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________________________________________________________________________________
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
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(Mark One)
X ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
[FEE REQUIRED]
FOR THE FISCAL YEAR ENDED JANUARY 7, 1995
OR
__ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
FOR THE TRANSITION PERIOD FROM TO
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COMMISSION FILE NUMBER: 1-4715
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THE WARNACO GROUP, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
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DELAWARE 95-4032739
(STATE OR OTHER JURISDICTION OF (I.R.S. EMPLOYER
INCORPORATION OR ORGANIZATION) IDENTIFICATION NO.)
90 PARK AVENUE 10016
NEW YORK, NEW YORK (ZIP CODE)
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES)
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REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE: (212) 661-1300
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SECURITIES REGISTERED PURSUANT TO SECTION 12(b) OF THE ACT:
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NAME OF EACH EXCHANGE
TITLE OF EACH CLASS ON WHICH REGISTERED
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Class A Common Stock, par value $0.01 per share New York Stock Exchange
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SECURITIES REGISTERED PURSUANT TO SECTION 12(g) OF THE ACT: NONE
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Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes [x] No [ ]
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to the
best knowledge of the registrant, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment of this
Form 10-K. [x]
The aggregate market value of the voting stock held by non-affiliates of
the registrant as of March 30, 1995 was approximately $655,763,895.
The number of shares outstanding of the registrant's Class A Common Stock
as of March 30, 1995: 41,734,192.
Documents incorporated by reference: The definitive Proxy Statement of The
Warnaco Group, Inc. relating to the 1995 Annual meeting of Stockholders is
incorporated by reference in Part III hereof.
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PART I
ITEM 1. BUSINESS.
(A) GENERAL DEVELOPMENT OF BUSINESS.
The Warnaco Group, Inc. ('Company'), a Delaware corporation, was organized
in 1986 for the purpose of acquiring Warnaco Inc. ('Warnaco') a publicly traded
apparel company. As a result, Warnaco became a wholly owned subsidiary of the
Company. The Company designs, manufactures and markets a broad line of women's
intimate apparel, such as bras, panties and sleepwear, and men's dress shirts,
neckwear, sportswear, underwear, accessories and small leather goods, all of
which are sold under a variety of internationally recognized owned and licensed
brand names. On March 14, 1994, the Company acquired the worldwide trademarks,
rights and business of Calvin Klein'r' men's underwear and licensed the Calvin
Klein trademark for men's accessories. In addition, the acquisition included the
worldwide trademarks and rights of Calvin Klein women's intimate apparel upon
the expiration of an existing license on December 31, 1994. The Company's
strategy is to build on the strength of its brand names with consumer oriented
marketing programs in its existing department and specialty store channels of
distribution and to expand its distribution on a selective basis with specific
product lines in mass merchandisers. The Company attributes the strength of its
brand names to the quality, fit and design of its products which have developed
a high degree of consumer loyalty and a high level of repeat business. The
Company operates three divisions, Intimate Apparel, Menswear and Retail Outlet
Stores, which accounted for 72%, 23% and 5%, respectively, of net revenues in
fiscal 1994 with the intimate apparel division accounting for a larger
percentage of the Company's gross profit for the same period.
The Intimate Apparel Division designs, manufactures and markets moderate to
premium-priced intimate apparel for women under the Warner's'r', Olga'r',
Valentino Intimo'r', Scaasi'r', Blanche'r', White Stag'r', Fruit of the Loom'r'
and effective January 1, 1995 Calvin Klein brand names. In addition, the
intimate apparel division designs, manufactures and markets men's underwear
under the Calvin Klein brand name. The intimate apparel division is the leading
marketer of bras to department and specialty stores in the United States,
accounting for over 31% of such bra sales in 1994, nearly twice its nearest
competitor. The Warner's and Olga brand names, which are owned by the Company,
are 121 and 54 years old, respectively.
The Intimate Apparel Division's strategy is to broaden its channels of
distribution and expand its highly recognized brand names worldwide. In 1991,
the Company entered into a license agreement with Fruit of the Loom, Inc. for
the design, manufacture and marketing of moderate priced bras, daywear and other
related items to be distributed through mass merchandisers, such as Wal-Mart,
Venture, Bradlees and Kmart, under the Fruit of the Loom brand name.
Additionally, in late 1993, the Company signed a 3-year distribution agreement
with Avon Products, Inc. ('Avon') to distribute Warner's and Fruit of the Loom
bras on an exclusive basis and Scaasi sleepwear throughout the United States.
The Menswear Division designs, manufactures, imports and markets moderate
to premium-priced men's apparel and accessories under the Chaps by Ralph
Lauren'r', Hathaway'r', Calvin Klein'r' men's underwear and accessories and
Catalina'r' brand names. Chaps by Ralph Lauren has increased its net revenues by
approximately 426% since 1989 from $23 million to $121 million in 1994, by
refocusing its products to the age 25 to 50 consumer and predominantly by using
natural fibers in its products. The Menswear Division's strategy is to build on
the strength of its brand names and eliminate those businesses whose profit
contribution is below the Company's required return. Consistent with this
strategy the Company agreed to terminate its licenses to produce Christian
Dior'r' men's dress shirts, neckwear and accessories in 1994 and early 1995,
sold its Puritan trademark for menswear in the United States and did not renew
its license to produce Golden Bear by Jack Nicklaus products. These products
accounted for $19.3 and $100.3 million of net revenues for the Menswear Division
in 1994 and 1993, respectively. As a result, operating margins in the Menswear
Division increased from 9.6% in fiscal 1993 to 12.3% in fiscal 1994.
The Company licenses certain of its brand names throughout the world and
has been expanding the activities of its wholly owned operating subsidiaries in
Canada, Europe and Mexico. International operations generated $94.2 million of
net revenues or 12% of the total Company's net revenues in 1994
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compared to $98.6 million of net revenues in fiscal year 1993 or 14.0% of the
total Company net revenues. The total net revenues of the Company's
international operations in 1994 were negatively impacted by the generally weak
economies in Europe and Canada and the restructuring of the Company's menswear
operations.
The Company's business strategy with respect to its retail outlet stores
division is to provide a channel for disposing of the Company's excess and
irregular inventory, thereby limiting its exposure to off-price retailers
without increasing the total number of stores to any significant extent. The
Company had 53 stores at the end of 1994 compared to 48 stores in 1993 and 52
stores in 1992.
The Company's products are distributed to over 5,000 customers operating
more than 15,000 department specialty and mass merchandising stores, including
such leading retailers in the United States as Dayton-Hudson, Dillard's
Department Stores, Federated Department Stores, J.C. Penney, Kmart, The Limited,
Victoria's Secret, Macy's, The May Department Stores and Wal-Mart and such
leading retailers in Canada as Eaton's and The Hudson Bay Company. The Company's
products are also distributed to such leading European retailers as Marks &
Spencer, House of Fraser, Harrods, Galeries Lafayette and Au Printemps.
(B) FINANCIAL INFORMATION ABOUT INDUSTRY SEGMENTS.
The Company operates within one dominant industry segment, the manufacture
and distribution of apparel, and has no customer which accounted for 10% or more
of its net revenues in fiscal 1994. (See Note 7 of Notes to Consolidated
Financial Statements on pages F-6 to F-19.)
(C) NARRATIVE DESCRIPTION OF BUSINESS.
The Company designs, manufactures and markets a broad line of women's
intimate apparel and men's apparel and accessories sold under a variety of
internationally recognized owned and licensed brand names. The Company operates
three divisions, Intimate Apparel, Menswear and Retail Outlet Stores, which
accounted for 72%, 23% and 5%, respectively, of net revenues in fiscal 1994.
INTIMATE APPAREL
The Company designs, manufactures and markets intimate apparel which
includes bras, panties, daywear and sleepwear. The Company also designs and
markets mens underwear. The Company's bra brands accounted for over 31% of bra
sales in department and specialty stores in the United States in 1994, nearly
twice its nearest competitor. Management considers the Intimate Apparel
Division's primary strengths to include its strong brand recognition, product
quality and design innovation, low cost production, strong relationships with
department and specialty stores and its ability to deliver its merchandise
rapidly. Building on the strength of its brand names and reputation for quality,
the Company has historically focused its intimate apparel products on the upper
moderate to premium-priced range distributed through leading department and
specialty stores. In order to expand its market penetration the Company (i)
entered into a license agreement with Fruit of the Loom, Inc., and in June 1992,
began to distribute moderate priced bras, daywear and other related items under
this license through the mass merchandise market (ii) in late 1993, the Company
signed a 3-year distribution agreement with Avon Products, Inc. to distribute
Warner's and Fruit of the Loom bras on an exclusive basis and Scaasi sleepwear
throughout the United States and (iii) in March 1994, the Company acquired the
worldwide trademarks, rights and businesses of Calvin Klein men's underwear and
the worldwide trademarks and rights of Calvin Klein women's intimate apparel
upon the expiration of an existing license on December 31, 1994.
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The intimate apparel division markets its lines under the following brand
names:
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BRAND NAME PRICE RANGE TYPE OF APPAREL
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Warner's........................... upper moderate to better intimate apparel
Olga............................... better intimate apparel
Valentino Intimo................... premium intimate apparel
Calvin Klein(1).................... better intimate apparel/men's underwear
Scaasi............................. moderate sleepwear
Blanche............................ better to premium sleepwear
Fruit of the Loom.................. moderate intimate apparel
White Stag......................... moderate intimate apparel
</TABLE>
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(1) On March 14, 1994, the Company acquired the worldwide trademarks, rights and
businesses of Calvin Klein men's underwear and the worldwide trademarks and
rights of Calvin Klein women's intimate apparel upon the expiration of an
existing license on December 31, 1994.
The Company owns the Warner's, Olga, Calvin Klein (men's underwear and
intimate apparel) and Blanche brand names and trademarks. The Company has a
license in perpetuity for the White Stag brand for women's sportswear and
intimate apparel. The Company licenses the other brand names under which it
markets its product lines. The Company also manufactures intimate apparel on a
private and exclusive label basis for certain leading specialty and department
stores. The intimate apparel division's revenues are primarily generated by
sales of the Company's own brand names. The Warner's brand is 121 years old and
the Olga brand is 54 years old and commanded approximately 31% collectively of
women's bra sales in United States department and specialty stores in 1994.
In August 1991, the Company entered into a license agreement with Fruit of
the Loom, Inc. for the design, manufacture and marketing of moderate priced bras
which are distributed through mass merchandisers, such as Wal-Mart, Venture,
Bradlees and Kmart under the Fruit of the Loom brand name. The license agreement
has since been extended to include daywear, full slips, half slips, culottes and
petticoats as well as coordinated fashion sets (bras and panties) and certain
control bottoms and sleepwear. The Company began shipping Fruit of the Loom
products in June 1992. The agreement with Fruit of the Loom, Inc. has allowed
the Company to enter the mass merchandise market, which is growing faster than
the department and specialty store market.
The Company attributes the strength of its brands to the quality, fit and
design of its intimate apparel which has developed a high degree of customer
loyalty and a high level of repeat business. The Company believes that it has
maintained its leadership position, in part, through product innovation with
accomplishments such as introducing the alphabet bra (A, B, C and D cup sizes),
the first all-stretch bra, the body stocking, the use of two way stretch
fabrics, the cotton-lycra bra and the sports bra. The Company also introduced
the use of hangers and certain point of sale hangtags for in-store display of
bras, which was a significant change from marketing bras in boxes and enabled
women, for the first time, to see the product in the store. The Company's
product innovations have become standards in the industry.
Growth in the intimate apparel industry is benefiting from a shift in
consumer attitudes. Specifically, because women increasingly view intimate
apparel as a fashion-oriented purchase rather than as a purchase of a basic
necessity. The shift has been driven by the expansion of intimate apparel
specialty stores and catalogs such as Victoria's Secret and an increase in space
allocated to intimate apparel by department stores. The Company believes that it
is well-positioned to benefit from increased demand for intimate apparel due to
its reputation for forward-looking design, quality, fit and fashion and to the
breadth of its product lines at a range of price points. Over the past five
years, the Company has further improved its position by obtaining the licenses
to produce intimate apparel under the Valentino Intimo name in the premium end
of the market, by continuing to introduce new products under the Warner's and
Olga brands in the better end of the market, by obtaining the license from Fruit
of the Loom, Inc. to produce bras, daywear and other related items, by producing
White Stag bras for the mass merchandise segment of the market and by acquiring
the Calvin Klein trademarks for better priced women's intimate apparel and men's
underwear. The Company has further improved its position
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by continuing to strengthen its relationships with its department store,
specialty store, and mass merchandise customers.
The Intimate Apparel Division's revenues have increased at a 16% compounded
annual growth rate since 1989, to $565.3 million in fiscal 1994, as the Company
increased its penetration with existing accounts, expanded sales to new
customers by capitalizing on the high growth in such specialty stores as
Victoria's Secret and sales of Fruit of the Loom to mass merchandisers such as
Wal-Mart, Venture, Bradlees and Kmart and broadened its product lines to include
men's underwear. The Company's strong sales increase was accomplished despite
the softening of the general retail market due to poor economic conditions and
the bankruptcy, reorganization or liquidation of certain major retail store
customers during this period. The intimate apparel division has reduced
operating expenses as a percentage of net revenue by narrowing its product
lines, controlling selling, administrative and general expenses and improving
manufacturing efficiency. The Company believes that it is one of the lowest-cost
producers of intimate apparel in the United States, producing nearly eight
million dozen per year.
The Company's bras are sold primarily in the department and specialty
stores that have been the Company's traditional customer base for intimate
apparel. In June of 1992, the Company expanded into a new channel of
distribution, mass merchandisers, with its Fruit of the Loom product line, which
offers a range of styles designed to meet the needs of the consumer profile of
this market. In late 1993 the Company further expanded its channels of
distribution by signing a 3-year agreement with Avon Products, Inc. to
distribute Warner's and Fruit of the Loom bras on an exclusive basis, and,
Scaasi sleepwear throughout the United States. The Company also sees
opportunities for continued growth in the intimate apparel division for bras
specifically designed for the 'full figure' market, as well as in the panties
and daywear product lines.
The Intimate Apparel Division has subsidiaries in Canada and Mexico in
North America and in the United Kingdom, France, Belgium, Ireland, Spain and
Germany in Europe. International sales accounted for approximately 14.8% of the
intimate apparel division's net revenues in fiscal 1994. Net revenues
attributable to the international divisions of the Intimate Apparel Division
were $79.1 million, $84.5 million and $84.1 million in fiscal years 1992, 1993
and 1994, respectively. Management's strategy is to increase its market
penetration in Europe and to open additional channels of distribution. In 1994
the Company began distributing its products directly in Spain, Portugal and
Italy, having taken back these territories from its previous licensee. In
addition, in 1994 the Company entered into a joint venture with News Corp
Limited to market, on an exclusive basis, the Company's products over the
Satellite Television Asian Region Network ('STAR'), serving Asia and the Middle
East. The STAR network reaches over 60 million households in 53 countries in an
area that includes two-thirds of the world's population. In addition to the
international marketing of its product lines, the Company has licensed its
intimate apparel brand names to manufacturers in certain foreign countries.
The Company's intimate apparel products are manufactured principally in the
Company's facilities in North America, Central America, the Caribbean Basin,
Ireland and the United Kingdom.
Although the Intimate Apparel Division generally markets its product lines
for three retail selling seasons (spring, fall and holiday), its sales and
revenues are somewhat seasonal with approximately 57% of net revenues and 58% of
operating income generated during the second half of the fiscal year.
MENSWEAR
The Menswear Division designs, manufactures, imports and markets moderate
to better-priced dress shirts and neckwear, sportswear and men's accessories.
Management considers the Menswear Division's primary strengths to include its
strong brand recognition, product quality, reputation for fashion styling,
strong relationships with department and specialty stores and its ability to
deliver merchandise rapidly.
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The Menswear Division markets its lines under the following brand names:
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BRAND NAME PRICE RANGE TYPE OF APPAREL
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Hathaway............................ better dress shirts, neckwear, knit and
woven sportshirts and sweaters
Calvin Klein........................ better men's underwear and accessories,
Chaps by Ralph Lauren............... upper moderate dress shirts, neckwear, knit and
woven sportshirts, sweaters and
sportswear
Catalina............................ moderate men's and women's sportswear,
dress shirts and furnishings
</TABLE>
The Hathaway brand name is owned by the Company. The Company also owns the
trademarks for Calvin Klein men's underwear and women's intimate apparel. The
Calvin Klein brand name for accessories, and the Chaps by Ralph Lauren and
Catalina brand names are licensed by the Company.
The Menswear Division's strategy is to build on the strength of its brand
names, strengthen its position as a global apparel company and eliminate those
businesses whose profit contribution is below the Company's required return. In
fiscal 1993 and 1994, because of a strategic decision to minimize the percentage
of commodity type businesses in the Company's product mix and to improve
profitability in this Division, the Company (i) discontinued its manufactured
dress shirt, neckwear and accessories business segment under the Christian Dior
label (see Note 4 of Notes to Consolidated Financial Statements on pages F-6 to
F-19), (ii) sold the Puritan menswear label in the United States to Wal-Mart in
December 1993, and (iii) did not renew its Golden Bear by Jack Nicklaus license
which expired in June 1994.
The Menswear Division's net revenue has decreased from $213.9 million in
fiscal year 1989 to $183.8 million in fiscal year 1994 primarily due to the
discontinuation of several underperforming businesses including Christian Dior
accessories, neckwear, sportswear and dress shirts, Golden Bear by Jack
Nicklaus, Pringle and Puritan menswear. The men's business, and the dress shirt
business in particular, has been adversely affected during this period by weak
retail demand due to poor economic conditions and the bankruptcy, reorganization
or liquidation of several of its major retail store customers. In addition, the
division has been hurt by a shift in consumer preferences away from apparel made
with synthetic or blended fibers, particularly orlon sweaters, and by
substantial liquidations of dress shirt, knit shirt and sweater inventories at
low prices by certain of the Company's competitors as a result of their
financial difficulties. The negative impact of these conditions has been
partially offset by the tremendous success of the Chaps by Ralph Lauren brand
which has increased its net revenues by approximately 426% since 1989 to $121
million while increasing operating profits over 600% to $17 milllion.
Dress Shirts and Neckwear. The Menswear Division designs, manufactures,
imports and markets three principal lines of dress shirts: basic,
intermediate-fashion and fashion. The average full retail prices of the dress
shirts, which are marketed under the Hathaway and Chaps by Ralph Lauren brand
names, range from $20 to $45. Substantially all of the division's dress shirts
are manufactured at Company owned or leased facilities in North America and the
Caribbean Basin.
Sportswear. The Menswear Division has substantially revised its sportswear
product lines over the past several years. The Chaps by Ralph Lauren line has
eliminated many synthetic and blended fabrics from its product lines and updated
its styling, which has generated significant net revenue increases as mentioned
above. In 1993, the Company entered into a license agreement to produce men's
and women's sportswear and men's dress shirts and furnishings bearing the
Catalina trademark. Catalina brand products will be sold to the mass merchandise
segment of the market. The first shipments of Catalina products were made in the
first quarter of 1995.
Accessories. The Menswear Division markets (beginning in 1995) men's
accessories including small leather goods and belts under the Calvin Klein brand
name under an exclusive worldwide license. Management believes that one of the
strengths of its accessories lines is the high level of international consumer
recognition associated with the Calvin Klein label. The Company's strategy is to
expand the
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accessories business, which on a consistent basis has generated higher margins
than other menswear products.
International sales accounted for approximately 6% of net revenues of the
Menswear Division in l994. Net revenues attributable to international divisions
of the Menswear Division were $12.7 million, $14.1 million and $10.2 million in
fiscal years l992, 1993 and 1994, respectively. The decrease in international
sales in fiscal 1994 compared to fiscal 1993 reflects the Company's strategic
decision to restructure its men's dress shirt and neckwear businesses and to
terminate its Christian Dior licenses.
The Menswear Division's sportswear is sourced principally from the Far
East. The Menswear Division manufactures its dress shirts in North America and
sources certain styles of dress shirts in the Far East and in the Caribbean
Basin. Accessories are sourced in the United States, Europe and the Far East.
Neckwear is sourced primarily in the United States.
The Menswear Division, like the Intimate Apparel Division, generally
markets its apparel products for three retail selling seasons (spring, fall and
holiday). The Menswear Division introduces new styles, fabrics and colors based
upon consumer preferences and market trends and to coincide with the appropriate
retail selling season. The sales of the Menswear Division's product lines follow
individual seasonal shipping patterns ranging from one season to three seasons,
with multiple releases in some of the Division's more fashion-oriented lines.
Consistent with industry and consumer buying patterns, approximately 56% of the
Menswear Division's net revenues and 67% of the Menswear Division's operating
profit are generated in the second half of the calendar year, reflecting the
strength of the fall and holiday shopping seasons.
RETAIL OUTLET STORES DIVISION
The Retail Outlet Stores Division primarily sells the Company's products to
the general public. The Company's business strategy with respect to its retail
outlet stores is to provide a channel for disposing of the Company's excess and
irregular inventory, thereby limiting its exposure to off-price retailers. The
Company's retail outlet stores are situated in areas where they generally do not
conflict with the Company's principal channels of distribution. The Company's
newer retail outlet stores are principally intimate apparel stores located in
outlet malls. The Company has found that it has improved margins by operating
retail outlet stores that sell products of only one of the Company's divisions.
The Retail Outlet Store Division's EBITDA in fiscal 1994 improved 40% over
fiscal 1993 to $2.8 million. The Company operates 53 stores, of which 35 carry
intimate apparel only, 3 carry Menswear only and 15 carry both lines.
INTERNATIONAL OPERATIONS
The Company has subsidiaries in Canada and Mexico in North America and in
the United Kingdom, Ireland, Belgium, France, Spain and Germany in Europe which
engage in sales and marketing activities. With the exception of the fluctuation
of local currencies against the United States dollar, the Company does not
believe that the operations in Canada and western Europe are subject to risks
which are significantly different from domestic operations. Mexico has
historically been subject to high rates of inflation and currency restrictions
which may, from time to time impact the Mexican operation. The recent
devaluation of the Mexican peso has had a favorable impact on the Company since
its Mexican operations produce 25% of the Company's intimate apparel for the
U.S. market. The Company also sells directly to customers in Mexico which
represents less than 1% of the Company's total sales.
The Company maintains manufacturing facilities in Mexico, Honduras, Costa
Rica, the Dominican Republic, Canada, Ireland and the United Kingdom and
warehousing facilities in Canada, Mexico, the United Kingdom and contracts
warehousing in Spain. The Intimate Apparel Division operates manufacturing
facilities in Mexico and in the Caribbean Basin pursuant to duty-advantaged
(commonly referred to as 'Item 807') programs. The recent devaluation of the
Mexican peso has had a favorable impact on the Company since its Mexican
operations produce 25% of the Company's intimate apparel for the U.S. market.
The Company's manufacturing policy is to have many potential sources of
manufacturing so that a disruption of production at any one facility will not
cause a significant problem.
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The majority of the Company's imported purchases are invoiced in United
States dollars and, therefore, are not subject to short-term currency
fluctuations.
SALES AND MARKETING
The Intimate Apparel and Menswear Divisions sell to over 5,000 customers
operating more than 15,000 department, mass merchandise and men's and women's
specialty stores throughout North America and Europe. While certain of the
Company's department store customers are under common ownership, none of these
corporate groups accounted for more than 10% of the Company's net revenues
during fiscal 1994.
The Company's retail customers are served by approximately 200 sales
representatives. The Company also employs marketing coordinators who work with
the Company's customers in designing in-store displays and planning the
placement of merchandise. The Company has implemented Electronic Data
Interchange (commonly referred to as 'EDI') programs with certain of its
retailing customers which permit the Company to receive purchase orders
electronically from these customers and, in some cases, to transmit invoices
electronically.
The Company utilizes various forms of advertising media. In l994, the
Company spent approximately $37 million or 4.7% of net sales for advertising and
promotion of its various product lines. This compares to $32 million or 4.5% of
net sales in 1993. This increase was made in order to maintain the Company's
strong market position in Warner's and Olga and increase penetration of the
Fruit of the Loom and Calvin Klein product lines. The Company participates on a
cooperative basis with retailers, principally through newspaper advertisements.
COMPETITION
The apparel industry is highly competitive. The Company's competitors
include apparel manufacturers of all sizes, some of which have greater resources
than the Company.
The Company also competes with foreign producers, but to date, such foreign
competition has not materially affected the Intimate Apparel or Menswear
Divisions. The Company believes that its manufacturing skills, coupled with its
existing Central American and Caribbean Basin manufacturing facilities and
selective use of off-shore sourcing, enable the Company to maintain a cost
structure competitive with other major apparel manufacturers. In addition to
competition from other branded apparel manufacturers, the Company competes in
certain product lines with department store private label programs.
The Company believes that it has a significant competitive advantage
because of high consumer recognition and acceptance of its brand names and its
strong presence and strong market share in the major department and specialty
store chains.
A substantial portion of the Company's sales are of products, such as
intimate apparel and mens underwear, that are not very susceptible to rapid
design changes. This relatively stable base of business is a significant
contributing factor to the Company's favorable competitive and cost position in
the apparel industry.
RAW MATERIALS
The Company's raw materials are principally cotton, wool, silk, synthetic
and cotton-synthetic blends of fabrics and yarns. Raw materials used by the
Intimate Apparel and Menswear Divisions are available from multiple sources.
IMPORT QUOTAS
A substantial portion of the Company's products are manufactured by
contractors located outside the United States. These products are imported and
are subject to Federal customs laws, which impose tariffs as well as import
quota restrictions established by the Department of Commerce. While importation
of goods from certain countries may be subject to embargo by U.S. Customs
authorities if
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shipments exceed quota limits, the Company closely monitors import quotas
through its Washington, D.C. office and can, in most cases, shift production to
contractors located in countries with available quotas or to domestic
manufacturing facilities. The existence of import quotas has, therefore, not had
a material effect on the Company's business.
EMPLOYEES
The Company and its subsidiaries employ approximately 14,800 employees.
Approximately 17% of the Company's employees, all of whom are engaged in the
manufacture and distribution of its products, are represented by labor unions.
The Company considers labor relations with employees to be satisfactory and has
not experienced significant interruption of operations due to labor
disagreements.
TRADEMARKS AND LICENSING AGREEMENTS
The Company has license agreements permitting it to manufacture and market
specific products using the trademarks of others. The Company terminated its
license agreements with Christian Dior for the production of sportswear in 1992
and for the production of dress shirts, neckwear and accesories in both the
United States and Canada in 1994 and 1995. The Company's joint venture agreement
with Golden Bear, Inc. expired in June 1994. The Company's exclusive license and
design agreements for the Chaps by Ralph Lauren trademark expire on December 31,
1996. These agreements grant the Company an exclusive right to use the Chaps by
Ralph Lauren trademark in the United States of America. The Company's license to
use the Valentino Intimo trademark for intimate apparel in the United States of
America, its territories and possessions, Puerto Rico and Canada, expires on
December 31, l997 and, subject to certain conditions, is renewable at the
Company's option, for an additional five-year term. The Company has an exclusive
license to use the Scaasi trademark in the United States of America, its
territories and possessions, Puerto Rico, Canada, Mexico, and numerous Caribbean
Islands until December 31, 1999. The Company's exclusive license agreement to
use the Fruit of the Loom trademark in the United States of America, its
territories and possessions, Canada and Mexico was extended for an additional
two year term expiring December 31, 1996.
On March 14, 1994, the Company entered into a license agreement with Calvin
Klein, Inc. to produce Calvin Klein men's accessories for a period of five years
through March 14, 1999 and a further five year renewal period through March 14,
2004, solely at the option of the Company. In December 1993, the Company entered
into a license agreement with Authentic Fitness Corporation to produce men's and
women's sportswear and men's dress shirts and furnishings under the Catalina
label. The Company's exclusive license to use the Catalina trademark worldwide
for these products expires in December 2003.
Although the specific terms of each of the Company's license agreements
vary, generally such agreements provide for minimum royalty payments and/or
royalty payments based on a percentage of net sales. Such license agreements
also generally grant the licensor the right to approve any designs marketed by
the licensee.
The Company owns other trademarks, the most important of which are
Warner's, Olga, Calvin Klein men's underwear, Calvin Klein intimate apparel,
Hathaway and Blanche. The Company has a license in perpetuity for White Stag
women's sportswear and intimate apparel.
The Company licenses the Warner's, Hathaway and Calvin Klein brand names to
domestic and international licensees for a variety of products. These agreements
generally require the licensee to pay royalties and fees to the Company based on
a percentage of the licensee's net sales. The Company regularly monitors product
design, development, quality, merchandising and marketing and schedules meetings
throughout the year with licensees, to assure compliance with the Company's
overall marketing, merchandising and design strategies, and to ensure uniformity
and quality control. Royalty income derived from such licensing was
approximately $5.6 million (including assignment fees received in connection
with the termination of certain licenses of $3.0 million), $15.0 million
(including the sale of the Puritan trademark in the United States for $7.7
million) and $11.5 million (including the sale of certain trademarks to
Authentic Fitness Corporation for $6.6 million) in fiscal years 1992, 1993 and
1994, respectively.
8
<PAGE>
The Company believes that only the trademarks mentioned herein are material
to the business of the Company.
BACKLOG
A substantial portion of net revenues is based on orders for immediate
delivery, and, therefore, backlog is not necessarily indicative of future net
revenues.
(D) FINANCIAL INFORMATION ABOUT FOREIGN AND DOMESTIC OPERATIONS AND EXPORT
SALES.
The information required by this portion of Item 1 is incorporated herein
by reference to Note 7 of Notes to Consolidated Financial Statements on pages
F-6 to F-19.
ITEM 2. PROPERTIES.
The principal executive offices of the Company are located at 90 Park
Avenue, New York, New York 10016 and are occupied pursuant to a lease that
expires in 2004. In addition to its executive offices, the Company leases
offices in Connecticut and California, pursuant to leases that expire in 1999
and 2000, respectively.
The Company has 16 domestic manufacturing and warehouse facilities located
in Alabama, Connecticut, Georgia, Kentucky, Pennsylvania, Maine, California, New
York, Puerto Rico and Tennessee and 20 international manufacturing and warehouse
facilities located in Costa Rica, the Dominican Republic, Honduras, Mexico,
Canada, Spain, the United Kingdom and Ireland. Certain of the Company's
manufacturing and warehouse facilities are also used for administrative and
retail functions. The Company owns eight of its domestic and three of its
international facilities. The balance of the facilities are leased. Lease terms,
except for three month-to-month leases, expire from 1995 to 2007.
The Company also leases sales offices in a number of major cities,
including, Dallas and New York in the United States; Brussels, Belgium; Toronto,
Canada; London, England; Dusseldorf, Germany; Madrid, Spain and Paris, France.
The sales office leases expire between 1995 and 2001 and are renewable at the
Company's option.
All of the Company's production and warehouse facilities are located in
appropriately designed buildings which are kept in good repair. All such
facilities have well maintained equipment and sufficient capacity to handle
present volumes. The Company has expanded its production capacity in the
Caribbean Basin in the last three years and anticipates additional expansion in
Mexico to support the Company's continued growth.
In December 1993, the Company sold its Checotah, Oklahoma manufacturing
facility to Authentic Fitness Corporation, a related party, (See Note 6 of Notes
to Consolidated Financial Statements on pages F-6 to F-19) for its appraised
fair market value. Prior to the sale, the facility was being 100% utilized as a
contract facility for Authentic Fitness Corporation.
In January 1994, the Company's leased warehouse located in Sylmar,
California suffered significant structural damage due to the California
earthquake and was permanently closed. The Company was able to recover
substantially all of its inventory, transfer the inventory to other locations,
and begin shipping at normal levels in March, 1994. The Company has earthquake
insurance and, other than a deductible of approximately $3 million, which was
recorded as a non-recurring expense in the first quarter of fiscal 1994, expects
to fully recover its losses (See Note 4 of Notes to Consolidated Financial
Statements on pages F-6 to F-19.)
ITEM 3. LEGAL PROCEEDINGS.
The Company sued VF Corporation and its Spanish subsidiary for breach of
contract, fraud, violation of Federal trademark laws and conspiracy in
connection with the termination of a licensing agreement in Spain, Portugal and
Italy. The Company settled this action in December 1994 on favorable terms. The
Company is not a party to any litigation, other than routine litigation
incidental to the
9
<PAGE>
business of the Company, which is individually or in the aggregate material to
the business of the Company.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
None.
EXECUTIVE OFFICERS OF THE COMPANY
The executive officers of the Company, their ages and their positions are
set forth below.
<TABLE>
<CAPTION>
NAME AGE POSITION
- --------------------------------------------------- --- ---------------------------------------------------
<S> <C> <C>
Linda J. Wachner................................... 49 Director, Chairman of the Board,
President and Chief Executive Officer
Dariush Ashrafi.................................... 48 Director, Senior Vice President and
Chief Financial Officer
William S. Finkelstein............................. 46 Senior Vice President and Controller
Stanley P. Silverstein............................. 42 Vice President, General Counsel and Secretary
</TABLE>
Mrs. Wachner has been a Director, President and Chief Executive Officer of
the Company since August 1987, and the Chairman of the Board since August 1991.
Mrs. Wachner was a Director and President of the Company from March 1986 to
August 1987. Mrs. Wachner held various positions, including President and Chief
Executive Officer, with Max Factor and Company from December 1978 to October
1984. Mrs. Wachner also serves as a Director of The Travelers Inc. and Authentic
Fitness Corporation.
Mr. Ashrafi was elected a Director in May 1992 and has been Senior Vice
President and Chief Financial Officer of the Company since July 1990. Prior to
joining the Company, Mr. Ashrafi was a partner with the international accounting
and auditing firm of Ernst & Young beginning in 1983, where he was a member of
the Financial Services Group specializing in mergers and acquisitions and was
responsible for audits of major clients, including those in the apparel
industry.
Mr. Finkelstein has been Senior Vice President of the Company since May
1992 and Controller of the Company since November 1988. Mr. Finkelstein served
as Vice President of the Company between November 1988 and May 1992 and as Vice
President of Finance of the Company's Activewear and Olga Divisions from March
1988 until his appointment as Controller of the Company. Mr. Finkelstein served
as Vice President and Controller of SPI Pharmaceuticals Inc. from February 1986
to March 1988 and held various financial positions, including Assistant
Corporate Controller with Max Factor and Company, between 1977 and 1985. Mr.
Finkelstein also serves as a Director of Authentic Fitness Corporation and
Herman's Sporting Goods, Inc.
Mr. Silverstein has been Vice President, General Counsel and Secretary of
the Company since December 1990. Mr. Silverstein served as Assistant Secretary
of the Company from June 1986 until his appointment as Secretary in January
1987.
10
<PAGE>
PART II
ITEM 5. MARKET FOR THE COMPANY'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS.
The Company's Common Stock is listed on the New York Stock Exchange under
the symbol 'WAC'. The table below sets forth, for the periods indicated, the
high and low sales prices of the Company's Common Stock, as reported on the New
York Stock Exchange Composite Tape. Amounts have been adjusted to reflect the
two-for-one stock split.
<TABLE>
<CAPTION>
PERIOD HIGH LOW
- ---------------------------------------------------------------------------------- --------------- ---------------
<S> <C> <C>
1992:
First Quarter................................................................ $19 $123/16
Second Quarter............................................................... 19 133/4
Third Quarter................................................................ 181/8 14
Fourth Quarter............................................................... 201/2 163/8
1993:
First Quarter................................................................ $195/8 $133/8
Second Quarter............................................................... 1815/16 1413/16
Third Quarter................................................................ 171/16 143/8
Fourth Quarter............................................................... 1713/16 141/4
1994:
First Quarter................................................................ $155/8 $131/8
Second Quarter............................................................... 175/8 145/8
Third Quarter................................................................ 185/8 145/16
Fourth Quarter............................................................... 191/4 141/8
1995:
First Quarter................................................................ $177/8 $147/8
</TABLE>
A recent last sales price for the shares of Common Stock as reported on the
New York Stock Exchange Composite Tape was $17 7/8 on March 30, 1995. On April
3, 1995 there were 159 holders of Class A Common Stock, based upon the number of
holders of record and the number of individual participants in certain security
position listings.
The Company has not paid dividends on its Common Stock. Prior to fiscal
1994, certain provisions of the Company's debt agreements restricted the
Company's ability to pay dividends. In May 1994 the Company received an
investment grade senior debt rating from Standard and Poor's and pursuant to the
terms of the Company's debt agreements, certain provisions of the Company's debt
agreements were automatically modified. As a result, the Company may declare and
pay dividends equal to 25% of the Company's earnings accumulated since fiscal
1993.
ITEM 6. SELECTED FINANCIAL DATA.
The following selected consolidated financial data should be read in
conjunction with the Consolidated Financial Statements and the notes thereto
included elsewhere herein. The consolidated statement of operations data set
forth below with respect to the fiscal years ended January 2, 1993, January 8,
1994 and January 7, 1995 and the consolidated balance sheet data at January 8,
1994 and January 7, 1995 are derived from, and are qualified by reference to,
the audited consolidated financial statements included herein and should be read
in conjunction with those financial statements and notes thereto. The
consolidated statement of operations data for the fiscal years ended January 5,
1991 and January 4, 1992 and the consolidated balance sheet data at January 5,
1991, January 4, 1992 and January 2, 1993 are derived from audited consolidated
financial statements not included herein.
11
<PAGE>
<TABLE>
<CAPTION>
FISCAL YEAR ENDED
-----------------------------------------------------------------------
JANUARY 5, JANUARY 4, JANUARY 2, JANUARY 8, JANUARY 7,
1991 1992(A) 1993 1994(A) 1995(A)
-----------------------------------------------------------------------
(IN MILLIONS, EXCEPT RATIOS AND SHARE DATA)
<S> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Net revenues........................ $ 548.1 $ 562.5 $ 625.1 $ 703.8 $ 788.8
Gross profit........................ 190.8 195.4 219.3 236.4 255.8
Income before non-recurring items,
interest and income taxes......... 59.9 70.8 89.8 92.2 99.2
Interest expense.................... 68.0 72.3 48.8 38.9 32.5
Income (loss) from continuing
operations........................ (7.9 ) (19.5 ) 47.6 53.3 63.3
Preferred stock dividends paid(c)... 5.5 5.5 2.7 -- --
Income (loss) from continuing
operations applicable to common
stock............................. (13.4 ) (25.0 ) 44.9 53.3 63.3
Net income (loss) applicable to
Common Stock(b)................... (22.2 ) (33.9 ) (20.2) 24.1 63.3
Per share amounts:(d)
Income (loss) from continuing
operations...................... (0.84 ) (1.31 ) 1.18 1.34 1.53
Net income (loss)................. (1.40 ) (1.78 ) (0.53) 0.61 1.53
Weighted average number of shares of
Common Stock outstanding.......... 15,871,796 19,059,062 38,109,450 39,770,482 41,285,355
Divisional Summary:
Net revenues:
Intimate Apparel................ $ 309.1 $ 339.7 $ 384.8 $ 423.2 565.3
Menswear........................ 196.3 180.8 200.0 243.2 183.8
Retail Outlet Stores............ 42.7 42.0 40.3 37.4 39.7
---------- ---------- ----------- ----------- ----------
$ 548.1 $ 562.5 $ 625.1 $ 703.8 $ 788.8
---------- ---------- ----------- ----------- ----------
---------- ---------- ----------- ----------- ----------
Percentage of net revenues:
Intimate Apparel................ 56.4 % 60.4 % 61.6% 60.1% 71.7 %
Menswear........................ 35.8 32.1 32.0 34.6 23.3
Retail Outlet Stores............ 7.8 7.5 6.4 5.3 5.0
---------- ---------- ----------- ----------- ----------
100.0 % 100.0 % 100.0% 100.0% 100.0 %
---------- ---------- ----------- ----------- ----------
---------- ---------- ----------- ----------- ----------
Balance Sheet Data (at fiscal year
end):
Working capital................. $ 69.4 $ 109.3 $ 141.5 $ 122.0 $ 104.5
Total assets.................... 517.3 540.5 629.6 688.6 780.6
Long term debt (excluding
current maturities)........... 408.2 344.8 277.6 245.5 206.8
Redeemable preferred stock...... 41.5 41.5 -- -- --
Stockholders' equity
(deficit)..................... (91.4 ) (1.7 ) 135.8 159.1 240.5
</TABLE>
- ------------------------
(a) See 'Management's Discussion and Analysis of Financial Condition and
Results of Operations' for a discussion of certain non-recurring charges
incurred in fiscal 1993 and 1994. On September 4, 1991, the Company's Board
of Directors determined that the Company should restructure its knitwear
operations. The restructuring resulted in a non-recurring charge of
approximately $13 million (or $0.68 per share) in fiscal 1991. Such charge
was associated with the closing of the Company's knitwear manufacturing
facilities and the liquidation of related inventory. In October 1993, the
Company decided to discontinue a portion of its men's manufactured dress
shirt and neckwear business segment. This resulted in a non-recurring
charge of $19.9 million. Also, the Company incurred a $2.6 million
non-recurring charge associated with the wind up of a previously
discontinued business. The total non-recurring charge recorded in fiscal
1993 was $22.5 million (or $0.56 per share). In fiscal 1994, the Company
incurred a $3 million (or $0.07 per share) charge related to the California
earthquake. See Note 4 of Notes to Consolidated Financial Statements.
(b) Fiscal 1993 includes a $10.5 million charge (or $0.26 per share) for the
cumulative effect of the Company changing its method of accounting for
postretirement benefits other than pensions. See Note 9 of Notes to
Consolidated Financial Statements.
(c) The Company has not paid any cash dividends on its Common Stock.
12
<PAGE>
(d) All share and per share amounts have been adjusted to reflect the
two-for-one stock split effective October 3, 1994 and includes all Common
Stock and Common Stock equivalents.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS.
During the last several years, the Company has implemented a number of
strategies designed to reduce operating expenses and refocus its business on
less fashion sensitive and higher margin product lines with world brand
potential. As a result of this strategic refocusing, and notwithstanding the
bankruptcy, reorganization or liquidation of several of the Company's retail
customers, including B. Altman & Co., Bonwit Teller, Carter Hawley Hale,
Federated Department Stores, Miller & Rhoades, R.H. Macy & Co., Woodward &
Lathrop, and P.A. Bergner & Co., and the general softening of the retail market
as a result of the economic slowdown from 1989 through 1994, the Company has
significantly increased operating income. The Intimate Apparel Division's net
revenues have grown since 1989 at a compounded annual growth rate of
approximately 16%. Menswear Division net revenues have decreased from $213.9
million in fiscal 1989 to $183.8 million in fiscal 1994, reflecting the
Company's strategic decisions to eliminate cash intensive businesses and
businesses that did not demonstrate the potential to achieve profitability
levels acceptable to management. (See Notes 3 and 4 of Notes to Consolidated
Financial Statements on pages F-6 to F-19.) The strategic decisions included (i)
not renewing its license with Pringle of Scotland in fiscal 1989, (ii) closing
its knitwear manufacturing facilities in 1991, (iii) restructuring the Company's
dress shirt and neckwear manufacturing facilities in 1993, (iv) terminating the
Christian Dior licenses for dress shirts, neckwear and accessories in 1994 and
1995 and selling the Christian Dior license for sportswear in 1992, (v) selling
the Puritan menswear trademark in the United States to Wal-Mart and (vi) not
renewing the license for Golden Bear by Jack Nicklaus in 1994. The negative
impact on net revenues of the discontinued businesses was partially offset by
strong growth in the Company's Chaps by Ralph Lauren line which has increased
net revenue over 400% since 1989 and increased operating profit over 600% since
1989.
RESULTS OF OPERATIONS
The consolidated results of operations for the Company are summarized
below. The Divisional Summary includes the Retail Outlet Stores Division for
reporting purposes; however, since the Company's business strategy is to use its
Retail Outlet Stores as a channel for its excess inventory and the Company does
not consider the results of such division to be material, the Retail Outlet
Stores Division is not discussed further.
STATEMENT OF OPERATIONS
(SELECTED DATA)
<TABLE>
<CAPTION>
FISCAL YEAR ENDED
--------------------------------------------------------------------------
JANUARY 2, % OF NET JANUARY 8, % OF NET JANUARY 7, % OF NET
1993 REVENUES 1994 REVENUES 1995 REVENUES
---------- -------- ---------- -------- ---------- --------
(IN MILLIONS)
<S> <C> <C> <C> <C> <C> <C>
Net revenues............................... 625.1 100.0% 703.8 100.0% 788.8 100.0%
Cost of goods sold......................... 405.8 64.9% 467.4 66.4% 533.0 67.6%
---------- -------- ---------- -------- ---------- --------
Gross profit............................... 219.3 35.1% 236.4 33.6% 255.8 32.4%
Selling, administrative and general
expense.................................. 129.5 20.7% 144.2 20.5% 156.6 19.9%
---------- -------- ---------- -------- ---------- --------
Income before non-recurring items, interest
and income taxes......................... 89.8 14.4% 92.2 13.1% 99.2 12.5%
Non-recurring items(a)..................... -- 22.5 3.0
Interest expense........................... 48.8 38.9 32.5
Income from continuing operations.......... 47.6 53.3 63.3
</TABLE>
13
<PAGE>
DIVISIONAL SUMMARY
<TABLE>
<CAPTION>
FISCAL YEAR ENDED
--------------------------------------------------------------------------
% OF % OF % OF
JANUARY 2, GROSS JANUARY 8, GROSS JANUARY 7, GROSS
1993 PROFIT 1994 PROFIT 1995 PROFIT
---------- -------- ---------- -------- ---------- --------
<S> <C> <C> <C> <C> <C> <C>
Net revenues:
Intimate Apparel...................... $384.8 $423.2 $565.3
Menswear.............................. 200.0 243.2 183.8
Retail Outlet Stores.................. 40.3 37.4 39.7
---------- ---------- ----------
Net revenues............................... $625.1 $703.8 $788.8
---------- ---------- ----------
---------- ---------- ----------
Gross profit:
Intimate Apparel...................... $152.9 69.7% $167.7 70.9% $203.5 79.6%
Menswear.............................. 52.3 23.9% 53.7 22.7% 38.2 14.9%
Retail Outlet Stores.................. 14.1 6.4% 15.0 6.4% 14.1 5.5%
---------- -------- ---------- -------- ---------- --------
Gross profit............................... $219.3 100.0% $236.4 100.0% $255.8 100.0%
---------- -------- ---------- -------- ---------- --------
---------- -------- ---------- -------- ---------- --------
</TABLE>
- ------------
(a) In October 1993, the Company decided to discontinue a portion of its men's
manufactured dress shirt and neckwear business segment, which resulted in a
non-recurring charge of $19.9 million. Also, the Company incurred a $2.6
million non-recurring charge associated with the wind up of a previously
discontinued business. The total non-recurring charge recorded in fiscal
1993 was $22.5 million (or $0.56 per share). In fiscal 1994 the Company
recorded a $3 million (or $0.07 per share) non-recurring charge related to
the California earthquake. See Note 4 of Notes to Consolidated Financial
Statements on pages F-6 to F-19.
COMPARISON OF FISCAL 1994 WITH FISCAL 1993
Net revenues increased 12.1% from $703.8 million in fiscal 1993 to $788.8
million in fiscal 1994. The increase in net revenue was accomplished despite a
planned reduction of approximately $90 million in discontinued Menswear brands
and is attributable to continued growth in the Company's Intimate Apparel
Division of 33.6% and continued growth in the Company's Chaps by Ralph Lauren
line of 36%. Net revenue includes royalty income of $11.5 million in fiscal 1994
(including the sale of certain trademarks to Authentic Fitness for $6.6 million)
compared to $15.0 million in fiscal 1993 (including the sale of the Puritan
menswear trademark in the United States for $7.7 million).
INTIMATE APPAREL DIVISION. Net revenues increased 33.6% to $565.3 million
in fiscal 1994 from the $423.2 million recorded in fiscal 1993. The
increase was driven by the acquisition of Calvin Klein which generated net
revenues of $61.0 million in fiscal 1994, an increase in Fruit of the Loom
net revenues of 95.4% to $64.3 million and increases in Warner's and Olga
of 13.2%.
MENSWEAR DIVISION. Net revenues for fiscal 1994 decreased to $183.8 million
from $243.2 million in fiscal 1993. The decrease in sales is attributable
to the Company's strategic decisions in fiscal 1993 and 1994 to (i)
terminate the Christian Dior licenses for men's dress shirts, neckwear and
accessories, (ii) sell the Puritan menswear trademark in the United States
to Wal-Mart and (iii) discontinue the Golden Bear by Jack Nicklaus product
line. Without these discontinued brands, Menswear Division net revenues
increased 15.3% in fiscal 1994 to $164.5 million from $142.9 million in
fiscal 1993. The increase is attributable to continued outstanding growth
of 36.0% in Chaps by Ralph Lauren.
Gross profit increased to $255.8 million in fiscal 1994 from $236.4 million
in fiscal 1993. Gross profit as a percentage of net revenues decreased to 32.4%
in fiscal 1994 from 33.6% in fiscal 1993. The decrease in gross profit as a
percentage of net revenue reflects the higher mix of Fruit of the Loom sales,
the amortization of start-up costs in the Fruit of the Loom business and
decreased manufacturing efficiency due to the start-up of four new plants.
INTIMATE APPAREL DIVISION. Intimate Apparel Division gross profit increased
21.3% to $203.5 million (36.0% of net revenues) from the $167.7 million
(39.6% of net revenues) recorded in fiscal
14
<PAGE>
1993. The increase in gross profit reflects the higher net revenues noted
above. Gross profit as a percentage of net revenues decreased from 39.6% to
36.0% due to the mix of Fruit of the Loom sales, the amortization of Fruit
of the Loom start-up costs, and decreased manufacturing efficiency as noted
above.
MENSWEAR DIVISION. Menswear Division gross profit decreased to $38.2
million (20.7% of net revenues) from $53.7 million (22.1% of net revenues)
last year. The decrease in gross profit reflects the lower sales volume due
to discontinued brands, as discussed above. The decrease in gross profit as
a percentage of net revenues reflects the favorable impact in fiscal 1993
from the sale of the Puritan menswear trademark in the United States.
Selling, administrative and general expenses increased 8.6% in fiscal 1994
to $156.6 million (19.9% of net revenue) from $144.2 million (20.5% of net
revenue) in fiscal 1993. The increase in selling, administrative and general
expenses reflects volume increases and an increase in marketing expenses of $5.6
million. Marketing expenses increased to 4.7% of net revenue in fiscal 1994 from
4.5% in fiscal 1993 and 3.2% in fiscal 1992. The decrease in selling,
administrative and general expenses as a percentage of net revenue reflects
continued efforts to control operating expenses by the Company and the favorable
impact of increased sales to mass merchandisers and Avon which have lower
selling expenses than the Company's traditional channels of distribution.
Interest expense decreased 17% to $32.5 million in fiscal 1994 from $38.9
million in fiscal 1993 despite an overall increase in interest rates during
1994. The decrease in interest expense is a result of the refinancing of the
Company's credit agreement in the fourth quarter of fiscal 1993, the attainment
of an Investment Grade credit rating of BBB- from Standard & Poor's in May 1994,
and the renegotiation of the Company's cost of borrowing in June 1994. The
combination of the refinancing, the improved credit rating and the renegotiated
borrowing rate lowered the Company's cost of borrowing by 75 basis points to
LIBOR plus 0.5%. In addition, the Company has purchased agreements which
effectively fix the Company's rate of interest on $275 million of debt at
approximately 6.2% through fiscal 1995.
In January 1994, The Company's leased warehouse located in Sylmar,
California suffered significant structural damage due to the California
earthquake and was permanently closed. The Company was able to recover
substantially all of its inventory, transfer the inventory to other locations,
and begin shipping at normal levels in March, 1994. The Company has earthquake
insurance and, other than a deductible of approximately $3 million, which was
recorded as a non-recurring expense in the first quarter of fiscal 1994, expects
to fully recover its losses.
The Company adopted Financial Accounting Standards Board Statement No. 109,
Accounting for Income Taxes, ('Statement No. 109') in 1992. The provision for
income taxes for fiscal 1994 reflects the the realization of tax benefits of
$22.6 million related to the Company's net operating loss carryforwards which
offset substantially all of the Company's income tax provision for fiscal 1994.
The Company has utilized substantially all of its net operating loss
carryforwards for financial reporting purposes at the end of fiscal 1994. The
Company has total deferred tax assets of approximately $38.5 million at the end
of fiscal 1994 and as a result will begin reporting fully taxed earnings in
fiscal 1995. The Company recognized $31.3 million of income tax benefits related
to future periods in fiscal years 1992 and 1993.
The Company has net operating loss carryforwards for income tax purposes
available to offset future taxable income amounting to approximately $110
million at January 7, 1995. These carryforwards, if fully utilized, will result
in a future tax savings of approximately $38.5 million at current U.S. corporate
income tax rates. The net operating loss carryforwards expire beginning in 2001
and fully expire in 2007.
As a result of the Company's common stock offerings in 1991 and 1992 and
other changes in the ownership of the Company's common stock, certain provisions
of the Internal Revenue Code will limit the rate at which the Company will be
able to utilize its net operating loss carryforwards. The Company believes that
it will realize all of the benefits attributable to its net operating loss
carryforwards; however, the amount of such benefits that the Company will
realize and the period in which any benefit is realized are subject to several
factors including the general level of economic activity, the level of earnings
and future changes in U.S. corporate income tax laws and regulations (See Note 8
of Notes to Consolidated Financial Statements on pages F-6 to F-19).
15
<PAGE>
Income from continuing operations for fiscal 1994 was $63.3 million
compared to $53.3 million in fiscal 1993. The increase in income from continuing
operations of $10.0 million or 18.8% is attributable to increased operating
income and lower interest expense, as noted above.
Net income for fiscal 1994 was $63.3 million compared to $24.1 million in
fiscal 1993. Net income for fiscal 1993 included an extraordinary item of $18.6
million (without income tax benefit) primarily related to premium payments and
the write-off of deferred financing costs associated with the early
extinguishment of debt. In addition, fiscal 1993 included a $10.5 million
non-cash charge for the cumulative effective of adopting Statement of Financial
Accounting Standards No.106.
COMPARISON OF FISCAL 1993 WITH FISCAL 1992
Net revenues increased 13% from $625.1 million in fiscal 1992 to $703.8
million in fiscal 1993. The increase in net revenues is primarily attributable
to continued growth in the Company's Intimate Apparel Division and growth in the
Chaps by Ralph Lauren line of the Menswear Division.
INTIMATE APPAREL DIVISION. Net revenues increased 10% to $423.2 million in
fiscal 1993 from the $384.8 million recorded in fiscal 1992 despite a $7.5
million negative effect on foreign exchange translation due to the strong
dollar versus the pound sterling. The increase is attributable to continued
growth in the Company's domestic business, primarily the Warner's and Olga
brands of over 8%, and the highly successful introduction of the Fruit of
the Loom brand of intimate apparel into the mass merchandise market, which
increased 115% to $32.9 million in fiscal 1993, from $15.3 million in
fiscal 1992, its first year of operation.
MENSWEAR DIVISION. Net revenues for fiscal 1993 increased 22% to $243.2
million from the $200.0 million recorded in fiscal 1992. The increase is
primarily attributable to an increase in Chaps by Ralph Lauren net revenues
of $30 million or 51% to $89 million and an increase in Puritan net
revenues of $33 million including the sale of the trademark in the United
States to Wal-Mart for $7.7 million. This was partially offset by a $16
million or 23% decline in the Christian Dior business.
Gross profit increased to $236.4 million in fiscal 1993 from $219.3 million
in fiscal 1992. Gross profit as a percentage of net revenues decreased to 33.6%
in fiscal 1993 from 35.1% in fiscal 1992. The decrease in gross profit as a
percentage of net revenues reflects a higher mix of menswear sales compared to
the higher margin Intimate Apparel business, startup costs totaling $3.5 million
for three new intimate apparel plants in the Caribbean basin and the Miracle Bra
program for Victoria's Secret and the selling of excess dress shirt and neckwear
inventory at lower margins.
INTIMATE APPAREL DIVISION. Intimate Apparel Division gross profit increased
10% to $167.7 million in fiscal 1993 (39.6% of intimate apparel net
revenues) from the $152.9 million (39.7% of intimate apparel net revenues)
recorded in fiscal 1992. The increase in gross profit primarily reflects
higher net revenues noted above. Gross profit as a percentage of net
revenues is down slightly due to the start-up costs mentioned above, offset
by favorable manufacturing variances.
MENSWEAR DIVISION. Menswear Division gross profit increased 3% to $53.7
million in fiscal 1993 (22.1% of menswear net revenues) from $52.3 million
(26.1% of menswear net revenues) recorded in fiscal 1992. The decrease in
gross margin reflects a considerable softness in the commodity dress shirt
and neckwear business and the selling of excess inventory at lower margins.
Selling, administrative and general expenses increased to $144.2 million
(20.5% of net revenues) in fiscal 1993 from $129.5 million (20.7% of net
revenues) in fiscal 1992. The increase in selling, administrative and general
expenses reflects volume increases and an increase in advertising and marketing
expense to maintain the Company's strong Intimate Apparel market position in
department stores and increased penetration of Fruit of the Loom bras in the
mass merchandise market. The decrease in selling, administrative and general
expenses as a percentage of net revenues reflects continuing efforts by the
Company to operate efficiently and control costs and the spreading of certain
fixed costs over the higher net revenue base, partially offset by the higher
level of advertising and marketing costs.
Interest expense decreased 20% to $38.9 million in fiscal 1993 from $48.8
million recorded in fiscal 1992. The decrease in interest expense in fiscal 1993
compared to fiscal 1992 reflects the impact of the
16
<PAGE>
Company's recapitalization in March 1992, which included the sale of 10,000,000
shares of common stock and the refinancing of all of the Company's remaining
high yield debt in September 1993, which reduced the average rate of interest on
the Company's outstanding debt from nearly 14% during 1991 to 7.5% during 1992
to approximately 6% at the end of 1993. The Company's debt at the end of 1993 is
substantially all bank debt at a rate of LIBOR plus 1.25%, with $250 million or
62% of total debt locked in at varying rates over the next 2 years. Interest
expense for fiscal 1993 includes approximately $3.3 million of non-cash interest
compared to $4.3 million for fiscal 1992. The decrease in non-cash interest in
fiscal 1993 compared to fiscal 1992 reflects a decrease in accretion related to
the Senior Discount Term Notes which were redeemed in full in May 1992 and a
reduction in deferred financing cost amortization due to the early repayment of
all of the Company's high yield debt obligations during 1992.
The non-recurring expense recorded in fiscal 1993 of $22.5 million
represents a $19.9 million charge related to anticipated future losses from
operations and non-cash writedowns of assets from a portion of the Company's
men's manufactured dress shirt and neckwear business segment, which it decided
to discontinue in October, 1993 and $2.6 million of costs associated with the
windup of the Company's Canadian womenswear business which was discontinued in a
prior year.
In the fourth quarter of fiscal 1992, the Company adopted Financial
Accounting Standards Board Statement No. 109, Accounting for Income Taxes,
('Statement No. 109') retroactive to the beginning of the fiscal year. Statement
No. 109 requires, among other things, the recognition of deferred tax assets for
the future benefit associated with net operating loss carryforwards. Statement
No. 109 further provides that companies evaluate all deferred tax assets for the
potential to realize such benefits in future periods and to record a valuation
allowance offsetting deferred tax assets in certain circumstances.
In evaluating the Company's ability to realize the benefits associated with
its net operating loss carryforwards, the Company considered the following:
(i) the expected impact of temporary (timing) differences between
taxable income and income reported for financial statement purposes;
(ii) the pro forma impact on the Company's earnings for the three years
in the period ending with fiscal 1993 of the Initial Public Offering
of 13,800,000 shares of common stock in October 1991, the sale of
the 10,000,000 shares of common stock in April 1992, and the
refinancing and repayment of certain of the Company's debt
obligations during fiscal 1993 and 1992;
(iii) income from continuing operations recorded in fiscal 1993 before
income taxes, non-recurring and extraordinary items; and
(iv) the Company's expected future operating income.
Consistent with the provisions of Statement No. 109, the Company reevaluated its
deferred tax asset in the fourth quarter of fiscal 1993 and reversed a portion
of its valuation allowance amounting to $24.7 million in addition to the $6.6
million benefit it recognized in fiscal 1992. After giving effect to the benefit
from the recognition of future net operating loss carryforwards, the Company has
approximately $64 million of unrecognized net operating loss carryforwards
available for financial reporting purposes at the end of fiscal 1993. The tax
benefits that will be realized from the treatment of acquisition related
liabilities will be credited against the excess of costs over net assets
acquired in the period such benefits accrue.
The Company has total net operating loss carryforwards available to offset
future taxable income amounting to approximately $170 million at January 8,
1994, a portion of which will be applied to the excess of cost over net assets
acquired. These carryforwards, if fully utilized, would result in a future tax
saving of approximately $60 million at current U.S. corporate income tax rates.
The net operating loss carryforwards expire beginning in 2001 and fully expire
in 2007.
The principal differences between net operating loss carryforwards for
financial reporting and tax purposes are related to liabilities accrued at the
date of the Acquisition and the difference in basis for tax and financial
reporting purposes of the Activewear Division, which was sold in 1990.
17
<PAGE>
As a result of the Common Stock offering in 1991 and 1992 and other
ownership changes occurring during the prior three year period, a change of
ownership occurred under Internal Revenue Code Section 382, which will
effectively limit the rate at which the Company may utilize its net operating
loss carryforwards. The Company believes that it will ultimately realize all of
the benefits attributable to its net operating loss carryforwards; however, the
amount of such benefits that the Company will realize and the period in which
any benefit is realized are subject to several factors including the general
level of economic activity, the level of earnings, future changes in U.S.
corporate income tax laws and regulations, potential Internal Revenue Service
audit adjustments and limitations on the ability of the Company to utilize net
operating tax carryforwards under the Internal Revenue Code. (See Note 8 of
Notes to Consolidated Financial Statements on pages F-6 to F-19.)
Income from continuing operations for fiscal 1993 was $53.3 million
compared to income from continuing operations of $47.6 million in fiscal 1992.
The increase in income from continuing operations of $5.7 million or 12% is
attributable to increased operating income, lower interest expense and the
income tax benefit recorded partially offset by the $22.5 million non-recurring
expense noted above.
Extraordinary losses of $(18.6) million (without income tax benefit)
recorded in fiscal 1993 and $(57.6) million (without income tax benefit)
recorded in fiscal 1992 primarily relate to premium payments and the write-off
of deferred financing costs associated with the early extinguishment of debt.
In January 1993, the Company adopted Financial Accounting Standards Board
Statement No. 106, Accounting for Postretirement Benefits other than Pensions
('Statement No. 106') and accordingly recorded a $(10.5) million non-cash charge
associated with the cumulative effect of adopting Statement No. 106.
Net income for fiscal 1993 of $24.1 million reflects income from continuing
operations of $53.3 million, partially offset by extraordinary charges of
$(18.6) million and the $(10.5) million cumulative effect noted above.
Net loss for fiscal 1992 of $(17.5) million reflects income from continuing
operations of $47.6 million offset by the extraordinary losses for early
extinguishment of debt of $(57.6) million and the loss from discontinuing the
women's accessories business of $(7.4) million.
CAPITAL RESOURCES AND LIQUIDITY
On October 14, 1993 the Company refinanced its outstanding credit
obligations with a $500 million facility underwritten by The Bank of Nova Scotia
and Citibank, N.A., with General Electric Capital Corporation, Credit Suisse,
Societe Generale and the Union Bank of Switzerland as co-agents, all of whom
were existing lenders to the Company. The new facility reduced the borrowing
rate of the Company from LIBOR plus 2.75% to LIBOR plus 1.25%. The agreement
also included provisions that further reduced the Company's borrowing rate as
the Company's credit rating from certain credit rating agencies improves. In May
1994 the Company received an investment grade senior debt credit rating of BBB-,
which decreased the Company's borrowing rate to LIBOR plus 75 basis points
pursuant to the provisions of its credit agreement. In June 1994, as a result of
the Company's acquisition of the Calvin Klein trademarks, rights and businesses
and the continued strong growth of the Company's existing businesses the Company
amended its credit agreement to increase the maximum amount available under the
Company's revolving line of credit by $35 million to $235 million. In addition,
in response to favorable conditions in the credit markets, the Company
negotiated a further reduction in its borrowing rate to LIBOR plus 0.5%. These
actions have served to significantly reduce the Company's cost of borrowing and
have increased the financial flexability of the Company. The reductions in the
Company's borrowing rate resulted in interest savings of approximately $10
million in fiscal 1994.
On February 1, 1993 the Company entered into an agreement with the Bank of
Nova Scotia to provide the Company with a $40 million line of credit to be used
for the issuance of commercial letters of credit (the 'L/C Facility'). Letters
of credit issued under the L/C Facility are secured by the applicable inventory
until such letters of credit have been paid. The facility was subsequently
increased to $50 million, with a 90 day term draft acceptance sub-facility of
$30 million (subsequently increased to $40 million). The total amount
outstanding at any one time under both facilities may not exceed $80 million.
18
<PAGE>
In March 1994, the Company acquired the Calvin Klein worldwide trademarks,
rights and businesses for men's underwear and acquired a worldwide license for
Calvin Klein men's accessories. In addition, the Company acquired the worldwide
trademarks and rights of Calvin Klein women's intimate apparel upon the
expiration of an existing license on December 31, 1994. The total purchase price
was $60.9 million, consisting of a cash payments of $33.1 million, in fiscal
1994, $5.0 million in fiscal 1995 and 1,699,492 shares of Class A common stock
of the Company valued at its fair market value of approximately $22.8 million.
The Company funded the cash payment by borrowing against the Company's revolving
line of credit (see Note 2 of Notes to Consolidated Financial Statements on
pages F-6 to F-19).
In August 1994, the Company purchased 286,600 shares of its outstanding
common stock on the open market at an average price of $17.45 per share. Total
cost of the purchase was $5 million and was funded by borrowing against the
Company's revolving line of credit.
The Company's liquidity requirements arise primarily from its debt service
requirements and the funding of the Company's working capital needs, primarily
inventory and accounts receivable. The Company's borrowing requirements are
seasonal, with peak working capital needs arising at the end of the second
quarter and beginning of the third quarter of the fiscal year. The Company
typically generates nearly all of its net operating cash flow in the fourth
quarter of the fiscal year, reflecting third quarter and fourth quarter
shipments and the sale of inventory built during the first half of the fiscal
year. (See 'Seasonality'.)
Cash provided by operating activities for the 1994 fiscal year totaled
approximately $77.8 million compared to $11.9 million in fiscal 1993. The
significant improvement is primarily attributable to an improvement in both
inventory and accounts receivable efficiencies resulting in a decrease in net
working capital changes of $38.1 million compared to 1993 and increased net
income.
Interest expense for fiscal 1994 totalled $32.5 million, a reduction of 17%
from the $38.9 million recorded in fiscal 1993. Interest includes approximately
$1.2 million and $3.3 million of non-cash interest in fiscal 1994 and fiscal
1993, respectively. Non-cash interest primarily reflects amortization of
deferred debt issue costs. The actual level of interest expense that the Company
will incur in fiscal 1995 is dependent on several factors, including the overall
level of interest rates, the general level of economic activity, the level of
retail sales and the Company's need for working capital to fund growth in its
operations. In addition, the Company has purchased interest rate swap agreements
which effectively fix the Company's rate of interest on $275 million of debt at
approximately 6.2% through fiscal 1995.
At January 7, 1995, the Company had approximately $109 million of
additional borrowing available under its bank facilities. The Company believes
that funds available under its bank facilities together with funds to be
generated from future operations will be sufficient to meet the capital
expenditure requirements and working capital needs of the Company including
interest and debt principal payments for the foreseeable future.
Capital expenditures for new facilities, improvements to existing
facilities and for machinery and equipment were approximately $13.7 million,
$12.4 million and $17.5 million in the 1992, 1993 and 1994 fiscal years,
respectively. Depreciation expense was $10.4 million, $9.2 million and $10.8
million in the 1992, 1993 and 1994 fiscal years, respectively.
SEASONALITY
The operations of the Company are somewhat seasonal, with approximately 57%
of net revenues, 61% of operating income before non-recurring items and
substantially all of the Company's net cash flow from operating activities
generated in the second half of the fiscal year. Generally, the Company's
operations during the first half of the year are financed by increased
borrowings. The following sets
19
<PAGE>
forth the net revenues, income before non-recurring items and cash flow from
operating activities generated for each quarter of fiscal 1993 and fiscal 1994.
<TABLE>
<CAPTION>
THREE MONTHS ENDED
----------------------------------------------------------------------------
(IN MILLIONS)
APR 3, JUL 3, OCT 2, JAN 8, APR 9, JUL 9, OCT 8, JAN 7,
1993 1993 1993 1994 1994 1994 1994 1995
------ ------ ------ ------ ------ ------ ------ ------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Net revenues....................... $156.8 $158.3 $184.0 $204.7 $147.7 $190.3 $217.9 $232.9
Operating income before non-
recurring items.................. 22.1 16.3 28.2 25.6 20.1 18.1 30.1 30.9
Cash flow from operating
activities....................... $(23.4) $(22.7) $ (1.4) $ 59.4 $(41.0) $ 2.9 $ 17.7 $ 98.2
</TABLE>
INFLATION
The Company does not believe that the relatively moderate levels of
inflation which have been experienced in the United States, Canada and western
Europe have had a significant effect on its net revenues or its profitability.
Management believes that, in the past, the Company has been able to offset such
effects by increasing prices or by instituting improvements in efficiency.
Mexico historically has been subject to high rates of inflation; however, the
effects of high rates of inflation on the operation of the Company's Mexican
subsidiaries have not had a material impact on the results of operations of the
Company.
IMPACT OF NEW ACCOUNTING STANDARDS
None.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.
The information required by Item 8 of Part II is incorporated herein by
reference to the Consolidated Financial Statements filed with this report; see
Item 14 of Part IV.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE.
None.
20
<PAGE>
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT.
The information required by Item 10 is incorporated by reference from page
10 of Item 4 of Part I included herein and from the Proxy Statement of The
Warnaco Group, Inc.
ITEM 11. EXECUTIVE COMPENSATION.
The information required by Item 11 is hereby incorporated by reference
from the Proxy Statement of The Warnaco Group, Inc.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.
The information required by Item 12 is hereby incorporated by reference
from the Proxy Statement of The Warnaco Group, Inc.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.
The information required by Item 13 is hereby incorporated by reference
from the Proxy Statement of The Warnaco Group, Inc.
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENTS, SCHEDULES AND REPORTS ON FORM 8-K.
(a) 1. The Consolidated Financial Statements of The Warnaco Group, Inc.
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Report of Independent Auditors............................................................................. F-1
Consolidated Balance Sheets as of January 8, 1994
and January 7, 1995...................................................................................... F-2
Consolidated Statements of Operations for the Years Ended
January 2, 1993, January 8, 1994 and January 7, 1995..................................................... F-3
Consolidated Statement of Stockholders' Equity for the
Years Ended January 2, 1993, January 8, 1994
and January 7, 1995...................................................................................... F-4
Consolidated Statements of Cash Flow for the Years Ended
January 2, 1993, January 8, 1994 and January 7, 1995..................................................... F-5
Notes to Consolidated Financial Statements................................................................. F-6
</TABLE>
2. Financial Statement Schedules:
<TABLE>
<C> <S> <C>
II Valuation and Qualifying Accounts and Reserves........................................... S-1
</TABLE>
Schedules not included with this additional financial data have been
omitted because they are not applicable or the required information is
shown in the Consolidated Financial Statements or Notes thereto.
3. Exhibits:
<TABLE>
<C> <S> <C>
3.1 Amended and Restated Certificate of Incorporation of the Company. (Incorporated herein by
reference to Exhibit 3.1 to the Company's Form 10-Q, filed August 11, 1993.)
3.2 By-Laws of the Company. (Incorporated herein by reference to Exhibit 3.2 to the Company's
Registration Statement on Form S-1, No. 33-45877.)
4.1 Registration Rights Agreement dated March 14, 1994 between the Company and Calvin Klein,
Inc. ('CKI'). (Incorporated herein by reference to Exhibit 4.1 to the Company's Form 10-Q
filed May 24, 1994.)
10.1 Credit Agreement dated July 16, 1993 (the 'U.S. $80,000,000 Credit Agreement') among Warnaco
Inc., The Bank of Nova Scotia, as agent, and certain other lenders named therein.
(Incorporated herein by reference to Exhibit 10.1 to the Company's Form 10-Q filed May 24,
1994.)
</TABLE>
21
<PAGE>
<TABLE>
<C> <S> <C>
10.2 Amendment No. 1 to the U.S. $80,000,000 Credit Agreement dated October 14, 1993.
(Incorporated herein by reference to Exhibit 10.2 to the Company's Form 10-Q filed May 24,
1994.)
10.3 Amendment No. 2 to the U.S. $80,000,000 Credit Agreement dated November 5, 1993.
(Incorporated herein by reference to Exhibit 10.3 to the Company's Form 10-Q filed May 24,
1994.)
10.4 Amendment No. 3 to the U.S. $80,000,000 Credit Agreement dated January 7, 1994.
(Incorporated herein by reference to Exhibit 10.4 to the Company's Form 10-Q filed May 24,
1994.)
10.5 Amendment No. 4 to the U.S. $80,000,000 Credit Agreement dated April 25, 1994. (Incorporated
herein by reference to Exhibit 10.5 to the Company's Form 10-Q filed May 24, 1994.)
10.6 Amendment No. 5 to the U.S. $80,000,000 Credit Agreement dated August 12, 1994.
(Incorporated herein by reference to Exhibit 10.6 to the Company's Form 10-Q filed August
23, 1994.)
10.7 Amendment No. 6 to the U.S. $80,000,000 Credit Agreement dated November 18, 1994.
10.8 Acquisition Agreement dated March 14, 1994 by and among CKI, the Company and Warnaco Inc.
(Incorporated herein by reference to Exhibit 10.6 to the Company's Form 10-Q filed May 24,
1994.)
10.9 Credit Agreement, dated as of December 7, 1994 among Warnaco Inc., the financial
institutions parties thereto and The Bank of Nova Scotia.
10.10 U.S. $500,000,000 Credit Agreement dated October 14, 1993 (the 'U.S. $500,000,000 Credit
Agreement') among the Company, Warnaco Inc. The Bank of Nova Scotia, as co-managing agent
and paying agent, Citicorp U.S.A., as co-managing agent and documentation and collateral
agent, and certain other lenders named therein. (Incorporated herein by reference to Exhibit
10-1 to the Company's Form 10-Q filed November 16, 1993.)
10.11 Amendment No. 1 to the U.S. $500,000,000 Credit Agreement dated June 8, 1994. (Incorporated
herein by reference to Exhibit 10.9 to the Company's Form 10-Q filed August 23, 1994.)
10.12 Amendment No. 2 to the U.S. $500,000,000 Credit Agreement dated October 28, 1994.
10.13 Amendment No. 3 to the U.S. $500,000,000 Credit Agreement dated December 8, 1994.
10.14 Employment Agreement dated January 6, 1991 between the Company and Linda J. Wachner.
(Incorporated herein by reference to Exhibit 10.7 to the Company's Registration Statement on
Form S-1, File No. 33-45877.)
10.15 Incentive Compensation Plan. (Incorporated by reference to Exhibit 10.8 to the Company's
Registration Statement on Form S-1, File No. 33-45877.)
10.16 1991 Stock Option Plan. (Incorporated herein by reference to Exhibit 10.9 to the Company's
Registration Statement on Form S-1, File No. 33-45877.)
10.17 Amended and Restated 1988 Employee Stock Purchase Plan, as amended. (Incorporated herein by
reference to Exhibit 10.10 to the Company's Registration Statement on Form S-1, File No.
33-45877.)
10.18 Warnaco Employee Retirement Plan. (Incorporated herein by reference to Exhibit 10.11 to the
Company's Registration Statement on Form S-1, File No. 33-45877.)
10.19 Executive Management Agreement dated May 9, 1991 between the Company, Warnaco and The
Spectrum Group, Inc. (Incorporated herein by reference to Exhibit 10.13 to the Company's
Registration Statement on Form S-1, File No. 33-45877.)
10.20 1993 Stock Plan for non-employee directors. (Incorporated herein by reference to the
Company's Proxy Statement for its 1994 Annual Meeting of Shareholders.)
10.21 Amended and Restated 1993 Stock Plan. (Incorporated herein by reference to the Company's
Proxy Statement for its 1994 Annual Meeting of Shareholders.)
10.22 The Warnaco Group, Inc. Supplemental Incentive Compensation Plan. (Incorporated herein by
reference to the Company's Proxy Statement for its 1994 Annual Meeting of Shareholders.)
</TABLE>
22
<PAGE>
<TABLE>
<C> <S> <C>
11.1 Earnings per share.
22.1 Subsidiaries of the Company. (Incorporated by reference to Exhibit 22.1 to the Company's
Registration Statement on Form S-1 No. 33-41798)
23.1(a) Consent of Independent Auditors
23.1(b) Consent of Independent Auditors
</TABLE>
- ------------------
(b) Reports on Form 8-K.
No reports on Form 8-K were filed during the last quarter of fiscal 1994.
23
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Registrant has duly caused this Report to be signed on
its behalf by the undersigned, thereunto duly authorized in the City of New
York, State of New York, on the 7th day of April, 1995.
THE WARNACO GROUP, INC.
By: /S/ LINDA J. WACHNER
__
Linda J. Wachner
Chairman, President and Chief
Executive Officer
Pursuant to the requirements of the Securities Exchange Act of 1934, this
Report has been signed by the following persons in the capacities and on the
dates indicated.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
- ------------------------------------------ -------------------------------------------- -------------------
<C> <S> <C>
LINDA J. WACHNER Chairman of the Board; Director; April 7, 1995
- ------------------------------------------ President and Chief Executive
(LINDA J. WACHNER) Officer (Principal Executive Officer)
DARIUSH ASHRAFI Director; Senior Vice April 7, 1995
- ------------------------------------------ President and Chief
(DARIUSH ASHRAFI) Financial Officer
(Principal Financial Officer)
WILLIAM S. FINKELSTEIN Senior Vice President April 7, 1995
- ------------------------------------------ and Controller
(WILLIAM S. FINKELSTEIN) (Principal Accounting Officer)
JOSEPH A. CALIFANO, JR. Director April 7, 1995
- ------------------------------------------
(JOSEPH A. CALIFANO, JR.)
ANDREW G. GALEF Director April 7, 1995
- ------------------------------------------
(ANDREW G. GALEF)
STEWART A. RESNICK Director April 7, 1995
- ------------------------------------------
(STEWART A. RESNICK)
ROBERT D. WALTER Director April 7, 1995
- ------------------------------------------
(ROBERT D. WALTER)
</TABLE>
24
<PAGE>
REPORT OF INDEPENDENT AUDITORS
The Board of Directors and Stockholders
The Warnaco Group, Inc.
We have audited the accompanying consolidated balance sheets of The Warnaco
Group, Inc. as of January 8, 1994 and January 7, 1995, and the related
consolidated statements of operations, stockholders' equity and cash flow for
each of the three years in the period ended January 7, 1995. Our audits also
included the financial statement schedule listed in the Index at Item 14 (a).
These financial statements and schedule are the responsibility of the Company's
management. Our responsibility is to express an opinion on these financial
statements and schedule 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 consolidated financial statements referred to above
present fairly, in all material respects, the consolidated financial position of
The Warnaco Group, Inc. at January 8, 1994 and January 7, 1995, and the
consolidated results of its operations and its cash flows for each of the three
years in the period ended January 7, 1995, in conformity with generally accepted
accounting principles. Also, in our opinion, the related 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.
As discussed in Note 9 to the consolidated financial statements, the
Company changed its method of accounting for postretirement benefits other than
pensions in 1993.
ERNST & YOUNG LLP
New York, New York
February 23, 1995
F-1
<PAGE>
THE WARNACO GROUP, INC.
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS OF DOLLARS)
<TABLE>
<CAPTION>
JANUARY 8, JANUARY 7,
1994 1995
----------- -----------
<S> <C> <C>
ASSETS
Current assets:
Cash, restricted $886 -- 1993 and $1,918 -- 1994................................... $ 4,651 $ 3,791
Accounts receivable, less allowance for doubtful accounts
of $1,413 -- 1993 and $2,858 -- 1994............................................. 126,507 148,659
Inventories........................................................................ 239,503 252,183
Prepaid expenses................................................................... 22,148 15,892
----------- -----------
Total current assets.......................................................... 392,809 420,525
----------- -----------
Property, plant and equipment, at cost:
Land and land improvements......................................................... 5,676 5,696
Buildings and building improvements................................................ 59,505 62,301
Machinery and equipment............................................................ 73,712 81,138
----------- -----------
138,893 149,135
Less: accumulated depreciation and amortization......................................... 65,257 68,203
----------- -----------
Net property, plant and equipment.................................................. 73,636 80,932
----------- -----------
Other assets:
Deferred financing costs, less accumulated amortization of
$356 -- 1993 and $1,589 -- 1994.................................................. 5,626 6,160
Licenses, trademarks, intangible and other assets,
at cost, less accumulated amortization of
$47,253 -- 1993 and $52,495 -- 1994.............................................. 62,722 118,534
Excess of cost over net assets acquired, less accumulated
amortization of $29,535 -- 1993 and $33,420 -- 1994................................... 122,551 115,897
Deferred income tax asset.......................................................... 31,289 38,505
----------- -----------
Total other assets............................................................ 222,188 279,096
----------- -----------
$ 688,633 $ 780,553
----------- -----------
----------- -----------
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Borrowing under revolving credit facility.......................................... $ 100,523 $ 115,679
Current portion of long-term debt.................................................. 41,547 50,315
Borrowing under foreign credit facilities.......................................... 13,443 9,822
Accounts payable................................................................... 86,403 109,786
Accrued compensation............................................................... 4,807 8,576
Accrued interest................................................................... 5,755 4,083
Other accrued liabilities.......................................................... 15,592 15,179
Federal and other income taxes..................................................... 2,778 2,611
----------- -----------
Total current liabilities..................................................... 270,848 316,051
----------- -----------
Long-term debt.......................................................................... 245,518 206,792
Other long-term liabilities............................................................. 13,132 17,238
Stockholders' equity:
Preferred Stock; $.01 par value, 10,000,000 shares authorized,
none issued in 1993 and 1994, respectively....................................... -- --
Class A Common Stock; $.01 par value, 65,000,000 shares authorized
in 1993 and 1994, 40,333,150 and 41,734,192 outstanding in
1993 and 1994, respectively........................................................... 404 421
Capital in excess of par value.......................................................... 315,068 337,872
Cumulative translation adjustment....................................................... 279 (1,732)
Accumulated deficit..................................................................... (147,225) (83,897)
Treasury stock, at cost................................................................. -- (5,000)
Notes receivable for common stock issued................................................ (9,391) (7,192)
----------- -----------
Total stockholders' equity.................................................... 159,135 240,472
----------- -----------
$ 688,633 $ 780,553
----------- -----------
----------- -----------
</TABLE>
This statement should be read in conjunction with the accompanying Notes to
Consolidated Financial Statements.
F-2
<PAGE>
THE WARNACO GROUP, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(IN THOUSANDS EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
FOR THE YEAR ENDED
--------------------------------------
JANUARY 2, JANUARY 8, JANUARY 7,
1993 1994 1995
---------- ---------- ----------
<S> <C> <C> <C>
Net revenues................................................................. $ 625,064 $ 703,769 $ 788,758
---------- ---------- ----------
Cost of goods sold........................................................... 405,750 467,362 532,998
Selling, administrative and general expenses................................. 129,502 144,219 156,573
Non-recurring expenses....................................................... -- 22,500 3,000
---------- ---------- ----------
Income before interest and income taxes...................................... 89,812 69,688 96,187
Interest expense............................................................. 48,848 38,935 32,459
---------- ---------- ----------
Income from continuing operations before income taxes........................ 40,964 30,753 63,728
Provision (benefit) for income taxes......................................... (6,600) (22,500) 400
---------- ---------- ----------
Income from continuing operations............................................ 47,564 53,253 63,328
Loss from discontinued operations............................................ (7,443) -- --
Extraordinary items.......................................................... (57,576) (18,637) --
Cumulative effect of change in method of accounting for postretirement
benefits other than pensions............................................... -- (10,500) --
---------- ---------- ----------
Net income (loss)............................................................ ($ 17,455) $ 24,116 $ 63,328
---------- ---------- ----------
---------- ---------- ----------
Net income (loss) applicable to common stockholders.......................... ($ 20,205) $ 24,116 $ 63,328
---------- ---------- ----------
---------- ---------- ----------
Income (loss) per common share:
Income from continuing operations....................................... $ 1.18 $ 1.34 $ 1.53
Loss from discontinued operations....................................... (0.20) -- --
Extraordinary items..................................................... (1.51) (0.47) --
Cumulative effect of change in method of accounting for postretirement
benefits other than pensions.......................................... -- (0.26) --
---------- ---------- ----------
Net income (loss) per common share........................................... ($ 0.53) $ 0.61 $ 1.53
---------- ---------- ----------
---------- ---------- ----------
Weighted average number of common shares outstanding......................... 38,109 39,770 41,285
---------- ---------- ----------
---------- ---------- ----------
</TABLE>
This statement should be read in conjunction with the accompanying Notes to
Consolidated Financial Statements.
F-3
<PAGE>
THE WARNACO GROUP, INC.
CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
(IN THOUSANDS OF DOLLARS)
<TABLE>
<CAPTION>
CAPITAL NOTES
CLASS A IN CUMULATIVE RECEIVABLE
COMMON EXCESS OF TRANSLATION ACCUMULATED TREASURY FOR COMMON
STOCK PAR VALUE ADJUSTMENT DEFICIT STOCK STOCK
------- ---------- ----------- ------------ --------- ----------
<S> <C> <C> <C> <C> <C> <C>
Balance January 4, 1992.................... $ 306 $153,997 $ 5,990 ($151,136) ($10,865)
Sold 10,000,000 shares of Class A common
stock net of expenses of $11,190......... 100 161,210
Repayments of employee notes receivable.... (2) 2 475
Net loss................................... (17,455)
Preferred dividends........................ (2,750)
Change in cumulative translation
adjustment............................... (4,030)
------- ---------- ----------- ------------ --------- ----------
Balance January 2, 1993.................... 404 315,209 1,960 (171,341) -- (10,390)
Repurchased 57,750 shares of Class A common
stock from employees..................... (141) 141
Repayments of employee notes receivable.... 858
Net income................................. 24,116
Change in cumulative translation
adjustment............................... (1,681)
------- ---------- ----------- ------------ --------- ----------
Balance January 8, 1994.................... 404 315,068 279 (147,225) -- (9,391)
Issued 1,699,492 shares of Class A common
stock in connection with the purchase of
the Calvin Klein business................ 17 22,804
Repayments of employee notes receivable.... 2,199
Net income................................. 63,328
Change in cumulative translation
adjustment............................... (2,011)
Purchase of 286,600 shares of Treasury
Stock.................................... (5,000)
------- ---------- ----------- ------------ --------- ----------
Balance January 7, 1995.................... $ 421 $337,872 ($1,732) ($83,897) ($ 5,000) ($ 7,192)
------- ---------- ----------- ------------ --------- ----------
------- ---------- ----------- ------------ --------- ----------
<CAPTION>
TOTAL
--------
<S> <C>
Balance January 4, 1992.................... ($ 1,708)
Sold 10,000,000 shares of Class A common
stock net of expenses of $11,190......... 161,310
Repayments of employee notes receivable.... 475
Net loss................................... (17,455)
Preferred dividends........................ (2,750)
Change in cumulative translation
adjustment............................... (4,030)
--------
Balance January 2, 1993.................... $135,842
Repurchased 57,750 shares of Class A common
stock from employees..................... --
Repayments of employee notes receivable.... 858
Net income................................. 24,116
Change in cumulative translation
adjustment............................... (1,681)
--------
Balance January 8, 1994.................... 159,135
Issued 1,699,492 shares of Class A common
stock in connection with the purchase of
the Calvin Klein business................ 22,821
Repayments of employee notes receivable.... 2,199
Net income................................. 63,328
Change in cumulative translation
adjustment............................... (2,011)
Purchase of 286,600 shares of Treasury
Stock.................................... (5,000)
--------
Balance January 7, 1995.................... $240,472
--------
--------
</TABLE>
This statement should be read in conjunction with the accompanying Notes to
Consolidated Financial Statements.
F-4
<PAGE>
THE WARNACO GROUP, INC.
CONSOLIDATED STATEMENTS OF CASH FLOW
INCREASE (DECREASE) IN CASH
(IN THOUSANDS OF DOLLARS)
<TABLE>
<CAPTION>
FOR THE YEAR ENDED
------------------------------------------
<S> <C> <C> <C>
JANUARY 2, JANUARY 8, JANUARY 7,
1993 1994 1995
---------- ---------- ----------
Cash flow from operations:
Net income (loss)................................................. ($ 17,455) $ 24,116 $ 63,328
Non-cash items included in net income (loss):
Depreciation and amortization.................................. 19,770 18,525 18,798
Interest....................................................... 4,266 3,309 1,233
Extraordinary items............................................ 57,576 18,637 --
Cumulative effect of change in accounting...................... -- 10,500 --
Writedown of fixed assets included in non-recurring expense.... -- 1,159
Increase in deferred income tax asset.......................... (6,589) (24,700) (2,467)
Income taxes paid................................................. (3,387) (1,008) (2,547)
Other changes in operating accounts............................... (89,944) (38,661) (519)
---------- ---------- ----------
Net cash provided from (used in) operations......................... (35,763) 11,877 77,826
---------- ---------- ----------
Cash flow from investing activities:
Proceeds from the sale of fixed assets............................ 475 1,739 773
Increase in intangibles and other assets.......................... (551) (7,467) (9,936)
Purchase of property, plant and equipment......................... (13,651) (12,438) (17,534)
Purchase of Calvin Klein net assets............................... -- -- (33,103)
---------- ---------- ----------
Net cash used in investing activities............................... (13,727) (18,166) (59,800)
---------- ---------- ----------
Cash flow from financing activities:
Proceeds from sale of Class A Common Stock and repayment of notes
receivable from employees...................................... 161,785 858 2,199
Borrowings (repayments) under credit facility..................... 62,572 37,774 14,835
Proceeds from other debt.......................................... 334,132 428,721 8,582
Repayments of debt and redemption of Preferred Stock.............. (485,838) (453,832) (41,841)
Increase in deferred financing cost............................... (18,716) (8,360) (1,767)
Purchase of treasury shares....................................... -- -- (5,000)
Other............................................................. (4,401) 2,016 4,106
---------- ---------- ----------
Cash provided from (used for) financing activities.................. 49,534 7,177 (18,886)
---------- ---------- ----------
Increase (decrease) in cash......................................... 44 888 (860)
Cash at beginning of year........................................... 3,719 3,763 4,651
---------- ---------- ----------
Cash at end of year................................................. $ 3,763 $ 4,651 $ 3,791
---------- ---------- ----------
---------- ---------- ----------
Other changes in operating accounts:
Accounts receivable............................................... ($ 35,714) ($ 3,613) ($14,328)
Inventories....................................................... (49,899) (30,206) (4,646)
Prepaid expenses.................................................. (8,404) (2,119) 6,256
Accounts payable and accrued liabilities.......................... 8,010 7,139 13,810
Federal and other income taxes.................................... (68) 2,876 400
Other............................................................. (3,869) (12,738) (2,011)
---------- ---------- ----------
($ 89,944) ($ 38,661) ($ 519)
---------- ---------- ----------
---------- ---------- ----------
</TABLE>
This statement should be read in conjunction with the accompanying Notes to
Consolidated Financial Statements.
F-5
<PAGE>
THE WARNACO GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Organization: The Warnaco Group, Inc. (the 'Company') was incorporated in
Delaware on March 14, 1986 and on May 10, 1986 acquired substantially all of the
outstanding shares of Warnaco Inc. ('Warnaco') (the 'Acquisition'). Warnaco is
the principal operating subsidiary of the Company.
Basis of Consolidation and Presentation: The accompanying consolidated
financial statements include the accounts of The Warnaco Group, Inc. and all
subsidiary companies for the years ended January 2, 1993, January 8, 1994 and
January 7, 1995. The 1993 fiscal year included 53 weeks of operations. The
impact of the additional week of operations was not material to the operations
of the Company. Certain amounts have been reclassified to conform to the current
year presentation.
Translation of Foreign Currencies: Cumulative translation adjustments arise
primarily from consolidating foreign operations and are applied directly to
stockholders' equity.
Inventories: Inventories are stated at the lower of cost, determined on a
first-in-first-out basis, or market.
Depreciation and Amortization: Provision is made for depreciation of
property, plant and equipment computed over the estimated useful lives of the
assets using the straight-line method, as summarized below:
<TABLE>
<S> <C>
Buildings...................................................................... 20-40 years
Building improvements.......................................................... 2-20 years
Machinery and equipment........................................................ 3-10 years
</TABLE>
Licenses, trademarks and other intangible assets are amortized over the
estimated economic life of the assets which range from 20 to 40 years. The
excess of cost over net assets acquired is amortized over 40 years. The carrying
value of the excess of cost over net assets acquired will be reviewed if facts
and circumstances suggest that it may be impaired. If such a determination is
made, the Company will reduce the carrying value of this asset. Deferred
financing costs are amortized over the life of the related debt, using the debt
outstanding method.
Start up costs: The Company defers certain costs associated with the
start-up of new manufacturing facilities and certain new businesses. Deferred
costs are amortized using the straight-line method principally over five years.
Start-up costs, net of accumulated amortization were $11,994,000 and $19,982,000
at January 8, 1994 and January 7, 1995, respectively and are included in other
assets.
Employee Retirement Plans: The Company has non-contributory pension and
profit sharing retirement plans for the benefit of qualifying employees.
Contributions are deposited with fund managers who invest the assets of the
plans.
Income Taxes: The Company adopted Statement of Financial Accounting
Standards No. 109 effective with its 1992 fiscal year.
Capitalized Leases: The asset values and related amortization of
capitalized leases are included with property, plant and equipment and
accumulated depreciation and the associated debt is included with long-term
debt.
Revenue Recognition: The Company recognizes revenue when goods are shipped
to customers.
Income (Loss) Per Common Share: Income (loss) per common share is based on
weighted average common shares outstanding after deducting preferred stock
dividends and taking into account potential dilution from common stock
equivalents.
Concentration of credit risk: The Company sells its products to department
stores, specialty outlets, catalogs, direct sellers and mass merchandisers. The
Company performs periodic credit evaluations of its customers' financial
condition and generally does not require collateral. Credit losses have been
within management's expectations. No customer accounted for more than 10% of the
Company's net revenues in any of the three years in the period ended January 7,
1995.
F-6
<PAGE>
THE WARNACO GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 2 - ACQUISITION
On March 14, 1994 the Company acquired certain assets and the worldwide
trademarks, rights and businesses of Calvin Klein men's underwear, licensed the
Calvin Klein trademark for men's accessories and acquired the worldwide
trademarks and rights of Calvin Klein women's intimate apparel upon the
expiration of an existing license on December 31, 1994. The purchase price was
approximately $60,924,000 and consisted of a cash payments of $33,103,000 in
fiscal 1994, $5,000,000 in fiscal 1995 and the issuance of 1,699,492 shares of
the Company's common stock valued at the fair market value ($13.43 per share or
$22,821,000) for such shares. The acquisition was accounted for under the
purchase method of accounting, accordingly, the accompanying financial
statements include the results of the Calvin Klein businesses comencing March
15, 1994.
The purchase price was allocated to the fair value of assets acquired as
summarized below (in millions of dollars):
<TABLE>
<S> <C>
Accounts receivable......................................................... $ 7.4
Inventories................................................................. 7.9
Property and equipment...................................................... 0.2
Licenses, trademarks, intangible and other assets........................... 45.4
------
Total purchase price........................................................ $ 60.9
------
------
</TABLE>
NOTE 3 - DISCONTINUED OPERATIONS
During the fourth quarter of fiscal 1992, the Company made a strategic
decision to discontinue the operations of its women's accessories business.
Operating losses for the division for the year ending January 2, 1993 were
approximately $2,299,000. Net revenues were $1,835,000 for the year ended
January 2, 1993. The total loss related to the women's accessories business also
included anticipated losses related to the disposal of assets and losses and
expenses associated with the disposal of inventories, termination of employees
and remaining minimum royalty obligations of $2,059,000.
NOTE 4 - NON-RECURRING EXPENSE
On October 3, 1993, the Company made a strategic decision to discontinue a
portion of its men's manufactured dress shirt and neckwear business segment. Net
revenues for the year ended January 8, 1994 approximated $33,500,000 for this
operation. Non-recurring expense includes a $19,900,000 charge for losses and
expenses associated with the disposal of assets, liquidation of inventories and
termination of employees.
In addition, non-recurring expense for the year ended January 8, 1994
includes $2,600,000 of costs associated with the final wind-up of the Company's
Canadian womenswear business, which had been discontinued in a prior year.
In January 1994, The Company's leased warehouse located in Sylmar,
California suffered significant structural damage due to the California
earthquake and was permanently closed. The Company was able to recover
substantially all of its inventory, transfer the inventory to other locations,
and begin shipping at normal levels in March, 1994. The Company has earthquake
insurance and, other than a deductible of approximately $3 million, which was
recorded as a non-recurring expense in the first quarter of fiscal 1994, expects
to fully recover its losses.
NOTE 5 - EXTRAORDINARY ITEMS
On April 2, 1992 the Company completed a restructuring of its debt
obligations which resulted in the (i) redemption of all outstanding shares of
Class A and Class B Preferred Stock of the Company, (ii)
F-7
<PAGE>
THE WARNACO GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
repayment of all outstanding indebtedness under the Company's Amended and
Restated Bank Credit Agreement, (iii) redemption of the entire principal amount
outstanding of the Company's 8.64% Senior Discount Term Notes, (iv) redemption
of the entire principal amount outstanding of the Company's 12 1/2% Senior
Subordinated Notes, (v) redemption of the entire principal amount outstanding of
the Company's 12 3/8% mortgage notes and (vi) repayment of certain capital lease
obligations. The repayment of the above noted debt obligations prior to their
maturity resulted in an extraordinary charge of $46,454,000 due to early
extinguishment of debt.
On October 1, 1992 the Company amended its Financing Agreement (see Note
11). On November 15, 1992 proceeds from the amended Financing Agreement were
used to redeem the entire outstanding principal amount of the Company's 12 1/2%
subordinated debentures. The repayment of the debentures, prior to their
maturity, resulted in an extraordinary charge of $11,122,000 due to early
extinguishment of debt.
In October 1993, in conjunction with the 1993 Financing, as more fully
described in Note 11, the Company recorded non-cash extraordinary charges of
$18,637,000 to write-off deferred financing charges under the previous agreement
and record losses under related interest rate swap agreements.
Due to the Company's existing net operating loss carryforwards (see Note
8), none of the extraordinary items resulted in any income tax benefit.
NOTE 6 - RELATED PARTY TRANSACTIONS
In 1990, the Company sold substantially all of the assets of its Activewear
Divsion to a newly formed Company, Authentic Fitness Corporation ('Authentic
Fitness'). Certain directors and officers of the Company are also directors and
officers of Authentic Fitness. The Company maintained an equity interest in
Authentic Fitness equal to approximately 3% of the outstanding equity of
Authentic Fitness. Authentic Fitness purchases certain occupancy services
related to leased facilities, computer service, laboratory testing and
transportation services from the Company all of which are charged at the
Company's cost. Total charges to Authentic Fitness for these services were
approximately $2,312,000, $1,412,000, and $6,292,000 in the years ended January
2, 1993, January 8, 1994 and January 7, 1995, respectively.
In 1994 the Company sold certain trademarks and trade names to Authentic
Fitness for $6,550,000 (net book value $0), a purchase price determined at
arms-length based on an independent third party appraisal. The Company sells
certain inventory to Authentic Fitness for sale in its outlet stores, such
purchases totaled $2,400,000 in the year ended January 7, 1995 (none in the
years ended January 2, 1993 and January 8, 1994).
The Company purchases certain design and development and occupancy services
related to leased facilities from Authentic Fitness. All sevices are charged at
Authentic Fitness' cost. The total amounts paid by the Company to Authentic
Fitness for such services were approximately $500,000 and $1,600,000 in the
years ended January 8, 1994 and January 7, 1995, respectively (none in the year
ended January 2, 1993). The Company purchases certain inventory from Authentic
Fitness. Inventory purchases from Authentic Fitness were approximately
$5,300,000, $700,000 and $2,547,000 in the years ended January 2, 1993, January
8, 1994 and Janaury 7, 1995, respectively. The Company purchased certain
machinery and equipment from Authentic Fitness in fiscal 1994 for a total
purchase price of $1,400,000 (none in fiscal years ended January 2, 1993 and
January 8, 1994).
In December 1993, the Company sold its Checotah, Oklahoma manufacturing
facility to Authentic Fitness. The sales price of $3,317,000 was determined by
an independent appraisal, and resulted in a gain of $901,000 to the Company.
F-8
<PAGE>
THE WARNACO GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
A Director of the Company is the sole stockholder, President and a Director
of The Spectrum Group, Inc. ('Spectrum'). Spectrum and the Company are parties
to an agreement under which Spectrum provides consulting services to the
Company. The Spectrum consulting agreement was amended on May 9, 1991 to provide
for annual fees of $350,000 or such higher amount, including expenses, not to
exceed $500,000 (plus cost of living increases) for a period of five years. The
contract expires on May 9, 1996. Amounts charged to expense pursuant to this
agreement were $500,000 in each of the three fiscal years ended January 7, 1995.
NOTE 7 - SEGMENT REPORTING
The Group operates within one industry segment -- the marketing and
manufacturing of apparel. The Group has no customer which accounts for ten
percent or more of its total revenues. The Group operates in several geographic
areas.
(IN THOUSANDS)
<TABLE>
<CAPTION>
CANADA AND
FOR THE YEAR ENDED JANUARY 2, 1993 UNITED STATES LATIN AMERICA EUROPE CONSOLIDATED
- ----------------------------------------------------- ------------- ------------- ------- ------------
<S> <C> <C> <C> <C>
Net revenues......................................... $ 533,280 $42,575 $49,209 $625,064
------------- ------------- ------- ------------
------------- ------------- ------- ------------
Operating profit..................................... $ 98,449 $ 7,978 $ 2,910 109,337
------------- ------------- -------
------------- ------------- -------
General corporate expense -- net..................... (19,525)
Interest expense..................................... (48,848)
------------
Income from continuing operations before income
taxes.............................................. $ 40,964
------------
------------
<CAPTION>
FOR THE YEAR ENDED JANUARY 8, 1994
- -----------------------------------------------------
<S> <C> <C> <C> <C>
Net revenues......................................... $ 605,124 $52,945 $45,700 $703,769
------------- ------------- ------- ------------
------------- ------------- ------- ------------
Operating profit..................................... $ 105,438 $ 6,366 $ 3,441 $115,245
------------- ------------- -------
------------- ------------- -------
General corporate expense -- net..................... (45,557)
Interest expense..................................... (38,935)
------------
Income from continuing operations before income
taxes.............................................. $ 30,753
------------
------------
Identifiable assets at January 8, 1994............... $ 561,012 $37,072 $27,354 $625,438
------------- ------------- -------
------------- ------------- -------
Corporate assets..................................... 63,195
------------
Total Assets at January 8, 1994...................... $688,633
------------
------------
<CAPTION>
FOR THE YEAR ENDED JANUARY 7, 1995
- -----------------------------------------------------
<S> <C> <C> <C> <C>
Net revenues......................................... $ 696,174 $47,668 $44,916 $788,758
------------- ------------- ------- ------------
------------- ------------- ------- ------------
Operating profit..................................... $ 113,752 $ 5,937 $ 2,561 $122,250
------------- ------------- -------
------------- ------------- -------
General corporate expense -- net..................... (26,063)
Interest expense..................................... (32,459)
------------
Income from continuing operations before income
taxes.............................................. $ 63,728
------------
------------
Identifiable assets at January 7, 1995............... $ 635,888 $30,482 $31,307 697,677
------------- ------------- -------
------------- ------------- -------
Corporate assets..................................... 82,876
------------
Total Assets at January 7, 1995...................... $780,553
------------
------------
</TABLE>
F-9
<PAGE>
THE WARNACO GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Operating profit is total revenue less operating expenses. In computing
operating profit, none of the following items has been added or deducted:
general corporate expenses -- net, interest expense, and income taxes.
Non-recurring expense of $22,500,000 in fiscal 1993 and $3,000,000 in fiscal
1994 is included in general corporate expense -- net.
Identifiable assets are those assets of the Company that are associated
with the operations in each geographic area. Corporate assets are principally
property and equipment, deferred financing costs, deferred income tax asset and
other assets.
NOTE 8 - INCOME TAXES
During the fourth quarter of fiscal 1992, retroactive to the beginning of
fiscal 1992, the Company adopted Financial Accounting Standards Board Statement
No. 109, Accounting for Income Taxes ('Statement No. 109'). The adoption of
Statement No. 109 resulted in the recognition of a deferred tax asset amounting
to approximately $42,500,000 related to the benefit associated with net
operating loss carryforwards to be realized in future periods as of the
beginning of fiscal 1992. The deferred tax asset was offset in its entirety by a
valuation allowance. During 1992, the Company issued 10,000,000 shares of common
stock generating net proceeds of approximately $161,310,000 (the 'Offering'),
refinanced or redeemed all of its outstanding high yield debt and repaid certain
other debt obligations (see Notes 11 and 12). The completion of the Offering and
debt refinancing reduced the Company's annual interest expense and preferred
stock dividends, on a pro forma basis, by approximately $34,000,000. As a result
of these transactions, in the fourth quarter of 1992, the Company re-evaluated
its deferred tax asset and reversed a portion of the valuation allowance related
to this asset amounting to $6,589,000.
In 1993, the Company recognized an additional deferred tax asset of
$1,541,000 (offset in its entirety by a valuation allowance) related to an
increase in the Company's statutory tax rate resulting from tax legislation
passed in 1993. In the fourth quarter of 1993, the Company re-evaluated its
deferred tax asset and reversed an additional portion of its valuation allowance
amounting to $24,700,000 related to this asset.
The Company recognized income tax benefits of $22,635,000 in the year ended
January 7, 1995 which substantially offset the Company's provision for income
taxes in fiscal 1994. At January 8, 1994 and January 7, 1995, the Company had
deferred income tax assets of $53,924,000 and $38,505,000, respectively, offset
by a valuation allowance of $22,635,000 and $0, respectively. Future tax
benefits of $3,000,000 were realized in fiscal 1994 from the treatment of
acquisition related liabilities and were credited against the excess of costs
over net assets acquired.
The following presents the U.S. and foreign components of income from
continuing operations before income taxes:
<TABLE>
<CAPTION>
FOR THE YEAR ENDED
------------------------------------------
JANUARY 2, JANUARY 8, JANUARY 7,
1993 1994 1995
---------- ---------- ----------
(IN THOUSANDS)
<S> <C> <C> <C>
U.S. income from continuing operations before income taxes.......... $ 40,699 $ 29,750 $ 63,574
Foreign income before taxes......................................... 265 1,003 154
---------- ---------- ----------
Income from continuing operations before income taxes............... $ 40,964 $ 30,753 $ 63,728
---------- ---------- ----------
---------- ---------- ----------
</TABLE>
F-10
<PAGE>
THE WARNACO GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
The provision for income taxes included in the Consolidated Statements of
Operations amounts to:
<TABLE>
<CAPTION>
FOR THE YEAR ENDED
------------------------------------------
JANUARY 2, JANUARY 8, JANUARY 7,
1993 1994 1995
---------- ---------- ----------
(IN THOUSANDS)
<S> <C> <C> <C>
Federal............................................................. $ 13,838 $ 10,413 $ 18,295
State............................................................... (952) 343 4,253
Puerto Rico......................................................... 300 300 --
Foreign............................................................. 641 1,557 487
Recognition of current NOL benefit.................................. (13,838) (10,413) (18,295)
Recognition of future NOL benefit -- net of valuation allowances.... (6,589) (24,700) (4,340)
---------- ---------- ----------
($ 6,600) ($22,500) $ 400
---------- ---------- ----------
---------- ---------- ----------
</TABLE>
The Company has received grants from the Commonwealth of Puerto Rico which
allow the Company to exempt up to 87.5% 90% beginning with fiscal 1994 of income
earned in Puerto Rico from taxation. The grants expire December 1, 2003. Tax
benefits realized amounted to approximately $1,315,000 ($0.03 per share) and
$733,000 ($0.02 per share) for the years ended January 2, 1993 and January 8,
1994, respectively (none for the year ended January 7, 1995).
The U.S. Statutory rate was: 1992, 34%; 1993, 35%; and 1994, 35%.
The following presents the reconciliation of the provision for income taxes
to U.S. Federal income taxes computed at the statutory rate:
<TABLE>
<CAPTION>
FOR THE YEAR ENDED
------------------------------------------
JANUARY 2, JANUARY 8, JANUARY 7,
1993 1994 1995
---------- ---------- ----------
(IN THOUSANDS)
<S> <C> <C> <C>
Income from continuing operations before income taxes............... $ 40,964 $ 30,753 $ 63,728
---------- ---------- ----------
---------- ---------- ----------
Provision for income taxes @ the statutory rate..................... 13,928 10,764 22,304
Foreign income taxes @ rates in excess of the statutory rate........ 551 1,206 433
State income taxes (benefit) -- net of federal benefit.............. (952) 343 2,764
Puerto Rico income taxes............................................ 300 300 --
Non-deductible intangible amortization.............................. -- -- 1,321
Current benefit of capital loss carryforward........................ -- -- (3,787)
Current benefit for U.S. NOL carryforward........................... (13,838) (10,413) (18,295)
Future benefit for U.S. NOL carryforward............................ (6,589) (24,700) (4,340)
---------- ---------- ----------
Provision (benefit) for income taxes................................ ($ 6,600) ($22,500) $ 400
---------- ---------- ----------
---------- ---------- ----------
</TABLE>
At January 7, 1995, the Company had recognized all available benefits of
its net operating loss carryforwards for financial reporting purposes. For tax
purposes, the Company has estimated U.S. net operating loss carryforwards of
approximately $110,000,000 which expire from 2001 through 2007.
As a result of the 1992 public stock offering, the 1991 initial public
offering and other ownership changes occurring during the prior three-year
period, a change of ownership occurred under Internal Revenue Code Section 382,
which effectively limits the rate at which the Company may utilize its net
operating loss carryforwards. Nevertheless, the Company expects that it will be
able to utilize substantially all of the net operating loss carryforwards it
would have used, absent any Section 382 limitation.
F-11
<PAGE>
THE WARNACO GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 9 - EMPLOYEE RETIREMENT PLANS
PENSIONS
The Company has a defined benefit pension plan which covers substantially
all non-union domestic employees (the 'Plan'). The Plan is noncontributory and
benefits are based upon years of service and average earnings for the six
(increasing to ten years by the year 1999 and fifteen years by the year 2004)
highest consecutive calendar years of compensation immediately preceding
retirement. Pension contributions are also made to foreign plans and directly to
union sponsored plans.
The funding policy for the Plan is to make, as a minimum contribution, the
equivalent of the minimum required by the Employee Retirement Income Security
Act of 1974 (ERISA).
Pension costs were:
<TABLE>
<CAPTION>
FOR THE YEAR ENDED
------------------------------------------
JANUARY 2, JANUARY 8, JANUARY 7,
1993 1994 1995
---------- ---------- ----------
(IN THOUSANDS)
<S> <C> <C> <C>
Benefits earned..................................................... $1,865 $ 2,004 $ 2,372
Interest cost on projected benefits................................. 7,185 7,367 7,630
Actual (return) loss on investments................................. (7,038) (12,834) 5,085
Net amortization/deferral........................................... (2,000) 3,899 (13,981)
---------- ---------- ----------
Cost of Company plan................................................ 12 436 1,106
Cost of other plans................................................. 277 343 519
---------- ---------- ----------
Net pension cost.................................................... $ 289 $ 779 $ 1,625
---------- ---------- ----------
---------- ---------- ----------
</TABLE>
The Plan had projected benefit obligations in excess of Plan assets at
January 7, 1995. Plan investments include insurance contracts, fixed income
securities and marketable equity securities, including 70,000 and 71,800 shares
of the Company's Class A common stock, which had a fair market value of
$1,063,000 and $1,239,000 at January 8, 1994 and January 7, 1995, respectively.
The Plan also owned 98,000 and 101,300 shares of Authentic Fitness Corporation's
common stock which had a fair market value of $1,378,000 and $1,406,000 at
January 8, 1994 and January 7, 1995. No such shares were held at January 2,
1993.
F-12
<PAGE>
THE WARNACO GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
The following table presents a reconciliation of the funded status of the
Plan at January 8, 1994 and January 7, 1995.
<TABLE>
<CAPTION>
JANUARY 8, JANUARY 7,
1994 1995
---------- ----------
(IN THOUSANDS)
<S> <C> <C>
Plan assets at fair value........................................................... $ 100,974 $ 88,618
---------- ----------
---------- ----------
Actuarial present value of benefit obligation:
Vested............................................................................ 90,567 84,146
Non-vested........................................................................ 1,718 2,101
---------- ----------
Accumulated benefit obligation...................................................... 92,285 86,247
Effect of projected future salary increases......................................... 8,396 7,663
---------- ----------
Projected benefit obligation........................................................ 100,681 93,910
---------- ----------
Plan assets less than (in excess of) projected benefit obligation................... (293) 5,292
Unrecognized net gain (loss)........................................................ 2,436 (2,044)
---------- ----------
Accrued pension cost of Company plan................................................ 2,143 3,248
Accrued pension and profit sharing plan -- others................................... 121 31
---------- ----------
Amounts accrued for employee retirement plans....................................... $ 2,264 $ 3,279
---------- ----------
---------- ----------
Assumptions used for Company pension plans:
Discount rate..................................................................... 7.75% 8.75%
Rate of increase in compensation levels............................................. 5.25% 5.25%
</TABLE>
The actuarial assumption for long term rate of return on plan assets is 9%
for all periods presented.
OTHER POSTEMPLOYMENT BENEFITS
In addition to providing pension benefits, the Company has defined benefit
health care and life insurance plans that provide postretirement benefits to
retired employees and former directors. The plans are contributory, with retiree
contributions adjusted annually, and contain cost sharing features including
deductibles and co-insurance. The Company does not fund postretirement benefits.
Effective January 3, 1993, the Company adopted Statement on Financial
Accounting Standards No. 106, Employers' Accounting for Postretirement Benefits
Other than Pensions ('SFAS No. 106') and, as a result, recorded an expense for
the cumulative effect of a change in the method of accounting for postretirement
benefits of $10,500,000 (without income tax benefit). The periodic
postretirement benefit cost for the year ended Janaury 8, 1994 and January 7,
1995 consisted of service cost of $103,000 and $83,000 and interest cost of
$897,000 and $598,000, respectively. Previously, these benefits were expensed on
an as incurred basis. Such expense amounted to $700,000 in 1992.
The funded status of the plans is as follows:
<TABLE>
<CAPTION>
JANUARY 8, JANUARY 7,
1994 1995
---------- ----------
(IN THOUSANDS)
<S> <C> <C>
Accumulated postretirement benefit obligation:
Retirees.......................................................................... $ 8,764 $6,620
Actives, fully eligible........................................................... 218 316
Actives, not fully eligible....................................................... 1,964 1,198
Unrecognized net gain (loss) from
experience differences and
changes in assumptions............................................................ (398) 1,685
---------- ----------
Amount accrued for postretirement benefit costs..................................... $ 10,548 $9,819
---------- ----------
---------- ----------
</TABLE>
F-13
<PAGE>
THE WARNACO GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
The weighted average annual assumed rate of increase in the per capita
costs of covered benefits (health care cost trend rate) for the year ended
January 8, 1994 was 13% for years 1-4, 10% for years 5-9 and 5% for years
thereafter. The weighted average annual assumed rate of increase in the per
capita costs of covered benefits (health care cost trend rate) for the year
ended January 7, 1995 was 11% for years 1-3, 9% for years 4-8, and 5% for years
thereafter. A 1% increase in the trend rate assumption would have increased the
cumulative effect adjustment by approximately $442,000 and would increase the
periodic postretirement benefit cost by approximately $44,000 and $34,000 for
the years ended January 8, 1994 and January 7, 1995, respectively. The weighted
average discount rate used in determining the accumulated postretirement benefit
obligation is 7.75% and 8.75% at January 8, 1994 and January 7, 1995
respectively, which is consistent with the discount rate used in valuing the
Company's pension plan.
The Company also sponsors defined contribution plans for substantially all
of its employees. Employees can contribute to the plans, on a pre-tax basis, a
percentage of their qualifying compensation up to the legal limits allowed. No
Company contributions are made to such plans.
NOTE 10 - INVENTORIES
Inventories consist of the following:
<TABLE>
<CAPTION>
JANUARY 8, JANUARY 7,
1994 1995
---------- ----------
(IN THOUSANDS)
<S> <C> <C>
Finished goods...................................................................... $ 120,203 $ 131,450
Work in process..................................................................... 65,285 60,513
Raw materials....................................................................... 54,015 60,220
---------- ----------
$ 239,503 $ 252,183
---------- ----------
---------- ----------
</TABLE>
NOTE 11 - DEBT
Long-term debt consists of the following:
<TABLE>
<CAPTION>
JANUARY 8, JANUARY 7,
1994 1995
---------- ----------
(IN THOUSANDS)
<S> <C> <C>
Term Note due 1995-1999............................................................. $ 272,000 $ 232,000
Capital lease obligations........................................................... 6,356 6,700
Other............................................................................... 8,709 18,407
---------- ----------
287,065 257,107
Less: amounts due within one year................................................... 41,547 50,315
---------- ----------
$ 245,518 $ 206,792
---------- ----------
---------- ----------
</TABLE>
Approximate maturities of long-term debt are as follows:
<TABLE>
<CAPTION>
AMOUNT
YEAR (IN THOUSANDS)
--------------
<S> <C>
1995.......................................................... $50,315
1996.......................................................... 49,886
1997.......................................................... 54,453
1998.......................................................... 57,361
1999.......................................................... 43,037
2000 -- Thereafter............................................ 2,055
</TABLE>
F-14
<PAGE>
THE WARNACO GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
On October 14, 1993 the Company entered into a new financing agreement (the
'1993 Financing'), with substantially the same lenders as those in the Company's
previous financing agreement. The 1993 Financing provided for a revolving loan
of up to $200 million (subsequently increased to $235 million) and a term note
of $300 million at the lender's base rate plus 0.5%. It also provided for a
LIBOR option at a rate of LIBOR plus 1.25%. LIBOR and base interest rates change
as the Company's debt ratings from S&P or Moody's ('Rating Agencies') change. In
May 1994 the Company obtained a senior credit rating of BBB- from the Rating
Agencies, which reduced the interest rate payable on the Company's outstanding
debt to LIBOR plus 75 basis points. In addition, in June 1994 the Company's
negotiated a further reduction in the interest rate on the Company's outstanding
debt obligations to LIBOR plus 0.5%.
Certain provisions in the 1993 Financing require the Company to fix the
interest rate on not less than $125 million of the Company's $500 million
(subsequently increased to $535 million) facility. As a result, the Company
entered into agreements which effectively fixed the Company's interest rate on
$25 million at 6.31%, $150 million at 6.57% and $100 million at 4.29%. The
agreements expire in October 1995, October 1996 and January 1996. The
differential to be paid or received is accrued as interest rates change and is
recognized over the life of the agreements. The risk associated with these
agreements is the cost of replacing them at current market rates, in the event
of default by the counterparties. Management believes that such risk is remote.
Interest expense over the life of the interest rate swap agreements would be
approximately $1,821,000 higher if the Company had to pay interest at the three
month libor rate (.4375% as of January 7, 1995) on amounts covered by the
interest rate swap agreements.
Amounts drawn under the revolving credit facility are not limited by any
borrowing base. Substantially all of the Company's assets are pledged as
security against various financing agreements. Pursuant to the provisions of the
1993 Financing all collateral will be automatically and completely released upon
the Company's achievement of a specified credit rating from the Rating Agencies.
The Company is also required to pay a .25% commitment fee to the bank on its
unused portion of the revolving credit facility which at January 7, 1995,
amounted to approximately $109,000,000.
The 1993 Financing contains various covenants concerning capital
expenditures and additional debt and requires the Company to meet certain
defined financial tests, which as of January 7, 1995, were as follows: (1)
interest coverage ratio of 3.3 to 1; (2) minimum adjusted net
worth -- $165,000,000; (3) fixed charge coverage ratio of 1.25 to 1; (4)
leverage ratio of 0.625 to 1 and (5) minimum earnings before interest, taxes,
depreciation and amortization (EBITDA) of $108,000,000. At January 7, 1995, the
Company was in compliance with all of the covenants under the 1993 Financing.
The Company believes that the fair market value of its outstanding variable
rate debt is approximately equal to the outstanding principal amount thereof as
(i) substantially all of the Company's debt bears interest at floating rates
(market) and (ii) there are no prepayment premiums required by any of the
Company's material debt agreements.
On April 2, 1992 the Company entered into a Financing Agreement (the
'Financing') that provided for a revolving loan of up to $125 million
(subsequently increased to $200,000,000 in May 1993) and a term loan of $225
million (subsequently increased to $325 million in October 1992) at the lender's
base rate plus 1.5% for advances under the revolving credit facility and base
rate plus 2% for advances under the term loan. The Financing also provides for a
LIBOR option at a rate of LIBOR plus 2.5% for the revolving loan and LIBOR plus
3% for the term loan. The Financing was replaced by the 1993 Financing.
Cash interest paid amounted to $44,535,000, $37,069,000 and $30,680,000 in
the years ended January 2, 1993, January 8, 1994 and January 7, 1995,
respectively.
The Company issues stand-by and commercial letters of credit guaranteeing
the Company's performance under certain purchase agreements. The letters of
credit are issued under the terms of the
F-15
<PAGE>
THE WARNACO GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1993 Financing and the L/C Facility (discussed below). Certain obligations for
letters of credit reduce amounts available under the revolving loan portion of
the 1993 Financing. At January 8, 1994 and January 7, 1995 the Company had
outstanding letters of credit totalling approximately $16,159,000 and
$42,515,000, respectively, of which $4,309,000 and $10,599,000, respectively,
reduced amounts available under the revolving credit facilities outstanding at
those dates.
In addition, on February 1, 1993 the Company entered into an agreement with
a bank to provide the Company with an additional credit facility of $40,000,000
for the issuance of commercial letters of credit (the 'L/C Facility'). This
facility was subsequently increased to $50,000,000, and expanded to include a 90
day term draft acceptance sub-facility of $30,000,000, which was subsequently
increased to $40,000,000. Total amounts outstanding under these facilities may
not exceed $80,000,000. Letters of credit issued under the L/C Facility are
secured by the applicable inventory until such letters of credit are paid and
amounted to $11,850,000 and $31,916,000 at January 8, 1994 and January 7, 1995,
respectively. The L/C Facility is for a term of one year and does not require
the Company to pay a commitment fee on the unused portion.
The Company is required to maintain compensating balances securing certain
credit arrangements. Such balances amounted to $112,000 and $114,000 at January
8, 1994 and January 7, 1995, respectively. In addition, the Company classifies
lock box receipts not available until the next business day as restricted cash.
Such balances amounted to $774,000 and $1,804,000 at January 8, 1994 and January
7, 1995, respectively.
NOTE 12 - CAPITAL STOCK
On August 25, 1994 the Company's Board of Directors authorized a
two-for-one stock split for stockholders of record on September 8, 1994 and
effective October 3, 1994. The split increased the number of outstanding shares
of Class A Common Stock and outstanding options by 100%. Exercise prices for
outstanding options were adjusted to reflect the split. All outstanding shares
and per share information has been restated to reflect the split as if it had
occurred at the beginning of each period presented.
On May 14, 1993, the stockholders of the Company approved amendments to the
Company's Amended and Restated Certificate of Incorporation which authorized the
issuance of up to 10,000,000 shares of preferred stock with a par value of $.01
and increased the authorized number of shares of common stock from 40,000,000 to
65,000,000.
On April 2, 1992, the Company sold 10,000,000 shares of Class A Common
Stock to the public at an offering price of $17.25 per share. Net proceeds of
the offering were approximately $161,310,000 and were used to repay certain
indebtedness and redeem the Company's Class A and Class B Preferred Stock.
Prior to May 1994, dividends to common stockholders were restricted under
certain covenants of the debt agreements. The provisions of the debt agreements
restricting the Company's ability to pay dividends were automatically modified
upon the Company's achievement of an investment grade senior debt rating of BBB-
from Standard & Poor's and, as a result, the Company may declare and pay
dividends equal to 25% of the Company's earnings accumulated since fiscal 1993.
In 1988, the Company adopted the 1988 Employee Stock Purchase Plan ('Stock
Purchase Plan'). The Stock Purchase Plan provides for sales of up to 4,800,000
shares of Class A Common Stock of the Company to certain key employees. At
January 8, 1994 and January 7, 1995, 4,533,150 and 4,521,300 shares were issued
and outstanding pursuant to grants under the Stock Purchase Plan, respectively.
The Stock Purchase Plan is administered by the Employee Stock Purchase Plan
Administrative Committee of the Board of Directors which has full authority to
determine the number of shares granted or sold, vesting requirements, voting
requirements and conditions of any stock purchase agreement between the Company
and a key employee.
F-16
<PAGE>
THE WARNACO GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
All shares were sold at amounts determined to be equal to the fair market
value of the shares. The shares are subject to vesting requirements and
restrictions on the transfer of ownership. In addition, certain employees
elected to pay for the shares granted by executing a Promissory Note payable to
the Company. Notes totalling $8,394,000 and $6,561,000 at January 8, 1994 and
January 7, 1995 are non-interest bearing, while the balance earn interest at
approximately 8%. The note maturities range from five to ten years. Notes
receivable from employees are deducted from stockholders' equity and are
principally owed by officers and directors of the Company.
During 1991, the Company established The Warnaco Group, Inc. 1991 Stock
Option Plan ('Option Plan') and authorized the issuance of up to 1,500,000
shares of Class A Common Stock to cover grants to be made under the plan. The
Option Plan is administered by a committee of the Board of Directors of the
Company which determines the number of stock options to be granted under the
Option Plan, and the terms and conditions of such grants. The Option Plan
provides for the granting of qualified stock options within the meaning of
Internal Revenue Code Section 422 and non-qualified stock options. In addition,
the Option Plan limits the amount of qualified stock options that may become
exercisable by any individual during a calendar year and limits the vesting
period for options awarded under the Option Plan.
On May 14, 1993, the stockholders approved the adoption of The Warnaco
Group, Inc. 1993 Stock Plan ('Stock Plan'). The Stock Plan provided for the
issuance of up to 2,000,000 shares of common stock of the Company through awards
of stock options, stock appreciation rights, performance awards, restricted
stock units and stock unit awards. On May 12, 1994 the stockholders approved an
amendment to the Plan whereby the number of shares issuable under the Stock Plan
is automatically increased each year by 3% of the outstanding number of shares
of Class A Common Stock of the Company as of the beginning of each fiscal year.
The total number of shares available for issuance under the Plan as of January
8, 1995 was 4,462,021. The Compensation Committee of the Board of Directors has
the sole and complete authority to make awards under the Stock Plan and to
determine the specific terms and conditions of such awards, except that the
exercise price of any award may not be less than the fair market value of the
Company's common stock at the date of the grant.
In May 1994 the Company's stockholders approved the adoption of the 1993
Non-Employee Director Stock Plan ('Director Plan'). The Director Plan provides
for awards of up to 400,000 non-qualified stock options to directors of the
Company who are not employees of the Company. Options granted under the Director
Plan are exercisable in whole or in part until the earlier of ten years from the
date of the grant or one year from the date on which an optionee ceases to be a
Director eligible for grants. Options are granted at the fair market value of
the Company's Common Stock at the date of the grant. The Director Plan provides
for the automatic grant of options to purchase (i) 30,000 shares of common stock
upon a Director's election to the Company's Board of Directors and (ii) 10,000
shares of common stock immediately following each Annual Shareholders' Meeting
as of the date of such meeting.
F-17
<PAGE>
THE WARNACO GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Options issued, cancelled and outstanding (no options have been exercised)
under the Stock Plan, the Option Plan and the Director Plan at January 7, 1995
are summarized below:
<TABLE>
<CAPTION>
PRICE RANGE SHARES
----------------- ---------
<S> <C> <C>
Outstanding January 4, 1992.............................................. -- --
Options granted.......................................................... $ 17.31 850,500
Options cancelled........................................................ 17.31 (38,500)
----------------- ---------
Outstanding January 3, 1993.............................................. 17.31 812,000
Options granted.......................................................... 15.81 - 18.31 2,410,000
Options cancelled........................................................ 15.81 - 18.31 (243,000)
----------------- ---------
Outstanding January 8, 1994.............................................. 15.81 - 18.31 2,979,000
Options granted.......................................................... 13.13 - 17.38 670,000
Options cancelled........................................................ 13.38 - 17.38 (162,000)
----------------- ---------
Outstanding January 7, 1995.............................................. $ 13.13 - 18.31 3,487,000
----------------- ---------
----------------- ---------
</TABLE>
Under the above plans options to purchase a total of 3,487,000 shares of
common stock were outstanding, 2,279,916 of which were exercisable. Options are
exercisable for a period of ten years from date of grant and vest when granted
in the case of the Director Plan and from the grant date to four years for the
Stock Plan and Option Plan. Options expire from February 14, 2002 to August 17,
2004.
The Company has reserved 6,362,021 shares of Class A common stock for the
above plans.
In August 1994 the Company purchased 286,600 shares of its outstanding
common stock on the open market at an average price of $17.45 per share. Total
cost of the purchase was $5,000,000 and was funded by increasing amounts
outstanding under the Company's revolving line of credit.
NOTE 13 - LEASES
Rental expense was $13,942,000, $14,213,000 and $15,100,000 for the years
ended January 2, 1993, January 8, 1994 and January 7, 1995, respectively.
The following is a schedule of future minimum rental payments required
under operating leases with terms in excess of one year, as of January 7, 1995.
<TABLE>
<CAPTION>
RENTAL PAYMENTS
------------------------
(IN THOUSANDS)
REAL ESTATE EQUIPMENT
----------- ---------
<S> <C> <C>
1995................................................................ $ 9,508 $ 3,227
1996................................................................ 7,471 2,809
1997................................................................ 6,798 2,148
1998................................................................ 5,904 1,855
1999................................................................ 5,293 1,524
2000-thereafter..................................................... 19,573 2,365
</TABLE>
NOTE 14 - QUARTERLY RESULTS OF OPERATIONS
The following summarizes the unaudited quarterly results of operations of
the Company for the 1993 and 1994 fiscal years.
F-18
<PAGE>
THE WARNACO GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
YEAR ENDED JANUARY 8, 1994
--------------------------------------------
FIRST SECOND THIRD FOURTH
QUARTER QUARTER QUARTER QUARTER
-------- -------- -------- --------
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<S> <C> <C> <C> <C>
Net revenues..................................................... $156,750 $158,329 $183,957 $204,733
Gross profit..................................................... 54,797 48,095 62,699 70,816
Income from continuing operations................................ 10,752 5,519 17,206 19,776
Extraordinary items.............................................. (18,637)
Cumulative effect of change in method of accounting for
postretirement benefits........................................ (10,500)
Net income....................................................... $ 252 $ 5,519 $ 17,206 $ 1,139
-------- -------- -------- --------
-------- -------- -------- --------
Income from continuing operations per common share............... $ 0.27 $ 0.14 $ 0.44 $ 0.49
-------- -------- -------- --------
-------- -------- -------- --------
</TABLE>
<TABLE>
<CAPTION>
YEAR ENDED JANUARY 7, 1995
--------------------------------------------
FIRST SECOND THIRD FOURTH
QUARTER QUARTER QUARTER QUARTER
-------- -------- -------- --------
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<S> <C> <C> <C> <C>
Net revenues..................................................... $147,731 $190,302 $217,872 $232,853
Gross profit..................................................... 50,376 56,990 69,896 78,498
Income from continuing operations................................ 8,961 9,086 21,711 23,570
Net income....................................................... 8,961 $ 9,086 21,711 23,570
-------- -------- -------- --------
-------- -------- -------- --------
Income from continuing operations per common share............... $ 0.22 $ 0.22 $ 0.52 $ 0.57
-------- -------- -------- --------
-------- -------- -------- --------
</TABLE>
F-19
<PAGE>
SCHEDULE II
THE WARNACO GROUP, INC.
VALUATION & QUALIFYING ACCOUNTS & RESERVES
(IN THOUSANDS)
<TABLE>
<CAPTION>
ADDITIONS
BALANCE AT CHARGED TO
BEGINNING COSTS AND BALANCE AT
DESCRIPTION OF YEAR EXPENSES DEDUCTIONS(1) OTHER END OF YEAR
- ---------------------------------------------- ---------- ---------- ------------- ------ -----------
<S> <C> <C> <C> <C> <C>
Year Ended January 2, 1993
Allowance for doubtful accounts............. $1,993 $ 913 $ 1,136 $ $ 1,770
---------- ---------- ------------- ------ -----------
---------- ---------- ------------- ------ -----------
Year Ended January 8, 1994
Allowance for doubtful accounts............. $1,770 $1,199 $ 1,556 $ $ 1,413
---------- ---------- ------------- ------ -----------
---------- ---------- ------------- ------ -----------
Year Ended January 7, 1995
Allowance for doubtful accounts............. $1,413 $1,965 $ 520 $ $ 2,858
---------- ---------- ------------- ------ -----------
---------- ---------- ------------- ------ -----------
</TABLE>
- ------------------
(1) Uncollectible accounts written off, net of recoveries.
The above reserves are deducted from the related assets in the consolidated
balance sheets.
S-1
<PAGE>
STATEMENT OF DIFFERENCES
------------------------
The registered trademark symbol shall be expressed as 'r'
<PAGE>
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT SEQUENTIALLY
NUMBER EXHIBIT DESCRIPTION NUMBERED PAGE
- ------- ---------------------------------------------------------------------------------------- -------------
<S> <C> <C>
10.7 -- Amendment No. 6 to the U.S. $80,000,000 Credit Agreement dated November 18, 1994.
10.9 -- Credit Agreement, dated as of December 7, 1994 among Warnaco Inc., the financial
institutions parties thereto and The Bank of Nova Scotia.
10.12 -- Amendment No. 2 to the U.S. $500,000,000 Credit Agreement dated October 28, 1994.
10.13 -- Amendment No. 3 to the U.S. $500,000,000 Credit Agreement dated December 8, 1994.
11.1 -- Calculation of Income (Loss) per common share.
23.1(a) -- Consent of Independent Auditors
23.1(b) -- Consent of Independent Auditors
</TABLE>
<PAGE>
[EXECUTION COPY]
SIXTH AMENDMENT TO
CREDIT AGREEMENT
This SIXTH AMENDMENT TO CREDIT AGREEMENT, dated as of
November 18, 1994 (this "Amendatory Agreement"), among WARNACO
INC. (the "Borrower"), the various financial institutions
signatories hereto (the "Lenders") and THE BANK OF NOVA SCOTIA,
as agent (the "Agent") for the Lenders,
W I T N E S S E T H:
WHEREAS, the Borrower, the Lenders and the Agent are parties
to a Credit Agreement, dated as of July 16, 1993 (as amended or
otherwise modified to the date hereof, the "Existing Credit
Agreement");
WHEREAS, the Borrower has requested that the Lenders amend
the Existing Credit Agreement in certain respects; and
WHEREAS, the Lenders have agreed, subject to the terms and
conditions hereinafter set forth, to amend the Existing Credit
Agreement in certain respects as provided below (the Existing
Credit Agreement, as so amended by this Amendatory Agreement,
being referred to as the "Credit Agreement");
NOW, THEREFORE, in consideration of the agreements herein
contained, the parties hereto agree as follows:
PART I
DEFINITIONS
SUBPART 1.1. Certain Definitions. The following terms
(whether or not underscored) when used in this Amendatory
Agreement shall have the following meanings (such meanings to be
equally applicable to the singular and plural form thereof):
"Agent" is defined in the preamble.
"Amendatory Agreement" is defined in the preamble.
"Amendment No. 6" is defined in Subpart 3.1.
"Borrower" is defined in the preamble.
<PAGE>
"Credit Agreement" is defined in the third recital.
"Existing Credit Agreement" is defined in the first recital.
"Lenders" is defined in the preamble.
"Sixth Amendment Effective Date" is defined in Subpart 3.1.
SUBPART 1.2. Other Definitions. Terms for which meanings
are provided in the Existing Credit Agreement are, unless
otherwise defined herein or the context otherwise requires, used
in this Amendatory Agreement with such meanings.
PART II
AMENDMENTS TO THE
EXISTING CREDIT AGREEMENT
Effective on (and subject to the occurrence of) the Sixth
Amendment Effective Date, the Existing Credit Agreement is hereby
amended in accordance with Subparts 2.1 through 2.2; except as so
amended, the Existing Credit Agreement shall continue in full
force and effect.
SUBPART 2.1. Amendments to Article I. Article I of the
Existing Credit Agreement is hereby amended in accordance with
Subparts 2.1.1 through 2.1.2.
SUBPART 2.1.1. Section 1.1 of the Existing Credit Agreement
is hereby amended by inserting the following definitions in such
Section in the appropriate alphabetical sequence:
"Amendment No. 6" means the Sixth Amendment, dated as
of November 18, 1994, to this Agreement among the Borrower,
the Lenders and the Agent.
"Sixth Amendment Effective Date" is defined in Subpart
3.1 of Amendment No. 6.
SUBPART 2.1.2. The definition of "Applicable Margin"
appearing in Section 1.1 of the Existing Credit Agreement is
hereby amended
(a) by deleting the table contained in such Section
and substituting the following table in place thereof:
-2-
<PAGE>
"Implied Debt Rating Base Rate Loans LIBO Rate Loans
BB or below 0.500% 1.000%
BB+ 0.250% 0.875%
BBB- 0.000% 0.500%
BBB or above 0.000% 0.450%"; and
(b) by deleting the figure "1.500%" in the last
sentence of such definition and substituting therefor the
figure "1.000%".
SUBPART 2.2. Amendment to Article III. Section 3.3.1 of
the Existing Credit Agreement is hereby amended
(a) by deleting the table contained in such Section
and inserting the following table in place thereof:
Rate for
"Implied Debt Rating Letters of Credit
BB or below 0.750%
BB+ 0.625%
BBB- 0.450%
BBB or above 0.375%"; and
(b) by deleting the figure "1.000%" appearing in the
second sentence of such Section, and substituting the figure
"0.750%" in place thereof.
PART III
CONDITIONS TO EFFECTIVENESS
SUBPART 3.1. Sixth Amendment Effective Date. This
Amendatory Agreement (and the amendments and modifications
contained herein) shall become effective, and shall thereafter be
referred to as "Amendment No. 6", on the date (the "Sixth
Amendment Effective Date") when all of the conditions set forth
in this Subpart 3.1 have been satisfied.
SUBPART 3.1.1. Execution of Counterparts. The Agent shall
have received counterparts of this Amendatory Agreement, duly
executed and delivered on behalf of the Borrower and each of the
Lenders.
SUBPART 3.1.2. Amendment No. 2 to U.S. Credit Agreement.
All of the conditions to the effectiveness of Amendment No. 2,
dated as of November 18, 1994, to the U.S. Credit Agreement shall
have been satisfied in full.
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<PAGE>
SUBPART 3.1.3. Legal Details, etc. All documents executed
or submitted pursuant hereto shall be satisfactory in form and
substance to the Agent and its counsel. The Agent and its
counsel shall have received all information and such counterpart
originals or such certified or other copies or such materials, as
the Agent or its counsel may reasonably request, and all legal
matters incident to the transactions contemplated by this
Amendatory Agreement shall be satisfactory to the Agent and its
counsel.
SUBPART 3.1.4. Amendment Fee. The Agent shall have
received an amendment fee in the amount of $100,000, payable to
each Lender in accordance with such Lender's Percentage.
PART IV
MISCELLANEOUS
SUBPART 4.1. Cross-References. References in this
Amendatory Agreement to any Part or Subpart are, unless otherwise
specified or otherwise required by the context, to such Part or
Subpart of this Amendatory Agreement.
SUBPART 4.2. Loan Document Pursuant to Existing Credit
Agreement. This Amendatory Agreement is a Loan Document executed
pursuant to the Existing Credit Agreement and shall be construed,
administered and applied in accordance with all of the terms and
provisions of the Existing Credit Agreement.
SUBPART 4.3. Successors and Assigns. This Amendatory
Agreement shall be binding upon and inure to the benefit of the
parties hereto and their respective successors and assigns.
SUBPART 4.4. Counterparts. This Amendatory Agreement may
be executed by the parties hereto in several counterparts, each
of which when executed and delivered shall be deemed to be an
original and all of which shall constitute together but one and
the same agreement.
SUBPART 4.5. Governing Law. THIS AMENDATORY AGREEMENT
SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE
INTERNAL LAWS OF THE STATE OF NEW YORK.
SUBPART 4.6. No Default, etc. In order to induce the
Lenders to execute and deliver this Amendatory Agreement and to
amend the Existing Credit Agreement as set forth above, the
Borrower hereby represents and warrants to the Lenders that both
before and after giving effect to the effectiveness of this
Amendatory Agreement the following statements are true and
correct:
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(a) no event or circumstances has occurred and is
continuing which constitutes a Default, or which when
considered by itself or together with other past or then
existing events or circumstances, constitutes or would
constitute a material adverse change in the business
prospects or financial condition of the Borrower and its
Subsidiaries taken as a whole;
(b) no event of default or any condition, occurrence
or event which, after notice or lapse of time or both, would
constitute an event of default has occurred and is
continuing in the performance of any affirmative and
negative covenants contained in Article V of the U.S. Credit
Agreement; and
(c) none of the events described in clauses (a), (e),
(f), (g), (h), (k), (l), (m) or (n) of Section 6.01 of the
U.S. Credit Agreement has occurred and is continuing.
SUBPART 4.7. Acknowledgment of the Lenders. By its
signature below each Lender acknowledges and agrees that the
"U.S. Credit Agreement" means the U.S. Credit Agreement, after
giving effect to the provisions of (i) Amendment No. 1, dated as
of June 8, 1994, among the Borrower and the other parties
signatories thereto, and (ii) Amendment No. 2 to the U.S. Credit
Agreement, dated as of October 24, 1994 and effective as of
November 18, 1994, among the Borrower and the other parties
signatories thereto.
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<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this
Amendatory Agreement to be executed by their respective officers
as of the day and year first above written.
WARNACO INC.
By _____________________________________
Title:
THE BANK OF NOVA SCOTIA,
as Agent, as Issuer and as Lender
By _____________________________________
Title:
MITSUI NEVITT CAPITAL CORPORATION
By _____________________________________
Title:
SOCIETE GENERALE, NEW YORK BRANCH
By _____________________________________
Title:
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<PAGE>
[EXECUTION COPY]
U.S. $10,000,000
CREDIT AGREEMENT,
dated as of December 8, 1994,
among
WARNACO INC.,
as the Borrower,
CERTAIN COMMERCIAL LENDING INSTITUTIONS,
as the Lenders,
and
THE BANK OF NOVA SCOTIA,
as the Agent for the Lenders.
<PAGE>
TABLE OF CONTENTS
PAGE
ARTICLE I
DEFINITIONS AND ACCOUNTING TERMS
1.1. Defined Terms . . . . . . . . . . . . . . . . . . 1
1.2. Use of Defined Terms. . . . . . . . . . . . . . . 9
1.3. Cross-References. . . . . . . . . . . . . . . . . 9
1.4. Accounting and Financial Determinations . . . . . 9
ARTICLE II
COMMITMENTS, BORROWING PROCEDURES AND NOTES
2.1. Commitment. . . . . . . . . . . . . . . . . . . . 9
2.1.1. Commitment. . . . . . . . . . . . . . . . . . . . 9
2.1.2. Lenders Not Permitted or Required To Make Loans
Under Certain Circumstances . . . . . . . . . . 10
2.2. Reduction of Commitment Amount. . . . . . . . . . 11
2.3. Borrowing Procedure . . . . . . . . . . . . . . . 11
2.4. Continuation and Conversion Elections . . . . . . 11
2.5. Funding . . . . . . . . . . . . . . . . . . . . . 11
2.6. Notes . . . . . . . . . . . . . . . . . . . . . . 12
2.7. Extension of Commitment Termination Date. . . . . 12
ARTICLE III
REPAYMENTS, PREPAYMENTS, INTEREST AND FEES
3.1. Repayments and Prepayments. . . . . . . . . . . . 13
3.2. Interest Provisions . . . . . . . . . . . . . . . 13
3.2.1. Rates . . . . . . . . . . . . . . . . . . . . . . 14
3.2.2. Post-Maturity Rates . . . . . . . . . . . . . . . 15
3.2.3. Payment Dates . . . . . . . . . . . . . . . . . . 15
3.3. Commitment Fee. . . . . . . . . . . . . . . . . . 15
ARTICLE IV
CERTAIN LIBO RATE AND OTHER PROVISIONS
4.1. LIBO Rate Lending Unlawful. . . . . . . . . . . . 16
4.2. Deposits Unavailable. . . . . . . . . . . . . . . 16
4.3. Increased LIBO Rate Loan Costs, etc.. . . . . . . 16
4.4. Funding Losses. . . . . . . . . . . . . . . . . . 17
4.5. Increased Capital Costs, etc. . . . . . . . . . . 17
4.6. Taxes . . . . . . . . . . . . . . . . . . . . . . 18
4.7. Payments, Computations, etc.. . . . . . . . . . . 20
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4.8. Sharing of Payments . . . . . . . . . . . . . . . 21
4.9. Setoff. . . . . . . . . . . . . . . . . . . . . . 21
4.10. Use of Proceeds . . . . . . . . . . . . . . . . . 22
ARTICLE V
CONDITIONS PRECEDENT
5.1. Initial Credit Extension. . . . . . . . . . . . . 22
5.1.1. Resolutions, etc. . . . . . . . . . . . . . . . . 22
5.1.2. Delivery of Note. . . . . . . . . . . . . . . . . 22
5.1.3. No Default, etc.. . . . . . . . . . . . . . . . . 22
5.1.4. No Material Adverse Change. . . . . . . . . . . . 23
5.1.5. Opinion of Counsel. . . . . . . . . . . . . . . . 23
5.1.6. Closing Fees, Expenses, etc.. . . . . . . . . . . 23
5.1.7. Delivery of Guaranty. . . . . . . . . . . . . . . 23
5.2. All Credit Extensions . . . . . . . . . . . . . . 23
5.2.1. Compliance with Warranties, No Default, etc.. . . 23
5.2.2. Borrowing Request . . . . . . . . . . . . . . . . 24
5.2.3. Satisfactory Legal Form . . . . . . . . . . . . . 24
ARTICLE VI
REPRESENTATIONS AND WARRANTIES
6.1. Organization, etc.. . . . . . . . . . . . . . . . 25
6.2. Due Authorization, Non-Contravention, etc.. . . . 25
6.3. Government Approval, Regulation, etc. . . . . . . 25
6.4. Validity, etc.. . . . . . . . . . . . . . . . . . 25
6.5. No Material Adverse Change. . . . . . . . . . . . 26
6.6. Litigation, Labor Controversies, etc. . . . . . . 26
6.7. Regulations G, U and X. . . . . . . . . . . . . . 26
6.8. Accuracy of Information . . . . . . . . . . . . . 26
ARTICLE VII
COVENANTS
7.1. Affirmative Covenants . . . . . . . . . . . . . . 27
7.1.1. Financial Information, Reports, Notices, etc. . . 27
7.1.2. Corporate Existence . . . . . . . . . . . . . . . 28
ARTICLE VIII
EVENTS OF DEFAULT
8.1. Listing of Events of Default. . . . . . . . . . . 28
8.1.1. Non-Payment of Obligations. . . . . . . . . . . . 28
8.1.2. Breach of Warranty. . . . . . . . . . . . . . . . 28
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8.1.3. Non-Performance of Certain Covenants and
Obligations . . . . . . . . . . . . . . . . . . 28
8.1.4. Non-Performance of Other Covenants and
Obligations . . . . . . . . . . . . . . . . . . 29
8.1.5. Default Under U.S. Credit Agreement . . . . . . . 29
8.1.6. Bankruptcy, Insolvency, etc.. . . . . . . . . . . 29
8.1.7. Impairment of Guaranty. . . . . . . . . . . . . . 29
8.2. Action Upon Bankruptcy. . . . . . . . . . . . . . 29
8.3. Action Upon Other Event of Default. . . . . . . . 29
ARTICLE IX
THE AGENT
9.1. Actions . . . . . . . . . . . . . . . . . . . . . 30
9.2. Copies, etc.. . . . . . . . . . . . . . . . . . . 30
9.3. Exculpation . . . . . . . . . . . . . . . . . . . 31
9.4. Successor . . . . . . . . . . . . . . . . . . . . 31
9.5. Loans Made by Scotiabank. . . . . . . . . . . . . 31
9.6. Credit Decisions. . . . . . . . . . . . . . . . . 32
ARTICLE X
MISCELLANEOUS PROVISIONS
10.1. Waivers, Amendments, etc. . . . . . . . . . . . . 32
10.2. Notices . . . . . . . . . . . . . . . . . . . . . 33
10.3. Payment of Costs and Expenses . . . . . . . . . . 33
10.4. Indemnification . . . . . . . . . . . . . . . . . 34
10.5. Survival. . . . . . . . . . . . . . . . . . . . . 34
10.6. Severability. . . . . . . . . . . . . . . . . . . 35
10.7. Headings. . . . . . . . . . . . . . . . . . . . . 35
10.8. Execution in Counterparts, Effectiveness, etc.. . 35
10.9. Governing Law; Entire Agreement . . . . . . . . . 35
10.10. Successors and Assigns. . . . . . . . . . . . . . 35
10.11. Sale and Transfer of Loans and Notes;
Participations in Loans and Notes . . . . . . . 36
10.11.1. Assignments . . . . . . . . . . . . . . . . . . . 36
10.11.2. Participations. . . . . . . . . . . . . . . . . . 37
10.12. Other Transactions. . . . . . . . . . . . . . . . 38
10.13. Forum Selection and Consent to Jurisdiction . . . 38
10.14. Waiver of Jury Trial. . . . . . . . . . . . . . . 39
10.15. Usury Restraint . . . . . . . . . . . . . . . . . 39
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<PAGE>
SCHEDULE I - Disclosure Schedule
EXHIBIT A - Form of Note
EXHIBIT B - Form of Borrowing Request
EXHIBIT C - Form of Continuation/Conversion Notice
EXHIBIT D - Form of Lender Assignment Agreement
EXHIBIT E - Form of Opinion of Counsel to the Borrower
EXHIBIT F - Form of Guaranty
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<PAGE>
CREDIT AGREEMENT
THIS CREDIT AGREEMENT, dated as of December 8, 1994, among
WARNACO INC., a Delaware corporation (the "Borrower"), the
various financial institutions as are or may become parties
hereto (collectively, the "Lenders"), and THE BANK OF NOVA SCOTIA
("Scotiabank"), as agent (the "Agent") for the Lenders,
W I T N E S S E T H:
WHEREAS, the Borrower desires to obtain Commitments from the
Lenders pursuant to which Loans will be made by the Lenders to
the Borrower from time to time prior to the Commitment
Termination Date;
WHEREAS, the Lenders are willing, on the terms and subject
to the conditions hereinafter set forth (including Article V), to
extend such Commitments and to make such Loans to the Borrower;
and
WHEREAS, the proceeds of Loans will be used to repay
obligations arising as a result of disbursements made under
letters of credit that are issued from time to time in connection
with the Borrower's and its wholly-owned Subsidiaries' worldwide
sourcing of merchandise;
NOW, THEREFORE, the parties hereto agree as follows:
ARTICLE I
DEFINITIONS AND ACCOUNTING TERMS
Section 1.1. Defined Terms. The following terms (whether
or not underscored) when used in this Agreement, including its
preamble and recitals, shall, except where the context otherwise
requires, have the following meanings (such meanings to be
equally applicable to the singular and plural forms thereof):
"Agent" is defined in the preamble and includes each other
Person as shall have subsequently been appointed as the successor
Agent pursuant to Section 9.4.
"Agreement" means, on any date, this Credit Agreement as
originally in effect on the Effective Date and as thereafter from
time to time amended, supplemented, amended and restated, or
otherwise modified and in effect on such date.
"Alternate Base Rate" means, on any date and with respect to
all Base Rate Loans, a fluctuating rate of interest per annum
equal to the higher of
<PAGE>
(a) the rate of interest most recently announced by
Scotiabank at its Domestic Office as its base rate for
Dollar loans; and
(b) the Federal Funds Rate most recently determined by
the Agent plus 1/2 of 1%.
The Alternate Base Rate is not necessarily intended to be the
lowest rate of interest determined by Scotiabank in connection
with extensions of credit. Changes in the rate of interest on
that portion of any Loans maintained as Base Rate Loans will take
effect simultaneously with each change in the Alternate Base
Rate. The Agent will give notice promptly to the Borrower of
changes in the Alternate Base Rate.
"Assignee Lender" is defined in Section 10.11.1.
"Authorized Officer" means, relative to the Borrower, those
of its officers whose signatures and incumbency shall have been
certified to the Agent and the Lenders pursuant to Section 5.1.1.
"Base Rate Loan" means a Loan bearing interest at a
fluctuating rate determined by reference to the Alternate Base
Rate.
"Borrower" is defined in the preamble.
"Borrowing" means the making of Loans by the Lenders of the
same type and, in the case of LIBO Rate Loans, having the same
Interest Period in accordance with Section 2.1.
"Borrowing Request" means a loan request and certificate
duly executed by an Authorized Officer of the Borrower,
substantially in the form of Exhibit B hereto.
"Business Day" means
(a) any day which is neither a Saturday or Sunday nor
a legal holiday on which banks are authorized or required to
be closed in New York; and
(b) relative to the making, continuing, prepaying or
repaying of any LIBO Rate Loans, any day on which dealings
in Dollars are carried on in the London interbank market.
"Commitment" means relative to any Lender, such Lender's
obligation to make Loans pursuant to Section 2.1.1.
"Commitment Amount" means $10,000,000, as such amount may be
reduced by Section 2.2.
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"Commitment Termination Date" means the earliest of
(a) June 29, 1995, as such date may be extended
pursuant to the terms of this Agreement;
(b) the date on which the Commitment Amount is
terminated in full or reduced to zero pursuant to Section
2.2; and
(c) the date on which any Commitment Termination Event
occurs.
Upon the occurrence of any event described in clause (b) or (c),
the Commitment shall terminate automatically and without any
further action.
"Commitment Termination Event" means
(a) the occurrence of any event or condition described
in clause (f) of Section 6.01 of the U.S. Credit Agreement;
(b) the occurrence and continuance of any other Event
of Default and either
(i) the declaration of the Loans to be due and
payable pursuant to Section 8.3, or
(ii) in the absence of such declaration, the
giving of notice by the Agent, acting at the direction
of the Required Lenders, to the Borrower that the
Commitments have been terminated; or
(c) the termination of, or any refinancing, refunding,
replacement, renewal or restatement of, the U.S. Credit
Agreement.
"Continuation/Conversion Notice" means a notice of
continuation or conversion and certificate duly executed by an
Authorized Officer of the Borrower, substantially in the form of
Exhibit C hereto.
"Credit Extension" means the advancing of any Loans by the
Lenders in connection with a Borrowing.
"Default" means any Event of Default or any condition,
occurrence or event which, after notice or lapse of time or both,
would constitute an Event of Default.
"Disbursement" is defined in the L/C Agreement.
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"Dollar" and the sign "$" mean lawful money of the United
States.
"Domestic Office" means, relative to any Lender, the office
of such Lender designated as such below its signature hereto or
designated in the Lender Assignment Agreement or such other
office of a Lender (or any successor or assign of such Lender)
within the United States as may be designated from time to time
by notice from such Lender, as the case may be, to each other
Person party hereto.
"Effective Date" means the date this Agreement becomes
effective pursuant to Section 10.8.
"Event of Default" is defined in Section 8.1.
"Excess" is defined in Section 10.15.
"Federal Funds Rate" means, for any period, a fluctuating
interest rate per annum equal for each day during such period to
(a) the weighted average of the rates on overnight
federal funds transactions with members of the Federal
Reserve System arranged by federal funds brokers, as
published for such day (or, if such day is not a Business
Day, for the next preceding Business Day) by the Federal
Reserve Bank of New York; or
(b) if such rate is not so published for any day which
is a Business Day, the average of the quotations for such
day on such transactions received by the Agent from three
federal funds brokers of recognized standing selected by it.
If for any reason the Agent shall have determined (which
determination shall be conclusive, absent manifest error) that it
is unable to ascertain the Federal Funds Rate for any reason,
including without limitation, the inability or failure of the
Agent to obtain sufficient bids or publications in accordance
with the terms hereof, the rate announced by the Agent at its New
York Agency as its "Base Rate New York" shall be the Alternate
Base Rate until the circumstances giving rise to such inability
no longer exists.
"Fiscal Quarter" means any quarter of a Fiscal Year.
"Fiscal Year" means the fiscal year of the Borrower ending
on or about December 31 of each year.
"F.R.S. Board" means the Board of Governors of the Federal
Reserve System or any successor thereto.
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<PAGE>
"GAAP" has the meaning set forth in the U.S. Credit
Agreement.
"Group" means The Warnaco Group, Inc., a Delaware
corporation.
"Guaranty" means the Guaranty, dated as of the date hereof,
in substantially the form of Exhibit F hereto, executed and
delivered by Group pursuant to Section 5.1.7, as amended or
otherwise modified pursuant to the terms thereof.
"herein", "hereof", "hereto", "hereunder" and similar terms
contained in this Agreement or any other Loan Document refer to
this Agreement or such other Loan Document, as the case may be,
as a whole and not to any particular Section, paragraph or
provision of this Agreement or such other Loan Document.
"including" means including without limiting the generality
of any description preceding such term.
"Indebtedness" of any Person means, without duplication:
(a) all obligations of such Person for borrowed money
and all obligations of such Person evidenced by bonds,
debentures, notes or other similar instruments;
(b) all obligations, contingent or otherwise, relative
to the face amount of all letters of credit, whether or not
drawn, and banker's acceptances issued for the account of
such Person;
(c) all obligations of such Person as lessee under
leases which have been or should be, in accordance with
GAAP, recorded as capitalized lease liabilities;
(d) all obligations of such Person to pay the deferred
purchase price of property or services (other than trade
debt incurred in the ordinary course of business), and
indebtedness (excluding prepaid interest thereon) secured by
a Lien on property owned or being purchased by such Person
(including indebtedness arising under conditional sales or
other title retention agreements), whether or not such
indebtedness shall have been assumed by such Person or is
limited in recourse; and
(e) all contingent liabilities of such Person in
respect of any of the foregoing.
"Indemnified Liabilities" is defined in Section 10.4.
"Indemnified Parties" is defined in Section 10.4.
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<PAGE>
"Interest Period" means, relative to any LIBO Rate Loans,
the period beginning on (and including) the date on which such
LIBO Rate Loan is made or continued as, or converted into, a LIBO
Rate Loan pursuant to Section 2.3 or 2.4 and ending on (but
excluding) the day which numerically corresponds to such date one
or, two or three months thereafter (or, if such month has no
numerically corresponding day, on the last Business Day of such
month), in each case as such Loan may be made or as the Borrower
may select in its relevant notice pursuant to Section 2.3 or 2.4;
provided, however, that
(a) Interest Periods commencing on the same date for
Loans comprising part of the same Borrowing shall be of the
same duration;
(b) if such Interest Period would otherwise end on a
day which is not a Business Day, such Interest Period shall
end on the next following Business Day (unless such next
following Business Day is the first Business Day of a
calendar month, in which case such Interest Period shall end
on the Business Day next preceding such numerically
corresponding day); and
(c) no Interest Period may end later than the date set
forth in clause (a) of the definition of "Commitment
Termination Date", as such date may be extended from time to
time pursuant to the terms of this Agreement.
"L/C Agreement" means the Credit Agreement, dated as of July
16, 1993 (as amended, supplemented, amended and restated or
otherwise modified from time to time), among the Borrower,
certain commercial lending institutions parties thereto and The
Bank of Nova Scotia, as agent for such commercial lending
institutions.
"Lender Assignment Agreement" means a Lender Assignment
Agreement substantially in the form of Exhibit D hereto.
"Letter of Credit" is defined in the L/C Agreement.
"Lenders" is defined in the preamble.
"LIBO Rate" is defined in Section 3.2.1.
"LIBO Rate Loan" means a Loan bearing interest, at all times
during an Interest Period applicable to such Loan, at a fixed
rate of interest determined by reference to the LIBO Rate
(Reserve Adjusted).
"LIBO Rate (Reserve Adjusted)" is defined in Section 3.2.1.
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<PAGE>
"LIBOR Office" means, relative to any Lender, the office of
such Lender designated as such below its signature hereto or
designated in the Lender Assignment Agreement or such other
office of any Lender as designated from time to time by notice
from such Lender to the Borrower and the Agent, whether or not
outside the United States, which shall be making or maintaining
LIBO Rate Loans hereunder.
"LIBOR Reserve Percentage" is defined in Section 3.2.1.
"Lien" means any security interest, mortgage, pledge,
hypothecation, assignment, deposit arrangement, encumbrance, lien
(statutory or otherwise), charge against or interest in property
to secure payment of a debt or performance of an obligation or
other priority or preferential arrangement of any kind or nature
whatsoever.
"Loan" is defined in Section 2.1.1.
"Loan Document" means this Agreement, each Note, the
Guaranty and each other agreement, document or instrument
delivered in connection with this Agreement, whether or not
specifically mentioned herein.
"Maximum Rate" is defined in Section 10.15.
"Note" means any promissory note of the Borrower payable to
the order of a Lender, in the form of Exhibit A hereto (as such
promissory note may be amended, endorsed or otherwise modified
from time to time), evidencing the aggregate Indebtedness of the
Borrower to such Lender resulting from outstanding Loans made by
such Lender, and also means all other promissory notes accepted
from time to time in substitution therefor or renewal thereof.
"Obligor" means the Borrower and Group.
"Obligations" means all obligations (monetary or otherwise)
of any Obligor arising under or in connection with this
Agreement, the Notes and each other Loan Document.
"Organic Document" means, relative to any Obligor, its
certificate of incorporation, its by-laws and all shareholder
agreements, voting trusts and similar arrangements applicable to
any of its authorized shares of capital stock.
"Participant" is defined in Section 10.11.2.
"Percentage" means, on any date, relative to any Lender the
percentage set forth opposite its signature hereto or set forth
in a Lender Assignment Agreement, as such percentage may be
adjusted from time to time pursuant to the terms hereof or a
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<PAGE>
Lender Assignment Agreement executed by such Lender and its
Assignee Lender and delivered pursuant to Section 10.11.1.
"Person" means any natural person, corporation, partnership,
firm, association, trust, government, governmental agency or any
other entity, whether acting in an individual, fiduciary or other
capacity.
"Quarterly Payment Date" means the last day of each March,
June, September and December or, if any such day is not a
Business Day, the next succeeding Business Day.
"Reimbursement Obligation" is defined in the L/C Agreement.
"Required Lenders" means, at any time, Lenders holding Loans
representing at least 51% of the aggregate principal amount of
the Loans then outstanding and, if no Loans are outstanding, 51%
of the Commitments.
"Scotiabank" is defined in the preamble.
"Stated Maturity Date" means, in the case of any Loan, the
date that is 90 days after the Commitment Termination Date;
provided, however, that in the case of a Commitment Termination
Event of the type described in clause (c) of the definition of
"Commitment Termination Event", the Stated Maturity Date shall be
the date on which such event occurs.
"Stated Rate" is defined in Section 10.15.
"Subsidiary" means, with respect to any Person, any
corporation of which more than 50% of the outstanding capital
stock having ordinary voting power to elect a majority of the
board of directors of such corporation (irrespective of whether
at the time capital stock of any other class or classes of such
corporation shall or might have voting power upon the occurrence
of any contingency) is at the time directly or indirectly owned
by such Person, by such Person and one or more other Subsidiaries
of such Person, or by one or more other Subsidiaries of such
Person.
"Taxes" is defined in Section 4.6.
"type" means, relative to any Loan, the portion thereof, if
any, being maintained as a Base Rate Loan or a LIBO Rate Loan.
"United States" or "U.S." means the United States of
America, its fifty States and the District of Columbia.
"U.S. Credit Agreement" means the Credit Agreement, dated as
of October 14, 1993 (as amended or otherwise modified to the date
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hereof), among the Borrower, The Warnaco Group, Inc., the Banks
named therein, The Bank of Nova Scotia and Citicorp USA, Inc., as
Managing Agents, Citicorp USA, Inc., as Documentation Agent and
Collateral Agent, and The Bank of Nova Scotia, as Paying Agent,
Swing Line Bank and an Issuing Bank, as amended, restated or
waived from time to time with the consent of the Required Lenders
hereunder solely for purposes of this Agreement, and regardless
of whether such U.S. Credit Agreement is terminated, unless in
connection with such termination a replacement credit facility
satisfactory to the Required Lenders hereunder is entered into in
which case, the affirmative and negative covenants in such
facility shall become the subject of this Agreement.
"Usury Restraint" is defined in Section 10.15.
Section 1.2. Use of Defined Terms. Unless otherwise
defined or the context otherwise requires, terms for which
meanings are provided in this Agreement shall have such meanings
when used in each Note, Borrowing Request, Continuation/
Conversion Notice, Loan Document, notice and other communication
delivered from time to time in connection with this Agreement or
any other Loan Document.
Section 1.3. Cross-References. Unless otherwise specified,
references in this Agreement and in each other Loan Document to
any Article or Section are references to such Article or Section
of this Agreement or such other Loan Document, as the case may
be, and, unless otherwise specified, references in any Article,
Section or definition to any clause are references to such clause
of such Article, Section or definition.
Section 1.4. Accounting and Financial Determinations.
Unless otherwise specified, all accounting terms used herein
shall be interpreted, all accounting determinations and
computations hereunder shall be made, and all financial
statements required to be delivered hereunder or thereunder shall
be prepared in accordance with, GAAP.
ARTICLE II
COMMITMENTS, BORROWING PROCEDURES AND NOTES
Section 2.1. Commitment. On the terms and subject to the
conditions of this Agreement (including Article V), each Lender
severally agrees as follows.
Section 2.1.1. Commitment. From time to time on any
Business Day occurring prior to the Commitment Termination Date,
each Lender severally agrees, subject to the terms of this
Agreement (including Article V) that it will make loans (relative
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to such Lender, its "Loans") to the Borrower equal to its
Percentage of the aggregate amount of the Borrowing of Loans
requested by the Borrower to be made on such day or otherwise
required to be made pursuant to the terms of Section 2.3. No
Lender's obligation to make any Loan shall be affected by any
other Lender's failure to make any Loan. On the terms and
subject to the conditions hereof, the Borrower may from time to
time borrow, prepay and reborrow Loans. Notwithstanding anything
contained herein to the contrary, so long as any Lender whose
Percentage to make Loans is less than 51% shall be in default in
its obligation to fund its pro rata share of any Loans (as
notified to such Lender by the Agent, the Agent agreeing to use
good faith efforts to give such notification promptly following
the occurrence of such default) or shall have rejected its
obligations under its Commitment, then such Lender whose
Percentage to make Loans is less than 51% shall not be entitled
to receive any payments of principal of or interest on its pro
rata share of the Loans or its share of any commitment or other
fees payable hereunder unless and until (x) the Loans of all the
other Lenders and all interest thereon have been paid in full,
(y) such failure to fulfill its obligation to fund is cured or
(z) the Obligations under this Agreement shall have been declared
or shall have become immediately due and payable, and for
purposes of voting or consenting to matters with respect to the
Loan Documents, such Lender shall be deemed not to be a "Lender"
hereunder and such Lender's Percentage shall each be deemed to
be zero (0). No Commitment of any Lender shall be increased or
otherwise affected by any such failure or rejections by any other
Lender. Any payments of principal of or interest on Obligations
which would, but for this Section, be paid to any Lender, shall
be paid to the Lenders who shall not be in default under their
respective Commitments and who shall not have rejected any
Commitment, for application to the Obligations in such manner and
order (pro rata among such Lenders) as shall be determined by the
Agent. The parties hereto acknowledge and agree that a Lender's
failure to make a Loan based on the Borrower's failure to satisfy
one or more of the conditions precedent to the making of Loans
set forth in Article V shall not be construed as such Lender
being in default of its obligations to fund its pro rata share of
Loans or a rejection of such Lender's obligations under its
Commitment.
Section 2.1.2. Lenders Not Permitted or Required To Make
Loans Under Certain Circumstances. No Lender shall be permitted
or required to make any Loan if, after giving effect thereto, the
aggregate outstanding principal amount of all Loans
(a) made by all Lenders would exceed the then
effective Commitment Amount; or
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(b) made by such Lender would exceed such Lender's
Percentage multiplied by the Commitment Amount.
Section 2.2. Reduction of Commitment Amount. The Borrower
may, from time to time on any Business Day, voluntarily reduce
the Commitment Amount; provided, however, that all such
reductions shall require at least three Business Days' prior
notice to the Agent and be permanent.
Section 2.3. Borrowing Procedure. By delivering a
Borrowing Request to the Agent on or before 2:00 p.m., New York
time, on a Business Day, the Borrower may from time to time
irrevocably request, on not less than three nor more than five
Business Days' notice (in the case of LIBO Rate Loans) and on the
date of such Borrowing (in the case of Base Rate Loans), that a
Borrowing be made in an amount not to exceed the full amount of a
Disbursement under a Letter of Credit. Proceeds of such Loans
shall be used only to fund the Reimbursement Obligations in
respect of Letters of Credit under which a Disbursement was made
on the date of the Loan.
On the terms and subject to the conditions of this
Agreement, each Borrowing shall be comprised of the type of
Loans, and shall be made on the Business Day, specified in such
Borrowing Request.
Section 2.4. Continuation and Conversion Elections. By
delivering a Continuation/Conversion Notice to the Agent on or
before 10:00 a.m., New York time, on a Business Day, the Borrower
may from time to time irrevocably elect, on not less than three
nor more than five Business Days' notice that all, or any portion
of any Loans be, in the case of Base Rate Loans, converted into
LIBO Rate Loans or, in the case of a LIBO Rate Loan, converted
into a Base Rate Loan or continued as a LIBO Rate Loan (in the
absence of delivery of a Continuation/Conversion Notice with
respect to any LIBO Rate Loan at least three Business Days before
the last day of the then current Interest Period with respect
thereto, such LIBO Rate Loan shall, on such last day,
automatically convert to a Base Rate Loan unless such Loan is
otherwise required to be paid pursuant to the terms of this
Agreement (including the first sentence of Section 3.1));
provided, however, that no portion of the outstanding principal
amount of any Loans may be continued as, or be converted into,
LIBO Rate Loans when any Default has occurred and is continuing.
Section 2.5. Funding. Each Lender may, if it so elects,
fulfill its obligation to make, continue or convert LIBO Rate
Loans hereunder by causing one of its foreign branches or
affiliates (or an international banking facility all of the
capital stock or other ownership interests of which are wholly-
owned by such Lender) to make or maintain such LIBO Rate Loan;
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provided, however, that such LIBO Rate Loan shall nonetheless be
deemed to have been made and to be held by such Lender, and the
obligation of the Borrower to repay such LIBO Rate Loan shall
nevertheless be to such Lender for the account of such foreign
branch, affiliate or international banking facility; provided,
further that the Borrower shall not be required to pay any amount
under this Section or Section 4.6 that is greater than the amount
which it would have been required to pay had such Lender not
caused such branch, affiliate or facility to make or maintain
such LIBO Rate Loan. In addition, the Borrower hereby consents
and agrees that, for purposes of any determination to be made for
purposes of Section 4.1, 4.2, 4.3 or 4.4, it shall be
conclusively assumed that such Lender elected to fund all LIBO
Rate Loans by purchasing Dollar deposits in its LIBOR Office's
interbank eurodollar market.
Section 2.6. Notes. Each Lender's Loans under the
Commitment shall be evidenced by a Note payable to the order of
such Lender in a maximum principal amount equal to such Lender's
Percentage of Loans multiplied by the Commitment Amount. The
Borrower hereby irrevocably authorizes each Lender to make (or
cause to be made) appropriate notations on the grid attached to
such Lender's Note (or on any continuation of such grid), which
notations, if made, shall evidence, inter alia, the date of, the
outstanding principal of, and the interest rate and Interest
Period applicable to the Loans evidenced thereby. Such notations
shall be conclusive and binding on the Borrower absent manifest
error; provided, however, that the failure of any Lender to make
any such notations shall not limit or otherwise affect any
Obligations of the Borrower.
Section 2.7. Extension of Commitment Termination Date. The
Commitment Termination Date may be extended by the Lenders in
their sole and absolute discretion upon written request of the
Borrower received at least 60 days but not more than 90 days
prior to the then effective Commitment Termination Date (as such
date may have been extended). The Lenders shall give written
notice to the Borrower of their decision and, if approved, of the
new Commitment Termination Date; provided, that notwithstanding
any other provision in this Agreement to the contrary, in no
event shall the modified Commitment Termination Date exceed 364
days from the then expiring Commitment Termination Date. The
Lenders shall give written notice to the Borrower of their
decision within 30 days of request. In the absence of notice by
any one of the Lenders, the then effective Commitment Termination
Date shall not be extended and shall terminate and expire as
otherwise provided in this Agreement.
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ARTICLE III
REPAYMENTS, PREPAYMENTS, INTEREST AND FEES
Section 3.1. Repayments and Prepayments. The Borrower
shall repay in full the entire unpaid principal amount of each
Loan upon the earlier of (i) at the election of the Borrower, no
later than 90 days following the date of the making of such Loan
(or, if different, on the last day of the Interest Period for
such Loan) and (ii) the Stated Maturity Date therefor. Prior
thereto, the Borrower
(a) may, from time to time on any Business Day, make a
voluntary prepayment, in whole or in part, of the
outstanding principal amount of any Loans; provided,
however, that
(i) no such prepayment of any LIBO Rate Loan may
be made on any day other than the last day of the
Interest Period for such Loan; and
(ii) all such voluntary prepayments shall require
at least one Business Day's prior written notice to the
Agent;
(b) shall, on each date when any reduction in the
Commitment Amount shall become effective, make a mandatory
prepayment of the aggregate outstanding principal amount of
all Loans then outstanding in an amount equal to the excess,
if any, of the aggregate outstanding principal amount of all
Loans over the Commitment Amount, as so reduced; and
(c) shall, immediately upon any acceleration of the
Stated Maturity Date of any Obligations pursuant to Section
8.2 or Section 8.3, repay all Obligations, unless, pursuant
to Section 8.3, only a portion of all Obligations is so
accelerated.
Each prepayment of any Loans made pursuant to this Section shall
be without premium or penalty, except as may be required by
Section 4.4. No voluntary prepayment of principal of any Loans
shall cause a reduction in the Commitment Amount.
Section 3.2. Interest Provisions. Interest on the
outstanding principal amount of Loans shall accrue and be payable
in accordance with this Section 3.2.
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Section 3.2.1. Rates. Loans comprising a Borrowing shall
accrue interest at a rate per annum:
(a) on that portion maintained from time to time as a
Base Rate Loan, equal to the sum of the Alternate Base Rate
from time to time in effect plus 3/4 of 1%; or
(b) on that portion maintained as a LIBO Rate Loan,
during each Interest Period applicable thereto, equal to
the sum of the LIBO Rate (Reserve Adjusted) for such
Interest Period plus 1.250%.
The "LIBO Rate (Reserve Adjusted)" means, relative to any
Loan to be made, continued or maintained as, or converted into, a
LIBO Rate Loan for any Interest Period, a rate per annum (rounded
upwards, if necessary, to the nearest 1/16 of 1%) determined
pursuant to the following formula:
LIBO Rate = LIBO Rate
-------------------------------
(Reserve Adjusted) 1.00 - LIBOR Reserve Percentage
The LIBO Rate (Reserve Adjusted) for any Interest Period for LIBO
Rate Loans will be determined by the Agent on the basis of the
LIBOR Reserve Percentage in effect on, and the applicable rates
furnished to and received by the Agent from Scotiabank, two
Business Days before the first day of such Interest Period.
"LIBO Rate" means, relative to any Interest Period for LIBO
Rate Loans, the rate of interest equal to the average of the
rates per annum at which Dollar deposits in immediately available
funds are offered to Scotiabank's LIBOR Office in the London
interbank market as at or about 11:00 a.m. London time two
Business Days prior to the beginning of such Interest Period for
delivery on the first day of such Interest Period, and in an
amount approximately equal to the amount of Scotiabank's LIBO
Rate Loan and for a period approximately equal to such Interest
Period.
"LIBOR Reserve Percentage" means, relative to any Interest
Period for LIBO Rate Loans, the reserve percentage, if any
(expressed as a decimal) equal to the maximum aggregate reserve
requirements (including all basic, emergency, supplemental,
marginal and other reserves and taking into account any
transitional adjustments or other scheduled changes in reserve
requirements) specified under regulations issued from time to
time by the F.R.S. Board and then applicable to assets or
liabilities consisting of and including "Eurocurrency
Liabilities", as currently defined in Regulation D of the F.R.S.
Board, having a term approximately equal or comparable to such
Interest Period.
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All LIBO Rate Loans shall bear interest from and including
the first day of the applicable Interest Period to (but not
including) the last day of such Interest Period at the interest
rate determined as applicable to such LIBO Rate Loan.
Section 3.2.2. Post-Maturity Rates. After the date any
principal amount of any Loan is due and payable (whether on the
Stated Maturity Date, upon acceleration or otherwise), or after
any other monetary Obligation of the Borrower shall have become
due and payable, the Borrower shall pay, but only to the extent
permitted by law, interest (after as well as before judgment) on
such amounts at a rate per annum equal to the greater of (i) the
Alternate Base Rate plus a margin of 3%, and (ii) the then
applicable interest rate plus a margin of 1%.
Section 3.2.3. Payment Dates. Interest accrued on each
Loan shall be payable, without duplication:
(a) on the Stated Maturity Date therefor;
(b) on the date of any optional or required payment
or prepayment, in whole or in part, of principal
outstanding on such Loan (including, with respect to LIBO
Rate Loans, on the last day of each applicable Interest
Period for such LIBO Rate Loan);
(c) with respect to any Loans maintained as Base Rate
Loans, on each Quarterly Payment Date and, with respect to
any Base Rate Loans converted into LIBO Rate Loans on a day
when interest would not otherwise have been payable
pursuant to the terms hereof, on the date of such
conversion; and
(d) on that portion of any Loans the Stated Maturity
Date of which is accelerated pursuant to Section 8.2 or
Section 8.3, immediately upon such acceleration.
Interest accrued on Loans or other monetary Obligations arising
under this Agreement or any other Loan Document after the date
such amount is due and payable (whether on the Stated Maturity
Date, upon acceleration or otherwise) shall be payable upon
demand.
Section 3.3. Commitment Fee. The Borrower agrees to pay
to the Agent for the account of each Lender, for the period
(including any portion thereof when its Commitment is suspended
by reason of the Borrower's inability to satisfy any condition of
Article V) commencing on the Effective Date and continuing
through (but excluding) the Commitment Termination Date, a
commitment fee at the rate of 1/4 of 1% per annum on such
Lender's Percentage of the average daily unused portion of the
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Commitment Amount. Such commitment fees shall be non-refundable
and shall be payable by the Borrower in arrears on each Quarterly
Payment Date, commencing with the first such day following the
Effective Date and on the Commitment Termination Date.
ARTICLE IV
CERTAIN LIBO RATE AND OTHER PROVISIONS
Section 4.1. LIBO Rate Lending Unlawful. If any Lender
shall determine (which determination shall, upon notice thereof
to the Borrower, be conclusive and binding on the Borrower) that
the introduction of or any change in or in the interpretation of
any law makes it unlawful, or any central bank or other
governmental authority asserts that it is unlawful, for such
Lender to make, continue or maintain any Loan as, or to convert
any Loan into, a LIBO Rate Loan, the obligations the Lenders to
make, continue, maintain or convert into any such Loans shall,
upon such determination, forthwith be suspended until such Lender
shall notify the Borrower that the circumstances causing such
suspension no longer exist, and all LIBO Rate Loans shall
automatically convert into Base Rate Loans at the end of the then
current Interest Periods with respect thereto or sooner, if
required by such law or assertion.
Section 4.2. Deposits Unavailable. If any Lender shall
have determined that
(a) Dollar deposits in the relevant amount and for
the relevant Interest Period are not available to it in its
relevant market; or
(b) by reason of circumstances affecting such
Lender's relevant market, adequate means do not exist for
ascertaining the interest rate applicable hereunder to LIBO
Rate Loans,
then, upon notice from such Lender to the Borrower and the Agent,
the obligations of the Lenders under Section 2.3 and Section 2.4
to make or continue any Loans as, or to convert any Loans into,
LIBO Rate Loans shall forthwith be suspended until such Lender
shall notify the Borrower and the Agent that the circumstances
causing such suspension no longer exist.
Section 4.3. Increased LIBO Rate Loan Costs, etc. The
Borrower agrees to reimburse each Lender for any increase in the
cost to such Lender of, or any reduction in the amount of any sum
receivable by such Lender in respect of, making or continuing (or
of its obligation to make or continue) any Loans as, or of
converting (or of its obligation to convert) any Loans into, LIBO
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Rate Loans. Each Lender shall promptly notify the Borrower and
the Agent in writing of the occurrence of any such event, such
notice to state, in reasonable detail, the reasons therefor and
the additional amount required fully to compensate such Lender
for such increased cost or reduced amount. Such additional
amounts shall be payable by the Borrower directly to such Lender
within five Business Days of its receipt of such notice, and such
notice shall, in the absence of manifest error, be conclusive and
binding on the Borrower.
Section 4.4. Funding Losses. In the event any Lender
shall incur any loss or expense (including any loss or expense
incurred by reason of the liquidation or reemployment of deposits
or other funds acquired by such Lender to make, continue or
maintain any portion of the principal amount of any Loan as, or
to convert any portion of the principal amount of any Loan into,
a LIBO Rate Loan, but excluding the loss of any anticipated or
expected profits in respect of such LIBO Rate Loan) as a result
of
(a) any conversion or repayment or prepayment of the
principal amount of any LIBO Rate Loans on a date other
than the scheduled last day of the Interest Period
applicable thereto, whether pursuant to Section 3.1 or
otherwise;
(b) any Loans not being made as LIBO Rate Loans in
accordance with the Borrowing Request therefor; or
(c) any Loans not being continued as, or converted
into, LIBO Rate Loans in accordance with the Continuation/
Conversion Notice therefor,
then, upon the written notice of such Lender to the Borrower and
the Agent, the Borrower shall, within five Business Days of its
receipt thereof, pay directly to such Lender such amount as will
(in the reasonable determination of such Lender) reimburse such
Lender for such loss or expense. Such written notice (which
shall include calculations in reasonable detail) shall, in the
absence of manifest error, be conclusive and binding on the
Borrower.
Section 4.5. Increased Capital Costs, etc. If the
implementation of or, after the date hereof, the introduction or
any change in the interpretation of, or any change in its
application to the Borrower and/or the Lenders of, any law or any
regulation or guideline issued by any central bank or other
governmental authority (whether or not having the force of law),
including any eurocurrency or other reserve or special deposit
requirement or any tax (other than tax which is on a Lender's
general net or gross income or in respect of a Lender's franchise
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taxes) or any capital requirement, has, due to a Lender's
compliance, the effect, directly or indirectly, of (i) increasing
the cost to such Lender of performing its obligations hereunder
or under any Loan; (ii) reducing any amount received or
receivable by such Lender or its effective return hereunder or in
respect of any Loan or on its capital; or (iii) causing such
Lender to make any payment or to forgo any return based on any
amount received or receivable by such Lender hereunder or in
respect of any Loan, then upon demand from time to time the
Borrower shall pay such amount as shall compensate such Lender
for any such cost, reduction, payment or foregone return upon
receipt of the certificate referred to in the last sentence of
this paragraph. Any certificate of any Lender in respect of the
foregoing will be conclusive and binding upon the Borrower,
except for manifest error, and shall set forth a determination of
the amounts owing to such Lender in good faith using any
reasonable averaging and attribution methods. Anything in this
Agreement or any Loan Document to the contrary notwithstanding,
no Lender shall be indemnified for, exculpated from, or relieved
from liability, under this Agreement or any Loan Document, for
any act or omission constituting gross negligence or wilful
misconduct.
Section 4.6. Taxes. (a) Each payment made by the
Borrower under this Agreement shall be made free and clear of,
and without deduction for, any present or future withholding or
other taxes imposed on such payments by or on behalf of any
government or any political subdivision or agency thereof or
therein, except for any income, franchise and other taxes imposed
on the Lender (which for purposes of this Section 4.6 shall
include any branch, affiliate or international banking facility
created by a Lender to make or maintain a LIBO Rate Loan pursuant
to Section 2.5) by the jurisdiction under the laws of which such
Lender is organized or any political subdivision or agency
thereof or by the jurisdiction of such Lender's branch or lending
office or principal place of business (all such non-excluded
taxes being hereinafter referred to as "Taxes"). Whenever any
Taxes are payable by the Borrower with respect to any payments
hereunder, the Borrower shall promptly furnish to the Agent for
the account of the applicable Lender official receipts (to the
extent that the relevant governmental authority delivers such
receipts) evidencing payment of any such Taxes so withheld or
deducted.
(b) Each Lender that is not a "United States person" (as
such term is defined in Section 7701(a)(3) of the Internal
Revenue Code of 1986) shall submit to the Borrower on or before
the Effective Date (or, in the case of a Person that becomes a
Lender after the Effective Date by assignment or pursuant to
Section 2.5 promptly upon such assignment or funding) two duly
completed and signed copies of either (1) Form 1001 of the United
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States Internal Revenue Service entitling such Lender to a
complete exemption from withholding on all amounts to be received
by such Lender pursuant to this Agreement or (2) Form 4224 of the
United States Internal Revenue Service relating to all amounts to
be received by such Lender pursuant to this Agreement. Each such
Lender shall, from time to time after submitting either such
form, submit to the Borrower and the Agent such additional duly
completed and signed copies of one or the other such forms (or
such successor forms or other documents as shall be adopted from
time to time by the relevant United States taxing authorities) as
may be (1) reasonably requested in writing by the Borrower or the
Agent and (2) appropriate under then current United States law or
regulations to avoid United States withholding taxes on payments
in respect of any amounts to be received by such Lender pursuant
to this Agreement. Upon the reasonable request of the Borrower
or the Agent, each Lender that has not provided the forms or
other documents, as provided above, on the basis of being a
"United States person" shall submit to the Borrower and the Agent
a certificate to the effect that it is such a "United States
person".
(c) If any Lender which is not a "United States person"
determines that it is unable to submit to the Borrower and the
Agent any form or certificate that such Lender is requested to
submit pursuant to the preceding paragraph, or that it is
required to withdraw or cancel any such form or certificate, or
that any such form or certificate previously submitted has
otherwise become ineffective or inaccurate, such Lender shall
promptly notify the Borrower and the Agent of such fact.
(d) The Borrower shall not be required to pay any
additional amount in respect of Taxes to any Lender if and only
to the extent that (A) such Lender is subject to such Taxes on
the Effective Date (or in the case of a Person that became a
Lender after the Effective Date by assignment or pursuant to
Section 2.5 on the date of such assignment or funding) or would
be subject to such Taxes on such date if a payment under this
Agreement has been received by it on such date; (B) such Lender
becomes subject to such Taxes subsequent to the date referred to
in clause (A) above (or in the case of a Lender which is not a
"United States person", the first date on which it delivers the
appropriate form or certificate to the Borrower as referred to in
clause (b) of this Section) as a result of a change in the
circumstances of such Lender (other than a change in applicable
law), including without limitation a change in the residence,
place of incorporation or principal place of business of the
Lender, a change in the branch or lending office of the Lender
participating in the transactions set forth herein or as a result
of the sale by the Lender of participating interests in such
Lender's creditor position(s) hereunder; or (C) such Taxes would
not have been incurred but for the failure of such Lender to file
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with the appropriate tax authorities and/or provide to the
Borrower any form or certificate that it was required so to do
pursuant to clause (b) of this Section, unless the Lender is not
entitled to provide such form or certificate as a result of a
change in applicable law after the Effective Date (or in the case
of a Person that became a Lender after the Effective Date by
assignment or pursuant to Section 2.5 the date of such assignment
or funding).
(e) Within thirty (30) days after the written reasonable
request of the Borrower, each Lender shall execute and deliver to
the Borrower such certificates, forms or other documents which
can be furnished consistent with the facts and which are
reasonably necessary to assist the Borrower in applying for
refunds of Taxes paid by the Borrower hereunder or making payment
of Taxes hereunder; provided, however, that no Lender shall be
required to furnish to the Borrower any financial information
with respect to itself or other information which it considers
confidential.
(f) The Borrower shall have the right to require any
Lender which is not a "United States person" to which the
Borrower is required to make additional payments pursuant to
Section 4.6 hereof on account of Taxes (or would, upon payment to
such Lender of an amount hereunder, be so required) to assign
such Lender's total Loans and Commitments to one or more banks or
financial institutions identified by the Borrower and acceptable
to the Agent at a purchase price equal to the then outstanding
amount of all principal, interest, fees and other amounts then
owed to such Lender.
Section 4.7. Payments, Computations, etc. Unless
otherwise expressly provided herein, all payments by the Borrower
pursuant to this Agreement, the Notes or any other Loan Document
shall be made by the Borrower to the Agent for the account of the
Lenders entitled to receive such payment. All such payments
required to be made to the Agent shall be made, without setoff,
deduction or counterclaim, not later than 11:00 a.m., New York
time, on the date due, in same day or immediately available
funds, to such account as the Agent shall specify from time to
time by notice to the Borrower. To the extent the Agent receives
such funds prior to 12:00 noon, New York time, the Agent shall
promptly remit in same day funds to each Lender its share, if
any, of such payments received by the Agent for the account of
such Lender. All interest and fees shall be computed on the
basis of the actual number of days (including the first day but
excluding the last day) occurring during the period for which
such interest or fee is payable over a year comprised of 360
days. Whenever any payment to be made shall otherwise be due on
a day which is not a Business Day, such payment shall (except as
otherwise required by clause (b) of the definition of the term
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"Interest Period") be made on the next succeeding Business Day
and such extension of time shall be included in computing
interest and fees, if any, in connection with such payment.
Section er voluntary,
involuntary, by application of setoff or otherwise) in excess of
its Percentage of payments then or therewith obtained by all
Lenders, such Lender shall purchase from the other Lenders such
participations as shall be necessary to cause such purchasing
Lender to share the excess payment or other recovery ratably with
each of them; provided, however, that if all or any portion of
the excess payment or other recovery is thereafter recovered from
such purchasing Lender, the purchase shall be rescinded and each
Lender which has sold a participation to the purchasing Lender
shall repay to the purchasing Lender the purchase price to the
ratable extent of such recovery together with an amount equal to
such selling Lender's ratable share (according to the proportion
of
(a) the amount of such selling Lender's required
repayment to the purchasing Lender
to
(b) the total amount so recovered from the purchasing
Lender)
of any interest or other amount paid or payable by the purchasing
Lender in respect of the total amount so recovered. The Borrower
agrees that any Lender so purchasing a participation from another
Lender pursuant to this Section may, to the fullest extent
permitted by law, exercise all its rights of payment (including
pursuant to Section 4.9) with respect to such participation as
fully as if such Lender were the direct creditor of the Borrower
in the amount of such participation. If under any applicable
bankruptcy, insolvency or other similar law, any Lender receives
a secured claim in lieu of a setoff to which this Section
applies, such Lender shall, to the extent practicable, exercise
its rights in respect of such secured claim in a manner
consistent with the rights of the Lenders entitled under this
Section to share in the benefits of any recovery on such secured
claim.
Section 4.9. Setoff. Each Lender shall, upon the
occurrence of any event or condition described in clause (f) of
Section 6.01 of the U.S. Credit Agreement or, with the consent of
the Required Lenders, upon the occurrence of any other Event of
Default, have the right to appropriate and apply to the payment
of the Obligations owing to it (whether or not then due) any and
all balances, credits, deposits, accounts or moneys of the
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Borrower then or thereafter maintained with or otherwise held by
such Lender; provided, however, that any such appropriation and
application shall be subject to the provisions of Section 4.8.
Each Lender agrees promptly to notify the Borrower and the Agent
after any such setoff and application made by such Lender;
provided, however, that the failure to give such notice shall not
affect the validity of such setoff and application. The rights
of each Lender under this Section are in addition to other rights
and remedies (including other rights of setoff under applicable
law or otherwise) which such Lender may have.
Section 4.10. Use of Proceeds. The Borrower shall apply
the proceeds of each Credit Extension in accordance with the
third recital and Section 2.3.
ARTICLE V
CONDITIONS PRECEDENT
Section 5.1. Initial Credit Extension. The obligations of
the Lenders to make the initial Credit Extension shall be subject
to the prior or concurrent satisfaction of each of the conditions
precedent set forth in this Section 5.1.
Section 5.1.1. Resolutions, etc. The Agent shall have
received from each Obligor four originally executed copies of a
certificate, dated the date of the initial Borrowing, of such
Obligor's Secretary or Assistant Secretary as to
(a) resolutions of its Board of Directors then in
full force and effect authorizing the execution, delivery
and performance of this Agreement, the Note, the Guaranty
and each other Loan Document to be executed by it; and
(b) the incumbency and signatures of those of such
Obligor's officers authorized to act with respect to this
Agreement, the Notes, the Guaranty and each other Loan
Document executed by it,
upon which certificates each Lender may conclusively rely until
it shall have received a further certificate of the Secretary of
such Obligor canceling or amending such prior certificate.
Section 5.1.2. Delivery of Note. Scotiabank shall have
received its Note duly executed and delivered by the Borrower.
Section 5.1.3. No Default, etc. No default shall have
occurred and be continuing in the performance of any affirmative
or negative covenants contained in the U.S. Credit Agreement,
none of the events described in clauses (a), (b), (d), (f), (g),
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(h), (i), (j), (k), or (l) of Section 10.1 of the U.S. Credit
Agreement shall have occurred, and no Event of Default shall have
occurred or would occur under the U.S. Credit Agreement or would
result from the making of any Loan.
Section 5.1.4. No Material Adverse Change. Since
January 8, 1994, there shall have been no material adverse change
in the financial condition, operations, assets, business,
properties or prospects of the Borrower and its Subsidiaries,
taken as a whole.
Section 5.1.5. Opinion of Counsel. The Agent shall have
received an opinion letter, dated the date of the initial
Borrowing and addressed to the Agent and all Lenders, from
Skadden, Arps, Slate, Meagher & Flom, counsel to the Borrower,
substantially in the form of Exhibit E hereto.
Section 5.1.6. Closing Fees, Expenses, etc. The Agent
shall have received for its own account, or for the account of
each Lender, as the case may be, all fees, costs and expenses, if
then invoiced, (i) previously agreed to between the Agent and the
Borrower and (ii) as otherwise due and payable pursuant to
Section 10.3.
Section 5.1.7. Delivery of Guaranty. The Agent shall have
received the Guaranty, duly executed and delivered by Group.
Section 5.2. All Credit Extensions. The obligation of
each Lender to make any Credit Extension (including the initial
Credit Extension) shall be subject to the satisfaction of each of
the conditions precedent set forth in this Section 5.2.
Section 5.2.1. Compliance with Warranties, No Default,
etc. Both before and after giving effect to any Credit Extension
the following statements shall be true and correct
(a) no event or circumstances has occurred and is
continuing, or would result from the making of such Credit
Extension, which constitutes a Default, or which when
considered by itself or together with other past or then
existing events or circumstances, constitutes or would
constitute a material adverse change in the business
prospects or financial condition of the Borrower and its
Subsidiaries taken as a whole;
(b) no event of default or any condition, occurrence
or event which, after notice or lapse of time or both,
would constitute an event of default shall have occurred
and be continuing in the performance of any affirmative and
negative covenants contained in Article V of the U.S.
Credit Agreement and regardless of whether such U.S. Credit
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Agreement is terminated, unless in connection with such
termination a replacement credit facility which the
Required Lenders hereunder have approved is entered into in
which case, the affirmative and negative covenants in such
facility shall become the subject of this clause (b); and
(c) none of the events described in clauses (a), (e),
(f), (g), (h), (k), (l), (m) or (n) of Section 6.01 of the
U.S. Credit Agreement (without giving effect to any
termination of the U.S. Credit Agreement, unless in
connection with such termination a replacement credit
facility to which the Required Lenders hereunder have
approved, in which case the analogous provisions of such
replacement credit facility shall become the subject of
this clause (c)), shall have occurred and be continuing.
Section 5.2.2. Borrowing Request. The Agent shall have
received a Borrowing Request (in the form of Exhibit B hereto)
for such Credit Extension. Each of the delivery of a Borrowing
Request and the acceptance by the Borrower of the proceeds of the
Borrowing shall constitute a representation and warranty by the
Borrower that on the date of such Credit Extension (both
immediately before and after giving effect to such Credit
Extension and the application of the proceeds thereof) the
statements made in (i) Section 5.2.1 and the representations and
warranties contained in Article VI of this Agreement, and (ii) in
the case of the initial Loan, the statements made in Section
5.1.3 and Section 5.1.4, are in each case true and correct.
Section 5.2.3. Satisfactory Legal Form. All documents
executed or submitted pursuant hereto by or on behalf of the
Borrower or any of its Subsidiaries shall be satisfactory in form
and substance to the Agent; the Agent shall have received all
information, approvals, opinions, documents or instruments as the
Agent may reasonably request.
ARTICLE VI
REPRESENTATIONS AND WARRANTIES
In order to induce the Lenders and the Agent to enter into
this Agreement and to make Loans and issue Letters of Credit
hereunder, the Borrower represents and warrants unto the Agent
and each Lender as set forth in this Article VI.
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Section 6.1. Organization, etc. The Borrower is a
corporation validly organized and existing and in good standing
under the laws of the State of its incorporation, is duly
qualified to do business and is in good standing as a foreign
corporation in each jurisdiction where the nature of its business
requires such qualification, except where the failure to so
qualify would not have a Material Adverse Effect (as defined in
the U.S. Credit Agreement), and has full power and authority and
holds all requisite governmental licenses, permits and other
approvals to enter into and perform its Obligations under this
Agreement, the Notes and each other Loan Document to which it is
a party and to own and hold under lease its property and to
conduct its business substantially as currently conducted by it.
Section 6.2. Due Authorization, Non-Contravention, etc.
The execution, delivery and performance by the Borrower of this
Agreement, the Notes and each other Loan Document executed or to
be executed by it, are within the Borrower's corporate powers,
have been duly authorized by all necessary corporate action, and
do not
(a) contravene the Borrower's Organic Documents;
(b) contravene any contractual restriction, law or
governmental regulation or court decree or order binding on
or affecting the Borrower; or
(c) result in, or require the creation or imposition
of, any Lien on any of the Borrower's properties.
Section 6.3. Government Approval, Regulation, etc. No
authorization or approval or other action by, and no notice to or
filing with, any governmental authority or regulatory body or
other Person is required for the due execution, delivery or
performance by the Borrower of this Agreement, the Notes or any
other Loan Document to which it is a party. Neither the Borrower
nor any of its Subsidiaries is an "investment company" within the
meaning of the Investment Company Act of 1940, as amended, or a
"holding company", or a "subsidiary company" of a "holding
company", or an "affiliate" of a "holding company" or of a
"subsidiary company" of a "holding company", within the meaning
of the Public Utility Holding Company Act of 1935, as amended.
Section 6.4. Validity, etc. This Agreement constitutes,
and the Note and each other Loan Document executed by the
Borrower will, on the due execution and delivery thereof,
constitute, the legal, valid and binding obligations of the
Borrower enforceable in accordance with their respective terms,
except as the enforceability thereof may be limited by
bankruptcy, insolvency, moratorium and other similar laws
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affecting the enforcement of creditors rights generally and by
general equity principles.
Section 6.5. No Material Adverse Change. Since January 8,
1994, there has been no material adverse change in the business,
prospects or financial condition of the Borrower and its
Subsidiaries, taken a whole.
Section 6.6. Litigation, Labor Controversies, etc. There
is no pending or, to the knowledge of the Borrower, threatened
litigation, action, proceeding, or labor controversy affecting
the Borrower and its Subsidiaries, taken as a whole, or any of
their respective properties, businesses, assets or revenues,
which could reasonably be expected to materially adversely affect
the financial condition, business or prospects of the Borrower
and its Subsidiaries, taken as a whole, or which purports to
affect the legality, validity or enforceability of this
Agreement, the Notes or any other Loan Document.
Section 6.7. Regulations G, U and X. The Borrower is not
engaged in the business of extending credit for the purpose of
purchasing or carrying margin stock, and no proceeds of any Loans
will be used for a purpose which violates, or would be
inconsistent with, F.R.S. Board Regulation G, U or X. Terms for
which meanings are provided in F.R.S. Board Regulation G, U or X
or any regulations substituted therefor, as from time to time in
effect, are used in this Section with such meanings.
Section 6.8. Accuracy of Information. All factual
information heretofore or contemporaneously furnished by or on
behalf of the Borrower in writing to the Agent or any Lender for
purposes of or in connection with this Agreement or any
transaction contemplated hereby is, and all other such factual
information hereafter furnished by or on behalf of the Borrower
to the Agent or any Lender will be, true and accurate in every
material respect on the date as of which such information is
dated or certified and as of the date of execution and delivery
of this Agreement by the Agent and such Lender, and such
information is not, or shall not be, as the case may be,
incomplete by omitting to state any material fact necessary to
make such information not misleading. The parties acknowledge
and agree that nothing contained in this Section shall constitute
a representation or warranty by the Borrower as to the future
financial performance or the results of operations of the
Borrower; provided, however, that any projections delivered
pursuant to this Agreement have been (and will be) prepared on
the basis of the assumptions accompanying them, and such
projections and assumptions, as of the date of preparation
thereof and as of the date hereof, are reasonable and represent
the Borrower's good faith estimate of its future financial
performance.
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ARTICLE VII
COVENANTS
Section 7.1. Affirmative Covenants. The Borrower agrees
with the Agent and each Lender that, until all Commitments have
terminated and all Obligations have been paid and performed in
full, the Borrower will perform the obligations set forth in this
Section 7.1.
Section 7.1.1. Financial Information, Reports, Notices,
etc. Unless the information set forth below is otherwise
delivered to a Lender under the terms of the U.S. Credit
Agreement, the Borrower will furnish, or will cause to be
furnished, to each Lender and the Agent copies of the following
financial statements, reports, notices and information:
(a) unaudited, quarterly, consolidated and/or
consolidating financial statements of the Borrower within
45 days of the end of each of the first 3 Fiscal Quarters
of each of its Fiscal Years, certified by an Authorized
Officer of the Borrower;
(b) audited, annual, consolidated and/or
consolidating financial statements of the Borrower within
90 days of each Fiscal year;
(c) on each date that a financial statement of the
Borrower is deliverable to the Lenders, the certificate of
the Borrower, signed by an Authorized Officer of the
Borrower certifying that no Default or Event of Default
under this Agreement has occurred and is continuing or, if
a Default or Event of Default has occurred and is
continuing, a statement setting forth details of such
Default or Event of Default and the actions that the
Borrower has taken or proposes to take with respect
thereto;
(d) on each date that a financial statement of the
Borrower is deliverable to the Lenders such financial
calculations as are provided pursuant to the U.S. Credit
Agreement;
(e) as soon as possible and in any event within two
Business Days after the occurrence of each Default, a
statement of an Authorized Officer of the Borrower setting
forth details of such Default and the action which the
Borrower has taken and proposes to take with respect
thereto;
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(f) as soon as possible and in any event within two
Business Days after (x) the occurrence of any adverse
development with respect to any litigation, action,
proceeding, or labor controversy described in Section 6.6
or (y) the commencement of any labor controversy,
litigation, action, proceeding of the type described in
Section 6.6, notice thereof and copies of all documentation
relating thereto;
(g) promptly after the sending or filing thereof,
copies of all Forms 10Q and 10K reports and registration
statements which the Borrower files with the Securities and
Exchange Commission or any national securities exchange;
and
(h) such other information respecting the condition
or operations, financial or otherwise, of the Borrower or
any of its Subsidiaries as any Lender through the Agent may
from time to time reasonably request.
Section 7.1.2. Corporate Existence. The Borrower will at
all times maintain and preserve its corporate existence.
ARTICLE VIII
EVENTS OF DEFAULT
Section 8.1. Listing of Events of Default. Each of the
following events or occurrences described in this Section 8.1
shall constitute an "Event of Default".
Section 8.1.1. Non-Payment of Obligations. The Borrower
shall default in the payment or prepayment when due of (i) any
principal of or interest on any Loan or (ii) any fee or of any
other Obligation, and in each case such default in payment or
prepayment shall continue unremedied for more than one Business
Day from the date such payment or prepayment was due.
Section 8.1.2. Breach of Warranty. Any representation or
warranty of any Obligor made or deemed to be made hereunder or in
any other Loan Document executed by it (including any
certificates delivered pursuant to Article V) is or shall be
incorrect when made or deemed made in any material respect.
Section 8.1.3. Non-Performance of Certain Covenants and
Obligations. The Borrower shall default in the due performance
and observance of any of its obligations under Section 7.1.2 or
under any other covenant which is impossible to remedy.
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Section 8.1.4. Non-Performance of Other Covenants and
Obligations. Any Obligor shall default in the due performance
and observance of any other agreement contained herein or in any
other Loan Document executed by it, and such default shall
continue unremedied for a period of ten Business Days after
notice thereof shall have been given to such Obligor by the Agent
or any Lender.
Section 8.1.5. Default Under U.S. Credit Agreement. Any
Event of Default (as defined in the U.S. Credit Agreement) or any
replacement credit facility shall have occurred, and any or all
of the Indebtedness of the Borrower thereunder shall have become
due and payable in accordance with Sections 6.01 or 6.02 thereof
(or similar section of any replacement credit facility).
Section 8.1.6. Bankruptcy, Insolvency, etc. Any event or
condition described in clause (f) of Section 6.01 of the U.S.
Credit Agreement (or similar provision of any replacement credit
facility) shall have occurred and be continuing.
Section 8.1.7. Impairment of Guaranty. The Guaranty
shall, in whole or in part, terminate, cease to be effective or
cease to be the legally valid, binding and enforceable obligation
of Group, or Group shall, directly or indirectly, contest in any
manner such effectiveness, validity, binding nature or
enforceability.
Section 8.2. Action Upon Bankruptcy. If any Event of
Default described in Section 8.1.6 shall occur, the Commitments
(if not theretofore terminated) shall automatically terminate and
the outstanding principal amount of all outstanding Loans and all
other Obligations shall automatically be and become immediately
due and payable, without notice or demand.
Section 8.3. Action Upon Other Event of Default. If any
Event of Default (other than any Event of Default described in
Section 8.1.6) shall occur for any reason, whether voluntary or
involuntary, and be continuing, the Agent, upon the direction of
the Required Lenders, shall by notice to the Borrower declare all
or any portion of the outstanding principal amount of the Loans
and other Obligations in respect of the Loans or otherwise to be
due and payable and/or the Commitments (if not theretofore
terminated) to be terminated, whereupon the full unpaid amount of
such Loans and other Obligations which shall be so declared due
and payable shall be and become immediately due and payable,
without further notice, demand or presentment, and/or, as the
case may be, the Commitments shall terminate.
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ARTICLE IX
THE AGENT
Section 9.1. Actions. Each Lender hereby appoints
Scotiabank as its Agent under and for purposes of this Agreement,
the Notes and each other Loan Document. Each Lender authorizes
the Agent to act on behalf of such Lender under this Agreement,
the Notes and each other Loan Document and, in the absence of
other written instructions from the Required Lenders received
from time to time by the Agent (with respect to which the Agent
agrees that it will comply, except as otherwise provided in this
Section or as otherwise advised by counsel), to exercise such
powers hereunder and thereunder as are specifically delegated to
or required of the Agent by the terms hereof and thereof,
together with such powers as may be reasonably incidental
thereto. Each Lender hereby indemnifies (which indemnity shall
survive any termination of this Agreement) the Agent, pro rata
according to such Lender's Percentage, from and against any and
all liabilities, obligations, losses, damages, claims, costs or
expenses of any kind or nature whatsoever which may at any time
be imposed on, incurred by, or asserted against, the Agent in any
way relating to or arising out of this Agreement, the Notes and
any other Loan Document, including reasonable attorneys' fees,
and as to which the Agent is not reimbursed by the Borrower;
provided, however, that no Lender shall be liable for the payment
of any portion of such liabilities, obligations, losses, damages,
claims, costs or expenses which are determined by a court of
competent jurisdiction in a final proceeding to have resulted
solely from the Agent's gross negligence or wilful misconduct.
The Agent shall not be required to take any action hereunder,
under the Notes or under any other Loan Document, or to prosecute
or defend any suit in respect of this Agreement, the Notes or any
other Loan Document, unless it is indemnified hereunder to its
satisfaction. If any indemnity in favor of the Agent shall be or
become, in the Agent's determination, inadequate, the Agent may
call for additional indemnification from the Lenders and cease to
do the acts indemnified against hereunder until such additional
indemnity is given.
Section 9.2. Copies, etc. The Agent shall give prompt
notice to each Lender of each notice or request required or
permitted to be given to the Agent by the Borrower pursuant to
the terms of this Agreement (unless concurrently delivered to the
Lenders by the Borrower). The Agent will distribute to each
Lender each document or instrument received for its account and
copies of all other communications received by the Agent from the
Borrower for distribution to the Lenders by the Agent in
accordance with the terms of this Agreement.
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Section 9.3. Exculpation. Neither the Agent nor any of
its directors, officers, employees or agents shall be liable to
any Lender for any action taken or omitted to be taken by it
under this Agreement or any other Loan Document, or in connection
herewith or therewith, except for its own wilful misconduct or
gross negligence, nor responsible for any recitals or warranties
herein or therein, nor for the effectiveness, enforceability,
validity or due execution of this Agreement or any other Loan
Document, or the validity, genuineness, enforceability,
existence, value or sufficiency of any collateral security, nor
to make any inquiry respecting the performance by the Borrower of
its obligations hereunder or under any other Loan Document. Any
such inquiry which may be made by the Agent shall not obligate it
to make any further inquiry or to take any action. The Agent
shall be entitled to rely upon advice of counsel concerning legal
matters and upon any notice, consent, certificate, statement or
writing which the Agent believes to be genuine and to have been
presented by a proper Person.
Section 9.4. Successor. The Agent may resign as such at
any time upon at least 30 days' prior notice to the Borrower and
all Lenders. If the Agent at any time shall resign, the Required
Lenders may appoint another Lender as a successor Agent which
shall thereupon become the Agent hereunder. If no successor
Agent shall have been so appointed by the Required Lenders, and
shall have accepted such appointment, within 30 days after the
retiring Agent's giving notice of resignation, then the retiring
Agent may, on behalf of the Lenders, appoint a successor Agent,
which shall be one of the Lenders or a commercial banking
institution organized under the laws of the U.S. (or any State
thereof) or a U.S. branch or agency of a commercial banking
institution, and having a combined capital and surplus of at
least $100,000,000. Upon the acceptance of any appointment as
Agent hereunder by a successor Agent, such successor Agent shall
be entitled to receive from the retiring Agent such documents of
transfer and assignment as such successor Agent may reasonably
request, and shall thereupon succeed to and become vested with
all rights, powers, privileges and duties of the retiring Agent,
and the retiring Agent shall be discharged from its duties and
obligations under this Agreement. After any retiring Agent's
resignation hereunder as the Agent, the provisions of
(a) this Article IX shall inure to its benefit as to
any actions taken or omitted to be taken by it while it was
the Agent under this Agreement; and
(b) Section 10.3 and Section 10.4 shall continue to
inure to its benefit.
Section 9.5. Loans Made by Scotiabank. Scotiabank shall
have the same rights and powers with respect to (x) the Loans
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made by it or any of its affiliates, and (y) the Notes held by it
or any of its affiliates, as any other Lender and may exercise
the same as if it were not the Agent. Scotiabank and its
affiliates may accept deposits from, lend money to, and generally
engage in any kind of business with the Borrower or any
Subsidiary or affiliate of the Borrower as if Scotiabank were not
the Agent hereunder.
Section 9.6. Credit Decisions. Each Lender acknowledges
that it has, independently of the Agent and each other Lender,
and based on such Lender's review of the financial information of
the Borrower, this Agreement, the other Loan Documents (the terms
and provisions of which being satisfactory to such Lender) and
such other documents, information and investigations as such
Lender has deemed appropriate, made its own credit decision to
extend its Commitment. Each Lender also acknowledges that it
will, independently of the Agent and each other Lender, and based
on such other documents, information and investigations as it
shall deem appropriate at any time, continue to make its own
credit decisions as to exercising or not exercising from time to
time any rights and privileges available to it under this
Agreement or any other Loan Document.
ARTICLE X
MISCELLANEOUS PROVISIONS
Section 10.1. Waivers, Amendments, etc. The provisions of
this Agreement and of each other Loan Document may from time to
time be amended, modified or waived, if such amendment,
modification or waiver is in writing and consented to by the
Borrower and the Required Lenders; provided, however, that no
such amendment, modification or waiver which would:
(a) modify any requirement hereunder that any
particular action be taken by all the Lenders or by the
Required Lenders shall be effective unless consented to by
each Lender;
(b) modify this Section 10.1, change the definition
of "Required Lenders", increase the Commitment Amount or
the Percentage of any Lender, release the Guarantor from
its obligations under the Guaranty, reduce any fees
described in Article III or extend the Commitment
Termination Date shall be made without the consent of each
Lender and each holder of a Note;
(c) extend the due date for, or reduce the amount of,
any scheduled repayment or prepayment of principal of or
interest on any Loan (or reduce the principal amount of or
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rate of interest on any Loan) shall be made without the
consent of the holder of that Note evidencing such Loan; or
(d) affect adversely the interests, rights or
obligations of the Agent in its capacity as the Agent shall
be made without consent of the Agent.
No failure or delay on the part of the Agent, any Lender or the
holder of any Note in exercising any power or right under this
Agreement or any other Loan Document shall operate as a waiver
thereof, nor shall any single or partial exercise of any such
power or right preclude any other or further exercise thereof or
the exercise of any other power or right. No notice to or demand
on any Obligor in any case shall entitle it to any notice or
demand in similar or other circumstances. No waiver or approval
by the Agent, any Lender or the holder of any Note under this
Agreement or any other Loan Document shall, except as may be
otherwise stated in such waiver or approval, be applicable to
subsequent transactions. No waiver or approval hereunder shall
require any similar or dissimilar waiver or approval thereafter
to be granted hereunder.
Section 10.2. Notices. All notices and other
communications provided to any party hereto under this Agreement
or any other Loan Document shall be in writing or by Telex or by
facsimile and addressed, delivered or transmitted to such party
at its address, Telex or facsimile number set forth below its
signature hereto or set forth in the Lender Assignment Agreement
or at such other address, Telex or facsimile number as may be
designated by such party in a notice to the other parties. Any
notice, if mailed and properly addressed with postage prepaid or
if properly addressed and sent by pre-paid courier service, shall
be deemed given when received; any notice, if transmitted by
Telex or facsimile, shall be deemed given when transmitted
(answer confirmed in the case of Telexes).
Section 10.3. Payment of Costs and Expenses. The Borrower
agrees to pay on demand all reasonable expenses of the Agent
(including the reasonable fees and out-of-pocket expenses of
counsel to the Agent and of local counsel, if any, who may be
retained by counsel to the Agent) in connection with
(a) the negotiation, preparation, execution and
delivery of this Agreement and of each other Loan Document,
including schedules and exhibits, and any amendments,
waivers, consents, supplements or other modifications to
this Agreement or any other Loan Document as may from time
to time hereafter be required, whether or not the
transactions contemplated hereby are consummated, and
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(b) the preparation and review of the form of any
document or instrument relevant to this Agreement or any
other Loan Document.
The Borrower covenants to pay on demand all reasonable costs and
expenses of the Agent and the Lenders incurred in the enforcement
of the Agent's or any Lender's rights under this Agreement and
any Loan Document. All payments to be made to the Agent and the
Lenders hereunder shall, subject to Section 4.6, be made for
value on the date due and free of any withholding tax or levy,
other than taxes imposed on the net income of the Agent or a
Lender, and the Borrower covenants that such taxes or levies,
other than as excepted, shall be paid by the Borrower. The
provisions of this paragraph will survive payment in full
hereunder.
Section 10.4. Indemnification. In consideration of the
execution and delivery of this Agreement by each Lender and the
extension of the Commitments, the Borrower hereby indemnifies,
exonerates and holds the Agent and each Lender and each of their
respective officers, directors, employees and agents
(collectively, the "Indemnified Parties") free and harmless from
and against any and all actions, causes of action, suits, losses,
costs, liabilities and damages, and expenses incurred in
connection therewith (irrespective of whether any such
Indemnified Party is a party to the action for which
indemnification hereunder is sought), including reasonable
attorneys' fees and disbursements (collectively, the "Indemnified
Liabilities"), incurred by the Indemnified Parties or any of them
as a result of, or arising out of, or relating to
(a) any transaction financed or to be financed in
whole or in part, directly or indirectly, with the proceeds
of any Loan; or
(b) the entering into and performance of this
Agreement and any other Loan Document by any of the
Indemnified Parties (including any action brought by or on
behalf of the Borrower as the result of any determination
by the Required Lenders pursuant to Article V not to make
any Credit Extension);
except for any such Indemnified Liabilities arising for the
account of a particular Indemnified Party by reason of the
relevant Indemnified Party's gross negligence or wilful
misconduct.
Section 10.5. Survival. The obligations of the Borrower
under Sections 4.3, 4.4, 4.5, 4.6, 10.3 and 10.4, and the
obligations of the Lenders under Section 9.1, shall in each case
survive any termination of this Agreement, the payment in full of
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all Obligations and the termination of all Commitments. The
representations and warranties made by the Borrower in this
Agreement and in each other Loan Document shall survive the
execution and delivery of this Agreement and each such other Loan
Document.
Section 10.6. Severability. Any provision of this
Agreement or any other Loan Document which is prohibited or
unenforceable in any jurisdiction shall, as to such provision and
such jurisdiction, be ineffective to the extent of such
prohibition or unenforceability without invalidating the
remaining provisions of this Agreement or such Loan Document or
affecting the validity or enforceability of such provision in any
other jurisdiction.
Section 10.7. Headings. The various headings of this
Agreement and of each other Loan Document are inserted for
convenience only and shall not affect the meaning or
interpretation of this Agreement or such other Loan Document or
any provisions hereof or thereof.
Section 10.8. Execution in Counterparts, Effectiveness,
etc. This Agreement may be executed by the parties hereto in
several counterparts, each of which shall be executed by the
Borrower and the Agent and be deemed to be an original and all of
which shall constitute together but one and the same agreement.
This Agreement shall become effective when counterparts hereof
executed on behalf of the Borrower and each Lender (or notice
thereof satisfactory to the Agent) shall have been received by
the Agent and notice thereof shall have been given by the Agent
to the Borrower and each Lender.
Section 10.9. Governing Law; Entire Agreement. THIS
AGREEMENT, THE NOTES AND EACH OTHER LOAN DOCUMENT SHALL EACH BE
DEEMED TO BE A CONTRACT MADE UNDER AND GOVERNED BY THE INTERNAL
LAWS OF THE STATE OF NEW YORK. This Agreement, the Notes and the
other Loan Documents constitute the entire understanding among
the parties hereto with respect to the subject matter hereof and
supersede any prior agreements, written or oral, with respect
thereto.
Section 10.10. Successors and Assigns. This Agreement
shall be binding upon and shall inure to the benefit of the
parties hereto and their respective successors and assigns;
provided, however, that:
(a) the Borrower may not assign or transfer its
rights or obligations hereunder without the prior written
consent of the Agent and all Lenders; and
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(b) the rights of sale, assignment and transfer of
the Lenders are subject to Section 10.11.
Section 10.11. Sale and Transfer of Loans and Notes;
Participations in Loans and Notes. Each Lender may assign, or
sell participations in, its Loans and Commitments to one or more
other Persons in accordance with this Section 10.11.
Section 10.11.1. Assignments. Any Lender,
(a) with the written consents of the Borrower and the
Agent (which consents shall not be unreasonably delayed or
withheld) may at any time assign and delegate to one or
more commercial banks or other financial institutions; and
(b) with notice to the Borrower and the Agent, but
without the consent of the Borrower or the Agent, may
assign and delegate to any of its affiliates or to any
other Lender or any Lender under the U.S. Credit Agreement
(each Person described in either of the foregoing clauses as
being the Person to whom such assignment and delegation is to be
made, being hereinafter referred to as an "Assignee Lender"), all
or a fraction of such Lender's total Loans and Commitments;
provided, that after giving effect to such assignment or
transfer, such Lender and its Assignee Lender shall each hold not
less than $5,000,000 of Loans and/or Commitments; provided,
further, that the Borrower shall not be required to pay an amount
under Section 4.6 that is greater than the amount which it would
have been required to pay had no assignment been made and
further, provided, however, that, the Borrower and the Agent
shall be entitled to continue to deal solely and directly with
such Lender in connection with the interests so assigned and
delegated to an Assignee Lender until
(c) written notice of such assignment and delegation,
together with payment instructions, addresses and related
information with respect to such Assignee Lender, shall
have been given to the Borrower and the Agent by such
Lender and such Assignee Lender,
(d) such Assignee Lender shall have executed and
delivered to the Borrower and the Agent a Lender Assignment
Agreement, accepted by the Agent, and
(e) the processing fees described below shall have
been paid.
From and after the date that the Agent accepts such Lender
Assignment Agreement, (x) the Assignee Lender thereunder shall be
deemed automatically to have become a party hereto and to the
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extent that rights and obligations hereunder have been assigned
and delegated to such Assignee Lender in connection with such
Lender Assignment Agreement, shall have the rights and
obligations of a Lender hereunder and under the other Loan
Documents, and (y) the assignor Lender, to the extent that rights
and obligations hereunder have been assigned and delegated by it
in connection with such Lender Assignment Agreement, shall be
released from its obligations hereunder and under the other Loan
Documents. Within five Business Days after its receipt of notice
that the Agent has received an executed Lender Assignment
Agreement with respect to the assignment of Loans, the Borrower
shall execute and deliver to the Agent (for delivery to the
relevant Assignee Lender) new Notes evidencing such Assignee
Lender's assigned Loans and Commitments and, if the assignor
Lender has Loans and Commitments hereunder, replacement Notes in
the principal amount of the Loans and Commitments retained by the
assignor Lender hereunder (such Notes to be in exchange for, but
not in payment of, those Notes then held by such assignor
Lender). Each such Note shall be dated the date of the
predecessor Notes. The assignor Lender shall mark the
predecessor Notes "exchanged" and deliver them to the Borrower.
Accrued interest on that part of the predecessor Notes evidenced
by the new Notes, and accrued fees, shall be paid as provided in
the Lender Assignment Agreement. Accrued interest on that part
of the predecessor Notes evidenced by the replacement Notes shall
be paid to the assignor Lender. Accrued interest and accrued
fees shall be paid at the same time or times provided in the
predecessor Notes and in this Agreement. Such assignor Lender or
such Assignee Lender must also pay a processing fee to the Agent
upon delivery of any Lender Assignment Agreement in the amount of
$2,500. Any attempted assignment and delegation not made in
accordance with this Section 10.11.1 shall be null and void.
Nothing in this Section shall prevent or prohibit any Lender from
pledging its rights (but not its obligations to make Loans and to
issue or participate in Letters of Credit) under this Agreement
and/or its Loans and/or Notes hereunder to a Federal Reserve Bank
in support of borrowing made by such Lender from such Federal
Reserve Bank.
Section 10.11.2. Participations. Any Lender may at any
time sell to one or more commercial banks or other Persons (each
of such commercial banks and other Persons being herein called a
"Participant") participating interests in any of the Loans,
Commitments, or other interests of such Lender hereunder;
provided, however, that
(a) no participation contemplated in this
Section 10.11 shall relieve such Lender from its
Commitments or its other obligations hereunder or under any
other Loan Document,
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(b) such Lender shall remain solely responsible for
the performance of its Commitments and such other
obligations,
(c) the Borrower and the Agent shall continue to deal
solely and directly with such Lender in connection with
such Lender's rights and obligations under this Agreement
and each of the other Loan Documents,
(d) no Participant, unless such Participant is an
affiliate of such Lender, or is itself a Lender, shall be
entitled to require such Lender to take or refrain from
taking any action hereunder or under any other Loan
Document, except that such Lender may agree with any
Participant that such Lender will not, without such
Participant's consent, take any actions of the type
described in clause (b) or (c) of Section 10.1, and
(e) the Borrower shall not be required to pay any
amount under Section 4.6 that is greater than the amount
which it would have been required to pay had no
participating interest been sold.
Section 10.12. Other Transactions. Nothing contained
herein shall preclude the Agent or any other Lender from engaging
in any transaction, in addition to those contemplated by this
Agreement or any other Loan Document, with the Borrower or any of
its affiliates in which the Borrower or such affiliate is not
restricted hereby from engaging with any other Person.
Section 10.13. Forum Selection and Consent to
Jurisdiction. ANY LITIGATION BASED HEREON, OR ARISING OUT OF,
UNDER, OR IN CONNECTION WITH, THIS AGREEMENT OR ANY OTHER LOAN
DOCUMENT, OR ANY COURSE OF CONDUCT, COURSE OF DEALING, STATEMENTS
(WHETHER ORAL OR WRITTEN) OR ACTIONS OF THE AGENT, THE LENDERS OR
THE BORROWER SHALL BE BROUGHT AND MAINTAINED EXCLUSIVELY IN THE
COURTS OF THE STATE OF NEW YORK OR IN THE UNITED STATES DISTRICT
COURT FOR THE SOUTHERN DISTRICT OF NEW YORK; PROVIDED, HOWEVER,
THAT ANY SUIT SEEKING ENFORCEMENT AGAINST ANY COLLATERAL OR OTHER
PROPERTY MAY BE BROUGHT, AT THE AGENT'S OPTION, IN THE COURTS OF
ANY JURISDICTION WHERE SUCH COLLATERAL OR OTHER PROPERTY MAY BE
FOUND. THE PARTIES HERETO HEREBY EXPRESSLY AND IRREVOCABLY
SUBMITS TO THE JURISDICTION OF THE COURTS OF THE STATE OF NEW
YORK AND OF THE UNITED STATES DISTRICT COURT FOR THE SOUTHERN
DISTRICT OF NEW YORK FOR THE PURPOSE OF ANY SUCH LITIGATION AS
SET FORTH ABOVE AND IRREVOCABLY AGREES TO BE BOUND BY ANY
JUDGMENT RENDERED THEREBY IN CONNECTION WITH SUCH LITIGATION.
THE BORROWER FURTHER IRREVOCABLY CONSENTS TO THE SERVICE OF
PROCESS BY REGISTERED MAIL, POSTAGE PREPAID, OR BY PERSONAL
SERVICE WITHIN OR WITHOUT THE STATE OF NEW YORK. THE BORROWER
HEREBY EXPRESSLY AND IRREVOCABLY WAIVES, TO THE FULLEST EXTENT
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PERMITTED BY LAW, ANY OBJECTION WHICH IT MAY HAVE OR HEREAFTER
MAY HAVE TO THE LAYING OF VENUE OF ANY SUCH LITIGATION BROUGHT IN
ANY SUCH COURT REFERRED TO ABOVE AND ANY CLAIM THAT ANY SUCH
LITIGATION HAS BEEN BROUGHT IN AN INCONVENIENT FORUM. TO THE
EXTENT THAT THE BORROWER HAS OR HEREAFTER MAY ACQUIRE ANY
IMMUNITY FROM JURISDICTION OF ANY COURT OR FROM ANY LEGAL PROCESS
(WHETHER THROUGH SERVICE OR NOTICE, ATTACHMENT PRIOR TO JUDGMENT,
ATTACHMENT IN AID OF EXECUTION OR OTHERWISE) WITH RESPECT TO
ITSELF OR ITS PROPERTY, THE BORROWER HEREBY IRREVOCABLY WAIVES
SUCH IMMUNITY IN RESPECT OF ITS OBLIGATIONS UNDER THIS AGREEMENT
AND THE OTHER LOAN DOCUMENTS.
Section 10.14. Waiver of Jury Trial. THE PARTIES HERETO
HEREBY KNOWINGLY, VOLUNTARILY AND INTENTIONALLY WAIVE ANY RIGHTS
THEY MAY HAVE TO A TRIAL BY JURY IN RESPECT OF ANY LITIGATION
BASED HEREON, OR ARISING OUT OF, UNDER, OR IN CONNECTION WITH,
THIS AGREEMENT OR ANY OTHER LOAN DOCUMENT, OR ANY COURSE OF
CONDUCT, COURSE OF DEALING, STATEMENTS (WHETHER ORAL OR WRITTEN)
OR ACTIONS OF THE AGENT, THE LENDERS, THE ISSUER OR THE BORROWER.
THE PARTIES HERETO ACKNOWLEDGE AND AGREE THAT THEY HAVE RECEIVED
FULL AND SUFFICIENT CONSIDERATION FOR THIS PROVISION (AND EACH
OTHER PROVISION OF EACH OTHER LOAN DOCUMENT TO WHICH IT IS A
PARTY) AND THE BORROWER ACKNOWLEDGES THAT THIS PROVISION IS A
MATERIAL INDUCEMENT FOR THE AGENT, THE ISSUER AND THE LENDERS
ENTERING INTO THIS AGREEMENT AND EACH SUCH OTHER LOAN DOCUMENT.
Section 10.15. Usury Restraint. The provisions of this
Agreement shall be subject to any applicable law, regulation,
order, rule or direction (a "Usury Restraint") which prohibits or
restricts the charging, receipt or retention of interest or other
amounts at the rates and amounts set forth herein (the "Stated
Rate") in excess (the "Excess") of the maximum rates or amount
(the "Maximum Rate") stipulated in the Usury Restraint. The
provisions of this Agreement shall not require the payment or
permit the collection of interest in excess of the Maximum Rate
from time to time. If the Lenders comply (whether or not
required to do so at law) with such Usury Restraint then, to the
extent permitted by law, a subsequent reduction in the Stated
Rate below the Maximum Rate shall be deemed not to reduce the
Stated Rate below the Maximum Rate until the total amount of
interest and other amounts earned and retained, measured by a
dollar amount, equals the amount of interest and other amounts
which would have been earned and retained hereunder, inclusive of
the Excess, measured by a dollar amount, if the Stated Rate had
not been held at the Maximum Rate or any amount had not been
refunded to the Borrower.
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IN WITNESS WHEREOF, the parties hereto have caused this
Agreement to be executed by their respective officers thereunto
duly authorized as of the day and year first above written.
WARNACO INC.
By _________________________________
Title:
Address: 90 Park Avenue
New York, New York 10016
Facsimile No.: 212-687-0480
Attention: Chief Financial Officer
THE BANK OF NOVA SCOTIA,
as Agent
By _________________________________
Title: Vice President
Address: One Liberty Plaza
New York, New York 10006
Facsimile No.: 212-225-5090
Attention: Kevin Clark
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<PAGE>
PERCENTAGE LENDERS
LOANS
100% THE BANK OF NOVA SCOTIA
By _________________________________
Title: Vice President
Domestic
Office: One Liberty Plaza
New York, New York 10006
Facsimile No.: 212-225-5090
Attention: Kevin Clark
LIBOR
Office: One Liberty Plaza
New York, New York 10006
Facsimile No.: 212-225-5090
Attention: Kevin Clark
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EXECUTION COPY
AMENDMENT NO. 2
This AMENDMENT No. 2, dated as of October 28, 1994 among Warnaco Inc., a
Delaware corporation (the "Borrower"), The Warnaco Group, Inc., a Delaware
corporation ("Group"), the financial institutions party to the Credit Agreement
referred to below (the "Lenders"), The Bank of Nova Scotia ("Scotiabank") and
Citicorp USA, Inc. ("Citicorp"), as Managing Agents (the "Managing Agents") for
the Lenders thereunder, Citicorp, as Documentation Agent (the "Documentation
Agent") and Collateral Agent (the "Collateral Agent") for the Lenders thereunder
and Scotiabank, as Paying Agent (the "Paying Agent") for the Lenders thereunder
and as Swing Line Bank and an Issuing Bank thereunder.
PRELIMINARY STATEMENTS:
(1) The Borrower, Group, the Lenders, the Managing Agents, the
Documentation Agent, the Collateral Agent and the Paying Agent have entered into
a Credit Agreement dated as of October 14, 1993, as amended by Amendment No. 1
dated as of June 8, 1994 (as amended, the "Credit Agreement"; the terms defined
therein being used herein as therein defined unless otherwise defined herein).
(2) The Borrower desires to further amend certain provisions of the Credit
Agreement.
(3) The Lenders are, on the terms and conditions stated below, willing to
grant the request of the Borrower and the Borrower and the Lenders have agreed
to further amend the Credit Agreement as hereinafter set forth.
SECTION 1. Amendments to Credit Agreement. The Credit Agreement is,
effective as of the date hereof and subject to the satisfaction of the
conditions precedent set forth in Section 2 hereof, hereby amended as follows:
(a) The definition of "Applicable Margin" in Section 1.01 is amended
by deleting the table contained therein and substituting therefor the
following:
Base Rate Eurodollar Rate
Implied Debt Rating Advances Advances
BB or below 0.500% 1.000%
BB+ 0.250% 0.875%
BBB- 0.000% 0.500%
BBB or above 0.000% 0.450%
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2
The definition of "Applicable Margin" is further amended by deleting the
figure "1.500%" in the last sentence thereof and substituting therefor the
figure "1.000%".
(b) Section 2.07(a) is amended by deleting the table contained therein
and substituting therefor the following:
Implied Debt Rating Commitment Fee Rate
BB or below 0.425%
BB+ 0.375%
BBB- 0.250%
BBB or above 0.220%
Section 2.07(a) is further amended by deleting the figure "0.500%" in the
second sentence thereof and substituting therefor the figure "0.425%".
(c) Section 2.11(e) is amended by deleting from the first sentence
thereof the phrase "form 1001 or 4224, as appropriate, or any successor or
alternative" and replacing it with the phrase "form 1001, 4224, or W-8, as
appropriate, or any successor or other".
(d) Section 2.11(e) is further amended by adding after the first
sentence thereof the following sentence:
"In addition, if a Lender provides a form W-8 (or any successor or
related form) to the Documentation Agent and the Borrower pursuant to
the preceding sentence, such Lender shall also provide a certificate
stating that such Lender is not a "bank" within the meaning of section
881(c)(3)(A) of the Internal Revenue Code of 1986 and shall promptly
notify the Documentation Agent and the Borrower if such Lender
determines that it is no longer able to provide such certification."
(e) Section 2.13(e) is amended by deleting the table contained therein
and substituting therefor the following:
Rate for Standby Rate for Documentary
Implied Debt Rating Letters of Credit Letters of Credit
BB or below 1.000% 0.750%
BB+ 0.875% 0.625%
BBB- 0.500% 0.450%
BBB or above 0.450% 0.375%
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3
Section 2.13(e) is further amended by deleting the figures "1.500%" and
"1.250%" in the second sentence thereof and substituting therefor the figures
"1.000%" and "0.750%", respectively.
(f) Section 5.02(b)(v) is amended in full to read as follows:
"(v) Debt of Group or the Borrower in respect of (A) interest
rate Hedge Agreements in an aggregate notional amount at any time
outstanding not to exceed the aggregate amount of Debt
outstanding under this Agreement, provided that the maximum term
of such Hedge Agreements shall not exceed three years and (B)
foreign exchange Hedge Agreements in an aggregate notional amount
not to exceed $50,000,000 at any time outstanding;"
(g) Section 5.02(b)(vii) is amended by inserting at the end thereof,
immediately before the semi-colon, the following:
", including, without limitation, and without duplication, Debt of
Foreign Subsidiaries of the type referred to in clause (i) of the
definition of "Debt" guaranteeing such Permitted Foreign Debt
Issuances"
(h) Section 5.02(b) is further amended by deleting the "and" at the
end of clause (xv) thereof, replacing the period at the end of clause (xvi)
with a semi-colon and adding the word "and" immediately thereafter, and by
adding the following new clause (xvii) at the end thereof:
"(xvii) Debt of the Borrower of the type referred to in clause (g) of
the definition of "Debt" incurred in connection with Investments
permitted by Section 5.02(f)."
(i) Section 5.02(d) is amended by replacing the "and" at the end of
clause (iii) thereof with a comma, replacing the semi-colon at the end of
clause (iv) thereof with a comma and adding the word "and" immediately
thereafter, and by adding the following new clause (v):
"(v) after the Collateral Release Date, and subject to the
provisions of Section 8.13, Group may consolidate with or merge
into the Borrower or the Borrower may consolidate with or merge
into Group."
(j) Section 5.02(f)(i) is amended by deleting from the first sentence
thereof the words "in wholly owned Subsidiaries".
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4
(k) Section 5.02(g)(ii)(B) is amended in full as follows:
"(B) declare and make any dividend payment or other distribution
payable in cash on its common stock, or purchase, redeem, retire,
defease or otherwise acquire for value any of its common stock
(1) so long as the Implied Debt Rating is below BBB- or Group has
received a rating lower than Baa3 from Moody's in an aggregate
not to exceed in any Fiscal Year 10% of the Consolidated net
income of Group and its Subsidiaries for the preceding Fiscal
Year and (2) during such time as the Implied Debt Rating is at
least BBB- or Group has received a rating from Moody's of at
least Baa3, in an aggregate amount for all dividends or other
distributions, or purchases, redemptions, retirements,
defeasances or acquisitions made since the date of this Agreement
not to exceed 25% of the cumulative Consolidated net income of
Group and its Subsidiaries during the period beginning with the
Fiscal Year ending on or about December 31, 1993 and ending with
the Fiscal Year preceding the Fiscal Year in which such dividend
payment or other distribution, or purchase, redemption,
retirement, defeasance or acquisition is made;"
(l) Section 5.02(g)(ii)(E) is amended by deleting therefrom the words
"stock-for-stock acquisitions" and replacing them with the word
"Investments".
(m) Section 5.02(g)(iii)(D)(II) is amended in full to read as follows:
"(II) to pay dividends permitted to be paid by Group, or to purchase,
redeem, retire, defease or otherwise acquire for value its common
stock, as permitted under clause (ii)(B) above."
(n) Section 5.02(l)(ii) is amended by (i) deleting the word "and"
before the words "any Debt outstanding on the date such Subsidiary first
becomes a Subsidiary" and replacing it with a comma, and (ii) deleting the
period at the end thereof and replacing it with the following:
", any purchase money Liens permitted under Section 5.02(a)(iv),
and any Debt of Foreign Subsidiaries with respect to Permitted
Foreign Debt Issuances permitted under Section 5.02(b)(vii), in
each case under this subclause (ii) limited solely to the
property securing any such Debt."
SECTION 2. Conditions of Effectiveness. This Amendment shall become
effective when, and only when, on or before October 28, 1994 (or such later date
as may be
<PAGE>
5
agreed between the Borrower and the Documentation Agent), the
Documentation Agent shall have received (i) counterparts of this Amendment
executed by the Borrower, Group and all of the Lenders or, as to any of the
Lenders, advice satisfactory to the Documentation Agent that such Lenders have
executed this Amendment, (ii) an amendment fee of 12.5 basis points calculated
on the sum of the aggregate Revolving Credit Commitments outstanding as of the
effective date of this Amendment, plus the then outstanding Term Advances,
payable to the Paying Agent for the ratable benefit of the Lenders, and (iii)
such other fees as may be set forth in that certain Letter dated October 7, 1994
from the Managing Agents to the Borrower, payable to the Paying Agent for the
ratable benefit of the Managing Agents.
SECTION 3. Representations and Warranties of the Borrower. Each of the
Borrower and Group represents and warrants as follows:
(a) Each Loan Party (i) is a corporation duly organized, validly
existing and in good standing under the laws of the jurisdiction of its
incorporation, (ii) is duly qualified and in good standing as a foreign
corporation in each other jurisdiction in which it owns or leases property
or in which the conduct of its business requires it to so qualify or be
licensed except where the failure to so qualify or be licensed would not
have a Material Adverse Effect and (iii) has all requisite corporate power
and authority to own or lease and operate its properties and to carry on
its business as now conducted and as proposed to be conducted.
(b) The execution, delivery and performance of this Amendment by each
Loan Party party hereto and of the Consent by each Loan Party party thereto
and of the Loan Documents, as amended hereby, to which such Loan Party is
or is to be a party, and the consummation of the transactions contemplated
hereby and thereby, are within such Loan Party's corporate powers, have
been duly authorized by all necessary corporate action, and do not (i)
contravene such Loan Party's charter or by-laws, (ii) violate any law
(including, without limitation, the Securities Exchange Act of 1934 and the
Racketeer Influenced and Corrupt Organizations Chapter of the Organized
Crime Control Act of 1970), rule, regulation (including, without
limitation, Regulation X of the Board of Governors of the Federal Reserve
System), order, writ, judgment, injunction, decree, determination or award,
(iii) conflict with or result in the breach of, or constitute a default
under, any contract, loan agreement, indenture, mortgage, deed of trust,
lease or other instrument binding on or affecting any Loan Party, any of
its Subsidiaries or any of their properties or (iv) except for the Liens
created by the Collateral Documents, result in or require the creation or
imposition of any Lien upon or with respect to any of the properties of any
Loan Party or any of its Subsidiaries.
(c) No authorization or approval or other action by, and no notice to
or filing with, any governmental authority or regulatory body or any other
third party is
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6
required for the due execution, delivery, recordation,
filing or performance of this Amendment or the Consent by any Loan Party
party thereto, or of any of the Loan Documents, as amended hereby, to which
such Loan Party is or is to be a party, or for the consummation of the
transactions contemplated hereby or thereby.
(d) This Amendment has been, and the Consent when delivered hereunder
will have been, duly executed and delivered by each Loan Party party
thereto. This Amendment and each of the Loan Documents, as amended hereby,
constitute, and the Consent when delivered hereunder will constitute, the
legal, valid and binding obligation of each Loan Party party thereto,
enforceable against such Loan Party in accordance with its terms.
(e) There is no action, suit, investigation, litigation or proceeding
affecting any Loan Party or any of its Subsidiaries, including any
Environmental Action, pending or threatened before any court, governmental
agency or arbitrator that (i) purports to affect the legality, validity or
enforceability of this Amendment, the Consent or any other Loan Document,
as amended hereby or the consummation of the transactions contemplated
hereby or thereby or (ii) except as set forth on Schedule 4.01(i) to the
Credit Agreement, is or would be reasonably likely to have a Material
Adverse Effect. There has been no adverse change in the status, or
financial effect on any Loan Party or any of their Subsidiaries, of the
Disclosed Litigation from that described on Schedule 4.01(i) to the Credit
Agreement on the date thereof or except as has been disclosed to the Agents
and the Lenders.
SECTION 4. Reference to and Effect on the Loan Documents. (a) Upon the
effectiveness of Section 1 hereof, on and after the date hereof each reference
in the Credit Agreement to "this Agreement", "hereunder", "hereof " or words of
like import referring to the Credit Agreement, and each reference in the other
Loan Documents to "the Credit Agreement", "thereunder", "thereof" or words of
like import referring to the Credit Agreement, shall mean and be a reference to
the Credit Agreement as amended hereby.
(b) Except as specifically amended above, the Credit Agreement and the
Notes, and all other Loan Documents, are and shall continue to be in full force
and effect and are hereby in all respects ratified and confirmed. Without
limiting the generality of the foregoing, the Collateral Agreements and all of
the Collateral described therein do and shall continue to secure the payment of
all obligations of the Loan Parties under the Credit Agreement, the Notes and
the other Loan Documents, in each case as amended hereby.
(c) The execution, delivery and effectiveness of this Amendment shall not,
except as expressly provided herein, operate as a waiver of any right, power or
remedy of any Lender, either Managing Agent, the Documentation Agent, the
Collateral Agent or the
<PAGE>
7
Paying Agent under any of the Loan Documents, nor
constitute a waiver of any provision of any of the Loan Documents.
SECTION 5. Costs and Expenses. The Borrower agrees to pay on demand all
costs and expenses of the Agents in connection with the preparation, execution,
delivery, administration, modification and amendment of this Amendment and the
other instruments and documents to be delivered hereunder, including, without
limitation, the reasonable fees and out-of-pocket expenses of counsel for the
Agents with respect thereto and with respect to advising the Agents as to its
rights and responsibilities hereunder and thereunder. The Borrower further
agrees to pay on demand all costs and expenses, if any (including, without
limitation, reasonable counsel fees an expenses), in connection with the
enforcement (whether through negotiations, legal proceedings or otherwise) of
this Amendment and the other instruments and documents to be delivered
hereunder, including, without limitation, reasonable counsel fees and expenses
in connection with the enforcement of rights under this Section 5.
SECTION 6. Execution in Counterparts. This Amendment may be executed in any
number of counterparts and by different parties hereto in separate counterparts,
each of which when so executed and delivered shall be deemed to be an original
and all of which taken together shall constitute one and the same amendment.
Delivery of an executed counterpart of a signature page to this Amendment by
telecopier shall be effective as delivery of a manually executed counterpart of
this Amendment.
SECTION 7. Governing Law. This Amendment shall be governed by, and
construed in accordance with, the laws of the State of New York.
IN WITNESS WHEREOF, the parties hereto have caused this Amendment to be
executed by their respective officers thereunto duly authorized, as of the date
first above written.
WARNACO INC.
By __________________________
Title:
THE WARNACO GROUP, INC.
By __________________________
Title:
<PAGE>
8
THE BANK OF NOVA SCOTIA, as Managing
Agent, Paying Agent, Swing Line Bank
and an Issuing Bank
By __________________________
Title:
CITICORP USA, INC., as Managing Agent,
Documentation Agent and Collateral
Agent
By __________________________
Title:
Lenders
THE BANK OF CALIFORNIA, N.A.
By __________________________
Title:
THE BANK OF NEW YORK
By __________________________
Title:
THE BANK OF NOVA SCOTIA
By __________________________
Title:
<PAGE>
9
CHEMICAL BANK
By __________________________
Title:
CITICORP USA, INC.
By __________________________
Title:
CREDIT SUISSE
By __________________________
Title:
By __________________________
Title:
THE FUJI BANK, LTD.
By __________________________
Title:
GENERAL ELECTRIC CAPITAL CORPORATION
By __________________________
Title:
<PAGE>
10
IBJ SCHRODER BANK AND TRUST CO.
By __________________________
Title:
PROSPECT STREET SENIOR PORTFOLIO, L.P.
By: Prospect Street Senior Loan Corp.,
Its Managing General Partner
By __________________________
Title:
RESTRUCTURED OBLIGATIONS BACKED BY
SENIOR ASSETS B.V.
By __________________________
Title:
STICHTING RESTRUCTURED OBLIGATIONS
BACKED BY SENIOR ASSETS 2 (ROSA2)
By __________________________
Title:
SHAWMUT BANK CONNECTICUT, N.A.
By __________________________
Title:
<PAGE>
11
SOCIETE GENERALE
By __________________________
Title:
THE SUMITOMO BANK, LTD., NEW YORK
BRANCH
By __________________________
Title:
UNION BANK OF SWITZERLAND, NEW YORK
BRANCH
By __________________________
Title:
MARINE MIDLAND BANK
By __________________________
Title:
<PAGE>
CONSENT
Dated as of October 28, 1994
Each of the undersigned, a wholly owned subsidiary of Warnaco Inc., a
Delaware corporation, as a Guarantor under either the Guaranty dated October 14,
1993 or the Guaranty dated April 4, 1994 (collectively, the "Subsidiary
Guaranty"), as a Grantor under either the Security Agreement dated October 14,
1993 or the Security Agreement dated April 14, 1994 (collectively, the "Security
Agreement") and under either the Trademark, Patent and Copyright Security
Agreement dated October 14, 1993 or the Trademark, Patent and Copyright Security
Agreement dated April 14, 1994 (collectively, the "Trademark, Patent and
Copyright Security Agreement") and as a Pledgor under either the Pledge
Agreement dated as of October 14, 1993 or the Pledge Agreement dated as of April
14, 1994 (collectively, the "Pledge Agreement") in favor of the Collateral Agent
for the Secured Parties (as defined in the Credit Agreement referred to in the
foregoing Amendment No. 2), hereby consents to said Amendment No. 2 and hereby
confirms and agrees that (i) each of the Subsidiary Guaranty, the Security
Agreement, the Trademark, Patent and Copyright Security Agreement and the Pledge
Agreement is, and shall continue to be, in full force and effect and is hereby
ratified and confirmed in all respects except that, upon the effectiveness of,
and on and after the date of, said Amendment No. 2, each reference in each of
the Subsidiary Guaranty, the Security Agreement, the Trademark, Patent and
Copyright Security Agreement and the Pledge Agreement to the Loan Documents or
any thereof, "thereunder", "thereof" or words of like import shall mean and be a
reference to the Loan Documents or such Loan Document as amended by said
Amendment No. 2 and (ii) the Security Agreement, the Trademark, Patent and
Copyright Security Agreement and the Pledge Agreement and all of the Collateral
described therein do, and shall continue to, secure the payment of all of the
Obligations (as defined therein).
WARNACO INTERNATIONAL INC.
By __________________________
Title:
C.F. HATHAWAY COMPANY
By __________________________
Title:
184 BENTON STREET INC.
By __________________________
Title:
<PAGE>
WARNACO MEN'S SPORTSWEAR INC.
By __________________________
Title:
WARNACO SOURCING INC.
By __________________________
Title:
WARMANA LIMITED
By __________________________
Title:
WARNER'S de COSTA RICA INC. (and as
successor by merger to Warnaco de
Costa Rica Inc.)
By __________________________
Title:
BLANCHE INC.
By __________________________
Title:
CALVIN KLEIN MEN'S UNDERWEAR, INC.
By __________________________
Title:
<PAGE>
EXECUTION COPY
AMENDMENT NO. 3
This AMENDMENT No. 3, dated as of December 5, 1994 among Warnaco Inc., a
Delaware corporation (the "Borrower"), The Warnaco Group, Inc., a Delaware
corporation ("Group"), the financial institutions party to the Credit Agreement
referred to below (the "Lenders"), The Bank of Nova Scotia ("Scotiabank") and
Citicorp USA, Inc. ("Citicorp"), as Managing Agents (the "Managing Agents") for
the Lenders thereunder, Citicorp, as Documentation Agent (the "Documentation
Agent") and Collateral Agent (the "Collateral Agent") for the Lenders thereunder
and Scotiabank, as Paying Agent (the "Paying Agent") for the Lenders thereunder
and as Swing Line Bank and an Issuing Bank thereunder.
PRELIMINARY STATEMENTS:
(1) The Borrower, Group, the Lenders, the Managing Agents, the
Documentation Agent, the Collateral Agent and the Paying Agent have entered into
a Credit Agreement dated as of October 14, 1993, (as amended or waived prior to
the date hereof, the "Credit Agreement"; the terms defined therein being used
herein as therein defined unless otherwise defined herein).
(2) The Borrower desires to further amend certain provisions of the Credit
Agreement.
(3) The Lenders are, on the terms and conditions stated below, willing to
grant the request of the Borrower and the Borrower and the Lenders have agreed
to further amend the Credit Agreement as hereinafter set forth.
SECTION 1. Amendments to Credit Agreement. The Credit Agreement is,
effective as of the date hereof and subject to the satisfaction of the
conditions precedent set forth in Section 2 hereof, hereby amended as follows:
(a) Section 5.02(a)(vii)(A) is amended by deleting the words "to
secure payment of Debt permitted under Section 5.02(b)(vi)(A)" and
substituting therefor the following:
"to secure payment of Debt incurred or issued pursuant to Section
5.02(b)(vi)(A) in an aggregate principal amount not to exceed
$30,000,000".
(b) Section 5.02(b)(vi)(A) is amended by deleting the figure
"$30,000,000" set forth therein and substituting therefor the figure
"$40,000,000".
(c) Section 5.02(b)(vi)(A) is further amended by adding the following
words at the end thereof:
<PAGE>
2
"provided, further, that Group may guaranty such Debt provided that
the aggregate principal amount of such guaranty shall not exceed
$10,000,000, and".
SECTION 2. Conditions of Effectiveness. This Amendment shall become
effective as of the date first above written when, and only when, on or before
December 16, 1994 (or such later date as may be agreed between the Borrower and
the Documentation Agent), the Documentation Agent shall have received (i)
counterparts of this Amendment executed by the Borrower, Group and the Required
Lenders or, as to the Required Lenders, advice satisfactory to the Documentation
Agent that such Lenders have executed this Amendment and (ii) counterparts of
the Consent attached hereto, executed by each of the Loan Parties (other than
the Borrower and Group).
SECTION 3. Representations and Warranties of the Borrower. Each of the
Borrower and Group represents and warrants as follows:
(a) Each Loan Party (i) is a corporation duly organized, validly
existing and in good standing under the laws of the jurisdiction of its
incorporation, (ii) is duly qualified and in good standing as a foreign
corporation in each other jurisdiction in which it owns or leases property
or in which the conduct of its business requires it to so qualify or be
licensed except where the failure to so qualify or be licensed would not
have a Material Adverse Effect and (iii) has all requisite corporate power
and authority to own or lease and operate its properties and to carry on
its business as now conducted and as proposed to be conducted.
(b) The execution, delivery and performance of this Amendment by each
Loan Party party hereto and of the Consent by each Loan Party party thereto
and of the Loan Documents, as amended hereby, to which such Loan Party is
or is to be a party, and the consummation of the transactions contemplated
hereby and thereby, are within such Loan Party's corporate powers, have
been duly authorized by all necessary corporate action, and do not (i)
contravene such Loan Party's charter or by-laws, (ii) violate any law
(including, without limitation, the Securities Exchange Act of 1934 and the
Racketeer Influenced and Corrupt Organizations Chapter of the Organized
Crime Control Act of 1970), rule, regulation (including, without
limitation, Regulation X of the Board of Governors of the Federal Reserve
System), order, writ, judgment, injunction, decree, determination or award,
(iii) conflict with or result in the breach of, or constitute a default
under, any contract, loan agreement, indenture, mortgage, deed of trust,
lease or other instrument binding on or affecting any Loan Party, any of
its Subsidiaries or any of their properties or (iv) except for the Liens
created by the Collateral Documents, result in or require the creation or
imposition of any Lien upon or with respect to any of the properties of any
Loan Party or any of its Subsidiaries.
<PAGE>
3
(c) No authorization or approval or other action by, and no notice to
or filing with, any governmental authority or regulatory body or any other
third party is required for the due execution, delivery, recordation,
filing or performance of this Amendment or the Consent by any Loan Party
party thereto, or of any of the Loan Documents, as amended hereby, to which
such Loan Party is or is to be a party, or for the consummation of the
transactions contemplated hereby or thereby.
(d) This Amendment has been, and the Consent when delivered hereunder
will have been, duly executed and delivered by each Loan Party party
thereto. This Amendment and each of the Loan Documents, as amended hereby,
constitute, and the Consent when delivered hereunder will constitute, the
legal, valid and binding obligation of each Loan Party party thereto,
enforceable against such Loan Party in accordance with its terms.
(e) There is no action, suit, investigation, litigation or proceeding
affecting any Loan Party or any of its Subsidiaries, including any
Environmental Action, pending or threatened before any court, governmental
agency or arbitrator that (i) purports to affect the legality, validity or
enforceability of this Amendment, the Consent or any other Loan Document,
as amended hereby or the consummation of the transactions contemplated
hereby or thereby or (ii) except as set forth on Schedule 4.01(i) to the
Credit Agreement, is or would be reasonably likely to have a Material
Adverse Effect. There has been no adverse change in the status, or
financial effect on any Loan Party or any of their Subsidiaries, of the
Disclosed Litigation from that described on Schedule 4.01(i) to the Credit
Agreement on the date thereof or except as has been disclosed to the Agents
and the Lenders.
SECTION 4. Reference to and Effect on the Loan Documents. (a) Upon the
effectiveness of Section 1 hereof, on and after the date hereof each reference
in the Credit Agreement to "this Agreement", "hereunder", "hereof " or words of
like import referring to the Credit Agreement, and each reference in the other
Loan Documents to "the Credit Agreement", "thereunder", "thereof" or words of
like import referring to the Credit Agreement, shall mean and be a reference to
the Credit Agreement as amended hereby.
(b) Except as specifically amended above, the Credit Agreement and the
Notes, and all other Loan Documents, are and shall continue to be in full force
and effect and are hereby in all respects ratified and confirmed. Without
limiting the generality of the foregoing, the Collateral Agreements and all of
the Collateral described therein do and shall continue to secure the payment of
all obligations of the Loan Parties under the Credit Agreement, the Notes and
the other Loan Documents, in each case as amended hereby.
(c) The execution, delivery and effectiveness of this Amendment shall not,
except as expressly provided herein, operate as a waiver of any right, power or
remedy of any Lender, either Managing Agent, the Documentation Agent, the
Collateral Agent or the
<PAGE>
4
Paying Agent under any of the Loan Documents, nor
constitute a waiver of any provision of any of the Loan Documents.
SECTION 5. Costs and Expenses. The Borrower agrees to pay on demand all
costs and expenses of the Agents in connection with the preparation, execution,
delivery, administration, modification and amendment of this Amendment and the
other instruments and documents to be delivered hereunder, including, without
limitation, the reasonable fees and out-of-pocket expenses of counsel for the
Agents with respect thereto and with respect to advising the Agents as to its
rights and responsibilities hereunder and thereunder. The Borrower further
agrees to pay on demand all costs and expenses, if any (including, without
limitation, reasonable counsel fees an expenses), in connection with the
enforcement (whether through negotiations, legal proceedings or otherwise) of
this Amendment and the other instruments and documents to be delivered
hereunder, including, without limitation, reasonable counsel fees and expenses
in connection with the enforcement of rights under this Section 5.
SECTION 6. Execution in Counterparts. This Amendment may be executed in any
number of counterparts and by different parties hereto in separate counterparts,
each of which when so executed and delivered shall be deemed to be an original
and all of which taken together shall constitute one and the same amendment.
Delivery of an executed counterpart of a signature page to this Amendment by
telecopier shall be effective as delivery of a manually executed counterpart of
this Amendment.
SECTION 7. Governing Law. This Amendment shall be governed by, and
construed in accordance with, the laws of the State of New York.
IN WITNESS WHEREOF, the parties hereto have caused this Amendment to be
executed by their respective officers thereunto duly authorized, as of the date
first above written.
WARNACO INC.
By __________________________
Title:
THE WARNACO GROUP, INC.
By __________________________
Title:
<PAGE>
5
THE BANK OF NOVA SCOTIA, as Managing
Agent, Paying Agent, Swing Line
Bank and an Issuing Bank
By __________________________
Title:
CITICORP USA, INC., as Managing
Agent, Documentation Agent and
Collateral Agent
By __________________________
Title:
Lenders
THE BANK OF CALIFORNIA, N.A.
By __________________________
Title:
THE BANK OF NEW YORK
By __________________________
Title:
THE BANK OF NOVA SCOTIA
By __________________________
Title:
<PAGE>
6
CHEMICAL BANK
By __________________________
Title:
CITICORP USA, INC.
By __________________________
Title:
CREDIT SUISSE
By __________________________
Title:
By __________________________
Title:
THE FUJI BANK, LTD.
By __________________________
Title:
GENERAL ELECTRIC CAPITAL CORPORATION
By __________________________
Title:
<PAGE>
7
MARINE MIDLAND BANK
By __________________________
Title:
PROSPECT STREET SENIOR PORTFOLIO, L.P.
By: Prospect Street Senior Loan Corp.,
Its Managing General Partner
By __________________________
Title:
RESTRUCTURED OBLIGATIONS BACKED
BY SENIOR ASSETS B.V.
By __________________________
Title:
SHAWMUT BANK CONNECTICUT, N.A.
By __________________________
Title:
SOCIETE GENERALE
By __________________________
Title:
THE SUMITOMO BANK, LTD., NEW YORK
BRANCH
By __________________________
Title:
<PAGE>
8
UNION BANK OF SWITZERLAND, NEW
YORK BRANCH
By __________________________
Title:
<PAGE>
CONSENT
Dated as of December 5, 1994
Each of the undersigned, a wholly owned subsidiary of Warnaco Inc., a
Delaware corporation, as a Guarantor under either the Guaranty dated October 14,
1993 or the Guaranty dated April 4, 1994 (collectively, the "Subsidiary
Guaranty"), as a Grantor under either the Security Agreement dated October 14,
1993 or the Security Agreement dated April 14, 1994 (collectively, the "Security
Agreement") and under either the Trademark, Patent and Copyright Security
Agreement dated October 14, 1993 or the Trademark, Patent and Copyright Security
Agreement dated April 14, 1994 (collectively, the "Trademark, Patent and
Copyright Security Agreement") and as a Pledgor under either the Pledge
Agreement dated as of October 14, 1993 or the Pledge Agreement dated as of April
14, 1994 (collectively, the "Pledge Agreement") in favor of the Collateral Agent
for the Secured Parties (as defined in the Credit Agreement referred to in the
foregoing Amendment No. 3), hereby consents to said Amendment No. 3 and hereby
confirms and agrees that (i) each of the Subsidiary Guaranty, the Security
Agreement, the Trademark, Patent and Copyright Security Agreement and the Pledge
Agreement is, and shall continue to be, in full force and effect and is hereby
ratified and confirmed in all respects except that, upon the effectiveness of,
and on and after the date of, said Amendment No. 3, each reference in each of
the Subsidiary Guaranty, the Security Agreement, the Trademark, Patent and
Copyright Security Agreement and the Pledge Agreement to the Loan Documents or
any thereof, "thereunder", "thereof" or words of like import shall mean and be a
reference to the Loan Documents or such Loan Document as amended by said
Amendment No. 3 and (ii) the Security Agreement, the Trademark, Patent and
Copyright Security Agreement and the Pledge Agreement and all of the Collateral
described therein do, and shall continue to, secure the payment of all of the
Obligations (as defined therein).
WARNACO INTERNATIONAL INC.
By __________________________
Title:
C.F. HATHAWAY COMPANY
By __________________________
Title:
<PAGE>
184 BENTON STREET INC.
By __________________________
Title:
WARNACO MEN'S SPORTSWEAR INC.
By __________________________
Title:
WARNACO SOURCING INC.
By __________________________
Title:
WARMANA LIMITED
By __________________________
Title:
WARNER'S de COSTA RICA INC.(and as
successor by merger to Warnaco de
Costa Rica Inc.)
By __________________________
Title:
BLANCHE INC.
By __________________________
Title:
<PAGE>
CALVIN KLEIN MEN'S UNDERWEAR, INC.
By __________________________
Title:
<PAGE>
EXHIBIT 11.1
THE WARNACO GROUP, INC.
CALCULATION OF INCOME (LOSS) PER COMMON SHARE
<TABLE>
<CAPTION>
FOR THE YEAR ENDED
-----------------------------------------
JANUARY 2, JANUARY 8, JANUARY 7,
1993 1994 1995
----------- ----------- -----------
<S> <C> <C> <C>
Income (loss) from continuing operations............................ $47,564,000 $53,253,000 $63,328,000
Preferred stock dividends........................................... 2,750,000 -- --
----------- ----------- -----------
Income (loss) from continuing operations pertaining to common
shareholders...................................................... $44,814,000 $53,253,000 $63,328,000
----------- ----------- -----------
----------- ----------- -----------
Loss from discontinued operations................................... ($7,443,000) -- --
----------- ----------- -----------
----------- ----------- -----------
Extraordinary items................................................. ($57,576,000) ($18,637,000) --
----------- ----------- -----------
----------- ----------- -----------
Cumulative effect of change in method of accounting for
postretirement benefits other than pensions....................... -- ($10,500,000) --
----------- ----------- -----------
----------- ----------- -----------
Net income (loss) applicable to common shareholders................. ($20,205,000) $24,116,000 $63,328,000
----------- ----------- -----------
----------- ----------- -----------
Weighted average shares outstanding:
Class A common shares outstanding.............................. 33,382,418 35,800,000 35,800,000
Shares issued for purchase of assets........................... -- -- 1,391,342
Common stock equivalents....................................... 4,727,032 3,970,482 4,205,031
Treasury shares repurchased.................................... -- -- (111,018)
----------- ----------- -----------
Total weighted average shares....................................... 38,109,450 39,770,482 41,285,355
----------- ----------- -----------
----------- ----------- -----------
Income (loss) per common share:
Income (loss) from continuing operations....................... $1.18 $1.34 $1.53
Loss from discontinued operations.............................. (0.20) -- --
Extraordinary items............................................ (1.51) (0.47) --
Cumulative effect of change in method of accounting for
postretirement benefits...................................... -- (0.26) --
----------- ----------- -----------
Income (loss) per common share...................................... ($0.53) $0.61 $1.53
----------- ----------- -----------
----------- ----------- -----------
</TABLE>
<PAGE>
EXHIBIT 23.1(a)
CONSENT OF INDEPENDENT AUDITORS
We consent to the incorporation by reference in the Registration Statement
and related Reoffer Prospectus (Form S-8 No. 33-58146) pertaining to the Amended
and Restated 1988 Employee Stock Purchase Plan of The Warnaco Group, Inc. of our
report dated February 23, 1995, with respect to the consolidated financial
statements and schedule of The Warnaco Group, Inc. included in its Annual Report
(Form 10-K) for the year ended January 7, 1995.
ERNST & YOUNG LLP
New York, New York
April 7, 1995
<PAGE>
EXHIBIT 23.1(b)
CONSENT OF INDEPENDENT AUDITORS
We consent to the incorporation by reference in the Registration Statement
(Form S-8 No. 33-58148) pertaining to the 1991 Stock Option Plan of The Warnaco
Group, Inc. of our report dated February 23, 1995, with respect to the
consolidated financial statements and schedule of The Warnaco Group, Inc.
included in its Annual Report (Form 10-K) for the year ended January 7, 1995.
ERNST & YOUNG LLP
New York, New York
April 7, 1995
