<PAGE>
________________________________________________________________________________
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------
SCHEDULE 13E-3
RULE 13e-3 TRANSACTION STATEMENT
(PURSUANT TO SECTION 13(e) OF
THE SECURITIES EXCHANGE ACT)
------------------------
AUTHENTIC FITNESS CORPORATION
(NAME OF ISSUER)
AUTHENTIC FITNESS CORPORATION
A ACQUISITION CORP.
THE WARNACO GROUP, INC.
(NAME OF PERSONS FILING STATEMENT)
------------------------
COMMON STOCK, PAR VALUE $.001 PER SHARE
(TITLE OF CLASS OF SECURITIES)
------------------------
052661105
(CUSIP NUMBERS OF CLASSES OF SECURITIES)
<TABLE>
<S> <C>
STANLEY P. SILVERSTEIN, ESQ. GENERAL COUNSEL
THE WARNACO GROUP, INC. AUTHENTIC FITNESS CORPORATION
90 PARK AVENUE 6040 BANDINI BOULEVARD
NEW YORK, NY 10016 COMMERCE, CA 90040
TELEPHONE: (212) 287-8000 TELEPHONE: (323) 726-1262
(NAME, ADDRESS AND TELEPHONE NUMBER OF PERSON AUTHORIZED TO RECEIVE
NOTICES AND COMMUNICATIONS ON BEHALF OF PERSONS FILING STATEMENT)
</TABLE>
------------------------
COPIES TO:
<TABLE>
<S> <C>
ALAN C. MYERS, ESQ. SIMON M. LORNE, ESQ.
SKADDEN, ARPS, SLATE, MEAGHER & FLOM LLP MUNGER, TOLLES & OLSON LLP
919 THIRD AVENUE 355 SOUTH GRAND AVENUE
NEW YORK, NEW YORK 10022 LOS ANGELES, CALIFORNIA 90071-1560
TELEPHONE: (212) 735-3000 TELEPHONE: (213) 683-1900
</TABLE>
------------------------
This statement if filed in connection with (check the appropriate box):
a. [ ] The filing of solicitation materials or an information
statement subject to Regulation 14A, Regulation 14C, or Rule
13e-3(c) under the Securities Exchange Act of 1934.
b. [ ] The filing of a registration statement under the Securities Act
of 1933.
c. [x] A tender offer.
d. [ ] None of the above.
Check the following box if the soliciting materials or information statement
referred to in checking box (a) are preliminary copies. [ ]
------------------------
CALCULATION OF FILING FEE
<TABLE>
<S> <C>
TRANSACTION VALUATION AMOUNT OF FILING FEE
$520,203,258 $104,041
</TABLE>
* Estimated solely for purposes of calculating the filing fee and based,
pursuant to Rule 0-11 under the Securities Exchange Act of 1934, as amended
(the 'Act'). Calculated by multiplying $20.80 the per share tender offer
price, by 20,137,661 the sum of the number of shares of Common Stock sought
in the Offer and the 4,872,111 shares of Common Stock subject to options
vested as of November 11, 1999. Also in accordance with Rule 0-11 under the
Act, the filing fee is determined by multiplying the amount calculated
pursuant to the foregoing sentence by one-fiftieth of one percent.
------------------------
[x] Check box if any part of the fee is offset as provided by Rule 0-11(a)(2)
and identify the filing with which the offsetting fee was previously paid.
Identify the previous filing by registration statement number, or the form
of schedule and the date of its filing.
Amount previously paid: $104,041
Filing Party: Authentic Fitness Corporation
Form or registration no.: Schedule 14D-1
Date filed: November 17, 1999
________________________________________________________________________________
<PAGE>
INTRODUCTION
This Rule 13e-3 Transaction Statement on Schedule 13E-3 (the 'Schedule
13E-3') is being filed by (i) The Warnaco Group, Inc., a Delaware corporation
('Parent'), (ii) A Acquisition Corp., a Delaware corporation ('Purchaser') and a
wholly owned subsidiary of Parent, and (iii) Authentic Fitness Corporation, a
Delaware corporation (the 'Company'), pursuant to Section 13(e) of the
Securities Exchange Act of 1934, as amended, and Rule 13e-3 thereunder, in
connection with the tender offer by Purchaser for all issued and outstanding
shares (the 'Shares') of common stock, $.001 par value, of the Company, upon the
terms and subject to the conditions set forth in the Offer to Purchase, dated
November 17, 1999 (the 'Offer to Purchase') and the related Letter of
Transmittal (which together constitute the 'Offer'), copies of which are filed
as Exhibits (d)(1) and (d)(2) hereto, respectively.
The following Cross Reference Sheet, prepared pursuant to General
Instruction F to Schedule 13E-3, shows the location in the Tender Offer
Statement on Schedule 14D-1 filed by Parent and Purchaser (the
'Schedule 14D-1') with the Securities and Exchange Commission on the date hereof
of the information required to be included in this Schedule 13E-3. The
information set forth in the Schedule 14D-1, including all exhibits thereto, is
hereby expressly incorporated herein by reference as set forth in the Cross
Reference Sheet and the responses in this Schedule 13E-3, and such responses are
qualified in their entirety by reference to the information contained in the
Offer to Purchase and the annexes thereto.
The information contained in this Schedule 13E-3 concerning the Company,
including, without limitation, the information concerning the background of the
transactions, the deliberations of the Company's Board of Directors in
connection with the transaction, the opinion of the Company's financial advisor
and the Company's capital structure and historical financial statements and
projections, was supplied by the Company. Purchaser and Parent take no
responsibility for the accuracy of such information. The information contained
in this Schedule 13E-3 concerning Purchaser and Parent was supplied by Purchaser
and Parent. The Company takes no responsibility for the accuracy of such
information.
<PAGE>
CROSS REFERENCE SHEET
(PURSUANT TO GENERAL INSTRUCTION F TO SCHEDULE 13E-3)
<TABLE>
<CAPTION>
WHERE
ITEM IN LOCATED IN
SCHEDULE 13E-3 SCHEDULE 14D-1
-------------- --------------
<S> <C>
Item 1(a)................................................... Item 1(a)
Item 1(b)................................................... Item 1(b)
Item 1(c)................................................... Item 1(c)
Item 1(d)................................................... *
Item 1(e)................................................... *
Item 1(f)................................................... *
Item 2(a)-(d)............................................... *
Item 2(e)................................................... Item 2(e)
Item 2(f)................................................... Item 2(f)
Item 2(g)................................................... *
Item 3(a)-(b)............................................... Item 3(a) and 3(b)
Item 4...................................................... *
Item 5(a)-(e)............................................... Items 5(a)-(e)
Item 5(f)-(g)............................................... Items 5(f)-(g)
Item 6(a)................................................... Item 4(a)
Item 6(b)................................................... *
Item 6(c)................................................... *
Item 6(d)................................................... *
Item 7(a)................................................... Item 5
Item 7(b)................................................... *
Item 7(c)-(d)............................................... *
Item 8...................................................... *
Item 9...................................................... *
Item 10(a)-(b).............................................. Item 6(a)
Item 11..................................................... Item 7
Item 12(a)-(b).............................................. *
Item 13..................................................... *
Item 14..................................................... *
Item 15(a).................................................. *
Item 15(b).................................................. Item 8
Item 16..................................................... Item 10(f)
Item 17..................................................... Item 11
</TABLE>
- ------------
* The Item is located in the Schedule 13E-3 only.
<PAGE>
<TABLE>
<CAPTION>
1. ISSUER AND CLASS OF SECURITY SUBJECT TO THE TRANSACTION.
<C> <S> <C>
(a)-(c) The response to Items 1(a)-(c) of the Schedule 14D-1 is
incorporated by reference.
(d) The information set forth in the Offer to Purchase under
'The Tender Offer -- Section 6. Price Range of Shares;
Dividends' is incorporated herein by reference.
(e) Not Applicable.
(f) The information set forth in the Offer to Purchase under
'Special Factors -- Beneficial Ownership of Common Stock'
and 'The Tender Offer -- Section 9. Certain Information
Concerning Warnaco and Purchaser' is incorporated herein by
reference.
2. IDENTITY AND BACKGROUND.
This Statement is being jointly filed by Authentic Fitness Corporation
(the issuer of the class of equity securities which is the subject of
the transaction, The Warnaco Group, Inc. and A Acquisition Corp. (a
wholly owned subsidiary The Warnaco Group, Inc.).
(a)-(d),
(g)
The information concerning the name, state or other place of
organization, principal business and address of the
principal office of The Warnaco Group, Inc. and A
Acquisition Corp., and the information concerning the name,
business address, present principal occupation or employment
and the name, principal business and address of any
corporation or other organization in which such employment
or occupation is conducted, material occupations, positions,
offices or employments during the last five years and
citizenship of each of the executive officers and directors
of The Warnaco Group, Inc., A Acquisition Corp. and
Authentic Fitness Corporation is set forth under
'Introduction,' 'The Tender Offer -- Section 9. Certain
Information Concerning Warnaco and Purchaser' and in
Schedule I of the Offer to Purchase and is incorporated
herein by reference.
(e)-(f) The response to Item 2 of the Schedule 14D-1 is incorporated
herein by reference with respect to The Warnaco Group, Inc.
and A Acquisition Corp. To the best of the undersigneds'
knowledge, none of the persons with respect to whom
information is provided in response to this Item was during
the last five years (i) convicted in a criminal proceeding
(excluding traffic violations or similar misdemeanors) or
(ii) a party to a civil proceeding of a judicial or
administrative body of competent jurisdiction and as a
result of such proceeding was or is subject to a judgment,
decree or final order enjoining further violations of, or
prohibiting activities subject to, federal or state
securities laws or finding any violation of such laws.
3. PAST CONTACTS, TRANSACTIONS OR NEGOTIATIONS.
(a)-(b) The response to Item 3 of the Schedule 14D-1 is incorporated
herein by reference.
4. TERMS OF THE TRANSACTION.
(a) The information set forth in the Offer to Purchase on the
cover page thereof and under 'Introduction,' 'Special
Factors -- Background of the Offer and the Merger,' 'Special
Factors -- The Merger Agreement,' 'The Tender
Offer -- Section 1. Terms of the Offer; Expiration Date,'
'The Tender Offer -- Section 2. Acceptance for Payment and
Payment for Shares,' 'The Tender Offer -- Section
3. Procedures for Accepting the Offer and Tendering Shares,'
'The Tender Offer -- Section 4. Withdrawal Rights,' 'The
Tender Offer -- Section 12. Conditions to the Offer' and
'The Tender Offer -- Section 15. Miscellaneous' is
incorporated herein by reference.
(b) Not Applicable.
</TABLE>
1
<PAGE>
<TABLE>
<C> <S> <C>
5. PLANS OR PROPOSALS OF THE ISSUER OR AFFILIATE.
(a)-(e) The response to Items 5(a)-(e) of the Schedule 14D-1 is
incorporated herein by reference.
(f)-(g) The response to Items 5(f)-(g) of the Schedule 14D-1 is
incorporated herein by reference.
6. SOURCE AND AMOUNT OF FUNDS OR OTHER CONSIDERATION.
(a) The response to Item 4(a) of the Schedule 14D-1 is
incorporated herein by reference.
(b) The information set forth in the Offer to Purchase in
'Special Factors -- Related Party Transactions' and 'The
Tender Offer -- Section 14. Solicitation Fees and Expenses'
is incorporated by reference herein.
(c)-(d) The information set forth in the Offer to Purchase in the
'Tender Offer -- Section 10. Source and Amount of Funds' is
incorporated by reference herein.
7. PURPOSE(S), ALTERNATIVES, REASONS AND EFFECTS.
(a) The response to Item 5 of the Schedule 14D-1 is incorporated
herein by reference.
(b) The information set forth in the Offer to Purchase under
'Special Factors -- Background of the Offer and the Merger'
and 'Special Factors -- Purpose and Structure of the Offer
and the Merger; Reasons of Warnaco and Purchaser for the
Offer and the Merger' is incorporated herein by reference.
(c)-(d) The information set forth in the Offer to Purchase under
'Introduction,' 'Special Factors -- Background of the Offer
and the Merger,' 'Special Factors -- Recommendation of the
Authentic Fitness Special Committee and Authentic Fitness
Board; Fairness of the Offer and the Merger,' 'Special
Factors -- Purpose and Structure of the Offer and the
Merger; Reasons of Warnaco and Purchaser for the Offer and
the Merger,' 'Special Factors -- Plans for Authentic Fitness
after the Offer and the Merger; Certain Effects of the Offer
and the Merger,' 'The Tender Offer -- Section 5. Certain
U.S. Federal Income Tax Consequences' and 'The Tender
Offer -- Section 7. Effect of the Offer on the Market for
the Shares, the NYSE Listing and Exchange Act Registration'
is incorporated herein by reference.
8. FAIRNESS OF THE TRANSACTION.
(a)-(e) The information set forth in the Offer to Purchase under
'Introduction,' 'Special Factors -- Background of the Offer
and the Merger,' 'Special Factors -- Recommendation of the
Authentic Fitness Special Committee and Authentic Fitness
Board; Fairness of the Offer and the Merger,' 'Special
Factors -- Position of Warnaco Regarding Fairness of the
Offer and the Merger,' and 'Special Factors -- Purpose and
Structure of the Offer and the Merger; Reasons of Warnaco
and Purchaser for the Offer and the Merger' is incorporated
herein by reference.
(f) Not Applicable.
9. REPORTS, OPINIONS, APPRAISALS AND CERTAIN NEGOTIATIONS.
(a)-(c) The information set forth in the Offer to Purchase under
'Special Factors -- Background of the Offer and the Merger,'
'Special Factors -- Recommendation of the Authentic Fitness
Special Committee and Authentic Fitness Board; Fairness of
the Offer and the Merger,' 'Special Factors -- Opinion of
Financial Advisor to Authentic Fitness,' 'Special
Factors -- Position of Warnaco Regarding Fairness of the
Offer and the Merger' and in Schedule II is incorporated
herein by reference.
</TABLE>
2
<PAGE>
<TABLE>
<C> <S> <C>
10. INTEREST IN SECURITIES OF THE ISSUER.
(a)-(b) The response to Item 6(a) and (b) of the Schedule 14D-1 is
incorporated herein by reference.
11. CONTRACTS, ARRANGEMENTS OR UNDERSTANDINGS WITH RESPECT TO THE ISSUER'S
SECURITIES.
The response to Item 7 of the Schedule 14D-1 is incorporated herein by
reference.
12. PRESENT INTENTION AND RECOMMENDATION OF CERTAIN PERSONS WITH REGARD TO
THE TRANSACTION.
(a)-(b) The information set forth in the Offer to Purchase under
'Introduction,' 'Special Factors -- Background of the Offer
and the Merger,' 'Special Factors -- Recommendation of the
Authentic Fitness Special Committee and Authentic Fitness
Board; Fairness of the Offer and the Merger,' 'Special
Factors -- Interests of Certain Persons in the Offer and the
Merger' and 'Special Factors -- Beneficial Ownership of
Common Stock' is incorporated herein by reference.
13. OTHER PROVISIONS OF THE TRANSACTION.
(a) The information set forth in the Offer to Purchase under
'Special Factors -- Rights of Stockholders in the Offer and
Merger,' 'Special Factors -- The Merger Agreement' and in
Schedule III is incorporated herein by reference.
(b) Not Applicable.
(c) Not Applicable.
14. FINANCIAL INFORMATION
(a) The information set forth in the Offer to Purchase under
'The Tender Offer -- Section 8. Certain Information
Concerning Authentic Fitness' is incorporated herein by
reference. The Company's Annual Report on Form 10-K for the
year ended July 3, 1999 and its Quarterly Report on
Form 10-Q for the quarter ended October 2, 1999 are
incorporated by reference in the Offer to Purchase. The
Company's audited financial statements for the periods
covered by the Form 10-K and its audited financial
statements for the periods covered by the Form 10-Q are
incorporated by reference, pursuant to General
Instruction D to Schedule 13E-3.
(b) Not Applicable.
15. PERSONS AND ASSETS EMPLOYED, RETAINED OR UTILIZED.
(a) The information set forth in the Offer to Purchase under
'Special Factors -- Background of the Offer and the Merger,'
and 'Special Factors -- Plans for Authentic Fitness After
the Offer and the Merger; Certain Effects of the Offer and
the Merger' is incorporated herein by reference.
(b) The response to Item 8 of the Schedule 14D-1 is incorporated
herein by reference.
16. ADDITIONAL INFORMATION.
The response to Item 10(f) of the Schedule 14D-1 is incorporated herein
by reference.
</TABLE>
3
<PAGE>
17. MATERIAL TO BE FILED AS EXHIBIT.
<TABLE>
<S> <C>
(a) *U.S. $600,000,000 364-Day Credit Agreement dated as of
November 17, 1999 among Warnaco Inc. as Borrower and The
Warnaco Group, Inc. and the Initial Lenders and the Bank of
Nova Scotia and Salomon Smith Barney Inc.
(b)(1) Opinion of Financial Advisor to Authentic Fitness (attached
as Schedule II to the Offer to Purchase)
(b)(2) Presentation of Financial Advisor to Authentic Fitness dated
November 15, 1999
(b)(3) Opinion of Wasserstein Perella & Co., Inc.
(b)(4) Presentation of Wasserstein Perella & Co., Inc. dated
November 12, 1999
(c) *Agreement and Plan of Merger dated November 15, 1999, among
The Warnaco Group, Inc., A Acquisition Corp. and Authentic
Fitness Corporation.
(d)(1) *Form of Offer to Purchase, dated November 17, 1999
(d)(2) *Form of Letter of Transmittal
(d)(3) *Form of Notice of Guaranteed Delivery
(d)(4) *Form of Letter from J.P. Morgan & Co. to Brokers, Dealers,
Commercial Banks, Trust Companies and Other Nominees.
(d)(5) *Form of Letter from Brokers, Dealers, Commercial Banks,
Trust Companies and Nominees to Clients.
(d)(6) *Joint Press Release issued by Warnaco and Authentic Fitness
on November 15, 1999.
(e) *Section 262 of the Delaware General Corporation Law
(attached as Schedule III to the Offer to Purchase).
(f) Not Applicable.
</TABLE>
- ------------
* Incorporated by reference to the Statement on Schedule 14D-1 filed by Warnaco
and A Acquisition Corp. on November 17, 1999.
4
<PAGE>
SIGNATURE
After due 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.
THE WARNACO GROUP, INC.
By: /s/ STANLEY P. SILVERSTEIN
.................................
NAME: STANLEY P. SILVERSTEIN
TITLE: VICE PRESIDENT AND GENERAL
COUNSEL
A ACQUISITION CORP.
By: /s/ STANLEY P. SILVERSTEIN
.................................
NAME: STANLEY P. SILVERSTEIN
TITLE: VICE PRESIDENT
AUTHENTIC FITNESS CORPORATION
By: /s/ MICHAEL P. MCHUGH
.................................
NAME: MICHAEL P. MCHUGH
TITLE: SENIOR VICE PRESIDENT AND
CHIEF FINANCIAL OFFICER
Date: November 17, 1999
5
<PAGE>
EXHIBIT INDEX
17. MATERIAL TO BE FILED AS EXHIBIT.
<TABLE>
<S> <C>
(a) *U.S. $600,000,000 364-Day Credit Agreement dated as of November 17, 1999 among Warnaco
Inc. as Borrower and The Warnaco Group, Inc. and the Initial Lenders and the Bank of Nova
Scotia and Salomon Smith Barney Inc.
(b)(1) Opinion of Financial Advisor to Authentic Fitness (attached as Schedule II to the Offer
to Purchase)
(b)(2) Presentation of Financial Advisor to Authentic Fitness dated November 15, 1999
(b)(3) Opinion of Wasserstein Perella & Co., Inc.
(b)(4) Presentation of Wasserstein Perella & Co., Inc. dated November 12, 1999
(c) *Agreement and Plan of Merger dated November 15, 1999, among The Warnaco Group, Inc., A
Acquisition Corp. and Authentic Fitness Corporation.
(d)(1) *Form of Offer to Purchase, dated November 17, 1999
(d)(2) *Form of Letter of Transmittal
(d)(3) *Form of Notice of Guaranteed Delivery
(d)(4) *Form of Letter from J.P. Morgan & Co. to Brokers, Dealers, Commercial Banks, Trust
Companies and Other Nominees.
(d)(5) *Form of Letter from Brokers, Dealers, Commercial Banks, Trust Companies and Nominees to
Clients.
(d)(6) *Joint Press Release issued by Warnaco and Authentic Fitness on November 15, 1999.
(e) *Section 262 of the Delaware General Corporation Law (attached as Schedule III to the
Offer to Purchase).
(f) Not Applicable.
</TABLE>
- ------------
* Incorporated by reference to the Statement on Schedule 14D-1 filed by Warnaco
and A Acquisition Corp. on November 17, 1999.
6
<PAGE>
Independent Committee Discussion Materials
PROJECT ARROW
------------------------------------------------------------------------
Strictly Private and Confidential
November 15, 1999
[CHASE LOGO]
<PAGE>
<TABLE>
<CAPTION>
Table of Contents
- -------------------------------------------------------------------------------
<S> <C>
Overview of Proposed Transaction..................................... I
Stand Alone Financial Review of ARROW................................ II
Stand-Alone Valuation Analysis of ARROW.............................. III
Summary of CSI Fairness Opinion...................................... IV
</TABLE>
[CHASE LOGO]
<PAGE>
- -------------------------------------------------------------------------------
Overview of Proposed Transaction
- -------------------------------------------------------------------------------
[CHASE LOGO]
1
<PAGE>
Overview of Proposed Transaction
Summary of Key Terms
<TABLE>
- -------------------------------------------------------------------------------------------------------------------------
<CAPTION>
Key Term Overview
<S> <C>
Overview WONDER increased its offer to acquire ARROW on November 11, 1999; financing in place;
principal terms and conditions of the Merger Agreement have been negotiated
Price $20.80 per share; increased from original offer of $20.50 per share
Enterprise Value Approximately $530 million
Premium to Pre-Announcement Close 18.4%
Consideration 100% Cash
Acquisition Financing Bank bridge commitment; matures in June 2000; interest rate of LIBOR+100 basis points
Structure Tender offer; to be followed with back-end merger
Merger Agreement / Tender Offer Non-solicitation; fiduciary out
Termination fee
Not subject to financing
Key tender offer conditions:
- 51% minimum
- HSR clearance
- Absence of prohibitions
- No material adverse effect
- No suspension of trading
</TABLE>
[CHASE LOGO]
2
<PAGE>
Overview of Proposed Transaction
Financial Overview of Offer
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------------------------
Pre- Revised
($ in millions, except per share data) Announce Current Initial Offer Offer
<S> <C> <C> <C> <C> <C>
ARROW Share Price $17.56 $19.63 $20.50 $20.80
% Premium to Pre-Announcement Share Price 0.0% 11.7% 16.7% 18.4%
% Premium to 52 Week Pre-Announcement High -5.4% 5.7% 10.4% 12.1%
Diluted Shares Outstanding(1) 20.65 20.83 20.89 20.95
Equity Value $362.7 $408.8 $428.3 $435.7
Plus: Net Debt(2) 96.1 96.1 96.1 96.1
------ ------ ------ ------
Enterprise Value $458.8 $504.9 $524.4 $531.8
Plus: A/P Adjustment 24.0 24.0 24.0 24.0
------ ------ ------ ------
Normalized Enterprise Value $482.8 $528.9 $548.4 $555.8
ARROW
Enterprise Value / Statistic
FY 1999 Revenue $410.8 1.12x 1.23x 1.28x 1.29x
FY 1999 EBITDA 68.6 6.7 7.4 7.6 7.7
CY 1999E EBITDA - ARROW Management 74.1 6.2 6.8 7.1 7.2
CY 1999E EBITDA - Wall Street Consensus 72.2 6.4 7.0 7.3 7.4
Normalized Enterprise Value /
FY 1999 Revenue $410.8 1.18x 1.29x 1.33x 1.35x
FY 1999 EBITDA 68.6 7.0 7.7 8.0 8.1
CY 1999E EBITDA - ARROW Management 74.1 6.5 7.1 7.4 7.5
CY 1999E EBITDA - Wall Street Consensus 72.2 6.7 7.3 7.6 7.7
Share Price /
FY 1999 EPS $1.28 13.7x 15.3x 16.0x 16.3x
CY 1999E EPS - ARROW Management 1.42 12.4 13.8 14.4 14.6
CY 1999E EPS - Wall Street Consensus 1.36 12.9 14.4 15.0 15.2
CY 2000E EPS - ARROW Management 1.74 10.1 11.3 11.8 12.0
CY 2000E EPS - Wall Street Consensus 1.56 11.2 12.6 13.1 13.3
</TABLE>
(1) Based on 20.071 basic shares outstanding and 4.631 total options
outstanding as per the 7/3/99 Form 10-K. Calculated utilizing the
treasury stock method and in-the-money options only.
(2) Includes $97.3 million of debt and $1.2 million of cash as per 7/3/99
Form 10-K.
[CHASE LOGO]
3
<PAGE>
- -------------------------------------------------------------------------------
Stand-Alone Financial Review of ARROW
- -------------------------------------------------------------------------------
[CHASE LOGO]
4
<PAGE>
Stand-Alone Financial Review of ARROW
Pre-Announcement Public Market Overview
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------------------------
($ and shares in millions)
<S> <C>
Pre-Announcement Public Market Valuation
ARROW 10/8/99 Pre-Announcement Share Price $17.56
52 Week High / Low (Pre-Announcement) $18.56 / $13.13
Diluted Shares Outstanding(1) 20.653
---------
Market Value of Equity $362.7
Plus: Net Debt(1) 96.1
---------
Enterprise Value $458.8
</TABLE>
Trading Multiples (2)
<TABLE>
<CAPTION>
Enterprise Value Pre-Announcement Share Price
as a multiple of: as a multiple of:
----------------------------- ----------------------------
ARROW Mgt. ARROW Mgt. ARROW Mgt. Wall Street
Time Period Case Revenues Case EBITDA Case EPS Consensus
- ----------- ------------- ----------- ---------- -----------
<S> <C> <C> <C> <C>
FY1999 1.12x 6.7x 13.7x 13.7x
CY1999E 1.04 6.2 12.4 12.9
FY2000E 0.96 5.8 11.2 12.1
I/B/E/S 5 Year EPS Growth = 17.3%
</TABLE>
Summary Financial Results (2)
<TABLE>
<CAPTION>
ARROW Mgt. ARROW Mgt. ARROW Mgt. Wall Street
Time Period Case Revenues Case EBITDA Case EPS Consensus
- ----------- ------------- ----------- ---------- -----------
<S> <C> <C> <C> <C>
FY1999 $410.8 $68.6 $1.28 $1.28
CY1999 443.2 74.1 1.42 1.36
FY2000 475.5 79.5 1.56 1.45
</TABLE>
(1) Source: FY1999 Form 10-K; diluted shares outstanding include 20.071 basic
shares plus net options calculated utilizing the treasury stock method on
in-the-money options only. Net Debt is $97.3 million total debt less
$1.2 million cash; does not include A/P adjustment of $24 million.
(2) Sources: ARROW Management projections and selected research reports.
[CHASE LOGO]
5
<PAGE>
Stand-Alone Financial Review of ARROW
Recent Share Price Performance
- --------------------------------------------------------------------------------
[GRAPH]
Average Daily Volume 10/8/97-11/12/99 = 73,473
[CHASE LOGO]
6
<PAGE>
Stand-Alone Financial Review of ARROW
Pre-Announcement Share Volume Traded Performance
- --------------------------------------------------------------------------------
[GRAPHS]
[CHASE LOGO]
7
<PAGE>
Stand-Alone Financial Review of ARROW
Historical Financial Summary
- --------------------------------------------------------------------------------
[GRAPHS]
[CHASE LOGO]
8
<PAGE>
Stand-Alone Financial Review of ARROW
Portfolio Overview
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------------------------
ARROW
FY2000E Revenue = $475.5 million
FY2000E EBITDA = $79.5 million; 17% Margin
<S> <C> <C> <C>
Speedo Designer Swimwear Retail Stores
----------------------------- ----------------------------- ----------------------------
FY2000E Revenue $242.1 million / 53% of Total $152.6 million / 34% of Total $65.7 million / 14% of Total
FY2000E EBITDA(1) $53.2 million / 22% Margin $31.3 million / 21% Margin $6.3 million / 10% Margin
3 Year Est. CAGR 9.0% 19.6% 11.4%
Business Overview Preeminent in competition Consists of women's swimwear 139 stores in major
swimwear market with over 60% marketed under nationally metropolitan areas that sell
market share; long-term recognized brands including: mainly Speedo branded
endorsement contracts with Catalina, Cole of California, products.
professional swimmers. Oscar de la Renta, Sandcastle,
Sunset Beach, Sporting Life
and White Stag . Recently launched
Other products marketed under Speedo.com, an Internet
the Speedo brand include swim website through which its
accessories, active fitness wear, Recently began sales under products can be purchased.
and leisure swimwear. exclusive worldwide license for
Polo Ralph Lauren-branded
swimwear for women.
Exclusive brand license in the
U.S., Mexico, Canada and the
Caribbean; Pentland Ventures, Sells Catalina brand mainly
Ltd. has exclusive rights to through licensing agreement
Speedo elsewhere. with Wal-Mart
<CAPTION>
Ubertech
- ---------------------------
<C>
$15.1 million / 3% of Total
$1.0 million / 7% Margin
60+%
Recently acquired 70% interest in
Ubertech, a technology company
with several potential applications
in the apparel and footwear
industries.
Current growth driver is a
proprietary and patented system
that delivers 3-D graphics on
apparel by injecting a silicon
design directly into the cloth fibers.
Customer base currently includes
Nautica, Fubu, Calvin Klein, and
Chaps for Ralph Lauren.
</TABLE>
Note: 2000E figures are ARROW Management projections.
(1) 2000E EBITDA is before corporate and other charges of $12.3 million.
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<PAGE>
Stand-Alone Financial Review of ARROW
Summary of Selected Recent Wall Street Estimates
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------------------------------
Current Price EPS Estimates
---------------
Date Firm Recommendation Price Target FY2000E FY2001E
- ------- -------------------------- -------------- ------- ------ ---------------
<S> <C> <C> <C> <C> <C> <C>
11/1/99 Bear Stearns & Co. Attractive $19.56 NA $1.45 $1.61
10/29/99 Morgan Stanley Dean Witter Outperform 19.44 $20.00 1.45 1.72
10/29/99 Merrill Lynch Accumulate 19.44 NA 1.48 1.70
8/18/99 Lazard Freres & Co. Hold 17.38 22.00 1.53 1.76
11/12/99 Wall Street Consensus $1.45 $1.67
ARROW Management Case 1.56 1.91
</TABLE>
"The company continues to show strong momentum across several product
lines...Importantly, ARROW has obtained the worldwide license for Polo Ralph
Lauren swimwear for women and girls, which was launched in Spring 1999."
Morgan Stanley Dean Witter
"New entrants in the competitive swimwear category during recent years, such
as Nike and Adidas, plus additional recreational swimwear offerings from
lifestyle brands such as Quiksilver and Tommy Hilfiger, could intensify the
competitive environment...Competition could place a premium on ARROW's product
design, sourcing, execution, and servicing capabilities." Merrill Lynch
"We believe the ARROW model can deliver earnings growth of 15% or more in
FY2000 driven by growth brands such as Polo, Oscar, and Ann Cole, acquisitions
such as Ubertech, additional ASM retail stores, and the upcoming summer
Olympic games..." Lazard Freres
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<PAGE>
Stand-Alone Financial Review of ARROW
Ownership Profile(1)
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------------------------------
(in thousands of shares)
Current Current Est.
Estimated % of Total Shares and % of Total Fully-
Owner Shares Held Primary Shares Options Held(2) Diluted Shares
- ------------------------------ ----------- -------------- --------------- -----------------
<S> <C> <C> <C> <C>
Institutional Holders
Pentland Ventures, Ltd. 5,067 25.2% 5,067 20.5%
John J. Lattanzio 2,209 11.0% 2,209 8.9%
General Electric Company 1,809 9.0% 1,809 7.3%
Omega Advisors Inc. 1,052 5.2% 1,052 4.3%
Fayez Sarofim & Company 744 3.7% 744 3.0%
Capital Guardian Trust Company 626 3.1% 626 2.5%
Jeffrey N. Vinik 557 2.8% 557 2.3%
Rothschild Asset Management, Inc. 505 2.5% 505 2.0%
Putnam Investment Management 422 2.1% 422 1.7%
Barclay's Bank Plc 365 1.8% 365 1.5%
All Other Institutional Holders 3,721 18.5% 3,721 15.1%
------ ----- ------ -----
Subtotal 17,076 85.1% 17,076 69.1%
Key Management and Directors
Linda J. Wachner 2,095 10.4% 4,836 19.6%
All Other Key Insiders 182 0.9% 565 2.3%
------ ----- ------ -----
Subtotal 2,277 11.3% 5,401 21.9%
Public Float and Other 718 3.6% 2,226 9.0%
------ ----- ------ -----
Total Shares Outstanding 20,071 100.0% 24,703 100.0%
</TABLE>
(1) Sources: CDA Spectrum as of 9/30/99, FY1999 Form 10-K, 10/23/98 Proxy
Statement.
(2) Includes all outstanding stock options (i.e., including options that are not
yet exercisable or in-the-money).
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11
<PAGE>
- -------------------------------------------------------------------------------
Stand-Alone Valuation Analysis of ARROW
- -------------------------------------------------------------------------------
12
[CHASE LOGO]
<PAGE>
Stand-Alone Valuation Analysis of ARROW
Overview of Valuation Methodologies
- -------------------------------------------------------------------------------
Stand-Alone Valuation Analysis
<TABLE>
<CAPTION>
Comparable Public Comparable Discounted Cash Leveraged Buyout
Companies Transactions Flow Analysis Analysis
-------------------------- ------------------------------ ------------------------------- -------------------------------
<S> <C> <C> <C>
Analysis of trading and Analysis of pricing of relevant Present value as of 12/31/99 of Determines the maximum
operating performance for acquisitions projected unlevered free cash amount a financial buyer would
relevant peer group flows theoretically be willing to pay
Review of transaction given the following:
Review of current trading multiples Terminal FY2002E EBITDA exit
multiples multiples of 5.5x - 7.0x - 20% to 30% Required Returns
Review of premiums paid to
Adjustments for non-recurring stand alone public market Discount rates of 12% - 14% for - ARROW Management and
items valuations ARROW based on Discount Wall Street Consensus
Rate (i.e., WACC) analysis for Projections
Adjustments for non-recurring peer group
items - Terminal FY2002E
Projection cases EBITDA exit multiples of
5.5x - 7.0x
- ARROW Management
- 10% Management
- Wall Street Consensus Promote
Chase estimates for - 4.5x Maximum Total Debt/
FY2002E based on CY1999E EBITDA
analyst growth rates
3.0x Maximum Senior
Debt/CY 1999E
EBITDA
9.25% Senior Debt
Interest Rate
13.0% Subordinated
Debt Interest Rate
</TABLE>
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13
<PAGE>
Stand-Alone Valuation Analysis of ARROW
Summary of Financial Projections
- -------------------------------------------------------------------------------
[GRAPH]
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14
<PAGE>
Stand-Alone Valuation Analysis of ARROW
Business Segment Financial Projections
- -------------------------------------------------------------------------------
<TABLE>
<CAPTION>
($ in millions) FY2000E FY2001E FY2002E KEY GROWTH DRIVERS
- --------------------- -------------- -------------- ----------------- -----------------------------
Revenue Breakdown
- ---------------------
ARROW Management Case Growth Growth Growth
- --------------------- ------ ------ ------
<S> <C> <C> <C> <C> <C> <C> <C>
Speedo
Speedo $242.1 7.6% $265.3 9.6% $291.7 10.0% Accessories
Designer Swimwear 152.6 21.7% 182.1 19.3% 214.6 17.8% Women's Activewear
Retail Stores 65.7 9.0% 74.0 12.6% 83.3 12.6% Kids
Ubertech 15.1 NM 25.0 65.6% 40.0 60.0%
----- ----- -----
Total $475.5 15.7% $546.4 14.9% $629.6 15.2% Designer Swimwear
Polo - Internationally
Wall Street Consensus Catalina - Wal-Mart Penetration
Case Total $454.3 10.6% $497.7 9.6% $547.5 10.0%
EBITDA Breakdown
- -------------------
ARROW Management Case Margin Margin Margin Retail Stores
------ ------ ------
Speedo $ 53.2 22.0% $ 58.0 21.9% $ 64.7 22.2% New Store Openings
Designer Swimwear 31.3 20.5% 38.9 21.4% 46.7 21.8% New Formats
Retail Stores 6.3 9.6% 5.1 6.9% 6.0 7.2% Potentially Internet
Ubertech 1.0 6.6% 2.5 10.0% 6.0 15.0%
Corporate and Other (12.3) NM (12.9) NM (13.6) NM
----- ----- ----- Ubertech
Total $ 79.5 16.7% $ 91.6 16.8% $109.8 17.4% T-Shirts
Wall Street Consensus Racing-Better Products
Case Total $ 75.8 16.7% $ 83.1 16.7% $ 91.4 16.7% Disney
</TABLE>
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15
<PAGE>
Stand-Alone Valuation Analysis of ARROW
Selected Key Opportunities and Risks
<TABLE>
- ---------------------------------------------------------------------------------------------------------------------------------
<CAPTION>
Speedo Designer Swimwear Retail Stores
<S> <C> <C> <C>
Key Opportunities Penetration of new distribution Polo Ralph Lauren growth Aggressive roll-out of new stores
channels for activewear and
accessory products - European launch and further - 10+ annual openings
global expansion
Introduction of new formats
New product offerings through - Roll-out of other Ralph
Ubertech acquisition Lauren brands - Airport stores
Additional product sourcing in Catalina line growth International expansion
Mexico
- Wal-Mart store openings
Incremental market share gains - Distribution in Canada and
in core product areas Mexico
Mexico / Canada expansion Broadening of other growth
brands such as Oscar de La
Renta and Ann Cole
- -----------------------------------------------------------------------------------------------------------------------------------
Key Risks Further consolidation of sporting Changing consumer tastes General economic sensitivity
goods channel
- Design Internet vulnerability
- Potential lost sales volumes
Inventory markdowns by - Partially mitigated by
- Enhanced customer pricing suppliers Speedo.com
leverage
Weather sensitivity
Intensified competitive
environment
- Nike, TYR
- New entrants and broadened
product lines
Weather sensitivity
</TABLE>
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<PAGE>
Stand-Alone Valuation Analysis of ARROW
Preliminary Valuation Summary (1)
- -------------------------------------------------------------------------------
[GRAPH]
(1) Adjusts for $24 million A/P overstatement and seasonal borrowing costs.
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<PAGE>
Stand-Alone Valuation Analysis of ARROW
Comparable Publicly-Traded Companies Summary
- -------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Market Value
Company Name Symbol of Equity ($MM)
- -----------------------------------------------------------
<S> <C> <C>
Athletic-Related Apparel
- ------------------------
Columbia Sportswear Co. COLM $ 473.3
Russell Corp. RML 470.9
Nautica Enterprises Inc. NAUT 447.9
Quiksilver Inc. ZQK 363.4
North Face Inc. TNFI 70.0
Other Selected Apparel
- ----------------------
V.F. Corp. VFC $3,566.5
Tommy Hilfiger Corp. TOM 2,452.3
Polo Ralph Lauren Corp. RL 1,681.7
Guess Inc. GES 721.2
Kellwood Co KWD 505.0
Phillips Van Heusen Co. PVH 213.2
WONDER $ 791.0
ARROW - Pre-Announce 362.7
</TABLE>
[GRAPH]
[GRAPH]
(1) Based on share prices as of 11/12/99; projected data is from I/B/E/S and
recent research reports.
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<PAGE>
Stand-Alone Valuation Analysis of ARROW
Comparable Publicly-Traded Companies Summary (cont.)
<TABLE>
<CAPTION>
Price Per Share / Enterprise Value /
% of Market ----------------- ------------------- LTM
52-week Value of CY1999E CY2000E Enterprise LTM LTM CY 1999E EBITDA Total Debt/ 5 Year
Company High Equity EPS EPS Value Revenue EBITDA EBITDA Margin LTM EBITDA EPS CAGR
- ----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Athletic-Related Apparel
- ------------------------
Columbia Sportswear Co. 82.7% $ 473.3 14.9x 12.7x $578.2 1.26x 8.5x 8.1x 14.9% 1.7x 17.1%
Nautica Enterprises Inc. 64.1% 447.9 10.0 9.1 408.4 0.72 4.4 4.3 16.2% NM 13.5%
North Face Inc. 33.0% 70.0 NM 12.9 147.4 0.56 7.4 5.5 7.6% 4.1 19.0%
Quiksilver Inc. 50.7% 363.4 13.4 11.1 411.6 0.97 7.8 7.0 12.5% 1.0 22.3%
Russell Corp. 56.2% 470.9 8.5 7.2 921.0 0.80 5.7 5.0 14.1% 2.8 11.3%
Other Selected Apparel
- -----------------------
Guess Inc. 96.7% $ 721.2 15.4x 12.6x $ 778.6 1.45x 7.4x 6.9x 19.5% 1.0x 17.5%
Kellwood Co. 61.7% 505.0 7.1 5.9 825.4 0.39 5.0 4.4 7.8% 2.4 14.1%
Phillips Van Heusen Co. 73.5% 213.2 13.1 8.6 434.2 0.33 5.8 4.9 5.7% 3.3 12.2%
Polo Ralph Lauren Corp. 66.7% 1,681.7 12.0 10.3 1,843.1 1.02 6.7 6.1 15.2% 0.8 15.8%
Tommy Hilfiger Corp. 63.0% 2,452.3 10.9 9.2 2,809.6 1.47 6.3 6.3 23.3% 1.4 20.5%
V.F. Corp. 54.5% 3,566.5 10.0 9.0 4,566.1 0.83 5.4 5.5 15.3% 1.3 9.6%
High 15.4x 12.9x 1.47x 8.5x 8.1x 23.3% 4.1x 22.3%
Median 11.4 9.2 0.83 6.3 5.5 14.9% 1.5 15.8%
Mean 11.5 9.9 0.89 6.4 5.8 13.8% 2.0 15.7%
Low 7.1 5.9 0.33 4.4 4.3 5.7% 0.8 9.6%
WONDER 46.5% $ 791.0 6.0x 5.2x $1,679.1 0.83x 5.0x 4.8x 16.7% 2.4x 15.0%
ARROW - Pre-Announce. 94.6% 362.7 12.9 11.2 458.8 1.12 6.7 6.4 16.7% 1.4 17.3%
ARROW - Offer Price 112.1% 435.7 15.2 13.3 531.8 1.29 7.7 7.4 16.7% 1.4 17.3%
</TABLE>
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19
<PAGE>
Stand-Alone Valuation Analysis of ARROW
Relative Share Price Performance
- -------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Pre-Announcement Relative Performance
-------------------------------------
ARROW S&P500 Peer Index(1)
<S> <C> <C> <C>
3 Years 63.4% 90.7% -46.6%
2 Years 13.3% 37.2% -44.7%
1 Year 29.5% 39.2% -13.4%
6 Months 6.4% -0.6% -21.0%
1 Month 0.0% -0.6% -13.6%
</TABLE>
[GRAPH]
(1) Peer Index is composed of selected athletic apparel comparables including:
Columbia Sportswear, Nautica Enterprises, North Face, Quiksilver and Russell.
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20
<PAGE>
Stand-Alone Valuation Analysis of ARROW
Comparable Transactions Summary
- ------------------------------------------------------------------------------
<TABLE>
<CAPTION>
LTM Multiples
Transaction --------------- EBITDA
Ann. Date Acquirer Target Value Revenue EBITDA Margin
- --------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
7/12/99 HIG Capital LLC Happy Kids Inc $94.5 0.45x 4.4x 10.4%
7/6/99 Robert Stephen Holdings plc Pentland Group plc 487.4(1) 0.58 6.9 8.4%
4/23/99 Doughty Hanson & Co Umbro Europe Holdings Ltd 145.4 0.36 NA NA
3/2/99 Jones Apparel Group Inc Nine West Group Inc 1,481.9 0.77 8.4 9.2%
2/3/99 Vestar Capital Partners Inc St. John Knits, Inc 483.8 1.69 8.1 20.9%
11/30/98 Kellwood Co Koret of California Inc
(Levi Strauss) 150.1 0.52 5.5 9.4%
9/10/98 Jones Apparel Group Inc Sun Apparel Inc 449.1 1.11 8.3 13.4%
5/1/98 Tropical Sportswear
International Farah Inc 158.0 0.58 11.6 5.0%
1/31/98 Tommy Hilfiger USA Pepe Jeans USA Inc 1,325.8 3.17 15.7 20.2%
7/22/97 Texas Pacific Group Inc J Crew Group Inc 492.1 0.59 10.1 5.9%
9/17/97 Warnaco Group, Inc Designer Holdings Ltd 410.4 0.84 6.6 12.7%
10/30/96 Investcorp S.A. The William Carter Co 249.2 0.81 7.0 11.6%
</TABLE>
<TABLE>
<S> <C> <C> <C>
High 3.17x 15.7x 20.9%
Average 0.96 8.4 11.6%
Median 0.68 8.1 10.4%
Low 0.36 4.4 5.0%
</TABLE>
(1) Value is grossed-up; acquisition represented remaining 37.7% stake.
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21
<PAGE>
Stand-Alone Valuation Analysis of ARROW
Discounted Cash Flow Summary(1)(2)
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
ARROW Management Case Wall Street Consensus Case
FY 2002E Exit EBITDA Multiple FY 2002E Exit EBITDA Multiple
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
5.5x 6.25x 7.0x 5.5x 6.25x 7.0x
12.0% $18.72 $21.23 $23.74 12.0% $14.94 $17.03 $19.12
Discount Discount
Rate 13.0% $18.25 $20.71 $23.16 Rate 13.0% $14.55 $16.59 $18.63
14.0% $17.80 $20.20 $22.60 14.0% $14.17 $16.17 $18.17
</TABLE>
(1) DCF values calculated as of 12/31/99; based on 3 year projections.
(2) Adjusts for $24 million A/P overstatement and seasonal borrowing costs.
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22
<PAGE>
Stand-Alone Valuation Analysis of ARROW
Leveraged Buyout Analysis Summary(1)(2)
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
ARROW Management Case Wall Street Consensus Case
FY 2002E EBITDA Exit Multiple FY 2002E EBITDA Exit Multiple
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
5.5x 6.25x 7.0x 5.5x 6.25x 7.0x
20.0% $17.85 $19.69 $21.53 20.0% $14.67 $16.36 $18.06
Required Required
Equity Return 25.0% $17.04 $18.66 $20.28 Equity Return 25.0% $14.08 $15.57 $17.06
30.0% $16.36 $17.79 $19.22 30.0% $13.58 $14.90 $16.22
</TABLE>
(2) Key assumptions include: i) maximum total debt / CY EBITDA of 4.5x, ii)
maximum senior debt / CY1999E EBITDA of 3.0x, iii) senior debt borrowing
cost of 9.25%, iv) subordinated debt borrowing cost of 13.0%, and
v) management promote of 10%.
(3) Adjusts for $24 million A/P overstatement and seasonal borrowing
costs.
[CHASE LOGO]
23
<PAGE>
- --------------------------------------------------------------------------------
Summary of CSI Fairness Opinion
- --------------------------------------------------------------------------------
[CHASE LOGO]
24
<PAGE>
Summary of CSI Fairness Opinion
- --------------------------------------------------------------------------------
CSI is of the opinion that, as of the date hereof, the Consideration is fair,
from a financial point of view, to the holders of the Company Shares, other than
the Acquiror and its affiliates.
In arriving at our opinion, we have, among other things:
- Reviewed a draft dated November 12, 1999 of the Merger Agreement;
- Reviewed certain publicly available business and financial information we
deemed relevant relating to the Company and the industries in which it
operates;
- Reviewed certain internal non-public financial and operating data and
forecasts provided to us by the management of the Company relating to its
business;
- Discussed, with members of the senior management of the Company, the
Company's operations, historical financial statements and future
prospects;
- Compared the financial and operating performance of the Company with
publicly available information concerning certain other companies we
deemed comparable and reviewed the relevant stock prices of the Company
Shares and certain publicly traded securities of such other companies;
- Compared the proposed financial terms of the Transaction with the
financial terms of certain other transactions that we deemed relevant; and
- Made such other analyses and examinations as we have deemed necessary or
appropriate.
We have not been authorized by the Special Committee to solicit, nor have we
solicited, third-party indications of interest for the acquisition of all or
any part of the Company.
[CHASE LOGO]
25
<PAGE>
November 15, 1999
The Special Committee of the Board of Directors
The Warnaco Group, Inc.
90 Park Avenue
New York, New York 10016
Members of the Special Committee:
You have asked us to advise you with respect to the fairness, from a
financial point of view, to The Warnaco Group, Inc. ("Parent") of the
consideration to be paid by Parent pursuant to the terms of the Agreement and
Plan of Merger, dated as of November 15, 1999 (the "Merger Agreement"), among
Parent, A Acquisition Corp., a wholly owned subsidiary of Parent ("Sub"), and
Authentic Fitness Corporation (the "Target"). The Merger Agreement provides for,
among other things, a cash tender offer by Sub to acquire all of the outstanding
shares of the common stock, par value $.001 per share, of the Target, together
with associated share purchase rights (together the "Shares"), at a price of
$20.80 per Share (the "Tender Offer"), and for a subsequent merger of Sub with
and into Target pursuant to which each remaining outstanding Share not purchased
in the Tender Offer (other than any Shares held in the treasury of the Target or
owned by Parent, Sub or their respective subsidiaries) will be converted into
the right to receive $20.80 in cash (the "Merger" and, together with the Tender
Offer, the "Transaction"). The terms and conditions of the Transaction are set
forth in more detail in the Offer to Purchase relating to the Tender Offer (the
"Offer to Purchase") and the Merger Agreement.
In connection with rendering our opinion, we have reviewed drafts of the
Offer to Purchase and the Merger Agreement, and for purposes hereof, we have
assumed that the final forms of these documents will not differ in any material
respect from the drafts provided to us. We have also reviewed and analyzed
certain publicly available business and financial information relating to the
Target and Parent for recent years and interim periods to date, estimates of the
financial performance of Target for fiscal year 2000 published by third party
research analysts, which estimates were consistent with and included in the
consensus estimates of Target's earnings per share for such years as published
by First Call Corporation, a reporting service (such analysts estimates, the
"Analysts Estimates") and certain financial and operating information concerning
Target, including prospective financial information prepared by the Target and
Parent and provided to us for purposes of our analysis, and we have met with the
management of the Parent to review and discuss such information and, among other
matters, the Target's business, operations, assets, financial condition and
future prospects.
We have reviewed and considered certain financial and stock market data
relating to the Target, and we have compared that data with similar data for
certain other companies, the securities of which are publicly traded, that we
believe may be relevant or comparable in certain respects to the Target or one
or more of its businesses or assets, and we have reviewed and considered the
financial terms of certain recent acquisitions and business combination
transactions in the apparel industry that we believe to be reasonably comparable
to the Transaction or otherwise relevant to our inquiry. We have also performed
such other financial studies, analyses, and investigations and reviewed such
other information as we considered appropriate for purposes of this opinion.
In our review and analysis and in formulating our opinion, we have assumed
and relied upon the accuracy and completeness of all of the financial and other
information provided to or discussed with us or publicly available, and we have
not assumed any responsibility for independent verification of any of such
information. We have also assumed and relied upon the reasonableness and
accuracy of the Analysts Estimates and prospective financial information
regarding Target for fiscal 2001 and 2002 prepared by Parent and provided to us
for purposes of our analysis (the "Management Prospective Financial
Information", and, together with the Analysts Estimates, the "Prospective
Financial Information"), and we have assumed that the Prospective Financial
Information reflects the best currently available information with respect to
Target's future financial performance and that the
<PAGE>
Management Prospective Financial Information was reasonably prepared by Parent's
management in good faith and on bases reflecting the best currently available
judgments and estimates of Parent's management. We express no opinion with
respect to such Prospective Financial Information or the assumptions upon which
it is based. In addition, we have not reviewed any of the books and records of
the Target or Parent, or assumed any responsibility for conducting a physical
inspection of the properties or facilities of the Target or Parent, or for
making or obtaining an independent valuation or appraisal of the assets or
liabilities (contingent or otherwise) of the Target or Parent, and no such
independent valuation or appraisal was provided to us. We also have assumed that
obtaining all regulatory and other approvals and third-party consents required
for consummation of the Transaction will not have an adverse impact on Parent or
the Target or on the anticipated benefits of the Transaction, and we have
assumed that the transactions described in the Merger Agreement will be
consummated without waiver or modification of any of the material terms or
conditions contained therein by any party thereto. Our opinion is necessarily
based on economic and market conditions and other circumstances as they exist
and can be evaluated by us as of the date hereof.
In the ordinary course of our business, we may actively trade the debt and
equity securities of the Target and Parent for our own account and for the
accounts of customers and, accordingly, may at any time hold a long or short
position in such securities.
We are acting as financial advisor to the Special Committee of the Board of
Directors of Parent in connection with the proposed Transaction and will receive
a fee for our services, a significant portion of which is contingent upon the
consummation of the Transaction.
Our opinion addresses only the fairness from a financial point of view to
Parent of the consideration to be paid by Parent pursuant to the Transaction,
and we do not express any views on any other terms of the Transaction.
Specifically, our opinion does not address Parent's underlying business decision
to effect the Transaction.
It is understood that this letter is for the benefit and use of the Special
Committee of the Board of Directors of Parent in its consideration of the
Transaction, and may not be disseminated, quoted, referred to or reproduced at
any time or in any manner without our prior written consent. This letter may,
however, be included in its entirety in materials filed with the Securities and
Exchange Commission in connection with the Tender Offer or Merger.
Based upon and subject to the foregoing, including the various assumptions
and limitations set forth herein, it is our opinion that as of the date hereof,
the $20.80 per Share cash consideration to be paid by Parent pursuant to the
Tender Offer and the Merger is fair to Parent from a financial point of view.
Very truly yours,
WASSERSTEIN PERELLA & CO., INC.
<PAGE>
Confidential
PROJECT SPITZ
Presentation to the Special Committee
of the Board of Directors of Wonderco
November 12, 1999
[LOGO]
<PAGE>
PROJECT SPITZ
- --------------------------------------------------------------------------------
Table of Contents
1. EXECUTIVE SUMMARY
2. VALUATION OF SPITZ
Wasserstein Perella & Co.
- --------------------------------------------------------------------------------
<PAGE>
PROJECT SPITZ
- --------------------------------------------------------------------------------
EXECUTIVE SUMMARY
Wasserstein Perella & Co.
- --------------------------------------------------------------------------------
<PAGE>
PROJECT SPITZ EXECUTIVE SUMMARY
- --------------------------------------------------------------------------------
Background
WASSERSTEIN PERELLA & CO. ("WP&CO.") HAS BEEN HIRED BY THE SPECIAL COMMITTEE
OF WONDERCO (THE "SPECIAL COMMITTEE") TO DETERMINE THE FAIRNESS TO WONDERCO
OF AN ACQUISITION OF SPITZ FOR $20.80 PER SHARE IN CASH
a combined Wonderco/Spitz would have approximately $2.6 billion in sales
and $429 million in EBITDA
the transaction is expected to be accretive to Wonderco shareholders
SPITZ IS A PUBLICLY TRADED MANUFACTURER AND MARKETER OF SWIMWEAR AND ACTIVE
FITNESS APPAREL WITH APPROXIMATELY 140 RETAIL STORES
on October 8, 1999, the last trading day prior to the announcement of the
Wonderco proposal, Spitz traded at $17.56, with an equity market value of
$361 million and an enterprise value of $456 million, implying multiples
of 1.1x sales, 6.6x EBITDA, 7.9x EBIT and 13.6x net income on a trailing
basis
prior to the Wonderco offer, Spitz stock had increased 63% over a
three-year period versus 91% for the S&P 500 and a decrease of 4% for its
publicly traded peer group
ALTHOUGH INDEPENDENT, THE TWO COMPANIES HAVE MANY SIGNIFICANT BUSINESS
ARRANGEMENTS INCLUDING:
sharing top management, as well as certain occupancy, design,
manufacturing, purchasing, product sales, laboratory testing, computer
services and transportation services
Wonderco also has a sub-license from Spitz to manufacture and sell
intimate apparel under the Speedo label as well as licenses to make
certain apparel under the Catalina and White Stag labels
in addition, the two companies have jointly negotiated agreements with
vendors and suppliers
on a diluted basis, Linda Wachner, the CEO of both companies, owns
approximately 20% of Spitz common shares and 20% of Wonderco common
shares
ON OCTOBER 10, 1999, WONDERCO PROPOSED ACQUIRING ALL OF THE OUTSTANDING
SHARES OF SPITZ FOR CASH CONSIDERATION OF $20.50 PER SHARE
Wasserstein Perella & Co.
- --------------------------------------------------------------------------------
<PAGE>
PROJECT SPITZ EXECUTIVE SUMMARY
- --------------------------------------------------------------------------------
Overview of Proposal
WONDERCO HAS PROPOSED ACQUIRING ALL OF THE OUTSTANDING SHARES OF SPITZ FOR
CASH CONSIDERATION OF $20.80 PER SHARE
THE $20.80 PER SHARE OFFER PRICE IMPLIES THE FOLLOWING MARKET
CAPITALIZATION, TRADING MULTIPLES AND PREMIUM TO MARKET
IMPLIED MARKET CAPITALIZATION
Spitz Offer Price $20.80
Total Shares Outstanding 20.3
Total Options Outstanding 3.3
Average Exercise Price of Options $18.47
Equity Market Value $430
Plus: Net Debt 95
------
Adjusted Market Value $525
IMPLIED TRANSACTION MULTIPLES
ADJUSTED MARKET VALUE
AS A MULTIPLE OF
--------------------- PRICE TO
SALES EBITDA EBIT EARNINGS
------- -------- ------ ----------
1999A(1) 1.28x 7.6x 9.1x 16.3x
2000E(2) 1.16x 7.1x 8.3x 14.5x
- ------------
(1) As of June 30, 1999.
(2) Based on analyst projections in line with consensus First Call earnings
estimates.
SHARE PRICE PREMIUM COMPARISON
<TABLE>
<CAPTION>
1 MONTH 6 MONTH 1 YEAR 52-WEEK 52-WEEK
1 DAY AVERAGE AVERAGE AVERAGE HIGH LOW
------- --------- --------- --------- --------- ---------
<S> <C> <C> <C> <C>
Share Price Prior to offer $17.56 $17.35 $17.25 $16.74 $18.56 $13.13
Premium 18.4% 19.9% 20.6% 24.3% 12.1% 58.4%
</TABLE>
Wasserstein Perella & Co.
- --------------------------------------------------------------------------------
<PAGE>
PROJECT SPITZ EXECUTIVE SUMMARY
- --------------------------------------------------------------------------------
Transaction Rationale
WONDERCO MANAGEMENT BELIEVES THAT AN ACQUISITION OF SPITZ WILL INCREASE
WONDERCO SHAREHOLDER VALUE
potentially enhanced top line growth (e.g., through sales in Europe
through Rasurel, Wonderco's non-racing swimwear business)
annual synergies related to cost reduction estimated by Wonderco
management at approximately $3 million
- overlapping management and administrative functions (estimated to
generate approximately $1 million in annual savings)
- public company costs (directors, D&O insurance, filings, etc.)
- MIS cost savings
80% of Spitz products already produced by Wonderco in Mexico
- $5 million in estimated cost savings relating to Wonderco
manufacturing remaining 20% of Spitz's products
consolidates management of two companies under one structure and
eliminates potential conflicts
- perception that management can give undivided attention to Wonderco
should simplify street view and help the stock price
opportunity to solidify Catalina brand for mass merchandise channel
Ubertech technology could be utilized to develop a new Sports division for
the combined companies
- represents additional technological advantage for Calvin Klein jeans
and Chaps sportswear businesses where graphic T-shirts are a large
part of the sales
extending Weight Watchers brand into swimwear and body wear for the mass
market
gain additional key licenses, including Polo swimwear
offsetting high seasons for respective businesses will improve Wonderco's
financial risk profile by reducing earnings and cash flow seasonality
- Spitz generates most of its earnings and cash flow between January and
June, the lean period of Wonderco's own business cycle
Spitz' business has demonstrated double-digit growth over the past three
years
- sales and EBITDA annual growth rates of 12.8% and 10.9%, respectively
in a market which rewards larger capitalization companies, the transaction
would increase financial profile of Wonderco
- increase 1999 estimated pro forma sales and EBITDA from $2.1BN and
$358MM to $2.6BN and $429MM, respectively
Wonderco balance sheet will allow expansion and acceleration of retail
store developments
Wasserstein Perella & Co.
- --------------------------------------------------------------------------------
<PAGE>
PROJECT SPITZ EXECUTIVE SUMMARY
- --------------------------------------------------------------------------------
Overview of WP&Co. Due Diligence-to-Date
WP&CO. HAS MET WITH WONDERCO MANAGEMENT ON SEVERAL OCCASIONS
reviewed with management the transaction rationale and benefits, potential
cost savings and other synergies, financing for the acquisition, change of
control issues and potential market reaction
also reviewed publicly available information on both Wonderco and Spitz
have been provided with forecasts for Spitz prepared by Wonderco
management as well as internal budgets and projections prepared by Spitz
senior management
- we compared both forecasts to Wall Street consensus estimates for
FY2000, which we utilized in our analysis, as well as against each
other with respect to FY2001 and FY2002
WP&CO. HAS PERFORMED A VALUATION OF SPITZ USING THE FOLLOWING METHODOLOGIES:
discounted cash flow ("DCF") analysis
- provides a net present valuation of the projected after-tax unlevered
free cash flows of Spitz
- three year analysis based on analyst projections in line with
consensus First Call earnings estimates through FY2000 and
projections provided by Wonderco management for FY2001 and FY2002
comparable companies analysis
- provides a market valuation benchmark based on the trading multiples
of selected comparable companies
- based on a review of the trading and financial performance of a
selected universe of comparable public apparel companies
comparable transactions analysis
- provides a market benchmark based on the consideration paid in
selected comparable transactions
- based on a review of selected merger and acquisition transactions
involving target companies in the apparel sector
premiums paid analysis
- considers control premia paid in acquisitions ranging in size from
$100 million to $1,000 million from January 1998 to date
Wasserstein Perella & Co.
- --------------------------------------------------------------------------------
<PAGE>
PROJECT SPITZ EXECUTIVE SUMMARY
- -------------------------------------------------------------------------------
Spitz LTM Price and Volume History
[PERFORMANCE GRAPH]
<TABLE>
<S> <C> <C>
[1] 1/29/99: Announces that FY 1999 Q2 EPS increased 12% to $0.21
[2] 5/4/99: Announces that FY 1999 Q3 EPS increased 11% to $0.69
[3] 5/28/99: Announces the acquisition of 70% of Ubertech Texas, a Houston
developer of silicone-based graphic designs and applications
[4] 7/8/99: Pentland Group, 22% owners of Spitz, announces that it plans to go
private following a 25% stock market decline in the past three years
[5] 8/17/99: Announces that FY 1999 Q4 EPS increased 30% to $0.69
[6] 8/18/99: The Board institutes a shareholder rights plan
[7] 10/10/99: Wonderco offers to acquire all of the outstanding stock of Spitz
in a cash transaction valued at $20.50 per share
</TABLE>
Wasserstein Perella & Co.
- --------------------------------------------------------------------------------
<PAGE>
PROJECT SPITZ EXECUTIVE SUMMARY
- --------------------------------------------------------------------------------
Valuation Summary ($ in millions, except per share amounts)
DISCOUNTED CASH FLOW(1) $20.53 $27.35
COMPARABLE COMPANIES ANALYSIS
7.5x-8.5x 1999 EBITDA of $68.6MM $20.45 $23.79
With a 30% control premium(3) $26.58 $30.93
5.0x-6.0x 2000E EBITDA of $74.2MM(2) $13.45 $17.06
With a 30% control premium(3) $17.48 $22.18
10.0x-13.0x 2000E Net Income of $29.6MM(2) $14.42 $18.74
With a 30% control premium(3) $18.75 $24.36
COMPARABLE ACQUISITIONS ANALYSIS
1.1x-1.3x 1999 Sales of $410.8MM $17.39 $21.39
8.0x-9.0x 1999 EBITDA of $68.6MM $22.12 $25.46
PREMIUMS PAID(4) $21.95 $23.71
PRE-ANNOUNCEMENT PRICE
$17.56
OFFER PRICE
$20.80
- -------------------
(1) Based on analyst projections in line with consensus First Call earnings
estimates through FY2000 and projections provided by Wonderco management for
FY2001-FY2002, utilizing a range of discount rates from 13.5% to 14.5% and
LTM EBITDA terminal multiples from 7.0x to 9.0x.
(2) Based on analyst projections in line with consensus First Call earnings
estimates.
(3) Based on selected public change-in-control transactions with transaction
values ranging from $100MM to $1,000MM from 1998 to present.
(4) 25% to 35% premium, based on selected public change of control transactions
with transaction values ranging from $100MM to $1,000MM from 1998 to
present, applied to the pre-announcement price of $17.56.
Wasserstein Perella & Co.
- --------------------------------------------------------------------------------
<PAGE>
PROJECT SPITZ Executive Summary
- --------------------------------------------------------------------------------
Analysis at Various Purchase Prices
($MM, except per share amounts)
<TABLE>
- ------------------------------------------------------------------------------------------------------------------------------
<CAPTION>
SPITZ PRICE PER SHARE ($) $ 17.56 $ 19.00 $ 20.00 $ 20.80 $ 21.00 $ 22.00 $ 23.00 $ 24.00
PREMIUM TO MARKET (1) 0.0% 8.2% 13.9% 18.4% 19.6% 25.3% 31.0% 36.7%
- ------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
SPITZ EQUITY MARKET VALUE (2) $361 $391 $413 $430 $435 $458 $482 $505
NET DEBT 95 95 95 95 95 95 95 95
--- --- --- --- --- --- --- --
TRANSACTION VALUE $456 $486 $507 $525 $529 $553 $577 $600
- ------------------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------------
LTM TRANSACTION MULTIPLES: 1999A
Sales $410.8 1.11x 1.18x 1.24x 1.28x 1.29x 1.35x 1.40x 1.46x
EBITDA 68.6 6.6 7.1 7.4 7.6 7.7 8.1 8.4 8.7
EBIT 57.5 7.9 8.5 8.8 9.1 9.2 9.6 10.0 10.4
Net Income 26.4 13.6 14.8 15.6 16.3 16.4 17.3 18.2 19.1
- ------------------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------------
2000E TRANSACTION MULTIPLES: 2000E (3)
Sales $454.3 1.00x 1.07x 1.12x 1.16x 1.17x 1.22x 1.27x 1.32x
EBITDA 74.2 6.1 6.6 6.8 7.1 7.1 7.5 7.8 8.1
EBIT 63.5 7.2 7.7 8.0 8.3 8.3 8.7 9.1 9.5
Net Income 29.6 12.2 13.2 13.9 14.5 14.7 15.5 16.3 17.1
- --------------------------------------------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
MEDIAN
COMP. MULTIPLES
----------------------
LTM: TRADING DEALS
- ------ ----------------------
<S> <C> <C>
Sales 0.89x 0.83x
EBITDA 7.9 8.4
EBIT 10.0 10.3
Net Income 14.3 17.3
2000E:
- ------
Sales 0.73x
EBITDA 4.6
EBIT 6.8
Net Income 10.2
</TABLE>
- ------------------------
(1) Based on closing prices of $17.56 on October 8, 1999, the last day trading
day prior to announcement of the Wonderco proposal.
(2) Based on 20.3MM shares outstanding and 3.3MM options exercisable with
an average strike price of $18.47.
(3) Based on analyst projections in line with consensus First Call earnings
estimates.
Wasserstein Perella & Co.
- --------------------------------------------------------------------------------
<PAGE>
PROJECT SPITZ EXECUTIVE SUMMARY
- --------------------------------------------------------------------------------
Pro Forma Financial Impact on Wonderco(1)
<TABLE>
<S> <C>
Acquisition Price per Share $20.80
------------
Wonderco FY 2000E Stand Alone EPS (Primary) $2.85
Wonderco FY 2000E Stand Alone EPS (Diluted) $2.75
Spitz Calendarized FY 2000E Net Income(2) $0.59
$3 million of Identified Cost Savings $0.031
$5 million Cost Savings Related to Wonderco Manufacturing Remaining 20% of Spitz Products $0.052
Amortization of Acquisition Goodwill(3) ($0.096)
Incremental Interest Expense(4) ($0.354)
Pro Forma FY 2000E Diluted EPS $2.97
Accretion/(Dilution) $0.222
8.1%
</TABLE>
- ---------------------------------
(1) All figures shown after-tax.
(2) Based on analyst projections in line with consensus First Call earnings
estimates.
(3) Assumes tax deductible goodwill per Wonderco management; assuming non-tax
deductible goodwill increases incremental amortization expense to $0.159 at
$20.80 per share, which reduces the accretion from the transaction to 5.8%.
(4) Assumes incremental borrowing of $449.1 mm at 7.50% at $20.80 per share,
respectively, excluding amount required to refinance Spitz existing
indebtedness.
Wasserstein Perella & Co.
- --------------------------------------------------------------------------------
<PAGE>
PROJECT SPITZ
- --------------------------------------------------------------------------------
VALUATION OF SPITZ
Wasserstein Perella & Co.
- --------------------------------------------------------------------------------
<PAGE>
PROJECT SPITZ VALUATION OF SPITZ
- --------------------------------------------------------------------------------
Valuation Summary ($ in millions, except per share amounts)
DISCOUNTED CASH FLOW(1) $20.53 $27.35
COMPARABLE COMPANIES ANALYSIS
7.5x-8.5x 1999 EBITDA of $68.6MM $20.45 $23.79
With a 30% control premium(3) $26.58 $30.93
5.0x-6.0x 2000E EBITDA of $74.2MM(2) $13.45 $17.06
With a 30% control premium(3) $17.48 $22.18
10.0x-13.0x 2000E Net Income of $29.6MM(2) $14.42 $18.74
With a 30% control premium(3) $18.75 $24.36
COMPARABLE ACQUISITIONS ANALYSIS
1.1x-1.3x 1999 Sales of $410.8MM $17.39 $21.39
8.0x-9.0x 1999 EBITDA of $68.6MM $22.12 $25.46
PREMIUMS PAID(4) $21.95 $23.71
PRE-ANNOUNCEMENT PRICE
$17.56
OFFER PRICE
$20.80
- -------------------
(1) Based on analyst projections in line with consensus First Call earnings
estimates through FY2000 and projections provided by Wonderco management for
FY2001-FY2002, utilizing a range of discount rates from 13.5% to 14.5% and
LTM EBITDA terminal multiples from 7.0x to 9.0x.
(2) Based on analyst projections in line with consensus First Call earnings
estimates.
(3) Based on selected public change-in-control transactions with transaction
values ranging from $100MM to $1,000MM from 1998 to present.
(4) 25% to 35% premium, based on selected public change of control transactions
with transaction values ranging from $100MM to $1,000MM from 1998 to
present, applied to the pre-announcement price of $17.56.
Wasserstein Perella & Co.
- --------------------------------------------------------------------------------
<PAGE>
PROJECT SPITZ VALUATION OF SPITZ
- --------------------------------------------------------------------------------
Discounted Cash Flow Analysis(1)
($ in millions, except per share data)
IMPLIED SHARE PRICE(2)
<TABLE>
<CAPTION>
TERMINAL EBITDA MULTIPLE
------------------------------------------------------------------
7.0x 7.5x 8.0x 8.5x 9.0x
---------- ---------- ---------- ----------- ----------
DISCOUNT RATE
-------------
<S> <C> <C> <C> <C> <C>
13.5% $21.16 $22.71 $24.26 $25.80 $27.35
14.0% $20.84 $22.37 $23.90 $25.42 $26.95
14.5% $20.53 $22.04 $23.54 $25.05 $26.56
</TABLE>
- --------------------------------------
(1) Based on analyst projections in line with consensus First Call earnings
estimates through FY2000 and projections provided by Wonderco management
for FY2001-FY2002.
(2) Based on 20.5 million diluted shares outstanding, including all outstanding
options utilizing the treasury method with "in-the-money" exercise prices,
and $95.0 of Net Debt as of July 3, 1999.
Wasserstein Perella & Co.
- --------------------------------------------------------------------------------
<PAGE>
PROJECT SPITZ VALUATION OF SPITZ
- --------------------------------------------------------------------------------
Weighted Average Cost of Capital
<TABLE>
<CAPTION>
- ---------------------------------------------
ASSUMPTIONS
- ---------------------------------------------
<S> <C>
TAX RATE 40.0%
ESTIMATED MARKET PREMIUM(1) 10.1%
RISK-FREE RATE OF RETURN(2) 6.0%
SIZE PREMIUM(3) 1.7%
- ---------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------
UNLEVERED BETAS
- ----------------------------------------------------------------------------------------
CURRENT NET EQUITY DEBT/
LEVERED DEBT VALUE TOTAL UNLEVERED
BETA(4) ($MM) ($MM) CAPITAL BETA(5)
------- ----- ----- ------- -------
<S> <C> <C> <C> <C> <C>
RUSSELL 0.65 $450 $485 48.1% 0.42
COLUMBIA SPORTSWEAR 0.97 105 495 17.5% 0.86
NAUTICA 0.97 (11) 463 (2.4%) 0.98
QUIKSILVER 1.11 48 359 11.8% 1.03
CUTTER & BUCK 1.00 (7) 144 (5.3%) 1.03
NORTH FACE 1.19 76 62 55.3% 0.68
SPITZ 0.60 96 406 19.2% 0.53
- ----------------------------------------------------------------------------------------
MEAN(6) 0.98 $110 $335 20.8% 0.83
MEDIAN(6) 0.99 $62 $411 14.7% 0.92
- ----------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------
WEIGHTED AVERAGE COST OF CAPITAL
- --------------------------------------------------------------------------------------------------
CAPITAL STRUCTURE COST OF EQUITY COST OF DEBT
- ------------------------ ---------------------- -----------------------
DEBT/ DEBT/ RELEVERED COST OF BEFORE AFTER WEIGHTED AVERAGE
Capital Equity BETA EQUITY TAX TAX COST OF CAPITAL
------- ------ ---- ------ --- --- ---------------
<S> <C> <C> <C> <C> <C> <C>
10.0% 11.1% 0.89 16.7% 7.0% 4.2% 15.5%
20.0% 25.0% 0.96 17.4% 7.5% 4.5% 14.8%
30.0% 42.9% 1.05 18.3% 8.0% 4.8% 14.3%
40.0% 66.7% 1.17 19.5% 8.5% 5.1% 13.8%
50.0% 100.0% 1.33 21.2% 9.0% 5.4% 13.3%
- --------------------------------------------------------------------------------------------------
</TABLE>
- ------------------------------
(1) Long-horizon expected equity risk premium (source: Ibbotson Associates).
(2) 10-year U.S. Treasury bond rate as of November 10, 1999.
(3) Expected low-capitalization ($252MM to $416MM) equity size premium (source:
Ibbotson Associates).
(4) Source: Barra.
(5) Unlevered Beta = Levered Beta / {1+(Debt/Equity)*(1-Tax Rate)}.
(6) Excludes SPITZ.
(7) Based on mean of unlevered betas.
Wasserstein Perella & Co.
- --------------------------------------------------------------------------------
<PAGE>
PROJECT SPITZ VALUATION OF SPITZ
- --------------------------------------------------------------------------------
Selected Apparel Companies - LTM Trading Multiples ($MM)(1)
<TABLE>
<CAPTION>
Adjusted Market Value Equity Market Value
as a Multiple of as a Multiple of I/B/E/S Price
Adjusted Equity ---------------------------------- --------------------- LT EPS Rel. to
Period Market Market Net Net Book Growth 52 Wk.
Ended Value Value Sales EBITDA EBIT Income Value Estimate High
---------- -------- --------- -------- ----------- ---------- --------- ---------- ---------- --------
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
SPITZ 07/03/1999 $502 $406 1.22x 7.2x 8.7x 15.3x 3.1x 17.3% 98.1%
- ------------------------------------------------------------------------------------------------------------------------------------
Russell 07/04/1999 $936 $485 0.82x 5.6x 10.0x 12.3x 0.9x 11.3% 58.0%
Columbia Sportswear 09/30/1999 600 495 1.31 8.8 10.3 14.6 2.8 17.1% 87.2%
Nautica 08/28/1999 452 463 0.79 4.9 5.9 9.5 1.9 13.5% 64.7%
Quiksilver 07/31/1999 407 359 0.96 7.7 8.8 14.3 2.6 22.3% 50.5%
Cutter & Buck 07/31/1999 137 144 1.16 8.5 10.4 17.5 1.9 28.4% 55.1%
North Face 06/30/1999 138 62 0.52 8.1 NM NM 0.6 19.0% 28.7%
- ------------------------------------------------------------------------------------------------------------------------------------
MEAN(2) 0.92x 7.3x 9.1x 13.6x 1.8x 18.6% 57.3%
MEDIAN(2) 0.89x 7.9x 10.0x 14.3x 1.9x 18.1% 56.5%
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
- ---------------------------------
(1) Stock prices are current as of November 10, 1999; financial results as
reported excluding nonrecurring charges.
(2) Excludes SPITZ.
Wasserstein Perella & Co.
- --------------------------------------------------------------------------------
<PAGE>
PROJECT SPITZ VALUATION OF SPITZ
- -------------------------------------------------------------------------------
Selected Apparel Companies - NFY Trading Multiples ($MM)(1)
<TABLE>
<CAPTION>
ADJUSTED MARKET VALUE EQUITY MARKET VALUE
AS A MULTIPLE OF AS A MULTIPLE OF
ADJUSTED EQUITY ----------------------------------- ----------------------
PERIOD MARKET MARKET NET NET BOOK
ENDED VALUE VALUE SALES EBITDA EBIT INCOME VALUE
--------------- ---------- ---------- ---------- ---------- ---------- ---------- ---------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
- ------------------------------------------------------------------------------------------------------------------------------------
SPITZ 07/04/2000 $502 $406 1.00X 6.1X 7.2X 12.2X 2.2X
- ------------------------------------------------------------------------------------------------------------------------------------
Russell 01/02/2001 $936 $485 0.76x 4.4x 6.8x 7.1x 0.8x
Columbia Sportswear 12/31/2000 600 495 1.11 7.3 8.8 13.1 2.3
Nautica 02/27/2000 452 463 0.65 4.4 5.4 8.8 1.7
Quiksilver 10/31/2000 407 359 0.78 5.8 6.8 11.0 2.0
Cutter & Buck 04/30/2001 137 144 0.70 4.8 5.7 9.4 1.4
North Face 12/31/2000 138 62 0.40 4.4 8.2 11.3 0.5
- ------------------------------------------------------------------------------------------------------------------------------------
MEAN(2) 0.73X 5.2X 6.9X 10.1X 1.4X
MEDIAN(2) 0.73x 4.6x 6.8x 10.2x 1.5x
- ------------------------------------------------------------------------------------------------------------------------------------
<CAPTION>
I/B/E/S PRICE
LT EPS REL. TO
GROWTH 52 WK.
ESTIMATE HIGH
---------- ----------
<S> <C> <C>
- -------------------------------------------------------
SPITZ 17.3% 98.1%
- -----------------------------------------------------
Russell 11.3% 58.0%
Columbia Sportswear 17.1% 87.2%
Nautica 13.5% 64.7%
Quiksilver 22.3% 50.5%
Cutter & Buck 28.4% 55.1%
North Face 19.0% 28.7%
- -------------------------------------------------------
MEAN(2) 18.6% 57.3%
MEDIAN(2) 18.1% 56.5%
- -------------------------------------------------------
</TABLE>
- ---------------------------------
(1) Stock prices are current as of November 10, 1999; financial
results as reported excluding nonrecurring charges.
(2) Excludes SPITZ.
Wasserstein Perella & Co.
- --------------------------------------------------------------------------------
<PAGE>
PROJECT SPITZ VALUATION OF SPITZ
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
ADJUSTED ADJUSTED PURCHASE PRICE
ANNC. PERCENT PURCHASE PURCHASE AS A MULTIPLE OF: PURCHASE PRICE
--------------------- AS A MULTIPLE OF
DATE TARGET / ACQUIROR ACQUIRED(2) PRICE(2) PRICE(2) SALES EBITDA EBIT NET INCOME
- -------- --------------------------------------------------------------------------- -------- ------ ------- ------ ----------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
7/99 Pentland Group PLC/Robert Stephen Holdings plc(1) 38% 594 811 0.7x 8.4x 10.3x 21.6x
5/99 Lucky Brands Dungarees / Liz Claiborne(3) 85% 85 85 1.7 NA NA NA
5/99 Nine West / Jones Apparel 100% 1,455 994 0.8 8.2 11.3 25.2
4/99 Umbro Europe (Holdings) Ltd. / Doughty Hanson & Co.
Ltd. 100% 145 145 0.4 NA NA NA
3/99 Anne Klein & Co. (Takihyo Co.) / Kasper ASL 100% 60 60 NA NA NA NA
2/99 Gant (Phillips-Van Heusen) / Pyramid Partners 100% 71 71 0.9 NM NM NM
1/99 Perry Ellis International Inc. / Supreme International
Corp.(4) 100% 75 75 4.6 9.6 9.9 16.5
1/99 Segrets, Inc. / Liz Claiborne 85% 54 54 1.1 NA NA NA
12/98 Koret / Kellwood Co. 100% 151 130 0.5 6.2 7.2 15.8
12/98 St. John Knits / Vestar and Company Management (5) 93% 492 520 1.7 8.4 10.7 18.2
12/98 Jerell / Haggar 100% 42 37 0.6 6.7 6.9 10.7
9/98 Sun Apparel / Jones Apparel 100% 446 217 1.1 8.2 9.6 13.2
5/98 Farah / Tropical Sportswear 100% 144 93 0.5 16.5 31.8 NM
3/98 Biderman Industries / Vestar 70% 360 125 1.4 12.9 NA NA
2/98 Joop! / Wuensche AG 95% 83 83 0.3 NA NA NA
2/98 Pepe Jeans USA & Tommy Hilfiger Canada / Tommy Hilfiger 100% 1,395 1,320 3.4 17.4 19.1 30.5
11/97 Severin Montres / Gucci 100% 150 150 0.8 NA 3.5 NA
10/97 Sun Apparel / Vestar(5) 40% 357 297 1.3 13.8 18.7 33.4
9/97 Valentino / Holding di Partecipazioni 100% 300 257 3.0 NA 17.3 NA
9/97 Designer Holdings / Warnaco 100% 390 342 0.8 9.0 10.3 18.6
4/97 Helly Hansen / Investcorp 70% 123 88 1.2 9.7 10.9 12.5
1/97 Winning Ways / Jordan Co. 100% 233 204 1.3 6.2 6.8 6.4
10/96 The William Carter Co. / Investcorp 100% 208 208 0.7 6.8 9.9 25.7
5/96 Lejaby-Euralis / Warnaco 100% 79 79 0.7 6.5 NA NA
1/96 Gerber Childrenswear / Citicorp Venture Capital 100% 74 74 0.4 4.0 4.5 7.4
-----------------------------------------------------------------------------------------------------------
MEAN 1.2X 9.3X 11.7X 18.3X
MEDIAN 0.8X 8.4X 10.3X 17.3X
</TABLE>
- --------------
(1) Pending transaction; purchase prices for entire company; converted to US$
based on exchange rates as of September 24, 1999.
(2) For transactions for less than 100% of the Company, prices reflect actual
amounts paid for stake acquired, unless otherwise noted.
(3) Purchase price does not include contingent payments of $15 to $45 million to
be paid in 2003 based on performance targets.
(4) Net sales consist of solely licensing revenues. Net income assumes a 40% tax
rate on pretax income (Perry Ellis International was an S corporation).
(5) Acquired by Vestar in a leveraged recapitalization. Percent acquired
reflects Vestar common equity interest following recapitalization. Adjusted
purchase price reflects enterprise valuation placed on target in
transaction. Purchase price reflects value of rolled and new equity as well
as amounts paid to initial stockholders.
Wasserstein Perella & Co.
- --------------------------------------------------------------------------------
<PAGE>
PROJECT SPITZ VALUATION OF SPITZ
- --------------------------------------------------------------------------------
Premiums Paid Summary
<TABLE>
<S> <C>
- --------------------------------------------------------------------------------
Time Horizon: January 1998 - September 1999
Transaction Type: Control Acquisitions
Target Transaction Value Range: $100MM - $1,000MM
Company Universe: 419 public companies
- --------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
% STOCK PREMIUM BEFORE ANNOUNCEMENT DATE
----------------------------------------------------
1 DAY 1 WEEK 4 WEEKS
- --------------------------------------------------------------------------------
<S> <C> <C> <C>
MEAN 33% 39% 47%
ADJUSTED MEAN (1) 29% 35% 43%
MEDIAN 26% 32% 41%
- --------------------------------------------------------------------------------
</TABLE>
- -------------------------
Source: Securities Data Company.
(1) Excludes the highest 10% and the lowest 10% of universe.
Wasserstein Perella & Co.
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