-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, KrZQeMNMKF4ZObp8Jf6d6ybNn/+Io4qILAu377LmyeoyHyMVu/N3rmfmi1UIwPUF /odLMp4B1lV5JCceBbVa2g== 0001012975-97-000217.txt : 19971007 0001012975-97-000217.hdr.sgml : 19971007 ACCESSION NUMBER: 0001012975-97-000217 CONFORMED SUBMISSION TYPE: SC 13D PUBLIC DOCUMENT COUNT: 5 FILED AS OF DATE: 19971006 SROS: NASD GROUP MEMBERS: ARNOLD H. SIMON GROUP MEMBERS: CHARTERHOUSE EQUITY PARTNERS II LP GROUP MEMBERS: NEW RIO, LLC SUBJECT COMPANY: COMPANY DATA: COMPANY CONFORMED NAME: WARNACO GROUP INC /DE/ CENTRAL INDEX KEY: 0000801351 STANDARD INDUSTRIAL CLASSIFICATION: WOMEN'S, MISSES', CHILDREN'S & INFANTS' UNDERGARMENTS [2340] IRS NUMBER: 954032739 STATE OF INCORPORATION: DE FISCAL YEAR END: 0103 FILING VALUES: FORM TYPE: SC 13D SEC ACT: SEC FILE NUMBER: 005-41889 FILM NUMBER: 97691387 BUSINESS ADDRESS: STREET 1: 90 PARK AVE STREET 2: 26TH FLOOR CITY: NEW YORK STATE: NY ZIP: 10016 BUSINESS PHONE: 2126611300 FORMER COMPANY: FORMER CONFORMED NAME: W ACQUISITION CORP /DE/ DATE OF NAME CHANGE: 19861117 FILED BY: COMPANY DATA: COMPANY CONFORMED NAME: CHARTERHOUSE EQUITY PARTNERS II LP CENTRAL INDEX KEY: 0001033355 STANDARD INDUSTRIAL CLASSIFICATION: [] IRS NUMBER: 133752442 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: SC 13D BUSINESS ADDRESS: STREET 1: C/O CHARTERHOUSE GROUP INTERNATIONAL INC STREET 2: 535 MADISON AVE CITY: NEW YORK STATE: NY ZIP: 10022 BUSINESS PHONE: 2124213125 SC 13D 1 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. 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 EX-99 2 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 EX-99 3 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. EX-99 4 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. # # # EX-99 5 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 ________________________________________________________________ -----END PRIVACY-ENHANCED MESSAGE-----