will use commercially reasonably efforts to
arrange for the Executive (x) to have the ability to maintain the Key
Man Insurance Policy thereafter at the sole expense of the Executive
and (y) to designate the beneficiaries thereof, and (iii) any other
compensation and benefits as may be provided in accordance with the
terms and provisions of any applicable plans and programs of the
Company and/or the Subsidiary.
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<PAGE> 16
With respect to the deferred compensation arrangements referred to in
Sections 6.1(d), 6.2(c) and 6.3(d), to the extent that such deferred
compensation arrangements provide by their terms for any deferral of payments in
the event of death or Disability, termination with Cause or termination without
Cause or for Good Reason, such payments shall be deferred in accordance with
such arrangements to the extent required by the type of termination of this
Agreement. With respect to the other benefits referred to in Sections 6.1(f),
6.2(e) and 6.3(g), to the extent that such other benefit arrangements provide by
their terms for any deferral of payments in the event of death or Disability,
termination with Cause or termination without Cause or for Good Reason, such
payments shall be deferred in accordance with such arrangements to the extent
required by the type of termination of this Agreement.
6.2 TERMINATION BY THE COMPANY FOR CAUSE. The Company may
terminate the Executive's employment hereunder for Cause as provided in this
Section 6.2; provided that no act or omission referred to in Section 1.3(b)
hereof occurring prior to the Commencement Date shall constitute Cause. If the
Company terminates the Executive's employment hereunder for Cause, the Executive
shall be entitled to:
(a) the Executive's Base Salary at the rate in effect (as
provided for by Section 5.1 of this Agreement) at the time of such
termination through the Date of Termination;
(b) any Annual Bonus for the prior fiscal year not yet paid
together with a pro-rata portion of the Annual Bonus for the calendar
year in which termination occurs through the Date of Termination;
(c) any deferred compensation (including, without limitation,
interest or other credit on such deferred amounts) and any accrued
vacation pay;
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<PAGE> 17
(d) reimbursement pursuant to Section 5.7 hereof or any other
provision of this Agreement for expenses incurred, but not yet paid
prior to such termination of employment; and
(e) any other compensation and benefits as may be provided in
accordance with the terms and provisions of any applicable plans and
programs of the Company and/or the Subsidiary.
In any case described in this Section 6.2, the Executive shall
be given written notice, authorized (with Executive abstaining) by a vote of at
least two thirds (2/3) of the members of the entire Board (excluding Executive),
that the Company intends to terminate the Executive's employment for Cause. Such
written notice, given in accordance with Section 6.6 of this Agreement, shall
specify the particular act or acts, or failure to act, which is or are the basis
for the decision to so terminate the Executive's employment for Cause. The
Executive shall be given the opportunity within ten (10) calendar days of the
receipt of such notice to meet with the Board to defend such act or acts, or
failure to act, and the Executive shall be given twenty (20) business days after
such meeting to correct such act, acts or failure(s) to act, provided that the
Executive shall not have the right to cure the acts described in Section 1.3(a)
hereof. Upon failure of the Executive, within such latter twenty (20) business
day period, to correct such act, acts or failure(s) to act, the Executive's
employment by the Company shall automatically be terminated under this Section
6.2 for Cause as of the date determined in Section 1.4 of this Agreement.
6.3 TERMINATION WITHOUT CAUSE OR TERMINATION FOR GOOD REASON.
The Company may terminate the Executive's employment hereunder without Cause and
the Executive may terminate the Executive's employment hereunder for Good
Reason. If the Company terminates the Executive's employment hereunder without
Cause, other than due to death or Disability, or if the Executive terminates
Executive's employment for Good Reason, the Executive shall be entitled to the
following:
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(a) A lump sum payment in an amount equal to Executive's
highest annual Base Salary during the Term of Employment multiplied by
2.99 (two hundred and ninety nine percent). Notwithstanding the
foregoing (i) the maximum combined amounts payable to the Executive
pursuant to this Section 6.3(a) and Section 6.3(b) is $9,000,000; and
(ii) the Executive shall not be entitled to a payment pursuant to this
Section 6.3(a) or Section 6.3(b) in connection with any event or other
matter described in any of clauses (j), (k) or (l) of the definition of
Good Reason unless (A) the Executive objects to the event or the matter
described in any of such clauses (j), (k), or (l) and (B) the Executive
terminates this Agreement.
(b) Subject to the provisions of Section 6.3(a), a lump sum
payment in an amount equal to Executive's average annual bonus' paid or
payable to the Executive with respect to the then immediately preceding
three (3) fiscal years (determined in accordance with Section 6.9
hereof) multiplied by 2.99 (299%). Notwithstanding the previous
sentence, if the payments pursuant to Sections 6.3(a), 6.3(b) and
6.3(c) together with any other payments considered to be parachute
payments within the meaning of Section 280G of the Internal Revenue
Code of 1986 as amended from time to time (the "Internal Revenue Code")
or any successor provision shall cause the Executive to incur an excise
tax pursuant to Section 4999 of the Internal Revenue Code (or any
successor provision) or any similar tax, the payments payable pursuant
to Section 6.3(a), this Section 6.3(b) and Section 6.3(c) shall be
reduced to an amount which would not cause such excise or similar tax
to be incurred.
(c) any Base Salary accrued or Annual Bonus earned but not yet
paid as of the actual termination of this Agreement, and a pro rata
Annual Bonus for the calendar year in which such termination occurs.
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(d) any deferred compensation (including, without limitation,
interest or other credits on the deferred amounts) and any accrued
vacation pay;
(e) reimbursement pursuant to Section 5.7 hereof or any other
provision of this Agreement for expenses incurred, but not paid prior
to such termination of employment;
(f) continuation of the pre-existing benefits of the
Executive, including, without limitation, health, welfare, life and any
long-term disability insurance heretofore provided or otherwise
generally provided to senior executives of the Company (including the
Subsidiary), all at the level in effect (as provided for by Section 5.5
of this Agreement) on the Date of Termination through the end of the
three (3) year period following such termination of employment (or the
Company shall provide the economic equivalent thereof); and
(g) any other compensation and benefits as may be provided in
accordance with the terms and provisions of any applicable plans or
programs of the Company and/or the Subsidiary.
If the Executive seeks to terminate the Executive's employment
hereunder for Good Reason, the Company shall be given written notice that the
Executive intends to terminate the Executive's employment for Good Reason. Such
written notice, given in accordance with Section 6.6 of this Agreement, shall
specify the particular act or acts, or failure(s) to act, which is or are the
basis for the Executive's decision to so terminate the Executive's employment
for Good Reason. The Company shall be given the opportunity within ten (10)
calendar days of the receipt of such notice to meet with the Executive to defend
such act or acts, or failure(s) to act, and the Company shall be given twenty
(20) business days after such meeting to correct such act, acts or failure(s) to
act provided that the Company shall not have the right to correct the acts or
failures to act specified in clauses (c) and (i) of the definition of Good
Reason. Upon failure of the Company, within such latter twenty (20) business day
period, to correct such act, acts or failure(s) to act, the Executive's
employment by
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the Company shall automatically be terminated under this Section 6.3 for Good
Reason as of the date of actual termination provided that the date of actual
termination shall be ten (10) calendar days after receipt of the Executive's
notice if the Company does not have the right to correct such act(s) or
failure(s) to act.
6.4 INTENTIONALLY OMITTED.
6.5 NO MITIGATION; NO OFFSET. In the event of any termination
of employment under this Section 6, the Executive shall be under no obligation
to seek other employment and there shall be no offset against any amounts paid
or payable the Executive under this Agreement on account of any remuneration
attributable to any subsequent employment that the Executive may obtain. Any
amounts due under this Section 6 are in the nature of severance payments, or
liquidated damages, or both, and are not in the nature of a penalty.
6.6 NOTICE OF TERMINATION. Any termination of the Executive by
the Company or by the Executive for Good Reason shall be communicated by a
notice of termination to the other party hereto given in accordance with Section
15.3 of this Agreement (the "Notice of Termination"). Such notice shall (a)
indicate the specific termination provision in this Agreement relied upon, (b)
set forth in reasonable detail the facts and circumstances claimed to provide a
basis for termination of the Executive's employment under the provision so
indicated, and (c) if the termination date is other than the date of receipt of
such notice, specify the date on which the Executive's employment is to be
terminated (which date shall not be earlier than the date on which such notice
is actually given).
6.7 PAYMENT. Except as otherwise provided in this Agreement,
any payments to which the Executive shall be entitled under this Section 6,
including, without limitation, any economic equivalent of any benefit, shall be
made as promptly as possible following the Date of Termination. If the amount of
any payment due to the Executive cannot be finally determined within ninety (90)
days after the Date of Termination (by way of example only, pro rata bonuses
determined pursuant to
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Section 6.10 hereof), such amount shall be estimated on a good faith basis by
the Company and the estimated amount shall be paid no later than ninety (90)
days after such Date of Termination. As soon as practicable thereafter, the
final determination of the amount due shall be made and any adjustment requiring
a payment to or from the Executive shall be made as promptly as practicable.
6.8 DISCLOSURE OF TERMINATION. Subject to the requirements of
any Exchange on which securities of the Company may be listed or the securities
laws, and except for terminations for Cause or the death or Disability of the
Executive, any public disclosure of the termination of this Agreement by the
Company shall be subject to prior review and approval by the Executive, which
review and approval shall not be unreasonably withheld or delayed.
6.9 BONUS CALCULATIONS. Whenever reference is made herein,
including in Article 5 or Article 6, to the Executive's highest Annual Bonus in
a prior period or, average Annual Bonus over a three year period (including,
without limitation, in Section 6.3 hereof) or a similar reference is made, such
reference means (i) for the fiscal year 1996, the 1995 Annual Bonus (herein
defined); and (ii) for the fiscal year 1997 (to the extent such reference refers
to an average annual bonus of three years), the average of the 1995 Annual Bonus
and the 1996 Annual Bonus. For the purposes of this Agreement, the 1995 Annual
Bonus shall be deemed to be $3,350,000.
6.10 PRO RATA CALCULATIONS. For the purposes of this Article 6
(except Section 6.2(b)), all calculations of the Annual Bonus on a pro rata
basis shall mean that the Annual Bonus shall be based on the bonus that would
have been payable for the entire calendar year multiplied by a fraction, the
numerator which is the number of days from January 1 in such year through the
date of the termination of this Agreement and the denominator of which is 365.
7. INTENTIONALLY OMITTED.
8. NON-EXCLUSIVITY OF RIGHTS. Except as provided in Section
5.4 hereof, nothing in this Agreement or any other provision of this Agreement
shall prevent or limit the Executive's continuing
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or future participation in any benefit, bonus, incentive or other plan or
program provided or maintained by the Company, the Subsidiary or any other
Affiliate and for which the Executive may qualify, nor shall anything herein
limit or otherwise prejudice such rights as the Executive may have under any
other existing or future agreements with the Company, the Subsidiary or any
Affiliate, including, without limitation, any change of control agreements or
any stock option or restricted stock agreements. Except as otherwise expressly
provided for in this Agreement, amounts which are vested benefits or which the
Executive is otherwise entitled to receive under any plans or programs of the
Company, the Subsidiary or any other Affiliate at or subsequent to the Date of
Termination shall be payable in accordance with such plans or programs.
9. FULL PERFORMANCE. The Company's obligation to make the payments
provided for in this Agreement and otherwise to perform its obligations
hereunder shall not be affected by any circumstances, including, without
limitation, any set-off, counterclaim, recoupment, defense or other right which
the Company may have against the Executive or others.
10. FEES AND EXPENSES. In the event that a claim for payment or
benefits under this Agreement is disputed, the Company shall advance and pay all
reasonable accounting and legal fees and expenses of the Executive, at the
regular hourly rate charged by the accountants and attorneys of the Executive in
connection with any such dispute (whether such dispute is litigated or
arbitrated including, without limitation, in connection with claims that are
settled) incurred by the Executive in pursuing or defending such claim. The
Executive shall not have an obligation to repay any such advances to the Company
except to the extent that a court of competent jurisdiction issues a final,
nonappealable judgment ordering the Executive to reimburse the Company for a
portion (or, if so ordered, all) of legal fees and expenses previously advanced
by the Company, based upon such court's determination of what is reasonable
under all applicable facts and circumstances including which party prevailed on
each of the issues disputed. The Company shall in addition pay or reimburse the
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Executive for all reasonable legal fees and expenses incurred by the Executive
in connection with the preparation and negotiation of this Agreement and the
matters related thereto.
11. CONFIDENTIAL INFORMATION; NON-COMPETITION. The Executive shall not,
during the Term of Employment and thereafter, without the prior express written
consent of the Company or the Subsidiary, disclose any confidential information,
knowledge or data relating to the Company, the Subsidiary or any other Affiliate
and their respective businesses, which (a) was obtained by the Executive in the
course of the Executive's employment with the Company, and (b) which is not
information, knowledge or data otherwise in the public domain (other than by
reason of a breach of this provision by the Executive), unless required to do so
by a court of law or equity or by a governmental agency or other authority. If
the Executive voluntarily elects to terminate the Executive's employment
hereunder without Good Reason, then the Executive shall not, without the express
prior written consent of the Company, for the lesser of (i) the remaining Term
of Employment had his employment continued or (ii) the twenty four (24) month
period following the Date of Termination (the latest possible date being
December 31, 1998), engage in any business, whether as an employee, consultant,
partner, principal, agent, representative or stockholder (other than as a
stockholder of less than a five percent (5%) equity interest) or in any other
corporate or representative capacity, if it involves engaging in, or rendering
services or advice pertaining to, any lines of business the Company or the
Subsidiary was actively conducting on the Date of Termination provided that it
is acknowledged and agreed that the expiration of Executive's employment
hereunder on December 31, 1998 shall not constitute a voluntary termination by
the Executive hereunder. The obligation of the Executive to abide by the
restrictions set forth in the preceding sentence is not conditioned upon the
Company's making any payments in respect of the non-competition obligations
provided for in this Section 11 provided that the preceding provisions of this
sentence shall not in manner lessen any of the Company's obligations to the
Executive. If the Company shall institute any
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<PAGE> 24
action or proceeding to enforce the provisions of this Section 11, or shall file
any claim in any proceeding to enforce such provisions, the Executive hereby
waives the claim or defense that the Company has an adequate remedy at law and
waives the requirement that the Company post a bond in securing equitable
relief, and the Executive shall not contend in any such action or proceeding the
claim or defense that an adequate remedy at law exists. Without limiting the
generality of Section 15.5 hereof, to the extent any provision of this Section
11 is not valid or enforceable in whole same shall be enforced to the maximum
extent permitted by law. Without limiting Section 9 hereof, in no event shall an
asserted violation of this Section 11 constitute a basis for delaying or
withholding the payment of any amounts otherwise payable to the Executive under
this Agreement.
12. SUCCESSORS.
12.1 THE EXECUTIVE. This Agreement is personal to the
Executive and, without the prior express written consent of the Company, shall
not be assignable by the Executive, except that the Executive's rights to
receive any compensation or benefits under this Agreement may be transferred or
disposed of pursuant to testamentary disposition, intestate succession or a
qualified domestic relations order or in connection with a Disability. This
Agreement shall inure to the benefit of and be enforceable by the Executive's
estate, heirs, beneficiaries and/or legal representatives.
12.2 THE COMPANY. This Agreement shall inure to the benefit of
and be binding upon the Company and its successors and assigns. The Company
shall require any successor to all or substantially all of the business and/or
assets of the Company or the Subsidiary, whether direct or indirect, by
purchase, merger, consolidation, acquisition of stock, or otherwise, by an
agreement in form and substance satisfactory to the Executive, expressly to
assume and agree to perform this Agreement in the same manner and to the same
extent as the Company would be required to perform if no such succession had
taken place.
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13. INDEMNIFICATION.
13.1 GENERAL. The Company agrees that if the Executive is made
a party or is threatened to be made a party to any action, suit or proceeding,
whether civil, criminal, administrative or investigative (a "Proceeding"), by
reason of the fact that Executive is or was a director or officer of the
Company, the Subsidiary and/or any other Affiliate or is or was serving at the
request of the Company, the Subsidiary and/or any other Affiliate as a director,
officer, member, employee or agent of another corporation or of a partnership,
joint venture, trust or other enterprise, including, without limitation, service
with respect to employee benefit plans, whether or not the basis of such
Proceeding is alleged action in an official capacity as a director, officer,
member, employee or agent while serving as a director, officer, member, employee
or agent, Executive shall be indemnified and held harmless by the Company and/or
the Subsidiary to the fullest extent authorized by Delaware law, as the same
exists or may hereafter be amended, against all Expenses (as hereinafter defined
in Section 13.2) incurred or suffered by the Executive in connection therewith,
and such indemnification shall continue as to the Executive even if the
Executive has ceased to be an officer, director or agent, or is no longer
employed by the Company and shall inure to the benefit of Executive's heirs,
executors and administrators.
13.2 EXPENSES. As used in this Article, the term "Expenses"
shall include, without limitation, damages, losses, judgments, liabilities,
fines, penalties, excise taxes, settlements and costs, reasonable attorneys'
fees, reasonable accountants' fees, and disbursements and costs of attachment or
similar bonds, investigations, and any reasonable expenses of establishing a
right to indemnification under this Agreement.
13.3 ENFORCEMENT. If a claim or request under this Article is
not paid by the Company or the Subsidiary, or on their behalf, within fifteen
(15) days after a written claim or request has been received by the Company, the
Executive may at any time thereafter bring suit against the Company to recover
the unpaid amount of the claim or request and if successful in whole or in part,
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<PAGE> 26
the Executive shall be entitled to be paid also the expenses of prosecuting such
suit. The burden of proving that the Executive is not entitled to
indemnification for any reason shall be upon the Company.
13.4 SUBROGATION. In the event of payment under this Article,
the Company shall be subrogated to the extent of such payment to all of the
rights of recovery of the Executive.
13.5 PARTIAL INDEMNIFICATION. If the Executive is entitled
under any provision of this Article to indemnification by the Company for some
or a portion of any Expenses, but not, however, for the total amount thereof,
the Company or the Subsidiary shall nevertheless indemnify the Executive for the
portion of such Expenses to which the Executive is entitled.
13.6 ADVANCES OF EXPENSES. Expenses incurred by the Executive
in connection with any Proceeding shall be paid by the Company or the Subsidiary
in advance upon request of the Executive that the Company pay such Expenses,
provided that prior to such advance the Executive shall provide the Company
and/or the Subsidiary with a written undertaking to repay such advances to the
Company and/or the Subsidiary if it shall ultimately be determined that he is
not entitled to be indemnified as authorized under Section 145 of the Delaware
General Corporation Law.
13.7 NOTICE OF CLAIM. The Executive shall give to the Company
notice of any claim made against the Executive for which indemnity will or could
be sought under this Article. In addition, the Executive shall give the Company
such information and cooperation as it may reasonably require and as shall be
within the Executive's power and at such times and places as are convenient for
the Executive.
13.8 DEFENSE OF CLAIM. With respect to any Proceeding as to
which the Executive notifies the Company of the commencement thereof:
13.8.1 The Company will be entitled to participate
therein at its own expense; and
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13.8.2 Except as otherwise provided below, to the
extent that it may wish, the Company jointly with any other indemnifying party
similarly notified will be entitled to assume the defense of the Executive, with
counsel satisfactory to the Executive. The Executive also shall have the right
to employ the Executive's own counsel in such action, suit or Proceeding and the
reasonable fees and expenses of such counsel shall be at the expense of the
Company. The Company shall not be entitled to assume the defense of any action,
suit or Proceeding brought by or on behalf of the Company or the Subsidiary or
as to which the Executive shall have concluded that there may be a conflict of
interest between the Company or the Subsidiary and the Executive in the conduct
of the defense of such action.
13.8.3 The Company shall not be liable to indemnify
the Executive under this Agreement for any amounts paid in settlement of any
action or claim effected without its written consent. The Company shall not
settle any action or claim in any manner which would impose any penalty or
limitation on the Executive without Executive's written consent. Neither the
Company nor the Executive will unreasonably withhold or delay their consent to
any proposed settlement.
13.9 NON-EXCLUSIVITY. The right to indemnification and the
payment of expenses incurred in defending a Proceeding in advance of its final
disposition conferred in this Section 13 shall not be exclusive of any other
right which the Executive may have or hereafter may acquire under any statute,
provision of the certificate of incorporation or by-laws of the Company or the
Subsidiary, agreement, vote of stockholders or disinterested directors or
otherwise.
13.10 DIRECTORS AND OFFICERS LIABILITY POLICY. The Company
agrees to use commercially reasonable efforts to obtain or cause the Subsidiary
to obtain a directors and officers liability insurance policy covering the
Executive in an amount and in accordance with terms no less favorable than that
policy in effect upon the Commencement Date. The Company shall use its
commercially reasonable efforts to maintain during the Term of Employment (and
for so long
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<PAGE> 28
thereafter as is practicable in the circumstances taking account of prevailing
conditions as to availability of such insurance) coverage to the Executive in an
amount at least equal to that maintained immediately prior to the Commencement
Date.
14. EFFECTIVENESS. This Agreement shall become effective upon the
occurrence of all of the following (the "Effective Date)" (a) the effective date
of registration of any class of securities of the Company (the "Registration
Statement Effective Date"); (b) that certain Investment Agreement dated as of
August 4, 1994, among the Executive, the Company and others having terminated
and being of no further force or effect (and the Company shall cause each Person
which is a party to each such agreement to terminate same) and that certain
Limited Liability Company Agreement dated as of August 4, 1994 among the
Executive, the Company and others having been amended and restated in a manner
satisfactory to the Executive together with a satisfactory amendment and
restatement of the Limited Liability Certificate; (c) the execution and delivery
of a Registration Rights Agreement in favor of the Executive regarding the
securities of the Company he beneficially owns in form and substance reasonably
satisfactory to the Executive; and (d) the composition of the Board of Directors
of each of the Company and the Subsidiary, and the certificate of incorporation
and by-laws of each of the Company and the Subsidiary, being satisfactory to the
Executive on the Registration Statement Effective Date. Once effective, this
Agreement shall be given full force and effect and be binding upon the parties
as of January 1, 1996 (including, without limitation, as to the calculation of
the bonus provided for in Section 5.2 hereof).
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<PAGE> 29
15. MISCELLANEOUS.
15.1 APPLICABLE LAW. Except as may be otherwise provided
herein, this Agreement shall be governed by and construed in accordance with the
laws of the State of New York, applied without reference to principles of
conflict of laws.
15.2 AMENDMENTS. This Agreement may not be amended or modified
otherwise than by a written agreement executed by the parties hereto or their
respective successors and legal representatives.
15.3 NOTICES. All notices and other communications hereunder
shall be in writing and shall be given by hand-delivery to the other party or by
registered or certified mail, return receipt requested, postage prepaid,
addressed as follows:
If to the Executive: Arnold H. Simon
1385 Broadway, Suite 305
New York, New York 10018
and to: Arnold H. Simon
29 Burning Hollow Road
Saddle River, New Jersey 07458
with a copy to: Sills Cummis Zuckerman Radin Tischman
Epstein & Gross, P.A.
1 Riverfront Plaza
Newark, New Jersey 07102
Attention: Steven E. Gross, Esq.
If to the Company: Designer Holdings, Ltd.
Calvin Klein Jeanswear Company
1385 Broadway, Suite 305
New York, New York 10018
Attention: Secretary
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<PAGE> 30
with a copy to: Designer Holdings, Ltd.
Calvin Klein Jeanswear Company
1385 Broadway, Suite 305
New York, New York 10018
Attention: General Counsel
Skadden, Arps, Slate, Meagher & Flom
919 Third Avenue
New York, New York 10022
Attention: Mark N. Kaplan, Esq.
or to such other address as either party shall have furnished to the other in
writing in accordance herewith. Notices and communications shall be effective
when actually received by the addressee.
15.4 WITHHOLDING. The Company may withhold from any amounts
payable under this Agreement such federal, state and local income, unemployment,
social security and similar employment related taxes and similar employment
related withholdings as shall be required to be withheld pursuant to any
applicable law or regulation.
15.5 SEVERABILITY. The invalidity or unenforceability of any
provision of this Agreement shall not affect the validity or enforceability of
any other provision of this Agreement, and any such provision which is not valid
or enforceable in whole shall be enforced to the maximum extent permitted by
law.
15.6 CAPTIONS. The captions of this Agreement are not part of
the provisions hereof and shall have no force or effect.
15.7 BENEFICIARIES/REFERENCES. The Executive shall be entitled
to select (and change) a beneficiary or beneficiaries to receive any
compensation or benefit payable hereunder following the Executive's death, and
may change such election, in either case by giving the Company written notice
thereof. In the event of the Executive's death or a judicial determination of
the Executive's incompetence, reference in this Agreement to the Executive shall
be deemed, where appropriate, to refer to the Executive's beneficiary(ies),
estate or other legal representative(s).
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<PAGE> 31
15.8 ENTIRE AGREEMENT. This Agreement contains the entire
agreement among the parties concerning the subject matter hereof and supersedes
all prior agreements, understandings, discussions, negotiations and
undertakings, whether written or oral, between the parties with respect thereto.
15.9 REPRESENTATION. Each party to this Agreement represents
and warrants that it is fully authorized and empowered to enter into this
Agreement and that the performance of its obligations under this Agreement will
not violate any agreement between it and any other person, firm or organization
or any applicable laws or regulations.
15.10 SURVIVORSHIP. The respective rights and obligations of
the parties hereunder shall survive any termination of this Agreement or the
Executive's employment hereunder to the extent necessary to the intended
preservation of such rights and obligations.
15.11 JOINT AND SEVERAL OBLIGATIONS. Anything to the contrary
notwithstanding in this Agreement, all of the monetary and non-monetary
obligations of the Company in this Agreement shall be and are the joint and
several obligations of the Company and the Subsidiary.
15.12 JOINT EFFORTS/COUNTERPARTS. Preparation of this
Agreement shall be deemed to be joint effort of the parties hereto and shall not
be construed more severely against any party. This Agreement may be signed in
two or more counterparts, each of which shall be deemed an original and all of
which together shall constitute one and the same instrument.
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<PAGE> 32
IN WITNESS WHEREOF, the Executive has hereunto set the Executive's hand
and the Company and the Subsidiary have caused this Agreement to be executed in
their respective names on their respective behalves, and their respective
corporate seals to be hereunto affixed and attested by their respective
Secretaries, all as of the day and year first above written.
Attest: DESIGNER HOLDINGS, LTD.
By:
- ------------------------------- ----------------------------------
, Secretary Name:
--------------------------------
Title:
-------------------------------
Attest: CALVIN KLEIN JEANSWEAR COMPANY
By:
- ------------------------------- ----------------------------------
, Secretary Name:
--------------------------------
Title:
-------------------------------
--------------------------------------
Arnold H. Simon, individually
Schedules : 4.1 and 5.8
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SCHEDULE 4.1
A. EXECUTIVE'S MEMBERSHIP ON COMPANY AND SUBSIDIARY BOARD OF DIRECTORS
COMMITTEES
EXECUTIVE COMMITTEE
Member
FINANCE COMMITTEE
Member
NOMINATING COMMITTEE (IF ANY)
Member
COMPENSATION COMMITTEE
Ex-officio Member
B. EXECUTIVE'S PRIMARY RESPONSIBILITIES
- Overall responsibility for Company operations
- Acquisitions and dispositions
- Hiring and termination of employees
- Setting executive and other employee compensation (subject,
however, to the decisions of the Compensation Committee)
- Setting the location of the Company's principal executive offices
- Relationships with designers
- Other similar general management decisions affecting Company
operations
<PAGE> 34
SCHEDULE 5.8
PERQUISITES AND FRINGE BENEFITS
- - Use of Mercedes-Benz or automobile of similar status and driver
selected by the Executive
- - Payment/Reimbursement to the Executive for private aircraft paid for by
the Executive based on the full price first class airplane ticket for
the Executive and each other person that is traveling on an aircraft on
business for the Company or any of its subsidiaries for which the
Company or the Subsidiary does not otherwise pay for
- - Reasonable financial consulting including tax preparation
- - Health club privileges and annual physical examination
- - Four (4) weeks of paid vacation for each calendar year, to be taken
cumulatively
- - Access at reasonable times to a suitable apartment in New York City to
be purchased or leased by the Company in its discretion (and if leased
the Company shall not be required to pay a monthly rental of more than
$3,500 for 1996, annually increased thereafter by reasonable
increases).
<PAGE> 1
Exhibit 10.35
EMPLOYMENT AGREEMENT
AGREEMENT, made this __ day of May, 1996, by and between Designer
Holdings Ltd. and Calvin Klein Jeanswear Company, Inc., located at 1385
Broadway, New York, New York 10018 (collectively the "Companies") and Debbie
Simon residing at 29 Burning Hollow Road, Saddle River, New Jersey 07458
("Executive").
W I T N E S S E T H:
WHEREAS, the Companies are engaged in the business of distributing,
manufacturing, marketing and selling jeans and sports wear (the "Business");
WHEREAS, Executive has represented that she has all of the expertise,
background and experience to have enabled her to perform all of the duties and
execute all of the responsibilities she has previously performed on behalf of
the Companies;
WHEREAS, based on such representation the Companies wish to employ
Executive as an Executive Vice President of the Companies upon the terms
hereinafter set forth; and
WHEREAS, Executive wishes to be so employed by the Companies;
NOW, THEREFORE, in consideration of the premises and the mutual
covenants and agreements herein contained, the Companies and Executive agree as
follows:
1. Employment: The Companies hereby agree to employ Executive,
and Executive hereby agrees to serve, subject to the provisions of this
Agreement, as an Executive Vice President of the Companies. Executive shall
perform such duties and responsibilities as are from time to time assigned to
Executive by the Chief Executive Officer and/or the Board of Directors of the
Companies in her capacity as an Executive Vice President. Executive agrees to
devote all of her business time, attention and energies to the performance of
the duties assigned to her hereunder, and to perform such duties faithfully,
diligently and to the best of her abilities and subject to such laws, rules,
regulations and policies from time to time applicable to the Companies'
employees. Executive agrees to refrain from engaging in any activity that does,
will or could reasonably be deemed to conflict with the best interests of the
Companies. Without limiting the generality of the foregoing, Executive shall
perform the duties she has been performing on behalf of the Companies prior to
the execution of this Agreement.
2. Term: This Agreement shall commence on May 9, 1996, and shall
expire on December 31, 1997. This Agreement shall automatically renew for
additional one (1) year periods beginning
<PAGE> 2
December 31, 1997 (and thereafter on each December 31 for all subsequent years)
unless on or before the August 31 immediately preceding any December 31 renewal
date, the Companies or the Executive shall give written notice that they do not
or she does not wish to renew the Agreement for an additional year. This
Agreement may be sooner terminated in accordance with Section 9 hereof.
3. Compensation:
a. Salary: Executive's salary shall be at the annual
rate of $400,000, payable in accordance with the Companies' regular payroll
practices. All applicable withholding taxes shall be deducted from such
payments. The Companies shall review Executive's salary annually to determine if
Executive's salary should be increased. The decision to increase Executive's
salary and any increase in Executive's salary shall be in the sole discretion of
the Companies.
b. Bonus: The Companies shall, in their sole
discretion, determine whether to pay Executive any bonus.
4. Benefits: During Executive's employment with the Companies,
Executive shall be entitled to participate in any and all current or future
retirement, profit-sharing, medical, health, disability, or life insurance
program, or other group employee benefit plans and arrangements as are, or may
be, made available by the Companies to its senior executive employees.
5. Vacation: Executive shall be entitled to paid vacation of four
(4) weeks annually. Such vacation shall be taken at such times as will interfere
as little as possible with the performance of Executive's duties hereunder.
2
<PAGE> 3
6. Expenses: The Companies will reimburse Executive for
reasonable and necessary business expenses of Executive for travel, meals and
similar items incurred in connection with the performance of Executive's duties,
and which are consistent with such guidelines as the senior executive officers
and/or the Board of Directors of the Companies may from time to time establish.
All payments for reimbursement of such expenses shall be made to the Executive
only upon the presentation to the Companies of appropriate vouchers or receipts.
Executive shall be entitled to use of an automobile currently driven by
Executive (or comparable model) and shall be reimbursed for garage, maintenance,
insurance and operating expenses.
7. Stock Options: The Companies shall determine, in their sole
discretion, whether, and to the extent, if any, Executive has the right to
participate in any stock option plans. Nothing herein shall require the
Companies to initiate any other stock option plans. Notwithstanding any other
provision of this Agreement, to the extent the Companies do permit Executive to
so participate, Executive's rights under this section, including without
limitation the right to participate in a stock option plan offered by the
Companies, shall terminate upon the termination of Executive's employment with
the Companies for any reason and regardless of whether Executive continues to
receive any other compensation or benefit from the Companies after such
termination.
8. Confidentiality, Non-Competition.: The Executive shall not,
during the term of employment hereunder and thereafter, without the prior
express written consent of the Companies, disclose any confidential information,
knowledge or data relating to the Companies or any other affiliate and their
respective businesses, (a) which was obtained by the Executive in the course of
the Executive's employment with the Companies, and (b) which is not information,
knowledge or data otherwise in the public domain (other than by reason of a
breach of this provision by the Executive), unless required to do so by a court
of law or equity or by a governmental agency or other authority. If the
Executive voluntarily elects to terminate the Executive's employment hereunder
in the absence of a material breach by the Companies which has not been cured
within five (5) days' notice thereof, then the Executive shall not, without the
express prior written consent of the Companies, for the remaining term of
employment hereunder
3
<PAGE> 4
had her employment continued, engage in any business, whether as an employee,
consultant, partner, principal, agent, representative or stockholder (other than
as a stockholder of less than a five percent (5%) equity interest) or in any
other corporate or representative capacity, if it involves engaging in, or
rendering services or advice pertaining to, any lines of business either of the
Companies was actively conducting on the date of termination provided that it is
acknowledged and agreed that the expiration of Executive's employment term
hereunder shall not constitute a voluntary termination by Executive hereunder.
The obligation of Executive to abide by the restrictions set forth in the
preceding sentence is not conditioned upon the Companies' making any payments in
respect of the non-competition obligations provided for in this Section 8
provided that the preceding provisions of this sentence shall not in any manner
lessen any of the Companies' obligations to Executive. If the Company shall
institute any action or proceeding to enforce the provisions of this Section 8,
or shall file any claim in any proceeding to enforce such provisions, Executive
hereby waives the claim or defense that the Companies have an adequate remedy at
law and waives the requirement that the Companies post a bond in securing
equitable relief, and Executive shall not contend in any such action or
proceeding the claim or defense that an adequate remedy at law exists. Without
limiting the generality of Section 14 hereof, to the extent any provision of
this Section 8 is not valid or enforceable in whole same shall be enforced to
the maximum extent permitted by law. In no event shall an asserted violation of
this Section 8 constitute a basis for delaying or withholding the payment of any
amounts otherwise payable to Executive under this Agreement. During any such
period of non-competition, Executive shall not solicit the employment of any
employees known to be working for the Companies except her brother.
9. Termination:
a. Notwithstanding any provisions of this Agreement to
the contrary, the employment of Executive hereunder shall terminate on the first
to occur of the following dates:
i. the date of Executive's death or adjudicated
incompetency;
ii. the date on which the Companies shall give
Executive notice of termination on account of Disability
(as hereinafter defined);
iii. the date on which the Companies shall give
Executive notice of termination for Cause;
iv. expiration of the term following proper
notice of non-renewal by the Companies, in which event
Executive
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shall be entitled to receive (in addition to any unpaid annual
bonus actually awarded to Executive by the Company and any
salary or expenses payable to her) as her sole exclusive
remedy,
a. a severance payment less taxes equal to
Executive's annual compensation for the last year of
employment under this Agreement (paid in installments
at such times as Executive would normally receive
payroll checks as though employed through the
severance payment period); and
b. coverage in the Companies' employee
benefit plans for one (1) year and continued use of a
car for one year on the same basis as set forth in
Section 6 hereof, provided however, that coverage in
the Companies' employee benefit plans and the right
to continued use of a car by Executive at the expense
of the Companies shall terminate immediately upon
Executive becoming employed or receiving benefit
coverage from another source after termination of her
employment hereunder;
v. the date on which the Companies shall give
Executive notice of termination for any reason other than
the reasons set forth in (i) through (iv), above, in which
event Executive shall be entitled to receive, as her sole and
exclusive remedy and provided that she continues to comply
with her obligations under Section 8 herein,
a. any base salary accrued or any
annual bonus actually awarded to Executive but not
yet paid; and
b. a severance payment less taxes in
an amount equal to one year of Executive's
compensation hereunder at the time notice of
termination is given to Executive, in installments at
such times as Executive would normally receive
payroll checks as though employed through the
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severance payment period; and
c. coverage in the Companies' employee
benefit plans and continued use of a car on the same
basis as set forth in Section 6 hereof as long as
Executive receives payments under b. above, provided
however, that during the period Executive is
receiving severance payments pursuant to b. above,
coverage in the Companies' employee benefit plans and
the right to continued use of a car by Executive at
the expense of the Companies shall terminate
immediately upon Executive becoming employed or
receiving benefit coverage from another source after
termination of her employment hereunder.
b. Subject to Section 9(a) hereof, the Companies shall
be entitled at any time, upon notice to Executive, to terminate her employment
hereunder on account of the Disability of Executive or for Cause, and, in either
of such events, or in the event that Executive's employment hereunder shall
terminate on account of the death or adjudicated incompetency of Executive,
Executive or her estate, conservator or designated beneficiary, as the case may
be, shall be entitled to payment of any earned but unpaid salary, and payment
for unused vacation days, through the date of termination. Following any such
termination, neither Executive nor her estate, conservator or designated
beneficiary shall be entitled to receive any salary or other payment provided
for hereunder with respect to any period after such termination, except that in
the event that Executive's employment is terminated hereunder on account of
Disability of Executive, Executive shall be entitled to receive a payment less
taxes equal to six (6) months of the salary Executive was receiving at the time
of such termination (paid in installments at such times as Executive would
normally receive payroll checks as though employed) and a continuation for six
(6) months of the benefits set forth in Section 4 herein.
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c. For purposes of this Agreement, "Disability" shall
mean an illness, injury or other incapacitating condition as a result of which
Executive is unable to perform the services required to be performed under this
Agreement for (i) ninety (90) consecutive days, or (ii) a period or periods
aggregating more than ninety (90) days in any six (6) consecutive months. In any
such event, the Companies, in their sole discretion, may terminate this
Agreement by giving notice to Executive of termination for Disability. Executive
agrees to submit to such medical examinations as may be necessary to determine
whether a Disability exists, pursuant to such reasonable requests made by the
Companies from time to time.
d. For purposes of this Agreement, "Cause" shall mean
the occurrence of any of the following, as reasonably determined by the
Companies:
i. the willful failure, neglect or refusal by
Executive to perform her duties hereunder (including,
without limitation, Executive's inability to perform such
duties as a result of alcohol or drug abuse, chronic
alcoholism or drug addiction);
ii. any willful, intentional or reckless act by
Executive having the effect of materially injuring the
business or reputation of the Companies, any of their
parents, subsidiaries or affiliates and any divisions
Executive may manage;
iii. willful misconduct by Executive, including
insubordination, in respect of the duties or obligations
of Executive under this Agreement;
iv. Executive's conviction for a felony
(including entry of a nolo contendere plea);
v. any misappropriation or embezzlement of the
property of the Companies and their affiliates and
subsidiaries (whether or not a misdemeanor or felony); and
vi. a material breach of any one or more of the
covenants of this Agreement by Executive.
provided however, that before Executive is terminated for Cause the Companies
shall notify Executive at least five (5) days in advance of the Companies'
intention to terminate Executive for Cause and, where the conduct resulting in
Cause can be cured, the Companies shall allow Executive an opportunity to cure
such conduct within the five (5) day notice period before terminating
Executive's employment in accordance with this paragraph.
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10. Return of Companies Property: Executive agrees that following the
termination of her employment for any reason, she shall return all property of
the Companies, its subsidiaries, affiliates and any divisions thereof she may
have managed which is then in or thereafter comes into her possession,
including, but not limited to, documents, contracts, agreements, plans,
photographs, books, notes, electronically stored data and all copies of the
foregoing as well as any automobile or other materials or equipment supplied by
the companies to Executive. If Executive's employment hereunder is terminated
pursuant to Section 9(a) (v) hereof, Executive shall return any automobile
supplied by the Companies following the termination of Executive's right to such
automobile in accordance with the provisions of Section 9(a) (v) c. hereunder.
11. Compensation in Event of Termination; Survival: Upon termination of
Executive's employment for any reason, this Agreement shall terminate and the
Companies shall have no further obligation to Executive except to the extent
Executive is otherwise entitled to any unpaid compensation or benefits
hereunder, insurance coverage in accordance with applicable law and this
Agreement, and severance pay as provided herein and rights to indemnification;
provided that the provisions set forth in Sections 8 (to the extent applicable
by their terms) and 10 hereof shall remain in full force and effect after the
termination of Executive's employment, notwithstanding the expiration or
termination of this Agreement.
12. Entire Agreement: This Agreement sets forth the entire agreement
between the parties with respect to its subject matter and merges and supersedes
all prior discussions, agreements and understandings of every kind and nature
between them and neither party shall be bound by any term or condition other
than as expressly set forth or provided for in this Agreement. This Agreement
may not be changed or modified except by an agreement in writing, signed by the
parties hereto.
13. Waiver: The failure of either party to this Agreement to enforce
any of its terms, provisions or covenants shall not be construed as a waiver of
the same or of the right of such party to enforce the same. Waiver by either
party hereto of any breach or default by the other party of any term or
provision of this Agreement shall not operate as a waiver of any other breach or
default.
14. Severability: In the event that any one or more of the provisions
of this Agreement shall be held to be invalid, illegal or unenforceable, the
validity, legality and enforceability of the remainder of the Agreement shall
not in any way be affected or impaired thereby. Moreover, if any one or more of
the provisions contained in this Agreement shall be held to be excessively broad
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as to duration, activity or subject, such provisions shall be construed by
limiting and reducing them so as to be enforceable to the maximum extent allowed
by applicable law.
15. Notices: Any notice given hereunder shall be in writing
and shall be deemed to have been given when delivered by messenger
or courier service (against appropriate receipt), or mailed by
registered or certified mail (return receipt requested), addressed
as follows:
If to the Companies:
Designer Holdings, Ltd.,
Calvin Klein Jeanswear
Company, Inc.,
1385 Broadway
New York, New York 10018
Attn: Arnold Simon
If to the Executive:
Debbie Simon
29 Burning Hollow Road
Saddle River, NJ 07458
with a copy to: Sills, Cummis, Zuckerman, Radin
Tischman, Epstein & Gross
One Riverfront Plaza
Newark, New Jersey 07102
Attn: Steven E. Gross, Esq.
or at such other address as shall be indicated to either party in writing.
Notice of change of address shall be effective only upon receipt.
16. Governing Law: This Agreement shall be governed by and
construed in accordance with the laws of the State of New York, without regard
to its conflict of law rules.
17. Descriptive Headings: The paragraph headings contained
herein are for reference purposes only and shall not in any way affect the
meaning or interpretation of this Agreement.
18. Joint Efforts. Preparation of this Agreement shall be deemed
to be the joint effort of the parties hereto and shall not be construed more
severely against any party.
19. Joint and Several Obligations. Anything to the contrary
notwithstanding in this Agreement, all of the monetary and non-
monetary obligations of the Companies in this Agreement shall be
and are the joint and several obligations of each such Company.
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20. Counterparts: This Agreement may be executed in one or more
counterparts, which, together, shall constitute one and the same agreement.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement on
the date first written above.
DESIGNER HOLDINGS, LTD. THE EXECUTIVE
By:________________________________ _______________________________
Debbie Simon
Name:___________________________
Title:__________________________
CALVIN KLEIN JEANSWEAR COMPANY, INC.
By:________________________________
Name:___________________________
Title:__________________________
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Exhibit 10.36
EMPLOYMENT AGREEMENT
AGREEMENT, made this 9th day of October, 1995, by and between New Rio
Sportswear, Inc. and Calvin Klein Jeanswear Company, Inc., located at 1385
Broadway, New York, New York 10018 (collectively the "Companies") and David
Fidlon residing at 200 Grand Cove Way, Apartment 5H, Edgewater, New Jersey
07020.
WITNESSETH:
WHEREAS, the Companies are engaged in the business of distributing,
manufacturing, marketing and selling jeans and sports wear (the "Business");
WHEREAS, Executive has represented that he has all of the expertise,
background and experience as will enable him to perform all of the duties and
execute all of the responsibilities contemplated by this Agreement;
WHEREAS, based on such representation the Companies wish to employ
Executive as Senior Vice President, Controller of the Jeanswear Division upon
the terms hereinafter set forth; and
WHEREAS, Executive wishes to be so employed by the Companies;
NOW, THEREFORE, in consideration of the premises and the mutual
covenants and agreements herein contained, the Companies and Executive agree as
follows:
1. Employment: The Companies hereby agree to employ Executive, and
Executive hereby agrees to serve, subject to the provisions of this Agreement,
as an employee of the Companies. Executive shall perform such duties and
responsibilities as are from time to time assigned to Executive by the Chief
Executive Officer, The Chief Financial Officer and/or the Board of Directors of
the Companies. Executive agrees to devote all of his business time, attention
and energies to the performance of the duties assigned to him hereunder, and to
perform such duties faithfully, diligently and to the best of his abilities and
subject to such laws, rules, regulations and policies from time to time
applicable to the Companies' employees.
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Executive agrees to refrain from engaging in any activity that does, will or
could reasonably be deemed to conflict with the best interests of the Companies.
Without limiting the generality of the foregoing, Executive shall perform the
duties associated with the position of Senior Vice President, Controller of the
Companies.
2. Term: This Agreement shall commence on June 12, 1995, and shall
expire on June 12, 1997. This Agreement shall automatically renew for additional
one (1) year periods beginning June 12, 1997 (and thereafter on each June 12,
for all subsequent years) unless on or before the January 15 immediately
preceding any June 12 renewal date, the Companies shall give written notice that
they do not wish to renew the Agreement for an additional year. This Agreement
may be sooner terminated in accordance with Section 9 hereof.
3. Compensation:
(a) Salary: Executive's salary shall be at the annual rate of
$150,000, payable in accordance with the Companies' regular payroll practices.
All applicable withholding taxes shall be deducted from such payments. The
Companies shall review Executive's salary annually to determine if Executive's
salary should be increased. The decision to increase Executive's salary and any
increase in Executive's salary shall be in the sole discretion of the Companies.
(b) Bonus: The Companies shall determine in their sole
discretion to pay Executive any bonus amount above his salary of $150,000.
4. Benefits: During Executive's employment with the Companies,
Executive shall be entitled to participate in any and all current or future
retirement, profit-sharing, medical, health, disability, or life insurance
program, or other group employee benefit plans and arrangements as are, or may
be, made available by the Companies to its senior executive employees.
5. Vacation: Executive shall be entitled to paid vacation of
four (4) weeks annually. Such vacation shall be taken at such times as will
interfere as little as possible with the performance of Executive's duties
hereunder.
6. Expenses: The Companies will reimburse Executive for
reasonable and necessary business expenses of Executive for travel, meals and
similar items incurred in connection with the performance of Executive's duties,
and which are consistent with guidelines as the senior executive officers and/or
the Board of Directors of the Companies may from time to time establish. All
payments for reimbursement of such expenses shall be made to the Executive only
upon the presentation to the Companies of appropriate vouchers or
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receipts. Executive shall be entitled to use of a Lexus automobile (or
comparable model) and shall be reimbursed for garage, maintenance, insurance and
operating expenses.
7. Stock Options: In the event the Companies shall offer their
executive employees the opportunity to participate in a stock option plan, such
opportunity also shall be offered to Executive. Nothing herein shall require the
Companies to initiate a stock option plan. Notwithstanding any other provision
of this Agreement, Executive's rights under this section, including without
limitation the right to participate in a stock option plan offered by the
Companies, shall terminate upon the termination of Executive's employment with
the Companies for any reason and regardless of whether Executive continues to
receive any other compensation or benefit from the Companies after such
termination-
8. Confidentiality, Non-Competition, etc.:
(a) Executive acknowledges that: (1) the Business is
intensely competitive and that Executive's employment by the Companies will
require that Executive have access to and knowledge of confidential information
of the Companies, including, but not limited to, the identity of the Companies'
customers, the identity of the representatives of customers with whom the
Companies have dealt, the kinds of services provided by the Companies to
customers and offered to be performed for potential customers, the manner in
which such services are performed or offered to be performed, the service needs
of actual or prospective customers, pricing information, information concerning
the creation, acquisition or disposition of products and services, customer
maintenance listings, computer software applications and other programs,
personnel information and other trade secrets (the "Confidential Information");
(ii) the direct and indirect disclosure of any such Confidential Information to
existing or potential competitors of the Companies would place the Companies at
a competitive disadvantage and would do damage, monetary or otherwise, to the
Companies' business; and (iii) the engaging by Executive in any of the
activities prohibited by this Section 8 may constitute improper appropriation
and/or use of such information and trade secrets. Executive expressly
acknowledges the trade secret status of the Confidential Information and that
the Confidential Information constitutes a protectible business interest of the
Companies. Accordingly, the Companies and Executive agree as follows:
(b) For purposes of this Section 8, the Companies
shall be construed to include the Companies and their parents, subsidiaries and
affiliates engaged in the Business, including any divisions managed by
Executive.
(c) During the Executive's employment and at all
times after the termination of Executive's employment, Executive shall not,
directly or indirectly, whether individually, as a director, stockholder, owner,
partner, employee, principal or agent of any
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business, or in any other capacity, make known, disclose, furnish, make
available or utilize any of the Confidential Information, other than in the
proper performance of the duties contemplated herein. Executive agrees to return
all Confidential Information, including all photocopies, extracts and summaries
thereof, and any such information stored electronically on tapes, computer disks
or in any other manner to the Companies at any time upon request by the
Companies and upon the termination of his employment for any reason.
(d) Executive shall not, so long as he is employed by the
Companies, engage in "Competition" with the Companies. For purposes of this
Agreement, Competition by Executive shall mean Executive's engaging in, or
otherwise directly or indirectly being employed by or acting as a consultant or
lender to, or being a director, officer, employee, principal, agent,
stockholder, member, owner or partner of, or permitting his name to be used in
connection with the activities of any other business or organization anywhere in
the United States which competes, directly or indirectly, with the business of
the Companies as the same shall be constituted at any time during or following
his employment. It is expressly understood that the payments Executive is
scheduled to receive until approximately the year 2005 from Ellen Tracy shall
not violate the non-competition provisions of this Agreement.
(e) For so long as Executive continues to receive compensation
under the terms of this Agreement following the termination of Executive's
employment for any reason, Executive shall not engage in Competition, as defined
above, with the Companies in any locality or region of the United States in
which the Companies had operations at the time of, or within six (6) months
prior to, Executive's termination, or in which, during the six (6) month period
prior to Executive's termination, the Companies had made substantial plans with
the intention of establishing operations in such locality or region and such
plans were known or should have been known by Executive; provided that, it shall
not be a violation of this sub-paragraph for Executive to become the registered
or beneficial owner of up to five percent (5%) of any class of the capital stock
of a competing corporation registered under the Securities Exchange Act of 1934,
as amended, provided that Executive does not actively participate in the
business of such corporation until such time as this covenant expires.
(f) For so long as Executive continues to receive compensation
under the terms of this Agreement following the termination of Executive's
employment for any reason, Executive agrees that he will not, directly or
indirectly, for his benefit or for the benefit of any other person, firm or
entity, do any of the following:
(i) solicit from any customer doing business with the
Companies as of Executive's termination, business of the same or of a
similar nature to the business of the Companies with such customer;
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(ii) solicit from any known potential customer of the
Companies business of the same or of a similar nature to that which has
been the subject of a known written or oral bid, offer or proposal by
the Companies, or of substantial preparation with a view to making such
a bid, proposal or offer, within six (6) months prior to Executive's
termination;
(iii) solicit the employment or services of, or hire,
any person who was known to be employed by or was a known consultant to
the Companies upon Executive's termination of Executive's employment,
or within six (6) months prior thereto; or
(iv) otherwise knowingly interfere with the business
or accounts of the Companies.
(g) Executive acknowledges that the services to be rendered by
him to the Companies are of a special and unique character, which gives this
Agreement a peculiar value to the Companies, the loss of which may not be
reasonably or adequately compensated for by damages in an action at law, and
that a material breach or threatened breach by him of any of the provisions
contained in this Section 8 will cause the Companies irreparable injury.
Executive therefore agrees that the Companies may be entitled, in addition to
any other right or remedy, to a temporary, preliminary and permanent injunction,
without the necessity of proving the inadequacy of monetary damages or the
posting of any bond or security, enjoining or restraining Executive from any
such violation or threatened violations.
(h) Executive further acknowledges and agrees that due to the
uniqueness of his services and confidential nature of the information he will
possess, the covenants set forth herein are reasonable and necessary for the
protection of the business and goodwill of the Companies.
9. Termination:
(a) Notwithstanding any provision of this Agreement to the
contrary, the employment of Executive hereunder shall terminate on the first to
occur of the following dates:
(i) the date of Executive's death or adjudicated
incompetency;
(ii) the date on which the Companies shall give
Executive notice of termination on account of Disability (as
hereinafter defined);
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(iii) the date on which the Companies shall give
Executive notice of termination for Cause;
(iv) expiration of the term following proper notice
of non- renewal by the Companies, in which event Executive shall be
entitled to receive as his sole and exclusive remedy,
a. a severance payment less taxes equal to
Executive's annual compensation for the last year of
employment under this Agreement (paid in installments at such
times as Executive would normally receive payroll checks as
though employed through the severance payment period); and
b. coverage in the Companies' employee
benefit plans for one (1) year and continued use of a car for
one year on the same basis as set forth in Section 6 hereof,
provided however, that coverage in the Companies' employee
benefit plans and the right to continued use of a car by
Executive at the expense of the Companies shall terminate
immediately upon Executive becoming employed or receiving
benefit coverage from another source after termination of his
employment hereunder;
or
(v) the date on which the Companies shall give
Executive notice of termination for any reason other than the reasons
set forth in (i) through (iv), above, in which event Executive shall be
entitled to receive, as his sole and exclusive remedy and provided that
he continues to comply with his obligations under Section 8 herein,
a. the balance of any compensation due
Executive for the remainder of the Term of this Agreement, as
set forth in Section 2 herein and paid in installments at such
times as Executive would normally receive payroll checks as
though employed through the remainder of the Term; and
b. a severance payment less taxes in an
amount equal to one year of Executive's compensation hereunder
at the time notice of termination is given to Executive paid
after the balance of compensation payments under a. above are
completed, and in installments at such times as Executive
would normally receive payroll checks though employed through
the severance payment period; and
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c. coverage in the Companies' employee
benefit plans and continued use of a car on the same basis as
set forth in Section 6 hereof so long as Executive receives
payments under a. or b. above, provided however, that during
the period Executive is receiving severance payments pursuant
to b. above, coverage in the Companies' employee benefit plans
and the right to continued use of a car by Executive at the
expense of the Companies shall terminate immediately upon
Executive becoming employed or receiving benefit coverage from
another source after termination of his employment hereunder.
(b) The Companies shall be entitled at any time, upon notice
to Executive, to terminate his employment hereunder on account of the Disability
of Executive or for Cause, and, in either of such events, or in the event that
Executive's employment hereunder shall terminate on account of the death or
adjudicated incompetency of Executive, Executive or his estate, conservator or
designated beneficiary, as the case may be, shall be entitled to payment of any
earned but unpaid salary and payment for unused vacation days, through the date
of termination. Following any such termination, neither Executive nor his
estate, conservator or designated beneficiary shall be entitled to receive any
salary or other payment provided for hereunder with respect to any period after
such termination, except that in the event that Executive's employment is
terminated hereunder on account of the Disability of Executive, Executive shall
be entitled to receive a payment less taxes equal to six (6) months of the
salary Executive was receiving at the time of such termination (paid in
installments at such times as Executive would normally receive payroll checks as
though employed) and a continuation for six (6) months of the benefits set forth
in Section 4 herein.
(c) For purposes of this Agreement, "Disability" shall mean an
illness, injury or other incapacitating condition as a result of which Executive
is unable to perform the services required to be performed under this Agreement
for (i) ninety (90) consecutive days, or (ii) a period or periods aggregating
more than ninety (90) days in any six (6) consecutive months. In any such event,
the Companies, in their sole discretion, may terminate this Agreement by giving
notice to Executive of termination for Disability. Executive agrees to submit to
such medical examinations as may be necessary to determine whether a Disability
exists, pursuant to such reasonable requests made by the Companies from time to
time.
(d) For purposes of this Agreement, "Cause" shall mean the
occurrence of any of the following, as reasonably determined by the Companies:
(i) the willful failure, neglect or refusal by
Executive to perform his duties hereunder (including, without
limitation, Executive's inability to perform such duties as a result of
alcohol or drug abuse, chronic alcoholism or drug addiction);
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(ii) any willful, intentional or reckless act by
Executive having the effect of materially injuring the business or
reputation of the Companies, any of their parents, subsidiaries or
affiliates and any divisions Executive may manage;
(iii) willful misconduct by Executive, including
insubordination, in respect of the duties or obligations of Executive
under this Agreement;
(iv) Executive's conviction for a felony (including
entry of a nolo contendere plea);
(v) any misappropriation or embezzlement of the
property of the Companies and their affiliates and subsidiaries
(whether or not a misdemeanor or felony); and
(vi) a material breach of any one or more of the
covenants of this Agreement by Executive;
provided however, that before Executive is terminated for Cause the Companies
shall notify Executive at least five (5) days in advance of the Companies'
intention to terminate Executive for Cause and, where the conduct resulting in
Cause can be cured, the Companies shall allow Executive an opportunity to cure
such conduct within the five (5) day notice period before terminating
Executive's employment in accordance with this paragraph.
10. Return of Companies Property: Executive agrees that
following the termination of his employment for any reason, he shall return all
property of the Companies, its subsidiaries, affiliates and any divisions
thereof he may have managed which is then in or thereafter comes into his
possession, including, but not limited to, documents, contracts, agreements,
plans, photographs, books, notes, electronically stored data and all copies of
the foregoing as well as any automobile or other materials or equipment supplied
by the Companies to Executive. If Executive's employment hereunder is terminated
pursuant to Section 9(a)(v) hereof, Executive shall return any automobile
supplied by the Companies following the termination of Executive's right to such
automobile in accordance with the provisions of Section 9(a)(v)c.
11. Compensation in Event of Termination; Survival: Upon
termination of Executive's employment for any reason, this Agreement shall
terminate and the Companies shall have no further obligation to Executive except
to the extent Executive is otherwise entitled to any unpaid compensation or
benefits hereunder, insurance coverage in accordance with applicable law and
this Agreement, and severance pay as provided herein; provided that the
provisions set forth in Sections 8 and 10 hereof shall remain in full force and
effect after the
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termination of Executive's employment, notwithstanding the expiration or
termination of this Agreement.
12. Entire Agreement: This Agreement sets forth the entire
agreement between the parties with respect to its subject matter and merges and
supersedes all prior discussions, agreements and understandings of every kind
and nature between team and neither party shall be bound by any term or
condition other than as expressly set forth or provided for in this Agreement.
This Agreement may not be changed or modified except by an agreement in writing,
signed by the parties hereto.
13. Waiver: The failure of either party to this Agreement to
enforce any of its terms, provisions or covenants shall not be construed as a
waiver cf the same or of the right of such party to enforce the same. Waiver by
either party hereto of any breach or default by the other party of any term or
provision of this Agreement shall not operate as a waiver of any other breach or
default.
14. Severability: In the event that any one or more of the
provisions of this Agreement shall be held to be invalid, illegal or
unenforceable, the validity, legality and enforce- ability of the remainder of
the Agreement shall not in any way be affected or impaired thereby. Moreover, if
any one or more of the provisions contained in this Agreement shall be held to
be excessively broad as to duration, activity or subject, such provisions shall
be construed by limiting and reducing them so as to be enforceable to the
maximum extent allowed by applicable law..
15. Notices: Any notice given hereunder shall be in writing
and shall be deemed to have been given when delivered by messenger or courier
service (against appropriate receipt), or mailed by registered or certified mail
(return receipt requested), addressed as follows:
If to the Companies:
New Rio Sportswear, Inc.
Calvin Klein Jeanswear Company, Inc.
1385 Broadway
New York, New York 10018
Attn: Arnold H. Simon
If to Executive:
200 Grand Cove Way
9
<PAGE> 10
Apt. 5-H
Edgewater, New Jersey 07020
or at such other address as shall be indicated to either party in writing.
Notice of change of address shall be effective only upon receipt.
16. Governing Law: This Agreement shall be governed by and
construed in accordance with the laws of the State of New York, without regard
to its conflict of law rules.
17. Descriptive Headings: The paragraph headings contained
herein are for reference purposes only and shall not in any way affect the
meaning or interpretation of this Agreement.
18. Counterparts: This Agreement may be executed in one or
more counterparts, which, together, shall constitute one and the same agreement.
IN WITNESS WHEREOF, the parties hereto have executed this
Agreement on the date first written above.
NEW RIO SPORTSWEAR, INC. THE EXECUTIVE
By: /s/ Arnold Simon /s/ David Fidlon
- --------------------------- ------------------------
Name: Arnold H. Simon
Title: President/CEO
CALVIN KLEIN JEANSWEAR COMPANY, INC.
By: /s/ Arnold Simon
- ---------------------------
Name: Arnold H. Simon
---------------------------
Title: President/CEO
---------------------------
10
<PAGE> 11
AMENDMENT NO. 1 TO EMPLOYMENT AGREEMENT
THIS AMENDMENT NO. 1, dated this 1st day of January, 1996,
amends the Employment Agreement, entered into as of October 9, 1995, by and
between Rio Sportswear, Inc., Calvin Klein Jeanswear Company, Inc. (Collectively
the "Companies") and David Fidlon ("Executive").
1. Paragraph 3(a) is hereby amended to state in part as
follows: "(a) Salary: Executive's salary shall be at the annual rate of
$225,000, payable in accordance with companies' regular payroll practices)." All
other terms and conditions of this paragraph 3(a) not heretofore addressed by
this Amendment remain in full force and effect.
2. Paragraph 3(b) is hereby amended to state as follows:
"Executive shall receive for 1996 as additional compensation a bonus of
three-quarters of one percent (3/4%) of EBITDA over $50 million. The bonus shall
be paid no later than March 31, 1997. Executive's bonus calculation for
subsequent years shall be as determined in the discretion of the Companies."
All other terms and conditions not heretofore addressed by
this Amendment remain in full force and effect.
IN WITNESS WHEREOF, the parties have executed this Amendment
on the day first stated above.
RIO SPORTSWEAR, INC.
By:
------------------------------------ --------------------
Arnold H. Simon David Fidlon
CALVIN KLEIN JEANSWEAR COMPANY, INC.
By:
------------------------------------
Arnold H. Simon
11
<PAGE> 1
Exhibit 10.37
EMPLOYMENT AGREEMENT
AGREEMENT, made as of the 29th day of January, 1996, by and between Rio
Sportswear, Inc. and Calvin Klein Jeanswear Company, Inc., located at 1385
Broadway, New York, NY (collectively the "Companies") and John J. Jones, an
individual ("Executive").
WITNESSETH:
WHEREAS, the Companies are engaged in the business of distributing,
manufacturing, marketing and selling jeans and sportswear (the "Business");
WHEREAS, Executive has represented that he has all of the expertise,
background and experience as will enable him to perform all of the duties and
execute all of the responsibilities contemplated by this Agreement;
WHEREAS, based on such representations the Companies wish to employ
Executive as General Counsel upon the terms and conditions hereinafter set
forth; and
WHEREAS, Executive wishes to be so employed by the Companies;
NOW, THEREFORE, in consideration of the premises and the mutual
covenants and agreement herein contained , the Companies and Executive hereby
agree as follows:
1. Employment: The Companies hereby agree to employ Executive, and
Executive agrees to serve, subject to the provisions of this Agreement, as an
employee of the Companies. Executive shall perform such duties and
responsibilities as are from time to time assigned to Executive by the Chief
Executive Officer and/or the Board of Directors of the Companies. Executive
hereby agrees to devote substantially all of his business time, attention and
energies to the performance of the duties assigned to him hereunder, and to
perform such duties faithfully, diligently, and to the best of his abilities and
subject to such laws, rules, regulations and policies from time to time
applicable to the company's employees. Executive agrees to refrain from engaging
in any activity that does, will or could reasonably be deemed to conflict with
the best interests of the Companies. Without limiting the generality of the
foregoing, Executive shall perform the duties associated with the position of
General Counsel of the Companies.
2. Term: This Agreement shall commence on January 29, 1996, and
shall expire on January 29, 1998. This Agreement shall automatically renew for
additional one (1) year periods beginning January 29, 1998 (and thereafter on
each January 29 for all subsequent years) unless on or before the August 29
immediately preceding any January 29 renewal date, the Companies shall give
written notice that they do not wish to renew the agreement for an additional
year. This Agreement may be sooner terminated in accordance with Section 9
hereof.
3. Compensation:
(a) Salary: Executive's salary shall be at the annual rate of
$175,000, payable in accordance with the Companies' regular payroll practices.
All applicable withholding taxes shall be deducted from such payments. The
<PAGE> 2
Companies shall review Executive's salary annually to determine if Executive's
salary should be increased. The decision to increase Executive's salary and any
increase in Executive's salary shall be in the sole discretion of the Companies.
(b) Bonus: Executive shall receive as annual compensation an
annual bonus of an amount determined in the discretion of the Companies. The
bonus shall be paid no later than January 29 each year commencing January 29,
1997.
4. Benefits: During Executive's employment with the Companies,
Executive shall be entitled to participate in any and all current or future
retirement, profit-sharing, medical, health, disability, or life insurance
program, or other group employee benefit plans and arrangements as are, or may
be, made available by the Companies to their senior executive employees.
5. Vacation: Executive shall be entitled to paid vacation of four
(4) weeks annually. Such vacation shall be taken at such times as will interfere
as little as possible with the performance of Executive's duties hereunder.
6. Expenses: The Companies will reimburse Executive for reasonable
and necessary business expenses of Executive for travel, meals and similar items
incurred in connection with the performance of Executive's duties, and which are
consistent with such guidelines as the senior executive officers and/or the
Board of Directors of the Companies may from time to time establish. All
payments for reimbursement of such expenses shall be made to the Executive only
upon presentation to the Companies of appropriate vouchers or receipts. The
Companies shall reimburse Executive for expenses associated with maintaining
Executive's bar admissions in New York and Massachusetts and for expenses
associated with continuing legal education seminars which are related to the
performance of Executive's duties hereunder. The Companies shall reimburse
Executive for expenses associated with relocating from Boston to New York in
connection with the commencement of Executive's duties under this Agreement.
7. Stock Options: In the event the Companies shall offer their
executive employees the opportunity to participate in a stock option plan, such
opportunity also shall be offered to Executive. Executive shall be entitled to
receive such options as are appropriate for someone in his position with similar
duties, but in no event less than three percent of the total number of options
granted to its employees. Such options shall have an exercise price no greater
than the IPO price. Nothing herein shall require Companies to initiate a stock
option plan. Notwithstanding any other provision of this Agreement, Executive's
rights under this section, including, without limitation the right to receive
stock options pursuant to a plan offered by the Companies, shall terminate upon
the termination of Executive's employment with the Companies for any reason and
regardless of whether Executive continues to receive any other compensation or
benefit after such termination.
8. Confidentiality, Non-Competition, etc.:
(a) Executive acknowledges that: (i) the Business is intensely
competitive and that Executive's employment by the Companies will require that
Executive have access to and knowledge of confidential information of the
Companies, including, but not limited to, the identity of the Companies'
customers, the identity of representatives of the customers with whom the
<PAGE> 3
Companies have dealt, the kinds of services provided by the Companies to
customers and offered to be performed for potential customers, the manner in
which such services are performed or offered to be performed, the service needs
of actual or prospective customers, pricing information concerning the creation,
acquisition or disposition of products and services, customers maintenance
listings, computer software applications and other programs, personnel
information and other trade secrets (the "Confidential Information"); (ii) the
direct and indirect disclosure of any such Confidential Information to existing
or potential competitors of the Companies would place the Companies at a
competitive disadvantage and would do damage, monetary or otherwise, to the
Companies' business; and (iii) the engaging by Executive in any of the
activities prohibited by this Section 8 may constitute improper appropriation
and/or use of such information and trade secrets. Executive expressly
acknowledges the trade secret status of the Confidential Information and that
the Confidential Information constitutes a protectible business interest of the
Companies. Accordingly, the Companies and Executive agree as follows:
(b) For purposes of this Section 8, the Companies shall be
construed to include the Companies and their parents, subsidiaries and
affiliates engaged in the Business.
(c) During Executive's employment and at all times after the
termination of Executive's emloyment, Executive shall not, directly or
indirectly, whether individually, as a director, stockholder, owner, partner,
employee, principal or agent of any business or in any other capacity, make
known, disclose, furnish, make available or utilize any of the Confidential
Information, other than in the proper performance of the duties contemplated
herein. Executive agrees to return all Confidential Information, including all
photocopies, extracts and summaries thereof, and any such information stored
electronically on tapes, computer disks or in any other manner to the Companies
at any time upon request by the Companies and upon the termination of his
employment for any reason.
(d) Executive shall not, so long as he is employed by the
Companies, engage in "Competition" with the Companies. For purposes of this
Agreement, Competition by Executive shall mean Executive's engaging in, or
otherwise directly or indirectly being employed by or acting as a consultant or
lender to, or being a director, officer, employee, principal, agent,
stockholder, member, owner or partner of, or permitting his name to be used in
connection with the activities of any other business or organization anywhere in
the United States which competes, directly or indirectly, with the business of
the Companies as the same shall be constituted at any time during or following
his employment.
(e) For so long as Executive continues to receive compensation
under the terms of this Agreement following the termination of Executive's
employment for any reason, Executive shall not engage in Competition, as defined
above, with the Companies in any locality or region of the United States in
which the Companies had operations at the time of, or within six (6) months
prior to, Executive's termination, or in which, during the six (6) month period
prior to Executive's termination, the Companies had made substantial plans with
the intention of establishing operations in such locality or region and such
plans were known or should have been known by Executive; provided that, it shall
not be a violation of this agreement for Executive to become the registered or
beneficial owner of up to five percent (5%) of any class of the capital stock of
a competing
<PAGE> 4
corporation registered under the Securities Exchange Act of 1934, as amended,
provided that Executive does not actively participate in the business of such
corporation until such time as this covenant expires.
(f) For so long as Executive continues to receive compensation
under the terms of this Agreement following the termination of Executive's
employment for any reason, Executive agrees that he will not, directly or
indirectly, for his benefit or for the benefit of any other person, firm or
entity, do any of the following:
(i) solicit from any customer doing business with the
Companies as of Executive's termination, business of the same or
of a similar nature to the business of the companies with such
customer;
(ii) solicit from any known potential customer of the
Companies business of the same or of a similar nature to that
which has been the subject ot a known written or oral bid, offer
or proposal by the Companies, or of substantial preparation with a
view to making such a bid, proposal or offer, within six (6)
months prior to Executive's termination;
(iii) solicit the employment or services of, or hire, any
person who was known to be employed by or was a known consultant
to the Companies upon Executive's termination of Executive's
employment, or within six (6) months prior thereto;
(iv) otherwise knowingly interfere with the business or
accounts of the Companies.
(g) Executive acknowledges that the services to be rendered by
him to the Companies are of a special and unique character, which gives this
Agreement a peculiar value to the Companies, the loss of which may not be
reasonably or adequately compensated for by damages in an action at law, and
that a material breach or threatened breach by him of any of the provisions
contained in this Section 8 will cause the Companies irreparable injury.
Executive therefore agrees that the Companies may be entitled, in addition to
any other right or remedy, to a temporary, preliminary and permanent injunction,
without the necessity of proving the inadequacy of monetary damages or the
posting of any bond or security, enjoining or restraining Executive from any
such violation or threatened violations.
(h) Executive further acknowledges and agrees that due to the
uniqueness of his services and confidential nature of the information he will
possess, the covenants set forth herein are reasonable and necessary for the
protection of the business and goodwill of the Companies.
9. Termination:
(a) Notwithstanding any provision of this Agreement to the
contrary, the employment of Executive hereunder shall terminate on the first to
occur of the following dates:
<PAGE> 5
(i) the date of Executive's death or adjudicated
incompetency;
(ii) the date on which the Companies shall give
Executive notice of termination on account of Disability (as
hereinafter defined);
(iii) the date on which the Companies shall give
Executive notice of termination for Cause specifying that Cause;
(iv) expiration of the term following proper notice
of non-renewal by the Companies, in which event Executive shall be
entitled to receive as his sole and exclusive remedy:
a. a severance payment less taxes equal
to one month of Executive's compensation for the last year
of employment under this Agreement multiplied by the number
of years Executive has been employed by the Companies (paid
in installments at such times as Executive would normally
receive payroll checks as though employed through the
severance payment period); and
b. coverage in the Companies' employee
benefit plans for one (1) year on the same basis as set
forth in Section 6 hereof, provided, however, that coverage
in the Companies' employee benefit plans at the expense of
the Companies shall terminate immediately upon Executive
becoming employed or receiving benefit coverage from another
source after termination of his employment hereunder; or
(v) the date on which the Companies shall give
Executive notice of termination for any reason other than the
reasons set forth in (i) through (iv) above, in which event
Executive shall be entitled to receive, as his sole and exclusive
remedy provided that he continues to comply with his obligations
under Section 8 herein, a severance payment less taxes in an
amount equal to one year of Executive's compensation hereunder at
the time notice of termination is given to Executive paid in
installments at such times as Executive would normally receive
payroll checks as through employed through the severance payment
period; and coverage in the Companies' employee benefit plans on
the same basis as set forth in Section 6 hereof so long as
Executive receives payments this subsection, provided, however,
that during the period Executive is receiving severance payments
pursuant to this subsection, coverage in the Companies' employee
benefit plans shall terminate immediately upon Executive becoming
employed or receiving benefit coverage from another source after
termination of his employment hereunder.
(b) The Companies shall be entitled at any time, upon notice to
Executive, to terminate his employment hereunder on account of the Disability of
Executive or for Cause, and, in either of such events, or in the event that
Executive's employment hereunder shall terminate on account of the death or
<PAGE> 6
adjudicated incompetency of Executive, Executive or his estate, conservator or
designated beneficiary, as the case may be, shall be entitled to payment of any
earned or unpaid salary and payment for unused vacation days, through the date
of termination. Following any such termination, neither Executive nor his
estate, conservator or designated beneficiary shall be entitled to receive any
salary or other payment provided for hereunder with respect to any period after
such termination, except that in the event that Executive's employment is
terminated hereunder on account of the Disability of Executive, Executive shall
be entitled to receive a payment less taxes equal to six (6) months of the
salary Executive was receiving at the time of such termination (paid in
installments at such times as Executive would normally receive payroll checks as
though employed) and a continuation for six (6) months of the benefits as set
forth in Section 4 herein.
(c) For purposes of this Agreement, "Disability" shall mean an
illness, injury or other incapacitating condition as a result of which Executive
is unable to perform the services required to be performed under this Agreement
for (i) one hundred eighty (180) consecutive days, or (ii) a period or periods
aggregating more than one hundred eighty (180) days in any twelve consecutive
months. In any such event, the Companies, in their sole discretion, may
terminate this Agreement by giving notice to Executive of termination for
Disability. Executive agrees to submit to such medical examinations as may be
necessary to determine whether a Disability exists, pursuant to such reasonable
requests made by the Companies from time to time.
(d) For purposes of this Agreement, "Cause" shall mean the
occurrence of any of the following, as reasonably and in good faith determined
by the Companies:
(i) the willful failure, neglect or refusal by
Executive to perform his duties hereunder (including, without
limitation Executive's inability to perform such duties as a
result of alcohol or drug abuse, chronic alcoholism or drug
addiction);
(ii) any willful, intentional or reckless act by
Executive having the effect of materially injuring the business or
reputation of the Companies, any of their parents, subsidiaries or
affiliates;
(iii) willful misconduct by Executive, including
insubordination, in respect of the duties or obligations of
Executive under this Agreement;
(iv) Executive's conviction for a felony (including
entry of a nolo contendere plea);
(v) any misappropriation or embezzlement of the
property of the companies and their affiliates and subsidiaries
(whether or not a misdemeanor or felony); and
(vi) a material breach of any one or more of the
covenants of this Agreement by Executive;
provided, however, that before Executive is terminated for Cause the Companies
shall notify
<PAGE> 7
Executive at least five (5) days in advance of the Companies' intention to
terminate Executive for Cause and, where the conduct resulting in Cause can be
cured, the Companies shall allow Executive an opportunity to cure such conduct
within the five (5) day notice period before terminating Executive's employment
in accordance with this paragraph.
10. Return of Companies Property: Executive agrees that following the
termination of his employment for any reason, he shall return all property of
the Companies, their subsdiaries and affiliates which is then in or thereafter
comes into his possession, including, but not limited to, documents, contracts,
agreements, plans, photographs, books, notes, electronically stored data and all
copies of the foregoing as well as any other mateirals or equipment supplied by
the Companies to Executive.
11. Compensation in Event of Termination; Survival: Upon termination
of this Agreement for any reason, this Agreement shall terminate and the
Companies shall have no further obligation to Executive except to the extent
Executive is otherwise entitled to any unpaid compensation or benefits
hereunder, insurance coverage in accordance with applicable law and this
Agreement, and severance pay as provided herein; provided that the provisions
set forth in Sections 8 and 10 hereof shall remain in full force and effect
after the termination of Executive's employment, notwithstanding the expiration
or termination of this Agreement.
12. Entire Agreement: This Agreement sets forth the entire agreement
between the parties with respect to its subject matter and merges and supersedes
all prior discussions, agreements and understandings of every kind and nature
between them and neither party shall be bound by any term or condition other
than as expressly set forth or provided for in this Agreement. This Agreement
may not be changed or modified except by an agreement in writing, signed by the
parties hereto.
13. Waiver: The failure of either party to this Agreement to enforce
any of its terms, provisions or covenants shall not be construed as a waiver
of the same or of the right of such party to enforce the same. Waiver by
either party hereto of any breach or default by the other party of any term or
provision of this Agreement shall not operate as a waiver of any other breach of
default.
14. Severability: In the event that any one or more of the provisions
of this Agreement shall be held to be invalid, illegal or unenforceable, the
validity, legality and enforceability of the remainder of the Agreement shall
not in any way be affected or impaired thereby. Moreover, if any one or more of
the provisions contained in this Agreement shall be held to be excessively broad
as to duration, activity or subject, such provisions shall be construed by
limiting and reducing them so as to be enforceable to the maximum extent allowed
by applicable law.
15. Notices: Any notice given hereunder shall be in writing and
shall be deemed to have been given when delivered by messenger or courier
service (against appropriate receipt), or mailed by registered or certified mail
(return receipt requested), addressed as follows:
If to the Companies:
Rio Sportswear, Inc.,
<PAGE> 8
Calvin Klein Jeanswear Company
1385 Broadway
New York, New York 10018
Attention: Arnold Simon
If to Executive:
John J. Jones III
415 E. 37th Street
Apt. 5A
New York, New York 10016
or at such other address as shall be indicated to either party in
writing. Notice of change of address shall be effective only upon receipt.
16. Governing Law: This Agreement shall be governed by and
construed in accordance with the laws of the State of New York, without regard
to its conflict of law provisions.
17. Descriptive Headings: The paragraph headings contained
herein are for reference purposes only and shall not in any way affect the
meaning or interpretation of this Agreement.
<PAGE> 9
18. Counterparts: This Agreement may be executed in one or more
counterparts, which, together, shall constitute one and the same agreement.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement on
the date first written above.
RIO SPORTSWEAR, INC. THE EXECUTIVE
By:
-------------------------- ------------------------------
Name:
Title:
CALVIN KLEIN JEANSWEAR COMPANY
By:
-------------------------
Name:
Title:
<PAGE> 1
Exhibit 10.41
EMPLOYMENT AGREEMENT
AGREEMENT, made this 9th day of May, 1996, by and between Rio Sportswear, Inc.
and Calvin Klein Jeanswear Company, located at 1385 Broadway, New York, New
York 10018 (collectively the "Companies") and Guy Kinberg residing at 362
Kenwood Street, Englewood, New Jersey 07631.
WITNESSETH:
WHEREAS, the Companies are engaged in the business of distributing,
manufacturing, marketing and selling jeans and sportswear (the "Business");
WHEREAS, Executive has represented that he has all of the expertise, background
and experience as will enable him to perform all of the duties and execute all
of the responsibilities contemplated by this Agreement;
WHEREAS, based on such representation the companies wish to employ Executive as
Vice President of Production of the Jeanswear Division upon the terms
hereinafter set forth; and
WHEREAS, Executive wishes to be so employed by the Companies;
NOW, THEREFORE, in consideration of the premises and the mutual covenants and
agreements herein contained, the Companies and Executive agree as follows:
1. Employment:
The Companies hereby agree to employ Executive, and Executive hereby
agrees to serve, subject to the provisions of this Agreement, as an employee of
the Companies. Executive shall perform such duties and responsibilities as are
from time to time assigned to Executive by the Chief Executive Officer, and/or
the Board of Directors of the Companies. Executive agrees to devote all of his
business time, attention and energies to the performance of the duties
assigned to him hereunder, and to perform such duties faithfully, diligently
subject to such laws, rules, regulations and policies from time to time
applicable to the Companies' employees. Executive agrees to refrain from
engaging in any activity that does, will or could reasonably be deemed to
conflict with the best interests of the Companies. Without limiting the
generality of the foregoing, Executive shall perform the duties associated
with the position of Vice President of Production of the Companies.
2. Term:
This Agreement shall commence on May 9, 1996, and shall expire on
May 9, 1998. This Agreement shall automatically renew for additional one (1)
year periods beginning May 9, 1998 (and
<PAGE> 2
thereafter on each May 9, for all subsequent years) unless on or before the
December 9 immediately preceding any April __, renewal date, the Companies shall
give written notice that they do not wish to renew the Agreement for an
additional year. This Agreement may be sooner terminated in accordance with
Section 9 hereof.
3. Compensation:
(a) Salary: Executive's salary shall be at the annual rate of $350,000, payable
in accordance with the Companies' regular payroll practices. All applicable
withholding taxes shall be deducted from such payments. The Companies shall
review Executive's salary annually to determine if Executive's salary should be
increased. The decision to increase Executive's salary and any increase in
Executive's salary shall be in the sole discretion of the Companies.
(b) Bonus: The Companies shall determine in their sole discretion to pay
executive any bonus amount above his salary of $350,000.
4. Benefits:
During Executive's employment with the Companies, executive shall be
entitled to participate in any and all current or future retirement,
profit-sharing, medical, health, disability, or life insurance program, or other
group employee benefit plans and arrangements as are, or may be, made available
by the Companies to its senior executive employees.
5. Vacation:
Executive shall be entitled to paid vacation of four (4) weeks
annually. Such vacation shall be taken at such times as will interfere as little
as possible with the performance of Executive's duties hereunder.
6. Expenses:
The Companies will reimburse Executive for reasonable and necessary
business expenses of Executive for travel, meals and similar items incurred in
connection with the performance of Executive's duties, and which are consistent
with such guidelines as the senior executive officers and/or the Board of
Directors of the Companies may from time to time establish. All payments for
reimbursement of such expenses shall be made to the Executive only upon the
presentation to the Companies of appropriate vouchers or receipts. Executive
shall be entitled to the use of a automobile and shall be reimbursed for garage,
maintenance, insurance and operating expenses.
7. Stock Options:
2
<PAGE> 3
In the event that the Companies shall offer their executive employees
the opportunity to participate in a stock option plan, such opportunity also
shall be offered to Executive. Nothing herein shall require the Companies to
initiate a stock option plan. Notwithstanding any other provision of this
Agreement, Executive's rights under this section, including without limitation
the right to participate in a stock option plan offered by the Companies, shall
terminate upon the termination of Executive's employment with the Companies for
any reason and regardless of whether Executive continues to receive any other
compensation or benefit from the Companies after such termination.
8. Confidentiality, Non-competition, etc.:
(a) Executive acknowledges that: (1) the Business is intensely competitive and
that Executive's employment by the Companies will require that Executive have
access to and knowledge of confidential information of the Companies, including,
but not limited to, the identity of the Companies' customers, the identity of
the representatives of customers with whom the Companies have dealt, the kinds
of services provided by the Companies to customers and offered to be performed
for potential customers, the manner in which such services are performed or
offered to be performed, the service needs of actual or prospective customers,
pricing information, information concerning the creation, acquisition or
disposition of products and services, customer maintenance listing, computer
software applications and other programs, personnel information and other trade
secrets (the "Confidential Information"); (ii) the direct and indirect
disclosure of any such Confidential Information to existing or potential
competitors of the Companies would place the Companies at a competitive
disadvantage and would do damage, monetary or otherwise, to the Companies'
business; and (iii) the engaging by Executive in any of the activities
prohibited by this Section 8 may constitute improper appropriation and/or use of
such information and trade secrets. Executive expressly acknowledges the trade
secret status of the Confidential Information and that the Confidential
Information constitutes a protectable business interest of the Companies.
Accordingly, the Companies and Executive agree as follows:
(b) For purposes of this Section 8, the Companies shall be construed to include
the Companies and their parents, subsidiaries and affiliates engaged in the
Business, including any divisions managed by Executive.
(c) During the Executive's employment and at all times after the termination of
Executive's employment, Executive shall not, directly or indirectly, whether
individually, as a director, stockholder, owner, partner, employee, principal or
agent of any business, or in any other capacity, make known, disclose, furnish,
make available or utilize any of the Confidential Information other than in the
proper performance of the duties contemplated herein. Executive agrees to return
all Confidential Information, including all photocopies, extracts and summaries
thereof, and any such information stored electronically on tapes, computer disks
or in any other manner to the Companies at any time upon request by the
Companies and upon the termination of his employment for any reason.
(d) Executive shall not, so long as he is employed by the Companies, engage in
"Competition" with the Companies. For purposes of this Agreement, Competition by
Executive shall mean Executive's
3
<PAGE> 4
engaging in, or otherwise directly or indirectly being employed by or acting as
a consultant or lender to, or being a director, officer, employee, principal,
agent, stockholder, member, owner or partner of, or permitting his name to be
used in connection with the activities of any other business or organization
anywhere in the United States which competes, directly or indirectly, with the
business of the Companies as the same shall be constituted at any time during or
following his employment.
(e) For so long as Executive continues to receive compensation under the terms
of this Agreement following the termination of Executive's employment for any
reason, Executive shall not engage in Competition, as defined above, with the
Companies in any locality or region of the United States in which the Companies
had operations at the time of, or within six (6) months prior to, Executive's
termination, or in which, during the six (6) month period prior to Executive's
termination, the Companies had made substantial plans with the intention of
establishing operations in such locality or region and such plans were known or
should have been known by Executive; provided that, it shall not be a violation
of this sub-paragraph for Executive to become the registered or beneficial owner
of up to five percent (5%) of any class of the capital stock of a competing
corporation registered under the Securities Exchange Act of 1935, as amended,
provided that Executive does not actively participate in the business of such
corporation until such time as this covenant expires.
(f) For so long as Executive continues to receive compensation under the terms
of this Agreement following the termination of Executive's employment for any
reason, Executive agrees that he will not, directly or indirectly , for his
benefit or for the benefit of any other person, firm or entity, do any of the
following:
(i) solicit from any customer doing business with the Companies as
of Executive's termination, business of the same or of a
similar nature to the business of the Companies with such
customer;
(ii) solicit from any known potential customer of the Companies
business of the same or of a similar nature to that which has
been the subject of a known written or oral bid, offer or
proposal by the Companies, or of substantial preparation with
a view to making such a bid, proposal or offer, within six (6)
months prior to Executive's termination;
(iii) solicit the employment or services of, or hire, any person who
was known to be employed by or was a known consultant to the
Companies upon Executive's termination of Executive's
employment, or within six (6) months prior thereto; or
(iv) otherwise knowingly interfere with the business or accounts of
the Companies.
(g) Executive acknowledges that the services to be rendered by him to the
Companies are of a special and unique character, which gives this Agreement a
peculiar value to the Companies, the loss of which may not be reasonably or
adequately compensated for by damages in an action at law, and that a material
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breach or threatened breach by him of any of the provisions contained in this
Section 8 will cause the Companies irreparable injury. Executive therefore
agrees that the Companies may be entitled, in addition to any other right or
remedy, to a temporary, preliminary and permanent injunction, without the
necessity of proving the inadequacy of monetary damages or the posting of any
bond or security, enjoining or restraining Executive from any such violation or
threatened violations.
(h) Executive further acknowledges and agrees that due to the uniqueness of his
services and confidential nature of the information he will possess, the
covenants set forth herein are reasonable and necessary for the protection of
the business and goodwill of the Companies.
9. Termination
(a) Notwithstanding any provision of this Agreement to the contrary, the
employment of Executive hereunder shall terminate on the first to occur of the
following dates:
(i) the date of Executive's death or adjudicated incompetency;
(ii) the date on which the Companies shall give Executive notice of
termination on account of Disability (as hereinafter defined);
(iii) the date on which the Companies shall give Executive notice of
termination for Cause;
(iv) expiration of the term following proper notice of non-renewal
by the Companies, in which event Executive shall be entitled
to receive as his sole and exclusive remedy,
a. A severance payment less taxes equal to one month of
Executive's annual compensation for each last year
of employment under this Agreement (paid in
installments at such times as Executive would
normally receive payroll checks as though employed
through the severance payment period); and
b. coverage in the Companies' employee benefit plans for
one (1) year and continued use of a car for one year
on the same basis as set forth in Section 6 hereof,
provided however, that coverage in the Companies'
employee benefit plans and the right to continued use
of a car by Executive at the expense of the Companies
shall terminate immediately upon Executive becoming
employed or receiving benefit coverage from another
source after termination of his employment hereunder;
or
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(v) the date on which the Companies shall give Executive notice of
termination for any reason other than the reasons set forth in
(i) through (iv), above, in which event Executive shall be
entitled to receive, as his sole and exclusive remedy and
provided that he continues to comply with his obligations
under Section 8 herein,
a. the balance of any compensation due Executive for the
remainder of the Term of this Agreement, as set forth
in Section 2 herein and paid in installments at such
times as Executive would normally receive payroll
checks as though employed through the remainder of
the Term; and
b. a severance payment less taxes in an amount equal to
one year of Executive's compensation hereunder at the
time notice of termination is given to Executive paid
after the balance of compensation payments under a.
above are completed, and in installments at such
times as Executive would normally receive payroll
checks as though employed through the severance
payment period; and
c. Coverage in the Companies' employee benefit plans and
continued use of a car on the same basis as set forth
in Section 6 hereof so long as Executive receives
payments under a. or b. above, provided however, that
during the period Executive is receiving severance
payments pursuant to b. above, coverage in the
Companies' employee benefit plans and the right to
continued use of a car by Executive at the expense of
the Companies shall terminate immediately upon
Executive becoming employed or receiving benefit
coverage from another source after termination of his
employment hereunder.
(b) The Companies shall be entitled to any time, upon notice to Executive, to
terminate his employment hereunder on account of the Disability of Executive or
for Cause, and, in either of such events, or in the event that Executive's
employment hereunder shall terminate on account of the death or adjudicated
incompetency of Executive, Executive or his estate, conservator or designated
beneficiary, as the case may be, shall be entitled to payment of any earned but
unpaid salary and payment for unused vacation days, through the date of
termination. Following any such termination, neither Executive nor his estate,
conservator or designated beneficiary shall be entitled to receive any salary or
other payment provided for hereunder with respect to any period after such
termination, except that in the event that Executive's employment is terminated
hereunder on account of the Disability of Executive, Executive shall be entitled
to receive a payment less taxes equal to six (6) months of the salary Executive
was receiving at the time of such termination (paid in installments at such
times as Executive would normally receive payroll checks as though employed) and
a continuation for six (6) months of the benefits set forth in Section 4 herein.
(c) For purposes of this Agreement, "Disability" shall mean an illness, injury
or other incapacitating condition as a result of which Executive is unable to
perform the services required to be performed under this Agreement for (i)
ninety (90) consecutive days, or (ii) a period or periods aggregating more than
ninety (90) days in any six (6) consecutive months. In any such event, the
Companies , in their sole
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discretion, may terminate this Agreement by giving notice to Executive of
termination for Disability. Executive agrees to submit to such medical
examinations as may be necessary to determine whether a Disability exits,
pursuant to such reasonable requests made by the Companies from time to time.
(d) For purposes of this Agreement, "Cause" shall mean the occurrence of any of
the following, as reasonably determined by the Companies:
(i) the willful failure, neglect or refusal by Executive to
perform his duties hereunder (including, without limitation,
Executive's inability to perform such duties as a result of
alcohol or drug abuse, chronic alcoholism or drug addiction);
(ii) any willful, intentional or reckless act by Executive having
the effect of materially injuring the business or reputation
of the Companies, any of their parents, subsidiaries or
affiliates and any divisions Executive may manage;
(iii) willful misconduct by Executive including insubordination, in
respect of the duties or obligations of Executive under this
Agreement;
(iv) Executive's conviction for a felony (including entry of a nolo
contendere pleas);
(v) any misappropriation or embezzlement of the property of the
Companies and their affiliates and subsidiaries (whether or
not a misdemeanor or felony); and
(vi) a material breach of any one or more of the covenants of this
Agreement by Executive;
provided however, that before Executive is terminated for Cause the Companies
shall notify Executive at least five (5) days in advance of the Companies'
intention to terminate Executive for Cause and, where the conduct resulting in
Cause can be cured, the Companies shall allow Executive an opportunity to cure
such conduct within the five (5) day notice period before terminating
Executive's employment in accordance with this paragraph.
10. Return of Companies Property:
Executive agrees that following the termination of his employment for
any reason, he shall return all property of the Companies, its subsidiaries,
affiliates and any divisions thereof he may have managed which is then in or
thereafter comes into his possession, including, but not limited to, documents,
contracts, agreements, plans, photographs, books, notes, electronically stored
data and all copies of the foregoing as well as any automobile or other
materials or equipment supplied by the Companies to Executive. If executive's
employment hereunder is terminated pursuant to Section 9(a) (v) hereof,
Executive shall return any automobile supplied by the Companies following the
termination of Executive's right to such automobile in accordance with the
provisions of Section 9(a) (v)c. hereunder.
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11. Compensation in Event of Termination; Survival:
Upon termination of Executive's employment for any reason, this
Agreement shall terminate and the Companies shall have no further obligation to
Executive except to the extent Executive is otherwise entitled to any unpaid
compensation or benefits hereunder, insurance coverage in accordance with
applicable law and this Agreement, and severance pay as provided herein,
provided that the provisions set forth in Sections 8 and 10 hereof shall remain
in full force and effect after the termination of Executive's employment,
notwithstanding the expiration or termination of this Agreement.
12. Entire Agreement:
This Agreement sets forth the entire agreement between the parties with
respect to its subject matter and merges and supersedes all prior discussions,
agreements and understandings of every kind and nature between them and neither
party shall be bound by any term or condition other than as expressly set forth
or provided for in this Agreement. This Agreement may not be changed or modified
except by an agreement in writing , signed by the parties hereto.
13. Waiver:
The failure of either party to this Agreement to enforce any of its
terms, provisions or covenants shall not be construed as a waiver of the same or
of the right of such party to enforce the same. Waiver by either party hereto of
any beach or default by the other party of any term or provision of this
Agreement shall not operate as a waiver of any other breach or default.
14. Severability:
In the event that any one or more of the provisions of this Agreement
shall be held to be invalid, illegal or unenforceable , the validity, legality
and enforceability of the remainder of the Agreement shall not in any way be
affected or impaired thereby. Moreover, if any one or more of the provisions
contained in this Agreement shall be held to be excessively broad as to
duration, activity or subject, such provisions shall be construed by limiting
and reducing them so as to be enforceable to the maximum extent allowed by
applicable law.
15. Notices:
Any notice given hereunder shall be in writing and shall be deemed to
have given when delivered by messenger or courier service (against appropriate
receipt requested), addressed as follows:
If to the Companies:
Rio Sportswear, Inc.,
Calvin Klein Jeanswear Company
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1385 Broadway, 3rd Floor
New York, New York 10018
Attn: Arnold H. Simon
If to Executive:
362 Kenwood Street
Englewood, New Jersey 07631
or at such other address as shall be indicated to either party in writing.
Notice of change of address shall be effective only upon receipt.
16. Governing Law: This Agreement shall be governed by and construed in
accordance with the laws of the State of New York, without regard to its
conflict of law rules.
17. Descriptive Headings: The paragraph headings contained herein are
for reference purposes only and shall not in any way affect the meaning or
interpretation of this Agreement.
18. Counterparts: This Agreement may be executed in one or more
counterparts, which, together, shall constitute one and the same agreement.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement on
the date first written above.
RIO SPORTSWEAR, INC. THE EXECUTIVE
By: ______________________ By: ____________________________
Name: Arnold H. Simon Name: Guy Kinberg
Title: President & CEO Title: Vice President of Production
CALVIN KLEIN JEANSWEAR COMPANY
By: ______________________
Name: Arnold H. Simon
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Title: President & CEO
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EXHIBIT 23.1
CONSENT OF INDEPENDENT ACCOUNTANTS
We consent to the inclusion in this Amendment No. 4 to the Registration
Statement of Designer Holdings Ltd. on Form S-1 (No. 333-2236) of our reports
dated February 29, 1996, except for Note 1, the tenth paragraph of Note 11, the
thirteenth paragraph of Note 13 and Note 16, for which the date is April 22,
1996, on our audits of the financial statements and financial statement schedule
of Designer Holdings Ltd. We also consent to the reference to our firm under the
caption "Experts."
COOPERS & LYBRAND L.L.P.
New York, New York
May 8, 1996
<PAGE> 1
EXHIBIT 23.2
CONSENT OF INDEPENDENT AUDITORS
We consent to the use in this Amendment No. 4 to the Registration Statement
of Designer Holdings Ltd. on Form S-1 (No. 333-2236) of our report dated April
1, 1994 on the combined statements of operations, stockholders' equity and cash
flows of Rio Sportswear, Inc. and affiliated companies for the year ended
December 31, 1993, appearing in the Prospectus, which is part of this
Registration Statement and to the reference to us under the heading "Experts" in
such Prospectus.
Our audit of the financial statements referred to in our aforementioned
report also included the financial statement schedule of Rio Sportswear, Inc.
and affiliated companies, listed in Item 16. This financial statement schedule
is the responsibility of the Company's management. Our responsibility is to
express an opinion based on our audit. In our opinion, such financial statement
schedule, when considered in relation to the basic financial statements taken as
a whole, presents fairly, in all material respects, the information set forth
therein.
Deloitte & Touche LLP
New York, New York
May 8, 1996
