-----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, WFJRBNyeEZ9emG6TfjUOoVmzP0bVAfL0IiL8l8lD69sidDjRFEy/NkrKqAmxevWS fMu3zUAnDLFVlMBe8cYDHg== 0000950117-00-000849.txt : 20000404 0000950117-00-000849.hdr.sgml : 20000404 ACCESSION NUMBER: 0000950117-00-000849 CONFORMED SUBMISSION TYPE: 10-K/A PUBLIC DOCUMENT COUNT: 8 CONFORMED PERIOD OF REPORT: 20000101 FILED AS OF DATE: 20000403 FILER: 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: 10-K/A SEC ACT: SEC FILE NUMBER: 001-10857 FILM NUMBER: 592205 BUSINESS ADDRESS: STREET 1: 90 PARK AVE STREET 2: 26TH FLOOR CITY: NEW YORK STATE: NY ZIP: 10016 BUSINESS PHONE: 2126611300 MAIL ADDRESS: STREET 1: 90 PARK AVENUE STREET 2: 26TH FLOOR CITY: NEW YORK STATE: NY ZIP: 10016 FORMER COMPANY: FORMER CONFORMED NAME: W ACQUISITION CORP /DE/ DATE OF NAME CHANGE: 19861117 10-K/A 1 WARNACO 10-K/A =============================================================================== SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 FORM 10-K/A [X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the fiscal year ended January 1, 2000 or [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 Commission File Number: 1-10857 The Warnaco Group, Inc. (Exact name of registrant as specified in its charter) Delaware 95-4032739 (State or other jurisdiction of (I.R.S. Employer incorporation or organization) Identification No.) 90 Park Avenue New York, New York 10016 (Address of principal executive offices) Registrant's telephone number, including area code: (212) 661-1300 ------------------------ Securities registered pursuant to Section 12(b) of the Act: Name of each exchange Title of each class on which registered ------------------- ------------------- Class A Common Stock, par value $0.01 per share New York Stock Exchange Convertible Trust Originated Preferred Securities* New York Stock Exchange * Issued by Designer Finance Trust. Payments of distributions and payment on liquidation or redemption are guaranteed by the registrant. Securities registered pursuant to Section 12(g) of the act: NONE Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes [x] No [ ] Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of the registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. [ ] The aggregate market value of the Class A Common Stock, the only voting stock of the registrant issued and outstanding, held by non-affiliates of the registrant as of March 29, 2000, was approximately $522,594,325. The number of shares outstanding of the registrant's Class A Common Stock as of March 29, 2000: 53,229,388. Documents incorporated by reference: The definitive Proxy Statement of The Warnaco Group, Inc. relating to the 2000 Annual Meeting of Stockholders is incorporated by reference in Part III hereof. =============================================================================== PART I Item 1. Business. (a) General Development of Business. The Warnaco Group, Inc. (the "Company"), a Delaware corporation, was organized in 1986 for the purpose of acquiring the outstanding shares of Warnaco Inc. ("Warnaco"). As a result of the Company's acquisition of Warnaco, Warnaco became a wholly-owned subsidiary of the Company. The Company and its subsidiaries design, manufacture and market a broad line of women's intimate apparel, such as bras, panties, sleepwear, shapewear and daywear; men's apparel, such as sportswear, jeanswear, khakis, underwear and accessories, women's and junior's apparel, such as sportswear and jeanswear and active apparel, such as swimwear, swim accessories and fitness apparel all of which are sold under a variety of internationally recognized owned and licensed brand names. During fiscal 1999, the Company acquired Authentic Fitness Corporation ("Authentic Fitness") which designs, manufactures and markets swimwear, swim accessories and active fitness apparel under the Speedo'r', Speedo Authentic Fitness'r', Catalina'r', Anne Cole'r', Cole of California'r', Ralph Lauren'r', Polo Sport Ralph Lauren'r', Polo Sport-RLX'r', Oscar de la Renta'r', Sunset Beach'r', and Sandcastle'r' brand names and activewear and swimwear under the White Stag'r' brand name. In fiscal 1999, the Company also acquired Penhaligon's Ltd., a United Kingdom based retailer of perfumes, soaps, toiletries and other products for men and women; IZKA'r', a French retailer of seam-free and seamless women's intimate apparel products; A.B.S. by Allen Schwartz'r', a leading contemporary designer of casual sportswear and dress lines, sold through better department and specialty stores and Chaps Canada, the Canadian Chaps licensee for men's sportswear. In 1999, the Company also entered into an exclusive license agreement with Weight Watchers International, Inc., ("Weight Watchers") to market shapewear and activewear for the mass market under the Weight Watchers'r' label, successfully launching its Shapewear line in June 1999. During fiscal 1998, the Company acquired the sub-license to produce Calvin Klein'r' jeans and jeans-related products for children in the United States, Mexico and Central and South America. The Company also acquired the sub-license to distribute Calvin Klein jeans, jeans-related products and khakis for men and women in Mexico, Central America and Canada. In addition, the Company discontinued several underperforming product lines and styles. During fiscal 1997, the Company acquired Designer Holdings Ltd. ("Designer Holdings"), which develops, manufactures and markets designer jeanswear and sportswear for men, women and juniors, and holds a 40-year extendable license from Calvin Klein, Inc. to develop, manufacture and market designer jeanswear, khakis and jeans related sportswear collections in North, South and Central America under the Calvin Klein Jeans'r', CK/Calvin Klein Jeans'r' and CK/Calvin Klein/Khakis'r' labels. The Company's growth strategy is to continue to capitalize on its highly recognized brand names worldwide while broadening its channels of distribution and improving manufacturing efficiencies and cost controls. The Company attributes the strength of its brand names to the quality, fit and design of its products which have developed a high degree of consumer loyalty and a high level of repeat business. The Company operates in three business segments, Intimate Apparel, Sportswear and Accessories and Retail Stores, which accounted for 44.6%, 48.4% and 7.0%, respectively, of net revenues in fiscal 1999, and 47.4%, 46.7% and 5.9%, respectively, of the Company's gross profit for the same period. The Intimate Apparel Division designs, manufactures and markets moderate to premium priced intimate apparel for women under the Warner's'r', Olga'r', Calvin Klein'r', Lejaby'r', Van Raalte'r', Weight Watchers'r', Fruit of the Loom'r' and Bodyslimmers'r' brand names. In addition, the Intimate Apparel Division designs, manufactures and markets men's underwear under the Calvin Klein brand name. The Intimate Apparel Division is the leading marketer of women's bras to department and specialty stores in the United States, as measured by the NPD Group, Inc. ("NPD"), accounting for 39.0% of the women's bra 2 market share in the 1999 calendar year, up 1.5% over 1998's 37.5%. The Warner's and Olga brand names, which are owned by the Company, have been in business for 126 and 59 years, respectively. All of the Company's Intimate Apparel brands are owned with the exception of Fruit of the Loom bras and Weight Watchers, which are licensed. The Intimate Apparel Division's strategy is to increase its channels of distribution and expand its highly recognized brand names worldwide. In February 1996, the Company purchased the GJM Group of Companies ("GJM") from Cygne Designs, Inc. GJM is a private label maker of sleepwear and intimate apparel. The acquisition provided the Company with design, marketing and manufacturing expertise in the sleepwear business, broadening the Company's product line and contributing to the Company's base of low cost manufacturing capacity. In June 1996, the Company purchased Bodyslimmers which also increased the Company's presence in a growing segment of the intimate apparel market. Bodyslimmers is a leading designer and manufacturer of body slimming undergarments targeted at aging baby boomers, In July 1996, the Company acquired the Lejaby/Euralis Group of Companies ("Lejaby"). Lejaby is a leading maker of intimate apparel in Europe. The Lejaby acquisition increased the size of the Company's operations in Western Europe and provides the Company with an opportunity to expand the distribution of its products in the critical European market. In 1991, the Company entered into a license agreement with Fruit of the Loom, Inc. for the design, manufacture and marketing of moderate priced bras, daywear and other related items to be distributed through mass merchandisers, such as Wal-Mart and KMart, under the Fruit of the Loom brand name and has built its market share to 4.4% in the mass merchandise market as measured by NPD. This license was renewed by the Company in 1994 and was further extended and renewed in 1998. In late 1994, the Company purchased the Van Raalte trademark for $1.0 million and launched an intimate apparel line through Sears stores in July 1995. In fiscal 1999, the Company entered into the license agreement with Weight Watchers to design, manufacture and market of shapewear and activewear under the Weight Watchers brand name. The Sportswear and Accessories Division designs, manufactures, imports and markets moderate to premium priced men's apparel and accessories under the Chaps by Ralph Lauren'r', Calvin Klein and Catalina brand names; better to premium priced women's and junior's apparel under the Calvin Klein and A.B.S. by Allen Schwartz'r' brand names; and moderate to better active apparel under the Speedo, Speedo Authentic Fitness, Catalina, Anne Cole, Cole of California, Ralph Lauren, Polo Sport Ralph Lauren, Polo Sport-RLX, Oscar de la Renta, Sunset Beach and Sandcastle brand names. During fiscal 1999, the Company acquired Authentic Fitness Corporation which designs, manufactures and markets swimwear, swim accessories and active fitness apparel under the above listed brand names and activewear and swimwear under the White Stag brand name. In fiscal 1999, the Company also acquired A.B.S. by Allen Schwartz, a leading contemporary designer of casual sportswear and dress lines, sold through better department and specialty stores and Chaps Canada, the Canadian Chaps licensee for men's sportswear. In December 1997, the Company completed the acquisition of Designer Holdings which develops, manufactures and markets designer jeanswear and jeans related sportswear for men, women and juniors under the Calvin Klein Jeans, CK/Calvin Klein Jeans and CK/Calvin Klein/Khakis labels. The Calvin Klein Jeans, CK/Calvin Klein Jeans and CK/Calvin Klein/Khakis brands complement the Company's existing product lines, including Calvin Klein underwear for men and women and Calvin Klein men's accessories. During fiscal 1998, the Company expanded the Calvin Klein jeanswear business by acquiring the sub-license to produce Calvin Klein jeans and jeans-related products for children in the United States, Mexico and Central and South America. In addition, the Company acquired the sub-license to distribute Calvin Klein jeans, jeans-related products and khakis for men and women in Mexico, Central America and Canada. Chaps by Ralph Lauren has increased its net revenues by approximately 700% since 1991 from $39.0 million to $317.4 million in 1999, predominantly by expanding product classifications and updating its styles. In 1995, the Company extended its Chaps by Ralph Lauren license through December 31, 2008. The Sportswear and Accessories Division's strategy is to build on the 3 strength of its brand names and eliminate those businesses which generate a profit contribution below the Company's required return. Consistent with this strategy, the Company has eliminated several underperforming brands since 1992, including its Hathaway business, which was sold to a group of investors in November 1996. The Company has been expanding its brand names throughout the world by increasing the activities of its wholly-owned operating subsidiaries in Canada, Mexico, Europe and Asia. International operations generated $338.2 million, or 16% of the Company's net revenues in fiscal 1999, compared with $319.7 million, or 16.4%, of the Company's net revenues in fiscal 1998, and $290.4 million, or 20.2%, of the Company's net revenues in fiscal 1997. The Company's business strategy with respect to the outlet stores in its Retail Stores Division is to provide a channel for disposing of the Company's excess and irregular inventory. The Company does not manufacture or source products exclusively for its outlet stores. The Company had 124 outlet stores at the end of fiscal 1999 (including 9 stores in Canada, 12 stores in the United Kingdom, one in France, and one in Spain) compared with 114 stores at the end of fiscal 1998 and 106 stores at the end of fiscal 1997. During fiscal 1998, the Company announced plans to close 13 underperforming stores which were all closed by the second quarter of 1999. In fiscal 1997, 35 stores were added as a result of the acquisition of Designer Holdings. As a result of the acquisition of Authentic Fitness in fiscal 1999, the Company operates 142 Speedo Authentic Fitness'r' stores. The Company's strategy for its full-price Speedo Authentic Fitness stores is to offer a complete line of Speedo and Speedo Authentic Fitness products that sell throughout the year. The Company continues to expand its channels of distribution to include electronic channels of distribution and is planning to commence marketing of its products on the Internet in fiscal 2000. To facilitate this opportunity, the Company in fiscal 1998 and fiscal 1999 invested $7.7 million to acquire a 3% equity interest in Interworld Corporation, a leading provider of E-Commerce software systems and other applications for electronic commerce sites. This investment was sold during the first quarter of fiscal 2000 for approximately $50.4 million, realizing a $42.7 million gain. The Company's products are distributed to over 16,000 customers operating more than 26,000 department, specialty and mass merchandise stores, including such leading retailers in the United States as Dayton-Hudson, Macy's and other units of Federated Department Stores, J.C. Penney, The May Department Stores, Kohl's, Dillards, Sears, Kmart and Wal-Mart and such leading retailers in Canada as The Hudson Bay Company and Zeller's. The Company's products are also distributed to such leading European retailers as House of Fraser, Harrods, Galeries Lafayette, Au Printemps, Karstadt, Kaufhof and El Corte Ingles. (b) Financial Information about Industry Segments. The Company operates within three business segments. One customer accounted for 10.2% of the Company's net revenues in the three years ended in fiscal 1999. See Note 6 to the Consolidated Financial Statements. (c) Narrative Description of Business. The Company designs, manufactures and markets a broad line of women's intimate apparel, and men's apparel and accessories sold under a variety of internationally recognized brand names owned or licensed by the Company. The Company operates three divisions, Intimate Apparel, Sportswear and Accessories and Retail Stores, which accounted for 44.6%, 48.4% and 7.0% respectively, of net revenues in fiscal 1999. 4 Intimate Apparel The Company's Intimate Apparel Division designs, manufactures and markets women's intimate apparel, which includes bras, panties, sleepwear, shapewear and daywear. The Company also designs and markets men's underwear. The Company's bra brands accounted for 39.0% of women's bra market share in the 1999 calendar year in department and specialty stores in the United States, up 1.5% over 1998's 37.5% as measured by NPD. Management considers the Intimate Apparel Division's primary strengths to include its strong brand recognition, product quality and design innovation, low cost production, strong relationships with department and specialty stores and its ability to deliver its merchandise rapidly. Building on the strength of its brand names and reputation for quality, the Company has historically focused its intimate apparel products on the upper moderate to premium priced range distributed through leading department and specialty stores. The intimate apparel division markets its lines under the following brand names:
Brand Name Price Range Type of Apparel ---------- ----------- --------------- Lejaby better to premium intimate apparel Bodyslimmers better to premium intimate apparel Calvin Klein better to premium intimate apparel/men's underwear Olga better intimate apparel Warner's upper moderate to better intimate apparel White Stag moderate intimate apparel Van Raalte moderate intimate apparel Fruit of the Loom moderate intimate apparel Weight Watchers moderate intimate apparel
The Company owns the Warner's, Olga, Calvin Klein (underwear and intimate apparel), Lejaby, Bodyslimmers and Van Raalte brand names and trademarks which account for approximately 84% of the Company's Intimate Apparel net revenues. The Company licenses the other brand names under which it markets its product lines, primarily on an exclusive basis. The Company also manufactures intimate apparel on a private and exclusive label basis for certain leading specialty and department stores. The Warner's and Olga brands have been in business for 126 years and 59 years, respectively. In August 1991, the Company entered into an exclusive license agreement with Fruit of the Loom, Inc. ("Fruit of the Loom") for the design, manufacture and marketing of moderate priced bras which are distributed through mass merchandisers, such as Wal-Mart and Kmart, under the Fruit of the Loom brand name. The license agreement has since been extended to include bodywear, coordinating panties, fashion sleepwear, as well as coordinated fashion sets (bras and panties) and certain control bottoms. The Company began shipping Fruit of the Loom products in June 1992 and has built its current market share to 4.4% as measured by NPD in the mass merchandise market. The agreement with Fruit of the Loom has allowed the Company to enter the mass merchandise market, which is growing at a rate faster than the department and specialty store market. In March 1994, the Company acquired the worldwide trademarks, rights and business of Calvin Klein men's underwear, and effective January 1, 1995, the worldwide trademark, rights and business of Calvin Klein women's intimate apparel. The purchase price was approximately $60.9 million and consisted of cash payments of $33.1 million in fiscal 1994, $5.0 million in fiscal 1995 and the issuance of 1,699,492 shares of the Company's common stock with a then fair market value of $22.8 million for such shares. Since that time, the Company has acquired the business of several former international licensees and distributors of Calvin Klein underwear products including those in Canada, Germany, Italy, Portugal, 5 Scandinavia and Spain. In addition, the Company entered into an exclusive worldwide license agreement to produce men's accessories and small leather goods under the Calvin Klein label. The Calvin Klein underwear brand accounted for net revenues of $331.1 million in fiscal 1999, an increase of 7.3% over the $308.7 million recorded in fiscal 1998, due to higher men's sales in the U.S. market. In fiscal 1996, the Company acquired GJM, a private label maker of sleepwear and intimate apparel. The acquisition provided the Company with design, marketing and manufacturing expertise in the sleepwear business, broadening the Company's product line and contributing to the Company's base of low cost manufacturing capacity. In June 1996, the Company purchased Bodyslimmers, a leading designer and manufacturer of body slimming undergarments targeted at aging baby boomers. The purchase of Bodyslimmers increased the Company's presence in a growing segment of the intimate apparel market. In July 1996, the Company acquired Lejaby. Lejaby is a leading maker of intimate apparel in Europe. The Lejaby acquisition increased the size of the Company's operations in Western Europe and provides the Company with an opportunity to expand the distribution of its products, including Calvin Klein, in the critical European market. These three divisions contributed $196.3 million in net revenues for fiscal 1999, or 20.8% of the Company's Intimate Apparel net revenues, compared to $170.3 million or 18.0% of the Company's Intimate Apparel net revenue in fiscal 1998. In fiscal 1999, the Company entered into the Weight Watchers license agreement. The Company attributes the strength of its brands to the quality, fit and design of its intimate apparel, which has developed a high degree of customer loyalty and a high level of repeat business. The Company believes that it has maintained its leadership position, in part, through product innovation with accomplishments such as introducing the alphabet bra (A, B, C and D cup sizes), the first all-stretch bra, the body stocking, the use of two way stretch fabrics, seamless molded cups for smooth look bras, the cotton-Lycra bra and the sports bra. The Company also introduced the use of hangers and certain point-of-sale hang tags for in-store display of bras, which was a significant change from marketing bras in boxes, and enabled women, for the first time, to see the product in the store. The Company's product innovations have become standards in the industry. The Company believes that a shift in consumer attitudes is stimulating growth in the intimate apparel industry. Women increasingly view intimate apparel as a fashion-oriented purchase rather than as a purchase of a basic necessity. The shift has been driven by the expansion of intimate apparel specialty stores and catalogs, and an increase in space allocated to intimate apparel by department stores. The Company believes that it is well-positioned to benefit from increased demand for intimate apparel due to its reputation for forward-looking design, quality, fit and fashion and to the breadth of its product lines at a range of price points. Over the past five years, the Company has further improved its position by continuing to introduce new products under its Warner's and Olga brands in the better end of the market, by obtaining the license from Weight Watchers to produce shapewear and activewear, by acquiring the Calvin Klein trademarks for premium priced women's intimate apparel and better priced men's underwear, by purchasing the Van Raalte trademark for introduction of an intimate apparel line through Sears stores in July 1995, and by making strategic acquisitions to expand product lines and distribution channels such as GJM, Lejaby and Bodyslimmers in 1996. The Company has further improved its position by continuing to strengthen its relationships with its department store, specialty store and mass merchandise customers. The Intimate Apparel Division's net revenues have increased at a compound annual growth rate of 13.6% since 1991, to $943.4 million in fiscal 1999, as the Company has increased its penetration with existing accounts, expanded sales to new customers such as Van Raalte to Sears and Fruit of the Loom and Weight Watchers to mass merchandisers such as Wal-Mart and Kmart and broadened its product lines to include men's underwear. The Company believes that it is one of the lowest-cost producers of intimate apparel in the United States, producing approximately eight million dozen intimate apparel products per year. 6 The Company also sees opportunities for continued growth in the Intimate Apparel Division for bras specifically designed for the "full figure" market, as well as in its panty and daywear product lines. To meet the needs of the customer profile of this market acquired Bodyslimmers in June 1996 to provide important brand name recognition in this growing segment of the intimate apparel market for department and specialty stores and entered into the license agreement with Weight Watchers to market shapewear for the mass market, and in June 1999 began shipping product. The Intimate Apparel Division has subsidiaries in Canada and Mexico in North America, in the United Kingdom, France, Belgium, Ireland, Spain, Italy, Austria, Switzerland and Germany in Europe, in Costa Rica, the Dominican Republic and Honduras in Central America and in the Philippines, Sri Lanka, the People's Republic of China, Japan and Hong Kong in Asia. International sales accounted for approximately 28.7% of the Intimate Apparel Division's net revenues in fiscal 1999 compared with 31.1% in fiscal 1998 and 30.1% in fiscal 1997. The decrease in International revenues in fiscal 1999 is primarily due to the Company's decision to discontinue business with Marks & Spencer in the U.K. market, and the full year effect of lower shipment levels for Calvin Klein products in Russia and the Far East due to currency devaluation and economic downturns. The increase in International revenues in fiscal 1998 is due to higher Lejaby and Bodyslimmers revenues partially offset by lower shipment levels for Calvin Klein products in Russia and the Far East. The Company has acquired the businesses of several former distributors and licensees of its Calvin Klein underwear products in previous years, including those in Canada, Germany, Italy, Portugal, Scandinavia and Spain. The Company's objective in acquiring its former licensees and distributors is to expand its business in foreign markets through a coordinated set of product offerings, marketing and pricing strategies and by consolidating distribution to obtain economies of scale. Net revenues attributable to the international divisions of the Intimate Apparel Division were $270.9 million, $293.4 million and $282.9 million in fiscal 1999, 1998 and 1997, respectively. Management's strategy is to increase its market penetration in Europe and to open additional channels of distribution. The Company's intimate apparel products are manufactured principally in the Company's facilities in North America, Central America, the Caribbean Basin, the United Kingdom, France, Ireland, Morocco (joint venture), the Philippines, Sri Lanka and the People's Republic of China (joint venture). Over the last six years, the Company has opened or expanded 12 manufacturing facilities. A new cutting facility and distribution facility in Mexico will be opened in fiscal 2000. In connection with the start-up of these facilities, the Company incurred substantial direct and incremental plant start-up costs to recruit and train over 39,000 workers. Although the Intimate Apparel Division generally markets its product lines for three retail selling seasons (spring, fall and holiday), its revenues are somewhat seasonal. Approximately 54% of the Intimate Apparel Division's net revenues and 47% of the division's operating income were generated during the second half of the 1999 fiscal year. Sportswear and Accessories The Sportswear and Accessories Division designs, manufactures, imports and markets moderate to better priced men's and boy's jeanswear, khakis and sportswear, better to premium priced men's accessories, moderate to better priced dress shirts and neckwear, better to premium priced women's and junior's sportswear and jeanswear and moderate to better active apparel. Management considers the Sportswear and Accessories Division's primary strengths to include its strong brand recognition, product quality, reputation for fashion styling, strong relationships with department and specialty stores and its ability to deliver merchandise rapidly. 7 The Sportswear and Accessories Division markets its lines under the following brand names:
Brand Name Price Range Type of Apparel ---------- ----------- --------------- Calvin Klein better/premium Men's, women's, juniors and children's designer jeanswear, khakis and jeans related sportswear and men's accessories A.B.S by Allen Schwartz better/premium Women's and junior's casual sportswear and dresses Ralph Lauren better/premium Women's and girls swimwear Polo Sport Ralph Lauren better/premium Women's and girls swimwear Polo Sport-RLX better/premium Women's and girls swimwear Oscar de la Renta better/premium Women's swimwear Anne Cole better/premium Women's swimwear Speedo better Men's and women's competitive swimwear and swim accessories, men's swimwear and coordinating T-shirts, women's fitness swimwear, Speedo Authentic Fitness activewear and children's swimwear Cole of California upper moderate/better Women's swimwear Sandcastle upper moderate/better Women's swimwear Sunset Beach upper moderate/better Junior's swimwear Chaps by Ralph Lauren upper moderate Dress shirts, neckwear, knit and woven sport shirts, sweaters, sportswear and bottoms Catalina moderate Men's and women's sportswear Women's swimwear White Stag moderate Women's swimwear and activewear
The Calvin Klein, Chaps by Ralph Lauren, Speedo, Oscar de la Renta, Anne Cole, Ralph Lauren, Polo Sport Ralph Lauren and Polo Sport-RLX brand names are licensed on an exclusive basis by the Company. The Sportswear and Accessories Division's strategy is to build on the strength of its brand names, strengthen its position as a global apparel company and eliminate those businesses which generate a profit contribution below the Company's required return. In order to improve profitability, the Company (i) sold its Hathaway dress shirt business in November 1996, (ii) acquired Designer Holdings during the fourth quarter of 1997, (iii) acquired the sub-license to produce Calvin Klein jeans and jeans-related products for children in the United States, Mexico and Central and South America in June 1998, (iv) acquired the sub-license to distribute Calvin Klein jeans, jeans-related products and khakis for men and women in Mexico, Central America and Canada in June 1998, (v) acquired A.B.S by Allen Schwartz during the third quarter of fiscal 1999, (vi) acquired the licensee for Chaps Canada in the second quarter of fiscal 1999, and (vii) acquired Authentic Fitness during the fourth quarter of fiscal 1999. The Company recorded losses associated with exiting the Hathaway business of approximately $47.4 million in 1996 and $14.5 million in fiscal 1997, consisting of losses related to the write-down of the Hathaway assets, including intangible assets and operating losses incurred prior to the disposition. The acquisition of Designer Holdings contributed $634.1 million and $537.8 million to net revenues in fiscal 1999 and 1998, respectively. Despite its strategic decisions to discontinue underperforming brands which account for approximately $140.0 million of annualized net revenues since 1991, the Sportswear and Accessories Division's net revenues have increased at a compound annual growth rate of 24.2% since 1991 to 8 $1,022.8 million in fiscal 1999. The reduction in net revenues from discontinued brands has been more than offset by the success of the Chaps by Ralph Lauren brand which has increased its net revenues by approximately 700% since fiscal 1991 to $317.4 million in fiscal 1999, and the addition of the Calvin Klein jeanswear and jeans related sportswear brands in 1997 and 1998. Sportswear. In 1989, the Company began repositioning its Chaps by Ralph Lauren product lines by updating its styling, which has generated significant net revenue increases, as mentioned above. In 1993, the Company entered into a license agreement to design men's and women's sportswear and men's dress shirts and furnishings bearing the Catalina trademark. Catalina products are sold through the mass merchandise segment of the market, generating royalty income of approximately $4.4 million and $4.9 million in fiscal 1999 and 1998, respectively. In 1997, the Company acquired Designer Holdings Ltd., which develops, manufactures and markets Calvin Klein designer jeanswear and sportswear for men, women and juniors in North, South and Central America. During 1998, the Company expanded upon the Calvin Klein jeanswear business by acquiring sub-licenses to distribute Calvin Klein jeans and jeans-related products for children in the United States, Mexico and Central and South America and Calvin Klein jeans, jeans-related products and khakis for men and women in Mexico, Central America and Canada. In 1999, the Company acquired Authentic Fitness which designs, manufacturers and markets swimwear, swim accessories and active fitness apparel for men, women and children in North America under the Speedo brand and worldwide under all of its other brands. In addition, the Company also acquired A.B.S. by Allen Schwartz which designs, manufactures and markets women's and junior's casual sportswear and dresses and Chaps Canada which imports and markets men's sportswear for the Canadian market under the Chaps by Ralph Lauren brand name. Accessories. The Sportswear and Accessories Division markets men's small leather goods and belts and soft side luggage under the Calvin Klein brand name pursuant to a worldwide license. The first shipments of Calvin Klein accessories were made in the third quarter of fiscal 1995 to United States customers. The line has already grown significantly, accounting for approximately $22.3 million and $19.3 million of net revenues in fiscal 1999 and 1998, respectively. Management believes that one of the strengths of its accessories lines is the high level of international consumer recognition associated with the Calvin Klein label. The Company's strategy is to expand the accessories business, which has consistently generated higher margins than other sportswear products. International sales accounted for approximately 4.3% of net revenues of the Sportswear and Accessories Division in fiscal 1999, compared with 1.6% and 1.0% in fiscal 1998 and 1997, respectively. Net revenues attributable to international operations of the Sportswear and Accessories Division were $44.4 million, $14.0 million and $4.1 million in fiscal 1999, 1998 and 1997, respectively. The increase in international sales in fiscal 1999 and 1998 reflects the continued expansion of Calvin Klein Accessories as well as the acquisition of Calvin Klein Jeans in Mexico. The Company expects to generate future revenue from international sales of basic Calvin Klein jeanswear, khakis, jeans related sportswear and accessories. Sportswear apparel (knit shirts, sweaters and other apparel) is sourced principally from the Far East. Dress shirts are sourced from the Far East and the Caribbean Basin. Accessories are sourced from the United States, Europe and the Far East. Neckwear is sourced primarily from the United States. The Sportswear and Accessories Division, similar to the Intimate Apparel Division, generally markets its apparel products for three retail selling seasons (spring, fall and holiday). New styles, fabrics and colors are introduced based upon consumer preferences, market trends and to coincide with the appropriate retail selling season. Sales of the Sportswear and Accessories Division's product lines follow individual seasonal shipping patterns ranging from one season to three seasons, with multiple releases in some of the division's more fashion-oriented lines. Consistent with industry and consumer buying 9 patterns, approximately 57.0% of the Sportswear and Accessories Division's net revenues and 56% of the Sportswear and Accessories Division's operating income were generated in the second half of 1999, reflecting the strength of the fall and holiday shopping seasons. Retail Stores Division The Retail Stores Division is comprised of both outlet stores as well as full-price retail stores, selling the Company's products to the general public. The Company's business strategy with respect to its outlet stores is to provide a channel for disposing of the Company's excess and irregular inventory. The Company does not manufacture or source products exclusively for the retail outlet stores. The Company's outlet stores are situated in areas where they generally do not conflict with the Company's principal channels of distribution. As of January 1, 2000, the Company operated 124 outlet stores, 101 in the U.S., 9 in Canada, 12 in the United Kingdom, 1 in France and 1 in Spain. In addition, the Company operates Speedo Authentic Fitness full-price retail stores designed to appeal to participants in water and land based fitness activities, and to offer a complete line of Speedo and Speedo Authentic Fitness products that sell throughout the year. As of January 1, 2000, the Company operated 142 full-price retail stores, 139 in the U.S. and 3 in Canada. In fiscal 1999, the Company acquired Penhaligon's Ltd., a United Kingdom based retailer of perfumes, soaps, toiletries and other products for men and women and also acquired IZKA, a French retailer of seam-free and seamless intimate apparel products. International Operations The Company has subsidiaries in Canada and Mexico in North America and in the United Kingdom, France, Belgium, Ireland, Spain, Italy, Austria, Switzerland, the Netherlands and Germany in Europe and Hong Kong and Japan in Asia, which engage in sales, manufacturing and marketing activities. The results of the Company's operations in these countries are influenced by the movement of foreign currency exchange rates. With the exception of the fluctuation in the rates of exchange of the local currencies in which these subsidiaries conduct their business, the Company does not believe that the operations in Canada and Western Europe are subject to risks which are significantly different from those of the domestic operations. Mexico has historically been subject to high rates of inflation and currency restrictions which may, from time to time, impact the Mexican operation. The Company also sells directly to customers in Mexico. Net revenues from these shipments represent approximately 1.7% of the Company's net revenues. The Company maintains manufacturing facilities in Mexico, Honduras, Costa Rica, the Dominican Republic, Canada, Ireland, the United Kingdom, France, Morocco (joint venture), Sri Lanka, the People's Republic of China (joint venture) and the Philippines. The Company maintains warehousing facilities in Canada, Mexico, the United Kingdom, Spain, Belgium, Italy, Austria, Switzerland, France and Germany and contracts for warehousing in the Netherlands. The Intimate Apparel Division operates manufacturing facilities in Mexico and in the Caribbean Basin pursuant to duty-advantaged (commonly referred to as "Item 807") programs. Over the last six years, the Company has opened or expanded 12 manufacturing facilities. A new cutting facility and distribution facility in Mexico will be opened in fiscal 2000. The Company's policy is to have many potential sources of manufacturing so that a disruption at any one facility will not significantly impact the Company. The majority of the Company's purchases which are imported into the United States are invoiced in United States dollars and, therefore, are not subject to currency fluctuations. The majority of the transactions denominated in foreign currencies are denominated in the Hong Kong dollar, which currently is pegged to the United States dollar and therefore does not create any currency risk. 10 Sales and Marketing The Intimate Apparel and Sportswear and Accessories Divisions sell to over 16,000 customers operating more than 26,000 department, mass merchandise and men's and women's specialty store doors throughout North America and Europe. The Company's retail customers are served by approximately 300 sales representatives. The Company also employs marketing coordinators who work with the Company's customers in designing in-store displays and planning the placement of merchandise. The Company has implemented Electronic Data Interchange ("EDI") programs with most of its retailing customers which permit the Company to receive purchase orders electronically and, in some cases, to transmit invoices electronically. These innovations assist the Company in providing products to customers on a timely basis. The Company utilizes various forms of advertising media. In fiscal 1999, the Company spent approximately $118.0 million, or 5.6% of net revenues, for advertising and promotion of its various product lines, compared with $102.6 million, or 5.3% of net revenues in fiscal 1998, and $86.2 million or 6.0% of net revenues in fiscal 1997. The increase in advertising costs in fiscal 1999 compared with fiscal 1998 reflects the Company's desire to maintain its strong market position in Calvin Klein underwear, jeanswear and accessories, Chaps by Ralph Lauren sportswear and Warner's, Olga, and Fruit of the Loom intimate apparel. The Company participates in advertising on a cooperative basis with retailers, principally through newspaper advertisements. Competition The apparel industry is highly competitive. The Company's competitors include apparel manufacturers of all sizes, some of which have greater resources than the Company. The Company also competes with foreign producers, but to date, such foreign competition has not materially affected the Intimate Apparel or Sportswear and Accessories Divisions. In addition to competition from other branded apparel manufacturers, the Company competes in certain product lines with department store private label programs. The Company believes that its manufacturing skills, coupled with its existing Central American and Caribbean Basin manufacturing facilities and selective use of off-shore sourcing, enable the Company to maintain a cost structure competitive with other major apparel manufacturers. The Company believes that it has a significant competitive advantage because of high consumer recognition and acceptance of its owned and licensed brand names and its strong presence and market share in the major department, specialty and mass merchandise store chains. A substantial portion of the Company's sales are of products, such as intimate apparel and men's underwear, that are basic and not very susceptible to rapid design changes. This relatively stable base of business is a significant contributing factor to the Company's favorable competitive and cost position in the apparel industry. 11 Raw Materials The Company's raw materials are principally cotton, wool, silk, synthetic and cotton-synthetic blends of fabrics and yarns. Raw materials used by the Intimate Apparel and Sportswear and Accessories Division are available from multiple sources. Import Quotas Substantially all of the Company's Sportswear and Accessories Division's sportswear products, as well as Calvin Klein men's and women's underwear, are manufactured by contractors located outside the United States. These products are imported and are subject to federal customs laws, which impose tariffs as well as import quota restrictions established by the Department of Commerce. While importation of goods from certain countries may be subject to embargo by United States Customs authorities if shipments exceed quota limits, the Company closely monitors import quotas through its Washington, D.C. office and can, in most cases, shift production to contractors located in countries with available quotas or to domestic manufacturing facilities. The existence of import quotas has, therefore, not had a material effect on the Company's business. Substantially all of the Company's Intimate Apparel Division's products, with the exception of Calvin Klein men's and women's underwear, are manufactured in the Company's facilities located in Mexico, the Caribbean Basin, Europe and Asia. The Company's policy is to have many potential manufacturing sources so that a disruption at any one facility will not significantly impact the Company. Employees As of January 1, 2000, the Company and its subsidiaries employ 23,039 employees. Approximately 25.5% of the Company's employees, all of whom are engaged in the manufacture and distribution of its products, are represented by labor unions. The Company considers labor relations with employees to be satisfactory and has not experienced any significant interruption of its operations due to labor disagreements. Trademarks and Licensing Agreements The Company has license agreements permitting it to manufacture and market specific products using the trademarks of others. The Company's exclusive license and design agreements for the Chaps by Ralph Lauren trademark expire on December 31, 2008. These licenses grant the Company an exclusive right to use the Chaps by Ralph Lauren trademark in the United States, Canada and Mexico. The Company's license to develop, manufacture and market designer jeanswear and jeans related sportswear under the Calvin Klein trademark in North, South and Central America extends for an initial term expiring on December 31, 2034 and is extendable at the Company's option for a further 10 year term expiring on December 31, 2044. The Company has an exclusive license agreement to use the Fruit of the Loom trademark in the United States of America, its territories and possessions, Canada and Mexico through December 31, 2004, subject to the Company's compliance with certain terms and conditions. The Company also has the right of first opportunity and negotiation with respect to other products and territories. The Company's exclusive worldwide license agreement with Calvin Klein, Inc. to produce Calvin Klein men's accessories expires June 30, 2004. The Company has license agreements in perpetuity with Speedo International, Ltd. which permit the Company to design, manufacture and market certain men's, women's and children's apparel including swimwear, sportswear and a wide variety of other products using the Speedo trademark and certain 12 other trademarks including Speedo, Surf Walker, and Speedo Authentic Fitness. The Company's license to use the Speedo'r' trademark and such other trademarks was granted in perpetuity subject to certain conditions and is exclusive in the United States, it territories and possessions, Canada, Mexico and the Caribbean Islands. Speedo International, Ltd. retains the right to use or license such brand names in other jurisdictions and actively uses or licenses such brand names throughout the world outside of the Company's licensed areas. The agreements provide for minimum royalty payments to be credited against future royalty payments based on a percentage of net sales. The license agreements may be terminated, with respect to a particular territory only in the event the Company does not pay royalties, or abandons, the trademark in such territory. Also, the license agreements may be terminated in the event the Company manufactures or is controlled by a company that manufactures racing/competitive swimwear, swimwear caps or swimwear accessories, under a different trademark, as specifically defined in the license agreements. In addition, the Company has certain rights to sublicense the Speedo trademark within the geographic regions covered by the licenses. In 1992, the Company entered into an agreement with Speedo Holdings B.V., and its successor Speedo International, Ltd. granting certain irrevocable rights to the Company relating to the use of the Authentic Fitness name and service mark, which rights are in addition to the rights under the license agreements with Speedo International, Ltd. In October 1993, the Company entered into a worldwide license agreement with Anne Cole and Anne Cole Design Studio Ltd. Under the worldwide licensing agreement, the Company obtained the exclusive right in perpetuity to use the Anne Cole trademark for women's swimwear, activewear, beachwear and children's swimwear, subject to certain terms and conditions. Under the license, the licensee is required to pay certain minimum guaranteed annual royalties, to be credited against earned royalties, based on a percentage of net sales. The licensor has the right to approve products bearing the licensed trademark as defined in the agreement. In 1993, the Company entered into a worldwide license agreement with Oscar de la Renta Licensing Corporation for the design, manufacture and marketing of women's and girls' swimwear and activewear under the Oscar de la Renta brand name. The agreement granting the exclusive right to use the Oscar de la Renta trademark is valid for a term up to and including March 31, 2001 and provides for the payment of certain minimum royalty payments to be credited against earned royalty payments for each agreement year. On February 1, 1998, the Company entered into an exclusive worldwide license agreement with The Polo/Lauren Company, L.P. and PRL USA, Inc. and a design services agreement with Polo/Ralph Lauren Corporation for Ralph Lauren, Polo Sport Ralph Lauren and Polo Sport-RLX brand swimwear for women and girls. Under the license, the Company produces and markets swimsuits, bathing suits and coordinating cover-ups, tops and bottoms for women and girls. First shipments under this license agreement occurred in January 1999. In fiscal 1999, the Company entered into an exclusive licensing agreement for an initial term of 5 years, extendable for a further term of 5 years through July 2009 with Weight Watchers International, Inc., to manufacture and market shapewear and activewear for the mass market in the United States and Canada. The Company also has the right of first opportunity and negotiation with respect to other products and territories. Although the specific terms of each of the Company's license agreements vary, generally such agreements provide for minimum royalty payments and/or royalty payments based on a percentage of net sales. Such license agreements also generally grant the licensor the right to approve any designs marketed by the licensee. 13 The Company owns other trademarks, the most important of which are Warner's, Olga, Calvin Klein men's underwear and sleepwear, Calvin Klein women's intimate apparel and sleepwear, Van Raalte, Lejaby, Rasurel'r', and Bodyslimmers, Penhaligon's, White Stag, Catalina, A.B.S by Allen Schwartz, Sunset Beach, Sandcastle and Cole of California.. The Company sub-licenses the White Stag and Catalina brand names to domestic and international licensees for a variety of products. These agreements generally require the licensee to pay royalties and fees to the Company based on a percentage of the licensee's net sales. The Company regularly monitors product design, development, quality, merchandising and marketing and schedules meetings throughout the year with third-party licensees to assure compliance with the Company's overall marketing, merchandising and design strategies, and to ensure uniformity and quality control. The Company, on an ongoing basis, evaluates entering into distribution or license agreements with other companies that would permit such companies to market products under the Company's trademarks. Generally, in evaluating a potential distributor or licensee, the Company considers the experience, financial stability, manufacturing performance and marketing ability of the proposed licensee. Royalty income derived from licensing was approximately $17.7 million, $21.2 million and $12.2 million in fiscal 1999, 1998 and 1997, respectively. The Company believes that only the trademarks mentioned herein are material to the business of the Company. Backlog A substantial portion of net revenues is based on orders for immediate delivery and, therefore, backlog is not necessarily indicative of future net revenues. 14 (d) Financial Information About Foreign and Domestic Operations and Export Sales. The information required by this portion of Item 1 is incorporated herein by reference to Note 6 to the Consolidated Financial Statements on pages F-1 to F-34. Item 2. Properties. The principal executive offices of the Company are located at 90 Park Avenue, New York, New York 10016 and are occupied pursuant to a lease that expires in 2004. In addition to its executive offices, the Company leases offices in Connecticut, California, Washington, D.C. and New York, pursuant to leases that expire between 2000 and 2008. The Company has twenty-four domestic manufacturing and warehouse facilities located in Alabama, California, Connecticut, Georgia, Nevada, New Jersey, Pennsylvania, South Carolina and Tennessee, and 48 international manufacturing and warehouse facilities located in Austria, Belgium, Canada, Costa Rica, the Dominican Republic, France, Germany, Holland, Honduras, Ireland, Italy, Mexico, Morocco (joint-venture), People's Republic of China (joint venture), the Philippines, Spain, Sri Lanka, Switzerland, and the United Kingdom. Certain of the Company's manufacturing and warehouse facilities are also used for administrative and retail functions. The Company owns six of its domestic and six of its international facilities. The balance of the facilities are leased. Lease terms, except for month-to-month leases, expire between 2000 and 2020. No material facility is underutilized. The Company leases sales offices in a number of major cities, including Atlanta, Dallas, Los Angeles and New York in the United States; Brussels, Belgium; Toronto, Canada; Paris, France; Dusseldorf and Frankfurt, Germany; Hong Kong; Milan, Italy; and Lausanne, Switzerland. The sales office leases expire between 2000 and 2008 and are generally renewable at the Company's option. The Company also occupies offices in London, England subject to a freehold lease which expires in 2114. The Company leases 124 outlet store locations and 142 Speedo Authentic Fitness retail stores sites. Outlet store and retail store leases, except for two month-to-month leases, expire between 2000 and 2008 and are generally renewable at the Company's option. All of the Company's production and warehouse facilities are located in appropriately designed buildings, which are kept in good repair. All such facilities have well maintained equipment and sufficient capacity to handle present volumes. Item 3. Legal Proceedings. Between October 12, and October 13, 1999, six putative class action complaints were filed in Delaware Chancery Court against the Company, Authentic Fitness Corporation and certain of their officers and directors in connection with the Company's proposed acquisition of Authentic Fitness. On December 20, 1999, an Amended Class Action Complaint ("Amended Complaint") was filed and on January 6, 2000 the court designated the Amended Complaint as the operative complaint for a consolidated action captioned: In Re Authentic Fitness Corporation Shareholders Litigation, C.A. No. 17464-NC (consolidated). In the Amended Complaint (and all six complaints made virtually identical claims), plaintiffs allege an unlawful scheme by certain of the defendants, in breach of their fiduciary duties, to allow the Company to acquire Authentic Fitness shares for inadequate consideration. Plantiffs are seeking to have the court declare the action a proper class action, to declare that the defendants have breached their fiduciary duties to the class, and in the event the transaction is consummated, recission thereof and damages awarded to the Class. The Company believes the claims to be without merit and intends to vigorously defend these actions. The Company is not a party to any other litigation, other than routine litigation incidental to the business of the Company, that individually or in the aggregate is material to the business of the Company. Item 4. Submission of Matters to a Vote of Security Holders. None. 15 Executive Officers of the Company The executive officers of the Company, their age and their position are set forth below.
Name Age Position ---- --- -------- Linda J. Wachner 54 Director, Chairman of the Board, President and Chief Executive Officer William S. Finkelstein 51 Director, Senior Vice President and Chief Financial Officer Philippe de La Chapelle 58 Senior Vice President - Legal and Human Resources Lawrence E. Kreider, Jr. 52 Senior Vice President - Finance Stanley P. Silverstein 47 Vice President, General Counsel and Secretary Carl J. Deddens 47 Vice President and Treasurer
Mrs. Wachner has been a Director, President and Chief Executive Officer of the Company since August 1987, and the Chairman of the Board since August 1991. Mrs. Wachner was a Director and President of the Company from March 1986 to August 1987. Mrs. Wachner held various positions, including President and Chief Executive Officer, with Max Factor and Company from December 1978 to October 1984. Mrs. Wachner also serves as a Director of Applied Graphics Technologies, Inc. and The New York Stock Exchange. Mr. Finkelstein has been Senior Vice President of the Company since May 1992 and Chief Financial Officer and Director of the Company since May 1995. Mr. Finkelstein served as Vice President and Controller of the Company from November 1988 until his appointment as Senior Vice President. Mr. Finkelstein served as Vice President of Finance of the Company's Activewear and Olga Divisions from March 1988 until his appointment as Controller of the Company. Mr. Finkelstein served as Vice President and Controller of SPI Pharmaceuticals Inc. from February 1986 to March 1988 and held various financial positions, including Assistant Corporate Controller with Max Factor and Company, between 1977 and 1985. Mr. de La Chapelle has been Senior Vice President Legal-Human Resources since February 2000. Prior to joining the Company, from 1966 to 1985 Mr. de La Chapelle served as international counsel for W.R. Grace & Co., Assistant General Counsel for Norton Simon Inc., Senior Vice President and General Counsel for MasterCard Inc. and Senior Executive--International for Warner Communications Inc. From 1985 to February 2000 Mr. de La Chapelle was affiliated with various private investment banking firms. Mr. Kreider has been Senior Vice President, Finance of the Company since July, 1999. Prior to joining the Company, Mr. Kreider served as Senior Vice President, Controller and Chief Accounting Officer of Revlon Inc. since 1994 and was Vice President and Controller of Revlon, Inc. since 1992. Mr. Kreider served as Vice President and held various other financial positions with MacAndrews & Forbes from 1988 through 1992, including Controller of MacAndrews & Forbes from 1987 to 1998. Mr. Silverstein has been Vice President, General Counsel and Secretary of the Company since December 1990. Mr. Silverstein served as Assistant Secretary of the Company from June 1986 until his appointment as Secretary in January 1987. Mr. Deddens has been Vice President and Treasurer of the Company since March 1996. Prior to joining the Company, Mr. Deddens served as Vice President and Treasurer of Revlon, Inc. from 1991 to 1996 and as Assistant Treasurer from 1987 to 1991. Mr. Deddens held various financial positions with Allied-Signal Corporation and Union Texas Petroleum Corporation from 1981 to 1987. 16 PART II Item 5. Market for the Company's Common Equity and Related Stockholder Matters. The Company's Class A Common Stock, $0.01 par value per share (the "Common Stock"), is listed on the New York Stock Exchange under the symbol "WAC". The table below sets forth, for the periods indicated, the high and low sales prices of the Company's Common Stock, as reported on the New York Stock Exchange Composite Tape.
Dividend Period High Low Declared ------ ---- --- -------- 1998: First Quarter $39-9/16 $30 $.09 Second Quarter $43-15/16 $39 $.09 Third Quarter $44-7/16 $18-1/2 $.09 Fourth Quarter $28-15/16 $19-1/8 $.09 1999: First Quarter $27-1/4 $20-1/8 $.09 Second Quarter $30-1/16 $24-5/16 $.09 Third Quarter $27-3/8 $17-9/16 $.09 Fourth Quarter $19-1/8 $10-7/16 $.09 2000: First Quarter (thru March 29, 2000) $13-7/8 $9-5/8 $.09(a)
(a) On February 17, 2000, the Company declared its regular quarterly cash dividend of $0.09 per share payable on April 4, 2000 to stockholders of record as of March 9, 2000. -------------------------- As of March 29, 2000, there were 223 holders of the Common Stock, based upon the number of holders of record and the number of individual participants in certain security position listings. In fiscal 1995, the Company initiated a regular cash dividend of $0.28 per share per annum. The initial cash dividend was paid on June 30, 1995. On February 20, 1997, the Company's Board of Directors approved an increase in the Company's quarterly cash dividend to $0.08 per share. On November 21, 1997, the Company's Board of Directors approved an increase in the quarterly cash dividend to $0.09 per share. Item 6. Selected Financial Data. Set forth below is consolidated statement of income data with respect to the fiscal years ended January 3, 1998, January 2, 1999 and January 1, 2000, and consolidated balance sheet data at January 2, 1999 and January 1, 2000. The selected financial data is derived from, and qualified by reference to, the audited consolidated financial statements included herein and such data should be read in conjunction with those financial statements and notes thereto. The consolidated statement of income data for the fiscal years ended January 6, 1996 and January 4, 1997 and the consolidated balance sheet data at January 6, 1996, January 4, 1997 and January 3, 1998 are derived from audited consolidated financial statements not included herein. 17
Fiscal Year Ended ----------------------------------------------------------------------- January 6, January 4, January 3, January 2, January 1, 1996(a)(b) 1997(c)(d) 1998(d)(e) 1999(f)(g) 2000(h) ----------------------------------------------------------------------- Statement of Income Data: Net revenues $ 916.2 $ 1,063.8 $ 1,435.7 $ 1,950.3 $ 2,114.2 Gross profit 309.7 289.7 375.2 537.2 701.0 Operating income (loss) 113.9 (12.0) 25.8 85.6 229.9 Interest expense 33.9 32.4 45.9 63.8 81.0 Income (loss) before extraordinary items and cumulative effect of change in accounting principle 49.6 (31.4) (12.3) 14.1 97.8 Extraordinary item (3.1) - - - - Cumulative effect of change in accounting principle - - - (46.3) - Net income (loss) applicable to Common Stock 46.5 (31.4) (12.3) (32.2) 97.8 Dividends on Common Stock 9.5 14.5 17.3 22.4 20.3 Per Share Data: Income (loss) before cumulative effect of change in accounting principle Basic $ 1.12 $ (0.61) $ (0.23) $ 0.23 $ 1.75 Diluted $ 1.10 $ (0.61) $ (0.23) $ 0.22 $ 1.72 Net income (loss): Basic $ 1.05 $ (0.61) $ (0.23) $ (0.52) $ 1.75 Diluted $ 1.03 $ (0.61) $ (0.23) $ (0.51) $ 1.72 Dividends declared $ 0.14 $ 0.28 $ 0.32 $ 0.36 $ 0.36 Shares used in computing earnings per share: Basic 44,214,690 51,308,017 52,813,982 61,361,843 55,910,371 Diluted 45,278,177 51,308,017 52,813,982 63,005,358 56,796,203 Divisional Summary Data: Net revenues: Intimate Apparel $ 689.2 $ 802.0 $ 941.2 $ 944.8 $ 943.4 Sportswear and Accessories 185.7 214.4 425.9 875.3 1,022.8 Retail Stores 41.3 47.4 68.6 130.2 148.0 ---------- ---------- --------- --------- --------- $ 916.2 $ 1,063.8 $ 1,435.7 $ 1,950.3 $ 2,114.2 ========== ========== ========= ========= ========= Percentage of net revenues: Intimate Apparel 75.2% 75.4% 65.6% 48.4% 44.6% Sportswear and Accessories 20.3% 20.2% 29.7% 44.9% 48.4% Retail Stores 4.5% 4.4% 4.7% 6.7% 7.0% ---------- ---------- --------- --------- --------- 100.0% 100.0% 100.0% 100.0% 100.0% ========== ========== ========= ========= ========= Balance Sheet Data: Working capital $ 307.5 $ 172.6 $ 352.3 $ 28.4 $ 318.1 Total assets 941.1 1,119.8 1,651.1 1,783.1 2,763.0 Long-term debt (excluding current maturities) 194.3 215.8 354.3 411.9 1,188.0 Mandatorily Redeemable Convertible Preferred Securities - - - 101.8 102.9 Stockholders' equity 500.3 452.5 749.6 578.1 563.3
18 (a) In fiscal 1995, the Company entered into a new bank credit agreement and wrote-off deferred financing costs related to a prior bank credit agreement. The write-off resulted in an extraordinary item of $3.1 million (net of income tax benefits of $1.9 million or $0.07 per diluted share) due to the early extinguishment of debt. (b) Effective with the 1995 fiscal year, the Company adopted the provisions of SOP 93-7 which requires, among other things, that certain advertising costs which had previously been deferred and amortized against future revenues be expensed when the advertisement first runs. The Company incurred a pre-tax charge for advertising costs, previously deferrable, of $11.7 million ($7.3 million net of income tax benefits, or $0.16 per diluted share) in the fourth quarter of fiscal 1995. (c) Fiscal 1996 includes pre-tax charges related to the sale of the Company's Hathaway dress shirt operations of $38.7 million, consolidation and realignment of the Company's Intimate Apparel Division of $78.1 million and other items of $13.1 million. Total non-recurring items were $129.9 million ($83.2 million net of income tax benefits, or $1.62 per diluted share). In addition, fiscal 1996 includes operating losses of the Hathaway dress shirt operation of $8.6 million ($5.4 million net of income tax benefits, or $0.10 per diluted share). (d) The fiscal 1996 and 1997 financial statements were restated (in fiscal 1998) to reflect $38.0 million ($23.2 million net of income tax benefit or $0.45 per diluted share) and $57.0 million ($35.4 million net of income tax benefit or $0.67 per diluted share), respectively, of charges related to an adjustment for inventory production and inefficiency costs. (e) Fiscal 1997 reflects the acquisition of Designer Holdings during the fourth quarter and includes pre-tax charges related to the merger and integration of 1996 and 1997 acquisitions and the completion in 1997 of certain consolidation and restructuring actions announced in 1996. Total non-recurring items were $125.7 million ($77.9 million net of income tax benefits, or $1.48 per diluted share). In addition, fiscal 1997 includes operating losses of the Hathaway dress shirt operation of $4.0 million and non-recurring losses of GJM of $1.1 million for a total of $5.1 million ($3.2 million net of income tax benefits, or $0.06 per diluted share). (f) Fiscal 1998 includes restructuring, special charges and other non-recurring items of $101.5 million ($65.7 million net of income tax benefits, or $1.04 per diluted share) relating to the continuing strategic review of facilities, products and functions and other items. In addition, fiscal 1998 includes operating losses of the discontinued product lines and styles of $5.3 million ($3.4 million net of income tax benefit or $0.5 per diluted share). Also included in fiscal 1998 operating earnings is the current year impact related to the change in accounting for pre-operating costs described in note (g) below of $40.8 million ($26.4 million net of income tax benefits, or $ 0.42 per diluted share) (see Note 1 to the Consolidated Financial Statements) and charges related to an adjustment for inventory production and inefficiency costs of $49.6 million ($32.1 million net of income tax benefits, or $0.51 per diluted share). (g) Effective with the 1998 fiscal year, the Company early adopted the provisions of SOP 98-5 which requires, among other things, that certain pre-operating costs which had previously been deferred and amortized be expensed as incurred. The Company recorded the impact as the cumulative effect of a change in accounting principle of $46.3 million, net of income tax benefits, or $0.73 per diluted share. (h) Fiscal 1999 includes a non-operating incremental cost of $16.0 million ($10.5 million of income tax benefit or $0.18 per diluted share), related to the Calvin Klein Jeans distribution consolidation. 19 Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations. Strategic Actions Fiscal 1998 -- Restructuring, Special Charges and Other Non-Recurring Items As a result of a strategic review of the Company's businesses, manufacturing and other facilities, product lines and styles and worldwide operations following significant acquisitions in 1996 and 1997, in the fourth quarter of 1998 the Company initiated the implementation of programs designed to streamline operations and improve profitability. As a result of the decision to implement these programs, the Company recorded restructuring and special charges of approximately $48.5 million ($31.4 million net of income tax benefits) related to costs to exit certain facilities and activities, asset impairments and employee termination and severance benefits. Of the total amount of the 1998 charges, $22.1 million is reflected in cost of goods sold and $26.4 million is reflected in selling, administrative and general expenses in the accompanying consolidated statement of operations. The detail of the charges recorded in 1998, including costs incurred to-date and reserves remaining at January 1, 2000 for costs estimated to be incurred through completion of the aforementioned programs, anticipated by the end of fiscal 2000, are summarized below:
Amounts Total Utilized Balance ------ -------- ------- Costs to exit facilities and activities $13.3 $ 13.3 $ -- Asset Impairments 23.8 23.8 -- Employee termination and severance benefits 6.1 5.8 0.3 Prior strategic initiatives 5.3 5.3 -- ------ ------- ------- $ 48.5 $ 48.2 $ 0.3 ====== ======= =======
See Note 3 to the Consolidated Financial Statements for further detail. In addition and related to the above actions, the fiscal 1998 operations included $53.0 million ($34.3 million net of income tax benefits) related to the first nine months of losses on discontinued product lines, severance associated with reductions in headcount, incremental advertising, allowances and manufacturing variances and $5.3 million ($3.4 million net of income tax benefits) related to fourth quarter losses on discontinued product lines. Of the total amount of $58.3 million, $27.0 million is reflected in cost of goods sold and $31.3 million is reflected in selling, administrative and general expenses. The total restructuring, special charges and other non-recurring items including the associated operating losses are $106.8 million ($69.1 million, net of income tax benefits or $1.10 per diluted share) for the year ended January 2, 1999. The Company anticipates that these programs will generate annual savings of $15.0 million pre-tax. Fiscal 1997 - Restructuring, Special Charges and Other Non-Recurring Items During the fourth quarter of 1997, the Company reported a pre-tax charge of $125.7 million related to the acquisition and integration of Designer Holdings, the Intimate Apparel consolidation and realignment program initiated in 1996 and other items, including the final disposition of Hathaway assets (amounts in millions): 20 Merger related integration costs.............................. $ 44.6 Intimate Apparel consolidation and realignment................ 59.5 Other items, including final disposition of Hathaway assets... 21.6 ------ 125.7 Less income tax benefits...................................... (47.8) ------ $ 77.9 ======
The charge consists primarily of a write-down of asset values, severance and other employee costs, costs related to manufacturing realignment and lease and other costs to combine existing retail outlet stores with those of Designer Holdings. Following the successful Intimate Apparel consolidation and realignment program initiated in 1996, the Company initiated a new program to reexamine all of its existing products in an effort to streamline its number of product offerings. Accordingly, additional products and styles were discontinued and slower moving inventory liquidated. In addition, fiscal 1997 includes operating losses of the Hathaway dress shirt operations of $4.0 million and non-recurring losses of the GJM operation of $1.1 million for a total of $5.1 million ($3.2 million net of income tax benefits). The total restructuring special charges and other non-recurring items including the associated operating losses are $130. 8 million ($72.3 million, net of income tax benefits) for the year ended January 3, 1998. Of the total amount, $76.6 million is reflected in cost of goods sold and $54.2 million is reflected in selling, administrative, and general expenses. See Note 3 to the Consolidated Financial Statements for further detail. DESIGNER HOLDINGS ACQUISITION Prior to its acquisition by the Company, Designer Holdings experienced substantial sales growth. A significant portion of this sales growth was achieved through distribution to jobbers and off-price retailers. Additionally, Designer Holdings had also announced a significant increase in the number of its outlet stores. The Company viewed this growth and expansion as detrimental to the long-term integrity and value of the brand. To sustain its growth strategy, Designer Holdings committed to large quantities of inventories. When the primary department store distribution channel was unable to absorb all of Designer Holdings' committed production, it increased sales to the secondary and tertiary distribution channels, including sales to jobbers, off-price retailers and Designer Holdings' own outlet stores, which were expanded to serve as an additional channel of distribution. The Company's post-acquisition strategy did not embrace the outlet store expansion or expansion of secondary channels of distribution, thereby significantly eliminating product distribution, resulting in excess inventory. The Company had a different plan from that of Designer Holdings for realization of inventories and accounts receivable, as follows: Based upon its strategy for the business, it had to quickly dispose of significantly higher than desirable levels of inventory. It had to stabilize relationships with its core department store customers. It had to collect receivable balances from customers with whom the Company would no longer do business, and had to respond to challenges from the core department store customers who were adversely impacted by channel conflict and brand image issues. Finally, the Company began a complete redesign of the product, the impact of which would not be immediately felt at retail due to the fact that Designer Holdings had already committed to inventory that was in production to be delivered for the ensuing seasons. The consequences related not only to the receivables and inventory acquired, but also to the design, fabric and inventory purchases to which Designer Holdings had previously committed. Immediately following the acquisition, the Company began quickly liquidating excess inventories. Most of these sales were below original cost. Not only did the Company fail to recover cost (including royalties payable to the licensor), it was deprived of the "reasonable gross profit" contemplated by APB Opinion 16 in valuing acquired inventory. Accordingly, the Company reduced the historical carrying value of inventory by $18 million. The $18 million fair value adjustment recorded addressed all of these issues and represented the fair value of inventory pursuant to APB Opinion 16. The Company offered significant discounts (by negotiating settlements on a customer by customer basis) to collect outstanding receivable balances in light of product related issues raised, as well as the decision to discontinue certain channels of distribution, realizing that these balances would become increasingly more difficult to collect with the passage of time. In addition, the core retail customers took substantial deductions against current invoices for the Designer Holdings inventory in the stores, unilaterally revising the economics of the initial sale transaction entered into by Designer Holdings. Although these deductions relate to both the inventory acquired and pre-acquisition accounts receivable, the decrease in asset value manifested itself through accounts receivable as a result of these deductions. Accordingly, the Company reduced the historical carrying value of accounts receivable by $31 million. The $31 million fair value adjustment, which was recorded pursuant to APB Opinion 16, addresses these issues. The Company believes that these strategies should enhance future results of operations and cash flows, however, these fair value adjustments will result in additional annual goodwill amortization of approximately $1.2 million. 21 Results of Operations The consolidated statements of income for the Company are summarized below. Selected Data Statement of Income (Dollars in millions)
Fiscal Year Ended ------------------------------------------------------------------------------- % of % of % of January 3, net January 2, net January 1, net 1998 revenues 1999 revenues 2000 revenues --------- ----- --------- ----- --------- ----- Net revenues $ 1,435.7 100.0% $ 1,950.3 100.0% $ 2,114.2 100.0% Cost of goods sold (a) 1,060.5 73.9% 1,413.1 72.5% 1,413.2 66.8% --------- ----- --------- ----- --------- ----- Gross profit (a) 375.2 26.1% 537.2 27.5% 701.0 33.2% Selling, administrative and general expenses (b) 349.4 24.3% 451.6 23.1% 471.1 22.3% --------- ----- --------- ----- --------- ----- Operating income (loss) 25.8 1.8% 85.6 4.4% 229.9 10.9% Interest expense (loss) 45.9 63.8 81.0 --------- --------- --------- ----- Income (loss) before income taxes and cumulative effect of change in accounting principle (20.1) 21.8 148.9 Income taxes (benefit) (7.8) 7.7 51.1 --------- --------- --------- Income (loss) before cumulative effect of change in accounting principle $ (12.3) $ 14.1 $ 97.8 ========= ========= =========
Divisional Summary (Dollars in millions)
Fiscal Year Ended ------------------------------------------------------------------------------- % of % of % of January 3, gross January 2, gross January 1, gross 1998 profit 1999 profit 2000 profit ----------- -------- ------------ ------- ---------- ------ Net revenues: Intimate Apparel $ 941.2 $ 944.8 943.4 Sportswear & Accessories 425.9 875.3 1022.8 Retail Stores 68.6 130.2 148.0 ---------- --------- --------- $ 1,435.7 $ 1,950.3 $ 2,114.2 ========== ========= ========= Gross profit (a): Intimate Apparel $ 259.8 69.2% $ 255.3 47.5% $ 332.5 47.4% Sportswear & Accessories 90.7 24.2% 241.4 44.9% 327.0 46.7% Retail Stores 24.7 6.6% 40.5 7.6% 41.5 5.9% ---------- ------ --------- ------ -------- ------ $ 375.2 100.0% $ 537.2 100.0% $ 701.0 100.0% ========== ====== ========= ====== ======== ======
22 (a) Includes restructuring, special charges and other non-recurring items of $76.6 million in fiscal 1997 related to the acquisition of Designer Holdings and the completion of the Intimate Apparel restructuring actions and $49.1 million in fiscal 1998 related to the continuing strategic review of facilities, products and functions. Also included in fiscal 1998 is the current year impact related to the change in accounting for pre-operating costs of $40.8 million and a charge for an inventory adjustment related to production and inefficiency costs in fiscal 1997 and 1998 of $57.0 million and $49.6 million, respectively. (b) Includes restructuring, special charges and other non-recurring items of $54.2 million in fiscal 1997 related to the acquisition of Designer Holdings and the completion of the Intimate Apparel restructuring actions and $57.7 million in fiscal 1998 related to the continuing strategic review of facilities, products and functions. Also, fiscal 1997 includes $3.5 million attributable to minority interests in the income of Designer Holdings applicable to the period of less than 100% ownership by the Company. Comparison of Fiscal 1999 to Fiscal 1998 Net revenues increased $163.9 million or 8.4% to $2,114.2 million in fiscal 1999 compared with $1,950.3 million in fiscal 1998. Net revenues contributed by the 1999 acquisitions of Authentic Fitness ($40.6), Penhaligon's ($7.9), IZKA ($0.2), Chaps Canada ($5.7) and ABS ($13.7) amounted to $68.1 million. In addition, the Company discontinued several underperforming brands during 1998. These discontinued brands accounted for a reduction in net revenues of $18.4 million in fiscal 1999. Excluding the impact of these items, net revenues from continuing brands were up 5.8%. Intimate Apparel Division. Net revenues decreased $1.4 million or 0.1% to $943.4 million in fiscal 1999 compared with $944.8 million in fiscal 1998. Discontinued brands accounted for a reduction in net revenues of $18.4 million in fiscal 1999. Excluding the impact of the discontinued brands, net revenues increased 1.9%, despite losing three major customers (Uptons, Eaton's and Mercantile) which accounted for a loss of $30.0 million of net revenues in fiscal 1999. Calvin Klein underwear net revenue increased $22.4 million or 7.3% over fiscal 1998, driven by strong growth in the U.S. Men's business. Sleepwear net revenues increased $16.7 million or 32.4% due to the addition of several new customers, including Wal-Mart. The Bodyslimmers and Weight Watchers shapewear brands increased $21.6 million or 89.6% due to the continued strength of the Bodyslimmers line in department and specialty stores and the successful launch of Weight Watchers in the mass market. These strong performances were partially offset by core Warner's, Olga and private label business decreasing $42.1 million or 10.9% compared to fiscal 1998 results, due to the loss of the customers previously mentioned. Bra market share in department and specialty stores for the year was 39.0% compared with 37.5% in 1998. Sportswear and Accessories Division. Net revenues increased $147.5 million or 16.9% to $1,022.8 million in fiscal 1999 compared with $875.3 million in fiscal 1998. Net revenues contributed by the 1999 Authentic Fitness ($36.4), Chaps Canada ($5.7) and ABS ($13.7) acquisitions amounted to $55.8 million. Excluding these acquisitions, net revenues increased $91.7 million or a strong 10.5%. The increase in net revenue was generated by the Calvin Klein Jeanswear Division which increased $128.5 million or a very solid 25.7%, driven primarily by the men's and women's business. This increase was partially offset by Chaps which decreased $33.6 million or 9.6% due primarily to the lost accounts mentioned above which attributed to over $25.0 million of their decrease. Retail Stores Division. Net revenues increased $17.8 million or 13.7% in fiscal 1999. Net revenues in 1999 contributed by the Authentic Fitness ($4.2), Penhaligon's ($7.9) and IZKA ($0.2) acquisitions was $12.3 million, while the core Warnaco and Calvin Klein outlet stores increased $5.5 million or 4.2%. 23 Gross profit increased $163.8 million or 30.5% to $701.0 million in fiscal 1999 compared with $537.2 million in fiscal 1998. Gross margins improved 5.7% to 33.2% from 27.5%. Included in cost of sales in fiscal 1998 are restructuring and special charges of $23.2 million, other non-recurring items of $25.9 million (see discussion of Strategic Actions on pages 20-21), the current year impact of the early adoption of SOP 98-5 of $40.8 million and a charge for an inventory adjustment related to production and inefficiency costs of $49.6 million. Excluding these 1998 items totaling $139.5 million, gross profit increased $24.3 million or 3.6%. Gross margins on this basis were 33.2% in 1999 compared with 34.7% in 1998. The decrease in gross margins from fiscal 1998 was caused by $30.0 million of additional markdowns required to 1) liquidate inventory planned for lost customers, 2) reduce inventory levels in Intimate Apparel primarily from training new employees in start-up plants and 3) softness in the Calvin Klein Junior Jeans business; and $10.0 million additional plant start-up costs in the Company's new Intimate Apparel manufacturing facilities in Mexico. Intimate Apparel Division. Gross profit (excluding all non-recurring items described above) decreased $46.1 million or 12.2% to $332.5 million in fiscal 1999 compared with $378.6 million in fiscal 1998. Gross margins on this basis were 35.2% in 1999 compared with 40.1% in 1998. The decrease in margins resulted from the incremental markdowns and additional plant start-up costs mentioned above. Sportswear and Accessories Division. Gross profit (excluding all non-recurring items described above) increased $69.4 million or 26.9% to $327.0 million in fiscal 1999 compared with $257.6 million in fiscal 1998. The increase in gross profit was due to the increase in net revenues mentioned above. Gross margins in 1999 were 32.0% compared with 29.4% in 1998 with the improvement due to sourcing efficiencies and cost reductions. Retail Stores Division. Gross profit increased $1.0 million or 2.5% to $41.5 million in fiscal 1999 compared with $40.5 million in fiscal 1998. Gross margins in fiscal 1999 was 28.0% compared to 31.1% in fiscal 1998, with the decrease caused by additional markdowns to liquidate excess inventories. Selling, administrative and general expenses increased $19.5 million to $471.1 million in fiscal 1999 compared with $451.6 million in fiscal 1998. Selling, administrative and general expenses as a percentage of sales was 22.3% in 1999 compared with 23.2% in 1998. Included in fiscal 1998 results are restructuring and special charges of $30.6 million and other non-recurring items of $27.1 million (see discussion of Strategic Actions on pages 20-21). The Company anticipates that these programs will generate annual savings of approximately $15.0 million pre-tax. Excluding restructuring, special charges and other non-recurring items in 1998, selling, administrative and general expenses were $471.1 million (22.3% of net revenues) in 1999 compared with $393.9 million (20.2% of net revenues) in 1998. The increase in selling, administrative and general expenses as a percentage of net revenues, primarily attributable to 1) $16.0 million of non-operating incremental costs related to the Calvin Klein Jeans distribution consolidation, 2) a 30 basis-point increase of $15.4 in marketing spending to 5.6% of net revenues and 3) incremental data processing costs related to Year 2000 conversion as well as the implementation of new systems. Operating Profit Intimate Apparel Division. Operating profit decreased $35.1 million or 17.5% to $165.0 million in fiscal 1999 compared with $200.1 million in fiscal 1998. This was attributable to the additional markdowns and plant start-up costs mentioned above. In addition, fiscal 1998 includes restructuring, non-recurring and special charges as outlined above of $75.5 million and the effect of adopting SOP 98-5 of $40.8 million and a charge for an inventory adjustment related to production and inefficiency costs of $49.6 million. 24 Sportswear and Accessories Division. Operating profit increased $14.3 million or 9.9% to $159.0 million in fiscal 1999 compared with $144.7 million in fiscal 1998. This was attributable to the 16.9% net revenue increase mentioned above, partially offset by the $16.0 million non-operating incremental cost related to the Calvin Klein Jeans distribution consolidation. In addition, restructuring, non-recurring and special charges as outlined above were $5.2 million in fiscal 1998. Retail Stores Division. Operating profit decreased $6.6 million to $9.0 million in fiscal 1999 from $15.6 million in fiscal 1998, with the decrease attributable to markdowns required to liquidate excess inventory. In addition, restructuring, non-recurring and special charges as outlined above were $4.8 million in fiscal 1998. Interest expense increased $17.2 million to $81.0 million in fiscal 1999 compared with $63.8 million in fiscal 1998. The increase was caused primarily by additional borrowings to finance the Company's stock buyback program and its acquisitions in fiscal 1998 and 1999. (See Notes 2 and 13 to the Consolidated Financial Statements.) The income tax provision in fiscal 1999 was $51.1 or an overall effective tax rate of 34.3%. This compares to an income tax benefit in fiscal 1998 of $17.5 million consisting of a $7.7 million income tax expense on continuing operations and a $25.2 million income tax benefit on the cumulative effect of an accounting change, or an overall effective tax rate of 35.3%. The decrease in the effective tax rate from 35.3% in fiscal 1998 to 34.3% in fiscal 1999 was due to a shift in the amount of income in foreign jurisdictions with lower tax rates. The difference between the United States federal statutory rate of 35.0% and the Company's effective tax rate of 34.3% primarily reflects the impact of state income taxes (net of federal benefits), and the impact of non-deductible intangible amortization, favorably offset by a shift in income to foreign jurisdictions with lower tax rates than the U.S. The Company has estimated United States net operating loss carryforwards of approximately $421.3 million at January 1, 2000 and foreign net operating loss carryforwards of approximately $33.7 million available to offset future taxable income. The United States and foreign loss carryforwards, which the Company expects to fully utilize, should result in future cash tax savings of approximately $133.6 million at current United States income tax rates and $1.0 million at current foreign income tax rates, respectively. The net operating loss carryforwards expire between 2002 and 2018. Income before cumulative effect of a change in accounting principle improved $83.7 million to $97.8 million or $1.72 per diluted share in fiscal 1999 compared with $14.1 million or $0.22 per diluted share in fiscal 1998 due to the charges included in fiscal 1998 as mentioned above. Comparison of Fiscal 1998 to Fiscal 1997 Net revenues increased $514.6 million or 35.8% to $1,950.3 million in fiscal 1998 compared with $1,435.7 million in fiscal 1997. Incremental net revenues contributed by the 1997 and 1998 acquisitions of Calvin Klein Jeanswear and Kidswear were $415.5 million. In addition, the Company discontinued several underperforming brands during 1998. These discontinued brands accounted for a reduction in net revenues of $30.9 million in fiscal 1998. Excluding the impact of these items, net revenues from continuing brands were up 9.4%. Intimate Apparel Division. Net revenues increased $3.6 million or 0.4% to $944.8 million in fiscal 1998 compared with $941.2 million in fiscal 1997. Discontinued brands accounted for a reduction in net revenues of $30.9 million in fiscal 1998. Excluding the impact of the discontinued brands, net revenues increased 3.9%. Core Warner's, Olga and private label business increased $29.3 million or 8.1% over fiscal 1997 results. Bra market share in department and specialty stores for the year was 37.5% compared 25 with 34.0% in 1997. Fiscal 1998 net revenues were negatively affected by hurricanes in Costa Rica and Honduras which disrupted shipments during the 1998 fourth quarter. Calvin Klein net revenues declined 3.1% primarily on lower international shipments in Russia of $6.3 million and the Far East of $0.8 million due to currency devaluation and economic downturns. Sportswear and Accessories Division. Net revenues increased $449.4 million or 105.5% to $875.3 million in fiscal 1998 compared with $425.9 million in fiscal 1997. Incremental net revenues in 1998 contributed by the 1997 and 1998 Calvin Klein Jeanswear and Kidswear acquisitions were $366.8 million. Excluding these acquisitions, net revenues increased $82.6 million or 28.2%. Improvements were recorded across all brands with Chaps up $78.7 million or 28.9% and Accessories up $2.0 million or 11.6%. Retail Stores Division. Net revenues increased $61.6 million or 89.8% in fiscal 1998. Incremental net revenues in 1998 contributed by the 1997 Designer Holdings acquisition was $48.7 million. Excluding the acquisition, net revenues increased $12.9 million or 22.4%. Gross profit increased $162.0 million or 43.2% on an as-reported basis to $537.2 million in fiscal 1998 compared with $375.2 million in fiscal 1997. The increase is due primarily to the 1997 and 1998 Calvin Klein acquisitions. Gross margins improved 1.4% to 27.5% from 26.1% resulting from a more favorable regular to off-price mix across all brands. Included in cost of sales in fiscal 1998 are restructuring and special charges of $22.1 million, other non-recurring items of $27.0 million (see discussion of Strategic Actions on pages 20-21) and the current year impact of the early adoption of SOP 98-5 of $40.8 million and a charge for an inventory adjustment related to production and inefficiency costs of $49.6 million. Included in cost of sales in fiscal 1997 are restructuring, special charges and other non-recurring items of $76.6 million (see strategic actions on pages 20-21) and charges relating to an inventory adjustment for production and inefficiency costs of $57.0 million. Excluding these items, gross profit increased $167.9 million or 33.0% to $676.7 million compared with $508.8 million in fiscal 1997. Gross margins on this basis were 34.7% in 1998 compared with 35.4% in 1997. The decrease in gross margins from fiscal 1997 was caused by a higher mix of jeanswear and Chaps net revenues, which has lower gross margins than Intimate Apparel. Intimate Apparel Division. Gross profit (excluding all non-recurring items described above) increased $11.1 million or 3.0% to $378.6 million in fiscal 1998 compared with $367.5 million in fiscal 1997. Gross margins were 40.1% in 1998 compared with 39.0% in 1997. The improvement in margins resulted from a better regular price sales mix and cost savings initiatives implemented during the year. Sportswear and Accessories Division. Gross profit (excluding all non-recurring items described above) increased $141.0 million or 120.9% to $257.6 million in fiscal 1998 compared with $116.6 million in fiscal 1998. The increase in gross profit was due to the 1997 and 1998 Calvin Klein acquisitions, which contributed an incremental $121.9 million of gross profit. Excluding acquisitions, gross profit was up $19.1 million compared with 1997 with most of the increase in Chaps. Gross margins in 1998 were 29.4% compared with 27.4% in 1997 with the improvement due to the addition of Calvin Klein Jeanswear. Retail Stores Division. Gross profit increased $15.8 million or 64.0% to $40.5 million in fiscal 1998 compared with $24.7 million in fiscal 1997, with the increase attributable to the Designer Holdings acquisition. Selling, administrative and general expenses increased $102.2 million to $451.6 million in fiscal 1998 compared with $349.4 million in fiscal 1997. Selling, administrative and general expenses as a percentage of sales improved to 23.1% in 1998 compared with 24.3% in 1997. Included in fiscal 1998 results are restructuring and special charges of $26.4 million and other non-recurring items of $31.3 million (see discussion of Strategic Actions on pages 20-21). The Company anticipates that these programs will 26 generate annual savings of approximately $15.0 million pre-tax. Included in fiscal 1997 are restructuring, special charges and other non-recurring items of $54.2 million. Excluding restructuring, special charges and other non-recurring items in 1998 and 1997, selling, administrative and general expenses were $393.9 million (20.2% of net revenues) in 1998 compared with $295.2 million (20.6% of net revenues) in 1997. The improvement in selling, administrative and general expenses is attributable to the leverage attained through increased net revenues of Calvin Klein Jeanswear. Operating Profit Intimate Apparel Division. Operating profit before special items increased $4.6 million or 2.4% to $200.1 million in fiscal 1998 compared with $195.5 million in fiscal 1997. This was attributable to the increase in net revenues and gross profit mentioned above. In addition, restructuring, non-recurring and special charges as outlined above were $75.5 million in fiscal 1998 and $68.0 million in fiscal 1997. The SOP 98-5 start-up costs were $40.8 million in fiscal 1998 and a charge for an inventory adjustment related to production and inefficiency costs was $49.6 million in fiscal 1998 and $57.0 million in fiscal 1997. Sportswear and Accessories Division. Operating profit before special items increased $82.9 million or 134.1% to $144.7 million in fiscal 1998 compared with $61.8 million in fiscal 1997. This was attributable to the 1997 and 1998 Calvin Klein acquisitions and the increased Chaps net revenues mentioned above. In addition, restructuring, non-recurring and special charges as outlined above were $5.2 million in fiscal 1998 and $40.2 million in fiscal 1997. Retail Stores Division. Operating profit before special items increased $8.5 million or 119.7% to $15.6 million in fiscal 1998 compared with $7.1 million in fiscal 1997, with the increase attributable to the additional stores acquired in the Designer Holdings acquisition. In addition, restructuring, non-recurring and special charges as outlined above were $4.8 million in fiscal 1998 and $18.7 million in fiscal 1997. Interest expense increased $17.9 million to $63.8 million in fiscal 1998 compared with $45.9 million in fiscal 1997. The increase was caused primarily by the company's stock buyback program and the Calvin Klein Jeanswear and Kidswear acquisitions in fiscal 1997 and 1998. The income tax benefit in fiscal 1998 was $17.5 million consisting of a $7.7 million income tax expense on continuing operations and a $25.2 million income tax benefit on the cumulative effect of an accounting change, or an overall effective tax rate of 35.3%. The difference between the United States federal statutory rate of 35.0% and the Company's effective tax rate of 35.3% primarily reflects the impact of state income taxes (net of federal benefits), foreign income taxes at rates other than the U. S. statutory rate, the impact of non-deductible intangible amortization, offset by the realization of a $10.8 million deferred tax asset, principally related to a realization of a capital loss carryover during the fourth quarter of fiscal 1998, previously subject to a valuation allowance. The Company has estimated United States net operating loss carryforwards of approximately $496.2 million at January 2, 1999 and foreign net operating loss carryforwards of approximately $18.3 million available to offset future taxable income. The United States and foreign loss carryforwards, which the Company expects to fully utilize, should result in future cash tax savings of approximately $130.7 million at current United States income tax rates. The net operating loss carryforwards expire between 2002 and 2018. Income before cumulative effect of the early adoption of SOP 98-5 improved $26.4 million to $14.1 million or $0.22 per diluted share in fiscal 1998 compared with a loss of $12.3 million or $0.23 per diluted share in fiscal 1997. Income before the effects of restructuring and special charges of $34.8 million, other non-recurring items of $34.3 million and the current year impact of the early adoption of SOP 98-5 and a charge for an inventory adjustment related to production and inefficiency costs of $58.5 million, was $141.7 million or $2.25 per diluted share. 27 Compared with fiscal 1997 net income (excluding non-recurring charges of $81.1 million and a charge for an inventory adjustment related to production and inefficiency costs of $35.4 million) of $104.1 million or $1.87 per diluted share, this represents an improvement of $37.6 million, or $0.38 per diluted share. Capital Resources and Liquidity The Company's liquidity requirements arise primarily from its debt service and the funding of working capital needs, primarily inventory and accounts receivable and capital improvements programs. The Company's borrowing requirements are seasonal, with peak working capital needs generally arising at the end of the second quarter and during the third quarter of the fiscal year. The Company typically generates a substantial amount of its operating cash flow in the fourth quarter of the fiscal year, reflecting third and fourth quarter shipments and the sale of inventory built during the first half of the fiscal year. During fiscal 1999, the Company acquired Authentic Fitness Corporation, Penhaligon's Ltd., IZKA, A.B.S. by Allen Schwartz, and Chaps Canada. During fiscal 1998, the Company acquired certain inventory and other assets as well as the sub-license to produce Calvin Klein jeans and jeans-related products for children in the United States, Mexico and Central and South America and the sub-license to produce Calvin Klein jeans and related products for children in Canada. Also during fiscal 1998, the Company acquired certain assets as well as the sub-license to distribute Calvin Klein jeans, jeans-related products and khakis for men and women in Mexico, Central America and Canada. The total purchase price of these acquisitions was approximately $53.1 million. In December 1997, the Company completed the acquisition of Designer Holdings, which develops, manufactures and markets designer jeanswear and sportswear under a license from Calvin Klein, Inc. The purchase price consisted of the issuance of 10,413,144 shares of the Company's stock valued at $353.4 million. Net assets acquired included $55.8 million of cash of Designer Holdings. In the third and fourth quarters of fiscal 1996, the Company acquired Lejaby, a leading European intimate apparel manufacturer, for approximately $79 million, including certain fees and expenses and assumed liabilities. Funds to consummate the transaction were provided by members of the Company's bank credit group. The terms of the bank loans are substantially the same as the terms of the Company's existing credit agreements and included a term loan totaling 370 million French Francs and revolving loan facilities totaling 150 million French Francs (the "1996 Bank Credit Agreements"). Cash provided from operating activities in fiscal 1999 was $10.0 million compared to $333.7 million in fiscal 1998. The decrease in cash flow from operating activities from fiscal 1998 primarily resulted from 1) the favorable impact of securitizing accounts receivable in fiscal 1998 ($145.1 million) and 2) the decrease in accounts payable and accrued expenses ($199.4 million) primarily attributable to extended terms negotiated in fiscal 1998 which favorably affected last year's cash flow. Cash flow from operating activities in fiscal 1998 of $333.7 million increased $189.8 million compared with fiscal 1997 of $143.9 million as a result of 1) an increase in accounts payable and accrued expenses of $118.5 million relating to extended payment terms negotiated in fiscal 1998 and 2) the favorable impact of the accounts receivable securitization of $170.5 million. Depreciation and amortization expense was $61.0 million, $46.5 million and $47.4 million in fiscal 1999, 1998 and 1997 respectively. The increase in depreciation and amortization expense in fiscal 1999 reflects amortization of intangible assets acquired in fiscal 1998 and 1999. 28 The provision for receivable allowances was $206.1 million, $166.3 million and $139.5 million in fiscal 1999, 1998 and 1997 respectively. The increase in fiscal 1999 over fiscal 1998 represents additional markdowns and allowances as previously mentioned. The increase in fiscal 1998 over fiscal 1997 represents the 35.9% sales increase primarily related to the Designer Holdings acquisition. The provision for inventory write-downs was $6.2 million in fiscal 1999, $25.4 million in fiscal 1998 and $57.3 million in fiscal 1997. The decrease in fiscal 1999 and 1998 compared to fiscal 1997 reflected the Intimate Apparel restructuring in fiscal 1998 and 1997 (see Note 3 to the Consolidated Financial Statements.) Cash used in investing activities was $736.5 million in fiscal 1999 compared with $221.8 million in fiscal 1998 and $22.0 million in fiscal 1997. The increase is fiscal 1999 compared to fiscal 1998 relates to an increase in acquisition of businesses of $572.4 million primarily related to the Authentic Fitness acquisition in December 1999. The increase in fiscal 1998 compared to fiscal 1997 reflects an increase in property, plant and equipment of $85.4 million primarily related to new MIS systems and store fixtures and an increase in acquisition of businesses of $108.9 million, which includes a use of cash in fiscal 1998 of $53.1 million primarily related to the Calvin Klein Kidswear acquisition in fiscal 1998 compared to receiving $55.8 million of cash acquired in connection with the acquisition of Designer Holdings for company stock in fiscal 1997. Cash (used in) provided by financing activities was $724.7 million, $(116.3) million and $(125.2) million in fiscal 1999, 1998 and 1997 respectively. The increase in the cash provided from financing activities in fiscal 1999 compared to fiscal 1998 reflects borrowing under an acquisition loan facility of $586.2 million to acquire Authentic Fitness and an increase in borrowings under the Company's credit facilities of $265.8 million to fund the Company's stock buy-back program and purchase of property, plant and equipment. During the year ended January 1, 2000, the Company repurchased 6.2 million shares of its common stock at a cost of $144.7 million and paid cash dividends of $20.6 million. During the year ended January 2, 1999, the Company repurchased 4.8 million shares of its common stock at a cost of $135.4 million and paid cash dividends of $22.3 million. For the year ended January 3, 1998, the Company repurchased 0.8 million shares of its common stock at a cost of $26.5 million and paid cash dividends of $16.2 million. In exchange for shares received from option holders with a fair market value of $2.6 million, $38.1 million and $0.6 million in fiscal years 1999, 1998 and 1997, respectively, the Company paid $2.6 million, $38.1 million and $0.6 million in fiscal years 1999, 1998 and 1997, respectively, of withholding taxes on options that were exercised during the year. In November 1999 the Company entered into a $600 million, 364-day credit facility with certain members of its bank credit group in order to consummate the Authentic Fitness acquisition and refinance borrowings outstanding under Authentic Fitness' bank credit agreement. Amounts borrowed under this facility are subject to interest at a base rate or an interest rate based on the Eurodollar rate plus a margin, which varies according to the Company's debt rating. As of January 1, 2000, $586,200 was outstanding under this facility at a weighted average interest rate of 7.15%. The terms of this facility are substantially the same as the terms of the Company's existing credit agreements. In November 1999, in conjunction with the Authentic Fitness acquisition, and to replace its $200 million 364-day credit facility expiring in November 1999, the Company entered into a new $450 million revolving credit facility. This new facility matures in November 2004 and carries terms that are substantially the same as the terms of the Company's existing credit agreements. Amounts borrowed under this facility are subject to interest at a base rate or an interest rate based on the Eurodollar rate plus a margin, which varies according to the Company's debt rating. As of January 1, 2000, there were no borrowings outstanding under this facility. Also in November 1999 the Company increased the amount of its Trade Letter of Credit Facility (the "L/C Facility") from $450 million to $500 million to refinance amounts outstanding under Authentic Fitness' Trade Letter of Credit Facility. As of January 1, 2000, the Company has excluded short-term obligations totaling $487,134 from current liabilities because it intends to refinance this obligation on a long-term basis. The Company has the ability to consummate the refinancing by utilizing long-term commitments in place as of January 1, 2000. 29 In April 1998, the Company amended its 1996 Bank Credit Agreements (the "Agreement") to increase its revolving loan facilities to 480 million French Francs from 120 million French Francs. Borrowings under the Agreement bear interest at LIBOR plus 0.40% and mature on April 17, 2003. In July 1998, the Company amended its $300 million the L/C Facility to increase the size of the facility to $450 million, to extend the borrowing period for amounts due under the maturing letters of credit from 120 days to 180 days, to extend the maturity of the L/C Facility to July 29, 1999 and to eliminate certain restrictions relating to debt and investments. The amount of borrowings available under the L/C Facility was increased to accommodate the internal growth of the Company's business as well as the increased demand for finished product purchases stemming from the acquisition of Designer Holdings in the fourth quarter of 1997 and the acquisition of the Calvin Klein Kids business in the second quarter of 1998. In conjunction with the amendment of the L/C Facility, the Company also amended its $600 million revolving credit facility and its $200 million 364-day credit facility to allow for the increase in the L/C Facility and the elimination of certain restrictions relating to debt and investments. In July 1999, the L/C Facility was extended until July 27, 2000. In October 1998, the Company entered into a $200 million revolving accounts receivable securitization facility. Under this facility, the Company entered into agreements to sell, for a period of up to five years, undivided participation interests in designated pools of U.S. trade receivables. Participation interests in new receivables may be sold as collections reduce previously sold participation interests. The participation interests are sold at a discount to reflect normal dilution. Net proceeds to the Company from the initial funding were $200 million, and were used primarily to temporarily repay long-term debt. At January 1, 2000, approximately $195.9 million was advanced under this facility. The Company has paid a quarterly cash dividend since June 1995. The dividend payment was raised to $0.08 per share from $0.07 per share in February 1997 and increased to $0.09 per share in January 1998. At January 1, 2000, the Company had approximately $469.2 million of additional borrowing availability under the revolving loan portions of its United States bank facilities. The Company also has bank credit agreements in Canada, Europe and Asia. At January 1, 2000, the Company had approximately $53.1 million of additional borrowing availability under these agreements. The Company believes that funds available under its various bank facilities, together with cash flow to be generated from future operations, will be sufficient to meet the capital expenditure requirements and working capital needs of the Company, including interest and debt principal payments for the next twelve months and for the next several years. Year 2000 and Economic and Monetary Union ("EMU") Compliance The Company is fully Year 2000 compliant with respect to all of its operating systems. The Company did not experience any year 2000 related issues. 30 In anticipation of the establishment of the European EMU and the introduction of a single European unit of currency (the "Euro") scheduled for January 1, 1999, Warnaco formed a Steering Committee in December 1997 to (1) identify the related issues and their potential effect on Warnaco, and (2) develop an action plan for EMU compliance. The steering committee completed development of and implemented an action plan which included preparation of banking arrangements for use of the Euro, development of dual currency price lists and invoices, modification of prices to mitigate the potential effects of price transparency and implementing necessary computer-related remediation steps. As a result of this plan, as of January 1, 1999, Warnaco was EMU compliant. During 1999, the Company experienced no adverse effects on its business as a result of the introduction of the Euro. Statement Regarding Forward-looking Disclosure This Report includes "forward-looking statements" within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended, which represent the Company's expectations or beliefs concerning future events that involve risks and uncertainties, including those associated with the effect of national and regional economic conditions, the overall level of consumer spending, the performance of the Company's products within the prevailing retail environment, customer acceptance of both new designs and newly-introduced product lines, and financial difficulties encountered by customers. All statements other than statements of historical facts included in this Annual Report, including, without limitation, the statements under 'Management's Discussion and Analysis of Financial Condition,' are forward-looking statements. Although the Company believes that the expectations reflected in such forward-looking statements are reasonable, it can give no assurance that such expectations will prove to have been correct. Seasonality The operations of the Company are somewhat seasonal. In fiscal 1999, approximately 56% of net revenues, 50% of operating income, and substantially all of the Company's net cash flow from operating activities were generated in the second half of the year. Generally, the Company's operations during the first half of the year are financed by increased borrowings. The following sets forth the net revenues, operating income and net cash flow from operating activities generated for each quarter of fiscal 1998 and fiscal 1997. 31
Three Months Ended (in millions) Apr. 4, July 4, Oct. 3, Jan. 2 Apr. 3, July 3, Oct. 2, Jan. 1, 1999 1998 1998 1999 1999 1999 1999 2000 ---- ---- ---- ---- ---- ---- ---- ---- Net revenues $ 419.2 $438.9 $544.1 $548.1 $444.1 $484.7 $579.6 $605.8 Operating income(loss) $ 23.4 $ 35.5 $ 56.0 $ (29.3) $52.2 $62.6 $90.2 $24.9 Cash flow from (used in) operating activities $(145.4) $ 22.4 $162.2 $294.5 $(127.0) $(44.0) $2.7 $178.3
Inflation The Company does not believe that the relatively moderate levels of inflation in the United States, Canada and Western Europe have had a significant effect on its net revenues or its profitability. Management believes that, in the past, the Company has been able to offset such effects by increasing prices or by instituting improvements in productivity. Mexico historically has been subject to high rates of inflation; however, the effects of inflation on the operation of the Company's Mexican subsidiaries have not had a material impact on the results of the Company. Impact of New Accounting Standards In June 1998, the Financial Accounting Standards Board (FASB) issued Statement of Financial Accounting Standards (SFAS) No. 133, "Accounting for Derivative Instruments and Hedging Activities". SFAS No. 133 was effective for financial statements for fiscal years beginning after June 15, 1999. However, in June 1999, the FASB issued SFAS 137 "Deferral of the effective date of FASB Statement No. 133" delaying the effective date of SFAS 133 until fiscal years beginning after June 15, 2000. The Company is evaluating the application of the new statement and the impact on the Company's consolidated financial position, liquidity, cash flows and results of operations. Item 7A. Quantitative and Qualitative Disclosures about Market Risk. The Company is exposed to market risk related to changes in interest rates and foreign currency exchange rates, and selectively uses financial instruments to manage these risks. The Company does not enter into financial instruments for speculation or for trading purposes. Interest Rate Risk The Company is subject to market risk from exposure to changes in interest rates based primarily on its financing activities. The Company enters into interest rate swap agreements to reduce the impact of interest rate fluctuations on cash flow and interest expense. As of January 1, 2000, approximately $691.5 million of the Company's $1,904.3 million of interest-rate sensitive obligations were swapped to fixed rates. Of the total amount swapped, $610 million were swapped to a fixed rate of 5.99% while $81.5 million were swapped to fixed rates between 6.60% and 6.66%, thereby limiting the Company's risk to any future shift in interest rates. As of January 1, 2000, the net fair value asset of all financial instruments (primarily interest rate swap agreements) with exposure to interest rate risk was approximately $22.1 million. As of January 1, 2000 the Company had approximately $1,212.8 million of obligations subject to variable interest rates in excess of such obligations that had been swapped to achieve a fixed rate. A hypothetical 10% adverse change in interest rates as of January 1, 2000 would have had an $8.1 million unfavorable impact on the Company's pre-tax earnings and cash flow over a one-year period. 32 Foreign Exchange Risk The Company has foreign currency exposures related to buying, selling and financing in currencies other than the functional currency in which it operates. These exposures are primarily concentrated in the Canadian dollar, Mexican peso, Hong Kong dollar, British pound, Euro, Costa Rican colon, Honduran lempira, Dominican Republic peso and the Chinese renminbi. The Company enters into foreign currency forward and option contracts to mitigate the risk of doing business in foreign currencies. The Company hedges currency exposures of firm commitments and anticipated transactions denominated in non-functional currencies to protect against the possibility of diminished cash flow and adverse impacts on earnings. As of January 1, 2000, the net fair value asset of financial instruments with exposure to foreign currency risk, which included currency option and forward contracts, was $0.1 million. The potential decrease in fair value resulting from a hypothetical 10% adverse change in quoted foreign currency exchange rates would be approximately $1.3 million. Item 8. Financial Statements and Supplementary Data. The information required by Item 8 of Part II is incorporated herein by reference to the Consolidated Financial Statements filed with this report. See Item 14 of Part IV. Item 9. Changes in and Disagreements with Independent Accountants on Accounting and Financial Disclosure. Previous Independent Accountants On November 18, 1999, the Audit Committee of the Board of Directors of the Company approved the appointment of Deloitte & Touche LLP as its independent auditors for fiscal 1999. PricewaterhouseCoopers LLP, the Company's previous auditors, were dismissed. The reports of PricewaterhouseCoopers LLP on the financial statements for the last two fiscal years contained no adverse opinion or disclaimer of opinion, and were not qualified or modified as to uncertainty, audit scope or accounting principles. In connection with its audits for the two most recent fiscal years and through November 18, 1999, there were no disagreements with PricewaterhouseCoopers LLP on any matter of accounting principles or practices, financial statement disclosure, or auditing scope or procedure, which disagreements, if not resolved to the satisfaction of PricewaterhouseCoopers LLP, would have caused PricewaterhouseCoopers LLP to make reference thereto in their report on the consolidated financial statements for such years. During the two most recent fiscal years and through November 18, 1999, there have been no reportable events (as defined in Item 304(a)(1)(v) of Regulation S-K.), except that in connection with the audit of the fiscal 1998 consolidated financial statements, PricewaterhouseCoopers LLP informed management that the intimate apparel division manufacturing cost system may not function to reduce to a relatively low level the risk that errors may occur and not be detected within a timely period. The Company took actions in fiscal 1998 which it believes have effectively addressed these matters. The Registrant requested and PricewaterhouseCoopers LLP furnished it with a letter addressed to the Securities and Exchange Commission (the "SEC") stating whether or not it agreed with the above statements. Such letter dated November 26, 1999 was filed as an exhibit to the Company's Form 8-K filed November 26, 1999. New Independent Accountants The Registrant engaged Deloitte & Touche LLP as its new independent accountants on November 18, 1999. During the two most recent fiscal years and through November 18, 1999, the Registrant had not consulted with Deloitte & Touche LLP on any of the matters or events set forth in Item 304(a) 2(i) and (ii) of Regulation S-K. 33 PART III Item 10. Directors and Executive Officers of the Registrant. The information required by Item 10 is incorporated by reference from page 15 of Item 4 of Part I included herein and from the Proxy Statement of The Warnaco Group, Inc., to be filed with the Securities and Exchange Commission within 120 days of the fiscal 1999 year-end relating to the 2000 Annual Meeting of Stockholders. Item 11. Executive Compensation. The information required by Item 11 is hereby incorporated by reference from the Proxy Statement of The Warnaco Group, Inc., to be filed with the Securities and Exchange Commission within 120 days of the fiscal 1999 year-end, relating to the 2000 Annual Meeting of Stockholders. Item 12. Security Ownership of Certain Beneficial Owners and Management. The information required by Item 12 is hereby incorporated by reference from the Proxy Statement of The Warnaco Group, Inc., to be filed with the Securities and Exchange Commission within 120 days of the fiscal 1999 year-end, relating to the 2000 Annual Meeting of Stockholders. Item 13. Certain Relationships and Related Transactions. The information required by Item 13 is hereby incorporated by reference from the Proxy Statement of The Warnaco Group, Inc., to be filed with the Securities and Exchange Commission within 120 days of the fiscal 1999 year-end, relating to the 2000 Annual Meeting of Stockholders. 34 PART IV Item 14. Exhibits, Financial Statements, Schedules and Reports on Form 8-K. (a) 1. The Consolidated Financial Statements of The Warnaco Group, Inc.
Page ---- Reports of Independent Accountants........................................ F-1 - F-2 Consolidated Balance Sheets as of January 2, 1999 and January 1, 2000..... F-3 Consolidated Statements of Operations for the Years Ended January 3, 1998, January 2, 1999 and January 1, 2000....................................... F-4 Consolidated Statements of Stockholders' Equity and Comprehensive Income For the Years Ended January 3, 1998, January 2, 1999 and January 1, 2000 F-5 Consolidated Statements of Cash Flows for the Years Ended January 3, 1998, January 2, 1999 and January 1, 2000.................................... F-6 Notes to Consolidated Financial Statements................................ F-7 - F-45 2. Financial Statement Schedule: Schedule II. Valuation and Qualifying Accounts and Reserves............. S-1
All other schedules for which provision is made in the applicable accounting regulations of the Securities and Exchange Commission which are not included with this additional financial data have been omitted because they are not applicable or the required information is shown in the Consolidated Financial Statements or Notes thereto. 3. List of Exhibits: 2.1 Tender Offer Statement on Schedule 14D-1, dated November 17, 1999 (incorporated herein by reference to Exhibit 2.1 to the Company's Form 8-K filed January 18, 2000). 2.2 Amendment No.1 to Schedule 14D-1 and Schedule 13D, dated December 16, 1999 (incorporated herein by reference to Exhibit 2.2 to the Company's Form 8-K filed January 18, 2000). 3.1 Amended and Restated Certificate of Incorporation of the Company (incorporated herein by reference to Exhibit 3.1 to the Company's Form 10-Q filed May 16, 1995) 3.2 Amended Bylaws of the Company (incorporated by reference to Exhibit 3.2 to the Company's Form 10-K filed April 4, 1997). 4.1 Registration Rights Agreement dated March 14, 1994 between the Company and Calvin Klein, Inc. ("CK") (incorporated herein by reference to Exhibit 4.1 to the Company's Form 10-Q filed May 24, 1994). 4.2 Amended and Restated Declaration of Trust of Designer Finance Trust, dated as of November 6, 1996, among Designer Holdings, as Sponsor, IBJ Schroder Bank & Trust Company, as Property Trustee, Delaware Trust Capital Management, Inc. as Delaware Trustee and Merril M. Halpern and Arnold H. Simon, as Trustees (incorporated herein by reference to Exhibit 4.1 to the Company's Form 10-Q filed November 12, 1997). 4.3 First Supplemental Indenture dated as of March 31, 1998, between Designer Holdings, The Warnaco Group, Inc. and IBJ Schroder Bank & Trust Company, as Trustee (incorporated herein by reference to Exhibit 4.3 to the Company's Form 10-K filed April 3, 1998) 4.4 Preferred Securities Guarantee Agreement dated as of March 31, 1998, between The Warnaco Group, Inc., as Guarantor and IBJ Schroder Bank & Trust Company, as Preferred Guarantee Trustee, with respect to the Preferred Securities of Designer Finance Trust (incorporated herein by reference to Exhibit 4.4 to the Company's Form 10-K filed April 3, 1998). 4.5 Rights Agreement, dated as of August 19, 1999 between the Warnaco Group, Inc. and the Bank of New York (incorporated herein by reference to Exhibit 4.5 to the Company's Form 8-K filed August 20, 1999. 35 10.1 Credit Agreement, dated as of August 12, 1997 (the 'U.S. $600,000,000 Credit Agreement'), among Warnaco Inc., as Borrower, and The Bank of Nova Scotia and Citibank, N.A. as Managing Agents, Citibank, N.A. as Documentation Agent, the Bank of Nova Scotia as Administrative Agent, Competitive Bid Agent, Swing Line Bank and an Issuing Bank and certain other lenders named therein (incorporated herein by reference to Exhibit 10.1 to the Company's Form 10-Q filed November 12, 1997) 10.2 Second Amended and Restated Credit Agreement, dated as of August 12, 1997 (the 'U.S. $300,000,000 Credit Agreement'), among Warnaco Inc., as the U.S. Borrower, Warnaco (HK) Ltd., as the Foreign Borrower, Citibank, N.A., as the Documentation Agent, The Bank of Nova Scotia, as the Administrative Agent, and certain other lenders named therein (incorporated herein by reference to Exhibit 10.2 to the Company's Form 10-Q filed November 12, 1997). 10.3 First Amendment to the U.S. $300,000,000 Credit Agreement, dated as of October 14, 1997 among Warnaco Inc., as the U.S. Borrower, Warnaco (HK) Ltd. as the Foreign Borrower, Citibank, N.A., as the Documentation Agent, The Bank of Nova Scotia, as Administrative Agent, and certain other lenders party thereto (incorporated herein by reference to Exhibit 10.3 to the Company's Form 10-Q filed November 12, 1997). 10.4 Employment Agreement, dated as of January 6, 1991, between the Company and Linda J. Wachner (incorporated herein by reference to Exhibit 10.7 to the Company's Registration Statement on Form S-1, No. 33-42641). 10.5 Incentive Compensation Plan (incorporated herein by reference to Exhibit 10.8 to the Company's Registration on Form S-1, No. 33-45877). 10.6 1991 Stock Option Plan (incorporated herein by reference to Exhibit 10.9 to the Company's Registration Statement on Form S-1, No. 33-45877). 10.7 Amended and Restated 1988 Employee Stock Purchase Plan, as amended (incorporated herein by reference to Exhibit 10.10 to the Company's Registration Statement on Form S-1, No. 33-45877). 10.8 Warnaco Employee Retirement Plan (incorporated herein by reference to Exhibit 10.11 to the Company's Registration Statement on Form S-1, No. 33-4587 10.9 Executive Management Agreement, dated as of May 9, 1991, as extended, between the Company, Warnaco Inc. and The Spectrum Group, Inc. (incorporated herein by reference to Exhibit 10.13 to the Company's Registration Statement on Form S-1, No. 33-45877 10.10 1993 Non-Employee Director Stock Plan (incorporated herein by reference to the Company's Proxy Statement for its 1994 Annual Meeting of Stockholders). 10.11 Amended and Restated 1993 Stock Plan (incorporated herein by reference to the Company's Proxy Statement for its 1994 Annual Meeting of Stockholders). 10.12 The Warnaco Group, Inc. Supplemental Incentive Compensation Plan (incorporated herein by reference to the Company's Proxy Statements for its 1994 and 1999 Annual Meetings of Stockholders). 10.13 Amended and Restated License Agreement dated as of January 1, 1996, between Polo Ralph Lauren, L.P. and Warnaco Inc. (incorporated herein by reference to Exhibit 10.4 to the Company's Form 10-Q filed November 12, 1997). 10.14 Amended and Restated Design Services Agreement dated as of January 1, 1996, between Polo Ralph Lauren Enterprises, L.P. and Warnaco Inc. (incorporated herein by reference to Exhibit 10.5 to the Company's Form 10-Q filed November 12, 1997). 10.15 Agreement and Plan of Merger dated as of September 25, 1997 among The Warnaco Group, Inc., WAC Acquisition Corporation and Designer Holdings Ltd. (incorporated herein by reference to Exhibit 2, attached as Appendix A to the Joint Proxy Statement/Prospectus to the Company's Registration Statement on Form S-4, No. 333-40207). 36 10.16 Stock Exchange Agreement dated as of September 25, 1997 among The Warnaco Group, Inc, New Rio, L.L.C. and each of the members of New Rio signatory hereto (incorporated herein by reference to Exhibit 10.1, attached as Appendix B to the Joint Proxy Statement/Prospectus to the Company's Registration Statement on Form S-4, No. 333-40207). 10.17 1997 Stock Option Plan (incorporated herein by reference to Exhibit 10.17 to the Company's Form 10-K filed April 3, 1998). 10.18 License Agreement dated as of August 4, 1994 between Calvin Klein, Inc. and Calvin Klein Jeanswear Company; incorporated by reference to Exhibit 10.20 to Designer Holdings, Ltd.'s Registration Statement on Form S-1 (File No. 333-2236). 10.19 Amendment to the Calvin Klein License Agreement dated as of December 7, 1994; incorporated by reference to Exhibit 10.21 to Designer Holdings, Ltd.'s Registration Statement on Form S-1 (File No. 333-2236). 10.20 Amendment to the Calvin Klein License Agreement dated as of January 10, 1995; incorporated by reference to Exhibit 10.22 to Designer Holdings, Ltd.'s Registration Statement on Form S-1 (File No.333-2236). 10.21 Amendment to the Calvin Klein License Agreement dated as of February 28, 1995; incorporated by reference to Exhibit 10.23 to Designer Holdings, Ltd.'s Registration Statement on Form S-1 (File No. 333-2236). 10.22 Amendment to the Calvin Klein License Agreement dated as of April 22, 1996; incorporated by reference to Exhibit 10.38 to Designer Holdings, Ltd.'s Registration Statement on Form S-1 (File No. 333-2236). 10.23 Amendment No. 1, dated as of July 31, 1998, to the Credit Agreement dated as of August 12, 1997, among Warnaco Inc. and The Warnaco Group, Inc., as Borrowers, and The Bank of Nova Scotia, as Managing Agent and Administrative Agent and Citibank N.A., as Managing Agent, and certain other lenders named therein. (incorporated herein by reference to Exhibit 10.1 to the Company's Form 10-Q filed August 18, 1998). 10.24 Amendment No. 1, dated as of July 31, 1998, to the Credit Agreement dated as of November 26, 1997, among Warnaco Inc. and The Warnaco Group, Inc., as Borrowers, and The Bank of Nova Scotia, as Managing Agent and Administrative Agent and Citibank N.A., as Managing Agent, and certain other lenders named therein. (incorporated herein by reference to Exhibit 10.2 to the Company's Form 10-Q filed August 18, 1998). 10.25 Fifth Amended and Restated Credit Agreement, dated as of July 31, 19988, among Warnaco Inc., as the U.S. Borrower, Designer Holdings, Ltd. and other wholly-owned domestic subsidiaries as designated from time to time, as the Sub-Borrowers, Warnaco (HK) Ltd., Warnaco B.V., Warnaco Netherlands B.V., as the Foreign Borrowers, the Warnaco Group, Inc., as a Guarantor, and Societe Generale, as the Documentation Agent, Citibank, N.A., as the Syndication Agent, and The Bank of Nova Scotia, as the Administrative Agent, and certain other lenders named therein. (incorporated herein by reference to Exhibit 10.3 to the Company's Form 10-Q filed August 18, 1998). 10.26 Amended and Restated Master Agreement of Sale, dated as of September 30, 1998, among Warnaco Inc., as Originator, and Gregory Street, Inc., as Buyer and Servicer. (incorporated herein by reference to Exhibit 10.4 to the Company's Form 10-Q filed November 7, 1998). 10.27 Master Agreement of Sale, dated as of September 30, 1998, among Calvin Klein Jeanswear Company, as Originator, and Gregory Street, Inc., as Buyer and Servicer. (incorporated herein by reference to Exhibit 10.5 to the Company's Form 10-Q filed November 7, 1998). 10.28 Purchase and Sale Agreement, dated as of September 30, 1998, among Gregory Street, Inc., as Seller and initial Servicer and Warnaco Operations Corporation, as Buyer. (incorporated herein by reference to Exhibit 10.6 to the Company's Form 10-Q filed November 7, 1998). 10.29 Parallel Purchase Commitment, dated as of September 30, 1998, among Warnaco Operations Corporation, as Seller and certain commercial lending institutions, as the Banks, and Gregory Street, Inc., as the initial Servicer and The Bank of Nova Scotia, as Agent. 37 (incorporated herein by reference to Exhibit 10.7 to the Company's Form 10-Q filed November 7, 1998). 10.30 Receivables Purchase Agreement, dated as of September 30, 1998, among Warnaco Operations Corporation, as Seller, Gregory Street, Inc., as Servicer, Liberty Street Funding Corp., and Corporate Asset Funding Company, Inc. as Investors and The Bank of Nova Scotia, as Agent, and Citicorp North America, Inc., as Co-Agent. (incorporated herein by reference to Exhibit 10.8 to the Company's Form 10-Q filed November 7, 1998). 10.31 1998 Stock Plan for Non-Employee Directors. 10.32 Agreement and Plan of Merger dated as of November 15, 1999 by and among The Warnaco Group, Inc., A Acquisition Corp. and Authentic Fitness Corporation (incorporated herein by reference to Exhibit C, to the Company's Schedule 14D1 filed November 17, 1999). 10.33 U.S. $600,000,000 364-Day Credit Agreement, dated as of November 17, 1999 among Warnaco Inc., as Borrower, Morgan Guaranty Trust Company of New York as Documentation Agent, The Bank of Nova Scotia as Administration Agent and certain other lenders party thereto (incorporated herein by reference to Exhibit B to the Company's Schedule 14D-1 filed November 17, 1999). 10.34 U.S. $600,000,000 Amended and Restated Credit Agreement dated as of November 17, 1999 among Warnaco Inc. as Borrower, The Bank of Nova Scotia as Administrative Agent, and Citibank, N.A. as Syndication Agent amending Credit agreement dated August 12, 1997. 10.35 Five-Year Credit Agreement dated as of November 17, 1999 among Warnaco Inc. as Borrower, The Bank of Nova Scotia as Administrative Agent, Citibank, N.A. as Syndication Agent and Societe Generale and CommerzBank AG as Co-Documentation Agents. 10.36 Sixth Amended and Restated Credit Agreement, dated as of November 17, 1999, among Warnaco Inc., as the U.S. Borrower, Designer Holdings, Ltd., as the Sub Borrower, Those Wholly-owned Domestic Subsidiaries Designated From Time To Time, as the Warnaco Sub Borrowers, Warnaco (HK) Ltd., Warnaco B.V., Warnaco Netherlands B.V. and Warnaco Holland B.V., as the Foreign Borrowers, The Warnaco Group, Inc., as a Guarantor, Certain Financial Institutions, as the Lenders, and The Bank of Nova Scotia, as the Administrative Agent for the Lenders. 21 Subsidiaries of the Company. 23.1 Consent of Deloitte & Touche LLP 23.2 Consent of PricewaterhouseCooopers LLP 27 Financial Data Schedule. 99.1 Designer Holdings, Ltd. Annual Report on Form 10-K for the year ended December 31, 1996 (incorporated herein by reference -- Commission file number 1-11707). 99.2 Authentic Fitness Corporation Annual Report on Form 10-K for the fiscal year ended July 3, 1999 (incorporated herein by reference -- Commission file number 1-11202). (b) Reports on Form 8-K. The Company filed reports on Form 8-K on August 20, 1999 and November 26, 1999. 38 SIGNATURES Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the Registrant has duly caused this Report to be signed on its behalf by the undersigned, thereunto duly authorized in the City of New York, State of New York, on the 3rd day of April, 2000. THE WARNACO GROUP, INC. /s/ LINDA J. WACHNER -------------------- Linda J. Wachner Chairman, President and Chief Executive Officer Pursuant to the requirements of the Securities Exchange Act of 1934, this Report has been signed by the following persons in the capacities and on the dates indicated.
Signature Title Date /s/ LINDA J. WACHNER Chairman of the Board; Director; April 3, 2000 - -------------------------------------- President and Chief Executive Linda J. Wachner Officer (Principal Executive Officer) /s/ WILLIAM S. FINKELSTEIN Director; Senior Vice President, and April 3, 2000 - -------------------------------------- Chief Financial Officer (Principal William S. Finkelstein Financial and Accounting Officer) /s/ STUART D. BUCHALTER Director April 3, 2000 - -------------------------------------- Stuart D. Buchalter /s/ JOSEPH A CALIFANO, JR. Director April 3, 2000 - -------------------------------------- Joseph A. Califano, Jr. /s/ DONALD G. DRAPKIN Director April 3, 2000 - -------------------------------------- Donald G. Drapkin /s/ JOSEPH H. FLOM, ESQ. Director April 3, 2000 - -------------------------------------- Joseph H. Flom, Esq. /s/ ANDREW G. GALEF Director April 3, 2000 - -------------------------------------- Andrew G. Galef /s/ WALTER F. LOEB Director April 3, 2000 - -------------------------------------- Walter F. Loeb /s/ DR. MANUEL T. PACHECO Director April 3, 2000 - -------------------------------------- Dr. Manuel T. Pacheco /s/ STEWART A. RESNICK Director April 3, 2000 - -------------------------------------- Stewart A. Resnick
39 INDEPENDENT AUDITORS' REPORT To the Board of Directors and Stockholders of The Warnaco Group, Inc. We have audited the accompanying consolidated balance sheet of The Warnaco Group Inc. and its subsidiaries as of January 1, 2000 and the related consolidated statements of operations, stockholders' equity and comprehensive income and cash flows for the year then ended. Our audit also included the financial statement schedule for the year ended January 1, 2000 listed in the Index at Item 14(a) 2. These financial statements and financial statement schedule are the responsibility of the Company's management. Our responsibility is to express an opinion on the financial statements and financial statement schedule based on our audit. We conducted our audit in accordance with auditing standards generally accepted in the United States of America. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audit provides a reasonable basis for our opinion. In our opinion, such consolidated financial statements present fairly, in all material respects, the financial position of The Warnaco Group, Inc. and subsidiaries as of January 1, 2000, and the results of their operations and their cash flows for the year then ended in conformity with accounting principles generally accepted in the United States of America. Also, in our opinion, such financial statement schedule for the year ended January 1, 2000, when considered in relation to the basic consolidated financial statements taken as a whole, presents fairly in all material respects the information set forth therein. DELOITTE & TOUCHE LLP New York, New York March 3, 2000 F-1 REPORT OF INDEPENDENT ACCOUNTANTS To the Board of Directors and Stockholders of The Warnaco Group, Inc. In our opinion, the accompanying consolidated financial statements listed in the index appearing under Item 14(a)(1) and (2) on page 35 present fairly, in all material respects, the financial position of The Warnaco Group, Inc. and its subsidiaries at January 2, 1999, and the results of their operations and their cash flows for each of the two fiscal years in the period ended January 2, 1999, in conformity with accounting principles generally accepted in the United States. These financial statements are the responsibility of the Company's management; our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits of these statements in accordance with auditing standards generally accepted in the United States which require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for the opinion expressed above. As described in Note 1 to the fiscal 1998 consolidated financial statements, pursuant to the adoption of SOP 98-5 the Company changed its accounting for deferred start-up costs effective the beginning of fiscal 1998. Also as described in Note 1 to the fiscal 1998 consolidated financial statements, the Company restated its fiscal 1997 and 1996 consolidated financial statements with respect to accounting for inventory production and inefficiency costs. PRICEWATERHOUSECOOPERS LLP New York, New York March 2, 1999 F-2 THE WARNACO GROUP, INC. CONSOLIDATED BALANCE SHEETS (In thousands, excluding share data)
January 2, January 1, 1999 2000 ------------ ----------- ASSETS Current assets: Cash $ 9,495 $ 9,328 Accounts receivable, less reserves of $36,668 - 1998 and $32,872 - 1999 199,369 314,961 Marketable securities -- 72,921 Inventories 472,019 734,439 Prepaid expenses and other current assets 26,621 66,015 ----------- ----------- Total current assets 707,504 1,197,664 ----------- ----------- Property, plant and equipment, at cost: Land and land improvements 7,060 8,158 Building and building improvements 81,928 113,974 Machinery and equipment 255,163 357,166 ----------- ----------- 344,151 479,298 Less: Accumulated depreciation and amortization (119,891) (152,946) ----------- ----------- Net property, plant and equipment 224,260 326,352 Other assets: Licenses, trademarks, intangible and other assets, at cost, less accumulated amortization of $78,116 -- 1998 and $86,606 -- 1999 306,932 337,997 Excess of cost over net assets acquired, less accumulated amortization of $51,297 - 1998 and $66,551 - 1999 417,782 842,262 Deferred income taxes 126,655 58,710 ----------- ----------- Total other assets 851,369 1,238,969 ----------- ----------- $ 1,783,133 $ 2,762,985 =========== =========== LIABILITIES AND STOCKHOLDERS' EQUITY Current liabilities: Current portion of long-term debt $ 9,387 $ 11,052 Short-term debt 20,844 133,752 Accounts payable 503,326 599,768 Accrued liabilities 128,248 111,262 Accrued income taxes payable 3,068 16,217 Deferred income taxes 14,276 7,468 ----------- ----------- Total current liabilities 679,149 879,519 ----------- ----------- Long-term debt 411,886 1,187,951 ----------- ----------- Other long-term liabilities 12,129 29,295 ----------- ----------- Commitment and Contingencies (Note 8, 11, 15 and 18) Company-Obligated Mandatorily Redeemable Convertible Preferred Securities ($120,000-par value) of Designer Finance Trust Holding Solely Convertible Debentures 101,836 102,904 Stockholders' equity: (Note 13) Class A Common Stock, $0.01 par value, 130,000,000 shares authorized, 65,172,608 and 65,393,038 issued in 1998 and 1999 652 654 Additional paid-in capital 953,512 961,368 Accumulated other comprehensive income (loss) (15,703) 24,877 Accumulated deficit (176,997) (99,461) Treasury stock, at cost - 6,087,674 shares -1998 and 12,163,650 shares - 1999 (171,559) (313,138) Unearned stock compensation (11,772) (10,984) ----------- ----------- Total stockholders' equity 578,133 563,316 ----------- ----------- $ 1,783,133 $ 2,762,985 =========== ===========
This Statement should be read in conjunction with the accompanying Notes to Consolidated Financial Statements. F-3 THE WARNACO GROUP, INC. CONSOLIDATED STATEMENTS OF OPERATIONS (In thousands, excluding per share data)
For the Year Ended ----------------------------------------------------- January 3, January 2, January 1, 1998 1999 2000 ----------------- ---------------- --------------- Net revenues $ 1,435,730 $ 1,950,251 $ 2,114,156 Cost of goods sold 1,060,526 1,413,036 1,413,149 Selling, administrative and general expenses 349,431 451,640 471,108 ----------- ----------- ----------- Operating income 25,773 85,575 229,899 Interest expense 45,873 63,790 80,976 ----------- ----------- ----------- Income (loss) before income taxes and cumulative effect of change in accounting principle (20,100) 21,785 148,923 Provision (benefit) for income taxes (7,781) 7,688 51,137 ----------- ----------- ----------- Income (loss) before cumulative effect of a change in accounting principle (12,319) 14,097 97,786 Cumulative effect of change in accounting for deferred start-up costs, net -- (46,250) -- ----------- ----------- ----------- Net income (loss) $ (12,319) $ (32,153) $ 97,786 =========== =========== =========== Basic earnings (loss) per common share: Income (loss) before accounting change $ (0.23) $ 0.23 $ 1.75 Cumulative effect of accounting change -- (0.75) -- ----------- ----------- ----------- Net income (loss) $ (0.23) $ (0.52) $ 1.75 =========== =========== =========== Diluted earnings (loss) per common share: Income (loss) before accounting change $ (0.23) $ 0.22 $ 1.72 Cumulative effect of accounting change -- (0.73) -- ----------- ----------- ----------- Net income (loss) $ (0.23) $ (0.51) $ 1.72 =========== =========== =========== Shares used in computing earnings per share: Basic 52,814 61,362 55,910 =========== =========== =========== Diluted 52,814 63,005 56,796 =========== =========== ===========
This Statement should be read in conjunction with the accompanying Notes to Consolidated Financial Statements. F-4 THE WARNACO GROUP, INC. CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY AND COMPREHENSIVE INCOME (In thousands, excluding share data)
Accumulated Other Class A Additional Comprehensive Common Paid-in Income Accumulated Stock Capital (Loss) Deficit ---------- ------------ ------------- ----------- Balance at January 4, 1997 $ 524 $ 575,691 $ (3,307) $ (92,837) ---------- ------------ ------------- ----------- Net loss (12,319) Translation adjustments (11,531) Comprehensive income (loss) Issuance of 137,135 shares of restricted stock 1 3,600 Dividends declared (17,265) Employee stock options exercised and payment of employee notes receivable 4 9,498 Net cash settlements under equity option arrangements (1,620) Amortization of unearned stock compensation Purchase of 839,319 shares of treasury stock Issuance of 10,413,144 shares for the acquisition of Designer Holdings Ltd. 104 353,292 ---------- ------------ ------------- ------------ Balance at January 3, 1998 633 940,461 (14,838) (122,421) ---------- ------------ ------------- ------------ Net loss (32,153) Translation adjustments (865) Comprehensive income (loss) Employee stock options exercised and payment of employee note receivable 17 3,046 Net cash settlements under equity option arrangements 2,325 Issuance of 182,903 shares of restricted stock 2 7,680 Dividends declared (22,423) Amortization of unearned stock compensation Purchase of 4,794,699 shares of treasury stock ---------- ------------ ------------- ----------- Balance at January 2, 1999 652 953,512 (15,703) (176,997) ---------- ------------ ------------- ----------- Net income 97,786 Translation adjustments 1,614 Unrealized gain on marketable securities 38,966 Comprehensive income Employee stock options exercised 3,131 Issuance of 190,680 shares of restricted stock 2 5,456 Dividends declared (20,250) Amortization of unearned stock compensation Purchase of 6,182,088 shares of treasury stock Issuance of 100,000 shares of treasury stock for acquisition of ABS (731) ---------- ------------ ------------- ----------- Balance at January 1, 2000 $ 654 $ 961,368 $ 24,877 $ (99,461) ========== ============ ============= =========== Treasury Unearned Stock Stock Compensation Total ------------- ------------- ---------- Balance at January 4, 1997 $(12,030) $ (15,497) $ 452,544 ------------- ------------- ---------- Net loss (12,319) Translation adjustments (11,531) ---------- Comprehensive income (loss) (23,850) Issuance of 137,135 shares of restricted stock (3,601) - Dividends declared (17,265) Employee stock options exercised and payment of employee notes receivable 70 9,572 Net cash settlements under equity option arrangements (1,620) Amortization of unearned stock compensation 3,322 3,322 Purchase of 839,319 shares of treasury stock (26,537) (26,537) Issuance of 10,413,144 shares for the acquisition of Designer Holdings Ltd. 353,396 -------------- -------------- ---------- Balance at January 3, 1998 (38,567) (15,706) 749,562 -------------- -------------- ---------- Net loss (32,153) Translation adjustments (865) ---------- Comprehensive income (loss) (33,018) Employee stock options exercised and payment of employee note receivable 2,424 5,971 11,458 Net cash settlements under equity option arrangements 2,325 Issuance of 182,903 shares of restricted stock (7,682) - Dividends declared (22,423) Amortization of unearned stock compensation 5,645 5,645 Purchase of 4,794,699 shares of treasury stock (135,416) (135,416) ------------- ------------- ---------- Balance at January 2, 1999 (171,559) (11,772) 578,133 ------------- ------------- ---------- Net income 97,786 Translation adjustments 1,614 Unrealized gain on marketable securities 38,966 ---------- ---------- Comprehensive income 138,366 Employee stock options exercised 178 3,309 Issuance of 190,680 shares of restricted stock (5,458) - Dividends declared (20,250) Amortization of unearned stock compensation 6,246 6,246 Purchase of 6,182,088 shares of treasury stock (144,688) (144,688) Issuance of 100,000 shares of treasury stock for acquisition of ABS 2,931 2,200 ------------- ------------- ---------- Balance at January 1, 2000 $(313,138) $ (10,984) $ 563,316 ============= ============= ==========
This Statement should be read in conjunction with the accompanying Notes to Consolidated Financial Statements. F-5 THE WARNACO GROUP, INC. CONSOLIDATED STATEMENTS OF CASH FLOWS (In thousands)
For the Year Ended ---------------------------------------------------- January 3, January 2, January 1, 1998 1999 2000 --------------- ------------------ ---------------- Cash flow from operating activities: Net income (loss) $ (12,319) $ (32,153) $ 97,786 Adjustments to reconcile net income (loss) to net cash from operating activities: Depreciation and amortization 47,385 46,500 60,956 Provision for receivable allowances 139,469 166,347 206,098 Provision for inventory write-downs 57,298 25,442 6,247 Cumulative effect of accounting change - 46,250 - Amortization of unearned stock compensation 3,322 4,978 6,246 Non-recurring items 48,806 95,143 - Deferred income taxes (13,906) (74,616) 34,151 Sale of accounts receivable - 170,500 25,400 Accounts receivable (145,652) (250,109) (268,767) Inventories (71,944) (87,404) (153,491) Prepaid expenses and other current assets 26,377 15,433 (17,797) Accounts payable and accrued expenses 94,015 212,549 13,182 Cash portion of non-recurring items (28,972) (5,200) - ---------- ---------- ---------- Net cash from operating activities 143,879 333,660 10,011 ---------- ---------- ---------- Cash flow from investing activities: Proceeds from sale/leaseback transaction 33,223 21,713 23,185 Disposal of fixed assets 1,704 3,966 4,726 Increase in intangibles and other assets (26,964) (7,849) (29,813) Purchase of property, plant and equipment (57,399) (142,787) (109,088) Acquisition of businesses, net of cash acquired 55,800 (53,118) (625,515) Payment of assumed liabilities and acquisition accruals (28,346) (43,765) - ---------- ---------- ---------- Net cash from investing activities (21,982) (221,840) (736,505) ---------- ---------- ---------- Cash flow from financing activities: Proceeds from sale of common stock, sale of treasury shares and payment of notes receivables from employees 7,270 46,476 3,309 Net borrowings (repayments) under credit facilities (153,394) 49,237 315,075 Borrowings under term loan agreements - 20,706 - Borrowings under acquisition loan facility - - 586,200 Proceeds from debt issuance 291,109 2,027 - Repayments of debt (224,281) (6,094) (9,387) Cash dividends paid (16,220) (22,284) (20,631) Payment of withholding taxes on option exercises (575) (38,095) (2,640) Purchase of treasury shares and net cash settlements under equity option arrangements (27,582) (132,992) (142,048) Other (1,492) (35,280) (5,165) ---------- ---------- ---------- Net cash from financing activities (125,165) (116,299) 724,713 ---------- ---------- ---------- Effect on cash due to currency translation 3,437 1,965 1,614 ---------- ---------- ---------- Increase (decrease) in cash 169 (2,514) (167) Cash at beginning of year 11,840 12,009 9,495 ---------- ---------- ---------- Cash at end of year $ 12,009 $ 9,495 $ 9,328 ========== ========== ==========
F-6 THE WARNACO GROUP, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Dollars in thousands, excluding share data) Note 1 - Nature of Operations and Summary of Significant Accounting Policies Organization: The Warnaco Group, Inc. (the "Company") was incorporated in Delaware on March 14, 1986 and on May 10, 1986 acquired substantially all of the outstanding shares of Warnaco Inc. ("Warnaco"). Warnaco is the principal operating subsidiary of the Company. Nature of Operations: The Company designs, manufactures and markets a broad line of women's intimate apparel, designer jeanswear, khakis and jeans related sportswear for men, women, juniors and children, men's underwear and men's sportswear, accessories and dress furnishings and active apparel for men, women and children under a number of owned and licensed brand names. The Company's products are sold to department and specialty stores, chain stores, mass merchandise stores, sporting goods stores, and catalog and other retailers throughout the world. Basis of Consolidation and Presentation: The accompanying consolidated financial statements include the accounts of the Company and all subsidiary companies for the years ended January 3, 1998 ("Fiscal 1997"), January 2, 1999 ("Fiscal 1998") and January 1, 2000 ("Fiscal 1999"). All significant intercompany accounts and transactions are eliminated in consolidation. Use of Estimates: The Company utilizes estimates and assumptions in the preparation of financial statements in conformity with generally accepted accounting principles. These estimates and assumptions affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements. These estimates and assumptions also affect the reported amounts of revenues and expenses during the reporting periods. Actual results could differ from these estimates. Translation of Foreign Currencies: Cumulative translation adjustments, arising primarily from consolidating the net assets and liabilities of the Company's foreign operations at current rates of exchange as of the respective balance sheet date, are applied directly to stockholders' equity and are included as part of accumulated other comprehensive income (loss). Income and expense items for the Company's foreign operations are translated using monthly average exchange rates. Cash and Cash equivalents: Cash and cash equivalents represent cash and short-term, highly liquid investments with original maturities of three months or less. Marketable Securities: Marketable securities are stated at fair value based on quoted market prices. All investments were classified as available-for-sale with any unrealized gains or losses, net of tax, included as a component of stockholders' equity and included in other comprehensive income. Inventories: Inventories are stated at the lower of cost or market, cost being determined principally on a first-in, first-out basis. Property, plant and equipment: Property, plant and equipment are stated at cost less accumulated depreciation and amortization. Depreciation and amortization are provided over the lesser of the estimated useful lives of the assets or term of the lease, using the straight-line method, as summarized below: Buildings............................... 20-40 years Building improvements................... 2-20 years Machinery and equipment................. 3-10 years Computer software ...................... 3- 7 years F-7 THE WARNACO GROUP, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Dollars in thousands, excluding share data) Assets under capital lease and related amortization of capitalized leases are included in property, plant and equipment and accumulated depreciation and the associated liability is included in debt. Depreciation expense was $21,865, $23,931 and $36,671 for fiscal years 1997, 1998 and 1999, respectively. Computer Software Costs: Internal and external direct and incremental costs incurred in developing or obtaining computer software for internal use are capitalized in property, plant and equipment and amortized, under the straight-line method, over the estimated useful life of the software, generally 3 to 7 years. General and administrative costs related to developing or obtaining such software are expensed as incurred. Intangible Assets: Intangible assets consist of goodwill, licenses, trademarks, deferred financing costs and other intangible assets. Goodwill represents the excess of cost over net assets acquired from business acquisitions, and is amortized on a straight-line basis over the estimated useful life, not exceeding 40 years. Deferred financing costs are amortized over the life of the related debt and included in interest expense. Deferred financing costs were $8,620 and $13,399 in fiscal years 1998 and 1999, respectively. Licenses and trademarks were $243,400 in fiscal 1998 and $272,894 in fiscal 1999. Licenses are amortized over the remaining life of the license, which range between 5 and 40 years and trademarks are amortized over the remaining life of the trademark not to exceed 20 years. Other assets of $54,912 in fiscal 1998 and $51,704 in fiscal 1999 include long-term investments, other non-current assets and deposits. Amortization of intangible assets, included in selling, administrative and general expenses was $10,021, $22,569 and $24,285 for fiscal years 1997, 1998 and 1999, respectively. The Company reviews impairment when changes in circumstances, which include, but are not limited to, the historical and projected operating performance of business operations, specific industry trends and general economic conditions, indicate that the carrying value of business specific intangibles or enterprise level goodwill may not be recoverable. Under these circumstances, the Company estimates future cash flows using the recoverability method (undiscounted and including related interest charges), as a basis for recording any impairment loss. An impairment loss would then be recorded to adjust the carrying value of intangibles to the recoverable amount. The impairment loss taken would be no greater than the amount by which the carrying value of the net assets of the business exceeds its fair value. No such impairment losses have been recorded. Advertising Costs: Advertising costs are included in selling, administrative and general expenses and expensed as incurred. Cooperative advertising allowances provided to customers are charged to operations, as earned, and are included in selling, administrative and general expenses. The amounts charged to operations for advertising costs and cooperative advertising during fiscal 1997, 1998 and 1999 were $86,200, $102,600, and $118,029, respectively. Income Taxes: The provision for income taxes, income taxes payable and deferred income taxes are determined using the liability method. Deferred tax assets and liabilities are determined based on differences between the financial reporting and tax basis of assets and liabilities and are measured by applying enacted tax rates and laws to taxable years in which such differences are expected to reverse. As of January 1, 2000, unremitted earnings of non-U.S. subsidiaries were approximately $125,000. Since it is the Company's intention to permanently reinvest these earnings, no U.S. taxes have been provided. Management believes that the amount of additional taxes that might be payable on the statutory earnings of foreign subsidiaries, if remitted, would be partially offset by foreign tax credits, however, the determination of these additional taxes is not practicable. F-8 THE WARNACO GROUP, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Dollars in thousands, excluding share data) Revenue Recognition: The Company recognizes revenue when goods are shipped to customers, net of estimates for normal returns, discounts and allowances. Stock Options: The Company accounts for options granted using the intrinsic value method. Because the exercise price of the Company's options equals the market value of the underlying stock on the date of grant, no compensation expense has been recognized for any period presented. Financial Instruments: Derivative financial instruments are used by the Company in the management of its interest rate and foreign currency exposures. The Company also uses derivative financial instruments to execute purchases of its shares under its stock buyback program. The Company does not use derivative financial instruments for speculation or for trading purposes. Gains and losses resulting from effective hedges of existing assets, liabilities or firm commitments are deferred and recognized when the offsetting gains and losses are recognized on the related hedged items. Income and expense are recorded in the same category as that arising from the related asset or liability being hedged. Changes in amounts to be received or paid under interest rate swap agreements are recognized as interest expense. Gains and losses realized on termination of interest rate swap contracts are deferred and amortized over the remaining terms of the original hedged instrument. Premiums paid for foreign currency option contracts are amortized over the life of the option contract. A number of major international financial institutions are counterparties to the Company's financial instruments, including derivative financial instruments. The Company monitors its positions with, and the credit quality of, these counterparty financial institutions and does not anticipate non-performance of these counterparties. Management believes that the Company would not suffer a material loss in the event of nonperformance by these counterparties. Equity Instruments Indexed to the Company's Common Stock: Equity instruments are originally recorded at fair value. Proceeds received upon the sale of equity instruments and amounts paid upon the purchase of equity instruments are recorded as a component of stockholders' equity. Subsequent changes in the fair value of the equity instrument contracts are not recognized. Repurchases of common stock pursuant to the terms of the equity instruments are recorded as treasury stock, at cost. If the contracts are ultimately settled in cash, the amount of cash paid or received is recorded in additional paid-in capital. Concentration of Credit Risk: The Company sells its products to department stores, specialty stores, chain stores, sporting goods stores, catalogs, direct sellers and mass merchandisers. The Company performs periodic credit evaluations of its customers' financial condition and generally does not require collateral. The Company has credit insurance covering these customers within agreed upon limits. Credit losses have been within management's expectations. Comprehensive Income: Comprehensive income consists of net income, unrealized gain/(loss) on marketable securities (net of tax), and cumulative foreign currency translation adjustments. Because such cumulative translation adjustments are considered a component of permanently invested unremitted earnings of subsidiaries outside the United States, no income taxes are provided on such amounts. Start-Up Costs: In the fourth quarter of fiscal 1998, retroactive to the beginning of the year, the Company early adopted the provisions of SOP 98-5 requiring that pre-operating costs relating to the start-up of new manufacturing facilities, product lines and businesses be expensed as incurred. The Company recognized $46,250, after taxes ($71,484 pre-tax), as the cumulative effect of a change in accounting to reflect the new accounting and write-off the balance of unamortized deferred start-up costs as of the beginning of 1998. In addition, in fiscal 1998 the Company recognized a charge to earnings of approximately $40,823, before taxes, related to current year costs that would have been deferred under the Company's start-up accounting policy prior to the adoption of SOP 98-5. Prior to the early adoption F-9 THE WARNACO GROUP, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Dollars in thousands, excluding share data) of SOP 98-5, start-up costs were deferred and amortized using the straight line method, principally over five years. Reclassifications: Certain 1998 and 1997 amounts have been reclassified in the 1999 consolidated financial statements to conform to the current presentation. Recent accounting pronouncements: In June 1998, the FASB issued SFAS No. 133 "Accounting for Derivative Instruments and Hedging Activities". SFAS No. 133 was originally effective for fiscal years beginning after June 15, 1999. However, in June 1999, the FASB Issued SFAS No. 137 "Deferral of the effective date of FASB Statement No. 133" delaying the effective date of SFAS No. 133 until fiscal years beginning after June 15, 2000. The Company is evaluating the application of the new statement and the impact on the Company's consolidated financial position, liquidity, cash flows and results of operations. Note 2 - Acquisitions Authentic Fitness In December 1999, the Company acquired all of the outstanding common stock of Authentic Fitness Corporation ("Authentic Fitness") for $437,100 (all of which was financed), excluding debt assumed of approximately $154,170 and other costs incurred in the acquisition of $3,255. The acquisition was accounted for as a purchase. Accordingly, the accompanying consolidated financial statements include the results of operations for Authentic Fitness commencing on December 16, 1999. The preliminary allocation of the total purchase price, exclusive of cash acquired of approximately $7,000, to the fair value of the net assets acquired and liabilities assumed is summarized as follows: Fair value of assets acquired............................. $ 674,256 Liabilities assumed....................................... (79,731) ------- Purchase price -- net of cash balance..................... $ 594,525 ------- ------- Included in intangible and other assets for the Authentic Fitness acquisition is $377,600 of goodwill. The final assessment of the purchase accounting will be completed during fiscal 2000. The following summarized unaudited pro forma information combines financial information of the Company with Authentic Fitness for fiscal years 1998 and 1999 assuming the acquisition had occurred as January 4, 1998. The Unaudited Pro Forma Combined Statements of Income combine Warnaco's results for its fiscal years ended January 2, 1999 and January 1, 2000 with Authentic Fitness' results for the twelve month periods ended January 2, 1999 and January 1, 2000. The unaudited pro forma information does not reflect any cost savings or other benefits anticipated by the Company's management as a result of the acquisition. The unaudited pro forma information reflects interest expense on the additional financing of $437,100 incurred for the acquisition and the amortization of goodwill using a 40-year life. F-10 THE WARNACO GROUP, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Dollars in thousands, excluding share data)
For the Year Ended --------------------------- January 2, January 1, Statement of Income Data: 1999 2000 ------------ ------------- Net revenues $ 2,313,280 $ 2,473,771 Income before cumulative effect of change 8,550 65,994 in accounting principle Net income (loss) $ (37,700) $ 65,994 =========== =========== Basic earnings per common share before accounting change $ 0.14 $ 1.18 =========== =========== Diluted earnings per common share before accounting change $ 0.14 $ 1.16 =========== ===========
The unaudited pro forma combined information is not necessarily indicative of the results of operations of the combined companies, had the acquisition occurred on the dates specified above, nor is it indicative of future results of operations for the combined companies at any future date or for any future periods. A.B.S. Clothing Collections, Inc. In September 1999, the Company acquired all of the outstanding common stock of A.B.S. Clothing Collection, Inc. ("ABS"). ABS is a leading contemporary designer of casual sportswear and dresses sold through better department and specialty stores. The purchase price consisted of a cash payment of $29,500, shares of the Company's common stock with a fair market value of $2,200, a deferred cash payment of $22,800 and other costs incurred in the acquisition of approximately $1,208. The acquisition was accounted for as a purchase. The preliminary allocation of the purchase price to the fair market value of assets acquired is summarized as follows: Fair value of asets acquired $59,720 Liabilities assumed 3,901 -------- Purchase price $55,708 ======= The acquisition did not have a material pro-forma impact on fiscal 1999 consolidated earnings. Included in intangible and other assets for the ABS acquisition is $54,068 of goodwill which is being amortized over 20 years. Other Acquisitions - 1999 During 1999, the Company acquired two other companies and certain other licenses to sell products in Canada which were not significant and did not have a significant pro forma impact on fiscal F-11 THE WARNACO GROUP, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Dollars in thousands, excluding share data) 1999 consolidated earnings. The excess purchase price over fair value of the net assets acquired and liabilities assumed on these acquisitions was approximately $5.0 million. Other Acquisitions - 1998 During 1998, the Company acquired certain inventory and other assets as well as the sub-license to produce Calvin Klein jeans and jeans-related products for children in the United States, Mexico and Central and South America and the sub-license to produce Calvin Klein jeans and related products for children in Canada. Also during 1998, the Company acquired certain assets as well as the sub-license to distribute Calvin Klein jeans, jeans-related products and khakis for men and women in Mexico, Central America and Canada. The total cost of these acquisitions, including related costs and expenses, was $53,100. The allocation of the purchase prices to the fair value of the assets acquired as of January 2, 1999 is summarized below: Inventories................................... $ 2,300 Other current assets.......................... 300 Fixed assets.................................. 300 Intangible and other assets................... 58,018 Accrued liabilities........................... (7,800) ---------- Purchase price................................ $ 53,118 ========== The acquisition which was accounted for as a purchase did not have a material pro-forma effect on 1998 consolidated results of operations. Designer Holdings Ltd. In October 1997, the Company acquired 51.3% of Designer Holdings Ltd. ("Designer Holdings") outstanding common stock in exchange for 5,340,773 shares of the Company's common stock and agreed, subject to shareholder approval, to acquire the remaining shares outstanding at the same exchange ratio. In December 1997, the Company acquired the remaining 48.7% of the outstanding common stock of Designer Holdings in exchange for 5,072,371 shares of the Company's common stock. Designer Holdings develops, manufactures and markets designer jeanswear, khakis and jeans related sportswear for men, women and juniors, and has a 40-year extendable license from Calvin Klein, Inc. to develop, manufacture and market designer jeanswear, khakis and sportswear collections in North, South and Central America under the Calvin Klein Jeans, CK/Calvin Klein Jeans and CK/Calvin Klein/Khakis labels. The acquisition was accounted for as a purchase. Accordingly, the accompanying consolidated financial statements include the results of operations for Designer Holdings commencing in October 1997. The minority interest for periods of less than 100% ownership by the Company have been included in selling, administrative and general expenses. In connection with this acquisition, the Company issued a total of 10,413,144 shares of its common stock, with a fair market value of $353,396. The allocation of the total purchase price, exclusive of cash received of approximately $55,800 to the fair value of the net assets acquired is summarized as follows: Accounts receivable................................... $ 76,600 Inventories .......................................... 74,300 Prepaid and other current assets...................... 41,000 Property and equipment................................ 4,100 Intangible and other assets........................... 355,809 Accounts payable and accrued liabilities.............. (127,325) Deferred income taxes................................. (25,884) Other liabilities..................................... (500) Mandatorily redeemable preferred securities........... (100,500) -------- Purchase price -- net of cash balances................ $ 297,600 ========= Included in intangible and other assets for the Designer Holdings acquisition are $163,600 for licenses and $171,500 of goodwill. F-12 THE WARNACO GROUP, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Dollars in thousands, excluding share data) Prior to its acquisition by the Company, Designer Holdings experienced substantial sales growth. A significant portion of this sales growth was achieved through distribution to jobbers and off-price retailers. Additionally, Designer Holdings had also announced a significant increase in the number of its outlet stores. The Company viewed this growth and expansion as detrimental to the long-term integrity and value of the brand. To sustain its growth strategy, Designer Holdings committed to large quantities of inventories. When the primary department store distribution channel was unable to absorb all of Designer Holdings' committed production, it increased sales to the secondary and tertiary distribution channels, including sales to jobbers, off-price retailers and Designer Holdings' own outlet stores, which were expanded to serve as an additional channel of distribution. The Company's post-acquisition strategy did not embrace the outlet store expansion or expansion of secondary channels of distribution, thereby significantly eliminating product distribution, resulting in excess inventory. The Company had a different plan from that of Designer Holdings for realization of inventories and accounts receivable, as follows: Based upon its strategy for the business, it had to quickly dispose of significantly higher than desirable levels of inventory. It had to stabilize relationships with its core department store customers. It had to collect receivable balances from customers with whom the Company would no longer do business, and had to respond to challenges from the core department store customers who were adversely impacted by channel conflict and brand image issues. Finally, the Company began a complete redesign of the product, the impact of which would not be immediately felt at retail due to the fact that Designer Holdings had already committed to inventory that was in production to be delivered for the ensuing seasons. The consequences related not only to the receivables and inventory acquired, but also to the design, fabric and inventory purchases to which Designer Holdings had previously committed. Immediately following the acquisition, the Company began quickly liquidating excess inventories. Most of these sales were below original cost. Not only did the Company fail to recover cost (including royalties payable to the licensor), it was deprived of the "reasonable gross profit" contemplated by APB Opinion 16 in valuing acquired inventory. Accordingly, the Company reduced the historical carrying value of inventory by $18 million. The $18 million fair value adjustment recorded addressed all of these issues and represented the fair value of inventory pursuant to APB Opinion 16. The Company offered significant discounts (by negotiating settlements on a customer by customer basis) to collect outstanding receivable balances in light of product related issues raised, as well as the decision to discontinue certain channels of distribution, realizing that these balances would become increasingly more difficult to collect with the passage of time. In addition, the core retail customers took substantial deductions against current invoices for the Designer Holdings inventory in the stores, unilaterally revising the economics of the initial sale transaction entered into by Designer Holdings. Although these deductions relate to both the inventory acquired and pre-acquisition accounts receivable, the decrease in asset value manifested itself through accounts receivable as a result of these deductions. Accordingly, the Company reduced the historical carrying value of accounts receivable by $31 million. The $31 million fair value adjustment, which was recorded pursuant to APB Opinion 16, addresses these issues. The Company believes that these strategies should enhance future results of operations and cash flows, however, these fair value adjustments will result in additional annual goodwill amortization of approximately $1.2 million. F-13 THE WARNACO GROUP, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Dollars in thousands, excluding share data) The following summarized unaudited pro forma information combines financial information of the Company with Designer Holdings for fiscal year 1997 assuming the acquisition had occurred as of January 5, 1997. The unaudited pro forma information does not reflect any cost savings or other benefits anticipated by the Company's management as a result of the acquisition.
For the Year Ended January 3, 1998 ---- Statement of Income Data: Net revenues.................................................. $1,800,800 Income (loss) before extraordinary item....................... (16,700) Net income (loss)............................................. (16,700) Income (loss) per common share: Basic......................................................... $ (0.34) =========== Diluted....................................................... $ (0.36) ===========
The unaudited pro forma combined information is not necessarily indicative of the results of operations of the combined company had the acquisition occurred on the dates specified above, nor is it indicative of future results of operations for the combined companies at any future date or for any future periods. In conjunction with the allocation of purchase price of Designer Holdings, the Company recorded accruals of approximately $48,313. These charges relate generally to employee termination and severance benefits, facility exit costs, including lease termination costs (representing future lease payments on abandoned facilities) and contract termination costs. The details of the charges recorded in the fourth quarter of fiscal 1997 and in fiscal 1998 and subsequent activity, are summarized below:
Severance and Facility Other Employee Exit Fiscal 1997 - 4th Quarter Related Costs Costs Other Total ----------- --------- ---------- -------- Total Provisions $ 20,631 $ 3,470 $ 900 $ 25,001 Cash Reductions (10,800) (3,300) (900) (15,000) -------- -------- -------- -------- Balance as of January 3, 1998 9,831 170 -- 10,001 -------- -------- -------- -------- Total Provisions 5,957 17,300 55 23,312 Cash Reductions (6,266) (4,762) (55) (11,083) -------- -------- -------- -------- Balance as of January 2, 1999 9,522 12,708 -- 22,230 Cash reductions (4,515) (1,839) -- (6,354) Reversals (4,798) (10,869) -- (15,667) ------- -------- -------- -------- Balance as of January 1, 2000 $ 209 $ -- $ -- $ 209 ======== ======== ======== ========
Severance and other employee related costs - $26,588 (as detailed below) - ------------------------------------------------------------------------ Contractual employee obligations - $19,000 The former CEO of Designer Holdings and nine senior executives of Designer Holdings were terminated by the Company. The amounts represent contractual obligations under their contracts with Designer Holdings. Other employee severance and related benefit payments - $7,588 Represents $5,200 of severance and unfunded pension liabilities for 506 bargaining unit employees of Designer Holdings in the two factories and a distribution facility that were closed in accordance with the Company's exit plan and $2,388 of severance for 90 Designer Holdings' headquarters and 40 Designer Holdings' Hong Kong office employees. The Company, in fiscal 1999 was able to negotiate an exit from its distribution facility, as contemplated by the exit plan, without incurring severance and unfunded pension liability by concluding an agreement with a successor or employer. As a result of these developments the Company, in fiscal 1999, reversed $4.8 million in unused accruals as a reduction of goodwill. As of January 1, 2000, the remaining accrual of $209 represents the remaining severance costs for employees of Designer Holdings terminated prior to fiscal 1999, anticipated to be utilized by early fiscal 2000. Facility exit costs - $20,770 Represents $9,000 for the anticipated lease buyout and the cost associated with the unused portion of a distribution center, $5,000 of property, equipment and leasehold improvements to be abandoned in connection with the two factories and distribution facility that were closed and $6,770 for the lease buyout and abandonment of leasehold improvements in connection with closing Designer Holdings' headquarters and Hong Kong office. The Company, in fiscal 1999 was able to negotiate an exit from its distribution facility, as contemplated by the exit plan, without incurring certain facility exit costs by concluding an agreement with a successor employer. As a result of these developments the company in fiscal 1999 reversed $10.9 million in unused accruals as a reduction of goodwill. F-14 THE WARNACO GROUP, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Dollars in thousands, excluding share data) Contract termination costs - $9,000 (not included in the aforementioned table) Represents fees and amounts paid in connection with terminating Designer Holdings' accounts receivable factoring arrangement, including the settlement of outstanding balances. Note 3 - Restructuring, Special Charges and Other Non-Recurring Items During 1998 and 1997, the Company recorded restructuring and restructuring related charges of $40,000 ($25,874 net of tax benefit) and, $118,819 ($73,633 net of tax benefit), respectively. These charges relate generally to exiting facilities, realignment of manufacturing and distribution operations, discontinuing product lines and the integration of businesses following acquisitions, and include charges related to inventory write-downs, asset impairments, employee termination and severance benefits and lease termination costs (representing future lease payments on abandoned facilities). Any costs that do not qualify as exit costs have been charged to expense as incurred. Asset impairments relate principally to the write-off of unamortized leasehold improvements for vacated locations. Any other fixed assets that were written-down were abandoned and taken out of service at the time of the write-down and related depreciation was discontinued at that time. For inventory which management determined was salable, the estimated write-down was based upon the differences between the expected net sales proceeds of the inventory and the carrying value of the inventory. In the case of scrapped inventory, the write-down was equal to the carrying value of the inventory and the cost of disposal. F-15 THE WARNACO GROUP, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Dollars in thousands, excluding share data) In addition, during 1998 and 1997, the Company incurred special and non- recurring charges of $8,500 ($5,498 net of tax benefit) and, $6,846 ($4,246 net of tax benefit), respectively. The Company maintains a general allowance for doubtful accounts based upon historical loss experience. The Company records specific provisions based upon information about a particular customer when such information becomes known. The Company regularly reviews the adequacy of its reserves and adjusts them as appropriate based upon available information. 1998 As a result of a strategic review of the Company's businesses, manufacturing and other facilities, product lines and styles and worldwide operations following significant acquisitions in 1996 and 1997, in the fourth quarter of 1998 the Company initiated the implementation of programs designed to streamline operations and improve profitability. These programs resulted in pre-tax charges of approximately $40,000 related to costs to exit certain product lines and styles, as well as facilities and realignment of manufacturing and distribution activities, including charges related to inventory write-downs and employee termination and severance benefits. Additionally, in the fourth quarter of fiscal 1998, the Company wrote-off approximately $8,500 which included $8,000 of accounts receivable, consisting of customer bankruptcies of $3,900 and other write-offs of $4.1 million (see Note 5 to the Consolidated Financial Statements). Of the total $48,500 of 1998 charges, $22,100 is reflected in cost of goods sold and $26,400 is reflected in selling, administrative and general expenses. The detail of the charges recorded in 1998, including costs incurred and reserves remaining for costs estimated to be incurred through completion of the aforementioned programs, are summarized below:
Facilities Employee shutdowns termination Asset and Retail outlet and write-offs realignment store closings severance Total ------------------ ------------------ ------------------- ---------------- ---------- 1998 Provision $ 15,300 $ 6,000 $ 4,800 $ 6,100 $ 32,200 Other related period costs, charged to expense as incurred 2,500 2,500 Cash reductions (1,672) (2,500) (4,172) Non-cash reductions (13,700) (6,000) (4,228) (23,928) -------- -------- -------- -------- -------- Balance as of January 2, 1999 1,600 828 572 3,600 6,600 Cash reductions -- (828) (572) (3,263) (4,663) Non-cash reductions (1,600) -- -- -- (1,600) -------- -------- -------- -------- -------- Balance as of January 1, 2000 $ -- $ -- $ -- $ 337 $ 337 ======== ======== ======== ======== ========
F-16 THE WARNACO GROUP, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Dollars in thousands, excluding share data) Discontinued Product Lines and Styles and Manufacturing and Distribution Realignment ($23,800) Management's review of certain product lines resulted in the decision to discontinue the manufacture and marketing of certain unprofitable product lines during the fourth quarter of 1998, including the Valentino and Marilyn Monroe product lines, as well as certain private label brands. The decision to discontinue these product lines will enable the Company to focus its working capital on more profitable product lines and styles. The Company also announced the realignment of manufacturing and distribution operations as an effort to reduce costs. Included in the amount above are charges for inventory write-downs for obsolete and excess raw materials and finished goods of $13,500 (included in cost of sales), and receivable write-offs of $1,800 (included in selling, administrative and general expenses). Costs for facility shutdowns of $6,000 represent the write-off of unamortized leaseholds and fixed and other assets at the Company's former administrative offices in Connecticut. The cost for facility realignment of $2,500, all of which was incurred in 1998, includes charges for the relocation of and realignment of existing factories and consolidation of warehouse and distribution facilities. For fiscal 1998, discontinued product lines and styles contributed net revenues of $26,300 and operating losses of $13,400. Fourth quarter operating losses incurred subsequent to the commitment date of the decision to discontinue these product lines and styles were $5,300. These product lines contributed net revenues of $56,800 and operating losses of $700 in fiscal 1997. Retail Outlet Store Shutdowns ($4,800) In an effort to improve the overall profitability of the retail outlet store division, the Company announced plans to close 13 retail outlet stores. Included in the charge are costs for the write-down of inventory of discontinued product lines and styles which the Company intends to liquidate through these stores at close-out prices of $4,100 and costs for terminating leases of $700. The Company closed all of the stores by the second quarter of 1999. Employee Termination and Severance ($6,100) The Company recorded charges of approximately $800 related to the cost of providing severance and benefits to approximately 381 manufacturing related employees terminated as a result of the closure of certain facilities and $5,300 (all of which was charged to expense at the date when 123 managerial and administrative employees were terminated) related to a reduction in work force during the fourth quarter of 1998. Additional Costs Related to Prior Strategic Initiatives ($5,300) The Company expensed as incurred approximately $2,000 of additional costs, (in part due to facilities remediation) related to the final disposition of certain Hathaway assets that were retained following the sale of that division in 1996. The Company expensed as incurred approximately $3,300 of additional costs related to the merger integration initiative undertaken in 1997 following the Designer Holdings acquisition. These costs relate principally to settlements on accounts receivable balances with common customers.( See 1997 chart below) F-17 THE WARNACO GROUP, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Dollars in thousands, excluding share data) 1997 During the fourth quarter of 1997, the Company recorded restructuring and restructuring related pre-tax charges of $118,819. These charges related to the integration of Designer Holdings ($44,620) following its acquisition, the Intimate Apparel (including GJM) consolidation and realignment program ($63,699) and the disposition of certain retained Hathaway assets ($10,500). Additionally, in the fourth quarter of fiscal 1997, the Company wrote-off approximately $6,300 of accounts receivable, consisting of customer bankruptcies ($3,400) and other accounts receivable write-offs ($2,900) (see Note 5 to the Consolidated Financial Statement) and incurred $546 of other non-recurring expenses. Of the total $125,665 of 1997 charges, $76,645 is reflected in cost of goods sold and $49,020 is reflected in selling, administrative and general expenses. Merger Related Integration Costs ($44,620) Designer Holdings (which was acquired in fiscal 1997) and the Company previously operated retail outlets in several common locations, which the Company elected to consolidate. As a result, the Company recorded a charge of $18,420 as follows: $3,300 for anticipated lease termination costs related to sixteen of its Warner's outlet stores, $1,200 for the write-off of related leasehold improvements and $13,920 for the close-out of store inventories and surplus stocks not considered suitable for redirected marketing efforts in the new store format. In addition, following the acquisition in December 1997, the Company consolidated the credit and collection functions of the companies. In an effort to accelerate cash collections from common customers following the Designer Holdings acquisition, the Company initiated a program of consolidating receivables from common customers, offering favorable settlement of prior balances to accelerate collection efforts. This program resulted in a charge of $21,700, which was charged to expense as incurred. The Company also charged to expense as incurred $3,600 of special bonuses to Warnaco management and severance and employee termination costs of $900, which were charged to expense at the date the employees were terminated. The detail of the charges recorded, including costs incurred and reserves remaining at each year-end for costs estimated to be incurred through completion of the aforementioned program are as follows: F-18 THE WARNACO GROUP, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Dollars in thousands, excluding share data)
Lease Fixed Inventory Consolidation Terminations termination asset write- of credit and Employee costs write-offs downs functions severance Bonuses Total ------------ ---------- --------- --------------- ------------ -------- -------- 1997 Provision $ 3,300 $ 1,200 $ 13,920 $ 900 $ 19,320 Other related period costs, charged to expense as incurred -- -- -- $ 21,700 -- $ 3,600 25,300 Cash reductions (1,110) -- -- -- (845) (3,600) (5,555) Non-cash reductions -- (1,200) (9,118) (21,700) -- -- (32,018) -------- -------- -------- -------- -------- -------- -------- Balance as of January 3, 1998 2,190 -- 4,802 -- 55 -- 7,047 1998 Provision -- -- 800 2,500 -- -- 3,300 Cash reductions (2,190) -- -- -- (55) -- (2,245) Non-cash reductions -- -- (5,602) (2,500) -- -- (8,102) -------- -------- -------- -------- -------- -------- -------- Balance as of January 2, 1999 $ -- $ -- $ -- $ -- $ -- $ -- $ -- ======== ======== ======== ======== ======== ======== ========
Intimate Apparel Consolidation and Realignment ($59,499) Following the successful Intimate Apparel consolidation and realignment program initiated in 1996, the Company initiated a new program to re-examine all of its existing products in an effort to streamline its number of product offerings. Accordingly, products and styles were discontinued and slower moving inventory liquidated, incurring markdown losses of $32,600 to accommodate the increased volumes of higher margin merchandise and $2,246 of receivable write-offs related to these merchandising decisions. Further reconfiguration of manufacturing facilities and the merger of Warner's Europe with Lejaby operations achieved a workforce reduction greater than originally anticipated but delayed realization of anticipated efficiencies and resulted in severance and termination costs of $7,380, which were charged to expense at the date approximately 150 employees were terminated. The cost for facility realignment of $17,273 all of which was incurred in 1997, includes charges for the increased costs related to the reconfiguration of the manufacturing facilities. The detail of the charges recorded including costs incurred and reserves remaining at each year-end for costs estimated to be incurred through completion of the aforementioned program, are as follows: F-19 THE WARNACO GROUP, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Dollars in thousands, excluding share data)
Accounts Employee Inventory receivable termination Manufacturing write-downs write-offs and severance realignment Total ------------- ------------ -------------------- --------------- --------- 1997 Provision $ 32,600 $ 2,246 $ 7,380 $ 42,226 Other related period costs charged to expense as incurred -- -- -- $ 17,273 17,273 Cash reductions -- -- (5,916) (17,273) (23,189) Non-cash reductions (11,585) (2,246) -- -- (13,831) -------- -------- -------- -------- -------- Balance as of January 3, 1998 21,015 -- 1,464 -- 22,479 Cash reductions -- -- (1,464) -- (1,464) Non-cash reductions (21,015) -- -- -- (21,015) -------- -------- -------- -------- -------- Balance as of January 2, 1999 $ -- $ -- $ -- $ -- $ -- ======== ======== ======== ======== ========
GJM ($4,200) The Company also restructured a portion of its GJM manufacturing business, which was acquired in 1996, resulting in charges of $4,200, $700 of which was for severance for five employees, $2,400 for accounts receivable write-offs, which were expensed as incurred and $1,100 for asset write-offs. GJM incurred other non-recurring losses of $1,139 related to these operations in fiscal 1997 . The detail of the charges recorded in 1997, including costs incurred and reserves remaining for costs estimated to be incurred through completion of the aforementioned program, are as follows:
Employee termination Accounts and receivable Fixed asset severance write-offs write-offs Total ----------- ---------- ----------- ----- 1997 Provision $ 700 $ 2,400 $ 1,100 $ 4,200 Cash reductions (26) -- -- (26) Non-cash reductions -- (2,400) (1,100) (3,500) ------- ------- ------- ------- Balance as of January 3, 1998 674 -- -- 674 Cash reductions (674) -- -- (674) ------- ------- ------- ------- Balance as of January 2, 1999 $ -- $ -- $ -- $ -- ======= ======= ======= =======
F-20 THE WARNACO GROUP, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Dollars in thousands, excluding share data) Additional Costs Related to Prior Strategic Initiative ($10,500) During fiscal 1997, the Company incurred approximately $10,500 of costs related to the disposal of certain Hathaway assets that were retained following the sale of that division in 1996, including $4,200 on the liquidation of inventories, $4,600 on the disposition of fixed assets and $1,700 of other expenses, which were charged to expense as incurred. In addition, the operations of the retained Hathaway assets (principally foreign locations), had losses of $4,000 for fiscal 1997. Note 4 - Sale of Accounts Receivable In October 1998, the Company entered into a five-year revolving receivables securitization facility whereby it can obtain up to $200,000 of funding from the sale of eligible U.S. trade accounts receivable through a bankruptcy remote special purpose subsidiary. The amount of funding varies based upon the availability of the designated pool of eligible receivables and is directly affected by changing business volumes. At January 1, 2000, the Company had sold $342,151 of accounts receivable for which it received proceeds of $195,900 in cash; at January 2, 1999, the Company had sold $330,100 of accounts receivable for which it received proceeds of $170,500 in cash; the Company retains the interest in and subsequent realization of the excess of amounts sold over the proceeds received and provides allowances as appropriate on the entire balance. Accounts receivable are presented net of the $195,900 and $170,500 for fiscal years 1999 and 1998, respectively, of proceeds from trade receivables sold, with the remaining $146,251 and $159,600, respectively, included in accounts receivable. The sale is reflected as a reduction of accounts receivable and the proceeds received are included in cash flows from operating activities. Fees for this program are paid monthly and are based on variable rates indexed to commercial paper. Note 5 - Related Party Transactions Prior to the December 1999 acquisition, Authentic Fitness was considered a related party as certain directors and officers of the Company were also directors and officers of Authentic Fitness. From time to time, the Company and Authentic Fitness jointly negotiated contracts and agreements with vendors and suppliers. In fiscal 1997, 1998 and 1999, Authentic Fitness paid the Company $5,607, $15,566 and $24,614, respectively for certain occupancy services related to leased facilities, computer services, laboratory testing, transportation and contract production services. In fiscal 1997, 1998 and 1999, the Company paid Authentic Fitness approximately $1,299, $462 and $865, respectively, for certain design and occupancy services. The Company also purchased inventory from Authentic Fitness for sale in its retail outlet stores of $16,201, $11,223 and $16,833 in fiscal 1997, 1998 and 1999, respectively. The net amount due to Authentic Fitness at January 2, 1999 was $784. In fiscal 1997 the Company had a write-off of $2,875 primarily comprised of certain inventory and administrative charges relating to activities with Authentic Fitness that should have been charged to the Company's operations in prior periods rather than being inadvertently reflected as receivables. When these facts became known during the fourth quarter of fiscal 1997, it was determined that the amount should be written-off and the appropriate charge was taken. In connection with the fiscal 1998 year-end closing, the Company discovered an additional $4,139 relating to activities with Authentic Fitness. The Company determined that the $4,139 F-21 THE WARNACO GROUP, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Dollars in thousands, excluding share data) consisted of certain cost overruns and royalty expenses that should have been charged to the Company's operations in prior periods. As the related amounts were not significant to any prior periods, the entire amount of the write-offs were recorded in the fourth quarter of fiscals 1997 and 1998, respectively. In June 1995, the Company paid $1,000 in connection with and under a sub-license entered into with Authentic Fitness to design, manufacture and distribute certain intimate apparel using the Speedo brand name. The Company recognized royalty expense of $293, $58 and $10 in fiscal 1997, 1998 and 1999, respectively. A director and a stockholder of the Company is the sole stockholder, President and a director of The Spectrum Group, Inc. ("Spectrum"). The Company recognized consulting expenses of $500, $560 and $560 in fiscal 1997, 1998 and 1999, respectively, pursuant to a consulting agreement with Spectrum that expires in May 2000. A director of the Company provides consulting services to the Company from time to time and received $125 for such services in fiscal 1998. A director of the Company is a partner in a law firm which provides legal services to the Company from time to time. The Company believes that the terms of the relationships and transactions described above are at least as favorable to the Company as could have been obtained from an unaffiliated third party. Note 6 - Business Segments and Geographic Information Business Segments The Company operates in three segments: Intimate Apparel, Sportswear and Accessories and Retail Stores. The Company designs, manufactures and markets apparel within the Intimate Apparel and Sportswear and Accessories markets and operates a Retail Store Division, with stores under the Speedo Authentic Fitness name, as well as Company outlet stores for the disposition of excess and irregular inventory. The Intimate Apparel Division designs, manufactures and markets moderate to premium priced intimate apparel for women under the Warner's, Olga, Calvin Klein, Lejaby, Van Raalte, Fruit of the Loom, Weight Watchers and Bodyslimmers brand names, and men's underwear under the Calvin Klein brand name. The Sportswear and Accessories Division designs, manufactures, imports and markets moderate to premium priced men's, women's, junior's and children's sportwear and jeanswear, men's accessories and men's, women's, junior's and children's active apparel under the Chaps by Ralph Lauren, Calvin Klein, Catelina, A.B.S by Allen Schwartz, Speedo, Oscar de la Renta, Anne Cole, Cole of California, Sandcastle, Sunset Beach, Ralph Lauren, Polo Sport Ralph Lauren, Polo Sport RLX and White Stag brand names. The Retail Store division which comprise of both outlet as well as full-price retail stores, principally sells the Company's products to the general public through 142 stores under the Speedo Authentic Fitness name as well as 124 of the Company's outlet stores for the disposition of excess and irregular inventory. The Company does not manufacture or source products exclusively for the outlet stores. The accounting policies of the segments are the same as those described in the "Summary of Significant Accounting Policies" in Note 1. Transfers to the Retail stores division occur at standard cost and are not reflected in net revenues of the Intimate Apparel or Sportswear and Accessories segments. The Company evaluates the performance of its segments based on earnings before interest, taxes, amortization of intangibles and deferred financing costs and restructuring, special charges and other non- F-22 THE WARNACO GROUP, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Dollars in thousands, excluding share data) recurring items, as well as the effect of the early adoption of SOP 98-5 and the charges relating to the fiscal 1998 restatement for an inventory adjustment which affected fiscals 1996-1998 for production and inefficiency costs ("Adjusted EBIT"). Information by business segment is set forth below :
Sportswear Intimate and Retail Apparel Accessories Stores Total ---------------- ----------------- ---------------- --------------- 1999 Net Revenues $ 943,383 $ 1,022,783 $ 147,990 $ 2,114,156 Adjusted EBITDA 186,000 169,600 11,600 367,200 Depreciation 21,000 10,600 2,600 34,200 Adjusted EBIT 165,000 159,000 9,000 333,000 1998 Net Revenues 944,788 875,257 130,206 1,950,251 Adjusted EBITDA 218,600 149,200 17,000 384,800 Depreciation 18,500 4,500 1,400 24,400 Adjusted EBIT 200,100 144,700 15,600 360,400 1997 Net Revenues 941,188 425,974 68,568 1,435,730 Adjusted EBITDA 209,500 64,200 8,100 281,800 Depreciation 14,000 2,400 1,000 17,400 Adjusted EBIT 195,500 61,800 7,100 264,400
A reconciliation of total segment Adjusted EBIT to total consolidated income (loss) before taxes and cumulative effect of a change in accounting principle for fiscal years January 3, 1998, January 2, 1999 and January 1, 2000 is as follows:
For the Year Ended -------------------------------------------------------- January 3, January 2, January 1, 1998 1999 2000 --------------- ------------------- ----------------- Total Adjusted EBIT for reportable segments $264,400 $ 360,400 $ 333,000 General corporate expenses not allocated 33,823 55,567 76,345 Depreciation of corporate assets and amortization 13,500 22,100 26,756 Restructuring, special and other non-recurring items 130,804 106,758 - Effect of early adoption of SOP 98-5 - 40,800 - Charges related to an inventory adjustment for production and inefficiency costs 57,000 49,600 - Interest expense 45,873 63,790 80,976 Minority interest 3,500 - - --------------- ------------------- ----------------- Income (loss) before income taxes and cumulative effect of a change in accounting principle $ (20,100) $ 21,785 $ 148,923 =============== =================== =================
F-23 THE WARNACO GROUP, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Dollars in thousands, excluding share data)
Sportswear Intimate and Retail Reconciling Apparel Accessories Stores Items* Consolidated ----------- ---------------- ------------ ------------- ------------- Year Ended January 1, 2000 - --------------------------------------- Total assets $ 796,614 $ 1,507,533 $ 143,056 $ 315,782 $ 2,762,985 Depreciation and amortization 25,367 22,385 2,902 10,302 $ 60,956 Capital expenditures 38,937 23,571 9,008 37,572 $ 109,088 Year Ended January 2, 1999 - --------------------------------------- Total assets $ 832,371 $ 665,297 $ 78,557 $ 206,908 $ 1,783,133 Depreciation and amortization 20,564 15,654 1,235 9,047 46,500 Capital expenditures 41,128 30,209 7,297 64,153 142,787 Year Ended January 3, 1998 - --------------------------------------- Total assets $ 996,457 $ 544,352 $ 39,806 $ 70,503 $ 1,651,118 Depreciation and amortization 30,338 4,160 625 12,262 47,385 Capital expenditures 26,356 14,134 3,810 13,099 57,399
* Includes Corporate items not allocated to business segments, primarily fixed assets related to the Company's management information systems and corporate facilities and goodwill, intangible and other assets. F-24 THE WARNACO GROUP, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Dollars in thousands, excluding share data) Geographic Information Included in the consolidated financial statements are the following amounts relating to geographic locations:
Fiscal Year Ended ---------------------------------------------------------- January 3, January 2, January 1, 1998 1999 2000 -------------- --------------- ------------ Net revenues: United States $1,145,276 $1,630,583 $1,775,905 Canada 56,525 55,072 68,953 United Kingdom 48,933 55,774 66,496 France 42,230 41,164 44,510 Germany 54,857 41,963 34,743 Mexico 11,709 21,209 35,636 Asia 13,617 14,534 25,069 All Other 62,583 89,952 62,844 ---------- ---------- ---------- $1,435,730 $1,950,251 $2,114,156 ========== ========== ========== Property, plant and equipment, net United States $ 113,644 $ 205,428 $ 291,360 Canada 4,716 5,394 8,964 All other 12,040 13,438 26,028 ---------- ---------- ---------- $ 130,400 $ 224,260 $ 326,352 ========== ========== ==========
Information about Major Customers In fiscal 1999 and 1997, no customer accounted for 10% of the Company's net revenues. In fiscal 1998, the Company had one customer who accounted for approximately $198,282 or 10.2% of net revenues. Such revenues are included in the Intimate Apparel and Sportswear and accessories segments. Note 7 - Income Taxes The following presents the United States and foreign components of income from operations before income taxes and the total provision (benefit) for United States federal and other income taxes: F-25 THE WARNACO GROUP, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Dollars in thousands, excluding share data)
Fiscal Year Ended -------------------------------------------- January 3, January 2, January 1, 1998 1999 2000 -------------- ------------- ------------ Income(loss) from operations before income taxes and cumulative effect of change in accounting principle: Domestic $ (50,957) $ 1,397 $ 92,523 Foreign 30,857 20,388 56,400 -------------- ------------- ------------ Total $ (20,100) $ 21,785 $148,923 ============== ============= ============ Current provision Federal $ - $ - $ 1,436 State and local 1,269 1,187 2,350 Foreign 6,480 10,231 13,200 -------------- ------------- ------------ 7,749 11,418 16,986 -------------- ------------- ------------ Deferred provision (benefit): Federal (12,560) 12,301 34,703 State and local (2,970) (5,213) 158 Foreign - - (328) Reversal of valuation allowance - (10,818) (382) -------------- ------------- ------------ (15,530) (3,730) 34,151 -------------- ------------- ------------ Provision (benefit) for income taxes $ (7,781) $ 7,688 $ 51,137 ============== ============= ============ The provision (benefit) for income tax is included in the financial statements as follows: Fiscal Year Ended ---------------------------------------------- January 3, January 2, January 1, 1998 1999 2000 ---------------- ------------- ------------ Continuing operations $ (7,781) $ 7,688 $ 51,137 Cumulative effect of accounting change - (25,231) - ---------------- ------------- ------------ Total provision (benefit) $ (7,781) $ (17,543) $ 51,137 ================ ============= ============
F-26 THE WARNACO GROUP, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Dollars in thousands, excluding share data) The following presents the reconciliation of the provision for income taxes to United States federal income taxes computed at the statutory rate:
Fiscal Year Ended --------------------------------------------------- January 3, January 2, January 1, 1998 1999 2000 ------------- -------------- ------------ Income (loss) from operations before income taxes $ (20,100) $ (49,698)(a) $ 148,923 ============= ============== ============ Provision (benefit) for income taxes at the statutory rate $ (7,035) $ (17,394) $ 52,123 Foreign income taxes at rates in excess of (lower than) the U.S. statutory rate (3,859) 7,408 (12,214) State income taxes, net of federal benefit (951) (2,984) 1,630 Non-deductible intangible amortization and disposals 1,829 3,198 3,582 Changes in valuation allowance - (10,818) 4,528 Other, net 2,235 3,047 1,488 ------------- -------------- ------------ Provision (benefit) for income taxes $ (7,781) $ (17,543) $ 51,137 ============= ============== ============
(a) Includes pre-tax impact of cumulative effect of accounting change of $71,484. The components of deferred tax assets and liabilities as of January 2, 1999 and January 1, 2000 are as follows:
January 2, January 1, 1999 2000 ------------ ------------- Deferred Tax Assets: Discounts and sales allowances $ 6,646 $ 8,337 Postretirement benefits 4,222 4,137 Alternative minimum tax credit carryovers 2,237 3,674 Non deductible reserves 49,647 26,827 Net operating loss carryovers 137,484 145,915 ------------ ------------- Gross deferred tax assets 200,236 188,890 ------------ ------------- Valuation allowances (6,802) (11,330) ------------ ------------- Deferred tax assets - net 193,434 177,560 ------------ ------------- Deferred Tax Liabilities: Prepaid and other assets 10,559 13,258 Depreciation and amortization 54,890 71,573 Bond discount 7,519 7,097 Unrealized gain on investment in securities - 25,494 Other 8,087 8,896 ------------ ------------- Deferred tax liabilities 81,055 126,318 ------------ ------------- Net deferred tax asset $112,379 $ 51,242 ============ =============
F-27 THE WARNACO GROUP, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Dollars in thousands, excluding share data) The Company has estimated United States net operating loss carryforwards of approximately $421,300 and foreign net operating loss carryforwards of approximately $33,700 at January 1, 2000. Net operating loss carryforwards, which if unused, will expire from 2002 through 2018. The net change in the valuation allowance of $4,528 at January 1, 2000 primarily relates to an increase in foreign net operating losses which will, more likely than not, expire unused. The net decrease in the valuation allowance of $10,818 at January 2, 1999 primarily relates to the utilization of a capital loss carryover. At January 1, 2000, other current assets include current income taxes receivable of $26,058 (of which $1,015 relates to foreign entities) and current liabilities include income taxes payable of $16,217 (of which $13,641 relates to foreign entities). At January 2, 1999, other current assets include current income taxes receivable of $3,970 (of which $1,913 relates to foreign entities). Note 8 - Employee Retirement Plans The Company has a defined benefit pension plan which covers substantially all non-union domestic employees (the "Pension Benefit Plan"). The Plan is noncontributory and benefits are based upon years of service. The Company also has defined benefit health care and life insurance plans that provide postretirement benefits to retired employees and former directors ("Other Benefit Plans"). The Other Benefit Plans are contributory with retiree contributions adjusted annually. The components of net periodic benefit cost is as follows:
Pension Benefit Plan Other Benefit Plans For the Year Ended For the Year Ended ------------------------------------------- ---------------------------------------- January 3, January 2, January 1, January 3, January 2, January 1, 1998 1999 2000 1998 1999 2000 --------- ---------- ---------- ---------- --------- ---------- Service Cost $ 1,296 $ 1,732 2,279 $ 91 $ 190 $ 193 Interest Cost 7,799 8,660 8,867 672 528 394 Expected return on plan assets (9,001) (10,530) (11,586) -- -- -- Prior service cost (75) (74) (74) -- -- (33) Recognized net actuarial gain (307) -- -- (20) (121) (163) -------- -------- -------- -------- -------- -------- Net periodic benefit cost (income) (288) (212) (514) 743 597 391 Cost of other plans 479 300 -- -- -- -- -------- -------- -------- -------- -------- -------- Net benefit cost (income) $ 191 $ 88 $ (514) $ 743 $ 597 $ 391 ======== ======== ======== ======== ======== ========
F-28 THE WARNACO GROUP, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Dollars in thousands, excluding share data) A reconciliation of the balance of the benefit obligations is as follows:
Pension Benefit Plan Other Benefit Plans ----------------------- ----------------------- January 2, January 1, January 2, January 1, 1999 2000 1999 2000 ---------- ---------- ---------- ---------- Change in benefit obligations Benefit obligation at beginning of year $ 115,494 $ 128,896 $ 8,992 $ 7,523 Service cost 1,732 2,279 190 193 Interest cost 8,660 8,867 529 394 Plan participants' contribution -- -- 294 304 Plan amendments -- -- -- (506) Change in actuarial assumptions 11,653 (11,500) (1,646) (1,795) Benefits paid (8,643) (8,908) (836) (751) --------- --------- --------- --------- Benefit obligation at end of year $ 128,896 $ 119,634 $ 7,523 $ 5,362 ========= ========= ========= ========= A reconciliation of the change in the fair value of plan assets is as follows: Pension Benefit Plan Other Benefit Plans ----------------------- ----------------------- January 2, January 1, January 2, January 1, 1999 2000 1999 2000 ---------- ---------- ---------- ---------- Fair value of plan assets at beginning of year $ 115,330 $ 126,637 $ -- $ -- Actual return on plan assets 19,950 5,142 -- -- Employer's contributions -- -- 541 447 Plan participants' contributions -- -- 294 304 Benefits paid (8,643) (8,908) (835) (751) --------- --------- --------- --------- Fair value of plan assets at end of year $ 126,637 $ 122,871 $ -- $ -- ========= ========= ========= ========= Funded status $ (2,259) $ 3,238 $ (7,523) $ (5,362) Unrecognized prior service cost (273) (198) -- (472) Unrecognized net actuarial (gain) loss 1,676 (3,381) (1,484) (3,633) --------- --------- --------- --------- Accrued benefit cost $ (856) $ (341) $ (9,007) $ (9,467) ========= ========= ========= =========
Pension Benefit Plan assets include fixed income securities and marketable equity securities, including 340,000 and 1,100,800 shares of the Company's Class A Common Stock, which had a fair market value of $8,585 and $13,554 at January 2, 1999 and January 1, 2000, respectively. The Pension Benefit Plan also owned 502,800 shares of Authentic Fitness' common stock at January 2, 1999. Such shares had a fair market value of $9,176 at January 2, 1999. In December 1999 the Company acquired Authentic Fitness and, as a result, the Pension Benefit Plan tendered all such shares (see Note 2 to the Consolidated Financial Statments). F-29 THE WARNACO GROUP, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Dollars in thousands, excluding share data) The Company contributes to a multi-employer defined benefit pension plan on behalf of union employees of its two manufacturing facilities and a warehouse and distribution facility, which amounts are not significant for the periods presented. The weighted-average assumptions used in the actuarial calculations were as follows: January 3, January 2, January 1, 1998 1999 2000 ----- ---- ---- Discount rate.......................... 7.5% 7.0% 8.0% Expected return on plan assets......... 9.0% 9.5% 9.5% Rate of compensation increase.......... 5.0% 5.0% 5.0% For measurement purposes, the weighted average annual assumed rate of increase in the per capita cost of covered benefits (health care cost trend rate) was 9% for the years through 2000 and 5% for the years 2001 and beyond. Assumed health care cost trend rates have a significant effect on the amounts reported for health care plans. A one-percentage-point change in assumed health care cost trend rates would have the following effects: One Percentage One Percentage Point Point Increase Decrease -------------- ------------- Effect on total of service and interest cost components $ 42 $ (28) ============== ============= Effect on health care component of the accumulated postretirement benefit obligation $ 359 $ (332) ============== ============= The Company also sponsors a defined contribution plan for substantially all of its domestic employees. Employees can contribute to the plan, on a pre-tax and after-tax basis, a percentage of their qualifying compensation up to the legal limits allowed. The Company contributes amounts equal to 15.0% of the first 6.0% of employee contributions to the defined contribution plan. The maximum Company contribution on behalf of any employee is $1,350 in one year. Employees vest in the Company contribution over four years. Company contributions to the defined contribution plan totaled $281, $386 and $388 for the years ended January 3, 1998, January 2, 1999, and January 1, 2000, respectively. Note 9 - Marketable Securities During the first quarter of fiscal 1999, the Company received shares of marketable securities in exchange for the early termination of a non-compete agreement with the former principal stockholder of its Designer Holdings subsidiary. The fair market value of the securities received was $875, which was recorded as a reduction of goodwill associated with the Designer Holdings acquisition. During 1998 and 1999, the Company made investments, aggregating $7,650, to acquire an interest in Interworld Corporation, a leading provider of E-Commerce software systems and other applications for electronic commerce sites. These investments are classified as available-for-sale securities and recorded at fair value based on quoted market prices at January 1, 2000. Unrealized gains at January 1, 2000 of $38,966 (net of deferred income taxes of $25,494), were included as a separate component of stockholders' equity F-30 THE WARNACO GROUP, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Dollars in thousands, excluding share data) Note 10 - Inventories January 2, January 1, 1999 2000 --------- --------- Finished goods $326,794 $563,583 Work in process 92,821 89,422 Raw materials 52,404 81,434 -------- -------- $472,019 $734,439 ======== ======== Note 11 - Debt January 2, January 1, Short-term Debt 1999 2000 - --------------- ---------- ---------- 364 day facility (1) $ -- $ 99,066 Foreign credit facilities 20,844 34,686 ---------- ---------- 20,844 133,752 ---------- ---------- Long-term Debt - -------------- 364 day facility (1) -- 487,134 Revolving credit facilities 329,446 576,667 Term loan agreements 20,706 20,855 Term notes 59,220 49,060 Capital lease obligations 5,388 9,281 Foreign credit facilities 2,807 55,803 Other 3,706 203 ---------- ---------- Total long-term debt 421,273 1,199,003 Current portion 9,387 11,052 ---------- ---------- Long-term debt 411,886 1,187,951 ---------- ---------- Total $ 442,117 $1,332,755 ========== ========== (1) As of January 1, 2000, the Company has excluded short-term obligations totaling $487,134 from current liabilities because it intends to refinance this obligation on a long-term basis. The Company has the ability to consummate the refinancing by utilizing long-term commitments in place as of January 1, 2000. Approximate maturities of long-term debt as of January 1, 2000 are as follows: Year Amount ---- ------ 2000................................................. $ 11,052 2001................................................. 45,538 2002................................................. 601,774 2003................................................. 78,150 2004................................................. 454,295 2005 and thereafter.................................. 8,194 ---------- $1,199,003 ========== F-31 THE WARNACO GROUP, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Dollars in thousands, excluding share data) $600,000 Revolving Credit Facility The Company is a guarantor of Warnaco Inc. under a $600,000 Revolving Credit Facility, which includes a $100,000 sub-facility available for letters of credit. This facility expires on August 12, 2002 in accordance with the terms of the Amended and Restated Credit Agreement, dated November 17, 1999, which governs the facility. Amounts borrowed under this facility are subject to interest at a base rate or at an interest rate based on the Eurodollar rate plus a margin, which varies according to the debt rating of the Company. As of January 1, 2000, the applicable margin under this facility was 0.375%. Under this facility, a fee is charged based on the letters of credit outstanding as well as a commitment fee based on the undrawn amount of the facility. Both of these fees vary according to the Company's debt rating. As of January 2, 1999 and January 1, 2000, the amount of borrowings outstanding under this facility was $329,446 and $576,667, respectively. Additionally, as of January 2, 1999 and January 1, 2000, the amount of letters of credit outstanding under this facility was $4,458 and $4,076, respectively. The weighted average interest rate under this facility as of January 2, 1999 and January 1, 2000 was 5.71% and 6.40%, respectively. $450,000 Revolving Credit Facility The Company also guarantees amounts borrowed by Warnaco Inc. under a $450,000 Revolving Credit Facility. The credit agreement governing this facility, dated November 17, 1999, provides that the term of the facility will expire on November 17, 2004. Amounts borrowed under this facility are subject to interest at a base rate or at an interest rate based on the Eurodollar rate plus a margin, which varies according to the debt rating of the Company. As of January 1, 2000, the applicable margin under this facility was 0.775%. Under this facility, a commitment fee is charged based on the entire amount of the facility which varies according to the Company's debt rating. As of January 1, 2000, there were no borrowings outstanding under this facility. $600,000 364-Day Facility The Company also guarantees amounts borrowed by Warnaco Inc. under a $600,000 364-Day Facility. The credit agreement governing this facility, dated November 17, 1999, provides that the term of the facility will expire on October 8, 2000. Amounts borrowed under this facility, which were used to finance the Authentic Fitness acquisition, are subject to interest at a base rate or at an interest rate based on the Eurodollar rate plus a margin, which varies according to the debt rating of the Company. As of January 1, 2000, the applicable margin under this facility was 1.0%. Under this facility, a commitment fee is charged based on the undrawn amount of the facility which varies according to the Company's debt rating. As of January 1, 2000, $586,200 was outstanding under this facility with a weighted average interest rate of 7.15%. French Franc Facility The Company and its subsidiaries entered into French Franc facilities in July and August 1996 relating to its acquisition of Lejaby. These facilities, which were amended in April 1998 and in August and November 1999, includes a term loan facility in an original amount of 370 million French Francs and a revolving credit facility of 480 million French Francs. Amounts borrowed under these facilities are subject to interest at an interest rate based on the Eurodollar rate plus a margin, which varies according to the debt rating of the Company. As of January 1, 2000, the applicable margin under these facilities was 0.40%. The term loan is being repaid in annual installments, which began in July 1997, with a final installment due on December 31, 2001. As of January 1, 2000, $49,100 equivalent of the term loan was outstanding. The revolving portion of this facility provides for multi-currency revolving loans to be made to Warnaco and a number of its European subsidiaries. As of January 1, 2000, approximately $55,800 F-32 THE WARNACO GROUP, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Dollars in thousands, excluding share data) equivalent of revolving advances were outstanding under this facility with a weighted average interest rate of 6.23%. $500,000 Trade Credit Facility The Company is a guarantor under a $500,000 Trade Credit Facility which provides commercial letters of credit for the purchase of inventory from suppliers and offers the Company extended terms, for periods of up to 180 days ("Trade Drafts"). Under the terms of the November 17, 1999 amended and restated credit agreement governing this facility, the July 27, 2000 expiration date of the credit agreement can be extended by the lenders upon written request. Amounts drawn under this facility are subject to interest at an interest rate based on the Eurodollar rate, plus a margin which varies according to the Company's debt rating. As of January 1, 2000, the applicable margin under this facility was 0.875%. The Company classifies the 180-day Trade Drafts in trade accounts payable. As of January 2, 1999 and January 1, 2000 the amount of Trade Drafts outstanding under this facility were $308,806 and $346,227, respectively. Also at January 2, 1999 and January 1, 2000, the Company had outstanding letters of credit under this facility totaling approximately $118,198 and $110,783, respectively. Letters of credit issued under this facility are not recognized on the balance sheet. Other Facilities The Company and certain of its foreign subsidiaries have entered into credit agreements that provide for revolving lines of credit and issuance of letters of credit ("Foreign Credit Facilities"). At January 2, 1999 and January 1, 2000 the total amounts of the Foreign Credit Facilities was approximately $94,300 and $163,500, respectively of which approximately $52,000 and $35,100, respectively was available. In July 1998, the Company entered into a term loan agreement with a member of its existing bank group. The balance of this loan as of January 2, 1999 and January 1, 2000 was $20,706 and $20,855, respectively, and carried a fixed interest rate of 6.85%. This loan is due to be repaid in installments beginning in 2001 with a final maturity date of July 2006. During 1998 and 1999, two other members of the existing bank group made available to the Company, on an uncommitted basis, a total of $55,000 in short term credit facilities. The Company had no outstanding borrowings under these facilities as of January 2, 1999 or January 1, 2000. Restrictive Covenants The Company's credit agreements contain various financial and non-financial covenants related to additional debt, liens on Company property, mergers, investments in other entities, asset sales and other items. The Company was in compliance with all of the covenants under its credit agreements for the three fiscal years ended January 1, 2000. Interest Rate Swaps As of January 1, 2000, the Company had five interest rate swap agreements in place which were used to convert variable interest rate borrowings of $691,500 to fixed interest rates. Under these agreements, borrowings of $610,000 were fixed at 5.99% until maturity in September 2004 and borrowings of $6,500 were fixed at 6.60% until maturity in June 2006 and, as a result of the acquisition of Authentic Fitness during fiscal 1999, an additional agreement was added fixing borrowings of $75,000 at 6.66% until maturity in September 2003. F-33 THE WARNACO GROUP, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Dollars in thousands, excluding share data) As of January 1, 2000, the Company had five swap agreements in place, as follows: Notional Maturity Amount Date ----------- -------------- $ 75.0 September 2003 $210.0 September 2004 $150.0 September 2004 $250.0 September 2004 $ 6.5 June 2006 As of January 2, 1999, the Company had four swap agreements in place, as follows: Notional Maturity Amount Date ----------- -------------- $210.0 September 2004 $150.0 September 2004 $250.0 September 2004 $ 6.5 June 2006 These swaps are utilized to convert floating rate obligations, which include bank debt and trade drafts under the letter of credit facility, to fixed rate obligations. The outstanding variable rate obligations at January 1, 2000 exceed the notional amount of interest rate swap agreements and the Company anticipates that they will continue to do so for at least the remaining term of the swap agreements based upon the Company's ability and intent to refinance all variable rate obligations as they come due. The counterparties to all of the Company's interest rate swap agreements are banks who are lenders in the Company's bank credit agreements. Differences between the fixed interest rate on each swap and the one month or three month LIBOR rate are settled at least quarterly between the Company and each counterparty. Pursuant to its interest rate swap agreements, the Company received payments totaling $575 in the year ended January 2, 1999 and made payments totaling $4,853 in the year ended January 1, 2000. The Company's average interest rate on its outstanding debt, after giving effect to the interest rate swap agreements, was approximately 5.99% and 6.52% at January 2, 1999 and January 1, 2000, respectively. Note 12 - Mandatorily Redeemable Preferred Securities In 1996, Designer Holdings issued 2.4 million Company-obligated mandatorily redeemable convertible preferred securities of a wholly owned subsidiary (the "Preferred Securities") for aggregate gross proceeds of $120,000. The Preferred Securities represent preferred undivided beneficial interests in the assets of Designer Finance Trust ("Trust"), a statutory business trust formed under the laws of the State of Delaware in 1996. Designer Holdings owns all of the common securities representing undivided F-34 THE WARNACO GROUP, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Dollars in thousands, excluding share data) beneficial interests of the assets of the Trust. Accordingly, the Trust is included in the consolidated financial statements of the Company. The Trust exists for the sole purpose of (i) issuing the Preferred Securities and common securities (together with the Preferred Securities, the "Trust Securities"), (ii) investing the gross proceeds of the Trust Securities in 6% Convertible Subordinated Debentures of Designer Holdings due 2016 ("Convertible Debentures") and (iii) engaging in only those other activities necessary or incidental thereto. The Company indirectly owns 100% of the voting common securities of the Trust which is equal to 3% of the Trust's total capital. Each Preferred Security is convertible at the option of the holder thereof into 0.6888 of a share of Common Stock, par value $.01 per share, of the Company, or 1,653,177 shares of the Company's Common Stock in the aggregate, at an effective conversion price of $72.59 per share of common stock, subject to adjustments in certain circumstances. The holders of the Preferred Securities are entitled to receive cumulative cash distributions at an annual rate of 6% of the liquidation amount of $50.00 per Preferred Security, payable quarterly in arrears. The distribution rate and payment dates correspond to the interest rate and interest payment dates on the Convertible Debentures, which are the sole assets of the Trust. As a result of the acquisition of Designer Holdings by the Company, the Preferred Securities were adjusted to their estimated fair value at the date of acquisition of $100,500, resulting in a decrease in their recorded value of approximately $19,500. This decrease is being amortized, using the effective interest rate method to maturity of the Preferred Securities. As of January 1, 2000, the unamortized balance is $17,096. Such distributions and accretion to redeemable value are included in interest expense. The Company has the right to defer payments of interest on the Convertible Debentures and distributions on the Preferred Securities for up to twenty consecutive quarters (five years), provided such deferral does not extend past the maturity date of the Convertible Debentures. Upon the payment, in full, of such deferred interest and distributions, the Company may defer such payments for additional five-year periods. The Preferred Securities are mandatorily redeemable upon the maturity of the Convertible Debentures on December 31, 2016, or earlier to the extent of any redemption by the Company of any Convertible Debenture, at a redemption price of $50.00 per share plus accrued and unpaid distributions to the date fixed for redemption. In addition, there are certain circumstances wherein the Trust will be dissolved, with the result that the Convertible Debentures will be distributed pro-rata to the holders of the Trust Securities. The Company has guaranteed, on a subordinated basis, distributions and other payments due on the Preferred Securities ("Guarantee"). In addition, the Company has entered into a supplemental indenture pursuant to which it has assumed, as a joint and several obligor with Designer Holdings, liability for the payment of principal, premium, if any, and interest on the Convertible Debentures, as well as the obligation to deliver shares of Common Stock, par value $.01 per share, of the Company upon conversion of the Preferred Securities as described above. The Guarantee, when taken together with the Company's obligations in respect of the Convertible Debentures, provides a full and unconditional guarantee of amounts due on the Preferred Securities. The following is summarized financial information of Designer Holdings as of January 2, 1999 and January 1, 2000 and for each of the three fiscal years in the period ended January 1, 2000, respectively, which is presented as required by reason of the public preferred securities issued by Designer Holdings. F-35 THE WARNACO GROUP, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Dollars in thousands, excluding share data) January 2, January 1, 1999(a) 2000 ---------- ---------- Current assets $115,328 $160,296 Non-current assets 538,600 549,090 Current liabilities 123,325 107,408 Non-current liabilities 24,151 29,168 Redeemable preferred securities 101,836 102,904 Stockholder's equity 404,616 469,906 (a) Reclassification made to reflect the tax benefits attributable to certain tax deductible purchase accounting adjustments.
| Predecessor | ------------ | Nine Months | Three Months For the Year For the Year Ended | Ended Ended Ended September 30, | January 3, January 2, January 1, 1997 | 1998 1999(a) 2000(a) ------------- | ------------ ------------ ------------ | Net revenues $ 365,049 | $ 158,276 $ 453,229 $ 547,126 Cost of goods sold 262,759 | 115,958 310,738 353,029 Net income before extraordinary item 274 | 8,430 42,790 65,290 Net income (loss) (633) | 8,430 42,790 65,290
(a) Excludes net revenues of $84,500 and $87,000 for fiscal 1998 and fiscal 1999 respectively, now reported as Retail Stores division net revenues. As a result of the integration of Designer Holdings into the operations of the Company, cost of goods sold and net income associated with these revenues cannot be separately identified. The above information is not indicative of the future operating results primarily due to the integration of the operations of Designer Holdings with the operations of the Company, the redirected marketing efforts in the new store format and redirected marketing strategy. Note 13 - Stockholders' Equity On June 30, 1995 the Company paid its first quarterly dividend on its Common Stock. Total dividends declared during fiscal years 1997, 1998 and 1999 were $17,265 ($0.32 per share), $22,423 ($0.36 per share) and $20,250 ($0.36 per share), respectively. The Company has 10,000,000 shares of authorized and unissued preferred stock with a par value of $0.01 per share. In August 1999, the Board of Directors of the Company adopted a rights agreement (the "Rights Agreement"). Under the terms of the Rights Agreement, the Company declared a dividend distribution of one right for each outstanding share of common stock of the Company to stockholders of record on August 31, 1999. Each right entitles the holder to purchase from the Company a unit consisting of F-36 THE WARNACO GROUP, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Dollars in thousands, excluding share data) one one-thousandth of a Series A Junior Participating Preferred Stock, par value $.01 per share at a purchase price of $100 per unit. The rights only become exercisable, if not redeemed, ten days after a person or group has acquired 15% or more of the Company's common stock or the announcement of a tender offer that would result in a person or group acquiring 15% or more of the Company's common stock. The Rights Agreement expires on August 31, 2009, unless earlier redeemed or extended by the Company. Stock Compensation Plans The Board of Directors and Compensation Committee thereof are responsible for administration of the Company's compensation plans and determine, subject to the provisions of the plans, the number of shares to be issued, the terms of awards, the sale or exercise price, the number of shares awarded and the rate at which awards vest or become exercisable. 1988 Employee Stock Purchase Plan In 1988, the Company adopted the 1988 Employee Stock Purchase Plan ("Stock Purchase Plan") which provides for sales of up to 4,800,000 shares of Class A Common Stock of the Company to certain key employees. At January 2, 1999 and January 1, 2000, 4,521,300 shares were issued and outstanding pursuant to grants under the Stock Purchase Plan. All shares were sold at amounts determined to be equal to the fair market value. In addition, certain employees, principally owed by an officer and director of the Company, elected to pay for the shares granted by executing promissory notes payable to the Company. Notes totaling $5,971 were outstanding at January 3, 1998 and were repaid during fiscal 1998. 1991 Stock Option Plan In 1991, the Company established The Warnaco Group, Inc. 1991 Stock Option Plan ("Option Plan") and authorized the issuance of up to 1,500,000 shares of Class A Common Stock pursuant to incentive and non-qualified option grants to be made under the plan. The exercise price on any stock option award may not be less than the fair market value of the Company's Common Stock at the date of the grant. The Option Plan limits the amount of qualified stock options that may become exercisable by any individual during a calendar year. Options generally expire 10 years from the date of grant and vest ratably over 4 years. 1993 Stock Plan On May 14, 1993, the stockholders approved the adoption of The Warnaco Group, Inc. 1993 Stock Plan ('Stock Plan') which provides for the issuance of up to 2,000,000 shares of Class A Common Stock of the Company through awards of stock options, stock appreciation rights, performance awards, restricted stock units and stock unit awards. On May 12, 1994, the stockholders approved an amendment to the Stock Plan whereby the number of shares issuable under the Stock Plan is automatically increased each year by 3% of the number of outstanding shares of Class A Common Stock of the Company as of the beginning of each fiscal year. The exercise price of any stock option award may not be less than the fair market value of the Company's Common Stock at the date of the grant. Options generally expire 10 years from the date of grant and vest ratably over 4 years. In accordance with the provisions of the Stock Plan, the Company granted 182,903 and 190,680 shares of restricted stock to certain employees, including certain officers of the Company, during the fiscal years ended January 2, 1999 and January 1, 2000, respectively. The restricted shares vest over four years. The fair market value of the restricted shares was $7,682 and $5,458 at the dates of grant, respectively. The Company recognizes compensation expense equal to the fair value of the restricted F-37 THE WARNACO GROUP, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Dollars in thousands, excluding share data) shares over the vesting period. Compensation expense for the fiscal years ended January 3, 1998, January 2, 1999 and January 1, 2000 was $3,322, $4,978 and $6,246, respectively. During 1998, 16,177 shares of non-vested restricted shares were canceled resulting in a reduction in unearned compensation of $667. During 1999, there were no restricted shares cancelled. Unearned stock compensation at January 2, 1999 and January 1, 2000 was $11,772 and $10,984, respectively, and is deducted from stockholders' equity. 1993 Non-Employee Director Stock Plan and 1998 Director Plan In May 1994, the Company's stockholders approved the adoption of the 1993 Non-Employee Director Stock Plan ("Director Plan"). The Director Plan provides for awards of non-qualified stock options to non-employee directors of the Company. Options granted under the Director Plan are exercisable in whole or in part until the earlier of ten years from the date of the grant or one year from the date on which an optionee ceases to be a Director eligible for grants. Options are granted at the fair market value of the Company's Common Stock at the date of the grant. In May 1998, the Board of Directors approved the adoption of the 1998 Stock Plan for Non-Employee Directors ("1998 Director Plan", and together with the Director Plan, "Combined Director Plan"). The 1998 Director Plan includes the same features as the Director Plan and provides for issuance of the Company's Common Stock held in treasury. The Combined Director Plan provides for the automatic grant of options to purchase (i) 30,000 shares of Common Stock upon a Director's election to the Company's Board of Directors and (ii) 20,000 shares of Common Stock immediately following each annual shareholders' meeting as of the date of such meeting. 1997 Stock Option Plan In 1997, the Company's Board of Directors approved the adoption of The Warnaco Group, Inc. 1997 Stock Option Plan ("1997 Plan") which provides for the issuance of incentive and non-qualified stock options and restricted stock up to the number of shares of common stock held in treasury. The exercise price on any stock option award may not be less than the fair market value of the Company's common stock on the date of grant. The Plan limits the amount of qualified stock options that may become exercisable by any individual during a calendar year and limits the vesting period for options awarded under the 1997 Plan. A summary of the status of the Company's stock option plans are presented below:
Fiscal 1997 Fiscal 1998 Fiscal 1999 ------------------------ ------------------------ ------------------------ Weighted Weighted Weighted Average Average Average Exercise Exercise Exercise Options Price Options Price Options Price ----------- --------- ----------- -------- ----------- -------- Outstanding at beginning of year 6,691,000 $ 18.57 8,817,875 $ 22.00 8,908,932 $ 32.68 Granted 2,611,500 29.91 6,674,202 36.22 5,935,338 25.30 Exercised (251,259) 16.85 (5,625,014) 20.68 (29,750) 16.93 Canceled (233,366) 23.80 (958,131) 30.95 (957,174) 31.62 ----------- ----------- ----------- Outstanding at end of year 8,817,875 22.00 8,908,932 32.68 13,857,346 29.85 =========== =========== =========== Options exercisable at end of year 4,127,594 17.76 6,755,889 33.04 10,309,122 30.33 =========== =========== =========== Weighted average fair value of options granted $ 10.58 $ 12.28 $ 9.69 ======= ======= ======= Options available for future grant 2,700,431 2,151,308 1,850,552 =========== =========== ===========
F-38 THE WARNACO GROUP, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Dollars in thousands, excluding share data) In fiscal 1997, 1998 and 1999, in exchange for shares received from option holders with a fair value of $575, $38,095 and $2,640, respectively, the Company paid $575, $38,095 and $2,640, respectively of withholding taxes on options that were exercised during the year. Such shares have been included in treasury at cost, which equals fair value at date of option exercise. Summary information related to options outstanding and exercisable at January 1, 2000 is as follows:
Options Outstanding Options Exercisable ----------------------------------------- --------------------------- Weighted Outstanding Average Weighted Exercisable Weighted at Remaining Average at Average January 1, Contractual Exercise January 1, Exercise Range of Exercise prices 2000 Life Price 2000 Price - ------------------------- ----------- ----------- -------- ----------- -------- (Years) $10.01 - $20.00 834,750 4.66 $ 15.67 824,750 $ 15.63 $20.01 - $30.00 6,241,588 8.76 25.36 3,816,113 25.26 $30.01 - $40.00 6,548,258 8.16 35.52 5,610,071 35.82 $40.01 - $50.00 232,750 8.47 41.80 58,188 41.80 ----------- ---------- 13,857,346 8.22 29.85 10,309,122 30.33 =========== ==========
The Company has reserved 9,674,196 shares of Class A Common Stock for issuance under the Director Plan, Stock Plan and Option Plan as of January 1, 2000. In addition, there are 12,163,650 shares of Class A Common Stock in treasury stock available for issuance under the 1997 Plan. The fair value for these options was estimated at the date of grant using a Black-Scholes option pricing model with the following assumptions:
January 3, January 2, January 1, 1998 1999 2000 ----- ---- ---- Risk-free interest rate.................................. 6.20% 5.60% 4.83% Dividend yield........................................... 1.08% 1.00% 1.43% Expected volatility of market price of Company's Common Stock.......................................... .3197 .3069 .4164 Expected option life..................................... 5 years 5 years 5 years
The Company's pro forma information is as follows:
January 3, January 2, January 1, 1998 1999 2000 ---- ---- ---- Pro forma income (loss) before cumulative effect of accounting change in accounting principle.................... $(17,121) $ (41,814) $ 60,506 Pro forma basic income (loss) per common share before accounting change........................................ $ (0.32) $ (0.68) $ 1.08 Pro forma diluted income (loss) per common share before accounting change........................................ $ (0.32) $ (0.68) $ 1.07
F-39 THE WARNACO GROUP, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Dollars in thousands, excluding share data) These pro forma effects may not be representative of the effects on future years because of the prospective application required by SFAS No. 123, and the fact that options vest over several years and new grants generally are made each year. The following are the number of shares of common and treasury stocks as of January 3, 1998, January 2, 1999 and January 1, 2000.
Number of Shares --------------------------------------- January 3, January 2, January 1, 1998 1999 2000 ----------- ----------- ----------- Common Stock: Balance at beginning of year 52,398,112 63,294,423 65,172,608 Shares issued upon exercise of stock options 383,975 1,707,097 29,750 Shares issued under restricted stock grants, net of cancellations 99,192 171,088 190,680 Shares issued for acquisition of Designer Holdings, Ltd. 10,413,144 -- -- ----------- ----------- ----------- Balance at end of year 63,294,423 65,172,608 65,393,038 =========== =========== =========== Treasury Stock: Balance at beginning of year 536,600 1,375,919 6,087,674 Shares issued for acquisition of ABS -- -- (100,000) Net additions 839,319 4,711,755 6,175,976 ----------- ----------- ----------- Balance at end of year 1,375,919 6,087,674 12,163,650 =========== =========== ===========
Stock Buyback Program On November 14, 1996, the Board of Directors approved a stock buyback program of up to 2.0 million shares. On May 14, 1997, the Company's Board of Directors approved an increase of this program to 2.42 million shares. On February 19, 1998 and on March 1, 1999, the Company's Board of Directors authorized the repurchase of an additional 10.0 million shares, resulting in a total authorization of 22.42 million shares. During fiscal 1997, 1998 and 1999, the Company repurchased 839,319, 4,794,699 and 6,182,088 shares of its common stock under the repurchase programs at a cost of $26,537, $135,416 and $144,688, respectively. At January 1, 2000, there were 10,353,894 shares available for repurchase under this program. The Company has used a combined put-call option contract to facilitate the repurchase of its common stock. This contract provides for the sale of a put option giving the counterparty the right to sell the Company's shares to the Company at a preset price at a future date and for the simultaneous purchase of a call option giving the Company the right to purchase its shares from the counterparty at the same price at the same future date. At January 2, 1999, the Company held call options and had sold put options (all covered by one contract) covering 1.5 million shares of common stock with an average forward price of $35.35 per share. The equity instruments were exercisable only at expiration of the contracts, with expiration dates ranging from the first through third quarters of fiscal 1999. The equity instruments were settled, at the election of the Company, through physical, net share or net cash settlement. During fiscal 1998 and 1999, the Company repurchased 1,790,455 shares and 1,497,202 shares of common stock at a cost of $65,899 and $52,919, which is reflected in treasury stock. In addition, the Company received a net cash F-40 THE WARNACO GROUP, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Dollars in thousands, excluding share data) settlement payment of $2,325 under these contracts in fiscal 1998, which was reflected in additional paid-in-capital. Note 14 - Earnings (Loss) per Share
For the Year Ended ------------------------------------ January 3, January 2, January 1, 1998 1999 2000 ---------- ---------- ---------- Numerator for basic and diluted earnings (loss) per share - Income (loss) before cumulative effect of change in accounting $ (12,319) $ 14,097 $ 97,786 Cumulative effect of change in accounting -- (46,250) -- --------- --------- --------- Net income (loss) $ (12,319) $ (32,153) $ 97,786 ========= ========= ========= Denominator for basic earnings (loss) per share - Weighted average shares 52,814 61,362 55,910 --------- --------- --------- Effect of dilutive securities: Employee stock options -- 821 237 Restricted stock shares -- 473 462 Shares under put option contracts -- 349 187 --------- --------- --------- Dilutive potential common shares -- 1,643 886 --------- --------- --------- Denominator for diluted earnings (loss) per share- Weighted average adjusted shares 52,814 63,005 56,796 ========= ========= ========= Basic earnings (loss) per share before cumulative effect of change in accounting $ (0.23) $ 0.23 $ 1.75 ========= ========= ========= Diluted earnings (loss) per share before cumulative effect of change in accounting $ (0.23) $ 0.22 $ 1.72 ========= ========= =========
Options to purchase 1,900,556, 7,456,708 and 7,484,606 shares of common stock were outstanding during fiscal years 1997, 1998 and 1999 respectively. These shares were not included in the computation of diluted earnings per share because the options' exercise price was greater than the average market price of the common shares. The fiscal 1999 options, which expire from February 2007 to October 2009, were still outstanding at the end of fiscal 1999. Incremental shares issuable on the assumed conversion of the Preferred Securities of 1,653,177 shares were not included in the fiscal 1998 and 1999 computation of diluted earnings per share as the impact would have been antidilutive for each period presented. F-41 THE WARNACO GROUP, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Dollars in thousands, excluding share data) Note 15 - Lease Commitments During fiscal 1997, the Company sold certain fixed assets for net book value of approximately $33,223. The assets were leased back from the purchaser, under the terms of an operating lease, over a six-year period. In fiscal 1998 and 1999, the Company sold certain equipment for cash proceeds of $21,713 and $23,185, respectively, which approximated net book value. The equipment was leased back from the purchaser under an operating lease with an initial term of three years and a one-year renewal option. Under the terms of certain operating leases, the Company guarantees a portion of the residual value loss, if any, incurred by the lessors in remarketing or disposing the related assets upon lease termination or expiration. The Company believes, based on existing facts and circumstances and current values of such equipment, that a material payment pursuant to such guarantee is unlikely. Rental expense was $24,492, $35,534 and $37,967 for the years ended January 3, 1998, January 2, 1999 and January 1, 2000, respectively. The following is a schedule of future minimum rental payments required under operating leases with terms in excess of one year, as of January 1, 2000: Rental Payments ------------------------------ Real Estate Equipment --------------- ------------- 2000 $ 26,709 $ 15,238 2001 23,378 15,291 2002 18,685 19,498 2003 10,629 3,990 2004 11,849 2,857 2005 and thereafter 10,680 5,437 Note 16 - Financial Instruments The following methods and assumptions were used by the Company in estimating its fair value disclosures for financial instruments. Accounts Receivable. The carrying amount of the Company's accounts receivables approximate fair value. Marketable Securities. Marketable securities are stated at fair value based on quoted market prices. Revolving, term loans and other borrowings. The carrying amounts of the Company's outstanding balances under its various Bank Credit Agreements and other outstanding debt approximate the fair value because the interest rate on the outstanding borrowings is variable and there are no prepayment penalties. Redeemable preferred securities. These securities are publically traded on the New York Stock Exchange. The fair market value was determined based on the closing price on the last trading date prior to the end of each fiscal year. Interest rate swap agreements. The Company has entered into interest rate swap agreements which have the effect of converting the Company's floating rate obligations to fixed rate obligations. The fair value of the Company's interest rate swap agreements at January 1, 2000 and January 2, 1999 are based F-42 THE WARNACO GROUP, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Dollars in thousands, excluding share data) upon quotes from brokers and represent the cash requirement if the existing agreements had been settled at year-end. Letters of credit. Letters of credit collateralize the Company's obligations to third parties and have terms ranging from 30 days to one year. The face amount of the letters of credit are a reasonable estimate of the fair value since the value for each is fixed over its relatively short maturity. Equity option arrangements. These arrangements can be settled, at the Company's option, by the purchase of shares, on a net basis in shares of the Company's common stock or on a net cash basis. To the extent that the market price of the Company's common stock on the settlement date is higher or lower than the forward purchase price, the net differential can be paid or received by the Company in cash or in the Company's common stock. Foreign currency transactions. The Company enters into various foreign currency forward and option contracts to hedge certain commercial transactions. The fair value of open foreign currency forward and option contracts is based upon quotes from brokers and reflects the cash benefit if the existing contracts had been sold. The carrying amounts and fair value of the Company's financial instruments as of January 2, 1999 and January 1, 2000, are as follows:
January 2, 1999 January 1, 2000 -------------------------- -------------------------- Carrying Fair Carrying Fair Amount Value Amount Value --------- --------- --------- --------- Accounts receivable $ 199,369 $ 199,369 $ 314,961 $ 314,961 Marketable securities -- -- 72,921 72,921 Revolving loans 353,097 353,097 667,156 667,156 Acquisition loan -- -- 586,200 586,200 Term loans 79,926 79,926 69,915 69,915 Other long term debt 9,094 9,094 9,484 9,484 Redeemable preferred securities 101,836 86,400 102,904 58,800 Interest rate swaps -- (24,324) -- 22,107 Letters of credit -- 129,802 -- 145,295 Equity option arrangements -- (15,144) -- -- Foreign currency purchased option contracts 83 151 391 185 Foreign currency forward contracts -- -- (111) (111)
Foreign Currency-Risk Management The Company's international operations are subject to certain opportunities and risks, including currency fluctuations and government actions. The Company closely monitors its operations in each country so that it can respond to changing economic and political environments and to fluctuations in foreign currencies. Accordingly, the Company utilizes foreign currency option contracts and forward contracts to hedge its exposure on anticipated transactions and firm commitments, primarily for receivables and payables denominated in currencies other than the entities' functional currencies. The Company also monitors its foreign exchange exposures to ensure the overall effectiveness of its foreign currency hedge positions. Foreign currency instruments generally have maturities that do not exceed twelve months. The Company has foreign currency instruments, primarily denominated in Canadian dollars, British pounds, Euros and Mexican pesos. At January 2, 1999 and January 1, 2000, the Company had $39,417 and $5,800 in foreign currency instruments outstanding, respectively. For 1999, 1998 and 1997, the net realized gains or losses associated with these types of instruments were not material. The net unrealized gain (loss) as of January 2, 1999 and January 1, 2000, based on the fair market value of the instruments, were not material to each respective period. F-43 THE WARNACO GROUP, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Dollars in thousands, excluding share data) Note 17 - Cash Flow Information
For the Year Ended ------------------------------------ January 3, January 2, January 1, 1998 1999 2000 ---------- ---------- ---------- Cash paid (received) during the year for: Interest, including $0, $1,897 and $4,038 capitalized in fiscal 1997, 1998 and 1999, respectively $ 42,932 $ 61,088 $ 82,517 Income taxes, net of refunds received 13,578 (12,538) 1,719 Supplemental Non-Cash Investing and Financing Activities: Details of acquisitions: Fair value of assets acquired $ 607,609 $ 60,918 $ 740,976 Liabilities assumed (254,209) (7,800) (83,461) Stock issued (353,400) -- (2,200) --------- --------- --------- Cash paid -- 53,118 655,315 Less cash acquired -- -- (7,000) Less future cash payment (55,800) -- (22,800) --------- --------- --------- Net cash paid (acquired) $ (55,800) $ 53,118 $ 625,515 ========= ========= =========
Note 18 - Legal Matters Between October 12, and October 13, 1999, six putative class action complaints were filed in Delaware Chancery Court against the Company, Authentic Fitness Corporation and certain of their officers and directors in connection with the Company's proposed acquisition of Authentic Fitness. On December 20, 1999, an Amended Class Action Complaint ("Amended Complaint") was filed and on January 6, 2000 the court designated the Amended Complaint as the operative complaint for the consolidated action captioned: In Re Authentic Fitness Corporation Shareholders Litigation, C.A. No. 17464-NC (consolidated). In the Amended Complaint (and all six complaints made virtually identical claims), plaintiffs allege an unlawful scheme by certain of the defendants, in breach of their fiduciary duties, to allow the Company to acquire Authentic Fitness shares for inadequate consideration. Plaintiffs are seeking to have the court declare the action a proper class action, to declare that the defendants have breached their fiduciary duties to the class, and in the event the transaction is consummated, recission thereof and damages awarded to the Class. The Company believes the claims to be without merit and intends to vigorously defend these actions. The Company is not a party to any other litigation or other claims or uncertainty, other than routine litigation incidental to the business of the Company, that individually or in the aggregate is material to the business of the Company. Note 19 - Quarterly Results of Operations (Unaudited) Year Ended January 1, 2000 ----------------------------------------- First Second Third Fourth Quarter Quarter Quarter Quarter -------- -------- -------- -------- Net revenues $444,103 $484,737 $579,612 $605,704 Gross profit 154,089 173,263 201,488 172,167 Net income $ 22,892 $ 27,846 $ 44,379 $ 2,669 ======== ======== ======== ======== Basic earnings per common share: $ 0.39 $ 0.50 $ 0.80 $ 0.05 ======== ======== ======== ======== Diluted earnings per common share: $ 0.39 $ 0.49 $ 0.80 $ 0.05 ======== ======== ======== ======== Note: The sum of the quarter per share amounts do not equal the full year amounts. F-44 THE WARNACO GROUP, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Dollars in thousands, excluding share data)
Year Ended January 2, 1999 ----------------------------------------------------- First Second Third Fourth Quarter Quarter Quarter Quarter ----------- ----------- ----------- ----------- Net revenues $ 419,208 $ 438,874 $ 544,125 $ 548,044 Gross profit 119,550 131,496 160,392 125,777 Net income (loss) before cumulative effect of accounting change 6,088 12,940 26,944 (31,875) Cumulative effect of accounting change (46,250) -- -- -- ----------- ----------- ----------- ----------- Net income (loss) $ (40,162) $ 12,940 $ 26,944 $ (31,875) =========== =========== =========== =========== Basic earnings (loss) per common share: Income (loss) before accounting change $ 0.10 $ 0.21 $ 0.44 $ (0.54) Cumulative effect of accounting change (0.75) -- -- -- ----------- ----------- ----------- ----------- Net income (loss) $ (0.65) $ 0.21 $ 0.44 $ (0.54) =========== =========== =========== =========== Diluted earnings (loss) per common share: Income (loss) before accounting change $ 0.10 $ 0.20 $ 0.43 $ (0.54) Cumulative effect of accounting change (0.73) -- -- -- ----------- ----------- ----------- ----------- Net income (loss) $ (0.63) $ 0.20 $ 0.43 $ (0.54) =========== =========== =========== ===========
Note: The sum of the quarter per share amounts do not equal the full year amounts. F-45 SCHEDULE II THE WARNACO GROUP, INC. VALUATION & QUALIFYING ACCOUNTS & RESERVES (4) (Dollars in thousands)
Additions Balance at Charges to Beginning Costs and Other Balance at Description of Year Expenses(1) Additions(2) Deductions(3) End of Year - ----------- ---------- ----------- ------------ ------------- ----------- Year Ended January 3, 1998 Receivable allowances $ 11,337 $ 139,469 $ 30,510 $(135,192) $ 46,124 ======== ========= ========= ========= ========= Inventory reserves $ -- $ 57,298 $ 19,248 $ (37,371) $ 39,175 ======== ========= ========= ========= ========= Year Ended January 2, 1999 Receivable allowances $ 46,124 $ 166,347 $ 21,500 $(197,303) $ 36,668 ======== ========= ========= ========= ========= Inventory reserves $ 39,175 $ 25,442 $ 3,000 $ (50,716) $ 16,901 ======== ========= ========= ========= ========= Year Ended January 1, 2000 Receivable allowances $ 36,668 $ 206,098 $ 4,383 $(214,277) $ 32,872 ======== ========= ========= ========= ========= Inventory reserves $ 16,901 $ 6,247 $ 8,140 $ (16,914) $ 14,374 ======== ========= ========= ========= =========
(1) Includes bad debts, cash discounts, allowances and sales returns. (2) Reserves related to assets acquired including fair value adjustments--See Note 2. (3) Amounts written-off, net of recoveries. (4) See Notes 2 and 3 for other restructuring related activity and Note 7 for tax valuation allowance information. S-1 STATEMENT OF DIFFERENCES ------------------------ The registered trademark symbol shall be expressed as......................'r' The section symbol shall be expressed as.................................. 'SS' EX-10 2 EXHIBIT 10.34 EXECUTION COPY U.S. $600,000,000 AMENDED AND RESTATED CREDIT AGREEMENT Dated as of November 17, 1999 Among WARNACO INC. as Borrower and THE WARNACO GROUP, INC. and THE INITIAL LENDERS NAMED HEREIN as Initial Lenders and THE BANK OF NOVA SCOTIA and SALOMON SMITH BARNEY INC. as Co-Lead Arrangers and Co-Book Managers and CITIBANK, N.A. as Syndication Agent and COMMERZBANK A.G., NEW YORK BRANCH as Documentation Agent and THE BANK OF NOVA SCOTIA as Administrative Agent, Competitive Bid Agent, Swing Line Bank and an Issuing Bank TABLE OF CONTENTS
PAGE ---- ARTICLE I DEFINITIONS AND ACCOUNTING TERMS SECTION 1.01. Certain Defined Terms . . . . . . . . . . . . . . . . . . . . . . . . .2 SECTION 1.02. Computation of Time Periods . . . . . . . . . . . . . . . . . . . . . 25 SECTION 1.03. Accounting Terms. . . . . . . . . . . . . . . . . . . . . . . . . . . 25 ARTICLE II AMOUNTS AND TERMS OF THE ADVANCES SECTION 2.01. The Advances. . . . . . . . . . . . . . . . . . . . . . . . . . . . .25 SECTION 2.02. Making the Advances . . . . . . . . . . . . . . . . . . . . . . . . .27 SECTION 2.03. Issuance of and Drawings and Reimbursement Under Letters of Credit 30 SECTION 2.04. The Competitive Bid Advances. . . . . . . . . . . . . . . . . . . . .32 SECTION 2.05. Repayment of Advances . . . . . . . . . . . . . . . . . . . . . . . .37 SECTION 2.06. Termination or Reduction of the Commitments . . . . . . . . . . . . .38 SECTION 2.07. Prepayments.. . . . . . . . . . . . . . . . . . . . . . . . . . . . .38 SECTION 2.08. Interest. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .39 SECTION 2.09. Fees. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .40 SECTION 2.10. Conversion of Advances. . . . . . . . . . . . . . . . . . . . . . . .41 SECTION 2.11. Increased Costs, Etc. . . . . . . . . . . . . . . . . . . . . . . . .42 SECTION 2.12. Illegality. . . . . . . . . . . . . . . . . . . . . . . . . . . . . .43 SECTION 2.13. Payments and Computations . . . . . . . . . . . . . . . . . . . . . .43 SECTION 2.14. Taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .45 SECTION 2.15. Sharing of Payments, Etc. . . . . . . . . . . . . . . . . . . . . . .48 SECTION 2.16. Use of Proceeds . . . . . . . . . . . . . . . . . . . . . . . . . . .48 SECTION 2.17. Defaulting Lenders. . . . . . . . . . . . . . . . . . . . . . . . . .48 SECTION 2.18. Evidence of Debt. . . . . . . . . . . . . . . . . . . . . . . . . . .51 ARTICLE III CONDITIONS TO EFFECTIVENESS AND LENDING SECTION 3.01. Conditions Precedent to Effectiveness of Amendment and Restatement . . . . . . . . . . . . . . . . . . . . . . . . . . . . .52 SECTION 3.02. Conditions Precedent to Each Borrowing and Issuance . . . . . . . . .53 SECTION 3.03. Determinations Under Section 3.01 . . . . . . . . . . . . . . . . .54 SECTION 3.04. Reference to and Effect on the Loan Documents . . . . . . . . . . . .54 ARTICLE IV REPRESENTATIONS AND WARRANTIES SECTION 4.01. Representations and Warranties of the Borrower. . . . . . . . . . . . 54
PAGE ---- ARTICLE V COVENANTS OF THE BORROWER SECTION 5.01. Affirmative Covenants . . . . . . . . . . . . . . . . . . . . . . . .58 SECTION 5.02. Negative Covenants. . . . . . . . . . . . . . . . . . . . . . . . . .61 SECTION 5.03. Financial Covenants . . . . . . . . . . . . . . . . . . . . . . . . .65 ARTICLE VI EVENTS OF DEFAULT SECTION 6.01. Events of Default . . . . . . . . . . . . . . . . . . . . . . . . . .65 SECTION 6.02. Actions in Respect of the Letters of Credit upon Default. . . . . . .68 ARTICLE VII THE AGENTS SECTION 7.01. Authorization and Action. . . . . . . . . . . . . . . . . . . . . . .69 SECTION 7.02. Agents' Reliance, Etc.. . . . . . . . . . . . . . .. . . . . . . . .69 SECTION 7.03. Scotiabank, Citibank, Commerzbank and Affiliates. . . . . . . . . . .70 SECTION 7.04. Lender Credit Decision. . . . . . . . . . . . . . . . . . . . . . . .70 SECTION 7.05. Indemnification . . . . . . . . . . . . . . . . . . . . . . . . . . .70 SECTION 7.06. Successor Agents. . . . . . . . . . . . . . . . . . . . . . . . . . .71 ARTICLE VIII MISCELLANEOUS SECTION 8.01. Amendments, Etc . . . . . . . . . . . . . . . . . . . . . . . . . . .71 SECTION 8.02. Notices, Etc. . . . . . . . . . . . . . . . . . . . . . . . . . . . .72 SECTION 8.03. No Waiver; Remedies . . . . . . . . . . . . . . . . . . . . . . . . .73 SECTION 8.04. Costs and Expenses. . . . . . . . . . . . . . . . . . . . . . . . . .73 SECTION 8.05. Right of Set-off. . . . . . . . . . . . . . . . . . . . . . . . . . .75 SECTION 8.06. Binding Effect. . . . . . . . . . . . . . . . . . . . . . . . . . . .75 SECTION 8.07. Assignments, Designations and Participations. . . . . . . . . . . . .75 SECTION 8.08. Confidentiality . . . . . . . . . . . . . . . . . . . . . . . . . . .81 SECTION 8.09. No Liability of the Issuing Banks.. . . . . . . . . . . . . . . . . .82 SECTION 8.10. Execution in Counterparts . . . . . . . . . . . . . . . . . . . . . .82 SECTION 8.11. Governing Law . . . . . . . . . . . . . . . . . . . . . . . . . . . .82 SECTION 8.12. Jurisdiction, Etc.. . . . . . . . . . . . . . . . . . . . . . . . . .82 SECTION 8.13. Release of Guarantors . . . . . . . . . . . . . . . . . . . . . . . .83 SECTION 8.14. Waiver of Jury Trial. . . . . . . . . . . . . . . . . . . . . . . . .84
SCHEDULES Schedule I - List of Applicable Lending Offices Schedule II - Existing Debt Schedule 4.01(b) - Subsidiaries Schedule 5.02(d) - Assets Held For Sale EXHIBITS Exhibit A-1 - Form of Competitive Bid Note Exhibit A-2 - Form of Revolving Credit Note Exhibit B-1 - Form of Notice of Borrowing Exhibit B-2 - Form of Notice of Competitive Bid Borrowing Exhibit C - Form of Assignment and Acceptance Exhibit D - Form of Designation Agreement Exhibit E - Form of Group Consent Exhibit F - Form of Subsidiary Consent
AMENDED AND RESTATED CREDIT AGREEMENT Dated as of November 17, 1999 AMENDED AND RESTATED CREDIT AGREEMENT among WARNACO INC., a Delaware corporation (together with any successors-in-interest permitted hereunder, the "Borrower"), THE WARNACO GROUP, INC., a Delaware corporation (together with any successors-in-interest permitted hereunder, "Group"), the banks, financial institutions and other institutional lenders (the "Initial Lenders") listed on the signature pages hereof, and THE BANK OF NOVA SCOTIA ("Scotiabank") and SALOMON SMITH BARNEY, INC. ("SSB") as co- lead arrangers and co-book managers (the "Arrangers") for the Lenders (as hereinafter defined), CITIBANK, N.A. ("Citibank") as syndication agent ("Syndication Agent") for the Lenders, COMMERZBANK A.G., New York Branch as documentation agent (the "Documentation Agent") for the Lenders, and Scotiabank as administrative agent (the "Administrative Agent") and competitive bid agent (the "Competitive Bid Agent") for the Lenders and as a Swing Line Bank and an Issuing Bank hereunder. PRELIMINARY STATEMENTS (1) The Borrower and Group entered into a Credit Agreement dated as of August 12, 1997, as amended by Amendment No.1 dated as of July 31, 1998 (as amended, supplemented or otherwise modified through the date hereof, the "Predecessor Credit Agreement"), with the financial institutions and other institutional lenders party thereto (the "Predecessor Lenders"), Scotiabank as managing agent, administrative agent and competitive bid agent for the Predecessor Lenders and Citibank as managing agent and documentation agent for the Lenders. (2) The Borrower or a single-purpose wholly owned subsidiary of the Borrower (the "Purchaser") will either (a) offer to acquire a controlling interest in Authentic Fitness Corporation, a Delaware corporation ("Authentic Fitness") through a tender offer (the "Tender Offer") for all of Authentic Fitness's outstanding common stock (the "Authentic Fitness Stock"), but in any event for not less than sufficient shares of Authentic Fitness's stock to enable the Purchaser, voting without any other shareholders of Authentic Fitness, to approve a merger of the Purchaser with Authentic Fitness and as promptly as practicable after the closing of the Tender Offer, the Purchaser, if a single-purpose wholly owned Subsidiary of the Borrower, will consummate a merger with Authentic Fitness in which Authentic Fitness will be the surviving corporation or (b) agree to merge with Authentic Fitness in which Authentic Fitness will be the surviving corporation (such merger described in either clause (a) or (b) above between the Purchaser and Authentic Fitness being the "Merger"). 2 (3) The Borrower and the Initial Lenders hereunder have agreed to amend and restate the Predecessor Credit Agreement as set forth below. NOW, THEREFORE, in consideration of the premises and of the mutual covenants and agreements contained herein, the parties hereto hereby agree that, subject to the satisfaction of the conditions precedent set forth in Section 3.01, the Predecessor Credit Agreement is amended and restated in its entirety to read as follows: ARTICLE I DEFINITIONS AND ACCOUNTING TERMS SECTION 1.01. Certain Defined Terms. As used in this Agreement, the following terms shall have the following meanings (such meanings to be equally applicable to both the singular and plural forms of the terms defined): "Administrative Agent" has the meaning specified in the recital of parties to this Agreement. "Administrative Agent's Account" means the account of the Administrative Agent maintained by the Administrative Agent with Scotiabank at its office at One Liberty Plaza, New York, New York 10006, Special Management Account No. 0608335, Reference: Warnaco. "Advance" means a Revolving Credit Advance, a Competitive Bid Advance, a Swing Line Advance, or a Letter of Credit Advance. "Affiliate" means, as to any Person, any other Person that, directly or indirectly, controls, is controlled by or is under common control with such Person or is a director or officer of such Person. For purposes of this definition, the term "control" (including the terms "controlling", "controlled by" and "under common control with") of a Person means the possession, direct or indirect, of the power to vote 10% or more of the Voting Stock of such Person or to direct or cause the direction of the management and policies of such Person, whether through the ownership of Voting Stock, by contract or otherwise. "Agents" means each of the Arrangers, the Syndication Agent, the Documentation Agent, the Administrative Agent and the Competitive Bid Agent, together, in each case, with any successor or successors of any thereof appointed pursuant to Article VII hereof. 3 "Applicable Lending Office" means, with respect to each Lender, such Lender's Domestic Lending Office in the case of a Base Rate Advance and such Lender's Eurodollar Lending Office in the case of a Eurodollar Rate Advance and, in the case of a Competitive Bid Advance, the office of such Lender notified by such Lender to the Competitive Bid Agent as its Applicable Lending Office with respect to such Competitive Bid Advance. "Applicable Margin" means, as of any date, a percentage per annum determined by reference to the Debt Rating in effect on such date as set forth below:
-------------------------------------------------------- Rating Debt Base Rate Eurodollar Level Rating Advances Rate Advances -------------------------------------------------------- Level 1 A- or A3 or 0.000% 0.250% higher -------------------------------------------------------- Level 2 BBB+ or Baa1 0.000% 0.275% -------------------------------------------------------- Level 3 BBB or Baa2 0.000% 0.300% -------------------------------------------------------- Level 4 BBB- or Baa3 0.000% 0.425% -------------------------------------------------------- Level 5 BB+ or Ba1 or 0.250% 0.625% lower --------------------------------------------------------
provided, that at any time that the Debt Rating is at Level 1, 2 or 3 and the aggregate Available Amount of Letters of Credit plus the principal amount of Advances exceeds 25% of the aggregate Commitments, the Applicable Margin shall be increased by 0.075% per annum. "Applicable Percentage" means, as of any date, a percentage per annum determined by reference to the Debt Rating in effect on such date as set forth below:
---------------------------------------------- Rating Debt Applicable Level Rating Percentage ---------------------------------------------- Level 1 A- or A3 or 0.080% higher ---------------------------------------------- Level 2 BBB+ or Baa1 0.090% ---------------------------------------------- Level 3 BBB or Baa2 0.125% ----------------------------------------------
4 ---------------------------------------------- Level 4 BBB- or Baa3 0.150% ---------------------------------------------- Level 5 BB+ or Ba1 or 0.200% lower ----------------------------------------------
"Appropriate Lender" means, at any time, with respect to (a) the Revolving Credit Facility, a Lender that has a Revolving Credit Commitment at such time, (b) the Letter of Credit Facility, (i) the Issuing Banks and (ii) if the other Revolving Credit Lenders shall have made Letter of Credit Advances pursuant to Section 2.03(c) that are outstanding at such time, each such other Revolving Credit Lender and (c) the Swing Line Facility, (i) the Swing Line Bank and (ii) if the other Revolving Credit Lenders have made Swing Line Advances pursuant to Section 2.02(b) that are outstanding at such time, such other Revolving Credit Lenders. "Approved Accounting Firm" means Arthur Andersen LLP, Coopers & Lybrand L.L.P., Deloitte & Touche LLP, Ernst & Young LLP, PricewaterhouseCoopers LLP or KPMG Peat Marwick LLP, or any successor thereof. "Arrangers" has the meaning specified in the recital of parties to this Agreement. "Assignment and Acceptance" means an assignment and acceptance entered into by a Lender and an Eligible Assignee, and accepted by the Administrative Agent, in accordance with Section 8.07 and in substantially the form of Exhibit C hereto. "Authentic Fitness" has the meaning set forth in the Preliminary Statements. "Available Amount" of any Letter of Credit means, at any time, the maximum amount available to be drawn under such Letter of Credit at such time (assuming compliance at such time with all conditions to drawing). "Base Rate" means a fluctuating interest rate per annum in effect from time to time, which rate per annum shall at all times be equal to the higher of: (a) the rate of interest established by the Administrative Agent, from time to time, at its Domestic Lending Office as its base rate for loans in United States dollars; and (b) 1/2 of one percent per annum above the Federal Funds Rate. "Base Rate Advance" means an Advance that bears interest as provided in Section 2.08(a)(i). 5 "Borrower" has the meaning specified in the recital of parties to this Agreement. "Borrower's Account" means the account of the Borrower maintained by the Borrower with Citibank at its office at 399 Park Avenue, New York, New York 10043, Account No. 3846-9269. "Borrowing" means a Revolving Credit Borrowing, a Competitive Bid Borrowing or a Swing Line Borrowing. "Business Day" means a day of the year on which banks are not required or authorized by law to close in New York City and, if the applicable Business Day relates to any Eurodollar Rate Advances, on which dealings are carried on in the London interbank market. "Capitalized Leases" has the meaning specified in clause (e) of the definition of "Debt". "Citibank" has the meaning specified in the recital of parties to this Agreement. "Commitment" means a Revolving Credit Commitment or a Letter of Credit Commitment. "Competitive Bid Advance" means an advance by a Lender to the Borrower as part of a Competitive Bid Borrowing resulting from the competitive bidding procedure described in Section 2.04 and refers to a Fixed Rate Advance or a LIBO Rate Advance. "Competitive Bid Agent" has the meaning specified in the recital of parties to this Agreement. "Competitive Bid Agent's Account" means the account of the Competitive Bid Agent maintained by the Competitive Bid Agent with Scotiabank at its office at One Liberty Plaza, New York, New York 10006, Special Management Account No. 0608335, Reference: Warnaco. "Competitive Bid Borrowing" means a borrowing consisting of simultaneous Competitive Bid Advances from each of the Lenders whose offer to make one or more Competitive Bid Advances as part of such borrowing has been accepted under the competitive bidding procedure described in Section 2.04. "Competitive Bid Note" means a promissory note of the Borrower payable to the order of any Lender, in substantially the form of Exhibit A-1 hereto, evidencing the 6 indebtedness of the Borrower to such Lender resulting from a Competitive Bid Advance made by such Lender. "Confidential Information" means any information, whether written or oral that the Borrower or Group furnishes to any Agent or Lender which is designated as confidential or which could reasonably be expected by such Agent or Lender to be confidential, provided, that for purposes of this definition, unless otherwise specified by the Borrower or Group, the term "Confidential Information" will include, without limitation, any information furnished by the Borrower or Group regarding proposed acquisitions (including, without limitation, the acquisition of Authentic Fitness) and new product launches by Group or its Subsidiaries, and provided, further, that the term "Confidential Information" does not include any information that is or becomes generally available to the public or that is or becomes available to such Agent or Lender from a source other than the Borrower or Group. "Consolidated" refers to the consolidation of accounts in accordance with GAAP. "Control Date" means the date on which Persons designated or approved by Group constitute a majority of the Board of Directors of Authentic Fitness. "Convert", "Conversion" and "Converted" each refers to a conversion of Advances of one Type into Advances of the other Type pursuant to Section 2.10 or 2.11. "Currency Hedge Agreements" means currency swap agreements, currency future or option contracts and other similar agreements. "Debt" of any Person means, without duplication, the following: (a) all indebtedness of such Person for borrowed money, (b) all Obligations of such Person for the deferred purchase price of property or services (other than trade payables not overdue by more than 90 days incurred in the ordinary course of such Person's business), including, without limitation, the Trade Credit Facility, (c) all Obligations of such Person evidenced by notes, bonds, debentures or other similar instruments, (d) all Obligations of such Person created or arising under any conditional sale or other title retention agreement with respect to property 7 acquired by such Person (even though the rights and remedies of the seller or lender under such agreement in the event of default are limited to repossession or sale of such property), (e) all Obligations of such Person as lessee under leases that have been or should be, in accordance with GAAP, recorded as capital leases ("Capitalized Leases"), (f) all Obligations, contingent or otherwise, of such Person under acceptance, letter of credit or similar facilities, (g) all Obligations of such Person to purchase, redeem, retire, defease or otherwise make any payment in respect of any capital stock of or other ownership or profit interest in such Person or any other Person or any warrants, rights or options to acquire such capital stock, valued, in the case of Redeemable preferred stock, at the greater of its voluntary or involuntary liquidation preference plus accrued and unpaid dividends, (h) all Obligations of such Person in respect of Hedge Agreements, (i) all Debt of others of the kinds referred to in clauses (a) through (h) above guaranteed directly or indirectly in any manner by such Person, or in effect guaranteed directly or indirectly by such Person through an agreement (A) to pay or purchase such Debt or to advance or supply funds for the payment or purchase of such Debt, (B) to purchase, sell or lease (as lessee or lessor) property, or to purchase or sell services, primarily for the purpose of enabling the debtor to make payment of such Debt or to assure the holder of such Debt against loss, (C) to supply funds to or in any other manner invest in the debtor (including any agreement to pay for property or services irrespective of whether such property is received or such services are rendered) or (D) otherwise to assure a creditor against loss, and (j) all Debt referred to in clauses (a) through (h) above secured by (or for which the holder of such Debt has an existing right, contingent or otherwise, to be secured by) any Lien on property (including, without limitation, accounts and contract rights) owned by such Person, even though such Person has not assumed or become liable for the payment of such Debt. "Debt Rating" means, as of any date, the higher of the ratings that have been most recently announced by S&P and Moody's for any class of non-credit enhanced long-term senior unsecured debt issued by Group in effect on such date, provided that if neither 8 S&P nor Moody's shall have in effect such a rating, the Applicable Margin and the Applicable Percentage will be set in accordance with Rating Level 5 under the definition of "Applicable Margin" or "Applicable Percentage", as the case may be, subject, in the case of the Applicable Margin, to the proviso to the definition of "Applicable Margin". For purposes of the foregoing, (a) if only one of S&P and Moody's shall have in effect a Debt Rating, the Applicable Margin and the Applicable Percentage shall be determined by reference to the available rating; (b) if the ratings established by S&P and Moody's shall fall within different levels separated by two or more levels, the Applicable Margin and the Applicable Percentage shall be based upon the level that is one level above the lower rating; (c) if any rating established by S&P or Moody's shall be changed, such change shall be effective as of the date on which such change is reported to Group; and (d) if S&P or Moody's shall change the basis on which ratings are established, each reference to the Debt Rating announced by S&P or Moody's, as the case may be, shall refer to the then equivalent rating by S&P or Moody's, as the case may be. "Default" means any Event of Default or any event that would constitute an Event of Default but for the requirement that notice be given or time elapse or both. "Defaulted Advance" means, with respect to any Lender Party at any time, the amount of any Advance required to be made by such Lender Party to the Borrower or for the account of the Borrower pursuant to Section 2.01 at or prior to such time which has not been so made as of such time; provided, however, any Advance made by the Administrative Agent for the account of such Lender Party pursuant to Section 2.02(e) shall not be considered a Defaulted Advance even if, at such time, such Lender Party shall not have reimbursed the Administrative Agent therefor as provided in Section 2.02(e). In the event that a portion of a Defaulted Advance shall be deemed made pursuant to Section 2.17(a), the remaining portion of such Defaulted Advance shall be considered a Defaulted Advance originally required to be made pursuant to Section 2.01 on the same date as the Defaulted Advance so deemed made in part. "Defaulted Amount" means, with respect to any Lender Party at any time, any amount required to be paid by such Lender to any Agent or any other Lender Party hereunder or under any other Loan Document at or prior to such time which has not been so paid as of such time, including, without limitation, any amount required to be paid by such Lender Party to (a) the Swing Line Bank pursuant to Section 2.02(b) to purchase a portion of a Swing Line Advance made by the Swing Line Bank, (b) any Issuing Bank pursuant to Section 2.03(c) to purchase a portion of a Letter of Credit Advance made by such Issuing Bank, (c) the Administrative Agent pursuant to Section 2.02(e) to reimburse the Administrative Agent for the amount of any Advance made by the Administrative Agent for the account of such Lender Party, (d) any other Lender Party pursuant to Section 2.15 to purchase any participation in Advances owing to such other Lender Party 9 and (e) any Agent pursuant to Section 7.05 to reimburse such Agent for such Lender Party's ratable share of any amount required to be paid by the Lender Parties to such Agent as provided therein. In the event that a portion of a Defaulted Amount shall be deemed paid pursuant to Section 2.17(b), the remaining portion of such Defaulted Amount shall be considered a Defaulted Amount originally required to be made hereunder or under any other Loan Document on the same date as the Defaulted Amount so deemed paid in part. "Defaulting Lender" means, at any time, any Lender Party that, at such time, (a) owes a Defaulted Advance or a Defaulted Amount or (b) shall take or be the subject of any action or proceeding of a type described in Section 6.01(e). "Designated Lender" means each special purpose corporation that (i) shall have been designated by a Designating Lender and shall have become a party to this Agreement, all pursuant to Section 8.07(d), and (ii) is not otherwise a Lender. "Designating Lender" shall mean each Lender that is a party hereto (other than by virtue of a Designation Agreement) that shall designate a Designated Lender pursuant to a Designation Agreement in accordance with Section 8.07(d). "Designation Agreement" means a designation agreement entered into by a Designating Lender and a Designated Lender, and accepted by the Administrative Agent, in substantially the form of Exhibit D hereto. "Designer Holdings" means Designer Holdings Ltd., a Delaware corporation, together with its successors. "Documentary Letter of Credit" means any Letter of Credit that is issued under the Letter of Credit Facility for the benefit of a supplier of Inventory to the Borrower or any of its Subsidiaries to effect payment for such Inventory. "Documentation Agent" has the meaning specified in the recital of parties to this Agreement. "Domestic Lending Office" means, with respect to any Lender, the office of such Lender specified as its "Domestic Lending Office" opposite its name on Schedule I hereto or in the Assignment and Acceptance pursuant to which it became a Lender, or such other office of such Lender as such Lender may from time to time specify to the Borrower and the Administrative Agent. 10 "Domestic Subsidiary" means any Subsidiary of Group organized under the laws of the United States or any state thereof. "EBITDA" means, for any period, net income (or net loss) from operations (determined without giving effect to extraordinary or non-recurring gains or losses) plus, to the extent deducted in calculating such net income (loss), the sum of (a) Interest Expense, (b) income tax expense, (c) depreciation expense, (d) amortization expense and (e) minority interests in Authentic Fitness during the period commencing on the date the Tender Offer, if any, is consummated and ending on the date of the Merger less dividends paid to the minority interests in respect thereof, in each case determined in accordance with GAAP and, on a pro forma basis, as if any acquisitions consummated after the first day of the applicable testing period occurred on the first day of such period. "Effective Date" means the first date on which the conditions specified in Section 3.01 have been satisfied. "Eligible Assignee" means any Person approved by the Administrative Agent and the Borrower, such approval not to be unreasonably withheld; provided, however, that neither the Borrower nor an Affiliate of the Borrower shall qualify as an Eligible Assignee. "Environmental Action" means any administrative, regulatory or judicial action, suit, demand, demand letter, claim, notice of non-compliance or violation, notice of liability or potential liability, investigation, proceeding, consent order or consent agreement relating in any way to any Environmental Law, Environmental Permit or Hazardous Materials or arising from alleged injury or threat of injury to health, safety or the environment, including, without limitation, (a) by any governmental or regulatory authority for enforcement, cleanup, removal, response, remedial or other actions or damages and (b) by any governmental or regulatory authority or any third party for damages, contribution, indemnification, cost recovery, compensation or injunctive relief. "Environmental Law" means any federal, state, local or foreign statute, law, ordinance, rule, regulation, code, order, judgment or decree relating to the environment, health, safety or Hazardous Materials. "Environmental Permit" means any permit, approval, identification number, license or other authorization required under any Environmental Law. "ERISA" means the Employee Retirement Income Security Act of 1974, as amended from time to time, and the regulations promulgated and rulings issued thereunder. 11 "ERISA Affiliate" means any Person that for purposes of Title IV of ERISA is a member of the Borrower's controlled group, or under common control with the Borrower, within the meaning of Section 414 of the Internal Revenue Code. "ERISA Event" means (a) (i) the occurrence of a reportable event, within the meaning of Section 4043 of ERISA, with respect to any Plan unless the 30-day notice requirement with respect to such event has been waived by the PBGC, or (ii) the requirements of subsection (1) of Section 4043(b) of ERISA (without regard to subsection (2) of such Section) are met with respect to a contributing sponsor, as defined in Section 4001(a)(13) of ERISA, of a Plan, and an event described in paragraph (9), (10), (11), (12) or (13) of Section 4043(c) of ERISA is reasonably expected to occur with respect to such Plan within the following 30 days; (b) the application for a minimum funding waiver with respect to a Plan; (c) the provision by the administrator of any Plan of a notice of intent to terminate such Plan pursuant to Section 4041(a)(2) of ERISA (including any such notice with respect to a plan amendment referred to in Section 4041(e) of ERISA); (d) the cessation of operations at a facility of the Borrower or any of its ERISA Affiliates in the circumstances described in Section 4062(e) of ERISA; (e) the withdrawal by the Borrower or any of its ERISA Affiliates from a Multiple Employer Plan during a plan year for which it was a substantial employer, as defined in Section 4001(a)(2) of ERISA; (f) the failure by the Borrower or any of its ERISA Affiliates to make a payment to a Plan if the conditions for the imposition of a lien under Section 302(f)(1) of ERISA are satisfied; (g) the adoption of an amendment to a Plan requiring the provision of security to such Plan, pursuant to Section 307 of ERISA; or (h) the institution by the PBGC of proceedings to terminate a Plan, pursuant to Section 4042 of ERISA, or the occurrence of any event or condition described in Section 4042 of ERISA that could constitute grounds for the termination of, or the appointment of a trustee to administer, a Plan. "Eurocurrency Liabilities" has the meaning assigned to that term in Regulation D of the Board of Governors of the Federal Reserve System, as in effect from time to time. "Eurodollar Lending Office" means, with respect to any Lender, the office of such Lender specified as its "Eurodollar Lending Office" opposite its name on Schedule I hereto or in the Assignment and Acceptance pursuant to which it became a Lender (or, if no such office is specified, its Domestic Lending Office), or such other office of such Lender as such Lender may from time to time specify to the Borrower and the Administrative Agent. "Eurodollar Rate" means, for any Interest Period for all Eurodollar Rate Advances comprising part of the same Borrowing, an interest rate per annum equal to the rate per annum obtained by dividing (a) the rate per annum (rounded upward to the nearest whole 12 multiple of 1/16 of 1% per annum) appearing on Dow Jones Markets Telerate Page 3750 (or any successor page) as the London interbank offered rate for deposits in U.S. dollars at approximately 11:00 A.M. (London time) two Business Days prior to the first day of such Interest Period for a term comparable to such Interest Period or, if for any reason such rate is not available, the rate at which deposits in U.S. dollars are offered by the principal office of the Administrative Agent in London, England to prime banks in the London interbank market at 11:00 A.M. (London time) two Business Days before the first day of such Interest Period in an amount substantially equal to the Administrative Agent's Eurodollar Rate Advance comprising part of such Borrowing to be outstanding during such Interest Period and for a period equal to such Interest Period by (b) a percentage equal to 100% minus the Eurodollar Rate Reserve Percentage for such Interest Period. "Eurodollar Rate Advance" means an Advance that bears interest as provided in Section 2.08(a)(ii). "Eurodollar Rate Reserve Percentage" for any Interest Period for all Eurodollar Rate Advances or LIBO Rate Advances comprising part of the same Borrowing means the reserve percentage applicable two Business Days before the first day of such Interest Period under regulations issued from time to time by the Board of Governors of the Federal Reserve System (or any successor) for determining the maximum reserve requirement (including, without limitation, any emergency, supplemental or other marginal reserve requirement) for a member bank of the Federal Reserve System in New York City with respect to liabilities or assets consisting of or including Eurocurrency Liabilities (or with respect to any other category of liabilities that includes deposits by reference to which the interest rate on Eurodollar Rate Advances or LIBO Rate Advances is determined) having a term equal to such Interest Period. "Events of Default" has the meaning specified in Section 6.01. "Excluded Person" means (i) Linda J. Wachner or (ii) any trust of which Linda J. Wachner is the sole trustee or is a trustee with effective control over the voting stock held by such trust or over the management or policies of Group (or, in case of her death or disability, another trustee of comparable experience and ability selected by the Borrower within 180 days thereafter after consultation with the Arrangers). "Excluded Subsidiary" means, provided that the terms of the Trust Stock preclude the issuance of a guaranty, the Trust, provided, that neither Group nor the Borrower nor any of their Subsidiaries shall make any additional Investments in the Trust other than those Investments which existed on the date of the Five Year Waiver and those 13 Investments necessary to pay its normal operating expenses in the ordinary course of business. "Excluded Taxes" means, in the case of each Lender Party, franchise taxes and taxes upon or determined by reference to such Lender Party's net income (including, without limitation, branch profit taxes), in each case imposed by the United States or any political subdivision or taxing authority thereof or therein or by any jurisdiction in which such Lender Party has its Applicable Lending Office, is resident or in which such Lender Party is organized or has its principal or registered office and, in the case of each Agent, franchise taxes and net income taxes upon or determined by reference to such Agent's net income (including, without limitation, branch profits taxes) imposed by the United States or by the state or foreign jurisdiction under the laws of which such Agent is organized (or by any political subdivision of such state or foreign jurisdiction), is resident or has its principal or registered office. "Existing Debt" means the Debt described in Schedule II hereto. "Facility" means the Revolving Credit Facility, the Swing Line Facility or the Letter of Credit Facility. "Federal Funds Rate" means, for any period, a fluctuating interest rate per annum equal for each day during such period to the weighted average of the rates on overnight Federal funds transactions with members of the Federal Reserve System arranged by Federal funds brokers, as published for such day (or, if such day is not a Business Day, for the next preceding Business Day) by the Federal Reserve Bank of New York, or, if such rate is not so published for any day that is a Business Day, the average of the quotations for such day on such transactions received by the Administrative Agent from three Federal funds brokers of recognized standing selected by it. "Fiscal Quarter" means a fiscal quarter of Group and its Consolidated Subsidiaries ending on or about March 31, June 30, September 30 or December 31 of each year. "Fiscal Year" means a fiscal year of Group and its Consolidated Subsidiaries ending on or about December 31 of each year. "Five Year Waiver" means the Letter Waiver dated as of October 14, 1997 to the Predecessor Credit Agreement. "Fixed Rate Advances" has the meaning specified in Section 2.04(a)(i). "GAAP" has the meaning specified in Section 1.03. 14 "Group" has the meaning specified in the recital of parties to this Agreement. "Group Guaranty" has the meaning specified in Section 3.01(d)(i). "Guaranties" means the Group Guaranty and the Subsidiary Guaranty. "Guarantors" means Group and each of its Domestic Subsidiaries that are Material Subsidiaries (other than the Borrower and each Excluded Subsidiary) and each other Subsidiary which is required to guarantee the Borrower's Obligations under the Loan Documents pursuant to Section 5.01(k). "Hazardous Materials" means petroleum and petroleum products, byproducts or breakdown products, radioactive materials, asbestos-containing materials, radon gas and any other chemicals, materials or substances designated, classified or regulated as being "hazardous" or "toxic", or words of similar import, under any Environmental Law. "Hedge Agreements" means Currency Hedge Agreements and Interest Rate Hedge Agreements. "Indebtedness for Borrowed Money" of any Person means all Debt of such Person for borrowed money or evidenced by notes, bonds, debentures or other similar instruments (other than Trust Stock in a face amount of not more than $120,000,000), all Obligations of such Person for the deferred purchase price of any property, service or business (other than trade accounts payable (including the Trade Credit Facility and other similar financing arrangements to the extent that the aggregate principal amount of Debt, including loans, acceptances and letters of credit thereunder, does not exceed $550,000,000 (it being understood and agreed that to the extent that the principal amount of Debt under the Trade Credit Facility and other similar financing arrangements exceeds $550,000,000, a pro-rata portion of such excess (calculated by reference to the relative amount of loans constituting such Debt) shall be included in this definition of "Indebtedness for Borrowed Money")) incurred in the ordinary course of business and constituting current liabilities), and all Obligations of such Person under Capitalized Leases (limited in each case to the principal amount thereof). "Indemnified Party" has the meaning specified in Section 8.04(b). "Initial Lenders" has the meaning specified in the recital of parties to this Agreement. "Insufficiency" means, with respect to any Plan, the amount, if any, of its unfunded benefit liabilities, as defined in Section 4001(a)(18) of ERISA. 15 "Interest Expense" means, with respect to any Person for any period of measurement, the excess, if any, of (i) interest expense (whether cash or accretion) of such Person during such period determined in accordance with GAAP, and shall include in any event, without limitation, interest expense with respect to Indebtedness for Borrowed Money, the Trade Credit Facility and payments under Interest Rate Hedge Agreements over (ii) interest income of such Person for such period, including payments received under Interest Rate Hedge Agreements; provided, however, that interest expense for any acquired entity, including Authentic Fitness, for any period beginning prior to the acquisition date shall be such entity's actual interest expense for such period. "Interest Period" means, for each Eurodollar Rate Advance comprising part of the same Revolving Credit Borrowing and each LIBO Rate Advance comprising part of the same Competitive Bid Borrowing, the period commencing on the date of such Eurodollar Rate Advance or LIBO Rate Advance or the date of the Conversion of any Base Rate Advance into such Eurodollar Rate Advance, and ending on the last day of the period selected by the Borrower pursuant to the provisions below and, thereafter, with respect to Eurodollar Rate Advances, each subsequent period commencing on the last day of the immediately preceding Interest Period and ending on the last day of the period selected by the Borrower pursuant to the provisions below. The duration of each such Interest Period shall be one, two, three, four, five or six months, or, if available to all Lenders, nine or twelve months, as the Borrower may, upon notice received by the Administrative Agent not later than 11:00 A.M. (New York City time) on the third Business Day prior to the first day of such Interest Period, select; provided, however, that: (a) the Borrower may not select any Interest Period that ends after the Termination Date; (b) Interest Periods commencing on the same date for Eurodollar Rate Advances comprising part of the same Revolving Credit Borrowing or for LIBO Rate Advances comprising part of the same Competitive Bid Borrowing shall be of the same duration; (c) whenever the last day of any Interest Period would otherwise occur on a day other than a Business Day, the last day of such Interest Period shall be extended to occur on the next succeeding Business Day, provided, however, that, if such extension would cause the last day of such Interest Period to occur in the next following calendar month, the last day of such Interest Period shall occur on the next preceding Business Day, unless the Borrower and the Administrative Agent otherwise agree; and 16 (d) whenever the first day of any Interest Period occurs on a day of an initial calendar month for which there is no numerically corresponding day in the calendar month that succeeds such initial calendar month by the number of months equal to the number of months in such Interest Period, such Interest Period shall end on the last Business Day of such succeeding calendar month unless the Borrower and the Administrative Agent otherwise agree. "Interest Rate Hedge Agreements" means interest rate swap, cap or collar agreements, interest rate future or option contracts and other similar agreements. "Internal Revenue Code" means the Internal Revenue Code of 1986, as amended from time to time, and the regulations promulgated and rulings issued thereunder. "Investment" in any Person means any loan or advance to such Person, any purchase or other acquisition of any capital stock or other ownership or profit interest, warrants, rights, options, obligations or other securities of such Person, any capital contribution to such Person or any other investment in such Person, including, without limitation, any arrangement pursuant to which the investor incurs Debt of the types referred to in clauses (i) or (j) of the definition of "Debt" in respect of such Person. "Issuing Bank" means Scotiabank and any other Revolving Credit Lender approved by the Borrower and the Arrangers that is a commercial bank, acting through a domestic branch, and has a Letter of Credit Commitment, as issuer of a Letter of Credit. "L/C Cash Collateral Account" means the interest-bearing cash collateral account to be established and maintained by the Administrative Agent, over which the Administrative Agent shall have sole dominion and control, upon terms as may be satisfactory to the Administrative Agent. "L/C Related Documents" has the meaning specified in Section 2.05(c)(ii)(A). "Lender Party" means any Lender, any Issuing Bank and any Swing Line Bank. "Lenders" means the Initial Lenders and each Person that shall become a party hereto pursuant to Section 8.07, including the Designated Lenders, if any; provided, however, that the term "Lender" shall exclude each Designated Lender when used (i) in reference to a Revolving Credit Advance or the Commitments or terms relating thereto, except to the extent a Designated Lender is the obligee of a Revolving Credit Advance actually funded by such Designated Lender pursuant to Section 2.01(a) hereof and (ii) in any determination or calculation of Required Lenders, it being understood that for 17 purposes hereof, any Advance made by a Designated Lender shall be deemed to have been made by the applicable Designating Lender. "Letter of Credit Advance" means an advance made by any Issuing Bank or any Revolving Credit Lender pursuant to Section 2.03(c). "Letter of Credit Agreement" has the meaning specified in Section 2.03(a). "Letter of Credit Commitment" means, with respect to any Issuing Bank at any time, the amount set forth opposite such Issuing Bank's name on Schedule I hereto under the caption "Letter of Credit Commitment" or, if such Issuing Bank has entered into one or more Assignments and Acceptances, set forth for such Issuing Bank in the Register maintained by the Administrative Agent pursuant to Section 8.07(c) as such Issuing Bank's "Letter of Credit Commitment", as such amount may be reduced at or prior to such time pursuant to Section 2.06. "Letter of Credit Facility" means, at any time, an amount equal to the lesser of (a) the aggregate amount of the Letter of Credit Commitments of the Issuing Banks at such time and (b) $100,000,000, as such amount may be reduced at or prior to such time pursuant to Section 2.06. "Letters of Credit" has the meaning specified in Section 2.01(c). "LIBO Rate" means, for any Interest Period for all LIBO Rate Advances comprising part of the same Competitive Bid Borrowing, an interest rate per annum equal to the rate per annum obtained by dividing (a) the rate per annum at which deposits in U.S. dollars are offered by the principal office of the Administrative Agent, in London, England to prime banks in the London interbank market at 11:00 A.M. (London time) two Business Days before the first day of such Interest Period in an amount substantially equal to the amount that would be the Administrative Agent's ratable share of such Borrowing if such Borrowing were to be a Revolving Credit Borrowing to be outstanding during such Interest Period and for a period equal to such Interest Period by (b) a percentage equal to 100% minus the Eurodollar Rate Reserve Percentage for such Interest Period. "LIBO Rate Advances" has the meaning specified in Section 2.04(a)(i). "Lien" means any lien, security interest or other charge or encumbrance of any kind, or any other type of preferential arrangement, including, without limitation, the lien or retained security title of a conditional vendor and any easement, right of way or other encumbrance on title to real property. 18 "Loan Documents" means (a) for purposes of this Agreement, the Notes, if any, and any amendments or modifications hereof or thereof and for all other purposes other than for purposes of the Guarantees, (i) this Agreement, (ii) the Notes, if any, (iii) the Guarantees, (iv) each Letter of Credit Agreement and (v) each L/C Related Document, and (b) for purposes of the Guarantees, (i) this Agreement, (ii) the Notes, if any, (iii) the Guarantees, (iv) each Letter of Credit Agreement, (v) each L/C Related Document and (v) the Interest Rate Hedge Agreements entered into by Group or the Borrower with Lender Parties, in the case of each of the foregoing agreements referred to in clause (a) or (b), and any amendments, supplements or modifications hereof or thereof. "Loan Parties" means the Borrower and the Guarantors. "Margin Stock" has the meaning specified in Regulation U. "Material Adverse Change" means any material adverse change in the business, condition (financial or otherwise), operations, performance, properties or prospects of the Borrower or Group and its Subsidiaries taken as a whole. "Material Adverse Effect" means a material adverse effect on (a) the business, condition (financial or otherwise), operations, performance, properties or prospects of the Borrower or of Group and its Subsidiaries taken as a whole, (b) the rights and remedies of any Agent or Lender Party under any Loan Document or (c) the validity or enforceability of any Loan Document. "Material Guarantor" means, at any time, a Guarantor having (i) at least 10% of Consolidated total assets of Group and its Subsidiaries (determined as of the last day of the most recent Fiscal Quarter) or (ii) at least 10% of Consolidated EBITDA of Group and its Subsidiaries for the 12-month period ending on the last day of the most recent Fiscal Quarter. "Material Subsidiary" of any Person means, at any time, a Subsidiary of such Person having (i) at least $15,000,000 in total assets (determined as of the last day of the most recent fiscal quarter of such Person) or (ii) EBITDA of at least $15,000,000 for the 12-month period ending on the last day of the most recent fiscal quarter of such Person. "Merger" has the meaning set forth in the Preliminary Statements. "Moody's" means Moody's Investors Service, Inc. 19 "Multiemployer Plan" means a multiemployer plan, as defined in Section 4001(a)(3) of ERISA, to which the Borrower or any of its ERISA Affiliates is making or accruing an obligation to make contributions, or has within any of the preceding five plan years made or accrued an obligation to make contributions. "Multiple Employer Plan" means a single employer plan, as defined in Section 4001(a)(15) of ERISA, that (a) is maintained for employees of the Borrower or any of its ERISA Affiliates and at least one Person other than the Borrower and its ERISA Affiliates or (b) was so maintained and in respect of which the Borrower or any of its ERISA Affiliates could have liability under Section 4064 or 4069 of ERISA in the event such plan has been or were to be terminated. "New Five-Year Credit Agreement" means the Five-Year Credit Agreement dated as of November 17, 1999 among the Borrower, Group, the lenders party thereto, Scotiabank and Salomon Smith Barney, Inc., as co-lead arrangers and co-book managers, Citibank, as syndication agent, Societe Generale and Commerzbank AG, as co-documentation agents, Bank of America, N.A. and Dai-Ichi Kangyo Bank as co-agents and Scotiabank, as administrative agent and competitive bid agent, as such agreement may be amended, modified, extended, renewed, refinanced, replaced or otherwise supplemented from time to time. "New 364-Day Credit Agreement" means the 364-Day Credit Agreement dated as of November 17, 1999 among the Borrower, Group, the lenders party thereto, Scotiabank and Salomon Smith Barney, Inc., as co-lead arrangers and co-book managers, Citibank, as syndication agent, Morgan Guaranty Trust Company of New York, as documentation agent, and Scotiabank, as administrative agent, as such agreement may be amended, modified, extended, renewed, refinanced, replaced or otherwise supplemented from time to time. "Note" means a Revolving Credit Note or a Competitive Bid Note. "Notice of Borrowing" has the meaning specified in Section 2.02(a). "Notice of Competitive Bid Borrowing" has the meaning specified in Section 2.04(a)(i). "Notice of Issuance" has the meaning specified in Section 2.03(a). "Notice of Swing Line Borrowing" has the meaning specified in Section 2.02(b). 20 "Obligation" means, with respect to any Person, any obligation of such Person of any kind, including, without limitation, any liability of such Person on any claim, whether or not the right of any creditor to payment in respect of such claim is reduced to judgment, liquidated, unliquidated, fixed, contingent, matured, disputed, undisputed, legal, equitable, secured or unsecured, and whether or not such claim is discharged, stayed or otherwise affected by any proceeding referred to in Section 6.01(e). Without limiting the generality of the foregoing, the Obligations of the Loan Parties under the Loan Documents include (a) the obligation to pay principal, interest, Letter of Credit commissions, charges, expenses, fees, attorneys' fees and disbursements, indemnities and other amounts payable by any Loan Party under any Loan Document and (b) the obligation to reimburse any amount in respect of any of the foregoing that any Lender, in its sole discretion, may elect to pay or advance on behalf of such Loan Party. "Other Taxes" has the meaning specified in Section 2.14(b). "PBGC" means the Pension Benefit Guaranty Corporation (or any successor). "Permitted Liens" means the following: (a) Liens, other than in favor of the PBGC, arising out of judgments or awards in respect of which Group or any of its Subsidiaries shall in good faith be prosecuting an appeal or proceedings for review and in respect of which it shall have secured a subsisting stay of execution pending such appeal or proceedings for review, provided it shall have set aside on its books adequate reserves, in accordance with GAAP, with respect to such judgment or award and provided further that the aggregate amount secured by such Liens does not exceed $5,000,000 in any one case or $10,000,000 in the aggregate; (b) Liens for taxes, assessments or governmental charges or levies, provided payment thereof shall not at the time be required in accordance with the provisions of Section 5.01(b) and such amount, when taken together with any amount payable under Section 5.01(b) as to which any Lien has been attached as described in the last phrase thereof, shall not exceed $10,000,000; (c) deposits, Liens or pledges to secure payments of workmen's compensation and other payments, unemployment and other insurance, old-age pensions or other social security obligations, or the performance of bids, tenders, leases, contracts (other than contracts for the payment of money), public or statutory obligations, surety, stay or appeal bonds, or other similar obligations arising in the ordinary course of business; 21 (d) mechanics', workmen's, repairmen's, warehousemen's, vendors' or carriers' Liens or other similar Liens arising in the ordinary course of business and securing sums which are not past due, or deposits or pledges to obtain the release of any such Liens; (e) statutory landlord's Liens under leases to which Group or any of its Subsidiaries is a party; (f) any Lien constituting a renewal, extension or replacement of a Lien constituting a Permitted Lien, but only if at the time such Lien is granted and immediately after giving effect thereto, no Default would exist; (g) leases or subleases granted to other Persons not materially interfering with the conduct of the business of Group and its Subsidiaries, taken as a whole; (h) zoning restrictions, easements, rights of way, licenses and restrictions on the use of real property or minor irregularities in title thereto, which do not materially impair the use of such property in the normal operation of the business of Group or any of its Subsidiaries or the value of such property for the purpose of such business; and (i) statutory or common law Liens (such as rights of set-off) on deposit accounts of Group and its Subsidiaries and other Liens under the L/C Related Documents. "Person" means an individual, partnership, corporation (including a business trust), joint stock company, trust, unincorporated association, joint venture, limited liability company or other entity, or a government or any political subdivision or agency thereof. "Plan" means a Single Employer Plan or a Multiple Employer Plan. "Predecessor Credit Agreement" has the meaning specified in the Preliminary Statements. "Predecessor Lenders" has the meaning specified in the Preliminary Statements. "Pro Rata Share" of any amount means, with respect to any Revolving Credit Lender at any time, the product of such amount times a fraction the numerator of which is 22 the amount of such Lender's Revolving Credit Commitment at such time and the denominator of which is the Revolving Credit Facility at such time. "Purchaser" has the meaning set forth in the Preliminary Statements. "Redeemable" means, with respect to any capital stock, Debt or other right or Obligation, any such right or Obligation that (a) the issuer has undertaken to redeem at a fixed or determinable date or dates, whether by operation of a sinking fund or otherwise, or upon the occurrence of a condition not solely within the control of the issuer or (b) is redeemable at the option of the holder. "Register" has the meaning specified in Section 8.07(g). "Regulation U" means Regulation U of the Board of Governors of the Federal Reserve System, as in effect from time to time. "Required Lenders" means, at any time, Lenders owed or holding more than 50% of the sum of (a) the aggregate principal amount of the Advances (other than Competitive Bid Advances) outstanding at such time, (b) the aggregate Available Amount of all Letters of Credit outstanding at such time and (c) the aggregate Unused Revolving Credit Commitments at such time; provided, however, if any Lender shall be a Defaulting Lender at such time, there shall be excluded from the determination of Required Lenders at such time (i) the aggregate principal amount of the Advances owing to such Lender (in its capacity as a Lender) and outstanding at such time, (ii) such Lender's Pro Rata Share of the aggregate Available Amount of all Letters of Credit outstanding at such time and (iii) the Unused Revolving Credit Commitment of such Lender at such time and provided further, that for purposes of this definition, any Advance made by a Designated Lender shall be deemed to have been made by its applicable Designating Lender. For purposes of this definition, the aggregate principal amount of Swing Line Advances owing to the Swing Line Bank and of Letter of Credit Advances owing to any Issuing Bank and the Available Amount of each Letter of Credit shall be considered to be owed to the Revolving Credit Lenders ratably in accordance with their respective Revolving Credit Commitments. "Revolving Credit Advance" has the meaning specified in Section 2.01(a). "Revolving Credit Borrowing" means a borrowing consisting of simultaneous Revolving Credit Advances of the same Type made by the Revolving Credit Lenders pursuant to Section 2.01. 23 "Revolving Credit Commitment" means, with respect to any Revolving Credit Lender at any time, the amount set forth opposite such Lender's name on Schedule I hereto under the caption "Revolving Credit Commitment" or, if such Lender has entered into one or more Assignments and Acceptances, set forth for such Lender in the Register maintained by the Administrative Agent pursuant to Section 8.07(c) as such Lender's "Revolving Credit Commitment", as such amount may be reduced at or prior to such time pursuant to Section 2.06. "Revolving Credit Facility" means, at any time, the aggregate amount of the Revolving Credit Lenders' Revolving Credit Commitments at such time. "Revolving Credit Lender" means any Lender that has a Revolving Credit Commitment. "Revolving Credit Note" has the meaning specified in Section 2.18. "S&P" means Standard & Poor's Ratings Group, currently a division of The McGraw-Hill Companies, Inc., or any successor thereto. "Scotiabank" has the meaning specified in the recital of parties to this Agreement. "Single Employer Plan" means a single employer plan, as defined in Section 4001(a)(15) of ERISA, that (a) is maintained for employees of the Borrower or any of its ERISA Affiliates and no Person other than the Borrower and its ERISA Affiliates or (b) was so maintained and in respect of which the Borrower or any of its ERISA Affiliates could have liability under Section 4069 of ERISA in the event such plan has been or were to be terminated. "Standby Letter of Credit" means any Letter of Credit issued under the Letter of Credit Facility, other than a Documentary Letter of Credit. "Subsidiary" of any Person means any corporation, partnership, joint venture, limited liability company, trust or estate of which (or in which) more than 50% of (a) the issued and outstanding capital stock having ordinary voting power to elect a majority of the Board of Directors of such corporation (irrespective of whether at the time capital stock of any other class or classes of such corporation shall or might have voting power upon the occurrence of any contingency), (b) the interest in the capital or profits of such limited liability company, partnership or joint venture or (c) the beneficial interest in such trust or estate is at the time directly or indirectly owned or controlled by such Person and one or more of its other Subsidiaries or by one or more of such Person's other 24 Subsidiaries. The term "wholly owned Subsidiary" shall exclude any directors' or officers' qualifying shares which may be outstanding. "Subsidiary Guaranty" has the meaning specified Section 3.01(d)(ii). "Swing Line Advance" means an advance made by (a) the Swing Line Bank pursuant to Section 2.01(b), or (b) any Revolving Credit Lender pursuant to Section 2.02(b). "Swing Line Bank" means Scotiabank (and its successors and assigns), provided that Scotiabank (and any such successors and assigns as Swing Line Bank hereunder) may resign, and thereupon be released from its obligations, as Swing Line Bank under this Agreement upon receipt by the Borrower and the Arrangers, in writing and in a form reasonably satisfactory to the Borrower and the Arrangers, of the assumption by another Revolving Credit Lender of the rights and obligations of the Swing Line Bank hereunder. "Swing Line Borrowing" means a borrowing consisting of a Swing Line Advance made by the Swing Line Bank. "Swing Line Facility" has the meaning specified in Section 2.01(b). "Syndication Agent" has the meaning specified in the recital of parties to this Agreement "Tangible Assets" means total assets minus goodwill and intangibles, in each case determined in accordance with GAAP. "Taxes" has the meaning specified in Section 2.14(a). "Tender Offer" has the meaning specified in the Preliminary Statements. "Termination Date" means the earlier of August 12, 2002 and the date of termination in whole of the Commitments pursuant to Section 2.06 or 6.01. "Trade Credit Facility" means the revolving loan facility under the Sixth Amended and Restated Credit Agreement dated as of November 17, 1999 among the Borrower, certain lenders party thereto and Scotiabank, as agent for said lenders, as each such agreement has been amended to date and the same may be amended, extended, renewed, refinanced, replaced or otherwise modified from time to time. "Trust" means Designer Finance Trust, a trust formed under the laws of Delaware. 25 "Trust Stock" means the Trust Originated Preferred Securities issued by the Trust. "Type" refers to the distinction between Advances bearing interest at the Base Rate and Advances bearing interest at the Eurodollar Rate. "Unused Revolving Credit Commitment" means, with respect to any Revolving Credit Lender at any time, (a) such Lender's Revolving Credit Commitment at such time minus (b) the sum of (i) the aggregate principal amount of all Revolving Credit Advances, Swing Line Advances and Letter of Credit Advances made by such Lender and outstanding at such time, plus (ii) such Lender's Pro Rata Share of (A) the aggregate Available Amount of all Letters of Credit outstanding at such time, (B) for all purposes other than for purposes of calculating commitment fees pursuant to Section 2.09(a), the aggregate amount of Competitive Bid Advances outstanding at such time, (C) the aggregate principal amount of all Letter of Credit Advances made by the Issuing Banks pursuant to Section 2.03(c) and outstanding at such time other than any such Letter of Credit Advance which, at or prior to such time, has been assigned in part to such Revolving Credit Lender pursuant to Section 2.03(c) and other than, in the case of each Lender that is an Issuing Bank, any such Letter of Credit Advance in respect of a Letter of Credit issued by it and (D) for all purposes other than for purposes of calculating commitment fees pursuant to Section 2.09(a), the aggregate principal amount of all Swing Line Advances made by the Swing Line Bank pursuant to Section 2.01(b) and outstanding at such time other than any such Swing Line Advance which, at or prior to such time, has been assigned in part to such Revolving Credit Lender pursuant to Section 2.02(b). "Voting Stock" means capital stock issued by a corporation, or equivalent interests in any other Person, the holders of which are ordinarily, in the absence of contingencies, entitled to vote for the election of directors (or persons performing similar functions) of such Person, even if the right so to vote has been suspended by the happening of such a contingency. SECTION 1.02. Computation of Time Periods. In this Agreement in the computation of periods of time from a specified date to a later specified date, the word "from" means "from and including" and the words "to" and "until" each mean "to but excluding". SECTION 1.03. Accounting Terms. All accounting terms not specifically defined herein shall be construed in accordance with generally accepted accounting principles 26 consistent with those applied in the preparation of the financial statements referred to in Section 4.01(f) ("GAAP"). ARTICLE II AMOUNTS AND TERMS OF THE ADVANCES SECTION 2.01. The Advances. (a) The Revolving Credit Advances. Each Revolving Credit Lender severally agrees, on the terms and conditions hereinafter set forth, to make Advances (each a "Revolving Credit Advance") to the Borrower from time to time on any Business Day during the period from the Effective Date until the Termination Date in an amount for each such Advance not to exceed such Lender's Unused Revolving Credit Commitment at such time. Each Revolving Credit Borrowing shall be in an aggregate amount of $5,000,000 or an integral multiple of $1,000,000 in excess thereof (or, if less, an aggregate amount equal to the amount by which the aggregate amount of a proposed Competitive Bid Borrowing requested by the Borrower exceeds the aggregate amount of Competitive Bid Advances offered to be made by the Revolving Credit Lenders and accepted by the Borrower in respect of such Competitive Bid Borrowing, if such Competitive Bid Borrowing is made on the same date as such Revolving Credit Borrowing) and shall consist of Revolving Credit Advances of the same Type made on the same day by the Revolving Credit Lenders ratably according to their respective Revolving Credit Commitments. Within the limits of each Revolving Credit Lender's Unused Revolving Credit Commitment in effect from time to time, the Borrower may borrow under this Section 2.01(a), prepay pursuant to Section 2.07(a) and reborrow under this Section 2.01(a). For any Lender which is a Designating Lender, any Revolving Credit Advance to be made by such Lender may from time to time and upon notice to the Administrative Agent, be made by its Designated Lender pursuant to the terms hereof in such Designating Lender's sole discretion, and nothing herein shall constitute a Commitment to make Revolving Credit Advances by such Designated Lender; provided, that (i) if any Designated Lender elects not to, or fails for any reason whatsoever to, make such Revolving Credit Advance, its Designating Lender hereby agrees that it shall make such Revolving Credit Advance pursuant to the terms hereof and (ii) notwithstanding anything to the contrary, neither the designation of a Designated Lender, the election or other determination that a Designated Lender will make any Revolving Credit Advance nor any other condition or circumstance relating to the Designated Lender shall in any way release, diminish or otherwise affect the relevant Designating Lender's Commitment or any of its other obligations hereunder or under any other Loan Document or any rights of the Borrower, any Agent or any Lender Party with respect to such Designating Lender. Any Revolving Credit Advance actually funded by a Designated Lender shall constitute a utilization of the Commitment of the Designating Lender for all purposes hereunder. 27 (b) The Swing Line Advances. The Borrower may request the Swing Line Bank to make, and the Swing Line Bank shall make, on the terms and conditions hereinafter set forth, Swing Line Advances to the Borrower from time to time on any Business Day during the period from the date hereof until the Termination Date (i) in an aggregate amount not to exceed at any time outstanding $30,000,000 (the "Swing Line Facility") and (ii) in an amount for each such Swing Line Borrowing not to exceed the aggregate of the Unused Revolving Credit Commitments of the Revolving Credit Lenders at such time. No Swing Line Advance shall be used for the purpose of funding the payment of principal of any other Swing Line Advance. Each Swing Line Borrowing shall be in an amount of $100,000 or an integral multiple of $1,000 in excess thereof and shall be made as a Base Rate Advance. Within the limits of the Swing Line Facility and within the limits referred to in clause (ii) above, the Borrower may borrow under this Section 2.01(b), repay pursuant to Section 2.05(b) or prepay pursuant to Section 2.07(a) and reborrow under this Section 2.01(b). (c) Letters of Credit. Each Issuing Bank severally agrees, on the terms and conditions hereinafter set forth, to issue letters of credit (the "Letters of Credit") for the account of the Borrower from time to time on any Business Day during the period from the date hereof until 10 days before the Termination Date (i) in an aggregate Available Amount for all Letters of Credit issued by such Issuing Bank not to exceed at any time such Issuing Bank's Letter of Credit Commitment at such time and (ii) in an Available Amount for each such Letter of Credit not to exceed the lesser of (x) the Letter of Credit Facility at such time and (y) an amount equal to the Unused Revolving Credit Commitments of the Revolving Credit Lenders at such time. No Letter of Credit shall have an expiration date (including all rights of the Borrower or the beneficiary to require renewal) later than the earlier of 10 days before the Termination Date and, in the case of a Documentary Letter of Credit, 180 days after the date of issuance thereof. Within the limits of the Letter of Credit Facility, and subject to the limits referred to above, the Borrower may request the issuance of Letters of Credit under this Section 2.01(c), repay any Letter of Credit Advances resulting from drawings thereunder pursuant to Sections 2.03(c) and 2.05(c) and request the issuance of additional Letters of Credit under this Section 2.01(c). Each Letter of Credit issued pursuant to this Section 2.01(c) shall, effective upon its issuance and without further action, be issued on behalf of all Lenders (including the applicable Issuing Bank) according to their respective Pro Rata Shares. Each Lender shall, to the extent of its Pro Rata Share, be deemed irrevocably to have participated in the issuance of such Letter of Credit and shall be responsible to reimburse the Issuing Bank promptly for Letter of Credit Advances in accordance with Section 2.03. SECTION 2.02. Making the Advances. (a) Except as otherwise provided in Section 2.02(b) or 2.03, each Borrowing shall be made on notice, given not later than 11:00 A.M. (New York City time) on the third Business Day prior to the date of the proposed Borrowing in the case of a Borrowing consisting of Eurodollar Rate Advances, or on the date of the proposed Borrowing in the case of a Borrowing consisting of Base Rate Advances, by the Borrower to the 28 Administrative Agent, which shall give to each Appropriate Lender prompt notice thereof by telecopier or telex. Each such notice of a Borrowing (a "Notice of Borrowing") shall be by telephone, confirmed immediately in writing, or telecopier or telex in substantially the form of Exhibit B-1 hereto, specifying therein the requested (i) date of such Borrowing, (ii) Facility under which such Borrowing is to be made, (iii) Type of Advances comprising such Borrowing, (iv) aggregate amount of such Borrowing, and (v) in the case of a Borrowing consisting of Eurodollar Rate Advances, initial Interest Period for each such Advance. Each Appropriate Lender shall, before 12:00 Noon (New York City time) on the date of such Borrowing, make available for the account of its Applicable Lending Office to the Administrative Agent at the Administrative Agent's Account, in same day funds, such Lender's ratable portion of such Borrowing in accordance with the respective Commitments under the applicable Facility of such Lender and the other Appropriate Lenders. After the Administrative Agent's receipt of such funds and upon fulfillment of the applicable conditions set forth in Article III, the Administrative Agent will make such funds available to the Borrower by crediting the Borrower's Account; provided, however, that, in the case of any Revolving Credit Borrowing, the Administrative Agent shall first make a portion of such funds equal to the aggregate principal amount of any Swing Line Advances and Letter of Credit Advances made by the Swing Line Bank or any Issuing Bank, as the case may be, and by any other Revolving Credit Lender and outstanding on the date of such Revolving Credit Borrowing, plus interest accrued and unpaid thereon to and as of such date, available to the Swing Line Bank or such Issuing Bank, as the case may be, and such other Revolving Credit Lenders for repayment of such Swing Line Advances and Letter of Credit Advances. (b) (i) Each Swing Line Borrowing shall be made on notice, given not later than 11:30 A.M. (New York City time) on the date of the proposed Swing Line Borrowing, by the Borrower to the Swing Line Bank and the Administrative Agent. Each such notice of a Swing Line Borrowing (a "Notice of Swing Line Borrowing") shall be by telephone, confirmed immediately in writing or telex or telecopier, specifying therein the requested (A) date of such Borrowing and (B) amount of such Borrowing and shall constitute a representation and warranty by the Borrower (upon which the Swing Line Bank may conclusively rely, in the absence of prior receipt by the Swing Line Bank of written notice from an Agent or Revolving Credit Lenders holding more than 50% of the Revolving Credit Commitments that the conditions precedent to the making of Swing Line Advances have not been satisfied or duly waived). Upon fulfillment of the applicable conditions set forth in Article III, the Swing Line Bank will make the amount thereof available to the Borrower by crediting the Borrower's Account. (ii) (A) (1) Subject to clause (ii)(B) below, in the event that on any Business Day the Swing Line Bank desires that all or any portion of one or more Swing Line Advances be paid, the Swing Line Bank shall promptly notify the Administrative Agent to that effect and indicate the portion of the Swing Line Advances to be paid. 29 (2) The Administrative Agent agrees to promptly transmit to the Lenders the information contained in each notice received by the Administrative Agent under clause (ii)(A)(1) above, and shall concurrently notify the other Agents and the Revolving Credit Lenders of each Revolving Credit Lender's Pro Rata Share of the Swing Line Advances (or portion thereof) to be paid. (3) Each Revolving Credit Lender hereby unconditionally and irrevocably agrees to fund to the Administrative Agent for the benefit of the Swing Line Bank, in lawful money of the United States and in same day funds, not later than 12:00 noon (New York City time) on the Business Day immediately following the Business Day of such Lender's receipt of such notice from the Administrative Agent (provided that if any Lender shall receive such notice at or prior to 1:00 P.M. (New York City time) on a Business Day, such funding shall be made by such Lender on such Business Day), a Revolving Credit Advance in the amount of such Lender's Pro Rata Share of the payment of the Swing Line Advances to be made on such date, regardless, however, of whether (x) the conditions precedent thereto set forth in Article III are then satisfied, (y) the Borrower has provided a Notice of Borrowing under Section 2.02(a) hereof and (z) the Revolving Credit Facility has been terminated, any Default or Event of Default exists or all or any of the Advances have been accelerated, but subject to clause (B) below and subject to the limitations in respect of the amount of Revolving Credit Advances contained in Section 2.01(a). The proceeds of each such Revolving Credit Advance shall be immediately paid over to the Administrative Agent for the benefit of the Swing Line Bank for application to the Swing Line Facility. Each such Revolving Credit Advance shall initially be a Base Rate Advance and shall be deemed to be requested by the Borrower pursuant to Section 2.02(a). (B) In the event that Commitments of the Lenders shall have terminated pursuant to Section 6.01 following an Event of Default of the type described in Section 6.01(f) with respect to Group or the Borrower, no further Revolving Credit Advances of the type described in clause (ii)(A) above shall be made, and each of the Revolving Credit Lenders (other than the Swing Line Bank) shall be deemed to have irrevocably, unconditionally and immediately purchased from the Swing Line Bank such Revolving Credit Lender's Pro Rata Share of the principal amount of the Swing Line Advances outstanding as of the date of the occurrence of such Event of Default. Each Revolving Credit Lender shall effect such purchase by making available an amount equal to its participation on the date of such purchase in U.S. dollars in immediately available funds at the office of the Swing Line Bank located at 600 Peachtree Street Northeast, Suite 2700, Atlanta, Georgia 30308 or such other office as the Swing Line Bank may from time to time direct for the account of such office of the Swing Line Bank. (C) Each purchase made pursuant to clause (ii)(B) above by a Revolving Credit Lender shall be made without recourse to the Swing Line Bank, and, except as to the absence of liens created by the Swing Line Bank on the Swing Line Advance and the Swing Line 30 Bank's right to effect such sale, without representation or warranty of any kind, and shall be effected and evidenced pursuant to documents reasonably acceptable to the Swing Line Bank. (D) The obligations of the Revolving Credit Lenders under this Section 2.02(b)(ii) shall be absolute, irrevocable and unconditional, shall be made under all circumstances and shall not be affected, reduced or impaired for any reason whatsoever, including (without limitation): (1) any Default, Event of Default, misrepresentation, negligence, misconduct or other action or inaction of any kind by any of the Loan Parties or any other Person, whether in, under or in connection with this Agreement, the Guaranty or any of the other Loan Documents; (2) any extension, renewal, release or waiver of the time of performance of or compliance with any of the obligations or other provisions hereof or of any other Loan Document; (3) any settlement, compromise or subordination of any or all of the obligations to the claims of others, or any failure by any Agent, the Swing Line Bank or any other Lender to mitigate damages; (4) any amendment, modification or other waiver of any one or more of the Loan Documents; (5) the insolvency, bankruptcy, reorganization or cessation of existence of any of the Loan Parties; (6) any impossibility or illegality of performance or the lack of genuineness, validity, legality or enforceability of any of this Agreement or the other Loan Documents, or any term thereof or any other agreement or instrument relating thereto for any reason, or the lack of power or authority of any party to enter into any of the Loan Documents; (7) any dispute, setoff, recoupment, counterclaim or other defense or right any Lender may have at any time, whether against any Agent, the Swing Line Bank, any other Lender or any of the Loan Parties; (8) any merger or consolidation of any of the Loan Parties or any Lender, or any sale, lease or transfer of any or all of the assets of any such Person; or (9) any other circumstances whether similar or dissimilar to any of the foregoing. (c) Anything in subsection (a) above to the contrary notwithstanding, (i) the Borrower may not select Eurodollar Rate Advances for any Borrowing if the aggregate amount of such Borrowing is less than $10,000,000 or if the obligation of the Appropriate Lenders to make Eurodollar Rate Advances shall then be suspended pursuant to Section 2.10, 2.11 or 2.12 and (ii) the Advances under the Revolving Credit Facility may not be outstanding as part of more than 20 separate Borrowings. (d) Each Notice of Borrowing and Notice of Swing Line Borrowing shall be irrevocable and binding on the Borrower. In the case of any Borrowing that the related Notice of Borrowing specifies is to be comprised of Eurodollar Rate Advances, the Borrower shall indemnify each Appropriate Lender against any loss, cost or expense incurred by such Lender as a result of any failure to fulfill on or before the date specified in such Notice of Borrowing for such Borrowing the applicable conditions set forth in Article III, including, without limitation, any loss (excluding loss of anticipated profits), cost or expense incurred by reason of the liquidation or reemployment of deposits or other funds acquired by such Lender to fund the 31 Advance to be made by such Lender as part of such Borrowing when such Advance, as a result of such failure, is not made on such date. (e) Unless the Administrative Agent shall have received notice from an Appropriate Lender prior to the date of any Borrowing under a Facility under which such Lender has a Commitment that such Lender will not make available to the Administrative Agent such Lender's ratable portion of such Borrowing, the Administrative Agent may assume that such Lender has made such portion available to the Administrative Agent on the date of such Borrowing in accordance with subsection (a) or (b) of this Section 2.02 and the Administrative Agent may, in reliance upon such assumption, make available to the Borrower on such date a corresponding amount. If and to the extent that such Lender shall not have so made such ratable portion available to the Administrative Agent, the Administrative Agent agrees to give prompt notice thereof to the Borrower (provided that failure to give such notice shall not affect the obligations of the Borrower under this Section 2.02(e)), and such Lender and the Borrower severally agree to repay to the Administrative Agent forthwith on demand such corresponding amount together with interest thereon, for each day from the date such amount is made available to the Borrower until the date such amount is repaid to the Administrative Agent, at (i) in the case of the Borrower, the interest rate applicable at such time under Section 2.08 to Advances comprising such Borrowing and (ii) in the case of such Lender, the Federal Funds Rate. If such Lender shall repay to the Administrative Agent such corresponding amount, such amount so repaid shall constitute such Lender's Advance as part of such Borrowing for purposes of this Agreement. (f) The failure of any Lender to make the Advance to be made by it as part of any Borrowing shall not relieve any other Lender of its obligation, if any, hereunder to make its Advance on the date of such Borrowing, but no Lender shall be responsible for the failure of any other Lender to make the Advance to be made by such other Lender on the date of any Borrowing. SECTION 2.03. Issuance of and Drawings and Reimbursement Under Letters of Credit. (a) Request for Issuance. Each Letter of Credit shall be issued upon notice, given not later than 11:00 A.M. (New York City time) on the first Business Day prior to the date of the proposed issuance of such Letter of Credit, by the Borrower to any Issuing Bank, which shall give to the Administrative Agent and each Revolving Credit Lender prompt notice thereof by telex or telecopier. Each such notice of issuance of a Letter of Credit (a "Notice of Issuance") shall be by telephone, confirmed immediately in writing, or telex or telecopier, specifying therein the requested (A) date of such issuance (which shall be a Business Day), (B) Available Amount of such Letter of Credit, (C) expiration date of such Letter of Credit, (D) name and address of the beneficiary of such Letter of Credit and (E) form of such Letter of Credit, and shall be accompanied by such application and agreement for letter of credit as such Issuing Bank may specify to the Borrower for use in connection with such requested Letter of Credit (a "Letter of 32 Credit Agreement"). If (x) the requested form of such Letter of Credit is acceptable to such Issuing Bank in its sole discretion and (y) it has not received written notice from an Agent or Lenders holding at least 51% of the Revolving Credit Commitments that the conditions to issuing such Letter of Credit have not been satisfied or duly waived, such Issuing Bank will, upon fulfillment of the applicable conditions set forth in Article III, make such Letter of Credit available to the Borrower at its office referred to in Section 8.02 or as otherwise agreed with the Borrower in connection with such issuance. In the event and to the extent that the provisions of any Letter of Credit Agreement shall conflict with this Agreement, the provisions of this Agreement shall govern. (b) Letter of Credit Reports. Each Issuing Bank shall furnish (A) to the Administrative Agent, the Documentation Agent and each Revolving Credit Lender on the first Business Day of each month a written report summarizing issuance and expiration dates of Letters of Credit issued during the preceding month and drawings during such month under all Letters of Credit issued by such Issuing Bank and (B) to the Administrative Agent, the Documentation Agent and each Revolving Credit Lender on the first Business Day of each calendar quarter a written report setting forth the average daily aggregate Available Amount during the preceding calendar quarter of all Letters of Credit issued by such Issuing Bank. (c) Drawing and Reimbursement. The payment by any Issuing Bank of a draft drawn under any Letter of Credit shall constitute for all purposes of this Agreement the making by such Issuing Bank of a Letter of Credit Advance, which shall be a Base Rate Advance, in the amount of such draft. Upon written demand by any Issuing Bank with an outstanding Letter of Credit Advance, with a copy of such demand to the Administrative Agent, each Revolving Credit Lender shall purchase from such Issuing Bank, and such Issuing Bank shall sell and assign to each such Revolving Credit Lender, such Lender's Pro Rata Share of such outstanding Letter of Credit Advance as of the date of such purchase, by making available for the account of its Applicable Lending Office to the Administrative Agent for the account of such Issuing Bank, by deposit to the Administrative Agent's Account, in same day funds, an amount equal to the portion of the outstanding principal amount of such Letter of Credit Advance to be purchased by such Lender. Promptly after receipt thereof, the Administrative Agent shall transfer such funds to such Issuing Bank. The Borrower hereby agrees to each such sale and assignment. Each Revolving Credit Lender agrees to purchase its Pro Rata Share of an outstanding Letter of Credit Advance on (i) the Business Day on which demand therefor is made by the Issuing Bank, provided notice of such demand is given not later than 11:00 A.M. (New York City time) on such Business Day or (ii) the first Business Day next succeeding such demand if notice of such demand is given after such time. Upon any such assignment by any Issuing Bank to any other Revolving Credit Lender of a portion of a Letter of Credit Advance, such Issuing Bank represents and warrants to such other Lender that such Issuing Bank is the legal and beneficial owner of such interest being assigned by it, free and clear of any liens, but makes no other representation or warranty and assumes no responsibility with respect to such 33 Letter of Credit Advance, the Loan Documents or any Loan Party. If and to the extent that any Revolving Credit Lender shall not have so made the amount of such Letter of Credit Advance available to the Administrative Agent, such Revolving Credit Lender agrees to pay to the Administrative Agent forthwith on demand such amount together with interest thereon, for each day from the date of demand by such Issuing Bank until the date such amount is paid to the Administrative Agent, at the Federal Funds Rate for its account or the account of such Issuing Bank, as applicable. If such Lender shall pay to the Administrative Agent such amount for the account of such Issuing Bank on any Business Day, such amount so paid in respect of principal shall constitute a Letter of Credit Advance made by such Lender on such Business Day for purposes of this Agreement, and the outstanding principal amount of the Letter of Credit Advance made by such Issuing Bank shall be reduced by such amount on such Business Day. (d) Failure to Make Letter of Credit Advances. The failure of any Lender to make the Letter of Credit Advance to be made by it on the date specified in Section 2.03(c) shall not relieve any other Lender of its obligation hereunder to make its Letter of Credit Advance on such date, but no Lender shall be responsible for the failure of any other Lender to make the Letter of Credit Advance to be made by such other Lender on such date. SECTION 2.04. The Competitive Bid Advances. (a) Each Lender severally agrees that the Borrower may make Competitive Bid Borrowings under this Section 2.04 from time to time on any Business Day during the period from the date hereof until the date occurring 10 days prior to the Termination Date in the manner set forth below; provided that, following the making of each Competitive Bid Borrowing, (x) the aggregate amount of the Advances then outstanding shall not exceed the aggregate amount of the Revolving Credit Commitments of the Lenders and (y) the aggregate amount of the Competitive Bid Advances then outstanding shall not exceed $350,000,000. (i) The Borrower may request a Competitive Bid Borrowing under this Section 2.04 by delivering to the Competitive Bid Agent, by telecopier or telex, a notice of a Competitive Bid Borrowing (a "Notice of Competitive Bid Borrowing"), in substantially the form of Exhibit B-2 hereto, specifying therein the requested (v) date of such proposed Competitive Bid Borrowing, (w) aggregate amount of such proposed Competitive Bid Borrowing, (x) in the case of a Competitive Bid Borrowing consisting of LIBO Rate Advances, Interest Period, or in the case of a Competitive Bid Borrowing consisting of Fixed Rate Advances, maturity date for repayment of each Fixed Rate Advance to be made as part of such Competitive Bid Borrowing (which maturity date may not be earlier than the date occurring 7 days after the date of such Competitive Bid Borrowing or later than the earlier of (I) 180 days after the date of such Competitive Bid Borrowing and (II) the Termination Date), (y) interest payment date or dates relating thereto, and (z) other terms (if any) to be applicable to such Competitive Bid Borrowing, not later than 10:00 A.M. (New York City time) (A) at least four Business Days prior to 34 the date of the proposed Competitive Bid Borrowing, if the Borrower shall specify in the Notice of Competitive Bid Borrowing that the rates of interest to be offered by the Lenders shall be fixed rates per annum (the Advances comprising any such Competitive Bid Borrowing being referred to herein as "Fixed Rate Advances") and (B) at least four Business Days prior to the date of the proposed Competitive Bid Borrowing, if the Borrower shall instead specify in the Notice of Competitive Bid Borrowing that the rates of interest be offered by the Lenders are to be based on the LIBO Rate (the Advances comprising such Competitive Bid Borrowing being referred to herein as "LIBO Rate Advances"). Each Notice of Competitive Bid Borrowing shall be irrevocable and binding on the Borrower. The Competitive Bid Agent shall in turn promptly notify each Lender of each request for a Competitive Bid Borrowing received by it from the Borrower by sending such Lender a copy of the related Notice of Competitive Bid Borrowing. (ii) Each Lender may, if, in its sole discretion, it elects to do so, irrevocably offer to make one or more Competitive Bid Advances to the Borrower as part of such proposed Competitive Bid Borrowing at a rate or rates of interest specified by such Lender in its sole discretion, by notifying the Competitive Bid Agent (which shall give prompt notice thereof to the Borrower), before 10:00 A.M. (New York City time) on the date of such proposed Competitive Bid Borrowing in the case of a Competitive Bid Borrowing consisting of Fixed Rate Advances and on the third Business Day before the date of such proposed Competitive Bid Borrowing, in the case of a Competitive Bid Borrowing consisting of LIBO Rate Advances, of the minimum amount and maximum amount of each Competitive Bid Advance which such Lender would be willing to make as part of such proposed Competitive Bid Borrowing (which amounts may, subject to the proviso to the first sentence of this Section 2.04(a), exceed such Lender's Revolving Credit Commitment, if any), the rate or rates of interest therefor and such Lender's Applicable Lending Office with respect to such Competitive Bid Advance; provided that if the Competitive Bid Agent in its capacity as a Lender shall, in its sole discretion, elect to make any such offer, it shall notify the Borrower of such offer before 9:00 A.M. (New York City time) on the date on which notice of such election is to be given to the Competitive Bid Agent by the other Lenders. If any Lender shall elect not to make such an offer, such Lender shall so notify the Competitive Bid Agent, before 10:00 A.M. (New York City time) on the date on which notice of such election is to be given to the Competitive Bid Agent by the other Lenders, and such Lender shall not be obligated to, and shall not, make any Competitive Bid Advance as part of such Competitive Bid Borrowing; provided that the failure by any Lender to give such notice shall not cause such Lender to be obligated to make any Competitive Bid Advance as part of such proposed Competitive Bid Borrowing. (iii) The Borrower shall, in turn, before 11:00 A.M. (New York City time) on the date of such proposed Competitive Bid Borrowing in the case of a Competitive Bid 35 Borrowing consisting of Fixed Rate Advances, and before 1:00 P.M. (New York City time) three Business Days before the date of such proposed Competitive Bid Borrowing in the case of a Competitive Bid Borrowing consisting of LIBO Rate Advances, either: (x) cancel such Competitive Bid Borrowing by giving the Competitive Bid Agent notice to that effect, or (y) accept one or more of the offers made by any Lender or Lenders pursuant to paragraph (ii) above, in its sole discretion, by giving notice to the Competitive Bid Agent of the amount of each Competitive Bid Advance (which amount shall be equal to or greater than the minimum amount, and equal to or less than the maximum amount, notified to the Borrower by the Competitive Bid Agent on behalf of such Lender for such Competitive Bid Advance pursuant to paragraph (ii) above) to be made by each Lender as part of such Competitive Bid Borrowing, and reject any remaining offers made by Lenders pursuant to paragraph (ii) above by giving the Competitive Bid Agent notice to that effect. The Borrower shall accept the offers made by any Lender or Lenders to make Competitive Bid Advances in order of the lowest to the highest rates of interest offered by such Lenders. If two or more Lenders have offered the same interest rate, the amount to be borrowed at such interest rate will be allocated by the Competitive Bid Agent among such Lenders in proportion to the maximum amount that each such Lender offered at such interest rate. (iv) If the Borrower notifies the Competitive Bid Agent that such Competitive Bid Borrowing is canceled pursuant to paragraph (iii)(x) above, the Competitive Bid Agent shall give prompt notice thereof to the Lenders and such Competitive Bid Borrowing shall not be made. (v) If the Borrower accepts one or more of the offers made by any Lender or Lenders pursuant to paragraph (iii)(y) above, the Competitive Bid Agent shall in turn promptly notify (A) each Lender that has made an offer as described in paragraph (ii) above, of the date and aggregate amount of such Competitive Bid Borrowing and whether or not any offer or offers made by such Lender pursuant to paragraph (ii) above have been accepted by the Borrower, (B) each Lender that is to make a Competitive Bid Advance as part of such Competitive Bid Borrowing, of the amount of each Competitive Bid Advance to be made by such Lender as part of such Competitive Bid Borrowing, and (C) each Lender that is to make a Competitive Bid Advance as part of such Competitive Bid Borrowing, upon receipt, that the Competitive Bid Agent has received forms of documents, if any, requested pursuant to Section 3.02(b). Each Lender that is to make a Competitive Bid Advance as part of such Competitive Bid Borrowing shall, before 12:00 noon (New York City time) on the date of such Competitive Bid Borrowing 36 specified in the notice received from the Competitive Bid Agent pursuant to clause (A) of the preceding sentence or any later time when such Lender shall have received notice from the Competitive Bid Agent pursuant to clause (C) of the preceding sentence, make available for the account of its Applicable Lending Office to the Competitive Bid Agent at the Competitive Bid Agent's Account, in same day funds, such Lender's portion of such Competitive Bid Borrowing. Upon fulfillment of the applicable conditions set forth in Article III and after receipt by the Competitive Bid Agent of such funds, the Competitive Bid Agent will, as promptly as possible, transfer such funds to the Borrower's Account. Promptly after each Competitive Bid Borrowing, the Competitive Bid Agent will notify each Lender of the amount of the Competitive Bid Borrowing, the consequent deemed use of the aggregate amount of the Commitments as a result thereof and the dates upon which such Competitive Bid Borrowing commenced and will terminate. For any Lender which is a Designating Lender, any Competitive Bid Advance to be made by such Lender may from time to time be made by its Designated Lender pursuant to the terms hereof in such Designating Lender's sole discretion, and nothing herein shall constitute a commitment to make Competitive Bid Advances by such Designated Lender, provided, that (i) if any Designated Lender elects not to, or fails for any reason whatsoever to, make any such Competitive Bid Advance that has been accepted by the Borrower in accordance with the foregoing, its Designating Lender hereby agrees that it shall make such Competitive Bid Advance pursuant to the terms hereof and (ii) notwithstanding anything to the contrary, neither the designation of a Designated Lender, the election or other determination that a Designated Lender will make any Competitive Bid Advance nor any other condition or circumstance relating to the Designated Lender shall in any way release, diminish or otherwise affect the relevant Designating Lender's Commitment or any of its other obligations hereunder or under any other Loan Document or any rights of the Borrower, any Agent or any Lender Party with respect to such Designating Lender. (vi) If the Borrower notifies the Competitive Bid Agent that it accepts one or more of the offers made by any Lender or Lenders pursuant to paragraph (iii)(y) above, such notice of acceptance shall be irrevocable and binding on the Borrower. The Borrower shall indemnify each Lender against any loss, cost or expense incurred by such Lender as a result of any failure to fulfill on or before the date specified in the related Notice of Competitive Bid Borrowing for such Competitive Bid Borrowing the applicable conditions set forth in Article III, including, without limitation, any loss (excluding loss of anticipated profits), cost or expense incurred by reason of the liquidation or reemployment of deposits or other funds acquired by such Lender to fund the Competitive Bid Advance to be made by such Lender as part of such Competitive Bid Borrowing when such Competitive Bid Advance, as a result of such failure, is not made on such date. 37 (b) Each Competitive Bid Borrowing shall be in an aggregate amount of $5,000,000 or an integral multiple of $1,000,000 in excess thereof and, following the making of each Competitive Bid Borrowing, the Borrower shall be in compliance with the limitation set forth in the proviso to the first sentence of subsection (a) above. (c) Within the limits and on the conditions set forth in this Section 2.04, the Borrower may from time to time borrow under this Section 2.04, repay or prepay pursuant to subsection (d) below, and reborrow under this Section 2.04, provided that a Competitive Bid Borrowing shall not be made within three Business Days of the date of any other Competitive Bid Borrowing. (d) The Borrower shall repay to the Competitive Bid Agent for the account of each Lender that has made a Competitive Bid Advance, on the maturity date of each Competitive Bid Advance (such maturity date being that specified by the Borrower for repayment of such Competitive Bid Advance in the related Notice of Competitive Bid Borrowing delivered pursuant to subsection (a)(i) above and provided in the Competitive Bid Note evidencing such Competitive Bid Advance), the then unpaid principal amount of such Competitive Bid Advance. The Borrower shall have no right to prepay any principal amount of any Competitive Bid Advance unless, and then only on the terms, specified by the Borrower for such Competitive Bid Advance in the related Notice of Competitive Bid Borrowing delivered pursuant to subsection (a)(i) above, or unless separately agreed between the Borrower and any Lender that has made a Competitive Bid Advance, and set forth in the Competitive Bid Note evidencing such Competitive Bid Advance. (e) The Borrower shall pay interest on the unpaid principal amount of each Competitive Bid Advance from the date of such Competitive Bid Advance to the date the principal amount of such Competitive Bid Advance is repaid in full, at the rate of interest for such Competitive Bid Advance specified by the Lender making such Competitive Bid Advance in its notice with respect thereto delivered pursuant to subsection (a)(ii) above, payable on the interest payment date or dates specified by the Borrower for such Competitive Bid Advance in the related Notice of Competitive Bid Borrowing delivered pursuant to subsection (a)(i) above, as provided in the Competitive Bid Note evidencing such Competitive Bid Advance. Upon the occurrence and during the continuance of an Event of Default, the Borrower shall pay interest on the amount of unpaid principal of and interest on each Competitive Bid Advance owing to a Lender, payable in arrears on the date or dates interest is payable thereon, at a rate per annum equal at all times to 2% per annum above the rate per annum required to be paid on such Competitive Bid Advance under the terms of the Competitive Bid Note evidencing such Competitive Bid Advance unless otherwise agreed in such Competitive Bid Note. (f) The indebtedness of the Borrower resulting from each Competitive Bid Advance made to the Borrower as part of a Competitive Bid Borrowing shall be evidenced by a 38 separate Competitive Bid Note of the Borrower payable to the order of the Lender making such Competitive Bid Advance. (g) Upon delivery of each Notice of Competitive Bid Borrowing, the Borrower shall pay a non-refundable fee of $2,000 to the Competitive Bid Agent for its own account. SECTION 2.05. Repayment of Advances. (a) Revolving Credit Advances. The Borrower shall repay to the Administrative Agent for the ratable account of the Revolving Credit Lenders on the Termination Date the aggregate outstanding principal amount of the Revolving Credit Advances then outstanding. (b) Swing Line Advances. The Borrower shall repay to the Administrative Agent for the account of the Swing Line Bank and each other Revolving Credit Lender that has purchased a Swing Line Advance pursuant to Section 2.02(b) the outstanding principal amount of each Swing Line Advance at the times and in the manner and amounts specified in Section 2.02(b) and on the Termination Date. (c) Letter of Credit Advances. (i) The Borrower shall repay to the Administrative Agent for the account of each Issuing Bank and each other Revolving Credit Lender that has made a Letter of Credit Advance on the earlier of demand and the Termination Date the outstanding principal amount of each Letter of Credit Advance made by each of them. (ii) The Obligations of the Borrower under this Agreement, any Letter of Credit Agreement and any other agreement or instrument relating to any Letter of Credit shall be unconditional and irrevocable, and shall be paid strictly in accordance with the terms of this Agreement, such Letter of Credit Agreement and such other agreement or instrument under all circumstances, including, without limitation, the following circumstances: (A) any lack of validity or enforceability of any Loan Document, any Letter of Credit Agreement, any Letter of Credit or any other agreement or instrument relating thereto (all of the foregoing being, collectively, the "L/C Related Documents"); (B) any change in the time, manner or place of payment of, or in any other term of, all or any of the Obligations of the Borrower in respect of any L/C Related Document or any other amendment or waiver of or any consent to departure from all or any of the L/C Related Documents; (C) the existence of any claim, set-off, defense or other right that the Borrower may have at any time against any beneficiary or any transferee of a Letter of Credit (or any Persons for whom any such beneficiary or any such transferee may be acting), any 39 Issuing Bank or any other Person, whether in connection with the transactions contemplated by the L/C Related Documents or any unrelated transaction; (D) any statement or any other document presented under a Letter of Credit proving to be forged, fraudulent, invalid or insufficient in any respect or any statement therein being untrue or inaccurate in any respect; (E) payment by any Issuing Bank under a Letter of Credit against presentation of a draft or certificate that does not strictly comply with the terms of such Letter of Credit; (F) any exchange, release or non-perfection of any collateral, or any release or amendment or waiver of or consent to departure from the Guaranties or any other guaranty, for all or any of the Obligations of the Borrower in respect of the L/C Related Documents; or (G) any other circumstance or happening whatsoever, whether or not similar to any of the foregoing, including, without limitation, any other circumstance that might otherwise constitute a defense available to, or a discharge of, the Borrower or a guarantor. SECTION 2.06. Termination or Reduction of the Commitments. The Borrower shall have the right, upon at least three Business Days' notice to the Administrative Agent, to terminate in whole or reduce ratably in part the unused portions of the respective Commitments of the Lenders, provided that each partial reduction (i) shall be in the aggregate amount of $5,000,000 or an integral multiple of $1,000,000 in excess thereof and (ii) shall be made ratably among the Appropriate Lenders in accordance with their Commitments with respect to such Facility, and provided further that after giving effect to any such reduction, the Letter of Credit Commitments shall be less than or equal to the Revolving Credit Commitments, and provided still further that the aggregate amount of the Commitments of the Lenders shall not be reduced to an amount that is less than the aggregate principal amount of the Competitive Bid Advances then outstanding. SECTION 2.07. Prepayments. (a) Optional. (i) The Borrower may, upon at least one Business Day's notice in the case of the Swing Line Facility and Base Rate Advances and three Business Days' notice in the case of any Eurodollar Rate Advances, in each case to the Administrative Agent stating the proposed date and aggregate principal amount of the prepayment, and if such notice is given the Borrower shall, prepay the outstanding aggregate principal amount of the Advances comprising part of the same Borrowing in whole or ratably in part, together with accrued interest to the date of such prepayment on the aggregate principal amount prepaid; provided, however, that (x) each partial prepayment of the Revolving Credit Facility shall be in an aggregate principal amount of $1,000,000 or an integral multiple of 40 $1,000,000 in excess thereof and (y) any such prepayment of a Eurodollar Rate Advance made other than on the last day of an Interest Period therefor shall be made together with payment of all amounts, if any, required pursuant to Section 8.04(c). (ii) Competitive Bid Advances may be prepaid only in accordance with the provisions of Section 2.04(d). (b) Mandatory. (i) The Borrower shall, on each Business Day, prepay an aggregate principal amount of the Revolving Credit Advances comprising part of the same Borrowings, the Letter of Credit Advances and the Swing Line Advances equal to the amount by which (A) the sum of the aggregate principal amount of (x) the Revolving Credit Advances, (y) the Letter of Credit Advances and (z) the Swing Line Advances then outstanding plus the aggregate Available Amount of all Letters of Credit then outstanding exceeds (B) the Revolving Credit Facility on such Business Day. (ii) The Borrower shall, on each Business Day, pay to the Administrative Agent for deposit in the L/C Cash Collateral Account an amount sufficient to cause the aggregate amount on deposit in such Account to equal the amount by which the aggregate Available Amount of all Letters of Credit then outstanding exceeds the Letter of Credit Facility on such Business Day. SECTION 2.08. Interest. (a) Scheduled Interest. The Borrower shall pay interest on the unpaid principal amount of each Advance owing to each Lender from the date of such Advance until such principal amount shall be paid in full, at the following rates per annum: (i) Base Rate Advances. During such periods as such Advance is a Base Rate Advance, a rate per annum equal at all times to the sum of (x) the Base Rate in effect from time to time plus (y) the Applicable Margin in effect from time to time, payable in arrears quarterly on the first day of each January, April, July and October during such periods. (ii) Eurodollar Rate Advances. During such periods as such Advance is a Eurodollar Rate Advance, a rate per annum equal at all times during each Interest Period for such Advance to the sum of (x) the Eurodollar Rate for such Interest Period for such Advance plus (y) the Applicable Margin in effect from time to time, payable in arrears on the last day of such Interest Period and, if such Interest Period has a duration of more than three months, on each day that occurs during such Interest Period every three months from the first day of such Interest Period and on the date such Eurodollar Rate Advance shall be Converted or paid in full. 41 (b) Default Interest. Upon the occurrence and during the continuance of an Event of Default, the Borrower shall pay interest on (i) the unpaid principal amount of each Advance owing to each Lender (except as otherwise provided in Section 2.04(e)), payable in arrears on the dates referred to in clause (a)(i) or (a)(ii) above, at a rate per annum equal at all times to 2% per annum above the rate per annum required to be paid on such Advance pursuant to clause (a)(i) or (a)(ii) above and (ii) to the fullest extent permitted by law, the amount of any interest, fee or other amount payable hereunder that is not paid when due, from the date such amount shall be due until such amount shall be paid in full, payable in arrears on the date such amount shall be paid in full and on demand, at a rate per annum equal at all times to 2% per annum above the rate per annum required to be paid on Base Rate Advances pursuant to clause (a)(i) above. SECTION 2.09. Fees. (a) Commitment Fee. The Borrower shall pay to the Administrative Agent for the account of the Lenders a commitment fee, from the date hereof in the case of each Initial Lender and from the effective date specified in the Assignment and Acceptance pursuant to which it became a Lender in the case of each other Lender until the Termination Date, payable quarterly on the first Business Day of each January, April, July and October, commencing January 7, 2000, and on the Termination Date, at the rate per annum equal to the Applicable Percentage in effect from time to time on the average daily Unused Revolving Credit Commitment of such Lender; provided, however, (i) that any commitment fee accrued with respect to any of the Commitments of a Defaulting Lender during the period prior to the time such Lender became a Defaulting Lender and unpaid at such time shall not be payable by the Borrower so long as such Lender shall be a Defaulting Lender except to the extent that such commitment fee shall otherwise have been due and payable by the Borrower prior to such time and (ii) that no commitment fee shall accrue on any of the Commitments of a Defaulting Lender so long as such Lender shall be a Defaulting Lender. (b) Letter of Credit Fees, Etc. (i) The Borrower shall pay to the Administrative Agent for the account of each Revolving Credit Lender a commission, payable in arrears quarterly on the first Business Day of each January, April, July and October, commencing January 7, 2000, and on the earliest to occur of the full drawing, expiration, termination or cancellation of any such Letter of Credit and on the Termination Date, on such Lender's Pro Rata Share of the average daily aggregate Available Amount during such quarter at a rate per annum determined by reference to the Debt Rating in effect from time to time as set forth below: 42
- ---------------------------------------------------------------------- Standby Rating Debt Letters of Trade Letter Level Rating Credit of Credit - ---------------------------------------------------------------------- Level 1 A- or A3 or 0.250% 0.175% higher Level 2 BBB+ or Baa1 0.275% 0.200% Level 3 BBB or Baa2 0.300% 0.225% Level 4 BBB- or Baa3 0.425% 0.350% Level 5 BB+ or Ba1 or 0.625% 0.550% lower - ----------------------------------------------------------------------
provided, that at any time that the Debt Rating is at Level 1, 2 or 3 and the aggregate Available Amount of Letters of Credit plus the principal amount of Advances exceeds 25% of the aggregate Commitments, the Letter of Credit fees shall be increased by 0.075% per annum. (ii) The Borrower shall pay to each Issuing Bank, for its own account, such commissions, issuance fees, fronting fees, transfer fees and other fees and charges in connection with the issuance or administration of each Letter of Credit as the Borrower and such Issuing Bank shall agree. (c) Agent's Fees. The Borrower shall pay to each of the Agents for its own account such fees as may from time to time be agreed between the Borrower and such Agent. SECTION 2.10. Conversion of Advances. (a) Optional. The Borrower may on any Business Day, upon notice given to the Administrative Agent not later than 11:00 A.M. (New York City time) on the third Business Day prior to the date of the proposed Conversion and subject to the provisions of Sections 2.10, 2.11 and 2.12, Convert all Advances of one Type comprising the same Borrowing into Advances of the other Type; provided, however, that any Conversion of Eurodollar Rate Advances into Base Rate Advances shall be made only on the last day of an Interest Period for such Eurodollar Rate Advances, any Conversion of Base Rate Advances into Eurodollar Rate Advances shall be in an amount not less than the minimum amount specified in Section 2.02(c) and no Conversion of any Advances shall result in more separate Borrowings than permitted under Section 2.02(c). Each such notice of a Conversion shall, within the restrictions specified above, specify (i) the date of such Conversion, (ii) the Advances to be Converted, and (iii) if such Conversion is into Eurodollar Rate Advances, the duration of the initial Interest Period for each such Advance. Each notice of Conversion shall be irrevocable and binding on the Borrower. 43 (b) Mandatory. (i) On the date on which the aggregate unpaid principal amount of Eurodollar Rate Advances comprising any Borrowing shall be reduced, by payment or prepayment or otherwise, to less than $10,000,000, such Advances shall automatically Convert into Base Rate Advances. (ii) If the Borrower shall fail to select the duration of any Interest Period for any Eurodollar Rate Advances in accordance with the provisions contained in the definition of "Interest Period" in Section 1.01, the Administrative Agent will forthwith so notify the Borrower and the Appropriate Lenders, whereupon each such Eurodollar Rate Advance will automatically, on the last day of the then existing Interest Period therefor, Convert into a Base Rate Advance. (iii) Upon the occurrence and during the continuance of any Default, (x) each Eurodollar Rate Advance will automatically, on the last day of the then existing Interest Period therefor, Convert into a Base Rate Advance and (y) the obligation of the Lenders to make, or to Convert Advances into, Eurodollar Rate Advances shall be suspended. SECTION 2.11. Increased Costs, Etc. (a) If, due to either (i) the introduction of or any change in or in the interpretation of any law or regulation or (ii) the compliance with any guideline or request from any central bank or other governmental authority (whether or not having the force of law), there shall be any increase in the cost (other than in taxes, including interest, additions to tax and penalties relating thereto, except to the extent that the same are required to be paid pursuant to Section 2.14 hereof) to any Lender Party of agreeing to make or of making, funding or maintaining Eurodollar Rate Advances or LIBO Rate Advances or of agreeing to issue or of issuing or maintaining Letters of Credit or of agreeing to make or of making or maintaining Letter of Credit Advances (excluding for purposes of this Section 2.11 any such increased costs resulting from (x) Taxes, Other Taxes, Excluded Taxes or taxes excluded from the definitions of Taxes or Other Taxes in Section 2.14(e) or from indemnification pursuant to Section 2.14(f) (as to which Section 2.14 shall govern) and (y) changes in the basis of taxation of overall net income or overall gross income by the United States or by the foreign jurisdiction or state under the laws of which such Lender Party is organized or has its Applicable Lending Office or any political subdivision thereof), then the Borrower shall from time to time, upon demand by such Lender Party (with a copy of such demand to the Administrative Agent), pay to the Administrative Agent for the account of such Lender Party additional amounts sufficient to compensate such Lender Party for such increased cost; provided, however, that, before making any such demand, each Lender Party agrees to use reasonable efforts (consistent with its internal policy and legal and regulatory restrictions) to designate a different Applicable Lending Office if the making of such a designation would avoid the need for, or reduce the amount of, such increased cost and would not, in the reasonable judgment of such Lender Party, be otherwise disadvantageous to such Lender Party and provided, further, that the Borrower's obligations to any Designated Lender hereunder shall be limited as set forth in Section 8.04(e). 44 A certificate as to the amount of such increased cost, submitted to the Borrower by such Lender Party, shall be conclusive and binding for all purposes, absent manifest error. (b) If any Lender Party determines that compliance with any law or regulation or any guideline or request from any central bank or other governmental authority (whether or not having the force of law) affects or would affect the amount of capital required or expected to be maintained by such Lender Party or any corporation controlling such Lender Party and that the amount of such capital is increased by or based upon the existence of such Lender Party's commitment to lend or to issue Letters of Credit hereunder and other commitments of such type or the issuance or maintenance of the Letters of Credit (or similar contingent obligations), then, upon demand by such Lender Party (with a copy of such demand to the Administrative Agent), the Borrower shall pay to the Administrative Agent for the account of such Lender Party, from time to time as specified by such Lender Party, additional amounts sufficient to compensate such Lender Party in the light of such circumstances, to the extent that such Lender Party reasonably determines such increase in capital to be allocable to the existence of such Lender Party's commitment to lend or to issue Letters of Credit hereunder or to the issuance or maintenance of any Letters of Credit, provided, however, that the Borrower's obligations to any Designated Lender hereunder shall be limited as set forth in Section 8.04(e). A certificate as to such amounts submitted to the Borrower by such Lender Party shall be conclusive and binding for all purposes, absent manifest error. (c) If, with respect to any Eurodollar Rate Advances under any Facility, Lenders (other than Designated Lenders) owed at least a majority of the then aggregate unpaid principal amount thereof notify the Administrative Agent that the Eurodollar Rate for any Interest Period for such Advances will not adequately reflect the cost (excluding for purposes of this Section 2.11 any such increased costs resulting from (i) Taxes, Other Taxes, Excluded Taxes or taxes excluded from the definitions of Taxes or Other Taxes in Section 2.14(e) or from indemnification pursuant to Section 2.14(f) (as to which Section 2.14 shall govern) and (ii) changes in the basis of taxation of overall net income or overall gross income by the United States or by the foreign jurisdiction or state under the laws of which such Lender Party is organized or has its Applicable Lending Office or any political subdivision thereof) to such Lenders of making, funding or maintaining their Eurodollar Rate Advances for such Interest Period, the Administrative Agent shall forthwith so notify the Borrower and the Appropriate Lenders, whereupon (i) each such Eurodollar Rate Advance under any Facility will automatically, on the last day of the then existing Interest Period therefor, Convert into a Base Rate Advance and (ii) the obligation of the Appropriate Lenders to make, or to Convert Advances into, Eurodollar Rate Advances shall be suspended until the Administrative Agent shall notify the Borrower that such Lenders have determined that the circumstances causing such suspension no longer exist. 45 SECTION 2.12. Illegality. Notwithstanding any other provision of this Agreement, if any Lender (other than a Designated Lender) shall notify the Administrative Agent that the introduction of or any change in or in the interpretation of any law or regulation makes it unlawful, or any central bank or other governmental authority asserts that it is unlawful, for any Lender or its Eurodollar Lending Office to perform its obligations hereunder to make Eurodollar Rate Advances or LIBO Rate Advances or to fund or maintain Eurodollar Rate Advances or LIBO Rate Advances hereunder, (i) each Eurodollar Rate Advance or LIBO Rate Advance, as the case may be, will automatically, upon such demand, Convert into a Base Rate Advance and (ii) the obligation of the Lenders to make Eurodollar Rate Advances or LIBO Rate Advances or to Convert Revolving Credit Advances into Eurodollar Rate Advances shall be suspended until the Administrative Agent shall notify the Borrower and the Lenders that the circumstances causing such suspension no longer exist; provided, that if it becomes unlawful for any Designated Lender or its Eurodollar Lending Office to perform its obligations hereunder to make or fund or maintain Eurodollar Rate Advances or LIBO Rate Advances, such Designated Lender shall immediately assign its rights and obligations with respect to such Advance to its applicable Designating Lender. SECTION 2.13. Payments and Computations. (a) The Borrower shall make each payment hereunder and under the Notes, if any, irrespective of counterclaim or set-off (except as otherwise provided in Section 2.17), not later than 11:00 A.M. (New York City time) on the date when due in U.S. dollars to the Administrative Agent at the Administrative Agent's Account in same day funds. The Administrative Agent will promptly thereafter cause to be distributed like funds relating to the payment of principal or interest or commitment fees ratably (other than amounts payable pursuant to Section 2.04, 2.11, 2.14 or 8.04(c)) to the Lenders for the account of their respective Applicable Lending Offices, and like funds relating to the payment of any other amount payable to any Lender to such Lender for the account of its Applicable Lending Office, in each case to be applied in accordance with the terms of this Agreement. Upon its acceptance of an Assignment and Acceptance and recording of the information contained therein in the Register pursuant to Section 8.07(c), from and after the effective date specified in such Assignment and Acceptance, the Administrative Agent shall make all payments hereunder and under any Notes issued in connection therewith in respect of the interest assigned thereby to the Lender assignee thereunder, and the parties to such Assignment and Acceptance shall make all appropriate adjustments in such payments for periods prior to such effective date directly between themselves. (b) If the Administrative Agent receives funds for application to the Obligations under the Loan Documents under circumstances for which the Loan Documents do not specify the Advances or the Facility to which, or the manner in which, such funds are to be applied, the Administrative Agent may, but shall not be obligated to, elect to distribute such funds to each Lender Party ratably in accordance with such Lender Party's proportionate share of the principal amount of all outstanding Advances and the Available Amount of all Letters of 46 Credit then outstanding, in repayment or prepayment of such of the outstanding Advances or other Obligations owed to such Lender Party, and for application to such principal installments, as the Administrative Agent shall direct. (c) The Borrower hereby authorizes each Lender, if and to the extent payment owed to such Lender is not made when due hereunder or under the Note, if any, held by such Lender, to charge from time to time against any or all of the Borrower's accounts with such Lender any amount so due. (d) All computations of interest, fees and Letter of Credit commissions shall be made by the Administrative Agent on the basis of a year of 360 days, in each case for the actual number of days (including the first day but excluding the last day) occurring in the period for which such interest or commitment fees are payable. Each determination by the Administrative Agent of an interest rate hereunder shall be conclusive and binding for all purposes, absent manifest error. (e) Whenever any payment hereunder or under the Notes, if any, shall be stated to be due on a day other than a Business Day, such payment shall be made on the next succeeding Business Day, and such extension of time shall in such case be included in the computation of payment of interest or commitment fee, as the case may be; provided, however, that, if such extension would cause payment of interest on or principal of Eurodollar Rate Advances or LIBO Rate Advances to be made in the next following calendar month, such payment shall be made on the next preceding Business Day. (f) Unless the Administrative Agent shall have received notice from the Borrower prior to the date on which any payment is due to the Lenders hereunder that the Borrower will not make such payment in full, the Administrative Agent may assume that the Borrower has made such payment in full to the Administrative Agent on such date and the Administrative Agent may, in reliance upon such assumption, cause to be distributed to each Lender on such due date an amount equal to the amount then due such Lender. If and to the extent the Borrower shall not have so made such payment in full to the Administrative Agent, each Lender shall repay to the Administrative Agent forthwith on demand such amount distributed to such Lender together with interest thereon, for each day from the date such amount is distributed to such Lender until the date such Lender repays such amount to the Administrative Agent, at the Federal Funds Rate. SECTION 2.14. Taxes. (a) Any and all payments by the Borrower hereunder or under any Notes shall be made, in accordance with Section 2.13, free and clear of and without deduction for any and all present or future taxes, levies, imposts, deductions, charges or withholdings, and all liabilities with respect thereto, excluding, in the case of each Lender Party and each Agent, Excluded Taxes (all such non-Excluded Taxes, levies, imposts, deductions, 47 charges, withholdings and liabilities being hereinafter referred to as "Taxes"). If the Borrower shall be required by law to deduct any Taxes from or in respect of any sum payable hereunder or under any Note to any Lender Party or any Agent, (i) the sum payable shall be increased as may be necessary so that after making all required deductions (including deductions applicable to additional sums payable under this Section 2.14) such Lender or such Agent (as the case may be) receives an amount equal to the sum it would have received had no such deductions been made, (ii) the Borrower shall make such deductions and (iii) the Borrower shall pay the full amount deducted to the relevant taxation authority or other authority in accordance with applicable law. (b) In addition, the Borrower agrees to pay any present or future stamp or documentary taxes or any other excise or property taxes, charges or similar levies that arise from any payment made hereunder or under any Notes or from the execution, delivery or registration of, or otherwise with respect to, this Agreement or any Note (hereinafter referred to as "Other Taxes"). (c) The Borrower will indemnify each Lender Party and each Agent for the full amount of Taxes or Other Taxes (including, without limitation, any Taxes or Other Taxes imposed by any jurisdiction on amounts payable under this Section 2.14) paid by such Lender Party or such Agent (as the case may be) and any liability (including penalties, interest and expenses) arising therefrom or with respect thereto. This indemnification shall be made within 30 days from the date such Lender Party or such Agent (as the case may be) makes written demand therefor, including in such demand an identification of the Taxes or Other Taxes (together with the amounts thereof) with respect to which such indemnification is being sought. (d) Within 30 days after the date of any payment of Taxes, the Borrower will furnish to the Administrative Agent and the Documentation Agent, at their respective addresses referred to in Section 8.02, the original or a certified copy of a receipt evidencing payment thereof. In the case of any payment hereunder or under any Notes by or on behalf of the Borrower through an account or branch outside the United States or on behalf of the Borrower by a payor that is not a United States person, if the Borrower determines that no Taxes are payable in respect thereof, the Borrower shall furnish, or shall cause such payor to furnish, to the Administrative Agent and the Documentation Agent, at such address, an opinion of counsel acceptable to the Administrative Agent stating that such payment is exempt from Taxes. For purposes of this subsection (d) and subsection (e), the terms "United States" and "United States person" shall have the meanings specified in Section 7701 of the Internal Revenue Code. (e) Each Lender Party organized under the laws of a jurisdiction outside the United States, on or prior to the date of its execution and delivery of this Agreement in the case of each Initial Lender or initial Issuing Bank, as the case may be, and on the date of the Assignment and Acceptance or Designation Agreement pursuant to which it becomes a Lender Party in the case of each other Lender Party, and from time to time thereafter if requested in 48 writing by the Borrower (but only so long as such Lender remains lawfully able to do so), shall provide both the Borrower and the Administrative Agent with two original Internal Revenue Service forms 1001, 4224 or W-8 as appropriate, or any successor or other form prescribed by the Internal Revenue Service, certifying that such Lender Party is exempt from or entitled to a reduced rate of United States withholding tax on payments pursuant to this Agreement or the Notes, if any. If any Lender Party which is not a "United States person" determines that it is unable to submit to the Borrower or the Administrative Agent any form or certificate that such Lender is otherwise required to submit pursuant to this Section 2.14, or that it is required to withdraw or cancel any such form or certificate, or that any such form or certificate previously submitted has otherwise become ineffective or inaccurate, such Lender shall promptly notify the Borrower and the Administrative Agent of such fact. In addition, if a Lender provides a form W-8 (or any successor or related form) to the Administrative Agent and the Borrower pursuant to this Section 2.14, such Lender shall also provide a certificate stating that such Lender is not a "bank" within the meaning of section 881(c)(3)(A) of the Internal Revenue Code of 1986 and shall promptly notify the Administrative Agent and the Borrower if such Lender determines that it is no longer able to provide such certification. If the form provided by a Lender Party at the time such Lender Party first becomes a party to this Agreement indicates a United States interest withholding tax rate in excess of zero, withholding tax at such rate shall be considered excluded from Taxes unless and until such Lender Party provides the appropriate form certifying that a lesser rate applies, whereupon withholding tax at such lesser rate only shall be considered excluded from Taxes for periods governed by such form; provided, however, that, if at the date of the Assignment and Acceptance pursuant to which a Lender Party becomes a party to this Agreement, the Lender Party assignor was entitled to payments under subsection (a) in respect of United States withholding tax with respect to interest paid at such date, then, to such extent, the term Taxes shall include (in addition to withholding taxes that may be imposed in the future or other amounts otherwise includable in Taxes) United States withholding tax, if any, applicable with respect to the Lender assignee on such date. Upon the reasonable request of the Borrower or the Administrative Agent, each Lender Party that has not provided the forms or other documents, as provided above, on the basis of being a United States person shall submit to the Borrower and the Administrative Agent a certificate to the effect that it is such a "United States person" (as defined in Section 7701(a)(30) of the Internal Revenue Code). (f) For any period with respect to which a Lender Party has failed to provide the Borrower with the appropriate form described in Section 2.14(e) (other than if such failure is due to a change in law occurring subsequent to the date on which such Lender became a Lender Party hereunder, or if such form otherwise is not required under the first sentence of subsection (e) above because the Borrower has not requested in writing such form subsequent to the date on which such Lender Party became a Lender Party hereunder), such Lender Party shall not be entitled to indemnification under Section 2.14(a) or (c) with respect to Taxes imposed by the United States; provided, however, that should a Lender Party become subject to Taxes 49 because of its failure to deliver a form required hereunder, the Borrower shall take such steps as the Lender Party shall reasonably request to assist the Lender Party to recover such Taxes. (g) Any Lender Party or Agent claiming any additional amounts payable pursuant to this Section 2.14 shall use reasonable efforts (consistent with its internal policy and legal and regulatory restrictions) to change the jurisdiction of its Eurodollar Lending Office if the making of such a change would avoid the need for, or reduce the amount of, any such additional amounts that may thereafter accrue and would not, in the reasonable judgment of such Lender Party, be otherwise disadvantageous to such Lender Party. (h) Within 60 days after the written request of the Borrower, each Lender Party or Agent shall execute and deliver to the Borrower such certificates or forms as are reasonably requested by the Borrower in such request, which can be furnished consistent with the facts and which are reasonably necessary to assist the Borrower in applying for refunds of Taxes paid by the Borrower hereunder or making payment of Taxes hereunder; provided, however, that no Lender Party or Agent shall be required to furnish to the Borrower and financial or other information which it considers confidential. The cost of preparing any materials referred to in the previous sentence shall be borne by the Borrower. If a Lender Party or Agent determines in good faith that it has received a refund of any Taxes or Other Taxes with respect to which Borrower has made a payment of additional amounts, such Lender Party or Agent shall pay to the Borrower an amount that such Lender Party or Agent determines in good faith to be equal to the net benefit, after tax, that was obtained by such Lender Party or Agent (as the case may be) as a consequence of such refund. (i) All obligations of the Borrower owed to any Designated Lender pursuant to this Section 2.14 shall be limited to the amount that the Borrower would be obligated to pay to such Designated Lender's applicable Designating Lender but for such designation, as set forth in Section 8.04(e). SECTION 2.15. Sharing of Payments, Etc. If any Lender Party shall obtain any payment (whether voluntary, involuntary, through the exercise of any right of set-off, or otherwise) on account of Obligations owing to it (other than pursuant to Section 2.11, 2.14 or 8.04(c)) in excess of its ratable share of payments on account of the Obligations obtained by all the Lender Parties, such Lender Party shall forthwith purchase from the other Lender Parties such participations in Obligations owing to them as shall be necessary to cause such purchasing Lender Party to share the excess payment ratably with each of them; provided, however, that if all or any portion of such excess payment is thereafter recovered from such purchasing Lender Party, such purchase from each Lender Party shall be rescinded and such Lender Party shall repay to the purchasing Lender Party the purchase price to the extent of such recovery together with an amount equal to such Lender Party's ratable share (according to the proportion of (i) the amount of such Lender Party's required repayment to (ii) the total amount so recovered from the 50 purchasing Lender Party) of any interest or other amount paid or payable by the purchasing Lender Party in respect of the total amount so recovered. The Borrower agrees that any Lender Party so purchasing a participation from another Lender Party pursuant to this Section 2.15 may, to the fullest extent permitted by law, exercise all its rights of payment (including the right of set-off) with respect to such participation as fully as if such Lender Party were the direct creditor of the Borrower in the amount of such participation. SECTION 2.16. Use of Proceeds. The proceeds of the Advances shall be available to provide working capital for the Borrower and for general corporate purposes, including commercial paper backstop, of the Borrower and its Subsidiaries. SECTION 2.17. Defaulting Lenders. (a) In the event that, at any one time, (i) any Lender Party shall be a Defaulting Lender, (ii) such Defaulting Lender shall owe a Defaulted Advance to the Borrower and (iii) the Borrower shall be required to make any payment hereunder or under any other Loan Document to or for the account of such Defaulting Lender, then the Borrower may, so long as no Default shall occur or be continuing at such time and to the fullest extent permitted by applicable law, set off and otherwise apply the Obligation of the Borrower to make such payment to or for the account of such Defaulting Lender against the Obligation of such Defaulting Lender to make such Defaulted Advance. In the event that, on any date, the Borrower shall so set off and otherwise apply its Obligation to make any such payment against the Obligation of such Defaulting Lender to make any such Defaulted Advance on or prior to such date, the amount so set off and otherwise applied by the Borrower shall constitute for all purposes of this Agreement and the other Loan Documents an Advance by such Defaulting Lender made on the date under the Facility pursuant to which such Defaulted Advance was originally required to have been made pursuant to Section 2.01. Such Advance shall be a Base Rate Advance and shall be considered, for all purposes of this Agreement, to comprise part of the Borrowing in connection with which such Defaulted Advance was originally required to have been made pursuant to Section 2.01, even if the other Advances comprising such Borrowing shall be Eurodollar Rate Advances on the date such Advance is deemed to be made pursuant to this subsection (a). The Borrower shall notify the Administrative Agent at any time the Borrower exercises its right of set-off pursuant to this subsection (a) and shall set forth in such notice (A) the name of the Defaulting Lender and the Defaulted Advance required to be made by such Defaulting Lender and (B) the amount set off and otherwise applied in respect of such Defaulted Advance pursuant to this subsection (a). Any portion of such payment otherwise required to be made by the Borrower to or for the account of such Defaulting Lender which is paid by the Borrower, after giving effect to the amount set off and otherwise applied by the Borrower pursuant to this subsection (a), shall be applied by the Administrative Agent as specified in subsection (b) or (c) of this Section 2.17. (b) In the event that, at any one time, (i) any Lender Party shall be a Defaulting Lender, (ii) such Defaulting Lender shall owe a Defaulted Amount to any Agent or 51 any of the other Lender Parties and (iii) the Borrower shall make any payment hereunder or under any other Loan Document to the Administrative Agent for the account of such Defaulting Lender, then the Administrative Agent may, on its behalf or on behalf of such other Lender Parties and to the fullest extent permitted by applicable law, apply at such time the amount so paid by the Borrower to or for the account of such Defaulting Lender to the payment of each such Defaulted Amount to the extent required to pay such Defaulted Amount. In the event that the Administrative Agent shall so apply any such amount to the payment of any such Defaulted Amount on any date, the amount so applied by the Administrative Agent shall constitute for all purposes of this Agreement and the other Loan Documents payment, to such extent, of such Defaulted Amount on such date. Any such amount so applied by the Administrative Agent shall be retained by the Administrative Agent or distributed by the Administrative Agent to such other Lender Parties, ratably in accordance with the respective portions of such Defaulted Amounts payable at such time to the Administrative Agent and such other Lender Parties and, if the amount of such payment made by the Borrower shall at such time be insufficient to pay all Defaulted Amounts owing at such time to the Administrative Agent and the other Lender Parties, in the following order of priority: (i) first, to the Agents for any Defaulted Amount then owing to the Agents; and (ii) second, to any other Lender Parties for any Defaulted Amounts then owing to such other Lender Parties, ratably in accordance with such respective Defaulted Amounts then owing to such other Lender Parties. Any portion of such amount paid by the Borrower for the account of such Defaulting Lender remaining, after giving effect to the amount applied by the Administrative Agent pursuant to this subsection (b), shall be applied by the Administrative Agent as specified in subsection (c) of this Section 2.17. (c) In the event that, at any one time, (i) any Lender Party shall be a Defaulting Lender, (ii) such Defaulting Lender shall not owe a Defaulted Advance or a Defaulted Amount and (iii) the Borrower, any Agent or any other Lender Party shall be required to pay or distribute any amount hereunder or under any other Loan Document to or for the account of such Defaulting Lender, then the Borrower or such other Lender Party shall pay such amount to the Administrative Agent to be held by the Administrative Agent, to the fullest extent permitted by applicable law, in escrow or the Administrative Agent shall, to the fullest extent permitted by applicable law, hold in escrow such amount otherwise held by it. Any funds held by the Administrative Agent in escrow under this subsection (c) shall be deposited by the Administrative Agent in an account with the Administrative Agent, in the name and under the control of the Administrative Agent, but subject to the provisions of this subsection (c). The terms applicable to such account, including the rate of interest payable with respect to the credit 52 balance of such account from time to time, shall be the Administrative Agent's standard terms applicable to escrow accounts maintained with it. Any interest credited to such account from time to time shall be held by the Administrative Agent in escrow under, and applied by the Administrative Agent from time to time in accordance with the provisions of, this subsection (c). The Administrative Agent shall, to the fullest extent permitted by applicable law, apply all funds so held in escrow from time to time to the extent necessary to make any Advances required to be made by such Defaulting Lender and to pay any amount payable by such Defaulting Lender hereunder and under the other Loan Documents to any Agent or any other Lender Party, as and when such Advances or amounts are required to be made or paid and, if the amount so held in escrow shall at any time be insufficient to make and pay all such Advances and amounts required to be made or paid at such time, in the following order of priority: (i) first, to the Agents for any amount then due and payable by such Defaulting Lender to the Agents hereunder; (ii) second, to any other Lender Parties for any amount then due and payable by such Defaulting Lender to such other Lender Parties hereunder, ratably in accordance with such respective amounts then due and payable to such other Lender Parties; and (iii) third, to the Borrower for any Advance then required to be made by such Defaulting Lender pursuant to a Commitment of such Defaulting Lender. In the event that any Lender Party that is a Defaulting Lender shall, at any time, cease to be a Defaulting Lender, any funds held by the Administrative Agent in escrow at such time with respect to such Lender Party shall be distributed by the Administrative Agent to such Lender Party and applied by such Lender Party to the Obligations owing to such Lender Party at such time under this Agreement and the other Loan Documents ratably in accordance with the respective amounts of such Obligations outstanding at such time. (d) The rights and remedies against a Defaulting Lender under this Section 2.17 are in addition to other rights and remedies that the Borrower may have against such Defaulting Lender with respect to any Defaulted Advance and that any Agent or any Lender Party may have against such Defaulting Lender with respect to any Defaulted Amount. SECTION 2.18. Evidence of Debt. (a) Each Lender shall maintain in accordance with its usual practice an account or accounts evidencing the indebtedness of the Borrower to such Lender resulting from each Advance owing to such Lender from time to time, including the amounts of principal and interest payable and paid to such Lender from time to time hereunder. The Borrower agrees that upon notice by any Lender to the Borrower (with a copy of such notice to the Administrative Agent) to the effect that a promissory note or other evidence of indebtedness is required or appropriate in order for such Lender to evidence (whether for 53 purposes of pledge, enforcement or otherwise) the Revolving Credit Advances owing to, or to be made by, such Lender, the Borrower shall promptly execute and deliver to such Lender a promissory note substantially in the form of Exhibit A-2 hereto (each a "Revolving Credit Note"), payable to the order of such Lender in a principal amount equal to the Revolving Credit Commitment of such Lender. (b) The Register maintained by the Administrative Agent pursuant to Section 8.07(g) shall include a control account, and a subsidiary account for each Lender, in which accounts (taken together) shall be recorded (i) the date and amount of each Borrowing made hereunder, the Type of Advances comprising such Borrowing and, if appropriate, the Interest Period applicable thereto, (ii) the terms of each Assignment and Acceptance delivered to and accepted by it, (iii) the amount of any principal or interest due and payable or to become due and payable from the Borrower to each Lender hereunder, and (iv) the amount of any sum received by the Administrative Agent from the Borrower hereunder and each Lender's share thereof. (c) Entries made in good faith by the Administrative Agent in the Register pursuant to subsection (b) above, and by each Lender in its account or accounts pursuant to subsection (a) above, shall be prima facie evidence of the amount of principal and interest due and payable or to become due and payable from the Borrower to, in the case of the Register, each Lender and, in the case of such account or accounts, such Lender, under this Agreement, absent manifest error; provided, however, that the failure of the Administrative Agent or such Lender to make an entry, or any finding that an entry is incorrect, in the Register or such account or accounts shall not limit or otherwise affect the obligations of the Borrower under this Agreement. 54 ARTICLE III CONDITIONS TO EFFECTIVENESS AND LENDING SECTION 3.01. Conditions Precedent to Effectiveness of Amendment and Restatement. The amendment and restatement of the Predecessor Credit Agreement pursuant hereto shall become effective on and as of the Effective Date, which shall occur on such date on or prior to November 17, 1999, on which each of the following conditions precedent shall have been satisfied: (a) The Required Lenders (as defined in the Predecessor Credit Agreement) shall have consented to this Agreement. (b) All governmental and third party consents and approvals necessary in connection with the Loan Documents shall have been obtained (without the imposition of any conditions that are not acceptable to the Lender Parties) and shall remain in effect, all applicable waiting periods shall have expired without any action being taken by any competent authority and no law or regulation shall be applicable in the reasonable judgment of the Lender Parties that restrains, prevents or imposes materially adverse conditions upon the Loan Documents. (c) The Borrower shall have paid all accrued and invoiced fees and expenses of the Agent and the Lender Parties (including the accrued and invoiced fees and expenses of counsel to the Agent). (d) The Agent shall have received on or before the Effective Date the following, each dated such day (unless otherwise specified), in form and substance satisfactory to the Agent (unless otherwise specified) and in sufficient copies for each Lender Party: (i) A consent in substantially the form of Exhibit F, by Group in favor of the Lender Parties under the guaranty dated August 12, 1997 made by Group in favor of the Lender Parties (as amended, supplemented or otherwise modified from time to time in accordance with its terms, the "Group Guaranty"), duly executed by Group, consenting to the amendment and restatement contemplated by this Agreement. (ii) A consent in substantially the form of Exhibit G, by the Guarantors (other than Group) in favor of the Lender Parties under the subsidiary guaranty dated August 12, 1997 made by the Guarantors (other than Group) in favor of the Lender Parties (together with each other guaranty delivered pursuant to Section 55 5.01(k), in each case as amended, supplemented or otherwise modified from time to time in accordance with its terms, the "Subsidiary Guaranty"), duly executed by each such Guarantor, consenting to the amendment and restatement contemplated by this Agreement. (iii) To the extent that any such information is changed from that previously delivered under the Predecessor Credit Agreement, a certificate of the Secretary or an Assistant Secretary of the Borrower and each other Loan Party certifying the names and true signatures of the officers of the Borrower and such other Loan Party authorized to sign this Agreement, each other Loan Document to which they are or are to be parties and the other documents to be delivered hereunder and thereunder. (iv) A certificate signed by a duly authorized officer of the Borrower dated the Effective Date certifying as to the truth of the representations and warranties contained in the Loan Documents as though made on and as of such date and the absence of any event occurring and continuing on the Effective Date that constitutes a Default. SECTION 3.02. Conditions Precedent to Each Borrowing and Issuance. The obligation of each Appropriate Lender to make an Advance (other than a Letter of Credit Advance and other than a Swing Line Advance made by a Revolving Credit Lender pursuant to Section 2.02(b)) on the occasion of each Borrowing (including the initial Borrowing), and the obligation of each Issuing Bank to issue a Letter of Credit (including the initial issuance) and the right of the Borrower to request a Swing Line Borrowing, shall be subject to the further conditions precedent that on the date of such Borrowing or issuance: (a) the following statements shall be true (and each of the giving of the applicable Notice of Borrowing, Notice of Swing Line Borrowing or Notice of Issuance and the acceptance by the Borrower of the proceeds of such Borrowing or of such Letter of Credit shall constitute a representation and warranty by the Borrower that on the date of such Borrowing or issuance such statements are true): (i) the representations and warranties contained in each Loan Document are correct in all material respects on and as of the date of such Borrowing or issuance, before and after giving effect to such Borrowing or issuance (other than, solely with respect to Advances used to fund the payment of commercial paper issued by the Borrower from time to time, the representations and warranties contained in Section 4.01(f)(ii) hereof) and to the application of the proceeds therefrom, as though made on and as of such date other than any such representations or warranties that, by their terms, refer to a specific date 56 other than the date of such Borrowing or issuance, in which case such representations and warranties shall have been correct as of such specific date, and (ii) no event has occurred and is continuing, or would result from such Borrowing or from the application of the proceeds therefrom, that constitutes a Default; and (b) the Documentation Agent shall have received such other approvals or documents, if any, as any Appropriate Lender through the Documentation Agent may reasonably request. SECTION 3.03. Determinations Under Section 3.01. For purposes of determining compliance with the conditions specified in Section 3.01, each Lender Party shall be deemed to have consented to, approved or accepted or to be satisfied with each document or other matter required thereunder to be consented to or approved by or acceptable or satisfactory to the Lender Parties unless an officer of the Documentation Agent responsible for the transactions contemplated by Loan Documents shall have received notice from such Lender Party prior to the date that the Borrower, by notice to the Lenders, designates as the proposed Effective Date, specifying its objection thereto. The Administrative Agent shall promptly notify the Lender Parties of the occurrence of the Effective Date. SECTION 3.04. Reference to and Effect on the Loan Documents. (a) On and after the Effectiveness of this Agreement, each reference in the Notes and each of the other Loan Documents to "the Credit Agreement", "thereunder", "thereof", or words of like import referring to the Predecessor Credit Agreement, shall mean and be a reference to this Agreement. (b) The Notes and each of the other Loan Documents, as specifically amended by this Agreement, are and shall continue to be in full force and effect and are hereby ratified and confirmed. (c) The execution, delivery and effectiveness of this Agreement shall not operate as a waiver of any right, power or remedy of any Lender or the Administrative Agent under any of the Loan Documents, nor constitute a waiver of any provision of the Loan Documents. 57 ARTICLE IV REPRESENTATIONS AND WARRANTIES SECTION 4.01. Representations and Warranties of the Borrower. Each of Group and the Borrower represents and warrants as follows: (a) Each Loan Party (i) is a corporation duly organized, validly existing and in good standing under the laws of the jurisdiction of its incorporation, (ii) is duly qualified and in good standing as a foreign corporation in each other jurisdiction in which it owns or leases property or in which the conduct of its business requires it to so qualify or be licensed except where the failure to so qualify or be licensed would not have a Material Adverse Effect and (iii) has all requisite corporate power and authority to own or lease and operate its properties and to carry on its business as now conducted and as proposed to be conducted. (b) Set forth on Schedule 4.01(b) hereto is a complete and accurate list of all Subsidiaries of each Loan Party, showing as of the date hereof (as to each such Subsidiary) whether or not such Subsidiary is a wholly-owned Subsidiary. Each such Subsidiary (i) is a corporation duly organized or a limited liability company or a trust duly formed, validly existing and in good standing under the laws of the jurisdiction of its incorporation, (ii) is duly qualified and in good standing as a foreign corporation, limited liability company or trust in each other jurisdiction in which it owns or leases property or in which the conduct of its business requires it to so qualify or be licensed except where the failure to so qualify or be licensed would not have a Material Adverse Effect and (iii) has all requisite corporate power and authority to own or lease and operate its properties and to carry on its business as now conducted and as proposed to be conducted. (c) The execution, delivery and performance by each Loan Party of this Agreement and each other Loan Document to which it is or is to be a party, and the consummation of the transactions contemplated hereby, are within such Loan Party's corporate powers, have been duly authorized by all necessary corporate action, and do not (i) contravene such Loan Party's charter or by-laws, (ii) violate any law, rule, regulation, order, writ, judgment, injunction, decree, determination or award, (iii) conflict with or result in the breach of, or constitute a default under, any contract, loan agreement, indenture, mortgage, deed of trust, lease or other instrument binding on or affecting any Loan Party, any of its Subsidiaries or any of their respective properties or (iv) result in or require the creation or imposition of any Lien upon or with respect to any of the properties of any Loan Party or any of its Subsidiaries. No Loan Party or any of its Subsidiaries is in violation of any such law, rule, regulation, order, writ, judgment, injunction, decree, determination or award or in breach of any such contract, loan 58 agreement, indenture, mortgage, deed of trust, lease or other instrument, the violation or breach of which is or would be reasonably likely to have a Material Adverse Effect. (d) No authorization or approval or other action by, and no notice to or filing with, any governmental authority or regulatory body or any other third party is required for the due execution, delivery, recordation, filing or performance by any Loan Party of this Agreement or any other Loan Document to which it is or is to be a party, or for the consummation of the transactions contemplated hereby. (e) This Agreement has been, and each other Loan Document when delivered hereunder will have been, duly executed and delivered by each Loan Party party thereto. This Agreement is, and each other Loan Document when delivered hereunder will be, the legal, valid and binding obligation of each Loan Party party thereto, enforceable against such Loan Party in accordance with its terms, except as enforcement may be limited by applicable bankruptcy, insolvency, reorganization, moratorium or other similar laws affecting creditors' rights generally and by general principles of equity (regardless of whether enforcement is sought in equity or at law). (f) (i) The Consolidated balance sheets of Group and its Subsidiaries as at January 2, 1999, and the related Consolidated statements of operations, stockholders' equity and cash flow of Group and its Subsidiaries for the fiscal years then ended, accompanied by an opinion of PricewaterhouseCoopers LLP, independent public accountants, and the Consolidated balance sheet of Group and its Subsidiaries as at July 3, 1999, and the related Consolidated statements of operations, stockholders' equity and cash flow of Group and its Subsidiaries for the six months then ended, duly certified by the chief financial officer of Group, copies of which have been furnished to each Lender, fairly present, subject, in the case of said balance sheet as at July 3, 1999, and said statements of operations, stockholders' equity and cash flow for the six months then ended, to year-end audit adjustments, the Consolidated financial condition of Group and its Subsidiaries as at such dates and the Consolidated results of the operations of Group and its Subsidiaries for the periods ended on such dates, all in accordance with generally accepted accounting principles applied on a consistent basis, and (ii) since January 2, 1999, there has been no Material Adverse Change. (g) There is no action, suit, investigation, litigation or proceeding affecting any Loan Party or any of its Subsidiaries, including any Environmental Action, pending or threatened before any court, governmental agency or arbitrator that (i) purports to affect the legality, validity or enforceability of this Agreement or any other Loan Document or (ii) is or would be reasonably likely to have a Material Adverse Effect. 59 (h) No proceeds of any Advance will be used to acquire any equity security of a class that is registered pursuant to Section 12 of the Securities Exchange Act of 1934, as amended (other than (i) shares of capital stock of Group and (ii) to the extent applicable, in connection with an acquisition of a company, so long as (x) the board of directors of such company shall have approved such acquisition at the time such acquisition is first publicly announced, (y) if such company shall have been soliciting bids for its acquisition, the board of directors of such company shall not have determined either to accept no offer or to accept an offer other than the offer of Group or one of its Subsidiaries or (z) if such company shall not have been soliciting bids for its acquisition or if the board of directors of such company shall have solicited bids for its acquisition but shall have initially determined either to accept no offer or to accept an offer other than the offer of Group or one of its Subsidiaries, the existence, amount and availability for the acquisition of such company of the Commitments hereunder shall not have been disclosed, orally or in writing, to such company or its advisors; provided, that the public filing of this Agreement shall not be deemed to be disclosure of the Commitments hereunder to such company or its advisors, until after such time as the board of directors of such company shall have approved such acquisition by Group or one of its Subsidiaries and so long as, in any case, such acquisition is otherwise permitted hereunder). (i) The Borrower is not engaged in the business of extending credit for the purpose of purchasing or carrying Margin Stock, and no proceeds of any Advance will be used to purchase or carry any Margin Stock or to extend credit to others for the purpose of purchasing or carrying any Margin Stock except for shares of capital stock of Group and Authentic Fitness and as otherwise permitted in Section 4.01(h). (j) Neither any Loan Party nor any of its Subsidiaries is an "investment company," or an "affiliated person" of, or "promoter" or "principal underwriter" for, an "investment company," as such terms are defined in the Investment Company Act of 1940, as amended. Neither the making of any Advances, nor the issuance of any Letters of Credit, nor the application of the proceeds or repayment thereof by the Borrower, nor the consummation of the other transactions contemplated hereby, will violate any provision of such Act or any rule, regulation or order of the Securities and Exchange Commission thereunder. (k) For any date on or before December 31, 1999, the Borrower has, and as soon as practicable after the Control Date, Authentic Fitness will have (i) initiated a review and assessment of all areas within its and each of its Subsidiaries' business and operations (including those affected by suppliers, vendors and customers) that could be adversely affected by the risk that computer applications used by such Person or any of its Subsidiaries (or suppliers, vendors and customers) may be unable to recognize and 60 perform properly date-sensitive functions involving certain dates prior to and any date after December 31, 1999 (the "Year 2000 Problem"), (ii) developed a plan and timetable for addressing the Year 2000 problem on a timely basis and (iii) to date, implemented that plan in accordance with such timetable. Based on the foregoing, each such Person believes that all of its computer applications that are material to its or any of its Subsidiaries' business and operations are reasonably expected on a timely basis to be able to perform properly date-sensitive functions for all dates before and after January 1, 2000, except to the extent that a failure to do so could not reasonably be expected to have a Material Adverse Effect. ARTICLE V COVENANTS OF THE BORROWER SECTION 5.01. Affirmative Covenants. So long as any Advance shall remain unpaid, any Letter of Credit shall be outstanding or any Lender Party shall have any Commitment hereunder, Group and the Borrower will: (a) Compliance with Laws, Etc. Comply, and cause each of its Subsidiaries to comply, in all material respects, with all applicable laws, rules, regulations and orders, such compliance to include, without limitation, compliance with ERISA and Environmental Laws, except where the failure so to comply would not have a Material Adverse Effect. (b) Payment of Taxes, Etc. Pay and discharge, and cause each of its Subsidiaries to pay and discharge, before the same shall become delinquent, (i) all taxes, assessments and governmental charges or levies imposed upon it or upon its property and (ii) all lawful claims that, if unpaid, would reasonably be likely to by law become a Lien upon its property; provided, however, that neither the Group nor any of its Subsidiaries shall be required to pay or discharge any such tax, assessment, charge or claim that is being contested in good faith and by proper proceedings and as to which appropriate reserves are being maintained, unless and until any Lien resulting therefrom attaches to its property and becomes enforceable against its other creditors so long as any such amount, when taken together with any amount required to be paid as described in clause (b) of the definition of "Permitted Liens", shall not exceed $10 million. (c) Maintenance of Insurance. Maintain, and cause each of its Subsidiaries to maintain, insurance with responsible and reputable insurance companies or associations in such amounts and covering such risks as is usually carried by companies engaged in 61 similar businesses and owning similar properties in the same general areas in which the Borrower or such Subsidiary operates. (d) Preservation of Corporate Existence, Etc. Preserve and maintain, and cause each of its Subsidiaries to preserve and maintain, its corporate existence, rights (charter and statutory) and franchises; provided, however, that Group and its Subsidiaries may consummate the Merger and any other merger, consolidation or voluntary dissolution or liquidation permitted under Section 5.02(b). (e) Visitation Rights. At any reasonable time and from time to time, permit any Agent or any of the Lender Parties or any agents or representatives thereof, upon reasonable notice to the Borrower to examine and make copies of and abstracts from the records and books of account of, and visit the properties of, the Borrower and any of its Subsidiaries, and to discuss the affairs, finances and accounts of the Borrower and any of its Subsidiaries with any of their officers or directors and with their independent certified public accountants. (f) Keeping of Books. Keep, and cause each of its Subsidiaries to keep, proper books of record and account, in which full and correct entries shall be made of all financial transactions and the assets and business of the Borrower and each such Subsidiary in accordance with generally accepted accounting principles in effect from time to time. (g) Maintenance of Properties, Etc. Maintain and preserve, and cause each of its Subsidiaries to maintain and preserve, all of its properties that are used or useful in the conduct of its business in good working order and condition, ordinary wear and tear excepted. (h) Transactions with Affiliates. Conduct, and cause each of its Subsidiaries to conduct, other than with respect to transactions among Group and/or its wholly owned Subsidiaries, all transactions otherwise permitted under the Loan Documents with any of their Affiliates on terms that are no less favorable to Group or such Subsidiary than it would obtain in a comparable arm's-length transaction with a Person not an Affiliate, provided, however, that the foregoing restriction shall not apply to transactions pursuant to any agreement referred to in Section 5.02(a)(ii) and provided, further, that the Borrower shall not engage in any transaction with any such Subsidiary that would render such Subsidiary insolvent or cause a default under, or a breach of, any material contract to which such Subsidiary is a party. (i) [Intentionally Deleted] 62 (j) Reporting Requirements. Furnish to the Lenders (and for purposes hereof, any Designated Lender shall be deemed to have received the following information from its Designating Lender): (i) as soon as available and in any event within 50 days after the end of each of the first three quarters of each Fiscal Year, Consolidated balance sheets of Group and its Subsidiaries as of the end of such quarter and Consolidated statements of income and Consolidated statements of cash flows of Group and its Subsidiaries for the period commencing at the end of the previous fiscal year and ending with the end of such quarter, duly certified (subject to year-end audit adjustments) by the chief financial officer of the Borrower as having been prepared in accordance with generally accepted accounting principles and a certificate of the chief financial officer of Group as to compliance with the terms of this Agreement and setting forth in reasonable detail the calculations necessary to demonstrate compliance with Section 5.03, provided that in the event of any change in GAAP used in the preparation of such financial statements, the Borrower shall also provide, if necessary for the determination of compliance with Section 5.03, a statement of reconciliation conforming such financial statements to GAAP; (ii) as soon as available and in any event within 95 days after the end of each Fiscal Year of Group, a copy of the annual audit report for such year for Group and its Subsidiaries, containing Consolidated balance sheet of Group and its Subsidiaries as of the end of such fiscal year and Consolidated statements of income and cash flows of the Borrower and its Subsidiaries for such Fiscal Year, in each case accompanied by an opinion acceptable to the Required Lenders by any Approved Accounting Firm or by other independent public accountants acceptable to the Required Lenders, and a certificate of the chief financial officer or Group as to compliance with the terms of this Agreement setting forth in reasonable detail the calculations necessary to demonstrate compliance with Section 5.03 provided that in the event of any change in GAAP used in the preparation of such financial statements, the Borrower shall also provide, if necessary for the determination of compliance with Section 5.03, a statement of reconciliation conforming such financial statements to GAAP; (iii) as soon as possible and in any event within two Business Days after the occurrence of each Default continuing on the date of such statement, a statement of the chief financial officer of the Borrower setting forth details of such Default and the action that the Borrower has taken and proposes to take with respect thereto; 63 (iv) promptly after the sending or filing thereof, copies of all reports that the Borrower sends to any of its security holders generally, and copies of all reports and registration statements that Group or any Subsidiary files with the Securities and Exchange Commission or any national securities exchange; (v) promptly after the commencement thereof, notice of all actions and proceedings before any court, governmental agency or arbitrator affecting the Borrower or any of its Subsidiaries of the type described in Section 4.01(g); (vi) within five Business Days after receipt thereof by any Loan Party, copies of each notice from S&P or Moody's indicating any change in the Debt Rating; and (vii) such other information respecting the Borrower or any of its Subsidiaries as any Lender Party through the Arrangers may from time to time reasonably request. (k) Covenant to Guarantee Obligations. At such time as any new direct or indirect Domestic Subsidiary that is a Material Subsidiary (including, without limitation, Authentic Fitness and its Subsidiaries as required by Section 5.01(l) below) is formed or acquired, cause such new Subsidiary that is a wholly owned Subsidiary to (i) within 30 days thereafter or such later time as the Borrower and the Administrative Agent shall agree (but in any event no later than 30 additional days thereafter), duly execute and deliver to the Administrative Agent guarantees, in substantially the form of Exhibit G and otherwise in form and substance reasonably satisfactory to the Administrative Agent, guaranteeing the Borrower's Obligations under the Loan Documents, provided, however, that the foregoing shall not apply to (A) Excluded Subsidiaries, (B) joint ventures or (C) any Subsidiary organized solely for the purpose of entering into any agreements and transactions referred to in Section 5.02(a)(ii) to the extent that such agreements require that such Subsidiary not be a Guarantor hereunder, and (ii) within 30 days after the delivery of such guarantees or such later time as the Borrower and the Administrative Agent shall agree (but in any event no later than 30 additional days thereafter), deliver to the Administrative Agent a signed copy of a favorable opinion, addressed to the Administrative Agent, of counsel for the Loan Parties acceptable to the Administrative Agent as to the documents contained in clause (i) above, as to such guarantees being legal, valid and binding obligations of such Subsidiaries enforceable in accordance with their terms and as to such other matters as the Administrative Agent may reasonably request. (l) Consummation of Merger. If there is a Tender Offer, cause the Merger to be consummated in compliance with all applicable laws and regulations as soon as 64 practicable after consummation of the Tender Offer and cause Authentic Fitness and its Subsidiaries to become a Guarantor pursuant to Section 5.01(k) as soon as practicable and, in any event, within 30 days after consummation of the Merger. (m) Authentic Fitness. As soon as practicable after consummation of the Merger, cause the commitments under all Existing Debt of Authentic Fitness and its Subsidiaries (other than Debt of Authentic Fitness and its Subsidiaries that become Obligations under the Trade Credit Facility) to be terminated and all such indebtedness to be repaid in full. SECTION 5.02. Negative Covenants. So long as any Advance shall remain unpaid, any Letter of Credit shall be outstanding or any Lender Party shall have any Commitment hereunder, neither Group nor the Borrower will at any time: (a) Liens, Etc. Create or suffer to exist, or permit any of its Subsidiaries to create, incur, assume or suffer to exist, any Lien on or with respect to any of its properties of any character, whether now owned or hereafter acquired, or assign, or permit any of its Subsidiaries to assign, any right to receive income, other than: (i) Permitted Liens, (ii) Liens on receivables of any kind (and in property securing or otherwise supporting such receivables) in connection with agreements for limited recourse sales or financings by the Borrower or any of its Subsidiaries or by Designer Holdings or any of its Subsidiaries for cash of such receivables or interests therein, provided that (A) any such agreement is of a type and on terms customary for comparable transactions in the good faith judgment of the Board of Directors of Group and (B) such agreement does not create any interest in any asset other than receivables (and property securing or otherwise supporting such receivables), related general intangibles and proceeds of the foregoing, (iii) other Liens securing Debt, including Liens incurred pursuant to subsection (v) below, in an aggregate principal amount outstanding at any time not to exceed 10% of Consolidated Tangible Assets of Group and its Subsidiaries at such time, provided that Liens securing Debt of Authentic Fitness Products Inc. under credit facilities existing on the date that Authentic Fitness becomes a Subsidiary of the Borrower are expressly permitted until the consummation of the acquisition of 100% of the capital stock of Authentic Fitness, (iv) Liens arising from covenants by the Borrower or its Subsidiaries to grant security interests in the assets of Warnaco of Canada Limited or its 65 Subsidiaries (the "Canadian Subsidiaries") to secure Debt of the Canadian Subsidiaries in the event that the Lenders hereunder or under the New 364-Day Credit Agreement, the New Five-Year Credit Agreement or the Trade Credit Facility (as defined therein) are granted Liens by Group or its Subsidiaries in their respective assets to secure the Obligations under the Loan Documents, the New 364-Day Credit Agreement, the New Five-Year Credit Agreement or the Trade Credit Facility, as the case may be, and (v) Liens on Margin Stock. (b) Mergers, Etc. Merge into or consolidate with any Person or permit any Person to merge into it, or permit any of its Subsidiaries (other than Excluded Subsidiaries) to do so or to voluntarily liquidate, except that (i) the Borrower or the Purchaser and Authentic Fitness may consummate the Merger; (ii) any Subsidiary of Group may merge into or consolidate with any other Subsidiary of Group, provided that if any such Subsidiary is a Domestic Subsidiary of Group, the person formed thereby shall be a direct or indirect wholly owned Domestic Subsidiary of Group; (iii) any Subsidiary of Group may merge into or consolidate with any other Person pursuant to an acquisition, provided that, if any such Subsidiary is a Domestic Subsidiary of Group, the Person formed thereby shall be a direct or indirect wholly owned Domestic Subsidiary of Group; (iv) any Domestic Subsidiary of Group may merge into or consolidate with Group; (v) the Borrower may merge into or consolidate with any other Person so long as the Borrower is the surviving corporation; and (vi) any Subsidiary of Group may voluntarily liquidate and distribute its assets to Group or any direct or indirect wholly owned Domestic Subsidiary of Group, provided, in each case, that no Default shall have occurred and be continuing at the time of such proposed transaction or would result therefrom. (c) Debt. Create, incur, assume or suffer to exist, or permit any of its Subsidiaries (other than Excluded Subsidiaries) to create, incur, assume or suffer to exist, 66 any Debt if after giving effect thereto the Borrower shall fail to be in compliance with each of the covenants set forth in Section 5.03. (d) Sales, Etc. of Assets. Sell, lease, transfer or otherwise dispose of, or permit any of its Subsidiaries to sell, lease, transfer or otherwise dispose of, any assets, or grant any option or other right to purchase, lease or otherwise acquire any assets, except: (i) sales of inventory in the ordinary course of its business; (ii) sales, leases, transfers or other disposals of assets, or grants of any option or other right to purchase, lease or otherwise acquire assets, following the Effective Date for fair value (valued at the time of any such sale, lease, transfer or other disposal), in an aggregate amount in each Fiscal Year not to exceed 20% per annum of the Consolidated total assets of Group and its Subsidiaries as valued at the end of the preceding Fiscal Year of the Borrower, and the fair value of such assets shall have been determined in good faith by the Board of Directors of Group; (iii) sales of assets on terms customary for comparable transactions in the good faith judgment of the Board of Directors of Group pursuant to agreements referred to in Section 5.02(a)(ii); (iv) transfers of assets between Group and its Subsidiaries; (v) sales of assets listed on Schedule 5.02(d) hereto; (vi) sales of assets and properties of Group and its Subsidiaries in connection with sale-leaseback transactions otherwise permitted hereunder (including, without limitation, under Section 5.02(c)); (vii) the sale or discount of accounts (A) owing by Persons incorporated, residing or having their principal place of business in the United States in an aggregate amount not exceeding $10,000,000 in face amount per calendar year or (B) that are past due by more than 90 days, provided that the sale or discount of such accounts is in the ordinary course of Group's business and consistent with prudent business practices; (viii) the licensing of trademarks and trade names by Group or any of its Subsidiaries in the ordinary course of its business, provided that such licensing takes place on an arm's-length basis; 67 (ix) the rental by Group and its Subsidiaries, as lessors, in the ordinary course of their respective businesses, on an arm's-length basis, of real property and personal property, in each case under leases (other than Capitalized Leases); and (x) sales of Margin Stock for fair value as determined in good faith by the Board of Directors of Group. (e) Authentic Fitness. From and after the Control Date and prior to the date that Authentic Fitness becomes a wholly-owned Subsidiary, permit Authentic Fitness to (i) issue any securities, rights or options or (ii) declare or make any dividends or distributions to the holders of Authentic Fitness Stock, except, in each case, as contemplated by the terms of either or both of the Tender Offer and the Merger and otherwise except to the extent any such transactions are entered into and performed in the ordinary course of Authentic Fitness's business as previously conducted and necessary for the prudent operation of Authentic Fitness's business. (f) Nature of Business. Make, or permit any of its Subsidiaries to make, (A) except as otherwise permitted pursuant to subsection (B) below, any change in the nature of its business as carried on at the date hereof in a manner materially adverse to the Agents and the Lender Parties or (B) any investments (except Investments in a net aggregate amount (after giving effect to any dividends or other returns of capital) invested from the date hereof not to exceed $100,000,000) other than in apparel manufacturing or wholesaling businesses or apparel accessories manufacturing or wholesaling businesses or in related retail businesses, provided that on an annual basis, at least 51% of the revenue of Group and its Subsidiaries on a Consolidated basis is derived from apparel manufacturing or wholesaling businesses or apparel accessories manufacturing or wholesaling businesses. (g) Accounting Changes. Make or permit, or permit any of its Subsidiaries to make or permit, any change in accounting policies (except as required or permitted by the Financial Accounting Standards Board or generally accepted accounting principles), reporting practices or Fiscal Year. SECTION 5.03. Financial Covenants. So long as any Advance shall remain unpaid, any Letter of Credit shall be outstanding or any Lender Party shall have any Commitment hereunder, Group and the Borrower will: (a) Leverage Ratio. Maintain, at the end of each Fiscal Quarter a ratio of (x) Indebtedness for Borrowed Money to (y) Consolidated EBITDA of Group and its Subsidiaries for the preceding four Fiscal Quarters of not more than 3.25 to 1.0; provided 68 that if the Tender Offer is consummated, such ratio shall not be more than 3.75 to 1.0 for each Fiscal Quarter ending on or before September 30, 2000, 3.50 to 1.0 for each Fiscal Quarter ending on or about December 31, 2000 through the Fiscal Quarter ending on or about September 30, 2001 and 3.25 to 1.0 for each Fiscal Quarter thereafter. (b) Coverage Ratio. Maintain, as of the end of each Fiscal Quarter, a ratio of Consolidated EBITDA of Group and its Subsidiaries for the four consecutive Fiscal Quarters then ended to Consolidated Interest Expense of Group and its Subsidiaries for such period of not less than 3.00:1.00. ARTICLE VI EVENTS OF DEFAULT SECTION 6.01. Events of Default. If any of the following events ("Events of Default") shall occur and be continuing: (a) The Borrower shall fail to pay any principal of any Advance when the same becomes due and payable; or the Borrower or any other Loan Party shall fail to pay any interest on any Advance or make any other payment of fees or other amounts payable under any Loan Document within three Business Days after the same becomes due and payable; or (b) Any representation or warranty made by any Loan Party (or any of its officers) under or in connection with any Loan Document shall prove to have been incorrect in any material respect when made; or (c) (i) Group or the Borrower shall fail to perform or observe any term, covenant or agreement contained in Section 5.01(d), (k) or (l), 5.02 or 5.03, or (ii) any Loan Party shall fail to perform or observe any other term, covenant or agreement contained in any Loan Document on its part to be performed or observed if such failure shall remain unremedied for 30 days (A) after written notice thereof shall have been given to the Borrower by any Agent or any Lender or (B) after any officer of the Borrower obtains knowledge thereof; or (d) Any Loan Party or any of its Subsidiaries shall fail to pay any principal of or premium or interest on any Debt under the Trade Credit Facility or other Debt that is outstanding in a principal or notional amount of at least $20,000,000 in the aggregate (but excluding Debt outstanding hereunder) of such Loan Party or such Subsidiary (as the case may be), when the same becomes due and payable (whether by scheduled maturity, 69 required prepayment, acceleration, demand or otherwise), and such failure shall continue after the applicable grace period, if any, specified in the agreement or instrument relating to such Debt; or any other event shall occur or condition shall exist under any agreement or instrument relating to any such Debt and shall continue after the applicable grace period, if any, specified in such agreement or instrument, if the effect of such event or condition is to accelerate, or to permit the acceleration of, the maturity of such Debt; or any such Debt shall be declared to be due and payable, or required to be prepaid or redeemed (other than by a regularly scheduled required prepayment or redemption or other than as a result of any event which provides cash to such Loan Party in an amount sufficient to satisfy such redemption or prepayment), purchased or defeased, or an offer to prepay, redeem, purchase or defease such Debt shall be required to be made, in each case prior to the stated maturity thereof; or (e) Group, the Borrower or any of their Material Subsidiaries (or any group of Subsidiaries which, in the aggregate, would constitute a Material Subsidiary) shall generally not pay its debts as such debts become due, or shall admit in writing its inability to pay its debts generally, or shall make a general assignment for the benefit of creditors; or any proceeding shall be instituted by or against any Group, the Borrower or any of their Subsidiaries (or any group of Subsidiaries which, in the aggregate, would constitute a Material Subsidiary) seeking to adjudicate it a bankrupt or insolvent, or seeking liquidation, winding up, reorganization, arrangement, adjustment, protection, relief, or composition of it or its debts under any law relating to bankruptcy, insolvency or reorganization or relief of debtors, or seeking the entry of an order for relief or the appointment of a receiver, trustee, custodian or other similar official for it or for any substantial part of its property and, in the case of any such proceeding instituted against it (but not instituted by it), either such proceeding shall remain undismissed or unstayed for a period of 30 days, or any of the actions sought in such proceeding (including, without limitation, the entry of an order for relief against, or the appointment of a receiver, trustee, custodian or other similar official for, it or for any substantial part of its property) shall occur; or such Loan Party or any of its Subsidiaries shall take any corporate action to authorize any of the actions set forth above in this subsection (e); or (f) Any judgment or order for the payment of money in excess of $20,000,000 shall be rendered against any Loan Party or any of its Subsidiaries and either (i) enforcement proceedings shall have been commenced by any creditor upon such judgment or order or (ii) there shall be any period of 10 consecutive days during which a stay of enforcement of such judgment or order, by reason of a pending appeal or otherwise, shall not be in effect unless the payment of such judgment or order is covered by insurance and such insurance coverage is not in dispute. 70 (g) Any non-monetary judgment or order shall be rendered against any Loan Party or any of its Subsidiaries that could be reasonably expected to have a Material Adverse Effect, and there shall be any period of 10 consecutive days during which a stay of enforcement of such judgment or order, by reason of a pending appeal or otherwise, shall not be in effect; or (h) any provision of any Loan Document, after delivery thereof pursuant to Section 3.01 or 5.01(k), shall for any reason cease to be valid and binding on or enforceable against any Loan Party party to it, or any such Loan Party shall so state in writing; or (i) (A) Group shall at any time cease to have legal and beneficial ownership of 100% of the capital stock of the Borrower (except if such parties shall merge); or (B) any Person, or two or more Persons acting in concert, shall have acquired beneficial ownership (within the meaning of Rule 13d-3 of the Securities and Exchange Commission under the Securities Exchange Act of 1934), directly or indirectly, of Voting Stock of Group (or other securities convertible into such Voting Stock) representing 25% or more of the combined voting power of all Voting Stock of Group (other than Excluded Persons); or (C) any Person, or two or more Persons acting in concert shall have acquired by contract or otherwise, or shall have entered into a contract or arrangement that, upon consummation, will result in its or their acquisition of, the power to exercise, directly or indirectly, a controlling influence over the management or policies of Group, or control over Voting Stock of Group (or other securities convertible into such securities) representing 25% or more of combined voting power of all Voting Stock of Group (other than Excluded Persons); or (D) Linda J. Wachner (or, in the case of her death or disability, another officer or officers of comparable experience and ability selected by the Borrower within 180 days thereafter after consultation with the Administrative Agent) shall cease to be Chairman and Chief Executive Officer of Group and the Borrower); or (j) Any Loan Party or any of its ERISA Affiliates shall incur, or shall be reasonably likely to incur, liability in excess of $20,000,000 in the aggregate as a result of one or more of the following: (i) the occurrence of any ERISA Event; (ii) the partial or complete withdrawal of such Loan Party or any of its ERISA Affiliates from a Multiemployer Plan; or (iii) the reorganization or termination of a Multiemployer Plan; then, and in any such event, the Administrative Agent (i) shall at the request, or may with the consent, of the Required Lenders, by notice to the Borrower, declare the obligation of each Appropriate Lender to make Advances (other than Letter of Credit Advances by an Issuing Bank or a Revolving Credit Lender pursuant to Section 2.03(c) and Swing Line Advances by a Revolving Credit Lender pursuant to Section 2.02(b)) and of each Issuing Bank to issue Letters of Credit to be terminated, whereupon the same shall forthwith terminate, and (ii) shall at the 71 request, or may with the consent, of the Required Lenders, (A) by notice to the Borrower, declare the Advances, all interest thereon and all other amounts payable under this Agreement and the other Loan Documents to be forthwith due and payable, whereupon the Advances, all such interest and all such amounts shall become and be forthwith due and payable, without presentment, demand, protest or further notice of any kind, all of which are hereby expressly waived by the Borrower and (B) by notice to each party required under the terms of any agreement in support of which a Standby Letter of Credit is issued, request that all Obligations under such agreement be declared to be due and payable; provided, however, that in the event of an actual or deemed entry of an order for relief with respect to any Loan Party or any of its Material Subsidiaries (or any group of Subsidiaries which, in the aggregate, would constitute a Material Subsidiary) under the Federal Bankruptcy Code, (x) the obligation of each Lender to make Advances (other than Letter of Credit Advances by the Issuing Bank or a Revolving Credit Lender pursuant to Section 2.03(c) and Swing Line Advances by a Revolving Credit Lender pursuant to Section 2.02(b)) and of each Issuing Bank to issue Letters of Credit shall automatically be terminated and (y) the Advances, all such interest and all such amounts shall automatically become and be due and payable, without presentment, demand, protest or any notice of any kind, all of which are hereby expressly waived by the Borrower. SECTION 6.02. Actions in Respect of the Letters of Credit upon Default. If any Event of Default shall have occurred and be continuing, the Administrative Agent may, or shall at the request of the Required Lenders, irrespective of whether they are taking any of the actions described in Section 6.01 or otherwise, make demand upon the Borrower to, and forthwith upon such demand the Borrower will, pay to the Administrative Agent on behalf of the Lender Parties in same day funds at the Administrative Agent's office designated in such demand, for deposit in the L/C Cash Collateral Account, an amount equal to the aggregate Available Amount of all Letters of Credit then outstanding. If at any time the Administrative Agent determines that any funds held in the L/C Cash Collateral Account are subject to any right or claim of any Person other than the Agents and the Lender Parties or that the total amount of such funds is less than the aggregate Available Amount of all Letters of Credit, the Borrower will, forthwith upon demand by the Administrative Agent, pay to the Administrative Agent, as additional funds to be deposited and held in the L/C Cash Collateral Account, an amount equal to the excess of (a) such aggregate Available Amount over (b) the total amount of funds, if any, then held in the L/C Cash Collateral Account that the Administrative Agent determines to be free and clear of any such right and claim. 72 ARTICLE VII THE AGENTS SECTION 7.01. Authorization and Action. Each Lender Party hereby appoints and authorizes each Agent to take such action as agent on its behalf and to exercise such powers and discretion under this Agreement and the other Loan Documents as are delegated to such Agent by the terms hereof, together with such powers and discretion as are reasonably incidental thereto. As to any matters not expressly provided for by this Agreement and the other Loan Documents (including, without limitation, enforcement or collection of the Notes, if any), each Agent shall not be required to exercise any discretion or take any action, but shall be required to act or to refrain from acting (and shall be fully protected in so acting or refraining from acting) upon the instructions of the Required Lenders, and such instructions shall be binding upon all Lender Parties and all holders of Notes; provided, however, that no Agent shall be required to take any action that exposes such Agent to personal liability or that is contrary to this Agreement or applicable law. Each Agent agrees to give to each Lender prompt notice of each notice given to it by the Borrower pursuant to the terms of this Agreement. SECTION 7.02. Agents' Reliance, Etc. None of the Agents nor any of their directors, officers, agents or employees shall be liable for any action taken or omitted to be taken by it or them under or in connection with this Agreement and the other Loan Documents, except for its or their own gross negligence or willful misconduct. Without limitation of the generality of the foregoing, each Agent: (i) may treat the payee of any Note as the holder thereof until the Administrative Agent receives and accepts an Assignment and Acceptance entered into by the Lender that is the payee of such Note, as assignor, and an Eligible Assignee, as assignee, as provided in Section 8.07; (ii) may consult with legal counsel (including counsel for any Loan Party), independent public accountants and other experts selected by it and shall not be liable for any action taken or omitted to be taken in good faith by it in accordance with the advice of such counsel, accountants or experts; (iii) makes no warranty or representation to any Lender Party and shall not be responsible to any Lender Party for any statements, warranties or representations (whether written or oral) made in or in connection with this Agreement and the other Loan Documents; (iv) shall not have any duty to ascertain or to inquire as to the performance or observance of any of the terms, covenants or conditions of this Agreement and the other Loan Documents on the part of any Loan Party or to inspect the property (including the books and records) of any Loan Party (v) shall not be responsible to any Lender Party for the due execution, legality, validity, enforceability, genuineness, sufficiency or value of or the other Loan Documents or any other instrument or document furnished pursuant hereto; and (vi) shall incur no liability under or in respect of this Agreement or the other Loan Documents by acting upon any notice, consent, certificate or other instrument or writing (which may be by telecopier, telegram or telex) believed by it to be genuine and signed or sent by the proper party or parties. 73 SECTION 7.03. Scotiabank, Citibank, Commerzbank and Affiliates. With respect to its Commitment, the Advances made by it and any Notes issued to it, each of Scotiabank, Citibank and Commerzbank shall have the same rights and powers under this Agreement and the other Loan Documents as any other Lender and may exercise the same as though it were not an Agent; and the term "Lender Party" or "Lender Parties" shall, unless otherwise expressly indicated, include Scotiabank, Citibank and Commerzbank in their individual capacities. Each of Scotiabank, Citibank and Commerzbank and their Affiliates may accept deposits from, lend money to, act as trustee under indentures of, accept investment banking engagements from and generally engage in any kind of business with, any Loan Party, any of its Subsidiaries and any Person who may do business with or own securities of any Loan Party or any such Subsidiary, all as if Scotiabank, Citibank and Commerzbank were not Agents and without any duty to account therefor to the Lender Parties. SECTION 7.04. Lender Credit Decision. Each Lender Party acknowledges that it has, independently and without reliance upon any Agent or any other Lender Party and based on the financial statements referred to in Section 4.01 and such other documents and information as it has deemed appropriate, made its own credit analysis and decision to enter into this Agreement. Each Lender Party also acknowledges that it will, independently and without reliance upon any Agent or any other Lender Party and based on such documents and information as it shall deem appropriate at the time, continue to make its own credit decisions in taking or not taking action under this Agreement. SECTION 7.05. Indemnification. Each Lender Party (other than the Designated Lenders which have only Competitive Bid Advances outstanding) agrees to indemnify each Agent (to the extent not reimbursed by the Borrower), ratably according to the respective principal amounts of the Advances then owed to each of them (or if no Advances are at the time outstanding or if any Advances are owed to Persons that are not Lenders, ratably according to the respective amounts of their Commitments), from and against any and all liabilities, obligations, losses, damages, penalties, actions, judgments, suits, costs, expenses or disbursements of any kind or nature whatsoever that may be imposed on, incurred by, or asserted against such Agent in any way relating to or arising out of this Agreement or the other Loan Documents or any action taken or omitted by such Agent under this Agreement or the other Loan Documents, provided that no Lender Party shall be liable for any portion of such liabilities, obligations, losses, damages, penalties, actions, judgments, suits, costs, expenses or disbursements resulting from the Agent's gross negligence or willful misconduct; and provided, further, that no Designated Lender shall be liable for any payment under this Section 7.05 so long as, and to the extent that, its Designating Lender makes such payments on its behalf. The Borrower, the Agents and the other Lender Parties shall continue to deal solely and directly with the Designating Lender in connection with the Designated Lender's rights and obligations under this Agreement. Without limitation of the foregoing, each Lender Party (other than the Designated Lenders which have only Competitive Bid Advances outstanding) agrees to reimburse each Agent promptly upon 74 demand for its ratable share of any out-of-pocket expenses (including counsel fees) incurred by such Agent in connection with the preparation, execution, delivery, administration, modification, amendment or enforcement (whether through negotiations, legal proceedings or otherwise) of, or legal advice in respect of rights or responsibilities under, this Agreement and the other Loan Documents, to the extent that such Agent is not reimbursed for such expenses by the Borrower. SECTION 7.06. Successor Agents. Any Agent may resign at any time by giving written notice thereof to the Lender Parties and the Borrower and may be removed at any time with or without cause by the Required Lenders. Upon any such resignation or removal, the Required Lenders shall have the right to appoint a successor Agent with the approval of the Borrower. If no successor Agent shall have been so appointed by the Required Lenders, and shall have accepted such appointment, within 30 days after the retiring Agent's giving of notice of resignation or the Required Lenders' removal of the retiring Agent, then the retiring Agent may, on behalf of the Lenders, appoint a successor Agent, which shall be a commercial bank organized under the laws of the United States of America or of any State thereof and having a combined capital and surplus of at least $500,000,000. Upon the acceptance of any appointment as Agent hereunder by a successor Agent, such successor Agent shall thereupon succeed to and become vested with all the rights, powers, discretion, privileges and duties of the retiring Agent, and the retiring Agent shall be discharged from its duties and obligations under this Agreement and the other Loan Documents. After any retiring Agent's resignation or removal hereunder as Agent, the provisions of this Article VII shall inure to its benefit as to any actions taken or omitted to be taken by it while it was Agent under this Agreement. ARTICLE VIII MISCELLANEOUS SECTION 8.01. Amendments, Etc. No amendment or waiver of any provision of this Agreement, nor consent to any departure by the Borrower therefrom, shall in any event be effective unless the same shall be in writing and signed by the Required Lenders, and then such waiver or consent shall be effective only in the specific instance and for the specific purpose for which given; provided, however, that (a) no amendment, waiver or consent shall, unless in writing and signed by all the Lenders (other than the Designated Lenders and other than any Lender Party which is, at such time, a Defaulting Lender), do any of the following at any time: (i) waive any of the conditions specified in Section 3.01 or, in the case of the initial Borrowing, Section 3.02, (ii) change the percentage of the Commitments or of the aggregate unpaid principal amount of the Advances, or the number of Lenders, that shall be required for the Lenders or any of them to take any action hereunder, (iii) release any Material Guarantor, or (vi) amend this Section 8.01, (b) no amendment, waiver or consent shall, unless in writing and signed by the Required Lenders and each Lender affected by such amendment, waiver or consent (other than 75 the Designated Lenders and other than any Lender which is, at such time, a Defaulting Lender), (i) reduce the principal of, or interest on, the Advances owed to such Lender or any fees or other amounts payable hereunder to such Lender or (ii) postpone any date fixed for any payment of principal of, or interest on, the Advances owed to such Lender or any fees or other amounts payable hereunder to such Lender and (c) no amendment, waiver or consent shall, unless in writing and signed by the Required Lenders and, for each Facility directly affected by such amendment, waiver or consent, each Lender that has a Commitment under such Facility (other than the Designated Lenders and other than any Lender which is, at such time, a Defaulting Lender), increase the Commitments of such Lender or subject such Lender to any additional obligations; provided further that no amendment, waiver or consent shall, unless in writing and signed by the Swing Line Bank or any Issuing Bank, as the case may be, in addition to the Lenders required above to take such action, affect the rights or obligations of the Swing Line Bank or of such Issuing Bank, as the case may be, under this Agreement; and provided further that no amendment, waiver or consent shall, unless in writing and signed by an Agent in addition to the Lenders required above to take such action, affect the rights or duties of such Agent under this Agreement. Each Designating Lender shall act as its Designated Lender's agent and attorney in fact and exercise on behalf of its Designated Lender all rights, if any, to vote and to grant and make approvals, waivers, consents or waivers in accordance with this Section 8.01. The Borrower, the Agents and the other Lender Parties shall continue to deal solely and directly with the Designating Lender in connection with the Designated Lender's rights and obligations under this Agreement. Any request by any Loan Party for an amendment or waiver of any provision of any Loan Document shall be made by such Loan Party by giving a written request therefor to the Documentation Agent. SECTION 8.02. Notices, Etc. All notices and other communications provided for hereunder shall be in writing (including telegraphic, telecopy, telex or cable communication) and mailed, telegraphed, telecopied, telexed, cabled or delivered, if to the Borrower, at its address at 90 Park Avenue, New York, New York 10016, Attention: Chief Financial Officer, with a copy to General Counsel; if to any Initial Lender or initial Issuing Bank or Agent, at its Domestic Lending Office specified opposite its name on Schedule I hereto; if to any other Lender Party, at its Domestic Lending Office specified in the Assignment and Acceptance pursuant to which it became a Lender; or, as to each party, at such other address as shall be designated by such party in a written notice to the other parties. All such notices and communications shall, when mailed, telegraphed, telecopied, telexed or cabled, be effective when deposited in the mails, delivered to the telegraph company, transmitted by telecopier, confirmed by telex answerback or delivered to the cable company, respectively, except that notices and communications to an Agent pursuant to Article II, III or VII shall not be effective until received by such Agent. Delivery by telecopier of an executed counterpart of any amendment or waiver of any provision of this Agreement or of any Exhibit hereto to be executed and delivered hereunder shall be effective as delivery of a manually executed counterpart thereof. 76 SECTION 8.03. No Waiver; Remedies. No failure on the part of any Lender Party or Agent to exercise, and no delay in exercising, any right hereunder shall operate as a waiver thereof; nor shall any single or partial exercise of any such right preclude any other or further exercise thereof or the exercise of any other right. The remedies herein provided are cumulative and not exclusive of any remedies provided by law. SECTION 8.04. Costs and Expenses. (a) Group and the Borrower agree to pay on demand (i) all reasonable costs and expenses (other than taxes, including interest, additions to tax and penalties relating thereto, except to the extent that the same are required to be paid pursuant to Section 2.14 hereof) of the Agents in connection with the preparation, execution, delivery, administration, modification and amendment of the Loan Documents (including, without limitation, (A) all due diligence, syndication (including printing, distribution and bank meetings), transportation, computer, duplication, appraisal, audit, insurance, consultant, search, filing and recording fees and all other out-of-pocket expenses and (B) the reasonable fees and expenses of counsel for the Agents with respect thereto, with respect to advising the Agents as to their respective rights and responsibilities, or the protection or preservation of rights or interests, under the Loan Documents, with respect to negotiations with any Loan Party or with other creditors of any Loan Party or any of its Subsidiaries arising out of any Default or any events or circumstances that may give rise to a Default and with respect to presenting claims in or otherwise participating in or monitoring any bankruptcy, insolvency or other similar proceeding involving creditors' rights generally, and any proceeding ancillary thereto) and (ii) all reasonable costs and expenses (other than taxes, including interest, additions to tax and penalties relating thereto, except to the extent that the same are required to be paid pursuant to Section 2.14 hereof) of the Agents and the Lender Parties in connection with the enforcement of the Loan Documents, whether in any action, suit or litigation, any bankruptcy, insolvency or other similar proceeding affecting creditors' rights generally or otherwise (including, without limitation, the reasonable fees and expenses of counsel for the Agents and each Lender Party with respect thereto). (b) Group and the Borrower agree to indemnify and hold harmless each of the Agents and each Lender (other than any Designated Lender to the extent such indemnification obligation exceeds that which the Borrower would owe to its Designating Lender) and each of their Affiliates and their officers, directors, employees, agents and advisors (each, an "Indemnified Party") from and against any and all claims, damages, losses, liabilities and expenses (including, without limitation, reasonable fees and expenses of counsel, but other than taxes, including interest, additions to tax and penalties relating thereto, except to the extent that the same are required to be paid pursuant to Section 2.14 hereof) that may be incurred by or asserted or awarded against any Indemnified Party, in each case arising out of or in connection with or by reason of, or in connection with the preparation for a defense of, any investigation, litigation or proceeding arising out of, related to or in connection with (i) the Facilities or the actual or proposed use of the proceeds of the Advances or (ii) the actual or alleged presence of Hazardous Materials on any property of the Borrower or any of its Subsidiaries or any 77 Environmental Action relating in any way to the Borrower or any of its Subsidiaries, in each case whether or not such investigation, litigation or proceeding is brought by the Borrower, its directors, shareholders or creditors or an Indemnified Party or any other Person or any Indemnified Party is otherwise a party thereto and whether or not the transactions contemplated hereby, the Tender Offer or the Merger are consummated, except to the extent such claim, damage, loss, liability or expense is found in a final, non-appealable judgment by a court of competent jurisdiction to have resulted from such Indemnified Party's gross negligence or willful misconduct. The Borrower also agrees not to assert any claim against any Agent, any Lender, any of their Affiliates, or any of their respective directors, officers, employees, attorneys and agents, on any theory of liability, for special, indirect, consequential or punitive damages arising out of or otherwise relating to this Agreement, any of the transactions contemplated herein, the Tender Offer, the Merger or the actual or proposed use of the proceeds of the Advances, except in the event of gross negligence or willful misconduct on the part of such Agent, Lender or Affiliate. (c) If any payment of principal of any Eurodollar Rate Advance or LIBO Rate Advance, or any Conversion of any Eurodollar Rate Advance, is made by the Borrower to or for the account of a Lender other than on the last day of the Interest Period for such Advance, as a result of a payment or Conversion pursuant to Section 2.07, Section 2.10(b)(1) or Section 2.12, acceleration of the maturity of the Advances pursuant to Section 6.01 or for any other reason, the Borrower shall, upon demand by such Lender Party (with a copy of such demand to the Administrative Agent), pay to the Administrative Agent for the account of such Lender Party any amounts required to compensate such Lender Party for any additional losses, costs or expenses that it may reasonably incur as a result of such payment or Conversion, including, without limitation, any loss (excluding loss of anticipated profits and taxes, including interest, additions to tax and penalties relating thereto, except to the extent that the same are required to be paid pursuant to Section 2.14 hereof), cost or expense incurred by reason of the liquidation or reemployment of deposits or other funds acquired by any Lender Party to fund or maintain such Advance; provided, however, that notwithstanding any of the foregoing, the Borrower shall not be required to compensate any Designated Lender for any losses, costs or expenses to the extent such amounts exceed that which the Borrower would owe to its Designating Lender, but for such designation. (d) Without prejudice to the survival of any other agreement of the Borrower hereunder, the agreements and obligations of the Borrower contained in Section 2.11, Section 2.14 and this Section 8.04 and the agreements and obligations of any Lender Party or Agent contained in Section 2.14 shall survive the payment in full of principal, interest and all other amounts payable hereunder. (e) Notwithstanding anything to the contrary, neither the designation of any Designated Lender, any Advance made by any Designated Lender, nor any other condition or 78 circumstance relating to any Designated Lender shall increase (i) any obligations or liabilities of the Borrower hereunder, including, without limitation, pursuant to Section 2.07, Section 2.10(b)(1) or Section 2.12 or this Section 8.04, or (ii) any obligations or liabilities of the Borrower under any Loan Documents, in each case, as compared with any obligations or liabilities which would arise if the Designating Lender were the Lender for all purposes and had not otherwise appointed a Designated Lender. SECTION 8.05. Right of Set-off. Upon (i) the occurrence and during the continuance of any Event of Default and (ii) the making of the request or the granting of the consent specified by Section 6.01 to authorize the Administrative Agent to declare the Advances due and payable pursuant to the provisions of Section 6.01, each Lender Party and each of its Affiliates is hereby authorized at any time and from time to time, to the fullest extent permitted by law, to set off and apply any and all deposits (general or special, time or demand, provisional or final) at any time held and other indebtedness at any time owing by such Lender Party or such Affiliate to or for the credit or the account of the Borrower against any and all of the Obligations of the Borrower now or hereafter existing under this Agreement and any Note held by such Lender, whether or not such Lender Party shall have made any demand under this Agreement or such Note, if any, and although such obligations may be unmatured. Each Lender agrees promptly to notify the Borrower after any such set-off and application, provided that the failure to give such notice shall not affect the validity of such set-off and application. The rights of each Lender Party and its Affiliates under this Section are in addition to other rights and remedies (including, without limitation, other rights of set-off) that such Lender Party and its Affiliates may have. SECTION 8.06. Binding Effect. This Agreement shall become effective (other than Sections 2.01 and 2.03, which shall only become effective upon satisfaction of the conditions precedent set forth in Section 3.01) when it shall have been executed by the Borrower, Group and the Agents and when the Administrative Agent shall have been notified by each Initial Lender and initial Issuing Bank that such Initial Lender and initial Issuing Bank has executed it and thereafter shall be binding upon and inure to the benefit of the Borrower, the Agents and each Lender Party and their respective successors and assigns, except that the Borrower shall not have the right to assign its rights hereunder or any interest herein without the prior written consent of the Lender Parties. SECTION 8.07. Assignments, Designations and Participations (a) Each Lender Party (other than any Designated Lender except for an assignment to its Designating Lender) may assign, and, if demanded by the Borrower upon at least 30 Business Days' notice to such Lender and the Administrative Agent following either (w) such Lender becoming a Defaulting Lender, (x) a payment by the Borrower of Taxes with respect to such Lender in accordance with Section 2.14, (y) the occurrence of an event that would, upon payment to such Lender of amounts hereunder, require a payment by the Borrower of Taxes with respect to such Lender in 79 accordance with Section 2.14 or (z) a demand for payment under Section 2.11 will assign, to one or more banks or other entities all or a portion of its rights and obligations under this Agreement (including, without limitation, all or a portion of its Commitment or Commitments, the Advances owing to it (including accrued interest) and any Revolving Credit Note held by it but not including Competitive Bid Advances owing to it and Competitive Bid Notes), with (except in the case of an assignment to an Affiliate of such Lender) the prior written consent of the Administrative Agent and (so long as no Default has occurred and is continuing) the Borrower, such consent not to be unreasonably withheld or delayed; provided, however, that except in the case of (x) an assignment to a Person that, immediately prior to such assignment, was a Lender, (y) an assignment to an Affiliate of the assigning Lender (including an assignment by a Designated Lender to its Designating Lender) or (z) an assignment of all of a Lender's rights and obligations under this Agreement, the amount of the Commitment of the assigning Lender being assigned pursuant to each such assignment (determined as of the date of the Assignment and Acceptance with respect to such assignment) shall in no event be less than $10,000,000 or an integral multiple of $1,000,000 in excess thereof, and the amount of the Commitment of the assigning Lender being retained by such Lender immediately after giving effect to such assignment (determined as of the effective date of the Assignment and Acceptance with respect to such assignment) shall in no event be less than $10,000,000, (C) each such assignment shall be to an Eligible Assignee, (D) each such assignment made as a result of a demand by the Borrower pursuant to this Section 8.07(a) shall be arranged by the Borrower after consultation with the Administrative Agent and shall be either an assignment of all of the rights and obligations of the assigning Lender under this Agreement or an assignment of a portion of such rights and obligations made concurrently with another such assignment or other such assignments that together cover all of the rights and obligations of the assigning Lender under this Agreement, (E) no Lender shall be obligated to make any such assignment as a result of a demand by the Borrower pursuant to this Section 8.07(a) unless and until such Lender shall have received one or more payments from either the Borrower or one or more Eligible Assignees in an aggregate amount at least equal to the aggregate outstanding principal amount of the Advances owing to such Lender, together with accrued interest thereon to the date of payment of such principal amount and all other amounts payable to such Lender under this Agreement, (F) no such assignments will be permitted without the consent of the Arrangers until the Arrangers shall have notified the Lender Parties that syndication of the Commitments thereunder has been completed, and (G) the parties to each such assignment shall execute and deliver to the Administrative Agent, for its acceptance and recording in the Register, an Assignment and Acceptance, together with any Revolving Credit Note subject to such assignment and a processing and recordation fee of $3,500, provided that the Borrower shall pay such recordation fee in the case of any assignment demanded by the Borrower pursuant to this Section 8.07(a). Upon such execution, delivery, acceptance and recording, from and after the effective date specified in each Assignment and Acceptance, (x) the assignee thereunder shall be a party hereto and, to the extent that rights and obligations hereunder have been assigned to it pursuant to such Assignment and Acceptance, have the rights and obligations of a 80 Lender Party's hereunder and (y) the Lender Party's assignor thereunder shall, to the extent that rights and obligations hereunder have been assigned by it pursuant to such Assignment and Acceptance, relinquish its rights and be released from its obligations under this Agreement (and, in the case of an Assignment and Acceptance covering all or the remaining portion of an assigning Lender Party's rights and obligations under this Agreement, such Lender Party shall cease to be a party hereto). (b) By executing and delivering an Assignment and Acceptance, the Lender Party assignor thereunder and the assignee thereunder confirm to and agree with each other and the other parties hereto as follows: (i) other than as provided in such Assignment and Acceptance, such assigning Lender Party makes no representation or warranty and assumes no responsibility with respect to any statements, warranties or representations made in or in connection with this Agreement or any other Loan Document the execution, legality, validity, enforceability, genuineness, sufficiency or value of this Agreement or any other or any other Loan Document or any other instrument or document furnished pursuant hereto; (ii) such assigning Lender makes no representation or warranty and assumes no responsibility with respect to the financial condition of any Loan Party or the performance or observance by any Loan Party of any of its obligations under this Agreement or any other instrument or document furnished pursuant hereto or thereto; (iii) such assignee confirms that it has received a copy of this Agreement, together with copies of the financial statements referred to in Section 4.01 and such other documents and information as it has deemed appropriate to make its own credit analysis and decision to enter into such Assignment and Acceptance; (iv) such assignee will, independently and without reliance upon the any Agent, such assigning Lender Party or any other Lender Party and based on such documents and information as it shall deem appropriate at the time, continue to make its own credit decisions in taking or not taking action under this Agreement; (v) such assignee confirms that it is an Eligible Assignee; (vi) such assignee appoints and authorizes each Agent to take such action as agent on its behalf and to exercise such powers and discretion under this Agreement as are delegated to the each Agent by the terms hereof, together with such powers and discretion as are reasonably incidental thereto; and (vii) such assignee agrees that it will perform in accordance with their terms all of the obligations that by the terms of this Agreement are required to be performed by it as a Lender Party. (c) Upon its receipt of an Assignment and Acceptance executed by an assigning Lender Party and an assignee representing that it is an Eligible Assignee, together with any Revolving Credit Note subject to such assignment, the Administrative Agent shall, if such Assignment and Acceptance has been completed and is in substantially the form of Exhibit C hereto, (i) accept such Assignment and Acceptance, (ii) record the information contained therein in the Register and (iii) give prompt notice thereof to the Borrower. 81 (d) (i) Any Lender (other than a Designated Lender) may at any time designate not more than one Designated Lender to fund Revolving Credit Advances and/or Competitive Bid Advances on behalf of such Designating Lender subject to the terms of this Section 8.07(d). Such designation may occur by execution by such parties of a Designation Agreement. The parties to each such designation shall execute and deliver to the Administrative Agent and the Borrower for their acceptance a Designation Agreement. Upon receipt of an appropriately completed Designation Agreement executed by a Designating Lender and a designee representing that it is a Designated Lender and consented by the Borrower, the Administrative Agent will accept such Designation Agreement and will give prompt notice thereof to the Borrower and the other Lenders, whereupon, (A) upon the written request of the Designating Lender, the Borrower shall execute and deliver to the Designating Lender a Revolving Credit Note and/or from time to time a Competitive Bid Note, as the case may be, in each case payable to the order of the Designated Lender, (B) from and after the effective date specified in the Designation Agreement, the Designated Lender shall become a party to this Agreement with a right to make Revolving Credit Advances and/or Competitive Bid Advances on behalf of its Designating Lender pursuant to Sections 2.01(a) and 2.04, respectively, and (C) the Designated Lender shall not be required to make payments with respect to any obligations in this Agreement except to the extent of excess cash flow of such Designated Lender which is not otherwise required to repay obligations of such Designated Lender which are then due and payable; provided, however, that regardless of such designation and assumption by the Designated Lender, the Designating Lender (1) shall be and remain obligated to the Borrower, the Agents and the Lender Parties for each and every of the obligations of the Designating Lender and its related Designated Lender with respect to this Agreement, including, without limitation, any indemnification obligations under Section 7.05 hereof and any sums otherwise payable to the Borrower by the Designated Lender and (2) neither the designation of a Designated Lender, the election or other determination that a Designated Lender will make any Advance nor any other condition or circumstance relating to the Designated Lender shall in any way release, diminish or otherwise affect the relevant Designating Lender's Commitment or any other of its obligations hereunder or under any other Loan Document or any rights of the Borrower, any Agent or any Lender with respect to such Designating Lender. (ii) The Borrower, the Agents and the Lender Parties may, at their option, pursue remedies against any Designating Lender which arise out of any failure of its Designated Lender to perform such Designated Lender's obligations under this Agreement or any other Loan Document. Each Designating Lender shall serve as the administrative agent and attorney in fact for its Designated Lender and shall on behalf of its Designated Lender: (A) receive any and all payments made for the benefit of such Designated Lender and (B) give and receive all communications and notices and take all actions hereunder, including, without limitation, votes, approvals, waivers, consents and amendments under or relating to this Agreement and the other Loan Documents to the extent, if any, such Designated Lender shall 82 have any rights hereunder or thereunder. To the extent a Designated Lender shall have the right to receive or give any such notice, communication, vote, approval, waiver, consent or amendment, it shall be signed by its Designating Lender as administrative agent and attorney in fact for such Designated Lender and need not be signed by such Designated Lender on his own behalf. The Borrower, the Agents and the Lender Parties may rely thereon without any requirement that the Designated Lender sign or acknowledge the same. Notwithstanding anything to the contrary contained herein, no Designated Lender may assign or transfer all or any portion of its interest hereunder or under any other Loan Document, other than via an assignment to its Designating Lender in accordance with the provisions of this Section 8.07. (e) By executing and delivering a Designation Agreement, the Lender Party making the designation thereunder and its designee thereunder confirm and agree with each other and the other parties hereto as follows: (i) such Lender Party makes no representation or warranty and assumes no responsibility with respect to any statements, warranties or representations made in or in connection with this Agreement or the execution, legality, validity, enforceability, genuineness, sufficiency or value of this Agreement or any other instrument or document furnished pursuant hereto; (ii) such Lender Party makes no representation or warranty and assumes no responsibility with respect to the financial condition of the Borrower or the performance or observance by the Borrower of any of its obligations under this Agreement or any other instrument or document furnished pursuant hereto; (iii) such designee confirms that it has received a copy of this Agreement, together with copies of the financial statements referred to in Section 4.01 and such other documents and information as it has deemed appropriate to make its own credit analysis and decision to enter into such Designation Agreement; (iv) such designee will, independently and without reliance upon any Agent, such designating Lender Party or any other Lender Party and based on such documents and information as it shall deem appropriate at the time, continue to make its own credit decisions in taking or not taking action under this Agreement; (v) such designee confirms that it is a Designated Lender; (vi) such designee appoints and authorizes each Agent to take such action as agent on its behalf and to exercise such powers and discretion under this Agreement as are delegated to such Agent by the terms hereof, together with such powers and discretion as are reasonably incidental thereto; and (vii) such designee agrees that it will perform in accordance with their terms all of the obligations which by the terms of this Agreement are required to be performed by it as a Lender Party. (f) Upon its receipt of a Designation Agreement executed by a designating Lender Party and a designee representing that it is a Designated Lender, the Administrative Agent shall, if such Designation Agreement has been completed and is substantially in the form of Exhibit D hereto, (i) accept such Designation Agreement, (ii) record the information contained therein in the Register and (iii) give prompt notice thereof to the Borrower. 83 (g) The Administrative Agent shall maintain at its address referred to in Section 8.02 a copy of each Assignment and Acceptance and each Designation Agreement delivered to and accepted by it and a register for the recordation of the names and addresses of the Lender Parties and, with respect to Lenders other than Designated Lenders, the Commitment of, and principal amount of the Advances owing to, each Lender from time to time (the "Register"). The entries in the Register shall be conclusive and binding for all purposes, absent manifest error, and the Borrower, the Agents and the Lender Parties may treat each Person whose name is recorded in the Register as a Lender Party hereunder for all purposes of this Agreement. The Register shall be available for inspection by the Borrower or any Lender Party at any reasonable time and from time to time upon reasonable prior notice. (h) Each Lender Party may sell participations to one or more banks or other entities in or to all or a portion of its rights and obligations under this Agreement (including, without limitation, all or a portion of its Commitment and the Advances owing to it); provided, however, that (i) such Lender Party's obligations under this Agreement (including, without limitation, its Commitment to the Borrower hereunder) shall remain unchanged, (ii) such Lender Party shall remain solely responsible to the other parties hereto for the performance of such obligations, (iii) such Lender Party shall remain the holder of any Note issued to it for all purposes of this Agreement, (iv) the Borrower, the Agents and the other Lender Parties shall continue to deal solely and directly with such Lender Party in connection with such Lender Party's rights and obligations under this Agreement and (v) no participant under any such participation shall have any right to approve any amendment or waiver of any provision of this Agreement or any Loan Document, or any consent to any departure by any Loan Party therefrom, except to the extent that such amendment, waiver or consent would (i) reduce the principal of, or interest on, the Advances or any fees or other amounts payable hereunder, in each case to the extent subject to such participation, (ii) postpone any date fixed for any payment of principal of, or interest on, the Advances or any fees or other amounts payable hereunder, in each case to the extent subject to such participation or (iii) release any Material Guarantor. (i) Any Lender Party may, in connection with any assignment, designation or participation or proposed assignment, designation or participation pursuant to this Section 8.07, disclose to the assignee, designee or participant or proposed assignee, designee or participant, any information relating to the Borrower furnished to such Lender Party by or on behalf of the Borrower; provided that, prior to any such disclosure, the assignee, designee or participant or proposed assignee, designee or participant shall agree to preserve the confidentiality of any Confidential Information relating to the Borrower received by it from such Lender Party. (j) Each Issuing Bank may assign to one or more Eligible Assignees all or a portion of its rights and obligations under the undrawn portion of its Letter of Credit 84 Commitment at any time; provided, however, that (i) except in the case of an assignment to a Person that immediately prior to such assignment was an Issuing Bank or an assignment of all of an Issuing Bank's rights and obligations under this Agreement, the amount of the Letter of Credit Commitment of the assigning Issuing Bank being assigned pursuant to each such assignment (determined as of the date of the Assignment and Acceptance with respect to such assignment) shall in no event be less than $10,000,000 and shall be in an integral multiple of $1,000,000 in excess thereof, (ii) each such assignment shall be to an Eligible Assignee and (iii) the parties to each such assignment shall execute and deliver to the Agent, for its acceptance and recording in the Register, an Assignment and Acceptance, together with a processing and recordation fee of $3,500. (k) Notwithstanding any other provision set forth in this Agreement, any Lender Party may (without the prior consent of the Borrower and the Administrative Agent) at any time create a security interest in all or any portion of its rights under this Agreement (including, without limitation, the Advances owing to it and any Note or Notes held by it) in favor of any Federal Reserve Bank in accordance with Regulation A of the Board of Governors of the Federal Reserve System. (l) Each of the Borrower, the Lenders and the Agents agrees that it will not institute against any Designated Lender or join any other Person in instituting against any Designated Lender any bankruptcy, reorganization, arrangement, insolvency or liquidation proceeding under any federal or state bankruptcy or similar law, for one year and one day after the payment in full of the latest maturing commercial paper note issued by such Designated Lender. Notwithstanding the foregoing, the Designating Lender unconditionally agrees to indemnify the Borrower, the Agents and each Lender Party against all liabilities, obligations, losses, damages, penalties, actions, judgments, suits, costs, expenses or disbursements of any kind or nature whatsoever which may be incurred by or asserted against the Borrower, such Agent or such Lender Party, as the case may be, in any way relating to or arising as a consequence of any such forbearance or delay in the initiation of any such proceeding against its Designated Lender. SECTION 8.08. Confidentiality. None of the Agents nor any Lender Party shall disclose any Confidential Information to any other Person without the consent of Group and the Borrower, other than (a) to such Agent's or such Lender Party's Affiliates and their officers, directors, employees, agents and advisors and, as contemplated by Section 8.07(i), to actual or prospective assignees and participants, and then only on a confidential basis, (b) as required by any law, rule or regulation or judicial process, (c) to any rating agency when required by it, provided that, prior to any such disclosure, such rating agency shall undertake to preserve the confidentiality of any Confidential Information relating to Group or the Borrower received by it from such Lender Party and (d) as requested or required by any state, federal or foreign authority or examiner regulating banks or banking. 85 SECTION 8.09. No Liability of the Issuing Banks. The Borrower assumes all risks of the acts or omissions of any beneficiary or transferee of any Letter of Credit with respect to its use of such Letter of Credit. Neither any Issuing Bank nor any of its officers or directors shall be liable or responsible for: (a) the use that may be made of any Letter of Credit or any acts or omissions of any beneficiary or transferee in connection therewith; (b) the validity, sufficiency or genuineness of documents, or of any endorsement thereon, even if such documents should prove to be in any or all respects invalid, insufficient, fraudulent or forged; (c) payment by such Issuing Bank against presentation of documents that do not comply with the terms of a Letter of Credit, including failure of any documents to bear any reference or adequate reference to the Letter of Credit; or (d) any other circumstances whatsoever in making or failing to make payment under any Letter of Credit, except that the Borrower shall have a claim against such Issuing Bank, and such Issuing Bank shall be liable to the Borrower, to the extent of any direct, but not consequential, damages suffered by the Borrower that the Borrower proves were caused by (i) such Issuing Bank's willful misconduct or gross negligence in determining whether documents presented under any Letter of Credit comply with the terms of the Letter of Credit or (ii) such Issuing Bank's willful failure to make lawful payment under a Letter of Credit after the presentation to it of a draft and certificates strictly complying with the terms and conditions of the Letter of Credit. In furtherance and not in limitation of the foregoing, such Issuing Bank may accept documents that appear on their face to be in order, without responsibility for further investigation, regardless of any notice or information to the contrary. SECTION 8.10. Execution in Counterparts. This Agreement may be executed in any number of counterparts and by different parties hereto in separate counterparts, each of which when so executed shall be deemed to be an original and all of which taken together shall constitute one and the same agreement. Delivery of an executed counterpart of a signature page to this Agreement by telecopier shall be effective as delivery of a manually executed counterpart of this Agreement. SECTION 8.11. Governing Law. This Agreement shall be governed by, and construed in accordance with, the laws of the State of New York. SECTION 8.12. Jurisdiction, Etc. (a) Each of the parties hereto hereby irrevocably and unconditionally submits, for itself and its property, to the nonexclusive jurisdiction of any New York State court or federal court of the United States of America sitting in New York City, and any appellate court from any thereof, in any action or proceeding arising out of or relating to this Agreement or for recognition or enforcement of any judgment, and each of the parties hereto hereby irrevocably and unconditionally agrees that all claims in respect of any such action or proceeding may be heard and determined in any such New York State court or, to the extent permitted by law, in such federal court. Each of the parties hereto agrees that a final judgment in any such action or proceeding shall be conclusive and may be enforced in other jurisdictions by suit on the judgment or in any other manner provided by law. Nothing in this Agreement shall affect any right that any party may 86 otherwise have to bring any action or proceeding relating to this Agreement in the courts of any jurisdiction. (b) Each of the parties hereto irrevocably and unconditionally waives, to the fullest extent it may legally and effectively do so, any objection that it may now or hereafter have to the laying of venue of any suit, action or proceeding arising out of or relating to this Agreement in any New York State or federal court. Each of the parties hereto hereby irrevocably waives, to the fullest extent permitted by law, the defense of an inconvenient forum to the maintenance of such action or proceeding in any such court. SECTION 8.13. Release of Guarantors. By execution below, the Required Lenders hereby agree that each of the Domestic Subsidiaries that are (a) Guarantors (as defined in the Predecessor Credit Agreement) and (b) not Material Subsidiaries, are hereby released from their obligations under the Subsidiary Guaranty. [PAGE LEFT INTENTIONALLY BLANK] SECTION 8.14. Waiver of Jury Trial. Each of the Borrower, the Agents and the Lender Parties hereby irrevocably waives all right to trial by jury in any action, proceeding or counterclaim (whether based on contract, tort or otherwise) arising out of or relating to this Agreement or the actions of any Agent or any Lender Party in the negotiation, administration, performance or enforcement thereof. IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be executed by their respective officers thereunto duly authorized, as of the date first above written. WARNACO INC. By Carl J. Deddens ------------------------------------------- Title: VICE PRESIDENT AND TREASURER THE WARNACO GROUP, INC. By Carl J. Deddens ------------------------------------------- Title: VICE PRESIDENT AND TREASURER THE BANK OF NOVA SCOTIA Administrative Agent, Competitive Bid Agent, Swing Line Bank and an Issuing Bank By ------------------------------------------- Title: CITIBANK, N.A. as Syndication Agent By ------------------------------------------- Title: COMMERZBANK A.G., NEW YORK BRANCH as Documentation Agent By ------------------------------------------- Title: SECTION 8.14. Waiver of Jury Trial. Each of the Borrower, the Agents and the Lender Parties hereby irrevocably waives all right to trial by jury in any action, proceeding or counterclaim (whether based on contract, tort or otherwise) arising out of or relating to this Agreement or the actions of any Agent or any Lender Party in the negotiation, administration, performance or enforcement thereof. IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be executed by their respective officers thereunto duly authorized, as of the date first above written. WARNACO INC. By ------------------------------------------- Title: THE WARNACO GROUP, INC. By ------------------------------------------- Title: THE BANK OF NOVA SCOTIA Administrative Agent, Competitive Bid Agent, Swing Line Bank and an Issuing Bank By [SIGNATURE ILLEGIBLE] ------------------------------------------- Title: CITIBANK, N.A. as Syndication Agent By ------------------------------------------- Title: COMMERZBANK A.G., NEW YORK BRANCH as Documentation Agent By ------------------------------------------- Title: SECTION 8.14. Waiver of Jury Trial. Each of the Borrower, the Agents and the Lender Parties hereby irrevocably waives all right to trial by jury in any action, proceeding or counterclaim (whether based on contract, tort or otherwise) arising out of or relating to this Agreement or the actions of any Agent or any Lender Party in the negotiation, administration, performance or enforcement thereof. IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be executed by their respective officers thereunto duly authorized, as of the date first above written. WARNACO INC. By ------------------------------------------- Title: THE WARNACO GROUP, INC. By ------------------------------------------- Title: THE BANK OF NOVA SCOTIA Administrative Agent, Competitive Bid Agent, Swing Line Bank and an Issuing Bank By ------------------------------------------- Title: CITIBANK, N.A. as Syndication Agent By [SIGNATURE ILLEGIBLE] ------------------------------------------- Title: [TITLE ILLEGIBLE] COMMERZBANK A.G., NEW YORK BRANCH as Documentation Agent By ------------------------------------------- Title: SECTION 8.14. Waiver of Jury Trial. Each of the Borrower, the Agents and the Lender Parties hereby irrevocably waives all right to trial by jury in any action, proceeding or counterclaim (whether based on contract, tort or otherwise) arising out of or relating to this Agreement or the actions of any Agent or any Lender Party in the negotiation, administration, performance or enforcement thereof. IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be executed by their respective officers thereunto duly authorized, as of the date first above written. WARNACO INC. By: ------------------------------------------- Title: THE WARNACO GROUP, INC. By: ------------------------------------------- Title: THE BANK OF NOVA SCOTIA Administrative Agent, Competitive Bid Agent, Swing Line Bank and an Issuing Bank By: ------------------------------------------- Title: CITIBANK, N.A. as Syndication Agent By: ------------------------------------------- Title: COMMERZBANK A.G., New York and Grand Cayman Branches As Documentation Agent By: MARKUS TAPPE ------------------------------------------- Name: MARKUS TAPPE Title: VICE PRESIDENT By: PETER DOYLE ------------------------------------------- Name: PETER DOYLE Title: ASSISTANT VICE PRESIDENT Initial Lenders THE BANK OF NOVA SCOTIA By [SIGNATURE ILLEGIBLE] ------------------------------------------- Title: CITIBANK, N.A. By ------------------------------------------- Title: UNION BANK OF CALIFORNIA, N.A. By ------------------------------------------- Title: THE BANK OF NEW YORK By [SIGNATURE ILLEGIBLE] ------------------------------------------- Title: BANK OF TOKYO-MITSUBISHI TRUST COMPANY By ------------------------------------------- Title: BANKBOSTON, N.A. By ------------------------------------------- Title: Initial Lenders THE BANK OF NOVA SCOTIA By ------------------------------------------- Title: CITIBANK, N.A. By MARC MERLINO ------------------------------------------- Title: MARC MERLINO-VP UNION BANK OF CALIFORNIA, N.A. By ------------------------------------------- Title: THE BANK OF NEW YORK By ------------------------------------------- Title: BANK OF TOKYO-MITSUBISHI TRUST COMPANY By ------------------------------------------- Title: BANKBOSTON, N.A. By ------------------------------------------- Title: Initial Lenders THE BANK OF NOVA SCOTIA By ------------------------------------------- Title: CITIBANK, N.A. By ------------------------------------------- Title: UNION BANK OF CALIFORNIA, N.A. By DAVID W. KINKOLA ------------------------------------------- Name: DAVID W. KINKOLA Title: VICE PRESIDENT THE BANK OF NEW YORK By ------------------------------------------- Title: BANK OF TOKYO-MITSUBISHI TRUST COMPANY By ------------------------------------------- Title: BANKBOSTON, N.A. By ------------------------------------------- Title: Initial Lenders THE BANK OF NOVA SCOTIA By ------------------------------------------- Title: CITIBANK, N.A. By ------------------------------------------- Title: UNION BANK OF CALIFORNIA, N.A. By ------------------------------------------- Title: THE BANK OF NEW YORK By [SIGNATURE ILLEGIBLE] ------------------------------------------- Title: VICE PRESIDENT BANK OF TOKYO-MITSUBISHI TRUST COMPANY By ------------------------------------------- Title: BANKBOSTON, N.A. By ------------------------------------------- Title: Initial Lenders THE BANK OF NOVA SCOTIA By ------------------------------------------- Title: CITIBANK, N.A. By ------------------------------------------- Title: UNION BANK OF CALIFORNIA, N.A. By ------------------------------------------- Title: THE BANK OF NEW YORK By ------------------------------------------- Title: BANK OF TOKYO-MITSUBISHI TRUST COMPANY By N. SAFFRA ------------------------------------------- Title: N. SAFFRA VICE PRESIDENT BANKBOSTON, N.A. By ------------------------------------------- Title: Initial Lenders THE BANK OF NOVA SCOTIA By ------------------------------------------- Title: CITIBANK, N.A. By ------------------------------------------- Title: UNION BANK OF CALIFORNIA, N.A. By ------------------------------------------- Title: THE BANK OF NEW YORK By ------------------------------------------- Title: BANK OF TOKYO-MITSUBISHI TRUST COMPANY By ------------------------------------------- Title: BANKBOSTON, N.A. By [SIGNATURE ILLEGIBLE] ------------------------------------------- Title: DIRECTOR MORGAN GUARANTY TRUST COMPANY OF NEW YORK By [ILLEGIBLE SIGNATURE] ------------------------------------- Title: BANK OF AMERICA, N.A. By ------------------------------------- Title: THE SANWA BANK, LIMITED, NEW YORK BRANCH By ------------------------------------- Title: SOCIETE GENERALE By ------------------------------------- Title: WACHOVIA BANK, N.A. By ------------------------------------- Title: FUJI BANK By ------------------------------------- Title: MORGAN GUARANTY TRUST COMPANY OF NEW YORK By ------------------------------------- Title: BANK OF AMERICA, N.A. By David H. Dinkins ------------------------------------- Title: David H. Dinkins Vice President THE SANWA BANK, LIMITED, NEW YORK BRANCH By ------------------------------------- Title: SOCIETE GENERALE By ------------------------------------- Title: WACHOVIA BANK, N.A. By ------------------------------------- Title: FUJI BANK By ------------------------------------- Title: MORGAN GUARANTY TRUST COMPANY OF NEW YORK By ------------------------------------- Title: BANK OF AMERICA, N.A. By ------------------------------------- Title: THE SANWA BANK, LIMITED, NEW YORK BRANCH By ------------------------------------- Title: SOCIETE GENERALE By Robert Petersen ------------------------------------- Title: Robert Petersen Vice President WACHOVIA BANK, N.A. By ------------------------------------- Title: FUJI BANK By ------------------------------------- Title: MORGAN GUARANTY TRUST COMPANY OF NEW YORK By ------------------------------------- Title: BANK OF AMERICA, N.A. By ------------------------------------- Title: THE SANWA BANK, LIMITED, NEW YORK BRANCH By ------------------------------------- Title: SOCIETE GENERALE By ------------------------------------- Title: WACHOVIA BANK, N.A. By [ILLEGIBLE SIGNATURE] ------------------------------------- Title: Senior Vice President FUJI BANK By ------------------------------------- Title: COMMERZBANK AG NEW YORK AND GRAND CAYMAN BRANCHES By Markus Tappe ------------------------------------- Name: Markus Tappe Title: Vice President By Peter Doyle ------------------------------------- Name: Peter Doyle Title: Assistant Vice President UNICREDITO ITALIANO By ------------------------------------- Name: Title: By ------------------------------------- Name: Title: DAI-ICHI KANGYO BANK, LIMITED By ------------------------------------- Name: Title: FIRST UNION NATIONAL BANK By ------------------------------------- Name: Title: FLEET BANK, N.A. By ------------------------------------- Name: Title: COMMERZBANK AG NEW YORK BRANCH By ------------------------------------- Title: UNICREDITO ITALIANO By Christopher J. Eldin ------------------------------------- Title: Christopher J. Eldin First Vice President & Deputy Manager By [ILLEGIBLE SIGNATURE] ------------------------------------- Title: First Vice President DAI-ICHI KANGYO BANK, LIMITED By ------------------------------------- Title: FIRST UNION NATIONAL BANK By ------------------------------------- Title: FLEET BANK, N.A. By ------------------------------------- Title: COMMERZBANK AG NEW YORK BRANCH By ------------------------------------- Title: CREDITO ITALIANO By ------------------------------------- Title: By ------------------------------------- Title: DAI-ICHI KANGYO BANK, LIMITED By [ILLEGIBLE SIGNATURE] ------------------------------------- Title: Assistant Vice President FIRST UNION NATIONAL BANK By ------------------------------------- Title: FLEET BANK, N.A. By ------------------------------------- Title: COMMERZBANK AG NEW YORK BRANCH By ------------------------------------- Title: CREDITO ITALIANO By ------------------------------------- Title: By ------------------------------------- Title: DAI-ICHI KANGYO BANK, LIMITED By ------------------------------------- Title: FIRST UNION NATIONAL BANK By [ILLEGIBLE SIGNATURE] ------------------------------------- Title: V.P. FLEET BANK, N.A. By ------------------------------------- Title: COMMERZBANK AG NEW YORK BRANCH By ------------------------------------- Title: CREDITO ITALIANO By ------------------------------------- Title: By ------------------------------------- Title: DAI-ICHI KANGYO BANK, LIMITED By ------------------------------------- Title: FIRST UNION NATIONAL BANK By ------------------------------------- Title: FLEET BANK, N.A. By [ILLEGIBLE SIGNATURE] ------------------------------------- Title: S.V.P. THE INDUSTRIAL BANK OF JAPAN, LTD., NEW YORK BRANCH By J. Kenneth Biegen ------------------------------------- Title: J. Kenneth Biegen Senior Vice President GENERAL ELECTRIC CAPITAL CORPORATION By ------------------------------------- Title: KREDIETBANK N.V. By ------------------------------------- Title: MARINE MIDLAND BANK By ------------------------------------- Title: MERITA BANK PLC - NEW YORK BRANCH By ------------------------------------- Title: By ------------------------------------- Title: THE INDUSTRIAL BANK OF JAPAN, LTD., NEW YORK BRANCH By ------------------------------------- Title: GENERAL ELECTRIC CAPITAL CORPORATION By [ILLEGIBLE SIGNATURE] ------------------------------------- Title: Duly Authorized Signatory KREDIETBANK N.V. By ------------------------------------- Title: MARINE MIDLAND BANK By ------------------------------------- Title: MERITA BANK PLC - NEW YORK BRANCH By ------------------------------------- Title: By ------------------------------------- Title: THE INDUSTRIAL BANK OF JAPAN, LTD., NEW YORK BRANCH By ------------------------------------- Title: GENERAL ELECTRIC CAPITAL CORPORATION By ------------------------------------- Title: KREDIETBANK N.V. By ------------------------------------- Title: MARINE MIDLAND BANK By ------------------------------------- Title: MERITA BANK PLC - NEW YORK BRANCH By [ILLEGIBLE SIGNATURE] ------------------------------------- Title: V.P. By [ILLEGIBLE SIGNATURE] ------------------------------------- Title: S.V.P. KBC BANK NV By Robert M. Surram, Jr. ------------------------------------- Title: Robert M. Surram, Jr. Vice President By Robert Snauffer ------------------------------------- Title: Robert Snauffer First Vice President EX-10 3 EXHIBIT 10.35 EXECUTION COPY FIVE-YEAR CREDIT AGREEMENT Dated as of November 17, 1999 Among WARNACO INC. as Borrower and THE WARNACO GROUP, INC. and THE INITIAL LENDERS NAMED HEREIN as Initial Lenders and THE BANK OF NOVA SCOTIA AND SALOMON SMITH BARNEY INC. as Co-Lead Arrangers and Co-Book Managers and CITIBANK, N.A. as Syndication Agent and SOCIETE GENERALE AND COMMERZBANK AG as Co-Documentation Agents and BANK OF AMERICA, N.A AND THE DAI-ICHI KANGYO BANK, LTD. as Co-Agents and THE BANK OF NOVA SCOTIA as Administrative Agent, Competitive Bid Agent, and Swing Line Bank TABLE OF CONTENTS
PAGE ---- ARTICLE I DEFINITIONS AND ACCOUNTING TERMS SECTION 1.01. Certain Defined Terms.................................2 SECTION 1.02. Computation of Time Periods..........................24 SECTION 1.03. Accounting Terms.....................................24 ARTICLE II AMOUNTS AND TERMS OF THE ADVANCES SECTION 2.01. The Advances.........................................26 SECTION 2.02. Making the Advances..................................26 SECTION 2.03. The Competitive Bid Advances SECTION 2.04. Repayment of Advances................................34 SECTION 2.05. Termination or Reduction of the Commitments..........34 SECTION 2.06. Prepayments..........................................34 SECTION 2.07. Interest.............................................35 SECTION 2.08. Fees.................................................36 SECTION 2.09. Conversion of Advances...............................36 SECTION 2.10. Increased Costs, Etc.................................37 SECTION 2.11. Illegality...........................................38 SECTION 2.12. Payments and Computations............................39 SECTION 2.13. Taxes................................................40 SECTION 2.14. Sharing of Payments, Etc.............................43 SECTION 2.15. Use of Proceeds......................................43 SECTION 2.16. Defaulting Lenders...................................43 SECTION 2.17. Evidence of Debt.....................................46 SECTION 2.18. Increase in Revolving Credit Commitments.............46 ARTICLE III CONDITIONS TO EFFECTIVENESS AND LENDING SECTION 3.01. Conditions Precedent to Effectiveness................47 SECTION 3.02. Conditions Precedent to Each Borrowing...............49 SECTION 3.03. Determinations Under Section 3.01....................50
ARTICLE IV REPRESENTATIONS AND WARRANTIES SECTION 4.01. Representations and Warranties of the Borrower.......50 ARTICLE V COVENANTS OF THE BORROWER SECTION 5.01. Affirmative Covenants................................53 SECTION 5.02. Negative Covenants...................................57 SECTION 5.03. Financial Covenants..................................60 ARTICLE VI EVENTS OF DEFAULT SECTION 6.01. Events of Default....................................61 ARTICLE VII THE AGENTS SECTION 7.01. Authorization and Action.............................64 SECTION 7.02. Agents' Reliance, Etc................................64 SECTION 7.03. Scotiabank, Citibank, SocGen, Commerzbank, Bank of America, DKB and Affiliates..................64 SECTION 7.04. Lender Credit Decision...............................65 SECTION 7.05. Indemnification......................................65 SECTION 7.06. Successor Agents.....................................66 ARTICLE VIII MISCELLANEOUS SECTION 8.01. Amendments, Etc......................................66 SECTION 8.02. Notices, Etc.........................................67 SECTION 8.03. No Waiver; Remedies..................................67 SECTION 8.04. Costs and Expenses...................................67 SECTION 8.05. Right of Set-off.....................................69 SECTION 8.06. Binding Effect.......................................70 SECTION 8.07. Assignments, Designations and Participations.........70
SECTION 8.08. Confidentiality......................................75 SECTION 8.09. Execution in Counterparts............................75 SECTION 8.10. Governing Law........................................75 SECTION 8.11. Jurisdiction, Etc....................................75 SECTION 8.12. Waiver of Jury Trial.................................76 SCHEDULES Schedule I - List of Commitments and Applicable Lending Offices Schedule II - Existing Debt Schedule 4.01(b) - Subsidiaries Schedule 4.01(g) - Disclosed Litigation Schedule 5.02(d) - Assets Held For Sale EXHIBITS Exhibit A-1 Form of Revolving Credit Note Exhibit A-2 - Form of Competitive Bid Note Exhibit B-1 - Form of Notice of Borrowing Exhibit B-2 - Form of Notice of Competitive Bid Borrowing Exhibit C - Form of Assignment and Acceptance Exhibit D - Form of Designation Agreement Exhibit E-1 - Form of Opinion of Skadden, Arps, Slate, Meagher & Flom LLP, special counsel for the Loan Parties Exhibit E-2 - Form of Opinion of Stanley P. Silverstein, General Counsel for the Borrower Exhibit F - Form of Group Guaranty Exhibit G - Form of Subsidiary Guaranty Exhibit H - From of Assumption Agreement
FIVE-YEAR CREDIT AGREEMENT Dated as of November 17, 1999 WARNACO INC., a Delaware corporation (together with any successors-in-interest permitted hereunder, (the "Borrower"), THE WARNACO GROUP, INC., a Delaware corporation (together with any successors-in-interest permitted hereunder, "Group"), the banks, financial institutions and other institutional lenders (the "Initial Lenders") listed on the signature pages hereof, THE BANK OF NOVA SCOTIA ("Scotiabank") and SALOMON SMITH BARNEY, INC. ("SSB"), as co-lead arrangers and co-book managers (the "Arrangers"), CITIBANK, N.A. ("Citibank"), as syndication agent (the "Syndication Agent") for the Lenders (as hereinafter defined), SOCIETE GENERALE ("SocGen") and COMMERZBANK AG ("Commerzbank"), as co-documentation agents (the "Documentation Agents") for the Lenders, BANK OF AMERICA N.A. ("Bank of America") and THE DAI-ICHI KANGYO BANK, LTD. ("DKB"), as co-agents (the "Co-Agents"), and Scotiabank, as administrative agent (the "Administrative Agent") and competitive bid agent (the "Competitive Bid Agent") for the Lenders and as a Swing Line Bank hereunder, agree as follows: PRELIMINARY STATEMENTS (1) The Borrower or a single-purpose wholly owned subsidiary of the Borrower (the "Purchaser") will either (a) offer to acquire a controlling interest in Authentic Fitness Corporation, a Delaware corporation ("Authentic Fitness"), through a tender offer (the "Tender Offer") for all of Authentic Fitness's outstanding common stock (the "Authentic Fitness Stock"), but in any event for not less than sufficient shares of Authentic Fitness's stock to enable the Purchaser, voting without any other shareholders of Authentic Fitness, to approve a merger of the Purchaser with Authentic Fitness and as promptly as practicable after the closing of the Tender Offer, the Purchaser, if a single-purpose wholly owned Subsidiary of the Borrower, will consummate a merger with Authentic Fitness in which Authentic Fitness will be the surviving corporation or (b) agree to merge with Authentic Fitness in which Authentic Fitness will be the surviving corporation (such merger described in either clause (a) or (b) above between the Purchaser and Authentic Fitness being the "Merger"and the surviving corporation of each such merger being the "Surviving Corporation"). (2) The Borrower has requested that the Initial Lenders lend to the Borrower up to $450,000,000 under this Agreement to pay transaction fees and expenses, pay severance and other reorganization expenses in connection with the acquisition of Authentic Fitness and for general corporate purposes (other than for the purpose of paying the holders of Authentic Fitness Stock the cash consideration for their shares in the Tender Offer or the subsequent Merger). The Initial 2 Lenders have indicated their willingness to agree to lend such amounts on the terms and conditions of this Agreement. ARTICLE I DEFINITIONS AND ACCOUNTING TERMS SECTION 1.01. Certain Defined Terms. As used in this Agreement, the following terms shall have the following meanings (such meanings to be equally applicable to both the singular and plural forms of the terms defined): "Administrative Agent" has the meaning specified in the recital of parties to this Agreement. "Administrative Agent's Account" means the account of the Administrative Agent maintained by the Administrative Agent with Scotiabank at its office at One Liberty Plaza, New York, New York 10006, Special Management Account No. 0608335, Reference: Warnaco New Five Year Revolver. "Advance" means a Revolving Credit Advance, a Competitive Bid Advance or a Swing Line Advance. "Affiliate" means, as to any Person, any other Person that, directly or indirectly, controls, is controlled by or is under common control with such Person or is a director or officer of such Person. For purposes of this definition, the term "control" (including the terms "controlling", "controlled by" and "under common control with") of a Person means the possession, direct or indirect, of the power to vote 10% or more of the Voting Stock of such Person or to direct or cause the direction of the management and policies of such Person, whether through the ownership of Voting Stock, by contract or otherwise. "Agents" means each of the Syndication Agent, each Documentation Agent, each Co-Agent, the Administrative Agent and the Competitive Bid Agent, together, in each case, with any successor or successors of any thereof appointed pursuant to Article VII hereof. "Applicable Lending Office" means, with respect to each Lender, such Lender's Domestic Lending Office in the case of a Base Rate Advance and such Lender's Eurodollar Lending Office in the case of a Eurodollar Rate Advance and, in the case of a Competitive Bid Advance, the office of such Lender notified by such Lender to the Competitive Bid Agent as its Applicable Lending Office with respect to such Competitive Bid Advance. 3 "Applicable Margin" means, as of any date, a percentage per annum determined by reference to the Debt Rating in effect on such date as set forth below:
Rating Debt Base Rate Eurodollar Level Rating Advances Rate Advances - --------------------------------------------------------------------------- Level 1 A- or A3 or 0.000% 0.500% higher - --------------------------------------------------------------------------- Level 2 BBB+ or Baa1 0.000% 0.575% - --------------------------------------------------------------------------- Level 3 BBB or Baa2 0.000% 0.775% - --------------------------------------------------------------------------- Level 4 BBB- or Baa3 0.000% 0.950% - --------------------------------------------------------------------------- Level 5 BB+ or Ba1 0.500% 1.125% - --------------------------------------------------------------------------- Level 6 Lower than 0.750% 1.250% Level 5 or unrated
"Applicable Percentage" means, as of any date, a percentage per annum determined by reference to the Debt Rating in effect on such date as set forth below: 4
Rating Debt Applicable Level Rating Percentage - ---------------------------------------------------------------------- Level 1 A- or A3 or higher 0.125% - ---------------------------------------------------------------------- Level 2 BBB+ or Baa1 0.175% - ---------------------------------------------------------------------- Level 3 BBB or Baa2 0.225% - ---------------------------------------------------------------------- Level 4 BBB- or Baa3 0.300% - ---------------------------------------------------------------------- Level 5 BB+ or Ba1 0.375% - ---------------------------------------------------------------------- Level 6 Lower than Level 0.500% 5 or unrated
"Applicable Utilization Percentage" means, as of any date that the aggregate Advances exceed 33 1/3% of the aggregate Commitments, a percentage per annum determined by reference to the Debt Rating in effect on such date as set forth below:
Rating Level Debt Rating Applicable Utilization Percentage - ----------------------------------------------------------------------------- Level 1 A- or A3 or higher 0.125% - ----------------------------------------------------------------------------- Level 2 BBB+ or Baa1 0.125% - ----------------------------------------------------------------------------- Level 3 BBB or Baa2 0.250% - ----------------------------------------------------------------------------- Level 4 BBB- or Baa3 0.250% - ----------------------------------------------------------------------------- Level 5 BB+ or Ba1 0.250% - ----------------------------------------------------------------------------- Level 6 Lower than Level 5 0.250% or unrated
"Approved Accounting Firm" means Arthur Andersen LLP, Deloitte & Touche LLP, Ernst & Young LLP, PricewaterhouseCoopers LLP or KPMG Peat Marwick LLP, or any successor thereof. "Arrangers" has the meaning specified in the recital of parties to this Agreement. 5 "Assignment and Acceptance" means an assignment and acceptance entered into by a Lender and an Eligible Assignee, and accepted by the Administrative Agent, in accordance with Section 8.07 and in substantially the form of Exhibit C hereto. "Assumption Agreement" means an agreement entered into by a party in order to become a Lender hereunder pursuant to Section 2.18, in substantially the form of Exhibit H hereto. "Authentic Fitness" has the meaning set forth in the Preliminary Statements. "Authentic Fitness Stock" has the meaning set forth in the Preliminary Statements. "Bank of America" has the meaning specified in the recital of the parties to this Agreement. "Base Rate" means a fluctuating interest rate per annum in effect from time to time, which rate per annum shall at all times be equal to the highest of: (a) the rate of interest established by the Administrative Agent, from time to time, at its Domestic Lending Office as its base rate for loans in United States dollars; (b) 1/2 of one percent per annum above the Federal Funds Rate; and (c) for the period from December 15, 1999 through January 15, 2000, 2 percent per annum above the Federal Funds Rate. "Base Rate Advance" means an Advance that bears interest as provided in Section 2.07(a)(i). "Borrower" has the meaning specified in the recital of parties to this Agreement. "Borrower's Account" means the account of the Borrower maintained by the Borrower with Citibank at its office at 399 Park Avenue, New York, New York 10043, Account No. 3846-9269. "Borrowing" means a Revolving Credit Borrowing, a Competitive Bid Borrowing or a Swing Line Borrowing. "Business Day" means a day of the year on which banks are not required or authorized by law to close in New York City and, if the applicable Business Day relates to 6 any Eurodollar Rate Advances, on which dealings are carried on in the London interbank market. "Capitalized Leases" has the meaning specified in clause (e) of the definition of "Debt". "Citibank" has the meaning specified in the recital of parties to this Agreement. "Co-Agents" has the meaning specified in the recital of the parties to this Agreement. "Commitment" means, with respect to any Lender at any time, (a) the amount set forth opposite such Lender's name on Schedule I hereto under the caption "Revolving Credit Commitment", (b) if such Lender has entered into one or more Assignments and Acceptances, the amount set forth for such Lender in the Register maintained by the Administrative Agent pursuant to Section 8.07(c) as such Lender's "Revolving Credit Commitment", as such amount may be reduced at or prior to such time pursuant to Section 2.05 or (c) if such Lender has entered into an Assumption Agreement, the amount set forth for such Lender in such Assumption Agreement. "Competitive Bid Advance" means an advance by a Lender to the Borrower as part of a Competitive Bid Borrowing resulting from the competitive bidding procedure described in Section 2.03 and refers to a Fixed Rate Advance or a LIBO Rate Advance. "Competitive Bid Agent" has the meaning specified in the recital of parties to this Agreement. "Competitive Bid Agent's Account" means the account of the Competitive Bid Agent maintained by the Competitive Bid Agent with Scotiabank at its office at One Liberty Plaza, New York, New York 10006, Special Management Account No. 0608335, Reference: Warnaco New Five Year Revolver. "Competitive Bid Borrowing" means a borrowing consisting of simultaneous Competitive Bid Advances from each of the Lenders whose offer to make one or more Competitive Bid Advances as part of such borrowing has been accepted under the competitive bidding procedure described in Section 2.03. "Competitive Bid Note" means a promissory note of the Borrower payable to the order of any Lender, in substantially the form of Exhibit A-2 hereto, evidencing the indebtedness of the Borrower to such Lender resulting from a Competitive Bid Advance made by such Lender. 7 "Confidential Information" means any information, whether written or oral that the Borrower or Group furnishes to any Agent or Lender which is designated as confidential or which could reasonably be expected by such Agent or Lender to be confidential, provided, that for purposes of this definition, unless otherwise specified by the Borrower or Group, the term "Confidential Information" will include, without limitation, any information furnished by the Borrower or Group regarding proposed acquisitions (including, without limitation, the acquisition of Authentic Fitness) and new product launches by Group or its Subsidiaries, and provided, further, that the term "Confidential Information" does not include any information that is or becomes generally available to the public or that is or becomes available to such Agent or Lender from a source other than the Borrower or Group. "Consolidated" refers to the consolidation of accounts in accordance with GAAP. "Control Date" means the date on which Persons designated or approved by Group constitute a majority of the Board of Directors of Authentic Fitness. "Convert", "Conversion" and "Converted" each refers to a conversion of Advances of one Type into Advances of the other Type pursuant to Section 2.09, 2.10 or 2.11. "Currency Hedge Agreements" means currency swap agreements, currency future or option contracts and other similar agreements. "Debt" of any Person means, without duplication, the following: (a) all indebtedness of such Person for borrowed money, (b) all Obligations of such Person for the deferred purchase price of property or services (other than trade payables not overdue by more than 90 days incurred in the ordinary course of such Person's business), including, without limitation, the Trade Credit Facility, (c) all Obligations of such Person evidenced by notes, bonds, debentures or other similar instruments, (d) all Obligations of such Person created or arising under any conditional sale or other title retention agreement with respect to property acquired by such Person (even though the rights and remedies of the seller or lender under such agreement in the event of default are limited to repossession or sale of such property), 8 (e) all Obligations of such Person as lessee under leases that have been or should be, in accordance with GAAP, recorded as capital leases ("Capitalized Leases"), (f) all Obligations, contingent or otherwise, of such Person under acceptance, letter of credit or similar facilities, (g) all Obligations of such Person to purchase, redeem, retire, defease or otherwise make any payment in respect of any capital stock of or other ownership or profit interest in such Person or any other Person or any warrants, rights or options to acquire such capital stock, valued, in the case of Redeemable preferred stock, at the greater of its voluntary or involuntary liquidation preference plus accrued and unpaid dividends, (h) all Obligations of such Person in respect of Hedge Agreements, (i) all Debt of others of the kinds referred to in clauses (a) through (h) above guaranteed directly or indirectly in any manner by such Person, or in effect guaranteed directly or indirectly by such Person through an agreement (A) to pay or purchase such Debt or to advance or supply funds for the payment or purchase of such Debt, (B) to purchase, sell or lease (as lessee or lessor) property, or to purchase or sell services, primarily for the purpose of enabling the debtor to make payment of such Debt or to assure the holder of such Debt against loss, (C) to supply funds to or in any other manner invest in the debtor (including any agreement to pay for property or services irrespective of whether such property is received or such services are rendered) or (D) otherwise to assure a creditor against loss, and (j) all Debt referred to in clauses (a) through (h) above secured by (or for which the holder of such Debt has an existing right, contingent or otherwise, to be secured by) any Lien on property (including, without limitation, accounts and contract rights) owned by such Person, even though such Person has not assumed or become liable for the payment of such Debt. "Debt Rating" means, as of any date, the higher of the ratings that have been most recently announced by S&P and Moody's for any class of non-credit enhanced long-term senior unsecured debt issued by Group in effect on such date, provided that if neither S&P nor Moody's shall have in effect such a rating, the Applicable Margin, the Applicable Percentage and the Applicable Utilization Percentage will be set in accordance with Rating Level 6 under the definition of "Applicable Margin", "Applicable Percentage" or "Applicable Utilization Percentage", as the case may be. For purposes of the foregoing, (a) if only one of S&P and Moody's shall have in effect a Debt Rating, the Applicable Margin, the 9 Applicable Percentage and the Applicable Utilization Percentage shall be determined by reference to the available rating; (b) if the ratings established by S&P and Moody's shall fall within different levels separated by two or more levels, the Applicable Margin, the Applicable Percentage and the Applicable Utilization Percentage shall be based upon the level that is one level above the lower rating; (c) if any rating established by S&P or Moody's shall be changed, such change shall be effective as of the date on which such change is reported to Group; and (d) if S&P or Moody's shall change the basis on which ratings are established, each reference to the Debt Rating announced by S&P or Moody's, as the case may be, shall refer to the then equivalent rating by S&P or Moody's, as the case may be. "Default" means any Event of Default or any event that would constitute an Event of Default but for the requirement that notice be given or time elapse or both. "Defaulted Advance" means, with respect to any Lender at any time, the amount of any Advance required to be made by such Lender to the Borrower or for the account of the Borrower pursuant to Section 2.01 at or prior to such time which has not been so made as of such time; provided, however, any Advance made by the Administrative Agent for the account of such Lender pursuant to Section 2.02(e) shall not be considered a Defaulted Advance even if, at such time, such Lender shall not have reimbursed the Administrative Agent therefor as provided in Section 2.02(e). In the event that a portion of a Defaulted Advance shall be deemed made pursuant to Section 2.16(a), the remaining portion of such Defaulted Advance shall be considered a Defaulted Advance originally required to be made pursuant to Section 2.01 on the same date as the Defaulted Advance so deemed made in part. "Defaulted Amount" means, with respect to any Lender at any time, any amount required to be paid by such Lender to any Agent or any other Lender hereunder or under any other Loan Document at or prior to such time which has not been so paid as of such time, including, without limitation, any amount required to be paid by such Lender to (a) the Swing Line Bank pursuant to Section 2.02(b) to purchase a portion of a Swing Line Advance made by the Swing Line Bank, (b) the Administrative Agent pursuant to Section 2.02(e) to reimburse the Administrative Agent for the amount of any Advance made by the Administrative Agent for the account of such Lender, (c) any other Lender pursuant to Section 2.15 to purchase any participation in Advances owing to such other Lender and (d) any Agent pursuant to Section 7.05 to reimburse such Agent for such Lender's ratable share of any amount required to be paid by the Lenders to such Agent as provided therein. In the event that a portion of a Defaulted Amount shall be deemed paid pursuant to Section 2.16(b), the remaining portion of such Defaulted Amount shall be considered a Defaulted Amount originally required to be made hereunder or under any other Loan Document on the same date as the Defaulted Amount so deemed paid in part. 10 "Defaulting Lender" means, at any time, any Lender that, at such time, (a) owes a Defaulted Advance or a Defaulted Amount or (b) shall take or be the subject of any action or proceeding of a type described in Section 6.01(e). "Designated Lender" means each special purpose corporation that (i) shall have been designated by a Designating Lender and shall have become a party to this Agreement, all pursuant to Section 8.07(d), and (ii) is not otherwise a Lender. "Designating Lender" shall mean each Lender that is a party hereto (other than by virtue of a Designation Agreement) that shall designate a Designated Lender pursuant to a Designation Agreement in accordance with Section 8.07(d). "Designation Agreement" means a designation agreement entered into by a Designating Lender and a Designated Lender, and accepted by the Administrative Agent, in substantially the form of Exhibit D hereto. "Designer Holdings" means Designer Holdings Ltd., a Delaware corporation, together with its successors. "DKB" has the meaning specified in the recital of the parties to this Agreement. "Documentation Agents" has the meaning specified in the recital of parties to this Agreement. "Domestic Lending Office" means, with respect to any Lender, the office of such Lender specified as its "Domestic Lending Office" opposite its name on Schedule I hereto, in the Assignment and Acceptance pursuant to which it became a Lender or in the Assumption Agreement pursuant to which it became a Lender, or such other office of such Lender as such Lender may from time to time specify to the Borrower and the Administrative Agent. "Domestic Subsidiary" means any Subsidiary of Group organized under the laws of the United States or any state thereof. "EBITDA" means, for any period, net income (or net loss) from operations (determined without giving effect to extraordinary or non-recurring gains or losses) plus, to the extent deducted in calculating such net income (loss), the sum of (a) Interest Expense, (b) income tax expense, (c) depreciation expense, (d) amortization expense and (e) minority interests in Authentic Fitness during the period commencing on the date the Tender Offer, if any, is consummated and ending on the date of the Merger less dividends paid to the minority interests in respect thereof, in each case determined in accordance with GAAP and, 11 on a pro forma basis, as if any acquisitions consummated after the first day of the applicable testing period occurred on the first day of such period. "Effective Date" means the first date on which the conditions specified in Section 3.01 have been satisfied. "Eligible Assignee" means any Person approved by the Administrative Agent and the Borrower, such approval not to be unreasonably withheld; provided, however, that neither the Borrower nor an Affiliate of the Borrower shall qualify as an Eligible Assignee. "Environmental Action" means any administrative, regulatory or judicial action, suit, demand, demand letter, claim, notice of non-compliance or violation, notice of liability or potential liability, investigation, proceeding, consent order or consent agreement relating in any way to any Environmental Law, Environmental Permit or Hazardous Materials or arising from alleged injury or threat of injury to health, safety or the environment, including, without limitation, (a) by any governmental or regulatory authority for enforcement, cleanup, removal, response, remedial or other actions or damages and (b) by any governmental or regulatory authority or any third party for damages, contribution, indemnification, cost recovery, compensation or injunctive relief. "Environmental Law" means any federal, state, local or foreign statute, law, ordinance, rule, regulation, code, order, judgment or decree relating to the environment, health, safety or Hazardous Materials. "Environmental Permit" means any permit, approval, identification number, license or other authorization required under any Environmental Law. "ERISA" means the Employee Retirement Income Security Act of 1974, as amended from time to time, and the regulations promulgated and rulings issued thereunder. "ERISA Affiliate" means any Person that for purposes of Title IV of ERISA is a member of the Borrower's controlled group, or under common control with the Borrower, within the meaning of Section 414 of the Internal Revenue Code. "ERISA Event" means (a) (i) the occurrence of a reportable event, within the meaning of Section 4043 of ERISA, with respect to any Plan unless the 30-day notice requirement with respect to such event has been waived by the PBGC, or (ii) the requirements of subsection (1) of Section 4043(b) of ERISA (without regard to subsection (2) of such Section) are met with respect to a contributing sponsor, as defined in Section 4001(a)(13) of ERISA, of a Plan, and an event described in paragraph (9), (10), (11), (12) or (13) of Section 4043(c) of ERISA is reasonably expected to occur with respect to such Plan within the 12 following 30 days; (b) the application for a minimum funding waiver with respect to a Plan; (c) the provision by the administrator of any Plan of a notice of intent to terminate such Plan pursuant to Section 4041(a)(2) of ERISA (including any such notice with respect to a plan amendment referred to in Section 4041(e) of ERISA); (d) the cessation of operations at a facility of the Borrower or any of its ERISA Affiliates in the circumstances described in Section 4062(e) of ERISA; (e) the withdrawal by the Borrower or any of its ERISA Affiliates from a Multiple Employer Plan during a plan year for which it was a substantial employer, as defined in Section 4001(a)(2) of ERISA; (f) the failure by the Borrower or any of its ERISA Affiliates to make a payment to a Plan if the conditions for the imposition of a lien under Section 302(f)(1) of ERISA are satisfied; (g) the adoption of an amendment to a Plan requiring the provision of security to such Plan, pursuant to Section 307 of ERISA; or (h) the institution by the PBGC of proceedings to terminate a Plan, pursuant to Section 4042 of ERISA, or the occurrence of any event or condition described in Section 4042 of ERISA that could constitute grounds for the termination of, or the appointment of a trustee to administer, a Plan. "Eurocurrency Liabilities" has the meaning assigned to that term in Regulation D of the Board of Governors of the Federal Reserve System, as in effect from time to time. "Eurodollar Lending Office" means, with respect to any Lender, the office of such Lender specified as its "Eurodollar Lending Office" opposite its name on Schedule I hereto, in the Assignment and Acceptance pursuant to which it became a Lender (or, if no such office is specified, its Domestic Lending Office) or in the Assumption Agreement pursuant to which it became a Lender, or such other office of such Lender as such Lender may from time to time specify to the Borrower and the Administrative Agent. "Eurodollar Rate" means, for any Interest Period for all Eurodollar Rate Advances comprising part of the same Borrowing, an interest rate per annum equal to the rate per annum obtained by dividing (a) the rate per annum (rounded upward to the nearest whole multiple of 1/16 of 1% per annum) appearing on Dow Jones Markets Telerate Page 3750 (or any successor page) as the London interbank offered rate for deposits in U.S. dollars at approximately 11:00 A.M. (London time) two Business Days prior to the first day of such Interest Period for a term comparable to such Interest Period or, if for any reason such rate is not available, the rate at which deposits in U.S. dollars are offered by the principal office of the Administrative Agent in London, England to prime banks in the London interbank market at 11:00 A.M. (London time) two Business Days before the first day of such Interest Period in an amount substantially equal to the Administrative Agent's Eurodollar Rate Advance comprising part of such Borrowing to be outstanding during such Interest Period and for a period equal to such Interest Period by (b) a percentage equal to 100% minus the Eurodollar Rate Reserve Percentage for such Interest Period. 13 "Eurodollar Rate Advance" means an Advance that bears interest as provided in Section 2.07(a)(ii). "Eurodollar Rate Reserve Percentage" for any Interest Period for all Eurodollar Rate Advances or LIBO Rate Advances comprising part of the same Borrowing means the reserve percentage applicable two Business Days before the first day of such Interest Period under regulations issued from time to time by the Board of Governors of the Federal Reserve System (or any successor) for determining the maximum reserve requirement (including, without limitation, any emergency, supplemental or other marginal reserve requirement) for a member bank of the Federal Reserve System in New York City with respect to liabilities or assets consisting of or including Eurocurrency Liabilities (or with respect to any other category of liabilities that includes deposits by reference to which the interest rate on Eurodollar Rate Advances or LIBO Rate Advances is determined) having a term equal to such Interest Period. "Events of Default" has the meaning specified in Section 6.01. "Excluded Person" means (i) Linda J. Wachner or (ii) any trust of which Linda J. Wachner is the sole trustee or is a trustee with effective control over the voting stock held by such trust or over the management or policies of Group (or, in case of her death or disability, another trustee of comparable experience and ability selected by the Borrower within 180 days thereafter after consultation with the Administrative Agent). "Excluded Subsidiary" means, provided that the terms of the Trust Stock preclude the issuance of a guaranty, the Trust, provided that neither Group nor the Borrower nor any of their Subsidiaries shall make any additional Investments in the Trust other than those Investments which existed on the date of the Five Year Waiver and those Investments necessary to pay its normal operating expenses in the ordinary course of business. "Excluded Taxes" means, in the case of each Lender, franchise taxes and taxes upon or determined by reference to such Lender's net income (including, without limitation, branch profit taxes), in each case imposed by the United States or any political subdivision or taxing authority thereof or therein or by any jurisdiction in which such Lender has its Applicable Lending Office, is resident or in which such Lender is organized or has its principal or registered office and, in the case of each Agent, franchise taxes and net income taxes upon or determined by reference to such Agent's net income (including, without limitation, branch profits taxes) imposed by the United States or by the state or foreign jurisdiction under the laws of which such Agent is organized (or by any political subdivision of such state or foreign jurisdiction), is resident or has its principal or registered office. "Existing Debt" means the Debt described in Schedule II hereto. 14 "Existing Five Year Credit Agreement" means the Credit Agreement dated as of August 12, 1997 as amended and restated by the Amended and Restated Credit Agreement dated as of November 17, 1999 among the Borrower, the lenders party thereto, Scotiabank and SSB, as co-lead arrangers and co-book managers, Citibank, as Syndication Agent, Commerzbank, as documentation agent, and Scotiabank, as administrative agent, competitive bid agent, swing line bank and an issuing bank, as such agreement may be amended, modified, extended, renewed, refinanced, replaced or otherwise supplemented through the date hereof and from time to time. "Existing 364 Day Credit Agreement" means the Credit Agreement dated as of November 26, 1997 as amended through the date hereof among the Borrower, the lenders party thereto, Scotiabank, Citibank and Commerzbank as managing agents, Commerzbank as documentation agent, Scotiabank as Administrative Agent and Citibank as syndication agent. "Facility" means the Revolving Credit Facility and the Swing Line Facility. "Federal Funds Rate" means, for any period, a fluctuating interest rate per annum equal for each day during such period to the weighted average of the rates on overnight Federal funds transactions with members of the Federal Reserve System arranged by Federal funds brokers, as published for such day (or, if such day is not a Business Day, for the next preceding Business Day) by the Federal Reserve Bank of New York, or, if such rate is not so published for any day that is a Business Day, the average of the quotations for such day on such transactions received by the Administrative Agent from three Federal funds brokers of recognized standing selected by it. "Fiscal Quarter" means a fiscal quarter of Group and its Consolidated Subsidiaries ending on or about March 31, June 30, September 30 or December 31 of each year. "Fiscal Year" means a fiscal year of Group and its Consolidated Subsidiaries ending on or about December 31 of each year. "Five Year Waiver" means the Letter Waiver dated as of October 14, 1997 to the Existing Five Year Credit Agreement. "Fixed Rate Advances" has the meaning specified in Section 2.03(a)(i). "GAAP" has the meaning specified in Section 1.03. "Group" has the meaning specified in the recital of parties to this Agreement. 15 "Group Guaranty" has the meaning specified in Section 3.01(i)(i). "Guaranties" means the Group Guaranty and the Subsidiary Guaranty. "Guarantors" means Group and each of its Domestic Subsidiaries that are Material Subsidiaries (other than the Borrower and each Excluded Subsidiary) and each other Subsidiary which is required to guarantee the Borrower's Obligations under the Loan Documents pursuant to Section 5.01(j). "Hazardous Materials" means petroleum and petroleum products, byproducts or breakdown products, radioactive materials, asbestos-containing materials, radon gas and any other chemicals, materials or substances designated, classified or regulated as being "hazardous" or "toxic", or words of similar import, under any Environmental Law. "Hedge Agreements" means Currency Hedge Agreements and Interest Rate Hedge Agreements. "Indebtedness for Borrowed Money" of any Person means all Debt of such Person for borrowed money or evidenced by notes, bonds, debentures or other similar instruments (other than Trust Stock in a face amount of not more than $120,000,000), all Obligations of such Person for the deferred purchase price of any property, service or business (other than trade accounts payable (including the Trade Credit Facility and other similar financing arrangements to the extent that the aggregate principal amount of Debt, including loans, acceptances and letters of credit thereunder, does not exceed $550,000,000 (it being understood and agreed that to the extent that the principal amount of Debt under the Trade Credit Facility and other similar financing arrangements exceeds $550,000,000, a pro-rata portion of such excess (calculated by reference to the relative amount of loans constituting such Debt) shall be included in this definition of "Indebtedness for Borrowed Money")) incurred in the ordinary course of business and constituting current liabilities), and all Obligations of such Person under Capitalized Leases (limited in each case to the principal amount thereof). "Indemnified Party" has the meaning specified in Section 8.04(b). "Initial Lenders" has the meaning specified in the recital of parties to this Agreement. "Insufficiency" means, with respect to any Plan, the amount, if any, of its unfunded benefit liabilities, as defined in Section 4001(a)(18) of ERISA. "Interest Expense" means, with respect to any Person for any period of measurement, the excess, if any, of (i) interest expense (whether cash or accretion) of such Person during 16 such period determined in accordance with GAAP, and shall include in any event, without limitation, interest expense with respect to Indebtedness for Borrowed Money, the Trade Credit Facility and payments under Interest Rate Hedge Agreements over (ii) interest income of such Person for such period, including payments received under Interest Rate Hedge Agreements; provided, however, that interest expense for any acquired entity, including Authentic Fitness, for any period beginning prior to the acquisition date shall be such entity's actual interest expense for such period. "Interest Period" means, for each Eurodollar Rate Advance comprising part of the same Revolving Credit Borrowing and each LIBO Rate Advance comprising part of the same Competitive Bid Borrowing, the period commencing on the date of such Eurodollar Rate Advance or LIBO Rate Advance or the date of the Conversion of any Base Rate Advance into such Eurodollar Rate Advance, and ending on the last day of the period selected by the Borrower pursuant to the provisions below and, thereafter, with respect to Eurodollar Rate Advances, each subsequent period commencing on the last day of the immediately preceding Interest Period and ending on the last day of the period selected by the Borrower pursuant to the provisions below. The duration of each such Interest Period shall be one, two, three, four, five or six months, or, if available to all Lenders, nine or twelve months, as the Borrower may, upon notice received by the Administrative Agent not later than 11:00 A.M. (New York City time) on the third Business Day prior to the first day of such Interest Period, select; provided, however, that: (a) the Borrower may not select any Interest Period that ends after the Termination Date; (b) Interest Periods commencing on the same date for Eurodollar Rate Advances comprising part of the same Revolving Credit Borrowing or for LIBO Rate Advances comprising part of the same Competitive Bid Borrowing shall be of the same duration; (c) whenever the last day of any Interest Period would otherwise occur on a day other than a Business Day, the last day of such Interest Period shall be extended to occur on the next succeeding Business Day, provided, however, that, if such extension would cause the last day of such Interest Period to occur in the next following calendar month, the last day of such Interest Period shall occur on the next preceding Business Day, unless the Borrower and the Administrative Agent otherwise agree; and (d) whenever the first day of any Interest Period occurs on a day of an initial calendar month for which there is no numerically corresponding day in the calendar month that succeeds such initial calendar month by the number of months equal to the number of months in such Interest Period, such Interest Period shall end 17 on the last Business Day of such succeeding calendar month unless the Borrower and the Administrative Agent otherwise agree. "Interest Rate Hedge Agreements" means interest rate swap, cap or collar agreements, interest rate future or option contracts and other similar agreements "Internal Revenue Code" means the Internal Revenue Code of 1986, as amended from time to time, and the regulations promulgated and rulings issued thereunder. "Investment" in any Person means any loan or advance to such Person, any purchase or other acquisition of any capital stock or other ownership or profit interest, warrants, rights, options, obligations or other securities of such Person, any capital contribution to such Person or any other investment in such Person, including, without limitation, any arrangement pursuant to which the investor incurs Debt of the types referred to in clauses (i) or (j) of the definition of "Debt" in respect of such Person. "Lenders" means the Initial Lenders, each Person that shall become a party hereto pursuant to Section 8.07, including the Designated Lenders, if any, and each Person that shall become a party hereto pursuant to Section 2.18; provided, however, that the term "Lender" shall exclude each Designated Lender when used (i) in reference to an Advance or the Commitments or terms relating thereto, except to the extent a Designated Lender is the obligee of an Advance actually funded by such Designated Lender pursuant to Section 2.01 hereof and (ii) in any determination or calculation of Required Lenders, it being understood that for purposes hereof, any Advance made by a Designated Lender shall be deemed to have been made by the applicable Designating Lender. "LIBO Rate" means, for any Interest Period for all LIBO Rate Advances comprising part of the same Competitive Bid Borrowing, an interest rate per annum equal to the rate per annum obtained by dividing (a) the rate per annum at which deposits in U.S. dollars are offered by the principal office of the Administrative Agent, in London, England to prime banks in the London interbank market at 11:00 A.M. (London time) two Business Days before the first day of such Interest Period in an amount substantially equal to the amount that would be the Administrative Agent's ratable share of such Borrowing if such Borrowing were to be a Revolving Credit Borrowing to be outstanding during such Interest Period and for a period equal to such Interest Period by (b) a percentage equal to 100% minus the Eurodollar Rate Reserve Percentage for such Interest Period. "LIBO Rate Advances" has the meaning specified in Section 2.03(a)(i). "Lien" means any lien, security interest or other charge or encumbrance of any kind, or any other type of preferential arrangement, including, without limitation, the lien or 18 retained security title of a conditional vendor and any easement, right of way or other encumbrance on title to real property. "Loan Documents" means (a) for purposes of this Agreement, the Notes, if any, and any amendments or modifications hereof or thereof and for all other purposes other than for purposes of the Guarantees, (i) this Agreement, (ii) the Notes, if any and (iii) the Guarantees and (b) for purposes of the Guarantees, (i) this Agreement, (ii) the Notes, if any, (iii) the Guarantees and (iv) the Interest Rate Hedge Agreements entered into by Group or the Borrower with Lenders, in the case of each of the foregoing agreements referred to in clause (a) or (b), and any amendments, supplements or modifications hereof or thereof. "Loan Parties" means the Borrower and the Guarantors. "Margin Stock" has the meaning specified in Regulation U. "Material Adverse Change" means any material adverse change in the business, condition (financial or otherwise), operations, performance, properties or prospects of the Borrower or Group and its Subsidiaries taken as a whole. "Material Adverse Effect" means a material adverse effect on (a) the business, condition (financial or otherwise), operations, performance, properties or prospects of (i) the Borrower or Group and its Subsidiaries taken as a whole, (b) the rights and remedies of any Agent or Lender under any Loan Document or (c) the validity or enforceability of any Loan Document. "Material Guarantor" means, at any time, a Guarantor having (i) at least 10% of Consolidated total assets of Group and its Subsidiaries (determined as of the last day of the most recent Fiscal Quarter) or (ii) at least 10% of Consolidated EBITDA of Group and its Subsidiaries for the 12-month period ending on the last day of the most recent Fiscal Quarter. "Material Subsidiary" of any Person means, at any time, a Subsidiary of such Person having (i) at least $15,000,000 in total assets (determined as of the last day of the most recent fiscal quarter of such Person) or (ii) EBITDA of at least $15,000,000 for the 12-month period ending on the last day of the most recent fiscal quarter of such Person. "Merger" has the meaning set forth in the Preliminary Statements. "Moody's" means Moody's Investors Service, Inc. "Multiemployer Plan" means a multiemployer plan, as defined in Section 4001(a)(3) of ERISA, to which the Borrower or any of its ERISA Affiliates is making or accruing an 19 obligation to make contributions, or has within any of the preceding five plan years made or accrued an obligation to make contributions. "Multiple Employer Plan" means a single employer plan, as defined in Section 4001(a)(15) of ERISA, that (a) is maintained for employees of the Borrower or any of its ERISA Affiliates and at least one Person other than the Borrower and its ERISA Affiliates or (b) was so maintained and in respect of which the Borrower or any of its ERISA Affiliates could have liability under Section 4064 or 4069 of ERISA in the event such plan has been or were to be terminated. "New 364 Day Credit Agreement" means the 364 Day Credit Agreement expected to be entered into by the Borrower, the lenders party thereto, Scotiabank and SSB, as co-lead arrangers and co-book runners, Citibank, as syndication agent, Morgan Guaranty Trust Company of New York as documentation agent, and Scotiabank, as administrative agent, as such agreement may be amended, modified, extended, renewed, refinanced, replaced or otherwise supplemented from time to time. "Note" means a Revolving Credit Note or a Competitive Bid Note. "Notice of Borrowing" has the meaning specified in Section 2.02(a). "Notice of Competitive Bid Borrowing" has the meaning specified in Section 2.03(a). "Notice of Swing Line Borrowing" has the meaning specified in Section 2.02(b). "Obligation" means, with respect to any Person, any obligation of such Person of any kind, including, without limitation, any liability of such Person on any claim, whether or not the right of any creditor to payment in respect of such claim is reduced to judgment, liquidated, unliquidated, fixed, contingent, matured, disputed, undisputed, legal, equitable, secured or unsecured, and whether or not such claim is discharged, stayed or otherwise affected by any proceeding referred to in Section 6.01(e). Without limiting the generality of the foregoing, the Obligations of the Loan Parties under the Loan Documents include (a) the obligation to pay principal, interest, charges, expenses, fees, attorneys' fees and disbursements, indemnities and other amounts payable by any Loan Party under any Loan Document and (b) the obligation to reimburse any amount in respect of any of the foregoing that any Lender, in its sole discretion, may elect to pay or advance on behalf of such Loan Party. "Other Taxes" has the meaning specified in Section 2.13(b). "PBGC" means the Pension Benefit Guaranty Corporation (or any successor). 20 "Permitted Liens" means the following: (a) Liens, other than in favor of the PBGC, arising out of judgments or awards in respect of which Group or any of its Subsidiaries shall in good faith be prosecuting an appeal or proceedings for review and in respect of which it shall have secured a subsisting stay of execution pending such appeal or proceedings for review, provided it shall have set aside on its books adequate reserves, in accordance with GAAP, with respect to such judgment or award and provided further that the aggregate amount secured by such Liens does not exceed $5,000,000 in any one case or $10,000,000 in the aggregate; (b) Liens for taxes, assessments or governmental charges or levies, provided payment thereof shall not at the time be required in accordance with the provisions of Section 5.01(b) and such amount, when taken together with any amount payable under Section 5.01(b) as to which any Lien has been attached as described in the last phrase thereof, shall not exceed $10,000,000; (c) deposits, Liens or pledges to secure payments of workmen's compensation and other payments, unemployment and other insurance, old-age pensions or other social security obligations, or the performance of bids, tenders, leases, contracts (other than contracts for the payment of money), public or statutory obligations, surety, stay or appeal bonds, or other similar obligations arising in the ordinary course of business; (d) mechanics', workmen's, repairmen's, warehousemen's, vendors' or carriers' Liens or other similar Liens arising in the ordinary course of business and securing sums which are not past due, or deposits or pledges to obtain the release of any such Liens; (e) statutory landlord's Liens under leases to which Group or any of its Subsidiaries is a party; (f) any Lien constituting a renewal, extension or replacement of a Lien constituting a Permitted Lien, but only if at the time such Lien is granted and immediately after giving effect thereto, no Default would exist; (g) leases or subleases granted to other Persons not materially interfering with the conduct of the business of Group and its Subsidiaries, taken as a whole; (h) zoning restrictions, easements, rights of way, licenses and restrictions on the use of real property or minor irregularities in title thereto, which do not materially impair the use of such property in the normal operation of the business of 21 Group or any of its Subsidiaries or the value of such property for the purpose of such business; and (i) statutory or common law Liens (such as rights of set-off) on deposit accounts of Group and its Subsidiaries and other Liens under the L/C Related Documents (as defined in the Existing Five Year Credit Agreement). "Person" means an individual, partnership, corporation (including a business trust), joint stock company, trust, unincorporated association, joint venture, limited liability company or other entity, or a government or any political subdivision or agency thereof. "Plan" means a Single Employer Plan or a Multiple Employer Plan. "Pro Rata Share" of any amount means, with respect to any Lender at any time, the product of such amount times a fraction the numerator of which is the amount of such Lender's Revolving Credit Commitment at such time and the denominator of which is the Revolving Credit Facility at such time. "Purchaser" has the meaning set forth in the Preliminary Statements. "Redeemable" means, with respect to any capital stock, Debt or other right or Obligation, any such right or Obligation that (a) the issuer has undertaken to redeem at a fixed or determinable date or dates, whether by operation of a sinking fund or otherwise, or upon the occurrence of a condition not solely within the control of the issuer or (b) is redeemable at the option of the holder. "Register" has the meaning specified in Section 8.07(g). "Regulation U" means Regulation U of the Board of Governors of the Federal Reserve System, as in effect from time to time. "Required Lenders" means, at any time, Lenders owed or holding more than 50% of the sum of (a) the aggregate principal amount of the Revolving Credit Advances outstanding at such time and (b) the aggregate Unused Revolving Credit Commitments at such time; provided, however, if any Lender shall be a Defaulting Lender at such time, there shall be excluded from the determination of Required Lenders at such time (i) the aggregate principal amount of the Revolving Credit Advances owing to such Lender (in its capacity as a Lender) and outstanding at such time and (ii) the Unused Revolving Credit Commitment of such Lender at such time and provided further that for purposes of this definition, any Revolving Credit Advance made by a Designated Lender shall be deemed to have been made by its applicable Designating Lender. For purposes of this definition, the aggregate principal amount of Swing Line Advances owing to the Swing Line Bank shall be considered to be 22 owed to the Lenders ratably in accordance with their respective Revolving Credit Commitments. "Revolving Credit Advance" means an advance by a Lender to the Borrower as part of a Revolving Credit Borrowing and refers to a Base Rate Advance or a Eurodollar Rate Advance (each of which shall be a "Type" of Revolving Credit Advance). "Revolving Credit Borrowing" means a borrowing consisting of simultaneous Revolving Credit Advances of the same Type made by the Lenders pursuant to Section 2.01. "Revolving Credit Commitment" means, with respect to any Lender at any time, the amount set forth opposite such Lender's name on Schedule I hereto under the caption "Revolving Credit Commitment" or, if such Lender has entered into one or more Assignments and Acceptances, set forth for such Lender in the Register maintained by the Administrative Agent pursuant to Section 8.07(c) as such Lender's "Revolving Credit Commitment" or if such Lender has entered into an Assumption Agreement, the amount set forth in such Assumption Agreement, as such amount may be reduced at or prior to such time pursuant to Section 2.06. The aggregate Revolving Credit Commitments may be increased to an amount not more than $500,000,000 to the extent additional Lenders become parties hereto pursuant to Section 2.18. "Revolving Credit Facility" means, at any time, the aggregate amount of the Lenders' Revolving Credit Commitments at such time. "Revolving Credit Note" has the meaning specified in Section 2.17. "S&P" means Standard & Poor's Ratings Group, currently a division of The McGraw-Hill Companies, Inc., or any successor thereto. "Scotiabank" has the meaning specified in the recital of parties to this Agreement. "Single Employer Plan" means a single employer plan, as defined in Section 4001(a)(15) of ERISA, that (a) is maintained for employees of the Borrower or any of its ERISA Affiliates and no Person other than the Borrower and its ERISA Affiliates or (b) was so maintained and in respect of which the Borrower or any of its ERISA Affiliates could have liability under Section 4069 of ERISA in the event such plan has been or were to be terminated. "Subsidiary" of any Person means any corporation, partnership, joint venture, limited liability company, trust or estate of which (or in which) more than 50% of (a) the issued and outstanding capital stock having ordinary voting power to elect a majority of the Board of Directors of such corporation (irrespective of whether at the time capital stock of any other 23 class or classes of such corporation shall or might have voting power upon the occurrence of any contingency), (b) the interest in the capital or profits of such limited liability company, partnership or joint venture or (c) the beneficial interest in such trust or estate is at the time directly or indirectly owned or controlled by such Person, by such Person and one or more of its other Subsidiaries or by one or more of such Person's other Subsidiaries. The term "wholly owned Subsidiary" shall exclude any directors' or officers' qualifying shares which may be outstanding. "Subsidiary Guaranty" has the meaning specified in Section 3.01(i)(ii). "Swing Line Advance" means an advance made by (a) the Swing Line Bank pursuant to Section 2.01(b), or (b) any Lender pursuant to Section 2.02(b). "Swing Line Bank" means Scotiabank (and its successors and assigns), provided that Scotiabank (and any such successors and assigns as Swing Line Bank hereunder) may resign, and thereupon be released from its obligations, as Swing Line Bank under this Agreement upon receipt by the Borrower and the Arrangers, in writing and in a form reasonably satisfactory to the Borrower and the Arrangers, of the assumption by another Lender of the rights and obligations of the Swing Line Bank hereunder. "Swing Line Borrowing" means a borrowing consisting of a Swing Line Advance made by the Swing Line Bank. "Swing Line Facility" has the meaning specified in Section 2.01(b). "Surviving Corporation" has the meaning set forth in the Preliminary Statements. "Syndication Agent" has the meaning specified in the recital of parties to this Agreement. "Tangible Assets" means total assets minus goodwill and intangibles, in each case determined in accordance with GAAP. "Taxes" has the meaning specified in Section 2.13(a). "Tender Offer" has the meaning set forth in the Preliminary Statements. "Termination Date" means the earlier of November 17, 2004 and the date of termination in whole of the Commitments pursuant to Section 2.05 or 6.01. "Trade Credit Facility" means the revolving loan facility under the Sixth Amended and Restated Credit Agreement dated as of November 17, 1999 among the Borrower, certain 24 lenders party thereto and Scotiabank, as agent for said lenders, as each such agreement has been amended to date and the same may be amended, extended, renewed, refinanced, replaced or otherwise modified from time to time. "Trust" means Designer Finance Trust, a trust formed under the laws of Delaware. "Trust Stock" means the Trust Originated Preferred Securities issued by the Trust. "Type" refers to the distinction between Advances bearing interest at the Base Rate and Advances bearing interest at the Eurodollar Rate. "Unused Revolving Credit Commitment" means, with respect to any Lender at any time, (a) such Lender's Revolving Credit Commitment at such time minus (b) the sum of the aggregate principal amount of all Revolving Credit Advances and Swing Line Advances made by such Lender and outstanding at such time, plus, such Lender's Pro Rata Share of the aggregate amount of Competitive Bid Advances outstanding at such time and the aggregate principal amount of all Swing Line Advances made by the Swing Line Bank pursuant to Section 2.01(b) and outstanding at such time other than any such Swing Line Advance which, at or prior to such time, has been assigned in part to such Lender pursuant to Section 2.02(b). "Voting Stock" means capital stock issued by a corporation, or equivalent interests in any other Person, the holders of which are ordinarily, in the absence of contingencies, entitled to vote for the election of directors (or persons performing similar functions) of such Person, even if the right so to vote has been suspended by the happening of such a contingency. SECTION 1.02. Computation of Time Periods. In this Agreement in the computation of periods of time from a specified date to a later specified date, the word "from" means "from and including" and the words "to" and "until" each mean "to but excluding". SECTION 1.03. Accounting Terms. All accounting terms not specifically defined herein shall be construed in accordance with generally accepted accounting principles consistent with those applied in the preparation of the financial statements referred to in Section 4.01(f) ("GAAP"). 25 ARTICLE II AMOUNTS AND TERMS OF THE ADVANCES SECTION 2.01. The Advances. (a) The Revolving Credit Advances. Each Lender severally agrees, on the terms and conditions hereinafter set forth, to make Revolving Credit Advances to the Borrower from time to time on any Business Day during the period from the Effective Date until the Termination Date in an amount for each such Revolving Credit Advance not to exceed such Lender's Unused Revolving Credit Commitment at such time. Each Revolving Credit Borrowing shall be in an aggregate amount of $5,000,000 or an integral multiple of $1,000,000 in excess thereof (or, if less, an aggregate amount equal to the amount by which the aggregate amount of a proposed Competitive Bid Borrowing requested by the Borrower exceeds the aggregate amount of Competitive Bid Advances offered to be made by the Lenders and accepted by the Borrower in respect of such Competitive Bid Borrowing, if such Competitive Bid Borrowing is made on the same date as such Revolving Credit Borrowing) and shall consist of Revolving Credit Advances of the same Type made on the same day by the Lenders ratably according to their respective Revolving Credit Commitments. Within the limits of each Lender's Unused Revolving Credit Commitment in effect from time to time, the Borrower may borrow under this Section 2.01(a), prepay pursuant to Section 2.06(a) and reborrow under this Section 2.01(a). For any Lender which is a Designating Lender, any Revolving Credit Advance to be made by such Lender may from time to time and upon notice to the Administrative Agent, be made by its Designated Lender pursuant to the terms hereof in such Designating Lender's sole discretion, and nothing herein shall constitute a Commitment to make Revolving Credit Advances by such Designated Lender; provided that (i) if any Designated Lender elects not to, or fails for any reason whatsoever to, make such Revolving Credit Advance, its Designating Lender hereby agrees that it shall make such Revolving Credit Advance pursuant to the terms hereof and (ii) notwithstanding anything to the contrary, neither the designation of a Designated Lender, the election or other determination that a Designated Lender will make any Revolving Credit Advance nor any other condition or circumstance relating to the Designated Lender shall in any way release, diminish or otherwise affect the relevant Designating Lender's Commitment or any of its other obligations hereunder or under any other Loan Document or any rights of the Borrower, any Agent or any Lender with respect to such Designating Lender. Any Revolving Credit Advance actually funded by a Designated Lender shall constitute a utilization of the Commitment of the Designating Lender for all purposes hereunder. (b) The Swing Line Advances. The Borrower may request the Swing Line Bank to make, and the Swing Line Bank shall make, on the terms and conditions hereinafter set forth, Swing Line Advances to the Borrower from time to time on any Business Day during the period from the Effective Date until the Termination Date (i) in an aggregate amount not to exceed at any time outstanding $30,000,000 (the "Swing Line Facility") and (ii) in an amount for each such Swing Line Borrowing not to exceed the aggregate of the Unused Revolving Credit Commitments of the Lenders at such time. No Swing Line Advance shall be used for the purpose of funding the payment of principal of any other Swing Line Advance. Each Swing Line Borrowing shall be in an amount 26 of $100,000 or an integral multiple of $1,000 in excess thereof and shall be made as a Base Rate Advance. Within the limits of the Swing Line Facility and within the limits referred to in clause (ii) above, the Borrower may borrow under this Section 2.01(b), repay pursuant to Section 2.04(b) or prepay pursuant to Section 2.06(a) and reborrow under this Section 2.01(b). SECTION 2.02. Making the Advances. (a) Except as otherwise provided in Section 2.02(b), each Borrowing shall be made on notice, given not later than 11:00 A.M. (New York City time) on the third Business Day prior to the date of the proposed Borrowing in the case of a Borrowing consisting of Eurodollar Rate Advances, or on the date of the proposed Borrowing in the case of a Borrowing consisting of Base Rate Advances, by the Borrower to the Administrative Agent, which shall give to each Lender prompt notice thereof by telecopier or telex. Each such notice of a Borrowing (a "Notice of Borrowing") shall be by telephone, confirmed immediately in writing, or telecopier or telex, in substantially the form of Exhibit B-1 hereto, specifying therein the requested (i) date of such Borrowing, (ii) Facility under which such Borrowing is to be made, (iii) Type of Advances comprising such Borrowing, (iv) aggregate amount of such Borrowing, and (v) in the case of a Borrowing consisting of Eurodollar Rate Advances, initial Interest Period for each such Advance. Each Lender shall, before 12:00 Noon (New York City time) on the date of such Borrowing, make available for the account of its Applicable Lending Office to the Administrative Agent at the Administrative Agent's Account, in same day funds, such Lender's ratable portion of such Borrowing in accordance with the respective Commitments of such Lender and the other Lenders. After the Administrative Agent's receipt of such funds and upon fulfillment of the applicable conditions set forth in Article III, the Administrative Agent will make such funds available to the Borrower by crediting the Borrower's Account; provided, however, that, in the case of any Revolving Credit Borrowing, the Administrative Agent shall first make a portion of such funds in an amount equal to the aggregate principal amount of any Swing Line Advances made by the Swing Line Bank and by any other Lender that are outstanding on the date of such Revolving Credit Borrowing, plus interest accrued and unpaid thereon to and as of such date, available to the Swing Line Bank and such other Lenders for repayment of such Swing Line Advances. (b) (i) Each Swing Line Borrowing shall be made on notice, given not later than 11:30 A.M. (New York City time) on the date of the proposed Swing Line Borrowing, by the Borrower to the Swing Line Bank and the Administrative Agent. Each such notice of a Swing Line Borrowing (a "Notice of Swing Line Borrowing") shall be by telephone, confirmed immediately in writing or telex or telecopier, specifying therein the requested (A) date of such Borrowing and (B) amount of such Borrowing and shall constitute a representation and warranty by the Borrower (upon which the Swing Line Bank may conclusively rely, in the absence of prior receipt by the Swing Line Bank of written notice from an Agent or Lenders holding more than 50% of the Revolving Credit Commitments that the conditions precedent to the making of Swing Line Advances have not been satisfied or duly waived). Upon fulfillment of the applicable conditions set forth in Article III, the Swing Line Bank will make the amount thereof available to the Borrower by crediting the Borrower's Account. 27 (ii) (A) (1) Subject to clause (ii)(B) below, in the event that on any Business Day the Swing Line Bank desires that all or any portion of one or more Swing Line Advances be paid, the Swing Line Bank shall promptly notify the Administrative Agent to that effect and indicate the portion of the Swing Line Advances to be paid. (2) The Administrative Agent agrees to promptly transmit to the Lenders the information contained in each notice received by the Administrative Agent under clause (ii)(A)(1) above, and shall concurrently notify the other Agents and the Lenders of each Lender's Pro Rata Share of the Swing Line Advances (or portion thereof) to be paid. (3) Each Lender hereby unconditionally and irrevocably agrees to fund to the Administrative Agent for the benefit of the Swing Line Bank, in lawful money of the United States and in same day funds, not later than 12:00 noon (New York City time) on the Business Day immediately following the Business Day of such Lender's receipt of such notice from the Administrative Agent (provided that if any Lender shall receive such notice at or prior to 1:00 P.M. (New York City time) on a Business Day, such funding shall be made by such Lender on such Business Day), a Revolving Credit Advance in the amount of such Lender's Pro Rata Share of the payment of the Swing Line Advances to be made on such date, regardless, however, of whether (x) the conditions precedent thereto set forth in Article III are then satisfied, (y) the Borrower has provided a Notice of Borrowing under Section 2.02(a) hereof and (z) the Revolving Credit Facility has been terminated, any Default or Event of Default exists or all or any of the Advances have been accelerated, but subject to clause (B) below and subject to the limitations in respect of the amount of Revolving Credit Advances contained in Section 2.01(a). The proceeds of each such Revolving Credit Advance shall be immediately paid over to the Administrative Agent for the benefit of the Swing Line Bank for application to the Swing Line Facility. Each such Revolving Credit Advance shall initially be a Base Rate Advance and shall be deemed to be requested by the Borrower pursuant to Section 2.02(a). (B) In the event that Commitments of the Lenders shall have terminated pursuant to Section 6.01 following an Event of Default of the type described in Section 6.01(f) with respect to Group or the Borrower, no further Revolving Credit Advances of the type described in clause (ii)(A) above shall be made, and each of the Lenders (other than the Swing Line Bank) shall be deemed to have irrevocably, unconditionally and immediately purchased from the Swing Line Bank such Lender's Pro Rata Share of the principal amount of the Swing Line Advances outstanding as of the date of the occurrence of such Event of Default. Each Lender shall effect such purchase by making available an amount equal to its participation on the date of such purchase in U.S. dollars in immediately available funds at the office of the Swing Line Bank located at 600 Peachtree Street Northeast, Suite 2700, Atlanta, Georgia 30308 or such other office as the Swing Line Bank may from time to time direct for the account of such office of the Swing Line Bank. (C) Each purchase made pursuant to clause (ii)(B) above by a Lender shall be made without recourse to the Swing Line Bank, and, except as to the absence of liens created by the 28 Swing Line Bank on the Swing Line Advance and the Swing Line Bank's right to effect such sale, without representation or warranty of any kind, and shall be effected and evidenced pursuant to documents reasonably acceptable to the Swing Line Bank. (D) The obligations of the Lenders under this Section 2.02(b)(ii) shall be absolute, irrevocable and unconditional, shall be made under all circumstances and shall not be affected, reduced or impaired for any reason whatsoever, including (without limitation): (1) any Default, Event of Default, misrepresentation, negligence, misconduct or other action or inaction of any kind by any of the Loan Parties or any other Person, whether in, under or in connection with this Agreement, the Guaranty or any of the other Loan Documents; (2) any extension, renewal, release or waiver of the time of performance of or compliance with any of the obligations or other provisions hereof or of any other Loan Document; (3) any settlement, compromise or subordination of any or all of the obligations to the claims of others, or any failure by any Agent, the Swing Line Bank or any other Lender to mitigate damages; (4) any amendment, modification or other waiver of any one or more of the Loan Documents; (5) the insolvency, bankruptcy, reorganization or cessation of existence of any of the Loan Parties; (6) any impossibility or illegality of performance or the lack of genuineness, validity, legality or enforceability of any of this Agreement or the other Loan Documents, or any term thereof or any other agreement or instrument relating thereto for any reason, or the lack of power or authority of any party to enter into any of the Loan Documents; (7) any dispute, setoff, recoupment, counterclaim or other defense or right any Lender may have at any time, whether against any Agent, the Swing Line Bank, any other Lender or any of the Loan Parties; (8) any merger or consolidation of any of the Loan Parties or any Lender, or any sale, lease or transfer of any or all of the assets of any such Person; or (9) any other circumstances whether similar or dissimilar to any of the foregoing. (c) Anything in subsection (a) above to the contrary notwithstanding, (i) the Borrower may not select Eurodollar Rate Advances for any Revolving Credit Borrowing if the aggregate amount of such Revolving Credit Borrowing is less than $10,000,000 or if the obligation of the Lenders to make Eurodollar Rate Advances shall then be suspended pursuant to Section 2.09, 2.10 or 2.11 and (ii) the Revolving Credit Advances may not be outstanding as part of more than 20 separate Revolving Credit Borrowings. (d) Each Notice of Borrowing and Notice of Swing Line Borrowing shall be irrevocable and binding on the Borrower. In the case of any Revolving Credit Borrowing that the related Notice of Borrowing specifies is to be comprised of Eurodollar Rate Advances, the Borrower shall indemnify each Lender against any loss, cost or expense incurred by such Lender as a result of any failure to fulfill on or before the date specified in such Notice of Revolving Credit Borrowing for such Revolving Credit Borrowing the applicable conditions set forth in Article III, including, without limitation, any loss (excluding loss of anticipated profits), cost or expense incurred by reason of the liquidation or reemployment of deposits or other funds acquired by such Lender to fund the Revolving Credit Advance to be made by such Lender as part of such Revolving Credit Borrowing when such Revolving Credit Advance, as a result of such failure, is not made on such date. 29 (e) Unless the Administrative Agent shall have received notice from a Lender prior to the date of any Revolving Credit Borrowing that such Lender will not make available to the Administrative Agent such Lender's ratable portion of such Revolving Credit Borrowing, the Administrative Agent may assume that such Lender has made such portion available to the Administrative Agent on the date of such Revolving Credit Borrowing in accordance with subsection (a) of this Section 2.02 and the Administrative Agent may, in reliance upon such assumption, make available to the Borrower on such date a corresponding amount. If and to the extent that such Lender shall not have so made such ratable portion available to the Administrative Agent, the Administrative Agent agrees to give prompt notice thereof to the Borrower (provided that failure to give such notice shall not affect the obligations of the Borrower under this Section 2.02(e)), and such Lender and the Borrower severally agree to repay to the Administrative Agent forthwith on demand such corresponding amount together with interest thereon, for each day from the date such amount is made available to the Borrower until the date such amount is repaid to the Administrative Agent, at (i) in the case of the Borrower, the interest rate applicable at such time under Section 2.07 to Advances comprising such Revolving Credit Borrowing and (ii) in the case of such Lender, the Federal Funds Rate. If such Lender shall repay to the Administrative Agent such corresponding amount, such amount so repaid shall constitute such Lender's Advance as part of such Revolving Credit Borrowing for purposes of this Agreement. (f) The failure of any Lender to make the Revolving Credit Advance to be made by it as part of any Revolving Credit Borrowing shall not relieve any other Lender of its obligation, if any, hereunder to make its Revolving Credit Advance on the date of such Revolving Credit Borrowing, but no Lender shall be responsible for the failure of any other Lender to make the Revolving Credit Advance to be made by such other Lender on the date of any Revolving Credit Borrowing. SECTION 2.03. The Competitive Bid Advances. (a) Each Lender severally agrees that the Borrower may make Competitive Bid Borrowings under this Section 2.03 from time to time on any Business Day during the period from the Effective Date until the date occurring 10 days prior to the Termination Date in the manner set forth below; provided that, following the making of each Competitive Bid Borrowing, (x) the aggregate amount of the Advances then outstanding shall not exceed the aggregate amount of the Revolving Credit Commitments of the Lenders and (y) the aggregate amount of the Competitive Bid Advances then outstanding shall not exceed $300,000,000. (i) The Borrower may request a Competitive Bid Borrowing under this Section 2.03 by delivering to the Competitive Bid Agent, by telecopier or telex, a notice of a Competitive Bid Borrowing (a "Notice of Competitive Bid Borrowing"), in substantially the form of Exhibit B-2 hereto, specifying therein the requested (v) date of such proposed Competitive Bid Borrowing, (w) aggregate amount of such proposed Competitive Bid Borrowing, (x) in the case of a Competitive Bid Borrowing consisting of LIBO Rate Advances, Interest Period, or in the case of a Competitive Bid Borrowing consisting of Fixed Rate Advances, maturity date for repayment of each Fixed Rate Advance to be made as part 30 of such Competitive Bid Borrowing (which maturity date may not be earlier than the date occurring 7 days after the date of such Competitive Bid Borrowing or later than the earlier of (I) 180 days after the date of such Competitive Bid Borrowing and (II) the Termination Date), (y) interest payment date or dates relating thereto, and (z) other terms (if any) to be applicable to such Competitive Bid Borrowing, not later than 10:00 A.M. (New York City time) (A) at least four Business Days prior to the date of the proposed Competitive Bid Borrowing, if the Borrower shall specify in the Notice of Competitive Bid Borrowing that the rates of interest to be offered by the Lenders shall be fixed rates per annum (the Advances comprising any such Competitive Bid Borrowing being referred to herein as "Fixed Rate Advances") and (B) at least four Business Days prior to the date of the proposed Competitive Bid Borrowing, if the Borrower shall instead specify in the Notice of Competitive Bid Borrowing that the rates of interest offered by the Lenders are to be based on the LIBO Rate (the Advances comprising such Competitive Bid Borrowing being referred to herein as "LIBO Rate Advances"). Each Notice of Competitive Bid Borrowing shall be irrevocable and binding on the Borrower. The Competitive Bid Agent shall in turn promptly notify each Lender of each request for a Competitive Bid Borrowing received by it from the Borrower by sending such Lender a copy of the related Notice of Competitive Bid Borrowing. (ii) Each Lender may, if, in its sole discretion, it elects to do so, irrevocably offer to make one or more Competitive Bid Advances to the Borrower as part of such proposed Competitive Bid Borrowing at a rate or rates of interest specified by such Lender in its sole discretion, by notifying the Competitive Bid Agent (which shall give prompt notice thereof to the Borrower), before 10:00 A.M. (New York City time) on the date of such proposed Competitive Bid Borrowing in the case of a Competitive Bid Borrowing consisting of Fixed Rate Advances and on the third Business Day before the date of such proposed Competitive Bid Borrowing, in the case of a Competitive Bid Borrowing consisting of LIBO Rate Advances, of the minimum amount and maximum amount of each Competitive Bid Advance which such Lender would be willing to make as part of such proposed Competitive Bid Borrowing (which amounts may, subject to the proviso to the first sentence of this Section 2.03(a), exceed such Lender's Revolving Credit Commitment, if any), the rate or rates of interest therefor and such Lender's Applicable Lending Office with respect to such Competitive Bid Advance; provided that if the Competitive Bid Agent in its capacity as a Lender shall, in its sole discretion, elect to make any such offer, it shall notify the Borrower of such offer before 9:00 A.M. (New York City time) on the date on which notice of such election is to be given to the Competitive Bid Agent by the other Lenders. If any Lender shall elect not to make such an offer, such Lender shall so notify the Competitive Bid Agent, before 10:00 A.M. (New York City time) on the date on which notice of such election is to be given to the Competitive Bid Agent by the other Lenders, and such Lender shall not be obligated to, and shall not, make any Competitive Bid Advance as part of such Competitive Bid Borrowing; provided that the failure by any Lender to give such notice shall not cause such Lender to be obligated to make any Competitive Bid Advance as part of such proposed Competitive Bid Borrowing. 31 (iii) The Borrower shall, in turn, before 11:00 A.M. (New York City time) on the date of such proposed Competitive Bid Borrowing in the case of a Competitive Bid Borrowing consisting of Fixed Rate Advances, and before 1:00 P.M. (New York City time) three Business Days before the date of such proposed Competitive Bid Borrowing in the case of a Competitive Bid Borrowing consisting of LIBO Rate Advances, either: (x) cancel such Competitive Bid Borrowing by giving the Competitive Bid Agent notice to that effect, or (y) accept one or more of the offers made by any Lender or Lenders pursuant to paragraph (ii) above, in its sole discretion, by giving notice to the Competitive Bid Agent of the amount of each Competitive Bid Advance (which amount shall be equal to or greater than the minimum amount, and equal to or less than the maximum amount, notified to the Borrower by the Competitive Bid Agent on behalf of such Lender for such Competitive Bid Advance pursuant to paragraph (ii) above) to be made by each Lender as part of such Competitive Bid Borrowing, and reject any remaining offers made by Lenders pursuant to paragraph (ii) above by giving the Competitive Bid Agent notice to that effect. The Borrower shall accept the offers made by any Lender or Lenders to make Competitive Bid Advances in order of the lowest to the highest rates of interest offered by such Lenders. If two or more Lenders have offered the same interest rate, the amount to be borrowed at such interest rate will be allocated by the Competitive Bid Agent among such Lenders in proportion to the maximum amount that each such Lender offered at such interest rate. (iv) If the Borrower notifies the Competitive Bid Agent that such Competitive Bid Borrowing is canceled pursuant to paragraph (iii)(x) above, the Competitive Bid Agent shall give prompt notice thereof to the Lenders and such Competitive Bid Borrowing shall not be made. (v) If the Borrower accepts one or more of the offers made by any Lender or Lenders pursuant to paragraph (iii)(y) above, the Competitive Bid Agent shall in turn promptly notify (A) each Lender that has made an offer as described in paragraph (ii) above, of the date and aggregate amount of such Competitive Bid Borrowing and whether or not any offer or offers made by such Lender pursuant to paragraph (ii) above have been accepted by the Borrower, (B) each Lender that is to make a Competitive Bid Advance as part of such Competitive Bid Borrowing, of the amount of each Competitive Bid Advance to be made by such Lender as part of such Competitive Bid Borrowing, and (C) each Lender that is to make a Competitive Bid Advance as part of such Competitive Bid Borrowing, upon receipt, that the Competitive Bid Agent has received forms of documents, if any, requested pursuant to Section 3.02(b). Each Lender that is to make a Competitive Bid Advance as part of such Competitive Bid Borrowing shall, before 12:00 noon (New York City time) on the date of 32 such Competitive Bid Borrowing specified in the notice received from the Competitive Bid Agent pursuant to clause (A) of the preceding sentence or any later time when such Lender shall have received notice from the Competitive Bid Agent pursuant to clause (C) of the preceding sentence, make available for the account of its Applicable Lending Office to the Competitive Bid Agent at the Competitive Bid Agent's Account, in same day funds, such Lender's portion of such Competitive Bid Borrowing. Upon fulfillment of the applicable conditions set forth in Article III and after receipt by the Competitive Bid Agent of such funds, the Competitive Bid Agent will, as promptly as possible, transfer such funds to the Borrower's Account. Promptly after each Competitive Bid Borrowing, the Competitive Bid Agent will notify each Lender of the amount of the Competitive Bid Borrowing, the consequent deemed use of the aggregate amount of the Commitments as a result thereof and the dates upon which such Competitive Bid Borrowing commenced and will terminate. For any Lender which is a Designating Lender, any Competitive Bid Advance to be made by such Lender may from time to time be made by its Designated Lender pursuant to the terms hereof in such Designating Lender's sole discretion, and nothing herein shall constitute a commitment to make Competitive Bid Advances by such Designated Lender, provided that (i) if any Designated Lender elects not to, or fails for any reason whatsoever to, make any such Competitive Bid Advance that has been accepted by the Borrower in accordance with the foregoing, its Designating Lender hereby agrees that it shall make such Competitive Bid Advance pursuant to the terms hereof and (ii) notwithstanding anything to the contrary, neither the designation of a Designated Lender, the election or other determination that a Designated Lender will make any Competitive Bid Advance nor any other condition or circumstance relating to the Designated Lender shall in any way release, diminish or otherwise affect the relevant Designating Lender's Commitment or any of its other obligations hereunder or under any other Loan Document or any rights of the Borrower, any Agent or any Lender with respect to such Designating Lender. (vi) If the Borrower notifies the Competitive Bid Agent that it accepts one or more of the offers made by any Lender or Lenders pursuant to paragraph (iii)(y) above, such notice of acceptance shall be irrevocable and binding on the Borrower. The Borrower shall indemnify each Lender against any loss, cost or expense incurred by such Lender as a result of any failure to fulfill on or before the date specified in the related Notice of Competitive Bid Borrowing for such Competitive Bid Borrowing the applicable conditions set forth in Article III, including, without limitation, any loss (excluding loss of anticipated profits), cost or expense incurred by reason of the liquidation or reemployment of deposits or other funds acquired by such Lender to fund the Competitive Bid Advance to be made by such Lender as part of such Competitive Bid Borrowing when such Competitive Bid Advance, as a result of such failure, is not made on such date. (b) Each Competitive Bid Borrowing shall be in an aggregate amount of $5,000,000 or an integral multiple of $1,000,000 in excess thereof and, following the making of each 33 Competitive Bid Borrowing, the Borrower shall be in compliance with the limitation set forth in the proviso to the first sentence of subsection (a) above. (c) Within the limits and on the conditions set forth in this Section 2.03, the Borrower may from time to time borrow under this Section 2.03, repay or prepay pursuant to subsection (d) below, and reborrow under this Section 2.03, provided that a Competitive Bid Borrowing shall not be made within three Business Days of the date of any other Competitive Bid Borrowing. (d) The Borrower shall repay to the Competitive Bid Agent for the account of each Lender that has made a Competitive Bid Advance, on the maturity date of each Competitive Bid Advance (such maturity date being that specified by the Borrower for repayment of such Competitive Bid Advance in the related Notice of Competitive Bid Borrowing delivered pursuant to subsection (a)(i) above and provided in the Competitive Bid Note evidencing such Competitive Bid Advance), the then unpaid principal amount of such Competitive Bid Advance. The Borrower shall have no right to prepay any principal amount of any Competitive Bid Advance unless, and then only on the terms, specified by the Borrower for such Competitive Bid Advance in the related Notice of Competitive Bid Borrowing delivered pursuant to subsection (a)(i) above, or unless separately agreed between the Borrower and any Lender that has made a Competitive Bid Advance, and set forth in the Competitive Bid Note evidencing such Competitive Bid Advance. (e) The Borrower shall pay interest on the unpaid principal amount of each Competitive Bid Advance from the date of such Competitive Bid Advance to the date the principal amount of such Competitive Bid Advance is repaid in full, at the rate of interest for such Competitive Bid Advance specified by the Lender making such Competitive Bid Advance in its notice with respect thereto delivered pursuant to subsection (a)(ii) above, payable on the interest payment date or dates specified by the Borrower for such Competitive Bid Advance in the related Notice of Competitive Bid Borrowing delivered pursuant to subsection (a)(i) above, as provided in the Competitive Bid Note evidencing such Competitive Bid Advance. Upon the occurrence and during the continuance of an Event of Default, the Borrower shall pay interest on the amount of unpaid principal of and interest on each Competitive Bid Advance owing to a Lender, payable in arrears on the date or dates interest is payable thereon, at a rate per annum equal at all times to 2% per annum above the rate per annum required to be paid on such Competitive Bid Advance under the terms of the Competitive Bid Note evidencing such Competitive Bid Advance unless otherwise agreed in such Competitive Bid Note. (f) The indebtedness of the Borrower resulting from each Competitive Bid Advance made to the Borrower as part of a Competitive Bid Borrowing shall be evidenced by a separate Competitive Bid Note of the Borrower payable to the order of the Lender making such Competitive Bid Advance. 34 (g) Upon delivery of each Notice of Competitive Bid Borrowing, the Borrower shall pay a non-refundable fee of $2,000 to the Competitive Bid Agent for its own account. SECTION 2.04. Repayment of Advances. (a) Revolving Credit Advances. The Borrower shall repay to the Administrative Agent for the ratable account of the Lenders on the Termination Date the aggregate outstanding principal amount of the Revolving Credit Advances then outstanding. (b) Swing Line Advances. The Borrower shall repay to the Administrative Agent for the account of the Swing Line Bank and each other Lender that has purchased a Swing Line Advance pursuant to Section 2.02(b) the outstanding principal amount of each Swing Line Advance at the times and in the manner and amounts specified in Section 2.02(b) and on the Termination Date. SECTION 2.05. Termination or Reduction of the Commitments. (a) Optional. The Borrower shall have the right, upon at least three Business Days' notice to the Administrative Agent, to terminate in whole or reduce ratably in part the unused portions of the respective Commitments of the Lenders, provided that each partial reduction (i) shall be in the aggregate amount of $10,000,000 or an integral multiple of $1,000,000 in excess thereof and (ii) shall be made ratably among the Lenders in accordance with their respective Commitments, and provided further that the aggregate amount of the Commitments of the Lenders shall not be reduced to an amount that is less than the aggregate principal amount of the Competitive Bid Advances then outstanding. (b) Mandatory. If the Merger shall not have been consummated on or prior to the date that is one year after the Effective Date, then on the earlier of such date and the date the Borrower notifies the Administrative Agent in writing that the Merger will not be consummated (such earlier date, the "Relevant Date"): (i) if as of the Relevant Date the aggregate Commitments exceed $300,000,000, the Commitments shall automatically be reduced (ratably among the Lenders) to an aggregate amount equal to $300,000,000; (ii) the Borrower shall prepay Advances in an amount (if any) equal to the excess of the aggregate amount of Advances outstanding as at the Relevant Date over the Commitments so reduced on the Relevant Date; and (iii) the Termination Date shall automatically be amended to be the date that is one year after the Relevant Date. SECTION 2.06. Prepayments. (a) Optional. (i) The Borrower may, upon the same Business Day's notice in the case of the Swing Line Facility and Base Rate Advances and two Business Days' notice in the case of any Eurodollar Rate Advances, in each case to the 35 Administrative Agent stating the proposed date and aggregate principal amount of the prepayment, and if such notice is given the Borrower shall, prepay the outstanding aggregate principal amount of the Revolving Credit Advances comprising part of the same Revolving Credit Borrowing in whole or ratably in part, together with accrued interest to the date of such prepayment on the aggregate principal amount prepaid; provided, however, that (A) each partial prepayment of the Facility shall be in an aggregate principal amount of $5,000,000 or an integral multiple of $1,000,000 in excess thereof and (B) any such prepayment of a Eurodollar Rate Advance made other than on the last day of an Interest Period therefor shall be made together with payment of all amounts, if any, required pursuant to Section 8.04(c). (ii) Competitive Bid Advances may be prepaid only in accordance with the provisions of Section 2.03(d). (b) Mandatory. (i) The Borrower shall, on each Business Day, prepay an aggregate principal amount of the Revolving Credit Advances comprising part of the same Borrowings and the Swing Line Advances equal to the amount by which (A) the sum of the aggregate principal amount of (x) the Revolving Credit Advances and (y) the Swing Line Advances then outstanding exceeds (B) the Revolving Credit Facility on such Business Day. SECTION 2.07. Interest. (a) Scheduled Interest. The Borrower shall pay interest on the unpaid principal amount of each Advance owing to each Lender from the date of such Advance until such principal amount shall be paid in full, at the following rates per annum: (i) Base Rate Advances. During such periods as such Advance is a Base Rate Advance, a rate per annum equal at all times to the sum of (x) the Base Rate in effect from time to time plus (y) the Applicable Margin in effect from time to time, payable in arrears quarterly on the first day of each January, April, July and October during such periods. (ii) Eurodollar Rate Advances. During such periods as such Advance is a Eurodollar Rate Advance, a rate per annum equal at all times during each Interest Period for such Advance to the sum of (x) the Eurodollar Rate for such Interest Period for such Advance plus (y) the Applicable Margin in effect from time to time plus (z) the Applicable Utilization Percentage, if any, in effect from time to time, payable in arrears on the last day of such Interest Period and, if such Interest Period has a duration of more than three months, on each day that occurs during such Interest Period every three months from the first day of such Interest Period and on the date such Eurodollar Rate Advance shall be Converted or paid in full. (b) Default Interest. Upon the occurrence and during the continuance of an Event of Default, the Borrower shall pay interest on (i) the unpaid principal amount of each Advance owing 36 to each Lender (except as otherwise provided in Section 2.03(e)), payable in arrears on the dates referred to in clause (a)(i) or (a)(ii) above, at a rate per annum equal at all times to 2% per annum above the rate per annum required to be paid on such Advance pursuant to clause (a)(i) or (a)(ii) above and (ii) to the fullest extent permitted by law, the amount of any interest, fee or other amount payable hereunder that is not paid when due, from the date such amount shall be due until such amount shall be paid in full, payable in arrears on the date such amount shall be paid in full and on demand, at a rate per annum equal at all times to 2% per annum above the rate per annum required to be paid on Base Rate Advances pursuant to clause (a)(i) above. SECTION 2.08. Fees. (a) Facility Fee. The Borrower shall pay to the Administrative Agent for the account of the Lenders a facility fee, from the Effective Date in the case of each Initial Lender and from the effective date specified in the Assignment and Acceptance or the Assumption Agreement, as the case may be, pursuant to which it became a Lender in the case of each other Lender until the Termination Date, payable quarterly on the first day of each January, April, July and October, commencing January 7, 2000, and on the Termination Date, at the rate per annum equal to the Applicable Percentage in effect from time to time on the Revolving Credit Commitment of such Lender; provided, however, (i) that any facility fee accrued with respect to any of the Commitments of a Defaulting Lender during the period prior to the time such Lender became a Defaulting Lender and unpaid at such time shall not be payable by the Borrower so long as such Lender shall be a Defaulting Lender except to the extent that such facility fee shall otherwise have been due and payable by the Borrower prior to such time and (ii) that no facility fee shall accrue on any of the Commitments of a Defaulting Lender so long as such Lender shall be a Defaulting Lender. (b) Agents' Fees. The Borrower shall pay to each of the Agents for its own account such fees as may from time to time be agreed between the Borrower and such Agent. SECTION 2.09. Conversion of Advances. (a) Optional. The Borrower may on any Business Day, upon notice given to the Administrative Agent not later than 11:00 A.M. (New York City time) on the third Business Day prior to the date of the proposed Conversion and subject to the provisions of Sections 2.09, 2.10 and 2.11, Convert all Revolving Credit Advances of one Type comprising the same Revolving Credit Borrowing into Revolving Credit Advances of the other Type; provided, however, that any Conversion of Eurodollar Rate Advances into Base Rate Advances shall be made only on the last day of an Interest Period for such Eurodollar Rate Advances, any Conversion of Base Rate Advances into Eurodollar Rate Advances shall be in an amount not less than the minimum amount specified in Section 2.02(b) and no Conversion of any Revolving Credit Advances shall result in more separate Revolving Credit Borrowings than permitted under Section 2.02(b). Each such notice of a Conversion shall, within the restrictions specified above, specify (i) the date of such Conversion, (ii) the Revolving Credit Advances to be Converted, and (iii) if such Conversion is into Eurodollar Rate Advances, the duration of the initial Interest Period for each such Revolving Credit Advance. Each notice of Conversion shall be irrevocable and binding on the Borrower. 37 (b) Mandatory. (i) On the date on which the aggregate unpaid principal amount of Eurodollar Rate Advances comprising any Revolving Credit Borrowing shall be reduced, by payment or prepayment or otherwise, to less than $10,000,000, such Advances shall automatically Convert into Base Rate Advances. (ii) If the Borrower shall fail to select the duration of any Interest Period for any Eurodollar Rate Advances in accordance with the provisions contained in the definition of "Interest Period" in Section 1.01, the Administrative Agent will forthwith so notify the Borrower and the Lenders, whereupon each such Eurodollar Rate Advance will automatically, on the last day of the then existing Interest Period therefor, Convert into a Base Rate Advance. (iii) Upon the occurrence and during the continuance of any Default, (x) each Eurodollar Rate Advance will automatically, on the last day of the then existing Interest Period therefor, Convert into a Base Rate Advance and (y) the obligation of the Lenders to make, or to Convert Advances into, Eurodollar Rate Advances shall be suspended. SECTION 2.10. Increased Costs, Etc. (a) If, due to either (i) the introduction of or any change in or in the interpretation of any law or regulation or (ii) the compliance with any guideline or request from any central bank or other governmental authority (whether or not having the force of law), there shall be any increase in the cost (other than in taxes, including interest, additions to tax and penalties relating thereto, except to the extent that the same are required to be paid pursuant to Section 2.13 hereof) to any Lender of agreeing to make or of making, funding or maintaining Eurodollar Rate Advances or LIBO Rate Advances (excluding for purposes of this Section 2.10 any such increased costs resulting from (x) Taxes, Other Taxes, Excluded Taxes or taxes excluded from the definitions of Taxes or Other Taxes in Section 2.13(e) or from indemnification pursuant to Section 2.13(f) (as to which Section 2.13 shall govern) and (y) changes in the basis of taxation of overall net income or overall gross income by the United States or by the foreign jurisdiction or state under the laws of which such Lender is organized or has its Applicable Lending Office or any political subdivision thereof), then the Borrower shall from time to time, upon demand by such Lender (with a copy of such demand to the Administrative Agent), pay to the Administrative Agent for the account of such Lender additional amounts sufficient to compensate such Lender for such increased cost; provided, however, that, before making any such demand, each Lender agrees to use reasonable efforts (consistent with its internal policy and legal and regulatory restrictions) to designate a different Applicable Lending Office if the making of such a designation would avoid the need for, or reduce the amount of, such increased cost and would not, in the reasonable judgment of such Lender, be otherwise disadvantageous to such Lender and provided further that the Borrower's obligations to any Designated Lender hereunder shall be limited as set forth in Section 8.04(e). A certificate as to the amount of such increased cost, submitted to the Borrower by such Lender, shall be conclusive and binding for all purposes, absent manifest error. (b) If any Lender determines that compliance with any law or regulation or any guideline or request from any central bank or other governmental authority (whether or not having 38 the force of law) affects or would affect the amount of capital required or expected to be maintained by such Lender or any corporation controlling such Lender and that the amount of such capital is increased by or based upon the existence of such Lender's commitment to lend, then, upon demand by such Lender (with a copy of such demand to the Administrative Agent), the Borrower shall pay to the Administrative Agent for the account of such Lender, from time to time as specified by such Lender, additional amounts sufficient to compensate such Lender in the light of such circumstances, to the extent that such Lender reasonably determines such increase in capital to be allocable to the existence of such Lender's commitment to lend, provided, however, that the Borrower's obligations to any Designated Lender hereunder shall be limited as set forth in Section 8.04(e). A certificate as to such amounts submitted to the Borrower by such Lender shall be conclusive and binding for all purposes, absent manifest error. (c) If, with respect to any Eurodollar Rate Advances, Lenders (other than Designated Lenders) owed at least a majority of the then aggregate unpaid principal amount thereof notify the Administrative Agent that the Eurodollar Rate for any Interest Period for such Advances will not adequately reflect the cost (excluding for purposes of this Section 2.10 any such increased costs resulting from (i) Taxes, Other Taxes, Excluded Taxes or taxes excluded from the definitions of Taxes or Other Taxes in Section 2.13(e) or from indemnification pursuant to Section 2.13(f) (as to which Section 2.13 shall govern) and (ii) changes in the basis of taxation of overall net income or overall gross income by the United States or by the foreign jurisdiction or state under the laws of which such Lender is organized or has its Applicable Lending Office or any political subdivision thereof) to such Lenders of making, funding or maintaining their Eurodollar Rate Advances for such Interest Period, the Administrative Agent shall forthwith so notify the Borrower and the Lenders, whereupon (i) each such Eurodollar Rate Advance will automatically, on the last day of the then existing Interest Period therefor, Convert into a Base Rate Advance and (ii) the obligation of the Lenders to make, or to Convert Advances into, Eurodollar Rate Advances shall be suspended until the Administrative Agent shall notify the Borrower that such Lenders have determined that the circumstances causing such suspension no longer exist. SECTION 2.11. Illegality. Notwithstanding any other provision of this Agreement, if any Lender (other than a Designated Lender) shall notify the Administrative Agent that the introduction of or any change in or in the interpretation of any law or regulation makes it unlawful, or any central bank or other governmental authority asserts that it is unlawful, for any Lender or its Eurodollar Lending Office to perform its obligations hereunder to make Eurodollar Rate Advances or LIBO Rate Advances or to fund or maintain Eurodollar Rate Advances or LIBO Rate Advances hereunder, (i) each Eurodollar Rate Advance or LIBO Rate Advance, as the case may be, will automatically, upon such demand, Convert into a Base Rate Advance and (ii) the obligation of the Lenders to make Eurodollar Rate Advances or LIBO Rate Advances or to Convert Revolving Credit Advances into Eurodollar Rate Advances shall be suspended until the Administrative Agent shall notify the Borrower and the Lenders that the circumstances causing such suspension no longer exist; provided that if it becomes unlawful for any Designated Lender or its Eurodollar Lending Office to perform its obligations hereunder to make or fund or maintain Eurodollar Rate Advances or LIBO 39 Rate Advances, such Designated Lender shall immediately assign its rights and obligations with respect to such Advance to its applicable Designating Lender. SECTION 2.12. Payments and Computations. (a) The Borrower shall make each payment hereunder and under the Notes, if any, irrespective of counterclaim or set-off (except as otherwise provided in Section 2.16), not later than 11:00 A.M. (New York City time) on the day when due in U.S. dollars to the Administrative Agent at the Administrative Agent's Account in same day funds. The Administrative Agent will promptly thereafter cause to be distributed like funds relating to the payment of principal or interest or commitment fees ratably (other than amounts payable pursuant to Section 2.03, 2.10, 2.13 or 8.04(c)) to the Lenders for the account of their respective Applicable Lending Offices, and like funds relating to the payment of any other amount payable to any Lender to such Lender for the account of its Applicable Lending Office, in each case to be applied in accordance with the terms of this Agreement. Upon its acceptance of an Assignment and Acceptance and recording of the information contained therein in the Register pursuant to Section 8.07(c), from and after the effective date specified in such Assignment and Acceptance, the Administrative Agent shall make all payments hereunder and under any Notes issued in connection therewith in respect of the interest assigned thereby to the Lender assignee thereunder, and the parties to such Assignment and Acceptance shall make all appropriate adjustments in such payments for periods prior to such effective date directly between themselves. (b) If the Administrative Agent receives funds for application to the Obligations under the Loan Documents under circumstances for which the Loan Documents do not specify the Advances to which, or the manner in which, such funds are to be applied, the Administrative Agent may, but shall not be obligated to, elect to distribute such funds to each Lender ratably in accordance with such Lender's proportionate share of the principal amount of all outstanding Advances, in repayment or prepayment of such of the outstanding Advances or other Obligations owed to such Lender, and for application to such principal installments, as the Administrative Agent shall direct. (c) The Borrower hereby authorizes each Lender, if and to the extent payment owed to such Lender is not made when due hereunder or under the Note, if any, held by such Lender, to charge from time to time against any or all of the Borrower's accounts with such Lender any amount so due. (d) All computations of interest based on clause (a) of the definition of Base Rate shall be made by the Administrative Agent on the basis of a year of 365 or 366 days, as the case may be, and all computations of interest based on the Eurodollar Rate, the LIBO Rate or the Federal Funds Rate and fees shall be made by the Administrative Agent on the basis of a year of 360 days, in each case for the actual number of days (including the first day but excluding the last day) occurring in the period for which such interest or commitment fees are payable. Each determination by the Administrative Agent of an interest rate hereunder shall be conclusive and binding for all purposes, absent manifest error. 40 (e) Whenever any payment hereunder or under the Notes, if any, shall be stated to be due on a day other than a Business Day, such payment shall be made on the next succeeding Business Day, and such extension of time shall in such case be included in the computation of payment of interest or commitment fee, as the case may be; provided, however, that, if such extension would cause payment of interest on or principal of Eurodollar Rate Advances or LIBO Rate Advances to be made in the next following calendar month, such payment shall be made on the next preceding Business Day. (f) Unless the Administrative Agent shall have received notice from the Borrower prior to the date on which any payment is due to the Lenders hereunder that the Borrower will not make such payment in full, the Administrative Agent may assume that the Borrower has made such payment in full to the Administrative Agent on such date and the Administrative Agent may, in reliance upon such assumption, cause to be distributed to each Lender on such due date an amount equal to the amount then due such Lender. If and to the extent the Borrower shall not have so made such payment in full to the Administrative Agent, each Lender shall repay to the Administrative Agent forthwith on demand such amount distributed to such Lender together with interest thereon, for each day from the date such amount is distributed to such Lender until the date such Lender repays such amount to the Administrative Agent, at the Federal Funds Rate. SECTION 2.13. Taxes. (a) Any and all payments by the Borrower hereunder or under any Notes shall be made, in accordance with Section 2.12, free and clear of and without deduction for any and all present or future taxes, levies, imposts, deductions, charges or withholdings, and all liabilities with respect thereto, excluding, in the case of each Lender and each Agent, Excluded Taxes (all such non-Excluded Taxes, levies, imposts, deductions, charges, withholdings and liabilities being hereinafter referred to as "Taxes"). If the Borrower shall be required by law to deduct any Taxes from or in respect of any sum payable hereunder or under any Note to any Lender or any Agent, (i) the sum payable shall be increased as may be necessary so that after making all required deductions (including deductions applicable to additional sums payable under this Section 2.13) such Lender or such Agent (as the case may be) receives an amount equal to the sum it would have received had no such deductions been made, (ii) the Borrower shall make such deductions and (iii) the Borrower shall pay the full amount deducted to the relevant taxation authority or other authority in accordance with applicable law. (b) In addition, the Borrower agrees to pay any present or future stamp or documentary taxes or any other excise or property taxes, charges or similar levies that arise from any payment made hereunder or under any Notes or from the execution, delivery or registration of, or otherwise with respect to, this Agreement or any Note (hereinafter referred to as "Other Taxes"). (c) The Borrower will indemnify each Lender and each Agent for the full amount of Taxes or Other Taxes (including, without limitation, any Taxes or Other Taxes imposed by any jurisdiction on amounts payable under this Section 2.13) paid by such Lender or such Agent (as the case may be) and any liability (including penalties, interest and expenses) arising therefrom or with 41 respect thereto. This indemnification shall be made within 30 days from the date such Lender or such Agent (as the case may be) makes written demand therefor, including in such demand an identification of the Taxes or Other Taxes (together with the amounts thereof) with respect to which such indemnification is being sought. (d) Within 30 days after the date of any payment of Taxes, the Borrower will furnish to the Administrative Agent and the Documentation Agents, at their respective addresses referred to in Section 8.02, the original or a certified copy of a receipt evidencing payment thereof. In the case of any payment hereunder or under any Notes by or on behalf of the Borrower through an account or branch outside the United States or on behalf of the Borrower by a payor that is not a United States person, if the Borrower determines that no Taxes are payable in respect thereof, the Borrower shall furnish, or shall cause such payor to furnish, to the Administrative Agent and the Documentation Agents, at such address, an opinion of counsel acceptable to the Administrative Agent stating that such payment is exempt from Taxes. For purposes of this subsection (d) and subsection (e), the terms "United States" and "United States person" shall have the meanings specified in Section 7701 of the Internal Revenue Code. (e) Each Lender organized under the laws of a jurisdiction outside the United States, on or prior to the date of its execution and delivery of this Agreement in the case of each Initial Lender, and on the date of the Assignment and Acceptance or Designation Agreement pursuant to which it becomes a Lender in the case of each other Lender, and from time to time thereafter if requested in writing by the Borrower (but only so long as such Lender remains lawfully able to do so), shall provide both the Administrative Agent and the Borrower with two original Internal Revenue Service forms 1001, 4224 or W-8 as appropriate, or any successor or other form prescribed by the Internal Revenue Service, certifying that such Lender is exempt from or entitled to a reduced rate of United States withholding tax on payments pursuant to this Agreement or the Notes, if any. If any Lender which is not a "United States person" determines that it is unable to submit to the Borrower or the Administrative Agent any form or certificate that such Lender is otherwise required to submit pursuant to this Section 2.13, or that it is required to withdraw or cancel any such form or certificate, or that any such form or certificate previously submitted has otherwise become ineffective or inaccurate, such Lender shall promptly notify the Borrower and the Administrative Agent of such fact. In addition, if a Lender provides a form W-8 (or any successor or related form) to the Administrative Agent and the Borrower pursuant to this Section 2.13, such Lender shall also provide a certificate stating that such Lender is not a "bank" within the meaning of section 881(c)(3)(A) of the Internal Revenue Code of 1986 and shall promptly notify the Administrative Agent and the Borrower if such Lender determines that it is no longer able to provide such certification. If the form provided by a Lender at the time such Lender first becomes a party to this Agreement indicates a United States interest withholding tax rate in excess of zero, withholding tax at such rate shall be considered excluded from Taxes unless and until such Lender provides the appropriate form certifying that a lesser rate applies, whereupon withholding tax at such lesser rate only shall be considered excluded from Taxes for periods governed by such form; provided, however, that, if at the date of the Assignment and Acceptance pursuant to which a Lender 42 becomes a party to this Agreement, the Lender assignor was entitled to payments under subsection (a) in respect of United States withholding tax with respect to interest paid at such date, then, to such extent, the term Taxes shall include (in addition to withholding taxes that may be imposed in the future or other amounts otherwise includable in Taxes) United States withholding tax, if any, applicable with respect to the Lender assignee on such date. Upon the reasonable request of the Borrower or the Administrative Agent, each Lender that has not provided the forms or other documents, as provided above, on the basis of being a United States person shall submit to the Borrower and the Administrative Agent a certificate to the effect that it is such a "United States person" (as defined in Section 7701(a)(30) of the Internal Revenue Code). (f) For any period with respect to which a Lender has failed to provide the Borrower with the appropriate form described in Section 2.13(e) (other than if such failure is due to a change in law occurring subsequent to the date on which such Lender became a Lender hereunder, or if such form otherwise is not required under the first sentence of subsection (e) above because the Borrower has not requested in writing such form subsequent to the date on which such Lender became a Lender hereunder), such Lender shall not be entitled to indemnification under Section 2.13(a) or (c) with respect to Taxes imposed by the United States; provided, however, that should a Lender become subject to Taxes because of its failure to deliver a form required hereunder, the Borrower shall take such steps as the Lender shall reasonably request to assist the Lender to recover such Taxes. (g) Any Lender or Agent claiming any additional amounts payable pursuant to this Section 2.13 shall use reasonable efforts (consistent with its internal policy and legal and regulatory restrictions) to change the jurisdiction of its Eurodollar Lending Office if the making of such a change would avoid the need for, or reduce the amount of, any such additional amounts that may thereafter accrue and would not, in the reasonable judgment of such Lender, be otherwise disadvantageous to such Lender. (h) Within 60 days after the written request of the Borrower, each Lender or Agent shall execute and deliver to the Borrower such certificates or forms as are reasonably requested by the Borrower in such request, which can be furnished consistent with the facts and which are reasonably necessary to assist the Borrower in applying for refunds of Taxes paid by the Borrower hereunder or making payment of Taxes hereunder; provided, however, that no Lender or Agent shall be required to furnish to the Borrower and financial or other information which it considers confidential. The cost of preparing any materials referred to in the previous sentence shall be borne by the Borrower. If a Lender or Agent determines in good faith that it has received a refund of any Taxes or Other Taxes with respect to which Borrower has made a payment of additional amounts, such Lender or Agent shall pay to the Borrower an amount that such Lender or Agent determines in good faith to be equal to the net benefit, after tax, that was obtained by such Lender or Agent (as the case may be) as a consequence of such refund. 43 (i) All obligations of the Borrower owed to any Designated Lender pursuant to this Section 2.13 shall be limited to the amount that the Borrower would be obligated to pay to such Designated Lender's applicable Designating Lender but for such designation, as set forth in Section 8.04(e). SECTION 2.14. Sharing of Payments, Etc. If any Lender shall obtain any payment (whether voluntary, involuntary, through the exercise of any right of set-off, or otherwise) on account of Obligations owing to it (other than pursuant to Section 2.10, 2.13 or 8.04(c)) in excess of its ratable share of payments on account of the Obligations obtained by all the Lenders, such Lender shall forthwith purchase from the other Lenders such participations in Obligations owing to them as shall be necessary to cause such purchasing Lender to share the excess payment ratably with each of them; provided, however, that if all or any portion of such excess payment is thereafter recovered from such purchasing Lender, such purchase from each Lender shall be rescinded and such Lender shall repay to the purchasing Lender the purchase price to the extent of such recovery together with an amount equal to such Lender's ratable share (according to the proportion of (i) the amount of such Lender's required repayment to (ii) the total amount so recovered from the purchasing Lender) of any interest or other amount paid or payable by the purchasing Lender in respect of the total amount so recovered. The Borrower agrees that any Lender so purchasing a participation from another Lender pursuant to this Section 2.14 may, to the fullest extent permitted by law, exercise all its rights of payment (including the right of set-off) with respect to such participation as fully as if such Lender were the direct creditor of the Borrower in the amount of such participation. SECTION 2.15. Use of Proceeds. The proceeds of the Advances shall be available (and the Borrower agrees that it shall use such proceeds) solely (a) to pay severance and other reorganization expenses in connection with the Tender Offer and the Merger and transaction fees and expenses in connection with the Tender Offer and the Merger and (b) for general corporate purposes (other than for the purposes of paying the holders of Authentic Fitness Stock the cash consideration for their shares in the Tender Offer or the Merger). SECTION 2.16. Defaulting Lenders. (a) In the event that, at any one time, (i) any Lender shall be a Defaulting Lender, (ii) such Defaulting Lender shall owe a Defaulted Advance to the Borrower and (iii) the Borrower shall be required to make any payment hereunder or under any other Loan Document to or for the account of such Defaulting Lender, then the Borrower may, so long as no Default shall occur or be continuing at such time and to the fullest extent permitted by applicable law, set off and otherwise apply the Obligation of the Borrower to make such payment to or for the account of such Defaulting Lender against the Obligation of such Defaulting Lender to make such Defaulted Advance. In the event that, on any date, the Borrower shall so set off and otherwise apply its Obligation to make any such payment against the Obligation of such Defaulting Lender to make any such Defaulted Advance on or prior to such date, the amount so set off and otherwise applied by the Borrower shall constitute for all purposes of this Agreement and the other Loan Documents an Advance by such Defaulting Lender made on the date on which such Defaulted 44 Advance was originally required to have been made pursuant to Section 2.01. Such Advance shall be a Base Rate Advance and shall be considered, for all purposes of this Agreement, to comprise part of the Borrowing in connection with which such Defaulted Advance was originally required to have been made pursuant to Section 2.01, even if the other Advances comprising such Borrowing shall be Eurodollar Rate Advances on the date such Advance is deemed to be made pursuant to this subsection (a). The Borrower shall notify the Administrative Agent at any time the Borrower exercises its right of set-off pursuant to this subsection (a) and shall set forth in such notice (A) the name of the Defaulting Lender and the Defaulted Advance required to be made by such Defaulting Lender and (B) the amount set off and otherwise applied in respect of such Defaulted Advance pursuant to this subsection (a). Any portion of such payment otherwise required to be made by the Borrower to or for the account of such Defaulting Lender which is paid by the Borrower, after giving effect to the amount set off and otherwise applied by the Borrower pursuant to this subsection (a), shall be applied by the Administrative Agent as specified in subsection (b) or (c) of this Section 2.16. (b) In the event that, at any one time, (i) any Lender shall be a Defaulting Lender, (ii) such Defaulting Lender shall owe a Defaulted Amount to any Agent or any of the other Lenders and (iii) the Borrower shall make any payment hereunder or under any other Loan Document to the Administrative Agent for the account of such Defaulting Lender, then the Administrative Agent may, on its behalf or on behalf of such other Lenders and to the fullest extent permitted by applicable law, apply at such time the amount so paid by the Borrower to or for the account of such Defaulting Lender to the payment of each such Defaulted Amount to the extent required to pay such Defaulted Amount. In the event that the Administrative Agent shall so apply any such amount to the payment of any such Defaulted Amount on any date, the amount so applied by the Administrative Agent shall constitute for all purposes of this Agreement and the other Loan Documents payment, to such extent, of such Defaulted Amount on such date. Any such amount so applied by the Administrative Agent shall be retained by the Administrative Agent or distributed by the Administrative Agent to such other Lenders, ratably in accordance with the respective portions of such Defaulted Amounts payable at such time to the Administrative Agent and such other Lenders and, if the amount of such payment made by the Borrower shall at such time be insufficient to pay all Defaulted Amounts owing at such time to the Administrative Agent and the other Lenders, in the following order of priority: (i) first, to the Agents for any Defaulted Amount then owing to the Agents; and (ii) second, to any other Lenders for any Defaulted Amounts then owing to such other Lenders, ratably in accordance with such respective Defaulted Amounts then owing to such other Lenders. Any portion of such amount paid by the Borrower for the account of such Defaulting Lender remaining, after giving effect to the amount applied by the Administrative Agent pursuant to this subsection (b), shall be applied by the Administrative Agent as specified in subsection (c) of this Section 2.16. 45 (c) In the event that, at any one time, (i) any Lender shall be a Defaulting Lender, (ii) such Defaulting Lender shall not owe a Defaulted Advance or a Defaulted Amount and (iii) the Borrower, any Agent or any other Lender shall be required to pay or distribute any amount hereunder or under any other Loan Document to or for the account of such Defaulting Lender, then the Borrower or such other Lender shall pay such amount to the Administrative Agent to be held by the Administrative Agent, to the fullest extent permitted by applicable law, in escrow or the Administrative Agent shall, to the fullest extent permitted by applicable law, hold in escrow such amount otherwise held by it. Any funds held by the Administrative Agent in escrow under this subsection (c) shall be deposited by the Administrative Agent in an account with the Administrative Agent, in the name and under the control of the Administrative Agent, but subject to the provisions of this subsection (c). The terms applicable to such account, including the rate of interest payable with respect to the credit balance of such account from time to time, shall be the Administrative Agent's standard terms applicable to escrow accounts maintained with it. Any interest credited to such account from time to time shall be held by the Administrative Agent in escrow under, and applied by the Administrative Agent from time to time in accordance with the provisions of, this subsection (c). The Administrative Agent shall, to the fullest extent permitted by applicable law, apply all funds so held in escrow from time to time to the extent necessary to make any Advances required to be made by such Defaulting Lender and to pay any amount payable by such Defaulting Lender hereunder and under the other Loan Documents to any Agent or any other Lender, as and when such Advances or amounts are required to be made or paid and, if the amount so held in escrow shall at any time be insufficient to make and pay all such Advances and amounts required to be made or paid at such time, in the following order of priority: (i) first, to the Agents for any amount then due and payable by such Defaulting Lender to the Agents hereunder; (ii) second, to any other Lenders for any amount then due and payable by such Defaulting Lender to such other Lenders hereunder, ratably in accordance with such respective amounts then due and payable to such other Lenders; and (iii) third, to the Borrower for any Advance then required to be made by such Defaulting Lender pursuant to a Commitment of such Defaulting Lender. In the event that any Lender that is a Defaulting Lender shall, at any time, cease to be a Defaulting Lender, any funds held by the Administrative Agent in escrow at such time with respect to such Lender shall be distributed by the Administrative Agent to such Lender and applied by such Lender to the Obligations owing to such Lender at such time under this Agreement and the other Loan Documents ratably in accordance with the respective amounts of such Obligations outstanding at such time. (d) The rights and remedies against a Defaulting Lender under this Section 2.16 are in addition to other rights and remedies that the Borrower may have against such Defaulting 46 Lender with respect to any Defaulted Advance and that any Agent or any Lender may have against such Defaulting Lender with respect to any Defaulted Amount. SECTION 2.17. Evidence of Debt. (a) Each Lender shall maintain in accordance with its usual practice an account or accounts evidencing the indebtedness of the Borrower to such Lender resulting from each Advance owing to such Lender from time to time, including the amounts of principal and interest payable and paid to such Lender from time to time hereunder. The Borrower agrees that upon notice by any Lender to the Borrower (with a copy of such notice to the Administrative Agent) to the effect that a promissory note or other evidence of indebtedness is required or appropriate in order for such Lender to evidence (whether for purposes of pledge, enforcement or otherwise) the Revolving Credit Advances owing to, or to be made by, such Lender, the Borrower shall promptly execute and deliver to such Lender a promissory note substantially in the form of Exhibit A-1 hereto (each a "Revolving Credit Note"), payable to the order of such Lender in a principal amount equal to the Revolving Credit Commitment of such Lender. (b) The Register maintained by the Administrative Agent pursuant to Section 8.07(g) shall include a control account, and a subsidiary account for each Lender, in which accounts (taken together) shall be recorded (i) the date and amount of each Borrowing made hereunder, the Type of Advances comprising such Borrowing and, if appropriate, the Interest Period applicable thereto, (ii) the terms of each Assignment and Acceptance delivered to and accepted by it, (iii) the amount of any principal or interest due and payable or to become due and payable from the Borrower to each Lender hereunder, and (iv) the amount of any sum received by the Administrative Agent from the Borrower hereunder and each Lender's share thereof. (c) Entries made in good faith by the Administrative Agent in the Register pursuant to subsection (b) above, and by each Lender in its account or accounts pursuant to subsection (a) above, shall be prima facie evidence of the amount of principal and interest due and payable or to become due and payable from the Borrower to, in the case of the Register, each Lender and, in the case of such account or accounts, such Lender, under this Agreement, absent manifest error; provided, however, that the failure of the Administrative Agent or such Lender to make an entry, or any finding that an entry is incorrect, in the Register or such account or accounts shall not limit or otherwise affect the obligations of the Borrower under this Agreement. SECTION 2.18. Increase in Revolving Credit Commitments. From time to time during the period from the Effective Date until the date that is forty (40) days after the Effective Date, additional Persons may become parties hereto as Lenders by executing and delivering an Assumption Agreement to the Administrative Agent which indicates the amount of Revolving Credit Commitment of such Lender; provided that in no event shall the aggregate Revolving Credit Commitments exceed $500,000,000. At the time an Assumption Agreement is accepted by the Administrative Agent, (a) the new Lender party to such Assumption Agreement shall fund its pro rata share of the aggregate outstanding Revolving Credit Advances, (b) each existing Lender's share of the outstanding Revolving Credit Advances shall be proportionately reduced by the amount 47 funded by such new Lender and (c) any such reduction of the Revolving Credit Advances of the existing Lenders on any day other than on the last day of an Interest Period shall be accompanied by a payment by the Borrower of all amounts, if any, required pursuant to Section 8.04(c). ARTICLE III CONDITIONS TO EFFECTIVENESS AND LENDING SECTION 3.01. Conditions Precedent to Effectiveness. This Agreement shall become effective on and as of the first date (the "Effective Date") on which the following conditions precedent have been satisfied: (a) All governmental and third party consents and approvals necessary in connection with the Loan Documents shall have been obtained (without the imposition of any conditions that are not acceptable to the Lenders) and shall remain in effect, all applicable waiting periods shall have expired without any action being taken by any competent authority and no law or regulation shall be applicable in the reasonable judgment of the Lenders that restrains, prevents or imposes materially adverse conditions on the Loan Documents. (b) The Borrower shall have paid all accrued and invoiced fees and expenses of the Agents and the Lenders (including the accrued and invoiced fees and expenses of counsel to the Agents). (c) On the Effective Date, the following statements shall be true and the Administrative Agent shall have received for the account of each Lender a certificate signed by a duly authorized officer of the Borrower, dated the Effective Date, stating that: (i) The representations and warranties contained in each Loan Document are correct on and as of the Effective Date, and (ii) No event has occurred and is continuing that constitutes a Default. (d) There shall have occurred no Material Adverse Change since January 2, 1999, and all information provided by or on behalf of the Borrower to the Lenders shall be true and correct in all material aspects. (e) There shall exist no action, suit, investigation, litigation or proceeding affecting any Loan Party or any of its Subsidiaries, including any Environmental Action, pending or threatened before any court, governmental agency or arbitrator that (i) purports to affect the legality, validity or enforceability of this Agreement, any other Loan Document 48 or (ii) is or would be reasonably likely to have a Material Adverse Effect, except, in the case of this clause (ii), for any such action, suit, investigation, litigation or proceeding described on Schedule 4.01(g) hereto. (f) The Lenders shall be reasonably satisfied that the Existing 364 Day Credit Facility has been (or concurrently will be) prepaid, redeemed or defeased in full or otherwise satisfied and extinguished. (g) The Lenders and the Agents shall be reasonably satisfied with the corporate and legal structure and capitalization of the Borrower and the Guarantors, including, without limitation, the charter and by-laws of the Borrower and the Guarantors. (h) The Administrative Agent shall have received on or before the Effective Date the following, each dated such day, in form and substance satisfactory to the Administrative Agent and in sufficient copies for each Lender: (i) A guaranty in substantially the form of Exhibit F (as amended, supplemented or otherwise modified from time to time in accordance with its terms, the "Group Guaranty"), duly executed by Group. (ii) A guaranty in substantially the form of Exhibit G (together with each other guaranty delivered pursuant to Section 5.01(j), in each case as amended, supplemented or otherwise modified from time to time in accordance with its terms, the "Subsidiary Guaranty"), duly executed by the Guarantors (other than Group). (iii) Certified copies of the resolutions of the Board of Directors of the Borrower and each other Loan Party approving this Agreement and each other Loan Document to which it is or is to be a party and the transactions contemplated hereby, and of all documents evidencing other necessary corporate action and governmental approvals, if any, with respect to this Agreement and each other Loan Document. (iv) A certificate of the Secretary or an Assistant Secretary of the Borrower and each other Loan Party certifying the names and true signatures of the officers of the Borrower and such other Loan Party authorized to sign this Agreement, each other Loan Document to which they are or are to be parties and the other documents to be delivered hereunder and thereunder. (v) If requested by any Lender, a Revolving Credit Note to the order of such Lender. (vi) A favorable opinion of Skadden, Arps, Slate, Meagher & Flom LLP, special counsel for the Loan Parties, in substantially the form of Exhibit E-1 hereto 49 with such changes as may approved by the Administrative Agent and as to such other matters as any Lender through the Administrative Agent may reasonably request. (vii) A favorable opinion of Stanley P. Silverstein, General Counsel for the Borrower, in substantially the form of Exhibit E-2 hereto with such changes as may approved by the Administrative Agent and as to such other matters as any Lender through the Administrative Agent may reasonably request. (viii) A favorable opinion of Shearman & Sterling, counsel for the Arrangers, in form and substance reasonably satisfactory to the Arrangers. (ix) The Existing Five Year Credit Agreement, in form and substance satisfactory to the Arrangers, duly executed by all parties required thereunder and the Trade Credit Facility, in form and substance satisfactory to the Arrangers, duly executed by all parties required thereunder. (x) Copies of amendments to such of the other credit facilities of the Borrower and Group and their respective Subsidiaries which are necessary to make such facilities consistent with the Existing Five Year Credit Agreement, in form and substance reasonably satisfactory to the Arrangers. SECTION 3.02. Conditions Precedent to Each Borrowing. The obligation of each Lender to make an Advance (other than a Swing Line Advance made by a Lender pursuant to Section 2.02(b)(ii)), and the right of the Borrower to request a Swing Line Borrowing, shall be subject to the further conditions precedent that on the date of such Borrowing (including the initial Borrowing) the following statements shall be true (and each of the giving of the applicable Notice of Borrowing or Notice of Swing Line Borrowing and the acceptance by the Borrower of the proceeds of such Borrowing shall constitute a representation and warranty by the Borrower that on the date of such Borrowing such statements are true): (a) the representations and warranties contained in each Loan Document are correct in all material respects on and as of the date of such Borrowing, before and after giving effect to such Borrowing (other than solely with respect to Revolving Credit Advances used to the fund the payment of commercial paper issued by the Borrower from time to time, the representation and warranties contained in Section 4.01(f)(ii) hereof) and to the application of the proceeds therefrom, as though made on and as of such date other than any such representations or warranties that, by their terms, refer to a specific date other than the date of such Borrowing, in which case such representations and warranties shall have been correct as of such specific date, and (b) no event has occurred and is continuing, or would result from such Borrowing or from the application of the proceeds therefrom, that constitutes a Default. 50 SECTION 3.03. Determinations Under Section 3.01. For purposes of determining compliance with the conditions specified in Section 3.01, each Lender shall be deemed to have consented to, approved or accepted or to be satisfied with each document or other matter required thereunder to be consented to or approved by or acceptable or satisfactory to the Lenders unless an officer of the Administrative Agent responsible for the transactions contemplated by Loan Documents shall have received notice from such Lender prior to the date that the Borrower, by notice to the Lenders, designates as the proposed Effective Date, specifying its objection thereto. The Administrative Agent shall promptly notify the Lenders of the occurrence of the Effective Date. ARTICLE IV REPRESENTATIONS AND WARRANTIES SECTION 4.01. Representations and Warranties of the Borrower. Each of Group and the Borrower represents and warrants as follows: (a) Each Loan Party (i) is a corporation duly organized, validly existing and in good standing under the laws of the jurisdiction of its incorporation, (ii) is duly qualified and in good standing as a foreign corporation in each other jurisdiction in which it owns or leases property or in which the conduct of its business requires it to so qualify or be licensed except where the failure to so qualify or be licensed would not have a Material Adverse Effect and (iii) has all requisite corporate power and authority to own or lease and operate its properties and to carry on its business as now conducted and as proposed to be conducted. (b) Set forth on Schedule 4.01(b) hereto is a complete and accurate list of all Subsidiaries of each Loan Party, showing as of the date hereof (as to each such Subsidiary) whether or not such Subsidiary is a wholly-owned Subsidiary. Each such Subsidiary (i) is a corporation duly organized, a limited liability company or a trust duly formed, validly existing and in good standing under the laws of the jurisdiction of its incorporation, (ii) is duly qualified and in good standing as a foreign corporation, limited liability company or trust in each other jurisdiction in which it owns or leases property or in which the conduct of its business requires it to so qualify or be licensed except where the failure to so qualify or be licensed would not have a Material Adverse Effect and (iii) has all requisite corporate power and authority to own or lease and operate its properties and to carry on its business as now conducted and as proposed to be conducted. (c) The execution, delivery and performance by each Loan Party of this Agreement and each other Loan Document to which it is or is to be a party, and the consummation of the transactions contemplated hereby are, within such Loan Party's corporate powers, have been duly authorized by all necessary corporate action, and do not (i) contravene such Loan Party's charter or by-laws, (ii) violate any law, rule, regulation, 51 order, writ, judgment, injunction, decree, determination or award, (iii) conflict with or result in the breach of, or constitute a default under, any contract, loan agreement, indenture, mortgage, deed of trust, lease or other instrument binding on or affecting any Loan Party, any of its Subsidiaries or any of their respective properties or (iv) result in or require the creation or imposition of any Lien upon or with respect to any of the properties of any Loan Party or any of its Subsidiaries. No Loan Party or any of its Subsidiaries is in violation of any such law, rule, regulation, order, writ, judgment, injunction, decree, determination or award or in breach of any such contract, loan agreement, indenture, mortgage, deed of trust, lease or other instrument, the violation or breach of which is or would be reasonably likely to have a Material Adverse Effect. (d) No authorization or approval or other action by, and no notice to or filing with, any governmental authority or regulatory body or any other third party is required for the due execution, delivery, recordation, filing or performance by any Loan Party of this Agreement or any other Loan Document to which it is or is to be a party, or for the consummation of the transactions contemplated hereby. (e) This Agreement has been, and each other Loan Document when delivered hereunder will have been, duly executed and delivered by each Loan Party party thereto. This Agreement is, and each other Loan Document when delivered hereunder will be, the legal, valid and binding obligation of each Loan Party party thereto, enforceable against such Loan Party in accordance with its terms, except as enforcement may be limited by applicable bankruptcy, insolvency, reorganization, moratorium or other similar laws affecting creditors' rights generally and by general principles of equity (regardless of whether enforcement is sought in equity or at law). (f) (i) The Consolidated balance sheets of Group and its Subsidiaries as at January 2, 1999, and the related Consolidated statements of operations, stockholders' equity and cash flow of Group and its Subsidiaries for the fiscal years then ended, accompanied by an opinion of PricewaterhouseCoopers LLP, independent public accountants, and the Consolidated balance sheet of Group and its Subsidiaries as at July 3, 1999, and the related Consolidated statements of operations, stockholders' equity and cash flow of Group and its Subsidiaries for the six months then ended, duly certified by the chief financial officer of Group, copies of which have been furnished to each Lender, fairly present, subject, in the case of said balance sheet as at July 3, 1999, and said statements of operations, stockholders' equity and cash flow for the six months then ended, to year-end audit adjustments, the Consolidated financial condition of Group and its Subsidiaries as at such dates and the Consolidated results of the operations of Group and its Subsidiaries for the periods ended on such dates, all in accordance with generally accepted accounting principles applied on a consistent basis, and (ii) since January 2, 1999, there has been no Material Adverse Change. 52 (g) There is no action, suit, investigation, litigation or proceeding affecting any Loan Party or any of its Subsidiaries, including any Environmental Action, pending or threatened before any court, governmental agency or arbitrator that (i) purports to affect the legality, validity or enforceability of this Agreement or any other Loan Document or (ii) is or would be reasonably likely to have a Material Adverse Effect. (h) No proceeds of any Advance will be used to acquire any equity security of a class that is registered pursuant to Section 12 of the Securities Exchange Act of 1934, as amended (other than (i) shares of capital stock of Group and (ii) to the extent applicable, in connection with an acquisition of a company, so long as (x) the board of directors of such company shall have approved such acquisition at the time such acquisition is first publicly announced, (y) if such company shall have been soliciting bids for its acquisition, the board of directors of such company shall not have determined either to accept no offer or to accept an offer other than the offer of Group or one of its Subsidiaries or (z) if such company shall not have been soliciting bids for its acquisition or if the board of directors of such company shall have solicited bids for its acquisition but shall have initially determined either to accept no offer or to accept an offer other than the offer of Group or one of its Subsidiaries, the existence, amount and availability for the acquisition of such company of the Commitments hereunder shall not have been disclosed, orally or in writing, to such company or its advisors; provided, that the public filing of this Agreement shall not be deemed to be disclosure of the Commitments hereunder to such company or its advisors, until after such time as the board of directors of such company shall have approved such acquisition by Group or one of its Subsidiaries and so long as, in any case, such acquisition is otherwise permitted hereunder). (i) Neither any Loan Party nor any of its Subsidiaries is an "investment company," or an "affiliated person" of, or "promoter" or "principal underwriter" for, an "investment company," as such terms are defined in the Investment Company Act of 1940, as amended. Neither the making of any Advances, nor the application of the proceeds or repayment thereof by the Borrower, nor the consummation of the other transactions contemplated hereby, will violate any provision of such Act or any rule, regulation or order of the Securities and Exchange Commission thereunder. (j) The Borrower is not engaged in the business of extending credit for the purpose of purchasing or carrying Margin Stock, and no proceeds of any Advance will be used to purchase or carry any Margin Stock or to extend credit to others for the purpose of purchasing or carrying any Margin Stock except for shares of capital stock of Group and Authentic Fitness and as otherwise permitted in Section 4.01(h). (k) For any date on or before December 31, 1999, the Borrower has, and as soon as practicable after the Control Date, Authentic Fitness will have (i) initiated a review and assessment of all areas within its and each of its Subsidiaries' business and operations (including those affected by suppliers, vendors and customers) that could be adversely 53 affected by the risk that computer applications used by such Person or any of its Subsidiaries (or suppliers, vendors and customers) may be unable to recognize and perform properly date-sensitive functions involving certain dates prior to and any date after December 31, 1999 (the "Year 2000 Problem"), (ii) developed a plan and timetable for addressing the Year 2000 problem on a timely basis and (iii) to date, implemented that plan in accordance with such timetable. Based on the foregoing, each such Person believes that all of its computer applications that are material to its or any of its Subsidiaries' business and operations are reasonably expected on a timely basis to be able to perform properly date-sensitive functions for all dates before and after January 1, 2000, except to the extent that a failure to do so could not reasonably be expected to have a Material Adverse Effect. ARTICLE V COVENANTS OF THE BORROWER SECTION 5.01. Affirmative Covenants. So long as any Advance shall remain unpaid or any Lender shall have any Commitment hereunder, Group and the Borrower will: (a) Compliance with Laws, Etc. Comply, and cause each of its Subsidiaries to comply, in all material respects, with all applicable laws, rules, regulations and orders, such compliance to include, without limitation, compliance with ERISA and Environmental Laws, except where the failure so to comply would not have a Material Adverse Effect. (b) Payment of Taxes, Etc. Pay and discharge, and cause each of its Subsidiaries to pay and discharge, before the same shall become delinquent, (i) all taxes, assessments and governmental charges or levies imposed upon it or upon its property and (ii) all lawful claims that, if unpaid, would reasonably be likely to by law become a Lien upon its property; provided, however, that neither Group nor any of its Subsidiaries shall be required to pay or discharge any such tax, assessment, charge or claim that is being contested in good faith and by proper proceedings and as to which appropriate reserves are being maintained, unless and until any Lien resulting therefrom attaches to its property and becomes enforceable against its other creditors so long as any such amount, when taken together with any amount required to be paid as described in clause (b) of the definition of "Permitted Liens", shall not exceed $10 million. (c) Maintenance of Insurance. Maintain, and cause each of its Subsidiaries to maintain, insurance with responsible and reputable insurance companies or associations in such amounts and covering such risks as is usually carried by companies engaged in similar businesses and owning similar properties in the same general areas in which it or such Subsidiary operates. 54 (d) Preservation of Corporate Existence, Etc. Preserve and maintain, and cause each of its Subsidiaries to preserve and maintain, its corporate existence, rights (charter and statutory) and franchises; provided, however, that Group and its Subsidiaries may consummate the Merger and any other merger, consolidation or voluntary dissolution or liquidation permitted under Section 5.02(b). (e) Visitation Rights. At any reasonable time and from time to time, permit any Agent or any of the Lenders or any agents or representatives thereof, upon reasonable notice to the Borrower to examine and make copies of and abstracts from the records and books of account of, and visit the properties of, the Borrower and any of its Subsidiaries, and to discuss the affairs, finances and accounts of the Borrower and any of its Subsidiaries with any of their officers or directors and with their independent certified public accountants. (f) Keeping of Books. Keep, and cause each of its Subsidiaries to keep, proper books of record and account, in which full and correct entries shall be made of all financial transactions and the assets and business of the Borrower and each such Subsidiary in accordance with generally accepted accounting principles in effect from time to time. (g) Maintenance of Properties, Etc. Maintain and preserve, and cause each of its Subsidiaries to maintain and preserve, all of its properties that are used or useful in the conduct of its business in good working order and condition, ordinary wear and tear excepted. (h) Transactions with Affiliates. Conduct, and cause each of its Subsidiaries to conduct, other than with respect to transactions among Group and/or its wholly owned Subsidiaries, all transactions otherwise permitted under the Loan Documents with any of their Affiliates on terms that are no less favorable to Group or such Subsidiary than it would obtain in a comparable arm's-length transaction with a Person not an Affiliate, provided, however, that the foregoing restriction shall not apply to transactions pursuant to any agreement referred to in Section 5.02(a)(ii), and provided further that the Borrower shall not engage in any transaction with any such Subsidiary that would render such Subsidiary insolvent or cause a default under, or a breach of, any material contract to which such Subsidiary is a party. (i) Reporting Requirements. Furnish to the Lenders (and for purposes hereof, any Designated Lender shall be deemed to have received the following information from its Designating Lender): (i) as soon as available and in any event within 50 days after the end of each of the first three quarters of each Fiscal Year, Consolidated balance sheets of Group and its Subsidiaries as of the end of such quarter and Consolidated statements of income and Consolidated statements of cash flows of Group and its Subsidiaries 55 for the period commencing at the end of the previous fiscal year and ending with the end of such quarter, duly certified (subject to year-end audit adjustments) by the chief financial officer of the Borrower as having been prepared in accordance with generally accepted accounting principles and a certificate of the chief financial officer of Group as to compliance with the terms of this Agreement and setting forth in reasonable detail the calculations necessary to demonstrate compliance with Section 5.03, provided that in the event of any change in GAAP used in the preparation of such financial statements, the Borrower shall also provide, if necessary for the determination of compliance with Section 5.03, a statement of reconciliation conforming such financial statements to GAAP; (ii) as soon as available and in any event within 95 days after the end of each Fiscal Year of Group, a copy of the annual audit report for such year for Group and its Subsidiaries, containing Consolidated balance sheet of Group and its Subsidiaries as of the end of such fiscal year and Consolidated statements of income and cash flows of the Borrower and its Subsidiaries for such Fiscal Year, in each case accompanied by an opinion acceptable to the Required Lenders by any Approved Accounting Firm or by other independent public accountants acceptable to the Required Lenders, and a certificate of the chief financial officer or Group as to compliance with the terms of this Agreement setting forth in reasonable detail the calculations necessary to demonstrate compliance with Section 5.03, provided that in the event of any change in GAAP used in the preparation of such financial statements, the Borrower shall also provide, if necessary for the determination of compliance with Section 5.03, a statement of reconciliation conforming such financial statements to GAAP; (iii) as soon as possible and in any event within two Business Days after the occurrence of each Default continuing on the date of such statement, a statement of the chief financial officer of the Borrower setting forth details of such Default and the action that the Borrower has taken and proposes to take with respect thereto; (iv) promptly after the sending or filing thereof, copies of all reports that the Borrower sends to any of its security holders generally, and copies of all reports and registration statements that Group or any Subsidiary files with the Securities and Exchange Commission or any national securities exchange; (v) promptly after the commencement thereof, notice of all actions and proceedings before any court, governmental agency or arbitrator affecting the Borrower or any of its Subsidiaries of the type described in Section 4.01(g); 56 (vi) within five Business Days after receipt thereof by any Loan Party, copies of each notice from S&P or Moody's indicating any change in the Debt Rating; and (vii) such other information respecting the Borrower or any of its Subsidiaries as any Lender through the Administrative Agent may from time to time reasonably request. (j) Covenant to Guarantee Obligations. At such time as any new direct or indirect Domestic Subsidiary that is a Material Subsidiary (including, without limitation, Authentic Fitness and its Subsidiaries as required by Section 5.01(k) below) is formed or acquired, cause such new Subsidiary that is a wholly owned Subsidiary to (i) within 30 days thereafter or such later time as the Borrower and the Administrative Agent shall agree (but in any event no later than 30 additional days thereafter), duly execute and deliver to the Administrative Agent guarantees, in substantially the form of Exhibit H and otherwise in form and substance reasonably satisfactory to the Administrative Agent, guaranteeing the Borrower's Obligations under the Loan Documents, provided, however, that the foregoing shall not apply to (A) Excluded Subsidiaries, (B) joint ventures or (C) any Subsidiary organized solely for the purpose of entering into any agreements and transactions referred to in Section 5.02(a)(ii) to the extent that such agreements require that such Subsidiary not be a Guarantor hereunder, and (ii) within 30 days after the delivery of such guarantees or such later time as the Borrower and the Administrative Agent shall agree (but in any event no later than 30 additional days thereafter), deliver to the Administrative Agent a signed copy of a favorable opinion, addressed to the Administrative Agent, of counsel for the Loan Parties acceptable to the Administrative Agent as to the documents contained in clause (i) above, as to such guarantees being legal, valid and binding obligations of such Subsidiaries enforceable in accordance with their terms and as to such other matters as the Administrative Agent may reasonably request. (k) Consummation of Merger. If there is a Tender Offer, cause the Merger to be consummated in compliance with all applicable laws and regulations as soon as practicable after consummation of the Tender Offer and cause Authentic Fitness and its Subsidiaries to become a Guarantor pursuant to Section 5.01(j) as soon as practicable and, in any event, within 30 days after consummation of the Merger. (l) Authentic Fitness. As soon as practicable after consummation of the Merger, cause the commitments under all Existing Debt of Authentic Fitness and its Subsidiaries (other than Debt of Authentic Fitness and its Subsidiaries that become Obligations under the Trade Credit Facility) to be terminated and all such indebtedness to be repaid in full. 57 SECTION 5.02. Negative Covenants. So long as any Advance shall remain unpaid or any Lender shall have any Commitment hereunder, neither Group nor the Borrower will at any time: (a) Liens, Etc. Create or suffer to exist, or permit any of its Subsidiaries to create, incur, assume or suffer to exist, any Lien on or with respect to any of its properties of any character, whether now owned or hereafter acquired, or assign, or permit any of its Subsidiaries to assign, any right to receive income, other than: (i) Permitted Liens, (ii) Liens on receivables of any kind (and in property securing or otherwise supporting such receivables) in connection with agreements for limited recourse sales or financings by the Borrower or any of its Subsidiaries or by Designer Holdings or any of its Subsidiaries for cash of such receivables or interests therein, provided that (A) any such agreement is of a type and on terms customary for comparable transactions in the good faith judgment of the Board of Directors of Group and (B) such agreement does not create any interest in any asset other than receivables (and property securing or otherwise supporting such receivables), related general intangibles and proceeds of the foregoing, (iii) other Liens securing Debt, including Liens incurred pursuant to subsection (v) below, in an aggregate principal amount outstanding at any time not to exceed 10% of Consolidated Tangible Assets of Group and its Subsidiaries at such time; provided that Liens securing Debt of Authentic Fitness Products Inc. under credit facilities existing on the date that Authentic Fitness becomes a Subsidiary of the Borrower are expressly permitted until the consummation of the acquisition of 100% of the capital stock of Authentic Fitness, (iv) Liens arising from covenants by the Borrower or its Subsidiaries to grant security interests in the assets of Warnaco of Canada Limited or its Subsidiaries (the "Canadian Subsidiaries") to secure Debt of the Canadian Subsidiaries in the event that the Lenders hereunder or lenders under the Existing Five Year Credit Agreement, the New 364 Day Credit Agreement or the Trade Credit Facility are granted Liens by Group or its Subsidiaries in their respective assets to secure the Obligations under the Loan Documents, the Existing Five Year Credit Agreement, the New 364 Day Credit Agreement or the Trade Credit Facility, as the case may be, and (v) Liens on Margin Stock. 58 (b) Mergers, Etc. Merge into or consolidate with any Person or permit any Person to merge into it, or permit any of its Subsidiaries (other than Excluded Subsidiaries) to do so or to voluntarily liquidate, except that: (i) the Borrower or the Purchaser and Authentic Fitness may consummate the Merger; (ii) any Subsidiary of Group may merge into or consolidate with any other Subsidiary of Group, provided that if any such Subsidiary is a Domestic Subsidiary of Group, the person formed thereby shall be a direct or indirect wholly owned Domestic Subsidiary of Group; (iii) any Subsidiary of Group may merge into or consolidate with any other Person pursuant to an acquisition, provided that, if any such Subsidiary is a Domestic Subsidiary of Group, the Person formed thereby shall be a direct or indirect wholly owned Domestic Subsidiary of Group; (iv) any Domestic Subsidiary of Group may merge into or consolidate with Group; (v) the Borrower may merge into or consolidate with any other Person so long as the Borrower is the surviving corporation; and (vi) any Subsidiary of Group may voluntarily liquidate and distribute its assets to Group or any direct or indirect wholly owned Domestic Subsidiary of Group, provided, in each case, that no Default shall have occurred and be continuing at the time of such proposed transaction or would result therefrom. (c) Debt. Create, incur, assume or suffer to exist, or permit any of its Subsidiaries (other than Excluded Subsidiaries) to create, incur, assume or suffer to exist, any Debt if after giving effect thereto the Borrower shall fail to be in compliance with each of the covenants set forth in Section 5.03. (d) Sales, Etc., of Assets. Sell, lease, transfer or otherwise dispose of, or permit any of its Subsidiaries to sell, lease, transfer or otherwise dispose of, any assets, or grant any option or other right to purchase, lease or otherwise acquire any assets, except: (i) sales of inventory in the ordinary course of its business; (ii) sales, leases, transfers or other disposals of assets, or grants of any option or other right to purchase, lease or otherwise acquire assets, following the Effective Date for fair value (valued at the time of any such sale, lease, transfer or 59 other disposal), in an aggregate amount in each Fiscal Year not to exceed 20% per annum of the Consolidated total assets of Group and its Subsidiaries as valued at the end of the preceding Fiscal Year of the Borrower, and the fair value of such assets shall have been determined in good faith by the Board of Directors of Group; (iii) sales of assets on terms customary for comparable transactions in the good faith judgment of the Board of Directors of Group pursuant to agreements referred to in Section 5.02(a)(ii); (iv) transfers of assets between Group and its Subsidiaries; (v) sales of assets listed on Schedule 5.02(d) hereto; (vi) sales of assets and properties of Group and its Subsidiaries in connection with sale-leaseback transactions otherwise permitted hereunder (including, without limitation, under Section 5.02(c)); (vii) the sale or discount of accounts (A) owing by Persons incorporated, residing or having their principal place of business in the United States in an aggregate amount not exceeding $10,000,000 in face amount per calendar year or (B) that are past due by more than 90 days, provided that the sale or discount of such accounts is in the ordinary course of Group's business and consistent with prudent business practices; (viii) the licensing of trademarks and trade names by Group or any of its Subsidiaries in the ordinary course of its business, provided that such licensing takes place on an arm's-length basis; (ix) the rental by Group and its Subsidiaries, as lessors, in the ordinary course of their respective businesses, on an arm's-length basis, of real property and personal property, in each case under leases (other than Capitalized Leases); and (x) sales of Margin Stock for fair value as determined in good faith by the Board of Directors of Group. (e) Authentic Fitness. From and after the Control Date and prior to the date that Authentic Fitness becomes a wholly-owned Subsidiary, permit Authentic Fitness to (i) issue any securities, rights or options or (ii) declare or make any dividends or distributions to the holders of Authentic Fitness Stock, except, in each case, as contemplated by the terms of either or both of the Tender Offer and the Merger and otherwise except to the extent any such transactions are entered into and performed in the ordinary course of Authentic Fitness's 60 business as previously conducted and necessary for the prudent operation of Authentic Fitness's business. (f) Nature of Business. Make, or permit any of its Subsidiaries to make, (A) except as otherwise permitted pursuant to subsection (B) below, any change in the nature of its business as carried on at the date hereof in a manner materially adverse to the Agents and the Lenders or (B) any investments (except Investments in a net aggregate amount (after giving effect to any dividends or other returns of capital) invested from the date hereof not to exceed $100,000,000) other than in apparel manufacturing or wholesaling businesses or apparel accessories manufacturing or wholesaling businesses or in related retail businesses, provided that, on an annual basis, at least 51% of the revenue of Group and its Subsidiaries on a Consolidated basis is derived from apparel manufacturing or wholesaling businesses or apparel accessories manufacturing or wholesaling businesses. (g) Accounting Changes. Make or permit, or permit any of its Subsidiaries to make or permit, any change in accounting policies (except as required or permitted by the Financial Accounting Standards Board or generally accepted accounting principles), reporting practices or Fiscal Year. SECTION 5.03. Financial Covenants. So long as any Advance shall remain unpaid or any Lender shall have any Commitment hereunder, Group and the Borrower will: (a) Leverage Ratio. Maintain, at the end of each Fiscal Quarter, a ratio of (x) Indebtedness for Borrowed Money to (y) Consolidated EBITDA of Group and its Subsidiaries for the preceding four Fiscal Quarters of not more than 3.25 to 1.0; provided that if the Tender Offer is consummated, such ratio shall not be more than 3.75 to 1.0 for each Fiscal Quarter ending on or before September 30, 2000, 3.50 to 1.0 for each Fiscal Quarter ending on or about December 31, 2000 through the Fiscal Quarter ending on or about September 30, 2001, and 3.25 to 1.0 for each Fiscal Quarter thereafter. (b) Coverage Ratio. Maintain, as of the end of each Fiscal Quarter, a ratio of Consolidated EBITDA of Group and its Subsidiaries for the four consecutive Fiscal Quarters then ended to Consolidated Interest Expense of Group and its Subsidiaries for such period of not less than 3.00:1.00. 61 ARTICLE VI EVENTS OF DEFAULT SECTION 6.01. Events of Default. If any of the following events ("Events of Default") shall occur and be continuing: (a) The Borrower shall fail to pay any principal of any Advance when the same becomes due and payable; or the Borrower or any other Loan Party shall fail to pay any interest on any Advance or make any other payment of fees or other amounts payable under any Loan Document within three Business Days after the same becomes due and payable; or (b) Any representation or warranty made by any Loan Party (or any of its officers) under or in connection with any Loan Document shall prove to have been incorrect in any material respect when made; or (c) (i) Group or the Borrower shall fail to perform or observe any term, covenant or agreement contained in Section 5.01(d), (j) or (k), 5.02 or 5.03, or (ii) any Loan Party shall fail to perform or observe any other term, covenant or agreement contained in any Loan Document on its part to be performed or observed if such failure shall remain unremedied for 30 days (A) after written notice thereof shall have been given to the Borrower by any Agent or any Lender or (B) after any officer of the Borrower obtains knowledge thereof; or (d) Any Loan Party or any of its Subsidiaries shall fail to pay any principal of or premium or interest on any Debt under the Trade Credit Facility or other Debt that is outstanding in a principal or notional amount of at least $20,000,000 in the aggregate (but excluding Debt outstanding hereunder) of such Loan Party or such Subsidiary (as the case may be), when the same becomes due and payable (whether by scheduled maturity, required prepayment, acceleration, demand or otherwise), and such failure shall continue after the applicable grace period, if any, specified in the agreement or instrument relating to such Debt; or any other event shall occur or condition shall exist under any agreement or instrument relating to any such Debt and shall continue after the applicable grace period, if any, specified in such agreement or instrument, if the effect of such event or condition is to accelerate, or to permit the acceleration of, the maturity of such Debt; or any such Debt shall be declared to be due and payable, or required to be prepaid or redeemed (other than by a regularly scheduled required prepayment or redemption or other than as a result of any event which provides cash to such Loan Party in an amount sufficient to satisfy such redemption or prepayment), purchased or defeased, or an offer to prepay, redeem, purchase or defease such Debt shall be required to be made, in each case prior to the stated maturity thereof; or 62 (e) Group, the Borrower or any of their Material Subsidiaries (or any group of Subsidiaries which, in the aggregate, would constitute a Material Subsidiary) shall generally not pay its debts as such debts become due, or shall admit in writing its inability to pay its debts generally, or shall make a general assignment for the benefit of creditors; or any proceeding shall be instituted by or against any Group, the Borrower or any of their Subsidiaries (or any group of Subsidiaries which, in the aggregate, would constitute a Material Subsidiary) seeking to adjudicate it a bankrupt or insolvent, or seeking liquidation, winding up, reorganization, arrangement, adjustment, protection, relief, or composition of it or its debts under any law relating to bankruptcy, insolvency or reorganization or relief of debtors, or seeking the entry of an order for relief or the appointment of a receiver, trustee, custodian or other similar official for it or for any substantial part of its property and, in the case of any such proceeding instituted against it (but not instituted by it), either such proceeding shall remain undismissed or unstayed for a period of 30 days, or any of the actions sought in such proceeding (including, without limitation, the entry of an order for relief against, or the appointment of a receiver, trustee, custodian or other similar official for, it or for any substantial part of its property) shall occur; or such Loan Party or any of its Subsidiaries shall take any corporate action to authorize any of the actions set forth above in this subsection (e); or (f) Any judgment or order for the payment of money in excess of $20,000,000 shall be rendered against any Loan Party or any of its Subsidiaries and either (i) enforcement proceedings shall have been commenced by any creditor upon such judgment or order or (ii) there shall be any period of 10 consecutive days during which a stay of enforcement of such judgment or order, by reason of a pending appeal or otherwise, shall not be in effect unless the payment of such judgment or order is covered by insurance and such insurance coverage is not in dispute; or (g) Any non-monetary judgment or order shall be rendered against any Loan Party or any of its Subsidiaries that could be reasonably expected to have a Material Adverse Effect, and there shall be any period of 10 consecutive days during which a stay of enforcement of such judgment or order, by reason of a pending appeal or otherwise, shall not be in effect; or (h) any provision of any Loan Document, after delivery thereof pursuant to Section 3.01 or 5.01(j), shall for any reason cease to be valid and binding on or enforceable against any Loan Party party to it, or any such Loan Party shall so state in writing; or (i) (A) Group shall at any time cease to have legal and beneficial ownership of 100% of the capital stock of the Borrower (except if such parties shall merge); or (B) any Person, or two or more Persons acting in concert, shall have acquired beneficial ownership (within the meaning of Rule 13d-3 of the Securities and Exchange Commission under the Securities Exchange Act of 1934), directly or indirectly, of Voting Stock of Group (or other 63 securities convertible into such Voting Stock) representing 25% or more of the combined voting power of all Voting Stock of Group (other than Excluded Persons); or (C) any Person, or two or more Persons acting in concert shall have acquired by contract or otherwise, or shall have entered into a contract or arrangement that, upon consummation, will result in its or their acquisition of, the power to exercise, directly or indirectly, a controlling influence over the management or policies of Group, or control over Voting Stock of Group (or other securities convertible into such securities) representing 25% or more of combined voting power of all Voting Stock of Group (other than Excluded Persons); or (D) Linda J. Wachner (or, in the case of her death or disability, another officer or officers of comparable experience and ability selected by the Borrower within 180 days thereafter after consultation with the Administrative Agent) shall cease to be Chairman and Chief Executive Officer of Group and the Borrower); or (j) Any Loan Party or any of its ERISA Affiliates shall incur, or shall be reasonably likely to incur, liability in excess of $20,000,000 in the aggregate as a result of one or more of the following: (i) the occurrence of any ERISA Event; (ii) the partial or complete withdrawal of such Loan Party or any of its ERISA Affiliates from a Multiemployer Plan; or (iii) the reorganization or termination of a Multiemployer Plan; then, and in any such event, the Administrative Agent (i) shall at the request, or may with the consent, of the Required Lenders, by notice to the Borrower, declare the obligation of each Lender to make Advances (other than Swing Line Advances by a Lender pursuant to Section 2.02(b)(ii)) to be terminated, whereupon the same shall forthwith terminate, and (ii) shall at the request, or may with the consent, of the Required Lenders, by notice to the Borrower, declare the Advances, all interest thereon and all other amounts payable under this Agreement and the other Loan Documents to be forthwith due and payable, whereupon the Advances, all such interest and all such amounts shall become and be forthwith due and payable, without presentment, demand, protest or further notice of any kind, all of which are hereby expressly waived by the Borrower; provided, however, that in the event of an actual or deemed entry of an order for relief with respect to any Loan Party or any of its Material Subsidiaries (or any group of Subsidiaries which, in the aggregate, would constitute a Material Subsidiary) under the Federal Bankruptcy Code, (x) the obligation of each Lender to make Advances (other than Swing Line Advances by a Lender pursuant to Section 2.02(b)(ii)) shall automatically be terminated and (y) the Advances, all such interest and all such amounts shall automatically become and be due and payable, without presentment, demand, protest or any notice of any kind, all of which are hereby expressly waived by the Borrower. 64 ARTICLE VII THE AGENTS SECTION 7.01. Authorization and Action. Each Lender hereby appoints and authorizes each Agent to take such action as agent on its behalf and to exercise such powers and discretion under this Agreement and the other Loan Documents as are delegated to such Agent by the terms hereof, together with such powers and discretion as are reasonably incidental thereto. As to any matters not expressly provided for by this Agreement and the other Loan Documents (including, without limitation, enforcement or collection of the Notes, if any), each Agent shall not be required to exercise any discretion or take any action, but shall be required to act or to refrain from acting (and shall be fully protected in so acting or refraining from acting) upon the instructions of the Required Lenders, and such instructions shall be binding upon all Lenders and all holders of Notes; provided, however, that no Agent shall be required to take any action that exposes such Agent to personal liability or that is contrary to this Agreement or applicable law. Each Agent agrees to give to each Lender prompt notice of each notice given to it by the Borrower pursuant to the terms of this Agreement. SECTION 7.02. Agents' Reliance, Etc. None of the Agents nor any of their directors, officers, agents or employees shall be liable for any action taken or omitted to be taken by it or them under or in connection with this Agreement and the other Loan Documents, except for its or their own gross negligence or willful misconduct. Without limitation of the generality of the foregoing, each Agent: (i) may treat the payee of any Note as the holder thereof until the Administrative Agent receives and accepts an Assignment and Acceptance entered into by the Lender that is the payee of such Note, as assignor, and an Eligible Assignee, as assignee, as provided in Section 8.07; (ii) may consult with legal counsel (including counsel for any Loan Party), independent public accountants and other experts selected by it and shall not be liable for any action taken or omitted to be taken in good faith by it in accordance with the advice of such counsel, accountants or experts; (iii) makes no warranty or representation to any Lender and shall not be responsible to any Lender for any statements, warranties or representations (whether written or oral) made in or in connection with this Agreement and the other Loan Documents; (iv) shall not have any duty to ascertain or to inquire as to the performance or observance of any of the terms, covenants or conditions of this Agreement and the other Loan Documents on the part of any Loan Party or to inspect the property (including the books and records) of any Loan Party; (v) shall not be responsible to any Lender for the due execution, legality, validity, enforceability, genuineness, sufficiency or value of or the other Loan Documents or any other instrument or document furnished pursuant hereto; and (vi) shall incur no liability under or in respect of this Agreement or the other Loan Documents by acting upon any notice, consent, certificate or other instrument or writing (which may be by telecopier, telegram or telex) believed by it to be genuine and signed or sent by the proper party or parties. SECTION 7.03. Scotiabank, Citibank, SocGen, Commerzbank, Bank of America, DKB and Affiliates. With respect to its Commitment, the Advances made by it and any Notes issued 65 to it, each of Scotiabank, Citibank, SocGen, Commerzbank, Bank of America and DKB shall have the same rights and powers under this Agreement and the other Loan Documents as any other Lender and may exercise the same as though it were not an Agent; and the term "Lender" or "Lenders" shall, unless otherwise expressly indicated, include Scotiabank, Citibank, SocGen, Commerzbank, Bank of America and DKB in their individual capacities. Each of Scotiabank, Citibank, SocGen, Commerzbank, Bank of America and DKB and their Affiliates may accept deposits from, lend money to, act as trustee under indentures of, accept investment banking engagements from and generally engage in any kind of business with, any Loan Party, any of its Subsidiaries and any Person who may do business with or own securities of any Loan Party or any such Subsidiary, all as if Scotiabank, Citibank, SocGen, Commerzbank, Bank of America and DKB were not Agents and without any duty to account therefor to the Lenders. SECTION 7.04. Lender Credit Decision. Each Lender acknowledges that it has, independently and without reliance upon any Agent or any other Lender and based on the financial statements referred to in Section 4.01 and such other documents and information as it has deemed appropriate, made its own credit analysis and decision to enter into this Agreement. Each Lender also acknowledges that it will, independently and without reliance upon any Agent or any other Lender and based on such documents and information as it shall deem appropriate at the time, continue to make its own credit decisions in taking or not taking action under this Agreement. SECTION 7.05. Indemnification. Each Lender (other than the Designated Lenders which have only Competitive Bid Advances outstanding) agrees to indemnify each Agent (to the extent not reimbursed by the Borrower), ratably according to the respective principal amounts of the Advances then owed to each of them (or if no Advances are at the time outstanding or if any Advances are owed to Persons that are not Lenders, ratably according to the respective amounts of their Commitments), from and against any and all liabilities, obligations, losses, damages, penalties, actions, judgments, suits, costs, expenses or disbursements of any kind or nature whatsoever that may be imposed on, incurred by, or asserted against such Agent in any way relating to or arising out of this Agreement or the other Loan Documents or any action taken or omitted by such Agent under this Agreement or the other Loan Documents, provided that no Lender shall be liable for any portion of such liabilities, obligations, losses, damages, penalties, actions, judgments, suits, costs, expenses or disbursements resulting from the Agent's gross negligence or willful misconduct; and provided further that no Designated Lender shall be liable for any payment under this Section 7.05 so long as, and to the extent that, its Designating Lender makes such payments on its behalf. The Borrower, the Agents and the other Lenders shall continue to deal solely and directly with the Designating Lender in connection with the Designated Lender's rights and obligations under this Agreement. Without limitation of the foregoing, each Lender (other than the Designated Lenders which have only Competitive Bid Advances outstanding) agrees to reimburse each Agent promptly upon demand for its ratable share of any out-of-pocket expenses (including counsel fees) incurred by such Agent in connection with the preparation, execution, delivery, administration, modification, amendment or enforcement (whether through negotiations, legal proceedings or otherwise) of, or legal advice in 66 respect of rights or responsibilities under, this Agreement and the other Loan Documents, to the extent that such Agent is not reimbursed for such expenses by the Borrower. SECTION 7.06. Successor Agents. Any Agent may resign at any time by giving written notice thereof to the Lenders and the Borrower and may be removed at any time with or without cause by the Required Lenders. Upon any such resignation or removal, the Required Lenders shall have the right to appoint a successor Agent with the approval of the Borrower. If no successor Agent shall have been so appointed by the Required Lenders, and shall have accepted such appointment, within 30 days after the retiring Agent's giving of notice of resignation or the Required Lenders' removal of the retiring Agent, then the retiring Agent may, on behalf of the Lenders, appoint a successor Agent, which shall be a commercial bank organized under the laws of the United States of America or of any State thereof and having a combined capital and surplus of at least $500,000,000. Upon the acceptance of any appointment as Agent hereunder by a successor Agent, such successor Agent shall thereupon succeed to and become vested with all the rights, powers, discretion, privileges and duties of the retiring Agent, and the retiring Agent shall be discharged from its duties and obligations under this Agreement and the other Loan Documents. After any retiring Agent's resignation or removal hereunder as Agent, the provisions of this Article VII shall inure to its benefit as to any actions taken or omitted to be taken by it while it was Agent under this Agreement. ARTICLE VIII MISCELLANEOUS SECTION 8.01. Amendments, Etc. No amendment or waiver of any provision of this Agreement, nor consent to any departure by the Borrower therefrom, shall in any event be effective unless the same shall be in writing and signed by the Required Lenders, and then such waiver or consent shall be effective only in the specific instance and for the specific purpose for which given; provided, however, that (a) no amendment, waiver or consent shall, unless in writing and signed by all the Lenders (other than the Designated Lenders and other than any Lender which is, at such time, a Defaulting Lender), do any of the following at any time: (i) waive any of the conditions specified in Section 3.01 or, in the case of the initial Borrowing, Section 3.02, (ii) change the percentage of the Commitments or of the aggregate unpaid principal amount of the Advances, or the number of Lenders, that shall be required for the Lenders or any of them to take any action hereunder, (iii) release any Material Guarantor, or (iv) amend this Section 8.01, (b) no amendment, waiver or consent shall, unless in writing and signed by the Required Lenders and each Lender affected by such amendment, waiver or consent (other than the Designated Lenders and other than any Lender which is, at such time, a Defaulting Lender), (i) reduce the principal of, or interest on, the Advances owed to such Lender or any fees or other amounts payable hereunder to such Lender or (ii) postpone any date fixed for any payment of principal of, or interest on, the Advances owed to such Lender or any fees or other amounts payable hereunder to such Lender and (c) no 67 amendment, waiver or consent shall, unless in writing and signed by the Required Lenders and each affected Lender (other than the Designated Lenders and other than any Lender which is, at such time, a Defaulting Lender), increase the Commitments of such Lender or subject such Lender to any additional obligations; provided further, that no amendment, waiver or consent shall, unless in writing and signed by the Swing Line Bank in addition to the Lenders required above to take such action, affect the rights and obligations of the Swing Line Bank under this Agreement; provided further, that no amendment, waiver or consent shall, unless in writing and signed by an Agent in addition to the Lenders required above to take such action, affect the rights or duties of such Agent under this Agreement. Each Designating Lender shall act as its Designated Lender's agent and attorney in fact and exercise on behalf of its Designated Lender all rights, if any, to vote and to grant and make approvals, waivers, consents or waivers in accordance with this Section 8.01. The Borrower, the Agents and the other Lenders shall continue to deal solely and directly with the Designating Lender in connection with the Designated Lender's rights and obligations under this Agreement. Any request by any Loan Party for an amendment or waiver of any provision of any Loan Document shall be made by such Loan Party by giving a written request therefor to the Administrative Agent. SECTION 8.02. Notices, Etc. All notices and other communications provided for hereunder shall be in writing (including telegraphic, telecopy, telex or cable communication) and mailed, telegraphed, telecopied, telexed, cabled or delivered, if to the Borrower, at its address at 90 Park Avenue, New York, New York 10016, Attention: Chief Financial Officer, with a copy to General Counsel; if to any Initial Lender or Agent, at its Domestic Lending Office specified opposite its name on Schedule I hereto, if to any other Lender, at its Domestic Lending Office specified in the Assignment and Acceptance pursuant to which it became a Lender; or, as to each party, at such other address as shall be designated by such party in a written notice to the other parties. All such notices and communications shall, when mailed, telegraphed, telecopied, telexed or cabled, be effective when deposited in the mails, delivered to the telegraph company, transmitted by telecopier, confirmed by telex answerback or delivered to the cable company, respectively, except that notices and communications to an Agent pursuant to Article II, III or VII shall not be effective until received by such Agent. Delivery by telecopier of an executed counterpart of any amendment or waiver of any provision of this Agreement or of any Exhibit hereto to be executed and delivered hereunder shall be effective as delivery of a manually executed counterpart thereof. SECTION 8.03. No Waiver; Remedies. No failure on the part of any Lender or Agent to exercise, and no delay in exercising, any right hereunder shall operate as a waiver thereof; nor shall any single or partial exercise of any such right preclude any other or further exercise thereof or the exercise of any other right. The remedies herein provided are cumulative and not exclusive of any remedies provided by law. SECTION 8.04. Costs and Expenses. (a) Group and the Borrower agree to pay on demand (i) all reasonable costs and expenses (other than taxes, including interest, additions to tax and penalties relating thereto, except to the extent that the same are required to be paid pursuant to 68 Section 2.13 hereof) of the Agents in connection with the preparation, execution, delivery, administration, modification and amendment of the Loan Documents (including, without limitation, (A) all due diligence, syndication (including printing, distribution and bank meetings), transportation, computer, duplication, appraisal, audit, insurance, consultant, search, filing and recording fees and all other out-of-pocket expenses and (B) the reasonable fees and expenses of counsel for the Agents with respect thereto, with respect to advising the Agents as to their respective rights and responsibilities, or the protection or preservation of rights or interests, under the Loan Documents, with respect to negotiations with any Loan Party or with other creditors of any Loan Party or any of its Subsidiaries arising out of any Default or any events or circumstances that may give rise to a Default and with respect to presenting claims in or otherwise participating in or monitoring any bankruptcy, insolvency or other similar proceeding involving creditors' rights generally, and any proceeding ancillary thereto) and (ii) all reasonable costs and expenses (other than taxes, including interest, additions to tax and penalties relating thereto, except to the extent that the same are required to be paid pursuant to Section 2.13 hereof) of the Agents and the Lenders in connection with the enforcement of the Loan Documents, whether in any action, suit or litigation, any bankruptcy, insolvency or other similar proceeding affecting creditors' rights generally or otherwise (including, without limitation, the reasonable fees and expenses of counsel for the Agents and each Lender with respect thereto). (b) Group and the Borrower agree to indemnify and hold harmless each of the Agents and each Lender (other than any Designated Lender to the extent such indemnification obligation exceeds that which the Borrower would owe to its Designating Lender) and each of their Affiliates and their officers, directors, employees, agents and advisors (each, an "Indemnified Party") from and against any and all claims, damages, losses, liabilities and expenses (including, without limitation, reasonable fees and expenses of counsel, but other than taxes, including interest, additions to tax and penalties relating thereto, except to the extent that the same are required to be paid pursuant to Section 2.13 hereof) that may be incurred by or asserted or awarded against any Indemnified Party, in each case arising out of or in connection with or by reason of, or in connection with the preparation for a defense of, any investigation, litigation or proceeding arising out of, related to or in connection with (i) the Facility or the actual or proposed use of the proceeds of the Advances or (ii) the actual or alleged presence of Hazardous Materials on any property of the Borrower or any of its Subsidiaries or any Environmental Action relating in any way to the Borrower or any of its Subsidiaries, in each case whether or not such investigation, litigation or proceeding is brought by the Borrower, its directors, shareholders or creditors or an Indemnified Party or any other Person or any Indemnified Party is otherwise a party thereto and whether or not the transactions contemplated hereby, the Tender Offer or the Merger are consummated, except to the extent such claim, damage, loss, liability or expense is found in a final, non-appealable judgment by a court of competent jurisdiction to have resulted from such Indemnified Party's gross negligence or willful misconduct. The Borrower also agrees not to assert any claim against any Agent, any Lender, any of their Affiliates, or any of their respective directors, officers, employees, attorneys and agents, on any theory of liability, for special, indirect, consequential or punitive damages arising out of or otherwise relating to this Agreement, any of the transactions contemplated herein, the Tender Offer, 69 the Merger or the actual or proposed use of the proceeds of the Advances, except in the event of gross negligence or willful misconduct on the part of such Agent, Lender or Affiliate. (c) If any payment of principal of any Eurodollar Rate Advance or LIBO Rate Advance, or any Conversion of any Eurodollar Rate Advance, is made by the Borrower to or for the account of a Lender other than on the last day of the Interest Period for such Advance, as a result of a payment or Conversion pursuant to Section 2.06, 2.09 or 2.11, acceleration of the maturity of the Advances pursuant to Section 6.01 or for any other reason, the Borrower shall, upon demand by such Lender (with a copy of such demand to the Administrative Agent), pay to the Administrative Agent for the account of such Lender any amounts required to compensate such Lender for any additional losses, costs or expenses that it may reasonably incur as a result of such payment or Conversion, including, without limitation, any loss (excluding loss of anticipated profits and taxes, including interest, additions to tax and penalties relating thereto, except to the extent that the same are required to be paid pursuant to Section 2.12 hereof), cost or expense incurred by reason of the liquidation or reemployment of deposits or other funds acquired by any Lender to fund or maintain such Advance; provided, however, that notwithstanding any of the foregoing, the Borrower shall not be required to compensate any Designated Lender for any losses, costs or expenses to the extent such amounts exceed that which the Borrower would owe to its Designating Lender, but for such designation. (d) Without prejudice to the survival of any other agreement of the Borrower hereunder, the agreements and obligations of the Borrower contained in Sections 2.10, 2.13 and 8.04 and the agreements and obligations of any Lender or Agent contained in Section 2.13 shall survive the payment in full of principal, interest and all other amounts payable hereunder. (e) Notwithstanding anything to the contrary, neither the designation of any Designated Lender, any Advance made by any Designated Lender, nor any other condition or circumstance relating to any Designated Lender shall increase (i) any obligations or liabilities of the Borrower hereunder, including, without limitation, pursuant to Section 2.10, 2.11, 2.13 or this Section 8.04, or (ii) any obligations or liabilities of the Borrower under any Loan Documents, in each case, as compared with any obligations or liabilities which would arise if the Designating Lender were the Lender for all purposes and had not otherwise appointed a Designated Lender. SECTION 8.05. Right of Set-off. Upon (i) the occurrence and during the continuance of any Event of Default and (ii) the making of the request or the granting of the consent specified by Section 6.01 to authorize the Administrative Agent to declare the Advances due and payable pursuant to the provisions of Section 6.01, each Lender and each of its Affiliates is hereby authorized at any time and from time to time, to the fullest extent permitted by law, to set off and apply any and all deposits (general or special, time or demand, provisional or final) at any time held and other indebtedness at any time owing by such Lender or such Affiliate to or for the credit or the account of the Borrower against any and all of the Obligations of the Borrower now or hereafter existing under this Agreement and any Note held by such Lender, whether or not such Lender shall have made any demand under this Agreement or such Note, if any, and although such obligations 70 may be unmatured. Each Lender agrees promptly to notify the Borrower after any such set-off and application, provided that the failure to give such notice shall not affect the validity of such set-off and application. The rights of each Lender and its Affiliates under this Section are in addition to other rights and remedies (including, without limitation, other rights of set-off) that such Lender and its Affiliates may have. SECTION 8.06. Binding Effect. This Agreement shall become effective (other than Sections 2.01 and 2.03, which shall only become effective upon satisfaction of the conditions precedent set forth in Section 3.01) when it shall have been executed by the Borrower, Group and the Agents and when the Administrative Agent shall have been notified by each Initial Lender that such Initial Lender has executed it and thereafter shall be binding upon and inure to the benefit of the Borrower, the Agents and each Lender and their respective successors and assigns, except that the Borrower shall not have the right to assign its rights hereunder or any interest herein without the prior written consent of the Lenders. SECTION 8.07. Assignments, Designations and Participations. (a) Each Lender (other than any Designated Lender except for an assignment to its Designating Lender) may assign, and, if demanded by the Borrower upon at least 30 Business Days' notice to such Lender and the Administrative Agent following either (w) such Lender becoming a Defaulting Lender, (x) a payment by the Borrower of Taxes with respect to such Lender in accordance with Section 2.13, (y) the occurrence of an event that would, upon payment to such Lender of amounts hereunder, require a payment by the Borrower of Taxes with respect to such Lender in accordance with Section 2.13 or (z) a demand for payment under Section 2.10 and will assign, to one or more banks or other entities all or a portion of its rights and obligations under this Agreement (including, without limitation, all or a portion of its Commitment or Commitments, the Advances owing to it (including accrued interest) and any Revolving Credit Note held by it but not including Competitive Bid Advances owing to it and Competitive Bid Notes), with (except in the case of an assignment to an Affiliate of such Lender) the prior written consent of the Administrative Agent and (so long as no Default has occurred and is continuing) the Borrower, such consent not to be unreasonably withheld or delayed; provided, however, that (A) except in the case of (x) an assignment to a Person that, immediately prior to such assignment, was a Lender, (y) an assignment to an Affiliate of the assigning Lender (including an assignment by a Designated Lender to its Designating Lender) or (z) an assignment of all of a Lender's rights and obligations under this Agreement, the amount of the Commitment of the assigning Lender being assigned pursuant to each such assignment (determined as of the date of the Assignment and Acceptance with respect to such assignment) shall in no event be less than $10,000,000 or an integral multiple of $1,000,000 in excess thereof, and the amount of the Commitment of the assigning Lender being retained by such Lender immediately after giving effect to such assignment (determined as of the effective date of the Assignment and Acceptance with respect to such assignment) shall in no event be less than $10,000,000, (B) each such assignment shall be to an Eligible Assignee, (C) each such assignment made as a result of a demand by the Borrower pursuant to this Section 8.07(a) shall be arranged by the Borrower after consultation with the Administrative Agent and shall be either an assignment of all of the rights and obligations 71 of the assigning Lender under this Agreement or an assignment of a portion of such rights and obligations made concurrently with another such assignment or other such assignments that together cover all of the rights and obligations of the assigning Lender under this Agreement, (D) no Lender shall be obligated to make any such assignment as a result of a demand by the Borrower pursuant to this Section 8.07(a) (1) unless and until such Lender shall have received one or more payments from either the Borrower or one or more Eligible Assignees in an aggregate amount at least equal to the aggregate outstanding principal amount of the Advances owing to such Lender, together with accrued interest thereon to the date of payment of such principal amount and all other amounts payable to such Lender under this Agreement and (2) if a Default has occurred and is continuing, (E) no such assignments will be permitted until the earlier to occur of the Effective Date and the date that syndication of the Commitments hereunder has been completed as notified by the Administrative Agent to the Lenders, and (F) the parties to each such assignment shall execute and deliver to the Administrative Agent, for its acceptance and recording in the Register, an Assignment and Acceptance, together with any Note subject to such assignment and a processing and recordation fee of $3,500, provided that the Borrower shall pay such recordation fee in the case of any assignment demanded by the Borrower pursuant to this Section 8.07(a) that is not made to another Lender. Upon such execution, delivery, acceptance and recording, from and after the effective date specified in each Assignment and Acceptance, (x) the assignee thereunder shall be a party hereto and, to the extent that rights and obligations hereunder have been assigned to it pursuant to such Assignment and Acceptance, have the rights and obligations of a Lender hereunder and (y) the Lender's assignor thereunder shall, to the extent that rights and obligations hereunder have been assigned by it pursuant to such Assignment and Acceptance, relinquish its rights and be released from its obligations under this Agreement (and, in the case of an Assignment and Acceptance covering all or the remaining portion of an assigning Lender's rights and obligations under this Agreement, such Lender shall cease to be a party hereto). (b) By executing and delivering an Assignment and Acceptance, the Lender assignor thereunder and the assignee thereunder confirm to and agree with each other and the other parties hereto as follows: (i) other than as provided in such Assignment and Acceptance, such assigning Lender makes no representation or warranty and assumes no responsibility with respect to any statements, warranties or representations made in or in connection with this Agreement or any other Loan Document the execution, legality, validity, enforceability, genuineness, sufficiency or value of this Agreement or any other or any other Loan Document or any other instrument or document furnished pursuant hereto; (ii) such assigning Lender makes no representation or warranty and assumes no responsibility with respect to the financial condition of any Loan Party or the performance or observance by any Loan Party of any of its obligations under this Agreement or any other instrument or document furnished pursuant hereto or thereto; (iii) such assignee confirms that it has received a copy of this Agreement, together with copies of the financial statements referred to in Section 4.01 and such other documents and information as it has deemed appropriate to make its own credit analysis and decision to enter into such Assignment and Acceptance; (iv) such assignee will, independently and without reliance upon the any Agent, such assigning Lender or any other Lender and based on such documents and information as it shall deem appropriate at the time, 72 continue to make its own credit decisions in taking or not taking action under this Agreement; (v) such assignee confirms that it is an Eligible Assignee; (vi) such assignee appoints and authorizes each Agent to take such action as agent on its behalf and to exercise such powers and discretion under this Agreement as are delegated to the each Agent by the terms hereof, together with such powers and discretion as are reasonably incidental thereto; and (vii) such assignee agrees that it will perform in accordance with their terms all of the obligations that by the terms of this Agreement are required to be performed by it as a Lender. (c) Upon its receipt of an Assignment and Acceptance executed by an assigning Lender and an assignee representing that it is an Eligible Assignee, together with any Revolving Credit Note subject to such assignment, the Administrative Agent shall, if such Assignment and Acceptance has been completed and is in substantially the form of Exhibit C hereto, (i) accept such Assignment and Acceptance, (ii) record the information contained therein in the Register and (iii) give prompt notice thereof to the Borrower. (d) Any Lender (other than a Designated Lender) may at any time designate not more than one Designated Lender to fund Advances on behalf of such Designating Lender subject to the terms of this Section 8.07(d). Such designation may occur by execution by such parties of a Designation Agreement. The parties to each such designation shall execute and deliver to the Administrative Agent and the Borrower for their acceptance a Designation Agreement. Upon receipt of an appropriately completed Designation Agreement executed by a Designating Lender and a designee representing that it is a Designated Lender and consented by the Borrower, the Administrative Agent will accept such Designation Agreement and will give prompt notice thereof to the Borrower and the other Lenders, whereupon, (i) upon the written request of the Designating Lender, the Borrower shall execute and deliver to the Designating Lender a Revolving Credit Note and/or from time to time a Competitive Bid Note, as the case may be, in each case payable to the order of the Designated Lender, (ii) from and after the effective date specified in the Designation Agreement, the Designated Lender shall become a party to this Agreement with a right to make Revolving Credit Advances and/or Competitive Bid Advances on behalf of its Designating Lender pursuant to Section 2.01 and Section 2.03, respectively and (iii) the Designated Lender shall not be required to make payments with respect to any obligations in this Agreement except to the extent of excess cash flow of such Designated Lender which is not otherwise required to repay obligations of such Designated Lender which are then due and payable; provided, however, that regardless of such designation and assumption by the Designated Lender, the Designating Lender (i) shall be and remain obligated to the Borrower, the Agents and the Lenders for each and every of the obligations of the Designating Lender and its related Designated Lender with respect to this Agreement, including, without limitation, any indemnification obligations under Section 7.05 hereof and any sums otherwise payable to the Borrower by the Designated Lender and (ii) neither the designation of a Designated Lender, the election or other determination that a Designated Lender will make any Advance nor any other condition or circumstance relating to the Designated Lender shall in any way release, diminish or otherwise affect the relevant Designating Lender's Commitment or any other of 73 its obligations hereunder or under any other Loan Document or any rights of the Borrower, any Agent or any Lender with respect to such Designating Lender. The Borrower, the Agents and the Lenders may, at their option, pursue remedies against any Designating Lender which arise out of any failure of its Designated Lender to perform such Designated Lender's obligations under this Agreement or any other Loan Document. Each Designating Lender shall serve as the administrative agent and attorney in fact for its Designated Lender and shall on behalf of its Designated Lender: (i) receive any and all payments made for the benefit of such Designated Lender and (ii) give and receive all communications and notices and take all actions hereunder, including, without limitation, votes, approvals, waivers, consents and amendments under or relating to this Agreement and the other Loan Documents to the extent, if any, such Designated Lender shall have any rights hereunder or thereunder. To the extent a Designated Lender shall have the right to receive or give any such notice, communication, vote, approval, waiver, consent or amendment, it shall be signed by its Designating Lender as administrative agent and attorney in fact for such Designated Lender and need not be signed by such Designated Lender on his own behalf. The Borrower, the Agents and the Lenders may rely thereon without any requirement that the Designated Lender sign or acknowledge the same. Notwithstanding anything to the contrary contained herein, no Designated Lender may assign or transfer all or any portion of its interest hereunder or under any other Loan Document, other than via an assignment to its Designating Lender in accordance with the provisions of this Section 8.07. (e) By executing and delivering a Designation Agreement, the Lender making the designation thereunder and its designee thereunder confirm and agree with each other and the other parties hereto as follows: (i) such Lender makes no representation or warranty and assumes no responsibility with respect to any statements, warranties or representations made in or in connection with this Agreement or the execution, legality, validity, enforceability, genuineness, sufficiency or value of this Agreement or any other instrument or document furnished pursuant hereto; (ii) such Lender makes no representation or warranty and assumes no responsibility with respect to the financial condition of the Borrower or the performance or observance by the Borrower of any of its obligations under this Agreement or any other instrument or document furnished pursuant hereto; (iii) such designee confirms that it has received a copy of this Agreement, together with copies of the financial statements referred to in Section 4.01 and such other documents and information as it has deemed appropriate to make its own credit analysis and decision to enter into such Designation Agreement; (iv) such designee will, independently and without reliance upon any Agent, such designating Lender or any other Lender and based on such documents and information as it shall deem appropriate at the time, continue to make its own credit decisions in taking or not taking action under this Agreement; (v) such designee confirms that it is a Designated Lender; (vi) such designee appoints and authorizes each Agent to take such action as agent on its behalf and to exercise such powers and discretion under this Agreement as are delegated to such Agent by the terms hereof, together with such powers and discretion as are reasonably incidental thereto; and (vii) such designee agrees that it will perform in accordance with their terms all of the obligations which by the terms of this Agreement are required to be performed by it as a Lender. 74 (f) Upon its receipt of a Designation Agreement executed by a designating Lender and a designee representing that it is a Designated Lender, the Administrative Agent shall, if such Designation Agreement has been completed and is substantially in the form of Exhibit D hereto, (i) accept such Designation Agreement, (ii) record the information contained therein in the Register and (iii) give prompt notice thereof to the Borrower. (g) The Administrative Agent shall maintain at its address referred to in Section 8.02 a copy of each Assignment and Acceptance and each Designation Agreement delivered to and accepted by it and a register for the recordation of the names and addresses of the Lenders and, with respect to Lenders other than Designated Lenders, the Commitment of, and principal amount of the Advances owing to, each Lender from time to time (the "Register"). The entries in the Register shall be conclusive and binding for all purposes, absent manifest error, and the Borrower, the Agents and the Lenders may treat each Person whose name is recorded in the Register as a Lender hereunder for all purposes of this Agreement. The Register shall be available for inspection by the Borrower or any Lender at any reasonable time and from time to time upon reasonable prior notice. (h) Each Lender may sell participations to one or more banks or other entities in or to all or a portion of its rights and obligations under this Agreement (including, without limitation, all or a portion of its Commitment and the Advances owing to it); provided, however, that (i) such Lender's obligations under this Agreement (including, without limitation, its Commitment to the Borrower hereunder) shall remain unchanged, (ii) such Lender shall remain solely responsible to the other parties hereto for the performance of such obligations, (iii) such Lender shall remain the holder of any Note issued to it for all purposes of this Agreement, (iv) the Borrower, the Agents and the other Lenders shall continue to deal solely and directly with such Lender in connection with such Lender's rights and obligations under this Agreement and (v) no participant under any such participation shall have any right to approve any amendment or waiver of any provision of this Agreement or any Loan Document, or any consent to any departure by any Loan Party therefrom, except to the extent that such amendment, waiver or consent would (i) reduce the principal of, or interest on, the Advances or any fees or other amounts payable hereunder, in each case to the extent subject to such participation, (ii) postpone any date fixed for any payment of principal of, or interest on, the Advances or any fees or other amounts payable hereunder, in each case to the extent subject to such participation or (iii) release any Material Guarantor. (i) Any Lender may, in connection with any assignment, designation or participation or proposed assignment, designation or participation pursuant to this Section 8.07, disclose to the assignee, designee or participant or proposed assignee, designee or participant, any information relating to the Borrower furnished to such Lender by or on behalf of the Borrower; provided that, prior to any such disclosure, the assignee, designee or participant or proposed assignee, designee or participant shall agree to preserve the confidentiality of any Confidential Information relating to the Borrower received by it from such Lender. 75 (j) Notwithstanding any other provision set forth in this Agreement, any Lender may (without the prior consent of the Borrower and the Administrative Agent) at any time create a security interest in all or any portion of its rights under this Agreement (including, without limitation, the Advances owing to it and any Note or Notes held by it) in favor of any Federal Reserve Bank in accordance with Regulation A of the Board of Governors of the Federal Reserve System. (k) Each of the Borrower, the Lenders and the Agents agrees that it will not institute against any Designated Lender or join any other Person in instituting against any Designated Lender any bankruptcy, reorganization, arrangement, insolvency or liquidation proceeding under any federal or state bankruptcy or similar law, for one year and one day after the payment in full of the latest maturing commercial paper note issued by such Designated Lender. Notwithstanding the foregoing, the Designating Lender unconditionally agrees to indemnify the Borrower, the Agents and each Lender against all liabilities, obligations, losses, damages, penalties, actions, judgments, suits, costs, expenses or disbursements of any kind or nature whatsoever which may be incurred by or asserted against the Borrower, such Agent or such Lender, as the case may be, in any way relating to or arising as a consequence of any such forbearance or delay in the initiation of any such proceeding against its Designated Lender. SECTION 8.08. Confidentiality. None of the Agents nor any Lender shall disclose any Confidential Information to any other Person without the consent of Group and the Borrower, other than (a) to such Agent's or such Lender's Affiliates and their officers, directors, employees, agents and advisors and, as contemplated by Section 8.07(i), to actual or prospective assignees and participants, and then only on a confidential basis, (b) as required by any law, rule or regulation or judicial process, (c) to any rating agency when required by it, provided that, prior to any such disclosure, such rating agency shall undertake to preserve the confidentiality of any Confidential Information relating to Group or the Borrower received by it from such Lender and (d) as requested or required by any state, federal or foreign authority or examiner regulating banks or banking. SECTION 8.09. Execution in Counterparts. This Agreement may be executed in any number of counterparts and by different parties hereto in separate counterparts, each of which when so executed shall be deemed to be an original and all of which taken together shall constitute one and the same agreement. Delivery of an executed counterpart of a signature page to this Agreement by telecopier shall be effective as delivery of a manually executed counterpart of this Agreement. SECTION 8.10. Governing Law. This Agreement shall be governed by, and construed in accordance with, the laws of the State of New York. SECTION 8.11. Jurisdiction, Etc. (a) Each of the parties hereto hereby irrevocably and unconditionally submits, for itself and its property, to the nonexclusive jurisdiction of any New York State court or federal court of the United States of America sitting in New York City, and any appellate court from any thereof, in any action or proceeding arising out of or relating to this 76 Agreement or for recognition or enforcement of any judgment, and each of the parties hereto hereby irrevocably and unconditionally agrees that all claims in respect of any such action or proceeding may be heard and determined in any such New York State court or, to the extent permitted by law, in such federal court. Each of the parties hereto agrees that a final judgment in any such action or proceeding shall be conclusive and may be enforced in other jurisdictions by suit on the judgment or in any other manner provided by law. Nothing in this Agreement shall affect any right that any party may otherwise have to bring any action or proceeding relating to this Agreement in the courts of any jurisdiction. (b) Each of the parties hereto irrevocably and unconditionally waives, to the fullest extent it may legally and effectively do so, any objection that it may now or hereafter have to the laying of venue of any suit, action or proceeding arising out of or relating to this Agreement in any New York State or federal court. Each of the parties hereto hereby irrevocably waives, to the fullest extent permitted by law, the defense of an inconvenient forum to the maintenance of such action or proceeding in any such court. SECTION 8.12. Waiver of Jury Trial. Each of the Borrower, the Agents and the Lenders hereby irrevocably waives all right to trial by jury in any action, proceeding or counterclaim (whether based on contract, tort or otherwise) arising out of or relating to this Agreement or the actions of any Agent or any Lender in the negotiation, administration, performance or enforcement thereof. IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be executed by their respective officers thereunto duly authorized, as of the date first above written. WARNACO INC. By Carl J. Deddens ------------------------------------ Title: VICE PRESIDENT AND TREASURER THE WARNACO GROUP, INC. By Carl J. Deddens ------------------------------------ Title: VICE PRESIDENT AND TREASURER THE BANK OF NOVA SCOTIA as Administrative Agent, Competitive Bid Agent and Swing Line Bank By [SIGNATURE ILLEGIBLE] ------------------------------------ Title: CITIBANK, N.A. as Syndication Agent By ------------------------------------ Title: COMMERZBANK A.G. as Co-Documentation Agent By ------------------------------------ Title: SOCIETE GENERALE as Co-Documentation Agent By ------------------------------------ Title: THE BANK OF NOVA SCOTIA as Administrative Agent, Competitive Bid Agent and Swing Line Bank By ------------------------------------ Title: CITIBANK, N.A. as Syndication Agent By ------------------------------------ Title: COMMERZBANK AG New York and Grand Cayman Bahamas As Co-Documentation Agent By MARKUS TAPPE ------------------------------------ Name: MARKUS TAPPE Title: VICE PRESIDENT By PETER DOYLE ------------------------------------ Name: PETER DOYLE Title: ASSISTANT VICE PRESIDENT SOCIETE GENERALE as Co-Documentation Agent By ------------------------------------ Title: THE BANK OF NOVA SCOTIA as Administrative Agent, Competitive Bid Agent and Swing Line Bank By ------------------------------------ Title: CITIBANK, N.A. as Syndication Agent By MARC MERLINO ------------------------------------ Title: MARC MERLINO-VP COMMERZBANK A.G. As Co-Documentation Agent By ------------------------------------ Title: SOCIETE GENERALE as Co-Documentation Agent By ------------------------------------ Title: THE BANK OF NOVA SCOTIA as Administrative Agent, Competitive Bid Agent and Swing Line Bank By ------------------------------------ Title: CITIBANK, N.A. as Syndication Agent By ------------------------------------ Title: COMMERZBANK A.G. As Co-Documentation Agent By ------------------------------------ Title: SOCIETE GENERALE as Co-Documentation Agent By ROBERT PETERSEN ------------------------------------ ROBERT PETERSEN Title: VICE PRESIDENT Initial Lenders THE BANK OF NOVA SCOTIA By [SIGNATURE ILLEGIBLE] ------------------------------------ Title: CITIBANK, N.A. By ------------------------------------ Title: MORGAN GUARANTY TRUST COMPANY OF NEW YORK By ------------------------------------ Title: SOCIETE GENERALE By ------------------------------------ Title: COMMERZBANK AG By ------------------------------------ Title: THE BANK OF NEW YORK By ------------------------------------ Title: Initial Lenders THE BANK OF NOVA SCOTIA By ------------------------------------ Title: CITIBANK, N.A. By MARC MERLINO ------------------------------------ Title: MARC MERLINO-VP MORGAN GUARANTY TRUST COMPANY OF NEW YORK By ------------------------------------ Title: SOCIETE GENERALE By ------------------------------------ Title: COMMERZBANK AG By ------------------------------------ Title: THE BANK OF NEW YORK By ------------------------------------ Title: Initial Lenders THE BANK OF NOVA SCOTIA By ------------------------------------ Title: CITIBANK, N.A. By ------------------------------------ Title: MORGAN GUARANTY TRUST COMPANY OF NEW YORK By [SIGNATURE ILLEGIBLE] ------------------------------------ Title: SOCIETE GENERALE By ------------------------------------ Title: COMMERZBANK AG By ------------------------------------ Title: THE BANK OF NEW YORK By ------------------------------------ Title: Initial Lenders THE BANK OF NOVA SCOTIA By ------------------------------------ Title: CITIBANK, N.A. By ------------------------------------ Title: MORGAN GUARANTY TRUST COMPANY OF NEW YORK By ------------------------------------ Title: SOCIETE GENERALE By ------------------------------------ Title: COMMERZBANK AG NEW YORK AND GRAND CAYMAN BRANCHES By MARKUS TAPPE ------------------------------------ Name: MARKUS TAPPE Title: VICE PRESIDENT By PETER DOYLE ------------------------------------ Name: PETER DOYLE Title: ASSISTANT VICE PRESIDENT THE BANK OF NEW YORK By ------------------------------------ Title: BANK OF TOKYO-MITSUBISHI TRUST COMPANY By N. SAFFRA ------------------------------------ N. SAFFRA Title: VICE PRESIDENT DAI-ICHI KANGYO BANK, LIMITED By ------------------------------------ Title: BANCO BIBLAO VIZCAYA By ------------------------------------ Title: BANK HAPOALIM By ------------------------------------ Title: DEN DANSKE BANK By ------------------------------------ Title: FIRST COMMERCIAL BANK By ------------------------------------ Title: FLEET BANK, N.A. By ------------------------------------ Title: GENERAL ELECTRIC CAPITAL CORPORATION By [SIGNATURE ILLEGIBLE] ------------------------------------ Title: DULY AUTHORIZED SIGNATORY HSBC BANK USA By ------------------------------------ Title: SUN TRUST BANK By ------------------------------------ Title: BANK OF AMERICA, N.A. By ------------------------------------ Title: GENERAL ELECTRIC CAPITAL CORPORATION By ------------------------------------ Title: HSBC BANK USA By ------------------------------------ Title: SUN TRUST BANK By ------------------------------------ Title: BANK OF AMERICA, N.A. By DAVID H. DINKINS ------------------------------------ DAVID H. DINKINS Title: VICE PRESIDENT BANK OF TOKYO-MITSUBISHI TRUST COMPANY By ------------------------------------ Title: DAI-ICHI KANGYO BANK, LIMITED By [SIGNATURE ILLEGIBLE] ------------------------------------ TITLE: ASSISTANT VICE PRESIDENT BANCO BIBLAO VIZCAYA By ------------------------------------ Title: BANK HAPOALIM By ------------------------------------ Title: DEN DANSKE BANK By ------------------------------------ Title: FIRST COMMERCIAL BANK By ------------------------------------ Title: FLEET BANK, N.A. By ------------------------------------ Title: BANKBOSTON, N.A. By [SIGNATURE ILLEGIBLE] ------------------------------------ Title: DIRECTOR Initial Lenders THE BANK OF NOVA SCOTIA By ------------------------------------ Title: CITIBANK, N.A. By ------------------------------------ Title: MORGAN GUARANTY TRUST COMPANY OF NEW YORK By ------------------------------------ Title: SOCIETE GENERALE By ------------------------------------ Title: COMMERZBANK AG By ------------------------------------ Title: THE BANK OF NEW YORK By [SIGNATURE ILLEGIBLE] ------------------------------------ Title: GENERAL ELECTRIC CAPITAL CORPORATION By ------------------------------------ Title: HSBC BANK USA By ------------------------------------ Title: SUN TRUST BANK By LAURA KAHN ------------------------------------ LAURA KAHN Title: DIRECTOR, SENIOR RELATIONSHIP MANAGER BANK OF AMERICA, N.A. By ------------------------------------ Title: GENERAL ELECTRIC CAPITAL CORPORATION By ------------------------------------ Title: HSBC BANK USA By ------------------------------------ Title: SUN TRUST BANK By LAURA KAHN ------------------------------------ LAURA KAHN Title: DIRECTOR, SENIOR RELATIONSHIP MANAGER BANK OF AMERICA, N.A. By ------------------------------------ Title: EX-10 4 EXHIBIT 10.36 [FINAL EXECUTION COPY] SIXTH AMENDED AND RESTATED CREDIT AGREEMENT, dated as of November 17, 1999, among WARNACO INC., as the U.S. Borrower, DESIGNER HOLDINGS, LTD., as the Sub Borrower, THOSE WHOLLY-OWNED DOMESTIC SUBSIDIARIES DESIGNATED FROM TIME TO TIME, as the Warnaco Sub Borrowers, WARNACO (HK) LTD., WARNACO B.V., WARNACO NETHERLANDS B.V. and WARNACO HOLLAND B.V., as the Foreign Borrowers, THE WARNACO GROUP, INC., as a Guarantor, CERTAIN FINANCIAL INSTITUTIONS, as the Lenders, SOCIETE GENERALE, as the Documentation Agent for the Lenders CITIBANK, N.A., as the Syndication Agent for the Lenders and THE BANK OF NOVA SCOTIA, as the Administrative Agent for the Lenders. Co-Lead Arrangers and Co-Book Managers: THE BANK OF NOVA SCOTIA and SALOMON SMITH BARNEY, INC. TABLE OF CONTENTS
Section Page - ------- ---- ARTICLE I DEFINITIONS AND ACCOUNTING TERMS 1.1. Defined Terms................................................................................................. -3- 1.2. Use of Defined Terms..........................................................................................-27- 1.3. Cross-References..............................................................................................-27- 1.4. Accounting and Financial Determinations.......................................................................-27- ARTICLE II COMMITMENTS, BORROWING PROCEDURES AND NOTES 2.1. Commitments...................................................................................................-27- 2.1.1. Loan Commitment...............................................................................................-27- 2.1.2. Commitment to Issue Letters of Credit and Create Acceptances..................................................-29- 2.1.3. Lenders Not Permitted or Required to Make Loans and Fronting Bank Not Permitted or Required to Issue Letters of Credit or Create Acceptances Under Certain Circumstances.................................................................................................-29- 2.2. Reduction of the Commitment Amount............................................................................-30- 2.3. Borrowing Procedure...........................................................................................-31- 2.4. Continuation and Conversion Elections.........................................................................-33- 2.5. Funding.......................................................................................................-33- 2.6. Notes.........................................................................................................-34- 2.7. Extension of Commitment Termination Date......................................................................-34- 2.8. Authentic LIBO Rate Loans.....................................................................................-35- ARTICLE III REPAYMENTS, PREPAYMENTS, INTEREST AND FEES 3.1 Repayments and Prepayments....................................................................................-36- 3.2. Interest Provisions...........................................................................................-37- 3.2.1. Rates.........................................................................................................-37- 3.2.2. Post-Maturity Rates...........................................................................................-38- 3.2.3. Payment Dates.................................................................................................-38- 3.2.4. Allocation of Interest Payments...............................................................................-39- 3.3. Fees..........................................................................................................-40- 3.3.1. Letter of Credit and Acceptance Fees Payable to the Lenders...................................................-40-
-i- TABLE OF CONTENTS (continued)
Section Page - ------- ---- 3.3.2. Letter of Credit and Acceptance Fees Payable to the Fronting Bank.............................................-41- 3.3.3. Fee Letter....................................................................................................-41- 3.3.4. Commitment Fee. .............................................................................................-41- 3.4. Guaranty......................................................................................................-42- 3.4.1. Guaranty......................................................................................................-42- 3.4.2. Acceleration of Guaranty......................................................................................-42- 3.4.3. Guarantee Absolute, etc.......................................................................................-43- 3.4.4. Reinstatement, etc............................................................................................-44- 3.4.5. Waiver, etc...................................................................................................-44- 3.4.6. Postponement of Subrogation, etc..............................................................................-45- ARTICLE IV LETTERS OF CREDIT AND ACCEPTANCES 4.1. Issuance of Letters of Credit and Creation of Acceptances.....................................................-46- 4.1.1. Letters of Credit.............................................................................................-46- 4.1.2. Non-U.S. Letters of Credit....................................................................................-47- 4.1.3. Acceptances...................................................................................................-48- 4.2. Issuances, Extensions and Creations...........................................................................-50- 4.3. Destruction of Goods, etc.....................................................................................-50- 4.4. Other Lenders' Participation..................................................................................-51- 4.5. Disbursements and Maturities..................................................................................-52- 4.6. Reimbursement; Outstanding Letters, etc.......................................................................-52- 4.7. Deemed Disbursements..........................................................................................-55- 4.8. Nature of Reimbursement Obligations...........................................................................-56- 4.9. Existing Letters of Credit and Acceptances....................................................................-57- 4.10. Authentic Letters of Credit and Acceptances...................................................................-57- ARTICLE V CERTAIN LIBO RATE AND OTHER PROVISIONS 5.1. LIBO Rate Lending Unlawful....................................................................................-57- 5.2. Deposits Unavailable..........................................................................................-57- 5.3. Increased LIBO Rate Loan Costs, etc...........................................................................-58- 5.4. Funding Losses................................................................................................-58-
-ii- TABLE OF CONTENTS (continued)
Section Page - ------- ---- 5.5. Increased Capital Costs, etc..................................................................................-59- 5.6. Taxes.........................................................................................................-59- 5.7. Payments, Computations, etc...................................................................................-62- 5.8. Sharing of Payments...........................................................................................-62- 5.9. Setoff........................................................................................................-63- 5.10. Use of Proceeds...............................................................................................-63- 5.11. Currency Fluctuations, etc....................................................................................-63- 5.12. European Monetary Union.......................................................................................-63- ARTICLE VI CONDITIONS PRECEDENT 6.1. Initial Credit Extension......................................................................................-64- 6.1.1. Resolutions, etc..............................................................................................-64- 6.1.2. Delivery of Notes.............................................................................................-65- 6.1.3. Affirmation and Consent to Guarantees.........................................................................-65- 6.1.4. Supplement to Subsidiary Guaranty.............................................................................-65- 6.1.5. Certificates as to No Default, etc............................................................................-65- 6.1.6. No Material Adverse Change....................................................................................-65- 6.1.7. Amendment of U.S. Credit Agreement............................................................................-65- 6.1.8. Opinions of Counsel...........................................................................................-65- 6.2. All Credit Extensions.........................................................................................-66- 6.2.1. Compliance with Warranties, No Default, etc...................................................................-66- 6.2.2. Credit Request................................................................................................-67- 6.2.3. Satisfactory Legal Form.......................................................................................-67- ARTICLE VII REPRESENTATIONS AND WARRANTIES 7.1. Organization, etc.............................................................................................-67- 7.2. Due Authorization, Non-Contravention, etc.....................................................................-68- 7.3. Government Approval, Regulation, etc..........................................................................-68- 7.4. Validity, etc.................................................................................................-69- 7.5. Financial Statements; No Material Adverse Change..............................................................-69- 7.6. Litigation, etc...............................................................................................-69-
-iii- TABLE OF CONTENTS (continued)
Section Page - ------- ---- 7.7. Regulations U and X...........................................................................................-69- 7.8. Accuracy of Information.......................................................................................-69- 7.9. Year 2000.....................................................................................................-70- ARTICLE VIII COVENANTS 8.1. Affirmative Covenants.........................................................................................-70- 8.1.1. Compliance with Laws, etc.....................................................................................-70- 8.1.2. Payment of Taxes, etc.........................................................................................-71- 8.1.3. Maintenance of Insurance......................................................................................-71- 8.1.4. Preservation of Corporate Existence, etc......................................................................-71- 8.1.5. Visitation Rights.............................................................................................-71- 8.1.6. Keeping of Books..............................................................................................-71- 8.1.7. Maintenance of Properties, etc................................................................................-71- 8.1.8. Transactions with Affiliates..................................................................................-72- 8.1.9. [INTENTIONALLY DELETED]......................................................................................-72- 8.1.10. Reporting Requirements........................................................................................-72- 8.1.11. Covenant to Guarantee Obligations.............................................................................-73- 8.1.12. Consummation of Merger........................................................................................-73- 8.1.13. Authentic Fitness.............................................................................................-74- 8.2. Negative Covenants............................................................................................-74- 8.2.1. Liens, etc....................................................................................................-74- 8.2.2. Mergers, etc..................................................................................................-75- 8.2.3. Debt..........................................................................................................-75- 8.2.4. Sales, etc. of Assets.........................................................................................-75- 8.2.5. Nature of Business............................................................................................-76- 8.2.6. Accounting Changes............................................................................................-77- 8.2.7. Authentic Fitness.............................................................................................-77- 8.3. Financial Covenants...........................................................................................-77- 8.3.1. Leverage Ratio................................................................................................-77- 8.3.2. Coverage Ratio................................................................................................-77- ARTICLE IX EVENTS OF DEFAULT 9.1. Listing of Events of Default..................................................................................-77-
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Section Page - ------- ---- 9.1.1. Non-Payment of Obligations....................................................................................-78- 9.1.2. Breach of Warranty............................................................................................-78- 9.1.3. Non-Performance of Certain Covenants and Obligations..........................................................-78- 9.1.4. Non-Performance of Other Covenants and Obligations............................................................-78- 9.1.5. Default Under Other Agreements................................................................................-78- 9.1.6. Bankruptcy, Insolvency, etc...................................................................................-79- 9.1.7. Judgments, etc................................................................................................-79- 9.1.8. Termination, etc., of Loan Documents..........................................................................-79- 9.1.9. Change in Control.............................................................................................-80- 9.1.10. ERISA.........................................................................................................-80- 9.2. Action Upon Bankruptcy........................................................................................-80- 9.3. Action Upon Other Event of Default............................................................................-80- ARTICLE X THE AGENTS 10.1. Actions.......................................................................................................-81- 10.2. Copies, etc...................................................................................................-81- 10.3. Exculpation...................................................................................................-82- 10.4. Successor.....................................................................................................-82- 10.5. Loans Made, Letters of Credit Issued or Acceptances Created by Scotiabank and Loans Made by Societe Generale............................................................................-82- 10.6. Credit Decisions..............................................................................................-83- ARTICLE XI MISCELLANEOUS PROVISIONS 11.1. Waivers, Amendments, etc......................................................................................-83- 11.2. Notices.......................................................................................................-85- 11.3. Payment of Costs and Expenses.................................................................................-85- 11.4. Indemnification...............................................................................................-86- 11.5. Survival......................................................................................................-86- 11.6. Severability..................................................................................................-87- 11.7. Headings......................................................................................................-87- 11.8. Execution in Counterparts, Effectiveness, etc.................................................................-87- 11.9. Governing Law; Entire Agreement...............................................................................-87- 11.10. Successors and Assigns........................................................................................-87-
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Section Page - ------- ---- 11.11. Sale and Transfer of Loans and Notes; Participations in Loans and Notes......................................-88- 11.11.1. Assignments..................................................................................................-88- 11.11.2. Participations...............................................................................................-89- 11.11.3. Fronting Bank Assignments....................................................................................-90- 11.12. Other Transactions...........................................................................................-90- 11.13. Forum Selection and Consent to Jurisdiction..................................................................-91- 11.14. Waiver of Jury Trial.........................................................................................-92- 11.15. UCP; etc.....................................................................................................-92- 11.16. Usury Restraint..............................................................................................-92- 11.17. Judgment Currency............................................................................................-93- 11.18. Future Wholly-Owned Domestic Subsidiaries Designated as Warnaco Sub Borrowers................................-93- 11.19. Assumption of Certain Loans by U.S. Borrower.................................................................-94- 11.20. Release of non-Material Subsidiary Guarantors................................................................-95-
SCHEDULE I - List of Warnaco Sub Borrowers SCHEDULE 7.1 - List of Subsidiaries SCHEDULE 8.2 - Assets Held for Sale EXHIBIT A - Form of Note EXHIBIT B - Form of Issuance Request EXHIBIT C - Form of Borrowing Request EXHIBIT D - Form of Continuation/Conversion Notice EXHIBIT E - Form of Lender Assignment Agreement EXHIBIT F-1 - Form of Group Guaranty EXHIBIT F-2 - Form of Subsidiary Guaranty EXHIBIT G - Form of Opinion of New York Counsel to the Obligors EXHIBIT H - Form of Opinion of General Counsel for the U.S. Borrower EXHIBIT I - Form of Opinion of Barbados Counsel for the Foreign Borrower EXHIBIT J - Form of Opinion of Dutch counsel for Warnaco B.V., Warnaco Netherlands and Warnaco Holland EXHIBIT K - Form of Joinder Agreement EXHIBIT L - Form of Designation and Release Certificate -vi- SIXTH AMENDED AND RESTATED CREDIT AGREEMENT THIS SIXTH AMENDED AND RESTATED CREDIT AGREEMENT, dated as of November 17, 1999 (amending and restating the Existing Credit Agreement (as defined below)), is among WARNACO INC., a Delaware corporation (the "U.S. Borrower"), DESIGNER HOLDINGS, LTD., a Delaware corporation (the "Sub Borrower"), the wholly-owned Domestic Subsidiaries designated by Group (as hereinafter defined) from time to time in accordance with Section 11.18 and set forth on Schedule I annexed hereto (the "Warnaco Sub Borrowers"), WARNACO (HK) LTD., a company organized under the laws of Barbados ("Warnaco (HK)"), WARNACO B.V., a company organized under the laws of The Netherlands ("Warnaco B.V."), WARNACO NETHERLANDS B.V., a company organized under the laws of The Netherlands ("Warnaco Netherlands"), WARNACO HOLLAND B.V., a company organized under the laws of The Netherlands ("Warnaco Holland"; together with Warnaco (HK), Warnaco B.V. and Warnaco Netherlands, the "Foreign Borrowers"), THE WARNACO GROUP, INC., a Delaware corporation ("Group"), the various financial institutions as are or may become parties hereto (collectively, the "Lenders"), SOCIETE GENERALE, as documentation agent (in such capacity, the "Documentation Agent") for the Lenders, CITIBANK, N.A. ("Citibank"), as syndication agent (in such capacity, the "Syndication Agent") for the Lenders, THE BANK OF NOVA SCOTIA ("Scotiabank"), as administrative agent (in such capacity, the "Administrative Agent") for the Lenders and Scotiabank and Salomon Smith Barney, Inc. as co-lead arrangers and co-book managers (the "Arrangers"). W I T N E S S E T H: WHEREAS, the Borrowers, Group, certain financial institutions, Citibank and Scotiabank are parties to the Fifth Amended and Restated Credit Agreement, dated as of July 31, 1998 (as amended, supplemented, amended and restated or otherwise modified prior to the date hereof, the "Existing Credit Agreement"), pursuant to which, inter alia, such financial institutions have made (or participated in) loans to the Borrowers (the "Existing Loans"), and Scotiabank provides documentary and standby letter of credit facilities in favor of each of the Borrowers and has (a) issued certain letters of credit (the "Existing Letters of Credit") and (b) created certain Acceptances (the "Existing Acceptances"); WHEREAS, the U.S. Borrower or a single-purpose wholly owned Subsidiary (the "Purchaser") intends to either (a) offer to acquire a controlling interest in Authentic Fitness Corporation, a Delaware corporation ("Authentic Fitness"), through a tender offer (the "Tender Offer") for all of the issued and outstanding shares of common stock of Authentic Fitness, but in any event not less than a sufficient number of shares of the stock of Authentic Fitness to enable the Purchaser, voting without any other shareholders of Authentic Fitness, to approve a merger of the Purchaser with Authentic Fitness, and, as promptly as practicable after the closing of the Tender Offer, the Purchaser, if the Purchaser is a single-purpose wholly owned Subsidiary of the U.S. Borrower, will consummate a merger with Authentic Fitness in which Authentic Fitness will be the surviving corporation or (b) agree to merge with Authentic Fitness (such merger described in either clause (a) or (b) above between the Purchaser and Authentic Fitness being hereafter referred to as the "Merger"); WHEREAS, the Borrowers have requested that the Lenders and the Fronting Bank amend and restate the Existing Credit Agreement with this Agreement; WHEREAS, pursuant to this Agreement the Borrowers desire to obtain Commitments from the Lenders and the Fronting Bank pursuant to which (a) Documentary Letters of Credit will be issued by the Fronting Bank for the account of (i) the U.S. Borrower to support obligations of the U.S. Borrower and its wholly-owned Subsidiaries (and their respective divisions), (ii) each Foreign Borrower to support obligations of such Foreign Borrower, (iii) the Sub Borrower to support obligations of the Sub Borrower and its wholly-owned Subsidiaries (and their respective divisions) and (iv) each Warnaco Sub Borrower to support obligations of such Warnaco Sub Borrower and its wholly-owned Subsidiaries (and their respective divisions) and, under the several obligations hereunder, each of the Lenders will, to the extent of such Lender's Percentage, participate in Letters of Credit (including the Existing Letters of Credit) issued from time to time hereunder on or prior to the Commitment Termination Date; (b) Acceptances will be created by the Fronting Bank for the account of (i) the U.S. Borrower to support obligations of the U.S. Borrower and its wholly-owned Subsidiaries (and their respective divisions), (ii) the Sub Borrower to support obligations of the Sub Borrower and its wholly-owned Subsidiaries (and their respective divisions) and (iii) each Warnaco Sub Borrower to support obligations of such Warnaco Sub Borrower and its wholly-owned Subsidiaries (and their respective divisions) and, under the several obligations hereunder, each of the Lenders will, to the extent of such Lender's Percentage, participate in Acceptances created from time to time hereunder on or prior to the Commitment Termination Date; and (c) Loans will be made by the Fronting Bank to the Borrowers and, under the several obligations hereunder, each of the Lenders will, to the extent of such Lender's Percentage, participate in or make the Loans from time to time on or prior to the Commitment Termination Date; WHEREAS, the Fronting Bank and the Lenders are willing, on the terms and subject to the conditions hereinafter set forth (including Article VI), to amend and restate the Existing Credit Agreement pursuant to the terms and conditions of this Agreement, extend such Commitments hereunder, make and participate in such Loans, issue and participate in such Letters of Credit and create and participate in such Acceptances; and -2- WHEREAS, (i) the proceeds of Loans will be used for the sole purpose of providing the Borrowers with up to a six-month (or 180-day, in the case of Base Rate Loans) trade credit in respect of disbursements made to the beneficiaries of Letters of Credit and payments made to the payees of matured Acceptances and (ii) Letters of Credit will be issued and Acceptances will be created solely to support the worldwide sourcing of merchandise by the U.S. Borrower, the Warnaco Sub Borrowers, the Sub Borrower and the Foreign Borrowers and their respective wholly-owned Subsidiaries (and divisions); NOW, THEREFORE, the parties hereto agree as follows: ARTICLE I DEFINITIONS AND ACCOUNTING TERMS SECTION 1.1. Defined Terms. The following terms (whether or not underscored) when used in this Agreement, including its preamble and recitals, shall, except where the context otherwise requires, have the following meanings (such meanings to be equally applicable to the singular and plural forms thereof): "Acceptance" means an acceptance created by the Fronting Bank under the Acceptance Commitment in accordance with Article IV and for the account of the U.S. Borrower, any Warnaco Sub Borrower or the Sub Borrower and their respective wholly-owned Subsidiaries, including all Existing Acceptances. "Acceptance Availability" means, at any time, the then existing Commitment Amount minus the sum of (i) the outstanding principal amount of all Loans plus (ii) the amount of all Acceptance Obligations plus (iii) all Letter of Credit Outstandings. "Acceptance Commitment" means, relative to the Fronting Bank, the Fronting Bank's obligation to create Acceptances pursuant to Section 2.1.2 and, with respect to each of the other Lenders, the obligations of each such Lender to participate in such Acceptances pursuant to the terms of this Agreement. "Acceptance Obligations" means the sum of (a) the aggregate face amount of all unmatured Acceptances plus (b) the aggregate face amount of all unpaid and outstanding Acceptance Reimbursement Obligations. "Acceptance Parties" is defined in Section 3.4.1 "Acceptance Reimbursement Obligation" is defined in Section 4.6. -3- "Administrative Agent" is defined in the preamble and includes each other Person as shall have subsequently been appointed as the successor Administrative Agent pursuant to Section 10.4. "Affiliate" means, as to any Person, any other Person that, directly or indirectly, controls, is controlled by or is under common control with such Person or is a director or officer of such Person. For purposes of this definition, the term "control" (including the terms "controlling", "controlled by" and "under common control with") of a Person means the possession, direct or indirect, of the power to vote 10% or more of the Voting Stock of such Person or to direct or cause the direction of the management and policies of such Person, whether through the ownership of Voting Stock, by contract or otherwise. "Agent" means, as the context may require, the Administrative Agent, the Documentation Agent and/or the Managing Agents. "Agreement" means, on any date, this Sixth Amended and Restated Credit Agreement as originally in effect on the Effective Date and as thereafter from time to time amended, supplemented, amended and restated, or otherwise modified and in effect on such date. "Alternate Base Rate" means, on any date and with respect to all Base Rate Loans, a fluctuating rate of interest per annum equal to the higher of (a) the rate of interest most recently announced by Scotiabank at its Domestic Office as its base rate for Dollar loans; and (b) the Federal Funds Rate most recently determined by the Administrative Agent plus 1/2 of 1%. The Alternate Base Rate is not necessarily intended to be the lowest rate of interest determined by Scotiabank in connection with extensions of credit. Changes in the rate of interest on that portion of any Loans maintained as Base Rate Loans will take effect simultaneously with each change in the Alternate Base Rate. The Administrative Agent will give notice promptly to the U.S. Borrower of changes in the Alternate Base Rate. "Amendment No. 1" means the First Amendment, dated as of June 14, 1999, to this Agreement among the Borrowers, Group, the Lenders parties thereto and the Administrative Agent. "Applicable Exchange Rate" shall mean, on any day, with respect to any Qualified Foreign Currency, the foreign exchange rate reflected in The Wall Street Journal at which Dollars were offered on the preceding Business Day for such Qualified Foreign Currency; provided, however, that if for any reason, no such rate is provided, the Administrative Agent -4- may use any reasonable method it deems appropriate for leading commercial banks to determine such rate, and such determination shall be conclusive absent manifest error. "Applicable Location" means (i) except as provided in clauses (ii) and (iii), New York, (ii) except as provided in clause (iii), in the case of Non-U.S. Letters of Credit issued for the account of the Foreign Borrowers, London, and (iii) in the case of Non-U.S. Letters of Credit issued for the account of Warnaco (HK) or, following Authentic Fitness (HK) becoming a Borrower hereunder in accordance with the terms of Section 11.18, Authentic Fitness (HK), Hong Kong. "Applicable Margin" means, on any date, a percentage per annum determined by reference to the Debt Rating in effect on such date as set forth below:
Applicable Applicable Rating Margin for Margin for Level Debt Rating Base Rate Loans LIBO Rate Loans - ----- ----------- --------------- --------------- Level 1 A- or A3 or higher 0.000% 0.625% Level 2 BBB+ or Baa1 0.000% 0.750% Level 3 BBB or Baa2 0.000% 0.875% Level 4 BBB- or Baa3 0.000% 1.000% Level 5 BB+ or Ba1 or 0.250% 1.250% lower
The Applicable Margin shall be determined by reference to the Debt Rating in effect from time to time; provided, however, that no change in the Applicable Margin shall be effective until three Business Days after the date on which the Administrative Agent receives evidence reasonably satisfactory to it from Group or the U.S. Borrower that a new Debt Rating is in effect. In the event that at any time no Debt Rating shall be in effect, the Applicable Margin shall be 0.250% for each Base Rate Loan and 1.250% for each LIBO Rate Loan. "Applicable Time" shall mean (i) except as provided in clauses (ii) and (iii), New York time, (ii) except as provided in clause (iii), in the case of actions or notices by or relating to the Foreign Borrowers, London time, and (iii) in the case of any actions or notices by or relating to Warnaco (HK) or, following Authentic Fitness (HK) becoming a Borrower hereunder in accordance with the terms of Section 11.18, Authentic Fitness (HK), Hong Kong time. "Approved Accounting Firm" means Arthur Andersen LLP, Deloitte & Touche LLP, Ernst & Young LLP, PricewaterhouseCoopers LLP or KPMG Peat Marwick LLP, or any successor thereof. -5- "Arrangers" is defined in the preamble. "Assignee Lender" is defined in Section 11.11.1. "Authentic Acceptances" means, collectively, those existing bankers' acceptances created by Scotiabank prior to the consummation of the Merger, for the account of Authentic Fitness Products, pursuant to the terms and conditions of the Authentic Trade Credit Facility. Notwithstanding the foregoing, no Authentic Acceptance shall be deemed to be an Acceptance hereunder unless such bankers' acceptance shall meet the requirements and qualifications necessary for the creation of Acceptances hereunder pursuant to Section 4.1.3. "Authentic Fitness" is defined in the second recital. "Authentic Fitness Products" means Authentic Fitness Products Inc., a Delaware corporation. "Authentic Fitness (HK)" means Authentic Fitness (HK) Ltd., a company organized under the laws of Barbados. "Authentic Letters of Credit" means, collectively, those existing letters of credit issued by Scotiabank prior to the consummation of the Merger, for the account of Authentic Fitness Products, pursuant to the terms and conditions of the Authentic Trade Credit Facility. Notwithstanding the foregoing, no Authentic Letter of Credit shall be deemed to be a Letter of Credit hereunder unless such letter of credit shall meet the requirements and qualifications necessary for the issuance of a Letter of Credit hereunder pursuant to clauses (a) and (b) of Section 4.1.1. "Authentic LIBO Rate Loans" means, collectively, those existing LIBO Rate Loans (as defined in the Authentic Trade Credit Facility) made by Scotiabank as the Fronting Bank (as defined in the Authentic Trade Credit Facility) prior to the consummation of the Merger, for the account of Authentic Fitness Products, pursuant to the terms and conditions of the Authentic Trade Credit Facility. Notwithstanding the foregoing, no Authentic LIBO Rate Loan shall be deemed to be a LIBO Rate Loan hereunder unless such Authentic LIBO Rate Loan shall meet the requirements and qualifications necessary for the making of a LIBO Rate Loan hereunder pursuant to clause (a) of Section 2.1.3. "Authentic Trade Credit Facility" means the Credit Agreement, dated as of December 23, 1998, among Authentic Fitness Products, Authentic Fitness, the lenders parties thereto and Scotiabank as the lead arranger and as administrative agent (as amended, supplemented or otherwise modified prior to the consummation of the Merger). "Authorized Officer" means, relative to any Borrower or any other Obligor, those of its officers whose signatures and incumbency shall have been certified to the Managing Agents and the Lenders pursuant to Section 6.1.1. -6- "Base Rate Loan" means a Loan bearing interest at a fluctuating rate determined by reference to the Alternate Base Rate. "Borrowers" means, collectively, the U.S. Borrower, the Foreign Borrowers, the Warnaco Sub Borrowers and the Sub Borrower. "Borrowing" means the making of Loans of the same type and, in the case of LIBO Rate Loans, having the same Interest Period by the Fronting Bank following a Disbursement or the maturity of an Acceptance and the funding of a Lender's Percentage of such Loans, in each case in accordance with the terms of this Agreement. "Borrowing Request" means a loan request and certificate duly executed by an Authorized Officer of a Borrower, substantially in the form of Exhibit C hereto. "Business Day" means (a) any day which is neither a Saturday or Sunday nor a legal holiday on which banks are authorized or required to be closed (i) in, except as provided in clauses (ii) and (iii), New York or, (ii) except as provided in clause (iii), in the case of actions relating to the Foreign Borrowers, in London, or (iii) in the case of actions relating to Warnaco (HK) or, following Authentic Fitness (HK) becoming a Borrower hereunder in accordance with the terms of Section 11.18, Authentic Fitness (HK), in Hong Kong; and (b) relative to the making, continuing, prepaying or repaying of any LIBO Rate Loans, any day on which dealings in Dollars are carried on in the London interbank market. "Calculation Date" shall mean (a) the last Business Day of each calendar month and (b) at any time when the sum of the outstanding principal amount of all Loans plus the amount of all Acceptance Obligations plus all Letter of Credit Outstandings exceeds 95% of the then-existing Commitment Amount, the last Business Day of each calendar week (or at the option of the Administrative Agent any longer period). "Citibank" is defined in the preamble. "Commitment" means, as the context may require, a Lender's Loan Commitment or the Fronting Bank's or a Lender's (a) Letter of Credit Commitment or (b) Acceptance Commitment. "Commitment Amount" means (a) at all times prior to the occurrence of the 100% Effective Date, $450,000,000 and (b) at all times from and after the occurrence of the 100% Effective Date, $500,000,000, in each case, as such amount may be reduced pursuant to Section 2.2. -7- "Commitment Fee" is defined in Section 3.3.4. "Commitment Termination Date" means the earliest of (a) July 27, 2000, as such date may be extended pursuant to the terms of this Agreement; (b) the date on which the Commitment Amount is terminated in full or reduced to zero pursuant to Section 2.2; and (c) the date on which any Commitment Termination Event occurs. Upon the occurrence of any event described in clause (b) or (c), the Commitments shall terminate automatically and without any further action. "Commitment Termination Event" means (a) the occurrence of any event or condition described in Section 9.1.6; (b) the occurrence and continuance of any other Event of Default and either (i) the declaration of the Loans to be due and payable pursuant to Section 9.3, or (ii) in the absence of such declaration, the giving of notice by the Administrative Agent, acting at the direction of the Required Lenders, to the Borrowers that the Commitments have been terminated; or (c) the termination of, or any refinancing, refunding, replacement, renewal or restatement of, the U.S. Credit Agreement which occurs following the date hereof. "Consolidated" refers to the consolidation of accounts in accordance with GAAP. "Control Date" means the date on which Persons designated or approved by Group constitute a majority of the Board of Directors of Authentic Fitness. "Continuation/Conversion Notice" means a notice of continuation or conversion and certificate duly executed by an Authorized Officer of a Borrower, substantially in the form of Exhibit D hereto. -8- "Credit Extension" means and includes (a) the advancing of any Loans by the Lenders in connection with a Borrowing (including the making of a Loan by the Fronting Bank to a Borrower on a Disbursement Date or the Maturity Date of an Acceptance and the refunding and refinancing of such Loans by the Lenders); and (b) any (i) issuance or extension by the Fronting Bank of a Letter of Credit or (ii) creation by the Fronting Bank of an Acceptance. "Currency Hedge Agreements" means currency swap agreements, currency future or option contracts and other similar agreements. "Debt" of any Person means, without duplication, the following: (a) all indebtedness of such Person for borrowed money, (b) all obligations of such Person for the deferred purchase price of property or services (other than trade payables not overdue by more than 90 days incurred in the ordinary course of such Person's business), including, without limitation, under this Agreement, (c) all obligations of such Person evidenced by notes, bonds, debentures or other similar instruments, (d) all obligations of such Person created or arising under any conditional sale or other title retention agreement with respect to property acquired by such Person (even though the rights and remedies of the seller or lender under such agreement in the event of default are limited to repossession or sale of such property), (e) all obligations of such Person as lessee under leases that have been or should be, in accordance with GAAP, recorded as capital leases, (f) all obligations, contingent or otherwise, of such Person under acceptance, letter of credit or similar facilities, (g) all obligations of such Person to purchase, redeem, retire, defease or otherwise make any payment in respect of any capital stock of or other ownership or profit interest in such Person or any other Person or any warrants, rights or options to acquire such capital stock, valued, in the case of Redeemable preferred stock, at the greater of its voluntary or involuntary liquidation preference plus accrued and unpaid dividends, -9- (h) all obligations of such Person in respect of Hedge Agreements, (i) all Debt of others of the kinds referred to in clauses (a) through (h) above guaranteed directly or indirectly in any manner by such Person, or in effect guaranteed directly or indirectly by such Person through an agreement (i) to pay or purchase such Debt or to advance or supply funds for the payment or purchase of such Debt, (ii) to purchase, sell or lease (as lessee or lessor) property, or to purchase or sell services, primarily for the purpose of enabling the debtor to make payment of such Debt or to assure the holder of such Debt against loss, (iii) to supply funds to or in any other manner invest in the debtor (including any agreement to pay for property or services irrespective of whether such property is received or such services are rendered) or (iv) otherwise to assure a creditor against loss, and (j) all Debt referred to in clauses (a) through (i) above secured by (or for which the holder of such Debt has an existing right, contingent or otherwise, to be secured by) any Lien on property (including, without limitation, accounts and contract rights) owned by such Person, even though such Person has not assumed or become liable for the payment of such Debt. "Debt Rating" means, as of any date, the higher of the ratings that have been most recently announced by S&P and Moody's for any class of non-credit enhanced long-term senior unsecured debt issued by Group in effect on such date, provided that if neither S&P nor Moody's shall have in effect such a rating, the Applicable Margin will be set in accordance with Rating Level 5 under the definition of "Applicable Margin", subject, to the proviso to the definition of "Applicable Margin". For purposes of the foregoing, (a) if only one of S&P and Moody's shall have in effect a Debt Rating, the Applicable Margin shall be determined by reference to the available rating; (b) if the ratings established by S&P and Moody's shall fall within different levels separated by two or more levels, the Applicable Margin shall be based upon the level that is one level above the lower rating; (c) if any rating established by S&P or Moody's shall be changed, such change shall be effective as of the date on which such change is reported to Group; and (d) if S&P or Moody's shall change the basis on which ratings are established, each reference to the Debt Rating announced by S&P or Moody's, as the case may be, shall refer to the then equivalent rating by S&P or Moody's, as the case may be. "Declining Lender" is defined in clause (b) of Section 2.7. "Default" means any Event of Default or any condition, occurrence or event which, after notice or lapse of time or both, would constitute an Event of Default. "Designation and Release Certificate" means the Designation and Release Certificate, substantially in the form of Exhibit L attached hereto, executed and delivered by Group pursuant to Section 11.18. -10- "Disbursement" means any payment made under a Letter of Credit by the Fronting Bank to the applicable Letter of Credit Beneficiary. "Disbursement Date" is defined in Section 4.5. "Documentary Letter of Credit" is defined in Section 4.1.1, and shall also mean and include certain Existing Letters of Credit. "Documentation Agent" is defined in the preamble and includes each other Person as shall have subsequently been appointed as the successor Documentation Agent pursuant to Section 10.4. "Dollar" and the sign "$" mean lawful money of the United States. "Domestic Office" means, relative to any Lender, the office of such Lender designated as such below its signature hereto or designated in the Lender Assignment Agreement or such other office of a Lender (or any successor or assign of such Lender) within the United States as may be designated from time to time by notice from such Lender, as the case may be, to each other Person party hereto. "Domestic Subsidiary" means any Subsidiary of Group (other than the U.S. Borrower) organized under the laws of the United States or any state thereof. "Draft" means and includes any draft, bill, cable or written demand for payment or receipt drawn or issued under a Letter of Credit. "Drawer" is defined in Section 4.1.3. "EBITDA" means, for any period, net income (or net loss) from operations (determined without giving effect to extraordinary or non-recurring gains or losses) plus, to the extent deducted in calculating such net income (loss), the sum of (a) Interest Expense, (b) income tax expense, (c) depreciation expense, (d) amortization expense and (e) minority interests in Authentic Fitness during the period commencing on the date the Tender Offer, if any, is consummated and ending on the date of the Merger less dividends paid to the minority interests in respect thereof, in each case determined in accordance with GAAP and, on a pro forma basis, as if any acquisitions consummated after the first day of the applicable testing period occurred on the first day of such period. "Effective Date" means the date this Agreement becomes effective pursuant to Section 11.8. "Environmental Action" means any administrative, regulatory or judicial action, suit, demand, demand letter, claim, notice of non-compliance or violation, notice of liability or potential liability, investigation, proceeding, consent order or consent agreement relating in -11- any way to any Environmental Law, Environmental Permit or Hazardous Materials or arising from alleged injury or threat of injury to health, safety or the environment, including (a) by any governmental or regulatory authority for enforcement, cleanup, removal, response, remedial or other actions or damages and (b) by any governmental or regulatory authority or any third party for damages, contribution, indemnification, cost recovery, compensation or injunctive relief. "Environmental Law" means any federal, state, local or foreign statute, law, ordinance, rule, regulation, code, order, judgment or decree relating to the environment, health, safety or Hazardous Materials. "Environment Permit" means any permit, approval, identification number, license or other authorization required under any Environmental Law. "ERISA" means the Employee Retirement Income Security Act of 1974, as amended from time to time, and the regulations promulgated and rulings issued thereunder. "ERISA Affiliate" means any Person that for purposes of Title IV of ERISA is a member of the U.S. Borrower's controlled group, or under common control with the U.S. Borrower, within the meaning of Section 414 of the Internal Revenue Code. "ERISA Event" means (a) (i) the occurrence of a reportable event, within the meaning of Section 4043 of ERISA, with respect to any Plan unless the 30-day notice requirement with respect to such event has been waived by the PBGC, or (ii) the requirements of subsection (1) of Section 4043(b) of ERISA (without regard to subsection (2) of such Section) are met with respect to a contributing sponsor, as defined in Section 4001(a)(13) of ERISA, of a Plan, and an event described in paragraph (9), (10), (11), (12) or (13) of Section 4043(c) of ERISA is reasonably expected to occur with respect to such Plan within the following 30 days; (b) the application for a minimum funding waiver with respect to a Plan; (c) the provision by the administrator of any Plan of a notice of intent to terminate such Plan pursuant to Section 4041(a)(2) of ERISA (including any such notice with respect to a plan amendment referred to in Section 4041(e) of ERISA); (d) the cessation of operations at a facility of the U.S. Borrower or any of its ERISA Affiliates in the circumstances described in Section 4062(e) of ERISA; (e) the withdrawal by the U.S. Borrower or any of its ERISA Affiliates from a Multiple Employer Plan during a plan year for which it was a substantial employer, as defined in Section 4001(a)(2) of ERISA; (f) the failure by the U.S. Borrower or any of its ERISA Affiliates to make a payment to a Plan if the conditions for the imposition of a Lien under Section 302(f)(1) of ERISA are satisfied; (g) the adoption of an amendment to a Plan requiring the provision of security to such Plan, pursuant to Section 307 of ERISA; or (h) the institution by the PBGC of proceedings to terminate a Plan, pursuant to Section 4042 of ERISA, or the occurrence of any event or condition described in Section 4042 of ERISA that could constitute grounds for the termination of, or the appointment of a trustee to administer, a Plan. -12- "Event of Default" is defined in Section 9.1. "Excess" is defined in Section 11.16. "Excluded Person" means (i) Linda J. Wachner or (ii) any trust of which Linda J. Wachner is the sole trustee or is a trustee with effective control over the Voting Stock held by such trust or over the management or policies of Group (or, in case of her death or disability, another trustee of comparable experience and ability selected by the U.S. Borrower within 180 days thereafter after consultation with the Arrangers). "Excluded Subsidiary" means, provided that the terms of the Trust Stock preclude the issuance of a guaranty, the Trust, provided, that neither Group nor the U.S. Borrower nor any of their Subsidiaries shall make any additional Investments in the Trust other than those Investments which existed on the date of the Five Year Waiver and those Investments necessary to pay its normal operating expenses in the ordinary course of business. "Existing Acceptances" is defined in the first recital. "Existing Authentic Debt" means Debt of Authentic Fitness Products outstanding on the date hereof under (a) the Authentic Trade Credit Facility and (b) the Restated Credit Agreement, dated as of March 18, 1998, among Authentic Fitness Products, Authentic Fitness, certain financial institutions, Scotiabank and General Electric Capital Corporation, as Agents, Scotiabank, as administrative agent, paying agent, swing line bank and fronting bank, General Electric Capital Corporation, as documentation agent and collateral agent, and Societe Generale as co-agent, and as further amended, restated or waived prior to the date hereof. "Existing Credit Agreement" is defined in the first recital. "Existing Letters of Credit" is defined in the first recital. "Existing Loans" is defined in the first recital. "Extending Lender" is defined in clause (a) of Section 2.7. "Federal Funds Rate" means, for any period, a fluctuating interest rate per annum equal for each day during such period to (a) the weighted average of the rates on overnight federal funds transactions with members of the Federal Reserve System arranged by federal funds brokers, as published for such day (or, if such day is not a Business Day, for the next preceding Business Day in New York) by the Federal Reserve Bank of New York; or -13- (b) if such rate is not so published for any day which is a Business Day in New York, the average of the quotations for such day on such transactions received by the Administrative Agent from three federal funds brokers of recognized standing selected by it. If for any reason the Administrative Agent shall have determined (which determination shall be conclusive, absent manifest error) that it is unable to ascertain the Federal Funds Rate for any reason, including the inability or failure of the Administrative Agent to obtain sufficient bids or publications in accordance with the terms hereof, the rate announced by the Administrative Agent at its New York Agency as its "Base Rate New York" shall be the Alternate Base Rate until the circumstances giving rise to such inability no longer exists. "Fee Letter" means the confidential Fee Letter, dated July 14, 1997, between the U.S. Borrower and the Administrative Agent as the same may have been amended, supplemented or otherwise modified from time to time. "Fiscal Quarter" means a fiscal quarter of Group and its Consolidated Subsidiaries ending on or about March 31, June 30, September 30 or December 31 of each year. "Fiscal Year" means a fiscal year of Group and its Consolidated Subsidiaries ending on or about December 31 of each year. "Five Year Waiver" means the Letter Waiver to the U.S. Credit Agreement dated as of October 14, 1997. "for the account of", "for its account" and similar phrases used in this Agreement with reference to Acceptances mean Acceptances created for the account of such Person, on the behalf of such Person or at the direction of such Person. "Foreign Borrowers" is defined in the preamble. "Foreign Borrower Tradexpress Agreements" means (i) the Tradexpress Teletransmission Agreement, dated as of August 12, 1997, duly executed and delivered by Warnaco (HK) and the Fronting Bank and/or (as the context may require) (ii) the Tradexpress Teletransmission Agreements, dated as of April 24, 1998, duly executed and delivered by each of Warnaco B.V., Warnaco Netherlands and Warnaco Holland and the Fronting Bank. "Fronting Bank" means Scotiabank, in its capacity as the issuer of Letters of Credit and creator of Acceptances (in each case, regardless of which office, branch or agency of Scotiabank issues a Letter of Credit or creates an Acceptance) and in its capacity as the Lender of Loans made prior to a Funding Date pursuant to the terms of this Agreement. -14- "F.R.S. Board" means the Board of Governors of the Federal Reserve System or any successor thereto. "Funding Date" is defined in clause (c) of Section 2.3. "GAAP" has the meaning set forth in Section 1.4. "Goods" means, collectively, all goods (including all inventory), wares, merchandise and other commodities purchased by or shipped to or to the order of a Borrower under or by virtue of or in connection with the issuance of a Letter of Credit. "Group" is defined in the preamble. "Group Guaranty" means the Second Amended and Restated Guaranty, dated as of July 31, 1998, executed and delivered by an Authorized Officer of Group, a conformed copy of which is annexed hereto as Exhibit F-1, as amended, supplemented, restated or otherwise modified from time to time. "Guaranteed Parties" is defined in Section 3.4.1. "Hazardous Materials" means petroleum and petroleum products, byproducts or breakdown products, radioactive materials, asbestos-containing materials, radon gas and any other chemicals, materials or substances designated, classified or regulated as being "hazardous" or "toxic", or words of similar import, under any Environmental Law. "Hedge Agreements" means Currency Hedge Agreements and Interest Rate Hedge Agreements. "herein", "hereof", "hereto", "hereunder" and similar terms contained in this Agreement or any other Loan Document refer to this Agreement or such other Loan Document, as the case may be, as a whole and not to any particular Section, paragraph or provision of this Agreement or such other Loan Document. "including" means including without limiting the generality of any description preceding such term. "Indebtedness for Borrowed Money" of any Person means all Debt of such Person for borrowed money or evidenced by notes, bonds, debentures or other similar instruments (other than Trust Stock in a face amount of not more than $120,000,000), all obligations of such Person for the deferred purchase price of any property, service or business (other than trade accounts payable (including pursuant to this Agreement and other similar financing arrangements to the extent that the aggregate principal amount of Debt, including loans, acceptances and letters of credit thereunder, does not exceed $550,000,000 (it being understood and agreed that to the extent the principal amount of Debt under this Agreement -15- and other similar financing arrangements exceeds $550,000,000, a pro-rata portion of such excess (calculated by reference to the relative amount of loans constituting such Debt) shall be included in this definition of "Indebtedness for Borrowed Money")) incurred in the ordinary course of business and constituting current liabilities), and all obligations of such Person under capitalized leases (limited in each case to the principal amount thereof). "Indemnified Liabilities" is defined in Section 11.4. "Indemnified Parties" is defined in Section 11.4. "Interest Expense" means, with respect to any Person for any period of measurement, the excess, if any, of (i) interest expense (whether cash or accretion) of such Person during such period determined in accordance with GAAP, and shall include in any event, without limitation, interest expense with respect to Indebtedness for Borrowed Money, this Agreement and payments under Interest Rate Hedge Agreements over (ii) interest income of such Person for such period, including payments received under Interest Rate Hedge Agreements; provided, however, that interest expense for any acquired entity, including Authentic Fitness, for any period beginning prior to the acquisition date shall be such entity's actual interest expense for such period. "Interest Period" means, relative to any LIBO Rate Loans, the period beginning on (and including) the date on which such LIBO Rate Loan is made or continued as, or converted into, a LIBO Rate Loan pursuant to Section 2.3 or 2.4 and ending on (but excluding) the day which numerically corresponds to such date one, three or six months thereafter (or, if such month has no numerically corresponding day, on the last Business Day of such month), in each case as such Loan may be made or as a Borrower may select in its relevant notice pursuant to Section 2.3 or 2.4; provided, however, that (a) Interest Periods commencing on the same date for Loans comprising part of the same Borrowing shall be of the same duration; (b) if such Interest Period would otherwise end on a day which is not a Business Day, such Interest Period shall end on the next following Business Day (unless such next following Business Day is the first Business Day of a calendar month, in which case such Interest Period shall end on the Business Day next preceding such numerically corresponding day); and (c) no Interest Period may end later than the Stated Maturity Date for such Loan. "Interest Rate Hedge Agreements" means interest rate swap, cap or collar agreements, interest rate future or option contracts and other similar agreements. -16- "Investment" in any Person means any loan or advance to such Person, any purchase or other acquisition of any capital stock or other ownership or profit interest, warrants, rights, options, obligations or other securities of such Person, any capital contribution to such Person or any other investment in such Person, including, without limitation, any arrangement pursuant to which the investor incurs Debt of the types referred to in clauses (i) or (j) of the definition of "Debt" in respect of such Person. "Issuance Request" means either (i) a request delivered by a Borrower to the Fronting Bank in accordance with the provisions of the Tradexpress Agreement or (ii) a request and certificate duly executed by an Authorized Officer of a Borrower, in substantially the form of Exhibit B attached hereto (with such changes thereto as may be agreed upon from time to time by the Administrative Agent and the U.S. Borrower). "Joinder Agreement" means the Joinder Agreement, substantially in the form of Exhibit K attached hereto (provided, that with respect to Authentic Fitness (HK), the Joinder Agreement shall be revised in certain conforming respects), executed and delivered by each Warnaco Sub Borrower in accordance with Section 11.18 and in effect until such Warnaco Sub Borrower shall become a Released Borrower. "Lender Assignment Agreement" means a Lender Assignment Agreement substantially in the form of Exhibit E hereto. "Lender Parties" is defined in Section 3.4.1. "Lenders" is defined in the preamble. "Letter of Credit" means the Documentary Letters of Credit and the Existing Letters of Credit. "Letter of Credit Availability" means, at any time, the then existing Commitment Amount minus the sum of the aggregate outstanding principal amount of all Loans, together with the aggregate amount of all Letter of Credit Outstandings and Acceptance Obligations. "Letter of Credit Beneficiary" means a beneficiary of a Letter of Credit. "Letter of Credit Commitment" means, relative to the Fronting Bank, the Fronting Bank's obligation to issue Letters of Credit pursuant to Section 2.1.2 and, with respect to each of the other Lenders, the obligations of each such Lender to participate in such Letters of Credit pursuant to the terms of this Agreement. -17- "Letter of Credit Outstandings" means, at any time, an amount equal to the sum of (a) the aggregate Stated Amount at such time of all Letters of Credit then outstanding and undrawn (as such aggregate Stated Amount shall be adjusted, from time to time, as a result of drawings, the issuance of Letters of Credit, or otherwise), plus (b) the then aggregate amount of all unpaid and outstanding Reimbursement Obligations. "LIBO Rate" is defined in Section 3.2.1. "LIBO Rate Loan" means a Loan bearing interest, at all times during an Interest Period applicable to such Loan, at a fixed rate of interest determined by reference to the LIBO Rate (Reserve Adjusted). "LIBO Rate (Reserve Adjusted)" is defined in Section 3.2.1. "LIBOR Office" means, relative to any Lender, the office of such Lender designated as such below its signature hereto or designated in the Lender Assignment Agreement or such other office of any Lender as designated from time to time by notice from such Lender to the U.S. Borrower and the Administrative Agent, whether or not outside the United States, which shall be making or maintaining LIBO Rate Loans hereunder. "LIBOR Reserve Percentage" is defined in Section 3.2.1. "Lien" means any security interest, mortgage, pledge, hypothecation, assignment, deposit arrangement, encumbrance, lien (statutory or otherwise), charge against or interest in property to secure payment of a debt or performance of an obligation or other priority or preferential arrangement of any kind or nature whatsoever. "Loan Commitment" means, relative to (i) the Fronting Bank (in such capacity), its obligation to make Loans to the Borrowers on (a) a Disbursement Date and (b) an Acceptance maturity date, and (ii) each Lender (other than the Fronting Bank in such capacity), such Lender's obligation to participate in the Loans made by the Fronting Bank to the Borrowers and, as set forth in this Agreement, to refund and reimburse the Fronting Bank for such Loans, in each case pursuant to the terms of this Agreement. "Loan Document" means this Agreement, each Note, the Tradexpress Agreements, the Group Guaranty, the Subsidiary Guaranty, each Joinder Agreement, the Fee Letter and each other agreement, document or instrument delivered in connection with this Agreement, whether or not specifically mentioned herein, together with any amendments, supplements or modifications hereof or thereof. -18- "Loans" is defined in Section 2.1.1, and shall also mean and include the Existing Loans. "L/C Party" is defined in Section 3.4.1. "L/C Reimbursement Obligation" is defined in Section 4.6. "Managing Agents" means, collectively, Scotiabank and Citibank. "Margin Stock" has the meaning specified in Regulation U. "Material Adverse Change" means any material adverse change in the business, condition (financial or otherwise), operations, performance, properties or prospects of the U.S. Borrower or of Group and its Subsidiaries taken as a whole. "Material Adverse Effect" means a material adverse effect on (a) the business, condition (financial or otherwise), operations, performance, properties or prospects of the U.S. Borrower or of Group and its Subsidiaries taken as a whole, (b) the rights and remedies of any Managing Agent or Lender under any Loan Document or (c) the validity or enforceability of any Loan Document. "Material Subsidiary" of any Person means, at any time, a Subsidiary of such Person having (i) at least $15,000,000 in total assets (determined as of the last day of the most recent fiscal quarter of such Person) or (ii) EBITDA of at least $15,000,000 for the 12-month period ending on the last day of the most recent fiscal quarter of such Person. "Maturity Date" means, relative to any Acceptance, the date of maturity therefor. "Maximum Rate" is defined in Section 11.16. "Merger" is defined in the second recital. "Moody's" means Moody's Investors Service, Inc. "Multiemployer Plan" means a multiemployer plan, as defined in Section 4001(a)(3) of ERISA, to which the U.S. Borrower or any of its ERISA Affiliates is making or accruing an obligation to make contributions, or has within any of the preceding five plan years made or accrued an obligation to make contributions. "Multiple Employer Plan" means a single employer plan, as defined in Section 4001(a)(15) of ERISA, that (a) is maintained for employees of the U.S. Borrower or any of its ERISA Affiliates and at least one Person other than the U.S. Borrower and its ERISA Affiliates or (b) was so maintained and in respect of which the U.S. Borrower or any -19- of its ERISA Affiliates could have liability under Section 4064 or 4069 of ERISA in the event such plan has been or were to be terminated. "New Five Year Revolver" means the Credit Agreement, dated as of November 17, 1999, among the U.S. Borrower, Group, the initial lenders named therein, Scotiabank and Salomon Smith Barney Inc., as co-lead arrangers and co-book managers, Citibank, as syndication agent, Societe Generale and Commerzbank, as co-documentation agents, and Scotiabank, as administrative agent and competitive bid agent (as the same may be amended, supplemented or otherwise modified from time to time). "New 364-Day Credit Agreement" means the 364-Day Credit Agreement, dated as of November 17, 1999, among the U.S. Borrower, Group, the initial lenders named therein, Scotiabank and Salomon Smith Barney Inc., as co-lead arrangers and co-book managers, Citibank, as syndication agent, Morgan Guaranty Trust Company of New York, as documentation agent, and Scotiabank, as administrative agent (as the same may be amended, supplemented or otherwise modified from time to time). "Non-U.S. Letter of Credit" means any Letter of Credit which provides for the payment of drawings in a Qualified Foreign Currency. "Note" means any promissory note of any Borrower payable to the order of any Lender (including the Fronting Bank), in the form of Exhibit A (as any such promissory note may be amended, endorsed or otherwise modified from time to time), evidencing the aggregate Debt of such Borrower to such Lender resulting from outstanding Loans made by such Lender, and also means all other promissory notes accepted from time to time in substitution therefor or renewal thereof. "Notice of Extension" is defined in clause (a) of Section 2.7, substantially in the form of Exhibit B to Amendment No. 1. "Obligations" means all obligations (monetary or otherwise) of the Borrowers and each other Obligor arising under or in connection with this Agreement, the Notes, any Letter of Credit, any Acceptance and each other Loan Document. "Obligor" means the Borrowers and each other Person (other than the Agents, the Fronting Bank and the Lenders) obligated under any Loan Document. "Order" is defined in clause (b) of Section 4.6. "Organic Document" means, relative to any Obligor, as applicable, its certificate of incorporation, by-laws, certificate of formation or limited liability company agreement, and all shareholder agreements, voting trusts and similar arrangements applicable to any of the authorized shares of capital stock or other ownership interest of such Obligor. -20- "Participant" is defined in Section 11.11.2. "PBGC" means the Pension Benefit Guaranty Corporation (or any successor). "Percentage" means, relative to any Lender, the percentage set forth opposite its name on Schedule II hereto or set forth in a Lender Assignment Agreement, as such percentage may be adjusted from time to time pursuant to the terms hereof (including, following the 100% Effective Date and an increase in the Commitment Amount, conforming changes to the percentage of any Lender which does not agree to participate in such increase to reflect such Lender's decreased percentage of such increased Commitment Amount) or a Lender Assignment Agreement executed by such Lender and its Assignee Lender and delivered pursuant to Section 11.11; provided, that the Percentage of each Lender's Loan Commitment, Letter of Credit Commitment and Acceptance Commitment shall be identical. "Permitted Liens" means the following: (a) Liens, other than in favor of the PBGC, arising out of judgments or awards in respect of which Group or any of its Subsidiaries shall in good faith be prosecuting an appeal or proceedings for review and in respect of which it shall have secured a subsisting stay of execution pending such appeal or proceedings for review, provided it shall have set aside on its books adequate reserves, in accordance with GAAP, with respect to such judgment or award and provided further that the aggregate amount secured by such Liens does not exceed $5,000,000 in any one case or $10,000,000 in the aggregate; (b) Liens for taxes, assessments or governmental charges or levies, provided payment thereof shall not at the time be required in accordance with the provisions of Section 8.1.2 and such amount, when taken together with any amount payable under Section 8.1.2 as to which any Lien has been attached as described in the last phrase thereof, shall not exceed $10,000,000; (c) deposits, Liens or pledges to secure payments of workmen's compensation and other payments, unemployment and other insurance, old-age pensions or other social security obligations, or the performance of bids, tenders, leases, contracts (other than contracts for the payment of money), public or statutory obligations, surety, stay or appeal bonds, or other similar obligations arising in the ordinary course of business; (d) mechanics', workmen's, repairmen's, warehousemen's, vendors' or carriers' Liens or other similar Liens arising in the ordinary course of business and securing sums which are not past due, or deposits or pledges to obtain the release of any such Liens; -21- (e) statutory landlord's Liens under leases to which Group or any of its Subsidiaries is a party; (f) any Lien constituting a renewal, extension or replacement of a Lien constituting a Permitted Lien, but only if at the time such Lien is granted and immediately after giving effect thereto, no Default would exist; (g) leases or subleases granted to other Persons not materially interfering with the conduct of the business of Group and its Subsidiaries, taken as a whole; (h) zoning restrictions, easements, rights of way, licenses and restrictions on the use of real property or minor irregularities in title thereto, which do not materially impair the use of such property in the normal operation of the business of Group or any of its Subsidiaries or the value of such property for the purpose of such business; and (i) statutory or common law Liens (such as rights of set-off) on deposit accounts of Group and its Subsidiaries and other Liens under any Loan Document, any Letter of Credit or any other agreement or instrument relating thereto. "Person" means any natural person, corporation, limited liability company, partnership, firm, association, trust, government, governmental agency or any other entity, whether acting in an individual, fiduciary or other capacity. "Plan" means a Single Employer Plan or a Multiple Employer Plan. "Purchaser" is defined in the second recital. "Qualified Foreign Currency" means any currency other than Dollars which is approved by the Administrative Agent in its sole discretion and, in any event, for which both an Applicable Exchange Rate and a Spot Exchange Rate may be calculated. "Quarterly Payment Date" means the first day of each April, July, October and January or, if any such day is not a Business Day in New York, the next succeeding Business Day in New York. "Received Amount" is defined in clause (c) of Section 4.6. "Redeemable" means, with respect to any capital stock, Debt or other right or Obligation, any such right or Obligation that (a) the issuer has undertaken to redeem at a fixed or determinable date or dates, whether by operation of a sinking fund or otherwise, or upon the occurrence of a condition not solely within the control of the issuer or (b) is redeemable at the option of the holder. -22- "Reimbursement Obligation" is defined in Section 4.6. "Released Borrower" is defined in clause (b) of Section 11.18. "Replacement Lender" is defined in clause (c) of Section 2.7. "Request Date" is defined in clause (a) of Section 2.7. "Required Lenders" means, at any time, Lenders holding more than 50% of the then aggregate outstanding principal amount of the Notes then held by the Lenders or, if no such principal amount is then outstanding, Lenders having Percentages that equal more than 50% of the Commitments; provided, that so long as the Fronting Bank (in such capacity) has any Loans outstanding and owing to it from any Borrower, each Lender will be deemed to have outstanding and owing to it a principal amount equal to such Lender's Percentage multiplied by the aggregate outstanding principal amount of Loans owing to the Fronting Bank. "Reset Date" is defined in Section 5.11. "S&P" means Standard & Poor's Ratings Group, currently a division of McGraw-Hill, Inc., or any successor thereto. "Scotiabank" is defined in the preamble. "Single Employer Plan" means a single employer plan, as defined in Section 4001(a)(15) of ERISA, that (a) is maintained for employees of the U.S. Borrower or any of its ERISA Affiliates and no Person other than the U.S. Borrower and its ERISA Affiliates or (b) was so maintained and in respect of which the U.S. Borrower or any of its ERISA Affiliates could have liability under Section 4069 of ERISA in the event such plan has been or were to be terminated. "Spot Exchange Rate" shall mean, on any date of determination with respect to any Qualified Foreign Currency, the spot rate at which Dollars are offered on such day by The Bank of Nova Scotia in the Applicable Location for such Qualified Foreign Currency at approximately 11:00 a.m. (Applicable Time); provided, however, that if for any reason, no such spot rate is being quoted, the Administrative Agent shall use the Applicable Exchange Rate for such Qualified Foreign Currency. "Stated Amount" of each Letter of Credit means the maximum amount of such Letter of Credit that may then be drawn under such Letter of Credit whether or not the conditions for drawing thereunder have been met. "Stated Expiry Date" is defined in clause (c) of Section 4.1.1. -23- "Stated Maturity Date" means, in the case of any Loan, the date which is six months following the date of the making of such Loan (in the case of a Loan initially made as a LIBO Rate Loan) or (in the case of a Loan initially made as a Base Rate Loan), the date that is 180 days after the making of such Loan. "Stated Rate" is defined in Section 11.16. "Sub Borrower" is defined in the preamble. "Sub Borrower Tradexpress Agreement" means the Tradexpress Teletransmission Agreement, dated as of December 19, 1997, duly executed and delivered by the Sub Borrower and the Fronting Bank. "Subsidiary" of any Person means any corporation, partnership, joint venture, limited liability company, trust or estate of which (or in which) more than 50% of (a) the issued and outstanding capital stock having ordinary voting power to elect a majority of the Board of Directors of such corporation (irrespective of whether at the time capital stock of any other class or classes of such corporation shall or might have voting power upon the occurrence of any contingency), (b) the interest in the capital or profits of such limited liability company, partnership or joint venture or (c) the beneficial interest in such trust or estate is at the time directly or indirectly owned or controlled by such Person and one or more of its other Subsidiaries or by one or more of such Person's other Subsidiaries. The term "wholly-owned Subsidiary" shall exclude any directors' or officers' qualifying shares which may be outstanding. "Subsidiary Guaranty" means the Second Amended and Restated Guaranty executed and delivered by each Domestic Subsidiary, dated as of July 31, 1998, a conformed copy of which is annexed hereto as Exhibit F-2, or pursuant to Section 8.1.11, substantially in the form of Exhibit F-2 hereto, as amended, supplemented, restated or otherwise modified from time to time. "Syndication Agent" is defined in the preamble. "Tangible Assets" means total assets minus goodwill and intangibles, in each case determined in accordance with GAAP. "Taxes" is defined in Section 5.6. "Tender Offer" is defined in the second recital. "Terminated Commitments" is defined in clause (b) of Section 2.7. -24- "Tradexpress Agreement" means, as the context may require, the U.S. Borrower Tradexpress Agreement, the Sub Borrower Tradexpress Agreement, the Warnaco Sub Borrower Tradexpress Agreements and/or the Foreign Borrower Tradexpress Agreements. "Trust" means Designer Finance Trust, a trust formed under the laws of Delaware. "Trust Stock" means the Trust Originated Preferred Securities issued by the Trust. "type" means relative to any Loan, the portion thereof, if any, being maintained as a Base Rate Loan or a LIBO Rate Loan. "UCP" is defined in Section 11.15. "United States" or "U.S." means the United States of America, its fifty States and the District of Columbia. "U.S. Borrower" is defined in the preamble. "U.S. Borrower Tradexpress Agreement" means the Tradexpress Teletransmission Agreement, dated as of August 12, 1997, duly executed and delivered by the U.S. Borrower and the Fronting Bank. "U.S. Credit Agreement" means the Credit Agreement, dated as of August 12, 1997, among the U.S. Borrower, Group, the initial lenders named therein, Scotiabank and Citibank, as managing agents, Citibank, as documentation agent, and Scotiabank, as administrative agent, competitive bid agent, swing line bank and an issuing bank, as in effect on the Effective Date, as amended by Amendment No. 1 thereto and as further amended, restated or waived from time to time. "U.S. Dollar Equivalent" means, with respect to any Non-U.S. Letter of Credit, the amount determined as provided in Section 4.1.2. "U.S. Letter of Credit" means any Letter of Credit which provides for the payment of drawings in Dollars. "Usury Restraint" is defined in Section 11.16. "Voting Stock" means capital stock issued by a corporation, or equivalent interests in any other Person, the holders of which are ordinarily, in the absence of contingencies, entitled to vote for the election of directors (or persons performing similar functions) of such Person, even if the right so to vote has been suspended by the happening of such a contingency. "Warnaco Sub Borrower" is defined in the preamble. -25- "Warnaco Sub Borrower Tradexpress Agreements" means the Tradexpress Teletransmission Agreements duly executed and delivered by each Warnaco Sub Borrower in connection with the Joinder Agreements executed by such Warnaco Sub Borrowers pursuant to Section 11.18 in substantially similar form to the other Tradexpress Agreements. "100% Effective Date" means the date, following the Effective Date, when each of the 100% Effective Date Conditions Precedent shall have been satisfied and when counterparts hereof executed on behalf of each Borrower and each Lender (or notice thereof satisfactory to the Agents) shall have been received by the Agents and notice thereof shall have been given by the Agents to the U.S. Borrower and each Lender. "100% Effective Date Conditions Precedent" means, collectively, Sections 6.1.2, 6.1.9 and 6.1.10. SECTION 1.2. Use of Defined Terms. Unless otherwise defined or the context otherwise requires, terms for which meanings are provided in this Agreement shall have such meanings when used in each Note, Borrowing Request, Continuation/Conversion Notice, Loan Document, notice and other communication delivered from time to time in connection with this Agreement or any other Loan Document. SECTION 1.3. Cross-References. Unless otherwise specified, references in this Agreement and in each other Loan Document to any Article or Section are references to such Article or Section of this Agreement or such other Loan Document, as the case may be, and, unless otherwise specified, references in any Article, Section or definition to any clause are references to such clause of such Article, Section or definition. SECTION 1.4. Accounting and Financial Determinations. Unless otherwise specified, all accounting terms used herein shall be interpreted, all accounting determinations and computations hereunder shall be made, and all financial statements required to be delivered hereunder or thereunder shall be prepared in accordance with, generally accepted accounting principles consistent with those applied in the preparation of the financial statements referred to in Section 7.5 ("GAAP"). ARTICLE II COMMITMENTS, BORROWING PROCEDURES AND NOTES SECTION 2.1. Commitments. On the terms and subject to the conditions of this Agreement (including Article VI), each Lender severally agrees as follows: SECTION 2.1.1. Loan Commitment. The Borrowers, Group, the Agents, the Fronting Bank and the Lenders hereby agree that the Existing Credit Agreement is hereby -26- amended and restated in its entirety to become effective and binding on the Borrowers, Group and the other parties to this Agreement pursuant to the terms of this Agreement, and that the commitments which the Fronting Bank and the Lenders have agreed to extend to the Borrowers under the Existing Credit Agreement shall be extended or advanced to the Borrowers upon the amended and restated terms and conditions contained in this Agreement with the intent that the terms of this Agreement shall supersede the terms of the Existing Credit Agreement (which shall hereafter have no further effect upon the parties thereto, other than for accrued fees and expenses, and indemnification provisions, accrued and owing under the terms of the Existing Credit Agreement on or prior to the date hereof or arising (in the case of an indemnification) under the terms of the Existing Credit Agreement). In furtherance of the foregoing, from time to time on any Business Day occurring on or prior to the then existing Commitment Termination Date, each Lender severally agrees, subject to the terms of this Agreement (including Article VI) that (a) in the case of the Fronting Bank, it will make loans (the "Loans") to (i) the U.S. Borrower (in the case of each Letter of Credit issued and each Acceptance created for the account of the U.S. Borrower or a Subsidiary thereof), (ii) the Foreign Borrowers and Authentic Fitness (HK) (in the case of each U.S. Letter of Credit and each Non-U.S. Letter of Credit issued for the account of such Foreign Borrower and/or Authentic Fitness (HK)), (iii) each Warnaco Sub Borrower other than Authentic Fitness (HK) (in the case of each Letter of Credit issued and each Acceptance created for the account of such Warnaco Sub Borrower or its Subsidiary (other than Authentic Fitness (HK)) and (iv) the Sub Borrower (in the case of each Letter of Credit issued and each Acceptance created for the account of the Sub Borrower or a Subsidiary thereof), in each case, as applicable, on (A) the Disbursement Date of each Letter of Credit and (B) the Maturity Date of each Acceptance, (in each case) for a period not to exceed the Stated Maturity Date for such Loan in a principal amount equal to the aggregate amount of (x) Disbursements made under one or more Letters of Credit on such Disbursement Date and (y) matured and unreimbursed Acceptances; and (b) in the case of each Lender (other than the Fronting Bank in such capacity), such Lender will participate in the Loans made by the Fronting Bank pursuant to this Agreement and, if required pursuant to the terms of this Agreement, such Lender will refinance and reimburse the Fronting Bank for the outstanding principal amount of Loans previously made by the Fronting Bank in an amount equal to its Percentage of the aggregate amount of all (or, if elected by the Fronting Bank, less than all) Loans (determined, in the sole discretion of the Fronting Bank, as between Loans made to the U.S. Borrower, the Foreign Borrowers, the Warnaco Sub Borrowers and the Sub Borrower) then outstanding and owing to the Fronting Bank (in its capacity as the Fronting Bank), and upon the receipt by the Fronting Bank of immediately available funds from a Lender in respect of the reimbursement or refinancing of a Loan previously made by and owing to the Fronting Bank, the amount so received by the Fronting Bank will thereafter be a Loan to the applicable -27- Borrower owing to such Lender (and no longer owing to the Fronting Bank). No Lender's obligation to make any Loan shall be affected by any other Lender's failure to make any Loan. On the terms and subject to the conditions hereof, the Borrowers may from time to time borrow Loans and continue or convert such Loans as Base Rate Loans or LIBO Rate Loans pursuant to the terms hereof, but once a particular Loan is repaid or prepaid by a Borrower, it cannot be reborrowed. Notwithstanding anything contained herein to the contrary, so long as any Lender shall be in default in its obligation to fund its pro rata share of any Loans (as notified to such Lender by the Administrative Agent, the Administrative Agent agreeing to use good faith efforts to give such notification promptly following the occurrence of such default) or shall have rejected its obligations under its Commitments, then such Lender shall not be entitled to receive any payments of principal of or interest on its pro rata share of the Loans or its share of any commitment or other fees payable hereunder (including fees payable pursuant to Section 3.3) unless and until (i) the Loans of all the other Lenders and all interest thereon have been paid in full, (ii) such failure to fulfill its obligation to fund is cured or (iii) the Obligations under this Agreement shall have been declared or shall have become immediately due and payable, and for purposes of voting or consenting to matters with respect to the Loan Documents, such Lender shall be deemed not to be a "Lender" hereunder and such Lender's Percentage shall each be deemed to be zero (0) (with each other Lender's Percentage being increased proportionately for purposes of the definition of "Required Lenders" so that all such non-defaulting Lenders' Percentages shall collectively equal 100%). No Commitment of any Lender shall be increased or otherwise affected by any such failure or rejections by any other Lender. Any payments of principal of or interest on Obligations which would, but for this Section, be paid to any Lender, shall be paid to the Lenders who shall not be in default under their respective Commitments and who shall not have rejected any Commitment, for application to the Obligations or cash collateral in respect of Letters of Credit or Acceptances in such manner and order (pro rata among such Lenders) as shall be determined by the Administrative Agent. The parties hereto acknowledge and agree that a Lender's failure to make a Loan based on any Borrower's failure to satisfy one or more of the conditions precedent to the making of Loans set forth in Article VI shall not be construed as such Lender being in default of its obligations to fund its pro rata share of Loans or a rejection of such Lender's Commitments. SECTION 2.1.2. Commitment to Issue Letters of Credit and Create Acceptances. From time to time on any Business Day on or prior to the Commitment Termination Date, the Fronting Bank will issue and create, and each Lender will participate in, the Letters of Credit and the Acceptances, in accordance with Article IV. SECTION 2.1.3. Lenders Not Permitted or Required to Make Loans and Fronting Bank Not Permitted or Required to Issue Letters of Credit or Create Acceptances Under Certain Circumstances. In addition to the other terms of this Agreement (including Article VI): -28- (a) No Lender (other than, in the case of clause (a)(ii), the Fronting Bank acting in such capacity) shall be permitted or required to make any Loan if, after giving effect thereto (and the payment of any Reimbursement Obligations with the proceeds of such Loans or the refunding and refinancing of Loans made by the Fronting Bank with the proceeds of the Loans made by the Lenders hereunder), the aggregate outstanding principal amount of all Loans (i) together with the aggregate amount of all Letter of Credit Outstandings and all Acceptance Obligations, would exceed the Commitment Amount, or (ii) of such Lender, together with such Lender's Percentage of the aggregate amount of all Letter of Credit Outstandings and all Acceptance Obligations would exceed the amount of such Lender's Percentage multiplied by the Commitment Amount; (b) The Fronting Bank shall not be permitted or required to issue any Letter of Credit or extend for an additional period of time the Stated Expiry Date of a previously issued Letter of Credit if, after giving effect thereto the aggregate amount of all Letter of Credit Outstandings, together with all Acceptance Obligations and the aggregate outstanding principal amount of all Loans would exceed the Commitment Amount; (c) The Fronting Bank shall not be permitted or required to create any Acceptance if, (i) after giving effect thereto the aggregate amount of all Acceptance Obligations, together with all Letter of Credit Outstandings and the aggregate outstanding principal amount of all Loans would exceed the Commitment Amount, (ii) any requested Acceptance is not in form and substance reasonably acceptable to the Fronting Bank or (iii) an Acceptance is not in lieu of its Disbursement obligation and the original executed Letter of Credit in respect of which such Acceptance is to be created has not been received by the Fronting Bank for cancellation; and (d) The Fronting Bank shall not be permitted or required to make any Loan on any Disbursement Date or Maturity Date if, after giving effect thereto (and the payment of any Reimbursement Obligations with the proceeds of such Loans), the aggregate outstanding principal amount of all Loans, together with the aggregate amount of all Letter of Credit Outstandings and all Acceptance Obligations, would exceed the Commitment Amount. SECTION 2.2. Reduction of the Commitment Amount. The U.S. Borrower may, from time to time on any Business Day, voluntarily reduce the amount of the Commitment Amount; provided, however, that all such reductions shall be binding on each Borrower, shall require at least three Business Days' prior notice to the Administrative Agent and shall be permanent. -29- SECTION 2.3. Borrowing Procedure. (a) Upon (i) any Disbursements being made in respect of one or more Letters of Credit or (ii) the occurrence of any Maturity Date for any Acceptance (whether or not, in the case of Letters of Credit, such Letters of Credit were issued to support the obligations of any Borrower or any of their Subsidiaries (or any of their respective divisions) and in the case of Acceptances, whether or not such Acceptances were created to support the obligations of the Warnaco Sub Borrowers, the Sub Borrower, the U.S. Borrower or any of their Subsidiaries (or any of their respective divisions)), such Borrower shall (unless it shall have given notice to the Administrative Agent to the contrary prior to 3:00 p.m., Applicable Time, at least three Business Days prior to the date of such Disbursement or occurrence of such Maturity Date) be deemed to have delivered to the Administrative Agent a Borrowing Request pursuant to which such Borrower shall have been deemed to irrevocably request that the Fronting Bank make a LIBO Rate Loan to such Borrower with a six month Interest Period in a principal amount equal to the aggregate amount of (A) in the case of U.S. Letters of Credit, the Disbursements, and in the case of Non-U.S. Letters of Credit, the U.S. Dollar Equivalent of the Disbursements made on such date or (B) in the case of the U.S. Borrower, the Warnaco Sub Borrowers or the Sub Borrower, the aggregate face amount of those Acceptances having Maturity Dates on such date, as applicable. Each Borrower, as applicable, hereby acknowledges and agrees that each Borrowing Request deemed to be delivered hereunder, the making of a Loan by the Fronting Bank (a) to reimburse the Fronting Bank for Disbursements made under the Letters of Credit or (b) payment made on the Maturity Date of any Acceptance, and the acceptance by any Borrower of the proceeds of the Borrowing shall constitute a representation and warranty by the Borrowers that on the date of such Borrowing (both immediately before and after giving effect to such Borrowing and the application of the proceeds thereof) the statements made in Section 6.2.1 are in each case true and correct. Proceeds of such Loans shall be used to fund the Reimbursement Obligations in respect of (a) Letters of Credit under which one or more Disbursements were made and (b) as applicable, Acceptances which had Maturity Dates occurring, in each case, on the date of the Loan. Each of the parties hereto acknowledges and agrees that upon the satisfaction of the conditions precedent set forth in Section 6.1, the Existing Loans shall be deemed to be Loans made by the Fronting Bank on the Effective Date under the terms of this Agreement and shall thereafter accrue interest and fees pursuant to the terms hereof, and each Lender shall continue to participate in such Loans in an amount equal to such Lender's Percentage of the outstanding principal amount of the Existing Loans. (b) In addition to the provisions of the making of Loans set forth in clause (a), above, by delivering a Borrowing Request to the Administrative Agent on or before 11:00 a.m., Applicable Time, on a Business Day, a Borrower may from time to time irrevocably request, on not less than three nor more than five Business Days' notice (in the case of LIBO Rate Loans) and on the date of such Borrowing (in the case of Base Rate Loans), that a Borrowing be made as other than a LIBO Rate Loan having a six month Interest Period or in an amount other than the full amount of Disbursements with respect to which such Loan is to be made. If any Borrower elects that a Borrowing be made as a LIBO Rate Loan having a one or three month Interest Period pursuant to this clause, then upon the expiration of such -30- Interest Period such Borrower shall (unless it shall have given notice to the Administrative Agent to the contrary prior to 11:00 a.m., Applicable Time, at least three Business Days prior to the date of such Disbursement) be deemed to have delivered to the Administrative Agent a Continuation/Conversion Notice pursuant to which such Borrower shall have been deemed to irrevocably request that the Fronting Bank continue the outstanding LIBO Rate Loan as a LIBO Rate Loan with an Interest Period of (i) three months, in the case of the expiration of a three month Interest Period or Interest Periods which, in the aggregate, equal three months or (ii) five months, in the case of the expiration of a one month Interest Period, in each case in a principal amount equal to the amount of the LIBO Rate Loan with an Interest Period then expiring. On the terms and subject to the conditions of this Agreement, each Borrowing shall be comprised of the type of Loans, and shall be made on the Business Day, specified (or deemed to be specified) in such Borrowing Request. (c) The Fronting Bank may, at any time (whether or not a Default or Event of Default has occurred and is then continuing), in its sole and absolute discretion but subject to clause (a)(ii) of Section 2.1.3, demand that each other Lender make a Loan in an amount equal to such Lender's Percentage of the aggregate principal amount of all or a portion of the Loans outstanding on the date such demand is made, and may (in its sole discretion) elect which Loans (as among the Borrowers) are to be chosen as the Loans to be refunded by the Lenders. Each Lender (other than the Fronting Bank) irrevocably agrees that it shall (whether or not the conditions to the making of a Credit Extension contained in Article VI have been (or can be) satisfied) make such Loan by depositing the amount so demanded in same day funds in an account specified by the Fronting Bank on or before 11:00 a.m. New York City time on the first Business Day following receipt of such a demand. The Fronting Bank agrees to apply all such funds received by it under this clause to refund and refinance the Loans previously made by it to any Borrower, as identified in the demand that it delivers to the Lenders pursuant to this clause. On the date (a "Funding Date") that the Lenders (other than the Fronting Bank) advance funds to the Fronting Bank pursuant to this clause, the principal amount so refunded and refinanced shall become a Loan to the Borrower identified by the Fronting Bank outstanding under such Lender's Note to that particular Borrower and shall no longer be a Loan owed to the Fronting Bank under the Fronting Bank's Note to that particular Borrower. All interest payable with respect to any Loans made pursuant to this clause shall be appropriately adjusted to reflect the period of time during which such Loans were owing to the Fronting Bank and, on and subsequent to a Funding Date, such Loans were owing to the Lenders. The obligation of each Lender to make Loans by way of advancing immediately available funds to the Fronting Bank on a Funding Date to be applied to refund and refinance the Loans previously made by the Fronting Bank to the Borrowers (or any one of them) under this clause shall be absolute and unconditional and shall not be affected by any circumstance, including (i) any set-off, counterclaim, recoupment, defense or other right which any Lender may have against Scotiabank, the Borrowers or any other Person for any -31- reason whatsoever; (ii) the occurrence or continuance of any Default or the inability of the Borrowers to otherwise satisfy the conditions precedent set forth in Article VI; (iii) any adverse change in the condition (financial or otherwise) of any Borrower or any other Obligor; (iv) the acceleration or maturity of any Loans or other Obligations or the termination of any Commitment after the making of any Loan; (v) any breach of this Agreement or any other Loan Document by any Borrower, any other Obligor or any Lender; or (vi) any other circumstance, happening or event whatsoever, whether or not similar to any of the foregoing. SECTION 2.4. Continuation and Conversion Elections. By delivering a Continuation/Conversion Notice to the Administrative Agent on or before 10:00 a.m., Applicable Time, on a Business Day, any Borrower may from time to time irrevocably elect, on not less than three nor more than five Business Days' notice that all, or any portion of any Loans made to it be, in the case of Base Rate Loans, converted into LIBO Rate Loans or, in the case of a LIBO Rate Loan, converted into a Base Rate Loan or continued as a LIBO Rate Loan (in the absence of delivery of a Continuation/Conversion Notice with respect to any LIBO Rate Loan at least three Business Days before the last day of the then current Interest Period with respect thereto, such LIBO Rate Loan shall, on such last day, automatically convert to a LIBO Rate Loan pursuant to the provisions of clause (b) of Section 2.3, unless such Loan is otherwise required to be paid pursuant to the terms of this Agreement (including the first sentence of Section 3.1)); provided, however, that (i) no portion of the outstanding principal amount of any Loans may be continued as, or be converted into, LIBO Rate Loans when any Default has occurred and is continuing and (ii) the maximum length of any Interest Period or combination of Interest Periods for any particular Loan shall not exceed six months. SECTION 2.5. Funding. Each Lender may, if it so elects, fulfill its obligation to participate in, and to make, continue or convert LIBO Rate Loans hereunder by causing one of its foreign branches or affiliates (or an international banking facility all of the capital stock or other ownership interests of which are wholly-owned by such Lender) to make or maintain such LIBO Rate Loan; provided, however, that such LIBO Rate Loan shall nonetheless be deemed to have been made and to be held by such Lender, and the obligation of the Lender to refund and refinance such LIBO Rate Loan on the Funding Date and the obligation of the Borrowers to repay such LIBO Rate Loan shall nevertheless be of or to such Lender for the account of such foreign branch, affiliate or international banking facility; provided, further that the Borrowers shall not be required to pay any amount under this Section or Section 5.6 that is greater than the amount which it would have been required to pay had such Lender not caused such branch, affiliate or facility to make or maintain such LIBO Rate Loan. In addition, each of the Borrowers hereby consents and agrees that, for purposes of any determination to be made for purposes of Section 5.1, 5.2, 5.3 or 5.4, it shall be conclusively assumed that such Lender elected to fund all LIBO Rate Loans by purchasing Dollar deposits in its LIBOR Office's interbank eurodollar market. -32- SECTION 2.6. Notes. The Loans of the Fronting Bank under the Loan Commitment shall be evidenced by Notes payable to the order of the Fronting Bank from each Borrower in an aggregate maximum principal amount equal to the original Commitment Amount, and the Loans of each Lender (other than the Fronting Bank) under the Loan Commitment shall be evidenced by Notes payable from each Borrower to the order of such Lender in a maximum principal amount equal to such Lender's Percentage multiplied by the original Commitment Amount. Each Borrower hereby irrevocably authorizes each Lender to make (or cause to be made) appropriate notations on the grid attached to such Lender's Notes (or on any continuation of such grid), which notations, if made, shall evidence, inter alia, the date of, the outstanding principal of, and the interest rate and Interest Period applicable to the Loans evidenced thereby and the principal amount of Loans that have been repaid (including, in the case of the Fronting Bank, Loans that have been refunded and refinanced by the Lenders on a Funding Date). Such notations shall be conclusive and binding on the Borrowers absent manifest error; provided, however, that the failure of any Lender to make any such notations shall not limit or otherwise affect any Obligations of any Borrower. SECTION 2.7. Extension of Commitment Termination Date. (a) The Commitment Termination Date may be extended by the Lenders in their sole and absolute discretion upon written request of the Administrative Agent by the U.S. Borrower, at least 60 days but not more than 90 days (such date the "Request Date") prior to the then effective Commitment Termination Date (as such date may have been extended) for a period not to exceed 364 days from the then expiring Commitment Termination Date. Within five days of the Request Date, the Administrative Agent will forward the request to the Lenders. If a Lender agrees, in its individual and sole discretion, to so extend all or a portion of its Commitment (an "Extending Lender"), it will deliver to the Administrative Agent and the U.S. Borrower a notice of its agreement to do so and may also set forth the amount, if any, by which it would be willing to increase its Commitment pursuant to this Section (a "Notice of Extension"), within 45 days of the Request Date; provided that such notice shall in no event be given later than 30 days prior to the then effective Commitment Termination Date (as such date may have been extended). (b) The Commitment of any Lender that fails to accept or respond to the U.S. Borrower's request for extension of the Commitment Termination Date (a "Declining Lender") and the portion of the Commitment of any Extending Lender which such Extending Lender has not elected to extend pursuant to clause (a) (such Commitments of the Declining Lenders and such Extending Lenders being collectively, the "Terminated Commitments") will be terminated on the Commitment Termination Date then in effect (without regard to any extension by other Lenders) and on such Commitment Termination Date the U.S. Borrower will pay (or cause to be paid) in full the outstanding principal amount of all Loans with respect to the Terminated Commitments owing to each such Declining Lender or Extending Lender, as the case may be, together with accrued but unpaid interest thereon to the date of payment of such principal amount, all accrued but unpaid commitment fees, other fees and all other amounts payable to such Declining Lender and such Extending Lender -33- with respect to the Terminated Commitments under this Agreement (including any increased costs or other additional amounts (computed in accordance with Section 5.3) and any Taxes incurred and reimbursable hereunder by such Declining Lender and such Extending Lender prior to such Commitment Termination Date and amounts payable under Section 11.3). (c) The Extending Lenders, or any of them, or any Person that would be an Assignee Lender permitted by Section 11.11.1 (a "Replacement Lender") may offer in their sole discretion, to increase their respective Commitment by, or to provide a commitment in, as the case may be, an aggregate amount that will not exceed the aggregate amount of the Terminated Commitments. Should such offers exceed the aggregate amount of the Terminated Commitments, the Terminated Commitments shall be allocated among such Extending Lenders and/or Replacement Lenders as determined by the Administrative Agent and the U.S. Borrower. Each such Extending Lender or Replacement Lender will deliver to the Administrative Agent a notice, of its offer to so increase its Commitment or to provide a commitment, as the case may be, no later than 5 days prior to such Commitment Termination Date. The U.S. Borrower will, no later than one day before the Commitment Termination Date, deliver to the Administrative Agent a notice setting forth the Commitments of the Extending Lenders and Replacement Lenders, if any, that are to become or be effective as of the Commitment Termination Date. If the Extending Lenders and Replacement Lenders provide Commitments in an aggregate amount equal to 75% of the aggregate amount of the Commitments requested by the U.S. Borrower to be extended, then, effective on the Commitment Termination Date in effect at the time of the U.S. Borrower's request, (i) the Commitment Termination Date will be extended by 364 days for such Extending Lenders' and Replacement Lenders' Commitments, (ii) the Commitment of each Extending Lender and each Replacement Lender will be the amount specified in the notice provided by the U.S. Borrower to the Administrative Agent (which amount will not exceed the amount specified by each such Extending Lender and Replacement Lender in its most recent notice to the Administrative Agent) and (iii) each Replacement Lender will become a party hereto and will be a Lender hereunder. SECTION 2.8. Authentic LIBO Rate Loans. Upon the consummation of the Merger and the termination of the Authentic Trade Credit Facility, at the option of the U.S. Borrower and following notice thereof to the Administrative Agent, each Authentic LIBO Rate Loan (and the amount and payment date of fees thereon) shall be deemed to be a LIBO Rate Loan hereunder with the LIBO Rate (Reserve Adjusted), Interest Period and the Stated Maturity Date that are applicable thereto under the Authentic Trade Credit Facility at such time and shall be governed by this Agreement. -34- ARTICLE III REPAYMENTS, PREPAYMENTS, INTEREST AND FEES SECTION 3.1. Repayments and Prepayments. The Borrowers shall repay in full the entire unpaid principal amount of each Loan upon the Stated Maturity Date therefor; provided, that notwithstanding anything contained in this Agreement or any Loan Document to the contrary, each Foreign Borrower and Authentic Fitness (HK) shall only be obligated to repay the principal amount of the Loans made to it and Reimbursement Obligations in respect of Letters of Credit issued for its account. Prior thereto (and subject to Section 2.1.1), each Borrower (a) may, from time to time on any Business Day, make a voluntary prepayment, in whole or in part, of the outstanding principal amount of any Loans; provided, however, that all such voluntary prepayments shall require at least one Business Day's prior written notice to the Administrative Agent; (b) shall, on each date when any reduction in the Commitment Amount shall become effective (which reduction shall be subject to Section 2.2), make a mandatory prepayment (which shall be applied (or held as cash collateral for application to the aggregate amount of all Letter of Credit Outstandings or, as applicable, Acceptance Obligations, in each case not consisting of unpaid and outstanding Reimbursement Obligations) by the Administrative Agent to the payment of the Loans and unpaid and outstanding Reimbursement Obligations of the then Letter of Credit Outstandings and, as applicable, Acceptance Obligations) equal to the excess, if any, of the aggregate outstanding principal amount of all Loans, together with the aggregate amount of all Letter of Credit Outstandings and, as applicable, Acceptance Obligations over the Commitment Amount as so reduced; (c) shall, if upon any Reset Date, the sum of the outstanding principal amount of all Loans plus the amount of all Acceptance Obligations plus all Letter of Credit Outstandings exceeds the then existing Commitment Amount, make a mandatory prepayment (which shall be applied (or held as cash collateral for application to the aggregate amount of all Letter of Credit Outstandings or, as applicable, Acceptance Obligations, in each case not consisting of unpaid and outstanding Reimbursement Obligations) by the Administrative Agent to the payment of the Loans and unpaid and outstanding Reimbursement Obligations of the then Letter of Credit Outstandings and, as applicable, Acceptance Obligations) in an amount equal to such excess; and (d) shall, immediately upon any acceleration of the Stated Maturity Date of any Obligations pursuant to Section 9.2 or Section 9.3, repay all Obligations, unless, pursuant to Section 9.3, only a portion of all Obligations is so accelerated. -35- Each prepayment of any Loans made pursuant to this Section shall be without premium or penalty, except as may be required by Section 5.4. No voluntary prepayment of principal of any Loans shall cause a reduction in the Commitment Amount. SECTION 3.2. Interest Provisions. Interest on the outstanding principal amount of Loans shall accrue and be payable in accordance with this Section 3.2. SECTION 3.2.1. Rates. Loans comprising a Borrowing shall accrue interest at a rate per annum: (a) on that portion maintained from time to time as a Base Rate Loan, equal to the sum of the Alternate Base Rate from time to time in effect plus the Applicable Margin in effect from time to time; or (b) on that portion maintained as a LIBO Rate Loan (whether made pursuant to clause (a) or clause (b) of Section 2.3), during each Interest Period applicable thereto, equal to the sum of the LIBO Rate (Reserve Adjusted) for such Interest Period plus the Applicable Margin in effect from time to time. The "LIBO Rate (Reserve Adjusted)" means, relative to any Loan to be made, continued or maintained as, or converted into, a LIBO Rate Loan for any Interest Period, a rate per annum (rounded upwards, if necessary, to the nearest 1/16 of 1%) determined pursuant to the following formula: LIBO Rate = LIBO Rate ------------------------------- (Reserve Adjusted) 1.00 - LIBOR Reserve Percentage The LIBO Rate (Reserve Adjusted) for any Interest Period for LIBO Rate Loans will be determined by the Administrative Agent on the basis of the LIBOR Reserve Percentage in effect on, and the applicable rates furnished to and received by the Administrative Agent from Scotiabank, two Business Days before the first day of such Interest Period. "LIBO Rate" means, relative to any Interest Period for LIBO Rate Loans, the rate of interest per annum (rounded upwards, if necessary, to the nearest 1/16 of 1%) reported, on the first day of such Interest Period as of 11:00 a.m. London time, on Telerate Access Service Page 3750 (British Bankers Association Settlement Rate) as the London Interbank Offered Rate for Dollar deposits having a term comparable to such Interest Period and in an amount of $1,000,000 or more (or, if said page shall cease to be publicly available, as reported by any publicly available source of similar market data selected by the Administrative Agent that, in the Administrative Agent's reasonable judgment, accurately reflects such London Interbank Offered Rate). "LIBOR Reserve Percentage" means, relative to any Interest Period for LIBO Rate Loans, the reserve percentage, if any (expressed as a decimal) equal to the maximum -36- aggregate reserve requirements (including all basic, emergency, supplemental, marginal and other reserves and taking into account any transitional adjustments or other scheduled changes in reserve requirements) specified under regulations issued from time to time by the F.R.S. Board and then applicable to assets or liabilities consisting of and including "Eurocurrency Liabilities", as currently defined in Regulation D of the F.R.S. Board, having a term approximately equal or comparable to such Interest Period. All LIBO Rate Loans shall bear interest from and including the first day of the applicable Interest Period to (but not including) the last day of such Interest Period at the interest rate determined as applicable to such LIBO Rate Loan. SECTION 3.2.2. Post-Maturity Rates. After and during the continuance of an Event of Default (after giving effect to any grace periods in respect thereof in the case of an Event of Default described in Section 9.1.1), the Borrowers shall pay interest (after as well as before judgment) on (a) the unpaid principal amount of each outstanding Loan at a rate per annum equal to 2% per annum above the then applicable interest rate in respect of such Loan and (b) to the fullest extent permitted by law, the amount of any interest, fee or other amount payable hereunder at a rate per annum equal at all times to 2% per annum above the Alternate Base Rate then in effect. SECTION 3.2.3. Payment Dates. Interest accrued on each Loan shall be payable, without duplication: (a) on the Stated Maturity Date therefor; (b) with respect to Base Rate Loans, on each Quarterly Payment Date occurring after the date of the initial Borrowing hereunder; (c) with respect to LIBO Rate Loans, on the last day of each applicable Interest Period (and, if such Interest Period shall exceed three months, at the end of each three month period occurring during such Interest Period); (d) on the date of any optional or required payment or prepayment, in whole or in part, of principal outstanding on such Loan; (e) with respect to any Base Rate Loans converted into LIBO Rate Loans on a day when interest would not otherwise have been payable pursuant to the terms hereof, on the date of such conversion; and (f) on that portion of any Loans the Stated Maturity Date of which is accelerated pursuant to Section 9.2 or Section 9.3, immediately upon such acceleration. -37- Interest accrued on Loans or other monetary Obligations arising under this Agreement or any other Loan Document after the date such amount is due and payable (whether on the Stated Maturity Date, upon acceleration or otherwise) shall be payable upon demand. SECTION 3.2.4. Allocation of Interest Payments. Accrued and unpaid interest on the outstanding principal amount of the Loans shall be allocated and payable to the Lenders as set forth in this Section: (a) Interest shall be payable by a Borrower to the Fronting Bank (for its own account) on the outstanding principal amount of its Loans from the date such Loans are made to (but excluding) the Funding Date in an amount equal to the difference between (i) (x) in the case of LIBO Rate Loans, the LIBO Rate (Reserve Adjusted) or, in the case of Base Rate Loans, the Alternate Base Rate, plus the Applicable Margin then in effect for LIBO Rate Loans or Base Rate Loans (as applicable) multiplied by (y) the outstanding principal amount of the LIBO Rate Loans or Base Rate Loans, as the case may be, minus (ii) the Interest Amount (as defined below). Prior to the Funding Date each Lender (other than the Fronting Bank) shall be paid interest in an aggregate amount (referred to as the "Interest Amount") equal to such Lender's Percentage of (x) the principal amount of the Loans outstanding prior to a Funding Date multiplied by (y) the Applicable Margin then in effect for LIBO Rate Loans (in the case of the outstanding principal amount of LIBO Rate Loans) or Base Rate Loans (in the case of the outstanding principal amount of Base Rate Loans). (b) On and subsequent to a Funding Date, interest shall be payable by a Borrower for the account of each Lender (including the Fronting Bank, in its capacity as a Lender) in accordance with its Percentage on the principal amount of its Loans actually funded by such Lender in an amount equal to (in the case of the outstanding principal amount of LIBO Rate Loans) the LIBO Rate (Reserve Adjusted) plus the Applicable Margin for such LIBO Rate Loans or, if applicable (in the case of the outstanding principal amount of Base Rate Loans), the Alternate Base Rate plus the Applicable Margin for Base Rate Loans. SECTION 3.3. Fees. Each Borrower agrees to pay the fees payable by it set forth in this Section 3.3. All such fees shall be non-refundable. SECTION 3.3.1. Letter of Credit and Acceptance Fees Payable to the Lenders. The Borrowers agree to pay to the Administrative Agent, for the pro rata account of the Lenders determined in accordance with each Lender's Percentage, a fee for each Letter of Credit and each Acceptance for the period from and including the date of the issuance of such Letter of Credit or creation of the Acceptance to (but not including) (a) in the case of a Letter of Credit, the earlier of (i) the date upon which such Letter of Credit expires and (ii) the date upon which the Stated Amount of such Letter of Credit is irrevocably reduced to zero (by the making of a Disbursement by the Fronting Bank or otherwise), and (b) in the case of an Acceptance, the Maturity Date therefor at the rates per annum determined by reference to the -38- Debt Rating in effect from time to time as set forth below for Letters of Credit or Acceptances calculated on the average daily sum of (x) the maximum amount available to be drawn under outstanding Letters of Credit (in the case of Letters of Credit) and (y) the aggregate face amount of outstanding unmatured Acceptances (in the case of Acceptances) (provided, however, that no change in the fees payable for Letters of Credit or Acceptances shall be effective until three Business Days after the date on which the Administrative Agent receives evidence reasonably satisfactory to it from Group or the U.S. Borrower that a new Debt Rating is in effect):
Rate for Letters of Rate for Debt Rating Credit Acceptances ----------- ------ ----------- A- or A3 or higher 0.300% 0.625% BBB+ or Baa1 0.325% 0.750% BBB or Baa2 0.375% 0.875% BBB- or Baa3 0.450% 1.000% BB+ or Ba1 or lower 0.600% 1.250%
Notwithstanding anything in this Agreement to the contrary, each Foreign Borrower and Authentic Fitness (HK) shall only be liable for the fee that has accrued on those Letters of Credit issued for its own account. In the event that at any time no Debt Rating shall be in effect, the applicable rate per annum for purposes of determining the Letter of Credit and Acceptance fees provided for under this Section shall be 0.600% (in the case of Letters of Credit) and 1.250% (in the case of Acceptances). Such fee shall be payable by the applicable Borrower in arrears on each Quarterly Payment Date (commencing on the first such date after the issuance of such Letter of Credit or the creation of such Acceptance), on the Commitment Termination Date and in addition to the above payment dates, in the case of (x) Letters of Credit with expiry dates that extend beyond the Commitment Termination Date, on the expiration of or, if earlier, on the date of any disbursement made under, such Letter of Credit, or (y) Acceptances which mature after the Commitment Termination Date, on such Maturity Date, in each case, for any period then ending for which such fee shall not theretofore have been paid; provided that, notwithstanding the foregoing, such fees shall be payable not less often than every 90 days. SECTION 3.3.2. Letter of Credit and Acceptance Fees Payable to the Fronting Bank. The Borrowers agree to pay to the Fronting Bank the fees relating to Letters of Credit and Acceptances in accordance with the Fee Letter and such customary fees currently paid by the Borrowers on the Effective Date for each Letter of Credit issued and each Acceptance created for the period from and including the date of issuance of such Letter of Credit or creation of such Acceptance to (but not including) the date upon which such Letter of Credit expires or such Acceptance matures; provided, that each Foreign Borrower and Authentic -39- Fitness (HK) shall be obligated to pay such fees only on those Letters of Credit issued for its account. SECTION 3.3.3. Fee Letter. The U.S. Borrower agrees to pay to Scotiabank, for its own account, such fees in the amounts and on the dates set forth in the Fee Letter. SECTION 3.3.4. Commitment Fee. The U.S. Borrower agrees to pay to the Administrative Agent, for the pro rata account of each Lender determined in accordance with each Lender's Percentage, for the period commencing on the Effective Date and continuing through the Commitment Termination Date, a commitment fee (the "Commitment Fee") on the sum of the average daily unused portion of the Commitment Amount at the rates per annum determined by reference to the Debt Rating in effect from time to time as set forth below; (provided, however, that no change in the commitment fee rate shall be effective until three Business Days after the date on which the Administrative Agent receives evidence reasonably satisfactory to it from Group or the U.S. Borrower that a new Debt Rating is in effect):
Commitment Debt Rating Fee Rate ----------- -------- A- or A3 or higher 0.100% BBB+ or Baa1 0.125% BBB or Baa2 0.150% BBB- or Baa3 0.200% BB+ or Ba1 or lower 0.250%
In the event that at any time no Debt Rating shall be in effect, the applicable rate per annum for purposes of determining the commitment fees provided for under this Section shall be 0.250%. The fee payable under this Section shall be payable by the U.S. Borrower in arrears on each Quarterly Payment Date, commencing on the first such date after the Effective Date, and on the Commitment Termination Date for any period then ending for which such fee shall not theretofore have been paid. The amount of any Loans made, Letters of Credit issued and Acceptances created by the Fronting Bank and not funded by the other Lenders will constitute usage of the Commitment Amount for purposes of calculating the commitment fee payable to Lenders (other than the Fronting Bank) pursuant to this Section. SECTION 3.4. Guaranty. The U.S. Borrower shall guaranty the Obligations of each Foreign Borrower, the Sub Borrower, each Warnaco Sub Borrower and each other Guaranteed Party as set forth below. -40- SECTION 3.4.1. Guaranty. The U.S. Borrower hereby absolutely, unconditionally and irrevocably (a) guarantees (referred to as its "Guaranty") the full and punctual payment when due, whether at stated maturity, by required prepayment, declaration, acceleration, demand or otherwise, of all Obligations of the Sub Borrower, each Foreign Borrower and each Warnaco Sub Borrower and each of their respective Subsidiaries (and/or divisions thereof) for whom (i) a Letter of Credit has been issued (collectively referred to as the "L/C Parties") or (ii) as to the Sub Borrower, each Warnaco Sub Borrower or any other Subsidiary of the U.S. Borrower other than the Foreign Borrowers and Authentic Fitness (HK), an Acceptance has been created (collectively referred to as the "Acceptance Parties"; together with the L/C Parties, the "Guaranteed Parties"), whether for principal, interest, fees, expenses or otherwise (including all such amounts which would become due but for the operation of the automatic stay under Section 362(a) of the United States Bankruptcy Code, 11 U.S.C. 'SS'362(a), and the operation of Sections 502(b) and 506(b) of the United States Bankruptcy Code, 11 U.S.C. 'SS'502(b) and 'SS'506(b)); and (b) indemnifies and holds harmless each Lender, the Fronting Bank and each Agent, and their respective successors, transferees and assigns (collectively referred to as the "Lender Parties") for any and all costs and expenses (including reasonable attorney's fees and expenses) incurred by such Lender Party in enforcing any rights under this Section 3.4.1. This Guaranty constitutes a guaranty of payment when due and not of collection, and the U.S. Borrower specifically agrees that it shall not be necessary or required that any Lender Party exercise any right, assert any claim or demand or enforce any remedy whatsoever against any Guaranteed Party or any other Obligor (or any other Person) before or as a condition to the obligations of the U.S. Borrower hereunder. SECTION 3.4.2. Acceleration of Guaranty. The U.S. Borrower agrees that, in the event of the dissolution or insolvency of any Foreign Borrower, any Warnaco Sub Borrower or the Sub Borrower or the dissolution (other than to the extent permitted by this Agreement) or insolvency of any other Guaranteed Party, Obligor, or the U.S. Borrower, or the inability or failure of any Obligor, any Guaranteed Party or the U.S. Borrower to pay debts as they become due, or an assignment by any Obligor, any Guaranteed Party or the U.S. Borrower for the benefit of creditors, or the commencement of any case or proceeding in respect of any of the foregoing Persons under any bankruptcy, insolvency or similar laws, and with respect to any involuntary case or proceeding, such case or proceeding remains undismissed for a period of 30 days; and if any such event shall occur at a time when any of the Obligations of any Guaranteed Party and each other Obligor may not then be due and payable, the U.S. Borrower will pay to the Administrative Agent (for the account of the Lender Parties) forthwith the full amount which would be payable hereunder by the U.S. Borrower if all such Obligations were then due and payable. -41- SECTION 3.4.3. Guarantee Absolute, etc. This Guaranty shall in all respects be a continuing, absolute, unconditional and irrevocable guaranty of payment, and shall remain in full force and effect until all Obligations of each Foreign Borrower, each Warnaco Sub Borrower, the Sub Borrower, each other Guaranteed Party and each other Obligor have been paid in full, all obligations of the U.S. Borrower hereunder shall have been paid in full and all Commitments shall have terminated. The U.S. Borrower guarantees that the Obligations of each Foreign Borrower, each Warnaco Sub Borrower, the Sub Borrower, each other Guaranteed Party and each other Obligor and their respective Subsidiaries will be paid strictly in accordance with the terms of this Agreement and each other Loan Document under which they arise, regardless of any law, regulation or order now or hereafter in effect in any jurisdiction affecting any of such terms or the rights of any Lender Party with respect thereto. The liability of the U.S. Borrower under this Guaranty shall be absolute, unconditional and irrevocable irrespective of: (a) any lack of validity, legality or enforceability of this Agreement, any Note, any Letter of Credit, any Acceptance or any other Loan Document; (b) the failure of any Lender Party (i) to assert any claim or demand or to enforce any right or remedy against any Foreign Borrower, any Warnaco Sub Borrower, the Sub Borrower, any other Guaranteed Party, any other Obligor or any other Person (including any other guarantor) under the provisions of this Agreement, any Note, any Letter of Credit, any Acceptance, any other Loan Document or otherwise, or (ii) to exercise any right or remedy against any other guarantor of any Obligations of any Foreign Borrower, any Warnaco Sub Borrower, the Sub Borrower, any other Guaranteed Party or any other Obligor; (c) any change in the time, manner or place of payment of, or in any other term of, all or any of the Obligations of any Foreign Borrower, any Warnaco Sub Borrower, the Sub Borrower, any other Guaranteed Party or any other Obligor, or any other extension, compromise or renewal of any Obligation of any Foreign Borrower, any Warnaco Sub Borrower, the Sub Borrower, any other Guaranteed Party or any other Obligor; (d) any reduction, limitation, impairment or termination of the Obligations of any Foreign Borrower, any Warnaco Sub Borrower, the Sub Borrower, any other Guaranteed Party or any other Obligor for any reason, including any claim of waiver, release, surrender, alteration or compromise, and shall not be subject to (and the U.S. Borrower hereby waives any right to or claim of) any defense or setoff, counterclaim, recoupment or termination whatsoever by reason of the invalidity, illegality, nongenuineness, irregularity, compromise, unenforceability of, or any other event or occurrence affecting the Obligations of any Foreign Borrower, any Warnaco Sub -42- Borrower, the Sub Borrower, any other Guaranteed Party, any other Obligor or otherwise; (e) any amendment to, rescission, waiver, or other modification of, or any consent to departure from, any of the terms of this Agreement, any Note, any Letter of Credit, any Acceptance or any other Loan Document; (f) any amendment to or waiver or release or addition of, or consent to departure from, any other guaranty, held by any Lender Party securing any of the Obligations of any Foreign Borrower, any Warnaco Sub Borrower, the Sub Borrower, any other Guaranteed Party or any other Obligor; or (g) any other circumstance which might otherwise constitute a defense available to, or a legal or equitable discharge of, any Foreign Borrower, any Warnaco Sub Borrower, the Sub Borrower, any other Guaranteed Party, any other Obligor, any surety or any guarantor. SECTION 3.4.4. Reinstatement, etc. The U.S. Borrower agrees that this Guaranty shall continue to be effective or be reinstated, as the case may be, if at any time any payment (in whole or in part) of any of the Obligations is rescinded or must otherwise be restored by any Lender Party, upon the insolvency, bankruptcy or reorganization of any Foreign Borrower, any Warnaco Sub Borrower, the Sub Borrower, any other Guaranteed Party, any other Obligor or otherwise, all as though such payment had not been made. SECTION 3.4.5. Waiver, etc. The U.S. Borrower hereby waives promptness, diligence, notice of acceptance and any other notice with respect to any of the Obligations of any Foreign Borrower, any Warnaco Sub Borrower, the Sub Borrower, any other Guaranteed Party or any other Obligor and this Guaranty and any requirement that any Agent or any other Lender Party protect, secure, perfect or insure any security interest or Lien, or any property subject thereto, or exhaust any right or take any action against any Foreign Borrower, any Warnaco Sub Borrower, the Sub Borrower, any other Guaranteed Party, any other Obligor or any other Person (including any other guarantor) or entity or any collateral securing the Obligations of any Foreign Borrower, any Warnaco Sub Borrower, the Sub Borrower, any other Guaranteed Party or any other Obligor, as the case may be. SECTION 3.4.6. Postponement of Subrogation, etc. The U.S. Borrower will not exercise any rights which it may acquire by way of rights of subrogation under this Guaranty, by any payment made hereunder or otherwise, until the prior payment, in full and in cash, of all Obligations of each Foreign Borrower, each Warnaco Sub Borrower, the Sub Borrower, each other Guaranteed Party and each other Obligor. Any amount paid to the U.S. Borrower on account of any such subrogation rights prior to the payment in full of all Obligations of each Foreign Borrower, each Warnaco Sub Borrower, the Sub Borrower, each other Guaranteed Party and each other Obligor shall be held in trust for the benefit of the Lender Parties and shall immediately be paid to the Administrative Agent and credited and -43- applied against the Obligations of each Foreign Borrower, each Warnaco Sub Borrower, the Sub Borrower, each other Guaranteed Party and each other Obligor, whether matured or unmatured, in accordance with the terms of this Agreement; provided, however, that if (a) the U.S. Borrower has made payment to the Lender Parties of all or any part of the Obligations of any Foreign Borrower, any Warnaco Sub Borrower, the Sub Borrower, any other Guaranteed Party or any other Obligor; and (b) all Obligations of each Foreign Borrower, each Warnaco Sub Borrower, the Sub Borrower, each other Guaranteed Party and each other Obligor have been paid in full and all Commitments have been permanently terminated; each Lender Party agrees that, at the U.S. Borrower's request, the Administrative Agent, on behalf of the Lender Parties, will execute and deliver to the U.S. Borrower appropriate documents (without recourse and without representation or warranty) necessary to evidence the transfer by subrogation to the U.S. Borrower of an interest in the Obligations of each Foreign Borrower, each Warnaco Sub Borrower, the Sub Borrower, each other Guaranteed Party and each other Obligor resulting from such payment by the U.S. Borrower. In furtherance of the foregoing, for so long as any Obligations or Commitments remain outstanding, the U.S. Borrower shall refrain from taking any action or commencing any proceeding against any Foreign Borrower, any Warnaco Sub Borrower, the Sub Borrower, any other Guaranteed Party or any other Obligor (or its successors or assigns, whether in connection with a bankruptcy proceeding or otherwise) to recover any amounts in respect of payments made under this Guaranty to any Lender Party. ARTICLE IV LETTERS OF CREDIT AND ACCEPTANCES SECTION 4.1. Issuance of Letters of Credit and Creation of Acceptances. Letters of Credit shall be issued and Acceptances shall be created on the terms set forth below. SECTION 4.1.1. Letters of Credit. Any Borrower or any wholly-owned Subsidiary of the U.S. Borrower, the Warnaco Sub Borrowers or the Sub Borrower (or any of their respective divisions) may request, from time to time on or prior to the Commitment Termination Date, by delivering to the Administrative Agent and the Fronting Bank an Issuance Request (such request being, in any Borrower's sole discretion, either delivered (by telex, teletransmission or otherwise) in the form attached hereto as Exhibit B or in accordance with the terms of the Tradexpress Agreement) on or before 3:00 p.m., Applicable Time on the Business Day on which a Letter of Credit is to be issued that the Fronting Bank issue an irrevocable sight documentary letter of credit in such form as may be requested by such Borrower or such Subsidiary and approved by the Fronting Bank (each a "Documentary Letter of Credit"). -44- Letters of Credit shall be issued to facilitate such Borrower's (and in the case of the U.S. Borrower, the Warnaco Sub Borrowers and the Sub Borrower, their respective Subsidiaries') worldwide sourcing of merchandise. Each Letter of Credit shall by its terms: (a) be issued in a Stated Amount which does not exceed (or would not exceed) the then existing Letter of Credit Availability; (b) except as provided in Section 4.1.2, be denominated in, and all payments in respect thereof shall be made in, Dollars; (c) be stated to expire on a date (its "Stated Expiry Date") no later than 180 days from its date of issuance (it being acknowledged and agreed by the Borrowers, the Fronting Bank and the Lenders that the Stated Expiry Date for a Letter of Credit may be a date that is up to 179 days subsequent to the Commitment Termination Date; and (d) on or prior to its Stated Expiry Date: (i) terminate immediately upon notice to the Fronting Bank thereof from the applicable Letter of Credit Beneficiary that all obligations covered thereby have been terminated, paid, or otherwise satisfied in full, and (ii) reduce in part immediately and to the extent the applicable Letter of Credit Beneficiary has notified the Fronting Bank thereof that the obligations covered thereby have been paid or otherwise satisfied in part. So long as no Default has occurred and is continuing, by delivery to the Fronting Bank and the Administrative Agent of an Issuance Request (such request being, in any Borrower's sole discretion, either delivered (by telex, teletransmission or otherwise) in accordance with the terms of the Tradexpress Agreement or in the form attached hereto as Exhibit B) on or before 3:00 p.m., Applicable Time, on the Stated Expiry Date of any Letters of Credit, any Borrower may on or prior to the then existing Commitment Termination Date request the Fronting Bank to extend the Stated Expiry Date of such Letter of Credit for an additional period not to exceed the earlier of (x) 180 days from the date of extension of such Letter of Credit and (y) 179 days after the Commitment Termination Date. Notwithstanding any other provision in this Agreement to the contrary, the Fronting Bank may in its discretion refuse to issue, or extend the Stated Expiry Date of, any Letter of Credit or create any Acceptance if such issuance or creation would, in the Fronting Bank's reasonable determination, contravene any sanctions, laws or regulations of any State of the United States or any Federal body or authority of the United States (including but not limited to the regulations of the Federal Reserve Bank) or the laws, regulations or sanctions of any other applicable jurisdiction or authority or if, in the Fronting Bank's reasonable determination, any of the above-mentioned laws, regulations or sanctions would affect the Fronting Bank's ability to perform its obligations with respect to any such Letter of Credit if issued or Acceptance if created. -45- SECTION 4.1.2. Non-U.S. Letters of Credit. Any Borrower may request the issuance of a Non-U.S. Letter of Credit subject to the terms and conditions of this Section 4.1.2, in addition to the other conditions applicable to the issuance of Letters of Credit generally. The issuance of any Non-U.S. Letter of Credit shall be subject to the approval of the Fronting Bank. If any Non-U.S. Letter of Credit is issued, the following provisions shall apply: (a) For purposes of determining the Letter of Credit Outstandings and for purposes of calculating fees payable under Sections 3.3.1 and 3.3.2, the Stated Amount of any Non-U.S. Letter of Credit and of any L/C Reimbursement Obligations in respect thereof shall be deemed to be, as of any date of determination, the U.S. Dollar Equivalent thereof at such date. The initial U.S. Dollar Equivalent of any Non-U.S. Letter of Credit shall be determined by the Fronting Bank on the date of issuance thereof based upon the Applicable Exchange Rate determined on the most recent Reset Date in accordance with Section 5.11(a) and adjusted from time to time thereafter as provided below. The Fronting Bank shall provide the Administrative Agent and the U.S. Borrower with written notice (together with back-up calculations therefor) of adjustments to the U.S. Dollar Equivalent of each outstanding Non-U.S. Letter of Credit on each Reset Date in accordance with Section 5.11(b). If a Disbursement is made by the Fronting Bank under any Non-U.S. Letter of Credit, the U.S. Dollar Equivalent of such Disbursement shall be determined by the Fronting Bank on the Disbursement Date related thereto. The Fronting Bank shall make such determination by calculating the amount in Dollars that would be required in order for the Fronting Bank to purchase an amount of the applicable Qualified Foreign Currency equal to the amount of the relevant L/C Reimbursement Obligation on the Disbursement Date at the Spot Exchange Rate, with respect to such Qualified Foreign Currency on such Disbursement Date. The Fronting Bank shall notify the Administrative Agent and the applicable Borrower promptly of such U.S. Dollar Equivalent determined by it, on the date that such determination is required to be made; (b) The obligation of the applicable Borrower to reimburse the Fronting Bank for any Disbursement under any Non-U.S. Letter of Credit, and to pay interest thereon, shall be payable only in Dollars (calculated pursuant to clause (a) above), and shall not be discharged by paying an amount in any Qualified Foreign Currency or any other currency; and (c) The obligations of each Lender under Section 4.4 to pay its Percentage of any L/C Reimbursement Obligation under any Non-U.S. Letter of Credit shall be payable only in Dollars and shall be in an amount equal to such Percentage of the U.S. Dollar Equivalent of such L/C Reimbursement Obligation determined as provided in clause (a) above. Under no circumstances shall the provisions hereof permitting the issuance of Letters of Credit in a Qualified Foreign Currency be construed, by implication or otherwise, as imposing any obligation upon any Lender -46- to make any Loan or other payment under any Loan Document, or to accept any payment from any Borrower in respect of any L/C Reimbursement Obligation, in any currency other than Dollars, it being understood that the parties intend all Obligations to be denominated and payable only in Dollars. SECTION 4.1.3. Acceptances. In lieu of the Fronting Bank honoring its Disbursement obligation, the U.S. Borrower, the Warnaco Sub Borrowers and the Sub Borrower hereby irrevocably authorize and direct the Fronting Bank to create Acceptances upon the presentation of drafts to the Fronting Bank for acceptance by the Fronting Bank as Acceptances pursuant to this Agreement, provided that such Acceptances shall be properly executed and drawn by the U.S. Borrower, any Warnaco Sub Borrower, the Sub Borrower or (provided that the Letter of Credit giving rise to such Disbursement obligation was issued for the account of the U.S. Borrower, any Warnaco Sub Borrower or the Sub Borrower) any Letter of Credit Beneficiary (each such party referred to as a "Drawer"). To facilitate the acceptance of Acceptances drawn by the U.S. Borrower, the Warnaco Sub Borrowers or the Sub Borrower, each of the U.S. Borrower, the Warnaco Sub Borrowers and the Sub Borrower shall from time to time as required by the Fronting Bank provide to the Fronting Bank an appropriate number of executed drafts drawn in blank by such Borrower in the form prescribed by the Fronting Bank. The U.S. Borrower, the Warnaco Sub Borrowers or the Sub Borrower may, at their option, execute any draft so presented by the facsimile signature or signatures of any one or more designated signing officers of such Borrower. In any event, the Fronting Bank is hereby authorized to accept or pay, as the case may be, any draft of a Drawer which purports to bear its facsimile signature or signatures notwithstanding that any such individual has ceased to be a designated signing officer of such Drawer and any such draft or Acceptance shall be as valid as if such individual were a designated signing officer of such Drawer at the date of issue of such Acceptance. Each draft or Acceptance not originally executed by a Drawer (but instead executed by facsimile, stamp or otherwise) may be dealt with by the Fronting Bank for all intents and purposes and shall bind each Borrower as if duly originally executed by the applicable Drawer's authorized officer (or other person with authority to bind such Drawer) and issued by such Borrower. Without limiting the effect of the indemnity provided under Section 11.4 but in addition to such provision, each of the U.S. Borrower, the Sub Borrower and each Warnaco Sub Borrower will and hereby does undertake to hold the Fronting Bank harmless against, and to indemnify, and each such Borrower hereby does agree to indemnify, the Fronting Bank from, all losses, costs, damages and expenses arising out of the payment or negotiation of any such draft or Acceptance on which a facsimile signature of any Drawer has been wrongly affixed, except to the extent caused by the gross negligence or willful misconduct of the Fronting Bank. The Fronting Bank shall not be liable for its failure to accept an Acceptance as required hereunder if the cause of such failure is, in whole or in part, due to the failure of any Drawer to provide executed drafts to the Fronting Bank on a timely basis. Without creating any obligation to effect such a purchase, Acceptances may be purchased by the Fronting Bank and may be held by it for its own account until maturity or sold by it at any time prior thereto in any relevant market therefor in the United States or elsewhere, in the Fronting Bank's sole discretion. -47- Each Acceptance shall by its terms: (a) be created with a face amount which does not exceed (or would not exceed) the then existing Acceptance Availability, and (b) subject to the next sentence, have a Maturity Date occurring no later than 180 days from its date of creation. Notwithstanding anything to the contrary contained in this Agreement, (i) no Acceptance shall be created in respect of a Non-U.S. Letter of Credit, (ii) no Acceptance shall have a Maturity Date scheduled to occur later than 180 days after the Stated Expiry Date of the Letter of Credit with reference to which such Acceptance was created, (iii) Acceptances shall only be created in respect of Letters of Credit for which the account party is the U.S. Borrower, a Warnaco Sub Borrower, the Sub Borrower or a wholly-owned Subsidiary of any such Borrower, (iv) the face amount of any Acceptance shall be in an amount equal to the Stated Amount of the Letter of Credit with reference to which such Acceptance was created, and (v) this Agreement shall control in the event of any conflict with any Acceptance-related document (other than any Acceptance). SECTION 4.2. Issuances, Extensions and Creations. On the terms and subject to the conditions of this Agreement (including Sections 4.1.1, 4.1.2, 4.1.3 and Article VI), the Fronting Bank shall issue Letters of Credit, extend the Stated Expiry Dates of outstanding Letters of Credit and create Acceptances, all in accordance with the terms of this Agreement. The Fronting Bank will make available the original of each Letter of Credit which it issues and each Acceptance which it creates to the beneficiary or payee, as applicable, thereof (and, at the request of a Lender, will provide such Lender on a monthly basis with a schedule of the outstanding Letters of Credit and Acceptances as of the last day of the prior month) and will notify the applicable Letter of Credit Beneficiary of any extension of the Stated Expiry Date thereof. SECTION 4.3. Destruction of Goods, etc. Neither the Fronting Bank nor its agents or correspondents shall be responsible for the negligence or fraudulence of any Letter of Credit Beneficiary or payee of Acceptance, for the existence, nature, condition, description, value, quality or quantity of the Goods, for the packing, shipment, export, import, handling, storage or delivery thereof, or for the safety or preservation thereof at any time, and neither the Fronting Bank nor its agents or correspondents shall be liable for any loss resulting from -48- the total or partial destruction of or damage to or deterioration or fall in value of the Goods, or from the delay in arrival or failure to arrive of either the Goods or of any of the documents relating thereto, or from the inadequacy or invalidity of any document or insurance, or from the default or insolvency of any insurer, carrier or other Person issuing any document with respect to the Goods, or from failure to give or delay in giving notice of arrival of the Goods or any other notice, or from any error in or misinterpretation of or default or delay in the sending, transmission, arrival or delivery of any message, whether in writing or not, by post, telegraph, cable, wireless or otherwise, and the obligations hereunder of each Borrower to the Fronting Bank shall not be in any way lessened or affected if any Draft or document accepted, paid or acted upon by the Fronting Bank or its agents or correspondents does not bear a reference or sufficient reference to a Letter of Credit or if no note thereof is made on a Letter of Credit. SECTION 4.4. Other Lenders' Participation. Each Letter of Credit issued and each Acceptance created pursuant to Section 4.2 shall, effective upon its issuance or creation, as the case may be, and without further action, be issued and/or created on behalf of all Lenders (including the Fronting Bank thereof) according to their respective Percentages. Each Lender shall, to the extent of its Percentage, be deemed irrevocably to have participated in the issuance of such Letter of Credit and the creation of such Acceptance and shall be responsible to reimburse promptly the Fronting Bank thereof for Reimbursement Obligations which have not been converted into a Loan on the Disbursement Date or Maturity Date related thereto pursuant to the terms of this Agreement or reimbursed by the Borrowers in accordance with Section 4.5, or which have been converted into a Loan on the Disbursement Date or Maturity Date related thereto pursuant to the terms of this Agreement or reimbursed by the Borrowers but must be returned, restored or disgorged by the Fronting Bank for any reason, and each Lender shall, to the extent of its Percentage, be entitled to receive from the Administrative Agent a ratable portion of all fees and interest with respect to such Letter of Credit and/or such Acceptance (including the letter of credit fees received by the Administrative Agent pursuant to Section 3.3.1, with respect to each Letter of Credit, but excluding any fronting fees and other charges payable to the Fronting Bank qua Fronting Bank). In the event that any Borrower shall fail to reimburse the Fronting Bank, or if for any reason Loans shall not be made to fund any Reimbursement Obligation, in each case as provided in this Agreement and in an amount equal to the Disbursement amount or the face amount of any matured Acceptance, as applicable, or in the event the Fronting Bank must for any reason return or disgorge such reimbursement, the Fronting Bank shall promptly notify each Lender of the unreimbursed amount of such drawing or face amount of such matured Acceptance and of such Lender's respective participation therein. Each Lender shall make available to the Fronting Bank, whether or not any Default shall have occurred and be continuing, an amount equal to its respective participation in same day or immediately available funds at the office of the Fronting Bank specified in such notice not later than 11:00 a.m., New York City time, on the Business Day after the date notified by the Fronting Bank. In the event that any Lender fails to make available to the Fronting Bank the amount of such Lender's participation in such Letter of Credit or such Acceptance as provided herein, the Fronting Bank shall be entitled to recover such amount on demand from such Lender -49- together with interest at the Federal Funds Rate from the date such amount is due through (but excluding) the date such payment is made (together with such other compensatory amounts as may be required to be paid by such Lender to the Administrative Agent pursuant to the Rules for Interbank Compensation of the council on International Banking or the Clearinghouse Compensation Committee, as the case may be, as in effect from time to time). Nothing in this Section shall be deemed to prejudice the right of any Lender to recover from the Fronting Bank any amounts made available by such Lender to the Fronting Bank pursuant to this Section in the event that it is determined by a court of competent jurisdiction that the payment with respect to a Letter of Credit or an Acceptance by the Fronting Bank in respect of which payment was made by such Lender constituted gross negligence or wilful misconduct on the part of the Fronting Bank. The Fronting Bank shall distribute to each other Lender which has paid all amounts payable by it under this Section with respect to any Letter of Credit issued or Acceptance created by the Fronting Bank, such other Lender's Percentage of all payments received by the Fronting Bank from the applicable Borrower in reimbursement of the face amount of such matured Acceptance or drawings honored by the Fronting Bank under such Letter of Credit when such payments are received. SECTION 4.5. Disbursements and Maturities. The Fronting Bank will notify the applicable Borrower and the Administrative Agent promptly of the presentment for payment of (a) any Letter of Credit, together with notice of the date (a "Disbursement Date") such payment shall be made and (b) any matured Acceptance. Subject to the terms and provisions of such Letter of Credit and Acceptance, and the delivery to the Fronting Bank of all drafts, certificates, documents and/or instruments required as a condition to making a Disbursement under such Letter of Credit or payment on such matured Acceptance, the Fronting Bank shall make such payment to such Letter of Credit Beneficiary (or its designee) or the payee (or its designee) of such Acceptance. If and to the extent that Loans are not made to fund a Reimbursement Obligation pursuant to Section 2.3, then the Borrowers will reimburse the Fronting Bank within one Business Day following (i) the Disbursement Date for all amounts which the Fronting Bank has disbursed under the Letter of Credit and (ii) the payment date on such matured Acceptance (whether or not such Acceptance was drawn by the U.S. Borrower, a Warnaco Sub Borrower, the Sub Borrower or any Letter of Credit Beneficiary); provided, that each Foreign Borrower and Authentic Fitness (HK) shall only be obligated to reimburse the Fronting Bank for disbursements under Letters of Credit issued for its account. SECTION 4.6. Reimbursement; Outstanding Letters, etc. (a) Each Borrower's obligation under Section 4.5 to reimburse the Fronting Bank with respect to each Disbursement (a "L/C Reimbursement Obligation") or, as applicable, each payment made by the Fronting Bank upon the maturity of an Acceptance (an "Acceptance Reimbursement Obligation"; together with a L/C Reimbursement Obligation, a "Reimbursement Obligation") (including fees and interest thereon payable pursuant to Section 3.2 and Section 3.3), and each Lender's obligation to make participation payments pursuant to Section 4.4 in each Disbursement and each payment in respect of a matured Acceptance, shall be absolute, unconditional and irrevocable and shall not be reduced by any event or occurrence including -50- (i) the form, validity, sufficiency, accuracy, genuineness or legal effect of any Letter of Credit or Acceptance or any document submitted by any party in connection with the application for and issuance of a Letter of Credit or creation of an Acceptance, even if it should in fact prove to be in any or all respects invalid, insufficient, inaccurate, fraudulent or forged; (ii) the form, validity, sufficiency, accuracy, genuineness or legal effect of any instrument transferring or assigning or purporting to transfer or assign a Letter of Credit or Acceptance or the rights or benefits thereunder or the proceeds thereof in whole or in part, which may prove to be invalid or ineffective for any reason; (iii) failure of the beneficiary to comply fully with conditions required in order to demand payment under a Letter of Credit or an Acceptance; (iv) errors, omissions, interruptions or delays in transmission or delivery of any messages, by mail, cable, telegraph, telex or otherwise; (v) any loss or delay in the transmission or otherwise of any document or draft required in order to make a Disbursement under a Letter of Credit or payment in respect of a matured Acceptance; (vi) any change in the time, manner or place of payment of, or in any other term of, all or any of the Obligations in respect of any Letter of Credit or Acceptance or any other amendment or waiver of or any consent to departure from any Letter of Credit; (vii) the existence of any claim, set-off, defense or other right that any Borrower may have at any time against any beneficiary or any transferee of a Letter of Credit or an Acceptance (or any Persons for whom any such beneficiary or any such transferee may be acting), the Fronting Bank or any other Person, whether in connection with the transactions contemplated by the applicable Letter of Credit or Acceptance or any unrelated transaction; (viii) payment by the Fronting Bank under a Letter of Credit or an Acceptance against presentation of a draft or certificate that does not strictly comply with the terms of such Letter of Credit or Acceptance; (ix) any release or amendment or waiver of or consent to departure from any guaranty, for all or any of the Obligations in respect of the applicable Letter of Credit or Acceptance; or (x) any other circumstance or happening whatsoever, whether or not similar to any of the foregoing, including any other circumstance that might otherwise constitute a defense available to, or a discharge of, any Borrower or a guarantor. -51- The obligations of each Borrower and the Lenders hereunder shall remain in full force and effect and shall apply to any alteration to or extension of the expiration date of any Letter of Credit or any Letter of Credit issued to replace, extend or alter any Letter of Credit during the term of this Agreement. None of the foregoing shall affect, impair or prevent the vesting of any of the rights or powers granted to the Fronting Bank or any Lender hereunder. In furtherance and extension and not in limitation or derogation of any of the foregoing, any action taken or omitted to be taken by the Fronting Bank in good faith (and not constituting gross negligence or willful misconduct) shall be binding upon each Borrower, each Obligor and each such Lender, and shall not put the Fronting Bank under any resulting liability to any Borrower, any Obligor or any such Lender, as the case may be. (b) The applicable Borrower shall pay to the Fronting Bank an amount equal to (i) the then Stated Amount and (ii) the aggregate face amount of all unmatured Acceptances then outstanding and all unpaid fees in respect of (x) any Letter of Credit or Acceptance outstanding under this Agreement upon any termination of this Agreement (other than the occurrence of the Commitment Termination Date pursuant to clause (a) of the definition thereof) and (y) any Letter of Credit or Acceptance which is affected by, or becomes the subject matter of, any order, judgment, injunction or other such determination (an "Order") or any petition or other application for any Order by any Borrower or any other party, restricting payment by the Fronting Bank under and in accordance with such Letter of Credit or Acceptance or extending the Fronting Bank's or any Lender's liability under such Letter of Credit beyond the expiration date stated therein, or if not stated therein, which would otherwise apply to such Letter of Credit. Payment in respect of each such Letter of Credit or Acceptance described in (x) and (y) in this clause shall be due forthwith upon demand and in Dollars. (c) The Fronting Bank hereby agrees that it will, with respect to each Letter of Credit and each Acceptance subjected to any such demand for payment under the preceding clause (b), upon the later of: (i) the date on which any final and non-appealable order, judgment or other such determination has been rendered or issued either terminating any applicable Order or permanently enjoining the Fronting Bank from paying under such Letter of Credit and/or Acceptance; and (ii) (x) in the case of a Letter of Credit, the earlier of (A) the date on which either the original counterpart of such Letter of Credit is returned to the Fronting Bank for cancellation or the Fronting Bank is released by the beneficiary thereof from any further obligations in respect of such Letter of Credit, and (B) the expiry of such Letter of Credit and (y) in the case of an Acceptance, on the date on which either the original Acceptance is returned to the Fronting Bank for cancellation or the Fronting Bank is released by the payee thereto from any further obligations in respect of such Acceptance; -52- pay to the applicable Borrower an amount in Dollars equal to any excess of the amount received by the Fronting Bank pursuant to clause (b) above in respect of such Letter of Credit or such Acceptance (the "Received Amount") over the equivalent in Dollars of the total of amounts applied to reimburse the Fronting Bank for amounts paid by it under such Letter of Credit or such Acceptance, if any (the Fronting Bank having the right to so appropriate such funds), together with an additional amount in Dollars computed by applying to the amount of such excess from time to time a per annum rate equal to 3% less than the Alternate Base Rate. Such additional amount shall be calculated daily on the basis of a 360 day year for the actual number of days elapsed from and including the date of payment to the Fronting Bank of the Received Amount to (but not including) the date of return to the applicable Borrower of the excess. SECTION 4.7. Deemed Disbursements. Upon (a) the occurrence of any Commitment Termination Event of the type described in clause (c) of the definition of "Commitment Termination Event", (b) the occurrence and during the continuation of any event or condition specified in Section 9.1.6, or (c) the occurrence and during the continuance of any other Event of Default, in the case of clause (c), upon the request of the Required Lenders, (i) an amount equal to that portion of (x) Letter of Credit Outstandings attributable to outstanding and undrawn Letters of Credit and (y) Acceptance Obligations attributable to outstanding and unmatured Acceptances shall, without demand upon or notice to any Borrower, be deemed to have been paid or disbursed by the Fronting Bank under such Letters of Credit or Acceptances, as the case may be, (notwithstanding that such amount may not in fact have been so paid or disbursed); and (ii) upon notification by the Fronting Bank to the Administrative Agent and the U.S. Borrower of its obligations under this Section, the Borrowers shall be immediately obligated to reimburse the Fronting Bank the amount deemed to have been so paid or disbursed by the Fronting Bank; provided, that each Foreign Borrower and Authentic Fitness (HK) shall only be obligated to reimburse the Fronting Bank for amounts deemed to have been disbursed under Letters of Credit issued for its account. Any amounts so received by the Fronting Bank from the Borrowers pursuant to this Section shall be held as collateral security for the repayment of such Borrower's Obligations in connection with, as applicable, the Letters of Credit issued and the Acceptances created by the Fronting Bank. At any time when such Letters of Credit shall terminate, such Acceptances mature and are paid and all Obligations of the Fronting Bank are either terminated or paid or reimbursed to the Fronting Bank in full, the Obligations of the Borrowers under this Section shall be reduced accordingly (subject, however, to reinstatement in the event any payment in respect of such Letters of Credit or Acceptances is -53- recovered in any manner from the Fronting Bank), and the Fronting Bank will return to the applicable Borrower the excess, if any, of (a) the aggregate amount deposited by the Borrowers with the Fronting Bank and not theretofore applied by the Fronting Bank to any Reimbursement Obligation over (b) the aggregate amount of all Reimbursement Obligations to the Fronting Bank pursuant to this Section, as so adjusted. At such time when all Events of Default shall have been cured or waived, the Fronting Bank shall return to the applicable Borrower all amounts then on deposit with the Fronting Bank pursuant to this Section together with an additional amount in Dollars computed by applying to the amount so returned to the applicable Borrower from time to time a per annum rate equal to 3% less than the Alternate Base Rate. Such additional amount shall be calculated daily on the basis of a 360 day year for the actual number of days elapsed from and including the date of payment to the Fronting Bank by the applicable Borrower to (but not including) the date of return to the applicable Borrower of such amounts. SECTION 4.8. Nature of Reimbursement Obligations. The Borrowers, as applicable, shall assume all risks of the acts, omissions, or misuse of any (a) Letter of Credit by the beneficiary thereof and (b) Acceptance by the payee thereof. Any action, inaction or omission taken or suffered by the Fronting Bank or any of the Fronting Bank's correspondents under or in connection with a Letter of Credit, any Draft made under any Letter of Credit or any Acceptance or any document relating thereto, if in good faith and in conformity with foreign or domestic laws, regulations or customs applicable thereto shall be binding upon the applicable Borrowers and shall not place the Fronting Bank or any of its correspondents under any resulting liability to such Borrowers. Without limiting the generality of the foregoing, the Fronting Bank and its correspondents may receive, accept or pay as complying with the terms of a Letter of Credit, any Draft under any Letter of Credit, an Acceptance, otherwise in order which may be signed by, or issued to, the administrator or any executor of, or the trustee in bankruptcy of, or the receiver for any property of, or other Person or entity acting as the representative or in the place of, such beneficiary or its successors and assigns. The Borrowers covenant that they will not take any steps, issue any instructions to the Fronting Bank or any of its correspondents or institute any proceedings intended to derogate from the right or ability of the Fronting Bank or its correspondents to honor and pay any Draft or Drafts. Without in any way limiting the provisions of Section 4.6, and notwithstanding anything to the contrary contained in this Agreement or in any other Loan Document, each Borrower irrevocably acknowledges and agrees that it is unconditionally liable for all Reimbursement Obligations with respect to each Disbursement under each Letter of Credit issued or paid, as the case may be, for its account and each payment made on a matured Acceptance created for its account, as applicable (including fees and interest thereon), in each case, regardless (in the case of each of the U.S. Borrower, -54- each Warnaco Sub Borrower and the Sub Borrower) whether such Letter of Credit was issued or such Advance created in respect of the sourcing or other corporate requirements or needs of the U.S. Borrower, the Sub Borrower or any Subsidiary of the U.S. Borrower or Sub Borrower, or otherwise. SECTION 4.9. Existing Letters of Credit and Acceptances. The Existing Letters of Credit and the Existing Acceptances, and the amount and payment date of fees thereon (including such Existing Letters of Credit deemed to be Letters of Credit hereunder), shall be governed by this Agreement. Simultaneously with the effectiveness of this Agreement pursuant to Section 11.8 and the satisfaction or waiver of the conditions set forth in Section 6.1, the Existing Credit Agreement shall be superseded in its entirety by this Agreement, except to the extent of any provisions of the Existing Credit Agreement which by their express terms survive termination of the Existing Credit Agreement. SECTION 4.10. Authentic Letters of Credit and Acceptances. Upon the consummation of the Merger and termination of the Authentic Trade Credit Facility, each Authentic Letter of Credit and each Authentic Acceptance (and the amount and payment date of fees thereon) shall be deemed to be Letters of Credit and Acceptances hereunder and shall be governed by this Agreement. ARTICLE V CERTAIN LIBO RATE AND OTHER PROVISIONS SECTION 5.1. LIBO Rate Lending Unlawful. If any Lender, including the Fronting Lender, shall determine (which determination shall, upon notice thereof to the U.S. Borrower, be conclusive and binding on the Borrowers) that the introduction of or any change in or in the interpretation of any law makes it unlawful, or any central bank or other governmental authority asserts that it is unlawful, for such Lender, including the Fronting Lender, to make, continue or maintain any Loan as, or to convert any Loan into, a LIBO Rate Loan, or to create Acceptances, the obligations of the Lenders, including the Fronting Lender, to make, continue, maintain or convert into any such Loans or to create Acceptances, as the case may be, shall, upon such determination, forthwith be suspended until such Lender, including the Fronting Lender, shall notify the U.S. Borrower that the circumstances causing such suspension no longer exist, and all LIBO Rate Loans shall automatically convert into Base Rate Loans at the end of the then current Interest Periods with respect thereto or sooner, if required by such law or assertion. -55- SECTION 5.2. Deposits Unavailable. If any Lender shall have determined that (a) Dollar deposits in the relevant amount and for the relevant Interest Period are not available to it in its relevant market; or (b) by reason of circumstances affecting such Lender's relevant market, adequate means do not exist for ascertaining the interest rate applicable hereunder to LIBO Rate Loans, then, upon notice from such Lender to the U.S. Borrower and the Administrative Agent, the obligations of the Lenders under Section 2.3 and Section 2.4 to make or continue any Loans as, or to convert any Loans into, LIBO Rate Loans shall forthwith be suspended until such Lender shall notify the U.S. Borrower and the Administrative Agent that the circumstances causing such suspension no longer exist. SECTION 5.3. Increased LIBO Rate Loan Costs, etc. The Borrowers agree to reimburse each Lender for any increase in the cost to such Lender of, or any reduction in the amount of any sum receivable by such Lender in respect of, making or continuing (or of its obligation to make or continue) any Loans as, or of converting (or of its obligation to convert) any Loans into, LIBO Rate Loans. Each Lender shall promptly notify the U.S. Borrower and the Administrative Agent in writing of the occurrence of any such event, such notice to state, in reasonable detail, the reasons therefor and the additional amount required fully to compensate such lender for such increased cost or reduced amount. Such additional amounts shall be payable by the U.S. Borrower directly to such Lender within five Business Days of its receipt of such notice, and such notice shall, in the absence of manifest error, be conclusive and binding on the U.S. Borrower. SECTION 5.4. Funding Losses. In the event any Lender shall incur any loss or expense (including any loss or expense incurred by reason of the liquidation or reemployment of deposits or other funds acquired by such Lender to make, continue or maintain any portion of the principal amount of any Loan as, or to convert any portion of the principal amount of any Loan into, a LIBO Rate Loan, but excluding the loss of any anticipated or expected profits in respect of such LIBO Rate Loan) as a result of (a) any conversion or repayment or prepayment of the principal amount of any LIBO Rate Loans on a date other than the scheduled last day of the Interest Period applicable thereto, whether pursuant to Section 3.1 or otherwise; (b) any Loans not being made as LIBO Rate Loans in accordance with the Borrowing Request therefor; or (c) any Loans not being continued as, or converted into, LIBO Rate Loans in accordance with the Continuation/ Conversion Notice therefor, -56- then, upon the written notice of such Lender to the U.S. Borrower and the Administrative Agent, the U.S. Borrower shall, within five Business Days of its receipt thereof, pay directly to such Lender such amount as will (in the reasonable determination of such Lender) reimburse such Lender for such loss or expense. Such written notice (which shall include calculations in reasonable detail) shall, in the absence of manifest error, be conclusive and binding on the U.S. Borrower. SECTION 5.5. Increased Capital Costs, etc. If the implementation of or, after the date hereof, the introduction or any change in the interpretation of, or any change in its application to the Borrowers, the Fronting Bank and/or the Lenders of, any law or any regulation or guideline issued by any central bank or other governmental authority (whether or not having the force of law), including any eurocurrency or other reserve or special deposit requirement or any tax (other than tax which is on a Lender's general net or gross income or in respect of a Lender's franchise taxes) or any capital requirement, has, due to a Lender's or the Fronting Bank's compliance, the effect, directly or indirectly, of (a) increasing the cost to such Lender or Fronting Bank of performing its obligations hereunder or under any Letter of Credit, Acceptance or Loan; (b) reducing any amount received or receivable by such Lender or Fronting Bank or its effective return hereunder or in respect of any Letter of Credit, Acceptance or Loan or on its capital; or (c) causing such Lender or Fronting Bank to make any payment or to forgo any return based on any amount received or receivable by such Lender or Fronting Bank hereunder or in respect of any Letter of Credit, Acceptance or Loan, then upon demand from time to time the U.S. Borrower shall pay such amount as shall compensate such Lender or Fronting Bank for any such cost, reduction, payment or foregone return upon receipt of the certificate referred to in the last sentence of this paragraph. The Borrowers shall further indemnify the Fronting Bank for all costs, losses and expenses incurred by the Fronting Bank in connection with any Letter of Credit or Acceptance and agrees that the Fronting Bank shall have no liability to the Borrowers for any reason in respect of any Letter of Credit or Acceptance other than on account of the Fronting Bank's gross negligence or wilful misconduct. Any certificate of the Fronting Bank or any Lender in respect of the foregoing will be conclusive and binding upon the Borrowers, except for manifest error, and shall set forth a determination of the amounts owing to the Fronting Bank or such Lender in good faith using any reasonable averaging and attribution methods. Anything in this Agreement or any Loan Document to the contrary notwithstanding, no Lender or Fronting Bank shall be indemnified for, exculpated from, or relieved from liability, under this Agreement or any Loan Document, for any act or omission constituting gross negligence or wilful misconduct. SECTION 5.6. Taxes. (a) Each payment made by each Borrower under this Agreement shall be made free and clear of, and without deduction for, any present or future withholding or other taxes imposed on such payments by or on behalf of any government or any political subdivision or agency thereof or therein, except for any income, franchise and other taxes imposed on the Lender (which for purposes of this Section 5.6 shall include any branch, affiliate or international banking facility created by a Lender to make or maintain a LIBO Rate Loan pursuant to Section 2.5) by the jurisdiction under the laws of which such -57- Lender is organized or any political subdivision or agency thereof or by the jurisdiction of such Lender's branch or lending office or principal place of business (all such non-excluded taxes being hereinafter referred to as "Taxes"). If the Administrative Agent or any Lender is required by law at any time to pay any Taxes or to make any payment on account of Taxes on, in relation to or calculated by reference to any sum received or receivable hereunder, or any liability for Taxes in respect of any such sum is imposed, levied or assessed against any Lender or the Administrative Agent, then the U.S. Borrower will indemnify each such Lender and the Administrative Agent for the full amount of Taxes (including Taxes attributable to any payment on account of such indemnification and any interest, penalties and costs with respect to any such Taxes), whether or not such Taxes were correctly or legally asserted. Such indemnification shall be made within 30 days of the written demand of the Lender or the Administrative Agent therefor. Whenever any Taxes are payable by any Borrower with respect to any payments hereunder, such Borrower shall promptly furnish to the Administrative Agent for the account of the applicable Lender official receipts (to the extent that the relevant governmental authority delivers such receipts) evidencing payment of any such Taxes so withheld or deducted. (b) Each Lender that is not a "United States person" (as such term is defined in Section 7701(a)(30) of the Internal Revenue Code of 1986, as amended) shall submit to the U.S. Borrower and the Administrative Agent on or before the Effective Date (or, in the case of a Person that becomes a Lender after the Effective Date by assignment or pursuant to Section 2.5 promptly upon such assignment or funding) two duly completed and signed copies of either (i) Form W-8BEN of the United States Internal Revenue Service entitling such Lender to a complete exemption from withholding on all amounts to be received by such Lender pursuant to this Agreement or (ii) Form W-8ECI of the United States Internal Revenue Service relating to all amounts to be received by such Lender pursuant to this Agreement, or in either case, an applicable successor form. Each such Lender shall, from time to time after submitting either such form, submit to the U.S. Borrower and the Administrative Agent such additional duly completed and signed copies of one or the other such forms (or such successor forms or other documents as shall be adopted from time to time by the relevant United States taxing authorities) as may be (i) reasonably requested in writing by the U.S. Borrower or the Administrative Agent and (ii) appropriate under then current United States law or regulations to avoid United States withholding taxes on payments in respect of any amounts to be received by such Lender pursuant to this Agreement. Upon the reasonable request of the U.S. Borrower or the Administrative Agent, each Lender that has not provided the forms or other documents, as provided above, on the basis of being a "United States person" shall submit to the U.S. Borrower and the Administrative Agent a certificate to the effect that it is such a "United States person". (c) If any Lender which is not a "United States person" determines that it is unable to submit to the U.S. Borrower and the Administrative Agent any form or certificate that such Lender is requested to submit pursuant to the preceding paragraph, or that it is required to withdraw or cancel any such form or certificate, or that any such form or certificate -58- previously submitted has otherwise become ineffective or inaccurate, such Lender shall promptly notify the U.S. Borrower and the Administrative Agent of such fact. (d) The Borrowers shall not be required to pay any additional amount in respect of United States federal withholding tax imposed with respect to any Lender if and only to the extent that (i) such Lender is subject to such United States federal withholding tax on the Effective Date (or in the case of a Person that became a Lender after the Effective Date by assignment or pursuant to Section 2.5 on the date of such assignment or funding) or would be subject to United States federal withholding tax on such date if a payment under this Agreement had been received by it on such date; (ii) such Lender becomes subject to United States federal withholding tax subsequent to the date referred to in clause (i) above (or in the case of a Lender which is not a "United States person", the first date on which it delivers the appropriate form or certificate to the U.S. Borrower as referred to in clause (b) of this Section) as a result of a change in the circumstances of such Lender (other than a change in applicable law), including a change in the residence, place of incorporation or principal place of business of the Lender, a change in the branch or lending office of the Lender participating in the transactions set forth herein or as a result of the sale by the Lender of participating interests in such Lender's creditor position(s) hereunder; or (iii) such United States federal withholding tax would not have been incurred but for the failure of such Lender to file with the appropriate tax authorities and/or provide to the U.S. Borrower any form or certificate that it was required so to do pursuant to clause (b) of this Section, unless the Lender is not entitled to provide such form or certificate as a result of a change in applicable law after the Effective Date (or in the case of a Person that became a Lender after the Effective Date by assignment or pursuant to Section 2.5 the date of such assignment or funding). (e) Within thirty (30) days after the written reasonable request of the U.S. Borrower, each Lender shall execute and deliver to the U.S. Borrower such certificates, forms or other documents which can be furnished consistent with the facts and which are reasonably necessary to assist the U.S. Borrower in applying for refunds of Taxes imposed by the United States paid by the U.S. Borrower hereunder or making payment of Taxes imposed by the United States hereunder; provided, however, that no Lender shall be required to furnish to the U.S. Borrower any financial information with respect to itself or other information which it considers confidential. (f) The U.S. Borrower shall have the right to require any Lender which is not a "United States person" to which the U.S. Borrower is required to make additional payments pursuant to Section 5.6 hereof on account of Taxes imposed by the United States (or would, upon payment to such Lender of an amount hereunder, be so required) to assign such Lender's total Loans and Commitments to one or more banks or financial institutions identified by the U.S. Borrower and acceptable to the Administrative Agent at a purchase price equal to the then outstanding amount of all principal, interest, fees and other amounts then owed to such Lender if such assignment would reduce or eliminate the U.S. Borrower's obligation to make such additional payments pursuant to Section 5.6 hereof. -59- SECTION 5.7. Payments, Computations, etc. Unless otherwise expressly provided herein (including as set forth in Section 2.3 and Section 4.5), all payments by the Borrowers pursuant to this Agreement, the Notes or any other Loan Document shall be made by the Borrowers to the Administrative Agent for the account of the Lenders entitled to receive such payment. All such payments required to be made to the Administrative Agent shall be made, without setoff, deduction or counterclaim, not later than 11:00 a.m., Applicable Time, on the date due, in same day or immediately available funds, to such account as the Administrative Agent shall specify from time to time by notice to the U.S. Borrower. To the extent the Administrative Agent receives such funds prior to 12:00 noon, Applicable Time, the Administrative Agent shall promptly remit in same day funds to each Lender its share, if any, of such payments received by the Administrative Agent for the account of such Lender. All interest and fees shall be computed on the basis of the actual number of days (including the first day but excluding the last day) occurring during the period for which such interest or fee is payable over a year comprised of 360 days. Whenever any payment to be made shall otherwise be due on a day which is not a Business Day in New York, such payment shall (except as otherwise required by clause (b) of the definition of the term "Interest Period") be made on the next succeeding Business Day and such extension of time shall be included in computing interest and fees, if any, in connection with such payment. SECTION 5.8. Sharing of Payments. If any Lender shall obtain any payment or other recovery (whether voluntary, involuntary, by application of setoff or otherwise) on account of any Letter of Credit, Acceptance or Loan in excess of its Percentage of payments then or therewith obtained by all Lenders, such Lender shall purchase from the other Lenders such participations in Letters of Credit, Acceptances or Loans, as the case may be, as shall be necessary to cause such purchasing Lender to share the excess payment or other recovery ratably with each of them; provided, however, that if all or any portion of the excess payment or other recovery is thereafter recovered from such purchasing Lender, the purchase shall be rescinded and each Lender which has sold a participation to the purchasing Lender shall repay to the purchasing Lender the purchase price to the ratable extent of such recovery together with an amount equal to such selling Lender's ratable share (according to the proportion of (a) the amount of such selling Lender's required repayment to the purchasing Lender to (b) the total amount so recovered from the purchasing Lender) of any interest or other amount paid or payable by the purchasing Lender in respect of the total amount so recovered. Each Borrower agrees that any Lender so purchasing a participation from another Lender pursuant to this Section may, to the fullest extent permitted by law, exercise all its rights of payment (including pursuant to Section 5.9) with respect to such participation as fully as if such Lender were the direct creditor of such Borrower in the -60- amount of such participation. If under any applicable bankruptcy, insolvency or other similar law, any Lender receives a secured claim in lieu of a setoff to which this Section applies, such Lender shall, to the extent practicable, exercise its rights in respect of such secured claim in a manner consistent with the rights of the Lenders entitled under this Section to share in the benefits of any recovery on such secured claim. SECTION 5.9. Setoff. Each Lender shall, upon the occurrence of any event or condition described in Section 9.1.6 or, with the consent of the Required Lenders, upon the occurrence of any other Event of Default, have the right to appropriate and apply to the payment of the Obligations owing to it (whether or not then due) any and all balances, credits, deposits, accounts or moneys of the applicable Borrower then or thereafter maintained with or otherwise held by such Lender; provided, however, that any such appropriation and application shall be subject to the provisions of Section 5.8. Each Lender agrees promptly to notify the U.S. Borrower and the Administrative Agent after any such setoff and application made by such Lender; provided, however, that the failure to give such notice shall not affect the validity of such setoff and application. The rights of each Lender under this Section are in addition to other rights and remedies (including other rights of setoff under applicable law or otherwise) which such Lender may have. SECTION 5.10. Use of Proceeds. Each Borrower shall apply the proceeds of each Credit Extension in accordance with the sixth recital. SECTION 5.11. Currency Fluctuations, etc. (a) Not later than 1:00 p.m., New York City time, on each Calculation Date, the Fronting Bank shall (i) determine the Applicable Exchange Rate as of such Calculation Date with respect to each Qualified Foreign Currency for which there are at such time outstanding Non-U.S. Letters of Credit and (ii) give notice thereof to the Administrative Agent. The Applicable Exchange Rates so determined shall become effective on the first Business Day immediately following the relevant Calculation Date (a "Reset Date") and shall remain effective until the next succeeding Reset Date. (b) Not later than 3:00 p.m., New York City time, on each Reset Date, the Administrative Agent shall (i) determine the U.S. Dollar Equivalent of the Non-U.S. Letters of Credit in each Qualified Foreign Currency then outstanding (after giving effect to any Loans to be made or repaid on such date) and (ii) notify the U.S. Borrower of the results of such determination. SECTION 5.12. European Monetary Union. If, as a result of the implementation of European Monetary Union ("EMU"), (a) any currency that is a Qualified Foreign Currency ceases to be lawful currency of the nation issuing the same and is replaced by a European common currency (the "Euro"), then any amount payable hereunder in such replaced Qualified Foreign Currency by the Fronting Bank in respect of a Disbursement shall instead be payable in Euros and the amount so payable shall be determined by translating the amount payable in such Qualified Foreign Currency to Euros at the exchange rate recognized by the -61- European Central Bank for the purpose of implementing EMU; and (b) any nation issuing a currency that is a Qualified Foreign Currency also issues or recognizes the Euro through the central bank or other comparable authority of such nation, then so long as such nation issues or recognizes both the Qualified Foreign Currency and the Euro as the national currency, any amounts payable hereunder by the Fronting Bank in respect of a Disbursement in such Qualified Foreign Currency shall be payable either in such Qualified Foreign Currency or the Euro (determined in accordance with the method described in the foregoing clause (a)), as may be requested by the applicable Letter of Credit Beneficiary upon notice delivered to the Fronting Bank. Prior to the applicability of clause (a) or (b) of the preceding sentence, each amount payable hereunder in any Qualified Foreign Currency will continue to be payable only in such Qualified Foreign Currency. Each of the Borrowers and the Fronting Bank agrees, at the request of any such party at the time of, or at any time following, the implementation of European Monetary Union, to enter into good faith negotiations concerning an agreement to amend this Agreement in such manner as any such party shall reasonably request in order to reflect the implementation of European Monetary Union and to place the parties hereto in the position they would have been in had European Monetary Union not been implemented. Notwithstanding anything to the contrary in Section 11.1, in the event that the Borrowers and the Fronting Bank are able to agree to an amendment of this Agreement, which amendment solely addresses issues raised by European Monetary Union, this Agreement, as of such amendment's effective date, shall be deemed to be amended by such amendment without the requirement of any further action hereunder by the Lenders or the Required Lenders, as the case may be. ARTICLE VI CONDITIONS PRECEDENT SECTION 6.1. Initial Credit Extension. The amendment and restatement of the Existing Credit Agreement on the terms set forth in this Agreement and the obligations of the Lenders to make any Credit Extension and the Fronting Bank to issue any Letters of Credit or Acceptances shall be subject to the delivery to the Managing Agents of this Agreement duly executed and delivered by the Required Lenders, each Agent, each Borrower and Group, and the prior or concurrent satisfaction of each of the conditions precedent (other than the 100% Effective Date Conditions Precedent) set forth below in this Section 6.1. SECTION 6.1.1. Resolutions, etc. The Managing Agents shall have received from each Borrower originally executed copies of a certificate, each dated the date of the Effective Date, of its Secretary or Assistant Secretary as to (a) resolutions of its Board of Directors then in full force and effect authorizing the execution, delivery and performance of this Agreement, the Notes and each other Loan Document to be executed by it; and -62- (b) the incumbency and signatures of those of its officers authorized to act with respect to this Agreement, the Notes and each other Loan Document executed by it, upon which certificate each Lender may conclusively rely until it shall have received a further certificate of the Secretary of such Obligor canceling or amending such prior certificate. SECTION 6.1.2. Delivery of Notes. On the 100% Effective Date, each Lender shall have received its Notes duly executed and delivered by each Borrower. SECTION 6.1.3. Affirmation and Consent to Guarantees. The Managing Agents shall have received originally executed counterparts for each Lender of an Affirmation and Consent, dated as of the date hereof, duly executed by an Authorized Officer of Group and of each Domestic Subsidiary that is a party to the Subsidiary Guaranty, in form and substance satisfactory to the Administrative Agent. SECTION 6.1.4. Supplement to Subsidiary Guaranty. The Managing Agents shall have received originally executed counterparts for each Lender of a Supplement to Subsidiary Guaranty, dated as of the date hereof, duly executed by an Authorized Officer of each Domestic Subsidiary that is not already a party to the Subsidiary Guaranty, if any. SECTION 6.1.5. Certificates as to No Default, etc. No Default shall have occurred and be continuing under the Existing Credit Agreement and no Event of Default shall have occurred or would occur under the Existing Credit Agreement or would result from the execution and delivery of, or the performance by the Borrowers of their obligations under, this Agreement or the issuance of any Letter of Credit or the creation of any Acceptance or the making of any Loan, and the Managing Agents shall have received originally executed certificates for each Lender dated the Effective Date from an Authorized Officer of the U.S. Borrower certifying as to the above. SECTION 6.1.6. No Material Adverse Change. Since January 2, 1999, there shall have been no Material Adverse Change. SECTION 6.1.7. Amendment of U.S. Credit Agreement. The Administrative Agent shall have received an executed and effective amendment to the U.S. Credit Agreement as required to permit this Agreement. SECTION 6.1.8. Opinions of Counsel. The Managing Agents shall have received opinions, dated the Effective Date and addressed to the Agents and all Lenders, from (a) Skadden, Arps, Slate, Meagher & Flom LLP ("Skadden, Arps"), New York counsel to the Obligors, substantially in the form of Exhibit G hereto, (b) Stanley P. Silverstein, General Counsel for the U.S. Borrower, substantially in the form of Exhibit H hereto, (c) Garth Patterson, Barbados counsel to Warnaco (HK), substantially in the form of Exhibit -63- I hereto and (d) Loeff Claeys Verbeke, Dutch counsel to Warnaco B.V., Warnaco Netherlands and Warnaco Holland, substantially in the form of Exhibit J hereto. SECTION 6.1.9. Certificates as to No Default, etc. On the 100% Effective Date, no Default shall have occurred and be continuing under this Agreement and no Event of Default shall have occurred or would occur under this Agreement or would result from the occurrence of the 100% Effective Date, and the Managing Agents shall have received originally executed certificates for each Lender dated the 100% Effective Date from an Authorized Officer of the U.S. Borrower certifying as to the above. SECTION 6.1.10. Opinions of Counsel. The Managing Agents shall have received opinions, dated the 100% Effective Date and addressed to the Agents and all Lenders, from (a) Skadden, Arps, Slate, Meagher & Flom LLP ("Skadden, Arps"), New York counsel to the Obligors, substantially in the form of Exhibit G hereto, (b) Stanley P. Silverstein, General Counsel for the U.S. Borrower, substantially in the form of Exhibit H hereto, (c) Garth Patterson, Barbados counsel to Warnaco (HK), substantially in the form of Exhibit I hereto and (d) Loeff Claeys Verbeke, Dutch counsel to Warnaco B.V., Warnaco Netherlands and Warnaco Holland, substantially in the form of Exhibit J hereto. SECTION 6.2. All Credit Extensions. The obligation of each Lender or the Fronting Bank to make any Credit Extension on any date other than a Funding Date shall be subject to the satisfaction of each of the conditions precedent set forth in this Section 6.2. SECTION 6.2.1. Compliance with Warranties, No Default, etc. Both before and after giving effect to any Credit Extension the following statements shall be true and correct: (a) no event or circumstances has occurred and is continuing, or would result from the making of such Credit Extension, which constitutes a Default, or which when considered by itself or together with other past or then existing events or circumstances, constitutes or would constitute a Material Adverse Change; (b) no Event of Default or any condition, occurrence or event which, after notice or lapse of time or both, would constitute an Event of Default shall have occurred (unless otherwise waived by the Required Lenders) in the performance of any affirmative or negative covenants contained in Article VIII; (c) none of the events described in Article IX shall have occurred (unless, in the case of other than Section 9.1.6, otherwise waived by the Required Lenders); and (d) the representations and warranties set forth in Article VII, Article III of the Subsidiary Guaranty and Article III of the Group Guaranty shall, in each case, be true and correct with the same effect as if then made (unless stated to relate solely to an earlier date, in which case such representations and warranties shall have been true and correct as of such earlier date). -64- SECTION 6.2.2. Credit Request. To the extent that Loans are made in accordance with clause (b) of Section 2.3, any Drawer requests that the Fronting Bank create an Acceptance, or any Borrower requests that the Fronting Bank issue a Letter of Credit other than by means of notification in accordance with the terms of the Tradexpress Agreement, the Administrative Agent shall have been presented with a draft by any Drawer or shall have received a Borrowing Request or Issuance Request, as the case may be, for such Credit Extension, executed and delivered (as applicable) by the applicable Borrower. Each of the delivery (or deemed delivery pursuant to the terms of this Agreement) of a draft by any Drawer, a Borrowing Request or an Issuance Request and the creation of the Acceptance, the acceptance by any Borrower of the proceeds of the Borrowing, the issuance of the Letter of Credit, or the making of a Loan upon a Disbursement or the maturity of an unreimbursed Acceptance, as applicable, shall constitute a representation and warranty by such Borrowers that on the date of such Credit Extension (both immediately before and after giving effect to such Credit Extension and the application of the proceeds thereof) or the creation of an Acceptance or the issuance of the Letter of Credit, as applicable, the statements made in Section 6.2.1 are in each case true and correct. SECTION 6.2.3. Satisfactory Legal Form. All documents executed or submitted pursuant hereto by or on behalf of Group or any of its Subsidiaries shall be satisfactory in form and substance to the Managing Agents; the Managing Agents shall have received all information, approvals, opinions, documents or instruments as the Managing Agents may reasonably request. ARTICLE VII REPRESENTATIONS AND WARRANTIES In order to induce the Fronting Bank, the Lenders and the Agents to enter into this Agreement and to make Loans, create Acceptances and issue Letters of Credit hereunder, each Borrower and Group represents and warrants unto each Agent, each Lender and the Fronting Bank, as set forth in this Article VII. SECTION 7.1. Organization, etc. Group and each of its Subsidiaries is a corporation, limited liability company or trust, as the case may be, duly organized, validly existing and in good standing under the laws of the jurisdiction of its incorporation or organization, is duly qualified to do business and is in good standing as a foreign corporation, limited liability company or trust, as applicable, in each jurisdiction where the nature of its business requires such qualification, except where the failure to so qualify would not have a Material Adverse Effect, and each Obligor has full power and authority and holds all requisite governmental licenses, permits and other approvals to enter into and perform its Obligations under this Agreement, the Notes and each other Loan Document to which it is a party and to own and hold under lease its property and to conduct its business substantially as currently conducted by it. Set forth on Schedule 7.1 hereto is a complete and accurate list -65- of all Subsidiaries of Group and a designation as to whether or not such Subsidiary is (a) a Domestic Subsidiary and/or (b) a Material Subsidiary. SECTION 7.2. Due Authorization, Non-Contravention, etc. The execution, delivery and performance (a) by the Borrowers and Group of this Agreement, the Notes and each other Loan Document executed or to be executed by it, and (b) by each other Obligor of each Loan Document executed and delivered by it, are, in each case, within such Obligor's corporate (or other, as applicable) powers, have been duly authorized by all necessary corporate (or other, as applicable) action, and do not (i) contravene such Obligor's Organic Documents; (ii) contravene any contractual restriction, law or governmental regulation or court decree or order binding on or affecting such Obligor; or (iii) result in, or require the creation or imposition of, any Lien on any of such Obligor's properties. No Obligor is in breach of any contractual restriction or in violation of any law or governmental regulation or court decree or order binding on or affecting such Obligor, the breach or violation of which is or would be reasonably likely to have a Material Adverse Effect. SECTION 7.3. Government Approval, Regulation, etc. No authorization or approval or other action by, and no notice to or filing with, any governmental authority or regulatory body or other Person is required for the due execution, delivery or performance by any Borrower, Group or any other Obligor of this Agreement, the Notes or any other Loan Document to which it is a party. Neither Group nor any of its Subsidiaries is an "investment company" within the meaning of the Investment Company Act of 1940, as amended, or a "holding company", or a "subsidiary company" of a "holding company", or an "affiliate" of a "holding company" or of a "subsidiary company" of a "holding company", within the meaning of the Public Utility Holding Company Act of 1935, as amended. SECTION 7.4. Validity, etc. This Agreement constitutes, and the Notes and each other Loan Document executed by the Borrowers and each other Obligor will, on the due execution and delivery thereof, constitute, the legal, valid and binding obligations of such Borrower or such Obligor enforceable in accordance with their respective terms, except as the enforceability thereof may be limited by bankruptcy, insolvency, moratorium and other similar laws affecting the enforcement of creditors rights generally and by general equity principles. SECTION 7.5. Financial Statements; No Material Adverse Change. (a) The Consolidated balance sheets of Group and its Subsidiaries as at January 2, 1999, and the -66- related consolidated statements of operations, stockholders' equity and cash flow of Group and its Subsidiaries for the Fiscal Year then ended, accompanied by an opinion of PricewaterhouseCoopers LLP, independent public accountants, and the Consolidated balance sheet of Group and its Subsidiaries as at July 3, 1999, and the related Consolidated statements of operations, stockholders' equity and cash flow of Group and its Subsidiaries for the three months then ended, duly certified by the chief financial officer of Group, copies of which have been furnished to each Lender, fairly present, subject, in the case of said balance sheet as at July 3, 1999, and said statements of operations, stockholders' equity and cash flow for the three months then ended, to year-end audit adjustments, the Consolidated financial condition of Group and its Subsidiaries as at such dates and the Consolidated results of the operations of Group and its Subsidiaries for the periods ended on such dates, all in accordance with generally accepted accounting principles applied on a consistent basis, and (b) since January 2, 1999, there has been no Material Adverse Change. SECTION 7.6. Litigation, etc. There is no action, suit, investigation, litigation or proceeding affecting any Obligor or any of its Subsidiaries, including any Environmental Action, pending or threatened before any court, governmental agency or arbitrator that (a) purports to affect the legality, validity or enforceability of this Agreement or any other Loan Document or (b) is or would be reasonably likely to have a Material Adverse Effect. SECTION 7.7. Regulations U and X. No Borrower is engaged in the business of extending credit for the purpose of purchasing or carrying Margin Stock, and no proceeds of any Loans will be used for a purpose which violates, or would be inconsistent with, F.R.S. Board Regulation U or X. Terms for which meanings are provided in F.R.S. Board Regulation U or X or any regulations substituted therefor, as from time to time in effect, are used in this Section with such meanings. SECTION 7.8. Accuracy of Information. All factual information heretofore or contemporaneously furnished by or on behalf of any Borrower or Group in writing to any Agent or any Lender for purposes of or in connection with this Agreement or any transaction contemplated hereby is, and all other such factual information hereafter furnished by or on behalf of any Borrower to any Agent or any Lender will be, true and accurate in every material respect on the date as of which such information is dated or certified and as of the date of execution and delivery of this Agreement by such Agent and such Lender, and such information is not, or shall not be, as the case may be, incomplete by omitting to state any material fact necessary to make such information not misleading. The parties acknowledge and agree that nothing contained in this Section shall constitute a representation or warranty by any Borrower or Group as to the future financial performance or the results of operations of any Borrower or Group; provided, however, that any projections delivered pursuant to this Agreement have been (and will be) prepared on the basis of the assumptions accompanying them, and such projections and assumptions, as of the date of preparation thereof and as of the date hereof, are reasonable and represent such Borrower's or Group's good faith estimate of its future financial performance. -67- SECTION 7.9. Year 2000. For any date on or before December 31, 1999, the Obligors have, and as soon as practicable after the Control Date, Authentic Fitness will have (i) initiated a review and assessment of all areas within its and each of its Subsidiaries' business and operations (including those affected by suppliers, vendors and customers) that could be adversely affected by the risk that computer applications used by such Person or any of its Subsidiaries (or suppliers, vendors and customers) may be unable to recognize and perform properly date-sensitive functions involving certain dates prior to and any date after December 31, 1999 (the "Year 2000 Problem"), (ii) developed a plan and timetable for addressing the Year 2000 problem on a timely basis and (iii) to date, implemented that plan in accordance with such timetable. Based on the foregoing, each such Person believes that all of its computer applications that are material to its or any of its Subsidiaries' business and operations are reasonably expected on a timely basis to be able to perform properly date-sensitive functions for all dates before and after January 1, 2000, except to the extent that a failure to do so could not reasonably be expected to have a Material Adverse Effect. ARTICLE VIII COVENANTS SECTION 8.1. Affirmative Covenants. The U.S. Borrower and Group agrees with each Agent, each Lender and the Fronting Bank that, until all Commitments have terminated and all Obligations have been paid and performed in full, the U.S. Borrower and Group will perform the obligations set forth in this Section 8.1. SECTION 8.1.1. Compliance with Laws, etc. Comply, and cause each of its Subsidiaries to comply, in all material respects, with all applicable laws, rules, regulations and orders, such compliance to include, without limitation, compliance with ERISA and Environmental Laws, except where the failure so to comply would not have a Material Adverse Effect. SECTION 8.1.2. Payment of Taxes, etc. Pay and discharge, and cause each of its Subsidiaries to pay and discharge, before the same shall become delinquent, (a) all taxes, assessments and governmental charges or levies imposed upon it or upon its property and (b) all lawful claims that, if unpaid, would reasonably be likely to by law become a Lien upon its property; provided, however, that neither Group nor any of its Subsidiaries shall be required to pay or discharge any such tax, assessment, charge or claim that is being contested in good faith and by proper proceedings and as to which appropriate reserves are being maintained, unless and until any Lien resulting therefrom attaches to its property and becomes enforceable against its other creditors so long as any such amount, when taken together with any amount required to be paid as described in clause (b) of the definition of "Permitted Liens", shall not exceed $10 million. -68- SECTION 8.1.3. Maintenance of Insurance. Maintain, and cause each of its Subsidiaries to maintain, insurance with responsible and reputable insurance companies or associations in such amounts and covering such risks as is usually carried by companies engaged in similar businesses and owning similar properties in the same general areas in which such Borrower or such Subsidiary operates. SECTION 8.1.4. Preservation of Corporate Existence, etc. Preserve and maintain, and cause each of its Subsidiaries to preserve and maintain, its corporate existence, rights (charter and statutory) and franchises; provided, however, that Group and its Subsidiaries may consummate the Merger and any other merger, consolidation or voluntary dissolution or liquidation permitted under Section 8.2.2. SECTION 8.1.5. Visitation Rights. At any reasonable time and from time to time, permit any Agent or any of the Lender Parties or any agents or representatives thereof, upon reasonable notice to the U.S. Borrower to examine and make copies of and abstracts from the records and books of account of, and visit the properties of, the U.S. Borrower and any of Group's Subsidiaries, and to discuss the affairs, finances and accounts of the U.S. Borrower and any of Group's Subsidiaries with any of such Person's officers or directors and with such Person's independent certified public accountants. SECTION 8.1.6. Keeping of Books. Keep, and cause each of its Subsidiaries to keep, proper books of record and account, in which full and correct entries shall be made of all financial transactions and the assets and business of the U.S. Borrower and each such Subsidiary in accordance with generally accepted accounting principles in effect from time to time. SECTION 8.1.7. Maintenance of Properties, etc. Maintain and preserve, and cause each of its Subsidiaries to maintain and preserve, all of its properties that are used or useful in the conduct of its business in good working order and condition, ordinary wear and tear excepted. SECTION 8.1.8. Transactions with Affiliates. Conduct, and cause each of its Subsidiaries to conduct, other than with respect to transactions among Group and/or its wholly owned Subsidiaries, all transactions otherwise permitted under the Loan Documents with any of their Affiliates on terms that are no less favorable to Group or such Subsidiary than it would obtain in a comparable arm's-length transaction with a Person not an Affiliate, provided, however, that the foregoing restriction shall not apply to transactions pursuant to any agreement referred to in Section 8.2.1(b) and provided, further, that no Borrower shall engage in any transaction with any such Subsidiary that would render such Subsidiary insolvent or cause a default under, or a breach of, any material contract to which such Subsidiary is a party. SECTION 8.1.9. [INTENTIONALLY DELETED]. -69- SECTION 8.1.10. Reporting Requirements. Furnish to the Lenders: (a) as soon as available and in any event within 50 days after the end of each of the first three quarters of each Fiscal Year, Consolidated balance sheets of Group and its Subsidiaries as of the end of such quarter and Consolidated statements of income and Consolidated statements of cash flows of Group and its Subsidiaries for the period commencing at the end of the previous Fiscal Year and ending with the end of such quarter, duly certified (subject to year-end audit adjustments) by the chief financial officer of the U.S. Borrower as having been prepared in accordance with GAAP and a certificate of the chief financial officer of Group as to compliance with the terms of this Agreement and setting forth in reasonable detail the calculations necessary to demonstrate compliance with Section 8.3, provided that in the event of any change in GAAP used in the preparation of such financial statements, the U.S. Borrower shall also provide, if necessary for the determination of compliance with Section 8.3, a statement of reconciliation conforming such financial statements to GAAP; (b) as soon as available and in any event within 95 days after the end of each Fiscal Year of Group, a copy of the annual audit report for such year for Group and its Subsidiaries, containing the Consolidated balance sheet of Group and its Subsidiaries as of the end of such Fiscal Year and Consolidated statements of income and cash flows of the U.S. Borrower and its Subsidiaries for such Fiscal Year, in each case accompanied by an opinion acceptable to the Required Lenders by any Approved Accounting Firm or by other independent public accountants acceptable to the Required Lenders, and a certificate of the chief financial officer of Group as to compliance with the terms of this Agreement setting forth in reasonable detail the calculations necessary to demonstrate compliance with Section 8.3; provided that in the event of any change in GAAP used in the preparation of such financial statements, the U.S. Borrower shall also provide, if necessary for the determination of compliance with Section 8.3, a statement of reconciliation conforming such financial statements to GAAP; (c) as soon as possible and in any event within two Business Days after the occurrence of each Default continuing on the date of such statement, a statement of the chief financial officer of the U.S. Borrower setting forth details of such Default and the action that the U.S. Borrower has taken and proposes to take with respect thereto; (d) promptly after the sending or filing thereof, copies of all reports that the U.S. Borrower sends to any of its security holders generally, and copies of all reports and registration statements that Group or any Subsidiary files with the Securities and Exchange Commission or any national securities exchange; -70- (e) promptly after the commencement thereof, notice of all actions and proceedings before any court, governmental agency or arbitrator affecting any Borrower or any of its Subsidiaries of the type described in Section 7.6; (f) within five Business Days after receipt thereof by any Obligor, copies of each notice from S&P or Moody's indicating any change in the Debt Rating; and (g) such other information respecting any Borrower or any of its Subsidiaries as any Lender Party through the Managing Agents may from time to time reasonably request. SECTION 8.1.11. Covenant to Guarantee Obligations. At such time as any new direct or indirect Domestic Subsidiary is formed or acquired (including Authentic Fitness and its Subsidiaries as required by, and subject to, Section 8.1.12), cause such new Material Subsidiary that is a wholly owned Subsidiary to (a) within 30 days thereafter or such later time as the U.S. Borrower and the Administrative Agent shall agree (but in any event no later than 30 additional days thereafter), duly execute and deliver to the Administrative Agent a supplement to the Subsidiary Guaranty in form and substance reasonably satisfactory to the Administrative Agent, provided, however, that the foregoing shall not apply to (i) Excluded Subsidiaries (ii) joint ventures or (iii) any Subsidiary organized solely for the purpose of entering into any agreements and transactions referred to in Section 8.2.1(b) to the extent that such agreements require that such Subsidiary not be a guarantor hereunder, and (b) within 30 days after the delivery of such guarantees or such later time as the U.S. Borrower and the Administrative Agent shall agree (but in any event no later than 30 additional days thereafter), deliver to the Administrative Agent a signed copy of a favorable opinion, addressed to the Administrative Agent, of counsel for the Obligors acceptable to the Administrative Agent as to the documents contained in clause (a) above, as to such guarantees being legal, valid and binding obligations of such Domestic Subsidiaries enforceable in accordance with their terms and as to such other matters as the Administrative Agent may reasonably request. SECTION 8.1.12. Consummation of Merger. If there is a Tender Offer, cause the Merger to be consummated in compliance with all applicable laws and regulations as soon as practicable after consummation of the Tender Offer and cause Authentic Fitness and its Subsidiaries to become Guarantors pursuant to Section 8.1.11 as soon as practicable and, in any event, within 30 days after consummation of the Merger. SECTION 8.1.13. Authentic Fitness. As soon as practicable after consummation of the Merger, cause the commitments under all Existing Authentic Debt (other than Debt of Authentic Fitness and its Subsidiaries that become Obligations under this Agreement) to be terminated and all such indebtedness to be repaid in full. SECTION 8.2. Negative Covenants. Each of the U.S. Borrower and Group agrees with each Agent, each Lender and the Fronting Bank that, until all Commitments have -71- terminated and all Obligations have been paid and performed in full, neither the U.S. Borrower nor Group will at any time take any actions set forth in this Section 8.2. SECTION 8.2.1. Liens, etc. Create or suffer to exist, or permit any of its Subsidiaries to create, incur, assume or suffer to exist, any Lien on or with respect to any of its properties of any character, whether now owned or hereafter acquired, or assign, or permit any of its Subsidiaries to assign, any right to receive income, other than: (a) Permitted Liens, (b) Liens on receivables of any kind (and in property securing or otherwise supporting such receivables) in connection with agreements for limited recourse sales or financings by the U.S. Borrower or any of its Subsidiaries or by the Sub Borrower or any of its Subsidiaries for cash of such receivables or interests therein, provided that (i) any such agreement is of a type and on terms customary for comparable transactions in the good faith judgment of the Board of Directors of Group and (ii) such agreement does not create any interest in any asset other than receivables (and property securing or otherwise supporting such receivables), related general intangibles and proceeds of the foregoing, (c) other Liens securing Debt, including Liens incurred pursuant to subsection (e) below, in an aggregate principal amount outstanding at any time not to exceed 10% of Consolidated Tangible Assets of Group and its Subsidiaries at such time, provided that Liens securing Debt of Authentic Fitness Products Inc. under credit facilities existing on the date that Authentic Fitness becomes a Subsidiary of the U.S. Borrower are expressly permitted until the consummation of the acquisition of 100% of the capital stock of Authentic Fitness, (d) Liens arising from covenants by the U.S. Borrower or its Subsidiaries to grant security interests in the assets of Warnaco of Canada Limited or its Subsidiaries (the "Canadian Subsidiaries") to secure Debt of the Canadian Subsidiaries in the event that the Lenders hereunder or lenders under the U.S. Credit Agreement, the New Five Year Revolver or the New 364-Day Credit Agreement are granted Liens by Group or its Subsidiaries in their respective assets to secure the Obligations under the Loan Documents or the U.S. Credit Agreement, the New Five Year Revolver or the New 364-Day Credit Agreement, as the case may be, and (e) Liens on Margin Stock. SECTION 8.2.2. Mergers, etc. Merge into or consolidate with any Person or permit any Person to merge into it, or permit any of its Subsidiaries (other than Excluded Subsidiaries) to do so or to voluntarily liquidate, except that (i) the Purchaser and Authentic Fitness may consummate the Merger, (ii) any Subsidiary of Group may merge into or consolidate with any other Subsidiary of Group, provided that if any such Subsidiary is a -72- Domestic Subsidiary of Group, the Person formed thereby shall be a direct or indirect wholly owned Domestic Subsidiary of Group, (iii) any Subsidiary of Group may merge into or consolidate with any Person pursuant to an acquisition, provided that, if any such Subsidiary is a Domestic Subsidiary of Group, the Person formed thereby shall be a direct or indirect wholly owned Domestic Subsidiary of Group, (iv) any Domestic Subsidiary of Group may merge into or consolidate with Group, (v) the U.S. Borrower may merge into or consolidate with any other Person so long as the U.S. Borrower is the surviving corporation and (vi) any Subsidiary of Group may voluntarily liquidate and distribute its assets to Group or any direct or indirect wholly owned Domestic Subsidiary of Group, provided, in each case, that no Default shall have occurred and be continuing at the time of such proposed transaction or would result therefrom. SECTION 8.2.3. Debt. Create, incur, assume or suffer to exist, or permit any of its Subsidiaries (other than Excluded Subsidiaries) to create, incur, assume or suffer to exist, any Debt if after giving effect thereto the U.S. Borrower shall fail to be in compliance with each of the covenants set forth in Section 8.3. SECTION 8.2.4. Sales, etc. of Assets. Sell, lease, transfer or otherwise dispose of, or permit any of its Subsidiaries to sell, lease, transfer or otherwise dispose of, any assets, or grant any option or other right to purchase, lease or otherwise acquire any assets, except: (a) sales of inventory in the ordinary course of its business; (b) sales, leases, transfers or other disposals of assets, or grants of any option or other right to purchase, lease or otherwise acquire assets, following the Effective Date for fair value (valued at the time of any such sale, lease, transfer or other disposal), in an aggregate amount in each Fiscal Year not to exceed 20% per annum of the Consolidated total assets of Group and its Subsidiaries as valued at the end of the preceding Fiscal Year of the U.S. Borrower, and the fair value of such assets shall have been determined in good faith by the Board of Directors of Group; (c) sales of assets on terms customary for comparable transactions in the good faith judgment of the Board of Directors of Group pursuant to agreements referred to in Section 8.2.1(b); (d) transfers of assets between Group and its Subsidiaries; (e) sales of assets listed on Schedule 8.2 hereto; (f) sales of assets and properties of Group and its Subsidiaries in connection with sale-leaseback transactions otherwise permitted hereunder (including, without limitation, under Section 8.2.3); -73- (g) the sale or discount of accounts (i) owing by Persons incorporated, residing or having their principal place of business in the United States in an aggregate amount not exceeding $10,000,000 in face amount per calendar year or (ii) that are past due by more than 90 days, provided that the sale or discount of such accounts is in the ordinary course of the Group's business and consistent with prudent business practices; (h) the licensing of trademarks and trade names by Group or any of its Subsidiaries in the ordinary course of its business, provided that such licensing takes place on an arm's-length basis; (i) the rental by Group and its Subsidiaries, as lessors, in the ordinary course of their respective businesses, on an arm's-length basis, of real property and personal property, in each case under leases (other than capitalized leases); and (j) sales of Margin Stock for fair value as determined in good faith by the Board of Directors of Group. SECTION 8.2.5. Nature of Business. Make, or permit any of its Subsidiaries to make, (a) except as otherwise permitted pursuant to subsection (b) below, any change in the nature of its business as carried on at the date hereof in a manner materially adverse to the Agents and the Lender Parties or (b) any investments (except Investments in a net aggregate amount (after giving effect to any dividends or other returns of capital) invested from the date hereof not to exceed $100,000,000) other than in apparel manufacturing or wholesaling businesses or apparel accessories manufacturing or wholesaling businesses or in related retail businesses, provided that on an annual basis, at least 51% of the revenue of Group and its Subsidiaries on a consolidated basis is derived from apparel manufacturing or wholesaling businesses or apparel accessories manufacturing or wholesaling businesses. SECTION 8.2.6. Accounting Changes. Make or permit, or permit any of its Subsidiaries to make or permit, any change in accounting policies (except as required or permitted by the Financial Accounting Standards Board or GAAP), reporting practices or fiscal year. SECTION 8.2.7. Authentic Fitness. From and after the Control Date and prior to the date that Authentic Fitness becomes a wholly-owned Subsidiary, permit Authentic Fitness to (i) issue any securities, rights or options or (ii) declare or make any dividends or distributions to the holders of Authentic Fitness Stock, except, in each case, as contemplated by the terms of either or both of the Tender Offer and the Merger and otherwise except to the extent any such transactions are entered into and performed in the ordinary course of Authentic Fitness's business as previously conducted and necessary for the prudent operation of Authentic Fitness's business. -74- SECTION 8.3. Financial Covenants. The U.S. Borrower and Group agrees with each Agent, each Lender and the Fronting Bank that, until all Commitments have terminated and all Obligations have been paid and performed in full, the U.S. Borrower and Group will: SECTION 8.3.1. Leverage Ratio. Maintain, at the end of each Fiscal Quarter a ratio of (x) Indebtedness for Borrowed Money to (y) Consolidated EBITDA of Group and its Subsidiaries for the preceding four Fiscal Quarters of (i) 3.25 to 1.0 for each Fiscal Quarter ending prior to the consummation of the Tender Offer and (ii) following the consummation of the Tender Offer, not more than 3.75 to 1.0 for each Fiscal Quarter ending on or before September 30, 2000, 3.50 to 1.0 for each Fiscal Quarter ending on or about December 31, 2000 through the Fiscal Quarter ending on or about September 30, 2001 and 3.25 to 1.0 for each Fiscal Quarter thereafter. SECTION 8.3.2. Coverage Ratio. Maintain, as of the end of each Fiscal Quarter, a ratio of Consolidated EBITDA of Group and its Subsidiaries for the four consecutive Fiscal Quarters then ended to Consolidated Interest Expense of Group and its Subsidiaries for such period of not less than 3.00:1.00. ARTICLE IX EVENTS OF DEFAULT SECTION 9.1. Listing of Events of Default. Each of the following events or occurrences described in this Section 9.1 shall constitute an "Event of Default". SECTION 9.1.1. Non-Payment of Obligations. Any Borrower shall default in the payment or prepayment when due of (a) any principal of or interest on any Loan, (b) any Reimbursement Obligation, or (c) any fee or of any other Obligation, and in each case such default in payment or prepayment shall continue unremedied for more than three Business Days from the date such payment or prepayment was due. SECTION 9.1.2. Breach of Warranty. Any representation or warranty of any Borrower or any other Obligor made or deemed to be made hereunder or in any other Loan Document executed by it (including any certificates delivered pursuant to Article VI) is or shall be incorrect when made or deemed made in any material respect. SECTION 9.1.3. Non-Performance of Certain Covenants and Obligations. (a) The U.S. Borrower or Group shall default in the due performance and observance of any of its obligations under Sections 8.1.4 or 8.1.11, 8.1.12, 8.2, 8.3 or (b) any Obligor shall fail to perform or observe any other term, covenant or agreement contained in any Loan Document on its part to be performed or observed if such failure shall remain unremedied for 30 days -75- (i) after written notice thereof shall have been given to the U.S. Borrower by any Agent or any Lender or (ii) after any officer of the U.S. Borrower obtains knowledge thereof. SECTION 9.1.4. Non-Performance of Other Covenants and Obligations. Any Borrower or any other Obligor shall default in the due performance and observance of any other agreement contained herein or in any other Loan Document executed by it, and such default shall continue unremedied for a period of 30 days (a) after notice thereof shall have been given to the U.S. Borrower by any Agent or any Lender or (b) after any officer of any Borrower obtains knowledge thereof. SECTION 9.1.5. Default Under Other Agreements. Any Obligor or any of its Subsidiaries shall fail to pay any principal of or premium or interest on any Debt under the U.S. Credit Agreement, the New 364-Day Credit Agreement, the New Five Year Revolver or other Debt that is outstanding in a principal or notional amount of at least $20,000,000 in the aggregate (but excluding Debt outstanding hereunder) of such Obligor or such Subsidiary (as the case may be), when the same becomes due and payable (whether by scheduled maturity, required prepayment, acceleration, demand or otherwise), and such failure shall continue after the applicable grace period, if any, specified in the agreement or instrument relating to such Debt; or any other event shall occur or condition shall exist under any agreement or instrument relating to any such Debt and shall continue after the applicable grace period, if any, specified in such agreement or instrument, if the effect of such event or condition is to accelerate, or to permit the acceleration of, the maturity of such Debt; or any such Debt shall be declared to be due and payable, or required to be prepaid or redeemed (other than by a regularly scheduled required prepayment or redemption or other than as a result of any event which provides cash to such Obligor in an amount sufficient to satisfy such redemption or prepayment), purchased or defeased, or an offer to prepay, redeem, purchase or defease such Debt shall be required to be made, in each case prior to the stated maturity thereof. SECTION 9.1.6. Bankruptcy, Insolvency, etc. Group, the U.S. Borrower or any of their Material Subsidiaries (or any group of Subsidiaries which, in the aggregate, would constitute a Material Subsidiary) shall generally not pay its debts as such debts become due, or shall admit in writing its inability to pay its debts generally, or shall make a general assignment for the benefit of creditors; or any proceeding shall be instituted by or against any of Group, the U.S. Borrower or any of their Subsidiaries (or any group of Subsidiaries which, in the aggregate, would constitute a Material Subsidiary) seeking to adjudicate it a bankrupt or insolvent, or seeking liquidation, winding up, reorganization, arrangement, adjustment, protection, relief, or composition of it or its debts under any law relating to bankruptcy, insolvency or reorganization or relief of debtors, or seeking the entry of an order for relief or the appointment of a receiver, trustee, custodian or other similar official for it or for any substantial part of its property and, in the case of any such proceeding instituted against it (but not instituted by it), either such proceeding shall remain undismissed or unstayed for a period of 30 days, or any of the actions sought in such proceeding (including, without limitation, the entry of an order for relief against, or the appointment of a -76- receiver, trustee, custodian or other similar official for, it or for any substantial part of its property) shall occur; or such Obligor or any of its Subsidiaries shall take any corporate action to authorize any of the actions set forth above in this Section 9.1.6. SECTION 9.1.7. Judgments, etc. Any (a) judgment or order for the payment of money in excess of $20,000,000 shall be rendered against any Obligor or any of its Subsidiaries and either (i) enforcement proceedings shall have been commenced by any creditor upon such judgment or order or (ii) there shall be any period of 10 consecutive days during which a stay of enforcement of such judgment or order, by reason of a pending appeal or otherwise, shall not be in effect unless the payment of such judgment or order is covered by insurance and such insurance coverage is not in dispute, or (b) non-monetary judgment or order shall be rendered against any Obligor or any of its Subsidiaries that could be reasonably expected to have a Material Adverse Effect, and there shall be any period of 10 consecutive days during which a stay of enforcement of such judgment or order, by reason of a pending appeal or otherwise, shall not be in effect. SECTION 9.1.8. Termination, etc., of Loan Documents. Any Loan Document shall (except in accordance with its terms), in whole or in part, terminate, cease to be effective or cease to be the legally valid, binding and enforceable obligation of the Obligor that is a party thereto; or any Borrower (including the U.S. Borrower with respect to its Guaranty set forth in Section 3.4) or any other Obligor shall, directly or indirectly, contest in any manner such effectiveness, validity, binding nature or enforceability (except as aforesaid). SECTION 9.1.9. Change in Control. (a) Group shall at any time cease to have legal and beneficial ownership of 100% of the capital stock of the U.S. Borrower (except if such parties shall merge); or (b) any Person, or two or more Persons acting in concert, shall have acquired beneficial ownership (within the meaning of Rule 13d-3 of the Securities and Exchange Commission under the Securities Exchange Act of 1934), directly or indirectly, of Voting Stock of Group (or other securities convertible into such Voting Stock) representing 25% or more of the combined voting power of all Voting Stock of Group (other than Excluded Persons); or (c) any Person, or two or more Persons acting in concert shall have acquired by contract or otherwise, or shall have entered into a contract or arrangement that, upon consummation, will result in its or their acquisition of, the power to exercise, directly or indirectly, a controlling influence over the management or policies of Group, or control over Voting Stock of Group (or other securities convertible into such securities) representing 25% or more of combined voting power of all Voting Stock of Group (other than Excluded Persons); or (d) Linda J. Wachner (or, in the case of her death or disability, another officer or officers of comparable experience and ability selected by the U.S. Borrower within 180 days thereafter after consultation with the Administrative Agent) shall cease to be Chairman and Chief Executive Officer of Group and the U.S. Borrower). SECTION 9.1.10. ERISA. Any Obligor or any of its ERISA Affiliates shall incur, or shall be reasonably likely to incur, liability in excess of $20,000,000 in the aggregate as a result of one or more of the following: (i) the occurrence of any ERISA Event; (ii) the -77- partial or complete withdrawal of such Obligor or any of its ERISA Affiliates from a Multiemployer Plan; or (iii) the reorganization or termination of a Multiemployer Plan. SECTION 9.2. Action Upon Bankruptcy. If any Event of Default described in Section 9.1.6 shall occur, the Commitments (if not theretofore terminated) shall automatically terminate and the outstanding principal amount of all outstanding Loans and all other Obligations shall automatically be and become immediately due and payable, without notice or demand. SECTION 9.3. Action Upon Other Event of Default. If any Event of Default (other than any Event of Default described in Section 9.1.6) shall occur for any reason, whether voluntary or involuntary, and be continuing, the Administrative Agent, upon the direction of the Required Lenders, shall by notice to the U.S. Borrower (a) declare an amount equal to the sum of (i) the aggregate face amount of all unmatured Acceptances and (ii) the maximum aggregate amount that is or at any time thereafter may become available for drawing under any outstanding Letters of Credit (whether or not any beneficiary shall have presented, or shall be entitled at such time to present, the drafts or other documents required to draw under such Letters of Credit) to be immediately due and payable, the applicable Borrowers being obligated to cash collateralize all such obligations immediately (in accordance with Section 4.7), and/or (b) declare all or any portion of the outstanding principal amount of the Loans and other Obligations in respect of the Loans or otherwise to be due and payable and/or the Commitments (if not theretofore terminated) to be terminated, whereupon the full unpaid amount of such Loans and other Obligations which shall be so declared due and payable shall be and become immediately due and payable, without further notice, demand or presentment, and/or, as the case may be, the Commitments shall terminate. ARTICLE X THE AGENTS SECTION 10.1. Actions. Each Lender hereby appoints Scotiabank as its Administrative Agent and Societe Generale as its Documentation Agent under and for purposes of this Agreement, the Notes and each other Loan Document. Each Lender authorizes each Agent to act on behalf of such Lender under this Agreement, the Notes and each other Loan Document and, in the absence of other written instructions from the Required Lenders received from time to time by such Agent (with respect to which the such Agent agrees that it will comply, except as otherwise provided in this Section or as otherwise advised by counsel), to exercise such powers hereunder and thereunder as are specifically delegated to or required of such Agent by the terms hereof and thereof, together with such powers as may be reasonably incidental thereto. Each Lender hereby indemnifies (which indemnity shall survive any termination of this Agreement) each Agent, pro rata according to such Lender's Percentage, from and against any and all liabilities, obligations, losses, damages, claims, costs or expenses of any kind or nature whatsoever which may at any time -78- be imposed on, incurred by, or asserted against, such Agent in any way relating to or arising out of this Agreement, the Notes and any other Loan Document, including reasonable attorneys' fees, and as to which such Agent is not reimbursed by the Borrowers; provided, however, that no Lender shall be liable for the payment of any portion of such liabilities, obligations, losses, damages, claims, costs or expenses which are determined by a court of competent jurisdiction in a final proceeding to have resulted from such Agent's gross negligence or wilful misconduct. Each Agent shall not be required to take any action hereunder, under the Notes or under any other Loan Document, or to prosecute or defend any suit in respect of this Agreement, the Notes or any other Loan Document, unless it is indemnified hereunder to its satisfaction. If any indemnity in favor of any Agent shall be or become, in such Agent's determination, inadequate, such Agent may call for additional indemnification from the Lenders and cease to do the acts indemnified against hereunder until such additional indemnity is given. SECTION 10.2. Copies, etc. Each Agent shall give prompt notice to each Lender of each notice or request required or permitted to be given to such Agent by the Borrowers pursuant to the terms of this Agreement (unless concurrently delivered to the Lenders by a Borrower). Each Agent will distribute to each Lender each document or instrument received for its account and copies of all other communications received by such Agent from the Borrowers for distribution to the Lenders by such Agent in accordance with the terms of this Agreement. SECTION 10.3. Exculpation. Neither any Agent nor any of its affiliates, directors, officers, employees or agents shall be liable to any Lender for any action taken or omitted to be taken by it under this Agreement or any other Loan Document, or in connection herewith or therewith, except for its own wilful misconduct or gross negligence, nor responsible for any recitals or warranties herein or therein, nor for the effectiveness, enforceability, validity or due execution of this Agreement or any other Loan Document, nor for the creation, perfection or priority of any Liens (if any) purported to be created by any of the Loan Documents, or the validity, genuineness, enforceability, existence, value or sufficiency of collateral security (if any), nor to make any inquiry respecting the performance by any Borrower of its obligations hereunder or under any other Loan Document. Any such inquiry which may be made by any Agent shall not obligate it to make any further inquiry or to take any action. Each Agent shall be entitled to rely upon advice of counsel concerning legal matters and upon any notice, consent, certificate, statement or writing which such Agent believes to be genuine and to have been presented by a proper Person. SECTION 10.4. Successor. Each Agent may resign as such at any time upon at least 30 days' prior notice to the U.S. Borrower and all Lenders. If such Agent at any time shall resign, the Required Lenders may appoint another Lender as a successor Agent which shall thereupon become an Agent in the capacity of the resigning Agent hereunder. If no successor Agent shall have been so appointed by the Required Lenders, and shall have accepted such appointment, within 30 days after the retiring Agent's giving notice of resignation, then the retiring Agent may, on behalf of the Lenders, appoint a successor -79- Agent, which shall be one of the Lenders or a commercial banking institution organized under the laws of the U.S. (or any State thereof) or a U.S. branch or agency of a commercial banking institution, and having a combined capital and surplus of at least $500,000,000. Upon the acceptance of any appointment as an Agent hereunder by a successor Agent, such successor Agent shall be entitled to receive from the retiring Agent such documents of transfer and assignment as such successor Agent may reasonably request, and shall thereupon succeed to and become vested with all rights, powers, privileges and duties of the retiring Agent, and the retiring Agent shall be discharged from its duties and obligations under this Agreement. After any retiring Agent's resignation hereunder as an Agent, the provisions of (a) this Article X shall inure to its benefit as to any actions taken or omitted to be taken by it while it was an Agent under this Agreement; and (b) Section 11.3 and Section 11.4 shall continue to inure to its benefit. SECTION 10.5. Loans Made, Letters of Credit Issued or Acceptances Created by Scotiabank and Loans Made by Societe Generale. Each of Scotiabank and Societe Generale shall have the same rights and powers with respect to (x) the Loans made by it or any of its affiliates, (y) the Notes held by it or any of its affiliates, and (z) its participating interests in the Letters of Credit and Acceptances as any other Lender and may exercise the same as if it were not an Agent. Each of Scotiabank, Societe Generale and their respective affiliates may accept deposits from, lend money to, and generally engage in any kind of business with the U.S. Borrower or any Subsidiary or affiliate of the U.S. Borrower as if Scotiabank or Societe Generale were not Agents hereunder. SECTION 10.6. Credit Decisions. Each Lender acknowledges that it has, independently of each Agent and each other Lender, and based on such Lender's review of the financial information of the Borrowers, this Agreement, the other Loan Documents (the terms and provisions of which being satisfactory to such Lender) and such other documents, information and investigations as such Lender has deemed appropriate, made its own credit decision to extend its Commitment. Each Lender also acknowledges that it will, independently of each Agent and each other Lender, and based on such other documents, information and investigations as it shall deem appropriate at any time, continue to make its own credit decisions as to exercising or not exercising from time to time any rights and privileges available to it under this Agreement or any other Loan Document. -80- ARTICLE XI MISCELLANEOUS PROVISIONS SECTION 11.1. Waivers, Amendments, etc. (a) The provisions of this Agreement and of each other Loan Document may from time to time be amended, modified or waived, if such amendment, modification or waiver is in writing and consented to by the Borrowers and the Required Lenders; provided, however, that no such amendment, modification or waiver which would: (i) modify any requirement hereunder that any particular action be taken by all the Lenders or by the Required Lenders shall be effective unless consented to by each Lender; (ii) (A) at all times prior to the occurrence of the 100% Effective Date, modify this Section 11.1, change the definition of "Required Lenders", increase the Commitment Amount or (except as otherwise contemplated by this Agreement) the Percentage of any Lender, reduce any fees described in Article III, release any guarantor under the Subsidiary Guaranty, the Group Guaranty or this Agreement, or extend any Commitment Termination Date shall be made without the consent of each Lender and (B) at all times from and after the occurrence of the 100% Effective Date, modify this Section 11.1, change the definition of "Required Lenders", reduce any fees described in Article III, release any guarantor under the Subsidiary Guaranty (other than any guarantor which is not a Material Subsidiary), the Group Guaranty or this Agreement, or extend any Commitment Termination Date shall be made without the consent of each Lender; (iii) at all times from and after the occurrence of the 100% Effective Date, increase the Commitment Amount or (except as otherwise contemplated by this Agreement) the Percentage of any Lender without the consent of each Lender effected thereby; (iv) extend the due date for, or reduce the amount of, (A) any scheduled repayment or prepayment of principal of or interest on or fees payable in respect of any Loan (or reduce the principal amount of or rate of interest on or fees payable in respect of any Loan) shall be made without the consent of the holder of that Note evidencing such Loan, or (B) any Reimbursement Obligation shall be made without the consent of the Lender to whom such Reimbursement Obligation is owed; (v) affect adversely the interests, rights or obligations of the Fronting Bank in its capacity as the Fronting Bank shall be made without the consent of the Fronting Bank; -81- (vi) affect adversely the interests, rights or obligations of the Documentation Agent in its capacity as the Documentation Agent shall be made without the consent of the Documentation Agent; or (vii) affect adversely the interests, rights or obligations of the Administrative Agent in its capacity as the Administrative Agent shall be made without consent of the Administrative Agent. (b) For purposes of clause (a) above, if any Lender which is also a lender under the U.S. Credit Agreement consents to any amendment, waiver, consent or other modification of any provision of the U.S. Credit Agreement, such Lender shall automatically, and without requiring any notice, approval, consent or other action, be deemed to have consented to any comparable amendment, waiver, consent or other modification of the corresponding provisions of this Agreement (with such changes in interpretation as the context may require) unless such Lender shall otherwise notify the Administrative Agent and the U.S. Borrower within five days of the effectiveness of the U.S. Credit Agreement amendment, waiver, consent or other modification. No failure or delay on the part of any Agent, any Lender or the holder of any Note in exercising any power or right under this Agreement or any other Loan Document shall operate as a waiver thereof, nor shall any single or partial exercise of any such power or right preclude any other or further exercise thereof or the exercise of any other power or right. No notice to or demand on any Borrower in any case shall entitle it to any notice or demand in similar or other circumstances. No waiver or approval by any Agent or any Lender under this Agreement or any other Loan Document shall, except as may be otherwise stated in such waiver or approval, be applicable to subsequent transactions. No waiver or approval hereunder shall require any similar or dissimilar waiver or approval thereafter to be granted hereunder. SECTION 11.2. Notices. All notices and other communications provided to any party hereto under this Agreement or any other Loan Document shall be in writing or by facsimile and addressed, delivered or transmitted to such party at its address, or facsimile number set forth, in the case of any Borrower, Group or any Agent, below its signature hereto or, in the case of any Lender, set forth in Schedule II or in the Lender Assignment Agreement or at such other address or facsimile number as may be designated by such party in a notice to the other parties. Any notice, if mailed and properly addressed with postage prepaid or if properly addressed and sent by pre-paid courier service, shall be deemed given when received; any notice, if transmitted by facsimile, shall be deemed given when transmitted. SECTION 11.3. Payment of Costs and Expenses. The U.S. Borrower agrees to pay on demand all reasonable expenses of the Agents (including the reasonable fees and out-of- pocket expenses of counsel to the Agents and of local counsel, if any, who may be retained by counsel to the Agents) in connection with -82- (a) the negotiation, preparation, execution and delivery of this Agreement and of each other Loan Document, including schedules and exhibits, and any amendments, waivers, consents, supplements or other modifications to this Agreement or any other Loan Document as may from time to time hereafter be required, whether or not the transactions contemplated hereby, the Tender Offer or the Merger are consummated, and (b) the preparation and review of the form of any document or instrument relevant to this Agreement or any other Loan Document. Each Borrower covenants to pay on demand all reasonable costs and expenses of the Agents, the Fronting Bank and the Lenders incurred in the enforcement of any Agent's, the Fronting Bank's or any Lender's rights under this Agreement and any Loan Document (including the reasonable fees and expenses of counsel for such Agent, the Fronting Bank and such Lender with respect thereto) and, further, covenants that it will indemnify the Agents, the Fronting Bank and the Lenders on demand against all loss or damage to such Persons arising out of the issuance of or other action taken by such Persons in connection with any Letter of Credit or Loan including the costs relating to any legal process instituted by any party restraining or seeking to restrain the Fronting Bank from accepting or paying any Acceptance, Letter of Credit or Draft. Each Borrower also agrees that neither any Agent, the Fronting Bank nor any Lender shall have any liability to it for any reason in respect of the creation of any Acceptance, the issuance of any Letter of Credit or Loan other than on account of such Agent's, Fronting Bank's or Lender's gross negligence or wilful misconduct. All payments to be made to such Agent, the Fronting Bank and such Lender hereunder shall, subject to Section 5.6, be made for value on the date due and free of any withholding tax or levy, other than taxes imposed on the net income of such Agent, the Fronting Bank or such Lender, and each Borrower covenants that such taxes or levies, other than as excepted, shall be paid by such Borrower. The provisions of this paragraph will survive payment in full hereunder. SECTION 11.4. Indemnification. In consideration of the execution and delivery of this Agreement by each Lender and the extension of the Commitments, each Borrower hereby indemnifies, exonerates and holds each Agent, the Fronting Bank and each Lender and each of their respective affiliates, officers, directors, employees and agents (collectively, the "Indemnified Parties") free and harmless from and against any and all actions, causes of action, suits, losses, costs, liabilities and damages, and expenses incurred in connection therewith (irrespective of whether any such Indemnified Party is a party to the action for which indemnification hereunder is sought), including the reasonable fees and expenses of counsel for such Agent, the Fronting Bank and such Lender with respect thereto (collectively, the "Indemnified Liabilities"), incurred by the Indemnified Parties or any of them as a result of, or arising out of, or relating to (a) any transaction financed or to be financed in whole or in part, directly or indirectly, with the proceeds of any Loan or the use of any Letter of Credit or Acceptance; or -83- (b) the entering into and performance of this Agreement and any other Loan Document by any of the Indemnified Parties (including any action brought by or on behalf of any Borrower as the result of any determination by the Required Lenders pursuant to Article VI not to make any Credit Extension); except for any such Indemnified Liabilities arising for the account of a particular Indemnified Party by reason of the relevant Indemnified Party's gross negligence or wilful misconduct. SECTION 11.5. Survival. The obligations of each Borrower under Sections 5.3, 5.4, 5.5, 5.6, 11.3 and 11.4, and the obligations of the Lenders under Section 10.1, shall in each case survive any termination of this Agreement, the payment in full of all Obligations and the termination of all Commitments. Furthermore, the parties acknowledge and agree that the obligations under Sections 5.3, 5.4, 5.5, 5.6, 11.3 and 11.4 of the Existing Credit Agreement and the obligations of the Lenders under Section 10.1 of the Existing Credit Agreement are continuing obligations and have, notwithstanding the amendment and restatement of the Existing Credit Agreement by the terms of this Agreement, survived such amendment and restatement. The representations and warranties made by the Borrowers in this Agreement and in each other Loan Document shall survive the execution and delivery of this Agreement and each such other Loan Document. SECTION 11.6. Severability. Any provision of this Agreement or any other Loan Document which is prohibited or unenforceable in any jurisdiction shall, as to such provision and such jurisdiction, be ineffective to the extent of such prohibition or unenforceability without invalidating the remaining provisions of this Agreement or such Loan Document or affecting the validity or enforceability of such provision in any other jurisdiction. SECTION 11.7. Headings. The various headings of this Agreement and of each other Loan Document are inserted for convenience only and shall not affect the meaning or interpretation of this Agreement or such other Loan Document or any provisions hereof or thereof. SECTION 11.8. Execution in Counterparts, Effectiveness, etc. This Agreement may be executed by the parties hereto in several counterparts, each of which shall be executed by each Borrower and each Agent and be deemed to be an original and all of which shall constitute together but one and the same agreement. This Agreement shall become effective when counterparts hereof executed on behalf of each Borrower and the Required Lenders (or notice thereof satisfactory to the Agents) shall have been received by the Agents and notice thereof shall have been given by the Agents to the U.S. Borrower and each Lender. SECTION 11.9. Governing Law; Entire Agreement. THIS AGREEMENT, THE NOTES AND EACH OTHER LOAN DOCUMENT SHALL EACH BE DEEMED TO BE A CONTRACT MADE UNDER AND GOVERNED BY THE INTERNAL LAWS OF THE STATE OF NEW YORK. This Agreement, the Notes and the other Loan Documents constitute the entire understanding among the parties hereto with respect to the -84- subject matter hereof and (subject to Section 11.5) supersede any prior agreements, written or oral, with respect thereto. SECTION 11.10. Successors and Assigns. This Agreement shall be binding upon and shall inure to the benefit of the parties hereto and their respective successors and assigns; provided, however, that: (a) No Borrower may assign or transfer its rights or obligations hereunder without the prior written consent of the Agents and all Lenders; and (b) the rights of sale, assignment and transfer of the Lenders are subject to Section 11.11. SECTION 11.11. Sale and Transfer of Loans and Notes; Participations in Loans and Notes. Each Lender may assign, or sell participations in, its Loans and Commitments to one or more other Persons in accordance with this Section 11.11. SECTION 11.11.1. Assignments. Any Lender, (a) with the written consent of the U.S. Borrower (which consent shall not be unreasonably delayed or withheld), the Fronting Bank and the Administrative Agent may at any time assign and delegate to one or more commercial banks or other financial institutions; and (b) with the consent of the Fronting Bank, and notice to the U.S. Borrower and the Administrative Agent, but without the consent of the U.S. Borrower or the Administrative Agent, may assign and delegate to any other Lender or any Lender (as defined in the U.S. Credit Agreement), (each Person described in either of the foregoing clauses as being the Person to whom such assignment and delegation is to be made, being hereinafter referred to as an "Assignee Lender"), all or a fraction of such Lender's total Loans and Commitments in a minimum amount of $10,000,000 of Loans and Commitments (other than in the case of an assignment to any other Lender or any Affiliate of a Lender or an assignment of the remaining Loans and Commitments of such assignor Lender), that no Borrower shall be required to pay an amount under Section 5.6 that is greater than the amount which it would have been required to pay had no assignment been made and provided, however, that, the Borrowers and the Administrative Agent shall be entitled to continue to deal solely and directly with such Lender in connection with the interests so assigned and delegated to an Assignee Lender until (c) written notice of such assignment and delegation, together with payment instructions, addresses and related information with respect to such Assignee Lender, shall have been given to the U.S. Borrower (for the purposes hereof, also acting on -85- behalf of the Foreign Borrowers and Authentic Fitness (HK)) and the Administrative Agent by such Lender and such Assignee Lender, (d) such Assignee Lender shall have executed and delivered to the U.S. Borrower (for the purposes hereof, also acting on behalf of the Foreign Borrowers and Authentic Fitness (HK)) and the Administrative Agent a Lender Assignment Agreement, accepted by the Administrative Agent, and (e) the processing fees described below shall have been paid. From and after the date that the Administrative Agent accepts such Lender Assignment Agreement, (x) the Assignee Lender thereunder shall be deemed automatically to have become a party hereto and to the extent that rights and obligations hereunder have been assigned and delegated to such Assignee Lender in connection with such Lender Assignment Agreement, shall have the rights and obligations of a Lender hereunder and under the other Loan Documents, and (y) the assignor Lender, to the extent that rights and obligations hereunder have been assigned and delegated by it in connection with such Lender Assignment Agreement, shall be released from its obligations hereunder and under the other Loan Documents. Within five Business Days after its receipt of notice that the Administrative Agent has received an executed Lender Assignment Agreement with respect to the assignment of Loans, the Borrowers shall execute and deliver to the Administrative Agent (for delivery to the relevant Assignee Lender) new Notes evidencing such Assignee Lender's assigned Loans and Commitments and, if the assignor Lender has Loans and Commitments hereunder, replacement Notes in the principal amount of the Loans and Commitments retained by the assignor Lender hereunder (such Notes to be in exchange for, but not in payment of, those Notes then held by such assignor Lender). Each such Note shall be dated the date of the predecessor Notes. The assignor Lender shall mark the predecessor Notes "exchanged" and deliver them to the U.S. Borrower. Accrued interest on that part of the predecessor Notes evidenced by the new Notes, and accrued fees, shall be paid as provided in the Lender Assignment Agreement. Accrued interest on that part of the predecessor Notes evidenced by the replacement Notes shall be paid to the assignor Lender. Accrued interest and accrued fees shall be paid at the same time or times provided in the predecessor Notes and in this Agreement. Such assignor Lender or such Assignee Lender must also pay a processing fee to the Administrative Agent upon delivery of any Lender Assignment Agreement in the amount of $3,500. Any attempted assignment and delegation not made in accordance with this Section 11.11.1 shall be null and void. Nothing in this Section shall prevent or prohibit any Lender from pledging its rights (but not its obligations to make Loans, to issue or participate in Letters of Credit and to create or participate in Acceptances) under this Agreement and/or its Loans and/or Notes hereunder to a Federal Reserve Bank in support of borrowing made by such Lender from such Federal Reserve Bank. SECTION 11.11.2. Participations. Any Lender may at any time sell to one or more commercial banks or other Persons (each of such commercial banks and other Persons being herein called a "Participant") participating interests (or a sub-participating interest, in the -86- case of a Lender's participating interest in a Letter of Credit or Acceptance) in any of the Loans, Commitments, or other interests of such Lender hereunder; provided, however, that (a) no participation or sub-participation contemplated in this Section 11.11.2 shall relieve such Lender from its Commitments or its other obligations hereunder or under any other Loan Document, (b) such Lender shall remain solely responsible for the performance of its Commitments and such other obligations, (c) the Borrowers and the Administrative Agent shall continue to deal solely and directly with such Lender in connection with such Lender's rights and obligations under this Agreement and each of the other Loan Documents, (d) no Participant, unless such Participant is an affiliate of such Lender, or is itself a Lender, shall be entitled to require such Lender to take or refrain from taking any action hereunder or under any other Loan Document, except that such Lender may agree with any Participant that such Lender will not, without such Participant's consent, take any actions of the type described in clause (ii) (iii) or (iv) of Section 11.1, and (e) no Borrower shall be required to pay any amount under Section 5.6 that is greater than the amount which it would have been required to pay had no participating interest been sold. SECTION 11.11.3. Fronting Bank Assignments. In the event that S&P, Moody's or Thompson's BankWatch (or InsuranceWatch Ratings Service, in the case of Lenders that are insurance companies (or Best's Insurance Reports, if such insurance company is not rated by InsuranceWatch Ratings Service)) shall, after the date that any Lender becomes a Lender, downgrade the long-term certificate of deposit ratings of such Lender, and the resulting ratings shall be below BBB-, Baa3 and B (or BB, in the case of Lender that is an insurance company (or B, in the case of an insurance company not rated by InsuranceWatch Ratings Service)), then each of the Fronting Bank and the U.S. Borrower shall have the individual right, but not the obligation, upon notice to such Lender, to replace (or, in the case of a request by the Fronting Bank, to request the U.S. Borrower to use its reasonable efforts to replace) such Lender with an Assignee Lender (in accordance with and subject to the restrictions contained in Section 11.11.1), and such affected Lender hereby agrees to transfer and assign without recourse (in accordance with and subject to the restrictions contained in Section 11.11.1) all of its interests, rights and obligations in respect of its Commitment, Loans and other Obligations owing to it, together with the obligations of such affected Lender hereunder, to such Assignee Lender; provided, however, that (i) no such assignment shall conflict with any law, rule and regulation or order of any governmental authority and (ii) such Assignee Lender shall pay to such affected Lender in immediately available funds on the date of such assignment the principal of and interest accrued to the date of payment on -87- the Loans made by such Lender hereunder and all other amounts accrued for such Lender's account or owed to it hereunder. SECTION 11.12. Other Transactions. Nothing contained herein shall preclude any Agent, the Fronting Lender or any other Lender from engaging in any transaction, in addition to those contemplated by this Agreement or any other Loan Document, with the Borrowers or any of their affiliates in which such Borrower or such affiliate is not restricted hereby from engaging with any other Person. SECTION 11.13. Forum Selection and Consent to Jurisdiction. ANY LITIGATION BASED HEREON, OR ARISING OUT OF, UNDER, OR IN CONNECTION WITH, THIS AGREEMENT OR ANY OTHER LOAN DOCUMENT, OR ANY COURSE OF CONDUCT, COURSE OF DEALING, STATEMENTS (WHETHER ORAL OR WRITTEN) OR ACTIONS OF THE AGENTS, THE LENDERS, GROUP OR THE BORROWERS SHALL BE BROUGHT AND MAINTAINED EXCLUSIVELY IN THE COURTS OF THE STATE OF NEW YORK OR IN THE UNITED STATES DISTRICT COURT FOR THE SOUTHERN DISTRICT OF NEW YORK LOCATED IN NEW YORK COUNTY, NEW YORK. THE PARTIES HERETO HEREBY EXPRESSLY AND IRREVOCABLY SUBMIT TO THE JURISDICTION OF THE COURTS OF THE STATE OF NEW YORK AND OF THE UNITED STATES DISTRICT COURT FOR THE SOUTHERN DISTRICT OF NEW YORK LOCATED IN NEW YORK COUNTY, NEW YORK FOR THE PURPOSE OF ANY SUCH LITIGATION AS SET FORTH ABOVE AND IRREVOCABLY AGREE TO BE BOUND BY ANY JUDGMENT RENDERED THEREBY IN CONNECTION WITH SUCH LITIGATION. EACH FOREIGN BORROWER AND, FOLLOWING AUTHENTIC FITNESS (HK) BECOMING A BORROWER HEREUNDER, AUTHENTIC FITNESS (HK) HEREBY IRREVOCABLY APPOINTS THE U.S. BORROWER (IN SUCH CAPACITY, THE "PROCESS AGENT"), WITH AN OFFICE ON THE DATE HEREOF AT 90 PARK AVENUE, NEW YORK, NEW YORK 10016, UNITED STATES, AS ITS AGENT TO RECEIVE, ON SUCH FOREIGN BORROWER'S BEHALF, OR, AS APPLICABLE, AUTHENTIC FITNESS (HK)'S BEHALF AND ON BEHALF OF SUCH FOREIGN BORROWER'S OR, AS APPLICABLE, AUTHENTIC FITNESS (HK)'S PROPERTY, SERVICE OF COPIES OF THE SUMMONS AND COMPLAINT AND ANY OTHER PROCESS WHICH MAY BE SERVED IN ANY SUCH ACTION OR PROCEEDING. SUCH SERVICE MAY BE MADE BY MAILING OR DELIVERING A COPY OF SUCH PROCESS TO SUCH FOREIGN BORROWER OR, AS APPLICABLE, AUTHENTIC FITNESS (HK) IN CARE OF THE PROCESS AGENT AT THE PROCESS AGENT'S ABOVE ADDRESS, AND SUCH FOREIGN BORROWER OR, AS APPLICABLE, AUTHENTIC FITNESS (HK) HEREBY IRREVOCABLY AUTHORIZES AND DIRECTS THE PROCESS AGENT TO ACCEPT SUCH SERVICE ON ITS BEHALF. AS AN ALTERNATIVE METHOD OF SERVICE, EACH BORROWER FURTHER IRREVOCABLY CONSENTS TO THE SERVICE OF PROCESS BY REGISTERED MAIL, POSTAGE PREPAID, OR BY PERSONAL SERVICE WITHIN OR WITHOUT THE STATE OF NEW YORK. EACH -88- BORROWER HEREBY EXPRESSLY AND IRREVOCABLY WAIVES, TO THE FULLEST EXTENT PERMITTED BY LAW, ANY OBJECTION WHICH IT MAY HAVE OR HEREAFTER MAY HAVE TO THE LAYING OF VENUE OF ANY SUCH LITIGATION BROUGHT IN ANY SUCH COURT REFERRED TO ABOVE AND ANY CLAIM THAT ANY SUCH LITIGATION HAS BEEN BROUGHT IN AN INCONVENIENT FORUM. TO THE EXTENT THAT ANY BORROWER HAS OR HEREAFTER MAY ACQUIRE ANY IMMUNITY FROM JURISDICTION OF ANY COURT OR FROM ANY LEGAL PROCESS (WHETHER THROUGH SERVICE OR NOTICE, ATTACHMENT PRIOR TO JUDGMENT, ATTACHMENT IN AID OF EXECUTION OR OTHERWISE) WITH RESPECT TO ITSELF OR ITS PROPERTY, SUCH BORROWER HEREBY IRREVOCABLY WAIVES SUCH IMMUNITY IN RESPECT OF ITS OBLIGATIONS UNDER THIS AGREEMENT AND THE OTHER LOAN DOCUMENTS. SECTION 11.14. Waiver of Jury Trial. THE PARTIES HERETO HEREBY KNOWINGLY, VOLUNTARILY AND INTENTIONALLY WAIVE ANY RIGHTS THEY MAY HAVE TO A TRIAL BY JURY IN RESPECT OF ANY LITIGATION BASED HEREON, OR ARISING OUT OF, UNDER, OR IN CONNECTION WITH, THIS AGREEMENT OR ANY OTHER LOAN DOCUMENT, OR ANY COURSE OF CONDUCT, COURSE OF DEALING, STATEMENTS (WHETHER ORAL OR WRITTEN) OR ACTIONS OF THE AGENTS, THE LENDERS, THE FRONTING BANK, GROUP OR THE BORROWERS. THE PARTIES HERETO ACKNOWLEDGE AND AGREE THAT THEY HAVE RECEIVED FULL AND SUFFICIENT CONSIDERATION FOR THIS PROVISION (AND EACH OTHER PROVISION OF EACH OTHER LOAN DOCUMENT TO WHICH IT IS A PARTY) AND GROUP AND EACH BORROWER ACKNOWLEDGES THAT THIS PROVISION IS A MATERIAL INDUCEMENT FOR THE AGENTS, THE FRONTING BANK AND THE LENDERS ENTERING INTO THIS AGREEMENT AND EACH SUCH OTHER LOAN DOCUMENT. SECTION 11.15. UCP; etc. (a) The Uniform Customs and Practice for Documentary Credits as most recently published by the International Chamber of Commerce (the "UCP") shall in all respects apply to each Letter of Credit issued hereunder and shall be deemed for such purpose to be a part hereof as if fully incorporated herein. In the event of any conflict between the UCP and the governing law of the Agreement, the UCP shall prevail to the extent necessary to remove the conflict. (b) In the event of any issuance of a Letter of Credit for which any Borrower may apply from time to time hereafter, or, of any extension of the maturity or time for presentation of any Draft, or, of any renewal, extension or increase in the amount of a Letter of Credit or any other modifications of its terms, in each case with the consent or at the request of the U.S. Borrower, the terms of the Agreement shall continue in force and apply to the Letter of Credit so issued, or, to a Letter of Credit so renewed, extended, increased or otherwise modified, or, to any, Draft, document or property covered thereby and to any -89- action taken by the Fronting Bank or its agents or correspondents in accordance with such issuance, renewal, extension, increase or other modification. SECTION 11.16. Usury Restraint. The provisions of this Agreement shall be subject to any applicable law, regulation, order, rule or direction (a "Usury Restraint") which prohibits or restricts the charging, receipt or retention of interest or other amounts at the rates and amounts set forth herein (the "Stated Rate") in excess (the "Excess") of the maximum rates or amount (the "Maximum Rate") stipulated in the Usury Restraint. The provisions of this Agreement shall not require the payment or permit the collection of interest in excess of the Maximum Rate from time to time. If the Lenders comply (whether or not required to do so at law) with such Usury Restraint then, to the extent permitted by law, a subsequent reduction in the Stated Rate below the Maximum Rate shall be deemed not to reduce the Stated Rate below the Maximum Rate until the total amount of interest and other amounts earned and retained, measured by a dollar amount, equals the amount of interest and other amounts which would have been earned and retained hereunder, inclusive of the Excess, measured by a dollar amount, if the Stated Rate had not been held at the Maximum Rate or any amount had not been refunded to the applicable Borrower. SECTION 11.17. Judgment Currency. The Obligations of the Borrowers, Group and each other Obligor in respect of any sum due to any Lender, the Fronting Bank or the Administrative Agent hereunder, under the Notes or under or in respect of any other Loan Document shall, notwithstanding any judgment in a currency (the "Judgment Currency") other than Dollars, be discharged only to the extent that on the Business Day following receipt by such Lender, the Fronting Bank or the Administrative Agent of any sum adjudged to be so due in the Judgment Currency, such Lender, the Fronting Bank or the Administrative Agent, in accordance with normal banking procedures, purchases Dollars with the Judgment Currency. If the amount of Dollars so purchased is less than the sum originally due to such Lender, the Fronting Bank or the Administrative Agent, each Borrower and Group agrees as a separate obligation and notwithstanding any such judgment, to indemnify each Lender, the Fronting Bank and the Administrative Agent, as the case may be, against such loss. SECTION 11.18. Future Wholly-Owned Domestic Subsidiaries Designated as Warnaco Sub Borrowers. Upon no less than 30 days', and no more than 60 days', written notice to the Administrative Agent, Group may from time to time designate certain of its wholly-owned Domestic Subsidiaries to be Warnaco Sub Borrowers hereunder and Schedule I shall be deemed revised to reflect such designation; provided that, notwithstanding the foregoing, (x) for the purposes of this Section only, Authentic Fitness (HK) shall be deemed to be organized under the laws of the United States or any state thereof and (y) the notice periods specified above shall be inapplicable for the designation of Authentic Fitness Products and Authentic Fitness (HK) as "Warnaco Sub Borrowers", provided, further, that, (a) (i) at no time shall there be more than fifteen (15) Borrowers under this Agreement and (ii) prior to becoming a Warnaco Sub Borrower hereunder, each such -90- designated wholly-owned Domestic Subsidiary shall have executed and delivered (A) a supplement to the Subsidiary Guaranty and (B) a Joinder Agreement. Upon compliance with this clause (a), each designated Warnaco Sub Borrower shall become, for all purposes, a Borrower under this Agreement, and shall have all the rights, powers and obligations of a Borrower hereunder; and (b) from time to time Group may, or if necessary to comply with clause (a)(i) of this Section 11.18 shall, execute and deliver to the Administrative Agent a Designation and Release Certificate which shall designate one or more of the Sub Borrower, the Foreign Borrowers or the Warnaco Sub Borrowers (each such designated Borrower, a "Released Borrower") which, immediately prior to the date of such Designation and Release Certificate, was a Borrower under this Agreement and which shall, upon delivery of such Designation and Release Certificate, no longer be a "Borrower" (or Sub Borrower, Foreign Borrower or Warnaco Sub Borrower, as the case may be) for purposes of this Agreement; and such Released Borrower shall (i) repay in full the entire unpaid principal amount of its outstanding Loans, if any, (ii) cash collateralize any and all Letters of Credit issued and/or Acceptances created, as the case may be, in respect of which it has a Reimbursement Obligation, (iii) pay in full any and all reasonable costs and expenses (including attorneys' fees as well as those costs and expenses set forth in Section 5.4) incurred in connection with its release hereunder, (iv) pursuant to Section 11.5, acknowledge and confirm that certain of the provisions of this Agreement shall, notwithstanding the Released Borrower's release hereunder, be continuing obligations and shall survive such release, and (v) execute and deliver a certificate, in form and substance satisfactory to the Administrative Agent, certifying that all of the events set forth in clauses (b)(i) through (b)(iv) above shall have occurred. Upon delivery of the certificate described in clause (b)(v) above, such Released Borrower shall automatically be released from all obligations of a Borrower hereunder (except such obligations which survive pursuant to Section 11.5) without requiring any further action by any party, including any written release by any of the Lender Parties. SECTION 11.19. Assumption of Certain Loans by U.S. Borrower. (a) The U.S. Borrower may, from time to time, provide both the Administrative Agent and the Fronting Bank with no less than five (5) Business Days' written notice that it intends to assume those LIBO Rate Loans made by the Fronting Bank to Warnaco (HK) or, following Authentic Fitness (HK) becoming a Borrower hereunder in accordance with the terms of Section 11.18, Authentic Fitness (HK) and identified in such notice (each such notice, an "Assumption Notice"), and upon the date which is five (5) Business Days following the date of such Assumption Notice (each such date, an "Assumption Date"), each Loan so identified shall be deemed to be assumed in toto by the U.S. Borrower, without any further action by the U.S. Borrower, the Fronting Bank or any other Person, and all obligations in respect of each such Loan, from and after such Assumption Date, shall be deemed to be the sole and direct obligation of the U.S. Borrower for all purposes of this Agreement and Warnaco (HK) and/or, following Authentic Fitness (HK) becoming a Borrower hereunder in accordance with -91- the terms of Section 11.18, Authentic Fitness (HK), as applicable, shall, concurrently with such assumption, be released of its obligations to repay each such Loan for all purposes of this Agreement. (b) In furtherance of the foregoing, on any Assumption Date, the U.S. Borrower: (i) agrees to be bound by and perform each duty and obligation with respect to the applicable Loan as if it were the original "Borrower" of such Loan; (ii) accepts and assumes all liabilities related to any representation or warranty made by, as applicable, Warnaco (HK) or following Authentic Fitness (HK) becoming a Borrower hereunder in accordance with the terms of Section 11.18, Authentic Fitness (HK), in connection with the applicable Loan and confirms and restates all such representations and warranties as of such Assumption Date as if it were the original "Borrower" of such Loan; and (iii) confirms and acknowledges that it is the "Borrower" referred to in this Agreement with respect to the applicable Loan as if it had been the "Borrower" thereof under this Agreement from the original making of such Loan. SECTION 11.20. Release of non-Material Subsidiary Guarantors. Effective upon the occurrence of the 100% Effective Date, the Lenders hereby consent to the release of any guarantor party to the Subsidiary Guaranty on the date hereof to the extent that any such guarantor is not a Material Subsidiary of Group and authorize the Administrative Agent to execute and deliver any document, instrument or agreement in order to effectuate such release. -92- IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be executed by their respective officers thereunto duly authorized as of the day and year first above written. WARNACO INC. By: [ILLEGIBLE SIGNATURE] ------------------------------------- Title: VICE PRESIDENT AND TREASURER Address: 90 Park Avenue New York, New York 10016 Facsimile No.: 212-687-0480 Attention: Chief Financial Officer General Counsel WARNACO (HK) LTD. By: [ILLEGIBLE SIGNATURE] ------------------------------------- Title: DIRECTOR Address: 2A, Jing Hin Industrial Bldg. 5 Wang Kee Street Kowloon Bay, Kowloon Hong Kong Facsimile No.: 852-2755-2265 Attention: Director of Finance S-1 DESIGNER HOLDINGS, LTD. By: [ILLEGIBLE SIGNATURE] ------------------------------------- Title: VICE PRESIDENT AND SECRETARY Address: 90 Park Avenue New York, New York 10016 Facsimile No.: 212-687-0480 Attention: Chief Financial Officer General Counsel WARNACO B.V. By: [ILLEGIBLE SIGNATURE] ------------------------------------- Title: By: ------------------------------------- Title: MANAGING DIRECTOR Address: c/o Warnaco Inc. 90 Park Avenue New York, New York 10016 Facsimile No.: 212-687-0480 Attention: Chief Financial Officer General Counsel S-2 WARNACO NETHERLANDS B.V. By: [ILLEGIBLE SIGNATURE] ------------------------------------- Title: MANAGING DIRECTOR By: ------------------------------------- Title: Address: c/o Warnaco Inc. 90 Park Avenue New York, New York 10016 Facsimile No.: 212-687-0480 Attention: Chief Financial Officer General Counsel WARNACO HOLLAND B.V. By: [ILLEGIBLE SIGNATURE] ------------------------------------- Title: MANAGING DIRECTOR By: ------------------------------------- Title: Address: c/o Warnaco Inc. 90 Park Avenue New York, New York 10016 Facsimile No.: 212-687-0480 Attention: Chief Financial Officer General Counsel S-3 THE WARNACO GROUP, INC. By: [ILLEGIBLE SIGNATURE] ------------------------------------- Title: VICE PRESIDENT AND TREASURER Address: 90 Park Avenue New York, New York 10016 Facsimile No.: 212-687-0480 Attention: Chief Financial Officer General Counsel THE BANK OF NOVA SCOTIA, as Administrative Agent By: ------------------------------------- Title: Address: One Liberty Plaza New York, New York 10006 Facsimile No.: 212-225-5090 Attention: John Hopmans S-4 THE WARNACO GROUP, INC. By: ------------------------------------- Title: Address: 90 Park Avenue New York, New York 10016 Facsimile No.: 212-687-0480 Attention: Chief Financial Officer General Counsel THE BANK OF NOVA SCOTIA, as Administrative Agent By: [ILLEGIBLE SIGNATURE] ------------------------------------- Title: Address: One Liberty Plaza New York, New York 10006 Facsimile No.: 212-225-5090 Attention: John Hopmans S-4 SOCIETE GENERALE, as Documentation Agent By: ROBERT PETERSEN ------------------------------------- Title: ROBERT PETERSEN VICE PRESIDENT Address: 1221 Avenue of the Americas New York, New York 10020 Facsimile No.: 212-278-7430 Attention: Sedare Coradin CITIBANK, N.A., as Syndication Agent By: ------------------------------------- Title: VP Address: 399 Park Avenue New York, New York 10043 Facsimile No.: 212-793-7585 Attention: Mark Merlino S-5 SOCIETE GENERALE, as Documentation Agent By: ------------------------------------- Title: ROBERT PETERSEN VICE PRESIDENT Address: 1221 Avenue of the Americas New York, New York 10020 Facsimile No.: 212-278-7430 Attention: Sedare Coradin CITIBANK, N.A., as Syndication Agent By: [ILLEGIBLE SIGNATURE] ------------------------------------- Title: VP Address: 399 Park Avenue New York, New York 10043 Facsimile No.: 212-793-7585 Attention: Mark Merlino S-5 LENDERS THE BANK OF NOVA SCOTIA By: [ILLEGIBLE SIGNATURE] ------------------------------------- Title: S-6 LENDERS CITIBANK, N.A. By: MARC MERLINO ------------------------------------- Title: MARC MERLINO -- VP S-7 LENDERS THE BANK OF NEW YORK By: [ILLEGIBLE SIGNATURE] ------------------------------------- Title: VP S-8 LENDERS COMMERZBANK AG NEW YORK and Grand Cayman Branches By: ROBERT DONOHUE ------------------------------------- Name: ROBERT DONOHUE Title: SENIOR VICE PRESIDENT By: PETER DOYLE ------------------------------------- Name: PETER DOYLE Title: ASSISTANT VICE PRESIDENT S-9 LENDERS THE DAI-ICHI KANGYO BANK, LIMITED By: [ILLEGIBLE SIGNATURE] ------------------------------------- Title: Assistant Vice President S-10 LENDERS FLEET BANK, N.A. By: [ILLEGIBLE SIGNATURE] ------------------------------------- Title: S.V.P. S-11 LENDERS SOCIETE GENERALE By: ROBERT PETERSEN ------------------------------------- Title: ROBERT PETERSEN VICE PRESIDENT S-12 LENDERS BANK OF AMERICA, N.A. By: DAVID H. DINKINS ------------------------------------- Title: DAVID H. DINKINS VICE PRESIDENT S-13 LENDERS BANK OF TOKYO-MITSUBISHI TRUST COMPANY By: N. SAFFRA -------------------------------------- N. SAFFRA Title: VICE PRESIDENT S-14 LENDERS BANKBOSTON, N.A. By: [SIGNATURE ILLEGIBLE] -------------------------------------- Title: DIRECTOR S-15 LENDERS UNICREDIT ITALIANO By: CHRISTOPHER J. ELDIN -------------------------------------- CHRISTOPHER J. ELDIN Title: FIRST VICE PRESIDENT & DEPUTY MANAGER By: GIANFRACO BISAGAL -------------------------------------- GIANFRACO BISAGAL Title: FIRST VICE PRESIDENT S-16 LENDERS THE INDUSTRIAL BANK OF JAPAN By: J. KENNETH BIEGEN -------------------------------------- J. KENNETH BIEGEN Title: SENIOR VICE PRESIDENT S-17 LENDERS KBC BANK N.V. By: ROBERT SNAUFFER ROBERT M. SURDAM, JR. ------------------------------------------- ROBERT SNAUFFER ROBERT M. SURDAM, JR. Title: VICE PRESIDENT VICE PRESIDENT S-18 LENDERS HSBC BANK USA By: [SIGNATURE ILLEGIBLE] -------------------------------------- Title: VICE PRESIDENT S-19 LENDERS MERITA BANK PLC - NEW YORK BRANCH By: CLIFFORD ABRAMSKY -------------------------------------- CLIFFORD ABRAMSKY Title: VICE PRESIDENT By: [SIGNATURE ILLEGIBLE] -------------------------------------- [NAME ILLEGIBLE] Title: VP S-20 LENDERS MORGAN GUARANTY TRUST COMPANY OF NEW YORK By: DENNIS WILCZEK -------------------------------------- DENNIS WILCZEK Title: ASSOCIATE S-21 LENDERS DEN DANSKE BANK By: PETER L. HARGRAVES [SIGNATURE ILLEGIBLE] ---------------------------------------------------- PETER L. HARGRAVES [SIGNATURE ILLEGIBLE] Title: VICE PRESIDENT VICE PRESIDENT S-22 LENDERS REPUBLIC NATIONAL BANK By: GARRY WEISS NISSIM HUSNI --------------------------------------------------- GARRY WEISS NISSIM HUSNI Title: FIRST VICE PRESIDENT VICE PRESIDENT S-23 LENDERS STANDARD CHARTERED BANK By: SHAFIQ UR. RAHMAN -------------------------------------- SHAFIQ UR. RAHMAN Title: SENIOR VICE PRESIDENT STANDARD CHARTERED BANK By: LESLIE SHAW BRIGHT -------------------------------------- LESLIE SHAW BRIGHT Title: VICE PRESIDENT S-24 LENDERS SUN TRUST BANK By: LAURA KAHN -------------------------------------------- LAURA KAHN Title: DIRECTOR, SENIOR RELATIONSHIP MANAGER By: ------------------------------------------- Title: S-25 LENDERS WACHOVIA BANK, N.A. By: [SIGNATURE ILLEGIBLE] -------------------------------------- Title: SENIOR VICE PRESIDENT S-26 SCHEDULE I WARNACO SUB BORROWERS NAME - ---- None. SCHEDULE II PERCENTAGES AND ADMINISTRATIVE INFORMATION
- ---------------------------------------------------------------------------------------------------------------- REVOLVING LOAN LENDER NAME COMMITMENT PERCENTAGES DOMESTIC OFFICE LIBOR OFFICE - ---------------------------------------------------------------------------------------------------------------- Bank of America, N.A. 4.0000000000% 100 North Tryon Street 100 North Tryon Street 15th Floor 15th Floor NC1-001-15-003 NC1-001-15-003 Charlotte, NC 28255 Charlotte, NC 28255 Facsimile No.: (704) 386-1270 Facsimile No.: (704) 386-1270 Attn: David Dinkins Attn: David Dinkins - ---------------------------------------------------------------------------------------------------------------- Bank Leumi USA 3.0000000000% 579 Fifth Avenue 579 Fifth Avenue New York, NY 10017 New York, NY 10017 Facsimile No.: (212) 407-4317 Facsimile No.: (212) 407-4317 Attention: Benjamin Huang Attention: Benjamin Huang - ---------------------------------------------------------------------------------------------------------------- The Bank of New York 5.0000000000% One Wall Street One Wall Street New York, NY 10286 New York, NY 10286 Facsimile No.: (212) 635-1480 Facsimile No.: (212) 635-1480 Attn: Eliza Adams Attn: Eliza Adams - ---------------------------------------------------------------------------------------------------------------- The Bank of Nova Scotia 6.4888888900% One Liberty Plaza One Liberty Plaza New York, NY 10006 New York, NY 10006 Facsimile No.: (212) 225-5090 Facsimile No.: (212) 225-5090 Attn: John Hopmans Attn: John Hopmans - ---------------------------------------------------------------------------------------------------------------- Bank of Tokyo-Mitsubishi 4.0000000000% 1251 Avenue of the Americas 1251 Avenue of the Americas Trust Company 12th Floor 12th Floor New York, NY 10020-1104 New York, NY 10020-1104 Facsimile No.: (212) 782-4358 Facsimile No.: (212) 782-6441 Attn:: Jim Brown Attn: Joan Sanderman - ----------------------------------------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------------------------------------- REVOLVING LOAN LENDER NAME COMMITMENT PERCENTAGES DOMESTIC OFFICE LIBOR OFFICE - ---------------------------------------------------------------------------------------------------------------- BankBoston, N.A. 3.0000000000% 100 Federal Street 100 Federal Street Boston, MA 02110 Boston, MA 02110 Facsimile No.: (617) 434-0637 Facsimile No.: (617) 434-0637 Attn: Susan Santos Attn: Susan Santos - ---------------------------------------------------------------------------------------------------------------- Citibank, N.A. 6.4888888900% 399 Park Avenue 399 Park Avenue New York, NY 10043 New York, NY 10043 Facsimile No.: (212) 793-7585 Facsimile No.: (212) 793-7585 Attn: Mark Merlino Attn: Mark Merlino - ---------------------------------------------------------------------------------------------------------------- Commerzbank AG, New York 6.6000000000% World Financial Center World Financial Center Branch New York, NY 10281 New York, NY 10281 Facsimile No.: (212) 266-7235 Facsimile No.: (212) 266-7235 Attn: Bob Donohue Attn: Bob Donohue - ---------------------------------------------------------------------------------------------------------------- The Dai-Ichi Kangyo Bank, 5.0000000000% One World Trade Center One World Trade Center Limited New York, NY 10048 New York, NY 10048 Facsimile No.: (212) 912-1879 Facsimile No.: (212) 912-1879 Attn: Nick Fiore Attn: Nick Fiore - ---------------------------------------------------------------------------------------------------------------- Den Danske Bank 6.0000000000% 280 Park Avenue 280 Park Avenue New York, NY 10017 New York, NY 10017 Facsimile No.: (212) 370-9239 Facsimile No.: (212) 370-9239 Attn: Peter Hargraves Attn: Peter Hargraves - ---------------------------------------------------------------------------------------------------------------- Fleet Bank, N.A. 3.6666666660% 1185 Avenue of the Americas 1185 Avenue of the Americas 2nd Floor 2nd Floor New York, NY 10036 New York, NY 10036 Facsimile No.: (212) 819-4112 Facsimile No.: (212) 819-4108 Attn: Joseph Zautra Attn: Nancy Mejias - ---------------------------------------------------------------------------------------------------------------- HSBC Bank USA 5.0000000000% One HSBC Center One HSBC Center Buffalo, NY 14240 Buffalo, NY 14240 Facsimile No.: (716) 841-2067 Facsimile No.: (716) 841-2067 Attn: Patti M. Michalek Attn: Patti M. Michalek - ----------------------------------------------------------------------------------------------------------------
ii
- -------------------------------------------------------------------------------------------------------------------- REVOLVING LOAN LENDER NAME COMMITMENT PERCENTAGES DOMESTIC OFFICE LIBOR OFFICE - -------------------------------------------------------------------------------------------------------------------- The Industrial Bank of Japan 3.0000000000% New York Branch New York Branch 1251 Avenue of the Americas 1251 Avenue of the Americas New York, NY 10020 New York, NY 10020 Facsimile No.: (212) 282-4480 Facsimile No.: (212) 282-4480 Attn: Ken Biegen Attn: Atsushi Kawai - -------------------------------------------------------------------------------------------------------------------- KBC Bank N.V. 5.0000000000% 125 West 55th Street 125 West 55th Street New York, NY 10019 New York, NY 10019 Facsimile No.: (212) 541-0793 Facsimile No.: (212) 541-0793 Attn: Robert Surdam Attn: Robert Surdam - -------------------------------------------------------------------------------------------------------------------- Merita Bank PLC - New York 1.6666666660% 437 Madison Avenue 437 Madison Avenue Branch New York, NY 10022 New York, NY 10022 Facsimile No.: (212) 318-9318 Facsimile No.: (212) 318-9318 Attn: Cliff Abramsky Attn: Cliff Abramsky - -------------------------------------------------------------------------------------------------------------------- Morgan Guaranty Trust 3.1000000000% 60 Wall Street Nassau Bahamas Office Company of New York New York, NY 10260-0060 c/o J.P. Morgan Services, Inc. Facsimile No.: (212) 648-5014 500 Stanton Christiana Road Attn: Dennis Wilczek Newark, DE 19713-2107 Facsimile No.: 302-634-1852 Attn: Jeannie L. Mattson - -------------------------------------------------------------------------------------------------------------------- Republic National Bank of New 3.0000000000% 452 Fifth Avenue 452 Fifth Avenue York New York, NY 10018 New York, NY 10018 Facsimile No.: (212) 525-8370 Facsimile No.: (212) 525-8370 Attn: Garry Weiss Attn: Garry Weiss - -------------------------------------------------------------------------------------------------------------------- Societe Generale 7.4888888880% 1221 Avenue of the Americas 1221 Avenue of the Americas New York, NY 10020 New York, NY 10020 Facsimile No.: (212) 278-7997 Facsimile No.: (212) 278-7997 Attn: Bob Peterson Attn: Bob Peterson - -------------------------------------------------------------------------------------------------------------------- Standard Chartered Bank 5.0000000000% 7 World Trade Center 7 World Trade Center New York, NY 10048-2627 New York, NY 10048-2627 Facsimile No.: (212) 667-0193 Facsimile No.: (212) 667-0193 Attn: Shafiq Rahman Attn: Shafiq Rahman - --------------------------------------------------------------------------------------------------------------------
iii
- -------------------------------------------------------------------------------------------------------------------- REVOLVING LOAN LENDER NAME COMMITMENT PERCENTAGES DOMESTIC OFFICE LIBOR OFFICE - -------------------------------------------------------------------------------------------------------------------- Sun Trust Bank 6.0000000000% 711 Fifth Avenue, 16th Floor 711 Fifth Avenue, 16th Floor New York, NY 10022 New York, NY 10022 Facsimile No.: (212) 667-0193 Facsimile No.: (212) 667-0193 Attn: Laura Kahn Attn: Laura Kahn - -------------------------------------------------------------------------------------------------------------------- Unicredit Italiano 2.5000000000% 375 Park Avenue 375 Park Avenue New York, NY 10152 New York, NY 10152 Facsimile No.: (212) 546-9675 Facsimile No.: (212) 546-9675 Attn: Christopher Eldin Attn: Christopher Eldin - -------------------------------------------------------------------------------------------------------------------- Wachovia Bank, N.A. 5.0000000000% 191 Peachtree Street 191 Peachtree Street Atlanta, GA 30303 Atlanta, GA 30303 Facsimile No.: (404) 332-6898 Facsimile No.: (404) 332-6898 Attn: James Barwis Attn: James Barwis - --------------------------------------------------------------------------------------------------------------------
iv SCHEDULE 7.1 THE WARNACO GROUP INC. & SUBSIDIARIES ENTITY LISTING ALPHABETICAL BY ENTITY
ENTITY - --------------------------------------------------------------------------- 184 Benton Street Inc. A.B.S. Clothing Collection Inc. Abbeville Manufacturing Co. AEI Management Corporation Blanche Inc. Broadway Jeanswear Company Inc. Broadway Jeanswear Holding Inc. Broadway Jeanswear Sourcing Inc. C.F. Klein France SNC a Calvin Klein Jeanswear Company b Centro Corte de Tella S.A. de C.V. a CKJ Holdings Inc. b CKJ Sourcing Inc. Designer Holdings Ltd. b Designer Holdings Overseas Ltd. a Donatex-Warnaco S.A. a Euralis S.A.S. a GJM (HK) Manufacturing Ltd. a GJM (Philippines) Manufacturing Inc. a GJM Lanka Manufacturing (Private) Ltd. a Gregory Street Inc. b Hamlet Manufacturing S.A. a Hamlet Shirt Company Ltd. a Industrios del Valla, S.A. de C.V. (INVASA) a,c Izka SC a Jeanswear Holdings Inc. b Juarmex S.A. de C.V. a Kal Jay Manufacturing Company Lejaby S.A.S. a Leratex-Warnaco GeambH a Leratex-Warnaco Ltd. a Linda Vista de Texcale S.A. de C.V. a Linda Vista de Veracruz S.A. de C.V. a Linlex-Warnaco S.A. a LMK Ltd. a Mulson International BV a MulaiKion B.V. a Myrtle Avenue Inc. b New Bedford Shippers Corp. Olga de Villanueva S.A. a Olguita de Mexico S.A. a Outlet Holdings Inc. Outlot Stores Inc. b Panyu GJM Shatou Manufacturing Limited a Penhaligon & Joavons Investments Ltd. a Penhaligon's (1870) Inc. Penhaligon's by Request, Inc. Penhaligon's Ltd. a Penhaligon's Pacific a PMJ S.A. a Private Pleasures Ltd. a Rio Sportswear Inc. STAR Warnaco International a,c The Bra Company Limited a,d Tibet Servisport Inc. a Ventures Ltd. Vista os Huantantia S.A. de C.V. a
THE WARNACO GROUP INC. & SUBSIDIARIES ENTITY LISTING ALPHABETICAL BY ENTITY
ENTITY - --------------------------------------------------------------------------- Vista de Puebla S.A. de C.V. a Vista de Tella S.A. de C.V. a WAC Internacional Distribution S.A. de C.V. a Warnaco Ltd. Warnaco (H.K.) Ltd. a Warnaco (H.K.) Ltd. - Hong Kong Branch a Warnaco (H.K.) Ltd. - Korea Liason Office a Warnaco (H.K.) Ltd. - Pakistan Liason Office a Warnaco (H.K.) Ltd. - Panyu Representative Office a Warnaco B.V. a Warnaco France SARL a Warnaco Group Inc. Warnaco Holland B.V. a Warnaco Inc. b Warnaco International Inc. b Warnaco International LLC Warnaco Intimo (Spain) S.A. a Warnaco Japan K.K. a Warnaco Lac One GmbH a Warnaco Lac Two GmbH a Warnaco Lac Two GmbH & Co. KG a Warnaco Ltd. (U.K.) a Warnaco Men's Sportswear Inc. Warnaco Netherlands B.V. a Warnaco of Canada Company a Warnaco Operations Corporation b Warnaco Sourcing Inc. Warnaco South Africa (Proprietary) Limited a Warnaco Srl a Warnaco U.S. Inc. b Warnaco Ventures Ltd. Warner's (EIRE) Teoranta a Warner's (U.K.) Ltd. a Warner's Aiglon S.A. a Warner's Company (Belgium) S.A. a Warner's de Costa Rica Inc. Warner's de Honduras S.A. a Warner's de Mexico S.A. de C.V. a
a Foreign Entity b Domestic Entity with assets or EBITDA in excess of $15 miolion c INVASA - 50% interest through Warnaco Inc. d The Bra Company - 50% interest through Warner's UK Ltd. e STAR/Warnaco International - 50% interest through Warnaco International LLC SCHEDULE 8.2 ASSETS HELD FOR SALE 1. Assets related to the C.F. Hathaway division 2. Knitwear division assets including Aguas Buenas, Puerto Rico 3. 80 Park Avenue, Apartment 15J, New York, NY 10016 4. Dothan, Alabama plant assets 5. Honduras Joint Venture - Invasa 6. 838,235 shares of common stock of Interworld Corporation 7. Certain other Internet-related investments 8. Investment in ARIS Industries EXHIBIT A NOTE $________ November __, 1999 FOR VALUE RECEIVED, the undersigned, [WARNACO INC., a Delaware corporation (the "U.S. Borrower")] [DESIGNER HOLDINGS, LTD., a Delaware corporation (the "Sub Borrower"] [WARNACO (HK) LTD., a company organized under the laws of Barbados ("Warnaco (HK)")] [WARNACO B.V., a company organized under the laws of The Netherlands ("Warnaco B.V.")] [WARNACO NETHERLANDS B.V., a company organized under the laws of The Netherlands ("Warnaco Netherlands")] [WARNACO HOLLAND B.V., a company organized under the laws of The Netherlands ("Warnaco Holland")], promises to pay to the order of [_____________] (the "Lender") on the Stated Maturity Date (as defined in the Credit Agreement referred to below) the principal sum of ___________ DOLLARS ($_________) or, if less, the aggregate unpaid principal amount of all Loans shown on the schedule attached hereto (and any continuation thereof) made by the Lender pursuant to that certain Sixth Amended and Restated Credit Agreement, dated as of the date hereof (as amended, supplemented amended and restated or otherwise modified from time to time, the "Credit Agreement"), among Warnaco Inc., Designer Holdings, Ltd., the wholly-owned Domestic Subsidiaries designated by Group (as hereinafter defined) as Warnaco Sub Borrowers from time to time, Warnaco (HK) Ltd., Warnaco B.V., Warnaco Netherlands B.V., Warnaco Holland B.V., The Warnaco Group, Inc. ("Group"), the various financial institutions as are or may become parties thereto, Societe Generate, as Documentation Agent for the Lenders, Citibank, N.A., as Syndication Agent for the Lenders, The Bank of Nova Scotia ("Scotiabank"), as Administrative Agent for the Lenders and Scotiabank and Salomon Smith Barney, Inc. as the Arrangers. [The U.S. Borrower] [The Sub Borrower] [Warnaco (HK)] [Warnaco B.V.] [Warnaco Netherlands] [Warnaco Holland] also promises to pay interest on the unpaid principal amount hereof from time to time outstanding from the date hereof until maturity (whether by acceleration or otherwise) and, after maturity, until paid, at the rates per annum, on the dates and in the manner specified in the Credit Agreement. Payments of both principal and interest are to be made in lawful money of the United States of America in same day or immediately available funds to the account designated by the Lender pursuant to the Credit Agreement. This Note is one of the Notes referred to in, and evidences Debt incurred under, the Credit Agreement, to which reference is made for a statement of the terms and conditions on which [the U.S. Borrower] [the Sub Borrower] [Warnaco (HK)] [Warnaco B.V.] [Warnaco Netherlands] [Warnaco Holland] is permitted and required to make prepayments and repayments of principal of the Debt evidenced by this Note and on which such Debt may be declared to be immediately due and payable in accordance with the terms and provisions of the Credit Agreement. Unless otherwise defined, terms used herein have the meanings provided in the Credit Agreement. All parties hereto, whether as makers, endorsers, or otherwise, severally waive presentment for payment, demand, protest and notice of dishonor. THIS NOTE HAS BEEN DELIVERED IN NEW YORK, NEW YORK AND SHALL BE DEEMED TO BE A CONTRACT MADE UNDER AND GOVERNED BY THE INTERNAL LAWS OF THE STATE OF NEW YORK. [WARNACO INC.] [DESIGNER HOLDINGS, LTD.] [WARNACO (HK) LTD.] [WARNACO B.V.] [WARNACO NETHERLANDS B.V.] [WARNACO HOLLAND B.V.] By___________________ Title: -2- LOANS AND PRINCIPAL PAYMENTS
Interest Amount of Period Unpaid Principal Unapaid Principal Notation Date Loan Made (If Applicable) Repaid Balance Total Made By - ---- ----------- --------------- ----------- ----------- ----- -------- Base LIBO Base LIBO Base LIBO Rate Rate Rate Rate Rate Rate ---- ---- ---- ---- ---- ----
EXHIBIT B ISSUANCE REQUEST The Bank of Nova Scotia, as Administrative Agent One Liberty Plaza New York, New York 10006 Attention: Ralph Davis WARNACO INC./DESIGNER HOLDINGS, LTD./WARNACO (HK) LTD./ WARNACO B.V./ WARNACO NETHERLANDS B.V./ WARNACO HOLLAND B.V. Gentlemen and Ladies: This Issuance Request is delivered to you pursuant to Section 4.1.1 of the Sixth Amended and Restated Credit Agreement, dated as of November 17, 1999 (as amended, supplemented amended and restated or otherwise modified from time to time, the "Credit Agreement"), among Warnaco Inc., a Delaware corporation (the "U.S. Borrower"), Designer Holdings, Ltd., a Delaware corporation (the "Sub Borrower"), the wholly-owned Domestic Subsidiaries designated by Group (as hereinafter defined) from time to time in accordance with Section 11.18 of the Credit Agreement and set forth on Schedule I thereto (the "Warnaco Sub-Borrowers"), Warnaco (HK) Ltd., a company organized under the laws of Barbados ("Warnaco (HK)"), Warnaco B.V., a company organized under the laws of The Netherlands ("Warnaco B.V."), Warnaco Netherlands B.V., a company organized under the laws of The Netherlands ("Warnaco Netherlands"), Warnaco Holland B.V., a company organized under the laws of The Netherlands ("Warnaco Holland"; together with Warnaco (HK), Warnaco B.V. and Warnaco Netherlands, the "Foreign Borrowers"), The Warnaco Group, Inc., a Delaware corporation ("Group"), the various financial institutions as are or may become parties thereto (collectively, the "Lenders"), Societe Generale, as documentation agent (the "Documentation Agent") for the Lenders, Citibank, N.A., as syndication agent (the "Syndication Agent") for the Lenders, The Bank of Nova Scotia ("Scotiabank"), as administrative agent (the "Administrative Agent") for the Lenders and Scotiabank and Salomon Smith Barney, Inc. as co-lead arrangers and co-book managers (the "Arrangers "). Unless otherwise defined herein or the context otherwise requires, terms used herein have the meanings provided in the Credit Agreement. [The U.S. Borrower] [The Sub Borrower] [Warnaco (HK)] [Warnaco B.V.] [Warnaco Netherlands] [Warnaco Holland] hereby requests that on__, 19__, (the "Date of Issuance") The Bank of Nova Scotia (the "Fronting Bank") [issue a Documentary Letter of Credit on ________________, 19__ in the initial Stated Amount of $_____________ with a Stated Expiry Date (as defined in the Credit Agreement) of __________________, 19 ] [extend the Stated Expiry Date (as defined under Documentary Letter of Credit No.__,issued on __________________, 19__, in the initial Stated Amount of $___) to a revised Stated Expiry Date (as defined in the Credit Agreement) of __________________, 19__]. The beneficiary of the requested Letter of Credit will be________________________, and such Letter of Credit will be in support of_______________________________. [The U.S. Borrower] [The Sub Borrower] [Warnaco (HK)] [Warnaco B.V.] [Warnaco Netherlands] [Warnaco Holland] hereby acknowledges that, pursuant to Section 6.2.2 of the Credit Agreement, each of the delivery of this Issuance Request and the [issuance] [extension] of the Letter of Credit requested hereby constitutes a representation and warranty by [the U.S. Borrower] [the Sub Borrower] [Warnaco (HK)] [Warnaco B.V.] [Warnaco Netherlands] [Warnaco Holland] that, on such date of [issuance] [extension] all statements set forth in Section 6.2.1 are true and correct in all material respects. [The U.S. Borrower] [The Sub Borrower] [Warnaco (HK)] [Warnaco B.V.] [Warnaco Netherlands] [Warnaco Holland] agrees that if, prior to the time of the [issuance] [extension] of the Letter of Credit requested hereby, any matter certified to herein by it will not be true and correct at such time as if then made, it will immediately so notify the Administrative Agent. Except to the extent, if any, that prior to the time of the issuance or extension requested hereby the Administrative Agent and the Fronting Bank shall receive written notice to the contrary from [the U.S. Borrower] [the Sub Borrower] [Warnaco (HK)] [Warnaco B.V.] [Warnaco Netherlands] [Warnaco Holland], each matter certified to herein shall be deemed to be certified at the date of such issuance or extension. IN WITNESS WHEREOF, the undersigned has caused this request to be executed and delivered by its duly Authorized Officer this __ day of _______________ 19__. [WARNACO INC.] [DESIGNER HOLDINGS, LTD.] [WARNACO (HK) LTD.] [WARNACO B.V.] [WARNACO NETHERLANDS B.V.] [WARNACO HOLLAND B.V.] By________________________ Title: -2- EXHIBIT C BORROWING REQUEST The Bank of Nova Scotia, as Administrative Agent One Liberty Plaza New York, New York 10006 Attention: Ralph Davis WARNACO INC./DESIGNER HOLDINGS, LTD./WARNACO (HK) LTD./ WARNACO B.V./ WARNACO NETHERLANDS B.V./ WARNACO HOLLAND B.V. Gentlemen and Ladies: This Borrowing Request is delivered to you pursuant to Section 2.3 of the Sixth Amended and Restated Credit Agreement, dated as of November 17, 1999 (as amended, supplemented amended and restated or otherwise modified from time to time, the "Credit Agreement"), among Warnaco Inc., a Delaware corporation (the "U.S. Borrower"), Designer Holdings, Ltd., a Delaware corporation (the "Sub Borrower"), the wholly-owned Domestic Subsidiaries designated by Group (as hereinafter defined) from time to time in accordance with Section 11.18 of the Credit Agreement and set forth on Schedule I thereto (the "Warnaco Sub-Borrowers"), Warnaco (HK) Ltd., a company organized under the laws of Barbados ("Warnaco (HK)"), Warnaco B.V., a company organized under the laws of The Netherlands ("Warnaco B.V."), Warnaco Netherlands B.V., a company organized under the laws of The Netherlands ("Warnaco Netherlands"), Warnaco Holland B.V., a company organized under the laws of The Netherlands ("Warnaco Holland"; together with Warnaco (HK), Warnaco B.V. and Warnaco Netherlands, the "Foreign Borrowers"), The Warnaco Group, Inc., a Delaware corporation ("Group"), the various financial institutions as are or may become parties thereto (collectively, the "Lenders"), Societe Generale, as documentation agent (the "Documentation Agent") for the Lenders, Citibank, N.A., as syndication agent (the "Syndication Agent") for the Lenders, The Bank of Nova Scotia ("Scotiabank"), as administrative agent (the "Administrative Agent") for the Lenders and Scotiabank and Salomon Smith Barney, Inc. as co-lead arrangers and co-book managers (the "Arrangers"). Unless otherwise defined herein or the context otherwise requires, terms used herein have the meanings provided in the Credit Agreement. [The U.S. Borrower] [The Sub Borrower] [Warnaco (HK)] [Warnaco B.V.] [Warnaco Netherlands] [Warnaco Holland] hereby requests that a Loan be made in the aggregate principal amount of $____________ on __________________, 19__ as a [LIBO Rate Loan having an Interest Period of [one] [three] [six] month(s)] [Base Rate Loan]. [The U.S. Borrower] [The Sub Borrower] [Warnaco (HK)] [Warnaco B.V.] [Warnaco Netherlands] [Warnaco Holland] hereby acknowledges that, pursuant to Section 6.2.2 of the Credit Agreement, each of the delivery of this Borrowing Request and the acceptance by [the U.S. Borrower] [the Sub Borrower] [Warnaco (HK)] [Warnaco B.V.] [Warnaco Netherlands] [Warnaco Holland] of the proceeds of the Loans requested hereby constitute a representation and warranty by [the U.S. Borrower] [the Sub Borrower] [Warnaco (HK)] [Warnaco B.V.] [Warnaco Netherlands] [Warnaco Holland] that, on the date of the making of such Loans, and before and after giving effect thereto and to the application of the proceeds therefrom, all statements set forth in Section 6.2.1 are true and correct in all material respects. [The U.S. Borrower] [The Sub Borrower] [Warnaco (HK)] [Warnaco B.V.] [Warnaco Netherlands] [Warnaco Holland] agrees that if prior to the time of the Borrowing requested hereby any matter certified to herein by it will not be true and correct at such time as if then made, it will immediately so notify the Administrative Agent. Except to the extent, if any, that prior to the time of the Borrowing requested hereby the Administrative Agent shall receive written notice to the contrary from [the U.S. Borrower] [the Sub Borrower] [Warnaco (HK)] [Warnaco B.V.] [Warnaco Netherlands] [Warnaco Holland], each matter certified to herein shall be deemed once again to be certified as true and correct at the date of such Borrowing as if then made. Please wire transfer the proceeds of the Borrowing to the accounts of the following persons at the financial institutions indicated respectively: Amount to be Transferred Person to be Paid Name, Account No., Address, etc. $____________ ___________________________ ___________________________ ___________________________ Attention: $____________ ___________________________ ___________________________ ___________________________ Attention: -2- [The U.S. Borrower] [The Sub Borrower] [Warnaco (HK)] [Warnaco B.V.] [Warnaco Netherlands] [Warnaco Holland] has caused this Borrowing Request to be executed and delivered, and the certification and warranties contained herein to be made, by its duly Authorized Officer this ___ day of 19__. [WARNACO INC.] [DESIGNER HOLDINGS, LTD.] [WARNACO (HK) LTD.] [WARNACO B.V.] [WARNACO NETHERLANDS Bay.] [WARNACO HOLLAND B.V.] By________________________ Title: -3- EXHIBIT D CONTINUATION/CONVERSION NOTICE The Bank of Nova Scotia, as Administrative Agent One Liberty Plaza New York, New York 10006 Attention: Ralph Davis WARNACO INC./DESIGNER HOLDINGS, LTD./WARNACO (HK) LTD./ WARNACO B.V./WARNACO NETHERLANDS B.V./WARNACO HOLLAND B.V. Gentlemen and Ladies: This Continuation/Conversion Notice is delivered to you pursuant to Section 2.4 of the Sixth Amended and Restated Credit Agreement, dated as of November 17, 1999 (as amended, supplemented amended and restated or otherwise modified from time to time, the "Credit Agreement"), among Warnaco Inc., a Delaware corporation (the "U.S. Borrower"), Designer Holdings, Ltd., a Delaware corporation (the "Sub Borrower"), the wholly-owned Domestic Subsidiaries designated by Group (as hereinafter defined) from time to time in accordance with Section 11.18 of the Credit Agreement and set forth on Schedule I thereto (the "Warnaco Sub-Borrowers"), Warnaco (HK) Ltd., a company organized under the laws of Barbados ("Warnaco (HK)"), Warnaco B.V., a company organized under the laws of The Netherlands ("Warnaco B.V."), Warnaco Netherlands B.V., a company organized under the laws of The Netherlands ("Warnaco Netherlands"), Warnaco Holland B.V., a company organized under the laws of The Netherlands ("Warnaco Holland"; together with Warnaco (HK), Warnaco B.V. and Warnaco Netherlands, the "Foreign Borrowers"), The Warnaco Group, Inc., a Delaware corporation ("Group"), the various financial institutions as are or may become parties thereto (collectively, the "Lenders"), Soci6t6 Generale, as documentation agent (the "Documentation Agent") for the Lenders, Citibank, N.A., as syndication agent (the "Syndication Agent") for the Lenders, The Bank of Nova Scotia ("Scotiabank"), as administrative agent (the "Administrative Agent") for the Lenders and Scotiabank and Salomon Smith Barney, Inc. as co-lead arrangers and co-book managers (the "Arrangers"). Unless otherwise defined herein or the context otherwise requires, terms used herein have the meanings provided in the Credit Agreement. [The U.S. Borrower] [The Sub Borrower] [Warnaco (HK)] [Warnaco B.V.] [Warnaco Netherlands] [Warnaco Holland] hereby requests that on _______________, 19__, (1) $_______ of the presently outstanding principal amount of the Loans originally made on ________________, 19__ to such Borrower, (2) and all presently being maintained as [Base Rate Loans] [LIBO Rate Loans], (3) be [converted into] [continued as], (4) [LIBO Rate Loans having an Interest Period of [one] [three] [six] month(s)] [Base Rate Loans]. [The U.S. Borrower] [The Sub Borrower] [Warnaco (HK)] [Warnaco B.V.] [Warnaco Netherlands] [Warnaco Holland] hereby: (a) certifies and warrants that no Default has occurred and is continuing; and (b) agrees that if prior to the time of such continuation or conversion any matter certified to herein by it will not be true and correct at such time as if then made, it will immediately so notify the Administrative Agent. Except to the extent, if any, that prior to the time of the continuation or conversion requested hereby the Administrative Agent shall receive written notice to the contrary from [the U.S. Borrower] [the Sub Borrower] [Warnaco (HK)] [Warnaco B.V.] [Warnaco Netherlands] [Warnaco Holland], each matter certified to herein shall be deemed to be certified at the date of such continuation or conversion as if then made. [The U.S. Borrower] [The Sub Borrower] [Warnaco (HK)] [Warnaco B.V.] [Warnaco Netherlands] [Warnaco Holland] has caused this Continuation/Conversion Notice to be executed and delivered, and the certification and warranties contained herein to be made, by its Authorized Officer this __ day of _______________, 19__. [WARNACO INC.] [DESIGNER HOLDINGS, LTD.] [WARNACO (HK) LTD.] [WARNACO B.V.] [WARNACO NETHERLANDS B.V.] [WARNACO HOLLAND B.V.] By________________________ Title: -2- EXHIBIT E LENDER ASSIGNMENT AGREEMENT To: Warnaco Inc. 90 Park Avenue New York, New York 10016 Attn: Chief Financial Officer To: The Bank of Nova Scotia, as Administrative Agent One Liberty Plaza New York, New York 10006 Attn: Claudio Chappell WARNACO INC./DESIGNER HOLDINGS, LTD./WARNACO (HK) LTD./ WARNACO B.V./WARNACO NETHERLANDS B.V./WARNACO HOLLAND B.V. Gentlemen and Ladies: We refer to clause (d) of Section 11.11.1 of the Sixth Amended and Restated Credit Agreement, dated as of November 17, 1999 (as amended, supplemented amended and restated or otherwise modified from time to time, the "Credit Agreement"), among Warnaco Inc., a Delaware corporation (the "U.S. Borrower"), Designer Holdings, Ltd., a Delaware corporation (the "Sub Borrower"), the wholly-owned Domestic Subsidiaries designated by Group (as hereinafter defined) from time to time in accordance with Section 11.18 of the Credit Agreement and set forth on Schedule I thereto (the "Warnaco Sub-Borrowers"), Warnaco (HK) Ltd., a company organized under the laws of Barbados ("Warnaco (HK)"), Warnaco B.V., a company organized under the laws of The Netherlands ("Warnaco B.V."), Warnaco Netherlands B.V., a company organized under the laws of The Netherlands ("Warnaco Netherlands"), Warnaco Holland B.V., a company organized under the laws of The Netherlands ("Warnaco Holland"; together with Warnaco (HK), Warnaco B.V. and Warnaco Netherlands, the "Foreign Borrowers"), The Warnaco Group, Inc., a Delaware corporation ("Group"), the various financial institutions as are or may become parties thereto (collectively, the "Lenders"), Societe Generale, as documentation agent (the "Documentation Agent") for the Lenders, Citibank, N.A., as syndication agent (the "Syndication Agent") for the Lenders, The Bank of Nova Scotia ("Scotiabank"), as administrative agent (the "Administrative Agent") for the Lenders and Scotiabank and Salomon Smith Barney, Inc. as co-lead arrangers and co-book managers (the "Arrangers"). Unless otherwise defined herein or the context otherwise requires, terms used herein have the meanings provided in the Credit Agreement. This agreement is delivered to you pursuant to clause (d) of Section 11.11.1 of the Credit Agreement and also constitutes notice to each of you, pursuant to clause (c) of Section 11.11.1 of the Credit Agreement, of the assignment and delegation to ____________________ (the "Assignee") of ___% of the Loans and Commitments of __________________ (the "Assignor") outstanding under the Credit Agreement on the date hereof. After giving effect to the foregoing assignment and delegation, the Assignor's and the Assignee's Percentages for the purposes of the Credit Agreement are set forth opposite such Person's name on the signature pages hereof. [Add paragraph dealing with accrued interest and fees with respect to Obligations assigned.] The Assignee hereby acknowledges and confirms that it has received a copy of the Credit Agreement and the exhibits related thereto, together with copies of the documents which were required to be delivered under the Credit Agreement as a condition to the making of the Credit Extensions thereunder. The Assignee further confirms and agrees that in becoming a Lender and in making its Commitments [and Loans] under the Credit Agreement, such actions have and will be made without recourse to, or representation or warranty by any Agent. Except as otherwise provided in the Credit Agreement, effective as of the date of acceptance hereof by the Administrative Agent (a) the Assignee (i) shall be deemed automatically to have become a party to the Credit Agreement, have all the rights and obligations of a "Lender" under the Credit Agreement and the other Loan Documents as if it were an original signatory thereto to the extent specified in the second paragraph hereof; and (ii) agrees to be bound by the terms and conditions set forth in the Credit Agreement and the other Loan Documents as if it were an original signatory thereto; and (b) the Assignor shall be released from its obligations under the Credit Agreement and the other Loan Documents to the extent specified in the second paragraph hereof. The Assignor and the Assignee hereby agree that the [Assignor] [Assignee] will pay to the Administrative Agent the processing fee referred to in Section 11.11.1 of the Credit Agreement upon the delivery hereof. -2- The Assignee hereby advises each of you of the following administrative details with respect to the assigned [Loans and] Commitments and requests the Administrative Agent to acknowledge receipt of this document: (A) Address for Notices: Institution Name: Attention: Domestic Office: _________________ _________________ _________________ Telephone: Facsimile: Telex (Answerback): LIBOR Office: _________________ _________________ _________________ Telephone: Facsimile: Telex (Answerback): (B) Payment Instructions: _________________ _________________ _________________ The Assignee agrees to furnish the tax forms required by Section 5.6 (if so required) of the Credit Agreement no later than the date of acceptance hereof by the Administrative Agent. -3- This Agreement may be executed by the Assignor and Assignee in separate counterparts, each of which when so executed and delivered shall be deemed to be an original and all of which taken together shall constitute one and the same agreement. Adjusted Percentage [ASSIGNOR] Loan Commitment and Loans: ___% By:_________________________ Title: Letters of Credit: ___% Acceptances: ___% Percentage [ASSIGNEE] Loan Commitment and Loans: ___% By:_________________________ Title: Letters of Credit: ___% Acceptances: ___% Accepted and Acknowledged this __ day of ______________, 19__ THE BANK OF NOVA SCOTIA, as Administrative Agent By:____________________________ Title: WARNACO INC. By:____________________________ Title: EXHIBIT F-1 SECOND AMENDED AND RESTATED GUARANTY SECOND AMENDED AND RESTATED GUARANTY (this "Guaranty"), dated as of July 31, 1998 (amending and restating the Amended and Restated Guaranty dated as of August 12, 1997, the "Existing Guaranty"), made by THE WARNACO GROUP, INC., a Delaware corporation (the "Guarantor"), in favor of the Lender Parties (as defined below) and THE BANK OF NOVA SCOTIA, as administrative agent (the "Administrative Agent") for the Lender Parties. PRELIMINARY STATEMENT. Warnaco Inc., a Delaware corporation, Designer Holdings, Ltd., a Delaware corporation, the wholly-owned Domestic Subsidiaries designated from time to time, Warnaco (HK) Ltd., a company organized under the laws of Barbados, Warnaco B.V., a company organized under the laws of The Netherlands, Warnaco Netherlands B.V., a company organized under the laws of The Netherlands, Warnaco Holland B.V. a company organized under the laws of The Netherlands (together with each of the foregoing entities, the "Borrowers") and the Guarantor have heretofore entered into a Fourth Amended and Restated Credit Agreement, dated as of February 19, 1998 (as amended or otherwise modified prior to the date hereof, the "Existing Credit Agreement"), with the Administrative Agent, Citibank, N.A. ("Citibank"), as the Documentation Agent and the lenders party thereto. Concurrently with the execution and delivery of this Guaranty, the Existing Credit Agreement is being amended and restated in its entirety as the Fifth Amended and Restated Credit Agreement, dated as of the date hereof (as amended, modified or supplemented from time to time, the "Credit Agreement"), among the Guarantor, the Borrowers, the Lenders party thereto (the "Lender Parties"), Societe Generale as Documentation Agent, Citibank, as Syndication Agent, and the Administrative Agent. The Guarantor has derived and will continue to derive substantial direct and indirect benefit from the transactions contemplated by the Credit Agreement. It is a condition precedent to the effectiveness of the Credit Agreement and the maintaining and making of Credit Extensions by the Lenders thereunder that the Guarantor, as the owner of 100% of the outstanding shares of stock and other ownership interests of each Borrower, shall have executed and delivered this Guaranty. NOW THEREFORE, for good and valuable consideration the receipt of which is hereby acknowledged, and in order to induce the Lenders to maintain and make Credit Extensions (including the initial Credit Extensions) to each Borrower pursuant to the Credit Agreement, the Guarantor agrees, for the benefit of each Lender Party, as follows: ARTICLE I DEFINITIONS SECTION 1.1 Certain Terms. The following terms (whether or not underscored) when used in this Guaranty, including its preamble and recitals, shall have the following meanings (such definitions to be equally applicable to the singular and plural forms thereof): "Administrative Agent" is defined in the preamble. "Borrowers" is defined in the first recital. "Credit Agreement" is defined in the first recital. "Existing Credit Agreement" is defined in the first recital. "Existing Guaranty" is defined in the preamble. "Guarantor" is defined in the preamble. "Guaranty" is defined in the preamble. "Lender Parties" is defined in the first recital. "U.C.C." means the Uniform Commercial Code as in effect in the State of New York. SECTION 1.2 Credit Agreement Definitions. Unless otherwise defined herein or the context otherwise requires, terms used in this Guaranty, including its preamble and recitals, have the meanings provided in the Credit Agreement. SECTION 1.3 U.C.C. Definitions. Unless otherwise defined herein or the context otherwise requires, terms for which meanings are provided in the U.C.C. are used in this Guaranty, including its preamble and recitals, with such meanings. ARTICLE II GUARANTY PROVISIONS SECTION 2.1 Guaranty. The Guarantor hereby absolutely, unconditionally and irrevocably (a) guarantees the full and punctual payment when due, whether at stated maturity, by required prepayment, -2- declaration, acceleration, demand or otherwise, of all obligations of each Borrower and each other obligor, whether for principal, interest, fees, expenses or otherwise (including all such amounts which would become due but for the operation of the automatic stay under Section 362 (a) of the United States Bankruptcy Code, 11 U.S.C. 'SS'362(a), and the operation of Sections 502 (b) and 506 (b) of the United States Bankruptcy Code, 11 U.S.C. 'SS'502 (b) and 'SS'506(b)), and (b) indemnifies and holds harmless each Lender Party and each holder of a Note for any and all costs and expenses (including reasonable attorney's fees and expenses) incurred by such Lender Party or such holder, as the case may be, in enforcing any rights under this Guaranty. provided, however, that the Guarantor shall be liable under this Guaranty for the maximum amount of such liability that can be hereby incurred without rendering this Guaranty, as it relates to the Guarantor, voidable under applicable law relating to fraudulent conveyance or fraudulent transfer, and not for any greater amount. This Guaranty constitutes a guaranty of payment when due and not of collection, and the Guarantor specifically agrees that it shall not be necessary or required that any Lender Party or any holder of any Note exercise any right, assert any claim or demand or enforce any remedy whatsoever against any Borrower or any other Obligor (or any other Person) before or as a condition to the obligations of the Guarantor hereunder. SECTION 2.2 Acceleration of Guaranty. The Guarantor agrees that, in the event of the dissolution or insolvency of any Borrower or the dissolution (other than to the extent permitted by the Credit Agreement) or insolvency of any other Obligor or the Guarantor, or the inability or failure of any Borrower, any other obligor or the Guarantor to pay debts as they become due, or an assignment by any Borrower, any other Obligor or the Guarantor for the benefit of creditors, or the commencement of any case or proceeding in respect of any Borrower, any other Obligor or the Guarantor under any bankruptcy, insolvency or similar laws, and with respect to any involuntary case or proceeding, such case or proceeding remains undismissed for a period of 30 days, and if any such event shall occur at a time when any of the obligations of each Borrower and each other obligor may not then be due and payable, the Guarantor will pay to the Lenders forthwith the full amount which would be payable hereunder by the Guarantor if all such Obligations were then due and payable. SECTION 2.3 Guaranty Absolute, etc. This Guaranty shall in all respects be a continuing, absolute, unconditional and irrevocable guaranty of payment, and shall remain in full force and effect until all Obligations of each Borrower and each other -3- Obligor have been paid in full, all obligations of the Guarantor hereunder shall have been paid in full, all Letters of Credit have been terminated or expired, all Acceptances shall have matured or expired and all Commitments shall have terminated. The Guarantor guarantees that the Obligations of each Borrower and each other Obligor and their respective Subsidiaries will be paid strictly in accordance with the terms of the Credit Agreement and each other Loan Document under which they arise, regardless of any law, regulation or order now or hereafter in effect in any jurisdiction affecting any of such terms or the rights of any Lender Party or any holder of any Note with respect thereto. The liability of the Guarantor under this Guaranty shall be absolute, unconditional and irrevocable irrespective of: (a) any lack of validity, legality or enforceability of the Credit Agreement, any Note, any Letter of Credit, any Acceptance or any other Loan Document; (b) the failure of any Lender Party or any holder of any Note (i) to assert any claim or demand or to enforce any right or remedy against any Borrower, any other obligor or any other Person (including any other guarantor) under the provisions of the Credit Agreement, any Note, any Letter of Credit, any Acceptance, any other Loan Document or otherwise, or (ii) to exercise any right or remedy against any other guarantor of any obligations of any Borrower or any other Obligor; (c) any change in the time, manner or place of payment of, or in any other term of, all or any of the Obligations of any Borrower or any other Obligor, or any other extension, compromise or renewal of any obligation of any Borrower or any other obligor; (d) any reduction, limitation, impairment or termination of the obligations of any Borrower or any other Obligor for any reason, including any claim of waiver, release, surrender, alteration or compromise, and shall not be subject to (and the Guarantor hereby waives any right to or claim of) any defense or setoff, counterclaim, recoupment or termination whatsoever by reason of the invalidity, illegality, nongenuineness, irregularity, compromise, unenforceability of, or any other event or occurrence affecting, the Obligations of any Borrower, any other Obligor or otherwise; -4- (e) any amendment to, rescission, waiver, or other modification of, or any consent to departure from, any of the terms of the Credit Agreement, any Note, any Letter of Credit, any Acceptance, or any other Loan Document; (f) any amendment to or waiver or release or addition of, or consent to departure from, any other guaranty, held by any Lender Party or any holder of any Note securing any of the Obligations of any Borrower or any other obligor; or (g) any other circumstance which might otherwise constitute a defense available to, or a legal or equitable discharge of, any Borrower, any other obligor, any surety or any guarantor. SECTION 2.4 Reinstatement, etc. The Guarantor agrees that this Guaranty shall continue to be effective or be reinstated, as the case may be, if at any time any payment (in whole or in part) of any of the Obligations is rescinded or must otherwise be restored by any Lender Party or any holder of any Note, upon the insolvency, bankruptcy or reorganization of any Borrower, any other obligor or otherwise, all as though such payment had not been made. SECTION 2.5 Waiver, etc. The Guarantor hereby waives promptness, diligence, notice of acceptance and any other notice with respect to any of the Obligations of any Borrower or any other obligor and this Guaranty and any requirement that the Administrative Agent, any other Lender Party or any holder of any Note protect, secure, perfect or insure any security interest or Lien, or any property subject thereto, or exhaust any right or take any action against any Borrower, any other Obligor or any other Person (including any other guarantor) or entity or any collateral securing the Obligations of any Borrower or any other Obligor, as the case may be. SECTION 2.6 Postponement of Subrogation, etc. The Guarantor will not exercise any rights which it may acquire by way of rights of subrogation under this Guaranty, by any payment made hereunder or otherwise, until the prior payment, in full and in cash, of all obligations of each Borrower and each other Obligor. Any amount paid to the Guarantor on account of any such subrogation rights prior to the payment in full of all Obligations of each Borrower and each other Obligor shall be held in trust for the benefit of the Lender Parties and each holder of a Note and shall immediately be paid to the Administrative Agent and credited and applied against the Obligations of each Borrower and each other Obligor, whether matured or unmatured, in accordance with the terms of the Credit Agreement; provided, however, that if -5- (a) the Guarantor has made payment to the Lender Parties and each holder of a Note of all or any part of the Obligations of any Borrower or any other Obligor, and (b) all Obligations of each Borrower and each other Obligor have been paid in full, all Letters of Credit have been terminated or expired, each Acceptance shall have matured or expired and all Commitments have been permanently terminated, each Lender Party and each holder of a Note agrees that, at the Guarantor's request, the Administrative Agent, on behalf of the Lender Parties and the holders of the Notes, will execute and deliver to the Guarantor appropriate documents (without recourse and without representation or warranty) necessary to evidence the transfer by subrogation to the Guarantor of an interest in the Obligations of each Borrower and each other Obligor resulting from such payment by the Guarantor. In furtherance of the foregoing, for so long as any Obligations or Commitments remain outstanding, the Guarantor shall refrain from taking any action or commencing any proceeding against any Borrower or any other Obligor (or its successors or assigns, whether in connection with a bankruptcy proceeding or otherwise) to recover any amounts in respect of payments made under this Guaranty to any Lender Party or any holder of a Note. SECTION 2.7 Successors, Transferees and Assigns; Transfers of Notes, etc. This Guaranty shall: (a) be binding upon the Guarantor, and its successors, transferees and assigns; and (b) inure to the benefit of and be enforceable by the Administrative Agent and each other Lender Party. Without limiting the generality of clause (b), any Lender may assign or otherwise transfer (in whole or in part) any Note or Credit Extension held by it to any other Person or entity, and such other Person or entity shall thereupon become vested with all rights and benefits in respect thereof granted to such Lender under any Loan Document (including this Guaranty) or otherwise, subject, however, to the provisions of Section 11.11 and Article X of the Credit Agreement. -6- ARTICLE III REPRESENTATIONS AND WARRANTIES SECTION 3.1 Representations and Warranties. The Guarantor hereby represents and warrants unto each Lender Party as set forth in this Article III. SECTION 3.1.1 Credit Agreement Representations and Warranties. As to all matters contained in Article VII of the Credit Agreement, as in effect on the date hereof, insofar as applicable to the Guarantor, the Guarantor's properties or the Guarantor's obligations under the documents executed and delivered in connection with the Credit Agreement, each such representation and warranty set forth in such Section (insofar as so applicable) and all other terms of the Credit Agreement, as in effect on the date hereof, to which reference is made therein, together with all related definitions and ancillary provisions, are hereby incorporated into this Guaranty by reference with respect to the Guarantor as though specifically set forth in this Section 3.1.1. SECTION 3.1.2 Authority. The Guarantor has full power and authority to enter into and perform its obligations under this Guaranty. SECTION 3.1.3 Due Authorization, Non-Contravention, etc. The execution, delivery and performance by the Guarantor of this Guaranty have been duly authorized by all necessary corporate action (including but not limited to any consent of stockholders required by law or its organizational documents), and do not (a) contravene the Guarantor's organizational documents; (b) contravene any contractual restriction, law or governmental regulation or court decree or order binding on or affecting the Guarantor; or (c) result in, or require the creation or imposition of, any lien, security interest, encumbrance, pledge or hypothecation on any of the Guarantor's properties. SECTION 3.1.4 Validity, etc. This Guaranty constitutes the legal, valid and binding obligations of the Guarantor enforceable in accordance with its terms, subject to the effect of any applicable bankruptcy, insolvency, reorganization, moratorium, liquidation or similar laws affecting creditors' rights generally and general principles of equity. -7- SECTION 3.1.5 Authorization, Approval, etc. No authorization, consent, approval, or other action by, and no notice to, filing with, or license from, any governmental authority, regulatory body or any other person is required for due execution, delivery or performance by the Guarantor of this Guaranty. ARTICLE IV COVENANTS, ETC. SECTION 4.1 Covenants. The Guarantor covenants and agrees that, so long as any portion of the Obligations shall remain unpaid or any Lender shall have any outstanding Commitment, the Guarantor will, unless the Required Lenders shall otherwise consent in writing, perform the obligations set forth in this Section 4.1. SECTION 4.1.1 Credit Agreement Covenants. The Guarantor will comply with and be bound by all of the agreements, covenants and obligations contained in Article VIII of the Credit Agreement. Each such agreement, covenant and obligation contained in such Sections and all other terms of the Credit Agreement and the documents executed in connection therewith to which reference is made therein, together with all related definitions and ancillary provisions, each as in effect on the date hereof, is hereby incorporated into this Guaranty by reference as though specifically set forth in this Section 4.1.1, and each such agreement, covenant and obligation shall, for purposes hereof, survive the termination of the Credit Agreement. ARTICLE V MISCELLANEOUS PROVISIONS SECTION 5.1 Loan Document. This Guaranty is a Loan Document executed pursuant to the Credit Agreement and shall (unless otherwise expressly indicated herein) be construed, administered and applied in accordance with the terms and provisions thereof, including, without limitation, Article XI thereof. SECTION 5.2 Binding on Successors, Transferees and Assigns; Assignment. In addition to, and not in limitation of, Section 2.7, this Guaranty shall be binding upon the Guarantor and its successors, transferees and assigns and shall inure to the benefit of and be enforceable by each Lender Party and each holder of a Note and their respective successors, transferees and assigns (to the full extent provided pursuant to Section 2.7); -8- provided, however, that the Guarantor may not assign any of its obligations hereunder without the prior written consent of the Lenders. SECTION 5.3 Amendments, etc. No amendment to or waiver of any provision of this Guaranty, nor consent to any departure by the Guarantor herefrom, shall in any event be effective unless the same shall be in writing and signed by the Administrative Agent, and then such waiver or consent shall be effective only in the specific instance and for the specific purpose for which given. SECTION 5.4 Notices. All notices and other communications provided to the Guarantor under this Guaranty shall be in writing or by facsimile and addressed, delivered or transmitted to the Guarantor at its address or facsimile number set forth below its signature hereto or at such other address or facsimile number as may be designated by the Guarantor in a notice to the other parties. Any notice, if mailed and properly addressed with postage prepaid or if properly addressed and sent by pre-paid courier service, shall be deemed given when received; any notice, if transmitted by facsimile, shall be deemed given when transmitted. SECTION 5.5 No Waiver; Remedies. In addition to, and not in limitation of, Section 2.3 and Section 2.5, no failure on the part of any Lender Party or any holder of a Note to exercise, and no delay in exercising, any right hereunder shall operate as a waiver thereof; nor shall any single or partial exercise of any right hereunder preclude any other or further exercise thereof or the exercise of any other right. The remedies herein provided are cumulative and not exclusive of any remedies provided by law. SECTION 5.6 Captions. Section captions used in this Guaranty are for convenience of reference only, and shall not affect the construction of this Guaranty. SECTION 5.7 Setoff. Each Lender Party shall, upon the occurrence of any event or condition described in Section 9.1.6 of the Credit Agreement or, with the consent of the Required Lenders, upon the occurrence of any other Event of Default, have the right to appropriate and apply to the payment of the obligations owing to it (whether or not then due) any and all balances, credits, deposits, accounts or moneys of the Guarantor then or thereafter maintained with or otherwise held by such Lender Party; provided, however, that any such appropriation and application shall be subject to the provisions of Section 5.8 of the Credit Agreement. Each Lender Party agrees promptly to notify the Guarantor and the Administrative Agent after any such setoff and application made by such Lender Party; provided, however, that the failure to give such notice shall not affect -9- the validity of such setoff and application. The rights of each Lender Party under this Section are in addition to other rights and remedies (including other rights of setoff under applicable law or otherwise) which such Lender Party may have. SECTION 5.8 Severability. Wherever possible each provision of this Guaranty shall be interpreted in such manner as to be effective and valid under applicable law, but if any provision of this Guaranty shall be prohibited by or invalid under such law, such provision shall be ineffective to the extent of such prohibition or invalidity, without invalidating the remainder of such provision or the remaining provisions of this Guaranty. SECTION 5.9 Governing Law. THIS GUARANTY SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE INTERNAL LAWS OF THE STATE OF NEW YORK. FOR PURPOSES OF ANY ACTION OR PROCEEDING INVOLVING THIS GUARANTY, THE GUARANTOR HEREBY EXPRESSLY SUBMITS TO THE JURISDICTION OF ALL FEDERAL AND STATE COURTS LOCATED IN THE STATE OF NEW YORK AND CONSENTS THAT IT MAY BE SERVED WITH ANY PROCESS OR PAPER BY REGISTERED MAIL OR BY PERSONAL SERVICE WITHIN OR WITHOUT THE STATE OF NEW YORK. SECTION 5.10 Waiver of Jury Trial. THE GUARANTOR HEREBY KNOWINGLY, VOLUNTARILY AND INTENTIONALLY WAIVES ANY RIGHTS IT MAY HAVE TO A TRIAL BY JURY IN RESPECT OF ANY LITIGATION BASED HEREON, OR ARISING OUT OF, UNDER, OR IN CONNECTION WITH, THIS GUARANTY. THE GUARANTOR ACKNOWLEDGES AND AGREES THAT IT HAS RECEIVED FULL AND SUFFICIENT CONSIDERATION FOR THIS PROVISION AND THAT THIS PROVISION IS A MATERIAL INDUCEMENT FOR THE LENDERS ENTERING INTO THE CREDIT AGREEMENT. [REMAINDER OF PAGE INTENTIONALLY LEFT BLANK] -10- IN WITNESS WHEREOF, the Guarantor has caused this Guaranty to be duly executed and delivered by its officer thereunto duly authorized as of the date first above written. THE WARNACO GROUP, INC. By ------------------------------ Title: Address: 90 Park Avenue New York, New York 10016 Attention: Chief Financial Officer Telecopy No.: (212) 687-0480 -11- EXHIBIT F-2 SECOND AMENDED AND RESTATED GUARANTY SECOND AMENDED AND RESTATED GUARANTY (this "Guaranty"), dated as of July 31, 1998 (amending and restating the Amended and Restated Guaranty dated as of August 12, 1997, the "Existing Guaranty"), made by certain of the Persons listed on the signature pages hereof (each Person listed on the signature pages hereof, a "Guarantor" and collectively, the "Guarantors"), in favor of the Lender Parties (as defined below) and THE BANK OF NOVA SCOTIA, as administrative agent (the "Administrative Agent") for the Lender Parties. PRELIMINARY STATEMENT. Warnaco Inc., a Delaware corporation, Designer Holdings, Ltd., a Delaware corporation, the wholly-owned Domestic Subsidiaries designated from time to time, Warnaco (HK) Ltd., a company organized under the laws of Barbados, Warnaco B.V., a company organized under the laws of The Netherlands, Warnaco Netherlands B.V., a company organized under the laws of The Netherlands, Warnaco Holland B.V., a company organized under the laws of The Netherlands (together with each of the foregoing entities, the "Borrowers") and the Warnaco Group, Inc., a Delaware corporation ("Group") have heretofore entered into a Fourth Amended and Restated Credit Agreement, dated as of February 19, 1998 (as amended or otherwise modified prior to the date hereof, the "Existing Credit Agreement"), with the Administrative Agent, Citibank, N.A. ("Citibank"), as the Documentation Agent and the lenders party thereto. Concurrently with the execution and delivery of this Guaranty, the Existing Credit Agreement is being amended and restated in its entirety as the Fifth Amended and Restated Credit Agreement, dated as of the date hereof (as amended, modified or supplemented from time to time, the "Credit Agreement"), among Group, the Borrowers, the Lenders party thereto (the "Lender Parties"), Societe Generale, as Documentation Agent, Citibank, as Syndication Agent, and the Administrative Agent. Each Guarantor has derived and will continue to derive substantial direct and indirect benefits from the transactions contemplated by the Credit Agreement. It is a condition precedent to the effectiveness of the Credit Agreement and the maintaining and making of Credit Extensions by the Lenders thereunder that each Guarantor shall have executed and delivered this Guaranty. NOW THEREFORE, for good and valuable consideration the receipt of which is hereby acknowledged, and in order to induce the Lenders to maintain and make Credit Extensions (including the initial Credit Extensions) to each Borrower pursuant to the Credit Agreement, each Guarantor agrees, for the benefit of each Lender Party, as follows: ARTICLE I DEFINITIONS SECTION 1.1 Certain Terms. The following terms (whether or not underscored) when used in this Guaranty, including its preamble and recitals, shall have the following meanings (such definitions to be equally applicable to the singular and plural forms thereof) "Administrative Agent" is defined in the preamble. "Borrowers" is defined in the first recital. "Credit Agreement" is defined in the first recital. "Existing Credit Agreement" is defined in the first recital. "Existing Guaranty" is defined in the preamble. "Group" is defined in the first recital. "Guarantor" is defined in the preamble. "Guaranty" is defined in the preamble. "Lender Parties" is defined in the first recital. "U.C.C." means the Uniform Commercial Code as in effect in the State of New York. SECTION 1.2 Credit Agreement Definitions. Unless otherwise defined herein or the context otherwise requires, terms used in this Guaranty, including its preamble and recitals, have the meanings provided in the Credit Agreement. SECTION 1.3 U.C.C. Definitions. Unless otherwise defined herein or the context otherwise requires, terms for which meanings are provided in the U.C.C. are used in this Guaranty, including its preamble and recitals, with such meanings. -2- ARTICLE II GUARANTY PROVISIONS SECTION 2.1 Guarantv. Each Guarantor hereby jointly and severally, absolutely, unconditionally and irrevocably (a) guarantees the full and punctual payment when due, whether at stated maturity, by required prepayment, declaration, acceleration, demand or otherwise, of all Obligations of each Borrower and each other Obligor, whether for principal, interest, fees, expenses or otherwise (including all such amounts which would become due but for the operation of the automatic stay under Section 362 (a) of the United States Bankruptcy Code, 11 U.S.C. 'SS'362(a), and the operation of Sections 502 (b) and 506 (b) of the United States Bankruptcy Code, 11 U.S.C. 'SS'502 (b) and 'SS'506(b)), and (b) indemnifies and holds harmless each Lender Party and each holder of a Note for any and all costs and expenses (including reasonable attorney's fees and expenses) incurred by such Lender Party or such holder, as the case may be, in enforcing any rights under this Guaranty. provided, however, that each Guarantor shall be liable under this Guaranty for the maximum amount of such liability that can be hereby incurred without rendering this Guaranty, as it relates to such Guarantor, voidable under applicable law relating to fraudulent conveyance or fraudulent transfer, and not for any greater amount. This Guaranty constitutes a guaranty of payment when due and not of collection, and each Guarantor specifically agrees that it shall not be necessary or required that any Lender Party or any holder of any Note exercise any right, assert any claim or demand or enforce any remedy whatsoever against any Borrower or any other Obligor (or any other Person) before or as a condition to the obligations of such Guarantor hereunder. SECTION 2.2 Acceleration of Guaranty. Each Guarantor agrees that, in the event of the dissolution or insolvency of any Borrower or the dissolution (other than to the extent permitted by the Credit Agreement) or insolvency of any other Obligor or such Guarantor, or the inability or failure of any Borrower, any other Obligor or such Guarantor to pay debts as they become due, or an assignment by any Borrower, any other Obligor or such Guarantor for the benefit of creditors, or the commencement of any case or proceeding in respect of any Borrower, any other Obligor or such Guarantor under any bankruptcy, insolvency or similar laws, and with respect to any involuntary case or proceeding, such case or proceeding remains undismissed for a period of 30 days, and if any such event shall occur at a time when any of the obligations of any Borrower and each other -3- Obligor may not then be due and payable, such Guarantor will pay to the Lenders forthwith the full amount which would be payable hereunder by such Guarantor if all such Obligations were then due and payable. SECTION 2.3 Guaranty Absolute, etc. This Guaranty shall in all respects be a joint and several, continuing, absolute, unconditional and irrevocable guaranty of payment, and shall remain in full force and effect until all Obligations of each Borrower and each other Obligor have been paid in full, all obligations of each Guarantor hereunder shall have been paid in full, all Letters of Credit have been terminated or expired, all Acceptances shall have matured or expired and all Commitments shall have terminated. Each Guarantor guarantees that the Obligations of each Borrower and each other Obligor and their respective Subsidiaries will be paid strictly in accordance with the terms of the Credit Agreement and each other Loan Document under which they arise, regardless of any law, regulation or order now or hereafter in effect in any jurisdiction affecting any of such terms or the rights of any Lender Party or any holder of any Note with respect thereto. The liability of each Guarantor under this Guaranty shall be joint and several and shall be absolute, unconditional and irrevocable irrespective of: (a) any lack of validity, legality or enforceability of the Credit Agreement, any Note, any Letter of Credit, any Acceptance or any other Loan Document; (b) the failure of any Lender Party or any holder of any Note (i) to assert any claim or demand or to enforce any right or remedy against any Borrower, any other Obligor or any other Person (including any other guarantor) under the provisions of the Credit Agreement, any Note, any Letter of Credit, any Acceptance, any other Loan Document or otherwise, or (ii) to exercise any right or remedy against any other guarantor of any obligations of any Borrower or any other Obligor; (c) any change in the time, manner or place of payment of, or in any other term of, all or any of the Obligations of any Borrower or any other Obligor, or any other extension, compromise or renewal of any obligation of any Borrower or any other Obligor; (d) any reduction, limitation, impairment or termination of the obligations of any Borrower or any other Obligor for any reason, including any claim of waiver, -4- release,surrender, alteration or compromise, and shall not be subject to (and such Guarantor hereby waives any right to or claim of) any defense or setoff, counterclaim, recoupment or termination whatsoever by reason of the invalidity, illegality, nongenuineness, irregularity, compromise, unenforceability of, or any other event or occurrence affecting, the Obligations of any Borrower, any other Obligor or otherwise; (e) any amendment to, rescission, waiver, or other modification of, or any consent to departure from, any of the terms of the Credit Agreement, any Note, any Letter of Credit, any Acceptance or any other Loan Document; (f) any amendment to or waiver or release or addition of, or consent to departure from, any other guaranty, held by any Lender Party or any holder of any Note securing any of the Obligations of any Borrower or any other Obligor; or (g) any other circumstance which might otherwise constitute a defense available to, or a legal or equitable discharge of, any Borrower, any other Obligor, any surety or any guarantor. SECTION 2.4 Reinstatement, etc. Each Guarantor agrees that this Guaranty shall continue to be effective or be reinstated, as the case may be, if at any time any payment (in whole or in part) of any of the Obligations is rescinded or must otherwise be restored by any Lender Party or any holder of any Note, upon the insolvency, bankruptcy or reorganization of any Borrower, any other Obligor or otherwise, all as though such payment had not been made. SECTION 2.5 Waiver, etc. Each Guarantor hereby waives promptness, diligence, notice of acceptance and any other notice with respect to any of the obligations of any Borrower or any other Obligor and this Guaranty and any requirement that the Administrative Agent, any other Lender Party or any holder of any Note protect, secure, perfect or insure any security interest or Lien, or any property subject thereto, or exhaust any right or take any action against any Borrower, any other Obligor or any other Person (including any other guarantor) or entity or any collateral securing the Obligations of any Borrower or any other Obligor, as the case may be. SECTION 2.6 Postponement of Subrogation, etc. None of the Guarantors will exercise any rights which it may acquire by way of rights of subrogation under this Guaranty, by any payment made hereunder or otherwise, until the prior payment, in full and in cash, of all Obligations of each Borrower and each other Obligor. Any amount paid to any such Guarantor on account of any such -5- subrogation rights prior to the payment in full of all Obligations of each Borrower and each other obligor shall be held in trust for the benefit of the Lender Parties and each holder of a Note and shall immediately be paid to the Administrative Agent and credited and applied against the Obligations of each Borrower and each other Obligor, whether matured or unmatured, in accordance with the terms of the Credit Agreement; provided, however, that if (a) a Guarantor has made payment to the Lender Parties and each holder of a Note of all or any part of the Obligations of any Borrower or any other Obligor, and (b) all obligations of each Borrower and each other Obligor have been paid in full, all Letters of Credit have been terminated or expired, each Acceptance shall have matured or expired and all Commitments have been permanently terminated, each Lender Party and each holder of a Note agrees that, at such Guarantor's request, the Administrative Agent, on behalf of the Lender Parties and the holders of the Notes, will execute and deliver to such Guarantor appropriate documents (without recourse and without representation or warranty) necessary to evidence the transfer by subrogation to such Guarantor of an interest in the obligations of each Borrower and each other obligor resulting from such payment by such Guarantor. In furtherance of the foregoing, for so long as any obligations or Commitments remain outstanding, each Guarantor shall refrain from taking any action or commencing any proceeding against any Borrower or any other obligor (or its successors or assigns, whether in connection with a bankruptcy proceeding or otherwise) to recover any amounts in the respect of payments made under this Guaranty to any Lender Party or any holder of a Note. SECTION 2.7 Successors, Transferees and Assigns; Transfers of Notes, etc. This Guaranty shall: (a) be binding upon each Guarantor, and its successors, transferees and assigns; and (b) inure to the benefit of and be enforceable by the Administrative Agent and each other Lender Party. Without limiting the generality of clause (b), any Lender may assign or otherwise transfer (in whole or in part) any Note or Credit Extension held by it to any other Person or entity, and such other Person or entity shall thereupon become vested with all rights and benefits in respect thereof granted to such Lender under any Loan Document (including this Guaranty) or otherwise, -6- subject, however, to the provisions of Section 11.11 and Article X of the Credit Agreement. ARTICLE III REPRESENTATIONS AND WARRANTIES SECTION 3.1 Representations and Warranties. Each Guarantor hereby represents and warrants unto each Lender Party as set forth in this Article III. SECTION 3.1.1 Credit Agreement Representations and Warranties. As to all matters contained in Article VII of the Credit Agreement, as in effect on the date hereof, insofar as applicable to each Guarantor, such Guarantor's properties or such Guarantor's obligations under the documents executed and delivered in connection with the Credit Agreement, each such representation and warranty set forth in such Section (insofar as so applicable) and all other terms of the Credit Agreement, as in effect on the date hereof, to which reference is made therein, together with all related definitions and ancillary provisions, are hereby incorporated into this Guaranty by reference with respect to such Guarantor as though specifically set forth in this Section 3.1.1. SECTION 3.1.2 Authority. Each Guarantor has full power and authority to enter into and perform its obligations under this Guaranty. SECTION 3.1.3 Due Authorization, Non-Contravention, etc. The execution, delivery and performance by each Guarantor of this Guaranty have been duly authorized by all necessary corporate action (including but not limited to any consent of stockholders required by law or its organizational documents), and do not (a) contravene each Guarantor's organizational documents; (b) contravene any contractual restriction, law or governmental regulation or court decree or order binding on or affecting each Guarantor; or (c) result in, or require the creation or imposition of, any lien, security interest, encumbrance, pledge or hypothecation on any of such Guarantor's properties. SECTION 3.1.4 Validity, etc. This Guaranty constitutes the legal, valid and binding obligations of each Guarantor enforceable in accordance with its terms, subject to the effect of any applicable bankruptcy, insolvency, reorganization, -7- moratorium, liquidation or similar laws affecting creditors' rights generally and general principles of equity. SECTION 3.1.5 Authorization, Approval, etc. No authorization, consent, approval, or other action by, and no notice to, filing with, or license from, any governmental authority, regulatory body or any other person is required for due execution, delivery or performance by each Guarantor of this Guaranty. ARTICLE IV COVENANTS, ETC. SECTION 4.1 Covenants. Each Guarantor covenants and agrees that, so long as any portion of the obligations shall remain unpaid or any Lender shall have any outstanding Commitment, such Guarantor will, unless the Required Lenders shall otherwise consent in writing, perform the obligations set forth in this Section 4.1. SECTION 4.1.1 Credit Agreement Covenants. Each Guarantor will comply with and be bound by all of the agreements, covenants and obligations contained in Article VIII of the Credit Agreement. Each such agreement, covenant and obligation contained in such Sections and all other terms of the Credit Agreement and the documents executed in connection therewith to which reference is made therein, together with all related definitions and ancillary provisions, each as in effect on the date hereof, is hereby incorporated into this Guaranty by reference as though specifically set forth in this Section 4.1.1, and each such agreement, covenant and obligation shall, for purposes hereof, survive the termination of the Credit Agreement. ARTICLE V MISCELLANEOUS PROVISIONS SECTION 5.1 Loan Document. This Guaranty is a Loan Document executed pursuant to the Credit Agreement and shall (unless otherwise expressly indicated herein) be construed, administered and applied in accordance with the terms and provisions thereof, including, without limitation, Article XI thereof. SECTION 5.2 Binding on Successors, Transferees and Assigns; Assignment. In addition to, and not in limitation of, Section 2.7, this Guaranty shall be binding upon each Guarantor and its successors, transferees and assigns and shall inure to -8- the benefit of and be enforceable by each Lender Party and each holder of a Note and their respective successors, transferees and assigns (to the full extent provided pursuant to Section 2.7); provided, however, that such Guarantor may not assign any of its obligations hereunder without the prior written consent of the Lenders. SECTION 5.3 Amendments, etc. No amendment to or waiver of any provision of this Guaranty, nor consent to any departure by any Guarantor herefrom, shall in any event be effective unless the same shall be in writing and signed by the Administrative Agent, and then such waiver or consent shall be effective only in the specific instance and for the specific purpose for which given. SECTION 5.4 Notices. All notices and other communications provided to any Guarantor under this Guaranty shall be in writing or by facsimile and addressed, delivered or transmitted to such Guarantor at 90 Park Avenue, New York, New York 10016, Telecopier No.: 212-687-0480, or at such other address or facsimile number as may be designated by such Guarantor in a notice to the other parties. Any notice, if mailed and properly addressed with postage prepaid or if properly addressed and sent by pre-paid courier service, shall be deemed given when received; any notice, if transmitted by facsimile, shall be deemed given when transmitted. SECTION 5.5 No Waiver; Remedies. In addition to, and not in limitation of, Section 2.3 and Section 2.5, no failure on the part of any Lender Party or any holder of a Note to exercise, and no delay in exercising, any right hereunder shall operate as a waiver thereof; nor shall any single or partial exercise of any right hereunder preclude any other or further exercise thereof or the exercise of any other right. The remedies herein provided are cumulative and not exclusive of any remedies provided by law. SECTION 5.6 Captions. Section captions used in this Guaranty are for convenience of reference only, and shall not affect the construction of this Guaranty. SECTION 5.7 Setoff. Each Lender Party shall, upon the occurrence of any event or condition described in Section 9.1.6 of the Credit Agreement or, with the consent of the Required Lenders, upon the occurrence of any other Event of Default, have the right to appropriate and apply to the payment of the Obligations owing to it (whether or not then due) any and all balances, credits, deposits, accounts or moneys of any of the Guarantors then or thereafter maintained with or otherwise held by such Lender Party; provided, however, that any such appropriation and application shall be subject to the provisions of Section 5.8 of the Credit Agreement. Each Lender Party agrees promptly to notify such Guarantor and the Administrative Agent after any such setoff and application made by such Lender Party; provided, however, that the failure to give such notice shall not -9- affect the validity of such setoff and application. The rights of each Lender Party under this Section are in addition to other rights and remedies (including other rights of setoff under applicable law or otherwise) which such Lender Party may have. SECTION 5.8 Severability. Wherever possible each provision of this Guaranty shall be interpreted in such manner as to be effective and valid under applicable law, but if any provision of this Guaranty shall be prohibited by or invalid under such law, such provision shall be ineffective to the extent of such prohibition or invalidity, without invalidating the remainder of such provision or the remaining provisions of this Guaranty. SECTION 5.9 Governing Law. THIS GUARANTY SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE INTERNAL LAWS OF THE STATE OF NEW YORK. FOR PURPOSES OF ANY ACTION OR PROCEEDING INVOLVING THIS GUARANTY, EACH GUARANTOR HEREBY EXPRESSLY SUBMITS TO THE JURISDICTION OF ALL FEDERAL AND STATE COURTS LOCATED IN THE STATE OF NEW YORK AND CONSENTS THAT IT MAY BE SERVED WITH ANY PROCESS OR PAPER BY REGISTERED MAIL OR BY PERSONAL SERVICE WITHIN OR WITHOUT THE STATE OF NEW YORK. SECTION 5.10 Waiver of Jury Trial. EACH GUARANTOR HEREBY KNOWINGLY, VOLUNTARILY AND INTENTIONALLY WAIVES ANY RIGHTS IT MAY HAVE TO A TRIAL BY JURY IN RESPECT OF ANY LITIGATION BASED HEREON, OR ARISING OUT OF, UNDER, OR IN CONNECTION WITH, THIS GUARANTY. EACH GUARANTOR ACKNOWLEDGES AND AGREES THAT IT HAS RECEIVED FULL AND SUFFICIENT CONSIDERATION FOR THIS PROVISION AND THAT THIS PROVISION IS A MATERIAL INDUCEMENT FOR THE LENDERS ENTERING INTO THE CREDIT AGREEMENT. [REMAINDER OF PAGE INTENTIONALLY LEFT BLANK] -10- IN WITNESS WHEREOF, each Guarantor has caused this Guaranty to be duly executed and delivered by its officer thereunto duly authorized as of the date first above written. WARNACO INTERNATIONAL INC. 184 BENTON STREET INC. WARMANA LIMITED WARNACO MEN'S SPORTSWEAR INC. C.F. HATHAWAY COMPANY WARNACO SOURCING INC. WARNER'S de COSTA RICA INC. BLANCHE INC. WARNACO INTERNATIONAL, L.L.C. By Warnaco Inc., its Member MYRTLE AVENUE, INC. GREGORY STREET, INC. ML INC. DESIGNER HOLDINGS, LTD. BROADWAY JEANSWEAR COMPANY, INC. BROADWAY JEANSWEAR SOURCING, INC. BROADWAY JEANSWEAR HOLDINGS, INC. OUTLET STORES, INC. OUTLET HOLDINGS, INC. RIO SPORTSWEAR INC. AEI MANAGEMENT CORP. JEANSWEAR HOLDINGS, INC. CALVIN KLEIN JEANSWEAR COMPANY CKJ HOLDINGS INC. KAIJAY ACQUISITION COMPANY ABBEVILLE ACQUISITION COMPANY NEW BEDFORD SHIPPERS CORP. CKJ SOURCING INC. By ________________________________________ Title: -11- EXHIBIT K JOINDER AGREEMENT This JOINDER AGREEMENT (this "Joinder") dated as of _________________ __ , _____ , by ____________, a _____________ (the "Joining Party"), and delivered to THE BANK OF NOVA SCOTIA ("Scotiabank"), as administrative agent (in such capacity, the "Administrative Agent") for the Lenders, pursuant to the Sixth Amended and Restated Credit Agreement, dated as of November 17, 1999 (as further amended, supplemented, amended and restated or otherwise modified from time to time, the "Credit Agreement"), among Warnaco Inc., a Delaware corporation, (the "U.S. Borrower"), Designer Holdings, Ltd., a Delaware corporation, (the "Sub- Borrower"), the wholly-owned Domestic Subsidiaries designated by Group (as hereinafter defined) from time to time in accordance with Section 11.18 of the Credit Agreement and set forth on Schedule I annexed thereto (the "Warnaco Sub Borrowers"), Warnaco (HK) Ltd., a company organized under the laws of Barbados "Warnaco (HK)"), Warnaco B.V. a company organized under the laws of The Netherlands ("Warnaco BV"), Warnaco Netherlands B.V. a company organized under the laws of The Netherlands ("Warnaco Netherlands"), Warnaco Holland B.V. a company organized under the laws of The Netherlands ("Warnaco Holland"), The Warnaco Group, Inc., a Delaware corporation ("Group"), the various financial institutions as are or may become parties thereto (collectively, the "Lenders"), Societe Generale, as documentation agent (in such capacity, the "Documentation Agent") for the Lenders, Citibank, N.A., as syndication agent (in such capacity, the "Syndication Agent") for the Lenders, the Administrative Agent and Scotiabank and Salomon Smith Barney, Inc. as co-lead arrangers and co-book managers (the "Arrangers"). WITNESSETH: WHEREAS, the Joining Party is a wholly-owned Domestic Subsidiary of Group and, prior to or contemporaneously with the execution of this Joinder has executed a supplement to the Subsidiary Guaranty; and WHEREAS, pursuant to Section 11.18 of the Credit Agreement, Group has requested that the Joining Party become a Borrower under the Credit Agreement, and the Joining Party is required, pursuant to clause (a)(ii) of Section 11.18 of the Credit Agreement, to execute and deliver this Joinder; NOW, THEREFORE, the Joining Party hereby agrees as follows: ARTICLE I DEFINITIONS SECTION 1.1. Certain Definitions. The following terms (whether or not underscored) when used in this Joinder shall have the following meanings (such meanings to be equally applicable to the singular and plural forms thereof): "Administrative Agent" is defined in the preamble. "Credit Agreement" is defined in the preamble. "Group" is defined in the preamble. "Joinder" is defined in the preamble. "Joinder Effective Date" is defined in Section 3.1. "Joining Party" is defined in the preamble. "Lenders" is defined in the preamble. "Sub-Borrower" is defined in the preamble. "U.S. Borrower" is defined in the preamble. SECTION 1.2 Other Definitions. Terms for which meanings are provided in the Credit Agreement are, unless otherwise defined herein or the context otherwise requires, used in this Joinder with such meanings. ARTICLE II AGREEMENT SECTION 2.1 Joining Party a Borrower. As of the Joinder Effective Date, the Joining Party agrees that it will become a Borrower under the Credit Agreement with respect to all Obligations hereafter incurred by it under the Loan Documents, and will be bound by all terms, conditions and duties applicable to a Borrower under the Credit Agreement and the other Loan Documents. SECTION 2.2 Representations and Warranties. The Joining Party hereby represents that each representation and warranty set forth in Article VII of the Credit Agreement is true and correct as of the date hereof insofar as applicable to such Joining Party (except to the extent such -2- representation or warranty expressly relates to an earlier date in which case such representation and warranty shall be true and correct as of such earlier date), and agrees to be bound by all covenants, agreements and obligations of a Borrower pursuant to the Credit Agreement and all other Loan Documents to which it is or may become a party. ARTICLE III CONDITIONS TO EFFECTIVENESS SECTION 3.1 Joinder Effective Date. This Joinder shall be and become effective on the date (the "Joinder Effective Date") when each of the conditions set forth in this Article III shall have been fulfilled to the satisfaction of the Administrative Agent. SECTION 3.2 Resolutions, etc. The Managing Agents shall have received from the Joining Party an originally executed copy of a certificate, dated the date of the Joinder Effective Date, of its Secretary or Assistant Secretary as to (a) resolutions of its Board of Directors then in full force and effect authorizing the execution, delivery and performance of this Joinder, the Notes and each other Loan Document to be executed by it (if any); and (b) the incumbency and signatures of those of its officers authorized to act with respect to this Joinder, the Notes and each other Loan Document executed by it (if any), upon which certificate each Lender may conclusively rely until it shall have received a further certificate of the Secretary of the Joining Party canceling or amending such prior certificate. SECTION 3.3 Delivery of Notes. Each Lender shall have received its Notes duly executed and delivered by the Joining Party. SECTION 3.4 TradeExpress Agreement. If requested by the Administrative Agent, the Administrative Agent shall have received a completed Warnaco Sub Borrower Tradexpress Agreement, duly executed and delivered by the Joining Party. SECTION 3.5 Execution of Counterparts. The Administrative Agent shall have received counterparts of this Joinder, duly executed and delivered on behalf of the Joining Party. SECTION 3.6 Certificate as to No Default, etc. The Managing Agents shall have received from the U.S. Borrower originally executed certificates for each Lender certifying as to the facts set forth in Section 6.1.5 of the Credit Agreement as of the date hereof. SECTION 3.7 Opinions of Counsel. The Managing Agents shall have received opinions, dated the date hereof and addressed to the Managing Agents and all Lenders, from -3- (a) Skadden, Arps, Slate, Meagher & Flom LLP, New York counsel to the Obligors, substantially in the form of Exhibit G to the Credit Agreement, and (b) Stanley P. Silverstein, General Counsel for the U.S. Borrower, substantially in the form of Exhibit H to the Credit Agreement. SECTION 3.8 Fees and Expenses. The Administrative Agent shall have received all fees and expenses due and payable pursuant to Section 4.2 (to the extent then invoiced). ARTICLE IV MISCELLANEOUS SECTION 4.1 Loan Document Pursuant to Credit Agreement. This Joinder is a Loan Document executed pursuant to the Credit Agreement and shall be construed, administered and applied in accordance with all of the terms and provisions of the Credit Agreement. Any breach of any representation or warranty or covenant or agreement contained in this Joinder shall be deemed to be an Event of Default for all purposes of the Credit Agreement and the other Loan Documents. SECTION 4.2 Fees and Expenses. The Joining Party shall pay all reasonable out-of-pocket expenses incurred by the Administrative Agent in connection with the preparation, negotiation, execution and delivery of this Joinder and the documents and transactions contemplated hereby, including the reasonable fees and disbursements of Mayer, Brown and Platt, as counsel for the Administrative Agent. SECTION 4.3 Headings. The various headings of this Joinder are inserted for convenience only and shall not affect the meaning or interpretation of this Joinder or any provisions hereof. SECTION 4.4 Execution in Counterparts and by Facsimile. This Joinder may be executed by the parties hereto in several counterparts and by facsimile, each of which shall be deemed to be an original and all of which counterparts shall constitute together but one and the same agreement. SECTION 4.5 Cross-References. References in this Joinder to any Article or Section are, unless otherwise specified or otherwise required by the context, to such Article or Section of this Joinder. SECTION 4.6 Successors and Assigns. This Joinder shall be binding upon and inure to the benefit of the parties hereto and their respective successors and assigns. -4- SECTION 4.7 GOVERNING LAW. THIS JOINDER SHALL BE DEEMED TO BE A CONTRACT MADE UNDER AND GOVERNED BY THE LAWS OF THE STATE OF NEW YORK. IN WITNESS WHEREOF, the Joining Party has caused this Joinder to be duly executed as of the date first above written. [NAME OF JOINING PARTY] By: ----------------------------- Name: Title: ACKNOWLEDGED AND ACCEPTED: THE BANK OF NOVA SCOTIA, as Administrative Agent By: ------------------------------- Name: Title: -5- EXHIBIT L DESIGNATION AND RELEASE CERTIFICATE The Bank of Nova Scotia, as Administrative Agent One Liberty Plaza New York, New York 10006 Attention: ___________________ WARNACO INC./DESIGNER HOLDINGS, LTD./WARNACO (HK) LTD./ WARNACO B.V./WARNACO NETHERLANDS B.V./ WARNACO HOLLAND B.V. Gentlemen and Ladies: This Designation and Release Certificate (this "Certificate") is delivered to you pursuant to clause (b) of Section 11.18 of the Sixth Amended and Restated Credit Agreement, dated as of November 17, 1999 (as amended, supplemented amended and restated or otherwise modified from time to time, the "Credit Agreement"), among Warnaco Inc., a Delaware corporation (the "U.S. Borrower"), Designer Holdings, Ltd., a Delaware corporation (the "Sub Borrower"), the wholly-owned Domestic Subsidiaries designated by Group (as hereinafter defined) from time to time in accordance with Section 11.18 of the Credit Agreement and set forth on Schedule I thereto (the "Warnaco Sub-Borrowers"), Warnaco (HK) Ltd., a company organized under the laws of Barbados ("Warnaco (HK)"), Warnaco B.V., a company organized under the laws of The Netherlands ("Warnaco B.V."), Warnaco Netherlands B.V., a company organized under the laws of The Netherlands ("Warnaco Netherlands"), Warnaco Holland B.V., a company organized under the laws of The Netherlands ("Warnaco Holland"; together with Warnaco (HK), Warnaco B.V. and Warnaco Netherlands, the "Foreign Borrowers"), The Warnaco Group, Inc., a Delaware corporation ("Group"), the various financial institutions as are or may become parties thereto (collectively, the "Lenders"), Societe Generale, as documentation agent (the "Documentation Agent") for the Lenders, Citibank, N.A., as syndication agent (the "Syndication Agent") for the Lenders, The Bank of Nova Scotia ("Scotiabank"), as administrative agent (the "Administrative Agent") for the Lenders and Scotiabank and Salomon Smith Barney, Inc. as co-lead arrangers and co-book managers (the "Arrangers "). Unless otherwise defined herein or the context otherwise requires, terms used herein have the meanings provided in the Credit Agreement. Group does hereby designate [name(s) of designated entity (or entities)], [each of] which is currently [a/the] [Sub Borrower, Warnaco Sub Borrower or Foreign Borrowers] under the terms of the Credit Agreement, as a Released Borrower. Group represents and warrants that, as of the date hereof, all of the conditions listed in clause (b) of Section 11.18 of the Credit Agreement have been fulfilled in their entirety by [such/each respective] Released Borrower. Upon delivery of this certificate and a certificate of the Released Borrower in accordance with clause (b)(v) of Section 11.18 of the Credit Agreement, [each/the] Released Borrower shall be released of all obligations as a Borrower under the Credit Agreement (except such obligations which survive such release pursuant to Section 11.5 of the Credit Agreement). IN WITNESS WHEREOF, Group has caused this Certificate to be executed this ____ day of __________________ , [_____]. THE WARNACO GROUP, INC. By: ----------------------------- Name: Title: EX-21 5 EXHIBIT 21 EXHIBIT 21 WARNACO GROUP INC. AND SUBSIDIARIES Subsidiaries of the Registrant Warnaco Group Inc. ("Warnaco"), a Delaware corporation, consolidates all majority owned subsidiaries. The principal consolidated subsidiaries, all of which are wholly owned by Warnaco or its wholly-owned subsidiaries, except as indicated, are listed below. Included on the list are subsidiaries which individually are not significant subsidiaries but primarily represent subsidiaries in countries in which the Company has operations. The names of Warnaco's other consolidated subsidiaries, which are primarily wholly owned by Warnaco or its wholly-owned subsidiaries, are not listed because all such subsidiaries, considered in the aggregate as a single subsidiary, would not constitute a significant subsidiary.
Incorporation Company Country or State - --------------------------------------------------------- --------------------- 184 Benton Street Inc. Delaware A.B.S. Clothing Collection Inc. Delaware Abbeville Manufacturing Co. Delaware AEI Management Corporation Delaware Authentic Fitness Corporation Delaware Authentic Fitness de Mexico, S.A. de C.V. Mexico Authentic Fitness (H.K.) Ltd. Barbados Authentic Fitness of Canada Inc. Canada Authentic Fitness Online Inc. Nevada Authentic Fitness Products Inc. Delaware Authentic Fitness Retail Inc. Delaware Blanche Inc. Delaware Broadway Jeanswear Company Inc. Delaware Broadway Jeanswear Holding Inc. Delaware Broadway Jeanswear Sourcing Inc. Delaware CCC Acquisition Corp. Delaware CCC Acquisition Realty Corp. Delaware CCC Cal. Corp. Delaware CCC Ten Corp. Delaware C.F. Hathaway Company Delaware Calvin Klein France SnC France Calvin Klein Jeanswear Company Delaware Centro de Corte de Tetla S.A. de C.V. Mexico CKJ Holdings Inc. Delaware CKJ Sourcing Inc. Delaware Designer Holdings Ltd. Delaware Designer Holdings Overseas Ltd. Hong Kong Donatex-Warnaco S.A. Belgium Eratex-Warnaco Lac Two GmbH & Co. KG Germany Euralis S.A.S. France GJM (HK) Manufacturing Ltd. Hong Kong GJM (Philippines) Manufacturing Inc. Philippines GJM Lanka Manufacturing (Private) Ltd. Sri Lanka Gregory Street Inc. Delaware Hamlet Manufacturing S.A. Honduras Hamlet Shirt Company Ltd. United Kingdom Izka SC France Jeanswear Holdings Inc. Delaware Juarmex S.A. de C.V. Mexico Kai Jay Manufacturing Company Delaware Lejaby S.A.S. France Lenitex-Warnaco GesmbH Austria Leratex-Warnaco Ltd. United Kingdom Linda Vista de Tlaxcala S.A. de C.V. Mexico Linda Vista de Veracruz S.A. de C.V. Mexico Lintex-Warnaco S.A. Switzerland LMK Ltd. Isle of Jersey Mullion International BVI British Virgin Islands Mulmkion B.V. Netherlands Myrtle Avenue Inc. Delaware New Bedford Shippers Corp. Delaware Olga de Villanueva S.A. Honduras Olguita de Mexico S.A. Mexico Outlet Holdings Inc. Delaware Outlet Stores Inc. Delaware Panyu GJM Shatou Manufacturing Limited China Penhaligon & Jeavons Investment Ltd. United Kingdom Penhaligon's by Request, Inc. Delaware Penhaligon's Ltd. United Kingdom Penhaligon's Pacific Ltd. Hong Kong PMJ S.A. France Private Pleasures Ltd. United Kingdom Rio Sportswear Inc. Delaware
WARNACO GROUP INC. AND SUBSIDIARIES Subsidiaries of the Registrant Warnaco Group Inc. ("Warnaco"), a Delaware corporation, consolidates all majority owned subsidiaries. The principal consolidated subsidiaries, all of which are wholly owned by Warnaco or its wholly-owned subsidiaries, except as indicated, are listed below. Included on the list are subsidiaries which individually are not significant subsidiaries but primarily represent subsidiaries in countries in which the Company has operations. The names of Warnaco's other consolidated subsidiaries, which are primarily wholly owned by Warnaco or its wholly-owned subsidiaries, are not listed because all such subsidiaries, considered in the aggregate as a single subsidiary, would not constitute a significant subsidiary.
Incorporation Company Country or State - --------------------------------------------------------- ----------------------- > Tilbes Servisport Inc. Canada Ubertech Products Inc. Texas Ventures Ltd. Delaware Vista de Huamantla S.A. de C.V. Mexico Vista de Puebla S.A. de C.V. Mexico Vista de Yucatan S.A. de C.V. Mexico WAC Internacional Distribucion S.A. de C.V. Mexico Warmana Limited Delaware Warnaco (H.K.) Ltd. Barbados Warnaco B.V. Netherlands Warnaco France SARL France Warnaco Holland B.V. Netherlands Warnaco Inc. Delaware Warnaco International Inc. Delaware Warnaco Intimo (Spain) S.A. Spain Warnaco Japan K.K. Japan Warnaco Lac One GmbH Germany Warnaco Lac Two GmbH Germany Warnaco Ltd. (U.K.) United Kingdom Warnaco Men's Sportswear Inc. Delaware Warnaco Netherlands B.V. Netherlands Warnaco of Canada Company Canada Warnaco Operations Corporation Delaware Warnaco Sourcing Inc. Delaware Warnaco South Africa (Proprietary) Limited South Africa Warnaco SrL Italy Warnaco U.S. Inc. Connecticut Warnaco Ventures Ltd. Delaware Warner's (EIRE) Teoranta Ireland Warner's (U.K.) Ltd. United Kingdom Warner's Aiglon S.A. France Warner's Company (Belgium) S.A. Belgium Warner's de Costa Rica Inc. Delaware Warner's de Honduras S.A. Honduras Warner's de Mexico S.A. de C.V. Mexico
EX-23 6 EXHIBIT 23.1 INDEPENDENT AUDITORS' CONSENT We consent to the incorporation by reference in Registration Statement No. 333-41415 on Form S-3 and Registration Statement Nos. 333-51193, 33-60093, 33-60091, 33-59091, 33-58148 and 33-58146 on Form S-8 of The Warnaco Group, Inc. of our report dated March 3, 2000, appearing in this Annual Report on Form 10-K/A of The Warnaco Group, Inc. for the year ended January 1, 2000. Deloitte & Touche LLP New York, New York March 31, 2000 EX-23 7 EXHIBIT 23.2 CONSENT OF INDEPENDENT ACCOUNTANTS We hereby consent to the incorporation by reference in the Registration Statement on Form S-3 (No. 333-41415) and the Registration Statements on Form S-8 (Nos. 333-51193, 33-60093, 33-60091, 33-59091, 33-58148 and 33-58146) of The Warnaco Group, Inc. of our report dated March 2, 1999 relating to the financial statements and financial statement schedule as of and for the two fiscal years in the period ended January 2, 1999 which appears in this Form 10-K/A. PRICEWATERHOUSECOOPERS LLP New York, New York March 31, 2000 EX-27 8 EXHIBIT 27 ARTICLE 5 FDS 1999 10-KA
5 THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE FINANCIAL STATEMENTS OF THE WARNACO GROUP, INC. FOR THE YEAR ENDED JANUARY 1, 2000 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS. 1,000 12-MOS JAN-01-2000 JAN-03-1999 JAN-01-2000 9,328 72,921 347,833 32,872 734,439 1,197,664 479,298 152,946 2,762,985 879,519 1,187,951 0 0 654 562,662 2,762,985 2,114,156 2,114,156 1,413,149 1,884,257 0 206,098 80,976 148,923 51,137 97,786 0 0 0 97,786 1.75 1.72
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