EXHIBIT 99.5
MEMORANDUM OF UNDERSTANDING
Scotia Capital (U.S.A.) Inc. ("Party A") and The Warnaco Group, Inc.
("Party B") are parties to the Equity Forward Purchase Transaction dated as of
December 10, 1999 (the "Agreement").
Party A and Party B agree that the Agreement shall be amended and
supplemented as follows, effective immediately:
1. On the earlier of (a) the date (the "Debt Amendment Date") that
the terms of Party B's credit agreements are amended (as contemplated by
the September 16, 2000 draft of the Amendment, Modification, Restatement
and General Provisions Agreement (the "Facility Agreement")) and (b)
October 31, 2000, Party B will execute and deliver to Party A a promissory
note (the "Modification Note"). The Modification Note shall (i) be in a
principal amount equal to the sum of (x) an amount representing the Number
of Shares times the difference between the Forward Price (computed as if
today were the Optional Termination Date) and today's closing price for the
Shares as reported by the Exchange (the "Initial Share Reset Price"), which
is $4.50 and (y) an amount to be determined by Party A and Party B as equal
to the accretion in Forward Price calculated on the Initial Share Reset
Price from now to April 15, 2001 times the Number of Shares, discounted to
the date hereof at the interest rate effective today under the Facility
Agreement, adjusted by (z) the breakage costs (positive or negative)
incurred by Party A in connection with this modification on swaps entered
into by it to hedge the Transaction, (ii) bear interest commencing today at
3-month LIBOR plus the applicable margin in effect from time to time under
Section 2.4(a) of the Facility Agreement (the "Note Rate"), payable
quarterly in arrears, and (iii) mature on August 12, 2002.
2. On the Debt Amendment Date, Party B shall repay $2,533,935 (this
amount assumes that the banks' commitment reduction under the Facility
Agreement will be 8%, and will be adjusted to reflect the actual commitment
reduction) of principal of the Modification Note. In addition, on the Debt
Amendment Date Party B shall pay to Party A a fee in the amount of $
237,556.
3. If on any date on or after April 15, 2001 the closing price
reported by the Exchange for the Shares is less than the Initial Share
Reset Price, Party A may at any time thereafter sell Shares accumulated by
it during the Accumulation Period ("Subject Shares"); provided, however,
that in any 30-day period Party A may sell no more than 16.7% of the Number
of Shares as of the date hereof; and provided, further, that Party A shall
coordinate with Sun Trust Bank to sell their Shares in an orderly fashion.
4. Following the end of each calendar month, within three Business
Days' notice to Party B of the relevant amounts, (a) with respect to each
sale of Subject Shares during such calendar month at a price greater than
the Forward Price at the time of such sale, at Party B's option either (i)
Party A shall make a cash payment to Party B in an amount equal to the
aggregate amount of such excess for the Shares sold during such calendar
month (including interest from the date of settlement of each sale at the
Note Rate then applicable), which shall immediately be applied by Party B
as cash collateral in such amount to secure the Modification Note or (ii)
Party B shall reduce the principal amount of the Modification Note by such
aggregate excess; and (b) with respect to each sale of Subject Shares
during such calendar month at a price less than the Forward Price at the
time of such sale, Party B shall at its option either (i) execute and
deliver a promissory note to Party A which shall be in the form of the
Modification Note except that the principal amount thereof shall be equal
to the aggregate amount of such shortfall for the Shares sold during such
calendar month (including interest from the date of settlement of each sale
at the Note Rate then applicable) (each such note, a "Subsequent Note") or
(ii) deliver to Party A Shares with an aggregate value (determined
according to the sale price of such accumulated Shares) equal to such
aggregate shortfall. Each sale of Subject Shares shall reduce the Number of
Shares under the Transaction.
5. From the date the Modification Note is issued, the Forward Price
shall be calculated as follows:
Until April 15, 2001, the Forward Price shall be equal to the
Initial Share Reset Price
Following April 15, 2001, the Forward Price shall be equal to
[1 + (Note Rate x Day Count/(365)] x the Initial Share Reset Price)
where: "Day Count" is the number of days in the period
commencing on and including April 15, 2001 to but excluding the
Termination Date.
6. The Decline in Share Price and Decline in Credit Rating provisions
(clauses (i) and (ii) of the first sentence of Section 6.IV) and related
provisions of the Agreement which effect such provisions are hereby
deleted. The Termination Date is hereby amended to August 12, 2002
7. On the Debt Amendment Date, all of Party B's obligations under the
Modification Note, each Subsequent Note and the Agreement shall be secured
by liens on the assets of Party B and its subsidiaries on a pari passu
basis with Party B's indebtedness. If the Debt Amendment Date has not
occurred by November 1, 2000 (or such earlier or later date that the bank
waivers in respect of Party B's second- quarter 2000 financial covenants
shall not be in effect), Party A may by written notice terminate the
Transaction, which will be settled (at Party B's option) by Cash Settlement
or Net Share Settlement according to the provisions of the Agreement, and
the Disposition Period shall commence on the Exchange Business Day on which
such notice becomes effective.
8. All capitalized terms not otherwise defined herein shall have the
meanings set forth in the Agreement.
9. The parties hereto agree that this Memorandum of Understanding
constitutes an unconditional obligation, enforceable in accordance with its
terms. The parties further agree to execute such additional agreements and
documents as may be necessary to give further effect to the agreements
hereunder.
10. This Memorandum of Understanding shall be governed by the laws of
the State of New York, without references to principles of conflict of
laws.
SCOTIA CAPITAL (U.S.A.) INC.
By: /S/
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THE WARNACO GROUP, INC.
By: /S/
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Dated: September 19, 2000
Acknowledgment and Consent
Each of the undersigned are Guarantors under and as defined in the
Guaranty dated as of December 10, 1999, issued in connection with the
Equity Forward Purchase Transaction between Scotia Capital (U.S.A.) Inc.
("Party A"), and The Warnaco Group, Inc. ("Party B"), dated December 10,
1999. Each of the undersigned hereby acknowledges and consents to the
foregoing Memorandum of Understanding dated September 19, 2000 between
Party A and Party B.
WARNACO INC.
WARNACO INTERNATIONAL INC.
WARNACO U.S. INC.
MYRTLE AVENUE, INC.
XXXXXXX STREET, INC.
DESIGNER HOLDINGS, LTD.
OUTLET STORES, INC.
JEANSWEAR HOLDINGS, INC.
XXXXXX XXXXX JEANSWEAR COMPANY
CKJ HOLDINGS INC.
By /S/
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Title:
Dated: September 19, 2000
