OMB APPROVAL
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
SCHEDULE 13D
Under the Securities Exchange Act of 1934
THE WARNACO GROUP, INC.
(Name of Issuer)
Class A Common Stock, par value $0.01 per share
(Title of Class of Securities)
934390105
(CUSIP number)
Glenn M. Feit, Esq.
Proskauer Rose LLP
1585 Broadway
New York, New York 10036-8299
(212) 969-3000
(Name, Address and Telephone Number of Person Authorized
to Receive Notices and Communications)
September 25, 1997
(Date of Event which Requires Filing of this Statement)
If the filing person has previously filed a statement on Schedule
13G to report the acquisition which is the subject of this
Schedule 13D, and is filing this schedule because of Rule
13d-1(b)(3) or (4), check the following box [ ]
Note: Six copies of this statement, including all exhibits,
should be filed with the Commission. See Rule 13d-1(a) for other
parties to whom copies are to be sent.
SCHEDULE 13D
CUSIP No. 934390105
1 NAME OF REPORTING PERSONS
New Rio, LLC
S.S. or I.R.S. IDENTIFICATION NO. OF ABOVE PERSONS
51-0364695
2 CHECK THE APPROPRIATE BOX IF A MEMBER OF A GROUP* (a) [x]
(b) [ ]
3 SEC USE ONLY
4 SOURCE OF FUNDS*
00
5 CHECK BOX IF DISCLOSURE OF LEGAL PROCEEDINGS IS REQUIRED
PURSUANT TO ITEM 2(D) OR 2(E) [ ]
6 CITIZENSHIP OR PLACE OF ORGANIZATION
Delaware
NUMBER OF 7 SOLE VOTING POWER None
SHARES
BENEFICIALLY 8 SHARED VOTING POWER 5,146,373(1)
OWNED BY
EACH 9 SOLE DISPOSITIVE POWER None
REPORTING
PERSON 10 SHARED DISPOSITIVE POWER 5,146,373(1)
WITH
11 AGGREGATE AMOUNT BENEFICIALLY OWNED BY EACH REPORTING PERSON
5,146,373(1)
12 CHECK BOX IF THE AGGREGATE AMOUNT IN ROW (11) EXCLUDES
CERTAIN SHARES* [ ]
13 PERCENT OF CLASS REPRESENTED BY AMOUNT IN ROW (11)
8.23%(2)
14 TYPE OF REPORTING PERSON*
00
(1) Represents the number of shares of Common Stock (as
hereinafter defined) to be received by New Rio, LLC upon the
Exchange (as hereinafter defined) referred to in Items 3 and
4 below.
(2) Gives effect to the total number of outstanding shares of
Common Stock, as of September 22, 1997, plus the number of
shares of Common Stock to be issued in the Exchange referred
to in Items 3 and 4 below.
CUSIP No. 934390105
1 NAME OF REPORTING PERSONS
Charterhouse Equity Partners II, L.P.
S.S. or I.R.S. IDENTIFICATION NO. OF ABOVE PERSON
13-3752442
2 CHECK THE APPROPRIATE BOX IF A MEMBER OF A GROUP* (a) [x]
(b) [ ]
3 SEC USE ONLY
4 SOURCE OF FUNDS*
00
5 CHECK BOX IF DISCLOSURE OF LEGAL PROCEEDINGS IS REQUIRED
PURSUANT TO ITEM 2(D) OR 2(E) [ ]
6 CITIZENSHIP OR PLACE OF ORGANIZATION
Delaware
NUMBER OF 7 SOLE VOTING POWER 2,602,951(1)
SHARES
BENEFICIALLY 8 SHARED VOTING POWER None
OWNED BY
EACH 9 SOLE DISPOSITIVE POWER 2,602,951(1)
REPORTING
PERSON 10 SHARED DISPOSITIVE POWER None
WITH
11 AGGREGATE AMOUNT BENEFICIALLY OWNED BY EACH REPORTING PERSON
2,602,951(1)
12 CHECK BOX IF THE AGGREGATE AMOUNT IN ROW (11) EXCLUDES
CERTAIN SHARES* [ ]
13 PERCENT OF CLASS REPRESENTED BY AMOUNT IN ROW (11)
4.16%(2)
14 TYPE OF REPORTING PERSON*
PN
(1) Based on the portion of shares of Common Stock allocable to
Charterhouse Equity Partners II, L.P. in accordance with the
Third Amended and Restated Limited Liability Company
Agreement of New Rio, LLC, dated as of May 9, 1996, referred
to in Item 6 below.
(2) Gives effect to the total number of outstanding shares of
Common Stock as of September 22, 1997, plus the number of
shares of Common Stock to be issued in the Exchange referred
to in Items 3 and 4 below.
CUSIP No. 934390105
1 NAME OF REPORTING PERSONS
Arnold H. Simon
S.S. or I.R.S. IDENTIFICATION NO. OF ABOVE PERSON
2 CHECK THE APPROPRIATE BOX IF A MEMBER OF A GROUP* (a) [x]
(b) [ ]
3 SEC USE ONLY
4 SOURCE OF FUNDS*
00
5 CHECK BOX IF DISCLOSURE OF LEGAL PROCEEDINGS IS REQUIRED
PURSUANT TO ITEM 2(D) OR 2(E) [ ]
6 CITIZENSHIP OR PLACE OF ORGANIZATION
United States
NUMBER OF 7 SOLE VOTING POWER 2,529,083(1)
SHARES
BENEFICIALLY 8 SHARED VOTING POWER 194,400(1)
OWNED BY
EACH 9 SOLE DISPOSITIVE POWER 2,529,083(1)
REPORTING
PERSON 10 SHARED DISPOSITIVE POWER 194,400(1)
WITH
11 AGGREGATE AMOUNT BENEFICIALLY OWNED BY EACH REPORTING PERSON
2,529,083(1)
12 CHECK BOX IF THE AGGREGATE AMOUNT IN ROW (11) EXCLUDES
CERTAIN SHARES* [x]
See Item 5(a)
13 PERCENT OF CLASS REPRESENTED BY AMOUNT IN ROW (11)
4.05%(2)
14 TYPE OF REPORTING PERSON*
IN
(1) Based on the portion of shares of Common Stock allocable to
Arnold Simon in accordance with the Third Amended and
Restated Limited Liability Company Agreement of New Rio,
LLC, dated as of May 9, 1996, referred to in Item 6 below.
(2) Gives effect to the total number of outstanding shares of
Common Stock as of September 22, 1997, plus the number of
shares of Common Stock to be issued in the Exchange referred
to in Items 3 and 4 below.
Item 1. Security and Issuer
The title of the class of equity securities to which this
statement relates is:
Class A Common Stock, par value $0.01, of The Warnaco
Group, Inc. (the "Common Stock")
The name and address of the principal executive offices of
Warnaco are:
The Warnaco Group, Inc.
90 Park Avenue
New York, NY 10016
Item 2. Identity and Background
(a) This Statement on Schedule 13D (the "Statement") is
being filed jointly by New Rio, LLC, a Delaware limited
liability company ("New Rio"), Charterhouse Equity
Partners II, L.P., a Delaware limited partnership ("CEP
II"), and Arnold H. Simon, a U.S. citizen ("Mr.
Simon").
(b) The principal executive office of New Rio is:
1385 Broadway
New York, NY 10018
The principal executive office of CEP II is:
535 Madison Avenue
New York, NY 10022
The business address of Mr. Simon is:
1385 Broadway
New York, NY 10018
(c) New Rio was formed by CEP II and Mr. Simon to invest in
Designer Holdings Ltd., a Delaware corporation
("Designer Holdings"), which develops, sources and
markets designer sportswear collections under the
Calvin Klein Jeans(R), K/Calvin Klein Jeans(R), and
CK/Calvin Klein Khakis(R) labels.
CEP II is a Delaware limited partnership. The general
partner of CEP II is CHUSA Equity Investors II, L.P.,
whose general partner is Charterhouse Equity II, Inc.,
a wholly-owned subsidiary of Charterhouse Group
International, Inc. CEP II manages an equity
investment fund.
Mr. Simon is the President and Chief Executive Officer
of Designer Holdings. The address of Designer Holdings
is 1385 Broadway, New York, NY 10018.
(d) Not applicable.
(e) Not applicable.
(f) New Rio is a Delaware limited liability company; CEP II
is a Delaware limited partnership; and Mr. Simon is a
U.S. Citizen.
Item 3. Source and Amount of Funds or Other Consideration
Pursuant to a Stock Exchange Agreement, dated as of
September 25, 1997 (the "Exchange Agreement"), among Warnaco, New
Rio and the members of New Rio (including CEP II and Mr. Simon),
as described in Item 4 below, New Rio will exchange (the
"Exchange") all of its 15,883,868 shares of common stock, par
value $.01 per share (the "DSH Stock")of Designer Holdings(which
excludes 600,000 shares of DSH Stock beneficially owned by the
Simon Foundation, as defined below) for 5,146,373 shares of
Common Stock (which excludes 194,000 shares of Common Stock
beneficially owned by the Simon Foundation, as defined below
following the Exchange).
Item 4. Purpose of Transaction
(a)-(f) New Rio's purpose for entering into the Exchange
Agreement was based on its determination that the shares of
Common Stock to be received upon the consummation of the Exchange
constituted fair and adequate consideration to New Rio and its
members. New Rio intends to hold the shares of Common Stock
acquired in the Exchange for investment purposes. The Exchange
Agreement was entered into in connection with the Merger
Agreement (as defined below) and the merger contemplated thereby.
On September 24, 1997, the respective Boards of Directors of
Designer Holdings, WAC Acquisition Corporation, a Delaware
corporation and wholly owned subsidiary of Warnaco ("WAC
Acquisition"), and Warnaco determined that it would be advisable
to merge WAC Acquisition with and into Designer Holdings with the
result that the holders of DSH Stock (other than Designer
Holdings, Warnaco, WAC Acquisition and their subsidiaries, and
dissenting shareholders who perfect their dissenters' rights)
will receive .324 of a share of Common Stock of Warnaco for each
share of DSH Stock, and Designer Holdings will become a wholly-
owned subsidiary of Warnaco (the "Merger"). The Merger is to be
effected pursuant to an Agreement and Plan of Merger dated as of
September 25, 1997 (the "Merger Agreement") among Warnaco, WAC
Acquisition and Designer Holdings. The Merger is subject to
certain conditions, including approval by the stockholders of
Designer Holdings.
Pursuant to the Exchange Agreement, New Rio has agreed to
vote all the shares held by it which represents 51.3% of the
voting power of the outstanding DSH Stock (i) in favor of the
Merger, the adoption of the Merger Agreement and all other
transactions contemplated thereby, (ii) against any action that
would result in a breach of the Merger Agreement in any material
respect by Designer Holdings and (iii) against any extraordinary
corporate transaction of Designer Holdings and certain other
actions which could materially and adversely affect Designer
Holdings or that would result in a change in a majority of the
Board of Directors of Designer Holdings or that would result in a
change in any of Designer Holdings' governing documents or
otherwise materially and adversely affect the benefits to Warnaco
of the Merger and Exchange Agreements. The Exchange Agreement
also provides that New Rio and the members of New Rio (including
CEP II and Mr. Simon) shall give Warnaco an irrevocable proxy to
vote their shares of DSH Stock in accordance with the foregoing
sentence. The Exchange Agreement further provides, among other
things, that New Rio will not dispose of or encumber its shares
of DSH Stock and will not solicit or encourage proposals relating
to the acquisition of its shares of DSH Stock.
As further provided in the Exchange Agreement, New Rio, CEP
II and Mr. Simon have entered into a "standstill agreement,"
pursuant to which, among other things, none of them shall seek to
affect or influence the control of the management or Board of
Directors of Warnaco, or the business, operations or policies of
Warnaco.
The exchange of shares pursuant to the Exchange Agreement is
subject to certain conditions, including the termination or
expiration of the waiting period under the Hart-Scott-Rodino
Antitrust Improvements Act of 1976, as amended, which waiting
period was terminated on October 3, 1997. However, the
consummation of the Exchange is not contingent on the
consummation of the transactions contemplated by the Merger
Agreement.
The foregoing descriptions of and references to the Merger
Agreement and the Exchange Agreement are qualified in their
entirety by reference to such agreements, copies of which are
filed as Exhibits 1 and 2, respectively, to this Statement and
are incorporated herein by reference, and by reference to Item 3.
Item 5. Interest in Securities of the Issuer
(a) Upon consummation of the transactions contemplated by
the Merger Agreement and the Exchange Agreement, New Rio will own
5,146,373 shares of Common Stock of Warnaco, which represents
8.23% of the outstanding Common Stock of Warnaco based upon (i)
the number of shares of Common Stock to be received by New Rio
upon the Exchange and (ii) the total number of outstanding shares
of Common Stock as set forth in the Merger Agreement plus the
number of shares of Common Stock issued in the Exchange referred
to in Items 3 and 4 above. Of the 5,146,373 shares of Common
Stock owned by New Rio, CEP II will beneficially own 2,602,951
shares of Common Stock of Warnaco, which represents 4.16% of the
outstanding Common Stock of Warnaco, and Mr. Simon will
beneficially own 2,529,083 shares of Common Stock, which
represents 4.05% of the outstanding Common Stock of Warnaco.
With respect to Mr. Simon, the 2,529,083 shares of Common Stock
does not include 194,400 shares of Common Stock owned by the
Arnold Simon Family Foundation (the "Simon Foundation"), a not-
for-profit corporation. Mr. Simon, as one of the three trustees
of the Simon Foundation, shares voting and disposition rights
with two other trustees. Mr. Simon disclaims beneficial
ownership of the 194,400 shares owned by the Simon Foundation.
The foregoing number of shares of Common Stock allocable to CEP
II and Mr. Simon are based on the allocation set forth in that
certain Third Amended and Restated Limited Liability Company
Agreement of New Rio, dated as of May 9, 1996, and referred to in
Item 6 below.
(b) New Rio will have shared voting and disposition power
over 5,146,373 shares of Common Stock following the Exchange.
CEP II will have sole voting and disposition power over 2,602,951
shares of Common Stock acquired in the Exchange and Mr. Simon
will have sole voting and disposition power over 2,529,083 shares
of Common Stock acquired in the Exchange.
(c) Not applicable.
(d) Not applicable.
(e) Not applicable.
Item 6. Contracts, Arrangements, Understandings or
Relationships with Respect to Securities of the Issuer
Pursuant to the Exchange Agreement, New Rio, CEP II and Mr.
Simon have certain registration rights described therein with
respect to the Common Stock.
New Rio currently owns of record approximately 51.3% of DSH
Stock. The Third Amended and Restated Limited Liability Company
Agreement of New Rio, dated as of May 9, 1996 (the "LLC
Agreement"), provides generally that the holders of ownership
interests of New Rio (the "New Rio Holders") may direct New Rio
to act or refrain from any action in proportion to the number of
shares of DSH Stock of Designer Holdings represented by their
respective ownership interests in New Rio. Pursuant to the LLC
Agreement, the New Rio Holders are entitled to receive dividends
declared in respect of DSH Stock independently with respect to
such Holder's allocable percentage of DSH Stock. The New Rio
Holders may generally cause New Rio to exercise disposition
rights as directed by each Holder independently with respect to
such Holder's allocable percentage of DSH Stock.
The LLC Agreement also provides that New Rio shall vote DSH
Stock as determined unanimously by CEP II and A.S. Enterprises,
LLC ("ASE"), both New Rio Holders and each of which has one vote.
ASE may and has designated its one vote to Mr. Simon. None of
the other New Rio Holders is entitled to vote. If CEP II and
ASE, as controlled by Mr. Simon, are unable to agree, New Rio
shall vote DSH Stock, in proportion to the allocable percentage
of the shares of DSH Stock attributed, respectively, to CEP II
and Chef Nominees Limited and to ASE, Mr. Simon, Martin L.
Berman, Phyllis West Berman, Steven E. Berman, Mark N. Kaplan as
Trustee f/b/o Mark K. Berman and Alison A. Berman and Michael A.
Covino (the remaining New Rio Holders).
Therefore, the New Rio Holders may be deemed to be the
beneficial owners of DSH Stock owned by New Rio. Through their
ownership interests in New Rio, CEP II and Mr. Simon (including
ASE and the Simon Foundation) are deemed to own beneficially
approximately 25.0% and 26.1%, respectively, of the outstanding
shares of DSH Stock.
With respect to the 600,000 shares of DSH Stock owned by the
Simon Foundation, Mr. Simon, as one of three trustees, shares
voting and disposition rights with two other trustees. Upon the
Exchange, the Simon Foundation will beneficially own 194,400
shares of Common Stock.
After the Exchange, the foregoing arrangements among the New
Rio holders shall be applicable to the shares of Common Stock
held by New Rio.
The description of the "standstill" provisions contained in
the Exchange Agreement set forth in Item 4 above is hereby
incorporated by reference into this Item 6.
The foregoing descriptions of or references to the LLC
Agreement are qualified in their entirety by reference to such
agreement, a copy of which is filed as Exhibit 4 to this
Statement and is incorporated herein by reference.
Item 7. Material to Be Filed as Exhibits
Exhibit 1 Agreement and Plan of Merger, dated as of
September 25, 1997, among Warnaco, WAC Acquisition
and Designer Holdings.
Exhibit 2 Stock Exchange Agreement, dated as of September
25, 1997, among Warnaco, New Rio and the members
of New Rio.
Exhibit 3 Press Release, dated September 25, 1997.
Exhibit 4 Third Amended and Restated Limited Liability
Company Agreement of New Rio, dated May 9, 1996.
<PAGE>
Signature
After reasonable inquiry and to the best of my knowledge and
belief, the undersigned certifies that the information set forth
in this statement is true, complete and correct.
October 3, 1997 NEW RIO, LLC
By: /s/ Arnold H. Simon
Title: Chief Executive Officer
CHARTERHOUSE EQUITY
PARTNERS II, L.P.
By: CHUSA EQUITY INVESTORS II, L.P.
By: CHARTERHOUSE EQUITY II, INC.
By: /s/ Wai Wah Chin
Title: Vice President
/s/ Arnold H. Simon
Arnold H. Simon
AGREEMENT AND PLAN OF MERGER dated as of September 25,
1997 among THE WARNACO GROUP, INC., a Delaware corporation
("Parent"), WAC ACQUISITION CORPORATION, a Delaware corporation
and a wholly owned subsidiary of Parent ("Sub"), and DESIGNER
HOLDINGS LTD., a Delaware corporation (the "Company").
WHEREAS, the respective Boards of Directors of Parent,
Sub and the Company have determined that the merger of Sub (or,
at the election of Parent as set forth in Section 1.01, a direct
wholly owned subsidiary of Parent other than Sub) with and into
the Company (the "Merger"), upon the terms and subject to the
conditions set forth in this Agreement, would be fair to and in
the best interests of their respective stockholders, and such
Boards of Directors have approved such Merger, pursuant to which
(a) each share of Common Stock, each having a par value of one
cent ($0.01) of the Company ("Company Common Stock") issued and
outstanding immediately prior to the Effective Time of the Merger
(as defined in Section 1.03) will be converted into the right to
receive shares of Class A Common Stock, par value $0.01 per
share, of Parent ("Parent Class A Common Stock"), other than
shares of Company Common Stock owned, directly or indirectly, by
the Company or any wholly owned subsidiary (as defined in Section
8.03) of the Company or held by the Company as treasury shares or
owned by Parent, Sub or any other wholly owned subsidiary of
Parent.
WHEREAS, the affirmative vote of a majority of the
outstanding shares of the Company Common Stock is required for
the approval and adoption of the Merger and this Merger Agreement
(the "Company Stockholder Approval");
WHEREAS, to the extent required in accordance with
applicable regulations of the New York Stock Exchange (the
"NYSE"), the issuance of shares of Parent Class A Common Stock in
connection with the transactions contemplated hereby requires the
affirmative vote of a majority of shares present in person or
represented by proxy and entitled to vote thereon at a meeting of
the holders of Parent Class A Common Stock;
WHEREAS, as a condition to their willingness to enter
into this Agreement, Parent and Sub have required that New Rio,
L.L.C. (the "Stockholder") and the members of Stockholder
signatory thereto (the "Members") (collectively, the "Sellers")
enter into, and the Sellers have agreed to enter into, the Stock
Exchange Agreement with Parent dated of even date herewith (as
amended from time to time in accordance with its terms, the
"Stock Exchange Agreement") relating to the exchange by the
Stockholder (the "Exchange") of all of the outstanding shares of
Company Common Stock owned by it (the "Stockholder Shares"),
which represent a majority of the outstanding shares of Company
Common Stock, in exchange for shares of Parent Class A Common
Stock on the terms set forth in the Stock Exchange Agreement,
and, in order to induce Parent and Sub to enter into this
Agreement, the Board of the Directors of the Company has approved
the entering into by Parent, the Members and the Stockholder of
the Stock Exchange Agreement and the consummation of the
transactions contemplated thereby;
WHEREAS, Parent, Sub and the Company desire to make
certain representations, warranties, covenants and agreements in
connection with the Merger and also to prescribe various
conditions to the Merger; and
WHEREAS, for Federal income tax purposes, it is
intended that the Exchange and the Merger qualify as a
reorganization under the provisions of Section 368 of the
Internal Revenue Code of 1986, as amended (the "Code").
NOW, THEREFORE, in consideration of the
representations, warranties, covenants and agreements contained
in this Agreement, the parties agree as follows:
ARTICLE I
The Merger
SECTION 1.01 The Merger. Upon the terms and subject
to the conditions set forth in this Agreement, and in accordance
with the Delaware General Corporation Law (the "DGCL"), Sub shall
be merged with and into the Company at the Effective Time of the
Merger. Upon the Effective Time of the Merger, the separate
existence of Sub shall cease, and the Company shall continue as
the surviving corporation (the "Surviving Corporation"). At the
election of Parent, any direct wholly owned subsidiary of Parent
other than Sub may be substituted for Sub as a constituent
corporation in the Merger, and, in the event that Parent notifies
the Company that it desires to substitute such a subsidiary, the
parties agree to amend this Agreement so that such substituted
subsidiary shall become a signatory hereto as "Sub."
SECTION 1.02 Closing. Unless this Agreement shall
have been terminated and the transactions herein contemplated
shall have been abandoned pursuant to Section 7.01 and subject to
the satisfaction or waiver of the conditions set forth in Article
VI, the closing of the Merger (the "Closing") will take place at
10:00 a.m. on a date to be specified by the parties (the "Closing
Date"), which date shall be no later than the second business day
after satisfaction of the conditions set forth in Article VI, at
the offices of Simpson Thacher & Bartlett, 425 Lexington Avenue,
New York, New York 10017, unless another date, time or place is
agreed to in writing by the parties hereto.
SECTION 1.03 Effective Time of the Merger. Upon the
Closing, the parties shall file a certificate of merger (the
"Certificate of Merger") with the Secretary of State of the State
of Delaware and shall make all other filings or recordings
required under the DGCL. The Merger shall become effective at
such time as the Certificate of Merger shall have been duly filed
with the Secretary of State of the State of Delaware, or at such
later time as is agreed by Parent and the Company and specified
in the Certificate of Merger (the time the Merger becomes
effective being the "Effective Time of the Merger").
SECTION 1.04 Effects of the Merger. The Merger shall
have the effects set forth in Section 259 of the DGCL (or any
successor provision).
SECTION 1.05 Certificate of Incorporation; By-Laws.
(a) The certificate of incorporation of the Company, as in
effect immediately prior to the Effective Time of the Merger,
shall be the certificate of incorporation of the Surviving
Corporation, except that at the Effective Time of the Merger such
certificate of incorporation shall be amended as follows: (i)
Article Fourth shall be amended to read in its entirety as
follows: "The total number of shares of stock which the
Corporation shall have the authority to issue is 1,000 shares,
each having a par value of one cent ($0.01)"; (ii) paragraph (6)
of Article Fifth shall be deleted in its entirety; and (iii) the
second paragraph of Article Sixth shall be deleted in its
entirety.
(b) The By-laws of Sub as in effect at the Effective
Time of the Merger shall be the By-laws of the Surviving
Corporation until thereafter changed or amended as provided
therein or by applicable law.
SECTION 1.06 Directors. The directors of Sub at the
Effective Time of the Merger shall be the directors of the
Surviving Corporation, until the earlier of their resignation or
removal or until their respective successors are duly elected and
qualified, as the case may be.
SECTION 1.07 Officers. The officers of Sub at the
Effective Time of the Merger shall be the officers of the
Surviving Corporation, until the earlier of their resignation or
removal or until their respective successors are duly elected and
qualified, as the case may be.
ARTICLE II
Effect of the Merger on the Capital Stock of the
Constituent Corporations
SECTION 2.01 Effect on Capital Stock. As of the
Effective Time of the Merger, by virtue of the Merger and without
any action on the part of the holder of any shares of Company
Common Stock or any shares of capital stock of Sub:
(a) Common Stock of Sub. Each share of common stock,
par value $0.01 per share, of Sub issued and outstanding
immediately prior to the Effective Time of the Merger shall be
converted into one share of the common stock of the Surviving
Corporation and shall constitute the only issued and outstanding
capital stock of the Surviving Corporation.
(b) Cancellation of Treasury Stock and Parent-Owned
Company Common Stock. Each share of Company Common Stock that is
owned by the Company or held by the Company as treasury shares or
owned by any direct or indirect wholly owned subsidiary of the
Company, and each share of Company Common Stock that is owned by
Parent, Sub or any other direct or indirect wholly owned
subsidiary of Parent shall automatically be cancelled and retired
and shall cease to exist, and no Parent Class A Common Stock or
other consideration shall be delivered or deliverable in exchange
therefor.
(c) Conversion of Company Common Stock. Except as
otherwise provided herein, each issued and outstanding share of
Company Common Stock shall be converted into the right to receive
from Parent .324 of a fully paid and nonassessable share of
Parent Class A Common Stock (the "Exchange Ratio"); provided,
however, that, in any event, if between the date of this
Agreement and the Effective Time of the Merger the outstanding
shares of Parent Class A Common Stock shall have been changed
into a different number of shares or a different class, by reason
of any stock dividend, subdivision, reclassification,
recapitalization, split, combination or exchange of shares, the
Exchange Ratio shall be correspondingly adjusted to reflect such
stock dividend, subdivision, reclassification, recapitalization,
split, combination or exchange of shares.
(d) Treatment of Trust Preferred Securities;
Convertible Debentures. Prior to or concurrently with the
Closing, Parent and the Company shall take such steps as are
necessary to ensure the resignation of Arnold H. Simon and Merril
M. Halpern as Trustees of Designer Finance Trust. In addition,
Parent and the Company shall take such actions as may be
necessary to ensure compliance by the Company and Parent with
Section 1304 of the Indenture dated as of November 1, 1996 (the
"Indenture"), relating to $123,711,350 of 6% Convertible
Debentures Due 2016 (the "Convertible Debentures"), and shall
take such steps as are necessary to ensure that holders of the
Convertible Debentures shall, after the Effective Time of the
Merger, have the right to convert such securities into shares of
Parent Class A Common Stock on the terms and conditions set forth
in the Indenture.
(e) Cancellation and Retirement of Company Common
Stock. From and after the Effective Time of the Merger, all
shares of Company Common Stock issued and outstanding immediately
prior to the Effective Time of the Merger shall no longer be
outstanding and shall automatically be cancelled and retired and
shall cease to exist, and each holder of a certificate which
immediately prior to the Effective Time of the Merger represented
shares of Company Common Stock ("Company Share Certificate")
shall cease to have any rights with respect thereto, except the
right to receive the consideration to be issued to holders of
Company Common Stock in the Merger pursuant to Section 2.01(c)
(the "Merger Consideration"), any cash in lieu of fractional
shares of Parent Class A Common Stock to be paid in consideration
therefor upon surrender of such certificate in accordance with
Section 2.04 and any dividends payable pursuant to Section
2.03(f).
SECTION 1.02 Stock Plans. As soon as practicable
following the date of this Agreement, but in any event prior to
the consummation of the Exchange, the Board of Directors of the
Company (or, if appropriate, any committee administering the
Stock Plans (as defined below)) shall adopt such resolutions or
take such other actions as may be required to effect the
following (it being understood that if the following is not
permitted pursuant to the terms of the Stock Plans, the Company
shall use its reasonable best efforts to obtain any consents or
take any other action necessary in order to effect the
following):
(a) The Company shall adjust the terms of all
outstanding employee or director stock options to purchase shares
of Company Common Stock ("Company Stock Options") granted under
any stock option or stock purchase plan, program or arrangement
of the Company, including the Designer Holdings Ltd. 1996 Stock
Option and Incentive Plan and the 1996 Outside Director Stock
Option Plan (collectively, the "Stock Plans"), whether or not
then exercisable, to provide that, at the Effective Time of the
Merger, each Company Stock Option outstanding immediately prior
to the Effective Time of the Merger shall be cancelled to the
extent that the exercise price of such Company Stock Option
equals or exceeds $11 per share. With respect to any Company
Stock Option not cancelled pursuant to the preceding sentence,
such Company Stock Option shall be deemed to constitute an option
(each, a "Parent Stock Option") to acquire, on the same terms and
conditions as were applicable under such Company Stock Option,
the number of shares of Parent Class A Common Stock equal to the
product of (1) the number of shares of Company Common Stock
issuable upon exercise of such Company Stock Option and (2) the
Exchange Ratio, at a price per share equal to (1) the aggregate
exercise price for the shares of Company Common Stock otherwise
purchasable pursuant to such Company Stock Option divided by (2)
the number of shares of Parent Class A Common Stock issuable per
share of Company Common Stock upon exercise of such Company Stock
Option as set forth above; provided, however, that, after
aggregating all the shares of a holder subject to Company Stock
Options, any fractional share of Parent Class A Common Stock
resulting from such calculation for such holder shall be rounded
down to the nearest whole share; and provided, further, that in
the case of any Company Stock Option to which Sections 422 and
423 of the Code applies by reason of its qualification under any
of Sections 422-424 of the Code ("qualified stock options"),
Parent and the Company shall use their reasonable best efforts to
cause the option price, the number of shares purchasable pursuant
to such option, the terms and conditions of exercise of such
option and such other terms and conditions of such option to be
determined in order to comply with Section 424(a) of the Code;
and
(b) Except as provided herein or as otherwise agreed
to by the parties, the Stock Plans and any other plan, program or
arrangement providing for the issuance or grant of any other
interest in respect of the capital stock of the Company or any
subsidiary shall terminate as of the Effective Time of the
Merger. After the Merger, each Parent Stock Option shall be
exercisable upon the same terms and conditions (including
conditions relating to vesting and exercisability) as were
applicable to the Company Stock Options immediately prior to the
Merger and the Company shall use its reasonable best efforts to
ensure that following the Effective Time of the Merger no holder
of a Company Stock Option nor any participant in any Stock Plan
shall have any right thereunder to acquire equity securities of
the Company or the Surviving Corporation.
SECTION 2.03 Exchange of Certificates. (a) Prior to
the Effective Time of the Merger, Parent shall appoint an agent
(the "Exchange Agent") for the purpose of exchanging Company
Share Certificates for the Merger Consideration. Immediately
following the Effective Time of the Merger, Parent shall deposit
with the Exchange Agent, for the benefit of the holders of
Company Share Certificates, certificates representing the Parent
Common Stock issuable pursuant to Section 2.01 in exchange for
Company Share Certificates. Promptly after the Effective Time of
the Merger Parent will send, or will cause the Exchange Agent to
send, to each holder of Company Share Certificates at the
Effective Time of the Merger (i) a letter of transmittal for use
in such exchange which shall specify that delivery of the Merger
Consideration shall be effected, and risk of loss and title to
the certificates representing Parent Class A Common Stock and
Company Share Certificates shall pass, only upon proper delivery
of the Company Share Certificates to the Exchange Agent and (ii)
instructions for use in effecting the surrender of such Company
Share Certificates in exchange for the certificates representing
Parent Class A Common Stock.
(b) Each holder of Company Share Certificates that have
been converted into a right to receive the Merger Consideration,
upon surrender to the Exchange Agent of such Company Share
Certificates, together with a properly completed letter of
transmittal covering such Company Share Certificates, will be
entitled to receive the Merger Consideration payable in respect
of such Company Share Certificates and any dividends payable
pursuant to Section 2.03(f). Until so surrendered, each such
Company Share Certificate shall, after the Effective Time,
represent for all purposes only the right to receive the Merger
Consideration, any cash payable in lieu of fractional shares
pursuant to Section 2.04 and any dividends payable pursuant to
Section 2.03(f).
(c) If any portion of the Merger Consideration is to be
paid to a person other than the registered holder of a Company
Share Certificate, it shall be a condition to such payment that
such Company Share Certificate so surrendered shall be properly
endorsed or otherwise be in proper form for transfer and that the
person requesting such payment shall pay to the Exchange Agent
any transfer or other taxes required by reason of the issuance of
shares of Parent Class A Common Stock in exchange for the Company
Share Certificate so surrendered or establish to the satisfaction
of the Exchange Agent that such tax has been paid or is not
applicable.
(d) After the Effective Time, there shall be no further
registration of transfers of shares of Company Common Stock. If,
after the Effective Time, Company Share Certificates are
presented to the Surviving Corporation, they shall be cancelled
and exchanged for the Merger Consideration provided for, and in
accordance with the procedures set forth, in this Article II.
(e) Any portion of the Merger Consideration made available
to the Exchange Agent pursuant to Section 2.03(a) that remains
unclaimed by the holders of Company Share Certificates six months
after the Effective Time of the Merger shall be returned to
Parent, upon demand, and any such holder who has not exchanged
his Company Share Certificates for the Merger Consideration in
accordance with this Section 2.03 prior to that time shall
thereafter look only to Parent for payment of the Merger
Consideration, any cash payable in lieu of fractional shares
pursuant to Section 2.04 and any dividends payable pursuant to
Section 2.03(f) in respect of his shares. Notwithstanding the
foregoing, Parent shall not be liable to any holder of Company
Share Certificates for any amount paid to a public official
pursuant to applicable abandoned property laws. Any amounts
remaining unclaimed by holders of Company Share Certificates
seven years after the Effective Time of the Merger (or such
earlier date immediately prior to such time as such amounts would
otherwise escheat to or become property of any governmental
entity) shall, to the extent permitted by applicable law, become
the property of Parent free and clear of any claims or interest
of any person previously entitled thereto.
(f) No dividends or other distributions with respect to
Parent Class A Common Stock issued in the Merger shall be paid to
the holder of any unsurrendered Company Share Certificates until
such certificates are surrendered as provided in this Section
2.03. Subject to the effect of applicable laws, following the
surrender of such certificates, there shall be paid, without
interest, to the record holder of the Parent Class A Common Stock
issued in exchange therefor at the time of such surrender, the
amount of dividends or other distributions with a record date
after the Effective Time of the Merger payable prior to or on the
date of such surrender with respect to such whole shares of
Parent Class A Common Stock and not previously paid, less the
amount of any withholding taxes (if any) which may be required
thereon.
SECTION 2.04 Fractional Shares. (a) No fractional
shares of Parent Class A Common Stock shall be issued in the
Merger, but in lieu thereof each holder of Company Share
Certificates otherwise entitled to a fractional share of Parent
Class A Common Stock will be entitled to receive, from the
Exchange Agent in accordance with the provisions of this Section
2.04, a cash payment in lieu of such fractional shares of Parent
Class A Common Stock representing such holder's proportionate
interest, if any, in the net proceeds from the sale by the
Exchange Agent in one or more transactions of (i) the number of
shares of Parent Class A Common Stock delivered to the Exchange
Agent by Parent pursuant to Section 2.03(a) over (ii) the
aggregate number of whole shares of Parent Class A Common Stock
to be distributed to the holders of the Company Share
Certificates pursuant to Section 2.03(b) (such excess being
herein called the "Excess Shares"). As soon as practicable after
the Effective Time of the Merger, the Exchange Agent, as agent
for the holders of the Company Share Certificates, shall sell the
Excess Shares at then prevailing prices on the NYSE all in the
manner provided in the following paragraph.
(b) The sale of the Excess Shares by the Exchange Agent
shall be executed on the NYSE through one or more member firms of
the NYSE and shall be executed in round lots to the extent
practicable. The proceeds from such sale or sales available for
distribution to the holders of Company Share Certificates shall
be reduced by the compensation payable to the Exchange Agent and
the expenses incurred by the Exchange Agent, in each case, in
connection with such sale or sales of the Excess Shares,
including all related commissions, transfer taxes and other
out-of-pocket transaction costs. Until the net proceeds of such
sale or sales have been distributed to the holders of Company
Share Certificates, the Exchange Agent shall hold such net
proceeds in trust for the holders of Company Share Certificates
(the "Common Shares Trust"). The Exchange Agent shall determine
the portion of the Common Shares Trust to which each holder of
Company Share Certificates shall be entitled, if any, by
multiplying the amount of the aggregate net proceeds comprising
the Common Shares Trust by a fraction, the numerator of which is
the amount of the fractional share interest to which such holder
of Company Share Certificates would otherwise be entitled and the
denominator of which is the aggregate amount of fractional share
interests to which all holders of Company Share Certificates
would otherwise be entitled.
(c) As soon as practicable after the determination of the
amount of cash, if any, to be paid to holders of Company Share
Certificates in lieu of any fractional shares of Parent Class A
Common Stock, the Exchange Agent shall pay such amounts without
interest to such holders of Company Share Certificates who have
surrendered their Company Share Certificates to the Exchange
Agent.
ARTICLE III
Representations and Warranties
SECTION 3.01 Representations and Warranties of the
Company. The Company represents and warrants to Parent and Sub
as follows:
(a) Organization, Standing and Corporate Power. Each
of the Company and each of its Subsidiaries (as defined in
Section 3.01(b)) is duly organized, validly existing and in good
standing under the laws of the jurisdiction in which it is
incorporated and has the requisite corporate power and authority
to carry on its business as now being conducted. Each of the
Company and each of its Subsidiaries is duly qualified or
licensed to do business and is in good standing in each
jurisdiction in which the nature of its business or the ownership
or leasing of its properties makes such qualification or
licensing necessary, other than in such jurisdictions where the
failure to be so qualified or licensed (individually or in the
aggregate) could not be reasonably expected to have a material
adverse effect (as defined in Section 8.03) with respect to the
Company. Attached as Section 3.01(a) of the disclosure schedule
("Disclosure Schedule") delivered to Parent by the Company at the
time of execution of this Agreement are complete and correct
copies of the Certificate of Incorporation and By-laws of the
Company. The Company has delivered to Parent complete and
correct copies of the articles of organization (or other
organizational documents) and by-laws of each of its
Subsidiaries, in each case as amended to the date of this
Agreement, as well as correct and complete copies of all minutes
of meetings of the Board of Directors and committees thereof of
the Company since March 1995.
(b) Subsidiaries. The only direct or indirect
subsidiaries of the Company (other than subsidiaries of the
Company that would not constitute in the aggregate a "Significant
Subsidiary" within the meaning of Rule 1-02 of Regulation S-X of
the Securities and Exchange Commission (the "SEC")) are those
listed in Section 3.01(b) of the Disclosure Schedule (the
"Subsidiaries"). All the outstanding shares of capital stock of
each such Subsidiary have been validly issued and are fully paid
and nonassessable and are owned (of record and beneficially) by
the Company, by another Subsidiary (wholly owned) of the Company
or by the Company and another such Subsidiary (wholly owned),
free and clear of all pledges, claims, liens, charges,
encumbrances and security interests of any kind or nature
whatsoever (collectively, "Liens"). Except for the ownership
interests set forth in Section 3.01(b) of the Disclosure
Schedule, the Company does not own, directly or indirectly, any
capital stock or other ownership interest, and does not have any
option or similar right to acquire any assets or equity or other
ownership interest, in any corporation, partnership, business
association, joint venture or other entity.
(c) Capital Structure. As of September 22, 1997, the
authorized capital stock of the Company consists of (i)
75,000,000 shares of Company Common Stock, (ii) 1,300,000 shares
of Non-Voting Common Stock, each having a par value of one cent
($0.01) ("Non-Voting Common Stock"), and (iii) 15,000,000 shares
of preferred stock, each having a par value of one cent ($0.01)
("Preferred Stock"). As of the close of business on September
22, 1997, there were (i) 32,139,334 shares of Company Common
Stock, 0 shares of Non-Voting Common Stock and 0 shares of
Preferred Stock issued and outstanding; (ii) 20,000 shares of
Company Common Stock held in the treasury of the Company; (iii)
784,734 shares of Company Common Stock reserved for issuance upon
exercise of authorized but unissued Company Stock Options
pursuant to the Stock Plans; (iv) 5,102,400 shares of Company
Common Stock reserved for issuance upon the conversion of the
Convertible Debentures; and (v) 1,662,966 shares of Company
Common Stock issuable upon exercise of outstanding Company Stock
Options. Schedule 3.01(c) sets forth the name of each holder of
outstanding options to acquire shares of Company Common Stock,
the number of options held and the exercise prices of such
options. Except as set forth above, no shares of capital stock
or other equity securities of the Company are issued, reserved
for issuance or outstanding. All outstanding shares of capital
stock of the Company are, and all shares which may be issued
pursuant to the Stock Plans will be, when issued, duly
authorized, validly issued, fully paid and nonassessable and not
subject to preemptive rights. Other than the Convertible
Debentures and the Company Stock Options, there are no
outstanding bonds, debentures, notes or other indebtedness or
other securities of the Company having the right to vote (or
convertible into, or exchangeable or exercisable for, securities
having the right to vote) on any matters on which stockholders of
the Company may vote. Except as set forth above, there are no
outstanding securities, options, warrants, calls, rights,
commitments, agreements, arrangements or undertakings of any kind
to which the Company or any of its subsidiaries is a party or by
which any of them is bound obligating the Company or any of its
subsidiaries to issue, deliver or sell, or cause to be issued,
delivered or sold, additional shares of capital stock or other
equity or voting securities of the Company or of any of its
subsidiaries or obligating the Company or any of its subsidiaries
to issue, grant, extend or enter into any such security, option,
warrant, call, right, commitment, agreement, arrangement or
undertaking. As of September 22, 1997, the only outstanding
indebtedness for borrowed money of the Company and its
subsidiaries is set forth on Schedule 3.01(c). Other than the
Convertible Debentures and the Company Stock Options, (i) there
are no outstanding contractual obligations, commitments,
understandings or arrangements of the Company or any of its
subsidiaries to repurchase, redeem or otherwise acquire or make
any payment in respect of any shares of capital stock of the
Company or any of its subsidiaries and (ii) to the knowledge of
the Company, there are no irrevocable proxies with respect to
shares of capital stock of the Company or any subsidiary of the
Company. Except (i) as set forth above, (ii) for the
Registration Rights Agreement, dated as of May 9, 1996, among the
Company, the Stockholder and Calvin Klein, Inc., the registration
obligations under which will expire upon the issuance to Calvin
Klein, Inc. of shares of Parent Class A Common Stock in the
Merger, and (iii) Sections 11.2 and 11.3 of the Third Amended and
Restated Limited Liability Company Agreement of New Rio, L.L.C.,
dated as of May 9, 1996, the registration obligations under which
will expire upon the issuance to the Stockholder of shares of
Parent Class A Common Stock in the Exchange, there are no
agreements or arrangements pursuant to which the Company is or
could be required to register shares of Company Common Stock or
other securities under the Securities Act of 1933, as amended
(the "Securities Act"), or other agreements or arrangements with
or among any securityholders of the Company with respect to
securities of the Company.
(d) Authority; Noncontravention. The Company has the
requisite corporate and other power and authority to enter into
this Agreement and, subject to the Company Stockholder Approval
with respect to the consummation of the Merger, to consummate the
transactions contemplated hereby and thereby. The execution and
delivery of this Agreement by the Company and the consummation by
the Company of the transactions contemplated hereby and thereby
have been duly authorized by all necessary corporate action on
the part of the Company, subject, in the case of the Merger, to
the Company Stockholder Approval. This Agreement has been duly
executed and delivered by the Company and constitutes a valid and
binding obligation of the Company, enforceable against the
Company in accordance with its terms. Except as disclosed in
Section 3.01(d) of the Disclosure Schedule, the execution and
delivery of this Agreement do not, and the consummation of the
transactions contemplated by this Agreement and compliance with
the provisions hereof will not, conflict with, or result in any
breach or violation of, or default (with or without notice or
lapse of time, or both) under, or give rise to a right of
termination, cancellation or acceleration of or "put" right with
respect to any obligation or to loss of a material benefit under,
or result in the creation of any Lien upon any of the properties
or assets of the Company or any of its subsidiaries under, (i)
the Certificate of Incorporation or By-laws of the Company or the
comparable charter or organizational documents of any of its
subsidiaries, (ii) any loan or credit agreement, note, bond,
mortgage, indenture, lease or other agreement, instrument,
permit, concession, franchise or license applicable to the
Company or any of its subsidiaries or their respective properties
or assets or (iii) subject to the governmental filings and other
matters referred to in the following sentence, any judgment,
order, decree, statute, law, ordinance, rule, regulation or
arbitration award applicable to the Company or any of its
subsidiaries or their respective properties or assets, other
than, in the case of clauses (ii) and (iii), any such conflicts,
breaches, violations, defaults, rights, losses or Liens that
individually or in the aggregate could not be reasonably expected
to have a material adverse effect with respect to the Company or
could not reasonably be expected to prevent or materially delay
the ability of the Company to consummate the transactions
contemplated by this Agreement. No consent, approval, order or
authorization of, or registration, declaration or filing with, or
notice to, any Federal, state or local government or any court,
administrative agency or commission or other governmental
authority or agency, domestic or foreign (a "Governmental
Entity"), is required by or with respect to the Company or any of
its subsidiaries in connection with the execution and delivery of
this Agreement by the Company or the consummation by the Company
of the transactions contemplated hereby or thereby, except, with
respect to this Agreement, for (i) the filing of a premerger
notification and report form by the Company under the
Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended
(the "HSR Act"), (ii) the filing with the SEC of (y) a proxy
statement relating to the Company Stockholder Approval (such
proxy statement as amended or supplemented from time to time,
together with the proxy statement, if necessary, for the Parent
Stockholder Approval, if necessary (as defined in Section
3.02(j)), the "Joint Proxy Statement"), and (z) such reports
under the Securities Exchange Act of 1934, as amended (the
"Exchange Act"), as may be required in connection with this
Agreement and the transactions contemplated by this Agreement,
(iii) the filing of the Certificate of Merger with the Secretary
of State of the State of Delaware, the filing of a certificate of
merger with the appropriate authorities in the necessary
jurisdictions in the event Parent makes an election referred to
in Section 1.01, and the filing of appropriate documents with the
relevant authorities of other states in which the Company is
qualified to do business and (iv) such other consents, approvals,
orders, authorizations, registrations, declarations, filings or
notices as are set forth in Section 3.01(d) of the Disclosure
Schedule.
(e) SEC Documents; Undisclosed Liabilities. The
Company has filed all material required reports, schedules,
forms, statements and other documents with the SEC since May 9,
1996, and the Company has delivered or made available to Parent
all reports, schedules, forms, statements and other documents
filed by the Company with the SEC since such date (collectively,
and in each case including all exhibits and schedules thereto and
documents incorporated by reference therein, the "SEC
Documents"). As of their respective dates, the SEC Documents
complied in all material respects with the requirements of the
Securities Act, or the Exchange Act, as the case may be, and the
rules and regulations of the SEC promulgated thereunder
applicable to such SEC Documents, and none of the SEC Documents
(including any and all financial statements included therein) as
of such dates contained any untrue statement of a material fact
or omitted to state a material fact required to be stated therein
or necessary in order to make the statements therein, in light of
the circumstances under which they were made, not misleading.
Except to the extent set forth in Section 3.01(e) of the
Disclosure Schedule and except to the extent revised or
superseded by a subsequent filing with the SEC (a copy of which
has been provided to Parent prior to the date of this Agreement),
none of the SEC Documents filed by the Company since January 1,
1997 and prior to the date of this Agreement (the "Recent SEC
Documents") contains any untrue statement of a material fact or
omits to state any material fact required to be stated therein or
necessary in order to make the statements therein, in light of
the circumstances under which they were made, not misleading.
The consolidated financial statements of the Company included in
all SEC Documents filed since January 1, 1997 (the "SEC Financial
Statements") comply as to form in all material respects with
applicable accounting requirements and the published rules and
regulations of the SEC with respect thereto, have been prepared
in accordance with generally accepted accounting principles
(except, in the case of unaudited consolidated quarterly
statements, as permitted by Form 10-Q of the SEC) applied on a
consistent basis during the periods involved (except as may be
indicated in the notes thereto) and fairly present the
consolidated financial position of the Company and its
consolidated subsidiaries as of the dates thereof and the
consolidated results of their operations and cash flows for the
periods then ended (subject, in the case of unaudited quarterly
statements, to normal year-end audit adjustments). Except as set
forth in Schedule 3.01(e), at the date of the most recent audited
financial statements of the Company included in the Recent SEC
Documents, neither the Company nor any of its subsidiaries had,
and since such date neither the Company nor any of such
subsidiaries has incurred, any liabilities or obligations of any
nature (whether accrued, absolute, contingent or otherwise)
which, individually or in the aggregate, could reasonably be
expected to have a material adverse effect with respect to the
Company. To the best of the Company's knowledge, (i) all
historical financial statements supplied to Parent by the Company
for periods subsequent to June 30, 1997 have been prepared in
accordance with generally accepted accounting principles (except
as permitted by Form 10-Q of the SEC) applied on a consistent
basis during the periods involved (except as may be indicated in
the notes thereto) and fairly present the consolidated financial
position of the Company and its consolidated subsidiaries as of
the dates thereof and the consolidated results of their
operations and cash flows for the periods then ended (subject to
normal year-end adjustments) and (ii) all financial data so
supplied for such periods is true and accurate in all material
respects.
(f) Information Supplied. None of the information
supplied or to be supplied by the Company for inclusion or
incorporation by reference in (i) the registration statement on
Form S-4 to be filed with the SEC by Parent in connection with
the issuance of Parent Class A Common Stock in the Merger (the
"Form S-4") will, at the time the Form S-4 is filed with the SEC,
and at any time it is amended or supplemented or at the time it
becomes effective under the Securities Act, contain any untrue
statement of a material fact or omit to state any material fact
required to be stated therein or necessary to make the statements
therein not misleading, and (ii) the Joint Proxy Statement will,
at the date it is first mailed to the Company's stockholders or
at the time of the Company Stockholder Meeting (as defined in
Section 5.01(b)), contain any untrue statement of a material fact
or omit to state any material fact required to be stated therein
or necessary in order to make the statements therein, in light of
the circumstances under which they are made, not misleading. The
Joint Proxy Statement will comply as to form in all material
respects with the requirements of the Exchange Act and the rules
and regulations promulgated thereunder, except that no
representation is made by the Company with respect to statements
made or incorporated by reference therein based on information
supplied by Parent or Sub for inclusion or incorporation by
reference in the Joint Proxy Statement.
(g) Absence of Certain Changes or Events. Except as
disclosed in Section 3.01(g) of the Disclosure Schedule or in the
case of clause (ii), except as included in the Recent SEC
Documents, since the date of the most recent audited financial
statements included in the Recent SEC Documents (or, in the case
of clauses (i) and (iii), since June 30, 1997), the Company has
conducted its business in all material respects only in the
ordinary course consistent with past practice, and there is not
and has not been: (i) any material adverse change with respect to
the Company (except for changes generally applicable to the
economy in general and the specific industry in which the Company
operates); (ii) any condition, event or occurrence which,
individually or in the aggregate, could reasonably be expected to
have a material adverse effect or give rise to a material adverse
change with respect to the Company (except for changes generally
applicable to the economy in general and the specific industry in
which the Company operates); (iii) any event which, if it had
taken place following the execution of this Agreement, would not
have been permitted by Section 4.01 without the prior consent of
Parent; or (iv) any condition, event or occurrence which could
reasonably be expected to prevent or materially delay the ability
of the Company to consummate the transactions contemplated by
this Agreement.
(h) Litigation; Labor Matters; Compliance with Laws.
(i) Schedule 3.01(h) of the Disclosure Schedule set forth, as of
the date of this Agreement, all suits, actions, counterclaims,
proceedings or governmental or internal investigations pending
or, to the knowledge of the Company, threatened in writing
against or affecting the Company or any of its subsidiaries other
than those which could not reasonably be expected to result in
liability to the Company in excess of $150,000 in the aggregate.
None of such suits, actions, counterclaims, proceedings or
investigations (and no other suits, actions, counterclaims,
proceedings or investigations), individually or in the aggregate,
could reasonably be expected to have a material adverse effect
with respect to the Company or prevent or materially delay the
ability of the Company to consummate the transactions
contemplated by this Agreement or exploit all of the Company's
licensed and other intellectual property rights; in addition,
there is not any judgment, decree, injunction, rule or order of
any Governmental Entity or arbitrator outstanding against the
Company or any of its subsidiaries having, or which, insofar as
reasonably could be foreseen by the Company, in the future could
have, any such effect.
(ii) Except as disclosed in Section 3.01(h)(ii) of
the Disclosure Schedule, neither the Company nor any of its
subsidiaries is a party to, or bound by, any collective
bargaining agreement, contract or other agreement or
understanding with a labor union or labor organization, nor is it
or any of its subsidiaries the subject of any proceeding
asserting that it or any subsidiary has committed an unfair labor
practice or seeking to compel it to bargain with any labor
organization as to wages or conditions of employment nor is there
any strike, work stoppage or other labor dispute involving it or
any of its subsidiaries pending or, to its knowledge, threatened,
any of which could reasonably be expected to have a material
adverse effect with respect to the Company.
(iii) The conduct of the business of each of the
Company and each of its subsidiaries and, to the knowledge of the
Company, its contractors complies with all statutes, laws,
regulations, ordinances, rules, judgments, orders, decrees or
arbitration awards applicable thereto, including the Foreign
Corrupt Practices Act, except for violations or failures so to
comply, if any, that, individually or in the aggregate, could not
reasonably be expected to have a material adverse effect with
respect to the Company.
(i) Absence of Changes in Employee Benefit Plans.
Except as set forth on Schedule 3.01(i), since January 1, 1997,
there has not been any adoption or amendment by the Company or
any of its subsidiaries of any collective bargaining agreement or
any bonus, pension, profit sharing, deferred compensation,
incentive compensation, stock ownership, stock purchase, stock
option, phantom stock, retirement, vacation, severance,
disability, death benefit, hospitalization, medical or other
plan, arrangement or understanding (whether formal or informal,
oral or written) under which the Company or any of its
subsidiaries currently has an obligation to provide benefits to
any current or former employee, officer or director of the
Company or any of its subsidiaries (collectively, "Employee
Benefit Plans"). Except as disclosed in Section 3.01(i) of the
Disclosure Schedule, there exist no written employment,
consulting, severance, change in control, termination or
indemnification agreements or any oral agreement regarding
compensation, benefits and other perquisites with respect to any
employee expected to earn in excess of $100,000 in total
compensation in 1997, between the Company or any of its
subsidiaries and any current or former employee, officer or
director of the Company or any of its subsidiaries ("Employment
Arrangements").
(j) ERISA Plans. (i) Section 3.01(j) of the
Disclosure Schedule contains a list of all "employee pension
benefit plans" (as defined in Section 3(2) of the Employee
Retirement Income Security Act of 1974, as amended ("ERISA"))
(sometimes referred to herein as "Pension Plans"), "employee
welfare benefit plans" (as defined in Section 3(1) of ERISA,
hereinafter a "Welfare Plan"), stock option, stock purchase,
deferred compensation plans or arrangements, and other material
employee fringe benefit plans or arrangements with respect to
which the Company and its subsidiaries or any other person or
entity that, together with the Company, is treated as a single
employer under Section 414(b), (c), (m) or (o) of the Code (each,
including the Company, a "Commonly Controlled Entity") have any
liability on account of any present or former officers,
employees, directors or independent contractors of the Company
(all the foregoing, in addition to Employee Benefit Plans defined
in Section 3.01(i), collectively being herein called "Benefit
Plans"). The Company has made available to Parent true, complete
and correct copies of (1) each Benefit Plan (or, in the case of
any unwritten Benefit Plans, descriptions thereof), (2) the two
most recent annual reports on Form 5500 and attached schedules
filed with the Internal Revenue Service with respect to each
Benefit Plan (if any such report was required by applicable law),
(3) the most recent summary plan description for each Benefit
Plan for which such a summary plan description is required by
applicable law, (4) each trust agreement and material insurance
or annuity contract relating to any Benefit Plan, (5) the most
recent determination letter, if applicable, for any Benefit Plan
and (6) each written Employment Arrangement.
(ii) Except as disclosed in Section 3.01(j) of the
Disclosure Schedule, each Benefit Plan has been established and
administered in all material respects in accordance with its
terms. All the Benefit Plans are in compliance in all material
respects with the applicable provisions of ERISA, the Code and
other applicable laws, rules and regulations. Except as
disclosed in Section 3.01(j) of the Disclosure Schedule, all
reports, returns and similar documents with respect to the
Benefit Plans required to be filed with any governmental agency
or distributed to any Benefit Plan participant have been duly and
timely filed or distributed. Except as disclosed in Section
3.01(j) of the Disclosure Schedule, the Company has not received
notice of any investigations by any governmental agency,
termination proceedings or other claims (except claims for
benefits payable in the normal operation of the Benefit Plans),
suits or proceedings against or involving any Benefit Plan or
asserting any rights or claims to benefits under any Benefit Plan
that could give rise to any material liability, and, to the best
of the Company's knowledge, there are not any facts that could
give rise to any material liability in the event of any such
investigation, claim, suit or proceeding. No event has occurred
and no condition exists that could reasonably be expected to
subject any Commonly Controlled Entity to any material tax, fine
or penalty imposed by ERISA, the Code or other applicable laws,
rules and regulations.
(iii) Except as disclosed in Section 3.01(j) of
the Disclosure Schedule, (1) all contributions to, and payments
from, the Benefit Plans that may have been required to be made in
accordance with the terms of the Benefit Plans, any applicable
collective bargaining agreement and, when applicable, Section 302
of ERISA or Section 412 of the Code, have been timely made.
(iv) Except as disclosed in Schedule 3.01(j), each
Company Benefit Plan intended to qualify under Section 401(a) of
the Code has been the subject of a determination letter from the
Internal Revenue Service to the effect that such Benefit Plan is
qualified and exempt from Federal income taxes under Sections
401(a) and 501(a), respectively, of the Code or application
therefor has been timely made; no such determination letter has
been revoked, and, to the knowledge of the Company, revocation
has not been threatened nor is it expected.
(v) Schedule 3.01(j) discloses whether: (1) any
"prohibited transaction" (as defined in Section 4975 of the Code
or Section 406 of ERISA) has occurred during the past three years
that involves the assets of any Benefit Plan that could subject
the Company, any of its employees or a Company indemnified
fiduciary under any Benefit Plan to a material tax or penalty on
prohibited transactions imposed by Section 4975 of ERISA or the
sanctions imposed under Title I of ERISA; or (2) any of the
Company Benefit Plans has been terminated.
(vi) Other than the ILGWU National Retirement
Fund, no Commonly Controlled Entity sponsors, maintains,
contributes to or has any liability in respect of any "employee
benefit plan" which is subject to Title IV of ERISA, including
any multiemployer plan, multiple employer plan or single-employer
plan.
(vii) No Commonly Controlled Entity has
incurred any material liability that remains unsatisfied to a
Pension Plan (other than for contributions not yet due) or to the
Pension Benefit Guaranty Corporation (other than for the payment
of premiums not yet due).
(viii) Except as disclosed in Schedule 3.01(j),
no Commonly Controlled Entity has incurred any "withdrawal
liability" (as defined in Section 4201 of ERISA), which liability
has not been fully paid as of the date hereof, or has announced
an intention to withdraw, but has not yet completely withdrawn,
from a "multiemployer plan"; and, to the best of the Company's
knowledge, no action has been taken, and no circumstances exist,
that alone or with the passage of time could result in either a
partial or complete withdrawal from such a Multiemployer Plan by
any Commonly Controlled Entity.
(k) Certain Employee Payments. Except as disclosed in
Section 3.01(k) of the Disclosure Schedule, or as may be
necessary or appropriate to give effect to Section 2.02 no
Benefit Plan or Employment Arrangement provides for the payment
to any current or former director or employee of the Company or
any Commonly Controlled Entity of any money, other property or
rights, or accelerate other rights or benefits to any such
employee or director as a result of the transactions contemplated
by this Agreement, whether or not (i) such payment, acceleration
or provision would constitute a "parachute payment" (within the
meaning of Section 280G of the Code), or (ii) some other
subsequent action or event would be required to cause such
payment, acceleration or provision to be triggered. Except as
disclosed in Section 3.01(k) of the Disclosure Schedule, no
payment, acceleration or provision referred to in the preceding
sentence would constitute or give rise to a "parachute payment"
within the meaning of Section 280G of the Code.
(l) Tax Returns and Tax Payments. The Company and
each of its subsidiaries, and any consolidated, combined, unitary
or aggregate group for Tax purposes of which the Company or any
of its subsidiaries is or has been a member (a "Consolidated
Group") has timely filed all Tax Returns required to be filed by
it and has paid all Taxes shown thereon to be due. The Company
and its subsidiaries have made adequate provision (to the extent
required by, and in accordance with generally accepted accounting
principles ("GAAP")) for all Taxes payable for any periods that
end before the Effective Time of the Merger for which no Tax
Returns have yet been filed and for any periods that begin before
the Effective Time of the Merger and end after the Effective Time
of the Merger to the extent such Taxes are attributable to the
portion of any such period ending at the Effective Time of the
Merger, and the charges, accruals and reserves for Taxes
reflected in the financial statements of the Company and its
subsidiaries are adequate under GAAP to cover the Tax liability
accruing or payable by the Company and its subsidiaries in
respect of periods prior to the date hereof. Except as set forth
in Section 3.01(l) of the Disclosure Schedule: (i) no material
claim for unpaid Taxes has become a lien against the property of
the Company or any of its subsidiaries or is being asserted
against the Company or any of its subsidiaries, (ii) no audit or
other proceeding with respect to any Taxes due from the Company
or any of its subsidiaries or any Tax Return of the Company or
any of its subsidiaries is pending, threatened, to the best of
the Company's knowledge, or being conducted by a Tax authority,
and (iii) no extension of the statute of limitations on the
assessment of any Taxes has been granted by the Company nor any
of its subsidiaries and is currently in effect, (iv) neither the
Company or any of its subsidiaries (A) has been a member of a
Consolidated Group filing a consolidated federal income Tax
Return (other than a group the common parent of which was the
Company) or (B) has any liability for the Taxes of any person
(other than the Company and its subsidiaries), including
liability arising from the application of Treasury Regulation
section 1.1502-6 or any analogous provision of state, local or
foreign law, or as a transferee or successor, by contract, or
otherwise, (v) no consent under Section 341(f) of the Code has
been filed with respect to the Company or any of its subsidiaries
and (vi) all Taxes required to be withheld, collected or
deposited by or with respect to the Company and each of its
subsidiaries have been timely withheld, collected or deposited,
as the case may be, and, to the extent required, have been paid
to the relevant taxing authority. As used herein, "Taxes" shall
mean all taxes of any kind, including those on or measured by or
referred to as income, gross receipts, sales, use, ad valorem,
franchise, profits, license, withholding, payroll, employment,
excise, severance, stamp, occupation, premium, value added,
property or windfall profits taxes, customs, duties or similar
fees, assessments or charges of any kind whatsoever, together
with any interest and any penalties, additions to tax or
additional amounts imposed by any governmental authority,
domestic or foreign. As used herein, "Tax Return" shall mean any
return, report or statement required to be filed with any
governmental authority with respect to Taxes.
(m) Section 203 of the DGCL Not Applicable. The Board
of Directors of the Company has, prior to the execution hereof
and prior to the execution of the Stock Exchange Agreement, (i)
approved the execution and delivery by the Company of this
Agreement, and the execution and delivery by the parties thereto
of the Stock Exchange Agreement and the consummation of the
Merger and the other transactions contemplated by this Agreement
and the Exchange and the other transactions contemplated by the
Stock Exchange Agreement, and such approval and amendment are
sufficient to render inapplicable to this Agreement, the Merger,
the Exchange, the Stock Exchange Agreement and the other
transactions contemplated hereby and thereby, the restrictions of
Section 203(a) of the DGCL. Other than Section 203 of the DGCL,
(y) no state takeover statute or similar statute or regulation of
the State of Delaware (and, to the knowledge of the Company after
due inquiry, of any other state or jurisdiction) applies or
purports to apply to this Agreement, the Merger, the Exchange,
the Stock Exchange Agreement or any of the other transactions
contemplated hereby or thereby and (z) no provision of the
certificate of incorporation, by-laws or other governing
instruments of the Company or any of its subsidiaries or the
terms of any rights plan or preferred stock of the Company would,
directly or indirectly, restrict or impair the ability of Parent
to vote, or otherwise to exercise the rights of a stockholder
with respect to, securities of the Company and its subsidiaries
that may be acquired or controlled by Parent (including the
Stockholder Shares acquired pursuant to the Exchange) or permit
any stockholder to acquire securities of the Company or the
Surviving Corporation on a basis not available to Parent in the
event that Parent were to acquire securities of the Company
(including the Stockholder Shares acquired pursuant to the
Exchange).
(n) Environmental Matters. (i) Except as disclosed in
Section 3.01(n) of the Disclosure Schedule:
(A) The Company and its subsidiaries including
their predecessors (I) are, and have been at
all times since their formation, in
compliance in all material respects with all
applicable Environmental Laws; (II) hold all
material Environmental Permits (each of which
is in full force and effect) required for any
of their current or intended operations or
for any property owned, leased, or otherwise
operated by any of them; (III) are, and have
been, in compliance in all material respects
with all of their Environmental Permits; and
(IV) reasonably believe that: each of their
Environmental Permits will be timely renewed
and complied with, without material expense;
any additional Environmental Permits that may
be required of any of them will be timely
obtained and complied with, without material
expense; and compliance with any
Environmental Law that is or is expected to
become applicable to any of them will be
timely attained and maintained, without
material expense;
(B) None of the Company or its subsidiaries has
received any Environmental Claim, and none of
the Company or its subsidiaries is aware,
after reasonable inquiry, of any threatened
Environmental Claim or of any circumstances,
conditions or events that could reasonably be
expected to give rise to an Environmental
Claim, against the Company or any of its
subsidiaries, in each case that, individually
or in the aggregate, could reasonably be
expected to have a material adverse effect on
the Company;
(C) None of the Company or its subsidiaries has
entered into or agreed to any consent decree
or order under any Environmental Law, and
none of the Company or its subsidiaries is
subject to any judgment, decree or order of
any governmental authority relating to
compliance with any Environmental Law or to
investigation, cleanup, remediation or
removal of regulated substances under any
Environmental Law;
(D) There are no (I) underground storage tanks,
(II) polychlorinated biphenyls, (III)
asbestos or asbestos-containing materials or
(IV) Hazardous Materials present at any
facility currently or formerly owned, leased
or operated by the Company or any of its
subsidiaries that could reasonably be
expected to give rise to material liability
of the Company or any of its subsidiaries
under any Environmental Laws;
(E) There are no past (including with respect to
assets or businesses formerly owned, leased
or operated by the Company or any of its
subsidiaries) or present actions, activities,
events, conditions or circumstances,
including the release, threatened release,
emission, discharge, generation, treatment,
storage or disposal of Hazardous Materials,
that could reasonably be expected to give
rise to material liability of the Company or
any of its subsidiaries under any
Environmental Laws or any contract or
agreement; and
(F) None of the Company or its subsidiaries has
assumed or retained, by contract or operation
of law, any material liabilities of any kind,
fixed or contingent, under any Environmental
Law or with respect to any Hazardous Material
or Environmental Claim.
(ii) The items on Section 3.01(n) of the Disclosure
Schedule, individually and in the aggregate, could not reasonably
be expected to have a material adverse effect with respect to the
Company.
(iii) The Company has provided or made available to
Parent and Sub true and complete copies of all Environmental
Reports in its possession or control.
(iv) For purposes of this Agreement, the following
terms shall have the following meanings:
"Environmental Claim" means any written
notice, claim, demand, action, suit, complaint, proceeding or
other communication by any person alleging liability or potential
liability (including liability or potential liability for
investigatory costs, cleanup costs, governmental response costs,
natural resource damages, property damage, personal injury, fines
or penalties) arising out of, relating to, based on or resulting
from (i) the presence, discharge, emission, release or threatened
release of any Hazardous Materials at any location, whether or
not owned, leased or operated by the Company or any of its
subsidiaries, or Parent or any of its subsidiaries, as the case
may be, or (ii) any Environmental Law or Environmental Permit.
"Environmental Laws" means any and all laws,
rules, orders, regulations, statutes, ordinances, guidelines,
codes, decrees, or other legally enforceable requirement
(including common law) of any foreign government, the United
States, or any state, local, municipal or other governmental
authority, regulating, relating to or imposing liability or
standards of conduct concerning protection of the environment or
of human health, or employee health and safety, as has been, is
now, or may at any time hereafter be, in effect.
"Environmental Permits" means any and all
permits, licenses, approvals, registrations, notifications,
exemptions and any other authorization required under any
Environmental Law.
"Environmental Report" means any report,
study, assessment, audit, or other similar document that
addresses any issue of actual or potential noncompliance with, or
actual or potential liability under or cost arising out of, any
Environmental Law that may in any way affect the Company.
"Hazardous Materials" means any gasoline or
petroleum (including crude oil or any fraction thereof) or
petroleum products, polychlorinated biphenyls, urea-formaldehyde
insulation, asbestos, pollutants, contaminants, radioactivity,
and any other substances or forces of any kind, whether or not
any such substance or force is defined as hazardous or toxic
under any Environmental Law, that is regulated pursuant to or
could give rise to liability under any Environmental Law.
(o) Material Contract Defaults; Non-Competes. (i)
The Company has provided or made available to Parent copies, and
has provided a true and correct list to Parent, of all material
contracts, agreements, commitments, arrangements, leases,
licenses, policies or other instruments to which it or any of its
subsidiaries is a party or by which it or any such subsidiary is
bound ("Material Contracts"). Neither the Company nor any of its
subsidiaries is, or has received any notice or has any knowledge
that any other party is, in default or unable to perform in any
respect under any such Material Contract, including any license
or agreement relating to intellectual property, except for those
defaults which could not reasonably be expected, either
individually or in the aggregate, to have a material adverse
effect with respect to the Company; and there has not occurred
any event that with the lapse of time or the giving of notice or
both would constitute such a material default.
(ii) Except as disclosed in Schedule 3.01(o),
neither the Company nor any of its subsidiaries is a party to any
agreement that expressly limits the ability of the Company or any
of its subsidiaries to compete in or conduct any line of business
or compete with any person in any geographic area or during any
period of time.
(p) Brokers. No broker, investment banker, financial
advisor or other person other than Merrill Lynch, Pierce, Fenner
& Smith Incorporated is entitled to any broker's, finder's,
financial advisor's or other similar fee or commission in
connection with the transactions contemplated by this Agreement
based upon arrangements made by or on behalf of the Company.
(q) Opinion of Financial Advisor. The Company has
received the opinion of Merrill Lynch, Pierce, Fenner & Smith
Incorporated, dated the date of this Agreement, to the effect
that, as of the date thereof, the Exchange Ratio is fair, from a
financial point of view, to the holders of the Company Common
Stock (other than the Stockholder and its affiliates and Parent
and its affiliates).
(r) Board Recommendation. The Board of Directors of
the Company, at a meeting duly called and held, has (i)
determined that this Agreement and the transactions contemplated
hereby, including the Merger, and the Stock Exchange Agreement
and the transactions contemplated thereby, including the
Exchange, taken together, are fair to and in the best interests
of the stockholders of the Company (other than the Stockholder
and its affiliates), and (ii) resolved to recommend that the
holders of the shares of Company Common Stock approve and adopt
this Agreement and the transactions contemplated herein,
including the Merger.
(s) Required Company Vote. The Company Stockholder
Approval, being the affirmative vote of a majority of the
outstanding shares of Company Common Stock, is the only vote of
the holders of any class or series of the Company's securities
necessary to approve and adopt the Merger Agreement, the Merger
and the other transactions contemplated hereby. There is no vote
of the holders of any class or series of the Company's securities
necessary to approve the Stock Exchange Agreement or the
transactions contemplated thereby.
(t) Properties. Except as disclosed in Schedule
3.01(t) hereto, each of the Company and its subsidiaries (i) has
good and marketable title to all the properties and assets
reflected in the latest audited balance sheet included in the
Recent SEC Documents as being owned by the Company or one of its
subsidiaries or acquired after the date thereof which are,
individually or in the aggregate, material to the Company's
business on a consolidated basis (except properties sold or
otherwise disposed of since the date thereof in the ordinary
course of business), free and clear of (A) all Liens except (1)
statutory liens securing payments not yet due and (2) such
imperfections or irregularities of title, or other Liens (other
than real property mortgages or deeds of trust) as do not
materially affect the use of the properties or assets subject
thereto or affected thereby or otherwise materially impair
business operations at such properties, and (B) all real property
mortgages and deeds of trust and (ii) is the lessee of all
leasehold estates reflected in Schedule 3.01(t) hereto or
acquired after the date thereof which are material to its
business on a consolidated basis and is in possession of the
properties purported to be leased thereunder, and each such lease
is in full force and effect and is valid without material default
(and the lessee has not received any notice of default, whether
or not material) thereunder by the lessee or, to the Company's
knowledge, the lessor.
(u) Trademarks and Related Contracts. The Company and
each of its subsidiaries owns the trademarks (including common
law names and marks and federally registered names and marks) set
forth on Schedule 3.01(u) in the United States and throughout the
world, and owns and or is licensed to use (in each case, clear of
any Liens), all patents, trademarks, trade names, copyrights,
technology, know-how and processes used in or necessary for the
conduct of its business as currently conducted which are material
to the condition (financial and other), business, or operations
of the Company (including all exclusive licensed rights in and to
the names and trademarks "Calvin Klein", "CK/Calvin Klein",
"Calvin Klein Jeans", "CK/Calvin Klein Jeans", "Calvin Klein
Khakis" and "CK/Calvin Klein Khakis" (and variations thereof)
for, on and in connection with certain men's and women's jeans
and jeans-related items, khakis and khaki-related items and boys'
and girls' jeans and jeans-related items in the United States,
its territories and possessions, Mexico, Canada, South America
and Central America (as more fully described in Schedule 3.01(u)
hereto) and any variations or derivatives thereof used by the
Company or its subsidiaries and its licensees, agents and
distributors). To the best knowledge of the Company, (i) the use
of such patents, trademarks, trade names, service marks,
copyrights, technology, know-how and processes by the Company and
its subsidiaries and authorized users does not infringe on the
rights of any person, subject to such claims and infringements as
do not, in the aggregate, give rise to any liability on the part
of the Company and its subsidiaries which could have a material
adverse effect with respect to the Company and (ii) no person is
infringing on any right of the Company or any of its
subsidiaries, licensees or authorized users with respect to any
such patents, trademarks, service marks, trade names, copyrights,
technology, know-how or processes, except in each of cases (i) or
(ii) as set forth on Schedule 3.01(u). The Company and its
subsidiaries, and, to the best of the Company's knowledge,
licensees or authorized users are not in breach or violation in
any material respect of any agreement relating to the use of any
of the intellectual property identified in this provision, and
they have not received any notification written or oral from any
third party that there is any such violation, breach or inability
to perform under any such agreement. There are no agreements,
written or oral, except as set forth in Schedule 3.01(u), which
in any material respect limit or otherwise relate to any rights
by the Company or its shareholders to use any of its intellectual
property.
(v) Transactions with Affiliates. Except as set forth
on Schedule 3.01(v) and in the SEC Documents, from January 1,
1996 through the date of this Agreement, there has been no
transaction, agreement, arrangement or understanding, or any
related series thereof, between the Company or its subsidiaries
or contractors, on the one hand, and the Company's affiliates
(other than wholly-owned (excluding directors' and nominee
shares) subsidiaries of the Company), on the other hand, in which
the amount or value involved exceeded $60,000. As used in the
definition of "affiliate", the term "control" means possession,
directly or indirectly, of the power to direct or cause the
direction of the management or policies of a person, whether
through the ownership of voting securities, by contract or
otherwise.
SECTION 3.02 Representations and Warranties of Parent
and Sub. Parent and Sub represent and warrant to the Company as
follows:
(a) Organization, Standing and Corporate Power. Each
of Parent, Sub and the other Parent Subsidiaries (as defined in
Section 3.02(b)) is duly organized, validly existing and in good
standing under the laws of the jurisdiction in which it is
incorporated and has the requisite corporate power and authority
to carry on its business as now being conducted. Each of Parent,
Sub and the other Parent Subsidiaries is duly qualified or
licensed to do business and is in good standing in each
jurisdiction in which the nature of its business or the ownership
or leasing of its properties makes such qualification or
licensing necessary, other than in such jurisdictions where the
failure to be so qualified or licensed (individually or in the
aggregate) could not reasonably be expected to have a material
adverse effect with respect to Parent. Parent has delivered to
the Company complete and correct copies of its Restated
Certificate of Incorporation and By-laws and the certificate of
incorporation (or other organizational documents) and by-laws of
Sub and the Significant Subsidiaries of Parent as listed in
Section 3.02(b) of the disclosure schedule (the "Parent
Disclosure Schedule") delivered to the Company by Parent at the
time of execution of this Agreement, in each case as amended to
the date of this Agreement.
(b) Subsidiaries. The only direct or indirect
subsidiaries of Parent (other than such subsidiaries that would
not constitute in the aggregate a Significant Subsidiary) are
listed in Section 3.02(b) of the Parent Disclosure Schedule
(together with Sub, the "Parent Subsidiaries"). All the
outstanding shares of capital stock of each such Parent
Subsidiary have been validly issued and are fully paid and
nonassessable and are owned (of record and beneficially) by
Parent, by another Parent Subsidiary (wholly owned) or by Parent
and another such Parent Subsidiary (wholly owned), free and clear
of all Liens. Except for the ownership interests set forth in
Section 3.02(b) of the Parent Disclosure Schedule, Parent does
not own, directly or indirectly, any capital stock or other
ownership interest, and does not have any option or other right
to acquire any assets or equity or other ownership interest in
any corporation, partnership, business association, joint venture
or other entity.
(c) Capital Structure. The authorized capital stock
of Parent consists of (i) 130,000,000 shares of Parent Class A
Common Stock and (ii) 10,000,000 shares of preferred stock, par
value $0.01 per share ("Parent Preferred Stock"). As of the
close of business on September 22, 1997, there are (i) 52,097,548
shares of Parent Class A Common Stock and no shares of Parent
Preferred Stock issued and outstanding; (ii) 739,363 shares of
Parent Class A Common Stock held in the treasury of Parent; and
(iii) 8,441,164 shares of Parent Class A Common Stock reserved
for issuance pursuant to the Employee Stock Plan, the 1993 Stock
Plan for Non-Employee Directors, and the Amended and Restated
1993 Stock Plan (the "Parent Stock Plans"). Except as set forth
above, no shares of capital stock or other equity securities of
Parent are issued, reserved for issuance or outstanding. All
outstanding shares of capital stock of Parent are, and all shares
which may be issued pursuant to this Agreement will be, when
issued, duly authorized, validly issued, fully paid and
nonassessable and not subject to preemptive rights. There are no
outstanding bonds, debentures, notes or other indebtedness or
other securities of Parent having the right to vote (or
convertible into, or exchangeable for, securities having the
right to vote) on any matters on which stockholders of Parent may
vote. Except as set forth above, there are no outstanding
securities, options, warrants, calls, rights, commitments,
agreements, arrangements or undertakings of any kind to which
Parent or any of its subsidiaries is a party or by which any of
them is bound obligating Parent or any of its subsidiaries to
issue, deliver or sell, or cause to be issued, delivered or sold,
additional shares of capital stock or other equity or voting
securities of Parent or any of its subsidiaries or obligating
Parent or any of its subsidiaries to issue, grant, extend or
enter into any such security, option, warrant, call, right,
commitment, agreement, arrangement or undertaking. Other than
pursuant to the Parent Stock Plans and the Citibank Equity
Options Stock Buyback Program, there are no outstanding
contractual obligations, commitments, understandings or
arrangements of Parent or any of its subsidiaries to repurchase,
redeem or otherwise acquire or make any payment in respect of any
shares of capital stock of Parent or any of its subsidiaries.
The authorized capital stock of Sub consists of 100 shares of
common stock, par value $0.01 per share, all of which have been
validly issued, are fully paid and nonassessable and are owned by
Parent, free and clear of any Lien.
(d) Authority; Noncontravention. Parent and Sub have
all requisite corporate and other power and authority to enter
into this Agreement and, subject to the Parent Stockholder
Approval, to consummate the transactions contemplated hereby and
thereby. The execution and delivery of this Agreement by Parent
and Sub and the consummation by Parent and Sub of the
transactions contemplated hereby and thereby have been duly
authorized by all necessary corporate action on the part of
Parent and Sub, subject to the Parent Stockholder Approval. This
Agreement has been duly executed and delivered by each of Parent
and Sub and constitutes a valid and binding obligation of each of
Parent and Sub, enforceable against such party in accordance with
its terms. The execution and delivery of this Agreement do not,
and the consummation of the transactions contemplated by this
Agreement and compliance with the provisions of this Agreement
will not, conflict with, or result in any breach or violation of,
or default (with or without notice or lapse of time, or both)
under, or give rise to a right of termination, cancellation or
acceleration of or "put" right with respect to any obligation or
to loss of a material benefit under, or result in the creation of
any Lien upon any of the properties or assets of Parent or any of
its subsidiaries under, (i) the certificate of incorporation or
by-laws of Parent or Sub or the comparable charter or
organizational documents of any other subsidiary of Parent, (ii)
any loan or credit agreement, note, bond, mortgage, indenture,
lease or other agreement, instrument, permit, concession,
franchise or license applicable to Parent, Sub or any other
subsidiary of Parent or their respective properties or assets or
(iii) subject to the governmental filings and other matters
referred to in the following sentence, any judgment, order,
decree, statute, law, ordinance, rule, regulation or arbitration
award applicable to Parent, Sub or any other subsidiary of Parent
or their respective properties or assets, other than, in the case
of clauses (ii) and (iii), any such conflicts, breaches,
violations, defaults, rights, losses or Liens that individually
or in the aggregate could not reasonably be expected to have a
material adverse effect with respect to Parent or could not
reasonably be expected to prevent or materially delay the ability
of Parent to consummate the transactions contemplated by this
Agreement. No consent, approval, order or authorization of, or
registration, declaration or filing with, or notice to, any
Governmental Entity is required by or with respect to Parent, Sub
or any other subsidiary of Parent in connection with the
execution and delivery of this Agreement by Parent or Sub or the
consummation by Parent or Sub, as the case may be, of any of the
transactions contemplated hereby or thereby, except, with respect
to this Agreement, for (i) the filing of a premerger notification
and report form under the HSR Act, (ii) the filing with the SEC
of (y) the Joint Proxy Statement relating to the Parent
Stockholder Approval and the Form S-4 and (z) such reports under
the Exchange Act as may be required in connection with this
Agreement and the transactions contemplated by this Agreement,
(iii) the filing of the Certificate of Merger with the Secretary
of State of the State of Delaware, the filing of a certificate of
merger with the appropriate authorities in the necessary
jurisdictions in the event Parent makes an election referred to
in Section 1.01 and the filing of appropriate documents with the
relevant authorities of other states in which the Company is
qualified to do business and (iv) such other consents, approvals,
orders, authorizations, registrations, declarations, filings or
notices as may be required under the "takeover" or "blue sky"
laws of various states.
(e) SEC Documents; Undisclosed Liabilities. Parent
has filed all material required reports, schedules, forms,
statements and other documents with the SEC since January 1,
1996, and Parent has delivered or made available to the Company
all reports, schedules, forms, statements and other documents
filed with the SEC since such date (collectively, and in each
case including all exhibits and schedules thereto and documents
incorporated by reference therein, the "Parent SEC Documents").
As of their respective dates, the Parent SEC Documents complied
in all material respects with the requirements of the Securities
Act or the Exchange Act, as the case may be, and the rules and
regulations of the SEC promulgated thereunder applicable to such
Parent SEC Documents, and none of the Parent SEC Documents
(including any and all consolidated financial statements included
therein) as of such date contained any untrue statement of a
material fact or omitted to state a material fact required to be
stated therein or necessary in order to make the statements
therein, in light of the circumstances under which they were
made, not misleading. Except to the extent set forth in Section
3.02(e) of the Parent Disclosure Schedule and except to the
extent revised or superseded by a subsequent filing with the SEC
(a copy of which has been provided to the Company prior to the
date of this Agreement), none of the Parent SEC Documents filed
by Parent since January 1, 1997 and prior to the date of this
Agreement (the "Recent Parent SEC Documents") contains any untrue
statement of a material fact or omits to state any material fact
required to be stated therein or necessary in order to make the
statements therein, in light of the circumstances under which
they were made, not misleading. The consolidated financial
statements of Parent included in such Recent Parent SEC Documents
comply as to form in all material respects with applicable
accounting requirements and the published rules and regulations
of the SEC with respect thereto, have been prepared in accordance
with generally accepted accounting principles (except, in the
case of unaudited consolidated quarterly statements, as permitted
by Form 10-Q of the SEC) applied on a consistent basis during the
periods involved (except as may be indicated in the notes
thereto) and fairly present the consolidated financial position
of Parent and its consolidated subsidiaries as of the dates
thereof and the consolidated results of their operations and cash
flows for the periods then ended (subject, in the case of
unaudited quarterly statements, to normal year-end audit
adjustments). Except as set forth in Schedule 3.02(e), at the
date of the most recent audited financial statements of Parent
included in the Recent Parent SEC Documents, neither Parent nor
any of its subsidiaries had, and since such date neither Parent
nor any of such subsidiaries has incurred, any liabilities or
obligations of any nature (whether accrued, absolute, contingent
or otherwise) which, individually or in the aggregate, could
reasonably be expected to have a material adverse effect with
respect to Parent.
(f) Information Supplied. None of the information
supplied or to be supplied by Parent or Sub for inclusion or
incorporation by reference in (i) the Form S-4 will, at the time
the Form S-4 is filed with the SEC, and at any time it is amended
or supplemented or at the time it becomes effective under the
Securities Act, contain any untrue statement of a material fact
or omit to state any material fact required to be stated therein
or necessary to make the statements therein not misleading, and
(ii) the Joint Proxy Statement will, at the date it is first
mailed to Parent's stockholders or at the time of the Parent
Stockholder Meeting (as defined in Section 5.01(c)), if such
meeting is being held, contain any untrue statement of a material
fact or omit to state any material fact required to be stated
therein or necessary in order to make the statements therein, in
light of the circumstances under which they are made, not
misleading. The Form S-4 will comply as to form in all material
respects with the requirements of the Securities Act and the
rules and regulations promulgated thereunder, except that no
representation or warranty is made by Parent or Sub with respect
to statements made or incorporated by reference therein based on
information supplied by the Company for inclusion or
incorporation by reference in the Form S-4.
(g) Absence of Certain Changes or Events. Except as
disclosed in Section 3.02(g) of the Disclosure Schedule or, in
the case of clause (ii), except as included in the Recent Parent
SEC Documents, since the date of the most recent audited
financial statements included in such Recent Parent SEC Documents
(or, in the case of clauses (i) and (iii), since June 30, 1997),
Parent has conducted its business in all material respects only
in the ordinary course consistent with past practice, and there
is not and has not been (i) any material adverse change with
respect to Parent (except for changes generally applicable to the
economy in general and the specific industry in which Parent
operates); (ii) any condition, event or occurrence which,
individually or in the aggregate, could reasonably be expected to
have a material adverse effect or give rise to a material adverse
change with respect to Parent; (iii) any event which, if it had
taken place following the execution of this Agreement, would not
have been permitted by Section 4.02 without the prior consent of
the Company; or (iv) any condition, event or occurrence which
could reasonably be expected to prevent or materially delay the
ability of Parent to consummate the transactions contemplated by
this Agreement.
(h) Brokers. No broker, investment banker, financial
advisor or other person other than Lazard Freres & Co. LLC is
entitled to any broker's, finder's, financial advisor's or other
similar fee or commission in connection with the transactions
contemplated by this Agreement based upon arrangements made by or
on behalf of Parent.
(i) Opinion of Financial Advisor. Parent has received
the opinion of Lazard Freres & Co. LLC, dated the date of this
Agreement, to the effect that the Exchange Ratio in connection
with the Exchange and the Merger, taken as a whole, is fair, from
a financial point of view, to Parent and the holders of the
Parent Class A Common Stock.
(j) Required Parent Stockholder Vote. The issuance of
shares in connection with the transactions contemplated hereby
would, to the extent required by the applicable regulations of
the NYSE, require the affirmative vote of the holders of a
majority of the shares of Parent Class A Common Stock present in
person or represented by proxy and entitled to vote at the Parent
Stockholder Meeting. The stockholder action specified above is
collectively referred to as the "Parent Stockholder Approval."
(k) Interim Operations of Sub. Sub was formed on
September 18, 1997 solely for the purpose of engaging in the
transactions contemplated hereby and, in all material respects,
has engaged in no other business activities and has conducted its
operations only as contemplated hereby, except that Sub is
required in accordance with the terms of the existing bank credit
agreement of Warnaco Inc., a wholly owned subsidiary of Parent,
to guarantee Warnaco Inc.'s obligations thereunder.
(l) Board Recommendation. The Board of Directors of
Parent, at a meeting duly called and held, has (i) determined
that this Agreement and the transactions contemplated hereby,
including the issuance of shares of Parent Class A Common Stock
in the Merger and the Exchange, are fair to and in the best
interests of the stockholders of Parent, and (ii) resolved to
recommend that the holders of the shares of Parent Class A Common
Stock approve the issuance of shares of Parent Class A Common
Stock in connection with the Merger and the transactions
contemplated hereby.
(m) Certain Employee Payments. No Benefit Plan or
Employment Arrangement provides for the payment to any current or
former director or employee of Parent of any money or other
property or rights or accelerates or provides any other rights or
benefits to any such employee or director as a result of the
transactions contemplated by this Agreement, whether or not (i)
such payment, acceleration or provision would constitute a
"parachute payment" (within the meaning of Section 280G of the
Code), or (ii) some other subsequent action or event would be
required to cause such payment, acceleration or provision to be
triggered.
(n) Tax Returns and Tax Payments. Parent and each of
its subsidiaries, and any consolidated, combined, unitary or
aggregate group for Tax purposes of which Parent or any of its
subsidiaries is or has been a member has timely filed all Tax
Returns required to be filed by it and has paid all Taxes shown
thereon to be due, except to the extent that any such failure to
file or pay could not reasonably be expected to have a material
adverse effect on Parent.
(o) Litigation, Compliance With Law. (i) There are
no suits, actions, counterclaims, proceedings or investigations
pending or, to the knowledge of Parent, threatened in writing
against Parent or any of its subsidiaries other than those which,
individually or in the aggregate, could not reasonably be
expected to have a material adverse effect with respect to
Parent.
(ii) The conduct of the business of each of Parent
and each of its subsidiaries and, to the knowledge of Parent, its
contractors complies with all statutes, laws, regulations,
ordinances, rules, judgments, orders, decrees or arbitration
awards applicable thereto, including the Foreign Corrupt
Practices Act, except for violations or failures so to comply, if
any, that, individually or in the aggregate, could not reasonably
be expected to have a material adverse effect with respect to
Parent.
(p) Material Contract Defaults. Neither Parent nor
any of its subsidiaries is, or has received any notice or has any
knowledge that any other party is, in default or unable to
perform in any respect under any of its Material Contracts,
including any license or agreement relating to intellectual
property, except for those defaults or inabilities to perform
which could not reasonably be expected, either individually or in
the aggregate, to have a material adverse effect with respect to
Parent.
(q) Assets. The assets, properties, rights and
contracts, including (as applicable), title or leaseholds
thereto, of Parent and its subsidiaries, taken as a whole, are
sufficient to permit Parent and its subsidiaries to conduct their
business as currently being conducted with only such exceptions
as could not be reasonably expected to have a material adverse
effect on Parent.
(r) Trademarks and Related Contracts. Parent and each
of its subsidiaries owns and/or is licensed to use (in each case,
clear of any Liens), all patents, trademarks, trade names,
copyrights, technology, know-how and processes used in or
necessary for the conduct of its business as currently conducted
which are material to the condition (financial and other),
business, or operations of the Company, except to the extent any
such failure could not reasonably be expected to have a material
adverse effect on Parent.
ARTICLE IV
Covenants Relating to Conduct of Business Prior to Merger
SECTION 4.01 Conduct of Business of the Company. (a)
Conduct of Business by the Company. During the period from the
date of this Agreement to the Effective Time of the Merger
(except as otherwise specifically required by the terms of this
Agreement), the Company shall, and shall cause its subsidiaries
to, act and carry on their respective businesses in the usual,
regular and ordinary course of business consistent with past
practice and, to the extent consistent therewith, use its
reasonable best efforts to preserve intact their current business
organizations, keep available the services of their current
officers and employees and preserve their relationships with
customers, suppliers, licensors, licensees, advertisers,
distributors and others having business dealings with them to the
end that their goodwill and ongoing businesses shall be
materially unimpaired at the Effective Time of the Merger.
Without limiting the generality of the foregoing, during the
period from the date of this Agreement to the Effective Time of
the Merger, the Company shall not, and shall not permit any of
its subsidiaries to, without the prior written consent of Parent
(which consent will not be unreasonably withheld and shall be
deemed granted if not denied within 48 hours after written notice
to Parent):
(i) (x) declare, set aside or pay any dividends on, or
make any other distributions in respect of, any of its capital
stock, other than dividends and distributions paid by Designer
Preferred Trust on its 6% Convertible Trust Originated Preferred
Securities in accordance with the terms of such securities, by a
direct or indirect wholly owned subsidiary of the Company to its
parent, (y) split, combine or reclassify any of its capital stock
or issue or authorize the issuance of any other securities in
respect of, in lieu of or in substitution for shares of its
capital stock, or (z) purchase, redeem or otherwise acquire any
shares of capital stock of the Company or any of its subsidiaries
or any other securities thereof or any rights, warrants or
options to acquire any such shares or other securities;
(ii) authorize for issuance, issue, deliver, sell,
transfer, pledge or otherwise encumber any shares of its capital
stock or the capital stock of any of its subsidiaries, any other
voting securities or any securities convertible into or
exercisable or exchangeable for, or any rights, warrants, calls,
commitments or options to acquire, any such shares, voting
securities or convertible securities or any other securities or
equity equivalents (including stock appreciation rights) (other
than the issuance of Company Common Stock upon the exercise of
options to purchase shares of Company Common Stock outstanding on
the date of this Agreement and in accordance with their present
terms);
amend its certificate of incorporation, by-laws or
other comparable organizational documents;
(iv) acquire or agree to acquire by merging or
consolidating with, or by purchasing a substantial portion of the
stock or assets of, or by any other manner, any business or any
corporation, partnership, joint venture, association or other
business organization or division thereof;
(v) sell, lease, license, mortgage or otherwise
encumber or subject to any Lien or otherwise dispose of any of,
close or shut down its properties or assets, other than
reasonable sales of inventory in the ordinary course of business
and assets having an aggregate value not in excess of $250,000,
except that the foregoing shall not preclude the Company from
entering into a sublease on commercially reasonable terms with
respect to its distribution centers in North Arlington and
Secaucus, New Jersey and the second floor of 1385 Broadway in New
York City;
(vi) (x) incur any indebtedness for borrowed money or
guarantee any such indebtedness of another person, issue or sell
any debt securities or warrants or other rights to acquire any
debt securities of the Company or any of its subsidiaries,
guarantee any debt securities of another person, enter into any
"keep well" or other agreement to maintain any financial
statement condition of another person or enter into any
arrangement having the economic effect of any of the foregoing,
except for short-term borrowings incurred in the ordinary course
of business consistent with past practice, (y) amend the terms of
any outstanding security in a manner that would increase its
obligations thereunder or (z) make any loans, advances or capital
contributions to, or investments in, any other person, other than
to the Company or any direct or indirect wholly owned subsidiary
of the Company;
(vii) acquire or agree to acquire any assets (other
than inventory not in excess of 105% of the monthly cumulative
budget set forth on Schedule 4.01(vii)) the value of which,
individually or in the aggregate, exceeds $250,000, or make or
agree to make any capital expenditures other than those set forth
on Schedule 4.01(vii);
(viii) pay, discharge or satisfy any claims,
liabilities or obligations (absolute, accrued, asserted or
unasserted, contingent or otherwise), except for the payment,
discharge or satisfaction, (x) of liabilities or obligations in
the ordinary course of business consistent with past practice,
(y) liabilities reflected or reserved against in, or contemplated
by, the most recent consolidated financial statements (or the
notes thereto) of the Company included in the Recent SEC
Documents or (z) other claims, liabilities or obligations in the
aggregate in an amount (or having a value in an amount) not in
excess of $1,000,000, or waive, release, grant, or transfer any
rights of value or modify or change any existing license, lease,
contract or other document in any manner that would be material
to the Company or enter into any new outlet lease or license, or
any other material lease, contract or other document;
(ix) adopt a plan of complete or partial liquidation or
resolutions providing for or authorizing such a liquidation or a
dissolution, merger, consolidation, restructuring,
recapitalization or reorganization;
(x) enter into any new collective bargaining agreement
or any successor collective bargaining agreement to any
collective bargaining agreement or amend any existing collective
bargaining agreement disclosed in Section 3.01(h)(ii) of the
Disclosure Schedule;
(xi) change any accounting principle used by it, except
for such changes as may be required to be implemented following
the date of this Agreement pursuant to generally accepted
accounting principles or rules and regulations of the SEC
promulgated following the date hereof;
(xii) settle or compromise any litigation (whether or
not commenced prior to the date of this Agreement), other than
litigation not in excess of amounts reserved for in the most
recent consolidated financial statements of the Company included
in the Recent SEC Documents or, if not so reserved for, in an
aggregate amount not in excess of $250,000 (provided in either
case such settlement documents do not involve any material
non-monetary obligations on the part of the Company);
(xiii) close, shut down or otherwise eliminate any of
its facilities;
(xiv) enter into (or commit to enter into) any new
lease or amend or renew any existing lease or purchase or acquire
or enter into any agreement to purchase or acquire any real
estate or terminate any existing lease other than leases for
machinery or equipment requiring an aggregate annual commitment
not in excess of $100,000;
(xv) change any Tax election, change any annual Tax
accounting period, change any method of Tax accounting, file any
amended Tax return, enter into any closing agreement relating to
any material Tax, settle any material Tax claim or assessment,
surrender any right to claim a Tax refund or consent to any
extension or waiver of the limitations period applicable to any
Tax claim or assessment, if such acts, either separately or in
the aggregate, would have the effect of materially increasing the
Tax liability of or materially reducing the Tax assets of the
Company or any of its subsidiaries or of Parent or any of its
subsidiaries;
(xvi) except as contemplated by Section 5.14,
change the composition, fill any vacancies or increase the size
of the Company's Board of Directors; or
(xvii) authorize any of, or commit or agree to take
any of, the foregoing actions.
(b) Changes in Employment Arrangements. Without the
written consent of Parent (which consent will not be unreasonably
withheld), neither the Company nor any of its subsidiaries shall
(except as may be required in order to give effect to the
requirements of Section 2.02) adopt or amend (except as may be
required by law) any bonus, profit sharing, compensation, stock
option (including by accelerating or altering the vesting
thereof) pension, retirement, deferred compensation, severance,
change-in-control, fringe benefits, employment or other employee
benefit plan, agreement, trust, fund or other arrangement
(including any Benefit Plan or Employment Arrangement) for the
benefit or welfare of any employee, director or former director
or employee, increase the compensation, bonus or fringe benefits
of any director, employee or former director or employee or pay
any benefit not required by any existing plan, arrangement or
agreement, except that the Company will be permitted to (i)
provide for the payment of up to $3,500,000 to certain employees
on terms reasonably acceptable to Parent and (ii) grant merit
increases in salaries of employees (other than officers) at
regularly scheduled times in customary amounts consistent with
past practices.
(c) Severance. Neither the Company nor any of its
subsidiaries shall grant any new or modified severance or
termination arrangement or increase or accelerate any benefits
payable under its severance or termination pay policies in effect
on the date hereof.
(d) Transition. In order to facilitate an orderly
transition of the business of the Company to a wholly owned
subsidiary of Parent and to permit the coordination of their
related operations on a timely basis, the Company shall consult
with Parent on all strategic and material operational matters.
The Company shall make available to Parent at the Company's
facilities office space in order to assist it in observing all
operations and reviewing all matters concerning the Company's
affairs. Without in any way limiting the provisions of Section
5.04, Parent, its subsidiaries, officers, employees, counsel,
financial advisors and other representatives shall, upon
reasonable notice to the Company, be entitled to review the
operations and visit the facilities of the Company and its
subsidiaries at all times as may be deemed reasonably necessary
by Parent in order to accomplish the foregoing arrangement.
SECTION 4.02 Conduct of Business of Parent. (a)
During the period from the date of this Agreement to the
Effective Time of the Merger (except as otherwise specifically
required by the terms of this Agreement), Parent shall, to the
extent consistent with Parent's reasonable commercial judgment
and to the extent material, use its reasonable best efforts to
preserve intact its and its subsidiaries' current business
organizations, keep available the services of their current
officers and employees and preserve their relationships with
customers, suppliers, licensors, licensees, advertisers,
distributors and others having business dealings with them to the
end that their goodwill and ongoing businesses shall be
materially unimpaired at the Effective Time of the Merger.
(b) Without limiting the generality of the foregoing,
during the period from the date of this Agreement to the
Effective Time of the Merger, Parent shall not, without the prior
written consent of the Company (which consent will not be
unreasonably withheld and shall be deemed granted if not denied
within 48 hours after written notice to the Company), adopt a
plan of complete or partial liquidation or resolutions providing
for or authorizing such a liquidation or a dissolution, merger,
consolidation, restructuring, recapitalization or reorganization.
ARTICLE V
Additional Agreements
SECTION 5.01 Preparation of Form S-4 and the Joint
Proxy Statement; Stockholder Meetings. (a) Promptly following
the execution of this Agreement, the Company and Parent shall
prepare and file with the SEC the Joint Proxy Statement, and
Parent shall prepare and file with the SEC the Form S-4, in which
the Joint Proxy Statement will be included as a prospectus. Each
of the Company and Parent shall use its reasonable best efforts
to have the Form S-4 declared effective under the Securities Act
as promptly as practicable after such filing. The Company will
use its reasonable best efforts to cause the Joint Proxy
Statement to be mailed to the Company's stockholders, and Parent
will use its reasonable best efforts to cause the Joint Proxy
Statement to be mailed to Parent's stockholders, in each case as
promptly as practicable after the Form S-4 is declared effective
under the Securities Act. The information provided and to be
provided by Parent, Sub and the Company, respectively, for use in
the Form S-4 shall, at the time the Form S-4 becomes effective
and on the dates of each of the Company Stockholder Meeting and
the Parent Stockholder Meeting, be true and correct in all
material respects and shall not omit to state any material fact
required to be stated therein or necessary in order to make such
information not misleading, and the Company, Parent and Sub each
agree to correct immediately upon the discovery thereof any
information provided by it for use in the Form S-4 which shall
have become false or misleading.
(b) Unless the Board of Directors of the Company shall
take any action permitted by the fifth sentence of this Section
5.01(b), the Company shall cause a meeting of its stockholders
(the "Company Stockholder Meeting") to be duly called and held as
soon as practicable after the date of this Agreement for the
purpose of voting on the approval and adoption of this Agreement
and the Merger. The Board of Directors of the Company shall set
the record date for the Company Stockholder Meeting to occur
immediately following the consummation of the Exchange so that
(and only if) Parent is the holder of record for purposes of such
Company Stockholder Meeting of the shares of Company Common Stock
acquired in the Exchange, which shares shall constitute in excess
of a majority of the issued and outstanding shares of Company
Common Stock. In the event that it becomes necessary to delay
the date of the Company Stockholder Meeting, the Company shall
use its best efforts to ensure that any such delay does not
frustrate the purpose of the immediately preceding sentence,
including by issuing shares of Company Common Stock in accordance
with Section 5.19 immediately prior to setting any new record
date. The Board of Directors of the Company shall recommend
approval and adoption of this Agreement and the Merger by the
Company's stockholders. The Board of Directors of the Company
shall not be permitted to withdraw, amend or modify in a manner
adverse to Parent such recommendation (or announce publicly its
intention to do so), except that prior to the consummation of the
Exchange, the Board of Directors shall be permitted to withdraw,
amend or modify its recommendation (or publicly announce its
intention to do so) but only if (i) the Company has complied with
Section 5.13, (ii) an Alternative Transaction (as defined in
Section 7.01) shall have been proposed by any person other than
Parent or its affiliates, (iii) the Company shall have notified
Parent of such Alternative Transaction at least five business
days in advance of such withdrawal, amendment or modification and
(iv) the Board of Directors of the Company shall have determined
in its good faith judgment that such Alternative Transaction is
more favorable to the Company's stockholders than this Agreement
and the Merger and, as a result, the Board of Directors of the
Company shall have determined in good faith, based upon the
advice of outside counsel, that it is obligated by its fiduciary
obligations under applicable law to modify, amend or withdraw
such recommendation; provided that no such withdrawal, amendment
or modification shall be made unless the Company shall have
delivered to Parent in accordance with Section 5.13(b) a written
notice advising Parent that the Board of Directors of the Company
has received an Acquisition Proposal and identifying the person
making such Acquisition Proposal.
(c) Unless the Board of Directors of the Company shall
take any action permitted by the fifth sentence of paragraph (b)
above, and only to the extent required by applicable regulations
of the NYSE, Parent shall cause a meeting of its stockholders
(the "Parent Stockholder Meeting") to be called and held as soon
as reasonably practicable after the date of this Agreement for
the purpose of voting on the issuance of shares of Parent Class A
Common Stock in connection with the transactions contemplated
hereby and, at such meeting, the Board of Directors of Parent
shall recommend approval by Parent's stockholders of such
issuance of shares of Parent Class A Common Stock. Nothing
contained in this Section 5.01(c) shall prohibit Parent from
making any disclosure to Parent's stockholders if, in the good
faith judgment of the Board of Directors of Parent, upon the
advice of counsel, failure to make such disclosure would be
inconsistent with applicable laws.
(d) If the Parent Stockholder Meeting is being held,
the recommendations of the Boards of Directors of Parent and the
Company referred to in paragraphs (b) and (c) above, together
with copies of the opinions referred to in Sections 3.01(q) and
3.02(i), shall be included in the Joint Proxy Statement. Parent
and the Company will use reasonable efforts to hold such meetings
on the same day and use their best efforts to hold such meetings
as soon as practicable after the date hereof.
(e) The Company will cause its transfer agent to make
stock transfer records relating to the Company available to the
extent reasonably necessary to effectuate the intent of this
Agreement.
SECTION 5.02 Letter of the Company's Accountants. The
Company shall use its reasonable best efforts to cause to be
delivered to Parent a letter of Coopers & Lybrand LLP, the
Company's independent public accountants, dated a date within two
business days before the date on which the Form S-4 shall become
effective and addressed to Parent, in form and substance
reasonably satisfactory to Parent and customary in scope and
substance for letters delivered by independent public accountants
in connection with registration statements similar to the Form
S-4. In connection with the Company's efforts to obtain such
letter, if requested by Coopers & Lybrand LLP, Parent shall
provide a representation letter to Coopers & Lybrand LLP
complying with SAS 72, if then required.
SECTION 5.03 Letter of Parent's Accountants. Parent
shall use its reasonable best efforts to cause to be delivered to
the Company a letter of Price Waterhouse LLP, Parent's
independent public accountants, dated a date within two business
days before the date on which the Form S-4 shall become effective
and addressed to the Company, in form and substance reasonably
satisfactory to the Company and customary in scope and substance
for letters delivered by independent public accountants in
connection with registration statements similar to the Form S-4.
In connection with the Parent's efforts to obtain such letter, if
requested by Price Waterhouse LLP, the Company shall provide a
representation letter to Price Waterhouse LLP complying with SAS
72, if then required.
SECTION 5.04 Access to Information; Confidentiality.
(a) The Company shall, and shall cause its subsidiaries,
officers, employees, counsel, financial advisors and other
representatives to, afford to Parent and its representatives
reasonable access during normal business hours during the period
prior to the Effective Time of the Merger to its properties,
books, contracts, commitments, personnel and records and, during
such period, the Company shall, and shall cause its subsidiaries,
officers, employees and representatives to, furnish promptly to
Parent (i) a copy of each report, schedule, registration
statement and other document filed by it during such period
pursuant to the requirements of Federal or state securities laws
and (ii) all other information concerning its business,
properties, financial condition, operations and personnel as such
other party may from time to time reasonably request. During the
period prior to the Effective Time of the Merger, Parent shall
provide the Company and its representatives with reasonable
access during normal business hours to its properties, books,
contracts, commitments, personnel and records as may be necessary
to enable the Company to confirm the accuracy of the
representations and warranties of Parent set forth herein and
compliance by Parent and Sub of their obligations hereunder, and,
during such period, Parent shall, and shall cause its
subsidiaries, officers, employees and representatives to, furnish
promptly to the Company (i) a copy of each report, schedule,
registration statement and other document filed by it during such
period pursuant to the requirements of Federal or state
securities laws and (ii) all other information concerning its
business, properties, financial condition, operations and
personnel as such other party may from time to time reasonably
request. The foregoing shall not require Parent or the Company
to share any information with respect to legal proceedings that
could reasonably be expected to give rise to a breach of
attorney-client privilege. Parent will hold, and will cause its
directors, officers, employees, accountants, counsel, financial
advisors and other representatives to hold, any nonpublic
information of the Company in confidence to the extent required
by, and in accordance with, the provisions of the letter dated
September 11, 1997, between Parent and the Company (the
"Confidentiality Agreement"). The Company will hold, and will
cause its directors, officers, employees, accountants, counsel,
financial advisors and other representatives to hold, any
nonpublic information of Parent in confidence to the same extent
Parent is required to hold nonpublic information of the Company
in confidence pursuant to the Confidentiality Agreement.
(b) No investigation pursuant to this Section 5.04
shall affect any representations or warranties of the parties
herein or the conditions to the obligations of the parties
hereto.
SECTION 5.5 Reasonable Best Efforts. Upon the terms
and subject to the conditions set forth in this Agreement, each
of the parties agrees to use its reasonable best efforts to take,
or cause to be taken, all actions, and to do, or cause to be
done, and to assist and cooperate with the other parties in
doing, all things necessary, proper or advisable to consummate
and make effective, in the most expeditious manner practicable,
the Merger and the other transactions contemplated by this
Agreement. Parent, Sub and the Company will use their reasonable
best efforts and cooperate with one another (i) in promptly
determining whether any filings are required to be made or
consents, approvals, waivers, permits or authorizations are
required to be obtained (or, which if not obtained, would result
in an event of default, termination or acceleration of any
agreement or any put right under any agreement) under any
applicable law or regulation or from any governmental authorities
or third parties, including parties to loan agreements or other
debt instruments and including such consents, approvals, waivers,
permits or authorizations as may be required or necessary to
transfer any assets and related liabilities of the Company to the
Surviving Corporation in the Merger, in connection with the
transactions contemplated by this Agreement, including the Merger
and the Stock Exchange Agreement and (ii) in promptly making any
such filings, in furnishing information required in connection
therewith and in timely seeking to obtain any such consents,
approvals, permits or authorizations. Parent and the Company
shall mutually cooperate in order to facilitate the achievement
of the benefits reasonably anticipated from the Merger. In
connection with the legal opinions referred to in Sections
6.02(c) and 6.03(c), Parent, Sub and the Company agree to deliver
letters of representation reasonable under the circumstances as
to their present intention and present knowledge.
SECTION 5.6 Benefit Plans. (a) Effective as of the
Closing, Parent shall provide that all retained employees of the
Company and its subsidiaries, who are not subject to collective
bargaining agreements, shall participate in the Company's
existing employee benefit plans or, at the option of the Parent,
to participate in the employee benefit plans and arrangements of
Parent (other than those plans that are the subject of collective
bargaining) on a basis no less favorable in the aggregate than
similarly situated employees of Parent and its subsidiaries and,
with respect to employees who are the subject of collective
bargaining agreements, all benefits and other terms and
conditions of employment shall be provided in accordance with the
applicable collective bargaining agreement; provided, however,
that for purposes of the foregoing, no Stock Plan or other plan,
program or arrangement related to the stock of the Company or its
subsidiaries shall be considered nor shall Parent or any
affiliate thereof have any obligation to issue or provide any
benefits related to the stock of the Company or its subsidiaries,
other than as provided in Section 2.02. In the event that any
employee of the Company or its affiliates is transferred to the
Parent or any affiliate of Parent or becomes a participant in an
employee benefit plan, program or arrangement maintained by or
contributed by the Surviving Corporation or its affiliates,
Parent shall cause such plan, program or arrangement to treat the
prior service of such employee with the Company or its
affiliates, to the extent such prior service is recognized under
the comparable plan, program or arrangement of the Company, as
service rendered to the Surviving Corporation or its affiliate,
as the case may be; provided, however, that Parent may cause a
reduction of benefits under any such plans, programs or
arrangements to the extent necessary to avoid duplication of
benefits with respect to the same covered matter or years of
service and with respect to any defined benefit pension plan of
Parent or any affiliate of Parent, no such prior service shall be
recognized for any purposes other than eligibility to participate
or vesting of benefits.
(b) To the extent that retained employees of the
Company and its subsidiaries become eligible to participate in
plans sponsored by Parent and its subsidiaries (other than
Company Benefit Plans), Parent shall (i) waive all limitations as
to preexisting condition exclusions and waiting periods with
respect to participation and coverage requirements applicable to
such employees and their respective dependents under any welfare
benefit plans that such employees and dependents may be eligible
to participate in, effective on or after the Closing Date, but
only to the extent that such exclusions and waiting periods were
inapplicable or satisfied under the analogous Company Benefit
Plan; and (ii) provide each such employee or dependent with
credit for any co-payments and deductibles paid prior to the
Closing Date in respect of the plan year in progress at the time
such participation begins in satisfying any applicable
co-payment, deductible or out-of-pocket requirement under any
analogous welfare plans that such employees or dependents are
eligible to participate in on or after the Closing Date, but only
to the extent such co-payment, deductible or out-of-pocket
requirements would be deemed satisfied under the analogous
Company Benefit Plan.
SECTION 5.07 Indemnification. (a) Commencing at the
Effective Time of the Merger and for six years thereafter, the
Surviving Corporation shall indemnify all present and former
directors or officers of the Company and its subsidiaries for
acts or omissions occurring prior to the Effective Time of the
Merger to the fullest extent now provided in their respective
certificate of incorporation or by-laws, provided such
indemnification is consistent with applicable law, to the extent
such acts or omissions are uninsured (provided, that to the
extent that during any period insurance does not fully indemnify
any person contemplated to be indemnified in accordance with the
first sentence of this Section 5.07, the Surviving Corporation
shall indemnify such person in accordance with such terms; and,
provided further, that to the extent that the Surviving
Corporation's insurance is not sufficient to fully indemnify any
such person, Parent shall, during such period, provided such
indemnification is consistent with applicable law, indemnify such
person to the same extent as provided in the Company's current
certificate of incorporation and by-laws). For six years after
the Effective Time of the Merger, Parent shall also indemnify the
Sellers (together with all present and former directors of the
Company and its subsidiaries, the "indemnified parties") for all
claims asserted by other stockholders of the Company, including
derivative lawsuits, costs of defense, settlement, judgment and
other amounts, in connection with the transactions contemplated
by this Agreement and the Stock Exchange Agreement alleging any
breach of fiduciary duty on the part of the Stockholder as a
result of the transactions contemplated by the Exchange
Agreement, to the extent such indemnification is consistent with
applicable law.
(b) Parent will cause to be maintained for a period of
not less than six years from the Effective Time of the Merger the
Company's current directors' and officers' insurance and
indemnification policy (or at Parent's option a replacement
policy having terms no less advantageous than the Company's
current policy) to the extent that it provides coverage for
events occurring prior to the Effective Time of the Merger for
all persons who are or were directors and officers of the Company
on the date of this Agreement, so long as the annual premium
therefor would not be in excess of 150% of the last annual
premium paid prior to the date of this Agreement (150% of such
premium, the "Maximum Premium"). If the existing D&O Insurance
expires, is terminated or cancelled during such six-year period,
Parent will use reasonable efforts to cause to be obtained as
much D&O Insurance as can be obtained for the remainder of such
period for an annualized premium not in excess of the Maximum
Premium, on terms and conditions no less advantageous than the
existing D&O Insurance. The Company represents to Parent that
the Maximum Premium is $567,400.
(c) Each indemnified party shall, promptly after
receipt of notice of a claim or action against such indemnified
party in respect of which indemnity may be sought thereunder,
notify the Surviving Corporation or the Parent, as the case may
be (each an "indemnifying party") in writing of the claim or
action. If any such claim or action shall be brought against an
indemnified party, and it shall have notified the indemnifying
party thereof, unless based on the written advice of counsel to
such indemnified party, a conflict of interest between such
indemnified party and indemnifying parties may exist in respect
of such claim, the indemnifying party shall be entitled to
participate therein, and, to the extent that it wishes, jointly
with any other similarly notified indemnifying party, to assume
the defense thereof. After notice from the indemnifying party to
the indemnified party of its election to assume the defense of
such claim or action, the indemnifying party shall not be liable
to the indemnified party under this Section 5.07 for any legal or
other expenses subsequently incurred by the indemnified party in
connection with defense thereof. Any indemnifying party against
whom indemnity may be sought under this Section 5.07 shall not be
liable to indemnify an indemnified party if such indemnified
party settles such claim or action without the consent of the
indemnifying party. The indemnifying party may not agree to any
settlement of any such claim or action, other than solely for
monetary damages for which the indemnifying party shall be
responsible hereunder, as a result of which any remedy or relief
shall be applied to or against the indemnified party, without the
prior written consent of the indemnified party, which consent
shall not be unreasonably withheld. In any action hereunder as
to which the indemnifying party has assumed the defense thereof,
the indemnified party shall continue to be entitled to
participate in the defense thereof, with counsel of its own
choice, but the indemnifying party shall not be obligated
hereunder to reimburse the indemnified party of the costs
thereof.
SECTION 5.08 Expenses.
(a) Except as set forth in this Section 5.08, all fees
and expenses incurred in connection with this Agreement, the
Stock Exchange Agreement and the transactions contemplated hereby
and thereby shall be paid by the party incurring such expenses,
whether or not the Merger is consummated; provided, however, that
Parent and the Company shall share equally all fees and expenses,
other than accountants' and attorneys' fees, incurred in
connection with the printing and filing of the Joint Proxy
Statement (including any preliminary materials related thereto)
and the Form S-4 (including financial statements and exhibits)
and any amendments or supplements thereto.
(b) The Company shall pay Parent a fee of $12,500,000
(the "Fee"), plus actual, documented and reasonable out-of-pocket
expenses of Parent relating to the transactions contemplated by
this Agreement not in excess of $3,000,000 in the aggregate
(including reasonable fees and expenses of Parent's counsel,
accountants and financial advisers) ("Expenses"), upon the
termination of this Agreement pursuant to Section 7.01(f) or (g).
(c) The Company shall pay Parent the Fee plus the
Expenses if and when all of the following events have occurred:
(i) an Alternative Transaction (as defined in Section
7.01) is publicly commenced, publicly disclosed, publicly
proposed or publicly communicated to the Company at any time on
or after the date of this Agreement and on or prior to the date
of the Company Stockholder Meeting (including the last date on
which any adjourned session thereof is reconvened);
(ii) either Parent or the Company terminates this
Agreement pursuant to Section 7.01(c) or Parent terminates this
Agreement pursuant to Section 7.01(d) if, in the case of
termination under either such Section, the requisite vote for
approval and adoption of the Merger Agreement by the stockholders
of the Company shall not have been obtained by June 30, 1998; and
(iii) thereafter on or prior to the second anniversary
of the date of termination, (A) such Alternative Transaction is
consummated or (B) there is consummated any other Alternative
Transaction, whether or not commenced, publicly disclosed,
publicly proposed or communicated to the Company prior to such
termination.
(d) The Company shall pay Parent the Fee plus the
Expenses if and when both of the following events have occurred:
(i) Parent terminates this Agreement pursuant to
Section 7.01(i) prior to the closing of the Exchange; and
(ii) thereafter on or prior to the second anniversary
of the date of termination, there is consummated any Alternative
Transaction, whether or not commenced, publicly disclosed,
publicly proposed or communicated to the Company prior to such
termination.
(e) The Fee and Expenses payable pursuant to Section
5.08(b) shall be paid (i) with respect to a termination pursuant
to Section 7.01(f), within one business day after such
termination and (ii) with respect to a termination pursuant to
Section 7.01(g), simultaneously with and as a condition to such
termination. The Fee and Expenses payable pursuant to Section
5.08(c) or 5.08(d) shall be paid within one business day
following the consummation of the Alternative Transaction
referred to in such Section.
(f) All transfer, documentary, sales, use,
registration, stock transfer Taxes and other such Taxes
(including all applicable real estate transfer or gains Taxes)
and related fees (including any penalties, interest and additions
to Tax) incurred in connection with this Agreement and the
transactions contemplated hereby, including the Exchange, shall
be paid by the Company and the Company shall timely make all
filings, returns, reports and forms as may be required to comply
with the provisions of such Tax laws.
SECTION 5.09 Public Announcements. Parent and Sub, on
the one hand, and the Company, on the other hand, will consult
with each other before holding any press conferences or analyst
calls and before issuing any press releases. The parties will
provide each other the opportunity to review and comment upon any
press release with respect to the transactions contemplated by
this Agreement and the Stock Exchange Agreement, including the
Merger, and shall not issue any such press release prior to such
consultation, except as may be required by applicable law, court
process or by obligations pursuant to any listing agreement with
any national securities exchange. The parties agree that the
initial press release or releases to be issued with respect to
the transactions contemplated by this Agreement shall be mutually
agreed upon prior to the issuance thereof.
SECTION 5.10. Affiliates. Prior to the Closing Date,
the Company shall deliver to Parent a letter identifying all
persons who are, at the time this Agreement is submitted for
approval to the stockholders of the Company, "affiliates" of the
Company for purposes of Rule 145 under the Securities Act. The
Company shall deliver to Parent with respect to each such
"affiliate" on or prior to the Closing a written agreement
substantially in the form attached as Exhibit A hereto.
SECTION 5.11. Stock Exchange Listing. Parent shall
use its reasonable best efforts to cause the shares of Parent
Class A Common Stock to be issued in the Merger and under the
Stock Plans to be approved for listing on the NYSE, subject to
official notice of issuance, prior to the Closing Date.
SECTION 5.12. Certain Provisions. The Company shall
not take, and shall not permit any of its affiliates to take, any
action which would require or permit, or could reasonably be
expected to require or permit, the Company or any other person or
entity to treat Parent or Sub, in acting pursuant to and as
permitted by this Agreement or the Stock Exchange Agreement, as
an "interested stockholder" with whom the Company is prevented
for any period pursuant to Section 203 of the DGCL from engaging
in any "business combination" (as defined in Section 203 of the
DGCL) or take any action (including any charter or by-law
amendment) that has the effect of rendering Section 203 of the
DGCL applicable to Parent or any of its subsidiaries. The
Company shall not, and shall not permit any of its affiliates to,
announce or disclose the Company's or such affiliate's intention
to take any such action or to treat Parent or Sub as such an
"interested stockholder". In the event that there shall be
instituted or pending any action or proceeding before any
Governmental Entity to which the Company is a party claiming or
seeking a determination, directly or indirectly, that the Company
is prevented for any period pursuant to Section 203 of the DGCL
from engaging in any "business combination" with Parent or Sub,
the Company shall take the position that the Company is not so
prevented. The Company shall, upon the request of Parent, take
all reasonable steps to assist in any challenge by Parent or Sub
to the validity or applicability to the transactions contemplated
by this Agreement, including the Merger, the Stock Exchange
Agreement or the transactions contemplated by any of the
foregoing, of any state law.
SECTION 5.13. No Solicitation.
(a) The Company shall not, directly or indirectly,
through any officer, director, employee, representative or agent
of the Company or any of its subsidiaries or otherwise, (i)
solicit, initiate or encourage any inquiries, offers or
proposals, or any indications of interest, regarding any merger,
sale of substantial assets, sale of shares of capital stock
(including by way of a tender offer) or similar transactions
involving the Company or any significant subsidiary of the
Company other than the Merger (any of the foregoing inquiries or
proposals being referred to herein as an "Acquisition Proposal")
or (ii) participate in negotiations or discussions concerning, or
provide any nonpublic information to any person relating to, any
Acquisition Proposal; provided, however, that, prior to the
consummation of the Exchange, the Company may participate in
negotiations or discussions with, and provide nonpublic
information to, any person concerning an Acquisition Proposal
submitted in writing by such person to the Board of Directors of
the Company after the date of this Agreement if (A) such
Acquisition Proposal was not solicited, initiated or encouraged
in violation of this Agreement, (B) the Board of Directors of the
Company, in its good faith judgment, believes that such
Acquisition Proposal is reasonably likely to result in an
Alternative Transaction that would be more favorable to the
Company's stockholders than the Merger or this Agreement and (C)
failing to take such action would constitute a breach of the
Board's fiduciary duties under applicable law. Nothing contained
in this Section 5.13 shall prohibit the Board of Directors of the
Company from complying with Rule 14e-2 promulgated under the
Exchange Act with regard to a tender or exchange offer; provided
that the Board shall not recommend that the stockholders of the
Company tender or exchange any shares of Company Common Stock in
connection with such tender or exchange offer unless failing to
take such action would constitute a breach of the Board's
fiduciary duties under applicable law.
(b) The Company shall notify Parent as promptly as
practicable if any Acquisition Proposal is made and shall in such
notice indicate in reasonable detail the identity of the person
making such Acquisition Proposal and the terms and conditions of
such Acquisition Proposal and shall keep Parent promptly advised
of all developments which could reasonably be expected to
culminate in the Board of Directors withdrawing, modifying or
amending its recommendation of the Merger and the other
transactions contemplated by this Agreement.
(c) If, pursuant to the proviso to Section
5.13(a)(ii), the Company provides nonpublic information to any
person who makes an Acquisition Proposal, the Company shall
require such person to enter into a confidentiality agreement
substantially similar to the Confidentiality Agreement as a
condition to and before providing any such information.
(d) The Company shall immediately cease and cause to
be terminated any existing discussions or negotiations with any
persons (other than Parent and Sub) conducted heretofore with
respect to any Acquisition Proposal. The Company agrees not to
release (by waiver or otherwise) any third party from the
provisions of any confidentiality or standstill agreement to
which the Company is a party.
(e) The Company shall ensure that the officers,
directors and employees of the Company and its subsidiaries and
any investment banker or other advisor or representative retained
by the Company are aware of the restrictions described in this
Section 5.13.
SECTION 5.14 Board of Directors. In the event the
Exchange is consummated pursuant to the Stock Exchange Agreement
prior to the Effective Time of the Merger, Parent shall from and
after such closing of the Exchange, be entitled to designate, at
its option, upon notice to the Company, up to that number of
directors, rounded up to the nearest whole number, of the
Company's Board of Directors, subject to compliance with Section
14(f) of the Exchange Act, as will make the percentage of the
Company's directors designated by Parent equal to the greater of
(i) the majority of the Company's Board of Directors and (ii) the
aggregate voting power of the shares of Company Common Stock held
by Parent or any of its subsidiaries as a percentage of the total
voting power outstanding. Parent shall determine for the
approval of the Board of Directors the classes into which such
directors are placed, so long as such placement does not violate
or conflict with the Company's Certificate of Incorporation or
By-laws or the DGCL and the Company shall cause Parent's
designees to be so placed. In the event that Parent's designees
are elected or appointed to the Board of Directors of the
Company, such Board of Directors shall have, until the Effective
Time of the Merger, at least one director who is a director of
the Company prior to the closing of the Exchange (the "Continuing
Director"); provided, however, that if no Continuing Director
remains, the other directors shall designate an individual to
fill such vacancy who shall not be an officer, director, employee
or affiliate of Parent or any of its affiliates and shall
otherwise be an "independent director" under the rules of the
NYSE (such designee to be deemed to be a Continuing Director for
purposes of this Agreement). To the fullest extent permitted by
applicable law, the Company shall take all actions requested by
Parent which are reasonably necessary to effect the appointment
or election of the designees of Parent to the Board of Directors,
including mailing the information required by Section 14(f) of
the Exchange Act and Rule 14f-1 promulgated thereunder promptly
following the date hereof in order to permit designees of Parent
to serve on the Board of Directors of the Company immediately
upon consummation of the Exchange (provided that Parent shall
have provided to the Company on a timely basis all information
required to be included with respect to Parent designees). In
connection with the foregoing, the Company will promptly either
increase the size of the Company's Board of Directors and/or
obtain the resignation of such number of its current directors as
is necessary to enable Parent's designees to be elected or
appointed to the Company's Board of Directors as provided above
and shall cause the appointment of Parent's designees to fill
such vacancies or newly created directorships effective upon the
closing of the Exchange. Following the election or appointment
of Parent's designees pursuant to this Section 5.14(a) and prior
to the Effective Time, any termination or amendment of this
Agreement by the Company, any extension by the Company of the
time for the performance of any of the obligations or other acts
of Parent or waiver or assertion of any of the Company's rights
hereunder, or any other consents or actions by the Board of
Directors with respect to this Agreement, will require the
concurrence of a majority of the Continuing Directors.
SECTION 5.15. Certain Agreements. Neither the Company
nor any subsidiary of the Company will waive or fail to enforce
any provision of any confidentiality or standstill or similar
agreement to which it is a party without the prior written
consent of Parent.
SECTION 5.16. Stop Transfer. The Company acknowledges
and agrees to be bound by and comply with the provisions of
Section 12 of the Stock Exchange Agreement as if a party thereto
with respect to transfers of record ownership of shares of
Company Common Stock, and agrees to notify the transfer agent for
any shares of Company Common Stock or voting rights certificates
and provide such documentation and do such other things as may be
necessary to effectuate the provisions of such agreement.
SECTION 5.17. Officer's Certificate. The Company, at
the request of Parent, shall deliver a certificate to Parent
executed by the chief executive officer and the chief financial
officer of the Company in the form and with respect to the
matters referred to in Section 6.4 of the Stock Exchange
Agreement dated as of the date of the closing of the Exchange,
or, alternatively, inform Parent that it is unable to give such
certificate because of the inaccuracy of the matters that would
otherwise be set forth therein.
SECTION 5.18. Parent to Vote in Favor of Merger.
Parent agrees that it will vote (or cause to be voted) all shares
of Company Common Stock owned by it or its subsidiaries at the
time of the Company Stockholder Meeting in favor of the approval
and adoption of the Merger Agreement.
SECTION 5.19. Anti-Dilution. The Company will as
promptly as practicable notify Parent if it issues any shares of
Company Common Stock, whether upon the exercise, exchange or
conversion of securities exercisable or exchangeable for or
convertible into shares of Company Common Stock, or otherwise.
If the Exchange is consummated, the Company agrees that if, at
the time of closing of the Exchange or at any time thereafter
until the later of (a) the Effective Time of the Merger and (b)
two years from the closing of the Exchange, the number of
Stockholder Shares held by Parent and its subsidiaries shall not
represent a majority of the outstanding shares of Company Common
Stock as a result of the issuance of shares of Company Common
Stock by the Company, whether upon the exercise, exchange or
conversion of securities exercisable or exchangeable for or
convertible into shares of Company Common Stock, or otherwise, it
will sell to Parent, upon notice from Parent, at a price per
share equal to the product of (i) the Exchange Ratio and (ii) the
average of the closing sales prices of Parent Class A Common
Stock on the New York Stock Exchange Composite Transactions Tape
on each of the five consecutive trading days immediately
preceding the date of such notice, in cash, such number of fully
paid and non-assessable shares of Company Common Stock, which
shares shall be approved for listing on the NYSE, as may be
necessary so that the percentage of outstanding shares of Company
Common Stock held by Parent (including the Stockholder Shares)
represents a majority of such outstanding shares.
ARTICLE VI
Conditions Precedent
SECTION 6.01 Conditions to Each Party's Obligation To
Effect the Merger. The respective obligation of each party to
effect the Merger is subject to the satisfaction or waiver on or
prior to the Closing Date of the following conditions:
(a) Company Stockholder Approval. The Company
Stockholder Approval shall have been obtained;
(b) Parent Stockholder Approval. If the Parent
Stockholder Approval is required in accordance with the
applicable regulations of the NYSE, the Parent Stockholder
Approval shall have been obtained;
(c) NYSE Listing. The shares of Parent Class A Common
Stock issuable to the Company's stockholders pursuant to this
Agreement (including upon the exercise of options and upon the
conversion of the Convertible Subordinated Debentures) shall have
been approved for listing on the NYSE, subject to official notice
of issuance;
(d) HSR Act. The waiting period (and any extension
thereof) applicable to the Merger under the HSR Act shall have
been terminated or shall have expired;
(e) No Injunctions or Restraints. No temporary
restraining order, preliminary or permanent injunction or other
order issued by any court of competent jurisdiction or other
legal restraint or prohibition enjoining or preventing the
consummation of the Merger shall be in effect;
(f) Form S-4. The Form S-4 shall have become
effective under the Securities Act and no stop order suspending
the effectiveness thereof shall be in effect and no procedures
for such purpose shall be pending before or threatened by the
SEC.
SECTION 6.02 Conditions to Obligations of Parent and
Sub. The obligations of Parent and Sub to effect the Merger are
further subject to the satisfaction (or waiver by Parent) of the
following conditions; provided, however, upon the closing of the
Exchange pursuant to the terms of the Stock Exchange Agreement,
the conditions set forth in clauses (a), (b), (d) and (e) of this
Section 6.02 shall no longer be applicable.
(a) Representations and Warranties. The
representations and warranties of the Company set forth in this
Agreement shall be true and correct in all material respects, in
each case as of the date of this Agreement and as of the Closing
Date as though made on and as of the Closing Date, except for
those representations and warranties which address matters only
as of a particular date (which shall have been true and correct
in all material respects as of such date). Parent shall have
received a certificate signed on behalf of the Company by the
chief executive officer and the chief financial officer of the
Company to the effect set forth in this paragraph.
(b) Performance of Obligations of the Company. The
Company shall have performed in all material respects the
obligations required to be performed by it under this Agreement
at or prior to the Closing Date, and Parent shall have received a
certificate signed on behalf of the Company by the chief
executive officer and the chief financial officer of the Company
to such effect.
(c) Tax Opinion. The opinion, which, in the event the
Parent Stockholder Approval is required, will be dated on or
about the date of and referred to in the Joint Proxy Statement,
based on appropriate representations of the Company and Parent,
of Simpson Thacher & Bartlett, counsel to Parent, to the effect
that (i) the Merger will be treated for Federal income tax
purposes as a reorganization within the meaning of Section 368(a)
of the Code and (ii) Parent, Sub and Company will each be a party
to the reorganization within the meaning of Section 368(b) of the
Code shall have been rendered and shall not have been withdrawn
or modified in any material respect.
(d) Consents, etc. Parent shall have received
evidence, in form and substance reasonably satisfactory to it,
that such licenses, permits, consents, approvals, authorizations,
qualifications and orders of governmental authorities and other
third parties as are necessary in connection with the
transactions contemplated hereby have been obtained, except such
licenses, permits, consents, approvals, authorizations,
qualifications and orders which are not, individually or in the
aggregate, material to Parent or the Company or the failure of
which to have received would not materially dilute the aggregate
benefits to Parent of the transactions reasonably contemplated
hereby; provided that the receipt of all required consents of the
holders of Company Stock Options as contemplated by Section 2.02
shall be considered material.
(e) No Litigation. There shall not be pending or
threatened by any Governmental Entity any suit, action or
proceeding (or by any other person any suit, action or proceeding
which has a reasonable likelihood of success), (i) challenging or
seeking to restrain or prohibit the consummation of the Merger or
the Exchange or any of the other transactions contemplated by
this Agreement or the Stock Exchange Agreement or seeking to
obtain from Parent or any of its subsidiaries any damages that
are material in relation to Parent and its subsidiaries taken as
a whole, (ii) seeking to prohibit or limit the ownership or
operation by the Company, Parent or any of their respective
subsidiaries of any material portion of the business or assets of
the Company, Parent or any of their respective subsidiaries, to
dispose of or hold separate any material portion of the business
or assets of the Company, Parent or any of their respective
subsidiaries, as a result of the Merger or any of the other
transactions contemplated by this Agreement or the Stock Exchange
Agreement, (iii) seeking to impose limitations on the ability of
Parent or Sub to acquire or hold, or exercise full rights of
ownership of, any shares of Company Common Stock or Common Stock
of the Surviving Corporation, including the right to vote the
Company Common Stock or Common Stock of the Surviving Corporation
on all matters properly presented to the stockholders of the
Company or the Surviving Corporation, respectively, or (iv)
seeking to prohibit Parent or any of its subsidiaries from
effectively controlling in any material respect the business or
operations of the Company or its subsidiaries.
SECTION 6.03 Conditions to Obligation of the Company.
The obligation of the Company to effect the Merger is further
subject to the satisfaction (or waiver by the Company) of the
following conditions; provided, however, upon the closing of the
Exchange pursuant to the provisions of the Stock Exchange
Agreement, the conditions set forth in clauses (a), (b) and (d)
of this Section 6.03 shall no longer be applicable.
(a) Representations and Warranties. The
representations and warranties of Parent and Sub set forth in
this Agreement shall be true and correct in all material
respects, in each case as of the date of this Agreement and as of
the Closing Date as though made on and as of the Closing Date,
except for those representations and warranties which address
matters only as of a particular date (which shall have been true
and correct in all material respects as of such date). The
Company shall have received a certificate signed on behalf of
Parent by the chief executive officer and the chief financial
officer of Parent to the effect set forth in this paragraph.
(b) Performance of Obligations of Parent and Sub.
Parent and Sub shall have performed in all material respects the
obligations required to be performed by them under this Agreement
at or prior to the Closing Date, and the Company shall have
received a certificate signed on behalf of Parent by the chief
executive officer and the chief financial officer of Parent to
such effect.
(c) Tax Opinion. The opinion, dated on or about the
date of and referred to in the Joint Proxy Statement as first
mailed to stockholders of the Company, based on appropriate
representations of the Company and Parent, of Skadden, Arps,
Slate, Meagher & Flom, counsel to the Company, to the effect that
(i) the Merger will be treated for Federal income tax purposes as
a reorganization within the meaning of Section 368(a) of the Code
and (ii) Parent, Sub and Company will each be a party to the
reorganization within the meaning of Section 368(b) of the Code,
shall not have been withdrawn or modified in any material
respect.
(d) No Litigation. There shall not be pending or
threatened by any Governmental Entity any suit, action or
proceeding (or by any other person any suit, action or proceeding
which has a reasonable likelihood of success), which could
reasonably be expected, if adversely determined, to result in
criminal or material uninsured and unindemnified or
unindemnifiable personal liability on the part of one or more
directors of the Company, (i) challenging or seeking to restrain
or prohibit the consummation of the Merger or the Exchange or any
of the other transactions contemplated by this Agreement or (ii)
seeking to prohibit or limit the ownership or operation by the
Company, Parent or any of their respective subsidiaries of any
material portion of the business or assets of the Company, Parent
or any of their respective subsidiaries, or to dispose of or hold
separate any material portion of the business or assets of the
Company, Parent or any of their respective subsidiaries, as a
result of the Merger or any of the other transactions
contemplated by this Agreement or the Stock Exchange Agreement.
ARTICLE VII
Termination, Amendment and Waiver
SECTION 7.01 Termination. This Agreement may be
terminated and abandoned at any time prior to the Effective Time
of the Merger, whether before or after approval of matters
presented in connection with the Merger by the stockholders of
the Company or Parent:
(a) by mutual written consent of Parent and the
Company; or
(b) by either Parent or the Company if any
Governmental Entity within the United States or any country or
other jurisdiction in which either the Company or Parent,
directly or indirectly, has material assets or operations shall
have issued an order, decree or ruling or taken any other action
permanently enjoining, restraining or otherwise prohibiting the
Merger and such order, decree, ruling or other action shall have
become final and nonappealable; or
(c) by either Parent or the Company if the Exchange
and the Merger shall not have been consummated on or before June
30, 1998 (other than due to the failure of the party seeking to
terminate this Agreement to perform its obligations under this
Agreement required to be performed at or prior to the Effective
Time of the Merger); or
(d) by Parent, if any required approval of the
stockholders of the Company shall not have been obtained by
reason of the failure to obtain the required vote upon a vote
held at a duly held meeting of stockholders or at any adjournment
thereof; or
(e) by the Company, if any required approval of the
stockholders of Parent shall not have been obtained by reason of
the failure to obtain the required vote upon a vote held at a
duly held meeting of stockholders or at any adjournment thereof;
or
(f) by Parent, if prior to the closing of the
Exchange, the Board of Directors of the Company shall have (i)
withdrawn, modified or amended in any respect adverse to Parent
or Sub its approval or recommendation of this Agreement, the
Merger or any of the other transactions contemplated herein or
resolved to do so or (ii) recommended an Alternative Transaction
from a person other than Parent or any of its affiliates or
resolved to do so; or
(g) by the Company, prior to the closing of the
Exchange, if any person (other than Parent or any of its
affiliates) shall have proposed an Alternative Transaction (A)
that the Board of Directors of the Company determines in its good
faith judgment is more favorable to the Company's stockholders
than this Agreement and the Merger and (B) as a result of which
the Board of Directors of the Company determines in good faith,
based upon the advice of outside counsel, that it is obligated by
its fiduciary obligations under applicable law to terminate this
Agreement, provided that such termination under this Section
7.01(g) shall not be effective until the Company has made payment
of the Fee and the Expenses required by Section 5.08; or
(h) by the Company, if, prior to the closing of the
Exchange, there shall have been a material breach of any covenant
or agreement on the part of Parent or Sub contained in this
Agreement which materially adversely affects Parent's or Sub's
ability to consummate the Merger or any of the other transactions
contemplated herein and which shall not have been cured prior to
the date 10 business days following notice of such breach; or
(i) by Parent, if, prior to the closing of the
Exchange, there shall have been a breach of any covenant or
agreement on the part of the Company contained in this Agreement
which is reasonably likely to have a material adverse effect with
respect to the Company or which materially adversely affects (or
materially delays) the consummation of the Merger or any of the
other transactions contemplated herein and which shall not have
been cured prior to the date 10 business days following notice of
such breach; or
(j) by the Company, if the Board of Directors of
Parent shall withdraw, modify or change its approval or
recommendation of this Agreement or the transactions contemplated
hereby in a manner adverse to the Company or shall have resolved
to do so.
As used herein, "Alternative Transaction" means any of
(i) a transaction or series of transactions pursuant to which any
person (or group of persons) other than Parent or its
subsidiaries (a "Third Party") acquires or would acquire more
than 15% of the then outstanding shares of Company Common Stock,
whether from the Company, the Stockholder or pursuant to a tender
offer or exchange offer or otherwise, (ii) any direct or indirect
acquisition or proposed acquisition of the Company or any of its
significant subsidiaries by means of a merger or other business
combination transaction (including any so-called "merger of
equals" and whether or not the Company or any of its significant
subsidiaries is the entity surviving any such merger or business
combination transaction) or (iii) any other transaction pursuant
to which any Third Party acquires or would acquire control of
assets (including for this purpose the outstanding equity
securities of subsidiaries of the Company and any entity
surviving any merger or business combination including any of
them) of the Company or any of its subsidiaries having a fair
market value equal to more than 15% of the fair market value of
all the assets of the Company and its subsidiaries, taken as a
whole, immediately prior to such transaction.
SECTION 7.02 Effect of Termination. In the event of
termination of this Agreement by either the Company or Parent as
provided in Section 7.01, this Agreement shall forthwith become
void and have no effect, without any liability or obligation on
the part of Parent, Sub or the Company, other than the last two
sentences of Section 5.04(a), Section 5.08, Section 5.12, Section
5.14, Section 5.16, Section 5.19 and this Section 7.02. Nothing
contained in this Section shall relieve any party for any breach
of the representations, warranties, covenants or agreements set
forth in this Agreement.
SECTION 7.03 Amendment. Subject to Section 5.14, any
provision of this Agreement may be amended or waived prior to the
Effective Time of the Merger (whether before or after approval of
matters presented in connection with the Merger by the
stockholders of the Company or Parent) if, and only if, such
amendment or waiver is in writing and signed, in the case of an
amendment, by the Company and Parent or, in the case of a waiver,
by the party against whom the waiver is to be effective; provided
that after the adoption of this Agreement by the stockholders of
(i) the Company, there shall be made no amendment that by law
requires further approval by the stockholders of the Company
without the further approval of such stockholders and (ii)
Parent, there shall be made no amendment that by law requires
further approval by the stockholders of Parent without the
further approval of such stockholders.
SECTION 7.04 Extension; Waiver. Subject to Section
5.14, at any time prior to the Effective Time of the Merger, the
parties may (a) extend the time for the performance of any of the
obligations or other acts of the other parties, (b) waive any
inaccuracies in the representations and warranties contained in
this Agreement or in any document delivered pursuant to this
Agreement or (c) subject to the proviso of Section 7.03, waive
compliance with any of the agreements or conditions contained in
this Agreement. Any agreement on the part of a party to any such
extension or waiver shall be valid only if set forth in an
instrument in writing signed on behalf of such party. The
failure of any party to this Agreement to assert any of its
rights under this Agreement or otherwise shall not constitute a
waiver of such rights.
SECTION 7.05 Procedure for Termination, Amendment,
Extension or Waiver. A termination of this Agreement pursuant to
Section 7.01, an amendment of this Agreement pursuant to Section
7.03 or an extension or waiver pursuant to Section 7.04 shall, in
order to be effective, comply with Section 5.14 and require in
the case of Parent, Sub or the Company, action by its Board of
Directors or the duly authorized designee of its Board of
Directors.
ARTICLE VIII
General Provisions
SECTION 8.01 Nonsurvival of Representations and
Warranties. None of the representations and warranties in this
Agreement or in any instrument delivered pursuant to this
Agreement shall survive the Effective Time of the Merger. This
Section 8.01 shall not limit any covenant or agreement of the
parties which by its terms contemplates performance after the
Effective Time of the Merger.
SECTION 8.02 Notices. All notices, requests, claims,
demands and other communications under this Agreement shall be in
writing and shall be deemed given if delivered personally or sent
by overnight courier (providing proof of delivery) to the parties
at the following addresses (or at such other address for a party
as shall be specified by like notice):
(a) if to Parent or Sub, to
The Warnaco Group, Inc.
90 Park Avenue
New York, New York 10016
Attention: Linda J. Wachner
with a copy to:
The Warnaco Group, Inc.
90 Park Avenue
New York, New York 10016
Attention: Stanley P. Silverstein
Simpson Thacher & Bartlett
425 Lexington Avenue
New York, NY 10017
Attention: William E. Curbow
(b) if to the Company, to
Designer Holdings Ltd.
1385 Broadway
New York, NY 10018
Attention: Arnold H. Simon
with copies to:
Designer Holdings Ltd.
1385 Broadway
New York, New York 10018
Attention: John J. Jones
Skadden, Arps, Slate, Meagher & Flom LLP
919 Third Avenue
New York, NY 10022
Attention: Mark N. Kaplan
SECTION 8.03 Definitions. For purposes of this
Agreement:
(a) an "affiliate" of any person means another person
that directly or indirectly, through one or more intermediaries,
controls, is controlled by, or is under common control with, such
first person;
(b) "material adverse change" or "material adverse
effect" means, when used in connection with the Company or
Parent, any change or effect that either individually or in the
aggregate with all other such changes or effects is materially
adverse to the business, assets, properties, condition (financial
or otherwise) or results of operations of such party and its
subsidiaries taken as a whole (after giving effect in the case of
Parent to the consummation of the Merger);
(c) "person" means an individual, corporation,
partnership, joint venture, association, trust, unincorporated
organization or other entity; and
(d) a "subsidiary" of any person means another person,
an amount of the voting securities, other voting ownership or
voting partnership interests of which is sufficient to elect at
least a majority of its Board of Directors or other governing
body (or, if there are no such voting interests, 50% or more of
the equity interests of which) is owned directly or indirectly by
such first person.
SECTION 8.04 Interpretation. When a reference is made
in this Agreement to a Section, Exhibit or Schedule, such
reference shall be to a Section of, or an Exhibit or Schedule to,
this Agreement unless otherwise indicated. The table of contents
and headings contained in this Agreement are for reference
purposes only and shall not affect in any way the meaning or
interpretation of this Agreement. Whenever the words "include",
"includes" or "including" are used in this Agreement, they shall
be deemed to be followed by the words "without limitation".
SECTION 8.05 Counterparts. This Agreement may be
executed in one or more counterparts, all of which shall be
considered one and the same agreement and shall become effective
when one or more counterparts have been signed by each of the
parties and delivered to the other parties.
SECTION 8.06 Entire Agreement; No Third-Party
Beneficiaries. This Agreement and the other agreements referred
to herein constitute the entire agreement, and supersede all
prior agreements and understandings, both written and oral, among
the parties with respect to the subject matter of this Agreement.
This Agreement, other than Section 5.07, is not intended to
confer upon any person other than the parties any rights or
remedies.
SECTION 8.07 Governing Law. This Agreement shall be
governed by, and construed in accordance with, the laws of the
state of Delaware, regardless of the laws that might otherwise
govern under applicable principles of conflicts of laws thereof.
SECTION 8.08 Assignment. Neither this Agreement nor
any of the rights, interests or obligations under this Agreement
shall be assigned, in whole or in part, by operation of law or
otherwise by any of the parties without the prior written consent
of the other parties, except that Sub may assign, in its sole
discretion, any of or all its rights, interests and obligations
under this Agreement to Parent or to any direct wholly owned
subsidiary of Parent pursuant to Section 1.01, but no such
assignment shall relieve Sub of any of its obligations under this
Agreement. Subject to the preceding sentence, this Agreement
will be binding upon, inure to the benefit of, and be enforceable
by, the parties and their respective successors and assigns.
SECTION 8.09 Enforcement; Jurisdiction. The parties
agree that irreparable damage would occur in the event that any
of the provisions of this Agreement were not performed in
accordance with their specific terms or were otherwise breached.
It is accordingly agreed that the parties shall be entitled to an
injunction or injunctions to prevent breaches of this Agreement
and to enforce specifically the terms and provisions of this
Agreement in any Federal court located in the State of Delaware
or any Delaware state court, this being in addition to any other
remedy to which they are entitled at law or in equity. Any suit,
action or proceeding seeking to enforce any provision of, or
based on any matter arising out of or in connection with, this
Agreement or the transactions contemplated by this Agreement may
be brought against any of the parties in any Federal court
located in the State of Delaware or any Delaware state court, and
each of the parties hereto hereby consents to the exclusive
jurisdiction of such courts (and of the appropriate appellate
courts therefrom) in any such suit, action or proceeding and
waives any objection to venue laid therein. Process in any such
suit, action or proceeding may be served on any party anywhere in
the world, whether within or without the State of Delaware.
Without limiting the generality of the foregoing, each party
hereto agrees that service of process upon such party at the
address referred to in Section 8.02, together with written notice
of such service to such party, shall be deemed effective service
of process upon such party.
SECTION 8.10. Severability. Whenever possible, each
provision or portion of any provision of this Agreement will be
interpreted in such manner as to be effective and valid under
applicable law but if any provision or portion of any provision
of this Agreement is held to be invalid, illegal or unenforceable
in any respect under any applicable law or rule in any
jurisdiction, such invalidity, illegality or unenforceability
will not affect any other provision or portion of any provision
in such jurisdiction, and this Agreement will be reformed,
construed and enforced in such jurisdiction as if such invalid,
illegal or unenforceable provision or portion of any provision
had never been contained herein.
IN WITNESS WHEREOF, Parent, Sub and the Company have
caused this Agreement to be signed by their respective officers
thereunto duly authorized, all as of the date first written
above.
THE WARNACO GROUP, INC.
By: /s/ Linda J. Wachner
Name: Linda J. Wachner
Title: President and Chief
Executive Officer
WAC ACQUISITION CORPORATION
By: /s/ Linda J. Wachner
Name: Linda J. Wachner
Title: President
DESIGNER HOLDINGS LTD.
By: /s/ Arnold H. Simon
Name: Arnold H. Simon
Title: President and Chief
Executive Officer
By: /s/ Merril M. Halpern
Name: Merril M. Halpern
Title: Chairman of the Board
EXHIBIT A
Form of Company Affiliate Letter
Gentlemen:
The undersigned, a holder of shares of Common Stock,
par value $.01 per share ("Company Common Stock"), of Designer
Holdings Ltd., a Delaware corporation (the "Company"), is
entitled to receive in connection with the merger (the "Merger")
of the Company with WAC Acquisition Corporation, a Delaware
corporation, securities (the "Parent Securities") of The Warnaco
Group, Inc. ("Parent"). The undersigned acknowledges that the
undersigned may be deemed an "affiliate" of the Company within
the meaning of Rule 145 ("Rule 145") promulgated under the
Securities Act of 1933, as amended (the "Act"), although nothing
contained herein should be construed as an admission of such
fact.
If in fact the undersigned were an affiliate under the
Act, the undersigned's ability to sell, assign or transfer the
Parent Securities received by the undersigned in exchange for any
shares of Company Stock pursuant to the Merger may be restricted
unless such transaction is registered under the Act or an
exemption from such registration is available. The undersigned
understands that such exemptions are limited and the undersigned
has obtained advice of counsel as to the nature and conditions of
such exemptions, including information with respect to the
applicability to the sale of such securities of Rules 144 and
145(d) promulgated under the Act.
The undersigned hereby represents to and covenants with
the Company that the undersigned will not sell, assign or
transfer any of the Parent Securities received by the undersigned
in exchange for shares of Company Stock pursuant to the Merger
except (i) pursuant to an effective registration statement under
the Act, (ii) in conformity with the volume and other limitations
of Rule 145 or (iii) in a transaction which, in the opinion of
independent counsel reasonably satisfactory to Parent or as
described in a "no-action" or interpretive letter from the Staff
of the Securities and Exchange Commission (the "SEC"), is not
required to be registered under the Act.
In the event of a sale or other disposition by the
undersigned of Parent Securities pursuant to Rule 145, the
undersigned will supply Parent with evidence of compliance with
such Rule, in the form of a letter in the form of Annex I hereto.
The undersigned understands that Parent may instruct its transfer
agent to withhold the transfer of any Parent Securities disposed
of by the undersigned, but that upon receipt of such evidence of
compliance the transfer agent shall effectuate the transfer of
the Parent Securities sold as indicated in the letter.
The undersigned acknowledges and agrees that
appropriate legends will be placed on certificates representing
Parent Securities received by the undersigned in the Merger or
held by a transferee thereof, which legends will be removed by
delivery of substitute certificates upon receipt of an opinion in
form and substance reasonably satisfactory to Parent from
independent counsel reasonably satisfactory to Parent to the
effect that such legends are no longer required for purposes of
the Act.
The undersigned acknowledges that (i) the undersigned
has carefully read this letter and understands the requirements
hereof and the limitations imposed upon the distribution, sale,
transfer or other disposition of Parent Securities and (ii) the
receipt by Parent of this letter is an inducement and a condition
to Parent's obligations to consummate the Merger.
Very truly yours,
Dated:
ANNEX I
TO EXHIBIT A
[Name] [Date]
On __________________ the undersigned sold the
securities ("Securities") of The Warnaco Group, Inc. (the
"Company") described below in the space provided for that purpose
(the "Securities"). The Securities were received by the
undersigned in connection with the merger of WAC Acquisition
Corporation with and into Designer Holdings Ltd.
Based upon the most recent report or statement filed by
the Company with the Securities and Exchange Commission, the
Securities sold by the undersigned were within the prescribed
limitations set forth in paragraph (e) of Rule 144 promulgated
under the Securities Act of 1933, as amended (the "Act").
The undersigned hereby represents that the Securities
were sold in "brokers' transactions" within the meaning of
Section 4(4) of the Act or in transactions directly with a
"market maker" as that term is defined in Section 3(a)(38) of the
Securities Exchange Act of 1934, as amended. The undersigned
further represents that the undersigned has not solicited or
arranged for the solicitation of orders to buy the Securities,
and that the undersigned has not made any payment in connection
with the offer or sale of the Securities to any person other than
to the broker who executed the order in respect of such sale.
Very truly yours,
[Space to be provided for description of securities]
[Conformed Copy]
================================================================
AGREEMENT AND PLAN OF MERGER
Dated as of September 25, 1997
Among
THE WARNACO GROUP, INC.,
WAC ACQUISITION CORPORATION
and
DESIGNER HOLDINGS LTD.
================================================================
TABLE OF CONTENTS
Page
ARTICLE I
The Merger . . . . . . . . . . . . . . . . .2
SECTION 1.01 The Merger . . . . . . . . . . . . . . . . .. . .2
SECTION 1.02 Closing . . . . . . . . . . . . . . . . . . . . .2
SECTION 1.03 Effective Time of the Merger . . . . . . . . . .2
SECTION 1.04 Effects of the Merger. . . . . . . . . . . . . . 2
SECTION 1.05 Certificate of Incorporation; By-Laws. . . . . . 3
SECTION 1.06 Directors. . . . . . . . . . . . . . . . . . . . 3
SECTION 1.07 Officers . . . . . . . . . . . . . . . . . . . . 3
ARTICLE II
Effect of the Merger on the Capital Stock of the
Constituent Corporations. . . . . . . . . ..3
SECTION 2.01 Effect on Capital Stock . . . . . . . . . . . . .3
SECTION 2.02 Stock Plans . . . . . . . . . . . . . . . . . . .4
SECTION 2.03 Exchange of Certificates . . . . . . . . . . . . 5
SECTION 2.04 Fractional Shares. . . . . . . . . . . . . . . . 7
ARTICLE III
Representations and Warranties . . . . . . .8
SECTION 3.01 Representations and Warranties of the Company. ..8
SECTION 3.02 Representations and Warranties of Parent
and Sub . . . . . . . . . . . . . . . . . . . ..22
ARTICLE IV
Covenants Relating to Conduct of Business
Prior to Merger . . . . . . . . . . .28
SECTION 4.01 Conduct of Business of the Company . . . . . . .28
SECTION 4.02 Conduct of Business of Parent. . . . . . . . . .32
ARTICLE V
Additional Agreements . . . . . . . . . . 32
SECTION 5.01 Preparation of Form S-4 and the Joint Proxy
Statement; Stockholder Meetings. . . . . . . . 32
SECTION 5.02 Letter of the Company's Accountants. . . . . . .34
SECTION 5.03 Letter of Parent's Accountants . . . . . . . . .34
SECTION 5.04 Access to Information; Confidentiality . . . . .34
SECTION 5.05 Reasonable Best Efforts. . . . . . . . . . . . .35
SECTION 5.06 Benefit Plans. . . . . . . . . . . . . . . . . .36
SECTION 5.07 Indemnification. . . . . . . . . . . . . . . . .37
SECTION 5.08 Expenses . . . . . . . . . . . . . . . . . . . .38
SECTION 5.09 Public Announcements . . . . . . . . . . . . . 39
SECTION 5.10. Affiliates. . . . . . . . . . . . . . . . . . . 40
SECTION 5.11. Stock Exchange Listing. . . . . . . . . . . . . 40
SECTION 5.12. Certain Provisions. . . . . . . . . . . . . . . 40
SECTION 5.13. No Solicitation.. . . . . . . . . . . . . . . . 40
SECTION 5.14 Board of Directors . . . . . . . . . . . . . . .41
SECTION 5.15. Certain Agreements. . . . . . . . . . . . . . . 42
SECTION 5.16. Stop Transfer . . . . . . . . . . . . . . . . .42
SECTION 5.17. Officer's Certificate . . . . . . . . . . . . . 43
SECTION 5.18. Parent to Vote in Favor of Merger . . . . . . ..43
SECTION 5.19. Anti-Dilution . . . . . . . . . . . . . . . . ..43
ARTICLE VI
Conditions Precedent . . . . . . . . . . . 43
SECTION 6.01 Conditions to Each Party's Obligation To
Effect the Merger . . . . . . . . . . . . . . . 43
SECTION 6.02 Conditions to Obligations of Parent and Sub. . .44
SECTION 6.03 Conditions to Obligation of the Company. . . . .45
ARTICLE VII
Termination, Amendment and Waiver . . . . .46
SECTION 7.01 Termination. . . . . . . . . . . . . . . . . . .46
SECTION 7.02 Effect of Termination. . . . . . . . . . . . . .48
SECTION 7.03 Amendment. . . . . . . . . . . . . . . . . . . .48
SECTION 7.04 Extension; Waiver. . . . . . . . . . . . . . . .49
SECTION 7.05 Procedure for Termination, Amendment, Extension
or Waiver . . .. . . . . . . . . . . . . . . . 49
ARTICLE VIII
General Provisions . . . . . . . . . . . . 49
SECTION 8.01 Nonsurvival of Representations and Warranties . 49
SECTION 8.02 Notices. . . . . . . . . . . . . . . . . . . . .49
SECTION 8.03 Definitions. . . . . . . . . . . . . . . . . . 50
SECTION 8.04 Interpretation . . . . . . . . . . . . . . . . .51
SECTION 8.05 Counterparts . . . . . . . . . . . . . . . . . .51
SECTION 8.06 Entire Agreement; No Third-Party Beneficiaries 51
SECTION 8.07 Governing Law. . . . . . . . . . . . . . . . . .51
SECTION 8.08 Assignment . . . . . . . . . . . . . . . . . . .51
SECTION 8.09 Enforcement; Jurisdiction. . . . . . . . . . . .52
SECTION 8.10. Severability. . . . . . . . . . . . . . . . . .52
EXHIBIT
Exhibit A Form of Affiliate Letter
STOCK EXCHANGE AGREEMENT dated as of September 25, 1997
among THE WARNACO GROUP, INC., a Delaware corporation ("Parent"),
NEW RIO, L.L.C., a Delaware limited liability company (the
"Stockholder"), and each of the members of Stockholder signatory
hereto (each, a "Member").
WHEREAS, concurrently herewith, Parent, WAC Acquisition
Corporation, a Delaware corporation and a wholly owned subsidiary
of Parent ("Sub"), and Designer Holdings Ltd., a Delaware
corporation (the "Company"), are entering into an Agreement and
Plan of Merger (as such agreement may be amended from time to
time and whether or not such agreement has been terminated, the
"Merger Agreement"; capitalized terms used but not defined herein
shall have the meanings set forth in the Merger Agreement)
pursuant to which Sub or, at the election of Parent, a direct
wholly owned subsidiary of Parent other than Sub will be merged
with and into the Company (the "Merger"), whereby each share of
Common Stock, each having a par value of one cent ($0.01), of the
Company ("Company Common Stock") issued and outstanding
immediately prior to the Effective Time of the Merger will be
converted into the right to receive a fraction of a share of
Class A Common Stock, par value $0.01 per share, of Parent
("Parent Class A Common Stock"), other than shares of Company
Common Stock owned, directly or indirectly, by the Company or any
subsidiary of the Company or by Parent, Sub or any other
subsidiary of Parent.
WHEREAS, as a condition to their willingness to enter
into the Merger Agreement, Parent and Sub have required that the
Stockholder and the Members (collectively, the "Sellers") enter
into, and the Stockholder and the Members have agreed to enter
into, this Agreement pursuant to which, among other things,
regardless of any termination of the Merger Agreement, Parent and
the Sellers have agreed to exchange shares of Parent Class A
Common Stock for all the shares of Company Common Stock owned by
the Sellers on the terms herein set forth, which in the aggregate
constitute a majority of the outstanding Company Common Stock.
WHEREAS, for Federal income tax purposes, it is
intended that, so long as the Merger occurs, the exchange of
Parent Class A Common Stock for Company Common Stock pursuant to
this Agreement and the Merger pursuant to the Merger Agreement
qualify as a reorganization under the provisions of Section 368
of the Internal Revenue Code of 1986, as amended.
NOW, THEREFORE, in consideration of the
representations, warranties, covenants and agreements contained
in this Agreement, the parties agree as follows:
1. Exchange Transaction.
1.1 Exchange. On the terms and subject to the
conditions set forth in this Agreement, the Stockholder agrees to
transfer 16,483,868 shares of Company Common Stock, all of which
are owned by the Stockholder and which represent all of the
shares of Company Common Stock owned by the Sellers (the
"Shares"), to Parent, free and clear of any mortgage, pledge,
lien, security interest, claim or other encumbrance (each, a
"Lien") or Restriction created by any Member or by the
Stockholder or otherwise binding upon the Shares, and Parent
agrees to issue to the Stockholder, in exchange for the Shares,
shares of Parent Class A Common Stock in accordance with Section
1.2 below, free and clear of any Lien or Restriction except as
contemplated by this Agreement or any letter entered into for tax
purposes relating to restrictions on selling Exchange Shares (a
"Lock-Up Letter"). For purposes of this Agreement, "Restriction"
means, when used with respect to any specified security, any
stockholders or other trust agreement, option, warrant, escrow,
proxy, buy-sell agreement, power of attorney or other contract,
agreement or arrangement which (i) grants to any person the right
to sell or otherwise dispose of or vote such specified security
or any interest therein, or (ii) restricts the transfer of, or
the exercise of any rights or the enjoyment of any benefits
arising by reason of, the ownership of such specified security.
1.2 Exchange Ratio. For each Share transferred to
Parent pursuant to this Agreement, the Stockholder shall receive
.324 of a fully paid and nonassessable share of Parent Class A
Common Stock (the "Exchange Ratio"). In the event that the
aggregate number of shares of Parent Class A Common Stock to be
issued to the Stockholder, based on the Exchange Ratio, would
result in the issuance by Parent of a fractional share of Parent
Class A Common Stock, such fractional share shall be rounded to
the nearest whole share. The total number of shares of Parent
Class A Common Stock to be issued to the Stockholder hereunder
are referred to herein as the "Exchange Shares".
2. Closing. The closing (the "Closing") of the
Exchange shall take place on the second business day following
satisfaction or waiver of the conditions set forth in Sections 6
and 7, or such other date and time as the parties shall otherwise
agree to. The date of the Closing is referred to herein as the
"Closing Date". The Closing will take place at 10:00 a.m. on the
Closing Date, at the offices of Simpson Thacher & Bartlett, 425
Lexington Avenue, New York, New York 10017. At the Closing, (i)
the Stockholder shall deliver to Parent certificate(s)
representing all of the Shares, duly endorsed for transfer to
Parent, and (ii) Parent shall deliver to the Stockholder a stock
certificate representing the Exchange Shares.
3. Representations and Warranties of the Members.
Each Member, severally with respect to himself, herself or itself
(as the case may be) and the Shares which are "Allocated Shares"
of such Member under the Third Amended and Restated Limited
Liability Company Agreement of the Stockholder (the "LLC
Agreement") makes the following representations and warranties to
Parent.
3.1 Power; Binding Agreement. Such Member has the
legal capacity (in the case of individual Members), power and
authority to enter into and perform all of such Member's
obligations under this Agreement. Such Member is the legal and
valid owner of, and has good and valid title to, its interest in
the Stockholder. Such Member's allocable interest in the total
number of shares of Company Common Stock owned by the Stockholder
is set forth on Schedule 3.2. The execution, delivery and
performance of this Agreement by such Member will not violate any
other agreement to which such Member is a party (including any
trust agreement, voting agreement, stockholders agreement or
voting trust) except to the extent that any such violations,
individually or in the aggregate, could not reasonably be
expected to have a material adverse effect on Parent or to
prevent or materially delay the consummation of the transactions
contemplated hereby. This Agreement has been duly and validly
executed and delivered by such Member and constitutes a valid and
binding agreement of such Member, enforceable against such Member
in accordance with its terms. There is no beneficiary or holder
of a voting trust certificate or other interest of any trust of
which a Member is Trustee whose consent is required for the
execution and delivery of this Agreement or the consummation of
the transactions contemplated hereby. If such Member is married
and such Member's Allocated Shares constitute community property,
this Agreement has been duly authorized, executed and delivered
by, and constitutes a valid and binding agreement of, such
Member's spouse, enforceable against such person in accordance
with its terms.
3.2 No Conflict. Other than filings required under
the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as
amended (the "HSR Act"), and the filing of Forms 4 and Schedules
13D under the Securities and Exchange Act of 1934, as amended,
and the rules and regulations thereunder (the "Exchange Act"), no
filing with, and no permit, authorization, consent or approval
of, any state or federal public body or authority is necessary
for the execution of this Agreement by such Member and the
consummation by such Member of the transactions contemplated
hereby, except for such filings the failure of which to be made,
individually or in the aggregate, could not reasonably be
expected to have a material adverse effect on Parent or to
prevent or materially delay the consummation of the transactions
contemplated hereby. Neither the execution and delivery of this
Agreement by such Member nor the consummation by such Member of
the transactions contemplated hereby nor compliance by such
Member with any of the provisions hereof shall (x) conflict with
or result in any breach of any applicable trust or other
organizational documents applicable to such Member, (y) result in
a violation or breach of, or constitute (with or without notice
or lapse of time or both) a default (or give rise to any third
party right of termination, cancellation, material modification
or acceleration) under any of the terms, conditions or provisions
of any note, bond, mortgage, indenture, license, contract,
commitment, arrangement, understanding, agreement or other
instrument or obligation of any kind to which such Member is a
party or by which such Member or any of such Member's properties
or assets may be bound or (z) violate any order, writ,
injunction, decree, judgment, order, statute, rule or regulation
applicable to such Member or any of such Member's properties or
assets, except to the extent any of the foregoing, individually
or in the aggregate, could not reasonably be expected to have a
material adverse effect on Parent or to prevent or materially
delay the consummation of the transactions contemplated hereby.
3.3 Reliance. Such Member understands and
acknowledges that Parent is entering into, and causing Sub to
enter into, the Merger Agreement in reliance upon such Member's
execution and delivery of this Agreement.
3.4 No Broker. Such Member has not employed any
investment banker, broker, finder, consultant or intermediary in
connection with the transactions contemplated by this Agreement
which would be entitled to any investment banking, brokerage,
finder's or similar fee or commission in connection with this
Agreement or the transactions contemplated hereby.
3.5 Transfer Instruction. Each Member has instructed
the Stockholder, in accordance with Section 11.1(c) of the LLC
Agreement, to transfer its Allocated Shares to Parent and the
Stockholder has provided Parent with true and accurate proof
thereof.
3.6 Voting Instruction. Each of the Member Managers
(as defined in the LLC Agreement) has determined and advised the
Stockholder, in accordance with Section 4.2(b) of the LLC
Agreement, that in the event the Exchange has not occurred by the
time of the Company Stockholder Meeting, the Stockholder shall
vote the Shares in favor of the Merger as set forth in Section
9.3.
4. Representations and Warranties of the Stockholder.
The Stockholder makes the following representations and
warranties to the Parent:
4.1 Power; Binding Agreement. The Stockholder has the
power and authority to enter into and perform all of its
obligations under this Agreement (including the power and
authority without further action on the part of the Members to
consummate the Exchange and comply with the voting requirements
of Section 9.3). The execution, delivery and performance of this
Agreement by the Stockholder will not violate any other agreement
to which the Stockholder is a party (including any trust
agreement, voting agreement, stockholders agreement or voting
trust), except to the extent any such violations, individually or
in the aggregate, could not reasonably be expected to have a
material adverse effect on Parent or to prevent or materially
delay the consummation of the transactions contemplated hereby.
This Agreement has been duly and validly authorized, executed and
delivered by the Stockholder and constitutes a valid and binding
agreement of the Stockholder, enforceable against it in
accordance with its terms. The Members constitute all the
members of the Stockholder.
4.2 No Conflict. Other than filings required under
the HSR Act, and the filing of Forms 4 and Schedules 13D under
the Exchange Act, no filing with, and no permit, authorization,
consent or approval of, any state or federal public body or
authority is necessary for the execution of this Agreement by the
Stockholder and the consummation by the Stockholder of the
transactions contemplated hereby, except for any such filings the
failure of which to be made, individually or in the aggregate,
could not reasonably be expected to have a material adverse
effect on Parent or to prevent or materially delay the
consummation of the transactions contemplated hereby. Neither
the execution and delivery of this Agreement by the Stockholder
nor the consummation by the Stockholder of the transactions
contemplated hereby nor compliance by the Stockholder with any of
the provisions hereof shall (x) conflict with or result in any
breach of the LLC Agreement, (y) result in a violation or breach
of, or constitute (with or without notice or lapse of time or
both) a default (or give rise to any third party right of
termination, cancellation, material modification or acceleration)
under any of the terms, conditions or provisions of any note,
bond, mortgage, indenture, license, contract, commitment,
arrangement, understanding, agreement or other instrument or
obligation of any kind to which the Stockholder is a party or by
which the Stockholder or any of the Stockholder's properties or
assets may be bound or (z) violate any order, writ, injunction,
decree, judgment, order, statute, rule or regulation applicable
to the Stockholder or any of the Stockholder's properties or
assets, except to the extent any of the foregoing, individually
or in the aggregate, could not reasonably be expected to have a
material adverse effect on Parent or to prevent or materially
delay the consummation of the transactions contemplated hereby.
4.3 Reliance. The Stockholder understands and
acknowledges that Parent is entering into, and causing Sub to
enter into, the Merger Agreement in reliance upon the
Stockholder's execution and delivery of this Agreement.
4.4 Ownership of Shares. The Stockholder is the
record owner of 16,483,868 Shares, which constitute a majority of
the outstanding shares of Company Common Stock. The Stockholder
has, and at the Closing will have, good and valid title to the
Shares, free and clear of any Liens or Restrictions and it has
the full legal right, power and authority to assign, transfer and
deliver such Shares to Parent pursuant hereto. The Stockholder
has sole voting power, and sole power of disposition, with
respect to all of the Shares.
4.5 No Broker. The Stockholder has not employed any
investment banker, broker, finder, consultant or intermediary in
connection with the transactions contemplated by this Agreement
or the Merger Agreement which would be entitled to any investment
banking, brokerage, finder's or similar fee or commission in
connection with this Agreement or the transactions contemplated
hereby.
4.6 Purchase for Investment. The Stockholder is
acquiring the Exchange Shares for its own account as principal
for investment and not with a view to resale or distribution or
with any present intention of distribution or selling the same.
The Stockholder is fully aware that such shares of Parent Class A
Common Stock have not been registered under the Securities Act or
under any applicable state securities laws, and are being offered
and sold in reliance on exemptions from the registration
requirements of the Securities Act and all such laws. The
Stockholder is an "accredited investor" as such term is defined
in Regulation D promulgated under the Securities Act. The
Stockholder is able to bear the economic risk of the investment
in such shares of Parent Class A Common Stock and has such
knowledge and experience in financial and business matters, and
knowledge of the business of Parent, as to be capable of
evaluating the merits and risks of a prospective investment. The
Stockholder acknowledges that it has received or been given
access to financial information and other documents and records
necessary to make a well-informed investment decision and has had
an opportunity to discuss Parent's business, management and
financial affairs with Parent's management.
4.7 Limitations on Transferability. In addition to
the restrictions set forth in Section 9.7 and in the Lock-Up
Letter, the Stockholder acknowledges that it may not transfer any
of the shares of Parent Class A Common Stock in the Exchange
unless and until the same are registered under the Securities Act
and any applicable state securities laws, or unless an exemption
from such registration is available and that it may transfer such
shares of Parent Class A Common Stock only in accordance with
this Agreement.
4.8 Legend. Each document or certificate evidencing
any shares of Parent Class A Common Stock issued in the Exchange
shall be stamped or imprinted with legends substantially as
follows:
(a) "The shares of Common Stock, par value $0.01 per
share, of The Warnaco Group, Inc. (the "Company") represented by
this certificate have not been registered under the Securities
Act of 1933, as amended, or under the securities laws of any
state; and may not be sold, assigned, transferred, pledged or
otherwise disposed of except in compliance with, or pursuant to
an exemption from, the requirements of such Act or such laws."
(b) "The shares of Common Stock, par value $0.01 per
share, of The Warnaco Group, Inc. (the "Company") represented by
this certificate are subject to restrictions on transfer
contained in a Stock Exchange Agreement dated as of September 25,
1997, as amended from time to time, a copy of which is on file at
the principal office of the Company."
Parent will exchange certificates without one or both of the
foregoing legends for certificates with one or both of the
foregoing legends upon the request of the Stockholder as follows:
(i) in the case of clause (a), upon such time as the holder
thereof may sell such shares without registration of such sale
under the Securities Act, as evidenced by an opinion of counsel
to such holder; and (ii) in the case of clause (b), upon the
later to occur of (x) upon the termination of the restricted
period contained in any Lock-Up Letter to which the holder of
such Shares is subject and (y) otherwise, upon the Release Date.
5. Representations and Warranties of Parent. Parent
hereby represents and warrants to the Stockholder as follows:
5.1 Power; Binding Agreement. Parent has the power
and authority to enter into and perform all of its obligations
under this Agreement. The execution, delivery and performance of
this Agreement by Parent will not violate any other agreement to
which Parent is a party (including any trust agreement, voting
agreement, stockholders agreement or voting trust), except to the
extent that any such violations, individually or in the
aggregate, could not reasonably be expected to have a material
adverse effect on Parent or to prevent or materially delay the
consummation of the transactions contemplated hereby. This
Agreement has been duly and validly executed and delivered by
Parent and constitutes a valid and binding agreement of Parent,
enforceable against Parent in accordance with its terms.
5.2 No Conflict. Other than filings required under
the HSR Act, the filing of a Form 3 and Schedule 13D under the
Exchange Act and the filing of a registration statement under the
Securities Act, no filing with, and no permit, authorization,
consent or approval of, any state or federal public body or
authority is necessary for the execution of this Agreement by
Parent and the consummation by Parent of the transactions
contemplated hereby, except in each case for such filings the
failure of which to be made, individually or in the aggregate,
could not reasonably be expected to have a material adverse
effect on Parent or to prevent or materially delay the
consummation of the transactions contemplated hereby. Neither
the execution and delivery of this Agreement by Parent nor the
consummation by Parent of the transactions contemplated hereby
nor compliance by Parent with any of the provisions hereof shall
(x) conflict with or result in any breach of any applicable
organizational documents applicable to Parent, (y) result in a
violation or breach of, or constitute (with or without notice or
lapse of time or both) a default (or give rise to any third party
right of termination, cancellation, material modification or
acceleration) under any of the terms, conditions or provisions of
any note, bond, mortgage, indenture, license, contract,
commitment, arrangement, understanding, agreement or other
instrument or obligation of any kind to which Parent is a party
or by which Parent or any of Parent's properties or assets may be
bound or (z) violate any order, writ, injunction, decree,
judgment, order, statute, rule or regulation applicable to Parent
or any of Parent's properties or assets, except to the extent
that any of the foregoing, individually or in the aggregate,
could not reasonably be expected to have a material adverse
effect on Parent or to prevent or materially delay the
consummation of the transactions contemplated hereby.
6. Conditions to Obligations of Parent. Unless
waived, in whole or in part, in writing by Parent, the
obligations of Parent to consummate the Exchange and to perform
any and all of its postclosing obligations shall be subject to
the satisfaction at or prior to the Closing Date of each of the
following conditions (it being understood that any termination of
the Merger Agreement, including pursuant to Sections 7.01(f), (g)
or (j) shall not, in and of itself, constitute a failure of a
condition hereunder or give rise to any right to terminate this
Agreement):
6.1 Accuracy of Representations and Warranties. All
representations and warranties of each of the Members and the
Stockholder contained herein shall be true and correct in all
material respects when made and on and as of the Closing Date,
with the same force and effect as though made on and as of the
Closing Date, except for changes permitted or contemplated by
this Agreement.
6.2 Performance of Agreements. Each of the Members
and the Stockholder shall have performed in all material respects
all obligations and agreements contained in this Agreement to be
performed or complied with by it prior to or at the Closing Date.
6.3 Majority Ownership. The Shares, immediately
following consummation of the Exchange, shall constitute a
majority of the issued and outstanding Company Common Stock.
6.4 Merger Agreement Matters. (a) No temporary
restraining order, preliminary or permanent injunction or other
order issued by any court of competent jurisdiction or other
legal restraint or prohibition enjoining or preventing the
consummation of the Merger or the other transactions pursuant to
the Merger Agreement shall be in effect.
(b) The representations and warranties of the Company
set forth in the Merger Agreement shall be true and correct in
all material respects when made and as of the Closing Date as
though made on and as of the Closing Date, except for those
representations and warranties which address matters only as of a
particular date (which shall have been true and correct in all
material respects as of such date).
(c) The Company shall have performed in all material
respects the obligations required to be performed by it under the
Merger Agreement at or prior to the Closing Date.
(d) The Company shall have satisfied, or simultaneous
with the Exchange shall satisfy, its obligations to Parent
pursuant to Section 5.14 of the Merger Agreement.
(e) There shall not be pending or threatened by any
Governmental Entity any suit, action or proceeding (or by any
other person any suit, action or proceeding which has a
reasonable likelihood of success), (i) challenging or seeking to
restrain or prohibit the consummation of the Merger or the
Exchange or any of the other transactions contemplated by this
Agreement or the Merger Agreement or seeking to obtain from
Parent, the Stockholder or any member of the Board of Directors
of the Company or any of their respective subsidiaries any
damages that are material in relation to Parent and its
subsidiaries taken as a whole, (ii) seeking to prohibit or limit
the ownership or operation by the Company, Parent or any of their
respective subsidiaries of any material portion of the business
or assets of the Company, Parent or any of their respective
subsidiaries, to dispose of or hold separate any material portion
of the business or assets of the Company, Parent or any of their
respective subsidiaries, as a result of the Merger or any of the
other transactions contemplated by this Agreement or the Merger
Agreement, (iii) seeking to impose limitations on the ability of
Parent or Sub to acquire or hold, or exercise full rights of
ownership of, any shares of Company Common Stock or Common Stock
of the Surviving Corporation, including the right to vote the
Company Common Stock or common stock of the Surviving Corporation
on all matters properly presented to the stockholders of the
Company or the Surviving Corporation, respectively, or (iv)
seeking to prohibit Parent or any of its subsidiaries from
effectively controlling in any material respect the business or
operations of the Company or its subsidiaries.
(f) Parent shall have received evidence, in form and
substance reasonably satisfactory to it, that such licenses,
permits, consents, approvals, authorizations, qualifications and
orders of governmental authorities and other third parties as are
necessary in connection with the transactions contemplated hereby
have been obtained, except such licenses, permits, consents,
approvals, authorizations, qualifications and orders which are
not, individually or in the aggregate, material to Parent or the
Company or the failure of which to have received would not
materially dilute the aggregate benefits to Parent of the
transactions reasonably contemplated hereby; provided that the
receipt of all required consents of the holders of Company Stock
Options as contemplated by Section 2.02 of the Merger Agreement
shall be considered material.
6.5 No Injunctions. No temporary restraining order,
preliminary or permanent injunction or other order issued by any
court of competent jurisdiction or other legal restraint or
prohibition enjoining or preventing the consummation of the
Exchange shall be in effect.
6.6 No Adverse Enactments. There shall not have been
any statute, rule, regulation or order promulgated, enacted or
issued by any Government Entity or court of competent
jurisdiction which would make the consummation of the Exchange
hereunder or of the Merger under the Merger Agreement illegal.
6.7 HSR. The waiting period (and any extension
thereof) under the HSR Act applicable to the Exchange and the
Merger shall have been terminated or shall have expired.
6.8 Company Certificate. Parent shall have received a
certificate executed by the chief executive officer and the chief
financial officer of the Company to the effect that the
conditions set forth in Section 6.4 shall have been satisfied.
6.9 Members Certificate. Parent shall have received
certificates of the Stockholder and of the Members that (i) the
representations and warranties made by each of them, severally,
are true and correct in all material respects (other than
Sections 3.1, 3.5, 4.1, 4.4 and 4.6, which shall be true and
correct), in each case on and as of the date of this Agreement
and on and as of the Closing Date as though made on the Closing
Date, except for those representations and warranties which
address matters only as of a particular date (which shall have
been true and correct as of such date) and (ii) each of them has
no actual knowledge that the conditions set forth in Section 6.4
(including that the representations and warranties of the Company
are true and correct in all material respects), shall not have
been satisfied, provided, however, that such certificate shall
terminate at the Effective Time of the Merger other than with
respect to the representations and warranties set forth in
Sections 3.1, 3.5, 4.1, 4.4 and 4.6.
7. Conditions to Obligations of the Stockholder and
the Members. Unless waived, in whole or in part, in writing by
the Stockholder, the obligations of the Stockholder and the
Members to consummate the Exchange as contemplated by this
Agreement shall be subject to the fulfillment prior to or on the
Closing Date of each of the following conditions (it being
understood that any termination of the Merger Agreement,
including pursuant to Sections 7.01(f), (g) or (j) shall not, in
and of itself, constitute a failure of a condition hereunder or
give rise to any right to terminate this Agreement):
7.1 Accuracy of Representations and Warranties. All
representations and warranties of Parent contained herein shall
be true and correct in all material respects when made and on and
as of the Closing Date, with the same effect as though made on
and as of the Closing Date, except for changes permitted or
contemplated by this Agreement.
7.2 Performance of Agreements. Parent shall have
performed in all material respects all obligations and agreements
contained in this Agreement to be performed or complied with by
it prior to or at the Closing Date.
7.3 No Adverse Enactments. There shall not have been
any statute, rule, regulation or order promulgated, enacted or
issued by any Government Entity or court of competent
jurisdiction which would make the consummation of the Exchange
hereunder illegal.
7.4 No Injunctions. No temporary restraining order,
preliminary or permanent injunction or other order issued by any
court of competent jurisdiction or other legal restraint or
prohibition enjoining or preventing the consummation of the
Exchange shall be in effect.
7.5 HSR Act. The waiting period (and any extension
thereof) under the HSR Act applicable to the Exchange shall have
been terminated or shall have expired.
7.6 NYSE Listing. The shares of Parent Class A Common
Stock issuable to the Stockholder pursuant to this Agreement
shall have been approved for listing on the NYSE, subject to
official notice of issuance.
7.7 Merger Agreement Matters. (a) The
representations and warranties of Parent set forth in the Merger
Agreement shall be true and correct in all material respects when
made and as of the Closing Date as though made on and as of the
Closing Date, except for those representations and warranties
which address matters only as of a particular date (which shall
have been true and correct in all material respects as of such
date).
(b) Parent shall have performed in all material
respects the obligations required to be performed by it under the
Merger Agreement at or prior to the Closing Date.
8. Covenants of Parent. Parent hereby covenants and
agrees as follows:
8.1 Filings and Other Actions. As promptly as
practicable after the execution of this Agreement, Parent shall
file notification reports under the HSR Act and shall request
early termination of the waiting period under the HSR Act and use
its reasonable best efforts to obtain clearance or authorization
under the HSR Act for the Merger and the Exchange at the earliest
practicable time. Parent agrees to cooperate fully with the
Stockholder to promptly effectuate the filing of any notification
required under the HSR Act.
8.2 Reasonable Best Efforts. Subject to the terms and
conditions of this Agreement and the Merger Agreement, Parent
agrees to use its reasonable best efforts to take, or cause to be
taken, all actions, and to do, or cause to be done, all things
necessary, proper or advisable to consummate and make effective
the transactions contemplated by this Agreement and the Merger
Agreement. Parent hereby agrees, while this Agreement is in
effect, and except as contemplated hereby, not to intentionally
and knowingly take any action with the intention and knowledge
that such action would make any of its representations or
warranties contained herein untrue or incorrect in any material
respect or have the effect of preventing or disabling it from
performing its obligations under this Agreement.
8.3 Registration Statement. (a) Shelf Registration.
Parent will use its reasonable best efforts to file and have
declared effective as promptly as practicable following the
Release Date a registration statement (a "Shelf Registration")
under the Securities Act, on an appropriate form, for the resale
of the shares of Parent Class A Common Stock issued to the
Stockholder in the Exchange and not subject to a Lock-Up Letter.
In connection therewith Parent agrees to use its reasonable best
efforts to make such other filings as are necessary for sales
under such Shelf Registration to be made in accordance with any
state securities or "blue sky" laws, provided, however, that
Parent shall not be required to consent to service of process in
any jurisdiction in which it is not now subject in connection
therewith. Such registration statement shall include all shares
of Parent Class A Common Stock issued to the Stockholder and not
subject to a Lock-Up Letter, and may include securities of Parent
for sale for Parent's own account. Upon the request of the
Stockholder, following the termination of any Lock-Up Letter,
Parent will use its reasonable best efforts to add to the Shelf
Registration Exchange Shares that had been subject to any such
Lock-Up Letter. The Stockholder shall promptly provide Parent
with such information as it reasonably requests to include in
such registration statement with respect to the Stockholder and
the Members. Notwithstanding anything else contained in this
agreement, Parent shall be obligated to keep such Registration
Statement effective only until the earliest of (i) 24 months
after the closing date for the Merger, (ii) such time as all
shares of Parent Class A Common Stock covered by such
Registration Statement have been sold or disposed of and (iii)
such time as all such securities are freely tradeable.
(b) Delays. Notwithstanding any another provision of
this Agreement to the contrary, if at any time while the Shelf
Registration is effective Parent provides written notice to the
Stockholder that in its good faith and reasonable judgment it
would be materially disadvantageous to Parent (because the sale
of shares of Parent Class A Common Stock covered by such
registration statement ("Registrable Securities") or the
disclosure of information therein or in any related prospectus or
prospectus supplement would materially interfere with any
acquisition, financing or other material event or transaction in
connection with which a registration of securities under the
Securities Act for the account of Parent is then intended or the
public disclosure of which at the time would be materially
prejudicial to Parent) (a "Disadvantageous Condition") for sales
of Registrable Securities thereunder to then be permitted, and
setting forth the general reasons for such judgment, Parent may
refrain from maintaining current the prospectus contained in the
Shelf Registration until such Disadvantageous Condition no longer
exists (notice of which Parent shall promptly deliver to the
Stockholder); provided, however, that (i) upon delivery by the
Stockholder of a certificate stating that any Seller desires to
sell Registrable Securities in order for the Stockholder, its
Members or the direct or indirect owners of its Members to pay
taxes due as a result of the failure of the Exchange to be
treated as a tax-free reorganization, so long as, in the good
faith judgment of Parent, the sale of Registrable Securities at
such time would not be reasonably likely to cause Parent to be in
violation of Federal securities laws absent additional disclosure
by Parent, Parent shall forgo or rescind its delivery of a notice
of Disadvantageous Condition in such instance and shall use its
reasonable best efforts to ensure that a prospectus is available
for such sales; and (ii) in the event such notice of
Disadvantageous Condition is in connection with an offering of
securities in connection with which Parent has retained an
investment bank, Parent shall certify to the Stockholder that
such investment bank has advised Parent that such notice is
reasonably necessary in connection with such offering. Upon the
receipt by the Stockholder of any such notice of a
Disadvantageous Condition (i) the Stockholder shall notify the
Members and the Sellers shall forthwith discontinue use of the
prospectus and any prospectus supplement under such registration
statement and shall suspend sales of Registrable Securities until
such Disadvantageous Condition no longer exists and (ii) if so
directed by Parent by notice as aforesaid the Stockholder will
deliver to Parent all copies, other than permanent file copies
then in the Stockholder's possession, of the prospectus and
prospectus supplements then covering such Registrable Securities
at the time of receipt of such notice as aforesaid.
Notwithstanding anything else contained in this Agreement, the
maintaining current of a prospectus (and the suspension of sales
of Registrable Securities) in connection with the Shelf
Registration may not be delayed under this paragraph (b) for more
than a total of 60 days in any six-month period.
(c) Expenses. Except as provided herein, Parent shall
pay all registration expenses with respect to the Shelf
Registration. Notwithstanding the foregoing, (i) the Sellers and
Parent shall each be responsible for their own internal
administrative and similar costs, (ii) the Sellers shall be
responsible for the legal fees and expenses of their own counsel
and (iii) the Sellers shall be responsible for all underwriting
discounts and commissions, selling or placement agent or broker
fees and commissions, and transfer taxes, if any, in connection
with the sale of securities by the Sellers.
(d) Indemnification and Contribution. (i) Parent
agrees to indemnify and hold harmless each of the Sellers and
each person, if any, who controls each Seller within the meaning
of either Section 15 of the Securities Act or Section 20 of the
Exchange Act from and against any and all losses, claims, damages
and liabilities (including, without limitation, any legal or
other expenses reasonably incurred in connection with defending
or investigating any such action or claim) insofar as such
losses, claims, damages or liabilities are caused by any untrue
statement or alleged untrue statement of a material fact
contained in any registration statement or any amendment thereof,
any preliminary prospectus or prospectus (as amended or
supplemented if Parent shall have furnished any amendments or
supplements thereto) relating to the Registrable Securities, or
caused by any omission or alleged omission to state therein a
material fact required to be stated therein or necessary to make
the statements therein not misleading, except insofar as such
losses, claims, damages or liabilities are caused by any such
untrue statement or omission or alleged untrue statement or
omission based upon information furnished to Parent in writing by
the Sellers expressly for use therein. Parent also agrees to
indemnify any underwriter of the Registrable Securities so
offered and each person, if any, who controls such underwriter on
substantially the same basis as that of the indemnification by
Parent of the Sellers provided in this Section 8.3(d).
(ii) Each Seller agrees to indemnify and hold harmless
Parent, its directors, the officers who sign any registration
statement and each person, if any who controls Parent within the
meaning of either Section 15 of the Securities Act or Section 20
of the Exchange Act, from and against any and all losses, claims,
damages and liabilities (including, without limitation, any legal
or other expenses reasonably incurred in connection with
defending or investigation any such action or claim) insofar as
such losses, claims, damages or liabilities are caused by any
untrue statement or alleged untrue statement of a material fact
contained in any registration statement or any amendment thereof,
any preliminary prospectus or prospectus (as amended or
supplemented if Parent shall have furnished any amendments or
supplements thereto) relating to the Registrable Securities, or
caused by any omission or alleged omission to state therein a
material fact required to be stated therein or necessary to make
the statements therein not misleading, but only with reference to
information furnished in writing by such Seller (or any
representative thereof) expressly for use in a registration
statement, any preliminary prospectus, prospectus or any
amendments or supplements thereto. Each Seller also agrees to
indemnify any underwriter of the Registrable Securities so
offered and each person, if any, who controls such underwriter on
substantially the same basis as that of the indemnification by
the Sellers of Parent provided in this Section 8.3(d).
(iii) Each party indemnified under paragraph (i) or
(ii) above shall, promptly after receipt of notice of a claim or
action against such indemnified party in respect of which
indemnity may be sought thereunder, notify the indemnifying party
in writing of the claim or action, provided that the failure to
notify the indemnifying party shall not relieve it from any
liability that it may have to an indemnified party on account of
the indemnity agreement contained in paragraph (i) or (ii) above
except to the extent that the indemnifying party was actually
prejudiced by such failure, and in no event shall such failure
relieve the indemnifying party from any other liability that it
may have to such indemnified party. If any such claim or action
shall be brought against an indemnified party, and it shall have
notified the indemnifying party thereof, unless based on the
written advice of counsel to such indemnified party of conflict
of interest between such indemnified party and indemnifying
parties may exist in respect of such claim, the indemnifying
party shall be entitled to participate therein, and, to the
extent that it wishes, jointly with any other similarly notified
indemnifying party, to assume the defense thereof. After notice
from the indemnifying party to the indemnified party of its
election to assume the defense of such claim or action, the
indemnifying party shall not be liable to the indemnified party
under this section 8.3(d)(iii) for any legal or other expenses
subsequently incurred by the indemnified party in connection with
defense thereof. Any indemnifying party against whom indemnity
may be sought under this Section 8.3 shall not be liable to
indemnify an indemnified party if such indemnified party settles
such claim or action without the consent of the indemnifying
party. The indemnifying party may not agree to any settlement of
any such claim or action, other than solely for monetary damages
for which the indemnifying party shall be responsible hereunder,
the result of which any remedy or relief shall be applied to or
against the indemnified party, without the prior written consent
of the indemnified party, which consent shall not be unreasonably
withheld. In any action hereunder as to which the indemnifying
party has assumed the defense thereof, the indemnified party
shall continue to be entitled to participate in the defense
thereof, with counsel of its own choice, but the indemnifying
party shall not be obligated hereunder to reimburse the
indemnified party of the costs thereof.
(iv) If the indemnification provided for in this
Section 8.3(d) shall for any reason be unavailable (other than in
accordance with its terms) to an indemnified party in respect of
any loss, liability, cost, claim, or damage referred to therein,
then each indemnifying party shall, in lieu of indemnifying such
indemnified party, contribute to the amount paid or payable by
such indemnified party as a result such loss, liability, cost,
claim or damage (A) in such proportion as is appropriate to
reflect the relative benefits received by Parent on the one hand
and the Sellers on the other hand from the offering of the
Registrable Securities or (B) if such proportion as is
appropriate to reflect not only the relative benefits referred to
in clause (A) above but also the relative fault of the
indemnifying party or parties on the one hand and of the
indemnified party or parties on the other hand in damages or
liabilities, as well as any other relevant equitable
considerations. The relative benefits received by Parent on the
one hand and the Sellers on the other hand in connection with the
offering of the Registrable Securities shall be deemed to be in
the same respective proportions as the net proceeds from the
offering of the Registrable Securities (before deducing expenses)
received by Parent and the Sellers, respectively, bear to the
aggregate public offering price of the Registrable Securities.
The relative fault of Parent on the one hand and the Sellers on
the other hand shall be determined by reference to, among other
things, whether the untrue or alleged untrue statement of a
material fact or the omission or alleged omission to state a
material fact relates to intent, knowledge, access to information
and opportunity to correct or prevent such statement or omission.
The amount paid or payable by an indemnified party as a result of
the loss, cost, claim, damage or liability, or action in respect
thereof, referred to above in this paragraph (iv) shall be deemed
to include, for purposes of this paragraph (iv), any legal or
other expenses reasonably incurred by such indemnified party in
connection with investigating or defending any such action or
claim. Parent and the Stockholder agree that it would not be
just and equitable if contribution pursuant to this Section
8.3(d)(iv) were determined by pro rata allocation or by any other
method of allocation which does not take account of the equitable
considerations referred to in this paragraph. Notwithstanding
any other provision of this Section 8.3, the Stockholder shall
not be required to contribute any amount in excess of the amount
by which the total price at which the Registrable Securities of
the Sellers were offered to the public exceeds the amount of any
damages which the Stockholder has otherwise been required to pay
by reason of such untrue or alleged untrue statement or omission
o alleged omission. No person guilty of fraudulent
misrepresentation (within the meaning of Section 11(f) of the
Securities Act) shall be entitled to contribution from any person
who was not guilty of such fraudulent misrepresentation.
(e) Material Misstatements. Parent shall promptly
notify the Stockholder in writing (i) at any time when a
prospectus relating to a registration pursuant to Section 8.3(a)
is required to be delivered under the Securities Act of the
happening of any event as a result of which the prospectus
included in such registration statement, as then in effect,
includes an untrue statement of a material fact or omits to state
any material fact required to be stated therein or necessary to
make the statements therein, in light of the circumstances under
which they were made, not misleading, and (ii) of any request by
the SEC or any other regulatory body or other body having
jurisdiction for any amendment of or supplement to any
registration statement or other document relating to such
offering, and in either such case, at the request of the
Stockholder prepare and furnish to the Stockholder a reasonable
number of copies of a supplement to or an amendment of such
prospectus as may be necessary so that, as thereafter delivered
to the purchasers of Registrable Securities, such prospectus
shall not include an untrue statement of a material fact or omit
to state a material fact required to be stated therein or
necessary to make the statements therein, in light of the
circumstances under which they are made, not misleading.
9. Covenants of the Stockholder and the Members. The
Sellers, jointly and severally, hereby covenant and agree as
follows:
9.1 Cooperation in Filing Notification under
Hart-Scott-Rodino. The Sellers agree to cooperate fully with
Parent to promptly effectuate the filing of any notification
required under the HSR Act.
9.2 Reasonable Best Efforts. Subject to the terms and
conditions of this Agreement, the Sellers each agree to use all
reasonable best efforts to take, or cause to be taken, all
actions, and to do, or cause to be done, all things necessary,
proper or advisable to consummate and make effective the
transactions provided for by this Agreement. Each Seller hereby
agrees, while this Agreement is in effect, and except as
contemplated hereby, not to intentionally and knowingly take any
action with the intention and knowledge that such action would
make any of its representations or warranties contained herein
untrue or incorrect in any material respect or have the effect of
preventing or disabling it from performing its obligations under
this Agreement.
9.3 Voting. The Stockholder hereby agrees that,
during the time this Agreement is in effect, at any meeting of
the stockholders of the Company (or at any adjournments or
postponements thereof), however called, or in any other
circumstances upon which the Stockholder's vote, consent or other
approval is sought, the Stockholder shall vote (or cause to be
voted) the Shares (i) in favor of the Merger, the adoption of the
Merger Agreement and the approval of the terms thereof and each
of the other transactions and other matters contemplated by the
Merger Agreement and this Agreement and any actions required in
furtherance hereof and thereof; (ii) against any action or
agreement that would result in a breach in any material respect
of any covenant, representation or warranty or any other
obligation or agreement of the Company under the Merger
Agreement; (iii) except as otherwise agreed to in writing in
advance by Parent, against the following actions (other than the
Merger and the transactions and other matters contemplated by the
Merger Agreement): (1) any extraordinary corporate transaction,
such as a merger, consolidation or other business combination
involving the Company or its subsidiaries; (2) a sale, lease or
transfer of a material amount of assets of the Company or its
subsidiaries or a reorganization, recapitalization, dissolution
or liquidation of the Company or its subsidiaries; (3) (a) any
change in the majority of the board of directors of the Company;
(b) any material change in the present capitalization of the
Company or any amendment of the Company's Certificate of
Incorporation or By-laws; (c) any other material change in the
Company's corporate structure or business; or (d) any other
action; which, in the case of each of the matters referred to in
clauses 3(a), (b), (c) or (d), is intended, or could reasonably
be expected, to impede, frustrate, prevent, interfere with,
delay, postpone, discourage or materially adversely affect the
contemplated economic benefits to Parent of the Exchange or the
Merger or the transactions contemplated by the Merger Agreement
and this Agreement or change in any manner the voting rights of
the Company Common Stock. The Stockholder shall not enter into
any agreement or understanding with any person or entity prior to
the termination of this Agreement to vote or give instructions
after such termination in a manner inconsistent with clauses (i),
(ii) or (iii) of the preceding sentence.
9.4 Proxy. The Stockholder hereby grants to, and
appoints, Parent and Linda J. Wachner, Chief Executive Officer of
Parent, William S. Finkelstein, Chief Financial Officer of
Parent, and Stanley P. Silverstein, Vice President, General
Counsel and Secretary of Parent, in their respective capacities
as officers of Parent, and any individual who shall hereafter
succeed to any such office of Parent, and any other designee of
Parent, each of them individually, its irrevocable proxy and
attorney-in-fact (with full power of substitution) to vote the
Shares as indicated in Section 9.3. The Stockholder intends this
proxy to be irrevocable and coupled with an interest and will
take such further action and execute such other instruments as
may be necessary to effectuate the intent of this proxy and
hereby revokes any proxy previously granted by it with respect to
its Shares.
9.5 No Solicitation. During the term of this
Agreement, the Sellers shall not, directly or indirectly, through
any officer, director, employee, representative or agent of the
Sellers or any of its subsidiaries or otherwise, (i) solicit,
initiate or encourage any inquiries, offers or proposals, or any
indications of interest, regarding any merger, sale of
substantial assets, sale of shares of capital stock (including by
way of a tender offer) or similar transactions involving the
Sellers or any significant subsidiary of the Sellers other than
the Merger or (ii) participate in negotiations or discussions
concerning, or provide any nonpublic information to any person
relating to, any Acquisition Proposal. If any of the Sellers
receives any such inquiry or proposal, then such Seller shall
promptly inform Parent of the terms and conditions, if any, of
such inquiry or proposal and the identity of the person making
it. Each Seller will immediately cease and cause to be
terminated any existing activities, discussions or negotiations
with any parties conducted heretofore with respect to any of the
foregoing.
9.6 Restriction on Transfer of Shares, Proxies and
Non-Interference; Restriction on Withdrawal. No Seller shall,
directly or indirectly: (i) except pursuant to or as
contemplated hereby by the terms of this Agreement or the Merger
Agreement, offer for sale, sell (including short sales),
transfer, tender, pledge, encumber, assign or otherwise dispose
of (including by gift) or enter into any contract, option or
other arrangement or understanding (including any profit-sharing
arrangement) with respect to or consent to the offer for sale,
sale, transfer, tender, pledge, encumbrance, assignment or other
disposition of, any or all of the Shares or any interest therein;
(ii) except as contemplated hereby, grant any proxies or powers
of attorney, deposit any Shares into a voting trust or enter into
any other voting arrangement with respect to any Shares; or (iii)
take any action that would make any representation or warranty of
the Sellers contained herein untrue or incorrect or have the
effect of preventing or disabling the Sellers from performing
their obligations under this Agreement; or commit or agree to
take any of the foregoing actions.
9.7 Transfer of Shares of Parent Class A Common Stock.
The Sellers agree that they shall not, directly or indirectly,
offer, sell, transfer, tender, pledge or encumber, assign or
otherwise dispose of any shares of Parent Class A Common Stock
(a) until the earlier of (i) such time at or after the Effective
Time of the Merger that is no earlier than the time when holders
of Company Common Stock can sell the shares of Parent Class A
Common Stock issued pursuant to the Merger (without giving effect
to any restrictions under applicable securities laws) and (ii)
the termination of the Merger Agreement in accordance with its
terms (the date on which such earlier time occurs, the "Release
Date"), (b) other than in accordance with Section 4.7 and (c)
other than in accordance with the terms of any Lock-Up Letter.
9.8 Transfer Taxes. All transfer, documentary, sales,
use, registration, stock transfer Taxes and other such Taxes
(including all applicable real estate transfer or gains Taxes)
and related fees (including any penalties, interest and additions
to Tax) incurred in connection with this Agreement and the
transactions contemplated hereby shall be paid by the Stockholder
and the Stockholder shall timely make all filings, returns,
reports and forms as may be required to comply with the
provisions of such Tax laws.
9.9 Waiver of Dividend. The Sellers hereby
irrevocably waive their right to receive with respect to the
Exchange Shares, and hereby instruct Parent not to pay to the
Sellers in respect of the Exchange Shares, any dividend declared
by the Board of Directors of Parent payable to holders of record
of Parent as of a record date prior to the Effective Time of the
Merger.
9.10 Standstill. Each Seller agrees that such Seller
shall not (a) acting alone or in concert with others, seek to
affect or influence the control of the management or board of
directors of Parent or the business, operations or policies of
Parent; (b) deposit any shares of Parent Class A Common Stock or
securities exercisable or exchangeable or convertible into shares
of Parent Class A Common Stock, or other securities having the
right to vote generally with shares of Parent Class A Common
Stock (collectively "Parent Voting Securities") in a voting trust
or subject any Parent Voting Securities to any proxy, arrangement
or agreement with respect to the voting of such Parent Voting
Securities or other agreement having similar effect; (c) initiate
or propose any stockholder proposal or make, or in any way,
participate in, directly or indirectly, any "solicitation" of
"proxies" to vote, other than in connection with the Merger and
the Merger Agreement, or intentionally seek in an organized
fashion to influence any person with respect to the voting of,
any Parent Voting Securities in a manner inconsistent with the
position of the board of directors of Parent or become
"participant" in a "solicitation" (as such terms are defined in
Regulation 14A under the Exchange Act, as in effect on the date
hereof) in opposition to the recommendation of the majority of
the directors of Parent with respect to any matter; (d) join a
partnership, limited partnership, syndicate or other group, or
otherwise act in concert with any other person, for the purpose
of acquiring, holding, voting or disposing of Parent Voting
Securities, or, otherwise become a "person" within the meaning of
Section 13(d)(3) of the Exchange Act relating to any of the
matters set forth in clauses (a), (b) or (c); or (e) take any
other action inconsistent with this Section 9.10. The provisions
of this Section 9.10 shall not apply to any Seller following such
time after the Exchange as such Seller cease to beneficially own
at least 25% of the Exchange Shares acquired by such Seller in
the Exchange.
9.11 Amendment of LLC Agreement. By the execution and
delivery of this Agreement, each Member hereby agrees that,
effective as of the Closing Date, Sections 11.2 and 11.3 of the
LLC Agreement shall be deemed amended to delete the terms thereof
in their entirety. To the extent any provision of Article XI of
the LLC Agreement conflicts with the terms of this Agreement, the
terms of this Agreement shall be controlling.
9.12 Transfer of Shares to Michael A. Covino.
Notwithstanding anything to the contrary contained in this
Agreement, simultaneously with or promptly following the
execution hereof by Michael A. Covino ("Covino"), the Stockholder
shall transfer (the "Covino Transfer") the 225,374 Shares (the
"Covino Shares") which are the "Allocated Shares" of Covino to
Covino. From and after such time as the Covino Transfer shall
have been completed, (i) Covino shall, with respect to the Covino
Shares, be fully subject to and shall comply with and be entitled
to the benefits of all of the covenants and agreements contained
herein and applicable to the Stockholder, including, without
limitation, the representations set forth in Sections 4.4 and
4.6, the requirement to exchange the Covino Shares at Closing,
free and clear of Liens or Restrictions, in accordance with
Section 1 and to comply with the voting and proxy requirements of
Sections 9.3 and 9.4, respectively; (ii) no representation of the
Members shall be deemed to be breached to the extent it is no
longer true solely as a result of the Covino Transfer; (iii)
Covino shall make the representation in the last sentence of
Section 3.1 in his capacity as "Stockholder"; and (iv) in order
to effectuate the foregoing, references herein and in the Merger
Agreement to the "Stockholder" shall be deemed to refer to Covino
and the Stockholder. Covino shall, notwithstanding the Covino
Transfer, continue to be treated as a Member for purposes of the
representations and warranties of the Members set forth in
Section 3 (other than Section 3.5) and as a Seller for all
purposes hereof.
10. Further Assurances. From time to time, at the
other party's request and without further consideration, each
party hereto shall execute and deliver such additional documents
and take all such further action as may be necessary or desirable
to consummate and make effective, in the most expeditious manner
practicable, the transactions contemplated by this Agreement.
11. Certain Events. The Stockholder agrees that this
Agreement and the obligations hereunder shall attach to the
Stockholder's Shares and shall be binding upon any person or
entity to which legal or beneficial ownership of such Shares
shall pass, whether by operation of law or otherwise, including
without limitation the Stockholder's administrators, successors
or receivers.
12. Stop Transfer. The Stockholder agrees with, and
covenants to, Parent that it shall not request that the Company
register the transfer (book-entry or otherwise) of any
certificate or uncertificated interest representing any of the
Shares, unless such transfer is made in compliance with this
Agreement and the Lock-Up Letter. The Stockholder agrees, with
respect to any Shares in certificated form, that immediately
following the execution hereof, it will present to the Company,
the certificates representing the Shares and the Company will
inscribe upon such certificates the following legend: "The
shares of Common Stock, par value $.01 per share, of Designer
Holdings Ltd. (the "Company") represented by this certificate are
subject to a Stock Exchange Agreement dated as of September 25,
1997, and may not be sold or otherwise transferred, except in
accordance therewith. Copies of such Agreement may be obtained
at the principal executive offices of the Company." The
Stockholder agrees that it will no longer hold any Shares,
whether certificated or uncertificated, in "street name" or in
the name of any nominee. Pursuant to the Merger Agreement, the
Company has agreed to notify the transfer agent for any Shares in
uncertificated form of the provisions set forth in this Section
12 and has agreed to, and the Stockholder agrees to, provide such
documentation and to do such other things as may be required to
give effect to such provisions with respect to such
uncertificated Shares. Following the Closing for the Exchange,
Parent will not register the transfer (book-entry or otherwise)
of any certificate or uncertificated interest representing the
Stockholder's Parent Class A Common Stock, unless such transfer
is made in compliance with this Agreement.
13. Post-Closing Covenants; Termination.
13.1 Termination. If the Closing of the Exchange shall
not have occurred on or prior to June 30, 1998, other than as a
result of a material breach of this Agreement by any party
hereto, the Stockholder or Parent may terminate this Agreement
without liability. If the Closing Date shall not have occurred
on or prior to such date as a result of material breach of any
representation, warranty, covenant or obligation by the Sellers
(or any of them), on the one hand, or Parent on the other, the
non-breaching party shall have the right to terminate this
Agreement without liability. Except for Sections 3.1, 3.5, 4.1,
4.4 and 4.6, the representations and warranties of the parties
set forth herein shall terminate upon the Closing of the
Exchange.
13.2 Noncompetition. (a) Each of Charterhouse Equity
Partners II, L.P. ("CEP") and Arnold H. Simon (the "Partners")
severally agrees that, commencing on the Closing Date until the
second anniversary of the Closing Date, it will not, and, as to
Mr. Simon, he will cause his affiliates not to, in North America,
South America and Central America, directly or indirectly, invest
in (other than a passive equity investment constituting no more
than 5% of the equity of the subject company), engage in, become
financially interested in, or be employed by, whether as an
employee, consultant, partner, principal, agent, representative
or Stockholder or in any other corporate or representative
capacity, if it involves engaging in, or rendering services that
are integral to the business of or advice pertaining to, any
lines of business Parent was actively conducting on the date of
this Agreement or the date of consummation of the Exchange,
except in connection with an agreement consented to in writing by
Parent, or, in the case of CEP, in connection with its
investments existing on the date of this Agreement, nor will the
Partners solicit any business of the type conducted by the
Company from any customer of the Company or hire any employee of
the Company or any of its subsidiaries (or any of their
successors) except, as to Mr. Simon, as he is permitted under his
letter agreement of employment between him and Parent and any
subsequent letter agreement or arrangement approved in writing by
Parent; provided, however, that the foregoing shall not prohibit
Debra Simon from being employed by, whether as an employee,
consultant or representative, or acting in any other corporate or
representative capacity to, any entity involved in any of such
lines of business.
(b) It is the intention of the parties that if any of
the restrictions or covenants contained herein is held to cover a
geographic area or to be for a length of time that is not
permitted by applicable law, or in any way construed to be too
broad or to any extent invalid, such provision shall not be
construed to be null, void and of no effect, but to the extent
such provision would be valid or enforceable under applicable
law, a court of competent jurisdiction shall construe and
interpret or reform this Section 13.2 to provide for a covenant
having the maximum enforceable geographic area, time period and
other provisions (not greater than those contained herein) as
shall be valid and enforceable under such applicable law. Each
of the Partners acknowledges that any breach of the terms,
conditions or covenants set forth in this Section 13.2 shall be
competitively unfair and may cause irreparable damage to Parent
because of the special, unique, unusual, extraordinary and
intellectual character of the Company's business, and Parent's
recovery of damages at law will not be an adequate remedy.
Accordingly, each of the Partners agrees that for any breach of
the terms, covenants or agreements of this Section 13.2, a
restraining order or an injunction or both may be issued against
such person, in addition to any other rights or remedies Parent
may have.
(c) Each Seller agrees to hold in strict confidence
all data and information relating to the business of the Company
and its subsidiaries (the "Proprietary Information") obtained in
the course of its ownership of shares or participation in the
management of the Company or any of its subsidiaries or otherwise
which is either non-public, confidential or proprietary in
nature. Each Seller agrees that subject to any requirement of
law or tribunal order, it will keep such Proprietary Information
confidential and will not, without the prior written consent of
Parent, be disclosed by any Seller to any person. This Agreement
shall be inoperative as to such portions of the Proprietary
Information which (i) are or become generally available to the
public other than as a result of a disclosure by Parent or any of
its Representatives, (ii) become available to any Seller or one
of its Representatives on a nonconfidential basis from a source
other than any of Parent or any of its Representatives, which has
not advised such Seller that it is bound by a confidentiality
agreement with, or other contractual, legal or fiduciary
obligation of confidentiality to, any of Parent or any of its
subsidiaries or affiliates with respect to such portions of the
Proprietary Information, or (iii) were known by any Seller on a
nonconfidential basis prior to its commencement of employment
with, or ownership of, the Company or one of its subsidiaries.
The Sellers agree that Parent shall be entitled to equitable
relief, including injunction and specific performance, in the
event of any breach of the provisions of this Section 13.2. Such
remedies shall not be deemed to be the exclusive remedies for a
breach of this Section 13.2 by any Seller but shall be in
addition to all other remedies available at law or equity. It is
further understood and agreed that failure or delay by Parent in
exercising any right, power or privilege under this Section 13.2
shall not operate as a waiver thereof nor shall any single or
partial exercise thereof preclude and other or further exercise
of any right, power or privilege under this Agreement.
14. Survival of Representations and Warranties. The
representations and warranties of the parties contained herein
shall survive the Closing and the consummation of the
transactions contemplated hereby.
15. Miscellaneous.
15.1 Successors and Assigns. This Agreement shall be
binding upon and inure to the benefit of the parties hereto and
their respective successors and assigns. Other than as set forth
in the immediately succeeding sentence, no party may assign any
of its rights, or delegate any of its duties or obligations,
hereunder without the prior written consent of the other party,
and any such purported assignment or delegation shall be void ab
initio. Notwithstanding the foregoing, Parent, its affiliates,
and its successors and assigns, may assign their rights and
delegate their duties (i) to any successor entity resulting from
any liquidation, merger, consolidation' reorganization, or
transfer of all or substantially all of the assets or stock of
Parent, or (ii) to any affiliate of Parent; provided, that in
either case, any such assignee shall expressly assume all of the
obligations Parent hereunder.
15.2 Notices. All notices, demands and other
communications (collectively, "Notices") given or made pursuant
to this Agreement shall be in writing and shall be deemed to have
been duly given if sent by registered or certified mail, return
receipt requested, postage and fees prepaid, by overnight service
with a nationally recognized "next day" delivery company such as
Federal Express or United Parcel Service, by facsimile
transmission, or otherwise actually delivered to the following
addresses:
(a) If to Parent:
The Warnaco Group, Inc.
90 Park Avenue
New York, New York 10016
Attn: Linda J. Wachner
Fax: 212-687-6771
with a copy to:
The Warnaco Group, Inc.
90 Park Avenue
New York, New York 10016
Attn: Stanley P. Silverstein
Fax: 212-687-0480
(b) If to the Sellers:
c/o Charterhouse Equity Partners II, L.P.
535 Madison Avenue
New York, New York 10019
Attn: A. Lawrence Fagan
Fax: (212) 750-9704
with copies to:
Proskauer Rose LLP
1585 Broadway
New York, New York 10036
Attn: Glenn M. Feit
Fax: (212) 969-2900
Arnold H. Simon
Designer Holdings Ltd.
1385 Broadway
New York, New York 10018
Fax: (212) 556-9722
Any Notice shall be deemed duly given when received by the
addressee thereof. Any of the parties to this Agreement may from
time to time change its address for receiving notices by giving
written notice thereof in the manner set forth above.
15.3 Amendment: Waiver. No provision of this Agreement
may be waived unless in writing signed by all of the parties to
this Agreement, and the waiver of any one provision of this
Agreement shall not be deemed to be a waiver of any other
provision. This Agreement may be amended, supplemented or
otherwise modified only by a written agreement executed by all of
the parties to this Agreement.
15.4 Enforcement; Jurisdiction. The parties agree that
irreparable damage would occur in the event that any of the
provisions of this Agreement were not performed in accordance
with their specific terms or were otherwise breached. It is
accordingly agreed that the parties shall be entitled to an
injunction or injunctions to prevent breaches of this Agreement
and to enforce specifically the terms and provisions of this
Agreement in any Federal court located in the State of Delaware
or any Delaware state court, this being in addition to any other
remedy to which they are entitled at law or in equity. Any suit,
action or proceeding seeking to enforce any provision of, or
based on any matter arising out of or in connection with, this
Agreement or the transactions contemplated by this Agreement may
be brought against any of the parties in any Federal court
located in the State of Delaware or any Delaware state court, and
each of the parties hereto hereby consents to the exclusive
jurisdiction of such courts (and of the appropriate appellate
courts therefrom) in any such suit, action or proceeding and
waives any objection to venue laid therein. Process in any such
suit, action or proceeding may be served on any party anywhere in
the world, whether within or without the State of Delaware.
Without limiting the generality of the foregoing, each party
hereto agrees that service of process upon such party at the
address referred to in Section 15.2, together with written notice
of such service to such party, shall be deemed effective service
of process upon such party.
15.5 Severability. Whenever possible, each provision
or portion of any provision of this Agreement will be interpreted
in such manner as to be effective and valid under applicable law
but if any provision or portion of any provision of this
Agreement is held to be invalid, illegal or unenforceable in any
respect under any applicable law or rule in any jurisdiction,
such invalidity, illegality or unenforceability will not affect
any other provision or portion of any provision in such
jurisdiction, and this Agreement will be reformed, construed and
enforced in such jurisdiction as if such invalid, illegal or
unenforceable provision or portion of any provision had never
been contained herein.
15.6 Counterparts. This Agreement may be executed in
one or more counterparts, all of which shall be considered one
and the same agreement and shall become effective when one or
more counterparts have been signed by each of the parties and
delivered to the other parties.
15.7 Entire Agreement; No Third-Party Beneficiaries.
This Agreement and the other agreements referred to herein
constitute the entire agreement, and supersede all prior
agreements and understandings, both written and oral, among the
parties with respect to the subject matter of this Agreement.
This Agreement is not intended to confer upon any person other
than the parties any rights or remedies.
15.8 Governing Law. This Agreement shall be governed
by, and construed in accordance with, the laws of the State of
Delaware, regardless of the laws that might otherwise govern
under applicable principles of conflicts of laws thereof.
15.9 Headings. The section and subsection headings
contained in this Agreement are included for convenience only and
form no part of the agreement between the parties.
15.10 Expenses. Each party shall pay its own costs,
expenses, including without limitation, the fees and expenses of
their respective counsel and financial advisors.
15.11 Publicity. The initial press release relating to
this Agreement shall be a joint press release, and Parent and the
Sellers shall use reasonable efforts to agree upon the text of
any other press release before issuing any such press release.
15.12 Specific Performance. Each of the parties hereto
recognizes and acknowledges that a breach by it of any covenants
or agreements contained in this Agreement will cause the other
parties to sustain damages for which they would not have an
adequate remedy at law for money damages, and therefore each of
the parties hereto agrees that in the event of any such breach
the aggrieved party or parties shall be entitled to the remedy of
specific performance of such covenants and agreements and
injunctive and other equitable relief, without the posting of
bond or other security, in addition to any other remedy to which
it or they may be entitled, at law or in equity.
IN WITNESS WHEREOF, the parties have executed this
Agreement as of the date first above written.
THE WARNACO GROUP, INC.
By: /s/ Linda J. Wachner
Title: President and
Chief Executive Officer
/s/ Arnold H. Simon
Arnold H. Simon
NEW RIO, L.L.C.
By: /s/ Arnold H. Simon
Title: Chief Executive Officer
CHARTERHOUSE EQUITY PARTNERS II, L.P.
By: CHUSA EQUITY INVESTORS II, L.P.,
General Partner
By: CHARTERHOUSE EQUITY II, INC.,
General Partner
/s/ Merril M. Halpern
Attorney-in-Fact
CHEF NOMINEES LIMITED
By: /s/ Merril M. Halpern
Attorney-in-Fact
A.S. ENTERPRISES, L.L.C.
By: /s/ Arnold H. Simon
Title: Chief Executive Officer
/s/ Martin L. Berman
Martin L. Berman
/s/ Phyllis West Berman
Phyllis West Berman
/s/ Steven E. Berman
Steven E. Berman
/s/ Mark N. Kaplan
Mark N. Kaplan as Trustee f/b/o
Alison A. Berman and
Mark K. Berman
/s/ Michael A. Covino
Michael A. Covino
SCHEDULE 3.2
SHARES OF
COMMON STOCK
BENEFICIALLY OWNED
NAME OF BENEFICIAL OWNER NUMBER PERCENTAGE
NEW RIO, L.L.C.: 00,000,000 00.0
Charterhouse Equity Partners II, L.P. 8,033,800 25.0%
535 Madison Avenue
New York, NY 10022
Arnold H. Simon (1)
1385 Broadway
New York, NY 10018 7,805,813 24.3%
Martin L. Berman 141,146 *
Steven S. Berman 53,272 *
Phyllis West Berman 51,084 *
Trust for the benefit of Mark K. Berman
and Allison A. Berman 167,445 *
Michael A. Covino 225,374 *
Chef Nominees Limited 15,934 *
__________ ________
NEW RIO, L.L.C. TOTAL 16,483,868 51.3%
____________________
* Less than one percent.
(1) Includes 302,924 shares owned by A.S. Enterprises, L.L.C., a
company owned by Mr. and Mrs. Simon.
CONTACT: Linda J. Wachner Lawrence A. Rand
The Warnaco Group, Inc. Kekst and Company
212-370-8204 212-521-4800
Arnold Simon
Designer Holdings Ltd.
212-558-9600
FOR IMMEDIATE RELEASE
THE WARNACO GROUP, INC. SIGNS DEFINITIVE MERGER AND EXCHANGE
AGREEMENTS TO ACQUIRE DESIGNER HOLDINGS LTD. FOR WARNACO STOCK
--Warnaco To Acquire In A First Step Exchange
A Majority of Designer Holdings Stock From New Rio, L.L.C.--
NEW YORK, NEW YORK, SEPTEMBER 25, 1997--The Warnaco Group, Inc.
(NYSE:WAC) and Designer Holdings Ltd. (NYSE:DSH) jointly
announced that they have entered into a definitive merger
agreement for the previously announced acquisition of Designer
Holdings by Warnaco. Pursuant to the terms of the merger
agreement, which was approved by the Board of Directors of both
companies, all Designer Holdings shareholders will receive .324
of a share of Warnaco common stock for each Designer Holdings
share they own. The transaction is intended to qualify as a
tax-free reorganization. Based upon the average of the last
eight trading days of Warnaco stock, the value to the Designer
Holdings shareholders is approximately $11 per share. Following
the consummation of the merger, which is expected to take place
by the end of the year, the shareholders of Designer Holdings
would own approximately 16%, on a fully-diluted basis, of
Warnaco's shares outstanding.
In connection with this transaction, Warnaco has also entered
into an exchange agreement to acquire, as a first step, for the
same per share consideration as that to be paid in the merger,
all the shares of Designer Holdings owned by New Rio, L.L.C.,
which owns a majority of Designer Holdings' outstanding shares.
Under the terms of the Warnaco/New Rio exchange agreement, which
is expected to close upon termination of the waiting periods for
the exchange and the merger under the Hart-Scott-Rodino Act, New
Rio has agreed to support the merger and not to dispose of any of
the Warnaco shares it receives in the exchange until the
Warnaco-Designer Holdings merger is consummated.
Upon the completion of the Warnaco/New Rio share exchange,
Warnaco will be entitled to designate a majority of members to
the Designer Holdings Board of Directors.
The merger (but not the New Rio exchange) requires approval by a
majority of the outstanding shares of Designer Holdings, which
would be satisfied in light of Warnaco's agreement to vote the
Designer Holdings shares acquired from New Rio in support of the
Warnaco-Designer Holdings merger. The merger (but not the New
Rio exchange) may also require approval by Warnaco stockholders
to the extent such approval would be required by applicable New
York Stock Exchange requirements.
Linda J. Wachner, Chairman and Chief Executive Officer of
Warnaco, said, "The acquisition of Designer Holdings provides an
excellent opportunity to build value for our shareholders. We're
extremely proud of our association with Calvin Klein. The Calvin
Klein Jeans and Khakis brands are among the most highly desired
and successful labels in the jeanswear and casual sportswear
marketplace, and complement Warnaco's existing product lines,
including Calvin Klein underwear for men and women and Calvin
Klein men's accessories. We look forward to working with Arnold
Simon to further the Calvin Klein Jeans and Khakis businesses by
aggressively pursuing new avenues for growth."
Arnold Simon, President and Chief Executive Officer of Designer
Holdings, said, "Warnaco has established an outstanding record of
building highly-recognized consumer apparel brands. The Calvin
Klein Jeans and Khakis businesses will benefit from this
expertise and will be even better-positioned for long-term
growth. Moreover, by receiving Warnaco common stock, Designer
Holdings shareholders will be able to participate in our future
success."
Lazard Freres & Co. has provided a fairness opinion to Warnaco,
and Merrill Lynch & Co. has provided a fairness opinion to
Designer Holdings.
The Warnaco Group, Inc. headquartered in New York, is a leading
manufacturer of intimate apparel, menswear, and accessories sold
under such brands as Warner's(R), Olga(R), Valentino Intimo(R),
Marilyn Monroe(R), Fruit of the Loom(R) bras, Van Raalte(R),
Lejaby(R), Bodyslimmers(R), Chaps by Ralph Lauren(R) and Calvin
Kleiin(R) men's and women's underwear and men's accessories.
Designer Holdings Ltd. has a 40-year extendable license to
develop, source and market designer sportswear collections under
the Calvin Klein Jeans(R), CK/Calvin Klein Jeans(R) and CK/Calvin
Klein/Khakis(R) labels. Products for men, juniors, women and
petites are distributed through a broad range of department
stores and specialty stores.
The offering of Warnaco stock in the merger will be made only by
means of a prospectus.
# # #
THIRD AMENDED AND RESTATED LIMITED
LIABILITY COMPANY AGREEMENT
THIRD AMENDED AND RESTATED LIMITED LIABILITY COMPANY
AGREEMENT of NEW RIO, L.L.C., a Delaware limited liability
company, dated as of May 9, 1996, by and among Arnold H. Simon,
CHARTERHOUSE EQUITY PARTNERS II, L.P., a Delaware limited
partnership, CHEF NOMINEES LIMITED, a United Kingdom entity, A.S.
ENTERPRISES, L.L.C., a New Jersey limited liability company,
Martin L. Berman, Phyllis West Berman, Steven E. Berman, Mark N.
Kaplan as Trustee f/b/o Mark K. Berman and Alison A. Berman, and
Michael A. Covino as members of the Company.
W I T N E S S E T H:
WHEREAS, all acts and proceedings required by law, by
the Second Amended LLC Agreement and the certificate of formation
of the Company (the "Certificate") to constitute this Agreement a
valid and binding agreement for the uses and purposes set forth
herein, in accordance with its terms, have been done and taken,
and the execution and delivery of this Agreement has in all
respects been duly authorized by the Members;
WHEREAS, the Members desire to revise the Company's
objectives and purposes as described in Section 2.5 hereof from
those set forth in the Second Amended LLC Agreement;
WHEREAS, the Members' ownership interests in the
Company originally consisted of preferred and common membership
interests;
WHEREAS, the Members desire to retire all of the
preferred membership interests set forth in the Second Amended
LLC Agreement; and
WHEREAS, the Members desire to continue the Company and
to amend and restate the LLC Agreement in its entirety for a
third time.
NOW, THEREFORE, in consideration of the foregoing and
for other good and valuable consideration, the receipt of which
is hereby acknowledged, the Members, intending legally to be
bound, hereby agree as follows:
ARTICLE I
DEFINITIONS
SECTION 1.1. Definitions. (a) Unless otherwise
defined herein, the following capitalized terms shall have the
following respective meanings (such meanings being equally
applicable to both singular and plural form of the terms
defined).
"Act" shall mean the Delaware Limited Liability Company
Act, as amended from time to time.
"Affiliate" shall mean, with respect to any Person, any
Person that Controls, is controlled by or is under common control
with such Person in question.
"Agreement" shall mean this Third Amended and Restated
Limited Liability Company Agreement, as originally executed and
as amended, modified, supplemented or restated from time to time
in accordance with the terms of this Agreement. Words such as
"herein," "hereinafter," "hereof," "hereto," "hereby" and
"hereunder," when used with reference to this Agreement, refer to
this Agreement as a whole, unless the context otherwise requires.
"Allocated Shares" shall mean, in respect of each
Member, the number of Shares initially allocated to such Member,
as set forth on Schedule B to this Agreement, minus the number of
Shares sold in the initial public offering of such shares, minus
the number of such Shares that have been the subject of a
Transfer (which does not include pledges) and plus the number of
additional shares received by the Company in respect of such
Shares or purchased by the Company (which shall be allocated (i)
in respect of the Allocated Shares in respect of which they were
received or (ii) to the benefit of the Member on behalf of which
they were purchased, as the case may be) as permitted by this
Agreement. The number of Shares sold or to be sold in the
initial public offering of such Shares on behalf of each Member
is set forth on Schedule C to this Agreement.
"Amended LLC Agreement" shall mean the Amended and
Restated Limited Liability Company Agreement of New Rio, L.L.C.,
dated as of November 13, 1995, by and among the Members.
"ASE" shall mean A.S. Enterprises, L.L.C., a New Jersey
limited liability company.
"Bankruptcy" of a Member shall mean, and a Member shall
be deemed a "Bankrupt Member" upon, (a) the Member's making an
assignment for the benefit of its creditors; (b) the filing by a
Member of a voluntary petition under any Debtor Relief Laws; (c)
the Member's being adjudged as bankrupt or insolvent, or having
entered against it an order for relief, in any bankruptcy or
insolvency proceeding; (d) the Member's filing a petition or
answer seeking for itself any reorganization, arrangement,
composition, readjustment, liquidation, dissolution or similar
relief under any Debtor Relief Law; (e) the Member's answer or
other pleading admitting or failing to contest the material
allegations of a petition filed against it in any proceeding
under any Debtor Relief Law; (f) the Member's seeking, consenting
to or acquiescing in the appointment of a trustee, receiver or
liquidator of the Member or of all or any substantial part of its
properties; or (g) the passage of 120 days after the commencement
of any proceeding against the Member seeking reorganization,
arrangement, composition, readjustment, liquidation, dissolution
or similar relief under any statute, law or regulation if the
proceeding has not been dismissed, or if within 90 days after the
appointment without its consent or acquiescence of a trustee,
receiver or liquidator of the Member or of all or any substantial
part of its properties, the appointment is not vacated or stayed,
or within 90 days after the expiration of any such stay, the
appointment is not vacated.
"Bermans" shall mean, collectively, Martin L. Berman,
Phyllis West Berman, Steven E. Berman, and Mark N. Kaplan as
Trustee f/b/o Mark K. Berman and Alison A. Berman.
"Business Day" shall mean any day on which commercial
banks are not authorized or required to close in New York City.
"Capital Account" shall have the meaning set forth in
Section 3.5 hereof.
"Capital Contributions" shall mean all contributions to
the capital of the Company made by Members pursuant to Section
3.4 hereof.
"CEP" shall mean Charterhouse Equity Partners II, L.P.,
a Delaware limited partnership.
"Certificate" shall have the meaning given to it in the
recitals to this Agreement.
"Chef" shall mean Chef Nominees Limited, a United
Kingdom entity.
"Code" shall mean the Internal Revenue Code of 1986, as
amended from time to time. All references herein to sections of
the Code shall include any corresponding provision or provisions
of succeeding law.
"Company" shall mean New Rio, L.L.C., a Delaware
limited liability company.
"Controls" including, with correlative meanings, the
terms "controlled by" and "under common control with," means, as
to any Person, the possession, directly or indirectly, of the
power to direct or cause the direction of the management and
policies of such Person whether through the ownership of voting
securities or by contract or otherwise.
"Covered Person" shall have the meaning set forth in
Section 10.1 hereof.
"Covino" shall mean Michael A. Covino.
"Debtor Relief Laws" shall mean the United States
Bankruptcy Code or other similar law.
"Demand Registration Right" shall have the meaning set
forth in Section 11.3(a) hereof.
"Demand Request" shall have the meaning set forth in
Section 11.3(a) hereof.
"Demanding Member" shall have the meaning set forth in
Section 11.3(a) hereof.
"Effective Time" shall have the meaning set forth in
Section 2.1 hereof.
"Fair Market Value" of a Share, as of any date of
determination, shall mean (i) the closing sales price per Share,
on the national securities exchange on which such stock is
principally traded, on the next preceding date on which there was
a sale of such stock on such exchange, or (ii) if the Shares are
not listed or admitted to trading on any such exchange, the
closing price as reported by the Nasdaq Stock Market for the last
preceding date on which there was a sale of such stock on such
exchange, or (iii) if the Shares are not then listed on a
national securities exchange or on the Nasdaq Stock Market, the
average of the highest reported bid and lowest reported asked
prices for the Shares as reported by the National Association of
Securities Dealers, Inc. Automated Quotations ("NASDAQ") system
for the last preceding date on which such bid and asked prices
were reported, or (iv) if the Shares are not then listed on any
securities exchange or prices therefor are not then quoted in the
NASDAQ system, such value as determined in good faith by a
nationally recognized investment banking firm selected by the
Demanding Member.
"Family Group" shall have the meaning set forth in
Section 7.2 hereof.
"Fiscal Year" shall have the meaning set forth in
Section 2.7 hereof.
"Interest" shall mean the entire interest of a Member
in the Company at any particular time, including the right of
such Member to any and all benefits to which a Member may be
entitled as provided in this Agreement, together with the
obligations of such Member to comply with all the terms and
provisions of this Agreement.
"Issuer" shall mean Designer Holdings, Ltd., a Delaware
corporation, or the issuer of any shares or other securities for
which the Shares have been exchanged or into which the Shares
have been converted.
"Lender" shall have the meaning set forth in Section
11.7 hereof.
"Losses" shall mean any and all liabilities, losses,
claims (including allegations), other proceedings, damages,
demands, deficiencies, assessments, judgments, fines, penalties,
costs, expenses (including reasonable legal fees and expenses,
including reasonable legal fees and expenses incurred in the
enforcement of the indemnification obligations under this
Agreement) and liabilities and any interest thereon from the date
incurred at the prime rate announced from time to time by
Citibank, N.A. or any successor thereto.
"LLC Agreement" shall mean the Limited Liability
Company Agreement of New Rio, L.L.C., dated as of August 4, 1994,
by and among the Members named therein.
"Member Managers" shall have the meaning set forth in
Section 4.1(a) hereof.
"Members" shall mean Simon, CEP, Chef, ASE, MLB, PWB,
SEB, Trustee and Covino, collectively.
"MLB" shall mean Martin L. Berman.
"1933 Act" shall mean the Securities Act of 1933, as
amended, and the rules and regulations promulgated thereunder.
"1934 Act" shall mean the Securities Exchange Act of
1934, as amended, and the rules and regulations promulgated
thereunder.
"Non-Demanding Members" shall have the meaning set
forth in Section 11.3(a) hereof.
"Percentage Interest" of a Member shall mean the
percentage set forth opposite the name of the Member under the
column "Percentage Interest" in Schedule A attached hereto, as
such percentage may be adjusted from time to time pursuant to the
terms hereof. The aggregate Percentage Interests shall at all
times equal 100%.
"Permitted Transferee" shall have the meaning set forth
in Section 7.2 hereof.
"Person" means an individual or a corporation, limited
liability company, partnership, trust, incorporated or
unincorporated association, joint venture, joint stock company,
governmental authority or other entity of any kind.
"Pledged Shares" shall have the meaning set forth in
Section 11.7(a) hereof.
"Principal Members" shall mean CEP and Simon.
"Proceeds" shall have the meaning set forth in Section
5.1(a) hereof.
"PWB" shall mean Phyllis West Berman.
"Registration Rights Agreement" shall mean the
Registration Rights Agreement, dated as of May 9, 1996, by and
among the Issuer, the Company and Calvin Klein, Inc.
"Regulations" shall mean the regulations promulgated by
the United States Department of the Treasury pursuant to and in
respect of provisions of the Code. All references herein to
sections of the Regulations shall include any corresponding
provision or provisions of succeeding, similar, substitute,
proposed or final Regulations.
"Rights Contribution" shall have the meaning set forth
in Section 4.2(a) hereof.
"Rule 144" shall mean Rule 144 of the 1933 Act.
"Rule 144 Request" shall have the meaning set forth in
Section 11.4 hereof.
"SEB" shall mean Steven E. Berman.
"SEC" shall mean the Securities and Exchange Commission
(or any successor agency thereto).
"Second Amended LLC Agreement" shall mean the Second
Amended and Restated Limited Liability Company Agreement of New
Rio, L.L.C., dated as of December 11, 1995, by and among the
Members.
"Second Principal Member" shall have the meaning set
forth in Section 11.3(b) hereof.
"Section 704(c) Property" shall have the meaning set
forth in Section 5.3(d) hereof.
"Service" shall mean the Internal Revenue Service (or
any successor agency thereto).
"Shares" shall mean the shares of Common Stock, par
value $.01 per shares, of Designer Holdings Ltd. owned by the
Company and shall include the shares or other securities of
Designer Holdings Ltd. that are distributed in respect of such
Common Stock and the shares or other securities of any other
Issuer for which such shares of Common Stock have been exchanged
or into which such shares of Common Stock have been converted.
"Simon" shall mean Arnold H. Simon.
"TMP" shall have the meaning set forth in Section
12.4(b) hereof.
"Transfer" shall have the meaning set forth in Section
11.1(a) hereof.
"Trustee" shall mean Mark N. Kaplan as Trustee f/b/o
Mark K. Berman and Alison A. Berman.
"Voting Members" shall have the meaning set forth in
Section 3.2(f) hereof.
ARTICLE II
GENERAL PROVISIONS
SECTION 2.1. Effectiveness of the Agreement.
Notwithstanding anything to the contrary contained herein, this
Agreement shall become effective upon the later of (i) the
consummation of the initial registered public offering of the
common stock of Designer Holdings Ltd. and (ii) the execution by
parties owning at least 80% of the Percentage Interests
("Effective Time"). The Second Amended LLC Agreement shall
continue in full force and effect and shall govern the operation
of the Company at all times prior to such Effective Time.
SECTION 2.2. Continuation. The Members hereby agree
to continue the Company as a limited liability company pursuant
to the Act, upon the terms and subject to the conditions set
forth in this Agreement. The authorized officer or
representative shall file and record any amendments and/or
restatements to the Certificate and such other documents as may
be required or appropriate under the laws of the State of
Delaware and of any other jurisdiction in which the Company may
conduct business. The authorized officer or representative
shall, on request, provide any Member with copies of each such
document as filed and recorded.
SECTION 2.3. Company Name. The name of the Company
shall continue to be "New Rio, L.L.C."
SECTION 2.4. Registered Office; Registered Agent. The
registered office and registered agent of the Company shall be
the Corporation Services, Co., 1013 Centre Road, Wilmington,
Delaware 19805, New Castle.
SECTION 2.5. Nature of Business Permitted; Powers.
The Company has been formed for the object and purpose of, and
the nature of the business to be conducted and promoted by the
Company is, owning the Shares, taking any and all lawful actions
with respect to the Shares and exercising any and all rights of a
holder of such Shares including, without limitation exercising
its rights under the Registration Rights Agreement, in each
instance, subject to any other provisions contained herein,
pursuant to the direction of the Members with respect to such
Members' respective Allocated Shares, and taking any other
actions, or exercising any other rights, that may be necessary or
desirable with respect to the foregoing and the maintenance and
operation of a limited liability company formed under the Act.
The Company shall possess and may exercise all the powers and
privileges granted by the Act or by any other law or by this
Agreement, together with any powers incidental thereto, so far as
such powers and privileges are necessary or convenient to the
conduct, promotion or attainment of the business purposes or
activities of the Company.
SECTION 2.6. Business Transactions of a Member with
the Company. In accordance with section 18-107 of the Act, and
except as otherwise provided in this Agreement, a Member may (but
shall be under no obligation to) lend money to, borrow money
from, act as surety, guarantor or endorser for, guarantee or
assume one or more specific obligations of, provide collateral
for, and transact other business with, the Company and, subject
to applicable law, shall have the same rights and obligations
with respect to any such matter as a person who is not a Member.
SECTION 2.7. Fiscal Year. The fiscal year of the
Company (the "Fiscal Year") for financial statement and Federal
income tax purposes shall be the same and shall, except as
otherwise required in accordance with the Code, end on December
31 of each year.
SECTION 2.8. Term. The Company commenced on the date
the Certificate was accepted for filing by the Secretary of State
of the State of Delaware and shall have a term expiring on June
30, 2000, unless dissolution occurs at an earlier time pursuant
to the express provisions of Article VIII below.
SECTION 2.9. No State-Law Partnership. The Members
intend that the Company not be a partnership (including, without
limitation, a limited partnership) or joint venture and that no
Member be an agent, partner or joint venturer of any other Member
for any purposes other than Federal and state tax purposes, and
this Agreement shall not be construed to suggest otherwise.
SECTION 2.10. Election to be Treated as Partnership.
If, subsequent to the formation of the Company, Regulations or
other administrative rules are promulgated that would allow the
Company to make an election to be treated as either a partnership
or an association taxable as a corporation for Federal income tax
purposes, the Company shall promptly make an election to be
treated as a partnership for Federal income tax purposes. In
addition, if a retroactive election to be treated as a
partnership for Federal income tax purposes is permitted by such
Regulations or other administrative rules, then the Company shall
make such retroactive election effective as of the date of
formation of the Company. By executing this Agreement, each of
the Members hereby consents to any election (including both
retroactive and prospective elections) made by the Company for it
to be treated as a partnership for Federal income tax purposes.
ARTICLE III
MEMBERS
SECTION 3.1. Admission of Members. Without the need
for any action of any Person, the Members shall continue as
members of the Company.
SECTION 3.2. Classes and Voting. (a) The Interests as
of the date hereof are held as set forth in Schedule A attached
hereto.
(b) Members shall not be liable for the debts,
obligations or liabilities of the Company, including any such
debts, obligations or liabilities arising under a judgment decree
or order of a court.
(c) Except as otherwise contemplated by Section 8.2
hereof, CEP and ASE (together the "Voting Members") shall each be
entitled to one vote upon all matters upon which Members have the
right to vote, regardless of the respective Interests, held by
the Members. None of Simon, Chef, Covino or the Bermans shall be
entitled to any vote. Whenever Percentage Interests may be voted
by any Members including, without limitation, pursuant to Section
12.1 hereof, solely for the purposes of determining the
Percentage Interests voting in the event of the death of Simon,
ASE shall be deemed to have the right in all respects to vote all
of the Percentage Interests which the Permitted Transferees of
Simon then own (and accordingly, solely for the purposes of
determining such voting, such Permitted Transferees shall be the
equivalent of Members).
SECTION 3.3. Certificates. Interests in the Company
may be evidenced by a certificate of limited liability company
interest issued by the Company. Such Certificates shall bear the
following legend:
"THE SECURITIES EVIDENCED BY THIS CERTIFICATE MAY NOT BE
TRANSFERRED OR ASSIGNED TO ANY PERSON EXCEPT IN ACCORDANCE WITH
ARTICLE VII OF THE THIRD AMENDED AND RESTATED LIMITED LIABILITY
COMPANY AGREEMENT OF NEW RIO, L.L.C. DATED AS OF May 9, 1996."
SECTION 3.4. Capital Contribution.
(a) Members shall not be required to make any Capital
Contributions to the Company except as expressly provided in this
Section 3.4, cure any deficit Capital Account or return all or
any portion of any Capital Contributions except as otherwise
provided pursuant to applicable law. Upon the unanimous approval
of the Member Managers, a Member may be required to make a Rights
Contribution pursuant to Section 4.2(a) hereof to the extent that
such Member desires to exercise rights under such Section 4.2(a).
(b) If at any time or times the Member Managers
unanimously determine that additional Capital Contributions (by
way of the contribution of cash, property or services to the
Company) are necessary to further the Company's business
purposes, it may request such additional Capital Contributions
from current Members and/or other Persons and in exchange for
such Capital Contributions may admit new Members and/or issue to
contributing Members and/or other Persons such interests in the
Company (including the Interests or interests that are preferred
as to any return of capital or interests that carry a preferred
rate of return on their capital) as the Member Managers
unanimously deem appropriate; and upon such admission or
issuance, this Agreement and all Percentage Interests shall be
amended accordingly (with the Percentage Interests of all Members
not making additional Capital Contributions being diluted
proportionately) and such amendment shall be effective without
any further vote of the Members. Such interests may have any
rights, powers, preferences and duties as determined unanimously
by the Member Managers and allowed under the Act, including
rights, powers, preferences and duties senior to existing
Interests.
(c) No holder of Interests shall be entitled as a
matter of right to subscribe for or purchase, or have any
preemptive right with respect to, any part of any new or
additional issue of any interests of any series whatsoever, or of
interests convertible into any interests of any series
whatsoever, whether now or hereafter authorized and whether
issued for cash or other consideration or by way of dividend, or
any part of any new or additional issue of Interests.
(d) No Member shall receive any interest on its
Capital Contributions to the Company or its Capital Account.
(e) Except as otherwise provided in this Agreement, no
Member shall have the right to withdraw any Capital Contributions
or to demand and receive property of the Company. Except as may
be specifically provided in this Agreement, no Member shall have
the right to any distribution in return for its Capital
Contribution. No Member shall receive out of Company property
any part of its Capital Contribution except as otherwise provided
in this Agreement until all liabilities of the Company, except
liabilities to Members on account of their Capital Contributions,
have been paid or there remains property of the Company
sufficient to pay them.
(f) If at any time or times a Member who is not a
Member Manager makes a capital contribution to the Company, the
Member Managers, in the aggregate, shall make capital
contributions to the Company equal to the lesser of (i) 1.01% of
the capital contributions of the other Members of the Company or
(ii) that amount (including zero) that causes the sum of the
capital accounts of the Member Managers to equal the lesser of
(A) 1% of the total positive capital account balances of all
Members or (B) $500,000.
(g) The Members shall make annual Capital
Contributions in the aggregate amount of up to $50,000 each year
upon written request by the Company to cover the Company's
administrative and operating expenses. Each Member shall
contribute a pro rata portion of such amount based upon such
Member's Percentage Interest as of the date of the notice from
the Company. Notwithstanding anything to the contrary in this
Agreement, no portion of the Capital Contribution provided
pursuant to this Section 3.4(g) shall be used to pay or provide
for any indemnification provided under this Agreement.
(h) If the Capital Account of any Member other than a
Member Manager is reduced to zero and such Member does not have
any Allocated Shares attributed to it, then such Member may
request in writing to withdraw as a member of the Company (or may
be requested in writing by the Member Managers to so resign)
unless any Member Manager reasonably believes that such
resignation may have an adverse effect on any of the continuing
Members or on the Company, provided that a Member Manager shall
not request or be requested to withdraw pursuant to this Section
3.4(h).
SECTION 3.5. Capital Accounts. A separate "Capital
Account" (herein so called) shall be maintained for each Member
for the full term of this Agreement in accordance with the
capital accounting rules of section 1.704-1(b)(2)(iv) of the
Regulations. Each Member shall have only one Capital Account,
regardless of the number of Interests in the Company owned by
such Member and regardless of the time or manner in which such
Interests were acquired by such Member. Pursuant to the rules of
section 1.704-1(b)(2)(iv) of the Regulations, the balance in each
Member's Capital Account shall be:
(a) increased by the amount of money contributed by
such Member (or such Member's predecessor in interest) to the
capital of the Company and decreased by the amount of money
distributed to such Member (or such Member's predecessor in
interest);
(b) increased by the fair market value of each item of
property (determined without regard to section 7701(g) of the
Code) contributed by such Member (or such Member's predecessor in
interest) to the capital of the Company (net of all liabilities
secured by such property that the Company is considered to assume
or take subject to, under section 752 of the Code) and decreased
by the fair market value of each item of property (determined
without regard to section 7701(g) of the Code) distributed to
such Member (or such Member's predecessor in interest) by the
Company pursuant to Article V hereof (net of all liabilities
secured by such property that such Member is considered to assume
or take subject to, under section 752 of the Code);
(c) increased by the amount of each item of Company
profit or income allocated to such Member (or such Member's
predecessor in interest) pursuant to Article V hereof and by
allocations to such Members of income described in section
705(a)(1)(B) of the Code;
(d) decreased by the amount of each item of Company
loss or expense allocated to such Member (or such Member's
predecessor in interest) pursuant to Article V hereof and by
allocations to such Member of expenditures described in section
705(a)(2)(B) of the Code; and
(e) otherwise adjusted in accordance with the
requirements of section 704(b) of the Code and the Regulations
promulgated thereunder.
SECTION 3.6. Liability of Members. Except as
otherwise expressly required by law, all debts, obligations and
liabilities of the Company, whether arising in contract, tort or
otherwise, shall be solely the debts, obligations and liabilities
of the Company, and no Member shall be obligated personally for
any such debt, obligation or liability of the Company solely by
reason of being a Member.
SECTION 3.7. Access to and Confidentiality of
Information; Records. (a) Each Member shall have the right to
obtain from the Company from time to time upon reasonable demand
for any purpose reasonably related to the Member's interest as a
Member of the Company the documents and other information
described in section 18- 305(a) of the Act.
(b) Any demand by a Member pursuant to this Section
3.7 shall be in writing and shall state the purpose of such
demand.
SECTION 3.8. Meetings of Members. (a) Meetings of the
Members may be called at any time in writing by the request of
any Member Manager or in writing by the request of Members owning
at least 40% of the Interests issued and outstanding and entitled
to vote. Such request shall state the purpose or purposes of the
proposed meeting. The provisions of this Section 3.8 shall apply
to meetings of Members.
(b) Except as otherwise provided by law, both Voting
Members shall constitute a quorum at all meetings of the Members.
(c) Unless otherwise required by law or by this
Agreement, all questions shall be decided by both Voting Members
acting unanimously. To the extent that, for any reason, the
Members other than Voting Members have the right to vote on any
matters, any actions to be taken by the Company must be approved
by seventy-five percent (75%) of the Percentage Interests of the
Members.
(d) Any action required to or which may be taken at a
meeting of Members may be taken without a meeting, without prior
notice and without a vote, if a consent or consents in writing,
setting forth the action so taken, is signed by all the Voting
Members.
SECTION 3.9. Representations and Warranties. Each
Member hereby represents and warrants to the Company and each
other Member that (a) in the case of Members that are not natural
persons, it is duly organized, validly existing and in good
standing under the law of the jurisdiction of its organization,
that the Member has full power and authority to execute and
deliver this Agreement and to perform its obligations hereunder,
and all necessary actions for the due authorization, execution,
delivery and performance of this Agreement by that Member have
been duly taken; (b) the Member has duly executed and delivered
this Agreement; (c) the Member's authorization, execution,
delivery and performance of this Agreement do not conflict with
any other agreement or arrangement to which that Member is a
party or by which it is bound; (d) the Member understands that no
Federal or state agency has made any finding or determination
with respect to the fairness of the Interests for public or
private investment, nor any recommendation or endorsement of the
Interests for investment; (e) the Interests, as an investment,
involve a high degree of risk; (f) there is no market for the
Interests and it may not be possible readily to liquidate such
investment in the Interests at any time; (g) the Interests have
been or are being purchased or transferred for the Member's own
account entirely, for investment and not with a view to or for
resale in connection with any distribution thereof; (h) the
Interests may not be sold without registration under the 1933 Act
or an exemption therefrom and are subject to the restrictions on
transfer contained in this Agreement; (i) the Member is able to
bear the economic risk of its investment in the Company and is
able to hold the Interests for an indefinite period of time; and
(j) the Member understands the merits and risks of its investment
in the Company and the Interests.
ARTICLE IV
GOVERNANCE
SECTION 4.1. Member Managers. The business and
affairs of the Company shall be managed by ASE and CEP (the
"Member Managers"), which acting together shall exercise all the
powers of the Company; provided that (x) if at any time the
Allocated Shares of ASE, Simon and their Permitted Transferees or
the Allocated Shares of CEP and its Permitted Transferees, as the
case may be, aggregate less than 25% of the number of Allocated
Shares held by the Company at that time and (ii) the Fair Market
Value of the Allocated Shares of ASE, Simon and their Permitted
Transferees or the Allocated Shares of CEP and its Permitted
Transferees, as the case may be, is less than $40,000,000 for a
period of 60 consecutive trading days, then ASE or CEP, as the
case may be, but not both of them, shall cease to be a Member
Manager for all purposes under this Agreement; provided, further,
that, upon written notice to the Company and CEP, ASE may
designate Simon as a Member Manager in its place and stead.
Except as otherwise expressly provided in this Agreement, none of
the Member Managers shall take any actions with respect to the
property of the Company without the unanimous consent or
agreement of all Member Managers. No Member Manager may be
removed in his capacity as a Member Manager, except as expressly
provided above in the first or second proviso of this Section
4.1. Only the Member Managers can bind the Company except to the
extent expressly provided for in this Agreement. Each Member
Manager agrees not to resign, withdraw or otherwise retire as a
Member Manager (or Member) (except to the extent the required
consent under Section 8.2 hereof is obtained), dissolve or become
the subject of a Bankruptcy.
SECTION 4.2. Certain Actions. (a) Except as
provided by this Section 4.2(a), the Company shall not pay any
kind of consideration to acquire additional Shares. If the
Company, in its capacity as the legal owner of the Shares,
obtains any right to acquire upon payment any additional Shares,
upon the unanimous approval of all the Member Managers and
subject to their first obtaining advice from tax counsel as to
the tax effect of such Distribution, it shall attempt to
distribute such right to the Members in respect of their
Allocated Shares. If the Company is not able for any reason to
distribute such rights, it shall use its reasonable best efforts
to give prompt notice of such right to all the Members and to
take the actions, if any, directed by each Member in respect of
the Allocated Shares of such Member, provided that the Company
shall require a Member that desires to exercise such rights to
make a contribution to the Company in the amount of any payment
required to be made by the Company (the "Rights Contribution"),
and any such contribution shall be made in advance of such
payment by the Company. Notwithstanding the foregoing to the
contrary, the Company shall not take the action referred to in
the prior sentence if any Member Manager reasonably believes that
any such action would be unlawful, or could have an adverse
effect upon any Member or the Company. Nothing in this Section
4.2(a) shall prevent the Company from receiving additional shares
or other property distributed by the Issuer in respect of its
common stock, in connection with a stock dividend, stock split or
otherwise.
(b) The Company shall vote the Shares and/or exercise
any consents as determined unanimously by the Member Managers;
provided that if the Member Managers are unable to agree, the
Company shall vote its Shares as determined by the Member
Managers in proportion to the number of Allocated Shares
attributed, respectively, to CEP, Chef and their Permitted
Transferees and to ASE, Simon, each of the Bermans and Covino and
their respective Permitted Transferees.
(c) Upon instruction received from any Member, the
Company shall exercise on behalf of such Member any rights of a
stockholder with respect to the Allocated Shares of such Member,
other than voting (which is dealt with in Section 4.2(b) or
transfer (which is dealt with in Articles VII and XI).
Notwithstanding anything in the foregoing to the contrary, the
Company shall not take the action permitted to be taken pursuant
to the prior sentence if any Member Manager reasonably believes
that any such action would be unlawful, or could have an adverse
effect upon any Member or the Company.
ARTICLE V
DISTRIBUTIONS; ALLOCATIONS; AND INTERESTS
SECTION 5.1. Distributions.
(a) Distributions With Respect to Allocated Shares.
Except as provided in Section 11.7 hereof with respect to Pledged
Shares (i) with respect to any Transfer of Shares by the Company
pursuant to Article XI hereof, the Company shall distribute the
proceeds it receives from such Transfer and any reimbursements it
receives in connection with such Transfer (including, without
limitation, pursuant to the Registration Rights Agreement) less
any and all unreimbursed costs, fees and expenses incurred and
paid for by the Company in connection with such Transfer (the
"Proceeds") to the Members whose Allocated Shares were included
in such Transfer, pro rata on the basis of the number of
Allocated Shares actually included in such Transfer, (ii) with
respect to the sale of Shares by the Company in connection with
the initial public offering of such Shares, the net proceeds of
such sale shall be distributed to the Members pro rata on the
basis of the Shares actually sold, as reflected on Schedule C
hereto and (iii) with respect to cash and any other property
received by the Company as a distribution in respect of the
Allocated Shares, the Company shall distribute such cash or other
property pro rata to the Members to which such Allocated Shares
were attributed as of the date upon which the Company received
such distribution, provided that distributions of property (other
than cash) shall not be made pursuant to this clause (iii) if
such distribution might cause an adverse tax effect for either
Principal Member. Except as provided in Section 4.2(a), all
distributions to be made pursuant to this Section 5.1(a) shall be
made by the Company within one Business Day of its receipt of the
proceeds.
(b) Other Property. Distributions of property other
than those described in Section 5.1(a) shall be made if, as and
when determined unanimously by the Member Managers in their sole
and absolute discretion. Each distribution of such property
shall be distributed to the Members in proportion to the ratio
that their respective Percentage Interests that were theretofore
from time to time outstanding bear to one another.
(c) Notwithstanding the foregoing, if any additional
Capital Contribution has been made pursuant to Section 3.4 hereof
or if any new Interests have been issued by the Company in
accordance therewith, appropriate amendment shall be deemed to be
made to the order of distributions set forth in Section 5.1(b)
hereof to reflect the terms of the new Interest or Capital
Contribution (including, by way of example, any applicable
priority return and/or a preferred return on such capital), and,
notwithstanding Section 12.1 hereof, such amendment shall be
automatic, without the need for Member approval.
(d) The parties hereto acknowledge and agree that
notwithstanding that the provisions of this Article V and Article
VIII hereof only make reference to Members, the distributions and
allocations provided for in this Article V and Article VIII
hereof shall also apply to Permitted Transferees.
SECTION 5.2. Allocation of Profit and Loss. The
profits and losses of the Company shall be determined for each
fiscal year in accordance with the accounting method used by the
Company for Federal income tax purposes and shall be allocated to
the Members as follows:
(a) Net losses shall be allocated to the Members as
follows:
(i) First: To each Member to the extent of any
loss attributable to the Transfer of the Allocated Shares of such
Member;
(ii) Second: To all Members with positive
Capital Accounts to the extent necessary to reduce their Capital
Account balances to zero, proportionately based on those Members'
respective Percentage Interests; and
(iii) Third: The balance of any net losses to
all Members in accordance with their Percentage Interests.
(b) Net profits shall be allocated to the Members as
follows:
(i) First: To the Members to the extent of any
net losses previously allocated to such Members that have not
been offset by allocations of profits pursuant to this Section
5.2(b)(i), proportionately based on such previous allocations of
net losses;
(ii) Second: To each Member to the extent of
any profit attributable to the Transfer of or to distributions
with respect to the Allocated Shares of such Member; and
(iii) Third: The balance of any net profits to
all Members in accordance with their Percentage Interests.
(c) Notwithstanding the foregoing, if any additional
Capital Contribution has been made pursuant to Section 3.4 hereof
or if any new Interests are issued by the Company in accordance
therewith, appropriate amendment shall be deemed to be made to
the allocation of profits and losses set forth in this Section
5.2 to reflect the terms of the new Interest or Capital
Contribution (including, by way of example, a priority return
and/or a preferred return on such capital), and, notwithstanding
Section 12.1 hereof, such amendment shall be automatic, without
the need for Member approval.
(d) Notwithstanding any other provision of this
Agreement to the contrary, if upon liquidation of the Company,
the balance in a Member's Capital Account does not equal the
amount available for distribution to such Member pursuant to
Section 5.1 hereof, profits and losses (including allocations of
gross income, if necessary) shall be allocated to the Members to
the minimum extent necessary to cause the Capital Account of each
Member to equal the amount available for distribution to such
Member pursuant to Section 5.1 hereof.
SECTION 5.3. Special Allocations to Capital Accounts.
Notwithstanding Sections 3.5 and 5.2 hereof:
(a) In the event any Member unexpectedly receives any
adjustments, allocations, or distributions described in section
1.704-1(b)(2)(ii)(d)(4), (5) or (6) of the Regulations, which
create or increase a deficit in the Capital Account of such
Member, then items of Company income and gain (consisting of a
pro rata portion of each item of Company income, including gross
income, and gain for such year and, if necessary, for subsequent
years) shall be specially credited to the Capital Account of such
Member in an amount and manner sufficient to eliminate, to the
extent required by the Regulations, the deficit in the Capital
Account so created as quickly as possible. It is the intent that
this Section 5.3(a) be interpreted to comply with the alternate
test for economic effect set forth in section
1.704-1(b)(2)(ii)(d) of the Regulations.
(b) Notwithstanding any other provision of this
Section 5.3, if there is a net decrease in the Company's minimum
gain as defined in section 1.704-2(d) of the Regulations during a
taxable year of the Company, then the Capital Account of each
Member shall be allocated items of income (including gross
income) and gain for such year (and if necessary for subsequent
years) equal to that Member's share of the net decrease in
Company minimum gain. This Section 5.3(b) is intended to comply
with the minimum gain chargeback requirement of section 1.704-2
of the Regulations and shall be interpreted consistently
therewith. If in any taxable year that the Company has a net
decrease in the Company's minimum gain, if the minimum gain
chargeback requirement would cause a distortion in the economic
arrangement among the Members and it is not expected that the
Company shall have sufficient other income to correct that
distortion, the Member Managers may in their discretion (and
shall, if requested to do so by a Member) seek to have the
Service waive the minimum gain chargeback requirement in
accordance with section 1.704-2(f)(4) of the Regulations.
(c) Beginning in the first taxable year in which there
are allocations of "nonrecourse deductions" (as described in
section 1.704-2(b) of the Regulations), such deductions shall be
allocated to the Members in accordance with, and as a part of,
the allocations of Company profit or loss for such period.
(d) In accordance with section 704(c) of the Code and
the Regulations thereunder, income, gain, loss and deduction with
respect to any property contributed to the capital of the Company
("Section 704(c) Property") shall, solely for tax purposes, be
allocated among the Members so as to take account of any
variation between the adjusted basis of such property to the
Company for Federal income tax purposes and its initial asset
value. In the event that the asset value of any Partnership
asset is adjusted pursuant to section 1.704-1(b)(2)(iv)(f) of the
Regulations, subsequent allocations of income, gain, loss and
deduction with respect to such asset shall take account of any
variation between the adjusted basis of such asset for Federal
income tax purposes and its gross asset value in the same manner
as under section 704(c) of the Code and the Regulations
thereunder. Notwithstanding anything in this Agreement to the
contrary, all partnership allocations made under section 704(c)
of the Code shall be made using the traditional method described
in section 1.704-3(b) of the Regulations. In accordance with
section 1.704-3(a)(7) and (8), the Allocated Shares attributable
to each Member shall be treated as Section 704(c) Property with
respect to such Member only.
(e) All recapture of income tax deductions resulting
from sale or disposition of Company property shall be allocated
to the Member or Members to whom the deduction that gave rise to
such recapture was allocated hereunder to the extent that such
Member is allocated any gain from the sale or other disposition
of such property.
(f) Any credit or charge to the Capital Accounts of
the Members pursuant to Section 5.3(a), (b) and/or (c) hereof
shall be taken into account in computing subsequent allocations
of profits and losses pursuant to Section 5.2 hereof, so that the
net amount of any items charged or credited to Capital Accounts
pursuant to Section 5.2 and 5.3 shall to the extent possible, be
equal to the net amount that would have been allocated to the
Capital Account of each Member pursuant to the provisions of this
Article V if the special allocations required by Sections 5.3(a),
(b) and/or (c) hereof had not occurred.
SECTION 5.4. Allocation of Income and Loss and
Distributions in Respect of Interests Transferred. (a) If any
Interest in the Company is transferred, or is increased or
decreased by reason of the admission of a new Member or
otherwise, during any fiscal year of the Company, each item of
income, gain, loss, deduction or credit of the Company for such
fiscal year shall be assigned to each day in the particular
period of such fiscal year to which such item is attributable
(i.e., the day on or during which it is accrued or otherwise
incurred) and the amount of each such item so assigned to any
such day shall be allocated to the Member based upon its
respective Interest in the Company at the close of such day. For
the purpose of accounting convenience and simplicity, the Company
may treat a transfer of, or an increase or decrease in, an
Interest in the Company that occurs at any time during a
semi-monthly period (commencing with the semi-monthly period
including the date hereof) as having been consummated on the
first day of such semi-monthly period, regardless of when during
such semi-monthly period such transfer, increase, or decrease
actually occurs (i.e., sales and dispositions made during the
first 15 days of any month may be deemed to have been made on the
first day of the month and sales and dispositions thereafter may
be deemed to have been made on the 16th day of the month).
(b) Distributions of Company assets in respect of an
Interest in the Company shall be made only to the Persons who,
according to the books and records of the Company, are the
holders of record of the Interests in respect of which such
distributions are made on the actual date of distribution.
Neither the Company nor any Member shall incur any liability for
making distributions in accordance with the provisions of the
preceding sentence, whether or not the Company or the Member has
knowledge or notice of any transfer or purported transfer of
ownership of any Interest in the Company that has not been
approved as provided in this Agreement.
ARTICLE VI
DISTRIBUTION
SECTION 6.1. Distribution in Kind. Notwithstanding
the provisions of section 18-605 of the Act, a Member may receive
distributions from the Company in any form other than cash
(except that, anything to the contrary contained in this
Agreement notwithstanding, the Company shall not make any
distributions of Shares other than in liquidation of the Company)
and may be compelled to accept a distribution of any asset in
kind from the Company such that the percentage of the asset
distributed to him exceeds a percentage of that asset which is
equal to the percentage in which the Member shares in
distributions from the Company.
ARTICLE VII
RESTRICTIONS ON TRANSFER GENERALLY
SECTION 7.1. Transfers to be Made Only as Permitted or
Required by this Agreement. The Members may not, directly or
indirectly, sell, assign, transfer, pledge or otherwise encumber
or dispose of (collectively, "transfer") any Interests, except as
specifically permitted or required by this Article VII; any other
purported transfer shall be void and of no effect.
SECTION 7.2. Permitted Transfers. Subject, with
respect to the Member Managers, to the last sentence of Section
4.1(a) hereof, (i) CEP, Chef, Simon or Covino may transfer any of
their Interests (but not the right to vote or participate in the
management of the Company, except as provided in (x) the last
sentence of Section 3.2(c) hereof and (y) in the last proviso of
the first sentence of Section 4.1 hereof) to any of their
respective Affiliates, (ii) Simon, Covino and the Bermans may
transfer any of their Interests (but not the right to vote or to
participate in the management of the Company, except as provided
in (x) the last sentence of Section 3.2(c) hereof and (y) in the
last proviso of the first sentence of Section 4.1 hereof) to
their respective spouses, their respective descendants or any
executor, estate, guardian, committee, trustee or other fiduciary
acting as such on behalf or for the benefit of any such spouse or
descendant (Member's "Family Group") and (iii) ASE may transfer
any of its Interests (but not the right to vote or to participate
in the management of the Company, except as provided in (x) the
last sentence of Section 3.2(c) hereof and (y) in the last
proviso of the first sentence of Section 4.1 hereof) to Simon or
any Person to whom Simon could transfer his Interests under this
Section 7.2, in each case subject to written agreement by the
transferee (in form and substance reasonably satisfactory to all
the Member Managers) to be bound by this Article VII, Section 4.1
and Articles X and XII hereof as if the transferee were the
transferring Member. A transferee under this Section 7.2 is
referred to as a "Permitted Transferee." At all times during his
lifetime Simon shall control ASE unless CEP consents upon written
request of Simon, which consent shall not be unreasonably
withheld.
SECTION 7.3. No Transfers. Other than as set forth in
this Agreement, no Member, without the prior written consent of
the Member Managers (which consent may be withheld in the sole
discretion of any Member Manager), shall (i) transfer all or any
part of its direct or indirect Interest in the Company or (ii)
resign as a Member. Without limiting the limitations set forth
in this Section 7.3, no transfer of any Interest in the Company
may be made unless the transferring Member delivers to the
Company an opinion of counsel stating, or other evidence
satisfactory to the Company, that (i) registration of the
transferred Interest in the Company is not required under the
1933 Act, and such transfer shall not violate applicable state
securities or blue sky registration requirements in any respect,
and (ii) such transfer shall not cause the Company to be treated
as an association taxable as a corporation rather than as a
partnership subject to the provisions of Subchapter K of the
Code. Any such opinion of counsel shall be rendered by counsel,
and shall be in form and substance, reasonably acceptable to all
the Member Managers and all costs and expenses thereof shall be
borne by the transferring Member. In no event shall any Interest
in the Company be transferred to a minor (except pursuant to a
bequest by a Member, provided that any right exercised pursuant
to this Agreement shall be exercised on behalf of such minor by
an appropriately appointed custodian under the Uniform Transfers
to Minors Act) or an incompetent or in violation of any state or
Federal law. No consent to a transfer pursuant to this Section
7.3 shall be construed as a consent to any other transfer of the
same or any other interest or Member.
ARTICLE VIII
DISSOLUTION
SECTION 8.1. Dissolution Events. (a) No Member shall
have the right to terminate this Agreement or dissolve the
Company or withdraw or otherwise retire or resign as a Member
except pursuant to the prior written consent of both (a) the
Member Managers and (b) Members representing more than 75% of the
Percentage Interests. Any purported withdrawal, retirement or
resignation without such prior written consent shall be void and
of no effect. Except as expressly provided for herein, a Member
may not withdraw capital from the Company without the prior
written unanimous consent of all the Member Managers.
(b) The Company shall be dissolved upon the first to
occur of any of the following:
(i) The expiration of the term set forth in
Section 2.8 hereof;
(ii) The Bankruptcy, dissolution, death,
insanity, retirement, resignation, or expulsion of any Member
Manager;
(iii) The sale, in one transaction or in a series
of directly related transactions, of all the assets of the
Company; or
(iv) The unanimous agreement of the Member
Managers to dissolve the Company.
Except as expressly set forth above, there are no other events
pursuant to which the Company shall be dissolved and its affairs
wound up. Furthermore, no Member, except pursuant to the
unanimous written consent of the Member Managers, shall wind up
or attempt to wind up the Company. The Company shall not be
dissolved upon the Bankruptcy, (any other bankruptcy event, if
any, described in the Act), dissolution, death, insanity,
retirement, resignation or expulsion of any Member which is not a
Member Manager. Each Member agrees not to apply for judicial
dissolution pursuant to Section 18-802 of the Delaware Limited
Liability Company Act prior to June 30, 2000.
SECTION 8.2. Votes of Members. If an act or other
event described in Section 8.1(b)(ii) hereof occurs and the
Members owning a majority of the profits interests and a majority
of the capital interests owned by all the Members (excluding the
Member Manager whose Bankruptcy, dissolution, death, insanity,
retirement, resignation or expulsion caused such dissolution)
within 90 days of the date of such act or event, elect in writing
to continue the business of the Company such event or other act
shall not constitute a dissolution of the Company.
SECTION 8.3. Termination and Winding Up of the
Company. (a) If the Company is dissolved, then an accounting of
the Company's assets, liabilities and operations through the last
day of the month in which the dissolution occurs shall be made,
and the affairs of the Company shall thereafter be promptly wound
up and terminated. All the Member Managers acting unanimously
shall appoint one or more Persons to serve as the liquidating
trustee of the Company. The liquidating trustee shall be
responsible for winding up and terminating the affairs of the
Company and shall determine all matters in connection therewith
(including, without limitation, the arrangements to be made with
creditors, to what extent and under what terms the assets of the
Company are to be sold, and the amount or necessity of cash
reserves to cover contingent liabilities) as the liquidating
trustee deems advisable and proper; provided that all decisions
of the liquidating trustee shall be made in accordance with the
fiduciary duty owed by the liquidating trustee to the Company and
each of the Members, and any disposition of the properties of the
Company shall be by auction with prior notice to all Persons who
were Members at the time of the dissolution. The liquidating
trustee shall thereafter liquidate the assets of the Company as
promptly as is consistent with obtaining the fair market value
thereof, and the proceeds therefrom, to the extent sufficient
therefor, shall be applied and distributed in the following
order:
(i) To the payment and discharge of all of the
Company's debts and liabilities to creditors (including Members
and the liquidating trustee) in the order of priority as provided
by law, except those to Members of the Company on account of
their Capital Contributions; and
(ii) The balance, if any, to the Members in
accordance with the provisions of Section 5.1(a) hereof, to the
extent that such balance represents the Proceeds from, or
property received in a distribution in respect of, Allocated
Shares, or Section 5.1(b) hereof, to the extent that such balance
arises from other sources.
(b) Notwithstanding anything to the contrary in
Section 8.3(a) hereof, the liquidating trustee shall not sell any
Allocated Shares of a Member without the express written consent
of such Member. Without such consent, any Allocated Shares of
such Member shall be distributed to such Member.
(c) After all of the assets of the Company have been
distributed, the Company shall terminate; if at any time
thereafter any funds in any cash reserve fund referred to in
Section 8.3(a) hereof are released because the need for such cash
reserve fund has ended, such funds shall be distributed to the
Members in the same manner as if such distribution had been made
pursuant to clauses (i) and (ii) of Section 8.3(a) hereof.
ARTICLE IX
REPORTS
SECTION 9.1. Form K-1. After the end of each fiscal
year, the Company shall cause to be prepared and transmitted, as
promptly as possible, and in any event within 90 days of the
close of the fiscal year, a Federal income tax form K-1 for each
Member.
SECTION 9.2. Books and Records. The books and records
of the Company shall, at the cost and expense of the Company, be
kept or caused to be kept by the Company at the principal place
of business of the Company. Such books and records shall be kept
on the basis of a calendar year, and shall reflect all Company
transactions and be appropriate and adequate for conducting the
Company's business. Such books and records shall be kept on the
accrual method of accounting for financial and Federal income tax
purposes.
SECTION 9.3. Bank Accounts. All funds of the Company
shall be deposited in its name in an account or accounts
maintained with such bank or banks selected by the Company. The
funds of the Company shall not be commingled with the funds of
any other Person. Checks shall be drawn upon the Company account
or accounts only for the purposes of the Company and shall be
signed by authorized officers of the Company.
SECTION 9.4. Other Information. The Company may
release such information concerning the operations of the Company
to such sources as is customary in the industry or required by
law or regulation or by order of any regulatory body or generally
accepted accounting practices. For the term of the Company and
for a period of four years thereafter, the Company shall cause
to be maintained and preserved all books of account and other
relevant documents.
ARTICLE X
EXCULPATION AND INDEMNIFICATION
SECTION 10.1. Exculpation. Notwithstanding any other
provisions of this Agreement, whether express or implied, or
obligation or duty at law or in equity, no Member or Member
Manager, nor any of its respective officers, directors,
stockholders, partners, employees, representatives or agents nor
any officer, employee, representative or agent of the Company or
any of its Affiliates (individually, a "Covered Person" and
collectively, the "Covered Persons") shall be liable to the
Company, any Member or any other person for any act or omission
(in relation to the Company, this Agreement, any related document
or any transaction or investment contemplated hereby or thereby)
taken or omitted in good faith by a Covered Person and in the
reasonable belief that such act or omission is in or is not
contrary to the best interests of the Company and is within the
scope of authority granted to such Covered Person by this
Agreement, provided that such act or omission does not constitute
fraud, willful misconduct, bad faith or gross negligence.
SECTION 10.2. Indemnification. (a) The Company shall
indemnify and hold harmless any Person who was or is a party or
is threatened to be made a party to any threatened, pending or
completed action, suit or proceeding, whether civil, criminal,
administrative or investigative (other than an action by or in
the right of the Company) by reason of the fact that he is or was
a Member, Member Manager, officer, employee or agent of the
Company, or is or was serving at the request of the Company as a
director, officer, employee or agent of another corporation,
partnership, joint venture, trust or other enterprise, against
expenses (including attorneys' fees), judgments, fines and other
Losses which, for the purposes of this Section 10.2, shall
include, without limitation, amounts paid in settlement actually
and reasonably incurred by him in connection with such action,
suit or proceeding if he acted in good faith and in a manner he
reasonably believed to be in, or not opposed to, the best
interests of the Company, and, with respect to any criminal
action or proceeding, had no reasonable cause to believe his
conduct was unlawful. The termination of any action, suit or
proceeding by judgment, order, settlement, conviction, or upon a
plea of nolo contendere or its equivalent, shall not, of itself,
create a presumption that the person seeking indemnification did
not act in good faith and in a manner which he reasonably
believed to be in or not opposed to the best interests of the
Company and, with respect to any criminal action or proceeding,
had reasonable cause to believe that his conduct was unlawful.
(b) The Company shall indemnify and hold harmless any
Person who was or is a party or is threatened to be made a party
to any threatened, pending or completed action or suit by or in
the right of the Company to procure a judgment in its favor by
reason of the fact that he is or was a Member, Member Manager,
officer, employee or agent of the Company, or is or was serving
at the request of the Company as a director, officer, employee or
agent of another corporation, partnership, joint venture, trust
or other enterprise against expenses (including attorneys' fees)
actually and reasonably incurred by him in connection with the
defense or settlement of such action or suit if he acted in good
faith and in a manner he reasonably believed to be in or not
opposed to the best interests of the Company and except that no
indemnification shall be made in respect of any claim, issue or
matter as to which such Person shall have been adjudged to be
liable to the Company unless and only to the extent that the
Court of Chancery of the State of Delaware or the court in which
such action or suit was brought shall determine upon application
that, despite the adjudication of liability but in view of all
the circumstances of the case, such Person is fairly and
reasonably entitled to indemnity for such expenses which the
Court of Chancery or such other court shall deem proper.
(c) To the extent that a Member, Member Manager,
employee or agent of the Company has been successful on the
merits or otherwise in defense of any action, suit or proceeding
referred to in (a) and (b) of this Section 10.2, or in defense of
any claim, issue or matter therein, he shall be indemnified
against expenses (including attorneys' fees) actually and
reasonably incurred by him in connection therewith.
(d) Any indemnification under (a) and (b) of this
Section 10.2 (unless ordered by a court) shall be made by the
Company except only in the specific case upon a determination,
upon clear and convincing evidence that indemnification of the
Member, Member Manager, officer, employee or agent is not proper
in the circumstances because he has not met the applicable
standard of conduct set forth in such paragraphs (a) and (b).
(e) Expenses (including attorneys' fees) incurred by
any Member Manager, officer or Member in defending any civil,
criminal, administrative or investigative action, suit or
proceeding may be paid by the Company in advance of the final
disposition of such action, suit or proceeding upon receipt of an
undertaking by or on behalf of such officer, Member Manager or
Member to repay such amount if it shall ultimately be determined
that he or it is not entitled to be indemnified by the Company as
authorized in this Section 10.2. Such expenses (including
attorneys' fees) incurred by other employees and agents may be so
paid upon such terms and conditions, if any, as the Member
Managers unanimously deem appropriate.
(f) The indemnification and advancement of expenses
provided by, or granted pursuant to, this Section 10.2 shall not
be deemed exclusive of any other rights to which those seeking
indemnification or advancement of expenses may be entitled under
any law, agreement, vote of Members or disinterested Members or
otherwise, both as to action in an official capacity and as to
action in another capacity while holding such office.
(g) The Company may purchase and maintain insurance on
behalf of any Person who is or was a Member, Member Manager,
officer, employee or agent of the Company, or is or was serving
at the request of the Company as a director, officer, employee or
agent of another corporation, partnership, joint venture, trust
or other enterprise against any liability asserted against him
and incurred by him in any such capacity, or arising out of his
status as such.
(h) The indemnification and advancement of expenses
provided by, or granted pursuant to, this Section 10.2 shall,
unless otherwise provided when authorized or ratified, continue
as to a Person who has ceased to be a Member, Member Manager,
officer, employee or agent and shall inure to the benefit of the
heirs, executors and administrators of such a Person.
(i) For all purposes of this Article X, Members
include, without limitation, Members acting in the capacity of a
Voting Member or a Principal Member. All references in this
Article X to individuals include, where applicable, references to
entities, including with respect to the right to indemnification
pursuant to this Article X.
ARTICLE XI
THE COMPANY'S REGISTRATION RIGHTS RELATING TO SHARES OF
DESIGNER HOLDINGS AND RELATED RULE 144 SALES
SECTION 11.1. Registration Rights Agreement.
(a) The provisions of this Article XI are intended to
govern the Company's exercise of its registration rights under
the Registration Rights Agreement and the sale or other
disposition by the Company (any such sale or disposition of
Shares, whether pursuant to a registration or otherwise, other
than a pledge as permitted by Section 11.7 hereof, a "Transfer")
of the Shares.
(b) The Company shall exercise its rights under the
Registration Rights Agreement, and shall effect Transfers of
Shares, only as provided in this Article XI. Notwithstanding any
other provision of this Agreement to the contrary, (i) the rights
and obligations of the Members and the Company pursuant to this
Article XI with respect to the Registration Rights Agreement are
subject to the provisions of the Registration Rights Agreement
and (ii) the rights and obligations of the Members and the
Company with respect to the Registration Rights Agreement and all
Transfers of Shares shall be subject to all applicable laws
including, without limitation, the 1933 Act, the 1934 Act and
applicable state securities or blue sky laws.
(c) The rights of any Member to request the
registration or the Transfer of any Shares shall be limited to
the Allocated Shares of such Member, and upon the Transfer by the
Company of all the Allocated Shares of such Member, and the
distribution to such Member of any Proceeds relating to the
Transfer of such shares, all rights of such Member under this
Article XI shall cease.
(d) Notwithstanding any provision in this Agreement to
the contrary, if the Company receives advice from the Issuer, or
if both Member Managers determine in their reasonable judgment,
at the time that the Company receives a request to effect a
registration or a Transfer, that, as applicable, (i) there shall
be an adverse effect on a then contemplated public offering of
the Issuer's securities, (ii) the registration and offering would
interfere with any material financing, acquisition, corporate
reorganization or other material corporate transaction or
development involving the Issuer that is pending or imminent,
(iii) the disclosures that would be required to be made by the
Issuer in connection with such registration or Transfer would be
materially harmful to the Issuer because of transactions then
being considered by, or other events then concerning, the Issuer,
or (iv) registration at the time would require the inclusion of
pro forma or other information, which requirement the Issuer is
reasonably unable to comply with, and the Company promptly gives
notice of that determination to each Member that has requested
such registration or Transfer, which may be a very general
notice, then the Company may defer requesting such registration
or effecting such Transfer. If the Company shall so postpone
requesting a registration statement, the Demanding Member, in the
case of any registration referred to in Section 11.3 hereof,
shall have the right to withdraw its or his Demand Request by
giving written notice to the Company within 30 days after the
receipt of the notice of the postponement and, in the event of
the withdrawal, the Demand Request that was withdrawn shall not
be deemed to have been made.
(e) Notwithstanding the fact that Sections 11.2, 11.3
and 11.4 pertain only to Members, to the extent that any Member
has transferred any Interests to a Permitted Transferee, (i) such
Permitted Transferee shall be deemed for the purpose of this
Article XI to have been apportioned a pro rata share of the
Allocated Shares attributable to such Member (based upon the
amount of the Interest transferred), (ii) all such Permitted
Transferees shall receive any notice to be provided under this
Article XI to the Member and (iii) any notice given or action to
be taken by a Member (other than an action under Section 11.4 or
11.5, which action shall not require the majority referred to in
this clause (iii)) may be given or taken by such Member and the
Permitted Transferees of such Member that have been apportioned a
majority of the Allocated Shares of the Member and the Permitted
Transferees of such Member. Whenever this Article XI shall make
a pro rata allocation based upon the number of Allocated Shares
of a Member, such allocation shall be made upon the basis of the
Allocated Shares of such Member and the Permitted Transferees of
such Member. For the purposes of this Article XI, ASE shall be
deemed to be a Permitted Transferee of Simon.
(f) When this Article XI states that the Company shall
cause the Issuer to take any action, it shall be interpreted to
mean that the Company shall take such actions as all of the
Member Managers believe is reasonably appropriate to cause the
Issuer to take such action.
(g) If the Lender gives notice to the Company that it
has the right to foreclose upon the Pledged Shares, (i) the
Lender shall be deemed for the purpose of this Article XI to have
been apportioned the Pledged Shares as Allocated Shares, (ii) the
Lender shall have the right to receive any notice that would have
been given to a Member with respect to such Allocated Shares,
(iii) any notice given by the Lender or action to be taken by a
Member (other than Simon or CEP) that a Member could take with
respect to such Allocated Shares that were pledged may be given
or taken by the Lender and (iv) such Member shall cease to have
rights and powers under this Article XI with respect to the
Pledged Shares.
SECTION 11.2. Exercise of Piggyback Registration
Rights.
(a) Right to Piggyback. Whenever the Company
receives notice that the Issuer proposes to register any of its
common stock (or securities convertible into or exchangeable or
exercisable for common stock) under the 1933 Act for its own
account or the account of any stockholder of the Issuer (other
than offerings pursuant to employee plans, or noncash offerings
in connection with a proposed acquisition, exchange offer,
recapitalization or similar transaction) and the registration
form to be used can be used for the registration of Shares (a
"Piggyback Registration"), the Company shall give prompt written
notice to each Member of the intention of the Issuer to effect
such a registration and, subject to Section 11.2(c), shall cause
the Issuer to include in such registration all the Shares with
respect to which the Company has received written request
specifying the number of Allocated Shares of a Member for
inclusion therein within 30 days after receipt of the Company's
notice by each Member.
(b) Designation of Pricing. The party initiating a
Piggyback Registration may designate a minimum offering price and
maximum underwriting or selling discounts at which shares of
common stock may be sold.
(c) Priority. If a Piggyback Registration pursuant to
this Section 11.2 involves an underwritten offering, the Company
shall not be required to cause the Issuer to register any
Allocated Shares of any Member unless such Member accepts the
terms of the underwriting agreement, to the extent applicable to
such Member, and then only in such quantity as shall not, in the
written opinion of the managing underwriter, exceed the maximum
shares of common stock (or other securities) that can be marketed
without materially and adversely affecting the offering, if any,
by the Issuer or the stockholder of the Issuer, as the case may
be. If the managing underwriter advises the Company in good
faith that in its opinion the number of securities requested to
be included in such registration exceeds the number that can be
sold in such offering without having an adverse effect on such
offering, including the price at which such securities can be
sold, then the Company shall cause the Issuer to include in such
registration the maximum number of Shares that such underwriter
advises can be so sold, allocated
(i) if such registration was initiated by the Issuer,
(x) first, to the securities the Issuer proposes to sell, (y)
second, among the Shares requested to be included in such
registration by the Members, pro rata, on the basis of the number
of Allocated Shares of each Member, and (z) third, among other
securities, if any, requested and otherwise eligible to be
included in such registration; and
(ii) if such registration was initiated by the Company
at the request of any Demanding Member, (x) first, between the
Allocated Shares requested to be included in such registration by
the Demanding Member and the Second Principal Member, pro rata,
on the basis of the number of Allocated Shares of each, (y)
second, among the Allocated Shares requested to be included in
such registration by any other Members, pro rata, on the basis of
the number of Allocated Shares of each such Member, and (z)
third, to any securities the Issuer proposes to sell.
SECTION 11.3. Exercise of Demand Registration Rights.
(a) Right to Demand.
(i) At any time when permitted by the
Registration Rights Agreement, Simon or CEP (each, a "Demanding
Member") may request the Company to exercise its Demand
Registration Right under the Registration Rights Agreement (a
"Demand Request"), provided that either (x) the Shares requested
to be registered by such Demanding Member have an aggregate Fair
Market Value of at least $20 million or (y) the Shares requested
to be registered constitute all the remaining Allocated Shares of
such Demanding Member. For the purposes of this Section 11.3,
the Allocated Shares attributable to ASE shall be deemed to be
part of the Allocated Shares of Simon, and the Allocated Shares
attributable to Chef shall be deemed to be part of the Allocated
Shares of CEP.
(ii) Within 10 days after receipt of any Demand
Request, the Company shall give written notice of the Demand
Request to the other Members (collectively, the "Non-Demanding
Members") and shall, subject to the provisions of the last
paragraph of this Section 11.3(a), use all reasonable efforts to
exercise the Demand Registration Right with respect to the
Allocated Shares specified in the Demand Request and, subject to
Section 11.3(b), to cause the Issuer to include in the
registration all the additional Shares with respect to which the
Company has received written requests for inclusion therein
within 60 days after the receipt of the Demand Request by the
Non-Demanding Members.
(iii) The Lender shall not have the right to
exercise a demand pursuant to the foregoing provisions of this
Section 11.3(a). If the Lender has the right to foreclose upon
the Pledged Shares, the Lender shall, subject to paragraphs (iv)
and (v) of this Section 11.3(a), have the right to exercise a
Demand Request pursuant to the Registration Rights Agreement,
provided that (i) the Shares requested to be registered by the
Lender have an aggregate Fair Market Value of at least $20
million or (ii) the Shares requested to be registered constitute
all the Pledged Shares.
(iv) Upon the occurrence of Simon's death and/or
the death of his spouse, if the good faith estimate of either
such estate is that estate taxes payable shall exceed $10
million, then the estate, the executor or the personal
representative, as the case may be, of Simon or his spouse, as
the case may be, shall each have the right to exercise a Demand
Request pursuant to the Registration Rights Agreement, provided
that the Shares requested to be registered by such estate,
executor or personal representative have an aggregate Fair Market
Value of at least $20 million, provided, further, that only one
demand may be exercised in respect of the estate of Simon and
only one demand may be exercised in respect of the estate of his
spouse. The Company agrees not to exercise two of the Demand
Registrations provided pursuant to Section 3 of the Registration
Rights Agreement unless requested to do so by Simon's estate or
the estate of Simon's spouse.
(v) The Company shall cause the Issuer to effect
(A) not more than two Demand Registrations by each
Demanding Member pursuant to paragraph (i) of this Section
11.3(a), provided that the Demand Registrations available to each
Demanding Member pursuant to this clause (A) shall be reduced by
one if a Demand Registration has been exercised in respect of the
Allocated Shares of such Demanding Member pursuant to clause (B),
and provided, further, that (x) upon the exercise of the first
Demand Request pursuant to paragraph (iv) of this Section
11.3(a), CEP shall obtain the right to require the Company to
cause the Issuer to effect an additional Demand Registration and
(y) upon the exercise of the second Demand Request pursuant to
paragraph (iv) of this Section 11.3(a), CEP shall obtain the
right to require the Company to cause the Issuer to effect a
second additional Demand Registration,
(B) not more than two Demand Registrations
pursuant to paragraph (iii) of this Section 11.3(a) (one for CEP
and one for Simon), provided that (x) a Demand Registration may
be exercised in respect of the Allocated Shares attributable to
Simon pursuant to this clause (B) only if Simon has not exercised
two Demand Registrations pursuant to clause (A) and (y) a Demand
Registration may be exercised in respect of the Allocated Shares
attributable to CEP pursuant to this clause (B) only if CEP has
not exercised two Demand Registrations pursuant to clause (A),
and
(C) not more than two Demand Registration pursuant
to paragraph (iv) of this Section 11.3(a),
provided that if for any reason the number of demand
registrations available to the Company under the Registration
Rights Agreement is not reduced as a result of any Demand
Request, such Demand Request shall not reduce the number of
Demand Requests that such Demanding Member may request under this
Section 11.3(a), provided, further, that upon Simon's death, if
the Company has not caused two Demand Registrations to be
effected on behalf of Simon pursuant to clause (A) of this
paragraph (v), the Permitted Transferees of Simon that have been
apportioned a majority of the Allocated Shares originally
attributable to Simon shall have the right to request the Company
to cause such remaining Demand Registration or Demand
Registrations.
(vi) Pursuant to the Registration Rights Agreement,
the Issuer shall bear the costs of the Demand Registrations
requested pursuant to this Section 11.3, provided that (x) the
Person requesting a Demand Registration in respect of the
Allocated Shares attributable to Simon shall pay the costs of
such registration for any Demand Registrations after two Demand
Registrations have been effected in respect of the Allocated
Shares attributable to Simon and (y) the Person requesting a
Demand Registration in respect of the Allocated Shares
attributable to CEP shall pay the costs of such registration for
any Demand Registrations after two Demand Registrations have been
effected in respect of the Allocated Shares attributable to CEP.
(vii) The Company confirms and agrees that a Demanding
Member (the "Joining Member") that joins in a Demand Registration
initiated by another Demanding Member shall not by reason thereof
be deemed to have used any of the Demand Registrations provided
herein for such Joining Member.
(b) Priority. If a Demand Request pursuant to this
Section 11.3 involves an underwritten offering, the Company shall
not be required to cause the Issuer to register any Allocated
Shares attributable to any Non-Demanding Member unless such
Non-Demanding Member accepts the terms of the underwriting
agreement, to the extent applicable to it, and then, only in such
quantity as shall not, in the written opinion of the managing
underwriter, exceed the maximum shares of common stock or other
securities that can be marketed without materially adversely
affecting the offering, if any, by the Demanding Member. If the
managing underwriter advises the Company in good faith that in
its opinion the number of securities requested to be included in
such registration exceeds the number which can be sold in such
offering without having an adverse effect on such offering,
including the price at which such securities can be sold, then
the Company shall cause the Issuer to include in such
registration the maximum number of Shares that such underwriter
advises can be so sold, allocated (x) first, to the Allocated
Shares requested to be included in such registration by such
Demanding Member, provided that, if a Non-Demanding Member that
requests inclusion in a Demand Registration is a Principal Member
(the "Second Principal Member"), then first, between the
Allocated Shares requested to be included in such registration by
the Demanding Member and the Second Principal Member, pro rata,
on the basis of the number of Allocated Shares of each, (y)
second, among the Allocated Shares requested to be included in
such registration by any other Member, pro rata, on the basis of
the number of Allocated Shares of each such Member, and (z)
third, to any securities that the Issuer proposes to sell.
(d) Selection of Underwriters. In connection with any
Demand Registration, the Demanding Member, the estate or the
Lender, as the case may be, shall select a managing underwriter
or underwriters, which underwriter or underwriters shall be
nationally recognized and shall be reasonably acceptable to the
Member Managers.
SECTION 11.4. Initiation of a Rule 144 Sale. Any
Member may request all or any portion of the Allocated Shares of
such Member be the subject of a Transfer by the Company (a "Rule
144 Request"). A Rule 144 Request shall specify the number of
Allocated Shares that is subject to such request, provided that a
Member shall not request the inclusion of a number of Shares
during any three-month period that is greater than the maximum
number of Shares that the Company could sell pursuant to Rule 144
multiplied by a fraction, the numerator of which is the number of
Allocated Shares attributable to such Member and the denominator
of which is the total number of Allocated Shares then held by the
Company. Promptly upon receipt of a Rule 144 Request, the
Company shall give each other Member notice of the Rule 144
Request and shall use its best efforts to effect the Transfer of
the Allocated Shares in respect of which the Company receives
written requests for inclusion within 30 days after such Member
shall have received the Company's notice pursuant to this Section
11.4. Any Transfer proposed to be made pursuant to this Section
11.4 (i) shall be subject in all respects to compliance by the
Company with the provisions of Rule 144, (ii) shall be subject to
interruption and termination as a result of any registration of
securities by the Issuer, regardless of whether initiated
pursuant to the Registration Rights Agreement and (iii) shall be
subject to interruption and termination for any of the reasons
set forth in Section 11.1(d).
SECTION 11.5. Individual, Private Sale. Upon written
notice from any Member, to the extent that it may lawfully do so,
the Company shall effect a Transfer of all or any portion of the
Allocated Shares of such Member pursuant to any available
exemption from the registration requirement under the 1933 Act.
No transfer of any such Shares may be made unless such Member
delivers to the Company an opinion of counsel stating, or other
evidence satisfactory to the Company, that registration of such
Shares is not required under the 1933 Act, and such transfer
shall not violate applicable state securities or blue sky laws in
any respect. Any such opinion of counsel shall be rendered by
counsel, and shall be in form and substance, reasonably
acceptable to all the Member Managers and all costs and expenses
thereof shall be borne by such Member. Notwithstanding the
foregoing to the contrary, the Company shall not take the action
referred to in the first sentence of this Section 11.5 if any
Member Manager reasonably believes that any such action would be
unlawful, or could have an adverse effect upon any Member or the
Company.
SECTION 11.6. Reduction of Allocated Shares. Upon the
consummation by the Company of any Transfer of Shares, (i) the
number of Allocated Shares of each Member that caused Shares to
be included in such Transfer shall be reduced by the number of
such Member's Allocated Shares that were actually included in
such Transfer, provided that such reduction shall be made only on
the basis of whole Shares and the Company shall allocate any
fractional Shares among such Members by lot or pursuant to any
other method that the Company deems, in its sole judgment, to be
just and equitable and (ii) the Percentage Interests of the
Members shall be adjusted to reflect the number of remaining
Allocated Shares that are attributable to each such Member (and
to each Member's Permitted Transferees).
SECTION 11.7. Permitted Pledges.
(a) Each Member (each, the "Borrower") shall have the
right to require the Company to make a limited recourse guaranty
of a loan made to the Borrower by one or more lenders
(collectively, the "Lender") and to pledge, as security for such
guaranty, all or any portion of the Allocated Shares attributable
to the Borrower (the "Pledged Shares"), provided that, aside from
recourse to the Borrower and the pledge of the Pledged Shares
permitted by this Section 11.7, such loan and guaranty shall be
without recourse to the Company, any of its property or any of
the Members. Upon notice to the Company that the Borrower has
agreed to provide the guaranty and the pledge the Pledged Shares,
(i) the Company shall cause a certificate representing such
Shares to be issued in its name and shall deliver such
certificate to the Lender together with a power of attorney to
permit the Lender (A) to sell the Shares represented by such
certificate in the name of the Company and, (B) with respect to a
loan to a Borrower that is a Principal Member, to exercise a
Demand Registration right pursuant to the Registration Rights
Agreement and (ii) the Company shall refrain from any action to
effect a Transfer of any portion of the Pledged Shares without
the written consent from the Lender. The documentation relating
to such guaranty and pledge shall be in form and substance
reasonably satisfactory to the Member Managers.
(b) Upon the foreclosure by the Lender upon the
Pledged Shares, the Lender shall have the right to succeed to
applicable rights to direct the Company to effect a Transfer of
the Pledged Shares, and the Company shall distribute the Proceeds
from any such Transfer to the Lender.
SECTION 11.8 Liquidation of the Company. Upon the
liquidation of the Company, (a) the Demand Registration Rights
provided for in Section 11.3(a) shall be distributed,
respectively, to Simon (and his Permitted Transferees, as the
case may be) and to CEP (and its Permitted Transferees, as the
case may be) to the extent that such Demand Registration Rights
have not been exercised and the special Demand Registration
Rights provided in Section 11.3(a)(iv) shall be distributed to
Simon and (b) the piggyback registration rights provided for in
Section 11.2 hereof shall be assigned to each Member and each
Permitted Transferees thereof.
ARTICLE XII
MISCELLANEOUS
SECTION 12.1. Amendments. Except as otherwise
provided in this Agreement and this Section 12, this Agreement
may be amended only with the prior written consent of (a) all the
Member Managers and (b) Members that hold at least 75% of the
Percentage Interests. Without consent or approval of the
Members, Member Managers acting unanimously may amend this
Agreement to reflect changes validly made in the membership of
the Company and in the contributions of the Members to the
Company, in priority returns of capital or priority returns on
capital of any new Interests issued by the Company or any
additional Capital Contributions made to the Company and to cure
any ambiguity or to correct or supplement any provision herein
that may be inconsistent with any other provision herein, if the
correction shall not adversely affect the rights or interests of
the Company or any Member. The Member Managers acting
unanimously also may independently amend this Agreement in order
to add to their duties or surrender any of their rights or powers
for the benefit of the Members or otherwise in order to comply
with the requirements of applicable laws or regulations of any
Federal or state courts, governmental offices or agencies. All
amendments made in accordance with this Section 12.1 shall be
evidenced by a writing executed by the appropriate Persons and a
copy of such written amendments shall be kept at the office of
the Company and provided to the Members promptly after the
adoption thereof. Notwithstanding anything else to the contrary
contained herein, this Agreement shall be amended from time to
time, in each and every manner to comply with the then existing
requirements imposed by the Code or the Service affecting the
status of the Company as a partnership for Federal income tax
purposes. Subject to this Section 12.1, an amendment to this
Agreement that affects (a) the proportionate ownership of
Interests of any Member, (b) such Member's right to participate
in allocations and distributions under this Agreement or (c) the
limited liability of any such Member, shall not be effective or
binding upon such Member without the prior written consent of
such Member. Nothing contained in this Section 12.1 shall in any
way limit the Company's ability to admit new Members and amend
this Agreement as provided in Sections 3.4 and 5.1 hereof. All
consents and waivers must be in writing. The provisions of each
of Articles V, X and XI shall not be amended without the prior
consent of each of Simon, ASE and CEP, to the extent that each of
them is still a Member.
SECTION 12.2. Successors; Counterparts. This
Agreement (a) shall be binding as to the executors,
administrators, estates, heirs and legal successors, or nominees
or representatives, of the Members and (b) may be executed in
several counterparts with the same effect as if the parties
executing the several counterparts had all executed one
counterpart.
SECTION 12.3. Governing Law; Severability. This
Agreement shall be governed by and construed in accordance with
the laws of the State of Delaware without giving effect to the
principles of conflict of laws thereof. In particular, this
Agreement shall be construed to the maximum extent possible to
comply with all the terms and conditions of the Act. If,
nevertheless, it shall be determined by a court of competent
jurisdiction that any provisions or wording of this Agreement
shall be invalid or unenforceable under the Act or other
applicable law, such invalidity or unenforceability shall not
invalidate the entire Agreement. In that case, this Agreement
shall be construed so as to limit any term or provision so as to
make it enforceable or valid within the requirements of
applicable law, and, in the event such term or provisions cannot
be so limited, this Agreement shall be construed to omit such
invalid or unenforceable terms or provisions. If it shall be
determined by a court of competent jurisdiction that any
provision relating to the distributions and allocations of the
Company or to any expenses payable by the Company is invalid or
unenforceable, this Agreement shall be construed or interpreted
so as (a) to make it enforceable or valid and (b) to make the
distributions and allocations as closely equivalent to those set
forth in this Agreement as is permissible under applicable law.
SECTION 12.4. Filings; Tax Matters Partner. (a)
Following the execution and delivery of this Agreement, the
Members shall promptly prepare any documents required to be filed
and recorded under the Act, and the Members shall promptly cause
each such document to be filed and recorded in accordance with
the Act and, to the extent required by local law, to be filed and
recorded or notice thereof to be published in the appropriate
place in each jurisdiction in which the Company may hereafter
establish a place of business. The Members shall also promptly
cause to be filed, recorded and published such statements of
fictitious business name and any other notices, certificates,
statements or other instruments required by any provision of any
applicable law of the United States or any state or other
jurisdiction which governs the conduct of its business from time
to time.
(b) The Company shall file as a partnership for Federal
income tax purposes. CEP shall act as the tax matters partner
(the "TMP") within the meaning of section 6231(a)(7) of the Code.
The TMP shall make all applicable elections, determinations and
other tax decisions for the Company relating to Federal, state or
local tax matters, including, without limitation, the positions
to be taken on the Company's tax returns and the settlement or
further contest and litigation of any audit matters raised by the
Service or any other taxing authority. The Member Managers shall
cause all tax returns of the Company to be timely filed. The TMP
is authorized to represent the Company (at the Company's expense)
in connection with all examinations of the Company's affairs by
tax authorities, including resulting administrative and judicial
proceedings, and to expend Company funds for professional
services and costs associated therewith. Each Member agrees to
cooperate with the TMP and to do or refrain from doing any or all
things reasonably required by the TMP to conduct such
proceedings. In addition, each Member agrees that (i) it shall
not file a statement under section 6224(c)(3)(B) of the Code
prohibiting the TMP from entering into a settlement on its behalf
with respect to Company items; (ii) it shall not form or become a
member of a group of Members having a 5% or greater interest in
the profits of the Company and requesting notices under section
6223(b)(2) of the Code; and (iii) the TMP is authorized to file a
copy of this Agreement with the Service pursuant to section
6224(b) of the Code if necessary to perfect a Member's waiver of
rights hereunder. The Company shall reimburse the TMP for all
reasonable out-of-pocket expenses incurred by it in connection
with any administrative or judicial proceeding with respect to
the tax liabilities of the Company or the Members.
Notwithstanding the foregoing provisions of this Section 12.4,
(a) the TMP shall not take any actions permitted under this
Agreement in its capacity as the TMP unless it obtains the
consent of ASE and (b) if CEP is no longer a Member Manager by
reason of the provisions of Section 4.1, then ASE shall become
the TMP.
SECTION 12.5. Headings. Section and other headings
contained in this Agreement are for reference purposes only and
are not intended to describe, interpret, define or limit the
scope or intent of this Agreement or any provision hereof.
SECTION 12.6. Additional Acts. Each Member agrees to
perform all further acts, including to execute, acknowledge and
deliver any documents, that may be reasonably necessary to carry
out the provisions of this Agreement.
SECTION 12.7. Notices. All notices and other
communications under this Agreement shall be in writing and may
be given by any of the following methods: (a) personal delivery;
(b) facsimile transmission; (c) registered or certified mail,
postage prepaid, return receipt requested; or (d) overnight
delivery service. Notices shall be sent to the appropriate party
at its or his address or facsimile number given below (or at such
other address or facsimile number for that party as shall be
specified by notice given under this Section 12.7):
if to CEP or Chef, to it at:
Charterhouse Equity Partners II, L.P.
535 Madison Avenue
New York, New York 10022
Attention: Mr. A. Lawrence Fagan
Fax: 212-750-9704
with a copy to:
Proskauer Rose Goetz & Mendelsohn LLP
1585 Broadway
New York, New York 10036
Attention: Glenn M. Feit, Esq.
Fax: 212-969-2900
if to Simon or ASE, to him or it at:
1385 Broadway
Suite 305
New York, New York 10018
Attention: Arnold H. Simon
Fax: 212-869-5278
with copies to:
Skadden, Arps, Slate, Meagher & Flom
919 Third Avenue
New York, New York 10022
Attention: Mark N. Kaplan, Esq.
Fax: 212-735-2000
and
Sills Cummis Zuckerman Radin Tischman
Epstein & Gross, P.A.
One Riverfront Plaza
Newark, New Jersey 07102
Attention: Steven E. Gross, Esq.
Fax: 201-643-6500
If to Covino, to him at:
Michael A. Covino
10 Cottage Place (Suite 3-G)
White Plains, New York 10601
Fax: 914-428-4553
with a copy to:
Jones Hirsch Connors & Bull
101 East 52nd Street
New York, New York 10022
Attention: William S. Sterns, III, Esq.
Fax: 212-527-1680
if to any Berman, to him or her at:
Martin L. Berman
390 Booth Avenue
Englewood, New Jersey 07631
Fax: 201-569-4986
with a copy to:
Skadden, Arps, Slate, Meagher & Flom
919 Third Avenue
New York, New York 10022
Attention: Mark N. Kaplan, Esq.
Fax: 212-735-2000
All such notices and communications shall be deemed received upon
(i) actual receipt by the addressee, (ii) actual delivery to the
appropriate address or (iii) in the case of a facsimile
transmission, upon transmission by the sender and issuance by the
transmitting machine of a confirmation slip confirming the number
of pages constituting the notice have been transmitted without
error. In the case of notices sent by facsimile transmission,
the sender shall contemporaneously mail a copy of the notice to
the addressee at the address provided for above. Such mailing
shall in no way alter the time at which the facsimile notice is
deemed received.
SECTION 12.8. Complete Agreement. This Agreement
constitutes the complete agreement among the Members with regard
to the subject matter hereof and supersedes all prior written and
oral statements, discussions, and agreements relating to the
subject matter hereof.
SECTION 12.9. Effect of Non-Public Information.
Anything to the contrary notwithstanding contained in this
Agreement and without limiting the generality of Section 12.12
hereof, neither the Company nor any Member (including, without
limitation any Member Manager) shall have any obligation to
disclose to any Member requesting a sale pursuant to Sections
11.4 or 11.5 hereof and/or any Member causing the exercise of
registration rights hereunder any information of any kind or
nature whatsoever in its or his possession or to which it or he
otherwise has access which does or may cause it or him to believe
that the selling price of the Shares would or may in the future
be higher (including, without limitation whether or not this
information is non-public information and whether or not known to
any such Member (including without limitation any Member Manager)
or the Company by reason of any individual being an officer
and/or director of any Member and/or officer and/or director of
the Issuer).
SECTION 12.10. No Set-Offs. The Company's obligation
to make the distributions of the Proceeds provided for in this
Agreement in connection with the sale of Shares (including,
without limitation in connection with each of (i) the initial
public offering of Designer Holdings, Ltd., (ii) sales effected
at such Member's request pursuant to Rule 144, and (iii) sales
effected at a Member's request pursuant to a demand registration
right or piggy back registration right, shall not be subject to
any set-off, counterclaim, withholding or other offset of any
kind or nature whatsoever (collectively, "Setoff or Withholding")
by the Company or any other Member (it being agreed that to the
extent that the Company or any other Member has any cause of
action or other claim against any such Member entitled to such
proceeds, it or he shall bring any such cause of action or claim
independently). Accordingly, neither the Company nor any Member
shall directly or indirectly attempt, through legal process or
otherwise, to cause any Setoff or Withholding of any Required
Distributions payable to any other Member. For the purposes of
this Section 12.10, any distribution referred to in the next
preceding sentence is herein referred to as a "Required
Distribution". Without limiting the generality of Section 12.11
hereof, the Members agree that the provisions of the first
sentence of this Section 12.10 shall be specifically enforceable
in full and that neither the Company nor any other Member shall,
among other things, assert that monetary damages in connection
with any such cause of action or other claims would constitute a
sufficient remedy. In the event that the Company and/or any
Member breaches the provisions of this Section 12.10 and causes
(notwithstanding any provisions of this Section 12.10) or
attempts to cause any Setoff or Withholding of any Required
Distributions then in addition to such Member's right to
ultimately receive the Required Distribution, and the
indemnification rights set forth in Section 12.15 hereof
(including, without limitation, any attorneys' fees incurred in
enforcing all of its or his rights under this Agreement), the
party breaching this Section 12.10 (whether the Company or any
one or more Members) shall pay to the Member entitled to such
Required Distribution the sum of (a) interest from the date such
Member is entitled to the Required Distribution to the time such
Requesting Member receives such Required Distribution at the
prime rate announced from time to time by Citibank, N.A. or its
successor plus 4% and (b) as liquidated damages, and not as a
penalty, as a reasonable estimate for the potential loss that
such Member entitled to receive the Required Distribution may
suffer, twenty percent (20%) of all Required Distributions which
the Company and/or any other Member attempts to prevent the
Member entitled to receive the Required Distribution from
receiving.
SECTION 12.11. Specific Performance; Remedies.
Without limiting the rights of each party hereto to pursue any
and all legal and equitable rights available to such party for
any other parties' failure to perform its or his obligations
under this Agreement, the parties hereto acknowledge and agree
that a remedy at law for any breach of or other failure to
perform such obligations hereunder may be inadequate and that the
Company and each Member shall be entitled to specific
performance, injunctive relief or other equitable remedies in the
event of any such breach or other failure. Without limiting the
generality of the preceding sentence, such sentence shall apply
specifically to all of Article XI hereof. All rights and
remedies of the parties hereto under any provision of this
Agreement shall be in addition to any other rights and remedies
provided for by any law or equity, all rights and remedies
contemplated in the preceding clause shall be independent and
cumulative, and may, to the extent permitted by law, be exercised
concurrently or separately, and the exercise of any one right or
remedy shall not be deemed to be an election of such right or
remedy or to preclude or waive the exercise of any other right or
remedy.
SECTION 12.12. Other Activities of the Members. The
Members acknowledge that Simon is the President, sole director
and sole shareholder of Apparel Ventures, Inc., a New Jersey
corporation, the managing member of ASE one of the two Member
Managers of the Company and that Simon is the CEO of Designer
Holdings, Ltd. The Members and/or their Affiliates may engage in
any business or activity they choose, whether or not competitive
with any business or activity of the Company, the Issuer or any
of their respective subsidiaries (including that none of the
Company, any of its subsidiaries or any Member shall have any
right, title or interest in or to any such business or activity)
provided that nothing contained herein shall release Simon from
any obligations he may have to Designer Holdings, Ltd. under his
employment agreement. Without limiting the generality of the
preceding sentence, all conflicts of interest of any kind or
nature of each Member Manager and each other Member are hereby
waived including that ASE may direct the Company to vote Shares
on matters as to which Simon is personally interested.
Involvement in any activity described in this Section 12.12 shall
not in any manner preclude the application of the provisions of
Section 10.1 hereof or indemnification under Section 10.2 hereof.
SECTION 12.13. Termination of Investment Agreement.
The Investment Agreement is hereby terminated in all respects
except that, as between Simon and CEP, the provisions of section
10 of the Investment Agreement shall survive to the extent set
forth in such section 10, provided that (a) each of CEP and Simon
agrees that it or he shall not make any claim against the other
pursuant to such section 10 on the basis of facts that it or he
is now actually aware of and (b) it is confirmed and agreed that
claims can only be brought under section 10 against Simon based
upon the representations and warranties contained in sections
9.2.1, 9.2.2, 9.2.3, 9.2.5, 9.2.8, 9.2.21 and 9.2.23 of the
Investment Agreement and that the right to bring claims under
such seven sections shall nevertheless expire on August 4, 1997
except to the extent a claim therefor under such seven sections
is asserted by CEP in a notice delivered to Simon prior to August
4, 1997. It is understood that all representations and
warranties referred to in the preceding sentence were made as of
August 4, 1994.
SECTION 12.14. No Other Restrictions and Dispositions
of Shares. Without the prior unanimous written consent of the
Member Managers, the Company agrees not to enter into any
agreement to not sell or otherwise transfer any of the Shares
except for the lockups provided for in the Registration Rights
Agreement.
SECTION 12.15. Indemnification. The Company and each
Member shall indemnify, defend and hold harmless the Company and
each other Member from and against any and all Losses arising
from or otherwise relating to any breach of this Agreement by the
Company or by such Member.
IN WITNESS WHEREOF, the undersigned have duly executed
this Third Amended and Restated Limited Liability Company
Agreement as of the date first above written.
_________________________
Arnold H. Simon
CHARTERHOUSE EQUITY PARTNERS II, L.P.
By: CHUSA EQUITY INVESTORS II, L.P.,
General Partner
By: CHARTERHOUSE EQUITY II, INC.,
General Partner
_________________________
Attorney-in-Fact
CHEF NOMINEES LIMITED
______________________________
Name:
Title:
A.S. ENTERPRISES, L.L.C.
By: APPAREL VENTURES, INC.,
its General Manager
By:_________________________
Name:
Title:
______________________________
Martin L. Berman
______________________________
Phyllis West Berman
______________________________
Steven E. Berman
______________________________
Mark N. Kaplan as Trustee f/b/o
Alison A. Berman and Mark K. Berman
______________________________
Michael A. Covino
SCHEDULE A
OWNERSHIP OF INTERESTS
Percentage
Name of Member Interest
Charterhouse Equity Partners II, L.P 49.900%
Chef Nominees Limited 0.100%
Arnold H. Simon 44.85%
A.S. Enterprises, L.L.C. 1.25%
Martin L. Berman 0.875%
Phyllis West Berman 0.318%
Steven E. Berman 0.330%
Mark N. Kaplan as Trustee f/b/o
Mark K. Berman and Alison A. Berman 0.977%
Michael A. Covino 1.400%
SCHEDULE B
ALLOCATED SHARES
Number of
Name of Member Shares
Charterhouse Equity Partners II, L.P. 12,092,700
Chef Nominees Limited 24,234
Arnold H. Simon 10,868,889
AS Enterprises, LLC 302,924
Martin L. Berman 212,046
Phyllis West Berman 77,064
Steven E. Berman 79,972
Mark N. Kaplan as Trustee f/b/o
Mark K. Berman and Alison A. Berman 236,765
Michael A. Covino 339,274
SCHEDULE C
SHARES TO BE SOLD IN THE INITIAL PUBLIC OFFERING:
Number of
Name of Member Shares
Charterhouse Equity Partners II, L.P. 3,421,000
Chef Nominees Limited 7,000
Arnold H. Simon 2,305,000
Martin L. Berman 59,750
Phyllis West Berman 21,900
Steven E. Berman 22,500
Mark N. Kaplan as Trustee f/b/o
Mark K. Berman and Alison A. Berman 66,850
Michael A. Covino 96,000
SHARES TO BE SOLD PURSUANT TO THE OVER-ALLOTMENT OPTIONS:
Number of
Name of Member Shares
Charterhouse Equity Partners II, L.P. 637,900
Chef Nominees Limited 1,300
Arnold H. Simon 461,000
Martin L. Berman 11,150
Phyllis West Berman 4,080
Steven E. Berman 4,200
Mark N. Kaplan as Trustee f/b/o
Mark K. Berman and Alison A. Berman 12,470
Michael A. Covino 17,900
TABLE OF CONTENTS
Page
ARTICLE I DEFINITIONS
SECTION 1.1. Definitions . . . . . . . . . . . . . . 2
ARTICLE II GENERAL PROVISIONS
SECTION 2.1. Effectiveness of the Agreement. . . . . . 8
SECTION 2.2. Continuation. . . . . . . . . . . . . . . 8
SECTION 2.3. Company Name. . . . . . . . . . . . . . 9
SECTION 2.4. Registered Office; Registered Agent . . 9
SECTION 2.5. Nature of Business Permitted; Powers. . 9
SECTION 2.6. Business Transactions of a Member
with the Company. . . . . . . . . . . . 9
SECTION 2.7. Fiscal Year . . . . . . . . . . . . . . 10
SECTION 2.8. Term. . . . . . . . . . . . . . . . . . 10
SECTION 2.9. No State-Law Partnership. . . . . . . . 10
SECTION 2.10. Election to be Treated as Partnership . 10
ARTICLE III MEMBERS
SECTION 3.1. Admission of Members. . . . . . . . . . 11
SECTION 3.2. Classes and Voting. . . . . . . . . . . 11
SECTION 3.3. Certificates. . . . . . . . . . . . . . 11
SECTION 3.4. Capital Contribution. . . . . . . . . . 12
SECTION 3.5. Capital Accounts. . . . . . . . . . . . 14
SECTION 3.6. Liability of Members. . . . . . . . . . .15
SECTION 3.7. Access to and Confidentiality of
Information; Records. . . . . . . . . . 15
SECTION 3.8. Meetings of Members . . . . . . . . . . 15
SECTION 3.9. Representations and Warranties. . . . . 16
ARTICLE IV GOVERNANCE
SECTION 4.1. Member Managers . . . . . . . . . . . . 17
SECTION 4.2. Certain Actions . . . . . . . . . . . . 17
ARTICLE V DISTRIBUTIONS; ALLOCATIONS; AND INTERESTS
SECTION 5.1. Distributions. . . . . . . . . . . . . . 19
SECTION 5.2. Allocation of Profit and Loss. . . . . . 20
SECTION 5.3. Special Allocations to Capital
Accounts . . . . . . . . . . . . . . . .21
SECTION 5.4. Allocation of Income and Loss and
Distributions in Respect of
Interests Transferred . . . . . . . . . .23
ARTICLE VI DISTRIBUTION
SECTION 6.1. Distribution in Kind. . . . . . . . . . 24
ARTICLE VII RESTRICTIONS ON TRANSFER GENERALLY
SECTION 7.1. Transfers to be Made Only as Permitted
or Required by this Agreement . . . . . 25
SECTION 7.2. Permitted Transfers . . . . . . . . . . 25
SECTION 7.3. No Transfers. . . . . . . . . . . . . . 26
ARTICLE VIII DISSOLUTION
SECTION 8.1. Dissolution Events. . . . . . . . . . . 27
SECTION 8.2. Votes of Members. . . . . . . . . . . . 28
SECTION 8.3. Termination and Winding Up of the
Company . . . . . . . . . . . . . . . . 28
ARTICLE IX REPORTS
SECTION 9.1. Form K-l. . . . . . . . . . . . . . . . 29
SECTION 9.2. Books and Records . . . . . . . . . . . 29
SECTION 9.3. Bank Accounts . . . . . . . . . . . . . 30
SECTION 9.4. Other Information . . . . . . . . . . . 30
ARTICLE X EXCULPATION AND INDEMNIFICATION
SECTION 10.1. Exculpation . . . . . . . . . . . . . . 30
SECTION 10.2. Indemnification . . . . . . . . . . . . 30
ARTICLE XI THE COMPANY'S REGISTRATION RIGHTS RELATING TO
SHARES OF DESIGNER HOLDINGS AND RELATED
RULE 144 SALES
SECTION 11.1. Registration Rights Agreement . . . . . 33
SECTION 11.2. Exercise of Piggyback Registration
Rights . . . . . . . . . . . . . . . . . 36
SECTION 11.3. Exercise of Demand Registration Rights . 37
SECTION 11.4. Initiation of a Rule 144 Sale. . . . . . 41
SECTION 11.5. Individual, Private Sale . . . . . . . . 42
SECTION 11.6. Reduction of Allocated Shares . . . . . 42
SECTION 11.7 Permitted Pledges. . . . . . . . . . . . 43
ARTICLE XII MISCELLANEOUS
SECTION 12.1. Amendments . . . . . . . . . . . . . . . 44
SECTION 12.2. Successors; Counterparts . . . . . . . . 45
SECTION 12.3. Governing Law; Severability. . . . . . . 45
SECTION 12.4. Filings; Tax Matters Partner . . . . . . 46
SECTION 12.5. Headings . . . . . . . . . . . . . . . . 47
SECTION 12.6. Additional Acts. . . . . . . . . . . . . 47
SECTION 12.7. Notices. . . . . . . . . . . . . . . . . 47
SECTION 12.8. Complete Agreement.. . . . . . . . . . . 49
SECTION 12.9 Effect of Non-Public Information . . . . 49
SECTION 12.10 No Set-Offs . . . . . . . . . . . . . . 50
SECTION 12.11 Specific Performance; Remedies. . . . . 51
SECTION 12.12 Other Activities of the Members . . . . 51
SECTION 12.13 Termination of Investment Agreement . . .52
SECTION 12.14 No Other Restrictions and Dispositions
of Shares. . . . . . . . . . . . . . . . 52
SECTION 12.15 Indemnification . . . . . . . . . . . . .53
________________________________________________________________
THIRD AMENDED AND RESTATED
LIMITED LIABILITY COMPANY AGREEMENT
OF
NEW RIO, L.L.C.
Dated as of May 9, 1996
________________________________________________________________
