<PAGE> 1
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON OCTOBER 31, 1996
REGISTRATION STATEMENT NO. 333-13097
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------
AMENDMENT NO. 2
TO
FORM S-1
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
------------------------
DESIGNER HOLDINGS LTD.
DESIGNER FINANCE TRUST
(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>
VINCENT J. PISANO, ESQ. WILLIAM M. HARTNETT, ESQ.
SKADDEN, ARPS, SLATE, MEAGHER & FLOM LLP CAHILL GORDON & REINDEL
919 THIRD AVENUE EIGHTY PINE STREET
NEW YORK, NEW YORK 10022 NEW YORK, NEW YORK 10005
TEL: (212) 735-3000 TEL: (212) 701-3000
FAX: (212) 735-2000 FAX: (212) 269-5420
</TABLE>
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: As soon as
practicable after the effective date of this Registration Statement.
If any of the securities being registered on this Form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, as amended, check the following box: [ ]
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following box
and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering: [ ]
If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering: [ ]
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box: [ ]
------------------------
THE REGISTRANTS HEREBY AMEND THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANTS
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.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE> 2
INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A
REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE
SECURITIES 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 STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE
UNLAWFUL PRIOR TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS
OF ANY SUCH STATE.
SUBJECT TO COMPLETION
PRELIMINARY PROSPECTUS DATED OCTOBER 31, 1996
PROSPECTUS
2,000,000 PREFERRED SECURITIES
DESIGNER FINANCE TRUST
% CONVERTIBLE TRUST ORIGINATED PREFERRED
SECURITIES(SM) (CONVERTIBLE TOPRS(SM))
(LIQUIDATION AMOUNT $50 PER PREFERRED SECURITY)
GUARANTEED TO THE EXTENT SET FORTH HEREIN BY,
AND CONVERTIBLE INTO COMMON STOCK OF,
DESIGNER HOLDINGS LTD.
------------------------
The % Convertible Trust Originated Preferred Securities (the
"Convertible TOPrS(SM)" or "Preferred Securities") offered hereby represent
preferred undivided beneficial interests in the assets of Designer Finance
Trust, a statutory business trust formed under the laws of the State of Delaware
(the "Trust"). Designer Holdings Ltd., a Delaware corporation (the "Company"),
will directly or indirectly own all the common securities (the "Common
Securities" and, together with the Preferred Securities, the "Trust Securities")
representing undivided beneficial interests in the assets of the Trust. The
Trust exists for the sole purpose of issuing the Trust Securities and investing
the proceeds thereof in an equivalent amount of % Convertible Subordinated
Debentures due 2016 (the "Convertible Debentures") of the Company. Upon an event
of default under the Declaration (as defined herein), the holders of Preferred
Securities will have a preference over the holders of the Common Securities with
respect to distributions and payments upon redemption, liquidation and
otherwise.
Each Preferred Security is convertible at the option of the holder thereof
into shares of common stock, par value $.01 per share (the "Common Stock") of
the Company, at a conversion rate of shares of Common Stock, for each
Preferred Security (equivalent to $ per share of Common Stock), subject to
adjustment in certain circumstances. The Common Stock is listed on the New York
Stock Exchange (the "NYSE") under the symbol "DSH." On October 21, 1996, the
last reported sale price of the Common Stock on the NYSE Composite Tape was
$20 3/8. The Preferred Securities have been approved for listing on the NYSE,
subject to official notice of issuance, under the symbol "DSHprA". See
"Underwriting."
(Continued on next page)
SEE "RISK FACTORS" BEGINNING ON PAGE 15 OF THIS PROSPECTUS FOR CERTAIN
INFORMATION RELEVANT TO AN INVESTMENT IN THE PREFERRED SECURITIES.
------------------------
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>
- ----------------------------------------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------------------------------
PRICE TO UNDERWRITING PROCEEDS TO
PUBLIC(1) COMMISSION(2) TRUST(3)(4)
- ----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Per Preferred Security.................. $50.00 (3) $50.00
- ----------------------------------------------------------------------------------------------------------------
Total(5)................................ $100,000,000 (3) $100,000,000
- ----------------------------------------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------------------------------
</TABLE>
(1) Plus accrued distributions, if any, from , 1996.
(2) The Trust and the Company have agreed to indemnify the Underwriters against
certain liabilities, including liabilities under the Securities Act of 1933,
as amended. See "Underwriting."
(3) In view of the fact that the proceeds of the sale of the Preferred
Securities will be invested in the Convertible Debentures, the Company has
agreed to pay to the Underwriters as compensation (the "Underwriters'
Compensation") for their arranging the investment therein of such proceeds
$ per Preferred Security (or $ in the aggregate). See
"Underwriting."
(4) Before deducting expenses of the offering payable by the Company, estimated
to be $ .
(5) The Trust and the Company have granted the Underwriters an option,
exercisable for 30 days from the date of this Prospectus, to purchase up to
300,000 additional Preferred Securities solely to cover over-allotments, if
any. If the option is exercised in full, the total Price to Public,
Underwriting Commission and Proceeds to Trust will be $ , $
and $ , respectively. See "Underwriting."
------------------------
The Preferred Securities offered hereby are offered severally by the
Underwriters, as specified herein, subject to receipt and acceptance by them and
subject to their right to reject any order in whole or in part. It is expected
that delivery of the Preferred Securities will be made only in book-entry form
through the facilities of The Depository Trust Company, on or about
, 1996.
------------------------
MERRILL LYNCH & CO. MORGAN STANLEY & CO.
INCORPORATED
------------------------
The date of this Prospectus is , 1996.
- ---------------
(SM)"Convertible Trust Originated Preferred Securities" and "Convertible TOPrS"
are service marks of Merrill Lynch & Co., Inc.
<PAGE> 3
(Continued from front cover)
Holders of the Preferred Securities are entitled to receive cumulative cash
distributions at an annual rate of % of the liquidation amount of $50 per
Preferred Security, accruing from the date of original issuance and payable
quarterly in arrears on March 31, June 30, September 30 and December 31 of each
year, commencing December 31, 1996. See "Description of the Preferred
Securities -- Distributions." The payment of distributions out of moneys held by
the Trust and payments on liquidation of the Trust or the redemption of
Preferred Securities, as set forth below, are guaranteed by the Company (the
"Guarantee") to the extent described under "Description of the Guarantee." The
Guarantee covers payments of distributions and other payments on the Preferred
Securities only if and to the extent of the assets of the Trust available for
distribution to holders of Preferred Securities. The Guarantee, when taken
together with the Company's obligations under the Convertible Debentures and the
Indenture (as defined herein) and its obligations under the Declaration,
including its obligations to pay costs, expenses, debts and liabilities of the
Trust (other than with respect to the Trust Securities), provide a full and
unconditional guarantee of amounts due on the Preferred Securities. See "Risk
Factors -- Rights Under the Guarantee." The obligations of the Company under the
Guarantee are subordinate and junior in right of payment to all other
liabilities of the Company and pari passu with the most senior preferred stock,
if any, issued from time to time by the Company. The obligations of the Company
under the Convertible Debentures are subordinate and junior in right of payment
to all present and future Senior Indebtedness (as defined herein) of the
Company, which aggregated approximately $57.1 million at June 30, 1996, and rank
pari passu with the Company's other general unsecured creditors. The obligations
of the Company under the Convertible Debentures are also effectively
subordinated to all existing and future indebtedness and other liabilities,
including trade payables, of the Company's subsidiaries. At June 30, 1996, the
indebtedness and other liabilities of such subsidiaries aggregated $109.5
million (including the $57.1 million referred to above). The Convertible
Debentures purchased by the Trust may be subsequently distributed pro rata to
holders of the Preferred Securities and Common Securities in connection with the
dissolution of the Trust upon the occurrence of certain events.
The distribution rate and the distribution payment dates and other payment
dates for the Preferred Securities will correspond to the interest rate and
interest payment dates and other payment dates on the Convertible Debentures,
which will be the sole assets of the Trust. As a result, if principal or
interest is not paid on the Convertible Debentures, no amounts will be paid on
the Preferred Securities. If the Company does not make principal or interest
payments on the Convertible Debentures, the Trust will not have sufficient funds
to make distributions on the Preferred Securities, in which event the Guarantee
will not apply to such distributions until the Trust has sufficient funds
available therefor.
The Company has the right to defer payments of interest on the Convertible
Debentures by extending the interest payment period on the Convertible
Debentures at any time for up to 20 consecutive quarters (each, an "Extension
Period") during which no interest shall be due and payable; provided, that no
such Extension Period may extend beyond the maturity date of the Convertible
Debentures. If interest payments are so deferred, distributions on the Preferred
Securities will also be deferred. During such Extension Period, distributions
will continue to accrue, compounded quarterly at the distribution rate (to the
extent permitted by applicable law), and during any Extension Period, holders of
Preferred Securities will be required to include deferred interest income in
their gross income for federal income tax purposes in advance of receipt of the
cash distributions with respect to such deferred interest payments. There could
be multiple Extension Periods of varying lengths throughout the term of the
Convertible Debentures. See "Risk Factors -- Option to Extend Interest Payment
Periods," "Description of the Convertible Debentures -- Option to Extend
Interest Payment Periods" and "United States Federal Income Taxation -- Original
Issue Discount."
The Convertible Debentures are redeemable by the Company, in whole or in
part, from time to time, on or after , 1999 at the redemption
prices specified herein or at any time in certain circumstances upon the
occurrence of a Tax Event (as defined herein). If the Company redeems
Convertible Debentures, the proceeds thereof will simultaneously be applied to
redeem Trust Securities having an aggregate liquidation amount equal to the
Convertible Debentures so redeemed at the applicable redemption price specified
herein, together with accrued and unpaid distributions to the date fixed for
redemption. See "Description of the Preferred Securities -- Mandatory
Redemption." The Preferred Securities will be redeemed upon maturity of
2
<PAGE> 4
the Convertible Debentures on , 2016. In addition, upon the
occurrence of a Special Event (as defined herein), unless the Convertible
Debentures are redeemed in the limited circumstances described herein, the Trust
will be dissolved, with the result that the Convertible Debentures will be
distributed pro rata to the holders of the Preferred Securities in lieu of any
cash distribution. See "Description of the Preferred Securities -- Special Event
Redemption or Distribution." In the case of the occurrence of a Special Event
that is a Tax Event, the Company will have the right in certain circumstances to
redeem the Convertible Debentures, which would result in the redemption by the
Trust of Trust Securities in the same amount on a pro rata basis. If the
Convertible Debentures are distributed to the holders of the Preferred
Securities, the Company will use its best efforts to have the Convertible
Debentures listed on the NYSE or on such other exchange as the Preferred
Securities are then listed. See "Description of the Preferred
Securities -- Special Event Redemption or Distribution" and "Description of the
Convertible Debentures."
In the event of the involuntary or voluntary dissolution, winding up or
termination of the Trust, the holders of the Preferred Securities will be
entitled to receive for each Preferred Security a liquidation amount of $50 plus
accrued and unpaid distributions thereon (compounded quarterly at the
distribution rate, if applicable) to the date of payment, unless, in connection
with such dissolution, winding up or termination of the Trust, the Convertible
Debentures are distributed to the holders of the Preferred Securities. See
"Description of the Preferred Securities -- Liquidation Distribution Upon
Dissolution."
------------------------
IN CONNECTION WITH THIS OFFERING, THE UNDERWRITERS MAY OVER-ALLOT OR EFFECT
TRANSACTIONS THAT STABILIZE OR MAINTAIN THE MARKET PRICE OF THE SECURITIES
OFFERED HEREBY AND OF THE COMMON STOCK OF DESIGNER HOLDINGS LTD. AT LEVELS ABOVE
THOSE THAT MIGHT OTHERWISE PREVAIL IN THE OPEN MARKET. SUCH TRANSACTIONS MAY BE
EFFECTED ON THE NEW YORK STOCK EXCHANGE, IN THE OVER-THE-COUNTER MARKET OR
OTHERWISE. SUCH STABILIZING TRANSACTIONS, IF COMMENCED, MAY BE DISCONTINUED AT
ANY TIME.
------------------------
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.
The logo form of the DKNY Jeans trademark is owned by Gabrielle Studio, Inc., is
licensed to Donna Karan Studio, a subsidiary of Donna Karan International Inc.,
and is used under sublicense from Donna Karan Studio. The Donna Karan New
York(R), Donna Karan(R) and DKNY(R) trademarks are owned by Gabrielle Studio,
Inc. and are licensed to Donna Karan Studio.
3
<PAGE> 5
AVAILABLE INFORMATION
The Company has filed with the Securities and Exchange Commission (the
"Commission") a Registration Statement on Form S-1 (the "Registration
Statement") under the Securities Act of 1933, as amended (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 agreement or other document are not
necessarily complete; with respect to each such 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 Company is subject to the information requirements of the Securities
Exchange Act of 1934, as amended (the "Exchange Act") (Commission File No.
1-11707), and in accordance therewith files periodic reports, proxy statements
and other information with the Commission relating to its business, financial
statements and other matters. The Registration Statement, as well as such
reports, proxy statements and other information, may be inspected and copied at
prescribed rates at the public reference facilities maintained by the Commission
at Room 1024, 450 Fifth Street, N.W., Washington, D.C. 20549 and should be
available for inspection and copying at the regional offices of the Commission
located at 7 World Trade Center, Suite 1300, New York, New York 10048 and at
Citicorp Center, 500 West Madison Street, Chicago, Illinois 60661. Copies of
such material can be obtained at prescribed rates by writing to the Commission
Public Reference Section, 450 Fifth Street, N.W., Washington, D.C. 20549. The
Commission also maintains a Web site that contains reports, proxy statements and
other information regarding registrants that file electronically with the
Commission. The address of such site is http://www.sec.gov. The Common Stock of
the Company is listed on the NYSE. The reports, proxy statements and certain
other information of the Company can be inspected at the office of the NYSE, 20
Broad Street, New York, New York 10005.
No separate financial statements of the Trust have been included herein.
The Company does not consider that such financial statements would be material
to holders of Preferred Securities because (i) all of the voting securities of
the Trust will be owned, directly or indirectly, by the Company, a reporting
company under the Exchange Act, (ii) the Trust has no independent operations and
exists for the sole purpose of issuing securities representing undivided
beneficial interests in the assets of the Trust and investing the proceeds
thereof in the Convertible Debentures issued by the Company and (iii) the
obligations of the Trust under the Trust Securities are fully and
unconditionally guaranteed by the Company to the extent that the Trust has funds
available to meet such obligations. See "Designer Finance Trust," "Description
of the Guarantee" and "Description of the Convertible Debentures."
FORWARD-LOOKING STATEMENTS
This Prospectus contains certain forward-looking statements within the
meaning of the Private Securities Litigation Reform Act of 1995 concerning,
among other things, increases in net revenues, the DKNY Jeans License (as
defined herein), the acquisition of the CK Outlets (as defined herein) and other
aspects of the business of the Company. These forward-looking statements are
subject to risks and uncertainties that could cause actual results to differ
materially from those contemplated in such forward-looking statements, including
in particular the risks and uncertainties described under "Risk
Factors -- Ability to Achieve and Manage Future Growth." See also "Risk
Factors," "Unaudited Pro Forma Financial Information" and "Management's
Discussion and Analysis of Financial Condition and Results of
Operations -- Liquidity and Capital Resources." Prospective investors are
cautioned not to place undue reliance on these forward-looking statements, which
speak only as of the date hereof. The Company undertakes no obligation to
publicly release any revisions to these forward-looking statements to reflect
events or circumstances after the date hereof or to reflect the occurrence of
unanticipated events.
4
<PAGE> 6
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. Except as
otherwise indicated, the information contained in this Prospectus assumes that
the Underwriters' overallotment option is not exercised. Unless the context
otherwise requires, (i) all information set forth herein assumes that Calvin
Klein, Inc. ("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 and (iii) the "Company" prior to its formation in March 1995 means
its predecessors Rio Sportswear, Inc. ("Rio Sportswear"), Jeanswear Holdings,
Inc. ("Jeanswear") and the Predecessor Companies (as defined herein).
THE COMPANY
GENERAL
Designer Holdings Ltd. (the "Company") develops, sources and markets
designer sportswear lines for men, juniors and women (including 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 the six months ended June 30, 1996,
the mens, juniors and womens (including petites) lines accounted for
approximately 41.6%, 35.8% and 22.3%, respectively, of net sales of Calvin Klein
Jeans Label products.
Since August 1994, the Company has experienced substantial growth in net
revenues for its Calvin Klein Jeans Label products. In 1993, net revenues from
the sale of Calvin Klein Jeans Label products by CKI were approximately $59
million. In 1994, the Company obtained the exclusive license from CKI for
certain types of sportswear (the "CKJ License"). In 1995, net revenues
(including royalties) of Calvin Klein Jeans Label products rose to $361.4
million. In the six months ended June 30, 1996, net revenues (including
royalties) of Calvin Klein Jeans Label products rose to $218.3 million, a 79.9%
increase from the $121.4 million in the comparable 1995 period.
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
the six months ended June 30, 1996. 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 the six months ended June 30, 1996. The
Company contracts through third parties for the manufacture of substantially all
of its products. In the six months ended June 30, 1996, approximately 82.5% of
the Company's products were produced in the United States. The Company believes
that its emphasis on
5
<PAGE> 7
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. 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. As of September 30, 1996, the Company
had installed approximately 70 shop-in-shops. The Company expects approximately
150 shop-in-shops to be operating by the end of 1996. The Company also seeks to
distribute its products to those specialty retailers that have the ability to
offer the proper presentation of the Company's products.
In July 1996, the Company announced that it had entered into a letter of
intent with CKI to acquire 14 of the 15 Calvin Klein outlet stores (the "CK
Outlets") owned by CKI located in the United States, with rights to open
additional CK Outlets in the United States, Canada and Mexico. See "Management's
Discussion and Analysis of Financial Condition and Results of
Operations -- Liquidity and Capital Resources" and "Business -- Calvin Klein
Outlets." The Company believes that the acquisition of the CK Outlets will
enhance its ability to distribute excess inventory in a manner that does not
adversely affect its department and specialty store customers. The Company
expects to consummate the acquisition in the fourth quarter of 1996 using
existing cash or borrowings under the Revolving Credit Facility.
The Company's growth strategy is to continue to capitalize on the strength
of the image projected by Calvin Klein 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 by
introducing new items and classifications, (iv) expanding the distribution of
its products outside the United States and (v) improving operating efficiencies.
To provide a foundation for continued growth and to improve operating
efficiencies, the Company has substantially increased the capacity of its
distribution facilities and brought on-line an integrated management information
system. See "Risk Factors -- Ability to Achieve and Manage Future Growth" and
"Business -- Business Strategy."
DKNY JEANS LICENSE
On September 27, 1996, the Company entered into a 30-year licensing
agreement with a subsidiary of Donna Karan International Inc. ("Donna Karan
International") for the exclusive production, sale and distribution of mens,
womens and, with certain exceptions, childrens jeanswear under the DKNY Jeans
Label (the "DKNY Jeans Label"). Under the terms of the agreement (the "DKNY
Jeans License"), the Company made an initial payment of $6 million and will make
additional payments aggregating $54 million through June 1, 2000. Following the
transition of production, inventory and distribution on June 1, 1997, the
Company will pay annual royalties of 7% on worldwide net sales of DKNY Jeans
Label products, as well as an additional administrative fee of 2% of
international net sales. The Company has paid a first installment on its minimum
guaranteed royalty obligations for 1997 of $1.26 million.
The Company believes Donna Karan International is one of the world's
leading fashion houses, with global recognition in the exclusive designer market
for the Donna Karan New York label and in the larger bridge market for the DKNY
label. The Company will seek to combine its own technical, production and
distribution capabilities with the distinctive image and high product quality
associated with the DKNY label. The Company's strategy for the DKNY Jeans Label
will include: (i) offering a broad collection of casual jeanswear that
complements the lifestyle of the core DKNY customer, (ii) maintaining the
exclusivity of the label by limiting distribution to "better" department and
larger specialty stores, (iii) developing worldwide distribution, (iv)
establishing DKNY Jeans shop-in-shops within department stores and larger
specialty stores, including an estimated 200 shop-in-shops in 1997, and (v)
launching an extensive advertising campaign in connection with the Fall 1997
season. See "Use of Proceeds" and "Business -- DKNY Jeans License." See also
"Risk Factors -- Ability to Achieve and Manage Future Growth."
6
<PAGE> 8
COMPANY HISTORY
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 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."
In May 1996, the Company completed an initial public offering (the "IPO")
of 13,800,000 shares of Common Stock, of which 6,650,000 shares were sold by the
Company and 7,150,000 shares were sold by New Rio, L.L.C. (the "Principal
Stockholder"). The net proceeds to the Company from the IPO of approximately
$108.1 million were used primarily to repay a subordinated loan and to reduce
revolving credit and term loans. See "Management's Discussion and Analysis of
Financial Condition and Results of Operations -- Liquidity and Capital
Resources."
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.
RECENT DEVELOPMENTS
Set forth below are the preliminary unaudited results of operations for the
nine months ended September 30, 1995 and 1996 and the adjusted pro forma and pro
forma results of operations for the nine months ended September 30, 1995 and
1996, respectively. The unaudited pro forma and adjusted pro forma results of
operations for the nine months ended September 30, 1995 and 1996 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 in April 1996 and the related issuance to CKI of 1,275,466
shares of non-voting common stock (the "Amendments") and (iii) the closing of
the IPO on May 15, 1996 and application of the net proceeds to the Company
therefrom as described herein, as if such transactions occurred as of January 1,
1995.
<TABLE>
<CAPTION>
NINE MONTHS ENDED SEPTEMBER 30,
-----------------------------------------------------------
ACTUAL ADJUSTED
--------------------------- PRO FORMA PRO FORMA
1995 1996 1995 1996
----------- ----------- ----------- -----------
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C>
Net revenues........................... $ 302,816 $ 356,487(1) $ 211,540(2) $ 356,487
Cost of goods sold..................... 214,613 220,917 132,752 220,917
----------- ----------- ----------- -----------
Gross margin........................... 88,203 135,570 78,788 135,570
Selling, general and administrative
expenses............................. 61,333 85,184 52,780 85,371
----------- ----------- ----------- -----------
Operating income....................... 26,870 50,386 26,008 50,199
Interest expense....................... 10,366 9,162 1,443 4,432
----------- ----------- ----------- -----------
Income before income taxes............. 16,504 41,224 24,565 45,767
Provision for income taxes............. 8,601 18,963 12,228 21,053
----------- ----------- ----------- -----------
Income before extraordinary item....... 7,903 22,261 $ 12,337 $ 24,714
========== ==========
Extraordinary loss on debt
extinguishment....................... -- 2,256
----------- -----------
Net income............................. $ 7,903 $ 20,005
========== ==========
Income per share before extraordinary
item................................. $ 0.33 $ 0.78 $ 0.38 $ 0.76
========== ========== ========== ==========
Net income per share................... $ 0.33 $ 0.70
========== ==========
Weighted average shares outstanding.... 24,233,868 28,710,441 32,159,334 32,376,017
========== ========== ========== ==========
</TABLE>
- ---------------
(1) During the nine months ended September 30, 1996, the Company waived royalty
income for the first quarter of 1996 (approximately $1,161) attributable to
the license and sublicense of the Bill Blass and Rio labels and the
distribution agreement for childrens apparel in the United States under the
Calvin Klein Jeans label.
(2) For comparative presentation purposes the pro forma net revenues for the
nine months ended September 30, 1995 have been adjusted to exclude royalty
income for the first quarter of 1995 of $1,233 attributable to the license
and sublicense of the Bill Blass and Rio labels and the distribution
agreement for childrens apparel in the United States under the Calvin Klein
Jeans label, since such royalties were waived for the first quarter of 1996.
7
<PAGE> 9
THE OFFERING
The Issuer................. Designer Finance Trust (the "Trust"), a Delaware
statutory business
trust. The assets of the Trust will consist solely
of the Convertible Debentures of the Company.
Securities Offered......... 2,000,000 % Convertible Trust Originated
Preferred Securities(SM) (the "Preferred
Securities"). The Trust and the Company have
granted the Underwriters an option for 30 days to
purchase up to an additional 300,000 Preferred
Securities at the public offering price solely to
cover over-allotments, if any.
Distributions.............. Distributions on the Preferred Securities will
accrue from the date of original issuance of the
Preferred Securities and will be payable at the
annual rate of % of the liquidation amount of $50
per Preferred Security. Subject to the extension of
distribution payment periods described below,
distributions will be payable quarterly in arrears
on each March 31, June 30, September 30 and
December 31, commencing December 31, 1996. Because
distributions on the Preferred Securities
constitute interest for federal income tax
purposes, corporate holders thereof will not be
entitled to a dividends-received deduction.
Option to Extend
Distribution Payment
Periods.................. The ability of the Trust to pay distributions on
the Preferred Securities is solely dependent on its
receipt of interest payments from the Company on
the Convertible Debentures. The Company has the
right to defer interest payments from time to time
on the Convertible Debentures for successive
periods not exceeding 20 consecutive quarters for
each such Extension Period during which no interest
shall be due and payable; provided, that no such
Extension Period may extend beyond the maturity
date of the Convertible Debentures. As a
consequence of any such extension, quarterly
distributions on the Preferred Securities will be
deferred by the Trust (but will continue to accrue,
compounded quarterly at the distribution rate)
during any such Extension Period. The Company will
give written notice of its extension of an interest
payment to the Trust and the Company shall cause
the Trust to give such notice to the holders of the
Preferred Securities. See "Risk Factors -- Option
to Extend Interest Payment Periods," "Description
of the Preferred Securities -- Distributions" and
"Description of the Convertible
Debentures -- Option to Extend Interest Payment
Periods." If an extension of an interest payment
period occurs, the holders of the Preferred
Securities will continue to accrue income for
federal income tax purposes in advance of any
corresponding cash distribution. See "Risk
Factors -- Option to Extend Interest Payment
Periods," "Description of Preferred
Securities -- Conversion Rights," "-- Mandatory
Redemption" and "United States Federal Income
Taxation -- Original Issue Discount."
Rights Upon Extension of
Distribution Payment
Periods.................. During any Extension Period, interest on the
Convertible Debentures will compound quarterly and
quarterly distributions (compounded quarterly at
the distribution rate) will accrue on the Preferred
Securities, and the Company has agreed, among other
things, (a) not to declare or pay dividends on, or
make a distribution with respect to, or redeem,
purchase or acquire, or make a liquidation payment
with respect to, any of its
8
<PAGE> 10
capital stock (other than (i) purchases or
acquisitions of shares of Common Stock in
connection with the satisfaction by the Company of
its obligations under any employee benefit plans or
the satisfaction by the Company of its obligations
pursuant to any contract or security requiring the
Company to purchase shares of Common Stock, (ii) as
a result of a reclassification of the Company's
capital stock or the exchange or conversion of one
class or series of the Company's capital stock for
another class or series of the Company's capital
stock or (iii) the purchase of fractional interests
in shares of the Company's capital stock pursuant
to the conversion or exchange provisions of such
capital stock or the security being converted or
exchanged (or make any guarantee payments with
respect to the foregoing)), (b) not to make any
payment of interest, principal or premium, if any,
on or repay, repurchase or redeem any debt
securities (including guarantees) issued by the
Company that rank pari passu with or junior to the
Convertible Debentures and (c) not to make any
guarantee payments with respect to the foregoing
(other than pursuant to the Guarantee). See
"Description of the Guarantee -- Certain Covenants
of the Company" and "Description of the Convertible
Debentures -- Option to Extend Interest Payment
Periods."
Conversion into Common
Stock.................... Each Preferred Security is convertible at the
option of the holder into shares of Common Stock,
at the rate of shares of Common Stock for each
Preferred Security (equivalent to a conversion
price of $ per share of Common Stock),
subject to adjustment in certain circumstances. The
last reported sale price of the Common Stock on the
NYSE Composite Tape on October 21, 1996 was $20 3/8
per share. In connection with any conversion of a
Preferred Security, the Conversion Agent (as
defined herein) will exchange such Preferred
Security for the appropriate principal amount of
Convertible Debentures held by the Trust and
immediately convert such Convertible Debentures
into shares of Common Stock. No fractional shares
of Common Stock will be issued as a result of
conversion, but in lieu thereof such fractional
interest will be paid by the Company in cash. See
"Description of the Preferred
Securities -- Conversion Rights." In addition, no
additional shares of Common Stock will be issued
upon conversion of the Preferred Securities to
account for any accrued and unpaid distributions on
the Preferred Securities at the time of conversion,
provided, however, that any holder of Preferred
Securities who delivers such Preferred Securities
for conversion after receiving a notice of
redemption from the Property Trustee (as defined
herein) during an Extension Period will be entitled
to receive all accumulated and unpaid distributions
to the date of conversion. See "Description of the
Covertible Debentures -- Optional Redemption,"
"Description of Preferred Securities -- Conversion
Rights" and "-- Mandatory Redemption."
Liquidation Amount......... In the event of the liquidation of the Trust,
holders will be entitled to receive $50 per
Preferred Security plus an amount equal to any
accrued and unpaid distributions thereon to the
date of payment, unless Convertible Debentures are
distributed to such holders. See "Description of
the Preferred Securities -- Liquidation
Distribution Upon Dissolution."
9
<PAGE> 11
Redemption................. The Convertible Debentures will be redeemable for
cash, at the option of the Company, in whole or in
part, from time to time, after , 1999, at
the redemption prices specified herein. Upon any
redemption of the Convertible Debentures, Trust
Securities having an aggregate liquidation amount
equal to the aggregate principal amount of the
Convertible Debentures so redeemed will be redeemed
on a pro rata basis at a redemption price
corresponding to the redemption price of the
Convertible Debentures plus accrued and unpaid
distributions thereon (the "Redemption Price"). The
Preferred Securities will not have a stated
maturity date, although they will be subject to
mandatory redemption upon the repayment of the
Convertible Debentures at their stated maturity
( , 2016), upon acceleration, earlier
redemption or otherwise. See "Description of the
Preferred Securities -- Mandatory Redemption."
Guarantee.................. The Company will irrevocably guarantee, on a
subordinated basis and to the extent set forth
herein, the payment in full of (i) any accrued and
unpaid distributions on the Preferred Securities to
the extent of funds of the Trust available
therefor, (ii) the amount payable upon redemption
of the Preferred Securities to the extent of funds
of the Trust available therefor and (iii)
generally, the liquidation amount of the Preferred
Securities to the extent of the assets of the Trust
available for distribution to holders of Preferred
Securities. The Guarantee will be unsecured and
will be (i) subordinate and junior in right of
payment to all other liabilities of the Company
except any liabilities that may be made pari passu
expressly by their terms, (ii) pari passu with the
most senior preferred stock, if any, issued from
time to time by the Company and with any guarantee
now or hereafter entered into by the Company in
respect of any preferred or preference stock or
preferred securities of any affiliate of the
Company and (iii) senior to the Common Stock. Upon
the liquidation, dissolution or winding up of the
Company, its obligations under the Guarantee will
rank junior to all of its other liabilities, except
as aforesaid, and, as a result, funds may not be
available for payment under the Guarantee. See
"Risk Factors -- Ranking of Subordinate Obligations
Under the Guarantee and Convertible Debentures" and
"Description of the Guarantee."
Voting Rights.............. Generally, holders of the Preferred Securities will
have limited voting rights. See "Description of the
Preferred Securities -- Voting Rights."
Tax Event or Investment
Company Event Redemption
or Distribution.......... Upon the occurrence of a Tax Event or an Investment
Company Event (each as defined herein), except in
certain limited circumstances, the Company will
cause the Issuer Trustees (as defined herein) to
liquidate the Trust and cause Convertible
Debentures to be distributed to the holders of the
Preferred Securities. In certain circumstances
involving a Tax Event, the Company will have the
right to redeem the Convertible Debentures, in
whole (but not in part), at 100% of the principal
amount plus accrued and unpaid interest, in lieu of
a distribution of the Convertible Debentures, in
which event the Trust Securities will be redeemed
at the Redemption Price. See "Description of the
Preferred Securities -- Special Event Redemption or
Distribution."
10
<PAGE> 12
Convertible Debentures..... The Convertible Debentures will mature on
, 2016 and will bear interest at the
rate of % per annum, payable quarterly in
arrears. The Convertible Debentures will have
provisions with respect to interest, redemption,
conversion into the Common Stock and certain other
terms substantially similar or analogous to those
of the Preferred Securities. Interest payment
periods may be extended from time to time by the
Company for successive periods not exceeding 20
consecutive quarters for each such period (during
which interest will continue to accrue and compound
quarterly). Prior to the termination of any
Extension Period, the Company may further extend
such Extension Period; provided, that such
Extension Period may not exceed 20 consecutive
quarters and may not extend beyond the maturity
date of the Convertible Debentures. Upon the
termination of any Extension Period and the payment
of all amounts then due, the Company may commence a
new Extension Period, subject to the preceding
sentence. No interest shall be due and payable
during an Extension Period. During an Extension
Period, the Company has agreed, among other things,
(a) not to declare or pay dividends on, or make a
distribution with respect to, or redeem or purchase
or acquire, or make a liquidation payment with
respect to, any of its capital stock (other than
(i) purchases or acquisitions of shares of Common
Stock in connection with the satisfaction by the
Company of its obligations under any employee
benefit plans or the satisfaction by the Company of
its obligations pursuant to any contract or
security requiring the Company to purchase shares
of Common Stock, (ii) as a result of a
reclassification of the Company's capital stock or
the exchange or conversion of one class or series
of the Company's capital stock for another class or
series of the Company's capital stock or (iii) the
purchase of fractional interests in shares of the
Company's capital stock pursuant to the conversion
or exchange provisions of such capital stock or the
security being converted or exchanged (or make any
guarantee payments with respect to the foregoing)),
(b) not to make any payment of interest, principal
or premium, if any, on or repay, repurchase or
redeem any debt securities (including guarantees)
issued by the Company that rank pari passu with or
junior to the Convertible Debentures and (c) not to
make any guarantee payments with respect to the
foregoing (other than pursuant to the Guarantee).
The Convertible Debentures will be subordinate to
all Senior Indebtedness (as defined herein) of the
Company.
Holding Company
Structure.................. The Company's operations are conducted through its
subsidiaries. Therefore, all indebtedness of the
subsidiaries, including trade payables, are
effectively senior to the Convertible Debentures
and the Guarantee. In addition, because the Company
is a holding company, the ability of the Company to
pay interest and principal on the Convertible
Debentures, and therefore, for the Trust to pay its
obligations on the Preferred Securities, will be
dependent on the subsidiaries' ability to pay
dividends to the Company. As of June 30, 1996, the
subsidiaries had approximately $109.5 million of
liabilities outstanding that is effectively senior
to the Convertible Debentures. See "Risk
Factors -- Holding Company Structure, Subordination
and Restrictive Covenants," "-- Ranking of
Subordinate Obligations Under the Guarantee and
Convertible Debentures," "Capitalization" and
"Description of the Convertible Debentures."
11
<PAGE> 13
Form of Preferred
Securities................. The Preferred Securities will be represented by a
global certificate or certificates registered in
the name of Cede & Co., as nominee for the
Depository Trust Company ("DTC"). Beneficial
interests in the Preferred Securities will be
evidenced by, and transfers thereof will be
effected only through, records maintained by the
participants in DTC. Except under the limited
circumstances described herein, Preferred
Securities in certificated form will not be issued
in exchange for the global certificate or
certificates. See "Description of the Preferred
Securities -- Book-Entry Only Issuance -- The
Depository Trust Company."
Use of Proceeds............ All of the proceeds from the sale of the Preferred
Securities will be invested by the Trust in the
Convertible Debentures. The Company intends to
apply the net proceeds from the Convertible
Debentures to repay term and revolving credit
indebtedness. The Company expects to borrow
additional funds under its revolving credit
facility to fund the costs of obtaining the DKNY
Jeans License and developing the DKNY Jeans Label
business and for working capital and other general
corporate purposes. See "Use of Proceeds" and
"Business -- DKNY Jeans License."
12
<PAGE> 14
SUMMARY HISTORICAL FINANCIAL INFORMATION
<TABLE>
<CAPTION>
PREDECESSOR COMPANIES THE COMPANY
(COMBINED)(1) (CONSOLIDATED)
-------------------------------------------- --------------------------------------------------
EIGHT MONTHS FOUR MONTHS SIX MONTHS ENDED
YEAR ENDED DECEMBER 31, ENDED ENDED YEAR ENDED JUNE 30,
------------------------------ AUGUST 25, DECEMBER DECEMBER 31, -----------------------
1991 1992 1993 1994 31, 1994(2) 1995 1995 1996
-------- -------- -------- ------------ ----------- ------------ ---------- ----------
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <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 $ 174,491 $ 219,603
Cost of goods sold........ 100,312 119,195 146,620 81,143 75,246 323,638 123,517 136,521
-------- -------- -------- ------- -------- -------- -------- --------
Gross profit.............. 22,328 25,845 26,941 12,826 26,792 138,484 50,974 83,082
Selling, general and
administrative
expenses................ 13,897 19,686 23,323 12,318 20,079 100,391 36,814 55,085
-------- -------- -------- ------- -------- -------- -------- --------
Operating income.......... 8,431 6,159 3,618 508 6,713 38,093 14,160 27,997
Interest expense.......... 1,445 1,339 1,808 1,142 2,557 16,160 5,689 7,635
-------- -------- -------- ------- -------- -------- -------- --------
Income (loss) before
income taxes............ 6,986 4,820 1,810 (634) 4,156 21,933 8,471 20,362
Provision (benefit) for
income taxes............ 1,869 1,189 (331) (399) 2,239 10,870 4,500 9,367
-------- -------- -------- ------- -------- -------- -------- --------
Income (loss) before
extraordinary item...... 5,117 3,631 2,141 (235) 1,917 11,063 3,971 10,995
Extraordinary loss on debt
extinguishment.......... -- -- -- -- -- -- -- 2,256
-------- -------- -------- ------- -------- -------- -------- --------
Net income (loss)......... $ 5,117 $ 3,631 $ 2,141 $ (235) $ 1,917 $ 11,063 $ 3,971 $ 8,739
======== ======== ======== ======= ======== ======== ======== ========
PER SHARE DATA:
Income per share before
extraordinary item...... $ 0.08 $ 0.46 0.16 $ 0.41
Net income per share...... $ 0.08 $ 0.46 $ 0.16 $ 0.33
Weighted average shares
outstanding............. 24,233,868 24,233,868 24,233,868 26,827,051
Ratio of earnings to fixed
charges(3).............. 5.25x 3.82x 1.82x -- 2.57 x 2.31x 2.44x 3.34x
</TABLE>
<TABLE>
<CAPTION>
AS OF JUNE 30, 1996
-----------------------------
ACTUAL AS ADJUSTED(4)
---------- ----------------
(DOLLARS IN THOUSANDS)
<S> <C> <C>
BALANCE SHEET DATA:
Working capital.............................................................................. $104,832 $163,069
Total assets................................................................................. 278,982 369,672
Total current indebtedness................................................................... 48,297 23,013
Term loan, less current portion.............................................................. 8,750 --
Contract obligation, less current portion.................................................... -- 24,724
Company-Obligated Mandatorily Redeemable Convertible
Preferred Securities of Designer Finance
Trust Holding Solely Convertible Debentures................................................ -- 100,000
Stockholders' equity......................................................................... 169,475 169,475
</TABLE>
- ---------------------
(1) The Predecessor Companies consisted of five separate entities commonly
controlled and managed by Mr. Arnold Simon, the President and Chief
Executive Officer of the Company, and Mr. Stephen Huang, a former business
associate of Mr. Simon. See note 1 to the audited combined financial
statements of the Predecessor Companies included elsewhere in this
Prospectus.
(2) 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.
(3) For the purpose of computing the ratio of earnings to fixed charges,
earnings consist of income before income taxes and fixed charges, and fixed
charges consist of interest, expensed or capitalized, amortization of debt
discount and expense and that portion (one-third) of rental expense that the
Company believes is representative of interest. There was a deficiency of
earnings to fixed charges of $634 for the eight months ended August 25,
1994. Had the closing of the offering of Preferred Securities made hereby
occurred on January 1, 1995, the pro forma ratio of earnings to fixed
charges for the year ended December 31, 1995 and the six months ended June
30, 1995 and 1996 would have been 3.06x, 3.07x and 4.19x, respectively.
(4) As adjusted for (i) the sale of 2,000,000 Preferred Securities, the
application of the proceeds to the purchase of the Convertible Debentures
and the application by the Company of the estimated net proceeds of the
Convertible Debentures for the purposes set forth under "Use of Proceeds"
and (ii) obtaining the DKNY Jeans License and incurrence of the associated
contract obligation thereunder.
13
<PAGE> 15
SUMMARY UNAUDITED PRO FORMA AND ADJUSTED PRO FORMA FINANCIAL INFORMATION
The unaudited pro forma and adjusted pro forma statement of operations data
has been adjusted to reflect (i) the agreements by the Company, which became
effective as of January 1, 1996, to grant to Commerce Clothing 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 in April 1996 and the related issuance to
CKI of 1,275,466 shares of non-voting common stock of the Company and (iii) the
closing of the IPO on May 15, 1996 and application of the net proceeds to the
Company therefrom as described herein, as if such transactions occurred as of
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 unaudited pro forma and adjusted pro forma financial information
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 such
agreements, amendments and the IPO been consummated on such dates. The following
summary unaudited pro forma and adjusted pro forma financial information should
be read in conjunction with "Capitalization," "Unaudited Pro Forma and Adjusted
Pro Forma Financial Information," "Management's Discussion and Analysis of
Financial Condition and Results of Operations" and the consolidated and
condensed consolidated financial statements of the Company and related notes
thereto included elsewhere in this Prospectus.
<TABLE>
<CAPTION>
SIX MONTHS ENDED
JUNE 30,
---------------------------
PRO FORMA ADJUSTED
YEAR ENDED PRO FORMA PRO FORMA
DECEMBER 31, 1995 1995 1996
----------------- ---------- ----------
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Net revenues................................... $ 349,669 $ 122,501(2) $ 219,603(1)
Cost of goods sold............................. 217,960 77,239 136,521
----------- ----------- -----------
Gross profit................................... 131,709 45,262 83,082
Selling, general and administrative expenses... 88,689 31,876 55,272
----------- ----------- -----------
Operating income............................... 43,020 13,386 27,810
Interest expense............................... 3,738 266 2,905
----------- ----------- -----------
Income before income taxes..................... 39,282 13,120 24,905
Provision for income taxes..................... 18,677 6,592 11,457
----------- ----------- -----------
Income before extraordinary item............... $ 20,605 $ 6,528 $ 13,448
=========== =========== ===========
Income per share before extraordinary item..... $ 0.64 $ 0.20 $ 0.42
Weighted average shares outstanding............ 32,159,334 32,159,334 32,325,414
</TABLE>
- ---------------------
(1) During the six months ended June 30, 1996, the Company waived royalty income
for the first quarter of 1996 (approximately $1,161) attributable to the
license and sublicense of the Bill Blass and Rio labels and the distribution
agreement for childrens apparel in the United States under the Calvin Klein
Jeans label.
(2) For comparative presentation purposes, the pro forma net revenues for the
six months ended June 30, 1995 have been adjusted to exclude royalty income
for the first quarter of 1995 of $1,233 attributable to the license and
sublicense of the Bill Blass and Rio labels and the distribution agreement
for childrens apparel in the United States under the Calvin Klein Jeans
label, since such royalties were waived for the first quarter of 1996.
14
<PAGE> 16
RISK FACTORS
Prospective purchasers of the Preferred Securities 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 Preferred
Securities.
SUBSTANTIAL COMPETITION; CHANGING CONSUMER PREFERENCES
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 images projected by Calvin Klein and, in the future, Donna
Karan. Failure by the Company to identify and respond appropriately to changing
consumer demands and fashion trends or a decline in consumer demand for
designer-labeled products could adversely affect consumer acceptance of its
products and may have an adverse effect on the Company's business, financial
condition and results of operations. The Company believes that the DKNY Jeans
License recently entered into will permit it to diversify its products because
the DKNY Jeans Label products are expected to appeal to different target
consumers than those who typically purchase Calvin Klein Jeans Label products.
However, it is possible that the DKNY Jeans Label products and the Calvin Klein
Jeans Label products could compete with each other and limit the overall growth
of net revenues of the Company.
DEPENDENCE ON LICENSES
The Company's recent growth has depended upon the sale of Calvin Klein
Jeans Label products under the CKJ License. The Company's future growth will
depend upon continuing sales of Calvin Klein Jeans Label products as well as the
successful launch of DKNY Jeans Label products under the new DKNY Jeans License.
Each of the CKJ License and the DKNY Jeans License contain provisions that,
under certain circumstances, could permit the respective licensor to terminate
its license. Such provisions include, among other things, (i) a default in the
payment of certain amounts payable under the applicable license that continues
beyond the specified grace period and (ii) the failure to comply with the
covenants contained in the applicable 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 each of the applicable
licenses, the respective licensor has retained the right to produce, distribute,
advertise and sell, and to authorize others to produce, distribute, advertise
and sell, certain garments (in the case of CKI, 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 such
licensor 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" and
"-- DKNY Jeans 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 and $218.3 million in the six
months ended June 30, 1996. No assurance can be given that the rate of growth of
net sales will not decline or that the Company will be successful in increasing
net sales in the future. In addition, the Company only recently entered into the
DKNY Jeans License. The Company has not yet implemented its strategic business
plan for this transaction, and there can be no assurance that the Company will
be able to execute its business plan or that such plan will lead to increased
net revenues. Furthermore, the Company expects to incur approximately $15
million to begin merchandising, marketing and advertising the DKNY Jeans Label
products, a substantial portion of which is expected to be incurred in advance
of the receipt of any sales revenues. These advance payments will
15
<PAGE> 17
adversely affect the results of operations of the Company for the periods in
which the costs are incurred. See "Use of Proceeds" and "Business -- DKNY Jeans
License."
In order to manage anticipated levels of demand for its products including
the successful implementation of operations of the DKNY Jeans License, 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. In particular, the Company will need to
develop a management team for the merchandising, marketing and other operations
of the DKNY Jeans License. As sales increased significantly since January 1,
1995, the Company experienced difficulties in meeting the increased demands on
its distribution systems. The Company 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 in demand for the Company's products. 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 difficulties encountered during expansion, could adversely affect the
Company's business, financial condition and results of operations. The Company
could also experience some delays in connection with the introduction of new
products, as such products, including DKNY Jeans Label products, are integrated
into the Company's operations.
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. Arnold Simon, President and Chief
Executive Officer of the Company. Mr. Simon's employment agreement with the
Company expires December 31, 1998. See "Management -- Employment Agreements."
Mr. Simon, through his ownership interest in the Principal Stockholder, is also
the beneficial owner of a substantial portion of the Common Stock of the
Company. See "Principal 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"). 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 of 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 52% of the Company's finished goods purchased during the six
months ended June 30, 1996. 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
16
<PAGE> 18
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.
The Company expects to enter into arrangements with both the principal
manufacturers named above and additional manufacturers for the manufacture of
DKNY Jeans Label products. The Company has not yet identified these new
manufacturers; however, it does not anticipate any significant problems in
identifying such manufacturers. The failure to enter into satisfactory
manufacturing arrangements or the failure of the manufacturers to deliver
quality products in a timely manner could have an adverse effect on the
introduction of the DKNY Jeans Label products as well as on the business,
financial condition and result of operations of the Company.
During 1995 and the six months ended June 30, 1996, the Company imported
approximately 20% and 17.5%, respectively, 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) in each such period.
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 PRINCIPAL STOCKHOLDER
The Principal Stockholder currently owns of record approximately 52% of the
Common Stock of the Company. The Principal Stockholder is a limited liability
company and its operative agreement allows the holders of ownership interests
therein generally to cause the Principal Stockholder to exercise 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 Principal
Stockholder, Charterhouse and Mr. Simon are deemed to own beneficially
approximately 25.0% and 26.1%, respectively, of the outstanding shares of Common
Stock. See "Principal Stockholders." Upon conversion of the Convertible
Debentures, the Principal Stockholder would own of record % and Charterhouse
and Mr. Simon would own beneficially approximately % and %, respectively, of
the outstanding Common Stock of the Company. The Principal Stockholder acting
alone, and Charterhouse and Mr. Simon, acting through the Principal Stockholder,
are 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. 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.
RANKING OF SUBORDINATE OBLIGATIONS UNDER THE GUARANTEE AND CONVERTIBLE
DEBENTURES
The Company's obligations under the Guarantee are subordinate and junior in
right of payment to all liabilities of the Company and pari passu with the most
senior preferred stock issued, from time to time, if any, by the Company. The
obligations of the Company under the Convertible Debentures are subordinate and
junior in right of payment to all present and future Senior Indebtedness of the
Company and pari passu with
17
<PAGE> 19
obligations to or rights of the Company's other general unsecured creditors. No
payment of principal of (including redemption payments, if any), premium, if
any, or interest on the Convertible Debentures may be made if (i) any Senior
Indebtedness of the Company is not paid when due and any applicable grace period
with respect to such default has ended with such default not having been cured
or waived or ceasing to exist, or (ii) the maturity of any Senior Indebtedness
has been accelerated because of a default. As of June 30, 1996, Senior
Indebtedness aggregated approximately $57.1 million. In addition, because the
Company's operations are conducted through its subsidiaries and the subsidiaries
have not guaranteed the payment of principal of and interest on the Convertible
Debentures, all liabilities of the subsidiaries, including trade payables, are
effectively senior to the Convertible Debentures and the Guarantee. As of June
30, 1996, the subsidiaries had indebtedness and other liabilities of
approximately $109.5 million (including the $57.1 million referred to above)
outstanding. There are no terms in the Preferred Securities, the Convertible
Debentures or the Guarantee that limit the Company's or any subsidiary's ability
to incur additional indebtedness, including indebtedness that ranks senior to
the Convertible Debentures and the Guarantee. See "Description of the
Guarantee -- Status of the Guarantee; Subordination" and "Description of the
Convertible Debentures."
HOLDING COMPANY STRUCTURE, SUBORDINATION AND RESTRICTIVE COVENANTS
The ability of the Trust to pay amounts due on the Preferred Securities is
wholly dependent upon the Company making payments on the Convertible Debentures.
Since the Company is a holding company whose operations are conducted through
its subsidiaries, the ability of the Company to pay interest and principal on
the Convertible Debentures, and, therefore, for the Trust to make distributions
and other payments on the Preferred Securities, will be dependent on the
subsidiaries' ability to pay dividends to the Company. Because the subsidiaries
do not guarantee the payment of principal of and interest on the Convertible
Debentures, claims of holders of the Preferred Securities effectively will be
subordinate to the claims of creditors of the subsidiaries, including trade
creditors. See "-- Ranking of Subordinate Obligations Under the Guarantee and
Convertible Debentures."
The ability of the Company's subsidiaries to pay dividends, as well as
repay debt, is restricted by the provisions of the Credit Agreement (as defined
under "Use of Proceeds") and is dependent on the Company's financial and
operating performance, which, in turn, is subject to prevailing economic
conditions and to financial, business and other factors beyond its control.
There can be no assurance that financial results that comply with the
restrictive covenants and financial tests in the Credit Agreement will be
achieved. The Company has amended the Credit Agreement to permit the payment of
regularly scheduled distributions on the Preferred Securities so long as there
is no event of default under the Credit Agreement. See "Use of Proceeds" and
"Description of Certain Indebtedness."
RIGHTS UNDER THE GUARANTEE
The Guarantee will be qualified as an indenture under the Trust Indenture
Act of 1939, as amended (the "Trust Indenture Act"). The Guarantee Trustee (as
defined herein) will act as indenture trustee under the Guarantee for the
purposes of compliance with the provisions of the Trust Indenture Act. The
Guarantee Trustee will hold the Guarantee for the benefit of the holders of the
Preferred Securities.
The Guarantee guarantees to the holders of the Preferred Securities the
payment of (i) any accrued and unpaid distributions that are required to be paid
on the Preferred Securities, to the extent the Trust has funds available
therefor, (ii) the Redemption Price, including all accrued and unpaid
distributions with respect to Preferred Securities called for redemption by the
Trust, to the extent the Trust has funds available therefor, and (iii) upon a
voluntary or involuntary dissolution, winding-up or termination of the Trust
(other than in connection with the distribution of Convertible Debentures to the
holders of Preferred Securities or a redemption of all the Preferred
Securities), the lesser of (a) the aggregate of the liquidation amount and all
accrued and unpaid distributions on the Preferred Securities to the date of the
payment, to the extent the Trust has funds available therefor, or (b) the amount
of assets of the Trust remaining available for distribution to holders of the
Preferred Securities in liquidation of the Trust. The holders of a majority in
liquidation amount of the Preferred Securities have the right to direct the
time, method and place of conducting any proceeding for any remedy available to
the Guarantee Trustee or to direct the exercise of any trust or power conferred
upon the Guarantee Trustee under the Guarantee. Notwithstanding the foregoing,
if the Company
18
<PAGE> 20
has failed to make a payment under the Guarantee, any holder of Preferred
Securities may directly institute a legal proceeding against the Company to
enforce its rights under the Guarantee without first instituting a legal
proceeding against the Trust, the Guarantee Trustee or any other person or
entity. If the Company were to default on its obligation to pay amounts payable
on the Convertible Debentures, the Trust would lack available funds for the
payment of distributions or amounts payable on redemption of the Preferred
Securities or otherwise, and, in such event, holders of the Preferred Securities
would not be able to rely upon the Guarantee for payment of such amounts.
Instead, holders of the Preferred Securities would rely on the enforcement by
(i) the Property Trustee of its rights as registered holder of the Convertible
Debentures against the Company pursuant to the terms of the Convertible
Debentures or (ii) such holder of its right against the Company under certain
circumstances to enforce payments on the Convertible Debentures. See
"-- Enforcement of Certain Rights by Holders of Preferred Securities,"
"Description of the Guarantee" and "Description of the Convertible Debentures."
The Declaration provides that each holder of Preferred Securities, by acceptance
thereof, agrees to the provisions of the Guarantee, including the subordination
provisions thereof, and the Indenture.
ENFORCEMENT OF CERTAIN RIGHTS BY HOLDERS OF PREFERRED SECURITIES
If a Declaration Event of Default (as defined herein) occurs and is
continuing, then the holders of Preferred Securities would rely on the
enforcement by the Property Trustee of its rights as a holder of the Convertible
Debentures against the Company. In addition, the holders of a majority in
liquidation amount of the Preferred Securities will have the right to direct the
time, method and place of conducting any proceeding for any remedy available to
the Property Trustee or to direct the exercise of any trust or power conferred
upon the Property Trustee under the Declaration, including the right to direct
the Property Trustee to exercise the remedies available to it as a holder of the
Convertible Debentures. If the Property Trustee fails to enforce its rights
under the Convertible Debentures, any holder of Preferred Securities may
directly institute a legal proceeding against the Company to enforce the
Property Trustee's rights under the Convertible Debentures without first
instituting any legal proceeding against the Property Trustee or any other
person or entity. Notwithstanding the foregoing, if a Declaration Event of
Default has occurred and is continuing and such event is attributable to the
failure of the Company to pay interest or principal on the Convertible
Debentures on the date such interest or principal is otherwise payable (or in
the case of redemption, on the redemption date), then a holder of Preferred
Securities may directly institute a proceeding for enforcement of payment to
such holder of the principal of or interest on the Convertible Debentures having
a principal amount equal to the aggregate liquidation amount of the Preferred
Securities of such holder (a "Direct Action") on or after the respective due
date specified in the Convertible Debentures. In connection with such Direct
Action, the Company will be subrogated to the rights of such holder of Preferred
Securities under the Declaration to the extent of any payment made by the
Company to such holder of Preferred Securities in such Direct Action. The
holders of Preferred Securities will not be able to exercise directly any other
remedy available to the holders of the Convertible Debentures. The Indenture
provides that the Indenture Trustee (as defined herein) shall give holders of
the Convertible Debentures notice of all uncured defaults or events of default
within 30 days after occurrence. However, except in the case of a default or an
event of default in payment on the Convertible Debentures, the Indenture Trustee
(as defined herein) is protected in withholding such notice if its officers or
directors in good faith determine that withholding of such notice is in the
interest of the holders.
OPTION TO EXTEND INTEREST PAYMENT PERIODS
The Company has the right under the Indenture to defer payments of interest
on the Convertible Debentures by extending the interest payment period at any
time, and from time to time, on the Convertible Debentures. In addition, the
lenders under the Credit Agreement have the right to require the Company to
elect an Extension Period upon the occurrence of an event of default under the
Credit Agreement, whether or not the lenders have caused the indebtedness
thereunder to be accelerated. As a consequence of such an extension, quarterly
distributions on the Preferred Securities would be deferred (but despite such
deferral would continue to accrue interest thereon, compounded quarterly) by the
Trust during any such extended interest payment period. Such right to extend the
interest payment period for the Convertible Debentures is limited to a period
not exceeding 20 consecutive quarters, during which no interest shall be due and
payable, provided, that no such Extension Period may extend beyond the maturity
date of the Convertible Debentures.
19
<PAGE> 21
In the event that the Company exercises this right to defer interest payments,
the Company has agreed, among other things, (a) not to declare or pay dividends
on, or make a distribution with respect to, or redeem or purchase or acquire, or
make a liquidation payment with respect to, any of its capital stock (other than
(i) purchases or acquisitions of shares of Common Stock in connection with the
satisfaction by the Company of its obligations under any employee benefit plans
or the satisfaction by the Company of its obligations pursuant to any contract
or security requiring the Company to purchase shares of Common Stock, (ii) as a
result of a reclassification of the Company's capital stock or the exchange or
conversion of one class or series of the Company's capital stock for another
class or series of the Company's capital stock or (iii) the purchase of
fractional interests in shares of the Company's capital stock pursuant to the
conversion or exchange provisions of such capital stock or the security being
converted or exchanged (or make any guarantee payments with respect to the
foregoing)), (b) not to make any payment of interest, principal or premium, if
any, on or repay, repurchase or redeem any debt securities (including
guarantees) issued by the Company that rank pari passu with or junior to the
Convertible Debentures and (c) not to make any guarantee payments with respect
to the foregoing (other than pursuant to the Guarantee). Prior to the
termination of any such extension period, the Company may further extend the
interest payment period; provided, that such Extension Period, together with all
such previous and further extensions thereof, may not exceed 20 consecutive
quarters or extend beyond the maturity date of the Convertible Debenture. Upon
the termination of any Extension Period and the payment of all amounts then due,
the Company may commence a new Extension Period, subject to the above
requirements. See "Description of the Preferred Securities -- Distributions" and
"Description of the Convertible Debentures -- Option to Extend Interest Payment
Periods."
Should the Company exercise its right to defer payments of interest by
extending the interest payment period, each holder of Preferred Securities will
continue to accrue income (as original issue discount ("OID")) in respect of the
deferred interest allocable to its Preferred Securities for federal income tax
purposes, which will be allocated but not distributed, to holders of record of
Preferred Securities. As a result, each such holder of Preferred Securities will
recognize income for federal income tax purposes in advance of the receipt of
cash and will not receive the cash from the Trust related to such income if such
holder disposes of its Preferred Securities prior to the record date for the
date on which distributions of such amounts are made. The Company has no current
intention of exercising its right to defer payments of interest by extending the
interest payment period on the Convertible Debentures. However, should the
Company determine to exercise such right in the future, the market price of the
Preferred Securities is likely to be affected. A holder that disposes of its
Preferred Securities during an Extension Period, therefore, might not receive
the same return on its investment as a holder that continues to hold its
Preferred Securities. In addition, as a result of the existence of the Company's
right to defer interest payments, the market price of the Preferred Securities
(which represent an undivided beneficial interest in the Convertible Debentures)
may be more volatile than other securities on which OID accrues that do not have
such rights. See "United States Federal Income Taxation -- Original Issue
Discount."
SPECIAL EVENT REDEMPTION OR DISTRIBUTION
Upon the occurrence of a Special Event (as defined herein), the Trust shall
be dissolved, except in the limited circumstance described below, with the
result that the Convertible Debentures would be distributed to the holders of
the Trust Securities in connection with the liquidation of the Trust. In the
case of a Special Event that is a Tax Event, in certain circumstances, the
Company shall have the right to redeem the Convertible Debentures, in whole or
in part, in lieu of a distribution of the Convertible Debentures by the Trust,
in which event the Trust will redeem the Trust Securities on a pro rata basis to
the same extent as the Convertible Debentures are redeemed by the Company. See
"Description of the Preferred Securities -- Special Event Redemption or
Distribution."
Under current federal income tax law, a distribution of Convertible
Debentures upon the dissolution of the Trust would not be a taxable event to
holders of the Preferred Securities. Upon occurrence of a Special Event,
however, a dissolution of the Trust in which holders of the Preferred Securities
receive cash would be a taxable event to such holders. See "United States
Federal Income Taxation -- Receipt of Convertible Debentures or Cash Upon
Liquidation of the Trust."
20
<PAGE> 22
There can be no assurance as to the market prices for the Preferred
Securities or the Convertible Debentures that may be distributed in exchange for
Preferred Securities if a dissolution or liquidation of the Trust were to occur.
Accordingly, the Preferred Securities that an investor may purchase, whether
pursuant to the offer made hereby or in the secondary market, or the Convertible
Debentures that a holder of Preferred Securities may receive on dissolution and
liquidation of the Trust, may trade at a discount to the price that the investor
paid to purchase the Preferred Securities offered hereby. Because holders of
Preferred Securities may receive Convertible Debentures upon the occurrence of a
Special Event, prospective purchasers of Preferred Securities are also making an
investment decision with regard to the Convertible Debentures and should
carefully review all the information regarding the Convertible Debentures
contained in this Prospectus. See "Description of the Preferred
Securities -- Special Event Redemption or Distribution."
PROPOSED TAX LEGISLATION
On March 19, 1996, the U.S. Treasury Department proposed certain tax law
changes (the "Proposed Legislation") that would, among other things, generally
deny corporate issuers a deduction for interest in respect of certain debt
obligations, with a maximum term of more than 20 years, that are not shown as
indebtedness on the consolidated balance sheet of the issuer. On March 29, 1996,
Senate Finance Committee Chairman William V. Roth, Jr. and House Ways and Means
Committee Chairman Bill Archer issued a joint statement (the "Joint Statement")
indicating their intent that the Proposed Legislation, if adopted by either of
the tax-writing committees of Congress, would have an effective date that is no
earlier than the date of "appropriate Congressional action." Based upon the
Joint Statement, it is expected that if the Proposed Legislation were to be
enacted, such legislation would not apply to the Convertible Debentures because
they will be issued prior to the date of any "appropriate Congressional action."
Furthermore, even if the Proposed Legislation were enacted in its current form
with effective date provisions making it applicable to the Convertible
Debentures, it would not affect the Company's ability to deduct the interest
payable on the Convertible Debentures because their maximum term will not exceed
20 years. There can be no assurance, however, that any proposed legislation
enacted after the date hereof will not otherwise adversely affect the ability of
the Company to deduct the interest payable on the Convertible Debentures.
Accordingly, there can be no assurance that a Tax Event will not occur. See
"Description of the Preferred Securities -- Special Event Redemption or
Distribution."
LIMITED VOTING RIGHTS
Holders of Preferred Securities will have limited voting rights and will
not be entitled to vote to appoint, remove or replace, or to increase or
decrease the number of, Issuer Trustees, which voting rights are vested
exclusively in the holder of the Common Securities. See "Description of the
Preferred Securities -- Voting Rights."
TRADING CHARACTERISTICS OF PREFERRED SECURITIES
The Preferred Securities may trade at a price that does not fully reflect
the value of accrued but unpaid interest with respect to the underlying
Convertible Debentures. In addition, as a result of the Company's right to defer
interest payments, the market price of the Preferred Securities (which represent
an undivided interest in the assets of the Trust) may be more volatile than
other similar securities where the issuer does not have such right to defer
interest payments. A holder who disposes of his Preferred Securities between
record dates for payments of distributions thereon will be required to include
accrued but unpaid interest on the Convertible Debentures through the date of
disposition in income as ordinary income (i.e., OID) and to add such amount to
his adjusted tax basis in his pro rata share of the underlying Convertible
Debentures deemed disposed of. To the extent the selling price is less than the
holder's adjusted tax basis (which will include, in the form of OID, all accrued
but unpaid interest), a holder will recognize a capital loss. Subject to certain
limited exceptions, capital losses cannot be applied to offset ordinary income
for federal income tax purposes. See "United States Federal Income
Taxation -- Original Issue Discount" and "-- Sales of Preferred Securities."
21
<PAGE> 23
DESIGNER FINANCE TRUST
Designer Finance Trust is a statutory business trust formed under the laws
of the State of Delaware pursuant to (i) a declaration of trust (as amended and
restated, the "Declaration") executed by the Company as sponsor of the Trust,
and the trustees of the Trust (the "Issuer Trustees"), and (ii) a certificate of
trust filed with the Secretary of State of the State of Delaware. The Company
will directly or indirectly acquire Common Securities in an aggregate
liquidation amount equal to 3% of the total capital of the Trust. The Common
Securities will rank pari passu, and payment will be made thereon pro rata, with
the Preferred Securities, except that, upon the occurrence and during the
continuance of an event of default under the Declaration, the rights of the
holders of the Common Securities to payment in respect of distributions and
payments upon liquidation, redemption and otherwise will be subordinated to the
rights of the holders of the Preferred Securities. The assets of the Trust will
consist solely of the Convertible Debentures. The Trust exists for the exclusive
purpose of (i) issuing the Trust Securities representing undivided beneficial
interests in the assets of the Trust, (ii) investing the gross proceeds of the
Trust Securities in the Convertible Debentures and (iii) engaging in only those
other activities necessary or incidental thereto.
Pursuant to the Declaration, the number of Issuer Trustees will initially
be four. Two of the Issuer Trustees (the "Regular Trustees") will be individuals
who are employees or officers of or who are affiliated with the Company. The
third trustee will be a financial institution that is unaffiliated with the
Company (the "Property Trustee"). The fourth trustee will be an entity that
maintains its principal place of business in the State of Delaware (the
"Delaware Trustee"). Initially, Merril M. Halpern, Chairman of the Board, and
Arnold H. Simon, Chief Executive Officer and President, will act as Regular
Trustees. Initially, IBJ Schroder Bank & Trust Company, a New York banking
association, will act as Property Trustee and Delaware Trust Capital Management,
Inc., a Delaware banking corporation, will act as Delaware Trustee, until, in
each case, removed or replaced by the holder of the Common Securities. IBJ
Schroder Bank & Trust Company will also act as indenture trustee under the
Guarantee (the "Guarantee Trustee") and under the Indenture (the "Indenture
Trustee"). See "Description of the Preferred Securities" and "Description of the
Guarantee."
The Property Trustee will hold title to the Convertible Debentures for the
benefit of the holders of the Trust Securities and will have the power to
exercise all rights, powers and privileges under the Indenture as the holder of
the Convertible Debentures. In addition, the Property Trustee will maintain
exclusive control of a segregated non-interest bearing bank account (the
"Property Trustee Account") to hold all payments made in respect of the
Convertible Debentures for the benefit of the holders of the Trust Securities.
The Guarantee Trustee will hold the Guarantee for the benefit of the holders of
the Preferred Securities. The Company, as the holder of all the Common
Securities, will have the right to appoint, remove or replace any of the Issuer
Trustees and to increase or decrease the number of trustees, provided, that the
number of trustees shall be at least two. The Company will pay all fees and
expenses related to the Trust and the offering of the Preferred Securities. See
"Description of the Convertible Debentures."
The rights of the holders of the Preferred Securities, including economic
rights, rights to information and voting rights, are as set forth in the
Declaration and the Delaware Business Trust Act, as amended (the "Trust Act").
See "Description of the Preferred Securities." The Declaration, the Indenture
and the Guarantee also incorporate by reference the terms of the Trust Indenture
Act.
The place of business and the telephone number of the Trust are the
principal executive offices and telephone number of the Company.
ACCOUNTING TREATMENT
The financial statements of the Trust will be reflected in the Company's
consolidated financial statements, with the Preferred Securities shown as
"Company-Obligated Mandatorily Redeemable Convertible Preferred Securities of
Designer Finance Trust Holding Solely Convertible Debentures." See
"Capitalization."
22
<PAGE> 24
PRICE RANGE OF COMMON STOCK
The Common Stock of the Company commenced trading on the NYSE under the
symbol "DSH" on May 10, 1996. The following table sets forth, for the periods
indicated, the high and low closing sale prices of the Common Stock as reported
on the NYSE Composite Tape.
<TABLE>
<CAPTION>
HIGH LOW
----- -----
<S> <C> <C>
FISCAL YEAR 1996
Second Quarter (beginning May 10).......................... $32 1/2 $22 7/8
Third Quarter.............................................. 27 16 1/2
Fourth Quarter (through October 21)........................ 24 5/8 20 3/8
</TABLE>
On October 21, 1996, the last reported sale price of the Common Stock on
the NYSE was $20 3/8.
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 generally
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. As a holding company, the ability of the Company to pay
dividends is dependent upon the receipt of dividends or other payments from its
subsidiaries. Although the payment of dividends and other distributions by the
Company's subsidiaries is prohibited by the Credit Agreement, the Company has
amended the Credit Agreement to permit the payment of regularly scheduled
distributions on the Preferred Securities so long as there is no event of
default under the Credit Agreement. See "Risk Factors -- Holding Company
Structure, Subordination and Restrictive Covenants," " -- Ranking of Subordinate
Obligations Under the Guarantee and Convertible Debentures" and "Description of
Certain Indebtedness."
23
<PAGE> 25
USE OF PROCEEDS
The proceeds from the sale of the Preferred Securities offered hereby will
be invested by the Trust in the Convertible Debentures. The Company intends to
apply the net proceeds (net of the Underwriters' Compensation and estimated
expenses) from the sale of the Convertible Debentures, estimated to be
approximately $96.0 million ($110.6 million if the Underwriters' over-allotment
option is exercised), as follows: (i) $12.5 million to repay in full the Term
Loan (as defined below) and (ii) the balance initially to repay a portion of the
borrowings under the Revolving Credit Facility (as defined below) of the Credit
Agreement. Following the consummation of the offering made hereby, the Company
expects to borrow additional funds under the Revolving Credit Facility to fund
the costs of obtaining the DKNY Jeans License and developing the DKNY Jeans
Label products business and for working capital and other general corporate
purposes, including the proposed acquisition of the CK Outlets. See
"Business -- Calvin Klein Outlets."
The initial costs of obtaining the DKNY Jeans License include $6 million as
an initial payment, $24 million payable on June 1, 1997 and a payment for
inventory existing at May 31, 1997, currently anticipated to range from $5 to
$10 million. Pursuant to the DKNY Jeans License, the Company will incur a $5
million pre-launch advertising expense from March through May of 1997 and will
incur an additional $15 million in advertising expenses before the end of 1997.
The Company has also paid a first installment on its minimum guaranteed royalty
obligations for 1997 of $1.26 million. In addition, the Company expects to incur
approximately $10 million in additional expenses for merchandising and marketing
the DKNY Jeans Label products prior to June 1, 1997. See also "Business -- DKNY
Jeans License."
Amounts outstanding under the Credit Agreement, dated as of April 28, 1995,
as amended through September 30, 1996 (the "Credit Agreement"), among the
Company, the Principal Stockholder, Jeanswear, Rio Sportswear, the Predecessor
Companies, the lenders referred to therein and The CIT Group, as agent, bear
interest either at the rate announced by The Chase Manhattan Bank from time to
time as its prime rate (the "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 (the "Term Loan") is payable in
installments, with the final installment due on March 31, 2000. The final
maturity date for the revolving credit facility portion (the "Revolving Credit
Facility") 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 June 30, 1996, the
Company had amounts outstanding under the Credit Agreement of approximately
$68.9 million, including $11.8 million for open letters of credit. The
outstanding borrowings of $57.1 million currently bear interest at a weighted
average rate of 8.8% per annum. See "Description of Certain Indebtedness."
The Company has commitments from The CIT Group and other lenders to enter
into an amended and restated Credit Agreement (the "New Credit Agreement") for
an aggregate commitment, after application of the net proceeds of the offering
made hereby, of $150 million. The New Credit Agreement will consist of a $150
million (after application of such net proceeds) five year credit facility (the
"New Revolving Facility"), including a subfacility for the issuance of letters
of credit. The borrowings under the New Revolving Facility will mature on the
fifth anniversary of the closing date thereof. The interest rates on the New
Revolving Facility will be reduced to the Prime Rate plus 0.5% or LIBOR plus
1.75%. The New Credit Agreement will contain covenants and default and security
provisions similar to those in the existing Credit Agreement. See "Description
of Certain Indebtedness."
24
<PAGE> 26
CAPITALIZATION
The following table sets forth the actual capitalization of the Company as
of June 30, 1996 and as adjusted to give effect to (i) the issuance of the
Preferred Securities being offered hereby, the receipt by the Company of the net
proceeds of approximately $96.0 million therefrom and the application of the
estimated net proceeds as described under "Use of Proceeds" and (ii) obtaining
the DKNY Jeans License and incurrence of the associated contract obligation
thereunder. This table should be read in conjunction with "Selected Financial
Information" and the condensed consolidated financial statements of the Company
and related notes thereto included elsewhere in this Prospectus.
<TABLE>
<CAPTION>
AS OF JUNE 30, 1996
----------------------
ACTUAL AS ADJUSTED
-------- -----------
<S> <C> <C>
(DOLLARS IN THOUSANDS)
Cash.................................................................... $ -- $ 31,693
======== ========
Current indebtedness:
Revolving credit loans................................................ $ 43,297 $ --
Current portion of term loan.......................................... 5,000 --
Current portion of contract obligation, net of discount of $987....... -- 23,013
-------- --------
Total current indebtedness......................................... $ 48,297 $ 23,013
======== ========
Term loan, less current portion......................................... $ 8,750 $ --
Contract obligation, less current portion, net of discount of $5,276.... -- 24,724
Company-Obligated Mandatorily Redeemable Convertible
Preferred Securities of Designer Finance Trust Holding
Solely Convertible Debentures(1)...................................... -- 100,000
Stockholders' equity:
Common Stock, par value $.01 per share, authorized
75,000,000 shares, issued and outstanding
32,159,334 shares(2)............................................... 321 321
Paid-in capital....................................................... 148,296 148,296
Retained earnings..................................................... 20,858 20,858
-------- --------
Total stockholders' equity......................................... 169,475 169,475
-------- --------
Total capitalization............................................... $178,225 $ 294,199
======== ========
</TABLE>
- ------------------------
(1) As described herein, the sole assets of the Trust will be the Convertible
Debentures with a principal amount of approximately $103.1 million, and upon
redemption of such debt, the Preferred Securities will be mandatorily
redeemable.
(2) Excludes (i) an aggregate of 2,463,200 shares of Common Stock reserved for
issuance upon exercise of options under the Company's 1996 Stock Option and
Incentive Plan and the 1996 Outside Director Stock Option Plan (including
1,575,000 shares subject to outstanding options as of June 30, 1996) and
(ii) the shares of Common Stock reserved for issuance upon conversion of the
Convertible Debentures. See "Management -- Stock Option Plan" and "-- 1996
Non-Employee Director Stock Option Plan."
25
<PAGE> 27
UNAUDITED PRO FORMA AND ADJUSTED PRO FORMA FINANCIAL INFORMATION
The unaudited pro forma and adjusted pro forma financial information set
forth below for the year ended December 31, 1995 and the six months ended June
30, 1996 and 1995 gives effect to (i) the agreements by the Company, which
became effective as of January 1, 1996, to grant to Commerce Clothing the right
to produce and distribute sportswear under the Bill Blass and the Rio labels,
and children's apparel in the United States under the Calvin Klein Jeans Labels
(the "Agreements"), (ii) certain amendments to the CKJ License in April 1996 and
the related issuance to CKI of 1,275,466 shares of non-voting common stock (the
"Amendments") and (iii) closing of the IPO on May 15, 1996 and application of
the net proceeds to the Company therefrom as described in "Management's
Discussion and Analysis of Financial Condition and Results of
Operations -- Liquidity and Capital Resources," as if they had been consummated
on January 1, 1995. The unaudited pro forma and adjusted pro forma financial
adjustments are based upon available information and certain assumptions that
management of the Company believes are reasonable. The unaudited pro forma and
adjusted pro forma financial information 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 IPO
been consummated on such date. The following pro forma and adjusted 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 consolidated and condensed consolidated financial statements
of the Company and related notes thereto included elsewhere in this Prospectus.
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, 1995
-----------------------------------------------------------------------
PRO FORMA FOR
THE
ADJUSTMENTS TO ADJUSTMENT AGREEMENTS,
REFLECT THE AGREEMENTS TO REFLECT AMENDMENTS AND
HISTORICAL AND AMENDMENTS THE IPO THE IPO
---------- ---------------------- ---------- --------------
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C>
Net revenues..................... $ 462,122 $ (112,453)(1) -- $ 349,669
Cost of goods sold............... 323,638 (105,678)(1) -- 217,960
---------- --------- ------- ----------
Gross profit..................... 138,484 (6,775) -- 131,709
Selling, general and
administrative (12,280)(2)
expenses....................... 100,391 505(3) $ 73(4) 88,689
---------- --------- ------- ----------
Operating income................. 38,093 5,000 (73) 43,020
Interest expense................. 16,160 -- (12,422)(4) 3,738
---------- --------- ------- ----------
Income before income taxes....... 21,933 5,000 12,349 39,282
Provision for income taxes....... 10,870 2,250(5) 5,557(5) 18,677
---------- --------- ------- ----------
Net income....................... $ 11,063 $ 2,750 $ 6,792(6) $ 20,605
========== ========= ======= ==========
Net income per share............. $ 0.46 $ 0.64
Weighted average shares
outstanding(7)................. 24,233,868 32,159,334
</TABLE>
see notes on page 28
26
<PAGE> 28
UNAUDITED PRO FORMA AND ADJUSTED PRO FORMA FINANCIAL INFORMATION -- CONTINUED
<TABLE>
<CAPTION>
SIX MONTHS ENDED JUNE 30, 1996
-----------------------------------------------------------------------
ADJUSTMENT PRO FORMA FOR
ADJUSTMENT TO TO REFLECT THE AMENDMENTS
HISTORICAL REFLECT THE AMENDMENTS THE IPO AND THE IPO
---------- ---------------------- ---------- --------------
<S> <C> <C> <C> <C>
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
Net revenues..................... $ 219,603(9) -- -- $ 219,603
Cost of goods sold............... 136,521 -- -- 136,521
---------- ----- ------ ----------
Gross profit..................... 83,082 -- -- 83,082
Selling, general and
administrative expenses........ 55,085 $ 150(3) $ 37(4) 55,272
---------- ----- ------ ----------
Operating income................. 27,997 (150) (37) 27,810
Interest expense................. 7,635 -- (4,730)(4) 2,905
---------- ----- ------ ----------
Income before income taxes....... 20,362 (150) 4,693 24,905
Provision for income taxes....... 9,367 (69)(5) 2,159(5) 11,457
---------- ----- ------ ----------
Income before extraordinary
item........................... $ 10,995 $ (81) $ 2,534(6) $ 13,448
========== ===== ====== ==========
Income per share before
extraordinary item............. $ 0.41 $ 0.42
Weighted average shares
outstanding(7)................. 26,827,051 32,325,414
</TABLE>
<TABLE>
<CAPTION>
SIX MONTHS ENDED JUNE 30, 1995
-----------------------------------------------------------------------
ADJUSTED
PRO FORMA FOR
THE
ADJUSTMENTS TO ADJUSTMENT AGREEMENTS,
REFLECT THE AGREEMENTS TO REFLECT AMENDMENTS AND
HISTORICAL AND AMENDMENTS THE IPO THE IPO
---------- ---------------------- ---------- --------------
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C>
Net revenues..................... $ 174,491 $ (51,990)(8) -- $ 122,501
Cost of goods sold............... 123,517 (46,278)(8) -- 77,239
---------- -------- ------ ----------
Gross profit..................... 50,974 (5,712) -- 45,262
Selling, general and
administrative (5,227)(2)
expenses....................... 36,814 253(3) $ 36(4) 31,876
---------- -------- ------ ----------
Operating income................. 14,160 (738) (36) 13,386
Interest expense................. 5,689 -- (5,423)(4) 266
---------- -------- ------ ----------
Income before income taxes....... 8,471 (738) 5,387 13,120
Provision for income taxes....... 4,500 (332)(5) 2,424(5) 6,592
---------- -------- ------ ----------
Net income....................... $ 3,971 $ (406) $ 2,963(6) $ 6,528
========== ======== ====== ==========
Net income per share............. $ 0.16 $ 0.20
Weighted average shares
outstanding(7)................. 24,233,868 32,159,334
</TABLE>
see notes on following page
27
<PAGE> 29
Notes to Unaudited Pro Forma and Adjusted Pro Forma Financial Information:
(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
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 40 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 for the purchase of the
Predecessor Companies and (ii) decrease in interest expense resulting from
the use of $108.1 million of net proceeds to repay indebtedness as
described in "Management's Discussion and Analysis of Financial Condition
and Results of Operations -- Liquidity and Capital Resources."
(5) Adjustments to reflect federal and state income tax adjustments using an
effective tax rate of 45% for the 1995 periods and 46% for the 1996 period.
(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 $2,256, net of applicable tax effects.
Such amount has been treated as an extraordinary loss in the condensed
consolidated financial statements for the six months ended June 30, 1996.
(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 6,650,000
shares of Common Stock pursuant to the IPO, as if such issuance and the IPO
were consummated on January 1, 1995.
(8) Adjustments to eliminate sales and related cost of goods sold of Bill Blass
and Rio products of $53,127 and $46,278, respectively, and reflect royalty
income of $1,137, representing 5% of second quarter 1995 historical net
sales of Bill Blass products and 4% of second quarter 1995 historical net
sales of Rio products. For comparative presentation purposes, pro forma net
revenues for the six months ended June 30, 1995 have been adjusted to
exclude royalty income for the first quarter of 1995 attributable to the
Agreements, since such royalties were waived for the first quarter of 1995.
Sales of Calvin Klein Jeans Label childrens apparel did not commence until
July 1995, and, therefore, had no pro forma effect on operations for the
six months ended June 30, 1995.
(9) During the six months ended June 30, 1996, the Company waived royalty
income for the first quarter of 1996 (approximately $1,161) attributable to
the license and sublicense of the Bill Blass and Rio labels and the
distribution agreement for childrens apparel in the United States under the
Calvin Klein Jeans Label.
28
<PAGE> 30
SELECTED FINANCIAL INFORMATION
The selected historical financial information has been derived from the
consolidated and the condensed consolidated financial statements of the Company
and the combined financial statements of the Predecessor Companies. The selected
historical financial information for each of the six months ended June 30, 1995
and 1996 and as of June 30, 1996, reflect, in the opinion of management of the
Company, all adjustments (which include only normal recurring adjustments)
necessary for the fair presentation of the financial data for such periods. The
results of operations for the six months ended June 30, 1996 are not necessarily
indicative of the results for the entire year or any other interim period. 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 consolidated and condensed 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)(1) (CONSOLIDATED)
-------------------------------------------- ----------------------------------------------------
EIGHT MONTHS FOUR MONTHS SIX MONTHS ENDED
YEAR ENDED DECEMBER 31, ENDED ENDED YEAR ENDED JUNE 30,
------------------------------ AUGUST 25, DECEMBER 31, DECEMBER 31, -----------------------
1991 1992 1993 1994 1994(2) 1995(2) 1995 1996
-------- -------- -------- ------------ ------------- ------------ ---------- ----------
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <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 $ 174,491 $ 219,603
Cost of goods sold........... 100,312 119,195 146,620 81,143 75,246 323,638 123,517 136,521
-------- -------- -------- ------- -------- -------- -------- --------
Gross profit................. 22,328 25,845 26,941 12,826 26,792 138,484 50,974 83,082
Selling, general and
administrative expenses.... 13,897 19,686 23,323 12,318 20,079 100,391 36,814 55,085
-------- -------- -------- ------- -------- -------- -------- --------
Operating income............. 8,431 6,159 3,618 508 6,713 38,093 14,160 27,997
Interest expense............. 1,445 1,339 1,808 1,142 2,557 16,160 5,689 7,635
-------- -------- -------- ------- -------- -------- -------- --------
Income (loss) before
income taxes............... 6,986 4,820 1,810 (634) 4,156 21,933 8,471 20,362
Provision (benefit) for
income taxes............... 1,869 1,189 (331) (399) 2,239 10,870 4,500 9,367
-------- -------- -------- ------- -------- -------- -------- --------
Income (loss) before
extraordinary item......... 5,117 3,631 2,141 (235) 1,917 11,063 3,971 10,995
Extraordinary loss on debt
extinguishment............. -- -- -- -- -- -- -- 2,256
-------- -------- -------- ------- -------- -------- -------- --------
Net income (loss)............ $ 5,117 $ 3,631 $ 2,141 $ (235) $ 1,917 $ 11,063 $ 3,971 $ 8,739
======== ======== ======== ======= ======== ======== ======== ========
PER SHARE DATA:
Income per share before
extraordinary item......... $ 0.08 $ 0.46 $ 0.16 $ 0.41
Net income per share......... $ 0.08 $ 0.46 $ 0.16 $ 0.33
Weighted average shares
outstanding................ 24,233,868 24,233,868 24,233,868 26,827,051
Ratio of earnings to
fixed charges(3)........... 5.25x 3.82x 1.82x -- 2.57x 2.31x 2.44x 3.34x
</TABLE>
<TABLE>
<CAPTION>
AS OF DECEMBER 31, AS OF AS OF DECEMBER 31, AS OF
------------------------------ AUGUST 25, --------------------------- JUNE 30,
1991 1992 1993 1994 1994 1995 1996
-------- -------- -------- ------------ ------------- ------------ ----------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
BALANCE SHEET DATA:
Working capital.............. $ 8,054 $ 8,907 $ 9,248 $ 6,639 $ 27,070 $ 31,671 $ 104,832
Total assets................. 22,659 20,942 28,740 22,765 114,833 250,814 278,982
Current debt................. 4,035 329 5,271 2,400 7,528 102,016 48,297
Long-term debt, less current
portion.................... -- -- -- -- 52,255 50,403 8,750
Stockholders' equity......... 8,427 10,460 10,437 7,896 23,006 32,482 169,475
- -----------------------------
</TABLE>
- ---------------
(1) The Predecessor Companies consisted of five separate entities commonly
controlled and managed by Mr. Arnold Simon, the President and Chief
Executive Officer of the Company, and Mr. Stephen Huang, a former business
associate of Mr. Simon. See note 1 to the audited combined financial
statements of the Predecessor Companies included elsewhere in this
Prospectus.
(2) 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.
(3) For the purpose of computing the ratio of earnings to fixed charges,
earnings consist of income before income taxes and fixed charges, and fixed
charges consist of interest, expensed or capitalized, amortization of debt
discount and expense and that portion (one-third) of rental expense that the
Company believes is representative of interest. There was a deficiency of
earnings to fixed charges of $634 for the eight months ended August 25,
1994. Had the closing of the offering of Preferred Securities made hereby
occurred on January 1, 1995, the pro forma ratio of earnings to fixed
charges for the year ended December 31, 1995 and the six months ended June
30, 1995 and 1996 would have been 3.06x, 3.07x and 4.19x, respectively.
29
<PAGE> 31
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 six months ended June 30, 1995 and 1996 and
the years ended December 31, 1993, 1994 and 1995. This discussion should be read
in conjunction with the consolidated and condensed 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 and
women (including 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 -- Calvin Klein Jeans
Label Products," "-- Calvin Klein Jeans Label Divisions" and "-- Distribution."
On September 27, 1996, the Company entered into the DKNY Jeans License. The
cost of obtaining the DKNY Jeans License includes $6 million as an initial
payment, $24 million payable on June 1, 1997 and a payment for inventory
existing at May 31, 1997, currently anticipated to range from $5 to $10 million.
In addition, the Company will pay $10 million on June 1 of each of 1998, 1999
and 2000. The Company will incur a $5 million pre-launch advertising expense
from March through May of 1997 and pursuant to the DKNY Jeans License, the
Company will also incur an additional $15 million in advertising expenses before
the end of 1997. The Company has paid a first installment on its minimum
guaranteed royalty obligations for 1997 of $1.26 million. See "-- Liquidity and
Capital Resources."
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 the 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.
30
<PAGE> 32
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 1994 and 1995 and for the six months
ended June 30, 1996 and 1995:
<TABLE>
<CAPTION>
YEAR ENDED SIX MONTHS ENDED
DECEMBER 31, JUNE 30,
-------------------- ---------------------
1994(1) 1995 1995 1996
------- -------- -------- --------
<S> <C> <C> <C> <C>
(DOLLARS IN THOUSANDS)
Mens............................. $30,106 $149,626 $ 61,166 $ 90,286
Juniors.......................... 11,745 111,374 34,024 77,736
Womens(2)........................ 16,845 82,291 26,074 48,265
Childrens(3)..................... -- 17,311 100 614
Royalty income................... -- 791 -- 1,394
------- -------- -------- --------
$58,696 $361,393 $121,364 $218,295
======= ======== ======== ========
</TABLE>
-------------------------------
(1) Reflects sales beginning August 4, 1994, the date the Company
obtained the CKJ License.
(2) Includes petites.
(3) As of January 1, 1996, the Company entered into an agreement
pursuant to which Commerce Clothing produces, markets and
distributes Calvin Klein Jeans Label childrens apparel in the
United States.
RESULTS OF OPERATIONS
The following table sets forth, for the periods indicated, statement of
operations data as a percentage of net revenues:
<TABLE>
<CAPTION>
SIX MONTHS
YEAR ENDED DECEMBER 31, ENDED JUNE 30,
------------------------- ---------------
1993 1994 1995 1995 1996
----- ----- ----- ----- -----
<S> <C> <C> <C> <C> <C>
Net revenues............................... 100.0% 100.0% 100.0% 100.0% 100.0%
Cost of goods sold......................... 84.5 79.8 70.0 70.8 62.2
----- ----- ----- ----- -----
Gross profit............................... 15.5 20.2 30.0 29.2 37.8
Selling, general and administrative
expenses................................. 13.4 16.5 21.7 21.1 25.1
----- ----- ----- ----- -----
Operating income........................... 2.1 3.7 8.3 8.1 12.7
===== ===== ===== ===== =====
</TABLE>
SIX MONTHS ENDED JUNE 30, 1996 COMPARED TO SIX MONTHS ENDED JUNE 30, 1995
Net revenues. Net revenues for the six months ended June 30, 1996 were
$219.6 million, which represented an increase of $45.1 million or 25.9% over net
revenues for the six months ended June 30, 1995 of $174.5 million. Net revenues
for the first half of 1996 included $205.8 million from the sale of Calvin Klein
Jeans and CK/Calvin Klein Jeans products, and $11.1 million from the sale of
CK/Calvin Klein Jeans Khakis products, a total increase of $96.9 million over
the first half of 1995. The increased level of net revenue generated by the sale
of Calvin Klein Jeans Label products was principally attributable to an increase
in the volume of products sold to a larger number of department stores and
specialty retail stores. This broadening of product distribution into an
increased number of stores was experienced across all of the lines in which
products are sold. Net revenue from the sale of the Rio and Bill Blass label
products during the six months ended June 30, 1995 was $53.1 million. During the
six months ended June 30, 1996, the Company earned royalty income of $2.1
million. The 1995 comparable period reflected no significant royalty income. The
Company waived payment of approximately $1.2 million of royalty income due for
the first quarter of 1996 under both Commerce Clothing agreements.
Gross profit. Gross profit was $83.1 million for the six months ended June
30, 1996, an increase of $32.1 million from gross profit for the six months
ended June 30, 1995 of $51.0 million. The gross profit percentage was 37.8% for
the first half of 1996, an increase from 29.2% for the first half of 1995. The
first half of 1996 gross profit percentage on the Calvin Klein Jeans Label
products was 37.8%, an increase of 1.6 percentage points over the gross profit
percentage for the 1995 first half of 36.2%, primarily due to overall operating
efficiencies achieved through better sourcing of product, more efficient
distribution of product and more timely
31
<PAGE> 33
delivery to retailers. The overall gross profit percentage was further improved
due to the absence in the first half of 1996 of the lower gross profit margins
from Rio and Bill Blass products, because the license and sublicense agreement
was executed for such products as of January 1, 1996. The 1995 period contained
a gross profit percentage of 13.2% related to the sale of these products.
Selling, general and administrative expenses. Selling, general and
administrative ("SG&A") expenses were $55.1 million or 25.1% of net revenues for
the first half of 1996, an increase of $18.3 million from $36.8 million or 21.1%
of net revenues for the first half of 1995. The increased expenses were
primarily driven by the increased sales volume and the associated higher levels
of advertising, design and royalty expenses incurred in connection with the CKJ
License, as well as continued increased costs necessary to build the
infrastructure to support increased sales volume and future growth. SG&A
expenses as a percentage of net revenues also increased in the 1996 period as a
result of continued costs related to selling and marketing the Rio and Bill
Blass products, against which the Company will recognize royalty income in 1996
and future periods instead of net revenues, due to the Company's license and
sublicense agreement.
Interest expense. Interest expense was $7.6 million for the first half of
1996, compared to $5.7 million for the first half of 1995. This increase was a
result of the higher working capital requirements and increased borrowings under
the revolving credit facility associated with the higher sales volume achieved
during the first half of 1996 compared with that of the previous year, partially
offset by the interest savings yielded by the application of the net proceeds of
the IPO to repay existing indebtedness. See "-- Liquidity and Capital
Resources."
Provision for income taxes. The provision for income taxes was $9.4 million
or 46% of pre-tax income for the six months ended June 30, 1996, as compared to
$4.5 million or 53% of pre-tax income for the six months ended June 30, 1995.
The higher effective tax rate in the 1995 period was principally attributable to
a valuation allowance on net operating loss benefits of Rio Sportswear. The
results of operations of Rio Sportswear were not included in the consolidated
tax return of the Company until April 1995, when Rio became a subsidiary of the
Company.
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. This 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-
32
<PAGE> 34
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 expenses. 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 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 bore an effective interest
rate of 20%.
Provision 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 expenses. 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
33
<PAGE> 35
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.
LIQUIDITY AND CAPITAL RESOURCES
The Company's primary funding requirements to finance continued business
growth include investments in working capital (primarily receivables and
inventory), capital expenditures, costs related to upgrading distribution and
management information systems, costs related to the shop-in-shops programs and
debt service. In addition, the Company will require funds in connection with
obtaining the DKNY Jeans License and for the related initial start-up costs and
development of the DKNY Jeans Label products business (see "-- General").
On May 15, 1996, the Company closed the IPO. Of the total shares offered,
the Company sold 6,650,000 shares and the Principal Stockholder sold 7,150,000
shares. Net proceeds to the Company, after underwriting discounts and expenses,
were approximately $108.1 million. Net proceeds to the Company increased
liquidity by reducing indebtedness, including approximately $37.0 million to
repay a subordinated loan and a reduction in borrowings under the Revolving
Credit Facility and the Term Loan of approximately $71.1 million.
On April 28, 1995, the Company refinanced its outstanding credit
obligations with borrowings under a new $140 million Credit Agreement. The
Credit Agreement consists of a revolving credit facility of $115 million and a
term loan of $25 million. Borrowings under the Revolving Credit Facility,
including the opening of letters of credit, are limited in the aggregate to
specified percentages of eligible factored receivables and inventory (as defined
in the Credit Agreement). The portion of the Revolving Credit Facility available
for the opening of letters of credit is limited to $45 million. The amount of
the revolving credit facility was increased to $125 million on September 15,
1995, to $135 million on November 8, 1995 and to $150 million on March 29, 1996.
Amounts outstanding under the Credit Agreement are collateralized by
substantially all the assets of the Company. The Credit Agreement contains
restrictive covenants that, among other things, restrict the payment of
dividends, stock repurchases, additional indebtedness, leases, capital
expenditures, investments and a sale of assets or merger of the Company with
another entity. The covenants also require the Company to meet certain financial
ratios and maintain minimum levels of net worth. See "Description of Certain
Indebtedness."
At June 30, 1996, the Company had amounts outstanding under the Credit
Agreement of approximately $68.9 million, comprised of approximately $43.3
million of revolving credit loans, $11.8 million for open letters of credit and
$13.8 million outstanding under the term loan.
The Company has commitments from The CIT Group and other lenders to enter
into the New Credit Agreement for an aggregate commitment, after application of
the net proceeds of the offering made hereby, of $150 million. The New Credit
Agreement will consist of the $150 million (after the application of such net
proceeds) five year New Revolving Facility, including a subfacility for the
issuance of letters of credit. The borrowings under the New Revolving Facility
will mature on the fifth anniversary of the closing date thereof. The interest
rates on the New Revolving Facility will be reduced to the Prime Rate plus 0.5%
or LIBOR plus 1.75% (from the Prime Rate plus 1.25% or LIBOR plus 2.75%). The
New Credit Agreement will contain covenants and default and security provisions
similar to those in the existing Credit Agreement.
The Company entered into a factoring agreement dated August 24, 1994, with
CIT, the agent under the Credit Agreement. Pursuant to the terms of the
agreement, CIT purchases the Company's eligible accounts receivables and assumes
the credit risk only on those accounts for which it has given prior credit
approval in writing. The Company is also a party to an intercreditor agreement
under which the factor, as agent, is obligated to apply all monies, otherwise
due to the Company, against amounts outstanding under the Credit Agreement. The
Company borrows its daily cash requirements under the revolving credit facility
and therefore shows no cash balance as of December 31, 1995 and June 30, 1996.
34
<PAGE> 36
The Company finances 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 and the six months ended June 30, 1996 as a result of the addition of the
Calvin Klein Jeans Label products overshadowed the historical seasonal pattern
in that year.
During the six months ended June 30, 1996 and 1995, the Company used $8.7
million and $58.2 million, respectively, in operating activities. The higher use
of cash during the 1995 period was primarily driven by the build-up of inventory
and receivables, as the Company began to realize its growth strategy and
objectives. The first half of 1996 reflected more of a seasonal sales pattern.
However, with the introduction of the DKNY Jeans Label products, the Company
expects a significantly higher use of cash in operations for 1997. In addition,
during the six months ended June 30, 1996, although no shop-in-shops had been
installed, the Company had incurred construction costs of approximately $1.3
million, which is included in net cash used in operating activities. 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 in investing activities during the six months ended June 30,
1996 and 1995 was $2.7 million and $1.1 million, respectively. The increase in
cash used in investing activities consisted of capital expenditures primarily
for equipment for distribution facilities and leasehold improvements. Net cash
used in investing activities was $2.8 million in 1995 and $36.8 million in 1994,
respectively. Net cash used in investing activities for 1995 consisted of
capital expenditures. 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 during the six months ended June
30, 1996 and 1995 was $11.3 million and $57.9 million, respectively. The first
half of 1995 reflected the proceeds of the Term Loan and the Subordinated Loan
which was used to repay then outstanding debt, as well as increased borrowings
under the Revolving Credit Facility. The first half of 1996 reflected the net
proceeds of the IPO and the application of such proceeds to repay the
Subordinated Loan and a portion of amounts outstanding under the Credit
Agreement. 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 Revolving Credit
Facility and a subordinated loan, net of indebtedness repaid. In 1994, net 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. See Note 11 to the
audited consolidated financial statements of the Company included elsewhere in
this Prospectus.
The Company believes that its sources of financing, including the proceeds
from the offering of Preferred Securities made hereby and the borrowings
available under the existing Revolving Credit Facility or the $150 million
(after the application of the net proceeds of the offering made hereby) New
Revolving Facility of the New Credit Agreement, are adequate to fund its current
level of operations and its expected growth through 1998. The Company is also in
the initial stages of planning a program for the installation of DKNY Jeans
Label shop-in-shops. The Company currently estimates that it will have
approximately 200 DKNY Jeans Label shop-in-shops and an additional 200 Calvin
Klein Jeans Label shop-in-shops installed in 1997 at an estimated aggregate cost
of approximately $11 million. In addition, following the consummation of the
proposed acquisition of the CK Outlets, the Company expects to incur capital
expenditures for opening additional CK Outlet stores of approximately $3 million
per year. These expenses will be funded from cash flows generated from
operations or from borrowings under the Credit Agreement (or the new Credit
Agreement).
35
<PAGE> 37
SEASONALITY
The following table sets forth for the last eight quarters the net revenues
from the sale of the Company's Calvin Klein Jeans Label products by line and the
income received pursuant to the sublicense agreements with respect to the sale
of Calvin Klein Jeans Label products in Canada and for such childrens apparel in
the United States:
<TABLE>
<CAPTION>
1994 1995 1996
----------------- -------------------------------------- -------------------
THIRD FOURTH FIRST SECOND THIRD FOURTH FIRST SECOND
QUARTER QUARTER QUARTER QUARTER QUARTER QUARTER QUARTER QUARTER
------- ------- ------- ------- ------- -------- -------- --------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Mens................. $ 9,221 $20,885 $29,951 $31,215 $30,774 $ 57,686 $ 45,711 $ 44,575
Juniors.............. 2,745 9,000 10,861 23,163 32,552 44,798 41,136 36,600
Womens(1)............ 6,251 10,594 15,075 10,999 23,254 32,963 26,510 21,755
Childrens............ -- -- -- 100 7,695 9,516 248 366
Royalty income....... -- -- -- -- 459 332 564 830
------- ------- ------- ------- ------- -------- -------- --------
$18,217 $40,479 $55,887 $65,477 $94,734 $145,295 $114,169 $104,126
======= ======= ======= ======= ======= ======== ======== ========
</TABLE>
- ---------------
(1) Includes petites.
The Company's business is affected by general seasonal trends that are
characteristic of the apparel industry. In the Company's segment of the apparel
industry, sales typically are higher in the first and third quarters and lower
in the second and fourth quarters. Primarily as a result of the significant
growth that the Company has experienced, 1995 quarterly sales trends did not
reflect this seasonality. In addition, the difficulties in distribution
experienced by the Company in the second and third quarters of 1995 caused
fourth quarter sales to be significantly higher than anticipated, as products
scheduled to be shipped were delayed. In order to remedy the 1995 shipping
difficulties, the Company has expanded its distribution facilities and
implemented upgraded management information systems. No assurance can be given,
however, that such facilities and systems will continue to function as expected.
Beginning in 1996 (and excluding the impact of new designer brands or licenses),
the Company expects that its sales may reflect greater seasonal trends as its
growth rate moderates. In addition, due to the impact of the 1995 shipping
difficulties, the Company expects that sales and earnings in the fourth quarter
of 1996 will, accordingly, be lower than in the corresponding 1995 period. See
"Risk Factors -- Ability to Achieve and Manage Future Growth,"
"Business -- Distribution" and " -- Management Information Systems."
INFLATION
The Company does not believe that inflation has had a significant effect on
its net revenues or its profitability. The Company believes that it will be able
to offset any such future 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.
36
<PAGE> 38
BUSINESS
Designer Holdings Ltd. develops, sources and markets designer sportswear
lines for men, juniors and women (including petites) under the Calvin Klein
Jeans, CK/Calvin Klein Jeans and CK/Calvin Klein Jeans Khakis 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. 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 the six months ended June
30, 1996, the mens, juniors and womens (including petites) lines accounted for
approximately 41.6%, 35.8% and 22.3%, respectively, of net sales of Calvin Klein
Jeans Label products.
Since August 1994, the Company has experienced substantial growth in net
revenues for its Calvin Klein Jeans Label products. In 1993, net revenues from
the sale of Calvin Klein Jeans Label products by CKI were approximately $59
million. In 1994, the Company obtained the CKJ License. In 1995, net revenues
(including royalties) of Calvin Klein Jeans Label products rose to $361.4
million. In the six months ended June 30, 1996, net revenues (including
royalties) from Calvin Klein Jeans Label products (including royalties) rose to
$218.3 million, a 79.9% increase from the $121.4 million in net revenues from
the comparable 1995 period.
The Company believes that the quality and casual style of its Calvin Klein
Jeans Label 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.
On September 27, 1996, the Company entered into the DKNY Jeans License with
a subsidiary of Donna Karan International for the exclusive production, sale and
distribution of mens, womens and, with certain exceptions, childrens jeanswear
under the DKNY Jeans Label. Under the terms of the DKNY Jeans License, the
Company made an initial payment of $6 million and will make additional payments
aggregating $54 million through June 1, 2000. Following the transition of
production, inventory and distribution on June 1, 1997, the Company will pay
annual royalties of 7% on worldwide net sales of DKNY Jeans Label products, as
well as an additional administrative fee of 2% of international net sales. The
Company has paid a first installment on its minimum guaranteed royalty
obligations for 1997 of $1.26 million. See "-- DKNY Jeans License."
BUSINESS STRATEGY
Calvin Klein Jeans Label. The Company's growth strategy is to capitalize
on the strength of the image projected by Calvin Klein 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
37
<PAGE> 39
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
specialty retailers that have the ability to offer the proper presentation
of the Company's products.
EXPAND SHOP-IN-SHOPS PROGRAM. The Company expects to increase the
retail presence of its Calvin Klein Jeans Label products through the
installation of "shop-in-shops" 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 are
approximately 750 square feet in size. The Company believes that the
shop-in-shops enhance the consumer's shopping experience and build loyalty
among consumers and the Company's retailing customers. As of September 30,
1996, the Company had installed approximately 70 shop-in-shops. The Company
expects approximately 150 shop-in-shops to be operating by the end of 1996.
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 in March 1996, it introduced khaki sportswear to all its
lines. The Company supported 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.
Since the beginning of 1996, the Company has entered into a distribution
agreement for its Calvin Klein Jeans Label mens, womens and juniors lines
in Canada, and the Company is currently negotiating distribution agreements
with respect to childrens apparel and khaki products in Canada. The Company
is also 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
recently completed the upgrading of its distribution and 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 in demand for the
Calvin Klein Jeans Label products, but expects to significantly expand such
facilities and systems in order to meet the operational and informational
requirements of the DKNY Jeans Label business and the CK Outlets
operations. In order to improve its distribution capabilities, the Company
has entered into a lease, effective upon completion of the facility, for a
to-be-built, automated, 375,000 square foot distribution facility in North
Arlington, New Jersey that is expected to become operational during the
second half of 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 Company is also planning to increase the capacity of its
Secaucus, New Jersey distribution facility from 200,000 to 500,000 square
feet. The addition of the distribution capacity in North Arlington and
Secaucus will permit the Company to reevaluate its distribution plan to
enhance operating efficiencies.
ACQUIRE ADDITIONAL LICENSES/BRANDS. The Company from time to time
evaluates the acquisition of additional licenses and brand names in other
product categories. The terms of the DKNY Jeans License, however,
significantly limit the ability of the Company to acquire new licenses or
brand names for jeanswear products over the next ten years. See "-- DKNY
Jeans License."
DKNY Jeans Label. The Company believes Donna Karan International is one of
the world's leading fashion houses, with global recognition in the exclusive
designer market for the Donna Karan New York label and in the larger bridge
market for the DKNY label. The Company will seek to combine its own technical,
production and distribution capabilities with the distinctive image and high
product quality associated with the DKNY label. The Company's strategy for the
DKNY Jeans Label will include: (i) offering a broad collection of casual
jeanswear that complements the lifestyle of the core DKNY customer, (ii)
maintaining the exclusivity of the label by limiting distribution to "better"
department and larger specialty stores, (iii)
38
<PAGE> 40
developing worldwide distribution, (iv) establishing DKNY Jeans shop-in-shops
within department stores and larger specialty stores, including an estimated 200
shop-in-shops in 1997, and (v) launching an extensive advertising campaign in
connection with the Fall 1997 season. To manage the DKNY Jeans Label business,
the Company has hired a new executive and intends to recruit a separate team of
design, merchandising and marketing professionals. As part of its business plan,
the Company will collaborate closely with Donna Karan International to ensure
the consistency of the DKNY Jeans Label products with the overall DKNY image.
See "-- DKNY Jeans License."
CALVIN KLEIN JEANS LABEL 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 more
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 net sales in the six months ended June
30, 1996, consist of items such as jeans, T-shirts, shorts, shirts, vests,
jackets, fleece shirts and pants and caps. The Company currently offers
approximately 60 styles of its basic products in each of its lines, and those
styles vary little from season to season. The Company complements its basic
products with fashion products, which represented approximately 35% of net sales
in the six months ended June 30, 1996. Fashion items currently include
approximately 130 styles in the mens, womens and juniors lines, 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 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>
BASICS
------------------------------- FASHION
KNITS, INCLUDING -------------------------
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
</TABLE>
39
<PAGE> 41
CALVIN KLEIN JEANS LABEL DIVISIONS
The following chart sets forth the amount of net sales in the periods
presented for each of the Company's product lines:
<TABLE>
<CAPTION>
YEAR ENDED SIX MONTHS ENDED
DECEMBER 31, 1995 JUNE 30, 1996
-------------------------- --------------------------
(DOLLARS IN THOUSANDS)
% OF % OF
NET SALES(1) NET SALES NET SALES(1) NET SALES
------------ --------- ------------ ---------
<S> <C> <C> <C> <C>
Mens.................................. $149,626 41.5% $ 90,286 41.6%
Juniors............................... 111,374 30.9 77,736 35.8
Womens(2)............................. 82,291 22.8 48,265 22.3
Childrens(3).......................... 17,311 4.8 614 0.3
-------- ----- -------- -----
$360,602 100.0% $216,901 100.0%
======== ===== ======== =====
</TABLE>
--------------------
(1) Excludes amounts received as royalties.
(2) Includes petites.
(3) As of January 1, 1996, the Company 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 September 30, 1996, the number of department store locations in
which the mens line was carried had increased to approximately 1,100. The
Company also seeks to distribute only to those specialty retailers that have the
ability to offer the proper presentation of the Company's products and has
increased the number of large specialty retailers that distribute its mens line
to approximately 1,200 as of September 30, 1996. The Company also distributes
this line through smaller specialty retailers. The Company currently dedicates a
staff of nine 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 the juniors line 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. As of September 30, 1996, the number of department stores and
large specialty retail stores carrying the juniors line had increased to 1,120
and 1,150, respectively. The Company also distributes this line through smaller
specialty retailers. The Company currently dedicates a staff of 12 to the sale
of the juniors line.
Womens. The Company believes the womens line, including petites, 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. As of September 30, 1996, the number of department
store locations carrying the womens line had increased to 1,300, and the Company
had introduced the womens line to approximately 718 large specialty retail
stores. The Company also distributes this line through smaller specialty
retailers. The Company currently dedicates a staff of nine to the sale of the
womens line.
Childrens. As of January 1, 1996, the Company entered into an agreement
pursuant to which a Commerce Clothing produces and distributes 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.
40
<PAGE> 42
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 the six months ended June 30, 1996,
approximately 78% of the Company's products, as measured by finished goods
purchased, were produced by third-party vendors in the United States,
approximately 17.5% of the Company's products were produced by overseas vendors,
and approximately 4.5% 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. In addition, the Company recently employed
an executive to be in charge of sourcing, who is based in the Company's newly
opened Hong Kong office, in order to more effectively maintain control over
Asian production, quality control and prices.
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 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 has entered into a lease, effective
upon completion of the facility, for a to-be-built, automated 375,000 square
foot distribution facility in North Arlington, New Jersey that is expected to
become operational in the second half of 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. In addition, the Company is also planning to increase
the capacity of its Secaucus facility from 200,000 to 500,000 square feet. The
addition of the distribution capacity in North Arlington and Secaucus will
permit the Company to reevaluate its distribution plans to enhance operating
efficiencies.
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
41
<PAGE> 43
program and accepts replenishment orders through its electronic data interchange
("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 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
in demand for the Calvin Klein Jeans Label products, but expects to
significantly expand such facilities and systems in order to meet the
operational and informational requirements of the DKNY Jeans Label business and
the CK Outlets operations. 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 continues to upgrade its management information systems 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 systems 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 linked by the computer system. The Company has
purchased and implemented a software program that enables 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 EDI system through which certain customers' orders
are automatically placed by the retailer with the Company. The Company currently
serves approximately 31 customers through its EDI system. 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 assigned to specific geographic regions and are compensated on
a commission basis. Beginning mid-1996, the Company also started to retain
additional personnel to 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. As of September 30, 1996, the Company had retained 30 such additional
persons.
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
42
<PAGE> 44
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. The CKJ
License provides that amounts not spent in one year are to be spent in the next.
See also " -- DKNY Jeans License."
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 June 30,
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 $107
million, compared to approximately $134 million at June 30, 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 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 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
43
<PAGE> 45
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
("CKJC")) 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 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 paid an aggregate of $1.7
million to CKI, which amount is being used to advertise the Khaki Collection in
1995 and 1996. In addition, the Company must remit 5% of the gross sales in 1997
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. See
" -- Calvin Klein Outlets." The CKJ License provides for minimum annual royalty
payments for jurisdictions other than Canada that 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 royalty payments of $12.5 million at the rate of $2.0 million per
year.
44
<PAGE> 46
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 to 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 CKJ License and (vii)
liberalized certain covenants. As consideration for such amendments, the Company
issued 1,275,466 shares of nonvoting 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 under the CKJ License.
DKNY JEANS LICENSE
The Company has established wholly-owned subsidiaries (the "Licensees") to
hold the DKNY Jeans License and manage the DKNY Jeans Label operations. Under
the terms of the DKNY Jeans License, the Company has been granted an exclusive
license to use the DKNY Jeans Label in connection with the manufacture,
distribution and sale at wholesale of the following three categories of
garments: (1) womens (including juniors and petites), mens and childrens jeans
made of denim, twill, sheeting, canvas, chambray, linen, corduroy and other
fabrics presently associated with jeanswear, (2) womens (including juniors and
petites), mens and childrens jeans skirts, jeans shorts, jeans overalls, jeans
short-alls, jeans skirt-alls, jeans shirts, jeans jackets, jeans coats and jeans
dresses of a jeans-type construction made of denim, twill, sheeting, canvas,
linen, corduroy, chambray and other fabrics presently associated with jeanswear,
(3) womens (including juniors and petites) and mens casual woven shirts of a
jeans-type construction made of denim, chambray and other fabrics and knit tops
and bottoms, including fleece, sweat shirts and T-shirts with prominent logo
identification using "DKNY Jeans," in styles easily merchandised with jeanswear
and (4) baseball-style caps. Donna Karan International has retained the right to
use and to license to its affiliates and others the right to use, in connection
with such products, marks other than DKNY Jeans. However, such products bearing
the DKNY label may not be sold as a separate collection, and must be of a higher
quality and more expensive fabrications, with a wholesale value of approximately
thirty percent higher than the current wholesale value of such DKNY Jeans
products. Also, collections of such products sold under the name or mark
45
<PAGE> 47
Donna Karan or Donna Karan New York (whether alone or together with any
descriptive or fanciful word or words) may only be targeted for the "designer"
market segment with wholesale values consistent with those of third party
products targeted for the "designer" market segment.
The Company is required to produce four collections per year, and to submit
merchandising plans and advertising as well as design and product specifications
to Donna Karan International for its review and approval. Donna Karan
International has the right to examine products produced under the DKNY Jeans
License during manufacture as part of its quality control program. In addition,
Donna Karan International has certain approval rights, including with respect to
distributors, contractors, customers, management and design support staff of the
DKNY Jeans Label business.
The Company has the exclusive right to use the DKNY Jeans Label for
jeanswear generally throughout the world (other than childrens products in
Europe and the Middle East), provided that if, after five years, the Company has
not exploited distribution in any country in which other DKNY products are sold
on a regular basis, the distribution rights for that country may revert to Donna
Karan International. The DKNY Jeans License has a 30-year term, terminating on
December 31, 2026. In connection with the DKNY Jeans License, the Company has
made an initial payment of $6.0 million, and will pay an additional $54.0
million, $24.0 million on June 1, 1997 and $10.0 million on June 1, in each of
1998, 1999 and 2000. These payments are not offset against future royalty
payments.
The Company will pay Donna Karan International royalty payments equal to 7%
of the Company's total worldwide Net Sales (as defined) of DKNY Jeans Label
products. International sales also are subject to an administrative fee of 2%.
The royalty payments for Off-Price Articles (as defined) are 3.5% of worldwide
Net Sales thereof with an administrative fee of 1% for international sales of
Off-Price Articles; provided that a full royalty payment and administrative fee
will apply to sales of Off-Price Articles (other than sales to Donna Karan
International outlet stores) in excess of 3% of total Net Sales of DKNY Jeans
Label products. The Company will pay annual guaranteed minimum royalties equal
to 80% of Projected Net Sales (as defined) multiplied by the 7% royalty rate,
payable in quarterly installments. The initial quarterly guaranteed minimum
royalty installment for 1997 of $1.26 million has been paid. Minimum annual
royalty payments increase from $5.04 million in the first year to $39.4 million
in the thirtieth year.
The Company has agreed, pursuant to the DKNY Jeans License to use its best
efforts, subject to industry conditions and appropriate arrangements with
customers, to establish 1200 shop-in-shops in the United States within the first
five years of the term of the license.
The Company must also spend at least 3% of Projected Net Sales of DKNY
Jeans Label products for consumer media and outdoor advertising. Advertising
will be created and placed by Donna Karan International's in-house creative
services department under a separate advertising agreement. The Company will
also incur a $5.0 million pre-launch advertising expense from March through May
of 1997 and pursuant to the DKNY Jeans License, the Company will also incur an
additional $15.0 million in advertising expenses before the end of 1997. In
addition, the Company will incur additional expenses in connection with
cooperative and trade advertising pursuant to the DKNY Jeans License.
The DKNY Jeans License may be terminated by Donna Karan International upon
the occurrence of certain events, including but not limited to the following:
(i) failure to make payments when due, after expiration of the applicable grace
period; (ii) discontinuing the DKNY Jeans Label operations in a material portion
of the world for more than 90 days; (iii) after the second annual period, (A)
net sales during any two consecutive annual periods are less than the amount
necessary to generate the guaranteed minimum royalty for each such annual period
but at least 80% of the minimum royalty sales (as defined) for each such annual
period, or (B) net sales during any annual period are less than 80% of the
minimum royalty sales for such annual period, or (C) net sales during any annual
period are less than 75% of the net sales during the immediately preceding
annual period and less than 90% of the minimum royalty sales for such annual
period (subject to, in the case of (A) (B) and (C), the right of the Company
under certain circumstances to submit a recovery plan and to implement such
plan), or (D) net sales during any three annual periods during any period of
five consecutive annual periods are less than the projected net sales for each
such annual period; (iv) the Licensee defaults on any obligation secured by the
DKNY Jeans Label products and the secured party
46
<PAGE> 48
enforces its rights against such products or the Licensee defaults on any
obligation of at least $5 million which is secured by DKNY Jeans Label products
and the secured party accelerates such obligation, subject to the rights of the
Licensee in the case of such acceleration to dispute it in good faith and the
entire amount of the obligation is bonded or otherwise provided for; (v) the
Licensee fails to satisfy the minimum advertising obligation (as defined) for
any annual period, subject to certain remedy rights, or for two consecutive
annual periods; (vi) certain other defaults related to the Licensee operating no
other business, confidentiality, assignability, diversion of products or
termination of the occupancy agreement for showroom space by reason of default;
(vii) the Company is acquired by, merged into or consolidated with or a
controlling equity position is issued or transferred to, any person that is a
major competitor of the DKNY brand or a major retail customer of the Licensee or
of the licensor or the licensor's affiliates; (viii) the Company enters into any
licensing or similar arrangement covering jeanswear-type products to be sold by
the Company under the name or mark of any living fashion designer prior to the
beginning of the fifth annual period or any American fashion designer prior to
the end of the tenth annual period (excluding Donna Karan, Calvin Klein and Bill
Blass); (ix) failure by the Licensee or the Company to perform any of their
other material obligations under the DKNY Jeans License, if such failure remains
uncured for 15 or, under certain circumstances, 90 days; (x) default by the
Company on its guarantee obligations with respect to the Licensee; and (xi)
certain events of bankruptcy with respect to the Licensee or the Company.
CALVIN KLEIN OUTLETS
In July 1996, the Company announced that it had entered into a letter of
intent with CKI to acquire 14 of the 15 existing CK Outlets owned by CKI located
in the United States, with rights to open additional CK Outlets in the United
States, Canada and Mexico. The Company believes that the acquisition of the CK
Outlets will enhance its ability to distribute excess inventory in a manner that
does not adversely affect its department and specialty store customers. Pursuant
to the proposed terms of the acquisition, the Company will assume the existing
leases of the CK Outlets and will purchase the inventory and certain other
assets of the CK Outlets at CKI's cost. The Company expects to be granted
exclusive and non-exclusive licensing rights to sell certain products at the CK
Outlets at specified royalty rates. The license to be granted is expected to
have an initial term of eight years, expiring December 31, 2004, with up to four
ten-year renewals, to be coterminous with the CKJ License. The Company expects
to consummate the acquisition in the fourth quarter of 1996 using existing cash
or borrowings under the Revolving Credit Facility.
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 sublicense 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 sublicense agreement for Calvin
Klein Jeans Label childrens apparel in the United States. Under the sublicense
agreement for Canada, the Company will receive net revenues of approximately 7%
of net sales, and under the sublicense 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
sublicensee 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 sublicensee, and
the sublicensee pays 3% of gross sales, net of discounts, as a fee for
advertising, which the Company remits to CKI. The Company is negotiating
sublicense agreements with respect to Calvin Klein Jeans Label khaki products
and childrens apparel for Canada. The Company also is currently negotiating
sublicense or distribution agreements for products in Mexico, Central America
and South America.
47
<PAGE> 49
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 DKNY Jeans License
prohibits the Company from entering into any licensing or similar arrangement
covering jeanswear-type products to be sold by the Company under the name or
mark of any living fashion designer for approximately five years or of any
American fashion designer for approximately ten years. See "-- DKNY Jeans
License."
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. See "Risk
Factors -- Dependence on Manufacturers."
EMPLOYEES
As of September 30, 1996, the Company and its subsidiaries employed
approximately 970 persons. Approximately 560 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.
PROPERTIES
The following table sets forth the Company's distribution and manufacturing
facilities as of September 30, 1996:
<TABLE>
<CAPTION>
APPROXIMATE
FLOOR SPACE
LOCATION USE (SQ. FT.)
- ------------------------------ -------------------------------------------------- -----------
<S> <C> <C>
New Bedford, MA............... Warehousing and distribution (leased) 370,000
Warehousing and distribution (operated under
Secaucus, NJ.................. contract) 200,000
Nesquehoning, PA.............. Manufacturing (owned) 56,000
Abbeville, SC................. Manufacturing (owned) 40,000
</TABLE>
48
<PAGE> 50
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 distribution facility in North Arlington, New Jersey is
expected to be operational in the second half of 1997 and will contain
approximately 375,000 square feet. See "-- Distribution."
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 jeanswear. 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.
49
<PAGE> 51
MANAGEMENT
DIRECTORS AND EXECUTIVE OFFICERS OF THE COMPANY
The following table sets forth certain information as of September 1, 1996
concerning the directors and executive officers of the Company.
<TABLE>
<CAPTION>
NAME AGE POSITION
- ------------------------------ --- ----------------------------------------------
<S> <C> <C>
Merril M. Halpern............. 62 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(1).......... 67 Director
Maurice Dickson............... 51 Executive Vice President and Chief Financial
Officer
Daniel J. Gladstone........... 40 Executive Vice President and President of
Calvin Klein Jeanswear Company
David Fidlon.................. 54 Senior Vice President, Controller and Chief
Accounting Officer
John J. Jones................. 29 Vice President, General Counsel and Secretary
Peter Brown(2)................ 48 Director
Frederick W. Zuckerman(1)(2).. 62 Director
</TABLE>
- ---------------
(1) Member of Audit Committee
(2) Member of Compensation Committee
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., Microwave Power Devices, Inc. and American Disposal
Services, 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. and American Disposal Services, 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
Womens Sportswear Division and CKI's Womens Division and from 1992 to July 1994
he also served as President of CKI's Mens 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
50
<PAGE> 52
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 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.
Peter D. Brown has been a director of the Company since July 1996. Mr.
Brown has been Chairman of the Board and Chief Executive Officer of Datamarine,
Inc., a communications equipment manufacturer since 1989. He has been President
of South Beach Co., Inc., a consulting firm, since 1989, Vice President and
Secretary of Gordon & Ferguson, Inc., since 1987 and Chief Executive Officer of
Heather Hill Sportswear, a manufacturer of moderately-priced mens and boys
sportswear, since 1974. Mr. Brown is also a principal in Denim Works, a chain of
fashion denim stores in Denver, Colorado.
Frederick W. Zuckerman has been a director of the Company since July 1996.
Mr. Zuckerman has been General Partner of Zuckerman, Firstenberg & Associates
LLC since 1995. Mr. Zuckerman was Vice President and Treasurer of IBM
Corporation from 1993 to 1995, from 1991 to 1993, he served as Senior Vice
President and Treasurer of RJR Nabisco, Inc., and from 1981 to 1990, he served
as Vice President and Treasurer of Chrysler Corporation. Mr. Zuckerman is also a
member of the Boards of Directors of Meditrust, Turner Construction Company, NVR
Corporation, Olympic Financial, Ltd., The Japan Equity Fund, The Singapore Fund
and Caere Corporation.
BOARD OF DIRECTORS
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. Messrs. Fagan and Zuckerman are Class I directors, Mr. Brown and
Ms. Simon are Class II directors and Messrs. Simon and 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.
The Board of Directors has established an Audit Committee and a
Compensation Committee. The Audit Committee is 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 is responsible for reviewing and approving all compensation
arrangements for officers of the Company, and is also be responsible for
administering the Stock Plan and the Director Plan (each 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. The Company has 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.
COMMITTEES OF THE BOARD OF DIRECTORS
The Company's Board of Directors currently has two committees: the
Compensation Committee and the Audit Committee.
The Compensation Committee has the responsibility of reviewing the
performance of the directors and certain executive officers of the Company and
recommending to the Board of Directors of the Company annual salary and bonus
amounts for those directors and officers. The Compensation Committee consists of
at least two directors who are "outside directors" within the meaning of Section
162(m) of the Code. The members of the Compensation Committee are Messrs. Brown
and Zuckerman.
51
<PAGE> 53
The Audit Committee has the responsibility of reviewing and supervising the
financial controls of the Company. The Audit Committee's responsibilities
include (i) making recommendations to the Board of Directors of the Company with
respect to the Company's financial statements and the appointment of independent
auditors, (ii) reviewing significant audit and accounting policies and practices
of the Company, (iii) meeting with the Company's independent public accountants
concerning, among other things, the scope of audits and reports and (iv)
reviewing the performance of overall accounting and financial controls of the
Company. The Audit Committee consists of two directors who are neither officers
nor employees of the Company. The members of the Audit Committee are Messrs.
Fagan and Zuckerman.
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 Officer 1994 1,544,958 --
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
Arnold Simon. The Company has an employment agreement 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
52
<PAGE> 54
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 (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 Exchange Act), 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.
Maurice Dickson. 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.
Daniel J. Gladstone. CKJC has an employment agreement with Daniel J.
Gladstone (the "Gladstone Employment Agreement") which expires on December 31,
1997, unless renewed. The Gladstone Employment Agreement 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.
David Fidlon. Rio Sportswear and CKJC has an employment agreement with
David Fidlon (the "Fidlon Employment Agreement"), which expires on June 12,
1997. The Fidlon Employment Agreement 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
53
<PAGE> 55
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.
Debra Simon. The Company has an employment agreement with Ms. Simon, 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.
John J. Jones. The Company has an employment agreement with Mr. Jones,
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.
DIRECTORS COMPENSATION
Directors of the Company who are not also employed by or otherwise
affiliated with the Company will receive fees of $5,000 as annual compensation,
$5,000 for each regular and special meeting attended of the Board of Directors
and $3,000 for each committee meeting attended (held on a different day from
meetings of the full Board of Directors). In addition, directors are reimbursed
for travel costs and other out-of-pocket expenses incurred in attending each
directors' and committee meeting. Outside directors are also eligible to receive
stock options pursuant to the Director Plan. See " -- 1996 Non-Employee Director
Stock Option Plan." Subject to the approval of the stockholders of the Company,
on July 16, 1996, Messrs. Brown and Zuckerman were each granted options to
purchase 5,000 shares of Common Stock at $16 1/2 per share, the fair market
value of the shares on that date.
STOCK OPTION PLAN
The Company's Board of Directors and stockholders 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). Concurrently with the IPO, 1,575,000 shares subject to
options were granted at the initial public offering price of $18.00, including
options to purchase 250,000, 200,000 and 150,000 shares to Messrs. Dickson,
Gladstone and Fidlon, respectively.
The Stock Plan is administered by the Compensation Committee (the
"Committee") appointed by the Board of Directors of the Company. Subject to the
provisions of the Stock Plan, the Committee determines the type of award, when
and to whom awards are 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 are granted and the number of
shares covered by each award the Committee takes into account the duties of the
respective persons, their present and potential contribution
54
<PAGE> 56
to the success of the Company and such other factors as the Committee deems
relevant in connection with accomplishing the purposes of the Stock Plan.
An option is granted on such terms and conditions as the Committee
approves, and generally may be exercised for a period of up to 10 years from the
date of grant. Generally, ISOs are 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 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 determines, 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 determines,
subject to acceleration of the exercisability of options in the event of, among
other things, a "Change in Control" (as defined in the Stock Plan). Generally,
stock options may not be exercised unless the grantee is employed by the
Company.
The Stock Plan also permits the Committee to grant SARs with respect to all
or any portion of the shares of Common Stock covered by options. SARs are
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 an
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 (ii) the exercise price
per share of the option to which the SAR relates.
When an 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 is 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 of Directors 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 any applicable 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.
55
<PAGE> 57
1996 OUTSIDE DIRECTOR STOCK OPTION PLAN
The Company has adopted, subject to stockholder approval at the 1997 annual
meeting, the 1996 Outside Director Stock Option Plan (the "Director Plan"),
which provides for the granting of nonqualified options to purchase shares of
Common Stock to any director of the Company who (i) first becomes a member of
the Board of Directors on or after July 16, 1996, (ii) is not an active employee
or officer of the Company or a subsidiary thereof and (iii) is not appointed or
designated to serve as a member of the Board of Directors by the Principal
Stockholder, Charterhouse, Mr. Simon or any of their respective affiliates
(each, an "Eligible Director"). The Director Plan is designed to provide a means
of giving Eligible Directors an increased opportunity to acquire an investment
in the Company, thereby maintaining and strengthening their desire to remain
with or join the Company's Board of Directors and stimulating their efforts on
the Company's behalf.
The Director Plan authorizes the issuance of up to 100,000 shares of Common
Stock, subject to adjustments in certain circumstances. No options may be
granted 10 years from the effective date of the Director Plan.
Eligible Directors are eligible to receive options under the Director Plan
in accordance with the terms thereof. Each Eligible Director, on the initial
grant date (as defined in the Director Plan), will be granted NQSOs to purchase
5,000 shares of Common Stock. Each year, other than with respect to the year in
which an Eligible Director receives an initial grant of options, as of the first
business day following the annual meeting of stockholders, each Eligible
Director will receive a NQSO to purchase 3,000 shares of Common Stock. Upon the
exercise of an option, the purchase price paid by an Eligible Director will be
100% of the fair market value of such share at the time of the grant of the
option, or the par value of the share, whichever is greater.
The options to purchase shares of Common Stock described above will be
exercisable on or after the first anniversary of the date of grant. In addition,
options granted and not previously exercisable will become vested and fully
exercisable immediately upon an Eligible Director's death or disability or upon
a Change in Control (as defined in the Director Plan).
Each option will expire upon the tenth anniversary of the date of grant.
Subject to the number of shares authorized for issuance under the Director Plan
and the term of the Director Plan, the Director Plan shall continue in effect
without limit unless and until the Board of Directors otherwise determines.
If an Eligible Director terminates his or her service on the Board of
Directors for any reason, including disability, death, resignation, or failure
to stand for reelection, any exercisable option which has not expired may be
exercised, to the extent exercisable at the time of such termination of service,
by the Eligible Director (or, in the event of his death) until the first
anniversary of the date that the Eligible Director ceases to be a member of the
Board of Directors.
The Director Plan is administered by a duly appointed committee of the
Board of Directors which has the full and final authority to interpret the
Director Plan and to adopt and amend such rules and regulations for the
administration of the Director Plan. In addition, the Board of Directors has the
right to amend or terminate the Director Plan in certain circumstances.
56
<PAGE> 58
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
Principal 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 Principal
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 certain borrowings in May
1995. See Note 11 to the audited consolidated financial statements of the
Company included elsewhere in this Prospectus.
In connection with the repurchase of Mr. Huang's interests in the
Predecessor Companies in August 1994, the Company may be liable for an
additional purchase price of approximately $1.1 million (which is net of an
approximately $900,000 adjustment to such purchase price). See "The Company" and
Note 3 to the audited consolidated financial statements of the Company included
elsewhere in this Prospectus.
REGISTRATION RIGHTS AGREEMENTS
The Company has a registration rights agreement with the Principal
Stockholder and CKI (the "Registration Rights Agreement") providing for certain
registration rights with respect to shares of Common Stock owned by the
Principal Stockholder and CKI. Under the Registration Rights Agreement, through
their respective ownership interests in the Principal 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 Principal
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
Principal 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 Principal Stockholder may
exercise such rights independently but only through the Principal 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 entered into in connection with the IPO, 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 Principal Stockholder or CKI, will be paid by the Company.
57
<PAGE> 59
PRINCIPAL STOCKHOLDERS
The following table sets forth as of September 30, 1996 the total number of
shares of Common Stock of the Company beneficially owned, and the percentage so
owned, by (i) each director of the Company, (ii) each person who has an
ownership interest in the Principal 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 Commission, and such information is not necessarily indicative of
beneficial ownership for any other purpose. The Principal Stockholder is a
limited liability company and is the record owner of the shares of Common Stock
beneficially owned by the persons listed under its heading below. Its operative
agreement allows the holders of ownership interests therein generally to cause
the Principal Stockholder to exercise 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 OF
COMMON STOCK
BENEFICIALLY OWNED
-------------------------
NAME OF BENEFICIAL OWNER NUMBER PERCENTAGE
- --------------------------------------------------------------------- ---------- ----------
<S> <C> <C>
NEW RIO, L.L.C.:
Charterhouse Equity Partners II, L.P. ............................. 8,033,800 25.0%
535 Madison Avenue
New York, NY 10022
Arnold H. Simon(1)................................................. 8,102,889 25.2%
1385 Broadway
New York, NY 10018
Martin L. Berman................................................... 141,146 *
Steven E. Berman................................................... 53,272 *
Phyllis West Berman................................................ 51,084 *
Trust for the benefit of Mark K. Berman and Allison A. Berman...... 157,445 *
Michael A. Covino.................................................. 225,374 *
Chef Nominees Limited.............................................. 15,934 *
---------- -----
NEW RIO, L.L.C. TOTAL...................................... 16,780,944 52.2%
Calvin Klein, Inc.(2)................................................ 1,275,466 4.0%
205 West 39th Street
New York, NY 10018
Merril M. Halpern(3)................................................. -- --
Debra Simon(4)....................................................... -- --
A. Lawrence Fagan(3)................................................. -- --
Maurice Dickson...................................................... 9,500 *
Daniel J. Gladstone(5)............................................... 71,667 *
David Fidlon......................................................... 3,000 *
Peter Brown.......................................................... -- --
Frederick W. Zuckerman............................................... -- --
All current executive officers and directors
as a group (10 persons)(3)(5)...................................... 8,196,556 25.5%
</TABLE>
- ---------------
* Less than one percent.
(1) Includes 318,867 shares owned by AS Enterprises LLC, a company owned by Mr.
and Ms. Simon.
(2) Assumes conversion of 1,275,466 shares of non-voting common stock into
1,275,466 shares of Common Stock.
(3) Messrs. Halpern and Fagan are executive officers of Charterhouse Group
International, Inc., which indirectly controls Charterhouse. Messrs. Halpern
and Fagan may be deemed to beneficially own the shares of Common Stock
beneficially owned by Charterhouse. Messrs. Halpern and Fagan disclaim all
such beneficial ownership.
(4) Ms. Simon is Mr. Simon's wife. See Mr. Simon's beneficial ownership above.
(5) Includes 66,667 shares issuable upon the exercise of options exercisable
within 60 days.
58
<PAGE> 60
DESCRIPTION OF THE PREFERRED SECURITIES
The Preferred Securities will be issued pursuant to the terms of the
Declaration, a copy of which is filed as an exhibit to the Registration
Statement of which this Prospectus is a part. The Declaration will be qualified
as an indenture under the Trust Indenture Act. The Property Trustee, IBJ
Schroder Bank & Trust Company, will act as Indenture Trustee for the Preferred
Securities under the Declaration for purposes of compliance with the provisions
of the Trust Indenture Act. The terms of the Preferred Securities will include
those stated in the Declaration and those made part of the Declaration by the
Trust Indenture Act. The following summary of the material terms and provisions
of the Preferred Securities is subject to, and qualified in its entirety by
reference to, the Declaration.
GENERAL
The Declaration authorizes the Regular Trustees to issue the Trust
Securities on behalf of the Trust. The Preferred Securities represent undivided
beneficial ownership interests in the assets of the Trust and entitle the
holders thereof to a preference in certain circumstances with respect to
distributions and amounts payable on redemption or liquidation over the Common
Securities, as well as other benefits as described in the Declaration. The
Preferred Securities will be issued in fully registered form without coupons.
All of the Common Securities will be owned, directly or indirectly, by the
Company. The Common Securities rank pari passu, and payments will be made
thereon on a pro rata basis, with the Preferred Securities, except that upon the
occurrence of a Declaration Event of Default, the rights of the holders of the
Common Securities to receive payment of periodic distributions and payments upon
liquidation, redemption and otherwise will be subordinated to the rights of the
holders of Preferred Securities. See "-- Subordination of Common Securities."
Title to the Convertible Debentures will be held by the Property Trustee for the
benefit of the holders of the Trust Securities. The Declaration does not permit
the issuance by the Trust of any securities other than the Trust Securities or
the incurrence of any indebtedness by the Trust. The payment of distributions
out of money held by the Trust, and payments upon redemption of the Preferred
Securities or liquidation of the Trust, are guaranteed by the Company to the
extent described under "Description of the Guarantee." The Guarantee will be
held by IBJ Schroder Bank & Trust Company, the Guarantee Trustee, for the
benefit of the holders of the Preferred Securities. The Guarantee does not cover
payment of distributions when the Trust does not have sufficient available funds
to pay such distributions. In such event, the remedy of a holder of Preferred
Securities is to (i) vote to direct the Property Trustee to enforce the Property
Trustee's rights under the Convertible Debentures or (ii) if the failure of the
Trust to pay distributions is attributable to the failure of the Company to pay
interest or principal on the Convertible Debentures, to institute a proceeding
directly against the Company for enforcement of payment to such holder of the
principal of or interest on the Convertible Debentures having a principal amount
equal to the aggregate liquidation amount of the Preferred Securities of such
holder on or after the respective due date specified in the Convertible
Debentures. See "-- Voting Rights."
DISTRIBUTIONS
Distributions on Preferred Securities will be fixed at a rate per annum
of % of the stated liquidation amount of $50 per Preferred Security.
Distributions in arrears for more than one quarter will bear interest thereon at
a rate per annum of % thereof compounded quarterly. The term "distribution"
as used herein includes any such interest (including any Additional Interest as
defined under "Description of Convertible Debentures -- Additional Interest")
payable unless otherwise stated. The amount of distributions payable for any
period will be computed on the basis of a 360-day year of twelve 30-day months.
Distributions on the Preferred Securities will be cumulative, will accrue
from the date of initial issuance and will be payable quarterly in arrears on
each March 31, June 30, September 30 and December 31, commencing December 31,
1996, when, as and if available for payment, by the Property Trustee, except as
otherwise described below. The Company has the right under the Indenture to
defer interest payments from time to time on the Convertible Debentures for
successive periods not exceeding 20 consecutive quarterly interest periods
during which no interest shall be due and payable; provided, that no such
Extension Period
59
<PAGE> 61
may extend beyond the maturity date of the Convertible Debentures. As a
consequence of such extension, quarterly distributions on the Preferred
Securities would be deferred (though such distributions would continue to accrue
with interest since interest would continue to accrue on the Convertible
Debentures) during any such extended interest payment period. In the event that
the Company exercises this right, then, during such period the Company has
agreed, among other things, (a) not to declare or pay dividends on, or make a
distribution with respect to, or redeem or purchase or acquire, or make a
liquidation payment with respect to, any of its capital stock (other than (i)
purchases or acquisitions of shares of Common Stock in connection with the
satisfaction by the Company of its obligations under any employee benefit plans
or the satisfaction by the Company of its obligations pursuant to any contract
or security requiring the Company to purchase shares of the Common Stock, (ii)
as a result of a reclassification of the Company's capital stock or the exchange
or conversion of one class or series of the Company's capital stock for another
class or series of the Company's capital stock or (iii) the purchase of
fractional interests in shares of the Company's capital stock pursuant to the
conversion or exchange provisions of such capital stock or the security being
converted or exchanged (or make any guarantee payments with respect to the
foregoing)), (b) not to make any payment of interest, principal or premium, if
any, on or repay, repurchase or redeem any debt securities (including
guarantees) issued by the Company that rank pari passu with or junior to the
Convertible Debentures and (c) not to make any guarantee payments with respect
to the foregoing (other than pursuant to the Preferred Securities Guarantee).
Prior to the termination of any such Extension Period, the Company may further
extend such Extension Period; provided, that such Extension Period, together
with all previous and further extensions thereof, may not exceed 20 consecutive
quarters and that such Extension Period may not extend beyond the maturity date
of the Convertible Debentures. Upon the termination of any Extension Period and
the payment of all amounts then due, the Company may select a new Extension
Period, subject to the above requirements. Consequently, there could be multiple
Extension Periods of varying lengths throughout the term of the Convertible
Debentures. See "Description of the Convertible Debentures -- Interest" and
"Description of the Convertible Debentures -- Option to Extend Interest Payment
Periods." If distributions are deferred, the deferred distributions and accrued
interest thereon shall be paid to the holders of record of Preferred Securities
as they appear on the books and records of the Trust on the record date next
following the termination of such deferral period.
Distributions on the Preferred Securities will be made to the extent that
the Trust has funds available for the payment of such distributions in the
Property Trustee Account. Amounts available to the Trust for distribution to the
holders of the Preferred Securities will be limited to payments received by the
Trust from the Company for the Convertible Debentures. See "Description of the
Convertible Debentures." The payment of distributions out of funds held by the
Trust is guaranteed by the Company, as set forth under "Description of the
Guarantee."
Distributions on the Preferred Securities will be payable to the holders
thereof as they appear on the books and records of the Trust on the relevant
record dates, which generally will be the March 15, June 15, September 15 and
December 15 relevant payment dates. Subject to any applicable laws and
regulations and the provisions of the Declaration, each such payment will be
made as described under "-- Book-Entry Only Issuance -- The Depository Trust
Company" below. In the event that any date on which distributions are payable on
the Preferred Securities is not a Business Day, payment of the distribution
payable on such date will be made on the next succeeding day that is a Business
Day (without any distribution or other payment in respect of any such delay)
except that, if such Business Day is in the next succeeding calendar year, such
payment will be made on the immediately preceding Business Day, in each case
with the same force and effect as if made on such date. A "Business Day" shall
mean any day other than a day on which banking institutions in The City of New
York or in Wilmington, Delaware are authorized or required by law to close.
CONVERSION RIGHTS
General. Preferred Securities will be convertible at any time prior to
5:00 p.m. (New York City time) on the Business Day immediately preceding the
date of repayment of such Preferred Securities, whether at maturity or upon
redemption (either at the option of the Company or pursuant to a Tax Event), at
the option of the holder thereof and in the manner described below, into shares
of Common Stock at an initial conversion
60
<PAGE> 62
rate of shares of Common Stock for each Preferred Security (equivalent
to a conversion price of $ per share of Common Stock), subject to
adjustment as described under "-- Conversion Price Adjustments" below. The Trust
will covenant in the Declaration not to convert Convertible Debentures held by
it except pursuant to a notice of conversion delivered to the Property Trustee,
as conversion agent (the "Conversion Agent"), by a holder of Preferred
Securities. A holder of a Preferred Security wishing to exercise its conversion
right will deliver an irrevocable notice of conversion, together, if the
Preferred Security is a Certificated Security (as defined herein), with such
Certificated Security, to the Conversion Agent, which shall, on behalf of such
holder, exchange such Preferred Security for a portion of the Convertible
Debentures and immediately convert such Convertible Debentures into Common
Stock. Holders may obtain copies of the required form of the notice of
conversion notice from the Conversion Agent. Procedures for converting book-
entry Preferred Securities into shares of Common Stock will differ, as described
under "-- Book-Entry Only Issuance -- The Depository Trust Company."
Holders of Preferred Securities at 5:00 p.m. (New York City time) on a
distribution record date will be entitled to receive the distribution payable on
such Preferred Securities on the corresponding distribution payment date
notwithstanding the conversion of such Preferred Securities following such
distribution record date but prior to such distribution payment date. Except as
provided in the immediately preceding sentence, neither the Trust nor the
Company will make, or be required to make, any payment, allowance or adjustment
for accumulated and unpaid distributions, whether or not in arrears, on
converted Preferred Securities; provided, however, that any holder of Preferred
Securities who delivers such Preferred Securities for conversion after receiving
a notice of redemption from the Property Trustee during an Extension Period will
be entitled to receive all accumulated and unpaid distributions to the date of
conversion. Each conversion will be deemed to have been effected immediately
prior to 5:00 p.m. (New York City time) on the day on which the related
conversion notice was received by the Conversion Agent.
Shares of Common Stock issued upon conversion of Preferred Securities will
be validly issued, fully paid and nonassessable. No fractional shares of Common
Stock will be issued as a result of conversion, but in lieu thereof such
fractional interest will be paid by the Company in cash based on the last
reported sale price of Common Stock on the date such Preferred Securities are
surrendered for conversion.
Conversion Price Adjustments -- General. The conversion price is subject
to adjustment in certain events, including (a) the issuance of shares of Common
Stock as a dividend or a distribution with respect to Common Stock, (b)
subdivisions, combinations and reclassification of Common Stock, (c) the
issuance to all holders of Common Stock of rights or warrants entitling them
(for a period not exceeding 45 days) to subscribe for shares of Common Stock at
less than the then Current Market Price (as defined below) of the Common Stock,
(d) the distribution to holders of Common Stock of evidences of indebtedness of
the Company, securities or capital stock, cash or assets (including securities,
but excluding those rights, warrants, dividends and distributions referred to
above and dividends and distributions paid exclusively in cash), (e) the payment
of dividends (and other distributions) on Common Stock paid exclusively in cash,
excluding cash dividends if the annualized per share amount thereof does not
exceed 15% of the Current Market Price of Common Stock as of the Trading Day
immediately preceding the date of declaration of such dividend, and (f) payment
to holders of Common Stock in respect of a tender or exchange offer (other than
an odd-lot offer) by the Company for Common Stock at a price in excess of 110%
of the then Current Market Price of Common Stock as of the Trading Day next
succeeding the last date tenders or exchanges may be made pursuant to such
tender or exchange offer. "Current Market Price" means the average of the daily
closing prices for the five consecutive trading days selected by the Company
commencing not more than 20 trading days before, and ending not later than, the
earlier of the day in question or, if applicable, the day before the "ex" date
with respect to the issuance or distribution in question.
The Company from time to time may reduce the conversion price of the
Convertible Debentures (and thus, the conversion price of the Preferred
Securities) by any amount selected by the Company for any period of at least 20
days, in which case the Company shall give at least 15 days' notice of such
reduction. The Company may, at its option, make such reductions in the
conversion price, in addition to those set forth above, as the Company's Board
of Directors deem advisable to avoid or diminish any income tax to holders of
Common Stock resulting from any dividend or distribution of stock (or rights to
acquire stock) or from any
61
<PAGE> 63
event treated as such for income tax purposes. See "United States Federal Income
Taxation -- Adjustment of Conversion Price."
No adjustment of the conversion price will be made upon the issuance of any
shares of Common Stock pursuant to any present or future plan providing for the
reinvestment of dividends or interest payable on securities of the Company and
the investment of additional optional amounts in shares of Common Stock under
any such plan. No adjustment in the conversion price will be required unless
adjustment would require a change of at least 1% in the price then in effect;
provided, however, that any adjustment that would not be required to be made
shall be carried forward and taken into account in any subsequent adjustment. If
any action would require adjustment of the conversion price pursuant to more
than one of the provisions described above, only one adjustment shall be made
and such adjustment shall be the amount of adjustment that has the highest
absolute value to the holder of the Preferred Securities.
Conversion Price Adjustments -- Merger, Consolidation or Sale of Assets of
the Company. In the event that the Company shall be a party to any transaction,
including, without limitation, and with certain exceptions, (a) a
recapitalization or reclassification of the Common Stock, (b) consolidation of
the Company with, or merger of the Company into, any other Person, or any merger
of another Person into the Company, (c) any sale, transfer or lease of all or
substantially all of the assets of the Company or (d) any compulsory share
exchange) pursuant to which the Common Stock is converted into the right to
receive other securities, cash or other property (each of the foregoing being
referred to as a "Transaction"), then the holders of Preferred Securities then
outstanding shall have the right to convert the Preferred Securities into the
kind and amount of securities, cash or other property receivable upon the
consummation of such Transaction by a holder of the number of shares of Common
Stock issuable upon conversion of such Preferred Securities immediately prior to
such Transaction. This change could substantially lessen or eliminate the value
of the conversion privilege associated with the Preferred Securities in the
future. For example, if the Company were acquired in a cash merger, each
Preferred Security would become convertible solely into cash and would no longer
be convertible into securities whose value would vary depending on the future
prospects of the Company and other factors.
Conversion price adjustments or omissions in making such adjustments may,
under certain circumstances, be deemed to be distributions that could be taxable
as dividends to holders of Preferred Securities or to the holders of Common
Stock. See "United States Federal Income Taxation -- Adjustment of Conversion
Price."
MANDATORY REDEMPTION
The Convertible Debentures will mature on , 2016 and may be
redeemed, in whole or in part, at any time after , 1999 or at any
time in certain circumstances upon the occurrence of a Tax Event. Upon the
repayment of the Convertible Debentures, whether at maturity or upon redemption
(either at the option of the Company or pursuant to a Tax Event), the proceeds
from such repayment shall simultaneously be applied to redeem Trust Securities
having an aggregate liquidation amount equal to the Convertible Debentures so
repaid or redeemed at the applicable Redemption Price, together with accrued and
unpaid distributions through the date fixed for redemption; provided, that
holders of the Trust Securities shall be given not less than 30 nor more than 60
days' notice of such redemption. See "-- Special Event Redemption or
Distribution," "-- Redemption Procedures," "Description of the Convertible
Debentures -- General" and "Description of the Convertible
Debentures -- Optional Redemption."
SPECIAL EVENT REDEMPTION OR DISTRIBUTION
If, at any time, a Tax Event or an Investment Company Event shall occur and
be continuing, the Trust shall, unless the Convertible Debentures are redeemed
in the limited circumstances described below, be dissolved with the result that,
after satisfaction of creditors, if any, of the Trust, Convertible Debentures
with an aggregate principal amount equal to the aggregate stated liquidation
amount of, with an interest rate identical to the distribution rate of, and
accrued and unpaid interest equal to accrued and unpaid distributions on, and
having the same record date for payment as the Preferred Securities and the
Common Securities outstanding at such time would be distributed on a pro rata
basis to the holders of the Preferred Securities and
62
<PAGE> 64
the Common Securities in liquidation of such holders' interests in the Trust,
within 90 days following the occurrence of such Special Event; provided,
however, that in the case of the occurrence of a Tax Event, as a condition of
such dissolution and distribution, the Regular Trustees shall have received an
opinion of nationally recognized independent tax counsel experienced in such
matters (a "No Recognition Opinion"), which opinion may rely on published
revenue rulings of the Internal Revenue Service, to the effect that the holders
of the Preferred Securities will not recognize any income, gain or loss for
federal income tax purposes as a result of such dissolution and distribution of
Convertible Debentures; and, provided, further, that if at the time there is
available to the Trust the opportunity to eliminate, within such 90-day period,
the Special Event by taking some ministerial action, such as filing a form or
making an election, or pursuing some other similar reasonable measure that, in
the sole judgment of the Company, has or will cause no adverse effect on the
Trust, the Company or the holders of the Trust Securities and will involve no
material cost, the Trust will pursue such measure in lieu of dissolution.
Furthermore, if in the case of the occurrence of a Tax Event, (i) the Regular
Trustees have received an opinion (a "Redemption Tax Opinion") of nationally
recognized independent tax counsel experienced in such matters that, as a result
of a Tax Event, there is more than an insubstantial risk that the Company would
be precluded from deducting the interest on the Convertible Debentures for
federal income tax purposes even if the Convertible Debentures were distributed
to the holders of Preferred Securities and Common Securities in liquidation of
such holders' interests in the Trust as described above or (ii) the Regular
Trustees shall have been informed by such tax counsel that a No Recognition
Opinion cannot be delivered to the Trust, the Company shall have the right, upon
not less than 30 nor more than 60 days' notice, to redeem the Convertible
Debentures, in whole (but not in part) for cash within 90 days following the
occurrence of such Tax Event, and promptly following such redemption, the
Preferred Securities and Common Securities will be redeemed by the Trust at the
Redemption Price; provided, however, that if at the time there is available to
the Company or the Trust the opportunity to eliminate, within such 90-day
period, the Tax Event by taking some ministerial action, such as filing a form
or making an election, or pursuing some other similar reasonable measure that,
in the sole judgment of the Company, has or will cause no adverse effect on the
Trust, the Company or the holders of the Trust Securities and will involve no
material cost, the Company or the Trust will pursue such measure in lieu of
redemption.
Because the Company is a holding company whose operations are conducted
through its subsidiaries, the ability of the Company to redeem the Convertible
Debentures, and, therefore for the Trust to redeem the Preferred Securities,
will be dependent on the subsidiaries' ability to pay dividends to the Company.
The Company's Credit Agreement imposes certain restrictions on the ability of
the Company and its subsidiaries to dividend funds. Therefore, any redemption of
the Convertible Debentures, and, therefore the Preferred Securities, will
require a waiver or amendment to the Credit Agreement prior to such redemption.
See "Risk Factors -- Holding Company Structure, Subordination and Restrictive
Covenants," "Ranking of Subordinate Obligations Under the Guarantee and
Convertible Debentures" and "Description of Certain Indebtedness."
"Tax Event" means that the Regular Trustees shall have received an opinion
of nationally recognized independent tax counsel experienced in such matters (a
"Dissolution Tax Opinion") to the effect that as a result of (a) any amendment
to, or change (including any announced prospective change) in, the laws (or any
regulations thereunder) of the United States or any political subdivision or
taxing authority thereof or therein, (b) any amendment to, or change in, an
interpretation or application of any such laws or regulations by any legislative
body, court, governmental agency or regulatory authority (including the
enactment of any legislation and the publication of any judicial decision or
regulatory determination), (c) any interpretation or pronouncement that provides
for a position with respect to such laws or regulations that differs from the
theretofore generally accepted position or (d) any action taken by any
governmental agency or regulatory authority, which amendment or change is
enacted, promulgated, issued or announced or which interpretation or
pronouncement is issued or announced or which action is taken, in each case, on
or after the date of this Prospectus (collectively, a "Change in Tax Law"),
there is more than an insubstantial risk that (i) the Trust is, or will be
within 90 days of the date thereof, subject to federal income tax with respect
to income accrued or received on the Convertible Debentures, (ii) the Trust is,
or will be within 90 days of the date thereof, subject to more than a de minimis
amount of other taxes, duties or other governmental charges or (iii) interest
payable by the Company to the Trust on the Convertible Debentures is not, or
within 90 days of the date thereof will not be, deductible by the Company for
federal income tax purposes. Notwithstanding anything in
63
<PAGE> 65
the previous sentence to the contrary, a Tax Event shall not include any Change
in Tax Law that requires the Company for federal income tax purposes to defer
taking a deduction for any OID that accrues with respect to the Convertible
Debentures until the interest payment related to such OID is paid by the Company
in money; provided, that such Change in Tax Law does not create more than an
insubstantial risk that the Company will be prevented from taking a deduction
for OID accruing with respect to the Convertible Debentures at a date that is no
later than the date the interest payment related to such OID is actually paid by
the Company in money.
"Investment Company Event" means that the Regular Trustees shall have
received an opinion of nationally recognized independent counsel experienced in
practice under the Investment Company Act of 1940, as amended (the "1940 Act"),
that as a result of the occurrence of a change in law or regulation or a change
in interpretation or application of law or regulation by any legislative body,
court, governmental agency or regulatory authority (a "Change in 1940 Act Law"),
there is more than an insubstantial risk that the Trust is or will be considered
an "investment company" which is required to be registered under the 1940 Act,
which Change in 1940 Act Law becomes effective on or after the date hereof.
On the date fixed for any distribution of Convertible Debentures, upon
dissolution of the Trust, (i) the Preferred Securities and the Common Securities
will no longer be deemed to be outstanding and (ii) certificates representing
Trust Securities will be deemed to represent beneficial interests in the
Convertible Debentures having an aggregate principal amount equal to the stated
liquidation amount of, and bearing accrued and unpaid interest equal to accrued
and unpaid distributions on, such Trust Securities until such certificates are
presented to the Company or its agent for transfer or reissuance.
There can be no assurance as to the market price for the Convertible
Debentures that may be distributed in exchange for Trust Securities if a
dissolution and liquidation of the Trust were to occur. Accordingly, the
Convertible Debentures that the investor may subsequently receive on dissolution
and liquidation of the Trust may trade at a discount to the price of the Trust
Securities exchanged. If the Convertible Debentures are distributed to the
holders of the Preferred Securities, the Company will use its best efforts to
cause the Convertible Debentures to be listed on the NYSE or on any such other
national securities exchange or similar organization as the Preferred Securities
are then listed or quoted.
REDEMPTION PROCEDURES
The Trust may not redeem fewer than all of the outstanding Preferred
Securities unless all accrued and unpaid distributions have been paid on all
Preferred Securities for all quarterly distribution periods terminating on or
prior to the date fixed for redemption.
In the event of any redemption in part, the Trust shall not be required to
(i) issue, register the transfer of or exchange any Preferred Security during a
period beginning at the opening of business 15 days before any selection for
redemption of Preferred Securities and ending at the close of business on the
earliest date in which the relevant notice of redemption is deemed to have been
given to all holders of Preferred Securities to be so redeemed and (ii) register
the transfer of or exchange any Preferred Securities so selected for redemption,
in whole or in part, except for the unredeemed portion of any Preferred
Securities being redeemed in part.
If the Trust gives a notice of redemption in respect of Preferred
Securities (which notice will be irrevocable), and if the Company has paid to
the Property Trustee a sufficient amount of cash in connection with the related
redemption or maturity of the Convertible Debentures, then, by 12:00 noon, New
York City time, on the redemption date, the Trust will irrevocably deposit with
DTC funds sufficient to pay the amount payable on redemption of all book-entry
certificates and will give DTC irrevocable instructions and authority to pay
such amount in respect of Preferred Securities represented by the Global
Certificates (as defined herein) and will irrevocably deposit with the paying
agent for the Preferred Securities funds sufficient to pay such amount in
respect of any Certificated Securities and will give such paying agent
irrevocable instructions and authority to pay such amount to the holders of
Certificated Securities upon surrender of their certificates. If notice of
redemption shall have been given and funds are deposited as required, then upon
the date of such deposit, all rights of holders of such Preferred Securities so
called for redemption will cease, except the right of
64
<PAGE> 66
the holders of such Preferred Securities to receive the Redemption Price, but
without interest on such Redemption Price. In the event that any date fixed for
redemption of Preferred Securities is not a Business Day, then payment of the
amount payable on such date will be made on the next succeeding day that is a
Business Day (without any interest or other payment in respect of any such
delay), except that, if such Business Day falls in the next calendar year, such
payment will be made on the immediately preceding Business Day. In the event
that payment of the Redemption Price in respect of Preferred Securities is
improperly withheld or refused and not paid either by the Trust or by the
Company pursuant to the Guarantee described under "Description of the
Guarantee," distributions on such Preferred Securities will continue to accrue
at the then applicable rate, from the original redemption date to the date of
payment, in which case the actual payment date will be considered the date fixed
for redemption for purposes of calculating the amount payable upon redemption
(other than for calculating any premium).
In the event that fewer than all of the outstanding Preferred Securities
are to be redeemed, the Preferred Securities will be redeemed pro rata.
Subject to the foregoing and applicable law (including, without limitation,
federal securities laws), the Company or its subsidiaries may at any time and
from time to time purchase outstanding Preferred Securities by tender, in the
open market or by private agreement.
SUBORDINATION OF COMMON SECURITIES
Payment of distributions on, and the amount payable upon redemption of, the
Trust Securities, as applicable, shall be made pro rata based on the liquidation
amount of the Trust Securities; provided, however, that, if on any distribution
date or redemption date a Declaration Event of Default shall have occurred and
be continuing, no payment of any distribution on, or amount payable upon
redemption of, any Common Security, and no other payment on account of the
redemption, liquidation or other acquisition of Common Securities, shall be made
unless payment in full in cash of all accumulated and unpaid distributions on
all outstanding Preferred Securities for all distribution periods terminating on
or prior thereto, or in the case of payment of the amount payable upon
redemption of the Preferred Securities, the full amount of such amount in
respect of all outstanding Preferred Securities shall have been made or provided
for, and all funds available to the Property Trustee shall first be applied to
the payment in full in cash of all distributions on, or the amount payable upon
redemption of, Preferred Securities then due and payable.
In the case of any Declaration Event of Default, the holder of Common
Securities will be deemed to have waived any such Declaration Event of Default
until all such Declaration Events of Default with respect to the Preferred
Securities have been cured, waived or otherwise eliminated. Until any such
Declaration Events of Default with respect to the Preferred Securities have been
so cured, waived or otherwise eliminated, the Property Trustee will act solely
on behalf of the holders of the Preferred Securities and not the holder of the
Common Securities, and only the holders of the Preferred Securities will have
the right to direct the Property Trustee to act on their behalf.
LIQUIDATION DISTRIBUTION UPON DISSOLUTION
In the event of any voluntary or involuntary liquidation, dissolution,
winding-up or termination of the Trust (each a "Liquidation"), the then holders
of the Preferred Securities will be entitled to receive out of the assets of the
Trust, after satisfaction of liabilities to creditors, distributions in an
amount equal to the aggregate of the stated liquidation amount of $50 per
Preferred Security plus accrued and unpaid distributions thereon to the date of
payment (the "Liquidation Distribution"), unless, in connection with such
Liquidation, Convertible Debentures in an aggregate stated principal amount
equal to the aggregate stated liquidation amount of, with an interest rate
identical to the distribution rate of, and accrued and unpaid interest equal to
accrued and unpaid distributions on, the Preferred Securities have been
distributed on a pro rata basis to the holders of the Preferred Securities.
If, upon any such Liquidation Distribution, the Liquidation Distribution
can be paid only in part because the Trust has insufficient assets available to
pay in full the aggregate Liquidation Distribution, then the amounts payable
directly by the Trust on the Preferred Securities shall be paid on a pro rata
basis. The holders
65
<PAGE> 67
of the Common Securities will be entitled to receive distributions upon any such
dissolution pro rata with the holders of the Preferred Securities, except that
if a Declaration Event of Default has occurred and is continuing, the Preferred
Securities shall have a preference over the Common Securities with regard to
such distributions.
Pursuant to the Declaration, the Trust shall terminate (i) upon the
bankruptcy of the Company; (ii) upon the filing of a certificate of dissolution
or its equivalent with respect to the Company, the filing of a certificate of
cancellation with respect to the Trust after having obtained the consent of at
least a majority in liquidation amount of the Securities, voting together as a
single class, to file such certificate of cancellation, or the revocation of the
charter of the Company and the expiration of 90 days after the date of
revocation without a reinstatement thereof; (iii) upon the entry of a decree of
judicial dissolution of the Company or the Trust; (iv) when all of the Trust
Securities shall have been called for redemption and the amounts necessary for
redemption thereof, including any Additional Interest and Compounded Interest,
shall have been paid to the Holders in accordance with the terms of the Trust
Securities; (v) upon the occurrence and continuation of a Tax Event pursuant to
which the Trust shall have been dissolved in accordance with the terms of the
Trust Securities and all of the Convertible Debentures endorsed thereon shall
have been distributed to the Holders of Trust Securities in exchange for all of
the Trust Securities; or (vi) the expiration of the term of the Trust on
September 27, 2021.
MERGER, CONSOLIDATION OR AMALGAMATION OF THE TRUST
The Trust may not consolidate, amalgamate, merge with or into, or be
replaced by, or convey, transfer or lease its properties and assets
substantially as an entirety, to any corporation or other entity, except as
described below. The Trust may, with the consent of the Regular Trustees and
without the consent of the holders of the Trust Securities, the Property Trustee
or the Delaware Trustee consolidate, amalgamate, merge with or into, or be
replaced by a trust organized as such under the laws of any State of the United
States; provided, that (i) if the Trust is not the survivor, such successor
entity either (x) expressly assumes all of the obligations of the Trust under
the Trust Securities or (y) substitutes for the Preferred Securities other
securities having substantially the same terms as the Preferred Trust Securities
(the "Successor Securities"), so long as the Successor Securities rank the same
as the Preferred Trust Securities rank with respect to distributions, assets and
payments upon liquidation, redemption and otherwise, (ii) the Company expressly
acknowledges a trustee of such successor entity possessing the same powers and
duties as the Property Trustee as the holder of the Convertible Debentures,
(iii) the Preferred Securities or any Successor Securities are listed, or any
Successor Securities will be listed upon notification of issuance, on any
national securities exchange or with another organization on which the Preferred
Securities are then listed or quoted, (iv) such merger, consolidation,
amalgamation or replacement does not cause the Preferred Securities (including
any Successor Securities) to be downgraded by any nationally recognized
statistical rating organization, (v) such merger, consolidation, amalgamation or
replacement does not adversely affect the rights, preferences and privileges of
the holders of the Preferred Securities (including any Successor Securities) in
any material respect, (vi) such successor entity has a purpose substantially
identical to that of the Trust, (vii) the Company guarantees the obligations of
such successor entity under the Successor Securities to the same extent as
provided by the Guarantee, (viii) prior to such merger, consolidation,
amalgamation or replacement, the Company has received an opinion of a nationally
recognized independent counsel to the Trust reasonably acceptable to the
Property Trustee and experienced in such matters to the effect that: (A) such
merger, consolidation, amalgamation or replacement will not adversely affect the
rights, preferences and privileges of the holders of the Trust Securities
(including any Successor Securities) in any material respect (other than with
respect to any dilution of the holders' interest in the new entity), (B)
following such merger, consolidation, amalgamation or replacement, neither the
Trust nor such successor entity will be required to register as an investment
company under the 1940 Act and (C) following such merger, consolidation,
amalgamation or replacement, the Trust (or such successor entity) will be
treated as a grantor trust for federal income tax purposes. Notwithstanding the
foregoing, the Trust shall not, except with the consent of holders of 100% in
liquidation amount of the Common Securities, consolidate, amalgamate, merge with
or into, or be replaced by any other entity or permit any other entity to
consolidate, amalgamate, merge with or into, or
66
<PAGE> 68
replace it, if such consolidation, amalgamation, merger or replacement would
cause the Trust or the successor entity to be classified as other than a grantor
trust for federal income tax purposes.
DECLARATION EVENTS OF DEFAULT
An event of default under the Indenture (an "Indenture Event of Default")
constitutes an event of default under the Declaration with respect to the Trust
Securities (a "Declaration Event of Default"); provided, that pursuant to the
Declaration, the holder of the Common Securities will be deemed to have waived
any Declaration Event of Default with respect to the Common Securities until all
Declaration Events of Default with respect to the Preferred Securities have been
cured, waived or otherwise eliminated. Until such Declaration Events of Default
with respect to the Preferred Securities have been so cured, waived or otherwise
eliminated, the Property Trustee will be deemed to be acting solely on behalf of
the holders of the Preferred Securities, and only the holders of the Preferred
Securities will have the right to direct the Property Trustee with respect to
certain matters under the Declaration and, therefore, the Indenture. The
Property Trustee shall notify all holders of the Preferred Securities of any
notice of default received from the Indenture Trustee with respect to the
Convertible Debentures. Such notice shall state that such Indenture Event of
Default also constitutes a Declaration Event of Default.
If the Property Trustee fails to enforce its rights under the Convertible
Debentures after a holder of Preferred Securities has made a written request,
such holder of record of Preferred Securities may directly institute a legal
proceeding against the Company to enforce the Property Trustee's rights under
the Convertible Debentures without first instituting any legal proceeding
against the Property Trustee or any other person or entity. Notwithstanding the
foregoing, if a Declaration Event of Default has occurred and is continuing and
such event is attributable to the failure of the Company to pay interest or
principal on the Convertible Debentures on the date such interest or principal
is otherwise payable (or in the case of redemption, the redemption date), then a
holder of Preferred Securities may directly institute a proceeding for
enforcement of payment to such holder directly of the principal of or interest
on the Convertible Debentures having a principal amount equal to the aggregate
liquidation amount of the Preferred Securities of such holder on or after the
respective due date specified in the Convertible Debentures. In connection with
such Direct Action, the Company will be subrogated to the rights of such holder
of Preferred Securities under the Declaration to the extent of any payment made
by the Company to such holder of Preferred Securities in such Direct Action. The
holders of Preferred Securities will not be able to exercise directly any other
remedy available to the holders of the Convertible Debentures.
Upon the occurrence of a Declaration Event of Default, the Property Trustee
as the sole holder of the Convertible Debentures will have the right under the
Indenture to declare the principal of and interest on the Convertible Debentures
to be immediately due and payable. The Company and the Trust are each required
to file annually with the Property Trustee an officers' certificate as to its
compliance with all conditions and covenants under the Declaration.
VOTING RIGHTS
Except as described herein, under the Trust Act, the Trust Indenture Act
and under "Description of the Guarantee -- Amendments and Assignment," and as
otherwise required by law and the Declaration, the holders of the Preferred
Securities will have no voting rights.
Subject to the requirement of the Property Trustee obtaining a tax opinion
in certain circumstances set forth in the last sentence of this paragraph, the
holders of a majority in liquidation amount of the Preferred Securities have the
right to direct the time, method and place of conducting any proceeding for any
remedy available to the Property Trustee and direct the exercise of any trust or
power conferred upon the Property Trustee under the Declaration, including the
right to direct the Property Trustee, as holder of the Convertible Debentures,
to (i) exercise the remedies available to it under the Indenture as a holder of
the Convertible Debentures, (ii) waive any past Indenture Event of Default that
is waiveable under the Indenture, (iii) exercise any right to rescind or annul a
declaration that the principal of all the Convertible Debentures shall be due
and payable or (iv) consent to any amendment, modification or termination of the
Indenture or
67
<PAGE> 69
the Convertible Debentures where such consent shall be required; provided,
however, that where a consent or action under the Indenture would require the
consent or act of the holders of more than a majority of the aggregate principal
amount of Convertible Debentures affected thereby, only the holders of the
percentage of the aggregate stated liquidation amount of the Preferred
Securities that is at least equal to the percentage required under the Indenture
may direct the Property Trustee to give such consent or take such action. The
Property Trustee shall be under no obligation to take any of the actions
described in clauses (i), (ii) or (iii) above unless the Property Trustee has
obtained an opinion of independent tax counsel to the effect that as a result of
such action, the Trust will not fail to be classified as a grantor trust for
federal income tax purposes and each holder will be treated as owning an
undivided beneficial interest in the Convertible Debentures.
In the event the consent of the Property Trustee, as the holder of the
Convertible Debentures, is required under the Indenture with respect to any
amendment, modification or termination of the Indenture, the Property Trustee
shall request the direction of the holders of the Trust Securities with respect
to such amendment, modification or termination and shall vote with respect to
such amendment, modification or termination as directed by a majority in
liquidation amount of the Trust Securities voting together as a single class;
provided, however, that where a consent under the Indenture would require the
consent of the holders of more than a majority of the aggregate principal amount
of the Convertible Debentures, the Property Trustee may only give such consent
at the direction of the holders of at least the same proportion in aggregate
stated liquidation amount of the Securities. The Property Trustee shall not take
any such action in accordance with the direction of the holders of the Trust
Securities unless the Property Trustee has obtained an opinion of tax counsel to
the effect that for federal income tax purposes the Trust will not be classified
as other than a grantor trust.
A waiver of an Indenture Event of Default will constitute a waiver of the
corresponding Declaration Event of Default.
Any required approval or direction of holders of Preferred Securities may
be given at a separate meeting of holders of Preferred Securities convened for
such purpose, at a meeting of all of the holders of Trust Securities or pursuant
to written consent. The Regular Trustees will cause a notice of any meeting at
which holders of Preferred Securities are entitled to vote, or of any matter
upon which action by written consent of such holders is to be taken, to be
mailed to each holder of record of Preferred Securities. Each such notice will
include a statement setting forth: (i) the date of such meeting or the date by
which such action is to be taken, (ii) a description of any resolution proposed
for adoption at such meeting on which such holders are entitled to vote or of
such matter upon which written consent is sought, and (iii) instructions for the
delivery of proxies or consents. No vote or consent of the holders of Preferred
Securities will be required for the Trust to redeem and cancel Preferred
Securities or distribute Convertible Debentures in accordance with the
Declaration.
Notwithstanding that holders of Preferred Securities are entitled to vote
or consent under any of the circumstances described above, any of the Preferred
Securities that are owned at such time by the Company or any entity directly or
indirectly controlling or controlled by, or under direct or indirect common
control with, the Company, shall not be entitled to vote or consent and shall,
for purposes of such vote or consent, be treated as if such Preferred Securities
were not outstanding.
The procedures by which holders of Preferred Securities represented by the
Global Certificates may exercise their voting rights are described below. See
"-- Book-Entry Only Issuance -- The Depository Trust Company."
Holders of the Preferred Securities will have no right to appoint or remove
the Regular Trustees, who may be appointed, removed or replaced solely by the
Company as the holder of the Common Securities.
MODIFICATION OF THE DECLARATION
The Declaration may be modified and amended if approved by the Regular
Trustees (and, in certain circumstances, the Property Trustee and the Delaware
Trustee), provided, that if any proposed amendment provides for, or the Regular
Trustees otherwise propose to effect, (i) any action that would adversely affect
the powers, preferences or special rights of the Trust Securities, whether by
way of amendment to the Declaration
68
<PAGE> 70
or otherwise or (ii) the dissolution, winding-up or termination of the Trust
other than pursuant to the terms of the Declaration, then the holders of the
Trust Securities voting together as a single class will be entitled to vote on
such amendment or proposal and such amendment or proposal shall not be effective
except with the approval of at least a majority in liquidation amount of the
Trust Securities affected thereby; provided, that if any amendment or proposal
referred to in clause (i) above would adversely affect only the Preferred
Securities or the Common Securities, then only the affected class will be
entitled to vote on such amendment or proposal and such amendment or proposal
shall not be effective except with the approval of a majority in liquidation
amount of such class of Securities.
Notwithstanding the foregoing, no amendment or modification may be made to
the Declaration if such amendment or modification would (i) cause the Trust to
be classified for federal income tax purposes as other than a grantor trust,
(ii) reduce or otherwise adversely affect the powers of the Property Trustee or
(iii) cause the Trust to be deemed an "investment company" that is required to
be registered under the 1940 Act.
BOOK-ENTRY ONLY ISSUANCE -- THE DEPOSITORY TRUST COMPANY
The Depository Trust Company ("DTC") will act as securities depositary for
the Preferred Securities. The Preferred Securities will be issued only as
fully-registered securities registered in the name of Cede & Co. (DTC's
nominee). One or more fully-registered global Preferred Securities certificates
(the "Global Certificates"), representing the total aggregate number of
Preferred Securities, will be issued and will be deposited with DTC.
The laws of some jurisdictions require that certain purchasers of
securities take physical delivery of securities in definitive form. Such laws
may impair the ability to transfer beneficial interests in the global Preferred
Securities as represented by a global certificate.
DTC is a limited-purpose trust company organized under the New York Banking
Law, a "banking organization" within the meaning of New York Banking Law, a
member of the Federal Reserve System, a "clearing corporation" within the
meaning of the New York Uniform Commercial Code, and a "clearing agency"
registered pursuant to the provisions of Section 17A of the Exchange Act. DTC
holds securities that its participants ("Participants") deposit with DTC. DTC
also facilitates the settlement among Participants of securities transactions,
such as transfers and pledges, in deposited securities through electronic
computerized book-entry changes in Participants' accounts, thereby eliminating
the need for physical movement of securities certificates. Participants in DTC
include securities brokers and dealers, banks, trust companies, clearing
corporations and certain other organizations. DTC is owned by a number of its
Participants and by the NYSE, the American Stock Exchange, Inc., and the
National Association of Securities Dealers, Inc. Access to the DTC system is
also available to others such as securities brokers and dealers, banks and trust
companies that clear through or maintain a custodial relationship with a
Participant, either directly or indirectly ("Indirect Participants"). The rules
applicable to DTC and its Participants are on file with the Commission.
Purchases of Preferred Securities within the DTC system must be made by or
through Participants, which will receive a credit for the Preferred Securities
on DTC's records. The ownership interest of each actual purchaser of Preferred
Securities ("Beneficial Owner") is in turn to be recorded on the Participants'
and Indirect Participants' records. Beneficial Owners will not receive written
confirmation from DTC of their purchases, but Beneficial Owners are expected to
receive written conformations providing details of the transactions, as well as
periodic statements of their holdings, from the Participants or Indirect
Participants through which the Beneficial Owners purchased Preferred Securities.
Transfers of ownership interests in the Preferred Securities are to be
accomplished by entries made on the books of Participants and Indirect
Participants acting on behalf of Beneficial Owners. Beneficial Owners will not
receive certificates representing their ownership interests in Preferred
Securities, except in the event that use of the book-entry system for the
Preferred Securities is discontinued.
DTC has no knowledge of the actual Beneficial Owners of the Preferred
Securities; DTC's records reflect only the identity of the Participants to whose
accounts such Preferred Securities are credited, which may or may not be the
Beneficial Owners. The Participants and Indirect Participants will remain
responsible for keeping account of their holdings on behalf of their customers.
69
<PAGE> 71
So long as DTC, or its nominee, is the registered owner or holder of a
Global Certificate, DTC or such nominee, as the case may be, will be considered
the sole owner or holder of the Preferred Securities represented thereby for all
purposes under the Declaration and the Preferred Securities. No beneficial owner
of an interest in a Global Certificate will be able to transfer that interest
except in accordance with DTC's applicable procedures, in addition to those
provided for under the Declaration.
DTC has advised the Company that it will take any action permitted to be
taken by a holder of Preferred Securities (including the presentation of
Preferred Securities for exchange as described below) only at the direction of
one or more Participants to whose account the DTC interests in the Global
Certificates are credited and only in respect of such portion of the aggregate
liquidation amount of Preferred Securities as to which such Participant or
Participants has or have given such direction. However, if there is an Event of
Default under the Preferred Securities, DTC will exchange the Global
Certificates for Certificated Securities, which it will distribute to its
Participants.
Conveyance of notices and other communications by DTC to Participants, by
Participants to Indirect Participants, and by Participants and Indirect
Participants to Beneficial Owners will be governed by arrangements among them,
subject to any statutory or regulatory requirements as may be in effect from
time to time.
Redemption notices in respect of the Preferred Securities held in
book-entry form will be sent to Cede & Co. If less than all of the Preferred
Securities are being redeemed, DTC will determine the amount of the interest of
each Participant to be redeemed in accordance with its procedures.
Although voting with respect to the Preferred Securities is limited, in
those cases where a vote is required, neither DTC nor Cede & Co. will itself
consent or vote with respect to the Preferred Securities. Under its usual
procedures, DTC would mail an Omnibus Proxy to the Trust as soon as possible
after the record date. The Omnibus Proxy assigns Cede & Co.'s consenting or
voting rights to those Participants to whose accounts the Preferred Securities
are credited on the record date (identified in a listing attached to the Omnibus
Proxy).
Distributions on the Preferred Securities held in book-entry form will be
made to DTC in immediately available funds. DTC's practice is to credit
Participants' accounts on the relevant payment date in accordance with their
respective holdings shown on DTC's records unless DTC has reason to believe that
it will not receive payments on such payment date. Payments by Participants and
Indirect Participants to Beneficial Owners will be governed by standing
instructions and customary practices and will be the responsibility of such
Participants and Indirect Participants and not of DTC, the Trust or the Company,
subject to any statutory or regulatory requirements as may be in effect from
time to time. Payment of distributions to DTC is the responsibility of the
Trust, disbursement of such payments to Participants is the responsibility of
DTC, and disbursements of such payments to the Beneficial Owners is the
responsibility of Participants and Indirect Participants.
Except as provided herein, a Beneficial Owner of an interest in a Global
Certificate will not be entitled to receive physical delivery of Preferred
Securities. Accordingly, each Beneficial Owner must rely on the procedures of
DTC to exercise any rights under the Preferred Securities.
Although DTC has agreed to the foregoing procedures in order to facilitate
transfers of interest in the Global Certificates among Participants of DTC, DTC
is under no obligation to perform or continue to perform such procedures, and
such procedures may be discontinued at any time. Neither the Company, the Trust
nor the Property Trustee will have any responsibility for the performance by DTC
or its Participants or Indirect Participants under the rules and procedures
governing DTC. DTC may discontinue providing its services as securities
depositary with respect to the Preferred Securities at any time by giving notice
to the Trust. Under such circumstances, in the event that a successor securities
depositary is not obtained, Preferred Security certificates are required to be
printed and delivered. Additionally, the Trust (with the consent of the Company)
may decide to discontinue use of the system of book-entry transfers through DTC
(or a successor depository). In that event, certificates for the Preferred
Securities will be printed and delivered. In each of the above circumstances,
the Company will appoint a paying agent with respect to the Preferred
Securities.
70
<PAGE> 72
PAYMENT AND PAYING AGENT
Payments in respect of the Preferred Securities represented by the Global
Certificates will be made to DTC, which will credit the relevant accounts at DTC
on the applicable distribution dates or, in the case of Certificated Securities,
such payments shall be made by check mailed to the address of the holder
entitled thereto as such address shall appear on the Register. The Paying Agent
initially will be IBJ Schroder Bank & Trust Company. The Paying Agent will be
permitted to resign as Paying Agent upon 30 days' written notice to the Issuer
Trustees. In the event that IBJ Schroder Bank & Trust Company will no longer be
the Paying Agent, the Trustee shall appoint a successor to act as Paying Agent
(which shall be a bank or trust company).
REGISTRAR, TRANSFER AGENT, PAYING AGENT AND CONVERSION AGENT
The Property Trustee will act as Registrar, Transfer Agent, Paying Agent
and Conversion Agent for the Preferred Securities.
Registration of transfers of Preferred Securities will be effected without
charge by or on behalf of the Trust, but upon payment (with the giving of such
indemnity as the Trust or the Company may require) in respect of any tax or
other government charges that may be imposed in relation to it.
The Trust will not be required to register or cause to be registered the
transfer of Preferred Securities after such Preferred Securities have been
called for redemption.
INFORMATION CONCERNING THE PROPERTY TRUSTEE
The Company and certain of its subsidiaries maintain deposit accounts and
conduct other banking transactions with the Property Trustee in the ordinary
course of their business. The Property Trustee, prior to the occurrence of a
default with respect to the Trust Securities, undertakes to perform only such
duties as are specifically set forth in the Declaration and, after default,
shall exercise the same degree of care as a prudent individual would exercise in
the conduct of his or her own affairs. Subject to such provisions, the Property
Trustee is under no obligation to exercise any of the powers vested in it by the
Declaration at the request of any holder of Preferred Securities, unless offered
reasonable indemnity by such holder against the costs, expenses and liabilities
which might be incurred thereby. The holders of Preferred Securities will not be
required to offer such indemnity in the event such holders, by exercising their
voting rights, direct the Property Trustee to take any action following a
Declaration Event of Default.
GOVERNING LAW
The Declaration and the Preferred Securities will be governed by, and
construed in accordance with, the internal laws of the State of Delaware.
MISCELLANEOUS
The Regular Trustees are authorized and directed to conduct the affairs of
and to operate the Trust in such a way that the Trust will not be deemed to be
an "investment company" required to be registered under the 1940 Act or
characterized as other than a grantor trust for federal income tax purposes so
that the Convertible Debentures will be treated as indebtedness of the Company
for federal income tax purposes. In this connection, the Regular Trustees are
authorized to take any action, not inconsistent with applicable law, the
certificate of trust or the Declaration that the Regular Trustees determine in
their discretion to be necessary or desirable for such purposes as long as such
action does not adversely affect the interests of the holders of the Preferred
Securities.
Holders of the Preferred Securities have no preemptive rights.
71
<PAGE> 73
DESCRIPTION OF THE GUARANTEE
Set forth below is a summary of information concerning the Guarantee that
will be executed and delivered by the Company for the benefit of the holders
from time to time of Preferred Securities. The summary does not purport to be
complete and is subject in all respects to the provisions of, and is qualified
in its entirety by reference to, the Guarantee, a copy of which is filed as an
exhibit to the Registration Statement of which this Prospectus is a part. The
Guarantee incorporates by reference the terms of the Trust Indenture Act. The
Guarantee will be qualified under the Trust Indenture Act. IBJ Schroder Bank &
Trust Company, as the Guarantee Trustee, will hold the Guarantee for the benefit
of the holders of the Preferred Securities.
GENERAL
Pursuant to and to the extent set forth in the Guarantee, the Company will
irrevocably and unconditionally agree to pay in full to the holders of the
Preferred Securities (except to the extent paid by such Trust), as and when due,
regardless of any defense, right of set off or counterclaim that the Trust may
have or assert, the following payments (the "Guarantee Payments"), without
duplication: (i) any accrued and unpaid distributions that are required to be
paid on the Preferred Securities to the extent the Trust has funds available
therefor, (ii) the Redemption Price, with respect to any Preferred Securities
called for redemption by the Trust, to the extent the Trust has funds available
therefor and (iii) upon a voluntary or involuntary dissolution, winding-up or
termination of the Trust (other than in connection with the distribution of
Convertible Debentures to the holders of Preferred Securities or the redemption
of all the Preferred Securities), the lesser of (a) the aggregate of the
liquidation amount and all accrued and unpaid distributions on the Preferred
Securities to the date of payment to the extent the Trust has funds available
therefor and (b) the amount of assets of the Trust remaining available for
distribution to holders of Preferred Securities upon the liquidation of the
Trust. The holders of a majority in liquidation amount of the Preferred
Securities have the right to direct the time, method and place of conducting any
proceeding for any remedy available to the Guarantee Trustee or to direct the
exercise of any trust or power conferred upon the Guarantee Trustee under the
Guarantee. Any holder of Preferred Securities may directly institute a legal
proceeding against the Company to enforce the obligations of the Company under
the Guarantee without first instituting a legal proceeding against the Trust,
the Guarantee Trustee or any other person or entity. If the Company were to
default on its obligation to pay amounts payable on the Convertible Debentures,
the Trust would lack available funds for the payment of distributions or amounts
payable on redemption of the Preferred Securities or otherwise, and in such
event holders of the Preferred Securities would not be able to rely upon the
Guarantee for payment of such amounts. Instead, a holder of the Preferred
Securities would be required to rely on the enforcement (1) by the Property
Trustee of its rights, as registered holder of the Convertible Debentures,
against the Company pursuant to the terms of the Convertible Debentures or (2)
by such holder of Preferred Securities of its right against the Company to
enforce directly payments on Convertible Debentures. See "Description of the
Preferred Securities -- Declaration Events of Default." The Declaration provides
that each holder of Preferred Securities, by acceptance thereof, agrees to the
provisions of the Guarantee, including the subordination provisions thereof, and
the Indenture.
The Guarantee will be a guarantee on a subordinated basis with respect to
the Preferred Securities from the time of issuance of such Preferred Securities
but will not apply to any payment of distributions or Redemption Price, or to
payments upon the dissolution, winding-up or termination of the Trust, except to
the extent the Trust shall have funds available therefor. If the Company does
not make interest payments on the Convertible Debentures, the Trust will not pay
distributions on the Preferred Securities and will not have funds available
therefor. See "Description of the Convertible Debentures." The Guarantee, when
taken together with the Company's obligations under the Convertible Debentures,
and the Indenture thereto and the Declaration, including its obligations to pay
costs, expenses, debts and liabilities of the Trust (other than with respect to
the Trust Securities) will provide a full and unconditional guarantee on a
subordinated basis by the Company of payments due on the Preferred Securities
issued by the Trust.
The Company has also agreed separately to irrevocably and unconditionally
guarantee the obligations of the Trust with respect to the Common Securities
(the "Common Securities Guarantee") to the same extent as the Guarantee, except
that upon the occurrence and during the continuation of a Declaration Event of
72
<PAGE> 74
Default, holders of Preferred Securities shall have priority over holders of
Common Securities with respect to distributions and payments on liquidation,
redemption or otherwise.
CERTAIN COVENANTS OF THE COMPANY
In the Guarantee, so long as any Preferred Securities remain outstanding,
if (i) the Company has exercised its option to defer interest payments on the
Convertible Debentures by extending the interest payment period and such
extension shall be continuing, (ii) the Company shall be in default with respect
to its payment or other obligations under the Guarantee or (iii) there shall
have occurred and be continuing any event that, with the giving of notice or the
lapse of time or both, would constitute an Indenture Event of Default, then the
Company has agreed (a) not to declare or pay dividends on, or make a
distribution with respect to, or redeem, purchase or acquire, or make a
liquidation payment with respect to, any of its capital stock, (other than (i)
purchases or acquisitions of shares of Common Stock in connection with the
satisfaction by the Company of its obligations under any employee benefit plans
or the satisfaction by the Company of its obligations pursuant to any contract
or security requiring the Company to purchase shares of Common Stock, (ii) as a
result of a reclassification of the Company's capital stock or the exchange or
conversion of one class or series of the Company's capital stock for another
class or series of the Company's capital stock or (iii) the purchase of
fractional interests in shares of the Company's capital stock pursuant to the
conversion or exchange provisions of such capital stock or the security being
converted or exchanged (or make any guarantee payments with respect to the
foregoing)), (b) not to make any payment of interest, principal or premium, if
any, on or repay, repurchase or redeem any debt securities of the Company
(including guarantees) that rank pari passu with or junior to the Convertible
Debentures and (c) not to make any guarantee payments with respect to the
foregoing (other than pursuant to the Guarantee).
As part of the Guarantee, the Company will agree that it will honor all
obligations described therein relating to the conversion of the Preferred
Securities into Common Stock as described in "Description of the Preferred
Securities -- Conversion Rights."
AMENDMENTS AND ASSIGNMENT
Except with respect to any changes that do not materially adversely affect
the rights of holders of Preferred Securities (in which case no vote will be
required), the Guarantee may be amended only with the prior approval of the
holders of at least a majority in liquidation amount of all the outstanding
Preferred Securities. The manner of obtaining any such approval of holders of
the Preferred Securities will be as set forth under "Description of the
Preferred Securities -- Voting Rights." All guarantees and agreements contained
in the Guarantee shall bind the successors, assigns, receivers, trustees and
representatives of the
Company and shall inure to the benefit of the holders of the Preferred
Securities then outstanding. Except in connection with any permitted merger or
consolidation of the Company with or into another entity or any permitted sale,
transfer or lease of the Company's assets to another entity as described under
"Description of the Convertible Debentures -- Consolidation, Merger and Sale of
Assets," the Company may not assign its rights or delegate its obligations under
the Guarantee without the prior approval of the holders of at least a majority
of the aggregate stated liquidation amount of the Preferred Securities then
outstanding.
TERMINATION OF THE GUARANTEE
The Guarantee will terminate as to each holder of Preferred Securities upon
(i) full payment of the Redemption Price of all Preferred Securities; or (ii)
distribution of the Convertible Debentures held by the Trust to the holders of
the Preferred Securities; or (iii) liquidation of the Trust, or (iv)
distribution of Common Stock to such holder in respect of conversion of such
holder's Preferred Securities into Common Stock. The Guarantee also will
terminate completely upon full payment of the amounts payable in accordance with
the Declaration of the Trust. The Guarantee will continue to be effective or
will be reinstated, as the case may be, if at any time any holder of Preferred
Securities must restore payment of any sum paid under such Preferred Securities
or such Guarantee.
73
<PAGE> 75
STATUS OF THE GUARANTEE; SUBORDINATION
The Guarantee will constitute an unsecured obligation of the Company and
will rank (i) subordinate and junior to all other liabilities of the Company
except any liabilities that may be pari passu expressly by their terms, (ii)
pari passu with the most senior preferred stock, if any, issued from time to
time by the Company and with any guarantee now or hereafter entered into by the
Company in respect of any preferred or preference stock or preferred securities
of any affiliate of the Company and (iii) senior to the Common Stock. The terms
of the Preferred Securities provide that each holder of Preferred Securities by
acceptance thereof agrees to the subordination provisions and other terms of the
Guarantee.
The Guarantee will constitute a guarantee of payment and not of collection
(that is, the guaranteed party may directly institute a legal proceeding against
the Company to enforce its rights under a Guarantee without instituting a legal
proceeding against any other person or entity).
INFORMATION CONCERNING THE GUARANTEE TRUSTEE
The Guarantee Trustee, prior to the occurrence of a default with respect to
the Guarantee, undertakes to perform only such duties as are specifically set
forth in the Guarantee and, after default with respect to the Guarantee, shall
exercise the same degree of care as a prudent man would exercise in the conduct
of his own affairs. Subject to such provision, the Guarantee Trustee is under no
obligation to exercise any of the powers vested in it by the Guarantee at the
request of any holder of Preferred Securities unless it is offered reasonable
indemnity against the costs, expenses and liabilities that might be incurred
thereby.
GOVERNING LAW
The Guarantee will be governed by, and construed in accordance with, the
laws of the State of New York.
74
<PAGE> 76
DESCRIPTION OF THE CONVERTIBLE DEBENTURES
Set forth below is a description of the specific terms of the Convertible
Debentures in which the Trust will invest the proceeds from the issuance and
sale of the Trust Securities. The following description does not purport to be
complete and is subject to, and is qualified in its entirety by reference to,
the Indenture (the "Indenture") between the Company and IBJ Schroder Bank &
Trust Company, as trustee (the "Indenture Trustee"), a copy of which is filed as
an exhibit to the Registration Statement of which this Prospectus is a part.
Certain capitalized terms used herein are defined in the Indenture.
Under certain circumstances involving the dissolution of the Trust
following the occurrence of a Special Event, Convertible Debentures may be
distributed to the holders of the Trust Securities in liquidation of the Trust.
See "Description of the Preferred Securities -- Special Event Redemption or
Distribution." If the Convertible Debentures are distributed to the holders of
Preferred Securities, the Company will use its best efforts to have the
Convertible Debentures listed on the NYSE or on such other national securities
exchange or similar organization on which the Preferred Securities are then
listed or quoted.
GENERAL
The Convertible Debentures will be issued as unsecured debt under the
Indenture. The Convertible Debentures will be limited in aggregate principal
amount to $103,092,800 ($118,556,750 if the Underwriters' over-allotment option
is exercised in full), such amount being the sum of the aggregate stated
liquidation amount of the Preferred Securities and the Common Securities.
The Convertible Debentures are not subject to a sinking fund provision. The
entire principal amount of the Convertible Debentures will become due and
payable, together with any accrued and unpaid interest thereon, including
Compounded Interest (as defined herein) and Additional Interest, if any, on
, 2016.
The Convertible Debentures, if distributed to holders of Preferred
Securities in liquidation of such holder's interest in the Trust, will initially
be issued in the same form as the Preferred Securities that such Convertible
Debentures replace. See " -- Book-Entry and Settlement." Under certain limited
circumstances, Convertible Debentures may be issued in certificated form in
exchange for a Global Security. In the event that Convertible Debentures are
issued in certificated form, such Convertible Debentures will be in
denominations of $50 and integral multiples thereof and may be transferred or
exchanged at the offices described below.
Payments on Convertible Debentures issued as a Global Security will be made
to DTC, a successor depositary or, in the event that no depositary is used, to a
Paying Agent for the Convertible Debentures. In the event Convertible Debentures
are issued in certificated form, principal and interest will be payable, the
transfer of the Convertible Debentures will be registrable and Convertible
Debentures will be exchangeable for Convertible Debentures of other
denominations of a like aggregate principal amount at the corporate trust office
of the Indenture Trustee in The City of New York; provided, that unless the
Convertible Debentures are held by the Trust or any successor permissible under
"Description of the Preferred Securities -- Merger, Consolidation or
Amalgamation of the Trust," payment of interest may be made at the option of the
Company by check mailed to the address of the persons entitled thereto.
There are no covenants or provisions in the Indenture that afford holders
of Convertible Debentures protection in the event of a highly leveraged
transaction or other similar transaction involving the Company that may
adversely affect such holders.
INTEREST
Each Convertible Debenture will bear interest at the rate of % per annum
from the original date of issuance, payable quarterly in arrears on March 31,
June 30, September 30 and December 31 (each, an "Interest Payment Date"),
commencing December 31, 1996, to the person in whose name such Convertible
Debenture is registered, subject to certain exceptions, at 5:00 p.m. (New York
City time) on the March 15, June 15, September 15 and December 15 next preceding
such Interest Payment Date.
75
<PAGE> 77
The amount of interest payable for any period will be computed on the basis
of a 360-day year of twelve 30-day months. The amount of interest payable for
any period shorter than a full quarterly period for which interest is computed
will be computed on the basis of the actual number of days elapsed. In the event
that any date on which interest is payable on the Convertible Debentures is not
a Business Day, then payment of the interest payable on such date will be made
on the next succeeding day which is a Business Day (without any interest or
other payment in respect of any such delay), except that, if such Business Day
is in the next succeeding calendar year, such payment shall be made on the
immediately preceding Business Day, in each case with the same force and effect
as if made on such date.
OPTION TO EXTEND INTEREST PAYMENT PERIODS
The Company shall have the right at any time during the term of the
Convertible Debentures to defer interest payments from time to time by extending
the interest payment period for successive periods not exceeding 20 consecutive
quarters for each such period; provided, no Extension Period may extend beyond
the maturity date of the Convertible Debentures. At the end of each Extension
Period, the Company shall pay all interest then accrued and unpaid (including
Additional Interest) together with interest thereon compounded quarterly at the
rate specified for the Convertible Debentures to the extent permitted by
applicable law ("Compounded Interest"); provided, that during any Extension
Period, the Company has agreed, among other things, (a) not to declare or pay
dividends on, or make a distribution with respect to, or redeem or purchase or
acquire, or make a liquidation payment with respect to, any of its capital stock
(other than (i) purchases or acquisitions of shares of Common Stock in
connection with the satisfaction by the Company of its obligations under any
employee benefit plans or the satisfaction by the Company of its obligations
pursuant to any contract or security requiring the Company to purchase shares of
the Common Stock, (ii) as a result of a reclassification of the Company's
capital stock or the exchange or conversion of one class or series of the
Company's capital stock for another class or series of the Company's capital
stock or (iii) the purchase of fractional interests in shares of the Company's
capital stock pursuant to the conversion or exchange provisions of such capital
stock or the security being converted or exchanged (or make any guarantee
payments with respect to the foregoing)), (b) not to make any payment of
interest, principal or premium, if any, on or repay, repurchase or redeem any
debt securities (including guarantees) issued by the Company that rank pari
passu with or junior to the Convertible Debentures and (c)not to make any
guarantee payments with respect to the foregoing (other than pursuant to the
Preferred Securities Guarantee). Prior to the termination of any such Extension
Period, the Company may further extend such Extension Period; provided, that
such Extension Period together with all previous and further extensions thereof
may not exceed 20 consecutive quarters and may not extend beyond the maturity of
the Convertible Debentures. Upon the termination of any Extension Period and the
payment of all amounts then due, the Company may commence a new Extension
Period, subject to the above requirements. No interest or any other payment with
respect to the Debentures shall be due and payable during an Extension Period.
The Company has no current intention of exercising its right to defer payments
of interest by extending the interest payment period on the Convertible
Debentures. The lenders under the Credit Agreement have the right to require the
Company to elect an Extension Period upon the occurrence of an event of default
under the Credit Agreement, whether or not the lenders have caused the
indebtedness thereunder to be accelerated. If the Property Trustee shall be the
sole holder of the Convertible Debentures, the Company shall give the Regular
Trustees and the Property Trustee notice of its selection of such Extension
Period at least one Business Day prior to the earlier of (i) the date the
distributions on the Preferred Securities are payable or (ii) the date the Trust
is required to give notice to the NYSE (or any applicable self-regulatory
organization) or to holders of the Preferred Securities of the record date or
the date such distribution is payable, but in any event not less than 10
Business Days prior to such record date. The Company shall cause the Trust to
give notice of the Company's selection of such Extension Period to the holders
of the Preferred Securities. If the Property Trustee shall not be the sole
holder of the Convertible Debentures, the Company shall give the holders of the
Convertible Debentures notice of its selection of such Extension Period at least
ten Business Days prior to the earlier of (i) the next succeeding Interest
Payment Date or (ii) the date the Company is required to give notice to the NYSE
(or any applicable self-regulatory organization) or to holders of the
Convertible Debentures on the record or payment date of such related interest
payment, but in any event not less than two Business Days prior to such record
date.
76
<PAGE> 78
PROPOSED TAX LEGISLATION
On March 19, 1996, the U.S. Treasury Department proposed certain tax law
changes (the "Proposed Legislation") that would, among other things, generally
deny corporate issuers a deduction for interest in respect of certain debt
obligations, with a maximum term of more than 20 years, that are not shown as
indebtedness on the consolidated balance sheet of the issuer. On March 29, 1996,
Senate Finance Committee Chairman William V. Roth, Jr. and House Ways and Means
Committee Chairman Bill Archer issued a joint statement (the "Joint Statement")
indicating their intent that the Proposed Legislation, if adopted by either of
the tax-writing committees of Congress, would have an effective date that is no
earlier than the date of "appropriate Congressional action." Based upon the
Joint Statement, it is expected that if the Proposed Legislation were to be
enacted, such legislation would not apply to the Convertible Debentures because
they will be issued prior to the date of any "appropriate Congressional action."
Furthermore, even if the Proposed Legislation were enacted in its current form
with effective date provisions making it applicable to the Convertible
Debentures, it would not affect the Company's ability to deduct the interest
payable on the Convertible Debentures because their maximum term will not exceed
20 years. There can be no assurance, however, that any proposed legislation
enacted after the date hereof will not otherwise adversely affect the ability of
the Company to deduct the interest payable on the Convertible Debentures.
Accordingly, there can be no assurance that a Tax Event will not occur. See
"Description of the Preferred Securities -- Special Event Redemption or
Distribution."
ADDITIONAL INTEREST
If the Trust would be required to pay any taxes, duties, assessments or
governmental charges of whatever nature (other than withholding taxes) imposed
by the United States, or any other taxing authority, then, in any such case, the
Company will pay as additional interest ("Additional Interest") such amounts as
shall be required so that the net amounts received and retained by the Trust
after paying any such taxes, duties, assessments or governmental charges will be
not less than the amounts the Trust would have received had no such taxes,
duties, assessments or governmental charges been imposed.
CONVERSION OF THE CONVERTIBLE DEBENTURES
The Convertible Debentures will be convertible into Common Stock at the
option of the Holders of the Convertible Debentures at any time prior to 5:00
P.M. (New York City time) on the Business Day immediately preceding the date of
repayment of such Convertible Debentures, whether at maturity or upon redemption
(either at the option of the Company or pursuant to a Tax Event), at the initial
conversion price set forth on the cover page of this Registration Statement
subject to the conversion price adjustments described under "Description of the
Preferred Securities -- Conversion Rights." The Trust will covenant not to
convert Convertible Debentures held by it except pursuant to a notice of
conversion delivered to the Conversion Agent by a holder of Preferred
Securities. Upon surrender of a Preferred Security to the Conversion Agent for
conversion, the Trust will distribute $50 principal amount of the Convertible
Debentures to the Conversion Agent on behalf of the holder of the Preferred
Securities so converted whereupon the Conversion Agent will convert such
Convertible Debentures to Common Stock on behalf of such holder. The Company's
delivery to the holders of the Convertible Debentures (through the Conversion
Agent) of the fixed number of shares of Common Stock into which the Convertible
Debentures are convertible (together with the cash payment if any, in lieu of
fractional shares) will be deemed to satisfy the Company's obligation to pay the
principal amount of the Convertible Debentures so converted, and the accrued and
unpaid interest thereon attributable to the period from the last date to which
interest has been paid or duly provided for; provided, however, that if any
Convertible Debenture is converted after a record date for payment of interest,
the interest payable on the related interest payment date with respect to such
Convertible Debenture shall be paid to the Trust (which will distribute such
interest to the holder of such Convertible Debentures on the record date) or
other holder of Convertible Debentures, as the case may be, despite such
conversion; provided, further that if any Convertible Debentures delivered for
conversion during an Extension Period of redemption thereof from the Property
Trustee to the holders of the Preferred Securities, the Company shall be
required to pay to the Trust all accrued and unpaid interest, if any, such
Convertible Debentures through the date of conversion
77
<PAGE> 79
which amount shall be simultaneously distributed to the holders of the Preferred
Securities in respect of which such Convertible Debentures were delivered. See
"-- Optional Redemption," "Description of the Preferred Securities -- Conversion
Rights" and "-- Mandatory Redemption."
OPTIONAL REDEMPTION
The Company shall have the right to redeem the Convertible Debentures, in
whole or in part, at any time or from time to time after , 1999
upon not less than 30 nor more than 60 days' notice, at a redemption price equal
to % of the principal amount of the Convertible Debentures to be redeemed plus
any accrued and unpaid interest, including Additional Interest and Compounded
Interest, to the redemption date if redeemed on or before , and
at the following optional redemption prices (expressed as a percentage of the
principal amount of Convertible Debentures), if redeemed during the 12-month
period beginning :
<TABLE>
<CAPTION>
OPTIONAL
REDEMPTION
YEAR PRICE
---------------------------------------------------------------- ----------
<S> <C>
2000............................................................
2001............................................................
2002............................................................
2003............................................................
2004............................................................
2005............................................................
2006 and thereafter.............................................
</TABLE>
plus, in each case, accrued and unpaid interest, including Additional Interest
and Compounded Interest, to the date fixed for redemption.
If a partial redemption of the Preferred Securities resulting from a
partial redemption of the Convertible Debentures would result in the delisting
of the Preferred Securities, the Company may only redeem Convertible Debentures
in whole.
SUBORDINATION
The Indenture provides that the Convertible Debentures are subordinate and
junior in right of payment to all existing and future Senior Indebtedness of the
Company. No payment of principal (including redemption payments, if any),
premium, if any, or interest (including Additional Interest and Compounded
Interest) on, the Convertible Debentures may be made if (i) any Senior
Indebtedness of the Company is not paid when due and any applicable grace period
with respect to such default has ended and such default has not been cured or
waived, or ceased to exist or (ii) the maturity of any Senior Indebtedness of
the Company has been accelerated because of a default. At June 30, 1996, Senior
Indebtedness of the Company aggregated approximately $57.1 million. Upon any
distribution of assets of the Company to creditors upon any dissolution, winding
up, liquidation or reorganization, whether voluntary or involuntary or in
bankruptcy, insolvency, receivership or other proceedings, all principal of, and
premium, if any, and interest due or to become due on, all Senior Indebtedness
of the Company must be paid in full before the holders of the Convertible
Debentures are entitled to receive or retain any payment. Upon satisfaction of
all claims related to all Senior Indebtedness of the Company then outstanding,
the rights of the holders of the Preferred Securities will be subrogated to the
rights of the holders of Senior Indebtedness of the Company to receive payments
or distributions applicable to Senior Indebtedness until all amounts owing on
the Convertible Debentures are paid in full.
The term "Senior Indebtedness" shall mean in respect of the Company: (i)
the principal, premium, if any, and interest in respect of (A) indebtedness of
such obligor for money borrowed and (B) indebtedness evidenced by securities,
debentures, bonds or other similar instruments issued by such obligor, (ii) all
capital lease obligations of such obligor, (iii) all obligations of such obligor
issued or assumed as the deferred purchase price of property, all conditional
sale obligations of such obligor and all obligations of such obligor
78
<PAGE> 80
under any title retention agreement (but excluding trade accounts payable
arising in the ordinary course of business), (iv) all obligations of such
obligor for the reimbursement of any letter of credit, banker's acceptance,
security purchase facility or similar credit transaction, (v) all obligations of
the type referred to in clauses (i) through (iv) above of other persons for the
payment of which such obligor is responsible or liable as obligor, guarantor or
otherwise, and (vi) all obligations of the type referred to in clauses (i)
through (v) above of other persons secured by any lien on any property or asset
of such obligor (whether or not such obligation is assumed by such obligor),
except for (1) any such indebtedness that is by its terms subordinated to or
pari passu with the Convertible Debentures and (2) any indebtedness between or
among such obligor or its affiliates, including all other debt securities and
guarantees in respect of those debt securities, issued to (a) the Trust or a
trustee of such trust and (b) any other trust, or a trustee of such trust,
partnership or other entity affiliated with the Company that is a financing
vehicle of the Company (a "financing entity") in connection with the issuance by
such financing entity of preferred securities or other securities that rank pari
passu with, or junior to, the Preferred Securities. Such Senior Indebtedness
shall continue to be Senior Indebtedness and be entitled to the benefits of the
subordination provisions irrespective of any amendment, modification or waiver
of any term of such Senior Indebtedness.
In addition, the Company's operations are conducted through its
subsidiaries. At June 30, 1996 indebtedness and other subsidiaries aggregated
approximately $109.5 million (including the $57.1 million referred to above)
that is effectively senior to the Convertible Debentures. See "Capitalization."
CERTAIN COVENANTS
In the Indenture, so long as any Convertible Debentures are outstanding, if
(i) there shall have occurred and be continuing any event that with the giving
of notice or the lapse of time or both, would constitute an Indenture Event of
Default, (ii) the Company shall be in default with respect to its payment of any
obligations under the Guarantee, or (iii) the Company has exercised its option
to defer interest payments on the Convertible Debentures by extending the
interest payment period and such period, or any extension thereof, shall be
continuing, then the Company has agreed (a) not to declare or pay dividends on,
or make a distribution with respect to, or redeem or purchase or acquire, or
make a liquidation payment with respect to, any of its capital stock (other than
(i) purchases or acquisitions of shares of Common Stock in connection with the
satisfaction by the Company of its obligations under any employee benefit plans
or the satisfaction by the Company of its obligations pursuant to any contract
or security requiring the Company to purchase shares of the Common Stock, (ii)
as a result of a reclassification of the Company's capital stock or the exchange
or conversion of one class or series of the Company's capital stock for another
class or series of the Company's capital stock or (iii) the purchase of
fractional interests in shares of the Company's capital stock pursuant to the
conversion or exchange provisions of such capital stock or the security being
converted or exchanged (or make any guarantee payments with respect to the
foregoing)), (b) not to make any payment of interest, principal or premium, if
any, on or repay, repurchase or redeemed any debt securities (including
guarantees) issued by the Company that rank pari passu with or junior to the
Convertible Debentures and (c) not to make any guarantee payments with respect
to the foregoing (other than pursuant to the Guarantee).
The Company will covenant (i) to directly or indirectly maintain 100%
ownership of the Common Securities of the Trust; provided, however, that any
permitted successor of the Company under the Indenture may succeed to the
Company's ownership of such Common Securities and (ii) to use its reasonable
efforts to cause the Trust (x) to remain a statutory business trust, except in
connection with the distribution of Convertible Debentures to the holders of
Trust Securities in liquidation of the Trust, the redemption of all of the Trust
Securities of the Trust, or certain mergers, consolidations or amalgamations,
each as permitted by the Declaration, and (y) to otherwise continue to be
classified as a grantor trust for Federal income tax purposes.
CONSOLIDATION, MERGER AND SALE OF ASSETS
The Indenture provides that the Company will not consolidate with or merge
into any other corporation or convey, transfer or lease its assets substantially
as an entirety unless (a) if the Company is not the survivor, the successor is a
corporation organized in the United States and expressly assumes the due and
punctual payment of the principal of (and premium, if any) and interest on all
Convertible Debentures issued thereunder and the performance of every other
covenant of the Indenture on the part of the Company and (b) immediately
thereafter no event of default under the Indenture and no event which, after
notice or lapse
79
<PAGE> 81
of time, or both, would become an event of default under the Indenture, shall
have happened and be continuing. Upon any such consolidation, merger, conveyance
or transfer, the successor corporation shall succeed to and be substituted for
the Company under the Indenture and thereafter the predecessor corporation shall
be relieved of all obligations and covenants under the Indenture and the
Convertible Debentures.
BOOK-ENTRY AND SETTLEMENT
If distributed to holders of the Preferred Securities in connection with
the involuntary or voluntary dissolution, winding-up or liquidation of the Trust
as a result of the occurrence of a Special Event, the Convertible Debentures
will be issued in the same form as the Preferred Securities which such
Convertible Debentures replace. Any Global Certificate will be replaced by one
or more global certificates (each a "Global Security") registered in the name of
the DTC or its nominee. Except under the limited circumstances described below,
the Convertible Debentures represented by the Global Security will not be
exchangeable for, and will not otherwise be issuable as, Convertible Debentures
in definitive form. The Global Securities described above may not be transferred
except by the depositary to a nominee of the depositary or by a nominee of the
depositary to the depositary or another nominee of the depositary or to a
successor depositary or its nominee.
The laws of some jurisdictions require that certain purchasers of
securities take physical delivery of such securities in definitive form. Such
laws may impair the ability to transfer beneficial interests in such a Global
Security.
Except as provided below, owners of beneficial interests in such a Global
Security will not be entitled to receive physical delivery of Convertible
Debentures in definitive form and will not be considered the holders thereof for
any purpose under the Indenture, and no Global Security representing Convertible
Debentures shall be exchangeable, except for another Global Security of like
denomination and tenor to be registered in the name of the depositary or its
nominee or to a successor depositary or its nominee. Accordingly, each
Beneficial Owner must rely on the procedures of DTC or if such person is not a
Participant, on the procedures of the Participant through which such person owns
its interest to exercise any rights of a holder under the Indenture.
For a description of DTC and the specific terms of the depositary
arrangements, see "Description of the Preferred Securities -- Book-Entry Only
Issuance -- The Depository Trust Company." As of the date of this Registration
Statement, the description therein of DTC's book-entry system and DTC's
practices as they relate to purchases, transfers, notices and payments with
respect to the Preferred Securities apply in all material respects to any debt
obligations represented by one or more Global Securities held by DTC. The
Company may appoint a successor to DTC or any successor depositary in the event
DTC or such successor depositary is unable or unwilling to continue as a
depositary for the Global Securities.
None of the Company, the Trust, the Indenture Trustee, any paying agent and
any other agent of the Company or the Indenture Trustee will have any
responsibility or liability for any aspect of the records relating to or
payments made on account of beneficial ownership interests in a Global Security
for such Debentures or for maintaining, supervising or reviewing any records
relating to such beneficial ownership interests.
A Global Security shall be exchangeable for Convertible Debentures
registered in the names of persons other than the Depositary or its nominee only
if (i) the Depositary notifies the Company that it is unwilling or unable to
continue as a depositary for such Global Security and no successor depositary
shall have been appointed, (ii) the Depositary, at any time, ceases to be a
clearing agency registered under the Exchange Act at which time the Depositary
is required to be so registered to act as such depositary and no successor
depositary shall have been appointed, (iii) the Company, in its sole discretion,
determines that such Global Security shall be so exchangeable or (iv) there
shall have occurred an Event of Default with respect to such Convertible
Debentures. Any Global Security that is exchangeable pursuant to the preceding
sentence shall be exchangeable for Convertible Debentures registered in such
names as the Depositary shall direct. It is expected that such instructions will
be based upon directions received by the Depositary from its Participants with
respect to ownership of beneficial interests in such Global Security.
80
<PAGE> 82
EVENTS OF DEFAULT
The Indenture provides that any one or more of the following described
events, which has occurred and is continuing, constitutes an "Event of Default"
with respect to the Convertible Debentures: (i) failure for 30 days to pay
interest on the Convertible Debentures, including any Additional Interest and
Compounded Interest in respect thereof, when due provided that a valid extension
of an interest payment period will not constitute a default in the payment of
interest (including any Additional Interest and Compounded Interest) for this
purpose; or (ii) failure to pay principal of or premium, if any, on the
Convertible Debentures when due whether at maturity, upon redemption, by
declaration or otherwise; or (iii) failure to observe or perform any other
covenant contained in the Indenture for 90 days after notice to the Company by
the Trustee or by the holders of not less than 25% in aggregate outstanding
principal amount of the Convertible Debentures; or (iv) failure by the Company
to deliver shares of Common Stock upon an election by a holder of Preferred
Securities to convert such Preferred Securities; or (v) the dissolution, winding
up or termination of the Trust, except in connection with the distribution of
Convertible Debentures to the holders of Preferred Securities in liquidation of
the Trust upon the redemption of all outstanding Preferred Securities and in
connection with certain mergers, consolidations or amalgamations permitted by
the Declaration; or (vi) certain events of bankruptcy, insolvency or
reorganization of the Company.
The Indenture Trustee or the holders of not less than 25% in aggregate
outstanding principal amount of the Convertible Debentures may declare the
principal of and interest on the Convertible Debentures due and payable
immediately on the occurrence of an Event of Default; provided, however, that,
after such acceleration, but before a judgment or decree based on acceleration,
the holders of a majority in aggregate principal amount of outstanding
Convertible Debentures may, under certain circumstances, rescind and annul such
acceleration if all Events of Default, other than the nonpayment of accelerated
principal, have been cured or waived as provided in the Indenture. For
information as to waiver of defaults, see " -- Modifications and Amendments of
the Indenture."
Notwithstanding the foregoing, if an Indenture Event of Default has
occurred and is continuing and such event is attributable to the failure of the
Company to pay interest or principal on the Convertible Debentures on the date
such interest or principal is otherwise payable, the Company acknowledges that,
in such event, a holder of Preferred Securities may institute a Direct Action
for payment on or after the respective due date specified in the Convertible
Debentures. The Company may not amend the Indenture to remove the foregoing
right to bring a Direct Action without the prior written consent of all the
holders of Preferred Securities. Notwithstanding any payment made to such holder
of Convertible Preferred Securities by the Company in connection with a Direct
Action, the Company shall remain obligated to pay the principal of and interest
(including Additional Interest and Compounded Interest) on the Convertible
Debentures held by the Trust or the Property Trustee, and the Company shall be
subrogated to the rights of the holder of such Preferred Securities with respect
to payments on the Preferred Securities to the extent of any payments made by
the Company to such holder in any Direct Action. The holders of Preferred
Securities will not be able to exercise directly any other remedy available to
the holders of the Convertible Debentures.
The Holders of not less than a majority in principal amount of the
outstanding Convertible Debentures may on behalf of the holders of all the
Convertible Debentures waive any past defaults except (a) a default in payment
of the principal of (or premium, if any) or interest, (including Additional
Interest and Compounded Interest) on any Convertible Debentures and (b) a
default in respect of a covenant or provision of the Indenture which cannot be
amended or modified without the consent of the holder of each Convertible
Debenture; provided, however, that if the Convertible Debentures are held by the
Trust or a trustee of such Trust, such waiver or modification to such waiver
shall not be effective until the holders of a majority in liquidation amount of
Trust Securities shall have consented to such waiver or modification to such
waiver; provided, further, that if the consent of the holder of each outstanding
Convertible Debenture is required, such waiver shall not be effective until each
holder of the Trust Securities shall have consented to such waiver.
A default under any other indebtedness of the Company or the Trust would
not constitute an Event of Default under the Convertible Debentures.
Subject to the provisions of the Indenture relating to the duties of the
Indenture Trustee in case an Event of Default shall occur and be continuing, the
Indenture Trustee will be under no obligation to exercise any of
81
<PAGE> 83
its rights or powers under the Indenture at the request or direction of any
holders of Convertible Debentures, unless such holders shall have offered to the
Indenture Trustee reasonable indemnity. Subject to such provisions for the
indemnification of the Indenture Trustee, the holders of a majority in aggregate
principal amount of the Convertible Debentures then outstanding will have the
right to direct the time, method and place of conducting any proceeding for any
remedy available to the Indenture Trustee, or exercising any trust or power
conferred on the Indenture Trustee with respect to such series.
No holder of any Convertible Debenture will have any right to institute any
proceeding with respect to the Indenture or for any remedy thereunder, unless
(i) such holder shall have previously given to the Indenture Trustee written
notice of a continuing Event of Default, (ii) if the Trust is not the sole
holder of Convertible Debentures, the holders of at least 25% in aggregate
principal amount of the Convertible Debentures then outstanding shall also have
made a written request, (iii) such holder has offered reasonable indemnity to
the Indenture Trustee to institute such proceeding as Indenture Trustee, (iv)
the Indenture Trustee shall have failed to institute such proceeding within 60
days of such notice, and (v) the Indenture Trustee shall not have received from
the holders of a majority in aggregate principal amount of the outstanding
Convertible Debentures a direction inconsistent with such request. However, such
limitations do not apply to a suit instituted by a holder of a Convertible
Debenture for enforcement of payment of the principal of or interest on such
Convertible Debenture on or after the respective due dates expressed in such
Convertible Debenture.
The Company is required to file annually with the Indenture Trustee and the
Property Trustee a certificate as to whether or not the Company is in compliance
with all the conditions and covenants under the Indenture.
MODIFICATIONS AND AMENDMENTS OF THE INDENTURE
The Indenture contains provisions permitting the Company and the Indenture
Trustee, with the consent of the holders of not less than a majority in
aggregate principal amount of the outstanding Convertible Debentures, to modify
the Indenture or the rights of the holders of Convertible Debentures; provided,
however, that no such modification may, without the consent of the holder of
each outstanding Convertible Debenture affected thereby, (i) extend the stated
maturity of the Convertible Debentures or reduce the principal amount thereof,
or reduce the rate or extend the time of payment of interest thereon, or reduce
any premium payable upon the redemption thereof, or adversely affect the right
to convert Convertible Debentures or the subordination provisions of the
Indenture, or (ii) reduce the percentage in aggregate principal amount of
outstanding Convertible Debentures, the holders of which are required to consent
to any such supplemental indenture.
In addition, the Company and the Indenture Trustee may execute, without the
consent of any holder of Convertible Debentures, any supplemental indenture to
cure any ambiguities, comply with the Trust Indenture Act and for certain other
customary purposes.
GOVERNING LAW
The Indenture and the Convertible Debentures will be governed by, and
construed in accordance with, the laws of the State of New York.
INFORMATION CONCERNING THE INDENTURE TRUSTEE
The Indenture Trustee, prior to default, undertakes to perform only such
duties as are specifically set forth in the Indenture and, after default, shall
exercise the same degree of care as a prudent individual would exercise in the
conduct of his or her own affairs. Subject to such provision, the Indenture
Trustee is under no obligation to exercise any of the powers vested in it by the
Indenture at the request of any holder of Convertible Debentures, unless offered
reasonable indemnity by such holder against the costs, expenses and liabilities
which might be incurred thereby. The Indenture Trustee is not required to expend
or risk its own funds or otherwise incur personal financial liability in the
performance of its duties if the Indenture Trustee reasonably believes that
repayment or adequate indemnity is not reasonably assured to it.
82
<PAGE> 84
EFFECT OF OBLIGATIONS UNDER THE
CONVERTIBLE DEBENTURES AND THE GUARANTEE
As set forth in the Declaration, the sole purpose of the Trust is to issue
the Trust Securities evidencing undivided beneficial interests in the assets of
the Trust, and to invest the proceeds from such issuance and sale in the
Convertible Debentures.
As long as payments of interest and other payments are made when due on the
Convertible Debentures, such payments will be sufficient to cover distributions
and payments due on the Trust Securities because of the following factors: (i)
the aggregate principal amount of Convertible Debentures will be equal to the
sum of the aggregate stated liquidation amount of the Trust Securities; (ii) the
interest rate and the interest and other payment dates on the Convertible
Debentures will match the distribution rate and distribution and other payment
dates for the Preferred Securities; (iii) pursuant to the Indenture, the Company
shall pay all, and the Trust shall not be obligated to pay, directly or
indirectly, any, costs, expenses, debts and liabilities of the Trust other than
with respect to the Trust Securities; and (iv) the Declaration further provides
that the Issuer Trustees will not cause or permit the Trust to, among other
things, engage in any activity that is not consistent with the purposes of the
Trust.
Payments of distributions (to the extent funds therefor are available) and
other payments due on the Preferred Securities (to the extent funds therefor are
available) are guaranteed by the Company as and to the extent set forth under
"Description of the Guarantee." If the Company does not make interest payments
on the Convertible Debentures purchased by the Trust, it is expected that the
Trust will not have sufficient funds to pay distributions on the Preferred
Securities. The Guarantee is a guarantee on a subordinated basis with respect to
the Preferred Securities from the time of its issuance but does not apply to any
payment of distributions unless and until the Trust has sufficient funds for the
payment of such distributions.
The Guarantee covers the payment of distributions and other payments on the
Preferred Securities only if and to the extent that the Company has made a
payment of interest or principal on the Convertible Debentures held by the Trust
as its sole asset. The Guarantee, when taken together with the Company's
obligations under the Convertible Debentures and the Indenture and its
obligations under the Declaration, including its obligations to pay costs,
expenses, debts and liabilities of the Trust (other than with respect to the
Trust Securities), will provide a full and unconditional guarantee of amounts on
the Preferred Securities.
If the Company fails to make interest or other payments on the Convertible
Debentures when due (taking account of any Extension Period), the Declaration
provides a mechanism whereby the holders of the Preferred Securities, using the
procedures described in "Description of the Preferred Securities -- Voting
Rights" and "-- Book-Entry Only Issuance -- The Depository Trust Company," may
direct the Property Trustee to enforce its rights under the Convertible
Debentures. If the Property Trustee fails to enforce its rights under the
Convertible Debentures, any holder of Preferred Securities may directly
institute a legal proceeding against the Company to enforce the Property
Trustee's rights under the Convertible Debentures without first instituting any
legal proceeding against the Property Trustee or any other person or entity.
Notwithstanding the foregoing, if a Declaration Event of Default has occurred
and is continuing and such event is attributable to the failure of the Company
to pay interest or principal on the Convertible Debentures on the date such
interest or principal is otherwise payable (or in the case of redemption, on the
redemption date), then a holder of Preferred Securities may institute a Direct
Action for payment on or after the respective due date specified in the
Convertible Debentures. In connection with such Direct Action, the Company will
be subrogated to the rights of such holder of Preferred Securities under the
Declaration to the extent of any payment made by the Company to such holder of
Preferred Securities in such Direct Action. The Company, under the Guarantee,
acknowledges that the Guarantee Trustee shall enforce the Guarantee on behalf of
the holders of the Preferred Securities. If the Company fails to make payments
under the Guarantee, the Guarantee provides a mechanism whereby the holders of
the Preferred Securities may direct the Guarantee Trustee to enforce its rights
thereunder. If the Guarantee Trustee fails to enforce the Guarantee, any holder
of Preferred Securities may directly institute a legal proceeding against the
Company to enforce the Guarantee Trustee's rights under the Guarantee without
first instituting a legal proceeding against the Trust, the Guarantee Trustee,
or any other person or entity.
83
<PAGE> 85
UNITED STATES FEDERAL INCOME TAXATION
GENERAL
The following is a summary of certain of the material United States federal
income tax consequences of the purchase, ownership, disposition and conversion
of Preferred Securities. Unless otherwise stated, this summary deals only with
Preferred Securities held as capital assets by holders who purchase the
Preferred Securities upon original issuance. This summary addresses the United
States federal income tax considerations to holders of Preferred Securities who
are citizens or residents of the United States, corporations, partnership or
other entities created or organized in or under the laws of the United States or
any political subdivision thereof or therein, or estates or trusts the income of
which is subject to United States federal income taxation regardless of its
source or other holders who are otherwise subject to United States federal
income taxation on a net income basis with respect to Preferred Securities
("U.S. Holders") and does not address the tax consequences to holders of
Preferred Securities who are not U.S. Holders. This summary does not deal with
special classes of holders such as banks, thrift institutions, real estate
investment trusts, regulated investment companies, insurance companies, dealers
in securities or currencies, tax-exempt investors, or persons that will hold the
Preferred Securities as other than a capital asset. This summary also does not
address tax consequences to persons that have a functional currency other than
the U.S. Dollar or the tax consequences to shareholders, partners or
beneficiaries of a holder of Preferred Securities. Further, it does not include
any description of any alternative minimum tax consequences or the tax laws of
any state or local government or of any foreign government that may be
applicable to the Preferred Securities. This summary is based on the Internal
Revenue Code of 1986, as amended (the "Code"), Treasury regulations thereunder
and administrative and judicial interpretations thereof, as of the date hereof,
all of which are subject to change, possibly on a retroactive basis.
CLASSIFICATION OF THE CONVERTIBLE DEBENTURES
The Company intends to take the position that the Convertible Debentures
will be classified for United States federal income tax purposes as indebtedness
of the Company under current law, and, by acceptance of a Preferred Security,
each holder covenants to treat the Convertible Debentures as indebtedness and
the Preferred Securities as evidence of an indirect beneficial ownership
interest in the Convertible Debentures. No assurance can be given, however, that
such position of the Company will not be challenged by the Internal Revenue
Service or, if challenged, that such a challenge would not be successful. The
remainder of this discussion assumes that the Convertible Dentures will be
classified as indebtedness of the Company for United States federal income tax
purposes.
CLASSIFICATION OF THE TRUST
In connection with the issuance of the Preferred Securities, Skadden, Arps,
Slate, Meagher & Flom LLP, tax counsel to the Company and the Trust, will render
its opinion generally to the effect that, under then current law and assuming
full compliance with the terms of the Declaration and the Indenture (and certain
other documents), and based on certain facts and assumptions contained in such
opinion, the Trust will be classified for United States federal income tax
purposes as a grantor trust and not as an association taxable as a corporation.
Accordingly, for United States federal income tax purposes, each holder of
Preferred Securities generally will be considered the owner of an undivided
interest in the Convertible Debentures, and each holder will be required to
include in its gross income any OID accrued with respect to its allocable share
of those Convertible Debentures.
ORIGINAL ISSUE DISCOUNT
Because the Company has the option, under the terms of the Convertible
Debentures, to defer payments of interest by extending interest payment periods
for up to 20 quarters, all of the stated interest payments on the Convertible
Debentures will be treated as "original issue discount." Holders of debt
instruments issued with OID must include that discount in income on an economic
accrual basis before the receipt of cash attributable to the interest,
regardless of their method of tax accounting. Generally, all of a holder's
taxable
84
<PAGE> 86
interest income with respect to the Convertible Debentures will be accounted for
as OID, and actual distributions of stated interest will not be separately
reported as taxable income. The amount of OID that accrues in any month will
approximately equal the amount of the interest that accrues on the Convertible
Debentures in that month at the stated interest rate. In the event that the
interest payment period is extended, holders will continue to accrue OID
approximately equal to the amount of the interest payment due at the end of the
extended interest payment period on an economic accrual basis over the length of
the extended interest period.
RECEIPT OF CONVERTIBLE DEBENTURES OR CASH UPON LIQUIDATION OF THE TRUST
Under certain circumstances, as described under the caption "Description of
the Preferred Securities -- Special Event Redemption or Distribution," the
Convertible Debentures may be distributed to holders in exchange for the
Preferred Securities and in liquidation of the Trust. Under current law, such a
distribution, for United States federal income tax purposes, would be treated as
a non-taxable event to each holder, and each holder would receive an aggregate
tax basis in the Convertible Debentures equal to such holder's aggregate tax
basis in its Preferred Securities. A holder's holding period in the Convertible
Debentures so received in liquidation of the Trust would include the period
during which the Preferred Securities were held by such holder.
Under certain circumstances described under "Description of the Preferred
Securities -- Special Event Redemption or Distribution," the Convertible
Debentures may be redeemed for cash and the proceeds of such redemption
distributed to holders in redemption of their Preferred Securities. Under
current law, such a redemption of the Convertible Debentures would, for United
States federal income tax purposes, constitute a taxable disposition of the
redeemed Preferred Securities, and a holder could recognize gain or loss as if
it sold such redeemed Preferred Securities for cash. See "-- Sales of Preferred
Securities."
SALES OF PREFERRED SECURITIES
A holder that sells Preferred Securities will recognize gain or loss equal
to the difference between its adjusted tax basis in the Preferred Securities and
the amount realized on the sale of such Preferred Securities. A holder's
adjusted tax basis in the Preferred Securities generally will be its initial
purchase price increased by OID previously includible in such holder's gross
income to the date of disposition and decreased by payments received on the
Preferred Securities. Such gain or loss generally will be a capital gain or loss
and generally will be a long-term capital gain or loss if the Preferred
Securities have been held for more than one year.
The Preferred Securities may trade at a price that does not accurately
reflect the value of accrued but unpaid interest with respect to the underlying
Convertible Debentures. A holder who disposes of his Preferred Securities
between record dates for payments of distributions thereon will be required to
include accrued but unpaid interest on the Convertible Debentures through the
date of disposition in income as ordinary income and to add such amount to his
adjusted tax basis in his pro rata share of the underlying Convertible
Debentures deemed disposed of. To the extent the selling price is less than the
holder's adjusted tax basis (which will include, in the form of OID, all accrued
but unpaid interest) a holder will recognize a capital loss. Subject to certain
limited exceptions, capital losses cannot be applied to offset ordinary income
for United States federal income tax purposes.
Because income on the Preferred Securities will constitute interest (in the
form of OID) for federal income tax purposes, corporate holders of Preferred
Securities will not be entitled to a dividends-received deduction with respect
to any income recognized with respect to the Preferred Securities.
CONVERSION OF PREFERRED SECURITIES
A holder generally will not recognize income, gain or loss upon the
conversion, through the Conversion Agent, of its Preferred Securities into
Common Stock. A holder will, however, recognize gain upon the receipt of cash in
lieu of a fractional share of Common Stock equal to the amount of cash received
less the holder's tax basis in such fractional share. A holder's tax basis in
the Common Stock received upon exchange and conversion should generally be equal
to the holder's tax basis in the Preferred Securities delivered to the
85
<PAGE> 87
Conversion Agent for exchange less the basis allocated to any fractional share
for which cash is received, and a holder's holding period in the Common Stock
received upon exchange and conversion should generally begin on the date the
holder acquired the Preferred Securities delivered to the Conversion Agent for
exchange.
ADJUSTMENT OF CONVERSION PRICE
Treasury Regulations promulgated under Section 305 of the Code would treat
holders of Preferred Securities as having received a constructive distribution
from the Company in the event the conversion ratio of the Convertible Debentures
were adjusted if (i) as a result of such adjustment, the proportionate interest
(measured by the quantum of Common Stock into or for which the Convertible
Debentures are convertible or exchangeable) of the holders of the Preferred
Securities in the assets or earnings and profits of the Company were increased,
and (ii) the adjustment was not made pursuant to a bona fide, reasonable
anti-dilution formula. An adjustment in the conversion ratio would not be
considered made pursuant to such a formula if the adjustment was made to
compensate for certain taxable distributions with respect to the Common Stock.
Thus, under certain circumstances, a reduction in the conversion price for the
holders may result in deemed dividend income to holders to the extent of the
current or accumulated earnings and profits of the Company. Holders of the
Preferred Securities would be required to include their allocable share of such
deemed dividend income in gross income but would not receive any cash related
thereto.
PROPOSED TAX LEGISLATION
On March 19, 1996, the U.S. Treasury Department proposed certain tax law
changes (the "Proposed Legislation") that would, among other things, generally
deny corporate issuers a deduction for interest in respect of certain debt
obligations with a maximum term of more than 20 years, that are not shown as
indebtedness on the consolidated balance sheet of the issuer. On March 29, 1996,
Senate Finance Committee Chairman William V. Roth, Jr. and House Ways and Means
Committee Chairman Bill Archer issued a joint statement (the "Joint Statement")
indicating their intent that the Proposed Legislation, if adopted by either of
the tax-writing committees of Congress, would have an effective date that is no
earlier than the date of "appropriate Congressional action." Based upon the
Joint Statement, it is expected that if the Proposed Legislation were to be
enacted, such legislation would not apply to the Convertible Debentures because
they will be issued prior to the date of any "appropriate Congressional action."
Furthermore, even if the Proposed Legislation were enacted in its current form
with effective date provisions making it applicable to the Convertible
Debentures, it would not affect the Company's ability to deduct the interest
payable on the Convertible Debentures because their maximum term will not exceed
20 years.. There can be no assurance, however, that any proposed legislation
enacted after the date hereof will not otherwise adversely affect the ability of
the Company to deduct the interest payable on the Convertible Debentures.
Accordingly, there can be no assurance that a Tax Event will not occur. See
"Description of the Preferred Securities -- Special Event Redemption or
Distribution."
INFORMATION REPORTING AND BACKUP WITHHOLDING
Generally, income on the Preferred Securities will be reported to holders
on Forms 1099, which forms should be mailed to holders of Preferred Securities
by January 31 following each calendar year.
Payments made on, and proceeds from the sale of, the Preferred Securities
may be subject to a "backup" withholding tax of 31% unless the holder complies
with certain identification requirements. Any withheld amounts will be allowed
as a credit against the holder's United States Federal income tax, provided the
required information is provided to the Internal Revenue Service on a timely
basis.
THE UNITED STATES FEDERAL INCOME TAX DISCUSSION SET FORTH ABOVE IS INCLUDED FOR
GENERAL INFORMATION ONLY AND MAY NOT BE APPLICABLE DEPENDING UPON A HOLDER'S
PARTICULAR SITUATION. HOLDERS SHOULD CONSULT THEIR TAX ADVISORS WITH RESPECT TO
THE TAX CONSEQUENCES TO THEM OF THE PURCHASE, OWNERSHIP AND DISPOSITION OF THE
PREFERRED SECURITIES, INCLUDING THE TAX CONSEQUENCES UNDER STATE, LOCAL, FOREIGN
AND OTHER TAX LAWS AND THE POSSIBLE EFFECTS OF CHANGES IN UNITED STATES FEDERAL
OR OTHER TAX LAWS.
86
<PAGE> 88
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 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, 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 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
87
<PAGE> 89
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 DGCL could have
the effect of discouraging an acquisition of the Company or stock purchasers in
furtherance of an acquisition.
88
<PAGE> 90
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 is the transfer agent and registrar
for the Common Stock.
89
<PAGE> 91
DESCRIPTION OF CERTAIN INDEBTEDNESS
The following summary does not purport to be complete and is qualified in
its entirety by reference to the provisions of the Credit Agreement, a copy of
which has been filed as an exhibit to the Registration Statement of which this
Prospectus forms a part, 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.
Pursuant to an amendment, dated as of September 30, 1996, by and among the
Borrowers, the Guarantors, certain lenders party to the Credit Agreement and The
CIT Group, the Licensees and new wholly-owned subsidiaries of CKJC formed in
connection with the proposed acquisition of the CK Outlets became Guarantors of
the Borrowers' 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 Chase Manhattan Bank 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 sales 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 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, (xii) to permit the obligations
90
<PAGE> 92
of the Company under the Guarantee or the Convertible Debentures to become
secured obligations of the Company or to rank pari passu with or senior to the
obligations of the Company under the Credit Agreement, (xiii) under certain
circumstances, to amend or waive any of the Company's rights under the
Indenture, the Convertible Debentures, the Guarantee or the Declaration of Trust
without the prior consent of the required lenders, (xiv) to prepay, redeem,
retire or defease or make any payment with respect to any Convertible Debenture
during any Extension Period which is in effect as a result of an Event of
Default under the Credit Agreement, and (xv) 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 47% 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, (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, or (d) New Rio, L.L.C. ceases to own at least 51% of then outstanding
voting rights of the Company, provided that no change of control will occur as a
result of the conversion of the Convertible Debentures into Common Stock of the
Company, (ix) a default shall occur under the Declaration of Trust, the
Indenture or the Guarantee the effect of which is to accelerate, or permit the
acceleration of the Preferred Securities or the Convertible Debentures and (x) a
default under any license agreement if the effect of such default is to permit
Bill Blass, Donna Karan International or a subsidiary thereof 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 June 30, 1996, the Company had amounts outstanding under the Credit
Agreement of approximately $68.9 million consisting of $43.3 million of
borrowings outstanding under the Revolving Credit Facility, $11.8 million for
open letters of credit and $13.8 million outstanding under the Term Loan
Facility.
See "Use of Proceeds" for a description of the lenders' commitment to
finance the New Credit Agreement.
91
<PAGE> 93
UNDERWRITING
Subject to the terms and conditions set forth in an underwriting agreement
(the "Underwriting Agreement"), the Trust has agreed to sell to each of the
Underwriters named below, and each of the Underwriters has severally agreed to
purchase the number of Preferred Securities set forth opposite its name below.
In the Underwriting Agreement, the Underwriters have agreed, subject to the
terms and conditions set forth therein, to purchase all the Preferred Securities
offered hereby if any of the Preferred Securities are purchased. In the event of
default by an Underwriter, the Underwriting Agreement provides that, in certain
circumstances, the purchase commitments of the nondefaulting Underwriters may be
increased or the Underwriting Agreement may be terminated.
<TABLE>
<CAPTION>
NUMBER OF
PREFERRED
UNDERWRITERS SECURITIES
<S> <C>
Merrill Lynch, Pierce, Fenner & Smith
Incorporated................................................
Morgan Stanley & Co. Incorporated........................................
------
Total.......................................................
======
</TABLE>
The Underwriters propose to offer the Preferred Securities in part directly
to the public at the initial public offering price, as set forth on the cover
page of this Prospectus, and in part to certain securities dealers at such price
less a concession not in excess of $. per Preferred Security. The Underwriters
may allow, and such dealers may reallow, a discount not in excess of $. per
Preferred Security to certain other brokers and dealers. After the initial
public offering, the public offering price, concession and discount may be
changed.
In view of the fact that the proceeds of the sale of the Preferred
Securities will be used to purchase the Convertible Debentures of the Company,
the Underwriting Agreement provides that the Company will agree to pay as
compensation ("Underwriters' Compensation") to the Underwriters for the
Underwriters' arranging the investment therein of such proceeds, an amount in
New York Clearing House (same day) funds of $ per Preferred Security (or
$ in the aggregate) for the accounts of the several Underwriters.
The Trust, the Company, the Principal Stockholder and certain officers and
directors of the Company have agreed that they will not, directly or indirectly,
for a period of 90 days after the date of the Underwriting Agreement, except
with the prior written consent of Merrill Lynch, Pierce, Fenner & Smith
Incorporated, offer, sell, or enter into any agreement to sell, or otherwise
dispose of (a) any trust certificates or other securities of the Trust (other
than the Preferred Securities offered hereby and the Common Securities), (b) any
preferred stock or any other security of the Company that is substantially
similar to the Preferred Securities, (c) any shares of any class of common stock
of the Company, other than (i) shares of Common Stock issuable upon conversion
of the Preferred Securities or pursuant to the exercise of options or warrants
outstanding on the date of the Underwriting Agreement; and (ii) the grant of
stock options or other stock-based awards (and the exercise thereof) to
directors, officers and employees of the Company; and (iii) shares of Common
Stock to CKI upon the conversion of the non-voting common stock owned by it.
The Preferred Securities have been approved for listing on the NYSE,
subject to official notice of issuance under the symbol "DSHPrA". Prior to this
offering, there has been no public market for the Preferred Securities. In order
to meet one of the requirements for listing the Preferred Securities on the
NYSE, the Underwriters will undertake to sell lots of 100 or more Preferred
Securities to a minimum of 400 beneficial holders.
The Company and the Trust have agreed to indemnify the Underwriters
against, or contribute to payments that the Underwriters may be required to make
in respect of, certain liabilities, including liabilities under the Securities
Act of 1933, as amended.
Each of the Underwriters engage in transactions with, and, from time to
time, have performed services for, the Company and its subsidiaries in the
ordinary course of business.
92
<PAGE> 94
LEGAL MATTERS
Certain legal matters with respect to the Preferred Securities, the
Convertible Debentures, the Common Stock issuable upon conversion thereof and
the Guarantee will be passed upon for the Company and the Trust by Skadden,
Arps, Slate, Meagher & Flom LLP, 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 LLP 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 LLP, 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 Principal 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.
93
<PAGE> 95
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 Consolidated and Combined Financial Statements............................... F-8
Condensed Consolidated Balance Sheet as of June 30, 1996 (unaudited).................. F-21
Condensed Consolidated Statements of Operations for the six months ended June 30, 1996
and 1995 (unaudited)................................................................ F-22
Condensed Consolidated Statements of Cash Flows for the six months ended June 30, 1996
and 1995 (unaudited)................................................................ F-23
Notes to Condensed Consolidated Financial Statements (unaudited)...................... F-24
</TABLE>
F-1
<PAGE> 96
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> 97
INDEPENDENT AUDITORS' REPORT
To the Directors and Stockholder of
Rio Sportswear, Inc.
We have audited the combined statements of operations, stockholders' 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> 98
DESIGNER HOLDINGS LTD.
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
DECEMBER 31,
---------------------
1994 1995
-------- --------
(IN THOUSANDS, EXCEPT
PER 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> 99
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 PER 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> 100
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> 101
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> 102
DESIGNER HOLDINGS LTD.
NOTES TO FINANCIAL STATEMENTS
(IN THOUSANDS EXCEPT PER SHARE DATA)
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> 103
DESIGNER HOLDINGS LTD.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
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> 104
DESIGNER HOLDINGS LTD.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
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> 105
DESIGNER HOLDINGS LTD.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
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> 106
DESIGNER HOLDINGS LTD.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
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> 107
DESIGNER HOLDINGS LTD.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
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
($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.
F-13
<PAGE> 108
DESIGNER HOLDINGS LTD.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
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
commitment.
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 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.
F-14
<PAGE> 109
DESIGNER HOLDINGS LTD.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
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)
----------------------------- -----------------------------
EIGHT MONTHS FOUR MONTHS
YEAR ENDED ENDED ENDED YEAR 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,
-----------------
1995 1994
------ ------
<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> 110
DESIGNER HOLDINGS LTD.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
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
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
------------ ------------ ------------ ------------
<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.
F-16
<PAGE> 111
DESIGNER HOLDINGS LTD.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
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>
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 womens 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,
F-17
<PAGE> 112
DESIGNER HOLDINGS LTD.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
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
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
F-18
<PAGE> 113
DESIGNER HOLDINGS LTD.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
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 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
F-19
<PAGE> 114
DESIGNER HOLDINGS LTD.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
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. 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> 115
DESIGNER HOLDINGS LTD.
CONDENSED CONSOLIDATED BALANCE SHEET
(UNAUDITED)
<TABLE>
<CAPTION>
JUNE 30,
1996
----------------------
(IN THOUSANDS,
EXCEPT PER SHARE DATA)
<S> <C>
ASSETS
Current assets:
Receivables, net........................................................ $100,186
Inventory............................................................... 85,844
Deferred tax assets..................................................... 12,701
Prepaid expenses and other current assets............................... 6,589
--------
Total current assets............................................ 205,320
Property, plant and equipment, net........................................ 8,242
Prepaid royalties, net.................................................... 5,363
Intangible assets, net.................................................... 55,839
Other assets.............................................................. 4,218
--------
Total assets.................................................... $278,982
========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Current portion of long-term debt....................................... $ 5,000
Revolving credit loans.................................................. 43,297
Accounts payable........................................................ 31,244
Accrued expenses........................................................ 20,947
Income taxes payable.................................................... --
--------
Total current liabilities....................................... 100,488
Long-term debt, less current portion...................................... 8,750
Deferred tax liabilities.................................................. 269
--------
Total liabilities............................................... 109,507
--------
Commitments and contingencies
Stockholder's equity:
Common stock, par value $.01 per share; authorized 75,000,000 shares;
issued and outstanding 32,159,334.................................... 321
Paid-in capital........................................................... 148,296
Retained earnings......................................................... 20,858
--------
Total stockholders' equity...................................... 169,475
--------
Total liabilities and stockholders' equity...................... $278,982
========
</TABLE>
The accompanying notes are an integral part of the condensed consolidated
financial statements.
F-21
<PAGE> 116
DESIGNER HOLDINGS LTD.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
<TABLE>
<CAPTION>
SIX MONTHS ENDED
JUNE 30,
------------------------------
1996 1995
---------- ----------
(IN THOUSANDS, EXCEPT PER
SHARE DATA)
<S> <C> <C>
Net revenues................................................... $ 219,603 $ 174,491
Cost of goods sold............................................. 136,521 123,517
----------- -----------
Gross profit......................................... 83,082 50,974
Selling, general and administrative expenses................... 55,085 36,814
----------- -----------
Operating income..................................... 27,997 14,160
Interest expense............................................... 7,635 5,689
----------- -----------
Income before income taxes........................... 20,362 8,471
Provision for income taxes..................................... 9,367 4,500
----------- -----------
Income before extraordinary item............................... 10,995 3,971
Extraordinary loss on debt extinguishment...................... 2,256 --
----------- -----------
Net income........................................... $ 8,739 $ 3,971
=========== ===========
Income per share before extraordinary item..................... $ .41 $ .16
=========== ===========
Net income per share........................................... $ .33 $ .16
=========== ===========
Weighted average common shares outstanding..................... 26,827,051 24,233,868
=========== ===========
</TABLE>
The accompanying notes are an integral part of the condensed consolidated
financial statements.
F-22
<PAGE> 117
DESIGNER HOLDINGS LTD.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
<TABLE>
<CAPTION>
SIX MONTHS ENDED
JUNE 30,
---------------------
1996 1995
-------- --------
(IN THOUSANDS)
<S> <C> <C>
Cash flows from operating activities:
Net income........................................................... $ 8,739 $ 3,971
Adjustments to reconcile net income to cash (used in) operating
activities:
Depreciation......................................................... 571 237
Amortization......................................................... 1,438 842
Loss on disposal of fixed assets..................................... -- 91
Deferred interest.................................................... (1,653) 400
Deferred income taxes................................................ (3,572) (1,609)
Extraordinary item................................................... 4,103 --
Changes in assets and liabilities:
Receivables....................................................... 18,214 (44,923)
Inventory......................................................... (16,334) (37,220)
Prepaid expenses.................................................. (2,964) (1,044)
Prepaid royalties................................................. 1,000 1,000
Other assets...................................................... (1,294) 177
Accounts payable.................................................. 6,387 2,521
Accrued expenses.................................................. (12,346) 16,352
Income taxes payable.............................................. (10,966) 1,011
-------- --------
Net cash (used in) operating activities...................... (8,677) (58,194)
-------- --------
Cash flows from investing activities:
Purchases of equipment............................................... (2,657) (1,138)
-------- --------
Net cash (used in) investing activities...................... (2,657) (1,138)
-------- --------
Cash flows from financing activities:
Payment of notes payable to related party............................ -- (45,181)
Payments to factor................................................... -- (4,602)
(Decrease) increase in revolving credit loans........................ (53,719) 69,210
(Repayment of) proceeds from term loan............................... (10,000) 25,000
(Repayment of) proceeds from subordinated debt....................... (30,000) 30,000
Payments of notes payable to factor.................................. -- (10,000)
Distributions to stockholders/partners............................... -- (1,495)
Financing costs paid................................................. -- (5,027)
Proceeds from sale of common stock................................... 119,700 --
Payment of debt retirement costs..................................... (2,998) --
Payment of stock issuance costs...................................... (11,649) --
-------- --------
Net cash provided by financing activities.................... 11,334 57,905
-------- --------
Net increase (decrease) in cash.............................. -- (1,427)
Cash, beginning of period.................................... -- 1,432
-------- --------
Cash, end of period.......................................... $ -- $ 5
======== ========
</TABLE>
The accompanying notes are an integral part of the condensed consolidated
financial statements.
F-23
<PAGE> 118
DESIGNER HOLDINGS LTD.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(IN THOUSANDS, EXCEPT PER SHARE DATA)
(UNAUDITED)
1. ORGANIZATION AND BASIS OF PRESENTATION
Designer Holdings Ltd. (the "Company") was incorporated on March 27, 1995
for the purpose of consolidating the ownership interests of Rio Sportswear, Inc.
("Rio Sportswear") and Jeanswear Holdings, Inc., the holding company for Calvin
Klein Jeanswear Company. As of June 30, 1996, 52.1% of the Company's outstanding
common stock was owned by New Rio L.L.C. ("New Rio"), whose controlling
equityholders are Arnold H. Simon, President and Chief Executive Officer of the
Company, and Charterhouse Equity Partners II, L.P. All significant intercompany
balances and transactions have been eliminated.
The accompanying condensed consolidated financial statements have been
prepared pursuant to the rules and regulations of the Securities and Exchange
Commission ("SEC"). Certain information and footnote disclosures normally
included in financial statements prepared in accordance with generally accepted
accounting principles have been condensed or omitted pursuant to such rules and
regulations. In the opinion of management, these statements include all
adjustments, consisting only of normal recurring accruals, considered necessary
for a fair presentation of financial position, results of operations and cash
flows. Results of operations for interim periods are not necessarily indicative
of results for the full year.
The condensed consolidated financial statements should be read in
conjunction with the consolidated financial statements and notes thereto
included elsewhere in the Prospectus.
2. INITIAL PUBLIC OFFERING AND STOCK SPLIT
On May 9, 1996, the Company consummated an initial public offering of
13,800,000 shares of its common stock for $18.00 per share. Of the total shares
offered, the Company sold 6,650,000 shares and New Rio sold 7,150,000 shares.
Net proceeds to the Company, after underwriting discounts and expenses, were
approximately $108.1 million. Net proceeds to the Company were used primarily to
reduce indebtedness, including approximately $37.0 million to retire a
subordinated loan, including approximately $3.0 million relating to a prepayment
penalty, and $71.1 million to reduce indebtedness under the credit agreement.
The prepayment penalty and the write-off of deferred financing costs associated
with the subordinated loan, which aggregated approximately $2.3 million, net of
applicable tax effects, is reported as an extraordinary loss in the second
quarter of 1996.
In contemplation of the initial public offering of the Company's common
stock, on April 22, 1996, the Company increased the number of shares of
authorized common stock to 75,000,000 shares, par value $.01 per share, and
effected a 24,234-for-one stock split of its common stock. All share and per
share amounts included in the accompanying condensed consolidated financial
statements of the Company have been restated to reflect the foregoing.
3. INVENTORY
Inventory is stated at the lower of cost, determined by the average cost
method, or market, and consists of the following:
<TABLE>
<CAPTION>
JUNE 30,
1996
--------
<S> <C>
Raw materials...................................................... $ 645
Work-in-process.................................................... 3,132
Finished goods..................................................... 82,067
-------
$ 85,844
=======
</TABLE>
F-24
<PAGE> 119
DESIGNER HOLDINGS LTD.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
4. FINANCING
The Company finances its operations under a credit agreement which provides
for borrowings under a revolving credit facility and a term loan which may be
terminated by the Company or its lenders in the year 2000. On March 29, 1996,
the revolving credit facility was permanently increased from $115.0 million to
$150.0 million.
5. INCOME TAXES
The higher effective tax rate in 1995, compared to 1996, was principally
attributable to a valuation allowance on net operating loss benefits of Rio
Sportswear. The results of operations of Rio Sportswear were not included in the
consolidated tax returns of the Company until April 1995, when Rio Sportswear
became a subsidiary of the Company.
6. COMMITMENTS AND CONTINGENCIES
CKJ License Amendments
On April 22, 1996, the exclusive license from Calvin Klein, Inc. ("CKI")
for certain types of sportswear (the "CKJ License") was amended to provide for,
among other things, the (i) modification of the term of the CKJ License from a
ten-year initial term with four ten-year renewal terms to a forty-year term with
one ten-year renewal term, (ii) modification of net sales thresholds, (iii)
extension of the term of the CKJ License for the khaki collection from ten years
to forty years, (iv) granting to the Company the non-exclusive right to sell
caps for the term of the CKJ License, (v) expansion of the geographical
territory for the khaki collection, (vi) addition of certain territories in
Central and South America to the CKJ License, and (vii) liberalization of
certain covenants. In addition, the minimum annual royalty fee payments of
$4,500 in 1995 will increase over the term of the CKJ License to $22,000 for
years 31 through 40.
As consideration for such amendments, the Company issued 1,275,466 shares
of non-voting common stock to CKI. Such shares are convertible at any time upon
notice to the Company into an equal number of shares of voting common stock. CKI
has agreed to hold such shares for at least 18 months subsequent to May 9, 1996,
the effective date of the registration statement relating to the initial public
offering of the Company's common stock, although the Company has granted CKI
certain "piggy-back" registration rights that can be exercised at any time after
the shares are converted into voting common stock. The value of the shares
issued to CKI of $20,203 will be recorded as capitalized licensing rights and
amortized over forty years, the adjusted term of the CKJ License.
Employment Agreement
As of April 22, 1996, the Company entered into an employment agreement with
Mr. Simon, which became effective on May 9, 1996, the effective date of the
registration statement relating to the initial public offering of the Company's
common stock. The agreement, which expires on December 31, 1998, provides for
Mr. Simon to be President and Chief Executive Officer of the Company at an
annual base salary of not less than $1,500. The agreement also provides for an
annual cash bonus based on a percentage of adjusted earnings before interest,
taxes and certain non-cash charges (as defined). In addition, upon certain
events of termination and change in control of the Company, the agreement
provides that Mr. Simon will be entitled to certain payments, provided that the
maximum amount payable shall not exceed $9,000 in the aggregate.
Litigation
In 1990, an action was filed against Rio Sportswear and certain other
defendants alleging, among other things, that Rio Sportswear infringed a patent
held by the plaintiffs relating to acid wash processes used in the manufacture
of jeanswear having a random fade effect. Similar suits are pending against the
major
F-25
<PAGE> 120
DESIGNER HOLDINGS LTD.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
manufacturers of such jeanswear. The plaintiffs seek damages against all
defendants in unspecified amounts. No trial date has been set. Rio Sportswear
had received a proposal from plaintiffs offering to settle the litigation, which
was subsequently withdrawn, and Rio Sportswear made a counterproposal, which has
also been withdrawn. There can be no assurance that plaintiffs will make or
consider further settlement proposals with respect to the litigation. If the
parties are unable to reach a settlement, Rio Sportswear intends to contest the
action vigorously. The outcome of litigation is inherently unpredictable and, in
the event that no settlement is reached and Rio Sportswear is found to have
infringed the patent in suit, damages and attorney's fees could be assessed
against Rio Sportswear. No assurance can be given that such damages and fees
would not have a material adverse effect upon the Company's results of
operations or cash flows in the period in which the judgement is rendered;
however, the Company believes that any such damages and fees would not have a
material adverse effect upon the Company's financial position.
7. STOCK OPTION PLAN
The Company's Board of Directors and the sole voting stockholder have
approved the Designer Holdings Ltd. 1996 Stock Option and Incentive Plan ("the
Stock Plan"). Pursuant to the Stock Plan, executive officers, key employees and
consultants of the Company are eligible to receive awards of stock options,
stock appreciation rights, limited stock appreciation rights and restricted
stock. The Company has reserved 2,363,200 shares of common stock for issuance of
awards under the Stock Plan. In May 1996, options to purchase approximately
1,575,000 shares of common stock at an exercise price of $18.00 per share were
granted.
F-26
<PAGE> 121
- ------------------------------------------------------
- ------------------------------------------------------
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 TRUST OR THE UNDERWRITERS. THIS PROSPECTUS DOES NOT
CONSTITUTE AN OFFER TO SELL, OR A SOLICITATION OF AN OFFER TO BUY, 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 OR THE TRUST SINCE THE DATE HEREOF.
------------------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
-----
<S> <C>
Available Information................. 4
Forward-Looking Statements............ 4
Prospectus Summary.................... 5
Risk Factors.......................... 15
Designer Finance Trust................ 22
Accounting Treatment.................. 22
Price Range of Common Stock........... 23
Dividend Policy....................... 23
Use of Proceeds....................... 24
Capitalization........................ 25
Unaudited Pro Forma Financial
Information......................... 26
Management's Discussion and Analysis
of Financial Condition and Results
of Operations....................... 30
Business.............................. 37
Management............................ 50
Certain Transactions.................. 57
Principal Stockholders................ 58
Description of the Preferred
Securities.......................... 59
Description of the Guarantee.......... 72
Description of the Convertible
Debentures.......................... 75
Effect of Obligations Under the
Convertible Debentures and the
Guarantee........................... 83
United States Federal Income
Taxation............................ 84
Description of Capital Stock.......... 87
Description of Certain Indebtedness... 90
Underwriting.......................... 92
Legal Matters......................... 93
Experts............................... 93
Index of Financial Statements......... F-1
- ---------------------------------------------
- ---------------------------------------------
</TABLE>
- ------------------------------------------------------
- ------------------------------------------------------
2,000,000 PREFERRED SECURITIES
DESIGNER
FINANCE TRUST
% CONVERTIBLE TRUST
ORIGINATED PREFERRED
SECURITIES(SM) ("CONVERTIBLE TOPRS(SM)")
GUARANTEED TO THE EXTENT
SET FORTH HEREIN BY, AND
CONVERTIBLE INTO
COMMON STOCK OF,
DESIGNER HOLDINGS LTD.
---------------------------
PROSPECTUS
---------------------------
MERRILL LYNCH & CO.
MORGAN STANLEY & CO.
INCORPORATED
, 1996
- ------------------------------------------------------
- ------------------------------------------------------
<PAGE> 122
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..................................................... $ 39,656
NASD filing fee.......................................................... 12,000
NYSE Listing fee......................................................... 51,700
Blue sky fees and expenses............................................... 15,000
Trustee fees............................................................. 15,000
Printing expenses........................................................ 185,000
Legal fees and expenses.................................................. 400,000
Accounting fees and expenses............................................. 175,000
Transfer agent and registrar fees........................................ 15,000
Miscellaneous............................................................ 91,644
----------
Total.......................................................... $1,000,000
=========
</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
II-1
<PAGE> 123
the 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 sold 1,000 (which, pursuant to a stock split as
of April 22, 1996 currently equals 24,233,868) shares of Common Stock to the
Principal Stockholder for $40,000,000 in reliance on Section 4(2) of the
Securities Act of 1933. On April 22, 1996, Designer 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
- --------- ----------------------------------------------------------------------------------
<S> <C>
1.1 Form of Purchase Agreement.
3.1 Certificate of Incorporation of the Registrant; incorporated by reference to
Exhibit 3.1 to the Company's Registration Statement on Form S-1 (File No.
333-2236).
3.2 By-Laws of Registrant; incorporated by reference to Exhibit 3.2 to the Company's
Registration Statement on Form S-1 (File No. 333-2236).
4.1 Specimen Certificate of Common Stock; incorporated by reference to Exhibit 4.1 to
the Company's Registration Statement on Form S-1 (File No. 333-2236).
*4.2 Certificate of Trust of Designer Finance Trust.
4.3 Form of Amended and Restated Declaration of Trust of Designer Finance Trust among
Designer Holdings Ltd., as Sponsor, IBJ Schroder Bank & Trust Company, as Property
Trustee, Delaware Trust Company, as Delaware Trustee and Merril M. Halpern and
Arnold H. Simon, as Trustees.
4.4 Form of Indenture between Designer Holdings Ltd. and IBJ Schroder Bank & Trust
Company, as Indenture Trustee.
4.5 Form of Preferred Security (included in Exhibit A-1 to Exhibit 4.3 above).
4.6 Form of Convertible Debenture (included in Exhibit A to Exhibit 4.4 above).
4.7 Form of Preferred Securities Guarantee Agreement between Designer Holdings Ltd.,
as Guarantor, and IBJ Schroder Bank & Trust Company, as Guarantee Trustee with
respect to the Preferred Securities of Designer Finance Trust.
5.1 Opinion of Skadden, Arps, Slate, Meagher & Flom LLP.
8.1 Opinion of Skadden, Arps, Slate, Meagher & Flom LLP.
10.1 Form of Registration Rights Agreement; incorporated by reference to Exhibit 10.1
to the Company's Registration Statement on Form S-1 (File No. 333-2236).
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; incorporated by reference to
Exhibit 10.2 to the Company's Registration Statement on Form S-1 (File No.
333-2236).
10.3 Third Amendment to the Credit Agreement, dated as of March 29, 1996; incorporated
by reference to Exhibit 10.3 to the Company's Registration Statement on Form S-1
(File No. 333-2236).
10.4 Fourth Amendment to the Credit Agreement, dated as of September 30, 1996.
10.5 Third Supplemental Funding Agreement to the Credit Agreement dated January 16,
1996; incorporated by reference to Exhibit 10.5 to the Company's Registration
Statement on Form S-1 (File No. 333-2236).
</TABLE>
- ---------------
* Previously filed.
II-2
<PAGE> 124
<TABLE>
<CAPTION>
EXHIBIT
NO. DESCRIPTION
- --------- ----------------------------------------------------------------------------------
<S> <C>
10.6 Factoring Agreement dated as of August 24, 1994 between Rio Sportswear, Inc. and
The CIT Group/BCC, Inc.; incorporated by reference to Exhibit 10.6 to the
Company's Registration Statement on Form S-1 (File No. 333-2236).
10.7 Letter Amendment dated as of August 24, 1994 to the Factoring Agreement between
Rio Sportswear, Inc. and The CIT Group/BCC, Inc.; incorporated by reference to
Exhibit 10.7 to the Company's Registration Statement on Form S-1 (File No.
333-2236).
10.8 Factoring Agreement dated as of August 4, 1994 between Calvin Klein Jeanswear
Company and The CIT Group/BCC, Inc.; incorporated by reference to Exhibit 10.8 to
the Company's Registration Statement on Form S-1 (File No. 333-2236).
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.;
incorporated by reference to Exhibit 10.9 to the Company's Registration Statement
on Form S-1 (File No. 333-2236).
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.; incorporated by reference to Exhibit 10.10 to the Company's Registration
Statement on Form S-1 (File No. 333-2236).
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.; incorporated by
reference to Exhibit 10.11 to the Company's Registration Statement on Form S-1
(File No. 333-2236).
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.; incorporated by reference to Exhibit 10.12
to the Company's Registration Statement on Form S-1 (File No. 333-2236).
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.; incorporated by
reference to Exhibit 10.13 to the Company's Registration Statement on Form S-1
(File No. 333-2236).
10.14 Amendment to the Bill Blass License Agreement dated as of May 27, 1992;
incorporated by reference to Exhibit 10.14 to the Company's Registration Statement
on Form S-1 (File No. 333-2236).
10.15 Amendment to the Bill Blass License Agreement dated as of June 1, 1992;
incorporated by reference to Exhibit 10.15 to the Company's Registration Statement
on Form S-1 (File No. 333-2236).
10.16 Amendment to the Bill Blass License Agreement dated as of January 27, 1993;
incorporated by reference to Exhibit 10.16 to the Company's Registration Statement
on Form S-1 (File No. 333-2236).
10.17 Amendment to the Bill Blass License Agreement dated as of March 30, 1994;
incorporated by reference to Exhibit 10.17 to the Company's Registration Statement
on Form S-1 (File No. 333-2236).
10.18 Amendment to the Bill Blass License Agreement dated as of May 19, 1994;
incorporated by reference to Exhibit 10.18 to the Company's Registration Statement
on Form S-1 (File No. 333-2236).
10.19 Amendment to the Bill Blass License Agreement dated as of December 7,1994;
incorporated by reference to Exhibit 10.19 to the Company's Registration Statement
on Form S-1 (File No. 333-2236).
10.20 License Agreement dated as of August 4, 1994 (the "Calvin Klein License
Agreement") between Calvin Klein, Inc. and Calvin Klein Jeanswear Company;
incorporated by reference to Exhibit 10.20 to the Company's Registration Statement
on Form S-1 (File No. 333-2236).
10.21 Amendment to the Calvin Klein License Agreement dated as of December 7, 1994;
incorporated by reference to Exhibit 10.21 to the Company's Registration Statement
on Form S-1 (File No. 333-2236).
10.22 Amendment to the Calvin Klein License Agreement dated as of January 10, 1995;
incorporated by reference to Exhibit 10.22 to the Company's Registration Statement
on Form S-1 (File No. 333-2236).
</TABLE>
- ---------------
* Previously filed.
II-3
<PAGE> 125
<TABLE>
<CAPTION>
EXHIBIT
NO. DESCRIPTION
- --------- ----------------------------------------------------------------------------------
<S> <C>
10.23 Amendment to the Calvin Klein License Agreement dated as of February 28, 1995;
incorporated by reference to Exhibit 10.23 to the Company's Registration Statement
on Form S-1 (File No. 333-2236).
10.24 Agreement dated as of December 12, 1995 by and between Rio Sportswear, Inc. and
Commerce Clothing Company, LLC; incorporated by reference to Exhibit 10.24 to the
Company's Registration Statement on Form S-1 (File No. 333-2236).
10.25 Distributorship Agreement dated as of February 1996, between Calvin Klein
Jeanswear Company, Commerce Clothing Company LLC, and Calvin Klein, Inc.;
incorporated by reference to Exhibit 10.25 to the Company's Registration Statement
on Form S-1 (File No. 333-2236).
10.26 Designer Holdings Ltd. 1996 Stock Option and Incentive Plan; incorporated by
reference to Exhibit 10.26 to the Company's Registration Statement on Form S-1
(File No. 333- 2236).
10.27 Employment Agreement between New Rio Sportswear Inc., Calvin Klein Jeanswear
Company and Maurice Dickson, as amended; incorporated by reference to Exhibit
10.27 to the Company's Registration Statement on Form S-1 (File No. 333-2236).
10.28 Employment Agreement between Calvin Klein Jeanswear Company and Daniel J.
Gladstone, as amended; incorporated by reference to Exhibit 10.28 to the Company's
Registration Statement on Form S-1 (File No. 333-2236).
10.29 Agreement of Lease by and between Erika Realty Trust and Calvin Klein Jeanswear
Company; incorporated by reference to Exhibit 10.29 to the Company's Registration
Statement on Form S-1 (File No. 333-2236).
10.30 Distribution Agreement dated September 7, 1995 between Calvin Klein Jeanswear and
Floor Ready Company, L.L.C.; incorporated by reference to Exhibit 10.30 to the
Company's Registration Statement on Form S-1 (File No. 333-2236).
10.31 Distributorship Agreement dated as of June 26, 1995, between Calvin Klein
Jeanswear Company, Western Glove Works R.S., and Calvin Klein, Inc.; incorporated
by reference to Exhibit 10.31 to the Company's Registration Statement on Form S-1
(File No. 333-2236).
10.32 Lease Agreement dated as of April 28, 1995 between North Arlington Associates and
Rio Sportswear, Inc.; incorporated by reference to Exhibit 10.32 to the Company's
Registration Statement on Form S-1 (File No. 333-2236).
10.33 Amendment to the Bill Blass License Agreement dated as of March 22, 1996;
incorporated by reference to Exhibit 10.33 to the Company's Registration Statement
on Form S-1 (File No. 333-2236).
10.34 Employment Agreement between Designer Holdings Ltd., Calvin Klein Jeanswear
Company and Arnold H. Simon; incorporated by reference to Exhibit 10.34 to the
Company's Registration Statement on Form S-1 (File No. 333-2236).
10.35 Employment Agreement between Designer Holdings Ltd., Calvin Klein Jeanswear
Company and Debra Simon; incorporated by reference to Exhibit 10.35 to the
Company's Registration Statement on Form S-1 (File No. 333-2236).
10.36 Employment Agreement between Calvin Klein Jeanswear Company and New Rio
Sportswear, Inc. and David Fidlon, as amended; incorporated by reference to
Exhibit 10.36 to the Company's Registration Statement on Form S-1 (File No.
333-2236).
10.37 Employment Agreement between Designer Holdings Ltd., Calvin Klein Jeanswear
Company and John J. Jones; incorporated by reference to Exhibit 10.37 to the
Company's Registration Statement on Form S-1 (File No. 333-2236).
10.38 Amendment to the Calvin Klein License Agreement dated as of April 22, 1996;
incorporated by reference to Exhibit 10.38 to the Company's Registration Statement
on Form S-1 (File No. 333-2236).
10.39 Amendment to the Lease Agreement between North Arlington Associates and Rio
Sportswear, Inc., dated as of February 22, 1996; incorporated by reference to
Exhibit 10.39 to the Company's Registration Statement on Form S-1 (File No.
333-2236).
10.40 Stock Acquisition Agreement dated as of April 22, 1996 between Designer Holdings
Ltd. and Calvin Klein Inc.; incorporated by reference to Exhibit 10.40 to the
Company's Registration Statement on Form S-1 (File No. 333-2236).
</TABLE>
- ---------------
* Previously filed.
II-4
<PAGE> 126
<TABLE>
<CAPTION>
EXHIBIT
NO. DESCRIPTION
- --------- ----------------------------------------------------------------------------------
<S> <C>
10.41 Employment Agreement between Calvin Klein Jeanswear Company, Rio Sportswear, Inc.
and Guy Kinberg; incorporated by reference to Exhibit 10.41 to the Company's
Registration Statement on Form S-1 (File No. 333-2236).
10.42 Jeanswear License Agreement, dated as of September 27, 1996, between Donna Karan
Studio and the Registrant; specified portions of the publicly-filed copy of
Exhibit 10.28 have been omitted and have been filed separately with the Securities
and Exchange Commission pursuant to a request for confidential treatment.
12.1 Computation of Ratio of Earnings to Fixed Charges.
16.1 Letter of Deloitte & Touche LLP, re change in certifying accountant; incorporated
by reference to Exhibit 16.1 to the Company's Registration Statement on Form S-1
(File No. 333-2236).
21.1 Subsidiaries of the Registrant.
23.1 Consent of Coopers & Lybrand L.L.P.
23.2 Consent of Deloitte & Touche L.L.P.
23.3 Consent of Skadden, Arps, Slate, Meagher & Flom LLP (included in Exhibits 5.1 and
8.1).
*24.1 Power of Attorney (set forth on signature page of the Registration Statement).
25.1 Form T-1 Statement of Eligibility under the Trust Indenture Act of 1939, as
amended, of IBJ Schroder Bank & Trust Company, as Indenture Trustee under the
Indenture.
25.2 Form T-1 Statement of Eligibility under the Trust Indenture Act of 1939, as
amended, of IBJ Schroder Bank & Trust Company, as Property Trustee under the
Amended and Restated Declaration of Trust.
25.3 Form T-1 Statement of Eligibility under the Trust Indenture Act of 1939, as
amended, of IBJ Schroder Bank & Trust Company, as Guarantee Trustee under the
Guarantee.
</TABLE>
- ---------------
* Previously filed.
(b) Financial Statement Schedules:
Schedule II -- Valuation and Qualifying Accounts
ITEM 17. UNDERTAKINGS
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-5
<PAGE> 127
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, as amended, the
Registrant has duly caused this Amendment to the 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 October 30, 1996.
DESIGNER HOLDINGS LTD.
By: 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 indicated on October 30, 1996.
<TABLE>
<CAPTION>
SIGNATURE TITLE
- ----------------------------------------------- ------------------------------------------
<S> <C>
ARNOLD H. SIMON* President, Chief Executive
- ----------------------------------------------- Officer and Director
Arnold H. Simon
MAURICE DICKSON Treasurer and Chief
- ----------------------------------------------- Financial Officer
Maurice Dickson
DAVID FIDLON* Controller and Chief
- ----------------------------------------------- Accounting Officer
David Fidlon
MERRIL M. HALPERN* Chairman of the
- ----------------------------------------------- Board of Directors
Merril M. Halpern
DEBRA SIMON* Executive Vice President
- ----------------------------------------------- and Director
Debra Simon
A. LAWRENCE FAGAN* Director
- -----------------------------------------------
A. Lawrence Fagan
PETER BROWN* Director
- -----------------------------------------------
Peter Brown
FREDERICK W. ZUCKERMAN* Director
- -----------------------------------------------
Frederick W. Zuckerman
*By: MAURICE DICKSON
------------------------------------------
Maurice Dickson
Attorney-in-fact
</TABLE>
II-6
<PAGE> 128
SIGNATURES
Pursuant to the requirements of the Securities Act, Designer Finance Trust
has duly caused this Amendment to the 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 October 30, 1996.
DESIGNER FINANCE TRUST
By: MERRIL M. HALPERN
----------------------------------
Merril M. Halpern, as Trustee
By: ARNOLD H. SIMON
----------------------------------
Arnold H. Simon, as Trustee
II-7
<PAGE> 129
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 of the Predecessor Companies 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-1
<PAGE> 130
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-2
<PAGE> 131
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT
NO. DESCRIPTION
- --------- ----------------------------------------------------------------------------------
<S> <C>
1.1 Form of Purchase Agreement.
3.1 Certificate of Incorporation of the Registrant; incorporated by reference to
Exhibit 3.1 to the Company's Registration Statement on Form S-1 (File No.
333-2236).
3.2 By-Laws of Registrant; incorporated by reference to Exhibit 3.2 to the Company's
Registration Statement on Form S-1 (File No. 333-2236).
4.1 Specimen Certificate of Common Stock; incorporated by reference to Exhibit 4.1 to
the Company's Registration Statement on Form S-1 (File No. 333-2236).
*4.2 Certificate of Trust of Designer Finance Trust.
4.3 Form of Amended and Restated Declaration of Trust of Designer Finance Trust among
Designer Holdings Ltd., as Sponsor, IBJ Schroder Bank & Trust Company, as Property
Trustee, Delaware Trust Company, as Delaware Trustee and Merril M. Halpern and
Arnold H. Simon, as Trustees.
4.4 Form of Indenture between Designer Holdings Ltd. and IBJ Schroder Bank & Trust
Company, as Indenture Trustee.
4.5 Form of Preferred Security (included in Exhibit A-1 to Exhibit 4.3 above).
4.6 Form of Convertible Debenture (included in Exhibit A to Exhibit 4.4 above).
4.7 Form of Preferred Securities Guarantee Agreement between Designer Holdings Ltd.,
as Guarantor, and IBJ Schroder Bank & Trust Company, as Guarantee Trustee with
respect to the Preferred Securities of Designer Finance Trust.
5.1 Opinion of Skadden, Arps, Slate, Meagher & Flom LLP.
8.1 Opinion of Skadden, Arps, Slate, Meagher & Flom LLP.
10.1 Form of Registration Rights Agreement; incorporated by reference to Exhibit 10.1
to the Company's Registration Statement on Form S-1 (File No. 333-2236).
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; incorporated by reference to
Exhibit 10.2 to the Company's Registration Statement on Form S-1 (File No.
333-2236).
10.3 Third Amendment to the Credit Agreement, dated as of March 29, 1996; incorporated
by reference to Exhibit 10.3 to the Company's Registration Statement on Form S-1
(File No. 333-2236).
10.4 Fourth Amendment to the Credit Agreement, dated as of September 30, 1996.
10.5 Third Supplemental Funding Agreement to the Credit Agreement dated January 16,
1996; incorporated by reference to Exhibit 10.5 to the Company's Registration
Statement on Form S-1 (File No. 333-2236).
10.6 Factoring Agreement dated as of August 24, 1994 between Rio Sportswear, Inc. and
The CIT Group/BCC, Inc.; incorporated by reference to Exhibit 10.6 to the
Company's Registration Statement on Form S-1 (File No. 333-2236).
10.7 Letter Amendment dated as of August 24, 1994 to the Factoring Agreement between
Rio Sportswear, Inc. and The CIT Group/BCC, Inc.; incorporated by reference to
Exhibit 10.7 to the Company's Registration Statement on Form S-1 (File No.
333-2236).
10.8 Factoring Agreement dated as of August 4, 1994 between Calvin Klein Jeanswear
Company and The CIT Group/BCC, Inc.; incorporated by reference to Exhibit 10.8 to
the Company's Registration Statement on Form S-1 (File No. 333-2236).
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.;
incorporated by reference to Exhibit 10.9 to the Company's Registration Statement
on Form S-1 (File No. 333-2236).
</TABLE>
- ---------------
* Previously filed.
<PAGE> 132
<TABLE>
<CAPTION>
EXHIBIT
NO. DESCRIPTION
- --------- ----------------------------------------------------------------------------------
<S> <C>
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.; incorporated by reference to Exhibit 10.10 to the Company's Registration
Statement on Form S-1 (File No. 333-2236).
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.; incorporated by
reference to Exhibit 10.11 to the Company's Registration Statement on Form S-1
(File No. 333-2236).
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.; incorporated by reference to Exhibit 10.12
to the Company's Registration Statement on Form S-1 (File No. 333-2236).
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.; incorporated by
reference to Exhibit 10.13 to the Company's Registration Statement on Form S-1
(File No. 333-2236).
10.14 Amendment to the Bill Blass License Agreement dated as of May 27, 1992;
incorporated by reference to Exhibit 10.14 to the Company's Registration Statement
on Form S-1 (File No. 333-2236).
10.15 Amendment to the Bill Blass License Agreement dated as of June 1, 1992;
incorporated by reference to Exhibit 10.15 to the Company's Registration Statement
on Form S-1 (File No. 333-2236).
10.16 Amendment to the Bill Blass License Agreement dated as of January 27, 1993;
incorporated by reference to Exhibit 10.16 to the Company's Registration Statement
on Form S-1 (File No. 333-2236).
10.17 Amendment to the Bill Blass License Agreement dated as of March 30, 1994;
incorporated by reference to Exhibit 10.17 to the Company's Registration Statement
on Form S-1 (File No. 333-2236).
10.18 Amendment to the Bill Blass License Agreement dated as of May 19, 1994;
incorporated by reference to Exhibit 10.18 to the Company's Registration Statement
on Form S-1 (File No. 333-2236).
10.19 Amendment to the Bill Blass License Agreement dated as of December 7,1994;
incorporated by reference to Exhibit 10.19 to the Company's Registration Statement
on Form S-1 (File No. 333-2236).
10.20 License Agreement dated as of August 4, 1994 (the "Calvin Klein License
Agreement") between Calvin Klein, Inc. and Calvin Klein Jeanswear Company;
incorporated by reference to Exhibit 10.20 to the Company's Registration Statement
on Form S-1 (File No. 333-2236).
10.21 Amendment to the Calvin Klein License Agreement dated as of December 7, 1994;
incorporated by reference to Exhibit 10.21 to the Company's Registration Statement
on Form S-1 (File No. 333-2236).
10.22 Amendment to the Calvin Klein License Agreement dated as of January 10, 1995;
incorporated by reference to Exhibit 10.22 to the Company's Registration Statement
on Form S-1 (File No. 333-2236).
10.23 Amendment to the Calvin Klein License Agreement dated as of February 28, 1995;
incorporated by reference to Exhibit 10.23 to the Company's Registration Statement
on Form S-1 (File No. 333-2236).
10.24 Agreement dated as of December 12, 1995 by and between Rio Sportswear, Inc. and
Commerce Clothing Company, LLC; incorporated by reference to Exhibit 10.24 to the
Company's Registration Statement on Form S-1 (File No. 333-2236).
10.25 Distributorship Agreement dated as of February 1996, between Calvin Klein
Jeanswear Company, Commerce Clothing Company LLC, and Calvin Klein, Inc.;
incorporated by reference to Exhibit 10.25 to the Company's Registration Statement
on Form S-1 (File No. 333-2236).
10.26 Designer Holdings Ltd. 1996 Stock Option and Incentive Plan; incorporated by
reference to Exhibit 10.26 to the Company's Registration Statement on Form S-1
(File No. 333- 2236).
</TABLE>
<PAGE> 133
<TABLE>
<CAPTION>
EXHIBIT
NO. DESCRIPTION
- --------- ----------------------------------------------------------------------------------
<S> <C>
10.27 Employment Agreement between New Rio Sportswear Inc., Calvin Klein Jeanswear
Company and Maurice Dickson, as amended; incorporated by reference to Exhibit
10.27 to the Company's Registration Statement on Form S-1 (File No. 333-2236).
10.28 Employment Agreement between Calvin Klein Jeanswear Company and Daniel J.
Gladstone, as amended; incorporated by reference to Exhibit 10.28 to the Company's
Registration Statement on Form S-1 (File No. 333-2236).
10.29 Agreement of Lease by and between Erika Realty Trust and Calvin Klein Jeanswear
Company; incorporated by reference to Exhibit 10.29 to the Company's Registration
Statement on Form S-1 (File No. 333-2236).
10.30 Distribution Agreement dated September 7, 1995 between Calvin Klein Jeanswear and
Floor Ready Company, L.L.C.; incorporated by reference to Exhibit 10.30 to the
Company's Registration Statement on Form S-1 (File No. 333-2236).
10.31 Distributorship Agreement dated as of June 26, 1995, between Calvin Klein
Jeanswear Company, Western Glove Works R.S., and Calvin Klein, Inc.; incorporated
by reference to Exhibit 10.31 to the Company's Registration Statement on Form S-1
(File No. 333-2236).
10.32 Lease Agreement dated as of April 28, 1995 between North Arlington Associates and
Rio Sportswear, Inc.; incorporated by reference to Exhibit 10.32 to the Company's
Registration Statement on Form S-1 (File No. 333-2236).
10.33 Amendment to the Bill Blass License Agreement dated as of March 22, 1996;
incorporated by reference to Exhibit 10.33 to the Company's Registration Statement
on Form S-1 (File No. 333-2236).
10.34 Employment Agreement between Designer Holdings Ltd., Calvin Klein Jeanswear
Company and Arnold H. Simon; incorporated by reference to Exhibit 10.34 to the
Company's Registration Statement on Form S-1 (File No. 333-2236).
10.35 Employment Agreement between Designer Holdings Ltd., Calvin Klein Jeanswear
Company and Debra Simon; incorporated by reference to Exhibit 10.35 to the
Company's Registration Statement on Form S-1 (File No. 333-2236).
10.36 Employment Agreement between Calvin Klein Jeanswear Company and New Rio
Sportswear, Inc. and David Fidlon, as amended; incorporated by reference to
Exhibit 10.36 to the Company's Registration Statement on Form S-1 (File No.
333-2236).
10.37 Employment Agreement between Designer Holdings Ltd., Calvin Klein Jeanswear
Company and John J. Jones; incorporated by reference to Exhibit 10.37 to the
Company's Registration Statement on Form S-1 (File No. 333-2236).
10.38 Amendment to the Calvin Klein License Agreement dated as of April 22, 1996;
incorporated by reference to Exhibit 10.38 to the Company's Registration Statement
on Form S-1 (File No. 333-2236).
10.39 Amendment to the Lease Agreement between North Arlington Associates and Rio
Sportswear, Inc., dated as of February 22, 1996; incorporated by reference to
Exhibit 10.39 to the Company's Registration Statement on Form S-1 (File No.
333-2236).
10.40 Stock Acquisition Agreement dated as of April 22, 1996 between Designer Holdings
Ltd. and Calvin Klein Inc.; incorporated by reference to Exhibit 10.40 to the
Company's Registration Statement on Form S-1 (File No. 333-2236).
10.41 Employment Agreement between Calvin Klein Jeanswear Company, Rio Sportswear, Inc.
and Guy Kinberg; incorporated by reference to Exhibit 10.41 to the Company's
Registration Statement on Form S-1 (File No. 333-2236).
10.42 Jeanswear License Agreement, dated as of September 27, 1996, between Donna Karan
Studio and the Registrant; specified portions of the publicly-filed copy of
Exhibit 10.28 have been omitted and have been filed separately with the Securities
and Exchange Commission pursuant to a request for confidential treatment.
12.1 Computation of Ratio of Earnings to Fixed Charges.
16.1 Letter of Deloitte & Touche LLP, re change in certifying accountant; incorporated
by reference to Exhibit 16.1 to the Company's Registration Statement on Form S-1
(File No. 333-2236).
21.1 Subsidiaries of the Registrant.
</TABLE>
- ---------------
* Previously filed.
<PAGE> 134
<TABLE>
<CAPTION>
EXHIBIT
NO. DESCRIPTION
- --------- ----------------------------------------------------------------------------------
<S> <C>
23.1 Consent of Coopers & Lybrand L.L.P.
23.2 Consent of Deloitte & Touche L.L.P.
23.3 Consent of Skadden, Arps, Slate, Meagher & Flom LLP (included in Exhibits 5.1 and
8.1).
*24.1 Power of Attorney (set forth on signature page of the Registration Statement).
25.1 Form T-1 Statement of Eligibility under the Trust Indenture Act of 1939, as
amended, of IBJ Schroder Bank & Trust Company, as Indenture Trustee under the
Indenture.
25.2 Form T-1 Statement of Eligibility under the Trust Indenture Act of 1939, as
amended, of IBJ Schroder Bank & Trust Company, as Property Trustee under the
Amended and Restated Declaration of Trust.
25.3 Form T-1 Statement of Eligibility under the Trust Indenture Act of 1939, as
amended, of IBJ Schroder Bank & Trust Company, as Guarantee Trustee under the
Guarantee.
</TABLE>
- ---------------
* Previously filed.
(b) Financial Statement Schedules:
Schedule II -- Valuation and Qualifying Accounts
<PAGE> 1
Exhibit 1.1
DESIGNER HOLDINGS LTD.
(a Delaware corporation); and
DESIGNER FINANCE TRUST
(a Delaware statutory business trust)
2,000,000
___% Convertible Trust
Originated Preferred Securities SM
("Convertible TOPrS SM")
PURCHASE AGREEMENT
Dated: ____________, 1996
- --------------------
SM "Convertible Trust Originated Preferred Securities" and
"Convertible TOPrS" are service marks of Merrill Lynch &
Co., Inc.
<PAGE> 2
TABLE OF CONTENTS
Page
PURCHASE AGREEMENT .................................................. 1
SECTION 1. Representations and Warranties ...................... 4
(a) Representations and Warranties by the
Company and the Trust ............................. 4
(i) Compliance with Registration Requirements ..... 4
(ii) Independent Accountants ....................... 5
(iii) Financial Statements .......................... 6
(iv) No Material Adverse Change in Business ........ 6
(v) Good Standing of the Company .................. 6
(vi) Good Standing of Subsidiaries ................. 7
(vii) Capitalization; Descriptions .................. 7
(viii) Existence of Trust ............................ 8
(ix) Common Securities ............................. 8
(x) Capital Stock ................................. 8
(xi) Authorization of Declaration .................. 9
(xii) Guarantee Agreements .......................... 9
(xiii) Preferred Securities .......................... 9
(xiv) Authorization of Indenture .................... 10
(xv) Authorization of Convertible Debentures ....... 10
(xvi) Authorization of Agreement .................... 10
(xvii) Absence of Defaults and Conflicts ............. 10
(xviii) Absence of Labor Dispute ...................... 11
(xix) Absence of Proceedings ........................ 12
(xx) Accuracy of Exhibits .......................... 12
(xxi) Donna Karan License Agreement ................. 12
(xxii) Possession of Intellectual Property ........... 13
(xxiii) Absence of Further Requirements ............... 13
(xxiv) Possession of Licenses and Permits ............ 14
(xxv) Title to Property ............................. 14
(xxvi) Compliance with Cuba Act ...................... 14
(xxvii) Investment Company Act ........................ 15
(xxviii) Environmental Laws ............................ 15
(xxix) Registration Rights ........................... 16
(xxx) Taxes ......................................... 16
(xxxi) Statistical Information ....................... 16
SECTION 2. Sale and Delivery to Underwriters;
Closing .......................................... 16
(a) Initial Preferred Securities ........................ 16
(b) Optional Preferred Securities ....................... 17
(c) Payment ............................................. 17
-i-
<PAGE> 3
Page
(d) Denominations; Registration ......................... 18
SECTION 3. Covenants ........................................... 18
(a) Compliance with Securities Regulations and
Commission Requests .............................. 19
(b) Filing of Amendments ................................ 19
(c) Delivery of Registration Statements.................. 19
(d) Delivery of Prospectuses ............................ 20
(e) Continued Compliance with Securities Laws ........... 20
(f) Blue Sky Qualifications ............................. 21
(g) Rule 158 ............................................ 21
(h) Use of Proceeds ..................................... 21
(i) Listing ............................................. 22
(j) Restriction on Sale of Securities ................... 22
(k) Reporting Requirements .............................. 22
(l) Reports on Form SR .................................. 23
(m) Furnish Reports ..................................... 23
(n) Interim Financials .................................. 23
SECTION 4. Payment of Expenses ................................. 23
(a) Expenses ............................................ 23
(b) Termination of Agreement ............................ 24
SECTION 5. Conditions of Underwriters' Obligations ............. 24
(a) Effectiveness of Registration Statement ............. 25
(b) Opinion of Skadden, Arps, Slate, Meagher &
Flom ............................................. 25
(c) Opinion of General Counsel for
Company .......................................... 25
(d) Opinion of Counsel for Property Trustee
and Guarantee Trustee ............................ 25
(e) Opinion of Counsel for Delaware Trustee ............. 26
(f) Opinion of Counsel for Underwriters ................. 26
(g) Officers' Certificates .............................. 26
(h) Officer's Certificates of Licensors ................. 27
(i) Accountant's Comfort Letter ......................... 27
(j) Bring-down Comfort Letter ........................... 27
(k) Amendment of Credit Agreement ....................... 28
(l) Approval of Listing ................................. 28
(m) No Objection ........................................ 28
(n) Lock-up Agreements .................................. 28
(o) Conditions to Purchase of Optional
Preferred Securities ............................. 28
(p) Additional Documents ................................ 29
(q) Termination of Agreement ............................ 30
SECTION 6. Indemnification ..................................... 30
(a) Indemnification of Underwriters ..................... 30
-ii-
<PAGE> 4
Page
(b) Indemnification of Trust, Company,
Directors and Officers ........................... 31
(c) Actions Against Parties; Notification ............... 32
(d) Settlement Without Consent if Failure to
Reimburse ........................................ 33
SECTION 7. Contribution ........................................ 33
SECTION 8. Representations, Warranties and Agreements
to Survive Delivery .............................. 35
SECTION 9. Termination of Agreement ............................ 35
(a) Termination; General ................................ 35
(b) Liabilities ......................................... 36
SECTION 10. Default by One or More of the Underwriters........... 36
SECTION 11. Notices ............................................. 37
SECTION 12. Parties ............................................. 37
SECTION 13. GOVERNING LAW AND TIME .............................. 38
SECTION 14. Effect of Headings .................................. 38
-iii-
<PAGE> 5
DESIGNER HOLDINGS LTD.
(a Delaware corporation); and
DESIGNER FINANCE TRUST
(a Delaware statutory business trust)
2,000,000
___% Convertible Trust
Originated Preferred Securities SM
("Convertible TOPrS SM")
(Liquidation Amount $50 Per Convertible Preferred Security)
PURCHASE AGREEMENT
_____________, 1996
MERRILL LYNCH & CO.
MERRILL LYNCH, PIERCE, FENNER & SMITH
INCORPORATED
MORGAN STANLEY & CO. INCORPORATED
c/o MERRILL LYNCH & CO.
Merrill Lynch, Pierce, Fenner & Smith
Incorporated
North Tower
World Financial Center
New York, New York 10281-1209
Ladies and Gentlemen:
Designer Finance Trust (the "Trust"), a statutory business trust
organized under the Business Trust Act (the "Delaware Act") of the State of
Delaware (Chapter 38, Title 12 of the Delaware Code, 12 Del. C. {{ 3801 et
seq.), confirms its agreement with you, Merrill Lynch & Co., Merrill Lynch,
Pierce, Fenner & Smith Incorporated ("Merrill Lynch") and Morgan Stanley & Co.
Incorporated (together, the "Underwriters," which term shall also include any
underwriter substituted as hereinafter provided in Section 10 hereof), with
respect to the issuance and sale by the Trust, and the purchase by the
Underwriters, acting severally and not jointly, of the respective numbers of __%
Convertible Trust Originated Preferred Securities (liquidation amount $50 per
preferred security) set forth in Schedule A hereto and the grant by the Trust to
the Underwriters, acting severally and not jointly, of the option described in
Section 2(b) hereof to purchase all or any part of 300,000 additional Preferred
Securities to cover overallotments, if any. The aforesaid 2,000,000 preferred
securities (the
<PAGE> 6
-2-
"Initial Preferred Securities") to be purchased by the Underwriters and all or
any part of the 300,000 preferred securities subject to the option described in
Section 2(b) hereof (the "Optional Preferred Securities") are hereinafter
called, collectively, the "Preferred Securities." The Preferred Securities will
be convertible at the option of the holder thereof into shares of common stock,
par value $.01 per share (shares of which class of stock are herein referred to
as "Common Stock"), of Designer Holdings Ltd. (the "Company"). The Preferred
Securities are more fully described in the Prospectus (as defined below).
The Preferred Securities will be guaranteed by the Company, to the
extent set forth in the Prospectus (as defined below), with respect to
distributions and amounts payable upon liquidation or redemption (the "Preferred
Securities Guarantee") pursuant to the Preferred Securities Guarantee Agreement
(the "Preferred Securities Guarantee Agreement") to be dated as of Closing Time
(as defined below) executed and delivered by the Company and IBJ Schroder Bank &
Trust Company (the "Guarantee Trustee"), a New York banking corporation not in
its individual capacity but solely as trustee, for the benefit of the holders
from time to time of the Preferred Securities. The Company and the Trust each
understand that the Underwriters propose to make a public offering of the
Preferred Securities as soon as they deem advisable after this Agreement has
been executed and delivered, and the Declaration (as defined herein), the
Indenture (as defined herein), and the Preferred Securities Guarantee Agreement
have been qualified under the Trust Indenture Act of 1939, as amended (the "1939
Act"). The entire proceeds from the sale of the Preferred Securities will be
combined with the entire proceeds from the sale by the Trust to the Company of
its common securities (the "Common Securities") guaranteed by the Company, to
the extent set forth in the Prospectus, with respect to distributions and
amounts payable upon liquidation or redemption (the "Common Securities
Guarantee" and, together with the Preferred Securities Guarantee, the
"Guarantees") pursuant to the Common Securities Guarantee Agreement (the "Common
Securities Guarantee Agreement" and, together with the Preferred Securities
Guarantee Agreement, the "Guarantee Agreements"), to be dated as of Closing
Time, executed and delivered by the Company for the benefit of the holders from
time to time of the Common Securities, and will be used by the Trust to purchase
the ____% Convertible Subordinated Debentures due 2016 (the "Convertible
Debentures") issued by the Company. The Preferred Securities and the Common
Securities will be issued pursuant to the Amended and Restated
<PAGE> 7
-3-
Declaration of Trust of the Trust, to be dated as of Closing Time (the
"Declaration"), among the Company, as Sponsor, IBJ Schroder Bank & Trust
Company, as property trustee (the "Property Trustee"), and Delaware Trust
Capital Management, Inc., as Delaware trustee (the "Delaware Trustee"), and
Arnold H. Simon and Merrill M. Halpern, as regular trustees (the "Regular
Trustees" and together with the Property Trustee and the Delaware Trustee, the
"Trustees"), and the holders from time to time of undivided beneficial interests
in the assets of the Trust. The Convertible Debentures will be issued pursuant
to an Indenture, to be dated as of Closing Time (the "Indenture"), between the
Company and IBJ Schroder Bank & Trust Company, as trustee (the "Indenture
Trustee"). The Preferred Securities, the Preferred Securities Guarantee, the
Convertible Debentures and the shares of Common Stock of the Company initially
issuable upon conversion of the Convertible Debentures (the "Conversion
Shares") are collectively referred to herein as the "Securities." Capitalized
terms used herein without definition have the respective meanings specified in
the Prospectus.
The Company and the Trust have filed with the Securities and
Exchange Commission (the "Commission") a registration statement on Form S-1 (No.
333-13097) covering the registration of the Securities under the Securities Act
of 1933, as amended (the "1933 Act"), including the related preliminary
prospectus. Promptly after execution and delivery of this Agreement, the Company
will either (i) prepare and file a prospectus in accordance with the provisions
of Rule 430A ("Rule 430A") of the rules and regulations of the Commission under
the 1933 Act (the "1933 Act Regulations") and paragraph (b) of Rule 424 ("Rule
424(b)") of the 1933 Act Regulations or (ii) if the Company and the Trust have
elected to rely upon Rule 434 ("Rule 434") of the 1933 Act Regulations, prepare
and file a term sheet (a "Term Sheet") in accordance with the provisions of Rule
434 and Rule 424(b). The information included in such prospectus or in such Term
Sheet, as the case may be, that was omitted from such registration statement at
the time it became effective but that is deemed to be part of such registration
statement at the time it became effective (a) pursuant to paragraph (b) of Rule
430A is referred to as "Rule 430A Information" or (b) pursuant to paragraph (d)
of Rule 434 is referred to as "Rule 434 Information." Each prospectus used
before such registration statement became effective, and any prospectus that
omitted, as applicable, the Rule 430A Information or the Rule 434 Information
that was used after such effectiveness and prior to the execution and delivery
of this Agreement, is herein called a "preliminary prospectus." Such
registration statement, including
<PAGE> 8
-4-
the exhibits thereto and schedules thereto, if any, at the time it became
effective and including the Rule 430A Information and the Rule 434 Information,
as applicable, is herein called the "Registration Statement." Any registration
statement filed pursuant to Rule 462(b) of the 1933 Act Regulations is herein
referred to as the "Rule 462(b) Registration Statement" and after such filing
the term "Registration Statement" shall include the Rule 462(b) Registration
Statement. The final prospectus in the form first furnished to the Underwriters
for use in connection with the offering of the Preferred Securities is herein
called the "Prospectus." If Rule 434 is relied on, the term "Prospectus" shall
refer to the preliminary prospectus dated October 22, 1996 together with the
Term Sheet and all references in this Agreement to the date of the Prospectus
shall mean the date of the Term Sheet. For purposes of this Agreement, all
references to the Registration Statement, any preliminary prospectus, the
Prospectus or any Term Sheet or any amendment or supplement to any of the
foregoing shall be deemed to include the copy filed with the Commission pursuant
to its Electronic Data Gathering, Analysis and Retrieval system ("EDGAR").
SECTION 1. Representations and Warranties.
(a) Representations and Warranties by the Company and the Trust. The
Company and the Trust jointly and severally represent and warrant to each
Underwriter as of the date hereof, as of the Closing Time referred to in Section
2(c) hereof, and as of each Date of Delivery (if any) referred to in Section
2(b) hereof, and agree with each Underwriter, as follows:
(i) Compliance with Registration Requirements. Each of the
Registration Statement and any Rule 462(b) Registration Statement has
become effective under the 1933 Act and no stop order suspending the
effectiveness of the Registration Statement or any Rule 462(b)
Registration Statement has been issued under the 1933 Act and no
proceedings for that purpose have been instituted or are pending or, to
the knowledge of the Company, are contemplated by the Commission, and any
request on the part of the Commission for additional information has been
complied with.
At the respective times the Registration Statement, any Rule 462(b)
Registration Statement and any post-effective amendments thereto became
effective and at the Closing Time (and, if any Optional Preferred
Securities are
<PAGE> 9
-5-
purchased, at the Date of Delivery), the Registration Statement, the Rule
462(b) Registration Statement, if any, and any amendments and supplements
thereto complied and will comply in all material respects with the
requirements of the 1933 Act and the 1933 Act Regulations and did not and
will not contain an untrue statement of a material fact or omit to state a
material fact required to be stated therein or necessary to make the
statements therein not misleading. Neither the Prospectus nor any
amendments or supplements thereto, at the time the Prospectus or any such
amendment or supplement was issued and at the Closing Time (and, if any
Optional Preferred Securities are purchased, at the Date of Delivery),
included or will include an untrue statement of a material fact or omitted
or will omit to state a material fact necessary in order to make the
statements therein, in the light of the circumstances under which they
were made, not misleading. If Rule 434 is used, the Company will comply
with the requirements of Rule 434 and the Prospectus shall not be
"materially different," as such term is used in Rule 434, from the
prospectus include in the Registration Statement at the time it became
effective. The representations and warranties in this subsection shall not
apply (A) to statements in or omissions from the Registration Statement or
Prospectus made in reliance upon and in conformity with information
furnished to the Trust or the Company in writing by any Underwriter
through Merrill Lynch expressly for use in the Registration Statement or
Prospectus and (B) that part of the Registration Statement which shall
constitute the Statement of Eligibility (Form T-1) under the 1939 Act.
Each preliminary prospectus and the prospectus filed as part of the
Registration Statement as originally filed or as part of any amendment
thereto, or filed pursuant to Rule 424 under the 1933 Act, complied when
so filed in all material respects with the 1933 Act Regulations and, if
applicable, each preliminary prospectus and the Prospectus delivered to
the Underwriters for use in connection with this offering was
substantively identical to the electronically transmitted copies thereof
filed with the Commission pursuant to EDGAR, except to the extent
permitted by Regulation S-T.
(ii) Independent Accountants. Coopers & Lybrand L.L.P., the
accountants who certified the financial state ments and supporting
schedules of the Company included in the Registration Statement and
Deloitte & Touche L.L.P.,
<PAGE> 10
-6-
the accountants who certified the financial statements and supporting
schedules of Rio Sportswear, Inc. and affiliated companies included in the
Registration Statement, are independent public accountants as required by
the 1933 Act and the 1933 Act Regulations.
(iii) Financial Statements. The financial statements included in the
Registration Statement and the Prospectus, together with the related
schedules and notes, present fairly the financial position of the Company
and its consolidated subsidiaries at the dates indicated and the statement
of operations, stockholders' equity and cash flows of the Company and its
consolidated subsidiaries for the periods specified; said financial
statements have been prepared in conformity with generally accepted
accounting principles ("GAAP") applied on a consistent basis throughout
the periods involved. The supporting schedules, if any, included in the
Registration Statement present fairly in accordance with GAAP the
information required to be stated therein. The selected financial data and
the summary financial information included in the Prospectus present
fairly the information shown therein and have been compiled on a basis
consistent with that of the audited financial statements included in the
Registration Statement.
(iv) No Material Adverse Change in Business. Since the respective
dates as of which information is given in the Registration Statement and
the Prospectus, except as otherwise stated therein, (A) there has been no
material adverse change in the condition, financial or otherwise, or in
the earnings, business affairs or business prospects of the Company and
its subsidiaries considered as one enterprise, whether or not arising in
the ordinary course of business (a "Material Adverse Effect"), (B) there
have been no transactions entered into by the Company or any of its
subsidiaries, other than those in the ordinary course of business, which
are material with respect to the Company and its subsidiaries considered
as one enterprise, and (C) there has been no dividend or distribution of
any kind declared, paid or made by the Company on any class of its capital
stock.
(v) Good Standing of the Company. The Company has been duly
incorporated and is validly existing as a corporation in good standing
under the laws of the state of Delaware and has corporate power and
authority to own,
<PAGE> 11
-7-
lease and operate its properties and to conduct its business as described
in the Prospectus and to enter into and perform its obligations under this
Agreement; and the Company is duly qualified as a foreign corporation to
transact business and is in good standing in each other jurisdiction in
which such qualification is required, whether by reason of the ownership
or leasing of property or the conduct of business, except where the
failure so to qualify or to be in good standing would not result in a
Material Adverse Effect.
(vi) Good Standing of Subsidiaries. Each subsidiary of the Company
has been duly incorporated and is validly existing as a corporation in
good standing under the laws of the jurisdiction of its incorporation, has
corporate power and authority to own, lease and operate its properties and
to conduct its business as described in the Prospectus and is duly
qualified as a foreign corporation to transact business and is in good
standing in each jurisdiction in which such qualification is required,
whether by reason of the ownership or leasing of property or the conduct
of business, except where the failure so to qualify or to be in good
standing would not result in a Material Adverse Effect; except as
otherwise disclosed in the Registration Statement, all of the issued and
outstanding capital stock of each such subsidiary has been duly authorized
and validly issued, is fully paid and non-assessable and is owned by the
Company, directly or through subsidiaries, free and clear of any security
interest, mortgage, pledge, lien, encumbrance, claim or equity; none of
the outstanding shares of capital stock of any subsidiary was issued in
violation of the preemptive or similar rights of any securityholder of
such subsidiary. The only subsidiaries of the Company are the subsidiaries
listed in Exhibit 21.1 to the Registration Statement.
(vii) Capitalization; Descriptions. The authorized, issued and
outstanding capital stock of the Company is as set forth in the Prospectus
in the column entitled "Actual" under the caption "Capitalization"; and
the Preferred Securities, the Common Securities, the Conversion Shares,
the Convertible Debentures, the Declaration, the Preferred Securities
Guarantee Agreement and the Indenture conform in all material respects to
the descriptions thereof in the Prospectus under the captions "Description
of the Preferred Securities," "Description of the Guarantee," "Description
of the Convertible Debentures," "Effect
<PAGE> 12
-8-
of Obligations Under the Convertible Debentures and the
Guarantee" and "Description of Capital Stock".
(viii) Existence of Trust. The Trust has been duly created and is
validly existing in good standing as a business trust under the Delaware
Act with the power and authority to own property and to conduct its
business as described in the Prospectus and to enter into and perform its
obligations under this Agreement, the Preferred Securities, the Common
Securities and the Declaration; the Trust is duly qualified to transact
business as a foreign corporation in good standing in each jurisdiction in
which such qualification is necessary, except to the extent that the
failure to so qualify would not have a Material Adverse Effect on the
Trust; and the Trust is not a party to or otherwise bound by any agreement
other than those described in the Prospectus.
(ix) Common Securities. The Common Securities have been duly
authorized by the Declaration and, when issued and delivered by the Trust
to the Company in accordance with the terms of the Declaration and against
payment therefor as described in the Prospectus, will be validly issued
and (subject to the terms of the Declaration) fully paid and nonassessable
undivided beneficial interests in the assets of the Trust; the issuance of
the Common Securities is not subject to preemptive or other similar
rights; no holder thereof will be subject to personal liability by reason
of being such a holder; and at the Closing Time, all of the issued and
outstanding Common Securities of the Trust will be directly owned by the
Company free and clear of any security interest, mortgage, pledge, lien,
encumbrance, claim or equity.
(x) Capital Stock. All of the outstanding shares of capital stock of
the Company have been duly authorized and validly issued and are fully
paid and nonassessable; no holder thereof is or will be subject to
personal liability by reason of being such a holder; and none of the
outstanding shares of capital stock of the Company was issued in violation
of the preemptive rights of any stockholder of the Company.
(xi) Authorization of Declaration. The Declaration
has been duly authorized by the Company and, when validly
executed and delivered by the Company and the Regular
Trustees, and assuming the due authorization, execution
<PAGE> 13
-9-
and delivery of the Declaration by the Delaware Trustee and the Property
Trustee, the Declaration will constitute a valid and binding obligation of
the Company and the Regular Trustees, enforceable against the Company and
the Regular Trustees in accordance with its terms, except as enforcement
thereof may be limited by bankruptcy, insolvency (including, without
limitation, all laws relating to fraudulent transfers), reorganization,
moratorium or similar laws affecting enforcement of creditors' rights
generally and except as enforcement thereof is subject to general
principles of equity (regardless of whether enforcement is considered in a
proceeding in equity or at law).
(xii) Guarantee Agreements. Each of the Common Securities Guarantee
Agreement and the Preferred Securities Guarantee Agreement has been duly
authorized by the Company and, when validly executed and delivered by the
Company, and assuming due authorization, execution and delivery of the
Preferred Securities Guarantee Agreement by the Guarantee Trustee, will
constitute a valid and binding obligation of the Company, enforceable
against the Company in accordance with its terms, except as enforcement
thereof may be limited by bankruptcy, insolvency (including, without
limitation, all laws relating to fraudulent transfers), reorganization,
moratorium or similar laws affecting enforcement of creditors' rights
generally and except as enforcement thereof is subject to general
principles of equity (regardless of whether enforcement is considered in a
proceeding in equity or at law).
(xiii) Preferred Securities. The Preferred Securities have been duly
authorized by the Declaration and, when authenticated in the manner
provided for in the Declaration and issued and delivered pursuant to this
Agreement against payment of the consideration set forth herein, will be
validly issued and (subject to the terms of the Declaration) fully paid
and nonassessable undivided beneficial interests in the assets of the
Trust; the issuance of the Preferred Securities is not subject to
preemptive or other similar rights; and holders of Preferred Securities
will be entitled to the same limitation of personal liability extended to
stockholders of private corporations for profit incorporated under the
General Corporation Law of the State of Delaware.
(xiv) Authorization of Indenture. The Indenture has
been duly authorized by the Company, and, when validly
<PAGE> 14
-10-
executed and delivered by the Company, and assuming the due authorization,
execution and delivery of the Indenture by the Indenture Trustee, will
constitute a valid and binding obligation of the Company, enforceable
against the Company in accordance with its terms, except as enforcement
thereof may be limited by bankruptcy, insolvency (including, without
limitation, all laws relating to fraudulent transfers), reorganization,
moratorium or similar laws affecting enforcement of creditors' rights
generally and except as enforcement thereof is subject to general
principles of equity (regardless of whether enforcement is considered in a
proceeding in equity or at law).
(xv) Authorization of Convertible Debentures. The Convertible
Debentures have been duly authorized by the Company, and when executed,
authenticated, issued and delivered in the manner provided for in the
Indenture and sold and paid for as provided in this Agreement, the
Convertible Debentures will constitute valid and binding obligations of
the Company entitled to the benefits of the Indenture and enforceable
against the Company in accordance with their terms, except as enforcement
thereof may be limited by bankruptcy, insolvency (including, without
limitation, all laws relating to fraudulent transfers), reorganization,
moratorium or similar laws affecting enforcement of creditors' rights
generally and except as enforcement thereof is subject to general
principles of equity (regardless of whether enforcement is considered in a
proceeding in equity or at law).
(xvi) Authorization of Agreement. This Agreement has been duly
authorized, executed and delivered by the Company and the Trust.
(xvii) Absence of Defaults and Conflicts. Neither the Company nor any
of its subsidiaries is in violation of its charter or by-laws or in
default in the performance or observance of any obligation, agreement,
covenant or condition contained in any contract (including, without
limitation, the License Agreement dated August 4, 1994 and as amended
through April 22, 1996 between Calvin Klein International ("CKI") and
Calvin Klein Jeanswear Company ("CKJC") (the "Calvin Klein License
Agreement")), indenture, mortgage, deed of trust, loan or credit
agreement, note, lease or other agreement or instrument to which the
Company or any of its subsidiaries is a party or by which it or any of
them may be bound, or to which any of the
<PAGE> 15
-11-
property or assets of the Company or any subsidiary is subject
(collectively, "Agreements and Instruments") except for such defaults that
would not result in a Material Adverse Effect; and the execution, delivery
and performance of this Agreement and the consummation of the transactions
contemplated herein and in the Registration Statement (including the
issuance and sale of the Preferred Securities and the use of the proceeds
from the sale of the Preferred Securities as described in the Prospectus
under the caption "Use of Proceeds") and compliance by the Company with
its obligations hereunder have been duly authorized by all necessary
corporate action and do not and will not, whether with or without the
giving of notice or passage of time or both, conflict with or constitute a
breach of, or default or Repayment Event (as defined below) under, or
result in the creation or imposition of any lien, charge or encumbrance
upon any property or assets of the Company or any subsidiary pursuant to
the Agreements and Instruments (except for such conflicts, breaches or
defaults or liens, charges or encumbrances that would not result in a
Material Adverse Effect), nor will such action result in any violation of
the provisions of the charter or by-laws of the Company or any subsidiary
or any applicable law, statute, rule, regulation, judgment, order, writ or
decree of any government, government instrumentality or court, domestic or
foreign, having jurisdiction over the Company or any subsidiary or any of
their assets, properties or operations. As used herein, a "Repayment
Event" means any event or condition which gives the holder of any note,
debenture or other evidence of indebtedness (or any person acting on such
holder's behalf) the right to require the repurchase, redemption or
repayment of all or a portion of such indebtedness by the Company or any
subsidiary.
(xviii) Absence of Labor Dispute. No labor dispute with the employees of
the Company or any subsidiary exists or, to the knowledge of the Company,
is imminent, and the Company is not aware of any existing or imminent
labor disturbance by the employees of any of its or any subsidiary's
principal suppliers, manufacturers, customers or contractors, which, in
either case, may reasonably be expected to result in a Material Adverse
Effect.
(xix) Absence of Proceedings. Except as described in the Registration
Statement and the Prospectus, there is no action, suit, proceeding,
inquiry or investigation before
<PAGE> 16
-12-
or brought by any court or governmental agency or body, domestic or
foreign, now pending, or, to the knowledge of the Company, threatened,
against or affecting the Company or any subsidiary, which is required to
be disclosed in the Registration Statement (other than as disclosed
therein), or which could reasonably be expected to result in a Material
Adverse Effect, or which could reasonably be expected to materially and
adversely affect the properties or assets thereof or the consummation of
the transactions contemplated in this Agreement or the performance by the
Company of its obligations hereunder; the aggregate of all pending legal
or governmental proceedings to which the Company or any subsidiary is a
party or of which any of their respective property or assets is the
subject which are not described in the Registration Statement, including
ordinary routine litigation incidental to the business, could not
reasonably be expected to result in a Material Adverse Effect.
(xx) Accuracy of Exhibits. There are no contracts or documents which
are required to be described in the Registration Statement or the
Prospectus or to be filed as exhibits thereto which have not been so
described and filed as required.
(xxi) Donna Karan License Agreement. The License Agreement dated
September 27, 1996 (the "Donna Karan License Agreement") among Donna Karan
Studio ("DKS"), Broadway Jeanswear Holdings, Inc. ("BJHI"), Broadway
Jeanswear Company, Inc. ("BJCI") and Broadway Jeanswear Sourcing, Inc.
("BJSI" and, together with BJHI and BJCI, the "Jeanswear Subs") has been
duly authorized, executed and delivered by the Jeanswear Subs and is
enforceable by the Jeanswear Subs against DKS in accordance with its
terms, except to the extent that enforcement thereof may be limited by (a)
bankruptcy, insolvency, reorganization, moratorium or other similar laws
now or hereafter in effect relating to creditors' rights generally and (b)
general principles of equity (regardless of whether enforceability is
considered in a proceeding at law or in equity). The Jeanswear Subs have
fulfilled and performed all of their material obligations with respect to
the Donna Karan License Agreement and the Donna Karan License Agreement
remains in full force and effect; and to the best of the Company's
knowledge, no event has occurred with respect to the Donna Karan License
Agreement which would result in a Material Adverse Effect.
<PAGE> 17
-13-
(xxii) Possession of Intellectual Property. The Company and its
subsidiaries own or possess, or are licensed or otherwise have the full
legal right to utilize, the patents, patent rights, licenses, inventions,
copyrights, know-how (including trade secrets and other unpatented and/or
unpatentable proprietary or confidential information, systems or
procedures), trademarks (including, without limitation, (A) the exclusive
right to use the marks "CALVIN KLEIN" and "CK/CALVIN KLEIN" upon the terms
and conditions set forth in the Calvin Klein License Agreement and (B) the
exclusive right to use the mark "DKNY JEANS" upon the terms and conditions
set forth in the Donna Karan License Agreement, in each case as described
in the Prospectus), service marks, trade names and other intangible
property (collectively, the "Intellectual Property Rights") presently
employed by them in connection with the business now operated by them
except where the failure to so own or possess such legal right could not
reasonably be expected to have a Material Adverse Effect, and neither the
Company nor any of its subsidiaries has received any notice or is
otherwise aware of any infringement of or conflict with asserted rights of
others with respect to any patent or proprietary rights which, singularly
or in the aggregate, if the subject of an unfavorable final determination,
could reasonably be expected to result in any Material Adverse Effect.
(xxiii) Absence of Further Requirements. No filing with, or
authorization, approval, consent, license, order, registration,
qualification or decree ("Authorizations") of, any court or governmental
authority or agency is necessary or required for the performance by the
Company of its obligations hereunder, in connection with the offering,
issuance or sale of the Preferred Securities hereunder or the consummation
of the transactions contemplated by this Agreement, except such as have
been already obtained or as may be required under the 1933 Act or the 1933
Act Regulations or state securities law.
(xxiv) Possession of Licenses and Permits. The Company and its
subsidiaries possess such permits, licenses, approvals, consents and other
authorizations (collectively, "Governmental Licenses") issued by the
appropriate federal, state, local or foreign regulatory agencies or bodies
necessary to conduct the business now operated by them; the Company and
its subsidiaries are in compliance with the terms and conditions of all
such Governmental
<PAGE> 18
-14-
Licenses, except where the failure so to comply would not, singly or in
the aggregate, have a Material Adverse Effect; all of the Governmental
Licenses are valid and in full force and effect, except when the
invalidity of such Governmental Licenses or the failure of such
Governmental Licenses to be in full force and effect would not have a
Material Adverse Effect; and neither the Company nor any of its
subsidiaries has received any notice of proceedings relating to the
revocation or modification of any such Governmental Licenses which, singly
or in the aggregate, if the subject of an unfavorable decision, ruling or
finding, would result in a Material Adverse Effect.
(xxv) Title to Property. The Company and its subsidiaries have good
and marketable title to all real property owned by the Company and its
subsidiaries and good title to all other properties owned by them, in each
case, free and clear of all mortgages, pledges, liens, security interests,
claims, restrictions or encumbrances of any kind except such as (A) are
described in the Prospectus or (B) do not, singly or in the aggregate,
materially affect the value of such property and do not interfere with the
use made and currently proposed to be made of such property by the Company
or any of its subsidiaries; and all of the leases and subleases material
to the business of the Company and its subsidiaries, considered as one
enterprise, and under which the Company or any of its subsidiaries holds
properties described in the Prospectus, are in full force and effect, and
neither the Company nor any subsidiary has any notice of any material
claim of any sort that has been asserted by anyone adverse to the rights
of the Company or any subsidiary under any of the leases or subleases
mentioned above, or affecting or questioning the rights of the Company or
such subsidiary to the continued possession of the leased or subleased
premises under any such lease or sublease.
(xxvi) Investment Company Act. Neither the Company nor the Trust is,
and upon the issuance and sale of the Preferred Securities as herein
contemplated and the application of the net proceeds therefrom as
described in the Prospectus neither will be, an "investment company" or an
entity "controlled" by an "investment company" as such terms are defined
in the Investment Company Act of 1940, as amended (the "1940 Act").
<PAGE> 19
-15-
(xxvii) Environmental Laws. Except as would not, singly or in the
aggregate, result in a Material Adverse Effect, (A) neither the Company
nor any of its subsidiaries is in violation of any federal, state, local
or foreign statute, law, rule, regulation, ordinance, code, policy or rule
of common law or any judicial or administrative interpretation thereof,
including any judicial or administrative order, consent, decree or
judgment, relating to pollution or protection of human health, the
environment (including, without limitation, ambient air, surface water,
ground- water, land surface or subsurface strata) or wildlife, including,
without limitation, laws and regulations relating to the release or
threatened release of chemicals, pollutants, contaminants, wastes, toxic
substances, hazardous substances, petroleum or petroleum products
(collectively, "Hazardous Materials") or to the manufacture, processing,
distribution, use, treatment, storage, disposal, transport or handling of
Hazardous Materials (collectively "Environmental Laws"), (B) the Company
and its subsidiaries have all permits, authorizations and approvals
required under any applicable Environmental Laws and are each in
compliance with their requirements, (C) there are no pending or, to the
best knowledge of the Company, threatened administrative, regulatory or
judicial actions, suits, demands, demand letters, claims, liens, notices
of noncompliance or violation, investigation or proceedings relating to
any Environmental Law against the Company or any of its subsidiaries and
(D) there are no events or circumstances to the best knowledge of the
Company that might reasonably be expected to form the basis of an order
for clean-up or remediation, or an action, suit or proceeding by any
private party or governmental body or agency, against or affecting the
Company or any of its subsidiaries relating to Hazardous Materials or any
Environmental Laws.
(xxviii) Registration Rights. There are no persons with registration
rights or other similar rights to have any security registered pursuant to
the Registration Statement or otherwise registered by the Company under
the 1933 Act.
(xxix) Taxes. The Company and each of its subsidiaries have filed all
federal or state income and franchise tax returns required to be filed and
have paid all taxes shown thereon as due, and there is no material tax
deficiency which has been or is reasonably likely to be asserted against
the Company or any of its subsidiaries; all
<PAGE> 20
-16-
material tax liabilities of the Company and its subsidiar ies are
adequately provided for on the books of the Company and its subsidiaries.
SECTION 2. Sale and Delivery to
Underwriters; Closing.
(a) Initial Preferred Securities. On the basis of the
representations and warranties herein contained and subject to the terms and
conditions herein set forth, the Trust agrees to sell to each Underwriter,
severally and not jointly, and each Underwriter, severally and not jointly,
agrees to purchase from the Trust, at the purchase price of $50 per Initial
Preferred Security, the number of Initial Preferred Securities set forth in
Schedule A opposite the name of such Underwriter, plus any additional number of
Initial Preferred Securities which such Underwriter may become obligated to
purchase pursuant to the provisions of Section 10 hereof, subject, in each case,
to such adjustments among the Underwriters as they in their sole discretion
shall make to eliminate any sales or purchases of fractional securities. As
compensation to the Underwriters for their commitments hereunder and in view of
the fact that the proceeds of the sale of the Preferred Securities will be used
to purchase the Convertible Debentures, the Company hereby agrees to pay at the
Closing Time and at any Date of Delivery to the Underwriters a commission of $[
] per Preferred Security purchased by the Underwriters.
(b) Optional Preferred Securities. In addition, on the basis of the
representations and warranties herein contained and subject to the terms and
conditions herein set forth, the Trust hereby grants an option to the
Underwriters, severally and not jointly, to purchase up to 300,000 Optional
Preferred Securities at the price per share set forth in the immediately
preceding paragraph. The option hereby granted will expire 30 days after the
date hereof and may be exercised in whole or in part from time to time only for
the purpose of covering over-allotments which may be made in connection with the
offering and distribution of the Initial Preferred Securities upon notice by the
Underwriters to the Trust setting forth the number of Optional Preferred
Securities as to which the Underwriters are then exercising the option and the
time and date of payment and delivery for such Optional Preferred Securities.
Any such time and date of delivery (a "Date of Delivery") shall be determined by
the Underwriters, but shall not be later than seven full business days after the
exercise of said option, nor in any event prior to the Closing Time. If the
<PAGE> 21
-17-
option is exercised as to all or any portion of the Optional Preferred
Securities, each of the Underwriters, acting severally and not jointly, will
purchase and the Trust agrees to sell to the Underwriters that proportion of the
total number of Optional Preferred Securities to be sold by the Trust which the
number of Initial Preferred Securities set forth in Schedule A opposite the name
of such Underwriter bears to the total number of Initial Preferred Securities,
subject in each case to such adjustments as the Underwriters in their discretion
shall make to eliminate any sales or purchases of fractional shares.
(c) Payment. Payment of the purchase price for, and delivery of
certificates for, the Initial Preferred Securities shall be made at the offices
of Cahill Gordon & Reindel, 80 Pine Street, New York, New York 10005, or at such
other place as shall be agreed upon by the Underwriters, the Company and the
Trust, at 9:00 A.M. (Eastern time) on the third (fourth, if the pricing occurs
after 4:30 P.M. (Eastern time) on any given day) business day after the date
hereof (unless postponed in accordance with the provisions of Section 10
hereof), or such other time not later than ten business days after such date as
shall be agreed upon by the Underwriters, the Company and the Trust (such time
and date of payment and delivery being herein called "Closing Time").
In addition, in the event that any or all of the Optional Preferred
Securities are purchased by the Underwriters, payment of the purchase price for,
and delivery of certificates for, such Optional Preferred Securities shall be
made at the above-mentioned offices, or at such other place as shall be agreed
upon by the Underwriters, the Company and the Trust, on each Date of Delivery as
specified in the notice from the Underwriters to the Company and the Trust.
Payment shall be made to the Trust by wire transfer of immediately
available funds to the order of the Trust against delivery to the Underwriters
of certificates for the Preferred Securities to be purchased by them. It is
understood that each Underwriter has authorized Merrill Lynch, for its account,
to accept delivery of, receipt for, and make payment of the purchase price for
the Initial Preferred Securities and the Optional Preferred Securities, if any,
which it has agreed to purchase. Merrill Lynch, individually and not as
representative of the Underwriters, may (but shall not be obligated to) make
payment of the purchase price for the Initial Preferred Securities or the
Optional Preferred Securities, if any, to be purchased by any Underwriter whose
funds have not been received
<PAGE> 22
-18-
by the Closing Time or the relevant Date of Delivery, as the case may be, but
such payment shall not relieve such Underwriter from its obligations hereunder.
(d) Denominations; Registration. Certificates for the Initial
Preferred Securities and the Optional Preferred Securities, if any, shall be in
such denominations and registered in such names as the Underwriters may request
in writing at least two full business days before the Closing Time or the
relevant Date of Delivery, as the case may be. The certificates for the Initial
Preferred Securities and the Optional Preferred Securities, if any, will be made
available for examination and packaging by the Underwriters in The City of New
York not later than 10:00 A.M. (Eastern time) on the business day prior to the
Closing Time or the relevant Date of Delivery, as the case may be.
At Closing Time or each Date of Delivery, as the case may be, the
Company will pay, or cause to be paid, the commission payable at such time under
this Section 2 to Merrill Lynch on behalf of the Underwriters by wire transfer
of immediately available funds.
SECTION 3. Covenants. The Company and the Trust jointly and
severally covenant with each Underwriter as follows:
(a) Compliance with Securities Regulations and Commission Requests.
The Company and the Trust, subject to Section 3(b) hereof, will comply
with the requirements of Rule 430A or Rule 434, as applicable, and will
notify the Underwriters immediately, and confirm the notice in writing,
(i) when any post-effective amendment to the Registration Statement shall
become effective, or any supplement to the Prospectus or any amended
Prospectus shall have been filed, (ii) of the receipt of any comments from
the Commission, (iii) of any request by the Commission for any amendment
to the Registration Statement or any amendment or supplement to the
Prospectus or for additional information, and (iv) of the issuance by the
Commission of any stop order suspending the effectiveness of the
Registration Statement or of any order preventing or suspending the use of
any preliminary prospectus, or of the suspension of the qualification of
the Preferred Securities for offering or sale in any jurisdiction, or of
the initiation or threatening of any proceedings for any of such purposes.
The Company and the Trust will promptly effect the
<PAGE> 23
-19-
filings necessary pursuant to Rule 424(b) and will take such steps as it
deems necessary to ascertain promptly whether the form of prospectus
transmitted for filing under Rule 424(b) was received for filing by the
Commission and, in the event that it was not, it will promptly file such
prospectus. The Company and the Trust will make every reasonable effort to
prevent the issuance of any stop order and, if any stop order is issued,
to obtain the lifting thereof at the earliest possible moment.
(b) Filing of Amendments. The Company and the Trust will give the
Underwriters notice of their intention to file or prepare any amendment to
the Registration Statement (including any filing under Rule 462(b)), any
Term Sheet or any amendment, supplement or revision to either the
prospectus included in the Registration Statement at the time it became
effective or to the Prospectus, whether pursuant to the 1933 Act or
otherwise, will furnish the Underwriters with copies of any such documents
a reasonable amount of time prior to such proposed filing or use, as the
case may be, and will not file or use any such document to which the
Underwriters or counsel for the Underwriters shall reasonably object.
(c) Delivery of Registration Statements. The Company has furnished
or will deliver to the Underwriters and counsel for the Underwriters,
without charge, two signed copies of the Registration Statement as
originally filed and of each amendment thereto (including exhibits filed
therewith or incorporated by reference therein) and signed copies of all
consents and certificates of experts, and will also deliver to the
Underwriters, without charge, a conformed copy of the Registration
Statement as originally filed and of each amendment thereto (without
exhibits) for each of the Underwriters. The copies of the Registration
Statement and each amendment thereto furnished to the Underwriters will be
substantively identical to the electronically transmitted copies thereof
filed with the Commission pursuant to EDGAR, except to the extent
permitted by Regulation S-T.
(d) Delivery of Prospectuses. The Company has delivered to each
Underwriter, without charge, as many copies of each preliminary prospectus
as such Underwriter reasonably requested, and the Company and the Trust
hereby consent to the use of such copies for purposes permitted by the
1933 Act. The Company will furnish to each
<PAGE> 24
-20-
Underwriter, without charge, during the period when the Prospectus is
required to be delivered under the 1933 Act or the Securities Exchange Act
of 1934 (the "1934 Act"), such number of copies of the Prospectus (as
amended or supplemented) as such Underwriter may reasonably request. The
Prospectus and any amendments or supplements thereto furnished to the
Underwriters will be substantively identical to the electronically
transmitted copies thereof filed with the Commission pursuant to EDGAR,
except to the extent permitted by Regulation S-T.
(e) Continued Compliance with Securities Laws. The Company and the
Trust will comply with the 1933 Act and the 1933 Act Regulations so as to
permit the completion of the distribution of the Securities as
contemplated in this Agreement and in the Prospectus. If at any time when
a prospectus is required by the 1933 Act to be delivered in connection
with sales of the Preferred Securities, any event shall occur or condition
shall exist as a result of which it is necessary, in the opinion of
counsel for the Underwriters or for the Company, to amend the Registration
Statement or amend or supplement the Prospectus in order that the
Prospectus will not include any untrue statements of a material fact or
omit to state a material fact necessary in order to make the statements
therein not misleading in the light of the circumstances existing at the
time it is delivered to a purchaser, or if it shall be necessary, in the
opinion of such counsel, at any such time to amend the Registration
Statement or amend or supplement the Prospectus in order to comply with
the requirements of the 1933 Act or the 1933 Act Regulations, the Company
and the Trust will promptly prepare and file with the Commission, subject
to Section 3(b) hereof, such amendment or supplement as may be necessary
to correct such statement or omission or to make the Registration
Statement or the Prospectus comply with such requirements, and the Company
will furnish to the Underwriters such number of copies of such amendment
or supplement as the Underwriters may reasonably request.
(f) Blue Sky Qualifications. The Company and the Trust will each use
its best efforts, in cooperation with the Underwriters, to qualify the
Preferred Securities for offering and sale under the applicable securities
laws of such states and other jurisdictions as the Underwriters may
reasonably designate and to maintain such qualifications in effect for a
period of not less than one year
<PAGE> 25
-21-
from the later of the effective date of the Registration Statement and any
Rule 462(b) Registration Statement; provided, however, that neither the
Company nor the Trust shall be obligated to file any general consent to
service of process or to qualify as a foreign corporation or as a dealer
in securities in any jurisdiction in which it is not so qualified or to
subject itself to taxation in respect of doing business in any
jurisdiction in which it is not otherwise so subject. In each jurisdiction
in which the Preferred Securities have been so qualified, the Company and
the Trust will file such statements and reports as may be required by the
laws of such jurisdiction to continue such qualification in effect for a
period of not less than one year from the effective date of the
Registration Statement and any Rule 462(b) Registration Statement.
(g) Rule 158. The Company will timely file such reports pursuant to
the 1934 Act as are necessary in order to make generally available to its
securityholders as soon as practicable an earnings statement for the
purposes of, and to provide the benefits contemplated by, the last
paragraph of Section 11(a) of the 1933 Act.
(h) Use of Proceeds. The Trust will use the proceeds received by it
from the sale of the Securities in the manner specified in the Prospectus
under "Use of Proceeds." The Company will use the net proceeds received by
it from the sale of the Convertible Debentures in the manner specified in
the Prospectus under "Use of Proceeds".
(i) Listing. The Company will use its best efforts to effect the
listing of the Preferred Securities on the New York Stock Exchange. If the
Convertible Debentures are distributed on the occurrence of a Tax Event
(as defined in the Prospectus), the Company will use its best efforts to
effect the listing of the Convertible Debentures on the New York Stock
Exchange on such other exchange where the Preferred Securities are listed.
(j) Restriction on Sale of Securities. During a period of [90] days
from the date of the Prospectus, neither the Company nor the Trust will,
without the prior written consent of Merrill Lynch, directly or
indirectly, offer, sell, or enter into any agreement to sell, or otherwise
dispose of (a) any trust certificates or other securities of the Trust
(other than the Preferred Securities offered hereby and the Common
Securities), (b) any preferred stock or any other security of the Company
that is substantially similar to the Preferred Securities, (c) any shares
of any class of common stock of the Company, other than (i) shares of
Common Stock issuable upon conversion of the Preferred Securities or
pursuant to the exercise of options or warrants outstanding on the date of
the Underwriting Agreement; and (ii) the grant of stock options or other
stock-based awards (and the exercise thereof) to directors, officers and
employees of the Company; and (iii) shares of Common Stock to CKI upon the
conversion of the non-voting common stock owned by it.
<PAGE> 26
-22-
(k) Reporting Requirements. The Company and the Trust, during the
period when the Prospectus is required to be delivered under the 1933 Act
or the 1934 Act, will file all documents required to be filed with the
Commission pursuant to Section 13, 14 or 15 of the 1934 Act within the
time periods required by the 1934 Act and the 1934 Act Regulations.
(l) Furnish Reports. For and during the period ending two years
after the effective date of the Registration Statement, the Company will
furnish to the Underwriters copies of all reports and other communications
(financial or otherwise) furnished by the Company to its securityholders
generally and copies of any reports or financial statements furnished to
or filed by the Company with the Commission or any national securities
exchange on which any class of securities of the Company may be listed.
(m) Interim Financials. Prior to the Closing Date and any Delivery
Date, as the case may be, the Company will furnish to the Underwriters, as
soon as they have been prepared and are available, a copy of any unaudited
interim consolidated financial statements of the Company for any period
subsequent to the period covered by its most recent financial statements
included in the Registration Statement and the Prospectus.
SECTION 4. Payment of Expenses.
(a) Expenses. The Company will pay all expenses incident to the
performance of its and the Trust's obligations under this Agreement, including
(i) the preparation, printing and filing of the Registration Statement
(including financial statements and exhibits) as originally filed and of each
amendment thereto, (ii) the preparation, printing and delivery to the
Underwriters of this Agreement, any Agreement among Underwriters and such other
documents as may be required in connection with the offering, purchase, sale,
issuance or delivery of the Preferred Securities, (iii) the preparation,
issuance and delivery of the certificates for the Preferred Securities to the
Underwriters, including any stock or other transfer taxes and any stamp or other
duties payable upon the sale, issuance or delivery of the Preferred Securities
to the Underwriters, (iv) the reasonable fees and disbursements of the Company's
counsel, accountants and other advisors, (v) the qualification of the Preferred
Securities under securities laws in accordance
<PAGE> 27
-23-
with the provisions of Section 3(f) hereof, including filing fees and the
reasonable fees and disbursements of counsel for the Underwriters in connection
therewith and in connection with the preparation of the Blue Sky Survey and any
supplement thereto, (vi) the printing and delivery to the Underwriters of copies
of each preliminary prospectus, any Term Sheets and of the Prospectus and any
amendments or supplements thereto, (vii) the preparation, printing and delivery
to the Underwriters of copies of the Blue Sky Survey and any supplement thereto,
if any, (viii) the fees and expenses of any transfer agent or registrar for the
Preferred Securities, (ix) the filing fees incident to, and the reasonable fees
and disbursements of counsel to the Underwriters in connection with, the review
by the National Association of Securities Dealers, Inc. (the "NASD") of the
terms of the sale of the Preferred Securities, (x) the fees and expenses
incurred in connection with the listing of the Preferred Securities and, if
applicable, the Convertible Debentures on the New York Stock Exchange, (xi) the
fees and expenses of the Indenture Trustee, including the fees and disbursements
of counsel for the Indenture Trustee in connection with the Indenture and the
Convertible Debentures, (xii) the fees and expenses of the Delaware Trustee and
the Property Trustee, including the reasonable fees and disbursements of counsel
for the Delaware Trustee and Property Trustee in connection with the Declaration
and the Certificate of Trust, (xiii) the fees and expenses of the Guarantee
Trustee, (xiv) any fees payable in connection with the rating of the Preferred
Securities and the Convertible Debentures and (xv) the cost and charges of
qualifying the Preferred Securities with the Depositary Trust Company.
(b) Termination of Agreement. If this Agreement is terminated by the
Underwriters in accordance with the provisions of Section 5, Section 9(a)(i) or
Section 11 hereof, the Company shall reimburse the Underwriters for all of their
out-of-pocket expenses, including the reasonable fees and disbursements of
counsel for the Underwriters.
SECTION 5. Conditions of Underwriters' Obligations. The obligations
of the several Underwriters hereunder are subject to the accuracy of the
representations and warranties of the Company and the Trust contained in Section
1 hereof or in certificates of any officer of the Company or any subsidiary of
the Company or any Trustee delivered pursuant to the provisions hereof, to the
performance by the Company and the Trust of their respective covenants and other
obligations hereunder, and to the following further conditions:
<PAGE> 28
-24-
(a) Effectiveness of Registration Statement. The Registration
Statement, including any Rule 462(b) Registration Statement, has become
effective and at Closing Time no stop order suspending the effectiveness
of the Registration Statement shall have been issued under the 1933 Act or
proceedings therefor initiated or threatened by the Commission, and any
request on the part of the Commission for additional information shall
have been complied with to the reasonable satisfaction of counsel to the
Underwriters. A prospectus containing the Rule 430A Information shall have
been filed with the Commission in accordance with Rule 424(b) (or a
post-effective amendment providing such information shall have been filed
and declared effective in accordance with the requirements of Rule 430(A)
or, if the Company has elected to rely upon Rule 434, a Term Sheet shall
have been filed with the Commission in accordance with Rule 424(b)).
(b) Opinion of Skadden, Arps, Slate, Meagher & Flom LLP. At Closing
Time, the Underwriters shall have received the favorable opinion, dated as
of Closing Time, of Skadden, Arps, Slate, Meagher & Flom LLP, counsel for
the Company and the Trust, in form and substance satisfactory to counsel
for the Underwriters, together with signed or reproduced copies of such
letter for each of the Underwriters to the effect set forth in Exhibit A
hereto and to such further effect as counsel to the Underwriters may
reasonably request.
(c) Opinion of General Counsel for Company. At Closing Time, the
Underwriters shall have received the favorable opinion, dated as of the
Closing Time, of John J. Jones, Esq., Vice President, General Counsel and
Secretary for the Company, in form and substance satisfactory to counsel
for the Underwriters, together with signed or reproduced copies of such
letter for each of the Underwriters to the effect set forth in Exhibit B
hereto and to such further effect as counsel to the Underwriters may
reasonably request.
(d) Opinion of Counsel for Property Trustee, the Delaware Trustee
and Guarantee Trustee. At Closing Time, the Underwriters shall have
received the favorable opinion, dated as of the Closing Time, of Richards,
Layton & Finger, counsel for the Property Trustee, the Delaware Trustee
and the Guarantee Trustee, together with signed or reproduced copies of
such letter for each of the
<PAGE> 29
-25-
Underwriters to the effect set forth in Exhibit C hereto and to such
further effect as counsel to the Underwriters may reasonably request.
(e) Opinion of Counsel for Underwriters. At Closing Time, the
Underwriters shall have received the favorable opinion, dated as of
Closing Time, of Cahill Gordon & Reindel, counsel for the Underwriters,
together with signed or reproduced copies of such letter for each of the
Underwriters with respect to the validity of the Preferred Securities, the
Registration Statement, the Prospectus and other related matters as the
Underwriters may reasonably request.
(f) Officers' Certificates. At Closing Time, there shall not have
been, since the date hereof or since the respective dates as of which
information is given in the Prospectus, (A) any material adverse change in
the condition, financial or otherwise, or in the earnings, business
affairs or business prospects of the Company and its subsidiaries
considered as one enterprise, whether or not arising in the ordinary
course of business, and the Underwriters shall have received a certificate
of the President or a Vice President of the Company and of the chief
financial or chief accounting officer of the Company, dated as of Closing
Time, to the effect that (i) there has been no such material adverse
change, (ii) the representations and warranties in Section 1 hereof are
true and correct in all material respects with the same force and effect
as though expressly made at and as of Closing Time, (iii) the Company has
complied in all material respects with all agreements and satisfied all
conditions on its part to be performed or satisfied at or prior to Closing
Time, and (iv) no stop order suspending the effectiveness of the
Registration Statement has been issued and no proceedings for that purpose
have been instituted or are pending or are contemplated by the Commission;
or (B) any material adverse change in the condition, financial or
otherwise, or in the earnings or business affairs of the Trust, and the
Underwriters shall have received a certificate of a Regular Trustee of the
Trust, dated as of Closing Time, to the effect that (i) there has been no
such material adverse change, (ii) the representations and warranties in
Section 1 hereof are true and correct with the same force and effect as
though expressly made at and as of Closing time, (iii) the Trust has
complied with all agreements and satisfied all conditions on its part to
be performed or
<PAGE> 30
-26-
satisfied at or prior to Closing Time, and (iv) to the best of its
knowledge after due inquiry, no stop order suspending the effectiveness of
the Registration Statement has been issued and no proceedings for that
purpose have been initiated or threatened by the Commission.
(g) Officer's Certificates of Licensors. At the Closing Time the
Underwriters shall have received a certificate from an executive officer
of DKS dated as of a date within two days prior to the Closing Time, to
the effect that, to the best of such officer's knowledge after due
inquiry, as of the date thereof, the Company and the Jeanswear Subs are in
compliance with all the terms and provisions of the Donna Karan License
Agreement and that no event has occurred that would (with or without
notice or the passage of time, or both) constitute a default under the
Donna Karan License Agreement. In addition, at the Closing Time, the
Underwriters shall have received a certificate from an executive officer
of CKI dated as of a date within two days prior to the Closing Time, to
the effect that, to the best of such officer's knowledge after due
inquiry, as of the date thereof, the Company and CKJC are in compliance
with all the terms and provisions of the Calvin Klein License Agreement
and that no event has occurred that will (with or without notice or the
passage of time, or both) constitute a default under the Calvin Klein
License Agreement.
(h) Accountant's Comfort Letter. At the time of the execution of
this Agreement, the Underwriters shall have received from Coopers &
Lybrand L.L.P. a letter dated such date, in the form attached hereto as
Exhibit E together with signed or reproduced copies of such letter for
each of the Underwriters.
(i) Bring-down Comfort Letter. At Closing Time, the Underwriters
shall have received from Coopers & Lybrand L.L.P. a letter, dated as of
Closing Time, to the effect that they reaffirm the statements made in the
letters furnished pursuant to subsection (h) of this Section, except that
the "specified date" referred to shall be a date not more than five days
prior to Closing Time.
(j) Amendment of Credit Agreement. The Company will have amended the
terms of its bank credit facility to allow for the consummation of the
transactions contemplated by this Agreement.
<PAGE> 31
-27-
(k) Approval of Listing. At the Closing Time, the Preferred
Securities shall have been approved for listing on the New York Stock
Exchange, subject only to official notice of issuance.
(l) No Objection. The NASD shall not have raised any objection with
respect to the fairness and reasonableness of the underwriting terms and
arrangements.
(m) Lock-up Agreements. At the date of this Agreement, the
Underwriters shall have received agreements substantially in the form of
Exhibit [ ] hereto signed by the Company, the Trust and the parties listed
in Schedule [ ] hereto.
(n) Conditions to Purchase of Optional Preferred Securities. In the
event that the Underwriters exercise their option provided in Section 2(b)
hereof to purchase all or any portion of the Optional Preferred
Securities, the representations and warranties of the Company and the
Trust contained herein and the statements in any certificates furnished by
the Company and any Trustee hereunder shall be true and correct as of each
Date of Delivery and, at the relevant Date of Delivery, the Underwriters
shall have received:
(i) Officers' Certificates. Certificates, dated such Date of
Delivery, of (a) the President or a Vice President of the Company
and of the chief financial or chief accounting officer of the
Company and (b) a Regular Trustee of the Trust confirming that the
certificates delivered at the Closing Time pursuant to Section 5(g)
hereof remain true and correct as of such Date of Delivery.
(ii) Opinions of Counsel for Company. The favorable opinions of
each of Skadden, Arps, Slate, Meagher & Flom, and John J. Jones,
Esq., the General Counsel for the Company, each in form and
substance satisfactory to counsel for the Underwriters, dated such
Date of Delivery, relating to the Optional Preferred Securities to
be purchased on such Date of Delivery and otherwise to the same
effect as the opinions required by Sections 5(b) and (c) hereof.
(iii) Opinions of Counsel for the Trustees. The favorable
opinions of Richards, Layton & Finger,
<PAGE> 32
-28-
counsel for the Property Trustee, the Delaware Trustee and Guarantee
Trustee in form and substance satisfactory to counsel for the
Underwriters, dated such Date of Delivery, relating to the Optional
Preferred Securities to be purchased on such Date of Delivery and
otherwise to the same effect as the opinions required by Section
5(d).
(iv) Opinion of Counsel for Underwriters. The favorable opinion
of Cahill Gordon & Reindel, counsel for the Underwriters, dated such
Date of Delivery, relating to the Optional Preferred Securities to
be purchased on such Date of Delivery and otherwise to the same
effect as the opinion required by Section 5(f) hereof.
(v) Bring-down Comfort Letter. A letter from Coopers & Lybrand
L.L.P., in form and substance satisfactory to the Underwriters and
dated such Date of Delivery, substantially in the same form and
substance as the letter furnished to the Underwriters pursuant to
Section 5(e) hereof, except that the "specified date" in the letter
furnished pursuant to this paragraph shall be a date not more than
five days prior to such Date of Delivery.
(o) Additional Documents. At Closing Time and at each Date of
Delivery counsel for the Underwriters shall have been furnished with such
documents and opinions as they may reasonably require for the purpose of
enabling them to pass upon the issuance and sale of the Preferred
Securities as herein contemplated, or in order to evidence the accuracy of
any of the representations or warranties, or the fulfillment of any of the
conditions, herein contained; and all proceedings taken by the Company and
the Trust in connection with the issuance and sale of the Preferred
Securities as herein contemplated shall be reasonably satisfactory in form
and substance to the Underwriters and counsel for the Underwriters.
(p) Termination of Agreement. If any condition specified in this
Section shall not have been fulfilled when and as required to be
fulfilled, this Agreement, or, in the case of any condition to the
purchase of Optional Preferred Securities on a Date of Delivery which is
after the Closing Time, the obligations of the Underwriters to purchase
the relevant Optional Preferred Securities, may
<PAGE> 33
-29-
be terminated by the Underwriters by notice to the Company at any time at
or prior to Closing Time or such Date of Delivery, as the case may be, and
such termination shall be without liability of any party to any other
party except as provided in Section 4 hereof and except that Sections 1,
6, 7 and 8 hereof shall survive any such termination and remain in full
force and effect.
SECTION 6. Indemnification.
(a) Indemnification of Underwriters. The Company agrees to indemnify
and hold harmless each Underwriter and each person, if any, who controls any
Underwriter within the meaning of Section 15 of the 1933 Act or Section 20 of
the 1934 Act as follows:
(i) against any and all loss, liability, claim, damage and expense
whatsoever, as incurred, arising out of any untrue statement or alleged
untrue statement of a material fact contained in the Registration
Statement (or any amendment thereto), including the Rule 430A Information
and the Rule 434 Information, if applicable, or the omission or alleged
omission therefrom of a material fact required to be stated therein or
necessary to make the statements therein not misleading or arising out of
any untrue statement or alleged untrue statement of a material fact
contained in any preliminary prospectus or the Prospectus (or any
amendment or supplement thereto), or the omission or alleged omission
therefrom of a material fact necessary in order to make the statements
therein, in the light of the circumstances under which they were made, not
misleading;
(ii) against any and all loss, liability, claim, damage and expense
whatsoever, as incurred, to the extent of the aggregate amount paid in
settlement of any litigation, or any investigation or proceeding by any
governmental agency or body, commenced or threatened, or of any claim
whatsoever based upon any such untrue statement or omission, or any such
alleged untrue statement or omission; provided that (subject to Section
6(d) below) any such settlement is effected with the written consent of
the Company; and
(iii) against any and all expense whatsoever, as incurred (including
the fees and disbursements of counsel chosen by Merrill Lynch), reasonably
incurred in
<PAGE> 34
-30-
investigating, preparing or defending against any litigation, or any
investigation or proceeding by any governmental agency or body, commenced
or threatened, or any claim whatsoever based upon any such untrue
statement or omission, or any such alleged untrue statement or omission,
to the extent that any such expense is not paid under (i) or (ii) above;
provided, however, that (x) this indemnity agreement shall not apply to any
loss, liability, claim, damage or expense to the extent arising out of any
untrue statement or omission or alleged untrue statement or omission made in
reliance upon and in conformity with written information furnished to the
Company by any Underwriter through Merrill Lynch expressly for use in the
Registration Statement (or any amendment thereto), including the Rule 430A
Information and the Rule 434 Information, if applicable, or any preliminary
prospectus or the Prospectus (or any amendment or supplement thereto). The
foregoing indemnity with respect to any untrue statement or alleged untrue
statement contained in or omission or alleged omission from a preliminary
prospectus shall not inure to the benefit of the Underwriter (or any person
controlling such Underwriter) from whom the person asserting any loss,
liability, claim, damage or expense purchased any of the Preferred Securities
which are the subject thereof if the Company shall sustain the burden of proving
that such person was not sent or given a copy of the Prospectus (or the
Prospectus as amended or supplemented) at or prior to the written confirmation
of the sale of such Securities to such person and the untrue statement contained
in or omission from such preliminary prospectus was corrected in the Prospectus
(or the Prospectus as amended or supplemented) and the Company had previously
furnished copies thereof to such Underwriter.
(b) Indemnification of Trust, Company, Directors and Officers. Each
Underwriter severally agrees to indemnify and hold harmless the Trust, each of
the Trustees of the Trust, the Company, its directors, each of its officers who
signed the Registration Statement, and each person, if any, who controls the
Trust, any of the Trustees or the Company within the meaning of Section 15 of
the 1933 Act or Section 20 of the 1934 Act, against any and all loss, liability,
claim, damage and expense described in the indemnity contained in subsection (a)
of this Section, as incurred, but only with respect to untrue statements or
omissions, or alleged untrue statements or omissions, made in the Registration
Statement (or any amendment thereto), including the Rule 430A Information and
the Rule 434
<PAGE> 35
-31-
Information, if applicable, or any preliminary prospectus or the Prospectus (or
any amendment or supplement thereto) in reliance upon and in conformity with
written information furnished to the Company by such Underwriter through Merrill
Lynch expressly for use in the Registration Statement (or any amendment thereto)
or such preliminary prospectus or the Prospectus (or any amendment or supplement
thereto).
(c) Actions against Parties; Notification. Each indemnified party
shall give notice as promptly as reasonably practicable to each indemnifying
party of any action commenced against it in respect of which indemnity may be
sought hereunder, but failure to so notify an indemnifying party shall not
relieve such indemnifying party from any liability hereunder to the extent it is
not materially prejudiced as a result thereof and in any event shall not relieve
it from any liability which it may have otherwise than on account of this
indemnity agreement. In the case of parties indemnified pursuant to Section 6(a)
above, counsel to the indemnified parties shall be selected by Merrill Lynch,
and, in the case of parties indemnified pursuant to Section 6(b) above, counsel
to the indemnified parties shall be selected by the Company. An indemnifying
party may participate at its own expense in the defense of any such action;
provided, however, that counsel to the indemnifying party shall not (except with
the consent of the indemnified party) also be counsel to the indemnified party.
In no event shall the indemnifying parties be liable for fees and expenses of
more than one counsel (in addition to any local counsel) separate from their own
counsel for all indemnified parties in connection with any one action or
separate but similar or related actions in the same jurisdiction arising out of
the same general allegations or circumstances. No indemnifying party shall,
without the prior written consent of the indemnified parties, settle or
compromise or consent to the entry of any judgment with respect to any
litigation, or any investigation or proceeding by any governmental agency or
body, commenced or threatened, or any claim whatsoever in respect of which
indemnification or contribution could be sought under this Section 6 or Section
7 hereof (whether or not the indemnified parties are actual or potential parties
thereto), unless such settlement, compromise or consent (i) includes an
unconditional release of each indemnified party from all liability arising out
of such litigation, investigation, proceeding or claim and (ii) does not include
a statement as to or an admission of fault, culpability or a failure to act by
or on behalf of any indemnified party.
<PAGE> 36
-32-
(d) Settlement without Consent if Failure to Reimburse. If at any
time an indemnified party shall have requested an indemnifying party to
reimburse the indemnified party for fees and expenses of counsel, such
indemnifying party agrees that it shall be liable for any settlement of the
nature contemplated by Section 6(a)(ii) effected without its written consent if
(i) such settlement is entered into more than 45 days after receipt by such
indemnifying party of the aforesaid request, (ii) such indemnifying party shall
have received notice of the terms of such settlement at least 30 days prior to
such settlement being entered into and (iii) such indemnifying party shall not
have reimbursed such indemnified party in accordance with such request prior to
the date of such settlement.
SECTION 7. Contribution. If the indemnification provided for in
Section 6 hereof is for any reason unavailable to or insufficient to hold
harmless an indemnified party in respect of any losses, liabilities, claims,
damages or expenses referred to therein, then each indemnifying party shall
contribute to the aggregate amount of such losses, liabilities, claims, damages
and expenses incurred by such indemnified party, as incurred, (i) in such
proportion as is appropriate to reflect the relative benefits received by the
Company and the Trust on the one hand and the Underwriters on the other hand
from the offering of the Preferred Securities pursuant to this Agreement or (ii)
if the allocation provided by clause (i) is not permitted by applicable law, in
such proportion as is appropriate to reflect not only the relative benefits
referred to in clause (i) above but also the relative fault of the Company and
the Trust on the one hand and of the Underwriters on the other hand in
connection with the statements or omissions, or in connection with any failure
of the nature referred to in Section 6(f) hereof, which resulted in such losses,
liabilities, claims, damages or expenses, as well as any other relevant
equitable considerations.
The relative benefits received by the Company and the Trust on the
one hand and the Underwriters on the other hand in connection with the offering
of the Preferred Securities pursuant to this Agreement shall be deemed to be in
the same respective proportions as the total net proceeds from the offering of
the Preferred Securities pursuant to this Agreement (before deducting expenses)
received by the Trust and the total underwriting commission received by the
Underwriters, in each case as set forth on the cover of the Prospectus, or, if
Rule 434 is used, the corresponding location on the Term Sheet bear to the
<PAGE> 37
-33-
aggregate initial public offering price of the Securities as
set forth on such cover.
The relative fault of the Company and the Trust on the one hand and
the Underwriters on the other hand shall be determined by reference to, among
other things, whether any such untrue or alleged untrue statement of a material
fact or omission or alleged omission to state a material fact relates to
information supplied by the Company and the Trust or by the Underwriters and the
parties' relative intent, knowledge, access to information and opportunity to
correct or prevent such statement or omission.
The Company and the Underwriters agree that it would not be just and
equitable if contribution pursuant to this Section 7 were determined by pro rata
allocation (even if the Underwriters were treated as one entity for such
purpose) or by any other method of allocation which does not take account of the
equitable considerations referred to above in this Section 7. The aggregate
amount of losses, liabilities, claims, damages and expenses incurred by an
indemnified party and referred to above in this Section 7 shall be deemed to
include any legal or other expenses reasonably incurred by such indemnified
party in investigating, preparing or defending against any litigation, or any
investigation or proceeding by any governmental agency or body, commenced or
threatened, or any claim whatsoever based upon any such untrue or alleged untrue
statement or omission or alleged omission.
Notwithstanding the provisions of this Section 7, no Underwriter
shall be required to contribute any amount in excess of the amount by which the
total price at which the Securities underwritten by it and distributed to the
public were offered to the public exceeds the amount of any damages which such
Underwriter has otherwise been required to pay by reason of any 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 1933 Act) shall be entitled to contribution from any
person who was not guilty of such fraudulent misrepresentation.
For purposes of this Section 7, each person, if any, who controls an
Underwriter within the meaning of Section 15 of the 1933 Act or Section 20 of
the 1934 Act shall have the same rights to contribution as such Underwriter,
each director of
<PAGE> 38
-34-
the Company, each officer of the Company who signed the Registration Statement,
and each person, if any, who controls the Company within the meaning of Section
15 of the 1933 Act or Section 20 of the 1934 Act shall have the same rights to
contribution as the Company and each Trustee of the Trust shall have the same
rights to contribution as the Trust. The Underwriters' respective obligations
to contribute pursuant to this Section 7 are several in proportion to the number
of Initial Preferred Securities set forth opposite their respective names in
Schedule A hereto and not joint.
SECTION 8. Representations, Warranties and Agreements to Survive
Delivery. All representations, warranties and agreements contained in this
Agreement or in certificates of officers of the Company or the Trustees of the
Trust submitted pursuant hereto shall remain operative and in full force and
effect, regardless of any investigation made by or on behalf of any Underwriter
or controlling person, or by or on behalf of the Company or the Trust, and shall
survive delivery of the Preferred Securities to the Underwriters.
SECTION 9. Termination of Agreement.
(a) Termination; General. The Underwriters may terminate this
Agreement, by notice to the Company and the Trust, at any time at or prior to
Closing Time (i) if there has been, since the time of execution of this
Agreement or since the respective dates as of which information is given in the
Prospectus, any material adverse change in the condition, financial or
otherwise, or in the earnings, business affairs or business prospects of the
Company and its subsidiaries considered as one enterprise, whether or not
arising in the ordinary course of business, or (ii) if there has occurred any
material adverse change in the financial markets in the United States, any
outbreak of hostilities or escalation thereof or other calamity or crises or any
change or development involving a prospective change in national or
international political, financial or economic conditions, in each case the
effect of which is such as to make it, in the judgment of the Underwriters,
impracticable to market the Preferred Securities or to enforce contracts for the
sale of the Preferred Securities, or (iii) if trading in any securities of the
Company has been suspended or materially limited by the Commission or the New
York Stock Exchange, or if trading generally on the American Stock Exchange or
the New York Stock Exchange or in the Nasdaq National Market has been suspended
or materially limited, or minimum or maximum prices for trading have been fixed,
or
<PAGE> 39
-35-
maximum ranges for prices have been required, by any of said exchanges or by
such system or by order of the Commission, the NASD or any other governmental
authority, or (iv) if a banking moratorium has been declared by either Federal
or New York authorities.
(b) Liabilities. If this Agreement is terminated pursuant to this
Section, such termination shall be without liability of any party to any other
party except as provided in Section 4 hereof; and provided, further, that
Sections 1, 6 and 7 hereof shall survive such termination and remain in full
force and effect.
SECTION 10. Default by One or More of the Underwriters. If one of
the Underwriters shall fail at Closing Time or a Date of Delivery to purchase
the Securities which it or they are obligated to purchase under this Agreement
(the "Defaulted Securities"), the remaining Underwriter shall have the right,
within 24 hours thereafter, to make arrangements, to purchase all, but not less
than all, of the Defaulted Securities in such amounts as may be agreed upon and
upon the terms herein set forth; if, however, such Underwriter shall not have
completed such arrangements within such 24-hour period, then:
(a) if the number of Defaulted Securities does not exceed 10% of the
number of Preferred Securities to be purchased on such date, the
non-defaulting Underwriter shall be obligated, severally and not jointly,
to purchase the full amount thereof in the proportions that their
respective underwriting obligations hereunder bear to the underwriting
obligations of the non-defaulting Underwriter, or
(b) if the number of Defaulted Securities exceeds 10% of the number
of Preferred Securities to be purchased on such date, this Agreement or,
with respect to any Date of Delivery which occurs after the Closing Time,
the obligation of the Underwriters to purchase and of the Company to sell
the Optional Preferred Securities to be purchased and sold on such Date of
Delivery shall terminate without liability on the part of the
non-defaulting Underwriter.
No action taken pursuant to this Section shall relieve any
defaulting Underwriter from liability in respect of its default.
<PAGE> 40
-36-
In the event of any such default which does not result in a
termination of this Agreement or, in the case of a Date of Delivery which is
after the Closing Time, which does not result in a termination of the obligation
of the Underwriters to purchase and the Company to sell the relevant Optional
Preferred Securities, as the case may be, either the Underwriters or the Company
shall have the right to postpone Closing Time or the relevant Date of Delivery,
as the case may be, for a period not exceeding seven days in order to effect any
required changes in the Registration Statement or Prospectus or in any other
documents or arrangements. As used herein, the term "Underwriter" includes any
person substituted for an Underwriter under this Section 10.
SECTION 11. Notices. All notices and other communications hereunder
shall be in writing and shall be deemed to have been duly given if mailed or
transmitted by any standard form of telecommunication. Notices to the
Underwriters shall be directed to Merrill Lynch at North Tower, World Financial
Center, New York, New York 10281-1201, attention of Mary Beth Henson, Managing
Director; notices to the Trust shall be directed to it at IBJ Schroder Bank &
Trust Company, One State Street, New York, New York 10004, attention of
Corporate Trust and Agency Administration; notices to the Company shall be
directed to it at 1385 Broadway, New York, New York 10018, attention of Arnold
M. Simon, Chief Executive Officer, and Mark N. Kaplan, Skadden, Arps, Slate,
Meagher & Flom LLP, 919 Third Avenue, New York, New York 10022.
SECTION 12. Parties. This Agreement shall each inure to the benefit
of and be binding upon the Underwriters and the Company and their respective
successors. Nothing expressed or mentioned in this Agreement is intended or
shall be construed to give any person, firm or corporation, other than the
Underwriters and the Company and their respective successors and the controlling
persons and officers and directors referred to in Sections 6 and 7 hereof and
their heirs and legal representatives, any legal or equitable right, remedy or
claim under or in respect of this Agreement or any provision herein contained.
This Agreement and all conditions and provisions hereof are intended to be for
the sole and exclusive benefit of the Underwriters and the Company and their
respective successors, and said controlling persons and officers and directors
and their heirs and legal representatives, and for the benefit of no other
person, firm or corporation. No purchaser of Securities from any Underwriter
shall be deemed to be a successor by reason merely of such purchase.
<PAGE> 41
-37-
SECTION 13. GOVERNING LAW AND TIME. THIS AGREEMENT SHALL BE GOVERNED
BY AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK. SPECIFIED
TIMES OF DAY REFER TO NEW YORK CITY TIME.
SECTION 14. Effect of Headings. The Article and Section headings
herein and the Table of Contents are for convenience only and shall not affect
the construction hereof.
<PAGE> 42
-38-
If the foregoing is in accordance with your understanding of our
agreement, please sign and return to the Company and the Trust counterpart
hereof, whereupon this instrument, along with all counterparts, will become a
binding agreement among the Underwriters, the Company and the Trust in
accordance with its terms.
Very truly yours,
DESIGNER HOLDINGS LTD.
By:
---------------------------
Name:
Title:
DESIGNER FINANCE TRUST
By:
---------------------------
Name:
Title: Regular Trustee
By:
---------------------------
Name:
Title: Regular Trustee
CONFIRMED AND ACCEPTED, as of the date first above written:
MERRILL LYNCH & CO.
MERRILL LYNCH, PIERCE, FENNER & SMITH
INCORPORATED
MORGAN STANLEY & CO. INCORPORATED
By: MERRILL LYNCH & CO.
MERRILL LYNCH, PIERCE, FENNER & SMITH
INCORPORATED
By: ________________________________
<PAGE> 43
-39-
Authorized Signatory
<PAGE> 44
SCHEDULE A
<TABLE>
<CAPTION>
Number of
Initial
Preferred
Name of Underwriter Securities
------------------- ----------
<S> <C>
Merrill Lynch, Pierce, Fenner & Smith
Incorporated .............................
Morgan Stanley & Co. Incorporated ....................
Total ................................................ ----------
2,000,000
==========
</TABLE>
Sch A-1
<PAGE> 45
Exhibit A
Form of opinion, dated as of Closing Time, of Skadden, Arps, Slate,
Meagher & Flom LLP ("Skadden"), counsel for the Company and the Trust,
substantially to the effect that:
(i) The Company has been duly incorporated and is validly existing
as a corporation in good standing under the laws of the State of Delaware.
(ii) The Company has corporate power and authority to own, lease and
operate its properties and to conduct its business as described in the
Registration Statement and to enter into and perform its obligations under
this Agreement.
(iii) The Company is duly qualified as a foreign corporation to
transact business and is in good standing under the laws of the States of
New York, Delaware, [New Jersey, South Carolina, Pennsylvania, California
and the Commonwealth of Massachusetts] and in each jurisdiction where such
qualification is required, whether by reason of the ownership or leasing
of property or the conduct of business, except where the failure to so
qualify or to be in good standing would not result in a Material Adverse
Effect.
(iv) The authorized, issued and outstanding capital stock of the
Company is as set forth in the Prospectus in the column entitled "Actual"
under the caption "Capitalization"; the shares of issued and outstanding
Common Stock have been duly authorized and validly issued and are fully
paid and nonassessable; and none of the outstanding shares of capital
stock of the Company was issued in violation of the preemptive or other
similar rights of any securityholder of the Company.
(v) This Agreement has been duly authorized, executed and delivered
by each of the Company and the Trust.
(vi) The Indenture has been duly authorized, executed and delivered
by the Company and, when authorized, executed and delivered by the
Indenture Trustee, will constitute a valid and binding obligation of the
Company, enforceable against the Company in accordance with its terms,
except as enforcement thereof may be limited by bankruptcy, insolvency
(including, without limitation, all laws relating to fraudulent
transfers), reorganization, moratorium or similar laws affecting
enforcement of
<PAGE> 46
-2-
creditors' rights generally and except as enforcement thereof is subject
to general principles of equity (regardless of whether enforcement is
considered in a proceeding in equity or at law).
(vii) The Convertible Debentures have been duly authorized by the
Company and when the Convertible Debentures have been duly authenticated
by the Indenture Trustee in accordance with the Indenture and paid for by
the Trust, the Convertible Debentures will be duly executed, issued and
delivered by the Company and constitute valid and binding obligations of
the Company entitled to the benefits of the Indenture and enforceable
against the Company in accordance with their terms, except as enforcement
thereof may be limited by bankruptcy, insolvency (including, without
limitation, all laws relating to fraudulent transfers), reorganization,
moratorium or similar laws affecting enforcement of creditors' rights
generally and except as enforcement thereof is subject to general
principles of equity (regardless of whether enforcement is considered in a
proceeding in equity or at law).
(viii) The Declaration has been duly authorized, executed and delivered
by the Company; and, assuming the due authorization, execution and
delivery of the Declaration by IBJ Schroder Bank & Trust Company
(Delaware), IBJ Schroder Bank & Trust Company and the Regular Trustees,
the Declaration constitutes a valid and binding obligation of the Company
and is enforceable against the Company in accordance with its terms,
except as enforcement thereof may be limited by bankruptcy, insolvency
(including, without limitation, all laws relating to fraudulent
transfers), reorganization, moratorium or similar laws affecting
enforcement of creditors' rights generally and except as enforcement
thereof is subject to general principles of equity (regardless of whether
enforcement is considered in a proceeding in equity or at law).
(ix) Each of the Guarantee Agreements has been duly authorized,
executed and delivered by the Company, and is a valid and binding
agreement of the Company.
(x) The Conversion Shares issuable upon conversion of the
Convertible Debentures have been duly authorized by the Company, reserved
for issuance upon conversion and, if and when issued in accordance with
the Indenture at conversion prices at or in excess of the par value of
such
<PAGE> 47
-3-
Conversion Shares, will be validly issued, fully paid and nonassessable;
and no holder thereof will be subject to personal liability by reason of
being such a holder.
(xi) The Trust has been duly created and is validly existing in good
standing as a business trust under the Delaware Business Trust Act, 12
Del. C. { 3801, et seq. (the "Delaware Act").
(xii) Under the Delaware Act and the Declaration, the Trust has the
power and authority to (a) execute and deliver, and to perform its
obligations under, this Agreement, (b) issue and perform its obligations
under the Preferred Securities and the Common Securities and (c) purchase
and hold the Convertible Debentures.
(xiii) The Preferred Securities have been duly authorized by the
Declaration and when issued, delivered and paid for in accordance with
this Agreement will represent, subject to the qualifications set forth in
paragraph [(xix)] below, fully paid and nonassessable undivided beneficial
interests in the assets of the Trust and will entitle the holders thereof
to the benefits of the Declaration, subject to the effect upon the
Declaration of (a) bankruptcy, insolvency, moratorium, receivership,
reorganization, liquidation, fraudulent conveyance and other similar laws
relating to or affecting the rights and remedies of creditors generally,
(b) general principles of equity, including applicable law relating to
fiduciary duties (regardless of whether considered and applied in a
proceeding in equity or at law), and (c) the effect to applicable public
policy on the enforceability of provisions relating to indemnification or
contribution.
(xiv) The holders of outstanding shares of capital stock of the
Company are not entitled to any preemptive rights under the Certificate of
Incorporation or By-Laws of the Company or the law of Delaware to
subscribe for the Preferred Securities, the Convertible Debentures or the
Conversion Shares.
(xv) The statements made in the Prospectus under the captions
"Description of the Preferred Securities", "Description of the Guarantee",
"Description of the Convertible Debentures", "Effect of Obligations Under
the Convertible Debentures and the Guarantee", and "Description of Capital
Stock", insofar as such statements purport
<PAGE> 48
-4-
to summarize certain provisions of the Preferred Securities, the Common
Securities, the Convertible Debentures, the Preferred Securities
Guarantee, the Indenture, the Declaration and the Certificate of
Incorporation of the Company, to the extent that they constitute matters
of law or legal conclusions, have been reviewed by such counsel and fairly
summarize the information required to be disclosed therein.
(xvi) The issuance, sale and delivery by the Trust of the Preferred
Securities and of the Common Securities, the execution and delivery by the
Trust of this Agreement, the purchase by the Trust of the Convertible
Debentures and the performance by the Trust of its obligations thereunder
does not (a) result in any violation of the Declaration or any Delaware
statute, order, rule or regulation of any Delaware court or other Delaware
governmental agency or body having jurisdiction over the Trust or any of
its properties or assets which are normally applicable to transactions of
the type contemplated by this Agreement, or (b) require the approval of
any such Delaware court or Delaware governmental agency or body pursuant
to applicable laws.
(xvii) Neither the Company nor the Trust is required to be registered
under the Investment Company Act of 1940, as amended.
(xviii) Such counsel has been orally advised by the Commission that the
Registration Statement was declared effective under the 1933 Act on
November __, 1996; any required filing of the Prospectuses pursuant to
Rule 424(b) under the 1933 Act has been made in the manner and within the
time period required by Rule 424(b) and, such counsel has been orally
advised by the Commission that no stop order suspending the effectiveness
of the Registration Statement has been issued by the Commission and, to
such Counsel's knowledge, no proceeding for that purpose is pending or
threatened by the Commission.
(xix) The Registration Statement, as of its effective date, and the
Prospectus, as of its date, appeared on their face to be appropriately
responsive in all material respects to the requirements of the 1933 Act
and the 1933 Act Regulations, except that in each case such counsel need
not express an opinion as to the financial statements, schedules and other
financial and statistical data
<PAGE> 49
-5-
included therein or excluded therefrom or the exhibits to the Registration
Statement, and such counsel need not assume any responsibility for the
accuracy, completeness or fairness of the statements contained in the
Registration Statement and the Prospectus except for those made under the
captions "Preferred Securities", "Description of the Guarantee",
"Description of the Convertible Debentures", "Effect of Obligation Under
the Convertible Debentures and the Guarantee", and "Description of Common
Stock" in the Prospectus insofar as they relate to provisions of documents
therein described.
(xx) No filing with, authorization, approval, consent, license,
registration, qualification, decree or order of any court or governmental
authority or agency, domestic or foreign (other than under the 1933 Act
and the 1933 Act Regulations, which have been obtained, or as may be
required under the securities or blue sky laws of the various states, as
to which we need express no opinion) is required in connection with the
issuance and sale of the Preferred Securities by the Trust to the
Underwriters pursuant to this Agreement, the performance by the Company
and the Trust of their respective obligations pursuant to this Agreement,
the Indenture, the Convertible Debentures, the Guarantees, the Declaration
or the Preferred Securities, except that such counsel need not express any
opinion as to (i) the rules and regulations of the NASD and (ii) laws
other than those that, in such counsel's experience, are normally
applicable to transactions of the type contemplated by this Agreement. The
execution, delivery and performance of this Agreement, the Declaration,
the Indenture, the Guarantee Agreements, the consummation by the Company
and the Trust of the transactions contemplated hereby and thereby and in
the Prospectus, the filing of the certificate of trust with the Secretary
of State of the State of Delaware, compliance by the Company and the Trust
with the terms of the foregoing and the application of the sale of the
Preferred Securities as contemplated by the Prospectus do not and will not
conflict with or constitute a breach of, or a default under, or result in
the creation or imposition of any lien, charge or encumbrance upon any
property or assets of the Company or any of its subsidiaries or the Trust
pursuant to, any contract, indenture, mortgage, loan agreement, note,
lease or other instrument to which the Company or any of its subsidiaries
or the Trust is a party or by which it or any of them may be bound, or to
which any of
<PAGE> 50
-6-
the property or assets of the Company or any of its subsidiaries or the
Trust is subject, nor will such action result in any violation of the
provisions of the charter or by-laws of the Company or any of its
subsidiaries, or the Declaration, or any applicable law, administrative
regulation or administrative or court decree.
(xxi) To the best of our knowledge, there are no persons with written
registration or other similar rights to have any securities registered by
the Company under the Registration Statement.
Additionally, in giving its opinion required by subsections (b)(1)
of this Section, such counsel shall state that such counsel has participated in
conferences with representatives of the Underwriters, officers and other
representatives of the Company and representatives of the independent certified
public accountants of the Company, at which conferences the contents of the
Registration Statement and the Prospectus and related matters were discussed,
and although such counsel does not pass upon and does not assume any
responsibility for the accuracy, completeness or fairness of the statements
contained in the Registration Statement and the Prospectus (except and only to
the extent as set forth in paragraphs [ ] above), on the basis of the foregoing
(relying as to materiality to a large extent upon the discussions with and
representations and opinions of officers and other representatives of the
Company), no facts have come to the attention of such counsel which lead such
counsel to believe that the Registration Statement at the time it became
effective contained an untrue statement of a material fact or omitted to state a
material fact required to be stated therein or necessary to make the statements
therein not misleading or that the Prospectus, at the Representation Date
(unless the term "Prospectus" refers to a prospectus which has been provided to
the Underwriters by the Company for use in connection with the offering of the
Securities which differs from the Prospectus on file at the Commission at the
Representation Date, in which case at the time it is first provided to the
Underwriters for such use) or at the Closing Time, included an untrue statement
of a material fact or omitted to state a material fact necessary in order to
make the statements therein, in the light of the circumstances under which they
were made, not misleading; provided that such counsel does not express any
comment with respect to the financial statements including the notes thereto and
supporting schedules, or any other financial and statistical data set
<PAGE> 51
-7-
forth or referred to in the Registration Statement or the Prospectus.
<PAGE> 52
Exhibit B
Form of Opinion, dated as of Closing Time, of John J. Jones, Esq.,
Vice President, General Counsel and Secretary for the Company, substantially to
the effect that:
(i) Each subsidiary of the Company has been duly incorporated and is
validly existing as a corporation in good standing under the laws of the
jurisdiction of its incorporation, has corporate power and authority to
own, lease and operate its properties and to conduct its business as
described in the Registration Statement and is duly qualified as a foreign
corporation to transact business and is in good standing in each
jurisdiction in which such qualification is required, except where the
failure to so qualify or to be in good standing would not have a Material
Adverse Effect; except as described in the Registration Statement and
Prospectus, all of the issued and outstanding capital stock of each such
subsidiary has been duly authorized and validly issued, is fully paid and
non-assessable and is owned by the Company directly, free and clear of any
security interest, mortgage, pledge, lien, option, claim or other
encumbrance. None of the outstanding shares of capital stock of any
subsidiary was issued in violation of the preemptive or similar rights of
any securityholder of such subsidiary.
(ii) Except as disclosed in or specifically contemplated by the
Prospectus, to such counsel's knowledge, there are no outstanding options,
warrants or other rights calling for the issuance of, and no commitments,
obligations, plans or arrangements to issue, any shares of capital stock
of the Company or any security convertible into or exchangeable for
capital stock of the Company. All issued and outstanding stock options, if
any, relating to the Company's Common Stock have been duly authorized and
validly issued and the description thereof contained in the Prospectus is
accurate in all material respects.
(iii) To the best of such counsel's knowledge no default exists in the
due performance or observance of any material obligation, agreement,
covenant or condition contained in any contract, indenture, mortgage, loan
agreement, note, lease or other instrument so described or referred to in
the Registration Statement or to be filed as exhibits thereto.
(iv) To the best of such counsel's knowledge, there
are no material legal or governmental proceedings pending
<PAGE> 53
-2-
or threatened which are required to be disclosed in the Registration
Statement, other than those disclosed therein, and all pending legal or
governmental proceedings to which the Company or any subsidiary is a party
or to which any of their property is subject which are not described in
the Registration Statement, including ordinary routine litigation
incidental to the business, are, considered in the aggregate, not
material.
(v) The Donna Karan License Agreement has been duly authorized,
executed and delivered by the Jeanswear Subs and is enforceable against
DKS in accordance with its terms, except to the extent that enforcement
thereof may be limited by bankruptcy, insolvency, reorganization,
moratorium or other similar laws now or hereafter in effect relating to
creditors' rights generally and general principles of equity (regardless
of whether enforceability is considered in a proceeding at law or in
equity). The Jeanswear Subs have the exclusive right to use the trademark
"DKNY Jeans" upon the terms, conditions, and subject to the limitations
set forth in the Donna Karan License Agreement and as described in the
Prospectus.
<PAGE> 54
Exhibit C
Form of opinion, dated as of Closing Time, of [ ], counsel for the
Property Trustee, the Guarantee Trustee and the Indenture Trustee, to the effect
that:
(i) The Trustee is a banking corporation duly incorporated and
validly existing under the laws of the State of New York.
(ii) The execution, delivery and performance by the Property Trustee
of the Declaration, the execution, delivery and performance by the
Guarantee Trustee of the Guarantee Agreement and the execution, delivery
and performance by the Indenture Trustee of the Indenture have been duly
authorized by all necessary corporate action on the part of the Property
Trustee, the Guarantee Trustee and the Indenture Trustee, respectively.
The Declaration, the Guarantee Agreement and the Indenture have been duly
executed and delivered by the Property Trustee, the Guarantee Trustee and
the Indenture Trustee, respectively, and constitute the legal, valid and
binding obligations of the Property Trustee, the Guarantee Trustee and the
Indenture Trustee, respectively, enforceable against the Property Trustee,
the Guarantee Trustee and the Indenture Trustee, respectively, in
accordance with their terms, except as enforcement thereof may be limited
by applicable bankruptcy, insolvency, reorganization, moratorium or
similar laws relating to the enforcement of creditors' rights generally,
and by general principles of equity (regardless of whether such
enforceability is considered in a proceeding in equity or at law).
(iii) The execution, delivery and performance of the Declaration, the
Guarantee Agreement and the Indenture by the Property Trustee, the
Guarantee Trustee and the Indenture Trustee, respectively, do not conflict
with or constitute a breach of the Organization Certificate or Bylaws of
the Property Trustee, the Guarantee Trustee or the Indenture Trustee,
respectively, or the terms of any indenture or other agreement or
instrument known to such counsel and to which the Property Trustee, the
Guarantee Trustee or the Indenture Trustee, respectively, is a party or is
bound or any judgment, order or decree known to such counsel to be
applicable to the Property Trustee, the Guarantee Trustee or the Indenture
Trustee, respectively, of any court, regulatory body, administrative
agency, governmental body or arbitrator having jurisdiction over the
<PAGE> 55
-2-
Property Trustee, the Guarantee Trustee or the Indenture
Trustee, respectively.
(iv) No consent, approval or authorization of, or registration with
or notice to, any federal or New York State banking authority is required
for the execution, delivery or performance by the Property Trustee, the
Guarantee Trustee or the Indenture Trustee of the Declaration, the
Guarantee Agreement or the Indenture, respectively.
<PAGE> 56
Exhibit D
Form of Opinion, dated as of Closing Time, of [ ], counsel to
the Delaware Trustee, substantially to the effect that:
(i) The Delaware Trustee is duly organized and validly existing
under the laws of the State of Delaware and has the corporate power to act
as Trustee of a Delaware Business Trust under the laws of the State of
Delaware, 12 Del.C. SECTION 3801 et seq.
(ii) The Delaware Trustee has the power, authority and legal right to
execute, deliver and perform on behalf of the Trust this Agreement and the
other documents to which the Trust is a party.
(iii) The Declaration has been duly authorized and, when duly executed
and delivered by the Delaware Trustee on behalf of the Trust, and assuming
due authorization, execution and delivery by the Company, will be a valid
and binding obligation of the Trustee enforceable against the Delaware
Trustee in accordance with its terms, except as such enforceability may be
limited by applicable bankruptcy, insolvency, reorganization, moratorium
or similar laws relating to creditors or affecting the rights of creditors
generally and by general principles of equity (regardless of whether such
enforceability is considered in a proceeding in equity or at law).
(iv) The Preferred Securities and the Common Securities have been
duly authorized by the Trust and when issued will entitle the holders
thereof to the benefits of the Declaration and will not be subject to any
preemptive or similar rights.
(v) The issuance, sale and delivery of the Preferred Securities will
not (A) result in any violation of the Declaration or any statute, order,
rule or regulation of any court or other governmental agency or body
having jurisdiction over the Trust or any of its properties or assets, (B)
require the approval of any such court or governmental agency or body, or
(C) conflict with or result in a breach or violation of any of the
provisions of or constitute a default under any contract, indenture,
mortgage, loan agreement, deed of trust, note, lease or other instrument
known to such counsel to which the Trust is a party or to which any of its
property or assets is subject.
<PAGE> 57
-2-
(vi) The Trust has been duly organized and is validly existing as a
business trust under the Delaware Business Trust Act, 12 Del.C. SECTION
3801, et seq. (the "Act").
(vii) To the knowledge of such counsel, the Trust is not in violation
of the Declaration, or, except where such default would not have a
material adverse effect on the issuance or validity of the securities or
the consummation of the transactions contemplated by this Agreement or the
Declaration, in default in the performance or observance of any
obligation, agreement, covenant or condition contained in any contract,
indenture, mortgage, loan agreement, note, lease or other instrument to
which it is a party or by which it may be bound, or to which any of its
property or assets is subject.
(viii) The Declaration is not required to be qualified under the Trust
Indenture Act and the Trust is not required to be registered as an
"investment company" under the Investment Company Act.
(ix) The holders of the Preferred Securities and the Common
Securities will be entitled to the same limitation of personal liability
extended to stockholders of private corporations for profit organized
under the General Corporation Law of the State of Delaware.
In addition, such counsel shall state that each of the Underwriters,
the Company, the Trust and counsel to the foregoing may rely, for purposes of
their respective obligations hereunder, upon such opinion.
<PAGE> 1
Exhibit 4.3
================================================================================
AMENDED AND RESTATED
DECLARATION OF TRUST
OF
DESIGNER FINANCE TRUST
Dated as of November [ ], 1996
================================================================================
<PAGE> 2
TABLE OF CONTENTS
Page
----
ARTICLE I
INTERPRETATION AND DEFINITIONS
SECTION 1.1 Definitions................................................... 2
ARTICLE II
TRUST INDENTURE ACT
SECTION 2.1 Trust Indenture Act; Application.............................. 9
SECTION 2.2 Lists of Holders of Securities................................ 10
SECTION 2.3 Reports by the Property Trustee............................... 11
SECTION 2.4 Periodic Reports to Property
Trustee..................................................... 11
SECTION 2.5 Evidence of Compliance with
Conditions Precedent........................................ 12
SECTION 2.6 Events of Default; Waiver..................................... 12
SECTION 2.7 Event of Default; Notice...................................... 14
ARTICLE III
ORGANIZATION
SECTION 3.1 Name.......................................................... 15
SECTION 3.2 Office........................................................ 15
SECTION 3.3 Purpose....................................................... 15
SECTION 3.4 Prohibition of Actions by the Trust
and the Trustees............................................ 16
SECTION 3.5 General Authority of the Trustees............................. 17
SECTION 3.6 Title to Property of the Trust................................ 17
SECTION 3.7 Not Responsible for Recitals or
Issuance of Securities...................................... 17
SECTION 3.8 Duration of Trust............................................. 17
SECTION 3.9 Mergers....................................................... 17
SECTION 3.10 Termination of Trust.......................................... 20
ARTICLE IV
SPONSOR
SECTION 4.1 Sponsor's Purchase of Common
Securities.................................................. 21
SECTION 4.2 Responsibilities of the Sponsor............................... 21
<PAGE> 3
Page
----
ARTICLE V
TRUSTEES
SECTION 5.1 Number of Trustees............................................ 22
SECTION 5.2 Delaware Trustee; Eligibility................................. 22
SECTION 5.3 Property Trustee; Eligibility................................. 23
SECTION 5.4 Qualifications of Regular Trustees
and Delaware Trustee Generally.............................. 24
SECTION 5.5 Initial Trustees.............................................. 24
SECTION 5.6 Appointment, Removal and
Resignation of Trustees..................................... 25
SECTION 5.7 Vacancies among Trustees...................................... 27
SECTION 5.8 Merger, Conversion, Consolidation
or Succession to Business of a
Trustee....................................................... 27
SECTION 5.9 Authority, Powers and Duties of the
Regular Trustees............................................ 28
SECTION 5.10 Delegation of Powers and Duties of
the Regular Trustees........................................ 32
SECTION 5.11 Powers and Duties of the Property
Trustee..................................................... 32
SECTION 5.12 Certain Duties and Responsibilities
of the Property Trustee..................................... 34
SECTION 5.13 Certain Rights of Property Trustee............................ 36
SECTION 5.14 Delaware Trustee.............................................. 39
SECTION 5.15 Meetings...................................................... 39
ARTICLE VI
DISTRIBUTIONS
SECTION 6.1 Distributions................................................. 40
ARTICLE VII
THE SECURITIES
SECTION 7.1 Title and Terms............................................... 41
SECTION 7.2 General Provisions Regarding the
Securities.................................................. 41
SECTION 7.3 General Form of Certificates.................................. 42
SECTION 7.4 Form of Preferred Securities
Certificates; Global Certificates........................... 42
SECTION 7.5 Execution and Dating of
Certificates................................................ 43
SECTION 7.6 Authentication of Preferred
Security Certificates....................................... 44
SECTION 7.7 Definitive Preferred Security
Certificates................................................ 45
SECTION 7.8 Temporary Certificates........................................ 45
SECTION 7.9 Registrar, Paying Agent and
ii
<PAGE> 4
Page
----
Conversion Agent............................................ 45
SECTION 7.10 Paying Agent to Hold Money in
Trust....................................................... 46
SECTION 7.11 Outstanding Preferred Securities.............................. 47
SECTION 7.12 Preferred Securities in Treasury.............................. 47
SECTION 7.13 Notices to Clearing Agency.................................... 47
SECTION 7.14 Appointment of Successor Clearing
Agency...................................................... 48
SECTION 7.15 Deemed Security Holders....................................... 48
ARTICLE VIII
TRANSFERS, EXCHANGES AND CANCELLATIONS
OF SECURITIES
SECTION 8.1 General....................................................... 48
SECTION 8.2 Transfer Procedures and
Restrictions for Global
Certificates................................................ 50
SECTION 8.3 Mutilated, Destroyed, Lost or
Stolen Certificates; Replacement
Securities.................................................. 51
SECTION 8.4 Cancellation of Preferred Security
Certificates................................................ 51
ARTICLE IX
LIMITATION OF LIABILITY OF
HOLDERS OF SECURITIES, TRUSTEES AND OTHERS
SECTION 9.1 Liability..................................................... 52
SECTION 9.2 Exculpation................................................... 52
SECTION 9.3 Fiduciary Duty................................................ 53
SECTION 9.4 Indemnification............................................... 54
SECTION 9.5 Outside Businesses............................................ 58
ARTICLE X
ACCOUNTING
SECTION 10.1 Fiscal Year................................................... 59
SECTION 10.2 Certain Accounting Matters.................................... 59
SECTION 10.3 Banking....................................................... 60
SECTION 10.4 Withholding................................................... 60
ARTICLE XI
AMENDMENTS AND MEETINGS
SECTION 11.1 Amendments.................................................... 61
SECTION 11.2 Meetings of the Holders of
Securities; Action by Written
Consent..................................................... 63
iii
<PAGE> 5
Page
----
ARTICLE XII
REPRESENTATIONS OF PROPERTY TRUSTEE AND DELAWARE TRUSTEE
SECTION 12.1 Representations and Warranties of
Property Trustee........................................... 65
SECTION 12.2 Representations and Warranties of
Delaware Trustee........................................... 66
ARTICLE XIII
MISCELLANEOUS
SECTION 13.1 Notices...................................................... 67
SECTION 13.2 Governing Law................................................ 69
SECTION 13.3 Intention of the Parties..................................... 69
SECTION 13.4 Headings..................................................... 69
SECTION 13.5 Successors and Assigns....................................... 69
SECTION 13.6 Partial Enforceability....................................... 69
SECTION 13.7 Counterparts................................................. 70
ANNEX AND EXHIBITS
ANNEX I Terms of [ ]% Convertible Trust
Originated Preferred Securities
and [ ]% Convertible Common
Securities
Exhibit A-1 Form of Preferred Security
Exhibit A-2 Form of Common Security
Exhibit B Form of Debenture
iv
<PAGE> 6
CROSS-REFERENCE TABLE*
Section of
Trust Indenture Act Section of
of 1939, as amended Declaration
310(a)........................................................ 5.3(a)
310(c)........................................................ Inapplicable
311(c)........................................................ Inapplicable
312(a)........................................................ 2.2(a)
312(b)........................................................ 2.2(b)
313........................................................... 2.3
314(a)........................................................ 2.4
314(b)........................................................ Inapplicable
314(c)........................................................ 2.5
314(d)........................................................ Inapplicable
314(f)........................................................ Inapplicable
315(a)........................................................ 5.12(b)-(e)
315(c)........................................................ 5.12(a)
315(d)........................................................ 5.12(a)
316(a)........................................................ Annex I
316(c)........................................................ 5.9(d)(v)
- ---------------
* This Cross-Reference Table does not constitute part of the Declaration
and shall not affect the interpretation of any of its terms or
provisions.
v
<PAGE> 7
AMENDED AND RESTATED
DECLARATION OF TRUST
OF
DESIGNER FINANCE TRUST
NOVEMBER [ ], 1996
AMENDED AND RESTATED DECLARATION OF TRUST ("Declaration") dated and
effective as of November [ ], 1996, by the undersigned trustees (together with
all other Persons from time to time duly appointed and serving as trustees in
accordance with the provisions of this Declaration, the "Trustees"), Designer
Holdings Ltd., a Delaware corporation, as trust sponsor (the "Sponsor"), and by
the holders, from time to time, of undivided beneficial interests in the Trust
issued pursuant to this Declaration;
WHEREAS, the Trustees and the Sponsor established Designer Finance
Trust (the "Trust"), a trust under the Business Trust Act (as defined herein)
pursuant to a Declaration of Trust dated as of September 26, 1996 (the "Original
Declaration"), and a Certificate of Trust filed with the Secretary of State of
the State of Delaware on September 27, 1996, for the sole purpose of issuing and
selling certain securities representing undivided beneficial interests in the
assets of the Trust and investing the proceeds thereof in certain Debentures (as
defined herein) of the Debenture Issuer (as defined herein);
WHEREAS, as of the date hereof, no interests in the Trust have been
issued; and
WHEREAS, all of the Trustees and the Sponsor, by this Declaration,
amend and restate each and every term and provision of the Original Declaration;
NOW, THEREFORE, it being the intention of the parties hereto to
continue the Trust as a business trust under the Business Trust Act and that
this Declaration constitute the governing instrument of such business trust, the
Trustees declare that all assets contributed to the Trust will be held in trust
for the benefit of the holders, from time to time, of the securities
representing undivided beneficial interests in the assets of the Trust issued
hereunder, subject to the provisions of this Declaration.
<PAGE> 8
ARTICLE I
INTERPRETATION AND DEFINITIONS
SECTION 1.1 Definitions.
Unless the context otherwise requires:
(a) Capitalized terms used in this Declaration but not defined in the
preamble above have the respective meanings assigned to them in this Section
1.1;
(b) a term defined anywhere in this Declaration has the same meaning
throughout;
(c) all references to "the Declaration" or "this Declaration" are to
this Declaration as modified, supplemented or amended from time to time;
(d) all references in this Declaration to Articles and Sections and
Annexes and Exhibits are to Articles and Sections and Annexes and Exhibits to
this Declaration unless otherwise specified;
(e) a term defined in the Trust Indenture Act has the same meaning when
used in this Declaration unless otherwise defined in this Declaration or unless
the context otherwise requires;
(f) a reference to the singular includes the plural and vice versa; and
(g) a reference to the masculine includes the feminine and vice versa.
"Additional Interest" means if the Trust is required to pay any taxes,
duties, assessments or governmental charges of whatever nature (other than
withholding taxes) imposed by the United States or any other taxing authority,
such amounts as shall be required so that the net amounts received and retained
by the Trust after paying such taxes, duties, assessments and governmental
charges will not be less than the amounts the Trust would have received had no
such taxes, duties, assessments or governmental charges been imposed.
2
<PAGE> 9
"Affiliate" has the same meaning as given to that term in Rule 405 of
the Securities Act or any successor rule thereunder.
"Agent" means any Registrar, Paying Agent, Conversion Agent or
co-registrar.
"Authorized Officer" of a Person means any Person that is authorized to
bind such Person.
"Book Entry Interest" means a beneficial interest in a Global
Certificate, ownership and transfers of which shall be maintained and made
through book entries by a Clearing Agency as described in Section 8.2.
"Business Day" means any day other than a day on which banking
institutions in the City of New York or in Wilmington, Delaware are authorized
or required by law to close.
"Business Trust Act" means Chapter 38 of Title 12 of the Delaware Code,
12 Del. Code Section 3801 et seq., as it may be amended from time to time, or
any successor legislation.
"Certificate" means a certificate in global or definitive form
representing a Common Security or a Preferred Security.
"Clearing Agency" means an organization registered as a "Clearing
Agency" pursuant to Section 17A of the Exchange Act that is acting as depositary
for the Preferred Securities and in whose name or in the name of a nominee of
that organization shall be registered a Global Certificate and which shall
undertake to effect book entry transfers and pledges of the Preferred
Securities.
"Closing Date" means November [ ], 1996.
"Code" means the Internal Revenue Code of 1986, as amended from time to
time, or any successor legislation.
"Commission" means the Securities and Exchange Commission.
"Common Securities" has the meaning specified in Section 7.1.
3
<PAGE> 10
"Common Security Certificate" means a definitive certificate in fully
registered form representing a Common Security substantially in the form of
Exhibit A-2.
"Common Securities Guarantee" means the guarantee agreement dated as of
November [ ], 1996, of the Sponsor in respect of the Common Securities.
"Company Indemnified Person" means (i) any Regular Trustee; (ii) any
Affiliate of any Regular Trustee; (iii) any officer, director, shareholder,
member, partner, employee, representative or agent of any Regular Trustee; or
(iv) any officer, employee or agent of the Trust or its Affiliates.
"Compounded Interest" means interest compounded quarterly at the rate
specified for the Debentures to the extent permitted by applicable law upon
interest accrued and unpaid (including Additional Interest) at the end of each
Extension Period.
"Conversion Agent" has the meaning set forth in Section 7.9.
"Covered Person" means (a) any officer, director, stockholder, partner,
member, representative, employee or agent of (i) the Trust or (ii) the Trust's
Affiliates; and (b) any Holder of Securities.
"Debenture Issuer" means the Sponsor in its capacity as issuer of the
Debentures.
"Debenture Trustee" means IBJ Schroder Bank & Trust Company, a New York
banking corporation, as trustee under the Indenture until a successor is
appointed thereunder, and thereafter means such successor trustee.
"Debentures" means the Debentures to be issued by the Debenture Issuer
under the Indenture and to be held by the Property Trustee, a specimen
certificate for such Debentures being Exhibit B hereto.
"Definitive Preferred Security Certificates" has the meaning set forth
in Section 7.7.
"Delaware Trustee" has the meaning set forth in Section 5.2.
4
<PAGE> 11
"Depositary" means The Depository Trust Company, the initial Clearing
Agency, until a successor shall be appointed pursuant to Section 7.14, and
thereafter means such successor Depositary.
"Distribution" means a distribution payable to Holders of Securities in
accordance with Section 6.1.
"Event of Default" in respect of the Securities means an Event of
Default (as defined in the Indenture) has occurred and is continuing in respect
of the Debentures.
"Exchange Act" means the Securities Exchange Act of 1934, as amended
from time to time, and the rules and regulations promulgated thereunder, or any
successor legislation.
"Fiduciary Indemnified Person" has the meaning set forth in Section
9.4(b).
"Global Certificate" has the meaning set forth in Section 7.4(a).
"Holder" means a Person in whose name a Certificate representing a
Security is registered, such Person being a beneficial owner within the meaning
of the Business Trust Act.
"Indemnified Person" means a Company Indemnified Person or a Fiduciary
Indemnified Person.
"Indenture" means the Indenture dated as of November [ ], 1996, between
the Debenture Issuer and the Debenture Trustee, as it may be amended from time
to time.
"Investment Company" means an investment company as defined in the
Investment Company Act.
"Investment Company Act" means the Investment Company Act of 1940, as
amended from time to time, and the rules and regulations promulgated thereunder,
or any successor legislation.
"Legal Action" has the meaning set forth in Section 5.9(d)(vii).
5
<PAGE> 12
"Majority in liquidation amount of the Securities" means, except as
provided in the terms of the Preferred Securities or by the Trust Indenture Act,
Holders of outstanding Securities voting together as a single class or, as the
context may require, Holders of outstanding Preferred Securities or Holders of
outstanding Common Securities voting separately as a class, who are the record
owners of more than 50% of the aggregate liquidation amount (including the
stated amount that would be paid on redemption, liquidation or otherwise, plus
accrued and unpaid Distributions to the date upon which the voting percentages
are determined) of all outstanding Securities of the relevant class.
"Ministerial Action" has the meaning set forth in the terms of the
Securities as set forth in Annex I hereto.
"Officers' Certificate" means, with respect to any Person, a
certificate signed by two Authorized Officers of such Person. Any Officers'
Certificate delivered with respect to compliance with a condition or covenant
provided for in this Declaration shall include:
(i) a statement that each officer signing the Certificate has read
the covenant or condition and the definitions relating thereto;
(ii) a brief statement of the nature and scope of the examination or
investigation undertaken by each officer in rendering the
Certificate;
(iii) a statement that each such officer has made such examination or
investigation as, in such officer's opinion, is necessary to
enable such officer to express an informed opinion as to whether
or not such covenant or condition has been complied with; and
(iv) a statement as to whether, in the opinion of each such officer,
such condition or covenant has been complied with.
"Paying Agent" has the meaning specified in Section 7.9.
6
<PAGE> 13
"Person" means any legal person, including any individual, corporation,
estate, partnership, joint venture, association, joint stock company, limited
liability company, trust, unincorporated organization or government or any
agency or political subdivision thereof, or any other entity of whatever nature.
"Preferred Securities" has the meaning specified in Section 7.1.
"Preferred Security Certificate" means a certificate representing a
Preferred Security substantially in the form of Exhibit A-1.
"Preferred Securities Guarantee" means the Guarantee Agreement dated as
of November [ ], 1996 of the Sponsor in respect of the Preferred Securities.
"Preferred Security Beneficial Owner" means, with respect to a Book
Entry Interest, a Person who is the beneficial owner of such Book Entry
Interest, as reflected on the books of the Depositary, or on the books of a
Person maintaining an account with such Depositary (directly as a participant or
as an indirect participant, in each case in accordance with the rules of such
Depositary).
"Property Trustee" means the Trustee meeting the eligibility
requirements set forth in Section 5.3.
"Property Trustee Account" has the meaning set forth in Section
5.11(c).
"Purchase Agreement" means the Purchase Agreement dated as of October [
], 1996, between the Sponsor and the underwriters named therein, relating to the
Preferred Securities.
"Quorum" means a majority of the Regular Trustees or, if there are only
two Regular Trustees, both of them.
"Registrar" has the meaning set forth in Section 7.9.
"Registration Statement" means the Registration Statement on Form S-1
(Reg. No. 333-13097), including any amendments thereto relating to, among other
securities, the Preferred Securities;
7
<PAGE> 14
"Regular Trustee" means any Trustee other than the Property Trustee and
the Delaware Trustee.
"Related Party" means, with respect to the Sponsor, any direct or
indirect wholly owned subsidiary of the Sponsor or any other Person that owns,
directly or indirectly, 100% of the outstanding voting securities of the
Sponsor.
"Responsible Officer" means, with respect to the Property Trustee, any
vice-president, any assistant vice-president, the treasurer, any assistant
treasurer, any trust officer or assistant trust officer or any other officer in
the Corporate Trust Department of the Property Trustee customarily performing
functions similar to those performed by any of the above designated officers and
also means, with respect to a particular corporate trust matter, any other
officer to whom such matter is referred because of that officer's knowledge of
and familiarity with the particular subject.
"Rule 3a-5" means Rule 3a-5 under the Investment Company Act.
"Securities" means the Common Securities and the Preferred Securities.
"Securities Act" means the Securities Act of 1933, as amended from time
to time, and the rules and regulations promulgated thereunder, or any successor
legislation.
"Securities Guarantee" means the Common Securities Guarantee and the
Preferred Securities Guarantee.
"Special Event" has the meaning set forth in Annex I hereto.
"Sponsor" means Designer Holdings Ltd., a Delaware corporation, or any
successor entity in a merger, consolidation or amalgamation, in its capacity as
sponsor of the Trust.
"Super Majority" has the meaning set forth in Section 2.6(a)(ii).
"Tax Event" has the meaning set forth in Annex I hereto.
8
<PAGE> 15
"10% in liquidation amount of the Securities" means, except as provided
in the terms of the Preferred Securities or by the Trust Indenture Act, Holders
of outstanding Securities voting together as a single class or, as the context
may require, Holders of outstanding Preferred Securities or Holders of
outstanding Common Securities, voting separately as a class, who are the record
owners of 10% or more of the aggregate liquidation amount (including the stated
amount that would be paid on redemption, liquidation or otherwise, plus accrued
and unpaid Distributions to the date upon which the voting percentages are
determined) of all outstanding Securities of the relevant class.
"Treasury Regulations" means the income tax regulations, including
temporary and proposed regulations, promulgated under the Code by the United
States Treasury, as such regulations may be amended from time to time (including
corresponding provisions of succeeding regulations).
"Trustee" or "Trustees" means each Person who has signed this
Declaration as a trustee, so long as such Person shall continue in office in
accordance with the terms hereof, and all other Persons who may from time to
time be duly appointed, qualified and serving as Trustees in accordance with the
provisions hereof, and references herein to a Trustee or the Trustees shall
refer to such Person or Persons solely in their capacity as trustees hereunder.
"Trust Indenture Act" means the Trust Indenture Act of 1939, as amended
from time to time, and the rules and regulations promulgated thereunder, or any
successor legislation.
ARTICLE II
TRUST INDENTURE ACT
SECTION 2.1 Trust Indenture Act; Application.
(a) This Declaration is subject to the provisions of the Trust
Indenture Act that are required to be part of this Declaration, which are
incorporated by reference in and made part of this Declaration and shall, to the
extent applicable, be governed by such provisions.
9
<PAGE> 16
(b) The Property Trustee shall be the only Trustee that is a Trustee
for the purposes of the Trust Indenture Act.
(c) If and to the extent that any provision of this Declaration limits,
qualifies or conflicts with the duties imposed by Sections 310 to 317,
inclusive, of the Trust Indenture Act, such imposed duties shall control.
(d) The application of the Trust Indenture Act to this Declaration
shall not affect the nature of the Securities as equity securities representing
undivided beneficial interests in the assets of the Trust.
SECTION 2.2 Lists of Holders of Securities.
(a) Each of the Sponsor and the Regular Trustees on behalf of the Trust
shall provide the Property Trustee (i) within 14 days after each record date for
payment of Distributions, a list, in such form as the Property Trustee may
reasonably require, of the names and addresses of the Holders of the Securities
("List of Holders") as of such record date, provided that neither the Sponsor
nor the Regular Trustees on behalf of the Trust shall be obligated to provide
such List of Holders at any time the List of Holders does not differ from the
most recent List of Holders given to the Property Trustee by the Sponsor and the
Regular Trustees on behalf of the Trust, and (ii) at any other time, within 30
days of receipt by the Trust of a written request for a List of Holders as of a
date no more than 14 days before such List of Holders is given to the Property
Trustee. The Property Trustee shall preserve, in as current a form as is
reasonably practicable, all information contained in any List of Holders given
to it or which it receives in the capacity as Paying Agent (if acting in such
capacity), provided that the Property Trustee may destroy any List of Holders
previously given to it on receipt of a new List of Holders.
(b) The Property Trustee shall comply with its obligations under
Sections 311(a), 311(b) and 312(b) of the Trust Indenture Act.
10
<PAGE> 17
SECTION 2.3 Reports by the Property Trustee.
(a) Within 60 days after May 15 of each year, commencing May 15, 1997,
the Property Trustee shall transmit by mail to Holders such reports concerning
the Property Trustee and its actions under this Declaration as may be required
pursuant to the Trust Indenture Act in the manner provided pursuant thereto.
(b) A copy of each such report shall, at the time of such transmission
to Holders, be filed by the Property Trustee with each stock exchange upon which
the Securities are listed, with the Commission and with the Company. The Trust
will notify the Property Trustee when the Securities are listed on any stock
exchange.
SECTION 2.4 Periodic Reports to Property Trustee.
Each of the Sponsor and the Trust shall file with the Property Trustee
and the Commission, and transmit to Holders, such information, documents and
other reports, and such summaries thereof, as may be required pursuant to the
Trust Indenture Act at the times and in the manner provided pursuant to such
Act; provided, that any such information, documents or reports required to be
filed with the Commission pursuant to Section 13 or 15(d) of the Exchange Act
shall be filed with the Property Trustee within 15 days after the same is so
required to be filed with the Commission.
Delivery of such reports, information and documents to the Property
Trustee is for informational purposes only and the Property Trustee's receipt of
such shall not constitute constructive notice of any information contained
therein or determinable from information contained therein, including the
Trust's compliance with any of its covenants hereunder (as to which the Property
Trustee is entitled to rely exclusively on Officers' Certificates).
Each of the Sponsor and the Trust shall also provide to the Property
Trustee on a timely basis such information as the Property Trustee requires to
enable the Property Trustee to prepare and file any form required to be
submitted by the Company with the Internal Revenue Service and the Holders of
the Securities relating to original issue discount, if any, including, without
limitation, Form 1099-OID or any successor form.
11
<PAGE> 18
SECTION 2.5 Evidence of Compliance with Conditions Precedent.
Each of the Sponsor and the Regular Trustees on behalf of the Trust
shall provide to the Property Trustee such evidence of compliance with any
conditions precedent, if any, provided for in this Declaration that relate to
any of the matters set forth in Section 314(c) of the Trust Indenture Act. Any
certificate or opinion required to be given by an officer pursuant to Section
314(c)(1) may be given in the form of an Officers' Certificate.
SECTION 2.6 Events of Default; Waiver.
(a) The Holders of a majority in liquidation amount of Preferred
Securities may, by vote, on behalf of the Holders of all of the Preferred
Securities, waive any past Event of Default in respect of the Preferred
Securities and its consequences, provided that, if the underlying Event of
Default under the Indenture:
(i) is not waivable under the Indenture, the Event of Default
under the Declaration shall also not be waivable; or
(ii) requires the consent or vote of greater than a majority in
principal amount of the holders of the Debentures (a "Super Majority") to
be waived under the Indenture, the Event of Default under the Declaration
may only be waived by the vote of the Holders of at least the proportion in
liquidation amount of the Preferred Securities that the relevant Super
Majority represents of the aggregate principal amount of the Debentures
outstanding.
The foregoing provisions of this Section 2.6(a) shall be in lieu of
Section 316(a)(1)(B) of the Trust Indenture Act and such Section 316(a)(1)(B) of
the Trust Indenture Act is hereby expressly excluded from this Declaration and
the Securities, as permitted by the Trust Indenture Act. Upon such waiver, any
such default shall cease to exist, and any Event of Default with respect to the
Preferred Securities arising therefrom shall be deemed to have been cured, for
every purpose of this Declaration, but no such waiver shall extend to any
subsequent or other default or an Event of Default with respect to the Preferred
Securities or impair any right consequent thereon. Any waiver by the Holders of
12
<PAGE> 19
the Preferred Securities of an Event of Default with respect to the Preferred
Securities shall also be deemed to constitute a waiver by the Holders of the
Common Securities of any such Event of Default with respect to the Common
Securities for all purposes of this Declaration without any further act, vote,
or consent of the Holders of the Common Securities.
(b) The Holders of a majority in liquidation amount of the Common
Securities may, by vote, on behalf of the Holders of all of the Common
Securities, waive any past Event of Default with respect to the Common
Securities and its consequences, provided that, if the underlying Event of
Default under the Indenture:
(i) is not waivable under the Indenture, except where the Holders
of the Common Securities are deemed to have waived such Event of Default
under the Declaration as provided below in this Section 2.6(b), the Event
of Default under the Declaration shall also not be waivable; or
(ii) requires the consent or vote of a Super Majority to be waived,
except where the Holders of the Common Securities are deemed to have waived
such Event of Default under the Declaration as provided below in this
Section 2.6(b), the Event of Default under the Declaration may only be
waived by the vote of the Holders of at least the proportion in liquidation
amount of the Common Securities that the relevant Super Majority represents
of the aggregate principal amount of the Debentures outstanding;
provided further, that each Holder of Common Securities will be deemed to have
waived any such Event of Default and all Events of Default with respect to the
Common Securities and its consequences until all Events of Default with respect
to the Preferred Securities have been cured, waived or otherwise eliminated, and
until such Events of Default have been so cured, waived or otherwise eliminated,
the Property Trustee will be deemed to be acting solely on behalf of the Holders
of the Preferred Securities and only the Holders of the Preferred Securities
will have the right to direct the Property Trustee in accordance with the terms
of the Securities. The foregoing provisions of this Section 2.6(b) shall be in
lieu of Sections 316(a)(1)(A) and 316(a)(1)(B) of the Trust Indenture Act and
such Sections 316(a)(1)(A) and 316(a)(1)(B) of
13
<PAGE> 20
the Trust Indenture Act are hereby expressly excluded from this Declaration and
the Securities, as permitted by the Trust Indenture Act. Subject to the
foregoing provisions of this Section 2.6(b), upon such waiver, any such default
shall cease to exist and any Event of Default with respect to the Common
Securities arising therefrom shall be deemed to have been cured for every
purpose of this Declaration, but no such waiver shall extend to any subsequent
or other default or Event of Default with respect to the Common Securities or
impair any right consequent thereon.
(c) A waiver of an Event of Default under the Indenture by the Property
Trustee at the direction of the Holders of the Preferred Securities, constitutes
a waiver of the corresponding Event of Default under this Declaration. The
foregoing provisions of this Section 2.6(c) shall be in lieu of Section
316(a)(1)(B) of the Trust Indenture Act and such Section 316(a)(1)(B) of the
Trust Indenture Act is hereby expressly excluded from this Declaration and the
Securities, as permitted by the Trust Indenture Act.
SECTION 2.7 Event of Default; Notice.
(a) The Property Trustee shall, within 90 days after the occurrence of
an Event of Default, transmit by mail, first class postage prepaid, to the
Holders of the Securities, notices of all defaults with respect to the
Securities actually known to a Responsible Officer of the Property Trustee,
unless such defaults have been cured before the giving of such notice (the term
"defaults" for the purposes of this Section 2.7(a) being hereby defined to be an
Event of Default as defined in the Indenture, not including any periods of grace
provided for therein and irrespective of the giving of any notice provided
therein); provided that, except for a default in the payment of principal of (or
premium, if any) or interest on any of the Debentures or in the payment of any
sinking fund installment established for the Debentures, the Property Trustee
shall be protected in withholding such notice if and so long as the board of
directors, the executive committee, or a trust committee of directors and/or
Responsible Officers of the Property Trustee in good faith determines that the
withholding of such notice is in the interests of the Holders of the Securities.
(b) The Property Trustee shall not be deemed to have knowledge of any
default except:
14
<PAGE> 21
(i) a default under Sections 501(1) and 501(2) of the Indenture;
or
(ii) any default as to which the Property Trustee shall have
received written notice or of which a Responsible Officer of the Property
Trustee charged with the administration of the Declaration shall have
actual knowledge.
ARTICLE III
ORGANIZATION OF TRUST
SECTION 3.1 Name.
The Trust is named "Designer Finance Trust," as such name may be
modified from time to time by the Regular Trustees following 10 Business Days
written notice to the Holders of Securities. The Trust's activities may be
conducted under the name of the Trust or any other name deemed advisable by the
Regular Trustees.
SECTION 3.2 Office.
The address of the principal office of the Trust is c/o Designer
Holdings Ltd., 1385 Broadway, 3rd Floor, New York, New York 10018, Attention:
John J. Jones, Vice President, Secretary and General Counsel. On 10 Business
Days written notice to the Holders of Securities, the Regular Trustees may
designate another principal office.
SECTION 3.3 Purpose.
The exclusive purposes and functions of the Trust are (a) to issue and
sell Securities and use the proceeds from such sale to acquire the Debentures,
and (b) except as otherwise limited herein, to engage in only those other
activities necessary or incidental thereto. The Trust shall not borrow money,
issue debt or reinvest proceeds derived from investments, pledge any of its
assets, or otherwise undertake (or permit to be undertaken) any activity that
would cause the Trust not to be classified for United States federal income tax
purposes as a grantor trust.
15
<PAGE> 22
SECTION 3.4 Prohibition of Actions by the Trust and the Trustees.
The Trust shall not, and the Trustees (including the Property Trustee)
shall not, engage in any activity other than as required or authorized by this
Declaration. In particular, the Trust shall not and the Trustees (including the
Property Trustee) shall not cause the Trust to:
(a) invest any proceeds received by the Trust from holding the
Debentures, but shall distribute all such proceeds to Holders of Securities
pursuant to the terms of this Declaration and of the Securities;
(b) acquire any assets other than as expressly provided herein;
(c) possess Trust property for other than a Trust purpose;
(d) make any loans or incur any indebtedness other than loans
represented by the Debentures;
(e) possess any power or otherwise act in such a way as to vary the
Trust assets or the terms of the Securities in any way whatsoever;
(f) issue any securities or other evidences of beneficial ownership of,
or beneficial interest in, the Trust other than the Securities; or
(g) other than as provided in this Declaration or Annex I hereto, (a)
direct the time, method and place of exercising any trust or power conferred
upon the Debenture Trustee with respect to the Debentures, (b) waive any past
default that is waivable under the Indenture, (c) exercise any right to rescind
or annul any declaration that the principal of all the Debentures shall be due
and payable, or (d) consent to any amendment, modification or termination of the
Indenture or the Debentures where such consent shall be required unless the
Trust shall have received an opinion of counsel to the effect that such
amendment or modification will not cause more than an insubstantial risk that
(i) the Trust will be deemed an Investment Company required to be registered
under the Investment Company Act, or (ii) for
16
<PAGE> 23
United States federal income tax purposes the Trust will not be classified as a
grantor trust.
SECTION 3.5 General Authority of the Trustees.
In dealing with the Trustees acting on behalf of the Trust, no person
shall be required to inquire into the authority of the Trustees to bind the
Trust. Persons dealing with the Trust are entitled to rely conclusively on the
power and authority of the Trustees as set forth in this Declaration.
SECTION 3.6 Title to Property of the Trust.
Except as provided in Section 5.11 with respect to the Debentures and
the Property Trustee Account or as otherwise provided in this Declaration, legal
title to all assets of the Trust shall be vested in the Trust. The Holders shall
not have legal title to any part of the assets of the Trust, but shall have an
undivided beneficial interest in the assets of the Trust.
SECTION 3.7 Not Responsible for Recitals or Issuance of Securities.
The recitals contained in this Declaration and the Securities shall be
taken as the statements of the Sponsor, and the Trustees do not assume any
responsibility for their correctness. The Trustees make no representations as to
the value or condition of the property of the Trust or any part thereof. The
Trustees make no representations as to the validity or sufficiency of this
Declaration or the Securities.
SECTION 3.8 Duration of Trust.
The Trust, unless terminated pursuant to the provisions of Section 3.10
hereof, shall exist until September 27, 2021.
SECTION 3.9 Mergers.
(a) The Trust may not consolidate, amalgamate, merge with or into, or
be replaced by, or convey, transfer or lease its properties and assets
substantially as an entirety, to any Person, except as described in Sections
3.9(b) and 3.9(c).
17
<PAGE> 24
(b) The Trust may, with the consent of the Regular Trustees or, if
there are more than two, a majority of the Regular Trustees, and without the
consent of the Holders of the Securities, the Delaware Trustee or the Property
Trustee, consolidate, amalgamate, merge with or into, or be replaced by a trust
organized as such under the laws of any state of the United States; provided
that:
(i) if the Trust is not the survivor, such successor entity (the
"Successor Entity") either:
(A) expressly assumes all of the obligations of the Trust
under the Securities; or
(B) substitutes for the Preferred Securities other securities
having substantially the same terms as the Preferred Securities
(the "Successor Securities") so long as the Successor Securities
rank the same as the Preferred Securities with respect to
Distributions, assets and payments upon liquidation, redemption and
otherwise;
(ii) the Debenture Issuer expressly acknowledges a trustee of the
Successor Entity that possesses the same powers and duties as the Property
Trustee as the Holder of the Debentures;
(iii) the Preferred Securities or any Successor Securities are
listed, or any Successor Securities will be listed upon notification of
issuance, on any national securities exchange or with another organization
on which the Preferred Securities are then listed or quoted;
(iv) such merger, consolidation, amalgamation or replacement does
not cause the Preferred Securities (including any Successor Securities) to
be downgraded by any nationally recognized statistical rating organization;
(v) such merger, consolidation, amalgamation or replacement does
not adversely affect the rights, preferences and privileges of the Holders
of the Preferred Securities (including any Successor Securities) in any
material respect (other than with
18
<PAGE> 25
respect to any dilution of the Holders' interest in the new entity);
(vi) such Successor Entity has a purpose substantially identical
to that of the Trust;
(vii) the Sponsor guarantees the obligations of such Successor
Entity under the Successor Securities at least to the extent provided by
the Preferred Securities Guarantee; and
(viii) prior to such merger, consolidation, amalgamation or
replacement, the Sponsor has received an opinion of a nationally recognized
independent counsel to the Trust reasonably acceptable to the Property
Trustee and experienced in such matters to the effect that:
(A) such merger, consolidation, amalgamation or replacement
will not adversely affect the rights, preferences and privileges of the
Holders of the Securities (including any Successor Securities) in any
material respect (other than with respect to any dilution of the
Holders' interest in the new entity);
(B) following such merger, consolidation, amalgamation or
replacement, neither the Trust nor the Successor Entity will be
required to register as an Investment Company; and
(C) following such merger, consolidation, amalgamation or
replacement, the Trust (or the Successor Entity) will be treated as a
grantor trust for United States federal income tax purposes.
(c) Notwithstanding Section 3.9(b), the Trust shall not, except with
the consent of Holders of 100% in liquidation amount of the Common Securities,
consolidate, amalgamate, merge with or into, or be replaced by any other entity
or permit any other entity to consolidate, amalgamate, merge with or into, or
replace it if such consolidation, amalgamation, merger or replacement would
cause the Trust or Successor Entity to be classified as other than a grantor
trust for United States federal income tax purposes.
19
<PAGE> 26
SECTION 3.10 Termination of Trust.
(a) The Trust shall terminate:
(i) upon the bankruptcy of the Sponsor;
(ii) upon the filing of a certificate of dissolution or its
equivalent with respect to the Sponsor, the filing of a certificate of
cancellation with respect to the Trust after having obtained the consent of
at least a majority in liquidation amount of the Securities, voting
together as a single class, to file such certificate of cancellation, or
the revocation of the Certificate of Incorporation of the Sponsor and the
expiration of 90 days after the date of revocation without a reinstatement
thereof;
(iii) upon the entry of a decree of judicial dissolution of the
Sponsor or the Trust;
(iv) when all of the Securities shall have been called for
redemption and the amounts necessary for redemption thereof, including any
Additional Interest and Compounded Interest, shall have been paid to the
Holders in accordance with the terms of the Securities;
(v) upon the occurrence and continuation of a Tax Event pursuant
to which the Trust shall have been dissolved in accordance with the terms
of the Securities and all of the Debentures shall have been distributed to
the Holders of Securities in exchange for all of the Securities;
(vi) the expiration of the term of the Trust on September 27,
2021; or
(vii) before the issuance of any Securities, with the consent of
all the Regular Trustees and the Sponsor.
(b) As soon as is practicable after the occurrence of an event referred
to in Section 3.10(a), the Regular Trustees shall pay (or make provision for the
payment of) all claims against the Trust and shall execute and file a
certificate of cancellation with the Secretary of State of the State of
Delaware.
20
<PAGE> 27
(c) The provisions of Article IX shall survive the termination of the
Trust.
ARTICLE IV
SPONSOR
SECTION 4.1 Sponsor's Purchase of Common Securities.
On the Closing Date and on any other date Preferred Securities and
Common Securities are sold pursuant to the over-allotment option granted in the
Purchase Agreement, the Sponsor will purchase all of the Common Securities
issued by the Trust, in an amount at least equal to 3% of the capital of the
Trust, at the same time as the Preferred Securities are sold.
SECTION 4.2 Responsibilities of the Sponsor.
In connection with the issue and sale of the Preferred Securities, the
Sponsor shall have the exclusive right and responsibility to engage in the
following activities:
(a) to prepare for filing with the Commission the Registration
Statement, including any amendments thereto;
(b) to determine the states and foreign jurisdictions in which to take
appropriate action to qualify or register for sale all or part of the Preferred
Securities and to do any and all such acts, other than actions that must be
taken by the Trust, and advise the Trust of actions it must take, and prepare
for execution and filing any documents to be executed and filed by the Trust, as
the Sponsor deems necessary or advisable in order to comply with the applicable
laws of any such states and foreign jurisdictions;
(c) to prepare for filing by the Trust an application to the New York
Stock Exchange or any other national stock exchange or the Nasdaq National
Market for listing or quotation of the Preferred Securities;
(d) to prepare for filing by the Trust with the Commission a
registration statement on Form 8-A relating to the registration of the Preferred
Securities under Section
21
<PAGE> 28
12(b) of the Exchange Act, including any amendments thereto; and
(e) to negotiate the terms of the Purchase Agree- ment and other
agreements, documents and instruments provid- ing for the sale of the Preferred
Securities.
ARTICLE V
TRUSTEES
SECTION 5.1 Number of Trustees.
The initial number of Trustees shall be four, and
(a) at any time before the issuance of any Securities, the Sponsor
may, by written instrument, increase or decrease the number of Trustees; and
(b) after the issuance of any Securities, the number of Trustees may be
increased or decreased by vote of the Holders of a majority in liquidation
amount of the Common Securities voting as a class at a meeting of the Holders of
the Common Securities;
provided, however, that the number of Trustees shall in no event be less than
two; provided further that (i) there shall be at least one Regular Trustee who
is an employee or officer of, or is affiliated with the Sponsor and (ii) one
Trustee shall be the Property Trustee for so long as this Declaration is
required to qualify as an indenture under the Trust Indenture Act, and such
Trustee may also serve as Delaware Trustee if it meets the applicable
requirements.
SECTION 5.2 Delaware Trustee; Eligibility.
If required by the Business Trust Act, one Trustee (the "Delaware
Trustee") shall be
(a) a natural person who is resident of the State of Delaware; or
(b) if not a natural person, an entity that has its principal place of
business in the State of Delaware, and otherwise meets the requirements of
applicable law,
22
<PAGE> 29
provided that, if the Property Trustee has its principal place of business in
the State of Delaware and otherwise meets the requirements of applicable law,
then the Property Trustee may also be the Delaware Trustee and Section 5.14
shall have no application.
SECTION 5.3 Property Trustee; Eligibility.
(a) There shall at all times be one Trustee which shall act as Property
Trustee and shall
(i) not be an Affiliate of the Sponsor;
(ii) be a corporation organized and doing business under the laws
of the United States of America or any state or territory thereof or of the
District of Columbia, or a Person permitted by the Commission to act as an
institutional trustee under the Trust Indenture Act, authorized under such
laws to exercise corporate trust powers, having a combined capital and
surplus of at least $50,000,000, and subject to supervision or examination
by federal, state, territorial or District of Columbia authority. If such
corporation publishes reports of condition at least annually, pursuant to
law or to the requirements of the supervising or examining authority
referred to above, then for the purposes of this Section 5.3(a)(ii), the
combined capital and surplus of such corporation shall be deemed to be its
combined capital and surplus as set forth in its most recent report of
condition so published; and
(iii) if the Trust is excluded from the definition of an Investment
Company solely by means of Rule 3a-5 and to the extent the Investment
Company Act or Trust Indenture Act requires a trustee having certain
qualifications to hold title to the "eligible assets" of the Trust, the
Property Trustee shall possess those qualifications.
(b) If at any time the Property Trustee shall cease to be eligible to
so act under Section 5.3(a), the Property Trustee shall immediately resign in
the manner and with the effect set forth in Section 5.6(d).
(c) If the Property Trustee has or shall acquire any "conflicting
interest" within the meaning of Section 310(b) of
23
<PAGE> 30
the Trust Indenture Act, the Property Trustee and the Holder of the Common
Securities (as if it were the obligor referred to in Section 310(b) of the Trust
Indenture Act) shall in all respects comply with the provisions of Section
310(b) of the Trust Indenture Act.
(d) The Preferred Securities Guarantee shall be deemed to be
specifically described in this Declaration for purposes of clause (i) of the
first provision contained in Section 310(b) of the Trust Indenture Act.
SECTION 5.4 Qualifications of Regular Trustees and Delaware Trustee Generally.
Each Regular Trustee and the Delaware Trustee (unless the Property
Trustee also acts as Delaware Trustee) shall be either a natural person who is
at least 21 years of age or a legal entity that shall act through one or more
Authorized Officers.
SECTION 5.5 Initial Trustees.
(a) The initial Regular Trustees are:
Arnold H. Simon
c/o Designer Holdings Ltd.
1385 Broadway, 3rd Floor
New York, New York 10018
Merril M. Halpern
c/o Charterhouse Group International, Inc.
535 Madison Avenue
New York, New York 10022
The initial Delaware Trustee is:
Delaware Trust Capital Management, Inc.
900 Market Street H02M12
Wilmington, DE 19801
Attention: Corporate Trust Department
24
<PAGE> 31
The initial Property Trustee is:
IBJ Schroder Bank & Trust Company
1 State Street
11th Floor
New York, NY 10004
Attention: Corporate Trust & Agency Department
SECTION 5.6 Appointment, Removal and Resignation of Trustees.
(a) Subject to Sections 5.6(b) and 5.6(c), Trustees may be appointed or
removed without cause at any time:
(i) until the issuance of any Securities, by written instrument
executed by the Sponsor; and
(ii) after the issuance of any Securities, by vote of the Holders
of a majority in liquidation amount of the Common Securities voting as a
class.
(b) The Trustee that acts as Property Trustee shall not be removed in
accordance with Section 5.6(a) until a successor possessing the qualifications
to act as a Property Trustee under Section 5.3 (a "Successor Property Trustee")
has been appointed and has accepted such appointment by instrument executed by
such Successor Property Trustee and delivered to the Trust, the Sponsor and the
removed Property Trustee.
(c) The Trustee that acts as Delaware Trustee shall not be removed in
accordance with Section 5.6(a) until a successor possessing the qualifications
to act as Delaware Trustee under Sections 5.2 and 5.4 (a "Successor Delaware
Trustee") has been appointed and has accepted such appointment by instrument
executed by such Successor Delaware Trustee and delivered to the Trust, the
Sponsor and the removed Delaware Trustee.
(d) A Trustee appointed to office shall hold office until his, hers or
its successor shall have been appointed or until his, her or its death, removal,
resignation, dissolution or liquidation. Any Trustee may resign from office
(without need for prior or subsequent accounting) by an instrument in writing
signed by the Trustee and delivered to the Sponsor and the Trust, which
25
<PAGE> 32
resignation shall take effect upon such delivery or upon such later date as is
specified therein; provided, however, that:
(i) No such resignation of the Trustee that acts as the Property
Trustee shall be effective:
(A) until a Successor Property Trustee has been appointed and
has accepted such appointment by instrument executed by such
Successor Property Trustee and delivered to the Trust, the Sponsor
and the resigning Property Trustee; or
(B) until the assets of the Trust have been completely
liquidated and the proceeds thereof distributed to the holders of
the Securities; and
(ii) no such resignation of the Trustee that acts as the Delaware
Trustee shall be effective until a Successor Delaware Trustee has been
appointed and has accepted such appointment by instrument executed by such
Successor Delaware Trustee and delivered to the Trust, the Sponsor and the
resigning Delaware Trustee.
(e) The Holders of the Common Securities shall use their best efforts
to promptly appoint a Successor Property Trustee or Successor Delaware Trustee,
as the case may be, if the Property Trustee or the Delaware Trustee delivers an
instrument of resignation in accordance with Section 5.6(d).
(f) If no Successor Property Trustee or Successor Delaware Trustee
shall have been appointed and accepted appointment as provided in this Section
5.6 within 60 days after delivery pursuant to this Section 5.6 of an instrument
of resignation or removal, the Property Trustee or Delaware Trustee resigning or
being removed, as applicable, may petition any court of competent jurisdiction
for appointment of a Successor Property Trustee or Successor Delaware Trustee.
Such court may thereupon, after prescribing such notice, if any, as it may deem
proper and prescribe, appoint a Successor Property Trustee or Successor Delaware
Trustee, as the case may be.
26
<PAGE> 33
(g) No Property Trustee or Delaware Trustee shall be liable for the
acts or omissions to act of any Successor Property Trustee or Successor Delaware
Trustee, as the case may be.
SECTION 5.7 Vacancies among Trustees.
If a Trustee ceases to hold office for any reason and the number of
Trustees is not reduced pursuant to Section 5.1, or if the number of Trustees is
increased pursuant to Section 5.1, a vacancy shall occur. A resolution
certifying the existence of such vacancy by the Regular Trustees or, if there
are more than two, a majority of the Regular Trustees, shall be conclusive
evidence of the existence of such vacancy. The vacancy shall be filled with a
Trustee appointed in accordance with Section 5.6.
The death, resignation, retirement, removal, bankruptcy, dissolution,
liquidation, incompetence or incapacity to perform the duties of a Trustee shall
not operate to annul the Trust. Whenever a vacancy in the number of Regular
Trustees shall occur, until such vacancy is filled by the appointment of a
Regular Trustee in accordance with this Section 5.6, the Regular Trustees in
office, regardless of their number, shall have all the powers granted to the
Regular Trustees and shall discharge all the duties imposed upon the Regular
Trustees by this Declaration.
SECTION 5.8 Merger, Conversion, Consolidation or Succession to Business of a
Trustee.
Any corporation into which the Property Trustee or the Delaware
Trustee, as the case may be, may be merged or converted or with which either may
be consolidated, or any corporation resulting from any merger, conversion or
consolidation to which the Property Trustee or the Delaware Trustee, as the case
may be, shall be a party, or any corporation succeeding to all or substantially
all the corporate trust business of the Property Trustee or the Delaware
Trustee, as the case may be, shall be the successor of the Property Trustee or
the Delaware Trustee, as the case may be, hereunder, provided such corporation
shall be otherwise qualified and eligible under this Article V, without the
execution or filing of any paper or any further act on the part of any of the
parties hereto.
27
<PAGE> 34
SECTION 5.9 Authority, Powers and Duties of the Regular Trustees.
(a) Subject to the limitations provided in this Declaration and to the
specific duties of the Property Trustee, the Regular Trustees shall have
exclusive and complete authority to carry out the purposes of the Trust. An
action taken by the Regular Trustees in accordance with their powers shall
constitute the act of and serve to bind the Trust and an action taken by the
Property Trustee on behalf of the Trust in accordance with its powers shall
constitute the act of and serve to bind the Trust.
(b) Except as expressly set forth in this Declaration and except if a
meeting of the Regular Trustees is called with respect to any matter over which
the Regular Trustees have power to act, any power of the Regular Trustees may be
exercised by, or with the consent of, any one such Regular Trustee.
(c) Unless otherwise determined by the Regular Trustees, and except as
otherwise required by the Business Trust Act or applicable law, any Regular
Trustee is authorized to execute on behalf of the Trust any documents which the
Regular Trustees have the power and authority to cause the Trust to execute
pursuant to Section 5.9, provided, that the Registration Statement, including
any amendments thereto, shall be signed by a majority of the Regular Trustees.
(d) The Regular Trustees shall have the exclusive power, duty and
authority to cause the Trust to engage in the following activities:
(i) to issue and sell the Preferred Securities and the Common
Securities in accordance with this Declaration; provided, however, that the
Trust may issue no more than one series of Preferred Securities and no more
than one series of Common Securities, and, provided, further, that there
shall be no interests in the Trust other than the Securities, and the
issuance of Securities shall be limited to simultaneous issuance of both
Preferred Securities and Common Securities on the Closing Date and any
other date Preferred Securities and Common Securities are sold pursuant to
the over-allotment option granted in the Purchase Agreement;
28
<PAGE> 35
(ii) in connection with the issue and sale of the Preferred
Securities, at the direction of the Sponsor, to:
(A) execute the Registration Statement prepared by the
Sponsor, including any amendments thereto relating to, among other
securities, the Preferred Securities;
(B) execute and file any documents prepared by the Sponsor,
or take any acts as determined by the Sponsor to be necessary in
order to qualify or register all or part of the Preferred
Securities in any state or foreign jurisdiction in which the
Sponsor has determined to qualify or register such Preferred
Securities for sale;
(C) execute and file an application, prepared by the Sponsor,
to the New York Stock Exchange or any other national stock exchange
or the Nasdaq National Market for listing or quotation of the
Preferred Securities, from time to time;
(D) execute and deliver letters, documents, or instruments to
the Depositary relating to the Preferred Securities;
(E) execute and file with the Commission a registration
statement on Form 8-A, including any amendments thereto, prepared
by the Sponsor relating to the registration of the Preferred
Securities under Section 12(b) of the Exchange Act; and
(F) execute and perform the Purchase Agreement and other
agreements, documents and instruments providing for the sale of the
Preferred Securities;
(iii) to acquire the Debentures with the proceeds of the sale of
the Preferred Securities and the Common Securities; provided, however, that
the Regular Trustees shall cause legal title to the Debentures to be held
of record in the name of the Property Trustee for the benefit of the
Holders of the
29
<PAGE> 36
Preferred Securities and the Holders of Common Securities;
(iv) to give the Sponsor and the Property Trustee prompt written
notice of the occurrence of a Special Event; provided that the Regular
Trustees shall consult with the Sponsor and the Property Trustee before
taking or refraining from taking any Ministerial Action in relation to a
Special Event;
(v) to establish a record date with respect to all actions to be
taken hereunder that require a record date be established, including and
with respect to, for the purposes of Section 316(c) of the Trust Indenture
Act, Distributions, voting rights, redemptions and exchanges, and to issue
relevant notices to the Holders of Preferred Securities and Holders of
Common Securities as to such actions and applicable record dates;
(vi) to take all actions and perform such duties as may be
required of the Regular Trustees pursuant to the terms of the Securities;
(vii) to bring or defend, pay, collect, compromise, arbitrate,
resort to legal action, or otherwise adjust claims or demands of or against
the Trust ("Legal Action"), unless pursuant to Section 5.11(f), the
Property Trustee has the exclusive power to bring such Legal Action;
(viii) to employ or otherwise engage employees and agents (who may
be designated as officers with titles) and managers, advisors, and
consultants and pay reasonable compensation for such services;
(ix) to cause the Trust to comply with the Trust's obligations
under the Trust Indenture Act;
(x) to give the certificate required by Section 314(a)(4) of the
Trust Indenture Act to the Property Trustee, which certificate may be
executed by any Regular Trustee;
(xi) to incur expenses that are necessary or incidental to carry
out any of the purposes of the Trust;
30
<PAGE> 37
(xii) to act as, or appoint another Person to act as, registrar
and transfer agent for the Securities;
(xiii) to give prompt written notice to the Holders of the
Securities of any notice received from the Debenture Issuer of its election
to defer payments of interest on the Debentures by extending the interest
payment period under the Indenture;
(xiv) to execute all documents or instruments, perform all duties
and powers, and do all things for and on behalf of the Trust in all matters
necessary or incidental to the foregoing;
(xv) to take all action that may be necessary or appropriate for
the preservation and the continuation of the Trust's valid existence,
rights, franchises and privileges as a statutory business trust under the
laws of the State of Delaware and of each other jurisdiction in which such
existence is necessary to protect the limited liability of the Holders of
the Preferred Securities or to enable the Trust to effect the purposes for
which the Trust was created;
(xvi) to take any action, not inconsistent with this Declaration
or with applicable law, that the Regular Trustees determine in their
discretion to be necessary or desirable in carrying out the activities of
the Trust as set out in this Section 5.9, including, but not limited to:
(A) causing the Trust not to be deemed to be an Investment
Company required to be registered under the Investment Company Act;
(B) causing the Trust to be classified for United States
federal income tax purposes as a grantor trust; and
(C) cooperating with the Debenture Issuer to ensure that the
Debentures will be treated as indebtedness of the Debenture Issuer
for United States federal income tax purposes;
31
<PAGE> 38
provided that such action does not adversely affect the interests of Holders;
and
(xvii) to take all action necessary to cause all applicable tax
returns and tax information reports that are required to be filed with
respect to the Trust to be duly prepared and filed by the Regular Trustees,
on behalf of the Trust.
(e) The Regular Trustees must exercise the powers set forth in this
Section 5.9 in a manner that is consistent with the purposes and functions of
the Trust set out in Section 3.3, and the Regular Trustees shall not take any
action that is inconsistent with the purposes and functions of the Trust set
forth in Section 3.3.
(f) Subject to this Section 5.9, the Regular Trustees shall have none
of the powers or the authority of the Property Trustee set forth in Section
5.11.
(g) Any expenses incurred by the Regular Trustees pursuant to this
Section 5.9 shall be reimbursed by the Debenture Issuer.
SECTION 5.10 Delegation of Powers and Duties of the Regular Trustees.
The Regular Trustees shall have power to delegate from time to time to
such of their number or to officers of the Trust the doing of such things and
the execution of such instruments either in the name of the Trust or the names
of the Regular Trustees or otherwise as the Regular Trustees may deem expedient,
to the extent such delegation is not prohibited by applicable law or contrary to
the provisions of the Trust, as set forth herein. The Regular Trustees may, by
power of attorney consistent with applicable law, delegate to any other natural
person over the age of 21 their power for the purpose of executing any documents
contemplated in Section 5.9, including the Registration Statement or any
amendment thereto or other document filed with the Commission, or making any
other governmental filing.
SECTION 5.11 Powers and Duties of the Property Trustee.
(a) The legal title to the Debentures shall be owned by and held of
record in the name of the Property
32
<PAGE> 39
Trustee in trust for the benefit of the Holders of the Securities. The right,
title and interest of the Property Trustee to the Debentures shall vest
automatically in each Person who may hereafter be appointed as Property Trustee
in accordance with Section 5.6. Such vesting and cessation of title shall be
effective whether or not conveyancing documents with regard to the Debentures
have been executed and delivered.
(b) The Property Trustee shall not transfer its right, title and
interest in the Debentures to the Regular Trustees or to the Delaware Trustee
(if the Property Trustee does not also act as Delaware Trustee).
(c) The Property Trustee shall:
(i) establish and maintain a segregated non-interest bearing
trust account (the "Property Trustee Account") in the name of and under the
exclusive control of the Property Trustee on behalf of the Holders of the
Securities and, upon the receipt of payments of funds made in respect of
the Debentures held by the Property Trustee, deposit such funds into the
Property Trustee Account and make payments to the Holders of the Preferred
Securities and Holders of the Common Securities from the Property Trustee
Account in accordance with Section 6.1. Funds in the Property Trustee
Account shall be held uninvested until disbursed in accordance with this
Declaration. The Property Trustee Account shall be an account that is
maintained with a banking institution the rating on whose long-term
unsecured indebtedness is at least equal to the rating assigned to the
Preferred Securities by a "nationally recognized statistical rating
organization," as that term is defined for purposes of Rule 436(g)(2) under
the Securities Act;
(ii) engage in such ministerial activities as so directed and as
shall be necessary or appropriate to effect the redemption of the Preferred
Securities and the Common Securities to the extent the Debentures are
redeemed or mature; and
(iii) upon written notice of distribution issued by the Regular
Trustees in accordance with the terms of the Securities, engage in such
ministerial activities as so directed as shall be necessary or
33
<PAGE> 40
appropriate to effect the distribution of the Debentures to Holders of
Securities upon the occurrence of certain Special Events arising from a
change in law or a change in legal interpretation or other specified
circumstances pursuant to the terms of the Securities.
(d) The Property Trustee shall take all actions and perform such duties
as may be specifically required of the Property Trustee pursuant to the terms of
the Securities.
(e) The Property Trustee shall have the legal power to exercise all of
the rights, powers and privileges of a holder of Debentures under the Indenture
and, if an Event of Default actually known to a Responsible Officer of the
Property Trustee occurs and is continuing, the Property Trustee shall, for the
benefit of Holders of the Securities, but subject to the rights of the Holders
pursuant to the terms of such Securities, enforce its rights as holder of the
Debentures, including the right to take any Legal Action which arises out of or
in connection with such an Event of Default.
(f) Subject to this Section 5.11, the Property Trustee shall have none
of the duties, liabilities, powers or the authority of the Regular Trustees set
forth in Section 5.9.
(g) The Property Trustee must exercise the powers set forth in this
Section 5.11 in a manner that is consistent with the purposes and functions of
the Trust set out in Section 3.3, and the Property Trustee shall not take any
action that is inconsistent with the purposes and functions of the Trust set out
in Section 3.3.
SECTION 5.12 Certain Duties and Responsibilities of the Property Trustee.
(a) The Property Trustee, before the occurrence of any Event of Default
and after the curing or waiving of all Events of Default that may have occurred,
shall undertake to perform only such duties and obligations as are specifically
set forth in this Declaration and no implied covenants shall be read into this
Declaration against the Property Trustee. In case an Event of Default has
occurred (that has not been cured or waived pursuant to Section 2.6) of which a
Responsible Officer of the Property Trustee has
34
<PAGE> 41
actual knowledge, the Property Trustee shall exercise such rights and powers
vested in it by this Declaration, and use the same degree of care and skill in
its exercise, as a prudent individual would exercise or use under the
circumstances in the conduct of his or her own affairs.
(b) No provision of this Declaration shall be construed to relieve the
Property Trustee from liability for its own negligent action, its own negligent
failure to act, or its own willful misconduct, except that prior to the
occurrence of an Event of Default and after the curing or waiving of all such
Events of Default that may have occurred, in the absence of bad faith on the
part of the Property Trustee, the Property Trustee may conclusively rely, as to
the truth of the statements and the correctness of the opinions expressed
therein, upon any certificates or opinions furnished to the Property Trustee and
conforming to the requirements of this Declaration; but in the case of any such
certificates or opinions that by any provision hereof are specifically required
to be furnished to the Property Trustee, the Property Trustee shall be under a
duty to examine the same to determine whether or not they conform to the
requirements of this Declaration.
(c) The Property Trustee shall not be liable for any error of judgment
made in good faith by a Responsible Officer of the Property Trustee, unless it
shall be proved that the Property Trustee was negligent in ascertaining the
pertinent facts.
(d) The Property Trustee shall not be liable with respect to any action
taken or omitted to be taken by it in good faith in accordance with the
direction of the Holders of not less than a majority in liquidation amount of
the Securities relating to the time, method and place of conducting any
proceeding for any remedy available to the Property Trustee, or exercising any
trust or power conferred upon the Property Trustee under this Declaration.
(e) The Property Trustee shall not be responsible for monitoring the
compliance by the Regular Trustees or the Sponsor with their respective duties
under this Declaration, nor shall the Property Trustee be liable for any default
or misconduct of the Regular Trustees or the Sponsor.
(f) No provision of this Declaration shall require the Property Trustee
to expend or risk its own funds
35
<PAGE> 42
or otherwise incur personal financial liability in the performance of any of its
duties or in the exercise of any of its rights or powers, if it shall have
reasonable grounds for believing that the repayment of such funds or liability
is not reasonably assured to it under the terms of this Declaration or indemnity
reasonably satisfactory to the Property Trustee against such risk or liability
is not reasonably assured to it.
(g) The Property Trustee's sole duty with respect to the custody, safe
keeping and physical preservation of the Debentures and the Property Trustee
Account shall be to deal with such property in a similar manner as the Property
Trustee deals with similar property for its own account, subject to the
protections and limitations on liability afforded to the Property Trustee under
this Declaration and the Trust Indenture Act.
(h) The Property Trustee shall not be liable for any interest on any
money received by it except as it may otherwise agree in writing with the
Sponsor. Money held by the Property Trustee need not be segregated from other
funds held by it except in relation to the Property Trustee Account maintained
by the Property Trustee pursuant to Section 5.11(c)(i) and except to the extent
otherwise required by law.
(i) The Property Trustee shall have no duty or liability for or with
respect to the value, genuineness, existence or sufficiency of the Debentures or
the payment of any taxes or assessments levied thereon or in connection
therewith.
SECTION 5.13 Certain Rights of Property Trustee.
(a) Subject to the provisions of Section 5.12:
(i) the Property Trustee may rely and shall be fully protected in
acting or refraining from acting upon any resolution, certificate,
statement, instrument, opinion, report, notice, request, direction,
consent, order, bond, debenture, note, other evidence of indebtedness or
other paper or document believed by it to be genuine and to have been
signed, sent or presented by the proper party or parties;
36
<PAGE> 43
(ii) any direction or act of the Sponsor or the Regular Trustees
contemplated by this Declaration shall be sufficiently evidenced by an
Officers' Certificate;
(iii) whenever in the administration of this Declaration, the
Property Trustee shall deem it desirable that a matter be proved or
established before taking, suffering or omitting any action hereunder, the
Property Trustee (unless other evidence is herein specifically prescribed)
may, in the absence of bad faith on its part, request and rely upon an
Officers' Certificate which, upon receipt of such request, shall be
promptly delivered by the Sponsor or the Regular Trustees;
(iv) the Property Trustee shall have no duty to see to any
recording, filing or registration of any instrument (including any
financing or continuation statement or any filing under tax or securities
laws) or any rerecording, refiling or registration thereof;
(v) the Property Trustee may consult with counsel of its choice
or other experts and the advice or opinion of such counsel and experts with
respect to legal matters or advice within the scope of such experts' area
of expertise shall be full and complete authorization and protection in
respect of any action taken, suffered or omitted by it hereunder in good
faith and in accordance with such advice or opinion, such counsel may be
counsel to the Sponsor or any of its Affiliates, and may include any of its
employees. The Property Trustee shall have the right at any time to seek
instructions concerning the administration of this Declaration from any
court of competent jurisdiction;
(vi) the Property Trustee shall be under no obligation to exercise
any of the rights or powers vested in it by this Declaration at the request
or direction of any Holder, unless such Holder shall have provided to the
Property Trustee adequate security and indemnity, reasonably satisfactory
to the Property Trustee, against the costs, expenses (including attorneys'
fees and expenses and the expenses of the Property Trustee's agents,
nominees or custodians) and liabilities that might be incurred by it in
complying
37
<PAGE> 44
with such request or direction, including such reasonable advances as may
be requested by the Property Trustee; provided that, nothing contained in
this Section 5.13(a)(vi) shall be taken to relieve the Property Trustee,
upon the occurrence of an Event of Default, of its obligation to exercise
the rights and powers vested in it by this Declaration;
(vii) the Property Trustee shall not be bound to make any
investigation into the facts or matters stated in any resolution,
certificate, statement, instrument, opinion, report, notice, request,
direction, consent, order, security, bond, debenture, note, other evidence
of indebtedness or other paper or document, but the Property Trustee, in
its discretion, may make such further inquiry or investigation into such
facts or matters as it may see fit;
(viii) the Property Trustee may execute any of the trusts or powers
hereunder or perform any duties hereunder either directly or by or through
agents or attorneys and the Property Trustee shall not be responsible for
any misconduct or negligence on the part of any agent or attorney appointed
with due care by it hereunder;
(ix) any action taken by the Property Trustee or its agents
hereunder shall bind the Trust and the Holders of the Securities, and the
signature of the Property Trustee or its agents alone shall be sufficient
and effective to perform any such action and no third party shall be
required to inquire as to the authority of the Property Trustee to so act
or as to its compliance with any of the terms and provisions of this
Declaration, both of which shall be conclusively evidenced by the Property
Trustee's or its agent's taking such action;
(x) whenever in the administration of this Declaration the
Property Trustee shall deem it desirable to receive instructions with
respect to enforcing any remedy or right or taking any other action
hereunder the Property Trustee (A) may request instructions from the
Holders of the Securities, which instructions may only be given by the
Holders of the same proportion in liquidation amount of the Securities as
would be entitled to direct the Property Trustee
38
<PAGE> 45
under the terms of the Securities in respect of such remedy, right or
action, (B) may refrain from enforcing such remedy or right or taking such
other action until such instructions are received, and (C) shall be
protected in acting in accordance with such instructions;
(xi) except as otherwise expressly provided by this Declaration,
the Property Trustee shall not be under any obligation to take any action
that is discretionary under the provisions of this Declaration; and
(xii) the Property Trustee shall not be liable for any action
taken, suffered, or omitted to be taken by it in good faith and reasonably
believed by it to be authorized or within the discretion or rights or
powers conferred upon it by this Declaration.
(b) No provision of this Declaration shall be deemed to impose any duty
or obligation on the Property Trustee to perform any act or acts or exercise any
right, power, duty or obligation conferred or imposed on it, in any jurisdiction
in which it shall be illegal, or in which the Property Trustee shall be
unqualified or incompetent in accordance with applicable law, to perform any
such act or acts, or to exercise any such right, power, duty or obligation. No
permissive power or authority available to the Property Trustee shall be
construed to be a duty.
SECTION 5.14 Delaware Trustee.
Notwithstanding any other provision of this Declaration other than
Section 5.2, the Delaware Trustee shall not be entitled to exercise any powers,
nor shall the Delaware Trustee have any of the duties and responsibilities of
the Regular Trustees or the Property Trustee described in this Declaration.
Except as set forth in Section 5.2, the Delaware Trustee shall be a Trustee for
the sole and limited purpose of fulfilling the requirements of Section 3807 of
the Business Trust Act.
SECTION 5.15 Meetings.
If there is more than one Regular Trustee, meetings of the Regular
Trustees shall be held from time to time upon the call of any Regular Trustee.
Regular meetings of the Regular Trustees may be held at a time and place
39
<PAGE> 46
fixed by resolution of the Regular Trustees. Notice of any in-person meetings of
the Regular Trustees shall be hand delivered or otherwise delivered in writing
(including by facsimile, with a hard copy by overnight courier) not less than 48
hours before such meeting. Notice of any telephonic meetings of the Regular
Trustees or any committee thereof shall be hand delivered or otherwise delivered
in writing (including by facsimile, with a hard copy by overnight courier) not
less than 24 hours before a meeting. Notices shall contain a brief statement of
the time, place and anticipated purposes of the meeting. The presence (whether
in person or by telephone) of a Regular Trustee at a meeting shall constitute a
waiver of notice of such meeting except where a Regular Trustee attends a
meeting for the express purpose of objecting to the transaction of any activity
on the ground that the meeting has not been lawfully called or convened. Unless
provided otherwise in this Declaration, any action of the Regular Trustees may
be taken at a meeting by vote of a majority of the Regular Trustees present
(whether in person or by telephone) and eligible to vote with respect to such
matter, provided that a Quorum is present, or without a meeting by the unanimous
written consent of the Regular Trustees. In the event there is only one Regular
Trustee, any and all action of such Regular Trustee shall be evidenced by a
written consent of such Regular Trustee.
ARTICLE VI
DISTRIBUTIONS
SECTION 6.1 Distributions.
If and to the extent that the Debenture Issuer makes a payment of
interest (including Compounded Interest), Additional Interest, premium and/or
principal on the Debentures held by the Property Trustee (the amount of any such
payment being a "Payment Amount"), the Property Trustee shall and is directed,
to the extent funds are available for that purpose, to make a distribution (a
"Distribution") of the Payment Amount to Holders of Preferred Securities and
Common Securities in accordance with the preferences set forth in the respective
terms of such Securities, as described in Annex I hereto.
40
<PAGE> 47
ARTICLE VII
THE SECURITIES
SECTION 7.1 Title and Terms.
The Regular Trustees shall on behalf of the Trust issue one class of
convertible preferred securities, representing undivided beneficial interests in
the assets of the Trust (the "Preferred Securities"), and one class of
convertible common securities, representing undivided beneficial interests in
the assets of the Trust (the "Common Securities"), each having such terms (the
"Terms") as are set forth in Annex I. The Trust shall issue no securities or
other interests in the assets of the Trust other than the Preferred Securities
and the Common Securities. The aggregate number of Preferred Securities
outstanding at any time shall not exceed the number set forth in the Terms in
Annex I hereto.
The Terms of the Securities set forth in Annex I and the forms of
Certificates set forth in Exhibits A-1 and A-2 are part of the terms of this
Declaration and to the extent applicable, the Property Trustee and the Sponsor,
by their execution and delivery of this Declaration, expressly agree to such
Terms and to be bound thereby.
SECTION 7.2 General Provisions Regarding the Securities.
(a) The consideration received by the Trust for the issuance of the
Securities shall constitute a contribution to the capital of the Trust and shall
not constitute a loan to the Trust.
(b) Upon issuance of the Securities as provided in this Declaration,
the Securities so issued shall be validly issued, fully paid and nonassessable.
(c) Every Person, by virtue of having become a Holder or a Preferred
Security Beneficial Owner in accordance with the terms of this Declaration,
shall be deemed to have expressly assented and agreed to the terms of, and shall
be bound by, this Declaration.
41
<PAGE> 48
SECTION 7.3 General Form of Certificates.
The Preferred Security Certificates and the Property Trustee's
certificate of authentication shall be substantially in the form of Exhibit A-1
and the Common Security Certificates shall be substantially in the form of
Exhibit A-2, each of which is hereby incorporated in and expressly made a part
of this Declaration.
The Certificates may have letters, numbers, notations or other marks of
identification or designation and such legends or endorsements required by law,
stock exchange rule, agreements to which the Trust is subject, if any, or usage
(provided that any such notation, legend or endorsement is in a form acceptable
to the Trust). The Trust at the direction of the Sponsor shall furnish any such
legend not contained in Exhibit A-1 to the Property Trustee in writing.
The definitive Certificates shall be printed, lithographed or engraved
or produced by any combination of these methods on steel engraved borders or may
be produced in any other manner permitted by the rules of any securities
exchange on which the Securities may be listed, all as determined by the Regular
Trustees, as evidenced by their execution thereof. The Trust shall issue no
Securities in bearer form.
SECTION 7.4 Form of Preferred Securities Certificates; Global Certificates.
(a) Unless otherwise specified in the terms of the Preferred
Securities, the Preferred Securities Certificates, on original issuance, will be
issued in the form of one or more, fully registered, global Preferred Security
Certificates (each a "Global Certificate"), to be delivered to The Depository
Trust Company, the initial Clearing Agency, by, or on behalf of, the Trust. No
Preferred Security Beneficial Owner will receive a definitive Preferred Security
Certificate representing such Preferred Security Beneficial Owner's interests in
such Global Certificates, except as provided in Section 7.7.
(b) Unless required by the Depositary, any securities exchange on which
the Preferred Securities may be listed or any rule, regulation or law, Preferred
Securities issued in the form of Global Certificates need not be
42
<PAGE> 49
printed, lithographed or engraved on steel engraved borders, but shall be in
such form as is acceptable to the Depositary.
(c) Every Global Certificate authenticated and delivered hereunder
shall bear a legend in substantially the following form, in capital letters and
bold-face type:
THIS SECURITY IS A GLOBAL CERTIFICATE WITHIN THE MEANING OF THE DECLARATION
HEREINAFTER REFERRED TO AND IS REGISTERED IN THE NAME OF A DEPOSITARY OR A
NOMINEE THEREOF. THIS SECURITY MAY NOT BE EXCHANGED IN WHOLE OR IN PART FOR
A PREFERRED SECURITY REGISTERED, AND NO TRANSFER OF THIS PREFERRED SECURITY
IN WHOLE OR IN PART MAY BE REGISTERED, IN THE NAME OF ANY PERSON OTHER THAN
SUCH DEPOSITARY OR A NOMINEE THEREOF, EXCEPT IN THE LIMITED CIRCUMSTANCES
DESCRIBED IN THE DECLARATION.
(d) If the Depositary is the Depository Trust Company, the Global
Certificate authenticated and delivered hereunder shall also bear a legend in
substantially the following form, in capital letters and bold-face type:
UNLESS THIS CERTIFICATE IS PRESENTED BY AN AUTHORIZED SIGNATORY OF THE
DEPOSITORY TRUST COMPANY ("DTC") TO THE TRUST OR ITS AGENT FOR REGISTRATION
OF TRANSFER, EXCHANGE, OR PAYMENT, AND ANY CERTIFICATE ISSUED IS REGISTERED
IN THE NAME OF CEDE & CO. OR IN SUCH OTHER NAME AS IS REQUESTED BY AN
AUTHORIZED REPRESENTATIVE OF DTC (AND ANY PAYMENT IS MADE TO CEDE & CO. OR
TO SUCH OTHER ENTITY AS IS REQUESTED BY AN AUTHORIZED REPRESENTATIVE OF
DTC), ANY TRANSFER, PLEDGE OR OTHER USE HEREOF FOR VALUE OR OTHERWISE BY OR
TO ANY PERSON IS WRONGFUL INASMUCH AS THE REGISTERED OWNER HEREOF, CEDE &
CO., HAS AN INTEREST HEREIN.
SECTION 7.5 Execution and Dating of Certificates.
The Certificates shall be signed on behalf of the Trust by a Regular
Trustee. In case any Regular Trustee who shall have signed any of the
Certificates shall cease to be such Regular Trustee before the Certificates so
signed shall be delivered by the Trust, such Certificates nevertheless may be
delivered as though the person who signed such
43
<PAGE> 50
Certificates had not ceased to be such Regular Trustee; and any Certificates may
be signed on behalf of the Trust by such persons who, at the actual date of
execution of such Certificate, shall be the Regular Trustees of the Trust,
although at the date of the execution and delivery of the Declaration any such
person was not such a Regular Trustee. Each Preferred Security shall be dated
the date of its authentication.
One Regular Trustee shall sign the Preferred Security Certificates for
the Trust by manual or facsimile signature. Unless otherwise determined by the
Trust, such signature shall, in the case of Common Security Certificates, be a
manual signature.
SECTION 7.6 Authentication of Preferred Security Certificates.
Each Global Certificate shall initially be registered on the books and
records of the Trust in the name of Cede & Co., the nominee of The Depositary
Trust Company, and delivered to such Depositary or a nominee thereof or
custodian therefor, and each such Global Certificate shall constitute a single
Preferred Security for all purposes of this Declaration.
A Preferred Security Certificate shall not be valid until authenticated
by the manual signature of an authorized signatory of the Property Trustee. The
signature shall be conclusive evidence that the Preferred Security Certificate
has been authenticated under this Declaration. Upon a written order of the Trust
signed by one Regular Trustee, the Property Trustee shall authenticate the
Preferred Security Certificates for original issue.
The Property Trustee may appoint an authenticating agent acceptable to
the Trust to authenticate Preferred Security Certificates. An authenticating
agent may authenticate Preferred Security Certificates whenever the Property
Trustee may do so. Each reference in this Declaration to authentication by the
Property Trustee includes authentication by such agent. An authenticating agent
has the same rights as the Property Trustee to deal with the Sponsor or an
Affiliate.
44
<PAGE> 51
SECTION 7.7 Definitive Preferred Security Certificates.
(a) Upon the occurrence of an event specified in Section 8.2(a),
definitive, fully registered Preferred Security Certificates ("Definitive
Preferred Security Certificates") shall be prepared by the Regular Trustees on
behalf of the Trust with respect to such Preferred Securities.
(b) Upon surrender of the Global Certificates by the Clearing Agency,
accompanied by registration instructions, the Regular Trustees shall cause
Definitive Preferred Security Certificates to be delivered to Preferred Security
Beneficial Owners in accordance with the instructions of the Clearing Agency.
Neither the Trustees nor the Trust shall be liable for any delay in delivery of
such instructions and each of them may conclusively rely on and shall be
protected in relying on, said instructions of the Clearing Agency.
SECTION 7.8 Temporary Certificates.
Until definitive Certificates are ready for delivery, the Trust may
prepare and, in the case of the Preferred Securities, the Property Trustee shall
authenticate temporary Certificates. Temporary Certificates shall be
substantially in the form of definitive Certificates but may have variations
that the Trust considers appropriate for temporary Certificates. Without
unreasonable delay, the Trust shall prepare and, in the case of the Preferred
Securities, the Property Trustee shall authenticate definitive Certificates in
exchange for temporary Certificates.
SECTION 7.9 Registrar, Paying Agent and Conversion Agent.
In the event that the Preferred Securities are not in book entry only
form, the Trust shall maintain in the Borough of Manhattan, City of New York,
State of New York, an office or agency where Preferred Securities may be
presented for registration of transfer or from exchange ("Registrar"), (ii) an
office or agency where Preferred Securities may be presented for payment
("Paying Agent"). The Trust shall maintain an office or agency where Securities
may be presented for conversion ("Conversion Agent"). The Registrar shall keep a
register of the Preferred Securities and of their transfer and exchange. The
Trust may appoint the Registrar, the Paying Agent and
45
<PAGE> 52
the Conversion Agent and may appoint one or more co-registrars, one or more
additional paying agents and one or more additional conversion agents in such
other locations as it shall determine. The term "Paying Agent" includes any
additional paying agent and the term "Conversion Agent" includes any additional
conversion agent. The Trust may change any Paying Agent, Registrar, co-registrar
or Conversion Agent without prior notice to any Holder. The Paying Agent shall
be permitted to resign as Paying Agent upon 30 days' written notice to the
Regular Trustees. The Trust shall notify the Property Trustee of the name and
address of any Agent not a party to this Declaration. If the Trust fails to
appoint or maintain another entity as Registrar, Paying Agent or Conversion
Agent, the Property Trustee shall act as such. The Trust or any of its
Affiliates may act as Paying Agent, Registrar, or Conversion Agent. The Trust
shall act as Paying Agent, Registrar, co-registrar, and Conversion Agent for the
Common Securities.
The Trust initially appoints the Property Trustee as Registrar, Paying
Agent and Conversion Agent for the Preferred Securities. The Property Trustee
shall be entitled to the protections of Sections 5.12 and 5.13 and Article IX in
its capacity as Registrar, Paying Agent and Conversion Agent.
SECTION 7.10 Paying Agent to Hold Money in Trust.
The Trust shall require each Paying Agent other than the Property
Trustee to agree in writing that the Paying Agent will hold in trust for the
benefit of Holders or the Property Trustee all money held by the Paying Agent
for the payment of principal or distribution on the Securities, and will notify
the Property Trustee if there are insufficient funds. While any such
insufficiency continues, the Property Trustee may require a Paying Agent to pay
all money held by it to the Property Trustee. The Trust at any time may require
a Paying Agent to pay all money held by it to the Property Trustee and to
account for any money disbursed by it. Upon payment over to the Property
Trustee, the Paying Agent (if other than the Trust or an Affiliate of the Trust)
shall have no further liability for the money. If the Trust or the Sponsor or an
Affiliate of the Trust or the Sponsor acts as Paying Agent, it shall segregate
and hold in a separate trust fund for the benefit of the Holders all money held
by it as Paying Agent.
46
<PAGE> 53
SECTION 7.11 Outstanding Preferred Securities.
The Preferred Securities outstanding at any time are all the Preferred
Securities authenticated by the Property Trustee except for those cancelled by
it, those delivered to it for cancellation, and those described in this Section
7.11 as not outstanding.
If a Preferred Security is replaced or paid pursuant to Section 8.3, it
ceases to be outstanding unless the Property Trustee receives proof satisfactory
to it that the replaced, paid or purchased Preferred Security is held by a bona
fide purchaser.
If Preferred Securities are considered paid in accordance with the
terms of this Declaration, they cease to be outstanding and interest on them
ceases to accrue.
A Preferred Security does not cease to be outstanding because one of
the Trust, the Sponsor or an Affiliate of the Sponsor holds the Preferred
Security.
SECTION 7.12 Preferred Securities in Treasury.
In determining whether the Holders of the required amount of Securities
have concurred in any direction, waiver or consent, Preferred Securities owned
by the Trust, the Sponsor or an Affiliate of the Sponsor, as the case may be,
shall be disregarded and deemed not to be outstanding, except that for the
purposes of determining whether the Property Trustee shall be fully protected in
relying on any such direction, waiver or consent, only Preferred Securities
which the Property Trustee knows are so owned shall be so disregarded.
SECTION 7.13 Notices to Clearing Agency.
Whenever a notice or other communication to the Preferred Security
Holders is required under this Declaration, the Regular Trustees shall, in the
case of any Global Preferred Security, give all such notices and communications
specified herein to be given to the Preferred Security Holders to the
Depositary, and shall have no notice obligations to the Preferred Security
Beneficial Owners.
47
<PAGE> 54
SECTION 7.14 Appointment of Successor Clearing Agency.
If the Depositary elects to discontinue its services as securities
depositary with respect to the Preferred Securities, the Regular Trustees may,
in their sole discretion, appoint a successor Clearing Agency with respect to
such Preferred Securities.
SECTION 7.15 Deemed Security Holders.
The Trustees and any Agent may treat the Person in whose name any
Certificate shall be registered on the books and records of the Trust as the
sole holder of such Certificate and of the Securities represented by such
Certificate for purposes of receiving Distributions and for all other purposes
whatsoever and, accordingly, shall not be bound to recognize any equitable or
other claim to or interest in such Certificate or in the Securities represented
by such Certificate on the part of any Person, whether or not the Trust shall
have actual or other notice thereof.
ARTICLE VIII
TRANSFERS, EXCHANGES AND CANCELLATIONS
OF SECURITIES
SECTION 8.1 General.
(a) Where Preferred Security Certificates are presented to the
Registrar or a co-registrar with a request to register a transfer or to exchange
them for an equal number of Preferred Securities represented by different
certificates, the Registrar shall register the transfer or make the exchange if
its requirements for such transactions are met. To permit registrations of
transfers and exchanges, the Trust shall issue and the Property Trustee shall
authenticate Preferred Security Certificates at the Registrar's request.
(b) Securities may only be transferred, in whole or in part, in
accordance with the terms and conditions set forth in this Declaration and in
the Terms set forth in Annex I. Any transfer or purported transfer of any
Security not made in accordance with this Declaration shall be null and void.
48
<PAGE> 55
(c) Subject to this Article VIII, the Sponsor and any Related Party may
only transfer Common Securities to the Sponsor or a Related Party of the
Sponsor; provided that, any such transfer is subject to the condition precedent
that the transferor obtain the written opinion of nationally recognized
independent counsel experienced in such matters that such transfer would not
cause more than an insubstantial risk that:
(i) the Trust would not be classified for United States federal
income tax purposes as a grantor trust; and
(ii) the Trust would be an Investment Company or the transferee
would become an Investment Company.
(d) The Regular Trustees shall provide for the registration of
Securities and of transfers of Securities, which will be effected without charge
but only upon payment (with such indemnity as the Regular Trustees may require)
in respect of any tax or other governmental charges that may be imposed in
relation to it. Upon surrender for registration of transfer of any Certificates,
the Regular Trustees shall cause one or more new Certificates to be issued in
the name of the designated transferee or transferees. Every Certificate
surrendered for registration of transfer shall be accompanied by a written
instrument of transfer in form satisfactory to the Regular Trustees duly
executed by the Holder or such Holder's attorney duly authorized in writing.
Each Certificate surrendered for registration of transfer shall be canceled by
the Regular Trustees. A transferee of a Certificate shall be entitled to the
rights and subject to the obligations of a Holder hereunder upon the receipt by
such transferee of a Certificate. By acceptance of a Certificate, each
transferee shall be deemed to have agreed to be bound by this Declaration.
(e) The Trust shall not be required (i) to issue, register the transfer
of or exchange Preferred Security Certificates during a period beginning at the
opening of business 15 days before the day of any selection of Preferred
Securities for redemption and ending at 5:00 p.m. (New York City time) on the
day of selection, or (ii) to register the transfer or exchange of any Preferred
Security so selected for redemption in whole or in part, except the unredeemed
portion of any Preferred Security being redeemed in part.
49
<PAGE> 56
SECTION 8.2 Transfer Procedures and Restrictions for Global Certificates.
(a) Notwithstanding any other provision in this Declaration, no Global
Certificate may be exchanged in whole or in part for Preferred Securities
registered, and no transfer of a Global Certificate in whole or in part may be
registered, in the name of any Person other than the Depositary for such Global
Certificate or a nominee thereof or a successor Depositary or a nominee of such
successor Depositary, unless (i) such Depositary (x) has notified the Sponsor
that it is unwilling or unable to continue as Depositary for such Global
Certificate and is not replaced by a successor Depositary approved by the
Sponsor within 90 days or (y) at any time has ceased to be a clearing agency
registered under the Exchange Act, or (ii) an Event of Default has occurred and
is continuing.
(b) The transfer and exchange of Global Certificates or beneficial
interests therein shall be effected through the Clearing Agency, in accordance
with this Declaration and the procedures of the Clearing Agency therefor.
(c) Unless and until Definitive Preferred Security Certificates have
been issued to the Preferred Security Beneficial Owners pursuant to Section 7.7:
(i) the Trust and the Trustees shall be entitled to deal with the
Clearing Agency for all purposes of this Declaration (including the payment
of Distributions on the Global Certificates and receiving approvals, votes
or consents hereunder) as the Holder of the Preferred Securities and the
sole holder of the Global Certificates and shall have no obligation to the
Preferred Security Beneficial Owners; and
(ii) the rights of the Preferred Security Beneficial Owners shall
be exercised only through the Clearing Agency and shall be limited to those
established by law and agreements between such Preferred Security
Beneficial Owners and the Clearing Agency and/or the Clearing Agency
Participants and receive and transmit payments of Distributions on the
Global Certificates to such Clearing Agency Participants. The Depositary
will make book entry transfers among the Clearing Agency Participants.
50
<PAGE> 57
SECTION 8.3 Mutilated, Destroyed, Lost or Stolen Certificates; Replacement
Securities.
If the holder of a Security claims that the Certificate representing
such Security has been lost, destroyed or wrongfully taken or if such
Certificate is mutilated and is surrendered to the Trust or in the case of the
Preferred Securities to the Property Trustee, the Trust shall issue and the
Property Trustee shall authenticate a replacement Certificate if the Property
Trustee's and the Trust's requirements, as the case may be, are met. If required
by the Property Trustee or the Trust, an indemnity bond must be sufficient in
the judgment of both to protect the Trustees, the Property Trustee, the Sponsor
or any authenticating agent from any loss which any of them may suffer if a
Certificate is replaced. The Company may charge for its expenses in replacing a
Certificate.
In case any such mutilated, destroyed, lost or stolen Security has
become or is about to become due and payable, the Sponsor in its discretion may,
instead of issuing a new Certificate, pay such Security.
Every replacement Certificate is an additional obligation of the Trust.
SECTION 8.4 Cancellation of Preferred Security Certificates.
The Trust at any time may deliver Preferred Security Certificates to
the Property Trustee for cancellation. The Registrar, Paying Agent and
Conversion Agent shall forward to the Property Trustee any Preferred Securities
surrendered to them for registration of transfer, redemption, conversion,
exchange or payment. The Property Trustee shall promptly cancel all Preferred
Securities surrendered for registration of transfer, redemption, conversion,
exchange, payment, replacement or cancellation and shall dispose of cancelled
Preferred Securities as the Trust directs. The Trust may not issue new Preferred
Securities to replace Preferred Securities that it has paid or that have been
delivered to the Property Trustee for cancellation or that any holder has
converted.
51
<PAGE> 58
ARTICLE IX
LIMITATION OF LIABILITY OF
HOLDERS OF SECURITIES, TRUSTEES AND OTHERS
SECTION 9.1 Liability.
(a) Except as expressly set forth in this Declaration, the Securities
Guarantees and the terms of the Securities, the Sponsor shall not be:
(i) personally liable for the return of any portion of the capital
contributions (or any return thereon) of the Holders of the Securities
which shall be made solely from assets of the Trust; or
(ii) required to pay to the Trust or to any Holder of Securities
any deficit upon dissolution of the Trust or otherwise.
(b) The Holder of the Common Securities shall be liable for all of the
debts and obligations of the Trust (other than with respect to the Securities)
to the extent not satisfied out of the Trust's assets.
(c) Pursuant to Section 3803(a) of the Business Trust Act, the Holders
of the Preferred Securities shall be entitled to the same limitation of personal
liability as is extended to stockholders of private corporations for profit
organized under the General Corporation Law of the State of Delaware.
SECTION 9.2 Exculpation.
(a) No Indemnified Person shall be liable, responsible or accountable
in damages or otherwise to the Trust or any Covered Person for any loss, damage
or claim incurred by reason of any act or omission performed or omitted by such
Indemnified Person in good faith on behalf of the Trust and in a manner such
Indemnified Person reasonably believed to be within the scope of the authority
conferred on such Indemnified Person by this Declaration or by law, except that
an Indemnified Person shall be liable for any such loss, damage or claim
incurred by reason of such Indemnified Person's gross negligence (or, in the
case of the Property Trustee, negligence) or willful misconduct with respect to
such acts or omissions.
52
<PAGE> 59
(b) An Indemnified Person shall be fully protected in relying in good
faith upon the records of the Trust and upon such information, opinions, reports
or statements presented to the Trust by any Person as to matters the Indemnified
Person reasonably believes are within such other Person's professional or expert
competence and who has been selected with reasonable care by or on behalf of the
Trust, including information, opinions, reports or statements as to the value
and amount of the assets, liabilities, profits, losses, or any other facts
pertinent to the existence and amount of assets from which Distributions to
Holders of Securities might properly be paid.
SECTION 9.3 Fiduciary Duty.
(a) To the extent that, at law or in equity, an Indemnified Person has
duties (including fiduciary duties) and liabilities relating thereto to the
Trust or to any other Covered Person, an Indemnified Person acting under this
Declaration shall not be liable to the Trust or to any other Covered Person for
its good faith reliance on the provisions of this Declaration. The provisions of
this Declaration, to the extent that they restrict the duties and liabilities of
an Indemnified Person otherwise existing at law or in equity (other than the
duties imposed on the Property Trustee under the Trust Indenture Act), are
agreed by the parties hereto to replace such other duties and liabilities of
such Indemnified Person.
(b) Unless otherwise expressly provided herein:
(i) whenever a conflict of interest exists or arises between an
Indemnified Person and any Covered Person or
(ii) whenever this Declaration or any other agreement contemplated
herein or therein provides that an Indemnified Person shall act in a manner
that is, or provides terms that are, fair and reasonable to the Trust or
any Holder of Securities,
the Indemnified Person shall resolve such conflict of interest, take such action
or provide such terms, considering in each case the relative interest of each
party (including its own interest) to such conflict, agreement, transaction or
situation and the benefits and burdens relating to such
53
<PAGE> 60
interests, any customary or accepted industry practices, and any applicable
generally accepted accounting practices or principles. In the absence of bad
faith by the Indemnified Person, the resolution, action or term so made, taken
or provided by the Indemnified Person shall not constitute a breach of this
Declaration or any other agreement contemplated herein or of any duty or
obligation of the Indemnified Person at law or in equity or otherwise.
(c) Whenever in this Declaration an Indemnified Person is permitted or
required to make a decision:
(i) in its "discretion" or under a grant of similar authority, the
Indemnified Person shall be entitled to consider such interests and factors
as it desires, including its own interests, and shall have no duty or
obligation to give any consideration to any interest of or factors
affecting the Trust or any other Person; or
(ii) in its "good faith" or under another express standard, the
Indemnified Person shall act under such express standard and shall not be
subject to any other or different standard imposed by this Declaration or
by applicable law.
SECTION 9.4 Indemnification.
(a) (i) The Debenture Issuer shall indemnify, to the full extent
permitted by law, any Company Indemnified Person who was or is a party or
is threatened to be made a party to any threatened, pending or completed
action, suit or proceeding, whether civil, criminal, administrative or
investigative (other than an action by or in the right of the Trust) by
reason of the fact that he is or was a Company Indemnified Person against
expenses (including attorneys' fees), judgments, fines and amounts paid in
settlement actually and reasonably incurred by him in connection with such
action, suit or 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
Trust, and, with respect to any criminal action or proceeding, had no
reasonable cause to believe his conduct was unlawful. The termination of
any action, suit or proceeding by judgment, order, settlement, conviction,
or upon a plea of nolo contendere or its equivalent, shall
54
<PAGE> 61
not, of itself, create a presumption that the Company Indemnified Person
did not act in good faith and in a manner which he reasonably believed to
be in or not opposed to the best interests of the Trust, and, with respect
to any criminal action or proceeding, had reasonable cause to believe that
his conduct was unlawful.
(ii) The Debenture Issuer shall indemnify, to the full extent
permitted by law, any Company Indemnified Person who was or is a party or
is threatened to be made a party to any threatened, pending or completed
action or suit by or in the right of the Trust to procure a judgment in its
favor by reason of the fact that he is or was a Company Indemnified Person
against expenses (including attorneys' fees) actually and reasonably
incurred by him in connection with the defense or settlement of such action
or suit 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 Trust and except that no
such indemnification shall be made in respect of any claim, issue or matter
as to which such Company Indemnified Person shall have been adjudged to be
liable to the Trust unless and only to the extent that the Court of
Chancery of Delaware or the court in which such action or suit was brought
shall determine upon application that, despite the adjudication of
liability but in view of all the circumstances of the case, such person is
fairly and reasonably entitled to indemnity for such expenses which such
Court of Chancery or such other court shall deem proper.
(iii) To the extent that a Company Indemnified Person shall be
successful on the merits or otherwise (including dismissal of an action
without prejudice or the settlement of an action without admission of
liability) in defense of any action, suit or proceeding referred to in
paragraphs (i) and (ii) of this Section 9.4(a), or in defense of any claim,
issue or matter therein, he shall be indemnified, to the full extent
permitted by law, against expenses (including attorneys' fees) actually and
reasonably incurred by him in connection therewith.
(iv) Any indemnification under paragraphs (i) and (ii) of this Section
9.4(a) (unless ordered by a court)
55
<PAGE> 62
shall be made by the Debenture Issuer only as authorized in the specific
case upon a determination that indemnification of the Company Indemnified
Person is proper in the circumstances because he has met the applicable
standard of conduct set forth in paragraphs (i) and (ii). Such
determination shall be made (1) by the Regular Trustees by a majority vote
of a quorum consisting of such Regular Trustees who were not parties to
such action, suit or proceeding, (2) if such a quorum is not obtainable,
or, even if obtainable, if a quorum of disinterested Regular Trustees so
directs, by independent legal counsel in a written opinion, or (3) by the
Holders of the Common Securities of the Trust.
(v) Expenses (including attorneys' fees) incurred by a Company
Indemnified Person in defending a civil, criminal, administrative or
investigative action, suit or proceeding referred to in paragraphs (i) and
(ii) of this Section 9.4(a) shall be paid by the Debenture Issuer in
advance of the final disposition of such action, suit or proceeding upon
receipt of an undertaking by or on behalf of such Company Indemnified
Person to repay such amount if it shall ultimately be determined that he is
not entitled to be indemnified by the Debenture Issuer as authorized in
this Section 9.4(a). Notwithstanding the foregoing, no advance shall be
made by the Debenture Issuer if a determination is reasonably and promptly
made (i) by the Regular Trustees by a majority vote of a quorum of
disinterested Regular Trustees, (ii) if such a quorum is not obtainable,
or, even if obtainable, if a quorum of disinterested Regular Trustees so
directs, by independent legal counsel in a written opinion or (iii) the
Holders of the Common Securities of the Trust, that, based upon the facts
known to the Regular Trustees, counsel or the Holders of the Common
Securities at the time such determination is made, such Company Indemnified
Person acted in bad faith or in a manner that such person did not believe
to be in or not opposed to the best interests of the Trust, or, with
respect to any criminal proceeding, that such Company Indemnified Person
believed or had reasonable cause to believe his conduct was unlawful. In no
event shall any advance be made in instances where the Regular Trustees,
independent legal counsel or the Holders of the Common Securities
reasonably determine that such person deliberately breached his
56
<PAGE> 63
duty to the Trust or the Holders of the Common or Preferred Securities.
(vi) The indemnification and advancement of expenses provided by, or
granted pursuant to, the other paragraphs of this Section 9.4(a) shall not
be deemed exclusive of any other rights to which those seeking
indemnification and advancement of expenses may be entitled under any
agreement, vote of stockholders or disinterested directors of the Debenture
Issuer or Holders of the Preferred Securities of the Trust or otherwise,
both as to action in his official capacity and as to action in another
capacity while holding such office. All rights to indemnification under
this Section 9.4(a) shall be deemed to be provided by a contract between
the Debenture Issuer and each Company Indemnified Person who serves in such
capacity at any time while this Section 9.4(a) is in effect. Any repeal or
modification of this Section 9.4(a) shall not affect any rights or
obligations then existing.
(vii) The Debenture Issuer or the Trust may purchase and maintain
insurance on behalf of any person who is or was a Company Indemnified
Person against any liability asserted against him and incurred by him in
any such capacity, or arising out of his status as such, whether or not the
Debenture Issuer would have the power to indemnify him against such
liability under the provisions of this Section 9.4(a).
(viii) For purposes of this Section 9.4(a), references to "the Trust"
shall include, in addition to the resulting or surviving entity, any
constituent entity (including any constituent of a constituent) absorbed in
a consolidation or merger, so that any person who is or was a director,
trustee, officer or employee of such constituent entity, or is or was
serving at the request of such constituent entity as a director, trustee,
officer, employee or agent of another entity, shall stand in the same
position under the provisions of this Section 9.4(a) with respect to the
resulting or surviving entity as he would have with respect to such
constituent entity if its separate existence had continued.
(ix) The indemnification and advancement of expenses provided by, or
granted pursuant to, this
57
<PAGE> 64
Section 9.4(a) shall, unless otherwise provided when authorized or
ratified, continue as to a person who has ceased to be a Company
Indemnified Person and shall inure to the benefit of the heirs, executors
and administrators of such a person.
(b) The Sponsor agrees to indemnify the (i) Property Trustee, (ii) the
Delaware Trustee, (iii) any Affiliate of the Property Trustee and the Delaware
Trustee, and (iv) any officers, directors, shareholders, members, partners,
employees, representatives, custodians, nominees or agents of the Property
Trustee and the Delaware Trustee (each of the Persons in (i) through (iv) being
referred to as a "Fiduciary Indemnified Person") for, and to hold each Fiduciary
Indemnified Person harmless against, any and all loss, liability or expense
including taxes (other than taxes based on the income of such Fiduciary
Indemnified Person) incurred without negligence or bad faith on its part,
arising out of or in connection with the acceptance or administration or the
trust or trusts hereunder, including the costs and expenses (including
reasonable legal fees and expenses) of defending itself against or investigating
any claim or liability in connection with the exercise or performance of any of
its powers or duties hereunder. The obligation to indemnify as set forth in this
Section 9.4(b) shall survive the satisfaction and discharge of this Declaration.
SECTION 9.5 Outside Businesses.
Any Covered Person, the Sponsor, the Delaware Trustee and the Property
Trustee may engage in or possess an interest in other business ventures of any
nature or description, independently or with others, similar or dissimilar to
the business of the Trust, and the Trust and the Holders of Securities shall
have no rights by virtue of this Declaration in and to such independent ventures
or the income or profits derived therefrom, and the pursuit of any such venture,
even if competitive with the business of the Trust, shall not be deemed wrongful
or improper. No Covered Person, the Sponsor, the Delaware Trustee, or the
Property Trustee shall be obligated to present any particular investment or
other opportunity to the Trust even if such opportunity is of a character that,
if presented to the Trust, could be taken by the Trust, and any Covered Person,
the Sponsor, the Delaware Trustee and the Property Trustee shall have the right
to take for its own account (indi-
58
<PAGE> 65
vidually or as a partner or fiduciary) or to recommend to others any such
particular investment or other opportunity. Any Covered Person, the Delaware
Trustee and the Property Trustee may engage or be interested in any financial or
other transaction with the Sponsor or any Affiliate of the Sponsor, or may act
as depositary for, trustee or agent for, or act on any committee or body of
holders of, securities or other obligations of the Sponsor or its Affiliates.
ARTICLE X
ACCOUNTING
SECTION 10.1 Fiscal Year.
The fiscal year ("Fiscal Year") of the Trust shall be the calendar
year, or such other year as is required by the Code.
SECTION 10.2 Certain Accounting Matters.
(a) At all times during the existence of the Trust, the Regular
Trustees shall keep, or cause to be kept, full books of account, records and
supporting documents, which shall reflect in reasonable detail, each transaction
of the Trust. The books of account shall be maintained on the accrual method of
accounting, in accordance with generally accepted accounting principles,
consistently applied. The Trust shall use the accrual method of accounting for
United States federal income tax purposes. The books of account and the records
of the Trust shall be examined by and reported upon as of the end of each Fiscal
Year by a firm of independent certified public accountants selected by the
Regular Trustees.
(b) The Regular Trustees shall cause to be prepared and delivered to
each of the Holders of Securities, within 90 days after the end of each Fiscal
Year of the Trust, annual financial statements of the Trust, including a balance
sheet of the Trust as of the end of such Fiscal Year, and the related statements
of income or loss;
(c) The Regular Trustees shall cause to be duly prepared and delivered
to each of the Holders of Securities, any annual United States federal income
tax information statement required by the Code, containing such information
59
<PAGE> 66
with regard to the Securities held by each Holder as is required by the Code and
the Treasury Regulations. Notwithstanding any right under the Code to deliver
any such statement at a later date, the Regular Trustees shall endeavor to
deliver all such statements within 30 days after the end of each Fiscal Year of
the Trust.
(d) The Regular Trustees shall cause to be duly prepared and filed with
the appropriate taxing authority, an annual United States federal income tax
return, on a Form 1041 or such other form required by the Code, and any other
annual income tax returns required to be filed by the Regular Trustees on behalf
of the Trust with any state or local taxing authority.
SECTION 10.3 Banking.
The Trust shall maintain one or more bank accounts in the name and for
the sole benefit of the Trust; provided, however, that all payments of funds in
respect of the Debentures held by the Property Trustee shall be made directly to
the Property Trustee Account and no other funds of the Trust shall be deposited
in the Property Trustee Account. The sole signatories for such accounts shall be
designated by the Regular Trustees; provided, however, that the Property Trustee
shall designate the signatories for the Property Trustee Account.
SECTION 10.4 Withholding.
The Trust and the Regular Trustees shall comply with all withholding
requirements under United States federal, state and local law. The Trust shall
request, and the Holders shall provide to the Trust, such forms or certificates
as are necessary to establish an exemption from withholding with respect to each
Holder, and any representations and forms as shall reasonably be requested by
the Trust to assist it in determining the extent of, and in fulfilling, its
withholding obligations. The Regular Trustee shall file required forms with
applicable jurisdictions and, unless an exemption from withholding is properly
established by a Holder, shall remit amounts withheld with respect to the Holder
to applicable jurisdictions. To the extent that the Trust is required to
withhold and pay over any amounts to any authority with respect to distributions
or allocations to any Holder, the amount withheld shall be deemed to be a
distribution in the amount
60
<PAGE> 67
of the withholding to the Holder. In the event of any claimed overwithholding,
Holders shall be limited to an action against the applicable jurisdiction. If
the amount required to be withheld was not withheld from actual Distributions
made, the Trust may reduce subsequent Distributions by the amount of such
withholding.
ARTICLE XI
AMENDMENTS AND MEETINGS
SECTION 11.1 Amendments.
(a) Except as otherwise provided in this Declaration or by any
applicable terms of the Securities, this Declaration may only be amended by a
written instrument approved and executed by:
(i) the Regular Trustees (or, if there are more than two Regular
Trustees, a majority of the Regular Trustees);
(ii) if the amendment affects the rights, powers, duties,
obligations or immunities of the Property Trustee, the Property Trustee;
and
(iii) if the amendment affects the rights, powers, duties,
obligations or immunities of the Delaware Trustee, the Delaware Trustee.
(b) No amendment shall be made, and any such purported amendment
shall be void and ineffective:
(i) unless, in the case of any proposed amendment, the Property
Trustee shall have first received an Officers' Certificate from each of the
Trust and the Sponsor that such amendment is permitted by, and conforms to,
the terms of this Declaration (including the terms of the Securities);
(ii) unless, in the case of any proposed amendment which affects
the rights, powers, duties, obligations or immunities of the Property
Trustee, the Property Trustee shall have first received:
61
<PAGE> 68
(A) an Officers' Certificate from each of the Trust and the
Sponsor that such amendment is permitted by, and conforms to, the
terms of this Declaration (including the terms of the Securities);
and
(B) an opinion of counsel (who may be counsel to the Sponsor
or the Trust) that such amendment is permitted by, and conforms to,
the terms of this Declaration (including the terms of the
Securities); and
(iii) to the extent the result of such amendment would be to:
(A) cause the Trust to fail to continue to be classified for
purposes of United States federal income taxation as a grantor
trust;
(B) reduce or otherwise adversely affect the powers of the
Property Trustee in contravention of the Trust Indenture Act; or
(C) cause the Trust to be deemed to be an Investment Company
that is required to be registered under the Investment Company Act.
(c) So long as any Securities remain outstanding, any amendment that
would adversely affect the rights, privileges or preferences of any Holder of
Securities may be effected only with such additional requirements as may be set
forth in the terms of such Securities.
(d) Section 8.1(c) and this Section 11.1 shall not be amended without
the consent of all of the Holders of the Securities.
(e) Article IV and the rights of the holders of the Common Securities
under Article V to increase or decrease the number of, and appoint and remove
Trustees shall not be amended without the consent of the Holders of a majority
in liquidation amount of the Common Securities.
(f) Notwithstanding Section 11.1(c), this Declaration may be amended
without the consent of the Holders of the Securities to:
62
<PAGE> 69
(i) cure any ambiguity;
(ii) correct or supplement any provision in this Declaration that
may be defective or inconsistent with any other provision of this
Declaration;
(iii) add to the covenants, restrictions or obligations of the
Sponsor; and
(iv) conform to any change in Rule 3a-5 or written change in
interpretation or application of Rule 3a-5 by any legislative body, court,
government agency or regulatory authority, which amendment does not have a
material adverse effect on the rights, preferences or privileges of the
Holders.
SECTION 11.2 Meetings of the Holders of Securities; Action by Written Consent.
(a) Meetings of the Holders of any class of Securities may be called at
any time by the Regular Trustees (or as provided in the terms of the Securities)
to consider and act on any matter on which Holders of such class of Securities
are entitled to act under the terms of this Declaration, the terms of the
Securities or the rules of any stock exchange on which the Preferred Securities
are listed or admitted for trading. The Regular Trustees shall call a meeting of
the Holders of such class if directed to do so by the Holders of at least 10% in
liquidation amount of such class of Securities. Such direction shall be given by
delivering to the Regular Trustees one or more calls in a writing stating that
the signing Holders of Securities wish to call a meeting and indicating the
general or specific purpose for which the meeting is to be called. Any Holders
of Securities calling a meeting shall specify in writing the Certificates held
by the Holders of Securities exercising the right to call a meeting and only
those Securities represented by the Certificates so specified shall be counted
for purposes of determining whether the required percentage set forth in the
second sentence of this paragraph has been met.
(b) Except to the extent otherwise provided in the terms of the
Securities, the following provisions shall apply to meetings of Holders of
Securities:
63
<PAGE> 70
(i) notice of any such meeting shall be given to all the Holders
of Securities having a right to vote thereat at least seven days and not
more than 60 days before the date of such meeting. Whenever a vote, consent
or approval of the Holders of Securities is permitted or required under
this Declaration or the rules of any stock exchange or over-the-counter
market on which the Preferred Securities are listed or admitted for
trading, such vote, consent or approval may be given at a meeting of the
Holders of Securities. Any action that may be taken at a meeting of the
Holders of Securities may be taken without a meeting if a consent in
writing setting forth the action so taken is signed by the Holders of
Securities owning not less than the minimum amount of Securities in
liquidation amount that would be necessary to authorize or take such action
at a meeting at which all Holders of Securities having a right to vote
thereon were present and voting. Prompt notice of the taking of action
without a meeting shall be given to the Holders of Securities entitled to
vote who have not consented in writing. The Regular Trustees may specify
that any written ballot submitted to the Security Holders for the purpose
of taking any action without a meeting shall be returned to the Trust
within the time specified by the Regular Trustees;
(ii) each Holder of a Security may authorize any Person to act for
it by proxy on all matters in which a Holder of Securities is entitled to
participate, including waiving notice of any meeting, or voting or
participating at a meeting. No proxy shall be valid after the expiration of
11 months from the date thereof unless otherwise provided in the proxy.
Every proxy shall be revocable at the pleasure of the Holder of Securities
executing it. Except as otherwise provided herein, all matters relating to
the giving, voting or validity of proxies shall be governed by the General
Corporation Law of the State of Delaware relating to proxies, and judicial
interpretations thereunder, as if the Trust were a Delaware corporation and
the Holders of the Securities were stockholders of a Delaware corporation;
(iii) each meeting of the Holders of the Securities shall be
conducted by the Regular Trustees or
64
<PAGE> 71
by such other Person that the Regular Trustees may designate; and
(iv) unless the Business Trust Act, this Declaration, the terms of
the Securities, the Trust Indenture Act or the listing rules of any stock
exchange on which the Preferred Securities are then listed or trading
provide otherwise, the Regular Trustees, in their sole discretion, shall
establish all other provisions relating to meetings of Holders of
Securities, including notice of the time, place or purpose of any meeting
at which any matter is to be voted on by any Holders of Securities, waiver
of any such notice, action by consent without a meeting, the establishment
of a record date, quorum requirements, voting in person or by proxy or any
other matter with respect to the exercise of any such right to vote.
ARTICLE XII
REPRESENTATIONS OF PROPERTY TRUSTEE AND DELAWARE TRUSTEE
SECTION 12.1 Representations and Warranties of Property Trustee.
The Trustee that acts as initial Property Trustee represents and
warrants to the Trust and to the Sponsor at the date of this Declaration, and
each Successor Property Trustee represents and warrants to the Trust and the
Sponsor at the time of the Successor Property Trustee's acceptance of its
appointment as Property Trustee that:
(a) The Property Trustee is a banking corporation with trust powers,
duly organized, validly existing and in good standing under the laws of New
York, with trust power and authority to execute and deliver, and to carry out
and perform its obligations under the terms of, this Declaration.
(b) The execution, delivery and performance by the Property Trustee of
the Declaration has been duly authorized by all necessary corporate action on
the part of the Property Trustee; and the Declaration has been duly executed and
delivered by the Property Trustee, and constitutes a legal, valid and binding
obligation of the Property Trustee, enforceable against it in accordance with
its terms, subject
65
<PAGE> 72
to applicable bankruptcy, reorganization, moratorium, insolvency, and other
similar laws affecting creditors' rights generally and to general principles of
equity and the discretion of the court (regardless of whether the enforcement of
such remedies is considered in a proceeding in equity or at law).
(c) The execution, delivery and performance of the Declaration by the
Property Trustee does not conflict with or constitute a breach of the
certificate of incorporation or By-laws of the Property Trustee.
(d) At the Closing Date, the Property Trustee has not knowingly created
any liens or encumbrances on such Debentures.
(e) No consent, approval or authorization of, or registration with or
notice to, any New York State or federal banking authority is required for the
execution, delivery or performance by the Property Trustee, of the Declaration.
SECTION 12.2 Representations and Warranties of Delaware Trustee.
The Trustee that acts as initial Delaware Trustee represents and
warrants to the Trust and to the Sponsor at the date of this Declaration and at
the time of Closing, and each Successor Delaware Trustee represents and warrants
to the Trust and the Sponsor at the time of the Successor Delaware Trustee's
acceptance of its appointment as Delaware Trustee that:
(a) The Delaware Trustee is a duly organized, validly existing and in
good standing under the laws of the State of Delaware, with trust power and
authority to execute and deliver, and to carry out and perform its obligations
under the terms of, the Declaration.
(b) The execution, delivery and performance by the Delaware Trustee of
the Declaration has been duly authorized by all necessary corporate action on
the part of the Delaware Trustee; and the Declaration has been duly executed and
delivered by the Delaware Trustee, and constitutes a legal, valid and binding
obligation of the Delaware Trustee, enforceable against it in accordance with
its terms, subject to applicable bankruptcy, reorganization, moratorium,
insolvency, and other similar laws affecting creditors' rights
66
<PAGE> 73
generally and to general principles of equity and the discretion of the court
(regardless of whether the enforcement of such remedies is considered in a
proceeding in equity or at law).
(c) The execution, delivery and performance of the Declaration by the
Delaware Trustee does not conflict with or constitute a breach of the
certificate of incorporation or by-laws of the Delaware Trustee.
(d) No consent, approval or authorization of, or registration with or
notice to, any state or federal banking authority is required for the execution,
delivery or performance by the Delaware Trustee, of this Declaration.
(e) The Delaware Trustee is an entity which has its principal place of
business in the State of Delaware.
(f) The Delaware Trustee has been authorized to perform its obligations
under the Certificate of Trust and the Declaration.
ARTICLE XIII
MISCELLANEOUS
SECTION 13.1 Notices.
All notices provided for in this Declaration shall be in writing, duly
signed by the party giving such notice, and shall be delivered, sent by
facsimile or mailed by first class mail, as follows:
(a) if given to the Trust, in care of the Regular Trustees at the
Trust's mailing address set forth below (or such other address as the Trust may
give notice of to the Holders of the Securities):
c/o Designer Holdings Ltd.
1385 Broadway
Third Floor
New york, NY 10018
Tel: (212) 556-9600
Telecopy: (212) 556-9722
Attention: John J. Jones, General Counsel
67
<PAGE> 74
(b) if given to the Property Trustee, at the mailing address set forth
below (or such other address as the Property Trustee may give notice of to the
Holders of the Securities):
IBJ Schroder Bank & Trust Company
1 State Street
11th Floor
New York, NY 10004
Tel: (212) 858-2529
Telecopy: (212) 858-2952
Attention: Corporate Trust & Agency Department
(c) if given to the Delaware Trustee, at the mailing address set forth
below (or such other address as the Delaware Trustee may give notice of to the
Holders of the Securities):
Delaware Trust Capital Management, Inc.
900 Market Street H02M12
Wilmington, DE 19801
Attention: Corporate Trust Department
(d) if given to the Holder of the Common Securities, at the mailing
address of the Sponsor set forth below (or such other address as the Holder of
the Common Securities may give notice to the Trust):
c/o Designer Holdings Ltd.
1385 Broadway
Third Floor
New York, NY 10018
Tel: (212) 556-9600
Telecopy: (212) 556-9722
Attention: John J. Jones, General Counsel
(e) if given to any other Holder, at the address set forth on the books
and records of the Trust or the Registrar, as applicable.
All such notices shall be deemed to have been given when received in
person, telecopied with receipt confirmed, or mailed by first class mail,
postage prepaid except that if a notice or other document is refused delivery or
cannot be delivered because of a changed address of which no notice was given,
such notice or other document
68
<PAGE> 75
shall be deemed to have been delivered on the date of such refusal or inability
to deliver.
SECTION 13.2 Governing Law.
This Declaration and the rights of the parties hereunder shall be
governed by and interpreted in accordance with the laws of the State of Delaware
and all rights and remedies shall be governed by such laws without regard to
principles of conflict of laws.
SECTION 13.3 Intention of the Parties.
It is the intention of the parties hereto that the Trust be classified
for United States federal income tax purposes as a grantor trust. The provisions
of this Declaration shall be interpreted to further this intention of the
parties.
SECTION 13.4 Headings.
Headings contained in this Declaration are inserted for convenience of
reference only and do not affect the interpretation of this Declaration or any
provision hereof.
SECTION 13.5 Successors and Assigns
Whenever in this Declaration any of the parties hereto is named or
referred to, the successors and assigns of such party shall be deemed to be
included, and all covenants and agreements in this Declaration by the Sponsor
and the Trustees shall bind and inure to the benefit of their respective
successors and assigns, whether so expressed.
SECTION 13.6 Partial Enforceability.
If any provision of this Declaration, or the application of such
provision to any Person or circumstance, shall be held invalid, the remainder of
this Declaration, or the application of such provision to persons or
circumstances other than those to which it is held invalid, shall not be
affected thereby.
69
<PAGE> 76
SECTION 13.7 Counterparts.
This Declaration may contain more than one counterpart of the signature
page and this Declaration may be executed by the affixing of the signature of
each of the Trustees to one of such counterpart signature pages. All of such
counterpart signature pages shall be read as though one, and they shall have the
same force and effect as though all of the signers had signed a single signature
page.
70
<PAGE> 77
IN WITNESS WHEREOF, the undersigned has caused these presents to be
executed as of the date first above written.
_______________________________
Arnold H. Simon, as Trustee
_______________________________
Merril M. Halpern, as Trustee
DELAWARE TRUST CAPITAL
MANAGEMENT, INC., Delaware
Trustee
By:____________________________
Name:
Title:
IBJ SCHRODER BANK & TRUST
COMPANY, Property Trustee
By:____________________________
Name:
Title:
DESIGNER HOLDINGS LTD., Sponsor
By:____________________________
Name:
Title:
71
<PAGE> 78
ANNEX I
TERMS OF SECURITIES
<PAGE> 79
ANNEX I
TERMS OF
[ ]% CONVERTIBLE PREFERRED SECURITIES
[ ]% CONVERTIBLE COMMON SECURITIES
Pursuant to Section 7.1 of the Amended and Restated Declaration of
Trust, dated as of November [ ], 1996 (as amended from time to time, the
"Declaration"), the designation, rights, privileges, restrictions, preferences
and other terms and provisions of the Preferred Securities and the Common
Securities are set out below (each capitalized term used but not defined herein
has the meaning set forth in the Declaration or, if not defined in such
Declaration, as defined in the Registration Statement referred to below):
1. Designation and Number.
(a) "Preferred Securities." 2,000,000 Preferred Securities of the
Trust with an aggregate liquidation amount with respect to the
assets of the Trust of One Hundred Million Dollars
($100,000,000), plus up to an additional 300,000 Preferred
Securities of the Trust with an aggregate liquidation amount with
respect to the assets of the Trust of Fifteen Million Dollars
($15,000,000) solely to cover over-allotments, as provided for in
the Purchase Agreement (the "Additional Preferred Securities"),
and a liquidation amount with respect to the assets of the Trust
of $50 per Preferred Security, are hereby designated for the
purposes of identification only as "[ ]% Convertible Preferred
Securities (liquidation amount $50 per Preferred Convertible
Security)" (the "Preferred Securities). The Preferred Security
Certificates evidencing the Preferred Securities shall be sub-
stantially in the form of Exhibit A-1 to the Declaration, with
such changes and additions thereto or deletions therefrom as may
be required by ordinary usage, custom or practice or to conform
to the rules of any stock exchange or other organization on which
the Preferred Securities are listed.
<PAGE> 80
(b) "Common Securities." 61,856 Common Securities of the Trust with
an aggregate liquidation amount with respect to the assets of the
Trust of Three Million Ninety-Two Thousand and Eight Hundred Dol-
lars ($3,092,800) plus up to an additional 9,278 Common
Securities of the Trust with an aggregate liquidation amount with
respect to the assets of the Trust of Four Hundred and
Sixty-Three Thousand and Nine Hundred Dollars ($463,900) to meet
the capital requirements of the Trust in the event of an issuance
of Additional Preferred Securities, and a liquidation amount with
respect to the assets of the Trust of $50 per Common Security,
are hereby designated for the purposes of iden- tification only
as "[ ]% Convertible Common Securities (liquidation amount $50
per Convertible Common Security)" (the "Common Securities"). The
Common Security Certificates evidencing the Common Securities
shall be substantially in the form of Exhibit A-2 to the
Declaration, with such changes and additions thereto or deletions
therefrom as may be required by ordinary usage, custom or
practice.
2. Distributions.
(a) Distributions payable on each Security will be fixed at a rate
per annum of [ ]% (the "Coupon Rate") of the stated liquidation
amount of $50 per Security, such rate being the rate of interest
payable on the Debentures to be held by the Property Trustee.
Distributions in arrears for more than one quarter will bear
interest thereon compounded quarterly at the Coupon Rate (to the
extent permitted by applicable law). The term "Distributions" as
used herein includes any such interest including any Additional
Interest and Compounded Interest payable unless otherwise stat-
ed. A Distribution is payable only to the extent that payments
are made in respect of the Debentures held by the Property
Trustee and to the extent the Trust has funds available therefor.
The amount of Distributions payable for any period will be
computed for any full quarterly Distribution period on the
basis of a 360-day year of twelve 30-day months, and for any
period shorter than a full quarterly Distribution period for
which Distributions are computed, Distributions will be computed
on the basis of the actual number of days elapsed.
I-2
<PAGE> 81
(b) Except as otherwise described below, Distributions on the
Securities will be cumulative, will accrue from the date of
initial issuance and will be payable quarterly in arrears, on the
following dates, which dates correspond to the interest payment
dates on the Debentures: March 31, June 30, September 30 and
December 31 of each year, commencing on December 31, 1996, when,
as and if available for payment by the Property Trustee. The
Debenture Issuer has the right at any time during the term of the
Debentures to defer interest payments from time to time by
extending the interest payment period for successive periods not
exceeding 20 consecutive quarters (each an "Extension Period")
for each such period; provided, that no Extension Period may
extend beyond the maturity date of the Debentures. As a
consequence of such extension, quarterly Distributions on the
Securities would be deferred (though such Distributions would
continue to accrue with interest since interest would continue to
accrue on the Debentures) during any such extended interest
payment period. In the event that the Debenture Issuer exercises
this right, then, during such period the Debenture Issuer has
agreed, among other things, (a) not to declare or pay dividends
on, or make a distribution with respect to, or redeem or
purchase or acquire, or make a liquidation payment with respect
to, any of its capital stock (other than (i) purchases or
acquisitions of shares of Common Stock in connection with the
satisfaction by the Debenture Issuer of its obligations under any
employee benefit plans or the satisfaction by the Debenture
Issuer of its obligations pursuant to any contract or security
requiring the Debenture Issuer to purchase shares of Common
Stock, (ii) as a result of a reclassification of the Debenture
Issuer's capital stock or the exchange or conversion of one class
or series of the Debenture Issuer's capital stock for another
class or series of the Debenture Issuer's capital stock or (iii)
the purchase of fractional interests in shares of the Debenture
Issuer's capital stock pursuant to the conversion or exchange
provisions of such capital stock or the security being converted
or exchanged (or make any guarantee payments with respect to the
foregoing)), (b) not to make any payment of interest, principal
or premium, if any, on or repay, repurchase or redeem any debt
securities (including guarantees) issued by the Debenture Issuer
that rank pari passu with or junior to the
I-3
<PAGE> 82
Debentures and (c) not to make any guarantee payments with
respect to the foregoing (other than pursuant to the Guarantee).
Prior to the termination of any such Extension Period, the
Debenture Issuer may further extend the interest payment period;
provided, that such Extension Period, together with all such
previous and further extensions thereof, may not exceed 20
consecutive quarters or extend beyond the maturity date of the
Debentures. Upon the termination of any Extension Period and the
payment of all amounts then due, the Debenture Issuer may
commence a new Extension Period, subject to the above
requirements.
(c) Distributions on the Securities will be payable to the Holders
thereof as they appear on the books and records of the Trust on
the relevant record dates. The relevant record dates shall be the
March 15, June 15, September 15 and December 15 prior to the next
succeeding payment dates, except as otherwise described in this
Annex I to the Declaration. Subject to any applicable laws and
regulations and the provisions of the Declaration, each such
payment in respect of the Preferred Securities being held in
book-entry form through The Depository Trust Company (the
"Depositary") will be made as described under the heading "De-
scription of the Preferred Securities -- Book-Entry Only
Issuance -- The Depository Trust Company" in the Registration
Statement. The relevant record dates for the Common Securities
shall be the same record dates as for the Preferred Securities.
Distributions payable on any Securities that are not punctually
paid on any Distri- bution payment date as a result of the
Debenture Issuer having failed to make a payment under the
Debentures, will cease to be payable to the Person in whose name
such Securities are registered on the relevant record date, and
such defaulted Distribution will instead be payable to the Person
in whose name such Securities are registered on the special
record date or other specified date determined in accordance with
the Indenture. If any date on which Distributions are payable on
the Securities is not a Business Day, then payment of the
Distribution payable on such date will be made on the next
succeeding day that is a Business Day (and without any
distribution or other payment in respect of any such delay)
except that, if such Business Day is in the next succeeding
calendar year, such payment shall be made on the immedi-
I-4
<PAGE> 83
ately preceding Business Day, in each case with the same force
and effect as if made on such date.
(d) In the event of an election by the Holder to convert its
Securities through the Conversion Agent into Common Stock of the
Debenture Issuer pursuant to the terms of the Securities as set
forth in this Annex I to the Declaration, accrued Distributions
will not be paid on Preferred Securities that are converted,
nor will any payment, allowance or adjustment be made for
accumulated and unpaid Distributions, whether or not in arrears,
on converted Preferred Securities except that if any Preferred
Security is converted (i) on or after a record date for payment
of Distributions thereon, the Distributions payable on the
related payment date with respect to such Preferred Security
shall be distributed to the Holder on such record date, despite
such conversion, and (ii) during an Extension Period and after
the Property Trustee mails a notice of redemption of the
Preferred Securities that are converted, accrued and unpaid
Distributions through the date of conversion on such Preferred
Securities called for redemption shall be distributed to the
Holder who converts such Preferred Securities, which Distribution
shall be made on the redemption date.
(e) In the event that there is any money or other property held by or
for the Trust that is not accounted for hereunder, such property
shall be distributed Pro Rata (as defined in paragraph 9) among
the Holders of the Securities.
3. Liquidation Distribution Upon Dissolution.
In the event of any voluntary or involuntary dissolution, winding-up or
termination of the Trust (each a "Liquidation") the then Holders of the
Securities on the date of the Liquidation will be entitled to receive out of the
assets of the Trust available for distribution to Holders of Securities after
satisfaction of liabilities of creditors, Distributions in an amount equal to
the aggregate of the stated liquidation amount of $50 per Security plus accrued
and unpaid Distributions thereon to the date of payment (such amount being the
"Liquidation Distribution"), unless, in connection with such Liquidation,
Debentures in an aggregate principal amount equal to the aggregate stated
liquidation amount of such Securities, with an interest rate equal to the Coupon
Rate of, and bearing accrued and unpaid interest in an amount equal to the
accrued and unpaid Dis-
I-5
<PAGE> 84
tributions on, such Securities, shall be distributed on a Pro Rata basis to the
Holders of the Securities.
If, upon any such Liquidation, the Liquidation Distribution can be paid
only in part because the Trust has insufficient assets available to pay in full
the aggregate Liquidation Distribution, then the amounts payable directly by the
Trust on the Securities shall be paid on a Pro Rata basis in accordance with
paragraph 9 below.
4. Redemption and Distribution.
(a) Upon the repayment of the Debentures, in whole or in part,
whether at maturity or upon redemption (either at the option of
the Debenture Issuer or pursuant to a Tax Event), the proceeds
from such repayment or payment shall be simultaneously applied to
redeem Securities having an aggregate liquidation amount equal to
the aggregate principal amount of the Debentures so repaid or
redeemed at a redemption price equal to the redemption price
of such repaid or redeemed Debentures, together with accrued and
unpaid Distributions thereon through the date fixed for
redemption, payable in cash (the "Redemption Price").
(b) If fewer than all the outstanding Securities are to be so
redeemed, the Common Securities and the Preferred Securities will
be redeemed Pro Rata and the Preferred Securities to be redeemed
will be as described in paragraph 4(f)(ii) below.
(c) If, at any time, a Tax Event or an Investment Company Event (each
as defined below and each a "Special Event") shall occur and be
continuing, the Regular Trustees shall, unless the Debentures are
redeemed in the limited circumstances in relation to a Tax
Event described in the following paragraph of this paragraph
4(c), dissolve the Trust and, after satisfaction of creditors of
the Trust, if any, cause Debentures held by the Property Trustee
(w) having an aggregate principal amount equal to the aggregate
stated liquidation amount of, (x) an interest rate identical to
the Coupon Rate of, (y) accrued and unpaid interest on, and (z)
the same record dates for payment as, the Securities, to be
distributed to the Holders of the Securities in liquidation of
such Holders' interest in the Trust on a Pro Rata basis, within
90 days following the occurrence of such Special Event (the "90
Day Period"); provided, however, that in the case of a Tax Event,
such dissolution
I-6
<PAGE> 85
and distribution shall be conditioned on the Regular Trustees'
receipt of an opinion of a nationally recognized independent tax
counsel experienced in such matters (a "No Recognition Opinion"),
which opinion may rely on published revenue rulings of the
Internal Revenue Service, to the effect that the Holders of the
Preferred Securities will not recognize any income, gain or loss
for United States federal income tax purposes as a result of such
dissolution and distribution of Debentures, and provided,
further, that if at the time there is available to the Trust the
opportunity to eliminate, within the 90 Day Period, the Special
Event by taking some ministerial action, such as filing a form or
making an election, or pursuing some other similar reasonable
measure that in the sole judgment of the Debenture Issuer has, or
will cause, no adverse effect on the Trust, the Debenture Issuer
or the Holders of the Securities and will involve no material
cost ("Ministerial Action"), the Trust will pursue such
Ministerial Action in lieu of dissolution.
If in the event of a Tax Event, (i) after receipt of a Tax
Event Opinion (as defined below) by the Trust, the Regular
Trustees have received an opinion (a "Redemption Tax Opinion") of
a nationally recognized independent tax counsel experienced in
such matters that, as a result of a Tax Event, there is more than
an insubstantial risk that the Debenture Issuer would be
precluded from deducting the interest on the Debentures for
United States federal income tax purposes even if the Debentures
were distributed to the Holders of Securities in liquidation of
such Holders' interest in the Trust as described in this
paragraph 4(c), or (ii) after receipt of a Tax Event Opinion, the
Regular Trustees shall have been informed by such tax counsel
that a No Recognition Opinion cannot be delivered to the Trust,
the Debenture Issuer shall have the right, upon not less than 30
nor more than 60 days' notice, to redeem the Debentures in whole
(but not in part) for cash within 90 days following the
occurrence of such Tax Event, and promptly following such
redemption, the Securities shall be redeemed at the Redemption
Price on a Pro Rata basis at $50 per Security plus accrued and
unpaid distributions; provided, however, that if at the time
there is available to the Debenture Issuer or the Trust the
opportunity to eliminate, within such 90 Day Period, the Tax
Event by taking some Ministerial Ac-
I-7
<PAGE> 86
tion that has no adverse effect on the Trust, the Holders of
Securities or the Debenture Issuer, the Trust or the Debenture
Issuer will pursue such Ministerial Action in lieu of redemption.
"Tax Event" means that the Regular Trustees shall have
received an opinion of a nationally recognized independent tax
counsel experienced in such matters (a "Dissolution Tax Opinion")
to the effect that, as a result of (a) any amendment to, or
change (including any announced prospective change) in, the laws
(or any regulations thereunder) of the United States or any
political subdivision or taxing authority thereof or therein, (b)
any amendment to, or change in, an interpretation or application
of any such laws or regulations by any legislative body, court,
governmental agency or regulatory authority (including the
enactment of any legislation and the publication of any judicial
decision or regulatory determination), (c) any interpretation or
pronouncement that provides for a position with respect to such
laws or regulations that differs from the theretofore generally
accepted position or (d) any action taken by any governmental
agency or regulatory authority, which amendment or change is
enacted, promulgated, issued or announced or which interpretation
or pronouncement is issued or announced or which action is taken,
in each case after the date of the Registration Statement
(collectively, a "Change in Tax Law"), there is more than an
insubstantial risk that (i) the Trust is, or will be within 90
days of the date thereof, subject to United States federal income
tax with respect to interest accrued or received on the
Debentures, (ii) the Trust is, or will be within 90 days of the
date thereof, subject to more than a de minimis amount of other
taxes, duties or other governmental charges, or (iii) interest
payable by the Debenture Issuer to the Trust on the Debentures is
not, or within 90 days of the date thereof will not be,
deductible by the Debenture Issuer for United States federal
income tax purposes. Notwithstanding anything in the previous
sentence to the contrary, a Tax Event shall not include any
Change in Tax Law that requires the Debenture Issuer for United
States federal income tax purposes to defer taking a deduction
for any original issue discount ("OID") that accrues with respect
to the Debentures until the interest payment related to such OID
is paid by the Debenture Issuer in money; provided, that such
Change in Tax
I-8
<PAGE> 87
Law does not create more than an insubstantial risk that the
Debenture Issuer will be prevented from taking a deduction for
OID accruing with respect to the Debentures at a date that is no
later than the date the interest payment related to such OID is
actually paid by the Debenture Issuer in money.
"Investment Company Event" means that the Regular Trustees
shall have received an opinion of a nationally recognized
independent counsel experienced in practice under the Investment
Company Act (an "Investment Company Event Opinion") that, as a
result of a change in law or regulation or a change in
interpretation or application of law or regulation by any
legislative body, court, governmental agency or regulatory
authority (a "Change in 1940 Act Law"), there is more than an
insubstantial risk that the Trust is or will be considered an
Investment Company that is required to be registered under the
Investment Company Act, which Change in 1940 Act Law becomes
effective on or after the date of the Registration Statement.
On the date fixed for any distribution of Debentures, upon
dissolution of the Trust: (i) the Securities will no longer be
deemed to be outstanding and (ii) certificates representing
Securities will be deemed to represent beneficial interests in
Debentures having an aggregate principal amount equal to the
stated liquidation amount, and bearing accrued and unpaid
interest equal to accrued and unpaid Distributions, on such
Securities until such certificates are presented to the Debenture
Issuer or its agent for transfer or reissuance.
(d) The Trust may not redeem fewer than all the outstanding
Securities unless all accrued and unpaid Distributions have been
paid on all Securities for all quarterly Distribution periods
terminating on or before the date fixed for redemption.
(e) If the Debentures are distributed to the Holders of the
Securities, pursuant to the terms of the Indenture, the Debenture
Issuer will use its best efforts to have the Debentures listed on
the New York Stock Exchange or on such other exchange as the
Preferred Securities were listed immediately prior to the
distribution of the Debentures.
I-9
<PAGE> 88
(f) Redemption or Distribution Procedures.
(i) Notice of any redemption of, or notice of distribution of
Debentures in exchange for, the Securities (a
"Redemption/Distribution Notice") will be given by the
Trust by mail to each Holder of Securities to be redeemed
or exchanged not fewer than 30 nor more than 60 days
before the date fixed for redemption or exchange thereof,
which, in the case of a redemption, will be the date fixed
for redemption of the Debentures. For purposes of the
calculation of the date of redemption or exchange and the
dates on which notices are given pursuant to this
paragraph 4(f)(i), a Redemption/Distribution Notice
shall be deemed to be given on the day such notice is
first mailed by first-class mail, postage pre-paid, to
Holders of Securities. Each Redemption/Distribution Notice
shall be addressed to the Holders of Securities at the
address of each such Holder appearing in the books and
records of the Trust. No defect in the
Redemption/Distribution Notice or in the mailing of either
thereof with respect to any Holder shall affect the
validity of the redemption or exchange proceedings with
respect to any other Holder.
(ii) In the event that fewer than all the outstanding
Securities are to be redeemed, the Securities to be
redeemed shall be redeemed Pro Rata from each Holder of
Preferred Securities, it being understood that, in respect
of Preferred Securities registered in the name of and held
of record by the Depositary or its nominee (or any
successor Clearing Agency or its nominee), the
distribution of the proceeds of such redemption will be
made to each Clearing Agency Participant (or Person on
whose behalf such nominee holds such securities) in
accordance with the procedures applied by such agency or
nominee.
(iii) If Securities are to be redeemed and the Trust gives a
Redemption/Distribution Notice (which notice is
irrevocable), then, provided that the Debenture Issuer has
paid the Property Trustee a sufficient amount of cash in
connection with the related
I-10
<PAGE> 89
redemption or maturity of the Debentures, (A) with respect
to Preferred Securities held in book-entry form, by 12:00
noon, New York City time, on the redemption date, the
Trust will deposit irrevocably with the Depositary or its
nominee (or successor Clearing Agency or its nominee)
funds sufficient to pay the applicable Redemption Price
with respect to such Preferred Securities and will give
the Depositary irrevocable instructions and authority to
pay the applicable Redemption Price to the Holders of such
Preferred Securities represented by the Global
Certificates, and (B) with respect to Preferred Securities
issued in definitive form and Common Securities, the Trust
will irrevocably deposit with the Paying Agent funds
sufficient to pay the amount payable on redemption to the
Holders of such Securities upon surrender of their
certificates. If a Redemption/Distribution Notice shall
have been given and funds deposited as required, then on
the date of such deposit, all rights of Holders of such
Securities so called for redemption will cease, except the
right of the Holders of such Securities to receive the
Redemption Price, but without interest thereon. Neither
the Regular Trustees nor the Trust shall be required to
register or cause to be registered the transfer of any
Securities that have been so called for redemption. If any
date fixed for redemption of Securities is not a Business
Day, then payment of the amount payable on such date will
be made on the next succeeding day that is a Business Day
(without any interest or other payment in respect of any
such delay) except that, if such Business Day falls in the
next calendar year, such payment will be made on the
immediately preceding Business Day, in each case with the
same force and effect as if made on such date fixed for
redemption. If payment of the Redemption Price in respect
of any Securities is improperly withheld or refused and
not paid either by the Trust or by the Debenture Issuer as
guarantor pursuant to the relevant Securities Guarantee ,
Distributions on such Securities will continue to accrue
at the then applicable rate, from the original redemption
date to
I-11
<PAGE> 90
the date of payment, in which case the actual payment date
will be considered the date fixed for redemption for
purposes of calculating the amount payable upon redemption
(other than for purposes of calculating any premium).
(iv) In the event of any redemption in part, the Trust shall
not be required to (i) issue, register the transfer of or
exchange of any Preferred Security during a period
beginning at the opening of business 15 days before any
selection for redemption of Preferred Securities and
ending at 5:00 p.m. (New York City time) on the earliest
date in which the relevant notice of redemption is deemed
to have been given to all holders of Preferred Securities
to be so redeemed and (ii) register the transfer of or
exchange of any Preferred Securities so selected for
redemption, in whole or in part, except for the unredeemed
portion of any Preferred Securities being redeemed in
part.
(v) Redemption/Distribution Notices shall be sent by the
Regular Trustees on behalf of the Trust to (A) in the case
of Preferred Securities held in book-entry form, the
Depositary and, in the case of Securities held in
definitive form, the Holders of such certificates and (B)
in respect of the Common Securities, the Holder thereof.
(vi) Subject to the foregoing and applicable law (including,
without limitation, United States federal securities
laws), the Debenture Issuer or any of its subsidiaries may
at any time and from time to time purchase outstanding
Preferred Securities by tender, in the open market or by
private agreement.
5. Conversion Rights.
The Holders of Securities shall have the right at any time prior to
5:00 p.m. (New York City time) on the Business Day immediately
preceding the date of repayment of such Securities, whether at maturity
or upon redemption (either at the option of the Debenture Issuer or
pursuant to a Tax Event), at their option, to cause the Conversion
Agent to convert Securities, on behalf of the converting Holders, into
shares of Common
I-12
<PAGE> 91
Stock of the Debenture Issuer in the manner described herein on and
subject to the following terms and conditions:
(a) The Securities will be convertible at the office of the
Conversion Agent into fully paid and nonassessable shares of
Common Stock of the Debenture Issuer pursuant to the Holder's
direction to the Conversion Agent to exchange such Securities
for a portion of the Debentures theretofore held by the Trust
on the basis of one Security per $50 principal amount of
Debentures, and immediately convert such amount of Debentures
into fully paid and nonassessable shares of Common Stock of the
Debenture Issuer at an initial conversion rate of [ ] shares of
Common Stock of the Debenture Issuer per $50 principal amount of
Debentures (which is equivalent to a conversion price of $[ ] per
share of Common Stock of the Debenture Issuer, subject to certain
adjustments set forth in the terms of the Debentures (as so
adjusted, "Conversion Price")).
(b) In order to convert Securities into Common Stock of the Debenture
Issuer, the Holder shall submit to the Conversion Agent at the
office referred to above an irrevocable request to convert
Securities on behalf of such Holder (the "Conversion Request"),
together, if the Securities are in certificated form, with such
certificates. The Conversion Request shall (i) set forth the
number of Securities to be converted and the name or names, if
other than the Holder, in which the shares of Common Stock of the
Debenture Issuer should be issued and (ii) direct the Conversion
Agent (A) to exchange such Securities for a portion of the
Debentures held by the Trust (at the rate of exchange specified
in the preceding paragraph) and (B) to immediately convert such
Debentures on behalf of such Holder, into Common Stock of the
Debenture Issuer (at the conversion rate specified in the
preceding paragraph). The Conversion Agent shall notify the Trust
of the Holder's election to exchange Securities for a portion of
the Debentures held by the Trust and the Trust shall, upon
receipt of such notice, deliver to the Conversion Agent the
appropriate principal amount of Debentures for exchange in
accordance with this paragraph 5. The Conversion Agent shall
thereupon notify the Debenture Issuer of the Holder's election to
convert such Debentures into shares of Common Stock of the
Debenture
I-13
<PAGE> 92
Issuer. Accrued Distributions will not be paid on Preferred
Securities that are converted, nor will any payment, allowance or
adjustment be made for accumulated and unpaid Distributions,
whether or not in arrears, on converted Preferred Securities
except that if any Preferred Security is converted (i) on or
after a record date for payment of Distributions thereon, the
Distributions payable on the related payment date with respect to
such Preferred Security shall be distributed to the Holder on
such record date, despite such conversion, and (ii) during an
Extension Period and after the Property Trustee mails a
Redemption Distribution Notice with respect to the Preferred
Securities that are converted, accrued and unpaid Distributions
through the date of conversion on such Preferred Securities
called for redemption shall be distributed to the Holder who
converts such Preferred Securities, which Distribution shall be
made on the redemption date fixed for redemption. Except as
provided above, neither the Trust nor the Debenture Issuer will
make, or be required to make, any payment, allowance or
adjustment upon any conversion on account of any accumulated and
unpaid Distributions accrued on the Securities (including any
Additional Interest or Compounded Interest) surrendered for
conversion, or on account of any accumulated and unpaid dividends
on the shares of Common Stock of the Debenture Issuer issued upon
such conversion. The Debenture Issuer shall make no payment or
allowance for distributions on the shares of Common Stock of the
Debenture Issuer issued upon such conversion, except to the
extent that such shares of Common Stock of the Debenture Issuer
are held of record on the record date for any such distributions
and except as provided in Section 1309 of the Indenture.
Securities shall be deemed to have been converted immediately
prior to 5:00 p.m. (New York City time) on the day on which a
Notice of Conversion relating to such Securities is received by
the Trust in accordance with the foregoing provision (the
"Conversion Date"). The Person or Persons entitled to receive the
Common Stock of the Debenture Issuer issuable upon conversion of
the Debentures shall be treated for all purposes as the record
holder or holders of such Common Stock of the Debenture Issuer at
such time. As promptly as practicable on or after the Conversion
Date, the Debenture Issuer shall issue and deliver at the office
of the Conversion Agent a certificate or certificates for the
number of
I-14
<PAGE> 93
full shares of Common Stock of the Debenture Issuer issuable upon
such conversion, together with the cash payment, if any, in lieu
of any fraction of any share to the Person or Persons entitled to
receive the same, unless otherwise directed by the Holder in the
notice of conversion and the Conversion Agent shall distribute
such certificate or certificates to such Person or Persons.
(c) Each Holder of a Security by his acceptance thereof appoints IBJ
Schroder Bank & Trust Company (the "Conversion Agent") for the
purpose of ef- fecting the conversion of Securities in accordance
with this paragraph 5. In effecting the conversion and
transactions described in this paragraph 5, the Conversion Agent
shall be acting as agent of the Holders of Securities directing
it to effect such conversion transactions. The Conversion Agent
is hereby authorized (i) to exchange Securities from time to time
for Debentures held by the Trust in connection with the
conversion of such Securities in accordance with this paragraph 5
and (ii) to convert all or a portion of the Debentures into
Common Stock of the Debenture Issuer and thereupon to deliver
such shares of Common Stock of the Debenture Issuer in accordance
with the provisions of this paragraph 5 and to deliver to the
Trust a new Debenture or Debentures for any resulting unconverted
principal amount.
(d) No fractional shares of Common Stock of the Debenture Issuer will
be issued as a result of conversion, but in lieu thereof, such
fractional interest will be in cash (based on the last reported
sale price of the Common Stock of the Debenture Issuer on the
Conversion Date) by the Debenture Issuer to the Trust, which in
turn will make such payment to the Holder or Holders of
Securities so converted.
(e) The Debenture Issuer shall at all times reserve and keep
available out of its authorized and unissued Common Stock of the
Debenture Issuer, solely for issuance upon the conversion of the
Debentures, free from any preemptive or other similar rights,
such number of shares of Common Stock of the Debenture Issuer as
shall from time to time be issuable upon the conversion of all
the Debentures then outstanding. Notwithstanding the foregoing,
the Debenture Issuer shall be entitled to deliver upon conversion
of Debentures, shares
I-15
<PAGE> 94
of Common Stock of the Debenture Issuer reacquired and held in
the treasury of the Debenture Issuer (in lieu of the issuance of
authorized and unissued shares of Common Stock of the Debenture
Issuer), so long as any such treasury shares are free and clear
of all liens, charges, security interests or encumbrances. Any
shares of Common Stock of the Debenture Issuer issued upon
conversion of the Debentures shall be duly authorized, validly
issued, fully paid and nonassessable. The Trust shall deliver the
shares of Common Stock of the Debenture Issuer received upon
conversion of the Debentures to the converting Holder free and
clear of all liens, charges, security interests and encumbrances,
except for United States withholding taxes. Each of the Debenture
Issuer and the Trust shall prepare and shall use its best efforts
to obtain and keep in force such governmental or regulatory
permits or other authorizations as may be required by law, and
shall comply with all applicable requirements as to registration
or qualification of the Common Stock of the Debenture Issuer (and
all requirements to list the Common Stock of the Debenture Issuer
issuable upon conversion of Debentures that are at the time
applicable), in order to enable the Debenture Issuer to lawfully
issue Common Stock of the Debenture Issuer to the Trust upon
conversion of the Debentures and the Trust to lawfully deliver
the Common Stock of the Debenture Issuer to each Holder upon
conversion of the Securities.
(f) The Debenture Issuer will pay any and all taxes that may be
payable in respect of the issue or delivery of shares of Common
Stock of the Debenture Issuer on conversion of Debentures and the
delivery of the shares of Common Stock of the Debenture Issuer by
the Trust upon conversion of the Securities. The Debenture Issuer
shall not, however, be required to pay any tax that may be
payable in respect of any transfer involved in the issue and
delivery of shares of Common Stock of the Debenture Issuer in a
name other than that in which the Securities so converted were
registered, and no such issue or delivery shall be made unless
and until the person requesting such issue has paid to the Trust
the amount of any such tax or has established to the satisfaction
of the Trust that such tax has been paid.
(g) Nothing in the preceding paragraph 5(f) shall limit the
requirement of the Trust to withhold
I-16
<PAGE> 95
taxes pursuant to the terms of the Securities or as set forth in
this Annex I to the Declaration or the Declaration itself or
otherwise require the Property Trustee or the Trust to pay any
amounts on account of such withholdings.
6. Voting Rights - Preferred Securities.
(a) Except as provided under paragraph 6(b) and paragraph 8, in the
Business Trust Act and as otherwise required by law and the
Declaration, the Holders of the Preferred Securities will have no
voting rights. No vote or consent of the Holders of the Preferred
Securities will be required for the Trust to redeem and cancel
Preferred Securities or to distribute the Debentures in
accordance with the Declaration and the terms of the Securities.
(b) Subject to the requirements set forth in this paragraph 6(b), the
Holders of a majority in liquidation amount of the Preferred
Securities, voting separately as a class may direct the time,
method, and place of conducting any proceeding for any remedy
available to the Property Trustee and direct the exercise of any
trust or power con- ferred upon the Property Trustee under the
Declaration, including the right to direct the Property Trustee,
as holder of the Debentures, to (i) exercise the remedies
available to it under the Indenture as a holder of the
Debentures, (ii) waive any past default and its consequences that
are waivable under the Indenture, (iii) exercise any right to
rescind or annul a declaration that the principal of all the
Debentures shall be due and payable, or (iv) consent to any
amendment, modification or termination of the Indenture or the
Debentures where such consent shall be required; provided,
however, that where a consent or action under the Indenture
would require the consent or act of the Holders of a Super
Majority of Debentures affected thereby, the Property
Trustee may only give such consent or take such action at the
written direction of the Holders of at least the proportion in
liquidation amount of the Preferred Securities that the relevant
Super Majority represents of the aggregate principal amount of
the Debentures outstanding. The Proper- ty Trustee shall be under
no obligation to revoke any action previously authorized or
approved by a vote of the Holders of the Preferred Securities.
Other than with respect to directing the time,
I-17
<PAGE> 96
method and place of conducting any remedy available to the
Property Trustee or the Debenture Trustee as set forth above, the
Property Trustee shall be under no obligation to take any action
in accordance with the directions of the Holders of the Preferred
Securities under this paragraph 6 unless the Property Trustee has
obtained an opinion of independent tax counsel to the effect that
for the purposes of United States federal income tax the Trust
will not be classified as other than a grantor trust on account
of such action and each Holder will be treated as owning an
undivided beneficial interest in the Debentures. If the Property
Trustee fails to enforce its rights under the Debentures after a
Holder of Preferred Securities has made a written request, such
Holder of Preferred Securities may directly institute a legal
proceeding against the Debenture Issuer to enforce the Property
Trustee's rights under the Debentures without first instituting
any legal proceeding against the Property Trustee or any other
Person. Notwithstanding the foregoing, if an Event of Default has
occurred and is continuing and such event is attributable to the
failure of the Debenture Issuer to pay interest or principal on
the Debentures on the date such interest or principal is
otherwise payable (or in the case of redemption on the date fixed
for redemption), then a Holder of Preferred Securities may
directly institute a proceeding for enforcement of payment to
such Holder (a "Direct Action") of the principal of or interest
on Debentures having a principal amount equal to the aggregate
liquidation amount of the Preferred Securities of such Holder on
or after the respective due date specified in the Debentures.
Except as provided in the preceding sentence, the Holders of
Preferred Securities will not be able to exercise directly any
other remedy available to the holders of the Debentures. In
connection with such Direct Action, the Debenture Issuer will be
subrogated to the rights of such Holder of Preferred Securities
under the Declaration to the extent of any payment made by the
Debenture Issuer to such Holder of Preferred Securities in such
Direct Action.
(c) Any required approval or direction of Holders of Preferred
Securities may be given at a separate meeting of Holders of
Preferred Securities convened for such purpose, at a meeting of
all of the Holders of Securities in the Trust or pursuant to
written consent. The Regular Trustees will
I-18
<PAGE> 97
cause a notice of any meeting at which Holders of Preferred
Securities are entitled to vote, or of any matter upon which
action by written consent of such Holders is to be taken, to be
mailed to each Holder of record of Preferred Securities. Each
such notice will include a statement setting forth the following
information (i) the date of such meeting or the date by which
such action is to be taken, (ii) a description of any resolution
proposed for adoption at such meeting on which such Holders are
entitled to vote or of such matter upon which written consent is
sought and (iii) instructions for the delivery of proxies or
consents.
(d) Notwithstanding that Holders of Preferred Secu- rities are
entitled to vote or consent under any of the circumstances
described above, any of the Preferred Securities that are owned
by the Debenture Issuer or any Affiliate of the Debenture
Issuer shall not be entitled to vote or consent and shall, for
purposes of such vote or consent, be treated as if such Preferred
Securities were not outstanding.
7. Voting Rights - Common Securities.
(a) Except as provided under paragraphs 7(b) and (c) and paragraph 8,
in the Business Trust Act and as otherwise required by law and
the Declaration, the Holders of the Common Securities will have
no voting rights. No vote or consent of the Holders of the Common
Securities will be required for the Trust to redeem and cancel
Common Securities or to distribute the Debentures in accordance
with the Declaration and the terms of the Securities.
(b) The Holders of the Common Securities are entitled, in accordance
with Article V of the Declaration, to vote to appoint, remove or
replace any Trustee or to increase or decrease the number of
Trustees.
(c) Subject to Section 2.6 of the Declaration and only after the
Event of Default with respect to the Preferred Securities has
been cured, waived, or otherwise eliminated and subject to the
re- quirements of the penultimate sentence of this paragraph
7(c), the Holders of a majority in liquidation amount of the
Common Securities, voting separately as a class, may direct the
time, method, and place of conducting any proceeding for any
remedy available to the Property Trustee, or
I-19
<PAGE> 98
exercising any trust or power conferred upon the Property Trustee
under the Declaration, including (i) directing the time, method,
place of conducting any proceeding for any remedy available to
the Debenture Trustee, or exercising any trust or power conferred
on the Debenture Trustee with respect to the Debentures, (ii)
waive any past default and its consequences that are waivable
under Section 513 of the Indenture, (iii) exercise any right to
rescind or annul a declaration that the principal of all the
Debentures shall be due and payable, or (iv) consent to any
amendment, modification or termination of the Indenture or the
Debentures where such consent shall be required; provided that,
where a consent or action under the Indenture would require the
consent or act of the Holders of a Super Majority in principal
amount of Debentures affected thereby, the Property Trustee may
only give such consent or take such action at the written
direction of the Holders of at least the proportion in
liquidation amount of the Common Securities which the relevant
Super Majority represents of the aggregate principal amount of
the Debentures outstanding. Pursuant to this paragraph 7(c), the
Property Trustee shall not revoke any action previously
authorized or approved by a vote of the Holders of the Preferred
Securities. Other than with respect to directing the time, method
and place of conducting any remedy available to the Property
Trustee or the Debenture Trustee as set forth above, the Property
Trustee shall be under no obligation to take any action in
accordance with the directions of the Holders of the Common
Securities under this paragraph 7(c) unless the Property Trustee
has obtained an opinion of independent tax counsel to the effect
that for the purposes of United States federal income tax the
Trust will not be classified as other than a grantor trust on
account of such action and each Holder will be treated as owning
an undivided beneficial interest in the Debentures. If the
Property Trustee fails to enforce its rights under the Debentures
after a Holder of Common Securities has made a written request,
such Holder of Common Securities may institute a legal proceeding
directly against the Debenture Issuer or any other Person to
enforce the Property Trustee's rights under the Debentures,
without first instituting any legal proceeding against the
Property Trustee or any other Person.
I-20
<PAGE> 99
(d) Any approval or direction of Holders of Common Securities may be
given at a separate meeting of Holders of Common Securities
convened for such purpose, at a meeting of all of the Holders of
Securities in the Trust or pursuant to written consent. The
Regular Trustees will cause a notice of any meeting at which
Holders of Common Securities are entitled to vote, or of any
matter upon which action by written consent of such Holders is to
be taken, to be mailed to each Holder of record of Common
Securities. Each such notice will include a statement setting
forth (i) the date of such meeting or the date by which such
action is to be taken, (ii) a description of any resolution
proposed for adoption at such meeting on which such Holders are
entitled to vote or of such matter upon which written consent is
sought and (iii) instructions for the delivery of proxies or
consents.
8. Amendments to Declaration and Indenture.
(a) In addition to any requirements under Section 11.1 of the
Declaration, if any proposed amendment to the Declaration
provides for, or the Regular Trustees otherwise propose to
effect, (i) any action that would adversely affect the powers,
preferences or special rights of the Securities, whether by way
of amendment to the Declaration or otherwise, or (ii) the
dissolution, winding-up or termination of the Trust, other than
as described in Section 3.10 of the Declaration, then the Holders
of Securities as a class, will be entitled to vote on such
amendment or proposal (but not on any other amendment or
proposal) and such amendment or proposal shall not be effective
except with the approval of the Holders of a Super Majority in
liquidation amount of the Securities affected thereby, voting
together as a single class; provided, however, if any amendment
or proposal referred to in clause (i) above would adversely
affect only the Preferred Securities or only the Common
Securities, then only the affected class will be entitled to vote
on such amendment or proposal and such amendment or proposal
shall not be effective except with the approval of a Super
Majority in liquidation amount of such class of Securities.
(b) In the event the consent of the Property Trustee as the holder of
the Debentures is required under the Indenture with respect to
any amendment,
I-21
<PAGE> 100
modification or termination on the Indenture or the Debentures,
the Property Trustee shall request the written direction of the
Holders of the Securities with respect to such amendment,
modification or termination and shall vote with respect to such
amendment, modification or termination as directed by a majority
in liquidation amount of the Securities voting together as a
single class; provided, however, that where a consent under the
Indenture would require a Super Majority in aggregate principal
amount of the Debentures, the Property Trustee may only give such
consent at the written direction of the Holders of at least the
same proportion in aggregate stated liquidation preference of the
Securities; provided, further, that the Property Trustee shall
not take any action in accordance with the directions of the
Holders of the Securities under this paragraph 8(b) unless the
Property Trustee has obtained an opinion of tax counsel to the
effect that for the purposes of United States federal income tax
the Trust will not be classified as other than a grantor trust on
account of such action.
9. Pro Rata.
A reference in these terms of the Securities to any payment,
distribution or treatment as being "Pro Rata" shall mean pro rata to each Holder
of Securities according to the aggregate liquidation amount of the Securities
held by the relevant Holder in relation to the aggregate liquidation amount of
all Securities outstanding unless, in relation to a payment, an Event of Default
under the Declaration has occurred and is continuing, in which case any funds
available to make such payment shall be paid first to each Holder of the
Preferred Securities pro rata according to the aggregate liquidation amount of
Preferred Securities held by the relevant Holder relative to the aggregate
liquidation amount of all Preferred Securities outstanding, and only after
satisfaction of all amounts owed to the Holders of the Preferred Securities, to
each Holder of Common Securities pro rata according to the aggregate liquidation
amount of Common Securities held by the relevant Holder relative to the
aggregate liquidation amount of all Common Securities outstanding.
10. Ranking.
The Preferred Securities rank pari passu and payment thereon shall be
made Pro Rata with the Common Securities except that, where an Event of Default
occurs and is
I-22
<PAGE> 101
continuing under the Indenture in respect of the Debentures held by the Property
Trustee, the rights of Holders of the Common Securities to payment in respect of
Distributions and payments upon liquidation, redemption and otherwise are
subordinated to the rights to payment of the Holders of the Preferred
Securities.
11. Acceptance of Securities Guarantee and Indenture.
Each Holder of Preferred Securities and Common Securities, by the
acceptance thereof, agrees to the provisions of the Preferred Securities
Guarantee and the Common Securities Guarantee, respectively, including the
subordination provisions therein and to the provisions of the Indenture.
12. No Preemptive Rights.
The Holders of the Securities shall have no preemptive rights to
subscribe for any additional securities.
13. Miscellaneous.
These terms constitute a part of the Declaration.
The Debenture Issuer will provide a copy of the Declaration, the
Preferred Securities Guarantee or the Common Securities Guarantee (as may be
appropriate), and the Indenture to a Holder without charge on written request to
the Debenture Issuer at its principal place of business.
I-23
<PAGE> 102
EXHIBIT A-1
FORM OF PREFERRED SECURITY
<PAGE> 103
EXHIBIT A-1
FORM OF PREFERRED SECURITY
[FACE OF SECURITY]
[Include if Preferred Security is in global form: THIS SECURITY IS A
GLOBAL CERTIFICATE WITHIN THE MEANING OF THE DECLARATION HEREINAFTER
REFERRED TO AND IS REGISTERED IN THE NAME OF A DEPOSITARY OR A NOMINEE
THEREOF. THIS SECURITY MAY NOT BE EXCHANGED IN WHOLE OR IN PART FOR A
PREFERRED SECURITY REGISTERED, AND NO TRANSFER OF THIS PREFERRED
SECURITY IN WHOLE OR IN PART MAY BE REGISTERED, IN THE NAME OF ANY
PERSON OTHER THAN SUCH DEPOSITARY OR A NOMINEE THEREOF, EXCEPT IN THE
LIMITED CIRCUMSTANCES DESCRIBED IN THE DECLARATION.]
[Include if Preferred Security is in global form and The Depository
Trust Company is the Depositary: UNLESS THIS CERTIFICATE IS PRESENTED
BY AN AUTHORIZED SIGNATORY OF THE DEPOSITORY TRUST COMPANY ("DTC") TO
THE TRUST OR ITS AGENT FOR REGISTRATION OF TRANSFER, EXCHANGE, OR
PAYMENT, AND ANY CERTIFICATE ISSUED IS REGISTERED IN THE NAME OF CEDE &
CO. OR IN SUCH OTHER NAME AS IS REQUESTED BY AN AUTHORIZED
REPRESENTATIVE OF DTC (AND ANY PAYMENT IS MADE TO CEDE & CO. OR TO SUCH
OTHER ENTITY AS IS REQUESTED BY AN AUTHORIZED REPRESENTATIVE OF DTC),
ANY TRANSFER, PLEDGE OR OTHER USE HEREOF FOR VALUE OR OTHERWISE BY OR
TO ANY PERSON IS WRONGFUL INASMUCH AS THE REGISTERED OWNER HEREOF, CEDE
& CO., HAS AN INTEREST HEREIN.]
<PAGE> 104
Cert. No.: No. of Preferred Securities:
CUSIP NO. 250570 20 7
Preferred Securities
of
Designer Finance Trust
[ ]% Convertible Preferred Securities
(liquidation amount $50 per Convertible Preferred Security)
Designer Finance Trust, a statutory business trust formed under the
laws of the State of Delaware (the "Trust"), hereby certifies that
____________________________ (the "Holder") is the registered owner of preferred
securities of the Trust representing undivided beneficial interests in the
assets of the Trust designated the "[ ]% Convertible Preferred Securities
(liquidation amount $50 per Convertible Preferred Security)" (the "Preferred
Securities"). The Preferred Securities are transferable on the books and records
of the Trust, in person or by a duly authorized attorney, upon surrender of this
certificate duly endorsed and in proper form for transfer. The designation,
rights, privileges, restrictions, preferences and other terms and provisions of
the Preferred Securities represented hereby are issued and shall in all respects
be subject to the provisions of the Amended and Restated Declaration of Trust of
the Trust dated as of November [ ], 1996, as the same may be amended from time
to time, including the designation of the terms of the Preferred Securities as
set forth in Annex I to the Declaration (the "Declaration"). Capitalized terms
used herein but not defined shall have the meaning given them in the
Declaration. The Holder is entitled to the benefits of the Preferred Securities
Guarantee to the extent provided therein. The Debenture Issuer will provide a
copy of the Declaration, the Preferred Securities Guarantee and the Indenture to
a Holder without charge upon written request to the Trust at its principal place
of business.
Reference is hereby made to select provisions of the Preferred
Securities set forth on the reverse hereof, which select provisions shall for
all purposes have the same effect as if set forth at this place.
A-1-2
<PAGE> 105
Upon receipt of this certificate, the Holder is bound by the
Declaration and is entitled to the benefits thereunder.
By acceptance, the Holder agrees to treat, for United States federal
income tax purposes, the Debentures as indebtedness and the Preferred Securities
as evidence of indirect beneficial ownership in the Debentures.
Unless the Property Trustee's Certificate of Authentication hereon has
been properly executed, these Preferred Securities shall not be entitled to any
benefit under the Declaration or be valid or obligatory for any purpose.
A-1-3
<PAGE> 106
IN WITNESS WHEREOF, the Trust has caused this instrument to be duly
executed.
Dated:
DESIGNER FINANCE TRUST
By:________________________
Name:
Title:
Attest:
_______________________
PROPERTY TRUSTEE'S CERTIFICATE OF AUTHENTICATION
This is one of the Preferred Securities referred to in the
within-mentioned Declaration.
Dated:
IBJ Schroder Bank & Trust
Company, as Property Trustee
By: _______________________
Authorized Signatory
A-1-4
<PAGE> 107
[REVERSE OF SECURITY]
Distributions payable on each Preferred Security will be fixed at a
rate per annum of [ ]% (the "Coupon Rate") of the stated liquidation amount of
$50 per Preferred Security, such rate being the rate of interest payable on the
Debentures to be held by the Property Trustee. Distributions in arrears for more
than one quarter will bear interest thereon compounded quarterly at the Coupon
Rate (to the extent permitted by applicable law). The term "Distributions" as
used herein includes any such interest including any Additional Interest and
Compounded Interest payable unless otherwise stated. A Distribution is payable
only to the extent that payments are made in respect of the Debentures held by
the Property Trustee and to the extent the Trust has funds available therefor.
The amount of Distributions payable for any period will be computed for any full
quarterly Distribution period on the basis of a 360-day year of twelve 30-day
months, and for any period shorter than a full quarterly Distribution period for
which Distributions are computed, Distributions will be computed on the basis of
the actual number of days elapsed.
Except as otherwise described below, Distributions on the Preferred
Securities will be cumulative, will accrue from the date of initial issuance and
will be payable quarterly in arrears, on the following dates, which dates
correspond to the interest payment dates on the Debentures: March 31, June 30,
September 30 and December 31 of each year, commencing on December 31, 1996,
when, as and if available for payment by the Property Trustee. The Debenture
Issuer has the right at any time during the term of the Debentures to defer
interest payments from time to time by extending the interest payment period for
successive periods not exceeding 20 consecutive quarters (each an "Extension
Period") for each such period; provided, that no Extension Period may extend
beyond the maturity date of the Debentures. As a consequence of such extension,
quarterly Distributions on the Preferred Securities would be deferred (though
such Distributions would continue to accrue with interest since interest would
continue to accrue on the Debentures) during any such extended interest payment
period. In the event that the Debenture Issuer exercises this right, then,
during such period the Debenture Issuer has agreed, among other things, (a) not
to declare or pay dividends on, or make a distribution with respect to, or
A-1-5
<PAGE> 108
redeem or purchase or acquire, or make a liquidation payment with respect to,
any of its capital stock (other than (i) purchases or acquisitions of shares of
Common Stock in connection with the satisfaction by the Debenture Issuer of its
obligations under any employee benefit plans or the satisfaction by the
Debenture Issuer of its obligations pursuant to any contract or security
requiring the Debenture Issuer to purchase shares of Common Stock, (ii) as a
result of a reclassification of the Debenture Issuer's capital stock or the
exchange or conversion of one class or series of the Debenture Issuer's capital
stock for another class or series of the Debenture Issuer's capital stock or
(iii) the purchase of fractional interests in shares of the Debenture Issuer's
capital stock pursuant to the conversion or exchange provisions of such capital
stock or the security being converted or exchanged (or make any guarantee
payments with respect to the foregoing)), (b) not to make any payment of
interest, principal or premium, if any, on or repay, repurchase or redeem any
debt securities (including guarantees) issued by the Debenture Issuer that rank
pari passu with or junior to the Debentures and (c) not to make any guarantee
payments with respect to the foregoing (other than pursuant to the Preferred
Securities Guarantee). Prior to the termination of any such Extension Period,
the Debenture Issuer may further extend the interest payment period; provided,
that such Extension Period, together with all such previous and further
extensions thereof, may not exceed 20 consecutive quarters or extend beyond the
maturity date of the Debentures. Upon the termination of any Extension Period
and the payment of all amounts then due, the Debenture Issuer may commence a new
Extension Period, subject to the above requirements.
Distributions on the Preferred Securities will be payable to the
Holders thereof as they appear on the books and records of the Trust on the
relevant record dates. The relevant record dates shall be the March 15, June 15,
September 15 and December 15 prior to the next such succeeding payment date,
except as otherwise described in the Declaration.
A-1-6
<PAGE> 109
The Preferred Securities shall be redeemable as provided in the
Declaration.
The Preferred Securities shall be convertible into shares of Common
Stock of Designer Holdings Ltd., through (i) the exchange of Preferred
Securities for a portion of the Debentures and (ii) the immediate conversion of
such Debentures into Common Stock of Designer Holdings Ltd., in the manner and
according to the terms set forth in the Declaration.
A-1-7
<PAGE> 110
ASSIGNMENT
FOR VALUE RECEIVED, the undersigned assigns and transfers this Preferred
Security Certificate to:
(Insert assignee's social security or tax identification number)
(Insert address and zip code of assignee)
and irrevocably appoints
agent to transfer this Preferred Security Certificate on the books of the Trust.
The agent may substitute another to act for him or her.
Date: _______________________
__________________________________________
(Sign exactly as your name appears on the
other side of this Preferred Security
Certificate)
Signature Guarantee:* _______________________________
___________________
* (Signature must be guaranteed by an "eligible guarantor institution"
that is, a bank, stockbroker, savings and loan association or credit
union meeting the requirements of the Registrar, which requirements
include membership or participation in the Securities Transfer Agents
Medallion Program ("STAMP") or such other "signature guarantee program"
as may be determined by the Registrar in addition to, or in
substitution for, STAMP, all in accordance with the Securities Exchange
Act of 1934, as amended.)
A-1-8
<PAGE> 111
CONVERSION REQUEST
To: IBJ Schroder Bank & Trust Company, as Property Trustee of Designer
Finance Trust
The undersigned owner of these Preferred Securities hereby irrevocably
exercises the option to convert these Preferred Securities, or the portion below
designated, into Common Stock of DESIGNER HOLDINGS LTD. (the "Common Stock") in
accordance with the terms of the Amended and Restated Declaration of Trust (the
"Declaration"), dated as of November [ ], 1996, by Arnold H. Simon and Merril M.
Halpern, as Regular Trustees, Delaware Trust Capital Management, Inc., as
Delaware Trustee, IBJ Schroder Bank & Trust Company, as Property Trustee,
Designer Holdings Ltd., as Sponsor, and by the Holders, from time to time, of
individual beneficial interests in the Trust to be issued pursuant to the
Declaration. Pursuant to the aforementioned exercise of the option to convert
these Preferred Securities, the undersigned hereby directs the Conversion Agent
(as that term is defined in the Declaration) to (i) exchange such Preferred
Securities for a portion of the Debentures (as that term is defined in the
Declaration) held by the Trust (at the rate of exchange specified in the terms
of the Preferred Securities set forth as Annex I to the Declaration) and (ii)
immediately convert such Debentures on behalf of the undersigned, into Common
Stock (at the conversion rate specified in the terms of the Preferred Securities
set forth as Annex I to the Declaration).
The undersigned also hereby directs the Conversion Agent that the
shares issuable and deliverable upon conversion, together with any check in
payment for fractional shares, be issued in the name of and delivered to the
undersigned, unless a different name has been indicated in the assignment below.
If shares are to be issued in the name of a person other than the undersigned,
the undersigned will pay all transfer taxes payable with respect thereto.
Date: ________________
Number of Preferred Securities to be converted: ___________________
If a name or names other than the undersigned, please indicate in the spaces
below the name or names in which the shares of Common Stock are to be issued,
along with the address or addresses of such person or persons.
________________________________________________________________________________
________________________________________________________________________________
________________________________________________________________________________
__________________________________________
(Sign exactly as your name appears on the
other side of this Preferred Security
Certificate) (for conversion only)
Please Print or Typewrite Name and Address,
Including Zip Code, and Social Security or
Other Identifying Number.
__________________________________________
__________________________________________
__________________________________________
__________________________________________
Signature Guarantee:* _______________________________
_________________
* (Signature must be guaranteed by an "eligible guarantor institution"
that is, a bank, stockbroker, savings and loan association or credit
union meeting the requirements of the Registrar, which requirements
include membership or participation in the Securities Transfer Agents
Medallion Program ("STAMP") or such other "signature guarantee program"
as may be determined by the Registrar in addition to, or in
substitution for, STAMP, all in accordance with the Securities Exchange
Act of 1934, as amended.)
A-1-9
<PAGE> 112
EXHIBIT A-2
FORM OF COMMON SECURITY
<PAGE> 113
EXHIBIT A-2
FORM OF COMMON SECURITY
[FACE OF SECURITY]
THIS COMMON SECURITY HAS NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933,
AS AMENDED, AND MAY NOT BE OFFERED, SOLD, PLEDGED OR OTHERWISE TRANSFERRED
EXCEPT PURSUANT TO AN EXEMPTION FROM REGISTRATION OR AN EFFECTIVE REGISTRATION
STATEMENT. OTHER THAN AS PROVIDED IN THE DECLARATION (AS DEFINED HEREIN), THIS
SECURITY MAY NOT BE OFFERED, SOLD, PLEDGED OR OTHERWISE TRANSFERRED EXCEPT TO A
RELATED PARTY (AS DEFINED IN THE DECLARATION) OF DESIGNER HOLDINGS LTD.
Certificate Number Number of Common Securities
Common Securities
of
Designer Finance Trust
[ ]% Convertible Common Securities
(liquidation amount $50 per Convertible Common Security)
Designer Finance Trust, a statutory business trust formed under the
laws of the State of Delaware (the "Trust"), hereby certifies that
__________________________ (the "Holder") is the registered owner of common
securities of the Trust representing undivided beneficial interests in the
assets of the Trust designated the "[ ]% Convertible Common Securities
(liquidation amount $50 per Convertible Common Security)" (the "Common
Securities"). The Common Securities are transferable on the books and records of
the Trust, in person or by a duly authorized attorney, upon surrender of this
certificate duly endorsed and in proper form for transfer. The designation,
rights, privileges, restrictions, preferences and other terms and provisions of
the Common Securities represented hereby are issued and shall in all respects be
subject to the provisions of the Amended and Restated Declaration of Trust of
the Trust dated as of [ ], 1996, as the same may be amended from time to time
(the "Declaration"), including the designation
<PAGE> 114
of the terms of the Common Securities as set forth in Annex I to the
Declaration. Capitalized terms used herein but not defined shall have the
meaning given them in the Declaration. The Holder is entitled to the benefits of
the Common Securities Guarantee to the extent provided therein. The Debenture
Issuer will provide a copy of the Declaration, the Common Securities Guarantee
and the Indenture to a Holder without charge upon written request to the Sponsor
at its principal place of business.
Reference is hereby made to select provisions of the Common Securities
set forth on the reverse hereof, which select provisions shall for all purposes
have the same effect as if set forth at this place.
Upon receipt of this certificate, the Debenture Issuer is bound by the
Declaration and is entitled to the benefits thereunder.
By acceptance, the Holder agrees to treat for United States federal
income tax purposes the Debentures as indebtedness and the Common Securities as
evidence of indirect beneficial ownership in the Debentures.
IN WITNESS WHEREOF, the Trust has caused this instrument to be duly
executed.
Dated:
DESIGNER FINANCE TRUST
By:________________________
Name:
Title:
[Seal]
Attest:
_________________________
A-2-2
<PAGE> 115
[REVERSE OF SECURITY]
Distributions payable on each Common Security will be fixed at a rate
per annum of [ ]% (the "Coupon Rate") of the stated liquidation amount of $50
per Common Security, such rate being the rate of interest payable on the
Debentures to be held by the Property Trustee. Distributions in arrears for more
than one quarter will bear interest thereon compounded quarterly at the Coupon
Rate (to the extent permitted by applicable law). The term "Distributions" as
used herein includes any such interest including any Additional Interest and
Compounded Interest payable unless otherwise stated. A Distribution is payable
only to the extent that payments are made in respect of the Debentures held by
the Property Trustee and to the extent the Trust has funds available therefor.
The amount of Distributions payable for any period will be computed for any full
quarterly Distribution period on the basis of a 360-day year of twelve 30-day
months, and for any period shorter than a full quarterly Distribution period for
which Distributions are computed, Distributions will be computed on the basis of
the actual number of days elapsed.
Except as otherwise described below, Distributions on the Common
Security Securities will be cumulative, will accrue from the date of initial
issuance and will be payable quarterly in arrears, on the following dates, which
dates correspond to the interest payment dates on the Debentures: March 31, June
30, September 30 and December 31 of each year, commencing on December 31, 1996,
when, as and if available for payment by the Property Trustee. The Debenture
Issuer has the right at any time during the term of the Debentures to defer
interest payments from time to time by extending the interest payment period for
successive periods not exceeding 20 consecutive quarters (each an "Extension
Period") for each such period; provided, that no Extension Period may extend
beyond the maturity date of the Debentures. As a consequence of such extension,
quarterly Distributions on the Common Security Securities would be deferred
(though such Distributions would continue to accrue with interest since interest
would continue to accrue on the Debentures) during any such extended interest
payment period. In the event that the Debenture Issuer exercises this right,
then, during such period the Debenture Issuer has agreed, among other things,
(a) not to declare or pay dividends on, or make a distribution with respect to,
or redeem or purchase or acquire, or make a liquidation payment
A-2-3
<PAGE> 116
with respect to, any of its capital stock (other than (i) purchases or
acquisitions of shares of Common Stock in connection with the satisfaction by
the Debenture Issuer of its obligations under any employee benefit plans or the
satisfaction by the Debenture Issuer of its obligations pursuant to any contract
or security requiring the Debenture Issuer to purchase shares of Common Stock,
(ii) as a result of a reclassification of the Debenture Issuer's capital stock
or the exchange or conversion of one class or series of the Debenture Issuer's
capital stock for another class or series of the Debenture Issuer's capital
stock or (iii) the purchase of fractional interests in shares of the Debenture
Issuer's capital stock pursuant to the conversion or exchange provisions of such
capital stock or the security being converted or exchanged (or make any
guarantee payments with respect to the foregoing)), (b) not to make any payment
of interest, principal or premium, if any, on or repay, repurchase or redeem any
debt securities (including guarantees) issued by the Debenture Issuer that rank
pari passu with or junior to the Debentures and (c) not to make any guarantee
payments with respect to the foregoing (other than pursuant to the Common
Securities Guarantee). Prior to the termination of any such Extension Period,
the Debenture Issuer may further extend the interest payment period; provided,
that such Extension Period, together with all such previous and further
extensions thereof, may not exceed 20 consecutive quarters or extend beyond the
maturity date of the Debentures. Upon the termination of any Extension Period
and the payment of all amounts then due, the Debenture Issuer may commence a new
Extension Period, subject to the above requirements.
The Common Securities shall be convertible into shares of Common Stock
of Designer Holdings Ltd. through (i) the exchange of Common Securities for a
portion of the Debentures and (ii) the immediate conversion of such Debentures
into Common Stock of Designer Holdings Ltd., in the manner and according to the
terms set forth in the Declaration.
A-2-4
<PAGE> 117
ASSIGNMENT
FOR VALUE RECEIVED, the undersigned assigns and transfers this Common Security
Certificate to:
(Insert assignee's social security or tax identification number)
(Insert address and zip code of assignee)
and irrevocably appoints
agent to transfer this Common Security Certificate on the books of the Trust.
The agent may substitute another to act for him or her.
Date: _______________________
__________________________________________
(Sign exactly as your name appears on the
other side of this Common Security
Certificate)
Signature Guarantee:* _______________________________
_________________
* (Signature must be guaranteed by an "eligible guarantor institution"
that is, a bank, stockbroker, savings and loan association or credit
union meeting the requirements of the Registrar, which requirements
include membership or participation in the Securities Transfer Agents
Medallion Program ("STAMP") or such other "signature guarantee program"
as may be determined by the Registrar in addition to, or in
substitution for, STAMP, all in accordance with the Securities Exchange
Act of 1934, as amended.)
A-2-5
<PAGE> 118
CONVERSION REQUEST
To: IBJ Schroder Bank & Trust Company, as Property Trustee of Designer
Finance Trust
The undersigned owner of these Common Securities hereby irrevocably
exercises the option to convert these Common Securities, or the portion below
designated, into Common Stock of DESIGNER HOLDINGS LTD. (the "Common Stock") in
accordance with the terms of the Amended and Restated Declaration of Trust (the
"Declaration"), dated as of October [ ], 1996, by Arnold H. Simon and Merril M.
Halpern, as Regular Trustees, Delaware Trust Capital Management, Inc., as
Delaware Trustee, IBJ Schroder Bank & Trust Company, as Property Trustee,
Designer Holdings Ltd., as Sponsor, and by the Holders, from time to time, of
individual beneficial interests in the Trust to be issued pursuant to the
Declaration. Pursuant to the aforementioned exercise of the option to convert
these Common Securities, the undersigned hereby directs the Conversion Agent (as
that term is defined in the Declaration) to (i) exchange such Common Securities
for a portion of the Debentures (as that term is defined in the Declaration)
held by the Trust (at the rate of exchange specified in the terms of the Common
Securities set forth as Annex I to the Declaration) and (ii) immediately convert
such Debentures on behalf of the undersigned, into Common Stock (at the
conversion rate specified in the terms of the Common Securities set forth as
Annex I to the Declaration).
The undersigned also hereby directs the Conversion Agent that the
shares issuable and deliverable upon conversion, together with any check in
payment for fractional shares, be issued in the name of and delivered to the
undersigned, unless a different name has been indicated in the assignment below.
If shares are to be issued in the name of a person other than the undersigned,
the undersigned will pay all transfer taxes payable with respect thereto.
Date: ________________
Number of Common Securities to be converted: ___________________
If a name or names other than the undersigned, please indicate in the spaces
below the name or names in which the shares of Common Stock are to be issued,
along with the address or addresses of such person or persons.
________________________________________________________________________________
________________________________________________________________________________
________________________________________________________________________________
__________________________________________
(Sign exactly as your name appears on the
other side of this Common Security
Certificate) (for conversion only)
Please Print or Typewrite Name and Address,
Including Zip Code, and Social Security or
Other Identifying Number.
__________________________________________
__________________________________________
__________________________________________
Signature Guarantee:* _______________________________
_______________
* (Signature must be guaranteed by an "eligible guarantor institution"
that is, a bank, stockbroker, savings and loan association or credit
union meeting the requirements of the Registrar, which requirements
include membership or participation in the Securities Transfer Agents
Medallion Program ("STAMP") or such other "signature guarantee program"
as may be determined by the Registrar in addition to, or in
substitution for, STAMP, all in accordance with the Securities Exchange
Act of 1934, as amended.)
A-2-6
<PAGE> 119
EXHIBIT B
SPECIMEN OF DEBENTURE
<PAGE> 1
Exhibit 4.4
DRAFT
DESIGNER HOLDINGS LTD., as Issuer
and
IBJ SCHRODER BANK & TRUST COMPANY, as Trustee
----------------
Indenture
Dated as of November [ ], 1996
$103,092,800*
__% Convertible Subordinated Debentures Due 2016
----------------
- --------
* Subject to increase to up to $118,556,750 in the event
an over-allotment option is exercised.
<PAGE> 2
Designer Holdings Ltd.
Certain Sections of this Indenture relating to
Sections 310 through 318 of the
Trust Indenture Act of 1939:
<TABLE>
<CAPTION>
Trust Indenture Indenture
Act Section Section
- --------------- ---------
<S> <C>
Section310 (a)(1) ............................... 609
(a)(2) ............................... 609
(a)(3) ............................... Not Applicable
(a)(4) ............................... Not Applicable
(b) ............................... 608, 610
Section 311(a) ............................... 613
(b) ............................... 613
Section 312(a) ............................... 701
............................... 702(a)
(b) ............................... 702(b)
(c) ............................... 702(c)
Section 313(a) ............................... 703(a)
(a)(4) ............................... 101, 1004
(b) ............................... 703(a)
(c) ............................... 703(a)
(d) ............................... 703(b)
Section 314(a) ............................... 704
(b) ............................... Not Applicable
(c)(1) ............................... 102
(c)(2) ............................... 102
(c)(3) ............................... Not Applicable
(d) ............................... Not Applicable
(e) ............................... 102
Section 315(a) ............................... 601
(b) ............................... 602
(c) ............................... 601
(d) ............................... 601
(e) ............................... 514
Section 316(a) ............................... 101
(a)(1)(A) ............................... 502
............................... 512
(a)(1)(B) ............................... 513
(a)(2) ............................... Not Applicable
(b) ............................... 508
(c) ............................... 104(c)
Section 317(a)(1) ............................... 503
(a)(2) ............................... 504
(b) ............................... 1003
Section 318(a) ............................... 107
</TABLE>
- --------------
Note: This reconciliation and tie shall not, for any purpose, be
deemed to be a part of the Indenture.
- ii -
<PAGE> 3
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
----
<S> <C>
Recitals of the Company.................................................. 1
ARTICLE ONE
Definitions and Other Provisions
of General Application
SECTION 101. Definitions.......................................... 3
SECTION 102. Compliance Certificates and Opinions................. 12
SECTION 103. Form of Documents Delivered to Trustee............... 12
SECTION 104. Acts of Holders; Record Dates........................ 14
SECTION 105. Notices, Etc., to Trustee and the
Company............................................ 15
SECTION 106. Notice to Holders; Waiver............................ 16
SECTION 107. Conflict with Trust Indenture Act.................... 17
SECTION 108. Effect of Headings and Table of
Contents.......................................... 17
SECTION 109. Successors and Assigns............................... 17
SECTION 110. Separability Clause.................................. 17
SECTION 111. Benefits of Indenture................................ 17
SECTION 112. Governing Law........................................ 18
SECTION 113. Legal Holidays....................................... 18
ARTICLE TWO
Security Forms
SECTION 201. Forms Generally...................................... 18
SECTION 202. Initial Issuance to Property Trustee................. 19
ARTICLE THREE
The Securities
SECTION 301. Title and Terms...................................... 19
SECTION 302. Denominations........................................ 21
SECTION 303. Execution, Authentication, Delivery and
Dating............................................ 21
SECTION 304. Temporary Securities................................. 22
SECTION 305. Registration, Registration of Transfer
and Exchange...................................... 22
SECTION 306. Mutilated, Destroyed, Lost and Stolen
Securities........................................ 24
SECTION 307. Payment of Interest; Interest Rights
Preserved......................................... 25
</TABLE>
- iii -
<PAGE> 4
<TABLE>
<CAPTION>
Page
----
<S> <C>
SECTION 308. Persons Deemed Owners......................... 27
SECTION 309. Cancellation.................................. 27
SECTION 310. Right of Set Off.............................. 28
SECTION 311. CUSIP Numbers................................. 28
SECTION 312. Option to Extend Interest Payment
Period..................................... 28
SECTION 313. Paying Agent, Security Registrar and
Conversion Agent........................... 30
SECTION 314. Global Security............................... 30
ARTICLE FOUR
Satisfaction and Discharge
SECTION 401. Satisfaction and Discharge of Indenture....... 33
SECTION 402. Application of Trust Money.................... 34
ARTICLE FIVE
Remedies
SECTION 501. Events of Default............................. 35
SECTION 502. Acceleration of Maturity; Rescission and
Annulment.................................. 36
SECTION 503. Collection of Indebtedness and Suits for
Enforcement by Trustee..................... 37
SECTION 504. Trustee May File Proofs of Claim.............. 38
SECTION 505. Trustee May Enforce Claims Without
Possession of Securities................... 39
SECTION 506. Application of Money Collected................ 39
SECTION 507. Limitation on Suits........................... 40
SECTION 508. Unconditional Right of Holders to
Receive Principal and Interest
and Convert................................ 40
SECTION 509. Restoration of Rights and Remedies............ 41
SECTION 510. Rights and Remedies Cumulative................ 41
SECTION 511. Delay or Omission Not Waiver.................. 41
SECTION 512. Control by Holders............................ 42
SECTION 513. Waiver of Past Defaults....................... 43
SECTION 514. Undertaking for Costs......................... 43
SECTION 515. Waiver of Stay or Extension Laws.............. 43
SECTION 516. Enforcement by Holders of Preferred
Securities.................................. 43
</TABLE>
- iv -
<PAGE> 5
<TABLE>
<CAPTION>
Page
----
ARTICLE SIX
The Trustee
<S> <C>
SECTION 601. Certain Duties and Responsibilities...................... 44
SECTION 602. Notice of Defaults....................................... 44
SECTION 603. Certain Rights of Trustee................................ 45
SECTION 604. Not Responsible for Recitals or Issuance
of Securities......................................... 46
SECTION 605. May Hold Securities...................................... 46
SECTION 606. Money Held in Trust...................................... 46
SECTION 607. Compensation and Reimbursement........................... 47
SECTION 608. Disqualification; Conflicting Interests.................. 47
SECTION 609. Corporate Trustee Required; Eligibility.................. 47
SECTION 610. Resignation and Removal; Appointment of
Successor............................................. 48
SECTION 611. Acceptance of Appointment by Successor................... 50
SECTION 612. Merger, Conversion, Consolidation or
Succession to Business................................ 50
SECTION 613. Preferential Collection of Claims
Against Company.......................................... 51
ARTICLE SEVEN
Holders' Lists and Reports by Trustee and Company
SECTION 701. Company to Furnish Trustee Names and
Addresses of Holders.......................... 51
SECTION 702. Preservation of Information;
Communications to Holders..................... 51
SECTION 703. Reports by Trustee............................... 52
SECTION 704. Reports by Company............................... 52
ARTICLE EIGHT
Consolidation, Merger, Conveyance, Transfer or Lease
SECTION 801. Company May Consolidate, Etc., Only on
Certain Terms................................. 53
SECTION 802. Successor Substituted............................ 54
</TABLE>
- v -
<PAGE> 6
<TABLE>
<CAPTION>
Page
----
ARTICLE NINE
Supplemental Indentures
<S> <C>
SECTION 901. Supplemental Indentures Without
Consent of Holders....................................... 55
SECTION 902. Supplemental Indentures with Consent of
Holders.................................................. 56
SECTION 903. Execution of Supplemental Indentures........................ 57
SECTION 904. Effect of Supplemental Indentures........................... 58
SECTION 905. Conformity with Trust Indenture Act......................... 58
SECTION 906. Reference in Securities to Supplemental
Indentures............................................... 58
ARTICLE TEN
Covenants; Representations and Warranties
SECTION 1001. Payment of Principal and Interest........................... 58
SECTION 1002. Maintenance of Office or Agency............................. 59
SECTION 1003. Money for Security Payments to Be Held
in Trust................................................. 59
SECTION 1004. Statement by Officers as to Default......................... 60
SECTION 1005. Limitation on Dividends; Transactions
with Affiliates; Covenants as to
the Trust................................................... 61
SECTION 1006. Payment of Expenses of the Trust............................ 62
ARTICLE ELEVEN
Redemption of Securities
SECTION 1101. Optional Redemption ........................................ 63
SECTION 1102. Tax Event Optional Redemption............................... 64
SECTION 1103. Applicability of Article.................................... 64
SECTION 1104. Election to Redeem; Notice to
Trustee..................................................... 65
SECTION 1105. Selection by Trustee of Securities to Be
Redeemed.................................................... 65
SECTION 1106. Notice of Redemption ....................................... 66
SECTION 1107. Deposit and Payment of Redemption Price..................... 66
SECTION 1108. Securities Payable on Redemption Date....................... 67
SECTION 1109. Securities Redeemed in Part................................. 67
SECTION 1110. No Sinking Fund............................................. 68
</TABLE>
- vi -
<PAGE> 7
<TABLE>
<CAPTION>
Page
----
ARTICLE TWELVE
Subordination of Securities
<S> <C>
SECTION 1201. Agreement to Subordinate................................... 68
SECTION 1202. Default on Senior Indebtedness............................. 69
SECTION 1203. Liquidation; Dissolution; Bankruptcy....................... 69
SECTION 1204. Subrogation................................................ 71
SECTION 1205. Trustee to Effectuate Subordination........................ 72
SECTION 1206. Notice by the Company...................................... 73
SECTION 1207. Rights of the Trustee; Holders of Senior
Indebtedness............................................ 74
SECTION 1208. Subordination May Not Be Impaired.......................... 75
ARTICLE THIRTEEN
Conversion of Securities
SECTION 1301. Conversion Rights.......................................... 76
SECTION 1302. Conversion Procedures...................................... 76
SECTION 1303. Conversion Price Adjustments............................... 79
SECTION 1304. Reclassification, Consolidation,
Merger or Sale of Assets................................ 85
SECTION 1305. Notice of Adjustments of
Conversion Price........................................ 86
SECTION 1306. Prior Notice of Certain Events............................. 86
SECTION 1307. Certain Defined Terms...................................... 87
SECTION 1308. Dividend or Interest Reinvestment Plans.................... 88
SECTION 1309. Certain Additional Rights.................................. 88
SECTION 1310. Trustee Not Responsible for Determining
Conversion Price or Adjustments......................... 89
ARTICLE FOURTEEN
Immunity of Incorporators, Stockholders,
Officers and Directors
SECTION 1401. No Recourse................................................ 91
</TABLE>
- vii -
<PAGE> 8
Page
----
EXHIBIT AND ANNEX
EXHIBIT A Form of Security
ANNEX A Amended and Restated Declaration of Trust
among the Company, as trust sponsor, IBJ
Schroder Bank & Trust Company, as property
trustee, Delaware Trust Capital Management,
Inc., as Delaware trustee and Arnold H. Simon
and Merril M. Halpern, as regular trustees,
dated as of November [ ], 1996.
- --------------
Note: This table of contents shall not, for any purpose,
be deemed to be a part of the Indenture.
- viii -
<PAGE> 9
INDENTURE, dated as of November [ ], 1996, between Designer
Holdings Ltd., a corporation duly organized and existing under the laws of the
State of Delaware (herein called the "Company"), having its principal office at
1385 Broadway, 3rd Floor, New York, New York 10018, and IBJ Schroder Bank &
Trust Company, a New York banking corporation, as Trustee (herein called the
"Trustee").
RECITALS OF THE COMPANY
WHEREAS, Designer Finance Trust, a Delaware business trust (the
"Trust"), formed under the Amended and Restated Declaration of Trust among the
Company, as trust sponsor, IBJ Schroder Bank & Trust Company, as property
trustee (the "Property Trustee"), Delaware Trust Capital Management, Inc., as
Delaware trustee (the "Delaware Trustee") and Arnold H. Simon and Merril M.
Halpern, as regular trustees (the "Regular Trustees"), dated as of November [ ],
1996 (the "Declaration"), pursuant to the Purchase Agreement (the "Purchase
Agreement") dated October [ ], 1996, among the Company and the underwriters
named therein, will issue and sell up to 2,000,000 (or 2,300,000 if the
over-allotment option is exercised) of its [ ]% Convertible Preferred Securities
(the "Preferred Securities") with a liquidation amount of $50 per Preferred
Security, having an aggregate liquidation amount with respect to the assets of
the Trust of $100,000,000 (or $115,000,000 if the over-allotment option is
exercised);
WHEREAS, the trustees of the Trust, on behalf of the Trust, will
execute and deliver to the Company [ ]% Convertible Common Securities (the
"Common Securities") of the Trust, registered in the name of the Company, in an
aggregate amount equal to three percent of the capitalization of the Trust,
equivalent to 61,856 Common Securities (or 71,135 Common Securities if the
over-allotment option is exercised), with a liquidation amount of $50 per Common
Security, having an aggregate liquidation amount with respect to the assets of
the Trust of $3,092,800 (or $3,556,750 if the over-allotment option is
exercised) (the "Common Securities");
WHEREAS, the Trust will use the proceeds from the sale of the
Preferred Securities and the Common Securities to purchase from the Company [ ]%
Convertible Subordinated Debentures Due 2016 (the "Securities") of the Company
in an
<PAGE> 10
aggregate principal amount of $103,092,800 (or $118,556,750 if the
over-allotment option is exercised);
WHEREAS, the Company is guaranteeing the payment of distributions
on the Preferred Securities, and payment of the Redemption Price and payments on
liquidation with respect to the Preferred Securities, to the extent provided in
the Preferred Securities Guarantee Agreement (the "Guarantee") dated November [
], 1996 between the Company and IBJ Schroder Bank & Trust Company, as guarantee
trustee, for the benefit of the holders of the Preferred Securities from time to
time;
WHEREAS, the Company has duly authorized the creation of the
Securities of the tenor and amount herein set forth and to provide therefor the
Company has duly authorized the execution and delivery of this Indenture;
WHEREAS, so long as the Trust is a Holder of Securities, and any
Preferred Securities are outstanding, the Declaration provides that the holders
of Preferred Securities may cause the Conversion Agent to (a) exchange such
Preferred Securities for Securities held by the Trust and (b) immediately
convert such Securities into Common Stock of the Company; and
WHEREAS, all things necessary to make the Securities, when
executed by the Company and authenticated and delivered hereunder and duly
issued by the Company, the valid obligations of the Company, and to make this
Indenture a valid agreement of the Company, in accordance with their and its
terms, have been done.
NOW, THEREFORE, THIS INDENTURE WITNESSETH:
For and in consideration of the premises and the purchase of the
Securities by the Holders thereof, it is mutually agreed, for the equal and
proportionate benefit of all Holders of the Securities, as follows:
- 2 -
<PAGE> 11
ARTICLE ONE
Definitions and Other Provisions
of General Application
I
SECTION 101. Definitions.
For all purposes of this Indenture, except as otherwise expressly
provided or unless the context otherwise requires:
(1) the terms defined in this Article have
the meanings assigned to them in this Article and
include the plural as well as the singular;
(2) all other terms used herein which are defined in the
Trust Indenture Act, either directly or by reference therein, have the
meanings assigned to them therein;
(3) all accounting terms not otherwise defined herein
have the meanings assigned to them in accordance with generally
accepted accounting principles; and
(4) the words "herein", "hereof" and "hereunder" and
other words of similar import refer to this Indenture as a whole and
not to any particular Article, Section or other subdivision.
"Act", when used with respect to any Holder, has the meaning
specified in Section 104.
"Additional Interest" has the meaning specified in Section 301.
"Additional Payments" means Compounded Interest and Additional
Interest, if any.
"Affiliate" has the same meaning as given to that term in Rule 405
of the Securities Act or any successor rule thereunder.
"Agent" means any Registrar, Paying Agent, Conversion Agent or
co-registrar.
- 3 -
<PAGE> 12
"Board of Directors" means either the board of directors of the
Company or any duly authorized committee of that board.
"Board Resolution" means a copy of a resolution certified by the
Secretary or an Assistant Secretary of the Company to have been duly adopted by
the Board of Directors and to be in full force and effect on the date of such
certification, and delivered to the Trustee.
"Business Day" means any day on which banking institutions in The
City of New York or in Wilmington, Delaware are authorized or required by law to
close.
"Closing Price" has the meaning specified in Section 1307.
"Commission" means the Securities and Exchange Commission, as from
time to time constituted, created under the Securities Exchange Act of 1934, or,
if at any time after the execution of this instrument such Commission is not
existing and performing the duties now assigned to it under the Trust Indenture
Act, then the body performing such duties at such time.
"Common Securities" has the meaning specified in the recitals to
this Instrument.
"Common Securities Guarantee" means any guarantee that the Company
may enter into that operate directly or indirectly for the benefit of holders of
Common Securities of the Trust.
"Common Stock" includes any stock of any class of the Company
which has no preference in respect of dividends or of amounts payable in the
event of any voluntary or involuntary liquidation, dissolution or winding up of
the Company and which is not subject to redemption by the Company. However,
subject to the provisions of Article Thirteen, shares issuable on conversion of
Securities shall include only shares of the class designated as Common Stock of
the Company at the date of this instrument or shares of any class or classes
resulting from any reclassification or reclassifications thereof and which have
no preference in respect of dividends or of amounts payable in the event of any
voluntary or involuntary liquidation, dissolution or winding up of the Company
and which are not subject to
- 4 -
<PAGE> 13
redemption by the Company; provided, that if at any time there shall be more
than one such resulting class, the shares of each such class then so issuable on
conversion shall be substantially in the proportion which the total number of
shares of such class resulting from all such reclassifications bears to the
total number of shares of all such classes resulting from all such
reclassifications.
"Company" means the Person named as the "Company" in the first
paragraph of this instrument until a successor Person shall have become such
pursuant to the applicable provisions of this Indenture, and thereafter
"Company" shall mean such successor Person.
"Company Request" or "Company Order" means a written request or
order signed in the name of the Company by its Chairman of the Board, its Vice
Chairman of the Board, its President or a Vice President, and by its Treasurer,
an Assistant Treasurer, its Secretary or an Assistant Secretary, and delivered
to the Trustee.
"Compounded Interest" has the meaning specified in Section 312.
"Conversion Agent" means the Person appointed to act on behalf of
the holders of Preferred Securities in effecting the conversion of Preferred
Securities as and in the manner set forth in the Declaration and Section 1302
hereof.
"Conversion Date" has the meaning specified in Section 1302.
"Corporate Trust Office" means the principal office of the Trustee
in New York, New York, at which at any particular time its corporate trust
business shall be administered and which at the date of this Indenture is One
State Street, 11th Floor, New York, New York 10004.
"Declaration" has the meaning specified in the Recitals of this
instrument.
"Defaulted Interest" has the meaning specified in Section 307.
"Delaware Trustee" has the meaning given it in the Recitals of
this instrument.
- 5 -
<PAGE> 14
"Depositary" means, with respect to any Securities issued in the
form of one or more Global Security, a clearing agency registered under the
Exchange Act that is dedicated to act as Depositary for the Securities.
"Direct Action" means a proceeding directly instituted by a holder
of Preferred Securities for enforcement of payment to such holder of the
principal of or interest on the Securities having a principal amount equal to
the aggregate liquidation amount of the Preferred Securities of such holder on
or after the respective due date specified in the Securities, if an Event of
Default under the Declaration has occurred and is continuing and such event is
attributable to the failure of the Company to pay interest or principal on the
Securities on the date such interest or principal is otherwise payable (or in
the case of redemption, on the redemption date.)
"Dissolution Event" means that, as a result of the occurrence and
continuation of a Special Event, the Trust is to be dissolved in accordance with
the Declaration and the Securities held by the Property Trustee are to be
distributed to the holders of Trust Securities issued by the Trust pro rata in
accordance with the Declaration.
"Dissolution Tax Opinion" has the meaning specified in the
Declaration.
"Event of Default" has the meaning specified in Section 501.
"Exchange Act" means the Securities Exchange Act of 1934, as
amended from time to time, and the rules and regulations promulgated thereunder,
or any successor legislation.
"Extension Period" has the meaning specified in Section 312.
"Global Security" has the meaning specified in Section 314.
"Guarantee" has the meaning specified in the Recitals to this
instrument.
"Holder" means a Person in whose name a Security is registered in
the Security Register.
- 6 -
<PAGE> 15
"Indenture" means this instrument as originally executed or as it
may from time to time be supplemented or amended by one or more indentures
supplemental hereto entered into pursuant to the applicable provisions hereof,
including, for all purposes of this instrument and any such supplemental
indenture, the provisions of the Trust Indenture Act that are deemed to be a
part of and govern this instrument and any such supplemental indenture,
respectively.
"Interest Payment Date" has the meaning specified in Section 301.
"Investment Company Event" has the meaning specified in Annex I
to the Declaration.
"Maturity", when used with respect to any Security, means the date
on which the principal of such Security becomes due and payable as therein or
herein provided, whether at the Stated Maturity or by declaration of
acceleration, call for redemption or otherwise.
"Ministerial Action" has the meaning specified in Section 1102.
"90-Day Period" has the meaning specified in Section 1102.
"No Recognition Opinion" has the meaning specified in Annex I to
the Declaration.
"Notice of Conversion" means the notice to be given by a holder of
Preferred Securities to the Conversion Agent directing the Conversion Agent to
exchange such Preferred Securities for Securities and to convert such Securities
into Common Stock on behalf of such holder.
"Officers' Certificate" means a certificate signed by the Chairman
of the Board, the Vice Chairman of the Board, the President or a Vice President,
and by the Treasurer, an Assistant Treasurer, the Secretary or an Assistant
Secretary, of the Company, and delivered to the Trustee. One of the officers
signing an Officers' Certificate given pursuant to Section 1004 shall be the
principal executive, financial or accounting officer of the Company.
- 7 -
<PAGE> 16
"Opinion of Counsel" means a written opinion of counsel, who may
be counsel for the Company, and who shall be acceptable to the Trustee.
"Outstanding", when used with respect to Securities, means, as of
the date of determination, all Securities theretofore authenticated and
delivered under this Indenture, except: (i) Securities theretofore cancelled by
the Trustee or delivered to the Trustee for cancellation; (ii) Securities for
whose payment or redemption money in the necessary amount has been theretofore
deposited with the Trustee or any Paying Agent (other than the Company) in trust
or set aside and segregated in trust by the Company (if the Company shall act as
its own Paying Agent) for the Holders of such Securities; provided, that if such
Securities are to be redeemed, notice of such redemption has been duly given
pursuant to this Indenture or provision therefor satisfactory to the Trustee has
been made; and (iii) Securities that have been paid pursuant to Section 307,
converted into Common Stock pursuant to Section 1301, or in exchange for or in
lieu of which other Securities have been authenticated and delivered pursuant to
this Indenture, other than any such Securities in respect of which there shall
have been presented to the Trustee proof satisfactory to it that such Securities
are held by a bona fide purchaser in whose hands such Securities are valid
obligations of the Company, provided, however, that in determining whether the
Holders of the requisite principal amount of the Outstanding Securities have
given any request, demand, authorization, direction, notice, consent or waiver
hereunder, Securities owned by the Company or any other obligor upon the
Securities or any Affiliate of the Company or of such other obligor shall be
disregarded and deemed not to be outstanding, except that, in determining
whether the Trustee shall be protected in relying upon any such request, demand,
authorization, direction, notice, consent or waiver, only Securities which the
Trustee knows to be so owned shall be so disregarded. Securities so owned which
have been pledged in good faith may be regarded as Outstanding if the pledgee
establishes to the satisfaction of the Trustee the pledgee's right so to act
with respect to such Securities and that the pledgee is not the Company or any
other obligor upon the Securities or any Affiliate of the Company or of such
other obligor.
- 8 -
<PAGE> 17
"Paying Agent" means any Person authorized by the Company to pay
the principal of or interest on any Securities on behalf of the Company.
"Person" means any legal person, including any individual,
corporation, estate, partnership, joint venture, association, joint stock
company, limited liability company, trust, unincorporated organization or
government or any agency or political subdivision thereof, or any other entity
of whatever nature.
"Predecessor Security" of any particular Security means every
previous Security evidencing all or a portion of the same debt as that evidenced
by such particular Security; and, for the purposes of this definition, any
Security authenticated and delivered under Section 306 in exchange for or in
lieu of a mutilated, destroyed, lost or stolen Security shall be deemed to
evidence the same debt as the mutilated, destroyed, lost or stolen Security.
"Preferred Securities" has the meaning specified in the Recitals
to this instrument.
"Property Trustee" has the meaning specified in the Recitals of
this instrument.
"Purchase Agreement" has the meaning specified in the Recitals to
this instrument.
"Purchased Shares" has the meaning specified in Section 1303(e).
"Redemption Date", when used with respect to any Security to be
redeemed, means the date fixed for such redemption by or pursuant to this
Indenture.
"Redemption Price", when used with respect to any Security to be
redeemed, means the price at which it is to be redeemed pursuant to this
Indenture.
"Redemption Tax Opinion" has the meaning set forth in Annex I to
the Declaration.
"Reference Date" has the meaning specified in Section 1303(c).
- 9 -
<PAGE> 18
"Regular Record Date" has the meaning specified in Section 301.
"Regular Trustees" has the meaning specified in the Recitals of
this instrument.
"Responsible Officer", when used with respect to the Trustee,
means, with respect to the Property Trustee, any vice-president, any assistant
vice-president, the treasurer, any assistant treasurer, any trust officer or
assistant trust officer or any other officer in the Corporate Trust Department
of the Property Trustee customarily performing functions similar to those
performed by any of the above designated officers and also means, with respect
to a particular corporate trust matter, any other officer to whom such matter is
referred because of that officer's knowledge of and familiarity with the
particular subject.
"Securities" has the meaning specified in the Recitals to this
instrument.
"Security Register" and "Security Registrar" have the respective
meanings specified in Section 305.
"Senior Indebtedness" means in respect of the Company (i) the
principal, premium, if any, and interest in respect of (A) indebtedness of such
obligor for money borrowed and (B) indebtedness evidenced by securities,
debentures, bonds or other similar instruments issued by such obligor, (ii) all
capital lease obligations of such obligor, (iii) all obligations of such obligor
issued or assumed as the deferred purchase price of property, all conditional
sale obligations of such obligor and all obligations of such obligor under any
title retention agreement (but excluding trade accounts payable arising in the
ordinary course of business), (iv) all obligations of such obligor for the
reimbursement of any letter of credit, banker's acceptance, security purchase
facility or similar credit transaction, (v) all obligations of the type referred
to in clauses (i) through (iv) above of other Persons for the payment of which
such obligor is responsible or liable as obligor, guarantor or otherwise, and
(vi) all obligations of the type referred to in clauses (i) through (v) above of
other Persons secured by any lien on any property or asset of such obligor
(whether or not such obligation is assumed by such obligor), except for (1) any
such indebtedness that is by its terms subordinated to or pari passu with the
Securities and
- 10 -
<PAGE> 19
(2) any indebtedness between or among such obligor or its affiliates, including
all other debt securities and guarantees in respect of those debt securities
issued to any other trust, or a trustee of such trust, partnership, or other
entity affiliated with the Company that is, directly or indirectly, a financing
vehicle of the Company (a "Financing Entity") in connection with the issuance by
such Financing Entity of preferred securities or other securities which rank
pari passu with, or junior to, the Preferred Securities. Such Senior
Indebtedness shall continue to be Senior Indebtedness and entitled to the
benefits of the subordination provisions irrespective of any amendment,
modification or waiver of any term of such Senior Indebtedness.
"Special Event" has the meaning specified in Annex I to the
Declaration.
"Special Record Date" for the payment of any Defaulted Interest
means a date fixed by the Trustee pursuant to Section 307.
"Stated Maturity", when used with respect to any Security or any
installment of interest thereon, means the date specified in such Security as
the fixed date on which the principal, together with any accrued and unpaid
interest (including Compounded Interest), of such Security or such installment
of interest is due and payable.
"Subsidiary" of any Person means (i) a corporation more than 50%
of the outstanding Voting Stock of which is owned, directly or indirectly, by
such Person or by one or more other Subsidiaries of such Person or by such
Person and one or more Subsidiaries thereof or (ii) any other Person (other than
a corporation) in which such Person, or one or more other Subsidiaries of such
Person or such Person and one or more other Subsidiaries thereof, directly or
indirectly, has at least a majority ownership and power to direct the policies,
management and affairs thereof.
"Tax Event" has the meaning specified in Annex I to the
Declaration.
"Trading Day" has the meaning specified in Section 1307.
"Trust" has the meaning specified in the Recitals to this
instrument.
- 11 -
<PAGE> 20
"Trustee" means the Person named as the "Trustee" in the first
paragraph of this instrument until a successor Trustee shall have become such
pursuant to the applicable provisions of this Indenture, and thereafter
"Trustee" shall mean such successor Trustee.
"Trust Indenture Act" means the Trust Indenture Act of 1939, as
amended from time to time, and the rules and regulations promulgated thereunder,
or any successor legislation.
"Trust Securities" means Common Securities and Preferred
Securities.
"Vice President," when used with respect to the Company or the
Trustee, means any vice president, whether or not designated by a number or a
word or words added before or after the title "vice president".
"Voting Stock" of any Person means capital stock of such Person
which ordinarily has voting power for the election of directors (or Persons
performing similar functions) of such Person, whether at all times or only so
long as no senior class of securities has such voting power by reason of any
contingency.
SECTION 102. Compliance Certificates and Opinions.
Upon any application or request by the Company to the Trustee to
take any action under any provision of this Indenture, the Company shall furnish
to the Trustee such certificates and opinions as may be required under the Trust
Indenture Act or reasonably requested by the Trustee in connection with such
application or request. Each such certificate or opinion shall be given in the
form of an Officers' Certificate, if to be given by an officer of the Company,
or an Opinion of Counsel, if to be given by counsel, and shall comply with the
applicable requirements of the Trust Indenture Act and any other applicable
requirement set forth in this Indenture.
Every certificate or opinion with respect to compliance with a
condition or covenant provided for in this Indenture shall include
- 12 -
<PAGE> 21
(a) a statement that each individual signing such certificate or
opinion has read such covenant or condition and the definitions herein relating
thereto;
(b) a brief statement as to the nature and scope of the
examination or investigation upon which the statements or opinions contained
in such certificate or opinion are based;
(c) a statement that, in the opinion of each such individual, he
has made such examination or investigation as is necessary to enable him to
express an informed opinion as to whether or not such covenant or condition has
been complied with; and
(d) a statement as to whether, in the opinion of each such
individual, such condition or covenant has been complied with.
SECTION 103. Form of Documents Delivered to Trustee.
In any case where several matters are required to be certified by,
or covered by an opinion of, any specified Person, it is not necessary that all
such matters be certified by, or covered by the opinion of, only one such
Person, or that they be so certified or covered by only one document, but one
such Person may certify or give an opinion with respect to some matters and one
or more other such Persons as to other matters, and any such Person may certify
or give an opinion as to such matters in one or several documents.
Any certificate or opinion of an officer of the Company may be
based, insofar as it relates to legal matters, upon a certificate or opinion of,
or representations by, counsel, unless such officer knows, or in the exercise of
reasonable care should know, that the certificate or opinion or representations
with respect to the matters upon which his certificate or opinion is based are
erroneous. Any such certificate or opinion of counsel may be based, insofar as
it relates to factual matters, upon a certificate or opinion of, or
representations by, an officer or officers of the Company stating that the
information with respect to such factual matters is in the possession of the
Company, unless such counsel knows, or in the exercise of reasonable care should
know, that the certificate or opinion or representations with respect to such
matters are erroneous.
- 13 -
<PAGE> 22
Where any Person is required to make, give or execute two or more
applications, requests, consents, certificates, statements, opinions or other
instruments under this Indenture, they may, but need not, be consolidated and
form one instrument.
SECTION 104. Acts of Holders; Record Dates.
(a) Any request, demand, authorization, direction, notice,
consent, waiver or other action provided by this Indenture to be given or taken
by Holders may be embodied in and evidenced by one or more instruments of
substantially similar tenor signed by such Holders in person or by an agent duly
appointed in writing; and, except as herein otherwise expressly provided, such
action shall become effective when such instrument or instruments are delivered
to the Trustee and, where it is hereby expressly required, to the Company. Such
instrument or instruments (and the action embodied therein and evidenced
thereby) are herein sometimes referred to as the "Act" of the Holders signing
such instrument or instruments. Proof of execution of any such instrument or of
a writing appointing any such agent shall be sufficient for any purpose of this
Indenture and (subject to Section 601) conclusive in favor of the Trustee and
the Company, if made in the manner provided in this Section.
(b) The fact and date of the execution by any Person of any such
instrument or writing may be proved by the affidavit of a witness of such
execution or by a certificate of a notary public or other officer authorized by
law to take acknowledgments of deeds, certifying that the individual signing
such instrument or writing acknowledged to him the execution thereof. Where such
execution is by a signer acting in a capacity other than his individual
capacity, such certificate or affidavit shall also constitute sufficient proof
of his authority. The fact and date of the execution of any such instrument or
writing, or the authority of the Person executing the same, may also be proved
in any other manner which the Trustee or the Company, as the case may be, deems
sufficient.
(c) The Company may, in the circumstances permitted by the Trust
Indenture Act, fix any day as the record date for the purpose of determining the
Holders of Outstanding Securities entitled to give, make or take any request,
demand, authorization, direction, notice, consent, waiver or
- 14 -
<PAGE> 23
other action, or to vote on any action, authorized or permitted to be given or
taken by Holders. If not set by the Company prior to the first solicitation of a
Holder made by any Person in respect of any such action, or, in the case of any
such vote, prior to such vote, the record date for any such action or vote shall
be the 30th day (or, if later, the date of the most recent list of Holders
required to be provided pursuant to Section 701) prior to such first
solicitation or vote, as the case may be. With regard to any record date, only
the Holders on such date (or their duly designated proxies) shall be entitled to
give or take, or vote on, the relevant action.
(d) The ownership of Securities shall be proved by the Security
Register.
(e) Any request, demand, authorization, direction, notice,
consent, waiver or other Act of the Holder of any Security shall bind every
future Holder of the same Security and the Holder of every Security issued upon
the registration of transfer thereof or in exchange therefor or in lieu thereof
in respect of anything done, omitted or suffered to be done by the Trustee or
the Company in reliance thereon, whether or not notation of such action is made
upon such Security.
(f) Without limiting the foregoing, a Holder entitled hereunder to
give or take any such action with regard to any particular Security may do so
with regard to all or any part of the principal amount of such Security or by
one or more duly appointed agents each of which may do so pursuant to such
appointment with regard to all or any different part of such principal amount.
SECTION 105. Notices, Etc., to Trustee and the Company.
Any request, demand, authorization, direction, notice, consent,
waiver or Act of Holders or other document provided or permitted by this
Indenture to be made upon, given or furnished to, or filed with,
(a) the Trustee by any Holder or by the Company shall be
sufficient for every purpose hereunder if made, given, furnished or filed in
writing to or with the Trustee at its Corporate Trust Office, Attention:
Corporate Trust & Agency Department, or
- 15 -
<PAGE> 24
(b) the Company by the Trustee or by any Holder shall be
sufficient for every purpose hereunder (unless otherwise herein expressly
provided) if in writing and mailed, first-class postage prepaid, to the Company
addressed to it at the address of its principal office specified in the first
paragraph of this instrument or at any other address previously furnished in
writing to the Trustee by the Company.
SECTION 106. Notice to Holders; Waiver.
Where this Indenture provides for notice to Holders of any event,
such notice shall be sufficiently given (unless otherwise herein expressly
provided) if in writing and mailed, first-class postage prepaid, to each Holder
affected by such event, at such Holder's address as it appears in the Security
Register, not later than the latest date (if any), and not earlier than the
earliest date (if any), prescribed for the giving of such notice. In any case
where notice to Holders is given by mail, neither the failure to mail such
notice, nor any defect in any notice so mailed, to any particular Holder shall
affect the sufficiency of such notice with respect to other Holders. Any notice
when mailed to a Holder in the aforesaid manner shall be conclusively deemed to
have been received by such Holder whether or not actually received by such
Holder. Where this Indenture provides for notice in any manner, such notice may
be waived in writing by the Person entitled to receive such notice, either
before or after the event, and such waiver shall be the equivalent of such
notice. Waivers of notice by Holders shall be filed with the Trustee, but such
filing shall not be a condition precedent to the validity of any action taken in
reliance upon such waiver.
In case by reason of the suspension of regular mail service or by
reason of any other cause it shall be impracticable to give such notice by mail,
then such notification as shall be made with the approval of the Trustee shall
constitute a sufficient notification for every purpose hereunder.
SECTION 107. Conflict with Trust Indenture Act.
If any provision hereof limits, qualifies or conflicts with a
provision of the Trust Indenture Act that is required under such Act to be a
part of and govern this Indenture, the latter provision shall control. If any
- 16 -
<PAGE> 25
provision of this Indenture modifies or excludes any provision of the Trust
Indenture Act that may be so modified or excluded, the latter provision shall be
deemed to apply to this Indenture as so modified or to be excluded, as the case
may be.
SECTION 108. Effect of Headings and Table of Contents.
The Article and Section headings herein and the Table of Contents
are for convenience only and shall not affect the construction hereof.
SECTION 109. Successors and Assigns.
All covenants and agreements in this Indenture by the Company
shall bind its successors and assigns, whether so expressed or not.
SECTION 110. Separability Clause.
In case any provision in this Indenture or in the Securities shall
be invalid, illegal or unenforceable, the validity, legality and enforceability
of the remaining provisions shall not in any way be affected or impaired
thereby.
SECTION 111. Benefits of Indenture.
Nothing in this Indenture or in the Securities, express or
implied, shall give to any Person, other than the parties hereto and their
successors hereunder, the holders of Senior Indebtedness, the holders of
Preferred Securities (to the extent provided herein) and the Holders of
Securities, any benefit or any legal or equitable right, remedy or claim under
this Indenture.
SECTION 112. Governing Law.
THIS INDENTURE AND THE SECURITIES SHALL BE GOVERNED BY AND
CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK, WITHOUT REGARD
TO ITS PRINCIPLES OF CONFLICTS OF LAWS.
- 17 -
<PAGE> 26
SECTION 113. Legal Holidays.
In any case where any Interest Payment Date, Redemption Date or
Stated Maturity of any Security or the last date on which a Holder has the right
to convert his Securities shall not be a Business Day, then (notwithstanding any
other provision of this Indenture or of the Securities) payment of interest or
principal or conversion of the Securities need not be made on such date, but may
be made on the next succeeding Business Day (except that, if such Business Day
is in the next succeeding calendar year, such Interest Payment Date, Redemption
Date or Stated Maturity, as the case may be, shall be the immediately preceding
Business Day) with the same force and effect as if made on the Interest Payment
Date or Redemption Date, or at the Stated Maturity or on such last day for
conversion, provided, that no interest shall accrue for the period from and
after such Interest Payment Date, Redemption Date or Stated Maturity, as the
case may be.
ARTICLE TWO
Security Forms
SECTION 201. Forms Generally.
The Securities and the Trustee's certificate of authentication
shall be substantially in the form of Exhibit A, which is hereby incorporated in
and expressly made a part of this Indenture. The Securities may have may have
letters, numbers, notations or other marks of identification or designation and
such legends or endorsements required by law, stock exchange rule, agreements to
which the Company is subject, if any, or usage (provided that any such notation,
legend or endorsement is in a form acceptable to the Company). The Company shall
furnish any such legend not contained in Exhibit A to the Trustee in writing.
Each Security shall be dated the date of its authentication. The terms and
provisions of the Securities set forth in Exhibit A are part of the terms of
this Indenture and to the extent applicable, the Company and the Trustee, by
their execution and delivery of this Indenture, expressly agree to such terms
and provisions and to be bound thereby.
The definitive Securities shall be typewritten or printed,
lithographed or engraved or produced by any combi-
- 18 -
<PAGE> 27
nation of these methods on steel engraved borders or may be produced in any
other manner permitted by the rules of any securities exchange on which the
Securities may be listed, all as determined by the officers executing such
Securities, as evidenced by their execution thereof.
SECTION 202. Initial Issuance to Property Trustee.
The Securities initially issued to the Property Trustee of the
Trust shall be in the form of one or more individual certificates in definitive,
fully registered form without coupons.
ARTICLE THREE
The Securities
SECTION 301. Title and Terms.
The aggregate principal amount of Securities that may be
authenticated and delivered under this Indenture is limited to the sum of (a)
$103,092,800 and (b) such aggregate principal amount (which may not exceed
$118,556,750 if the over-allotment option is exercised) of Securities, if any,
as shall be purchased by the Trust pursuant to an over-allotment option in
accordance with the terms and provisions of the Purchase Agreement, except for
Securities authenticated and delivered upon registration of transfer of, or in
exchange for, or in lieu of, other Securities pursuant to Section 304, 305, 306,
906, 1109 or 1301.
The Securities shall be known and designated as the "[ ]%
Convertible Subordinated Debentures Due 2016" of the Company. Their Stated
Maturity shall be [ ], 2016, and they shall bear interest at the rate of [ ]%
per annum, from November [ ], 1996 or from the most recent Interest Payment Date
to which interest has been paid or duly provided for, as the case may be,
payable quarterly (subject to deferral as set forth herein), in arrears, on
March 31, June 30, September 30 and December 31 (each an "Interest Payment
Date") of each year, commencing December 31, 1996, until the principal thereof
is paid or made available for payment, and they shall be paid to the Person in
whose name the Security is registered at 5:00 p.m. (New York City time) on the
regular record date for such interest in-
- 19 -
<PAGE> 28
stallment, which shall be the March 15, June 15, September 15 and December 15
next preceding such Interest Payment Date (the "Regular Record Date"). Interest
will compound quarterly and will accrue at the rate of [ ]% per annum on any
interest installment in arrears for more than one quarter or during an extension
of an interest payment period as set forth in Section 312 hereof.
The amount of interest payable for any period will be computed on the
basis of a 360-day year of twelve 30-day months. Except as provided in the
following sentence, the amount of interest payable for any period shorter than a
full quarterly period for which interest in computed, will be computed on the
basis of the actual number of days elapsed. In the event that any date on which
interest is payable on the Securities is not a Business Day, then payment of
interest payable on such date will be made on the next succeeding day which is a
Business Day (and without any interest or other payment in respect of any such
delay), except that, if such Business Day is in the next succeeding calendar
year, such payment shall be made on the immediately preceding Business Day, in
each case with the same force and effect as if made on such date.
If at any time while the Property Trustee is the Holder of any
Securities, the Trust or the Property Trustee is required to pay any taxes,
duties, assessments or governmental charges of whatever nature (other than
withholding taxes) imposed by the United States, or any other taxing authority,
then, in any such case, the Company will pay as additional interest ("Additional
Interest") on the Securities held by the Property Trustee, such amounts as shall
be required so that the net amounts received and retained by the Trust and the
Property Trustee after paying any such taxes, duties, assessments or other
governmental charges will be not less than the amounts the Trust and the
Property Trustee would have received had no such taxes, duties, assessments or
other governmental charges been imposed.
The principal of and interest on the Securities shall be payable at the
office or agency of the Company in the United States maintained for such purpose
and at any other office or agency maintained by the Company for such purpose in
such coin or currency of the United States of America as at the time of payment
is legal tender for payment of public and private debts; provided, however, that
at the option of the Company payment of interest may be made by
- 20 -
<PAGE> 29
check mailed to the address of the Person entitled thereto as such address shall
appear in the Security Register.
The Securities shall be redeemable as provided in Article Eleven
hereof.
The Securities shall be subordinated in right of payment to Senior
Indebtedness as provided in Article Twelve hereof.
The Securities shall be convertible as provided in Article Thirteen
hereof.
SECTION 302. Denominations.
The Securities shall be issuable only in registered form without
coupons and only in denominations of $50 and integral multiples thereof.
SECTION 303. Execution, Authentication, Delivery and Dating.
The Securities shall be executed on behalf of the Company by its
Chairman of the Board, its Vice Chairman of the Board, its President or one of
its Vice Presidents, under its corporate seal reproduced thereon attested by its
Secretary or one of its Assistant Secretaries. The signature of any of these
officers on the Securities may be manual or facsimile.
Securities bearing the manual or facsimile signatures of individuals
who were at any time the proper officers of the Company shall bind the Company,
notwithstanding that such individuals or any of them have ceased to hold such
offices prior to the authentication and delivery of such Securities or did not
hold such offices at the date of such Securities.
At any time and from time to time after the execution and delivery of
this Indenture, the Company may deliver Securities executed by the Company to
the Trustee for authentication, together with a Company Order for the
authentication and delivery of such Securities; and the Trustee in accordance
with such Company Order shall authenticate and make available for delivery such
Securities as in this Indenture provided and not otherwise.
- 21 -
<PAGE> 30
No Security shall be entitled to any benefit under this Indenture or be
valid or obligatory for any purpose unless there appears on such Security a
certificate of authentication substantially in the form provided for herein
executed by the Trustee by manual signature, and such certificate upon any
Security shall be conclusive evidence, and the only evidence, that such Security
has been duly authenticated and delivered hereunder.
SECTION 304. Temporary Securities.
Pending the preparation of definitive Securities, the Company may
execute, and upon Company Order the Trustee shall authenticate and deliver,
temporary Securities which are typewritten, printed, lithographed or otherwise
produced, in any authorized denomination, substantially of the tenor of the
definitive Securities in lieu of which they are issued and with such appropriate
insertions, omissions, substitutions and other variations as the officers
executing such Securities may determine, as evidenced by their execution of such
Securities.
If temporary Securities are issued, the Company will cause definitive
Securities to be prepared without unreasonable delay. After the preparation of
definitive Securities, the temporary Securities shall be exchangeable for
definitive Securities upon surrender of the temporary Securities at any office
or agency of the Company designated pursuant to Section 1002, without charge to
the Holder. Upon surrender for cancellation of any one or more temporary
Securities the Company shall execute and the Trustee shall authenticate and make
available for delivery in exchange therefor a like principal amount of
definitive Securities of authorized denominations. Until so exchanged the
temporary Securities shall in all respects be entitled to the same benefits
under this Indenture as definitive Securities.
SECTION 305. Registration, Registration of Transfer and Exchange.
The Company shall cause to be kept at the Corporate Trust Office of the
Trustee a register (the register maintained in such office and in any other
office or agency designated pursuant to Section 1002 being herein sometimes
collectively referred to as the "Security Register") in which, subject to such
reasonable regulations as it may prescribe, the Company shall provide for the
registration of
- 22 -
<PAGE> 31
Securities and of transfers of Securities. The Trustee is hereby appointed
"Security Registrar" for the purpose of registering Securities and transfers of
Securities as herein provided.
Upon surrender for registration of transfer of any Security at an
office or agency of the Company designated pursuant to Section 1002 for such
purpose, the Company shall execute, and the Trustee shall authenticate and
deliver, in the name of the designated transferee or transferees, one or more
new Securities of any authorized denominations and of a like aggregate principal
amount.
At the option of the Holder, Securities may be exchanged for other
Securities of any authorized denominations and of a like aggregate principal
amount, upon surrender of the Securities to be exchanged at such office or
agency. Whenever any Securities are so surrendered for exchange, the Company
shall execute, and the Trustee shall authenticate and make available for
delivery, the Securities which the Holder making the exchange is entitled to
receive.
All Securities issued upon any registration of transfer or exchange of
Securities shall be the valid obligations of the Company, evidencing the same
debt, and entitled to the same benefits under this Indenture, as the Securities
surrendered upon such registration of transfer or exchange.
Every Security presented or surrendered for registration of transfer or
for exchange shall (if so required by the Company or the Trustee) be duly
endorsed, or be accompanied by a written instrument of transfer in form
satisfactory to the Company and the Security Registrar duly executed, by the
Holder thereof or his attorney duly authorized in writing.
No service charge shall be made for any registration of transfer or
exchange of Securities, but the Company may require payment of a sum sufficient
to cover any tax or other governmental charge that may be imposed in connection
with any registration of transfer or exchange of Securities, other than
exchanges pursuant to Section 304, 906, 1109 or 1301 not involving any transfer.
- 23 -
<PAGE> 32
SECTION 306. Mutilated, Destroyed, Lost and Stolen Securities.
If any mutilated Security is surrendered to the Trustee, the Company
shall execute and the Trustee shall authenticate and deliver in exchange
therefor a new Security of like tenor and principal amount and bearing a number
not contemporaneously outstanding.
If there shall be delivered to the Company and the Trustee (i) evidence
to their satisfaction of the destruction, loss or theft of any Security and (ii)
such security or indemnity as may be required by them to save each of them and
any agent of either of them harmless, then, in the absence of notice to the
Company or the Trustee that such Security has been acquired by a bona fide
purchaser, the Company shall execute and the Trustee shall authenticate and
deliver, in lieu of any such destroyed, lost or stolen Security, a new Security
of like tenor and principal amount and bearing a number not contemporaneously
outstanding.
In case any such mutilated, destroyed, lost or stolen Security has
become or is about to become due and payable, the Company in its discretion may,
instead of issuing a new Security, pay such Security.
Upon the issuance of any new Security under this Section, the Company
may require the payment of a sum sufficient to cover any tax or other
governmental charge that may be imposed in relation thereto and any other
expenses (including the fees and expenses of the Trustee) connected therewith.
Every new Security issued pursuant to this Section in lieu of any
destroyed, lost or stolen Security shall constitute an original additional
contractual obligation of the Company, whether or not the destroyed, lost or
stolen Security shall be at any time enforceable by anyone, and shall be
entitled to all the benefits of this Indenture equally and proportionately with
any and all other Securities duly issued hereunder.
The provisions of this Section are exclusive and shall preclude (to the
extent lawful) all other rights and remedies with respect to the replacement or
payment of mutilated, destroyed, lost or stolen Securities.
- 24 -
<PAGE> 33
SECTION 307. Payment of Interest; Interest Rights Preserved.
Interest on any Security which is payable, and is punctually paid or
duly provided for, on any Interest Payment Date shall be paid to the Person in
whose name that Security (or one or more Predecessor Securities) is registered
at 5:00 p.m. (New York City time) on the Regular Record Date.
Any interest on any Security which is payable, but is not punctually
paid or duly provided for, on any Interest Payment Date (herein called
"Defaulted Interest") shall forthwith cease to be payable to the Holder on the
relevant Regular Record Date by virtue of having been such Holder, and such
Defaulted Interest may be paid by the Company, at its election in each case, as
provided in Clause (a) or (b) below:
(a) The Company may elect to make payment of any Defaulted Interest to
the Persons in whose names the Securities (or their respective Predecessor
Securities) are registered at 5:00 p.m. (New York City time) on a Special Record
Date for the payment of such Defaulted Interest, which shall be fixed in the
following manner. The Company shall notify the Trustee in writing of the amount
of Defaulted Interest proposed to be paid on each Security and the date of the
proposed payment, and at the same time the Company shall deposit with the
Trustee an amount of money equal to the aggregate amount proposed to be paid in
respect of such Defaulted Interest or shall make arrangements satisfactory to
the Trustee for such deposit prior to the date of the proposed payment, such
money when deposited to be held in trust for the benefit of the Persons entitled
to such Defaulted Interest as in this Clause (a) provided. Thereupon the Trustee
shall fix a Special Record Date for the payment of such Defaulted Interest which
shall be not more than 15 days and not less than 10 days prior to the date of
the proposed payment and not less than 10 days after the receipt by the Trustee
of the notice of the proposed payment. The Trustee shall promptly notify the
Company of such Special Record Date and, in the name and at the expense of the
Company, shall cause notice of the proposed payment of such Defaulted Interest
and the Special Record Date therefor to be mailed, first-class postage prepaid,
to each Holder at his address as it appears in the Security Register, not less
than 10 days prior to such Special Record Date. Notice of
- 25 -
<PAGE> 34
the proposed payment of such Defaulted Interest and the Special Record Date
therefor having been so mailed, such Defaulted Interest shall be paid to the
Persons in whose names the Securities (or their respective Predecessor
Securities) are registered at 5:00 p.m. (New York City time) on such Special
Record Date and shall no longer be payable pursuant to the following Clause (b).
(b) The Company may make payment of any Defaulted Interest in any other
lawful manner not inconsistent with the requirements of any securities exchange
on which the Securities may be listed, and, if so listed, upon such notice as
may be required by such exchange, if, after notice given by the Company to the
Trustee of the proposed payment pursuant to this Clause (B), such manner of
payment shall be deemed practicable by the Trustee.
Subject to the foregoing provisions of this Section 307, each Security
delivered under this Indenture upon registration of transfer of or in exchange
for or in lieu of any other Security shall carry the rights to interest accrued
and unpaid, and to accrue (including in each such case Additional Payments, if
any), which were carried by such other Security.
In the case of any Security which is converted after any Regular Record
Date and on or prior to the next succeeding Interest Payment Date (other than
any Security whose Maturity is prior to such Interest Payment Date), interest
whose Stated Maturity is on such Interest Payment Date shall be payable on such
Interest Payment Date notwithstanding such conversion, and such interest
(whether or not punctually paid or duly provided for) shall be paid to the
Person in whose name that Security (or one or more Predecessor Securities) is
registered at 5:00 p.m. (New York City time) on such Regular Record Date. Except
as otherwise expressly provided in the immediately preceding sentence, in the
case of any Security that is converted, interest whose Stated Maturity is after
the date of conversion of such Security shall not be payable, and the Company
shall not make nor be required to make any other payment, adjustment or
allowance with respect to accrued but unpaid interest (including Additional
Payments, if any) on the Securities being converted, which shall be deemed to be
paid in full. Subject to any right of the Holder of such Security or any
Predecessor Security to receive interest as provided in this paragraph and the
second paragraph of Clause (a) of Section
- 26 -
<PAGE> 35
1302, the Company's delivery upon conversion of the fixed number of shares of
Common Stock into which the Securities are convertible (together with the cash
payment, if any, in lieu of fractional shares) shall be deemed to satisfy the
Company's obligation to pay the principal amount at Maturity of the portion of
Securities so converted and any unpaid interest (including Additional Payments,
if any) accrued on such Securities at the time of such conversion. If any
Security called for redemption is converted, any money deposited with the
Trustee or with any Paying Agent or so segregated and held in trust for the
redemption of such Security shall (subject to any right of the Holder of such
Security or any Predecessor Security to receive interest as provided in this
paragraph) be paid to the Company upon Company Request or, if then held by the
Company, shall be discharged from such trust.
SECTION 308. Persons Deemed Owners.
Prior to due presentment of a Security for registration of transfer,
the Company, the Trustee and any agent of the Company or the Trustee may treat
the Person in whose name such Security is registered as the owner of such
Security for the purpose of receiving payment of principal of and (subject to
Section 307) interest (including Additional Payments, if any) on such Security
and for all other purposes whatsoever, whether or not such Security be overdue,
and neither the Company, the Trustee nor any agent of the Company or the Trustee
shall be affected by notice to the contrary.
SECTION 309. Cancellation.
All Securities surrendered for payment, redemption, registration of
transfer or exchange or conversion shall, if surrendered to any Person other
than the Trustee, be delivered to the Trustee and shall be promptly cancelled by
it. The Company may at any time deliver to the Trustee for cancellation any
Securities previously authenticated and delivered hereunder which the Company
may have acquired in any manner whatsoever, and all Securities so delivered
shall be promptly cancelled by the Trustee. No Securities shall be authenticated
in lieu of or in exchange for any Securities cancelled as provided in this
Section, except as expressly permitted by this Indenture. All cancelled
Securities held by the Trustee shall be disposed of as directed by a Company
Order; provided, however, that the Trustee shall
- 27 -
<PAGE> 36
not be required to destroy the certificates representing such cancelled
Securities.
SECTION 310. Right of Set Off.
Notwithstanding anything to the contrary in this Indenture, the Company
shall have the right to set off any payment it is otherwise required to make
hereunder to the extent the Company has theretofore made, or is concurrently on
the date of such payment making, a payment under the Guarantee.
SECTION 311. CUSIP Numbers.
The Company in issuing the Securities may use "CUSIP" numbers (if then
generally in use), and, if so, the Trustee shall use "CUSIP" numbers in notices
of redemption as a convenience to Holders; provided, that any such notice may
state that no representation is made as to the correctness of such numbers
either as printed on the Securities or as contained in any notice of a
redemption and that reliance may be placed only on the other identification
numbers printed on the Securities, and any such redemption shall not be affected
by any defect in or omission of such numbers.
SECTION 312. Option to Extend Interest Payment Period.
(a) The Company shall have the right at any time during the term of the
Securities to defer interest payments (including Additional Payments) from time
to time by extending the interest payment period for successive periods (each,
an "Extension Period") not exceeding 20 consecutive quarters for each such
period; provided, no Extension Period may extend beyond the maturity date of the
Securities. At the end of each Extension Period, the Company shall pay all
interest then accrued and unpaid (including Additional Interest) together with
interest thereon compounded quarterly at the rate specified for the Securities
to the extent permitted by applicable law ("Compounded Interest"); provided,
that during any Extension Period, the Company shall (i) not declare or pay
dividends on, or make a distribution with respect to, or redeem or purchase or
acquire, or make a liquidation payment with respect to, any of its capital stock
(other than (A) purchases or acquisitions of shares of Common Stock in
connection with the satisfaction by the Company of its obligations under any
employee benefit plans or the satisfaction by the Company of its obligations
pursu-
- 28 -
<PAGE> 37
ant to any contract or security requiring the Company to purchase shares of
Common Stock, (B) as a result of a re- classification of the Company's capital
stock or the exchange or conversion of one class or series of the Company's
capital stock for another class or series of the Company's capital stock or (C)
the purchase of fractional interests in shares of the Company's capital stock
pursuant to the conversion or exchange provisions of such capital stock or the
security being converted or exchanged (or make any guarantee payments with
respect to the foregoing)), (ii) not make any payment of interest, principal or
premium, if any, on or repay, repurchase or redeem any debt securities
(including guarantees) issued by the Company that rank pari passu with or junior
to the Securities and (iii) not make any guarantee payments with respect to the
foregoing (other than pursuant to the Guarantee). Prior to the termination of
any such Extension Period, the Company may further extend such Extension Period;
provided, that such Extension Period, together with all such previous and
further extensions thereof, may not exceed 20 consecutive quarters or extend
beyond the maturity date of the Securities. Upon the termination of any
Extension Period and the payment of all amounts then due, the Company may
commence a new Extension Period, subject to the above requirements. No interest
during an Extension Period shall be due and payable.
(b) If the Property Trustee is the sole Holder of the Securities at the
time the Company selects an Extension Period, the Company shall give written
notice to the Regular Trustees, the Property Trustee and the Trustee of its
selection of such Extension Period at least one Business Day prior to the
earlier of (i) the date the distributions on the Preferred Securities are
payable or (ii) if the Preferred Securities are listed on the New York Stock
Exchange or other stock exchange or quotation system, the date the Trust is
required to give notice to the New York Stock Exchange or other applicable
self-regulatory organization or to holders of the Preferred Securities of the
record date or the date such distributions are payable, but in any event not
less than 10 Business Days prior to such record date.
(c) If the Property Trustee is not the sole holder of the Securities at
the time the Company selects an Extension Period, the Company shall give the
Holders of the Securities and the Trustee written notice of its selection of
such Extension Period at least 10 Business Days prior to the earlier of (i) the
next succeeding Interest Payment Date
- 29 -
<PAGE> 38
or (ii) if the Preferred Securities are listed on the New York Stock Exchange or
other stock exchange or quotation system, the date the Company is required to
give notice to the New York Stock Exchange or other applicable self-regulatory
organization or to holders of the Securities on the record or payment date of
such related interest payment, but in any event not less than two Business Days
prior to such record date.
(d) The quarter in which any notice is given pursuant to paragraphs (b)
and (c) hereof shall be counted as one of the 20 quarters permitted in the
maximum Extension Period permitted under paragraph (a) hereof.
SECTION 313. Paying Agent, Security Registrar and Conversion Agent.
The Trustee will initially act as Paying Agent, Security Registrar and
Conversion Agent. The Company may change any Paying Agent, Security Registrar,
co-registrar or Conversion Agent without prior notice. The Company or any of its
Affiliates may act in any such capacity. The Trustee is entitled to the
protections of Article VI in its capacity as Paying agent, Registrar and
Conversion Agent.
SECTION 314. Global Security.
(a) In connection with a Dissolution Event,
(1) the Securities in certificated form may be presented to the
Trustee by the Property Trustee in exchange for a global Security in an
aggregate principal amount equal to the aggregate principal amount of all
outstanding Securities (a "Global Security"), to be registered in the name of
the Depositary, or its nominee, and delivered by the Trustee to the Depositary
for crediting to the accounts of its participants pursuant to the instructions
of the Regular Trustees. The Company upon any such presentation shall execute a
Global Security in such aggregate principal amount and deliver the same to the
Trustee for authentication and delivery in accordance with this Indenture.
Payments on the Securities issued as a Global Security will be made to the
Depositary; and
(2) if any Preferred Securities are held in non book-entry
certificated form, the Securities in certificated form may be presented to the
Trustee by the Property
- 30 -
<PAGE> 39
Trustee and any Preferred Security Certificate which represents Preferred
Securities other than Preferred Securities held by the Depositary or its nominee
("Non Book-Entry Preferred Securities") will be deemed to represent beneficial
interests in Securities presented to the Trustee by the Property Trustee having
an aggregate principal amount equal to the aggregate liquidation amount of the
Non Book-Entry Preferred Securities until such Preferred Security Certificates
are presented to the Security Registrar for transfer or reissuance at which time
such Preferred Security Certificates will be cancelled and a Security,
registered in the name of the holder of the Preferred Security Certificate or
the transferee of the holder of such Preferred Security Certificate, as the case
may be, with an aggregate principal amount equal to the aggregate liquidation
amount of the Preferred Security Certificate cancelled, will be executed by the
Company and delivered to the Trustee for authentication and delivery in
accordance with this Indenture. On issue of such Securities, Securities with an
equivalent aggregate principal amount that were presented by the Property
Trustee to the Trustee will be deemed to have been cancelled.
(b) A Global Security may be transferred, in whole but not in part,
only to another nominee of the Depositary, or to a nominee of such successor
Depositary.
(c) If (i) the Depositary notifies the Company that it is unwilling or
unable to continue as a depositary for such Global Security and no successor
depositary shall have been appointed, (ii) the Depositary, at any time, ceases
to be a clearing agency registered under the Exchange Act at which time the
Depositary is required to be so registered to act as such depositary and no
successor depositary shall have been appointed, (iii) the Company, in its sole
discretion, determines that such Global Security shall be so exchangeable or
(iv) there shall have occurred an Event of Default with respect to such
Securities, as the case may be, the Company will execute, and, subject to
Article Three of this Indenture, the Trustee, upon written notice from the
Company and receipt of a Company Order, will authenticate and deliver the
Securities in definitive registered form without coupons, in authorized
denominations, and in an aggregate principal amount equal to the principal
amount of the Global Security in exchange for such Global Security. In addition,
upon an Event of Default or if the Company may at any time determine that the
Securities shall no longer be
- 31 -
<PAGE> 40
represented by a Global Security, in such event the Company will execute, and
subject to Section 305 of this Indenture, the Trustee, upon receipt of an
Officers' Certificate evidencing such determination by the Company, will
authenticate and make available for delivery the Securities in definitive
registered form without coupons, in authorized denominations, and in an
aggregate principal amount equal to the principal amount of the Global Security
in exchange for such Global Security. Upon the exchange of the Global Security
for such Securities in definitive registered form without coupons, in authorized
denominations, the Global Security shall be cancelled by the Trustee. Such
Securities in definitive registered form issued in exchange for the Global
Security shall be registered in such names and in such authorized denominations
as the Depositary, pursuant to instructions from its direct or indirect
participants or otherwise, shall instruct the Trustee. The Trustee shall deliver
such Securities to the Depositary for delivery to the Persons in whose names
such Securities are so registered.
(c) Every Global Security authenticated and delivered hereunder shall
bear a legend in substantially the following form, in capital letters and
bold-face type:
THIS SECURITY IS A GLOBAL SECURITY WITHIN THE MEANING OF THE INDENTURE
HEREINAFTER REFERRED TO AND IS REGISTERED IN THE NAME OF A DEPOSITARY OR A
NOMINEE THEREOF. THIS SECURITY MAY NOT BE EXCHANGED IN WHOLE OR IN PART FOR
A SECURITY REGISTERED, AND NO TRANSFER OF THIS SECURITY IN WHOLE OR IN PART
MAY BE REGISTERED, IN THE NAME OF ANY PERSON OTHER THAN SUCH DEPOSITARY OR A
NOMINEE THEREOF, EXCEPT IN THE LIMITED CIRCUMSTANCES DESCRIBED IN THE
INDENTURE.
(d) If the Depositary is the Depository Trust Company, the Global
Security authenticated and delivered hereunder shall also bear a legend in
substantially the following form, in capital letters and bold-face type:
UNLESS THIS CERTIFICATE IS PRESENTED BY AN AUTHORIZED SIGNATORY OF THE
DEPOSITORY TRUST COMPANY ("DTC") TO THE COMPANY OR ITS AGENT FOR
REGISTRATION OF TRANSFER, EXCHANGE, OR PAYMENT, AND ANY CERTIFICATE ISSUED
IS REGISTERED IN THE NAME OF CEDE & CO. OR IN SUCH OTHER NAME AS IS
REQUESTED
- 32 -
<PAGE> 41
BY AN AUTHORIZED REPRESENTATIVE OF DTC (AND ANY PAYMENT IS MADE TO CEDE &
CO. OR TO SUCH OTHER ENTITY AS IS REQUESTED BY AN AUTHORIZED REPRESENTATIVE
OF DTC), ANY TRANSFER, PLEDGE OR OTHER USE HEREOF FOR VALUE OR OTHERWISE BY
OR TO ANY PERSON IS WRONGFUL INASMUCH AS THE REGISTERED OWNER HEREOF, CEDE &
CO., HAS AN INTEREST HEREIN.
ARTICLE FOUR
Satisfaction and Discharge
SECTION 401. Satisfaction and Discharge of Indenture.
This Indenture shall cease to be of further effect (except as to any
surviving rights of conversion, registration of transfer or exchange of
Securities herein expressly provided for), and the Trustee, on demand of and at
the expense of the Company, shall execute proper instruments acknowledging
satisfaction and discharge of this Indenture, when
(a) either
(i) all Securities theretofore authenticated and delivered (other
than (A) Securities which have been destroyed, lost or stolen and which
have been replaced or paid as provided in Section 306 and (B) Securities
for whose payment money has theretofore been deposited in trust or
segregated and held in trust by the Company and thereafter repaid to the
Company or discharged from such trust, as provided in Section 1003) have
been delivered to the Trustee for cancellation; or
(ii) all such Securities not theretofore delivered to the Trustee
for cancellation have become due and payable, and the Company has deposited
or caused to be deposited with the Trustee as trust funds in trust for the
purpose an amount sufficient to pay and discharge the entire indebtedness
on such Securities not theretofore delivered to the Trustee for
cancellation, for principal and interest (including Additional Payments, if
any) to the date of such deposit (in the case of Securities which have
become due and payable) or to the Stated Maturity or Redemption Date,
- 33 -
<PAGE> 42
as the case may be, along with an accountants certificate stating
such funds are sufficient;
(b) the Company has paid or caused to be paid all other sums payable
hereunder by the Company; and
(c) the Company has delivered to the Trustee an Officers' Certificate
and an Opinion of Counsel, each stating that all conditions precedent herein
provided for relating to the satisfaction and discharge of this Indenture have
been complied with.
Notwithstanding the satisfaction and discharge of this Indenture, the
obligations of the Company to the Trustee under Section 607 and, if money shall
have been deposited with the Trustee pursuant to subclause (ii) of Clause (a) of
this Section, the obligations of the Trustee under Section 402 and the last
paragraph of Section 1003 shall survive.
SECTION 402. Application of Trust Money.
Subject to the provisions of the last paragraph of Section 1003, all
money deposited with the Trustee pursuant to Section 401 shall be held in trust
and applied by it, in accordance with the provisions of the Securities and this
Indenture, to the payment, either directly or through any Paying Agent
(including the Company acting as its own Paying Agent) as the Trustee may
determine, to the Persons entitled thereto, of the principal and interest for
whose payment such money has been deposited with the Trustee. All moneys
deposited with the Trustee pursuant to Section 401 (and held by it or any Paying
Agent) for the payment of Securities subsequently converted shall be returned to
the Company upon Company Request.
- 34 -
<PAGE> 43
ARTICLE FIVE
Remedies
SECTION 501. Events of Default.
"Event of Default," wherever used herein, means any one of the
following events that has occurred and is continuing (whatever the reason for
such Event of Default and whether it shall be occasioned by the provisions of
Article Twelve or be voluntary or involuntary or be effected by operation of law
or pursuant to any judgment, decree or order of any court or any order, rule or
regulation of any administrative or governmental body):
(a) failure for 30 days to pay interest on the Securities, including
any Additional Payments in respect thereof, when due; provided that a valid
extension of an interest payment period will not constitute a default in the
payment of interest (including Additional Payments, if any) for this purpose;
(b) failure to pay principal of or premium, if any, on the Securities
when due, whether at maturity, upon redemption, by declaration or otherwise;
(c) failure by the Company to deliver shares of its Common Stock upon
an election by a holder of Preferred Securities to convert such Preferred
Securities;
(d) failure to observe or perform any other covenant contained in the
Indenture for 90 days after notice to the Company by the Trustee or by the
holders of not less than 25% in aggregate outstanding principal amount of the
Securities;
(e) entry by a court having jurisdiction in the premises of (i) a
decree or order for relief in respect of the Company in an involuntary case or
proceeding under any applicable federal or state bankruptcy, insolvency,
reorganization or other similar law or (ii) a decree or order adjudging the
Company a bankrupt or insolvent, or approving as properly filed a petition
seeking reorganization, arrangement, adjustment or composition of or in respect
of the Company under any applicable federal or state law, or appointing a
custodian, receiver, liquidator, assignee, trustee, sequestrator or other
similar official of the Company or
- 35 -
<PAGE> 44
of substantially all of the property of the Company, or ordering the winding up
or liquidation of its affairs, and the continuance of any such decree or order
for relief or any such other decree or order unstayed and in effect for a period
of 60 consecutive days;
(f) the commencement by the Company of a voluntary case or proceeding
under any applicable federal or state bankruptcy, insolvency, reorganization or
other similar law or of any other case or proceeding to be adjudicated a
bankrupt or insolvent, or the consent by the Company or to the entry of a decree
or order for relief in respect of itself in an involuntary case or proceeding
under any applicable federal or state bankruptcy, insolvency, reorganization or
other similar law or to the commencement of any bankruptcy or insolvency case or
proceeding against the Company, or the filing by the Company of a petition or
answer or consent seeking reorganization or relief under any applicable federal
or state law, or the consent by the Company to the filing of such petition or to
the appointment of or taking possession by a custodian, receiver, liquidator,
assignee, trustee, sequestrator or other similar official of the Company or of
substantially all of the property of the Company, or the making by the Company
of an assignment for the benefit of creditors, or the admission by the Company
in writing of its inability to pay its debts generally as they become due, or
the taking of corporate action by the Company in furtherance of any such action;
or
(g) the voluntary or involuntary dissolution, winding up or termination
of the Trust, except in connection with (i) the distribution of Securities to
holders of Preferred Securities in liquidation of the Trust upon the redemption
of all of the outstanding Preferred Securities of the Trust or (ii) certain
mergers, consolidations or amalgamations, each as permitted by the
Declaration.
SECTION 502. Acceleration of Maturity; Rescission and Annulment.
If an Event of Default occurs and is continuing, then and in every such
case the Trustee or the Holders of not less than 25% in principal amount of the
Outstanding Securities may declare the principal of all the Securities and any
other amounts payable hereunder to be due and payable immediately, by a notice
in writing to the Company (and to the Trustee if given by Holders), and upon any
such
- 36 -
<PAGE> 45
declaration such principal and all accrued interest shall become immediately due
and payable.
At any time after such a declaration of acceleration has been made and
before a judgment or decree for payment of the money due has been obtained by
the Trustee as provided in this Article, the Holders of a majority in aggregate
principal amount of the Outstanding Securities, by written notice to the Company
and the Trustee, may rescind and annul such declaration and its consequences if:
(a) the Company has paid or deposited with the Trustee a sum sufficient
to pay
(i) all overdue interest (including Additional Payments, if
any) on all Securities,
(ii) the principal of any Securities which have become due
otherwise than by such declaration of acceleration and interest thereon at
the rate borne by the Securities, and
(iii) all sums paid or advanced by the Trustee hereunder and the
reasonable compensation, expenses, disbursements and advances of the
Trustee, its agents and counsel;
and
(b) all Events of Default, other than the non-payment of the principal
of Securities which have become due solely by such declaration of acceleration,
have been cured or waived as provided in Section 513.
No such rescission shall affect any subsequent default or impair any
right consequent thereon.
SECTION 503. Collection of Indebtedness and Suits for Enforcement by Trustee.
The Company covenants that if:
(a) default is made in the payment of any interest (including
Additional Interest Payments, if any) on any Security when such interest becomes
due and payable and such default continues for a period of 30 days, or
- 37 -
<PAGE> 46
(b) default is made in the payment of the principal of any Security
at the Maturity thereof,
the Company will, upon demand of the Trustee, pay to it, for the benefit of the
Holders of such Securities, the whole amount then due and payable on such
Securities for principal and interest (including Additional Payments, if any)
and, to the extent that payment thereof shall be legally enforceable, interest
on any overdue principal and on any overdue interest (including Additional
Payments, if any), at the rate borne by the Securities, and, in addition
thereto, such further amount as shall be sufficient to cover the costs and
expenses of collection, including the reasonable compensation, expenses,
disbursements and advances of the Trustee, its agents and counsel.
If an Event of Default occurs and is continuing, the Trustee may in its
discretion proceed to protect and enforce its rights and the rights of the
Holders by such appropriate judicial proceedings as the Trustee shall deem most
effectual to protect and enforce any such rights, whether for the specific
enforcement of any covenant or agreement in this Indenture or in aid of the
exercise of any power granted herein, or to enforce any other proper remedy.
SECTION 504. Trustee May File Proofs of Claim.
In case of any judicial proceeding relative to the Company (or any
other obligor upon the Securities), its property or its creditors, the Trustee
shall be entitled and empowered, by intervention in such proceeding or
otherwise, to take any and all actions authorized under the Trust Indenture Act
in order to have claims of the Holders and the Trustee allowed in any such
proceeding. In particular, the Trustee shall be authorized to collect and
receive any moneys or other property payable or deliverable on any such claims
and to distribute the same; and any custodian, receiver, assignee, trustee,
liquidator, sequestrator or other similar official in any such judicial
proceeding is hereby authorized by each Holder to make such payments to the
Trustee and, in the event that the Trustee shall consent to the making of such
payments directly to the Holders, to pay to the Trustee any amount due it for
the reasonable compensation, expenses, disbursements and advances of the
Trustee, its agents and counsel, and any other amounts due the Trustee under
Section 607.
- 38 -
<PAGE> 47
No provision of this Indenture shall be deemed to authorize the Trustee
to authorize or consent to or accept or adopt on behalf of any Holder any plan
of reorganization, arrangement, adjustment or composition affecting the
Securities or the rights of any Holder thereof or to authorize the Trustee to
vote in respect of the claim of any Holder in any such proceeding.
SECTION 505. Trustee May Enforce Claims Without Possession of Securities.
All rights of action and claims under this Indenture or the Securities
may be prosecuted and enforced by the Trustee without the possession of any of
the Securities or the production thereof in any proceeding relating thereto, and
any such proceeding instituted by the Trustee shall be brought in its own name
as trustee of an express trust, and any recovery of judgment shall, after
provision for the payment of the reasonable compensation, expenses,
disbursements and advances of the Trustee, its agents and counsel, be for the
ratable benefit of the Holders of the Securities in respect of which such
judgment has been recovered.
SECTION 506. Application of Money Collected.
Subject to Article Twelve, any money collected by the Trustee pursuant
to this Article shall be applied in the following order, at the date or dates
fixed by the Trustee and, in case of the distribution of such money on account
of principal or interest (including Additional Payments, if any), upon
presentation of the Securities and the notation thereon of the payment if only
partially paid and upon surrender thereof if fully paid:
FIRST: To the payment of all amounts due the Trustee under Section 607;
and
SECOND: To the payment of the amounts then due and unpaid for principal
of and interest (including Additional Payments, if any) on the Securities
in respect of which or for the benefit of which such money has been
collected, ratably, without preference or priority of any kind, according
to the amounts due and payable on such Securities for principal and
interest (including Additional Payments, if any), respectively.
- 39 -
<PAGE> 48
SECTION 507. Limitation on Suits.
Subject to Section 516, no Holder of any Security shall have any right
to institute any proceeding, judicial or otherwise, with respect to this
Indenture, or for the appointment of a receiver or trustee, or for any other
remedy hereunder, unless
(a) such Holder has previously given written notice to the Trustee of a
continuing Event of Default;
(b) the Holders of not less than 25% in aggregate principal amount of
the Outstanding Securities shall have made written request to the Trustee to
institute proceedings in respect of such Event of Default in its own name as
Trustee hereunder;
(c) such Holder or Holders have offered to the Trustee reasonable
indemnity against the costs, expenses and liabilities to be incurred in
compliance with such request;
(d) the Trustee for 60 days after its receipt of such notice, request
and offer of indemnity has failed to institute any such proceeding; and
(e) no direction inconsistent with such written request has been given
to the Trustee during such 60-day period by the Holders of a majority in
principal amount of the Outstanding Securities;
it being understood and intended that no one or more Holders shall have any
right in any manner whatever by virtue of, or by availing of, any provision of
this Indenture to affect, disturb or prejudice the rights of any other Holders,
or to obtain or to seek to obtain priority or preference over any other Holders
or to enforce any right under this Indenture, except in the manner herein
provided and for the equal and ratable benefit of all the Holders.
SECTION 508. Unconditional Right of Holders to Receive Principal and Interest
and Convert.
Notwithstanding any other provision in this Indenture, the Holder of
any Security shall have the right, which is absolute and unconditional, to
receive payment of the principal of and (subject to Section 307) interest
(including Additional Payments, if any) on such Security on the re-
- 40 -
<PAGE> 49
spective Stated Maturities expressed in such Security (or, in the case of
redemption, on the Redemption Date) and to convert such Security in accordance
with Article Thirteen and to institute suit for the enforcement of any such
payment and right to convert, and such rights shall not be impaired without the
consent of such Holder.
SECTION 509. Restoration of Rights and Remedies.
If the Trustee or any Holder has instituted any proceeding to enforce
any right or remedy under this Indenture and such proceeding has been
discontinued or abandoned for any reason, or has been determined adversely to
the Trustee or to such Holder, then and in every such case, subject to any
determination in such proceeding, the Company, the Trustee and the Holders shall
be restored severally and respectively to their former positions hereunder and
thereafter all rights and remedies of the Trustee and the Holders shall continue
as though no such proceeding had been instituted.
SECTION 510. Rights and Remedies Cumulative.
Except as otherwise provided with respect to the replacement or payment
of mutilated, destroyed, lost or stolen Securities in the last paragraph of
Section 306, no right or remedy herein conferred upon or reserved to the Trustee
or to the Holders is intended to be exclusive of any other right or remedy, and
every right and remedy shall, to the extent permitted by law, be cumulative and
in addition to every other right and remedy given hereunder or now or hereafter
existing at law or in equity or otherwise. The assertion or employment of any
right or remedy hereunder, or otherwise, shall not prevent the concurrent
assertion or employment of any other appropriate right or remedy.
SECTION 511. Delay or Omission Not Waiver.
No delay or omission of the Trustee or of any Holder of any Security to
exercise any right or remedy accruing upon any Event of Default shall impair any
such right or remedy or constitute a waiver of any such Event of Default or an
acquiescence therein. Every right and remedy given by this Article or by law to
the Trustee or to the Holders may be exercised from time to time, and as often
as may be deemed expedient, by the Trustee or by the Holders, as the case may
be.
- 41 -
<PAGE> 50
SECTION 512. Control by Holders.
The Holders of a majority in principal amount of the Outstanding
Securities shall have the right to direct the time, method and place of
conducting any proceeding for any remedy available to the Trustee or exercising
any trust or power conferred on the Trustee; provided, that
(a) such direction shall not be in conflict with any rule of law or
with this Indenture; and
(b) the Trustee may take any other action deemed proper by the Trustee
which is not inconsistent with such direction.
SECTION 513. Waiver of Past Defaults.
Subject to Section 902 hereof, the Holders of not less than a majority
in principal amount of the Outstanding Securities may on behalf of the Holders
of all the Securities waive any past default hereunder and its consequences,
except a default
(a) in the payment of the principal of, premium, if any, or interest
(including Additional Payments, if any) on any Security (unless such default has
been cured and a sum sufficient to pay all matured installments of interest and
principal due otherwise than by acceleration has been deposited with the
Trustee); or
(b) in respect of a covenant or provision hereof that under Article
Nine cannot be modified or amended without the consent of the Holder of each
Outstanding Security affected; provided, however, that if the Securities are
held by the Trust or a trustee of the Trust, such waiver shall not be effective
until the holders of a majority in liquidation amount of Trust Securities shall
have consented to such waiver; provided, further, that if the consent of the
Holder of each outstanding Security is required, such waiver shall not be
effective until each holder of the Trust Securities shall have consented to such
waiver.
Upon any such waiver, such default shall cease to exist, and any Event
of Default arising therefrom shall be deemed to have been cured, for every
purpose of this Indenture; but no such waiver shall extend to any subsequent or
other default or impair any right consequent thereon.
- 42 -
<PAGE> 51
SECTION 514. Undertaking for Costs.
In any suit for the enforcement of any right or remedy under this
Indenture, or in any suit against the Trustee for any action taken, suffered or
omitted by it as Trustee, a court may require any party litigant in such suit to
file an undertaking to pay the costs of such suit, and may assess costs against
any such party litigant, in the manner and to the extent provided in the Trust
Indenture Act; provided, that neither this Section nor the Trust Indenture Act
shall be deemed to authorize any court to require such an undertaking or to make
such an assessment in any suit instituted by the Company or the Trustee or in
any suit for the enforcement of the right to receive the principal of and
interest (including Additional Payments, if any) on any Security or to convert
any Security in accordance with Article Thirteen.
SECTION 515. Waiver of Stay or Extension Laws.
The Company covenants (to the extent that it may lawfully do so) that
it will not at any time insist upon, or plead, or in any manner whatsoever claim
or take the benefit or advantage of, any stay or extension law wherever enacted,
now or at any time hereafter in force, which may affect the covenants or the
performance of this Indenture; and the Company (to the extent that it may
lawfully do so) hereby expressly waives all benefit or advantage of any such law
and covenants that it will not hinder, delay or impede the execution of any
power herein granted to the Trustee, but will suffer and permit the execution of
every such power as though no such law had been enacted.
SECTION 516. Enforcement by Holders of Preferred Securities.
Notwithstanding the foregoing, if an Event of Default has occurred and
is continuing and such event is attributable to the failure of the Company to
pay interest or principal on the Securities on the date such interest or
principal is otherwise payable, the Company acknowledges that, in such event, a
holder of Preferred Securities may institute a Direct Action for payment on or
after the respective due date specified in the Securities. The Company may not
amend this Indenture to remove the foregoing right to bring a Direct Action
without the prior written consent of all the holders of Preferred Securities.
Notwithstanding
- 43 -
<PAGE> 52
any payment made to such holder of Preferred Securities by the Company in
connection with a Direct Action, the Company shall remain obligated to pay the
principal of and interest on the Securities (including Additional Payments, if
any) held by the Trust or the Property Trustee and the Company shall be
subrogated to the rights of the holder of such Preferred Securities with respect
to payments on the Preferred Securities to the extent of any payments made by
the Company to such holder in any Direct Action. The holders of Preferred
Securities will not be able to exercise directly any other remedy available to
the Holders of the Securities.
ARTICLE SIX
The Trustee
SECTION 601. Certain Duties and Responsibilities.
The duties and responsibilities of the Trustee shall be as provided by
the Trust Indenture Act. Notwithstanding the foregoing, no provision of this
Indenture shall require the Trustee to expend or risk its own funds or otherwise
incur personal financial liability in the performance of any of its duties or in
the exercise of any of its rights or powers, if it shall have reasonable grounds
for believing that the repayment of such funds or liability is not reasonably
assured to it under the terms of this Indenture or indemnity reasonably
satisfactory to the Trustee against such risk or liability is not reasonably
assured to it. Whether or not therein expressly so provided, every provision of
this Indenture relating to the conduct or affecting the liability of or
affording protection to the Trustee shall be subject to the provisions of this
Section 601.
SECTION 602. Notice of Defaults.
The Trustee shall give the Holders notice of any default hereunder as
and to the extent provided by the Trust Indenture Act; provided, however, that
in the case of any default of the character specified in Section 501(d), no such
notice to Holders shall be given until at least 30 days after the occurrence
thereof. For the purpose of this Section 602, the term "default" means any event
which is, or after notice or lapse of time or both would become, an Event of
Default.
- 44 -
<PAGE> 53
SECTION 603. Certain Rights of Trustee.
Subject to the provisions of Section 601:
(a) the Trustee may rely and shall be protected in acting or refraining
from acting upon any resolution, certificate, statement, instrument, opinion,
report, notice, request, direction, consent, order, bond, debenture, note, other
evidence of indebtedness or other paper or document believed by it to be genuine
and to have been signed or presented by the proper party or parties;
(b) any request or direction of the Company mentioned herein shall be
sufficiently evidenced by a Company Request or Company Order and any resolution
of the Board of Directors may be sufficiently evidenced by a Board Resolution;
(c) whenever in the administration of this Indenture the Trustee shall
deem it desirable that a matter be proved or established prior to taking,
suffering or omitting any action hereunder, the Trustee (unless other evidence
be herein specifically prescribed) may, in the absence of bad faith on its part,
rely upon an Officers' Certificate;
(d) the Trustee may consult with counsel of its choice and the advice
of such counsel or any Opinion of Counsel shall be full and complete
authorization and protection in respect of any action taken, suffered or omitted
by it hereunder in good faith and in reliance thereon;
(e) the Trustee shall be under no obligation to exercise any of the
rights or powers vested in it by this Indenture at the request or direction of
any of the Holders pursuant to this Indenture, unless such Holders shall have
offered to the Trustee reasonable security or indemnity against the costs,
expenses and liabilities which might be incurred by it in compliance with such
request or direction;
(f) the Trustee shall not be bound to make any investigation into the
facts or matters stated in any resolution, certificate, statement, instrument,
opinion, report, notice, request, direction, consent, order, bond, debenture,
note, other evidence of indebtedness or other paper or document, but the
Trustee, in its discretion, may make such further inquiry or investigation into
such facts or matters as it may see fit, and, if the Trustee shall determine to
- 45 -
<PAGE> 54
make such further inquiry or investigation, it shall be entitled to reasonable
examination of the books, records and premises of the Company, personally or by
agent or attorney;
(g) the Trustee may execute any of the trusts or powers hereunder or
perform any duties hereunder either directly or by or through agents or
attorneys and the Trustee shall not be responsible for any misconduct or
negligence on the part of any agent or attorney appointed with due care by it
hereunder; and
(h) the Trustee shall not be liable for any action taken, suffered, or
omitted to be taken by it in good faith, without negligence or willful
misconduct, and reasonably believed by it to be authorized or within the
discretion or rights or powers conferred upon it by this Indenture.
SECTION 604. Not Responsible for Recitals or Issuance of Securities.
The recitals contained herein and in the Securities, except the
Trustee's certificates of authentication, shall be taken as the statements of
the Company, and the Trustee assumes no responsibility for their correctness.
The Trustee makes no representations as to the validity or sufficiency of this
Indenture or of the Securities. The Trustee shall not be accountable for the use
or application by the Company of the Securities or the proceeds thereof.
SECTION 605. May Hold Securities.
The Trustee, any Paying Agent, any Security Registrar or any other
agent of the Company, in its individual or any other capacity, may become the
owner or pledgee of Securities and, subject to Sections 608 and 613, may
otherwise deal with the Company with the same rights it would have if it were
not Trustee, Paying Agent, Security Registrar, or such other agent.
SECTION 606. Money Held in Trust.
Money held by the Trustee in trust hereunder need not be segregated
from other funds except to the extent required by law. The Trustee shall be
under no liability for interest on any money received by it hereunder except as
otherwise agreed with the Company.
- 46 -
<PAGE> 55
SECTION 607. Compensation and Reimbursement.
The Company agrees
(a) to pay to the Trustee from time to time such compensation as the
Company and the Trustee shall from time to time agree in writing for all
services rendered by it hereunder;
(b) except as otherwise expressly provided herein, to reimburse the
Trustee upon its request for all reasonable expenses, fees, disbursements and
advances incurred or made by the Trustee in accordance with any provision of
this Indenture (including the reasonable compensation and the expenses and
disbursements of its agents and counsel), except any such expense, disbursement
or advance as may be attributable to its negligence or bad faith; and
(c) to indemnify the Trustee and any predecessor Trustee for, and to
hold it harmless against, any loss, liability or expense incurred without
negligence or bad faith on its part, arising out of or in connection with the
acceptance or administration of this trust, including the costs and expenses of
defending itself against any claim or liability in connection with the exercise
or performance of any of its powers or duties hereunder.
When the Trustee incurs expenses or renders services in connection with
an Event of Default specified in Section 501(f) or Section 501(g), the expenses
(including the reasonable charges and expenses of its counsel) and the
compensation for the services are intended to constitute expenses of
administration under any applicable federal or state bankruptcy, insolvency or
other similar law.
The provisions of this Section shall survive the termination of this
Indenture.
SECTION 608. Disqualification; Conflicting Interests.
If the Trustee has or shall acquire a conflicting interest within the
meaning of the Trust Indenture Act, the Trustee shall either eliminate such
interest or resign, to the extent and in the manner provided by, and subject to
the provisions of, the Trust Indenture Act and this Indenture.
SECTION 609. Corporate Trustee Required; Eligibility.
- 47 -
<PAGE> 56
There shall at all times be a Trustee hereunder which shall be a Person
that is eligible pursuant to the Trust Indenture Act to act as such and has a
combined capital and surplus of at least $50,000,000 and has its Corporate Trust
Office in New York, New York. If such Person publishes reports of condition at
least annually, pursuant to law or to the requirements of said supervising or
examining authority, then for the purposes of this Section, the combined capital
and surplus of such Person shall be deemed to be its combined capital and
surplus as set forth in its most recent report of condition so published. If at
any time the Trustee shall cease to be eligible in accordance with the
provisions of this Section, it shall resign immediately in the manner and with
the effect hereinafter specified in this Article.
SECTION 610. Resignation and Removal; Appointment of Successor.
(a) No resignation or removal of the Trustee and no appointment of a
successor Trustee pursuant to this Article shall become effective until the
acceptance of appointment by the successor Trustee under Section 611.
(b) The Trustee may resign at any time by giving written notice thereof
to the Company. If an instrument of acceptance by a successor Trustee shall not
have been delivered to the Trustee within 30 days after the giving of such
notice of resignation, the resigning Trustee may petition any court of competent
jurisdiction for the appointment of a successor Trustee.
(c) The Trustee may be removed at any time by Act of the Holders of a
majority in principal amount of the Outstanding Securities, delivered to the
Trustee and to the Company. If an instrument of acceptance by a successor
Trustee shall not have been delivered to the Trustee within 30 days after the
giving of such notice of resignation, the resigning Trustee may petition any
court of competent jurisdiction for the appointment of a successor Trustee.
(d) If at any time:
(i) the Trustee shall fail to comply with Section 608 after
written request therefor by the Company or by any Holder who has been a
bona
- 48 -
<PAGE> 57
fide Holder of a Security for at least six months, or
(ii) the Trustee shall cease to be eligible under Section 609 and
shall fail to resign after written request therefor by the Company or by
any such Holder, or
(iii) the Trustee shall become incapable of acting or shall be
adjudged a bankrupt or insolvent or a receiver of the Trustee or of its
property shall be appointed or any public officer shall take charge or
control of the Trustee or of its property or affairs for the purpose of
rehabilitation, conservation or liquidation,
then, in any such case, (A) the Company by Board Resolution may remove the
Trustee, or (B) subject to Section 514, any Holder who has been a bona fide
Holder of a Security for at least six months may, on behalf of himself and all
others similarly situated, petition any court of competent jurisdiction for the
removal of the Trustee and the appointment of a successor Trustee.
(e) If the Trustee shall resign, be removed or become incapable of
acting, or if a vacancy shall occur in the office of Trustee for any cause, the
Company, by a Board Resolution, shall promptly appoint a successor Trustee. If,
within one year after such resignation, removal or incapability, or the
occurrence of such vacancy, a successor Trustee shall be appointed by Act of the
Holders of a majority in principal amount of the Outstanding Securities
delivered to the Company and the retiring Trustee, the successor Trustee so
appointed shall, forthwith upon its acceptance of such appointment, become the
successor Trustee and supersede the successor Trustee appointed by the Company.
If no successor Trustee shall have been so appointed by the Company or the
Holders and accepted appointment in the manner hereinafter provided, any Holder
who has been a bona fide Holder of a Security for at least six months may, on
behalf of himself and all others similarly situated, petition any court of
competent jurisdiction for the appointment of a successor Trustee.
(f) The Company shall give notice of each resignation and each removal
of the Trustee and each appointment of a successor Trustee to all Holders in the
manner provided
- 49 -
<PAGE> 58
in Section 106. Each notice shall include the name of the successor Trustee and
the address of its Corporate Trust Office.
SECTION 611. Acceptance of Appointment by Successor.
Every successor Trustee appointed hereunder shall execute, acknowledge
and deliver to the Company and to the retiring Trustee an instrument accepting
such appointment, and thereupon the resignation or removal of the retiring
Trustee shall become effective and such successor Trustee, without any further
act, deed or conveyance, shall become vested with all the rights, powers, trusts
and duties of the retiring Trustee; provided, that on request of the Company or
the successor Trustee, such retiring Trustee shall, upon payment of its charges,
execute and deliver an instrument transferring to such successor Trustee all the
rights, powers and trusts of the retiring Trustee and shall duly assign,
transfer and deliver to such successor Trustee all property and money held by
such retiring Trustee hereunder. Upon request of any such successor Trustee, the
Company shall execute any and all instruments required to more fully and
certainly vest in and confirm to such successor Trustee all such rights, powers
and trusts.
No successor Trustee shall accept its appointment unless at the time of
such acceptance such successor Trustee shall be qualified and eligible under
this Article.
SECTION 612. Merger, Conversion, Consolidation or Succession to Business.
Any corporation into which the Trustee may be merged or converted or
with which it may be consolidated, or any corporation resulting from any merger,
conversion or consolidation to which the Trustee shall be a party, or any
corporation succeeding to all or substantially all the corporate trust business
of the Trustee, shall be the successor of the Trustee hereunder, provided such
corporation shall be otherwise qualified and eligible under this Article,
without the execution or filing of any paper or any further act on the part of
any of the parties hereto. In case any Securities shall have been authenticated,
but not delivered, by the Trustee then in office, any successor by merger,
conversion or consolidation to such authenticating Trustee may adopt such
authentication and deliver the Secu-
- 50 -
<PAGE> 59
rities so authenticated with the same effect as if such successor Trustee had
itself authenticated such Securities.
SECTION 613. Preferential Collection of Claims Against Company.
If and when the Trustee shall be or become a creditor of the Company
(or any other obligor upon the Securities), the Trustee shall be subject to the
provisions of the Trust Indenture Act regarding the collection of claims against
the Company (or any such other obligor).
ARTICLE SEVEN
Holders' Lists and Reports by Trustee and Company
SECTION 701. Company to Furnish Trustee Names and Addresses of Holders.
The Company will furnish or cause to be furnished to the Trustee
(a) semiannually, not later than February 15 and August 15 in each
year, a list, in such form as the Trustee may reasonably require, of the names
and addresses of the Holders as of a date not more than 15 days prior to the
delivery thereof, and
(b) at such other times as the Trustee may request in writing, within
30 days after the receipt by the Company of any such request, a list of similar
form and content as of a date not more than 15 days prior to the time such list
is furnished;
excluding from any such list names and addresses received by the Trustee in its
capacity as Security Registrar.
SECTION 702. Preservation of Information; Communications to Holders.
(a) The Trustee shall preserve, in as current a form as is reasonably
practicable, the names and addresses of Holders contained in the most recent
list furnished to the Trustee as provided in Section 701 and the names and
addresses of Holders received by the Trustee in its capacity as Security
Registrar. The Trustee may destroy any list
- 51 -
<PAGE> 60
furnished to it as provided in Section 701 upon receipt of a
new list so furnished.
(b) The rights of Holders to communicate with other Holders with
respect to their rights under this Indenture or under the Securities, and the
corresponding rights and duties of the Trustee, shall be as provided by the
Trust Indenture Act.
(c) Every Holder of Securities, by receiving and holding the same,
agrees with the Company and the Trustee that neither the Company nor the Trustee
nor any agent of either of them shall be held accountable by reason of any
disclosure of information as to names and addresses of Holders made pursuant to
the Trust Indenture Act.
SECTION 703. Reports by Trustee.
(a) Within 60 days after May 15 of each year, commencing May 15, 1997,
the Trustee shall transmit by mail to Holders such reports concerning the
Trustee and its actions under this Indenture as may be required pursuant to the
Trust Indenture Act in the manner provided pursuant thereto.
(b) A copy of each such report shall, at the time of such transmission
to Holders, be filed by the Trustee with each stock exchange upon which the
Securities are listed, with the Commission and with the Company. The Company
will notify the Trustee when the Securities are listed on any stock exchange.
SECTION 704. Reports by Company.
The Company shall file with the Trustee and the Commission, and
transmit to Holders, such information, documents and other reports, and such
summaries thereof, as may be required pursuant to the Trust Indenture Act at the
times and in the manner provided pursuant to such Act; provided, that any such
information, documents or reports required to be filed with the Commission
pursuant to Section 13 or 15(d) of the Exchange Act shall be filed with the
Trustee within 15 days after the same is so required to be filed with the
Commission.
Delivery of such reports, information and documents to the Trustee is
for informational purposes only and
- 52 -
<PAGE> 61
the Trustee's receipt of such shall not constitute constructive notice of any
information contained therein or determinable from information contained
therein, including the Company's compliance with any of its covenants hereunder
(as to which the Trustee is entitled to rely exclusively on Officers'
Certificates).
The Company shall also provide to the Trustee on a timely basis
such information as the Trustee requires to enable the Trustee to prepare and
file any form required to be submitted by the Company with the Internal Revenue
Service and the Holders of the Securities relating to original issue discount,
if any, including, without limitation, Form 1099-OID or any successor form.
ARTICLE EIGHT
Consolidation, Merger, Conveyance, Transfer or Lease
SECTION 801. Company May Consolidate, Etc., Only on Certain Terms.
The Company shall not consolidate with or merge with or into any
other Person or, directly or indirectly, convey, transfer or lease all or
substantially all of its properties and assets on a consolidated basis to any
Person, unless:
(a) the Person formed by such consolidation or into which the
Company is merged or the Person which acquires by conveyance, transfer or lease,
all or substantially all of the properties and assets of the Company on a
consolidated basis shall be a corporation, partnership or trust, shall be
organized and validly existing under the laws of the United States of America,
any State thereof or the District of Columbia and shall expressly assume, by an
indenture supplemental hereto, executed and delivered to the Trustee, in form
reasonably satisfactory to the Trustee, the due and punctual payment of the
principal of (and premium, if any) and interest (including Additional Payments,
if any) on all the Securities and the performance or observance of every
covenant of this Indenture on the part of the Company to be performed or
observed and shall have provided for conversion rights in accordance with
Article Thirteen;
- 53 -
<PAGE> 62
(b) immediately after giving effect to such transaction and
treating any indebtedness which becomes an obligation of the Company or a
Subsidiary as a result of such transaction as having been incurred by the
Company or such Subsidiary at the time of such transaction, no Event of Default,
and no event which, after notice or lapse of time or both, would become an Event
of Default, shall have happened and be continuing; and
(c) the Company has delivered to the Trustee an Officers'
Certificate and an Opinion of Counsel, each stating that such consolidation,
merger, conveyance, transfer or lease and, if a supplemental indenture is
required in connection with such transaction, such supplemental indenture,
comply with this Article and that all conditions precedent herein provided for
relating to such transaction have been complied with.
This Section shall only apply to a merger or consolidation in
which the Company is not the surviving corporation and to conveyances, leases
and transfers by the Company as transferor or lessor.
SECTION 802. Successor Substituted.
Upon any consolidation of the Company with, or merger of the
Company into, any other Person or any conveyance, transfer or lease of all or
substantially all the properties and assets of the Company on a consolidated
basis in accordance with Section 801, the successor Person formed by such
consolidation or into which the Company is merged or to which such conveyance,
transfer or lease is made shall succeed to, and be substituted for, and may
exercise every right and power of, the Company under this Indenture with the
same effect as if such successor Person had been named as the Company herein,
and thereafter the predecessor Person shall be relieved of all obligations and
covenants under this Indenture and the Securities.
- 54 -
<PAGE> 63
ARTICLE NINE
Supplemental Indentures
SECTION 901. Supplemental Indentures Without Consent of Holders.
Without the consent of any Holders, the Company, when authorized
by a Board Resolution, and the Trustee, at any time and from time to time, may
enter into one or more indentures supplemental hereto, in form satisfactory to
the Trustee, for any of the following purposes:
(a) to evidence the succession of another Person to the Company
and the assumption by any such successor of the covenants of the Company herein
and in the Securities; or
(b) to add to the covenants of the Company for the benefit of the
Holders, or to surrender any right or power herein conferred upon the Company;
or
(c) to make provision with respect to the conversion rights of
Holders pursuant to the requirements of Article Thirteen; or
(d) to cure any ambiguity, to correct or supplement any provision
herein which may be inconsistent with any other provision herein, or to make any
other provisions with respect to matters or questions arising under this
Indenture which shall not be inconsistent with the provisions of this Indenture;
provided, that such action pursuant to this Clause (d) shall not adversely
affect the interests of the Holders of the Securities or, so long as any of the
Preferred Securities shall remain outstanding, the holders of the Preferred
Securities;
(e) to comply with the requirements of the Commission in order
to effect or maintain the qualification of this Indenture under the Trust
Indenture Act; or
(f) to make provision for transfer procedures, certification,
book-entry provisions, the form of restricted securities legends, if any, to be
placed on Securities, and all other matters required pursuant to Section 305(b)
or otherwise necessary, desirable or appropriate in connection with the issuance
of Securities to holders of Preferred
- 55 -
<PAGE> 64
Securities in the event of a distribution of Securities by the Trust if a
Special Event occurs and is continuing.
SECTION 902. Supplemental Indentures with Consent of Holders.
With the consent of the Holders of not less than a majority in
principal amount of the Outstanding Securities, by Act of said Holders delivered
to the Company and the Trustee, the Company, when authorized by a Board
Resolution, and the Trustee may enter into an indenture or indentures
supplemental hereto for the purpose of adding any provisions to or changing in
any manner or eliminating any of the provisions of this Indenture or of
modifying in any manner the rights of the Holders under this Indenture;
provided, however, that no such supplemental indenture shall, without the
consent of the Holder of each Outstanding Security affected thereby,
(a) extend the Stated Maturity of the principal of, or any
installment of interest (including Additional Payments, if any) on, any
Security, or reduce the principal amount thereof, or reduce the rate or extend
the time for payment of interest thereon, or extend the Extension Period, or
reduce any premium payable upon the redemption thereof, or change the place of
payment where, or the coin or currency in which, any Security or interest
thereon is payable, or impair the right to institute suit for the enforcement of
any such payment on or after the Stated Maturity thereof (or, in the case of
redemption, on or after the Redemption Date), or adversely affect the right to
convert any Security as provided in Article Thirteen (except as permitted by
Section 901(c)), or modify the provisions of this Indenture with respect to the
subordination of the Securities in a manner adverse to the Holders,
(b) reduce the percentage in principal amount of the Outstanding
Securities, the consent of whose Holders is required for any such supplemental
indenture, or the consent of whose Holders is required for any waiver (of
compliance with certain provisions of this Indenture or certain defaults
hereunder and their consequences) provided for in this Indenture, or
(c) modify any of the provisions of this Section or Section 513,
except to increase any such percentage or to provide that certain other
provisions of this Indenture
- 56 -
<PAGE> 65
cannot be modified or waived without the consent of the Holder of each
Outstanding Security affected thereby;
provided that if the Securities are held by the Trust or a trustee of the Trust,
such supplemental indenture shall not be effective until the holders of a
majority in liquidation amount of Trust Securities shall have consented to such
supplemental indenture; provided, further, that if the consent of the Holder of
each Outstanding Security is required, such supplemental indenture shall not be
effective until each holder of the Trust Securities of the Trust shall have
consented to such supplemental indenture.
It shall not be necessary for any Act of Holders under this
Section to approve the particular form of any proposed supplemental indenture,
but it shall be sufficient if such Act shall approve the substance thereof.
The Company may, but shall not be obligated to, fix a record date
for the purpose of determining the Persons entitled to consent to any indenture
supplemental hereto. If a record date is fixed, the Holders on such record date,
or their duly designated proxies, and only such Persons, shall be entitled to
consent to such supplemental indenture, whether or not such Holders remain
Holders after such record date; provided that unless such consent shall have
become effective by virtue of the requisite percentage having been obtained
prior to the date which is 90 days after such record date, any such consent
previously given shall automatically and without further action by any Holder be
cancelled and of no further effect.
SECTION 903. Execution of Supplemental Indentures.
In executing, or accepting the additional trusts created by, any
supplemental indenture permitted by this Article or the modifications thereby of
the trusts created by this Indenture, the Trustee shall be entitled to receive,
and (subject to Section 601) shall be fully protected in relying upon, an
Opinion of Counsel stating that the execution of such supplemental indenture is
authorized or permitted by this Indenture. The Trustee may, but shall not be
obligated to, enter into any such supplemental indenture which affects the
Trustee's own rights, duties or immunities under this Indenture or otherwise.
- 57 -
<PAGE> 66
SECTION 904. Effect of Supplemental Indentures.
Upon the execution of any supplemental indenture under this
Article, this Indenture shall be modified in accordance therewith, and such
supplemental indenture shall form a part of this Indenture for all purposes; and
every Holder of Securities theretofore or thereafter authenticated and delivered
hereunder shall be bound thereby. No such supplemental indenture shall directly
or indirectly modify the provisions of Article Twelve in any manner which might
terminate or impair the rights of the Senior Indebtedness pursuant to such
subordination provisions.
SECTION 905. Conformity with Trust Indenture Act.
Every supplemental indenture executed pursuant to this Article
shall conform to the requirements of the Trust Indenture Act.
SECTION 906. Reference in Securities to Supplemental Indentures.
Securities authenticated and delivered after the execution of any
supplemental indenture pursuant to this Article may, and shall if required by
the Trustee, bear a notation in form approved by the Trustee as to any matter
provided for in such supplemental indenture. If the Company shall so determine,
new Securities so modified as to conform, in the opinion of the Trustee and the
Company, to any such supplemental indenture may be prepared and executed by the
Company and authenticated and delivered by the Trustee in exchange for
Outstanding Securities.
ARTICLE TEN
Covenants; Representations and Warranties
SECTION 1001. Payment of Principal and Interest.
The Company will duly and punctually pay the principal of and
interest on the Securities and Additional Payments, if any in accordance with
the terms of the Securities and this Indenture.
- 58 -
<PAGE> 67
SECTION 1002. Maintenance of Office or Agency.
The Company will maintain in the United States an office or agency
where Securities may be presented or surrendered for payment, where Securities
may be surrendered for registration of transfer or exchange and where notices
and demands to or upon the Company in respect of the Securities and this
Indenture may be served. The Company will give prompt written notice to the
Trustee of the location, and any change in the location, of such office or
agency. If at any time the Company shall fail to maintain any such required
office or agency or shall fail to furnish the Trustee with the address thereof,
such presentations, surrenders, notices and demands may be made or served at the
Corporate Trust Office of the Trustee, and the Company hereby appoints the
Trustee as its agent to receive all such presentations, surrenders, notices and
demands.
The Company may also from time to time designate one or more other
offices or agencies (in the United States) where the Securities may be presented
or surrendered for any or all such purposes and may from time to time rescind
such designations; provided, however, that no such designation or rescission
shall in any manner relieve the Company of its obligation to maintain an office
or agency in the United States for such purposes. The Company will give prompt
written notice to the Trustee of any such designation or rescission and of any
change in the location of any such other office or agency.
SECTION 1003. Money for Security Payments to Be Held in Trust.
If the Company shall at any time act as its own Paying Agent, it
will, on or before each due date of the principal of or interest on any of the
Securities, segregate and hold in trust for the benefit of the Persons entitled
thereto a sum sufficient to pay the principal or interest so becoming due until
such sums shall be paid to such Persons or otherwise disposed of as herein
provided and will promptly notify the Trustee of its action or failure so to
act.
Whenever the Company shall have one or more Paying Agents, it
will, prior to each due date of the principal of or interest on any Securities,
deposit with a Paying Agent a sum sufficient to pay such amount, such sum to be
held as provided by the Trust Indenture Act, and (unless such Paying
- 59 -
<PAGE> 68
Agent is the Trustee) the Company will promptly notify the Trustee of its action
or failure so to act.
The Company will cause each Paying Agent other than the Trustee to
execute and deliver to the Trustee an instrument in which such Paying Agent
shall agree with the Trustee, subject to the provisions of this Section, that
such Paying Agent will (i) comply with the provisions of the Trust Indenture Act
applicable to it as a Paying Agent and (ii) during the continuance of any
default by the Company (or any other obligor upon the Securities) in the making
of any payment in respect of the Securities, upon the written request of the
Trustee, forthwith pay to the Trustee all sums held in trust by such Paying
Agent as such.
The Company may at any time, for the purpose of obtaining the
satisfaction and discharge of this Indenture or for any other purpose, pay, or
by Company Order direct any Paying Agent to pay, to the Trustee all sums held in
trust by the Company or such Paying Agent, such sums to be held by the Trustee
upon the same trusts as those upon which such sums were held by the Company or
such Paying Agent; and, upon such payment by any Paying Agent to the Trustee,
such Paying Agent shall be released from all further liability with respect to
such money.
Any money deposited with the Trustee or any Paying Agent, or then
held by the Company, in trust for the payment of the principal of or interest on
(including Additional Payments, if any) any Security and remaining unclaimed for
two years after such principal or interest has become due and payable shall be
paid to the Company on Company Request, or (if then held by the Company) shall
be discharged from such trust; and the Holder of any such Security shall
thereafter, as an unsecured general creditor, look only to the Company for
payment thereof, and all liability of the Trustee or such Paying Agent with
respect to such trust money, and all liability of the Company as trustee
thereof, shall thereupon cease.
SECTION 1004. Statement by Officers as to Default.
The Company will deliver to the Trustee, within 120 days after the
end of each fiscal year of the Company ending after the date hereof, an
Officers' Certificate, stating whether or not to the best knowledge of the
signers thereof the Company is in default in the performance and
- 60 -
<PAGE> 69
observance of any of the material terms, provisions and conditions of this
Indenture (without regard to any period of grace or requirement of notice
provided hereunder) and, if the Company shall be in default, specifying all such
defaults and the nature and status thereof of which they may have knowledge.
SECTION 1005. Limitation on Dividends; Covenants as to the Trust.
(a) The Company covenants that so long as the Securities are
outstanding, if (i) there shall have occurred and be continuing any event that
with the giving of notice or the lapse of time or both, would constitute an
Event of Default, (ii) the Company shall be in default with respect to its
payment of any obligations under the Guarantee, or (iii) the Company has
exercised its option to defer interest payments on the Securities by extending
the interest payment period and such period, or any extension thereof, shall be
continuing, then the Company shall (A) not declare or pay dividends on, or make
a distribution with respect to, or redeem or purchase or acquire, or make a
liquidation payment with respect to, any of its capital stock (other than (x)
purchases or acquisitions of shares of Common Stock in connection with the
satisfaction by the Company of its obligations under any employee benefit plans
or the satisfaction by the Company of its obligations pursuant to any contract
or security requiring the Company to purchase shares of Common Stock, (y) as a
result of a reclassification of the Company's capital stock or the exchange or
conversion of one class or series of the Company's capital stock for another
class or series of the Company's capital stock or (z) the purchase of fractional
interests in shares of the Company's capital stock pursuant to the conversion or
exchange provisions of such capital stock or the security being converted or
exchanged (or make any guarantee payments with respect to the foregoing)), (B)
not make any payment of interest, principal or premium, if any, on or repay,
repurchase or redeem any debt securities (including guarantees) issued by the
Company that rank pari passu with or junior to the Securities and (C) not make
any guarantee payments with respect to the foregoing (other than pursuant to the
Guarantee).
(b) The Company also covenants and agrees (i) that it shall
directly or indirectly maintain 100% ownership of the Common Securities of the
Trust; provided,
- 61 -
<PAGE> 70
however, that any permitted successor of the Company hereunder may succeed to
the Company's ownership of such Common Securities and (ii) that it shall use its
reasonable efforts, consistent with the terms and provisions of the Declaration,
to cause the Trust (x) to remain a statutory business trust, except in
connection with the distribution of the Securities to the holders of Trust
Securities in liquidation of the Trust, the redemption of all of the Trust
Securities of the Trust, or certain mergers, consolidations or amalgamations,
each as permitted by the Declaration, and (y) to otherwise continue to be
classified as a grantor trust for United States Federal income tax purposes.
SECTION 1006. Payment of Expenses of the Trust.
In connection with the offering, sale and issuance of the
Securities to the Property Trustee in connection with the sale of the Trust
Securities by the Trust, the Company shall:
(a) pay for all costs, fees and expenses relating to the offering,
sale and issuance of the Securities, including commissions, discounts and
expenses payable pursuant to the Purchase Agreement and compensation of the
Trustee under the Indenture in accordance with the provisions of Section 607 of
the Indenture;
(b) be responsible for and pay for all debts and obligations
(other than with respect to the Trust Securities) of the Trust, pay for all
costs and expenses of the Trust (including, but not limited to, costs and
expenses relating to the organization of the Trust, the offering, sale and
issuance of the Trust Securities (including commissions, discounts and expenses
in connection therewith), the fees and expenses of the Property Trustee and the
Delaware Trustee, the costs and expenses relating to the operation of the Trust,
including without limitation, costs and expenses of accountants, attorneys,
statistical or bookkeeping services, expenses for printing and engraving and
computing or accounting equipment, paying agent(s), registrar(s), transfer
agent(s), duplicating, travel and telephone and other telecommunications
expenses and costs and expenses incurred in connection with the acquisition,
financing, and disposition of Trust assets); and
(c) pay any and all taxes (other than United States withholding
taxes attributable to the Trust or its
- 62 -
<PAGE> 71
assets) and all liabilities, costs and expenses with respect to such taxes of
the Trust.
ARTICLE ELEVEN
Redemption of Securities
SECTION 1101. Optional Redemption.
(a) The Company shall have the right to redeem the Securities, in
whole or in part, at any time or from time to time on or after [ ] upon not less
than 30 nor more than 60 days' notice, at a redemption price equal to [ ]% of
the principal amount of the Securities to be redeemed plus any accrued and
unpaid interest (including Additional Payments, if any) to the Redemption Date,
if redeemed on or before [ ], and at the following optional redemption prices
(expressed as a percentage of the principal amount of Securities), if redeemed
during the 12- month period beginning [ ]:
<TABLE>
<CAPTION>
Percentage of
Principal
Year Amount
---- -------------
<S> <C>
............................................ %
............................................ %
............................................ %
............................................ %
............................................ %
............................................ %
and thereafter.............................. %
</TABLE>
plus, in each case, accrued and unpaid interest (including Additional Payments,
if any) to the Redemption Date. Any redemption pursuant to this Section 1101
shall be made pursuant to the provisions of Sections 1103 through 1108 hereof.
(b) If a partial redemption of the Securities would result in the
delisting of the Preferred Securities issued by the Trust from any national
securities exchange or other organization on which the Preferred Securities are
listed, the Company shall not be permitted to effect such partial redemption and
may only redeem the Securities in whole.
- 63 -
<PAGE> 72
SECTION 1102. Tax Event Optional Redemption.
If a Tax Event has occurred and is continuing and:
(a) the Company has received a Redemption Tax Opinion; or
(b) after receiving a Dissolution Tax Opinion, the Regular
Trustees shall have been informed by tax counsel rendering the Dissolution Tax
Opinion that a No Recognition Opinion cannot be delivered to the Trust,
then, notwithstanding Section 1101(a) but subject to Section 1101(b), the
Company shall have the right upon not less than 30 days nor more than 60 days
notice to the Holders of the Securities to redeem the Securities in whole (but
not in part) for cash at a redemption price equal to 100% of the principal
amount of the Securities plus accrued and unpaid interest (including Additional
Payments), if any, within 90 days following the occurrence of such Tax Event
(the "90-Day Period"); provided, however, that if, at the time there is
available to the Company or the Trust the opportunity to eliminate within the
90-Day Period, the Tax Event by taking some ministerial action ("Ministerial
Action"), such as filing a form or making an election, or pursuing some other
similar reasonable measure which, in the sole judgment of the Company, has or
will cause no adverse effect on the Company, the Trust or the Holders of the
Trust Securities and will involve no material cost, the Company or the Trust
shall pursue such Ministerial Action or other measure in lieu of redemption, and
provided, further, that the Company shall have no right to redeem the Securities
while the Trust is pursuing any Ministerial Action or other similar measure
pursuant to its obligations under the Declaration.
SECTION 1103. Applicability of Article.
Redemption of Securities at the election of the Company, as
permitted by Sections 1101 and 1102, shall be made in accordance with such
provision and this Article.
- 64 -
<PAGE> 73
SECTION 1104. Election to Redeem; Notice to Trustee.
The election of the Company to redeem Securities pursuant to
Section 1101 or 1102 shall be evidenced by a Board Resolution. In case of any
redemption at the election of the Company, the Company shall, at least 45 days
and no more than 90 days prior to the Redemption Date fixed by the Company,
notify the Trustee in writing of such Redemption Date and of the principal
amount of Securities to be redeemed and provide a copy of the notice of
redemption given to Holders of Securities to be redeemed pursuant to Section
1105.
SECTION 1105. Selection by Trustee of Securities to Be Redeemed.
If less than all the Securities are to be redeemed (unless such
redemption affects only a single Security), the particular Securities to be
redeemed shall be selected not more than 45 days prior to the Redemption Date by
the Trustee, from the Outstanding Securities not previously called for
redemption, by such method as the Trustee shall deem fair and appropriate and
which may provide for the selection for redemption of portions (equal to $50 or
any integral multiple thereof) of the principal amount of the Securities.
The Trustee shall promptly notify the Company in writing of the
Securities selected for redemption as aforesaid and, in case of any Securities
selected for partial redemption as aforesaid, the principal amount thereof to be
redeemed.
The provisions of the two preceding paragraphs shall not apply
with respect to any redemption affecting only a single Security, whether such
Security is to be redeemed in whole or in part. In the case of any such
redemption in part, the unredeemed portion of the principal amount of the
Security shall be in an authorized denomination (which shall not be less than
the minimum authorized denomination) for such Security.
For all purposes of this Indenture, unless the context otherwise
requires, all provisions relating to the redemption of Securities shall relate,
in the case of any Securities redeemed or to be redeemed only in part, to the
portion of the principal amount of such Securities which has been or is to be
redeemed.
- 65 -
<PAGE> 74
SECTION 1106. Notice of Redemption.
Notice of redemption shall be given by first-class mail, postage
prepaid, mailed not less than 30 nor more than 60 days prior to the Redemption
Date, to each Holder of Securities to be redeemed, at such Holder's address
appearing in the Security Register.
All notices of redemption shall identify the Securities to be
redeemed (including, if relevant, CUSIP number or ISSN) and shall state:
(a) the Redemption Date,
(b) the Redemption Price,
(c) that on the Redemption Date the Redemption Price will become
due and payable upon each such Security to be redeemed and that interest thereon
will cease to accrue on and after said date, and
(d) the place or places where such Securities are to be
surrendered for payment of the Redemption Price.
Notice of redemption of Securities to be redeemed at the election
of the Company shall be given by the Company or, at the Company's request, by
the Trustee in the name and at the expense of the Company.
SECTION 1107. Deposit and Payment of Redemption Price.
Prior to 10:00 a.m. (New York City time) on the Redemption Date,
the Company shall deposit with the Trustee or with a Paying Agent (or, if the
Company is acting as its own Paying Agent, segregate and hold in trust as
provided in Section 1003) an amount of money sufficient to pay the Redemption
Price of, plus (except if the Redemption Date shall be an Interest Payment Date)
accrued and unpaid interest (including Additional Payments, if any) on all the
Securities which are to be redeemed on that date. Such redemption payment shall
be made to the Holders prior to 12:00 noon (New York City time) on the
Redemption Date or such earlier time as the Company determines.
- 66 -
<PAGE> 75
If any Security called for redemption is converted, any money
deposited with the Trustee or with any Paying Agent or so segregated and held in
trust for the redemption of such Security shall (subject to any right of the
Holder of such Security or any Predecessor Security to receive interest as
provided in the last paragraph of Section 307) be paid to the Company upon
Company Request or, if then held by the Company, shall be discharged from such
trust.
SECTION 1108. Securities Payable on Redemption Date.
Notice of redemption having been given as aforesaid, the
Securities so to be redeemed shall, on the Redemption Date, become due and
payable at the Redemption Price therein specified, and from and after such date
(unless the Company shall default in the payment of the Redemption Price and
accrued and unpaid interest, including Additional Payments, if any) such
Securities shall cease to bear interest. Upon surrender of any such Security for
redemption in accordance with said notice, such Security shall be paid by the
Company at the Redemption Price, together with accrued and unpaid interest
(including Additional Payments, if any) to the Redemption Date; provided,
however, that installments of interest whose Stated Maturity is on or prior to
the Redemption Date shall be payable to the Holders of such Securities, or one
or more Predecessor Securities, registered as such at 5:00 p.m. (New York City
time) on the relevant Record Dates according to the terms and the provisions of
Section 307.
If any Security called for redemption shall not be so paid upon
surrender thereof for redemption, the principal shall, until paid, bear interest
from the Redemption Date at the rate borne by the Security.
SECTION 1109. Securities Redeemed in Part.
In the event of any redemption in part, the Company shall not be
required to (i) issue, register the transfer of or exchange any Security during
a period beginning at 9:00 a.m. (New York City time) 15 Business Days before any
selection for redemption of Securities and ending at 5:00 p.m. (New York City
time) on the earliest date in which the relevant notice of redemption is deemed
to have been given to all holders of Securities to be so redeemed and (ii)
register the transfer of or exchange any Securities so
- 67 -
<PAGE> 76
selected for redemption, in whole or in part, except for the unredeemed portion
of any Securities being redeemed in part.
Any Security which is to be redeemed only in part shall be
surrendered at a place of payment therefor (with, if the Company or the Trustee
so requires, due endorsement by, or a written instrument of transfer in form
satisfactory to the Company and the Trustee duly executed by, the Holder thereof
or his attorney duly authorized in writing), and the Company shall execute, and
the Trustee shall authenticate and make available for delivery to the Holder of
such Security without service charge, a new Security or Securities, of any
authorized denomination as requested by such Holder, in aggregate principal
amount equal to and in exchange for the unredeemed portion of the principal of
the Security so surrendered.
SECTION 1110. No Sinking Fund.
The Securities are not entitled to the benefit of any sinking
fund.
ARTICLE TWELVE
Subordination of Securities
SECTION 1201. Agreement to Subordinate.
The Company covenants and agrees, and each Holder of Securities by
such Holder's acceptance thereof likewise covenants and agrees, that all
Securities shall be issued subject to the provisions of this Article Twelve; and
each Holder of a Security, whether upon original issue or upon transfer or
assignment thereof, accepts and agrees to be bound by such provisions. The
payment by the Company of the principal of, premium, if any, and interest
(including Additional Payments, if any) on all Securities issued hereunder
shall, to the extent and in the manner hereinafter set forth, be subordinated
and junior in right of payment to the prior payment in full of all existing and
future Senior Indebtedness, whether outstanding at the date of this Indenture or
thereafter incurred; provided however, that no provision of this Article Twelve
shall prevent the occurrence of any default or Event of Default hereunder.
- 68 -
<PAGE> 77
SECTION 1202. Default on Senior Indebtedness.
In the event and during the continuation of any default by the
Company in the payment of principal, premium, interest or any other payment due
on any Senior Indebtedness continuing beyond the period of grace, if any,
specified in the instrument evidencing such Senior Indebtedness, unless and
until such default shall have been cured or waived or shall have ceased to
exist, and in the event that the maturity of any Senior Indebtedness has been
accelerated because of a default, then no payment shall be made by the Company
with respect to the principal of (including redemption payments, if any),
premium, if any, or interest on the Securities.
In the event that, notwithstanding the foregoing, any payment
shall be received by the Trustee when such payment is prohibited by the
preceding paragraph of this Section 1202, such payment shall be held in trust
for the benefit of, and shall be paid over or delivered to, the holders of
Senior Indebtedness or their respective representatives, or to the trustee or
trustees under any indenture pursuant to which any of such Senior Indebtedness
may have been issued, as their respective interests may appear, but only to the
extent that the holders of the Senior Indebtedness (or their representative or
representatives or a trustee) notify the Trustee in writing within 90 days of
such payment of the amounts then due and owing on the Senior Indebtedness and
only the amounts specified in such notice to the Trustee shall be paid to the
holders of Senior Indebtedness.
SECTION 1203. Liquidation; Dissolution; Bankruptcy.
Upon any payment by the Company or distribution of assets of the
Company of any kind or character, whether in cash, property or securities, to
creditors upon any dissolution or winding up or liquidation or reorganization of
the Company, whether voluntary or involuntary, or in bankruptcy, insolvency,
receivership or other proceedings, all principal of, and premium, if any, and
interest due or to become due on, all Senior Indebtedness must be paid in full
before any payment is made on account of the principal (and premium, if any) or
interest (including Additional Payments, if any) on the Securities; and upon any
such dissolution or winding up or liquidation or reorganization, any payment by
the Company, or distribution of assets of the Company of any kind or
- 69 -
<PAGE> 78
character, whether in cash, property or securities, to which the Holders of the
Securities or the Trustee would be entitled, except for the provisions of this
Article Twelve, shall be paid by the Company or by any receiver, trustee in
bankruptcy, liquidating trustee, agent or other Person making such payment or
distribution, or by the Holders of the Securities or by the Trustee under this
Indenture if received by them or it, directly to the holders of Senior
Indebtedness (pro rata to such holders on the basis of the respective amounts of
Senior Indebtedness held by such holders, as calculated by the Company) or their
representative or representatives, or to the trustee or trustees under any
indenture pursuant to which any instruments evidencing such Senior Indebtedness
may have been issued, as their respective interests may appear, to the extent
necessary to pay such Senior Indebtedness in full, in money or money's worth,
after giving effect to any concurrent payment or distribution to or for the
holders of such Senior Indebtedness, before any payment or distribution is made
to the Holders of Securities or to the Trustee.
In the event that, notwithstanding the foregoing, any payment or
distribution of assets of the Company of any kind or character, whether in cash,
property or securities, prohibited by the foregoing, shall be received by the
Trustee or the Holders of the Securities before all Senior Indebtedness is paid
in full, or provision is made for such payment in money in accordance with its
terms, such payment or distribution shall be held in trust for the benefit of
and shall be paid over or delivered to the holders of Senior Indebtedness or
their representative or representatives, or to the trustee or trustees under any
indenture pursuant to which any instruments evidencing such Senior Indebtedness
may have been issued, and their respective interests may appear, as calculated
by the Company, for application to the payment of all Senior Indebtedness
remaining unpaid to the extent necessary to pay such Senior Indebtedness in full
in money in accordance with its terms, after giving effect to any concurrent
payment or distribution to or for the holders of such Senior Indebtedness.
For purposes of this Article Twelve, the words, "cash, property or
securities" shall not be deemed to include shares of stock of the Company as
reorganized or readjusted, or securities of the Company or any other corporation
provided for by a plan of reorganization or readjustment, the payment of which
is subordinated at least to the
- 70 -
<PAGE> 79
extent provided in this Article Twelve with respect to the Securities to the
payment of all Senior Indebtedness which may at the time be outstanding;
provided, that (i) such Senior Indebtedness is assumed by the new corporation,
if any, resulting from any such reorganization or readjustment, and (ii) the
rights of the holders of such Senior Indebtedness are not, without the consent
of such holders, altered by such reorganization or readjustment. The
consolidation of the Company with, or the merger of the Company with or into,
another Person or the liquidation or dissolution of the Company following the
conveyance, transfer or lease of all or substantially all its properties and
assets on a consolidated basis to another Person upon the terms and conditions
provided for in Article Eight hereof shall not be deemed a dissolution, winding
up, liquidation or reorganization for the purposes of this Section 1203 if such
other Person shall, as a part of such consolidation, merger, conveyance,
transfer or lease, comply with the conditions stated in Article Eight hereof.
Nothing in Section 1202 or in this Section 1203 shall apply to claims of, or
payments to, the Trustee under or pursuant to Section 607 hereof.
SECTION 1204. Subrogation.
Subject to the payment in full of all Senior Indebtedness, the
rights of the Holders of the Securities shall be subrogated to the rights of the
holders of such Senior Indebtedness to receive payments or distributions of
cash, property or securities of the Company, as the case may be, applicable to
such Senior Indebtedness until the principal of (and premium, if any,) and
interest (including Additional Payments, if any) on the Securities shall be paid
in full; and, for the purposes of such subrogation, no payments or distributions
to the holders of such Senior Indebtedness of any cash, property or securities
to which the Holders of the Securities or the Trustee would be entitled except
for the provisions of this Article Twelve, and no payment over pursuant to the
provisions of this Article Twelve, to or for the benefit of the holders of such
Senior Indebtedness by Holders of the Securities or the Trustee, shall, as
between the Company, its creditors other than holders of Senior Indebtedness,
and the Holders of the Securities, be deemed to be a payment by the Company to
or on account of such Senior Indebtedness. It is understood that the provisions
of this Article Twelve are and are intended solely for the purposes of defining
the relative rights of the Holders of
- 71 -
<PAGE> 80
the Securities, on the one hand, and the holders of such Senior Indebtedness on
the other hand.
Nothing contained in this Article Twelve or elsewhere in this
Indenture or in the Securities is intended to or shall impair, as between the
Company, its creditors other than the holders of Senior Indebtedness, and the
Holders of the Securities, the obligation of the Company, which is absolute and
unconditional, to pay to the Holders of the Securities the principal of (and
premium, if any) and interest (including Additional Payments, if any) on the
Securities as and when the same shall become due and payable in accordance with
their terms, or is intended to or shall affect the relative rights of the
Holders of the Securities and creditors of the Company, as the case may be,
other than the holders of Senior Indebtedness, nor shall anything herein or
therein prevent the Trustee or the Holder of any Security from exercising all
remedies otherwise permitted by applicable law upon default under this
Indenture, subject to the rights, if any, under this Article Twelve of the
holders of such Senior Indebtedness in respect of cash, property or securities
of the Company, as the case may be, received upon the exercise of any such
remedy.
Upon any payment or distribution of assets of the Company referred
to in this Article Twelve, the Trustee, subject to the provisions of Section
603, and the Holders of the Securities, shall be entitled to rely upon any order
or decree made by any court of competent jurisdiction in which such dissolution,
winding up, liquidation or reorganization proceedings are pending, or a
certificate of the receiver, trustee in bankruptcy, liquidation trustee, agent
or other Person making such payment or distribution, delivered to the Trustee or
to the Holders of the Securities, for the purposes of ascertaining the Persons
entitled to participate in such distribution, the holders of the Senior
Indebtedness and other indebtedness of the Company, as the case may be, the
amount thereof or payable thereon, the amount or amounts paid or distributed
thereon and all other facts pertinent thereto or to this Article Twelve.
SECTION 1205. Trustee to Effectuate Subordination.
Each Holder of Securities by such Holder's acceptance thereof
authorizes and directs the Trustee on such Holder's behalf to take such action
as may be necessary or appropriate to effectuate the subordination provided in
this
- 72 -
<PAGE> 81
Article Twelve and appoints the Trustee as such Holder's attorney-in-fact for
any and all such purposes.
SECTION 1206. Notice by the Company.
The Company shall give prompt written notice to a Responsible
Officer of the Trustee of any fact known to the Company which would prohibit the
making of any payment of monies to or by the Trustee in respect of the
Securities pursuant to the provisions of this Article Twelve. Notwithstanding
the provisions of this Article Twelve or any other provision of this Indenture,
the Trustee shall not be charged with knowledge of the existence of any facts
which would prohibit the making of any payment of monies to or by the Trustee in
respect of the Securities pursuant to the provision of this Article Twelve,
unless and until a Responsible Officer of the Trustee shall have received
written notice thereof at the Corporate Trust Office of the Trustee from the
Company or a holder or holders of Senior Indebtedness or from any trustee
therefor; and before the receipt of any such written notice, the Trustee,
subject to the provisions of Section 603 hereof, shall be entitled in all
respects to assume that no such facts exist; provided, however, that if the
Trustee shall not have received the notice provided for in this Section 1206 at
least two Business Days prior to the date upon which by the terms hereof any
money may become payable for any purpose (including, without limitation, the
payment of the principal of (and premium, if any) or interest (including
Additional Payments, if any) on any Security), then, anything herein contained
to the contrary notwithstanding, the Trustee shall have full power and authority
to receive such money and to apply the same to the purposes for which they were
received, and shall not be affected by any notice to the contrary which may be
received by it within two Business Days prior to such date.
The Trustee, subject to the provisions of Section 603, shall be
entitled to rely on the delivery to it of a written notice by a Person
representing himself to be a holder of Senior Indebtedness (or a trustee on
behalf of such holder) to establish that such notice has been given by a holder
of such Senior Indebtedness or a trustee on behalf of any such holder or
holders. In the event that the Trustee determines in good faith that further
evidence is required with respect to the right of any Person as a holder of
Senior Indebtedness to participate in any payment or distribution pursuant to
this Article Twelve, the Trustee
- 73 -
<PAGE> 82
may request such Person to furnish evidence to the reasonable satisfaction of
the Trustee as to the amount of Senior Indebtedness held by such Person, the
extent to which such Person is entitled to participate in such payment or
distribution and any other facts pertinent to the right of such Person under
this Article Twelve, and, if such evidence is not furnished, the Trustee may
defer any payment to such Person pending judicial determination as to the right
of such Person to receive such payment.
SECTION 1207. Rights of the Trustee; Holders of Senior Indebtedness.
The Trustee in its individual capacity shall be entitled to all
the rights set forth in this Article Twelve in respect of any Senior
Indebtedness at any time held by it, to the same extent as any other holder of
Senior Indebtedness, and nothing in this Indenture shall deprive the Trustee of
any of its rights as such holder.
With respect to the holders of Senior Indebtedness of the Company,
the Trustee undertakes to perform or to observe only such of its covenants and
obligations as are set forth in this Article Twelve, and no implied covenants or
obligations with respect to the holders of such Senior Indebtedness shall be
read into this Indenture against the Trustee. The Trustee shall not be deemed to
owe any fiduciary duty to the holders of such Senior Indebtedness and, subject
to the provisions of Section 603, the Trustee shall not be liable to any holder
of such Senior Indebtedness if it shall pay over or deliver to Holders of
Securities, the Company or any other Person money or assets to which any holder
of such Senior Indebtedness shall be entitled by virtue of this Article Twelve
or otherwise. With respect to the holders of Senior Indebtedness, the Trustee
undertakes to perform or to observe only such of its covenants or obligations as
are specifically set forth in this Article Twelve and no implied covenants or
obligations with respect to holders of Senior Indebtedness shall be read into
this Indenture against the Trustee.
- 74 -
<PAGE> 83
SECTION 1208. Subordination May Not Be Impaired.
No right of any present or future holder of any Senior
Indebtedness to enforce subordination as herein provided shall at any time in
any way be prejudiced or impaired by any act or failure to act on the part of
the Company or by any act or failure to act, in good faith, by any such holder,
or by any noncompliance by the Company with the terms, provisions and covenants
of this Indenture, regardless of any knowledge thereof which any such holder may
have or otherwise be charged with.
Without in any way limiting the generality of the foregoing
paragraph, the holders of Senior Indebtedness may, at any time and from time to
time, without the consent of or notice to the Trustee or the Holders of the
Securities, without incurring responsibility to the holders of the Securities
and without impairing or releasing the subordination provided in this Article
Twelve or the obligations hereunder of the Holders of the Securities to the
holders of Senior Indebtedness, do any one or more of the following: (i) change
the manner, place or terms of payment or extend the time of payment of, or renew
or alter, such Senior Indebtedness, or otherwise amend or supplement in any
manner such Senior Indebtedness or any instrument evidencing the same or any
agreement under which such Senior Indebtedness is outstanding; (ii) sell,
exchange, release or otherwise deal with any property pledged, mortgaged or
otherwise securing such Senior Indebtedness; (iii) release any Person liable in
any manner for the collection of such Senior Indebtedness; and (iv) exercise or
refrain from exercising any rights against the Company and any other Person.
- 75 -
<PAGE> 84
ARTICLE THIRTEEN
Conversion of Securities
SECTION 1301. Conversion Rights.
Subject to and upon compliance with the provisions of this
Article, the Securities are convertible, at the option of the Holder, at any
time on or before 5:00 p.m. (New York City time) on the Business Day immediately
preceding the date of repayment of such Securities, whether at maturity or upon
redemption (either at the option of the Company or pursuant to a Tax Event),
into fully paid and nonassessable shares of Common Stock of the Company at an
initial conversion rate of [ ] shares of Common Stock for each $50 in aggregate
principal amount of Securities (equal to a conversion price of $[ ] per share of
Common Stock), subject to adjustment as described in this Article Thirteen. A
Holder of Securities may convert any portion of the principal amount of the
Securities into that number of fully paid and nonassessable shares of Common
Stock (calculated as to each conversion to the nearest 1/100th of a share)
obtained by dividing the principal amount of the Securities to be converted by
such conversion price. In case a Security or portion thereof is called for
redemption, such conversion right in respect of the Security or portion so
called shall expire at 5:00 p.m. (New York City time) on the Business Day
immediately preceding the corresponding Redemption Date, unless the Company
defaults in making the payment due upon redemption.
SECTION 1302. Conversion Procedures.
(a) In order to convert all or a portion of the Securities, the
Holder thereof shall deliver to the Conversion Agent an irrevocable Notice of
Conversion setting forth the principal amount of Securities to be converted,
together with the name or names, if other than the Holder, in which the shares
of Common Stock should be issued upon conversion and, if such Securities are
definitive Securities, surrender to the Conversion Agent the Securities to be
converted, duly endorsed or assigned to the Company or in blank. In addition, a
holder of Preferred Securities may exercise its right under the Declaration to
convert such Preferred Securities into Common Stock by delivering to the
Conversion Agent an irrevocable Notice of Conversion setting forth the
information called for by the preceding sentence and direct-
- 76 -
<PAGE> 85
ing the Conversion Agent (i) to exchange such Preferred Security for a portion
of the Securities held by the Trust (at an exchange rate of $50 liquidation
amount of Securities for each Preferred Security) and (ii) to immediately
convert such Securities, on behalf of such holder, into Common Stock of the
Company pursuant to this Article Thirteen and, if such Preferred Securities are
in definitive form, surrendering such Preferred Securities, duly endorsed or
assigned to the Company or in blank. So long as any Preferred Securities are
outstanding, the Trust shall not convert any Securities except pursuant to a
Notice of Conversion delivered to the Conversion Agent by a holder of Preferred
Securities.
If a Notice of Conversion is delivered on or after the Regular
Record Date and prior to the subsequent Interest Payment Date, the Holder will
be entitled to receive the interest payable on the subsequent Interest Payment
Date on the portion of Securities to be converted notwithstanding the conversion
thereof prior to such Interest Payment Date. Except as otherwise provided in the
immediately preceding sentence, in the case of any Security which is converted,
interest whose Stated Maturity is after the date of conversion of such Security
shall not be payable, and the Company shall not make nor be required to make any
other payment, adjustment or allowance with respect to accrued but unpaid
interest (including Additional Payments, if any) on the Securities being
converted, which shall be deemed to be paid in full. If any Security called for
redemption is converted, any money deposited with the Trustee or with any Paying
Agent or so segregated and held in trust for the redemption of such Security
shall (subject to any right of the Holder of such Security or any Predecessor
Security to receive interest as provided in the last paragraph of Section 307
and this paragraph) be paid to the Company upon Company Request or, if then held
by the Company, shall be discharged from such trust.
Each conversion shall be deemed to have been effected
immediately prior to 5:00 p.m. (New York City time) on the day on which the
Notice of Conversion was received (the "Conversion Date") by the Conversion
Agent from the Holder or from a holder of the Preferred Securities effecting a
conversion thereof pursuant to its conversion rights under the Declaration, as
the case may be. The Person or Persons entitled to receive the Common Stock
issuable upon such conversion shall be treated for all purposes as the record
holder or holders of such Common Stock as of the
- 77 -
<PAGE> 86
Conversion Date. As promptly as practicable on or after the Conversion Date, the
Company shall issue and deliver at the office of the Conversion Agent, unless
otherwise directed by the Holder in the Notice of Conversion, a certificate or
certificates for the number of full shares of Common Stock issuable upon such
conversion, together with the cash payment, if any, in lieu of any fraction of
any share to the Person or Persons entitled to receive the same. The Conversion
Agent shall deliver such certificate or certificates to such Person or Persons.
(b) Subject to any right of the Holder of such Security or any
Predecessor Security to receive interest as provided in the last paragraph of
Section 307 and the second paragraph of Clause (a) of Section 1302, the
Company's delivery upon conversion of the fixed number of shares of Common Stock
into which the Securities are convertible (together with the cash payment, if
any, in lieu of fractional shares) shall be deemed to satisfy the Company's
obligation to pay the principal amount at Maturity of the portion of Securities
so converted and any unpaid interest (including Additional Payments, if any)
accrued on such Securities at the time of such conversion.
(c) No fractional shares of Common Stock will be issued as a
result of conversion, but in lieu thereof, the Company shall pay to the
Conversion Agent a cash adjustment in an amount equal to the same fraction of
the last reported sale price of such fractional interest on the date on which
the Securities or Preferred Securities, as the case may be, were duly
surrendered to the Conversion Agent for conversion, or, if such day is not a
Trading Day, on the next Trading Day, and the Conversion Agent in turn will make
such payment, if any, to the Holder of the Securities or the holder of the
Preferred Securities so converted.
(d) In the event of the conversion of any Security in part only, a
new Security or Securities for the unconverted portion thereof will be issued in
the name of the Holder thereof upon the cancellation thereof in accordance with
Section 305.
(e) In effecting the conversion transactions described in this
Section, the Conversion Agent is acting as agent of the holders of Preferred
Securities (in the exchange of Preferred Securities for Securities) and as agent
of the Holders of Securities (in the conversion of Securi-
- 78 -
<PAGE> 87
ties into Common Stock), as the case may be, directing it to effect such
conversion transactions. The Conversion Agent is hereby authorized (i) to
exchange Securities held by the Trust from time to time for Preferred Securities
in connection with the conversion of such Preferred Securities in accordance
with this Article Thirteen and (ii) to convert all or a portion of the
Securities into Common Stock and thereupon to deliver such shares of Common
Stock in accordance with the provisions of this Article Thirteen and to deliver
to the Trust a new Security or Securities for any resulting unconverted
principal amount.
SECTION 1303. Conversion Price Adjustments.
The conversion price shall be subject to adjustment (without
duplication) from time to time as follows:
(a) In case the Company shall, while any of the Securities are
outstanding, (i) pay a dividend or make a distribution with respect to its
Common Stock in shares of Common Stock, (ii) subdivide its outstanding shares of
Common Stock, (iii) combine its outstanding shares of Common Stock into a
smaller number of shares or (iv) issue by reclassification of its shares of
Common Stock any shares of capital stock of the Company, the conversion price in
effect immediately prior to such action shall be adjusted so that the Holder of
any Securities thereafter surrendered for conversion shall be entitled to
receive the number of shares of capital stock of the Company which he would have
owned immediately following such action had such Securities been converted
immediately prior thereto. An adjustment made pursuant to this Section 1303(a)
shall become effective immediately after the record date in the case of a
dividend or other distribution and shall become effective immediately after the
effective date in case of a subdivision, combination or reclassification (or
immediately after the record date if a record date shall have been established
for such event). If, as a result of an adjustment made pursuant to this Section
1303(a), the Holder of any Security thereafter surrendered for conversion shall
become entitled to receive shares of two or more classes or series of capital
stock of the Company, the Board of Directors (whose determination shall be
conclusive and shall be described in a Board Resolution filed with the Trustee)
shall determine the allocation of the adjusted conversion price between or among
shares of such classes or series of capital stock.
- 79 -
<PAGE> 88
(b) In case the Company shall, while any of the Securities are
outstanding, issue rights or warrants to all holders of its Common Stock
entitling them (for a period expiring within 45 days after the record date
mentioned in this Section 1303(b)) to subscribe for or purchase shares of Common
Stock at a price per share less than the current market price per share of
Common Stock (as determined pursuant to 1303(f) below) on such record date, the
conversion price for the Securities shall be adjusted so that the same shall
equal the price determined by multiplying the conversion price in effect
immediately prior to the date of issuance of such rights or warrants by a
fraction of which the numerator shall be the number of shares of Common Stock
outstanding on the date of issuance of such rights or warrants plus the number
of shares which the aggregate offering price of the total number of shares so
offered for subscription or purchase would purchase at such current market
price, and of which the denominator shall be the number of shares of Common
Stock outstanding on the date of issuance of such rights or warrants plus the
number of additional shares of Common Stock offered for subscription or
purchase. Such adjustment shall become effective immediately after the record
date for the determination of stockholders entitled to receive such rights or
warrants. For the purposes of this subsection, the number of shares of Common
Stock at any time outstanding shall not include shares held in the treasury of
the Company. The Company shall not issue any rights or warrants in respect of
shares of Common Stock held in the treasury of the Company. In case any rights
or warrants referred to in this subsection in respect of which an adjustment
shall have been made shall expire unexercised within 45 days after the same
shall have been distributed or issued by the Company, the conversion price shall
be read- justed at the time of such expiration to the conversion price that
would have been in effect if no adjustment had been made on account of the
distribution or issuance of such expired rights or warrants.
(c) Subject to the last sentence of this Section 1303(c), in case
the Company shall, by dividend or otherwise, distribute to all holders of its
Common Stock evidences of its indebtedness, shares of any class or series of
capital stock, cash or assets (including securities, but excluding any rights or
warrants referred to in Section 1303(b), any dividend or distribution paid
exclusively in cash and any dividend or distribution referred to in Section
1303(a)), the conversion price shall be reduced so that the
- 80 -
<PAGE> 89
same shall equal the price determined by multiplying the conversion price in
effect immediately prior to the effectiveness of the conversion price reduction
contemplated by Section 1303(c) by a fraction of which the numerator shall be
the current market price per share (determined as provided in Section 1303(f))
of the Common Stock on the date fixed for the payment of such distribution (the
"Reference Date") less the fair market value (as determined in good faith by the
Board of Directors, whose determination shall be conclusive and described in a
resolution of the Board of Directors), on the Reference Date, of the portion of
the evidences of indebtedness, shares of capital stock, cash and assets so
distributed applicable to one share of Common Stock and the denominator shall be
such current market price per share of the Common Stock, such reduction to
become effective immediately prior to the opening of business on the day
following the Reference Date. In the event that such dividend or distribution is
not so paid or made, the conversion price shall again be adjusted to be the
conversion price which would then be in effect if such dividend or distribution
had not occurred. If the Board of Directors determines the fair market value of
any distribution for purposes of this Section 1303(c) by reference to the actual
or when issued trading market for any securities comprising such distribution,
it must in doing so consider the prices in such market over the same period used
in computing the current market price per share of Common Stock (determined as
provided in Section 1303(f)). For purposes of this Section 1303(c), any dividend
or distribution that includes shares of Common Stock or rights or warrants to
subscribe for or purchase shares of Common Stock shall be deemed instead to be
(1) a dividend or distribution of the evidences of indebtedness, shares of
capital stock, cash or assets other than such shares of Common Stock or such
rights or warrants (making any conversion price reduction required by this
Section 1303(c)) immediately followed by (2) a dividend or distribution of such
shares of Common Stock or such rights or warrants (making any further conversion
price reduction required by Section 1303(a) or 1303(b)), except (A) the
Reference Date of such dividend or distribution as defined in this 1303(c) shall
be substituted as (a) "the record date in the case of a dividend or other
distribution," and (b) "the record date for the determination of stockholders
entitled to receive such rights or warrants" and (c) "the date fixed for such
determination" within the meaning of Sections 1303(a) and 1303(b) and (B) any
shares of Common Stock included in such dividend or distribution
- 81 -
<PAGE> 90
shall not be deemed outstanding for purposes of computing any adjustment of the
conversion price in Section 1303(a).
(d) In case the Company shall pay or make a dividend or other
distribution on its Common Stock exclusively in cash (excluding all regular cash
dividends, if the annualized amount thereof per share of Common Stock does not
exceed 15% of the current market price per share determined as provided in
Section 1303(f) of the Common Stock on the Trading Day immediately preceding the
date of declaration of such dividend), the conversion price shall be reduced so
that the same shall equal the price determined by multiplying the conversion
price in effect immediately prior to the effectiveness of the conversion price
reduction contemplated by this Section 1303(d) by a fraction of which the
numerator shall be the current market price per share (determined as provided in
Section 1303(f)) of the Common Stock on the date fixed for the payment of such
distribution less the amount of cash so distributed and not excluded as provided
applicable to one share of Common Stock and the denominator shall be such
current market price per share of the Common Stock, such reduction to become
effective immediately prior to the opening of business on the day following the
date fixed for the payment of such distribution; provided, however, that in the
event the portion of the cash so distributed applicable to one share of Common
Stock is equal to or greater than the current market price per share (as defined
in Section 1303(f)) of the Common Stock on the record date mentioned above, in
lieu of the foregoing adjustment, adequate provision shall be made so that each
Holder of shares of Securities shall have the right to receive upon conversion
the amount of cash such Holder would have received had such Holder converted
each share of the Securities immediately prior to the record date for the
distribution of the cash. In the event that such dividend or distribution is not
so paid or made, the conversion price shall again be adjusted to be the
conversion price which would then be in effect if such record date had not been
fixed.
(e) In case a tender or exchange offer (other than an odd-lot
offer) made by the Company or any Subsidiary of the Company for all or any
portion of the Company's Common Stock shall expire and such tender or exchange
offer shall involve the payment by the Company or such Subsidiary of
consideration per share of Common Stock having a fair market value (as
determined in good faith by the Board of
- 82 -
<PAGE> 91
Directors, whose determination shall be conclusive and described in a resolution
of the Board of Directors) at the last time (the "Expiration Time") tenders or
exchanges may be made pursuant to such tender or exchange offer (as it shall
have been amended) that exceeds 110% of the current market price per share
(determined as provided in Section 1303(f)) of the Common Stock on the Trading
Day next succeeding the Expiration Time, the conversion price shall be reduced
so that the same shall equal the price determined by multiplying the conversion
price in effect immediately prior to the effectiveness of the conversion price
reduction contemplated by this Section 1303(e) by a fraction of which the
numerator shall be the number of shares of Common Stock outstanding (including
any tendered or exchanged shares) at the Expiration Time multiplied by the
current market price per share (determined as provided in Section 1303(f)) of
the Common Stock on the Trading Day next succeeding the Expiration Time and the
denominator shall be the sum of (x) the fair market value (determined as
aforesaid) of the aggregate consideration payable to stockholders based on the
acceptance (up to any maximum specified in the terms of the tender or exchange
offer) of all shares validly tendered or exchanged and not withdrawn as of the
Expiration Time (the shares deemed so accepted, up to any such maximum, being
referred to as the "Purchased Shares") and (y) the product of the number of
shares of Common Stock outstanding (less any Purchased Shares) at the Expiration
Time and the current market price per share (determined as provided in Section
1303(f)) of the Common Stock on the Trading Day next succeeding the Expiration
Time, such reduction to become effective immediately prior to the opening of
business on the day following the Expiration Time.
(f) For the purpose of any computation under Section 1303(b),
1303(c), 1303(d) or 1303(e), the current market price per share of Common Stock
on any date in question shall be deemed to be the average of the daily Closing
Prices for the five consecutive Trading Days selected by the Company commencing
not more than 20 Trading Days before, and ending not later than, the earlier of
the day in question or, if applicable, the day before the "ex" date with respect
to the issuance or distribution requiring such computation; provided, however,
that if another event occurs that would require an adjustment pursuant to
Section 1303(a) through (e), inclusive, the Board of Directors may make such
adjustments to the Closing Prices during such five Trading Day period as it
deems appropriate to effectuate the intent of
- 83 -
<PAGE> 92
the adjustments in this Section 1303, in which case any such determination by
the Board of Directors shall be set forth in a Board Resolution and shall be
conclusive. For purposes of this paragraph, the term "ex" date, (i) when used
with respect to any issuance or distribution, means the first date on which the
Common Stock trades regular way on the New York Stock Exchange or on such
successor securities exchange as the Common Stock may be listed or in the
relevant market from which the Closing Prices were obtained without the right to
receive such issuance or distribution, and (ii) when used with respect to any
tender or exchange offer, means the first date on which the Common Stock trades
regular way on such securities exchange or in such market after the Expiration
Time of such offer.
(g) The Company may make such reductions in the conversion price,
in addition to those required by Sections 1303 (a) through (e), as it considers
to be advisable to avoid or diminish any income tax to holders of Common Stock
or rights to purchase Common Stock resulting from any dividend or distribution
of stock (or rights to acquire stock) or from any event treated as such for
income tax purposes. The Company from time to time may reduce the conversion
price by any amount for any period of time if the period is at least 20 days,
the reduction is irrevocable during the period, and the Board of Directors of
the Company shall have made a determination that such reduction would be in the
best interest of the Company, which determination shall be conclusive. Whenever
the conversion price is reduced pursuant to the preceding sentence, the Company
shall mail to holders of record of the Securities a notice of the reduction at
least 15 days prior to the date the reduced conversion price takes effect, and
such notice shall state the reduced conversion price and the period it will be
in effect.
(h) No adjustment in the conversion price shall be required unless
such adjustment would require an increase or decrease of at least 1% in the
conversion price; provided, however, that any adjustments which by reason of
this Section 1303(h) are not required to be made shall be carried forward and
taken into account in determining whether any subsequent adjustment shall be
required.
(i) If any action would require adjustment of the conversion price
pursuant to more than one of the provisions described above, only one adjustment
shall be made and
- 84 -
<PAGE> 93
such adjustment shall be the amount of adjustment that has the highest absolute
value to the Holder of the Securities.
SECTION 1304. Reclassification, Consolidation, Merger or Sale of Assets.
In the event that the Company shall be a party to any transaction
(including without limitation (a) any recapitalization or reclassification of
the Common Stock (other than a change in par value, or from par value to no par
value, or from no par value to par value, or as a result of a subdivision or
combination of the Common Stock), (b) any consolidation of the Company with, or
merger of the Company into, any other Person, any merger of another Person into
the Company (other than a merger which does not result in a reclassification,
conversion, exchange or cancellation of outstanding shares of Common Stock of
the Company), (c) any sale, transfer or lease of all or substantially all of the
assets of the Company or (d) any compulsory share exchange) pursuant to which
the Common Stock is converted into the right to receive other securities, cash
or other property, then lawful provision shall be made as part of the terms of
such transaction whereby the Holder of each Security then outstanding shall have
the right thereafter to convert such Security only into the kind and amount of
securities, cash or other property receivable upon consummation of such
transaction by a holder of the number of shares of Common Stock of the Company
into which such Security could have been converted immediately prior to such
transaction.
The Company or the Person formed by such consolidation or
resulting from such merger or which acquired such assets or which acquires the
Company's shares, as the case may be, shall make provision in its certificate or
articles of incorporation or other constituent document to establish such right.
Such certificate or articles of incorporation or other constituent document
shall provide for adjustments which, for events subsequent to the effective date
of such certificate or articles of incorporation or other constituent document,
shall be as nearly equivalent as may be practicable to the adjustments provided
for in this Article Thirteen. The above provisions shall similarly apply to
successive transactions of the foregoing type.
- 85 -
<PAGE> 94
SECTION 1305. Notice of Adjustments of Conversion Price.
Whenever the conversion price is adjusted as herein provided:
(a) the Company shall compute the adjusted conversion price and
shall prepare a certificate signed by the Chief Financial Officer or the
Treasurer of the Company setting forth the adjusted conversion price and showing
in reasonable detail the facts upon which such adjustment is based, and such
certificate shall forthwith be filed with the Trustee, the Conversion Agent and
the transfer agent for the Preferred Securities and the Securities; and
(b) a notice stating the conversion price has been adjusted and
setting forth the adjusted conversion price shall as soon as practicable be
mailed by the Company to all record holders of Preferred Securities and the
Securities at their last addresses as they appear upon the stock transfer books
of the Company and the Trust.
SECTION 1306. Prior Notice of Certain Events.
In case:
(a) the Company shall (i) declare any dividend (or any other
distribution) on its Common Stock, other than (A) a dividend payable in shares
of Common Stock or (B) a dividend payable in cash that would not require an
adjustment pursuant to Section 1303(c) or 1303(d), or (ii) authorize a tender or
exchange offer that would require an adjustment pursuant to Section 1303(e);
(b) the Company shall authorize the granting to all holders of
Common Stock of rights or warrants to subscribe for or purchase any shares of
stock of any class or series or of any other rights or warrants;
(c) of any reclassification of Common Stock (other than a
subdivision or combination of the outstanding Common Stock, or a change in par
value, or from par value to no par value, or from no par value to par value), or
of any consolidation or merger to which the Company is a party and for which
approval of any stockholders of the Company shall be required, or of the sale or
transfer of all or substantially all of the assets of the Company or of any
compulsory
- 86 -
<PAGE> 95
share exchange whereby the Common Stock is converted into other securities, cash
or other property; or
(d) of the voluntary or involuntary dissolution, liquidation or
winding up of the Company;
then the Company shall (1) if any Preferred Securities are outstanding, cause to
be filed with the transfer agent for the Preferred Securities, and shall cause
to be mailed to the holders of record of the Preferred Securities, at their last
addresses as they shall appear upon the stock transfer books the Trust or (2)
shall cause to be mailed to all Holders at their last addresses as they shall
appear in the Security Register, at least 15 days prior to the applicable record
or effective date hereinafter specified, a notice stating (x) the date on which
a record (if any) is to be taken for the purpose of such dividend, distribution,
rights or warrants or, if a record is not to be taken, the date as of which the
holders of Common Stock of record to be entitled to such dividend, distribution,
rights or warrants are to be determined or (y) the date on which such reclassi-
fication, consolidation, merger, sale, transfer, share exchange, dissolution,
liquidation or winding up is expected to become effective, and the date as of
which it is expected that holders of Common Stock of record shall be entitled to
exchange their shares of Common Stock for securities, cash or other property
deliverable upon such reclassification, consolidation, merger, sale, transfer,
share exchange, dissolution, liquidation or winding up (but no failure to mail
such notice or any defect therein or in the mailing thereof shall affect the
validity of the corporate action required to be specified in such notice).
SECTION 1307. Certain Defined Terms.
The following definitions shall apply to terms used in this
Article Thirteen:
(a) "Closing Price" of any Common Stock on any day shall mean the
last reported sale price regular way on such day or, in case no such sale takes
place on such day, the average of the reported closing bid and asked prices
regular way of such Common Stock, in each case on the New York Stock Exchange
Composite Tape or, if the Common Stock is not listed or admitted to trading on
such exchange, on the principal national securities exchange on which such
common stock is listed or admitted to trading, or, if not
- 87 -
<PAGE> 96
listed or admitted to trading on any national securities exchange, the average
of the closing bid and asked prices as furnished by any New York Stock Exchange
member firm selected from time to time by the Board of Directors of the Company
for that purpose or, if not so available in such manner, as otherwise determined
in good faith by the Board of Directors.
(b) "Trading Day" shall mean a day on which securities are traded
on the national securities exchange or quotation system used to determine the
Closing Price.
SECTION 1308. Dividend or Interest Reinvestment Plans.
Notwithstanding the foregoing provisions, the issuance of any
shares of Common Stock pursuant to any plan providing for the reinvestment of
dividends or interest payable on securities of the Company and the investment of
additional optional amounts in shares of Common Stock under any such plan, and
the issuance of any shares of Common Stock or options or rights to purchase such
shares pursuant to any employee benefit plan or program of the Company or
pursuant to any option, warrant, right or exercisable, exchangeable or
convertible security outstanding as of the date the Securities were first
issued, shall not be deemed to constitute an issuance of Common Stock or
exercisable, exchangeable or convertible securities by the Company to which any
of the adjustment provisions described above applies. There shall also be no
adjustment of the conversion price in case of the issuance of any stock (or
securities convertible into or exchangeable for stock) of the Company except as
specifically described in this Article Thirteen.
SECTION 1309. Certain Additional Rights.
In case the Company shall, by dividend or otherwise, declare or
make a distribution on its Common Stock referred to in Section 1303(c) or
1303(d) (including, without limitation, dividends or distributions referred to
in the last sentence of Section 1303(c)), the Holder of the Securities, upon the
conversion thereof subsequent to the 5:00 p.m. (New York City time) on the date
fixed for the determination of stockholders entitled to receive such
distribution and prior to the effectiveness of the conversion price adjustment
in respect of such distribution, shall also be entitled to receive for each
share of Common Stock
- 88 -
<PAGE> 97
into which the Securities are converted, the portion of the shares of Common
Stock, rights, warrants, evidences of indebtedness, shares of capital stock,
cash and assets so distributed applicable to one share of Common Stock;
provided, however, that, at the election of the Company (whose election shall be
evidenced by a resolution of the Board of Directors) with respect to all Holders
so converting, the Company may, in lieu of distributing to such Holder any
portion of such distribution not consisting of cash or securities of the
Company, pay such Holder an amount in cash equal to the fair market value
thereof (as determined in good faith by the Board of Directors, whose
determination shall be conclusive and described in a resolution of the Board of
Directors). If any conversion of Securities described in the immediately
preceding sentence occurs prior to the payment date for a distribution to
holders of Common Stock which the Holder of Securities so converted is entitled
to receive in accordance with the immediately preceding sentence, the Company
may elect (such election to be evidenced by a resolution of the Board of
Directors) to distribute to such Holder a due bill for the shares of Common
Stock, rights, warrants, evidences of indebtedness, shares of capital stock,
cash or assets to which such Holder is so entitled, provided, that such due bill
(i) meets any applicable requirements of the principal national securities
exchange or other market on which the Common Stock is then traded and (ii)
requires payment or delivery of such shares of Common Stock, rights, warrants,
evidences of indebtedness, shares of capital stock, cash or assets no later than
the date of payment or delivery thereof to holders of shares of Common Stock
receiving such distribution.
SECTION 1310. Trustee Not Responsible for Determining Conversion Price or
Adjustments.
Neither the Trustee nor any Conversion Agent shall at any time be
under any duty or responsibility to any Holder of any Security to determine
whether any facts exist which may require any adjustment of the conversion
price, or with respect to the nature or extent of any such adjustment when made,
or with respect to the method employed, or herein or in any supplemental
indenture provided to be employed, in making the same. Neither the Trustee nor
any Conversion Agent shall be accountable with respect to the validity or value
(or the kind of account) of any shares of Common Stock or of any securities or
property, which may at any time be issued or delivered upon the conversion of
any Security; and
- 89 -
<PAGE> 98
neither the Trustee nor any Conversion Agent makes any representation with
respect thereto. Neither the Trustee nor any Conversion Agent shall be
responsible for any failure of the Company to make any cash payment or to issue,
transfer or deliver any shares of Common Stock or stock certificates or other
securities or property upon the surrender of any Security for the purpose of
conversion, or, except as expressly herein provided, to comply with any of the
covenants of the Company contained in Article Ten or this Article Thirteen.
ARTICLE FOURTEEN
Immunity of Incorporators, Stockholders,
Officers and Directors
SECTION 1401. No Recourse.
No recourse under or upon any obligation, covenant or agreement of
this Indenture, or of any Security, or for any claim based thereon or otherwise
in respect thereof, shall be had against any incorporator, stockholder, officer
or director, past, present or future as such, of the Company or of any
predecessor or successor corporation, either directly or through the Company or
any such predecessor or successor corporation, whether by virtue of any
constitution, statute or rule of law, or by the enforcement of any assessment or
penalty or otherwise; it being expressly understood that this Indenture and the
obligations issued hereunder are solely corporate obligations, and that no such
personal liability whatever shall attach to, or is or shall be incurred by, the
incorporators, stockholders, officers or directors as such, of the Company or of
any predecessor or successor corporation, or any of them, because of the
creation of the indebtedness hereby authorized, or under or by reason of the
obligations, covenants or agreements contained in this Indenture or in any of
the Securities or implied therefrom; and that any and all such personal
liability of every name and nature, either at common law or in equity or by
constitution or statute, of, and any and all such rights and claims against,
every such incorporator, stockholder, officer or director as such, because of
the creation of the indebtedness hereby authorized, or under or by reason of the
obligations, covenants or agreements contained in this Indenture or in any of
the Securities or implied therefrom, are hereby expressly waived and released as
a condition of, and as a consideration for, the execution of this Indenture and
the issuance of such Securities.
- 90 -
<PAGE> 99
This instrument may be executed in any number of counterparts,
each of which so executed shall be deemed to be an original, but all such
counterparts shall together constitute but one and the same instrument.
IN WITNESS WHEREOF, the parties hereto have caused this Indenture
to be duly executed, and their respective corporate seals to be hereunto affixed
and attested, all as of the day and year first above written.
DESIGNER HOLDINGS LTD.
By:
-------------------------------
Name:
Title:
IBJ SCHRODER BANK & TRUST COMPANY,
as Trustee
By:
-------------------------------
Name:
Title:
- 91 -
<PAGE> 100
EXHIBIT A
FORM OF SECURITY
[FACE OF SECURITY]
[Include if Security is in global form: THIS SECURITY IS A GLOBAL
CERTIFICATE WITHIN THE MEANING OF THE INDENTURE HEREINAFTER REFERRED TO
AND IS REGISTERED IN THE NAME OF A DEPOSITARY OR A NOMINEE THEREOF.
THIS SECURITY MAY NOT BE EXCHANGED IN WHOLE OR IN PART FOR A SECURITY
REGISTERED, AND NO TRANSFER OF THIS SECURITY IN WHOLE OR IN PART MAY BE
REGISTERED, IN THE NAME OF ANY PERSON OTHER THAN SUCH DEPOSITARY OR A
NOMINEE THEREOF, EXCEPT IN THE LIMITED CIRCUMSTANCES DESCRIBED IN THE
INDENTURE.]
[Include if Security is in global form and The Depository Trust Company
is the Depositary: UNLESS THIS CERTIFICATE IS PRESENTED BY AN
AUTHORIZED SIGNATORY OF THE DEPOSITORY TRUST COMPANY ("DTC") TO THE
TRUST OR ITS AGENT FOR REGISTRATION OF TRANSFER, EXCHANGE, OR PAYMENT,
AND ANY CERTIFICATE ISSUED IS REGISTERED IN THE NAME OF CEDE & CO. OR
IN SUCH OTHER NAME AS IS REQUESTED BY AN AUTHORIZED REPRESENTATIVE OF
DTC (AND ANY PAYMENT IS MADE TO CEDE & CO. OR TO SUCH OTHER ENTITY AS
IS REQUESTED BY AN AUTHORIZED REPRESENTATIVE OF DTC), ANY TRANSFER,
PLEDGE OR OTHER USE HEREOF FOR VALUE OR OTHERWISE BY OR TO ANY PERSON
IS WRONGFUL INASMUCH AS THE REGISTERED OWNER HEREOF, CEDE & CO., HAS AN
INTEREST HEREIN.]
<PAGE> 101
DESIGNER HOLDINGS LTD.
[ ]% Convertible Subordinated Debenture Due 2016
of
Designer Holdings Ltd.
No._________ $___________
CUSIP No. 250571AA4
DESIGNER HOLDINGS LTD., a corporation duly organized and existing
under the laws of the State of Delaware (herein called the "Company", which term
includes any successor Person under the Indenture hereinafter referred to), for
value received, hereby promises to pay to ___________, or registered assigns,
the principal sum of __________________ Dollars ($___________) on [ ], 2016 and
to pay interest thereon from November [ ], 1996 or from the most recent Interest
Payment Date to which interest has been paid or duly provided for, as the case
may be, payable quarterly (subject to deferral as set forth in the Indenture),
in arrears, on March 31, June 30, September 30 and December 31 (each an
"Interest Payment Date") of each year, commencing December 31, 1996, until the
principal thereof is paid or made available for payment, and they shall be paid
to the Person in whose name the Security is registered at 5:00 p.m. (New York
City time) on the regular record date for such interest installment, which shall
be the March 15, June 15, September 15 and December 15 next preceding such
Interest Payment Date (the "Regular Record Date").
Reference is hereby made to the further provisions of this
Security set forth on the reverse hereof, which further provisions shall for all
purposes have the same effect as if set forth at this place.
Unless the certificate of authentication hereon has been executed
by the Trustee referred to on the reverse hereof by manual signature, this
Security shall not be entitled to any benefit under the Indenture or be valid or
obligatory for any purpose.
- 2 -
<PAGE> 102
IN WITNESS WHEREOF, the Company has caused this instrument to be
duly executed under its corporate seal.
Dated:
DESIGNER HOLDINGS LTD.
By:_____________________________
Name:
Title:
[Seal]
Attest:
_____________________________
TRUSTEE'S CERTIFICATE OF AUTHENTICATION
This is one of the Securities referred to in the within-mentioned
Indenture.
Dated: IBJ SCHRODER BANK & TRUST
COMPANY, as Trustee
By: _______________________
Authorized Signatory
The Securities are unsecured general obligations of the Company l
- 3 -
<PAGE> 103
[FORM OF REVERSE OF SECURITY]
This Security is one of a duly authorized issue of securities of
the Company designated as its [ ]% Convertible Subordinated Debenture Due 2016
(herein called the "Securities"), limited in aggregate principal amount to
$103,092,800 in aggregate principal amount (or $118,556,750 if the
over-allotment option is exercised), issued and to be issued under an Indenture,
dated as of November [ ], 1996 (herein called the "Indenture"), between the
Company and IBJ Schroder Bank & Trust Company, as Trustee (herein called the
"Trustee", which term includes any successor trustee under the Indenture), to
which Indenture and all indentures supplemental thereto reference is hereby made
for a statement of the respective rights, limitations of rights, duties and
immunities thereunder of the Trustee, the Company and the Holders of the
Securities, and of the terms upon which the Securities are, and are to be,
authenticated and delivered. The terms of the Securities include those stated in
the Indenture and those made part of the Indenture by the Trust Indenture Act of
1939 (15 U.S. Code Section 77aaa-77bbbb) ("TIA") as in effect on the date
of the Indenture. The Securities are subject to, and qualified by, all such
terms, certain of which are summarized hereon, and holders are referred to the
Indenture and the TIA for a statement of such terms. No reference herein to the
Indenture and no provision of this Security or of the Indenture shall alter or
impair the obligation of the Company, which is absolute and unconditional, to
pay the principal of and interest on this Security at the times, place and rate,
and in the coin or currency, herein prescribed or to convert this Security as
provided in the Indenture. All terms used in this Security which are defined in
the Indenture shall have the meanings assigned to them in the Indenture. The
Company will furnish to any Holder upon written request and without charge a
copy of the Indenture.
(1) Interest. The Securities shall bear interest at the rate of [
]% per annum, from November [ ], 1996 or from the most recent Interest Payment
Date to which interest has been paid or duly provided for, as the case may be,
payable quarterly (subject to deferral as set forth herein), in arrears, on
March 31, June 30, September 30 and December 31 (each an "Interest Payment
Date") of each year, commencing December 31, 1996, until the principal thereof
is paid or made available for payment, and they shall be paid to the Person in
whose name the Security is registered at 5:00 p.m. (New York City time) on the
regular record date for such interest installment, which shall be the March 15,
June 15, September 15 and December 15 next preceding such
- 4 -
<PAGE> 104
Interest Payment Date (the "Regular Record Date"). Interest will compound
quarterly and will accrue at the rate of [ ]% per annum on any interest
installment in arrears for more than one quarter or during an extension of an
interest payment period as set forth below.
The amount of interest payable for any period will be computed on
the basis of a 360-day year of twelve 30-day months. Except as provided in the
following sentence, the amount of interest payable for any period shorter than a
full quarterly period for which interest in computed, will be computed on the
basis of the actual number of days elapsed. In the event that any date on which
interest is payable on the Securities is not a Business Day, then payment of
interest payable on such date will be made on the next succeeding day which is a
Business Day (and without any interest or other payment in respect of any such
delay), except that, if such Business Day is in the next succeeding calendar
year, such payment shall be made on the immediately preceding Business Day, in
each case with the same force and effect as if made on such date.
If at any time while the Property Trustee is the Holder of any
Securities, the Trust or the Property Trustee is required to pay any taxes,
duties, assessments or governmental charges of whatever nature (other than
withholding taxes) imposed by the United States, or any other taxing authority,
then, in any such case, the Company shall pay as additional interest
("Additional Interest") on the Securities held by the Property Trustee, such
amounts as shall be required so that the net amounts received and retained by
the Trust and the Property Trustee after paying any such taxes, duties,
assessments or other governmental charges will be not less than the amounts the
Trust and the Property Trustee would have received had no such taxes, duties,
assessments or other governmental charges been imposed.
The principal of and interest on the Securities shall be payable
at the office or agency of the Company in the United States maintained for such
purpose and at any other office or agency maintained by the Company for such
purpose in such coin or currency of the United States of America as at the time
of payment is legal tender for payment of public and private debts; provided,
however, that at the option of the Company payment of interest may be made by
check mailed to the address of the Person entitled thereto as such address shall
appear in the Security Register.
(2) Option to Extend Interest Payment Period. The Company shall
have the right at any time during the term
- 5 -
<PAGE> 105
of the Securities to defer interest payments (including Additional Payments)
from time to time by extending the interest payment period for successive
periods (each, an "Extension Period") not exceeding 20 consecutive quarters for
each such period; provided, no Extension Period may extend beyond the maturity
date of the Securities. At the end of each Extension Period, the Company shall
pay all interest then accrued and unpaid (including Additional Interest)
together with interest thereon compounded quarterly at the rate specified for
the Securities to the extent permitted by applicable law ("Compounded
Interest"); provided, that during any Extension Period, the Company shall (i)
not declare or pay dividends on, or make a distribution with respect to, or
redeem or purchase or acquire, or make a liquidation payment with respect to,
any of its capital stock (other than (A) purchases or acquisitions of shares of
Common Stock in connection with the satisfaction by the Company of its
obligations under any employee benefit plans or the satisfaction by the Company
of its obligations pursuant to any contract or security requiring the Company to
purchase shares of Common Stock, (B) as a result of a re- classification of the
Company's capital stock or the exchange or conversion of one class or series of
the Company's capital stock for another class or series of the Company's capital
stock or (C) the purchase of fractional interests in shares of the Company's
capital stock pursuant to the conversion or exchange provisions of such capital
stock or the security being converted or exchanged (or make any guarantee
payments with respect to the foregoing)), (ii) not make any payment of interest,
principal or premium, if any, on or repay, repurchase or redeem any debt
securities (including guarantees) issued by the Company that rank pari passu
with or junior to the Securities and (iii) not make any guarantee payments with
respect to the foregoing (other than pursuant to the Guarantee). Prior to the
termination of any such Extension Period, the Company may further extend such
Extension Period; provided, that such Extension Period, together with all such
previous and further extensions thereof, may not exceed 20 consecutive quarters
or extend beyond the maturity date of the Securities. Upon the termination of
any Extension Period and the payment of all amounts then due, the Company may
commence a new Extension Period, subject to the above requirements. No interest
during an Extension Period shall be due and payable.
If the Property Trustee is the sole Holder of the Securities at
the time the Company selects an Extension Period, the Company shall give written
notice to the Regular Trustees, the Property Trustee and the Trustee of its
selection of such Extension Period at least one Business Day
- 6 -
<PAGE> 106
prior to the earlier of (i) the date the distributions on the Preferred
Securities are payable or (ii) if the Preferred Securities are listed on the New
York Stock Exchange or other stock exchange or quotation system, the date the
Trust is required to give notice to the New York Stock Exchange or other
applicable self-regulatory organization or to holders of the Preferred
Securities of the record date or the date such distributions are payable, but in
any event not less than 10 Business Days prior to such record date.
If the Property Trustee is not the sole holder of the Securities
at the time the Company selects an Extension Period, the Company shall give the
Holders of the Securities and the Trustee written notice of its selection of
such Extension Period at least 10 Business Days prior to the earlier of (i) the
next succeeding Interest Payment Date or (ii) if the Preferred Securities are
listed on the New York Stock Exchange or other stock exchange or quotation
system, the date the Company is required to give notice to the New York Stock
Exchange or other applicable self-regulatory organization or to holders of the
Securities on the record or payment date of such related interest payment, but
in any event not less than two Business Days prior to such record date.
The quarter in which any notice is given pursuant to paragraphs
second and third of this Section 2 shall be counted as one of the 20 quarters
permitted in the maximum Extension Period permitted under paragraph one of this
Section 2.
(3) Paying Agent and Security Registrar. The Trustee will act as
Paying Agent, Security Registrar and Conversion Agent. The Company may change
any Paying Agent, Security Registrar, co-registrar or Conversion Agent without
prior notice. The Company or any of its Affiliates may act in any such capacity.
(4) Redemption. The Securities are redeemable, in whole or in
part, at any time or from time to time on or after [ ] upon not less than 30 nor
more than 60 days' notice, at a redemption price equal to [ ]% of the principal
amount of the Securities to be redeemed plus any accrued and unpaid interest
(including Additional Payments, if any) to the Redemption Date, if redeemed on
or before [ ], and at the following optional redemption prices (expressed as a
percentage of the principal amount of Securities), if redeemed during the
12-month period beginning [ ]:
- 7 -
<PAGE> 107
<TABLE>
<CAPTION>
Percentage of
Principal
Year Amount
---- -------------
<S> <C>
............................................ %
............................................ %
............................................ %
............................................ %
............................................ %
............................................ %
and thereafter.............................. %
</TABLE>
plus, in each case, accrued and unpaid interest (including Additional Payments,
if any) to the Redemption Date. On and after the Redemption Date, interest
ceases to accrue on the Securities or portions of them called for redemption.
The Securities are subject to redemption in whole (but not in
part), at any time within 90 days, if a Tax Event (as defined in the
Declaration) shall occur and be continuing, at a redemption price equal to 100%
of the principal amount thereof plus accrued but unpaid interest (including
Additional Payments, if any) to the Redemption Date. On and after the Redemption
Date, interest ceases to accrue on the Securities or portions of them called for
redemption.
Notice of redemption shall be given by first-class mail, postage
prepaid, mailed not less than 30 nor more than 60 days prior to the Redemption
Date, to each Holder of Securities to be redeemed, at such Holder's address
appearing in the Security Register. The Securities in denominations larger than
$50 may be redeemed in part but only in integral multiples of $50. In the event
of a redemption of less than all of the Securities, the Securities will be
chosen for redemption by the Trustee in accordance with the Indenture.
If this Security is redeemed subsequent to a Regular Record Date
with respect to any Interest Payment Date specified above and on or prior to
such Interest Payment Date, then any accrued interest will be paid to the person
in whose name this Security is registered at the close of business on such
record date.
(5) Sinking Fund. The Securities are not entitled to the benefit
of any sinking fund.
- 8 -
<PAGE> 108
(6) Subordination. The payment of the principal of, premium, if
any, and interest (including Additional Payments, if any) on all Securities is
subordinated and junior in right of payment to the prior payment in full of all
existing and future Senior Indebtedness, whether outstanding at the date of this
Indenture or thereafter incurred. Each holder, by accepting a Security, agrees
to such subordination and authorizes and directs the Trustee on its behalf to
take such action as may be necessary or appropriate to effectuate the
subordination so provided and appoints the Trustee as its attorney-in-fact for
such purpose.
"Senior Indebtedness" means in respect of the Company (i) the
principal, premium, if any, and interest in respect of (A) indebtedness of such
obligor for money borrowed and (B) indebtedness evidenced by securities,
debentures, bonds or other similar instruments issued by such obligor, (ii) all
capital lease obligations of such obligor, (iii) all obligations of such obligor
issued or assumed as the deferred purchase price of property, all conditional
sale obligations of such obligor and all obligations of such obligor under any
title retention agreement (but excluding trade accounts payable arising in the
ordinary course of business), (iv) all obligations of such obligor for the
reimbursement of any letter of credit, banker's acceptance, security purchase
facility or similar credit transaction, (v) all obligations of the type referred
to in clauses (i) through (iv) above of other Persons for the payment of which
such obligor is responsible or liable as obligor, guarantor or otherwise, and
(vi) all obligations of the type referred to in clauses (i) through (v) above of
other Persons secured by any lien on any property or asset of such obligor
(whether or not such obligation is assumed by such obligor), except for (1) any
such indebtedness that is by its terms subordinated to or pari passu with the
Securities and (2) any indebtedness between or among such obligor or its
affiliates, including all other debt securities and guarantees in respect of
those debt securities issued to any other trust, or a trustee of such trust,
partnership, or other entity affiliated with the Company that is, directly or
indirectly, a financing vehicle of the Company (a "Financing Entity") in
connection with the issuance by such Financing Entity of preferred securities or
other securities which rank pari passu with, or junior to, the Preferred
Securities. Such Senior Indebtedness shall continue to be Senior Indebtedness
and entitled to the benefits of the subordination provisions irrespective of any
amendment, modification or waiver of any term of such Senior Indebtedness.
- 9 -
<PAGE> 109
(7) Conversion. The Holder of any Security has the right,
exercisable at any time on or before 5:00 p.m. (New York City time) on the
Business Day immediately preceding the date of repayment of such Securities,
whether at maturity or upon redemption (either at the option of the Company or
pursuant to a Tax Event), to convert the principal amount thereof (or any
portion thereof that is an integral multiple of $50) into fully paid and
nonassessable shares of Common Stock of the Company at an initial conversion
rate of [ ] shares of Common Stock for each $50 in aggregate principal amount of
Securities (equal to a conversion price of $[ ] per share of Common Stock),
subject to adjustment under certain circumstances. The number of shares issuable
upon conversion of a Security is determined by dividing the principal amount of
the Security converted by the conversion price in effect on the Conversion Date.
No fractional shares will be issued upon conversion but a cash adjustment will
be made for any fractional interest. The outstanding principal amount of any
Security shall be reduced by the portion of the principal amount thereof
converted into shares of Common Stock.
To convert a Security, a Holder must (i) complete and sign a
conversion notice substantially in the form attached hereto, (ii) surrender the
Security to a Conversion Agent, (iii) furnish appropriate endorsements or
transfer documents if required by the Security Registrar or Conversion Agent and
(iv) pay any transfer or similar tax, if required. If a Notice of Conversion is
delivered on or after the Regular Record Date and prior to the subsequent
Interest Payment Date, the Holder will be entitled to receive the interest
payable on the subsequent Interest Payment Date on the portion of Securities to
be converted notwithstanding the conversion thereof prior to such Interest
Payment Date. Except as otherwise provided in the immediately preceding
sentence, in the case of any Security which is converted, interest whose Stated
Maturity is after the date of conversion of such Security shall not be payable,
and the Company shall not make nor be required to make any other payment,
adjustment or allowance with respect to accrued but unpaid interest (including
Additional Payments, if any) on the Securities being converted, which shall be
deemed to be paid in full. If any Security called for redemption is converted,
any money deposited with the Trustee or with any Paying Agent or so segregated
and held in trust for the redemption of such Security shall (subject to any
right of the Holder of such Security or any Predecessor Security to receive
interest as provided in the last paragraph of Section 307 and this paragraph) be
paid to the Company upon Company
- 10 -
<PAGE> 110
Request or, if then held by the Company, shall be discharged from such trust.
(8) Registration, Transfer, Exchange and Denominations. As
provided in the Indenture and subject to certain limitations therein set forth,
the transfer of this Security is registrable in the Security Register, upon
surrender of this Security for registration of transfer at the office or agency
of the Company in New York, New York, duly endorsed by, or accompanied by a
written instrument of transfer in form satisfactory to the Company and the
Security Registrar duly executed by, the Holder hereof or his attorney duly
authorized in writing, and thereupon one or more new Securities, of authorized
denominations and for the same aggregate principal amount, will be issued to the
designated transferee or transferees.
The Securities are issuable only in registered form without
coupons in denominations of $50 and integral multiples thereof. No service
charge shall be made for any such registration of transfer or exchange, but the
Company may require payment of a sum sufficient to cover any tax or other
governmental charge payable in connection therewith. Prior to due presentment of
this Security for registration of transfer, the Company, the Trustee and any
agent of the Company or the Trustee may treat the Person in whose name this
Security is registered as the owner hereof for all purposes, whether or not this
Security be overdue, and neither the Company, the Trustee nor any such agent
shall be affected by notice to the contrary. In the event of redemption or
conversion of this Security in part only, a new Security or Securities for the
unredeemed or unconverted portion hereof will be issued in the name of the
Holder hereof upon the cancellation hereof.
(9) Persons Deemed Owners. Except as provided in the Indenture,
the registered Holder of a Security may be treated as its owner for all
purposes.
(10) Unclaimed Money. If money for the payment of principal or
interest remains unclaimed for two years, the Trustee and the Paying Agent shall
pay the money back to the Company at its written request. After that, holders of
Securities entitled to the money must look to the Company for payment unless an
abandoned property law designates another Person and all liability of the
Trustee and such Paying Agent with respect to such money shall cease.
- 11 -
<PAGE> 111
(11) Defaults and Remedies. The Securities shall have the Events
of Default as set forth in Section 501 of the Indenture. Subject to certain
limitations in the Indenture, if an Event of Default occurs and is continuing,
the Trustee by notice to the Company or the holders of at least 25% in aggregate
principal amount of the then outstanding Securities by notice to the Company and
the Trustee may declare all the Securities to be due and payable immediately.
The holders of a majority in principal amount of the Securities
then outstanding by written notice to the Trustee may rescind an acceleration
and its consequences if the rescission would not conflict with any judgment or
decree and if all existing Events of Default have been cured or waived except
nonpayment of principal or interest that has become due solely because of the
acceleration. Holders may not enforce the Indenture or the Securities except as
provided in the Indenture. Subject to certain limitations, holders of a majority
in principal amount of the then outstanding Securities issued under the
Indenture may direct the Trustee in its exercise of any trust or power. The
Company must furnish annually compliance certificates to the Trustee. The above
description of Events of Default and remedies is qualified by reference to, and
subject in its entirety by, the more complete description thereof contained in
the Indenture.
(12) Amendments, Supplements and Waivers. The Indenture permits,
with certain exceptions as therein provided, the amendment thereof and the
modification of the rights and obligations of the Company and the rights of the
Holders of the Securities under the Indenture at any time by the Company and the
Trustee with the consent of the Holders of a majority in aggregate principal
amount of the Securities at the time Outstanding. The Indenture also contains
provisions permitting the Holders of specified percentages in aggregate
principal amount of the Securities at the time Outstanding, on behalf of the
Holders of all the Securities, to waive compliance by the Company with certain
provisions of the Indenture and certain past defaults under the Indenture and
their consequences. Any such consent or waiver by the Holder of this Security
shall be conclusive and binding upon such Holder and upon all future Holders of
this Security and of any Security issued upon the registration of transfer
hereof or in exchange herefor or in lieu hereof, whether or not notation of such
consent or waiver is made upon this Security.
- 12 -
<PAGE> 112
(13) Trustee Dealings with the Company. The Trustee, in its
individual or any other capacity may become the owner or pledgee of the
Securities and may otherwise deal with the Company or an Affiliate with the same
rights it would have, as if it were not Trustee, subject to certain limitations
provided for in the Indenture and in the TIA. Any Agent may do the same with
like rights.
(14) No Recourse Against Others. A director, officer, employee or
stockholder, as such, of the Company shall not have any liability for any
obligations of the Company under the Securities or the Indenture or for any
claim based on, in respect of or by reason of such obligations or their
creation. Each Holder of the Securities by accepting a Security waives and
releases all such liability. The waiver and release are part of the
consideration for the issue of the Securities.
(15) Governing Law. THE INTERNAL LAWS OF THE STATE OF NEW YORK
SHALL GOVERN THE INDENTURE AND THE SECURITIES WITHOUT REGARD TO CONFLICT OF
LAW PROVISIONS THEREOF.
(16) Authentication. The Securities shall not be valid until
authenticated by the manual signature of an authorized officer of the Trustee or
an authenticating agent.
- 13 -
<PAGE> 113
ASSIGNMENT
FOR VALUE RECEIVED, the undersigned assigns and transfers this Security to:
(Insert assignee's social security or tax identification number)
(Insert address and zip code of assignee)
and irrevocably appoints
agent to transfer this Security on the books of the Company. The agent
may substitute another to act for him or her.
Date: _______________________
__________________________________________
(Sign exactly as your name appears on the
other side of this Security)
Signature Guarantee:* _______________________
* (Signature must be guaranteed by an "eligible guarantor institu-
tion" that is, a bank, stockbroker, savings and loan association
or credit union meeting the requirements of the Registrar, which
requirements include membership or participation in the Securities
Transfer Agents Medallion Program ("STAMP") or such other "signa-
ture guarantee program" as may be determined by the Registrar in
addition to, or in substitution for, STAMP, all in accordance with
the Securities Exchange Act of 1934, as amended.)
- 14 -
<PAGE> 114
NOTICE OF CONVERSION
To: Designer Holdings Ltd.
The undersigned owner of this Security hereby irrevocably
exercises the option to convert this Security, or the portion below designated,
into Common Stock (the "Common Stock") of DESIGNER HOLDINGS LTD. (the "Company")
in accordance with the terms of the Indenture, between the Company and IBJ
Schroder Bank & Trust Company, as Trustee, and directs that the shares issuable
and deliverable upon conversion, together with any check in payment for
fractional shares, be issued in the name of and delivered to the undersigned,
unless a different name has been indicated in the assignment below. If shares
are to be issued in the name of a person other than the undersigned, the
undersigned will pay all transfer taxes payable with respect thereto.
Date: ________________
Number of Securities to be converted ($50 or integral
multiples thereof): ___________________
If a name or names other than the undersigned, please indicate in the spaces
below the name or names in which the shares of Common Stock are to be issued,
along with the address or addresses of such person or persons.
________________________________________________________________________________
________________________________________________________________________________
________________________________________________________________________________
_________________________________________
(Sign exactly as your name appears on the
the Security) (for conversion only)
Please Print or Typewrite Name and Address,
Including Zip Code, and Social Security or
Other Identifying Number.
_________________________________________
_________________________________________
_________________________________________
_________________________________________
Signature Guarantee:* ___________________
______________________
* (Signature must be guaranteed by an "eligible guarantor institu-
tion" that is, a bank, stockbroker, savings and loan association
or credit union meeting the requirements of the Registrar, which
requirements include membership or participation in the Securities
Transfer Agents Medallion Program ("STAMP") or such other "signa-
ture guarantee program" as may be determined by the Registrar in
addition to, or in substitution for, STAMP, all in accordance with
the Securities Exchange Act of 1934, as amended.)
- 15 -
<PAGE> 1
Exhibit 4.7
DRAFT
====================================
PREFERRED SECURITIES GUARANTEE AGREEMENT
Designer Holdings Ltd.
Dated as of November [ ], 1996
====================================
<PAGE> 2
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
----
ARTICLE I
DEFINITIONS AND INTERPRETATION
<S> <C> <C>
SECTION 1.1. Definitions and Interpretation........................................ 2
ARTICLE II
TRUST INDENTURE ACT
SECTION 2.1. Trust Indenture Act; Application...................................... 5
SECTION 2.2. Lists of Holders of Securities........................................ 6
SECTION 2.3. Reports by the Preferred Guarantee
Trustee............................................................. 6
SECTION 2.4. Periodic Reports to the Preferred
Guarantee Trustee................................................... 6
SECTION 2.5. Evidence of Compliance with
Conditions Precedent................................................ 7
SECTION 2.6. Event of Default; Waiver.............................................. 7
SECTION 2.7. Event of Default; Notice.............................................. 7
SECTION 2.8. Conflicting Interests................................................. 7
ARTICLE III
POWERS, DUTIES AND RIGHTS OF
THE PREFERRED GUARANTEE TRUSTEE
SECTION 3.1. Powers and Duties of the Preferred
Guarantee Trustee................................................... 8
SECTION 3.2. Certain Rights of the Preferred
Guarantee Trustee................................................... 10
SECTION 3.3. Not Responsible for Recitals or
Issuance of Guarantee............................................... 12
ARTICLE IV
PREFERRED GUARANTEE TRUSTEE
SECTION 4.1. Preferred Guarantee Trustee;
Eligibility......................................................... 13
SECTION 4.2. Appointment, Removal and Resignation
of Preferred Guarantee Trustees...................................... 13
</TABLE>
i
<PAGE> 3
ARTICLE V
GUARANTEE
<TABLE>
<S> <C> <C>
SECTION 5.1. Guarantee............................................................. 14
SECTION 5.2. Subordination......................................................... 15
SECTION 5.3. Waiver of Notice and Demand........................................... 15
SECTION 5.4. Obligations Not Affected.............................................. 15
SECTION 5.5. Rights of Holders..................................................... 16
SECTION 5.6. Guarantee of Payment.................................................. 17
SECTION 5.7. Subrogation........................................................... 17
SECTION 5.8. Independent Obligations............................................... 17
SECTION 5.9. Conversion............................................................ 17
ARTICLE VI
LIMITATION OF TRANSACTIONS; RANKING
SECTION 6.1. Limitation of Transactions............................................ 18
SECTION 6.2. Ranking............................................................... 18
ARTICLE VII
TERMINATION
SECTION 7.1. Termination........................................................... 19
ARTICLE VIII
INDEMNIFICATION
SECTION 8.1. Exculpation........................................................... 19
SECTION 8.2. Indemnification....................................................... 20
ARTICLE IX
MISCELLANEOUS
SECTION 9.1. Successors and Assigns................................................ 20
SECTION 9.2. Amendments............................................................ 20
SECTION 9.3. Notices............................................................... 21
SECTION 9.4. Benefit............................................................... 22
SECTION 9.5. Governing Law......................................................... 22
</TABLE>
ii
<PAGE> 4
PREFERRED SECURITIES GUARANTEE AGREEMENT
This PREFERRED SECURITIES GUARANTEE AGREEMENT (the "Preferred
Securities Guarantee"), dated as of November [ ], 1996, is executed and
delivered by Designer Holdings Ltd., a Delaware corporation (the "Guarantor"),
and IBJ Schroder Bank & Trust Company, a New York banking corporation as trustee
(the "Preferred Guarantee Trustee"), for the benefit of the Holders (as defined
herein) from time to time of the Preferred Securities (as defined herein) of
Designer Finance Trust, a Delaware statutory business trust (the "Trust");
WHEREAS, pursuant to an Amended and Restated Declaration of
Trust (the "Declaration"), dated as of November [ ], 1996, among the trustees of
the Trust named therein, the Guarantor, as sponsor, and the holders from time to
time of undivided beneficial interests in the assets of the Trust, the Trust is
issuing on the date hereof 2,000,000 preferred securities, having an aggregate
liquidation amount of $100,000,000 (plus up to an additional 300,000 preferred
securities, having an aggregate liquidation amount of $15,000,000 to cover
over-allotments), designated the [ ]% Convertible Trust Originated Preferred
SecuritiesSM (the "Preferred Securities");
WHEREAS, as incentive for the Holders to purchase the
Preferred Securities, the Guarantor desires irrevocably and unconditionally to
agree, to the extent set forth in this Preferred Securities Guarantee, to
guarantee the obligations of the Trust to the Holders of the Preferred
Securities on the terms and conditions set forth herein;
WHEREAS, the Guarantor is also executing and delivering a
guarantee agreement (the "Common Securities Guarantee") in substantially
identical terms to this Preferred Securities Guarantee for the benefit of the
holders of the Common Securities (as defined herein), except that if an event of
default (as defined in the Indenture (as defined herein)), has occurred and is
continuing, the rights of holders of the Common Securities to receive Guarantee
Payments (as defined in the Common Securities Guarantee) under the Common
Securities Guarantee shall be subordinated to the rights of Holders of Preferred
Securities to receive Guarantee
<PAGE> 5
Payments (as defined herein) under this Preferred
Securities Guarantee; and
NOW, THEREFORE, in consideration of the purchase by each
Holder of Preferred Securities, which purchase the Guarantor hereby agrees shall
benefit the Guarantor, the Guarantor executes and delivers this Preferred
Securities Guarantee for the benefit of the Holders.
ARTICLE I
DEFINITIONS AND INTERPRETATION
SECTION 1.1. Definitions and Interpretation.
Preferred Securities Guarantee, unless the context otherwise requires:
(a) Capitalized terms used in this Preferred Securities
Guarantee but not defined in the preamble above have
the respective meanings assigned to them in this
Section 1.1;
(b) terms defined in the Declaration as at the date
hereof have the same meaning when used n this
Preferred Securities Guarantee unless otherwise
defined in this Preferred Securities Guarantee;
(c) a term defined anywhere in this Preferred
Securities Guarantee has the same meaning
throughout;
(d) all references to "the Preferred Securities
Guarantee" or "this Preferred Securities Guarantee"
are to this Preferred Securities Guarantee as
modified, supplemented or amended from time to time;
(e) all references in this Preferred
Securities Guarantee to Articles and
Sections are to Articles and Sections of
this Preferred Securities Guarantee,
unless otherwise specified;
2
<PAGE> 6
(f) a term defined in the Trust Indenture Act has the
same meaning when used in this Preferred Securities
Guarantee, unles otherwise defined in this Preferred
Securities Guarantee or unless the context otherwise
requires;
(g) a reference to the singular includes the
plural and vice versa;
(h a reference to any Person shall include
its successors and assigns;
(i) a reference to any agreement or instrument shall mean
such agreement or instrument, as supplemented,
modified, amended, or amended and restated, and in
effect from time to time; and
(j) a reference to any statute, law, rule or regulation,
shall include any amendments thereto applic ble to
the relevant Person, and any successor statute, law,
rule or regulation.
"Affiliate" has the same meaning as given to that term in Rule 405 of the
Securities Act of 1933, as amended, or any successor rule thereunder.
"Authorized Officer" of a Person means any Person that is authorized to bind
such Person.
"Business Day" means any day other than a day on which banking institutions
in New York, New York or in Wilmington, Delaware are authorized or r quired by
any applicable law or executive order to close.
"Common Securities" means the securities representing common undivided
beneficial interests in the assets of the Trust.
"Corporate Trust Office" means the office of the Preferred Guarantee Trustee
at which the corporate trust business of the Preferred Guarantee Trustee shall,
at any particular time, be principally administered, which office at the date of
execution of this Agreement is located t One State Street, 11th Floor, New York,
New
3
<PAGE> 7
York 10004, Attention: Corporate Trust & Agency Department.
"Covered Person" means any Holder or beneficial owner of Preferred
Securities.
"Debentures" means the [ ]% Convertible Subordinated Debentures due November
[ ], 2016 of the Guarantor held by the Property Trustee (as defined in the
Declaration).
"Event of Default" means a default by the Guaranto on any of its payment or
other obligations under this Preferred Securities Guarantee.
"Guarantee Payments" means the following payments or distributions, without
duplication, with respect to the Preferred Securities, to the extent not paid or
made by the Trust: (i) any accrued and unpaid Distributions (as defined in the
Declaration) that are required to be paid on the Preferred Securities to the
extent the Trust has funds available therefor, (ii) the redemption price, wit
respect to any Preferred Securities called for redemption by the Trust (the
"Redemption Price"), to the extent the Trust has funds available therefor, and
(iii) upon a voluntary or involuntary dissolution, winding-up or termination of
the Trust (other than in connection with the distribution of Convertible
Subordinated Debentures to the Holders of Preferred Securities or the redemption
of all the Preferred Securities (as provided in the Declaration)), the lesser of
(a) the aggregate of the liquidation amount and all accrued and unpaid
Distributions on the Preferred Securities to the date of payment to the extent
the Trust has funds available therefor and (b) the amount of assets of the Trust
remaining available for distribution to Holders of Preferred Securities upon the
liquidation of the Trust (in either case, the "Liquidation Distribution").
"Holder" shall mean any holder, as registered on the books and records of
the Trust of any Preferred Securities; provi ed, however, that in determining
whether the holders of the requisite percentage of Preferred Securities have
given any request, notice, consent or waiver hereunder, "Holder" shall not
include the Guarantor or any Affiliate of the Guarantor.
4
<PAGE> 8
"Indemnified Person" means the Preferred Guarantee Trustee, any Affiliate of
the Preferred Guarantee Trustee, or any officers, directors, shareholders,
members, partners, employees, representatives, nominees, cu todians or agents of
the Preferred Guarantee Trustee.
"Indenture" means the Indenture dated as of November [ ], 1996, among the
Guarantor (the "Convertible Debenture Issuer") and IBJ Schroder Bank & Trust
Company, a New York banking corporation, as trustee, pursuant to which the
Debentures are to be issued to the Property Trustee of the Trust.
"Indenture Trustee" means the Person acting as trustee under the Indenture,
initially IBJ Schroder Bank & Trust Compan .
"Majority in liquidation amount of the Preferred Securities" means, except
as provided by the Trust Indenture Act, a vote by Holder(s) of Preferred
Securities, voting separately as a class, of more than 50% of the liquidation
amount of all Preferred Securities.
"Officers' Certificate" means, with respect to any Person, a certificate
signed by two Authorized Officers of such Person. Any Officers' Certificate
delivered with respect to compliance with a condition or co enant provided for
in this Preferred Securities Guarantee shall include:
(a) a statement that each officer signing the Officers' Certificate
has read the covenant or condition and the definition relating thereto;
(b) a brief statement of the nature and scope of the examination or
investigation undertaken by each officer in rendering the Officers'
Certificate;
(c) a statement that eac such officer has made such examination or
investigation as, in such officer's opinion, is necessary to enable
such officer to express an informed opinion as to whether or not such
covenant or condition has been complied with; and
5
<PAGE> 9
(d) a statement as to whether, in the opinion of each such officer,
such condition or covenant has been complied with.
"Person" means a legal person, including any individual, corporation,
estate, partnership, joint vent re, association, joint stock company, limited
liability company, trust, unincorporated association, or government or any
agency or political subdivision thereof, or any other entity of whatever nature.
"Preferred Guarantee Trustee" means IBJ Schroder Bank & Trust Company, until
a Successor Preferred Guarantee Trustee has been appointed and has accepted such
appointment pursuant to the terms of this Preferred Securities Guarantee and
thereafter means each such Successor Preferred Guarantee Trustee.
"Responsible Officer" means, with respect to the Preferred Guarantee
Trustee, any officer within the Corporate Trust Office of the Preferred
Guarantee Trustee, including any vice president, any assistant vice president,
any assistant secretary, the treasurer, any assistant treasurer or other officer
of the Corporate Trust Office of the Preferred Guarantee Trustee customarily
performing functions similar to those performed by any of the above designated
officer and also means, with respect to a particular corporate trust matter, any
other officer to whom such matter is referred because of that officer's
knowledge of and familiarity with the particular subject.
"Successor Preferred Guarantee Trustee" means a successor Preferred
Guarantee Trustee possessing the qualifications to act as Preferred Guarantee
Trustee under Section 4.1.
"Trust Indenture Act" means the Trust Indenture Act of 1939, as amen ed.
ARTICLE II
TRUST INDENTURE ACT
SECTION 2.1. Trust Indenture Act; Application.
(a) This Preferred Securities Guarantee is subject to the provisions of the
Trust Indenture Act that are required to be part of this Preferred Securities
Guarantee and shall, to the extent applicable, be governed by such provisions.
6
<PAGE> 10
(b) If and to the extent that any provision of this Preferred Securities
Guarantee limits, qualifies or conflicts with the duties imposed by Sections 310
to 317, inclusive, of the Trust Indenture Act, such imposed duties shall
control.
SECTION 2.2. List of Holders of Securities.
(a) The Guarantor shall provide the Preferred Guarantee Trus ee with a list,
in such form as the Preferred Guarantee Trustee may reasonably require, of the
names and addresses of the Holders of the Preferred Securities ("List of
Holders") as of such date, (i) within one Business Day after January 1 and June
30 of each year, and (ii) at any other time within 30 days of receipt by the
Guarantor of a written request for a List of Holders as of a date no more than
14 days before such List of Holders is given to the Preferred Guarantee Trustee,
provided that the Guarantor shall not be obligated to provide such List of
Holders at any time (x) the List of Holders does not differ from the most recent
List of Holders given to the Preferred Guarantee Trustee by the Guarantor or (y)
the Preferred Securities are represented by one or more Global Securities (as
defined in the Indenture). The Preferred Guarantee Trustee may destroy any List
of Holders previously given to it on receipt of a new List of Holders.
(b) The Preferred Guarant e Trustee shall comply with its obligations under
Section 311(a), 311(b) and Section 312(b) of the Trust Indenture Act.
SECTION 2.3. Reports by the Preferred Guarantee
Trustee.
Within 60 days after May 15 of each year, the Preferred Guarantee
Trustee shall provide to the Holders of the Preferred Securities such reports as
are required by Section 313 of the Trust Indenture Act, if any, in the form and
in the manner provided by Section 313 of the Trust Indenture Act. The Preferred
Guarantee Trustee shall also comply with the requirements of Section 313(d) of
the Trust Indenture Act.
7
<PAGE> 11
SECTION 2.4. Periodic Reports to the Preferred
Guarantee Trustee.
The Guarantor shall provide to the Preferred Guarantee Trustee such
documents, reports and information as equired by Section 314, if any, and the
compliance certificate required by Section 314 of the Trust Indenture Act in the
form, in the manner and at the times required by Section 314 of the Trust
Indenture Act.
SECTION 2.5. Evidence of Compliance with Conditions
Precedent.
The Guarantor shall provide to the Preferred Guarantee Trustee such
evidence of compliance with any conditions precedent, if any, provided for in
this Preferred Securities Guarantee that relate to any of the matters set forth
in Section 314(c) of the Trust Indenture Act. Any certificate or opinion
required to be given by an officer pursuant to Section 314(c)(1) may be given in
the form of an Officers' Certificate.
SECTION 2.6. Event of Default; Waiver.
The Holders of a Majority in liquidation amount of Preferred Securi ies
may, by vote, on behalf of the Holders of all of the Preferred Securities, waive
any past Event of Default and its consequences. Upon such waiver, any such Event
of Default shall cease to exist, and any Event of Default arising therefrom
shall be deemed to have been cured, for every purpose of this Preferred
Securities Guarantee, but no such waiver shall extend to any subsequent or other
default or Event of Default or impair any right consequent thereon.
SECTION 2.7. Event of Default; Notice.
(a) The Preferred Guarantee Trustee shall, within 90 days after the
occurrence of an Event of Default, transmit by mail, first class postage
prepaid, to the Holders of the Preferred Securities, notices of all Events of
Default actually known to a Responsible Officer of the Preferred Guarantee
Trustee, unless such defaults have been cured before the giving of such notice;
provided that the Preferred Guarantee Trustee shall be protected in withholding
such notice if and so long as a Responsible Officer of the Preferred Guarantee
Trustee in good faith
8
<PAGE> 12
determines that the withholding of such notice is in the interests of the
Holders of the Preferred Securities.
(b) The Preferred Guarantee Trustee shall not be deemed to have knowledge of
any Event of Default unless the Preferred Guarantee Trustee shall have received
written notice, or of which Responsible Officer of the Preferred Guarantee
Trustee charged with the administration of the Declaration shall have obtained
actual knowledge.
SECTION 2.8. Conflicting Interests.
The Declaration shall be deemed to be specifically described in this
Preferred Securities Guarantee for the purposes of clause (i) of the first
proviso contained in Section 310(b) of the Trust Indenture Act.
ARTICLE III
POWERS, DUTIES AND RIGHTS OF THE PREFERRED GUARANTEE TRUSTEE
SECTION 3.1. Powers and Duties of the Preferred
Guarantee Trustee.
(a) This Preferred Securities Guarantee shall be held by the Preferred
Guarantee Trustee for the benefit of the Holders of the Preferred Securities,
and the Preferred Guarantee Trust e shall not transfer this Preferred Securities
Guarantee to any Person except a Holder exercising his or her rights pursuant to
Section 5.5(b) or to a Successor Preferred Guarantee Trustee on acceptance by
such Successor Preferred Guarantee Trustee of its appointment to act as
Successor Preferred Guarantee Trustee. The right, title and interest of the
Preferred Guarantee Trustee shall automatically vest in any Successor Preferred
Guarantee Trustee, and such vesting and cessation of title shall be effective
whether or not conveyancing documents have been executed and delivered pursuant
to the appointment of such Successor Preferred Guarantee Trustee.
(b) If an Event of Default actually known to a Responsible Officer of the
Preferred Guarantee Trustee has occurred and is continuing, the Preferred
Guarantee Trustee shall enforce this Preferred Securities Guarantee for the
benefit of the Holders of the Preferred Securities.
9
<PAGE> 13
(c) The Preferred Guarantee Trustee, before the occurrence of any Event of
Default and after the curing of all Events of Default that may have occurred,
shall undertake to perform only such duties as are specifically set forth in
this Preferred Securities Guarantee, and no implied covenants shall be read into
this Preferred Securities Guarantee against the Preferred Guarantee Trustee. In
case an Event of Default has occurred (that has not been cured or waived
pursuant to Section 2 6) and is actually known to a Responsible Officer of the
Preferred Guarantee Trustee, the Preferred Guarantee Trustee shall exercise such
of the rights and powers vested in it by this Preferred Securities Guarantee,
and use the same degree of care and skill in its exercise thereof, as a prudent
man would exercise or use under the circumstances in the conduct of his own
affairs.
(d) No provision of this Preferred Securities Guarantee shall be construed
to relieve the Preferred Guarantee rustee from liability for its own negligent
action, its own negligent failure to act, or its own willful misconduct, except
that:
(i) prior to the occurrence of any Event of Default and after the
curing or waiving of all such Events of Default that may have occurred:
(A) the duties and obligations of the Preferred Guarantee Trustee
shall be determined solely by the express provisions of this
Preferred Securities Guarantee, and the Preferred Guarantee Trustee
shall not be liable except for the performance of such duties and
obligations as are specifically set forth in this Preferred
Securities Guarantee, and no implied covenants or obligations shall
be read into this Preferred Securities Guarantee a ainst the
Preferred Guarantee Trustee; and
(B) in the absence of bad faith on the part of the Preferred
Guarantee Trustee, the Preferred Guarantee Trustee may conclusively
rely, as to the truth of the statements and the correctness of the
opinions expressed therein, upon any certificates or opinions
furnished to the Preferred Guarantee Trustee and conforming to the
requirements of this Preferred Securities Guarantee; but in the case
of any such ce tificates or opinions that by any provision hereof
10
<PAGE> 14
are specifically required to be furnished to the Preferred Guarantee
Trustee, the Preferred Guarantee Trustee shall be under a duty to
examine the same to determine whether or not they conform to the
requirements of this Preferred Securities Guarantee;
(ii) the Preferred Guarantee Trustee shall not be liable for any
error of judgment made in good faith by a Responsible Officer of the
Preferred Guarantee Trustee, unless it shall be proved that the
Preferred Guarantee Trustee was negligent in ascertaining the pertinent
facts upon which such judgment was made;
(iii) the Preferred Guarantee Trustee shall not be liable with
respect to ny action taken or omitted to be taken by it in good faith
in accordance with the direction of the Holders of not less than a
Majority in liquidation amount of the Preferred Securities relating to
the time, method and place of conducting any proceeding for any remedy
available to the Preferred Guarantee Trustee, or exercising any trust
or power conferred upon the Preferred Guarantee Trustee under this
Preferred Securities Guarantee; and
(iv) no pro ision of this Preferred Securities Guarantee shall
require the Preferred Guarantee Trustee to expend or risk its own funds
or otherwise incur personal financial liability in the performance of
any of its duties or in the exercise of any of its rights or powers, if
the Preferred Guarantee Trustee shall have reasonable grounds for
believing that the repayment of such funds or liability is not
reasonably assured to it under the terms of this Preferred Securities
Guarantee or indemnity, reasonably satisfactory to the Preferred
Guarantee Trustee, against such risk or liability is not reasonably
assured to it.
SECTION 3.2. Certain Rights of the Preferred
Guarantee Trustee.
(a) Subject to the provisions of Section 3.1:
(i) The Preferred Guarantee Trustee may conclusively rely,
and shall be fully protected in acting or refraining from
acting up n, any resolution, certificate, statement,
instrument,
11
<PAGE> 15
opinion, report, notice, request, direction, consent, order,
bond, debenture, note, other evidence of indebtedness or other
paper or document believed by it to be genuine and to have
been signed, sent or presented by the proper party or parties.
(ii) Any direction or act of the Guarantor
contemplated by this Preferred Securities
Guarantee shall be sufficient y evidenced by an
Officers' Certificate.
(iii) Whenever, in the administration of this Preferred
Securities Guarantee, the Preferred Guarantee Trustee shall
deem it desirable that a matter be proved or established
before taking, suffering or omitting any action hereunder, the
Preferred Guarantee Trustee (unless other evidence is herein
specifically prescribed) may, in the absence of bad faith on
its part, request and conclusively rely upon an Officer '
Certificate which, upon receipt of such request, shall be
promptly delivered by the Guarantor.
(iv) The Preferred Guarantee Trustee shall have no duty to
see to any recording, filing or registration of any instrument
(or any rerecording, refiling or registration thereof).
(v) The Preferred Guarantee Trustee may consult with
counsel of its selection, and the written advice or opinion of
such counsel wit respect to legal matters shall be full and
complete authorization and protection in respect of any action
taken, suffered or omitted by it hereunder in good faith and
in accordance with such advice or opinion. Such counsel may be
counsel to the Guarantor or any of its Affiliates and may
include any of its employees. The Preferred Guarantee Trustee
shall have the right at any time to seek instructions
concerning the administration of this Preferred Securities
Guarantee from any court of competent jurisdiction.
(vi) The Preferred Guarantee Trustee shall
be under no obligation to exercise any of the
12
<PAGE> 16
rights or powers vested in it by this Preferred Securities
Guarantee at the request or direction of any Holder, unless
such Holder shall have provided to the Preferred Guarantee
Trustee such security and indemnity, reasonably satisfactory
to the Preferred Guarantee Trustee, against the costs,
expenses (including attorne s' fees and expenses) and
liabilities that might be incurred by it in complying with
such request or direction, including such reasonable advances
as may be requested by the Preferred Guarantee Trustee;
provided that nothing contained in this Section 3.2(a)(vi)
shall be taken to relieve the Preferred Guarantee Trustee,
upon the occurrence of an Event of Default, of its obligation
to exercise the rights and powers vested in it by this
Preferred Securities Guarantee.
(vii) The Preferred Guarantee Trustee shall not be bound
to make any investigation into the facts or matters stated in
any resolution, certificate, statement, instrument, opinion,
report, notice, request, direction, consent, order, bond,
debenture, note, other evidence of indebtedness or other paper
or document, but the Preferred Guarantee Trustee, in its
discretion, may make such further inquiry or investigation
into such facts or matters as it may see fit. the Preferred
Guarantee Trustee shall not be responsible for any misconduct
or negligence on the part of any agent or attorney appointed
with due care by it hereunder.
(ix) Any action taken by the Preferred Guarantee rustee or
its agents hereunder shall bind the Holders of the Preferred
Securities, and the signature of the Preferred Guarantee
Trustee or its agents alone shall be sufficient and effective
to perform any such action. No third party shall be required
to inquire as to the authority of the Preferred Guarantee
Trustee to so act or as to its compliance with any of the
terms
13
<PAGE> 17
and provisions of this Preferred Securities Guarantee, both of
which shall be conclusively evidenced by the Preferred
Guarantee Trustee's or its agent's taking such action.
(x) Whenever in the administration of this Preferred
Securities Guarantee the Preferred Guarantee Trustee shall
deem it desirable to receive instructions with respect to
enforcing any remedy or right or taking any other action
hereunder, the Preferred Guarantee Trustee (i) may request
instructions from the Holders of a Majority in liquidation
amount of the Preferred Securities (ii) may refrain from
enforcing such remedy or right or taking such other action
until such instructions are received and (iii) shall be
protected in conclusively relying on or acting in accordance
with such instructions.
(xi) The Preferred Guarantee Trustee shall not be liable
for any action taken, suffered, or omitted to be taken by it
in good faith and reasonably believed by it to be authorized
or within the discretion or rights or powers confe red upon it
by this Preferred Securities Guarantee.
(b) No provision of this Preferred Securities Guarantee shall be deemed to
impose any duty or obligation on the Preferred Guarantee Trustee to perform any
act or acts or exercise any right, power, duty or obligation conferred or
imposed on it in any jurisdiction in which it shall be illegal, or in which the
Preferred Guarantee Trustee shall be unqualified or incompetent in accordance
with applicable law, to perform any such act or acts or to exercise any such
right, power, duty or obligation. No permissive power or authority available to
the Preferred Guarantee Trustee shall be construed to be a duty.
SECTION 3.3. Not Responsible for Recitals or Issuance
of Guarantee.
The recitals contained in this Preferred Securities Guarantee shall be
taken as the statements of the Guarantor, and the Preferred Guarantee Trustee
does not a sume any responsibility for their correctness. The Preferred
14
<PAGE> 18
Guarantee Trustee makes no representation as to the validity or sufficiency of
this Preferred Securities Guarantee.
ARTICLE IV
PREFERRED GUARANTEE TRUSTEE
SECTION 4.1. Preferred Guarantee Trustee; Eligibility.
(a) Th re shall at all times be a Preferred Guarantee Trustee which shall:
(i) not be an Affiliate of the Guarantor; and
(ii) be a corporation organized and doing business under the laws
of the United States of America or any State or Territory thereof or of
the District of Columbia, or a corporation or Person permitted by the
Securities and Exchange Commission to act as an institutional trustee
under the Trust Indenture Act, authorized under uch laws to exercise
corporate trust powers, having a combined capital and surplus of at
least 50 million U.S. dollars ($50,000,000), and subject to supervision
or examination by Federal, State, Territorial or District of Columbia
authority. If such corporation publishes reports of condition at least
annually, pursuant to law or to the requirements of the supervising or
examining authority referred to above, then, for the purposes of this
Section 4.1(a)(ii), the combined capital and surplus of such
corporation shall be deemed to be its combined capital and surplus as
set forth in its most recent report of condition so published.
(b) If at any time the Preferred Guarantee Trustee shall cease to be
eligible to so act under Section 4.1(a), the Preferred Guarantee Trustee shall
immediately resign in the manner and with the effect set out in Section 4.2(c).
(c) If the Preferred Guarantee Trustee has or shall acquire any "conflicting
interest" within the eaning of Section 310(b) of the Trust Indenture Act, the
Preferred Guarantee Trustee and Guarantor shall in all respects comply with the
provisions of Section 310(b) of the Trust Indenture Act.
SECTION 4.2. Appointment, Removal and Resignation of
15
<PAGE> 19
Preferred Guarantee Trustees.
(a) Subject to Section 4.2(b), the Preferred Guarantee Trustee may be
appointed or remove without cause at any time by the Guarantor.
(b) The Preferred Guarantee Trustee shall not be removed in accordance with
Section 4.2(a) until a Successor Preferred Guarantee Trustee has been appointed
and has accepted such appointment by written instrument executed by such
Successor Preferred Guarantee Trustee and delivered to the Guarantor.
(c) The Preferred Guarantee Trustee appointed to office shall hold office
until a Successor Preferred Guarantee Trustee shall have been appointed or until
its removal or resignation. The Preferred Guarantee Trustee may resign from
office (without need for prior or subsequent accounting) by an instrument in
writing executed by the Preferred Guarantee Trustee and delivered to the
Guarantor, which resignation shall not take effect until a Successor Preferred
Guarantee Trustee has been appointed and has accepted such appointment by
instrument in writing executed by such Successor Preferred Guarantee Trustee and
delivered to the Guarantor and the resigning Preferred Guarantee Trustee.
(d) If no Successor Preferred Guarantee Trustee shall have been appointed
and accepted appointment as provided in this Section 4.2 within 60 days after
delivery to the Guarantor of an instrument of removal or resignation, the
resigning or removed Preferred Guarantee Trustee may petition any court of
competent jurisdiction for appointment of a Successor Preferred Guarantee
Trustee. Such court may thereu on, after prescribing such notice, if any, as it
may deem proper, appoint a Successor Preferred Guarantee Trustee.
(e) No Preferred Guarantee Trustee shall be liable for the acts or omissions
to act of any Successor Preferred Guarantee Trustee.
(f) Upon termination of this Preferred Securities Guarantee or removal or
resignation of the Preferred Guarantee Trustee pursuant to this Section 4.2, the
Guarantor shall pay to the Preferred Guarante Trustee all amounts accrued to the
date of such termination, removal or
16
<PAGE> 20
resignation.
ARTICLE V
GUARANTEE
SECTION 5.1. Guarantee.
The Guarantor irrevocably and unconditionally agrees to pay in full to
the Holders (except to the extent paid by the Trust), as and when due,
regardless of any defense, rig t of set-off or counterclaim that the Trust may
have or assert, the Guarantee Payments, without duplication. The Guarantor's
obligation to make a Guarantee Payment may be satisfied by direct payment of the
required amounts by the Guarantor to the Holders or by causing the Trust to pay
such amounts to the Holders.
SECTION 5.2. Subordination.
If an Event of Default (as defined in the Indenture), has occurred and is
continuing, the rights of Holders of Common Securities to receive Guarantee
Payments under the Common Securities Guarantee are subordinate to the rights of
Preferred Securities to receive Guarantee Payments under this Preferred
Securities Guarantee.
SECTION 5.3. Waiver of Notice and Demand.
The Guarantor hereby waives notice of acceptance of this Preferred
Securities Guarantee and of any liability to which it applies or may apply,
presentment, demand for payment, any right to require a proceeding first against
the Trust or any other Person before proceeding against the Guarantor, protest,
notice of nonpayment, notice of dishonor, notice of redemption and all other
notices and demands.
SECTION 5.4. Obligations Not Affected.
The obligations, covenants, agreements and duties of the Guarantor
under this Preferred Securities Guarantee shall in no way be affected or
impaired by re son of the happening from time to time of any of the following:
(a) the release or waiver, by operation of law or otherwise, of the
performance or observance by the Trust of
17
<PAGE> 21
any express or implied agreement, covenant, term or condition relating to the
Preferred Securities to be performed or observed by the Trust;
(b) the extension of time for the payment by the Trust of all or any portion
of the Distribu ions, Redemption Price, Liquidation Distribution or any other
sums payable under the terms of the Preferred Securities or the extension of
time for the performance of any other obligation under, arising out of, or in
connection with, the Preferred Securities (other than an extension of time for
payment of Distributions, Redemption Price, Liquidation Distribution or other
sum payable that results from the extension of any interest payment period on
the Debentures or any extension of the maturity date of the Debentures permitted
by the Indenture);
(c) any failure, omission, delay or lack of diligence on the part of the
Holders to enforce, assert or exercise any right, privilege, power or remedy
conferred on the Holders pursuant to the terms of the Preferred Securities, or
any action on the part of the Trust granting indulgence or extension of any
kind;
(d) the voluntary or involuntary liquidation, dissolution, sale of any coll
teral, receivership, insolvency, bankruptcy, assignment for the benefit of
creditors, reorganization, arrangement, composition or readjustment of debt of,
or other similar proceedings affecting, the Trust or any of the assets of the
Trust;
(e) any invalidity of, or defect or deficiency in, the Preferred Securities;
(f) the settlement or compromise of any obligation guaranteed hereby or
hereby incurred; or
(g) any other circumstance whatsoever that might otherwise constitute a
legal or equitable discharge or defense of a guarantor, it being the intent of
this Section 5.4 that the obligations of the Guarantor hereunder shall be
absolute and unconditional under any and all circumstances.
There shall be no obligation of the Holders or any other Persons to
give notice to, or obtain consent of, the Guarantor with respect to the
happening of any of the foregoing.
18
<PAGE> 22
SECTION 5.5. Rights of Holders.
(a) The Holders of a Majority in liquidation amount of the Preferred
Securities have the right to direct the time, method and place of conducting of
any proceeding for any remedy available to the Preferred Guarantee Trustee in
respect of this Preferred Securities Guarantee or to direct the exercise of any
trust or power conferred upon the Preferred Guarantee Trustee under t is
Preferred Securities Guarantee.
(b) Any Holder may directly institute a legal proceeding against the
Guarantor to enforce the obligations of the Guarantor under this Preferred
Securities Guarantee without first instituting a legal proceeding against the
Trust, the Preferred Guarantee Trustee or any other Person.
(c) If an Event of Default with respect to the Debentures (an "Indenture
Event of Default"), constituting the failure to pay interest or principal on the
Debentures on the date such interest or principal is otherwise payable has
occurred and is continuing, then a Holder of Preferred Securities may directly,
at any time, institute a proceeding for enforcement of payment to such Holder of
the principal of or interest on the Debentures having a principal amount equal
to the aggregate liquidation amount of the Preferred Securities of such Holder
on or after the respective due date specified in the Debentures. The Holders of
Preferred Securities will not be able to exercise directly any other remedy
available to the holders of the Debentures unless the Property Trustee (as
defined in the Indenture) fails to do so.
SECTION 5.6. Guarantee of Payment.
This Preferred Securities Guarantee creates a guarantee of payment and
not of collection.
SECTION 5.7. Subrogation.
The Guarantor shall be subrogated to all, if any, rights of the Holders
against the Trust in respect of any amounts paid to such Holders by the
Guarantor under this Preferred Securities Guarantee; provided, however, that the
Guarantor shall not (except to the extent required by mandatory provisions of
law) be entitled to enforce or
19
<PAGE> 23
exercise any right that it may acquire by way of subrogation or any indemnity,
reimbursement or other agreement, in all cases as a result of payment under this
Preferred Securities Guarantee, if, at the time of any such payment, any amounts
are due and unpaid under this Preferred Securities Guarantee. If any amount
shall be paid to the Guarantor in violation of the preceding sentence, the
Guarantor agrees to hold such amount in trust for the Holders and to pay over
such amount to the Holders.
SECTION 5.8. Independent Obligations.
The Guarantor cknowledges that its obligations hereunder are
independent of the obligations of the Trust with respect to the Preferred
Securities, and that the Guarantor shall be liable as principal and as debtor
hereunder to make Guarantee Payments pursuant to the terms of this Preferred
Securities Guarantee notwithstanding the occurrence of any event referred to in
subsections (a) through (g) inclusive, of Section 5.4 hereof.
SECTION 5.9. Conversion.
The Guarantor acknowledges its obligation to issue and deliver common
stock of the Guarantor upon the conversion of the Preferred Securities.
ARTICLE VI
LIMITATION OF TRANSACTIONS; RANKING
SECTION 6.1. Limitation of Transactions.
So long as any Preferred Securities remain outstanding, if there shall
have occurred any event of default under this Preferred Securities Guarantee or
any event that, with the giving of notice or the lapse of time or both, would
constitute an Event of Default under the Indenture, then the Guarantor has
agreed not to declare or pay dividends on, or make a distribution with respect
to, or redeem, purchase acquire or make a liquidation payment with respect to,
any of its capital stock (other than (i) purchases or acquisitions of shares of
common stock in connection with the satisfaction by the Guarantor of its
obligations under any employee benefit plans or the satisfaction by the
Guarantor of its obligations pursuant to any contract or security requiring the
Guarantor to purchase shares of common stock, (ii) as a result of a
reclassification of the
20
<PAGE> 24
Guarantor's capital stock or the exchange or conversion of one class or series
of the Guarantor's capital stock for another class or series of the Guarantor's
capital stock or (iii) the purchase of fractional interests in shares of the
Guarantor's capital stock pursuant to the conversion or exchange provisions of
such capital stock or the security being converted or exchanged (or make any
guarantee payments with respect to the foregoing).
SECTION 6.2. Ranking.
(a) This Preferred Securities Guarantee will constitute an unsecured
obligation of the Guarantor and will rank (i) subordinate and junior to all
other liabilities of the Guarantor except any liabilities that may e pari passu
expressly by their terms, (ii) pari passu with the most senior preferred stock
issued from time to time by the Guarantor and with any guarantee now or
hereafter entered into by the Guarantor in respect of any preferred or
preference stock or preferred securities of any Affiliate of the Guarantor, and
(iii) senior to the Guarantor's common stock.
(b) The holders of any obligations of the Guarantor that are senior in
priority to the obligations under this Preferred Securities Guarantee will be
entitled to all of the rights inuring to the holders of "Senior Indebtedness"
under Article 12 of the Indenture, and the Holders of the Preferred Securities
will be subject to all of the terms and conditions of such Article 12 with
respect to any claims or rights hereunder with the same effect as though fully
set forth herein.
ARTICLE VII
TERMINATION
SECTION 7 Termination.
This Preferred Securities Guarantee will terminate as to each Holder upon
(i) full payment of the Redemption Price of all Preferred Securities; or (ii)
distribution of the Debentures held by the Trust to the Holders; or (iii)
liquidation of the Trust, or (iv) upon the distribution of Guarantor's common
stock to such Holder in respect of conversion of such Holder's Preferred
Securities into common stock of the Guarantor. The Guarantee also will terminate
completely upon full payment of the amounts payable in
21
<PAGE> 25
accordance with the Declaration of the Trust. This Preferred Securities
Guarantee will continue to be effective or will be reinstated, as the case may
be, if at any time any Holder must restore payment of any sums paid under such
Preferred Securities or under this Preferred Securities Guarantee.
ARTICLE VIII
INDEMNIFICATION
SECTION 8.1. Exculpation.
(a) No Indemnified Person shall be liable, responsible or accountable in
damages or otherwise to the G arantor or any Covered Person for any loss, damage
or claim incurred by reason of any act or omission performed or omitted by such
Indemnified Person in good faith in accordance with this Preferred Securities
Guarantee and in a manner that such Indemnified Person reasonably believed to be
within the scope of the authority conferred on such Indemnified Person by this
Preferred Securities Guarantee or by law, except that an Indemnified Person
shall be liable for any such loss, damage or claim incurred by reason of such
Indemnified Person's negligence or willful misconduct with respect to such acts
or omissions.
(b) An Indemnified Person shall be fully protected in relying in good faith
upon the records of the Guarantor and upon such information, opinions, reports
or statements presented to the Guarantor by any Person as to matters the
Indemnified Person reasonably believes are within such other Person's
professional or expert competence and who has been selected with reason ble care
by or on behalf of the Guarantor, including information, opinions, reports or
statements as to the value and amount of the assets, liabilities, profits,
losses, or any other facts pertinent to the existence and amount of assets from
which Distributions to Holders of Preferred Securities might properly be paid.
SECTION 8.2. Indemnification.
The Guarantor agrees to indemnify each Indemnified Person for, and to hold
each Indemnified Person harmless against, any loss, liability or expense
incurred without negligence or bad faith on its part, arising out of or in
connection with the acceptance or administration of the trust or trusts
22
<PAGE> 26
hereunder, including the costs and expenses (including reasonable legal fees and
expenses) of defending itself against, or investigating, any claim or liability
in connection with the exercise or performance of any of its powers or duties
hereunder. The obligation to indemnify as set forth in this Section 8.2 shall
survive the termination of this Preferred Securities Guarantee.
ARTICLE IX
MISCELLANEOUS
SECTION 9.1. Successors and Assigns.
All guarantees and agreements contained in this Preferred Securities
Guarantee shall bind the successors, assigns, receivers, truste s and
representatives of the Guarantor and shall inure to the benefit of the Holders
of the Preferred Securities then outstanding. Except in connection with any
permitted merger or consolidation of the Guarantor with or into another entity
or any permitted sale, transfer or lease of the Guarantor's assets to another
entity as described in the Indenture, the Guarantor may not assign its rights or
delegate its obligations under this Preferred Securities Guarantee without the
prior approval of the Holders of at least a Majority of the aggregate stated
liquidation amount of the Preferred Securities then outstanding.
SECTION 9.2. Amendments.
Except with respect to any changes that do not materially adversely affect
the rights of Holders (in which case no vote will be required), this Preferred
Securities Guarantee may be amended only with the prior approval of the Holders
of at least a Majority in liquidation amount of all the outstanding Preferred
Securities. The provisions of Section 11.2 of the Declaration with respect to
meetings of Holders of the Preferred Securities apply to the giving of such
approval.
SECTION 9.3. Notices.
All notices provided for in this Preferred Securities Guarantee shall be in
writing, duly signed by the party giving such notice, and shall be delivered,
sent by facsimile or mailed by registered or certif ed mail, as follows:
23
<PAGE> 27
(a) If given to the Preferred Guarantee Trustee, at the Preferred Guarantee
Trustee's mailing address set forth below (or such other address as the
Preferred Guarantee Trustee may give notice of to the Holders of the Preferred
Securities):
IBJ Schroder Bank & Trust Company
One State Street, 11th Floor
New York, New York 10004
Attention: Corporate Trust & Agenc Department
(b) If given to the Guarantor, at the Guarantor's mailing address set forth
below (or such other address as the Guarantor may give notice of to the Holders
of the Preferred Securities):
Designer Holdings Ltd.
1385 Broadway, 3rd Floor
New York, New York 10018
Attention: General Counsel
(c) If given to any Holder at t e address set forth on the books and records
of the Trust.
All such notices shall be deemed to have been given when received in person,
telecopied with receipt confirmed, or mailed by first class mail, postage
prepaid except that if a notice or other document is refused delivery or cannot
be delivered because of a changed address of which no notice was given, such
notice or other document shall be deemed to have been delivered on the date of
such refusal or inability to deliver. N 9.4. Benefit.
This Preferred Securities Guarantee is solely for the benefit of the Holders
of the Preferred Securities and, subject to Section 3.1(a), is not separately
transferable from the Preferred Securities.
SECTION 9.5. Governing Law.
THIS PREFERRED SECURITIES GUARANTEE SHALL BE GOVERNED BY, AND CONSTRUED
AND INTERPRET D IN ACCORDANCE WITH, THE LAWS OF THE STATE OF NEW YORK AND ALL
RIGHTS AND REMEDIES SHALL BE GOVERNED BY SUCH LAWS WITHOUT REGARD TO ITS
PRINCIPLES OF CONFLICTS OF LAWS.
24
<PAGE> 28
THIS PREFERRED SECURITIES GUARANTEE is executed as of the day and year first
above written.
DESIGNER HOLDINGS LTD., as Guarantor
By:_________________________________
Name:
Title:
IBJ SCHRODER BANK & TRUST COMPANY,
as Preferred Guarantee Trustee
By:_________________________________
Name:
Title:
25
<PAGE> 1
Exhibit 5.1
[LETTERHEAD OF SKADDEN, ARPS, SLATE, MEAGHER & FLOM LLP]
October 30, 1996
Designer Finance Trust
Designer Holdings Ltd.
1385 Broadway, Third Floor
New York, NY 10018
Re: Designer Holdings Ltd.;
Designer Finance Trust;
Registration Statement on Form S-1
(Registration No. 333-13097)
Ladies and Gentlemen:
We have acted as special counsel to Designer Finance Trust, a
statutory business trust created under the Business Trust Act of the State of
Delaware (Del. Code Ann., tit. 12, Section 3810) (the "Trust"), and Designer
Holdings Ltd., a Delaware corporation (the "Company"), in connection with the
preparation of the Registration Statement (as defined below) for the
registration under the Securities Act of 1933, as amended (the "Act"), of (i)
2,300,000 Convertible Trust Originated Preferred SecuritiesSM (the "Preferred
Securities")(liquidation amount $50 per Preferred Security) of the Trust, (ii)
$115,000,000 aggregate principal amount of Convertible Subordinated Debentures
due 2016 of the Company (the "Debentures"), (iii) shares of Common Stock, par
value $.01 per share (the "Common Stock"), of the Company initially issuable
upon conversion of the Debentures and the Preferred Securities (the "Conversion
Shares") and (iv) the rights of holders of the Preferred Securities under a
guarantee (the "Preferred Securities Guarantee") by the Company.
The Preferred Securities are to be issued pursuant to an
Amended and Restated Declaration of Trust of the Trust (the "Declaration"),
among the Company, as sponsor and as the issuer of the Debentures to be held by
the Property Trustee (as defined below) of the Trust, Delaware Trust Capital
Management, Inc., as Delaware
<PAGE> 2
Designer Finance Trust
Designer Holdings Ltd.
October 30, 1996
Page 2
trustee, IBJ Schroder Bank & Trust Co., as property trustee (the "Property
Trustee"), and Merril M. Halpern and Arnold H. Simon, as trustees. The Preferred
Securities Guarantee will be issued pursuant to a Preferred Securities Guarantee
Agreement (the "Guarantee Agreement") by the Company, as guarantor. In
connection with any conversion of a Preferred Security by the holder thereof,
such Preferred Security will be exchanged for the appropriate principal amount
of Debentures held by the Trust, which will, in turn, be immediately converted
into shares of Common Stock at the then applicable rate, as further described in
the Declaration and the Indenture (as defined below).
This opinion is being delivered in accordance with the
requirements of Item 601(b)(5) of Regulation S-K under the Act. Capitalized
terms used but not otherwise defined herein have the meanings ascribed to them
in the Registration Statement.
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 (Registration No. 333-13097) filed by the
Company and the Trust with the Securities and Exchange Commission (the
"Commission") on September 30, 1996 under the Act, Amendment No. 1 thereto filed
with the Commission on October 22, 1996 and Amendment No. 2 thereto filed with
the Commission on October 30, 1996 (such Registration Statement, as so amended,
being hereinafter referred to as the "Registration Statement"); (ii) the
Certificate of Trust of the Trust filed with the Secretary of State of the State
of Delaware on September 26, 1996; (iii) the form of the Declaration (including
the designations of the terms of the Preferred Securities annexed thereto); (iv)
the form of the Preferred Securities and specimen certificates thereof; (v) the
form of the Guarantee Agreement; (vi) the form of the indenture (the
"Indenture"), between the Company and IBJ Schroder Bank & Trust Co., as
indenture trustee, pursuant to which the Debentures will be issued; (vii) a
specimen Debenture; (viii) a specimen certificate representing the Common Stock;
(ix) the form of the Purchase Agreement (the "Preferred Securities Purchase
Agreement") proposed to be entered into among the Company, the Trust and
<PAGE> 3
Designer Finance Trust
Designer Holdings Ltd.
October 30, 1996
Page 3
Merrill Lynch, Pierce, Fenner & Smith Incorporated and Morgan Stanley & Co.
Incorporated (collectively, the "Underwriters") relating to, among other things,
the sale of the Preferred Securities; (x) the form of the Debenture Purchase
Agreement (the "Debenture Purchase Agreement") proposed to be entered into by
and between the Company and the Trust relating to, among other things, the sale
of the Debentures; (xi) the Certificate of Incorporation of the Company, as
presently in effect; (xii) the By-Laws of the Company, as presently in effect;
and (xiii) certain resolutions of the Board of Directors of the Company and
drafts of certain resolutions (the "Draft Resolutions") of the Pricing Committee
appointed by the Board of Directors of the Company (the "Pricing Committee") in
each case relating to the issuance and sale of the Debentures and the Preferred
Securities and related matters. We have also examined originals or copies,
certified or otherwise identified to our satisfaction, of 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 or photostatic copies and the
authenticity of the originals of such copies. In making our examination of
documents executed by parties other than the Company and the Trust, we have
assumed that such parties had 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 that, except to the extent set forth in paragraphs
(2) and (3) below, such documents constitute valid and binding obligations of
such parties. In addition, we have assumed that the Declaration, the Preferred
Securities, the Guarantee Agreement, the Indenture, the Debenture and the
Preferred Securities Purchase Agreement when executed will be in substantially
the forms reviewed by us. As to any facts material to the opinions expressed
herein which were not independently established or verified, we have relied upon
oral or written statements and representa-
<PAGE> 4
Designer Finance Trust
Designer Holdings Ltd.
October 30, 1996
Page 4
tions of officers, trustees and other representatives of the Company, the Trust
and others.
Members of our firm are admitted to the bar in the State of
New York, and we do not express any opinion as to the laws of any jurisdiction
other than the laws of the States of New York and Delaware and the federal laws
of the United States to the extent set forth herein. To the extent that the
opinions set forth below relate to matters under the laws of the State of
Delaware other than the General Corporation Law of the State of Delaware, we
have relied on the opinion of Skadden, Arps, Slate, Meagher & Flom (Delaware).
Based on and subject to the foregoing and to the other
qualifications and limitations set forth herein, we are of the opinion that when
(i) the Registration Statement becomes effective; (ii) the Draft Resolutions
establishing, among other things, the price at which the Preferred Securities
are to be sold to the Underwriters pursuant to the Preferred Securities Purchase
Agreement and other matters relating to the issuance and sale of the Preferred
Securities and the Debentures have been duly adopted by the Pricing Committee;
(iii) the Declaration, the Preferred Securities Purchase Agreement, the
Guarantee Agreement, the Debenture Purchase Agreement and the Indenture have
been duly executed and delivered by the parties thereto; (iv) the Preferred
Securities have been duly executed and authenticated in accordance with the
terms of the Declaration and delivered to and paid for by the Underwriters as
contemplated by the Preferred Securities Purchase Agreement; and (v) the
Debentures have been duly executed and authenticated in accordance with the
terms of the Indenture and delivered to and paid for by the Trust as
contemplated by the Debenture Purchase Agreement and the Declaration:
1. The issuance and sale of the Preferred Securities will have
been duly authorized, and the Preferred Securities will be validly issued, fully
paid and nonassessable, representing undivided beneficial ownership interests in
the assets of the Trust; and the holders of such Preferred Securities will be
entitled to the same limitation of personal liability extended to stockholders
of private corporations for profit organized
<PAGE> 5
Designer Finance Trust
Designer Holdings Ltd.
October 30, 1996
Page 5
under the General Corporation Law of the State of Delaware. We bring to your
attention, however, that the holders of Preferred Securities may be obligated,
pursuant to the Declaration, to (i) provide indemnity and/or security in
connection with and pay taxes or governmental charges arising from transfers of
Preferred Securities and (ii) provide security and indemnity in connection with
the requests of or directions to the Property Trustee to exercise its rights and
powers under the Declaration.
2. The Guarantee Agreement will be a valid and binding
agreement of the Company, enforceable against the Company in accordance with its
terms, except to the extent that enforcement thereof may be limited by (i)
bankruptcy, insolvency, reorganization, moratorium, or other similar laws now or
hereafter in effect relating to creditors' rights generally and (ii) general
principles of equity (regardless of whether enforceability is considered in a
proceeding at law or in equity).
3. The issuance and sale of the Debentures will have been duly
authorized and the Debentures will be valid and binding obligations of the
Company, entitled to the benefits of the Indenture and enforceable against the
Company in accordance with their terms, except to the extent that enforcement
thereof may be limited by (i) bankruptcy, insolvency, reorganization, moratorium
or other similar laws now or hereafter in effect relating to creditors' rights
generally and (ii) general principles of equity (regardless of whether
enforceability is considered in a proceeding at law or in equity) and except
that the waiver of stay or extension laws contained in Section 515 of the
Indenture may be unenforceable.
4. The Conversion Shares, when certificates representing the
Conversion Shares 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 the holders of the Preferred Securities upon
conversion thereof in accordance with the terms of the Declaration and the
Indenture, will have been duly authorized, and the Con-
<PAGE> 6
Designer Finance Trust
Designer Holdings Ltd.
October 30, 1996
Page 6
version Shares will be validly issued, fully paid and nonassessable.
We hereby consent to the use of our name under the heading
"Legal Matters" in the prospectus which forms a part of the Registration
Statement. We also hereby consent to the filing of this opinion with the
Commission as an exhibit to the Registration Statement. In giving this consent,
we do not thereby admit that we are within the category of persons whose consent
is required under Section 7 of the Act or the rules and regulations of the
Commission promulgated thereunder. This opinion is expressed as of the date
hereof unless otherwise expressly stated and we disclaim any undertaking to
advise you of the facts stated or assumed herein or any subsequent changes in
applicable law.
Very truly yours,
SKADDEN, ARPS, SLATE, MEAGHER & FLOM LLP
<PAGE> 1
Exhibit 8.1
[LETTERHEAD OF SKADDEN, ARPS, SLATE, MEAGHER & FLOM LLP]
October 30, 1996
Designer Finance Trust
c/o Designer Holdings, Ltd.
1385 Broadway
New York, New York 10018
Designer Holdings, Ltd.
1385 Broadway
New York, New York 10018
Re: Designer Finance Trust;
Designer Holdings, Ltd.
Registration Statement on Form S-1
(Registration No. 333-13097)
Ladies and Gentlemen:
We have acted as special tax counsel for Designer Holdings,
Ltd., a Delaware corporation (the "Company"), and Designer Finance Trust, a
statutory business trust organized under the Business Trust Act of the State of
Delaware (Del. Code Ann., tit. 12, Section3810) (the "Trust"), in connection
with the preparation of the Registration Statement (as defined below) for
registration under the Securities Act of 1933, as amended (the "Act") of (i)
2,300,000 Convertible Trust Originated Preferred Securities (the "Convertible
Preferred Securities") (liquidation amount $50 per Preferred Security) of the
Trust, (ii) $115,000,000 aggregate principal amount of Convertible Subordinated
Debentures due 2016 of the Company (the "Convertible Debentures"), (iii) shares
of Common Stock, par value $.01 per share (the "Common Stock"), of the Company
issuable upon
<PAGE> 2
Designer Finance Trust
Designer Holdings, Ltd.
October 30, 1996
Page 2
conversion of the Preferred Securities, including such number of additional
shares of Common Stock as may be issuable upon conversion of the Preferred
Securities pursuant to anti-dilution adjustments (collectively, the "Conversion
Shares") and (iv) the rights of holders of the Preferred Securities under a
guarantee (the "Preferred Securities Guarantee") and certain back-up
undertakings consisting of obligations of the Company to provide certain
indemnities in respect of, and to pay and to be responsible for certain expenses
and debts of, the Trust as described in the Registration Statement.
The Convertible Preferred Securities are guaranteed (the
"Convertible Preferred Securities Guarantee") by the Company with respect to the
payment of distributions and payments upon liquidation, redemption and otherwise
pursuant to, and to the extent set forth in, the Preferred Securities Guarantee
Agreement ("Convertible Preferred Securities Guarantee Agreement"), between the
Company and IBJ Schroder Bank & Trust Co., for the benefit of the holders of the
Convertible Preferred Securities.
In connection with the issuance of the Convertible Preferred
Securities, the Trust is also issuing up to 71,135 of its convertible common
securities (liquidation amount of $50 per convertible common security) (the
"Convertible Common Securities"), representing undivided beneficial interests in
the assets of the Trust. The Convertible Common Securities are also guaranteed
by the Company with respect to the payment of distributions and payments upon
liquidation, redemption and otherwise pursuant to, and to the extent set forth
in the Common Securities Guarantee Agreement ("Convertible Common Securities
Guarantee Agreement"), between the Company and IBJ Schroder Bank & Trust Co.,
for the benefit of the holders of the Convertible Common Securities.
The Convertible Preferred Securities and the Convertible
Common Securities are being issued pursuant to the Amended and Restated
Declaration of Trust of the Trust (the "Declaration"), among the Company, as
sponsor and as the issuer of the Debentures to be held by the Property Trustee
(as defined below) of the Trust, Delaware Trust Capital Management, Inc., as
Delaware trustee, IBJ Schroder Bank & Trust Co., as property trustee (the
"Property Trustee") and Merril M. Halpern and Arnold H. Simon, as trustees.
The entire proceeds from the sale of the Convertible Preferred
Securities and the Convertible Common Securities are to be used by the Trust to
<PAGE> 3
Designer Finance Trust
Designer Holdings, Ltd.
October 30, 1996
Page 3
purchase the Convertible Debentures. The Convertible Debentures are to be issued
pursuant to an Indenture (the "Indenture") between the Company and IBJ Schroder
Bank & Trust Co., as trustee (the "Indenture Trustee").
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 (Registration No. 333-13097) filed by the
Company and the Trust with the Securities and Exchange Commission (the
"Commission") on September 30, 1996, under the Act, Amendment No. 1 thereto
filed with the Commission on October 22, 1996, and Amendment No. 2 thereto filed
with the Commission on October 30, 1996 (such Registration Statement, as so
amended, being hereinafter referred to as the "Registration Statement"); (ii)
the certificate of trust of the Trust (the "Certificate of Trust") filed by the
Trust with the Secretary of State of the State of Delaware on September 26,
1996; (iii) the form of Declaration (including the designations of the terms of
the Convertible Preferred Securities annexed thereto); (iv) the form of the
Convertible Preferred Securities Guarantee Agreement, (v) the form of the
Indenture; (vi) the form of Convertible Debentures and a specimen certificate
thereof; (vii) a specimen certificate representing the Common Stock; (viii) the
form of the purchase agreement proposed to be entered into among the Company,
the Trust and Merrill Lynch, Pierce, Fenner & Smith, Incorporated (the "Purchase
Agreement"); and (ix) the form of the Convertible Preferred Securities and a
specimen certificate thereof. Furthermore, we have relied upon certain
statements and representations made by officers of the Company. We have also
examined originals or copies, certified or otherwise identified to our
satisfaction, of such records of the Trust and the Company and such other
documents, certificates and records as we have deemed necessary or appropriate
as a basis for the opinions set forth herein.
In rendering our opinion, we have participated in the
preparation of the Registration Statement. Our opinion is conditioned on, among
other things, the initial and continuing accuracy of the facts, information,
covenants and representations set forth in the documents referred to above and
the statements and representations made by the Company and the Trust. In our
examination, we have assumed the genuineness of all signatures, the legal
capacity of all natural persons, the authenticity of all documents submitted to
us as originals, the con-
<PAGE> 4
Designer Finance Trust
Designer Holdings, Ltd.
October 30, 1996
Page 4
formity to original documents of all documents submitted to us as certified or
photostatic copies and the authenticity of the originals of such copies. We also
have assumed that the Declaration, the Convertible Preferred Securities, the
Guarantee Agreement, the Convertible Debentures, the Indenture and the
Conversion Shares will be executed in substantially the form reviewed by us and
that the transactions related to the issuance of the Convertible Preferred
Securities, the Convertible Common Securities, the Convertible Debentures and
the Conversion Shares will be consummated in the manner contemplated by the
Registration Statement.
In rendering our opinion, we have considered the current
provisions of the Internal Revenue Code of 1986, as amended (the "Code"),
Treasury regulations (proposed, temporary and final) promulgated thereunder,
judicial decisions and Internal Revenue Service rulings, all of which are
subject to change, which changes may be retroactively applied. A change in the
authorities upon which our opinion is based could affect our conclusions. There
can be no assurances, moreover, that any of the opinions expressed herein will
be accepted by the Internal Revenue Service or, if challenged, by a court.
Based solely upon the foregoing, we are of the opinion that
under current United States federal income tax law:
(1) The Trust will be classified as a grantor trust and not as an
associa- tion taxable as a corporation.
(2) Subject to the qualifications set forth therein, the
statements made in the Registration Statement set forth under
the captions "United States Federal Income Taxation", "Risk
Factors -- Option to Extend Interest Payment Periods", "Risk
Factors -- Proposed Tax Legislation", and "Description of the
Convertible Debentures -Proposed Tax Legislation" fairly
present, in all material respects, the principal United States
federal income tax consequences of an investment in the
Convertible Preferred Securities.
<PAGE> 5
Designer Finance Trust
Designer Holdings, Ltd.
October 30, 1996
Page 5
Except as set forth above, we express no opinion to any party
as to the tax consequences, whether federal, state, local or foreign, of the
issuance of the Convertible Debentures, the Convertible Preferred Securities,
the Convertible Common Securities or of any transactions related to or
contemplated by such issuance. This opinion is solely for your benefit in
connection with the filing of the Registration Statement and, except as set
forth below, is not to be used, circulated, quoted or otherwise referred to for
any purpose without our prior written consent. We hereby consent to the use of
our name under the heading "Legal Matters" in the Registration Statement. We
also hereby consent to the filing of this opinion with the Commission as an
exhibit to the Registration Statement. In giving this consent, we do not thereby
admit that we are within the category of persons whose consent is required under
Section 7 of the Act or the rules and regulations of the Commission promulgated
thereunder. This opinion is expressed as of the date hereof unless otherwise
expressly stated, and we disclaim any undertaking to advise you of any
subsequent changes of the facts stated or assumed herein or any subsequent
changes in applicable law.
Very truly yours,
SKADDEN, ARPS, SLATE, MEAGHER & FLOM LLP
<PAGE> 1
Exhibit 10.4
FOURTH AMENDMENT
TO
FINANCING AGREEMENT
Fourth Amendment, dated as of September 30, 1996, to the
Financing Agreement, dated as of April 28, 1995, as amended and supplemented
prior to the date hereof, (as so amended and supplemented, the "Financing
Agreement"), by and among New Rio, L.L.C., a Delaware limited liability company
(the "Company"), Designer Holdings Ltd., a Delaware corporation formerly known
as Denim Holdings, Inc. ("Designer Holdings"), Jeanswear Holdings, Inc., a
Delaware corporation ("Jeanswear Holdings"), Rio Sportswear, Inc., a Delaware
corporation formerly known as New Rio Sportswear, Inc. ("Rio"), Calvin Klein
Jeanswear Company, a Delaware corporation ("Jeanswear" and together with Rio
each a "Borrower" and collectively the "Borrowers"), each of the financial
institutions a party hereto (each a "Lender" and collectively the "Lenders") and
The CIT Group/Commercial Services, Inc., as agent for the Lenders (in such
capacity, the "Agent").
BACKGROUND
Jeanswear, directly or through Outlet Holdings, Inc. ("Outlet
Holdings") and Outlet Stores, Inc. ("Outlet Stores"), each a newly formed
wholly-owned subsidiary of Jeanswear, proposes to enter into one or more
acquisition and license agreements with CK (as defined in the Financing
Agreement) pursuant to which Jeanswear or such subsidiaries, among other things,
will purchase the right to establish, maintain and operate free-standing
"outlet" stores identified by the name and trademark "Calvin Klein" throughout
the United States, Mexico and Canada and, in connection therewith, will purchase
the related leasehold improvements and inventory from CK (the "CK Acquisition").
On September 27, 1996, Broadway Jeanswear Holdings, Inc.
("Broadway Holdings"), Broadway Jeanswear Company, Inc. ("Broadway Jeanswear")
and Broadway Jeanswear Sourcing, Inc. ("Broadway Sourcing"), each a newly formed
direct wholly-owned subsidiary of Designer Holdings, entered into a 30-year
licensing agreement with DK Studio (as hereinafter defined) pursuant to which
they purchased, among other things, the license for the exclusive production,
sale and distribution of men's, women's and, with certain exceptions, children's
jeanswear under the DKNY jeans label and, in connection therewith, purchased
inventory and entered into certain related agreements (the "DKNY Acquisition").
In addition, Designer Holdings proposes to create
<PAGE> 2
a Delaware statutory business trust (the "Trust") and to cause the Trust to
issue Convertible Trust Originated Preferred Securities SM in an aggregate
amount not to exceed $142,268,050 for sale to the public by the Trust on
substantially the same terms as described in the Preliminary Prospectus to the
Registration Statement on Form S-1 (File No. 33-13097), filed by Designer
Holdings and the Trust with the Securities and Exchange Commission on September
30, 1996, as amended through October 22, 1996 (the "Public Financing").
In connection with the CK Acquisition, the DKNY Acquisition and
the Public Financing, the Company, Designer Holdings, Jeanswear Holdings and the
Borrowers desire to (i) make Outlet Holdings, Outlet Stores, Broadway Holdings,
Broadway Jeanswear and Broadway Sourcing Guarantors under the Financing
Agreement and to make each such subsidiary pledge its assets as collateral for
all of the Obligations (as defined in the Financing Agreement) under the
Financing Agreement, (ii) amend certain terms and conditions of the Financing
Agreement, and (iii) waive certain defaults under the Financing Agreement caused
by the CK Acquisition and/or the DKNY Acquisition. The Agent and the Lenders
agree to amend the Financing Agreement and grant such waivers, all upon the
terms and subject to the conditions herein set forth.
Accordingly, the Borrowers, the Guarantors, the Agent and the
Lenders hereby agree as follows:
1. Definitions. All capitalized terms used herein and not
otherwise defined herein are used herein as defined in the Financing Agreement.
2. Existing Definitions. (a) The definition of the term "License
Agreements" in Section 1.01 of the Financing Agreement is hereby amended by
deleting such definition in its entirety and inserting the following in its
place:
"'License Agreements' means, collectively, the Calvin Klein
License Agreement, the Bill Blass License Agreement, the CK Store License
Agreement and the DKNY License Agreement."
(b) Clause (ii) of the definition of the term "Change of Control"
in Section 1.01 of the Financing Agreement is hereby amended by deleting such
definition in its entirety and inserting the following in its place:
"(ii) the Company shall cease to directly own and control, of
record and beneficially, at least 51% of the then outstanding voting stock of
Designer Holdings free and clear of all liens, provided that the foregoing
percentage of voting stock may be reduced below 51% as a result of the
conversion of the Subordinated Debentures into common stock of Designer Holdings
2
<PAGE> 3
pursuant to the Public Financing,"
3. New Definitions. The following new definitions are hereby
added to Section 1.01 of the Financing Agreement in the appropriate alphabetical
order:
"'Broadway Holdings' means Broadway Jeanswear Holdings, Inc., a
Delaware corporation and direct wholly-owned subsidiary of Designer Holdings."
"'Broadway Jeanswear' means Broadway Jeanswear Company, Inc., a
Delaware corporation and direct wholly-owned subsidiary of Designer Holdings."
"'Broadway Sourcing' means Broadway Jeanswear Sourcing, Inc., a
Delaware corporation and direct wholly-owned subsidiary of Designer Holdings."
"'CK Acquisition' means the acquisition by Jeanswear, directly or
through Outlet Holdings and/or Outlet Stores, from CK of, among other things,
the right to establish, maintain and operate free-standing "outlet" stores
identified by the name "Calvin Klein" throughout the United States, Mexico and
Canada, and in connection therewith, the purchase from CK of related leasehold
improvements and "inventory."
"'CK Acquisition Agreement' means the Asset Purchase Agreement
dated as of October 28, 1996 between Outlet Stores and CK."
"'CK Outlet Stores' has the meaning specified for the term
"Stores" in the CK Store License Agreement."
"'CK Store License Agreement' means the Store License Agreement
dated as of October 28, 1996 between CK and Jeanswear."
"'CK Store Leases' means the leases of the CK Outlet Stores
entered into and/or assumed by Outlet Stores, as lessee, at the time of closing
of the CK Store License Agreement and thereafter."
"'Common Securities Guarantee' means the guarantee to be entered
into by Designer Holdings guaranteeing the obligations of the Trust with respect
to the common securities of the Trust representing undivided beneficial
interests in the assets of the Trust.
"'Creative Services Agreement' means the letter agreement dated
September 27, 1996 among Donna Karan Creative Services, a division of The Donna
Karan Company, The Donna Karan Company and Broadway Jeanswear."
3
<PAGE> 4
"'Declaration of Trust' means the Amended and Restated
Declaration of Trust of the Trust to be entered into among Designer Holdings, as
sponsor, IBJ Schroder Bank & Trust Company, as property trustee, Delaware Trust
Capital Management, Inc., as Delaware trustee, and Merril M. Halpern and Arnold
H. Simon, as trustees."
"'DKNY Acquisition' means the acquisition by the DKNY Licensees,
pursuant to the DKNY License Agreement and the documents and agreements entered
into in connection therewith, of the 30-year license for the exclusive
production, sale and distribution of men's, woman's and, with certain
exceptions, children's jeanswear under the DKNY jeans label, and the purchase of
inventory in connection therewith.
"'DKNY License Agreement' means the Jeanswear License Agreement
dated September 27, 1996, among DK Studio and the DKNY Licensees."
"'DKNY Licensees' means, collectively, Broadway Holdings,
Broadway Jeanswear and Broadway Sourcing."
"'DK Studio' means Donna Karan Studio, a New York partnership and
a subsidiary of Donna Karan International Inc."
"'Indenture' means the Indenture to be entered into between
Designer Holdings and IBJ Schroder Bank & Trust Company, as indenture trustee
relating to the Subordinated Debentures."
"'Occupancy Agreement' means the Occupancy Agreement made as of
the 27th day of September, 1996, between DK Studio and Broadway Jeanswear."
"'Preferred Securities' means up to $138,000,000 amount of the
Convertible Trust Originated Preferred Securities SM proposed to be issued by
the Trust in connection with the Public Financing."
"'Preferred Securities Guarantee' means the Preferred Securities
Guarantee Agreement to be entered into between Designer Holdings, as guarantor,
and IBJ Schroder Bank & Trust Company, as guarantee trustee, with respect to the
Preferred Securities pursuant to the Public Financing."
"'Public Financing' means the issuance of the Preferred
Securities in aggregate amount not to exceed $142,268,050 for sale to the public
by the Trust on substantially the same terms as described in the Preliminary
Prospectus to the Registration Statement on Form S-1 (File No. 33-13097) filed
by Designer Holdings and the Trust with the Securities and Exchange Commission
on September 30, 1996, as amended through October 22,
4
<PAGE> 5
1996."
"'Public Financing Documents' means, collectively, the Indenture,
the Declaration of Trust, the Preferred Securities, the Subordinated Debentures,
the Public Financing Guarantees and any other document or agreement entered into
or created pursuant to or in connection with the Public Financing."
"'Public Financing Guarantees' means, collective- ly, the Common
Securities Guarantee and the Preferred Securities Guarantee."
"'Secaucus Lease' has the meaning specified therefor in Section
7.02(c)(ix) hereto."
"'Subordinated Debentures' means the Convertible Subordinated
Debentures which Designer Holdings proposes to issue and sell to the Trust in
connection with the Public Financing in an aggregate principal amount not to
exceed $142,268,050."
"'Trust' means Designer Finance Trust, a statutory business trust
formed under the laws of the State of Delaware in connection with the Public
Financing, the assets of which will consist solely of the Subordinated
Debentures and the common securities of which will be wholly owned directly or
indirectly by Designer Holdings."
4. Use of Proceeds. (a) Paragraph (w) of Section 6.01 of the
Financing Agreement is hereby amended by deleting such paragraph (w) in its
entirety and inserting the following in its place:
"(w) Use of Proceeds. The proceeds of the Loans shall be used
to refinance existing Indebtedness of the Borrowers, to make certain
other payments in connection with the reorganization of the Company and
its Subsidiaries, the Public Financing, the DKNY Acquisition and the CK
Acquisition and for general working capital purposes of Designer
Holdings and its Subsidiaries. The Letters of Credit will be used to
purchase and finance Inventory in the ordinary course of Designer
Holdings' and its Subsidiaries' businesses and for other general
working capital purposes."
(b) Paragraph (z) of Section 6.01 of the Financing Agreement is hereby
amended by deleting the first clause thereof in its entirety beginning with the
word "After" through the words "Letter of Credit" immediately preceding the
colon and by inserting the following in its place:
"After giving effect to the Restructuring, the CK
Acquisition, the DKNY Acquisition, the Public Financing and other
transactions contemplated or required to occur by the
5
<PAGE> 6
terms of this Agreement and before giving effect to each
Loan and Letter of Credit"
5. Affirmative Covenants. (a) Clause (xii) of Section 7.01 (a) of
the Financing Agreement is hereby amended by deleting such clause (xii) thereof
in its entirety and inserting the following in its place:
"(xii) as soon as possible and in any event (A) within 5 days after
receipt or delivery thereof, copies of any material notices that (i)
the Borrowers or the DKNY Licensees receive from or send to Bill Blass,
DK Studio or CK in connection with the License Agreements, (ii)
Broadway Jeanswear receives from or sends to DK Studio in connection
with the Occupancy Agreement or Donna Karan Creative Services or The
Donna Karan Company in connection with the Creative Services Agreement,
(iii) Outlet Stores receives from or sends to CK in connection with the
CK Acquisition Agreement or (iv) Designer Holdings or the Trust receive
from or send to any Person in connection with the Public Financing and
(B) within 5 Business Days prior to the effective date thereof, copies
of any amendments, modifications, waivers or other changes to any of
the License Agreements, the Occupancy Agreement, the Creative Services
Agreement, the CK Acquisition Agreement or any of the Public Financing
Documents;"
(b) Section 7.01(a) of the Financing Agreement is hereby amended
by deleting the word "and" after clause (xiv) thereof, by re-numbering clause
(xv) thereof to be clause (xvi) and by adding the following new clause (xv):
"(xv) as soon as possible and in any event within two days of
the filing thereof, copies of all filings made with the Securities and
Exchange Commission in connection with the Public Financing; and"
(c) Section 7.01 of the Financing Agreement is hereby amended by
adding the following new paragraphs (q) and (r) after paragraph (p) thereof:
"(q) Public Financing. (i) Designer Holdings shall provide the
Agent with copies of the Indenture, the Declaration of Trust, the form
of Subordinated Debenture and Preferred Security, the Public Financing
Guarantees and all other material Public Financing documents prior to
the execution or effectiveness thereof and each of the Indenture, the
Public Financing Guarantees, the Declaration of Trust, the Subordinated
Debenture and the Preferred Securities shall be in substantially the
same form as the copies thereof delivered to the Agent on October 29,
1996, with such changes as the Agent may approve, and each of the other
Public Financing Documents shall be satisfactory in form and
6
<PAGE> 7
substance to the Agent.
(ii) Upon receipt by Designer Holdings of notice from the Agent
that an Event of Default has occurred and is continuing under this
Agreement, Designer Holdings will, if so required by the Agent,
immediately thereafter take all actions necessary pursuant to the
Indenture to defer interest payments on the Subordinated Debentures and
effect an Extension Period (as defined in the Indenture) pursuant to
the Indenture, which Extension Period shall remain in effect until such
time as such Event of Default has either been cured or waived pursuant
to the terms of this Agreement. During any such Extension Period,
Designer Holdings shall not directly or indirectly, by deposit of
monies or otherwise, prepay, purchase, redeem, retire, defease or
otherwise acquire, or make any payment on account of any principal of,
premium or interest payable in connection with the payment, prepayment,
redemption, defeasance or retirement of any Subordinated Debentures.
Notwithstanding anything herein or in the Public Financing Documents to
the contrary, Designer Holdings shall not, without the prior written
consent of the Required Lenders, permit any Extension Period or the
aggregate of all Extension Periods to exceed 17 quarters."
"(r) CK Acquisition. (i) Each of Outlet Holdings and Outlet
Stores shall provide the Agent with copies of the CK Acquisition
Agreement, the CK Store License Agreement and all other material
documents or agreements entered into or created in connection therewith
prior to the execution or effectiveness thereof and each of the CK
Acquisition Agreement and the CK Store License Agreement shall be in
substantially the same form as the copies thereof delivered to the
Agent on October 29, 1996, with such changes as the Agent may approve,
and each of such other material documents shall be satisfactory in form
and substance to the Agent."
6. Negative Covenants. (a) Paragraph (b) of Section 7.02 of the
Financing Agreement is hereby amended by (1) deleting the word "or" prior to
"(B)" and inserting a comma in its place and by adding the words "or (C) to
Designer Holdings by the DKNY Licensees" before the word "provided" and (2)
deleting the word "and" after clause (vii) thereof, by deleting the period after
clause (viii) thereof and inserting a semicolon in its place and by adding the
following:
"(ix) Indebtedness consisting of (A) the Bonus (as defined in
the DKNY License Agreement) payable to DK Studio in the aggregate
amount of $54,000,000 and (B) the Guaranteed Minimum Royalty (as
defined in the DKNY License Agreement) payable to DK Studio; and
(x) provided the transactions effecting the Public Financing
are consummated, (A) Indebtedness of Designer Holdings under the
Subordinated Debentures in an aggregate amount not to exceed
$142,268,050, provided that Designer Holdings shall promptly make a
prepayment of any outstanding Loans with the Net Proceeds received by
it from the Public Financing, to be first applied to the principal
installments of the Term Loans in the inverse order of maturity and
accompanied by any accrued interest thereon and second to the Revolving
Credit Loans then outstanding and any accrued interest thereon."
(b) Paragraph (c) of Section 7.02 of the Financ-
7
<PAGE> 8
ing Agreement is hereby amended by deleting the word "and" after clause (iv)
thereof, by deleting the period after clause (v) thereof and inserting a
semicolon in its place and by adding the following:
"(vi) the Guaranty dated September 27, 1996, made by Designer
Holdings in favor of DK Studio guaranteeing the obligation of the DKNY
Licensees pursuant to the DKNY License Agreement;
(vii) guarantees made by Designer Holdings in favor of the
lessors of the CK Outlet Stores guaranteeing the Operating Lease
Obligations of Outlet Stores under the CK Store Leases permitted by
clause (C) of Section 7.02(g) of this Agreement;
(viii) the Public Financing Guarantees;
(ix) the Lease Guaranty by Designer Holdings guaranteeing the
obligations of Floor Ready Apparel, a New Jersey limited liability
company, as tenant under the Lease Agreement between Floor Ready
Apparel and Security Capital Industrial Trust, as landlord (the
"Secaucus Lease"), in each case in form and substance satisfactory to
the Agent; and
(x) the Guaranties, each dated October 28, 1996, made by
Jeanswear and Designer Holdings, respectively, in favor of CK
guaranteeing the obligations of Outlet Stores pursuant to the CK Store
License Agreement."
(c) Paragraph (e) of Section 7.02 of the Financing Agreement is
hereby amended by deleting such paragraph (e) in its entirety and inserting the
following in its place:
"(e) Change in Nature of Business. Except for the businesses
carried on or proposed to be carried on as a result of the CK
Acquisition and the DKNY Acquisition, make, or permit any of their
Subsidiaries to make, any substantial change in the nature of its
business as carried on at the date hereof (after giving effect to the
transactions contemplated by the Loan Documents)."
(d) Paragraph (f) of Section 7.02 of the Financ-
ing Agreement is hereby amended by: (1) deleting clause (iii)
thereof in its entirety and inserting the following in its place:
"(iii) (A) loans or advances made by any Borrower to the
other Borrower, (B) loans or advances by Jeanswear to its Subsidiaries
or by the Subsidiaries of Jeanswear to Jeanswear and (C) loans or
advances made by Designer Holdings to the DKNY Licensees, provided that
(v) the aggregate
8
<PAGE> 9
amount of loans or advances made by Jeanswear to its Subsidiaries other
than Outlet Stores and Outlet Holdings after the Effective Date shall
not exceed $1,000,000; (w) the aggregate amount of loans or advances
made by Jeanswear to Outlet Stores and Outlet Holdings shall not exceed
$10,000,000 outstanding at any time; (x) the aggregate amount of loans
or advances made by Designer Holdings to the DKNY Licensees shall not
exceed $10,000,000 outstanding at any time; (y) the repayment of all
such loans or advances is subordinated to the payment of the
Obligations on terms approved in writing by the Agent; and (z) all such
indebtedness shall be evidenced by one or more promissory notes and
such notes or other instruments evidencing such Indebtedness shall be
pledged to the Agent for the benefit of the Lenders;"
and (2) deleting the word "and" after the semicolon at the end of clause (vi)
thereof, by re-numbering clause (vii) thereof to be clause (x) and by inserting
the following after clause (vi) thereof:
"(vii) the investment by Designer Holdings in the common
securities of the Trust and the purchase by the Trust of Subordinated
Debentures from Designer Holdings;
(viii) an advance by the DKNY Licensees of the Guaranteed
Minimum Royalty for the first annual period pursuant to the DKNY
License Agreement;
(ix) the investment by Designer Holdings in Outlet Holdings
and Outlet Stores and the investment by Jeanswear in each of Broadway
Holdings, Broadway Jeanswear and Broadway Sourcing; and"
(e) Paragraph (g) of Section 7.02 of the Financing Agreement is
hereby amended by deleting such Paragraph (g) in its entirety and inserting the
following in its place:
"(g) Lease Obligations. Create, incur or suffer to exist, or
permit any of their Subsidiaries to create, incur or suffer to exist,
any obligations as lessee (i) for the payment of rent for any real or
personal property in connection with any sale and leaseback
transaction, or (ii) for the payment of rent for any real or personal
property under leases or agreements to lease other than (A) obligations
under Capitalized Leases (other than the existing Capitalized Leases
set forth on Schedule 7.02(g) hereto) which would not cause the
aggregate amount of all obligations under Capitalized Leases entered
into after the Effective Date owing by the Loan Parties in any Fiscal
Year to exceed the amounts set forth in subsection (h) of this Section
7.02, (B) Operating Lease Obligations which would
9
<PAGE> 10
not cause the aggregate amount of all Operating Lease Obligations
(other than Operating Lease Obligations set forth on Schedule 7.02(g)
hereto, including Operating Lease Obligations of Outlet Stores under
the CK Store Leases and assumed in connection with the CK Acquisition
and Operating Lease Obligations of Broadway Jeanswear under the
Occupancy Agreement) owing by the Loan Parties in any Fiscal Year to
exceed $250,000 or such greater amount as shall be approved by the
Required Lenders, (C) Operating Lease Obligations of Outlet Stores
under the CK Store Leases which would not cause the aggregate amount of
all Operating Lease Obligations of Outlet Stores under the CK Store
Leases (other than the Operating Lease Obligations under the CK Store
Leases set forth on Schedule 7.02(g) hereto) to exceed $2,000,000 in
any Fiscal Year or such greater amount as shall be approved by the
Required Lenders, (D) Operating Lease Obligations of Broadway Jeanswear
under the Occupancy Agreement in an aggregate amount not to exceed
$600,000 in any Fiscal Year or such greater amount as shall be approved
by the Required Lenders and (E) Operating Lease Obligations of Designer
Holdings under the Secaucus Lease resulting from an assignment of such
lease to Designer Holdings from Floor Ready Apparel or a sublease of
the Premises (as defined in the Secaucus Lease) by Floor Ready Apparel
to Designer Holdings, in an aggregate amount not to exceed $3,500,000
in any Fiscal Year or such greater amount as shall be approved by the
Required Lenders."
(f) Paragraph (h) of Section 7.02 of the Financing Agreement is
hereby amended by deleting the first sentence thereof in its entirety and
inserting the following in its place:
"Make or be committed to make, or permit any of its
Subsidiaries to make or be committed to make, any expenditure
(by purchase or Capitalized Lease) for fixed or capital assets
other than (i) expenditures (including obligations under
Capitalized Leases) which would not cause the aggregate amount
of all such expenditures to exceed $3,800,000 for the Fiscal
Year ended December 31, 1995, $10,000,000 for the Fiscal Year
ended December 31, 1996, $1,200,000 for the Fiscal Year ended
December 31, 1997, $1,100,000 for the Fiscal Year ended
December 31, 1998 and $1,000,000 for each Fiscal Year
thereafter, provided that for any Fiscal Year an amount equal
to the carryover amount for such Fiscal Year may be carried
over to the next succeeding Fiscal Year (but no further
succeeding fiscal year) and (ii) expenditures by Outlet Stores
made in connection with the CK Acquisition and the operation
of the CK Outlet Stores in an amount not to exceed
$4,000,000."
(g) Section 7.02 (i) of the Financing Agreement
10
<PAGE> 11
is hereby amended by adding the words "or permit any of its Subsidiaries to do
any of the foregoing" before the semicolon immediately preceding the proviso and
by deleting the proviso thereof in its entirety and inserting the following in
its place:
"provided, however, that (i) Abbeville and Kaijay may declare
and pay dividends to Jeanswear and (ii) subject to Sections 7.01(q) and
7.02(t) hereof, Subsidiaries of Designer Holdings may pay dividends or
make other payments to Designer Holdings in an aggregate amount
necessary to enable Designer Holdings to make payments of interest
(including additional interest) and expenses required to be made
pursuant to the terms of the Subordinated Debentures and the Indenture
(and Designer Holdings may make payments of interest (including
additional interest) and expenses on the Subordinated Debentures), and
the Trust may pay dividends to the holders of the Preferred Securities,
in each case pursuant to the terms and conditions as described in the
Prospectus for the Public Offering dated September 30, 1996, as amended
through the date hereof."
(h) Section 7.02 of the Financing Agreement is hereby amended by
adding the following new paragraphs after paragraph (r) thereof:
"(s) Public Financing. Permit (A) the obligations of Designer
Holdings under the Public Financing Guarantees or the Subordinated
Debentures or any other obligations of Designer Holdings in connection
with the Public Financing to become secured obligations or to rank pari
passu with or senior to any of the Obligations, (B) the Trust to engage
in any activity other than the (i) issuing the Preferred Securities and
common securities representing undivided beneficial interests in the
assets of the Trust, (ii) investing the gross proceeds of the Preferred
Securities and the common securities of the Trust in the Subordinated
Debentures and (iii) only those other activities necessary or
incidental thereto, or (C) any change in any material term of the
Public Financing as described in the Preliminary Prospectus to the
Registration Statement on Form S-1 (File No. 33-13097) filed by
Designer Holdings and the Trust with the Securities and Exchange
Commission on September 30, 1996, as amended through October 22, 1996,
or include in any document or agreement any material term not so
described therein, without the prior written consent of the Required
Lenders.
(t) Amendment or Waiver of Public Financing
Documents; Prepayment of Subordinated Debentures. (i)
Agree, or permit any of its Subsidiaries to agree, to any
amendment or other change to (or make any payment consistent
with any amendment or other change to), or waive any of its
11
<PAGE> 12
rights under, any of the Public Financing Documents or refinance any of
the Subordinated Debentures without obtaining the prior written consent
of the Required Lenders to such amendment, modification, payment,
waiver, change or refinancing, provided that such consent shall not be
required if such amendment, modification, waiver, change or refinancing
(A) does not increase the amount payable under or in connection with
any of the Subordinated Debentures or the obligations of Designer
Holdings or any of its Subsidiaries thereunder or under any of the
other Public Financing Documents, (B) is not adverse to the interests
of the Lenders and (C) does not provide for terms more restrictive to
Designer Holdings or any of its Subsidiaries than those terms in effect
prior to such amendment, modification, waiver, change or refinancing;
or
(ii) Directly or indirectly, by deposit of monies or
otherwise, prepay, purchase, redeem, retire, defease or otherwise
acquire, or make any payment on account of any principal of, premium or
interest payable in connection with the payment, prepayment,
redemption, defeasance or retirement of any Subordinated Debentures
during any Extension Period which is in effect or required to be in
effect as a result of any Event of Default hereunder pursuant to
Section 7.01(q) hereof, provided that during any period when an
Extension Period is not in effect or required to be in effect as a
result of any Event of Default hereunder pursuant to Section 7.01(q)
hereof, payments of interest (including additional interest) may be
made pursuant to the terms of the Subordinated Debentures and payments
of dividends may be made to holders of the Preferred Securities
pursuant to the Public Financing Documents."
7. Events of Default. (a) Paragraph (p) of Section 10.01 of the
Financing Agreement is hereby amended by deleting such paragraph in its entirety
and inserting the follow- ing in its place:
"(p) A breach, default or event of default shall occur under
any License Agreement if the effect of such breach, default or event of
default is to permit Bill Blass, DK Studio or CK to terminate its
respective License Agreement or License Agreements, any License
Agreement shall terminate for any reason or Bill Blass, DK Studio or CK
shall exercise any remedies under any License Agreement which exercise
of remedies could reasonably be expected to adversely affect the
ability of the Borrowers to repay or otherwise perform their
Obligations under this Agreement or the ability of the Guarantors to
perform their obligations under the Loan Documents to which they are a
party or any breach, default or event of default shall occur under any
of the CK Acquisition Agreement, the Creative Services Agree-
12
<PAGE> 13
ment or the Occupancy Agreement on the part of Outlet Stores or any
DKNY Licensee, as the case may be, if the effect of such breach,
default or event of default is to permit the other party or parties
thereto to terminate any such Agreement or such party or parties shall
exercise any of its remedies thereunder, which exercise of remedies
could reasonably be expected to adversely affect the ability of the
Borrowers to repay or otherwise perform their Obligations under this
Agreement or the ability of any of the Guarantors to perform their
Obligations under the Loan Documents to which they are a party;"
(b) Section 10.01 of the Financing Agreement is hereby amended by adding
the following after paragraph (p) thereof:
"(q) A breach, default or event of default shall occur under
the Indenture, the Declaration of Trust, the Public Financing
Guarantees or any other Public Financing Document, if the effect of
such breach, default or event of default is to accelerate, or to permit
the acceleration of, the maturity of any Subordinated Debenture or
Preferred Securities."
8. Miscellaneous. (a) From and after the Amendment Effective
Date, the Schedules to the Financing Agreement shall be deemed to include, where
applicable, each of Outlet Holdings, Outlet Stores and the DKNY Licensees. Each
of Schedules 6.01(e), 6.01(f), 6.01(y), 6.01(aa) and 7.02(g) are hereby amended
to include the information set forth in Annex I, Annex II, Annex III, Annex IV
and Annex V, respectively, to this Amendment.
(b) The Borrowers and the Guarantors shall deliver to the Agent
(A) within 30 days of the Amendment Effective Date, certified copies of requests
for copies of information on Form UCC-11, listing all effective financing
statements which name as debtor any of Outlet Holdings, Outlet Stores or the
DKNY Licensees and which are filed in the offices which in the reasonable
opinion of the Agent are desirable to perfect the security interests purported
to be created by the Security Agreements, together with copies of such financing
statements, none of which, except as otherwise agreed to in writing by the
Agent, shall cover any of the Collateral and (B) within 10 days of the Amendment
Effective Date, an opinion of Skadden, Arps, Slate, Meagher & Flom, counsel to
the Borrowers and the Guarantors (including Outlet Holdings, Outlet Stores and
the DKNY Licensees), in form and substance satisfactory to the Agent and its
counsel.
(c) The parties hereto acknowledge that the terms of the Public
Financing as described in the Preliminary Prospectus to the Registration
Statement on Form S-1 (File No. 33-13097) filed by Designer Holdings and the
Trust with the Securities and
13
<PAGE> 14
Exchange Commission on September 30, 1996, as amended through October 22, 1996
and in accordance with the terms and conditions set forth herein with respect
thereto will not be a violation of Section 7.02(m) of the Financing Agreement.
9. Conditions to Effectiveness. This Amendment shall become
effective only upon satisfaction in full of the following conditions precedent
(the first date upon which all such conditions shall have been satisfied being
herein called the "Amendment Effective Date"):
(i) The representations and warranties contained in
this Amendment and in Article VI of the Financing Agreement shall be
correct in all material respects on and as of the Amendment Effective
Date as though made on and as of such date (except where such
representations and warranties relate to an earlier date in which case
such representations and warranties shall be true and correct as of
such earlier date); no Event of Default or Default shall have occurred
and be continuing (except as and to the extent expressly waived herein)
on the Amendment Effective Date, or result from this Amendment becoming
effective in accordance with its terms.
(ii) The Agent shall have received counterparts of
this Amendment which bear the signatures of the Borrowers, the
Guarantors (including Outlet Holdings, Outlet Stores and the DKNY
Licensees) and each of the Lenders.
(iii) Each of Designer Holdings and Jeanswear shall
have executed and delivered to the Agent an amendment to its Pledge
Agreement, pledging the Capital Stock of each of Broadway Holdings,
Broadway Jeanswear and Broadway Sourcing, in the case of Designer
Holdings, and Outlet Holdings and Outlet Stores, in the case of
Jeanswear (the "Specified Stock"), and shall have delivered to the
Agent the original stock certificates representing all of the Specified
Stock, together with undated stock powers executed in blank.
(iv) The Agent shall have received a copy of the
resolutions adopted by the Board of Directors of each of the Borrowers
and the Guarantors (including Outlet Holdings, Outlet Stores and the
DKNY Licensees), certified as of the Amendment Effective Date by
authorized officers thereof, authorizing, (A) the transactions
contemplated by the Financing Agreement as amended hereby, and (B) the
execution, delivery and performance by each of the Borrowers and the
Guarantors (including Outlet Holdings, Outlet Stores and the DKNY
Licensees) of this Amendment and each other document executed in
connection with or contemplated by this
14
<PAGE> 15
Amendment, including, without limitation, in the case of Jeanswear, the
execution, delivery and performance by Jeanswear of the CK Store
License Agreement, in the case of Outlet Stores, the execution,
delivery and performance of the CK Acquisition Agreement, in the case
of the DKNY Licensees, the execution, delivery and performance by the
DKNY Licensees of the DKNY License Agreement and, in the case of
Designer Holdings, the execution, delivery and performance of the
Public Financing Documents.
(v) The Agent shall have received a certificate of
authorized officers of the Borrowers and Guarantors (including Outlet
Holdings, Outlet Stores and the DKNY Licensees) certifying the names
and true signatures of the officers of the Borrowers and the Guarantors
authorized to sign this Amendment and all other documents executed in
connection with this Amendment together with evidence of the incumbency
of such authorized officers.
(vi) The Agent shall have received a certificate of
the chief executive officer or the chief financial officer of each of
the Borrowers and Guarantors (including Outlet Holdings, Outlet Stores
and the DKNY Licensees) certifying as to the matters set forth in
subsection (i) of this Section 9.
(vii) The Agent shall have received a guaranty,
substantially in the form of Exhibit C to the Financing Agreement,
guaranteeing the Obligations, executed by each of Outlet Holdings,
Outlet Stores, Broadway Holdings, Broadway Jeanswear and Broadway
Sourcing;
(viii) The Agent shall have received a security
agreement, substantially in the form of Exhibit D to the Financing
Agreement, securing the guaranty described in clause (vii) above,
executed by each of Outlet Holdings, Outlet Stores, Broadway Holdings,
Broadway Jeanswear and Broadway Sourcing;
(ix) The Agent shall have received the appropriate
financing statements on Form UCC-1, duly executed by each of Outlet
Holdings, Outlet Stores and each DKNY Licensee and duly filed in such
office or offices as may be necessary or, in the reasonable opinion of
the Agent, desirable to perfect the security interests purported to be
created by the Security Agreements;
(x) The Agent shall have received a certificate of
the appropriate official(s) of the states of incorporation and each
state of foreign qualification of each of Outlet Holdings, Outlet
Stores and the DKNY Licensees, certifying as to the subsistence in good
standing of,
15
<PAGE> 16
and the payment of taxes by, such Persons in such states and listing
all charter documents of such Persons on file with such official(s),
together with confirmation by telephone or telegram (where available)
on the Amendment Effective Date from such official(s) as to such
matters;
(xi) The Agent shall have received a copy of the
charter or articles of incorporation, as appropriate, of each of Outlet
Holdings, Outlet Stores and the DKNY Licensees certified by the
appropriate official(s) of the state of organization of such Person and
as of the Amendment Effective Date by an authorized officer of such
Person;
(xii) The Agent shall have received a copy of the
by-laws of each of Outlet Holdings, Outlet Stores and the DKNY
Licensees, certified as of the Effective Date by an authorized officer
of such person;
(xiii) The Agent shall have received a copy of each
of the DKNY License Agreement, the Creative Services Agreement and the
Occupancy Agreement as in effect on the Amendment Effective Date,
certified as a true and correct copy thereof by the chief executive
officer or the chief financial officer of each of the DKNY Licensees,
as the case may be, together with a certification that such Agreements
remain in full force and effect and that the applicable DKNY Licensees
have not breached or defaulted in any of their obligations under any
of such Agreements;
(xiv) The Agent shall have received a certificate
of insurance evidencing the insurance required to be maintained by the
Company and its Subsidiaries pursuant to Section 7.01(h) of the
Financing Agreement, naming the Agent as additional insured and loss
payee, using a long form loss payee endorsement for all insurance
maintained by the Company and its Subsidiaries;
(xv) The Agent shall have received a copy of each
of the Indenture, the Declaration of Trust, the Public Financing
Guarantees, the CK Store Leases, the CK Acquisition Agreement and the
CK Store License Agreement certified as a true and correct copy thereof
by the chief executive officer or chief financial officer of Jeanswear
and Designer Holdings together with a certification that each such
agreement is in substantially final form.
16
<PAGE> 17
(xvi) The Agent shall have received such other
agreements, instruments, approvals, opinions and other documents as the
Agent may reasonably request; and
(xvii) All legal matters incident to this Amendment
shall be satisfactory to the Agent and its counsel.
10. Representations and Warranties. Each of the Borrowers and the
Guarantors represents and warrants to the Lenders as follows:
(a) Each Borrower and Guarantor (i) is duly organized, validly
existing and in good standing under the laws of the state of its organization
and (ii) has all requisite power, authority and legal right to execute, deliver
and perform this Amendment, the CK Store License Agreement, in the case of
Jeanswear, the CK Acquisition Agreement, in the case of Outlet Stores, the DKNY
License Agreement, the Creative Services Agreement, the Occupancy Agreement, in
the case of the applicable DKNY Licensees, the Public Financing Documents, in
the case of Designer Holdings and all other documents executed by it in
connection with or contemplated by this Amendment, and to perform the Financing
Agreement, as amended hereby.
(b) The execution, delivery and performance by each of the
Borrowers and the Guarantors of this Amendment and all other documents executed
by it in connection with or contemplated by this Amendment, including, without
limitation, in the case of Jeanswear, the CK Store License Agreement, in the
case of Outlet Stores, the CK Acquisition Agreement, and, in the case of the
applicable DKNY Licensees, the DKNY License Agreement, the Creative Services
Agreement and the Occupancy Agreement and the performance by each of the
Borrowers and the Guarantors of the Financing Agreement as amended hereby and,
in the case of Jeanswear, the CK Store License Agreement and, in the case of
Outlet Stores, the CK Acquisition Agreement and, in the case of the applicable
DKNY Licensees, the DKNY License Agreement, the Creative Services Agreement and
the Occupancy Agreement, (i) have been duly authorized by all necessary action,
(ii) do not and will not violate or create a default under any Borrower's or
Guarantor's organizational documents, any applicable law or any contractual
restriction binding on or otherwise affecting any Borrower or Guarantor or any
of such Borrower's or Guarantor's properties, and (iii) except as provided in
the Loan Documents, do not and will not result in or require the creation of any
Lien, upon or with respect to any Borrower's or Guarantor's property.
(c) No authorization or approval or other action by, and no
notice to or filing with, any Governmental Authority or other regulatory body is
required in connection with the due
17
<PAGE> 18
execution, delivery and performance by any of the Borrowers and the Guarantors
of this Amendment and all other documents executed by it in connection with or
as contemplated by this Amendment, and the performance by the Borrowers and the
Guarantors of the Financing Agreement as amended hereby.
(d) This Amendment and the Financing Agreement, as amended
hereby, and all other documents executed in connection with this Amendment
constitute the legal, valid and binding obligations of the Borrowers and the
Guarantors party thereto, enforceable against such Persons in accordance with
their terms.
(e) The representations and warranties contained in Article VI of
the Financing Agreement are correct on and as of the Amendment Effective Date as
though made on and as of the Amendment Effective Date (except to the extent such
representations and warranties expressly relate to an earlier date), and no
Event of Default or Default, has occurred and is continuing on and as of the
Amendment Effective Date.
(f) The Escrow Agreement dated September 27, 1996 among DK
Studio, the DKNY Licensees and Phillips Nizer Benjamin Krim & Ballom LLP has
expired in accordance with its terms (without acceleration or early termination)
and is of no further force and effect.
11. Waivers and Consents. (a) Pursuant to the request of the
Borrowers and the Guarantors and in accordance with Section 12.03 of the
Financing Agreement, and subject to the satisfaction of the conditions to
effectiveness set forth in Section 9 of this Amendment, the Lenders and the
Agent hereby consent to, and waive any Event of Default that would otherwise
arise under Section 10.01 of the Financing Agreement from (i) any non-compliance
by the Borrowers with the provisions of Sections 7.02(b), 7.02(c), 7.02(e),
7.02(f), 7.02(g) and 7.02(h) of the Financing Agreement by reason of the
creation of new Subsidiaries by Jeanswear and Designer Holdings and the
consummation of the CK Acquisition and the DKNY Acquisition, (ii) any
non-compliance by the Borrowers with the provisions of Section 7.02(b) of the
Financing Agreement in connection with expenditures for fixed or capital assets
for the Fiscal Year ended December 31, 1996 exceeding the amount permitted under
Section 7.02(h) of the Financing Agreement provided that such expenditures do
not in the aggregate exceed $10,000,000, (iii) any non-compliance by Designer
Holdings and Jeanswear with the provisions of Section 7.01(b) of the Financing
Agreement by reason of the failure of Designer Holdings and Jeanswear, as the
case may be, to cause each of Broadway Holdings, Broadway Jeanswear and Broadway
Sourcing, in the case of Designer Holdings and Outlet Holdings and Outlet
Stores, in the case of Jeanswear, to execute a guaranty and a security agreement
and (iv) any non-compliance by Designer Holdings and Jeanswear with the
provisions of Section 7.01(b) of the Financing Agreement by reason of the
failure of Designer Holdings and Jeanswear, as the case may be, to pledge the
Capital Stock of Broadway Holdings, Broadway Jeanswear and Broadway Sourcing, in
the case of Designer Holdings and Outlet Holdings and Outlet Stores, in the case
of Jeanswear.
18
<PAGE> 19
(b) The waivers and consents in this Section 10 shall be
effective only in this specific instance and for the specific purposes set forth
herein and do not allow for any other or further departure from the terms and
conditions of the Financing Agreement or any other Loan Document, which terms
and conditions shall continue in full force and effect.
12. Continued Effectiveness of Financing Agreement. Each of the
Borrowers and the Guarantors hereby (i) confirms and agrees that each Loan
Document to which it is a party is, and shall continue to be, in full force and
effect and is hereby ratified and confirmed in all respects except that on and
after the Amendment Effective Date of this Amendment all references in any such
Loan Document to "the Financing Agreement", "thereto", "thereof", "thereunder"
or words of like import referring to the Financing Agreement shall mean the
Financing Agreement as amended by this Amendment, and (ii) confirms and agrees
that to the extent that any such Loan Document purports to assign or pledge to
the Agent, or to grant to the Agent a Lien on any collateral as security for the
Obligations of the Borrowers or the Guarantors from time to time existing in
respect of the Financing Agreement and the Loan Documents, such pledge,
assignment and/or grant of a Lien is hereby ratified and confirmed in all
respects.
13. Miscellaneous.
(a) This Amendment may be executed in any number of counterparts
and by different parties hereto in separate counterparts, each of which shall be
deemed to be an original, but all of which taken together shall constitute one
and the same agreement.
(b) Section and paragraph headings herein are included for
convenience of reference only and shall not constitute a part of this Amendment
for any other purpose.
(c) This Amendment shall be governed by, and construed in
accordance with, the laws of the State of New York.
(d) The Borrowers will pay on demand all fees, costs and expenses
of the Agent in connection with the preparation, execution and delivery of this
Amendment, including, without limitation, the reasonable fees, disbursements and
other charges of Schulte Roth & Zabel LLP, counsel to the Agent.
IN WITNESS WHEREOF, the parties hereto have caused this Amendment to be executed
by their respective officers thereunto duly authorized as of the day and year
first above written.
19
<PAGE> 20
NEW RIO, L.L.C.
By: /s/ John J. Jones
Title:
DESIGNER HOLDINGS LTD.
By: /s/ John J. Jones
Title:
JEANSWEAR HOLDINGS, INC.
By: /s/ John J. Jones
Title:
RIO SPORTSWEAR, INC.
By: /s/ John J. Jones
Title:
CALVIN KLEIN JEANSWEAR COMPANY
By: /s/ John J. Jones
Title:
20
<PAGE> 21
AGENT AND LENDER
THE CIT GROUP/COMMERCIAL SERVICES,
INC.
By: /s/ Terry Schwartz
Title:
LENDERS
BTM CAPITAL CORPORATION, formerly
known as BOT Financial Corporation
By: /s/ Danial Landers
Title:
FLEET CAPITAL CORPORATION,
as successor-in-interest to
SHAWMUT CAPITAL CORPORATION
By:
Title:
THE CHASE MANHATTAN BANK
By: /s/ Daniel Michaels
Title:
IBJ SCHRODER BANK & TRUST COMPANY
By: /s/ Wing Louie
Title:
LASALLE BUSINESS CREDIT, INC.
By: /s/ Ernest J. Abati
Title:
NATIONAL CITY COMMERCIAL FINANCE, INC.
By: /s/ Lee Mosby
Title:
BANK LEUMI TRUST COMPANY OF
21
<PAGE> 22
NEW YORK
By: /s/ Andrew Melville
Title:
BNY FINANCIAL CORPORATION
By:
Title:
22
<PAGE> 23
ACKNOWLEDGMENT
By signing below, the undersigned hereby acknowledge and agree to the terms of
Sections 10, 11 and 12 of this Amendment as if such Sections were applicable to
the undersigned.
BROADWAY JEANSWEAR HOLDINGS, INC.
By: /s/ John J. Jones
Title:
BROADWAY JEANSWEAR COMPANY, INC.
By: /s/ John J. Jones
Title:
BROADWAY JEANSWEAR SOURCING, INC.
By: /s/ John J. Jones
Title:
OUTLET STORES, INC.
By: /s/ John J. Jones
Title:
OUTLET HOLDINGS, INC.
By: /s/ John J. Jones
Title:
ABBEVILLE ACQUISITION COMPANY
By: /s/ John J. Jones
Title:
AEI MANAGEMENT COMPANY
By: /s/ John J. Jones
Title:
KAIJAY ACQUISITION COMPANY
By: /s/ John J. Jones
23
<PAGE> 24
Title:
24
<PAGE> 25
ANNEX I
SCHEDULE 6.01(e)
Inventory Locations, Places of Business; Chief Executive Office
1
<PAGE> 26
ANNEX II
SCHEDULE 6.01(f)
SUBSIDIARIES
2
<PAGE> 27
ANNEX III
SCHEDULE 6.01(y)
TRADENAMES
3
<PAGE> 28
ANNEX IV
SCHEDULE 6.01(aa)
MATERIAL CONTRACTS
4
<PAGE> 29
ANNEX V
SCHEDULE 7.02(g)
CK STORE LEASE OPERATING LEASE OBLIGATIONS
5
<PAGE> 1
EXHIBIT 12.1
RATIO OF EARNINGS TO FIXED CHARGES
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
PREDECESSOR COMPANIES
(COMBINED) THE COMPANY
---------------------------------------- (CONSOLIDATED)
EIGHT ------------------------------------------------
MONTHS FOUR MONTHS SIX MONTHS ENDED
YEAR ENDED DECEMBER 31, ENDED ENDED YEAR ENDED JUNE 30,
-------------------------- AUGUST 25, DECEMBER 31, DECEMBER 31, ------------------
1991 1992 1993 1994 1994 1995 1995 1996
------ ------ ------ ----------- ------------ ------------ ------- -------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Earnings
Net income (loss)................. $5,117 $3,631 $2,141 $ (235) $1,917 $ 11,063 $ 3,971 $ 8,739
Add back:
Taxes......................... 1,869 1,189 (331) (399) 2,239 10,870 4,500 9367
Extraordinary item............ 2,256
------ ------ ------ ----------- ------ ------------ ------- -------
Earnings.......................... 6,986 4,820 1,810 (634) 4,156 21,933 8,471 20,362
Interest on indebtedness...... 1,445 1,339 1,808 1,142 2,557 15,154 5,437 7,635
Amortization of expense on
debt.. 1,006 252 473
Interest portion of rental
charges.. 199 373 413 290 87 602 207 580
------ ------ ------ ----------- ------ ------------ ------- -------
Earnings as adjusted.............. $8,630 $6,532 $4,031 $ 798 $6,800 $ 38,695 $14,367 $29,050
====== ====== ====== ========== ============ ============ ======= =======
Fixed charges:
Interest on indebtedness...... $1,445 $1,339 $1,808 $ 1,142 $2,557 $ 15,154 $ 5,437 $ 7,635
Amortization of expense on
debt........................ 1,006 252 473
Interest portion of rental
charges..................... 199 373 413 290 87 602 207 580
------ ------ ------ ----------- ------ ------------ ------- -------
Total Fixed Charges............... $1,644 $1,712 $2,221 $ 1,432 $2,644 16,762 5,896 8,688
====== ====== ====== ========== ============
Pro forma interest savings related
to Preferred Securities......... (4,209) (1,272) (1,816)
Pro forma incremental deferred
financing costs related to
Preferred Securities............ 76 52 69
Total fixed charges, pro forma.... $ 12,630 $ 4,677 $ 6,941
============ ======= =======
Ratio of earnings to fixed
charges......................... 5.25x 3.82x 1.82x 2.57x 2.31x 2.44x 3.34x
====== ====== ====== ============ ============ ======= =======
Deficiency of earnings to fixed
charges......................... $ 634
==========
Pro forma ratio of earnings to
fixed
charges......................... 3.06x 3.07x 4.19x
============ ======= =======
</TABLE>
<PAGE> 1
Exhibit 21.1
List of Subsidiaries
Name of Subsidiary State of Incorporation
Rio Sportswear, Inc.............................. Delaware
AEI Management Corporation(1).................... California
Jeanswear Holdings, Inc.......................... Delaware
Calvin Klein Jeanswear Company(2)................ Delaware
Kaijay Acquisition Company(3).................... Delaware
Abbeville Acquisition Company(3)................. Delaware
New Bedford Shippers Corp.(3).................... New York
Broadway Jeanswear Holdings, Inc................. Delaware
Broadway Jeanswear Company, Inc.................. Delaware
Broadway Jeanswear Sourcing, Inc................. Delaware
Outlet Stores, Inc............................... Delaware
Outlet Holdings, Inc............................. Delaware
- --------
(1) Subsidiary of Rio Sportswear, Inc.
(2) Subsidiary of Jeanswear Holdings, Inc.
(3) Subsidiary of Calvin Klein Jeanswear Company
<PAGE> 1
EXHIBIT 23.1
CONSENT OF INDEPENDENT ACCOUNTANTS
We consent to the inclusion in this Amendment No. 2 to the Registration
Statement on Form S-1 (File No. 333-13097) of Designer Holdings Ltd. 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 consolidated 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
October , 1996
<PAGE> 1
EXHIBIT 23.2
CONSENT OF INDEPENDENT AUDITORS
We consent to the use in this Amendment No. 2 to the Registration Statement
on Form S-1 (File No. 333-13097) of Designer Holdings Ltd. 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
October , 1996
<PAGE> 1
Exhibit 25.1
-------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D. C. 20549
--------
FORM T-1
STATEMENT OF ELIGIBILITY
UNDER THE TRUST INDENTURE ACT OF 1939, AS AMENDED, OF A
CORPORATION DESIGNATED TO ACT AS TRUSTEE
CHECK IF AN APPLICATION TO DETERMINE
ELIGIBILITY OF A TRUSTEE PURSUANT TO
SECTION 305(b)(2)
--------
IBJ SCHRODER BANK & TRUST COMPANY
(EXACT NAME OF TRUSTEE AS SPECIFIED IN ITS CHARTER)
New York 13-5375195
(State of Incorporation (I.R.S. Employer
if not a U.S. national bank) Identification No.)
One State Street, New York, New York 10004
(Address of principal executive offices) (Zip code)
Barbara McCluskey, Vice President
IBJ Schroder Bank & Trust Company
One State Street
New York, New York 10004
(212) 858-2000
(Name, Address and Telephone Number of Agent for Service)
DESIGNER HOLDINGS LTD.
(Exact name of obligor as specified in its charter)
Delaware 13-3818542
(State or jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
1385 Broadway, 3rd Floor
New York, New York 10018
(Address of principal executive office) (Zip code)
% CONVERTIBLE SUBORDINATED DEBENTURES DUE 2016
(Title of Indenture Securities)
-------------------------
<PAGE> 2
Item 1. General information
Furnish the following information as to the trustee:
(a) Name and address of each examining or supervising
authority to which it is subject.
New York State Banking Department
Two Rector Street
New York, New York
Federal Deposit Insurance Corporation
Washington, D.C.
Federal Reserve Bank of New York Second District
33 Liberty Street
New York, New York
(b) Whether it is authorized to exercise corporate trust
powers.
Yes
Item 2. Affiliations with the Obligor.
If the obligor is an affiliate of the trustee, describe each
such affiliation.
The obligor is not an affiliate of the trustee.
Item 3. Voting securities of the trustee.
Furnish the following information as to each class of voting
securities of the trustee:
As of October 21, 1996
Col. A Col. B
Title of class Amount Outstanding
Not Applicable
2
<PAGE> 3
Item 4. Trusteeships under other indentures.
If the trustee is a trustee under another indenture under
which any other securities, or certificates of interest or
participation in any other securities, of the obligor are
outstanding, furnish the following information:
(a) Title of the securities outstanding under each such
other indenture
Not Applicable
(b) A brief statement of the facts relied upon as a basis
for the claim that no conflicting interest within the
meaning of Section 310 (b) (1) of the Act arises as a
result of the trusteeship under any such other
indenture, including a statement as to how the
indenture securities will rank as compared with the
securities issued under such other indenture.
Item 5. Interlocking directorates and similar relationships with the
obligor or underwriters.
If the trustee or any of the directors or executive officers
of the trustee is a director, officer, partner, employee,
appointee, or representative of the obligor or of any
underwriter for the obligor, identify each such person having
any such connection and state the nature of each such
connection.
Not Applicable
Item 6. Voting securities of the trustee owned by the obligor or its
officials.
Furnish the following information as to the voting securities
of the trustee owned beneficially by the obligor and each
director, partner, and executive officer of the obligor:
As of October 21, 1996
<TABLE>
<CAPTION>
Col A Col. B Col. C Col. D
Name of Owner Title of class Amount owned Percent of voting
beneficially securities represented by
amount given in Col. C
<S> <C> <C> <C>
- ------------- -------------- ------------- --------------------------
</TABLE>
Not Applicable
3
<PAGE> 4
Item 7. Voting securities of the trustee owned by underwriters or
their officials.
Furnish the following information as to the voting securities
of the trustee owned beneficially by each underwriter for the
obligor and each director, partner and executive officer of
each such underwriter:
As of October 21, 1996
<TABLE>
<CAPTION>
Col A Col. B Col. C Col. D
Name of Owner Title of class Amount owned Percent of voting
beneficially securities represented by
amount given in Col. C
<S> <C> <C> <C>
- ------------- -------------- ------------ --------------------------
</TABLE>
Not Applicable
Item 8. Securities of the obligor owned or held by the trustee
Furnish the following information as to securities of the
obligor owned beneficially or held as collateral security for
obligations in default by the trustee:
As of October 21, 1996
<TABLE>
<CAPTION>
Col A Col. B Col. C Col. D
Name of Owner Title of class Amount owned Percent of voting
beneficially or held as securities represented by
collateral security for amount given in Col. C
obligations in default
<S> <C> <C> <C>
- ------------- -------------- ----------------------- --------------------------
</TABLE>
Not Applicable
Item 9. Securities of underwriters owned or held by the trustee.
4
<PAGE> 5
If the trustee owns beneficially or holds as collateral
security for obligations in default any securities of an
underwriter for the obligor, furnish the following information
as to each class of securities of such underwriter any of
which are so owned or held by the trustee:
As of October 21, 1996
<TABLE>
<CAPTION>
Col A Col. B Col. C Col. D
Name of Owner Title of class Amount owned Percent of voting
beneficially or held as securities represented by
collateral security for amount given in Col. C
obligations in default
<S> <C> <C> <C>
- ------------- -------------- ------------------------ --------------------------
</TABLE>
Not Applicable
Item 10. Ownership or holdings by the trustee of voting securities of
certain affiliates or securityholders of the obligor.
If the trustee owns beneficially or holds as collateral
security for obligations in default voting securities of a
person who, to the knowledge of the trustee (1) owns 10
percent or more of the voting securities of the obligor or (2)
is an affiliate, other than a subsidiary, of the obligor,
furnish the following information as to the voting securities
of such person:
As of October 21, 1996
<TABLE>
<CAPTION>
Col A Col. B Col. C Col. D
Name of Owner Title of class Amount owned Percent of voting
beneficially or held as securities represented by
collateral security for amount given in Col. C
obligations in default
<S> <C> <C> <C>
- ------------- -------------- ------------------------ -------------------------
</TABLE>
Not Applicable
5
<PAGE> 6
Item 11. Ownership or holdings by the trustee of any securities of a
person owning 50 percent or more of the voting securities of
the obligor.
If the trustee owns beneficially or holds as collateral
security for obligations in default any securities of a person
who, to the knowledge of the trustee, owns 50 percent or more
of the voting securities of the obligor, furnish the following
information as to each class of securities of such any of
which are so owned or held by the trustee:
As of October 21, 1996
<TABLE>
<CAPTION>
Col. A Col. B Col. C
Nature of Indebtedness Amount Outstanding Date Due
<S> <C> <C>
- ---------------------- ------------------ --------
</TABLE>
Not Applicable
Item 12. Indebtedness of the Obligor to the Trustee.
Except as noted in the instructions, if the obligor is
indebted to the trustee, furnish the following information:
As of October 21, 1996
<TABLE>
<CAPTION>
Col A Col. B Col. C Col. D
Name of Owner Title of class Amount owned Percent of voting
beneficially or held as securities represented by
collateral security for amount given in Col. C
obligations in default
<S> <C> <C> <C>
- ------------- --------------- ----------------------- -------------------------
</TABLE>
Not Applicable
Item 13. Defaults by the Obligor.
(a) State whether there is or has been a default with
respect to the securities under this indenture.
Explain the nature of any such default.
Not Applicable
6
<PAGE> 7
(b) If the trustee is a trustee under another indenture
under which any other securities, or certificates of
interest or participation in any other securities, of
the obligor are outstanding, or is trustee for more
than one outstanding series of securities under the
indenture, state whether there has been a default
under any such indenture or series, identify the
indenture or series affected, and explain the nature
of any such default.
Not Applicable
Item 14. Affiliations with the Underwriters
If any underwriter is an affiliate of the trustee, describe
each such affiliation.
Not Applicable
Item 15. Foreign Trustees.
Identify the order or rule pursuant to which the foreign
trustee is authorized to act as sole trustee under indentures
qualified or to be qualified under the Act.
Not Applicable
Item 16. List of Exhibits.
List below all exhibits filed as part of this statement of
eligibility.
*1. A copy of the Charter of IBJ Schroder Bank & Trust
Company as amended to date. (See Exhibit 1A to Form
T-1, Securities and Exchange Commission File No.
22-18460).
*2. A copy of the Certificate of Authority of the Trustee
to Commence Business (Included in Exhibit I above).
*3. A copy of the Authorization of the Trustee, as
amended to date (See Exhibit 4 to Form T-1,
Securities and Exchange Commission File No.
22-19146).
*4. A copy of the existing By-Laws of the Trustee, as
amended to date (See Exhibit 4 to Form T-1,
Securities and Exchange Commission File No.
22-19146).
7
<PAGE> 8
5. A copy of each Indenture referred to in Item 4, if
the Obligor is in default. Not Applicable.
6. The consent of the United States institutional
trustee required by Section 321(b) of the Act.
7. A copy of the latest report of condition of the
trustee published pursuant to law or the requirements
of its supervising or examining authority.
* The Exhibits thus designated are incorporated herein by reference as
exhibits hereto. Following the description of such Exhibits is a
reference to the copy of the Exhibit heretofore filed with the
Securities and Exchange Commission, to which there have been no
amendments or changes.
NOTE
In answering any item in this Statement of Eligibility which relates to
matters peculiarly within the knowledge of the obligor and its
directors or officers, the trustee has relied upon information
furnished to it by the obligor.
Inasmuch as this Form T-1 is filed prior to the ascertainment by the
trustee of all facts on which to base responsive answers to Item 2, the
answer to said Item are based on incomplete information.
Item 2, may, however, be considered as correct unless amended by an
amendment to this Form T-1.
Pursuant to General Instruction B, the trustee has responded to Items
1, 2 and 16 of this form since to the best knowledge of the trustee as
indicated in Item 13, the obligor is not in default under any indenture
under which the applicant is trustee.
8
<PAGE> 9
SIGNATURE
Pursuant to the requirements of the Trust Indenture Act of 1939, as amended, the
trustee, IBJ Schroder Bank & Trust Company, a corporation organized and existing
under the laws of the State of New York, has duly caused this statement of
eligibility and qualification to be signed on its behalf by the undersigned,
thereunto duly authorized, all in the City of New York, and State of New York,
on the 21st day of October, 1996.
IBJ SCHRODER BANK & TRUST COMPANY
By: /s/ Barbara McCluskey
-----------------------------
Barbara McCluskey
Vice President
<PAGE> 10
EXHIBIT 6
CONSENT OF TRUSTEE
Pursuant to the requirements of Section 321(b) of the Trust Indenture Act of
1939, as amended, in connection with the proposed issue by Designer Holdings
Ltd., we hereby consent that reports of examinations by Federal, State,
Territorial, or District authorities may be furnished by such authorities to the
Securities and Exchange Commission upon request therefor.
IBJ SCHRODER BANK & TRUST COMPANY
By: /s/ Barbara McCluskey
-----------------------------
Barbara McCluskey
Vice President
Dated: October 21, 1996
<PAGE> 11
EXHIBIT 7
CONSOLIDATED REPORT OF CONDITION OF
IBJ SCHRODER BANK & TRUST COMPANY
OF NEW YORK, NEW YORK
AND FOREIGN AND DOMESTIC SUBSIDIARIES
REPORT AS OF JUNE 30, 1996
<TABLE>
<CAPTION>
DOLLAR AMOUNTS
IN THOUSANDS
--------------
<S> <C> <C>
ASSETS
Cash and balance due from depository institutions:
Noninterest-bearing balances and currency and coin .................................... $ 39,834
Interest-bearing balances.............................................................. $ 236,748
Securities: Held to Maturity............................................................ $ 173,034
Available-for-sale.......................................................... $ 35,882
Federal funds sold and securities purchased under
agreements to resell in domestic offices of the bank
and of its Edge and Agreement subsidiaries and in IBFs:
Federal Funds sold..................................................................... $ 36,968
Securities purchased under agreements to resell........................................ $ -0-
Loans and lease financing receivables:
Loans and leases, net of unearned income............................. $1,668,191
LESS: Allowance for loan and lease losses............................ $ 54,288
LESS: Allocated transfer risk reserve................................ $ -0-
Loans and leases, net of unearned income, allowance, and reserve....................... $1,613,903
Assets held in trading accounts............................................................ $ 500
Premises and fixed assets.................................................................. $ 7,413
Other real estate owned.................................................................... $ 397
Investments in unconsolidated subsidiaries and associated companies........................ $ -0-
Customers' liability to this bank on acceptances outstanding............................... $ 223
Intangible assets.......................................................................... $ -0-
Other assets............................................................................... $ 55,007
TOTAL ASSETS............................................................................... $2,199,909
</TABLE>
<PAGE> 12
<TABLE>
<CAPTION>
DOLLAR AMOUNTS
IN THOUSANDS
--------------
<S> <C> <C>
LIABILITIES
Deposits:
In domestic offices............................................................................. $ 652,676
Noninterest-bearing ...................................................... $278,082
Interest-bearing.......................................................... $374,594
In foreign offices, Edge and Agreement subsidiaries, and IBFs................................... $ 893,475
Noninterest-bearing....................................................... $ 15,577
Interest-bearing.......................................................... $877,898
Federal funds purchased and securities sold under
agreements to repurchase in domestic offices of the bank and
of its Edge and Agreement subsidiaries, and in IBFs:
Federal Funds purchased......................................................................... $ 212,000
Securities sold under agreements to repurchase.................................................. $ -0-
Demand notes issued to the U.S. Treasury............................................................ $ 48,606
Trading Liabilities................................................................................. $ 293
Other borrowed money:
a) With original maturity of one year or less................................................... $ 102,049
b) With original maturity of more than one year................................................. $ 3,000
Mortgage indebtedness and obligations under capitalized leases...................................... $ -0-
Bank's liability on acceptances executed and outstanding............................................ $ 223
Subordinated notes and debentures................................................................... $ -0-
Other liabilities................................................................................... $ 74,608
TOTAL LIABILITIES................................................................................... $1,986,930
Limited life preferred stock and related surplus.................................................... $ -0-
EQUITY CAPITAL
Perpetual preferred stock........................................................................... $ -0-
Common Stock........................................................................................ $ 29,649
Surplus............................................................................................. $ 217,008
Undivided profits and capital reserves.............................................................. $ (34,414)
Plus: Net unrealized gains (losses) on marketable equity securities................................. $ 736
Cumulative foreign currency translation adjustments................................................. $ -0-
TOTAL EQUITY CAPITAL................................................................................ $ 212,979
TOTAL LIABILITIES AND EQUITY CAPITAL................................................................ $2,199,909
</TABLE>
<PAGE> 1
Exhibit 25.2
---------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D. C. 20549
--------
FORM T-1
STATEMENT OF ELIGIBILITY
UNDER THE TRUST INDENTURE ACT OF 1939, AS AMENDED, OF A
CORPORATION DESIGNATED TO ACT AS TRUSTEE
CHECK IF AN APPLICATION TO DETERMINE
ELIGIBILITY OF A TRUSTEE PURSUANT TO
SECTION 305(b)(2)
--------
IBJ SCHRODER BANK & TRUST COMPANY
(EXACT NAME OF TRUSTEE AS SPECIFIED IN ITS CHARTER)
New York 13-5375195
(State of Incorporation (I.R.S. Employer
if not a U.S. national bank) Identification No.)
One State Street, New York, New York 10004
(Address of principal executive offices) (Zip code)
Barbara McCluskey, Vice President
IBJ Schroder Bank & Trust Company
One State Street
New York, New York 10004
(212) 858-2000
(Name, Address and Telephone Number of Agent for Service)
DESIGNER FINANCE TRUST
(Exact name of obligor as specified in its charter)
Delaware to be applied for
(State or jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
c/o Designer Holdings Ltd.
1385 Broadway, 3rd Floor
New York, New York 10018
(Address of principal executive office) (Zip code)
% CONVERTIBLE TRUST ORIGINATED PREFERRED SECURITIES
(Title of Securities)
---------------------------
<PAGE> 2
Item 1. General information
Furnish the following information as to the trustee:
(a) Name and address of each examining or supervising
authority to which it is subject.
New York State Banking Department
Two Rector Street
New York, New York
Federal Deposit Insurance Corporation
Washington, D.C.
Federal Reserve Bank of New York Second District
33 Liberty Street
New York, New York
(b) Whether it is authorized to exercise corporate trust
powers.
Yes
Item 2. Affiliations with the Obligor.
If the obligor is an affiliate of the trustee, describe each
such affiliation.
The obligor is not an affiliate of the trustee.
Item 3. Voting securities of the trustee.
Furnish the following information as to each class of voting
securities of the trustee:
As of October 21, 1996
Col. A Col. B
Title of class Amount Outstanding
Not Applicable
2
<PAGE> 3
Item 4. Trusteeships under other indentures.
If the trustee is a trustee under another indenture under
which any other securities, or certificates of interest or
participation in any other securities, of the obligor are
outstanding, furnish the following information:
(a) Title of the securities outstanding under each such
other indenture
Not Applicable
(b) A brief statement of the facts relied upon as a basis
for the claim that no conflicting interest within the
meaning of Section 310 (b) (1) of the Act arises as a
result of the trusteeship under any such other
indenture, including a statement as to how the
indenture securities will rank as compared with the
securities issued under such other indenture.
Item 5. Interlocking directorates and similar relationships with the
obligor or underwriters.
If the trustee or any of the directors or executive officers
of the trustee is a director, officer, partner, employee,
appointee, or representative of the obligor or of any
underwriter for the obligor, identify each such person having
any such connection and state the nature of each such
connection.
Not Applicable
Item 6. Voting securities of the trustee owned by the obligor or its
officials.
Furnish the following information as to the voting securities
of the trustee owned beneficially by the obligor and each
director, partner, and executive officer of the obligor:
As of October 21, 1996
<TABLE>
<CAPTION>
Col A Col. B Col. C Col. D
Name of Owner Title of class Amount owned Percent of voting
beneficially securities represented by
amount given in Col. C
<S> <C> <C> <C>
- ------------- -------------- ------------- --------------------------
</TABLE>
Not Applicable
3
<PAGE> 4
Item 7. Voting securities of the trustee owned by underwriters or
their officials.
Furnish the following information as to the voting securities
of the trustee owned beneficially by each underwriter for the
obligor and each director, partner and executive officer of
each such underwriter:
As of October 21, 1996
<TABLE>
<CAPTION>
Col A Col. B Col. C Col. D
Name of Owner Title of class Amount owned Percent of voting
beneficially securities represented by
amount given in Col. C
<S> <C> <C> <C>
- ------------- -------------- ------------ --------------------------
</TABLE>
Not Applicable
Item 8. Securities of the obligor owned or held by the trustee
Furnish the following information as to securities of the
obligor owned beneficially or held as collateral security for
obligations in default by the trustee:
As of October 21, 1996
<TABLE>
<CAPTION>
Col A Col. B Col. C Col. D
Name of Owner Title of class Amount owned Percent of voting
beneficially or held as securities represented by
collateral security for amount given in Col. C
obligations in default
<S> <C> <C> <C>
- ------------- -------------- ----------------------- --------------------------
</TABLE>
Not Applicable
Item 9. Securities of underwriters owned or held by the trustee.
4
<PAGE> 5
If the trustee owns beneficially or holds as collateral
security for obligations in default any securities of an
underwriter for the obligor, furnish the following information
as to each class of securities of such underwriter any of
which are so owned or held by the trustee:
As of October 21, 1996
<TABLE>
<CAPTION>
Col A Col. B Col. C Col. D
Name of Owner Title of class Amount owned Percent of voting
beneficially or held as securities represented by
collateral security for amount given in Col. C
obligations in default
<S> <C> <C> <C>
- ------------- -------------- ------------------------ --------------------------
</TABLE>
Not Applicable
Item 10. Ownership or holdings by the trustee of voting securities of
certain affiliates or securityholders of the obligor.
If the trustee owns beneficially or holds as collateral
security for obligations in default voting securities of a
person who, to the knowledge of the trustee (1) owns 10
percent or more of the voting securities of the obligor or (2)
is an affiliate, other than a subsidiary, of the obligor,
furnish the following information as to the voting securities
of such person:
As of October 21, 1996
<TABLE>
<CAPTION>
Col A Col. B Col. C Col. D
Name of Owner Title of class Amount owned Percent of voting
beneficially or held as securities represented by
collateral security for amount given in Col. C
obligations in default
<S> <C> <C> <C>
- ------------- -------------- ------------------------ -------------------------
</TABLE>
Not Applicable
5
<PAGE> 6
Item 11. Ownership or holdings by the trustee of any securities of a
person owning 50 percent or more of the voting securities of
the obligor.
If the trustee owns beneficially or holds as collateral
security for obligations in default any securities of a person
who, to the knowledge of the trustee, owns 50 percent or more
of the voting securities of the obligor, furnish the following
information as to each class of securities of such any of
which are so owned or held by the trustee:
As of October 21, 1996
<TABLE>
<CAPTION>
Col. A Col. B Col. C
Nature of Indebtedness Amount Outstanding Date Due
<S> <C> <C>
- ---------------------- ------------------ --------
</TABLE>
Not Applicable
Item 12. Indebtedness of the Obligor to the Trustee.
Except as noted in the instructions, if the obligor is
indebted to the trustee, furnish the following information:
As of October 21, 1996
<TABLE>
<CAPTION>
Col A Col. B Col. C Col. D
Name of Owner Title of class Amount owned Percent of voting
beneficially or held as securities represented by
collateral security for amount given in Col. C
obligations in default
<S> <C> <C> <C>
- ------------- --------------- ----------------------- -------------------------
</TABLE>
Not Applicable
Item 13. Defaults by the Obligor.
(a) State whether there is or has been a default with
respect to the securities under this indenture.
Explain the nature of any such default.
Not Applicable
6
<PAGE> 7
(b) If the trustee is a trustee under another indenture
under which any other securities, or certificates of
interest or participation in any other securities, of
the obligor are outstanding, or is trustee for more
than one outstanding series of securities under the
indenture, state whether there has been a default
under any such indenture or series, identify the
indenture or series affected, and explain the nature
of any such default.
Not Applicable
Item 14. Affiliations with the Underwriters
If any underwriter is an affiliate of the trustee, describe
each such affiliation.
Not Applicable
Item 15. Foreign Trustees.
Identify the order or rule pursuant to which the foreign
trustee is authorized to act as sole trustee under indentures
qualified or to be qualified under the Act.
Not Applicable
Item 16. List of Exhibits.
List below all exhibits filed as part of this statement of
eligibility.
*1. A copy of the Charter of IBJ Schroder Bank & Trust
Company as amended to date. (See Exhibit 1A to Form
T-1, Securities and Exchange Commission File No.
22-18460).
*2. A copy of the Certificate of Authority of the Trustee
to Commence Business (Included in Exhibit I above).
*3. A copy of the Authorization of the Trustee, as
amended to date (See Exhibit 4 to Form T-1,
Securities and Exchange Commission File No.
22-19146).
*4. A copy of the existing By-Laws of the Trustee, as
amended to date (See Exhibit 4 to Form T-1,
Securities and Exchange Commission File No.
22-19146).
7
<PAGE> 8
5. A copy of each Indenture referred to in Item 4, if
the Obligor is in default. Not Applicable.
6. The consent of the United States institutional
trustee required by Section 321(b) of the Act.
7. A copy of the latest report of condition of the
trustee published pursuant to law or the requirements
of its supervising or examining authority.
* The Exhibits thus designated are incorporated herein by reference as
exhibits hereto. Following the description of such Exhibits is a
reference to the copy of the Exhibit heretofore filed with the
Securities and Exchange Commission, to which there have been no
amendments or changes.
NOTE
In answering any item in this Statement of Eligibility which relates to
matters peculiarly within the knowledge of the obligor and its
directors or officers, the trustee has relied upon information
furnished to it by the obligor.
Inasmuch as this Form T-1 is filed prior to the ascertainment by the
trustee of all facts on which to base responsive answers to Item 2, the
answer to said Item are based on incomplete information.
Item 2, may, however, be considered as correct unless amended by an
amendment to this Form T-1.
Pursuant to General Instruction B, the trustee has responded to Items
1, 2 and 16 of this form since to the best knowledge of the trustee as
indicated in Item 13, the obligor is not in default under any indenture
under which the applicant is trustee.
8
<PAGE> 9
SIGNATURE
Pursuant to the requirements of the Trust Indenture Act of 1939, as amended, the
trustee, IBJ Schroder Bank & Trust Company, a corporation organized and existing
under the laws of the State of New York, has duly caused this statement of
eligibility and qualification to be signed on its behalf by the undersigned,
thereunto duly authorized, all in the City of New York, and State of New York,
on the 21st day of October, 1996.
IBJ SCHRODER BANK & TRUST COMPANY
By: /s/ Barbara McCluskey
-----------------------------
Barbara McCluskey
Vice President
<PAGE> 10
EXHIBIT 6
CONSENT OF TRUSTEE
Pursuant to the requirements of Section 321(b) of the Trust Indenture Act of
1939, as amended, in connection with the proposed issue of Designer Finance
Trust, we hereby consent that reports of examinations by Federal, State,
Territorial, or District authorities may be furnished by such authorities to the
Securities and Exchange Commission upon request therefor.
IBJ SCHRODER BANK & TRUST COMPANY
By: /s/Barbara McCluskey
-----------------------------
Barbara McCluskey
Vice President
Dated: October 21, 1996
<PAGE> 11
EXHIBIT 7
CONSOLIDATED REPORT OF CONDITION OF
IBJ SCHRODER BANK & TRUST COMPANY
OF NEW YORK, NEW YORK
AND FOREIGN AND DOMESTIC SUBSIDIARIES
REPORT AS OF JUNE 30, 1996
<TABLE>
<CAPTION>
DOLLAR AMOUNTS
IN THOUSANDS
--------------
<S> <C> <C>
ASSETS
Cash and balance due from depository institutions:
Noninterest-bearing balances and currency and coin .................................... $ 39,834
Interest-bearing balances.............................................................. $ 236,748
Securities: Held to Maturity............................................................ $ 173,034
Available-for-sale.......................................................... $ 35,882
Federal funds sold and securities purchased under
agreements to resell in domestic offices of the bank
and of its Edge and Agreement subsidiaries and in IBFs:
Federal Funds sold..................................................................... $ 36,968
Securities purchased under agreements to resell........................................ $ -0-
Loans and lease financing receivables:
Loans and leases, net of unearned income............................. $1,668,191
LESS: Allowance for loan and lease losses............................ $ 54,288
LESS: Allocated transfer risk reserve................................ $ -0-
Loans and leases, net of unearned income, allowance, and reserve....................... $1,613,903
Assets held in trading accounts............................................................ $ 500
Premises and fixed assets.................................................................. $ 7,413
Other real estate owned.................................................................... $ 397
Investments in unconsolidated subsidiaries and associated companies........................ $ -0-
Customers' liability to this bank on acceptances outstanding............................... $ 223
Intangible assets.......................................................................... $ -0-
Other assets............................................................................... $ 55,007
TOTAL ASSETS............................................................................... $2,199,909
</TABLE>
<PAGE> 12
<TABLE>
<CAPTION>
DOLLAR AMOUNTS
IN THOUSANDS
--------------
<S> <C> <C>
LIABILITIES
Deposits:
In domestic offices............................................................................. $ 652,676
Noninterest-bearing ...................................................... $278,082
Interest-bearing.......................................................... $374,594
In foreign offices, Edge and Agreement subsidiaries, and IBFs................................... $ 893,475
Noninterest-bearing....................................................... $ 15,577
Interest-bearing.......................................................... $877,898
Federal funds purchased and securities sold under
agreements to repurchase in domestic offices of the bank and
of its Edge and Agreement subsidiaries, and in IBFs:
Federal Funds purchased......................................................................... $ 212,000
Securities sold under agreements to repurchase.................................................. $ -0-
Demand notes issued to the U.S. Treasury............................................................ $ 48,606
Trading Liabilities................................................................................. $ 293
Other borrowed money:
a) With original maturity of one year or less................................................... $ 102,049
b) With original maturity of more than one year................................................. $ 3,000
Mortgage indebtedness and obligations under capitalized leases...................................... $ -0-
Bank's liability on acceptances executed and outstanding............................................ $ 223
Subordinated notes and debentures................................................................... $ -0-
Other liabilities................................................................................... $ 74,608
TOTAL LIABILITIES................................................................................... $1,986,930
Limited life preferred stock and related surplus.................................................... $ -0-
EQUITY CAPITAL
Perpetual preferred stock........................................................................... $ -0-
Common Stock........................................................................................ $ 29,649
Surplus............................................................................................. $ 217,008
Undivided profits and capital reserves.............................................................. $ (34,414)
Plus: Net unrealized gains (losses) on marketable equity securities................................. $ 736
Cumulative foreign currency translation adjustments................................................. $ -0-
TOTAL EQUITY CAPITAL................................................................................ $ 212,979
TOTAL LIABILITIES AND EQUITY CAPITAL................................................................ $2,199,909
</TABLE>
<PAGE> 1
EXHIBIT 25.3
-----------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D. C. 20549
--------
FORM T-1
STATEMENT OF ELIGIBILITY
UNDER THE TRUST INDENTURE ACT OF 1939, AS AMENDED, OF A
CORPORATION DESIGNATED TO ACT AS TRUSTEE
CHECK IF AN APPLICATION TO DETERMINE
ELIGIBILITY OF A TRUSTEE PURSUANT TO
SECTION 305(b)(2)
--------
IBJ SCHRODER BANK & TRUST COMPANY
(EXACT NAME OF TRUSTEE AS SPECIFIED IN ITS CHARTER)
New York 13-5375195
(State of Incorporation (I.R.S. Employer
if not a U.S. national bank) Identification No.)
One State Street, New York, New York 10004
(Address of principal executive offices) (Zip code)
Barbara McCluskey, Vice President
IBJ Schroder Bank & Trust Company
One State Street
New York, New York 10004
(212) 858-2000
(Name, Address and Telephone Number of Agent for Service)
DESIGNER HOLDINGS LTD.
(Exact name of obligor as specified in its charter)
Delaware 13-3818542
(State or jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
1385 Broadway, 3rd Floor
New York, New York 10018
(Address of principal executive office) (Zip code)
GUARANTEE OF PREFERRED SECURITIES ISSUED BY
DESIGNER FINANCE TRUST BY DESIGNER HOLDINGS LTD.
(Title of Securities)
-----------------------------
<PAGE> 2
Item 1. General information
Furnish the following information as to the trustee:
(a) Name and address of each examining or supervising
authority to which it is subject.
New York State Banking Department
Two Rector Street
New York, New York
Federal Deposit Insurance Corporation
Washington, D.C.
Federal Reserve Bank of New York Second District
33 Liberty Street
New York, New York
(b) Whether it is authorized to exercise corporate trust
powers.
Yes
Item 2. Affiliations with the Obligor.
If the obligor is an affiliate of the trustee, describe each
such affiliation.
The obligor is not an affiliate of the trustee.
Item 3. Voting securities of the trustee.
Furnish the following information as to each class of voting
securities of the trustee:
As of October 21, 1996
Col. A Col. B
Title of class Amount Outstanding
Not Applicable
2
<PAGE> 3
Item 4. Trusteeships under other indentures.
If the trustee is a trustee under another indenture under
which any other securities, or certificates of interest or
participation in any other securities, of the obligor are
outstanding, furnish the following information:
(a) Title of the securities outstanding under each such
other indenture
Not Applicable
(b) A brief statement of the facts relied upon as a basis
for the claim that no conflicting interest within the
meaning of Section 310 (b) (1) of the Act arises as a
result of the trusteeship under any such other
indenture, including a statement as to how the
indenture securities will rank as compared with the
securities issued under such other indenture.
Item 5. Interlocking directorates and similar relationships with the
obligor or underwriters.
If the trustee or any of the directors or executive officers
of the trustee is a director, officer, partner, employee,
appointee, or representative of the obligor or of any
underwriter for the obligor, identify each such person having
any such connection and state the nature of each such
connection.
Not Applicable
Item 6. Voting securities of the trustee owned by the obligor or its
officials.
Furnish the following information as to the voting securities
of the trustee owned beneficially by the obligor and each
director, partner, and executive officer of the obligor:
As of October 21, 1996
<TABLE>
<CAPTION>
Col A Col. B Col. C Col. D
Name of Owner Title of class Amount owned Percent of voting
beneficially securities represented by
amount given in Col. C
<S> <C> <C> <C>
- ------------- -------------- ------------- --------------------------
</TABLE>
Not Applicable
3
<PAGE> 4
Item 7. Voting securities of the trustee owned by underwriters or
their officials.
Furnish the following information as to the voting securities
of the trustee owned beneficially by each underwriter for the
obligor and each director, partner and executive officer of
each such underwriter:
As of October 21, 1996
<TABLE>
<CAPTION>
Col A Col. B Col. C Col. D
Name of Owner Title of class Amount owned Percent of voting
beneficially securities represented by
amount given in Col. C
<S> <C> <C> <C>
- ------------- -------------- ------------ --------------------------
</TABLE>
Not Applicable
Item 8. Securities of the obligor owned or held by the trustee
Furnish the following information as to securities of the
obligor owned beneficially or held as collateral security for
obligations in default by the trustee:
As of October 21, 1996
<TABLE>
<CAPTION>
Col A Col. B Col. C Col. D
Name of Owner Title of class Amount owned Percent of voting
beneficially or held as securities represented by
collateral security for amount given in Col. C
obligations in default
<S> <C> <C> <C>
- ------------- -------------- ----------------------- --------------------------
</TABLE>
Not Applicable
Item 9. Securities of underwriters owned or held by the trustee.
4
<PAGE> 5
If the trustee owns beneficially or holds as collateral
security for obligations in default any securities of an
underwriter for the obligor, furnish the following information
as to each class of securities of such underwriter any of
which are so owned or held by the trustee:
As of October 21, 1996
<TABLE>
<CAPTION>
Col A Col. B Col. C Col. D
Name of Owner Title of class Amount owned Percent of voting
beneficially or held as securities represented by
collateral security for amount given in Col. C
obligations in default
<S> <C> <C> <C>
- ------------- -------------- ------------------------ --------------------------
</TABLE>
Not Applicable
Item 10. Ownership or holdings by the trustee of voting securities of
certain affiliates or securityholders of the obligor.
If the trustee owns beneficially or holds as collateral
security for obligations in default voting securities of a
person who, to the knowledge of the trustee (1) owns 10
percent or more of the voting securities of the obligor or (2)
is an affiliate, other than a subsidiary, of the obligor,
furnish the following information as to the voting securities
of such person:
As of October 21, 1996
<TABLE>
<CAPTION>
Col A Col. B Col. C Col. D
Name of Owner Title of class Amount owned Percent of voting
beneficially or held as securities represented by
collateral security for amount given in Col. C
obligations in default
<S> <C> <C> <C>
- ------------- -------------- ------------------------ -------------------------
</TABLE>
Not Applicable
5
<PAGE> 6
Item 11. Ownership or holdings by the trustee of any securities of a
person owning 50 percent or more of the voting securities of
the obligor.
If the trustee owns beneficially or holds as collateral
security for obligations in default any securities of a person
who, to the knowledge of the trustee, owns 50 percent or more
of the voting securities of the obligor, furnish the following
information as to each class of securities of such any of
which are so owned or held by the trustee:
As of October 21, 1996
<TABLE>
<CAPTION>
Col. A Col. B Col. C
Nature of Indebtedness Amount Outstanding Date Due
<S> <C> <C>
- ---------------------- ------------------ --------
</TABLE>
Not Applicable
Item 12. Indebtedness of the Obligor to the Trustee.
Except as noted in the instructions, if the obligor is
indebted to the trustee, furnish the following information:
As of October 21, 1996
<TABLE>
<CAPTION>
Col A Col. B Col. C Col. D
Name of Owner Title of class Amount owned Percent of voting
beneficially or held as securities represented by
collateral security for amount given in Col. C
obligations in default
<S> <C> <C> <C>
- ------------- --------------- ----------------------- -------------------------
</TABLE>
Not Applicable
Item 13. Defaults by the Obligor.
(a) State whether there is or has been a default with
respect to the securities under this indenture.
Explain the nature of any such default.
Not Applicable
6
<PAGE> 7
(b) If the trustee is a trustee under another indenture
under which any other securities, or certificates of
interest or participation in any other securities, of
the obligor are outstanding, or is trustee for more
than one outstanding series of securities under the
indenture, state whether there has been a default
under any such indenture or series, identify the
indenture or series affected, and explain the nature
of any such default.
Not Applicable
Item 14. Affiliations with the Underwriters
If any underwriter is an affiliate of the trustee, describe
each such affiliation.
Not Applicable
Item 15. Foreign Trustees.
Identify the order or rule pursuant to which the foreign
trustee is authorized to act as sole trustee under indentures
qualified or to be qualified under the Act.
Not Applicable
Item 16. List of Exhibits.
List below all exhibits filed as part of this statement of
eligibility.
*1. A copy of the Charter of IBJ Schroder Bank & Trust
Company as amended to date. (See Exhibit 1A to Form
T-1, Securities and Exchange Commission File No.
22-18460).
*2. A copy of the Certificate of Authority of the Trustee
to Commence Business (Included in Exhibit I above).
*3. A copy of the Authorization of the Trustee, as
amended to date (See Exhibit 4 to Form T-1,
Securities and Exchange Commission File No.
22-19146).
*4. A copy of the existing By-Laws of the Trustee, as
amended to date (See Exhibit 4 to Form T-1,
Securities and Exchange Commission File No.
22-19146).
7
<PAGE> 8
5. A copy of each Indenture referred to in Item 4, if
the Obligor is in default. Not Applicable.
6. The consent of the United States institutional
trustee required by Section 321(b) of the Act.
7. A copy of the latest report of condition of the
trustee published pursuant to law or the requirements
of its supervising or examining authority.
* The Exhibits thus designated are incorporated herein by reference as
exhibits hereto. Following the description of such Exhibits is a
reference to the copy of the Exhibit heretofore filed with the
Securities and Exchange Commission, to which there have been no
amendments or changes.
NOTE
In answering any item in this Statement of Eligibility which relates to
matters peculiarly within the knowledge of the obligor and its
directors or officers, the trustee has relied upon information
furnished to it by the obligor.
Inasmuch as this Form T-1 is filed prior to the ascertainment by the
trustee of all facts on which to base responsive answers to Item 2, the
answer to said Item are based on incomplete information.
Item 2, may, however, be considered as correct unless amended by an
amendment to this Form T-1.
Pursuant to General Instruction B, the trustee has responded to Items
1, 2 and 16 of this form since to the best knowledge of the trustee as
indicated in Item 13, the obligor is not in default under any indenture
under which the applicant is trustee.
8
<PAGE> 9
SIGNATURE
Pursuant to the requirements of the Trust Indenture Act of 1939, as amended, the
trustee, IBJ Schroder Bank & Trust Company, a corporation organized and existing
under the laws of the State of New York, has duly caused this statement of
eligibility and qualification to be signed on its behalf by the undersigned,
thereunto duly authorized, all in the City of New York, and State of New York,
on the 21st day of October, 1996.
IBJ SCHRODER BANK & TRUST COMPANY
By: /s/ Barbara McCluskey
-----------------------------
Barbara McCluskey
Vice President
<PAGE> 10
EXHIBIT 6
CONSENT OF TRUSTEE
Pursuant to the requirements of Section 321(b) of the Trust Indenture Act of
1939, as amended, in connection with the proposed issue of SIERRA PACIFIC POWER
CAPITAL I, we hereby consent that reports of examinations by Federal, State,
Territorial, or District authorities may be furnished by such authorities to the
Securities and Exchange Commission upon request therefor.
IBJ SCHRODER BANK & TRUST COMPANY
By: /s/Barbara McCluskey
-----------------------------
Barbara McCluskey
Vice President
Dated: October 21, 1996
<PAGE> 11
EXHIBIT 7
CONSOLIDATED REPORT OF CONDITION OF
IBJ SCHRODER BANK & TRUST COMPANY
OF NEW YORK, NEW YORK
AND FOREIGN AND DOMESTIC SUBSIDIARIES
REPORT AS OF JUNE 30, 1996
<TABLE>
<CAPTION>
DOLLAR AMOUNTS
IN THOUSANDS
--------------
<S> <C> <C>
ASSETS
Cash and balance due from depository institutions:
Noninterest-bearing balances and currency and coin .................................... $ 39,834
Interest-bearing balances.............................................................. $ 236,748
Securities: Held to Maturity............................................................ $ 173,034
Available-for-sale.......................................................... $ 35,882
Federal funds sold and securities purchased under
agreements to resell in domestic offices of the bank
and of its Edge and Agreement subsidiaries and in IBFs:
Federal Funds sold..................................................................... $ 36,968
Securities purchased under agreements to resell........................................ $ -0-
Loans and lease financing receivables:
Loans and leases, net of unearned income............................. $1,668,191
LESS: Allowance for loan and lease losses............................ $ 54,288
LESS: Allocated transfer risk reserve................................ $ -0-
Loans and leases, net of unearned income, allowance, and reserve....................... $1,613,903
Assets held in trading accounts............................................................ $ 500
Premises and fixed assets.................................................................. $ 7,413
Other real estate owned.................................................................... $ 397
Investments in unconsolidated subsidiaries and associated companies........................ $ -0-
Customers' liability to this bank on acceptances outstanding............................... $ 223
Intangible assets.......................................................................... $ -0-
Other assets............................................................................... $ 55,007
TOTAL ASSETS............................................................................... $2,199,909
</TABLE>
<PAGE> 12
<TABLE>
<CAPTION>
DOLLAR AMOUNTS
IN THOUSANDS
--------------
<S> <C> <C>
LIABILITIES
Deposits:
In domestic offices............................................................................. $ 652,676
Noninterest-bearing ...................................................... $278,082
Interest-bearing.......................................................... $374,594
In foreign offices, Edge and Agreement subsidiaries, and IBFs................................... $ 893,475
Noninterest-bearing....................................................... $ 15,577
Interest-bearing.......................................................... $877,898
Federal funds purchased and securities sold under
agreements to repurchase in domestic offices of the bank and
of its Edge and Agreement subsidiaries, and in IBFs:
Federal Funds purchased......................................................................... $ 212,000
Securities sold under agreements to repurchase.................................................. $ -0-
Demand notes issued to the U.S. Treasury............................................................ $ 48,606
Trading Liabilities................................................................................. $ 293
Other borrowed money:
a) With original maturity of one year or less................................................... $ 102,049
b) With original maturity of more than one year................................................. $ 3,000
Mortgage indebtedness and obligations under capitalized leases...................................... $ -0-
Bank's liability on acceptances executed and outstanding............................................ $ 223
Subordinated notes and debentures................................................................... $ -0-
Other liabilities................................................................................... $ 74,608
TOTAL LIABILITIES................................................................................... $1,986,930
Limited life preferred stock and related surplus.................................................... $ -0-
EQUITY CAPITAL
Perpetual preferred stock........................................................................... $ -0-
Common Stock........................................................................................ $ 29,649
Surplus............................................................................................. $ 217,008
Undivided profits and capital reserves.............................................................. $ (34,414)
Plus: Net unrealized gains (losses) on marketable equity securities................................. $ 736
Cumulative foreign currency translation adjustments................................................. $ -0-
TOTAL EQUITY CAPITAL................................................................................ $ 212,979
TOTAL LIABILITIES AND EQUITY CAPITAL................................................................ $2,199,909
</TABLE>
